OPERATING AGREEMENT
THIS AGREEMENT is made as of the Effective Date among Alliance
Egyptian National Exploration Company, a company incorporated in the Cayman
Islands (hereinafter referred to as Alliance); and GHP Exploration (Egypt),
Ltd., a company incorporated in Bermuda (hereinafter referred to as GHP). The
companies named above may sometimes individually be referred to as "Party"
and collectively as "Parties".
WITNESSETH:
WHEREAS, the Parties have entered into or have been assigned rights in
and to the Concession Agreement with Government and the EGPC covering the
Concession Area; and
WHEREAS, the Parties desire to define their respective rights and
obligations with respect to their operations under the Concession Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements and obligations set out below and to be performed,
the Parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following words and terms shall have
the meaning ascribed to them below:
"ACCOUNTING PROCEDURE" means the rules, provisions and conditions set
forth and contained in Exhibit A to this Agreement.
"AFE" means an authorization for expenditure pursuant to Article 6.6.
"AFFILIATE" means a company, partnership or other legal entity which
controls, or is controlled by, or which is controlled by an entity which
controls, a Party. Control means the ownership directly or indirectly of
fifty (50) percent or more of the voting rights in a company, partnership
or legal entity.
"AGREED INTEREST RATE" means interest compounded on a monthly basis, at
the rate per annum equal to the one (1) month term, London Interbank
Offered Rate (LIBOR rate) for U.S. dollar deposits, as published by THE
WALL STREET JOURNAL or if not published, then by the FINANCIAL TIMES OF
LONDON, plus two (2%) percentage points, applicable on the first Business
Day prior to the due date of payment and thereafter on the first Business
Day of each succeeding calendar month. If the aforesaid rate is contrary
to any applicable usury law, the rate of interest to be charged shall be
the maximum rate permitted by such applicable law.
"AGREEMENT" means this agreement, together with the Exhibits attached to
this agreement, and any extension, renewal or amendment hereof agreed to
in writing by the Parties.
"APPRAISAL WELL" means any well (other than an Exploration Well or a
Development Well) whose purpose at the time of commencement of drilling
such well is to appraise the extent or the volume of Hydrocarbon reserves
contained in an existing Discovery.
"BARREL" means a quantity consisting of forty-two (42) United States
gallons, corrected to a temperature of sixty (60) degrees Fahrenheit
under one (1) atmosphere of pressure.
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"BOARD OF DIRECTORS" means the Board of Directors of the Operating
Company and "Director" means a member of the Board of Directors.
"BUSINESS DAY" means a day on which the banks in Calgary, Alberta and
Houston, Texas are customarily open for business.
"CALENDAR QUARTER" means a period of three (3) months commencing with
January 1and ending on the following March 31, a period of three (3)
months commencing with April 1and ending on the following June 30, a
period of three (3) months commencing with July 1 and ending on the
following September 30, or a period of three (3) months commencing with
October 1 and ending on the following December 31 according to the
Gregorian Calendar.
"CALENDAR YEAR" means a period of twelve (12) months commencing with
January 1 and ending on the following December 31 according to the
Gregorian Calendar.
"CASH PREMIUM" means the payment made pursuant to Article 7.5(B) by a
Non-Consenting party to reinstate its rights to participate in an
Exclusive Operation.
"COMMERCIAL DISCOVERY" means any discovery of Hydrocarbons which in the
opinion of the Operating Committee (or the Consenting Parties pursuant to
Article 7.2) would warrant the development of the Hydrocarbons bearing
reservoir, having regard to recoverable reserves, production, pipeline
and terminal facilities, estimated petroleum prices and al other relevant
technical and economic factors is sufficient to entitle the Parties to
apply for authorization from the Government to commence exploitation.
"COMPLETION" means an operation intended to complete a well through the
Christmas tree as a producer of Hydrocarbons in one or more Zones,
including, but not limited to, the setting of production casing,
perforating, stimulating the well and production Testing conducted in
such operation. Complete and other derivatives shall be construed
accordingly.
"CONCESSION AGREEMENT" means the instrument concluded between the
Government, EGPC and National Exploration Company, ratified by the
Government on September 22, 1997 and any extension, renewal or amendment
thereof agreed to in writing by the Parties and those laws, statutes,
rules and regulations with respect to the exploration, development and
production of Hydrocarbons that govern such instrument or are
incorporated by the terms of such instrument.
"CONCESSION AREA" means as of the Effective Date the surface area which
is described in Annex "A" to the Concession Agreement. The perimeter or
perimeters of the Concession Area shall correspond to that area covered
by the Concession Agreement, as such area may vary from time to time
during the term of validity of the Concession Agreement.
"CONSENTING PARTY" means a Party who agrees to participate in and pay its
share of the cost of an Exclusive Operation.
"CONTRACTOR" shall have the meaning ascribed to that term in the
Concession Agreement.
"COST OIL" means that portion of the total production of Hydrocarbons
which is allocated to the Parties under the Concession Agreement for the
recovery of Petroleum Costs and referred to and defined as "Cost Recovery
Petroleum" in the Concession Agreement.
"DAY" means a calendar day unless otherwise specifically provided.
"DEFAULT NOTICE" shall have the meaning ascribed in Article 8.1.
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"DEFAULTING PARTY" shall have the meaning ascribed in Article 8.1.
"DEEPENING" means an operation whereby a well is drilled to an objective
Zone below the deepest Zone in which the well was previously drilled, or
below the deepest Zone proposed in the associated AFE, whichever is the
deeper. DEEPEN and other derivatives shall be construed accordingly.
"DEVELOPMENT BLOCK" shall have the meaning ascribed to that term in the
Concession Agreement.
"DEVELOPMENT LEASE" shall have the meaning ascribed to that term in the
Concession Agreement.
"DEVELOPMENT PERIOD" shall have the meaning given to that term in the
Concession Agreement.
"DEVELOPMENT PLAN" means a plan for the development of Hydrocarbons from
a Development Lease.
"DEVELOPMENT WELL" means any well drilled in the Contract Area pursuant
to a Development Plan.
"DISCOVERY" means the discovery of an accumulation of Hydrocarbons whose
existence until that moment was unproven by drilling.
"EFFECTIVE DATE" means the date this Agreement comes into effect as
stated in Article II. "EGPC" means The Egyptian General Petroleum
Corporation.
"ENTITLEMENT" means a quantity of Hydrocarbons of which a Party has the
right and obligation to take delivery of, pursuant to the Concession
Agreement or, if applicable, an offtake agreement, and the terms of this
Agreement, which, subject to the terms of the Participation Agreement,
shall be derived in proportion to that Party's Participating Interest in
the Hydrocarbons produced, after adjustment for overlift and underlifts.
"EXCESS COST OIL" shall have the meaning given to "Excess Cost Recovery
Oil" in the Concession Agreement.
"EXCLUSIVE OPERATION" means those operations and activities carried out
pursuant to this Agreement, the costs of which are chargeable to the
account of less than all the Parties.
"EXCLUSIVE WELL" means a well drilled pursuant to an Exclusive Operation.
"EXPLORATION ADVISORY COMMITTEE" means the committee of that name
provided for in the Concession Agreement.
"EXPLORATION PERIOD" means any and all periods of exploration set out in
the Concession Agreement.
"EXPLORATION SUB-PERIOD" means one of the periods for exploration set out
in the Concession Agreement.
"EXPLORATION WELL" means any well whose purpose at the time of the
commencement of drilling is to explore for an accumulation of
Hydrocarbons whose existence was at that time unproven by drilling.
"FINANCIAL YEAR" shall have the meaning given to that term in the
Concession Agreement.
"G&G DATA" means only geological, geophysical and geochemical data and
other similar information that is not obtained through a well bore.
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"GOVERNMENT" means the government of The Arab Republic of Egypt and any
political subdivision or agency or instrumentality thereof, including
without limitation EGPC.
"GROSS NEGLIGENCE" means any act or failure to act (whether sole, joint
or concurrent) by any person or entity which was intended to cause, or
which was in reckless disregard of or wanton indifference to, harmful
consequences such person or entity knew, or should have known, such act
or failure would have on the safety or property of another person or
entity.
"HYDROCARBONS" means all substances including liquid and gaseous
hydrocarbons which are subject to and covered by the Concession
Agreement.
"INITIAL EXPLORATION PERIOD" shall have the meaning given to that term in
the Concession Agreement.
"JOINT ACCOUNT" means the accounts maintained by Operator in accordance
with the provisions of this Agreement and of the Accounting Procedure for
Joint Operations.
"JOINT OPERATIONS" means those operations and activities carried out by
Operator pursuant to this Agreement and the Concession Agreement,
including "Exploration" and "Development", as those terms are defined in
the Concession Agreement, the costs of which are chargeable to all
Parties.
"JOINT PROPERTY" means, at any point in time, all wells, facilities,
equipment, materials, information, funds and the property held for use in
Joint Operations.
"MANDATORY APPRAISAL WELL" means an Appraisal Well which, unless
otherwise agreed to by EGPC, is required pursuant to the terms of the
Concession to be drilled before notice of a Commercial Discovery may be
given, provided this shall not include any such well which would qualify
as an obligatory well under the Minimum Work Obligations for the then
current Exploration Sub-Period.
"MINIMUM WORK OBLIGATIONS" means those work and/or expenditure
obligations specified in Article IV of the Concession Agreement.
"NON-CONSENTING PARTY" means a Party who elects not to participate in an
Exclusive Operation. "Non-Operator(s)" means the Party or Parties to
this Agreement other than Operator.
"OPERATING COMMITTEE" means the committee constituted in accordance with
Article V.
"OPERATING COMPANY" means the company to be created to conduct operations
under the Concession after a Commercial Discovery.
"OPERATOR" means a Party to this Agreement designated as such in
accordance with this Agreement.
"PARTICIPATING INTEREST" means the undivided percentage interest of each
Party in the rights and obligations derived from the Concession Agreement
and this Agreement.
"PARTICIPATION AGREEMENT" means the Participation Agreement between
Alliance and GHP dated March 27, 1998 and any amendments and revisions
thereto.
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"PARTY OR PARTIES" means any or all of the entities named in the first
paragraph to this Agreement and any respective permitted successors or
assigns.
"PETROLEUM COSTS" means costs and expenses incurred by the Parties and
allowed to be recovered pursuant to the Concession Agreement.
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"PLUGGING BACK" means a single operation whereby a deeper Zone is
abandoned in order to attempt a Completion in a shallower Zone. Plug Back
and other derivatives shall be construed accordingly.
"PRODUCTION BONUS" means a bonus payable by the Parties under Article IX
of the Concession Agreement.
"PROFIT OIL" means that portion of the total production of Hydrocarbons,
in excess of Cost Oil, which is allocated to the Parties under the terms
of the Concession Agreement and includes the Parties' share of Excess
Cost Oil contemplated in the Concession Agreement.
"RECOMPLETION" means an operation whereby a Completion in one Zone is
abandoned in order to attempt a Completion in a different Zone within the
existing wellbore. RECOMPLETE and other derivatives shall be construed
accordingly.
"REWORKING" means an operation conducted in the wellbore of a well after
it is Completed to secure, restore, or improve production in a Zone which
is currently open to production in the wellbore. Such operations include,
but are not limited to, well stimulation operations, but exclude any
routine repair or maintenance work, or drilling, Sidetracking, Deepening,
Completing, Recompleting. or Plugging Back of a well. REWORK and other
derivatives shall be construed accordingly.
"SIDETRACKING" means the directional control and intentional deviation of
a well from vertical so as to change the bottom hole location unless done
to straighten the hole or to drill around junk in the hole or to overcome
other mechanical difficulties. SIDETRACK and other derivatives shall be
construed accordingly.
"TESTING" means an operation intended to evaluate the capacity of a Zone
to produce Hydrocarbons. TEST and other derivatives shall be construed
accordingly.
"WORK PROGRAM AND BUDGET" means a work program for Joint Operations and
budget therefor as described and approved in accordance with Article VI.
"ZONE" means a stratum of earth containing or thought to contain an
accumulation of Hydrocarbons separately producible from any other
accumulation of Hydrocarbons.
ARTICLE II
EFFECTIVE DATE AND TERM
This Agreement shall have effect from January 1, 1999 and shall
continue in effect until the Concession Agreement terminates and all
materials, equipment and personal property used in connection with the Joint
Operations have been removed and disposed of, and final settlement has been
made among the Parties.
Notwithstanding the preceding sentence:
(A) Article X shall remain in effect until all wells have been
properly abandoned; and
(B) Article 4.5 and Article XVIII shall remain in effect until all
obligations, claims, arbitrations and lawsuits have been settled
or otherwise resolved; and
(C) Article XV shall remain in effect until the time relating to the
protection of confidential information and proprietary technology
has expired.
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ARTICLE III
SCOPE
3.1 SCOPE
(A) The purpose of this Agreement is to establish the respective
rights and obligations of the Parties with regard to operations
under the Concession Agreement, including without limitation the
joint exploration, appraisal, development and production of
Hydrocarbon reserves from the Concession Area.
(B) Without limiting the generality of Article 3.1(A), the following
activities are outside of the scope of this Agreement and are not
addressed herein:
(1) Construction, operation, maintenance, repair and removal of
facilities downstream from the point of delivery of the
Parties' shares of Hydrocarbons under the offtake agreement
provided for in Article 9.2;
(2) Transportation of Hydrocarbons beyond the point of delivery
of the Parties' shares of Hydrocarbons under the offtake
agreement provided for in Article 9.2;
(3) Marketing and sales of Hydrocarbons, except as expressly
provided in Articles 7.11(E) and 8.4 and in Article IX;
(4) Acquisition of rights to explore for, appraise, develop or
produce Hydrocarbons outside of the Concession Area (other
than as a consequence of unitization with an adjoining
Concession Area under the terms of the Concession
Agreement); and
(5) Exploration, appraisal, development or production of
minerals other than Hydrocarbons, whether inside or outside
of the Concession Area.
3.2 PARTICIPATING INTEREST
(A) The Participating Interests of the Parties as of the Effective
Date are:
Alliance 75%
GHP 25%
(B) If a Party transfers all or part of its Participating Interest
pursuant to the provisions of this Agreement and the Concession
Agreement, the Participating Interests of the Parties shall be
revised accordingly.
3.3 OWNERSHIP, OBLIGATIONS AND LIABILITIES
(A) Unless otherwise provided in this Agreement or the Participation
Agreement, all the rights and interests in and under the
Concession Agreement, all Joint Property and any Hydrocarbons
produced from the Concession Area shall, subject to the terms of
the Concession Agreement, be owned by the Parties in accordance
with their respective Participating Interests.
(B) Unless otherwise provided in this Agreement or the Participation
Agreement, the obligations of the Parties under the Concession
Agreement and all liabilities and expenses incurred by Operator in
connection with Joint Operations shall be charged to the Joint
Account and all credits to the Joint Account shall be shared by
the Parties, as among themselves, in accordance with their
respective Participating Interests.
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(C) Each Party shall pay when due, in accordance with the Accounting
Procedure, its Participating Interest share of Joint Account
expenses, including cash advances and interest, accrued pursuant
to this Agreement and the Participation Agreement. The Parties
agree that time is of the essence for payments owing under this
Agreement. A Party's payment of any charge under this Agreement
shall be without prejudice to its right to later contest the
charge.
ARTICLE IV
OPERATOR
4.1 DESIGNATION OF OPERATOR
Alliance is designated as Operator, and agrees to act as such.
4.2 RIGHTS AND DUTIES OF OPERATOR
(A) Subject to the terms and conditions of this Agreement, Operator
shall have all of the rights, functions and duties of the
Contractor in respect of the conduct of Joint Operations under the
Concession Agreement and shall have exclusive charge of and shall
conduct all Joint Operations. Operator may employ independent
contractors and/or agents (which may include Affiliates of
Operator) in such Joint Operations.
(B) In the conduct of Joint Operations Operator shall:
(1) perform Joint Operations in accordance with the provisions
of the Concession Agreement, this Agreement and the
instructions of the Operating Committee not in conflict
with this Agreement and in compliance with applicable laws,
rules, regulations and decrees of the Arab Republic of
Egypt.;
(2) conduct all Joint Operations in a diligent, safe and
efficient manner in accordance with good and prudent oil
field practices and conservation principles generally
followed by the international petroleum industry under
similar circumstances;
(3) subject to Article 4.6 and the Accounting Procedure,
neither gain a profit nor suffer a loss as a result of
being the Operator in its conduct of Joint Operations,
provided that Operator may rely upon Operating Committee
approval of specific accounting practices not in conflict
with the Accounting Procedure;
(4) perform the duties for the Operating Committee set out in
Article V, and prepare and submit to the Operating
Committee the proposed Work Programs, and Budget and AFE's
as provided in Article VI;
(5) acquire all permits, consents, approvals, surface or other
rights that may be required for or in connection with the
conduct of Joint Operations;
(6) upon receipt of reasonable advance notice, permit the
representatives of any of the Parties to have at all
reasonable times and at their own risk and expense
reasonable access to the Joint Operations with the right to
observe all such Joint Operations and to inspect all Joint
Property and to conduct financial audits as provided in the
Accounting Procedure;
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(7) maintain the Concession Agreement in full force and effect.
Operator shall promptly pay and discharge all liabilities
and expenses incurred in connection with Joint Operations
and use its reasonable efforts to keep and maintain the
Joint Property free from all liens, charges and
encumbrances arising out of Joint Operations;
(8) pay to the Government for the Joint Account, within the
periods and in the manner prescribed by the Concession
Agreement and all applicable laws and regulations, all
periodic payments, royalties, taxes, fees and other
payments pertaining to Joint Operations, but excluding any
taxes measured by the incomes of the Parties;
(9) carry out the obligations of Contractor pursuant to the
Concession Agreement, including, but not limited to,
preparing and furnishing such reports, records and
information as may be required pursuant to the Concession
Agreement;
(10) have, in accordance with the decisions of the Operating
Committee, Article 5.14 and Article 6.3(B), the exclusive
right and obligation to represent the Parties in all
dealings with the Government with respect to matters
arising under the Concession Agreement and Joint
Operations. Operator shall notify the other Parties as soon
as possible of such meetings. Non-Operators shall have the
right to attend such meetings but only in the capacity of
observers. Nothing contained in this Agreement shall
restrict any Party from holding discussions with the
Government with respect to any issue peculiar to its
particular business interests arising under the Concession
Agreement or this Agreement, but in such event such Party
shall promptly advise the Parties, if possible, before and
in any event promptly after such discussions, provided that
such Party shall not be required to divulge to the other
Parties any matters discussed to the extent the same
involve proprietary information or matters not affecting
the other Parties; and
(11) take all necessary and proper measures for the protection
of life, health, the environment and property in the case
of an emergency; provided, however, that Operator shall
immediately notify the Parties of the details of such
emergency and measures.
(12) Include, to the extent practical, in its agreements with
independent contractors to the extent lawful, provisions
which:
(a) establish that such contractors can only enforce
their agreements against Operator;
(b) permit operator, on behalf of itself and
Non-Operators, to enforce contractual indemnities
against, and recover losses and damages suffered by
them (insofar as recovered under their contracts)
from, such contractors; and
(c) require such contractors to take insurance required
by Article 4.8(F).
4.3 TECHNICAL ADVISOR
(A) The Parties designate GHP to assume the role of Technical Advisor
under this Agreement and GHP agrees to accept and perform the
responsibilities and duties associated therewith.
(B) The Technical Advisor will have the general responsibility of
providing, by itself or through Affiliates, geological and
geophysical technical expertise necessary or appropriate for the
conduct of Joint Operations on the Concession Area.
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(C) Without limiting the generality of the foregoing, the Technical
Advisor shall:
(1) Perform its duties in accordance with the provisions of
this Agreement and the instructions of the Operating
Committee;
(2) Conduct its duties and responsibilities in a diligent, safe
and efficient manner in accordance with good and prudent
oil field practices generally followed by the international
petroleum industry under similar circumstances;
(3) Prepare and submit to the Operating Committee, in a timely
manner, proposals for the Work Program and Budget
pertaining to its work; and
(4) Consult with Operator on a regular basis for the purpose of
reviewing and scheduling the activities being carried out
under this Agreement.
(D) The Technical Advisor shall charge the Joint Account for the costs
of providing the services described in this Article 4.3. GHP shall
charge a rate of one hundred U.S. dollars (U. S. $100.00) per
hour to cover the salaries, wages and related daily office
expenses of any of its professional employees performing any
duties of Technical Advisor as described in Article 4.3 (C) above.
The hourly rate does not include extraordinary costs and expenses
incurred by GHP in performing its role as Technical Advisor.
(E) Costs incurred hereunder by Technical Advisor shall be billed to
the Operator, on a monthly basis. Operator shall reimburse
Technical Advisor for such costs and charge the Joint Account.
4.4 EMPLOYEES OF OPERATOR
Subject to the provisions of the Concession Agreement and this Agreement,
Operator shall determine the number of employees, the selection of such
employees, the hours of work and the compensation to be paid all such
employees in connection with Joint Operations. Operator shall employ only
such employees, agents and contractors as are reasonably necessary to
conduct Joint Operations.
