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ASSOCIATION CONTRACT - with Gas Incentives
ASSOCIATION CONTRACT
ASSOCIATE SEVEN SEAS PETROLEUM COLOMBIA
SECTOR: ROSABLANCA
EFFECTIVE DATE 28 February 1998
The contracting parties, namely: on the one part THE "EMPRESA COLOMBIANA DE
PETROLEOS", hereinafter ECOPETROL, an industrial and commercial state-owned
enterprise authorized under Law 165 of 1948, currently ruled by its by laws,
amended by Decree 1209 of 15th June 1994, having its head office in Santafe de
Bogota, D.C. represented by XXXXXXX XXXXXXXX XXXXXX, of legal age, bearer of
citizenship card No 5.555.193 issued in Bucaramanga, domiciled in Santafe de
Bogota, who states that: 1. As president of ECOPETROL, he acts herein on behalf
of said Company, and 2. The ECOPETROL Board of Directors authorized him to enter
into this Contract, as witnessed by Minutes No. 2169. of 16th October 1997; and
on the other part SEVEN SEAS PETROLEUM COLOMBIA, a company organized-pursuant to
the laws of CANADA, hereinafter referred to as "THE ASSOCIATE", with a duly
established Colombian branch and its main domicile in Santafe de Bogota,
pursuant to public deed no 2771 of 28th September 1995, made before the
Sixteenth (16) Notary Public of the Santa Fe de Bogota circuit, represented by
XXXXXXX XXXXX XXXXX of legal age, a citizen of Colombia bearer of identity card
No 17029136 issued in Bogota who represents that: 1. In his capacity as legal
representative he acts on behalf of SEVEN SEAS PETROLEUM COLOMBIA INC and, 2. He
is fully authorized to sign this contract as witnessed by the certificate of
incorporation and legal representation issued by the Chamber of Commerce of
Santafe de Bogota. Under the above conditions, ECOPETROL and the ASSOCIATE
declare they have entered into the contract contained in the following Clauses-
CHAPTER I - GENERAL PROVISIONS
CLAUSE 1 - PURPOSE OF THIS CONTRACT
1.1 The purpose of this contract is to explore the Contract Area and develop
such nationally-owned Hydrocarbons as may be found therein, as described in
Clause 3 below.
1.2 Pursuant to article lst of Decree 2310/1974, ECOPETROL is entrusted with
exploring and developing nationally owned hydrocarbons and may carry out said
activities either directly or through contracts with private parties. Based on
this provision, ECOPETROL and THE ASSOCIATE have agreed to explore the Contract
Area and produce such Hydrocarbons as may be found therein under the
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terms and conditions set forth in this document, in Appendix "A!' and Appendix
"B" ("Operating Agreement) which are made an integral part hereof.
1.3 Subject to the provisions hereof, it is understood that the rights and
obligations of THE ASSOCIATE regarding the Hydrocarbons produced in the Contract
Area, and its share thereof, are the same as those assigned under Colombian law
to anyone producing nationally-owned Hydrocarbons in the country.
1.4 ECOPETROL and THE ASSOCIATE agree to explore and develop the land of the
Contract Area, to share the costs and risks thereof in the proportion and under
the terms contemplated in this Contract, and the properties they may acquire and
the Hydrocarbons produced and stored shall belong to each Party in the
stipulated proportions.
CLAUSE 2 - APPLICATION OF THE CONTRACT
This Contract applies to the Contract Area whose boundaries are described in
Clause 3 below, or to any portion thereof subject to the terms hereof whenever
Clause 8 has been applied.
CLAUSE 3 - CONTRACT AREA
The Contract Area is called "ROSABLANCA" and covers an extension of one hundred
twenty eight thousand one hundred and eighty eight (128,188) hectares and five
thousand (5,000) square meters, located in the following municipal
jurisdictions: Xxxxxxx, Aguachica, La Xxxxxx, Pelaya and Tamalameque in Xxxxx
Department; Xxxxxxx in Bolivar Department- and Xxxxxx in the Northern Santander
Department. This area is described here in below and shown in the map enclosed
as appendix ",N' which is made a part hereof, as well as the corresponding
calculation charts. The reference point is the Geodesic Vertex "TABLAR-848" of
the Xxxxxxx Xxxxxxx Geographic Institute whose Gauss flat coordinates origin
Santa Fe de Bogota are- N-1,401.053.89 meters, E1,021,264.81 meters
corresponding to geographic coordinates Latitude 80 13' 31 ".808 North of the
Equator, Longitude 73 0 53'1 6".538 West of Greenwich. From this Vertex, head N
340 9' 25".673 W for 2,237.83 meters until reaching the starting point "A",
whose coordinates are: N-1,402,900.oo meters, E-1,020,000.oo meters. Head NORTH
from point "N' for 27,100.oo meters until reaching Point "B" whose coordinates
are-. N-1,430,000.oo meters E- 1,020,000.oo meters. Head EAST from point "B" for
10,000.oo meters until reaching point "C" whose coordinates are-. N-1,430,000.oo
meters, E-1,030,000.oo meters. Head NORTH from point "C" for 30,000.oo meters up
to point "D" whose coordinates are- N1,460,000.oo meters, E-1,030,000.oo meters.
Go EAST from point "D" for
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30,000.oo meters until reaching point "E" whose coordinates are N-1,460,000.oo
meters, E-1,060,000.oo meters. Head SOUTH for 35,000.oo meters from point "E"
until reaching point "F" is reached whose coordinates are N-1,425,000.oo meters,
E-1,060,000.oo meters. From point "F" head WEST for 8,000.oo meters up to point
"G" whose coordinates are N-1,425,000.oo meters, E-1,052,000.oo meters. Go WEST
from point G" for 15,478.oo meters up to point "H" whose coordinates are-
N-1,425,000.oo meters, E-1,036,522.oo meters. Take a direction S 10 36' 13".906
W for 4,001.57 meters from point "H" until reaching point "I" whose coordinates
are N-1,421,000.oo meters, E-1,036,410.oo meters. The whole of lines "G-H" and
"H-1" run alongside lines "D-C" and "C-B" of the Bolivar Association Contract
operated by Harken de Colombia Limited. From point "I" head WEST for 10,000.oo
meters up to point "J" whose coordinates are N1,421,000.oo meters,
E-1,026,410.oo meters. From point "J" head SOUTH for 18,100.00 meters until
reaching point "K' whose coordinates are N-1,402,900.oo meters, E-1,026,410.oo
meters. Lines "I-J" and "J-K' run alongside ECOPETROL's Buturama sector. Head
WEST for 6,410.oo meters from point "K' until reaching starting point "A!' which
closes the boundaries. The whole of line "K-A" runs alongside line "B-A" of the
Montecristo Association Contract signed with Seven Seas Petroleum Colombia Inc.
Paragraph 1: Whenever somebody files a claim asserting ownership of the
Hydrocarbons in the subsoil within the Contract Area, ECOPETROL shall deal with
the case, assuming such obligations as may arise.
Paragraph 2: If part of the Contract Area extends to areas that are or have been
reserved and declared as falling within the National Park System, THE ASSOCIATE
must meet all conditions imposed by the pertinent authorities in keeping with
Clause 30 (numeral 30.4) hereof. This neither amends the contract nor
constitutes grounds for filing any claim against ECOPETROL.
CLAUSE 4- DEFINITIONS
For Contract purposes, the terms listed below shall have the meaning set out
hereunder:
4.1 Contract Area- The land described in Clause 3 here in above, subject to
Clause 8.
4.2 Field: Portion of the Contract Area where one or more structures exist,
totally or partially overlying, with one or Reservoirs that are producing or
whose Hydrocarbon-producing capacity has been tested. These Reservoirs may be
separated by geological causes such as: synclines, faults, wedging of producing
strata, changes in porosity and permeability- likewise they may be of different
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geological ages, separated by strata that is reasonably watertight,
totally/partially overlapping or not overlapping at all.
4.3 Commercial Field- A field that ECOPETROL accepts as able to produce
Hydrocarbons of a quality and quantity that is economically viable in one or
more Production Targets to be defined by ECOPETROL.
4.4 Gas Field: A field that ECOPETROL qualifies as a producer of Natural
Non-Associated Gas (or Free Natural Gas) when defining its commerciality and
using information furnished by THE ASSOCIATE.
4.5 Executive Committee: The body that will supervise, control and approve all
operations and actions performed throughout the contract and to be established
within thirty (30) days following acceptance of the first Commercial Field.
4.6 Direct Exploration Costs: Any monetary expenditures reasonably incurred by
THE ASSOCIATE in seismic surveys and drilling Exploration Xxxxx, as well as for
locations, completion, equipping and testing of such xxxxx. Direct Exploration
Costs do not include administrative or technical support from the Company's head
or central office.
4.7 Joint Account- Accounting records kept pursuant to Colombian law for
crediting or debiting the Parties with their share in the Joint Operation of
each Commercial Field.
4.8 Budgetary Execution: The resources effectively expended and/or committed for
each program and project approved for a given calendar year.
4.9 Structure: The geometrical form with geological closure (anticline, syncline
etc.) that is revealed by formations having accumulations of fluid.
4.10 Effective Date: The sixtieth (60) calendar day following contract
signature, and the starting date for all time limits agreed to herein and
subject to the validity of the same contract.
4.11 Cash Flow: The physical flow of money (income and expenditure) incurred by
the Joint Account to handle the obligations contracted by the Association in the
normal course of operations.
4.12 Associate Natural Gas: Mixture of light hydrocarbons existing in the
Reservoir in the form of a gas layer or in solution and produced together with
liquid hydrocarbons.
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4.13 Non-Associate Natural Gas (Production of): Those hydrocarbons produced in
gaseous state at surface and reported at standard conditions, with an initial
average (production weighted) Gas/Oil ratio of over 15,000 standard cubic feet
of gas per barrel of liquid Hydrocarbon, and heptane plus (C7 +) molar
composition below 4%.
4.14 Direct Expenses: All expenditures charged to the Joint Account as a result
of payment to personnel directly working for the Association, purchase of
materials and supplies, service contracts made with third parties and any
overhead required by the Joint Operation in the normal course of its activities.
4.15 Indirect Expenses: Those disbursements charged to the Joint Account for
administrative/technical support for the Joint Operation that Operator may
furnished through his own organization.
4.16 Commercial Interest : For Colombian Pesos, it shall be the interest rate
for ninety-day (90) CDs certified by the Banking Superintendency, or whoever
replaces same, applicable to the respective period. In the case of US dollars,
it shall be the prime rate established by CITIBANK New York, or the entity
appointed for this purpose.
4.17 Interest in the Operation: The share in the rights and obligations acquired
by each Party in the exploration and development of the Contract Area.
4.18 Development Investment: Refers to the amount of money invested in goods and
equipment capitalized as Joint Operation assets in a Commercial Field, once the
Parties have accepted the existence thereof.
4.19 Hydrocarbons: Any organic compound consisting mainly of the natural mixture
of hydrogen and carbon, as well as substances related thereto or derived
therefrom, except for helium and rare gases.
4.20 Gaseous Hydrocarbons: All hydrocarbons produced in gaseous state
at the surface and reported at standard conditions (1 atmosphere of
absolute pressure and a temperature of 60 deg. F).
4.21 Liquid Hydrocarbons: Includes crude oil and condensates, as well those
produced in such state as a result of gas treatment when pertinent, reported at
standard conditions.
4.22 Production Targets: Reservoirs located within the Commercial Field
discovered and that have tested as commercial producers.
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4.23 Joint Operation: The tasks and work performed, or being performed, on
behalf of the Parties and for their account.
4.24 Operator: The person appointed by the Parties to act on their behalf in
directly carrying out the operations needed to explore and produce the
Hydrocarbons discovered in the Contract Area.
4.25 Parties: On the effective Date, ECOPETROL and the ASSOCIATE. Subsequently
and at any time, ECOPETROL on the one part, and THE ASSOCIATE and/or its
assignees on the other part.
4.26 Exploration Period: The term for THE ASSOCIATE to comply with the
obligations set forth in Clause 5 here in below, not to exceed six (6) years
from the Effective Date, except as provided for in Clauses 9 (numerals 9.3, 9.8)
and 34.
4.27 Exploitation Period: The time elapsed from the end of the
Exploration or Retention Period up to the end of the contract.
4.28 Retention Period: Time lapse granted by ECOPETROL when THE ASSOCIATE asks
for more time to start the Exploitation Period of each Gas Field discovered
within the Contract Area, because special conditions mean the field cannot be
developed in the short term and consequently additional time is needed to build
the infrastructure and/or develop the market
4.29 Exploration Well: Any well so designated by THE ASSOCIATE that is to be
drilled or deepened for its account in the Contract Area for the purpose of
seeking new Reservoirs, checking the extension of a reservoir, or establishing
the stratigraphy of an area. In order to comply with the obligations agreed upon
in Clause 5 hereof, the respective Exploration Well will be previously qualified
by ECOPETROL and the ASSOCIATE.
4.30 Development or Exploitation Well : Any well previously scheduled by the
Executive Committee for producing Hydrocarbons discovered in the Production
Targets within each Commercial Field.
4.31 Budget: A basic planning tool earmarking funds for specific projects to be
used within a calendar year or part thereof in order to attain the goals and
targets proposed by the ASSOCIATE or Operator.
4.32 Extensive Production Tests: Operations performed in one or more
producing Exploration Xxxxx to appraise producing conditions and
reservoir behavior.
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4.33 Reimbursement: Payment of fifty percent (50%) of the Direct Exploration
Costs incurred by THE ASSOCIATE.
4.34 Exploration Work: Operations performed by THE ASSOCIATE in search
for and discovery of hydrocarbons in the Contract Area
4.35 Reservoir: Any sub-surface rock with hydrocarbon accumulation in its porous
space, producing or able to produce hydrocarbons and behaving as an independent
unit with respect to petrophysical and fluid properties and having a single
pressure system throughout.
CHAPTER II - EXPLORATION
CLAUSE 8 - TERMS AND CONDITIONS
5.1.1 During the first two years following Effective Contract Date, THE
ASSOCIATE must reprocess three hundred (300) ) kms. of existing seismic on the
area, acquire/interpret Landsat images and surface Geological and geochemical
work; acquire/process and interpret one hundred (100) kilometers of 2D seismic.
the Area. At the end of the second year, THE ASSOCIATE shall have the option to
relinquish the contract providing it has met the above obligations. If THE
ASSOCIATE wishes to go ahead into the third year, it must relinquish areas so
that it remains with an area not to exceed one hundred thousand (100,000)
hectares.
5.1.2 During the third year, THE ASSOCIATE shall drill one (1) Exploratory Well
to penetrate the potential Hydrocarbon-producing formations in the Area. The
contract shall terminate at the end of this year unless an extension has been
applied for and authorized pursuant to numeral 5.2 of this Clause, or a
commercial field has been discovered, except as set out in Clause 9 (numeral
9.5).
5.2 If THE ASSOCIATE has satisfactorily met the obligations of Clause 5, it may
request ECOPETROL to extend the Exploration Period annually up to three (3)
additional years and during each extension THE ASSOCIATE shall perform
Exploration Work in the Contract Area, consisting of drilling one (1)
Exploration Well until it penetrates the Hydrocarbon producing formations in the
area.
5.3 If, during any year of the Exploration Period, THE ASSOCIATE should decide
to carry out work on the following year's obligations, it must obtain permission
therefor from ECOPETROL. If ECOPETROL agrees, it shall decide
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on how such obligations are to be transferred and the amount thereof.
5.4 Throughout the life of this contract, THE ASSOCIATE may carry out
Exploration Work on the areas retained in keeping with Clause 8, and will be
solely responsible for the risks and costs of such activities and thus have
complete and exclusive control thereon. This will not change maximum life of
this contract.
CLAUSE 6 - HANDING OVER INFORMATION DURING EXPLORATION
6.1 When THE ASSOCIATE so requests, ECOPETROL shall supply any information it
holds on the Contract Area. The costs of reproducing and supplying such
information shall be charged to THE ASSOCIATE.
6.2 During the Exploration Period, THE ASSOCIATE shall hand over the following
data to ECOPETROL as such becomes available and in keeping with the ECOPETROL
data supply manual-. all geological/geophysical data, cores, edited magnetic
tapes, processed seismic sections and all supporting field data, magnetic and
gravimetric logs, all of this in reproducible originals; copies of geophysical
reports, reproducible originals of all logs for xxxxx drilled by THE ASSOCIATE,
including the final composite graph for each well and copies of the final
drilling report, including core sample analyses, results of production tests and
any other information relating to the drilling, study or interpretation of any
kind performed by THE ASSOCIATE for the Contract Area without any limitation.
ECOPETROL is entitled to witness any operations and verify the information
listed here in above doing so at any time and using any procedure it may
consider appropriate,
6.3 The parties agree that all geological, geophysical and engineering
information obtained from the Contract Area while this contract is in force, is
to be held confidential for three (3) years following acquisition thereof.
Thereafter such information shall be released except for any interpretations
thereof made by the Parties. The released information mainly concerns seismic,
potential methods, remote sensors and geochemical data, with respective support
documents, surface and sub-surface mapping, xxxxx reports, electric logs,
formation tests, biostratigraphic/petrophysical/fluid analyses and production
history. However, the parties agree that in each case they may exchange
information with ECOPETROL's associates and non-associates. It is understood
that what is agreed here shall not affect the requirement of providing the
Ministry of Mines and Energy with all the information it requests under current
legal resolutions and regulations. Nonetheless, it is understood and accepted
that the Parties can, at their own discretion, provide their affiliates,
consultants, contractors and financial entities with the information they
require and called for by authorities having jurisdiction on the parties and
their affiliates, as well as by norms established by
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any stock exchange quoting the stock of the parties or related
corporations.
CLAUSE 7 - BUDGET AND EXPLORATION SCHEDULES
Respecting the terms of this contract, THE ASSOCIATE must prepare the programs
and work schedule for exploring the Contract Area, together with a short-term
Budget (following calendar year) and estimated Budget giving an overview for the
next two (2) years. Such overview, programs, time schedules and Budgets shall be
submitted to ECOPETROL for the first time within sixty (60) calendar days
following contract signature, and thereafter within the first ten (1 0) calendar
days of each year.
THE ASSOCIATE shall give ECOPETROL a quarterly technical and financial report,
listing exploratory work performed, prospects revealed by the information
acquired, the assigned Budget and exploration costs incurred up to date of the
report, commenting in each case on causes of the main variances. When ECOPETROL
so requests, THE ASSOCIATE shall provide explanations on the report doing so at
meetings that can be scheduled every six months. Information submitted by THE
ASSOCIATE in the reports and explanations mentioned in this clause shall under
no circumstances be understood as accepted by ECOPETROL. ECOPETROL may audit
financial information as set out in Clause 22 of Appendix B hereto (Operating
Agreement).
