Exhibit 10.34
Amendment No. 2 to
International Daywork Drilling Contract - Land
THIS AMENDMENT No. 2 dated as of the 17 day of March, 1999, is made between
Challenger Oil Services, PLC, a company organized under the laws of England,
Company Registration No. 3449260, with its principal office located at 72 New
Bond Street, London W1Y9DD, England (hereinafter called "Contractor"), and
Karakuduk-Munai, Inc., a corporation organized under the laws of the Republic of
Kazakstan, with an office located at Microdistrict, Region 3, Building 82,
Aktau, Kazakstan, (hereinafter called "Operator"). The Contractor and Operator
are hereinafter collectively referred to as the Parties.
WHEREAS, the Parties entered into that certain International Daywork Drilling
Contract - Land dated April 7, 1998 (hereafter called the "Drilling Contract")
providing for the furnishing by Contractor for drilling operations in the
Republic of Kazakstan of a Cabot 900 drilling rig named Challenger No. 23; and
WHEREAS, the Parties subsequently entered into Amendment No. 1 to International
Daywork Drilling Contract - Land dated October 21, 1998 (hereafter called
"Amendment No. 1") amending certain provisions of the Drilling Contract,
including, inter alia, substituting a Kremco 900 rig, also to be called
Challenger No. 23 for the Cabot 900 rig as the Drilling Unit in the Drilling
Contract.
WHEREAS, the Parties wish to further amend the Drilling Contract as amended by
Amendment No. 1 to reflect certain changes agreed to by them;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth below, Operator and Contractor agree as follows:
1. Capitalized terms used herein shall have the same meaning as in the
Drilling Contract unless otherwise specified. In the event there is any
conflict between the provisions of this Amendment No. 2 and the Drilling
Contract and/or Amendment No.1, the provisions of this Amendment No. 2
shall govern.
2. Appendix A to the Drilling Contract is deleted and replaced by the
following, effective as of January 1, 1999:
APPENDIX A
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Para Nos.:
101 (f) Operating Area: Karakuduk Field, Kazakstan
101 (g) Operating Base: Karakuduk Field, Kazakstan
102 Currency: United States Dollars
107 Governing Law: The substantive law of the State of New
York, to the exclusion of any conflicts
of law rules which would refer the
matter to the laws of another
jurisdiction
202 Duration: Two (2) years beginning February 14,
1999; one (1) year for the second
Drilling Unit from its spud date.
203 (b) Termination: February 13, 2001 or after well in
progress on that date is completed or
plugged and abandoned.
203 (b) Demobilization Operator's last well location in the
Operating Location & 705 (c): Area.
204 Option Term: One year, by the mutual agreement of the
Parties.
Option Notice: Ninety (90) days before Termination of
original term
Deadline for Mutual
Agreement: Ninety (90) days before termination of
original term
503 Maximum Well Depth: 11,500 feet with 41/2 inch drill pipe.
601 Handling Charge: Ten (10%) Percent
702 Mobilization Fee: At Operator's cost
704 Demobilization Fee: US$250,000
705 Operating Rate: US$12,500 per day (includes political
risk insurance) for one Drilling Unit;
US$11,500 per day (includes political
risk insurance) for the second Drilling
Unit. (Note: all rates below include
political risk insurance)
706 Standby Rate US$11,250 per day for one Drilling Unit;
With Crews US$10,350 per day for the second
Drilling Unit.
707 Repair Rate: US$11,250 per day for one Drilling Unit;
US$10,350 per day for the second
Drilling Unit.
Repair Time At Repair Rate for first twenty-four
(24) hours per month, then at zero cost
to Operator.
708 Force Majeure Rate: At Standby Rate With Crews for ninety
(90) days, and US$0 thereafter.
709 Moving Rate US$20,000 lump sum for each move of the
Drilling Unit from well site to well
site within the Karakuduk Field;
Contractor provides and pays for all
transportation and equipment, including
trucks, required for all rig moves
within the Karakuduk Field. (Note: see
Paragraph 4 below for clarification)
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710 Standby Rate without Crews: US$8,500
802 Interest Rate on Late
Payments: One month LIBOR plus 2% per annum
803 Address for Payment Chase Bank of Texas, N.A. as Fiscal
Agent 712 Main Street, 3 CBB East
Houston, Texas 77002-8087
Acct. No.
