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Exhibit 10.22
OPERATING AGREEMENT
▇▇▇▇▇▇▇▇▇ FIELD
THIS AGREEMENT, entered into this 11th day of September, 1995, but
effective December 30, 1994, by and between OMIMEX DE COLOMBIA, LTD.,
hereinafter designated and referred to as "Operator", and SABACOL, INC.,
hereinafter referred to as "Non-Operator", collectively called the Parties,
WITNESSETH:
WHEREAS, the Parties to this agreement are owners of the ▇▇▇▇▇▇▇▇▇
Field, Colombia, S.A. identified in Exhibit "A", and the Parties hereto have
reached an agreement to develop and operate this Field,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I
DEFINITIONS
As used in this agreement, the following words and terms shall have
the meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons and other
marketable substances produced therewith, unless an intent to limit
the inclusiveness of this term is specifically stated.
B. The term "Contract Area" shall mean all lands and oil and gas
interests intended to be developed and operated for oil and gas
purposes under this agreement. Such lands and oil and gas interests
are described in Exhibit "A".
C. The term "drillsite" shall mean the site on which a proposed well
is to be located.
D. The terms "Drilling Party" and "Consenting Party" shall mean a
party who agrees to join in and pay its share of the cost of any
operation conducted under the provisions of this agreement.
E. The terms "Non-Drilling Party" and "Non-Consenting Party" shall
mean a party who elects not to participate in a proposed operation.
Unless the context otherwise clearly indicates, words used in the
singular include the plural, the plural include the singular, and the neuter
gender includes the masculine and the feminine.
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ARTICLE II
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
A. Exhibit "A" - Identification of the lands subject to this
agreement and the interests of the Parties.
B. Exhibit "B" - Accounting Procedure
C. Exhibit "C" - Insurance
ARTICLE III
INTEREST OF THE PARTIES
Unless changed by other provisions, all costs and liabilities incurred
in operations under this agreement shall be borne and paid, and all equipment
and materials acquired in operations on the Contract Area shall be owned, by
the Parties as their interests are set forth in Exhibit "A". In the same
manner, the Parties shall also own all production of oil and gas from the
Contract Area.
Nothing contained in this Article III. shall be deemed an assignment
or cross-assignment of interests covered hereby.
ARTICLE IV
OPERATOR
OMIMEX DE COLOMBIA, LTD., shall be Operator of the Contract Area, and
shall conduct and direct and have full control of all operations on the
Contract Area as permitted and required by, and within the limits of this
agreement. It shall conduct all operations in a good and workmanlike manner,
but it shall have no liability as Operator to the other party for losses
sustained or liabilities incurred, except such as may result from gross
negligence or willful misconduct.
Operator may resign at any time by written notice thereof to
Non-Operator. If Operator terminates its legal existence, no longer owns an
interest in the Contract Area, or is no longer capable of serving as Operator
because Operator is insolvent, bankrupt or is placed in receivership, Operator
shall be deemed to have resigned without any action by Non-Operator, except the
selection of a successor. Operator may be removed by Non-Operator by majority
vote or if it fails or refuses to carry out its duties hereunder. Such
resignation or removal shall not become effective until 7:00 A.M. on the first
day of the calendar month following the expiration of (90) days after giving of
the notice of resignation by Operator or action by the Non-Operator to remove
Operator, unless a successor Operator has been selected and assumes the duties
of Operator at an earlier date.
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Upon the resignation of Operator or removal by Non-Operator, a
successor Operator shall be selected by Parties owning an interest in the
Contract Area at the time such successor Operator is selected, excluding the
ownership of the retiring or removed Operator.
The number of employees used by the Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
ARTICLE V
DRILLING AND DEVELOPMENT
A. OPERATIONS:
Should any party hereto desire to drill additional ▇▇▇▇▇ on the
Contract Area or rework, deepen or plug back a dry hole or a well not currently
producing in paying quantities, the party desiring to perform such operation
shall give the other party written notice of the proposed operation and the
estimated cost of the operation. The party receiving such a notice shall have
thirty (30) days after receipt of the notice within which to notify the party
wishing to do the work whether they elect to participate in the cost of the
proposed operation. If a rig is on location the notice of a proposed rework,
plug back or drill deeper may be given by telephone and the response period
shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday and
legal holidays. Failure of a party receiving such notice to reply within the
period fixed above shall constitute an election by that party not to
participate in the cost of the proposed operation. Any notice or response
given by telephone shall be promptly confirmed in writing.