CLAUSE 8 - RESTITUTION OF AREAS
8.1 If a Commercial Field has been discovered in the Contact Area by the end of
the initial three-year exploration period, or of the extensions obtained by THE
ASSOCIATE in keeping with Clause 5 (numeral 5.2), the Contract Area will be
reduced by 50%- two (2) years thereafter the area will be reduced to fifty
percent (50%) of the remaining Contract Area; and two years thereafter, such
area will be reduced to the Commercial Fields(s) that are producing or under
development plus a reserve belt two and a half kilometers (2.5) wide surrounding
each Field and this will be the only part of the Contract Area that continues to
be subject to the terms of this contract. In order to apply this clause, an
imaginary grid or net will be placed over the initial contract area and then
divided into ten rows and columns running north-south, limited by the maximum
and minimum north and east coordinates of the boundaries, and they will define
the cells on which relinquishment of areas referred to in this numeral will be
based. Each time areas are returned, the imaginary grid or net will be modified
in keeping with the new coordinates of the Contract Area.
8.2 THE ASSOCIATE shall decide what areas are to be returned to ECOPETROL based
on the imaginary grid or net mentioned in the preceding
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numeral. To this end, the relinquishment may be made in one or two lots,
comprising one or more adjoining cells and trying to conserve a single polygon,
unless THE ASSOCIATE shows that this is either impossible or unsuitable, in such
case approval must be obtained from ECOPETROL. Notwithstanding the requirement
to relinquish areas referred to in Clause 8 (numeral 8.1). THE ASSOCIATE is not
obliged to return areas under development or production, including the 2.5 km.
wide belt surrounding said areas, unless development or production are suspended
continuously for over a year without just cause and for reasons attributable to
THE ASSOCIATE, in which case the areas will be returned to ECOPETROL, thus
terminating the contract for said areas of part of the area. These stipulations
are also applicable to development under the sole risk mode.
8.3 Retention Period: If THE ASSOCIATE has discovered a Gas Field and applied
for commerciality thereof as set out in Clause 9 (numeral 9.1), he may
simultaneously ask ECOPETROL for a Retention Period, giving reasons to fully
justify this request.
8.3.1 THE ASSOCIATE must apply for the Retention Period, and ECOPETROL grant
same, prior to the date for final relinquishment of areas referred to in numeral
8.1 hereof.
8.3.2 The Retention Period may not exceed four (4) years. If the initial term
were to be insufficient, ECOPETROL may extend same following a written and
justified application from THE ASSOCIATE, but the initial period plus any
extension may not exceed four (4) years.
CHAPTER III - EXPLOITATION
CLAUSE 9 - TERMS AND CONDITIONS
9.1 To initiate the Joint Operation hereunder, it is considered that
exploitation work starts on the date the Parties accept the existence of the
first Commercial Field or upon compliance with the provisions of Clause 9
(numeral 9.5). THE ASSOCIATE shall prove the existence of a Commercial Field by
drilling sufficient xxxxx to reasonably define the hydrocarbon-producing area
and the commerciality of the Field. In this case, THE ASSOCIATE will notify
ECOPETROL in writing about such commercial discovery, furnishing the studies
that have led to this conclusion. ECOPETROL must accept or reject the existence
of such Commercial Field within ninety (90) calendar days from the date THE
ASSOCIATE hands over all support information and makes the technical
presentation. ECOPETROL may request any additional information it deems
necessary within thirty (30) days following submittal of the initial support
information.
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9.2.1 Should ECOPETROL accept the existence of a Commercial Field, it shall so
advise THE ASSOCIATE within the ninety (90) day term referred to in Clause 9
(numeral 9.1) stipulating the area of the Commercial Field. Then it shall begin
to participate in the development of the Commercial Field discovered by THE
ASSOCIATE as set out in the terms of the Contract.
9.2.2 ECOPETROL shall reimburse fifty percent (50%) of the Direct Exploration
Costs incurred by THE ASSOCIATE for its own risk and account in the Contract
Area prior to the date when commerciality studies for the new commercial
discovery were submitted, in keeping with numeral 9.
1. hereof.
9.2.3 The amount of such Direct Costs shall be established in dollars of the
United States of America, the reference date being that when THE ASSOCIATE made
such disbursements-, consequently, the costs incurred in Colombian pesos shall
be liquidated at the market representative rate for such date as certified by
the Banking Superintendency, or entity replacing same.
Paragraph:
Once the amount of Direct Exploration Costs to be reimbursed in United States
Dollars has been established, such will be inflation-adjusted for each year or
part thereof as of the disbursement date up to the date defined by the Ministry
of Mines & Energy as the initiation of the exploitation period, using the
international inflation rate for the respective year or, failing this, that for
the previous year. The international inflation rate to be used shall be the
annual percentage variation of the consumer price index for industrialized
countries, taken from "International Financial Statistics" published by the
International Monetary Fund (page S63 or replacement) or, failing this, the
publication agreed by the Parties.
9.2.4 As soon as Operator puts the Field on-stream, ECOPETROL shall reimburse
THE ASSOCIATE for Direct Exploration Costs according to Clause 9 (numeral 9.2.2)
with the amount of dollars equivalent to fifty percent (50%) of its direct share
in the total production of such Field, after deducting the royalty percentage.
Paragraph-. For Commercial Gas Fields, ECOPETROL shall reimburse the ASSOCIATE
with the amount of dollars equivalent to one hundred percent (100%) of its
direct share in the total production of such Field, after deducting the royalty
percentage, doing so as soon as Operator puts the Field on-stream.
9.3 If ECOPETROL rejects the existence of the Commercial Field referred to in
Clause 9 (numeral 9.1), it may notify THE ASSOCIATE of additional work it
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considers necessary to demonstrate such existence. The cost of this work may not
exceed TWO MILLION DOLLARS (US$2,000,000) nor last for more than one (1) year,
in which case the Exploration Period for the Contract Area will automatically be
extended by the same period as that agreed by the Parties for the performance of
the additional work requested by ECOPETROL in this Clause but without prejudice
to the reduction of areas stipulated in Clause 8 (numeral 8.1).
9.4 If, upon completion of the additional work requested in Clause 9 (numeral
9.3), ECOPETROL accepts the existence of a Commercial Field as stipulated in
Clause 9 (numeral 9.1), it will begin to participate in the development of said
field as stipulated herein, and will reimburse THE ASSOCIATE as set forth in
Clause 9 (numeral 9.2.3-9.2.4) for fifty percent (50%) of the cost of such
additional work referred to in Clause 9 (numeral 9.3) and the work carried out
will become Joint Account property.
9.5 If ECOPETROL continues to reject the existence of a Commercial Field after
the additional work referred to in Clause 9 (numeral 9.3) has been carried out,
THE ASSOCIATE may go ahead with the work it deems necessary to exploit such
field and reimburse itself for two hundred percent (200%) of the total cost of
the work performed at its own risk and account in the respective Field and up to
fifty percent (50%) of the Direct Exploration Costs it incurred prior to
submitting commerciality studies for such Field. For the purposes of this
Clause, the reimbursement will be made with the value of Hydrocarbons produced,
less the royalties established in Clause 13, deducting production, collection,
transportation and sales costs. If THE ASSOCIATE avails itself of the sole risk
modality, it is understood that the exploitation term begins on the date
ECOPETROL notifies it that commerciality is rejected. The dollar equivalence of
disbursements made in pesos will be calculated using the market representative
rate certified by the Banking Superintendency, or entity replacing same, for the
date THE ASSOCIATE made such disbursements. For the purposes of this clause, the
value of each barrel of Hydrocarbon produced in said Field during a calendar
month, shall be the average price per barrel received by THE ASSOCIATE for the
sale of its share in the Hydrocarbons produced in the Contract area during the
same month. The contents of the paragraph of Clause 9 (numeral 9.2.3.) shall
apply to reimbursement of Direct Exploration Costs.
Once THE ASSOCIATE has reimbursed itself with the percentage established herein,
all xxxxx drilled, the facilities and all property acquired by THE ASSOCIATE to
exploit the field and paid as set forth in this Clause, shall become the
property of the Joint Account free of any charge whatsoever, and after ECOPETROL
agrees to participate in the development of such field.
9.6 At any time, ECOPETROL may start to participate in the operation
of the
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field discovered and developed by THE ASSOCIATE, subject to the latter's right
to reimburse itself for investments made at its own expense as stipulated in
Clause 9 (numeral 9.5). Once THE ASSOCIATE has repaid itself, ECOPETROL shall
start to participate in the financial results of the xxxxx developed at the
exclusive expense of THE ASSOCIATE.
9.7 When defining the boundaries of a Commercial Field, consideration will be
given to all geological/geophysical information on such field plus that of all
xxxxx drilled therein or related thereto.
9.8 If THE ASSOCIATE has drilled one or more Exploration Xxxxx pointing to the
possible existence of a Commercial Field by the end of the six-year (6)
Exploration Period referred to in Clause 5 (numeral 5.2), it may ask ECOPETROL
to extend the Exploration Period for the time necessary, but not to exceed one
(1) year, to demonstrate the existence of said Commercial Field, without
prejudice to the provisions of Clause 8.
9.9 If THE ASSOCIATE continues performing the exploration obligations agreed
upon in Clause 5 after one or more fields have been declared commercial, it can
simultaneously exploit such Fields before the end of the Exploration Period
defined in Clause 4.26 but the 22-year Exploitation Period will run as of the
expiry date of the Exploration Period. When ECOPETROL has granted a Retention
Period for Gas Fields, the Exploitation Period for each Field will run from the
expiry date of the respective Retention Period.
9.10 If THE ASSOCIATE shows that Exploration Xxxxx drilled after the Field has
been declared commercial contain additional Hydrocarbon accumulations associated
to said field, it shall ask ECOPETROL to extend the area of the Commercial Field
and its commerciality, following the procedures of Clause 9 (numerals 9.1 and
9.2.1). If ECOPETROL accepts the commerciality, it shall reimburse THE ASSOCIATE
for fifty percent (50%) of the Direct Exploration Costs exclusively related to
the extension of the Commercial Field, as set out in numerals 9.2.3 and 9.2.4.
If ECOPETROL rejects the commerciality, THE ASSOCIATE may reimburse itself for
up to two hundred percent (200%) of the total costs of work performed for, its
own risk and account in exploiting the Exploration Xxxxx that have become
producers and up to fifty percent (50%) of the Direct Exploration Costs it
incurred solely with regard to the commerciality application. Such reimbursement
shall be made with production coming from the producing Exploration Xxxxx, after
deducting the royalty, and following the procedure of Clause 21 (numeral 21.2)
until reaching the mentioned percentages.
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CLAUSE 10 - TECHNICAL CONTROL OF THE OPERATIONS
10.1 The parties agree that THE ASSOCIATE is the Operator and as such shall
control all operations and activities it deems necessary for an efficient,
technical and economic development of Hydrocarbons existing within the
Commercial Field, respecting the restrictions contained in this contract.
10.2 The Operator must follow standard industry practices in performing
development/production work, using the technical methods and systems best suited
to an economic and efficient Hydrocarbon production, and complying with
pertinent legal and regulatory provisions on this matter.
10.3 The Operator shall be considered an entity distinct from the Parties hereto
for all contract purposes, as well as for application of civil, labor and
administrative law, and with regard to its employees as set out in
Clause 32.
10.4 The Operator may resign as such by giving the Parties six-months (6)
advance written notice of the effective date of such resignation. The Executive
Committee shall then appoint a new Operator pursuant to Clause 19 (numeral
19.3.2)
CLAUSE 11 - DEVELOPMENT PROGRAMS AND BUDGETS
11. 1 Within three (3) months following acceptance of a Commercial Field in the
Contract Area, Operator shall present the Parties with a work program and a
Budget for the rest of the calendar year together with a proposed development
plan, to be agreed by the Executive Committee. If there are less than six and a
half (6-1/2) months to run before the end of said year, Operator shall prepare
and submit the Budget and programs for the following calendar year within a term
of three (3) months.
11.1.1 Future Budgets and programs shall be submitted to the Parties in May each
year, and Operator shall send its proposal to the Parties in the first ten (10)
days of May. The Parties shall notify Operator in writing of any changes they
wish to propose, doing so within twenty (20) days of receiving the Budgets and
programs. When this occurs, Operator shall consider such proposals in preparing
the Budget and programs to be submitted for final approval by the Executive
Committee at its ordinary meeting held each July. Should the total Budget not be
approved before July, the Executive Committee shall approve those items on which
there is agreement, and the remainder shall be submitted to the Parties for
subsequent review and final decision as provided for in Clause 20.
11.1.2 The development program shall become a guide for the technical, efficient
and economic exploitation of each Field. It will describe work to be
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carried out and estimated investments and expenses for the next five years, with
details of the annual operating program and Budget for the next calendar year.
11.2 The parties may propose Budget additions or revisions to the Budget but not
more often than every three (3) months except in emergencies. The Executive
Committee shall decide on these proposed revisions or additions at a meeting to
be scheduled within thirty (30) days following submittal thereof.
11.3 The programs and Budget are intended to-
11.3.1 Determine the operations to be carried out during the following calendar
year, as well as expenditures and investments (Budget) the Operator is
authorized to undertake.
11.3.2 Maintain a medium and long-term view of development at each
Field.
11.4 The terms program and Budget refer to the proposed work plan and estimated
expenditures and investments that the Operator shall carry out, such as-
11.4.1 Capital investments in production: drilling for reservoir
development,
workovers or reconditioning of xxxxx and specific production facilities.
11.4.2 General construction and equipment- industrial and camp facilities,
transport and building equipment, drilling and production equipment. Other
construction and equipment.
11.4.3 Maintenance and operating expenses-. production expenses,
geological expenses and administrative overhead for the operation.
11.4.4 Working capital needs
11.4.5 Contingency funds
11.5 Operator shall make all expenditures and investments and handle development
and production in keeping with the programs and Budgets referred to in Clause 1
1 (numeral 1 1. 1), without exceeding the total annual Budget by ten percent (1
0%), except when so authorized by the Parties in special cases.
11.6 The Operator may no start any project on its own initiative, nor charge the
Joint Account with non-Budgeted expenditure exceeding forty thousand United
States dollars (US$40,000), or the equivalent in Colombian currency, per project
or quarter.
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11.7 The Operator is authorized to effect expenses chargeable to the Joint
Account without prior authorization from the Executive Committee when it is a
matter of taking emergency steps to safeguard persons or property of the
Parties, emergency expenses originating in fire, floods, storms or other
disasters; emergency expenses essential for the operation and maintenance of
production facilities, including keeping xxxxx at maximum production efficiency-
emergency expenses essential to protect/safeguard material/equipment needed for
operations. In such cases, the Operator shall call a special meeting of the
Executive Committee as soon as possible in order to obtain approval for
continuing with the emergency measures.
CLAUSE 12 - PRODUCTION
12.1 Whenever necessary and duly approved by the Executive Committee, Operator
shall determine the Maximum Efficiency Rate (MER) for each Commercial Field.
This Maximum Efficiency Rate (MER) shall be the maximum rate for lifting
Hydrocarbons from a reservoir in order to attain maximum final recovery of
reserves. Estimated production should be diminished as necessary to compensate
for real or anticipated operating conditions, such as xxxxx under repair and not
producing, limited capacity of gathering lines, pumps, separators, tanks,
pipeline and other facilities.
12.2 Periodically, at least once a year and with the approval of the Executive
Committee, Operator shall determine the area capable of commercial Hydrocarbon
production in each Field.
12.3 Every three (3) months, the Operator shall prepare and give each Party two
schedules, one showing production share and the other production distribution
for each one over the following six (6) months. The production forecast shall be
based on the Maximum Efficiency Rate (MER), as set forth in Clause 12 (numeral
12.1) and adjusted to the rights of each Party hereunder. The production
distribution schedule shall be based on periodic requests from each Party and in
keeping with Clause 14 (numeral 14.2), with such corrections as may be necessary
to ensure that no Party having capacity to make withdrawals will receive less
than the amount to which it is entitled under Clause 14, and subject to Clauses
21 (numeral 21.2) and 22 (numeral 22.5).
12.4 If any Party foresees that it will be unable to receive the full capacity
of Hydrocarbons set out in the forecast furnished Operator, it shall so advise
the latter as soon as possible. If such reduction is caused by an emergency, the
Party shall notify the Operator within twelve (12) hours following the
occurrence of the respective event. In consequence, the Party concerned shall
provide the Operator with a new receiving schedule based on the reduction.
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12.5 Operator may use the Hydrocarbons consumed in production operations in the
Contract Area, and such shall be exempt from the royalties referred to in Clause
13 (numerals 13.1 and 13.2).
CLAUSE 13 - ROYALTIES
13.1 Liquid Hydrocarbons-. During exploitation of the Contract Area, and before
distributing production among the Parties, Operator shall give ECOPETROL
royalties corresponding to twenty percent (20%) of the certified production of
liquid hydrocarbons coming from said area. ECOPETROL, for its own risk and
account, shall take the royalty production in kind from the tanks belonging to
the Joint Account.
13.2 Gaseous Hydrocarbons- Operator shall give ECOPETROL a royalty in the form
of twenty percent (20%) of the production of gaseous Hydrocarbons reported at
standard conditions. If such Hydrocarbons need to be treated at a gas plant, the
twenty percent (20%) royalty production shall be established as the sum of dry
gas produced at the plants plus the dry gas equivalent of liquid products
produced, considering the conversion factors set out in current legislation.
Regarding fields exploited under the sole risk mode, THE ASSOCIATE shall give
ECOPETROL the royalty percentage of Hydrocarbons.
13.3 ECOPETROL shall use the royalty production to pay the entities legally
appointed to receive the royalties due the State on the full production of the
Commercial Field, doing so in the manner and respecting the time limits set out
in law, and the ASSOCIATE shall in no case be liable for any payments to these
entities.
CLAUSE 14 - DISTRIBUTION AND AVAILABILITY OF HYDROCARBONS
14.1 The Hydrocarbons produced shall be transported to the jointly-owned tanks
or to other measuring facilities agreed by the Parties, except for those used
and inevitably consumed in operations hereunder. In the absence of an agreement,
the measuring point for gaseous Hydrocarbons shall be- i. The gas line of each
separator when they are not to be treated in gas plants, or ii) at the exit of
the gas plants when such treatment is required. The Hydrocarbons shall be
measured via accepted industry standards and such measurement shall be the basis
for calculating the percentages of Clause 13. Thereafter, the remaining
Hydrocarbons belong to each Party in the proportion specified in this Contract.
