NILAM UNIT AGREEMENT
EAST KALIMANTAN
ROY M. HUFFINGTON, INC., ET AL. - TOTAL INDONESIE, ET AL.
THIS AGREEMENT IS SUBJECT TO ARBITRATION UNDER THE TEXAS GENERAL
ARBITRATION ACT ART. 224 (VERNON'S ANNOTATED TEXAS STATUTES)
THIS AGREEMENT, by and among ROY M. HUFFINGTON, INC., a
Delaware corporation ("Huffco"), VIRGINIA INTERNATIONAL COMPANY, a
Virginia corporation ("Virginia"), THE SUPERIOR OIL COMPANY, a
Nevada corporation, GOLDEN EAGLE INDONESIA LIMITED, a Bermuda
corporation, UNION TEXAS FAR EAST CORPORATION, a Delaware
corporation, and UNIVERSE TANKSHIPS, INC., a Liberian corporation
(herein collectively referred to as the "Huffington Venturers");
and TOTAL INDONESIA ("Total"), a French corporation, and INDONESIA
PETROLEUM, Ltd. ("Inpex"), a Japanese corporation (herein
collectively referred to as the "Total Venturers"), subject in all
respects to the concurrence of PERUSAHAAN PERTAMBANGAN MINYAK DAN
GAS BUMI NEGARA ("Pertamina"),
WITNESSETH:
RECITALS:
1. On the 8th day of August, 1968, Virginia and Huffco, on
the one hand, and P. N. PERTAMBANGAN MINJAK NASIONAL (predecessor
to Pertamina), on the other, entered into a Production Sharing
Contract covering certain specified areas in the Republic of
Indonesia. This contract, as the same has from time to time been
amended since August 8, 1968, is hereafter for convenience referred
to as the Huffco Contract and the area covered thereby as the
Huffco Area.
2. Those of the Huffington Venturers other than Huffco and
Virginia have succeeded to undivided interests in the Huffco
Contract, and the Huffington Venturers are the owners of the rights
accorded to Huffco and Virginia thereunder. Huffco acts as
contract operator for the Huffington Venturers in respect of
petroleum operations under the Huffco Contract on the Huffco Area
under and pursuant to; an Operating Agreement dated August 8, 1968,
by and among the Huffington Venturers, or their predecessors in
interest. Said Operating Agreement is hereafter for convenience
referred to as the Huffco Operating Agreement.
3. On the 6th day of October, 1966, Japan Petroleum
Exploration Company, Ltd. (predecessor to Inpex in interest)
entered into a Production Sharing Contract with P. N. PERTAMBANGAN
MINJAK NASIONAL (predecessor to Pertamina) covering certain
specified areas in Indonesia. This contract, as the same has from
time to time been amended since October 6, 1966, is hereafter for
convenience referred to as the Inpex Contract and the area covered
thereby as the Total-Inpex Area.
4. Total has succeeded to an undivided interest in the
Inpex Contract and the Total Venturers are the owners of the rights
accorded to Japan Petroleum Exploration Company, Ltd. thereunder.
Total acts as contract operator for the Total Venturers in respect
to petroleum operations under the Inpex Contract on the Total-Inpex
Area under and pursuant to an Operating Agreement dated April 8,
1971, by and among the Total Venturers, or their predecessors in
interest. Said Operating Agreement is hereafter for convenience
referred to as the Total-Inpex Operating Agreement.
5. The Huffington Venturers and the Total Venturers have
heretofore conducted certain petroleum exploration activities on
their respective areas, which areas have a common boundary. The
results of such exploration indicate the presence of a geological
structure straddling the common boundary. Within the geological
structure hydrocarbons are contained on both sides of the common
boundary. This geological structure has been designated the Nilam
Structure.
6. It is a requirement of the Government of the Republic of
Indonesia, through its State Enterprise Pertamina, for the Total
Venturers and the Huffington Venturers to cooperate mutually in the
exploration, development and production of hydrocarbons from the
Nilam Structure in accordance with the terms and conditions of the
respective Production Sharing Contracts, the laws, rules and
regulations applicable thereto AND SUBJECT ALWAYS to the
concurrence and approval of Pertamina as provided in the Decision
of Director General Oil and Natural Gas No. 402/D.D./Migas/1967
dated 20 December 1967.
THE AGREEMENT
In consideration of the aforementioned recitals and upon the
mutual promises, covenants and conditions herein contained, the
Total Venturers and the Huffington Venturers hereby agree as
follows, to wit:
ARTICLE 1
Definitions
For the purposes only of this Agreement the following terms
shall have the definitions hereinafter set out. It is specifically
agreed that such definitions shall not have the effect of modifying
any of the defined terms under the Huffco Contract or the Inpex
Contract.
1.1 "Affiliate" means, with respect to any Party, a company
or other entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common
control with such Party; and such control shall be deemed to exist
only in the event the controlling company or entity owns shares of
stock ownership which represent 50% or more of the total voting
rights.
1.2 "Budget" means a work program and budget for operations
to be conducted under this Agreement on or in connection with the
Unit Area for a calendar year. A Budget shall contain a properly
itemized estimate of the cost to the items provided for in the
related work program and a properly itemized estimate of all other
expenditures to be made for the Oil Joint Account and/or the Gas
Joint Account of the Parties during the calendar year to which it
relates.
1.3 "Combination Well" means a well with two or more
completions, at least one of which is an Oil Well and at least one
of which is a Gas Well, both of which are productive at the same
time.
1.4 "Gas" means hydrocarbons which exist in a gaseous state
under original reservoir conditions, and hydrocarbons produced in
a gaseous state from Oil Wells.
1.5 "Gas Joint Account" means the account maintained by
Operator covering expenditures for operations under the Gas Unit to
be shared by the Parties in accordance with their respective
Participating Interests in the Gas Unit.
1.6 "Gas Unit" means the unit formed hereby insofar as it
relates to Gas and Natural Gas Liquids.
1.7 "Gas Well" means any completion within the Unit Area
producing or capable of producing Gas and no Oil.
1.8 "Joint Operations" means all operations conducted by the
Operator on behalf of the Parties under the terms of this
Agreement.
1.9 "Natural Gas Liquids" means liquid hydrocarbons obtained
from Gas by condensation or extraction, including condensate,
distillate, gasoline, propanes, butanes and other lighter
hydrocarbons.
1.10 "Non-Operators" means the Parties other than the
Operator.
1.11 "Non-Unitized Substances" means all substances which the
Huffington Venturers and the Total Venturers have the right to
explore for and produce under the Huffco Contract and the Inpex
Contract, respectively, other than Unitized Substances.
1.12 "Oil" means hydrocarbons which exist in a liquid state
under original reservoir conditions, excluding, however, any part
thereof constituting Gas as defined above.
1.13 "Unit Area" is defined to be (a) as to areal extent,
that area outlined on the map, attached hereto as Exhibit "A" and
hereby made a part hereof, which area is more particularly
described in Exhibit "B", attached hereto and hereby made a part
hereof and (b) as to subsurface extent, that interval extending
from the surface of the ground down to and including, but not
below, the point appearing in the Huffco No. 20 Nilam Well at the
electric log depth of 13,657 feet, being 100 feet below the base of
the G-61 sand, or the stratigraphic equivalent of such point
throughout the area described in Exhibit "B". The Parties agree
that the description of the Unit Area contained in Exhibit "B"
shall be sufficient for the purposes hereof but agree to cause an
on the ground survey to be made of such area which shall be
executed by the Parties for identification with this Agreement, and
such survey shall govern in the event of any dispute concerning the
Unit Area.
1.21 "Unit Operating Committee" means the committee provided
for in Section 8.1.
1.22 "Unitized Substances" means all Oil, Gas and Natural Gas
Liquids produced, saved and sold from the Unit Area.
ARTICLE 2
Participating Interests
2.1 The Participating Interests of the Parties in Oil and in
the Oil Unit, until adjusted as provided for in Section 2.2, shall
be as follows:
Huffington Venturers: 70.0%
Total Venturer: 30.0%
The Participating Interest of any Party comprised in the
Huffington Venturers shall be that percentage share of the
Participating Interest established above for the Huffington
Venturers as all of the Parties comprised in the Huffington
Venturers shall at any time and from time to time notify the Total
Venturers in writing.
The Participating Interest of any Party comprised in the Total
Venturers shall be that percentage share of the Participating
Interest established above for the Total Venturers as all of the
Parties comprised in the Total Venturers shall at any time and from
time to time notify the Huffington Venturers in writing.
2.2 The Participating Interests set forth in Section 2.1 for
the Oil Unit and the Gas Unit are based on preliminary estimates of
initial proved Oil in place and Gas in place (excluding in
connection with the estimate of Gas in place, any Gas in solution
with Oil under original reservoir conditions), respectively,
underlying the respective portions of the Huffco Area and the
Total-Inpex Area included within the Unit Area. The Parties
recognize that the data on which such estimates are based are
incomplete, and therefore, such Participating Interests will be
adjusted periodically in accordance with the following:
(a) An interim redetermination of such Oil and Gas in place
shall be made not later than September 1, 1981 based on data
available on June 30, 1981.
(b) A final redetermination shall be made not later than
September 1, 1982 based on data available on June 30, 1982.
Each such redetermination shall be made in accordance with the
procedures set forth in Exhibit "D" hereto. In the event the
Huffington Venturers and the Total Venturers are unable to agree
within a reasonable time on any technical points of contention
pertaining to the redetermination, such technical points shall be
resolved by a mutually acceptable expert who shall be a competent
petroleum engineering consultant or firm of petroleum engineering
consultants agreed to by them. In the event that they do not agree
upon an expert within thirty (30) days following notice by one to
the other of the existence of such point of contention then either
may request Pertamina to nominate an expert or firm of experts. At
the time of making such request the Huffington Venturers and the
Total Venturers shall each have the option of naming two persons or
firms who should not be nominated. All costs relating to the
expert's award shall be borne equally by the Huffington Venturers
and the Total Venturers.
The Participating Interests of the Huffington Venturers and
the Total Venturers in Oil and in the Oil Unit will be adjusted so
as to be in the same ratio as the redetermined initial proved Oil
in place underlying, respectively, those portions of the Huffco
Area and the Total-Inpex Area in the Unit Area, and the
Participating Interests of the Huffington Venturers and the Total
Venturers in Gas and Natural Gas Liquids and in the Gas Unit will
be adjusted so as to be in the same ratio as the redetermined
initial proved Gas in place (excluding in connection with the
redetermination of Gas in place any Gas in solution with Oil under
original reservoir conditions) underlying, respectively, those
portions of the Huffco Area and the Total Inpex Area in the Unit
Area. Each such adjustment of Participating Interests shall be
made on the first day of the month following the redetermination
and will be effective as of the effective date of this Agreement as
though the revised Participating Interests had been originally set
forth in Section 2.1.
The Parties recognize that each adjustment of Participating
Interests pursuant to this Section 2.2 will require Pertamina's
approval before being used for purposes of the Huffco Contract and
the Inpex Contract. Pertamina has agreed that in granting or
withholding such approval it will apply the allocation principle
set forth in this Section 2.2 and the methodology for
redetermination of reserves set forth in Exhibit "D" hereto and
that, pending such approval, the adjusted Participating Interests
may be used on a provisional basis for Production Sharing Contract
purposes.
