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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 31, 2001
SEVEN SEAS PETROLEUM INC.
(Exact Name of registrant as Specified in its Charter)
Yukon Territory 0-22483 73-468669
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification Number)
5555 SAN FELIPE, SUITE 1700, HOUSTON, TEXAS 77056
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 622-8218
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Item 5. Other Events
On January 25, 2001, three of our wholly-owned subsidiaries signed
agreements with our association contract partners that resolve disputes
concerning the partners' participation in the 36-mile Guaduas - La Dorada
pipeline and the related production facilities and their participation in the
subthrust exploration well. The following summarizes the agreements executed on
January 25, 2001 by the subsidiaries (GHK Company Colombia, Seven Seas Petroleum
Colombia, Inc. and Petrolinson, S.A.) and Sociedad Internacional Petrolera S.A.
and Cimarrona, L.L.C. In addition to the following information, we refer readers
to our Registration Statement on Form S-4 (Registration No. 333-53470) and the
management information circular/prospectus included therein. This information
may be obtained free at the SEC's website (www.sec.gov) and at the company's
website (www.sevenseaspetro.com) within the section entitled "Financial
Reporting" and the subsection "SEC Filings."
1. La Dorada Pipeline and Guaduas Field Production Facilities.
a. Sociedad International, known as Sipetrol, and Cimarrona approved
all authorizations for expenditure (referred to as AFEs) and agreed to
participate in the construction and operation of the La Dorada Pipeline and
Guaduas Field production facilities.
b. Sipetrol (32.9%) and Cimarrona (9.4%) paid their proportionate
parts of pipeline expenditures to-date ($4,769,113).
c. All parties agreed to escrow their proportionate parts of the
differences between the total of all pipeline and production facilities AFEs
($23,290,000) and amounts actually spent to-date, or $18,520,887. Our
proportionate part of this amount is $10,686,552; Sipetrol's proportionate part
is $6,093,372 and Cimarrona's proportionate part is $1,740,963. The escrow
agreements permit parties freely to withdraw funds so long as the funds are to
be used for pipeline construction purposes.
d. The unauthorized use of escrowed funds will subject a party to
liquidated damages in an amount equaling three (3) times the unauthorized
withdrawal amount.
2. Extension of the Relinquishment Date for the Dindal association
contract Area. The parties agreed to seek the extension of the date for
relinquishment of certain areas covered by the Dindal association contract for a
minimum of 18 months, and for 36 months and perhaps longer if all required
operations under the "on-top" contract (described below) are accomplished. This
will allow additional time to exploit and retain currently undrilled areas
covered by the Dindal association contract. The request will also seek a first
option to negotiate a service agreement which would enable the parties to
continue to operate the properties covered by the Dindal association contract
after its termination.
3. On-Top Contract.
a. The parties executed a letter to Ecopetrol, confirming their
prior proposal submitted September 21, 2000, to negotiate a new twenty-eight
year association contract, which we refer to as the "on-top" contract,
applicable to formations below the stratigraphic equivalent of the deepest
producing formation in the Guaduas Field underlying the current Dindal contract
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area, which we refer to as the "deep rights" (the deep rights include the
subthrust formations as well as shallower formations). The on-top contract will
effectively be an amendment to the Dindal association contract and should enable
us to retain the entire acreage in the Dindal block for the subthrust structure.
The letter requests and authorizes Ecopetrol to name GHK Company Colombia to be
the operator of all activities pertaining to these deep rights and to issue the
on-top contract to us, without Sipetrol's and Cimarrona's participation, other
than with regard to certain rights and obligations existing among the parties as
the result of the exploration agreement, described below.
b. The September 21, 2000 letter referred to above was an
acceptance, by all of the parties, of a previous offer from Ecopetrol to
formally apply for the on-top contract. Subsequently, the Ecopetrol board of
directors approved further actions designed to negotiate the final terms of the
on-top contract. If approved as currently being negotiated, the on-top contract:
o will effectively be an amendment to the current Dindal
association contract;
o would enable us to retain the entire acreage in the current
Dindal association contract area as to the deep rights;
o would, upon Ecopetrol electing to participate in the
development of an oil discovery in the deep rights, increase
our initial interest to 70% as compared to an initial interest
of 50% owned by all of the associates under the current Dindal
association contract; and
o following the production of certain volumes of oil, our
interest in the deep rights would gradually reduce to 35%, as
opposed to 30% under the current Dindal association contract.