4.5 INFORMATION SUPPLIED BY OPERATOR
(A) Operator shall provide Non-Operators the following data and
reports as they are currently produced or compiled from the Joint
Operations:
(1) copies of all logs or surveys;
(2) daily drilling progress reports;
(3) advance notice of logging, coring and testing operations;
(4) copies of all Tests and core analysis reports;
(5) copies of the plugging reports;
(6) copies of the final geological and geophysical maps and
reports;
(7) engineering studies, development schedules and annual
progress reports on development projects;
(8) field and well performance reports, including reservoir
studies and reserve estimates;
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(9) copies of all reports relating to Joint Operations
furnished by Operator to the Government, except magnetic
tapes which shall be stored by Operator and made available
for inspection and/or copying at the sole expense of the
Non-Operator requesting same;
(10) other reports as frequently as is justified by the
activities or as instructed by the Operating Committee; and
(11) subject to Article 15.3, such additional information for
Non-Operators as they or any of them may request, provided
that the requesting party or Parties pay the costs of
preparation of such information and that the preparation of
such information will not unduly burden Operator's
administrative and technical personnel. Only Non-Operators
who pay such costs shall receive such additional
information.
(B) Operator shall give Non-Operators access at all reasonable times
to all other data acquired in the conduct of Joint Operations. Any
Non-Operator may make copies of such other data at its sole
expense.
4.6 Settlement of Claims and Lawsuits
(A) Operator shall promptly notify the Parties of any and all material
claims or suits and such other claims and suits as the Operating
Committee may direct which arise out of Joint Operations or relate
in any way to Joint Operations. Operator shall represent the
Parties and defend or oppose the claim or suit. Operator may in
its sole discretion compromise or settle any such claim or suit or
any related series of claims or suits for an amount not to exceed
the equivalent of U.S. dollars fifty thousand (U.S. $50,000)
exclusive of legal fees. Operator shall obtain the approval and
direction of the Operating Committee on amounts in excess of the
above stated amount. Each Non-Operator shall have the right to be
represented by its own counsel at its own expense in the
settlement, compromise or defense of such claims or suits.
(B) Any Non-Operator shall promptly notify the other Parties of any
claim made against such Non-Operator by a third party which arises
out of or may affect the Joint Operations, and such Non-Operator
shall defend or settle the same in accordance with any directions
given by the Operating Committee. Those costs, expenses and
damages incurred pursuant to such defense or settlement which are
attributable to Joint Operations shall be for the Joint Account.
(C) Not-withstanding Article 4.6(A) and Article 4.6(B), each Party
shall have the right to participate in any such suit, prosecution,
defense or settlement conducted in accordance with Article 4.6(A)
and Article 4.6(B) at its sole cost and expense; provided a1ways
that no Party may settle its Participating Interest share of any
claim without first satisfying the Operating Committee that it can
do so without prejudicing the interests of the Joint Operations or
the other Parties.
4.6 Limitation on Liability of Operator
(A) Except as set out in this Article 4.7, neither the Party
designated as Operator nor the Technical Advisor nor any other
indemnitee (as defined below) shall bear (except as a party to the
extent of its Participating Interest share) any damage, loss,
cost, expense or liability resulting from performing (or failing
to perform) the duties and functions of the Operator or the
Technical Advisor, and the indemnitees are hereby released from
liability to Non-Operators for any and all damages, losses, costs,
expenses and liabilities arising out of, incident to or resulting
from such performance or failure to perform, even though caused in
whole or in part by a pre-existing defect, the negligence (whether
sole, joint or concurrent), Gross Negligence, strict liability or
other legal fault of Operator (or any such indemnitee).
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(B) except as set out in this Article 4.7, the parties shall in
proportion to their Participating Interests defend and indemnify
Operator and its Affiliates, and the officers and directors of
both (collectively, the "indemnitees"), from any and all damages,
losses, costs, expenses (including reasonable legal costs.
expenses and attorneys' fees) and liabilities incident to claims,
demands or causes of action brought by or on behalf of any person
or entity, which claims, demands or causes of action arise out of,
are incident to or result from Joint Operations, even though
caused in whole or in part by a pre-existing defect, the
negligence (whether sole, joint or concurrent), Gross Negligence,
strict liability or other legal fault of Operator or the Technical
Advisor (or any such indemnitee) as the case may be.
(C) Nothing in this Article 4.7 shall be deemed to relieve the Party
designated as Operator or designated as Technical Advisor from its
Participating Interest share of any damage, loss, cost, expense or
liability arising out of, incident to or resulting from Joint
Operations.
4.8 INSURANCE OBTAINED BY OPERATOR
(A) Operator shall procure and maintain or cause to be procured and
maintained for the Joint Account all insurance in the types and
amounts required by the Concession Agreement and applicable laws,
rules and regulations and as provided in Exhibit B.
(B) Operator shall obtain such further insurance, at competitive
rates, as the Operating Committee may from time to time require.
(C) Any Party may elect not to participate in the insurance to be
procured under Article 4.8(B) provided such Party:
(1) gives prompt notice to that effect to Operator;
(2) does nothing which may interfere with Operator's
negotiations for such insurance for the other Parties; and
(3) obtains and maintains such insurance (in respect of which
an annual certificate of adequate coverage from a reputable
insurance broker shall be sufficient evidence) or other
evidence of financial responsibility which fully covers its
Participating Interest share of the risks that would be
covered by the insurance procured under Article 4.8(B), and
which the Operating Committee may determine to be
acceptable. No such determination of acceptability shall in
any way absolve a non-participating Party from its
obligation to meet each cash call including any cash call
in respect of damages and losses and/or the costs of
remedying the same in accordance with the terms of this
Agreement. If such Party obtains other insurance, such
insurance shall contain a waiver of subrogation in favor of
all the other Parties, the Operator and their insurers but
only in respect of their interests under this Agreement and
the Concession Agreement.
(D) The cost of insurance in which all the Parties are participating
shall be for the Joint Account and the cost of insurance in which
less than all the Parties are participating shall be charged to
the Parties participating in proportion to their respective
Participating Interests.
(E) Operator shall, in respect of all insurance obtained pursuant to
this Article 4.8:
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(1) promptly inform the participating Parties when such
insurance is obtained and supply them with certificates of
insurance or copies of the relevant policies when the same
are issued;
(2) arrange for the participating Parties, according to their
respective Participating Interests, to be named as
co-insureds on the relevant policies with waivers of
subrogation in favor of all the Parties; and
(3) duly file all claims and take all necessary and proper
steps to collect any proceeds and credit any proceeds to
the participating Parties in proportion to their respective
Participating Interests.
(F) Operator shall use its reasonable efforts to require all
contractors performing work in respect of Joint Operations to
obtain and maintain any and all insurance in the types and amounts
required by any applicable laws, rules and regulations or any
decision of the Operating Committee and shall use its reasonable
efforts to require a11 such contractors to name the Parties as
additional insureds on such contractors' insurance policies or to
obtain from their insurers waivers of all rights of recourse
against Operator, Non-Operators and their insurers.
4.9 COMMINGLING OF FUNDS
Operator may not commingle the Operator's own funds the monies which
Operator receives from or for the Joint Account pursuant to this
Agreement. Such monies shall be applied only to their intended use and
shall not be deemed to be funds belonging to Operator. Operator shall
maintain a separate bank account solely for purposes on funds received in
relation to the Joint Account pursuant to this Agreement and the
Concession Agreement.
4.10 RESIGNATION OF OPERATOR
Subject to Article 4.12, Operator may resign as Operator at any time by
so notifying the other Parties at least one hundred and twenty (120) Days
prior to the effective date of such resignation.
4.11 REMOVAL OF OPERATOR
(A) Subject to Article 4.12, Operator sha11 be removed upon receipt of
notice from any Non-Operator if:
(1) an order is made by a court or an effective resolution is
passed for the reorganization under any bankruptcy law,
dissolution, liquidation, or winding up of Operator;
(2) operator dissolves, liquidates, is wound up, or otherwise
terminates its existence;
(3) operator becomes insolvent, bankrupt or makes an assignment
for the benefit of creditors; or
(4) a receiver is appointed for a substantial part of
Operator's assets.
(B) Subject to Article 4.12, Operator may be removed by the decision
of the Non-Operators if Operator has committed a material breach
of this Agreement and has either failed to commence to cure that
breach within thirty (30) Days of receipt of a notice from
Non-Operators detailing the alleged breach or failed to diligently
pursue the cure to completion. Any decision of Non-Operators to
give notice of breach to Operator or to remove Operator under this
Article 4.11(B) shall be made by an affirmative vote of
Non-Operators holding a combined Participating Interest of at
least twenty five percent (25%).
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(B) If Operator together with any Affiliate of Operator is or becomes
the holder of a Participating Interest of less than twenty five
percent (25%) then Operator shall be required to promptly notify
the other Parties. The Operating Committee shall then vote within
fifteen (15) Days of such notification on whether or not a
successor Operator should be named pursuant to Article 4.12.
4.12 APPOINTMENT OF SUCCESSOR
When a change of Operator occurs pursuant to Article 4.10 or Article
4.11:
(A) The Operating Committee shall meet as soon as possible to appoint
a successor Operator pursuant to the voting procedure of Article
5.9. However, no party may be appointed successor Operator against
its will.
(B) If the Operator disputes commission of or failure to rectify a
material breach alleged pursuant to Article 4.11(B) and
proceedings are initiated pursuant to Article XVIII, no successor
Operator may be appointed pending the conclusion or abandonment of
such proceedings, subject to the terms of Article 8.3 with respect
to Operator's breach of its payment obligations.
(C) If an Operator is removed, other than in the case of Article
4.11(C), neither Operator nor any Affiliate of Operator shall have
the right to vote for itself on the appointment of a successor
Operator, nor be considered as a candidate for the successor
Operator.
(D) A resigning or removed Operator shall be compensated out of the
Joint Account for its reasonable expenses directly related to its
resignation or removal, except in the case of Article 4.11(B).
(E) The resigning or removed Operator and the successor Operator shall
arrange for the taking of an inventory of all Joint Property and
Hydrocarbons, and an audit of the books and records of the
removed Operator. Such inventory and audit shall be completed, if
possible, no later than the effective date of the change of
Operator and shall be subject to the approval of the Operating
Committee. The liabilities and expenses of such inventory and
audit shall be charged to the Joint Account.
(F) The resignation or removal of Operator and its replacement by the
successor Operator shall not become effective prior to receipt of
any necessary Government approvals.
(G) Upon the effective date of the resignation or removal, the
successor Operator shall succeed to all duties, rights and
authority prescribed for Operator. The former Operator shall
transfer to the successor Operator custody of all Joint Property,
books of account. records and other documents maintained by
Operator pertaining to the Concession Area and to Joint
Operations. Upon delivery of the above-described property and
data, the former Operator shall be released and discharged from
all obligations and liabilities as Operator accruing after such
date.
ARTICLE V
OPERATING COMMITTEE
5.1 ESTABLISHMENT OF OPERATING COMMITTEE
To provide for the overall supervision and direction of Joint Operations,
there is established an Operating Committee composed of representatives
of each Party holding a Participating Interest. Each Party shall appoint
one (1) representative and one (1) alternate representative to serve on
the Operating Committee. Each Party shall as soon as possible after the
date of this Agreement give notice in writing to the other Parties of the
name and address of its representative and alternate representative to
serve on the Operating Committee. Each Party shall have the right to
change its representative and alternate at any time by giving notice to
such effect to the other Parties.
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5.2 POWERS AND DUTIES OF OPERATING COMMITTEE
The Operating Committee shall have power and duty to authorize and
supervise Joint Operations that are necessary or desirable to fulfill the
Concession Agreement and properly explore and exploit the Concession Area
in accordance with this Agreement and in a manner appropriate in the
circumstances.
5.3 AUTHORITY TO VOTE
Subject to Article 8.2, the representative of a Party, or in his absence
his alternate representative, shall be authorized to represent and bind
such Party with respect to any matter which is within the powers of the
Operating Committee and is properly brought before the Operating
Committee. Each such representative shall have a vote equal to the
Participating Interest of the Party such person represents. Each
alternate representative shall be entitled to attend all Operating
Committee meetings but shall have no vote at such meetings except in the
absence of the representative for whom he is the alternate. In addition
to the representative and alternate representative, each Party may also
bring to any Operating Committee meetings such technical and other
advisors as it may deem appropriate.
5.4 SUBCOMMITTEES
The Operating Committee may establish such subcommittees, including
technical subcommittees, as the Operating Committee may deem appropriate.
The functions of such subcommittees shall be in an advisory capacity or
as otherwise determined unanimously by the Parties.
5.5 NOTICE OF MEETING
(A) Operator may call a meeting of the Operating Committee by giving
notice to the Parties at least fifteen (15) Days in advance of
such meeting.
(B) Any Non-Operator may request a meeting of the Operating Committee
by giving notice to all the other Parties. Upon receiving such
request, Operator shall call such meeting for a date not less than
fifteen (15) Days nor more than twenty (20) Days after receipt of
the request.
(C) The notice periods above may only be waived with the unanimous
consent of all the Parties.
5.6 CONTENTS OF MEETING NOTICE
(A) Each notice of a meeting of the Operating Committee as provided by
Operator shall contain:
(1) the date, time and location of the meeting; and
(2) an agenda of the matters and proposals to be considered
and/or voted upon.
(B) A Party, by notice to the other Parties given not less than seven
(7) Days prior to a meeting, may add additional matters to the
agenda for a meeting.
(C) On the request of a Party, and with the unanimous consent of all
Parties, the Operating Committee may consider at a meeting a
proposal not contained in such meeting agenda.
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5.7 LOCATION OF MEETINGS
All meetings of the Operating Committee shall be held in Dallas,
Texas, or elsewhere as may be decided by the Operating Committee.
5.8 OPERATOR'S DUTIES FOR MEETINGS
(A) With respect to meetings of the Operating Committee and any
subcommittee, Operator's duties shall include, but not be limited
to:
(1) timely preparation and distribution of the agenda, any
proposed Work Programs and Budgets;
(2) organization and conduct of the meeting; and
(3) preparation of a written record or minutes of each meeting.
(B) Operator shall have the right to appoint the chairman of the
Operating Committee and all subcommittees.
5.9 VOTING PROCEDURE
(A) Except as otherwise expressly provided in this Agreement, all
decisions, approvals and other actions of the Operating Committee
on all proposals coming before it shall be decided by the
affirmative vote of two (2) or more Parties which are not
Affiliates then having collectively at least sixty percent (60%)
of the Participating Interests.
(B) During any period during which there are only two (2) Parties to
this Agreement, all decisions, approvals and other actions of the
Operating Committee on all proposals coming before it shall be
decided by the unanimous affirmative vote of the Parties. A
failure to reach unanimity on any such matter shall be deemed to
be a negative vote.
5.10 RECORD OF VOTES
The chairman of the Operating Committee shall appoint a secretary who
shall make a record of each proposal voted on and the results of such
voting at each Operating Committee meeting. Each representative shall
sign and be provided a copy of such record at the end of such meeting and
it shall be considered the final record of the decisions of the Operating
Committee.
5.11 MINUTES
The secretary shall provide each Party with a copy of the minutes of the
Operating Committee meeting within fifteen (15) Days after the end of the
meeting. Each Party shall have fifteen (15) Days after receipt of such
minutes to give notice of any comments to the minutes to the secretary. A
failure to give notice specifying any comments to such minutes within
said fifteen (15) Day period shall be deemed to be approval of such
minutes. In any event. the votes recorded under Article 5.10 shall take
precedence over the minutes described above.
5.12 VOTING BY NOTICE
(A) In lieu of a meeting, any Party may submit any proposal to the
Operating Committee for a vote by notice. The proposing Party or
Parties shall notify Operator who shall give each representative
notice describing the proposal so submitted. Each party shall
communicate its vote by notice to the Operator and the other
Parties within one of the following appropriate time periods after
receipt of Operator's notice:
(1) Forty-eight (48) hours in the case of operations which
involve the use of a drilling rig that is standing by in
the Concession Area.
(2) Twenty (20) Days in the case of all other proposals.
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(B) Except in the case of Article 5.12(A)(1), any Non-Operator may by
notice delivered to all Parties within ten (10) Days of receipt of
Operator's notice request that the proposal be decided at a
meeting rather than by notice. In such an event, that proposal
shall be decided at a meeting duly called for that purpose.
(C) Except as provided in Article X, any Party failing to communicate
its vote in a timely manner shall be deemed to have voted against
such proposal.
(D) If a meeting is not requested, then at the expiration of the
appropriate time period, Operator shall give each Party a
confirmation notice stating the tabulation and results of the
vote.
5.13 EFFECT OF VOTE
All decisions taken by the Operating Committee pursuant to this Article
V, shall be conclusive and binding on all the Parties, except that:
(A) If pursuant to this Article V, a Joint Operation, other than an
operation to fulfill the Minimum Work Obligations, has been
properly proposed to the Operating Committee and the Operating
Committee has not approved such proposal in a timely manner, then
any Party shall have the right for the appropriate period
specified below to propose in accordance with Article VII, an
Exclusive Operation involving operations essentially the same as
those proposed for such Joint Operation.
(1) For proposals involving the use of a drilling rig that is
standing by in the Concession Area, such right shall be
exercisable for twenty-four (24) hours after the time
specified in Article 5.12(A)(1) has expired or after
receipt of Operator's notice given pursuant to Article
5.13(D), as applicable.
(2) For proposals to develop a Discovery, such right shall be
exercisable for ten (10) Days after the date the Operating
Committee was required to consider such proposal pursuant
to Article 5.6 or Article 5.12.
(3) For all other proposals, such right shall be exercisable
for five (5) Days after the date the Operating Committee
was required to consider such proposal pursuant to Article
5.6 or Article 5.12.
(B) If a Party voted against any proposal which was approved by the
Operating Committee and which could be conducted as an Exclusive
Operation pursuant to Article VII, other than any proposal
relating to Minimum Work Obligations, then such party shall have
the right not to participate in the operation contemplated by such
approval. Any such Party wishing to exercise its right of
non-consent must give notice of non-consent to all other Parties
within five (5) Days (or within twenty-four (24) hours if the
drilling rig to be used in such operation is standing by in the
Concession Area) following Operating Committee approval of such
proposal. The Parties that were not entitled to give or did not
give notice of non-Consent shall be Consenting Parties as to the
operation contemplated by the Operating Committee approval, and
shall conduct such operation as an Exclusive Operation under
Article VII. Any Party that gave notice of non-consent shall be a
Non-Consenting Party as to such Exclusive Operation.
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(C) If the Consenting Parties to an Exclusive Operation under Article
5.13(A) or Article 5.13(B) concur, then the Operating Committee
may, at any time, pursuant to Article V, reconsider its approval,
decide or take action on any proposal that the Operating Committee
declined to approve earlier, or modify or revoke an earlier
approval, decision or action.
(D) Once a Joint Operation for the drilling, Deepening. Testing,
Sidetracking, Plugging Back, Completing, Recompleting, Reworking
or plugging of a well has been approved and commenced, such
operation shall not be discontinued without the consent of the
Operating Committee; provided. however, that such operation may be
discontinued, if:
(1) an impenetrable substance or other condition in the hole is
encountered which in the reasonable judgment of Operator
causes the continuation of such operation to be
impractical; or
(2) other circumstances occur which in the reasonable judgment
of Operator cause the continuation of such operation to be
unwarranted [and after notice to the Operating Committee
within the period required under Article 5.12(A)(1) the
Operating Committee approves discontinuing such operation.]
On the occurrence of either of the above, Operator shall promptly notify
the Parties that such operation is being discontinued pursuant to the
foregoing, and any Party shall have the right to propose in accordance
with Article VII an Exclusive Operation to continue such operation.
5.14 REPRESENTATION OF NON-OPERATORS
(A) GHP shall have the right to appoint one (1) representative to the
Exploration Advisory Committee with the remaining two (2) members
appointed by Contractor under the Concession Agreement filled by
the Operator. This right is assignable by any of such Parties to
any other of such Parties, to an Affiliate of any of such Parties
and to a third party permitted assignee. The Operator shall be
entitled to appoint a representative to the Exploration Advisory
Committee if a Party fails or refuses to appoint its
representative or, without prejudice to Article 8.2, if a Party's
Participating Interest is transferred pursuant to Article 8.4.
(B) Notwithstanding the appointment of a representative to the
Exploration Advisory Committee by one or more Non-Operator, and
provided that the Operator consults with and considers the input
of the representative(s) appointed by the Non-Operator, the
Operator shall be the primary spokesman for the Joint Operators on
the Exploration Advisory Committee. The respective Party's member
to the Exploration Advisory Committee shall fully support and vote
in conformity with the decisions and instructions of the Operating
Committee with respect to matters brought before the Exploration
Advisory Committee, notwithstanding that such decision or
instruction may not have been approved unanimously by the
Operating Committee.
ARTICLE VI
WORK PROGRAMS AND BUDGETS
6.1 EXPLORATION AND APPRAISAL
(A) The Work Program and Budget for the Initial Exploration Period is
attached as Exhibit "C" to this Agreement and is hereby deemed to
be approved by each Party upon execution of this Agreement by said
Party.
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(B) At least sixty (60) days prior to the applicable deadline under
Article IV(C) of the Concession Agreement or such other deadline
as may be agreed to by EGPC, Operator shall deliver to the Parties
a proposed Work Program and Budget detailing the Joint Operations
to be performed for the following Financial Year. Within thirty
(30) Days of such delivery, the Operating Committee shall meet to
consider and to endeavor to agree on a Work Program and Budget.
