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EXHIBIT 10(U)
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ASSOCIATION CONTRACT
THE ASSOCIATE : SEVEN SEAS PETROLEUM COLOMBIA INC.
SECTOR : XXXXXXXXX
EFFECTIVE DATE : APRIL 24, 2001
The contracting parties, namely: on the one hand the "EMPRESA COLOMBIANA DE
PETROLEOS", hereinafter called ECOPETROL, an industrial and commercial
state-owned enterprise authorized by Law 165 of 1948, currently governed by its
by-laws, amended through Decrees 1209 of 15 June 1994 and 2933 of 10 December
1997, having its head office in Santafe de Bogota, D.C. represented by XXXXXXX
XXXXXXXX XXXXXX, of legal age, bearer of Colombian identity card No. 19.248.238
issued in Santafe De Bogota. domiciled in Santafe de Bogota, who states that: 1.
In his capacity as president of ECOPETROL, he acts herein on behalf of said
Company, and that 2. The ECOPETROL Board of Directors authorized him to enter
into this Contract, as witnessed by Minutes No. _____. of February, 2001; and on
the other hand SEVEN SEAS PETROLEUM COLOMBIA INC., a company established
pursuant to the laws of Colombia, with its head office in Bogota, D.C, pursuant
to public deed No. 2771 of September 28, 1995, issued before the Sixteenth
(16th) Notary Public of the Santa Fe de Bogota circuit, represented by XXXXXXX
XXXXXX XXXX, of legal age, a citizen of Colombia, bearer of identity card No.
41.784.144 issued in Bogota, who states that: 1. in her capacity as Alternate
Legal Representative, she acts on behalf of the company SEVEN SEAS PETROLEUM
COLOMBIA INC., 2. She is fully authorized to execute this contract, as
certified by the certificate of incorporation and legal representation issued by
the Chamber of Commerce of Bogota D.C., and 3. SEVEN SEAS PETROLEUM COLOMBIA
INC. assures that it has the financial capability, the technical competence and
the necessary professional skills to perform the activities provided for in this
contract. The aforementioned company shall be hereinafter called THE ASSOCIATE.
Based on the above conditions, ECOPETROL and THE ASSOCIATE leave on record that
they have caused the agreement contained in the following Clauses, to be
executed:
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CHAPTER I - GENERAL PROVISIONS
CLAUSE 1. OBJECT OF THE CONTRACT
1.1 The object of this contract is the exploration of the Contracted Area and
the exploitation of Hydrocarbons of Colombian property that may be found in such
area, described in Attachment A that is part of this contract.
1.2 In compliance with Article 1 of Decree 2310 of 1974, the exploration and
exploitation of Hydrocarbons of Colombian property will be carried out by
ECOPETROL, a company that may carry out said activities either directly or
through contracts with private entities. Based on the aforementioned provision,
ECOPETROL has agreed with THE ASSOCIATE to explore the Contracted Area and
exploit the Hydrocarbons that may be found in it, in compliance with the terms
and conditions provided by this document, Attachment A, Attachment B (Operations
Agreement), and Annex C, which become an integral part of this contract.
1.3 Without prejudice to the provisions of this contract, it is understood that
THE ASSOCIATE shall have, in the Hydrocarbons that may be produced in the
Contracted Area and in its corresponding share thereof, the same rights and
obligations observed by those who exploit State-owned Hydrocarbons within the
country.
1.4 ECOPETROL and THE ASSOCIATE agree to carry out exploration and exploitation
works in the lands located in the Contracted Area, according to the terms
stipulated within this contract, and will share the costs and risks of same in
the proportion and pursuant to the provisions of this contract, and that the
Hydrocarbons produced shall belong to each of the Parties according to the share
established herein
CLAUSE 2. APPLICATION OF THE CONTRACT
This contract applies to the Contracted Area, as identified and delimited in
Clause 3 and Annex A to this contract, or to the remaining parts thereof,
subsequent to relinquishments pursuant to this contract.
CLAUSE 3. CONTRACTED AREA
The Contracted Area is called "XXXXXXXXX" and it encompasses an extension of
eighty two thousand eight hundred and fifty four (82.854) hectares and five
hundred and seventy two (572) square meters, and is located in the jurisdiction
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of the municipalities of La Palma, El Penon, La Pena, Utica, Nimaima, Vergara,
Quebradanegra, Nocaima, Villeta, Sasaima, Allban, Bituima and Guayabal de
Siquima, Department of Cundinamarca. The said area is described in the
Attachment A, which is incorporated to this contract.