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3. All drill stem testing operations will be conducted at the rate of
US$12,500 per day pro-rated for the time actually spent conducting such
drill stem test; for the second Drilling Unit, such amount shall be
US$11,500 per day pro-rated for the time actually spent conducting such
drill stem test
4. Article 709 and Amendment No.1 of the Drilling Contract are amended to
change the Moving Rate to a "US$20,000 lump sum for each move of the
Drilling Unit from well site to well site within the Karakuduk Field and
Contractor provides and pays for all transportation and equipment,
including trucks, required for all rig moves within the Karakuduk Field;
provided, however, the Moving Rate for the first move of the Drilling Unit
shall be at the Standby Rate With Crews for the time actually spent in
conducting such move and KKM shall provide and pay for all transportation
and equipment, including trucks, required for such first move of the
Drilling Unit. All rig moves, including the first rig move shall commence
during daylight hours and only with the prior written approval of the KKM
Field Manager or his designee.
5. Article 801 of the Drilling Contract is amended to provide that "All
invoices shall be prepared from and based solely upon the IADC Daily
Drilling Report Form ("Daily Drilling Report") for each day covered by the
invoice period. Prior to submission to Operator and provided that the KKM
Field Manager or his designee is on the well location or in the local
company office, all such invoices as well as the Daily Drilling Reports on
which they are based shall be approved by the KKM Field Manager or his
designee and such approval shall not be unreasonably withheld."
6. It is hereby agreed that Article 607 of the Drilling Contract is deleted
and replaced with the following:
607. Taxes
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(a) Contractor shall pay any and all tax liabilities or claims taxes
assessed or levied on Contractor which any taxing authority (including
any political subdivision thereof) claiming jurisdiction over
Contractor and its performance of this Contract may assess or levy
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against Contractor. Subject to the provisions of subparagraph (b)
hereof, Operator shall reimburse Contractor for any income or profits
tax liabilities directly and solely attributable to Contractor's
revenues under this Contract, which are levied against Contractor by
any applicable tax authority in the Republic of Kazakstan, in an
amount equal to (i) fifty percent (50%) of the tax amount levied that
is in excess of $425 U.S. Dollars per day but less than $850 U.S.
Dollars per day, and (ii) one hundred percent (100%) of the tax amount
levied that is in excess of $850 U.S. Dollars per day, for the number
of days during the term of this Drilling Contract which fall within
the applicable tax period for which such taxes are assessed.
(b) Anything contained herein to the contrary notwithstanding, the
Contractor is primarily responsible for the preparation, filing and
payment of all required tax returns and tax payments to the applicable
governmental agencies or authorities of the Republic of Kazakstan.
Contractor will furnish Operator copies of all tax returns filed with
any applicable government authority. Operator's liability hereunder
shall be one of reimbursement only for any income or profits tax
obligations levied against Contractor by any applicable tax authority
in the Republic of Kazakstan, in an amount equal to (i) fifty percent
(50%) of the tax amount levied that is in excess of $425 U.S. Dollars
per day but less than $850 U.S. Dollars per day, and (ii) one hundred
percent (100%) of the tax amount that is in excess of $850 U.S.
Dollars per day, for the number of days during the term of this
Drilling Contract which fall within the applicable tax period for
which such taxes are assessed. Any additional tax liabilities,
including penalties and interest, resulting from the failure of the
Contractor to timely file all required tax returns and to timely pay
all taxes due are the sole and exclusive liability and responsibility
of the Contractor, and Operator shall have no obligation to pay or
reimburse Contractor therefore, provided that Operator shall reimburse
Contractor for any additional tax liabilities, including penalties or
interest, paid by Contractor directly resulting from Operator
unreasonably withholding its consent described in Article 607(c).
(c) Contractor shall use due care and diligence in the preparation of its
tax returns and the calculation of its tax liabilities attributable to
this Drilling Contract so as to minimize, within the scope of the
applicable tax law and regulations, its tax liabilities to the
Republic of Kazakstan for which Operator has an obligation to
reimburse Contractor hereunder. Contractor shall deliver to Operator a
copy of such tax returns prior to filing and obtain Operator's consent
for their filing, which consent will not be withheld unreasonably.
