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[TRANSLATION]
OPERATING AGREEMENT
Dated July 29, 1997
between
LAGOVEN, S.A.
and
UNION TEXAS VENEZUELA LIMITED
and
PREUSSAG ENERGIE GMBH
BOQUERON
LEGEND
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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TABLE OF CONTENTS
PAGE
----
Clause I Definitions 2
Clause II Object 10
Clause III Effectiveness; Guarantees; EPIC; Factor de Valorizacion 10
Clause IV Operating Services; Minimum Work Obligation 13
Clause V Affiliate Approval Requirements 15
Clause VI Development Plan 17
Clause VII Annual Work Programs and Budgets; AFEs 19
Clause VIII Activities Outside Field Boundaries 22
Clause IX Amendments to Development Plans 25
Clause X The Operator 27
Clause XI Conduct of Operating Services 30
Clause XII Title to and Use of Fixed Assets 38
Clause XIII Hydrocarbon Reservoirs Extending Outside the Area 42
Clause XIV Production Curtailment 43
Clause XV Title to and Transfer of Hydrocarbons; Royalties; 44
Transportation and Handling
Clause XVI Gas Disposition and Handling 46
Clause XVII Payment and Reimbursement 48
Clause XVIII Statements and Invoices 49
Clause XIX Terms and Termination; Extensions 50
Clause XX Default and Early Termination 52
Clause XXI Abandonment; Inactive ▇▇▇▇▇ 54
Clause XXII Environmental Matters 58
Clause XXIII Governing Law; Arbitration; Expert Opinion 60
Clause XXIV Technology; Ownership of Information and Data; Access to 62
Facilities
Clause XXV Confidentiality 63
Clause XXVI Force Majeure 64
Clause XXVII Assignment; Change in Control 65
Clause XXVIII Notices 66
Clause XXIX Miscellaneous 68
Annex A Description of Area
Annex B Description of Initial Field
Annex C Accounting Procedures
Annex D Form of Contractor Guarantee
Annex E Development Plan Guidelines
Annex F Initial Contractor Participations
Annex G Form of Operator Accession Agreement
Annex H Delivery of Hydrocarbons
Annex I Baseline Production
Annex J Form of Operator Guarantee
Annex K Model Joint Operating Terms for EPIC
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Annex L Price Formula
Annex M Form of Guarantee for Minimum Work Obligation
Annex M-2 Form of Financial Undertaking for Minimum Work Obligation
Annex N Available Assets
Annex O Form of Letter of Credit for Minimum Work ▇▇▇▇▇▇▇▇▇▇
▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
OPERATING AGREEMENT
Operating Agreement dated July 29th, 1997, between LAGOVEN, S.A., a sociedad
anonima organized on the date of December 18, 1975 before the First Mercantile
Registry of the Judicial District for the Federal District and the State of
Miranda, Republic of Venezuela, under Number 56, Book 116-A (together with its
successors and assigns, the "Affiliate"), represented by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇;
acting in this act as President of the company and UNION TEXAS VENEZUELA
LIMITED, an international business company organized on the date of January 10,
1996 in the Commonwealth of the Bahamas, represented in this act by ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, III acting in his capacity as President, and PREUSSAG ENERGIE GmbH, a
limited liability company organized on the date of January 1, 1993 in Germany,
represented in this act by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, acting in his capacity as attorney
in fact (together with their respective successors and assigns, the
"Contractors"):
RECITALS
A. All Hydrocarbons existing within the territory of Venezuela are a national
resource owned and controlled by the Republic of Venezuela.
B. The Affiliate has the exclusive right to carry on all operations with
respect to the Hydrocarbons in the Area (as defined herein).
C. The Affiliate wishes to promote the development of the Area, and the
Contractors wish to render services within the Area.
D. The Contractors have the financial capacity, technical ability and
professional expertise necessary to perform the Operating Services
described herein.
E. The Contractors have agreed to perform for the Affiliate, but at the risk
and cost of the Contractors, those rehabilitation, reactivation,
development, production, exploration and other activities as are required
to achieve the continuous commercial development of the Hydrocarbons
located in the Area, as further specifically set forth herein and as to be
set forth in the Development Plans and Annual Work Programs and Budgets
approved by the Affiliate.
F. The Parties have agreed that the payment to the Contractors for the
services rendered hereunder shall only include such payment as is
established in Clause XVII (and the direct reimbursement of certain
specified expenses as provided elsewhere in this Agreement), and that the
Contractors shall not have any title to the Hydrocarbons located or
produced in the Area.
G. The Parties have agreed that the rights of the Contractors derived herefrom
do not include any right to the economic benefits resulting from the sale
or disposal by the Affiliate of the Hydrocarbons extracted for the Area,
but only those economic
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interests as may be granted to the Contractors hereunder in their
capacities as contractors, for the Operating Services described herein.
NOW, THEREFORE, the Parties hereby agree on the following terms and conditions
to govern their Agreement:
I
DEFINITIONS
The following terms shall have the following meanings for purposes of this
Agreement:
"Accounting Procedures" shall mean the accounting procedures attached hereto as
Annex C, as amended or supplemented from time to time in accordance with this
Agreement.
"Accumulation" shall mean any group of Hydrocarbon-bearing reservoirs,
formations or deposits that would ordinarily be considered a single field in
accordance with International Oil Industry Standards; provided that, unless
otherwise agreed by the Affiliate in its discretion, no Hydrocarbon-bearing
reservoirs, formations or deposits lying at depths below the lower horizon of
the Field Boundary of the Initial Field will be deemed to constitute an
"Accumulation" with the Initial Field.
"AFE" shall mean an authorization for expenditures meeting the requirements of
the Uniform Reporting System.
"Affiliate" shall have the meaning set forth in the first paragraph of this
Agreement.
"Agreement" shall mean this Operating Agreement, including all schedules,
exhibits and annexes hereto, as amended or supplemented from time to time.
"Annual Work Program and Budget" shall mean, for any Calendar Year, a work
program and budget prepared and submitted by the Contractors to the Affiliate
and approved by the Affiliate in accordance with Clause 7.3, as amended or
supplemented from time to time in accordance with this Agreement.
"Area" shall mean the "Area" specified in Annex A hereto, as reduced through
the partial termination of this Agreement pursuant to Clause 19.2.
"Associated Entity" shall mean, with respect to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person, whether through ownership of voting securities or
otherwise. For this purpose, and without limiting the foregoing, (i) any
Person that owns more than 50% of the outstanding voting securities (or
equivalent ownership interests) of another Person shall be deemed to control
such Person, and (ii) any Person that owns at least 30% of the outstanding
voting securities (or equivalent
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ownership interests) of another Person that is acting as Operator pursuant to
Clause X and has executed a guarantee with respect to such Operator in the form
of Annex J shall be deemed to control such Operator in its capacity as Operator
(but not in its capacity as Contractor if such Person is also a Contractor).
Notwithstanding the foregoing, no sovereign, government, ministry, governmental
agency (other than a commercial entity acting in a commercial capacity) or
political subdivision of any sovereign shall be considered as Associated Entity
of any Party.
"Associated Gas" shall mean Natural Gas produced from a Field other than a Free
Gas Discovery. Any volume of Natural Gas that is supplied by the Affiliate from
outside the Area (including any Natural Gas previously delivered to the
Affiliate by the Contractors), injected into a well for purposes of gas lift
and subsequently recovered will not be considered to have been produced from
the Field concerned.
"Barrel" or "barrel" shall mean a quantity consisting of 42 United States
gallons, corrected to a temperature of 60 degrees Fahrenheit under one
atmosphere of pressure.
"Baseline Gas" shall have the meaning set forth in Clause 16.2.
"Baseline Production" shall mean, for any Quarter, a volume of Production of
Liquid Hydrocarbons in such Quarter, determined as follows:
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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"Baseline Production Decline Factor" shall mean the fraction, expressed as a
decimal, of the annual decline in Baseline Production as stated in Annex I.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day on
which commercial banks in Caracas are authorized or required to close by law,
decree, regulation or resolution or by decision of the Consejo Bancario
Nacional of Venezuela or any successor entity.
"Calendar Year" shall have the meaning set forth in the Accounting Procedures.
"Capital Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Chargeable Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Connected" shall mean, with respect to two or more Hydrocarbon-bearing
structures, formations or deposits, that such structures, formations or
deposits have been reasonably demonstrated (i) by geologic and engineering
interpretations to be geologically continuous in the Hydrocarbon-bearing
section, (ii) by appropriate technical means to be in pressure communication
with one another in the Hydrocarbon phase, or (iii) to constitute an
Accumulation.
"Contractors" shall have the meaning set forth in the first paragraph of this
Agreement, and shall also include EPIC upon the execution by EPIC of a
counterpart of this Agreement pursuant to Clause 3.3.
"Contractor Well" shall mean any well that the Contractors have either drilled
or used in the Area for any purpose during the term of this Agreement. Any
production or injection well that is used for commercial production in the Area
as of the Takeover Date will be conclusively considered a "Contractor Well".
"Delivery Point" shall mean the point or points at which Production is to be
delivered by the Contractors to the Affiliate, as specified in Annex H hereto,
or as otherwise specified from time to time in accordance with Clause 15.3.
"Delivery Point Capacity" shall mean, for any time period and Delivery Point,
and for Hydrocarbons of any type and quality, the maximum volume of Production
of Hydrocarbons of such type and quality that the Contractors are authorized
to deliver at such Delivery Point, as specified in Annex H, as modified from
time to time in accordance with Clause 15.3.
"Development Plan" shall mean, with respect to any Field, such plan as the
Contractors submit to the Affiliate and that the Affiliate approves pursuant
to Clause 6.3 or 8.5, in each case meeting the requirements set forth in Annex
E hereto (to the extent applicable to such Field) and the requirements of Clause
6.2, and in each case as amended from time to time in accordance with this
Agreement.
"Dry" shall mean, as applied to any Natural Gas, such Natural Gas after the
extraction of propane, butane and similar liquids that may be removed by
extraction.
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"Effective Date" shall mean the date of execution of this Agreement by the
Other Contractors and the Affiliate.
"Environmental Claim and Cleanup Liability" shall mean: (a) any liabilities,
costs or expenses arising from or relating to any claim by a Venezuelan
governmental authority or other third party pursuant to Environmental Law for
personal injury, property damage, or damage to natural resources or the
environment (whether based on negligent acts or omissions, statutory liability,
or strict liability without fault or otherwise), in connection with the Area or
the activities or operations conducted therein; (b) any liabilities, costs or
expenses arising from or relating to any investigation, study, remediation or
abatement of any Release, to the extent required by Environmental Law, in
connection with the Area or the activities or operations conducted therein; or
(c) any fines or penalties assessed for non-compliance with Environmental Law
in connection with the Area or the activities or operations conducted therein.
"Environmental Law" shall mean any Law or Decision relating to: (a)
conservation, improvement, protection, pollution, contamination or remediation
of the environment; (b) any Release, including, without limitation,
investigation and cleanup of such Release or threatened Release; and (c) the
storage, treatment, disposal, recycling or transportation of any Hazardous
Substance.
"EPIC" shall mean Exploracion y Produccion EPIC, S.A., an entidad de inversion
colectiva de capital de riesgo to be organized under the laws of the Republic
of Venezuela and sponsored by an Associated Entity of PDVSA for purposes of
giving Venezuelan citizens and other investors an opportunity to invest in the
Venezuelan hydrocarbon sector and related projects, and shall also mean another
sociedad anonima organized under the laws of the Republic of Venezuela by an
Associated Entity of PDVSA and designated in writing by PDVSA as acting on
behalf and in place of Exploracion y Produccion EPIC, S.A. until completion of
the latter's organization and the transfer to it of any Participation held by
such other sociedad anonima.
"Event of Force Majeure" shall have the meaning set forth in Clause 26.2.
"Exploration Activity" shall mean such activity as one or more of the
Contractors propose to the Affiliate and the Affiliate approves pursuant to
Clause 8.2, for the conduct, at the sole risk of such Contractors, of
exploration and/or appraisal activities in the Area outside the Field
Boundaries of the then-existing Fields, as amended from time to time in
accordance with this Agreement.
"Exploration Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Export Point" shall have the meaning set forth in Clause 15.3.
"Factor de Valorizacion" shall mean the payment to be made by the Contractors
pursuant to Clause 3.4.
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"Field" shall mean each of (i) the Initial Field and (ii) any
Hydrocarbon-bearing formation, or group of Hydrocarbon-bearing formations,
described as a Field by the Contractors in a Development Plan submitted to and
approved by the Affiliate pursuant to Clauses 8.4 and 8.5.
"Field Boundary" shall mean, (i) with respect to the Initial Field, the
boundaries of such Initial Field set forth in Annex B, as modified from time to
time in accordance with Clauses 8.8 or 8.9, and (ii) with respect to any other
Field, the boundary (or boundaries, in the case of a Field comprising more than
one formation) described as the Field Boundary in the related Development Plan
submitted in accordance with Clause 8.4, which shall include each area in which
such Field is located, and the upper and lower geological horizons of such
Field, and which may include an area, or an upper or lower geological horizon,
to which the Contractors can reasonably demonstrate such Field may extend, as
modified from time to time in accordance with Clauses 8.8 or 8.9.
"Final Well Report" shall mean, with respect to any exploration or appraisal
well, a report prepared in accordance with Clause 8.3.
"Free Gas Discovery" shall mean a discovery of Hydrocarbons outside the Field
Boundaries of existing Fields, that consist of Natural Gas and related
condensates that are primarily in the gas phase at reservoir conditions, where
the sale or other commercial disposal of the Natural Gas is likely to be
necessary in order to achieve commercial production of such Hydrocarbons.
"Hazardous Substance" shall mean any pollutant, contaminant, constituent,
chemical, mixture, raw material, intermediate product, finished product or
by-product, Hydrocarbon or any fraction thereof, asbestos or
asbestos-containing-material, polychlorinated biphenyls, or industrial, solid,
toxic, radioactive, infectious, disease-causing or hazardous substance,
material, waste or agent, including, without limitation, all substances,
materials or wastes which are identified or regulated under any Environmental
Law.
"Hydrocarbons" shall mean Liquid Hydrocarbons and Natural Gas.
"Incremental Gas" shall have the meaning set forth in Clause 16.2.
"Incremental Production" shall mean, for any Quarter, all Production in excess
of Baseline Production for such Quarter, other than any Production of
Associated Gas.
"Initial Baseline Production" shall mean, a volume of Production of Liquid
Hydrocarbons in the first Quarter of the Operation Period, determined as
provided in Clause 11.8.
"Initial Field" shall mean the Hydrocarbon-bearing formation or group of
Hydrocarbon-bearing formations described as the "Initial Field" in Annex B
hereto.
"International Oil Industry Standards" shall mean such practices and procedures
employed generally in the petroleum industry throughout the world by prudent
and diligent operators under conditions and circumstances similar to those
experienced in connection with the relevant aspect or aspects of the Operating
Services.
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"Law or Decision" shall mean any applicable law, statute, ordinance, code,
rule, regulation, order, writ, injunction, decree, demand, judgment, ruling,
decision, determination, award, standard, permit, or variance of any Venezuelan
governmental authority, or any binding agreement with any Venezuelan
governmental authority.
"LIBOR" shall mean, as of any date of determination, the three-month London
Interbank Offered Rate, determined at 11:00 a.m., London time, on the first day
of the calendar quarter in which the date of determination occurs (or, if the
first day of such calendar quarter is not a London Banking Day, the immediately
preceding London Banking Day), as such rate appears on Telerate Page 3750, or
any successor page thereto. If Telerate Page 3750 or any successor page ceases
to publish the three-month London Interbank Offered Rate, the Parties shall
designate an alternative mechanism consistent with Eurodollar market practice
for determining such rate. For purposes of this definition, a "London Banking
Day" is a day on which dealings in deposits in U.S. dollars are transacted on
the London interbank market.
"Liquid Hydrocarbons" shall mean crude mineral oil, regardless of gravity, which
is produced at the wellhead in a liquid state at ambient conditions of
temperature and atmospheric pressure, or which is obtained from Natural Gas by
natural condensation.
"Maximum Economic Rate" shall mean, with respect to any Field, the maximum
rate of production at which such Field may be produced over the life of the
Field in order to obtain the maximum final economic recovery from the relevant
reserves, reflecting sound engineering and economic principles in accordance
with International Oil Industry Standards.
"Minimum Work Obligation" shall have the meaning set forth in Clause 4.3.
"Natural Gas" shall mean Wet gas, Dry gas, all other gaseous hydrocarbons and
all substances contained therein, which are produced from oil or gas ▇▇▇▇▇,
excluding Liquid Hydrocarbons that condense naturally upstream of the Delivery
Point.
"Net Hydrocarbon Value" shall have the meaning set forth in the Accounting
Procedures.
"Operating Expenditures" shall have the meaning set forth in the Accounting
Procedures.
"Operating Services" shall have the meaning set forth in Clause 4.1.
"Operation Period" shall mean the 20-year period (or shorter period as may be
contemplated by the Development Plan for the relevant Field, as amended from
time to time) commencing on the Takeover Date with respect to the Initial Field
and the date of approval of the relevant Development Plan by the Affiliate with
respect to any other Field, as such period may be extended or reduced pursuant
to Clauses XIX or XX.
"Operator" shall mean UNION TEXAS VENEZUELA LIMITED, a Corporation organized
under the laws of the Commonwealth of the Bahamas, and any replacement or
additional Operator appointed pursuant to Clause X.
"Operator Guarantor" shall have the meaning set forth in Clause 10.1.
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"Other Contractors" shall mean all Contractors other than EPIC.
"Parties" shall mean the Affiliate, the Contractors, and, after their accession
to this Agreement, the Operator and EPIC.
"Participation" shall mean, with respect to any Field or Exploration Activity
and any Contractor, the percentage participation interest of such Contractor in
the rights and obligations of all the Contractors in relation to such Field, as
set forth initially in the relevant Development Plan, or Exploration Activity,
and as modified from time to time in accordance with Clause 3.3 or Clause XXVII.
The initial Participations of the Contractors in the Initial Field are set forth
in Annex F hereto, and the initial Participations of the Contractors in any
other Field shall be set forth in the relevant Development Plan.
"PDVSA" shall mean Petroleos de Venezuela, S.A., a sociedad anonima organized
under the laws of the Republic of Venezuela, and any successor in interest
thereto.
"Person" shall mean any individual, corporation, sociedad mercantil,
association, joint venture, partnership, trust, limited liability company,
joint-stock company, unincorporated organization or government, or any agency or
political subdivision thereof.
"Post-Takeover Date Environmental Claim and Cleanup Liability" shall mean any
Environmental Claim and Cleanup Liability other than the Pre-Takeover Date
Environmental Claim and Cleanup Liability, that is related to or results from
any activities or operations of the Contractors or Operator under this Agreement
(including the continued use after the Takeover Date of ▇▇▇▇▇ and other
facilities, installations and equipment existing in the Area and made available
to the Contractors as of the Takeover Date).
"Pre-Takeover Date Environmental Claim and Cleanup Liability" shall mean
Environmental Claim and Cleanup Liability to the extent arising from or relating
to acts, omissions, conditions or circumstances occurring or existing prior to
the Takeover Date; provided that, except as specifically provided in Clause
22.5, Pre-Takeover Date Environmental Claim and Cleanup Liability shall not
include any costs or expenses needed to cause the continuing use of any
facilities, installations, equipment or other assets, that are in use on or
prior to the Takeover Date and that are thereafter used by the Contractors in
connection with the Operating Services, to comply with applicable Environmental
Law governing continuing Releases or the ongoing storage, treatment, disposal,
recycling or transportation of any Hazardous Substance.
"Price Formula" shall mean the formula used to determine the value of any
Production, as set forth in Annex L hereto.
"Production" shall mean the Hydrocarbon production obtained from the
exploitation of the Fields.
"Quarter" shall have the meaning set forth in the Accounting Procedures.
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"Receipt Point" shall mean the point or points at which gas, electricity and
water are to be delivered by the Affiliate to the Contractors pursuant to Clause
11.2, as specified in Annex H hereto, or as may otherwise be agreed by the
Affiliation and the Contractors.
"Release" shall mean any spill, discharge, leak, emission, injection, escape,
dumping, leaching, dispersal, emanation, migration or release of any Hazardous
Substance into the environment, including, without limitation, the abandonment
or discard of barrels, containers, tanks or other receptacles containing or
previously containing any Hazardous Substance.
"Royalty" shall mean, with respect to any Production and any time period, the
deemed amount determined in the manner provided in the Accounting Procedures,
reflecting the exploitation tax payable in respect of such Production during
such time period.
"Service Fee" shall mean the payment made to the Contractors (i) in
reimbursement of advances made by the Contractors for the acquisition of goods
and services on behalf of the Affiliate and (ii) in compensation for the
Contractors' services hereunder, all as described in Clause XVII and the
Accounting Procedures.
"Standard Cubic Foot" or "standard cubic foot" or "SCF" shall mean the quantity
of gas occupying a United States cubic foot at 60 degrees Fahrenheit and one
atmosphere of pressure.
"Takeover Date" shall mean the date on which the Operator assumes control and
responsibility for all activities within the Area that are subject to this
Agreement, determined as provided in Clause 11.8.
"Transfer" shall mean any sale, assignment, delegation, transfer or other
disposition by any means (including by way of pledge or other similar
encumbrance) of all or any part of a Party's rights or obligations under this
Agreement; provided that "Transfer" shall not include a pledge of a Contractor's
rights to receive the Service Fee or other payments hereunder that (i) is made
as part of a bona fide financing transaction to enable a Contractor to perform
the Operating Services hereunder and (ii) does not purport to delegate to the
pledgee or any other Person any of the Contractor's other rights or obligations
hereunder, or give such pledgee or other Person any right to attach, seize or
execute on the Contractor's Participation or to transfer or convey all or any
part of such Participation to any third party.
"Transportation and Handling" shall mean the physical transportation of
Hydrocarbons from the wellhead or other point of extraction to the relevant
Delivery Point, including processing, separation, storage and other activities
reasonably necessary for such physical transportation and the transfer of such
Hydrocarbons to the Affiliate at such Delivery Point.
"Uniform Reporting System" shall have the meaning set forth in the Accounting
Procedures.
"Wet" shall mean, as applied to any Natural Gas, such Natural Gas before the
extraction of propane, butane and similar liquids that may be removed by
extraction.
"Bs" or "Bolivars" shall mean the lawful currency of the Republic of Venezuela.
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"$" or "Dollars" shall mean the lawful currency of the United States of
America.
II
OBJECT
2.1 This Agreement has as its object the rehabilitation and reactivation of
certain Hydrocarbon reservoirs within the Area, the ongoing development and
exploitation of such Hydrocarbon reservoirs, including the handling of any
Production from such reservoirs, the Transportation and Handling of such
Production to the relevant Delivery Points, the Delivery of such Production
to the Affiliate at the Delivery Points, Exploration Activities and the
other activities included in the Operating Services, in each case subject
to the terms and conditions set forth herein.
2.2 The Parties recognize that the development, exploitation, and
Transportation and Handling of, and the exploration for, Hydrocarbons
constitute reserved activities within the meaning of the Organic Law
Reserving to the State the Industry and Commerce of Hydrocarbons (LOREICH),
and that accordingly the Contractors shall conduct the Operating Services
hereunder not for their own account, but only for the account of the
Affiliate, subject to the terms and conditions set forth herein.
Hydrocarbons produced within the Area in accordance with this Agreement
shall constitute the exclusive property of the Affiliate, and the economic
rights of the Contractors under this Agreement shall be limited to the
right to receive in cash the Service Fees payable hereunder from time to
time (plus the direct reimbursement of other amounts in certain specified
circumstances).
III
EFFECTIVENESS; GUARANTEES; EPIC; FACTOR DE VALORIZACION
3.1 This Agreement, and all obligations of the Parties hereto, shall come into
effect on the Effective Date.
3.2 Concurrently with the execution of this Agreement, UNION TEXAS PETROLEUM
HOLDINGS, INC. has provided to the Affiliate a guarantee of the respective
obligations hereunder of such Contractor as is its Associated Entity, in
the form set forth in Annex D hereto.
3.3 (a) The Affiliate shall promptly notify EPIC of the approval of a
Development Plan for the Initial Field pursuant to Clause VI, at the same
time that it notifies the Other Contractors. At any time following the
Effective Date until the date which is 60 calendar days following the date
on which the Affiliate gives EPIC such notice, EPIC may elect to become a
Party to this Agreement by delivering an executed counterpart of this
Agreement to the Affiliate.
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At the same time, EPIC shall give notice of such election to the Other
Contractors and to the Operator, if there is an Operator at such time. Upon
delivery of an executed counterpart of this Agreement to the Affiliate (and
regardless of whether the Other Contractors and the Operator have yet received
notice),
(i) EPIC shall immediately become a Contractor under this Agreement on the
terms, and subject to the conditions, set forth herein and in Annex K,
without any further action by any other Party;
(ii) EPIC shall have the same rights and obligations under this Agreement
as the Other Contractors, except that (1) EPIC shall have no liability
to pay, or to reimburse any Other Contractor for payment of, the
Factor de Valorizacion provided in Clause 3, 4, and (2) EPIC shall
not be required to provide the Affiliate with a letter of credit or
guarantee pursuant to Clause 4.4;
(iii) EPIC will have a Participation of 10% in the Initial Field and in
other rights under this Agreement, subject to modification or Transfer
as provided herein; and
(iv) in consideration of the assumption by EPIC of its obligations under
this Agreement and Annex K, the respective Participations of each of
the Other Contractors will be automatically reduced by 10% without
any further action or formality of any kind; provided that the Other
Contractors may, by notice to the Affiliate and EPIC given within 30
days of EPIC's becoming a Party hereto, specify a different allocation
in the reduction of their respective Participations and provided
further that the Operator or its Associated Entity must in any event
maintain a Participation of at least 27%. No approval of such
reductions by the Affiliate pursuant to Clause XXVII will be required.
If requested, each Other Contractor will execute any and all documents
and do any and all acts that may be necessary, useful or required by
applicable law or regulation in order to complete such reduction.
(b) Beginning promptly after the Effective Date and continuing throughout the
entire option period provided in Clause 3.3(a), the Operator and the Other
Contractors shall immediately provide EPIC with copies (or, in the case of oral
communications, descriptions) of all documents, communications, reports,
notices and other information that are provided to, or received from, the
Affiliate, any Other Contractor or any ministry or agency of the Venezuelan
government in connection with the Agreement, including without limitation the
following:
(i) preliminary and final versions of any Development Plan, Annual
Work Program and Budget, AFE, Final Well Report or Exploration
Activity, and of any significant amendments thereto; and
(ii) any significant proposal, commentary, disagreement, dispute,
approval, response or other communications with regard to any of such
documents.
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In addition, the Operator and Other Contractors shall afford EPIC reasonable
access to such additional information and documents as EPIC may reasonably
request with respect to the Agreement and the provision of the Operating
Services; provided that neither the Operator nor any Other Contractor will be
required to divulge proprietary technology to EPIC.
Such information provided to EPIC shall be subject to the confidentiality
provisions of Clause XXV. Prior to receiving any such information, EPIC shall
confirm in writing to each of the Other Contractors and to the Affiliate its
agreement to be bound by the provisions of Clause XXV (even if it does not
ultimately exercise the option to become a Party hereto) and to return all such
information in the event that it does not exercise such option.
(c) (i) Within 60 calendar days of an election by EPIC to become a Party to
this Agreement pursuant to Clause 3.3(a), the Operator and Other
Contractor(s) shall notify EPIC whether they intend to invite EPIC to
become a party to any joint operating or similar agreement already
existing between some or all of them or to enter into a new joint
operating or similar agreement with some or all of them, in each case
relating to rights and obligations of the Operator and/or Contractors, or
the provision of Operating Services, under the Agreement. The Operator and
Other Contractors shall have no obligation to invite EPIC to become a
party to any such joint operating or similar agreement, and EPIC shall
have no obligation to become a party if so invited. A decision during such
60-day period not to invite EPIC to become a party to an existing
agreement or to enter into a new agreement shall not preclude either such
an invitation to EPIC in the future or the negotiation of other types of
arrangements with EPIC.
(ii) Unless EPIC and the Other Contractors otherwise agree in writing, the
provisions of Annex K shall govern EPIC's relations with the Operator and
the Other Contractor(s) with respect to the matters covered therein and
shall be a binding and enforceable agreement between them and EPIC.
(iii) Unless EPIC and the Other Contractors otherwise agree in writing,
EPIC shall have the rights and obligations provided in Annex K as of the
date that EPIC becomes a Party to this Agreement pursuant to Clause 3.3(a),
including without limitation the obligation to reimburse to the Other
Contractors its pro rata share of the expenses of the Operator and the
Other Contractors (other than the Factor de Valorizacion) in respect of the
Operating Services, between the Effective Date and the date on which EPIC
becomes a party.
(d) The rights and obligations of EPIC under this Clause 3.3 will be legally
enforceable by EPIC and the Other Contractors as of the Effective Date,
regardless of whether EPIC ultimately elects to become a Party to the Agreement
under Clause 3.3(a). If EPIC does not become a Party to the Agreement, all such
rights and obligations will terminate at the
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end of the option period provided in Clause 3.3(a), except for EPIC's
obligations under the confidentiality provisions of Clause XXV which will
continue as provided therein.
3.4 No later than five (5) Business Days after the Effective Date, the Other
Contractors shall pay to the Affiliate in U.S. dollars the Factor de
Valorizacion in the amount of $174,783,787, by wire transfer of immediately
available funds to an account specified in writing by the Affiliate. The
Factor de Valorizacion shall not be considered a Chargeable Expenditure of
the Contractors for purposes of determining the Service Fee for any Quarter.
3.5 Each Contractor and Operator hereby represents and warrants that all of the
technical, financial, legal, ownership and other information that it or its
Associated Entity has provided to PDVSA in connection with qualification to
participate in the bidding process that led to the award of this Agreement
was and is true and correct in all material respects when submitted, as of
the bidding and as of the date hereof, except as specifically disclosed in
writing to PDVSA and the Affiliate prior to the bidding. Any material
inaccuracy in such information will constitute a material breach of this
Agreement under Clause 20.2, which will give the Affiliate the right to
terminate this Agreement with respect to the Contractor concerned and any
other Contractor that is aware or whose Associated Entity is aware of such
material inaccuracy. The cure period provided in Clause 20.2 will not apply
to such termination.
IV
OPERATING SERVICES: MINIMUM WORK OBLIGATION
4.1 On the terms and subject to the conditions set forth in this Agreement, the
Contractors undertake to provide the following services (the "Operating
Services") for the Affiliate;
(i) the rehabilitation, reactivation and enhancement of the Initial
Field, in accordance with the relevant Development Plan;
(ii) the uninterrupted delivery of the Baseline Production to the
Affiliate;
(iii) Exploration Activities with respect to other parts of the Area in
accordance with Clause VIII, and the development and exploitation
of any resulting Fields, in accordance with the relevant Development
Plans;
(iv) the Transportation and Handling of Production from the Fields to
the applicable Delivery Points, in accordance with the relevant
Development Plans;
(v) the delivery of such Production to the Affiliate at such Delivery
Points in accordance with Clause 15.4; and
(vi) any other service to be performed by the Contractors in the Area
for the Affiliate as set forth in this Agreement.
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4.2 It is the understanding of the Parties that:
(i) all activities involved in the provision of the Operating
Services shall be carried out by the Contractors for the account
of the Affiliate;
(ii) all costs incurred in the provision of the Operating Services
shall be funded directly by the Contractors, and not by the
Affiliate;
(iii) such costs shall be recoverable by the Contractors only from and
to the extent of the Service Fee, and shall not be recoverable if
the Service Fee is insufficient to permit such recovery (except
for the direct reimbursement of certain expenses in certain
specified circumstances);
(iv) the Service Fee shall be the sole remuneration payable to the
Contractors for the provision of the Operating Services, and no
other payment or compensation of any kind will be due or payable
to the Contractors, either during the term of this Agreement or
following its termination, regardless of whether the Service Fee
is adequate to cover their costs and expenses in providing the
Operating Services (except for the direct reimbursement of
certain expenses in certain specified circumstances); and
(v) all right, title and interest to any Production obtained by the
Contractors shall belong exclusively to the Affiliate.
4.3 Within a period of 3 years beginning on the Takeover Date, the Contractors
shall be obligated to expend in the provision of the Operating Services
with respect to the Initial Field an amount of Chargeable Expenditures at
least equal to $13,000,000 (the "Minimum Work Obligation"). Any
modification to the Minimum Work Obligation requires the prior approval of
the Affiliate, which the Affiliate may grant or deny in its discretion.
If the Agreement terminates for any reason or the time period specified in
the preceding paragraph ends, in either case without the completion of the
Minimum Work Obligation in full, then the Contractors shall pay the
Affiliate the unexpended balance of the Minimum Work Obligation in Dollars
in cash within 30 days of such termination or the end of such period, as
compensation for such non-completion.
4.4 Concurrently with the execution of this Agreement, the Contractors, at
their own cost and expense, have provided the Affiliate with one or more
irrevocable stand-by letters of credit from financial institutions
acceptable to the Affiliate in the form of Annex O hereto, or guarantees
acceptable to the Affiliate in the form of Annex M or M-2 hereto, in an
aggregate amount equivalent to * . In the event that any such
letter of credit would expire prior to the end of the period specified for
the completion of the Minimum Work Obligation in the first sentence of
Clause 4.3, the Contractor(s) that provided such letter of credit shall
replace it with another irrevocable stand-by letter of credit in the form
of Annex O that provides for a drawing period ending on the last day of
such period. If the Affiliate draws any letter of credit delivered pursuant
to this Clause because it would otherwise expire prior to completion of the
Minimum Work Obligation, the Affiliate shall: (a) return all drawn funds to
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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the Contractor(s) concerned upon receipt of a replacement letter of credit
in like amount meeting the requirements of the first sentence of this
Clause and paragraph (iii)(b) of Exhibit 3 of Annex O; (b) return such
funds to the Contractor(s) concerned as and when the Contractor(s) would
be entitled to the reduction of a letter of credit as provided under this
Clause; or (c) be entitled to retain any balance of such funds as provided
in the last sentence of this Clause. Under no circumstances shall the
Affiliate owe any interest with respect to any such funds. The value of
any such letter of credit or guarantee shall be reduced at the request of
the Contractors every 3 months, commencing 3 months after the Takeover
Date, by the amount of funds spent by the Contractors on the Operating
Services in respect of the Initial Field prior to the date of reduction
(or a pro rata share of such amount, based on the Participation in the
Initial Field of the Contractor that provided the letter of credit or
guarantee, if more than one letter of credit or guarantee is provided by
the Contractors), upon certification by the Affiliate that such amount has
been properly charged in accordance with the Accounting Procedures. Only
funds expended on activities relating to the Initial Field (as allocated
in accordance with Clause 17.3 and the Accounting Procedures) shall count
toward such reduction. In addition, the value of any such letter of credit
or guarantee shall be reduced by 10% at the request of the Contractors if
EPIC becomes a Party to this Agreement pursuant to Clause 3.3. Any such
letter of credit, guarantee or financial undertaking shall be terminated
upon certification by the Affiliate that the required amounts have been
expended. Absent disagreement regarding expenditures, the Affiliate agrees
to make such certification within thirty (30) days following the
presentation by the Contractors of documentary evidence reflecting or
showing such expenses. Failure by the Contractors to fulfill the Minimum
Work Obligation as specified in Clause 4.3 shall entitle the Affiliate to
demand payment of the amount of such guarantees and letters of credit, as
compensation for such failure.
V
AFFILIATE APPROVAL REQUIREMENTS
5.1 The activities to be conducted by the Contractors as part of the Operating
Services hereunder shall be undertaken for the account of the Affiliate.
Accordingly, in order to ensure that the Operating Services are consistent
with the objectives of this Agreement, the rights of the Contractors to
perform the Operating Services shall be subject to the approval by the
Affiliate of the matters specified in Clause 5.2.