PARAGRAPH 1: Whenever any individual should claim to hold the ownership title to
the Hydrocarbons in the subsoil within the Contracted Area, ECOPETROL shall deal
with the case, assuming such obligations as may arise.
PARAGRAPH 2: In the event that part of the Contracted Area should extend over
areas that are or have been reserved and declared as encompassed within the
National Park System, THE ASSOCIATE commits to abide by the conditions imposed
by the competent authorities, without this implying that this contract is
modified and without giving rise to any claim against ECOPETROL, in accordance
with the provisions of Clause 30 (item 30.2) of this Contract.
CLAUSE 4. DEFINITIONS
In this contract, the following terms shall mean:
4.1 CONTRACTED AREA: This is the land defined in Clause 3 above, described in
Annex "A" to this Contract.
4.2 FIELD: Portion of the Contracted Area where there are one or several totally
or partially superposed structures and/or stratigraphic traps with one or more
producing Reservoirs, or in which the capacity to produce Hydrocarbons
commercial quantities has been proven. Such Reservoirs can be found separated
vertically and/or laterally by local geological barriers or impermeable strata,
or both.
4.3 COMMERCIAL FIELD: Is the Field which ECOPETROL accepts that is capable of
producing Hydrocarbons in economically exploitable quantity and quality in one
or more Production Targets defined by ECOPETROL when upon acceptance of
commerciality, without prejudice of the possibility of other Production Targets
being found during the development stage.
4.4 GAS FIELD: The field which, based on the information supplied by THE
ASSOCIATE, is qualified by ECOPETROL as a non-associated natural gas (or free
natural gas) producer, when determining commerciality thereof.
4.5 EXECUTIVE COMMITTEE: This is the entity formed within 30 days of the
acceptance of the first Commercial Field to supervise, monitor, and approve all
operations and actions carried out during the term of the contract.
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4.6 DIRECT EXPLORATION COSTS: Are those monetary expenditures incurred
reasonably by THE ASSOCIATE on account of seismic acquisition and Exploratory
Well drilling, as well as of locations, completion, equipment, and tests on
these xxxxx. The direct exploration costs do not include administrative nor
technical support of the home office nor company headquarters.
4.7 JOINT ACCOUNT: The records kept through accounting books, in accordance with
Colombian law, to credit or debit the share of each party in the Joint Operation
of each Commercial Field.
4.8 BUDGET EXECUTION: Means the funds actually disbursed and/or committed to
each program and project approved for a given calendar year.
4.9 STRUCTURE: Is the geometric shape with geological closure (anticlinal,
synclinal, etc.) present in the formations in which fluid accumulations are
found.
4.10 EFFECTIVE DATE: Shall be the date on which the sixty (60) calendar day term
expires, starting on the date on which the contract is signed, and the starting
date for all time limits agreed to herein, regardless of the date on which the
Ministry of Mines and Energy approves the contract.
4.11 CASH FLOW: Stands for the monetary transactions (income and disbursements)
made by the Joint Account to meet the different obligations acquired by the
association in development of normal operations of the contract.
4.12 ASSOCIATED NATURAL GAS: Blend of light Hydrocarbons that exist as a layer
in gaseous or solution state in the Reservoir, which is produced with liquid
Hydrocarbons.
4.13 NON-ASSOCIATED NATURAL GAS (PRODUCTION OF): Are Hydrocarbons produced in
gaseous state on the surface and reported at standard conditions, with average
values (weighted by production), having an initial gas/oil ratio that exceeds
than 15,000 standard cubic feet of gas per barrel of liquid Hydrocarbons and a
molar heptane plus composition (C7 +) below 4.0%.
4.14 DIRECT COSTS: Are all expenditures charged to the Joint Account for
personnel directly hired by the association, purchasing of materials and
supplies, contracting services with third parties, and other overhead expenses
required by the Joint Operation in the normal development of its activities.
4.15 INDIRECT COSTS: Are expenditures charged to the Joint Account, for
technical and/or administrative support provided by the Operator, through its
own organization, to the Joint Operation.
4.16 ARREARS INTEREST: When dealing in Colombian pesos, it shall be the arrears
rate in force at the time the delay occurs. When dealing in United States of
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America dollars, it shall mean the LIBOR (London Interbank Borrowing Offered
Rate) prime rate on three-month term deposits in dollars plus four per cent
(LIBOR plus 4%).