14.2 Production Distribution
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14.2.1 After deducting the royalty percentage, the remaining Hydrocarbons
produced in each Commercial Field belong to the parties thus- Fifty percent
(50%) for ECOPETROL and fifty percent (50%) for THE ASSOCIATE until cumulative
production for each Commercial Field reaches 60 million barrels of liquid
Hydrocarbons or 420 giga cubic feet of gaseous Hydrocarbons at standard
conditions, whichever occurs first (1 cubic giga foot = 1 x 10 9- cubic feet)
14.2.2 Notwithstanding the fact that ECOPETROL has classified the Field as being
commercial, when production at each Commercial Field (after deducting the
royalty percentage) exceeds the limits of 14.2.1, distribution among the Parties
will use the R factor as set out hereunder.
14.2..2.1 If liquid Hydrocarbons first reach the limit set out in numeral 14.2.1
hereof, the following table shall apply-.
R FACTOR Production Distribution after Royalties (%)
ASSOCIATE ECOPETROL
0.0 - 1.0 50 50
1.0 - 2.0 50/R 100-50/R
2.0 or more 25 75
14.2..2.2 If gaseous Hydrocarbons first reach the limit set out in numeral
14.2.1 hereof, the following table shall apply-
R FACTOR Production Distribution after Royalties (%)
ASSOCIATE ECOPETROL
0.0 - 2.0 50 50
2.0 - 3.0 50/(R-1) 100-[50/(R-1)]
2.0 or more 25 75
14.2.3 The R factor is defined as the ratio between accrued income and accrued
disbursements made by THE ASSOCIATE for each Commercial Field, as follows-
IA
R -------------------
ID + A - B + GO
Where-
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1A (The Associates Accrued Income)- is the valuation of income accrued by THE
ASSOCIATE for hydrocarbons produced, after royalties, at the reference price
agreed by the Parties, excluding hydrocarbons reinjected in Contract Area
Fields, and those consumed in the operation and burnt gas.
The parties shall jointly establish the average reference price for
hydrocarbons.
Accrued Income will be based on the Monthly Income which, in turn, will be
obtained from multiplying the average monthly reference price by the monthly
production in keeping with respective form issued by the Ministry of Mines &
Energy.
ID (Accrued Development Investment)-. Is fifty percent (50%) of the accrued
development investment approved by the Association Executive Committee. Accrued
Development Investment made prior to the exploitation start-up date of the Field
as defined by the Ministry of Mines and Energy, shall be adjusted to such date
in the same way as Direct Exploration Costs in the paragraph of Clause 9
(numeral 9.2.3).
A. Direct Exploration Costs incurred by THE ASSOCIATE according to Clause o
hereof and adjusted as set out in the paragraph of 9.2.3 .
B. Accrued reimbursement of the afore-mentioned Direct Exploration Costs, in
keeping with Clause 9 hereof.
GO (Accrued Operating Expenses)-. accrued operating expenses approved by the
Association Executive Committee, in the proportion corresponding to the
ASSOCIATE plus the latter's accrued transportation costs. Transportation costs
are investment and operating expenses for transporting hydrocarbons produced in
the Commercial Fields within the Contract Area up to the exportation port or the
place agreed for taking the price to be used in the IA calculation. Such
transportation costs will be jointly determined by the parties once the Fields
that ECOPETROL has declared to be commercial initiate the exploitation stage.
Operating expenses include special levies or similar items directly applied to
Hydrocarbon exploitation in the Contract Area.
All values included in the R factor calculation following the exploitation
start-up date established by the Ministry of Mines & Energy will be taken in
current dollars.
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To this end, expenses in pesos shall be converted to dollars at the Market
Representative Rate certified by the Banking Superintendency, or entity
replacing same, in force on the date the respective disbursements were made.
14.2.4 Calculation of the R Factor: Production distribution based on the R
factor will be applied as of the first day of the third calendar month following
that when the accrued production in the Contract Area reached 60 million barrels
of liquid Hydrocarbons or 420 giga cubic feet of gaseous Hydrocarbons at
standard conditions, in keeping with 14.2.1
The R Factor for calculation each Commercial Field will be based on the
accounting closing for the calendar month when accrued production reached 60
million barrels of liquid Hydrocarbons or 420 giga cubic feet of gaseous
Hydrocarbons at standard conditions, in keeping with 14.2.1
The resulting distribution will be applied until 30th June of the following
year. Thereafter, R factor production distribution will be made for one-year
periods (lst July to 30th June) for liquidation thereof based on accrued value
at 31st December of the previous year as shown in the respective accounting
closing.
14.3 In addition to the jointly owned tanks and other facilities, each Party may
build its own production facilities in the Contract Area for its exclusive use
and in keeping with legal regulations. When Hydrocarbons belonging to each Party
are transported and delivered to pipelines and depots that are not jointly
owned, this will be for the risk and cost of the Party receiving such
Hydrocarbons.
14.4 When production sites are not connected to a pipeline, the Parties may
agree to install pipelines up to a point connecting to the pipeline or where the
Hydrocarbons can be sold, this work will be charged to the Joint Account. If the
Parties agree to build such pipelines, they will enter into the contracts they
deem suitable for this purpose and appoint the Operator pursuant to current
legislation.
14.5 Each Party shall own the Hydrocarbons produced and stored as a result of
the operation hereunder and made available to it pursuant to the provisions of
this contract. Likewise, each Party must assume the expense of receiving such
Hydrocarbons in kind or selling or disposing of them separately, as provided for
in Clause 14 (numeral 14.3).
14.6 Should one Party, for any reason, be unable to separately dispose all or
part of the Hydrocarbons to which it is entitled hereunder, or withdraw same
from the Joint Account tanks, the following stipulations shall apply-
14.6.1 If ECOPETROL is the Party that is unable to fully or
partially
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withdraw its quota of Hydrocarbons (share plus royalty) pursuant to Clause 12
(numeral 12.3), Operator may continue producing the field and deliver to THE
ASSOCIATE not only the quota to which the latter is entitled based on a hundred
percent (100%) MER operation, but also all the Hydrocarbons that THE ASSOCIATE
chooses and is able to withdraw up to a limit of one hundred percent (1 00%) of
the MER, crediting ECOPETROL for subsequent delivery of the quota it did not
withdraw. However, regarding the volumes not taken that correspond royalties for
the month, ECOPETROL may ask THE ASSOCIATE to pay for the difference between the
Hydrocarbon volume withdrawn and the volumes corresponding to royalties as set
out in Clause 13.1 and 13.2, doing so in United States dollars. It is understood
that any Hydrocarbons withdrawn by ECOPETROL shall first be used for payment in
kind of the royalties, and thereafter, additional withdrawals will be credited
to its share as set out in Clause 14 (numeral 14.2).
14.6.2 If THE ASSOCIATE is unable to fully or partially withdraw its quota under
Clause 12 (numeral 12.3), the Operator shall deliver ECOPETROL not only its
share based on a hundred percent (100%) MER operation, but all those
Hydrocarbons that ECOPETROL is able to receive up to a limit of one hundred
percent (100%) of the MER, crediting THE ASSOCIATE for subsequent delivery of
the quota which it was unable to withdraw.
14.7 When both Parties are able to receive the Hydrocarbons allocated under
Clause 12. (numeral 12.3), the Operator shall proceed as follows. When so
requested by the Party previously unable to receive its quota, it shall deliver
such Party its share in the operation plus at least ten percent (10%) a month of
the monthly production corresponding to the other Party and by mutual agreement
up to one hundred percent (100%) of the non-received quota, until such time when
the total amounts credited to the non-receiving party are offset.
14.8 Subject to legal provisions on this matter, each Party is free at all times
to sell or export is share of Hydrocarbons, in keeping with this contract, or to
dispose thereof in anyway.
CLAUSE 15 - USE OF ASSOCIATE NATURAL GAS
When one or more fields with Associate Natural Gas are discovered, Operator
shall submit a project for using this gas for the benefit of the Joint Account,
this must be done within two (2) years following the starting date for field
exploitation as established by the Ministry of Mines and Energy. The Executive
Committee shall approve the project and establish a schedule for performance
thereof. If Operator fails to submit a project within the two-year period, or
fails to perform
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same within the time limits established by the Executive Committee, ECOPETROL
may take all the Associate Natural Gas coming from the Reservoirs being
exploited and not needed for efficient field production, without having to pay
for same.
CLAUSE 16 - UNIFICATION
When an economically exploitable reservoir extends continuously into another
area or areas located outside the Contract Area, the Operator, ECOPETROL and
other interested parties should agree on a unified development program. Such
program should respect engineering techniques for Hydrocarbon production and be
approved by the Ministry of Mines and Energy.
CLAUSE 17 - INFORMATION SUPPLY AND INSPECTION DURING EXPLOITATION
17.1 The Operator shall give the Parties reproducible originals (sepias) and
copies of the electric, radioactive and sonic logs for the xxxxx drilled,
histories, core analyses, cores, production tests, reservoir studies and other
pertinent technical data, as well as any routine reports made or received in
connection with the operations and activities carried out in the Contract Area,
doing so as these become available.
17.2 Each Party shall be entitled to inspect the xxxxx and facilities in the
Contract Area and related activities, doing so at its own cost, expense and risk
and through authorized representatives. Such representatives shall have the
right to examine cores, samples, maps, drilling logs, surveys, books and any
other source of information connected with the performance of this contract.
17.3 Operator shall prepare all reports called for by the Colombian government
and hand them over to ECOPETROL so the latter may comply with the provisions of
Clause 29,
17.4 Information and data connected with exploitation operations shall be
treated as confidential, under the same terms as those of Clause 6 (numeral 6.3)
hereof.
CHAPTER IV - EXECUTIVE COMMITTEE
CLAUSE 18 - CONSTITUTION
18.1 Within thirty (30) days following acceptance of the first Commercial Field,
each Party should appoint a representative and his first and second alternates
to the Executive Committee, and notify the other Party in writing of the names
and
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addresses of such persons. The Parties may change the representative or
alternates at any time, but should so notify the other Party in writing. The
vote or decision of each Party representative is binding on said Party. If the
main representative of either Party is unable to attend a Committee meeting, he
will be replaced by the first or second alternate, in that order, and such shall
have the same authority as the principal.
18.2 The Executive Committee will hold ordinary meetings in March, July and
November to review the development program being carried out by Operator, the
development plan and other immediate plans. In the July meeting every year, the
Operator shall submit an annual operating program and the investment and
expenditure Budget for the next calendar year.
18.3 The Parties and Operator may ask that special Executive Committee meetings
be convened to study specific operating conditions. The representative of the
interested party shall give ten (10) calendar days advance written notice of the
data and agenda for such meeting. The meeting may address any matter not
included in the agenda, provided the Party representatives agree.
18.4 For all matters discussed in the Executive Committee, the Party
representatives shall have a vote equal to the percentage held by the respective
party in the Joint Operation. Any decision or resolution taken by the Executive
Committee will only be valid if approved by over fifty percent (50%) of the
total Interest. In keeping with the mentioned procedure, decisions taken by the
Executive Committee shall be compulsory and final for the Parties and for
Operator.
CLAUSE 19 - FUNCTIONS
19.1 The Party representatives shall constitute the Executive Committee which
has full authority and responsibility to establish and adopt production,
development and operations schedules and Budgets for this contract. Operator
shall send a representative to Executive Committee meetings.
19.2 The Executive Committee shall appoint a Secretary to keep complete and
detailed records and minutes of all matters discussed and decisions taken by the
Committee. Party representatives should sign and approve the Minutes within the
ten (10) business days following adjournment of the meeting, otherwise they will
not be valid. Minutes should be delivered to the Parties as soon as possible.
19.3 The Executive Committee has the following duties, among others-.
19.3.1 Adopt its own regulations
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19.3.2 Appoint the Operator in the event of resignation or removal, and issue
regulations to be met by Operator when such is a third party, setting out all
causes for removal.
19.3.3 Appoint an External Auditor for the Joint Account
19.3.4 Approve or reject the annual operations program and expenditure Budget,
any modification or revision thereof, and approve extraordinary expenses.
19.3.5 Establish expenditure policies and norms
19.3.6 Approve or reject expenditure recommended by Operator (not included in
the approved Budget) when such expenditure exceeds forty thousand dollars of the
United States of America (US$40,000) or the equivalent in Colombian currency.
19.3.7 Advise Operator and decide on matters referred to the
Committee.
19.3.8 Create such sub-committees as it deems necessary, setting out their
duties which will be performed under the supervision of the Committee.
19.3.9 Define the type and frequency of drilling, operation and production
reports and any other information that Operator must furnish the Parties
chargeable to the Joint Account.
19.3.10 Supervise handling of the Joint Account
19.3.11 Authorize the Operator to enter into contracts on behalf of the Joint
Operation when the amount thereof exceeds forty thousand dollars of the United
States of America (US$40,000) or the equivalent in Colombian currency.
19.3.12 In general, assume all functions authorized hereunder and not assigned
to another entity or person through a specific clause hereof, or legal or
regulatory provision.
CLAUSE 20 - DECISION WHEN THERE IS DISAGREEMENT IN THE OPERATION
20.1 When the Party representatives cannot agree on a Joint Operation project
that requires approval from the Executive Committee, as set out hereunder, such
matter shall be referred directly to the highest ranking executive of each Party
who
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is resident in Colombia, in order that they may reach a joint decision. If the
Parties reach an agreement or decision on the matter in question within sixty
(60) calendar days after such referral, they shall so notify the Executive
Committee Secretary who should call a meeting within the fifteen (1 5) calendar
days following receipt of the notice and committee members must ratify the
agreement or decision in said meeting.
20.2 If the Parties fail to reach agreement within the sixty (60) calendar days
following the consultation, operations may go ahead pursuant to Clause 21.
CLAUSE 21 - SOLE RISK OPERATIONS
21.1 If, at any time, one Party wishes to drill an Exploitation Well that has
not been approved in the operating schedule, it shall so notify the other Party
at least thirty (30) calendar days prior to the next meeting of the Executive
Committee, together with data on location, drilling recommendation, depth and
estimated costs. The Operator shall include this proposal in the Agenda for the
next committee meeting. If the Committee approves the proposal, said well shall
be drilled for the Joint Account- otherwise the Party wishing to drill the well,
hereinafter the participating Party, shall be entitled to drill, complete,
produce or abandon such well at its own risk and for its account. The Party not
wishing to participate in the afore-mentioned operation shall be referred to as
nonparticipating Party. The participating Party should spud the well within one
hundred eighty (180) days following rejection by the Executive Committee. If
drilling does not start within this period, it must be re-submitted to the
Executive Committee. When requested by the participating Party, Operator shall
drill the afore-mentioned well for the risk and account of said Party, provided
Operator considers that such operation will not interfere with normal Field
operations, and that it has received the sums it considers necessary from the
participating Party. If Operator is unable to drill the mentioned well, the
participating Party may drill it directly or via a competent service company
and, in such case, the participating Party will be responsible for the
operation, without interfering in normal Field operations.
21.2 If the well referred to in Clause 21 (numeral 21.1) is completed as a
producer, it shall be administered by Operator and its production, after
deducting the royalty referred to in Clause 13, will belong to the participating
Party. This Party will assume all operating costs for the well until net
production value, after deducting costs of production, gathering, storage,
transport and similar, and sales costs, reaches two hundred percent (200%) of
drilling and completion costs. Thereafter, and for all contract purposes, the
well shall belong to the Joint Account as if it had been drilled with the
approval of the Executive Committee and for the
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account of the Parties. For purposes of this Clause, the value of each barrel of
Hydrocarbon produced in the well during a calendar month and prior to deducting
the afore-mentioned costs, shall be the average price per barrel received by the
participating Party for sales of its share of Hydrocarbons produced in the
Contract Area during the same month.
21.3 If one Party at any time wishes to recondition or deepen a well to
Production Targets, or plug a dry hole or a non-commercial producer drilled for
the Joint Account, and such operations have not been included in the program
approved by the Executive Committee, such Party shall notify the other Party of
its intention to recondition, deepen or plug said well. If equipment is not
available at the location, the procedure of Clause 21 (numerals 21.1 and 21.2)
shall apply. If suitable equipment is available at the well site, the Party
wishing to carry out such operation shall notify the other Party which must
reply in a period of forty-eight (48) hours following receipt of such notice, if
no reply is received in this lapse, it shall be understood that the operation is
performed for the risk and account of the Joint Account. If the proposed work is
performed for the sole risk and account of the participating Party, the well
shall be administered in keeping with Clause 21 (numeral 21.2).
21.4 If, at any time, one Party wishes to build new facilities to extract liquid
from the gaseous hydrocarbons and to transport/export Hydrocarbon production,
these will be referred to as additional facilities and such Party shall notify
the other in writing as follows-
21.4.1 General description, design, specifications and estimated costs of the
additional facilities.
21.4.2 Planned capacity
21.4.3 Approximate date of construction start-up and duration thereof. Within
ninety (90) days counted from notification, the other Party shall give written
notice of its decision to participate in such additional facilities or not. If
it does not participate, or fails to reply to the participating Party,
hereinafter the building Party, the latter may proceed with the additional
installation and order the Operator to build/operate/maintain same for the sole
risk and account of the building Party, without hindering normal Joint
Operations. The building Party may negotiate with the other Party on using these
facilities for the Joint Operation. While the facilities are operated for the
risk and account of the building Party, the Operator shall charge the latter
with all operating/maintenance costs therefor, doing so in keeping with
generally accepted accounting principles.
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CHAPTER V - JOINT ACCOUNT
CLAUSE 22 - MANAGEMENT
22.1 Subject to other provisions set out herein, Exploration expenses shall be
for the risk and account of THE ASSOCIATE.
22.2 Once the Parties accept the existence of a Commercial Field, and subject to
the provisions of Clauses 5 (numerals 5.2) and 13 (numerals 13.1 and 13.2), the
rights or Interest in Contract Area Operation shall be owned thus ECOPETROL
fifty percent (50%) and THE ASSOCIATE fifty percent (50%). Thereafter, all
expenses, payments, investments, costs and liabilities made and contracted for
operations hereunder and Direct Exploration Costs made by the ASSOCIATE prior to
acceptance of each Commercial Field and extensions thereto, in keeping with
Clause 9 (numeral 9.10), shall be charged to the Joint Account. Except as set
out in Clauses 14 (numeral 14.3) and 21, all assets acquired or used thereafter
for operating the Commercial Field shall be owned and paid for by the Parties as
set out in this clause.