5.2 The following matters shall be required to be presented to the Affiliate
for approval:
(i) the Development Plan for the Initial Field, as provided in Clause
6.1, and any amendment thereto, as provided in Clause 9.1;
(ii) each Annual Work Program and Budget, as provided in Clause 7.1, and
any amendment thereto required to be approved pursuant to Clause 7.7;
▇▇
▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
(▇▇▇) each Exploration Activity, as provided in Clause 8.1, and any
further Exploration Activity, as provided in Clause 8.3;
(iv) the Development Plan for each additional Field, as provided in
Clause 8.4, and any amendment thereto, as provided in Clause 9.1;
(v) any AFE exceeding the thresholds set forth in Clause 7.6(ii), and
any amendment thereto required to be approved pursuant to Clause
7.7;
(vi) any proposed modification of the Minimum Work Obligation, as
provided in Clause 4.3;
(vii) any proposed extension of an Operation Period, as provided in
Clause 19.3;
(viii) any proposed agreement with respect to a Field extending beyond
the Area, as provided in Clause XIII;
(ix) any proposal for the designation of a replacement, additional or
interim Operator, as provided in Clause X;
(x) the execution, modification or termination of any contract or
other arrangement for the purchase, sale, leasing or other
acquisition, disposition or administration of goods or services
in connection with the Operating Services, from the Operator
(acting as a supplier of goods or services and not in its
capacity as Operator), any Contractor or any of their respective
Associated Entities, involving aggregate expenditures in excess
of * , or its equivalent in any other currency;
(xi) the proposal for the designation of the external independent
auditors to review the Contractors statements and invoices in
accordance with Clause 18.3;
(xii) any proposal by the Contractors to designate an additional
Delivery Point or to modify the Delivery Point Capacity of any
Delivery Point, as provided in Clause 15.3;
(xiii) any proposal by the Contractors to calculate the Service Fee for
two or more Fields on a combined basis, or otherwise to include
costs not allocable to a Field in accordance with the Accounting
Procedures to be included in the calculation of the Service Fee
for such Field, as provided in Clause 17.3;
(xiv) any proposed Transfer by or change in control of any of the
Contractors, as provided in Clause XXVII;
(xv) any proposed modification of an existing Field Boundary as
provided in Clauses 8.8 or 8.9;
(xvi) any proposed disposition or use of certain assets as provided in
Clauses 12.3 or 12.4; and
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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(xvii) any other matter specifically requiring the approval of the
Affiliate in accordance with this Agreement.
5.3 With respect to any matter requiring the approval of the Affiliate pursuant
to this Agreement, such approval may not be unreasonably withheld, except
where it is specified that the decision is within the Affiliate's
discretion. Except as otherwise provided herein, the Affiliate must make a
decision with respect to any matter submitted for its approval within 60
days following submission, except an Annual Work Program and Budget for
which the Affiliate may take 90 days (30 days in the case of the first
Annual Work Program and Budget submitted after approval of the Development
Plan for the Initial Field). In the event the Affiliate does not make a
decision regarding a matter submitted for its approval within the time
specified, the relevant matter will be deemed approved. If the Affiliate
denies its approval as to any matter, it will provide an explanation to the
Contractors stating the reasons for such denial. In the event the
Affiliate's approval is denied, the Contractors may, to the extent
permitted by the relevant provisions of this Agreement, revise their
proposal to take into account the Affiliate's comments and submit their
revised proposal for approval, which will be subject to the same standards
and time periods (counted from the date of resubmission) as are applicable
to the initial submission.
5.4 So long as the Contractors conduct their activities in accordance with this
Agreement, obtain the approval of the Affiliate with respect to the matters
set forth in Clause 5.2 and comply with the terms of the relevant
Development Plans, Annual Work Programs and Budgets and other decisions
made by the Affiliate pursuant to Clause 5.2, the Contractors shall be
authorized to conduct the Operating Services in the manner they deem to be
most appropriate.
VI
DEVELOPMENT PLAN
6.1 No later than 6 months following the Effective Date, the Contractors must
submit to the Affiliate for approval a proposed Development Plan
contemplating the rehabilitation, reactivation and/or enhancement of the
Initial Field. No physical operations within the Area may be conducted by
the Contractors pursuant to this Agreement prior to the approval of the
Development Plan, except as provided in Clause 11.8 or as otherwise
approved by the Affiliate. The Affiliate will provide reasonable
cooperation to the Contractors in the performance of those activities that
are necessary or convenient to the Contractors in connection with the
preparation of the Development Plan for submission to the Affiliate.
6.2 The Development Plan proposed for the Initial Field must be prepared in
accordance with the guidelines set forth in Annex E hereto (to the extent
applicable to the Initial Field) and in any event must include:
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(i) the proposed rehabilitation, reactivation or enhancement
scheme for the Initial Field, including a general description
of the expected activities for the relevant Operation Period
and a discussion of alternative schemes that were considered;
(ii) an estimate of proved, probable and possible reserves in the
Initial Field (in each case, determined on a life-of-field
basis, without regard to the duration of the Operation
Period);
(iii) an estimate of the production profile of the Hydrocarbons that
the Contractors expect to deliver to the Affiliate in each
year during the Operation Period for the proved and proved
plus probable reserves cases, and an explanation of how the
production profile in the proved reserve case achieves the
Maximum Economic Rate of Production (unless Production is
constrained by Delivery Point Capacity);
(iv) projected Capital and Operating expenditures for the Operation
Period for the proved and proved plus probable reserves cases
(in constant dollars and without adjustment for expected
inflation), prepared in accordance with the Uniform Reporting
System;
(v) an estimate of the Service Fees that the Contractors expect to
be payable by the Affiliate during each year of the Operation
Period for each reserves case;
(vi) the designation of any additional Delivery Point(s) that the
Contractors propose to use in accordance with Clause 15.3 and
a full description of the Transportation and Handling
infrastructure that will be used to transport Hydrocarbons to
such Delivery Point(s);
(vii) an environmental contingency plan in accordance with Clause
22.1;
(viii) a plan for the periodic inspection of all inactive ▇▇▇▇▇ in
the Initial Field at least twice per year and, unless
otherwise agreed by the Affiliate in its discretion, a plan
for the periodic surveillance of subsidence in and around the
Area that may be affected by Production; and
(ix) a plan for the transfer of Operations in accordance with
Clause 11.8.
6.3 The Affiliate will approve a proposed Development Plan for the Initial
Field if:
(i) it complies with the provisions of Clause 6.2, contemplates
a budget that meets the Minimum Work Obligation, and provides
for the delivery at each Delivery Point only of Production
that is within the Delivery Point Capacity of such Delivery
Point and that satisfies the quality standards for such
Delivery Point as specified in Annex H or otherwise
determined in accordance with Clause 15.3;
(ii) provides for the uninterrupted delivery of the Baseline
Production at the Delivery Point(s);
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(iii) the production profile in the proved reserve case calls for
Production at the lesser of (x) the Maximum Economic Rate for the
Initial Field, and (y) the aggregate of the Delivery Point
Capacities of the different Delivery Points to which the
Development Plan contemplates delivery of Hydrocarbons; and
(iv) such proposed Development Plan is consistent with International
Oil Industry Standards.
The Affiliate may approve a Development Plan that does not meet one or more
of the standards set forth above in its discretion.
6.4 If the Affiliate rejects a proposed Development Plan for failure to comply
with the standards set forth in either Clause 6.3(iii) or (iv), the
Operator may, at any time up to 30 days after the date of rejection,
request that the question of whether the Development Plan complies with
such provisions be referred to an independent expert in accordance with
Clause 23.3. The decision of the independent expert as to the proposed
Development Plan will be final and binding.
6.5 If a proposed Development Plan is rejected by the Affiliate (and, if there
is a review by an independent expert, such independent expert confirms such
rejection), then the Contractors may, at their option:
(i) submit a revised Development Plan; or
(ii) relinquish their rights under this Agreement, in which case this
Agreement will terminate.
VII
ANNUAL WORK PROGRAMS AND BUDGETS; AFEs
7.1 No later than 30 days after the approval of a Development Plan for a
Field, the Contractors shall submit for approval to the Affiliate a
proposed Annual Work Program and Budget for the remainder of the then
current calendar year. In each year thereafter, the Contractors shall
submit for approval to the Affiliate a proposed Annual Work Program and
Budget for the immediately following calendar year, no later than the date
notified by the Affiliate to the Contractors at least 90 days in advance of
the due date for the following year's proposed Annual Work Program and
Budget. Each Annual Work Program and Budget shall contain, at a minimum,
the following information with respect to each Field in the Area:
(i) a detailed description of the work that the Contractors expect
to undertake in the implementation of the Development Plan during
such year;
(ii) the volume of Hydrocarbons that the Contractors expect to
deliver to the Affiliate during such year, broken down on a
monthly basis;
▇▇
▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
(▇▇▇) a budget for such year meeting the requirements of the Uniform
Reporting System; and
(iv) an estimate of the total amount of Service Fees that the
Contractors expect to be payable by the Affiliate in such year in
respect of such Field, as well as a breakdown of such fees in
respect of each Quarter in such year.
7.2 Together with the proposed Annual Work Program and Budget, the Contractors
will provide to the Affiliate an update to the Development Plan, reflecting
modifications arising from the Annual Work Program and Budget for such year
and for prior years, taken as a whole, as well as a reserves statement
prepared in accordance with the Uniform Reporting System. Such update will
not constitute an amendment to the Development Plan; a Development Plan may
only be amended in accordance with Clause IX.
7.3 The Affiliate will approve any proposed Annual Work Program and Budget
submitted in accordance with Clause 7.1 if:
(i) the Production projected for the relevant year is no more than
20% below the Production for the relevant year projected in the
Development Plan for the proved reserves case;
(ii) the Operating Expenditures per barrel of Liquid Hydrocarbons
reflected in such Annual Work Program and Budget are not more
than 20% above the Operating Expenditures per barrel of Liquid
Hydrocarbons projected for the relevant year in the Development
Plan for the proved reserves case (as adjusted for inflation in
accordance with the Accounting Procedures);
(iii) the Capital Expenditures reflected in such Annual Work Program
and Budget are not more than 20% above the Capital Expenditures
projected for the relevant year in the Development Plan for the
proved reserve case (as adjusted for inflation in accordance with
the Accounting Procedures); and
(iv) the proposed work plan is consistent with the International Oil
Industry Standards.
The Affiliate may approve a proposed Annual Work Program and Budget that
does not meet these standards at its discretion.
7.4 If the Affiliate rejects a proposed Annual Work Program and Budget for
failure of the work plan to comply with the standards set forth in Clause
7.3(iv), the Operator may, at any time up to 30 days after the date of
rejection, request that the question of whether such work plan complies
with such standards be referred to an independent expert in accordance with
Clause 23.3. The decision of the independent expert will be final and
binding with respect to such question.
7.5 In the event the Affiliate does not approve all or any part of the budget
portion of any proposed Annual Work Program and Budget:
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BOQUERON AREA
(i) the Contractors may carry out those activities as to which a
work plan and budget has been approved pending approval of
the remainder;
(ii) the Contractors may continue to fulfill any commitment
entered into in accordance with an AFE that was previously
approved by the Affiliate, up to the maximum amount
authorized in such AFE;
(iii) the Contractors may continue operations contemplated in the
Development Plan under an interim operating budget that does
not exceed the operating budget for the prior year by more
than 5% overall or 10% as to any line item (in each case as
adjusted for inflation in accordance with the Accounting
Procedures); and
(iv) the Contractors may undertake activities necessary in an
emergency situation for the preservation of life, health,
safety, the environment or the integrity of the Field (in
which case the Contractors shall as promptly as practicable
report the relevant activities to the Affiliate and prepare a
revised budget reflecting the emergency expenditures in
accordance with the Accounting Procedures).
7.6 (i) Prior to incurring any commitment or expenditure that is
estimated to be in excess of * , the Contractors shall
send to the Affiliate an AFE, containing their best estimate
of the total funds required to carry out the relevant work,
the amount of direct expense estimated to be incurred by the
Contractors, the estimated timing of expenditures, and any
other necessary supportive information. Notwithstanding the
foregoing, the Contractors shall not be obliged to furnish an
AFE to the Affiliate with respect to any general and
administrative costs that are listed as separate line items
in an approved Annual Work Program and Budget. All such AFEs,
except as provided in Clause 7.6(ii), shall be for
informational purposes only and, provided the work and funds
to be expended therefor are authorized in the relevant Annual
Work Program and Budget, the Contractors shall not be
required to obtain approval for such AFEs.
(ii) For any AFE in excess of * , prior to expending any
funds or incurring any commitments for work, the Contractors
shall obtain the approval of the Affiliate. The Affiliate
will approve an AFE if the total costs for the relevant
commitment or expenditure are no more than 10% above the
amount set forth in the relevant Annual Work Plan and Budget,
as adjusted for inflation as provided in the Accounting
Procedures. The Affiliate may approve an AFE that does not
meet this standard in its discretion.
(iii) The requirements of Clause 7.6(i), but not Clause 7.6(ii),
shall apply to Exploration Expenditures in connection with
approved Exploration Activities under Clause VIII.
7.7 (a) The Contractors shall be entitled to incur without further
approval of the Affiliate an overexpenditure for any line item in the
budget portion of an approved Annual Work Program and Budget up to ten
percent (10%) of the authorized amount for such line item, so long as
the cumulative total of all overexpenditures for a calendar year does
not exceed five percent (5%)of the total amount set forth in such
Annual Work Program and Budget. Approval of a modified budget
reflecting proposed overexpenditures above either of these thresholds
shall be
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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BOQUERON AREA
granted if the standards set forth in Clauses 7.3(ii) and 7.3(iii) are
met, and otherwise may be granted or denied by the Affiliate in its
discretion. In addition, at such time as the Contractors forecast that
the cumulative expenditures authorized in any AFE will be exceeded by
more than 10%, the Contractors shall furnish a supplemental AFE for
the estimated overexpenditures to the Affiliate; in the case of an AFE
requiring Affiliate approval under Clause 7.6(ii), such supplemental
AFE shall be subject to approval which shall be granted or denied
in accordance with the same standards as were applicable to the
original AFE.
(b) In addition, the Contractors may undertake activities necessary in
an emergency situation for the preservation of life, health, safety,
the environment or the integrity of a Field (in which case the
Contractors shall as promptly as practicable report the relevant
activities to the Affiliate and prepare a revised budget reflecting
the emergency expenditures in accordance with the Accounting
Procedures).
VIII
ACTIVITIES OUTSIDE FIELD BOUNDARIES
8.1 Following the approval of the Development Plan for the Initial Field,
the Contractors may from time to time propose to the Affiliate for
approval Exploration Activities they wish to conduct in any part of
the Area that is not within the Field Boundaries of existing Fields.
No such Exploration Activities may be commenced by the Contractors
outside such Field Boundaries before approval by the Affiliate in
accordance with this Clause.
8.2 Any Exploration Activity submitted pursuant to Clause 8.1 will be
approved by the Affiliate if it is consistent with International Oil
Industry Standards. If the Affiliate rejects a proposed Exploration
Activity, the Contractors may, at any time up to 30 days after the
date of rejection, request that the question of whether the proposed
Exploration Activity complies with such standard be referred to an
independent expert in accordance with Clause 23.3. The decision of the
independent expert will be final and binding.
8.3 (a) No later than sixty (60) days after the completion of an
Exploration Activity consisting of the drilling and testing of an
exploration, appraisal or delineation well in the Area, the
Contractors shall submit to the Affiliate a Final Well Report. The
Final Well Report shall set forth in detail such information as the
Contractors have been able to obtain regarding the nature of any
Hydrocarbon-bearing structures or formations penetrated during the
drilling of such well and such other information as may be required by
applicable Venezuelan Laws and Decisions. Such Final Well Report will
also set forth a recommendation for any further Exploration
Activities, drilling or otherwise, that the Contractors consider the
results warrant. If the Contractors propose to conduct any such
further Exploration Activities, they shall so indicate in the Final
Well Report or in a request for approval of further Exploration
Activities. Unless the Affiliate notifies the Operator within 30 days
of receipt of the Final Well Report or such request that it is denying
approval of such further Exploration Activities, the Affiliate will be
deemed to have approved such further Exploration Activities. Approval
of any further
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BOQUERON AREA
Exploration Activities (whether resulting from a Final Well Report or
otherwise) shall be granted or denied, and shall be subject to independent
expert review, on the same basis as the original Exploration Activities.
(b) In the event that the Contractors wish to conduct a well test, they
shall submit to the Affiliate for approval a plan for such well test,
indicating the proposed duration of the test, the expected Production of
the well, the proposed Delivery Point for such Production and all other
relevant information relating to the test. Such test shall not exceed 90
days and shall be conducted in accordance with all applicable Laws and
Decisions. The Affiliate's approval or rejection of such plan shall be
subject to independent expert review on the same basis as other Exploration
Activities. Subject to the limitations and requirements set forth in Clause
XV, the Affiliate will accept the test Production from such well, and the
Contractors may at their option either (i) add such test Production to the
Production from any single existing Field for purposes of calculating the
Net Hydrocarbon Value for such Field for the Quarter or Quarters in which
such test Production is delivered, or (ii) hold the total Net Hydrocarbon
Value attributable to such test Production for subsequent inclusion
(without inflation adjustment) in the Service Fee calculation for the first
Quarter of the Operation Period for a new Field that includes the well that
produced the test Production. No expenses associated with the test may be
charged to such existing Field or any other existing Field; such expenses
may only be recovered to the extent that they constitute Exploration
Expenditures that are chargeable to a new Field in accordance with Article
5.4.5 of the Accounting Procedures.
8.4 The Contractors shall be entitled at any time to submit a proposed
Development Plan to the Affiliate contemplating the development of one or
more Hydrocarbon-bearing structures, formations or deposits located outside
the Field Boundaries of existing Fields. Any such proposed Development Plan
must be prepared in accordance with the guidelines for the preparation of a
Development Plan for the Initial Field set forth in Clause 6.2 and Annex E
(except that relevant information must be provided with respect to the
proposed Field; rather than the Initial Field). In addition, any such
Development Plan must set forth the Field Boundary for the proposed Field
and the Participation of each Contractor (with the Participation of the
Operator or its Associated Entity meeting the requirements of Clause 10.3).
The Contractors may not undertake any development or exploitation
activities with respect to the proposed Field until the relevant
Development Plan is approved.
If any part of such Hydrocarbon-bearing structures, formations or deposits
that the Contractors propose to develop (or any part of any
Hydrocarbon-bearing structure, formation or deposit that is Connected
thereto) extends beyond the boundary of the Area, the Contractors shall
comply with the provisions of Clause XIII before submitting a Development
Plan, unless the Connection with such part of a Hydrocarbon-bearing
structure, formation or deposit extending beyond the Area boundary results
exclusively from the existence of an Accumulation.
8.5 In deciding whether to approve any Development Plan submitted in accordance
with Clause 8.4, the Affiliate will observe the same standards for approval
as are set forth in Clause 6.3 with respect to the Development Plan for the
Initial Field, except that:
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BOQUERON AREA
(i) the Affiliate will disregard whether the budget contained in such
Development Plan would meet the Minimum Work Obligation and whether
the Development Plan provides for delivery of the Baseline Production;
and
(ii) the Affiliate will be obliged to approve any proposed Development Plan
only if the proposed Field Boundary (A) is limited to the
Hydrocarbon-bearing formations, structures or deposits that the
Contractors propose to develop, (B) includes all Connected
Hydrocarbon-bearing structures, formations or deposits (other than
any part of a Hydrocarbon-bearing structure, formation or deposit that
extends beyond the boundary of the Area if the Connection to such part
results exclusively from the existence of an Accumulation), and (C) is
entirely within the Area.
The Affiliate may approve a Development Plan that does not meet one or more
of the standards set forth above in its discretion.
8.6 If the Affiliate rejects a proposed Development Plan submitted pursuant to
Clause 8.5, the Operator may request independent expert review on the same
basis as provided for the Development Plan for the Initial Field in Clause
6.4. In addition, the Operator may request independent expert review, on
the same basis and subject to the same timing requirements, if the
Development Plan is rejected for failure to designate the Field Boundary in
accordance with the standards set forth in Clause 8.5(ii).
8.7 In the event that a Development Plan submitted pursuant to Clause 8.4 is
approved by the Affiliate, the relevant Hydrocarbon-bearing structures,
formations or deposits shall be considered a Field, which shall be subject
to the same Annual Work Program and Budget approval process as is provided
in Clause VII for the Initial Field.
8.8 In the event that any Exploration Activity provides evidence that a
Hydrocarbon-bearing structure, formation or deposit outside the Field
Boundaries of the existing Fields in Connected to one or more of such
Fields, the Contractors shall submit an amendment to the existing
Development Plan for the relevant Field or Fields in accordance with Clause
9.1, including a description of a modified Field Boundary that takes into
account the Connected structure(s), formation(s) or deposit(s). The
Affiliate shall approve such amendment if it meets the standards set forth
in Clause 8.5(ii) and Clause 9.3.
If any part of such Hydrocarbon-bearing structure, formation or deposit (or
any part of any Hydrocarbon-bearing structure, formation or deposit that is
Connected thereto) extends beyond the boundary of the Area, the Contractors
shall comply with the provisions of Clause XIII before submitting an
amendment to the Development Plan, unless the Connection with such part of
a Hydrocarbon-bearing structure, formation or deposit extending beyond the
Area boundary results exclusively from the existence of an Accumulation.
8.9 The Contractors may at any time propose to the Affiliate the combination
into a single Field of two or more existing Fields that are not Connected
or of an existing Field and a Hydrocarbon-bearing formation outside the
Field Boundary of such existing Field that are not Connected. The
Affiliate may approve or reject such proposal in its discretion.
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BOQUERON AREA
IX
AMENDMENTS TO DEVELOPMENT PLANS
9.1 The Contractors must submit an amendment to a Development Plan to the
Affiliate for approval if it is expected that:
(i) the next Annual Work Program and Budget will contemplate
Production more than 20% below the level set forth for the
relevant year in the Development Plan for the proved reserve
case;
(ii) the next Annual Work Program and Budget will contemplate Capital
Expenditures more than 20% above the Capital Expenditures
projected for the relevant year in the Development Plan for the
proved reserve case (as adjusted for inflation in accordance with
the Accounting Procedures);
(iii) the next Annual Work Program and Budget will contemplate
Operating Expenditures per barrel of Liquid Hydrocarbons more
than 20% above the amount set forth in the Development Plan for
the proved reserve case (as adjusted for inflation in accordance
with the Accounting Procedures);
(iv) cumulative Production during the Operation Period will be more
than 20% below the Production volume set forth in the Development
Plan for the proved reserve case;
(v) average Operating Expenditures per barrel of Liquid Hydrocarbons
during the Operation Period will be more than 20% above the
amount set forth in the Development Plan for the proved reserve
case (as adjusted for inflation in accordance with the Accounting
Procedures);
(vi) total Capital Expenditures during the Operation Period will be
more than 20% above the amount set forth in the Development Plan
for the proved reserve case (as adjusted for inflation in
accordance with the Accounting Procedures);
(vii) conditions change such that (A) the Maximum Economic Rate
determined in light of such new conditions varies by more than
20% from the Maximum Economic Rate reflected in the Development
Plan currently in effect, and (B) such new Maximum Economic Rate
is less than aggregate Delivery Point Capacity; or
(viii) an approved Exploration Activity provides evidence that a
Hydrocarbon-bearing structure, formation or deposit outside the
Field Boundaries of the Field that is subject to such Development
Plan is Connected to such Field as provided in Clause 8.8.
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BOQUERON AREA
The Contractors may at their option submit amendment to the Development
Plan to the Affiliate for reasons other than those set forth above.
9.2 If at any time the Affiliate believes that the Contractors are required to
submit an amendment to a Development Plan to the Affiliate, the Affiliate
may notify the Contractors of such belief. The contractors shall submit an
amendment to the Development Plan to the Affiliate, or notify the
Affiliate that they believe no such amendment is required, within 60 days
after the Contractors receive such notice from the Affiliate. If the
contractors notify the Affiliate that they believe no such amendment is
required, the Affiliate may at any time up to 30 days after it receives the
notice from the Contractors request the appointment of an independent
expert in accordance with Clause 23.3 to determine whether an amendment is
required. The decision of the independent expert will be final and binding.
9.3 In the case of any amended Development Plan presented for approval, the
Affiliate will approve such an amended Development Plan if it meets the
standards for approval of an original Development Plan (except the standard
relating to the Minimum Work Obligation, to the extent that the Minimum
Work Obligation has previously been satisfied, and the standard relating
to delivery of the Baseline Production for any Field other than the
Initial Field). In addition, any amendment required by Clause 8.8 must
meet the standards of that Clause. If the Affiliate denies its approval of
such an amendment, the denial shall be subject to independent expert
review in accordance with the same standards and procedures set forth in
Clause 6.4. Until the amendment to the Development Plan is approved, the
Contractors must, to the extent possible, continue Operating Services in
accordance with the Development Plan without giving effect to the
amendment, except as otherwise agreed by the Affiliate.
9.4 If an amended Development Plan is rejected by the Affiliate (and, if there
is review by an independent expert, such independent expert confirms such
rejection), then the Contractors may, at their option;
(i) continue operations based on the Development Plan without giving
effect to the amendment, unless amendment was required under Clause
9.1;
(ii) submit a revised amendment to the Development Plan; or
(iii) relinquish their rights under this Agreement with respect to the
relevant Field in accordance with the requirements of Clause 20.4.
If the Contractors do not submit a revised amendment to the Development
Plan or notify the Affiliate of their intention to continue operations
based on the original Development Plan within 90 days after the date of
rejection by the Affiliate (or within 90 days of the date of the
independent expert's determination), then the Contractors will be deemed
to have relinquished their rights under this Agreement with respect to the
relevant Field in accordance with the requirements of Clause 20.4.
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BOQUERON AREA
X
THE OPERATOR
10.1 (a) The Contractors hereby designate the Operator to carry out and execute
all activities involved in the provision of the Operating Services on
behalf of all of the Contractors, in accordance with this Agreement and
the relevant Development Plans, Annual Work Programs and Budgets and
Exploration Activities. The Operator shall be responsible for the full and
timely performance of all obligations of the Contractors under this
Agreement with respect to any Field or Exploration Activity for which it
is Operator, except the obligations set forth in Clauses XXV and XXVII.
This Clause shall not relieve any Contractor from any of its obligations
under this Agreement
(b) No later than 60 days after the execution of this Agreement, the
Operator shall sign an accession agreement in the form of Annex G hereto,
and upon such signature the Operator shall become a Party to this
Agreement with no further action on the part of any other Party.
Concurrently with the signature of the accession agreement, the Operator
shall deliver to the Affiliate a guarantee from UNION TEXAS PETROLEUM
HOLDINGS, INC. (the "Operator Guarantor") of the obligations of the
Operator hereunder in the form attached hereto as Annex J. Except as
otherwise approved by the Affiliate, no physical operations may be
conducted by the Contractors hereunder prior to the signature of such
accession agreement and the delivery to the Affiliate of such guarantee.
10.2 Following the first anniversary of the Effective Date, the Contractors may
nominate a Person other than the original Operator to act as Operator with
respect to any Field, or to implement any Exploration Activity; provided
that such Person can demonstrate adequate experience, qualifications and
financial capacity. The Person so nominated must be a Contractor or an
Associated Entity of a Contractor. Such nomination is subject to approval
by the Affiliate pursuant to Clause 5.2. Upon such approval, the execution
by such other Person of an accession agreement substantially in the form of
Annex G and, if required by the Affiliate, the execution by an Associated
Entity of such other Person of a guarantee in the form of Annex J, such
other Person shall be appointed as Operator for the applicable Field or
Exploration Activity, and the original Operator shall cease to be the
Operator with respect thereto. The Person appointed as Operator shall, with
respect to such Field or Exploration Activity, perform all of the
obligations and undertake all of the responsibilities of the Operator set
forth in this Agreement.
10.3 The Operator or an Associated Entity of the Operator shall at all times
maintain a Participation of at least 30% in the Initial Field and in each
other Field (or Exploration Activity) as to which it acts as Operator (or
27%, if EPIC takes a 10% Participation in such Field or Exploration
Activity). The Contractors shall make and maintain at all times such
arrangements among themselves for such transfers of Participations as may
be necessary to ensure compliance with this minimum Participation
requirement in the event
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BOQUERON AREA
that the Operator is removed or resigns or in the event that a separate
Operator is appointed for any Field (or Exploration Activity).
No voting securities of an Operator whose obligations under the Agreement
are guaranteed by another Person as a condition of its acting as Operator
may be owned, held or pledged, directly or indirectly, by or to any Person
other than a Contractor or the Associated Entity of a Contractor, without
the prior approval of the Affiliate in its discretion. For this purpose,
"voting securities" shall include all shares or equivalent interests
having a right to vote with respect to the management of the Person
concerned, together with any options, warrants, securities, instruments,
indebtedness or other rights that are at any time exercisable for or
convertible or exchangeable into such shares or equivalent interests and
any proxy or power to vote any such shares or equivalent interests.
10.4 The Operator with respect to any Field may resign as Operator at any time
by so notifying the other Parties at least ninety (90) days prior to the
effective date of such resignation, except that no such resignation shall
become effective except as set forth in Clause 10.8(a), and no such
resignation may become effective before the first anniversary of the
Effective Date.
10.5 The Operator with respect to any Field shall be removed as Operator upon
receipt of notice from any other Party if:
(a) An order is made by a court or an effective resolution is passed for
the reorganization under any bankruptcy law, dissolution, liquidation,
or winding up of the Operator or Operator Guarantor, which order shall
not have been vacated, discharged, stayed or bonded pending appeal
within sixty (60) days from the entry thereof;
(b) The Operator or such Operator Guarantor dissolves, liquidates or
terminates its existence;
(c) The Operator or such Operator Guarantor becomes insolvent, bankrupt
or makes an assignment for the benefit of creditors;
(d) A receiver is appointed for a substantial part of the Operator's
assets or those of such Operator Guarantor; or
(e) The Operator or such Operator Guarantor commences a voluntary
receivership, bankruptcy, insolvency, dissolution, liquidation,
reorganization or similar proceeding.
10.6 The Operator with respect to any Field may be removed by the Affiliate if
the Operator has committed a material breach of this Agreement and has
failed to cure that breach within ninety (90) days of receipt of a notice
from the Affiliate detailing the alleged breach.
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BOQUERON AREA
10.7 Following the resignation or removal of an Operator pursuant to Clause
10.4, 10.5 or 10.6, the Contractors shall meet as soon as possible to
nominate a replacement Operator that meets the requirements of Clauses
10.2 and 10.3, and shall present such nomination to the Affiliate for
approval. Notwithstanding the foregoing, in the event the Operator
disputes commission of or failure to rectify a material breach alleged
pursuant to Clause 10.6 and proceedings are initiated pursuant to
Clause 23.2, no permanent replacement Operator may be appointed
pending the conclusion or abandonment of such proceedings but the
Contractors may, with the approval of the Affiliate as provided in
Clause 10.2, designate one of the Contractors (or its Associated
Entity) as interim Operator pending the conclusion of such
proceedings. The Affiliate shall have no liability to the original
Operator in the event that it is replaced in accordance with the
preceding sentence.
10.8 (a) No resignation of an Operator may become effective, nor may
any replacement Operator begin providing Operating Services
following the resignation or removal of the previous Operator,
until such time as the replacement Operator has been nominated
by the Contractors and approved by the Affiliate. Upon such
approval, the execution by the successor Operator of an
accession agreement substantially in the form of Annex G and,
if required by the Affiliate, the execution by an Associated
Entity of such successor Operator of a guarantee in the form
of Annex J, the successor Operator shall succeed to all
duties, rights and authority prescribed for the Operator, and
the former Operator shall transfer to the replacement Operator
custody of all property used in the provision of the Operating
Services, books of account, records and other documents
maintained by the Operator pertaining to the Area and to the
Operating Services.
(b) Upon delivery of the above-described property and data by the
former Operator, whether in the event of resignation or
removal, the former Operator shall be released and discharged
from all obligations and liabilities as Operator arising or
accruing after such date, but shall not be released from
obligations and liabilities arising or accruing prior to such
date or for any acts, occurrences or circumstances taking
place or existing prior to such date.
(c) The Contractors acknowledge that the Affiliate may, as a
condition to granting approval of the appointment of a new
Operator for the entire Area or for any Field or Exploration
Activity, require, among other things, that the new Operator
and the original Operator agree to reasonable measures to
coordinate reporting and other administrative matters relating
to this Agreement, and that an audit or inventory be conducted
as of approximately the time operations are transferred to the
new Operator. The costs of such audit or inventory shall be
paid by the Contractors and included in the calculation of the
Service Fee, except that in the event of removal of the
Operator pursuant to Clause 10.6, such costs shall be paid by
the outgoing Operator or the Contractors and shall not be
included in the calculation of the Service Fee.
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XI
CONDUCT OF OPERATING SERVICES
11.1 (a) All operations and activities relating to the provision of the
Operating Services shall be carried out by the Operator on behalf of the
Contractors in accordance with:
(i) The Laws and Decisions of competent bodies of the Republic of
Venezuela;
(ii) The specific requirements of this Agreement, the Development
Plans, the Annual Work Programs and Budgets, Exploration Activities
and the decisions of the Affiliate made pursuant to Clause 5.2;
(iii) The collective bargaining agreements of the Affiliate relating
to the oil industry, to the extent applicable; and
(iv) International Oil Industry Standards.
(b) The Contractors shall apply for all permits required by Venezuelan Law
and Decisions in order to permit the Contractors to provide the Operating
Services. The Affiliate will cooperate with the Contractors in obtaining
and maintaining such permits in force and will take all reasonable steps
that may be requested by the Contractors to cause the issuance of such
permits, including making application in its own name where application in
the name of the Contractors or Operator is not possible. The Contractors
may at their option, by notice to the Affiliate, suspend any Operation
Period if:
(i) operations in all or any portion of the Area or the relevant Field
are substantially impeded for a period of at least sixty (60) days
due to the absence of a permit required under Venezuelan Law and
Decisions for such operations; and
(ii) the Contractors have taken and are continuing to take
reasonable measures to obtain such permit in accordance with
relevant Law and Decisions (including without limitation submitting
all documents and information to relevant governmental authorities
that are reasonably capable of submission at the relevant time).
During the suspension, all operations in the Area or the relevant Field
must be discontinued, except that activities necessary or useful to obtain
the relevant permit may continue. Any such suspension will be lifted
either (i) at the option of the Contractors or (ii) if the Contractors
fail to continue to take reasonable measures to obtain the relevant
permit, at the Affiliate's option. The relevant time period will
recommence upon the lifting of the suspension. Time lapsed during the
suspension will not count against the relevant time period.
11.2 (a) The Affiliate shall allow the Operator to use free of charge in
activities relating to the Operating Services all of its rights to the
use of land, rights of way and rights of passage, water rights, and other
rights of any nature whatsoever relating to the Area and upstream of the
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BOQUERON AREA
Delivery Point (other than rights to fixed assets, which are subject to
Clause XII), until the termination of this Agreement with respect to
the Area in accordance with Clause XIX or Clause XX. The Operator shall
be entitled to use such rights solely in connection with activities
relating to the Operating Services, and may not use them for any other
purpose or transfer or otherwise dispose of such rights in any manner
without the prior consent of the Affiliate. Such rights in respect of
activities relating to the Operating Services are granted to the
Operator with respect to the Area on an exclusive basis, subject to
Clause 11.3. However, in no event will the exercise of such rights by
the operator imply any assignment of title on the part of the
Affiliate, nor will it deprive the Affiliate of the use of such rights
for purposes unrelated to the activities contemplated in this Agreement
in a manner that will not materially interfere with such activities.
The Affiliate shall provide reasonable assistance to the Operator upon
request in securing such rights to facilitate the orderly provision of
the Operating Services.
(b) In order to permit the Contractors to continue the Baseline
Production, the Affiliate shall be obligated to supply to the
Contractors:
(i) Natural Gas at the appropriate Receipt Point, in the volumes
and at the pressure used by the Affiliate as of the Takeover Date
for purposes of gas lift in connection with the Baseline
Production (provided that the Contractors will be required to
return to the Affiliate at the relevant Delivery Point at least
95% of the volume of Natural Gas so provided);
(ii) electric power at the appropriate Receipt Point in the
amounts used by the Affiliate as of the Takeover Date in
connection with the Baseline Production; and
(iii) water at the appropriate Receipt Point in the volumes and at
the pressure used by the Affiliate as of the Takeover Date for
purposes of water injection in connection with the Baseline
Production;
in each case, (1) at prices that shall be no higher than the
Affiliate's standard tariff for the service concerned or, if the
Affiliate has no standard tariff, a reasonable price to be negotiated
between the Affiliate and the Contractors, and (2) subject to
reductions in such supply to the extent that such supply is no longer
necessary to maintain the Baseline Production. In each case, usage as
of the Takeover Date shall be average usage as measured during the
transition period pursuant to Clause 11.8.
