1
Exhibit 10(23)
PRODUCTION SHARING CONTRACT
BETWEEN
(1)GEORGIA
AND
(2)GEORGIAN OIL AND JKX NAVTOBI LIMITED
COVERING: NINOTSMINDA, RUSTAVI AND MENAVI
DATED 15 February 1996
2
TABLE OF CONTENTS
PREAMBLE ................................................................................... 49
ARTICLE 1 DEFINITIONS........................................................................ 50
ARTICLE 2 SCOPE OF CONTRACT AND GENERAL PROVISIONS........................................... 57
ARTICLE 3 CONTRACT AREA...................................................................... 58
ARTICLE 4 CONTRACT TERM...................................................................... 59
ARTICLE 5 RELINQUISHMENTS.................................................................... 59
ARTICLE 6 COORDINATION COMMITTEE............................................................. 60
ARTICLE 7 OPERATOR RESPONSIBILITY............................................................ 63
ARTICLE 8 AMENDMENT TO CHARTER OF GMJV....................................................... 64
ARTICLE 9 PROCEDURE FOR DETERMINATION OF COMERCIALITY AND APPROVAL OF
DEVELOPMENT PLANS ................................................................. 65
ARTICLE 10 ANNUAL WORK PROGRAMS AND BUDGETS................................................... 68
ARTICLE 11 ALLOCATION OF PRODUCTION, RECOVERY OF COSTS AND EXPENSES, PRODUCTION
SHARING, AND RIGHT OF EXPORT ...................................................... 69
ARTICLE 12 CRUDE OIL VALUATION................................................................ 72
ARTICLE 13 ANCILLARY RIGHTS OF THE CONTRACTOR AND OPERATOR.................................... 73
ARTICLE 14 ASSISTANCE PROVIDED BY THE STATE................................................... 75
ARTICLE 15 MEASUREMENT, QUALITY AND VALUATION OF PETROLEUM.................................... 31
ARTICLE 16 NATURAL GAS........................................................................ 32
ARTICLE 17 TAX/FISCAL REGIME.................................................................. 35
ARTICLE 18 ACCOUNTING, FINANCIAL REPORTING AND AUDIT.......................................... 43
ARTICLE 19 CURRENCY, PAYMENTS AND EXCHANGE CONTROL............................................ 44
ARTICLE 20 IMPORT AND EXPORT.................................................................. 45
ARTICLE 21 EXPORT OF HYDROCARDONS, TRANSFER OF OWNERSHIP, AND REGULATIONS
FOR DISPOSAL ...................................................................... 46
ARTICLE 22 OWNERSHIP OF ASSETS................................................................ 47
ARTICLE 23 INSURANCE.......................................................................... 48
ARTICLE 24 PERSONNEL.......................................................................... 49
ARTICLE 25 FORCE MAJEURE...................................................................... 49
ARTICLE 26 ASSIGNMENTS AND GUARANTEES......................................................... 50
2
3
ARTICLE 27 CONTRACT ENFORCEMENT AND STABILISATION, AND REPRESENTATIONS AND
WARRANTIES ........................................................................ 56
ARTICLE 28 NOTICES AND CONFIDENTIALITY........................................................ 60
ARTICLE 29 TERMINATION AND BREACH............................................................. 61
ARTICLE 30 DISPUTE RESOLUTION................................................................. 62
ARTICLE 31 TEXT............................................................................... 63
ARTICLE 32 APPROVAL AND EFFECTIVE DATE........................................................ 63
ANNEX A CONTRACT AREA...................................................................... 107
ANNEX B PREVIOUS PRODUCTION................................................................ 110
ANNEX C ACCOUNTING PROCEDURE............................................................... 70
ANNEX D THE GBOC LICENCE................................................................... 129
ANNEX E STATE AUTHORISATION FOR SAKNAVTOBI (GEORGIAN OIL)..................................
129
3
4
PRODUCTION SHARING CONTRACT AND LICENSES
This Contract is made and entered into as of the 15 February 1996 by and between
(1) The State Department Saknavtobi (Georgian Oil) in its capacity as the duly
authorised representative of the State (as that term is defined in Article 1.68)
pursuant to the authority set out in Annex E, as the party of the first part;
(2) the State Department Saknavtobi (Georgian Oil) in its capacity as the state
owned oil department organised and existing as a legal entity under the laws of
Georgia particularly as it is defined by the Charter of Saknavtobi adopted by
the Council of Ministers of the Republic of Georgia, December 31, 1994 #908
(hereinafter referred to as "Georgian Oil"), as the party of the second part;
and, (3) as party of the third part, JKX (Ninotsminda) Limited ("JKX"), a
company organised and existing under the laws of Cyprus, (JKX, and its
successors and assignees, if any, will individually be referred to as
"Contractor Party" and collectively referred to as "Contractor"). The State,
Georgian Oil, and the Contractor may sometimes be referred to as "Party" and
collectively as the "Parties".
WITNESSETH:
WHEREAS, all Petroleum resources within the territory and under the internal
waters, territorial sea, and continental shelf of Georgia are owned by the
State;
WHEREAS, the State enters into this Contract wishing to promote the development
of the Contract Area and Georgian Oil and Contractor desire to join and assist
in the exploration, development and production of the potential resources within
the Contract Area;
WHEREAS, Contractor has the requisite technical, managerial and financial
capabilities and experience to carry out Petroleum Operations stipulated in this
Contract and desires to cooperate with the State and Georgian Oil for the
exploration and exploitation of Petroleum reserves within the Contract Area;
WHEREAS, in December 1994 there was granted to the GBOC, (a Georgian British
joint venture the founders of which are XX Xxxxx Exploration & Production
Limited and Georgian Oil) a complex licence in respect of the Contract Area, a
copy of that licence being annexed hereto as Annex D; and
WHEREAS the Parties and GBOC have agreed that in order to promote the
development of hydrocarbon resources in Georgia and to promote international
investment in Georgia, Petroleum Operations should be carried out pursuant to
the terms of this Contract and the terms of the GBOC Licence should be ratified
by the State and deemed to be amended to the extent that they are in any way
inconsistent with the provisions of this Contract.
4
5
NOW, THEREFORE, in consideration of the promises and the mutual covenants and
conditions herein contained, it is hereby agreed as follows:
ARTICLE 1
DEFINITIONS
The following words and terms used in this Contract shall unless otherwise
expressly specified in this Contract have the following respective meanings:
1.1 "Accounting Procedure" means the accounting procedure set out in Annex
"C" hereto.
1.2 An "Affiliated Company" or "Affiliate" means:
a) with respect to a Contractor Party a company, corporation,
partnership or other legal entity:
i) in which a Contractor Party owns directly or indirectly more
than fifty percent (50%) of the shares, voting rights or
otherwise has the right to establish management policy; or
ii) which is the owner directly or indirectly has the right to
more than fifty percent (50%) of the shares, voting rights or
otherwise has the right to establish management policy of a
Contractor Party; or
iii) in which at least fifty percent (50%) of the shares or voting
rights are owned directly or indirectly by a company or other
legal entity, which owns directly or indirectly more than
fifty percent (50%) of the shares, voting rights or otherwise
has the right to establish management policy of a Contractor
Party;
b) with respect to the State and Georgian Oil, any legal entity
directly or indirectly controlled by the State or Georgian Oil,
respectively, or operating under their collective management. For the
purposes of this part of the definition, the term to "control"
(including the related terms "controlled" or "operates under collective
management") shall mean with respect to any entity, having the right to
carry out direct or indirect supervision of such entity or to define a
general scope of its activity based on holding the shares entitled to
vote, other form of ownership, or on any other grounds.
1.3 "Annex" or "Annexes" means each or all of the Annexes "A" through "E"
attached to this Contract and made a part hereof. In the event of a
conflict between the provisions of an Annex and a term in the main body
of this Contract, the provisions of the latter shall prevail.
1.4 "Appraisal" means all works carried out by Contractor to evaluate and
delineate the commercial character of a Discovery of Petroleum in the
Contract Area.
5
6
1.5 "Appraisal Program" means a work program submitted by Contractor under
which Contractor will evaluate and delineate a Discovery of Petroleum
in the Contract Area.
1.6 "Associated Natural Gas" means all gaseous hydrocarbons produced in
association with Crude Oil, which Crude Oil itself can be commercially
produced and separated therefrom.
1.7 "Available Crude Oil" means Crude Oil produced and saved from the
Contract Area and not used in Petroleum Operations in accordance with
Article 11.3.
1.8 "Available Natural Gas" means Natural Gas produced and saved from the
Contract Area and not used in Petroleum Operations in accordance with
Article 11.3.
1.9 "Barrel" means a quantity consisting of forty-two (42) United States
gallons liquid measure, corrected to a temperature of sixty degrees (60
(degrees)) Fahrenheit with pressure at sea level.
1.10 "Budget" means the estimate of the expenditures, listed category by
category, relating to Petroleum Operations and contained in any Work
Program proposed by Contractor.
1.11 "Calendar Quarter" or "Quarter" is a period of three consecutive months
beginning on January 1st, April 1st, July 1st and October 1st of each
Calendar Year.
1.12 "Calendar Year" means a period of twelve (12) consecutive months
beginning on January 1st and ending on December 31st in the same year,
according to the Gregorian Calendar.
1.13 "Commercial Discovery" means a discovery of Petroleum that the
Contractor in its sole discretion in accordance with the provisions of
Article 9 commits itself to develop and produce under the terms of the
Contract.
1.14 "Commercial Production" means regular and continuous production of
Petroleum from a Development Area in such quantities (taking into
account any other relevant factors) as are worthy of commercial
development.
1.15 "Contract" or "PSC" means this Production Sharing Contract together
with all attached Annexes and any variation, extension or modification
hereto which may be agreed in writing by all the Parties.
1.16 "Contract Area" means the area specified in Article 3 hereof and
delineated in Annex A, as reduced or enlarged from time to time in
accordance with the provisions of this Contract.
1.17 "Contract Year" means a period of twelve (12) consecutive months within
the term of the Contract.
6
7
1.18 "Contractor" means the Contractor Parties, their assignees and
successors, as provided herein.
1.19 "Coordination Committee" means the committee composed of
representatives of all Parties constituted in accordance with Article
6.
1.20 "Cost Recovery Petroleum" means Cost Recovery Crude Oil and Cost
Recovery Natural Gas.
1.21 "Cost Recovery Crude Oil" is defined as set forth in Article 11.5.
1.22 "Cost Recovery Natural Gas" is defined as set forth in Article 11.5
1.23 "Costs and Expenses" comprise the Exploration Expenditures, Development
Expenditures, Operation Expenses and Drilling Costs together with
Finance Costs whether directly or indirectly incurred by Contractor.
1.24 "Crude Oil" means crude mineral oil, asphalt, ozokerite and all kinds
of hydrocarbons whether in a solid, liquid or mixed state at the
wellhead or separator or which is obtained from Natural Gas through
condensation or extraction.
1.25 "Customs Duties" means all import (or export) tariffs and duties and
other mandatory payments as stipulated by applicable laws, regulations
or other legal measures of Georgia with respect to the import or export
of materials, equipment, goods and any other similar items.
1.26 "Development Area" means all or any part of the Contract Area specified
in an approved Development Plan containing a Commercial Discovery.
1.27 "Development Expenditures" shall mean all costs and expenses for
Development Operations with the exception of Operation Expenses and
Drilling Costs whether directly or indirectly incurred, including but
not limited to training, administration, service, Finance Costs and
related expenses.
1.28 "Development Plan" is the plan to be produced by Contractor in
accordance with Article 9.6. following a declaration that Commercial
Production may be established.
1.29 "Development" or "Development Operations" or "Development Work" means
and includes any activities or operations associated with work to
develop for production and subsequently to produce and render
marketable for commercial sale and shall include, but not be limited
to:
a) all the operations and activities under the Contract with
respect to the drilling of xxxxx, other than Exploration
xxxxx, the deepening, reworking, plugging back, completing and
equipping of such xxxxx, together with the design,
construction and installation of such equipment, pipeline or
gathering lines, installations, production units and all other
systems relating to such xxxxx and related operations in
7
8
connection with production and operation of such xxxxx as may
be necessary in conformity with sound oil field practices in
the international Petroleum industry.
b) all operations and activities relating to the servicing and
maintenance of pipelines, gathering lines, installations,
production units and all related activities for the production
and management of xxxxx including the undertaking of
re-pressurising, recycling and other operations aimed at
intensified recovery, enhanced production and oil recovery
rate.
1.30 "Discovery" means a well that the Contractor determines has encountered
Petroleum which would justify Commercial Production.
1.31 "Dollar" or "U.S.$" means the currency of the United States of America.
1.32 "Double Tax Treaty" means any international treaty or convention for
the avoidance of double taxation of income and/or capital which is
applicable in Georgia whether generally or particularly by virtue of
Article 17.3.
1.33 "Drilling Costs" shall mean all expenditures whether directly or
indirectly incurred during Exploration and Development for well
drilling, completing and reworking operations including, but not
limited to, labour, geological design, engineering and other
Subcontractors (including all fees, tariffs and charges payable to any
such Subcontractors), material and equipment consumed or lost,
perforation, formation testing, cementing, well-logging and
transportation.
1.34 "Effective Date" means the date on which this Contract has been signed
by all Parties and a decree confirming its terms has been issued in
terms satisfactory to the Contractor by the Head of State of Georgia.
1.35 "Excess Associated Natural Gas" is defined as set forth in Article
16.1.b.
1.36 "Excess Crude" is defined as set forth in Article 11.15.
1.37 "Exploration" or "Exploration Operations" means operations conducted
under this Contract in connection with the exploration for previously
undiscovered Petroleum, or the evaluation of discovered reserves which
shall include geological, geophysical, aerial and (other survey)
activities and any interpretation of data relating thereto as may be
contained in Exploration Work Programs and Budgets, and the drilling of
such shot holes, core holes, stratigraphic tests, Exploratory Xxxxx for
the discovery of Petroleum, Appraisal xxxxx and other related
operations.
1.38 "Exploration Expenditures" shall mean all costs and expenses for
Exploration Operations other than Drilling Costs whether directly or
indirectly incurred including but not limited to training,
administration, service, Finance Costs and related expenses and
overhead and study costs.
8
9
1.39 "Exploratory Well" means any well drilled with the objective of
confirming a structure or geologic trap in which Petroleum capable of
Commercial Production in significant quantities has not been previously
discovered.
1.40 "Field" means a Petroleum reservoir or group of reservoirs within a
common geological structure or feature. "Field" may be an "Oil Field"
or a "Natural Gas Field" as designated by Contractor.
1.41 "Finance Costs" or "Interest Costs" shall include all amounts of
interest, fees and charges paid in respect of any debt incurred in
carrying out the Petroleum Operations and any refinancing of such
debts, providing that in the case of Affiliate debt, it shall include
interest only to the extent that it does not exceed a rate which would
have been agreed upon between independent parties in similar
circumstances and such interest is not limited by which assets or
services are purchased by the loan principal.
1.42 "Force Majeure" is defined as set forth in Article 25.2.
1.43 "Foreign Employee" is defined as set forth in Article 17.21
1.44 "Foreign Subcontractors" means Subcontractors which are organised
outside of Georgia.
1.45 "Gas Sales Contract" is any contract to be entered into for the sale of
Non-associated Natural Gas in accordance with the provisions of Article
16.2.
1.46 "GMJV" means Georgia-Makoil Joint Venture.
1.47 "GMJV Licence" is the licence annexed hereto as Annex D, being the
"Complex Licence" issued by the Chairman of the specialized office for
Licensing and Informatics of "Saknavtobi" Department of the Republic of
Georgia to GMJV dated December 1994 together with all enclosures and
associated authorisations of Government.
1.48 "Joint Operating Agreement" or "JOA" means the agreement to be
concluded between the Contractor Parties, Georgian Oil and GBOC which
shall be supplementary to and consistent with the provisions of this
Contract and which shall regulate the terms under which Petroleum
Operations will be conducted.
1.49 "LIBOR" means the three (3) months U.S. Dollars London Interbank fixing
offer rate quoted daily in the London Financial Times.
1.50 "Marketing Team" is defined as set forth in Article 16.2.a.ii.
1.51 "Measurement Point" means the location specified in an approved
Development Plan where the Petroleum is metered and delivered to the
Parties.
1.52 "Month" or "Calendar Month" means a calendar month.
9
10
1.53 "Natural Gas" means Non-associated Natural Gas and Associated Natural
Gas in their natural state.
1.54 "Natural Gas Field" means a field from which more than fifty (50)
percent of the estimated reserves on an energy equivalency basis are
Natural Gas at surface conditions.
1.55 "Non-associated Natural Gas" means all gaseous hydrocarbons produced
from gas xxxxx, and includes wet gas, dry gas and residue gas remaining
after the extraction of liquid hydrocarbons from wet gas.
1.56 "Oil Field" means a field from which more than fifty (50) percent of
the estimated reserves comprise Crude Oil.
1.57 "Operation Expenses" shall mean those costs incurred in day-to-day
Petroleum Operations in or in relation to the Contract Area, whether
directly or indirectly incurred including but not limited to all costs,
expenses and expenditures associated with the Production, processing,
transportation, export and sale of Petroleum, training, administration,
service, Finance Costs, payments for abandonment and site restoration
in accordance with Article 9.8, insurance costs in accordance with
Article 23 and related expenses, all made after the commencement of
Commercial Production.
1.58 "Operator" shall (unless the Parties otherwise agree) be GBOC (or with
the consent of the Parties a subsidiary of GBOC) which shall perform
the obligations of an operator in accordance with the provisions of
this Contract and the JOA.
1.59 "Party" or "Parties" means the parties whose authorised representatives
have affixed their signatures hereto.
1.60 "Petroleum" means Crude Oil and Natural Gas.
1.61 "Petroleum Operations" means the Exploration Operations, the
Development Operations, Production Operations, and transportation,
export and other activities related thereto carried out pursuant to
this Contract and the JOA.
1.62 "Petroleum Operations Account" shall have the meaning given to it in
paragraph 4.1 of section I of the Accounting Procedure.
1.63 "Previous Production" means agreed production figures for the Contract
Area set out in Annex B.
1.64 "Production" or "Production Operations" means operations and all
related activities carried out for Petroleum production after the
approval of any Development Plan, including without limitation
extraction, injection, stimulation, treatment, transportation, storage,
lifting, and associated operations, but does not include any storage or
transportation beyond the Measurement Point.
10
11
1.65 "Profit Natural Gas" is defined as set forth in Article 11.10.
1.66 "Profit Oil" is defined as set forth in Article 11.10.
1.67 "Profit Tax" is defined as set forth in Article 17.
1.68 "State" or "Government" means the Government of Georgia and all
political or other agencies or instrumentalities or subdivisions
thereof including but not limited to any local government or other
representative, agency or authority, which has the authority to govern,
legislate, regulate, levy and collect taxes or duties, grant licences,
permits, approve or otherwise impact (whether financially or otherwise)
directly or indirectly upon any of the Parties' rights, obligations or
activities under the Contract; the word "Governmental" shall be
construed accordingly.
1.69 "Study Area" is the part of the Contract Area which will be defined in
a Study Program.
1.70 "Study Program" shall mean the program to be produced and carried out
by the Contractor in accordance with Article 9 following the conclusion
that Commercial Production is feasible.
1.71 "Subcontractor" means any natural person or juridical entity contracted
directly or indirectly by or on behalf of Contractor to supply goods,
works or services related to this Contract.
1.72 "Tax Inspectorate" is defined as set forth in Article 17.18.
1.73 "Third Party" or "Third Parties" means one or more of a natural person
or juridical entity other than a Party hereto and any Affiliate of a
Party.
1.74 "Taxes" means all levies, duties, payments, fees, taxes or
contributions payable to or imposed by Governmental agencies,
Governmental subdivisions or republican, municipal or local authorities
within the Government of Georgia.
1.75 "VAT" means Georgian value added tax.
1.76 "Withhold Tax" is defined as set forth in Article 17.23.
1.77 "Work Program" and "Work Program and Budget" shall mean any work
program and work program and Budget to be submitted to the Coordination
Committee by the Contractor in accordance with the provisions of
Article 10 and which shall set out the proposed Petroleum Operations to
be carried out in the Contract Area together with the associated Budget
as the case may be.
11
12
ARTICLE 2
SCOPE OF CONTRACT AND GENERAL PROVISIONS
2.1 By its approval of this Contract the State hereby ratifies the GBOC
Licence as amended by the terms of this Contract. The terms of the GBOC
Licence shall with effect from the Effective Date be merged with this
Contract and be deemed to be amended so that any provision which is
inconsistent with the provisions of this Contract or which otherwise
detracts or lessens the rights of the Contractor hereunder shall be
deemed to have been replaced with the applicable provision of this
Contract. Where there is any inconsistency between the terms of the
GBOC Licence or this Contract, then the provisions of this Contract
shall apply. The benefits, rights and obligations under the GBOC
Licence as amended by this Contract shall extend to Georgian Oil and
each Contractor Party. Without prejudice to the rights of Georgian Oil
and the Contractor to carry out Petroleum Operations in accordance with
this Contract GBOC's rights and interests under the GBOC Licence shall
be held by it for the benefit of Georgian Oil and the Contractor.
2.2 Subject to the terms and conditions of the Contract and with the
consent and concurrence of GBOC, the State hereby grants to Georgian
Oil and the Contractor Parties the exclusive rights to conduct
Petroleum Operations in the Contract Area during the term of this
Contract.
2.3 Georgian Oil and Contractor shall be responsible to the State for the
execution of such Petroleum Operations with GBOC acting as operator all
in accordance with the provisions of the Contract.
2.4 In performing Petroleum Operations, Contractor shall provide all
financial and technical requirements, unless otherwise provided in this
Contract, or agreed with Georgian Oil, and conduct all operations in
accordance with the standards generally accepted in the international
Petroleum industry. Contractor may borrow capital from Third Parties
and/or from Affiliated Companies for the financing required for the
investments necessary for Petroleum Operations. Interest Costs charged
for such loans, premiums, expenses (of whatever nature) and exchange
control gains and losses shall be chargeable as provided in the
Accounting Procedure, and recoupable as Cost Recovery Petroleum as
provided in Article 11.
2.5 Contractor shall be compensated for its services, not by way of
reimbursement in cash of its expenditures under the Contract, but by
receipt of its share of Petroleum from the Contract Area to which it
may become entitled by way of recovery of Costs and Expenses from Cost
Recovery Petroleum under Article 11. If Petroleum produced from
Development Areas within the Contract Area developed by Contractor is
insufficient to reimburse Contractor for Costs and Expenses incurred by
Contractor, Contractor shall bear its own losses in respect of any
shortfall.
12
13
2.6 This Contract together with the JOA to be executed pursuant hereto
defines the Parties' rights and obligations, governs their mutual
relations and establishes the rules and methods for the Exploration,
Development, Production, and sharing of Petroleum between them. The
entire interests, rights and obligations of each of the Parties under
this Contract shall be solely governed by the provisions of this
Contract and the JOA to be executed pursuant hereto. The Contractor and
Georgian Oil may as between themselves, agree in writing to amend any
provision of this Contract where to do so would, in the opinion of both
the Contractor and Georgian Oil improve the day to day operations
contemplated hereunder, but not so as to vary any fundamental provision
of this Contract.
2.7 During the period in which this Contract is in force, all Available
Crude Oil and Available Natural Gas resulting from Petroleum
Operations, will be shared between Georgian Oil and the Contractor in
accordance with the provisions of Article 11 of this Contract.
2.8 Georgian Oil and Contractor agree that the Operator shall be GBOC. That
appointment shall be effective from the Effective Date. The Operator
shall act as the designated non-profit agent of Georgian Oil and
Contractor for the conduct of Petroleum Operations in accordance with
this Contract and the JOA. As described in Article 17 of this Contract
the Operator shall be entitled to full and complete exemption from all
Taxes imposed prior to or after the Effective Date.
2.9 The State hereby appoints Georgian Oil, a state owned body, as its
designated representative to perform the obligations which it is
required to perform and to enjoy the benefits (including the right to
receive its share of Petroleum) which has been granted hereunder. The
Contractor shall be entitled to rely on the fact that Georgian Oil is
the representative of the State for the purposes of this Contract and
that the benefits given to Georgian Oil can be considered benefits
given to the State.
ARTICLE 3
CONTRACT AREA
3.1 The Contract Area is as set out by the geographic location and
coordinates described in Annex "A" attached hereto and delineated in
the map which forms part thereof. The total area of the Contract Area
may hereafter be reduced only in accordance with the provisions of this
Contract.
13
14
3.2 Except as for all rights and authorisations necessary for the
implementation of the provisions of this Contract, no right is granted
in favour of the Contractor or Georgian Oil to the use or disposal of
any other natural or man-made resources or aquatic resources.
ARTICLE 4
CONTRACT TERM
4.1 The term of the Contract shall be deemed to have begun on the date of
the GBOC Licence and shall continue for a total of twenty-five (25)
consecutive Contract Years, unless the Contract is sooner terminated in
accordance with Article 29 of this Contract, or is extended in
accordance with Article 5, 16 or 25 of this Contract.
4.2 If in respect of any Development Area, Commercial Production remains
possible beyond the initial period of 25 consecutive Contract Years
specified in Article 4.1 or any extension provided under this Article
4.2, the Contractor, after giving notice to the State at least one (1)
year prior to the end of any such term shall automatically be entitled
to have an extension of the term of this Contract with respect to such
Development Area for an additional term of five (5) Contract Years, or
the producing life of the Development Area, whichever is lesser.
ARTICLE 5
RELINQUISHMENTS
5.1 Subject to Article 5.2, Contractor shall select and relinquish portions
of the Contract Area as follows:
a) at least fifty percent (50%) of the original Contract Area,
not later than five (5) Contract Years after the date of the
GBOC Licence; and
b) at least fifty percent (50%) of the Contract Area remaining
after the relinquishment of Clause 5.1(a) occurs not later
than ten (10) Contract Years after the date of the GBOC
Licence; and
c) at least fifty percent (50%) of the Contract Area remaining
after the relinquishment of Clause 5.1(b) occurs not later
than fifteen (15) Contract Years after the date of the GBOC
Licence; and
14
15
d) at least fifty percent (50%) of the Contract Area remaining
after the relinquishment of Clause 5.1(c) occurs not later
than twenty (20) Contract Years after the date of the GBOC
Licence.
5.2 The Contractor shall not be required pursuant to Article 5.1 to
relinquish any portion of the original Contract Area containing a
Development Area.
5.3 Unless the Contract is earlier surrendered or terminated, the
Contractor shall furnish the State and Georgian Oil with a description
of the boundaries of the part of the Contract Area to be relinquished
not less than ninety (90) days in advance of the deadline for the
relinquishment prescribed in Article 5.1.
5.4 The area designated under Article 5.3 for relinquishment shall consist
as far as practicable of rectangular blocks bounded by lines running
due north and south and due east and west and shall not be less than
five (5) square kilometres. The area designated for relinquishment need
not consist of one contiguous area.
5.5 Contractor may at any time relinquish voluntarily all or any part of
the Contract Area. Article 5.4 shall apply to all voluntary
relinquishments. Any such voluntary relinquishment of less than all of
the Contract Area shall be credited toward any subsequent
relinquishment obligations hereunder.
ARTICLE 6
COORDINATION COMMITTEE
6.1 For the purpose of providing the overall supervision and direction of
and ensuring the performance of the Petroleum Operations, Georgian Oil
and Contractor shall establish a Coordination Committee within
forty-five (45) days of the Effective Date.
6.2 The Coordination Committee shall comprise a total of eight (8) members.
Georgian Oil (for itself and the State) shall appoint a total of four
(4) representatives and Contractor shall appoint four (4)
representatives to form the Coordination Committee. Georgian Oil and
Contractor shall each designate one of its representatives as its chief
representative. All the aforesaid representatives shall have the right
to attend and present their views at meetings of the Coordination
Committee. Each representative shall have the right to appoint an
alternate who shall be entitled to attend all meetings of the
Coordination Committee but who shall have no vote except in the absence
of the representative for whom he is the alternate. When a decision is
to be made on any proposal, the chief representative from each Party
shall be the spokesman on behalf of such Party.