Upon receipt of Operating Committee approval, such Work Program
and Budget shall be submitted to the Exploration Advisory
Committee as required by the Concession. The Operating Committee
shall further meet and consider any revisions to the Work Program
and Budget recommended by the Exploration Advisory Committee and
make any such revisions as may be agreeable prior to submission to
the EGPC.
(C) If a Discovery is made, Operator shall deliver any notice of
Discovery required under the Concession Agreement and shall as
soon as possible submit to the Parties a report containing
available details concerning the Discovery and Operator's
recommendation as to whether the Discovery merits appraisal. If
the Operating Committee determines that the Discovery merits
appraisal, Operator within thirty (30) Days, shall deliver to the
Parties a proposed Work Program and Budget for the appraisal of
the Discovery. Within fifteen (15) Days of such delivery, or
earlier if necessary to meet any applicable deadline under the
Concession Agreement, the Operating Committee shall meet to
consider, modify and then either approve or reject the appraisal
Work Program and Budget. If the appraisal Work Program and Budget
is approved by the Operating Committee, Operator shall take such
steps as may be required under the Concession Agreement to secure
approval of the appraisal Work Program and Budget by the
Government. In the event the Government requires changes in the
appraisal Work Program and Budget, the matter shall be resubmitted
to the Operating Committee for further consideration.
(D) In addition to the requirements of Article 6.l(C), if a Discovery
is made and the drilling of a Mandatory Appraisal Well or Wells is
required under the Concession in order to obtain a Development
Lease in respect of the Discovery, the Operating Committee shall
consider the drilling of the Mandatory Appraisal Well(s). Each of
the Parties shall have the right not to participate in the
drilling of such Mandatory Appraisal Well in which case the
provisions of Article VII (and Article 7.4(C) in particular) shall
apply; provided, for the avoidance of doubt, a Mandatory Appraisal
Well that also qualifies as an obligatory well under the Minimum
Work Obligation for the then current Exploration Sub-period shall
be drilled as a Joint Operation.
(E) The Work Program and Budget agreed pursuant to this Article 6.1
shall include the Minimum Work Obligations, or at least that part
of such Minimum Work Obligations required to be carried out during
the Financial Year in question under the terms of the Concession
Agreement. If within the time periods prescribed in this Article
6.1 the Operating Committee is unable to agree on such a Work
Program and Budget, then the proposal capable of satisfying the
Minimum Work Obligations for the Financial Year in question that
receives the largest Participating Interest vote (even if less
than the applicable percentage under Article 5.9) shall be deemed
adopted as part of the annual Work Program and Budget. If
competing proposals receive equal votes, then Operator shall
choose between those competing proposals. Any portion of a Work
Program and Budget adopted pursuant to this Article 6.1(E) instead
of Article 5.9 shall include only such operations for the Joint
Account as are necessary to maintain the Concession Agreement in
full force and effect, including such operations as are necessary
to fulfill the Minimum Work Obligations required for the given
Financial Year.
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(F) Any approved Work Program and Budget may be revised by the
Operating Committee from time to time. To the extent such
revisions are approved by the Operating Committee, the Work
Program and Budget shall be amended accordingly. The Operator
shall prepare and submit a corresponding work program and budget
amendment to the Government if required by the terms of the
Concession Agreement.
(G) Subject to Article 6.7, approval of any such Work Program and
Budget, which includes an Exploration or Appraisal Well, whether
by drilling, Deepening or Sidetracking, shall include approval for
only expenditures necessary for the drilling, Deepening, or
Sidetracking, of such well, as applicable. When an Exploration
Well or Appraisal Well has reached its authorized depth, all logs,
cores and other approved Tests have been conducted and the results
furnished to the Parties, Operator shall submit to the Parties in
accordance with Article 5.12(A)(1) an election to participate in
an attempt to Complete or perform additional downhole operations
for such well. Operator shall include in such submission
Operator's recommendation on such Completion attempt and an AFE
for such Completion costs. In the event that less than all of the
Parties elect to participate in such Completion, the Completion
may proceed as an Exclusive Operation under Article VII. Any Party
that gave notice of non-consent shall be a Non-Consenting Party as
to such Exclusive Operation.
(H) Any Party desiring to propose a Completion attempt, or an
alternative Completion attempt, must do so within the time period
provided in Article 5.12(A)(1) by notifying all other Parties. Any
such proposal shall include an AFE for such Completion costs.
6.2 DEVELOPMENT
(A) If, before or after the drilling of any Mandatory Appraisal Wells,
the Operating Committee determines that a Discovery may be a
Commercial Discovery the Operator shall, as soon as practicable
but prior to providing notice of the Commercial Discovery to EGPC,
deliver to the Parties a Development Plan which shall contain,
INTER ALIA:
(1) details of the proposed work to be undertaken, personnel
required and expenditures to be incurred, including the
timing of same, on a Calendar Year basis;
(2) an estimated date for the commencement of production;
(3) a delineation of the proposed Development Lease; and
(4) any other information requested by the Operating Committee.
(B) Within thirty (30) days of receipt of the Development Plan and
prior to any applicable deadline to file for a Commercial
Discovery under the Concession Agreement, the Operating Committee
shall meet to consider, modify and then either approve or reject
the Development Plan. If the Development Plan is approved by the
Operating Committee, Operator shall, as soon as possible, deliver
notice of Commercial Discovery to EGPC.
Within sixty (60) Days following receipt of such notice by the
Government and EGPC, Operator and EGPC shall meet to review all
appropriate data with a view to agreeing on the existence of a
Commercial Discovery. If EGPC or the Government require changes
in the Development Plan, Operator shall resubmit the matter to the
Operating Committee for review and approval. Upon EGPC's agreement
that the Discovery constitutes a Commercial Discovery under the
Concession the Operating Company contemplated in Article VI of the
Concession shall be formed for the purposes of conducting further
operations and activities under the Concession.
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6.3 OPERATING COMPANY
(A) Upon formation of the Operating Company, as provided for in
Article 6.2(B), the Parties shall meet to allocate duties and
responsibilities between the Operating Company and the Operator.
To the extent that the Operator's duties and responsibilities
under this Agreement are assumed by the Operating Company, the
Operator shall be released from any further responsibility and
liability therefor.
(B) GHP shall be entitled to appoint one (1) Director to represent
Contractor on the Board of Directors of the Operating Company. In
all other cases, each Party shall be entitled to appoint one (1)
Director to the Board of Directors for each twenty-five percent
(25%) Participating Interest held by such Party. Parties having a
Participating Interest less than twenty-five percent (25%) shall
be entitled to have a representative attend Directors' meetings as
an observer only. The Operator shall be entitled to appoint
representatives to fill any vacancy in the four (4) positions
allotted to Contractor on the Board of Directors.
(C) Notwithstanding the formation of the Operating Company, the
Operator shall continue to represent the interests of the Parties
in all matters that are not specifically delegated to the
Operating Company under the Concession and, except for the
appointment of Contractor's Directors to the Board of Directors
of the Operating Company as set forth in Article 6.3(B), shall
continue to satisfy the obligations of Contractor under the
Concession on behalf of the Non-Operators in accordance with the
terms of this Agreement. Without limiting the generality of the
foregoing, Operator shall:
(1) Review and provide recommendations to the Parties with
respect to proposals and recommendations submitted by the
Operating Company to the Board of Directors thereof,
including, without limitation, proposed Work Programs and
Budgets, production schedules and estimated cash
requirements;
(2) Assist the Operating Company, by secondment of personnel or
through a service contract, in the conduct of the Operating
Company's operations under the Concession as agent for the
Parties and EGPC;
(3) Make reasonable efforts to cause the Operating Company to
submit the proposed Work Program and Budget to the
Operating Committee within a time frame so as to allow for
a reasonable period to conduct its review and obtain its
approval prior to submission to the Board of Directors; and
(4) In the event that the Board of Directors require changes to
any Work Program and Budget, resubmit the matter to the
Operating Committee for approval.
(D) In the meetings of the Board of Directors and of the shareholders
of the Operating Company, each Party's respective member(s) of the
Board of Directors and their respective representative(s) and the
Party's representatives at the shareholder meetings (and any proxy
for them) and the members of the Operating Company management
appointed by the Operator, shall fully support and vote in
conformity with the decisions of the Operating Committee
previously made in accordance with the provisions of the Agreement
and any other resolution previously taken by the Parties under
this Agreement. If a Party will not have a representative present
at a meeting of either the Board of Directors or the shareholders
of the Operating Company, such Party shall, prior to such meeting,
furnish the other Party a written proxy for the votes to be taken
at such meeting, consistent with the vote of the Operating
Committee. If an Exclusive Operation is to be conducted by the
Operating
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Company, the Parties shall agree upon procedures regarding
decision making within and governance of the Parties' interests in
the Operating Company in conducting such operations, including
without limitation, procedures for Board of Directors voting by
the Parties, confidentiality and allocation of the Exclusive
Operations costs and expenses within the Operating Company.
(E) After formation of the Operating Company, certain of the Joint
Operations shall be carried out by Operating Company, pursuant to
the Concession, as agent on behalf of the shareholders of
Operating Company, or where necessary by Operator or through duly
authorized agents or independent contractors engaged by either
Operator or Operating Company.
(F) In the conduct of Joint Operations, Operator, under the direction
and supervision of the Operating Committee, shall use all
reasonable efforts to require that Operating Company shall:
(1) Conduct diligently all Joint Operations in accordance with
Operator's standards and the practices generally followed
by the petroleum industry in the Arab Republic of Egypt
under similar circumstances and conditions and in
conformance with good oilfield and engineering practices;
perform all Joint Operations in an efficient and economic
manner and in compliance with the provisions of the
Concession and all applicable laws and regulations;
(2) Proceed with due diligence to acquire for the Joint Account
any and all surface rights that may be required for or in
connection with the conduct of the Joint Operations;
(3) Keep the Joint Property free from liens, charges and
encumbrances arising out of the Joint Operations;
(4) Pay all costs and expenses incurred by it in the Joint
Operations promptly and when due and payable;
(5) Purchase and maintain in force any and all insurance
required by law and purchase or provide any additional
insurance authorized by the Board of Directors; and
(6) Carry out each program of Joint Operations adopted by the
Operating Committee within the limits of the approved
Operating Company budget and shall not undertake any Joint
Operations not included in an approved budget or make any
expenditures during a budget period in excess of the
budgeted amounts approved therefor except in compliance
with the internal rules and regulations of the Operating
Company and subject to approval as may be required under
Articles 6.6 and 6.7 of this Agreement, as applicable.
6.4 ITEMIZATION OF EXPENDITURES
(A) During the preparation of the proposed Work Programs and Budgets
and Development Plans contemplated in this Article VI, Operator
shall consult with the Operating Committee or the appropriate
subcommittees regarding the contents of such Work Programs and
Budgets and Development Plans.
(B) Each Work Program and Budget and Development Plan submitted by
Operator shall contain an itemized estimate of the costs of Joint
Operations and all other expenditures to be made for the Joint
Account during the Calendar Year in question and shall, INTER
ALIA:
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(1) identify each work category in sufficient detail to afford
the ready identification of the nature, scope and duration
of the activity in question;
(2) include such reasonable information regarding Operator's
allocation procedures and estimated manpower costs as the
Operating Committee may determine;
(3) comply with the requirements of the Concession Agreement.
(C) The Work Program and Budget shall designate the portion or
portions of the Concession Area in which Joint Operations itemized
in such Work Program and Budget are to be conducted and shall
specify the kind and extent of such operations in such detail as
the Operating Committee may deem suitable.
6.5 CONTRACT AWARDS
Subject to the requirements contained in the Concession Agreement and
applicable laws, Operator shall award each contract for approved Joint
Operations on the following basis (the amounts stated are in thousands of
U.S. dollars):
PROCEDURE A PROCEDURE B PROCEDURE C
----------------------------------------------------------
Exploration and $0 to $200 $ 200 to $ 1,000 >$1,000
Appraisal Operations
Development Operations $0 to $200 $200 to $1,000 >$1,000
Production Operations $0 to $200 $200 to $1,000 >$1,000
PROCEDURE
(A) Operator shall award the contracts to the best qualified contractor as
determined by cost and ability to perform the contract without the
obligation to tender and without informing or seeking the approval of the
Operating Committee, except that before entering into contracts with
Affiliates of the Operator exceeding U.S. dollars Fifty Thousand (U.S.
$50,000), Operator shall obtain the approval of the Operating Committee.
If requested by any Party, Operator shall circulate to the Parties a copy
of the final version of the contract awarded.
PROCEDURE
(B) Operator shall:
(1) provide the Parties with a list of the entities whom Operator
proposes to invite to tender for the said contracts;
(2) add to such list any entity whom a Party requests to be added
within fourteen (14) Days of receipt of such list;
(3) complete the tendering process within a reasonable period of time;
(4) inform the Parties of the entities to whom the contract has been
awarded, provided that before awarding contracts to Affiliates of
the Operator which exceed U .S. dollars Fifty Thousand (U.S.
$50,000), Operator shall obtain the approval of the Operating
Committee;
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contract in excess of five hundred thousand ($500,000) Dollars
(U.S.), Operating Committee shall vote on the award in advance of
the vote by the Board of Directors.
6.6 AUTHORIZATION FOR EXPENDITURE ("AFE") PROCEDURE
(A) Prior to incurring any commitment or expenditure for the Joint
Account, which is estimated to be in excess of U.S. dollars One
Hundred Thousand (U.S. $ 100,000), Operator shall send to each
Non-Operator an AFE as described in Article 6.6(C).
(B) Prior to making any expenditures or incurring any commitments for
work subject to the AFE procedure in Article 6.6(A), Operator
shall obtain the approval of the Operating Committee to an AFE. If
the Operating Committee approves an AFE for the operation within
the applicable time period under Article 5.12, Operator shall be
authorized to conduct the operation under the terms of this
Agreement. If the Operating Committee fails to approve an AFE for
the operation within the applicable time period, the operation
shall be deemed rejected. Operator shall promptly notify the
Parties if the operation has been rejected, and, subject to
Article VII, any Party may thereafter propose to conduct the
operation as an Exclusive Operation under Article VII. When an
operation is rejected under this Article 6.6(B) or an operation is
approved for differing amounts than those provided for in the
applicable line items of the approved Work Program and Budget, the
Work Program and Budget shall be deemed to be revised accordingly.
Notwithstanding the above, if an AFE covers commitments or
expenditures for Minimum Work Obligations listed as separate line
items in an approved Work Program and Budget, the AFE is for
informational purposes only and Operator shall be obliged to
proceed, subject to Article 6.7, without additional Operating
Committee Approval.
(C) Each AFE issued by the Operator shall:
(1) identify the operation by specific reference to the applicable
line items in the Work Program and Budget;
(2) describe the work in detail;
(3) contain Operator's best estimate of the total funds required to
carry out such work;
(4) outline the proposed work schedule;
(5) provide a timetable of expenditures, if known; and
(6) be accompanied by such other necessary supporting information.
6.7 OVEREXPENDITURES OF WORK PROGRAMS AND BUDGETS
(A) For expenditures on any line item of an approved Work Program and
Budget, Operator shall be entitled to incur without further
approval of the Operating Committee an overexpenditure for such
line item up to ten percent (10%) of the authorized amount for
such line item; provided that the cumulative total of all
overexpenditures for a Calendar Year shall not exceed five percent
(5%) of the total Work Program and Budget in question.
(B) At such time that Operator is certain that the limits of Article
6.7(A) will be exceeded, Operator shall furnish a supplemental AFE
for the estimated overexpenditures to the Operating Committee for
its approval and shall provide the Parties with full details of
such
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overexpenditures. Operator shall promptly give notice of the
amounts of overexpenditures when actually incurred. Should the
Operating Committee fail to approve the supplemental AFE, all work
in question shall immediately cease.
(C) The restrictions contained in this Article VI shall be without
prejudice to Operator's rights to make expenditures as set out in
Article 4.2(B)(11) and Article 13.5.
ARTICLE VII
OPERATIONS BY LESS THAN ALL PARTIES
7.1 LIMITATIONS ON APPLICABILITY
(A) No operations may be conducted in furtherance of the Concession
Agreement except as Joint Operations under Article V or as
Exclusive Operations under this Article VII. No Exclusive
Operation shall be conducted which conflicts with a Joint
Operation.
(B) Operations which are required to fulfill the Minimum Work
Obligations must be proposed and conducted as Joint Operations
under Article V, and may not be proposed or conducted as Exclusive
Operations under this Article VII.
(C) Except for Exclusive Operations relating to Deepening, Testing,
Completing, Sidetracking, Plugging Back, Recompletions or
Reworking of a well originally drilled to fulfill the Minimum Work
Obligations or the drilling of any Mandatory Appraisal Well, no
Exclusive Operations may be proposed or conducted until the
Minimum Work Obligations are fulfilled.
(D) No Party may propose or conduct an Exclusive Operation under this
Article VII, unless and until such Party has properly exercised
its right to propose an Exclusive Operation pursuant to Article
5.13, or is entitled to conduct an Exclusive Operation pursuant to
Article 5.13(B), Article 6.1(D), Article 6.1(G), Article 10.1(C)
or this Article VII.
(E) Any operation that may be proposed and conducted as a Joint
Operation, other than operations pursuant to an approved
Development Plan, may be proposed and conducted as an Exclusive
Operation, subject to the terms of this Article VII.
7.2 PROCEDURE TO PROPOSE EXCLUSIVE OPERATIONS
(A) Subject to Article 7.1, if any Party proposes to conduct an
Exclusive Operation, such Party shall give notice of the proposed
operation to all Parties, other than Non-Consenting Parties who
have relinquished their rights to participate in such operation
pursuant to Article 7.4(B) or Article 7.4(F) and have no option to
reinstate such rights under Article 7.4(C). Such notice shall
specify that such operation is proposed as an Exclusive Operation,
the work to be performed, the location, the objectives, and
estimated cost of such operation.
(B) Any Party entitled to receive such notice shall have the right to
participate in the proposed operation.
(1) For proposals to Deepen, Test, Complete, Sidetrack. Plug
Back, Recomplete or Rework involving the use of a drilling
rig that is standing by in the Concession Area or proposals
to acquire G&G Data where the seismic crew and equipment
are standing by in the Concession Area, any such Party
wishing to exercise such right must so notify Operator
within twenty-four (24) hours after receipt of the notice
proposing the Exclusive Operation.
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(2) For proposals to develop a Discovery, any Party wishing to
exercise such right must so notify the Party proposing to
develop within twenty (20) Days after receipt of the notice
proposing the Exclusive Operation.
(3) For all other proposals, any such Party wishing to exercise
such right must so notify Operator within ten (10) Days
after receipt of the notice proposing the Exclusive
Operation;
(C) Failure of a Party to whom a proposal notice is delivered to
properly reply within the period specified above shall constitute
an election by that Party not to participate in the proposed
operation.
(D) If all Parties properly exercise their rights to participate, then
the proposed operation shall be conducted as a Joint Operation.
The Operator shall commence such Joint Operation as promptly as
practicable and conduct it with due diligence.
(E) If less than all Parties entitled to receive such proposal notice
properly exercise their rights to participate, then:
(1) The Party proposing the Exclusive Operation, together with
any other Consenting Parties, shall have the right
exercisable for the applicable notice period set out in
Article 7.2(B), to instruct Operator (subject to Article
7.11(F)) to conduct the Exclusive Operation.
(2) If the Exclusive Operation is conducted, the Consenting
Parties shall bear the sole liability and expense of such
Exclusive Operation, with each Consenting party bearing a
fraction of such liability and expense, the numerator of
which is such Consenting Party's Participating Interest as
stated in Article 3.2(A) and the denominator of which is
the aggregate of the Participating Interests of the
Consenting Parties as stated in Article 3.2(A), or as the
Consenting Parties may otherwise agree.
(3) If such Exclusive Operation has not been commenced within
sixty (60) Days (excluding any extension specifically
agreed by all Parties or allowed by the force majeure
provisions of Article XVI) after the date of the
instruction given to Operator under Article 7.2(E)(1), the
right to conduct such Exclusive Operation shall terminate.
If any Party still desires to conduct such Exclusive
Operation, notice proposing such operation must be
resubmitted to the Parties in accordance with Article V, as
if no proposal to conduct an Exclusive Operation had been
previously made.
7.3 RESPONSIBILITY FOR EXCLUSIVE OPERATIONS
(A) The Consenting Parties shall bear in accordance with the
Participating Interests agreed under Article 7.2(E) the entire
cost and liability of conducting an Exclusive Operation and shall
indemnify the Non-Consenting Parties from any and all costs and
liabilities incurred incident to such Exclusive Operation
(including but not limited to all costs, expenses or liabilities
for environmental, consequential, punitive or any other similar
indirect damages or losses arising from business interruption,
reservoir or formation damage, inability to produce petroleum,
loss of profits, pollution control and environmental amelioration
or rehabilitation) and shall keep the Concession Area free and
clear of all liens and encumbrances of every kind created by or
arising from such Exclusive Operation.