4.17 PARTICIPATING INTEREST: Is the share of the rights and obligations acquired
by each of the Parties in the exploration and exploitation of the Contracted
Area.
4.18 DEVELOPMENT INVESTMENTS: These refer to the amount of money invested in
assets and equipment, to be capitalized as assets for the Joint Operation, in a
Commercial Field, once the existence thereof has been accepted by the Parties.
4.19 HYDROCARBONS: All organic compounds, made up mainly by the natural blend of
carbon and hydrogen, as well as all other accompanying substances or their
by-products, excepting helium and rare gases.
4.20 GASEOUS HYDROCARBONS: Comprise all Hydrocarbons produced in gaseous state
on the surface and reported at standard conditions (1 atmosphere of absolute
pressure and a temperature of 60(degree)F).
4.21 LIQUID HYDROCARBONS: Comprise crude oil and condensate, as well as those
produced in such state, as a result of treating gas, when required, reported at
standard conditions.
4.22 PRODUCTION TARGETS: Are the reservoirs, located within the discovered
Commercial Field, and proven as commercial producers.
4.23 JOINT OPERATION: Activities and works either performed or being performed
on behalf of the Parties and for their account.
4.24 OPERATOR: Person designated by the Parties to directly perform the
necessary operations, on their account and without representing them, to explore
and exploit the Hydrocarbons found in the Contracted Area.
4.25 PARTY OR PARTIES: As of the Effective Date, ECOPETROL and THE ASSOCIATE.
Subsequently and at any time, ECOPETROL on the one hand and THE ASSOCIATE and/or
its assignees, on the other.
4.26 EXPLORATION PERIOD: This is the period available for THE ASSOCIATE for
complying with the obligations stipulated in Clause 5 of this contract, which
shall not exceed six (6) years, starting on the Effective Date, excepting the
cases provided for under Clauses 5 (Item 5.4), 9 (Item 9.3), and 34.
4.27 EXPLOITATION PERIOD: The period elapsed from the expiration of the
Exploration Period, or Retention Period, if any, until the expiration of this
contract.
4.28 RETENTION PERIOD: The period that may be requested by THE ASSOCIATE and
granted by ECOPETROL to commence the Exploitation Period of each Gas
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Field discovered within the Contracted Area, which, due to its specific
conditions cannot be developed in the short term and, therefore, requires an
additional period to perform the feasibility studies for the construction of the
infrastructure and/or market development.
4.29 DEVELOPMENT PLAN: Is the guideline document for carrying out the
exploitation of each Field in a technical, efficient, and economic manner, and
shall contain, among others, the development strategy, environmental
considerations, activities to be performed, short and medium-term production
forecasts, a five-year (5) forecast of investments and expenses and,
specifically, a description of the projects, operations program, and the budget
for the rest of the current calendar year or the following calendar year, as the
case may be. The guidelines for preparing this Development Plan are described in
Annex C of this contract.
4.30 EXPLORATORY WELL: This is the well that has been classified as such by THE
ASSOCIATE to be drilled or deepened on its account in the Contracted Area in
search for new reservoirs, or to prove the extension of a Reservoir, or to
determine the stratigraphy of an area. In order to comply with the obligations
agreed in Clause 5 of this contract, the relevant Exploratory Well will be
previously qualified by ECOPETROL and THE ASSOCIATE.
4.31 DISCOVERY WELL: Is the Exploratory Well in which the existence of one or
more Reservoirs is discovered or proven, and may require a further evaluation to
determine whether such reservoir or reservoirs may be commercially exploited.
4.32 EXPLOITATION WELL (OR DEVELOPMENT WELL): Is the well previously considered
as such by the Executive Committee for the production of Hydrocarbons discovered
in the Production Targets within the area of each Commercial Field.
4.33 BUDGET: Is the basic planning instrument, through which resources are
allocated to specific projects, to be applied within one calendar year or part
of it, to meet the targets and objectives proposed by THE ASSOCIATE or the
Operator.
4.34 LONG-TERM TESTS: Are operations performed in one or several producer
Exploratory Xxxxx, in order to evaluate the production conditions and reservoir
behavior, with temporary production facilities.
4.35 REIMBURSEMENT: Is the payment of thirty percent (30%) of the Direct
Exploration Costs incurred by THE ASSOCIATE.