15
16
6.3 The first chairman of the Coordination Committee shall be the chief
representative designated by the Contractor (or his alternate), and the
first vice chairman shall be the chief representative designed by
Georgian Oil (or his alternate). The chairman and vice chairman shall
be appointed for a term of two (2) years. Following the end of each
such two (2) year term of appointment, the identity of the chairman and
the vice chairman shall rotate so that for the next two (2) year period
the previous chairman shall become vice chairman for the next two (2)
years and the vice chairman shall become chairman for the next two (2)
years. The chairman of the Coordination Committee shall preside over
meetings of the Coordination Committee and in the absence of the
chairman (or his alternate), the vice chairman shall preside. Such
Parties may designate a reasonable number of advisors, who may attend,
but shall not be entitled to vote at, Coordination Committee meetings.
6.4 A regular meeting of the Coordination Committee shall be held at least
once a Calendar Quarter. The secretary to be designated pursuant to
Article 6.9 shall be responsible for calling such regular meetings of
the Coordination Committee and shall do so at the request of the
chairman by sending a notice to the Parties. Other meetings, if
necessary, may be held at any time at the request of Georgian Oil or
Contractor. In each case the secretary shall give the Parties at least
30 days notice (or such shorter period as the Parties may agree) of the
proposed meeting date, the time and location of the meeting.
6.5 The Parties hereby empower the Coordination Committee to:
a) review and examine any Work Program and Budget proposed by the
Contractor and any amendment thereof;
b) determine the Commerciality of each proposed Development
Operation;
c) review and adopt proposed Development Operations and Budgets;
d) approve or confirm the following items of procurement and
expenditures:
i) approve procurement of any item within the Budget
with a unit price exceeding Two Hundred and Fifty
Thousand U.S. $ (U.S.$ 250,000) or any single
purchase order of total monetary value exceeding One
Million U.S. $ (U.S.$1,000,000);
ii) approve a lease of equipment, or an engineering
subcontract or a service contract within the Budget
worth more than One Million U.S. $ (US$1,000,000) in
total; and
iii) confirm excess expenditures pursuant to Article 10.5
hereof and the expenditures pursuant to Article 10.6
hereof;
16
17
e) demarcate boundaries of a Development Area;
f) review and approve the insurance program proposed by the
Contractor and emergency procedures on safety and
environmental protection;
g) review and approve personnel policies, selection and training
programs for Operator. Without prejudice to the foregoing, it
is accepted that part of the personnel policy of Operator
shall be to give priority to former employees of Georgian Oil,
provided that the conduct of Petroleum Operations shall not be
affected;
h) discuss, review, decide and approve other matters that have
been proposed by either Georgian Oil, Contractor or the
Operator;
i) review and examine matters required to be submitted to
relevant authorities of the State;
j) review and discuss the development work and technological
regimes proposed by Contractor and Georgian Oil; and
k) appoint sub-committees to meet from time to time to review any
aspect of Petroleum Operations, which the Coordination
Committee thinks fit.
6.6 Decisions of the Coordination Committee shall be made by unanimous
decision of the representatives present and entitled to vote. Each
representative will have one vote. All decisions made unanimously shall
be deemed as formal decisions and shall be conclusive and equally
binding upon the Parties.
6.7 Georgian Oil and Contractor shall endeavour to reach agreement on all
matters presented to the Coordination Committee, however, if these
Parties fail to reach agreement on any matter during a meeting of the
Coordination Committee then following discussion and after the
Contractor has provided full reasons for its proposal the Contractor's
proposal shall prevail. In the event that on any matter the Parties are
unable to reach agreement and the Contractor is insisting that its
proposal shall prevail, if Georgian Oil is reasonably of the view that
the proposed action would result in serious depletion of a field or
reservoir resulting in either permanent damage to that field or
reservoir or materially reduced recovery of Petroleum over the life of
the field or reservoir then the matter will be referred to an
independent expert appointed by the Contractor and Georgian Oil whose
decision on the matter shall be final and binding. The costs of the
expert shall be met by the Parties equally and shall be recoverable as
Costs and Expenses.
6.8 A matter which requires urgent handling may be decided by the
Coordination Committee without convening a meeting, with the
Coordination Committee making decisions through telexes or the
circulation of documents.
17
18
6.9 The Coordination Committee shall nominate a secretary, to record
minutes of the meetings of the Coordination Committee, and may
establish technical and other advisory sub-committees. The secretary
shall take a record of each proposal voted on and the results of such
vote at each meeting of the Coordination Committee. Each representative
of the Parties shall sign and be provided with a copy of such record at
the end of such meeting. The secretary shall provide each Party with a
copy of the minutes of each meeting of the Coordination Committee
within fifteen (15) days after the end of such meeting. Each Party
shall thereafter have a period of fifteen (15) days to give notice of
any objections to the minutes to the secretary. Failure to give notice
within the said fifteen (15) day period shall be deemed approval of
those minutes. In any event the record of proposals voted on to be
provided at the end of each meeting shall be conclusive and take
precedence over the minutes
6.10 All costs and expenses incurred with respect to the activities of the
Coordination Committee shall be paid or reimbursed by the Contractor
and charged to Operation Expenses in accordance with the Accounting
Procedure.
ARTICLE 7
OPERATOR RESPONSIBILITY
7.1 The Parties agree that GBOC shall act as the Operator for Petroleum
Operations within the Contract Area in accordance with approved Work
Programs and Budgets unless otherwise stipulated in this Article 7.
7.2 The Operator shall have the following obligations:
a) To perform the Petroleum Operations reasonably, economically
and efficiently in accordance with directions received from
the Coordination Committee. It is recognised that the
Coordination Committee through the Operator will have
operating control of all Petroleum Operations, including the
right to authorise the appointment of the Operations Director;
b) To assist the Contractor as requested in implementation of the
Work Programs and Budgets approved by the Coordination
Committee;
c) To be responsible for domestic procurement of installations,
equipment and supplies and entering into subcontracts and
service contracts on behalf of Contractor with domestic
service providers and vendors related to the Petroleum
Operations, in accordance with approved Work Programs and
Budgets and instructions from Contractor;
18
19
d) To prepare and submit for approval a personnel training
program and its annual budget and carry out the same as
approved by the Coordination Committee;
e) To establish and maintain complete and accurate accounting
records regarding its costs and expenditures for the Petroleum
Operations in accordance with the Accounting Procedure and
this Contract;
f) To make necessary preparation for regular meetings of the
Coordination Committee, and to submit to the Coordination
Committee information related to the matters reviewed and
approved by the Coordination Committee;
g) To assist Contractor and Georgian Oil as requested in the
provision of reports to the Coordination Committee on
Petroleum Operations conducted under this Contract.
8.1 Operator, Georgian Oil GMJV and Contractor, and their direct and
indirect shareholders, shall not be directly or indirectly liable to
persons or entities not Parties for any loss or damage arising out of,
occasioned by or associated with the performance of the Petroleum
Operations under this Contract. Responsibility for all activities
(including Petroleum activities) affecting the Contract Area prior to
the date of the GBOC Licence and the direct and indirect consequences
of such activities shall remain with the State and the Contractor shall
have no responsibility therefor. The State shall indemnify the
Contractor in respect of such prior activity to the extent that the
Contractor suffers any loss as a direct or indirect result thereof.
8.1 The Operator shall provide all Parties with copies of all relevant data
and reports pertaining to Petroleum Operations required by such
Parties.
8.1 The Parties agree to use their best endeavours to agree and execute a
Joint Operating Agreement which should be in place no later than 31
January 1996. The Joint Operating Agreement shall be based on good
international Petroleum industry practices and shall be wholly
consistent with and shall not detract from the provisions of this
Contract.
ARTICLE 8
AMENDMENT TO CHARTER OF GMJV
8.1 By their execution hereof Georgian Oil and XX Xxxxx Exploration &
Production Limited (as the founders of GBOC) hereby confirm that upon
this Contract being given full force of law in Georgia in accordance
with the provisions of Article 32, the Charter of GBOC shall forthwith
be amended to reflect the rights and obligations of the Parties set out
in this Contract. Furthermore the Parties recognise GBOC's role as
Operator in the Contract Area in accordance with this Contract.
19
20
ARTICLE 9
PROCEDURE FOR DETERMINATION OF COMMERCIALITY AND APPROVAL OF DEVELOPMENT PLANS
9.1 If, at any time Contractor concludes that Commercial Production (or
significant additional Commercial Production if Commercial Production
has previously been established) from the Contract Area is feasible, it
shall notify Georgian Oil within five (5) days of reaching such a
conclusion.
9.2 Within forty-five (45) days of receipt of such notice, Contractor shall
in the first instance present to the Coordination Committee for
approval a proposed Study Program which shall be deemed approved if no
written objections are raised by any member of the Coordination
Committee within thirty (30) days following receipt thereof. The
proposed Study Program shall specify in reasonable detail the appraisal
work including seismic, drilling of xxxxx and studies to be carried out
and the estimated time frame within which the Contractor shall commence
and complete the program.
9.3 Thereafter the Contractor shall carry out the Study Program approved by
the Coordination Committee. Within ninety (90) days after completion of
such Study Program, the Contractor shall submit to the Coordination
Committee a comprehensive evaluation report on the Study Program. Such
evaluation report shall include, but not be limited to: geological
conditions, such as structural configuration; physical properties and
extent of reservoir rocks; pressure, volume and temperature analysis of
the reservoir fluid; fluid characteristics, including gravity of liquid
hydrocarbons, sulphur percentage, sediment and water percentage, and
product yield pattern; Natural Gas composition; production forecasts
(per well and per Field); and estimates of recoverable reserves.
9.4 Together with the submission of the evaluation report, or at any other
time, the Contractor shall submit to the Coordination Committee a
written declaration including one of the following statements:
a) that the Commercial Production previously notified to Georgian
Oil pursuant to Article 9.1 is feasible;
b) that such Commercial Production is not feasible (contrary to
the notice containing Contractor's initial expectations); or
c) that Commercial Production will be conditional on the outcome
of further specified work that the Contractor commits to carry
out under a
20
21
further Exploration or Study Program in specified areas within
or outside the relevant Study Area.
9.5 In the event the Contractor makes a declaration under Article 9.4(c)
above, Contractor shall be entitled to retain the relevant Study Area
pending the completion of the further work committed under that
Article, at which time the Contractor shall advise the Coordination
Committee of its conclusion as to whether or not there is in fact a new
Commercial Discovery and the provisions of Article 9.4(a) or (b) shall
be applied accordingly.
9.6 If the Contractor declares pursuant to Article 9.4(a) that Commercial
Production is feasible, the Contractor shall submit to the Coordination
Committee (a) a proposed Development Plan in respect of the relevant
Commercial Discovery (containing the matters specified in Article 9.7
and 9.8) and (b) a proposed designation of the Development Area, both
of which shall be subject to the Coordination Committee's approval.
Such approval will not be unreasonably withheld or delayed, provided
that each shall be deemed approved as submitted if no written
objections are presented thereto by any member of the Coordination
Committee within forty-five (45) days of receipt. Upon approval being
granted or deemed as provided under this Article 9.6, the Contractor,
with any requested assistance from the Operator, shall proceed promptly
and diligently to implement the Development Plan in accordance with
good international Petroleum industry practices, to install all
necessary facilities and to commence Commercial Production.
9.7 The Contractor's proposed Development Plan to be submitted pursuant to
Article 9.6 shall detail the Contractor's proposals for Development and
operation of the Development Area. It will detail any facilities and
infrastructure which may be required up to the Measurement Point,
either inside or outside of the Development Area. Any Development Plan
shall set forth production parameters, number and spacing of xxxxx, the
facilities and infrastructure (including proposed locations) to be
installed for production, storage, transportation and loading of
Petroleum, an estimate of the overall cost of the Development, and
estimates of the time required to complete each phase of the
Development Plan, a production forecast and any other factor that would
affect the economic or technical feasibility of the proposed
Development.
9.8 Any Development Plan shall also include an abandonment and site
restoration program together with a funding procedure for such program.
Each abandonment plan shall describe removal and abandonment measures
deemed necessary following completion of Production from the relevant
Development Area together with an estimate of the costs thereof. The
abandonment plan shall provide for the removal of facilities and
equipment used in Petroleum Operations or their in place abandonment,
if appropriate, in the Development Area and the return of used areas to
a condition that reasonably permits the use of such areas for purposes
similar to those uses existing prior to the commencement of Petroleum
Operations hereunder. All expenditures incurred
21
22
in abandonment and site restoration shall be treated as Costs and
Expenses and recoverable from Cost Recovery Petroleum in accordance
with Article 11 and the Accounting Procedure. All funds collected
pursuant to the funding procedure shall be dedicated to site
restoration and abandonment and will be placed in a special interest
bearing account by Contractor, which shall be held in the joint names
of the State and the Contractor or their nominees. Contractor's
responsibilities for environmental degradation, site restoration and
well abandonment obligations, and any other actual, contingent and
potential activity associated with the environmental status of the
Development Area shall be limited to the obligation to place the funds
agreed to be paid in accordance with the said funding procedure in the
approved account in accordance with generally accepted international
Petroleum industry practice. Any agreed deposits in approved accounts
shall be made on a quarterly basis in arrears commencing with the
Calendar Quarter after recovery of the relevant Development
Expenditures and Drilling Costs. All such payments deposited by
Contractor shall be treated as Costs and Expenses and recoverable as
Operation Expenses from Cost Recovery Petroleum in accordance with
Article 11 of this Contract. No Taxes shall be imposed on any amounts
paid into, received or earned by or held in the special interest
bearing account. The State shall be solely responsible for the
implementation of the abandonment plan.
9.9 Any significant changes to an approved Development Plan or proposals
related to extension of a Field or for enhanced recovery projects shall
be submitted to the Coordination Committee.
9.10 Subject to the terms of this Contract the Contractor shall carry out,
at its own expense and financial risk, all the necessary Petroleum
Operations to implement an approved Development Plan. However, if, the
Contractor is able to demonstrate to the reasonable satisfaction of the
Coordination Committee that exploitation turns out not to be
commercially profitable, the Contractor shall not be obligated to
continue Development or Production.
9.11 Should access to suitable infrastructure necessary for Development of
any Discovery or for export of Contractor's share of Petroleum from any
Discovery be unavailable or restricted as a result of the acts or
omissions of the State or Georgian Oil, Contractor may, at its option,
declare its obligations under this Contract to be suspended under the
terms of Article 25 (Force Majeure) until such time as the condition
has been remedied. Where there is a perceived need recognised by the
State, Georgian Oil and the Contractor to improve the economic
effectiveness of the Petroleum Operations by constructing and operating
certain common facilities with other organisations (including for
example roads, pipelines, compression and pumping stations and
communication lines) the Parties shall use their best efforts to reach
agreement between themselves and other appropriate enterprises as to
the construction and operation of such facilities with all costs,
tariffs and investments made by the Contractor to be recoverable as
Operation Expenses in accordance with Article 11 of the Contract and
Accounting Procedure.
22
23
ARTICLE 10
ANNUAL WORK PROGRAMS AND BUDGETS
10.1 Contractor shall be responsible for the procurement of installations,
equipment and supplies and entering into contracts for the purchase of
goods and services with Foreign Subcontractors and others arising out
of Petroleum Operations, all in accordance with approved Work Programs
and Budgets. Operator shall assist the Contractor when requested in
respect of the matters set out in the previous sentence, and shall
implement domestic procurement operations as provided in Clause 7.2(c)
in accordance with approved Work Programs and Budgets.
10.2 Within ninety (90) days after the Effective Date, Contractor shall
submit to the Coordination Committee for its approval a Work Program
and the corresponding Budget for the next succeeding Calendar Year.
10.3 Before the 15th October of each Calendar Year, the Contractor shall
prepare and submit to the Coordination Committee for its review a
proposed annual Work Program and Budget for the next Calendar Year. If
the Coordination Committee requests any modifications in an annual Work
Program and/or Budget, the Contractor shall promptly make such
modifications to the Work Program and/or Budget and resubmit the
modified Work Program and Budget to the Coordination Committee. The
Coordination Committee shall approve each Work Program and Budget
within forty five (45) days after receipt of same. If the Coordination
Committee fails to notify the Contractor of its approval of the Work
Program and Budget within said forty five (45) days after its receipt,
the annual Work Program and Budget proposed by the Contractor together
with any modifications timely requested by the Coordination Committee,
shall be deemed to have been approved by the Coordination Committee.
10.4 In connection with the review and approval of the annual Work Program
and Budget, the Contractor and Operator shall submit to the
Coordination Committee such supporting data as may be requested by the
Coordination Committee.
10.5 The Contractor may, in accordance with the following provisions, incur
expenditures in excess of the approved Budget or expenditures outside
the approved Budget in carrying out the approved Work Program, provided
that the objectives in the approved Work Program are not substantially
changed:
a) In carrying out an approved Budget, the Contractor may, if
necessary, incur excess expenditures of no more than ten
percent (10%) of the approved Budget in any specified
budgetary category. The Contractor
23
24
shall report quarterly the aggregate amount of all such excess
expenditures to the Coordination Committee for confirmation.
b) For the efficient performance of Petroleum Operations, the
Contractor may, without approval, undertake certain individual
projects which are not included in the Work Program and
Budget, for a maximum expenditure of Two Hundred Fifty
Thousand U.S.$ (U.S.$250,000), but shall, within ten (10) days
after such expenditures are incurred, report to the
Coordination Committee for confirmation.
c) Excess expenditures under this Article 10.5 shall not exceed
five percent (5%) of the approved or modified total annual
Budget for the Calendar Year. If the aforesaid excess is
expected to be in excess of said five percent (5%) of the
total annual Budget, the Contractor shall present its reasons
therefor to the Coordination Committee and obtain its approval
prior to incurring such expenditures.
10.6 In case of emergency, the Contractor may incur emergency expenditures
for the amount actually needed but shall report such expenditures to
the Coordination Committee as soon as they are made. The said emergency
expenditures shall not be subject to Article 10.5 above.
10.7 The Parties agree that the approval of a proposed Work Program and
Budget will not be unreasonably withheld and shall be approved if the
proposed Work Program is consistent with generally accepted
international Petroleum practices.
10.8 Petroleum Operations will only be performed in accordance with the
approved or modified annual Work Program and Budget.
ARTICLE 11
ALLOCATION OF PRODUCTION, RECOVERY OF COSTS AND EXPENSES, PRODUCTION SHARING,
AND RIGHT OF EXPORT
11.1 Contractor shall provide or procure the provision of all funds required
to conduct Petroleum Operations under this Contract, except as
otherwise provided in this Contract, and Contractor shall be entitled
to recover its Costs and Expenses from Petroleum produced from the
Contract Area as provided below.
11.2 Costs and Expenses directly or indirectly incurred by JKX and its
Affiliated Companies prior to the Effective Date pursuant to the
provisions of the GMJV Licence shall be deemed to be Costs and Expenses
for the purposes of this Contract and shall be deemed to be incurred on
the Effective Date and shall be
24
25
recoverable from Cost Recovery Petroleum in accordance with the
provisions of this Contract.
11.3 Contractor and Operator shall have the right to use free of charge
Petroleum produced from the Contract Area to the extent required for
Petroleum Operations under the Contract. The amount of Petroleum which
Contractor and Operator shall be entitled to use for Petroleum
Operations shall not exceed the amount which would be expected to be
used in accordance with international Petroleum industry practice. For
the avoidance of doubt, the use of such Petroleum shall only be for the
benefit of Petroleum Operations and not the personal gain of any Party.
11.4 Available Crude Oil and Available Natural Gas in excess of Previous
Production, shall be measured at the applicable Measurement Point and
allocated as set forth hereinafter. Available Crude Oil and Available
Natural Gas not in excess of Previous Production shall be for the
account of Georgian Oil and Georgian Oil shall be entitled to lift such
Available Crude Oil and Available Natural Gas at the Measurement Point
in priority to the lifting of Profit Petroleum and Cost Recovery
Petroleum by the Parties.
11.5 Contractor and Georgian Oil shall be entitled to recover all Costs and
Expenses incurred in respect of Petroleum Operations from a maximum of
fifty percent (50%) per Calendar Year of all Available Crude Oil and
Available Natural Gas from the Contract Area (hereinafter referred to
as "Cost Recovery Crude Oil" and "Cost Recovery Natural Gas", as the
case may warrant). Recovery of Costs and Expenses shall be in a manner
consistent with the Accounting Procedure and Article 11.6.
11.6 Costs and Expenses shall be recoverable from Cost Recovery Petroleum on
a first in, first out basis (i.e. Costs and Expenses incurred will be
recovered according to the date they were incurred, earliest first).
Recovery of Costs and Expenses will commence as soon as Cost Recovery
Petroleum is available.
11.7 To the extent that in a Calendar Year outstanding recoverable Costs and
Expenses related to the Contract Area exceed the value of all Cost
Recovery Crude Oil or Cost Recovery Natural Gas from the Contract Area
for such Calendar Year, the excess shall be carried forward for
recovery in the next succeeding Calendar Years until fully recovered,
but in no case after termination of the Contract.
11.8 Recovery of Costs and Expenses shall be achieved by transferring to a
Party at the Measurement Point title to quantities of Cost Recovery
Petroleum of equivalent value (determined in accordance with Article
12) to the Costs and Expenses to be recovered in accordance with this
Article 11.
11.9 To the extent that the value of Cost Recovery Petroleum received by a
Party from the Contract Area during a Calendar Quarter is greater or
lesser than the
25
26
Party was entitled to receive for that Calendar Quarter, an appropriate
adjustment shall be made in accordance with the Accounting Procedure.
11.10 Following recovery of Costs and Expenses from Cost Recovery Petroleum
in accordance with the provisions of this Article 11, the remaining
Petroleum including any portion of Cost Recovery Petroleum not required
for recovery of Costs and Expenses (hereinafter referred to as "Profit
Oil" or "Profit Natural Gas") shall be allocated between Georgian Oil
and the Contractor in the following proportions, over each Calendar
Year:
a) Profit Oil Georgian Oil's Share Contractor Share
70% 30%
b) Profit Natural Gas - shall be shared on the same basis as
stated in (a) above after converting the Natural Gas to
barrels of Crude Oil on an energy equivalency basis.
11.11 Contractor shall prepare and provide Georgian Oil not less than ninety
(90) days prior to the beginning of each Calendar Quarter a written
forecast setting out the total quantity of Petroleum that Contractor
estimates can be produced and saved hereunder during each of the next
four (4) Calendar Quarters in accordance with good Petroleum industry
practices and the Work Program established in accordance with Article
10.
11.12 Crude Oil shall be measured at the Measurement Point for purposes of
the Contract and delivered to Georgian Oil and each Contractor Party
who as owners shall take in kind, assume risk of loss and separately
dispose of their respective entitlements of Cost Recovery Oil and
Profit Oil. All Cost Recovery Natural Gas and Profit Natural Gas shall
be sold on a jointly committed basis in accordance with Article 16 of
this Contract.
11.13 For the avoidance of any doubt, title to their relevant shares of
Petroleum shall pass from the State to Georgian Oil and each Contractor
Party as appropriate at the Measurement Point. GBOC and GMJV have no
title to any Petroleum.
11.14 Georgian Oil and Contractor shall agree on procedures for taking
volumes of Crude Oil corresponding to their respective entitlements on
a regular basis and in a manner that is appropriate having regard to
the respective destinations and uses of the Crude Oil, all in
accordance with the provisions of this Contract. If necessary Georgian
Oil and Contractor will enter into a lifting agreement setting out the
agreed procedures for taking volumes of Crude Oil, and such agreement
shall comply with the principles of good international Petroleum
industry practice.
11.15 In the event that in any Calendar Year Contractor's Cost Recovery Oil
plus its Profit Oil exceeds fifty percent (50%) of the total Cost
Recovery Oil plus Profit Oil, a volume of Crude Oil equivalent to that
excess ("Excess Crude") shall be offered for sale to the State from
Contractor's next available share of Crude Oil.
26
27
The State shall thereafter have the right for the next ten (10) days to
elect to purchase all or a portion of the Excess Crude and take
delivery, within twenty (20) days of the date of Contractor's offer at
a price for the Crude Oil equal to the world market price for similar
Crude Oil minus a discount of ten percent (10%). Purchases shall be
made in U.S.$ and the world market price shall be calculated as set
forth in Article 12. Payment shall be made on delivery at the
Measurement Point.
11.16 Details of all Costs and Expenses approved by the Contractor and
Georgian Oil will be provided to the State on a quarterly basis.
ARTICLE 12
CRUDE OIL VALUATION
12.1 It is the intent of the Parties that the value of the Cost Recovery
Petroleum shall reflect the prevailing international market price for
Crude Oil from time to time in effect. For the purpose of determining
the value of the Cost Recovery Petroleum taken and disposed of by the
Parties and/or their assignees under this Contract during each Calendar
Quarter, Georgian Oil and Contractor shall, prior to the date of
Commercial Production, agree upon the basket of Crude Oils freely
traded in international markets and referred to in subparagraph a)
below and the value of the Cost Recovery Petroleum shall be adjusted to
reflect the weighted average daily f.o.b. prices for term contract
sales from Petroleum producing countries in international markets for
the same Calendar Quarter of such basket of crude oils, it being
understood that the following principles will apply:
a) The weighted average of the basket shall be such that the
average gravity of the basket and the average gravity of the
Crude Oil produced under this Contract are equal; and
b) The prices for individual referenced Crude Oil markers used
within the basket shall be based upon the numerical average of
a daily report of the actual price for each referenced Crude
Oil marker as published in agreed internationally recognised
publications; and
c) Adjustment provisions will be incorporated into the basket
formula to take account of transportation costs involved in
Crude Oil produced under this Contract arriving at a
designated sales point (where the sales point is not the
Measurement Point) and to take account of gravity variation
beyond a pre-agreed range; and
27
28
d) Unless agreed otherwise, the last calculated weighted average
basket price shall serve as the provisional price for a
Calendar Quarter until a new price is determined.
12.2 In the event that Georgian Oil and Contractor are unable to agree upon
the basket of crude's envisaged in Article 12.1 above, or the
principles relating thereto, then either Georgian Oil or Contractor may
refer the question for a final, non-revisable determination by an
independent expert designated by the UK Institute of Petroleum. Pending
such determination, the price shall be as determined in Article 12.1d)
above.
12.3 Natural Gas shall be valued at the actual revenues received less
transportation, storage, treatment, processing, marketing,
distribution, liquefaction and all other associated costs incurred by
Contractor beyond the Measurement Point in supplying Natural Gas to
customers beyond the Measurement Point.
ARTICLE 13
ANCILLARY RIGHTS OF THE CONTRACTOR AND OPERATOR
13.1 In addition to the rights to carry out Petroleum Operations within the
Contract Area the State and Georgian Oil shall provide or otherwise
procure access to Contractor to all existing facilities and
infrastructure in the Contract Area owned by or otherwise under the
control of the State or Georgian Oil for the purpose of carrying out
its Petroleum Operations during the term of the Contract. Such access
shall be on terms as regards access and tariffs no less favourable than
those offered to other persons or entities.
13.2 Provided that Georgian Oil nad the State are provided with copies of
the following data the Contractor shall have the right to use,
reproduce, reprocess and export all existing geoscience, engineering,
environmental and geodetic data (including magnetic tapes and films)
maps, surveys, reports, and studies it deems necessary to carry out
Petroleum Operations hereunder including, but not limited to: magnetic
surveys, seismic surveys, well logs and analysis, core analysis, well
files, geologic and geophysical maps and reports, reservoir studies,
reserve calculations, accurate geodetic coordinates for the location of
all xxxxx and seismic lines and all other pertinent data relative to
the Contract Area. In the event that any data was to be sold to a Third
Party by either Georgian Oil or the contractor the proceeds would be
shared according to the share of the Profit Oil in accordance with
Article 11.