11.3 In the event that any activities proposed by the Operator or the
Affiliate in the Area or in any areas adjacent to the Area (unrelated
to the Operating Services, in the case of proposed activities of the
Affiliate in the Area) conflict with or may conflict with any existing
or proposed activities of the other, the Operator and the Affiliate
shall attempt to develop a plan to allow both parties to conduct their
activities without interference with one another; provided that, in the
absence of agreement on such a plan, the following priorities will
apply;
(i) existing activities and activities of the Contractors included in
an approved Annual Work Plan and Budget will have priority over
proposed activities; and
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BOQUERON AREA
(ii) otherwise, the Affiliate's proposed activities will have priority.
In any event, the Affiliate will give the Operator at least 90 days
notice of any planned activities that may conflict with activities of the
Operator in the Area. In no event may the Affiliate's activities in the
Area, taken as a whole, be so extensive as to interfere with the
Contractor's practical ability to conduct the activities contemplated by
this Agreement (including, without limitation, the Contractors' right to
conduct Exploration Activities).
11.4 An object of this Agreement is for the Contractors to conduct their
activities in the most cost effective manner, to the extent consistent
with the work objectives and standards that the Contractors are to meet.
The Contractors will be required to provide reports to the Affiliate
with respect to costs incurred in connection with operations under this
Agreement, in accordance with the Uniform Reporting System. The Affiliate
will review the reports with a view to comparing the cost efficiency of
contractors conducting activities in different areas that are subject to
similar operating service agreements. If the Affiliate determines that
the Contractors are incurring Chargeable Expenditures that are
significantly above the level of other contractors for similar
activities, the Affiliate may require that the Contractors meet with the
Affiliate to explain the level of their Chargeable Expenditures and
present a plan for cost reductions.
11.5 All contracts entered into by the Operator in connection with the
provision of the Operating Services shall be consistent with the
contracting policies adopted under this Agreement. All contracts or other
arrangements for the furnishing of goods or services by, or the provision
of goods or services to, the Operator, a Contractor or any Associated
Entity of the Operator or a Contractor shall be on terms that would be no
less favorable to the Operator or such Contractor than the terms that
could reasonably be obtained in respect of a similar contract or
arrangement from third parties, unaffiliated with the Operator or any
Contractor, that regularly provide such goods and services on
international markets or in Venezuela.
11.6 The Operator will be required to contract for any required goods or
services in such a manner as to ensure that it obtains the most
advantageous cost in keeping with the objectives of this Agreement, and
to take into account both quality as well as delivery time for such goods
or services. To the extent efficient, practicable and likely to result
in the most advantageous contracting terms, contracts shall be awarded
on the basis of competitive bids. In cases where there is a supply of
both Venezuelan as well as non-Venezuelan goods or services (including
goods or services available from the Affiliate), the participation of
such Venezuelan goods or services in the bidding or contracting process
must be assured, and when such Venezuelan goods or services are
equivalent in cost, quality and delivery time to the non-Venezuelan goods
or services, the Operator will acquire such Venezuelan goods or
services. In any event, in order to guarantee the optimal quality of the
goods or services acquired, any non-Venezuelan supplier of goods or
services must comply with the same requirements as are imposed on any
Venezuelan supplier of goods or services. For the purposes of this
clause, Venezuelan goods or services will be understood to mean those
goods or services supplied by offices or plants that provide such goods
or services in Venezuela.
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11.7 (a) The Operator and the Contractors shall be responsible for
engaging employees, subcontractors, agents and other
representatives in the course of the Operating Services, and
shall be responsible for all injuries (or death) of their
employees and those of such subcontractors, agents and other
representatives and for all loss or damage to the property of
such employees, subcontractors, agents and other representatives.
The Operator and the Contractors shall be exclusively responsible
for the performance of the obligations assumed in respect of
employees performing the Operating Services by virtue of the
Organic Labor Law, the Social Security Law, the INCE Law, the
regulations adopted under any such law, the provisions of any
collective bargaining or other labor agreements generally
applicable to the oil industry in Venezuela, and any other law,
regulation or other norm relating to the relations between
employers and employees. Neither the Operator nor the Contractors
will have any obligation to engage any current employees of the
Affiliate or of its Associated Entities, subcontractors or
agents.
(b) In the event that the Operator experiences strikes or other labor
disputes with its employees, the Operator shall keep the
Affiliate informed as to the results of the Operator's efforts to
resolve such disputes. If the Affiliate informs the Operator that
any such labor dispute has resulted, or creates a significant
risk of resulting, in collective action being taken by the
Affiliate's employees in support of the Operator's employees,
then the Operator shall consult with the Affiliate with a view to
protecting adequately the interests of both the Operator and the
Affiliate, subject to the Operator's obligations to conduct
operations hereunder in accordance with the standards set forth
in Clause 11.1.
11.8 (a) No later than 15 days following the Effective Date, the Operator
(or, if the Operator has not yet signed the Agreement pursuant to Clause
10.1, one of the Contractors) shall submit to the Affiliate:
(i) a description and timetable of the activities that the
Contractors propose to conduct in the Area in order to prepare
the Development Plan for the Initial Field and the environmental
audit required by Clause 22.3, which activities may include
visual inspection and testing of surface facilities that do not
unreasonably interfere with normal operations, but may not
include any drilling, seismic or other subsurface activities; and
(ii) an interim budget indicating the Chargeable Expenditures that the
Contractors expect to incur during the period between the
Effective Date and the Takeover Date, which interim budget shall
be revised from time to time to reflect any significant
additional Chargeable Expenditures that the Contractors expect to
incur.
Except as provided above or as otherwise approved by the Affiliate, the
Operator may not commence physical operations in the Area until the
Affiliate has approved the Development Plan and the first Annual Work
Program and Budget for the Initial Field.
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BOQUERON AREA
(b) In addition to the matters required by Clause 6.2, the
Development Plan for the Initial Field shall include a plan for the
transfer of operations from the Affiliate to the Operator, describing
inter alia:
(i) all significant transition arrangements;
(ii) the operations to be conducted in common on a trial basis by
both the Operator and the Affiliate, and the duration of such
operations in common, (which operations in common may commence
prior to approval of the Development Plan, if the Affiliate
agrees);
(iii) plans for the sharing of facilities and the coordination of
activities with the Affiliate, to the extent then known, in
accordance with Clauses 11.9 and 12.3; and
(iv) the proposed Takeover Date.
(c) The "Initial Baseline Production" for the first Quarter of the
Operation Period will be determined as follows:
"Initial Baseline Production" will be equal to the arithmetic mean of
the actual volumes of Production of all of the ▇▇▇▇▇ in the Initial
Field for the three months in the immediately preceding Quarter, as
reported in the official monthly Production reports submitted by the
Affiliate to the Venezuelan Ministry of Energy and Mines, and then
reduced by the Baseline Production Decline Factor for one Quarter in
the manner provided in the definition of "Baseline Production"
(assuming that AP, for this purpose equals such mean of the actual
Production of such ▇▇▇▇▇). All volumes of Production shall be measured
in a manner consistent with past practice and corrected to a water
content of 0.1% in the case of Liquid Hydrocarbons containing more
than 0.1% water. Except as provided in the following paragraph, the
volumes of Production reported on such official reports for the three
months in such immediately preceding Quarter will be conclusive and
binding in determining Initial Baseline Production. In addition, under
no circumstances, will the amount of the Baseline Production Decline
Factor be subject to review, discussion or modification.
In the event that major maintenance to facilities results in a
significant curtailment or reduction of the Production of any ▇▇▇▇▇ in
the Initial Field during any month in such immediately preceding
Quarter, then for purposes of determining the total, average
Production of the Initial Field in such Quarter, the average
Production of such ▇▇▇▇▇ during such Quarter shall be determined as
follows:
(i) if the curtailment or reduction affects Production from such
▇▇▇▇▇ in only one month in such Quarter, then the average
Production from such ▇▇▇▇▇ shall be based on the actual
Production from such ▇▇▇▇▇ in the two unaffected months as
reported in such official monthly reports, extrapolating to
account for the affected month on the basis of the two
unaffected months; and
(ii) if the curtailment or reduction affects Production from such
▇▇▇▇▇ in more than one month in such Quarter, then the
average Production from such ▇▇▇▇▇ shall be based
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on the actual Production of such ▇▇▇▇▇ during the most recent
three-month period that is not affected by such maintenance,
as reported in such official monthly reports, and adjusted by
the Baseline Production Decline Factor through such
immediately preceding Quarter.
For information purposes only, the Affiliate will provide the
Contractors with such official monthly Production reports for all
▇▇▇▇▇ in the Initial Field, for the three months preceding the
Effective Date and for each month thereafter as it becomes available
until the Takeover Date. The Affiliate shall also provide the
Contractors with a description of its Production measurement, testing
and allocation procedures for the Initial Field. The Contractors may
observe the Affiliate in the conduct of measurements of the Production
of such ▇▇▇▇▇.
(d) Expenses incurred by the Contractors after the Effective Date
and prior to the Takeover Date will be recoverable as part of the
Service Fee for the Initial Field to the extent that they (i)
constitute Chargeable Expenditures allocable to the Initial Field in
accordance with the Accounting Procedures; (ii) are included in the
interim budget submitted in accordance with Clause 11.8(a), as amended
from time to time, and (iii) are included in the Development Plan and
initial Annual Work Program and Budget as subsequently approved.
11.9 The Operator shall coordinate its activities in providing the
Operating Services with the activities conducted by the Affiliate in
and around the Area. In particular:
(a) The Operator shall ensure that its automation and information
systems are capable of interfacing with those of the Affiliate;
(b) The Contractors and the Operator shall endeavor to enter into
agreements or arrangements with the Affiliate and its
Associated Entities or other parties to reduce the costs of the
Operating Services or to optimize operations relating to the
Operating Services by joining with such other parties in the
construction, funding, operation and/or use of assets and
facilities relating to the Operating Services; and
(c) The Operator shall endeavor to utilize equipment in connection
with the Operating Services that is consistent with the norms
and standards of the Affiliate, to the extent consistent
with the Operator's obligations under this Agreement (including
without limitation the Operator's obligations under Clause
11.4).
The Affiliate shall provide the Operator with such information as the
Operator may reasonably request to permit the Operator to comply with
its obligations under this Clause 11.9.
11.10 (a) (i) Prior to commencing any Operating Services and for so
long as any Operating Services are conducted, the Contractors
and the Operator will be required to provide the Affiliate
with satisfactory evidence:
(1)(A) that they have obtained and are maintaining
in force all-risk construction, property and casualty, third
party liability, well control and other insurance policies from
reputable insurance companies with regard to the Operating
Services, in each case covering such risks and in such amounts
as the
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Affiliate notifies to the Contractors that it would have obtained in the
ordinary course of business had it decided to perform the Operating
Services directly, and (B) that they have adequate financial capacity to
cover any risks that are subject to deductibles under such insurance
policies, that they propose to self-insure; or
(2) that they have the financial capacity to self-insure any such
risks for which they do not obtain insurance.
Subject to the following paragraph, the cost of any premiums in respect
of such insurance policies (including premiums paid to captive insurance
companies and a customary and reasonable charge in respect of any self-
insurance) may be included in the calculation of the Service Fee pursuant
to the Accounting Procedures. The Contractors and Operator may obtain
additional insurance of types or in excess amounts beyond the
requirements of this Clause, but the premiums in respect of such
additional insurance may not be included in the calculation of the
Service Fee pursuant to the Accounting Procedures.
(ii) The Affiliate may, but shall not be obligated to, offer to obtain or
continue some or all of such insurance policies from a reputable insurance
company or companies on behalf of the Contractors and to cause the
Contractors and the Operator to be listed as co-insured parties on any
such insurance policy (with a waiver by the insurer of any right of
subrogation in respect of the co-insured). The Affiliate may charge the
Contractors and the Operator a premium for any such insurance, which
premium may then be included in the calculation of the Service Fee. The
Contractors and the Operator shall not be required to accept the
Affiliate's offer to obtain or continue any such insurance and may obtain
the necessary insurance elsewhere; provided that, in this case, the
amount of the premiums with respect to such insurance that may be included
in the calculation of the Service Fee may not exceed the premium offered
by the Affiliate for such insurance and the Contractor or Operator
concerned shall offer to cause the Affiliate to be listed as a co-insured
party on such alternative insurance policy (with a waiver by the insurer
of any right of subrogation in respect of the co-insured).
(iii) Prior to approval of the Development Plan for the Initial Field,
the Affiliate shall provide the Contractors with a schedule showing (1)
the types and amounts of insurance that will be required under this
Clause 11.10(a),(2) the extent to which the Affiliate is offering to
obtain some or all of such insurance on behalf of the Contractors
(including a description of any deductibles and policy limits), and (3)
the premiums, if any, that the Affiliate proposes to charge for any such
insurance that it obtains on behalf of the Contractors and Operator. The
Affiliate may in its discretion and from time to time amend such schedule
and the scope or cost of such insurance coverage, upon 30 days prior
written notice.
(b) In the event that the Operator obtains insurance proceeds following its
submission of a claim under any of the insurance policies of the
Affiliate referred to in Clause
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11.10(a)(ii) where it is listed as a co-insured, the Operator shall
either (i) apply any such proceeds to remedy the loss or damage in
respect of which the insurance claim was paid, and promptly pay over any
remaining balance in respect of such proceeds to the Affiliate, or (ii)
notify the Affiliate that it does not intend to remedy such loss or
damage and promptly pay over the entirety of such proceeds to the
Affiliate. The Operator shall make the determination as to whether to
apply any insurance proceeds to remedy the relevant loss or damage in
accordance with International Oil Industry Standards.
(c) In the event the Affiliate obtains insurance proceeds relating to losses
sustained in connection with the Operating Services following its
submission of a claim under any of the insurance policies of the
Affiliate referred to in Clause 11.10(a)(ii), the Affiliate shall notify
the Operator to such effect, and within 90 days of the Operator's receipt
of such notice, the Operator may notify the Affiliate that the Operator
intends to remedy the loss or damage in respect of which such payment was
made. Promptly following receipt of such notice from the Operator, the
Affiliate shall pay over to the Operator the amount of such payment for
application to such remediation. In the event that the amount paid to the
Operator exceeds the amount necessary to effect such remediation, the
Operator shall pay over any remaining balance to the Affiliate.
(d) The Contractors shall be responsible for remedying any loss or damage to
the facilities, properties, equipment and other assets of the Affiliate
(other than normal wear and tear in the ordinary course) that result from
activities conducted pursuant to this Agreement. The Contractors shall
make up any amount necessary for such remediation that is not fully
covered by the cash proceeds from any insurance policies carried pursuant
to Clause 11.10(a), including by reason of deductibles or maximum damage
awards, and shall apply such amount to remedy the relevant loss or damage
or shall pay such amount to the Affiliate on the same basis as insurance
proceeds received by the Operator are to be applied pursuant to Clause
11.10(b). Unless such loss or damage results from the gross negligence or
willful misconduct of the Operator or a Contractor, the amounts spent by
the Contractors in remediation shall be Chargeable Expenditures.
The Affiliate shall be responsible for remedying any loss or damage to
the facilities, properties, equipment and other assets of the Operator or
Contractors that result from the separate activities of the Affiliate
conducted in the Area during the term of this Agreement.
(e) The Contractors shall indemnify the Affiliate, its Associated Entities
and the officers, directors, employees, agents and consultants of the
Affiliate and its Associated Entities, from, and hold each of them
harmless against, any and all costs, expenses (including without
limitation reasonable legal costs, expenses and attorneys' fees) and
liabilities that arise from or are incident to claims, demands or causes
of action of every kind and character brought by or on behalf of (1) any
Person for damage to or loss of property or the environment, for injury
to, illness
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or death of any Person (including without limitation any
employee of the Contractor or the Affiliate), or for infringement
of an patent, copyright or similar rights, in each case to the
extent such costs, expenses and liabilities arise from or are
based upon activities conducted pursuant to this Agreement, or
(2) any employee of the Operator, any Contractor or any of their
respective subcontractors or agents for compensation in respect of
work or activities relating to performance of the Operating
Services (except where the Affiliate or its Associated Entity is
the subcontractor that employs such employee). Without prejudice
to the right to indemnity hereunder, the Contractors will have the
right to assume the defense of any such claim, demand or cause of
action for which indemnity is sought, and the Affiliate shall not
settle any such claim, demand or cause of action without the
consent of the Operator.
(f) The Affiliate shall indemnify the Contractors, the Operator, their
respective Associated Entities and the respective officers,
directors, employees, agents and consultants of the Contractors,
the Operators and their Associated Entities, from, and hold each
of them harmless against, any and all costs, expenses (including
without limitation reasonable legal costs, expenses and attorneys'
fees) and liabilities that arise from or are incident to claims,
demands or causes of action of every kind and character brought by
or on behalf of any Person for damage to or loss of property or
the environment, for injury to, illness or death of any Person
(including without limitation any employee of a Contractor, the
Operator or the Affiliate), or for infringement of any patent,
copyright or similar rights, in each case to the extent such
costs, expenses and liabilities arise from or are based upon
activities conducted by the Affiliate in the Area after the
Takeover Date. Without prejudice to the right to indemnity
hereunder, the Affiliate will have the right to assume the defense
of any such claim, demand or cause of action for which indemnity
is sought, and the Contractors of Operator shall not settle any
such claim, demand or cause of action without the consent of the
Affiliate.
XII
TITLE TO AND USE OF FIXED ASSETS
12.1 The Affiliate shall have exclusive title to (or, in the case of capital
leases, shall be the named lessee of) all facilities, properties,
equipment and other assets used by the Contractors to perform Operating
Services hereunder, except for:
(i) immovable assets that are located inside or outside the Area whose
costs of construction or acquisition are not included as
Chargeable Expenditures in the calculation of the Service Fee;
(ii) assets that are leased by the Contractors for use in connection
with the Operating Services under leases that would not
constitute capital leases under international accounting
standards;
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(iii) information, technology and data of the type referred to in
Clause XXIV, title to which shall be governed by Clause XXIV;
(iv) movable assets introduced into the Area by the Contractors on a
temporary basis to be used for a specific purpose; and
(v) other assets that, for reasons of economy or practical
convenience, the Affiliate may agree with the Operator shall be
owned by the Contractors.
The Contractors shall not purchase or construct any real estate for the
account of the Affiliate as provided above, without giving the Affiliate
at least 60 days prior notice and discussing with the Affiliate the
availability and relative cost of opportunities to rent the necessary real
estate. If (a) such real estate is available for rental, (b) the Affiliate
indicates that it would prefer rental to purchase and (c) there is no
significant cost savings associated with purchase, the Contractors shall
rent and not purchase such real estate.
12.2 All assets constructed or acquired by the Contractors in respect of which
title is to vest in the Affiliate shall be deemed to have been constructed
or acquired by the Contractors in the name and for the account of the
Affiliate. The payment by the Contractors of the construction or
acquisition costs of such assets shall be considered a non-recourse
advance from the Contractors to the Affiliate, which shall be repaid
solely through the payment by the Affiliate to the Contractors of the
Service Fee, and which shall be amortized based on the principles
specified in Article VI of the Accounting Procedures.
12.3 (a) Subject to the following sentence, the Operator shall have the
exclusive right to use all assets constructed or acquired by the
Contractors for the account of the Affiliate pursuant to Clause 12.2 free
of charge for purposes relating to the provision of the Operating
Services. If, in light of the relevant Development Plan, any such assets
are expected to have significant capacity for an extended period of time
that will not be used for the provision of the Operating Services and can
be made available to the Affiliate without unreasonable interference with
the Operating Services, the Operator shall, if requested, make such unused
capacity available to the Affiliate free of charge except for payment of a
fair and reasonable fee for operating and maintaining the asset concerned.
If the Operator later wishes to use some or all of such previously unused
capacity for the provision of Operating Services, it shall so notify the
Affiliate and the Affiliate shall relinquish the capacity concerned no
later than six months following the receipt of such notice.
(b) Subject to Clause XXI, the Contractors shall have the right to use
free of charge, in connection with the Operating Services, all existing
▇▇▇▇▇ in the Area, the flow lines between such ▇▇▇▇▇ and gathering
stations and all electricity lines, gas lines and water lines between the
appropriate Receipt Point and such ▇▇▇▇▇. In addition, Annex N lists
certain other fixed assets in the Area or outside the Area that are
appropriate for the Transportation and Handling of Hydrocarbons from the
Area to the Delivery Point, that were constructed or acquired by the
Affiliate prior to the Effective Date for use in connection with the
discovery, appraisal or exploitation of the Initial Field or any other
Hydrocarbon-bearing structure in the Area that is known to the Affiliate
as of the
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BOQUERON AREA
Effective Date. The Operator shall have the right to use the assets
listed thereon free of charge. The Operator shall operate all assets
listed on Annex N. If the Operator wishes to use any assets other than
as described above, it must obtain the Affiliate's consent and agree
with the Affiliate on the terms on which the Operator may obtain the
right to use such assets. The Affiliate may decline to grant such
consent in its discretion.
The Contractors shall have no obligation to use any such ▇▇▇▇▇ or flow
lines or the assets listed on Annex N; provided that, except as
specifically provided in Clause 22.5, the non-use of any such assets
shall in no way affect or reduce the Initial Baseline Production or
the Baseline Production and any replacement of such assets shall be
subject to the requirements of Clause 11.4 and of Article IV of the
Accounting Procedures that all Chargeable Expenditures hereunder be
both reasonable and necessary.
Except as may otherwise be specifically agreed between the Contractors
and the Affiliate, all such ▇▇▇▇▇, flow lines, assets listed on Annex
N and any other facilities, installations, equipment, materials or
other assets that the Affiliate may from time to time make available
to the Contractors are offered and used "as is, where is", and neither
the Affiliate nor any of its Associated Entities makes any
representation or warranty, express or implied, as to the condition of
any such assets, their suitability or fitness for their current use or
any other use, or their compliance with applicable Law or Decisions,
or shall have any liability resulting from their use in connection
with the Operating Services.
Without limiting the generality of the preceding paragraph, the
Affiliate agrees that, between the Effective Date and the Takeover
Date, the Affiliate will operate the Area only in the ordinary course,
will not materially change the nature or extent of its activities in
the Area or dispose of or remove any material quantity of assets
covered by this Clause 12.3(b), will substantially maintain and
continue regular, scheduled programs of maintenance with respect to
such assets, and in general will use reasonable efforts to preserve
the existing activities and assets in the Area; provided that nothing
in this paragraph shall require the Affiliate to repair or replace any
well, flow line or other asset that may be damaged or lost, regardless
of the cause of such damage or loss.
(c) Neither the Operator nor the Contractors shall have the right to
use any assets described in this Clause 12.3 for any purpose other
than for use directly in connection with the Operating Services.
12.4 The Operator shall safeguard and maintain in good condition, subject
to normal wear and tear, all assets that the Operator uses in
accordance with Clause 12.3. The Operator shall not sell, lease or
otherwise dispose of any asset that the Operator uses in accordance
with Clause 12.3 without the prior approval of the Affiliate, which
approval shall be in the Affiliate's discretion.
12.5 Upon the termination of the Operation Period in respect of any Field,
all assets used with respect to such Field that the Operator uses in
accordance with Clause 12.3 shall be transferred to the control of the
Affiliate, except that:
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(i) assets and facilities that are to be removed pursuant to Clause
21.1 shall either be transferred to the control of the Affiliate
following removal or disposed of as scrap, as requested by the
Affiliate; and
(ii) assets used with respect to a Field that are not necessary for
the continuation of Production at such Field and that can be
moved and used at another Field may, with the Affiliate's
approval under Clause 12.4, be moved to such other Field, in
which case (1) the transferee Field shall pay a fair and
reasonable purchase price or fee to the Affiliate for such
assets, and (2) such assets shall be transferred to the control
of the Affiliate or removed, as applicable, at the end of the
Operation Period for such other Field.
12.6 All revenues of whatever nature received in cash or in kind from the
use, sale or other disposal of any assets owned by the Affiliate
pursuant to this Clause XII or in connection with the provision of
Operating Services (net of the reasonable expenses incurred directly
in connection with generating such revenues, such as fees or similar
expenses) shall be for the account of the Affiliate and, if received
by any Contractor, shall be paid to the Affiliate promptly upon
receipt, including without limitation:
(i) revenues from the sale, lease, licensing or other use of such
assets or products of such assets, including without limitation
pipeline facilities, storage facilities, loading and unloading
facilities, surplus housing or office space or other
infrastructure relating to the Operating Services;
(ii) the sale, lease or other disposal of materials or other
property (whether immovable or movable) originally acquired or
leased for use in connection with the provision of the Operating
Services but no longer so used;
(iii) the provision of services to third parties by the Operator or
any Party using such assets;
(iv) the sale or other disposal of scrap or waste created as a result
of the provision of the Operating Services;
(v) any interest or other charges received as a result of the
deferred or late payment of any of the foregoing; and
(vi) any other revenue generated as proceeds of assets or property,
the costs of which are included in the calculation of the
Service Fee in accordance with the Accounting Procedures.
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XIII
HYDROCARBON RESERVOIRS EXTENDING OUTSIDE THE AREA
13.1 (a) In the event that any part of a Hydrocarbon-bearing structure,
formation or deposit for which the Contractors propose to submit a new
Development Plan pursuant to Clause 8.4 or an amendment to an existing
Development Plan pursuant to Clause 8.8 (or any part of any
Hydrocarbon-bearing structure, formation or deposit that is Connected
thereto) extends beyond the boundary of the Area, the Contractors
shall so notify the Affiliate (unless the Connection with such part
of a Hydrocarbon-bearing structure, formation or deposit extending
beyond the Area boundary results exclusively from the existence of an
Accumulation). Thereafter, the Affiliate, assisted by the
Contractors, shall use reasonable efforts to negotiate in good faith
an agreement for a single development program for such
Hydrocarbon-bearing structures, formations or deposits with any Person
or Persons that have rights to the additional area to which they
extend, that will enable the Contractors to provide Operating Services
in accordance with this Agreement with respect to those parts of such
Hydrocarbon-bearing structures, formations or deposits lying inside
the Area.
(b) If the Affiliate owns the Hydrocarbon rights to the area outside
the Area that includes such Hydrocarbon-bearing structures,
formations or deposits, the Affiliate shall propose such a single
development program in good faith or extend the Area to include the
entirety of such Hydrocarbon-bearing structures, formations or
deposits. The Affiliate shall be under no obligation to extend
the Area, and the Contractors shall have no right to require the
Affiliate to do so. If the area outside the Area that includes such
Hydrocarbon-bearing structures, formations or deposits is operated by
a service contractor on behalf of the Affiliate, or if the
Hydrocarbon rights to such area are owned by an Associated Entity of
the Affiliate, the Affiliate shall endeavor to procure that such
service contractor or Associated Entity, as the case may be, accepts
such a single development program in good faith.
(c) Any such single development program shall provide for the optimum
economic development or evaluation of the applicable
Hydrocarbon-bearing structures, formations or deposits, without regard
to the geographical areas in which they are located, and will enable
the Contractors to provide the Operating Services as provided in this
Agreement.
13.2 (a) The Contractors must allow the Affiliate at least two years from
the date of the notice provided in Clause 13.1 to reach agreement on a
single development program (or to extend the boundary of the Area) as
provided in Clause 13.1, before submitting a new Development Plan
pursuant to Clause 8.4 or an amendment to an existing Development Plan
pursuant to Clauses 8.8 and 9.1.
(b) Upon the earlier of (i) the entry into such an agreement by the
Affiliate, the Contractors and any relevant other Person(s) (or
extension of the Area by the Affiliate) and (ii) the expiry of such
two-year period, the Contractors will be entitled to submit a
Development Plan pursuant to Clause 8.4 or obligated to submit an
amendment to an existing Development Plan pursuant to Clauses 8.8 and
9.1, that in each case satisfies the
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requirements of the Agreement (except as such requirements may be modified
with the consent of the Affiliate as a result of any agreement on a single
development program).
The Affiliate shall observe the same standards for approval of such
Development Plan or amendment as are set forth respectively in Clause 8.5
or Clauses 8.8 and 9.3, except that the Affiliate will be obliged to
approve any proposed Development Plan or amendment if:
(i) the proposed Field Boundary includes only those parts of
Connected Hydrocarbon-bearing structures, formations or deposits
that are located entirely inside the Area (taking into account
any modifications of the Area boundary);
(ii) the Maximum Economic Rate for the proposed Field is determined
based only on those parts of Connected Hydrocarbon-bearing
structures, formations or deposits that are located entirely
inside the Area (taking into account any modifications of the
Area boundary); and
(iii) the production profile in the proved reserve case calls for
Production at the lowest of (x) the Maximum Economic Rate for the
proposed Field, (y) the aggregate of the Delivery Point
Capacities of the different Delivery Points to which the
Development Plan or amendment contemplates delivery of
Hydrocarbons, and (z) the production levels contemplated by the
agreed single development program, if any.
In particular, if the two-year negotiation period provided above has
expired without an agreement on a single development program (or extension
of the Area), the Affiliate may not reject a proposed Development Plan or
amendment to an existing Development Plan based on the absence of such an
agreement.
(c) The period provided in Clause 19.2 will be extended by the shorter of
(i) two years and (ii) the length of time following the notification
provided in Clause 13.1 that is actually required to negotiate an
agreement on a single development program (or extension of the Area), with
respect to those parts of the Area that contain Hydrocarbon-bearing
structures, formations or deposits that are covered by this Clause XIII.
XIV
PRODUCTION CURTAILMENT
14.1 The Contractors may be required to curtail Production as a result of
government measures adopted in implementation of Venezuela's international
treaty commitments. Where such curtailments are required, the percentage
curtailment applicable to Production under this Agreement shall not exceed
the percentage level of production curtailment required of oil companies
operating in Venezuela taken as a whole, including PDVSA's Associated
Entities, determined in each case on the basis of available production
capacity. For this purpose, "available production capacity" means capacity
for the production of Hydrocarbons of the
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types that are subject to the relevant treaty commitment, to the
extent such capacity is currently in production at the relevant time,
or as to which production may reasonably be commenced within three (3)
months from the relevant time. The available production capacity with
respect to a Field for any relevant period shall be based on the
planned capacity set forth in the related Development Plan, and shall
be revised in subsequent periods based on planned capacity for such
periods. Any curtailment in capacity shall be applied pro rata to the
Baseline Production and the Incremental Production at the relevant
time. Where the Contractors are unable to recoup the resulting loss by
increasing the rate of Production to the extent necessary to recoup
such loss, the Contractors shall be entitled to receive an extension
of the Operation Period, sufficient in duration to allow it to produce
the same volume it failed to produce as a result of such curtailment.
XV
TITLE TO AND TRANSFER OF HYDROCARBONS;
ROYALTIES; TRANSPORTATION AND HANDLING
15.1 The Affiliate shall hold the exclusive right, title and interest to any
Hydrocarbons produced by the Contractors pursuant to this Agreement.
15.2 The Contractors shall be authorized to produce Hydrocarbons for the
account of the Affiliate in volumes equivalent to those specified in
the production profiles included in the Development Plans approved by
the Affiliate (subject in each case to the tolerances specified in
Annex H hereto, as they may be amended from time to time).
15.3 (a) The Contractors may at any time request an increase in the
Delivery Point Capacity of any Delivery Point, or the designation of
an additional Delivery Point and an associated Delivery Point Capacity
(and quality specifications), and in connection with any such request
may offer to construct or acquire for the Affiliate facilities for the
Transportation and Handling of the increased volumes by the Affiliate.
The Contractors shall provide a description of any such proposed
facilities (including in such description a proposed construction or
acquisition timetable) together with the submission of the request by
the Contractors for the increase in Delivery Point Capacity or
designation of a Delivery Point. Such request may be made in the
original Development Plan for any Field, an amendment to a Development
Plan or otherwise.
(b) If the request involves the use of any facilities or
infrastructure of the Affiliate (or its Associated Entities) upstream
of the exit flange on a transfer hose from which the Hydrocarbons
concerned can be loaded on a tanker and exported from Venezuela (an
"Export Point"), the Affiliate may approve or reject any such request
in its discretion. If the request (i) does not involve use of any such
infrastructure or facilities, (ii) provides for all infrastructure and
facilities needed for the Transportation and Handling to the Export
Point of Hydrocarbons meeting the minimum quality standards specified
below (or as otherwise agreed by the Affiliate in its discretion) and
(iii) is part of a Development Plan or an amendment thereto, such
request shall be subject to the general approval and review criteria
applicable to Development Plans
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and amendments to Development Plans under Clauses VI and IX
respectively. A Delivery Point at the Export Point will have unlimited
Delivery Point Capacity.
The minimum quality standards for Liquid Hydrocarbons delivered at an
Export Point shall be (1) an API gravity of at least 22 degrees, (2)
water content (determined by means of distillation) of no more than
0.5% for Liquid Hydrocarbons with an API gravity greater than 22
degrees and no more than 1.0% for Liquid Hydrocarbons with an API
gravity less than or equal to 22 degrees, and (3) the other quality
standards stated in Annex H.
(c) If the Affiliate approves any such request other than in the
context of a Development Plan or amendment thereto and the request is
accompanied by a proposal to construct or acquire additional
facilities, the Contractors shall be obligated to construct or acquire
such facilities for the Affiliate within the time periods described in
the request (as such time periods may be extended with the approval of
the Affiliate).
15.4 (a) The Contractors shall be required to deliver all Production to
the Affiliate at the relevant Delivery Point or Points. If the
Contractors experience operating problems or otherwise foresee that
the volume of Production delivered in a given month will be
significantly less than the volume provided in the relevant
Development Plan and Annual Work Program and Budget, the Contractors
shall give the Affiliate prompt notice of the nature of the problem,
the extent and duration of the expected volume shortfall, and the
measures being undertaken to remedy the problem and shall keep the
Affiliate informed as to the evolution of the problem.
(b) The Affiliate shall be required to accept from the Contractors at
each Delivery Point all Hydrocarbons in the volumes that the
Contractors are authorized to deliver at such Delivery Point, subject
to limitations due to reasonable and customary maintenance and repairs
or to operating problems with respect to the facilities concerned.
Prior to finalization of a proposed Annual Work Program and Budget in
accordance with Clause VII, the Affiliate shall notify the Contractors
of the proposed timing and duration of proposed routine maintenance
and repairs to assets and facilities, that could affect the
Affiliate's ability to accept delivery of Production at the relevant
Delivery Point, during the period covered by such Annual Work Program
and Budget. The Contractors shall make due allowance for such
maintenance and repairs in the Annual Work Program and Budget. In the
event of a need for unscheduled maintenance or repairs or of
unforeseen operating problems, the Affiliate shall give the
Contractors prompt notice of the nature of the problem, the extent and
duration of any expected curtailment of capacity, and the measures
being undertaken to remedy the problem and shall keep the Contractors
informed as to the evolution of the problem. In any event, the
Affiliate shall use its reasonable best efforts to minimize the
duration and scope of any curtailment of capacity due to maintenance
and repairs or to operating problems. In the event of a partial
curtailment of capacity, the curtailment shall be applied pro rata to
all users of the facilities concerned, including the Affiliate and
PDVSA's other Associated Entities, based on the available production
capacity of each, determined as provided in Clause 14.1. Any
curtailment in capacity shall be applied pro rata to the Baseline
Production and the Incremental Production. Where the Contractors are
unable to recoup the resulting loss by increasing the rate of
Production to the extent necessary to recoup such loss, the
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Contractors shall be entitled to receive an extension of the Operation
Period, sufficient in duration to allow it to produce the same volume
it failed to produce as a result of such curtailment.
15.5 All exploitation tax (royalty) payable pursuant to applicable
Venezuelan law in respect of Production that the Contractor is
authorized to realize hereunder shall be paid by the Affiliate.
15.6 In addition to the monthly production projections set forth in the
Annual Work Program and Budget for each year, the Contractors must
schedule delivery of Production to the Affiliate in accordance with a
notification and delivery procedure to be established in
accordance with the Uniform Reporting System.