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4.36 EXPLORATION WORK: Are operations performed by THE ASSOCIATE in regard to
the prospecting and discovery of Hydrocarbons in the Contracted Area.
4.37 RESERVOIR: Is all rock beneath the surface, in which Hydrocarbons are
accumulated in the pore or fractured spaces, which is producing, or able to
produce Hydrocarbons, and which behaves as an independent unit as to its
petrophysical and fluid properties, and has a common pressure system throughout
its entire expanse.
CHAPTER II - EXPLORATION
CLAUSE 5. TERMS AND CONDITIONS
5.1 THE ASSOCIATE is committed to carry out Exploration Work in accordance with
modern standards and practices commonly accepted and used by the international
oil industry and in compliance with all legal and regulatory provisions in
force. The Exploration Period shall be divided into two three-year phases. The
first phase of the Exploration Period shall be divided into three one-year
phases. The first stage begins on the Effective Date and the following stages on
the calendar day immediately following the completion of the previous one.
During the Exploration Period THE ASSOCIATE commits to perform, at least, the
following Exploration Works:
During the first stage, whose term is one (1) year, THE ASSOCIATE shall perform
the following:
Geological Map of the surface
Landsat and Radar image interpretation
Measure stratigraphic sections for reservoir and source rock evaluation
Fractures system pattern on the surface
Lab analysis (biostratigraphy, petrophysics, petrography and geochemistry)
Evaluation of generating potential
Evaluation of reservoirs
Reprocessing of the seismic available for the area
Acquisition of aerogravity/magnetometry with coverage of all the block's area
Integral report containing the existing information and the information obtained
indicating the exploration areas of interest identified.
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Upon completion of this stage, THE ASSOCIATE shall have the option to resign to
the association contract, having previously complied with the exploratory
commitments agreed for this stage, or to continue with the same contract in the
second stage; in which case and prior to the initiation of the second stage, THE
ASSOCIATE shall have the option to retain an extension of the Contracted Area
not exceeding 60.000 hectares or continue with the entire Area initially
Contracted.
During the second stage, whose term is one (1) year, THE ASSOCIATE shall perform
one of the following obligations: a) acquire a minimum of 80 kms of 2D seismic,
if it previously decided to retain the entire Area Contracted initially, or b)
acquire a minimum of 50 kms of "D seismic, if it previously decided to retain a
Contracted Area extension not exceeding 60.000 hectares. At the end of this
stage, THE ASSOCIATE shall have the option to resign to the association
contract, having previously complied with all the exploratory commitments agreed
for this stage.
During the third stage, whose term is one (1) year, THE ASSOCIATE shall drill
one (1) Exploration Well until penetrating the formations that are capable of
producing Hydrocarbons in the Contracted Area.
Upon the expiration of the first phase of the Exploration Period the contract
shall expire if no extension has been requested and approved pursuant to item
5.2 of this Clause or if a Field has not been discovered.
5.2 If THE ASSOCIATE has satisfactorily met the
obligations stipulated in Clause 5.1, ECOPETROL, upon request of THE ASSOCIATE
may extend the Exploration Period annually, for up to three (3) additional
years, and for such purpose THE ASSOCIATE shall inform its intention to continue
with the exploration in the contracted block, at least ninety (90) calendar days
prior to the termination date of the first phase of the Exploration Period, and
the request must include the Exploration Work program proposed for each
extension period. Within ninety (90) calendar days following the date of receipt
by ECOPETROL of THE ASSOCIATE'S request, the Parties may agree the Exploration
Work to be performed during these extensions. In the absence of an agreement,
THE ASSOCIATE shall be committed to perform Exploration Work in the Contracted
Area, consisting of:
Drilling of one (1) Exploration Well per year. At the end of each one of the
extensions, whose term is one year, THE ASSOCIATE shall have the option to
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resign to the association contract, having previously complied with the
exploration commitments agreed for each one of them.
5.3 THE ASSOCIATE may, at its discretion and at its own expense and risk, carry
out additional Exploration Work, beyond that agreed for the respective stage.
Nevertheless, if THE ASSOCIATE wishes such additional Exploration Work to be
credited to compliance with exploratory commitments of the following stage in
the Exploration Period, it must request the appropriate approval from ECOPETROL.
If the request is accepted by ECOPETROL, the latter shall determine how and in
what amount the transfer of the mentioned obligations shall be made.