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(B) Notwithstanding Article 7.3(A), each Party shall continue to bear
its Participating Interest share of the cost and liability
incident to the operations in which it participated, including but
not limited to plugging and abandoning and restoring the surface
location, but only to the extent those costs were not increased by
the Exclusive Operation,
7.4 CONSEQUENCES OF EXCLUSIVE OPERATIONS
(A) With regard to any Exclusive Operation, for so long as a
Non-Consenting Party has the option under Article 7.4(D) to
reinstate the rights it relinquished under Article 7.4(B), such
Non-Consenting Party shall be entitled to have access concurrently
with the Consenting Parties to all data and other information
relating to such Exclusive Operation, other than G&G Data obtained
in an Exclusive Operation. If a Non-Consenting Party desires to
receive and acquire the right to use such G&G Data, then such
Non-Consenting Party shall have the right to do so by paying to
the Consenting Parties its Participating Interest share as set out
in Article 7.5(A) and the Cash Premium set out in Article
7.5(B)(3).
(B) With regard to any Exclusive Operation, other than an Exclusive
Operation which is a Mandatory Appraisal Well and subject to
Articles 7.4(D) and (E), 7.6(E) and 7.8, each Non-Consenting Party
shall be deemed to have relinquished to the Consenting Parties,
and the Consenting Parties shall be deemed to own, in proportion
to their respective Participating Interests in any Exclusive
Operation as determined in accordance with Article 7.2(E)(2):
(1) All of each such Non-Consenting Party's right to
participate in further operations in the well, or Deepened
or Sidetracked portion of a well, in which the Exclusive
Operation was conducted and on any Discovery made or
appraised in the course of such Exclusive Operation; and
(2) All of each such Non-Consenting Party's right pursuant to
the Concession Agreement to take and dispose of
Hydrocarbons produced and saved:
(a) From the well or Deepened or Sidetracked portion of
a well in which such Exclusive Operation was
conducted, and
(b) From any wells drilled to appraise or develop a
Discovery made or appraised in the course of such
Exclusive Operation.
A Non-Consenting Party in an Exploratory Well, including the
Completion or conduct of additional down hole operations in an
Exploratory Well, shall have no option to reinstate such
relinquished rights and Article 7.4 (D) shall not apply.
(C) Where an Exclusive Operation is the drilling of a Mandatory
Appraisal Well, each Non-Consenting Party in such Exclusive
Operation shall be deemed to have relinquished to the Consenting
Parties, and the Consenting Parties shall be deemed to own in
proportion to their Participating Interest in such Exclusive
Operation as detern1ined in accordance with Article 7.2(E)(3):
(3) All of each such Non-Consenting Party's right to
participate in further operations in the Development Lease
containing such Mandatory Appraisal Well; and
(4) All of each such Non-Consenting Party's right pursuant to
the Concession to take and dispose of Hydrocarbons produced
and saved from the Development Lease containing such
Mandatory Appraisal Well.
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In such case, a Non-Consenting Party shall have no option to
reinstate such relinquished rights and Article 7.4(D) shall not
apply.
(D) A Non-Consenting Party shall have only the following options to
reinstate the rights it relinquished pursuant to Article 7.4(B):
(1) Without prejudice to Article 7.4 (C), if the Consenting
Parties decide to further appraise a Discovery appraised in
the course of an Exclusive Operation, the Consenting
Parties shall submit to each Non-Consenting Party the
approved appraisal program. For thirty (30) Days (or
forty-eight (48) hours if the drilling rig which is to be
used in such appraisal program is standing by in the
Concession Area) from receipt of such appraisal program,
each Non-Consenting Party shall have the option to
reinstate the rights it relinquished pursuant to Article
7.4(B) and to participate in such appraisal program. The
Non-Consenting Party may exercise such option by notifying
Operator within the period specified above that such
Non-Consenting Party agrees to bear its Participating
Interest share of the expense and liability of such
appraisal program, to pay the lump sum amount as set out
in Article 7.5(A) and to pay the Cash Premium as set out
in Article 7.5(B)
(2) Without prejudice to Article 7.4(C), if the Consenting
Parties decide to develop a Discovery appraised in the
course of an Exclusive Operation, the Consenting Parties
shall submit to the Non-Consenting Parties a Development
Plan substantially in the form intended to be submitted to
the Government under the Concession Agreement. For sixty
(60) Days from receipt of such Development Plan or such
lesser period of time prescribed by the Concession
Agreement, each Non-Consenting Party shall have the option
to reinstate the rights it relinquished pursuant to Article
7.4(B) and to participate in such Development Plan. The
Non-Consenting Party may exercise such option by notifying
the Party proposing to act as Operator for such Development
Plan within the period specified above that such
Non-Consenting Party agrees to bear its Participating
Interest share of the liability and expense of such
Development Plan and such future operating and producing
costs, to pay the lump sum amount as set out in Article
7.5(A) and to pay the Cash Premium as set out in Article
7.5(B).
(3) If the Consenting Parties decide to Deepen. Complete,
Sidetrack, Plug Back or Recomplete an Exclusive Well other
than a Mandatory Appraisal Well and such further operation
was not included in the original proposal for such
Exclusive Well, the Consenting Parties shall submit to the
Non-Consenting Parties the approved AFE for such further
operation. For thirty (30) Days (or forty-eight (48) hours
if the drilling rig which is to be used in such operation
is standing by in the Concession Area) from receipt of such
AFE, each Non-Consenting Party shall have the option to
reinstate the rights it relinquished pursuant to Article
7.4(B) and to participate in such operation. The
Non-Consenting Party may exercise such option by notifying
the Operator within the period specified above that such
Non-Consenting Party agrees to bear its Participating
Interest share of the liability and expense of such further
operation, to pay the lump sum amount as set out in Article
7.5(A) and to pay the Cash Premium as set out in Article
7.5(B). A Non-Consenting Party shall not be entitled to
reinstate its rights in any other type of operation.
(E) If a Non-Consenting Party does not properly and in a timely manner
exercise such option, including paying in a timely manner in
accordance with Article 7.5 all lump sum amounts and Cash
Premiums, if any, due to the Consenting Parties, such
Non-Consenting Party shall have forfeited the options as set out
in Article 7.4(D) and the right to participate in the proposed
program, unless such program, plan or operation is materially
modified or expanded (in which case a new notice and option shall
be given to such Non-Consenting party under Article 7.4(D).
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(F) A Non-Consenting Party shall become a Consenting Party with regard
to an Exclusive Operation at such time as the Non-Consenting party
gives notice pursuant to Article 7.4(D); provided that such
Non-Consenting Party shall in no way be deemed to be entitled to
any lump sum amount Cash Premium paid incident to such Exclusive
Operation. Such Non-Consenting Party shall be entitled to recover
its Participating Interest share of expenses paid pursuant to
Article 7.5(A) (but not the amount of any associated Cash Premium)
from Cost Oil in accordance with Article XIX. The Participating
Interest of such Non-Consenting Party in such Exclusive Operation
shall be its Participating Interest set out in Article 3.2(A). The
Consenting Parties shall contribute to the Participating Interest
of the Non-Consenting Party in proportion to the excess
Participating Interest that each received under Article 7.2(E). If
all Parties participate in the proposed operation, then such
operation shall be conducted as a Joint Operation pursuant to
Article V.
(G) If after the expiry of the period in which a Non-Consenting Party
may exercise its option to participate in a Development Plan the
Consenting Parties desire to proceed, the Party chosen by the
Consenting Parties proposing to act as Operator for such
development, shall give notice to the Government under the
appropriate provision of the Concession Agreement requesting a
meeting to advise the Government that the Consenting Parties
consider the Discovery to be a Commercial Discovery. Following
such meeting such Operator for such development shall apply for a
Development Lease as applicable in the Concession Agreement.
Unless the Development Plan is materially modified or expanded
prior to the commencement of operations under such plan (in which
case a new notice and option shall be given to the Non-Consenting
Parties under Article 7.4(D), each Non-Consenting Party to such
Development Plan shall be deemed to have:
(1) elected not to apply for an Development Lease covering such
development;
(2) forfeited all economic interest in such Development Lease;
(3) assumed a fiduciary duty to exercise its legal interest in
such Development Lease for the benefit of the Consenting
Parties.
Such Non-Consenting Party shall be deemed to have withdrawn from
this Agreement to the extent it relates to such Development Lease,
even if the Development Plan is modified or expanded subsequent to
the commencement of operations under such Development Plan and
shall be further deemed to have forfeited any right to participate
in the construction and ownership of facilities outside such
Development Lease designed solely for the use of such Development
Lease. In the event that such Development Lease represents the
only interest of the Non-Consenting Party in the Concession Area
and as such the Non-Consenting Party is deemed to have withdrawn
from the entire Concession. then such Party shall also forfeit all
of its shares and voting rights in the Operating Company that were
issued pursuant to the Concession.
7.5 PREMIUM TO PARTICIPATE IN EXCLUSIVE OPERATIONS
(A) Within thirty (30) Days of the exercise of its option under
Article 7.4(D), or with respect to G&G Data, within thirty (30)
days of its request to acquire the right to use all or part of
such G&G Data under Article 7.4(A), each such Non-Consenting Party
shall pay in immediately available funds to the Consenting Parties
in proportion to their respective Participating Interests in such
Exclusive Operations a lump sum amount payable in the currency
designated by such Consenting Parties. Such lump sum amount shall
be equal to such Non-Consenting Party's Participating Interest
share of all liabilities and expenses, including overhead, that
were incurred in every Exclusive Operation relating to the G&G
Data, Discovery , or well, as the case may be, in which the
Non-Consenting Party desires to reinstate the rights it
relinquished pursuant to Article 7.4(B), and that were not
previously paid by such Non-Consenting Party.
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(B) In addition to Article 7.5(A), if a Cash Premium is due,
then within thirty (30) Days of the exercise of its option
under Article 7.4(A) or 7.4(D) each such Non-Consenting
Party shall pay in immediately available funds, in the
currency designated by the Consenting Parties who took the
risk of such Exclusive Operations, to such Consenting
parties in proportion to their respective Participating
Interests a Cash Premium equal to the total of:
two hundred percent (200%) of such Non-Consenting
Party's Participating Interest share of all
liabilities and expenses, including overhead, that
were incurred in any Exclusive Operation relating to
the obtaining of the portion of the G&G Data in
which the Non-Consenting Party desires to reinstate
the rights it relinquished pursuant to Article
7.4(D), and that were not previously paid by such
Non-Consenting Party; plus
(1) five hundred percent (500%) of the Non-Consenting
Party's Participating Interest share of all
liabilities and expenses, including overhead, that
were incurred in any Exclusive Operation relating to
the drilling, Deepening, Testing, Completing,
Sidetracking, Plugging Back, Recompleting and
Reworking of the Appraisal Well(s) which delineated
the Discovery in which the Non-Consenting Party
desires to reinstate the rights it relinquished
pursuant to Article 7.4(B), and that were not
previously paid by such Non-Consenting Party .
7.6 ORDER OF PREFERENCE OF OPERATIONS
(A) Except as otherwise specifically provided in this Agreement, if
any Party desires to propose the conduct of an operation that will
conflict with an existing proposal for an Exclusive Operation,
such Party shall have the right exercisable for five (5) Days, or
twenty-four (24) hours if the drilling rig to be used is standing
by in the Concession Area, from receipt of the proposal for the
Exclusive Operation, to deliver to all Parties entitled to
participate in the proposed operation such Party's alternative
proposal. Such alternative proposal shall contain the information
required under Article 7.2(A).
(B) Each Party receiving such proposals shall elect by delivery of
notice to Operator within the appropriate response period set out
in Article 7.2(B) to participate in one of the competing
proposals. Any Party not notifying Operator within the response
period shall be deemed to have voted against the proposal.
(C) The proposal receiving the largest aggregate Participating
Interest vote shall have priority over all other competing
proposals. In the case of a tie vote, the Operator shall choose
among the proposals receiving the largest aggregate Participating
Interest vote. Operator shall deliver notice of such result to all
Parties entitled to participate in the operation within five (5)
Days of the end of the response period, or twenty-four (24) hours
if the drilling rig to be used is standing by in the Concession
Area.
(D) Each Party shall then have two (2) Days (or twenty-four (24) hours
if the drilling rig to be used is standing by in the Concession
Area) from receipt of such notice to elect by delivery of notice
to Operator whether such Party will participate in such Exclusive
Operation, or will relinquish its interest pursuant to Article
7.4(B). Failure by a Party to deliver such notice within such
period shall be deemed an election not to participate in the
prevailing proposal.
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(E) Notwithstanding the provisions of Article 7.4(B), if for reasons
other than the encountering of granite or other practically
impenetrable substance or any other condition in the hole
rendering further operations impracticable, a well drilled as an
Exclusive Operation fails to reach the deepest objective Zone
described in the notice proposing such well, Operator shall give
notice of such failure to each Non-Consenting Party who submitted
or voted for an alternative proposal under this Article 7.6 to
drill such well to a shallower Zone than the deepest objective
Zone proposed in the notice under which such well was drilled.
Each such Non-Consenting Party shall have the option exercisable
for forty-eight (48) hours from receipt of such notice to
participate for its Participating Interest share in the initial
proposed Completion of such well. Each such Non-Consenting Party
may exercise such option by notifying the Operator that it wishes
to participate in such Completion and by paying its Participating
Interest share of the cost of drilling such well to its deepest
depth drilled in the Zone in which it is Completed. All
liabilities and expenses for drilling and Testing the Exclusive
Well below that depth shall be for the sole account of the
Consenting Parties. If any such Non-Consenting Party does not
properly elect to participate in the first Completion proposed for
such well, the relinquishment provisions of Article 7.4(B) shall
continue to apply to such Non-Consenting Party's interest.
7.7 STAND-BY COSTS
(A) When an operation has been performed, all tests have been
conducted and the results of such tests furnished to the Parties,
stand by costs incurred pending response to any Party's notice
proposing an Exclusive Operation for Deepening, Testing,
Sidetracking, Completing, Plugging Back, Recompleting, Reworking
or other further operation in such well (including the period
required under Article 7.6 to resolve competing proposals) shall
be charged and borne as part of the operation just completed.
Stand by costs incurred subsequent to all Parties responding, or
expiration of the response time permitted, whichever first occurs,
shall be charged to and borne by the Parties proposing the
Exclusive Operation in proportion to their Participating
Interests, regardless of whether such Exclusive Operation is
actually conducted.
(B) If a further operation is proposed while the drilling rig to be
utilized is on location, any Party may request and receive up to
five (5) additional Days after expiration of the applicable
response period specified in Article 7.2(B ) within which to
respond by notifying Operator that such Party agrees to bear all
stand by costs and other costs incurred during such extended
response period. Operator may require such Party to pay the
estimated stand by time in advance as a condition to extending the
response period. If more than one Party requests such additional
time to respond to the notice, stand by costs shall be allocated
between such Parties on a Day-to-Day basis in proportion to their
Participating Interests.
7.8 SPECIAL CONSIDERATION REGARDING DEEPENING AND SIDETRACKING
(A) An Exclusive Well shall not be Deepened or Sidetracked without
first affording those Non-Consenting Parties that proposed
Deepening or Sidetracking at the time the original proposal was
made, in accordance with this Article 7.8, the opportunity to
participate in such operation.
(B) In the event any Consenting Party desires to Deepen or Sidetrack
an Exclusive Well, such Party shall initiate the procedure
contemplated by Article 7.2. If a Deepening or Sidetracking
operation is approved pursuant to such provisions, and if any
Non-Consenting Party to the Exclusive Well with the right to do so
elects to participate in such Deepening or Sidetracking operation,
such Non-Consenting Party shall not owe any Cash Premium or In
Kind Premium and such Non-Consenting Party's payment pursuant to
Article 7.5(A) shall be such Non-Consenting Party's Participating
Interest share of the liabilities and expenses incurred in
connection with drilling the Exclusive Well from the surface to
the depth previously drilled which such Non-Consenting Party would
have paid had such Non-Consenting Party agreed to participate in
such Exclusive Well; provided, however, all liabilities and
expenses for Testing and Completing or attempting Completion of
the well incurred by Consenting Parties prior to the Commencement
of actual operations to Deepen or Sidetrack beyond the depth
previously drilled shall be for the sole account of the Consenting
Parties.
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7.9 USE OF PROPERTY
(A) The Parties participating in any Deepening, Testing, Completing,
Sidetracking, Plugging Back, Recompleting or Reworking of any well
drilled under this Agreement shall be permitted to use, free of
cost, all casing, tubing and other equipment in the well that is
not needed for operations by the owners of the wellbore, but the
ownership of all such equipment shall remain unchanged. On
abandonment of a well in which operations with differing
participation have been conducted, the Parties abandoning the well
shall account for all equipment in the well to the Parties owning
such equipment by tendering to them their respective Participating
Interest shares of the value of such equipment less the cost of
salvage.
7.10 MISCELLANEOUS
(A) Each Exclusive Operation shall be carried out by the Consenting
Parties acting as the Operating Committee, subject to the
provisions of this Agreement applied MUTATIS MUTANDIS to such
Exclusive Operation and subject to the terms and conditions of the
Concession Agreement.
(B) The computation of liabilities and expenses incurred in Exclusive
Operations, including the liabilities and expenses of Operator for
conducting such operations, shall be made in accordance with the
principles set out in the Accounting Procedure.
(C) Operator shall maintain separate books, financial records and
accounts for Exclusive Operations which shall be subject to the
same rights of audit and examination as the Joint Account and
related records, all as provided in the Accounting Procedure. Said
rights of audit and examination shall extend to each of the
Consenting Parties and each of the Non-Consenting Parties so long
as the latter are, or may be, entitled to elect to participate in
such operations.
(D) Operator, if it is conducting an Exclusive Operation of the
Consenting Parties, regardless of whether it is participating in
that Exclusive Operation. shall be entitled to request cash
advances and shall not be required to use its own funds to pay any
cost and expense and shall not be obliged to commence or continue
Exclusive Operation until cash advances requested have been made,
and the Accounting Procedure shall apply to Operator in respect of
any Exclusive Operations conducted by it.
(E) Should the submission of a Development Plan be approved in
accordance with Article 5.9, or should any Party propose a
development in accordance with Article VII, with either proposal
not calling for the conduct of additional appraisal drilling, and
should any party wish to drill an additional Appraisal Well prior
to development, the Party proposing the Appraisal Well as an
Exclusive Operation shall be entitled to proceed first, but
without the right (subject to the following sentence) to future
reimbursement pursuant to Article 7.5. If such an Appraisal Well
is produced, the Consenting Party or Parties shall own and have
the right to take in kind and separately dispose of all of the
Non-Consenting Parties' Entitlement from such Appraisal Well until
the value thereof, determined in accordance with Article 7.5(F),
equals one hundred percent (100%) of such Non-Consenting Parties'
Participating Interest shares of all liabilities and expenses,
including overhead, that were incurred in any Exclusive Operations
relating to the Appraisal Well. If, as the result of drilling such
Appraisal Well as an Exclusive Operation, the Party proposing to
apply for an Development Lease decides to not develop the
reservoir, then each Non-Consenting Party who voted in favor of
such Development Plan prior to the drilling of such Appraisal Well
shall pay to the Consenting Party the amount such Non-Consenting
Party would have paid had such Appraisal Well been drilled as a
Joint Operation.
(F) If the Operator is a Non-Consenting Party to an Exclusive
Operation to develop a Discovery, then subject to obtaining any
necessary Government approvals the Operator may resign, but in any
event shall resign on the request of the Consenting Parties, as
Operator for the Development Lease for such Discovery and the
Consenting Parties shall select a party to serve as Operator.
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ARTICLE VIII
DEFAULT
8.1 DEFAULT AND NOTICE
Any Party that fails to pay when due its Participating Interest share of
Joint Account expenses, including cash advances and interest, shall be in
default under this Agreement (a "Defaulting Party"). Operator, or any
non-defaulting Party in the case Operator is the Defaulting Party, shall
promptly give notice of such default to the Defaulting Party and each of
the non-defaulting Parties (the "Default Notice"). The amount not paid by
the Defaulting Party shall bear interest from the date due until paid in
full at the Agreed Interest Rate.
8.2 OPERATING COMMITTEE MEETINGS AND DATA
Beginning ten (10) Business Days from the date of the Default Notice, and
thereafter while the Defaulting Party remains in default, the Defaulting
Party shall not be entitled to attend Operating Committee or subcommittee
meetings or to vote on any matter corning before the Operating Committee
or any subcommittee until all of its defaults have been remedied
(including payment of accrued interest). Further, the Defaulting Party
shall not be entitled to attend meetings of the Exploration Advisory
Committee, nor the Directors' Meetings of the Operating Company, nor
shall it have the right to vote in any meeting held by the Operating
Company. Unless agreed otherwise by the non-defaulting Parties, the
voting interest of each non-defaulting Party during this period shall be
its percentage of the total Participating Interests of the non-defaulting
Parties. Any matters requiring a unanimous vote of the Parties shall not
require the vote of the Defaulting Party. In addition, beginning ten (10)
Business Days from the date of the Default Notice, and thereafter while
the Defaulting Party remains in default, the Defaulting Party shall not
have access to any data or information relating to Joint Operations"
During this period, the non-defaulting Parties shal1 be entitled to trade
data without such Defaulting Party's consent, and the Defaulting Party
shall have no right to any data received in such a trade unless and until
its default is remedied in full. The Defaulting party shall be deemed to
have elected not to participate in any Joint Operations or Exclusive
Operations that are voted upon at least ten (10) Business Days after the
date of the Default Notice but before all of its defaults have been
remedied to the extent such an election would be permitted by Article
5.13(B) of this Agreement. The defaulting Party shall be deemed to have
approved, and shall join with the non-defaulting Parties in taking, any
other actions voted on during that period.