Subject to the provisions of Article 11 costs previously
charged to the Oil Joint Account and the Gas Joint Account will be
reallocated among the Parties, in a manner acceptable to Pertamina,
so as to be consistent with the adjusted Participating Interests
for the Oil Unit and the Gas Unit, respectively, and as soon as
practicable after each adjustment the Operator will prepare the
necessary invoices or credits due from or to the Non-Operators so
as to give effect to such reallocations. On the first day of the
first calendar month following receipt of the approvals referred to
in Article 18 and on the date of each such adjustment of
Participating Interests the historical gross production of Unitized
Substances, including production taken by Pertamina, will be
adjusted so as to allocate to the Huffco Area that portion of such
production equal to the Participating Interests of the Huffington
Venturers and to the Total-Inpex Area that portion of such
production equal to the Participating Interests of the Total
Venturers; and the gross revenues realized by the Parties and by
Pertamina from the disposition of such production, calculate din
accordance with Section 10.2, will be similarly adjusted and
allocated. As soon as practicable after such adjustments Operator
will prepare a statement showing the amounts by which the Parties
have received more or less than their Participating Interest shares
of such revenues, and those Parties who have received more than
their Participating Interest share will make appropriate payments
to the other Parties. For purposes of the foregoing sentence
revenues from Unitized Substances realized by Pertamina under the
Huffco Contract will be deemed realized by the Huffington
Venturers, and revenues from Unitized Substances realized by
Pertamina under the Inpex Contract will be deemed realized by the
Total Venturers. It is recognized that such adjustments will
require further adjustment between the Parties and Pertamina in
accordance with the terms of the Huffco Contract and the Inpex
Contract, and these adjustments will be made in due course.
2.3 All costs incurred under and pursuant to this Agreement
in connection with the exploration, development and operation of
the Unit Area for the production of Unitized Substances shall be
deemed to have been incurred from the Huffco Area under the Huffco
Contract and the Total-Inpex Area under the Inpex Contract in the
ratio of the applicable respective Participating Interests of the
Huffington Venturers and the Total Venturers. All Unitized
Substances produced, saved, and sold shall be deemed to have been
produced from the Huffco Area under the Huffco Contract and the
Total-Inpex Area under the Inpex Contract in the ratio of their
applicable respective Participating Interests.
ARTICLE 3
Interim Operations and Non-Unitized Operations
3.1 Notwithstanding anything to the contrary herein
contained, in particular the effective date of this Agreement, each
of the Huffington Venturers and the Total Venturers, acting through
its respective contract operator, reserves the right, at its sole
cost, risk and expense, to drill for Unitized Substances within
that part of the Unit Area covered by its Production Sharing
Contract, provided that actual drilling on any such well commences
on or prior to June 30, 1981. Drilling operations for any well
which are incomplete on July 1, 1981 will, at the option of the
drilling Party, either be abandoned or continuously prosecuted to
completion or abandonment, as provided below. The Party conducting
such drilling operations shall (a) act as a reasonably prudent
operator, (b) accord the other Parties all rights which Operator is
obligated hereunder to accord to the Parties, (c) keep Operator
fully informed with respect to all aspects of such operations and
(d) exercises reasonable precautions to prevent interference with
Joint Operations.
When any well drilled under the preceding paragraph has
reached its total depth and has been logged and tested to the
satisfaction of the drilling Party, notice shall be given to
Operator, together with a recommendation as to which course of
action specified in (a), (b) and (c) below should be followed.
Operator shall immediately notify the members of the Unit Operating
Committee, including its own recommendations with respect to such
well, and within forty-eight (48) hours of such latter notification
each member of the Unit Operating Committee shall inform Operator
of its vote and Operator shall tally the votes of the members of
the Unit Operating Committee and inform the drilling Party whether
such well should be (a) completed for the production of Unitized
Substances and, if such be the case, in which zone or zones such
completion should be made, (b) temporarily abandoned or (c) plugged
and abandoned. Any Party failing to notify Operator of its vote
within such forty-eight (48) hour period shall be deemed to have
voted in favor of Operator's recommendation. The drilling Party
shall within a reasonable time after being informed of the decision
of the Unit Operating Committee complete operations on such well in
accordance with such decision; provided, that in carrying out such
operations the drilling Party shall adhere to the same standards
prescribed and be liable to the same extent as provided in Section
7.2.6.
If the decision of the Unit Operating Committee is that such
well be completed for the production of Unitized Substances, the
completion costs (consisting of all costs incurred after the
decision to complete is given to the drilling Party, except
demobilization costs) shall be reimbursed to the Party conducting
the operations upon receipt of an invoice for same and shall be
charged to the Oil Joint Account or the Gas Joint Account as
provided in Section 11.4. The costs of drilling the well (being
all costs except completion costs) shall be reimbursed to the
drilling Party and charged to the Oil Joint Account or the Gas
Joint Account at the time of the final adjustment of Participating
Interests as provided in Section 2.2 or at the time such well is
actually placed on production, whichever first occurs.
If the decision of the Unit Operating Committee is to abandon
temporarily or plug and abandon such well and such well did not
prove, in accordance with the standards set forth in Exhibit "D"
hereto, the presence of two billion standard cubic feet of Gas
(excluding Gas in solution with Oil under original reservoir
conditions) in place, the costs of drilling (and of temporarily
abandoning or plugging and abandoning) such well shall not be
reimbursed to the drilling Party and charged to the Oil Joint
Account or the Gas Joint Account unless and until, pursuant to ta
decision of the Unit Operating Committee, the well shall be
utilized for Oil Unit or Gas Unit purposes.
3.2 Each of the Huffington Venturers and the Total
Venturers, acting under the terms of its respective Operating
Agreement, reserves the right, at its sole cost, risk and expense,
to drill for and produce Non-Unitized Substances within the areal
extent of that part of the Unit Area covered by its respective
Production Sharing Contract at depths below the Unit Area. In
exercising this right, the drilling party shall exercise reasonable
precaution to prevent interference with Joint Operations. The
costs applicable to any such well incurred from and after the point
at which the well has reached total depth and before the well is
completed or abandoned shall be borne as follows:
3.2.1 If the well is completed as a producer of
Non-Unitized Substances or abandoned, such cost shall be
borne by the drilling party.
3.2.2 If, although projected as a well to be
drilled in search of Non-Unitized Substances, the
drilling Party recommends, and the Unit Operating
Committee approves, that the well be completed for
Unitized Substances, the approved completion operations
will be accomplished by the drilling Party as specified
by the Unit Operating Committee and the drilling and
completion costs thereof applicable to the Oil Unit
and/or the Gas Unit, determined as provided in Section
11.4, shall be reimbursed to the drilling Party and
charged to the Oil Joint Account or the Gas Joint
Account, as may be appropriate; provided, that if such
well was commenced prior to July 1, 1981, the provisions
of Section 3.1 shall apply.
3.3 If a well is approved by the Unit Operating Committee
and drilled in search of Unitized Substances, the well may be, with
approval of the Unit Operating Committee, drilled beyond the Unit
Area and completed to produce Non-Unitized Substances. In such
instance the portion of drilling and completion costs of such well
applicable to Non-Unitized Substances, determined as provided in
Section 11.4, shall be borne by the Huffington Venturers, if the
well is located on the Huffco Area, or by the Total Venturers, if
the well is located on the Total-Inpex Area.
ARTICLE 4
Ownership of Property
All property, whether real or personal, acquired by Operator
at the cost of the Parties for use in Joint Operations shall be
owned in accordance with the Production Sharing Contract covering
the area upon which such operations were conducted. Any right of
use or other interest in such property which under the applicable
Production Sharing Contract is granted to "Contractor" shall be
owned by the Huffington Venturers and the Total Venturers in
accordance with their applicable respective Participating
Interests. Such interest of the Huffington Venturers shall be
owned by each of them in proportion to their respective ownership
of interest in the Huffco Contract, subject to the provisions of
that certain Joint Venture Agreement, dated August 8, 1968, by and
among the Huffington Venturers, or their predecessors in interest
and the Huffco Operating Agreement. Such interest of the Total
Venturers shall be owned by each of them in proportion to their
respective ownership of interest in the Inpex Contract, subject to
the provisions of the Total-Inpex Operating Agreement.
ARTICLE 5
The Venture
5.1 The Parties hereto agree in accordance with and subject
to the provisions of this Agreement and of the respective
Production Sharing Contracts to carry out a program of exploration
for and development of Unitized Substances in the Unit Area, such
exploration and development to include the installation and
operation of all necessary and desirable facilities in or outside
the Unit Area.
5.2 It is understood and agreed that this Agreement shall
not affect the rights, duties and obligations of the Huffington
Venturers, inter se, under the Joint Venture Agreement dated August
8, 1968 by and among the Huffington Venturers, or their
predecessors in interest, or the Huffco Operating Agreement, nor
will it affect the rights, duties and obligations of the Total
Venturers, inter se, under the Total-Inpex Operating Agreement;
provided, that the voting procedures set forth herein will control
with respect to the conduct of Joint Operations.
ARTICLE 6
Obligations of the Parties
It is not the purpose of this Agreement to amend or modify in
any way the terms and provisions of the Huffco Contract or the
Inpex Contract. The Huffington Venturers and the Total Venturers
understand and agree that each is solely responsible to Pertamina
with respect to its respective Production Sharing Contract with the
effect that the obligations and rights of the Parties vis-a-vis
Pertamina with respect to their respective Production Sharing
Contracts remain unaltered by the terms of this Agreement. Without
prejudice to the aforementioned understanding Unitized Substances
produced, saved and sold and costs incurred in connection with
exploration, development and operation of the Unit Area for the
production of Unitized Substances are deemed allocated to the Inpex
Contract and the Huffco Contract as herein provided. Any action
which may be sanctioned by the Unit Operating Committee shall be
subject to final approval by Pertamina, in accordance with the
terms and conditions stipulated in the Inpex Contract and the
Huffco Contract.
ARTICLE 7
Operator
7.1 Subject to the terms and conditions hereof Huffco (or
any successor Operator for the Huffington Venturers in respect of
petroleum operations under the Huffco Contract chosen under the
Huffco Operating Agreement) is hereby designated and agrees to
serve as Operator for the Huffington Venturers and the Total
Venturers in connection with operations on or in connection with
the exploration, development and operation of the Unit Area for the
production of Unitized Substances.
7.2 Subject to the provisions of Article 3, Operator, under
the terms and conditions set forth herein and in the Production
Sharing Contracts, shall carry out and perform all operations on or
in connection with the exploration, development and operation of
the Unit Area for the production of Unitized Substances. Operator
shall exercise all of the rights, powers and privileges with
respect to such operations as provided herein, subject only to such
restrictions as shall be placed upon Operator by this Agreement and
the Unit Operating Committee. Specifically, Operator shall,
subject to the provisions of this Agreement, the Huffco Contract
and the Inpex Contract:
7.2.1 Have exclusive control of all operations
hereunder and employ all personnel reasonably required
therefor;
7.2.2 Acquire all assets, including any
equipment, materials and supplies, necessary or desirable
for carrying on all operations conducted hereunder;
7.2.3 Represent the Parties with respect to
such operations, including but not limited to filing such
reports with Pertamina as may be required or as directed
by the Unit Operating Committee;
7.2.4 Prepare and submit to the Unit Operating
Committee proposed programs and Budgets at the time and
in the manner set forth in Article 9 hereof;
7.2.5 Make from time to time such
recommendations for the more efficient carrying out of
the said operations hereunder as it may consider
feasible;
7.2.6 Carry out all of the said operations
hereunder in a workmanlike manner, in accordance with
sound oil field and engineering practices, in compliance
with the terms of the Inpex Contract and the Huffco
Contract and in full compliance with all applicable laws
and regulations; provided Operator shall not be liable to
the other Parties except for gross negligence or willful
misconduct;
7.2.7 Enter into such contracts as may be
required in connection with operations hereunder;
7.2.8 Promptly pay and discharge all costs and
expenses incurred in connection with operations
hereunder;
7.2.9 Deliver in kind to each of the Parties at
the respective field terminals their respective
Participating Interest share of all Unitized Substances.
ARTICLE 8
Unit Operating Committee
8.1 There shall be established a Unit Operating Committee
consisting of one representative appointed by each of the Parties.
Each Party shall designate its respective representative by written
notice of the other Parties as soon as reasonably practicable after
the effective date hereof, and each by like notice may designate
one or more alternate representatives, any one of whom shall be
authorized to represent such Party in the absence of its
representative. Operator's representative will be Chairman of the
Unit Operating Committee. Each Party may by notice to the other
Parties substitute its representative or any alternate at any time
and from time to time, and such substitute shall have the same
powers and duties as the person for whom he is substituting. Each
representative may have such advisors as he deems necessary at any
meeting of the Unit Operating Committee.