22.3 The Parties shall pay Operator their share of budget requirements, doing so
in the currency in which expenditure is to be disbursed, that is Colombian pesos
or United States dollars as called for by Operator in keeping with programs and
Budgets approved by the Executive Committee. This payment shall be made in the
first five (5) days of each month and at the bank chosen by Operator. When THE
ASSOCIATE lacks sufficient Colombian pesos to cover its pesos share, ECOPETROL
may supply these funds and have them credited to its dollar obligation, using
the market representative rate certified by the Banking Superintendency, or the
entity acting in this capacity, on the day that ECOPETROL should make the
respective payment, provided such transaction is legally acceptable.
22.4 The Operator shall give the Parties a monthly statement showing the funds
advanced, expenses incurred, outstanding liabilities and a report on all debits
and credits made to the Joint Account, this report should follow Appendix B
hereto. The statement and report should be submitted monthly within the fifteen
(15) calendar days following the end of each month. If the payments mentioned
under Clause 22 (numeral 22.3) are not made within stipulated term and Operator
chooses to pay same, the delinquent Party shall pay commercial interest in the
same currency for the time of such delay.
22.5 If one Party fails to pay the Joint Account on the due date, it shall be
considered thereafter as the delinquent Party and the other as the Prompt party.
If
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the Prompt party were to pay both its own share and that of the delinquent
Party, after sixty (60) days of delay, it shall be shall be entitled to receive
from Operator the full share of the delinquent Party in the Contract Area
(excluding royalty percentage). This will continue until production provides the
prompt Party with a net income from sales equal to the sum not paid by the
delinquent Party, plus annual interest at the Commercial rate as of the sixtieth
(60) day following the delinquency date. Net income is understood as the
difference between the sales price of the Hydrocarbons taken by the prompt
Party, less the cost of transport, storage, loading and other reasonable
expenses disbursed by such Party in selling such production. The prompt Party
may exercise this right at any time after thirty (30) calendar days of having
notified the delinquent Party in writing of its intention to take part or all
such Party's production.
22.6.1 All Direct Expenses of the Joint Operation will be charged to the Parties
in the same proportion as for production distribution after royalties.
22.6.2 Indirect Expenses will be charged to the Parties in the same proportion
as for Direct Expenses set out in 22.6.1 hereof. These expenses shall be the
result of applying the equation a+m (X-b) to the total annual amount for
investment and direct expenditures (excluding technical and administrative
overhead).
Where:
x Is total annual investments and expenditures "a", "m", and "b" are constants
whose values are set out in the table hereunder depending on the amount of
annual investment and expenditures
INVESTMENTS AND EXPENDITURE - CONSTANT VALUES
x (US$) a(US$) m(fract) "b"(US$)
1 0 25,000,000 0 0.10 0
2 25,000,001 50,000,000 2,500,000 0.08 25,000,000
3 50,000,001 100,000,000 4,500,000 0.07 50,000,000
4 100,000,001 200,000,000 8,000,000 0.06 100,000,000
5 200,000,001 300,000,000 14,000,000 0.04 200,000,000
6 300,000,001 400,000,000 18,000,000 0.02 300,000,000
7 400,000,001 onwards 20,000,000 0.01 400,000,000
The equation will be applied once a year in each case, applying the constants
that correspond to the total sum of annual investments and expenditure.
22.7 Either Party may review or question the monthly statements of account
referred to in Clause 22 (numeral 22.4) from the time they are received up to
two years following the end of the respective calendar year, clearly indicating
the
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corrected or questioned items and the reasons therefor. Any account that has not
been corrected or questioned in this period, shall be considered as final and
correct.
22.8 The Operator shall keep accounting books, vouchers and reports for the
Joint Account, in Colombian pesos and according to Colombian law. Any credit or
debit to the Joint Account shall follow the accounting procedure set out in
Appendix B which is a part hereof. In the event of any discrepancy between said
accounting procedure and the terms of the contract, the latter shall prevail.
22.9 Operator may sell material or equipment during the first twenty (20) years
of the Exploitation Period, or the first twenty eight (28) years in the case of
a Gas Field, crediting the proceeds to the Joint Account when the amount does
not exceed five thousand dollars of the United States of America (US$5,000) or
the equivalent in Colombian currency. In any calendar year, operations of this
type may not exceed fifty thousand dollars of the United States of America
(US$50,000) or the equivalent in Colombian currency. The Executive Committee
must approve sales of real estate or those exceeding the afore-mentioned
amounts. These materials or equipment shall be sold at a reasonable price
considering their condition.
22.10 All machinery, equipment or other assets or chattels purchased by Operator
for contract performance and charged to the Joint Account shall belong to the
Parties in equal shares. However, if one Party decides to terminate its interest
in the contract during the first seventeen (1 7) years of the Exploitation
Period, except as set out in Clause 25th, said Party must sell all or part of
its share in said items to the other Party at a reasonable commercial price or
at book value, whichever is lower. If the other Party is not interested in
purchasing them within ninety (90) days following the formal sales offer, the
withdrawing Party shall be entitled to assign its interest in said machinery,
equipment, and items to a third party. If THE ASSOCIATE wishes to withdraw after
seventeen (17) years of the Production Period have elapsed, its rights in the
Joint Operation shall pass to ECOPETROL free of charge, once the latter has
accepted.
CHAPTER VI - CONTRACT DURATION
CLAUSE 23 - MAXIMUM DURATION
This contract shall last for a maximum period of twenty eight (28) years running
from the Effective Date and broken down thus: up to six (6) years for the
Exploration Period in keeping with Clause 5 and subject to Clause 9 (numerals
9.3 and 9.8); and twenty-two years for the Exploitation Period counted from the
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termination date of the Exploration Period. It is understood that when the
Exploration Period is extended as provided for in this contract, this shall
never signify an extension to the total twenty-eight (28) year term, except as
stipulated in paragraph I hereunder.
Paragraph 1: The Exploitation Period for Gas Fields discovered in the Contract
Area shall have a maximum duration of thirty (30) years counted from the expiry
date of the Exploration Period, or of the Retention Period. In any case, the
total contract term for such Fields cannot exceed forty (40) years counted from
the Effective Date.
Paragraph 2: Notwithstanding the above, at least five (5) years prior to the
expiry of the Exploitation Period for each Field, ECOPETROL and THE ASSOCIATE
will study conditions for continuing exploitation beyond the term stipulated in
this Clause. If the Parties agree to continue with such exploitation, they will
define the terms and conditions therefor.
CLAUSE 24 - TERMINATION
This contract shall terminate in the following cases:
24.1 Upon expiry of the Exploration Period if THE ASSOCIATE has not discovered a
Commercial Field, except as set out in Clauses 9 (numerals 9.5 and 9.8) and 34.
24.2 Upon expiry of contract duration, as stipulated in Clause 23.
24.3 At any date when THE ASSOCIATE so wishes and provided it has met its
obligations stipulated in Clause 5th, and all others contracted
hereunder.
24.4 For the special causes set out in Clause 25th.
CLAUSE 25 - CAUSES FOR UNILATERAL TERMINATION
25.1 ECOPETROL may unilaterally declare this contract terminated at any time
prior to expiry of the period agreed to in Clause 23, in the following cases.
25.1.1 Death or dissolution of THE ASSOCIATE or its assignees.
25.1.2 If THE ASSOCIATE or its assignees were to transfer this
contract, fully or partially, without giving compliance to the
provisions of Clause 27.
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25.1.3 For financial incapacity of THE ASSOCIATE and its assignees which shall
be assumed when bankruptcy proceedings are filed.
25.1.4 When THE ASSOCIATE defaults on its obligations contracted under this
contract.
Upon expiry of each period defined for exploratory work, THE ASSOCIATE shall
submit a written report showing performance of the obligations for the
respective period. If such have not been performed, THE ASSOCIATE shall be given
sixty (60) calendar days to diligently perform same in keeping with good
petroleum practices. If such period is insufficient, the Parties may mutually
agree to establish a longer period for performance. If the agreed work has still
not been performed at the end of this new extension, there will be default and
consequently ECOPETROL may proceed as set out in clause 25.3
25.2 When unilateral termination is declared, the rights of THE ASSOCIATE set
out in this contract will lapse, both as interested Party and as Operator, if at
such time the ASSOCIATE is acting in both capacities.
25.3 ECOPETROL may only declare unilateral termination of this contract when it
has given the ASSOCIATE or its assignees sixty (60) calendar days advance
written notice thereof, clearing stating the reasons for such decision, and when
THE ASSOCIATE has failed to provide ECOPETROL with satisfactory explanations or
to correct the default in contract performance. This does prevent THE ASSOCIATE
from filing any appeal it considers to be in order.
CLAUSE 26 - OBLIGATIONS IN EVENT OF TERMINATION
26.1 When the contract is terminated under Clause 24th during the Exploration,
Retention or Exploitation Periods, THE ASSOCIATE shall hand over the buildings,
pipelines, transfer lines and other movable items belonging to the Joint Account
(located in the Contract Area), leaving any producing xxxxx in production, and
all of this will pass to ECOPETROL free-of-charge together with the
rights-of-way and assets acquired for the contract, even though these may be
located outside the Contract Area.
26.2 If this contract is terminated for any reason after the first
seventeen (17) years of the Production Period, all interest of THE
ASSOCIATE in the machinery, equipment or other assets or movables used
or purchased by THE ASSOCIATE or the OPERATOR for contract performance,
shall pass to ECOPETROL free-of charge.
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26.3 If this contract terminates in the first seventeen (17) years of the
Exploitation Period, the terms of Clause 22 (numeral 22.10) shall apply.
26.4 If this contract is terminated unilaterally at any time, all chattels and
real estate acquired exclusively for the Joint Account shall pass to ECOPETROL
free-of-charge.
26.5 Upon contract termination at any time and for any reason, the Parties
commit to give satisfactory compliance to their legal obligations both among
themselves and with third parties, as well as those contracted hereunder.
CHAPTER VII - MISCELLANEOUS PROVISIONS
CLAUSE 27 - ASSIGNMENT RIGHTS
27.1 THE ASSOCIATE is entitled to fully or partially cede or transfer its
rights, interests, and obligations in the Association Contract to another
person, company or group, with the consent of the Minister of Mines & Energy and
the President of ECOPETROL
Consequently, THE ASSOCIATE must notify the Ministry of Mines & Energy and the
President of ECOPETROL via a certified document of any project that implies
total/partial assignment or transfer of its interest, rights and obligations
hereunder, indicating essential points of the transaction such as possible
assignee, price, interest, rights and obligations to be assigned, scope of the
operation etc. The Minister of Mines & Energy and President of the Empresa
Colombiana de Petroleos - ECOPETROL shall have thirty (30) business days to
exercise their discretionary powers and appraise the possible assignees, and
subsequently take a decision without being obliged to give reasons therefor. In
any case, the criterion of the Minister of Mines & Energy shall prevail.
27.2 If the ASSOCIATE has not received a reply thirty (30) business after
submitting the application to the Minister of Mines & Energy, it will be
understood for all purposes that such has been approved.
27.3 Assignments made during the Exploration Period among companies legally
established in Colombia shall not be subject to the above mentioned procedure,
they shall be formalized by written authorization from ECOPETROL and signing the
respective document.
27.4 Any change in the contractual relations between THE ASSOCIATE and ECOPETROL
resulting from direct, total or partial transactions of the interest,
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quotas or stock of the former must also be approved by the Minister of Mines and
Energy and President of ECOPETROL.
27.5 However, such changes shall not require authorization from the Minister of
Mines and Energy and Ecopetrol in the following cases-.
27.5.1 When the transactions are made in an open stock exchange.
27.5.2 When the transfer/cession is the result of matters beyond the control of
the ASSOCIATE or the companies that control or direct same, such as governmental
decisions, judicial sentences, division and award of assets and auctions.
27.5.3 When the negotiations take place between companies that control or direct
THE ASSOCIATE, or their subsidiaries or affiliates, or between companies making
up a single economic group, it suffices to notify the Minister of Mines & Energy
and ECOPETROL of such assignment or cession in a timely way.
27.6 Except for the above cases, any cession, transfer, negotiation, transaction
or operation referred to in this Clause that is made without approval or consent
of the Minister of Mines & Energy and the President of ECOPETROL, when called
for, shall give rise to the application of Clause 25th of the Association
Contract.
27.7 If the operations carried out under this Clause give rise to taxes under
Colombian law, such shall be paid.
CLAUSE 28 - DISAGREEMENT
28.1 Whenever there is a discrepancy or contradiction in interpreting the
clauses hereunder as compared to those of Appendix B known as the Operating
Agreement, the former shall prevail.
28.2 Disagreements of a legal nature arising among the Parties with regard to
contract interpretation and performance and that cannot be resolved in a
friendly way, shall be referred to the decision of the jurisdictional branch of
Colombian public power.
28.3 Any difference of a technical nature arising among the parties with regard
to contract interpretation and performance and that cannot be resolved in a
friendly way shall be referred to the final decision of experts appointed thus:
one by each Party and a third chosen by the first two. If the latter are unable
to reach agreement on such third expert, either Party may ask the Board of
Directors of the Colombian Society of Engineers - SCI - having its head office
in Santafe de
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Bogota to appoint same.
28.4 Any difference of an accounting nature arising among the parties with
regard to contract interpretation and performance and that cannot be resolved in
a friendly way shall be referred to the final decision of experts who should be
public accountants appointed thus- one by each Party and a third chosen by the
first two. If the latter are unable to reach agreement on such third expert,
either Party may ask the Central Board of Accountants of Bogota to appoint same.
28.5 Both Parties declare that the decision of the experts shall have the force
of a settlement among themselves, and consequently shall be final.
28.6 If the Parties fail to agree on whether the controversy is of a legal,
technical or accounting nature, such shall be considered legal and subject to
Clause 28th (numeral 28.2).
CLAUSE 29 - LEGAL REPRESENTATION
Without impairing the legal rights of the ASSOCIATE as set out in law or in this
Contract, ECOPETROL shall represent the Parties with Colombian authorities in
matters regarding the development of the Contract Area, whenever such is called
for, furnishing government offices and entities with all information and reports
they may legally require. Operator must prepare the respective reports and hand
them over to ECOPETROL. Any expenses incurred by ECOPETROL to attend matters
referred to in this Clause shall be charged to the Joint Account. When such
expenses exceed five thousand dollars of the United States of America (US$5,000)
or the equivalent in Colombian currency, the Operator must first approve same.
Regarding any relations with third parties, the Parties represent that neither
the provisions of this or any other Clause in the contract, implies granting a
general power-of-attorney, nor that the Parties have set up a civil or
commercial association or any other relationship whereby either Party may be
held jointly liable for the acts or failure to act of the other Party, or have
authority or mandate to commit the other Party with regard to any obligation.
This contract refers to operations within the Republic of Colombia and while
ECOPETROL is an industrial and commercial company belonging to the Colombian
State, the Parties agree that THE ASSOCIATE, if such were the case, may choose
to be excluded from the provisions of sub-chapter K entitled Partners and
Partnerships of the Internal Income Code of the United States of America. The
ASSOCIATE may make such choice in a suitable way.
CLAUSE 30 - RESPONSIBILITIES
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30.1 The Operator shall perform operations hereunder in a manner that is
diligent, responsible, efficient, economically and technically sound and in
keeping with internationally accepted industry practices for this type of
operation, it being understood that at no time shall it be liable for errors of
judgment, or loss or damage that is not directly attributable to it.
30.2 Liabilities contracted by ECOPETROL and THE ASSOCIATE hereunder with third
parties shall not be joint, therefore each Party is individually liable for its
share in the expenses, investments and obligations resulting therefrom.
30.3 Operator alone shall be liable with third parties for expenses incurred and
contracts entered into for amounts exceeding forty thousand United States
dollars (US$40,000) or the equivalent in Colombian currency when such have not
been duly authorized by the Executive Committee, except as ruled in Clause 1 1
(numeral 11.7) and therefore it shall assume the full cost thereof. When the
Executive Committee accepts such expenditure, it will pay Operator for the work,
study or purchase in keeping with the guidelines it has set out in this respect.
If the Executive Committee rejects the expense or asset, Operator if possible
should withdraw same and reimburse the partners for any expense incurred in such
withdrawal. When Operator is unable or refuses to withdraw the assets, the
resulting equity increase or profit from such expenditure or contract shall
belong to the Parties in proportion to their share in the Operation.
30.4 Ecological Control. In performing work hereunder, THE ASSOCIATE should
comply with the provisions of the National Code for Renewable Natural Resources
and Environmental Protection and other legal provisions on this matter. THE
ASSOCIATE undertakes to carry out a permanent prevention plan to guarantee
conservation and restoration of natural resources within the zones where it
carries out Exploration, development and transport hereunder.
THE ASSOCIATE should make these plans and programs known to the communities and
to national and regional entities involved in this matter. Likewise, specific
contingency plans should be established to deal with emergencies and take
pertinent remedial action. To this end, THE ASSOCIATE should coordinate plans
and action with the authorized entities.
THE ASSOCIATE must prepare the respective Budgets and programs as set out in the
pertinent clauses of this contract.
All costs incurred shall be assumed by THE ASSOCIATE in the Exploration Period
and in sole risk operations during the Exploitation Period. During the
Exploitation Period these costs will be charged to the Joint Account and shared
by both Parties.
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CLAUSE 31 - TAXES, LEVIES AND OTHERS
Taxes and levies related to Hydrocarbon production, caused after the Joint
Account has been set up but before the Parties receive their production share,
shall be charged to the Joint Account. Each Party shall be exclusively liable
for its own taxes on income, capital and similar.
CLAUSE 32 - PERSONAL
32.1 When THE ASSOCIATE is Operator, it should consult ECOPETROL before
appointing the Manager for Operator.
32.2 According to the terms hereof, and subject to norms to be established,
Operator shall be free to appoint the personnel needed for operations hereunder,
and may fix salary, duties, categories and conditions thereof. Operator shall be
diligent in training Colombian personnel needed to replace the foreign personnel
that it considers necessary for operations hereunder. In any case, Operator
shall comply with legal provisions on the proportion of local and foreign
personnel.
32.3 Transfer of Technology: THE ASSOCIATE commits to assume the cost of a
program to train ECOPETROL professionals in areas related to contract
performance.
In the Exploration Period, this obligation could be met by training in- geology,
geophysics and related areas, reserve appraisal, reservoir characterization,
drilling and production, among others. Supervised training should take place
throughout the initial exploration period and its extension by integrating the
ECOPETROL professionals to the work group THE ASSOCIATE sets up for either the
Contract Area or other similar activities.