No bond or other security for drilling obligations would be required; however,
we would be required, over a three-year period, to accomplish certain drilling
obligations.
c. The 36-month exploration period would be divided into two
eighteen month phases. During the first phase, we would commit to drill a well
to a depth at least 3,000 feet deeper than the current base of the Guaduas
Field. At the end of the first phase, we would have an option to either
terminate the on-top contract or drill another well to the same targets as those
for the first well. Certain lands attributable to each well which is capable of
production will, at the termination of the on-top contract or any extensions to
the term thereof, be retained and owned by the parties as provided in the
exploration agreement.
4. The Exploration Agreement.
a. Under the exploration agreement, Sipetrol and Cimarrona agreed to
permit us to earn a portion of their interests in the deep rights, whether or
not the on-top contract is issued, by drilling a test well to specific depths
within the deep rights and completing the well as a "producing well," defined
for this purpose as being capable, during testing operations, of at least
production sufficient to generate $1,175 per day of revenue. If the test well is
drilled to a depth which is at least as deep as the shallower of 15,000 feet or
a depth of 3,000 feet below the Cambao Fault (we have previously referred to
such a well as a "subthrust well"), we would earn
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interests in all of the deep rights. If the test well is drilled to a shallower
depth within the deep rights, we would earn interests down to 100 feet below the
deepest producing perforations in the well.
b. If the on-top contract is issued, we will immediately execute and
deliver to Sipetrol an assignment of a 4.86115% overriding royalty interest.
Sipetrol may convert the interest into a 16.45% working interest after the first
phase test well under the on-top contract is drilled, logged, tested and
determined to be a producing well as provided in the exploration agreement. We
will assign to Cimarrona a 9.4% working interest, if and when we have recovered
500% of all costs attributable to the drilling, completion, equipping and
operating the test well. We will have 12 months from the effective date of the
on-top contract to commence the test well. We will have until September 30, 2002
to drill and test the well to determine if it is a producing well and to furnish
Sipetrol and Cimarrona certain information in connection therewith. There are
provisions for replacement wells if we are unable to drill the test well to the
deepest required depth or if we complete the well at a lesser depth. Sipetrol
must exercise its right to convert it overriding royalty interest to a working
interest within 30 days after it is provided all required drilling and testing
information for the test well. If it elects to convert to a working interest,
Sipetrol must pay its share of completion costs (other than those associated
with testing operations), equipping costs and the costs of producing the well.
In the event the second phase well under the on-top contract is proposed, Seven
Seas, Cimarrona and Sipetrol, if it has elected to convert its overriding
royalty interest to a working interest, must either participate or suffer a 500%
penalty for such well.
c. In the event the on-top contract is not issued, we will still
have the right, prior to January 2002, to commence the drilling of the test
well. If the well is drilled to a required depth and completed as a producing
well, upon furnishing certain required information, Sipetrol will assign to us
either, at Sipetrol's sole election,
o 50% of Sipetrol's working interests in the earned deep rights,
or
o all of its working interest in the earned deep rights subject
to the overriding royalty interest described above.