13.3 The Contractor shall have the right within the Contract Area to conduct
all geoscience, engineering, environmental and geodetic studies it
deems necessary to carry out Petroleum Operations hereunder.
28
29
Said studies may include, but are not limited to: seismic surveys,
magnetic surveys, global positioning surveys, aerial photography, and
the collection of soil/water/oil/rock samples for scientific and
environmental studies. Contractor shall be granted access to and/or
permission to fly subject to obtaining appropriate consents (which will
not be unreasonably withheld or delayed) over the Contract Area to
conduct said studies. Contractor shall have the right to import
equipment and supplies necessary to conduct said studies as well as the
right to export data, film and samples to laboratories outside the
State to conduct such studies.
13.4 Subject to (i) prior approval by the Coordination Committee; and (ii)
prior consultation with any necessary local administration or State
body and relevant landowners, the Contractor and/or Operator shall have
the right to clear the land, to dig, xxxxxx, drill, construct, erect,
locate, supply, operate, manage and maintain pits, tanks, xxxxx,
trenches, excavations, dams, canals, water pipes, factories,
reservoirs, basins, maritime storage facilities and such, primary
distillation units, separating units for first oil extraction, sulphur
factories and other Petroleum producing installations, as well as
pipelines, pumping stations, generator units, power plants, high
voltage lines, telephone, telegraph, radio and other means of
communication (including satellite communication systems), plants,
warehouses, offices, shelters, personnel housing, hospitals, schools,
premises, ports, docks, harbours, dikes, jetties, dredges, breakwaters,
underwater piers and other installations, ships, vehicles, railroads,
road, bridges, ferry-boats, airlines, airports and other means of
transportation, garages, hangers, workshops, foundries, maintenance and
repair shops and all the auxiliary services which are necessary or
useful to Petroleum Operations or related to them and, more generally,
everything that is or could become necessary or accessory to carrying
out the Petroleum Operations.
13.5 The agents, employees and personnel of both Contractor and Operator,
their nominees or Subcontractors, may enter or leave the Contract Area
and have free access, within the scope of their functions, to all
installations put in place by the Contractor or Operator or otherwise
utilised in Petroleum Operations.
13.6 Subject to prior consultation with any appropriate local State bodies
the Contractor shall have the right to utilise the upper soil, mature
timber, clay, sand, lime, gypsum and stones other than precious stones,
and any other similar substances, necessary for the performance of
Petroleum Operations. The Contractor may utilise the water necessary
for Petroleum Operations, on condition that reasonable efforts are
taken to minimise potentially adverse effects on irrigation and
navigation, and that land, houses and the watering places are not
adversely affected. All such operations shall be carried out in
accordance with international Petroleum practices.
13.7 The Contractor shall have the right to use existing pipeline and
terminal facilities belonging to or under the control of the State or
Georgian Oil. The State and Georgian Oil shall assist in making these
facilities available to the Contractor on terms with regard to access
and tariffs that are no less
29
30
favourable than those available to others and shall in no event exceed
five percent (5%) of the sales price of Crude Oil hereunder.
13.8 It is recognised by the Parties that in order to maximise the benefit
of Petroleum Operations to the State, Georgian Oil and the Contractor,
it is in the interests of the State to promote cooperation among
Georgian and foreign enterprises carrying on Petroleum Operations in
Georgia to share infrastructure in such a manner as to ensure efficient
operation among themselves. The State and Georgian Oil hereby agree to
secure access for the Contractor to any new or modernised pipelines or
other infrastructure passing through Georgia which may be constructed
or upgraded during the term of the Contract on terms with regard to
access and tariffs as are no less favourable than those available to
others including Georgia Oil and any other State body. These provisions
shall apply to any new or upgraded pipeline through Georgia which may
be constructed or modernised by or on behalf of the consortium
responsible for the development of the Azerbaijan Sector of the Caspian
Sea ("AIOC") whether or not in conjunction with the State and/or
Georgian Oil, and in any agreement with AIOC or any entity connected
therewith the State and/or Georgian Oil shall secure these benefits for
the Contractor and Georgian Oil. The State and Georgian Oil will take
all necessary steps to ensure that the Contractor is supplied with all
necessary information (including copies of contracts ,invoices and
accounts) to determine that the Contractor is being granted terms which
are no less favourable than those available to others, including
Georgian Oil.
ARTICLE 14
ASSISTANCE PROVIDED BY THE STATE
14.1 To enable the Contractor to properly carry out the Petroleum
Operations, the State shall have the obligation to assist the
Contractor and Georgian Oil upon request to:
a) provide the approvals or permits needed to conduct Petroleum
Operations and to carry on associated business activities and
to open bank accounts (for both local and foreign currency) in
Georgia;
b) arrange for Foreign Exchange to be converted in accordance
with the principles set out in Article 19.7 of this Contract;
c) use office space, office supplies, transportation and
communication facilities and make arrangements for
accommodations as required;
d) assist with any custom formalities;
30
31
e) provide entry and exit visas and work permits for employees
and their family members of Operator, Contractor, Contractor
Parties, their Affiliates and Foreign Subcontractors, who are
not citizens of Georgia, who come to Georgia for the
implementation of the Contract and to provide assistance for
their transportation, travel and medical facilities whilst in
Georgia;
f) provide necessary permissions to send abroad documents, data
and samples for analysis or processing during the Petroleum
Operations;
g) contact and instruct appropriate departments and ministries of
the State and any other bodies controlled by the State to do
all things necessary to expedite Petroleum Operations;
h) provide permits, approvals, and land rights requested by
Contractor and/or Operator for the construction of bases,
facilities and installations for use in conducting Petroleum
Operations; and
i) provide to the Contractor data and samples concerning the
Contract Area other than those produced as a result of
Petroleum Operations hereunder.
ARTICLE 15
MEASUREMENT, QUALITY AND VALUATION OF PETROLEUM
15.1 All Petroleum produced, saved and not used in the Petroleum Operations
in accordance with Article 11.3 shall be measured at the Measurement
Point approved in the Development Plan.
15.2 The Measurement Point shall be at the end of the facilities for which
the cost is included as a Cost and Expense which is recoverable from
Cost Recovery Petroleum under the Contract. The Measurement Point shall
be determined in accordance with the provisions set out in Article 9.
15.3 All Petroleum shall be measured in accordance with standards generally
acceptable in the international Petroleum industry. All measurement
equipment shall be installed, maintained and operated by Operator.
Contractor and Georgian Oil shall be entitled periodically to inspect
the measuring equipment installed and all charts and other measurement
or test data at all reasonable times. The accuracy of measuring
equipment shall be verified by tests at regular intervals and upon
request by either Georgian Oil or the Contractor, using means and
methods generally accepted in the international Petroleum industry.
31
32
15.4 Should a meter malfunction occur, Operator shall immediately have the
meter repaired, adjusted and corrected and following such repairs,
adjustment or correction shall have it tested or calibrated to
establish its accuracy. Upon the discovery of metering error, Operator
shall have the meter tested immediately and shall take the necessary
steps to correct any error that may be discovered.
15.5 In the event a measuring error is discovered, Contractor shall use all
reasonable efforts to determine the correct production figures for the
period during which there was a measuring error and correct previously
used readings. Contractor shall submit to the Coordination Committee a
report on the corrections carried out. In determining the correction,
Contractor shall use, where required, the information from other
measurements made inside or outside the Development Area. If it proves
impossible to determine when the measuring error first occurred, the
commencement of the error shall be deemed to be the point in time
halfway between the date of the last previous test and the date on
which the existence of the measuring error was first discovered.
15.6 All measurements for all purposes in this Contract shall be adjusted to
standard conditions of pressure at sea level and temperature at sixty
degrees Fahrenheit (60 (degrees)F).
ARTICLE 16
NATURAL GAS
16.1 Associated Natural Gas
a) Associated Natural Gas produced within the Contract Area shall
be used primarily for purposes related to the Production
Operations and production enhancement including, without
limitation, oil treating, gas injection, gas lifting and power
generation.
b) Based on the principle of full utilisation of the Associated
Natural Gas and with no impediment to normal production of the
Crude Oil, any Development Plan shall include a plan of
utilisation of Associated Natural Gas. If there is any excess
Associated Natural Gas remaining in any Oil Field after
utilisation pursuant to Article 16.1.a) above (hereafter
referred to as "Excess Associated Natural Gas"), the
Contractor shall carry out a feasibility study regarding the
commercial utilisation of such Excess Associated Natural Gas.
i) If Georgian Oil and Contractor agree that Excess
Associated Natural Gas has no commercial value, then
such Natural Gas
32
33
shall be disposed of by the Operator through
reinjection, venting, flaring or otherwise, provided
that there is no impediment to normal production of
the Crude Oil.
ii) If Georgian Oil and Contractor agree that Excess
Associated Natural Gas has commercial value, they
will endeavour to enter into gas sales agreement(s)
and/or other commercial and/or technical arrangements
with Third Parties required to develop such Natural
Gas. Investments in the facilities necessary for
production, transportation and delivery of Excess
Associated Natural Gas shall be made by the
Contractor. The construction of facilities for such
Production and utilisation of the Excess Associated
Natural Gas shall be carried out at the same time as
the Development Operations, or at any time as may be
agreed to by the Parties.
iii) If either Georgian Oil or Contractor considers that
Excess Associated Natural Gas has commercial value
while the other considers that Excess Associated
Natural Gas has no commercial value, the one who
considers Excess Associated Natural Gas to have
commercial value may utilise such Excess Associated
Natural Gas, at its own cost and expense and without
impeding the Production of Crude Oil and without
affecting the shares of Crude Oil and Natural Gas
otherwise to be allocated under the other provisions
of this Contract, but if such Excess Associated
Natural Gas is not so utilised at any time or from
time to time, then such Excess Associated Natural Gas
shall be disposed of by the Operator, provided that
there is no impediment to normal Production of the
Crude Oil.
c) The price of Associated Natural Gas produced from the Contract
Area shall be determined by Georgian Oil and Contractor based
on general pricing principles taking into consideration such
factors as sales prices of internationally transported gas
delivered in Western Europe, quality and quantity of the
Associated Natural Gas (including the equivalent substitute
energy value) and the economics of Development. Unless
otherwise agreed, Georgian Oil and Contractor shall
participate in all gas sales agreements entered into for the
sale of Associated Natural Gas produced from the Contract Area
in proportion to their Article 11 allocation rights. Gas sales
prices shall be denominated in U.S.$.
d) Investments made in conjunction with the utilisation of both
Associated Natural Gas and Excess Associated Natural Gas,
together with investments incurred after approval of a
Development Plan in carrying out feasibility studies on the
utilisation of Excess Associated Natural Gas, shall be charged
to Operation Expenses.
33
34
16.2 Non-associated Natural Gas
a) When any Non-associated Natural Gas is discovered within the
Contract Area, Georgian Oil and Contractor shall implement a
program regarding the Appraisal and possible development and
marketing of the Non-associated Natural Gas in the domestic
and international markets. This program shall include the
following principles:
i) After Non-associated Natural Gas has been discovered
within the Contract Area, the Contractor shall
present to the Coordination Committee, a report,
including, without limitation, an initial estimate of
the boundaries of the Non-associated Natural Gas
reservoir and a range of recoverable reserves.
ii) The decision period for commitment by Contractor to
an Appraisal Program shall be as soon as is practical
in all the circumstances but shall not be longer than
thirty-six (36) months from the submission of the
discovery report. During this decision period, the
Coordination Committee will form a Marketing Team
whose goal will be to conduct preliminary market
studies and analyse the potential markets for the
Non-associated Natural Gas. During this decision
period, Contractor will report to the Coordination
Committee at regular intervals on the progress and
results of the technical evaluation of moving forward
with an Appraisal Program. Within the said decision
period, Contractor will make its election whether or
not to commit to an Appraisal Program for the
Non-associated Natural Gas.
iii) If the Contractor commits to an Appraisal Program for
the Non-associated Natural Gas reservoir, delineation
and review of the potential of the Non-associated
Natural Gas reservoir will continue for a period not
longer than six (6) years from the submission of the
discovery report. During the review and Appraisal
periods, Contractor shall maintain all rights and
interests in the relevant portion of the Contract
Area.
iv) The expenses incurred by the Contractor in carrying
out the said review, evaluation and Appraisal Program
and the expenses incurred by the Marketing Team
representatives in conducting the preliminary market
studies and analysing the markets for the
Non-associated Natural Gas shall be charged to
Operation Expenses and are recoverable from Cost
Recovery Petroleum.
34
35
b) Following the completion of the Appraisal Program and review
of the potential of the discovery, Contractor shall submit an
appraisal report to the Coordination Committee. If the
Coordination Committee decides that the Discovery is
commercial, the Parties shall agree on a Development Plan. The
Parties shall also endeavour to finalise Gas Sales Contract(s)
and other agreements necessary for the commercialisation of
such Non-associated Natural Gas.
c) The price of the Non-associated Natural Gas produced from the
Contract Area shall be determined based on general pricing
principles, taking into consideration such factors as
representative sales prices of internationally transported
volumes delivered to distributors and end users in Western
Europe, quality and quantity of the Natural Gas (including the
equivalent substitute energy) and the economics of the
Development of such Natural Gas. Unless otherwise agreed,
Georgian Oil and Contractor shall participate in all Gas Sales
Contracts entered into for the sale of Non-associated Natural
Gas produced from the Contract Area in proportion to their
Article 11 allocation rights. Sales contract prices shall be
denominated in U.S.$.
d) The production period of any Gas Field within the Contract
Area shall be a period equal to the greater of the term of the
Gas Sales Contract(s) or other commercial Natural Gas
agreement for such Gas Field and twenty-five (25) consecutive
years beginning on the date of commencement of Commercial
Production in such Gas Field. If such period exceeds the
maximum term of the Contract, the term of the Contract so far
as it relates to such Gas Field shall extend until the end of
such production period. Georgian Oil and Contractor shall
endeavour to conclude Gas Sales Contract(s) and implement a
Development Plan for each Gas Field to deplete such Field
within its production period, subject always to the
application of good international Petroleum industry
development and operating practices.
16.3 Contractor may participate in the installation and operation of the
pipeline(s) required to transport Natural Gas produced from the
Contract Area to the market for such Natural Gas and share in any
revenues generated from the use of said pipeline(s) by others. If
Contractor participates in the installation and operation of such
pipeline(s), the installation and operation of such pipeline(s) shall
be included in a Development Plan and Petroleum Operations under this
Contract. Any such investment shall be recoverable from Cost Recovery
Petroleum.
16.4 If the State, any state-owned company or other entity, or Georgian Oil
provides Natural Gas transportation services to Contractor, then the
tariffs charged to Contractor for such services shall be
non-discriminatory, reasonably based on the investment necessary to
provide the transportation services and in no event will exceed charges
made to other entities including Georgian Oil and other State bodies.
The State and Georgian Oil will ensure that such
35
36
transportation services will be provided in a time frame that will not
delay field development.
ARTICLE 17
TAX/FISCAL REGIME
17.1 This Article shall apply to each Contractor Party individually.
17.2 Each Contractor Party, Foreign Subcontractor, GMJV, Foreign Employee
and Operator shall be entitled to full and complete exemption from all
Taxes prior to or after the Effective Date of this Contract except as
otherwise provided for in this Contract.
17.3 It is acknowledged that Georgia may enter into Double Tax treaties
which may have effect to give relief from Taxes to, but not limited to,
Contractor, Contractor Parties, Foreign Subcontractors and Foreign
Employees.
17.4 Each Contractor Party shall be subject to the Law of Georgia on
Taxation of Enterprises, dated 21 December 1993 as enacted and in
effect on the date of execution of this Contract, and as amended by the
provisions of this Contract (the "Profit Tax"). Each Contractor Party
having its head office or management in Georgia will be subject to the
Profit Tax. Each Contractor Party not having its head office or
management in Georgia but carrying out Petroleum Operations in the
Contract Area will be subject to the Profit Tax.
17.5 Each Contractor Party shall be subject to the Profit Tax at a rate
fixed for the duration of the Contract of ten percent (10%), for a
Calendar Year on the taxable base defined in Article 17.8.
17.6 Georgian Oil (or its successors or assignees) shall assume, pay and
discharge, in the name and on behalf of each Contractor Party, that
Contractor Party's Profit Tax liability for a Calendar Year calculated
in accordance with this Article 17 out of Georgian Oil's seventy
percent (70%) share of Profit Oil and Profit Natural Gas for that
Calendar Year. The Georgian Oil Profit Oil and Profit Natural Gas share
as determined by Article 11 of this Contract will include an amount
equal in value to all of the Contractor Parties' Profit Tax
liabilities.
17.7 The obligation to assume, pay and discharge each Contractor Party's
payment of Profit Tax (and only this tax) set out above by Georgian Oil
in accordance with the provisions of Article 17.6 shall fulfil the
entire tax liability of each Contractor Party. Except for the Profit
Tax obligation described in this Article 17 the Contractor and the
requirement to charge VAT on local sales (each Contractor Party) GMJV
and Operator shall not be subject to any other Taxes, fees, bonuses,
duties, levies, funds or similar types of payments of any nature
imposed prior to the Effective Date, currently or in the future by the
State or
36
37
any other Governmental entity or subdivision of the State including but
not limited to Mineral Usage Tax, Enterprise Property Tax, VAT, Stamp
Duty, Profit Repatriation Tax, Export Duty, Customs Duty, Freight Tax,
Dividend Tax, Land Tax, natural resource levies, levies on special
usage of subsurface resources, extraction based levies, land rental
fees, charges and levies reimbursing the State or any other
Governmental entity or subdivision of the State for the cost of
geological prospecting work incurred by the State, fees for licences to
conduct cartographic, geological or geophysical surveys, any tariff or
similar fee on the transportation and export of Petroleum, any fee or
payment related to the assignment of all or a portion of Contractor's
or a Contractor Party's interest under this Contract.
17.8 The calculation of the taxable base (balance profit/(loss)) for each
Contractor Party for a Calendar Year shall be as follows:
a) The taxable base (balance profit/(loss))for each Contractor
Party shall be determined as the total of each such Contractor
Party's sales revenues from Cost Recovery Petroleum, Profit
Oil and Profit Natural Gas acquired by that Contractor Party
pursuant to Article 11 of this Contract reduced by, (i) the
Contractor Party's sales revenues from Cost Recovery Petroleum
and (ii) the Contractor Party's share of costs and the
Contractor Party's own costs incurred during a Calendar Year
in respect of Petroleum Operations which are not included in
Costs and Expenses determining Cost Recovery Petroleum in
Article 11 of this Contract and (iii) any loss calculated in
accordance with Article 17.9 of this Contract.
b) Sales revenues from Cost Recovery Petroleum shall be defined
as the value of the volumes of Cost Recovery Petroleum, taken
and disposed of by the Contractor Party and/or their assignees
under this Contract during a Calendar Year and determined by
applying the principles of valuation set out in Article 12 of
this Contract. Sales revenues from Profit Oil and Profit
Natural Gas shall be defined as the value of the volumes of
Profit Oil and Profit Natural Gas taken and disposed of by the
Contractor Party and/or their assignees under this Contract
during a Calendar Year.
Profit Oil volumes, other than Excess Crude sold to the State,
and Profit Natural Gas volumes sold to Third Parties will be
valued at the actual price received at the Measurement Point
where actually sold at the Measurement Point. Where Profit Oil
volumes are not sold at the Measurement Point, they shall be
valued at the actual price received at the sales point less
transportation and other associated costs incurred by the
Contractor Party in transporting such Profit Oil from the
Measurement Point to the actual sales point. The value of
sales of Profit Oil and Profit Natural Gas to any Affiliate or
sales involving barter will be determined by applying the
principles of valuation as set out in Article 12 of this
Contract.
37
38
Sales of Excess Crude by a Contractor Party to the State in
accordance with Article 11.15 of this Contract will be valued
at the world market price for similar Crude Oil minus a
discount of ten percent (10%).
c) For the purposes of this Article 17 and specifically for the
purposes of calculating the taxable base of a Contractor Party
in accordance with this Article 17.8 and Article 17.9, costs
and expenses incurred directly or indirectly by a Contractor
Party and its Affiliated Companies prior to the Effective Date
of this Contract shall be deemed to have been incurred on the
Effective Date of this Contract.
d) For the purposes of calculating the taxable base of a
Contractor Party in accordance with this Article 17.8 and
Article 17.9, sales revenues related to Petroleum Operations
and costs incurred in respect of Petroleum Operations shall be
determined in U.S.$. Sales revenues in currency other than the
U.S.$ and costs incurred in currency other than the U.S.$
shall be translated into U.S.$ in accordance with the
principles set out in Article 19.11 of this Contract.
17.9 If in calculating the taxable base of a Contractor Party the total sum
of deductions, represented by sales revenues from Cost Recovery
Petroleum and costs incurred in respect of Petroleum Operations which
are not included in Costs and Expenses in determining Cost Recovery
Petroleum in Article 11 of this Contract, exceed sales revenues from
Cost Recovery Petroleum, Profit Oil and Profit Natural Gas in any
Calendar Year, the resulting loss (balance loss) may be carried forward
by a Contractor Party to the following Calendar Year and to subsequent
Calendar Years, one at a time in chronological order, and shall be
deductible in full and without restriction in computing such Contractor
Party's taxable base in such Calendar Year(s) until such time as the
loss is wholly offset against such Contractor Party's taxable base.
17.10 Each Contractor Party shall maintain its tax books and records
exclusively in U.S$ although a local currency equivalent (with
conversion in accordance with the provisions of Article 19) shall also
be prepared for information purposes only. The calculation of the
taxable base for each Contractor Party in accordance with Article 17.8
of this Contract will be exclusively in U.S.$ and the calculation and
the payment of the Profit Tax enumerated in this Article 17 shall be in
U.S.$.
17.11 If a Contractor Party is a party to more than one production sharing
contract (consortium) situated within Georgia and/or the Georgian
continental shelf, for the purposes of calculating the Contractor
Party's taxable base in accordance with Article 17.8 of this Contract
the production sharing contracts in which the Contractor Party has a
share may at the election of the Contractor Party be treated as if the
production sharing contracts were one production sharing contract
resulting in the Contractor Party's share of sales revenues and
38
39
deductions attributable to the production sharing contracts being
consolidated for Profit Tax purposes.
The Profit Tax return for each Contractor Party shall be prepared and submitted
as follows:
a. Each Contractor Party shall prepare a Profit Tax return in
U.S.$ for each Calendar Year and submit it to Georgian Oil by
15 February following the Calendar Year, so that Georgian Oil
can submit a Contractor Party's Profit Tax return to the Tax
Inspectorate by 15 March following the Calendar Year.
b. No other records or documentation shall be required to be
submitted to the Tax Inspectorate at the time the Profit Tax
return is submitted to the Tax Inspectorate or thereafter.
Such records and documentation are to be made available to the
Tax Inspectorate only during an audit by the Tax Inspectorate
in accordance with Article 17.19 of this Contract
c. The Profit Tax return for each Contractor Party for each
Calendar Year shall set out in U.S.$ the calculation of the
taxable base as described in Article 17.8 and the amount of
the Profit Tax calculated on that taxable base.
d. The Profit Tax return shall be prepared based on Contractor
books and accounts of Petroleum Operations as described in
Article 18 of this Contract which Contractor is required to
maintain in U.S.$ in accordance with the Accounting Procedure
attached hereto as Annex C. No books and records in addition
to those specified by this Contract shall be required to be
maintained by Contractor for any reason including but not
limited to the calculation of Profit Tax and taxable base
required by this Article 17.
e. Only one (1) Profit Tax return shall be required to be
prepared and submitted to the Tax Inspectorate for each
Contractor Party for a Calendar Year. Only one (1) Profit Tax
payment shall be required in respect of each Contractor
Party's Profit Tax liability for a Calendar Year. No Profit
Tax return or similar declaration and no Profit Tax payment
whether estimated or actual shall be required in respect of a
Calendar Quarter.
17.13 Proper official assessments of a Contractor Party's Profit Tax
liability for each Calendar Year, and proper official receipts shall be
issued by the proper tax authorities and shall state the date and
amount and other particulars customary in Georgia for such receipts and
the currency in which the Profit Tax was paid.
17.14 Georgian Oil shall furnish to each Contractor Party the proper official
assessments and proper official receipts that evidence official payment
by
39
40
Georgian Oil of that Contractor Party's Profit Tax liability for a
Calendar Year by 15 April following the Calendar Year.
17.15 Georgian Oil shall not credit, directly or indirectly, Contractor
Parties' Profit Tax payments against Georgian Oil's tax or any other
payments to the Government or the treasury of Georgia required from
Georgian Oil. However, Georgian Oil may deduct the payments of
Contractor Parties Profit Tax for a Calendar Year in calculating
Georgian Oil's tax liability for that Calendar Year.
17.16 Georgian Oil shall assume, pay and discharge any penalties, interest,
fines or similar levies for late payment of a Contractor Party's Profit
Tax liability in respect of any Calendar Year.
17.17 The filing of the Profit Tax return and the payment of Profit Tax for a
Calendar Year will be considered the final settlement of all Profit Tax
liabilities for a Contractor Party for that Calendar Year upon the date
thirty-six (36) months from the date the Profit Tax return for such
Calendar Year was filed.
17.18 The State will notify each Contractor Party within one (1) month of the
Effective Date of this Contract of the tax inspectorate office ("the
Tax Inspectorate") which is to be located in Tbilisi and be responsible
for and administer the implementation of the provisions of this
Contract including but not limited to the filing of a Contractor
Party's Profit Tax return for each Calendar Year, the issuing of
official assessments and receipts evidencing the payment of each
Contractor Party's Profit Tax liability, any audit in respect of any
Calendar Year of a Contractor Party's Profit Tax return and any other
payment, liability or procedures in respect of any other Taxes.
17.19 The Tax Inspectorate shall have the following rights of audit in
respect of a Contractor Party's Profit Tax return:
a) The Tax Inspectorate shall have the authority to conduct an audit of
each Contractor Party's Profit Tax return for each Calendar Year.
b) In conducting such an audit the Tax Inspectorate shall only be entitled
to examine the Contractor books and accounts of Petroleum Operations
which the Contractor is required to maintain as described in Article 18
of this Contract in U.S.$ in accordance with the Accounting Procedure
attached hereto as Annex C except in circumstances where the Tax
Inspectorate has reasonable grounds to suspect fraud or non disclosure
of required information.
c) The Tax Inspectorate shall be bound by the documentation requirements
specified in the Accounting Procedure and shall not be entitled to
request from any Party or the Operator any documentation in addition to
that documentation
40
41
to support the calculation of the taxable base which is required for
each Contractor Party for each Calendar Year under this Article 17
except in circumstances where the Tax Inspectorate has reasonable
grounds to suspect fraud or non disclosure of required information.
d) Costs and Expenses for the purposes of determining Cost Recovery
Petroleum are defined in Article 11 of this Contract. The Tax
Inspectorate shall be bound by the provisions of Article 11 of this
Contract and shall have no right to challenge the Costs and Expenses
which a Contractor Party is entitled to recover from Petroleum.
e) Upon completing such an audit, the Tax Inspectorate shall discuss any
proposed adjustments with the Contractor Party and, where appropriate,
issue a notice of additional Profit Tax due or a notice of refund. If
the Contractor Party and the Tax Inspectorate are unable to agree upon
the amount of Profit Tax underpaid or overpaid, the issue shall be
resolved in accordance with the dispute resolution procedures contained
in Article 30 of this Contract.