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8.3 ALLOCATION OF DEFAULTED ACCOUNTS
(A) The Party providing the Default Notice pursuant to Article 8.1
shall include in the Default Notice to each non-defaulting Party a
statement of the sum of money that the non-defaulting Party is to
pay as its portion (such portion being in the ratio that each
non-defaulting Party's Participating Interest bears to the
Participating Interests of all non-defaulting Parties) of the
amount in default (excluding interest). subject to the terms of
this Article 8.3. If the Defaulting Party remedies its default in
full within ten (10) Business Days from the date of the Default
Notice, the notifying Party shall promptly notify each
non-defaulting Party by telephone and facsimile, and the
non-defaulting Parties shall be relieved of their obligation to
pay a share of the amounts in default. Otherwise. each
non-defaulting Party shall pay Operator, within ten (10) Business
Days after receipt of the Default Notice, its share of the amount
which the Defaulting Party failed to pay. If any non-defaulting
Party fails to pay its share of the amount in default as
aforesaid, such Party shall thereupon be a Defaulting Party
subject to the provisions of this Article VIII. The non-defaulting
Parties which pay the amount owed by any Defaulting Party shall
be entitled to receive their respective shares of the principal
and interest payable by such Defaulting Party pursuant to this
Article VIII. If Operator is a Defaulting Party, then all payment
otherwise payable to Operator for Joint Account costs pursuant to
this Agreement shall be made to the notifying Party instead until
the default is cured or a successor Operator appointed. The
notifying Party shall maintain such funds in a segregated account
separate from its own funds and shall apply such funds to third
party claims due and payable from the Joint Account of which it
has notice, to the extent Operator would be authorized to make
such payments under the terms of this Agreement. The notifying
Party shall be entitled to bill or cash call the other Parties in
accordance with the Accounting Procedure for proper third party
charges that become due and payable during such period to the
extent sufficient funds are not available. When Operator has
cured its default or a successor Operator is appointed, the
notifying Party shall turn over all remaining funds in the
account to Operator and shall provide Operator and the other
parties with a detailed accounting of the funds received and
expended during this period. The notifying Party shall not be
liable for damages, losses, costs, expenses or liabilities arising
as a result of its actions under this Article 8.3(B) except to the
extent Operator would be liable under Article 4.6.
(B) The total of all amounts paid by the non-defaulting Parties for
the Defaulting Party, together with interest accrued on such
amounts, shall constitute a debt due and owing by the Defaulting
Party to the non-defaulting Parties in proportion to such amounts
paid. In addition, the non-defaulting Parties may, in the manner
contemplated by this Article, satisfy such debt (together with
interest) and may accrue an amount equal to the Defaulting Party's
Participating Interest share of the estimated cost to abandon any
Joint Property.
(C) A Defaulting party may remedy its default by paying to Operator
the total amount due, together with interest calculated as
provided in Article 8.1, at any time prior to transfer of its
interest pursuant to Article 8.4, and upon receipt of such payment
Operator shall remit to each non-defaulting party its
proportionate share of such amount.
(D) The rights granted to each non-defaulting party pursuant to this
Article, shall be in addition to, and not in substitution for any
other rights or remedies which each non-defaulting party may have
at law or equity or pursuant to the other provisions of this
Agreement.
8.4 REMEDIES
(A) During the continuance of a default, the Defaulting Party shall
not have a right to its Entitlement, which shall vest in and be
the property of the non-defaulting Parties. Operator (or the
notifying Party if Operator is a Defaulting Party) shall be
authorized to sell such Entitlement in an arm's-length sale on
terms that are commercially reasonable under the circumstances
and, after deducting all costs, charges and expenses incurred in
connection with such sale, pay the net proceeds to the
non-defaulting Parties in proportion to the amounts they are owed
by the Defaulting Party hereunder (and apply such net proceeds
toward the establishment of a reserve fund under Article 8.4(C),
if applicable) until all such amounts are recovered and such
reserve funds is established. Any surplus remaining shall be paid
to the Defaulting Party, and any deficiency shall remain a debt
due from the Defaulting Party to the non-defaulting Parties. When
making sales under this Article 8.4(A), the non-defaulting Parties
shall have no obligation to share any existing market or obtain a
price equal to the price at which their own production is sold.
(B) If Operator disposes of any Joint Property or any other credit or
adjustment is made to the Joint Account while a Party is in
default, Operator (or the notifying Party if Operator is a
Defaulting Party) shall be entitled to apply the Defaulting
Party's
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Participating Interest share of the proceeds of such disposal,
credit or adjustment against all amounts owing by the Defaulting
Party to the non-defaulting Parties hereunder (and toward the
establishment of a reserve fund under Article 8.4(C), if
applicable). Any surplus remaining shall be paid to the Defaulting
Party, and any deficiency shall remain a debt due from the
Defaulting Party to the non-defaulting Parties.
(C) The non-defaulting Parties shall be entitled to apply proceeds
received under Articles 8.4(A) and 8.4(B) toward the creation of a
reserve fund in an amount equal to the Defaulting Party's
Participating Interest share of (i) the estimated cost to abandon
any wells and other property in which the Defaulting Party
participated, (ii) the estimated cost of severance benefits for
local employees upon cessation of operations and (iii) any other
identifiable costs that the non-defaulting Parties anticipate will
be incurred in connection with the cessation of operations.
(D) If a Defaulting Party fails to remedy its default by the sixtieth
(60th) Day following the date of the Default Notice, then, without
prejudice to any other rights available to the non-defaulting
Parties to recover amounts owing to them under this Agreement,
each non-defaulting Party shall have the option, exercisable at
anytime thereafter until the Defaulting Party has completely cured
its defaults, to require that the Defaulting Party completely
withdraw from this Agreement and the Concession Agreement. Such
option shall be exercised by notice to the Defaulting Party and
each non-defaulting Party. If such option is exercised, the
Defaulting Party shall be deemed to have transferred, pursuant to
Article 13.6, effective on the date of the non-defaulting Party's
notice, all of its right, title and beneficial interest in and
under this Agreement and the Concession Agreement to the
non-defaulting Parties. The Defaulting Party shall, without delay
following any request from the non-defaulting Parties, do any and
all acts required to be done by applicable law or regulation in
order to render such transfer legally valid, including, without
limitation, obtaining all governmental consents and approvals, and
shall execute any and all documents and take such other actions as
may be necessary in order to effect a prompt and valid transfer of
the interest described above. The Defaulting Party shall be
obligated to promptly remove any liens and encumbrances which may
exist on such transferred interests. For purposes of this Article
8.4(D), each Party constitutes and appoints each other Party its
true and lawful attorney to execute such instruments and make such
filings and applications as may be necessary to make such transfer
legally effective and to obtain any necessary consents of the
Government. Actions under this power of attorney may be taken by
any Party individually without the joinder of the others. This
power of attorney is irrevocable for the term of this Agreement
and is coupled with an interest. If requested, each Party shall
execute a form prescribed by the Operating Committee setting forth
this power of attorney in more detail. In the event all Government
approvals are not timely obtained, the Defaulting Party shall hold
its Participating Interest in trust for the non-defaulting Parties
who are entitled to receive the Defaulting Party's Participating
Interest. Notwithstanding the terms of Article XIII, in the
absence of an agreement among the non-defaulting Parties to the
contrary, any transfer to the non-defaulting Parties following a
withdrawal pursuant to this Article 8.4(D) shall be in proportion
to the Participating Interests of the non-defaulting Parties. The
acceptance by a non-defaulting Party of any portion of a
defaulting Party's Participating Interest shall not limit any
rights or remedies that the non-defaulting Party has to recover
all amounts (including interest) owing under this Agreement by the
Defaulting Party.
(E) The non-defaulting Parties shall be entitled to recover from the
Defaulting Party all reasonable attorneys' fees and all other
reasonable costs sustained in the collection of amounts owing by
the Defaulting Party.
The rights and remedies granted to the non-defaulting Parties in
this Agreement shall be cumulative, not exclusive, and shall be in
addition to any other rights and remedies that may be available to
the non-defaulting Parties, whether at law, in equity or
otherwise. Each right and remedy available to the non-defaulting
Parties may be exercised from time to time and so often and in
such order as may be considered expedient by the non-defaulting
Parties in their sole discretion.
8.5 SURVIVAL
The obligations of the Defaulting Party and the rights of the
non-defaulting Parties shall survive the surrender of the Concession
Agreement, abandonment of Joint Operations and termination of this
Agreement.
8.6 NO RIGHT OF SET OFF
Each Party acknowledges and accepts that a fundamental principle of this
Agreement is that each Party pays its Participating Interest share of all
amounts due under this Agreement as and when required. Accordingly, any
Party which becomes a Defaulting Party undertakes that, in respect of
either any exercise by the non-defaulting Parties of any rights under or
the application of any of the provisions of this Article VIII, such Party
hereby waives any right to raise by way of set off or invoke as a
defense, whether in law or
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equity, any failure by any other Party to pay amounts due and owing under
this Agreement or any alleged claim that such Party may have against
Operator or any Non-Operator, whether such claim arises under this
Agreement or otherwise. Each Party further agrees that the nature and the
amount of the remedies granted to the non-defaulting Parties hereunder
are reasonable and appropriate in the circumstances.
ARTICLE IX
DISPOSITION OF PRODUCTION
9.1 RIGHT AND OBLIGATION TO TAKE IN KIND
Except as otherwise provided in this Article IX or in Article VIII and
subject to the provisions of the Concession Agreement, each Party shall
have the right and obligation to own, take in kind and separately dispose
of the share of total production available to it from any Development
Lease pursuant to the Concession Agreement and this Agreement in such
quantities and in accordance with such procedures as may be set forth in
the offtake agreement referred to in Article 9.2 or in the special
arrangement for natural gas referred to in Article 9.3. If EGPC is party
to the offtake agreement, the Parties shall endeavor to obtain its
agreement to the principles set forth in this Article IX.
9.2 OFFTAKE AGREEMENT FOR CRUDE OIL
In the event that EGPC elects not to exercise its preferential right to
purchase the Parties' share of Crude Oil in accordance with Article VII
(e) of the Concession Agreement, the Parties shall in good faith, and not
less than three (3) months prior to first delivery of crude oil,
negotiate and conclude the terms of an agreement to cover the offtake of
crude oil produced under the Concession Agreement. The EGPC may, if
necessary and practicable, also be party to the offtake agreement. This
offtake agreement shall, to the extent consistent with the Concession
Agreement, make provision for:
(A) the delivery point, at which title and risk of loss of
Participating Interest shares of crude oil shall pass to the
Parties interested (or as the Parties may otherwise agree);
(B) operator's regular periodic advice to the Parties of estimates of
total available production for succeeding period, quantities of
each grade of crude oil and each Party's share for as far ahead as
is necessary for Operator and the Parties to plan offtake
arrangements. Such advice shall also cover for each grade of crude
oil total available production and deliveries for the preceding
period, inventory and overlifts and underlifts;
(C) nomination by the Parties to Operator of acceptance of their
shares of total available production for the succeeding period.
Such nominations shall in any one period be for each Party's
entire share of available production during that period subject to
operational tolerances and agreed minimum economic cargo sizes or
as the Parties may otherwise agree;
(D) elimination of overlifts and underlifts;
(E) if offshore loading or a shore terminal for vessel loading is
involved, risks regarding acceptability of tankers, demurrage and
(if applicable) availability of berths;
(F) distribution to the Parties of available grades, gravities and
qualities of Hydrocarbons to ensure, to the extent Parties take
delivery of their Entitlement as they accrue, that each Party
shall receive in each period Entitlement of grades, gravities and
qualities of Hydrocarbons from each Development Lease in which it
participates similar to the grades, gravities and qualities of
Hydrocarbons received by each other Party from that Development
Lease in that period;
(G) to the extent that distribution of Entitlement on such basis is
impracticable due to availability of facilities and minimum cargo
sizes, a method of making periodic adjustments; and
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(H) the option and the right of the other Parties to sell an
Entitlement which a Party fails to nominate for acceptance
pursuant to (C) above or of which a Party fails to take delivery ,
in accordance with applicable agreed procedures, provided that
such failure either constitutes a breach of Operator's or Parties'
obligations under the terms of the Concession Agreement, or is
likely to result in the curtailment or shut-in of production. Such
sales shall be made only to the limited extent necessary to avoid
disruption in Joint Operations. Operator shall give all Parties as
much notice as is practicable of such situation and that a sale
option has arisen. Any sale shall be of the unnominated or
undelivered Entitlement as the case may be and for reasonable
periods of time as are consistent with the minimum needs of the
industry and in no event to exceed twelve (12) months. The right
of sale shall be revocable at will subject to any prior
contractual commitments. Payment terms for production sold under
this option shall be established in the offtake agreement.
If an offtake agreement has not been entered into by the date of first
delivery of crude oil, the Parties shall be bound by the principles set
forth in this Article 9.2 until an offtake agreement has been entered
into.
9.3 SEPARATE AGREEMENT FOR NATURAL GAS
The Parties recognize that if natural gas is discovered it may be necessary for
the Parties to enter into special arrangements for the disposal of natural gas,
which are consistent with the Development Plan and subject to the terms of the
Concession Agreement.
9.4 EGPC PREFERENTIAL RIGHT OF PURCHASE
In the event EGPC exercises its preferential right to purchase Hydrocarbons
produced under the Concession, each Party shall contribute the quantity required
proportionately to its Entitlement thereof. Or, if EGPC requires that Crude Oil
from the Concession be sold to or with EGPC under a joint marketing arrangement
or otherwise, Operator shall use its best efforts to obtain the unanimous
agreement of the Operating Committee to the terms and conditions of any such
arrangement or agreement.
ARTICLE X
ABANDONMENT
10.1 ABANDONMENT OF WELLS DRILLED AS JOINT OPERATIONS
(A) A decision to plug and abandon any well which has been drilled as
a Joint Operation shall require the approval of the Operating
Committee.
(B) Should any Party fail to reply within the period prescribed in
Article 5.12(A)(1) or Article 5.12(A)(2), whichever is applicable,
after delivery of notice of the Operator's proposal to plug and
abandon such well, such Party shall be deemed to have consented to
the proposed abandonment.
(C) If the Operating Committee approves a decision to plug and abandon
an Exploration Well or Appraisal Well, any Party voting against
such decision may propose, within the time periods allowed by
Article 5.13(A), to conduct an alternate Exclusive Operation in
the wellbore. If no Exclusive Operation is timely proposed, or if
an Exclusive Operation is timely proposed but is not commenced
within the applicable time periods under Article 7.2, such well
shall be plugged and abandoned.
(D) Any well plugged and abandoned under this Agreement shall be
plugged and abandoned in accordance with applicable regulations
and at the cost, risk and expense of the Parties who participated
in the cost of drilling such well.
(E) Notwithstanding anything to the contrary in this Article 10.1 or
elsewhere in this Agreement:
(1) If the Operating Committee approves a decision to plug and
abandon a well from which Hydrocarbons have been produced
and sold, any Party voting against the decisions may
propose, within five (5) days after the time specified in
Article 5.6 or Article 5.12 has expired, to take over the
entire well as an Exclusive Operation. Any Party originally
participating in the well shall be entitled to participate
in the operation of the well as an Exclusive Operation by
response notice within ten (10) Days after receipt of the
notice proposing the Exclusive Operation. The
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Consenting Parties shall be entitled to continue producing
only from the Zone open to production at the time they
assumed responsibility for the well and shall not be
entitled to drill a substitute well in the event that the
well taken over becomes impaired or fails.
(2) Each Non-Consenting Party shall be deemed to have
relinquished free of cost to the Consenting Parties in
proportion to their Participating Interests all of its
interest in the wellbore of a produced well and related
equipment in accordance with Article 7.4(B). The Consenting
Parties shall thereafter bear all cost and liability of
plugging and abandoning such well in accordance with
applicable regulations, to the extent the Parties are or
become obligated to contribute to such costs and
liabilities, and shall indemnify the Non-Consenting Parties
against all such costs and liabilities.
(3) Subject to Article 7.11 (F), Operator shall continue to
operate a produced well for the account of the Consenting
Parties at the rates and charges contemplated by this
Agreement, plus any additional cost and charges which may
arise as a result of the separate allocation of interest in
such well.
10.2 ABANDONMENT OF EXCLUSIVE OPERATIONS
This Article X shall apply MUTATIS MUTANDIS to the abandonment of an Exclusive
Well or any well in which an Exclusive Operation has been conducted (in which
event all Parties having the right to conduct further operations in such well
shall be notified and have the opportunity to conduct Exclusive Operations in
the well in accordance with the provisions of this Article X).
ARTICLE XI
SURRENDER, EXTENSIONS AND RENEWALS
11.1 SURRENDER
(A) The Operating Committee shall in accordance with Article V of the
Concession Agreement determine those portions of the Concession
Area to be relinquished from time to time. The Operator shall
propose to the Operating Committee the area to be relinquished at
least sixty (60) Days prior to the end of the applicable year or
Exploration Period. If a sufficient vote of the Operating
Committee cannot be attained, then the proposal supported by a
simple majority of the Participating Interests shall be adopted.
If no proposal attains the support of a simple majority of the
Participating Interests, then the proposal receiving the largest
aggregate Participating Interest vote shall be adopted. In the
event of a tie, the Operator shall choose among the proposals
receiving the largest aggregate Participating Interest vote. The
Parties shall execute any and all documents and take such other
actions as may be necessary to effect the surrender. Each Party
renounces all claims and causes of action against Operator and any
other Parties on account of any area surrendered in accordance
with the foregoing but against its recommendation if Hydrocarbons
are subsequently discovered under the surrendered area.
(B) A surrender of all or any part of the Concession Area which is not
required by the Concession Agreement shall require the unanimous
consent of the Parties.
11.2 EXTENSION OF THE TERM
(A) A proposal by any Party to enter into or extend the term of any
Exploration Period or any phase of the Concession Agreement, or a
proposal to extend the term of the Concession Agreement, shall be
brought before the Operating Committee pursuant to Article V.
(B) Any Party shall have the right to enter into or extend the term of
any Exploration Period or any phase of the Concession Agreement or
to extend the term of the Concession Agreement, regardless of the
level of support in the Operating Committee. If any Party or
Parties take such action, any Party not wishing to extend shall
have a right to withdraw, subject to the requirements of Article
XIII.
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ARTICLE XII
TRANSFER OF INTEREST OR RIGHTS
12.1 Obligations
(A) Subject always to the requirements of the Concession Agreement,
the transfer of all or part of a Party's Participating Interest,
excepting transfers pursuant to Article VIII or Article XIII,
shall be effective only if it satisfies the terms and conditions
of this Article XII.
(B) Except in the case of a Party transferring all of its
Participating Interest, no transfer shall be made by any Party
which results in the transferor or the transferee holding a
Participating Interest of less than five percent (5%) or holding
any interest other than a Participating Interest in the Concession
Agreement, the Concession Area and this Agreement.
(C) The transferring Party shall, notwithstanding the transfer, be
liable to the other Parties for any obligations, financial or
otherwise, which have vested, matured or accrued under the
provisions of the Concession Agreement or this Agreement prior to
such transfer. Such obligations shall include, without limitation,
any proposed expenditure approved by the Operating Committee prior
to the transferring Party notifying the other Parties of its
proposed transfer.
(D) The transferee shall have no rights in and under the Concession
Agreement, the Concession Area or this Agreement unless and until
it obtains any necessary Government approval and expressly
undertakes in an instrument satisfactory to the other Parties to
perform the obligations of the transferor under the Concession
Agreement and this Agreement in respect of the Participating
Interest being transferred and furnishes any guarantees required
by the Government or the Concession Agreement.
(E) A transferee, other than an Affiliate, shall have no rights in and
under the Concession Agreement, the Concession Area or this
Agreement unless each Party has consented in writing to such
transfer, which consent shall be denied only if such transferee
fails to establish to the reasonable satisfaction of each Party
its capability to perform its obligations under the
Concession Agreement and this Agreement.
(F) Nothing contained in this Article XII shall prevent a Party from
mortgaging, pledging, charging or otherwise encumbering all or
part of its interest in the Concession Area and in and under this
Agreement for the purpose of security relating to finance provided
that:
(1) such Party shall remain liable for all obligations relating
to such interest;
(2) the encumbrance shall be subject to any necessary approval
of the Government and be expressly subordinated to the
rights of the other parties under this Agreement; and
(3) such Party shall ensure that any such mortgage, pledge,
charge or encumbrance shall be expressed to be without
prejudice to the provisions of this Agreement.
12.2 RIGHTS
(A) Each Party shall have the right, subject to the provisions of
Article 12.1, to freely transfer its Participating Interest to an
Affiliate or to a third party transferee.
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ARTICLE XIII
WITHDRAWAL FROM AGREEMENT
13.1 RIGHT OF WITHDRAWAL
(A) Subject to the provisions of this Article XIII, any Party may
withdraw from this Agreement and the Concession Agreement by
giving notice to all other Parties stating its decision to
withdraw. Such notice shall be unconditional and irrevocable when
given, except as may be provided in Article 13.7.