5.4 When THE ASSOCIATE reaches the six (6) year Exploration Period, having
drilled one or several Discovery Xxxxx that indicate the possible existence of a
Commercial Field, upon written request from THE ASSOCIATE, ECOPETROL may
authorize a new extension of the Exploration Period for a term not exceeding two
(2) years, in order for THE ASSOCIATE to have the opportunity to prove the
existence of such Commercial Field. In order to enforce the provisions contained
herein, prior to the termination of the Exploration Period and, simultaneously
with its request, THE ASSOCIATE shall supply ECOPETROL with the maps and other
descriptions of the area that THE ASSOCIATE may consider capable of producing
Hydrocarbons, the Exploration Work program, as well as that of other operations
to be carried out by THE ASSOCIATE, and the budget for carrying out such work at
its own expense and risk, to determine the extension of the Reservoir or
Reservoirs that have been discovered and to prove the existence of a Commercial
Field, without prejudice to the provisions of Clause 8. In order to enforce the
partial relinquishing of areas, during this extension of the Exploration Period,
THE ASSOCIATE shall retain the greater area of two: fifty percent (50%) of the
Contracted Area and the area it considers capable of producing Hydrocarbons plus
its reserve zone, having a width of two and a half (2.5) kilometers around the
latter, within the boundaries of the Contracted Area. If the proposed works
program meets international standards and is intended to demonstrate
commerciality of the fields discovered in the agreed term, ECOPETROL shall
approve the execution of such program.
5.5 During the term of the contract, according to Clause 7 of this contract, THE
ASSOCIATE may perform Exploration Work in the areas it retains in compliance
with Clause 8 and THE ASSOCIATE shall be solely responsible for the risks and
costs involved in these activities, and therefore shall have full and exclusive
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control of same, without the maximum contract term being modified on this
account.
CLAUSE 6. SUPPLY OF INFORMATION DURING EXPLORATION
6.1 ECOPETROL will supply THE ASSOCIATE, with all the information available it
possesses on the Contracted Area, when THE ASSOCIATE so requests. The costs
incurred in the reproduction and delivery of said information will be payable by
THE ASSOCIATE.
6.2 During the Exploration Period THE ASSOCIATE shall provide ECOPETROL, as it
obtains it, and in accordance with ECOPETROL'S information provision manual, all
geological and geophysical information, edited magnetic tapes, process seismic
sections, and all support field information, magnetic and gravimetric profiles,
all in reproducible originals, copies of geophysical reports, reproducible
originals of all well logs of the xxxxx drilled by THE ASSOCIATE, including a
final composite log of each well and copies of the final drilling report,
including core sample analysis, results of production tests and any other
information related to the drilling study or interpretation of any nature
performed by THE ASSOCIATE on the Contracted Area, without limitation. ECOPETROL
is entitled, at all times, to use the procedures it deems appropriate, and to
witness all operations and verify all the above mentioned data.
6.3 The Parties hereby agree that all geological, geophysical and engineering
information obtained in the Contracted Area in performance of this contract will
be strictly confidential during the three (3) years following the acquisition
date or upon termination of the contract, whatever occurs first. The information
released comprises, without limitation, seismic information, potential methods,
remote sensors, geochemistry, along with their corresponding supports, surface
and subsurface cartography, well reports, electric logs, formation tests,
biostratigraphic, petrophysical and fluid analyses, and production records. In
spite of confidentiality stated herein, the Parties agree that in each case they
may exchange such information with companies that are or not associated with
ECOPETROL. It is understood that all that is agreed to herein will take place
without prejudice to the obligation to submit to the Ministry of Mines and
Energy all the information requested by the latter in compliance with the legal
and regulatory provisions in force. However, it is hereby understood and agreed
that the Parties may supply, as they may deem appropriate all the information
that their affiliates, consultants, contractors, and financial entities may
request,
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required by the relevant authorities having jurisdiction over the Parties or
their affiliates, or by regulations from any stock exchange in which the shares
of the Parties or related corporations are registered.
6.4 Within the ninety (90) calendar days following the completion of the
drilling operations of each Exploratory Well, THE ASSOCIATE shall advise
ECOPETROL in writing on the status of the corresponding well, its classification
derived from the results obtained (dry or discovery) and the type of fluids
produced, if any.