15.7 The Contractors' duties will include the Transportation and Handling,
or arranging for the Transportation and Handling, of all Hydrocarbons
that are to be delivered to the Affiliate, from the wellhead or other
point of extraction to the relevant Delivery Point. Costs associated
with the Transportation and Handling of all volumes delivered under
this Agreement at a Delivery Point, whether in respect of construction
of new facilities or the use of existing facilities, will be included
in the calculation of the Service Fee, as provided in the Accounting
Procedures.
15.8 In the event that a fiscalization point or other inspection point is
required to be designated prior to the relevant Delivery Point in
accordance with relevant Venezuelan laws and regulations or the
requirements of the Ministry of Energy and Mines, such designation and
any measurement or inspection at such fiscalization point or other
inspection point shall not be deemed to constitute delivery of the
relevant Hydrocarbons by the Contractor to the Affiliate or acceptance
of such Hydrocarbons or the quality of such Hydrocarbons by the
Affiliate. Such delivery and acceptance, and transfer of risk of loss,
shall occur only at the relevant Delivery Point.
XVI
GAS DISPOSITION AND HANDLING
16.1 In the event that the Contractors make a Free Gas Discovery, they will
have the exclusive right for a period of 36 months following such Free
Gas Discovery to negotiate an alternative arrangement with the
Affiliate for the exploitation of such Free Gas Discovery. If a Free
Gas Discovery is made less than 36 months prior to the last date on
which this Agreement may terminate with respect to the areas in which
the Free Gas Discovery is located, this Agreement will be extended
with respect to such Free Gas Discovery until the expiration of 36
months after the Free Gas Discovery is made.
16.2 Unless otherwise agreed, Associated Gas shall be used and disposed of
in accordance with the following principles:
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(i) The Contractors shall be obligated to deliver to the Affiliate, and
the Affiliate shall be obligated to accept, at the relevant Delivery
Point, the volume of Associated Gas that is related to the Baseline
Production ("Baseline Gas"), as determined on the basis of the gas to
oil ratio for all Production from the Initial Field at the time
concerned; provided that, if the Affiliate is using Baseline Gas in
connection with Production from the Initial Field as of the Takeover
Date, the Contractors will have the right to use such volume of
Baseline Gas as is necessary to continue the Baseline Production. All
Baseline Gas delivered to the Affiliate shall be delivered Wet at the
Delivery Point.
If the Affiliate does not wish to accept the Baseline Gas and the
return of any Natural Gas provided by the Affiliate for gas lift, the
Affiliate shall pay for whatever facilities or other expenses are
necessary to dispose of all such Baseline Gas and Natural Gas in
accordance with Venezuelan Law and Decisions. Any expenses that may be
incurred by the Contractors and reimbursed by the Affiliate in this
regard shall be the object of a separate agreement between the
Contractors and the Affiliate and shall not be included in the
calculation of the Service Fee. The Affiliate shall continue to accept
the Baseline Gas until such facilities are available.
(ii) The Contractors shall have the right to use all Associated Gas other
than Baseline Gas ("Incremental Gas") in connection with performing
the Operating Services hereunder. If requested by the Affiliate, the
Contractors shall be obligated to deliver to the Affiliate at the
relevant Delivery Point any Incremental Gas that they do not use in
connection with the Operating Services. All Incremental Gas delivered
to the Affiliate shall be delivered Wet at the Delivery Point.
(iii) The Contractors shall pay the Affiliate for any Production of Natural
Gas (including Baseline Gas and Incremental Gas) that is either used
by the Contractors for any purpose other than reinjection or gas lift
or disposed of in a manner requiring the payment of royalty under
Venezuelan law, at the official price as of the time of use for
Natural Gas for industrial uses, of the quality and in the location
concerned, as determined in accordance with applicable Venezuelan
regulations as published most recently in the Gaceta Oficial. The
cost of such Natural Gas shall be a Chargeable Expenditure that may be
included in the calculation of the Service Fee.
(iv) The Affiliate may require that any volumes of Wet Baseline Gas or Wet
Incremental Gas that the Contractors are planning to use for
reinjection or gas lift in connection with the Operating Services
pursuant to Clauses 16.2(i) or 16.2(ii) instead be delivered to the
Affiliate at the relevant Delivery Point in exchange for the same
volume of Dry Natural Gas delivered by the Affiliate to the
Contractors either at the Receipt Point or at another mutually agreed
location inside or outside the Area. There shall be no charge to the
Contractors for the mere delivery of such Dry Natural Gas; the
Affiliate may separately charge a reasonable fee for any compression
of such Dry Natural Gas to a pressure higher than that at which the
Wet Natural Gas is delivered to the Affiliate. Any royalty,
exploitation tax or luxury and wholesale taxes due purely as a result
or such exchange of Wet Natural Gas for Dry Natural Gas shall be paid
by the Affiliate.
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(v) Unless otherwise agreed by the Affiliate, the Affiliate shall
not be obligated to accept any Associated Gas that does not
satisfy the quality standards specified in Annex H. The
Contractors shall have no obligation to treat Associated Gas
in order to meet such standards. The Contractors shall dispose
of any Associated Gas not used in providing the Operating
Services or delivered to the Affiliate, in accordance with
Venezuelan laws and regulations.
XVII
PAYMENT AND REIMBURSEMENT
17.1 In (i) reimbursement of advances made by the Contractors for the
acquisition of goods and services on behalf of the Affiliate and (ii)
compensation for the provision of the Operating Services hereunder,
the Affiliate shall pay to the Contractors a cash fee in U.S. dollars
(the "Service Fee"), determined in the manner set forth in Article V of
the Accounting Procedures. The Service Fee will be calculated and paid
Quarterly on the basis of statements and invoices presented by the
Contractors pursuant to Clause XVIII.
17.2. (a) In addition to the two components of the Service Fee described in
Clause 17.1, the Affiliate will pay to the Contractors the luxury and
wholesale taxes (or any other similar Venezuelan value added or sales
taxes) that the Contractors are required by Venezuelan law to collect
in relation to the portion of the Service Fee representing
compensation for the Operating Services (as determined in accordance
with Article VI of the Accounting Procedures). Such luxury and
wholesale taxes will be calculated and paid in Bolivars.
(b) The payment of luxury and wholesale taxes described in the
preceding paragraph will be in addition to the reimbursement pursuant
to Article 1.6.2 of the Accounting Procedures of luxury and wholesale
taxes that are paid by the Contractors on goods and services acquired
by the Contractors from third parties for the account of the
Affiliate.
17.3 As more fully set forth in Article 5.4 of the Accounting Procedures
and except as otherwise agreed by the Affiliate in its discretion, the
Service Fee shall be calculated and paid separately by the Affiliate
with respect to each Field, and only costs incurred within the Field
Boundary of any such Field or that are otherwise allocable to such
Field will be taken into account in determining the Service Fee in
respect of such Field. Except as otherwise agreed by the Affiliate,
any allocation of costs must be made in accordance with the mechanisms
established pursuant to the Accounting Procedures, as well as with
the following rules:
(i) No costs incurred by the Contractors in Exploration Activities
performed outside the Field Boundaries of any Fields existing
as such at the time of such activities may be included in the
calculation of the Contractors' costs for such Fields.
(ii) Costs incurred by the Contractors in Exploration Activities
will be included in the Service Fee calculations in accordance
with Article 5.4.5 of the Accounting
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Procedures only with respect to a Field as to which a
Development Plan is approved following the incurrence of such
costs, except as otherwise approved by the Affiliate in its
discretion. Upon the approval of such a Development Plan, all
Well Expenditures incurred within the Field Boundary of the
relevant Field, and all other Exploration Expenditures incurred
since the date of approval of the most recent prior Development
Plan, will be included in the Service Fee calculation for such
Field, as provided in the Accounting Procedures.
(iii) Costs that are associated with more than one Field, or with a
Field and activities outside the Field Boundaries of the Fields,
must be allocated in the manner set forth in the Accounting
Procedures.
17.4 For purposes of calculating the Service Fee, the volume of all Liquid
Hydrocarbons will be measured at the relevant Delivery Point(s)
corrected to a water content of 0.1% in the case of Liquid
Hydrocarbons having a water content greater than 0.1%, and the volume
of all Natural Gas corrected to a content of impurities of no more than
0.3%.
All Incremental Production will be valued on the basis of the Price
Formula. For purposes of applying the Price Formula to Liquid
Hydrocarbons, the API gravity of all Production delivered at all
Delivery Points in a Quarter will be deemed to be the average API
gravity of all such Production weighted to take into account the
actual volumes of Liquid Hydrocarbons having different API gravities
delivered in such Quarter.
Except as otherwise agreed by the Affiliate and the Contractors, the
valuation of all Hydrocarbons made available at a Delivery Point in
any Quarter shall be based on the average price determined in
accordance with the Price Formula for each calendar day in such
Quarter, without weighting based on the volume of Hydrocarbons
delivered on any such day. There will be no payment for Associated Gas
delivered to the Affiliate.
17.5 All payments of Service Fees and related luxury and wholesale or
similar Venezuelan taxes on the compensation component thereof shall
be made to accounts either inside or outside Venezuela to be
designated by the Operator. The Affiliate shall be deemed to have
fulfilled its obligations to pay the Service Fees and such taxes by
payment to the Operator, and the Affiliate shall not be responsible
for any failure by the Operator properly to divide any such payment
among the Contractors. The sole recourse of the Contractors for any
such failure shall be against the Operator.
XVIII
STATEMENTS AND INVOICES
18.1 The Service Fee will be payable on a quarterly basis, against
presentation by the Contractors of statements and invoices for the
relevant Quarter, based on the volume of Production delivered to the
Affiliate at the Delivery Point(s) in such Quarter. Payment will be
made by the Affiliate
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no more than 45 days following the receipt of each invoice. In the
event that the Affiliate disputes all or any portion of an invoice and
notifies the Contractor of the dispute within such 45-day period, the
Affiliate shall pay the undisputed portion within such 45-day period
and shall pay the balance upon resolution of the dispute. Any amount
paid by the Affiliate after such 45-day period (including amounts
subject to a dispute) shall bear interest from the last day of such
45-day period to the date of payment at a rate adjusted each day equal
to LIBOR for such day, plus 5% per annum. If the Affiliate notifies
the Contractor of the dispute after payment, the Contractor shall
refund any overpayment upon the resolution of the dispute. Any amount
required to be refunded by the Contractor shall bear interest at the
same rate, from the date of overpayment by the Affiliate to the date
of the refund.
18.2 The luxury and wholesale taxes (or other similar Venezuelan value
added or sales taxes) payable pursuant to Clause 17.2(a) shall be
reflected separately in the invoices provided by the Contractors to
the Affiliate.
18.3 Following the end of each Calendar Year, the statements and invoices
for such Calendar Year will be reviewed by a firm of independent
auditors designated by the Contractors and approved by the Affiliate,
and, unless disputed by the Contractors, any adjustments found by such
auditors will be reflected in the statement or invoice immediately
following the delivery of the report of the auditors. Additional
audits may be required by the Affiliate in accordance with the
Accounting Procedures.
18.4 Payment of any invoice by the Affiliate shall not constitute a
waiver of the Affiliate's right to object to all or part of such
invoice. Such an objection may be raised by the Affiliate until the
period for additional audits set forth in the Accounting Procedures
expires and the resolution of any items found during the course of
such audit or otherwise protested by the Affiliate during such period.
18.5 Invoice formats are specified in the Uniform Reporting System. All
books used for purposes of calculating the Service Fee payable to the
Contractors will be maintained in Dollars.
XIX
TERM AND TERMINATION; EXTENSIONS
19.1 The term of this Agreement shall begin on the Effective Date and
terminate as to each Field at the end of the Operation Period for such
Field and as to areas outside a Field Boundary at the end of the
period provided in Clause 19.2, subject in each case to early
termination or extension as provided herein.
19.2 This Agreement will terminate after 5 years as to any part of the Area
that is outside the Field Boundaries of the Fields existing at the end
of such period, subject to possible extension pursuant to Clauses
13.2 or 16.1.
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19.3 The term of the Agreement or of the Operation Period for any Field may
be extended with the approval of the Affiliate, upon request made by
the Contractors at least six months prior to the date on which the
Operation Period would otherwise expire. The Affiliate may grant or
deny such request in its discretion. In the event that any matter is
undergoing independent expert review in accordance with Clause 23.3
at the time the Agreement otherwise would have terminated with
respect to any Field (or proposed Field), this Agreement will be
extended with respect to such Field (or proposed Field) pending the
conclusion of the independent expert review.
19.4 At least 24 months prior to the termination of this Agreement with
respect to any Field or area (or, in the case of early termination
pursuant to Clause XX, as soon as practicable after the Contractors
become aware of termination), the Contractors shall submit to the
Affiliate a transition plan including at a minimum:
a) a description of the assets that are used in connection
with such Field or area and owned by the Affiliate
pursuant to Clause 12.1;
b) a description or any material assets that are used in
connection with such Field or area and are not owned by
the Affiliate, including the identity of the owner of such
assets and the terms on which such assets are currently
used and might continue to be available after termination;
c) a description of any material contracts, leases or other
arrangements with third parties for the provision of goods
or services in connection with such Field and an
indication whether such contracts, leases or other
arrangements might be assigned or transferred to the
Affiliate upon termination;
d) a description of the technology and other information
subject to Clause XXIV, and of the proposed treatment of
such technology and other information upon termination;
e) the report required by Clause 21.1 regarding the status
of ▇▇▇▇▇ and related assets in the Field; and
f) a plan for the transfer of operations back to the
Affiliate upon termination.
Such transition plan shall be amended from time to time to reflect any
material changes or developments in the information or plans provided
therein. Upon the termination of this Agreement with respect to any
area or Field, all assets, contracts, leases and rights that were used
with respect to any area or Field and are owned by the Affiliate
shall be delivered to the Affiliate, free and clear from any liens or
encumbrances.
19.5 Upon the termination of this Agreement, all rights and obligations of
the Parties hereunder shall terminate, except for the following rights
and obligations, which shall survive such termination:
(a) Claims of a Party against another Party for damages arising
out of acts or omissions of the other Party relating to such
other Party's obligations under this Agreement;
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(b) The provisions of Clause XXV, which shall remain in effect for
five (5) years following such termination; and
(c) The provisions of Clauses XXI and XXII until all remaining
obligations of the Contractors thereunder have been performed
in full.
Upon termination of this Agreement, no further payment, compensation
or consideration of any kind will be due or payable by the Affiliate
to the Contractors (except for any Service Fee in respect of
Hydrocarbons delivered to the Affiliate prior to the date of
termination or any expenses that are specifically made subject to
reimbursement hereunder), regardless of whether the Service Fee paid
during the term of this Agreement has been adequate to reimburse their
costs and expenses or compensate their services in providing the
Operating Services.
XX
DEFAULT AND EARLY TERMINATION
This Agreement may be terminated early by the Affiliate, and the
Contractors may withdraw from and terminate this Agreement, on the
terms and subject to the conditions set forth in this Clause XX.
20.1 In the event that the Contractors fail to submit a Development Plan
for the Initial Field to the Affiliate for approval within the period
specified in Clause 6.1, or that a Development Plan for the Initial
Field is not approved within 12 months after the initial submission
of a Development Plan pursuant to Clause 6.1, the Affiliate will be
entitled to terminate this Agreement by notice in writing to the
Contractors.
20.2 In the event that any Contractor breaches its obligations under this
Agreement in any material respect, and such breach is not cured
within ninety (90) days after the Affiliate provides notice to the
Contractors of such breach, the Affiliate shall have the right to
terminate this Agreement as to the breaching Contractor or all
Contractors in its discretion; provided that, if such breach is
reasonably capable of being cured and the Contractors begin to pursue
a cure within such ninety (90) day period, no termination may be
effected so long as the Contractors continue diligently to pursue such
cure. Notwithstanding the foregoing, a breach by a Contractor of its
obligations under Clause XXV or XXVII shall give rise to a termination
right on the part of the Affiliate only with respect to the affected
Contractor. Upon a termination with respect to a defaulting
Contractor, such Contractor's Participations in each Field and
Exploration Activity shall be automatically transferred to the
non-defaulting Contractors, on a pro rata basis, in accordance with
the respective Participations of the non-defaulting Contractors in
each such Field or Exploration Activity.
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20.3 In the event that any of the following events occurs with respect to
any Contractor or any Person that guarantees such Contractor's
obligations pursuant to Clause 3.2:
(a) An order is made by a court or an effective resolution is
passed for the reorganization under any bankruptcy law,
dissolution, liquidation, or winding up or such Contractor or
guarantor, which order shall not have been vacated,
discharged, stayed or bonded pending appeal within sixty (60)
days from the entry thereof,
(b) Such Contractor or any such guarantor dissolves, liquidates
or terminates its existence;
(c) Such Contractor or any such guarantor becomes insolvent,
bankrupt or makes an assignment for the benefit of creditors;
(d) A receiver is appointed for a substantial part of such
Contractor's assets or those of any such guarantor; or
(e) Such Contractor or any such guarantor commences a voluntary
receivership, bankruptcy, insolvency, dissolution,
liquidation, reorganization or similar proceeding,
such Contractor shall have one hundred and twenty (120) days from the
occurrence of such event to (i) transfer all of its rights and
interests under this Agreement to such Person as the Affiliate may
approve in accordance with Clause 27.1, or (ii) provide to the
Affiliate a guarantee or such Contractor's obligations hereunder in
form and substance, and from a guarantor, acceptable to the Affiliate.
In the event that such Contractor does not effect such a transfer or
provide such a guarantee within such time period, the Affiliate may
terminate such Contractor's rights and interests under
this Agreement. Upon such termination, the defaulting Contractor's
Participation in each Field or Exploration Activity shall be
automatically transferred to the non-defaulting Contractors, on a pro
rata basis, in accordance with the respective Participations of the
non-defaulting Contractors in each Field.
20.4 Any Contractor may at any time following the satisfaction of the
Minimum Work Obligation give notice to the Affiliate and the other
Contractors that it wishes to withdraw from this Agreement, either
entirely or only as to a particular Field or Exploration Activity.
Within thirty (30) days of receipt of such notice, any of the other
Contractors may similarly give notice that it wishes to withdraw from
this Agreement, either entirely or as to such Field or Exploration
Activity. If all such other Contractors give such notice, this
Agreement shall be terminated either in its entirety or as to the
particular Field(s) or Exploration Activity concerned, effective at
the expiration of such 30-day period, and the Contractors shall
abandon all relevant operations pursuant to Clause XXI. If less than
all of the other Contractors give such notice, the withdrawing
Contractors shall withdraw from this Agreement, either entirely or
only as to the particular Field or Exploration Activity concerned, on
the earliest practicable date and shall assign their respective
Participations to the non-withdrawing Contractors, on the basis of
their respective Participations. With respect to this Clause 20.4:
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(i) A withdrawing Contractor shall not be allowed to withdraw
from this Agreement if its interest hereunder or any
Participation is subject to any liens, charges or
encumbrances, unless the remaining Parties are willing to
accept the assignment subject to such liens, charges or
encumbrances;
(ii) A withdrawing Contractor shall remain liable and obligated
for its pro-rata share of all obligations incurred prior to
the date of withdrawal, even if the applicable operations are
to be implemented after the date of withdrawal, and for any
acts, occurrences or circumstances taking place or existing
prior to its withdrawal;
(iii) The withdrawal of the Operator or its Associated Entity may
only become effective upon the appointment of a replacement
Operator meeting the requirements of Clause X; and
(iv) The withdrawing Contractor shall remain liable for its
pro-rata share of the cost of abandonment in accordance with
Clause XXI and of any Post-Takeover Date Environmental Claim
and Cleanup Liability in accordance with Clause XXII.
XXI
ABANDONMENT; INACTIVE ▇▇▇▇▇
21.1 During the term of this Agreement, whenever any Contractor Well ceases
to be capable of commercial production or to be useful for exploration
or appraisal in the Area and there is no reasonable likelihood that
such Contractor Well will again be capable of commercial production or
useful for exploration or appraisal, the Contractors shall cause the
Operator to plug such Contractor Well and remove from the relevant
property as promptly as practicable any related facilities, equipment
and other assets that the Contractors have used in providing the
Operating Services, unless the Affiliate otherwise agrees. If the
Operator proposes to plug any Contractor Well and remove any related
facilities, equipment and other assets, the Operator shall prepare and
deliver to the Affiliate, no later than 30 days prior to the proposed
commencement of the relevant operations, a report as to the
abandonment of such Contractor Well, including the costs of such
abandonment. In the event that the Affiliate disputes whether such
Contractor Well is capable of commercial production or useful for
further exploration or appraisal, the Operator shall not plug such
Contractor Well or remove such facilities, equipment and other assets,
pending the resolution of the dispute. The Affiliate shall have the
right to require a review of any such report by an independent expert
appointed pursuant to Clause 23.3, and the determination by the expert
as to whether the standards for abandonment of such Contractor Well are
satisfied shall be final and binding.
Similarly, if the Affiliate believes that a Contractor Well has ceased
to be capable of commercial production or to be useful for exploration
or appraisal in the Area, it may give notice to the Operator to this
effect, and the Operator shall respond within 30 days of such notice
either agreeing to plug and abandon such Contractor Well or stating
the reasons that lead it to believe that there is a reasonable
likelihood that such Contractor Well will again be capable of
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commercial production or useful for exploration or appraisal. If the
Affiliate does not accept such reasons, it shall have the right to
require a review by an independent expert appointed pursuant to Clause
23.3, and the determination by the expert as to whether the standards
for abandonment of such Contractor Well are satisfied shall be final
and binding. If the independent expert upholds the Affiliate's
position, the Contractors shall promptly plug and abandon the
Contractor Well(s) concerned.
At least twenty-four (24) months prior to the end of the Operation
Period with respect to each Field (or, in the case of an early
termination of this Agreement pursuant to Clause XX, as soon as
practicable after the Contractors become aware of such termination),
the Contractors shall cause the Operator to prepare and deliver to the
Affiliate a report listing the Contractor ▇▇▇▇▇ in the Field(s)
concerned that the Contractors are not planning to plug and abandon,
the Contractor ▇▇▇▇▇ that the Contractors are planning to plug and
abandon, and the assets that the Contractors propose to remove, as well
as a plan for the orderly transfer of operations to the Affiliate.
21.2 Plugging of ▇▇▇▇▇ and removal of equipment, facilities and other
assets shall be undertaken by the Contractors in accordance with
applicable Venezuelan laws and regulations and, to the extent
consistent therewith, in accordance with International Oil Industry
Standards.
21.3 In the event that the Operator delivers to the Affiliate a report
indicating that it plans to plug and abandon any well (including an
exploratory or appraisal well outside an existing Field Boundary), the
Affiliate may, within 30 days after receipt of such report (48 hours
if a rig is standing by, unless the Affiliate agrees within such 48
hours to assume the stand-by costs of such rig until either it gives
notice to the Contractors or such 30 days expire), notify the Operator
that the Affiliate will assume responsibility for such well. In such
event:
(i) the Operator shall not plug and abandon such well, and the
Affiliate shall assume responsibility for such well;
(ii) neither the Operator nor any of the Contractors shall have any
liability for any costs, expenses or damages arising out of or
based upon the improper use or plugging and abandoning of such
well, and the Affiliate shall indemnify the Operator and the
Contractors from, and hold each of them harmless against, any
costs, expenses (including without limitation reasonable legal
costs, expenses and attorneys' fees), damages and liabilities
incident to claims, demands or causes of action of every kind
and character brought by or on behalf of any Person, for damage
to or loss of property or the environment, or for injury to,
illness or death of any Person, in each case to the extent such
costs, expenses, damages and liabilities arise from or are
based upon the improper use or plugging and abandoning of such
well by the Affiliate; and
(iii) the Affiliate may plug and abandon such well or retain such
well for possible future use for production or otherwise,
except that the Affiliate may not during the Operation Period
(or during the term of this Agreement with respect to the
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relevant portion of the Area, in the case of a well drilled
outside the Field Boundary of a Field) use such well to drill
to a target zone within the Area;
provided that, in the case of an exploratory or appraisal well as to
which the inclusion of the related Well Expenditures in the
calculation or the Service Fee for a potential new Field is uncertain,
the Affiliate will have the option to assume responsibility for such
well as provided above only if, within 30 days following receipt of
the report indicating the Operator's intention to plug and abandon
such well, it agrees with the Operator on appropriate compensation for
such well in the event that such Well Expenditures are in fact never
included in the calculation or the Service Fee; provided that, if a
rig is standing by, the Affiliate will have only 48 hours to reach
such agreement, unless it undertakes within such 48 hours to assume
the stand-by costs of such rig until either it reaches such agreement
with the Contractors or such 30 days expire).
21.4 The Contractors shall have the following rights and obligations with
respect to any inactive well in the Area that was not abandoned prior
to the Takeover Date:
(a) At any time until the later of (1) the Takeover Date and (2) 6
months following the Effective Date, the Contractors shall have the
right to enter, reactivate and use any such inactive well free of
charge, subject to compliance with the following procedures:
(i) before first entering the well, the Contractors must receive
approval from the Affiliate of a plan for an integrity test to
determine the mechanical condition and environmental and
safety considerations relating to such well and any related
facilities;
(ii) upon approval by the Affiliate of such integrity test, the
Contractors may conduct the integrity test and, if one is
conducted, shall promptly report the results to the Affiliate,
stating (1) whether they choose to exercise the right to
reactivate such well for production or otherwise at that time,
(2) whether they have discovered any conditions presenting a
material risk to health and safety or to the condition of the
environment, and (3) an estimate of the costs of correcting
any such conditions if the Contractors were to undertake
remedial actions;
(iii) if, upon the completion of the integrity test, the Contractors
choose not to exercise the right to use such well, the
Contractors shall have no further rights or obligation with
respect to such well except as provided in Clause 21.4(b)
below; and
(iv) if, upon the completion of the integrity test, the Contractors
choose to exercise the right to use such well, such well shall
thereafter be a Contractor Well, the Contractors shall
thereafter assume all responsibility for such well, and the
Affiliate shall have no liability for any costs, expenses or
damages arising out of or based upon the improper drilling or
use of such well (whether prior to or after the date such well
is taken over by the Contractors).
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Any inactive well as to which the Contractors do not exercise the option
provided by this Clause 21.4(a) within the time period provided above may
thereafter be used by the Contractors only with the approval of the
Affiliate, and subject to such terms as the Affiliate may decide, in its
discretion.
(b)(1) The Contractors shall in any event inspect all inactive ▇▇▇▇▇ in
accordance with (i) the procedures and schedule set forth in the relevant
Development Plan in the case of inactive ▇▇▇▇▇ inside the Field covered by
such Development Plan and (ii) procedures and a schedule requested by the
Affiliate in the case of inactive ▇▇▇▇▇ outside any Field (which schedule
shall provide for inspection no more frequently than every 6 months). The
Contractors shall report to the Affiliate any conditions presenting a
material risk to health and safety or to the condition of the environment,
indicating the likely cause of such conditions and an estimate of the costs
of correcting any such conditions if the Contractors were to undertake
remedial actions. The reasonable costs of inspecting such inactive ▇▇▇▇▇
shall be separately reimbursed by the Affiliate outside the Service Fee.
(2) If such conditions result in whole or in part from the Operator's
actions in the Area (e.g., the repressurization of a reservoir), the
Contractors shall cause the Operator to promptly undertake appropriate
measures including, if necessary, plugging and abandoning the well(s)
concerned. The cost of such measures shall be Chargeable Expenditures (to
the extent they otherwise qualify as such) for the Field that caused such
condition.
(3) If such conditions do not result in whole or in part from the
Operator's actions in the Area, the Affiliate shall promptly notify the
Contractors as to whether the Affiliate wishes to take measures to correct
such conditions, or whether the Contractors should do so. If the Affiliate
states that it wishes to take such measures, it shall promptly do so at its
own cost and expense. If the Affiliate states that the Contractors should
take such measures, the Contractors shall do so, and the Affiliate shall
promptly reimburse the Contractors outside the Service Fee for all
reasonable costs and expenses incurred by the Contractors in the course of
taking such measures.
(4) If there is a disagreement as to either the cause of any such
conditions or the need to take corrective measures, the Affiliate or the
Operator may refer the matter to an independent expert pursuant to Clause
23.3, whose decision as to the cause of such conditions or the need to take
such measures, as the case may be, shall be final and binding.
(c) Except as specifically provided in this Clause 21.4, the Contractors
shall have no liability or obligation with respect to any such inactive
▇▇▇▇▇.
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XXII
ENVIRONMENTAL MATTERS
22.1 The Contractors shall establish, or cause the Operator to establish,
an environmental protection program in connection with all operations
undertaken in connection with the Operating Services with a view to
ensuring that all such operations are conducted in accordance with
Environmental Law. Each Development Plan and plan for an Exploration
Activity shall contain such an environmental program for the
applicable activities, including:
(i) emergency and contingency plans to attend to any crude oil
spills or other Releases;
(ii) a plan for protecting the environment, specifying the steps to
be taken for handling Releases and Hazardous Substances;
(iii) a plan for training all personnel who will be involved in
implementing such environmental program; and
(iv) a program for preventing injuries and/or industrial diseases.
22.2 (a) The Contractors and Operator shall have no liability for any
Pre-Takeover Date Environmental Claim and Cleanup Liability, and the
Affiliate shall indemnify and hold harmless the Contractors and the
Operator against any Pre-Takeover Date Environmental Claim and Cleanup
Liability. In the event that the Contractors or Operator are
threatened with, or believe they may be liable for, any Pre-Takeover
Date Environmental Claim and Cleanup Liability, they shall promptly
notify the Affiliate and follow the Affiliate's instructions with
respect to such Pre-Takeover Date Environmental Claim and Cleanup
Liability. The Affiliate will promptly reimburse the Contractors and
Operator for any Pre-Takeover Date Environmental Claim and Cleanup
Liability that they may suffer or incur.
(b) Neither the Affiliate nor any of its Associated Entities shall
have any liability for any Post-Takeover Date Environmental Claim and
Cleanup Liability, and the Contractors and Operator shall indemnify
and hold harmless the Affiliate and its Associated Entities against
any Post-Takeover Date Environmental Claim and Cleanup Liability. In
the event that the Affiliate or its Associated Entities are threatened
with, or believe they may be liable for, any Post-Takeover Date
Environmental Claim and Cleanup Liability, they shall promptly notify
the Operator and follow the Operator's instructions with respect to
such Post-Takeover Date Environmental Claim and Cleanup Liability. The
Contractors will promptly reimburse the Affiliate or its Associated
Entities for any Post-Takeover Date Environmental Claim and Cleanup
Liability that they may suffer or incur.
(c) The Affiliate makes no representation or warranty, express or
implied, with respect to environmental conditions in the Area or the
compliance of conditions in the Area or operations as currently
conducted with Environmental Law and, except as specifically provided
in this Clause XXII, shall have no liability to the Contractors, the
Operator or any of their respective
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subcontractors, officers, directors, employees or agents with respect
to or arising out of any such environmental conditions or
non-compliance.
22.3 Following the Effective Date, the Contractors shall prepare or cause
to be prepared an environmental audit in conformity with Environmental
Law, in order to assess the environmental conditions existing in the
Initial Field and the rest of the Area. Such audit shall not
constitute conclusive evidence of the environmental problems or
conditions existing as of the Takeover Date and shall not preclude the
Contractors from demonstrating that a subsequent Environmental Claim
and Cleanup Liability constitutes a Pre-Takeover Date Environmental
Claim and Cleanup Liability.
Prior to commencing such audit, the Contractors shall present for the
Affiliate's approval a plan for such audit indicating:
i) the scope and content of such audit; and
ii) any Person or Persons, other than the Operator, that will
conduct the audit on behalf of the Contractors and the method
of selection of such Persons.
Such audit shall be completed, and the results reported to the
Affiliate, no later than six months following the Effective Date.
22.4 At the end of the Operation Period with respect to each Field (and
upon termination of the Agreement with respect to other areas), the
Contractors shall prepare or cause to be prepared an environmental
audit on a basis substantially consistent with the audit prepared
pursuant to Clause 22.3, except to the extent that Environmental Law
or relevant industry practices change. Such audit shall be prepared
during the last twelve months of the Operation Period (or term of the
Agreement) and shall be delivered on or prior to the last day of the
Operation Period (or term of the Agreement), unless the Operation
Period (or Agreement) is terminated early pursuant to Clause XX, in
which case the audit shall be prepared as soon as possible after the
fact of such early termination becomes known by the Contractors, and
shall be delivered to the Affiliate as soon as practicable after
completion. Such audit shall not constitute conclusive evidence of the
environmental problems or conditions existing as of such termination
and shall not preclude the Affiliate from demonstrating that an
Environmental Claim and Cleanup Liability constitutes a Post-Takeover
Date Environmental Claim and Cleanup Liability.
22.5 In the event that the Contractors are at any time required to cease or
curtail Baseline Production as a result of a condition, circumstance
or production practice which exists as of the Takeover Date and which
at such time violates Environmental Law, the Baseline Production for
the Hydrocarbons concerned will immediately and permanently be
reduced by the amount of such curtailment, unless (i) the Affiliate
agrees within 30 days of such cessation or curtailment to pay for any
measures or facilities that are needed so that the original Baseline
Production will be in compliance with the relevant laws and
regulations, and (ii) throughout the period of such curtailment, the
Affiliate calculates and pays the portion or the Service Fee related
to Baseline Production as if the Baseline Production were being
produced in full. In this case, for purposes of Article 5.2.3 of the
Accounting Procedures, the Baseline Production will be deemed to have
been delivered in full. The expenses of implementing such measures or
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constructing such facilities will be paid or reimbursed directly by
the Affiliate and will not be included in the calculation of the
Service Fee. The Contractors' actual knowledge of any such condition,
circumstance or production practice prior to the Takeover Date shall
not operate as a waiver of the Contractors' rights, or otherwise
affect the Affiliate's obligations, under this Clause 22.5.
XXIII
GOVERNING LAW; ARBITRATION; EXPERT OPINION
23.1 This Agreement shall be governed by and construed in accordance with
the laws of the Republic of Venezuela.
23.2 (a) Any dispute arising out of or concerning this Agreement shall
be settled exclusively and finally by arbitration. The
arbitration shall be conducted and finally settled by three
(3) arbitrators in accordance with the Rules of Conciliation
and Arbitration of the International Chamber of Commerce (the
"ICC Rules"), or such other rules as may be agreed by all of
the Parties involved. If the Affiliate is a party to the
relevant dispute, the Affiliate shall select an arbitrator and
the other party or parties thereto shall collectively select
an arbitrator in accordance with the ICC Rules. If the
Affiliate is not a party to the relevant dispute, and there
are only two such parties, each such party shall select an
arbitrator in accordance with the ICC Rules. In either such
case, the arbitrators so nominated shall then agree within
thirty (30) days on a third arbitrator to serve as Chairman.
If the Affiliate is not a party to the relevant dispute, and
there are more than two such parties, then all three
arbitrators, including the Chairman, shall be selected by the
International Court of Arbitration of the International
Chamber of Commerce in accordance with the ICC Rules, as if
all parties had failed to nominate arbitrators. All
arbitration proceedings under this Agreement shall be
conducted in New York City (United States of America). Any
decision or award of the arbitral tribunal (or the arbitrator)
shall be final and binding upon the Parties. Judgment for
execution of any award rendered by the arbitral tribunal (or
the arbitrator) may be entered by any court of competent
jurisdiction without review of the merits of such award. To
the extent permitted by law, any rights to appeal from or to
cause a review of any such award by any court or tribunal are
hereby waived by the Parties.
(b) To the extent that the Affiliate has or hereafter may acquire
any immunity from jurisdiction of any court or from attachment
in aid of execution of any other legal process (other than
pre-judgment attachment) in any action or proceeding conducted
pursuant to this Clause 23.2 (including any proceeding for the
enforcement of an arbitral judgment) with respect to itself or
its assets, the Affiliate hereby irrevocably agrees not to
invoke such immunity as a defense, and irrevocably waives such
immunity.
23.3 (a) Whenever a matter is required to be determined by an expert
pursuant to any provision of this Agreement, the expert shall
be a reputable individual possessing expert knowledge
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and experience for the determination of the matter in question and
shall be independent of the Parties. The expert shall be appointed
by agreement between the parties to the dispute or, in a default
of such agreement, within thirty (30) days after a Party has
requested the appointment of an expert by the International Center
of Expertise of the International Chamber of Commerce at Paris.