(B) The effective date of withdrawal for a withdrawing Party shall be
the end of the calendar month following the calendar month in
which the notice of withdrawal is given, provided that if all
Parties elect to withdraw, the effective date of withdrawal for
each Party shall be the date determined by Article 13.9.
13.2 PARTIAL OR COMPLETE WITHDRAWAL
(A) Within thirty (30) Days of receipt of each withdrawing Party's
notification, each of the other Parties may also give notice that
it desires to withdraw from this Agreement and the Concession
Agreement. Should all parties give notice of withdrawal, the
Parties shall proceed to abandon the Concession Area and terminate
the Concession Agreement and this Agreement. If less than all of
the Parties give such notice of withdrawal, then the withdrawing
Parties shall take all steps to withdraw from the Concession
Agreement and this Agreement on the earliest possible date and
execute and deliver all necessary instruments and documents to
assign their Participating Interest to the Parties which are not
withdrawing, without any compensation whatsoever, in accordance
with the provisions of Article 13.6.
(B) If any part of the withdrawing Party's Participating Interest
remains unclaimed after sixty (60) Days from the date of the first
notice of withdrawal, the Parties shall be deemed to have decided
to withdraw from the Concession and this Agreement, unless at
least one Party agrees to accept the unclaimed Participating
Interest.
(C) Any Party withdrawing under Article 11.2(B) or under this Article
XIII shall, at its option,
(1) withdraw from the entirety of the Concession Area; or
(2) withdraw only from all exploration activities under the
Concession, but not from any Development Lease whether
appraised or not, made prior to such withdrawal.
A Party withdrawing pursuant to this Article 13.2(C)(2) shall retain its
rights in the Joint Property, but only insofar as they relate to any such
Development Lease, and shall abandon all other rights in the Joint
Property.
13.3 RIGHTS OF A WITHDRAWING PARTY
A withdrawing Party shall have the right to receive its Entitlement of
Hydrocarbons produced through the effective date its withdrawal. The withdrawing
Party shall be entitled to receive all information to which such Party is
otherwise entitled under this Agreement until the effective date of its
withdrawal. After giving its notification of withdrawal, a Party shall not be
entitled to vote on any matters coming before the Operating Committee, other
than matters for which such Party has financial responsibility.
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13.4 OBLIGATIONS AND LIABILITIES OF A WITHDRAWING PARTY
(A) A withdrawing Party shall, following its notification of
withdrawal, remain liable only for its share of the following:
(1) cost of Joint Operations, and Exclusive Operations in which
it has agreed to participate, that were approved by the
Operating Committee or Consenting Parties as part of a Work
Program and Budget or APE prior to such Party's
notification of withdrawal, regardless of when they are
actually incurred;
(2) any Minimum Work Obligations for the current period or
phase of the Concession Agreement, and for any subsequent
period or phase which has been approved pursuant to Article
11.2 and with respect to which such Party has failed to
timely withdraw under Article 13.4(B);
(3) emergency expenditures as described in Articles 4.2(B)(11)
and 13.5;
(4) all other obligations and liabilities of the Parties or
Consenting Parties, as applicable, with respect to acts or
omissions under this Agreement prior to the effective date
of such Party's withdrawal for which such Party would have
liable, had it not withdrawn from this Agreement; and
(5) in the case of a partially withdrawing Party, any costs and
liabilities with respect to Development Leases, Commercial
Discoveries and Discoveries from which it has not
withdrawn.
The obligations and liabilities for which a withdrawing Party
remains liable shall specifically include its share of any costs
of plugging and abandoning wells or portions of wells in which it
participated (or was required to bear a share of the costs
pursuant to Article 13.4(A)(1), to the extent such costs of
plugging and abandoning are payable by the parties under the
Concession Agreement. Any liens, charges and other encumbrances
which the withdrawing Party place on such Party's Participating
Interest prior to its withdrawal shall be fully satisfied or
released, at the withdrawing Party's expense, prior to its
withdrawal. A Party's withdrawal shall not relieve it from
liability to the non-withdrawing Parties with respect to any
obligations or liabilities attributable to the withdrawing Party
under this Article XIII merely because they are not identified or
identifiable at the time of withdrawal.
(B) Notwithstanding the foregoing, a Party shall not be liable for any
operations or expenditures it voted against (other than operations
and expenditures described in Article 13.4(A)(2) or 13.4(A)(3) if
it sends notification of its withdrawal within five (5) Days (or
within twenty- four (24) hours if the drilling rig to be used in
such operation is standing by on the Concession Area) of the
Operating Committee vote approving such operation or expenditure.
Likewise, a Party voting against voluntarily entering into or
extending of an Exploration Period or Exploitation Period of any
phase of the Concession Agreement or voluntarily extending the
Concession Agreement shall not be liable for the Minimum Work
Obligations associated therewith provided that it sends
notification of its withdrawal within thirty (30) 38 Days of such
vote pursuant to Article 11.2.
13.5 EMERGENCY
If a well goes out of control or a fire, blowout, sabotage or other
emergency occurs prior to the effective date of a Party's withdrawal, the
withdrawing Party shall remain liable for its Participating Interest
share of the costs of such emergency, regardless of when they are
actually incurred.
13.6 ASSIGNMENT
A withdrawing Party shall assign its Participating Interest free of cost
to each of the non-withdrawing Parties in the proportion which each of
their Participating Interests (prior to the withdrawal) bears to the
total Participating Interest of all the non-withdrawing Parties (prior to
the withdrawal), unless the non-withdrawing Parties agree otherwise. The
expenses associated with the withdrawal and assignment shall be borne by
the withdrawing Party.
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13.7 APPROVALS
A withdrawing Party shall promptly join in such actions as may be
necessary or desirable to obtain any Government approvals required in
connection with the withdrawal and assignments. The non-withdrawing
Parties shall use reasonable efforts to assist the withdrawing Party in
obtaining such approvals. Any penalties or expenses incurred by the
Parties in connection with such withdrawal shall be borne by the
withdrawing Party. If the Government does not approve a Party's
withdrawal and assignment to the other Parties, then the withdrawing
Party shall at its option either (1) retract its notice of withdrawal by
notice to the other Parties and remain a Party as if such notice of
withdrawal had never been sent or (2) hold its Participating Interest in
trust for the sole and exclusive benefit of the non-withdrawing Parties
with the right to be reimbursed by the non-withdrawing Parties for any
subsequent costs and liabilities incurred by it for which it would not
have been liable, had it successfully withdrawn.
13.8 SECURITY
(A) A Party withdrawing from this Agreement and the Concession
Agreement pursuant to this Article XIII shall provide Security
satisfactory to the other Parties to satisfy any obligations or
liabilities which were approved or accrued prior to notice of
withdrawal, but which become due after its withdrawal, including,
without limitation, Security to cover the costs of an abandonment,
if applicable.
(B) Failure to provide Security shall constitute default under this
Agreement.
(C) "Security" means a standby letter of credit issued by a bank or an
on demand bond issued by a surety corporation, such bank or
corporation haying a credit rating indicating it has sufficient
worth to pay its obligations in all reasonably foreseeable
circumstances.
13.9 WITHDRAWAL OR ABANDONMENT BY ALL PARTIES
In the event all Parties decide to withdraw, the Parties agree that they
shall be bound by the terms and conditions of this Agreement for so long
as may be necessary to wind up the affairs of the Parties with the
Government, to satisfy any requirements of applicable law and to
facilitate the sale, disposition or abandonment of property or interests
held by the Joint Account.
ARTICLE XIV
RELATIONSHIP OF PARTIES AND TAX
14.1 RELATIONSHIP OF PARTIES
The rights, duties, obligations and liabilities of the Parties under this
Agreement shall be individual, not joint or collective. It is not the
intention of the Parties to create, nor shall this Agreement be deemed or
construed to create a mining or other partnership, joint venture or
association or (except as explicitly provided in this Agreement) a trust.
This Agreement shall not be deemed or construed to authorize any Party to
act as an agent, servant or employee for any other Party for any purpose
whatsoever except as explicitly set forth in this Agreement. In their
relations with each other under this Agreement, the Parties shall not be
considered fiduciaries except as expressly provided in this Agreement.
14.2 TAX
Each Party shall be responsible for reporting and discharging its own tax
measured by the profit or income of the Party and the satisfaction of
such Party's share of all Concession Agreement obligations under the
Concession Agreement and under this Agreement. Each Party shall protect,
defend and indemnify each other Party, from any and all loss, cost or
liability arising from the indemnifying Party's failure to report and
discharge such taxes or satisfy such obligations. The Parties intend that
all income and all tax benefits (including. but not limited to,
deductions, depreciation, credits and capitalization) with respect to the
expenditures made by the Parties hereunder will be allocated by the
Government tax authorities to the Parties based on the share of each tax
item actually received or
Alliance Operating Agreement - 20F
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borne by each Party. If such allocation is not accomplished due to the
application of the laws and regulations of the Government or other
government action, the Parties shall attempt to adopt mutually agreeable
arrangements that will allow the Parties to achieve the financial results
intended. Operator shall provide each Party, in a timely manner and at
such Party's sole expense, with such information with respect to Joint
Operations as such Party may reasonably request for preparation of its
tax returns or responding to any audit or other tax proceeding.
14.3 UNITED STATES TAX ELECTION
(A) If, for United States federal income tax purposes, this Agreement
and the operations under this Agreement are regarded as a
partnership (and if the Parties have not agreed to form a tax
partnership) each "U.S. Party" (as defined below) elects to be
excluded from the application of all of the provisions of
Subchapter "K", Chapter 1, Subtitle "A" of the United States
Internal Revenue Code of 1986, as amended (the "Code",), as
permitted and authorized by Section 761 (a) of the Code and the
regulations promulgated under the Code. The Operator is authorized
and directed to execute and file for each U.S. Party such evidence
of this election as may be required by the Internal Revenue
Service, including specifically, but not by way of limitation, all
of the returns, statements, and the data required by United States
Treasury Regulations Sections 1.761-2 and 1.6031-1(d)(2), and
shall provide a copy thereof to each U.S. Party. Should there be
any requirement that any U.S. Party give further evidence of this,
each U.S. Party shall execute such documents and furnish such
other evidence as may be required by the Internal Revenue Service
or as may be necessary to evidence this election.
(B) No Party shall give any notice or take any other action
inconsistent with the election made above. If any income tax laws
of any state or other political subdivision of the United States
or any future income tax (laws of the United States or any such
political subdivision contain provisions similar to those in
Subchapter "K", Chapter 1, Subtitle "A" of the Code, under which
an election similar to that provided by Section 761(a) of the Code
is permitted, each U.S. Party shall make such election as may be
permitted or required by such laws. In making the foregoing
election, each U.S. Party states that the income derived by it
from operations under this Agreement can be adequately determined
without the computation of partnership taxable income.
(C) For the purposes of this Article XIV, "U.S. Party" shall mean any
Party which is subject to the income tax laws of the United States
in respect of operations under this Agreement.
(D) No activity shall be conducted under this Agreement that would
cause any Party that is not a U.S. Party to be deemed to be
engaged in a trade or business within the United States under
applicable tax laws and regulations.
(E) A Party which is not a U.S. Party shall not be required to do any
act or execute any instrument which might subject it to the
taxation jurisdiction of the United States.
Alliance Operating Agreement - 20F
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ARTICLE XV
CONFIDENTIAL INFORMATION -PROPRIETARY TECHNOLOGY
15.1 CONFIDENTIAL INFORMATION
(A) Subject to the provisions of the Concession Agreement, the Parties
agree that all information and data acquired or obtained by any
Party in respect of Joint Operations shall be considered
confidential and shall be kept confidential and not be disclosed
during the term of the Concession Agreement to any person or
entity not a Party to this Agreement, except:
(1) to an Affiliate, provided such Affiliate maintains
confidentiality as provided in this Article XV;
(2) to a governmental agency or other entity when required by
the Concession Agreement;
(3) to the extent such data and information is required to be
furnished in compliance with any applicable laws or
regulations, or pursuant to any legal proceedings or
because of any order of any court binding upon a party;
(4) to prospective or actual contractors, consultants and
attorneys employed by any Party where disclosure of such
data or information is essential to such contractor's,
consultant's or attorney's work;
(5) to a bona fide prospective transferee of a Party's
Participating Interest (including an entity with whom a
Party or its Affiliates are conducting bona fide
negotiations directed toward a merger, consolidation or the
sale of a majority of its or an Affiliate's shares);
(6) to a bank or other financial institution to the extent
appropriate to a Party arranging for funding;
(7) to the extent such data and information must be disclosed
pursuant to any rules or requirements of any government or
stock exchange having jurisdiction over such Party, or its
Affiliates; provided that if any Party desires to disclose
information in an annual or periodic report to its
Affiliates' shareholders and to the public and such
disclosure is not required pursuant to any rules or
requirements of any government or stock exchange, then such
Party shall comply with Article 20.3;
(8) to its respective employees for the purposes of Joint
Operations, subject to each Party taking customary
precautions to ensure such data and information is kept
confidential; and
(9) any data or information which, through no fault of a Party,
becomes a part of the public domain.
(B) Disclosure as pursuant to Article l5.1 (A)(4) and (5), shall not
be made unless prior to such disclosure the disclosing Party has
obtained a written undertaking from the recipient party to keep
the data and information strictly confidential for at least two
(2) years and not to use or disclose the data and information
except for the express purpose for which disclosure is to be made.
15.2 CONTINUING OBLIGATIONS
Any Party ceasing to own a Participating Interest during the term of this
Agreement shall nonetheless remain bound by the obligations of
confidentiality in Article 15.1 and any disputes shall be resolved in
accordance with Article XVIII.
15.3 PROPRIETARY TECHNOLOGY
Nothing in this Agreement shall require a Party to divulge proprietary
technology to the other Parties; provided that where the cost of
development of proprietary technology has been charged to the Joint
Account, such proprietary technology shall be disclosed to all Parties
bearing a portion of such cost and may be used by any such Party or its
Affiliates in other operations.
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15.4 TRADES
Notwithstanding the foregoing provisions of this Article XV, Operator
may, with approval of the Operating Committee, make well trades and data
trades for the benefit of the Parties, with any data so obtained to be
furnished to all Parties who participated in the costs of the data that
was traded. Operator shall cause any third party to such trade to enter
into an undertaking to keep the traded data confidential.
ARTICLE XVI
FORCE MAJEURE
16.1 OBLIGATIONS
If as a result of Force Majeure any Party is rendered unable, wholly or
in part, to carry out its obligations under this Agreement, other than
the obligations to pay any amounts due or to furnish security, then the
obligations of the Party giving such notice, so far as and to the extent
that the obligations are affected by such Force Majeure, shall be
suspended during the continuance of any inability so caused and for such
reasonable period thereafter as may be necessary for the Party to put
itself in the same position that it occupied prior to the Force Majeure,
but for no longer period. The Party claiming Force Majeure shall notify
the other Parties of the Force Majeure within a reasonable time after the
occurrence of the facts relied on and shall keep all Parties informed of
all significant developments. Such notice shall give reasonably full
particulars of the Force Majeure, and also estimate the period of time
which the Party will probably require to remedy the Force Majeure. The
affected Party shall use all reasonable diligence to remove or overcome
the Force Majeure situation as quickly as possible in an economic manner,
but shall not be obligated to settle any labor dispute except on terms
acceptable to it and all such disputes shall be handled within the sole
discretion of the affected Party.
16.2 DEFINITION OF FORCE MAJEURE
For the purposes of this Agreement, "Force Majeure" shall have the same
meaning as is set out in the Concession Agreement.
ARTICLE XVII
NOTICES
Except as otherwise specifically provided, all notices authorized or
required between the Parties by any of the provisions of this Agreement,
shall be in writing, in English and delivered in person or by courier service
or by any electronic means of transmitting written communications which
provides written confirmation of complete transmission, and addressed to such
Parties as designated below. Oral communication does not constitute notice
for purposes of this Agreement, and telephone numbers for the Parties are
listed below as a matter of convenience only. The originating notice given
under any provision of this Agreement shall be deemed delivered only when
received by the Party to whom such notice is directed, and the time for such
Party to deliver any notice in response to such originating notice shall run
from the date the originating notice is received. The second or any
responsive notice shall be deemed delivered when received. "Received" for
purposes of this Article XVII shall mean actual delivery of the notice to the
address of the Party to be notified specified in accordance with this Article
XVII. Each Party shall have the right to change its address at any time
and/or designate that copies of all such notices be directed to another
person at another address by giving written notice thereof to all other
parties.
Alliance Operating Agreement - 20F
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Alliance Egyptian National Exploration Company
c/o Alliance International Petroleum Inc.
Churchill House
#9 West Hill Street
Nassau, Bahamas
Attention: Jeffrey Waterous
Facsimile: (242) 356-0507
Telephone: (242) 356-2040
GHP Exploration (Egypt) Ltd.
1900 West Loop South
Suite 900
Houston, Texas 77027
Attention: Barry Lasker
Facsimile: (713) 626-9374
Telephone: (713) 626-9373
ARTICLE XVIII
APPLICABLE LAW AND DISPUTE RESOLUTION
18.1 APPLICABLE LAW
This Agreement shall be governed by, construed, interpreted and applied
in accordance with the laws of England. excluding any choice of law rules
which would refer the matter to the laws of another jurisdiction.
18.2 DISPUTE RESOLUTION
(A) Any dispute, controversy or claim arising out of or in relation to
or in connection with this Agreement or the operations carried out
under this Agreement, including without limitation any dispute as
to the construction, validity, interpretation, enforceability or
breach of this Agreement, shall be exclusively and finally settled
by arbitration in accordance with this Article 18.2. Any Party may
submit such a dispute, controversy or claim to arbitration by
notice to the other Parties.
(B) A single arbitrator shall be appointed by unanimous consent of the
Parties. If the Parties, however, cannot reach agreement on an
arbitrator within forty-five (45) Days of the submission of a
notice of arbitration, the administrator (the American Arbitration
Association) for the implementation of such procedure shall be the
chief justice of the London Court of International Arbitration,
who shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim.
(C) Unless otherwise expressly agreed in writing by the Parties to the
arbitration proceedings:
(1) The arbitration proceedings shall be held in Dallas, Texas;
(2) The arbitration proceedings shall be conducted in the
English language and the arbitrator(s) shall be fluent in
the English language;
(3) The arbitrator(s) shall be and remain at all times wholly
independent and impartial;
(4) The arbitration proceedings shall be conducted under the
International Arbitration Rules of the American Arbitration
Association, as amended from time to time;
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(5) Any procedural issues not determined under the arbitrator
rules selected pursuant to Article 18.2(C)(4) shall be
determined by the arbitration act and any other applicable
laws of London, England, other than those laws which would
refer the matter to another jurisdiction;
(6) The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the matter
determined by the arbitrator(s);
(7) The decision of the sole arbitrator or a majority of the
arbitrators, as the case may be, shall be reduced to
writing; final and binding without the right of appeal; the
sole and exclusive remedy regarding any claims,
counterclaims, issues or accountings presented to the
arbitrator; made and promptly paid in U.S. dollars free of
any deduction or offset; and any costs or fees incident to
enforcing the award, shall to the maximum extent permitted
by law be charged against the Party resisting such
enforcement;
(8) Consequential, punitive or other similar damages shall not
be allowed except those payable to third parties for which
liability is allocated among the Parties by the arbitral
award;
(9) The award shall include interest from the date of any
breach or violation of this Agreement, as determined by the
arbitral award, and from the date of the award until paid
in full, at the Agreed Interest Rate;
(10) Judgment upon the award may be entered in any court having
jurisdiction over the person or the assets of the Party
owing the judgment or application may be made to such court
for a judicial acceptance of the award and an order of
enforcement, as the case may be;
(11) Whenever the Parties are of more than one nationality, the
single arbitrator or the presiding arbitrator, as the case
may be, shall not be of the same nationality as any of the
Parties or their ultimate parent entities;
(12) For purposes of allowing the arbitration provided in this
Article XVIII, the enforcement and execution of any
arbitration decision and award, and the issuance of any
attachment or other interim remedy, any governmental body
or agency, including if applicable the EGPC, which becomes
a Party to this Agreement agrees to waive all sovereign
immunity by whatever name or title with respect to
disputes, controversies or claims arising out of or in
relation to or in connection with this Agreement or the
operations carried out under this Agreement;
(13) The arbitration shall proceed in the absence of a Party
who, after due notice, fails to answer or appear. An award
shall not be made solely on the default of a Party, but
the arbitrator(s) shall require the party who is present to
submit such evidence as the arbitrator(s) may determine is
reasonably required to make an award; and
(14) If an arbitrator should die, withdraw or otherwise become
incapable of serving, or refuse to serve, a successor
arbitrator shall be selected and appointed in the same
manner as the original arbitrator.
Alliance Operating Agreement - 20F
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ARTICLE XIX
ALLOCATION OF COST RECOVERY RIGHTS
19.1 ALLOCATION OF TOTAL PRODUCTION
For the purposes of recovery of Petroleum Costs, the total quantity of
Hydrocarbons which are produced and saved from all Development Leases in
a Calendar Quarter and to which the Parties are entitled under the
Concession shall be designated as either Cost Oil or Production Sharing
Oil.
19.2 ALLOCATION OF COST OIL
Subject to Article 3.1 (c) of the Participation Agreement and Article
19.4, Cost Oil shall be allocated in accordance with the Parties'
respective Participating Interests. The allocation of Cost Oil shall be
as required to recover, in the sequence incurred, all Petroleum Costs and
which are recoverable in such Calendar Quarter.