CLAUSE 7. BUDGET AND EXPLORATION PROGRAMS
According to the provisions of this contract, THE ASSOCIATE shall be responsible
for preparing the programs, activity schedule, and budget to be executed in the
short term (the following calendar year) and the outline for the following two
(2) years, under the estimated budget, to carry out the exploration in the
Contracted Area. Said plan, programs, schedule, and budget shall be submitted to
ECOPETROL, for the first time, within the sixty (60) calendar days following the
execution of this contract and, subsequently, no later than 15 December every
year. Every six months THE ASSOCIATE shall deliver to ECOPETROL a technical and
financial report listing the different exploratory activities performed, the
area's prospects based on information acquired, the allocated Budget and the
exploration costs incurred up to the date of the report, along with the comments
on the reasons for any deviations. At ECOPETROL'S request, THE ASSOCIATE will
provide explanations on the report at meetings summoned to this end. The
information presented by THE ASSOCIATE in the reports and aforementioned
explanations shall, in no case, be understood as accepted by ECOPETROL. The
financial information will be subject to auditing by ECOPETROL within the terms
established in Clause 22 of Annex "B" (Operation Agreement) of this contract.
CLAUSE 8. RELINQUISHMENT OF AREAS
8.1 Upon expiration of the Exploration Period or the extensions thereof obtained
by THE ASSOCIATE in accordance with Clause 5 (Item 5.2), if a commercial field
has been discovered and accepted by ECOPETROL in the Contracted Area, said area
will be reduced to fifty percent (50%); two (2) years later, the area will be
reduced to an expanse equivalent to fifty percent (50%) of the remaining
Contracted Area, and two (2) years later the area will be reduced to
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the area of the Commercial Field or Fields that are in production or
development, plus a two and a half (2.5) kilometer-wide reserve zone around each
Commercial Field and this will be the only portion of the Contracted Area that
will remain subject to the terms of this contract. The area retained by THE
ASSOCIATE in accordance with this item, shall include the discovered Commercial
Field. According to the above, independent from the relinquishment of areas set
forth in Clause 5 herein, there will be an area relinquishment if the existence
of a Commercial Field in the Contracted Area has been discovered and ECOPETROL
has accepted it. 1) Upon the expiration of the Exploration Period, if THE
ASSOCIATE does not obtain the extensions set forth in Clause 5 (item 5.2); or 2)
Upon the expiration of the last of the extensions THE ASSOCIATE has obtained
pursuant to Clause 5 (item 5.2)
8.2 Notwithstanding the obligation to relinquish the areas described in Clause 8
(Item 8.1), THE ASSOCIATE shall not be compelled to relinquish Commercial Fields
that are in development or production, or under a Retention Period, including
the two and a half (2.5) kilometer wide reserve area surrounding such areas,
except in the case in which, for reasons attributable to THE ASSOCIATE, the
development or production operations are suspended for more than one year,
continuously, without just cause, in which case it shall relinquish such
Commercial Fields to ECOPETROL, terminating the contract for such areas or parts
thereof. These provisions are also applied to develop fields under the sole risk
mechanism.
PARAGRAPH: To demonstrate just cause, THE ASSOCIATE shall provide ECOPETROL with
its reasons and grounds, on the basis of which it is requesting ECOPETROL'S
acceptance thereof.
8.3 RETENTION PERIOD: In the event that THE ASSOCIATE has discovered a Gas Field
and submits the request for commerciality of the Field as discussed in Clause 9
(Item 9.1), simultaneously with such request it may request that ECOPETROL grant
a Retention Period, providing full justification of the reasons for such period
to be granted.
8.3.1 The Retention Period must be requested by THE ASSOCIATE to be
granted by ECOPETROL prior to the date of the last area relinquishment as
provided for under Item 8.1 of this Clause. Should the Retention Period be
granted, it is understood that the term provided by Clause 9 (Item 9.1) for
ECOPETROL to state its acceptance or rejection of the existence of a
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Commercial Gas Field, shall be postponed for a term equal to the Retention
Period.
8.3.2 The Retention Period shall not exceed four (4) years. Should the term
first granted as Retention Period be insufficient, upon duly justified previous
written request from THE ASSOCIATE, ECOPETROL may extend the Retention Period
for an additional term, provided the fact that the sum of the initial Retention
Period and its extensions does not exceed four (4) years. The Retention Period
applies exclusively to the Gas Field area that ECOPETROL in principle determines
as having the capacity to produce Hydrocarbons, including the two and a half
(2.5) kilometer-wide reserve zone surrounding such area.