Cimarrona will assign to us all of its rights to receive revenues from such well
until a 500% penalty has been recovered by us.
d. If we fail to timely drill and complete the test well, either
under or without the on-top contract, Sipetrol and Cimarrona will have a
reciprocal right to drill the well, under the same terms granted to us if we
drill the well, except that Sipetrol and Cimarrona will have the right to name a
new operator for the deep rights and our overriding royalty interest (which we
may convert to a working interest or elect to take in lieu of a working
interest, as was the right of Sipetrol described above) will be 8.52541%.
e. Under all of the arrangements, unearned depths are assigned to
all parties, according to their interests under the Dindal association contract.
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f. In the event no party drills the test well, the only consequence
of such failure will be the termination of the exploration agreement.
5. Amendment to Operating Agreements. The parties executed an agreement
to amend both the Dindal and Rio Seco operating agreements:
o to increase the interest rate applicable to late payments;
o to clarify the interrelationship between work programs,
budgets and expenditures, and the actions of the operating
committee in connection therewith;
o to make communications with the government more efficient;
o to clarify and expand the circumstances under which a change
of operator may occur;
o to clarify the AFE process; and
o to clarify provisions dealing with default as the result of
failure to pay joint account expenses or a party becoming
unable to fulfill certain financial obligations.
6. GHK Company Colombia/Sipetrol Side Letter. GHK Company Colombia, in
its capacity as operator, executed an agreement with Sipetrol which acknowledged
that Sipetrol has fully paid all invoices and cash calls transmitted on or
before October 1, 2000 and that Sipetrol owes the operator no amounts pertaining
thereto, including interest. In return, Sipetrol agreed to waive all audit
rights pertaining to all billings, charges and cash calls made by the operator
on or before October 1, 2000.
7. The Closing. At the closing the parties executed the exploration
agreement; the letter to Ecopetrol seeking the on-top contract; a letter
agreeing to jointly request, and agreeing that GHK Company Colombia may request
on everyone's behalf if it is more convenient, the Dindal contract extension;
the La Dorada Pipeline and Guaduas Field Production Facilities Agreement; the
Amendment to Operating Agreements; and the side letter between Sipetrol and GHK
Company Colombia. All parties took actions to establish and fund their
respective escrow agreements.
Item 7. Financial Statements and Exhibits
(c) Exhibits
10(a) Exploration Agreement dated January 25, 2001, between GHK
Company Colombia, Seven Seas Petroleum Colombia, Inc. and
Petrolinson S.A. and Sociedad Internacional Petrolera S.A.
and Cimarrona, L.L.C.
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10(b) La Dorada Pipeline and Guaduas Field Production Facilities
Agreement dated January 25, 2001, between GHK Company
Colombia, Sociedad Internacional Petrolera S.A., Cimarrona,
L.L.C., Seven Seas Petroleum Colombia, Inc. and Petrolinson
S.A.
10(c) Amendments to Operating Agreement dated January 25, 2001,
between GHK Company Colombia, Sociedad Internacional
Petrolera S.A., Cimarrona, L.L.C., Seven Seas Petroleum
Colombia, Inc. and Petrolinson S.A.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEVEN SEAS PETROLEUM INC.
By: /s/ LARRY A. RAY
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Name: Larry A. Ray
Title: President
Date: January 31, 2001
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INDEX TO EXHIBITS
Exhibits No. Description
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10(a) Exploration Agreement dated January 25, 2001, between GHK
Company Colombia, Seven Seas Petroleum Colombia, Inc. and
Petrolinson S.A. and Sociedad Internacional Petrolera S.A.
and Cimarrona, L.L.C.
10(b) La Dorada Pipeline and Guaduas Field Production Facilities
Agreement dated January 25, 2001, between GHK Company
Colombia, Sociedad Internacional Petrolera S.A., Cimarrona,
L.L.C., Seven Seas Petroleum Colombia, Inc. and Petrolinson
S.A.
10(c) Amendments to Operating Agreement dated January 25, 2001,
between GHK Company Colombia, Sociedad Internacional
Petrolera S.A., Cimarrona, L.L.C., Seven Seas Petroleum
Colombia, Inc. and Petrolinson S.A.