17.20 If as a result of an audit by the Tax Inspectorate a final
determination is made either that an underpayment or overpayment of
Profit Tax has occurred in respect of a Calendar Year, such
underpayment or overpayment will be subject to interest at a rate of
LIBOR plus four (4) percent calculated from 15 March in the Calendar
Year the Profit Tax return was filed until the date of payment or
refund of the Profit Tax.
17.21 Employees of the Contractor, Contractor Parties, their Affiliates and
Subcontractors, and those employees assigned by Contractor to Operator
who are not citizens of Georgia ("Foreign Employees") shall be liable
to Georgian personal income tax imposed by the State only on their
income earned as a direct result of their employment in Georgia and
only if the Foreign Employee is present in Georgia for a period or
periods exceeding in the aggregate one hundred and eighty-three (183)
days in any Calendar Year. A Foreign Employee will continue to be
subject to the provisions of any applicable Double Tax Treaty.
17.22 Foreign Employees who perform work in Georgia and their employers that
would otherwise be covered by and subject to social insurance, pension
fund contributions and similar payments under the social security
system of Georgia will be exempt from those payments.
17.23 The only Taxes, duties, fees or other charges to be levied by the State
or by any other Governmental entity on a Foreign Subcontractor in
connection with Petroleum Operations pursuant to this Contract shall be
a tax to be withheld by any person or other legal entity making
payments to a Foreign Subcontractor in the currency in which the
payment is made (the "Withhold Tax"). The Withhold Tax shall be
calculated and will apply as follows:
a) The Withhold Tax will be calculated at a fixed rate of twenty
(20) percent, on the taxable profit of a Foreign Subcontractor
defined in this
41
42
Article 17.23. The taxable profit of a Foreign Subcontractor
will be deemed to be equal to twenty (20) percent of any
payments received by a Foreign Subcontractor in respect of
work and/or services undertaken in Georgia in connection with
Petroleum Operations pursuant to this Contract resulting in a
total tax of four (4) percent to be withheld from such
payments.
b) Any person or other legal entity making payments to a Foreign
Subcontractor must pay the Withhold Tax to the Tax
Inspectorate within thirty (30) days from the date of payment
of the Foreign Subcontractor. The Tax Inspectorate shall issue
the person or other legal entity making the payment with
proper official receipts in the name of the Foreign
Subcontractor within fifteen (15) days of the payment of the
Withhold Tax that evidence the payment of the Withhold Tax
stating the date, the amount, the currency in which it was
paid and other particulars customary for such receipts.
c) In the event that such Withhold Tax is paid late the person
responsible for paying the Withhold Tax to the Tax
Inspectorate shall be subject to interest at a rate of LIBOR
plus four (4) percent calculated from the latest date that the
Withhold Tax should have been paid to the Tax Inspectorate. No
fines, penalties or similar levies will be payable in respect
of any late payment.
d) A Foreign Subcontractor will have no requirement to file a tax
return or any other similar declaration, the payment of the
Withhold Tax will satisfy all such requirements and
obligations.
e) A Foreign Subcontractor will continue to be subject to the
provisions of any applicable Double Tax Treaty.
17.24 VAT shall be imposed as follows:
a) Goods, works and services supplied directly or indirectly to
or by a Contractor Party or its Affiliates, Operator or a
Foreign Subcontractor for the purpose of Petroleum Operations
shall be exempt from VAT with credit (zero per cent rate).,
save that the customer shall charge VAT ( at the then current
rate but not exceeding twenty, (20) per cent ) on Petroleum
sold locally within Georgia which is not intended for export
in circumstances in which the purchaser is a Georgian national
or Georgian entity ( "Local Sales" ). Contractor shall be
entitled to a refund of VAT within five business days of the
submission of its monthly VAT declarations to the Tax
Inspectorate equal to the US$ equivalent of VAT charged on
Local Sales. For the purposes of these declarations the refund
due to the Contractor will be calculated using the VAT charged
and/or paid on a monthly basis. If a full VAT refund is not
paid within five days as specified above, Contractor shall be
entitled to
42
43
recover the relevant amount as Costs and Expenses in
accordance with the provisions of Article 11.
b) All imports including but not limited to goods, equipment,
works, services, loans and other forms of financing acquired
by a Contractor Party or its Affiliates, Operator, their
Subcontractors or their agents for the purpose of Petroleum
Operations shall be exempt from VAT with credit (zero per cent
rate).
c) Import and re-export of goods for personal use by Foreign
Employees and family members will be subject to VAT at a rate
of zero per cent (0%).
d) Exports of Petroleum by each Contractor Party or its agents
shall be exempt from VAT with credit (zero per cent rate).
e) Excess Crude sold by a Contractor Party to the State in
accordance with the provisions of Article 11.15 of this
Contract shall be exempt from VAT with credit (zero percent
rate).
f) All re-exports by a Contractor Party or its Affiliates,
Operator, Subcontractors or their agents of goods, works and
services supplied for the purposes of Petroleum Operations
including but not limited to re-export of goods temporarily
imported into Georgia for the purposes of Petroleum Operations
shall be exempt from VAT with credit (zero per cent rate).
g) Any goods, works and services supplied to or by and any
imports of goods, works and services acquired directly or
indirectly by a Contractor Party and its Affiliated Companies,
Operator, Foreign Subcontractors or their agents for the
purpose of Petroleum Operations prior to the Effective Date of
this Contract shall be deemed for the purposes of this Article
to be supplied or acquired on the Effective Date of this
Contract.
h) The Tax Inspectorate shall provide each Contractor Party and
its Affiliates, Operator, Foreign Subcontractors and their
agents with certificates confirming the exemptions and/or VAT
zero percent (0%) rate provided in this Contract within twenty
(20) days of the Contractor Party requesting such a
certificate.
17.25 Each Contractor Party and its Affiliates and Operator shall have no
liability or responsibility for any Taxes which its Subcontractors or
their agents do not pay or for any other failure of such Subcontractors
or their agents to comply with the laws of Georgia.
43
44
ARTICLE 18
ACCOUNTING, FINANCIAL REPORTING AND AUDIT
18.1 Contractor shall maintain books and accounts of Petroleum Operations in
accordance with the Accounting Procedure attached hereto as Annex C.
These shall be maintained in U.S.$ in accordance with generally
accepted international Petroleum industry accounting principles. All
books and accounts which are made available to Georgian Oil in
accordance with the provisions of the Accounting Procedure shall be
prepared both in the Georgian and English languages.
18.2 The Accounting Procedure specifies the procedure to be used to verify
and establish promptly and finally Contractor's Costs and Expenses
under Article 11 of this Contract.
18.3 Sales revenues, expenditures, financial results, tax liabilities, and
loss carry-forwards of each Contractor Party shall be determined in
accordance with the rules, rights, and obligations set forth in this
Contract in so far as such sales revenues, expenditures, financial
results, tax liabilities, and loss carry-forwards are related to
Petroleum Operations under this Contract.
18.4 To the extent that Georgian Oil incurs Costs and Expenses which are
recoverable from Cost Recovery Petroleum in accordance with Article 11,
Georgian Oil shall maintain separate books and accounts. These books
and accounts shall be maintained in U.S.$, in the Georgian language and
the English language and shall be in accordance with generally accepted
international Petroleum industry accounting principles. Prior to
Georgian Oil commencing to incur Costs and Expenses an accounting
procedure which establishes the method for accounting for Georgian
Oil's participation in the funding of Petroleum Operations shall be
agreed and approved by Contractor. The Contractor shall have the right
to audit the books and accounts maintained by Georgian Oil.
ARTICLE 19
CURRENCY, PAYMENTS AND EXCHANGE CONTROL
19.1 Contractor and each Contractor Party, and their Affiliates,
Subcontractors and Operator shall have the right to open, maintain, and
operate Foreign Exchange
44
45
bank accounts both in and outside of Georgia and local currency bank
accounts inside Georgia.
19.2 Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to transfer all funds received in
or converted to Foreign Exchange in Georgia to bank accounts outside
Georgia without payment of any Taxes, Governmental fee, duty or other
such impost for the right to effect such transfer of funds.
19.3 Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to hold, receive and retain outside
Georgia and freely use all funds received and derived directly or
indirectly from Petroleum Operations by them outside Georgia without
any obligation to repatriate or return the funds to Georgia, including
but not limited to all payments received from export sales of
Contractor Parties' share of Petroleum and any sales proceeds from an
assignment of their interest in this Contract.
19.4 Contractor and each Contractor Party, and their Affiliates, Foreign
Subcontractors and Operator shall be exempt from all legally required
or mandatory conversions of Foreign Exchange into local or other
currency. Notwithstanding the provisions of this Article 19.4 the
Contractor and each Contractor Party and Operator will pay citizens of
Georgia and Georgian Subcontractors engaged by them in Petroleum
Operations in local currency for so long as this is a requirement of
the law of Georgia.
19.5 Contractor and each Contractor Party, and their Affiliates, Foreign
Subcontractors and Operator have the right to import into Georgia funds
required for Petroleum Operations under this Contract in Foreign
Exchange.
19.6 Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to pay outside of Georgia for
goods, works and services of whatever nature in connection with the
conduct of Petroleum Operations under this Contract without having
first to transfer to Georgia the funds for such payments.
19.7 Whenever such a need arises Contractor and each Contractor Party and
their Affiliates, Foreign Subcontractors and Operator shall be entitled
to purchase local currency with Foreign Exchange and covert local
currency into Foreign Exchange at the most favourable exchange rate
legally available and in any event at an exchange rate which shall be
no less beneficial than that granted to other foreign investors by the
National Bank of Georgia, without deductions or fees other than usual
and customary banking charges.
19.8 Contractor and each Contractor Party, and their Affiliates and Foreign
Subcontractors shall have the right to pay outside Georgia principal
and interest on loans used for funding Petroleum Operations without
having to first transfer to Georgia the funds for such payment.
45
46
19.9 Contractor and each Contractor Party and their Affiliates, Foreign
Subcontractors and Operator shall have the right to pay, wages,
salaries, allowances and benefits of their foreign personnel working in
Georgia in Foreign Exchange partly or wholly outside Georgia.
19.10 Contractor and each Contractor Party, and their Affiliates shall have
the right to pay their Foreign Subcontractors working on Petroleum
Operations in Georgia in Foreign Exchange partly or wholly outside
Georgia.
19.11 Conversions of currency shall be recorded at the rate actually
experienced in that conversion. Expenditures and sales revenues in
currency other than the U.S.$ shall be translated to U.S.$ at the
official rates as posted by the National Bank of Georgia at the close
of business on the first business day of the current month until such
times as the relevant exchange rates being the arithmetic average of
the buying and selling rates at the close of business on the first
business day of then current month are published by "The Wall Street
Journal", or if not published by "The Wall Street Journal", then by the
"Financial Times" of London.
ARTICLE 20
IMPORT AND EXPORT
20.1 Contractor, each Contractor Party and Affiliates and their agents and
Subcontractors and Operator shall have the right to import and
re-export from Georgia free of any Taxes and restrictions including but
not limited to VAT and Customs Duties in their own name materials,
equipment, machinery and tools, vehicles, spare parts, foodstuffs,
goods and supplies necessary in the Contractor's opinion for the proper
conduct and achievement of Petroleum Operations including but not
limited to Exploration, exploitation, Appraisal, Development,
Production, transportation, storage and marketing.
20.2 Contractor, each Contractor Party and Affiliates, their agents and
Subcontractors shall have the right to sell any materials or equipment
or goods which were used in Petroleum Operations without paying Customs
Duties provided that such items are no longer needed for Petroleum
Operations and the costs of such items have not been and are not
intended to be included as Costs and Expenses recoverable from Cost
Recovery Petroleum.
20.3 Contractor, each Contractor Party, their customers and their carriers
shall have the right to freely export, free of all Taxes including but
not limited to Customs Duties and at any time, the share of Petroleum
to which the Contractor and each Contractor Party is entitled in
accordance with the provisions of this Contract.
46
47
20.4 Petroleum to which the Contractor Parties are entitled to in accordance
with the provisions of this Contract shall not be subject to any
requirements imposed currently or in the future by the State or any
other Governmental entity or subdivision of the State as to export
quotas or export licences or any other similar requirements. The
provisions of this Article 20.4 shall not apply to Excess Crude which
the State elects to purchase in accordance with Article 11.15 of this
Contract.
20.5 All copies of original records and data and representative portions of
all samples or information prepared or obtained by the Contractor
Parties and Affiliates and their Subcontractors with regard to
activities under this Contract which is exported for use thereof by the
Contractor Parties including but not limited to processing, analysing
or studying shall be exempt from any requirements imposed currently or
in the future by the State or any other Governmental entity or
subdivision of the State as to export licences, any restrictions on
export and Customs Duties, Taxes or other export charges with respect
to such data and information.
20.6 The Contractor Parties shall be exempt from any obligatory registration
existing currently or in the future in Georgia as exporters of
Petroleum.
20.7 Foreign Employees and family members of Contractor and its Affiliates,
its agents and Foreign Subcontractors, shall have the right to import
into and re-export from Georgia, free of Taxes, Customs Duties and
restrictions at any time, all foodstuff, furniture, clothing, household
appliances, vehicles, spare parts and all personal effects for personal
use by the Foreign Employees and family members assigned to work in, or
travel to, Georgia.
ARTICLE 21
EXPORT OF HYDROCARBONS, TRANSFER OF
OWNERSHIP, AND REGULATIONS FOR DISPOSAL
21.1 The Contractor, Contractor Parties, any purchaser from such parties and
their respective carriers shall, for the duration of this Contract,
have the unrestricted right to export from any export point selected by
the Contractor for such purpose, the share of Petroleum to which the
Contractor is entitled under this Contract provided that access to such
export point is not restricted generally on the grounds of safety or
national security. Access to export points shall be given to the above
parties on a non discriminatory basis and at rates no less favourable
than those granted to others by the State or Georgian Oil.
21.2 The transfer of title to each Contractor Party and Georgian Oil of its
share of Petroleum shall be effective upon the lifting of that share by
such Party at the Measurement Point or, at the Parties' option, at some
other point.
47
48
21.3 The Contractor and Georgian Oil shall each be entitled to designate (at
their own cost) an employee, independent company or consultant who
shall check the liftings of Petroleum from the Measurement Point or at
such other point as may be designated in accordance with Article 21.2.
21.4 If one of the Parties is unable to lift its share of Petroleum in due
time, with the result that Petroleum Operations may be interfered with
or in any way disrupted, then after giving such notice as is practical
in the circumstances any other Party may dispose of it, and
subsequently give back to such Party an equivalent amount of Petroleum
(taking into account any costs incurred).
ARTICLE 22
OWNERSHIP OF ASSETS
22.1 Ownership of any asset, whether fixed or moveable, acquired by or on
behalf of Contractor in connection with Petroleum Operations hereunder
shall vest in Georgian Oil without consideration when both the costs of
such asset have been recovered by Contractor under this Contract and
either the Contract has come to an end or, if earlier, when the asset
is no longer required for Petroleum Operations by the Contractor. The
Contractor shall enjoy continued free, exclusive and unrestricted use
of all assets at no cost or loss of benefit to the Contractor until the
termination of this Contract or if earlier until they are no longer
required for Petroleum Operations. The Contractor shall bear the
custody and maintenance of such assets and all risks of accidental loss
or damage thereto, until ownership transfers to Georgian Oil, provided
however that all costs necessary to operate, maintain and repair such
assets and to replace or repair any damage or loss shall be recoverable
as Operation Expenses from Cost Recovery Petroleum in accordance with
the provisions of Article 11.
22.2 Whenever Contractor relinquishes any part of the Contract Area, all
moveable property located within the portion of the Contract Area so
relinquished may be removed to any part of the Contract Area that has
been retained for use in Petroleum Operations.
22.3 The provisions of Article 22.1 and 22.2 shall not apply to materials or
other property that are rented or leased to Contractor, its Affiliates
or Operator or which belong to employees of Contractor, its Affiliates
or Operator.
48
49
ARTICLE 23
INSURANCE
23.1 Contractor shall obtain and maintain such types and amounts of
insurance for the Petroleum Operations as are reasonable and such that
they comply with accepted international Petroleum industry practice and
standards.
23.2 The insurance which may be obtained may cover :
a) destruction and damage to any property held for use during
Petroleum Operations and classified as fixed capital and/or
leased or rented property and/or interests in pipelines
operated by the Contractor;
b) destruction of Crude Oil in storage;
c) liability to Third Parties;
d) liability for pollution and expenses for cleaning up in the
course of Drilling and Production Operations;
e) expenses for wild well control;
f) liability incurred by the Contractor in hiring land drilling
rigs, vessels and aircraft serving the Petroleum Operations;
and
g) losses and expenses incurred during the transportation and
storage in transit of goods shipped from areas outside the
Contract Area.
23.3 In any insurance contracts, the amount for which the Contractor itself
is liable (the "deductible amount") shall be reasonably determined
between the Contractor and the insurer and such deductible amount shall
in the event of any insurance claim be considered as Costs and Expenses
of Petroleum Operations recoverable from Cost Recovery Petroleum.
23.4 It is understood that, in order to meet their insurance obligations,
insurance providers used by Contractor may conclude reinsurance and
co-insurance agreements with any other insurance enterprises and
organisations.
49
50
ARTICLE 24
PERSONNEL
24.1 Contractor shall be entitled to bring foreign personnel into Georgia in
connection with the performance of Petroleum Operations. The entry into
Georgia of such personnel is hereby authorised, and the State shall
issue at the Contractor's request the required documents, such as entry
and exit visas, work permits and residence cards. At Contractor's
request, the State shall facilitate all immigration formalities at the
points of exit and entry into Georgia for the employees and family
members of the Contractor, its Affiliates, Subcontractors, Operator,
agents and brokers. The Contractor (or Operator on its behalf) shall
contact the appropriate offices of the State to secure the necessary
documents, and to satisfy the required formalities.
24.2 The employees working within the scope of Petroleum Operations shall be
placed under the authority of the Contractor, its Affiliates, its
Subcontractors, agents or brokers or the Operator each of which shall
act individually in their capacity as employers. The works, hours,
wages, and all other conditions relating to their employment shall be
determined by the relevant employer of such employees. In relation to
employees who are citizens of Georgia their employment shall be in
accordance with Georgian law. To the extent that any expatriate
personnel are engaged under a contract subject to Georgian law, that
contract shall comply with the provisions of Georgian law. The
Contractor, its Affiliates, its Subcontractors, agents or brokers
however, shall enjoy full freedom in the selection and assignment of
their employees.
ARTICLE 25
FORCE MAJEURE
25.1 If as a result of Force Majeure, Contractor is rendered unable, wholly
or in part, to carry out its obligations under this Contract, other
than the obligation to pay any amounts due, then the obligations of
Contractor, so far as and to the extent that the obligations are
affected by such Force Majeure, shall be suspended during the
continuance of any inability so caused, but for no longer period.
Contractor shall notify the Parties of the Force Majeure situation
within seven (7) days of becoming aware of the circumstances relied
upon and shall keep Georgian Oil informed of all significant
developments. Such notice shall give reasonably full particulars of the
said Force Majeure, and also estimate the period of time which
Contractor will probably require to remedy the Force Majeure.
Contractor shall use all reasonable diligence to remove or
50
51
overcome the Force Majeure situation as quickly as possible in an
economic manner. The period of any such non performance or delay,
together with such period as may be necessary for the restoration of
any damage done during such delay, shall be added to the time given in
this Contract for the performance of any obligation dependent thereon
(and the continuation of any right granted) and to the term of this
Contract.
25.2 For the purposes of this Contract, "Force Majeure" shall mean a
circumstance which is irresistible or beyond the reasonable control of
Contractor, any act of the State, or Georgian Oil or any other
hindrance of Contractor's performance not due to its fault or
negligence.
ARTICLE 26
ASSIGNMENTS AND GUARANTEES
26.1 No assignment, mortgage or charge or other encumbrance shall be made by
a Party of its rights obligations and interests arising under this
Contract other than in accordance with the provisions of this Article
26. Any purported assignment made in breach of the provisions of this
Article 26 shall be null and void. In relation to Georgian Oil (or any
successor of Georgian Oil as the designated representative of the
State) any transfer (whether directly or indirectly ) of any equity or
control with the result or effect that Georgian Oil or any successor to
the rights and interests of Georgian Oil ceases to be wholly owned or
controlled by the State shall be deemed to be an assignment under this
Contract which must comply with the provisions hereof.
26.2 Save in the case of any assignment made pursuant to the provisions of
Articles 26.3, 26.5 and 26.6 the following shall apply. Any Party
wishing to assign all or part of its rights and interests hereunder or
in any circumstances where there is deemed to be an assignment, the
Party wishing to make the assignment shall first give written notice to
the other Parties specifying the proposed terms and conditions of the
assignment. Following receipt of those terms and conditions, for a
period of thirty (30) days each Party shall have the preferential right
to match the terms and conditions of the proposed assignment or deemed
assignment. This right may be exercised by any Party giving written
notice of its intention to match the relevant terms and conditions (the
"Acceptance") and thereafter the relevant Parties shall negotiate all
necessary documentation in good faith. If within a further period of
ninety (90) days from receipt of the Acceptance the relevant parties
have not reached final agreement the Party seeking to assign may within
a further period of thirty (30) days complete an assignment to a Third
Party on the same terms and conditions. For the avoidance of doubt any
assignment to a Third Party shall be subject to the assigning Party and
the Third Party complying with the provisions of this Article 26.
51
52
26.3 A Contractor Party may assign all or part of its rights, obligations
and interests arising from this Contract to another Contractor Party or
to an Affiliate without the prior consent of the State or Georgian Oil
provided that any such Affiliate:
a) has the technical and financial ability to perform the
obligations to be assumed by it under the Contract; and
b) as to the interest assigned to it, accepts and assumes all of
the terms and conditions of the Contract.
Any such assignment shall be subject to the prior written consent of
the State (which may be represented by Georgian Oil for so long as the
state has nay interest in Georgian Oil) which consent shall not be
unreasonably withheld or delayed. If within thirty (30) days following
notification of an intended assignment accompanied by a copy of the
deed of assignment and related documentation the State has not given
its decision such assignment shall be deemed to have been approved by
the State. It is agreed that JKX may transfer part of its rights and
obligations under this Contract to Makoil Inc. (or any Affiliate of
that company) without the need to receive the prior consent of the
State or the need to comply with the provisions of Article 26.2. The
Contractor will notify Georgian Oil prior to any such transfer taking
place.
26.4 A Contractor Party may assign all or part of its rights, obligations
and interests arising from this Contract to an Affiliate without the
prior consent of the State of Georgian Oil provided that any such
Affiliate:
a) has the technical and financial ability to perform the
obligations to be assumed by it under the Contract; and
b) as to the interest assigned to it, accepts and assumes all of
the terms and conditions of the Contract.
JKX shall give notice to Georgian Oil prior to any assignment under
this Article 26.4.
26.5 Each reference in this Contract to the Contractor shall be treated as
including each assignee to which an assignment has been made by the
Contractor pursuant to this Article 26. Each reference in this Contract
to Georgian Oil shall be treated as including each assignee to which an
assignment has been made by Georgian Oil pursuant to this Article 26
provided the Contractor has the prior consent of Georgian Oil (not to
be unreasonably withheld) the Contractor and its assignees shall not be
restricted in any way and shall not be required to obtain consent for
any pledge or assignment of their respective interests in this Contract
or any Petroleum Operations undertaken pursuant hereto to any bank,
lender or other person providing financing in connection with this
Contract or such Petroleum Operations and if such bank, lender or other
person shall foreclose upon such interest pledged or assigned,
52
53
such bank, lender or person shall become entitled to the rights of an
assignee hereunder.
26.6 Georgian Oil may assign all or part of its rights, obligations and
interests arising from this Contract (including all or part of its
right to lift a share of Profit Oil) to a wholly owned Affiliate with
the prior consent of the Contractor provided that any such Affiliate:
a) has the technical and financial ability to perform the
obligations to be assumed by it under the Contract; and
b) as to the interest assigned to it, accepts and assumes all of
the terms and conditions of the Contract.
26.7 Georgian Oil may assign all or part of its rights, obligations and
interests arising from this Contract (including all or part of its
right to lift its share of Profit Oil) to a Third Party provided that
any such Third Party:
a) has the technical and financial ability to perform the
obligations to be assumed by it under the Contract; and
b) as to the interest assigned to it, accepts and assumes all of
the terms and conditions of the Contract;
c) agrees in writing to the funding and financing obligations set
out in this Article 26.
Any such assignment shall be subject to the prior written consent of
the Contractor which consent shall not be unreasonably withheld or
delayed. Any consent may be given subject to the conditions and further
documentation appearing below. If within thirty (30) days following
notification of an intended assignment accompanied by a copy of the
deed of assignment and related documentation the Contractor has not
given its decision such assignment shall be deemed to have been
approved by the Contractor.
In the event that the proposed assignee is not a company or entity
wholly owned by the State (as determined by the Contractor acting
properly and reasonably) then any assignment shall be subject to that
assignee assuming its proportionate future share of financing Petroleum
Operations as if it was a Contractor Party and paying to the existing
Contractor Parties its proportionate share of Costs and Expenses which
have not been recovered from Cost Recovery Petroleum as at the date of
the proposed assignment in each case as if it was a Contractor Party.
The consent of the Contractor shall be subject to the proposed assignee
executing a deed of adherence in terms satisfactory to the Contractor
agreeing to be bound by the terms of the Contract as amended
53
54
by the terms of this Article 26 including an agreement to meet its
funding obligations hereunder. For the avoidance of doubt the
proportionate future share of financing Petroleum Operations and the
proportionate share of unrecovered Costs and Expenses to be met by any
assignee shall include both an amount equal to the proposed
participating interest of the assignee in this Contract and a
proportionate share of any part of the State's (or Georgian Oil's)
carried interest being met by the Contractor.
26.8 In the event that a Third Party which is not an entity wholly owned by
the State (as determined by the Contractor acting properly and
reasonably) acquires a direct or indirect equity interest in Georgian
Oil (or any holding or subsidiary company of Georgian Oil or any other
entity holding all or any of the State's interest hereunder) giving
that Third Party a direct or indirect interest in the rights hereunder
then Georgian Oil (or any such holding or subsidiary company of
Georgian Oil or other entity holding all or any of the State's interest
hereunder) will assume its proportionate future share of funding
obligations as if it was a Contractor Party and shall pay to the
existing Contractor Parties its proportionate share of Costs and
Expenses which have not been recovered from Cost Recovery Petroleum as
at the date on which the Third Party acquires the direct or indirect
interest in the rights hereunder. Before the State and/or Georgian Oil
allows any Third Party to acquire a direct or indirect interest in
Georgian Oil (or any holding company or subsidiary company of Georgian
Oil or any entity holding all or any of the State's interest hereunder)
the prior written consent of the Contractor will be required, such
consent not to be unreasonably withheld or delayed. The consent of the
Contractor may be given subject to Georgian Oil (or any holding or
subsidiary company of Georgian Oil or any other entity holding all or
part of the interests of the State hereunder) or such Third Party
acquiring the interest executing a deed of adherence in terms
satisfactory to the Contractor agreeing to be bound by the terms of the
Contract as amended by the terms of this Article 26 including an
agreement to meet its funding obligations hereunder. For the avoidance
of doubt the proportionate future share of financing Petroleum
Operations and unrecovered Costs and Expenses to be met by Georgian Oil
(or any holding or subsidiary company of Georgian Oil or any other
entity holding all or any of the interests of the State) or such Third
Party shall include both an amount representing the direct or indirect
interest of the Third Party as if the direct or indirect interest
acquired by the Third Party was treated as the participating interest
of a Contractor Party and a proportionate share of any part of the
State's (or Georgian Oil's) carried interest being met by the
Contractor.
26.9 The provisions of Article 26.8 will not apply to the transfer of a
direct or indirect equity interest in Georgian Oil of up to 25% of the
total equity to the employees or former employees of Georgian Oil
should any such transfer be made as part of a privatisation programme.
