1
SEVENTH
SUPPLY AGREEMENT
For
EXCESS SALES
(ADDITIONAL FIXED QUANTITIES UNDER
BADAK LNG SALES CONTRACT AS A RESULT OF
CONTRACT AMENDMENT AND RESTATEMENT)
BETWEEN
PERTAMINA
And
VIRGINIA INDONESIA COMPANY
OPICOIL HOUSTON, INC.
ULTRAMAR INDONESIA LIMITED
UNION TEXAS EAST KALIMANTAN LIMITED
UNIVERSE GAS & OIL COMPANY, INC.
And
VIRGINIA INTERNATIONAL COMPANY
Effective As Of January 1, 1990
2
SEVENTH SUPPLY AGREEMENT
FOR EXCESS SALES
(ADDITIONAL FIXED QUANTITIES
UNDER BADAK LNG SALES CONTRACT AS A RESULT
OF CONTRACT AMENDMENT AND RESTATEMENT)
THIS AGREEMENT, made and entered into in Jakarta on the 28th day of
September, 1992, but effective as of the 1st day of January, 1990, by and
between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on
the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), OPICOIL HOUSTON, INC.,
ULTRAMAR INDONESIA LIMITED, UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE GAS &
OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY (herein referred to
collectively as "Contractors" and individually as "Contractor"), on the other
hand,
WITNESSETH:
WHEREAS, Contractors individually own or control all of the interest
of "Contractors" in that certain Amended and Restated Production Sharing
Contract, dated April 23, 1990, but effective as of August 8, 1968 (such
contract as hereafter amended is herein referred to as the "Amended and
Restated Production Sharing Contract") and that certain Production Sharing
Contract dated April 23, 1990, but effective as of August 8, 1998 (such
contract as hereafter amended is herein referred to as the "Renewed Production
Sharing Contract". The Amended and Restated Production Sharing Contract and
the Renewed Production Sharing Contract are herein referred to collectively as
the "Production Sharing Contracts" and the area covered thereby is herein
referred to as the "VICO Contract Area"); and
-1-
3
WHEREAS, pursuant to the Production Sharing Contracts, each of
PERTAMINA and Contractors is entitled to take and receive, sell and freely
export its respective share of the natural gas produced and saved from the VICO
Contract Area (the percentage share of such natural gas to which each of
PERTAMINA and Contractors is entitled, as determined under the Production
Sharing Contracts, is herein referred to as the "Production Sharing Percentage"
of such party); and
WHEREAS, the reserves of natural gas in the VICO Contract Area exceed
the reserves committed to be produced, supplied and delivered by PERTAMINA and
Contractors to meet a portion of PERTAMINA's existing obligations under LNG
sales contracts, LPG sales contracts and domestic gas sales contracts; and
WHEREAS, PERTAMINA and Contractors are parties to the Amended and
Restated Bontang Processing Agreement dated as of February 9, 1988 (as from
time to time amended, the "Processing Agreement") which provides for the
operation of the natural gas liquefaction and related facilities located at
Bontang Bay, on the east coast of Kalimantan, Indonesia (herein referred to as
the "Bontang Plant") and the payment of the costs of such operation (such costs
as determined in accordance with the Processing Agreement are herein referred
to as "Plant Operating Costs"); and
-2-
4
WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang
Plant in part for the liquefaction of the VICO Contract Gas (as hereinafter
defined) and the Other Contract Gas (as hereinafter defined); and
WHEREAS, PERTAMINA, in collaboration with Contractors and its
production sharing contractors in other contract areas in East Kalimantan
(herein referred to as the "Other Contract Areas"), has entered into that
certain Badak LNG Sales Contract originally dated as of April 14, 1981, with
Chubu Electric Power Co., Inc., The Kansai Electric Power Co., Inc., Osaka Gas
Co., Ltd. and Toho Gas Co., Ltd. (herein referred to collectively as "Buyers"
and individually as a "Buyer"), and in support of the performance by PERTAMINA
of its obligations thereunder PERTAMINA and Contractors entered into a supply
agreement dated as of April 14, 1981 (herein referred to as the "Original
Supply Agreement"); and