CHAPTER III - EXPLOITATION
CLAUSE 9. TERMS AND CONDITIONS
9.1 To initiate the Joint Operation under the terms and conditions of this
contract, it is understood that the Exploitation Work will begin once the
Parties recognize the existence of a Commercial Field or upon compliance with
the provisions of Clause 9 (Item 9.5). The existence of a Commercial Field will
be determined by the drilling, by THE ASSOCIATE in the proposed Commercial
Field, of a sufficient number of Exploratory Xxxxx so as to permit to reasonably
define the area capable of producing Hydrocarbons and the commercial nature of
the Field. If, after evaluating the results obtained from the Discovery Xxxxx,
THE ASSOCIATE considers that it has discovered a Commercial Field, it shall
inform ECOPETROL thereof in writing, and attach the studies on which it has
based the conclusion, as well as the relevant Development Plan. ECOPETROL,
within a ninety (90) calendar day period, starting on the date on which THE
ASSOCIATE supplies all the support documentation, must accept or reject the
existence of the Commercial Field. ECOPETROL may request all the additional
information deemed necessary within the thirty (30) days following the date of
submission of the first support documentation.
9.2 Should ECOPETROL accept the existence of the Commercial Field, it shall
inform THE ASSOCIATE thereof, within the period specified in Clause 9, (Item
9.1) and shall specify the area and Production Targets of the Commercial Field,
and begin to participate in the exploitation of the Commercial Field discovered
by THE ASSOCIATE, in compliance with the terms and conditions of this contract.
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9.2.1 ECOPETROL shall reimburse THE ASSOCIATE for thirty percent (30%) of the
Direct Exploration Costs incurred by THE ASSOCIATE, at its own expense, within
the Contracted Area and prior the date of acceptance of commerciality by
ECOPETROL for each new Commercial Field discovered, as established in item 9.1
of this Clause, provided such expenses have not been charged previously to
another Field.
9.2.2 The amount of these costs will be determined in United States dollars,
using as a reference date, the date on which THE ASSOCIATE has made the relevant
disbursements; therefore, costs incurred in Colombian currency will be
calculated at the representative market exchange rate prevailing on the date
established herein and certified by Superintendencia Bancaria (Bank
Superintendency).
PARAGRAPH: Once the amount of the Direct Exploration Costs to be reimbursed in
USA currency has been determined, such amount will be updated monthly according
to the average consumer price index of industrialized countries, as of the date
of disbursement, in constant U.S. dollars at the rate prevailing on the date on
which ECOPETROL disburses as per the provisions of the Operation Agreement
(Annex B) of this contract. Balances to be reimbursed shall also be updated up
to the date that ECOPETROL reimburses its total participation in the respective
Commercial Field.
9.2.3 Reimbursement of Direct Exploration Costs, according to Clause (Item
9.2.1) will be made by ECOPETROL to THE ASSOCIATE as of the date on which the
field is put on line by the Operator, through payment of the dollar equivalent
to fifty percent (50%) of its direct share in the total production of the Field,
after deducting the corresponding royalties.
PARAGRAPH: In the event of a Commercial Gas Field, such reimbursement will be
made by ECOPETROL to THE ASSOCIATE as of the date on which the field is put on
line by the Operator, through payment of the dollar equivalent to one hundred
percent (100%) of its direct share in the total production of the Field, after
deducting the corresponding royalties.
9.3 Should ECOPETROL, based on the information supplied, not accept the
existence of the Commercial Field as stated in Clause 9 (Item 9.1), it may
request that THE ASSOCIATE submit and carry out an additional work program, to
demonstrate Field commerciality. Such work shall be performed at THE ASSOCIATE'S
risk and expense and its duration may not exceed two (2) years. In such case,
the Exploration Period for the Contracted Area will be automatically
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extended for a period equal to that agreed between the Parties as required for
performing the additional work provided for in this Clause, without this
affecting the provision of Clause 8 (Item 8.1) regarding reduction of areas. THE
ASSOCIATE may submit and carry out a work program that complies with the
requested objective, or request the opinion of an expert, according to Clause 28
of this contract, on the request for additional information. Should the expert
opinion favor ECOPETROL, THE ASSOCIATE shall meet the requirements and, once
again, submit the commerciality studies and a revised Development Plan to
ECOPETROL'S consideration. Should the expert opinion favor THE ASSOCIATE, it
means that ECOPETROL has enough information and then, ECOPETROL, within a ninety
(90) calendar day period, starting on the date on which ECOPETROL gets the
report about the expert opinion, must accept or reject the existence of the
Commercial Field referred to in Clause 9 (Item 9.1).