Contractor shall make no audit settlement with any governmental tax
authority in the Republic of Kazakstan for which Operator shall have
responsibility to reimburse Contractor hereunder without first
notifying Operator and obtaining its consent to that portion of such
settlement for which Operator is obligated to reimburse Contractor
hereunder. Operator shall have the right, but not the obligation, to
participate at its own cost and expense in any such audit proceeding
or settlement negotiations.
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(d) Contractor shall indemnify and hold harmless Operator from and against
any income or other taxes which may be assessed against Contractor's
personnel based on the tax rates, laws and regulations as they exist
as of the date of this Amendment No. 2 to the Drilling Contract. If,
after the execution of this Amendment No. 2, such tax rates, laws or
regulations pertaining to personnel income taxes increase or decrease,
then the Operator shall reimburse Contractor for the actual amount of
any such additional income taxes actually paid by Contractor which are
directly attributable to such increase in taxes, and Contractor shall
give Operator a credit for any savings in tax payments realized by
Contractor.
(e) Subject to the provisions of subparagraph (b) above, Operator shall
reimburse Contractor for all other taxes, including but not limited
to, VAT, Drilling Unit registration fees, property taxes, road taxes
and other taxes, which are solely and directly attributable to
Contractor's operations under this Drilling Contract. It is understood
and agreed by the Parties, that Operator shall have no obligation to
reimburse Contractor for any taxes levied against attributable to any
activity or operations of Contractor, including without limitation,
any equipment rental fees, which are not solely related to the
Contractor's operations under this Drilling Contract.
(f) Contractor shall invoice Operator for any taxes reimbursable to
Contractor hereunder. Such invoice shall be accompanied by evidence of
actual payment of such taxes by Contractor, as well as copies of any
tax return, notice, demand, assessment or any other document upon
which such payment was made.
(g) Operator shall have the right, upon ten (10) days prior written notice
to Contractor, to audit and inspect Contractor's books and records,
including without limitation, Contractor's tax returns, which are
related to Operator's tax reimbursement obligations to Contractor
hereunder. This provision shall survive termination of the Drilling
Contract.
7. It is agreed that Article 712 shall be deleted and replaced by the following:
712. Variation of Rates
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The rates set forth above shall be revised by the actual amount of any
increase or decrease in Contractor's cost if an event described below
occurs, or if the cost of any of the items hereinafter listed shall
increase or decrease from Contractor's cost thereof on the effective date
of this Amendment No.2 to the Drilling Contract:
(a) local labor costs, including amounts actually paid by Contractor to
its employees to maintain salaries consistent with applicable industry
scale (local and ex-pat), and all payroll taxes and benefits actually
paid by Contractor for its employees, as a result of any changes in
the laws or regulations of the Republic of Kazakstan;
(b) if Operator requires Contractor to increase or decrease the number of
Contractor's Personnel;
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(c) if it becomes necessary for Contractor to change the work schedule of
its personnel as a result of any change in the laws or regulations of
the Republic of Kazakstan, or if the Parties agree upon a change in
the location of the Operating Base or Operating Area;
(d) in the case of an event described in Section 1102;
(e) if the cost of insurance premiums increases or decreases by five
percent (5%) or more;
(f) if there is any change in law, rules, regulations, or legislation,
including the enforcement or interpretation thereof, that increases or
decreases Contractor's financial burden.
Without limiting the effect of the obligations and rights created above,
upon the occurrence of one or more of the events described above, the
Parties agree to meet and discuss in good faith the amount of any increase
or decrease in the rates that result from, and are directly attributable to
the occurrence of such event.