WHEREAS, pursuant to a Memorandum of Agreement dated as of September
7, 1989, PERTAMINA and Buyers agreed to make certain changes to the price,
take-or-pay provisions and annual Fixed Quantities under the said Badak LNG
Sales Contract, and to give effect thereto PERTAMINA and Buyers have executed
an amendment and restatement of the said Badak LNG Sales Contract as of January
1, 1990 (such contract as so amended and restated being herein referred to as
the "1981 Sales Contract"), as a result of which the original annual Fixed
Quantities thereunder (the "Original Quantities") have been increased by the
following additional amounts of LNG (expressed in billions of BTU's) for each
year as stated in the second column in the table below (such quantities being
herein referred to as the "Additional Quantities") and accordingly
-3-
5
the total increased Fixed Quantities under the 1981 Sales Contract for each
year comprises Additional Quantities and Original Quantities in the following
percentages stated in the third and fourth columns respectively in the table
below:
Year Additional Additional Original
Quantities Quantities Quantities
(BBTU) (%) (%)
1990 5,820 3.2915 96.7085
1991 8,730 4.8573 95.1427
1992 11,640 6.3732 93.6268
1993 14,550 7.8416 92.1584
1994-2002 17,460 9.2646 90.7354
2003 3,934 9.2648 90.7352
(For the purposes of applying the further provisions hereof in any year the
percentage shown in the third column above in respect of such year is herein
referred to as the "Additional Quantities Percentage" and the percentage shown
in the fourth column above in respect of such year is herein referred to as the
"Original Quantities Percentage"); and
WHEREAS, PERTAMINA and each Contractor desire to supply and deliver
natural gas from the VICO Contract Area in support of the performance by
PERTAMINA of an agreed portion of its obligations to supply the Additional
Quantities; and
WHEREAS, each Contractor desires to dispose of its Production Sharing
Percentage of the VICO Contract Gas (as hereinafter defined) in accordance with
the terms of this Agreement,
-4-
6
NOW, THEREFORE, the parties agree as follows:
-5-
7
ARTICLE 1
This Agreement shall be effective as of January 1, 1990, and shall
terminate on the date that the 1981 Sales Contract terminates.
ARTICLE 2
2.1 The total quantity of net natural gas required to be supplied
and delivered out of recoverable reserves of natural gas in East Kalimantan for
liquefaction and sale as Additional Quantities is estimated to be 0.210
trillion standard cubic feet ("t.s.c.f.") (such quantity being herein referred
to as the "Additional Quantities Net Gas Requirement").
2.2 PERTAMINA and Contractors hereby commit and agree to supply
and deliver from recoverable reserves of natural gas in the VICO Contract Area
sufficient natural gas (and LNG resulting from the liquefaction thereof) to
meet a portion of the Additional Quantities Net Gas Requirement over the term
of this Agreement consisting of 0.062 t.s.c.f., or 29.6004% thereof. Such
quantity of net natural gas committed to be supplied pursuant to this Agreement
is herein referred to as the "VICO Contract Gas", and the above-stated
percentage is herein referred to as the "Producers' Percentage".
2.3 To meet the balance of the Additional Quantities Net Gas
Requirement, constituting 0.148 t.s.c.f., sufficient natural gas (and LNG
resulting from the liquefaction thereof) will be
-6-
8
committed for supply and delivery by PERTAMINA and its production sharing
contractors from recoverable reserves of natural gas in the Other Contract
Areas by separate supply agreements, similar hereto and compatible herewith,
executed and delivered concurrently herewith (such amount being herein
collectively referred to as the "Other Contract Gas").
2.4 The amounts of net natural gas constituting the VICO Contract
Gas and the Other Contract Gas are part of the estimates of proved recoverable
reserves of natural gas as certified by the independent petroleum consultant
firm of DeGolyer and MacNaughton in written statements dated on or before April
10, 1986, based on data available on January 31, 1986.