8.2 The Unit Operating Committee shall meet if the
representative of any Party shall request a meeting by giving not
less than fifteen (15) days' notice to the other designated
representatives, which notice shall specify the matter or matters
to be considered at such meeting; provided, that if any shorter
notice period is specified herein with respect to any meeting or
voting requirement the latter shall prevail. The Unit Operating
Committee shall meet at least twice in each year as provided in
Sections 9.1 and 9.2 for the purpose of considering and deciding
upon the Budget for the ensuing year.
8.3 There shall also be established the Nilam Unit
Technical Subcommittee, which shall act only in an advisory
capacity and shall be composed of representatives of each
Party. Its chairman shall be one of Operator's represent-
atives. The Nilam Unit Technical Subcommittee shall have,
inter alia, the following functions:
(a) to keep the Parties regularly informed of the
execution of operations in the Unit Area;
(b) to cooperate in the preparation of work programs;
(c) to follow the progress of operations; and
(d) to prepare information and proposals for Unit
Operating Committee meetings.
Normally each meeting of the Unit Operating Committee
shall be preceded by a meeting of the Nilam Unit Technical
Subcommittee.
8.4 The Unit Operating Committee shall appoint such
other subcommittees as it may desire for the purpose of
advising it in connection with operations in the Unit Area.
Such subcommittees shall be comprised of representatives of
the Parties and shall meet at such time and carry out such charges
as may be directed by the Unit Operating Committee.
Operator shall at all time fully cooperate with the subcom-
mittees in performing their charges.
8.5 No decision on any matter shall be taken at any
meeting of the Unit Operating Committee unless either prior
notice as provided in Section 8.2 shall have been given or
the representatives agree that a matter of which no prior
notice has been given shall be dealt with at the meeting in
question.
8.6 Each of the Huffington Venturers will be entitled
to vote that part of the Participating Interests of the Huffington
Venturers as it is entitled to vote under the Huffco Operating
Agreement; and each of the Total Venturers will be entitled to vote
that part of the Participating Interests of the Total Venturers as
it is entitled to vote under the Total-Inpex Operating Agreement.
Notice shall be given by the Huffington Venturers to the Total
Venturers respecting the entitlement to vote Participating
Interests of any Party comprised in the Total Venturers, and
any change therein. Except for those matters provided for in
Section 9.2 below all decisions of the Unit Operating Committee
shall require the affirmative vote of Parties voting Participating
Interests in the Gas Unit aggregating sixty-six and two-thirds
percent (66 2/3%) at the time of the vote.
8.7 All meetings of the Unit Operating Committee shall
be held in Jakarta, Indonesia, or at such other place as may
be agreed upon from time to time by the Parties.
8.8 Any matter may be submitted to the Unit Operating
Committee for consideration and vote without holding a
meeting, provided that such matter is submitted in writing
or by telegraph or telex or by telephone confirmed by tele-
graph or telex to the other representatives. In such even
each representative shall vote by giving written, telegraphed or
telexed notice of such vote to Operator, and any decision so
reached shall be binding on all the Parties hereto. Operator shall
keep a written record of each such vote and the outcome of such
voting.
ARTICLE 9
Operating Programs and Budgets
9.1 By not later than July 1 of each calendar year
Operator shall submit to the Unit Operating Committee a
proposed work program for the following calendar year. Each
Party will furnish to Operator any comments or suggestions
which it may have respecting such proposal as soon after
receipt of same as may be reasonably practicable, and
Operator shall furnish to each Party the comments and
suggestions received. At a meeting of the Unit Operating
Committee of be held during the third quarter (but not later
than August 15) of such calendar year the proposed work
program will be discussed, and Operator will respond to the
comments and suggestions which it has received.
9.2 By not later than September 1 of each calendar
year Operator shall submit to the Unit Operating Committee a
recommended Budget for the following calendar year. Such
recommended Budget shall be based upon the proposed work
program referred to in Section 9.1, incorporating therein
such suggestions and recommendations as may have been approved by
a consensus of the Unit Operating Committee, but also
taking into account changes in conditions which may have
occurred in the intervening period. At a meeting of the
Unit Operating Committee to be held in September following
the submission of such recommended Budget the same shall
be voted on for approval under the following procedure. The
Huffington Venturers shall have one (1) vote and the Total
Venturers shall have one (1) vote, and approval of the
Budget shall require the unanimous vote of the two.
9.3 In the event a Budget is not approved under the
procedure described in Section 9.2 above the Huffington
Venturers and the Total Venturers shall, by not later than
September 20, submit through Operator to Pertamina the
Budgets which they respectively favor and will attempt to
arrange a joint meeting with the appropriate representatives
Pertamina to discuss the differences in the two Budgets.
The Budget which is approved by Pertamina shall be deemed
the Budget approved by the Unit Operating Committee for the
next calendar year.
9.4 Subject to the foregoing provisions of this
Article 9, the Parties agree to cause their respective
representatives on the Unit Operating Committee to adopt
such Budgets as will comply with the requirements of the
Huffco Contract and the Inpex Contract. Further, the
Huffington Venturers and the Total Venturers shall include
their proportionate part of Budgets adopted under this
Article 9 in the work programs and budgets submitted to
Pertamina under their respective Production Sharing
Contracts. In this regard Operator shall serve as liaison
with Pertamina in seeking its approval of Budgets adopted
under this Agreement.
ARTICLE 10
Distribution of Production
10.1 Subject to the terms of the pertinent Production
Sharing Contract, each of the Total Venturers and each of
the Huffington Venturers may at all times take in kind or
separately dispose of its respective Participating Interest
share of each Unitized Substance. In accordance with the
terms of the Inpex Contract and the Huffco Contract, Operator
shall have the right to use in conducting operations under
this Agreement so much of the Oil, Gas and Natural Gas Liquids so
used shall not be considered saved and sold for purposes of
this Agreement.
10.2 During such period as one or more Parties are not
taking their Participating Interest share of Unitized Substances
in kind or separately disposing of the same, the other
Parties shall, with respect to Gas, and may, but shall not
be obligated to, with respect to Oil and Natural Gas Liquids,
take in kind or separately dispose of such share. In such
event the Parties taking or separately disposing of such
share shall, subject to the further provisions hereof, pay
or cause to be paid to the non-taking Parties for such share
on the basis of the fair market value thereof at the field
terminal; provided, however, that such obligation to pay or
cause to be paid shall be subject to whatever conditions are
applicable to the Parties taking in kind or selling such
Unitized Substances under the arrangements by which they are
sold or taken in kind.
Subject to the succeeding paragraph of this Section 10.2,
such market value shall be determined on the basis of the
price received for such Unitized Substances reduced by all
costs incurred downstream from the field, including without
limitation transportation, processing, insurance, capital
and interest costs, and selling costs, including without
limitation, any brokerage, commissions, discounts or rebates,
but excluding, however, all cost of Joint Operations charged
to the Oil Joint Account or the Gas Joint Account under the
provisions of this Agreement. Upon request, the non-taking
Parties shall be furnished reasonable documentation relative
to the determination of such fair market value. The obligation
to pay or cause to be paid provided for in this Section 10.2
is expressly limited to the non-taking Parties' Participating
Interest share of funds in fact received by the taking
Parties as proceeds from the sale of Unitized Substances,
and any payment by taking Parties to non-taking Parties
shall be made promptly on receipt of funds.
The fair market value of Gas which is processed and
manufactured into liquefied natural gas ("LNG"), for purposes
of accounting hereunder shall in no event exceed that portion
of the net proceeds for such LNG received by Parties after
deducting all project and marketing costs incurred in pro-
cessing and selling of such gas. For purposes of accounting
hereunder the fair market value of Oil and of Natural Gas
Liquids which are mixed in storage with Oil and are sold as
a part of such Oil shall be equal to the applicable price
used for the recovery of "Operating Costs" under the Huffco
Contract and the Inpex Contract.
The Parties agree to enter into such arrangements as
may be necessary to insure the effectiveness of this Section
10.2. The provisions of this Section 10.2 shall not, however,
prevent Pertamina from exercising any of its rights and
options on this subject as provided in the Huffco Contract
and the Inpex Contract.
ARTICLE 11
Costs and Expenses
11.1 All costs and expenses of whatsoever kind and
nature incurred by Operator in performance of Joint Opera-
tions shall be charged to the Oil Joint Account or the Gas
Joint Account in accordance with the provisions of this
Agreement and shall be borne and paid by the Parties as
provided in Sections 11.3 and 11.4. Any significant departure
from an agreed Budget shall be approved by the Unit Operating
Committee before being put into execution. If any such
departure from an agreed Budget requires approval of Pertamina
under the Huffco Contract or the Inpex Contract, then Operator
shall promptly furnish to Pertamina information concerning
such Budget departure. Operator shall not make expenditures
nor incur liabilities on behalf of the Parties for non-budgeted
items without prior approval of the Unit Operating Committee
unless such expenditures or liabilities are within:
11.1.1 The equivalent of U. S. $100,000.00
(Operator shall promptly report such non-budgeted items
and approval by the Unit Operating Committee thereof
shall constitute Operator's authority to again make
non-budgeted liabilities not in excess of the U. S.
$100,000.00 limitation); or
11.1.2 10% excess of the amount specified for
an individual category of an agreed program.
This limitation shall not apply, and Operator is expressly
authorized to make expenditures and incur liabilities without
prior authorization or approval, when necessary or advisable,
in Operator's judgment, to deal with unforeseen emergencies,
including, but not limited to, well blowouts and fires.
Operator shall promptly report to the other Parties the
nature of any such emergency and the estimated related
expenditures.
11.2 It is understood that Operator may from time to
time use for the benefit of all Parties in accordance with
approved Budgets the services of other persons, firms and
corporations, including purchasing, engineering, legal,
geophysical, geological, treasury, insurance, auditing,
re-export, payroll and accounting and other miscellaneous
services and advise, the cost of which shall be charged to
the Oil Joint Account or the Gas Joint Account, as may be
applicable.
11.3 The following procedures will be followed so that
costs and investments made by the Parties respecting exploration
development and operations of the Unit Area for the production
of Unitized Substances will be in the ratio of their applicable
respective Participating Interests for the Oil Unit and the
Gas Unit.
11.3.1 All charges to the Oil Joint Account
shall be borne by the Parties in the ratio of their
respective Participating interests in the Oil Unit, and
all charges to the Gas Joint Account shall be borne by
the Parties in the ratio of their respective
Participating Interests in the Gas Unit, subject, in
each case, to adjustment as provided in Section 2.2.
11.3.2 All costs and expenses incurred by Operator
after the date of execution hereof for Joint Operations
under this Agreement shall be charged to the Oil Joint
Account or the Gas Joint Account as provided in Section
11.4
11.3.3 In the execution of work programs prior to
the date of execution hereof Huffco, acting as Contract
Operator for the Huffington Venturers, and Total,
acting as Contract Operator for the Total Venturers,
have performed seismic operations, drilled wells and
otherwise incurred costs and made investments related
to the exploration, development and operation of the
Unit Area for the production of Unitized Substances.
The Parties estimate that, subject to verification upon
audit on or before the expiration of one (1) year from
the date of execution hereof, as of such date such
costs and investments are as follows:
(a) The Huffington Venturers' portion of
such costs and investments applicable to the Oil
Unit are U. S. $66,380.54 and of such costs and
investments applicable to the Gas Unit are U. S.
$154.162,126.
(b) The Total Venturers' portion of such
costs and investments applicable to the Oil Unit
are U. S. $32,756,015 and of such costs and invest-
ments applicable to the Gas Unit are U. S.
$62,109,354.
11.3.4 The costs and investments applicable to
The Oil Unit estimated to have been incurred as of the
date of execution hereof shall be charged to the Oil
Joint Account and reimbursed to the Parties by whom
initially incurred on the first day of the first
calendar month following receipt of the approvals
referred to in Article 18. If the audit of such costs
and investments mentioned above discloses any dis-
crepancies with respect thereto, appropriate adjustments
will be made.