Such expert shall determine the matter in question within sixty
(60) days after his appointment on the basis of terms of reference
agreed between the parties to the dispute or otherwise as the
expert may himself determine as an expert and not as arbitrator,
and such determination shall be final and binding on the Parties
hereto, except as otherwise provided herein. All costs of such
expert shall be borne 50% by the Affiliate and 50% by the
Contractors.
(b) Any time period during which a matter is undergoing expert review
(beginning with the giving of notice regarding such review) shall
not count against the time period for approval by the Affiliate of
the issue in respect of which such matter was submitted for expert
review.
(c) In the event that the Affiliate rejects for the third time any
proposed Development Plan, Annual Work Program and Budget,
Exploration Activity or amendment to a Development Plan (as such
proposed Development Plan, Annual Work Program and Budget,
Exploration Activity or amendment may have been modified or
amended by the Contractors following the determination of an
expert pursuant to this Clause), the Contractors thereafter shall
not be entitled to submit to expert determination any matter in
respect of such Affiliate's third rejection, and the Affiliate's
rejection shall be final and binding.
23.4 The approval or disapproval of any matter by the Affiliate shall not
supersede any applicable Venezuelan law or regulation or exempt any
Party from being subject to any such law or regulation, nor shall it
otherwise serve to modify the Party's remaining obligations under this
Agreement.
23.5 Without limiting the generality of Clause 23.1, the Parties hereby
acknowledge the applicability of Article 1160 of the Venezuelan Civil
Code to this Agreement, and that accordingly all obligations hereunder
shall be performed in good faith, and in accordance with equity, custom
and law. The Parties also acknowledge the applicability of any
international treaties relating to the mutual protection of foreign
investment to which both Venezuela and any country of which a
Contractor, an Operator or a guarantor thereof is a national may now be
or hereafter become parties.
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XXIV
TECHNOLOGY; OWNERSHIP OF INFORMATION AND DATA; ACCESS TO FACILITIES
24.1 To the fullest extent permitted by applicable law or agreements, the
Contractors agree to make available on reasonable terms their most
appropriate technical expertise and technology for use in the
provision of the Operating Services, including such technology as can
best improve the economic yield or performance of the Hydrocarbon
reservoirs developed and operated by the Contractors and the Operator
under this Agreement.
24.2 The Contractors shall also endeavor to ensure that such Venezuelan
personnel as are employed or assigned to managerial or technical
positions within the Contractors or the Operator receive training in
the use of such advanced technology as the Contractors or the Operator
employ in the provision of the Operating Services. Such training may
also be made available to employees of the Affiliate or any of its
Associated Entities, subject to such agreed terms and conditions as
may best serve the mutual interests of the Parties.
24.3 Any technology specifically developed by the Contractors or the
Operator in the course of their activities under this Agreement shall
be owned by both the Contractors and the Affiliate, and may be used by
any of them or their Associated Entities in their own operations
without the consent of the other and without making any payment to the
other. All geological, geophysical and other data, as well as all
other information developed in the course of the activities
contemplated by this Agreement (other than technology specifically
developed by the Contractors) will be owned by the Affiliate, but may
be used free of charge by the Contractors or the Operator in connection
with the Operating Services during the term of this Agreement.
24.4 The Affiliate shall have prompt and full access to all data, records
and information used or produced by or for the Contractors or the
Operator in connection with the Operating Services, regardless of
whether such data, records and information would otherwise be
considered proprietary or confidential, and shall have the right to
inspect or cause to be inspected any and all facilities used in the
Operating Services during regular business hours in a manner that will
not materially interfere with the provision of the Operating Services.
The Affiliate shall not be entitled to use, or to permit its
representatives or any other Person to use, any proprietary
information of any Contractor, the Operator or any of their respective
Associated Entities that is inspected pursuant to this Clause 24.4,
without the prior written consent of such Contractor, the Operator or
such Associated Entity.
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XXV
CONFIDENTIALITY
25.1 All data, records and information referred to in Clause 24.3 and 24.4,
and any other information exchanged between any Parties or between the
Operator and any Party in connection with this Agreement,
("Confidential Information") shall be treated as confidential by the
party receiving such information (the "Receiving Party"), and shall
not be disclosed by it to any third party unless the party that
provided such information, data or materials (the "Disclosing Party")
has given its prior consent to such disclosure.
25.2 Each Receiving Party may disclose such Confidential Information to any
of its officers, directors, employees, Associated Entities, agents,
subcontractors and advisors who (i) has a need to know the same in
connection with carrying out the Operating Services and (ii) has been
advised of, and agrees to comply with, the restrictions upon such
Confidential Information set forth in this Agreement as if it were a
Receiving Party.
25.3 Notwithstanding the foregoing, the Receiving Party may disclose
Confidential Information to a third party without the Disclosing
Party's prior written consent to the extent such information:
(i) is already known to the Receiving Party as of the date of
disclosure other than as a result of a breach of this Clause
XXV;
(ii) is already in possession of the public or becomes available to
the public other than through the act or omission of the
Receiving Party;
(iii) is developed independently by the Receiving Party without the
use of any Confidential Information;
(iv) is acquired independently from a third party, which is under
no legal obligation known to the Receiving Party prohibiting
such disclosure; or
(v) is required to be disclosed pursuant to any applicable law,
decree, regulation, rule or order of any competent authority.
In the event that any Receiving Party is required by applicable law,
decree, regulation, rule or order of any competent authority to
disclose any Confidential Information supplied to it by any Disclosing
Party, the Receiving Party shall promptly notify in writing the
Disclosing Party, so that the Disclosing Party may seek an appropriate
protective order and/or waive the Receiving Party's compliance with
the confidentiality requirement. In the event that such protective
order or other remedy is not obtained, then the Receiving Party shall
furnish only that portion of such Confidential Information that is
legally required to be disclosed.
25.4 Notwithstanding the foregoing, any Contractor may disclose
Confidential Information to any Person with whom such Contractor
enters into bona fide negotiations for the Transfer of an
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interest hereunder, or for the financing or insuring of any activities
hereunder, or to their respective advisors, so long as (i) the
Confidential Information is limited to such information as the
potential transferee, financier, insurer or any such advisor, requires
for purposes of evaluating the proposed transaction, and (ii) the
potential transferee, financier, insurer or advisor, agrees in writing
to abide by confidentiality restrictions identical to those set forth
in this Clause XXV.
25.5 All press releases, advertisements and other announcements or
publications by the Operator, any Contractor or any of their
Associated Entities involving information relating to this Agreement
or the Operating Services must be approved by the Affiliate prior to
distribution or dissemination, except to the extent such announcements
relate to emergency situations and are reasonably necessary for the
protection of the environment or health or safety.
XXVI
FORCE MAJEURE
26.1 Failure of a Party to fulfill any obligation incurred under this
Agreement shall be excused and shall not be considered a default
hereunder during the time and to the extent that such noncompliance is
caused by an Event of Force Majeure, except that if the Event of Force
Majeure is an act of the Venezuelan State that is not of general
applicability, such Event of Force Majeure shall not preclude an
action for damages against the Affiliate for the non-performance of
the relevant obligation.
26.2 For the purposes of this Agreement, an "Event of Force Majeure" shall
mean any event or circumstance, other than lack of finances, beyond
the reasonable control of and unforeseeable by the Party obligated to
perform the relevant obligation, or which, if foreseeable, could not
be avoided in whole or in part by the exercise of due diligence,
including but not limited to strikes, boycotts, stoppages, lockouts
and other labor or employment difficulties, fires, earthquakes,
tremor, landslides, avalanches, floods, hurricanes, tornadoes, storms,
other natural phenomena or calamities, explosions, epidemics, wars
(declared or undeclared), hostilities, guerrilla activities, terrorist
acts, riots, insurrections, civil disturbance, acts of sabotage,
blockades, embargoes, or acts of state or any governmental body.
26.3 If any Party cannot comply with any obligation stipulated herein
because of an Event of Force Majeure, such Party shall notify the
other Parties in writing as promptly as possible giving the reason for
non-compliance, particulars of the Event of Force Majeure and the
obligation or condition affected. Except as provided in Clause 26.1,
any obligation of a Party shall be temporarily suspended during the
period in which such Party is unable to perform by reason of an Event
of Force Majeure, but only to the extent of such inability to perform.
The obligations of the Parties to perform as provided by this
Agreement through facilities not affected by the Event of Force
Majeure shall continue. The Party affected by the Event of Force
Majeure shall promptly notify the other Parties as soon as such event
has been removed and no longer
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prevents it from complying with its obligation, and shall thereafter
resume compliance with the Agreement.
26.4 The Party which has given notice of an Event of Force Majeure shall
endeavor to mitigate the effects of such Event of Force Majeure on the
performance of its obligations. Where an Event of Force Majeure
continues for more than sixty (60) days, the Parties shall meet to
review the situation and its implications for operations and to
discuss the appropriate course of action in the circumstances.
26.5 If an Event of Force Majeure occurs that substantially impedes
development or exploitation activities, the relevant Operation Period
will be extended by an amount of time equal to the period during which
such event is in effect. In each case, such extension will be only
with respect to any affected Field. If the Operation Period is
extended pursuant to this Clause 26.5, the Affiliate shall not be
entitled to draw on any letter of credit or guarantee delivered by a
Contractor pursuant to Clause 4.4 until the end of the period set
forth in Clause 4.3, plus a time period equal to the duration of any
extension, but only if such Contractor provides a replacement of or
amendment to such letter of credit or guarantee, in form and substance
satisfactory to the Affiliate, ensuring that the Affiliate's rights at
the end of such period will be the same as the rights it would have
enjoyed at the end of the original period had no such extension
occurred.
XXVII
ASSIGNMENT; CHANGE IN CONTROL
27.1 No Contractor may effect a Transfer without the prior consent of the
Affiliate. Such consent may be granted or withheld at the Affiliate's
discretion (i) before the Minimum Work Obligation is satisfied in
full, and (ii) if the proposed Transfer would result in a Person
holding a Participation of less than 9% in any Field. In addition, no
Transfer can be made that would result in non-compliance with Clause
10.3. At least 30 days prior to any proposed Transfer, the Contractor
shall provide notice to the Affiliate of the Transfer, including the
name of the proposed transferee and the Participations in each Field
to be transferred. Notwithstanding the foregoing, (i) any Contractor
whose obligations are guaranteed pursuant to Clause 3.2 may effect a
Transfer to any Associated Entity of the guarantor, upon confirmation
by the guarantor in form and substance satisfactory to the Affiliate
that the applicable guarantee remains in effect as to the obligations
of the transferee, and (ii) any other Contractor may effect a Transfer
to any Associated Entity of such Contractor, upon execution by the
Contractor of a guarantee substantially in the form of Annex D hereto
with respect to the obligations of such Associated Entity.
27.2 For purposes of Clause 27.1, if any Contractor's obligations are
guaranteed pursuant to Clause 3.2, any proposed transaction that, if
consummated, would result in the guarantor ceasing to be an
Associated Entity of such Contractor shall be considered a Transfer,
subject to the Affiliate's right of consent pursuant to Clause 27.1
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27.3 The Affiliate may not effect a Transfer without the prior consent of
the Contractors. Notwithstanding the foregoing, no consent shall be
required for the Transfer by the Affiliate in whole or in part of its
rights or obligations hereunder to PDVSA or any Associated Entity of
PDVSA.
27.4 Upon the consummation of any Transfer by a Contractor, the transferee
shall be considered for all purposes a Contractor, with the
Participation in each Field specified in the notice delivered to the
Affiliate pursuant to Clause 27.1. Upon the consummation of any
Transfer by the Affiliate, the transferee shall be considered the
"Affiliate" for all purposes hereunder.
27.5 Any purported Transfer by a Contractor or by the Affiliate that does
not comply with this Clause XXVII shall be null and void and shall
vest no rights in the purported transferee.
27.6 Nothing in this Clause XXVII shall prohibit the Operator from
subcontracting all or any portion of the activities involved in the
Operating Services in compliance with the terms of this Agreement. The
Operator shall be fully responsible for the performance of its
obligations hereunder, notwithstanding any such subcontracting
arrangement (although the Operator may agree with any subcontractor on
indemnity arrangements satisfactory to the Operator and such
subcontractor).
XXVIII
NOTICES
28.1 All notices, demands, instructions, waivers, consents or other
communications to be provided pursuant to this Agreement shall be in
writing in Spanish, shall be effective upon receipt, and shall be sent
by personal delivery, courier, facsimile or telex, to the following
addresses:
(i) If to the Contractors, to:
UNION TEXAS VENEZUELA LIMITED
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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PREUSSAG ENERGIE GmbH
▇▇▇▇▇▇▇▇▇▇▇ ▇▇
D49809 Lingen
Germany
Attn: Heinz-▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, General Counsel
Telephone: ▇▇-▇▇▇-▇▇▇-▇▇▇
Facsimile: 49-591-6127-000
(ii) If to the Affiliate, to:
LAGOVEN, S.A.
Edificio Lagoven
▇▇. ▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇-▇, Venezuela
Production Department, Piso 8
Attn: ▇▇▇▇▇▇ Glaenztlin
Telephone: ▇▇-▇-▇▇▇-▇▇▇▇ / ▇▇-▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇-▇-▇▇▇-▇▇▇▇ / ▇▇-▇-▇▇▇-▇▇▇▇
The addresses and telex and facsimile numbers for notices given
pursuant to this Agreement may be changed by means of a notice given
to all Parties at least fifteen (15) Business Days prior to the
effective date of such change.
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XXIX
MISCELLANEOUS
29.1 To be binding, any amendment of this Agreement must be effected by an
instrument in writing signed by all of the Parties. No further
formalities by the Parties shall be required to amend this Agreement.
29.2 Rights hereunder may not be waived, except pursuant to a writing
signed by the Party against which enforcement of the waiver is sought.
29.3 Notwithstanding anything to the contrary contained in this Agreement,
in no event shall any Party be liable to any other Party for any
consequential damages or lost profits that such other Party may
suffer. The Parties acknowledge that this Clause is intended only to
limit their liability to each other for consequential loss or damage,
and shall not be construed so as to limit their liability to third
parties or their right to seek indemnification for third party claims
in accordance with any other Clause.
29.4 Nothing contained herein is intended to create, or shall be deemed or
construed as creating, any legal entity between the Parties. No Party
shall have the authority or right, or hold itself out as having the
authority or right, to assume, create or undertake any obligation of
any kind whatsoever, express or implied, on behalf of or in the name
of any other Party, except as expressly provided herein. Except to the
extent that the Contractors are to acquire goods and services from
third parties for the account of the Affiliate on a non-recourse basis
as provided herein, no provision in this Agreement shall constitute
the Contractors or the Operator, or any of their employees,
subcontractors, agents or representatives, an employee, contractor,
agent or representative of the Affiliate. The Contractors and the
Operator shall be independent contractors and shall be responsible for
and have control over the performance of the Operating Services
hereunder, subject to the standards set forth in this Agreement. Any
provision herein giving the Affiliate the right to direct the
Contractors or the Operator as to any details of the performance of
the Operating Services shall not be construed to limit or release the
obligations of the Contractors or the Operator hereunder.
29.5 The obligations of the Contractors and the Operator hereunder shall be
several and not joint, except that the Operator shall be jointly and
severally liable for the obligations of the Contractors as provided in
Clause 10.1.
29.6 This Agreement my be executed in one or more counterparts, each of
which shall be considered an original.
29.7 This Agreement is being executed in the Spanish language, and an
English language version is being acknowledged as an official
translation. The Spanish version shall constitute the only binding
version, and the English translation is being acknowledged as a matter
of reference only.
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SIGNATURES
In Caracas, Venezuela, on the 29 day of the month of July, 1997.
ACKNOWLEDGED AS OFFICIAL TRANSLATION
LAGOVEN S.A
By:
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ [SEAL]
Title: President
UNION TEXAS VENEZUELA LIMITED
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
---------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title: President
PREUSSAG ENERGIE GmbH
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Attorney in Fact
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ANNEX A
DESCRIPTION OF AREA
BOQUERON AREA
1. LOCATION
The Area is comprised of sixty square kilometers (60 km(2)) and is located
four kilometers (4 km) northeast of the city of Maturin, in the Boqueron
field.
2. MAP
[See attached map.]
3. STRATIGRAPHIC REFERENCE COLUMN
The following stratigraphic column shall be the official reference for
Annexes A and B.
AGE FORMATION MEMBER
--- --------- ------
MIOCENE CARAPITA
OLIGOCENE NARICUAL NARICUAL SUPERIOR
NARICUAL MEDIO
NARICUAL INFERIOR
AREO
CRETACEOUS LOS JABILLOS
4. AREA BOUNDARY
Horizontally the Area boundary is represented by a polygon of four (4)
vertices, the geographic coordinates of which are indicated in the map
included herein.
Vertically the Area comprises the entire stratigraphic column, without
limit of depth.
A-1
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ANNEX B
DESCRIPTION OF INITIAL FIELD
BOQUERON AREA
1. MAP
[See attached map.]
2. FIELD BOUNDARY Of THE INITIAL FIELD
Aerially the Field Boundary of the Initial Field is comprised of a
polygon of eight (8) vertices, the geographic coordinates of which are
indicated in the map included herein.
Vertically the Field Boundary of the Initial Field is comprised of the
base of the Carapita Formation of the Miocene Age and the top of the Areo
Formation of the Oligocene Age.
B-1
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ANNEX C
[Translation]
ACCOUNTING PROCEDURES
76
ACCOUNTING PROCEDURES
I. GENERAL CONDITIONS
1.1 Purposes
The purposes of these Accounting Procedures are to establish the
accounting procedures that will allow the maintenance of all the
necessary records to reflect in a consistent manner the costs of
exploiting Hydrocarbons in the Area, to facilitate the payment of
Service Fees and to permit the Parties to comply with their other
obligations and responsibilities under the Agreement.
1.2 Definitions(1)
Capitalized terms defined in the Agreement (as defined below), when
used in these Accounting Procedures, have the respective meanings
assigned to such terms in the Agreement. The following definitions are
in addition to and supplement those set forth in the Agreement.
"Agreement" means the Operating Agreement of which these
Accounting Procedures form a part.
"Bolivar Exchange Rate" means, as of any date of determination
in any calendar month, the average of the daily closing
exchange rates for each day in such calendar month on which
the relevant rate is fixed, for the purchase of Bolivars with
Dollars, determined for each such day in accordance with
Venezuelan laws and regulations for use in a transaction of
the type being recorded or booked. If at any time there is
more than one legal rate for purchase of Bolivars with Dollars
with respect to the relevant type of transaction, the rate to
be used shall be the rate that most nearly reflects the free
market rate for such conversion. In the event that there is a
dispute as to which rate satisfies such requirement, pending
the resolution of the dispute, the Bolivar Exchange Rate for
any such day shall be equal to the rate at which the Operator
actually purchased Bolivars with Dollars, in its most recent
bona fide arms' length transaction of at least $10,000, from
Persons other than the Operator, a Contractor or an Associated
Entity of the Operator or a Contractor.
"Calendar Year" means the period of time from and including
January 1 in any year through and including December 31 in the
same year.
---------------------------
(1) Definitions in this English translation are presented in alphabetical order
in English for ease of reference. Accordingly, the order of these
definitions does not match the order in the definitive Spanish version.
77
"Capital Expenditures" means those Chargeable Expenditures or
proposed Chargeable Expenditures that are or would be
classified as capital expenses (including capitalized lease
expenses) in accordance with PDVSA Accounting Principles.
"Cash Method" means that method of accounting in which all
revenue and expenditure items are recorded as of the date on
which cash or other consideration is actually paid or received
by the relevant party.
"Chargeable Expenditures" means expenditures that are eligible
for inclusion in the calculation of the Service Fee in
accordance with Article IV of these Accounting Procedures.
Chargeable Expenditures will not include any Financing
Charges.
"CPI" means the Consumer Price Index for All Urban Consumers
(CPI-U), United States City Average (base period 1982-1984 =
100), as published by the United States Bureau of Labor
Statistics. In the event that such index is no longer
published or is no longer representative of the changes in
consumer prices in the United States, the Parties shall select
an alternative index that most accurately reflects changes in
consumer prices in the United States. In the absence of
agreement, either Party may require that the determination be
made by an independent expert appointed pursuant to Clause
23.3 of the Agreement.
"Expenditure Reductions" means any reduction in, or refund or
reimbursement of, any Chargeable Expenditures that are
received by the Operator or any Contractor after such
Chargeable Expenditures have been included in the calculation
of the Service Fee, including, without limitation, (i) any
refunds, discounts (other than discounts deducted from the
original purchase price), rebates; damages or other amounts
received following the purchase or leasing of goods or
services, (ii) any amounts received as damages from, or in
settlement of, a legal proceeding (including an arbitration
proceeding), and (iii) any insurance proceeds in respect of
loss or damage.
"Exploration Expenditures" means all Chargeable Expenditures
made or proposed to be made in connection with an approved
Exploration Activity, Exploration Expenditures will not be
included in the calculation of the Service Fee for any Field,
except as provided in Clause 17.3 of the Agreement and Article
5.4 of these Accounting Procedures.
"Financing Charges" means all interest, fees and other
financing expenses for indebtedness (including all obligations
for borrowed money, all obligations evidenced by bonds, notes,
debentures or similar instruments, all letters of credit or
banker's acceptances, all delinquent tax liabilities, and all
obligations for the deferred purchase price of goods or
services, including any lease accounted for as a capitalized
lease, in all cases determined on the basis of international
accounting standards), If (i) the documentation for any such
indebtedness does not clearly
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state an interest and financing component or the Affiliate
does not believe that the interest and financing component
stated in such documentation reflects a bona fide, arms'
length and reasonable interest and financing component and
(ii) the Affiliate and the Contractors are unable to agree on
an appropriate interest and financing component, the Affiliate
may at any time prior to the end of the period that may be
covered by an additional audit under Article 3.2 of these
Accounting Procedures, request that the question of an
appropriate interest and financing component be decided by an
independent expert in accordance with Clause 23.3. of the
Agreement. The decision of the independent expert will be
final and binding.
"Net Hydrocarbon Value" means, with respect to any Field, for
any Quarter, the value of the Incremental Production from such
field that is delivered in such Quarter at the applicable
Delivery Point(s) (after taking into account any reduction
pursuant to Article 5.2.3 of these Accounting Procedures),
based on the Price Formula, net of (i) Royalties in respect of
such Incremental Production (and in respect of any Production
of Liquid Hydrocarbons that is not delivered at a Delivery
Point and is used, disposed of or lost in a manner that
subjects such Production to exploitation tax (royalty) under
Venezuelan laws and regulations), and (ii) the percentage
specified in Schedule A to these Accounting Procedures of the
gross value of such Incremental Production based on the Price
Formula, in respect of the administrative costs incurred by
the Affiliate.
"Operating Expenditures" means those Chargeable Expenditures
or proposed Chargeable Expenditures that are or would be
classified as current expenses in accordance with PDVSA
Accounting Principles.
"PDVSA Accounting Principles" means the body of generally
accepted accounting principles used by PDVSA in the
preparation of its audited financial statements in Venezuela,
applied on a consistent basis, as such principles may be
amended from time to time. Promptly following the Effective
Date, the Affiliate shall provide the Contractors with
information regarding the PDVSA Accounting Principles
currently in effect and will thereafter consult with the
Contractors as requested regarding the proper classification
of Chargeable Expenditures for purposes of the Development
Plan and the first Annual Work Program and Budget for the
Initial Field. Any amendments to the PDVSA Accounting
Principles will be notified to the Contractors in a timely
manner. If a subsequent amendment of PDVSA Accounting
Principles would affect the classification of Chargeable
Expenditures as Operating Expenditures or Capital Expenditures
as reflected in the Development Plan, such classification
shall be revised (without need for amendment pursuant to
Clause IX of the Agreement) so that the classification of
Chargeable Expenditures therein remains consistent with the
classification of Chargeable Expenditures in the current and
future Annual Work Programs and Budgets.
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"Quarter" means a period extending from January 1 to March 31,
April 1 to June 30, July 1 to September 30 or October 1 to
December 31 in any Calendar Year.
"Uniform Reporting System" shall have the meaning set forth in
Article 2.1.
"Well Expenditures" means all Chargeable Expenditures directly
associated with the drilling, deepening, completion,
recompletion, plugging back, reworking, sidetracking, testing,
suspension or abandonment of a well, including, without
limitation, site preparation, drilling charges, rental or
acquisition of drilling equipment, materials used in the
course of such activities and activities directly relating
thereto, logging costs, testing costs, plugging costs and
personnel costs in respect of the foregoing activities.
1.3 Currency
1.3.1 Dollar Books
All transactions relating to activities conducted in relation to
the Agreement shall be recorded in Dollars in the books of account
and other records maintained by the Operator.
1.3.2 Transactions in Dollars
The Service Fee paid by the Affiliate, Chargeable Expenditures
made by the Operator in Dollars and Expenditure Reductions
received by the Operator in Dollars shall be recorded at their
actual amounts as of the date of the relevant transaction (as
determined pursuant to Article 1.4.3).
1.3.3 Transactions in Currencies Other Than Dollars
Chargeable Expenditures made by the Operator in Bolivars and
Expenditure Reductions received by the Operator in Bolivars shall
be translated into Dollars on the basis of the Bolivar Exchange
Rate as of the date of the relevant transaction. The Dollar amount
resulting from such determination shall be recorded in the books
of the Operator as if the transaction had been originally effected
in Dollars.
Chargeable Expenditures incurred by the Operator in a currency
other than Bolivars or Dollars shall be translated into Dollars
and recorded in the books of the Operator as if such Chargeable
Expenditures had been originally effected in Dollars, on the basis
of either:
(i) if Dollars were actually used by the Operator to purchase
such other currency specifically for the relevant
transaction from a Person other than the Operator, a
Contractor or an Associated Entity of the Operator or a
Contractor, the rate at which such purchase was effected
(or, if there was
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more than one such purchase, the average purchase rate,
weighted by the respective Dollar amounts of such
purchases); or
(ii) in all other cases, the rate at which the Operator
actually purchased such other currency with Dollars in its
most recent bona fide arms' length transaction of at least
$10,000 from Persons other than the Operator, a Contractor
or an Associated Entity of the Operator or a Contractor,
or if no such purchase has been made within 30 days prior
to the relevant transaction, the rate published in the
"Cross Currency Rate" table (or any successor table) in
the London edition of the Financial Times most recently
prior to the date of the transaction.
1.4 Accounting Records
1.4.1 The Operator shall open and maintain such separately
identifiable accounting records as may be necessary to record
in a full and proper manner the Service Fee paid by the
Affiliate, all Chargeable Expenditures incurred by the
Operator, all Expenditure Reductions, and all other amounts
necessary to permit compliance with these Accounting Procedures
and the Agreement. For purposes of these Accounting Procedures,
Expenditure Reductions received by a Party other than the
Operator shall be considered to be received by the Operator on
the date of receipt by such Party (and shall be remitted to the
Affiliate by such Party immediately upon receipt).
1.4.2 All accounts WILL show clearly any luxury and wholesale taxes
(or similar Venezuelan sales or value added taxes) paid or
collected by the Operator for the account of the Affiliate that
are reimbursable to the Contractors pursuant to Article 1.6 of
these Accounting Procedures.
1.4.3 All Service Fees, Chargeable Expenditures and Expenditure
Reductions shall be recorded in the Operator's accounting books
and records in accordance with the Cash Method. The Operator's
books and records shall be maintained in accordance with the
Cash Method for all purposes hereunder, except that any
Chargeable Expenditures that are prepaid so that they are
incurred in cash in a Quarter prior to that in which they are
due shall be deemed to have been incurred in the Quarter in
which they are due.
1.4.4 The Operator shall maintain its books and records separately
for each Field and for all Exploration Expenditures, and
otherwise in order to permit the Operator to make all
calculations arid to prepare all reports required to be made or
prepared hereunder.
1.5 Inflation
1.5.1 Except for purposes of the determination of "Deflated Pre-Tax
Cash Flow" and "Inflated Pre-Tax Cash Flow" in Article 5.2, and
except as provided in Article 1.5.2, amounts recorded in the
books and records of the Operator shall not be
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adjusted for inflation and shall remain in the Operator's books
and records on the basis of historical amounts.
1.5.2 For purposes of determining whether the cost thresholds set
forth in Sections 7.3, 7.6(ii) and 9.1 of the Agreement are
exceeded, Chargeable Expenditures incurred, and projections
made as to Chargeable Expenditures, in a Quarter other than the
Quarter in which the relevant determination is being made shall
be adjusted for inflation on the basis of the respective values
of the CPI most recently published as of the first day of the
respective Quarters for which the determination is being made,
so as to make such determinations on the basis of constant
Dollars.
1.5.3 In order to improve the comparability of financial information,
the Contractors shall, to the extent reasonably practical,
present Development Plans and Annual Work Programs and Budgets
in constant Dollars.
1.6 Advances to Affiliate; Venezuelan Luxury and Wholesale Taxes
1.6.1 All assets and services that are purchased or leased by the
Contractors from third parties in connection with the Operating
Services (including any assets or services purchased or leased
from an Associated Entity of any Contractor acting as a
supplier) shall be deemed to have been acquired for the account
of the Affiliate and funded through non-recourse advances from
the Contractors to the Affiliate, as described more fully in
Article VI.
1.6.2 Accordingly, all Venezuelan luxury and wholesale taxes (or
similar Venezuelan value added or sales taxes) that are due in
connection with the purchase, sale, leasing or other
acquisition of any such assets or services relating to the
provision of Operating Services shall be deemed to have been
incurred and paid for the account of the Affiliate, and shall
be reimbursed to the Contractors by the Affiliate in Bolivars
monthly, against presentation of written requests for
reimbursement in the form specified in the Uniform Reporting
System. Such reimbursement shall be made within 30 days
following the receipt of the request for reimbursement.
1.6.3 No Venezuelan taxes that are subject to reimbursement pursuant
to Article 1.6.2 may be included in the Chargeable Expenditures
submitted to the Affiliate for inclusion in the calculation of
the Service Fee, and all Chargeable Expenditures must be
charged net of such taxes.
II. REPORTS
2.1 Uniform Reporting System
The "Uniform Reporting System" shall consist of tile various reports,
plans, notices, budgets, AFEs, statements, invoices and other documents
that will be used for the collection and presentation of technical,
financial and other information whose communication or exchange is
contemplated by the Agreement, these Accounting Procedures or
applicable Venezuelan Laws and Decisions. The Affiliate shall establish
the
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the Uniform Reporting System no later than 30 days following the
Effective Date, after consultation with the Contractors (and the
Operator, if it has executed the Agreement), taking into account that
an important objective of the Uniform Reporting System is uniformity of
reporting under the Agreement and the other operating services
agreements entered into in connection with the bidding round pursuant
to which this Agreement has been executed. The frequency and detail of
reporting under the Uniform Reporting System shall be consistent with
the Affiliate's normal business practices (which may change over time),
the requirements of applicable Venezuelan Laws and Decisions and the
provisions of the Agreement. The Uniform Reporting System may be
modified from time to time by the Affiliate, following review and
comment by the Contractors and the Operator, The Contractors and
Operator will be required to comply in all material respects with the
Uniform Reporting System.
2.2 Monthly Reports
Subject to the requirements of the Uniform Reporting System, the
Operator shall provide monthly reports to the Affiliate no later than
the 10th day of the immediately following month (or, in the case of
the last month of any Quarter, the earlier of the 5th day of the
immediately following month or the day on which the relevant invoice is
delivered to the Affiliate), The monthly report shall include all
relevant information separately for each Field and for Exploration
Expenditures, as well as aggregate information for all Fields.
2.2.1 Chargeable Expenditures. Each monthly report shall specify the
aggregate amount of Chargeable Expenditures incurred by the
Operator in the relevant month, separately indicating the
budget items and AFEs (or groupings of budget items and AFEs)
to which the Expenditures relate and the amount of luxury and
wholesale taxes (or other similar Venezuelan sales or value
added taxes) paid by the Operator and reimbursable to the
Contractors pursuant Article 1.6 of these Accounting
Procedures.
2.2.2 Production. Each monthly report shall specify the volume of
Production delivered to the Affiliate at each Delivery Point
in the relevant month pursuant to Clause 15.4 of the
Agreement.
2.2.3 Expenditure Reduction. Each monthly report shall specify the
aggregate amount of any Expenditure Reductions in the relevant
month, separately indicating the types of such Expenditure
Reductions.
2.2.4 Service Fee. The monthly report for any month other than the
last month of any Quarter shall include an estimate of the
Service Fee that the Operator expects will be payable in
respect of the Quarter during which such month occurs, based on
actual activities conducted through the end of such month and
the Operator's expectations as to activities to be conducted
during the remainder of such Quarter, The monthly report for
the last month for any Quarter shall include a copy of the
invoice showing the Service Fee payable for such Quarter (or,
if such invoice has
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not yet been finalized, shall include a statement as to the
amount of the Service Fee expected to be payable for such
Quarter).
2.2.5 Other Information. The monthly report shall include such other
information as is specified in these Accounting Procedures or
the Uniform Reporting System or as may be reasonably requested
by the Affiliate.
2.3 Annual Reports
Subject to the requirements of the Uniform Reporting System, the
Operator shall provide an annual report to the Affiliate, setting forth
the information required to be contained in the relevant monthly
reports on an aggregate basis for the relevant year. An annual report
relating to activities conducted by the Operator in any Calendar Year
shall be provided to the Affiliate no later than February 15 of the
immediately following Calendar Year. If the audit of such annual report
is not yet complete by such date, a preliminary, unaudited annual
report may be provided, provided that the audited annual report must
be provided no later than March 31.
III. AUDITS
3.1 Annual Audit
In accordance with Clause 18.3 of the Agreement, an annual audit will
be performed by a firm of independent auditors designated by the
Contractors and approved by the Affiliate. A report of such external
auditors shall accompany each audited annual report provided by the
Operator pursuant to Article 2.3 of these Accounting Procedures, and
shall confirm the calculation of the amounts specified therein, or
shall note any exceptions of such external auditors with respect to the
amounts specified therein.
3.2 Additional Audit
The Affiliate may require that one additional audit be performed in any
year. Such additional audit shall be performed by a firm of independent
auditors of recognized international standing with expertise in
Venezuelan accounting principles appointed by the Affiliate or by duly
qualified auditors that are employees of the Affiliate or an Associated
Entity of the Affiliate. Such additional audit may cover any or all
annual reports, monthly reports or invoices prepared in the then
current Calendar Year and the two preceding Calendar Years. Any annual
report, monthly report or invoice not eligible for coverage in such an
additional audit in accordance with the preceding sentence shall be
deemed final and binding, except to the extent of any exceptions
previously noted in an annual audit or additional audit or any items
previously protested by a Party, which in either case have not yet been
resolved. The Affiliate shall give at least 30 days' notice to the
Operator of its intention to conduct such an additional audit.
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3.3 Resolution Of Exceptions
In the event that an audit performed pursuant to Article 3.1 or 3.2
indicates any exceptions, or in the event that the Affiliate protests
any item contained in an annual report, monthly report or invoice that
is the subject of an audit conducted pursuant to Article 3.1 or 3.2,
the Affiliate and the Operator shall attempt to reconcile the exception
or the protested item. In the event that they are not able to achieve
such a reconciliation within 180 days of the date of the audit report
or the date of the protest, as the case may be, the matter shall be
resolved by arbitration in accordance with Clause XXIII of the
Agreement. The resolution of any such item shall include a mechanism
for adjusting the resolved item (either by adjustment to a subsequent
invoice or by payment from one party to the other party). Pending the
resolution of any such item, the original position shall be maintained
without adjustment.
3.4 Audit Expenses
Expenses of any audit or confirmation provided pursuant to Article 3.1
shall be paid by the Operator and shall be Chargeable Expenditures.
Expenses of any audit conducted pursuant to Article 3.2 shall be paid
by the Affiliate, except that they shall be payable by the Operator
(and shall not be included as Chargeable Expenditures) if, as part of
the resolution of any exception or protest based on such audit, the
aggregate amount of the Service Fee payable by the Affiliate is reduced
by at least $250,000 below the aggregate amount set forth in the annual
reports, monthly reports and/or invoices being examined.
3.5 Conduct Of Audits
Audits shall be conducted in a manner so as to minimize disruptions to
the Operator's activities. The Operator shall cooperate with the
auditors, including providing access to all relevant facilities during
regular business hours and appropriate assistance to the auditors.