ARTICLE 3
The VICO Contract Gas and the Other Contract Gas may be produced from
different fields at times and production rates which may change from time to
time during the term hereof so as to secure the optimal ultimate recovery of
natural gas. The supply of natural gas from the VICO Contract Area and the
Other Contract Areas will be coordinated among PERTAMINA, VICO and the
operators of the Other Contract Areas so as to conserve and permit full
utilization of such natural gas.
The sources of supply, producing rates, quality of gas, metering and
related matters shall be matters for study by the East Kalimantan Gas Reserves
Management Committee, consisting of representatives from PERTAMINA, VICO, Total
Indonesie and Unocal Indonesia, Ltd.
-7-
9
ARTICLE 4
4.1 PERTAMINA shall be responsible for the due and prompt
administration of the 1981 Sales Contract for the benefit of PERTAMINA and
Contractors. All matters which affect the 1981 Sales Contract or the sale and
delivery of LNG thereunder will be administered by a representative to be
appointed by PERTAMINA and the representative appointed by Contractors under
Article 8. It is understood, however, where immediate action is required, it
may be necessary from time to time for PERTAMINA, as seller under the 1981
Sales Contract, to take certain administrative and operational actions without
prior consultation. Contractors will be promptly advised of any such action.
4.2 PERTAMINA and Contractors agree to consult with each other
freely on all matters relating to the 1981 Sales Contract. PERTAMINA and
Contractors shall confer and agree as to any amendment to the 1981 Sales
Contract and as to any permitted action or election thereunder which
constitutes a material adjustment in the quantities of LNG to be sold and
delivered thereunder or a change in the terms thereof. At the request of any
party hereto, a memorandum evidencing any such agreement shall be prepared as
soon as feasible and signed by each party hereto.
ARTICLE 5
5.1 PERTAMINA will cause the LNG resulting from the liquefaction
of the VICO
-8-
10
Contract Gas and the Other Contract Gas to be delivered to Buyers at the
"Delivery Point" as defined in the 1981 Sales Contract. Title to each
Contractor's share of LNG extracted from the VICO Contract Gas shall pass to
PERTAMINA eo instante with the passage of title from PERTAMINA to each Buyer.
5.2 At the time of delivery of Additional Quantities to a Buyer at
the Delivery Point, PERTAMINA will furnish Contractors with appropriate
documentation to evidence the quantity and quality thereof, together with
copies of the invoices to such Buyer covering such shipment. PERTAMINA will
also furnish to Contractors a copy of each invoice or billing delivered to a
Buyer on account of other payment obligations of such Buyer under the 1981
Sales Contract concurrently with its being furnished to such Buyer.
Calculation of the "Contract Sales Price" under the 1981 Sales Contract, the
amount of sales invoices and other billings and any adjustments, shall be
reviewed and approved by PERTAMINA and Contractors prior to presentation to
Buyer.
ARTICLE 6
6.1 Subject to Section 6.6, a portion of each obligation
("Contract Obligation") due from a Buyer pursuant to the 1981 Sales Contract in
respect of quantities of LNG sold and delivered or in respect of quantities of
LNG required to be taken but which are not taken shall be deemed to constitute
an amount payable in respect of Additional Quantities (each such portion is
herein referred to as an "Additional Quantities Payment"). The Additional
Quantities Payment
-9-
11
shall be calculated as the quantity of LNG (expressed in millions of BTU's)
upon which the relevant invoice is based (herein called the "Invoiced
Quantity") multiplied by the Additional Quantities Percentage multiplied by the
Contract Sales Price under the 1981 Sales Contract (as that term is defined
therein) in effect as of the date the relevant Contract Obligation accrued.
The Additional Quantities Payment shall be determined disregarding any
assignment by a Buyer of any of its rights or obligations under the 1981 Sales
Contract and shall not be reduced by any agreed invoice credit or set-off
(other than one in respect of a debt or obligation first arising on or after
January 1, 1990 applicable to the Additional Quantities) which reduces any
payment from a Buyer in respect of the relevant Contract Obligation. Subject
to the words in parentheses in the preceding sentence, if the net amount
actually received from such Buyer is less than the amount of such Contract
Obligation, such net amount received shall be first applied and deemed paid as
to the Additional Quantities Payment up to the whole amount thereof; and if
such net amount received is less than the Additional Quantities Payment, the
next following payment or payments received from any source in respect of the
1981 Sales Contract shall be first applied and deemed paid as to the shortfall
in the Additional Quantities Payment.