26.10 In the event of there being any proposed assignment in accordance with
the terms of this Article 26 then to the extent of the interest
assigned the assignor
54
55
shall be released from all further obligations and liabilities arising
under the Contract after the effective date of the assignment. The
assignee shall thereafter be liable for the obligations arising from
such interest in the Contract except to the extent provided in the
Contract.
26.11 No Taxes, fees or other charges shall be payable to the State or to
Georgian Oil as a consequence of or prior to any assignment.
26.12 To the extent that either Georgian Oil or any Third Party is obliged to
pay its proportionate share of funding future Petroleum Operations and
unrecovered Costs and Expenses the proportionate share of the
Contractor (and any other party then responsible for funding Petroleum
Operations) shall be reduced proportionally so that should the State at
any time cease to have any interest in Georgian Oil (or any successor
to Georgian Oil as the State's representative) or any participating
interest in this Contract, the Contractor shall only be obliged to fund
thirty percent (30%) of Petroleum Operations (or such other figure as
represents its then participating interest hereunder).
ARTICLE 27
CONTRACT ENFORCEMENT AND STABILISATION, AND REPRESENTATIONS AND WARRANTIES
27.1 In the course of performing the Petroleum Operations, the Operator and
the Parties shall be subject to all applicable laws, decrees, rules and
regulations of the State to the extent that such laws and regulations
are not inconsistent with or detract from, lessen or otherwise
interfere with the provisions of this Contract.
27.2 The State agrees and commits to Contractor, for the duration of this
Contract, to maintain the stability of the legal, tax, financial,
mining, customs and economic conditions of this Contract.
27.3 The Parties agree to cooperate in every possible way in order to
achieve the objectives of this Contract. The State and its subdivisions
shall facilitate the exercise of Contractor's activities by granting it
all decrees, permits, resolutions, licenses and access rights and
making available to it all appropriate existing facilities and services
under the direct or indirect control of the State or Georgian Oil so
that the Parties may derive the greatest benefit from Petroleum
Operations for their own benefit and for the benefit of Georgia.
27.4 If at any time after this Contract has been signed there is a change in
the applicable laws, regulations or other provisions effective within
Georgia which
55
56
to a material degree adversely affect the economic position of the
Contractor or any Contractor Party hereunder, the terms and conditions
of this Contract shall be altered so as to restore the Contractor to
the same overall economic position as that which the Contractor would
have been in had this Contract been given full force and effect without
amendment as is stipulated in accordance with Article 27.5
27.5 To the extent that the Contractor's overall economic position is not
restored through mutually agreed changes to the terms and conditions of
this Contract the State shall fully indemnify the Contractor against
such economic effects through payment of financial compensation or
other means acceptable to the Contractor.
27.6 If the Contractor believes that its economic position has been
adversely affected as provided in Articles 27.4 and 27.5 it may give
notice to the State and to Georgian Oil describing how its position has
been so affected and the Parties shall thereafter promptly meet with a
view to reaching agreement on the remedial action to be taken. If
matters have not been resolved within 90 days the matter may be
referred to arbitration by any Party in accordance with the provisions
of Article 30.
27.7 The State hereby represents and warrants to the Contractor as follows:
a) The State has taken the appropriate steps necessary to authorise
Georgian Oil to execute this Contract on behalf of the State and has
the power to do so;
b) The signatory to this Contract on behalf of Georgian Oil (in each of
its capacities hereunder) is duly authorised to bind Georgian Oil;
c) Georgian Oil has been legally vested by the State with the necessary
power to authorise Petroleum Operations in the Contract Area and to
compensate the Contractor by allocating to it a share of the Petroleum
produced.
d) The conduct of Petroleum Operations by Georgian Oil and each Contractor
Party as a consortium is recognised in accordance with the laws of
Georgia.
e) Upon completion of the matters and procedures set out in Article 32
there is no other entity or authority whose approval or authorisation
is required to permit the Contractor to enjoy and enforce its rights
hereunder.
56
57
ARTICLE 28
NOTICES AND CONFIDENTIALITY
28.1 Except as otherwise specifically provided, all notices authorised or
required between the Parties by any of the provisions of this Contract,
shall be in writing in Georgian and English and delivered in person or
by registered mail or by courier service or by any electronic means of
transmitting written communications which provides confirmation of
complete transmission, and addressed to such Parties as designated
below. The originating notice given under any provision of this
Contract shall be deemed delivered only when received by the Party to
whom such notice is directed, and the time for such Party to deliver
any notice in response to such originating notice shall run from the
date the originating notice is received. The second or any responsive
notice shall be deemed delivered when received. "Received" for purposes
of this Article with respect to written notice delivered pursuant to
this Contract shall be actual delivery of the notice to the address of
the Party to be notified specified in accordance with this Article.
Each Party shall have the right to change its address at any time
and/or designate that copies of all such notices be directed to another
person at another address, by giving written notice thereof to all
other Parties. The addresses for service of notices on each of the
parties is as follows:-
JKX
Attention: Company Secretary
Fax :00-0000-000000
The State and Georgian Oil
Attention: General director
Fax:000-000-000-000
28.2 Subject to the provisions of the Contract, the Parties agree that all
information and data acquired or obtained by any Party in respect of
Petroleum Operations shall be considered confidential and shall be kept
confidential and not be disclosed during the term of the Contract to
any person or entity not a Party to this Contract, except:
a) To an Affiliate, provided such Affiliate maintains confidentiality as
provided herein;
b) To a governmental agency or other entity when required by the Contract;
57
58
c) To the extent such data and information is required to be furnished in
compliance with any applicable laws or regulations, or pursuant to any
legal proceedings or because of any order of any court binding upon a
Party;
d) To prospective or actual contractors, consultants and attorneys
employed by any Party where disclosure of such data or information is
essential to such contractor's, consultant's or attorney's work;
e) To a bona fide prospective transferee of a Party's participating
interest (including an entity with whom a Party or its Affiliates are
conducting bona fide negotiations directed toward a merger,
consolidation or the sale of a majority of its or an Affiliate's
shares);
f) To a bank or other financial institution to the extent appropriate to a
Party arranging for funding;
g) To the extent such data and information must be disclosed pursuant to
any rules or requirements of any government or stock exchange having
jurisdiction over such Party, or its Affiliates;
h) To its respective employees for the purposes of Petroleum Operations,
subject to each Party taking customary precautions to ensure such data
and information is kept confidential;
i) To the extent that any data or information which, through no fault of a
Party, becomes a part of the public domain.
28.3 Disclosure as pursuant to Article 28.2 (d), (e), and (f) shall not be
made unless prior to such disclosure the disclosing Party has obtained
a written undertaking from the recipient party to keep the data and
information strictly confidential for at least three (3) years and not
to use or disclose the data and information except for the express
purpose for which disclosure is to be made.
ARTICLE 29
TERMINATION AND BREACH
29.1 At any time, if in the opinion of Contractor acting reasonably and
properly, circumstances do not warrant continuation of the Petroleum
Operations, Contractor may, by giving written notice to that effect to
Georgian Oil, relinquish its rights and be relieved of its obligations
pursuant to this Contract, except such rights and obligations as
related to the period prior to such relinquishment. Neither this
Contract nor any of the rights granted hereunder nor the GMJV Licence
may be terminated as a result of any act or omission of GMJV save in
the case where GMJV or GBOC has carried out an act or
58
59
omitted to do something at the specific request of the Contractor and
GBOC has previously advised the Contractor prior to carrying out the
act or omitting to do something that to carry out that act or to omit
to do the relevant thing may result in this Contract being terminated.
29.2 Without prejudice to the provisions stipulated in Article 29.1 above,
this Contract may only be terminated by the State in its entirety by
giving ninety (90) days advance written notice thereof to all Parties,
when and only if a material breach of Contract is alleged to have been
committed by Contractor and, provided that conclusive evidence thereof
has been found by prior arbitration as stipulated in Article 30. For
the purposes of this Article, a material breach means a fundamental
breach which, if not cured, is tantamount to the frustration of the
entire Contract either as a result of the unequivocal refusal to
perform contractual obligations or as a result of conduct which has
destroyed the commercial purpose of this Contract.
ARTICLE 30
DISPUTE RESOLUTION
30.1 The Parties hereby consent to submit to the International Centre for
Settlement of Investment Disputes any dispute in relation to or arising
out of this Contract for settlement by arbitration pursuant to the
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States.
30.2 The Parties agree that, for the purposes of Article 25(1) of the
Convention, any dispute in relation to or arising out of this Contract
is a legal dispute arising directly out of any investment.
30.3 For the purposes of Article 25(2)(b) of the Convention, it is agreed
that, although JKX is a national of Cyprus, it is controlled by a
national of the United Kingdom and shall be treated as a national of
that state for the purposes of the Convention.
30.4 A Party need not exhaust administrative or judicial remedies prior to
commencement of arbitrage proceedings.
30.5 Any arbitrage tribunal constituted pursuant to this Contract shall
apply the provisions of this Contract as supplemented and interpreted
by general principles of the laws of Georgia and England as are in
force on the Effective Date.
59
60
ARTICLE 31
TEXT
31.1 This Contract shall be executed in three (3) originals in the Georgian
language and three (3) originals in the English language each of which
shall have equal legal force and effect; provided however that in the
case of dispute, conflict or arbitration the English version shall
(after the Georgian version has been reviewed and its provisions
discussed in good faith) be used as the authentic version to determine
the rights and obligations of the Parties which shall be determined by
reference solely to the English version of this Contract.
ARTICLE 32
APPROVAL AND EFFECTIVE DATE
32.1 This Contract shall enter into force and effect in its entirety on the
Effective Date. The provisions of this Article 32 shall be effective as
at the date of execution of this Contract by all the Parties hereto and
shall bind the Parties with effect from that date.
32.2 Following the execution of this Contract, Georgian Oil and the State
shall use their respective best endeavours to procure as soon as
possible that such further steps are taken as are necessary to cause
this Contract and all rights thereunder to be and remain legally valid
and fully effective under the laws of Georgia including without
limitation the enactment of such general or specific laws by the
legislative branches of the State including the Parliament of Georgia
as are necessary to make this contract legally valid and fully
effective with the full force of law in Georgia for the duration of
this Contract in full compliance with the Constitution of Georgia and
all requisite legal formalities and procedures.
32.3 The State shall notify the Contractor within 5 days of the steps
necessary to give this Contract full force of law in accordance with
this Article 32 being satisfied. The Contractor shall thereafter have a
period of thirty (30) days within which to notify the State whether or
not it considers the conditions set out herein to have been satisfied..
If the Contractor has not notified the State that it considers the
conditions satisfied by 31 December 1996 then the Contractor may by
written notice to the State terminate this Contract.
60
61
32.4 The State hereby guarantees to each Contractor Party and their
assignees for the duration of this Contract:
a) all rights granted or to be granted under this Contract by or on behalf
of the State;
b) all benefits granted or to be granted under this Contract by or on
behalf of the State;
c) to maintain the economic position of each Contractor Party and in the
event that all or any part of this Contract is not given the full force
of law to maintain that position as if the Contract had been given full
force of law. That position shall be maintained by indemnity in cash or
otherwise in a way satisfactory to the Contractor;
d) that all provisions of the Georgian language version of the Contract
accurately convey the same meaning as all the provisions of the English
language version of the Contract;
e) the stability of the legal, fiscal and economic terms of the Contract
so far as they directly or indirectly affect the Contractor;
f) that the privatisation, insolvency, liquidation, reorganisation or any
other change in the structure or legal existence of Georgian Oil shall
not affect the obligations or guarantees of the State hereunder.
This Contract is executed this ______________ day of ________________ 1995 _____
in three (3) versions in the Georgian language and three (3) in the English
language.
FOR THE STATE FOR
BY GEORGIAN OIL IN JKX NAVTOBI LIMITED
ITS CAPACITY AS THE STATE
REPRESENTATIVE
By: ___________________________
FOR
GEORGIAN OIL
By: ____________________________
61
62
Annex A
Contract Area
62
63
ENCLOSURE N2
The Title: Plans, geological profiles and structure of the oil deposits
on Ninotsminda, West Rustavi and Xxxxxx license territories.
Number of pages: 1
Page 1
1. Schematic map pf the location of joint venture " Georgia MAKOIL"
license area on the territory of the Republic of Georgia. Sc. 1:200 000
Page 2
2. Geological map and well location scheme of Ninotsminda and Xxxxxx area.
Sc. 1:25 000
Page 3
3. Structural map of Nintsminda and Xxxxxx area Middle Eocene Top. Sc.
1:50 000
Page 4
4. Scheme of the well location on Rustavi area. Sc. 1:25 000
64
Page 5
5. Structural map of Rustavi area Middle Eocene Top. Sc. 1:25 000
Page 6
6. Geological profiles of Ninotsminda and Xxxxxx areas. Sc. 1.25 000
Page 7
7. Geological profiles of Rustavi area. Sc. 1:25 000
ENCLOSURE N 1
The Title: The space borders and point co-ordinates of the East Georgia,
Ninotsminda, Xxxxxx and West Rustavi license territories.
The license area is located in Sararejo and Gardabani Regions Ninotsminda is
located on the territory of the villages Ninotsminda and Giorgitsmiinda. Xxxxxx
is located on the territory of villages Xxxxxx and Tokhliauri. The West Rustavi
is located on the territory of the farmng area of village Krtsanis.
Below are given the geographic co-ordinates of the area.
Ninotsminda - Xxxxxx
Point 1 latitude 41 44'08"N.L.
co-ordinates longitude 45 14'00"E.L.
Point 2 latitude 41 45'27"N.L.
co-ordinates longitude 45 23'24"E.L.
Point 3 latitude 41 44'45"N.L.
co-ordinates longitude 45 29'53"E.L.
Point 4 latitude 41 33'43"N.L.
co-ordinates longitude 44 58'36"E.L.
Point 5 latitude 41 36'04"N.L.
co-ordinates longitude 44 56'35"E.L.
Point 6 latitude 41 46'25"N.L.
co-ordinates longitude 45 20'17"E.L.
Point 7 latitude 41 46'00"N.L.
co-ordinates longitude 45 13'50"E.L.
65
Then in the direction of point 1. The Ninotsminda-Xxxxxx space makes 00.0xx.xx.
West Rustavi
Point 1 latitude 41 36'12"N.L.
co-ordinates longitude 41 49'34"E.L.
Point 2 latitude 41 35'08"N.L.
co-ordinates longitude 44 49'15"E.L.
Point 3 latitude 41 33'41"N.L.
co-ordinates longitude 44 58'30"E.L.
Point 4 latitude 41 33'43"N.L.
co-ordinates longitude 44 58'36"E.L.
Point 5 latitude 41 36'04"N.L.
co-ordinates longitude 44 56'35"E.L.
Then in the direction of point 1. The space of West Rustavi deposites is
00.xx.xx.
ANNEX B
PREVIOUS PRODUCTION
66
Total Determined Production is 137.35 tons per day. This shall decline at 10%
per year.
The total amount of Determined Production will be transferred to Georgian Oil
after all xxxxx to be transferred have commenced production provided that this
takes place within 6 months of the transfer.
The Determined Production will be phased on a well by well basis for a period of
6 months. Georgian Oil and Contractor shall appoint experts to estimate
Determined Production for each well upon transfer.
Oil in excess of actually Determined Production will be shared in accordance
with article 11.
67
ANNEX C
ACCOUNTING PROCEDURE
68
SECTION I
GENERAL PROVISIONS
1. PURPOSE
The accounting procedures included in this Accounting Procedure
establish a framework of accounting principles as generally accepted
within the international Petroleum industry. The purpose of this
Accounting Procedure is to establish a fair and equitable method for
accounting for Petroleum Operations under the Contract.
The purpose of this Accounting Procedure is not to define Costs and
Expenses for the purposes of determining Cost Recovery Petroleum or to
define what costs will be deductible in the calculation of Profit Tax.
Costs and Expenses are defined in Article 11 of the Contract.
Calculation procedure for the taxable base and Profit Tax is set forth
in Article 17 of the Contract.
2. DEFINITIONS
For the purpose of this Accounting Procedure the following terms shall
have the following meanings:
"Accounting Procedure" shall mean the accounting principles, practices
and procedures set forth in this Annex C.
"Accepted Accounting Practices" shall mean accounting principles,
practices and procedures generally accepted and recognised in the
international Petroleum industry.
"Cash Accounting Basis" shall mean the basis of accounting which
records the effect of transactions and events on financial conditions
and income when they are settled in cash.
"Material and Equipment" means property, including without limitation
all exploration, appraisal and development facilities together with
supplies and equipment, acquired and held for use in Petroleum
Operations.
"Controllable Material" means all materials, equipment physical assets,
consumables and other stocks and inventory acquired and held for use in
Petroleum Operations. A list of types of such Controllable Material
shall be furnished to Georgian Oil upon request.
The words and phrases defined in the Contract but not defined above
shall have the same meaning in this Accounting Procedure as is given to
them in the Contract.
69
3. AUDITS
Georgian Oil shall have the right to inspect and audit Contractor's
books, accounts and records relating to Petroleum Operations under the
Contract for the purpose of verifying that the Costs and Expenses
charged to the Petroleum Operations Account comply with the terms and
conditions of the Contract and this Accounting Procedure. Such books,
accounts and records shall be available in Georgia at all reasonable
times for inspection subject to thirty (30) days notice by duly
authorised representatives of Georgian Oil, including outside
independent auditors. Audits shall be conducted in such a manner as not
to interfere unduly with ongoing operations. All costs associated with
the audit will be the sole responsibility of Georgian Oil. Georgian Oil
shall have a period of twelve (12) months after the end of each
Calendar Year in which to audit and verify costs and expenses, volumes
and value of Petroleum and arithmetic calculations. Any exception by
Georgian Oil shall be communicated to the Contractor with each disputed
charge specified, with supporting rationale, within thirty (30) days
after the completion of the particular audit. If the Contractor and
Georgian Oil are unable to agree on any item or adjustment, the issue
will be resolved in accordance with the dispute resolution procedures
contained in Article 30 of the Contract. All accounts of Petroleum
Operations for any Calendar Year shall conclusively be presumed to be
true and correct twelve (12) months following the end of any such
Calendar Year, unless, within the said twelve (12) month period
Georgian Oil expresses any exception thereto in writing to the
Contractor.
4. CONTRACTOR'S BOOKS
4.1 The Contractor shall maintain in English in U.S.$ and on a Cash
Accounting Basis books and accounts for Petroleum Operations. Such
books and accounts shall be kept in accordance with Accepted Accounting
Practices and the provisions of the Contract and this Accounting
Procedure ("Petroleum Operations Account"). The documentation required
to support such books and accounts shall be the documentation as
specified in this Accounting Procedure. If no documentation is
specified then the documentation required shall be the documentation
reasonably acceptable and recognised in the international Petroleum
industry.
4.2 All U.S.$ expenditures shall be charged in the amount expended.
Expenditures incurred in currencies other than U.S.$ shall be
translated into U.S.$ as per Article 19.11 of the Contract. A record
shall be kept of the exchange rates used in translating expenditures
incurred in currencies other than U.S.$. Any gain or loss resulting
from the exchange of currencies required for Petroleum Operations and
any fees or other banking charges levied in connection with such
exchange of currencies or any gain or loss resulting from translation
of expenditures and sales revenues in accordance with the provisions of
Article 19.11 shall be included in Costs and Expenses and recoverable
from Cost Recovery Petroleum and credited or charged to the Petroleum
Operations Account.
4.3 Contractor shall maintain books and accounts relating to Petroleum
Operations for four (4) years following the end of the Calendar Year to
which they relate.
70
5. PRECEDENCE OF DOCUMENTS
In the event of any inconsistency or conflict between the provisions of
this Accounting Procedure and the provisions of the Contract treating
the same subject differently, the provisions of the Contract shall
prevail.
6. REVISION OF ACCOUNTING PROCEDURE
This Accounting Procedure may be revised from time to time by mutual
written agreement Georgian Oil and Contractor.
7. ARBITRATION PROCEDURES
Any dispute in relation to or arising out of this Accounting Procedure
shall, unless settled by agreement among the Parties be submitted to
arbitration in accordance with Article 30 of the Contract.
8. OPERATOR
To the extent that Operator is to incur Costs and Expenses on behalf of
Contractor, Contractor will advance Operator funds necessary to settle
such liabilities. Operator shall provide Contractor a projection of
cash expenditures no later than the tenth (10th) day of the month for
funding requirements for the following month. Contractor may then
advance funds to Operator no later than the last business day of the
month preceding the month the funds are being advanced for. Such cash
advances will be deducted from actual expenditures for the month with
any over or short position carried forward to the next month.
71
SECTION II
COSTS, EXPENSES AND EXPENDITURES
DIRECT CHARGES
The Contractor shall charge the Petroleum Operations Account for all
costs and expenses whether directly or indirectly incurred necessary to
conduct Petroleum Operations under this Contract. For the purposes of
this Accounting Procedure costs and expenses incurred directly or
indirectly by a Contractor Party and its Affiliated Companies prior to
the Effective Date of this Contract shall be deemed to be incurred on
the Effective Date of this Contract. Chargeable costs and expenses
shall include, but not be limited to:
2.1 LICENSES, PERMITS
All costs, if any, attributable to the acquisition, maintenance,
renewal or relinquishment of licenses, permits, contractual and/or
surface rights acquired for Petroleum Operations and any bonuses paid
in accordance with the Contract when paid by Contractor.
Documentation requirements: Copy of contract or payment request
documentation indicating purpose of payment, amount of payment and
recipient of payments.
2.2 SALARIES, WAGES AND RELATED COSTS
2.2.1 Gross salaries and wages in respect of employees of Contractor and its
Affiliates who are in Georgia directly engaged in Petroleum Operations
whether temporarily or permanently assigned.
Documentation requirements: Copy of timesheet indicating project or
area worked during time period.
2.2.2 Gross salaries and wages in respect of employees of Contractor and its
Affiliates outside of Georgia directly engaged in Petroleum Operations
whether temporarily or permanently assigned, and not otherwise covered
in Section 2.7.2.
Documentation Requirements: Copy of timesheet indicating project or
area worked during time period.
2.2.3 Salaries and wages, including everything constituting the employees'
total compensation. To the extent not included in salaries and wages,
the Petroleum Operations Account shall also be charged with the cost to
Contractor and its Affiliates of payroll taxes, holiday, vacation,
sickness, disability benefits, living and housing allowances, travel
time, bonuses, and other similar allowances in accordance with
Contractor and its Affiliates usual practice, as well as costs to
Contractor and its Affiliates for employee benefits, including but not
limited to employee group life insurance, group medical insurance,
72
hospitalisation, retirement, and other benefit plans of a like nature
applicable to labour costs of Contractor and its Affiliates.
Documentation Requirements: Copy of records indicating Contractor or
its Affiliates payment to or on behalf of employee. These records will
be made available only during the conduct of an audit in accordance
with the provisions of paragraph 3 of Section I of this Accounting
Procedure.
2.2.4 Expenditures or contributions made pursuant to assessments imposed by
the State or any Governmental authority which are applicable to the
Contractor and its Affiliates costs of salaries and wages under
paragraph 2.2 of this section II of this Accounting Procedure including
but not limited to payroll taxes and social insurance contributions.
Documentation Requirements: Copy of records indicating Contractor or
its Affiliates payment to the State or Governmental authority on behalf
of employee.
2.2.5 Expenses ((including related travel costs) which are considered
reasonable in accordance with Contractor's and its Affiliates usual
practice)of those employees whose salaries and wages are chargeable to
the Petroleum Operations Account under paragraphs 2.2.1 and 2.2.2 of
this Section II and for which expenses the employees are reimbursed
under the usual practice of Contractor and its Affiliates.
Documentation Requirements: Copy of expense reimbursement request
documents.
2.2.6 Gross salaries and wages, pensions, benefits and other related costs
(together with attributable office costs) of those employees of the
Contractor and its Affiliates not solely engaged in the conduct of
Petroleum Operations shall be apportioned to the Petroleum Operations
and the Contractor's other activities based on the percentage time
worked on the Petroleum Operations or other activities multiplied by
the total cost of the employee for the time period.
Documentation Requirements: Copy of timesheet indicating project or
area worked during period.
2.3 EMPLOYEE RELOCATION COSTS
2.3.1 Except as provided in Section 2.3.3, Contractor or its Affiliates cost
of employees' relocation to or from the Contract Area vicinity or
location where the employees will reside or work, whether permanently
or temporarily assigned to the Petroleum Operations. If such employee
works on other activities of the Contractor in addition to Petroleum
Operations, such relocation costs shall be charged to the other
activities based on the percentage time expected to be worked on other
activities multiplied by the employee relocation costs.
Documentation Requirements: Copy of expense payment requests to or on
behalf of employee.
73
2.3.2 Such relocation costs shall include transportation of employees and
their family, personal and household effects of the employee and their
family, transit expenses, and all other related costs in accordance
with Contractor and its Affiliates usual practice.
Documentation Requirements: Copy of payment requests to or on behalf of
employee.
2.3.3 Relocation costs from the vicinity of the Contract Area to another
location classified as a foreign location by Contractor shall not be
chargeable to the Petroleum Operations Account unless such foreign
location is the point of origin of the employee.
Documentation Requirements: Copy of payment requests to or on behalf of
employee.
2.4 OFFICES, CAMPS AND MISCELLANEOUS FACILITIES
All costs of maintaining any offices, sub-offices, camps warehouses,
housing, and other facilities of the Contractor and/or Affiliates
directly serving the Petroleum Operations either within Georgia or
elsewhere. If such facilities serve operations in addition to the
Petroleum Operations the costs shall be allocated to the properties
served on an equitable basis approved by the Parties.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payment, recipient
of payment and date goods and/or services were received.
2.5 MATERIAL AND EQUIPMENT
Cost, net of any discounts taken by contract, of Material and Equipment
purchased or furnished by Contractor whether directly or indirectly.
Such costs shall include, but are not limited to, export brokers' fees,
taxes, transportation charges, loading, unloading fees, export and
import duties and licence fees associated with the procurement of
Material and Equipment and in-transit losses, if any, not covered by
insurance. So far as it is reasonably practical and consistent with
efficient and economical operation, such Material and Equipment shall
be purchased for, and the cost thereof charged to the Petroleum
Operations Account.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payment, recipient
of payment and date goods and/or services were received.
74
2.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF CONTRACTOR AND AFFILIATES
Charges for exclusively owned equipment, facilities and utilities of
Contractor and its Affiliates at costs or rates not to exceed the
average cost or rates of non-affiliated Third Parties then prevailing
for Contractor for like equipment, facilities, and utilities for use.
Exclusively owned equipment leased to the Petroleum Operations lost or
damaged beyond repair may be charged at replacement cost plus
transportation costs to deliver like equipment to the location where
the like equipment will be used.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payment, recipient
of payment and date goods and/or services were received. Additionally,
documentation as to how the average commercial cost or rates were
determined are required.
2.7 SERVICES
2.7.1 The cost of services provided by Third Parties, Contractor and
Affiliates of Contractor other than those services covered by Section
2.7.2. Such charges for services by Contractor and Contractor's
Affiliates shall not exceed those currently prevailing if performed by
Third Parties, considering quality and availability of services.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payments,
recipient of payment and date services were performed.
2.7.2 The cost of services performed by Contractor and Contractor's
Affiliates technical and professional staffs not located within
Georgia.
Documentation Requirements: Copy of timesheet indicating project or
area worked during period.
The charges for such services shall not exceed those currently
prevailing if performed by Third Parties, considering the quality and
availability of such services.
75
Examples of such services include, but are not limited to, the
following:
Geologic studies and interpretation
Seismic data processing
Well log analysis, correlation and interpretation
Laboratory services
Well site geology
Project engineering
Source rock analysis
Petrophysical analysis
Geochemical analysis
Drilling supervision
Development evaluation
Accounting and professional services
Other data processing
Costs shall include salaries and wages of such technical and
professional personnel, lost time, governmental assessments, employee
benefits, and expenses which are considered reasonable in accordance
with Contractor and its Affiliates usual practice. Costs shall also
include all support costs necessary for such technical and professional
personnel to perform such services, such as, but not limited to, rent,
utilities, administration, support staff, drafting, telephone and other
communications expenses, computer support, supplies, and depreciation.