If all Parties elect to participate in such a proposed operation,
Operator shall, within ninety (90) days after expiration of the notice period
(or as promptly as possible after the expiration of the forty-eight (48) hour
period when a drilling rig is on location), actually commence the proposed
operation and complete it with due diligence at the risk and expense of all the
Parties hereto. Said commencement may be extended for thirty (30) days, upon
written notice to the other party, if in the Operator's sole opinion additional
time is reasonably necessary to obtain permits, equipment or surface rights.
If not commenced within the time periods set forth above, then the Operator
shall resubmit to the other party its proposal as if no prior proposal had
been made.
If less than all Parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest approving such operation
and its recommendation as to whether the Consenting Parties should proceed with
the operation as proposed. If the decision is to proceed the entire cost and
risk of conducting such operations shall be borne by the Consenting Parties in
their adjusted proportions. Upon commencement of operations in accordance with
the provisions of this Article, each Non-Consenting Party shall be deemed to
have relinquished to Consenting Parties, and the Consenting Parties shall own
and be entitled to receive, in proportion to their respective interests, all
such Non-Consenting Party's interest in the well and share of production
therefrom until the proceed of the sale of such share, calculated at the well
shall equal the total of the following:
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a) 300% of each Non-Consenting Party's share of the cost of
any newly acquired surface equipment beyond the wellhead
connections (including, but not limited to, stock tanks,
separators, treaters, pumping equipment and piping), plus 100%
of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first production and
continuing until each such Non-Consenting Party's relinquished
interest shall revert to it, it agreed that each
Non-Consenting Party's share of such cost and equipment will
be that interest which would have been chargeable to such
Non-Consenting Party had it participated in the well from the
beginning of the operations; and
b) 300% of that portion of the cost and expenses of drilling,
reworking, deepening, plugging back, testing and completing,
and 300% of that portion of the cost of newly acquired
equipment in the well (to and including the wellhead
connections), which would have been chargeable to such
Non-Consenting Party if it had participated therein.
An election not to participate in the drilling or the deepening of a
well shall be deemed an election not to participate in any reworking or
plugging back operation proposed in such well, or portion thereof, to which the
initial Non-Consent election applied that is conducted at any time prior to
full recovery by the Consenting Parties of the Non-Consenting Parties
recoupment account. Any such work during the recoupment period shall be deemed
part of the cost of operation of said well and there shall be added to the sums
to be recouped by the Consenting Parties 300% of that portion of the costs of
the work.
Within sixty (60) days after the completion of any operation under
this Article, the Operator shall furnish each Non-Consenting Party with an
inventory of the equipment in and connected to the well, and an itemized
statement of the cost of the operation. Thereafter, at least semi-annually, the
Operator shall provide each Non-Consenting Party with a payout statement
reflecting costs and revenue attributable to the well from the time of the
non-consent election to the date of the statement.
If and when the Consenting Parties recover from a Non-Consenting
Party's relinquished interest the amounts provided for above, the relinquished
interests of such Non-Consenting Party shall automatically revert to it, and
from and after such reversion, such Non-Consenting Party shall own the same
interest in such well, the material and equipment in or pertaining thereto, and
the production therefrom as such Non-Consenting Party would have been entitled
had it participated in the operation on said well.
B. TAKING OF PRODUCTION:
Each Party to this agreement shall be responsible for disposing of and
accounting for its proportionate share of the production in accordance with the
sales agreement(s) with Ecopetrol or any other purchaser as agreed to by the
Parties or as required by the appropriate government authority of the Republic
of Colombia.
C. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract Area at all reasonable
times, at its sole cost and risk
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to inspect or observe operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof, including
Operator's books and records relating thereto. Operator, upon request, shall
furnish each of the other Parties with copies of all forms and reports filed
with governmental agencies, daily drilling reports, well logs, tank tables,
daily gauge and run tickets and reports of stock on hand at the first of each
month, and shall make available samples of any cores or cuttings taken from any
well drilled on the Contract Area. The cost of gathering and furnishing
information to Non-Operator, other than that specified above, shall be charged
to the Non-Operator that requests the information.