11.3.5 With respect to costs and investments
applicable to the Gas Unit estimated to have been
incurred as of the date of execution hereof the
following shall apply:
(a) All of such costs and investments, other
than drilling and completion costs, shall be
charged to the Gas Joint Account and reimbursed to
the Parties by whom initially incurred on the
first day of the first calendar month following
receipt of the approvals referred to in Article
18.
(b) Drilling and completion costs will be
subject to the following:
(i) If pursuant to a decision of the
Unit Operating Committee a Gas well which has
been drilled on the date of execution hereof
should be placed on production prior to the
final adjustment of Participating Interests
as provided in Section 2.2, the costs of
drilling and, if applicable, completing such
well incurred prior to the date of execution
hereof will be charged to the Gas Joint
Account and reimbursed to the Parties by whom
initially incurred at the time such well is
actually placed on production.
(ii) The remainder of such drilling and
completion costs will be charged to the Gas
Joint Account and reimbursed to the Parties
by whom initially incurred at the time of the
final adjustment of Participating Interests
as provided in Section 2.2.
If the audit of such costs and investments men-
tioned above discloses any discrepancies with respect
to any of such costs and investments previously charged
to the Gas Joint Account, appropriate adjustments will
be made.
11.4 Certain wells and facilities are or will be
capable of utilization, and may be so utilized, at one time
or another and from time to time in connection with the Oil
Unit, the Gas Unit and/or Non-Unitized Substances. Costs
allocable to such wells and facilities will be allocated as
provided below.
11.4.1 During any period in which a well is
utilized solely for the Oil Unit and risk and expense
of operating the same will be wholly for the Oil Joint
Account. Conversely, during any period in which a well
is utilized solely for the Gas Unit such risk and
expense will be wholly for the Gas Joint Account, and
during any period in which a well is utilized solely
for Non-Unitized Substances such risk and expense will
be wholly for the account of those parties on whose
Production Sharing Contract Area the well is located.
11.4.2 During any period in which a well is
operated as a Combination Well or a combination of an
Oil Well and/or Gas Well and a well producing Non-Unitized
Substances the portion of risk and expense of operating
such well to be allocated to the Oil Joint Account will
be in the ratio that the number of completions producing
Oil in such well bears to al producing completions in
such well, and the portion of risk and expense of
operating such well to be allocated to the Gas Joint
Account will be in the ratio that the number of completions
producing Gas in such well bears to all producing
completions in such well. The remainder of such risk
and expenses will be allocated to those Parties on
whose Production Sharing Contract area the well is
located. Downhole repair and workover costs of such
wells will be for the Oil Joint Account, if an Oil Well
is repaired or worked over, for the Gas Joint Account,
if a Gas Well is repaired or worked over, and for the
account of those Parties on whose Production Sharing
Contract area the well is located, if a well producing
Non-Unitized Substances is repaired or worked over.
11.4.3 All costs of reworking, recompleting or
converting a well into an Oil Well will be for the Oil
Joint Account. Conversely, such costs respecting a
Gas Well will be for the Gas Joint Account, and
such costs respecting a well to produce Non-Unitized
Substances will be for the account of the Parties on
whose Production Sharing Contract the well is located.
11.4.4 While it is recognized that both Oil and
Gas will be produced from Oil Wells, for purposes of
this Agreement Oil Wells will be considered to be wells
utilized solely for the Oil Unit, and the risk and
expense of operating such wells will be borne as pro-
vided above; provided, however, that the costs of
treating and storing (included but not limited to
compression, dehydration and reinjection) Gas produced
and saved from Oil Wells will be charged to the Gas
Joint Account.
11.4.5 Subject to the provisions of Section
11.4.6 below, at the time a well is initially completed
the investment costs of such well allocable to Unitized
Substances will be charged to the Oil Joint Account, if
the well is to be utilized initially for the Oil Unit,
or to the Gas Joint Account, if the well is to be
utilized initially for the Gas Unit. If a well is
initially completed as a Combination Well, such investment
costs will be allocated between the Oil Joint Account
and the Gas Joint Account in the Proportions that the
number of Oil Well completions and Gas Well completions,
respectively, in such well bears to the total number of
completions in such well within the Unit Area.
11.4.6 If the Unit Operating Committee should
approve the drilling of a well to the G-61 sand, the
Parties on whose Production Sharing Contract area the
well is located may, not later than (30) days
before actual drilling operations on such well are
commenced, request Operator to drill such well to test
an objective below the base of the Unit Area; and
Operator will carry out such requested operations below
the base of the Unit Area for the benefit of and subject
to the instructions of the Parties making the request.
In such event the Parties making such request shall
bear the costs of such well below the base of the Unit
Area in accordance with the following:
(a) The portion of intangible drilling costs
incurred in drilling the well to be allocated to
operations below the base of the Unit Area will be
determined by multiplying (a) total intangible
drilling costs for the well, minus (b) the costs
which are allocable solely to specific zones as
provided in Section 11.4.7, by a faction, the
numerator of which is the number of days elapsed
from the time the drilling bit passes through the
base of the Unit Area until total depth in the
well is reached and the denominator of which is
the total number of days elapsed from the time
actual drilling operations on the well are commenced
until total depth in the well is reached, and
adding to the product obtained costs which are
allocable solely to zones below the base of the
Unit Area as provided in Section 11.4.7.
(b) The portion of tangible drilling costs
including but not limited to the wellhead, wellhead
equipment and tubulars, to be allocated to operations
below the base of the Unit Area will be in the
proportion that the number of initial completions
in the well below the base of the Unit Area bears
to total initial completions in the well; pro-
vided, however, that in the event no initial
completion is made in the well below the base
of the Unit Area there shall be allocated to
operations below the base of the Unit Area the
extra costs, if any, incurred in modifying the
well program for tangibles from that historically
used in drilling and equipping a well drilled to
the base of the Unit Area.
11.4.7 The Parties recognize that in the course
of drilling a well certain operations and procedures
will be conducted which are property allocable solely
to the zone on which they are performed. Such operations
and procedures include, but are not limited to, testing,
shooting, acidizing, perforating and performing squeeze
jobs. If a well is being drilled below the base of the
Unit Area pursuant to Section 11.4.6, it is agreed that
each such cost will be allocated to the zone to which
it relates for purposes of determining the portion of
intangible drilling costs allocable to the Oil Joint
Account and/or the Gas Joint Account, on the one hand,
and to the Non-Unitized Substances, on the other hand.
11.4.8 It is recognized that while certain faci-
lities will serve only the Unit Area (the costs of
which will be allocated between the Oil Unit and the
Gas Unit in the manner provided below in this Section
11.4.8), other facilities will serve both the Unit Area
and other areas. The portion of investment costs of
facilities serving more than one area will be allocated
among the areas served on the basis of the following:
(a) Investment costs of facilities placed in
service or to be placed in service solely in
connection with the production of Oil will be
allocated between the Oil Unit and other areas
served on the basis of relative BTU content of Oil
in the place in each such area.
(b) Investment costs of facilities placed in
service or to be placed in service solely in
connection with the production of Gas and/or
Natural Gas Liquids will be allocated between the
Gas Unit and other areas served on the basis of
relative BTU content of Gas in place in each such
area.
(c) Investment costs of facilities placed in
service or to be placed in service in connection
with the production of Oil, Gas and Natural Gas
Liquids will be allocated between the Unit Area
and other areas served on the basis of relative
BTU content of Oil and Gas in place in each such
area.
The foregoing allocations are subject to the
following:
(d) Facilities placed in service or to be
placed in service in connection only with the
production or handling of Oil and Natural Gas
Liquids will be deemed placed in service solely
for Oil in the proportion that estimated total Oil
throughput bears to estimated total throughput of
Oil and Natural Gas Liquids over the life of the
facilities, and the remainder of such facilities
will be deemed placed in service solely for Natural
Gas Liquids.
(e) Investment costs of facilities heretofore
placed in service or approved by the Parties
before January 1, 1983 will, on the first day of
the first calendar month following receipt of the
approvals referred to in Article 18 or when
incurred, whichever is later, be allocated among
the areas served on the basis of relative BTU
content of the applicable type of hydrocarbons
initially in place in each such area. Such allocation
will be adjusted on January 1, 1983 based upon
such redetermination of relative BTU content of
hydrocarbons initially in place which may have
been made at that date.
(f) Investment costs of facilities approved
by the Parties in any year after 1982 will be
allocated among the areas served on the basis of
relative BTU content of the applicable type of
hydrocarbons remaining in place in each such area
as of January 1 of the year in which such facilities
are approved by the Parties.
(g) There will be no adjustment of the allo-
cation of investment costs among areas except as
provided in (e) above unless the Huffington Venturers
and the Total Venturers agree to such, using the
voting procedure specified in Section 9.2.
At the time investment costs are allocated to the
Unit Area they will be further allocated between the
Oil Unit and the Gas Unit on the basis of the following:
(h) Investment costs of facilities serving
only the Oil Unit will be charged to the Oil Joint
Account, and investment costs of facilities serving
only the Gas Unit will be charged to the Gas Joint
Account.
(i) Investment costs of facilities serving
the Oil Unit and the Gas Unit will be allocated
between the two as follows:
(i) Costs of facilities placed in
service or approved by the Parties prior to
January 1, 1983 will be allocated ten percent
(10%) to the Oil Unit and ninety percent
(90%) to the Gas Unit. Such allocations will
be adjusted as of January 1, 1983 to be in
the ratio of the relative BTU content of oil,
on the one hand, and Gas, on the other hand,
initially in place in the Unit Area as determined
by the Parties pursuant to the redetermination
of Oil and Gas in place provided for in
Section 2.2 (b).
(ii) Costs of facilities approved by
the Parties in any year after 1982 will be
allocated on the basis of relative BTU content
of Oil, on the one hand, and Gas, on the
other hand, remaining in place in the Unit
Area as of January 1 of the year in which
such facilities are approved by the Parties.
The portion of investment costs allocated to the
Oil Unit under the foregoing will be charged to
the Oil Joint Account, and the portion of such
costs allocated to the Gas Unit will be charged to
the Gas Joint Account.
For purposes of this Section 11.4.8, a barrel of Oil
will be deemed to contain 5.6 million BTU's, and a
standard MCF of Gas will be deemed to contain 1.1
million BTU's. Further, in the case of computation of
BTU content of Gas there shall be excluded from the
computations provided for above the BTU content of Gas
in solution with Oil under original reservoir conditions.
11.4.9 The costs of operating facilities serving
the Unit Area will be allocated between the Oil Unit
and the Gas Unit as provided in the Unit Accounting
Procedure.
11.5 In the event a well is drilled below the base of
the Unit Area in accordance with the terms hereof the Huffington
Venturers and/or the Total Venturers, as owners of Production
Sharing Contract rights below the base of the Unit Area,
agree to bear and pay the portion of the operating costs and
investments applicable to below the base of the Unit Area
and to Non-Unitized Substances determined as provided above.
11.6 Upon request of Operator, each Party shall advance
to Operator from time to time, its proportionate part of any
agreed Budget on a monthly basis. At least fifteen (15)
business days before the end of each month, Operator shall
deliver to each Party a written request that such Party
advance its share of Budget funds estimated to be paid out
during the ensuing month. To the extent that payments
exceed advances or advances exceed payments during the
preceding month, Operator shall adjust its next ensuing
request for advance by an amount equal to such deficiency or
excess. Each such request shall specify the various currencies
required, the total amount thereof and the names and addresses
of the banking institutions where such currencies are to be
credited to Operator's account. Each Party shall furnish
its respective share of advances in the required currencies
no later than the last day of the month during which such
request was delivered by Operator. In addition to its
regular monthly requests for funds, Operator may from time
to time make special written requests to cover any unforeseen
requirements, which special written request shall contain
the information required in Operator's monthly request.
Thereafter, the Parties shall provide the additional funds
in the specified currencies within the period specified in
Article 1.4 of the Unit Accounting Procedure.