19.3 ALLOCATION OF PRODUCTION SHARING OIL
Production Sharing Oil shall be allocated among the Parties in proportion
to their respective Participating Interests.
19.4 EXCLUSIVE OPERATIONS AND EXTENSIONS OF THE EXPLORATION PERIOD
Prior to the extension of the term of the Exploration Period and/or
Exploration Sub-Period by less than all Parties or, where practicable,
prior to the conduct of an Exclusive Operation (or if not, as soon
thereafter as is practicable), the Parties shall meet to determine:
(A) the allocation of Cost Oil and Production Sharing Oil between
Development Leases in which the Parties have different
Participating Interests;
(B) the allocation of Cost Oil and Production Sharing Oil between the
Parties where Petroleum Costs have been incurred but do not relate
to Joint Operations resulting in the creation of a Development
Lease but which become recoverable as a result of production from
another Development Lease elsewhere in the Concession Area,
provided always that Petroleum Costs in relation to a Development
Lease shall be recovered first;
(C) without prejudice to Article 7.9, the manner in which the bonuses
contemplated in Article IX of the Concession will be discharged;
and
(D) such other matters as the Parties may agree.
ARTICLE XX
GENERAL PROVISIONS
20.1 WARRANTIES AS TO NO PAYMENTS, GIFTS AND LOANS
Each of the Parties warrants that neither it nor its affiliates has made
or will make, with respect to the matters provided for hereunder, any
offer, payment, promise to pay or authorization of the payment of any
money, or any offer, gift, promise to give or authorization of the giving
of anything of value, directly or indirectly, to or for the use or
benefit of any official or employee of the Government or EGPC or to or
for the use or benefit of any political party, official, or candidate for
the purpose of influencing an official act or decision of that person;
inducing that person to do or omit to do any act in violation of his or
her lawful duty; or inducing that person
Alliance Operating Agreement - 20F
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to use his or her influence with the Government or EGPC to affect or
influence any Government or EGPC decision; unless such offer, payment,
gift, promise or authorization is authorized by the written laws or
regulations of the Arab Republic of Egypt. Each of the Parties further
warrants that neither it nor its affiliates has made or will make any
such offer, payment, gift, promise or authorization to or for the use or
benefit of any other person if the Party knows, has a firm belief, or is
aware that there is a high probability that the other person would use
such offer, payment, gift, promise or authorization for any of the
purposes described in the preceding sentence. The foregoing warranties do
not apply to any facilitating or expediting payment to secure the
performance of routine Government action. Routine Government action, for
purposes of this Article 20.1, shall not include, among other things,
Government action regarding the terms, award or continuation of the
Concession. Each Party shall respond promptly, and in reasonable detail,
to any notice from any other Party or its auditors pertaining to the
above stated warranty and representation and shall furnish documentary
support for such response upon request from such other Party.
20.2 CONFLICTS OF INTEREST
(A) Operator undertakes that it shall avoid any conflict of interest
between its own interests (including the interests of Affiliates)
and the interests of the other Parties in dealing with suppliers,
customers and all other organizations or individuals doing or
seeking to do business with the Parties in connection with
activities contemplated under this Agreement.
(B) The provisions of the preceding paragraph shall not apply to:
(1) Operator's performance which is in accordance with the
local preference laws or policies of the Government; or
(2) Operator's acquisition of products or services from an
Affiliate, or the sale thereof to an Affiliate, made in
accordance with the terms of this Agreement.
20.3 PUBLIC ANNOUNCEMENTS
(A) Operator shall be responsible for the preparation and release of
all public announcements and statements regarding this Agreement
or the Joint Operations; provided that, no public announcement or
statement shall be issued or made unless prior to its release all
the Parties have been furnished with a copy of such statement or
announcement and the approval of the Operating Committee has been
obtained. [Where a public announcement or statement becomes
necessary or desirable because of danger to or loss of life,
damage to property or pollution as a result of activities arising
under this Agreement, Operator is authorized to issue and make
such announcement or statement without prior approval of the
Operating Committee, but shall promptly furnish all the Parties
with a copy of such announcement or statement.
(B) If a Party wishes to issue or make any public announcement or
statement regarding this Agreement or the Joint Operations, it
shall not do so unless prior to its release, such Party furnishes
all the Parties with a copy of such announcement or statement, and
obtains the approval of the Operating Committee; provided that,
notwithstanding any failure to obtain such approval, no Party
shall be prohibited from issuing or making any such public
announcement or statement if it is necessary to do so in order to
comply with the applicable laws, rules or regulations of any
government, legal proceedings or stock exchange having
jurisdiction over such Party or its Affiliates as set forth in
Articles 15.1(A)(3) and (7).
20.4 SUCCESSORS AND ASSIGNS
Subject to the limitations on transfer contained in Article XII, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Parties.
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20.5 WAIVER
No waiver by any Party of anyone or more defaults by another Party in the
performance of this Agreement shall operate or be construed as a waiver
of any future default or defaults by the same Party, whether of a like or
of a different character. Except as expressly provided in this Agreement
no Party shall be deemed to have waived, released or modified any of its
rights under this Agreement unless such Party has expressly stated, in
writing, that it does waive, release or modify such right.
20.6 SEVERANCE OF INVALID PROVISIONS
If and for so long as any provision of this Agreement shall be deemed to
be judged invalid for any reason whatsoever, such invalidity shall not
affect the validity or operation of any other provision of this Agreement
except only so far as shall be necessary to give effect to the
construction of such invalidity, and any such invalid provision shall be
deemed severed from this Agreement without affecting the validity of the
balance of this Agreement.
20.7 MODIFICATIONS
Except as is provided in Articles 11.2(B) and 20.6, there shall be no
modification of this Agreement or the Concession Agreement except by
written consent of all Parties.
20.8 HEADINGS
The topical headings used in this Agreement are for convenience only and
shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any
topic are to be found in any particular Article.
20.9 SINGULAR AND PLURAL
Reference to the singular includes a reference to the plural and vice
versa.
20.10 GENDER
Reference to any gender includes a reference to all other genders.
20.11 COUNTERPART EXECUTION
This Agreement may be executed in as many original counterparts as there
are Parties and each such Counterpart shall be deemed an original
Agreement for all purposes; provided no Party shall be bound to this
Agreement unless and until all Parties have executed a counterpart. For
purposes of assembling all counterparts into one document, Operator is
authorized to detach the signature page from one or more counterparts
and, after signature thereof by the respective Party, attach each signed
signature page to a counterpart.
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20.12 ENTIRETY AND CONFLICT
This Agreement is the entire agreement of the Parties with respect to the
subject matter contained herein and supersedes all prior understandings
and negotiations of the Parties, with the exception of Articles II and
III of the Participation Agreement and the First Amendment to
Participation Agreement dated February 4, 2000. In the event of a
conflict between Article II or Article III of the Participation
Agreement or the First Amendment to Participation Agreement and this
Agreement, the terms of the Participation Agreement or First Amendment to
Participation Agreement shall govern to the extent of the conflict. IN
WITNESS of their agreement each Party has caused its duly authorized
representative to sign this instrument on the date indicated below such
representative's signature.
ALLIANCE EGYPTIAN NATIONAL EXPLORATION COMPANY
By:
-----------------------
(Print or type name)
Title:
--------------------
Date:
---------------------
GHP EXPLORATION (EGYPT) LTD.
By:
-----------------------
(Print or type name)
Title:
--------------------
Date:
---------------------
Alliance Operating Agreement - 20F
EXHIBIT "A"
ACCOUNTING PROCEDURE
ATTACHED TO THAT CERTAIN OPERATING AGREEMENT DATED JANUARY 1, 1999
Between:
Alliance Egyptian National Exploration Company
And
GHP Exploration (Egypt) Ltd.
Alliance Operating Agreement - 20F
TABLE OF CONTENTS
SECTION I -GENERAL PROVISIONS 1
1.1 Purpose 1
1.2 Conflict with Agreement 1
1.3 Definitions 1
1.4 Joint Account Records and Currency Exchange 2
1.5 Statements and Billings 3
1.6 Payments and Advances 3
1.7 Adjustments 5
1.8 Audits 6
1.9 Allocations 7
SECTION II -DIRECT CHARGES 7
2.1 Licenses, Permits, Etc. 7
2.2 Salaries, Wages and Related Costs 7
2.3 Employee Relocation Costs 8
2.4 Offices, Camps, and Miscellaneous Facilities 9
2.5 Material 9
2.6 Exclusively Owned Equipment and Facilities of Operator and Affiliates 9
2.7 Services 9
2.8 Insurance 10
2.9 Damages and Losses to Property 10
2.10 Litigation and Legal Expenses 11
2.11 Taxes and Duties 11
2.12 Other Expenditures 11
SECTION III -INDIRECT CHARGES 12
3.1 Purpose 12
3.2 Amount 12
3.3 Exclusions 12
3.4 Indirect Charge for Projects 13
3.5 Changes 13
SECTION IV -ACQUISITION OF MATERIAL 13
4.1 Acquisitions 13
4.2 Materials Furnished by Operator 13
4.3 Premium Prices 14
4.4 Warranty of Material Furnished by Operator 15
SECTION V -DISPOSAL OF MATERIALS 15
5.1 Disposal 15
5.2 Material Purchased by a Party of or Affiliate 15
5.3 Division in Kind 15
5.4 Sales to Third Parties 15
SECTION VI INVENTORIES 16
6.1 Periodic Inventories - Notice and Representation 16
6.2 Special Inventories
Alliance Operating Agreement - 20F
EXHIBIT A
ACCOUNTING PROCEDURE
Attached to and made part of the Operating Agreement, hereinafter called the
"Agreement," effective as of the 1st day of January, 1999, by and between
Alliance Egyptian National Exploration Company and GHP Exploration (Egypt)
Ltd.
SECTION I
GENERAL PROVISIONS
1.1 PURPOSE
1.1.1 The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits applicable
to operations under the Agreement which reflect the costs of
Joint Operations to the end that no Party shall gain or lose in
relation to other Parties.
It is intended that approval of the Work Program and Budget and
AFE's as provided in the Agreement shall constitute approval of
the rates and allocation methods used therein to currently
charge the Joint Account, but subject to verification by audit
at a later date as provided in the Accounting Procedure.
1.1.2 The Parties agree, however, that if the methods prove unfair or
inequitable to Operator or Non-Operators, the Parties shall meet
and in good faith endeavor to agree on changes in methods deemed
necessary to correct any unfairness or inequity.
1.2 CONFLICT WITH AGREEMENT
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions of the Agreement shall prevail.
1.3 DEFINITIONS
The definitions contained in Article I of the Agreement to which this
Accounting Procedure is attached shall apply to this Accounting
Procedure and have the same meanings when used herein. Certain terms
used herein are defined as follows:
"COUNTRY OF OPERATIONS" shall mean the Arab Republic of Egypt;
"EXCLUSIVE OPERATION ACCOUNT" shall mean the account maintained by the
Operator to record all costs and expenses incurred in connection with an
Exclusive Operation.
"MATERIAL" shall mean personal property (including, but not limited to,
equipment and supplies) acquired and held for use in Joint Operations.
Alliance Operating Agreement - 20F
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1.4 JOINT ACCOUNT RECORDS AND CURRENCY EXCHANGE
1.4.1 Operator shall at all times maintain and keep true and correct
records of the production and disposition of all liquid and
gaseous Hydrocarbons, and of all costs and expenditures under
the Agreement, as well as other data necessary or proper for the
settlement of accounts between the Parties hereto in connection
with their rights and obligations under the Agreement and to
enable Parties to comply with their respective applicable income
tax and other laws.
1.4.2 Operator shall maintain accounting records pertaining to Joint
Operations in accordance with generally accepted accounting
practices used in the international petroleum industry and any
applicable statutory obligations of the Country of Operations as
well as the provisions of the Concession Agreement and the
Agreement. Operator shall maintain its Accounting records in its
office in the Country of Operations, unless otherwise directed
by the Operating Committee. In addition, all original records
must be kept in the Country of Operations unless the Government
agrees otherwise.
1.4.3 Joint Account records shall be maintained by Operator in the
English language and in United States of America ("U.S.")
currency and in such other language and currency as may be
required by the laws of the Country of Operations. All U.S.
dollar expenditures shall be charged in the amount expended. All
Egyptian Pound expenditures shall be converted to U.S. dollars
at the applicable rate of exchange issued by the Central Bank of
Egypt on the first day of the month in which expenditures are
recorded and all other non-U.S. dollar expenditures shall be
translated to U.S. dollars at the arithmetic average buying and
selling exchange rates for such currency as quoted by National
Westminster Bank Limited, London at 10:30 a.m., G.M.T., on the
first day of the month in which the expenditures are recorded. A
record shall be kept of the exchange rates used in translating
Egyptian Pounds or other non-U.S. dollar expenditures to U.S.
dollars.
1.4.4 Any currency exchange gain or losses shall be credited or
charged to the Joint Account, except as otherwise specified in
this Accounting Procedure.
1.4.5 This Accounting Procedure shall apply, MUTATIS MUTANDIS, to
Exclusive Operations in the same manner that it applies to Joint
Operations; provided, however, that the charges and credits
applicable to Consenting Parties shall be distinguished by an
Exclusive Operation Account. For the purpose of determining and
calculating the remuneration of the Consenting Parties,
including the premiums for Exclusive Operations, the costs and
expenditures shall be expressed in U.S. currency (irrespective
of the currency in which the expenditure was incurred).
1.4.6 Unless otherwise agreed to by all the Parties, the accrual basis
of accounting shall be used in preparing accounts concerning the
Joint Operations.
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1.5 STATEMENTS AND BILLINGS
1.5.1 Unless otherwise agreed by the Parties, Operator shall submit
monthly to each Party, on or before the fifteenth (15th) Day of
each month, statements of the costs and expenditures incurred
during the prior month, indicating by appropriate classification
the nature thereof, the corresponding budget category, and the
portion of such costs charged to each of the Parties and
crediting each Party for its share of all income and other
amounts received.
These statements, at a minimum, shall contain the following
information:
-advances of funds setting forth the currencies received from
each party
-the share of each Party in total expenditures
-the current account balance of each Party
-summary of costs, credits, and expenditures on a current month,
year-to-date, and inception-to-date basis or other periodic
basis, as agreed by Parties
-details of unusual charges and credits in excess of ten
thousand U.S. dollars (U.S.$10,000.00).
1.5.2 Operator shall, upon request, furnish a description of the
accounting classifications used by it.
1.5.3 Amounts included in the statements and billings shall be
expressed in U.S. currency and reconciled to the currencies
advanced.
1.5.4 Operator shall be responsible for preparing each Party's
accounting and tax reports to meet the requirements of the
Country of Operations. Each party shall be responsible for
preparing its own accounting and tax reports to meet the
requirements of all other countries to which it may be subject.
Operator, to the extent that the information is reasonably
available from the Joint Account records, shall provide
Non-Operators in a timely manner with the necessary statements
to facilitate the discharge of such responsibility.
1.6 PAYMENTS AND ADVANCES
1.6.1 Upon approval of any Work Program and Budget, if Operator so
requests, each Non-Operator shall advance its share of estimated
cash requirements for the succeeding month's operations. Each
such cash call shall be equal to the Operator's estimate of the
money to be spent in the currencies required to perform its
duties under the approved Work Program and Budget during the
month concerned. For informational purposes the cash call shall
contain an estimate of the funds required for the succeeding two
(2) months.
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1.6.2 Each such cash call, detailed by major budget categories, shall
be made in writing and delivered to all Non-Operators not less
than fifteen (15) Days before the payment due date. The due date
for payment of such advances shall be set by Operator but shall
be no sooner than the first Business Day of the month for which
the advances are required. All advances shall be made without
bank charges. Any charges related to receipt of advances from a
Non-Operator shall be borne by that Non-Operator.
1.6.3 Each Non-Operator shall wire transfer its share of the full
amount of each such cash call to Operator on or before the due
date, in the currencies requested or any other currencies
acceptable to Operator, and at a bank designated by Operator. If
currency provided by a Non-Operator is other than the requested
currency, then the entire cost of converting to the requested
currency shall be charged to that Non-Operator.
1.6.4 Notwithstanding the provisions of Section 1.6.2, should Operator
be required to pay any sums of money for the Joint Operations
which were unforeseen at the time of providing the Non-Operators
with said estimates of its requirements, Operator may make a
written request of the Non-Operators for special advances
covering the Non-Operators' share of such payments. Each such
Non-Operator shall make its proportional special advances within
ten (10) Days after receipt of such notice.
1.6.5 If a Non-Operator's advances exceed its share of cash
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly. A
Non-Operator may request that its excess advances be refunded.
Operator shall make such refund within ten (10) Days after
receipt of the Non-Operator's request provided that the amount
is in excess of the requesting Non-Operator's share of the cash
advance requirements for the succeeding month.
1.6.6 If Non-Operator's advances are less than its share of cash
expenditures, the deficiency shall, at Operator's option, be
added to subsequent cash advance requirements or be paid by
Non-Operator within ten (10) Days following the receipt of
Operator's billing to Non-Operator for such deficiency.
1.6.7 Any interest received on Joint Account funds shall be applied
against the next succeeding cash call or, if directed by the
Operating Committee, distributed quarterly. The interest thus
received shall be allocated to the Parties on an equitable basis
taking into consideration date of funding by each party to the
accounts in proportion to the total funding into the account. A
monthly statement summarizing receipts, disbursements, transfers
to each joint bank account and beginning and ending balances
thereof shall be provided by Operator to the Parties.
1.6.8 If Operator does not request Non-Operators to advance their
share of estimated cash requirements, each Non-Operator shall
pay its share of cash expenditures within fifteen (15) Days
following receipt of Operator's billing.
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1.6.9 Payments of advances or billings shall be made on or before the
due date. If these payments are not received by the due date the
unpaid balance shall bear and accrue interest from the due date
until the payment is received by Operator at the Agreed Interest
Rate.
For the purpose of determining the unpaid balance and interest
owed, Operator shall translate to U.S. currency all amounts owed
in other currencies using the currency exchange rate readily
available to Operator at the close of the last Business Day
prior to the due date for the unpaid balance as quoted by the
applicable authority identified in Section 1.4.3 of this Section
I.
1.6.10 Subject to governmental regulation, Operator shall have the
right, at any time and from time to time, to convert the funds
advanced or any part thereof to other currencies to the extent
that such currencies are then required for Joint Operations. The
cost of any such conversion shall be charged to the Joint
Account.
1.6.11 Operator shall endeavor to maintain funds held for the Joint
Account in bank accounts at a level consistent with that
required for the prudent conduct of Joint Operations.
1.6.12 If under the Agreement, Operator is required to segregate funds
received from or for the Joint Account, the provisions under
this Section 1.6 for payments and advances by Non-Operators
shall apply also to Operator.
1.7 ADJUSTMENTS
Payments of any advances or billings shall not prejudice the right of
any Non-Operator to protest or question the correctness thereof;
provided, however, all bills and statements rendered to 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 such
Calendar Year, unless within the said twenty-four (24) month period a
Non-Operator takes written exception thereto and makes claim on Operator
for adjustment. Failure on the part of a Non-Operator to make claim on
Operator for adjustment within such period shall establish the
correctness thereof and preclude the filing of exceptions thereto or
making claims for adjustment thereon. 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 Property as provided for in
Section VI. Operator shall be allowed to make adjustments to the Joint
Account after such twenty-four (24) month period if these adjustments
result from audit exceptions outside of this Agreement, third party
claims, or Government or Government Oil Company requirements. Any such
adjustments shall be subject to audit within the time period specified
in Section 1.8.1.
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1.8. AUDITS
1.8.1 A Non-Operator, upon at least sixty (60) Days advance notice in
writing to Operator and all other Non-Operators, shall have the
right to audit the Joint Accounts and records of Operator
relating to the accounting hereunder for any Calendar Year
within the twenty-four (24) month period following the end of
such Calendar Year. The cost of each such audit shall be borne
by Non-Operators conducting the audit. It is provided, however,
that Non-Operators must take written exception to and make claim
upon the Operator for all discrepancies disclosed by said audit
within said twenty-four (24) month period. Where there are two
or more Non-Operators, the Non-Operators shall make every
reasonable effort to conduct joint or simultaneous audits in a
manner which will result in a minimum of inconvenience to the
Operator. Operator and Non-Operators shall make every effort to
resolve any claim resulting from an audit within a reasonable
period of time. In any event, Operator shall respond to auditors
report within ninety (90) days of receipt of same. Adjustments
agreed between Operator and Non-Operator will be paid to the
Parties entitled to such adjustments and recorded in the Joint
Account as soon as possible after agreement is reached.
A Non-Operator may audit the records of an Affiliate of Operator
relating to that Affiliate's charges. The provisions of this
Accounting Procedure shall apply MUTATIS MUTANDIS to such
audits.
1.8.2 The auditors shall have the right to audit the supporting
documentation considered necessary to audit and verify the
charges and credits to such Joint Accounts. The auditors shall
also have reasonable access to the personnel and facilities,
warehouses and offices directly or indirectly serving Joint
Operations. Operator shall make every reasonable effort to
cooperate with the auditors and provide them with reasonable
facilities and assistance in performing each audit.