D. ABANDONMENT OF ▇▇▇▇▇:
If a well has produced, excluding the interest of any Non-Consenting
Party, it shall not be plugged and abandoned without the consent of all
Parties. If all Parties consent to the plugging and abandonment, such action
shall be at the cost, risk and expense of all the Parties. Should Operator
after diligent effort, be unable to contact any party, or should any party fail
to reply with-in forty-eight (48) hours after receipt of notice of the proposal
to plug and abandon such well, such party shall be deemed to have consented to
the proposed abandonment.
If a well has produced, excluding the interest of any Non-Consenting
Party, shall not be plugged and abandoned without the consent of all Parties.
If all Parties consent the plugging shall be at the cost, risk and expense of
all the Parties. If, within thirty (30) days, after receipt of the notice to
plug and abandon, any party elects not to consent to the plugging of the well,
then said party shall assume operation of the well and pay the Parties
consenting to the plugging and abandonment the estimated salvage value less the
estimated cost to plug and abandon the well. Each abandoning party shall
assign, without warranty, express or implied, of any kind or nature, all its
interest in the well. Thereafter the abandoning Parties shall have no further
responsibility, liability, or interest in the operation of or production from
the well.
All ▇▇▇▇▇ shall be plugged and abandoned in accordance with all
governmental rules and regulations.
ARTICLE VI
EXPENDITURES AND LIABILITIES OF PARTIES
A. LIABILITIES OF PARTIES:
The liability of the Parties shall be several, not joint or
collective. Each party shall be responsible only for its obligations, and
shall be liable only for its proportionate share of the costs of developing and
operating the Contract Area. Accordingly, the liens granted among the Parties
are given to secure only the debts of each severally. It is not the intention
of the Parties to create, nor shall this agreement be construed as creating, a
mining or other partnership or association, or to render the Parties liable as
partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator, a lien on all of each
Non-Operator's right in the
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Contract Area, and a security interest in its share of oil and/or gas when
extracted and its interest in all equipment, to secure payment of its share of
expense, together with interest thereon at the rate shown in Exhibit "B".
Operator grants a like lien and security interest to the Non-Operators to
secure payment of Operator's proportionate share of expense.
C. PAYMENTS AND ACCOUNTING:
Except as otherwise specifically provided, Operator shall promptly pay
and discharge expenses incurred in the development and operation of the
Contract Area pursuant to this agreement and shall charge each of the Parties
hereto with their respective proportionate shares upon the expense basis
provided in Exhibit "B". Operator shall keep an accurate record of the joint
account hereunder, showing expenses and charges and credits made and received.
Operator may request advance payment of estimated expenses. If any party fails
to pay its share of said estimated expenses within the time specified, the
amount due shall bear interest as provided in Exhibit "B". Such request shall
include a detail listing of the expenses to be covered by the advance payment.
Exhibit "B" shall detail the accounting procedures for the Contract
Area.
D. LIMITATION OF EXPENDITURES:
Operator shall notify all Parties in writing and an AFE shall be
prepared before incurring any item of expense, which is equal to or exceeds US
$50,000.00. Such item of expense shall not be incurred unless a majority in
interest of the Parties signify their consent thereto in writing within 10 days
of the written notice.
E. INSURANCE:
Operator shall also carry or provide insurance for the benefit of the
joint account of the Parties as outline in Exhibit "C", attached to and made a
part hereof. Operator shall require all contractors engaged in work on or for
the Contract Area to maintain statutorily required insurance and insurance
equal to that shown on Exhibit "C".
F. ANNUAL BUDGET MEETING:
Operator shall, with at least 30 days written notice, call an annual
meeting of the Parties for the purpose of approving an annual budget and
capital expenditures program.
ARTICLE VII
MAINTENANCE OF UNIFORM INTEREST
For the purpose of maintaining uniformity of ownership of the
interests covered by this agreement, no party shall sell, encumber, transfer or
make other disposition of its interest in the Contract Area and in the ▇▇▇▇▇,
equipment and production unless such disposition covers the entire undivided
interest of the party.
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ARTICLE VIII
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or
suit arising from operations hereunder if the expenditure does not exceed
Twenty Thousand Dollars (US $20,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement
exceeds the above amount, the Parties hereto shall assume and take over further
handling of the claim or suit, unless such authority is delegated to Operator.
All costs and expenses of handling, settling or otherwise discharging such
claim or suit shall be the joint expense of the Parties participating in the
operation from which the claim or suit arises. If a claim is made against any
party or any party is sued on account of any matter arising from operations
hereunder over which such individual has no control because of the rights given
Operator by this agreement, such party shall immediately notify all other
Parties, and the claim or suit shall be treated as any other claim or suit
involving operations hereunder.