6.2 The amounts to be paid to each Contractor in respect of the
LNG resulting from the liquefaction of natural gas to be supplied under this
Agreement shall be:
(a) its Production Sharing Percentage of the Producers' Percentage
of each Transfer Amount (as hereinafter defined), together
with any interest accruing thereon, and
-10-
12
(b) its Production Sharing Percentage of the Producers' Percentage
under the Original Supply Agreement of each Retained Amount
(as hereinafter defined), together with any interest accruing
thereon.
6.3 In order to arrange for the receipt by each Contractor of the
payments to which such Contractor is entitled under Section 6.2, PERTAMINA
hereby assigns to each Contractor its share as stated in Section 6.2 of each
Additional Quantities Payment, together with any interest accruing thereon.
6.4 Throughout the term of this Agreement, all monies paid in
respect of Additional Quantities Payments shall be paid in U.S. Dollars
directly to Continental Bank International in New York City (or such other
leading bank in the United States as shall be selected by PERTAMINA and
approved by Contractors) pursuant to that certain Bontang II Trustee and Paying
Agent Agreement, amended and restated as of July 15, 1991, as the same may be
further amended from time to time, among PERTAMINA, Contractors, the production
sharing contractors in the Other Contract Areas and the Trustee thereunder (the
trust thereby constituted being herein called the "Bontang II Trust"). The
said Trustee shall be required to segregate amounts received in respect of
Additional Quantities Payments from other amounts received from Buyers pursuant
to the 1981 Sales Contract.
Amounts so received in the Bontang II Trust shall be used for payment
of (i) an agreed portion of Plant Operating Costs, and (ii) other costs
approved by PERTAMINA and Contractors.
-11-
13
Amounts so received in the Bontang II Trust, to the extent that they
are not used for the payments referred to in the preceding sentence, shall be
applied in accordance with Section 6.5.
6.5 Subject to Section 6.6, of each Additional Quantities Payment:
(a) there shall be retained in the Bontang II Trust an amount
(herein referred to as the "Retained Amount") calculated as
the Invoiced Quantity multiplied by the Original Quantities
Percentage multiplied by:
U.S.$0.04 during the calendar year 1990
U.S.$0.06 during the calendar year 1991
U.S.$0.08 during the calendar year 1992
U.S.$0.10 during the calendar year 1993
U.S.$0.12 from and after January 1, 1994.
In calculating the Retained Amount no deduction shall be made
in respect of Plant Operating Costs or other costs authorized
for payment out of the Bontang II Trust pursuant to Section
6.4.
(b) the balance after such retention (herein referred to as the
"Transfer Amount") shall be paid, after deducting the
Additional Quantities Percentage of any Plant Operating Costs
or other costs authorized for payment out of the Bontang II
Trust pursuant to Section 6.4, to Continental Bank
International in New York City
-12-
14
pursuant to that certain Bontang Excess Sales Trustee and
Paying Agent Agreement, amended and restated as of February 9,
1988, as the same may be further amended from time to time,
among PERTAMINA, Contractors, the production sharing
contractors in the Other Contract Areas and the Trustee
thereunder (the trust thereby constituted being herein called
the "Excess Sales Trust").
If in accordance with the last sentence of Section 6.1 more than one
payment is received in respect of an Additional Quantities Payment (because of
a shortfall in the amount received in respect of the relevant Contract
Obligation), the amount of each such payment received, insofar as it is to be
applied to the Additional Quantities Payment, shall be divided in the
proportions that the Transfer Amount and the Retained Amount respectively bear
to the relevant Additional Quantities Payment, with the Transfer Amount portion
being paid to the Excess Sales Trust (after deduction of costs as prescribed in
paragraph (b) above), and the Retained Amount portion being retained in the
Bontang II Trust.