2.8 INSURANCE
Premiums paid for insurance required by law or the Contract to be
carried for the benefit of the Petroleum Operations. If the insurance
is for the benefit of operations in addition to the Petroleum
Operations the premiums paid shall be allocated to the operations
covered on an equitable basis.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payment, recipient
of payment and period of coverage.
2.9 DAMAGES AND LOSSES TO PROPERTY
2.9.1 All costs or expenditures necessary to replace or repair any damages,
losses incurred by fire, flood, storm, theft, accident, or any other
cause. Operator shall maintain written documentation of damages or
losses.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payment, recipient
of payment.
2.9.2 Expenditures incurred in the settlement of all losses, claims, damages,
judgements, and other expenses for the account of Petroleum Operations.
76
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payment, recipient
of payment.
2.10 LITIGATION AND LEGAL EXPENSES
The costs and expenses of litigation and legal services necessary for
the protection of the Petroleum Operations under this Contract as
follows:
2.10.1 Legal Services necessary or expedient for the protection of the
Petroleum Operations, and all costs and expenses of litigation,
arbitration or other alternative dispute resolution procedure,
including but not limited to lawyers' fees and expenses, court costs,
cost of investigation of procuring evidence, together with all
judgements obtained against the Parties or any of them arising from the
Petroleum Operations.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payments,
recipient of payment and date services were performed.
2.10.2 If the Parties hereunder shall so agree, actions or claims affecting
the Petroleum Operations hereunder may be handled by the legal staff of
a Contractor Party or its Affiliates; and a charge commensurate with
the similar costs of providing and furnishing such services rendered
may be made, but no such charges shall be made until the service and
the charge has been approved by the Parties.
Documentation Requirements: Copy of timesheet indicating project or
area worked during period.
2.11 TAXES AND DUTIES
All State or Governmental Taxes, duties, assessments and charges, of
every kind and nature (except for the Profit Tax determined in
accordance with the provisions of Article 17 of the Contract), assessed
or levied upon or in connection with the Petroleum Operations. If
Contractor or an Affiliate is subject to income or withholding tax as a
result of services performed for Petroleum Operations under the
Contract, its charges for such services may be increased by the amount
of such taxes incurred.
Documentation Requirements: Copy of records indicating Contractor's
payment to governmental authority, purpose of payment, amount of
payment and recipient of payment.
77
2.12 FINANCE COSTS
All Finance Costs.
Documentation Requirements: Copy of loan document, amount of principal
and interest paid, any arrangement or other fees and lending
institution.
2.13 SALE AND SALVAGE OF MATERIALS PREVIOUSLY CHARGED TO PETROLEUM
OPERATIONS
Proceeds from the sale or salvage of Material and Equipment previously
charged to Petroleum Operations will be credited to the Petroleum
Operations less any expenses associated with the disposition of the
Material and Equipment. Material and Equipment transferred to
Contractor or an Affiliate will be credited to the Petroleum Operations
at fair market value.
Documentation Requirements: Copy of sales agreement indicating amount
recovered, parties to agreement, date of sale of Material and Equipment
and a description.
2.14 ABANDONMENT AND SITE RESTORATION
Any costs and expenditures in relation to abandonment and site
restoration and any payments in accordance with the funding procedure
described in Article 9.8 of the Contract and Section VII of this
Accounting Procedure shall be charged to the Petroleum Operations
Account.
Documentation Requirements: Copy of invoice, payment request document
indicating purpose of payment, amount of payment, recipient of payment,
if applicable copy of any schedule indicating funding requirements for
abandonment and site restoration.
2.15 ENERGY EXPENSES
All costs of fuel, electricity, heat, water or other energy used for
Petroleum Operations.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payments,
recipient of payment.
78
2.16 COMMUNICATION CHARGES
The costs of acquiring, leasing, installing, operating, repairing and
maintaining communications systems.
Documentation Requirements: Copy of invoice, payment request document
or contract indicating purpose of payment, amount of payments,
recipient of payment.
2.17 COORDINATION COMMITTEE
All costs and expenditures incurred with respect to the activities of
the Coordination Committee pursuant to Article 6 of the Contract.
Documentation Requirements: Copy of invoice, payment request document
indicating purpose of payment, amount of payments, recipient of
payments.
2.18 CREDITS
The Contractor will credit to the Petroleum Operations Account the net
proceeds of the following transactions:
2.18.1 The net proceeds of any successful insurance claim in connection with
Petroleum Operations where the claim is with respect to operations or
assets which were insured and where the insurance premiums with respect
thereto have been charged to the Petroleum Operations Account.
2.18.2 The net proceeds of any successful claim in connection with Petroleum
Operations where the costs and expenditures relating to the subject of
the claim have been charged to the Petroleum Operations Account.
2.19 OTHER EXPENDITURES
Any other costs and expenditures incurred by Contractor and its
Affiliates for the necessary and proper conduct of the Petroleum
Operations in accordance with approved Work Program and Budget and not
covered in this Section II or in Section III, of this Accounting
Procedure.
Documentation Requirements: Documentation reasonably acceptable and
recognised in the international Petroleum industry to support those
costs or expenditures.
79
SECTION III
INDIRECT CHARGES
3.1 PURPOSE
Contractor shall charge an administration overhead to the Petroleum
Operations Account for the cost of indirect services and related office
costs of Contractor and its Affiliates not otherwise provided in this
Accounting Procedure. For the purposes of this Accounting Procedure
costs and expenses incurred directly or indirectly by a Contractor
Party and its Affiliated Companies prior to the Effective Date of this
Contract shall be deemed to be incurred on the Effective Date of this
Contract. Indirect costs chargeable under this Section III represent
the cost of general administration and support services provided by the
Contractor and its Affiliates outside of Georgia for the indirect
benefit of Petroleum Operations. Such support will include the services
and related office costs of personnel performing administrative, legal,
treasury, tax and employee relations, provision of expertise and other
non-technical functions which can not be specifically identified or
attributed to particular projects. No cost or expenditure included
under Section II of this Accounting Procedure shall be included or
duplicated under this Section III.
80
3.2 AMOUNT
The charge under Section 3.1 will be charged at rates on total annual
expenditures attributable to Petroleum Operations as follows:
ANNUAL EXPENDITURES
U.S$ 0 to U.S.$10,000,000 of expenditures per Calendar Year = 5%
Excess above U.S.$10,000,000 of expenditures per Calendar Year =3%
3.3 CHANGES
The indirect charges provided for in this Section III may be amended
periodically by mutual agreement between Georgian Oil and Contractor
if, in practice, these charges are found to be insufficient or
excessive.
SECTION IV
INVENTORIES
4.1 PERIODIC INVENTORIES, NOTICE AND REPRESENTATION
At reasonable intervals as agreed with Georgian Oil, inventories shall
be taken by Contractor of all Controllable Material, which shall
include materials and physical assets. Written notice of intention to
take inventory shall be given by Contractor to Georgian Oil; at least
thirty (30) days before any inventory is to begin so that Georgian Oil
may be represented when any inventory is taken. Failure of Georgian Oil
to be represented at an inventory shall bind Georgian Oil to accept the
inventory taken by Contractor who shall in that event furnish Georgian
Oil with a copy thereof.
4.2 RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Reconciliation of inventory shall be made by Contractor and Georgian
Oil and a list of overages and shortages shall be jointly determined by
Contractor and Georgian Oil, and the inventory accordingly adjusted by
Contractor.
81
SECTION V
FINANCIAL REPORTS
5.1 ACCOUNTS OF PETROLEUM OPERATIONS
Contractor shall submit to Georgian Oil by March 15 following each
Calendar Year accounts for that Calendar Year of the Petroleum
Operations prepared in accordance with this Accounting Procedure.
5.2 STATEMENT FOR RECOVERY OF COSTS AND OF COST RECOVERY PETROLEUM
The Contractor shall, render to Georgian Oil as promptly as practical
but not later than forty five (45) days after the end of the last
Calendar Quarter in which the date of commencement of Commercial
Production first occurs, and not later than forty five (45) days after
the end of each succeeding Calendar Quarter a Calendar Quarter Cost
Recovery report and Calendar Quarter Profit Petroleum division report
showing:
(i) Recoverable Costs and Expenses carried forward from the
previous Calendar Quarter, if any;
(ii) Recoverable Costs and Expenses incurred during the Calendar
Quarter;
(iii) Total recoverable Costs and Expenses for the Calendar Quarter
(sum of (i) plus (ii));
(iv) Volume and value of Cost Recovery Petroleum taken and
separately disposed of by Contractor for the Calendar Quarter;
(v) Amount of Costs and Expenses actually recovered for the
Calendar Quarter;
(vi) Amount of recoverable Costs and Expenses to be carried forward
into the succeeding Calendar Quarters if any;
(vii) Excess, if any, of the value of Cost Recovery Petroleum taken
and separately disposed of by Contractor over recoverable
Costs and Expenses for the Calendar Quarter;
(viii) The value and volume of Petroleum produced, used in Petroleum
Operations, available for lifting and actually lifted by
Parties during the Calendar Quarter; and
(ix) Profit Petroleum allocated to each Contractor Party and
Georgian Oil during the Calendar Quarter.
82
5.3 PAYMENTS
If such statement shows an amount due to Georgian Oil, payment of that
amount shall be made in U.S.$ by Contractor to Georgian Oil with the
rendition of such statement.
SECTION VI
CONTROL AND MAJOR ACCOUNTS
6.1 COST RECOVERY CONTROL ACCOUNT
Contractor will establish a cost recovery control account and an
offsetting Contract account to control therein the amount of cost
remaining to be recovered, if any, and the amount of cost recovered.
6.2 MAJOR ACCOUNTS
For the purpose of classifying costs, expenses and expenditures for
cost recovery, costs, expenses and expenditures shall be recorded in
major accounts including but not limited to the following:
(a) Exploration Expenditures
(b) Development Expenditures, other than Operation Expenses
(c) Operation Expenses
Any other necessary sub-accounts shall be used. All Costs and Expenses,
regardless of classification, shall be recovered as per Article 11 of
the Contract.
83
SECTION VII
ABANDONMENT AND SITE RESTORATION
The Development Plan shall also include an abandonment and site
restoration program together with a funding procedure for such program.
All funds collected pursuant to the funding procedure shall be
indicated to site restoration and abandonment and will be placed in a
special interest bearing account by Contractor which shall be held in
the joint names of the State and the Contractor or their respective
nominees, or its designee. Contractor's responsibilities for
environmental degradation, site restoration and well abandonment
obligations, and any other actual contingent and potential activity
associated with the environmental status of the Development Area shall
be limited to the obligation to place the necessary funds in the
approved account. All expenditures incurred in abandonment and site
restoration including but not limited to all payments deposited by
Contractor in the special interest bearing account shall be treated as
Costs and Expenses in accordance with Article 11 and Article 9.8 of the
Contract and chargeable to the Petroleum Operations Account.
84
ANNEX D
THE GBOC LICENCE
85
Approved by
The Chairman of Department "Georgian Oil"
R Tevzadze
1994
COMPLEX LICENSE
1. Series 34 47
2. Number 5
3. License type N
4. Issued: to the joint venture "Georgia-MAKOIL" of the Department
"Georgian Oil", Republic of Georgia and private corporation "MAKOIL
Inc.", USA.
5. Address: The Republic of Georgia, Xxxxxxx, Xxxxxxx Xxx.X 00.
6. Bank Requisites: 000070546, MPO 436.
7. Basic activity: exploration and research of oil and gas deposits,
production, transportation and oil marketing on the international
market.
8. Aim of activity: The license is issued to "Georgia MAKOIL" for
increasing oil production on the territories of Ninotsminda, Xxxxxx and
West Rustavi, by means of introducing new drilling and producing
technologies.
9. The license area is located on the territory of Sagarejo and Gardabani
Regions.
10. The borders and coordinates of the license area are given in Enclosure
N1.
11. Plans, geological profiles and structural maps are given in Enclosure
N2.
12. The territory to be used is determined by Department "Georgian Oil"
after outlining oil and gas deposits on the initiative of "Georgia
MAKOIL".
13. The two stage duration of the license of the joint venture "Georgia
MAKOIL" is determined by a 25 (twenty five) year term. The purpose of
the first three year (3 year) stage is to carry out research on the
production capacity of the license territory and the agreement sides to
make necessary changes and corrections to the Charter. The second stage
is considered for the following 22 (twenty two) years. If any of the
first three (3) xxxxx drilled by the joint venture proves to be oil
producing, then the joint venture has the right to drill such a number
of xxxxx within the license area, that it considers necessary.
14. If in none of the first three drilled xxxxx is found oil, the joint
venture ceases its activity and it is liquidated according to the
established norm.
15. The license entitles the joint venture "Georgia MAKOIL" to carry out
geological and geophysical researches, exploration, appraisal and
exploitation drilling, oil and gas production, transportation, primary
processing and export.
16. The Enclosures are consisting part of this license:
N1 Space borders and coordinates of Ninotsminda, West Rustavi
deposits and Xxxxxx Territory.
N2 Plans, geological profiles and structural maps of the license
area.
N3 The right to use the territory connected with mineral usage.
N4 The condition of the explored reserves by 01.01.94.
N5 Feasibility Study of the exploration research and development
works on the license area.
N6 The payment of the license duty.
N7 Terms of mineral usage tax.
N8 The amount and agreed share distribution in time period of the
expected produced oil on the license territory.
N9 The Agreement on confidentiality of the new geological and
other information, received during the mineral usage.
86
N10 The obligatory terms on mineral and environmental protection
conclusion from the Ministry of Environmental Protection.
N11 Work Safety conclusion from the Department of Technical
Supervision in the Republican Economy.
N12 The report of the Department "Georgian Oil" scientific
technical committee session.
N13 Terms of continuation and termination of the license validity.
N14 The obligation of the joint venture "Georgia-MAKOIL".
N15 Control of the license terms on mineral usage.
N16 Report of the License Commission session.
N17 Normative technical documentation of oil.
N18 Expert conclusion
Nl9 Terms of the joint venture accounting to the Budget of the
Republic of Georgia.
N20 The list of additional documents, presented by the joint
venture "Georgia MAKOIL".
N21 On Concessions in Mineral Usage Issues.
N22 On leased equipment
X00 Xx additional normative acts of legislation.
The Authorised Representative of the The Authorized Representative of
Specialized Office for Licensing and the Joint Venture "Georgia
Informatics of Department "Georgian Oil" MAKOIL
I. Tavdumadze Xxxxxx Xxxxxxxxx
----------------------- ----------------
87
ENCLOSURE N1
The title: The space borders and point coordinates of the East Georgia
Ninotsminda, Xxxxxx and West Rustavi license territories.
The license area is located in Sagarejo and Gardabani Regions. Ninotsminda is
located on the territory of the villages Ninotsminda and Giorgitsminda. Xxxxxx
is located on the territory of villages Xxxxxx and Tokhliauri. The West Rustavi
is located on the territory of the farming area of village Krtsanisi.
Below are given the geographic coordinates of the area:
Ninotsminda - Xxxxxx
Point 1 latitude 41 44'08" N.L.
Co-ordinates longitude 45 14'00" E.L.
Point 2 latitude 41 45'27"N.L.
Co-ordinates longitude 45 23'24" E.L.
Point 3 latitude 41 44'45"N.L.
Co-ordinates longitude 45 29'53" E.L.
Point 4 latitude 41 33'43"N.L.
Co-ordinates longitude 44 58'36" E.L.
Point 5 latitude 41 36'04" N.L.
Co-ordinates longitude 44 56'35" E.L.
Point 6 latitude 41 46'26" N.L.
Co-ordinates longitude 45 20'17" E.L.
Point 7 latitude 41 46'00" N.L.
Co-ordinates longitude 45 13'50"E.L.
Then in the direction of point 1. The Ninotsminda - Xxxxxx space makes 72.7
xx.xx.
West Rustavi
Point 1 latitude 41 36'12" N.L.
coordinates longitude 44 49'34" E.L.
Point 2 latitude 41 35'08" N.L.
coordinates longitude 44 49'15" E.L.
Point 3 latitude 41 33'41 " N.L.
coordinates longitude 44 58'30" E.L.
Point 4 latitude 41 33'43"N.L.
coordinates longitude 44 58'36"E.L.
Point 5 latitude 41 36'04" N.L.
coordinates longitude 44 56'35" E.L.
Then in the direction of point 1. The space of West Rustavi deposit is 35.7
xx.xx.
88
ENCLOSURE N2
The title: Plans, geological profiles and structure maps of the oil deposits on
Ninotsminda, West Rustavi and Xxxxxx license territories.
Page 1
1. Schematic map of the location of joint venture "Georgia MAKOIL" license area
on the territory of the Republic of Georgia. Sc. 1:200 000
Page 2
2. Geological map and well location scheme of Ninotsminda and Xxxxxx area. Sc.
1:25 000
Page 3
3. Structural map of Ninotsminda and Xxxxxx area Middle Eocene Xxx.Xx. 1:50 000.
Page 4
4. Scheme of the well location on Rustavi area. Sc. 1 :2S 000
Page 5
5. Structural map of Rustavi area Middle Eocene Top. Sc. 1:25 000.
Page 6
6. Geological profiles of Ninotsminda and Xxxxxx areas. Sc. 1:25 000
Page 7
6. Geological profiles of Rustavi area. Sc. 1:25 000
ENCLOSURE N3
The title: The question of the license area land territory.
On Ninotsminda and Rustavi oil deposits the mining territory will be
outlined after space lining the oil deposits. This is why, before
passing the Law on Land Issues, the activity on oil deposits and
exploration territory must be determined in accordance with the current
Land Legislation, by creating corresponding agreement in each separate
case.
89
ENCLOSURE N4
The title: The condition of the oil reserves, explored on the East Georgia
Ninotsminda and West Rustavi territories by 01.01 94.
Ninotsminda
C category reserves 23.283 thousand tons.
Recoverable 6,333 thousand tons.
a) Oil area space thousand sq.m 1 200
b) Oil bearing capacity average m 319
c) Open porosity 0 012
d) Oil content 0.8
e) Oil recovery factor 0 2772
f) Re-counting factor 0.071
Oil characteristics
a) Density gr./xx.xx - 0.823
b) Viscosity in formation condition m pasc - 0.415 c)
c) Sulphur content % - 0.24
d) Paraffin content % - 4.89
e) Resin and asphaltene content % - 8.69
f) Temperature in formation condition C (degree) - 95
West Rustavi
C category reserves 7.480.9 thousand tons Recoverable 2,221.9
a) Oil area space thousand sq.m 8 880
b) Oil bearing capacity total effective m 159/159
c) open porosity - 0:01
d) Oil content - 0.8
e) Oil recovery factor % - 0.3
f) Re-counting factor - 0.05
Oil characteristics
a) Density gr./xx.xx - 0 845
b) Viscosity in formation condition m pasc - 0.49
c) Sulphur content % - 0.14
d) Paraffin content % - 3.0
e) Resin and asphaltene content % - 11.08
f) Temperature in formation condition C - 93
90
ENCLOSURE N5
The title: Joint venture "Georgia MAKOIL": Feasibility Study of exploration
research and development operations on the East Georgia ` Ninotsminda, West
Rustavi and Xxxxxx license territories.
Geological - Technological Study
1. GEOLOGICAL APPRAISAL OF THE EAST GEORGIA NINOTSMINDA, WEST RUSTAVI
DEPOSITS AND XXXXXX RESEARCH TERRITORY.
For the purpose of increasing oil production on Ninotsminda and Rustavi
deposits and for the purpose of increasing the oil flowing of the
formations, in the Department "Georgian Oil" was solved to use the
method of horizontal drilling. The mentioned reservoirs are located
within the oil region near Tbilisi.
Ninotsminda and Xxxxxx are the separate domes of the eastern part of
Samgori anticline zone. Rustavi is an indefinite structure, located
South from Samgori structure.
Because of the difficult geological conditions for drilling and
development, it was resolved, that this problem will be solved by
participation of foreign f~nns.
This observation is a short geological evaluation of the mentioned
region, and it is based on published and unpublished data and on the
discussions, held in November of 1990 during the visit of the
representatives of the Ministry.
2. GEOLOGICAL LOCATION
The deposit to be discussed is located in the Eastern part of Georgia,
20 - 30 km to the East from the capital of Georgia, Tbilisi. Georgia is
located in the Caucasian Mountains, that was formed at the same time as
the Alps. The Caucasian region consists of two parallel north - west
and south - east directed mountain ridges that are separated by Mtkvari
- Kolkheti depression. Georgia inhabits the above depression and slopes
of the surrounding folding zones.
Stratigraphically, the Tbilisi region mainly consists of formations,
that belong to the Alpine Orogenese (it is located in the IX block of
the Georgian regional division and includes the formations from the
Upper Cretaceous to the Quarterly period).
- Quarterly - 100m, conglomerates
- Miocene - 2 500 - 3 500m, conglomerate, sandstone, clay.
- Oligocene - 1 000 - 1 500m, clay, sandstone.
- Upper Eocene - 1 500m, terrigenic flysch
- Middle Eocene - 800m igneous formations
- Low Eocene - 1 800b - 2 200m flysch, sandstone, clay
- Palaeocene - 100 - 500m limestone, calcareous clay, marl
- Upper Cretaceous - 1 000m limestone, calcareous clay, igneous formations
91
Tbilisi surrounding region oil deposits are located within the Georgian
between mountain depression, that is the part of the South Caspian oil
- gas region. The between mountain depression is bordered by Dzirula
massive. It is faced by under-thrusting, that separates it from Greater
Caucuses in the North and from the folding zones of the Lesser Caucuses
in the South.
Achara-Trialeti folding zone is located in the north-west part of the
Lesser Caucasus. A number of folding are singled out here, the axis of
which is sinking from the West to the East. Separate anticline domes
are developed on the folding zone depression within the between
mountain depression. In the Paleogene formations they contain oil and
gas industrial accumulations. In this section the folding are usually
asymmetric, mostly on the sliding south wing.
3. CHARACTERISTICS OF THE RESERVOIR
The main reservoirs of the deposits in the region of our interest are
made of igneous formations. These layers were set on the underwater
field of an igneous island. Such formations are observed on Japanese
and Indonesian islands. The formations of this type do not have well
developed porosity and oil existence in such reservoirs is determined
by technological disorders in the fractures. The formations of the
mentioned reservoir are partially similar to the volcanic formations of
Nevada Trap Spring Field reservoir.
4. DESCRIPTION OF THE DEPOSIT
Data on some deposits of the folding system is given in table N1.
Samgori, Patardzenli, Ninotsminda and Xxxxxx are separate anticlines of
the same folding zone. Ninotsminda was considered a part of Samgori
Patardzeuli deposit, but some seismic and industrial materials show,
that this is a separate fold. Xxxxxx is an anticline of the maintained
folding zone, which is located in the barest East and it has not been
developed.
Rustavi is located in the South of Samgori Patardzeuli anticline zone
and similar to the Samgori Patardzeuli, Middle Eocene igneous
formations are productive here.
Though Samgori-Patardzeuli deposit is not included in the proposed
licensed territory, the geological and industrial characteristics are
known better, but it is assumed, that this deposit is analogous with
the proposed one.
5. SURFACE CONDITIONS
The relief is mountainous. It is higher in the north-east. It is
covered by deep ravines and is used for irrigation.
Three structural levels of the region are characterized as oil and gas
bearing. Close to the surface is observed small oil accumulation in the
Upper Eocene, the following is the main oil deposit in the middle
Eocene, deeper is the gas accumulation in the Low Eocene.
92
6. CHARACTERISATION OF THE RESERVOIR
The main reservoir is the Middle Eocene igneous formations, that are
characterized by fracture reservoirs. Reservoir characteristics include
definite variety, in the depth and in the width. According to the
industrial geophysical information their separation is quite
complicated. The industrial materials of the deposit show, that
effective porosity and permeability is basically connected with
fractures. Surface observations show, that the fracturing is controlled
in the partition of the anticlines. 7. Industrial data
7. INDUSTRIAL DATA
Besides the Middle Eocene reservoir, on Ninotsminda territory north
wing in the Upper Eocene sandstone is opened an oil deposit in well
N59. Oil showing is observed in xxxxx N1, 35 36 on Samgori-Ninotsminda
structure.
7.1 The primarily discovered xxxxx were completed in 1974. The production
made 2 200 bbl oil. From the discovery was produced 96 mln Bbl. The
xxxxx of as high as of low rate are met on the deposit. The deposit
regime is water resisting. The water rate is low, but along with the
decrease of oil rate it increases obviously. It is assumed, that there
is strong of water-resistance, but the technique, used before did not
include pressure maintaining operations. As the oil deposit regime is
water resisting, Ninotsminda unproductive xxxxx started producing oil
later.
7.2 Reserves with the primary appraisal - 580 mln bbl, 50% to be produced
290 mln bbl, note: 35% to be produced 203 mln bbl. This evaluation,
made in Grozno Oil Scientific Research Institute was not accepted by
"Georgian Oil". In "Georgian Oil" they consider 30-45 mln bbl is left
in the deposit.
93
7.3 NINOTSMINDA
Surface conditions: steep forestry hills in the east, less steep in the
west.
Production: The deposit is not completely developed. From the well N4
is produced 470 thousand bbl oil without water from 9250-9380 feet, for
two years. Despite the fact that Ninotsminda borders Samgori deposit,
it is a separated industrial unit. Existence of a fault with
insignificant migration is assumed between
Samgori-Patardzeuli-Ninotsminda.
Reserves: Confirmation of Ninotsminda reserves evaluation has not been
made. According to the "Saknavtobi" figures, oil reserves for producing
by 1992, C category reach 6 333 thousand tons. The figure given for
Samgori cannot be spread on Ninotsminda deposit. Ninotsminda area is
being under the early stage of development. Deposit sizes, especially
eastern part of the anticline have not been researched at all. The
Upper Eocene oil deposit of the North wing is not researched either.
7.4 XXXXXX
In the East of Ninotsminda area several xxxxx are drilled, they are
several miles away from the xxxxx, functioning on this territory. The
xxxxx are not drilled to the project depth, but oil bearing of the
Middle Eocene formations is assumed. On Ninotsminda territory
productive Paleogene formations are located under the testing. it is
not excluded, that Mascara temto~y has analogous structure. The seismic
study of this region is very poor and structural composition needs to
be cleared out. The xxxxx are intended to be drilled on Xxxxxx Crest,
or the latter might be a farest depression of Ninotsminda folding. At
the very least, the perspective of Xxxxxx territory is doubtful. This
was to be solved by well N10, that was being drilled, but this problem
was not solved, as it is temporarily conserved because of the
electricity shortage.
7.5 RUSTAVI
This deposit is located in the South from the folding zone of Teleti
deposit and is separated from it by a underthrusting type faulting.
Despite this, reservoir and production features are more similar to the
Teleti deposit (table 1). Rustavi is being under observation. The
structure can be determined on the basis of seismic materials of the
Trust "Saknavtobgeopizika". The quality of the materials is good.