ARTICLE IX
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure
to carry out its obligations under this agreement, other than the obligation to
make money payments, that party shall give to all other Parties prompt written
notice of the force majeure with reasonably full particulars concerning it;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.
ARTICLE X
NOTICES
All notices authorized or required between the Parties and required by
any of the provisions of this agreement, unless otherwise specifically
provided, shall be given in writing by mail or telegram, postage or charges
prepaid, or by telex or telecopier and addressed to the Parties to whom the
notice
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is given at the addresses listed in Exhibit "A". The originating notice given
under any provision hereof shall be deemed given only when received by the
party to whom such notice is directed, and the time for such party to give any
notice in response thereto shall run from the date the originating notice is
received. The second or any responsive notice shall be deemed given when
deposited in the mail or with the telegraph company, with postage or charges
prepaid, or sent by telex or telecopier. Each party shall have the right to
change its address at any time, and from time to time, by giving written notice
thereof to all other Parties.
ARTICLE XI
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the
Contract Area for so long as any ▇▇▇▇▇ are producing from the Contract Area.
Upon termination of this agreement the Parties shall remain responsible for the
proportionate share of any costs attributable to the final plugging and
abandonment of the ▇▇▇▇▇ and the facilities associated therewith. It is agreed
however, that the termination of this agreement shall not relieve any party
from any liability which has accrued or attached prior to the date of such
termination.
ARTICLE XII
APPLICABLE LAW
This agreement, its meaning and interpretation and the relationship of
the Parties hereunder, shall be governed by the laws of the United States of
America and all matters arising therefrom shall be brought before and submitted
exclusively to the courts of United States.
ARTICLE XIII
MISCELLANEOUS
A. US INTERNAL REVENUE CODE ELECTION
It is the express and specific intent of the Parties that a partnership
relationship not be created between them or among them and any other co-owner of
an interest in the Contract Area. In accordance with the applicable provision
of the US Internal Revenue Code of 1954 and regulations promulgated pursuant and
further thereto, the Parties do hereby elect not to be treated or considered as
partners and further elect that none of the provisions of Sub-Chapter K of said
Code shall be applicable with respect to the operation of the Contract Area.
The Parties expressly authorize Operator to file with the proper authorities
executed copies of this agreement, and such copies when filed, shall be
conclusive notice to said authorities of this election pursuant to said Contract
Area from all of the provisions of said Sub-Chapter K and said regulations.
Operator may in lieu of filing copies hereof, notify said authorities of this
election by separate instrument in proper form.
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B. HEADINGS:
The topic heading used herein are inserted for convenience only and
shall not be construed as having any substantive significance or meaning.
C. MODIFICATION:
There shall be no modification or amendment of this agreement except
by written instrument signed by all Parties.
D. ASSIGNMENT:
Except as otherwise provided herein, this agreement shall be binding
upon and inure to the benefit of the Parties, their respective successors and
assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement is executed as of the date first
above mentioned.
WITNESSED: OPERATOR:
[SIG] OMIMEX DE COLOMBIA, LTD.
-------------------------
[SIG] [SIG]
------------------------- --------------------------
WITNESSED: NON-OPERATOR:
[SIG] SABACOL, INC.
--------------------------
[SIG] [SIG]
-------------------------- ---------------------------
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EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement
covering the ▇▇▇▇▇▇▇▇▇ Field by and between OMIMEX DE COLOMBIA, LTD. and
SABACOL, INC. dated the 11th day of September, 1995, but effective December 30,
1994.
CONTRACT AREA & INTERESTS OF THE PARTIES
CONTRACT AREA: ▇▇▇▇▇▇▇▇▇ FIELD --
LOCATED IN THE PUERTO BOYACA
MUNICIPALITY, STATE OF BOYACA,
REPUBLIC OF COLOMBIA, S.A. WHICH IS
PART OF THE PRIVATE PROPERTY
DENOMINATED "GUAGUAQUI-▇▇▇▇▇", THE
LATTER REGISTERED UNDER NUMBER 7,
PAGES 58 THROUGH 66 OF BOOK 2 OF THE
LEGAL DEPARTMENT FILES OF THE
MINISTRY OF MINES AND ENERGY.