Operator shall account for all sums advanced and shall
furnish each Party monthly statements accurately reflecting
the disposition of such advances and report all charges and
credits to the Oil Joint Account and the Gas Joint Account
in accordance with the Unit Accounting Procedure. Statements
covering each month shall be sent by Operator to the Parties
not later than forty-five (45) days after the end of such
month. If any over or under expenditures of advanced funds
are not adjusted by ensuing requests for advance of Budget
funds as provided by this Article 11.6, each Party shall pay
to Operator or Operator shall pay to each Party within
fifteen (15) days after receipt of such statement the amount
shown thereon to be due from such Party or from Operator.
If any payments as provided in this Article 11 are not made
within the time specified herein, such unpaid amounts shall
bear interest at the rate of one and one-half percent (1.5%)
per month until paid. Further, Operator shall have the
right to apply pro tanto all sums payable by Operator to
such delinquent Party to the payment of the amounts due and
unpaid by such Party.
11.7 Each such statement for any period during any
calendar year shall be subject to correction by the Operator
or objection by each Party, provided that such correction or
objection is made in writing within two (2) years after the
end of such year, with adequate specification of the item or
items corrected or objected to, and the reason for the
correction or objection. Each statement that is not so
corrected or objected to before the end of said period of
two (2) years shall thereafter be final and conclusive.
11.8 Operator shall assist Pertamina in its endeavor
to keep books and accounts in accordance with the terms of
the Inpex Contract and the Huffco Contract and at the direc-
tion of the Unit Operating Committee may cause audits to be
made of such books and accounts.
11.9 Operator shall keep in accordance with generally
accepted accounting practices accurate and itemized accounts
and records of costs and expenditures arising out of the
operations hereunder reflecting the status of the Oil Joint
Account and the Gas Joint Account.
11.10 All costs, expenses, credits, related matters
and methods of handling the accounting with respect thereto
shall be in accordance with the provisions of the Unit
Accounting Procedure.
ARTICLE 12
Insurance
12.1 Operator shall take out and keep in force all
insurance required by law or decided upon by the Unit Operating
Committee, provided, however that any Party may to the
extent its own insurance (including self insurance) satis-
fies the requirement of such law elect not to participate
therein and provided further that it shall be a condition of
such non-participation that the Party concerned:
(a) give notice of its non-participation to the
other parties;
(b) obtain and maintain adequate insurance of its
Participating Interest share of the risks covered or
provide to the other Parties adequate evidence of its
financial responsibility; and
(c) do nothing which may interfere with the
Operator's placing of such insurance for the other
Parties.
All insurance placed by any Party for its own account shall
contain a waiver of rights of subrogation in favor of all
the other Parties and of Operator and in favor of any con-
tractor or sub-contractor with respect to which Operator
shall have waived its rights of recourse in its capacity as
Operator. Operator shall, upon request, furnish to Non-
Operators all pertinent details relating to such insurance.
Operator shall also furnish promptly to Non-Operators copies
of reports or claims made under such insurance respecting
accidental damage to wells or facilities located within the
Unit Area.
Article 13
Rights, Access to Premises, Logs, Records and Confidentiality
13.1 Total, as Contract Operator for the Total
Venturers, shall at all times have the right to participate
with Operator in the settlement of any claims or disputes
arising out of operations hereunder, and shall have the
right to participate through its counsel, at the expense of
the Total Venturers, in any litigation or arbitration
arising out of operations under this Agreement. Operator
shall, when any such activities are contemplated, give the
other Parties reasonable notice thereof to enable them to
have a representative present if they elect to do so.
13.2 Operator shall keep accurate logs, date and
records of all information acquired in conducting the opera-
tions contemplated hereby and shall furnish the other Parties
copies of same upon request. Likewise, samples of cores and
cuttings of formation encountered in drilling wells will be
furnished at Operator's local office in accordance with
instructions of the Parties. Operator shall also furnish to
Pertamina covering operations conducted pursuant hereto.
Authorized representatives of the Huffington Venturers and
the Total Venturers shall at all reasonable times and at
their own risk have access to the premises where any opera-
tion is being carried on by Operator and to all information
and records of Operator pertaining to operations hereunder.
13.3 Information gained by the Parties as a result of
operations under this Agreement which has not been made
public prior to the effective date of this Agreement or
which is not made public under the terms hereof shall be
treated as confidential between the Parties, including their
respective Affiliates, and shall not be revealed to outside
parties without prior written approval of all Parties which
consent shall not be unreasonably withheld, consideration
being given to reporting requirements of governmental agencies,
stock exchanges, accounting practices and lending institutions.
Any branch of the provisions of this Section 13.3 by a
Party's Affiliate shall constitute a breach of this article
by such Party. Nothing contained in this Section 13.3 shall
prevent the Operator from furnishing data and information to
representatives of the Government of the Republic of Indonesia
or Pertamina.
ARTICLE 14
Force Majeure
The obligations of each Party under this Agreement,
other than the obligation to make money payments, shall be
suspended while such Party is prevented or hindered from
complying therewith, in whole or in part, by force majeure.
As used herein, force majeure shall mean causes beyond the
control of such Party and shall include but not be limited
to strikes; lockouts; labor disturbances; acts of God;
unavoidable accidents; acts of war (declared or undeclared)
or conditions arising out of or attributable to war; shortage
of necessary equipment, materials or labor, or restrictions
thereof or limitations upon the use thereof; and delays in
transportation. Any Party subject to force majeure shall
take all reasonable actions necessary to remedy such a
situation at the earliest possible date. Any Party proclaiming
force majeure shall give prompt notice of same to the other
Parties, including sufficient information as to the cause
and anticipated date of removal.
ARTICLE 15
Rules and Regulations, Applicable Law and Arbitration
15.1 This Agreement is subject to all the provisions
of the Huffco Contract and the Inpex Contract, as amended,
to all valid and applicable laws, rules, regulations and
orders of the Republic of Indonesia; and all operations
shall be conducted in accordance with the provisions of the
Huffco Contract and the Inpex Contract, as amended, and such
laws, rules, regulations and orders.
15.2 In the event of any dispute between the Parties
as to the interpretation of the terms hereof this Agreement
shall be construed in accordance with the laws of the State
of Texas.
15.3 Any dispute relating to the interpretation or
performance of this Agreement shall be finally settled by
arbitration in accordance with the Rules of Conciliation and
Arbitration of the International Chamber of Commerce, effec-
tive at the time. Any such dispute shall be heard and
determined by a single arbitrator, appointed in accordance
with such rules, provided that any such dispute shall be
heard and determined by three (3) arbitrators so appointed,
upon written request of any Party to such effect made
within two (2) weeks after commencement of any such arbitra-
tion proceeding. This covenant to arbitrate shall be enforce-
able and judgment from any award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof.
Any such arbitration shall be held in Toronto, Ontario,
Canada, or at such other place as the Parties may mutually
agree upon.
ARTICLE 16
Notices
All notices required or permitted hereunder shall be in
writing and shall be deemed to have been properly given and
delivered to a Party when delivered in person to an authorized
representative of that Party, or when sent by telex (confirmed
by air mail) or by telephone (confirmed by telex) to that
Party at its address hereinafter specified:
Huffco Indonesia,
A Division of
Roy M. Huffington, Inc.
P. O. Box 2828
19th Floor, Skyline Building
Jalan Thamrin No 9
Jakarta, Indonesia
Attention: President
Telex Address: 79644421
With Copy to:
Roy Huffington, Inc.
36th Floor, The 1100 Milam Building
Houston, Texas 77002
Attention: Vice President Production
Telex Address: 762-020
Golden Eagle Indonesia Limited
c/o Ultramar Company Limited
90 South Bedford Road
Mt. Kisco, New York 10549
Telex Address: 137302
Union Texas Far East Corporation
P. O. Box 2120
Houston, Texas 77001
Attn: Vice President and General Manager
International Producing Operations
Telex Address: 775255
Universe Tankships, Inc.
512 Gulf Building
P. O. Box 1166
Pittsburgh, Pennsylvania 15230
Attn: Mr. E. D. Loughney - "Personal"
Virginia International Company
3900 Capital Bank Plaza
P. O. Box 4576
Houston, Texas 77210
Attn: Mr. J. D. Taylor, President
Total Indonesia
Tromolpos 10/JKT
Jakarta Pusat
Cable: TOTALINDO JAKARTA
Telex: 796-44108
Attn: General Manager
c.c. Total Indonesia
39/43 Quai Andre Citroen
75739 Paris, CEDEX15
Attn: Director General
Telex Address: 270587 TOTALEX PARIS
Indonesia Petroleum, Ltd.
10th Floor, Toranomon 37 Mori Building
NO. 5-1, Toranomon 3 - chome
Minato-Ku, Tokyo 105, Japan
Attn: T. Kusuoka
Telex Address: 242-4210 JAIPEX J
ARTICLE 17
Relationship of Parties and Tax Provisions
17.1 The rights, duties, obligations and liabilities
of the Parties under this Agreement shall be several and not
joint or collective, and each Party shall be responsible
only for its obligations as set out herein. It is not the
purpose or intention of this Agreement to create any part-
nership, mining partnership or association, and neither this
Agreement nor the operations hereunder shall be construed as
creating any such relationship.
17.2 Each Party elects to be excluded from the appli-
cation of all of the provisions of Subchapter K of the
United States Internal Revenue Code of 1954 as authorized by
regulations promulgated by the Secretary or his delegate
under Section 761 (a) thereof, insofar as such Subchapter or
any portion or portions thereof may be applicable to such
Party. The Parties agree to execute or join in such instru-
ments as are necessary to make such election effective and
hereby authorize and direct Operator to take such action
with the proper administrative office or agency as may be
necessary or convenient to effectuate such purpose.
ARTICLE 18
Effective Date and Term of this Agreement
This Agreement shall become effective as of January 1,
1980 upon its being approved by the Government of the Republic
of Indonesia and by Pertamina and approval being given by
the Japanese Government to Inpex. Upon such approvals this
Agreement shall remain in effect for so long as either one
of the Huffco Contract and the Inpex Contract, and any
extensions, renewals or renegotiations thereof, remains in
effect.
ARTICLE 19
General Provisions
19.1 This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of the Parties
hereto. If during the term hereof one or both of the Production
Sharing Contracts terminate with respect to one or more of
the Unitized Substances, Pertamina shall at that time succeed
to the rights and obligations so affected of the Huffington
Venturers or the Total Venturers, as the case may be, in
this Agreement. No assignment or other transfer of this
Agreement shall be effective until such approval by Pertamina
as may be required by the Production Sharing Contracts shall
have been obtained. An assignment shall not relieve the
assigning Party of its obligations hereunder without the
express written consent of the non-assigning Parties.
19.2 Article headings herein are for convenience only and
shall not be considered in the interpretation or con-
struction of this Agreement.
19.3 None of the requirements or provisions of this
Agreement shall be deemed to be waived by any Party by any
failure to enforce any remedy or take advantage of any
default and each Party hereto shall at all times have the
right to require strict compliance with this Agreement by
the other Parties.
19.4 Unless otherwise clearly specified in this Agree-
ment all sums of money set forth in this Agreement are
expressed in United States Dollars.
IN WITNESS WHEREOF, the Parties have caused these
presents to be duly executed by their duly authorized officers
on this the 3rd day of December, 1982, effective
as of January 1, 1980.
TOTAL INDONESIE
By: /S/
ROY M. HUFFINGTON, INC.
By: /S/
INDONESIA PETROLEUM, LTD.
By: /S/
VIRGINIA INTERNATIONAL COMPANY
By: /S/
THE SUPERIOR OIL COMPANY
By: /S/
GOLDEN EAGLE INDONESIA LIMITED
By: /S/
UNION TEXAS FAR EAST CORPORATION
By: /S/
UNIVERSE TANKSHIPS, INC.