8. If KKM requires a second drilling rig to work in Kazakstan during the term
of the Drilling Contract, as amended, then KKM agrees to contract with
Challenger for the addition of a second Drilling Unit, provided that such
Drilling Unit must be acceptable to Operator in its sole discretion. The
Parties hereto agree that the terms and conditions of the drilling contract
for such second Drilling Unit shall be substantially the same terms and
conditions as are contained in the Drilling Contract, provided that the
operating rate shall be US$11,500 per day, the standby rate with crews
shall be US$10,350 per day, the repair rate shall be US$10,350 per day
(applicable for the first twenty four (24) hours per month, then at zero
cost to the Operator), the force majeure rate shall be US$10,350 per day
for ninety (90) days and US$0 thereafter, the moving rate shall be
US$20,000 lump sum for each move of the drilling unit from well site to
well site within the Karakuduk Field, the standby rate without crews shall
be US$8,500 and the term shall be one (1) year from such Drilling Unit's
spud date. In addition, Contractor shall mobilize three rig trucks,
comparable to those supplied by Contractor for Challenger Rig No. 23 and
one twenty ton fork lift, all as more fully described in an appendix to be
added to the Drilling Contract.
9. Contractor has agreed to undertake the following:
(a) Contractor will assume full responsibility for the immediate
mobilization and delivery, via air freight, of the power tongs and
elevators for the Drilling Unit to the Karakuduk Field. The cost of
such mobilization and delivery shall be paid for by Operator, provided
that prior to mobilization and delivery, Contractor shall furnish to
Operator two or more written estimates for the cost of such
mobilization and delivery. If Operator does not agree with such costs,
it may elect to arrange for the mobilization and delivery of the power
tongs and elevators, wherein Contractor shall reasonably assist
Operator in such mobilization and delivery.
(b) No later than 8:00 a.m. CST on March 20, 1999, provide all applicable
specifications and dimensions of the three (3) Kenworth trucks, the
three (3) Toyota Land Cruisers and the three (3) trailers in Egypt
that are available to be shipped to the Karakuduk Field, together with
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three (3) bids from reputable transporters/common carriers for the
time and cost to move such equipment from the port of Alexandria,
Egypt to the Karakuduk Field. No such equipment shall be shipped
without the prior written authorization of Operator.
(c) [INTENTIONALLY BLANK]
(d) Within thirty (30) days after receipt of the information described in
subparagraph (b) above, Operator will notify Contractor in writing of
its decision as to which transporter/common carrier it wishes to use
to transport the trucks and other equipment described in subparagraph
(b) above from the port of Alexandria, Egypt to the Karakuduk Field.
At such time, Operator shall contract with such transporter/common
carrier for the immediate transport of such trucks and equipment to
the Karakuduk Field.
(e) Contractor will be responsible for the mobilization of the trucks and
equipment referred to in subparagraph (b) above to the Karakuduk
Field, however the transport routing of such trucks and equipment
shall be at Operator's option. The costs of mobilization of the trucks
and equipment referred to in subparagraph (b) above shall be borne by
Operator, provided that Contractor shall pay all costs and expenses
relating to or arising from the transport of the trucks and equipment
to the port of Alexandria, Egypt. In addition, Contractor shall be
responsible for, and shall pay all expenses related to, obtaining and
providing to the transporter/common carrier referred to in
subparagraph (d) above all documentation requested by such
transporter/common carrier pertaining to (i) transporter/common
carrier's receipt and/or acceptance of the trucks and equipment and
(ii) the transport of the trucks and equipment to the Karakuduk Field.
Operator shall be responsible for obtaining permits and licenses and
clearing customs for the trucks and equipment in the Republic of
Kazakstan. Contractor will assist Operator in obtaining such licenses,
permits and clearing customs, but such licenses, permits and clearing
customs are Operator's primary obligation and responsibility.
10. It is hereby agreed that any and all invoices issued by Contractor to
Operator on and after the date of execution of this Amendment No. 2 shall
charge the work, services and equipment set forth on such invoice at the
new rates contained herein, regardless that such invoice period may predate
the execution of this Amendment No. 2.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS AMENDMENT NO. 2 ON THE DAY AND
YEAR FIRST ABOVE WRITTEN.
On behalf of OPERATOR,
Karakuduk-Munai, Inc. by
Chaparral Resources Inc.
BY: /s/ N. Klinchev
---------------------------------
TITLE: General Director
On behalf of CONTRACTOR,
Challenger Oil Services, PLC
BY: /s/ J. Paine
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TITLE: General Manager of Challenger Oils Services PLC,
signing as P.O.A. for Challenger Oil Services PLC.
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