If THE ASSOCIATE wishes to resign as set out in Clause 5, it must have first
given compliance to these training programs.
The Association Executive Committee shall establish the scope, duration, place,
participants, conditions and other aspects of training during the Exploitation
Period.
THE ASSOCIATE shall assume all costs of supervised training during the
Exploration Period, except for labor costs of the professionals attending same.
During the Exploitation Period both parties shall assume these costs via the
Joint Account.
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PARAGRAPH: To comply with Technology Transfer called for hereunder, THE
ASSOCIATE commits to run annual supervised training programs for Ecopetrol
professionals for each of the first three years of the Exploration Period, in an
amount of fifty thousand (US$50,000) United States dollars per year. ECOPETROL
and THE ASSOCIATE shall first agree on the subject and type of training. If the
Exploration Period is extended, the supervised training will be similar to that
set out here.
32.4 During the Exploitation Period, Operator may perform any work through
contractors, subject to the Executive Committee approval when the amount of the
contract exceeds forty thousand dollars of the United States of America
(US$40,000) or the equivalent n Colombian currency.
CLAUSE 33 - INSURANCE
The Operator shall take all insurance called for under Colombia law. Likewise,
it shall require any contractor engaged in work hereunder to obtain such
insurance as the Operator considers necessary and keep same in force. Likewise,
Operator shall take such additional insurance as the Executive Committee deems
suitable.
CLAUSE 34 - FORCE MAJEURE or FORTUITOUS CIRCUMSTANCES
The obligations referred to hereunder shall be suspended for such time as either
Party is unable to fully or partially perform same because of unforeseen events
that constitute force majeure or fortuitous circumstances, such as strikes,
shutouts, wars, earthquakes, floods or other catastrophes, laws, decrees or
government regulations that prevent procurement of essential materials and, in
general, any non-financial reason that effectively impedes work, even when not
listed above, but that affects the Parties and is outside their control. If
force majeure or fortuitous circumstances prevent one Party from performing its
duties hereunder, it should immediately notify the other Party, setting out the
causes of
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such impediment. Under no circumstances shall force majeure or fortuitous
circumstances extend or prolong the total period of exploration, retention or
exploitation beyond maximum contract term set out in Clause 23rd. However, any
force majeure event during the six (6) year exploration period set out in Clause
5 and which lasts for over thirty consecutive days, shall extend this six-year
(6) period for the same time as that of the impediment.
CLAUSE 25 -APPLICATION OF COLOMBIAN LAW
The Parties establish Santa Fe de Bogota, Republic of Colombia, as the domicile
for all contract purposes. This contract is fully ruled by Colombian law and THE
ASSOCIATE accepts the jurisdiction of Colombian courts and waives diplomatic
claim regarding its rights and duties hereunder, except in the case of denial of
justice. It is understood there shall not be denial of justice when THE
ASSOCIATE as Party or Operator has had access to all remedies and means of
action that may be exercised with the jurisdictional branch of public power
under Colombian law.
CLAUSE 36 - NOTICES
Notices or communications among the Parties regarding this contract must be sent
to the following addresses and mention the pertinent clauses in order to be
considered valid:
ECOPETROL - Xxxxxxx 00 Xx. 00-00, Xxxxxxx xx Xxxxxx, Xxxxxxxx
THE ASSOCIATE - Xxxxx 000 Xx. 0-00, Xxxxx X, xx.000 Xxxxxxx xx Xxxxxx,
Xxxxxxxx
Any change of address shall be notified to the other Party in advance.
CLAUSE 37 - VALUATION OF HYDROCARBONS
Payments or reimbursements referred to in Clauses 9 (numerals 9.2 and 9.4) and
22 (numeral 22.5) shall be made in dollars of the United States of America or in
Hydrocarbons, based on the price in force and the restrictions existing or to be
applied under Colombian law for sale of the dollar portion of hydrocarbons
coming from the contract area and destined for domestic refining.
CLAUSE 38 - HYDROCARBON PRICES
38.1 Hydrocarbons belonging to the ASSOCIATE hereunder and destined for domestic
refining or supply shall be paid for at the refinery where they are to be
processed or at the receiving station agreed to by the Parties, in keeping with
current governmental measures or those replacing same.
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38.2 Differences arising in the application of this Clause shall be settled via
the means set out in this Contract.
CLAUSE 40 - DELEGATION AND ADMINISTRATION
In keeping with ECOPETROL regulations, its President delegates the
administration of this contract to the Vice President for Exploration and
Production, with power to take all action pertinent to contract performance. The
Vice-President of Exploration and Production may exercise this delegation via
the Assistant Vice President for Joint Operations.
CLAUSE 41 -VALIDITY
This contract must be approved by the Ministry of Mines & Energy in order to be
valid (and the incorporation and approval of the Colombian branch, if
pertinent).
In witness whereof, the parties sign in the presence of witnesses in Santa Fe de
Bogota, on the 30th day of the month of December nineteen hundred and
ninety-seven (1997)
EMPRESA COLOMBIANA DE PETROLEOS
ECOPETROL
XXXXXXX XXXXXXXX XXXXXX
President
SEVEN SEAS PETROLEUM COLOMBIA INC.
XXXXXXX XXXXX XXXXX
Legal Representative
Witnesses
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EMPRESA COLOMBIANA DE PETROLEOS
Calculation of area, direction and distances using Gauss coordinates,
origin
Santafe de Bogota.
Data and results of ROSABLANCA sector
Point Norte East Distance Dif. N. Dif. E Direction
A 1,402,900 1,020,000 27,100 27,100 0.00 North
B 1,430,000 1,020,000 10,000 0.0 10,000 East
c 1,430,000 1,030,000 30,000 30,000 0.00 North
D 1,460,000 1,030,000 30,000 0.00 30,000 East
E 1,460,000 1,060,000 35,000 -35,000 0.00 South
F 1,425,000 1,060,000 8,000 0.00 - 8,000 West
G 1,425,000 1,052,000 15,478 0.00 -15,478 West
H 1,425,000 1,036,522 4,001.57 -4,000 -112 Si 36.13.0.906w
I 1,421,000 1,036,410 10,000 0.00 -10,000 West
J 1,421,000 1,026,410 18,100 -18,100 0.00 South
K 1,402,900 1,026,410 6,410 0.00 -6,41 0.00 West
A 1,402,900 1,020,000
Polygonal area: 128,188 hectares, 5,000 M2
CONTENTS Page
PART I - TECHNICAL ASPECTS ......................................... 1
Section One - Exploration
CLAUSE 1 INFORMATION TO BE SUPPLIED DURING EXPLORATION ............. 1
CLAUSE 2 AREAS DEVOLUTION .......................................... 4
Section Two - Production ........................................... 1
CLAUSE 3 EXTENSIVE PRODUCTION TESTS ................................ 5
CLAUSE 4 COMMERCIAL FIELD .......................................... 6
CLAUSE 5 OWN RISK MODALITY ......................................... 6
CLAUSE 6 OPERATIONS INSPECTION ..................................... 7
CLAUSE 7 PRODUCTION ................................................ 7
CLAUSE 8 HYDROCARBON DISTRIBUTION AND AVAILABILITY ................. 7
CLAUSE 9 EXPORT HYDROCARBON SUPPLY ................................. 8
PART II - ACCOUNTING AND FINANCIAL ASPECTS ......................... 8
Section One - Programs and Budgets
CLAUSE 10 EXPLORATION PROGRAMS AND BUDGETS ......................... 8
CLAUSE 11 PRODUCTION PROGRAMS AND BUDGETS .......................... 8
CLAUSE 12 BUDGET MANUAL ............................................ 8
CLAUSE 13 INCOME BUDGET ............................................ 9
CLAUSE 14 EXPENSES BUDGET .......................................... 10
CLAUSE 15 OTHER PROVISIONS ......................................... 17
Section Two. Accounting procedures ................................. 17
CLAUSE 16 ACCOUNTING PROCEDURE ..................................... 20
CLAUSE 17 CASH CALLS, BILLS AND ADJUSTMENTS ........................ 21
CLAUSE I8 CHARGES .................................................. 23
CLAUSE 19 CREDITS .................................................. 27
CLAUSE 20 DISPOSAL OF EXCESS MATERIAL AND EQUIPMENT ................ 28
CLAUSE 21 INVENTORY ................................................ 28
CLAUSE 22 AUDIT .................................................... 30
CLAUSE 23 FEES TABLE ............................................... 30
CLAUSE 24 CONTRIBUTIONS IN KIND .................................... 32
PART III - ADMINISTRATIVE ASPECTS AND SUNDRY PROVISIONS ............ 32
Section One - The Executive Committee
CLAUSE 25 OPERATING CONDITIONS ..................................... 32
Section Two - Subcommittees
CLAUSE 26 SUBCOMMITTEES ORGANIZATION ............................... 33
Section Three - Operator
CLAUSE 27 RIGHTS AND OBLIGATIONS ................................... 34
Section Four - Contracting Procedures .............................. 35
CLAUSE 28 SUPPLIERS REGISTER AND LIST OF PROPONENTS ................ 35
CLAUSE 29 TENDER PROCEDURES ........................................ 35
CLAUSE 30 CONTRACT AWARD AND PURCHASE ORDERS ....................... 37
CLAUSE 31 CONTRACTS AND PURCHASE ORDERS MANAGEMENT ................. 39
CLAUSE 32 INSURANCE ................................................ 40
CLAUSE 33 FORCE MAJEURE OR ACTS OF GOD ............................. 40
CLAUSE 34 OPERATION AGREEMENT REVISION ............................. 41
EXHIBIT B TO THE OPERATION AGREEMENT
ASSOCIATION CONTRACT "XXXX XXXXXX" SECTOR
EXHIBIT B - OPERATION AGREEMENT
EXHIBIT TO "ROSABLANCA" ASSOCIATION CONTRACT
Entered into between EMPRESA COLOMBIANA DE PETROLEOS ECOPETROL and SEVEN SEAS
PETROLEUM COLOMEBIA INC., with Effective Date on the 28th day of
the month of February, of nineteen hundred ninety-eight (1998, hereinafter the
Contract.
PART I- TECHNICAL FACTORS.
CLAUSE 1 - INFORMATION SUPPLY DURING EXPLORATION
Geological and geophysical information to be supplied by the ASSOCIATE to
ECOPETROL shall be provided according to international standards accepted by
the industry, compatible with standards applied by ECOPETROL (included in
ECOPETROL Information Supply Manual) to enable regional sedimentary basins
evaluation. To complement Contract Clause 6 (section 6.2) the ASSOCIATE or the
Operator shall deliver to ECOPETROL, as obtained, the following information
associated to exploration activities conducted by the ASSOCIATE:
1.1 Geological, geophysical, magnetometric, gravimetric, remote sensors,
electric meters information and in general any Exploration Work conducted by
the ASSOCIATE in development of the Contract, shall be submitted in magnetic
media, original and reproducible copy with the respective support information,
including acquisition and interpretation maps, acquired data processing and
interpretation.
1.2 Processed seismic section for each line, obtained in two scales, together
with an interpretation report containing: information used, background, seismic
programs, geological information and geophysical, geological and economic
considerations supporting technical conclusions and recommendations.
1.3 Two (2) sets of seismic lines magnetic tapes, one of them containing
demultiplexed information and the other containing stack information and the
respective support
information and processing report. In the event of vibration a copy of the field
tape instead of demultiplexed tape shall be delivered.
1.4 Seismic programs shooting points map in reproducible sepia and copy,
containing coordinates and elevations identification. This information shall
also be supplied in magnetic tape.
1.5 Magnetic and gravimetric profiles and residual maps in reproducible
originals, copies and magnetic tapes including all information generated.
1.6 Seismic, gravimetric and magnetometric interpretation report, together
with all interpreted sections profiles and maps submitted in accordance with
ECOPETROL standards for this type of information.
1.7 Geological, structural, isopachous, isolitic, facies, seismic, etc. maps
of the Contract Area in reproducible sepia and copies in scales determined by
ECOPETROL for each basin.
1.8 Before well drilling: Intention to drill (Ministry of Mines and Energy
Form 4-CR), drilling program, well location map, prospect area isochrone or
structural map and drilling geological prognosis, duly approved by the Ministry
of Mines and Energy. Exploration xxxxx location shall be referred to the
seismic maps on which basis the prospect was defined. At each Exploration Well
to be drilled in the Contract Area, a geodesic precision point accepted by
"Instituto Geografico Xxxxxxx Xxxxxxx - IAGC", obtained by satellite shall be
materialized with its respective azimuth line.
1.9 Daily drilling and geology reports. These reports shall be directly
delivered to ECOPETROL, preferably via fax and shall contain basic well
information, drilling conditions, drilling fluid properties, Hydrocarbon
expressions as obtained, penetrated geological formations description and daily
and accumulated costs together with the program to be developed.
The ASSOCIATE or the Operator shall report sufficiently in advance to ECOPETROL
on electric logging, cores sampling and test to be performed for ECOPETROL to
send a representative to witness all operations.
1.10 Copy of bi-weekly reports forwarded to the Ministry of Mines and Energy
(Form 5CR).
1.11 Final geology report: This report is mandatory for any well drilled in the
country, whether exploration, stratigraphic or development and shall be
submitted in Spanish by a registered geologist no later than ninety (90) days
after well completion or abandonment; the report shall include the following
information by chapters;
1.11.1 A summary of all activities developed during drilling
1.11.2 Well location and 1:250,000 scale maps
1.11.3 Stratigrapy: Shall include the stratigraphic column, environments
determination and each drilled formation age.
1.11.4 Biostratigraphy: shall include dispersion charts, analysis conducted
and potential correlation.
1.11.5 Geochemistry: shall include all analysis performed both on ditch
samples and each of the recovered cores.
1.11.6 Electric logging: shall include all RW, SW determination
calculations. Speed logging analysis shall be included in this chapter.
1.11.7 Formation tests: shall include all results obtained from each of the
tests taken and water and Hydrocarbon laboratory analysis.
1.11.8 The Final Geological Report shall be accompanied of the following
exhibits:
Exhibit A: Description of ditch samples taken every ten (IO) feet.
Exhibit B: Detailed description of cores and wall samples recovered.
Exhibit C: All cores and wall samples lab analysis.
Exhibit D: Composed graphic log in reproducible sepia and copy in 1:500 scale.
For the different lithologies included in the composed graph log symbols used
for such cases by the American Association of Petroleum Geologists (AAPG) shall
be used.
Exhibit E: Final report issued by the well logging company, including the
"Grapholog".
1.12 Reproducible sepias and copies of each well logs including speed logging
in 1:200 and 1:500 scales. Additionally deliver magnetic tapes in LIS format
containing all
logs, accompanied of computer tabulates using forms provided by ECOPETROL for
such cases.
1.13 Formation and/or production tests report including bottom pressure
analysis (open and closed well).
1.14 Shall deliver to ECOPETROL two sets of ditch samples, one of them unwashed
taken every thirty (30) feet and the other dry taken every ten (10) feet
including a detailed lithological samples description.
1.15 Coring report, when performed, including a detailed description thereof
and all analysis performed. Together with this report the ASSOCIATE shall
deliver to ECOPETROL photographs and fifty percent (50%) core.
1.16 Report all materials used for drilling.
1.17 Biostratigraphic reports including the respective dispersion chart. These
analyses shall be performed for Exploration xxxxx considering this information
defines sedimentation environments and each drilled formation age. This type
of analyses may also be performed on the different cores recovered.
1.18 Geochemical ditch, wall and core samples analysis.
1.19 Official well completion, plugging or abandonment report (form 6CR or 00X
XX) and in general, any other report referring to well completion (subsequent
work, multiple completion).
1.20 Final well report. Shall include all engineering information and a final
geologic report summary. Shall be submitted in Spanish no later than ninety
(90) days after well completion or abandonment, and approved by a duly
registered Petroleum engineer.
1.21 Copy of the Annual Technical report (Geology and Geophysics and
Engineering Report) including the respective supports, submitted to the
Ministry of Mines and Energy according to applicable legal regulations.
1.22 Any other engineering or geology study conducted.
CLAUSE 2 - AREAS DEVOLUTION
Areas to be returned ECOPETROL by the ASSOCIATE, according to Contract Clause
8, shall be, as far as possible, regular polygonal lots to facilitate
boundaries determination without prejudice of commercial areas.
SECTION TWO - PRODUCTION
CLAUSE 3 - EXTENSIVE PRODUCTION TESTS
The following will be the procedures applied to extensive Hydrocarbon
production tests management previous Commercial Field acceptance.
3.1 For obtained volumes management and handling, tests permit shall have been
obtained from the Ministry of Mines and Energy and accepted by ECOPETROL.
3.2 Production obtained from tests will be distributed according to
proportions provided under the Contract Clause 14 (section 14.2), after
discounting twenty percent (20%) royalties, according to Contract Clause 13;
ECOPETROL will be responsible of direct payment thereof.
3.3 Test volumes produced will be recovered from the well during the maximum
test period approved by the Ministry of Mines and Energy under the respective
permit, discounting any Hydrocarbon volume consumed for operations.
3.4 The ASSOCIATE will be responsible of one hundred percent (100%) expenses
incurred during the production test period, which shall be charged as higher
well value and taken as direct cost for reimbursement purposes, according to
disbursement origin.
3.5 The ASSOCIATE shall enter into the necessary agreements with the transport
to provide Hydrocarbon transportation. Hydrocarbon ECOPETROL is entitled to
plus royalties transportation will be paid by ECOPETROL after receiving the
respective bills and supports.
3.6 ECOPETROL shall have advanced knowledge of the Hydrocarbon transportation
contract and shall approve it before extensive production tests start.
3.7 The ASSOCIATE shall maintain ECOPETROL duly informed about the production
test program and shall deliver any permits required from government
authorities, as well as any other information as obtained.
3.8 In the event Hydrocarbon is used for reimbursement, bills shall be
submitted each month from well production start.
CLAUSE 4 - COMMERCIAL FIELD
4.1 After the ASSOCIATE has obtained sufficient information related to Field
development, the ASSOCIATE shall conduct a study to define petrophysical
parameters, better productive area boundaries and reserves calculation. The
study shall be conducted by the ASSOCIATE, at its expense, applying available
technical methods in the country or abroad; and when the circumstances so
require the pertinent revisions shall be made.
4.2 For new facilities or expansions/modifications, basic production and
detailed engineering design shall be submitted to the Technical Subcommittee
for consideration.
4.3 Production facilities engineering shall be contracted with domestic
companies except if in the opinion of the Technical Subcommittee technological
complexity requires assistance from a foreign company, preferably in consortium
with a domestic company.