INTERESTS OF THE PARTIES:
PERCENT
-------
OMIMEX DE COLOMBIA, LTD. 75%
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ No. 93-82 Off. 303
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Santafe De Bogota, Colombia
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Phone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: ▇▇▇-▇▇▇-▇▇▇▇
SABACOL, INC. 25%
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇. 109 No. 15-60 Off. 301
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Santafe De Bogota, Colombia
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Phone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: ▇▇▇-▇▇▇-▇▇▇▇
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EXHIBIT "B"
JOINT OPERATIONS ACCOUNTING PROCEDURE
In the event of a conflict between the provisions of this Accounting
Procedure and the provisions of the Agreement to which this Accounting
Procedure is attached, the provisions Agreement shall prevail.
The purpose of this Accounting Procedure is to establish equitable
methods for determining charges and credits applicable to operations under the
Agreement. The Parties agree that if any of such methods prove unfair or
inequitable to Operator or Non-Operator(s), the Parties will meet and in good
faith endeavor to agree on changes in methods deemed necessary to correct any
unfairness or inequity.
1- GENERAL PROVISIONS
1.1 Definitions
1.1.1. Agreement means the Joint Operating Agreement to which this
Accounting Procedure is attached.
1.1.2. Contract Area shall have the same definition as contained in
the Agreement.
1.1.3. Controllable Material shall mean material which the Operator
according to good oil field practice, subjects to record
control and inventory. A list of types of such material shall
be furnished to Non-Operator(s) upon request.
1.1.4. Days shall in all cases mean calendar days.
1.1.5. Field Supervisors as used herein the term "Field Supervisors"
shall mean those employees whose primary function in Joint
Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a
field operating capacity.
1.1.6. Joint Account shall be the set of accounts maintained by the
Operator to record all expenditures and other transactions
under the provisions of the Agreement.
1.1.7. Joint operations shall mean all activities necessary and
proper under the provisions of the Agreement.
1.1.8. Joint Property shall mean the real and personal property
acquired and held for use in connection with operations under
the Agreement.
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1.1.9. Material shall mean personal property, including supplies and
use charge, acquired and held for use in Joint Operations.
1.1.10 Non-Operator(s) shall mean the parties to the Agreement other
than the Operator.
1.1.11 Operator shall have the same definition as contained in the
Agreement.
1.1.12. Party or Parties shall have the same definitions as contained
in the Agreement.
1.1.13. Technical Employees as used herein the term "Technical
Employees" shall mean those employees having special and
specific engineering, geological or other professional skills,
and whose primary function in Joint Operations is handling of
specific operating conditions and problems for the benefit of
the Joint Property.
1.1.14. Operating Committee as used herein shall mean such committee
as may be appointed by the parties consisting of one
representative of the Operator and one representative of each
Non-Operator.
1.2 Statements, ▇▇▇▇▇▇▇▇ and Adjustments
1.2.1. Each Party to the Agreement is responsible for preparing its
own accounting, statistical and tax reports to meet Contract
Area and any other country or corporate requirements, except
that Operator shall be responsible for preparation and filling
of any United States Partnership Income Tax Returns that may
be required. The parties may elect out of Subchapter K.
Operator is required to furnish Non-Operator(s) statements and
▇▇▇▇▇▇▇▇ in such form as required to facilitate discharging
such responsibilities.
1.2.2. Operator shall ▇▇▇▇ Non-Operator(s) on or before the last day
of each month for their proportionate share of expenditures
for the preceding month. Such ▇▇▇▇▇▇▇▇ shall be accompanied
by statement of charges and credits to the Joint Account
summarized by appropriate accounting classifications
indicative of the nature thereof, except that items of
Controllable Material and unusual charges and credits shall be
detailed. Such ▇▇▇▇▇▇▇▇ shall indicate the monetary origin
(Colombian Pesos or U.S. Dollars) of the charges and credits.
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1.2.3. Operator shall, upon request by Non-Operator(s), furnish a
description of such accounting classifications.
1.2.4. In accordance with Colombian law, operator shall keep the
Joint Account in Colombian pesos. The Operator will also
maintain these accounts in U.S. dollar equivalency or shall
provide the applicable exchange rate(s) monthly so that
Non-Operator(s) may convert these Colombian peso accounts to
U.S. Dollars each month. The parties shall agree as to the
procedure to be used in establishing the exchange rate(s) to
be used in making the conversion from Colombian pesos to U.S.
dollars or vice-versa. Expenditures made in U.S. Dollars
shall be separately identified and reported to Non-Operator(s)
on a monthly basis. Accounts maintained for recording
property, plant and equipment shall be maintained in both
Colombia pesos and U.S. dollars and such accounts shall
reflect the monetary origin (pesos or dollars) of each item of
property, plant and equipment purchased for the Joint Account.