Payments in respect of interest on an Additional Quantities Payment
shall be allocated on a pro-rata basis between funds retained in the Bontang II
Trust and funds paid to the Excess Sales Trust pursuant to this Section 6.5
(the proportionate relationship to be that between the Retained Amount and
Transfer Amount, determined as of the date that the original Contract
Obligation on which interest is accruing was incurred).
-13-
15
Amounts so retained in the Bontang II Trust or paid to the Excess
Sales Trust, shall, insofar as they are applicable to the VICO Contract Gas
(i.e., the net realized price for the VICO Contract Gas), be disbursed to
PERTAMINA and each Contractor in accordance with its Production Sharing
Percentage at a bank or banks of its choice.
PERTAMINA and Contractors will each give such instructions,
authorizations and approvals, and take such other action (including amendment
of the above-mentioned Badak Expansion Trustee and Paying Agent Agreement) as
may be required to cause the payments contemplated by this Section 6.5 to be
made.
6.6 If in or in respect of any year (the "Original Year") pursuant
to the 1981 Sales Contract a Buyer incurred an obligation to pay for quantities
of LNG not taken, exercised an Allowance, or was unable to take quantities of
LNG due to the occurrence or continuation of an event of Force Majeure, then
for the purposes of determining:
(a) the Additional Quantities Payment, and the amounts to be paid
to the Excess Sales Trust and retained in the Bontang II Trust
pursuant to Section 6.5, in respect of any consequent Contract
Obligation of such Buyer in respect of:
(i) a Quantity Deficiency, and/or
(ii) any consequent purchase by such Buyer of Make-Up LNG,
Make-Good LNG or Restoration Quantities, and
-14-
16
(b) the quantities of natural gas supplied by PERTAMINA and
Contractors under this Supply Agreement in respect of any
purchase referred to in paragraph (a)(ii) above,
the Additional Quantities Percentage and the Original Quantities Percentage
shall be those applicable to the Original Year but the Contract Sales Price
shall be that in effect when the relevant Additional Quantities Payment is
invoiced (expressions defined in the 1981 Sales Contract shall have the same
meanings when used in this Section 6.6).
6.7 (a) The right of Contractors to the payments provided for
in this Article 6 shall extend throughout the term of this Agreement and shall
not be affected by the production rates or sources of natural gas supplied from
the VICO Contract Area or the Other Contract Areas from time to time during the
term hereof.
(b) If the quantities of net natural gas produced from
the VICO Contract Area and delivered pursuant to this Agreement exceed in the
aggregate the quantity of the VICO Contract Gas, the Producers' Percentage (and
the revenues to be paid to PERTAMINA and Contractors hereunder) will not be
increased, except in the event of an occurrence contemplated in Section 6.7(d),
and Contractors, together with PERTAMINA, will be credited with and have the
right to receive revenue from future marketing opportunities in respect of a
quantity of net natural gas from reserves in the Other Contract Areas equal to
such excess quantities.
(c) If the quantities of net natural gas produced from
the VICO Contract Area
-15-
17
and delivered pursuant to this Agreement are in the aggregate less than the
quantity of the VICO Contract Gas, the Producers' Percentage (and the revenues
to be paid to PERTAMINA and Contractors hereunder) will not be reduced, except
in the event of an occurrence contemplated in Section 6.7(d), and the
production sharing contractors in the Other Contract Areas, together with
PERTAMINA, will be credited with and have the right to receive revenue from
future marketing opportunities in respect of a quantity of net natural gas from
reserves in the VICO Contract Area equal to excess quantities delivered from
sources within the Other Contract Areas.