3.6 Cost Plus Contracts
The Operator shall endeavor to obtain audit rights for all contracts of
a "cost-plus" nature entered into in connection with the Operating
Services.
IV. CHARGEABLE EXPENDITURES
Subject to the limitations set forth in these Accounting Procedures and
the Agreement, the Operator may include in the calculation of the
Service Fee the items of expenditure listed in this Article IV insofar
as they are (i) paid on or after the Effective Date, and (ii) are
reasonable and necessary for the conduct of the operations conducted in
accordance with the Agreement (it being understood that items of
expenditure falling under more than one heading set forth in this
Article IV may be charged only once).
Subject to the limitations provided in this Article IV, in Article 5.4
and elsewhere in these Accounting Procedures and the Agreement,
expenses incurred in the preparation of the
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Development Plan for a Field prior to the approval of such Development
Plan may subsequently be included as Chargeable Expenditures in the
calculation of the Service Fee for such Field.
Expenses relating to more than one Field or related to a Field and to
other activities of the Operator or Contractors shall be allocated as
provided in Article 5.4.
4.1 Personnel Costs
Actual costs of salary and related benefits of all personnel who work
on the Operating Services directly for the Operator (including, without
limitation, as a result of reasonable secondment from a Contractor or
an Associated Entity of the Operator or a Contractor to the extent that
such secondment is identified in an approved Annual Work Program and
Budget) shall be chargeable, in accordance with the customary personnel
policies of the Operator or the Contractor, as the case may be (or of
any group of Associated Entities that includes the Operator or the
Contractor). In the event that the Operator or Contractor (or their
respective groups of Associated Entities) has no such policies, the
Operator shall propose personnel policies to the Affiliate for
approval, and personnel costs shall only be chargeable to the extent
incurred in accordance with such approved policies. Costs of personnel
that work an both the Operating Services and other operations shall be
allocated on the basis of the proportion of time spent in the relevant
activities.
4.2 Administrative Overhead Costs
4.2.1 The Operator shall be entitled to charge in each Calendar Year
an amount in respect of administrative overhead equal to 1% of
the Chargeable Expenditures charged pursuant to Article 1.4.3
for such Calendar Year (other than Chargeable Expenditures
calculated pursuant to this Article 4.2). The Operator shall be
entitled to charge the Affiliate for administrative overhead
Quarterly, on the basis of the other Chargeable Expenditures
incurred in the relevant Quarter.
4.2.2 Administrative overhead charges shall be allocated among
Fields, and as Exploration Expenditures, in proportion to the
respective amounts of other Chargeable Expenditures allocated
to such Fields or as Exploration Expenditures.
4.3 Expenses Incurred by Personnel
All direct expenses reasonably and necessarily incurred by personnel
who work under the direct control of the Operator on the Operating
Services shall be chargeable, including reasonable travel,
accommodations and communications expenses for personnel working
directly for the Operator away from their permanent residence in
connection with such Operating Services, and reasonable relocation
expenses for such personnel and their immediate families. All expenses
charged pursuant to this Article 4.3 shall be in accordance with the
customary personnel policies established by the Operator (or any group
of Associated Entities that includes the Operator), except as otherwise
provided by the Agreement. Relocation expenses at the termination of a
period of work on the Operating Services will be charged on the basis
of the lower of the cost of a return to
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point of origin or actual, and shall be apportioned between the
departure location and the receiving location on an equitable basis, in
accordance with the customary personnel policies described above.
4.4 Transport
4.4.1 The cost of transport to move personnel and material reasonably
and necessarily incurred by the Operator in connection with the
Operating Services shall be chargeable, whether such
transportation is provided directly by the Operator or by a
third party under a contract awarded by the Operator.
4.4.2 The cost of Transportation and Handling of Hydrocarbons
produced from any Field to the relevant Delivery Point or
Delivery Points shall be chargeable, and shall include:
(a) tariffs paid for the use of Transportation and
Handling facilities (other than facilities constructed
or acquired by the Operator for the account of the
Affiliate as part of the Operating Services); and
(b) costs associated with the construction, acquisition
and operation of any Transportation and Handling
facilities by the Operator for the account of the
Affiliate as part of the Operating Services.
4.5 Material
4.5.1 Costs of material, equipment or other personal property
("Material") purchased or leased by the Operator for use in
connection with the Operating Services shall be chargeable,
including Material purchased or transferred from warehouse
stock. Material purchased or leased for use in the Operating
Services shall be charged at cost, which shall mean net invoice
price (after deducting all trade and cash discounts actually
received that are deductible from the relevant price when paid)
together with any transport costs, forwarding and documentation
fees, insurance on transportation, packing costs, duties,
license fees, taxes (other than Venezuelan luxury and wholesale
taxes) and like items chargeable in respect of such goods.
Material transferred from warehouse stock of the Operator or
its Associated Entities shall be chargeable in accordance with
policies to be adopted by the Operator and approved by the
Affiliate, and shall not be chargeable in the absence of the
adoption and approval of such policies.
4.5.2 So far as is consistent with efficient and economical operation
and provision for emergencies, only such Material shall be
purchased or leased as may be required for immediate use, and
the accumulation of surplus stocks shall be avoided.
4.6 Services
The cost of services and facilities provided to the Operator for the
Operating Services by subcontractors, consultants, Associated Entities
or other Persons with whom contracts are
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concluded by the Operator in accordance with the contracting policies
established in accordance with Clause XI of the Agreement shall be
chargeable.
4.7 Litigation and Legal Services
All costs and expenses of litigation, arbitration and other legal
services necessary or expedient in connection with the Operating
Services (including reasonable attorneys' fees) shall be chargeable,
including amounts paid in settlement of claims and amounts paid
pursuant to Clause 11.10 of the Agreement, other than costs and
expenses incurred (i) in relation to claims made by one or more Parties
against one or more other Parties in relation to the Agreement or the
transactions contemplated therein, or (ii) as a result of or arising
from the gross negligence or willful misconduct of the Operator or any
Contractor.
4.8 Auditing Services
All fees and expenses payable or reimbursable to the independent
auditors that perform the annual audit specified in Article 3.1 of
these Accounting Procedures shall be chargeable.
4.9 Taxes
All taxes, duties and other governmental levies of every kind and
nature assessed or levied upon or in connection with the Operating
Services that have been paid by the Operator or the Contractors shall
be chargeable, other than (i) corporate income taxes, (ii) luxury and
wholesale or similar Venezuelan taxes that are eligible to be
reimbursed to the Contractors pursuant to Article 1.6 of these
Accounting Procedures, and (iii) as provided in the next sentence.
Municipal and State taxes payable by the Contractors shall only be
Chargeable Expenditures to the extent that (i) they are calculated
based on the portion of the Service Fee corresponding to the
Contractors' compensation as determined in accordance with Article VI
of these Accounting Procedures, (ii) they are levied at a rate greater
than 4%, and (iii) the Contractors take such measures as the Affiliate
may reasonably request to challenge the imposition of such taxes over
4% as excessive (such taxes in excess of 4% being chargeable as paid so
long as the Contractors continue to take such measures). The cost of
measures taken at the request of the Affiliate to challenge such taxes
will constitute litigation expenses under Article 4.7. Subject to the
above conditions, if such Contractors' compensation is subject to
Municipal and State taxes in more than one taxing jurisdiction and the
aggregate of the Municipal and State taxes in all such jurisdictions
exceeds 4% of total compensation, the excess shall be Chargeable
Expenditures; provided that, for purposes of calculating such
Chargeable Expenditures, such total compensation will be deemed to have
been subject to such tax only once (and not subject to double taxation
by two or more such jurisdictions).
4.10 Damages and Losses
All costs and expenses necessary for the repair or replacement of
property acquired by the Operator for the account of the Affiliate with
Chargeable Expenditures, or for loss of life or injury, due to fire,
flood, storm, theft, accident or any other cause, or for remedying any
environmental condition in the Area in accordance with Clause XXII
of the Agreement, or
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in respect of any facilities used in connection with the Operating
Services, shall be chargeable, other than (i) costs or expenses
incurred as a result of or arising from the gross negligence or willful
misconduct of the Operator or any Contractor, and (ii) any such costs
and expenses, to the extent of any amounts recovered under any
insurance policy and applied to the repair or replacement of the
relevant property or the compensation of the relevant Persons in
accordance with Clause 11.10 of the Agreement.
4.11 Insurance
Insurance premiums shall be chargeable to the extent provided in Clause
11.10(a) of the Agreement.
4.12 Real Property
Payments made for the purchase or acquisition of real property used in
connection with the Operating Services, including the acquisition or
extension of rights-of-way and similar property rights, shall be
chargeable. Costs relating to real property used in both the Operating
Services and other operations shall be allocated in an equitable manner
in accordance with formulas or guidelines to be proposed by the
Contractor and approved by the Affiliate, and shall not be chargeable
in the absence of the adoption and approval of such policies.
4.13 Royalties and License Fees
Royalties and license fees payable in respect of any technological
processes or other intellectual property licensed for use in connection
with the Operating Services shall be chargeable.
4.14 Miscellaneous Expenditures
Any cost or expense incurred by the Operator that is not covered in
Articles 4.1 to 4.13 of these Accounting Procedures and that is
reasonable and necessary for the provision of the Operating Services
shall be chargeable, so long as such cost or expense (or the relevant
type of cost or expenses) is approved by the Affiliate. Expenses
specifically included in an Annual Work Plan and Budget will be deemed
to have been approved.
V. SERVICE FEE CALCULATION AND FINANCIAL MATTERS
5.1 General
The Service Fee will be payable on a quarterly basis, beginning with
the Quarter in which the Operation Period for the Field concerned
begins, against presentation of invoices, in accordance with Clauses
XVII and XVIII of the Agreement. A single Service Fee will be
calculated for each Quarter for each Field in accordance with the
provisions set forth in this Article V. The Contractors may submit the
invoice for any Quarter to the Affiliate at any time following the
conclusion of such Quarter, and the Affiliate shall pay the applicable
Service Fee to the Contractors at the time set forth in Clause 18.1 of
the
13
89
Agreement. The Affiliate shall pay the Service Fee for all of the
Contractors to a single Dollar account inside or outside Venezuela
designated in writing by the Operator. The Operator shall be
responsible for allocating each such payment among the Contractors. The
Affiliate shall be fully discharged from its obligations in respect of
the Service Fee by making payment to the account specified pursuant to
this Article 5.1, and shall have no responsibility in the event that
the Operator fails to allocate any such payment properly.
5.2 Service Fee Formula
5.2.1 The Service Fee for any Field for any Quarter (q) shall be calculated
in accordance with the following formula:
*
* Confidential portions on pages 14, 15, 16 and 17 have been omitted pursuant to
a request for confidential treatment and filed separately with the Commission.
14
90
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
15
91
*
5.2.2 For purposes of determining the Service Fee for any Quarter in which
MIRR(q) becomes positive after having been negative in the immediately
preceding Quarter, the Quarter in respect of which the calculation is
being made shall be divided into two periods. One such period shall be
of sufficient duration so that MIRR(q) as of the end of such period
shall be zero, and the other such period shall reflect the remainder
of the Operating Services conducted during such Quarter. A separate
Service Fee shall be calculated for each such period (as if each were a
Quarter), and the Service Fee for such Quarter shall be equal to the
sum of the Service Fees calculated for such periods.
5.2.3 For purposes of calculating the Service Fee, in the event that the
Production from the Initial Field for any Quarter is less than the
Baseline Production (or, during the first 12 months after the Takeover
Date, more than 10% below the Baseline Production for such Quarter),
the shortfall (which, in such first 12 months, shall be the excess of
the shortfall over 10%) shall be applied in the following Quarter (and,
if necessary, in subsequent Quarters) to reduce the Incremental
Production and to increase the Baseline Production until the entire
shortfall has been so applied. This Article 5.2.3 shall not apply to
the extent that a shortfall in Baseline Production results from a
reduction or curtailment of Production pursuant to Clauses 11.1(b),
XIV, 15.4(b), 22.5 or XXVI of the Agreement or as a result of
extraordinary maintenance to surface facilities.
5.3 Baseline Production
The portion of the Service Fee consisting of a payment for Baseline
Production for any Quarter ("A(q)" in the formula set forth in Article
5.2) shall be calculated for each Quarter in accordance with the
following formula:
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
16
92
*
The payment for Baseline Production shall only be made in respect of
the Initial Field. No other Field has Baseline Production.
5.4 Ringfencing and Allocation
5.4.1 Except as otherwise approved by the Affiliate, the Service Fee shall be
calculated separately for each Field. Production and Chargeable
Expenditures allocable to one Field in accordance with this Article 5.4
shall not be included in the calculation of the Service Fee for any
other Field.
5.4.2 All Chargeable Expenditures and Production shall be allocated among
Fields in accordance with the procedures set forth in this Article 5.4.
5.4.3 Chargeable Expenditures that relate exclusively to Operating Services
within, or in respect of, the interior of the Field Boundary of a
single Field shall be allocated in full to such Field.
5.4.4 Chargeable Expenditures associated with the Transportation and
Handling of Production from the wellhead or other point of extraction
to the relevant Delivery Point shall be allocated in full to the Field
from which such Production is realized. To the extent that such
Production is blended with other Hydrocarbons prior to its delivery at
the Delivery Point, such Chargeable Expenditures shall be allocated to
the relevant Fields in the manner set forth in Article 5.4.6.
5.4.5 (a) Exploration Expenditures shall not be included in the calculation
of the Service Fee for any Field, except as follows:
(i) Well Expenditures for ▇▇▇▇▇ with a target zone within the Field
Boundary of a subsequently established Field (or, in the case of
▇▇▇▇▇ with multiple target zones, a portion of such Well
Expenditures, calculated in the manner set forth in paragraph (b)
below) shall be included in the calculation of the Service Fee for
such Field, as of the first Quarter following the approval of the
applicable Development Plan by the Affiliate; provided that such
▇▇▇▇▇ are completed as producing ▇▇▇▇▇ or injection ▇▇▇▇▇ for such
Field in accordance with International Oil Industry
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
17
93
Standards and are included as such in the applicable Development
Plan for such Field; and
(ii) Exploration Expenditures other than Well Expenditures shall be
included in the calculation of the Service Fee for the Field, if
any, for which the immediately following Development Plan is
approved by the Affiliate, except that no Exploration Expenditures
shall under any circumstances be included in the calculation of
the Service Fee for the Initial Field (unless the Exploration
Activities concerned lead to the discovery of a Hydrocarbon
formation outside the Initial Field that is found to be Connected
with the Initial Field and subsequently included within amended
Field Boundaries for the Initial Field pursuant to Clause 8.8 of
the Agreement).
(b) In the event that any well is drilled with multiple target zones
in the Area, except as otherwise approved by the Affiliate, the related
Well Expenditures shall be allocated among such target zones such that
(x) Well Expenditures incurred in connection with reaching the first
target zone in the Area and any completion or recompletion in respect
of such target zone shall be allocated in full to such target zone, and
(y) Well Expenditures incurred in connection with drilling from any
target zone to any other target zone, and any completion or
recompletion in respect of the latter target zone, shall be allocated
in full to the latter target zone.
5.4.6 In the event that:
(a) The Operator incurs or proposes to incur Chargeable Expenditures
relating to more than one Field; or
(b) Production from a Field is combined with other Hydrocarbons
(whether or not constituting Production hereunder) prior to its
delivery at an applicable Delivery Point,
such Chargeable Expenditures or Production (and the Chargeable
Expenditures associated with Transportation and Handling of such
Production) shall be allocated by the Operator on the basis of formulas
or guidelines approved by the Affiliate and included in the relevant
Development Plans or Annual Work Programs and Budgets, based on such
equitable mechanisms as are customary in similar circumstances in the
international oil industry or as may be approved by the Affiliate. If
the Operator believes that any decision by the Affiliate to withhold
its approval of any such mechanism is not consistent with the foregoing
standard, the Operator may at any time until the expiration of 30 days
following the date of rejection require that the final determination be
made by an independent expert appointed in accordance with Clause 23.3
of the Agreement. The decision of the expert shall be final and
binding.
5.5 Royalties
The Royalties that are to be deducted from the value of the Incremental
Production from a Field in calculating Net Hydrocarbon Value for any
Quarter shall be equal to the product
18
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of (i) the applicable Royalty Rate, (ii) the volume of the Incremental
Production in any Quarter for which the Royalty is to be deducted
pursuant to these Accounting Procedures, and (iii) the wellhead value
of such Production, all determined in accordance with Venezuelan law.
The Royalty Rate shall be the rate at which the exploitation tax is
actually assessed by the Ministry of Energy and Mines in accordance
with applicable Venezuelan laws and regulations. As of the date of the
Effective Date, the Royalty Rate is *.
5.6 Abandonment Costs
Chargeable Expenditures incurred in the last five years of the
Operation Period for any Field (without regard to any extension of the
Operation Period, unless such extension is granted before the relevant
Chargeable Expenditures are incurred) and associated with plugging and
abandoning ▇▇▇▇▇ or removing facilities in accordance with Clause XXI
or with the final environmental audit and any Post-Takeover Date
Environmental Claim and Cleanup Liability in accordance with Clause
XXII of the Agreement ("Abandonment Costs") shall be included in the
calculation of the Service Fee in the manner set forth in this Article
5.6 in the circumstances described in this Article 5.6.
(i) Whenever CF(q) (as determined in accordance with Article 5.2) for
the Quarter in which Abandonment Costs are incurred is negative,
an amount (the "Shortfall Amount") equal to the lesser of (i) the
total amount of such Abandonment Costs, and (ii) the absolute
value of CF(q) for such Quarter shall be calculated.
(ii) The Operator may charge and include the Shortfall Amount in the
succeeding Quarter as if the Shortfall Amount were a Chargeable
Expenditure incurred in such succeeding Quarter. If after
applying the Shortfall Amount in such manner, CF(q) for such
succeeding Quarter is negative, then the excess portion of the
Shortfall Amount shall be calculated and applied to the
calculation of the Service Fee for the next succeeding Quarter,
as if the excess Shortfall Amount so applied were a Chargeable
Expenditure incurred in such Quarter. This process shall continue
until a Quarter is reached in respect of which CF(q), determined
after applying any remaining Shortfall Amount, is positive.
(iii) Periodically, the Operator shall make an assessment as to whether
the aggregate of CF(q) for all remaining Quarters in the
Operation Period will be greater than the total of all remaining
Shortfall Amounts, based on forecast Production and Chargeable
Expenditures in the Development Plan and the Price Formula. If
so, then no further calculations shall be made. If not, then the
Operator shall calculate an amount equal to the excess of the
Shortfall Amount over the sum of the projected CF(q) amounts for
all such remaining Quarters (such excess, the "Carryback
Amount"). As of the end of each Quarter remaining in the
Operation Period, the Operator shall periodically reassess any
Carryback Amount that has not yet been recovered as provided
below and shall, if necessary, adjust the remaining Carryback
Amount accordingly.
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
19
95
(iv) The Operator shall redetermine the Service Fee (without
recalculation of MIRR(q) for the immediately preceding Quarter as
if the Carryback Amount had been a Chargeable Expenditure
incurred in such prior Quarter.
(v) If after applying the Carryback Amount in such manner, CF(q) for
such preceding Quarter is negative, then the excess portion of
the Carryback Amount shall be calculated and applied to the
recalculation of the Service Fee for the next preceding Quarter,
as if the excess Carryback Amount so applied were a Chargeable
Expenditure incurred in such Quarter. This process shall continue
until a Quarter is reached in respect of which CF(q), determined
after applying any remaining Carryback Amount, is positive.
(vi) The Operator shall determine, for each Quarter in respect of
which the Service Fee is recalculated as provided above, the
difference between (x) the Service Fee as so recalculated, and
(y) the Service Fee originally charged for such Quarter.
(vii) The sum of the differences determined pursuant to clause (vi)
shall be chargeable to the Affiliate as an addition to the
Service Fee for the Quarter in which the Abandonment Costs are
incurred or for a subsequent Quarter as determined by the
Operator, and shall be reflected separately on the relevant
invoice.
VI. AMORTIZATION OF ADVANCES AND ALLOCATION OF THE SERVICE FEE
6.1 General
All goods and services that are purchased or leased by the Contractors
from third parties in connection with the Operating Services (including
any goods or services purchased or leased from an Associated Entity of
any Contractor acting as a supplier) shall be deemed to have been
acquired for the account of the Affiliate and funded through
non-recourse advances from the Contractors to the Affiliate. Such
advances shall be repayable to the Contractors only to the extent that
a portion of the Service Fee is applied to amortize such advances in
accordance with this Article VI. Any such advances that are not so
amortized at the time of termination of the Agreement with respect to
any Field, and any such advances in respect of Exploration Expenditures
that are not allocated to a Field prior to the termination of this
Agreement, shall be deemed canceled at the time of such termination.
No interest shall be separately calculated or paid with respect to any
such advances. Financing charges associated with such advances shall be
deemed to be included and entirely paid as part of the portion of the
Service Fee representing the Contractors' compensation for the
Operating Services.
For purposes of calculating the amount of any Municipal and State taxes
that may be Chargeable Expenditures pursuant to Article 4.9, the
Contractors shall include as revenues subject to such taxes only that
part of the Service Fee that corresponds to the Contractors'
compensation for the Operating Services and not the portion
corresponding to the reimbursement of such advances made by the
Contractors to the Affiliate.
20
96
6.2 Principles of Amortization
Advances made by the Contractors to the Affiliate as provided in
Article 6.1 shall be amortized on the basis of PDVSA Accounting
Principles in effect from time to time, which currently provide as
follows:
(i) advances in respect of items that would be treated as expenses
in the Quarter in which they are incurred for Venezuelan tax
purposes shall be amortized in the year in which they are
incurred;
(ii) advances in respect of fixed assets and capitalized expenses
upstream of the first tank farm shall be amortized on a unit of
production basis according to the proved developed reserves for
the Field concerned (or the Fields concerned, if such advances
are in respect of Chargeable Expenditures allocated to more than
one Field), on the basis of the reserves estimates and production
profiles specified in the relevant Development Plan; and
(iii) advances in respect of fixed assets and capitalized expenses at
the first tank farm or downstream of the first tank farm shall be
amortized using the straight-line method, based on the useful
life of such assets;
in each case, to the extent the Service Fee is sufficient for such
purpose or otherwise in subsequent Quarters until the Service Fee for
such subsequent Quarters is sufficient for such purpose (amortizing in
each Quarter the advances with the shortest remaining amortization
period first).
6.3 Allocation of the Service Fee
The Service Fee for any Field and for any Quarter shall be allocated
first to the reimbursement of advances calculated as provided above and
then to compensation of the Contractors for providing the Operating
Services hereunder. For each Quarter, the Operator shall provide the
Affiliate with a separate statement for the reimbursement amount and an
invoice for the compensation amount, in each case in the forms provided
in the URS. If the Service Fee is insufficient to cover all
reimbursements deemed due in a Quarter as provided in Article 6.2, then
the shortfall will be carried over to the next Quarter and the
Contractors will not receive any compensation component of the Service
Fee for such Quarter.
6.4 No Effect on Service Fee Calculation or Payment
The rate of amortization of advances pursuant to this Article VI shall
not affect in any manner whatsoever the calculation of the Service Fee
for any Field or the total amount payable as the Service Fee by the
Affiliate in respect of any Field and any Quarter.
21
97
SCHEDULE A
Area Percentage
---- ----------
Acema *
Ambrosio *
Bachaquero S. 0. *
Boqueron *
B2X-68/79 *
B2X-70/80 *
Cabimas *
Caracoles *
Casma-Anaco *
Cretacico Sur *
Dacion *
Intercampo N. *
Kaki *
La ▇▇▇▇▇▇▇▇▇▇ *
La Vela Costa Afuera *
LL-652 *
▇▇▇▇ *
Maulpa *
Mene Grande *
Onado *
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
98
Expenses0.20%
SCHEDULE B
Quarter T(q) Quarter T(q)
(q) (q)
------------------------ ------------------------
1 * 42 *
2 * 43 *
3 * 44 *
4 * 45 *
5 * 46 *
6 * 47 *
7 * 48 *
8 * 49 *
9 * 50 *
10 * 51 *
11 * 52 *
12 * 53 *
13 * 54 *
14 * 55 *
15 * 56 *
16 * 57 *
17 * 58 *
18 * 59 *
19 * 60 *
20 * 61 *
21 * 62 *
22 * 63 *
23 * 64 *
24 * 65 *
25 * 66 *
26 * 67 *
27 * 68 *
28 * 69 *
29 * 70 *
30 * 71 *
31 * 72 *
32 * 73 *
33 * 74 *
34 * 75 *
35 * 76 *
36 * 77 *
37 * 78 *
38 * 79 *
39 * 80 *
40 *
41 *
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
99
ANNEX D
(Translation]
[FORM OF CONTRACTOR GUARANTEE]
GUARANTEE OF PROPER PERFORMANCE
Reference is made to the Operating Agreement (the "Agreement") of even date
herewith among _____________. (together with its successors and assigns, the
"Affiliate") a sociedad anonima organized under the laws of the Republic of
Venezuela, _________________ (the "Guaranteed Entity") a ________________
organized under the laws of __________________, and ________________, a
_________________ organized under the laws of ___________________.
With regard to the obligations assumed by the Guaranteed Entity under the
Agreement or that may be imposed upon the Guaranteed Entity under or in
connection with the Agreement, ____________________ (the "Guarantor"), a
________________ organized under the laws of __________________, an Associated
Entity of the Guaranteed Entity, agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
2. The Guarantor hereby expressly represents and warrants to the Affiliate
that: (i) it is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, (ii) it has all requisite
corporate power and authority to execute, deliver and perform this
Guarantee, (iii) the execution, delivery and performance of this Guarantee
have been duly authorized by all necessary corporate action, (iv) this
Guarantee constitutes the legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms,
(v) no governmental approvals are required in connection with the
execution, delivery and performance of this Guarantee, except as have been
obtained and are in force, and (vi) the execution, delivery and performance
of this Guarantee by the Guarantor will not violate any provision of any
existing law or regulation to which the Guarantor is subject or any
provision of the Guarantor's constitutive documents or of any material
agreements to which it may be a party.
3. The Guarantor hereby unconditionally and irrevocably guarantees to the
Affiliate, as a primary obligor, the due and punctual performance of all of
the obligations of the Guaranteed Entity under or in connection with the
Agreement. If the Guaranteed Entity fails to perform any such obligation in
the manner and at the time required, the Guarantor shall perform or procure
the performance of such obligation upon demand by the Affiliate.
--------------------
(1) Add or delete spaces as appropriate to reflect the number of Contractors.
100
4. This Guarantee is irrevocable and unconditional and shall remain in full
force and effect until all obligations of the Guaranteed Entity under or in
connection with the Agreement are fully and irrevocably satisfied and
discharged, notwithstanding (a) any amendment or termination of the
Agreement, (b) any extension of time or other indulgence or concession
granted by the Affiliate, or (c) any delay or failure by the Affiliate in
pursuing any remedies available against the Guaranteed Entity.
Notwithstanding the foregoing, this Guarantee shall terminate with respect
to liabilities arising from improper abandonment of ▇▇▇▇▇ or facilities in
any area outside a Field or in any Field on the fifth anniversary of the
termination of the Agreement with respect to such area or Field.
5. The provisions contained in Article 547 of the Commercial Code of Venezuela
will be fully applicable to this Guarantee. Accordingly, the Affiliate
shall have no obligation to pursue any remedy or take any action against or
in respect of the Guaranteed Entity prior to enforcing its rights under
this Guarantee directly against the Guarantor. In addition, the Guarantor
may not claim that the Affiliate could have avoided or mitigated, in any
manner or through any action, the damages resulting from a default of the
Guaranteed Entity under the Agreement or resort to any other guarantee held
at any time in its favor, before proceeding against the Guarantor in
connection with its obligations under this Guarantee. The Guarantor's
obligations under this Guarantee shall be independent and absolute, and the
Guarantor shall have no right of setoff or counterclaim with respect to any
other claims it may have against the Affiliate or any other Person.
6. All of the obligations of the Guarantor set forth herein shall bind the
Guarantor and its successors. The Guarantor may not assign or delegate its
duties or obligations hereunder without the prior written consent of the
Affiliate, and any purported assignment or delegation without such consent
shall be null and void. The Guarantor confirms that this Guarantee shall
remain in effect with respect to any assignee of the Guaranteed Entity
under the Agreement that is an Associated Entity of the Guaranteed Entity.
Upon any such assignment the assignee shall be considered the Guaranteed
Entity for all purposes hereunder to the extent of the assigned
obligations. The Guarantor additionally confirms that any assignee of the
Affiliate under the Agreement permitted in accordance with Clause 27.3 of
the Agreement may exercise all rights and remedies of the Affiliate under
this Guarantee. No other person or entity shall be a beneficiary of this
Guarantee or have or acquire any rights by reason of this Guarantee.
7. This Guarantee shall be governed by and construed in accordance with the
laws of the Republic of Venezuela.
8. Any failure or delay by the Affiliate to exercise any right, in whole or in
part, hereunder shall not be construed as a waiver of the right to exercise
the same or any other right.
9. No amendment or modification of this Guarantee shall be effective unless in
writing and signed by the Guarantor and the Affiliate.
10. Any dispute concerning the legal interpretation or construction of this
Guarantee shall be settled exclusively and finally by arbitration conducted
in accordance with the Rules of the
2
101
International Chamber of Commerce ("ICC"). The Affiliate shall select an
arbitrator and the Guarantor shall select an arbitrator in accordance with
the ICC Rules. The arbitrators so nominated shall then agree within 30 days
on a third arbitrator to serve as Chairman. The arbitration shall be
conducted in New York City (United States of America). Notwithstanding the
foregoing, in the event that a dispute involves both the Guarantor and the
Guaranteed Entity, arbitration shall be conducted in accordance with Clause
23.2 of the Agreement, as a single proceeding, and Guarantor and the
Guaranteed Entity shall jointly have the rights of the Guaranteed Entity
under such Clause 23.2.
11. The Guarantor shall pay upon demand and presentation of invoices all
reasonable and actual costs and expenses incurred by the Affiliate in
connection with the successful enforcement of this Guarantee, including,
without limitation, reasonable fees and expenses of counsel.
12. All notices, demands, instructions, waivers or other communications to be
provided pursuant to this Guarantee. and any consents contemplated in this
Guarantee, shall be in writing in Spanish or English, shall be effective
upon receipt, and shall be sent by personal delivery, courier, first class
mail, facsimile or telex, to the following addresses:
i) If to the Guarantor, to:
ii) If to the Affiliate, to:
The addresses and telex and facsimile numbers of either party for notices
given pursuant to this Guarantee may be changed by means of a written
notice given to the other party at least 15 Business Days prior to the
effective date of such change.
13. This Guarantee is being executed in both the Spanish language and the
English language. The Spanish version shall constitute the binding version,
and the English version is being executed as a matter of reference only.
14. This Guarantee may be executed in any number of counterparts, each of which
shall be deemed to be an original.
3
102
This Guarantee has been duly executed by the Guarantor and the Affiliate by
their respective officers thereunto duly authorized as of the ___ day of
______________,1997.
NAME OF GUARANTOR)
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
4
103
ANNEX E
(Translation]
DEVELOPMENT PLAN GUIDELINES
This Annex sets forth the topics required to be covered in a Development
Plan submitted to the Affiliate for approval, to the extent applicable to the
relevant Field. While this Annex describes the general requirements of the
Development Plan and incorporates those set forth in Clauses 6.2 and 8.4 of the
Agreement, there is no detailed prescription of the format or the level of
detail to be presented, other than coverage of the key topics identified herein.
Additional information may be presented in a Development Plan to the extent
appropriate to the relevant activities.
1. Description of Field.
(a) Description of the Field to be developed.
(b) Field Boundaries of the Field to be developed.
(c) Description of the Hydrocarbon-bearing formations to constitute the
Field.
2. Reserves and Production.
(a) An estimate of proved, probable and possible reserves in the Field for
each reservoir (in each case, determined on a life-of-field basis,
without regard to the duration of the Operation Period), separated by
Liquid Hydrocarbons (separately for crude oil, condensate and natural
gas liquids) and Natural Gas.
(b) An estimate of the production profile for each reservoir of the
Hydrocarbons that the Contractors expect to deliver to the Affiliate in
each year during the Operation Period for the proved and proved plus
probable reserves cases (separately indicating the amount of projected
Incremental Production), and an explanation of how the production
profile in the proved reserve case achieves the Maximum Economic Rate
of Production (unless Production is constrained by the Delivery Point
Capacity)
3. Description of Proposed Activities.
(a) Description of the proposed rehabilitation, reactivation, enhancement
or development scheme, as applicable, including the following:
104
(i) General description of expected activities for the relevant
Operation Period.
(ii) Description of planned facilities, both inside and outside of
Field Boundaries.
(iii) Description of drive mechanism and reservoir management policy.
(iv) The designation of additional Delivery Points that the
Contractors plan to use in accordance with Clause 15.3 of the
Agreement and Hydrocarbon Transportation and Handling
arrangements, including routing to Delivery Points, type of
Transportation and Handling facilities and expected use of
Affiliate or third party facilities.
(v) Expected arrangements for abandonment of facilities to be
utilized in the course of the work program.
(b) Plan for the periodic inspection of all inactive ▇▇▇▇▇ in the Initial
Field at least twice per year and, unless otherwise agreed by the
Affiliate in its discretion, a plan for the periodic surveillance of
subsidence in around the Area that may be affected by Production.
(c) Principal contingent features of proposed activities, and likely
additional activities to be undertaken depending on results of
specified initial activities.
(d) Alterative approaches considered and reasons for choice of approach
selected.
(e) Schedule of activities, including expected schedule for construction or
acquisition of major facilities and timetable for achieving commercial
production rates (for Fields not currently in production) and Maximum
Economic Rate (or Delivery Point Capacity).
(f) Plan for the transfer of operations in accordance with Clause 11.8 of
the Agreement.
4. Budget and Economics.
(Note: All financial information should be expressed in constant dollars,
with no adjustment for inflation.)
(a) Projected & capital and operating expenditures for the Operation Period
for proved and proved plus probable reserves cases, prepared in
accordance with the Uniform Reporting System, including (for the
Initial Field) confirmation that the Minimum Work Obligation will be
met.
(b) Sharing and allocation arrangements, including:
2
105
(i) Arrangements for Fields extending outside the Area, adopted or
expected to be adopted pursuant to Clause XIII of the Agreement.
(ii) Any arrangements for sharing of facilities or other costs, or for
commingling and reallocation of Production, whether in respect of
other Fields or otherwise, and guidelines for effecting
allocations under Article 5.4 of the Accounting Procedures.
(c) Contractor Participations in Field.
(d) Expected Field returns and discounted cash flow analysis, in each case
based on assumptions to be set forth in the Development Plan (including
such reasonable assumptions as may be required by the Affiliate by
notice to the Operator from time to time).
(e) An estimate of the Service Fees that the Contractors expect to be
payable by the Affiliate during each year of the Operation Period for
each reserves case.
(f) Expected duration of pre-operative phase, if any.
5. Safety and Environmental Considerations.
(a) Description of environmental program and contingency plans to be
established pursuant to Clause 22.1 of the Agreement.
(b) Description of program for protection of safety of personnel and other
safety related programs.
6. Additional Information for Amendments and Updates.
(a) Reasons for proposed amendment or update.
(b) Discussion of activities conducted since original Development Plan or
previous amendment or update, as the case may be.
(c) Revised presentation of all information described in clauses 1 through
4 above (or, to the extent appropriate, only such information as is
being amended or updated).
3
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
ANNEX F
Initial Contractor Participations
Union Texas Venezuela Ltd. 66.67%
Preussag Energie GmbH 33.33%
107
ANNEX G
[Translation]
FORM OF OPERATOR ACCESSION AGREEMENT
(Date]
[Affiliate]
[Address]
[Contractor 1]
[Contractor 2]
c/o [Contractor 1]
[Address]
Re: Accession to Operating, Agreement
Ladies and Gentlemen:
We address you on this opportunity in order to refer to the Operating
Agreement (the "Agreement"), dated ____________ 1997, between [Affiliate],
[Contractor I] and [Contractor 2].
[Name of Operator) (the "0perator") agrees to perform fully all of the
obligations and responsibilities attributed to it under the Agreement, to the
extent and in the manner in which they are set forth.
In addition, the Operator acknowledges all the rights to which it has
become entitled under the Agreement, which it hereby assumes and may fully
exercise.