4.4 Final mechanical completion of xxxxx to become Joint Account property shall
be agreed by the Technical Subcommittee. Such Exploration Xxxxx Reimbursement
will be subject to Contract Clause 9 (sections 9.2.2, 9.2.3 and 9.2.4).
4.5 Regarding dry Exploration Xxxxx, the ASSOCIATE shall abandon subject to
applicable legal and environmental regulations.
CLAUSE 5 - OWN RISK MODALITY
5.1 Reimbursement refers to two hundred percent (200%) total work developed at
the ASSOCIATE's own expense and risk to produce the respective Field and up to
fifty percent (50%) Direct Exploration Costs incurred by the ASSOCIATE at its
own expense and risk within the Contract Area before the respective Field
commercial feasibility studies submittal date. ECOPETROL shall audit to
determine reimbursable investments.
5.2 During the Own Risk Field production, the ASSOCIATE shall deliver to
ECOPETROL a quarterly report including all technical, economic, legal and
administrative information such as contracts entered into, xxxxx completion,
flow lines,
production facilities, metering systems, storage capacity, production xxxxx,
restriction orifices, production reports, economic studies, etc. Different
Contract Clause and clarifications herein are understood fully applicable in the
event of Contract Clause 21 "One of the Parties Own Risk Operations" for timely
information, technical reserves control and all other administrative activities
purposes.
CLAUSE 6 - OPERATIONS INSPECTION
Regarding activities developed in the Contract Area inspection and audit,
ECOPETROL will have the right to send its representatives to the field. The
ASSOCIATE or the Operator shall provide the officer designated by ECOPETROL
stay conditions similar to those provided it engineers.
CLAUSE 7 - PRODUCTION
7.1 The Operator shall also deliver to the Parties any information on
technical production improvements developed during the Production Period.
7.2 For Hydrocarbon losses and environmental damage control and prevention,
the Operator and the Parties shall take the necessary measures applying methods
generally accepted by the Oil industry to prevent Hydrocarbon losses or
spilling in any way during drilling, production, transportation and storage
activities.
7.3 The Operator shall keep daily Hydrocarbon consume, if any, operation
records and shall submit a monthly Hydrocarbon consume report accompanied of
forms provided by the Ministry of Mines and Energy for such purpose.
CLAUSE 8 - HYDROCARBON DISTRIBUTION AND AVAILABILITY
Pursuant to Contract Clause 14 (section 14.4), the Operator shall be responsible
of metering, sampling and controlling Hydrocarbon quality in accordance with
standards and methods accepted by the oil industry (ASTM, AGA, and API) and
applicable legal regulations referring to net Hydrocarbon received and delivered
at standard conditions volumes calculation.
Hydrocarbon volumes accepted by the Operator for transportation will be
determined using meters installed by the Operator for such purpose in receiving
stations and points of delivery.
CLAUSE 9 - EXPORT HYDROCARBON SUPPLY
For Contract Clause 14 purposes, the ASSOCIATE Hydrocarbon exports shall take
into consideration primarily country needs before exporting Hydrocarbon subject
to legal regulations on the matter.
PART II - ACCOUNTING AND FINANCIAL MATTERS
SECTION ONE - PROGRAMS AND BUDGETS
CLAUSE 10 - PRODUCTION PROGRAMS AND BUDGET
10.1 Pursuant to Contract Clause 7, the ASSOCIATE shall deliver to ECOPETROL
within sixty (60) days following Contract signature date, the programs,
schedule of activities and the budget to be executed in the short term (the
following year) and the following two (2) years estimated budget projection
broken down by type of Exploration Work to be developed and indicating the
disbursement currency. After the first year, the ASSOCIATE shall submit the
aforementioned information within the first ten (10) calendar days each year.
10.2 The ASSOCIATE shall submit on a quarterly basis, within fifteen (15)
calendar days following the respective quarter end, the technical and financial
report provided in Contract Clause 7.
CLAUSE 11 - PRODUCTION PROGRAMS AND BUDGETS
1 1.1 For Contract Clause I 1 effects, the Operator shall submit a Field
development plan proposal envisaging in detail the short and mid term. The
short term budget shall be submitted by year and by quarter to facilitate
execution and to prepare the respective treasury flows.
11.2 The Operator shall submit to ECOPETROL the Commercial Field organization
chart which shall be agreed at Technical Subcommittee level and approved by the
Executive Committee.
CLAUSE 12 - BUDGET MANUAL
Standards and procedures listed below constitute the budget manual applicable
to Budgets preparation, submittal and control during production of Commercial
Field or
Fields discovered in development of the Contract. This manual has three (3)
parts, as follows:
12.1 Income budget
12.2 Expense budget
12.3 Other provisions
CLAUSE 13 - INCOME BUDGET
This budget is in turn divided into two (2) sections: current income budget and
capital contributions.
13.1 Current Income
Covers all contributions regularly obtained to the favor of the Joint Account
and foreseeable by the Operator. Includes the following items as the case may
be:
13.1.1 Sale of products:
Income from Operator Hydrocarbon sales to one of the Parties or to third
parties on behalf of the Association (such sales are understood other than each
of the Parties participation in the Association).
13.1.2 Services Provided:
Covers all services provided by the Operator to one of the Parties or to third
parties, according to fees agreed by Subcommittees and approved by the
Executive Committee.
13.1.3 Disposal of assets or materials:
Covers equipment or materials sold by the Operator to the Parties or to third
parties subject to this Agreement Clause 20 (section 20.2) provisions.
13.1.4 Other income
Includes all funds received by the Operator and destined to the Joint Account,
on the account of transitory financial investments and all other income
projected by the Operator.
13.2 Capital contributions:
Refers to all contributions received by the Operator on the account of cash
calls delivered by the each of the Parties according to Contract participation.
Such income is designated cash calls and is managed on the basis of procedures
provided under this Agreement Clause 15 (section 15.5).
CLAUSE 14 - EXPENSE BUDGET
As previous step to budget preparation, the Executive Committee will have the
respective Subcommittees determine general policies and parameters to be taken
into account to prepare the budget plan for the respective Commercial Field.
The expense or appropriations budget includes the operation expenses budget and
the investment budget. Each of these Budgets will be prepared according to
monetary origin, whether pesos or dollars.
14.1 Operation Expenses Budget
The operation budget will be prepared by the Operator on the basis of standards
and policies on the matter issued by the Association Executive Committee
pursuant to Contract Clause 19 (section 19.3.5) and on the basis of economic
parameters and indexes defined by the Joint Operation as the most
representative for the budget term.
14.1 Preparation Procedure
The Operator shall submit the operation expense budget identifying Joint
Operation needs and broken down by expense item according to classification
provided in this Agreement Clause 14 (section 14.1.2).
Cost factors used to evaluate the different activities programmed to be
developed during the Budget year will refer to actual figures known upon budget
preparation or the best information available. In all cases the operation
expenses budget will be calculated taking into consideration costs required by
units which directly provide their services to the Joint Operation and shall
be, therefore, one hundred percent (100%) assumed by the Joint Account and
charged to the Parties in the proportion provided under Contract Clause 22
(section 22.6.1). Indirect Expenses to be assumed by the Joint Account will be
charged to the Parties and determined as provided under Contract Clause 22
(section 22.6.2).
14.1.2 Expenses Budget Classification
For all expenses budget submittal purposes, the budget will be divided into
programs, groups and expense items. Budget expense programs represent
homogeneous activities required to develop the Joint Operation, including
programs associated to investment. Each of the programs numerical and
sequential expense groups reflect the expense objective, shall be duly
supported and explained and separated by expense item. The following are major
expense items to be used
14.1.2.1 Organization chart expenses
Salaries
Fringe Benefits and parafiscal contributions
14.1.2.2 Operation materials and supplies
Repair and maintenance materials
14.1.2.3 Contracted services
Technical field operation and maintenance services
Services provided by the Operator
Other services
14.1.2.4 Overhead
Equipment and Office leases
Shared expenses
Insurance
Utilities
Assistance to the community
Other overhead
14.1.2.5 Environmental management
Materials
Contracted services
Other expenses
14.1.2.6 Aggregated value tax - IVA
14.1.2.7 Indirect expenses
14.1.3 Calculation base
Operation expenses budget calculation basis will be the following:
The salaries and fringe benefits budget will be calculated on the basis of
organization charts approved for the Association and estimates will be subject
to this Agreement Clause 18 (section 18.1.1). Salaries, fringe benefits and all
other voluntary bonus to domestic and foreign personnel will be separately
listed by disbursement origin for Association Subcommittees and Executive
Committee information purposes.
Materials and supplies costs estimates will be based on actual prices or
updated quotations and, in general on the basis of the best information
available.
Import expenses will be based on subsequently imported materials and/or
equipment FOB prices taking into account the following factors: freight,
insurance, Colombian ports use taxes, import taxes and all other import
expenses.
Contracted operation and maintenance services value will be estimated on the
basis of contracts entered into or to be entered into by the Joint Operation
upon Budget preparation.
Indirect expenses to be assumed by the Joint Account for services provided or
to be provided by the Operator will be calculated according to procedures
provided in Contract Clause 22 (section 22.6.2).
The environmental expenses budget objective is to appropriate the necessary
annual funds to comply with environmental regulations.
Overhead will be calculated on the basis of concrete needs required by the
Joint Operation in development of its normal activities. Shared expenses are
disbursements to be assumed by the Joint Account as a result of facilities
and/or services shared by
Fields or Associations. The budget and these Joint Account charges shall be
recommended by the Association Subcommittee and approved by the Executive
Committee. Assistance to the community will be budgeted on the basis of
petitions from interested parties and policies dictated by the Executive
Committee. Under special conditions so deserving the Operator will have the
right to accept petitions according to procedures, previous notice to each of
the Parties.
14.1.4 Budget execution.
Operation expenses budget execution will be based on the following
considerations:
14.1.4.1 All services, purchases or contracts charged to the Joint Account as
operation expenses shall be budgeted and fully justified.
14.1.4.2 If the service or activity to be contracted does not imply
disbursements exceeding the limits provided for the Joint Operation, the
Operator will be fully autonomous to contract subject to internal
responsibility and authority procedures.
14.1.4.3 Purchases, contracts or any other act implying a higher partial or
global cost exceeding limits provided shall be previously submitted to the
Association Technical Subcommittee for study and recommendation.
14.1.5 Budget Execution Control.
Expenses budget execution control will be the responsibility of the Operator
which shall monitor correct expenses appropriation.
During the first fifteen (I 5) calendar days following the respective quarter
end, the Operator shall prepare a budget report explaining budget execution
results, which report shall contain:
14.1.5.1 Accumulated expenses to date broken down by expense item provided
under this Agreement Clause 14 (section 14.1.2).
14.1.5.2 Special comments on items which execution has significantly deviated
with respect to the average budget or quarterly estimate.
14.1.5.3 Projected expenses to be disbursed on a quarterly basis or the
remaining year.
14.1.5.4 Justification of potential budget additions, adjustments or transfers
the Operator deems convenient or if proposed by one of the Parties.
14.2 Investment budget
Will be each of the programs and investment projects to be developed by the
Joint Operation basic planning, execution and control tool and will be the
means to estimate funds required to develop the different programs approved by
the Executive Committee.
14.2.1 The investment budget will include the respective entries for the
following items:
14.2.1.1 Acquisition of lasting goods, materials and services required to
develop the different projects determined by the Association.
14.2.1.2 Acquisition of major equipment and tools destined to Association
workshops with the purpose of guaranteeing normal operations development.
14.2.1.3 Constructions and/or buildings expansion as required by operations,
including facilities destined to Joint Account staff.
14.2.2 Investment budget classification
For investment budget submittal purposes, the budget will be grouped by
programs and projects. Each Budget programs in numerical order will reflect
groups of common objective projects to be developed by the Operator for the
Joint Operation. Each Program project in numerical sequential order will be
duly supported and explained. The following are major activities and project
types to be used:
14.2.2.1 Development xxxxx
Pumping or surface equipment, recompletion and services to xxxxx potentially
capitalized.
Production xxxxx
Locations
14.2.2.2 Production facilities
Hydrocarbon collection system
Storage system
Hydrocarbon treatment system
Improved recovery system
Pumping Stations
Transfer lines
Other
14.2.2.3 Civil works
Roads
Bridges
Construction (camps, workshops, warehouses, offices)
14.2.2.4 Other assets
Automotive equipment
Fire fighting equipment
Communications equipment
Office equipment
Electromechanical maintenance equipment
Major tools
Cleaning or workover equipment
14.2.2.5 Special Projects
Environmental management
Deposits studies
Simulation studies
Interference tests
14.2.2.6 Warehouses
For projects
For maintenance materials
14.2.2.7 Each of these project may be divided into as may subprojects as
necessary, always maintaining uniform identification to be finally submitted by
project, according to the above classification and using for such purpose forms
provided by ECOPETROL, which may be adapted by mutual agreement of the Parties
by the Financial Subcommittee. With the purpose of further clarifying
investment budget preparation, the following shall be taken into consideration:
14.2.2.7.1 Maintenance projects
Refers to all investments in equipment, materials and constructions destined to
maintain the facilities in efficient operation conditions subject to original
capacity and yield limits.
14.2.2.7.2 Expansion projects
Are investments with the purpose of increasing facilities capacity, increasing
authorized automotive equipment number, office equipment, etc.
14.2.2.7.3 Special Projects
Will include all projects which value, importance for industrial activities or
impact at the social or ecological level deserves a special classification.
14.2.3 Each and all investment budget projects shall be fully justified and
analyzed before including in the general budget. In this sense, the Operator
shall prepare an initial investment project containing the following general
information:
Needs analysis
Project justification
General project description
Estimated investment value
Schedule of activities
Project critical route
Economic assessment
The initial investment project containing the above information in addition to
any other information deemed necessary for evaluation, will be jointly studied
by Association Subcommittees which will recommend or object project feasibility
on the basis of policies dictated by the Executive Committee.
After the Subcommittees have recommended a given project, such project will be
included in the general budget to the approved by the Association Executive
Committee.
All general information included in each project justification will be recorded
in a technical-financial Exhibit to serve as support to budget submittal and
approval by the Executive Committee.
14.2.4 Budget consolidation
After determining Joint Operation needs, the Operator will consolidate each of
the Commercial Fields expenses and investment budget according to
classification provided in this Agreement Clause 14 (sections 14.1.2 and
14.2.2, respectively) and will submit to the Executive Committee for final
approval. Both the expense budget and the investment budget will be listed in
four (4) columns showing dollars origin accrual and
pesos origin accrual, a dollar consolidated and a pesos consolidated, on the
basis of the respective year exchange rate projection.
Additionally, the Operator shall prepare, for information purposes, a schedule
of disbursements indicating short term funds requirements broken down by
quarter and currency origin, at group expense and investment program level.
14.2.5 Budget execution
In all cases the Operator is empowered to make all operation expenses and
investments required by the Joint Operation according to approved Budget not to
exceed ten percent (10%) appropriations assigned to each expense group and to
each project during the respective budget term (Contract Clause I 1, section
11.5). Budget execution will be the responsibility of the different Operator
units subject to previously determined execution schedule.
Appropriations assigned each project will be identified using a previously
defined code to be used in all documents associated to Budget Execution
procedures.
14.2.6 Budget Control.
The Operator will be responsible of developing each of the programs and
investment projects and shall account for execution thereof subject to approval
conditions.
Additionally, the Operator will be responsible of monitoring timely and correct
projects development. In the event any trouble preventing normal projects
development arises, the Operator shall forthwith report such trouble in writing
to the Parties for trouble encountered to be solved. The Operator, as the
person responsible of the development plan, programs and projects, shall
prepare quarterly reports on budget and technical progress thereof to be
delivered to each of the Parties for study and subsequent approval by the
Association Executive Committee.
The quarterly report shall be prepared and submitted by the Operator within
fifteen (15) calendar days following each quarter end and shall contain the
following information:
Period covered by the report.
Project code and description
Total project budget
Financial progress from start to closing date. Investments by current year
project accumulated to date.
Technical work progress
Quarterly projection of work to be developed for the remaining year, for
information purposes.
14.2.7 Investments during the Retention Period
Investments during the Retention Period will be asswned by the Association
Joint Account or by the ASSOCIATE, depending on whether ECOPETROL has accepted
Field commercial feasibility.
CLAUSE 15 - OTHER PROVISIONS
15.1 Budget additions.
In the event during Budget execution appropriations approved by the Executive
Committee would require additions, the Parties may be required extraordinary
amendments to be ratified by the Executive Committee at its next meeting.
Expenses and investment Budgets additions or transfer requests may be
periodically submitted when the Executive Committee holds its regular meetings.
However, the Executive Committee will have the right to meet on an
extraordinary basis to discuss budget issues any time a special situation so
deserves.
Therefore, every time a budget revision is requested, the Operator shall start
the respective procedures duly in advance submitting the requests to the
respective Subcommittee for study and subsequent recommendation to the
Executive Committee.
In any case, budget addition requests shall be fully justified explaining the
reasons originating appropriated entries variation and including the respective
technical and financial exhibits provided in this Agreement Clause 14 (section
14.2.3).
15.2 Budget transfers.
Appropriations carried from one year to the next due to projects not concluded
during the budgeted term (for reasons such as lack of equipment, import
procedures, bad weather, etc.) will be deemed budget transfers.
Non developed project full value will be carried to the following year budget
and will be subject to Executive Committee approval. These projects will be
expressly included in the budget taking into account the disbursement schedule
provided in this Agreement Clause 15 (section 15.4). Additionally, budget
transfers will originate an exhibit explaining budget transfer causes and how
will the budget be executed within the next term.
15.3 Approvals.
The Executive Committee will be the body in charge of approving the programs and
the budget recommended by Association Subcommittees and to authorize the
Operator to purchase or contract on behalf of the Association all goods and
services required by the Joint Operation.
15.4 Disbursement schedule.
Together with the budget recommended by the Association Subcommittees, the
Executive Committee will approve the quarterly budget submitted by the Operator
for the immediately following year which will serve as the basis to calculate
monthly cash calls.
15.5 Cash calls.
Cash calls or funds advances will be placed by the Operator to each of the
Parties on the basis of obligations assumed by the Joint Operation for the
month immediately following the cash call, consulting the Budget approved by
the last Executive Committee
and the projected cash flow. Cash calls under this Clause will be deposited in a
bank account opened by the Operator for such purpose to be exclusively used by
the Joint Operation. Cash calls preparation and submittal shall be subject to
the following requirements:
15.5.1 Preparation
On the basis of the approved budget and obligations assumed by the Association
in the subsequent month, the Operator will prepare cash calls taking into
account the following conditions:
15.5.1.1 The Operator will place a separate cash call for each of the
producing Commercial Fields in the Contract Area, identifying pesos and dollars
expenses and investments according to projected disbursement origin.