By: /S/
EXHIBIT B
Attached to Nilam Unit Agreement,
effective as of January 1, 1980
DESCRIPTION OF UNIT AREA
From the southwest corner of the Badak Unit,
being that unit created by instrument dated June 25, 1977
but effective as of January 1, 1976 by and among the
Huffington Venturers and the Total Venturers, or their
predecessors in interest, go directly west 1500 meters to
a point whose coordinates are 117 degrees 22' 30.0" E and 0
degrees 23' 48.0" S; then go due south approximately 21 kms. to a
point 300 meters south of the vegetation line marking the
southerly side of the Mahakam River as of the effective
date of the Nilam Unit Agreement and defined by coordinates
117 degrees 22' 30.0" E and 0 degrees 35' 10.0" S. From
this point east, the unit boundary is 300 meters south of
and parallel to such vegetation line marking the southerly
side of the Mahakam River to a point defined by coordinates 117
degrees 28' 47.0" E and 0 degrees 23' 48.0" S; then go due west
to the southwest corner of the Badak Unit. 0
EXHIBIT "C"
Attached to Nilam Unit Agreement, effective as of
January 1, 1980.
UNIT ACCOUNTING PROCEDURE
I. GENERAL PROVISIONS
1. DEFINITIONS
"Joint Property" shall mean the real and personal
property subject to the Agreement to which this
"Unit Accounting Procedure" is attached.
"Material" shall mean personal property, equipment or
supplies acquired or held for use on the Joint Property.
"Controllable Material" shall mean Material which at
the time is so classified in the Material Classification
Manual as most recently recommended by the Council of
Petroleum Accountants Societies of North America.
Terms used in this Unit Accounting Procedure which are
defined in the Agreement shall have the meaning attributed
to them in the Agreement.
2. PURPOSE - CONFLICT WITH AGREEMENT
The purpose of this Unit Accounting Procedure is to
establish equitable methods for determining charges and
credits, with no duplication thereof, applicable to
operations under the Agreement. In the event any of such
methods prove unfair or inequitable, to Operator or Non-
Operators, the Parties will meet and in good faith negotiate
with respect to changes in methods necessary to correct any
unfairness or inequity. In the event of a conflict between
the provisions of this Unit Accounting Procedure and of the
Agreement to which this Unit Accounting Procedure is attached,
the provisions of the Agreement shall control.
3. STATEMENTS AND BILLINGS
Operator shall furnish Non-Operators, on or before forty-
five (45) calendar days following the last day of each month,
a statement showing their proportionate shares of all expenditures
and receipts, as recorded during such month. Such statements will
reflect all charges and credits to the Oil Joint Account and the
Gas Joint Account, summarized by appropriate classifications
indicating the nature thereof, detailed to permit application
of costs and expenses to wells, fields, or other appropriate
designations as may be specified by the Unit Operating Committee.
Items of Controllable Material and unusual charges and credits
shall also be detailed.
4. PAYMENTS AND ADVANCES BY NON-OPERATORS
Each of the Parties hereto shall advance its proportionate
part of budget funds as provided by the terms of the Nilam Unit
Agreement to which this Unit Accounting Procedure is attached.
Should the Operator be required, on short notice, to pay any
large sums of money on behalf of either Joint Account, the
payment of which sums were unforeseen at the time of the
written request for monthly requirements, Operator may make
calls on the Non-Operator for additional interim advances
covering their respective shares of such payments. Each
Non-Operator shall pay its due proportion of all such bills
or calls for additional advances within fifteen (15) days
after receipt thereof. If payment is not made within such
time, the defaulting Party shall be subject to the remedies
provided for in the Nilam Unit Agreement to which this Unit
Accounting Procedure is attached.
5. ADJUSTMENTS AND SETTLEMENTS
On the monthly statement, as required by Sec 3 above,
Operator shall indicate the aggregate amounts actually
expended on Joint Operations for the Oil Unit and the Gas
Unit during such month as well as the aggregate amounts
actually advanced by Non-Operators. Such statements shall
not prejudice the right of any Non-Operators to protest or
questions the correctness thereof; provided, however, all
statements rendered to the Non-Operators by Operator during any
calendar year shall conclusively be presumed to be true and
correct after twenty-four (24) months following the end of
any such calendar year, unless within the said twenty-four
(24) month period of Non-Operator takes written exception
thereto and makes claim on Operator for adjustment. No
adjustment favorable to Operator shall be made unless it is
made within the same prescribed period. The provisions of
this paragraph shall not prevent adjustments resulting from
a physical inventory of the Joint Property as provided for
in Section VII.
6. AUDITS
A Non-Operator, upon at least thirty (30) days advance
written notice in writing to Operator and all other Non-
Operators, shall have the right at its sold expense to
audit Operator's accounts and records relating to the
accounting hereunder for any calendar year within the
twenty-four (24) month period following the end of such
calendar year; provided however, the making of an audit
shall not extend the time for the taking of written exception
to and the adjustment of accounts as provided for in
Paragraph 5 of this Section I. Non-Operators shall make
every reasonable effort to conduct joint or simultaneous
audits in a manner which will result in a minimum of incon-
venience to the Operator.
7. ACCOUNTING OF OPERATING COSTS
Operating costs shall be recorded by Operator in cost
centers identified as specific and non-specific to Joint
Operations. Such cost centers shall be consistent with and
in relation to categories in current Budgets. The allocation
of operating costs to such cost centers shall be made as
specified in Sections II and III of this Unit Accounting
Procedure and shall be applied consistently.
8. ACCOUNTING OF INVESTMENT COSTS
Investment costs shall be recorded by Operator in AFE
accounts in a manner consistent with and in relation to
categories in current Budgets.
II. DIRECT UNIT OPERATING EXPENSES
Subject to limitation hereinafter prescribed, Operator
shall charge the Oil Joint Account and/or the Gas Joint
Account with the following items:
1. RENTALS AND ROYALTIES
Rentals and royalties attributable to the Unit Area or
production therefrom when such rentals and royalties are
paid by Operator for the account of the Parties.
2. LABOR
A. Salaries and wages of Operator's employees
directly engaged in the Joint Operations, and salaries
or wages of employees (whenever located) who are tempo-
rarily assigned to, and directly engaged in the Joint
Operations, whether in Indonesia or elsewhere.
B. Operator's cost of holiday, vacation, sickness
compensatory rest time, overseas differential, re-
location allowances, allowances for housing and living
disability benefits and other customary allowances paid
to the employees whose salaries and wages are chargeable
to the Oil Joint Account and/or the Gas Joint Account
under Paragraph 2A of this Section II.
C. Expenditures of contributions made pursuant to
assessments imposed by governmental authority which are
applicable to Operator's labor cost of salaries and
wages chargeable under Paragraphs 2A and 2B of this
Section II.
D. Reasonable personal expenses of those employees
whose salaries and wages are chargeable under Paragraph
2A of this Section II and for which expenses of the employees
are reimbursed under Operator's usual practice.
3. EMPLOYEE BENEFITS
Operator's cost of plans for employee's group life insurance,
hospitalization, pension, retirement, stock purchase, thrift,
bonus and other benefit plans of a like nature which are
applicable to costs chargeable under Paragraph 2 hereof.
4. MATERIAL
Material purchased or furnished by Operator for use on the
Joint Property.
5. TRANSPORTATION AND TRAVELING EXPENSES
Actual cost of the following when necessary for the exploration,
development, maintenance, and operation of the Joint Property.
A. Transportation cost of material, equipment,
and supplies.
B. Transportation cost of employees assigned to
the Joint Operations, their families, and their personal
and household effects, to and from the Unit Area or
other location where they reside or work, also trans-
portation costs of employees and their families for
annual vacation or periodic leave.
C. Transportation costs and traveling expenses,
outside of Houston, Texas, of employees of Operator and
its Affiliates when temporarily assigned to perform work
for the sole benefit of the Joint Operation.
6. SERVICES
A. The cost of contract services and utilities
from outside sources.
B. Actual cost of technical services, such as
laboratory analysis, geophysical and geological inter-
pretation, drafting, etc., performed outside of the
Unit Area by independent contractors for the benefit of
the Joint Operations.
C. Use and service of equipment and facilities
furnished by Operator as provided in Paragraph 5 of
Section IV hereof.
7. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replace-
ment of Joint Property made necessary because of damages or
losses incurred by fire, flood, storm, theft, accident, or
any other cause to the extent not compensated by insurance.
Operator shall furnish Non-Operator written notice of damages
or losses incurred as soon as practicable after a report
thereof has been received by Operator.
8. LITIGATION AND DAMAGES
Expenditures for the Joint Operations in connection with
actual or threatened litigation (including investigation and
securing of evidence), discharge of liens, judgements and
liquidated claims, and in compromise of claims, accident
compensation, death settlements and burial expenses paid in
accordance with labor law or union contracts to the extent
that any of the foregoing is not recovered from an insurance
underwriter; provided no charge shall be made for services
rendered to Operator by Operator's in-house legal staff,
resident outside Indonesia (such charges to be considered
Administrative Overhead under Section III hereof) except
upon agreement between Operator and Non-Operators.
9. TAXES
All taxes, custom duties, fees and governmental assessments
of every kind and nature assessed or levied upon or in
connection with the Joint Property, the operation thereof,
or the production therefrom, and which have been paid by the
Operator for the benefit of the Parties.
10. INSURANCE
A. Premiums paid for insurance carried for the
benefit of the operations hereunder, together with all
expenditures incurred and paid in settlement of any and
all losses, claims, judgments and other expenses,
including legal services, not recovered from insurance
carrier.
B. If no insurance is carried as to a particular
loss, the actual expenditures incurred and paid by the
Operator in settlement of any and all losses, claims,
damages, judgments and any other expenses, including
outside legal services.
11. OFFICES AND CAMPS
All offices and camp expenses (excluding those expenses
covered under Section III below), including but limited
to, housing, employee hospital and medical expenses,
recreation and athletic expenses, schools for employees and
their children, safety and other relevant activities
applicable to employees and their families shall be charged
to the applicable Joint Account. If such offices or camps
are used in operation of the Oil Unit and the Gas Unit, or
of one or both of such Units and of properties not covered
by this Agreement, such costs shall be allocated between such
Unit(s) and/or properties serviced in the same proportions
as the aggregate of other direct charges applicable to such
Unit(s) and/or properties.
12. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the
foregoing provisions of this Section II, or in Section III,
and which is incurred by the Operator for the necessary and
proper conduct of the Joint Operations.
13. FOREIGN EXCHANGE
The Oil Joint Account and the Gas Joint Account shall bear
losses and credits sustained on foreign exchange incurred by
Operator in the performance of operations under the Agreement
to which this Unit Accounting Procedure is attached.
14. ALLOCATION RULE
Common direct Nilam Unit operating expenses incurred dur-
ing a year for the benefit of the Oil Unit and the Gas Unit
will be allocated to the Oil Joint Account and the Gas Joint
Account, respectively, in the ratio of direct expenditures
for the Oil Unit and the Gas Unit during such year.
III. INDIRECT OPERATING EXPENSES
Operator may charge the Oil Joint Account and/or the Gas
Joint Account for indirect costs by use of an allocation of
area expense as follows:
The indirect costs charged by Operator to East Kalimantan
operations in a year will be the amount of indirect charges
allocated to such area in such year under the provisions of
the Huffco Operating Agreement, as the same may be amended
from time to time. Operator shall allocate to the Unit Area
a portion of such indirect costs of its East Kalimantan
operations based upon the relative direct expenditures in
each of the areas in East Kalimantan in which it operates.
Operator will furnish statements by its outside auditors
justifying the allocation of such costs among the areas in
which it operates in East Kalimantan and certifying that the
portion of such costs not allocated to the Unit Area has
been allocated by Operator to the other areas in which it
operates in East Kalimantan and paid to Operator by the
parties on behalf of which it operates. The portion of
indirect East Kalimantan expenses in a year allocated to the
Unit Area will be further allocated to the Oil Joint Account
and the Gas Joint Account, respectively, in the ratio of
total direct expenditures for the Oil Unit and the Gas Unit
during such year.