Potential of development: The development possibilities of Ninotsminda
deposit are good. Separate parts of this region can be qualified as
researched and undeveloped. We do not have information on the
undeveloped reserves, but the reserves of Xxxxxx region and Ninotsminda
undeveloped part are about 30% more than of Samgori complex central and
west parts. In case of equivalence of other geological parameters,
Ninotsminda Xxxxxx must have at least 75 mln bbl oil reserves, as the
borders of the production region are not defined yet and this figure
might increase. Rustavi deposit is studied more completely than
Ninotsminda Xxxxxx, But the potentiality of this deposit is not known
yet. Enter of a strong water flow might not be correct either. The
energy of the layer can be transferred to reservoir fluid, because of
the rock flexibility, that is similar to the condition of Nevada Trap
Spring Field volcanic reservoir. Weaker water flows mean that sudden
increase of the water
94
profile rather belongs to the erosive deepening along the fracture,
than to water cones. In case of dividing the reservoir into permeable
and unpermeable sections, horizontal drilling will be required, for the
purpose to obtain the undeveloped parts of the deposit. As the
structure is covered by fracture system of priority orientation, by
this method can be increased not only the production from the xxxxx but
the oil outflow on the whole deposit. For determining the potential of
the deposit, it is necessary to carry out detailed analysis of the
reservoir and of the drilling technique.
7.6 RESEARCH CAPACITIES
As the research region is outlined, the research possibilities are
limited. But still there exist definite possibilities on Ninotsminda
and Xxxxxx areas. Seismic conditions in Samgori region basically are
good, but on Ninotsminda territory, where the structure is complicated
because of a fault of under-thrusting character, data are getting
worse. It is possible, that the sizes of Ninotsminda and Xxxxxx folding
are not determined completely, or there exist bordering unidentified
secondary folding.
7.7 HORIZONTAL DRILLING
Development of Ninotsminda-Xxxxxx region by the method of horizontal
drilling is too early, if this is not caused by complex relief. On
well-developed Rustavi area there might be sections where this method
of exploitation can be used. The existing data shows that in the Middle
Eocene profile some facies can be presented by comparably better
permeable layers. It might become possible to drill with vertical
drilling xxxxxxx through oil-bearing layers and to determine the
purpose of horizontal drilling from there. The direction of horizontal
drilling must be defined by the analysis of the region fracture
orientation.
7.8 TRANSFER OF THE PRODUCTION
The xxxxx on Ninotsminda and West Rustavi deposits will be connected to
the existing oil-storing points. Oil from Ninotsminda oil-storing point
will be transferred through the oil pipeline to Samgori oil-storing
station. On the basis of a further agreement, the parties can sell oil
to oil factory, at oil international price. As for West Rustavi
deposit, at the beginning the oil will be transferred from here to
Samgori oil-storing station by container trucks.
8. DESIGNING OF THE DEPOSIT EXPLORATION AND DEVELOPMENT PROJECT
Execution of deposit exploration and development operations is
considered on two stages. The purpose of the first three year stage is
to research the producing capacity of deposits on the license territory
and to drill two(2) horizontal and one(l) vertical xxxxx. If oil is not
found in any of the first three(3) xxxxx, the joint venture ceases its
activity and will be liquidated according to the established rule.
The second 22(twenty two) year stage of exploration and development
operations is considered in that case, if any of the first three(3)
xxxxx, drilled
95
by the joint venture proves to be oil producing. Then the joint venture
has the right to drill such a number of xxxxx within the license area,
that it considers necessary. In case of getting positive results while
drilling, there is planned a work program on the license area, that
will enable "Georgia MAKOIL" to start oil production in advance. This
will, in its turn, provide the inflow of income, after they will begin
widening of the activity region on Xxxxxx field, where the location of
collectors is deeper and less studied and finally, widescale research
operations will commence.
The plan on the works execution and accounting is given in table 2,
that is designed annually for the first five years. The key issues of
the table are the following. Each line of the table represents a
definite stage of the plan, and each type of the operation depends on
the positive results of the previous stage. The expenses, given in the
table, along with the drilling expenses, include geological-geophysical
research and other unconsidered expenses.
Both deposits have the capacity to increase annual production
effectively. So the operations will be carried out simultaneously.
According to the 1995 year plan, it is intended to open a deposit on
Xxxxxx area and later in 1996-1998 to carry out exploration, evaluation
and development operations of the new deposit.
THE ECONOMY OF THE PROJECT
8.2 NINOTSMINDA AND WEST RUSTAVI OIL DEPOSITS
The primary processing of the industrial materials, repairing and
deepening of the xxxxx and drilling of new xxxxx are determined in
details, considering the drilling rig supplier on the world market.
Seismic research works, which might be quite expensive in case of
complex relief, especially on Xxxxxx territory, are considered as well.
Despite this, the seismic research will give the possibility to find
prospective drilling area quickly, where the operations will begin.
The parameters for the positive execution of the project are:
- The amount of oil on each deposit is not less, than 2.2 mln.t.
- The maximum productivity of each well is not less, than 50 t
per day.
- The total amount of the investment for the first five years
must not exceed $15 mln USA.
- The maximal number of exploitation xxxxx, together on the both
deposits - 16, the number of exploration xxxxx - 7.
96
9. TECHNIQUE AND TECHNOLOGY OF DRILLING OPERATIONS EXECUTION
9.1 CONSTRUCTION AND TECHNOLOGY OF THE XXXXX
The purpose of the joint venture "Georgia MAKOIL" is to increase oil
production in the Republic of Georgia in the possible short period of
time. It is planned to renovate several xxxxx on Ninotsminda and West
Rustavi deposits, that are temporarily under conservation for different
reasons. These xxxxx will have constructions, corresponding with
western technologies. Study of exploitation areas of some xxxxx is
expected, if this is allowed technically and geologically. At the same
time, new exploitation xxxxx will be drilled, in which, along with the
horizontal drilling method other western advanced technology will be
used, in order to provide optimal oil production.
9.2 CIRCULATION SYSTEM
The circulation system will serve the following:
- Cleaning of the well bore during the drilling process;
- Maintaining the pressure of the layer;
- Maintaining integrity of the well bore;
- Lubricating of the drilling bit;
- Keeping the oil and gas layer structure from destruction.
9.3 DRILLING OPERATIONS AND LAYOUT OF THE CASING
For underground repairing of the xxxxx "Georgia MAKOIL" will use the
mobile equipment of "Georgian Oil", besides, it will bring from abroad
such equipment, which will ensure running of the heaviest casing and
arrange wellhead according to the accepted standards and norms, with
the double safety factor. This casing will stand against the strength,
that is caused by mining and layer pressures in the maximally long
periods of time. Vertical, directional and horizontal xxxxx will be
drilled.
9.4 TECHNOLOGY OF THE WELL COMPLETION
"Greorgia MAKOIL" plans to drill the xxxxx, in which exploitation of
one or several formations simultaneously will be possible. In case if
along with the Middle Eocene formations the oil will be discovered in
the Upper Eocene formations, in the process of the well completion will
be used special liquids, wire-line perforators on the tubing, on each
well will be fixed a protection reflex valve, that will work
continuously.
9.5 SAFETY OF THE DRILLING OPERATIONS
While carrying out the operations on the xxxxx, the basic purpose is to
Insure safety of the well personnel and regional people, in case of an
emergency situation. This safety will be provided by planning the
double Safety factor, while designing the well project. The periodical
control of the equipment and regulations of the technical control are
considered.
97
9.6 THE WORKING PERSONNEL
The working personnel of the joint venture will be formed basically by
the citizens of the Republic of Georgia The joint venture will
guarantee to improve the qualification of the Georgian personnel up to
the western technologies level, which will enable them to carry out any
kind of operation without the assistance of western experts. The
questions of employing and releasing, payment, concessions and
insurance, work safety, etc., are resolved in accordance with the
Legislation of the Republic of Georgia and are determined in the work
agreement.
9.7 PROTECTION OF HEALTH OF THE PERSONNEL AND WORK SAFETY
The main principle of the activity of joint venture "Georgia MAKOIL" is
the safety of all kinds of operations, the basis of which are the
international requirements on the safety conditions. It intends the
creation of the higher norms for personnel training with the help of
special programs. Healthy condition of each employee is a significant
objective of the joint venture activity. For the purpose of maintaining
good health of the personnel will be held general medical examination.
Later the examination will be made regularly once a year.
10. PERSONNEL SAFETY ENSURANCE AND ENVIRONMENTAL PROTECTION
10.1
Joint venture "Georgia MAKOIL" has developed two main guidelines, which
will govern their conduct of business. First: Safety and welfare of the
personnel has the primary importance. Environmental protection is the
second significant principle of the "Georgia MAKOIL" activity and it is
considered as important, as safety of the people.
10.2 IDENTIFICATION OF HAZARDS AND RISKS
All oil field operations have the inherent potential for the occurrence
of unplanned (accidental) events. The severity of accidents range from
minor inconvenience, with no injury nor capital/financial losses, to
a catastrophic event with potential loss of life, irreversible damage
to the environment, and millions of dollars in capital/financial
losses. The primary tool for "Georgia MAKOIL" safety management program
is the identification of potential hazards that an operation is exposed
to, joint venture determines the amount of risk each hazard possess. As
the element of risk, associated with each individual hazard increases,
the safety management system creates more comprehensive safety
procedures to minimize the potential for unplanned events.
10.3 SAFETY MEASURES
Safety management is achieved by a systematic approach that addresses
Prevention, Information and Training.
98
10.4 COMPLIANCE OF SAFETY MEASURES
An important element for executing the safety program is the accorded
work of the personnel. They should be taught the discipline mechanism,
rules of safety measures. Meetings on the safety issues must be held
regularly, on which the methods of the further operation execution and
all the aspects of health and environmental protection will be
discussed. Detailed control of the executed operations will be held
after each conducted work. Each employee will get acquainted with his
own safety responsibilities. Besides, engineering of safety technique
will be considered, and it will ensure training of the personnel and
fulfillment of the safety measures.
10.5 CONTINUOUS MONITORING SYSTEM
"Georgia MAKOIL" will institute Continuous monitoring System that
allows an ongoing check of the effectiveness of its safety management
system. Each work group, or crew will have one person, that will be
responsible for the crew's safe working and will be the first person in
the monitor process. He will be trained to enable him to perform safety
related duties effectively. For the safety of the crew will be also
responsible an inspector, that represents the next level of the
monitoring system. Part of the daily work report for all operations
will be dedicated to the safety aspects of the work program. This is a
prime element of safety management and it provides for daily monitoring
of safety operations. The Safety Officer will have overall
responsibility for safety in operations. He will review operations on a
daily basis to asses the safety of all work. This complex of measures
is successfully used in different regions of the world. It enables to
carry out oil production and other related operations with high level
of productivity, economically and safely.
The keystone of any safety system is prevention. By eliminating hazards
or minimizing the degree of risk an operation may possess the potential
for accident is greatly reduced. A vital element of accident prevention
is the supply of information to the individuals that are performing
operations. When personnel are informed about the procedures,
equipment, and expected results of an operation, they have a greatly
improved understanding of which aspects of their work program nay
present hazards. Training of personnel in safe working procedures,
workplace awareness are a proven element of accident prevention.
Employees are trained to use all safety equipment needed for their
positions as well as fire fighting, lifesaving and medical first aid
treatment techniques.
99
10.6 PERIODIC MONITORING SYSTEM
Joint venture "Georgia MAKOIL" intends to utilize various methods that
are available for monitoring the safety management system on a regular
basis. A weekly safety audit will be conducted on all aspects of
company operations. All sub-contractor will be instructed to submit
weekly safety reports to "Georgia MAKOIL". The enterprise will review
employee records on a regular basis to identify areas of operations and
individuals that have higher accident frequency rates.
10.7 EMERGENCY SYSTEMS AND FACILITIES
Modem technology has developed several types of safety devices that are
able to rapidly stop or isolate various functions of drilling and
producing operations, thereby increasing safety. The most important is
the emergency drilling rig shut off, which can completely stop all
engines of a drilling rig in a matter of seconds. The exploitation well
protective valve is important as well. Such valve will automatically
shut the well and keep the surface equipment from damages. For ensuring
safety "Georgia MAKOIL" intends to bring and install other equipment
that will strengthen the quality of safety. The joint venture will have
first aid station, fire equipment station, emergency breathing
apparatus, etc.
11. ENVIRONMENTAL PROTECTION
11.1. BASELINE SURVEY
A baseline survey will be conducted on all fields that "Georgia MAKOIL"
will operate on before operations commence. The purpose of these
surveys is to determine and record the current status of pollution,
contamination and environmental awareness. A photographic library is a
component of the survey.
11.2 IDENTIFICATION OF ENVIRONMENTAL HAZARDS AND RISKS
An important part of any of "Georgia MAKOIL" operational planning is an
Environmental Impact Assessment (EIA). EIA includes the analysis of
possible activity and determination of sensitive areas of the
environment. The amount of risk is then quantified for each hazard that
has been identified.
100
11.3 ENVIRONMENTAL PROTECTION MEASURES
"Georgia MAKOIL" plans an integral program of environmental protection
activities, including:
- Materials management to prevent adverse inter-reaction with
the environment;
- Waste avoidance or recycling where possible;
- International standards training for the company personnel;
- Emergency response facilities to limit environmental damage.
- Authorization permits for any activities that may cause
pollution.
101
CONTINUOUS MANAGING SYSTEM
A schedule of repeat environmental auditing will be generated in the planning
stage of operations. In "Georgia MAKOIL" authority staff will be a deputy who
will be responsible for observation of the effects of the operations on the
environment and for conducting the auditing measures.
The joint venture intends to have a laboratory supplied with monitoring systems,
equipment and inspection staff. Besides, they will install the equipment that
will minimise the risk of environmental pollution.
A project with detailed description of all measures, that provide maximal
environmental protection will be prepared just before commence of drilling,
development and exploitation operations. These projects will go through the
corresponding expertise in the Ministry for Environmental Protection of the
Republic of Georgia.
102
ENCLOSURE N6
The payment of the license duty for the joint venture "Georgia MAKOIL"
6.1 The amount of the license duty is determined by 2 000 (two thousand) USA
dollars.
ENCLOSURE N7
Terms of payment on mineral usage for joint venture "Georgia MAKOIL"
Note: Resolution N 752 of the Cabinet of Ministers of the Republic of
Georgia, out of 20.10.93.
7.1 The following payment norms are applied for mineral usage:
a) For conducting oil and gas deposit research-exploration works in the
amount of 2% (two percent) of the annual accounting.
b) For detailed exploration of oil and gas deposits in the amount of 4%
(four percent) of the annual accounting.
c) For producing crude oil and gas in the amount of 10% (ten percent)
of the produced production on Ninotsminda and Xxxxxx areas, and 5%
(five percent) on Rustavi area
The payment of the mineral usage tax is commenced from the date of
issuing the license on mineral usage and is effective throughout the
duration of the license. Land usage tax is determined as a part of oil
production price.
7.2 Rule of calculation and payment of the tax
a) "Georgia MAKOIL" presents to the State Payment Inspection a document
in an established form about the estimated (divided by quarters)
payment, not later than within 5 days from getting license on the
operations determined in paragraphs /a/ and /b/. The payment is
transferred to the budget on a monthly basis, not later than the 1 5th
day of the month that follows the month of estimation in the amount of
1/3 of the quarterly payment.
b) Estimation of the payment on produced oil, determined in paragraph
/c/ is made on a monthly basis, not later than the 1 5th day of the
month that follows the month of estimation. The payment can be paid by
the part of the produced oil. The payment sum presented by the
calculation is subject to transfer to the budget within 5 days.
103
Transfer of the payment to the budget is made in accordance with the
Law "On Budget System and Rights" of the Republic of Georgia and with
other Legislation acts.
Besides the Tax on Mineral usage, the company pays the taxes
established by the Legislation of the Republic of Georgia.
ENCLOSURE N8
The title: The assumed amount and agreed share distribution in time
period of the oil produced by joint venture "Georgia MAKOIL"
on Ninotsminda, West Rustavi and Xxxxxx license territories
8.1 The assumed amount of produced oil is given in table N3.
Table N3
Assumed annual oil production in bbl.
SPACE 1ST YEAR 2ND YEAR 3RD YEAR 4TH YEAR 5TH YEAR
----- -------- -------- -------- -------- --------
Rustavi 9 000 474 500 839 500 1 095 000 1 277 500
Ninotsmind 63 000 1 058 500 1 606 000 1 971 000 2 518 500
Xxxxxx - 182 500 182 500 365 000 547 500
Total 72 000 1 715 500 2 628 000 3 431 000 4 343 500
During the first 5 years the total production will be 12 190 000 bbl.
8.2 SHARE DISTRIBUTION OF THE PRODUCED OIL IN TIME PERIOD, TO DEPARTMENT
"GEORGIAN OIL":
In Tables 4, 4a and 5 is shown the average daily amount of oil from each
deposit, that might be produced on the research territory from the xxxxx in
their current condition. This oil will be considered as "determined production"
of oil. "Determined oil" belongs to "Georgian Oil" and will be sold in
accordance with the agreement between "Georgian Oil" and the joint venture along
with the regular business operations.
NINOTSMINDA (The Upper Eocene) Table N3
YEARS DAILY OIL PRODUCTION IN TONS ANNUAL OIL PRODUCTION IN TONS
----- ---------------------------- -----------------------------
1990 5.71 1 749 5
1991 7.13 2 601.2
1992 2.1 384.6
Average daily production 5.6
104
NINOTSMINDA (The Middle Eocene) Table N4a
YEARS DAILY OIL PRODUCTION IN TONS ANNUAL OIL PRODUCTION IN TONS
----- ---------------------------- -----------------------------
1990 113.3 41 746.6
1991 153.1 56 159.4
1992 124 43 218.7
Average daily production 130 tons. Decline of the production is 50% per year.
WEST RUSTAVI Table N 5
YEARS DAILY OIL PRODUCTION IN TONS ANNUAL OIL PRODUCTIONS IN TONS
----- ---------------------------- ------------------------------
1990 2.05 652.8
1991 2.1 792.5
1992 1.07 341
Average daily production 1.74 tons.
8.3 Total amount of Determined Production is 137.35 tons per day. Note:
Initial Determined Production to be agreed by well testing (at least 1
week of constant flow) - The Initial Determined Production will be
subject to an annual decline commensurate with any decline observed on
the field in future)
8.4 MAKOIL and/or its assignees and Georgian Oil shall be entitled to
recover ("Cost Recovery") all petroleum operation expenditures,
including all capital and operating expenses, overhead costs,
abandonment costs and similar within the license area. Up to the half
of the gross annual production within the license areas, whatever
remains after providing Georgian Oil with daily "Determined
Production", will be used to recover these expenses (hereinafter
referred to as Cost Recovery Oil").
Since Makoil and/or its assignees will provide one hundred percent
(100%) of the funding with Georgian Oil providing services wherever
possible, Makoil and/or its assignees will have priority in lifting
Cost Recovery Oil.
8.5 Georgian Oil and Makoil and/or its assignees both have the right to
audit each other's records related to recoverable costs.
8.6 Such oil is hereinafter referred to as "Cost Recovery Oil".
Such costs and expenses will be recovered from Cost Recovery Oil in the
following manner:
a) Exploration expenditures
b) Development expenditures
c) Drilling costs
d) To the extent that in any calendar year costs, expenses and
expenditures recoverable per paragraphs a) b) and c) preceding
exceed the value of Cost Recovery Oil for such calendar year,
the excess be carried forward for recovery in the next
succeeding calendar year or years, but in no case after the
termination o the license term.
e) For the purpose of determining costs, expenses and
expenditures for their recovery the following terms shall
apply:
105
i) "Exploration Expenditures" shall mean all costs and expenses for
exploration operations other than Drilling Costs, but including
training and related expenses, and overhead and study costs, also all
taxes that are included in cost recovery under Georgian Law.
ii) "Development Expenditures" shall mean costs and expenses for
development of all deposits, with the exception of Operating Expenses
and Drilling Costs, also all taxes that are included in cost recovery
under Georgian Law.
iii) "Operating Expenses" shall mean all costs, expenses expenditures
associated with the production and primary processing of oil, including
training and related expenses, also all taxes that are included in cost
recovery under Georgian Law.
iv.) Drilling Costs" shall mean expenditures incurred during Exploration and
Development for well drilling and completing operations including, but
not limited to labour, geophysical works, engineering-technical and
other contractors, expenses on various materials, perforation, formation
development, cementing, well-logging and transportation, also all taxes
that are included in cost recovery under Georgian Law.
8.7 SHARING OF OIL PRODUCED
Georgian Oil and Makoil and/or its assignees will share and be entitled
to use separately the oil remaining after deducting Cost Recovery Oil
and Georgian Oil's share of the Determined Production from gross annual
production (hereinafter referred to as "Profit Oil")
Profit Oil will be shared between Department Georgian Oil and Makoil
and/or its assignees in the following manner:
Georgian Oil share Makoil and/or its assignees share
70% (seventy percent) 30% (thirty percent)
All taxes applied to Makoil share in accordance with the Georgian
legislation will be paid from this share.
106
8.8 GAS PRODUCTION
If commercial production of gas commences on the license area, the
founders will jointly discuss all economic options for its usage and
will resolve together the best one for Georgian Oil and Makoil and/or
its assignees.
All costs and expenses related to gas production will be recovered in
accordance with the cost recovery rule provided in this Enclosure #8.
8.9 Oil selling prices are determined in accordance with the international
world price for similar crude oil. Oil blend is determined as "Xxxxx
blend" or Libyan crude oil.
8.10 The amount of oil Makoil and/or its assignees export abroad should not
exceed 50% (fifty percent) of the produced oil. If Makoil and/or its
assignees share from Cost Recovery Oil and Profit Oil exceeds 50%
(fifty percent) of produced oil then the Republic of Georgia has right
to purchase the exceed oil on the world market price minus a discount
of 10%.
8.11 Georgian Oil is entitled to purchase 50% (fifty percent) Cost Recovery
Oil from the Joint Venture and all oil that Makoil and/or its assignees
will sell in Georgia The pricing for oil purchased by Georgian Oil is
determined by the world market price minus a discount of 10%; needs to
be conditional on Georgian Oil being able to give the price, if not
Makoil has right to export oil
8.12 Georgian Oil transfers to the Joint Venture the right of using the
xxxxx located on the license area.
8.13 Oil storing facilities and oil pipe-lines remain in Georgian Oil's
discretion and they can be transferred to the Joint Venture under
rental terms on the basis of an additional agreement.
Georgian Oil agrees to contribute cost of xxxxx and other
facilities,equipment and buildings to the Charter Capital of the Joint
Venture as a share of Georgian Oil.
DISTRIBUTION OF THE JOINT VENTURE INCOME
Note: The Charter of the Georgian-American joint venture "Georgia MAKOIL".
The income got by the joint venture from selling the produced oil and
from any other sources is divided in the following manner:
13.1 Firstly, such income is used to pay to the buyers of the third party,
that provides the joint venture with goods and services, in order to
pay salaries to the joint venture staff, work force and managers, to
purchase insurance guarantees for the joint venture, to pay other trade
obligations for the third persons and to pay other operation expenses
of the joint venture. As far as possible, the joint venture will pay
all such costs and obligations in currency of the Republic of Georgia
or in foreign currency, if it does not gain economic privilege by
paying in hard currency.
107
13.2 For the purpose of increasing the interest of the participating sides
and stabilizing the income, they are entitled to take out of the
country hard currency sums equivalent to their contribution to the
Charter Fund without any State, customs, tariff, income and other
(including Royalty tax) taxes. "MAKOIL" is granted the priority right
on the primary transfer of the mentioned sum.Concerning the interests
of the joint venture, the terms of transferring might be reconsidered
by the Board of Directors, but by no means should it exceed their (each
separately) contribution to the Charter Fund. During and after the
process of transferring of this sum, taxation of the profit is subject
to all the terms determined by the Law.Besides, the profit in the
enterprise funds, remained after paying taxes and sums determined for
spending by decision of the Board of Directors, is divided between the
parties proportionally to their share contribution to the Charter Fund
(50%-50%).Transfer of sums by "MAKOIL" must be conducted according to
the following scheme:
a) Ten percent (10%) of the Gross income of the joint venture by the
first year of the effectiveness of the license.
b) Fifteen percent (15%) of the Gross income of the joint venture by
the second year of the effectiveness of the license.
c) Twenty percent (20%) of Me Gross income of the joint venture by the
fourth year of the effectiveness of the license.
d) Twenty five percent (25%) of the Gross income of the joint venture
by the forth year of the effectiveness of the license.
e) Thirty percent(30%) of the Gross income of the joint venture by the
fifth year of the effectiveness of the license. Such payment is
estimated for "MAKOIL" at least once in a calendar year, or more
frequently if the majority of the Board of Directors agrees.
13.3 The profit received from business activity of the joint venture, after
deduction of depreciation costs, is used for founding joint venture and
accounting to the State Budget.
ENCLOSURE N9
The title: The Agreement on confidentiality of new geological and other
information,received during mineral usage.
Note: Article 5 of the Charter of the joint venture "Georgia MAKOIL".
At the request of the joint venture, all the parties participating in
the Agreement must provide the joint venture with all geological and
geophysical information, production and other corresponding
information, that might be possessed the participants of and that might
be needed for exploration, preparation and exploitation activities on
the research territory. At the request of any party, the joint venture
provides them with new or additional
108
geological, geophysical, exploitation or other information about the
Agreement the research territory, received or acquired by it. But, if
any of the parties or the joint venture considers that the received
information must be discussed from commercial or competitive point of
view as confidential, then the received information must be considered
confidential. The party, that gets such information from the other
party must not make it known, share with others or publish, until the
party, which received the information notifies in writing, that the
information is not confidential any more. In connection with newly
received or acquired confidential information, that is sent to any
party by the joint venture, must be added the following:
1. Such information is considered confidential within 1 (one) year from
receiving it and cannot be in any form, totally or partially announced
by any party or its representatives without a preliminary notification
in writing from the joint venture. None of the parties or their
representatives can use the information in any activity other than the
joint venture operations. Each party agrees, that the confidential
information will be transferred only to its representatives, who need
it for the assistance and development of the joint venture, and are
informed about the confidentiality of this information, and who agreed
in the writing form to preserve its confidentiality. All the
participants of the Agreement agree to provide the joint venture in the
possible shortest time with the information about the personality of
each representative, who can be trusted and shared the confidential
information.
2. In case, when any Agreement participant party or the person, with who
this party information according to this Agreement, is obliged under
the Law to make known any confidential information, this party has to
notify the joint venture immediately about this, in order to enable
the lager to take protective and other legal measures. In case, when
such protective and other measures were not taken, the party, that
possesses the confidential information, provides its part required
only by the Law and will try its best to get the confidence on the
treatment of such information.
ENCLOSURE N 10
The title: Conclusion from the Ministry of Environmental Protection
ENCLOSURE N 11
The title: Conclusion from the Department of Technical Supervision in
the Republican Economy
109
ENCLOSURE N12
The title: The Minutes of the Scientific-Technical Committee Session of
Department :Georgian Oil
THE MINUTES
OF THE SCIENTIFIC-TECHNICAL COMMITTEE SESSION OF DEPARTMENT "GEORGIAN OIL"
The session was attended by:
The Chairman of the Scientific-Technical Committee - G. Beraia
The members of the Scientific-Technical Committee: M. Bakhia, D. Papava, V.
Sakvarelidze, M. Oniashvili, O. Jashi, G. Apaidze, G. Lobzhanidze A.
Bortsvadze, G. Antadze, V. Chkhobadze, G. Chachanidze, I. Tavdu~nadze
S. Gudushauri.
Invited guest: Xxxxxx X. Xxxxxxxxx, Representative of the joint venture "Georgia
MAKOIL".
The speakers: Xxxxxx X. Xxxxxxxxx, S. Gudushauri.
At the session was admitted, that the joint venture "Georgia MAKOIL"
was founded on the basis of Department "Georgian Oil" and USA private
Corporation "MAKOIL Inc." (it is registered in accordance with the
legislation of the Republic of Georgia)..
The mentioned joint venture requests permission on mineral usage on the
East Georgia oil deposits of Ninotsminda, West Rustavi and Xxxxxx
research territories, for geological research and oil production. This
license area is located in Sagarejo and Gardabani regions, on the
villages Ninotsminda, Giorgitsminda, Xxxxxx, Tokhliauri and Krtsanisi
farming territories.