In the conversion of currencies and in accounting for advances
of different currencies as provided for in Paragraph 1.3 of
this Article, or any other currency transactions affecting the
Joint Operations, it is the intent that none of the Parties
shall experience gain or loss at the expense of, or to the
benefit of, the other Parties.
1.2.5. Payment of the bills referred to in paragraph 1.2.2. of this
article shall not prejudice the rights of any Non-Operator(s)
to protest or question the correctness thereof; however, all
bills and statements rendered to Non-Operator(s) by Operator
during any calendar year shall conclusively be presumed to be
true and correct after twenty-four (24) months following the
end of any such calendar year, unless within the said
twenty-four month period a Non-Operator takes written
exception thereto and makes claim on Operator for adjustment.
No adjustment favorable to Operator shall be made unless it is
made within the same prescribed period. The provisions of
this paragraph shall not prevent adjustments resulting from a
physical inventory of the Joint Property acquired for Joint
operations.
1.2.6. The accrual method of accounting shall be used for the Joint
Account.
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1.3 Advances and Payment
1.3.1. Non-Operator(s) shall advance by immediately available funds
to Operator within 15 days of notice by Operator their share
of estimated cash requirements for the succeeding month's
Operations in accordance with Article VI of the Agreement.
Such advance shall be credited when the actual ▇▇▇▇▇▇▇▇ per
1.2.2. above are issued.
1.3.2. Should the Operator be required to pay any large (in excess of
U.S. $50,000.00) sums of money on behalf of the Joint
Operation, which were unforeseen at the time of providing the
Non-Operator(s) with said monthly estimates of its
requirements, the Operator shall make a written request of the
Non-Operators(s) for special advances covering the
Non-Operators' share of such payments. Non-Operator(s) shall
make their proportional special advances within fifteen (15)
days after receipt of such notice.
1.3.3. If Non-Operator(s) advances exceed their share of the
expenditures, the next succeeding cash advance requirements,
after such determination, shall be reduced accordingly or
deducted from the next billing, whichever comes first.
However, Non-Operator(s) may request that excess advances be
refunded. The Operator shall make such refund within fifteen
(15) days after receipt of Non-Operator(s) request. Such
refund shall be made in the currency so advanced.
1.3.4. If Non-Operator(s) advances are less than their share of
actual expenditures, the deficiency shall, at operator's
option, be added to subsequent cash advance requirements or be
paid by Non-Operator(s) within thirty (30) days following
receipt of Operators for such deficiency.
1.3.5. If Operator does not request Non-Operator(s) to advance their
share of estimated cash requirements, Non-Operator(s) shall
pay their share of actual expenditures within thirty (30) days
following receipt of Operator's billing.
1.3.6. Payment of advances or ▇▇▇▇▇▇▇▇ shall be made on or before the
due date, and if not so paid the unpaid balance shall be
treated as provided under Article VI of the Agreement.
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1.4 Audits
1.4.1. A Non-Operator, upon at least thirty (30) days written notice
to Operator and other Non-Operator(s) shall have the right at
its sole expense to audit the Joint Account and related
records for any calendar year or portion thereof within the
twenty-four (24) month period following the end of such
calendar year; however, the conducting of an audit shall not
extend the time for the taking of written exception to and the
adjustment of accounts as provided for in Paragraph 1.2.5. of
this Article. Where there are two or more Non-Operators the
Non-Operators shall make every reasonable effort to conduct
joint or simultaneous audits in a manner which will result in
a minimum of inconvenience to the Operator.
1.4.2. Subject to unanimous prior approval of the Parties, the cost
of any special audit or verification of the Joint Account that
is for the benefit of all Parties shall be chargeable to the
Joint Account.
1.4.3. Normal recurring internal audits of the Joint Account made by
the Operator to assess internal controls shall be chargeable
to the Joint Account and copies thereof shall be furnished to
Non-Operators upon request.
1.5 Interest
1.5.1 Should interest be accessed per the terms of the Agreement, (1)
the rate on non U.S. $ Cash Calls shall be the Colombian Prime
Rate as quoted by Banco Ganadero plus 10% and (2) on U.S. $ Cash
Calls Prime as quoted by Bank One, Texas, N.A. plus 3%. Should
said rate(s) exceed the maximum rate allowed by law, then the
maximum lawful rate(s) shall apply.