IV. BASIS OF CHARGES TO THE
OIL JOINT ACCOUNT AND THE GAS JOINT ACCOUNT
Subject to the further provisions of this Section Iv,
Operator will procure all Material and services for the
Joint Property. At the Operator's option, Non-Operators
may supply Material or services for the Joint Property.
1. PURCHASES
Material purchased and service procured shall be charged at
the price paid by Operator.
A. Imported Materials, equipment and supplies at
the manufacturer's or suppliers' net invoice price
(after all trade and cash discounts), reasonable fees
or costs paid to third parties for purchasing and
shipping, insurance costs, transportation costs to
shipping point, crating and handling costs, transpor-
tation costs to point of entry, customs and like
importation costs, any applicable duties or taxes,
handling from shipside to customs warehouse and trans-
portation and handling from customs warehouse.
B. Local purchased Materials, equipment and
supplies, at the vendor's net invoice price (after all
trade and cash discounts) plus transportation and other
related costs from place of purchase.
2. MATERIALS FURNISHED FROM OPERATOR'S WAREHOUSE OR
OTHER PROPERTIES
A. New Material (Condition "A")
(1) All such Condition "A" Material supplied from
Operator's warehouse or other properties shall be
on the same cost basis as (but not in excess of)
that for purchases in this Section IV, Item 1.
(2) If Material is moved to the property from
the Operator's warehouse or other properties, no
charge shall be made for a distance greater than
the distance from the nearest entry point normally
used, or for warehousing costs, except by agreement
with the Non-Operators.
B. Used Material (Condition "B" and "C")
(1) Material in sound and serviceable condition
and suitable for reuse without reconditioning,
shall be classified as Condition "B" and priced at
seventy-five percent (75%) of current and new
price.
(2) Material which cannot be classified as
Condition "B" but which,
(a) After reconditioning will be further
serviceable for original function as good
secondhand Material (Condition "B"), or
(b) Is serviceable for original function but
substantially not suitable for reconditioning,
shall be classified as Condition "C" and priced at
fifty percent (50%) of current new price.
(3) PREMIUM PRICES
Whenever Material is not readily obtainable at prices speci-
fied in Paragraph 1 and 2 of this Section IV because of
national emergencies, strikes or other unusual causes over
which the Operator has no control, the Operator may charge
the Oil Joint Account and/or Gas Joint Account, as
applicable, for the required Material at the
Operator's actual cost incurred in procuring such
Material, in making it suitable for use, and in moving it to
the Joint Property, provided, that notice in writing is
furnished to Non-Operators of the proposed charge prior to
billing Non-Operators for such Material.
4. WARRANTY OF MATERIAL FURNISHED BY OPERATOR
Operator does not warrant the Material furnished. In case
of defective Material, credit shall not be passed to the Oil
Joint Account or the Gas Joint Account until adjustment has
been received by Operator from the manufacturers or their
agents.
5. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
Operator will charge the Oil Joint Account and/or Gas
Joint Account, as applicable, for the cost of all
equipment and facilities used directly or indirectly
in Oil Unit or Gas Unit operations. Cost is deemed
to include all freight and handling cost, taxes of
whatever nature, and any and all other costs associated
with the acquisition of such equipment and facilities.
V. DISPOSAL OF MATERIAL
The Operator may purchase, but shall be under no obligation
to purchase, interest of Non-Operators in surplus condition
"A" or "B" Material. The disposition of surplus Controllable
Material, not purchased by Operator, shall be subject to
agreement between Operator and Non-Operators, provided
Operator shall dispose of normal accumulations of junk and
scrap Material either by transfer or sale from the Joint
Property.
1. MATERIAL PURCHASED BY THE OPERATOR OR NON-OPERATORS
Material purchased by either the Operator or Non-Operator
shall be credited by the Operator to the Oil Joint Account
and/or Gas Joint Account, as applicable, for the month in
which the Material is removed by the purchaser.
2. DIVISION IN KIND
Division of Material in kind, if made between Operator and
Non-Operators, shall be in proportion to the respective
interests in such Material. The Parties will thereupon be
charged individually with the value of the Material received
or receivable. Proper credits shall be made by the Operator
in the monthly statement of operations.
3. TRANSFERS TO OUTSIDERS
Transfers to outsiders of Material from the Joint Property
shall be credited by Operator to the Oil Joint Account and/or
Gas Joint Account, as applicable, at the net amount collected
by Operator from transferee. Any claim by transferee related
to such transfer shall be charged back to the Oil Joint Account
and/or the Gas Joint Account if and when paid by Operator.
VI. BASIS OR PRICING MATERIAL TRANSFERRED FROM
JOINT ACCOUNT
Material purchased by either Operator or Non-Operator or
divided in kind, unless otherwise agreed to between Operator
and Non-Operator shall be priced on the following basis:
1. NEW PRICE DEFINED
New price as used in this Section VI shall be the price
specified for New Material in Section IV.
2. NEW MATERIAL
New Material (Condition "A"), being new Material procured
for the Joint Property but never used, at one hundred percent
(100%) of current new price (plus sales tax, if any).
3. GOOD USED MATERIAL
Good used Material (Condition "B"), being used Material in
sound and serviceable condition, suitable for reuse without
reconditioning, at seventy-five percent (75%) of current new
price.
4. OTHER USED MATERIAL
Used Material (Condition "C) at fifty percent (50%) of
current new price, being used Material which:
A. Is not in sound and serviceable condition but
suitable for reuse after reconditioning, or
B. Is serviceable for original function but not
suitable for reconditioning.
5. BAD-ORDER MATERIAL
Material (Condition "D") no longer suitable for its original
purpose without excessive repair cost but usable for some
other purpose, at a price comparable with that of items
normally used for such other purposes.
6. JUNK MATERIAL
Junk Material (Condition "E"), being obsolete and scrap
material, at prevailing prices.
7. TEMPORARILY USED MATERIAL
When the use of Material is temporary and its service to the
Joint Property does not justify the reduction in price as
provided for in Paragraph 3 of this Section VI, such material
shall be priced on a basis that will leave a net charge to
the Oil Joint Account and/or Gas Joint Account, as applicable,
consistent with the value of the service rendered.
VII. INVENTORIES
The Operator shall maintain detailed records of controllable
material.
1. PERIODIC INVENTORIES NOTICE AND REPRESENTATION
At reasonable intervals, inventories shall be taken by
Operator of Material in the Oil Joint Account and the Gas
Joint Account. Written notice of intention to take inventory
shall be given by Operator at least thirty (30) days before
any inventory is to begin so that Non-Operators may be
represented when any inventory is taken. Failure of
Non-Operators to be represented at an inventory shall bind
Non-Operators to accept the inventory taken by Operator, who
shall in that event furnish Non-Operators with a copy thereof.
2. RECONCILIATION AND ADJUSTMENTS OF INVENTORY
Reconciliation of inventory which has been charged to the
Oil Joint Account or the Gas Joint Account by the Operator
and a list of overages and shortages shall be jointly deter-
mined by Operator and Non-Operators. Inventory adjustment
shall be made by Operator with the Oil Joint Account and/or
Gas Joint Account, as applicable, for overages and short-
ages but Operator shall be held accountable to
Non-Operators only for shortages due to gross negligence
or willful misconduct.
EXHIBIT D
ATTACHED TO NILAM UNIT AGREEMENT
EFFECTIVE AS OF JANUARY 1, 1980
METHODOLOGY
FOR CALCULATING NILAM RESERVES
In the following, it is assumed that Participating Interests will
be adjusted to be in accordance with the volumes of proven hy-
drocarbons in-place at standard conditions (60 degrees F, 14.696
psia) from the volumetric equations generally accepted by the
Petroleum Industry. The method for the determination of petro-
physical parameters and for mapping each reservoir is described
below, and the basic principles on which an agreement may be
reached are put forward.
1. PETROPHYSICAL PARAMETERS
1.1 Net Sand and Net Pay
For each reservoir, the net sand will be taken as the
cumulative reservoir thickness, with a clay content
(Vol) equal to or less than 35% and a useful porosity
(ou) equal to or more than 10%.
In the event of the successful RFT, FIT, DST or Pt, (as
defined in paragraphs 3.2 and 3.3) in an interval
where the Volay is greater than 35% or useful porosity
less than 10%, the Volay or useful porosity limits
for that reservoir in that well, will be extended as
agreed by the NUTC.
The thickness will be read from the Gamma-Ray curve of
the FDC-CNL log adjusted for hole deviation and ex-
pressed in feet. (Figures will be rounded to the
nearest feet). In non-vertical wellbores the true
thickness of the sand will be calculated using the best
available deviation data.
Net pay is defined as the hydrocarbon bearing portion of
the net sand (see Section 3 : Criteria for proven re-
serves).
- 2 -
1.2 Clay Content = (Vcl)
The clay content will be calculated from the Gamma-Ray
reading, using the formula:
GR - GR min
Vcl = ________________
GR clay - GR min
Where = GR min = GR reading in the clean sands
GR clay = GR reading in the adjacent shales,
except organic shales
The calculations shall be made on a well-by-well basis.
1.3 Useful porosity - (ou)
Whenever possible, the useful porosity will be
calculated from the FDC-CHL every 2 foot interval,
after corrections for lithology, clay content and light
hydrocarbons have been made. These corrections shall
be made as follows:
a. Correction for lithology and clay content:
2 (2.7l - pma)
oNc = On + __________________ - (Vcl x oNcl)
3
oDc = Od - (Vcl x oDCl)
pma - pb
Od = __________
pma - pmf
pma - pcl
Odcl = _________
pma - pmf
- 3 -
pma = matrix density
pcl = FDC reading in the shales
pmf = mud filtrate density
Oncl = CNL reading in the shales
pmf values :
- water base mud : pmf = l + (.73 x ppm
10-6)
- oil base mud : pmf = .85
b. Correction for light hydrocarbons :
7 ODC = 2 Onc
______________
b.1 Compute o1 = 9
b.2 Compute Sw from Indonesia formula:
1
Sw n/2 = _____________________________
Vcl
(1 - ___ )
2
Vcl olm/2
Rt _____ + ______
Rcl a.Rw
(where m = w, n = 2, a = .81)
Where Rcl = shale resistivity
Rw - formation water resistivity
(see 1.4)
- 4 -
b.3 Compute Sxo
1
Sxo = ________________________________
Vcl
(1 - _____)
Rxo 2
Vcl o1
________ + _______
Rcl a.Rmf
Where a = .81 and Rmd = mud filtrate resistivity.
If no reliable Rxo log is available, Sxo - Sw1/5
b.4 Compute residual hydrocarbon saturation:
Srh = 1 Sxo
No hydrocarbon correction will be made if
Srh < 0.02.
b.5 Compute hydrocarbon density :
8 - 1 + Srh (1.17 + .72 o)
ph = __________________________
Srh (1.67 + .75 o)
Where o = 1 3o1 - m2.15 Odc
_____ x ___________________
Odc 0.85
- 5 -
b.6 Hydrocarbon correction:
1.07 o1 Srh [pmf (1.11 - .15 ppm .10-6) -1.15ph]
______________________________________________ +oDc
oDc = pmf - pma
o1 Srh x (0 - 1.67 ph + .17)
oNc = ____________________________
J + oNc
Where J = (1 - ppm -6 )
b.7 Compute new o1 where o1 = 7 oDC + 2 oNC
_____________
9
b.7 Go back to step b.2 (iterate 3 times)
b.9 ou= o1 (after 3 iterations)
c. For caved intervals: as the FDC-CNL is not reliable,
useful porosity will be calculated from the sonic log
corrected for clay content and compaction.
1 t zone - t ma t cl - t ma
ou = __ -------------- - Vcl x ------------
Cp t mf - t ma t mf - t ma
- 6 -
Where Cp, comparison factor = 1
t ma = matrix transit time
t cl = sonic reading in shales
t mf = mud filtrate transit time
For water base muds, t mf = 189 microsecs/ft.
for oil base muds, t mf = 210 microsecs/ft.
d. For detrital coals within a sand, porosity will be
taken from average porosity values in the adjacent
intervals within the sand.