15.5.1.2 The cash call shall be open by programs and project in the event of
investments and by group and expense item in the event of expenses, as shown in
the budget approved by the Executive Committee.
15.5.1.3 For each of the projects and expense group listed in the cash call to
be considered, it must be included in the budget; otherwise, total cash call
value will be discounted.
15.5.1.4 Projects and expense groups budgeted value shall be sufficient.
Nonetheless, in special cases, the value appropriated for the term may be
exceeded by ten percent (10%) according to Contract Clause I 1 (section 11.5).
15.5.2 Submittal
Every cash call will be submitted for processing using the form previously
agreed by the Parties in the Financial Subcommittee and shall show actual and
estimated expense charges and will include the following documents:
15.5.2.1 Cash call letter
15.5.2.2 Cash call form showing each of the programs, projects or expense item
financial status on cash call date, and
15.5.2.3 General comments of the technical nature identifying cash call
destination for major projects or expense items.
SECTION TWO - ACCOUNTING PROCEDURES
CLAUSES 16 - ACCOUNTING PROCEDURE
From Exploration Period start the ASSOCIATE shall deliver to ECOPETROL on a
quarterly basis within fifteen (15) calendar days following each quarter end,
the exploration costs report provided in Contract Clause 7, expressly
identifying Direct Exploration Costs subject to reimbursement pursuant to
Contract Clause 9.2.2, as detailed in the budget indicating the disbursement
currency and a US dollars consolidated. Additionally, and in the same report
the ASSOCIATE shall include the preliminary accumulated value to be included as
R Factor denominator provided in Contract Clause 14 (section 14.2.3), clearly
showing Direct Exploration Costs detail and calculation parameters applied. It
is hereby understood that Direct Exploration Costs reported by the ASSOCIATE
will only be firm after ECOPETROL has audited and accepted such costs.
During the Production period. credits and charges incurred by the interested
Parties and covering operations defined in the Contract, will be subject to the
following conditions: All charges will go to the Joint Account to be opened as
provided under Contract Clause 22.
The Joint Account defined in Contract Clause 4 (section 4.7) will be divided
into three major records as follows:
16.1 General Joint Account (clarification, charges and entries). This account
will record all movement as detailed below and will be fully distributed to the
Parties on a monthly basis, in the proportion of fifty percent (50%) to
ECOPETROL and fifty percent (50%) to the ASSOCIATE with respect to investments,
and in the proportion provided in Contract Clause 22 (sections 22.6.1 and
22.6.2) for Direct Expenses and Indirect Expenses, that is, will serve as the
basis for monthly billing as therein provided, leaving a zero (0) balance each
month. All accounting transactions associated to this account will be recorded
by the Operator in Colombian pesos subject to the laws of the Republic
of Colombia, but the operator will have the right to, in turn, keep ancillary
records showing disbursements incurred in any currency other than Colombian
pesos.
16.2 Operation Joint Account. This account will record cash calls received
from the Parties and credit charges associated to their billing and shall show
all times a balance to the favor or against each of the Parties, as the case
may be. This account will be divided into sub-accounts according to
transaction currency origin, whether pesos of dollars.
16.3 Joint property records. The Operator shall keep under the Joint Account
records of all goods acquired and subject to inventory indicating each asset in
detail, acquisition date and original cost. Accounts mentioned in this
Agreement Clause 16 (sections 16.1, 16.2 and 16.3) will form part of the
Operator's official accounting records but shall not mix with accounting
records other than the Joint Account. The three accounts will be subject to
this Agreement Clause 22.
16.4 The Operator shall deliver to ECOPETROL on a monthly basis, together with
information provided in this Agreement Clause 17 (section 17.2.2) in the form
of a separate exhibit, R Factor parameters and calculation pursuant to Contract
Clause 13 (section 14.2.3).
CLAUSE 17 - CASH CALLS, BILLING AND ADJUSTMENTS
17.1 Cash calls. Although the Operator will pay and discharge in the first
place all costs and expenses incurred according to the Contract, charging each
Party's participation percentage, it is hereby agreed, with the purpose of
funding such participation, that each of the Parties, upon request from the
Operator and as provided further below, shall deliver cash calls to the
Operator, from Commercial Field acceptance by the Parties and no later than
within the first five (5) calendar days each month, the respective month's
estimated operations expenses portion. The cash call shall be accompanied to
detailed information as provided under clause 15 (section 15.5.1.2) hereof Such
cash calls will be made in US dollars or Colombian pesos, according to needs
contemplated in the budget and cash calls prepared by the Operator. The
Operator shall place the cask call within the first twenty (20) calendar days
the month immediately prior to the month when the cash call is to be delivered.
If the Operator would have to incur in extraordinary expenses not contemplated
under the monthly cash call, the Operator shall make special cash calls to the
Parties covering
such disbursements participation. Each participant shall advance its
proportional funds within fifteen (15) calendar days following the Operator cash
call.
17.2 Billing
17.2.1 The Operator shall prepare an initial xxxx to ECOPETROL after each
Commercial Field acceptance covering fifty percent (50%) Direct Exploration
Costs incurred before submitting each discovered Commercial Field commercial
feasibility studies, which costs have been audited and accepted by ECOPETROL
according to Clause 22 hereof. Exploration xxxxx costs will include all costs
incurred to drill, terminate and test in the event of producing xxxxx and dry
Exploration Xxxxx abandonment costs. Said xxxx shall also include fifty
percent (50%) additional work costs provided in Contract Clause 9 (section 9.3)
which will be paid according to said Clause. Said xxxx shall include a costs
summary separately stating the investment and expenses currency, that is,
Colombian pesos or US dollars.
17.2.2 From the initial xxxx date on, the Operator will xxxx the Parties, within
fifteen (15) calendar days following the last day each month, its proportional
participation in costs and expenses for the month. Bills shall list Operator
accounting procedures details, including a detailed accounts summary, separately
listing costs and expenses originated in dollars or in pesos.
17.3 Adjustments. Bills will be adjusted by the Operator and the Parties after
subtracting cash calls in dollars and pesos.
If any of the Parties' cash calls differ from their participation in actual
costs determined for each period, the difference will be adjusted in the
following month's bills.
17.4 Bills acceptance. Bills payment will not affect the Parties right to
oppose or inquire about bills accuracy subject to Contract Clause 22 (section
22.7) provisions.
CLAUSE 18 - CHARGES
Subject to limitations described below, the Operator will charge the Joint
Account and xxxx each of the Parties according to percentages provided under
this Agreement Clause 16 (section 16. 1), the following expenses:
18. 1 Labor
18.1.1 Domestic and foreign employees
18.1.1.1 Operator's employees salaries if directly working for the Joint
Operation, including overtime, night overcharge, Sundays and holidays and the
respective compensation rest payment and in general any salary payment.
18.1.1.2 Fringe benefits, indemnification, insurance, subsidies and bonus and
in general any benefit other than salary granted workers and/or their families
or dependents, whether individually or collectively or granted in virtue of the
work contract, the law agreements and/or arbitration awards, with the exception
of housing plans in which respect a special agreement will be required. Some
of the above could be the following, among other: severance, vacation,
retirement and disability pensions, benefits granted retired personnel and
their families, benefits and assistance in the event of illness and
professional or non professional, accidents, service bonuses, life insurance,
contract termination indemnification, union assignments, all type of bonuses,
assignments and savings, health and/or education assistance and social security
in general. Additionally, contributions to Instituto Colombiano de Bienestar
Familiar -ICBF (Family Welfare), Servicio Nacional de Aprendizaje - SENA
(National Apprenticeship Service), Instituto de Seguros Sociales - ISS (Social
Security) and other similar required.
18.1.1.3 All expenses incurred on behalf of the Joint Operation for camp
maintenance and operation, field offices or services facilities. These
expenses also include - not taxatively but for information purposes - expenses
listed below regardless of whether services are provided gratuitously or for
remuneration, or whether to workers, their dependents or relatives or whether
voluntary or mandatory. Some of such services are:
18.1.1.3.1 Medical, pharmaceutical, surgical or hospital services.
18.1.1.3.2 Camp and complete services therein, including repair and hygiene.
18.1.1.3.3 Training and qualification costs
18.1.1.3.4 Workers entertainment
18.1.1.3.5 Schools for workers, their children and dependent relatives.
18.1.1.3.6 Security or social assistance plans and camp surveillance.
18.1.1.4 Expenses and services listed in the above Clause 18 (sections
18.1.1.1, 18.1.1.2 and 18.1.1.3) are understood with charge to the Joint
Account in the event applicable regulations, collective labor agreements and/or
arbitration awards directly or jointly applicable to contractors
subcontractors, intermediaries and/or their employees at the service of the
operation.
18.1.1.5 Regarding retirement pensions and disability assistance, the
Executive Committee will have the right to proceed according to the Social
Security and Pensions system provided by Law 100 of 1993 and all other
regulating provisions.
18.2 Materials and supplies
Materials and supplies required to develop operations will be charged to the
Joint Account. Materials and supplies shall be acquired and stored in the
project warehouse or the maintenance material warehouse as convenient for the
operation and credited the operation at book cost as they leave the warehouse
to be used. Capital equipment units will be directly charged to the Joint
Account. The book value is determined as follows:
18.2.1 Book value
Book value is understood as the last average price for warehouse stock on the
basis of costs taken from imports calculation worksheets or local cost, as
follows:
18.2.1.1 For imported materials, equipment and supplies the book value shall
include net manufacturer or supplier xxxx cost, purchase cost, freight and
delivery charges at supply site and port of embarkation, freight to destination
port, insurance, import duties or any other tax, cargo handing from the ship to
customs warehouse and transportation to operations site.
18.2.1.2 For locally acquired materials, equipment and supplies the book value
shall include net seller xxxx plus sales tax, purchase cost, transportation and
insurance and similar costs paid to third parties from the purchase place to
operations site.
18.2.1.3 Materials will be charged to the Joint Account according to
acquisition currency origin to be subsequently charged to each of the Parties.
18.2.2 Materials devolution to the Joint Account warehouse, as the case may be.
Materials, equipment and supplies returned to the Joint Operation warehouses
value will be estimated following the same procedures.
18.2.2.1 New materials will be recorded at book value.
18.2.2.2 The Operator will have the right to reincorporate used materials, in
good operating conditions and equipment fit to be subsequently used with no
need for repairs to the respective warehouse at seventy five percent (75%) book
value, crediting the respective Joint Account project.
18.2.2.3 The Operator will have the right to reincorporate repaired used
materials, in good operating conditions to the respective warehouse at fifty
percent (50%) book value. When such materials are used again will be charged
at the new book value.
18.2.3 Sales by the Parties. Materials, equipment and supplies value sold
by the Parties to the Joint Operation will be estimated on the basis of
replacement cost agreed by the Parties. The respective transportation costs
will be assumed by the Joint Operation. In the event of Joint Operation sales
to one of the Parties, goods value will be estimated on the basis of
replacement cost agreed by the Parties and transportation costs will be assumed
by the buying Party.
18.2.4 Local Materials transportation
18.2.4.1 Materials shipped by an external carrier at cost according to the
carrier company xxxx.
18.2.4.2 Materials shipped in carrier units property of the Parties, at the
rates calculated to cover actual expenses, according to this Agreement Clause
18 (section 18.2 and 23 (section 23. 1. 1).
18.2.5 Canceled, postponed or changed projects. In the event stock
accumulated in the warehouse due to projects approved by the Parties change,
postponing or cancellation, such materials cost will be charged to the
warehouse account. Such materials may be sold to third parties according to
this Agreement Clause 20 (section 20.2.1) and the produce credited to the Joint
Account.
Excess material from projects, if such material purchase has been directly
charged, shall be returned to the warehouse upon such projects completion and
credited to the
respective project. The Operator shall report such transaction to the Parties at
regular Financial Subcommittee meetings when held.
18.3 Travel expenses
All travel expenses incurred on behalf of the Joint Operation by domestic or
foreign personnel, such as transportation, hotels, feeding, etc.
18.4 Service units and facilities
Services provided using equipment and facilities property of either of the
Parties will be charged to the Joint Account at reasonable rates as provided in
this Agreement Clause
23. Rates determined shall apply until amended by mutual agreement.
18.5 Services
Services provided the Joint Operation by third parties, including contractors,
at actual cost. Likewise, technical services such as lab analyses and special
studies requiring Technical Subcommittee recommendation and Executive Committee
approval.
18.6 Repairs
Repairs to equipment or goods property of any of the Parties destined for Joint
Operation use, except if such costs have been previously charged under leases
or otherwise.
18.7 Litigation
Joint Operation expenses associated to actual or threatened litigation
(including investigation and proof taking), attachments release, awards or
court decisions, legal claims and claim filings, accidents compensation,
arrangements in the event of death and funeral, provided such charges have not
been acknowledged by an insurance company or covered by the respective charges
provided in this Agreement Clause 18
(section 18. 1. 1). In the event legal counseling is provided on such matters by
permanent or external attorneys whose full or partial remuneration has been
included in indirect expenses, no additional service charges will be recorded
but will be charged to Direct Costs incurred for such proceedings.
18.8 Joint Operation propertied and equipment loss or damage. All costs and
expenses required to replace or repair losses or damages caused by fire,
floods, storm, robbery or any similar act. The Operator shall notify the
Parties in writing any losses or damages suffered, as soon as practical.
18.9 Taxes and leases
All taxes paid or accrued in development of the Joint Operation will be charged
to the Joint Account, subject to applicable legal provisions.
The Joint Account will also be charged leases, rights of way and
indemnification paid on improvements, soil occupation, etc.
18.10 Insurance
18.10.1 Insurance premiums on insurance taken for the benefit of operations
subject to the Contract together will all expenses and indemnification accrued
and paid, and all losses, claims and other expenses not covered by insurance
companies, including legal counseling mentioned in this Agreement Clause 18
(section 18.7) well be charged to the Joint Account.
18.10.2 In the event no insurance has been taken aforementioned actual
expenses incurred and paid by the Operator will also be charged to the Joint
Account.
CLAUSE 19- CREDITS
19.1The Operator shall credit the Joint Account the following income items:
19.1.1 Insurance returns associated to the Joint Operation which premiums
have been charged to said operations.
19.1.2 Geological information sales previously authorized by the Parties
provided associated recoveries have not been charged to the Joint Account.
19.1.3 The sale of properties, plants, equipment and materials property of
the Joint Operation.
19.1.4 Lease rents received, customs taxes or transportation claims refunds,
etc. shall be credited to the Joint Operation if rents or refunds associate to
such operation.
19.1.5 Any other operational income or contracts authorized by the Executive
Committee for the Joint Account service.
19.2 Warranty
In the event of defective equipment when the Operator has received the
respective adjustment from the manufacturer or its agents, such amount will be
credited to the Joint Operation.
CLAUSE 20 - DISPOSING OF MATERIAL AND EXCESS EQUIPMENT
20.1 Excess materials and equipment
The Operator shall inform the Parties in writing about any Joint Operation
excess materials or equipment, thirty (30) days after completing the inventory
provided in Clause 21 hereof Each of the Parties shall designate a
representative to review the condition thereof and to determine which materials
or equipment may be sold. In the event of usable materials or equipment
ECOPETROL will have the first option and the ASSOCIATE will have the second
option; such options shall be exercised within sixty (60) days following notice
date. In the event the aforementioned parties do not buy the Operator shall
notify them in writing and will proceed to auction.
20.2 Disposing of Capital equipment and materials: pursuant to Contract Clause
22 (section 22.9) The Operator will have the right to sell materials and
equipment property of the Joint Account subject to the following conditions:
20.2.1 Major material and capital equipment sold by the Operator and
previously charged to the Joint Account will be subject to previous Executive
Committee approval. The produce thereof will be credited to the Joint Account.
For such purpose only, major materials are defined as any assets which
estimated sale value exceeds forty thousand US dollars (US$40,000) or the
equivalent Colombian currency.
20.2.2 Minor materials charged to the Joint Account and not required for
operations or reincorporated to the respective warehouse may be sold by the
Operator and the produce thereof credited to the Joint Account.
20-2.3 Any assets which cost or estimated value exceeds forty thousand US
dollars (US$40,000) or the equivalent Colombia currency abandonment or
dismantling requires previous Executive Committee authorization.
20-2.4 None of the Parties will have the obligation to purchase the other
Party's interest in excess materials, whether new or used. Disposal of major
excess materials, such as towers, tanks, engines, pumping units and piping will
be subject to Executive Committee
approval. The Operator will, however, have the right to reject damaged or
unusable materials in any way.
20.2.5 All taxes accrued by reason of Joint Account materials or assets sale
or disposal shall be the responsibility of the Operator with charge to the
Joint Account.
CLAUSE 21 - INVENTORY
Upon request from ECOPETROL the Operator shall submit the necessary information
to analyze warehouse stock and the Parties shall agree upon joint participation
to control inventories. The Operator shall provide any facilities required by
ECOPETROL to take a fixed assets physical inventory at the Association
facilities, previous Financial Subcommittee agreement on the date, time and
number of persons designated to take said inventory.
21.1 Inventory and Audit
Subject to applicable regulations and no less than once every three (3) years
the Operator shall take all Joint Operation assets inventory.
21.2 The notice of intention to take an inventory shall be given by the
Operator in writing to the Parties one (1) month in advance to said inventory
taking date for the Parties to be represented. But if one of the Parties is
not present the inventory so taken by the Operator shall be no less valid.
21.3 The Operator shall provide the Parties copy of each inventory including
copy of the reconciliation and will submit results to the Association
Subcommittees which shall study the report and propose action to be taken on
the matter.
21.4 Excess and shortage inventory adjustments will be reported to the Executive
Committee for consideration and approval.
21.5 At midnight on the last day of the Exploration Period provided, the Parties
shall take an inventory of both material in the warehouse property of the Joint
Account and extracted products in the collection batteries and piping from
collection batteries to storage tanks or in storage tanks all within production
fields, and such inventories will be distributed to the Parties, after deducting
royalties, in the proportion provided under Contract Clause 13.