The joint venture is financed by the USA side, with the Georgian side
providing geological materials and various services. The joint venture
presented the program on geological and geophysical research,
exploration and exploitation drilling, deposit development and oil
production on the license area.
It is stated in the program to drill 23 xxxxx during 5 years of the
first stage of activity, 8 xxxxx out of these on Ninotsminda, 8 - on
Rustavi, and 7 - on Xxxxxx areas; to develop new prospective areas in
the old xxxxx, to establish new drilling and producing technologies, to
increase the oil production to 12 190 000 bbl for 5 years. The measures
determined in the program ensure the complete and scientific study of
the land, environmental protection and work safety.
The Session listened to: The conclusion on the issues, presented by the
joint venture "Georgia MAKOIL', made by the expert S. Gudushauri.
110
The Session concluded:
1. To issue to the joint venture "Georgia MAKOIL" a complex license on
mineral usage on the East Georgia Ninotsminda and West Rustavi oil
deposits and Xxxxxx research area on a 25 year term.
2. The share distribution of the produced oil to be carried out in
accordance with Article 13 of the Charter of the joint venture.
3. The license to be prepared in accordance with the Resolutions N146,
out of February 18, 1993 and N752, out of October 20, 1993 of the
Cabinet of Ministers of the Republic of Georgia and other Legislation
Statements of the Republic of Georgia.
The Chairman G. Beraia
The Secretary G. Lobzhani-dze
111
ENCLOSURE N13
The title: The terms of continuation and termination of the license validity
The program of returning the territory
Note:Decree N 146, out of February 18, 1993 of the Cabinet of ministers
of the Republic of Georgia, Articles 7.1, 7.4.
The license on geological study, drilling and development works, oil
and gas deposit exploitation on Ninotsminda and West Rustavi oil
deposits and Xxxxxx research territory is issued to the joint venture
"Georgia MAKOIL" on a 25 year term. The term of the license duration is
determined from the date of its registration.
Note: Decree N146, out of February 18, 1993, Article 7.3.
In case of the deposit exploitation for more than 20 years, the term of
the license duration can be extended on the initiative of "Georgia
MAKOIL". In case of expiration of the license duration in terms of
exploitation the deposit, explored by the joint venture for less than
20 (twenty) years, the joint venture is granted the right of priority
claim on continuation of the license validity.
The right on mineral usage is terminated:
Note: Decree N 146, out of February 18, 1993, Article 15.1
a) After expiration of the term, determined by the license
b) In case of "Georgia MAKOIL"'s refusal on mineral usage.
c) In case of occurring such conditions stated in the license, that
will later exclude further execution of the rights granted for
mineral usage.
Note: Decree N146, out of February 18, 1993, Article 15.2
The right on mineral usage can be terminated, suspended or limited prior to the
determined term, in the following cases:
a) if the lives or the health of the persons working or living within
the area of activity,connected with mineral usage are threatened
directly;
b) if the mineral user violates the essential terms, determined in the
license;
c) if the mineral user regularly violates the rules on mineral usage
and preservation, also on environmental protection, established by the
current Legislation, standards, regulations,norms, including the
enterprise conservation regulation.
d) in case of emergency situation /disaster, military action, etc.
e) if the user does not start mineral using in accordance with terms
and requirements of the program determined in the license;
f) if the joint venture is liquidated.
112
The termination, suspension or limitation of the right on mineral usage
before the established term according to the paragraphs above, is
conducted by the Specialized Office of Licensing and Information of
Department "Georgian Oil", or the Ministry of Environmental Protection
of the Republic of Georgia, or by the Department for Technical
Supervision in the Republican Economy in each certain case, considering
the terms of license.
ARTICLE 15.3
If the joint venture disagrees with the decision on termination,
suspension or limitation of the mineral usage right, it can apply with
a claim to the Court, or to the upper authorities according to the
administrative regulation.
Note: Decree N146, out of February 18, 1993, Article 15.4
15.4. In case determined by subparagraph 15.2/a/, mineral usage must be
terminated immediately after making decision and the mineral user must
be sent a written notification.
15.5. In case determined by subparagraphs 15.2./b,c,e/, the decision about
termination of the mineral usage right for the mineral user can be made
after three months from violation the xxxxxx by him and after notifying
in writing about not taking measures to liquidate these violations.
15.6 In case determined by subparagraph 15.2 /dl, mineral usage can be
terminated from the moment of occurring conditions, determined in this
paragraph.
15.7 right before the established term can be conducted not later than 6
months from informing by it the Department in writing. The refusal on
the activities does not set it free of charge of presenting accounting
on the executed works, conclusions, generalizations, recommendations.
15.8. In case of terminating mineral usage right before the established term,
liquidation or conservation of the enterprise is conducted in
accordance with the regulations determined by the current Legislation.
The expenses of enterprise liquidation or conservation are for the
joint venture to cover, if mineral usage is terminated as a fault of
the joint venture for the reasons stated in subparagraphs 15.2/a/and
15.2/b/, or on the initiative of the joint venture.
15.9. The expenses of enterprise liquidation and conservation will be covered
by the State, if mineral usage is terminated for the reasons stated in
subparagraph 15.2/a/ with the joint venture being innocent, also for
the terms stated in subparagraph 15.2./d/.
15.10. If the conditions and terms causing suspension and limitation of
mineral usage right are liquidated, this right can be regained
completely, besides, the period during which usage was suspended will
not be included in the entire duration of the license mineral validity.
15.11. In case of long term conservation of the enterprise, or violation of
conservation terms, that might cause the damage of oil deposit, the
Specialized Office for Licensing and information of Department
"Georgian Oil" is entitled to cancel the issued license and pass it to
a new owner in accordance with the established regulation of the
statement.
113
15.12. The activities determined in the license should not interfere with
other economic activities which are carried out on the license area.
THE TERMS OF ANNOUNCING THE LICENSE INEFFECTIVE
Note: Decree Nl46, out of February 18, 1993, Article 17
16.0 on the license issuing will be considered ineffective in the following
cases:
a) If "Georgia MAKOIL" refuses to pay the payment, connected with
license issuing;
b) Violation of the Antimonopoly Legislation requirements of the
Republic of Georgia;
c) Establishment of the agreement facts for the purpose of liberalizing
the license terms between the authorities participating in issuing
mineral usage license and the persons interested in purchasing the
license, and for the purpose of reducing taxes.
d) Granting "Georgia MAKOIL" illegal concessions.
e) Existence of the other basis, determined by the Legislation of the
Republic of Georgia The disputes in cases of canceling the agreement
will be discussed by the Court or Arbitration.
114
ENCLOSURE N14
The title: The obligations of the joint venture "Georgia MAKOIL"
Note: Decree N146, out of February 18, 1993, Article 16.1,16.2.
17.1 The owner of the license is entitled:
a) To use the mineral area within established space for the purposes
determined by the license for geological study of the land, for
carrying out research-exploration works and producing oil, condensate
and gas.
b) To use the results of his activity according to his consideration,
including part of the produced oil, that as determined by the license
terms goes into his possession. To include executors in the works
connected with mineral usage on rental basis. To address the license
issuing Bodies about reconsidering the terms, if the existing reality
is completely different from the situation of the license issuing
period.
17.2 The owner of the license is obliged:
a) To accord the program on the work execution with the Specialized
Office for Licensing and Informatics of Department "Georgian Oil". The
Office is entitled while forming the work program to demand from the
license owner to carry out the additional works, that are connected
with execution of the mineral usage works (carry out radioactive,
stratigraphic, hydro geological, temperature, geophysical research).
b) To observe mineral usage demands of the Republic of Georgia, the
standards of working technology, connected with mineral usage,
according to the established form.
c) To follow the demands of technical projects on work conducting, to
ensure safety of the personnel and population while carrying out land
usage operations; To preserve established standards /norms,
regulations/ on mineral, atmosphere, land, forest, water and other
environmental protection.
d) To put in good shape land territories and other environmental areas,
damaged while carrying out mineral usage works, to ensure their
usefulness for exploitation. To participate in execution of the Social
and Ecological Program in the region of activity.
e) To ensure preservation of the geological and other kind of
documentation, got in the process of geological research of the land.
f) To pay mineral usage and other obligatory taxes in a timely and
correct manner.
g) The owner of the license is obliged to accord any evasion from the
work execution "Georgian Oil". To present annual report about its
activity, which
115
will include information about the results of the conducted
research-exploration works, about new geological and geophysical data
on the produced oil and on oil and gas reserves remained under the
land, also other information established by the license.
h) The owner of the license has no right on the surface of the land
space stated in the license and on other natural resources, unless it
is determined by the work program. The usage of such resources is
regulated by the Laws and Normative Acts.
i) The owner of the license is obliged to present information about
opened natural resources (radioactive pressures, temperature anomalies,
thermal waters), storage of injurious materials and about discovery of
archaeological areas to the Specialized Of lice for Licensing and
Informatics of Department "Georgian Oil". It is not permitted to give
this information to juridical and physical persons without the approval
of Department "Georgian Oil".
The joint venture "Georgian MAKOIL" will consider the possibility to
use the scientific -technical potential of "Georgian Oil " and
Scientific Center in carrying out production and project works.
ENCLOSURE N15
The title: Control of the license terms on mineral usage
Note: Resolution N146, out of February l 8, 1993, Article l8
18.1 The control on mineral usage terms determined in the license is carried
out by the Specialized Office of Licensing and Informatics of the
Department, the Department for Technical Supervision in the Republican
Economy and the Ministry of the Environmental Protection, which are
acting within their competence, in accordance with the regulations
approved by the Cabinet of Ministers of the Republic of Georgia.
18.2 The owner of the License is obliged to present documentation to the
controlling Bodies, provide explanation on the issues under the
competence of the controlling Bodies, ensure monitoring terms.
18.3 The controlling Bodies notify in writing the land owner and the
Specialized Office for Licensing and Informatics of the Department
"Georgian Oil" about the results of audit, evaluation of the mineral
usage terms by the land owner, which includes evaluations concerning
mineral usage obligatory payments and current standards /norms, rules/,
and in case of considering it necessary, they suspend enterprise's
activity and propose to cancel the license on mineral usage.
18.4 The Specialized Office for Licensing and Informatics of the Department
regularly audits separate areas of the joint venture and its entire
activity twice a year. "Georgia MAKOIL" is obliged to provide the
representative of the Specialized Office for Licensing and Informatics
of Department "Georgian Oil" with transportation mean in the period of
auditing.
116
ENCLOSURE N16
The title: Issuing of a license on mineral usage to the joint venture Georgia
MAKOIL"
Report of the License Commission Session 7.06.94
The session was attended by:
1. Beraia Giorgi - Chief Engineer of the Department, Chairman of the Commission
2. Lobzhanidze Ivane - Vice Chairman of the Department in Foreign Economy
affairs
3. Papava Dito - Chief Geologist of the Department, member of the
Commission
4. Oniashvili Mamia - Vice Chairman of the Department in Capital Construction
affairs, member of the Commission.
5. Sakvarelidze Vakhtang - Vice chairman of the Department in Economy affairs,
member of the Commission
6. Mkhatvari Amiran - Chief Mine-surveyor of the department, member of the
Commission
7. Tavdumadze Irakli - Head of the Specialised Office for Licensing and
Informatics of the Department, Secretary of the Commission
117
Agenda:
Issuing of a license on carrying out geological research, exploration
works and increasing oil production on the East Georgia Ninotsminda and
West Rustavi oil deposits and Xxxxxx research territory.
The license was discussed
Text enclosure
Graphic enclosure
The license is worked out considering the Statement on "Regulation of
Mineral Usage Licensing" and other Legislation Statements.
The Commission approves and agrees with the validity and terms of
issuing license on mineral usage on East Georgia Ninotsminda and West Rustavi
oil deposits and Xxxxxx research territory.
Signature: G. Beraia
I. Lobzhanidze
D. Papava
M. Oniashvili
V. Sakvarelidze
A. Mkhatvari
I. Tavdumadze
118
ENCLOSURE N17
The title: Normative-technical documentation of oil
The normative-technical documentation of the supplied oil with its
physical-chemical characteristics must correspond the figures given in the
table:
THE CHARACTERISTICS NORM
------------------- ----
1. Water contents (%) not more than 1.0
2. Chloride salts contents (xx.xx/Xx) not more 1 800
than
3. Mechanical mixture contents (%) not more than 0.05
4. Steam saturation pressure in the deliver 66 650
point in oil temperature conditions not more than /500/
119
ENCLOSURE N 18
EXPERT CONCLUSION
on the materials on the East Georgia Ninotsminda, West Rustavi oil
deposits and Xxxxxx research territory license areas, presented by
"Georgia MAKOIL"
The joint venture "Georgia MAKOIL" presented the data, noting: the
location of the enterprise activity, its operating relations with the
industrial and financial partners, the information on technical and
technological capacities and intellectual level of the enterprise.
The license area is located on Gardabani and Sagarejo regions
territories. It consists of 108,4 sq. km. Two oil deposits are open
here: Ninotsminda and West Rustavi oil deposits are connected with the
Middle Eocene formations, and the assumed gas deposits are connected
with the Lower Eocene and Paleocene-Crateceous formations.
For the last three years the average daily-oil rate of Ninotsminda
deposit ranges from 113 to 153 tons per day, average 130 tons daily. On
West Rustavi deposit the average daily oil rate ranges from 1.07 to
2.05 tons per day, average 1.74 tons daily.
The joint venture is planning to carry out geological and geo-physical
studies, drilling and development work complex, and to increase oil
production on each deposit.
Study of the geological structure of the land, discovery and appraisal
of new oil and gas deposits, study of their location and formation
conformity will be held with the use of geological and geo-physical
methods.
For exploration and exploitation drilling, the joint venture intends to
introduce western advanced technique and technology, namely horizontal
drilling, perforation of the casing with tubing, etc..
The oil production is determined to increase effectively: from 72
000bbl in 1994 to 4 343 500bbl by 1998. For this purpose the existing
production equipment will be renewed, the well net will be extended,
the working methods, technical capacity and training of the personnel
will provide safe working conditions for the population and work force,
also protection of atmosphere, land, forest, water and other
environment.
120
During the first 5 years it is planned to drill 23 new xxxxx: eight -
on Ninotsminda territory, eight - on West Rustavi territory, and seven
- on Xxxxxx field. Recultivation of the location will be held after
drilling. Share distribution of the produced oil is profitable for the
Republic of Georgia. 50% of the produced oil will serve the Republic,
and the remained 50% is under the possession of "MAKOIL".
So the information presented by the joint venture "Georgia MAKOIL" is
enough for issuing a 25 year term license on geological research of the
license territory and carrying out production operations from the
deposits, that meets the demands of the Statement "On Relation of
Licensing Mineral Usage" of the resolution N146 of the Cabinet
Ministers of the Republic of Georgia, out of February 18, 1993.
The expert
Chief Geologist of the Research Drilling
Management Office of Department
"Georgian Oil" S. Gudushauri
121
ENCLOSURE N 19
Title: The Terms on Accounting to the Budget of the Republic of Georgia
by the Joint Venture "Georgia MAKOIL"
According to the taxation legislation, in force at the moment of
issuing the license, "Georgia MAKOIL" should pay to the Budget of the
Republic of Georgia the following taxes:
1) According to the paragraph 6 of Law N368-1 issued by the Republic of Georgia
in 21.12.1993, the Profit tax is determined in the amount of twenty per
cent (20%). The tax is reduced by 10 % for industrial and constructing
enterprises. According to the paragraph 2 of Article 7, all recently
founded enterprises are free from Profit tax during one year from the
moment of their State registration and during the following 2 years the
tax is cut by fifty per cent (50%). According to Article 2, foreign
persons pay the Income tax from dividends, interests, from income got
by their participation in the enterprises founded by foreign
investments, from copy rights, license usage, rent and other kinds of
income, the source of which is on the territory of the Republic of
Georgia, and the amount of this tax is determined by 10%.
2) According to the Law on VAT issued by the Republic of Georgia in
24.12.1993 the amount of the tax is fourteen per cent (14%).
3) According to the enclosure of Law N 377-1 on excises issued by the
Republic of Georgia in 4.12.1993 the amount of excises is changed
according to the types of excised goods.
4) The terms on payment by "Georgia MAKOIL" for usage of natural
resources, in this case for mineral usage is stipulated in enclosure N
7 of the existing license documents.
5) Customs tax for imported goods is two per cent (2%) and eight
percent (8%) for exported goods.
6) The tax on environmental influence is 10 kupons per 1 L. petrol.
7) The Parliament of the Republic of Georgia has not passed the Law on
land tax yet. It will refer to the Company as soon as it is passed.
8)According to Article 3 of the law N 379-1 S of the Republic of
Georgia out of 24.12.93, the tax on enterprise property is one per cent
(1%).
9) According to the law N376-lS of the Republic of Georgia, out of
24.12.93, the tax on physical person's income applies to the income in
the form of money and in the natural form, got during the calendar
year.
10) In accordance with the temporary Regulation on "The State Excise",
approved by the Resolution N286 of the Cabinet of Ministers of the
Republic of Georgia, out of 7.03.92, the payers of the state excise tax
are juridical and physical persons, in the interests of who the special
certified offices transfer documentation and carry out juridical
activities.
122
11) In accordance with the Law N381-1S "On the Physical Person's
Property Tax", out of December 24, 1993, the payers of the tax on
property are physical persons
12) In accordance with Resolution N 454 of the Cabinet of Ministers of
the Republic of Georgia out of 10.06.93, all the enterprises
functioning on the territory of the Republic of Georgia must sell 20%
of their hard currency income to the State Currency Fund, 2% - to the
currency funds of the local Bodies, 10% to the National Bank.
123
ENCLOSURE N20
The title: Necessary Additional Information Presented by joint venture
:"Georgian MAKOIL"
An application on receiving the mineral usage license on the East
Georgia Ninotsminda and West Rustavi oil deposits and Xxxxxx research
territory.
Topic: Necessary additional information
1. Name and address of the applicant Joint venture "Georgia
MAKOIL",, Xxxxxxx, Xxxxxxx
xxx. X00
0. Bank requisites Tbilisi, Commercial Bank
"Iberiabank" account N
3. Main activity Exploration, research and
development of oil and
gas deposits
4. Expected annual expenses: Annual expenses:
income from financial activity, 1994 - $ 2600 thousand
expenses, profit. Possible for 1994, 1995 - $4 4000 thousand
1995, 1996 years 1996 - $2 600 thousand
5. Financial sources:
. a) Private capital Charter Fund 10(ten)
million dollars
. b) Imported capital, or share holders' The sum necessary for the
contribution to the joint venture Capital development of the joint
venture will be provided
by the Company "MAKOIL",
in an established terms
a) Main capital /source/ "MAKOIL"
b) Stockpiled product None
c) Current account Charter Fund
d) Hard currency account Charter Fund
e) Payment with debtors None
f) Losses None
g) Charter capital 10 (ten) thousand dollars
h) Actual capital in fund None
i) Depreciation of main capital None
j) Credits and other loan sources None
Director:
Book keeper:
124
20.3 The sphere of activity of the joint venture
"Georgia MAKOIL", a joint venture between "Georgian Oil" and Company "MAKOIL"is
being established with the aim of carrying out profitable long term
entrepreneurial business in the oil and gas industry within Georgia for the
benefit of the joint venture and the people of Georgia. The joint venture will
maximize the use of the basic production assets and the working capital of the
Founders for the fulfillment of its business program. The joint venture's sphere
of activity will be principally as follows:
1. To act as an operating enterprise for the projects and business
activities jointly involving "Georgian Oil" and the Company "MAKOIL".
2. To increase oil and gas production in the Republic of Georgia by
exploration, development, production and operation of oil and gas
fields on the territory of Georgia.
3. Initial activity will be held on the space identified by Ninotsminda
and West Rustavi deposits, and Xxxxxx research territory. At all times
the methods and technology will be designed to protect the environment.
4. The oil and gas related activities of transportation, refining,
processing and the sale, export and import of oil and gas products will
be developed.
5. To develop, within Georgia, expertise in modern oil and gas
exploration and production technology and to develop the work force of
the joint venture by special training.
6. The Republic of Georgia is currently importing large quantities of
gas from Russia and Turkministan. Georgia MAKOIL will have the option
of drilling for gas in their concession areas in order to reduce the
dependency on foreign imported natural gas. If gas in commercial
quantities is found, it will be purchased from Georgia MAKOIL at
current competitive prices.
125
The joint venture "Georgia MAKOIL"
20.0 An application on receiving the mineral usage license on the East
Georgia Ninotsminda and West Rustavi oil deposits and Xxxxxx research
territory.
Organization:
The joint venture "Georgia MAKOIL"
Board of Directors:
"Georgian Oil" Xxxxx Xxxxxxxx
"MAKOIL" Xxxxxx Kozlowsk
The list of the joint venture "Georgia MAKOIL" members:
1. Xxxxxx Xxxxxxxxx (Attached)
2. Xxxxx X. Xxxxxxxxx (Attached)
3. Xxxxx X. Xxxxxxx (Attached)
4. Xxxx Lobzanidze
Xxxx Lobzanidze was born in 1948. He graduated from the Georgian
Technical University with speciality of drilling engineer. He has great
experience in exploration of oil and gas deposits and in oil
production. He has been working in the Department since 1970. Currently
he is the Deputy Chairman of "Saknavtobi" Department.
ENCLOSURE N 21
The title: Concessions in payment on mineral usage
126
The Cabinet of Ministers of the Republic of Georgia
DECREE N208
Xxxxx 00, 0000
Xxxxxxx
About Concessions in the Mineral Usage Tax
The Cabinet of Ministers of the Republic of Georgia states, that in accordance
with the temporary regulation "About the Mineral Usage Tax" confirmed by Decree
N752 of the Cabinet of Ministers of the Republic of Georgia out of October 20,
1993, the limited amount of the oil and gas production tax is determined by 5-10
percent, and of geological study - 2-4 percent. The said tax belongs to oil and
gas prime cost, i.e. financing and accordingly volume of private source oil and
gas exploration-research works on the Georgian territory will be adequately
reduced, as 65% of prime cost of oil and gas produced in Georgia makes pay-roll
tax for geological-research works.
For the purposes of rapid development of oil and gas industry in the Republic of
Georgia, which is one of the main pre-conditions for stabilization of the
Economy, it is important to extend widely oil and gas exploration operations,
that needs attraction of foreign investments to Georgian oil industry.
Considering the importance of the above issue, the Cabinet of ministers of the
Republic of Georgia resolves:
Release the state specialized enterprises of Department "Georgian Oil", also
joint ventures founded by foreign investments on the territory of the Republic
of Georgia from the tax on oil and gas production, and related
geological-research tax /mineral usage tax/ for five years from the date of
license issuing.
The Prime Minster
of the Republic of Xxxxxxx X. Patsatsia
127
ENCLOSURE N 22
The title: On Leased Equipment
Capital expenses of the joint venture. It includes: leased foreign
equipment; seismic equipment, brought for carrying out seismic
measures; drilling equipment; oil production and refining equipment,
materials for these equipment, which are brought temporarily, and after
operations are carried out, they will be sent out of the Republic free
from customs tax.
ENCLOSURE N 23
The title: On Additional Normative Acts of Legislation
If the Republic of Georgia after the date of effectiveness of the
license passes new normative acts of legislation, which creates
difficult economic and financial situation for the joint venture,
"Georgian Oil and " MAKOIL" will take all possible measures to minimize
the economic damage and to protect profitability of the joint venture,
in order to ensure the commercial results determined in the license.
Except, if the normative acts refer to safety equipment and to
environmental protection demands.
128
THE MINUTES
of the Meeting of a Joint Venture "Georgia MAKOIL"
of Department "Georgian Oil" and a USA Firm "MAKOIL"
May 15, 1992, Tbilisi
The meeting was attended by:
From side of Department "Georgian Oil" - X. Xxxxxxxx, President of the joint
venture "Georgia MAKOIL", I. Papava, I. Lobzhanidze,
X. Xxxxxxxx,
From side of USA firm "MAKOIL" - X. Xxxxxxxxxxxxx,
A. Chichinadze- Xxxxxx
Xxxxxxxxx, Vice President of "Georgia
MAKOIL", Xxxxxxx Xxxxxxxxx
Agenda:
1. Election of the General Director;
2. Approval of the staff schedule of administration;
3. The assumed work program (for 3 years).
1. In his speech X. Xxxxxxxx, President of :Georgia MAKOIL" stated,
that the joint venture "Georgia MAKOIL" is registered on February 21,
1993, by the Ministry of Finances of the republic of Georgia. In
accordance with the current Legislation, the joint venture must be
registered in the local Administrative Bodies, this is why it is
important to elect the General Director of the Company, who will carry
out all the formalities for the secondary registration of the joint
venture. X. Xxxxxxxx suggested to elect Mr. I. Lobzhanidze as the
General Director of the Company. He characterized Mr. Lobzhanidze as
an honest person, who has a 20 year working experience in oil
industry.
The Meeting resolved:
1. To elect temporarily I. Lobzhanidze as the General Director of the joint
venture "Georgia MAKOIL".
2. X. Xxxxxxxxx, Vice President of the joint Venture "Georgia MAKOIL"
gave a speech, concerning the staff schedule of administration. He
said, that after getting the license, it is necessary to form
Administration, which will include 8 persons:
General Director
General Director
Book-keeper
Administrative Manager
Interpreter
Secretary
Driver
Guard
The Meeting resolved:
129
I. Lobzhanidze, General Director to find appropriate candidates for the above
administrative personnel.
3. E. Kozlivski gave information on the work program (for the first 3 years).
X. Xxxxxxxx mentioned, that it is necessary to present this work
program to the Cabinet of Ministers of the Republic of Georgia.
The meeting approved the presented program. The graphic of the work
execution is attached to the Minutes.
President X. Xxxxxxxx
Vice President X. Xxxxxxxxx
Board of Director Gr. Xxxxxxxxx
X. Xxxxxxxx
A. Chichinadze
130
ANNEX E
STATE AUTHORISATION FOR SAKNAVTOBI (GEORGIAN OIL)
131
PROTOCOL OF MEETING
On concession and Production Sharing Principles
for the purposes of attracting additional
investment to the Georgian oil industry
15 February 1996
between
D. Zubitashvili, President of fuel and energy corporation of Georgia,
X. Xxxxxxxx, Chief of department "Georgian Oil"
and
X.Xxxxxx, President of lKX Oil & Gas
1.For the rapid development of the Georgian economy it is most important that
Georgia can be self sufficient in its energy requirements. Georgia wishes to
attract further investment by western oil companies in the Georgian oil industry
including additional investment by the JKX Oil & Gas Group. It is recognized
that one of the main conditions of such investment is the introduction of
production sharing legislation which is widely used throughout the international
oil industry.
2 JKX and Georgian Oil have already presented a draft Production Sharing
Contract to the relevant governmental Ministries in Georgia. In a Presidential
Decree N78, dated 4 February 1996, Georgian Ministry of Justice, fuel and energy
corporation of Georgia and department "Georgian Oil" were instructed to prepare
production sharing legislation within 3 months. Georgian Oil was also authorized
to enter into Production Sharing Contracts with JKX before the proposed
production sharing legislation is introduced provided that the production
sharing contracts are amended to comply with the Georgian production sharing
legislation after it is passed.
3.JKX is prepared immediately to continue its investment programme even though
the production sharing legislation may not be in force for some months. In order
to protect the economic and fiscal position of JKX before and after the passing
of the Georgian production sharing legislation or any other legislation by the
Georgian Parliament, it is hereby agreed, that the stability of the fiscal and
economical terms of the JKX/Georgian Oil production sharing contract affecting
JKX shall be guaranteed and protected so far as they are directly or indirectly
affected by Georgian legislation, rules or regulations.
President of fuel and energy corporation of Xxxxxxx X. Zubitashvili
Chief of department "Georgian Oil" X. Xxxxxxxx
President of JKX Oil & Gas X. Xxxxxx