2- CHARGEABLE COST AND EXPENDITURES
Operator shall charge Joint Account for all costs necessary to conduct
Joint Operations in or with respect to the Contract Area. Such cost
shall include, but are not necessarily limited to:
2.1 Control, License or Permit Payments
2.1.1. All expenditures necessary to acquire and to maintain rights
to the Contract Area.
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2.2 Labor and Related Costs
2.2.1. Salaries. Salaries and wages of Operator's field employees
directly employed on the Joint Property in the conduct of
Joint Operations, salaries and wages of Field Supervisors, and
salaries and wages of Technical Employees that perform work
and services directly relating to or for the benefit of the
Joint Property.
2.2.2. Salary Benefits. Operator's cost of holiday, vacation,
sickness and disability benefits and other customary
allowances paid to employees whose salaries and wages are
chargeable to the Joint Account under Article 2.2.1 above.
Such costs under this Article 2.2.2 may be charged on a "when
and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under
Article 2.2.1 above. If percentage assessment is used, the
rate shall be based on the Operator's cost experience and
adjusted at least annually to the Operator's actual cost.
2.2.3. Assessments. Expenditures or contributions made pursuant to
assessments imposed by governmental authority which are
applicable to Operator's costs chargeable to the Joint Account
under Article 2.2.1 and 2.2.2 above.
2.2.4. Personal Related Expenses. Personal Expenses, including but
not limited to the following: travel and other reasonable
reimbursable expenses of Operator's employees, hospital and
medical expense, schools for employees and their children,
insurance policies, and all other reasonable activities
applicable to the employee and family, of those employees
whose salaries and wages are chargeable to the Joint Account
under Article 2.2.1 above.
2.2.5. Employee Benefit Plans. Operator's current cost of
established plans for employees' group life insurance,
hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other customary benefit plans of a like nature
provided under Operator's usual practices, applicable to
Operator's labor cost chargeable to the Joint Account under
Article 2.2.1 above shall be at Operator's actual cost.
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2.3 Material
2.3.1. Material purchased or furnished by Operator for use in Joint
Operations as provided under Article 3 of this Accounting
Procedure.
2.4 Transportation and Employee Relocation Costs
2.4.1. Transportation of Material and other related costs such as
expediting crating, dock charges, inland and ocean freight,
customs duties and taxes and unloading at destination.
2.4.2. Transportation of employees as required in the conduct of
Joint Operations.
2.4.3. Relocation costs to the Contract Area vicinity or to other
locations in Colombia of employees permanently or temporarily
assigned to the Joint Operations. Such costs shall include
transportation of employees' families and their personal and
household effects and all other relocation costs in accordance
with Operator's usual practice. Relocation from Colombia
shall not be charged to the Joint Account.
2.5 Services
2.5.1. Contract services, professional consultants, and other
services covered by Paragraph 2.8
2.5.2. Technical services for specific projects resulting in a
presentation or a written report, such as, but not limited to,
laboratory analysis, drafting, geophysical interpretation,
engineering, and related data processing, performed by the
Operator and its Affiliates for the direct benefit of the
Joint Operations, provided such costs shall not exceed those
currently prevailing if performed by outside technical service
companies.
2.5.3. Use of equipment, services and facilities furnished by
Operator or Non-Operated(s) or their Affiliates provided such
equipment, services or facilities is of a quality and cost
commensurate and competitive with that offered by third
parties in the general vicinity of the Contract Area.
2.6 Damage and Losses to Joint Property
2.6.1. All costs or expenses necessary for the repair or
replacement of Joint Property resulting from
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damages or losses incurred by fire, flood,
storm, theft, accident, or any other cause.
Operator shall furnish Non-Operator(s) written
notice of damages or losses in excess of nominal
value as soon as practicable. Any payment(s) by
insurance companies shall be deducted in
determining the amount due.
2.7 Insurance
2.7.1. Net premiums for insurance are required by the Parties of the
Agreement.
2.7.2. Actual expenditures in the settlement of all losses,
claims, damages, judgements, and other expenses for
the benefit of the Joint Operations a per the
Agreement.
2.7.3. Credits for settlements received from the insurance policies
and others.
2.8 Legal Expense
2.8.1. All costs or expenses of litigation or legal services
otherwise necessary or expedient for the protection
of the Joint Property, including but not limited to
attorney's fees, court costs, cost of investigation
or procuring evidence and amounts paid in settlement
or satisfaction of any such litigation of claims.