CLAUSE 22 - AUDIT
Subject to Clause 17 (section 17.4) hereof the Parties will have the right to
have their own Auditors or representatives examine and control Operator's
accounting books and records associated to properties and operation activities
thereof. However, with the purpose of facilitating Direct Exploration Costs
revision under this Agreement Clause 17 (section 17.2. 1) as soon as the
Operator notifies the Parties any reimbursable Exploration Work initiation, the
ASSOCIATE or the Operator shall permit, previous due notice, ECOPETROL auditors
to periodically examine such Exploration Work accounts, for the mentioned
revision to have been performed under the best conditions and time when the
Commercial Field is declared. During audits herein provided representatives
from the General Accountant of the Republic will have the right to participate
if such body deems convenient. Such audit costs and expenses will be paid by
the interested Party.
22.1 After the audit report has been delivered, the ASSOCIATE or the Operator
will have a maximum six (6) months term to answer or sustain objections
submitted; upon said term expiration if the Operator has not answered,
objections will be deemed accepted and consequently the audit will proceed
accordingly. Audit notes or comments not resolved within the three (3)
following months will be resolved according to Contract clause 20.
CLAUSE 23 - FEES TABLE
23.1 Subject to limitations provided above, services provided the Joint
Operation by facilities exclusively owned by ECOPETROL or the ASSOCIATE will be
charged the respective fees with the purpose of recovering actual costs. Such
costs shall include normal work, salaries, fringe benefits, depreciation costs
and other operation expenses taking the following into account:
23.1.1 The transportation units fee usually calculated on the basis of operation
time shall include loading and unloading time, the time spent waiting for
loading and the time spent waiting to be unloaded. Transportation unit charges
assigned the operation shall include Sundays and holidays, except if out of
service for repairs.
23.1.2 In the event material required for the mentioned operations is
transported together with other material by fluvial or land carrier exclusively
owned by ECOPETROL or the ASSOCIATE the charge shall be based on transported
tons at rates which shall not exceed commercial rates.
23.2 Equipment and tools lease fees
The procedure to calculate equipment and tools property of the Parties leases,
excluding drilling equipment and major equipment which fees must be separately
calculated and approved by the Executive Committee, shall cover a depreciation
value in addition to a maintenance value and the procedure will be the
following:
23.2.1 Equipment description, model, number, purchase date and original cost.
23.2.2 Site where the equipment will be used, reasons for leasing and
estimated use period.
23.2.3 Annual equipment depreciation value, calculated on the basis of
depreciated book value and remaining useful life (minimum book value to be
considered will be ten percent (10%) original cost or the salvage value).
23.2.4 The annual maintenance value will be a percentage of the original
cost which will range from five percent (5%) for new equipment to fifteen
percent (15%) for depreciated equipment, depending on depreciation period, for
instance:
Equipment A: (Five [5] years useful life)
Period (years) 1, 2, 3, 4, 5: one hundred percent (I 00%) depreciated equipment.
Maintenance: 5, 6, 7, 8, 9: 15 %
Equipment B: (Ten [10] years useful life)
Period (years) 1, 2, 3, 4, 5, 6, 7, 8, 9, 10: one hundred percent (100%)
depreciated equipment.
Maintenance: 5, 6, 7, 8, 9, 10, 1,, 12, 13, 14, 15: 15%
Note: Useful life period and depreciation will be determined on the basis of
accounting practices applicable to oil operations.
23.2.5 Annual lease fee equals the value provided under Clause 23 (section
23.2.3) hereof plus the value specified in section 23.2.4 hereof.
23.2.6 Monthly or daily equipment lease fee will be as provided under Clause
23 (section 23.2.5)hereof divided into twelve (12) or three hundred and sixty
five 365, as the case may be.
23.2.7 No "standby" fee will be charged but this fee will be charged in the
event of third parties.
23.2.8 The above lease fees do not include transportation, installation,
operation, lubricants and fuel costs which will be charged the operation
equipment is destined to.
23.2.9 The above lease fees will apply to eventual equipment and tools one
hundred percent (100%) property of the ASSOCIATE or the Operator and vice
versa.
23.2.10 In each case, the Technical Subcommittee will recommend the Executive
Committee the need to use leased equipment and the Financial Subcommittee will
have the right to apply the fee system recommended herein.
23.2.11 Equipment lease fee will be calculated in US dollars but the
respective xxxx will be in pesos at the rate agreed by the Parties.
23.2.12 Warehouses and fixed assets lease fee.
For full or partial use of warehouses property of one of the Parties or the
Joint Operation lease fee calculation the procedure agreed by the Financial
Subcommittee will apply.
CLAUSE 24 - CONTRIBUTIONS IN KIND
ECOPETROL or the ASSOCIATE shall contribute in kind any materials deemed
convenient as agreed between the Parties.
PART III - ADMINISTRATIVE ISSUES AND SUNDRY PROVISIONS
SECTION ONE - THE EXECUTIVE COMMITTEE
CLAUSE 25 - OPERATING CONDITIONS
In development of its functions the Executive Committee shall comply with
conditions provided in Contract Clause 19, as follows:
25.1 The Executive Committee will be alternatively chaired by the Parties
starting with ECOPETROL.
25.2 The Executive Committee shall designate its Secretary alternating people
designated by ECOPETROL and the ASSOCIATE. The Chairman and the Secretary will
be members of the same Party.
25.3 The Executive Committee shall hold regular meetings during the months of
March, July and November, and shall hold extraordinary meetings any time the
Parties and/or the Operator deem necessary. At said meetings the production
program developed by the Operator, the development plan and immediate plans
will be discussed. This Executive Committee may be attended by each of the
Parties counselors as deemed convenient, being understood each of the companies
shall designate the less possible number of people.
25.4 In the event of Executive Committee regular meetings, the representative
chairing the coming meeting shall notify all other representatives (principal
and alternates) from the other Party and the Operator ten (10) calendar days in
advance indicating the meeting time and place and matters to be discussed
(agenda).
25.5 In development of Contract Clause 18 (section 18.3), during both regular
and extraordinary Executive Committee meetings, matters to be discussed and not
included in the agenda may be discussed during the meeting previous agreement
of the Parties representatives attending the Committee.
SECTION TWO - SUBCOMMITTEES
CLAUSE 26 - SUBCOMMITTEES ORGANIZATION
In development of the function provided under Contract Clause 19 (section
19.3.8), the Executive Committee will have the right to designate any advisory
subcommittees deemed necessary. In any case the Executive Committee shall
designate a Technical Subcommittee and a Financial Subcommittee.
The above subcommittees will be the organizations in charge of controlling and
defining Contract technical, financial and legal recommendations to the
Executive Committee and shall be governed by the Contract and this Agreement.
Each subcommittee shall issue its own internal regulations to be approved by
the Executive Committee.
Section Three - Operator
CLAUSE 27 - RIGHTS AND OBLIGATIONS
27.1 Pursuant to Contract Clause 30, the Operator has the right to conduct Joint
Operations by itself or retaining subcontractors subject to general Executive
Committee direction. In any case, the Operator will be responsible of the Joint
Operation according to Contract provisions.
27.2 Some of the Operator's obligations are the following, among other:
27.2.1 To prepare, submit and implement the development plan, expenses budgets
and exploration/ production programs as well as expenses approval.
27.2.2 To direct and control all operation expenses statistical and accounting
services.
27.2.3 To plan and obtain all services and materials required for good Joint
Operation development.
27.2.4 To provide all techniques and assistance required for good Joint
Operation development.
27.2.5 To plan tax effects and to comply with all tax obligations derived from
operations developed and to provide a timely report to the Parties in their
respective proportion.
27.3 The Operator shall not have the right to constitute any lien on Joint
Operation properties.
27.4 Operator resignation will be without prejudice of any right, obligation or
responsibility acquired during the time the Operator acted in such condition; if
the Operator resigns or is removed before obligations provided under the
Contract have been satisfied, the Joint Account shall not be charged any
expenses incurred by such change. But if the Executive Committee approves, these
costs and expenses may be charged to the Joint Account.
27.5 If the Operator has been removed or if its resignation has been accepted,
for obligations transfer purposes ECOPETROL will audit the Joint Account and
take an inventory of all Joint Operation properties. Said inventory will be
used for devolution and accounting purposes as regards said obligations
transfer procedures. All costs and expenses incurred with respect to inventory
taking and audit shall be charged to the Joint Account.
27.6 The Operator shall not be responsible for any loss or damage caused by
Joint Operation except if such losses or damage are imputable to:
27.6.1 The Operator's fault
27.6.2 The Operator's default to take and maintain any of the insurance required
under Contract Clause 33, except if the Operator has made every possible effort
to obtain and maintain such insurance with fruitless results, which case shall
be timely notified to the Parties.
SECTION FOUR - CONTRACTING PROCEDURES
CLAUSE 28 - SUPPLIERS REGISTER AND LIST OF PROPONENTS
28.1 The Operator will be responsible of keeping an updated suppliers register,
classified according to the different activities required by the operation and
shall determine qualification criteria applicable to companies to be included in
the list of proponents. The Technical Subcommittee will have the right to review
criteria before approving the list of proponents.
28.2 ECOPETROL will have the right to review the Operator suppliers register on
an annual basis and will have the right to have the Technical Subcommittee
suggest including or excluding suppliers from the record. The above
notwithstanding, ECOPETROL will have the right, any time, by duly motivated
petition, to require individuals or entities to be removed from the record.
28.3 In any cases implying invitations to bid for contracting purposes the
suppliers register shall be consulted placing the act on record in the
respective document.
28.4 Individuals or entities listed in the suppliers register shall evidence
technical, moral and economic solvency in addition to experience not only
regarding the company but also its partners and technicians working for such
companies on a steady basis.
28.5 On the basis of the above parameters, the Operator shall keep a qualified
suppliers register, which shall be periodically updated according to their
performance.
CLAUSE 29 - TENDER PROCEDURE
29.1 Responsibility. The Operator will be responsible of preparing duly in
advance the invitation to bid and will submit it to the Technical Subcommittee
for consideration.
29.2 The list of entities invited to bid will be prepared on the basis of
Suppliers Register information.
29.3 If the estimated contract value subject to bidding exceeds US$40,000, the
Operator shall invite no less than three (3) companies. If this would not be
possible, justification will be placed on record in the recommendation report to
the Technical Subcommittee.
29.4 The Operator shall endeavor to invite no more than 6 companies to bid with
the purpose of preventing excessive tender evaluation costs and also to give
participant companies a better opportunity to be awarded the respective
contract.
29.5 Being all other factors equivalent, the priority order to have the right to
be included in the list of proponents will be: Companies organized and domiciled
in the Department or Departments where the Commercial Field or Fields is or are
located - Colombian companies domiciled outside the Department or Departments
where the Commercial Field or Fields is or are located, but having a branch in
the Department - Colombian companies with their main domicile outside the
Department or Departments where the Commercial Field or Fields is or are located
not having a branch in said
Department Foreign companies with a branch organized in Colombia - Foreign
companies without a branch in Colombia.
29.6 Companies invited to bid list will also take into account companies
technically and commercially qualified which have not been provided the
opportunity to participate in similar tenders in the past.
29.7 The Operator shall prepare the tender Reference Terms and will submit them
to the Technical Subcommittee for consideration, duly in advance.
29.8 Tender Reference Terms shall clearly specify that:
29.8.1 Costs will be one of the criteria to be taken into account for
contract award and
management:
29.8.2 All tenders exceeding such activity actual cost will be disqualified.
29.8.3 Tender evaluation will take into consideration factors other than
costs, which factors will be included in the Reference Terms
29.8.4 Offers shall be submitted according to invitation to bid Reference
Terms and if this requirement is not complied with the offer may be considered
invalid.
29.8.5 The invitation to bid will include a detailed price table to be
filled out by proponents to facilitate proposals evaluation.
29.9 The list of proponents will be reviewed and approved by the Technical
Subcommittee before delivering to parties invited.
29.10 As soon as the Reference Terms have been distributed, the following
rules will apply:
29.10.1 Any original Reference Terms information, amendment or clarification
will be delivered all proponents. The Operator Purchases and Supplies Unit will
be responsible of such changes. Changes must be duly justified by written
document.
29.10.2 No proponents shall be added or removed from the proponent list
originally approved by the Technical Subcommittee.
29.10.3 Every proponent who does not comply with tender procedures and rules,
or who violates the Operator business ethics code will be forthwith
disqualified.
29.11 All invitation to bid contents and form shall meet "Documentation
Submitted to the Technical Subcommittee Form" procedure requirements and shall
be submitted to the Technical Subcommittee for consideration.
29.12 Internal approvals required by the Operator and ECOPETROL will depend
on contract estimated value on the basis of their respective internal
procedures.
CLAUSE 30 - CONTRACT AWARDING AND PURCHASE ORDERS
30.1 The Operator will be responsible of awarding contracts and purchase
orders. For this purpose the Operator shall submit its recommendation to the
Technical Subcommittee which is the body in charge of approving and will be
ratified by the Executive Committee if awarded value equals or exceeds
US$40,000.
30.2 Value: Awarding will be based on the best global value. The lowest price
is not always the best, because value will also take into consideration
proponents programming and quality, experience, reputation, and Colombian
contents. In the event the contract is not awarded to the lower value offer,
such decision shall be justified.
30.3 Written justification. The Operator shall submit a written recommendation
to the Technical Subcommittee justifying each contract and purchase order
awarded if the value equals or exceeds US$40,000. Such justification shall
include a summary of proposals submitted commercial and technical evaluation
and the basis for Operator recommendation.
30.4 Direct contracting: Direct contracting shall be supported and submitted in
writing to the respective Subcommittees clearly stating justification. The
Operator will have the right to contract directly with no need for tender in
any of the following events:
30.4.1 In the event only one supplier is available within the term required to
meet project schedule;
30.4.2 In the event there is no equivalent or satisfactory substitute for the
item or service previously directly contracted.
30.4.3 In the event the service or work derives from previous service or work or
in the event of and addition to a contract or purchase order opened within the
past ninety (90) days and if commercial conditions have not been modified or
when a recent tender evidences justify awarding with no need for tender.
30.4.4 In the event the Operator has standardized a specific item or service
for all applications within its operations area and there is only one known
supplier for such item or service.
30.4.5 In the event only one item or service is deemed meeting Operator's
requirements within the specified delivery ten-n.
30.4.6 In the event an item or service is obtained for testing or evaluation.
30.4.7 In the event of an emergency. The Operator shall notify ECOPETROL at the
Technical Subcommittee immediately following such emergency.
30.5 Partial awards: A tender may be partially awarded two or more bidders,
provided the following conditions are fully satisfied:
30.5.1 The possibility to partially award is clearly specified in the Invitation
to Bid
30.5.2 Favored bidders have met Invitation to Bid requirements
30.5.3 Partial award reflects the best items or services to be obtained value
30.5.4 Any work scope change or awarding criteria shall be clearly communicated
to all proponents before partial award.
30.6 Rejected offers: The Operator will have the right to declare the tender
void when the Technical Subcommittee finds motives justifying such decision
and/or if offers are distant from actual costs.
30.7 Notice to non favored bidders: Awarding results will be notified all
participants in writing.
30.8 Clarification: During the evaluation period, the Operator will have the
right to require clarifications from proponents. The Technical Subcommittee
shall approve significant commercial clarifications. No new approval from the
Technical Subcommittee will be required in the event of technical
clarifications. Clarifications capable of affecting the tender shall be notified
all proponents in writing.
CLAUSE 31 - CONTRACT MANAGEMENT AND PURCHASE ORDERS
31.1 The Operator will be responsible of managing contracts and purchase orders
and of execution thereof.
31.2 Contracts or purchase orders management basis will consist in execution
thereof, which shall include agreed costs, schedules and quality requirements.
31.3 The operator shall keep written record of all original contract
amendments, Each contract costs change impact will be evaluated by the Operator
and negotiated with the supplier or contractor before changing contract price.
31.4 If the proposed change exceeds US$40,000 or 10% originally approved value
not to exceed the US$40,000 limit the change will have to be submitted to the
Technical Subcommittee for consideration.
31.5 The Operator shall be responsible of Costs Control.
31.6 Any additional work or item within contract terms shall be authorized by
the Operator Project or Operations Manager, who shall consult with the Purchase
and Logistics Department or substituting units before amending the contract in
any way. This double responsibility ensures change process integrity. In the
event changes imply amending the contract text, such changes will be subject to
the Operator Legal Department approval.
31.7 Quality control will be managed subject to the QA/QC ("Quality Assurance
and Quality Control) process which shall include independent work inspection and
monitoring at the right time during work development.
31.8 Procedures applied by the Operator to control costs are described in a
Costs Control procedure.
31.9 The Parties will be delivered a monthly report on work progress accompanied
of costs documentation and schedules including major contracts and purchase
orders originally agreed budget variations analysis.
31.10 After major contracts and purchase orders have been completed a
detailed analysis will be conducted to evaluate experiences learned and
applicable to similar contracts or purchase orders to improve their control.
CLAUSE 32 - INSURANCE
For the purposes of Contract Clause 33, as regards insurance, the Operator
shall deliver to ECOPETROL the following information for ECOPETROL to insure
fifty percent (50%) Commercial Field assets.
32.1 Assets description, separated as far as possible in the following way:
31.1.1 Offices, camps and other non industrial assets.
31.1.2 Collection stations specifying tanks (quantity and capacity) and
other equipment
31.1.3 Sundry warehouses and other facilities
NOTE: External pipelines and xxxxx are not covered by the fire policy because
in such case ECOPETROL directly assumes the risk.
32.2 Assets value indicating only the portion property of ECOPETROL value and
indicating the full value percentage it represents.
32.3 Geographical location
32.4 Reception date from the time the risk is transferred to the Joint
Operation.
CLAUSE 33 - FORCE MAJEURE OR ACTS OF GOD
Contract Clause 34 only suspends compliance with specific obligation of the
Parties if development thereof is impossible due to events of force majeure or
acts of God. Additionally, obligations associated to goods, properties,
production facilities etc. are only suspended if affected by such circumstances.
The affected Party shall notify force majeure termination detailing damages
magnitude and corrective actions affecting the system.
CLAUSE 34 - OPERATION AGREEMENT REVISION
This Operation Agreement may be revised when the Parties deem convenient, upon
request from either of them; the Executive Committee is fully empowered to
review and amend this Agreement. This Operation Agreement will be in force until
one of the following events occurs:
34.1 Contractor termination
34.2 Written agreement of the Parties
34.3 Entering into a new Agreement
In witness the Parties sign this Operation Agreement in ECOPETROL contract
paper on the 30th day of the month of December 1997.
EMPRESA COLOMBIANA DE PETROLEOS "ECOPETROL"
Xxxxxxx Xxxxxxxx Xxxxxx
President
SEVEN SEAS PETROLEUM COLOMBIA INC.
Xxxxxxx Xxxxx Xxxxx
Legal Representative