1.8.3 If the Operator and Non-Operators are unable to agree on a
proposed audit adjustment, such adjustment may be referred to an
internationally recognized independent firm of public
accountants selected by the Non-Operators as a Joint Account
expense, whose result or decision shall be binding on all
Parties.
1.8.4 Any information obtained by a Non-Operator under the provisions
of this Section 1.8 which does not relate directly to the Joint
Operations shall be kept confidential and shall not be disclosed
to any party, except as would otherwise be permitted by Article
15.1(A)(3) and (9) of the Agreement.
1.8.5 In the event that the Operator is required by law to employ a
public accounting firm to audit the Joint Account and records of
Operator relating to the accounting hereunder, the cost thereof
shall be a charge against the Joint Account, and a copy of the
audit shall be furnished to each Party.
Alliance Operating Agreement - 20F
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1.9 ALLOCATIONS
If it becomes necessary to allocate any costs or expenditures to or
between Joint Operations and any other operations, such allocation shall
be made on an equitable basis. Upon request, Operator shall furnish a
description of its allocation procedures pertaining to these costs and
expenditures.
SECTION II
DIRECT CHARGES
Operator shall charge the Joint Account with all costs and expenditures under
any Work Program and Budget (or under Article 4.2(B)(11) of the Agreement)
in the event of an emergency) and incurred in connection with Joint
Operations. It is also understood that charges for services normally provided
by an operator such as those contemplated in Section 2.7.2 which are provided
by Operator's Affiliates shall reflect the cost to the Affiliate, excluding
profit, for performing such services, except as otherwise provided in Section
2.6, Section 2.7.1, and Section 2.5.1 if selected.
The costs and expenditures shall be recorded as required for the settlement
of accounts between the Parties hereto in connection with the rights and
obligations under this Agreement and for purposes of complying with the tax
laws of the Country of Operations and of such other countries to which any of
the Parties may be subject. Without in any way limiting the generality of the
foregoing, chargeable costs and expenditures shall include:
2.1 LICENSES, PERMITS, ETC.
All costs, if any, attributable to the acquisition, maintenance, renewal
or relinquishment of licenses, permits, contractual and/or surface
rights acquired for Joint Operations and bonuses paid in accordance with
the Concession when paid by Operator in accordance with the provisions
of the Agreement.
2.2 SALARIES, WAGES AND RELATED COSTS
2.2.1 The employees of Operator and its Affiliates in the Country of
Operations directly engaged in Joint Operations whether
temporarily or permanently assigned.
2.2.2 The employees of Operator and its Affiliates outside the Country
of Operations directly engaged in Joint Operations whether
temporarily or permanently assigned, and not otherwise covered
in Section 2.7.2.
2.2.3 Salaries and wages, including everything constituting the
employees' total compensation. To the extent not included in
salaries and wages, the Joint Account shall also be charged with
the cost to Operator of holiday, vacation, sickness, disability
benefits, living and housing allowances, travel time, bonuses,
and other customary allowances applicable to the salaries and
wages chargeable hereunder, as well as costs to Operator for
employee benefits, including but not limited to employee group
life insurance, group medical insurance, hospitalization,
retirement, and other benefit plans of a like nature applicable
to labor costs of Operator. Operator's employees participating
in Country of Operations benefit plans may be charged at a
percentage rate to reflect payments or accruals made by Operator
applicable to such employees. Such accruals for Country of
Operations benefit plans shall not be paid by Non-Operators,
unless otherwise approved by the Operating Committee, until the
same are due and payable to the employee, upon withdrawal of a
Party pursuant to the Agreement, or upon termination of the
Agreement, which ever occurs first.
Alliance Operating Agreement - 20F
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2.2.4 Expenditures or contributions made pursuant to assessments
imposed by governmental authority for payments with respect
thereto or on account of such employees.
2.2.5 Salaries and wages charged in accordance with Operator's usual
practice, when and as paid or accrued, or on a basis of the
Operator's average cost per employee for each job category; and
the rates to be charged shall be reviewed at least annually. In
determining the average cost per employee for each job category,
expatriate and national employee salaries and wages shall be
calculated separately. During a given period of time it is
understood that some costs for salaries and wages may be charged
on an actual basis while the remaining costs for salaries and
wages are charged at a rate based upon the above described
average cost.
2.2.6 Reasonable expenses (including related travel costs) of those
employees whose salaries and wages are chargeable to the Joint
Account under Sections 2.2.1 and 2.2.2 of this Section II and
for which expenses the employees are reimbursed under the usual
practice of Operator.
2.2.7 If employees are engaged in other activities in addition to the
Joint Operations, Operator shall promptly notify Non-Operators
and the cost of such employees shall be allocated on an
equitable basis. The Parties agree that allocation on the basis
of time spent on the other activities versus time spent on Joint
Operations constitutes an equitable basis.
2.3 EMPLOYEE RELOCATION COSTS
2.3.1 Except as provided in Section 2.3.3, Operator's cost of
employees' relocation to or from the Contract Area vicinity or
location where the employees will reside or work, whether
permanently or temporarily assigned to the Joint Operations. If
such employee works on other activities in addition to Joint
Operations, such relocation costs shall be allocated on an
equitable basis, or specified in 2.2.7.
2.3.2 Such relocation costs shall include transportation of employees,
families, personal and household effects of the employee and
family, transit expenses, and all other related costs in
accordance with the Operator's usual practice.
Alliance Operating Agreement - 20F
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2.3.3 Relocation costs from the vicinity of the Contract Area to
another location classified as a foreign location by Operator
shall not be chargeable to the Joint Account unless such foreign
location is the point of origin of the employee.
2.4 OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES
Costs of maintaining any offices, sub-offices, camps, warehouses,
housing, and other facilities of the Operator and/or Affiliates directly
serving the Joint Operations. If such facilities serve operations in
addition to the Joint Operations the costs shall be allocated to the
properties served on an equitable basis.
2.5 MATERIAL
Cost net for discounts taken by Operator, of Material purchased
or furnished by Operator. Such costs shall include, but
are not limited to, export brokers' fees, transportation
charges, loading, unloading fees, export and import
duties and license fees associated with the procurement
of Material and in-transit losses, if any, not covered
by insurance. So far as it is reasonably practical and
consistent with efficient and economical operation, only
such Material shall be purchased for, and the cost
thereof charged to, the Joint Account as may be required
for immediate use.
2.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF OPERATOR AND AFFILIATES
Charges for exclusively owned equipment, facilities, and utilities of
Operator and its Affiliates at rates not to exceed the average
commercial rates of non-affiliated third parties then prevailing for
like equipment, facilities, and utilities for use in the area where the
same are used hereunder. On request, Operator shall furnish
Non-Operators a list of rates and the basis of application. Such rates
shall be revised from time to time if found to be either excessive or
insufficient, but not more than once every six months.
Drilling tools and other equipment lost in the hole or damaged beyond
repair may be charged at replacement costs less depreciation plus
transportation costs to deliver like equipment to the location where
used.
2.7 SERVICES
2.7.1 The cost of services provided by third parties including
Affiliates of Operator other than those services covered by
Section 2.7.2. Such charges for services by Operator's
Affiliates shall not exceed those currently prevailing if
performed by non-affiliated third parties pursuant to a
competitive bid, considering quality and availability of
services.
2.7.2 The cost of services performed by Operator's Affiliates
technical and professional staffs not located within the Country
of Operation and which have been approved by the Operating
Committee to be performed by Operator or its Affiliate.
Alliance Operating Agreement - 20F
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The charges for such services shall not exceed those currently
prevailing if performed by non-affiliated third parties pursuant to a
competitive bid, considering the quality and availability of such
services.
Examples of such services include, but are not limited to, the
following:
Geologic Studies and Interpretation
Seismic Data Processing
Well Log Analysis, Correlation and Interpretation
Laboratory Services
Well Site Geology
Project Engineering
Source Rock Analysis
Petrophysical Analysis
Geochemical Analysis
Drilling Supervision
Development Evaluation
Accounting and Professional Services
Other Data Processing
Costs shall include salaries and wages of such technical and
professional personnel, lost time, governmental assessments, employee
benefits, and reasonable expenses. Costs shall also include all support
costs necessary for such technical and professional personnel to perform
such services, such as, but not limited to, rent, utilities, support
staff, drafting, telephone and other communications expenses, computer
support, supplies, and depreciation.
2.8 INSURANCE
Premiums paid for insurance required by law or the Agreement to be
carried for the benefit of the Joint Operations.
2.9 DAMAGES AND LOSSES TO PROPERTY
2.9.1 All costs or expenditures necessary to replace or repair damages
or losses incurred by fire, flood, storm, theft, accident, or
any other cause. Operator shall furnish Non-Operators written
notice of damages or losses incurred in excess of ten thousand
U.S. dollars (U.S. $10,000.00) as soon as practicable after
report of the same has been received by Operator. All losses in
excess of ten thousand U.S. dollars (U.S. $10,000.00) shall be
listed separately in the monthly statement of costs and
expenditures.
2.9.2 Credits for settlements received from insurance carried for the
benefit of Joint Operators and from others for losses or damages
to Joint Property or Materials. Each Party shall be credited
with its Participating Interest share thereof except where such
receipts are derived from insurance purchased by Operator for
less than all Parties in which event such proceeds shall be
credited to those Parties for whom the insurance was purchased
in the proportion of their respective contributions toward the
insurance coverage.
Alliance Operating Agreement - 20F
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2.9.3 Expenditures incurred in the settlement of all losses, claims,
damages, judgments, and other expenses for the account of Joint
Operators.
2.10 LITIGATION AND LEGAL EXPENSES
The costs and expenses of litigation and legal services necessary for
the protection of the Joint Operations under this Agreement as follows:
2.10.1 Legal services necessary or expedient for the protection of the
Joint Operations, and all costs and expenses of litigation,
arbitration or other alternative dispute resolution procedure,
including reasonable attorneys' fees and expenses, together with
all judgements obtained against the Parties or any of them
arising from the Joint Operations.
2.10.2 If the Parties hereunder shall so agree, actions or claims
affecting the Joint Operations hereunder may be handled by the
legal staff of one of any of the Parties hereto; and a charge
commensurate with the reasonable costs of providing and
furnishing such services rendered may be made by the Party
providing such service to the Operator for the Joint Account,
but no such charges shall be made until approved by the Parties.
2.11 TAXES AND DUTIES
All taxes, duties, assessments and governmental charges, of every kind
and nature, assessed or levied upon or in connection with the Joint
Operations, other than any that are measured by or based upon the
revenues, income and net worth of a Party.
If Operator or an Affiliate is subject to income or withholding tax as a
result of services performed at cost for the operations under the
Agreement, its charges for such services may be increased by the amount
of such taxes incurred (grossed up).
2.12 OTHER EXPENDITURES
Any other costs and expenditures incurred by Operator for the necessary
and proper conduct of the Joint Operations in accordance with approved
Work Programs and Budgets and not covered in this Section II or in
Section III.
Alliance Operating Agreement - 20F
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SECTION III
INDIRECT CHARGES
3.1 PURPOSE
Operator shall charge the Joint Account monthly for the cost of indirect
services and related office costs of Operator and its Affiliates not
otherwise provided in this Accounting Procedure. Indirect costs
chargeable under this Section III represent the cost of general
counseling and support services provided to Operator by its Affiliate.
These costs are such that it is not practical to identify or associate
them with specific projects but are for services which provide Operator
with needed and necessary resources which Operator requires and provide
a real benefit to Joint Operations. No cost or expenditure included
under Section II shall be included or duplicated under this Section III.
3.2 AMOUNT
The charge for the period beginning with the Calendar Year through the
end of the period covered by Operator's invoice ("Year-to-Date") under
Section 3.1 above shall be a percentage of the Year-to-Date
expenditures, calculated on the following scale (U.S. Dollars):
ANNUAL EXPENDITURES
$0 to $1,000,000 of expenditures = 2.5%
Next $2,000,000 of expenditures = 2.0%
Excess above $3,000,000 of expenditures = 1.0%
Notwithstanding the foregoing, the indirect rates and related
calculation method for Joint Operations subsequent to formation of the
Operating Company shall be agreed upon by the Parties prior to the
submission of the Development Plan.
3.3 EXCLUSIONS
The expenditures used to calculate the monthly indirect charge shall not
include the indirect charge (calculated either as a percentage of
expenditures or as a minimum monthly charge), rentals on surface rights
acquired and maintained for the Joint Account, the cost of guarantee
deposits or letters of credit obtained in connection with Joint
Operations, the yearly training cost payment required to be made to the
government pursuant to the Concession, pipeline tariffs, concession
acquisition costs, bonuses paid in accordance with the Concession,
royalties and taxes paid under the Contract, expenditures associated
with major construction projects for which a separate indirect charge is
established hereunder, payments to third parties in settlement of
claims, and other similar items.
Credits arising from any government subsidy payments, disposition of
material, and receipts from third parties for settlement of claims shall
not be deducted from total expenditures in determining such indirect
charge.
Alliance Operating Agreement - 20F
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3.4 BILLINGS
Indirect costs chargeable by Operator under this Section III during the
initial Exploration Phase under the Concession Agreement shall be
accrued during the initial Exploration Phase. In the event Joint
Operations continue beyond the initial Exploration Phase, Operator may
bill each Non-Operator for its proportionate share of such indirect
costs accrued hereunder. Any indirect costs incurred in the conduct of
Joint Operations subsequent to the initial Exploration Phase shall be
charged to the Joint Account on a monthly basis.
3.5 INDIRECT CHARGE FOR PROJECTS
As to major construction projects (such as, but not limited to,
pipelines, gas reprocessing and processing plants, and final loading and
terminalling facilities) when the estimated cost of each project amounts
to more than U.S. $10,000,000, a separate indirect charge for such
project shall be set by the Operating Committee at the time of approval
of the project.
3.6 CHANGES
The indirect charges provided for in this Section III may be amended
periodically by mutual agreement between the Parties if, in practice,
these charges are found to be insufficient or excessive.
SECTION IV
ACQUISITION OF MATERIAL
4.1 ACQUISITIONS
Materials purchased for the Joint Account shall be charged at net cost
paid by the Operator. The price of Materials purchased shall include,
but shall not be limited to export broker's fees, insurance,
transportation charges, loading and unloading fees, import duties,
license fees, and demurrage (retention charges) associated with the
procurement of Materials.
4.2 MATERIALS FURNISHED BY OPERATOR
Materials required for operations shall be purchased for direct charge
to the Joint Account whenever practicable, except the Operator may
furnish such Materials from its stock under the following conditions:
4.2.1 NEW MATERIALS (CONDITION "I"). New Materials transferred from
the Waterhouse or other properties of Operator shall be priced
at net cost determined in accordance with Section 4.1 above, as
if Operator had purchased such new material just prior to its
transfer.
Such net costs shall in no event exceed the then current market price.
Alliance Operating Agreement - 20F
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4.2.2 Used Materials (Conditions "2" and "3").
4.2.2.1 Material which is in sound and serviceable condition and
suitable for use without repair or reconditioning shall be
classed as Condition "2" and priced at seventy-five percent
(75%) of such new purchase net cost at the time of transfer.
4.2.2.2 Materials not meeting the requirements of Section 4.2.2.1 above,
but which can be made suitable for use after being repaired or
reconditioned shall be classed as Condition "3" and priced at
fifty percent (50%) of such new purchase net cost at the time of
transfer. The cost of reconditioning shall also be charged to
the Joint Account provided the Condition "3" price, plus cost of
reconditioning, does not exceed the Condition "2" price; and
provided that Material so classified meet the requirements for
Condition "2" Material upon being repaired or reconditioned.
4.2.2.3 Material which cannot be classified as Condition "2" or
Condition "3", shall be priced at a value commensurate with its
use.
4.2.2.4 Tanks, derricks, buildings, and other items of Material
involving erection costs, if transferred in knocked-down
condition, shall be graded as to condition as provided in this
Section 4.2.2 of Section IV, and priced on the basis of
knocked-down price of like new Material.
4.2.2.5 Material including drill pipe, casing and tubing, which is no
longer useable for its original purpose but is useable for some
other purpose, shall be graded as to condition as provided in
this Section 4.2.2 of Section IV. Such material shall be priced
on the basis of the current price of items normally used for
such other purposes if sold to third parties.
4.3 PREMIUM PRICES
Whenever Material is not readily obtainable at prices specified in
Sections 4.1 and 4.2 of this Section IV because of national emergencies,
strikes or other unusual causes over which Operator has no control,
Operator may charge the Joint Account for the required Material at
Operator's actual cost incurred procuring such Material, in making it
suitable for use, and moving it to the Concession Area, provided that
notice in writing, including a detailed description of the Material
required and the required delivery date, is furnished to Non-Operators
of the proposed charge at least fifteen (15) Days (or such shorter
period as may be specified by Operator) before the Material is projected
to be needed for operations and prior to billing Non-Operators for such
Material the cost of which exceeds ten thousand U.S. dollars (U.S.
$10,000.00). Each Non-Operator sha11 have the right, by so electing and
notifying Operator within fifteen (15) Days (or such shorter period as
may be specified by Operator) after receiving notice form Operator, to
furnish in kind all or part of his share of such Material per the terms
of the notice which is suitable for use and acceptable to Operator both
as to quality and time of delivery. Such acceptance by Operator shall
not be unreasonably withheld. If Material furnished is deemed unsuitable
for use by Operator, all costs incurred in disposing of such Material or
returning Material to owner shall be borne by the Non-Operator
furnishing the same unless otherwise agreed by the Parties. If a
Non-Operator fails to properly submit an election notification within
the designated period, Operator is not required to accept Material
furnished in kind by that Non-Operator. If Operator fails to submit
proper notification prior to billing Non-Operators for such Material,
Operator shall only charge the Joint Account on the basis of the price
allowed during a "normal" pricing period in effect at time of movement.
Alliance Operating Agreement - 20F
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4.4 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 Joint Account until
adjustment has been received by Operator from the manufacturers or their
agents.
SECTION V
DISPOSAL OF MATERIALS
5.1 DISPOSAL
Operator shall be under no obligation to purchase the interest of
Non-Operators in new or used surplus Materials. Operator shall have the
right to dispose of Material but shall advise and secure prior agreement
of the Operating Committee of any proposed disposition of Materials
having an original cost to the Joint Account either individually or in
the aggregate of ten thousand U.S. Dollars (U.S. $10,000.00) or more.
When Joint Operations are relieved of Material charged to the Joint
Account, Operator shall advise each Non-Operator of the original cost of
such Material to the Joint Account so that the Parties may eliminate
such costs from their asset records. Credits for Material sold by
Operator shall be made to the Joint Account in the month in which the
payment is received for the Material. Any Material sold or disposed of
under this Section shall be on an "as is, where is" basis without
guarantees or warranties of any kind or nature. Costs and expenditures
incurred by Operator in the disposition of Materials shall be charged to
the Joint Account.
5.2 MATERIAL PURCHASED BY A PARTY OF OR AFFILIATE
Material purchased from the Joint Property by a Party or an Affiliate
thereof shall be credited by Operator to the Joint Account, with new
Material valued in the same manner as new Material under Section 4.2.1
and used Material valued in the same manner as used Material under
Section 4.2.2, unless otherwise agreed by the Operating Committee.
5.3 DIVISION IN KIND
Division of Material in kind, if made between the Parties, shall be in
proportion to their respective interests in such Material. Each Party
will thereupon be charged individually with the value (determined in
accordance with the procedure set forth in Section 5.2) of the Material
received or receivable by it.
Alliance Operating Agreement - 20F
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5.4 SALES TO THIRD PARTIES
Material purchased from the Joint Property by third parties shall be
credited by Operator to the Joint Account at the net amount collected by
Operator from the buyer. If the sales price is less than that determined
in accordance with the procedure set forth in Section 5.2, then approval
by the Operating Committee shall be required prior to the sale. Any
claims by the buyer for defective materials or otherwise shall be
charged back to the Joint Account if and when paid by Operator.
SECTION VI
INVENTORIES
6.1 PERIODIC INVENTORIES - NOTICE AND REPRESENTATION
At reasonable intervals, but at least annually, inventories shall be
taken by Operator of all Material on which detailed accounting records
are normally maintained. The expense of conducting periodic inventories
shall be charged to the Joint Account. Operator shall give Non-Operators
written notice at least thirty days (30) in advance of its intention to
take inventory, and Non-Operators, at their sole cost and expense, shall
be entitled to have a representative present. The failure of any
Non-Operator to be represented at such inventory shall bind such
Non-Operator to accept the inventory taken by Operator, who shall in
that event furnish each Non-Operator with a reconciliation of overages
and shortages. Inventory adjustments to the Joint Account shall be made
for overages and shortages. Any adjustments equivalent to fifty thousand
U.S. Dollars (U.S. $50,000) or more shall be brought to the attention of
the Operating Committee.
6.2 SPECIAL INVENTORIES
Whenever there is a sale or change of interest in the Agreement, a
special inventory may be taken by the Operator provided the seller
and/or purchaser of such interest agrees to bear all of the expense
thereof. In such cases, both the seller and the purchaser shall be
entitled to be represented and shall be governed by the inventory so
taken.
Alliance Operating Agreement - 20F
EXHIBIT "B"
INSURANCE
Alliance Operating Agreement - 20F
EXHIBIT "C" WORK
PROGRAM & BUDGET
Alliance Operating Agreement - 20F