This accession agreement shall be governed by, and construed in accordance
with, the laws of the Republic of Venezuela.
Very truly yours,
[NAME OF OPERATOR]
By:
------------------------------
Name:
Title:
--------------------
(1) Add or delete as appropriate to reflect the number of Contractors.
▇▇▇
▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
▇. DELIVERY POINT OF LIQUID HYDROCARBONS
La Toscana manifold inlet (gross production).
2. QUALITY OF LIQUID HYDROCARBONS AT THE DELIVERY POINT
Liquid Hydrocarbons must meet the following conditions:
Gravity: > 22 degrees API
-
Sand content: < 0.05%
-
Sulfur: < 1.5% in weight
-
Wax, paraffins and asphaltines: Contractors must prevent precipitation
upstream of Delivery Point and cooperate
with the Affiliate for such prevention
downstream of Delivery Point.
3. DELIVERY POINT CAPACITY OF LIQUID HYDROCARBONS
20 MBD gross (with a maximum of 1% of water content).
4. DELIVERY POINT OF ASSOCIATED GAS
La Toscana manifold inlet.
5. QUALITY OF DELIVERED ASSOCIATED GAS
Delivered Associated Gas must meet the following conditions:
C0(2) Content: < 5% molar
-
Water Content: < 7 Pounds/MSCF
-
H(2)S Content: < 15 ppmv
-
BOQUERON AREA H-1
109
ANNEX I
BASELINE PRODUCTION
BOQUERON AREA
Baseline Production
Decline Factor: 0.10 annually
Deemed Cost
of Baseline Production: 1.25 $/NB
BOQUERON AREA I-1
110
ANNEX J
[Translation]
[FORM OF OPERATOR GUARANTEE]
GUARANTEE OF PROPER PERFORMANCE
-------------------------------
Reference is made to the Operating Agreement dated ____________ among
____________ (together with its successors and assigns, the "Affiliate"), a
sociedad anonima organized under the laws of the Republic of Venezuela;
___________________, a ____________________ organized under the laws of
____________________; and _________________, a __________________ organized
under the laws of _________________; (1) and to which __________________ (the
"Operator"), a __________________ organized under the laws of ______________,
has become a party pursuant to an Accession Agreement of even date herewith.
With regard to the obligations assumed by the Operator under the Operating
Agreement, or that may be imposed upon the Operator under or in connection with
the Operating Agreement, ___________________ (the "Guarantor"), a
_______________ organized under the laws of __________________, an Associated
Entity of the Operator, agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Operating Agreement.
2. The Guarantor hereby expressly represents and warrants to the Affiliate
that, (i) it is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, (ii) it has all
requisite corporate power and authority to execute, deliver and perform
this Guarantee, (iii) the execution, delivery and performance of this
Guarantee have been duly authorized by all necessary corporate action, (iv)
this Guarantee constitutes the legal, valid and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its terms,
(v) no governmental approvals are required in connection with the
execution, delivery and performance of this Guarantee, except as have been
obtained and are in force, and (vi) the execution, delivery and performance
of this Guarantee by the Guarantor will not violate any provision of any
existing law or regulation to which the Guarantor is subject or any
provision of the Guarantor's constitutive documents or of any material
agreements to which it may be a party.
3. The Guarantor hereby unconditionally and irrevocably guarantees to the
Affiliate, as a primary obligor, the due and punctual performance of all
of the obligations of the Operator under or in connection with the
Operating Agreement. If the Operator fails to perform any such obligation
in the manner and at the time required, the Guarantor shall perform or
procure the performance of such obligation upon demand by the Affiliate.
----------------------
(1) Add or delete spaces as appropriate to reflect the number of Contractors.
111
4. This Guarantee is irrevocable and unconditional and shall remain in full
force and effect until all obligations of the Operator under or in
connection with the Operating Agreement are fully and irrevocably satisfied
and discharged, notwithstanding (a) any amendment or termination of the
Operating Agreement, (b) any extension of time or other indulgence or
concession granted by the Affiliate, or (c) any delay or failure by the
Affiliate in pursuing any remedies available against the Operator.
Notwithstanding the foregoing, this Guarantee shall terminate with respect
to liabilities arising from improper abandonment of ▇▇▇▇▇ or facilities in
any area outside a Field or in any Field on the fifth anniversary of the
termination of the Operating Agreement with respect to such area or Field.
5. The provisions contained in Article 547 of the Commercial Code of Venezuela
will be fully applicable to this Guarantee. Accordingly, the Affiliate
shall have no obligation to pursue any remedy or take any action against or
in respect of the Operator prior to enforcing its rights under this
Guarantee directly against the Guarantor. In addition, the Guarantor may
not claim that the Affiliate could have avoided or mitigated, in any manner
or through any action, the damages resulting from a default of the Operator
under the Operating Agreement or resort to any other guarantee held at any
time in its favor, before proceeding against the Guarantor in connection
with its obligations under this Guarantee. The Guarantor's obligations
under this Guarantee shall be independent and absolute, and the Guarantor
shall have no right of set-off or counterclaim with respect to any other
claims it may have against the Affiliate or any other Person,
6. All of the obligations of the Guarantor set forth herein shall bind the
Guarantor and its successors. The Guarantor may not assign or delegate its
duties or obligations hereunder without the prior written consent of the
Affiliate, and any purported assignment or delegation without such consent
shall be null and void. The Guarantor confirms that this Guarantee shall
remain in effect with respect to any assignee of the Operator under the
Operating Agreement that is an Associated Entity of the Operator. Upon any
such assignment the assignee shall be considered the Operator for all
purposes hereunder to the extent of the assigned obligations. The Guarantor
additionally confirms that any assignee of the Affiliate under the
Operating Agreement permitted in accordance with Clause 27.3 of the
Operating Agreement may exercise all rights and remedies of the Affiliate
under this Guarantee. No other person or entity shall be a beneficiary of
this Guarantee or have or acquire any rights by reason of this Guarantee.
7. This Guarantee shall be governed by and construed in accordance with the
laws of the Republic of Venezuela.
8. Any failure or delay by the Affiliate to exercise any right, in whole or in
part, hereunder shall not be construed as a waiver of the right to exercise
the same or any other right.
9. No amendment or modification of this Guarantee shall be effective unless in
writing and signed by the Affiliate and the Guarantor.
10. Any dispute concerning the legal interpretation or construction of this
Guarantee shall be settled exclusively and finally by arbitration conducted
in accordance with the Rules of the
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112
International Chamber of Commerce ("ICC"). The Affiliate shall select an
arbitrator and the Guarantor shall select an arbitrator in accordance with
the ICC Rules. The arbitrators so nominated shall then agree within 30 days
on a third arbitrator to serve as Chairman. The arbitration shall be
conducted in New York City (United States of America). Notwithstanding the
foregoing, in the event that a dispute involves both the Guarantor and the
Operator, arbitration shall be conducted in accordance with Clause 23.2 of
the Operating Agreement, and the Guarantor and the Operator shall jointly
have the rights of the Operator under such Clause 23.2.
11. The Guarantor shall pay upon demand and presentation of invoices all
reasonable and actual costs and expenses incurred by the Affiliate in
connection with the successful enforcement of this Guarantee, including,
without limitation, reasonable fees and expenses of counsel.
12. All notices, demands, instructions, waivers or other communications to be
provided pursuant to this Guarantee, and any consents contemplated in this
Guarantee, shall be in writing in Spanish or English, shall be effective
upon receipt, and shall be sent by personal delivery, courier, first class
mail, facsimile or telex, to the following addresses:
i) If to the Guarantor, to:
ii) If to the Affiliate, to:
The addresses and telex and facsimile numbers of either party for notices
given pursuant to this Guarantee may be changed by means of a written
notice given to the other party at least 15 Business Days prior to the
effective date of such change.
13. This Guarantee is being executed in both the Spanish language and the
English language. The Spanish version shall constitute the binding version,
and the English version is being executed as a matter of reference only.
14. This Guarantee may be executed in any number of counterparts, each of which
shall be deemed to be an original.
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113
This Guarantee has been duly executed by the Guarantor and the Affiliate by
their respective officers thereunto duly authorized as of the ___ day of
_______________, 1997.
[NAME OF GUARANTOR]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
4
114
ANNEX K
[TRANSLATION]
MODEL JOINT OPERATING TERMS FOR EPIC
I
DEFINITIONS(1)
Capitalized terms defined in the Agreement (as defined below) or the
Accounting Procedures (as defined in the Agreement) have the respective
meanings assigned to such terms therein. The following definitions are in
addition to and supplement those set forth in the Agreement and the
Accounting Procedures.
"Agreement" shall mean the Operating Agreement to which these Model Terms
are an Annex.
"Advances" shall mean each payment of cash made or required to be made
pursuant to a valid Cash Call.
"Cash Call" shall mean any request for payment made by the Operator in
accordance with Article IV of these Model Terms.
"Contractor Agreement" shall mean any agreement or contract, whether oral
or written, among some or all of the Other Contractors or between the Other
Contractors and the Operator (in its capacity as such) with respect to
their respective rights or obligations under the Agreement, as such
agreement or contract may be amended or supplemented from time to time.
"Joint Bank Account" shall have the meaning set forth in Article 4.1.
"Management Committee" shall have the meaning set forth in Article 6.1.
"Model Terms" shall mean these Model Joint Operating Terms for EPIC, as
they may be amended or supplemented from time to time.
----------------------
(1) Definitions in this English translation are presented in alphabetical order
in English for ease of reference. Accordingly, the order of these
definitions does not match the order in the definitive Spanish version.
115
"Permitted Expenditures" shall mean:
(i) Chargeable Expenditures;
(ii) other expenditures that (a) relate to and are necessary for the
provision of Operating Services or other activities under the
Agreement, (b) are also paid by the Other Contractor(s), and (c)
are of a kind and in amounts that are customarily charged to
contractors under international joint operating agreements; and
(iii) other expenditures that EPIC agrees to pay.
II
SCOPE
Absent express written agreement to the contrary by EPIC, these Model Terms
shall govern relations between EPIC and the Operator and EPIC and the Other
Contractors and shall create a binding contractual relationship,
enforceable against each of them in accordance with its terms.
Except as the Other Contractors and/or the Operator may agree, these Model
Terms will not affect any Contractor Agreement or any other aspect of
relations between or among the Other Contractors and/or the Operator.
III
NON-DISCRIMINATION
As a general matter, in all matters relating to the Agreement and the
Contractors' rights and obligations thereunder, the Operator and the Other
Contractors shall not discriminate against EPIC, shall afford EPIC the same
rights, access to information and other benefits as are enjoyed by Other
Contractors under any Contractor Agreement or otherwise (taking into
account the level of EPIC's Participation) and shall treat EPIC no less
favorably than any Other Contractor with the same Participation is or would
be treated by the Operator and/or Other Contractors under a Contractor
Agreement or otherwise; provided that, unless it expressly agrees to the
contrary in writing, EPIC shall at all times be entitled to the minimum
rights, benefits and treatment provided in these Model Terms.
IV
BANK ACCOUNTS; CASH CALLS; DEFAULT
4.1 (a) If it has not already done so, the Operator shall establish and
maintain one or more bank accounts (the "Joint Bank Accounts") in Dollars
(and in Bolivars, if there are Cash
2
116
Calls in Bolivars), into which Advances and the Service Fee will be
deposited and from which Permitted Expenditures will be paid by or
reimbursed to the Operator. Payments of the Service Fee shall be held in a
Joint Bank Account in Dollars and distributions of net amounts to EPIC
shall be made in Dollars.
(b) The Operator shall distribute cash from a Joint Bank Account to EPIC in
proportion to EPIC's Participation in the Field (or, in the case of any
reimbursement of unused Advances, Exploration Activity) concerned, at the
same time as it distributes any cash from such Joint Bank Account to any
Other Contractor (including the Operator itself in its capacity as a
Contractor).
(c) The Joint Bank Accounts shall be managed and Cash Calls made with a
goal of minimizing the amount of idle cash in the Joint Bank Accounts, to
the extent consistent with the needs of the Operator to perform the
Operating Services contemplated in the Agreement.
4.2 The Operator shall make Cash Calls to EPIC in accordance with the
procedures set forth herein to provide for the orderly funding by EPIC of
its Participation in Permitted Expenditures. Cash Calls may be made by the
Operator to fund any Permitted Expenditures. Cash Calls in respect of each
Field or Exploration Activity may be made to EPIC in proportion to its
respective Participation in the Field or Exploration Activity concerned
only at the same time and in the same manner that Cash Calls with respect
to the Permitted Expenditures concerned are made to all Other Contractors
having a Participation in such Field or Exploration Activity. In addition,
all Cash Calls to EPIC will be subject to the following conditions:
(i) No later than fourteen calendar days prior to the beginning of
each calendar month, the Operator shall furnish EPIC with a notice of
(a) the Cash Call(s) being made for such calendar month and (b) an
estimate of the Cash Calls that will be made for the three following
calendar months. The amount requested in the Cash Call notice for any
month shall be the Operator's estimate of the amount and currencies
that will be payable in such calendar month in respect of the relevant
Permitted Expenditures, taking into account cash already on hand and
net of any Service Fee that the Operator expects to receive in such
calendar month (to the extent that the Operator nets the Service Fee
with respect to the Other Contractors), plus a reserve for
contingencies in amounts consistent with normal industry practice.
Each Cash Call notice sent to EPIC shall specify the amount applicable
to each Field and to each Exploration Activity relevant to EPIC. Each
Cash Call notice shall identify the budget items or AFE's (or main
groupings of budget items or AFE'S) for which the funds are required
and the amounts attributable to each such budget item or AFE (or
grouping thereof).
(ii) Cash Call(s) made in such notice for the coming calendar month
shall be paid by EPIC no later than the first Business Day of such
calendar month or such later Business Day as may be specified in the
notice. Where Cash Calls are for
3
117
more than $1.0 million (or the equivalent in another currency), EPIC
will have the right to pay the Cash Calls in two or more installments
during the course of the month in implementation of the principle
stated in Article 4.1(c); provided that the timing of payment is
consistent with the Operator's needs for funding.
(iii) With respect to any Cash Calls made to the Other Contractors
(or in the case of a single Other Contractor, any Permitted
Expenditures actually made by such Other Contractor) prior to the date
of execution and delivery of the Agreement by EPIC, EPIC shall pay the
Operator its Participation in such Cash Calls (or such Permitted
Expenditures) on the first Business Day that is or follows the latest
of: (a) 30 calendar days following the date EPIC executes and delivers
the Agreement, (b) five Business Days following receipt of an
appropriate Cash Call notice from the Operator, and (c) the date on
which such Cash Call is to be paid by the Other Contractors.
Where the Other Contractors have paid a Cash Call (or a single Other
Contractor has made a Permitted Expenditure) prior to the date on
which EPIC pays its Participation in such Cash Call (or Permitted
Expenditure), EPIC shall also pay interest on the amount of such
Participation from and including the date of payment by the Other
Contractor(s) to but excluding the date of payment by EPIC, at a rate
for each day equal to *.
(iv) Cash Calls to EPIC may be made only in Bolivars or Dollars. Each
Cash Call shall specify, in respect of each Advance, the currency
required and the Joint Bank Account to which payment is to be made.
Payments of all Cash Calls shall be made to such Joint Bank Account,
in funds available for withdrawal by the Operator on the date on which
the payments are due. Whenever a Cash Call is made in Bolivars or
Dollars for a funding need in another currency, the Operator shall
purchase the appropriate amount of the required currency with Bolivars
or Dollars, as the case may be, in an arms' length transaction from a
bank of international reputation.
4.3 In the event that amounts are payable in respect of Permitted
Expenditures for which a Cash Call may be made by the Operator, and
there is not sufficient cash on hand Advanced by the relevant
Contractors to meet such Permitted Expenditures, the Operator shall
give notice to each of EPIC and the relevant Other Contractors
requesting that it fund its Participation in a special Cash Call. If
EPIC elects not to provide such funding or does not respond in a
timely manner, the Operator may advance EPIC's Participation in such
amounts, if the Operator could; if necessary, simultaneously advance
the respective Participations of the relevant Other Contractors.
Amounts so advanced on behalf of EPIC shall be included in the Cash
Call to EPIC for the next month (or for the following month, if the
latest date for the notification of a Cash Call for the next month has
passed before the date of such advance). The Operator shall receive
interest on each such advance from and including the date of the
advance, to but excluding the date of reimbursement, at a rate for
each day in such period equal to the lower of (i) the lowest rate
charged any Other
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
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Contractor with respect to advances made at the same time and (ii)
LIBOR for such day. The related Cash Call shall include an amount
sufficient to pay such interest.
4.4 (a) All Cash Calls made by the Operator shall be paid by EPIC,
regardless of whether it disputes the correctness of such Cash Calls.
If the Operator makes an improper Cash Call in bad faith or repeatedly
makes improper Cash Calls, such error or errors shall constitute a
breach by the Operator of its obligations under these Model Terms,
Payment of any Advance will not prejudice EPIC's right to protest or
question the correctness of the related Cash Call.
(b) EPIC shall have the right to require that one audit of Permitted
Expenditures, Cash Calls, Advances, Joint Bank Accounts and related
matters be performed in any Calendar Year, at its own expense, by a
firm of independent auditors of recognized international standing with
expertise in Venezuelan accounting principles. Such audit may cover
any or all such matters relating to the current Calendar Year or the
two preceding Calendar Years. EPIC shall give at least 30 days' notice
to the Operator of its intention to conduct such an audit. Audits
shall be conducted in a manner so as to minimize disruptions to the
Operator's activities. The Operator shall cooperate with the auditors,
including providing access to all relevant facilities during regular
business hours and providing appropriate assistance to the auditors.
Notwithstanding the previous paragraph, if the items as to which EPIC
requests an audit have already been audited once as part of the annual
audit required by Clause 18.3 of the Agreement and Article 3.1 of the
Accounting Procedures and a second time as part of an additional audit
requested either by the Affiliate pursuant to Article 3.2 of the
Accounting Procedures or by one or more Other Contractors pursuant to
a Contractor Agreement or otherwise, EPIC will not have the right to
require a third audit.
4.5 (a) If EPIC fails to pay any Cash Call when due, the Operator or any
Other Contractor may give EPIC a notice of default. EPIC will have
five Business Days from the giving of such notice in which to make up
the Cash Call without penalty. If it fails to make up the Cash Call
within such five Business Days, (i) EPIC will lose the right to
receive distributions of the Service Fee and the Operator will be
entitled to apply any Service Fees payable to EPIC to the amount of
the unpaid Cash Calls, and (ii) the net amount of such unpaid Cash
Calls (after application of the Service Fee) will subsequently bear
interest, at a rate for each day equal to *, from and including the
date such amount was originally due to but excluding the earlier of
(1) the date of payment of such amount, (2) the date of transfer of
EPIC's Participation as provided in Article 4.5(b), and (3) the date
of withdrawal by EPIC with respect to the Field concerned pursuant to
Clause 20.4 of the Agreement. If any portion of a Cash Call remains
unpaid 30 calendar days after such notice of default, EPIC will lose
the right to vote on any Management Committee (but will not lose its
right to receive information pursuant to Article V). Upon payment in
full of all unpaid Cash Calls and interest thereon, EPIC's rights to
receive the Service Fee and to vote will be immediately reinstated.
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
5
119
(b) At any time that the amount of such missed Cash Call plus interest
thereon remains unpaid following 120 calendar days after the end of
the five-Business Day period referred to in the previous paragraph,
the Operator shall have the right, but not the obligation, to give
notice to EPIC requiring EPIC to transfer its Participation in the
Field(s) or Exploration Activity to which the missed Cash Call relates
to the Other Contractors in such proportions as the Operator shall
indicate in the notice, without payment of any compensation or
consideration of any kind to EPIC. To this end, upon receipt of such
notice, EPIC shall be deemed to have transferred all of its right,
title and beneficial interest in and under the Agreement to such Other
Contractors and to have empowered the Operator to execute on EPIC's
behalf any documents required to effect such transfer. If requested,
EPIC will execute a power of attorney in this regard and will do any
and all acts required by applicable law or regulation in order to
complete such transfer. In the event that any necessary governmental
or other approvals are not timely obtained, EPIC shall hold its
Participation concerned in trust for the Other Contractors designated
in the Operator's notice of transfer. Upon the effectiveness of the
transfer of EPIC's Participation as provided above, EPIC will cease to
be a Contractor under the Agreement with respect to the Field or
Exploration Activity concerned,
For purposes of Clause XXVII of the Agreement, the Affiliate will be
deemed to have approved the Transfers provided above in advance and no
further approval by the Affiliate will be required.
(c) Transfer of EPIC's Participation in the Field(s) or Exploration
Activity concerned pursuant to Article 4.5(b) will not relieve EPIC of
the obligation to pay the Operator the amount of the missed Cash Call
together with interest thereon or of liability for any other
obligations, financial or otherwise, that have vested, matured or
accrued under the Agreement prior to such transfer.
4.6 Unless it otherwise agrees, EPIC shall have no liability in respect
of late or missed Cash Calls to Other Contractors.
V
ACCESS TO INFORMATION
5.1 Subject to Article 7.2(c)(2), the Operator and the Other Contractors
shall promptly provide EPIC with copies of all documents,
communications, reports, notices and other information that are
provided to,or received from, the Affiliate, any Other Contractor or
any ministry or agency of the Venezuelan government in connection with
the Agreement, including without limitation the following:
(i) preliminary and final versions of any Development Plan,
Annual Work Program and Budget, AFE, proposal for an Exploration
Activity or Final Well Report, and of any significant amendments
thereto; and
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120
(ii) any significant commentary disagreement, dispute, approval,
response or other communications with regard to any of such
documents;
provided that magnetic tapes may be stored by the Operator and made
available for inspection and/or copying at the expense of EPIC.
5.2 In addition, to the extent not already included under Article 5.1, the
Operator shall promptly provide EPIC with copies of
(i) all data and reports that are produced or compiled under the
Uniform Reporting System;
(ii) all monthly and annual reports produced pursuant to Article
II of the Accounting Procedures;
(iii) all audits and related information done or produced
pursuant to Article III of the Accounting Procedures; and
(iv) such additional information as EPIC may reasonably request,
provided that it pays the costs of preparation of such additional
information.
5.3 In general, the Operator shall afford EPIC access at all reasonable times
to all facilities and installations used in connection with the Operating
Services and to other data, information and documents acquired or produced
in the conduct of the Operating Services and permit EPIC to make copies
thereof at its own expense.
5.4 Notwithstanding the other provisions of this Article V, neither the
Operator nor any Other Contractor shall be required to divulge proprietary
technology to EPIC; provided that where the cost of development of
proprietary technology has been included as a Permitted Expenditure to
which EPIC has contributed, such proprietary technology shall be disclosed
to EPIC and may be used by EPIC in other operations.
VI
PARTICIPATION IN COMMITTEES
6.1 EPIC shall have the right to nominate one representative and one alternate
representative to each operating committee, technical committee or similar
body (each a "Management Committee") that is composed of representatives of
the Contractors and has powers and duties with regard to authorizing and
supervising Operating Services and other activities relating to the
Agreement. EPIC shall have the right to change its representative and
alternate at any time by giving notice to such effect to the Operator and
the Other Contractors. EPIC shall be entitled to receive all notices and
information (including, without limitation, proposed authorizations for
expenditure) and to participate in meetings
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on the same basis as the Other Contractors, and to a vote on each
Management Committee equal to its Participation from time to time.
6.2 If an operating committee and a technical committee have not already been
formed pursuant to a Contractor Agreement or otherwise, the Other
Contractor(s), the Operator and EPIC shall create an operating committee
and technical committee, which shall each meet at least twice per year and
shall have such powers and duties and operate according to such procedures
as are customary in the international oil industry. The Operator shall
provide EPIC with such notices, information and proposed authorizations for
expenditure as are customary in the international oil industry.
6.3 If the requirements of Articles 6.1 or 6.2 are satisfied, decisions of the
Management Committee concerned shall be conclusive and binding on EPIC to
the extent that such decisions are also conclusive and binding on all Other
Contractors; provided that (i) EPIC shall have no liability with respect to
any activity or matter as to which it gives notice nonconsent under
Articles 7.2(a), 7.3(a) or 7.4, and (ii) a Management Committee may not
amend the Agreement or these Model Terms or modify EPIC's rights thereunder
or hereunder without EPIC's written consent.
VII
PARTICIPATION IN FIELD DEVELOPMENTS; EXPLORATION
ACTIVITIES AND CERTAIN OTHER ACTIVITIES
7.1 Subject to its right to withdraw pursuant to Clause 20.4 of the Agreement
and its right to transfer its Participation in a Field pursuant to Clause
XXVII of the Agreement, EPIC shall be liable for its share of all
Chargeable Expenditures relating to the Initial Field and for all other
Permitted Expenditures reasonably related to such Field, and shall be
entitled to its share of the Service Fee with respect to such Initial
Field, for the entire Operation Period of such Initial Field. It shall
otherwise have no right to withhold consent or otherwise to opt out of
Operating Services performed with respect to the Initial Field.
7.2 (a) Subject to Article 7.2(c), EPIC shall have the right to participate in
any Exploration Activity that is proposed to the Affiliate pursuant to
Clause VIII of the Agreement. The Operator shall promptly give EPIC notice
of any such proposal. At any time within the 10 calendar days following
such notice (or within 48 hours if the proposed Exploration Activity
involves use of a drilling rig that is standing by) EPIC may notify the
Operator that it does not wish to participate in such Exploration Activity.
Absent such notification of non-consent, EPIC will be deemed to have
approved such Exploration Activity and will be liable for its Participation
in all Permitted Expenditures in connection with such Exploration Activity,
(b) In the event that EPIC notifies the Operator that it does not wish to
participate in such an Exploration Activity, it will have no liability for
any Permitted Expenditures or any
8
122
other liabilities incurred in connection with such Exploration Activity.
Thereafter, each of the Other Contractors participating in such Exploration
Activity will indemnify EPIC from, and hold it harmless against, any costs,
expenses (including without limitation reasonable legal costs, expenses and
attorneys' fees) and liabilities incident to claims, demands or causes of
action of every kind and character brought by or on behalf of any Person,
for damage to or loss of property or the environment, or for injury to,
illness or death of any Person, in each case to the extent such costs,
expenses and liabilities arise from or are related to such Exploration
Activity,
(c) In the event that EPIC elects not to participate in an Exploration
Activity as provided above, it will be deemed to have conclusively
relinquished to the Other Contractors (1) all rights to participate in such
Exploration Activity and in any additional exploration, appraisal or
drilling activity that results directly therefrom, (2) all rights under
these Model Terms to receive data or information relating to or resulting
from such Exploration Activity or additional activities, and (3) all rights
under the Agreement to have a Participation in the development of any
Hydrocarbons discovered or appraised as a result of such Exploration
Activity or additional activities,
(d) Notwithstanding the provisions of Article 7.2(c), if any non-consenting
Other Contractor has the option under a Contractor Agreement or otherwise
to reinstate any of the rights described in Article 7.2(c), EPIC shall have
the same option on the same terms and subject to the same conditions as
such Other Contractor.
(e) Further notwithstanding the provisions of Article 7.2(c), if an
Exploration Activity in which EPIC does not participate leads either (1) to
the development of a new Field whose development also results from
Exploration Activities in which EPIC does participate or (2) to the
extension of an existing Field in which EPIC has a Participation, EPIC
shall have the option to have a Participation in the development of such
new Field equal to its Participation in the Exploration Activities in which
it did participate or to maintain its Participation in the existing Field.
Such option shall be exercisable by giving notice to the Operator at any
time during the 30 calendar days following the approval by the Affiliate of
a Development Plan for such new Field or an amendment of the Development
Plan for the existing Field.
If EPIC gives such notice, it will be required to pay the Operator the full
amount of its Participation in each Cash Call for Exploration Expenditures
and other Permitted Expenditures related to the Exploration Activities in
which EPIC did not participate, that was addressed to the Other Contractors
prior to the date of such notice and has not already been paid by EPIC.
The amount of each such Cash Call shall be paid to the Operator on the
first Business Day that is or follows the latest of: (a) 30 calendar days
following the date of such notice, (b) five Business Days following receipt
of an appropriate Cash Call notice from the Operator, and (c) the date on
which any such Cash Call is to be paid by the Other Contractors.
9
123
If Other Contractors have paid such a Cash Call prior to the date on which
EPIC pays its Participation in such Cash Call, EPIC shall also pay interest
on the amount of such Participation from and including the date of payment
by the Other Contractors to but excluding the date of payment by EPIC, at a
rate for each day equal to LIBOR plus 1%.
7.3 (a) Subject to Article 7.2(c), EPIC shall have a Participation in any
development proposed pursuant to Clause 8.4 of the Agreement, that
corresponds to its Participation in the Exploration Activities that lead to
such development, unless it notifies the Affiliate and the Operator at any
time prior to approval of the related Development Plan by the Affiliate
that it does not wish to participate in such development. Absent such
notification, and subject to its right to withdraw pursuant to Clause 20.4
of the Agreement and its right to transfer its Participation in a Field
pursuant to Clause XXVII of the Agreement, EPIC shall be liable for its
share of all Chargeable Expenditures, and be entitled to its share of the
Service Fee, with respect to the Field concerned for the entire Operation
Period of such Field. It shall Otherwise have no right to withhold consent
or otherwise to opt out of Operating Services performed with respect to
such Field.
(b) In the event that EPIC notifies the Operator that it does not wish to
participate in such Development Plan, it will have no liability for any
Chargeable Expenditures or any other liabilities incurred in connection
with such Development Plan or such Field after the giving of such notice.
Thereafter, each of the Other Contractors participating in such Development
Plan will indemnify EPIC from, and hold it harmless against, any costs,
expenses (including without limitation reasonable legal costs, expenses and
attorneys' fees) and liabilities incident to claims, demands or causes of
action of every kind and character brought by or on behalf of any Person,
for damage to or loss of property or the environment, or for injury to,
illness or death of any Person, in each case to the extent such costs,
expenses and liabilities arise from or are related to such Development Plan
or the conduct of any activities with respect to such Field.
7.4 EPIC shall have the right to participate on the same terms and conditions
as any Other Contractors (including the right to receive its pro rata share
of any revenues realized in addition to the Service Fee), with a
Participation equal to the largest Participation it then has with respect
to a Field under the Agreement, in:
(i) any infrastructure projects proposed pursuant to Clause 15.3 of
the Agreement;
(ii) any Natural Gas development negotiated pursuant to Clause XVI of
the Agreement; and
(iii) any acquisition, construction or operation of any other
facilities, installations or other assets which are to be used partly
in connection with the Operating Services and partly in connection
with other operations or to provide services to third parties.
10
124
VIII
TRANSFER OF PARTICIPATIONS
8.1 Absent express written agreement to the contrary with one or more Other
Contractors, EPIC will not be subject to, or have the benefit of, any
restrictions on Transfers of Participations existing with respect to some
or all of the Other Contractors under any Contractor Agreement (such as
rights of first refusal, rights of first negotiation, "piggyback" rights,
and other similar rights).
8.2 In any event, EPIC will be subject to the provisions of Clause XXVII of the
Agreement, except as specifically provided to the contrary in Clause 3.3 of
the Agreement.
IX
MISCELLANEOUS
9.1 These Model Terms shall be governed by and construed in accordance with the
laws of the Republic of Venezuela. Disputes between EPIC and the Operator
or any Other Contractor shall be resolved as provided in Clause 23.2 of the
Agreement.
9.2 All notices, demands, instructions, waivers, consents or other
communications to be provided pursuant to these Model Terms shall be given
as provided in Clause XXVII of the Agreement,
9.3 To be binding, any amendment of these Model Terms must be effected by an
instrument in writing signed by EPIC, the Operator and the Other
Contractors. No further formalities shall be required to amend these Model
Terms.
9.4 Rights hereunder may not be waived, except pursuant to a writing signed by
the Party against which enforcement of the waiver is sought.
9.5 Notwithstanding anything to the contrary contained in these Model Terms, in
no event shall any Party be liable to any other Party for any consequential
damages or lost profits that such other Party might suffer. The Parties
acknowledge that this provision is intended only to limit their liability
to each other for consequential loss or damage and lost profits, and shall
not be construed to so as to limit their liability to third parties or
their right to seek indemnification for third party claims in accordance
with any other Clause.
The Operator and each Other Contractor shall indemnify EPIC from, and hold
it harmless against, any loss, damage, cost or expense (including without
limitation reasonable legal costs, expenses and attorneys' fees) incurred
as a result of or arising from the gross negligence or willful misconduct
respectively of the Operator or such Other Contractor in connection with
activities relating to the Agreement,
11
125
EPIC shall indemnify the Operator and each Other Contractor from, and hold
it harmless against, any loss, damage, cost or expense (including without
limitation reasonable legal costs, expenses and attorneys' fees) incurred
as a result of or arising from the gross negligence or willful misconduct
of EPIC in connection with activities relating to the Agreement.
In the event that EPIC pays, or is held liable for, any cost, loss, damage
or expense (other than EPIC's own costs of litigation) arising out of or in
relation to any of the Operating Services or any other activity under the
Agreement (including, without limitation, as a result of settlement of
third party claims), that is in excess of EPIC's Participation in the
Operating Services or activity giving rise to such cost, loss, damage or
expense, each Other Contractor that pays, or is held liable for, a part of
the total cost, loss, damage or expense that is less than its Participation
in such Operating Services or activity shall promptly upon notice from EPIC
pay to EPIC the amount of the shortfall. Similarly, EPIC shall be liable
for contribution to some or all of the Other Contractors if it pays, or is
held liable for, less than its Participation in any such cost, loss, damage
or expense.
9.6 Nothing contained in these Model Terms or in the Agreement is intended to
create, or shall be deemed or construed as creating, any legal entity
between the Parties. No Party shall have the authority or right, or hold
itself out as having the authority or right, to assume, create or undertake
any obligation of any kind whatsoever, express or implied, on behalf of or
in the name of any other Party, except as expressly provided herein.
12
126
ANNEX L
[TRANSLATION]
PRICE FORMULA
For purpose of Clause 17.4 of the Agreement, the value of Hydrocarbons
other than Associated Gas for each calendar day in any given Quarter will be
determined in accordance with the appropriate formula set forth below.
The average price for purposes of Clause 17.4 will be the arithmetic mean
of the prices for each calendar day in the Quarter, except Saturdays, Sundays,
and legal holidays in the place where price quotation referred to below is
taken, carried to three decimal places with fractions of 0.0005 or more being
rounded up. If a quotation used in the applicable formula is unavailable for
any particular day, the most recent available quotation will be used.
A. Liquid Hydrocarbons
1. For Liquid Hydrocarbons having an API gravity of 28 degrees or greater,
*
2. For Liquid Hydrocarbons having an API gravity of 22 degrees to 27.9 degrees,
*
3. For Liquid Hydrocarbons having an API gravity of 15 degrees to 21.9 degrees,
*
4. For Liquid Hydrocarbons having an API gravity of 10 degrees to 14.9 degrees,
*
* Confidential portions of this page and pages 2, 3, 4, 5 and Exhibit 1 on
this Annex L have been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
127
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
2
128
In the event that ▇▇▇▇▇'▇ Oilgram Price Report at any time ceases to be
published or is otherwise unavailable, the Affiliate and the Contractors shall
agree on an alternative source of price information for the index crudes
concerned. If any such index is unavailable from any source or if the
composition of such index changes so that it is no longer substantially
equivalent to the index as of the Effective Date, the Affiliate and the
Contractors shall agree on a new index or indexes, and on corresponding
modifications of the appropriate Price Formula as set forth above, so that such
new index(es) and modified Price Formula yield substantially the same
historical results as the initial index(es) and Price Formula.
If the Affiliate and the Contractors are unable to agree on either (i)
whether one of the circumstances described in the preceding paragraph has
occurred, or (ii) the appropriate solution to such circumstance, within 60 days
following notification by one side to the other that agreement on such a matter
is required, either the Affiliate or the Contractors will have the right to
refer such matter to an independent expert for decision pursuant to Clause 23.3
of the Agreement. The decision of the independent expert will be final and
binding. Unless otherwise agreed by the Parties, the independent expert's
decision will be strictly limited to the matters described in the preceding
paragraph and no other issue relating to the Price Formula may be submitted for
independent expert review.