1.4 Water Resistivity : (Rw)
A table of Rw values, reservoir by reservoir wig be
established by the Nilam Unit Technical Committee.
This table will be updated as new information is
gathered.
1.5 Water Saturation : (Sw)
Water Saturation shall be calculated every 2 feet using
the Schlumberger Sw formula for Indonesia :
1
Swn/2 = ______________________________________
(1 - Vcl)
___
2
Rt Vcl + ou m/2
______________ ____________
Rcl aRw
Where : a = .81, m = 2, n = 2
- 7 -
Rt is the uncorrected value of the deep Resistivity curve
from the Induction logs (except for wells Nilam 4, 5, 8, 40
and 43 where the uncorrected reading of the Dual Laterolog
will be taken from average values in the adjacent intervals
within the sane.
1.6 Clay and Matrix Parameters
(Rcl, tcl, Oncl, pcl tma, pma cp)
All these parameters will be deduced from the
appropriate standard cross-plots. Whenever possible
these cross-plots will be made for each zone (i.e. D, E,
F, G), in order to take into account the changes of
these parameters with depth. The chosen values will
be, whenever possible, kept constant all over the
NILAM Unit.
2. VOLUME COMPUTATION:
2.1 Net-pay Maps
In addition to the usual considerations of fluids and
pressure incompatibilities, which lead to the de-
finition of separated reservoirs the following
principles will be applied:
The contour interval will be 10 feet unless the
thickest net sand in a reservoir is 15 feet, or
less, in which case the contour interval will be
5 feet.
- 8 -
2.1.1 Maximum thickness = The maximum thickness of one
reservoir will be equal to the thickest net sand en-
countered by a well, adjusted for hole deviation,
rounded to the next higher 5 feet (e.g. well bore sand
= 18'; max. thickness = 20'; wellbore sand =
25' ; max thickness = 25').
2.1.2 Zero contours = The zero contour will be extra-
polated from sand values in a reservoir (linear extra-
polation), except in cases where a zero sand well
would fall within the extrapolated zone. In such cases,
the zero contour will be drawn through the zero sand
well, and other contours linearly interpolated between
0 and the nearest sand.
2.1.3 Single well reservoirs = If a reservoir in a
well is further than 2 km from the nearest other well in
the same reservoir it will be considered as a single
well reservoir. No mapping shall be attempted for
single well reservoirs. The corresponding reserves
will be computed by acreage assignment.
2.1.4 Acreage assignment = For a reservoir which cannot
be mapped (see 2.1.3), volumes will be calculated by
assigning to each well an area over which the wellbore
net pay will be considered as constant.
- 9 -
The acreage thus assigned will be a circle around the
well containing 320 acres for a gas reservoir, and a
circle around the well containing 80 acres for an oil
reservoir.
2.1.5 The subsurface trace of the wellbore will be calculated
from available deviation data. Mapping of sands will
be carried out using the true subsurface position and
true vertical thickness.
2.1.6 Net pay maps = Will be constructed from net sand maps
prepared as above, taking hydrocarbon contacts into
consideration. (Net pay defined in 1.1.1)
2.1.7 No mapping will be attempted between wells in any given
reservoir greater than two kilometers apart, or more
than two kilometers beyond well control.
2.2 Hydrocarbon Volumes
2.2.1 Volumes of hydrocarbons at standard conditions
will be defined as :
Vsc - VRC / FVF
where VRC is the reservoir rock volume as
calculated by planimetry from an agreed
net pay map of the reservoir in question,
multiplied by oavg x (1-Sw avg.) and FVF
is the formation volume factor.
- 10 -
(h x ou)
with oavg = ______________
h
Sw avg = (h x ou x Sw)
_____________
(h x ou)
and h, is the true vertical thickness of the pay
interval (normally 2 feet) corresponding to each
value of ou, Sw.
All the values of ou and Sw from all the wells in
a given reservoir will be considered and given
equal weight.
2.2.2 Datum level = The datum level will be chosen for
each reservoir to be the midpoint between the
highest proven oil or gas and the lowest proven
oil or gas in that reservoir.
2.2.3 Formation volume factor = gas (BG)
The formation volume factor for gas will be defined
as :
Psc Tz
Bg = ____________ cuft/SCF
Tsc P
where Psc = 14.696 Psia; Tsc = 520.0 Or
- 11 -
Values of P and T should be average reservoir
pressure and temperature determined from DST and/or
BHP surveys when available and reliable. Actual gas
analysis data will be used for the calculation of '2'
when available and reliable.
In lieu of the above data, the following empirical
formulas should be used:
Zone D, z = 0.8899
Zone E, z = 0.9328
Zone F, z = 1.0052
Zone G, z = 1.0589
The value of P, T will be taken from the following
formulae:
T (Or) = 0.0206d = 464.0
P (Psia = 0.4820d = 397.0
where d = depth sub-sea, in feet, of the reservoir's
datum level where d is deeper than 7,000 feet.
2.2.4 Formation volume factor = oil (Bo)
For the purpose of the unitization, the Parties agree
to use the average oil formation volume factor available
from FLASH analysis, at normal operating conditions,
of recombined samples of the reservoir oil, zone by
zone (D, E, F, G). In the case where no PVT flash
data are available for the zone in question, the Bo
value of the nearest zone where it has been measured
will be used.
3. CRITERIA FOR PROVEN RESERVES
3.1 Correlations and Maps
3.1.1 Gas zones: Gas reserves are considered proven in a
well when all of the following conditions are met,:
- the zones has Vclay less than or equal to 35%
and ou equal to or greater than 10%, subject to
paragraph 1.1.
- the zone is logically correlated to a proven area
of the reservoir (regardless of structural position)
- the sand can be logically extended (i.e. mapped
within the limitation of paragraph 2.1.3)
- the calculated Sw in the cleanest part of the zone
is below the following cut-off (otherwise one of
the following tests is required : DST,m RFT, FIT or
Pt)
Vcl < 10% Sw < 50%
10% < Vcl < 20% Sw < 55%
20% < Vcl < 30% Sw < 60%
30% < Vcl < 35% Sw < 65%
If Vcl > 30%, regardless of the Sw value, and the sand
is below the LPG one of the following tests is required
to prove gas reserves : RFT, FIT, DST OR PT.
- 13 -
3.1.2 Oil zones : Oil reserves are proven in a well
when all of the following conditions are ful-
filled :
- the zone has Vclay less than or equal to 35%
and ou equal to or greater than 10%, subject
to Paragraph 1.1.
- the zone is logically correlated to a proven
area of the reservoir
- the sane can be logically extended, and the
well is less than 1 km from the nearest
proven oil well in the reservoir.
- if the zone is below the LPO, the calculated
Sw is less than the following cut-off
otherwise, one of the following tests is
required : DST, RFT, FIT, or Pt)
Vcl < 10 % Sw < 40%
10% < Vcl < 20 % Sw < 45%
20% < Vcl < 30 % Sw < 50%
(If Vcl > 30%, one of the following tests is
required to prove reserves : RFT,DST,FIT,PT).
If the zone is above the HPO, one of the
following tests is required to determine if
the hydrocarbon is oil : DST, FIT, RFT, PT,
otherwise it is proved gas.
- 14 -
3.2 RFT and FIT tests
A RFT or a FIT showing a minimum recovery of 2 SCF
of gas, will be considered as proving gas reserves,
or 1 liter of oil (with a maximum GOR of 3000
SCF/STB) will be considered as proving oil reserves.
3.3 DST and PT
Recovery of a minimum of 200,000 SCF/D of gas,
will be considered as proving gas reserves.
The recovery of a minimum of 10 BOPD, with a GOR
or less than 3000 SCF/STB will be considered as
proving oil reserves.
3.4 In cases where a DST or PT and either a RFT or a FIT
have been carried out on the same zone (and are both
mechanically successful), only the DST or PT result
will be used.
- 15 -
DEFINITIONS OF TERMS AND ABBREVIATIONS
Page 2
Vcl = clay content expressed in percent
FDC = Formation Density Compensated
CNL = Compensated Neutron Log
GR = Gamma Ray
GR min = minimum Gamma Ray reading in API units
GR max = maximum Gamma Ray reading
Onc = porosity from neutron log corrected for clay
oDc = porosity from density log corrected for clay
oN = porosity from neutron log
pma = matrix density in gm/cc
oNcl = neutron porosity of clay
oD = porosity calculated from density log
pcl = clay density
pmf = density of mud filtrate
oDcl = porosity from density log of clay
Page 3
o1 = porosity corrected for light hydrocarbon
effects
Sw = water saturation
Rt = resistivity from log
Rw = formation water resistivity
Rcl = resistivity of clay
- 16 -
Page 4
Sxo = flushed zone water saturation
Rxo = resistivity of flushed zone
Rmf = resistivity of mud filtrate
Srh = residual hydrocarbon saturation
ph = hydrocarbon density
Page 5
oNC = porosity from neutron log corrected for
clay and light hydrocarbon
oDC = porosity from density log corrected for
clay and light hydrocarbons
ppm = mud filtrate salinity expressed in ppm
Cp = compaction factor
tma = interval transit time of the matrix
tcl = interval transit time of the clay
tmf = interval transit time of the mud filtrate
t zone = interval transit time of the zone
Page 9
Bg = Formation Volume Factor for gas
Pst = Pressure at Standard Conditions
T = Reservoir Temperature (oR)
z = Supercompressibility Factor
Tsc = Temperature at Standard Conditions
P = Reservoir Pressure (psia)
oR = Degrees Rankin
SCF = Standard Cubic Feet
Psia = Pounds per square inch absolute
cu ft = Cubic Foot
- 17 -
Page 11
Bo = Formation Volume Factor for oil
PVT = Pressure Volume Temperature
Page 12
DST = Drill Stem Test
PT = Production Test
LPG = Low Proven Gas - The lowest structural
occurrence of proven gas as
defined in Section 3.1.1
Page 13
LPO = Low Proven Oil - The lowest structural
occurrence of proven oil
as defined in Section 3.1.2
HPO = High Proven Oil - The highest structural
occurrence of proven oil
as defined in Section
3.1.2
Page 14
SCF/D = Standard Cubic Feet/Day
STB = Stock Tank Barrel
BOPD = Barrels Oil Per Day
GOR = Gas Oil Ratio
Jakarta
December 6, 1982
PERTAMINA
Bacan Koordinator Kontraktor Asing
Annex Building, 5th Fl.
Jln. Merdeka Timur 1-A
Jakarta
Attn: Mr. D. Zahar
Head of BKKA
Dear Sir:
Re: Nilam Unit Agreement
Section 2.2 of the Nilam Unit Agreement provides for a final
redetermination of Participating Interests in the Nilam Oil Unit
and Nilam Gas Unit based on data available on June 30, 1982.
Such adjustment of Participating Interests requires
Pertamina's approval before being used for purposes of the Huffco
Contract and the Inpex Contract, as those terms are defined in the
Nilam Unit Agreement.
The parties have now reviewed the data available on June 30,
1982, and are in agreement that:
The Participating Interests of the parties in Oil and the Oil
Unit shall be as follows:
Huffington Venturers: 78.84%
Total Venturers: 21.16%
The Participating Interests of the parties in Gas and Natural
Gas Liquids and in the Gas Unit shall be as follows:
Huffington Venturers: 81.43%
Total Venturers: 18.57%
In accordance with the terms of the Nilam Unit Agreement,
Huffco and Total request that Pertamina approve the revised
Participating Interests as above stated.
It is our understanding that the Nilam Unit Agreement has been
approved in principle by the Government, subject only to their
approval of the final Participating Interests. We request
therefore, that when confirming your approval pursuant to Section
2.2, you confirm the Government's approval of the Nilam Unit
Agreement and the final Participating Interests as set out above.
Very truly yours,
For and on behalf of For and on behalf of
HUFFCO VENTURERS: TOTAL VENTURERS:
/S/ /S/
J.R. Weyler J. M. Demanche
President, Huffco Indonesia General Manager, Total
Indonesie