These services may be performed by the Operator's
legal staff or an outside firm as necessary. Operator
shall not incur more than Ten Thousand U.S. Dollar
(US $10,000) in costs for legal services in
connection with any single, suit, proceeding or
matter without first obtaining the prior approval of
the other parties.
2.9 Duties and Taxes
2.9.1. All duties and taxes (except taxes based on income, net
worth and royalty based on production from the Contract
Area and any other taxes for which the Parties are
liable severally but not Jointly), fees and
governmental assessment of every kind and nature in
relation with Joint Operations.
2.10 Offices, Camps and Miscellaneous Facilities
2.10.1. Cost of maintaining and operating any offices,
suboffices, camps, warehouses, housing and other
facilities directly serving the Joint Operations shall
be charged to the Joint Account. If such
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Facilities serve operations in addition to the Joint
operations, the costs shall be allocated to the
properties served on an equitable basis as may be
approved by the Operating Committee which approval
shall not be unreasonably withheld.
2.11 Administrative Overhead
2.11.1. An administrative overhead covering services and
related office costs of personnel performing
administrative, legal, accounting, purchasing,
treasury, tax, employee relations, computer services
and other functions for the benefit of the Operations
provided they are not included elsewhere, shall be
charged to the Joint Account monthly.
2.11.2. The charge under the foregoing paragraph shall be for
services of all personnel and offices of Operator who
are not directly assigned to operations and shall be
charged each month at the rate of 12% on total
expenditures attributable to Joint Operations in the
preceding month, except only 5% shall be charged on
expenditures for capital expenditure items.
2.11.3. Notwithstanding anything to the contrary which might
be stated in the Accounting Procedure, it is
understood that no cost or expenditure included
under sections 2.2.1 through 2.10 shall be included
or duplicated in the administrative overhead rate
charged in this Article 2.11. Further, at any
party's request, the rates in 2.11.2 above shall be
reviewed annually and adjusted if determined to be
inadequate or excessive.
2.12 Other Expenditures
2.12.1. Any other expenditures not covered or dealt with in
the foregoing provisions which are incurred by the
Operator and its Affiliates for the ordinary,
necessary and proper conduct of the Joint Operations.
3- MATERIALS
The cost of material, equipment and supplies purchased or furnished by
the Operator for use on the Joint Property shall be charged to the
Joint Account on the basis set forth below. So far as it is reasonably
practical and consistent with efficient and economical operation, only
such material shall be purchased for or transferred to the Joint
Property as may be required for immediate use, and the accumulation of
surplus stock shall be avoided.
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operator shall give thirty (30) days written notice of
intention to take such inventories to allow
Non-Operator(s) to be represented when any inventory is
taken. Failure of any Non-Operator to be represented
shall bind such Non-operator to accept the inventory
taken by operator.
3.3.2. Reconciliation of inventory with the Joint Account
shall be made and a list of overages and shortages as
well as obsolete and surplus materials shall be
furnished to the Non-Operator(s). Inventory
adjustments shall be made to the Joint Account in
accordance with good accounting practices.
3.3.3. Whenever there is a sale or change of interest in the
Joint Property, a special inventory shall be taken by
the operator if required by the seller and/or purchaser
and the seller and/or purchaser of such interest shall
bear all of the expense thereof. In such cases, both
the seller and the purchaser shall be entitled to be
represented and shall be governed by the inventories
taken.
4- FIXED ASSETS
Inventories of Fixed Assets will be taken as determined by the Parties
but not less than every five (5) years. Operator shall give
thirty (30) days written notice of intention to take such inventories to
allow Non-Operator(s) to be represented when any inventory is taken.
Failure of any Non-Operator to be represented shall bind such
Non-Operator to accept the inventory taken by operator.
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EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement covering the
▇▇▇▇▇▇▇▇▇ Field by and between OMIMEX DE COLOMBIA, LTD. and SABACOL, INC. dated
the 11th day of September, 1995, but effective December 30, 1994.
INSURANCE
Operator shall, in the performance of its obligations hereunder, carry
statutorily required insurance and Public Liability Insurance in amounts of not
less than US $ 1,000,000.00 per occurance or accident with an aggregate limit
of not less than US $ 2,000,000.00. Operator shall likewise cause all
contractors to carry insurance in such amounts commensurate with those set
forth above.