B. Natural Gas (except Associated Gas)
1. For Natural Gas from Cretacico Sur,
*
2. For Natural Gas from La ▇▇▇▇▇▇▇▇▇▇,
*
3. For Natural Gas from La Vela Costa Afuera,
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
3
129
*
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
130
*
In the event that an official price for Natural Gas or high sulfur fuel
oil is no longer established for the relevant Venezuelan market pursuant to
government regulation, then for purposes of determining P(001) or FOP, as the
case may be, for the above formulae, the Affiliate and the Contractors shall
agree on an index or other source of price information that most accurately
indicates the actual, average daily selling price for Natural Gas or high
sulfur fuel oil, as the case may be, for industrial uses, that is charged by
the Affiliate or other major suppliers on the open market in the relevant
location, under term contracts.
If the Affiliate and the Contractors are unable to agree on either (i)
whether one of the circumstances described in the preceding paragraph has
occurred, or (ii) the appropriate solution to such circumstance, within 60 days
following notification by one side to the other that agreement on such a matter
is required, either the Affiliate or the Contractors will have the right to
refer such matter to an independent expert for decision pursuant to Clause 23.3
of the Agreement. The decision of the independent expert will be final and
binding. Unless otherwise agreed by the Parties, the independent expert's
decision will be strictly limited to the matters described in the preceding
paragraph and no other issue relating to the Price Formula may be submitted for
independent expert review.
* Confidential portion has been omitted pursuant to a request for
confidential treatment and filed separately with the Commission.
5
131
Exhibit 1
VALUES OF K(LCH) FOR PURPOSES OF THE PRICE FORMULAS
------------------------------------------------
K(LCH) IN $/BARREL FOR
AREAS INITIAL DELIVERY POINTS
------------------------------------------------
Acema *
------------------------------------------------
Ambrosio *
------------------------------------------------
Bachaquero S. O. *
------------------------------------------------
Boqueron *
------------------------------------------------
B2X-68/79 *
------------------------------------------------
B2X-70/80 *
------------------------------------------------
Cabimas *
------------------------------------------------
Caracoles *
------------------------------------------------
Casma-Anaco *
------------------------------------------------
Cretacico Sur *
------------------------------------------------
Dacion *
------------------------------------------------
Intercampo N. *
------------------------------------------------
Kaki *
------------------------------------------------
La ▇▇▇▇▇▇▇▇▇▇ *
------------------------------------------------
La Vela Costa Afuera *
------------------------------------------------
LL-652 *
------------------------------------------------
▇▇▇▇ *
------------------------------------------------
Maulpa *
------------------------------------------------
Mene Grande *
------------------------------------------------
Onado *
------------------------------------------------
* Confidential portion has been omitted pursuant to a request for confidential
treatment and filed separately with the Commission.
132
ANNEX M
[Translation]
[FORM OF GUARANTEE FOR MINIMUM WORK OBLIGATION](1)
Reference is made to the Operating Agreement (the "Agreement") of even
date herewith among [name of Affiliate] (together with its successors and
assigns, the "Affiliate"), a sociedad anonima organized under the laws of the
Republic of Venezuela, ____________________ (the "Guaranteed Entity"), a
___________________ organized under the laws of ____________________ and
___________________ a ____________________ organized under the laws of
___________________, and ____________________, a ____________________ organized
under the laws of ____________________.
____________________ (the "Guarantor"), a ___________________ organized
under the laws of ____________________, and an Associated Entity of the
Guaranteed Entity, hereby agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
2. The Guarantor hereby expressly represents and warrants to the
Affiliate that:(i) it is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, (ii) it
has all requisite corporate power and authority to execute, deliver
and perform this Guarantee, (iii) the execution, delivery and
performance of this Guarantee have been duly authorized by all
necessary corporate action, (iv) this Guarantee constitutes the legal,
valid and binding obligation of the Guarantor, enforceable against the
Guarantor in accordance with its terms, (v) no governmental
approvals are required in connection with the execution, delivery and
performance of this Guarantee, except as have been obtained and are in
force, and (vi) the execution, delivery and performance of this
Guarantee by the Guarantor will not violate any provision of any
existing law or regulation to which the Guarantor is subject or any
provision of the Guarantor's constitutive documents or of any material
agreements to which it may be a party.
3. The Guarantor hereby unconditionally and irrevocably guarantees to the
Affiliate, as primary debtor and obligor, the payment of the
Guaranteed Amount (as defined below) if the Minimum Work Obligation is
not completed by the earlier of (i) the date of termination of the
Agreement and (ii) the date that is [ ](2) years following the
Takeover Date (in either case, the
-------------
(1) This Guarantee may be provided in lieu of the letter of credit by
bidders whose direct or indirect parent companies qualified in
Category "A" or "B" in the Third Operating Agreement Round.
(2) Insert the number of years specified in the Final Tender Protocol for
the completion of the Minimum Work Obligation.
133
"Completion Date"). The "Guaranteed Amount" shall initially be equal
to U.S.$ _______.(3) The Guaranteed Amount shall be reduced no
earlier than three months after the date of this Guarantee, and no
more frequently than every three months thereafter, by the amount
specified in a certificate duly executed by the Affiliate in the form
attached hereto as Exhibit 1. The Guaranteed Amount shall be reduced
to zero upon the execution by the Affiliate of a Certificate in the
form attached hereto as Exhibit 2.
4. In the event that the Minimum Work Obligation is not completed by the
Completion Date, no later than three Business Days after written
demand by the Affiliate, the Guarantor shall pay the Guaranteed Amount
as of the Completion Date, in U.S. dollars, by wire transfer of
immediately available funds to the account specified by the Affiliate.
In the event that the Guarantor disputes any such demand, the
Guarantor shall nonetheless pay the amount demanded, and, in the event
that the dispute is resolved in the Guarantor's favor, the Affiliate
shall repay the excess amount paid by the Guarantor, together with
interest at a reasonable rate to be determined by mutual agreement by
the Affiliate and the Guarantor or, if such agreement is not reached
by the time an arbitral tribunal appointed pursuant to Clause 12 of
this Guarantee makes an award, to be determined by the arbitral
tribunal.
5. This Guarantee shall expire and shall be of no further force or effect
if no demand for payment is made hereunder pursuant to Clause 4 within
six months following the Completion Date, except that this Guarantee
shall be reinstated and be in full force and effect if, and to the
extent that, the Guaranteed Entity makes any payment to the Affiliate
in respect of an amount guaranteed hereunder and such payment, or any
portion thereof, is required to be returned to the Guaranteed Entity
in accordance with any applicable bankruptcy, insolvency or similar
law.
6. This Guarantee is irrevocable and unconditional and shall remain in
full force and effect to the extent of the Guaranteed Amount at any
given time, notwithstanding (a) any amendment or termination of the
Agreement, (b) any extension of time or other concession granted by
the Affiliate, or (c) any delay or failure by the Affiliate in
pursuing any actions or remedies available against the Guarantor
hereunder (except as provided in Clause 5) or against the Guaranteed
Entity for failure to complete the Minimum Work Obligation or
otherwise.
7. The provisions contained in Article 547 of the Commercial Code of
Venezuela will be fully applicable to this Guarantee. Accordingly, the
Affiliate shall have no obligation to pursue any remedy or take any
action against or in respect of the Guaranteed Entity prior to
enforcing its rights under this Guarantee directly against the
Guarantor. In addition, the Guarantor may not claim that the Affiliate
could have avoided or mitigated, in any manner or through any action,
--------------
(3) The amount to be included will be equal to the product of the
Guaranteed Entity's Participation, and the value of the Minimum Work
Obligation set forth in Section 4.4 of the Agreement. The value of the
Minimum Work Obligation for each Area is set forth in the Final Tender
Protocol.
2
134
the damages resulting from the Guaranteed Entity's failure to complete
the Minimum Work Obligation, or resort to any other guarantee held at
any time in its favor, before proceeding against the Guarantor in
connection with its obligations under this Guarantee. The Guarantor's
obligations under this Guarantee shall be independent and absolute,
and the Guarantor shall have no right of set-off or counterclaim with
respect to any other claims it may have against the Affiliate or any
other Person.
8. All of the obligations of the Guarantor set forth herein shall bind
the Guarantor and its successors and permitted assigns. The Guarantor
may not assign or delegate its duties or obligations hereunder without
the prior written consent of the Affiliate, and any purported
assignment or delegation without such consent shall be null and void.
The Guarantor confirms that this Guarantee shall remain in effect with
respect to any assignee of the Guaranteed Entity under the Agreement
that is an Associated Entity of the Guaranteed Entity, and upon any
such assignment the assignee shall be considered the Guaranteed Entity
for all purposes hereunder to the extent of the assigned obligations.
The Guarantor additionally confirms that any permitted assignee of all
of the Affiliate's rights and obligations under Clause 27.3 of the
Agreement may exercise all rights and remedies of the Affiliate under
this Guarantee. No other person or entity shall be a beneficiary of
this Guarantee or have or acquire any rights by reason of this
Guarantee.
9. This Guarantee shall be governed by and construed in accordance with
the laws of the Republic of ▇▇▇▇▇▇▇▇▇.
▇▇. Any failure or delay by the Affiliate to exercise any right, in whole
or in part, hereunder shall not be construed as a waiver of the right
to exercise the same or any other right.
11. No amendment or modification of this Guarantee shall be effective
unless in writing and signed by the Guarantor and the Affiliate.
12. Any dispute concerning the legal interpretation or construction of
this Guarantee shall be settled exclusively and finally by
arbitration. The arbitration shall be conducted in accordance with the
Rules of the International Chamber of Commerce ("ICC"). The Affiliate
shall select an arbitrator and the Guarantor shall select an
arbitrator in accordance with the ICC Rules. The arbitrators so
nominated shall then agree within 30 days on a third arbitrator to
serve as Chairman. The arbitration shall be conducted in New York City
(United States of America). Notwithstanding the foregoing, in the
event that a dispute involves both the Guarantor and the Guaranteed
Entity, arbitration shall be conducted in accordance with Clause 23.2
of the Agreement, as a single proceeding, and the Guarantor and the
Guaranteed Entity shall jointly have the rights of the Guaranteed
Entity under such Clause 23.2.
13. The Guarantor shall pay upon demand and presentation of invoices all
reasonable and actual costs and expenses (including, without
limitation, reasonable fees and expenses of counsel) incurred by the
Affiliate in connection with the successful enforcement of this
Guarantee.
3
135
14. All notices, demands, instructions, waivers or other communications to
be provided pursuant to this Guarantee, and any consents contemplated
in this Guarantee, shall be in writing in Spanish or English, shall be
effective upon receipt, and shall be sent by personal delivery,
courier, first class mail, facsimile or telex, to the following
addresses:
i) If to the Guarantor, to:
ii) If to the Affiliate, to:
[Affiliate name]
[Affiliate address]
The addresses and telex and facsimile numbers for notices given
pursuant to this Guarantee may be changed by means of a written notice
given by the Affiliate or the Guarantor, as applicable, to the other
at least 15 Business Days prior to the effective date of such change.
15. This Guarantee is being executed in both the Spanish language and the
English language. The Spanish version shall constitute the binding
version, and the English version is being executed as a matter of
reference only.
16. This Guarantee may be executed in any number of counterparts, each of
which shall be deemed to be an original.
This Guarantee has been duly executed by the Guarantor and the Affiliate by
their respective officers thereunto duly authorized as of the ___ day of ___,
1997.
[NAME OF GUARANTOR]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
4
136
EXHIBIT 1
[FORM OF AFFILIATE CERTIFICATE REDUCING GUARANTEED AMOUNT]
Reference is made to the Guarantee (the "Guarantee"), dated as of _____,
1997, issued by __________, a __________, organized under the laws of _________,
relating to the Operating Agreement (the "Agreement"), dated as of _____, 1997,
among [name of Affiliate] ("the Affiliate") a sociedad anonima organized under
the laws of the Republic of Venezuela, __________, a __________ organized under
the laws of ______, and ________, a ____________ organized under the laws of
_________. Capitalized terms used herein and not defined have the respective
meanings set forth in the Guarantee or, to the extent not defined therein, in
the Agreement.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The amount in U.S. dollars specified in (a) below is either (1)
the share allocable to the Guaranteed Entity of the amount that
has been spent by the Contractors on the Minimum Work Obligation
through the date of this certificate, or (2) a 10% reduction in
the existing Guaranteed Amount due to Exploracion y Produccion
EPIC, S.A. becoming a Party to the Agreement; and
(ii) The Guaranteed Amount is to be reduced to the amount specified
in (b) below, effective upon the execution of this certificate.
(a) Share or Dollar Amount Spent on $_______________
Minimum Work Obligation or Reduction due
to EPIC
(b) Remaining Guaranteed Amount $_______________
This certificate has been duly executed by the undersigned as of the ___
day of ________ , 199__.
[NAME OF AFFILIATE]
By:
-------------------------
Name:
Title:
5
137
EXHIBIT 2
[FORM OF AFFILIATE CERTIFICATE AS TO COMPLETION]
Reference is made to the Guarantee (the "Guarantee"), dated as of
__________, 1997, issued by __________, a __________, organized under the laws
of _________, relating to the Operating Agreement (the "Agreement"), dated as
of_________, 1997, among [name of Affiliate] ("the Affiliate"), a sociedad
anonima organized under the laws of the Republic of Venezuela, _________, a
___________ organized under the laws of __________, and ____________, a
__________ organized under the laws of __________. Capitalized terms used herein
and not defined have the respective meanings set forth in the Guarantee or, to
the extent not defined therein, in the Agreement.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The Minimum Work Obligation has been completed by the
Contractors; and
(ii) The Guaranteed Amount is to be reduced to zero, effective upon
the execution of this certificate.
This certificate has been duly executed by the undersigned as
of the __________ day of 199__.
[NAME OF AFFILIATE]
By:
-------------------------
Name:
Title:
6
138
ANNEX M-2
[Translation]
[FORM OF FINANCIAL UNDERTAKING FOR MINIMUM WORK OBLIGATION]
Reference is made to the Operating Agreement (the "Agreement") of even
date herewith among [name of Affiliate] (together with its successors and
assigns, the "Affiliate"), a sociedad anonima organized under the laws of the
Republic of Venezuela, __________ (the "Undertaking Contractor"), a __________
organized under the laws of __________, and __________, a __________ organized
under the laws of __________.
With respect to the obligations assumed by the Undertaking Contractor
under the Agreement, the Undertaking Contractor hereby agrees as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
2. The Undertaking Contractor hereby unconditionally and irrevocably
undertakes the payment of the Face Amount (as defined below) to the
Affiliate if the Minimum Work Obligation is not completed by the earlier of
(i) the date of termination of the Agreement and (ii) the date that is
[ ](2) years following the Takeover Date (in either case, the "Completion
Date"). The "Face Amount" shall initially be equal to U.S. $_______(3). The
Face Amount shall be reduced no earlier than three months after the date of
this Financial Undertaking, and no more frequently than every three months
thereafter, by the amount specified in a certificate duly executed by the
Affiliate in the form attached hereto as Exhibit 1. The Face Amount shall be
reduced to zero upon the execution by the Affiliate of a Certificate in the
form attached hereto as Exhibit 2.
------------------
(1) This Financial Undertaking may be provided in lieu of the letter of credit
by pre-qualified companies who qualified financially under Categories "A" or
"B" in the Third Operating Agreement Round and who will be signing the
Operating Agreement directly (and not through an Associated Entity or
Jointly Held Company).
(2) Insert period for completion of the Minimum Work Obligation from the Final
Tender Protocol.
(3) The amount to be included will be equal to the product of the Undertaking
Contractor's Participation, and the value of the Minimum Work Obligation set
forth in Section 4.4 of the Agreement. The value of the Minimum Work
Obligation for each Area is set forth in the Final Tender Protocol.
139
3. In the event that the Minimum Work Obligation is not completed by the
Completion Date, no later than three Business Days after written demand
by the Affiliate, the Undertaking Contractor shall pay the Face Amount
as of the Completion Date, in U.S. dollars, by wire transfer of
immediately available funds to the account specified by the Affiliate.
In the event that the Undertaking Contractor disputes any such demand,
it shall nonetheless pay the amount demanded, and, in the event that
the dispute is resolved in the Undertaking Contractor's favor, the
Affiliate shall repay the excess amount paid by the Undertaking
Contractor, together with interest at a reasonable rate to be
determined by mutual agreement by the Affiliate and the Undertaking
Contractor or, if such agreement is not reached by the time an arbitral
tribunal appointed pursuant to Clause 11 of this Financial Undertaking
makes an award, to be determined by the arbitral tribunal.
4. This Financial Undertaking shall expire and shall be of no further
force or effect if no demand for payment is made hereunder pursuant to
Clause 3 within six months following the Completion Date.
5. The Financial Undertaking is irrevocable and unconditional and shall
remain in full force and effect to the extent of the Face Amount at any
given time, notwithstanding (a) any amendment or termination of the
Agreement, (b) any extension of time or other concession granted by the
Affiliate, or (c) any delay or failure by the Affiliate in pursuing any
actions or remedies available against the Undertaking Contractor
hereunder (except as provided in Clause 4) or under the Agreement for
failure to complete the Minimum Work Obligation or otherwise.
6. The Undertaking Contractor may not claim that the Affiliate could have
avoided or mitigated, in any manner or through any action, the damages
resulting from the Undertaking Contractor's failure to complete the
Minimum Work Obligation, or resort to any guarantee held at any time in
its favor, before proceeding against the Undertaking Contractor in
connection with its obligations under this Financial Undertaking. The
Undertaking Contractor's obligations under this Financial Undertaking
shall be independent and absolute, and the Undertaking Contractor shall
have no right of set-off or counterclaim with respect to any other
claims it may have against the Affiliate or any other Person.
7. All of the obligations of the Undertaking Contractor set forth herein
shall bind the Undertaking Contractor and its successors and permitted
assigns. The Undertaking Contractor may not assign or delegate its
duties or obligations hereunder without the prior written consent of
the Affiliate, and any purported assignment or delegation without such
consent shall be null and void. The Undertaking Contractor agrees that
in the event of any assignment under the Agreement to an Associated
Entity of the Undertaking Contractor, it shall replace this Financial
Undertaking with a guarantee in the form of Annex M-1 to the
Agreement. The Undertaking Contractor additionally confirms that any
permitted assignee of all of the Affiliate's rights and obligations
under Clause 27.3 of the Agreement may exercise all rights and remedies
of the Affiliate under this Financial Undertaking. No other person or
entity shall be a beneficiary of this Financial Undertaking or have or
acquire any rights by reason of this Financial Undertaking.
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8. The Financial Undertaking shall be governed by and construed in
accordance with the laws of the Republic of Venezuela.
9. Any failure or delay by the Affiliate to exercise any right, in whole
or in part, hereunder shall not be construed as a waiver of the right
to exercise the same or any other right.
10. No amendment or modification of this Financial Undertaking shall be
effective unless in writing and signed by the Undertaking Contractor
and the Affiliate.
11. Any dispute concerning the legal interpretation or construction of this
Financial Undertaking shall be settled exclusively and finally by
arbitration. The arbitration shall be conducted in accordance with the
ICC Rules. The Affiliate shall select an arbitrator and the Undertaking
Contractor shall select an arbitrator in accordance with the ICC Rules.
The arbitrators so nominated shall then agree within 30 days on a third
arbitrator to serve as Chairman. The arbitration shall be conducted in
New York City (United States of America).
12. The Undertaking Contractor shall pay upon demand and presentation of
invoices all reasonable and actual costs and expenses (including,
without limitation, reasonable fees and expenses of counsel) incurred
by the Affiliate in connection with the successful enforcement of this
Financial Undertaking.
13. All notices, demands, instructions, waivers or other communications to
be provided pursuant to this Financial Undertaking, and any consents
contemplated in this Financial Undertaking, shall be in writing in
Spanish or English, shall be effective upon receipt, and shall be sent
by personal delivery, courier, first class mail, facsimile or telex, to
the following addresses:
i) If to the Undertaking Contractor, to:
ii) If to the Affiliate, to:
[Affiliate name]
[Affiliate address]
The addresses and telex and facsimile numbers for notices given
pursuant to this Financial Undertaking may be changed by means of a
written notice given by the Affiliate or the Undertaking Contractor,
as applicable, to the other at least 15 Business Days prior to the
effective date of such change.
14. This Financial Undertaking is being executed in both the Spanish
language and the English language. The Spanish version shall constitute
the binding version, and the English version is being executed as a
matter of reference only.
15. This Financial Undertaking may be executed in any number of
counterparts, each of which shall be deemed to be an original.
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141
This Financial Undertaking has been duly executed by the Undertaking
Contractor and the Affiliate by their respective officers thereunto
duly authorized as of the ___ day __________________,of 1997.
[NAME OF UNDERTAKING CONTRACTOR]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
ACKNOWLEDGED AND ACCEPTED:
[NAME OF AFFILIATE]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
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EXHIBIT 1
[FORM OF AFFILIATE CERTIFICATE REDUCING FACE AMOUNT]
Reference is made to the Financial Undertaking (the "Financial
Undertaking"), dated as of ________________, 1997, issued by _______________,
a ______________, organized under the laws of ________________, relating to the
Operating Agreement (the "Agreement"), dated as of __________________, 1997,
among [name of Affiliate] ("the Affiliate"), a sociedad anonima organized under
the laws of the Republic of Venezuela, __________________, a __________________
organized under the laws of ___________________, and ___________________, a
________________ organized under the laws of ________________. Capitalized terms
used herein and not defined have the respective meanings set forth in the
Financial Undertaking or, to the extent not defined therein, in the Agreement.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The amount in U.S. dollars specified in (a) below is either
(1) the share allocable to the Undertaking Contractor of the
amount that has been spent by the Contractors on the Minimum
Work Obligation through the date of this certificate, or (2) a
10% reduction in the existing Face Amount due to Exploracion
y Produccion EPIC, S.A. becoming a Party to the Agreement; and
(ii) The Face Amount is to be reduced to the amount specified in
(b) below, effective upon the execution of this certificate.
(a) Share of Dollar Amount Spent on $ _______________
Minimum Work Obligation or Reduction due
to EPIC
(b) Remaining Face Amount $ _______________
This certificate has been duly executed by the undersigned as
of the ___ day of _______________ 199__.
[NAME OF AFFILIATE]
By:
--------------------------
Name:
Title:
5
143
EXHIBIT 2
[FORM OF AFFILIATE CERTIFICATE AS TO COMPLETION]
Reference is made to the Financial Undertaking (the "Financial
Undertaking"), dated as of _________________, 1997, issued by ________________
a __________________, organized under the laws of _______________, relating to
the Operating Agreement (the "Agreement"), dated as of __________________, 1997,
among [name of Affiliate] ("the Affiliate"), a sociedad anonima organized under
the laws of the Republic of Venezuela, _________________, a ________________
organized under the laws of __________________, and ___________________, a
___________________ organized under the laws of ________________. Capitalized
terms used herein and not defined have the respective meanings set forth in the
Financial Undertaking or, to the extent not defined therein, in the Agreement.
The undersigned, being duly authorized to execute this certificate
on behalf of the Affiliate, hereby certifies that:
(i) The Minimum Work Obligation has been completed by the
Contractors; and
(ii) The Face Amount is to be reduced to zero, effective upon the
execution of this certificate.
This certificate has been duly executed by the undersigned as
of the ____ day of ______________, 199__.
[NAME OF AFFILIATE]
By:
--------------------------
Name:
Title:
6
144
ANNEX N
AVAILABLE ASSETS
BOQUERON AREA
ASSETS TO BE OPERATED BY THE OPERATOR
1. BOQ-1 I flow station.
2. La Toscana manifold inlet.
N-1
145
ANNEX 0
[Translation]
[FORM OF LETTER OF CREDIT FOR MINIMUM WORK OBLIGATION)
IRREVOCABLE STAND-BY LETTER OF CREDIT
Issued by [Name of Bank]
Date:___________
No.:____________
[Name of Affiliate]
[Affiliate Address)
Dear Sirs:
1. [Name of Bank], a __________ organized under the laws of _________
(the "Issuer"), hereby establishes in favor of (name of Affiliate] (the
"Affiliate"), a sociedad anonima organized under the laws of the Republic of
Venezuela, its Irrevocable Standby Letter of Credit No. ______________ (this
"Letter of Credit"), whereby the Issuer authorizes the Affiliate to draw
hereunder, in a single drawing, the Face Amount of this Letter of Credit as of
the date of drawing (determined in the manner set forth in Clause 3 of this
Letter of Credit) by presentation of a Draft and a Drawing Certificate (each as
defined below) at the Issuer's office specified in Clause 5 of this Letter of
Credit, during the Drawing Period (as defined below).
2. This Letter of Credit is being established in accordance with the
Operating Agreement (the "Agreement "), dated ______, 1997, between the
Affiliate, [Contractor #1], a ____________ organized under the laws of
__________, and [Contractor #2], a _____________ organized under the laws of
__________.(1) Capitalized terms used herein (including in the Exhibits hereto)
and not defined have the respective meanings set forth in the Agreement.
3. The Face Amount of this Letter of Credit shall initially be U.S.
$__________. The Face Amount shall be reduced upon presentation by the Affiliate
to the Issuer of a certificate
---------------
(1) Add or delete spaces as appropriate to reflect the number of Contractors.
146
(a "Reduction Certificate"), in the form set forth in Exhibit 1 hereto,
specifying a new, lower Face Amount. A Reduction Certificate may be presented to
the Issuer, and the Face Amount may be reduced, no more frequently than once
every three months, beginning three months after the date of this Letter of
Credit.
4. The Face Amount of this Letter of Credit may be drawn by the
Affiliate in the manner specified in Clause 5 of this Letter of Credit on any
Banking Day during the period (the "Drawing Period") beginning at 9:00 a.m., New
York City time, on __________, 19 ____,(2) and ending at 5:00 p.m., New York
City time, on __________, ____.(3) A "Banking Day" is any day other than a
Saturday, a Sunday or day on which commercial banks in New York City are
authorized or required by law, regulation or executive order to close.
5. A drawing may be made hereunder only by the presentation by the
Affiliate to the Issuer of a sight draft of the Affiliate drawn on the Issuer in
the form attached hereto as Exhibit 2 (a "Draft"), and a certificate executed by
the Affiliate in the form attached hereto as Exhibit 3 (a "Drawing
Certificate"). Presentation of a Draft and Drawing Certificate must be made at
the Issuer's office in New York City located at __________, or at such other
address in New York City as the Issuer may designate to the Affiliate by notice
given in accordance with Clause 10 of this Letter of Credit.
6. Upon the presentation by the Affiliate to the Issuer during the
Drawing Period of the Draft and Drawing Certificate at the office of the Issuer
designated pursuant to such Clause 5, the Issuer shall pay the Face Amount as of
the date of presentation, by wire transfer of immediately available funds to the
Affiliate's account with a financial institution in New York City designated in
the Drawing Certificate. If presentation is duly made at or prior to 11:00 a.m.,
New York City time, on any Banking Day, payment shall be made by the Issuer at
or prior to 5:00 p.m., New York City time, on the same Banking Day. If
presentation is duly made after 11:00 a.m., New York City time, on any Banking
Day, payment shall be made by the Issuer at or prior to 1:00 p.m., New York City
time, on the immediately following Banking Day.
7. This Letter of Credit shall expire upon the earliest of (i)
_______,(4) (ii) the reduction of the Face Amount of this Letter of Credit to
zero, (iii) the date on which the Affiliate presents to the Issuer a certificate
executed by the Affiliate in the form attached hereto as Exhibit 4 (a
"Completion Certificate"), and (iv) the indefeasible payment by the Issuer to
the Affiliate in the manner set forth in Clause 6 of this Letter of Credit of
the Face Amount upon a drawing properly made hereunder. Notwithstanding the
foregoing, any drawing properly made
--------------
(2) Insert the date of the Effective Date.
(3) Insert the date that is six months after the last day of the period set
forth in Clause 4.3 of the Agreement.
(4) Insert the date of the expiration of the Drawing Period.
2
147
hereunder prior to the expiration of this Letter of Credit shall be honored by
the Issuer. Notwithstanding anything contained in Article 17 of the Uniform
Customs (defined below) or herein, in the event that the Issuer's office
designated in Clause 5 of this Letter of Credit is closed on the date set forth
in (i) of this Clause 7, the expiration date of this Letter of Credit and the
Drawing Period shall be extended to the next Banking Day on which such office is
open.
8. This Letter of Credit may only be drawn by, and other rights
hereunder may only be exercised by, the Affiliate, unless and until the Issuer
receives a certificate in the form attached hereto as Exhibit 5 (a "Transfer
Certificate") from the Affiliate designating a Person that is an assignee of
the rights and obligations of the Affiliate under Clause 27.3 of the Agreement.
Upon the delivery of a Transfer Certificate by the Affiliate to the Issuer, the
assignee named in the Transfer Certificate (and only such assignee) shall be
considered "the Affiliate" for all purposes hereunder (including for purposes of
this Clause 8). This Letter of Credit is a "transferable credit" within the
meaning of Article 48(a) of the Uniform Customs, and may be transferred in
accordance with this Clause 8, notwithstanding anything to the contrary
contained in Article 48(g) of the Uniform Customs.
9. This Letter of Credit is subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500 (the "Uniform Customs"). As to matters not covered by the
Uniform Customs, this Letter of Credit shall be governed by, and construed in
accordance with, the laws of the State of New York, including without limitation
Article 5 of the Uniform Commercial Code as in effect in the State of New York.
10. All notices, demands, instructions, waivers or other communications
to be provided pursuant to this Letter of Credit shall be in writing in English,
shall be effective upon receipt, and shall be sent by personal delivery,
courier, first class mail, facsimile or telex, to the following addresses:
i) If to the Issuer, to:
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148
ii) If to the Affiliate, to:
[Affiliate name]
[Affiliate address]
The addresses and telex and facsimile numbers for notices given pursuant to this
Letter of Credit may be changed by the Issuer or the Affiliate by means of a
written notice given to the other at least 15 Banking Days prior to the
effective date of such change.
11. This Letter of Credit sets forth in full the Issuer's undertaking,
and such undertaking shall not in any way be modified or amended by reference to
any document, instrument or agreement referred to herein, except the Draft, the
Drawing Certificate, any Transfer Certificate, any Completion Certificate and
any Reduction Certificate.
Very truly yours,
[NAME OF BANK]
By:
----------------------------
Name:
Title:
4
149
EXHIBIT 1
(FORM OF REDUCTION CERTIFICATE)
Reference is made to the Irrevocable Standby Letter of
Credit (the "Letter of Credit"), No. dated , issued by
in favor of the Affiliate. Capitalized terms used herein and not
defined have the respective meanings set forth or incorporated by reference in
the Letter of Credit.
The undersigned, being duly authorized to execute this
certificate on behalf of the Affiliate, hereby certifies that:
(i) The amount in U.S. dollars specified in (a) below is either
(1) the share allocable to the Face Amount of the Letter of
Credit of the amount that has been spent by the Contractors on
the Minimum Work Obligation through the date of this
certificate, or (2) a 10% reduction in the existing Face
Amount of the Letter of Credit due to Exploracion y Produccion
EPIC, S.A. becoming a Party to the Agreement; and
(ii) The Face Amount of the Letter of Credit is to be reduced to an
amount equal to the Remaining Face Agreement specified in (b)
below, effective as of the date of this certificate set forth
below.
(a) Share of Dollar Amount Spent on $_______________
Minimum Work Obligation or Reduction
due to EPIC
(b) Remaining Face Amount $________________
This certificate has been duly executed by the undersigned as of the
__________ day of________, 199_.
[NAME OF AFFILIATE]
By:
------------------------
Name:
Title:
5
150
EXHIBIT 2
[FORM OF DRAFT]
Letter of Credit No._______
[New York, New York]
[Date of Draft]
At sight
PAY TO THE ORDER OF [NAME OF Affiliate](1) the sum of U.S. $__________
(_______________ U.S. Dollars), FOR VALUE RECEIVED. DRAWN UNDER [NAME
OF ISSUER] IRREVOCABLE STANDBY LETTER OF CREDIT NO. .
[NAME OF AFFILIATE](1)
By:
---------------------------
Name:
Title:
To: [Name of Issuer].
[Address of Issuer]
----------------
(1) If the Letter of Credit is assigned pursuant to Clause 8 of the Letter of
Credit, substitute the name of the assignee.
151
EXHIBIT 3
[FORM OF DRAWING CERTIFICATE]
Reference is made to the Irrevocable Standby Letter of Credit
(the "Letter of Credit"), No. ____________ dated _____________, issued by
________ in favor of [name of Affiliate]. Capitalized terms used herein and not
defined have the respective meanings set forth or incorporated by reference in
the Letter of Credit.
The undersigned, being duly authorized to execute this
certificate on behalf of the Affiliate, hereby certifies that:
(i) the Agreement has terminated without completion of the Minimum
Work Obligation;
(ii) the period specified for the completion of the Minimum Work
Obligation under Clause 4.3 of the Agreement has expired
without completion of the Minimum Work Obligation; or
(iii) the Minimum Work Obligation has not been completed by the
Contractors as of 15 days prior to [date](5) (the "Renewal
Date") and the Letter of Credit has not been either:
(a) amended to extend the last day of the Drawing Period to
the last day of the period specified for the completion of the
Minimum Work Obligation in the first sentence of Clause 4.3 of
the Agreement (or, if such date is not known, a date at least
two years following the Renewal Date); or
(b) replaced by a new irrevocable stand-by letter of credit
that is (i) issue by [ ](6) or another bank or financial
institution having a branch in New York City, the long-term
unsecured senior debt obligations of which are rated at least
"A" by Standard & Poor's Ratings Group or by Moody's Investors
Services, Inc., (ii) payable at a branch of such bank or
financial institution in New York City, (iii) in the form of
the Letter of Credit (except for relevant dates), (iv)
provides for a Drawing Period that ends on the last day of the
period specified for the completion of the Minimum Work
Obligation in the first sentence of Clause 4.3 of the
Agreement (or, if such date is not known, a date at least two
years following the Renewal Date), and (v) in an amount equal
to the Face Amount of the Letter of Credit as of the Renewal
Date.
---------------
(5)Insert the last day of the Drawing Period set forth in Clause 4 of the
Letter of Credit.
(6)Insert name of the Issuer of the Letter of Credit.
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152
Payment of the current Face Amount of the Letter of Credit is to be
made by the Issuer to the following account:
[insert details for account in New York City]
This certificate has been duly executed by the undersigned as of the
_____ day of _________ 199__.
[NAME OF AFFILIATE]
By:
------------------------------
Name:
Title:
8
153
EXHIBIT 4
[FORM OF COMPLETION CERTIFICATE]
Reference is made to the Irrevocable Standby Letter of Credit (the
"Letter of Credit") No. ________, dated ________, issued by in favor of [name of
Affiliate]. Capitalized terms used herein and not defined have the respective
meanings set forth or incorporated by reference in the Letter of Credit.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The Minimum Work Obligation has been completed by the
Contractors or the Letter of Credit has been replaced by an
irrevocable stand-by letter of credit as described in
paragraph (iii) (b) of the Drawing Certificate; and
(ii) The Letter of Credit shall expire as of the date of this
Certificate.
This certificate has been duly executed by the undersigned as
of the day of________ 199__.
[NAME OF AFFILIATE]
By:
--------------------------
Name:
Title:
9
154
EXHIBIT 5
[FORM OF TRANSFER CERTIFICATE]
Reference is made to the Irrevocable Standby Letter of Credit (the
"Letter of Credit"), No. _________, dated ________, issued by ____________ in
favor of [name of Affiliate]. Capitalized terms used herein and not defined have
the respective meanings set forth or incorporated by reference in the Letter of
Credit.
The undersigned, being duly authorized to execute this certificate on
behalf of the Affiliate, hereby certifies that:
(i) The Affiliate has transferred its rights and
obligations under the Agreement to __________ (the
"Transferee"), a ________ organized under the laws of
__________; and
(ii) The Affiliate has transferred all of its rights
(including without limitation the rights described in
Article 48(d) of the Uniform Customs) under the
Letter of Credit to the Transferee.
All notices, demands, instructions, waivers or other communications to
be provided to the Transferee pursuant to Clause 10 of the Letter of Credit
shall be sent to the following address:
[insert notice address]
This certificate has been duly executed by the undersigned as of the
________ day of_______, 199__.
[NAME OF AFFILIATE]
By:
----------------------
Name:
Title:
10
155
[MAP]
156
[MAP]