(d) If an insufficiency of deliverable reserves of
natural gas shall occur which precludes the delivery from participating fields
within the VICO Contract Area or from participating fields within either or
both of the Other Contract Areas of the aggregate amount of natural gas
committed therefrom pursuant to this Agreement or to one or both of the supply
agreements referred to in Section 2.3 over the term thereof, then such
insufficiency shall be delivered from participating fields within the area(s)
not experiencing an insufficiency of deliverable reserves and the Producers'
Percentage shall thereupon be adjusted (together with a corresponding
adjustment to the VICO Contract Gas) to reflect the revised share of the net
natural gas in support of PERTAMINA's obligations in respect of the Additional
Quantities which will be supplied and delivered from the VICO Contract Area
over the term hereof, such adjustment in the Producers' Percentage to apply
only to payments provided for in this Article 6 received after the date
thereof. The procedure for determining (a) an insufficiency in deliverable
reserves, (b) the allocation between the VICO Contract Area and one of the
Other Contract Areas of the right to supply any deficiency in deliveries of the
Other Contract Gas or the allocation between
-16-
18
the Other Contract Areas of the right to supply any deficiency in deliveries of
the VICO Contract Gas, and (c) the calculation of the future Producers'
Percentage shall be made in accordance with principles to be decided upon by
PERTAMINA.
ARTICLE 7
All disputes arising in connection with this Agreement shall be
finally settled by arbitration conducted in the English language in Paris,
France, by three arbitrators under the Rules of Arbitration of the
International Chamber of Commerce. Judgment upon the award rendered may be
entered in any court having jurisdiction, or application may be made to such
court for a juridical acceptance of the award and an order of enforcement, as
the case may be.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, United States of America.
ARTICLE 8
VICO is designated representative by Contractors for performance on
behalf of Contractors of their obligation under Section 4.1 and for the giving
of notices, responses or other communications to and from Contractors under
this Agreement. Such representative may be changed by written notice to such
effect from Contractors to PERTAMINA.
-17-
19
ARTICLE 9
Any notices to the parties shall be in writing and sent by mail or
telex to the following addresses:
TO PERTAMINA:
PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
Jalan Medan Merdeka Timur 1 A
Jakarta, Indonesia
Attention: Head of BPPKA
Cable: PERTAMINA, Jakarta, Indonesia
Telex: PERTAMINA, 44134 Jakarta
Telecopy: 343882
TO CONTRACTORS:
VIRGINIA INDONESIA COMPANY (VICO)
6th Floor, Kuningan Plaza South Tower
JL. H.R. Rasuna Said Kav. C11-14
P.O. Box 2828
Jakarta Selatan, Indonesia
Attention: President - VICO Indonesia Division
Cable: VICO
Telex: 79644421
Telecopy: 5200174 or 3800037
cc: VIRGINIA INDONESIA COMPANY
One Houston Center
1221 McKinney
Suite 624
P.O. Box 1551
Houston, Texas 77251-1551
U.S.A.
Attention: Chairman
Telex: 166-100
Telecopy: (713) 754-6698
-18-
20
A party may change its address by written notice to the other parties.
ARTICLE 10
10.1 This Agreement shall not be amended or modified except by
written agreement signed by the parties hereto.
10.2 This Agreement shall inure to the benefit of, and be binding
upon, PERTAMINA and each Contractor, their respective successors and assigns,
provided that this Agreement shall be assignable by a Contractor only if such
Contractor concurrently assigns to the same assignee an equal interest in the
Production Sharing Contract.
10.3 The parties to this Agreement shall be the only persons or
entities entitled to enforce the obligations hereunder of the other parties
hereto, and no persons or entities not parties to this Agreement shall have the
right to enforce any of the obligations hereunder of any of the parties hereto.
-19-
21
IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly
authorized representatives to execute this Agreement as of the day and year
first above written but effective as of January 1, 1990.
PERUSAHAAN PERTAMBANGAN VIRGINIA INDONESIA COMPANY
MINYAK DAN GAS BUMI NEGARA
(PERTAMINA)
By /s/ By /s/
------------------------- -------------------------
OPICOIL HOUSTON, INC.
By /s/
-------------------------
ULTRAMAR INDONESIA
LIMITED
By /s/
-------------------------
UNION TEXAS EAST
KALIMANTAN LIMITED
By /s/
-------------------------
UNIVERSE GAS & OIL
COMPANY, INC.
By /s/
-------------------------
VIRGINIA INTERNATIONAL
COMPANY
By /s/
-------------------------
-20-