9.4 If, after performance of the additional work or if the disagreement has been
resolved by an expert, (Item ECOPETROL accepts the existence of the Commercial
Field referred to in Clause 9 (Item 9.1), it shall commence participating in the
development activities of the aforementioned Field, under the terms and
conditions established in this contract and shall reimburse THE ASSOCIATE as
provided for in Clause 9 (items 9.2.2 and 9.2.3), thirty percent (30%) of the
cost of the additional work requested, referred to in Clause 9 (Item 9.3) and
the work performed shall become property of the Joint Account.
9.5 SOLE RISK METHOD: If ECOPETROL does not accept the existence of a Commercial
Field, even after the additional work described in Clause 9 (Item 9.3) has been
completed, THE ASSOCIATE shall be entitled to perform, on its own account and
risk, the work deemed necessary for the exploitation of said Field, according to
the Development Plan presented to ECOPETROL and following, good practices of the
international petroleum industry, and to recover the cost of such work, and the
Direct Exploration Costs incurred by THE ASSOCIATE prior to the date of
acceptance of commerciality by ECOPETROL of the corresponding Field, provided
such costs have not been charged previously to another Field. For purposes of
this Clause, the recovery of the aforementioned costs will be achieved through
THE ASSOCIATE'S share in the Hydrocarbons produced in the respective Field,
minus the royalties referred to in Clause 13, as provided in Clause 14 (Item
14.2.3) of this contract for exploitation under the sole risk method.
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For purposes of calculating the dollar amount of disbursements made in pesos,
the representative market rate of exchange will be used, as certified by the
Bank Superintendency or the agency replacing it, on the date on which THE
ASSOCIATE made the disbursements. For purposes of this clause, the value of each
barrel of Hydrocarbons produced in said Field during a calendar month shall be
the price agreed between the Parties. If THE ASSOCIATE wishes to exercise the
right to exploit the Field under the sole risk method, it should be expressly
requested not later than 120 calendar days following the date on which ECOPETROL
expresses its non-acceptance of the existence of a Commercial Field. Should THE
ASSOCIATE not exercise such right, it shall relinquish the Field and its reserve
zone to ECOPETROL, thus terminating the contract for such area or a portion of
the Contracted Area.
9.6 In order to fix the limits to a Commercial Field, all geological and
geophysical information and that related to the xxxxx drilled in said Field, or
to the field itself will be taken into consideration.
9.7 If, after the acceptance of one or more Commercial Fields, THE ASSOCIATE
continues fulfilling its exploratory obligations agreed in Clause 5, it may
simultaneously exploit such Fields before the end of the Exploration Period
defined in Clause 4, (Item 4.26), but the Exploitation Period shall not be
considered to have commenced until the expiration date of the former. In the
event of Gas Fields on which ECOPETROL has granted a Retention Period, the
Exploitation Period for each Field shall commence as of the expiration date of
the corresponding Retention Period.
9.8 If, as a result of the drilling of Exploration Xxxxx after a decision has
been made regarding the existence of a Commercial Field, THE ASSOCIATE proves
the presence of additional Hydrocarbon accumulations associated with such Field,
it must request that ECOPETROL expand the Commercial Field area and its
commerciality, following the procedure provided for in Clause 9 (Item 9.1). If
ECOPETROL accepts commerciality, it shall reimburse THE ASSOCIATE thirty percent
(30%) of the Direct Exploration Costs exclusively related to the expansion of
the Commercial Field area, under the terms provided for in items 9.2.2 and
9.2.3. If ECOPETROL does not accept the existence of a Commercial Field, THE
ASSOCIATE shall be entitled to a reimbursement of up to two hundred percent
(200%) of the total cost of the work performed on its own account and risk for
the exploitation of the Exploratory Xxxxx classified as producers, and up to
seventy percent (70%) of the Direct Exploration Costs
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incurred by THE ASSOCIATE, solely related to the date of acceptance of
commerciality by ECOPETROL. Such reimbursement shall be effected through the
production from Exploratory Xxxxx classified as producers, minus the royalty,
following the procedure established in Clause 21 (Item 21.2) up to the
percentages stipulated herein.
CLAUSE 10. OPERATOR
10.1 The Parties hereby agree that (Name of the Associated company) is the
Operator and, as such, and with the limitations contained in this contract,
shall have full control of all operations and activities deemed necessary for
the technical, efficient, and economic exploitation of the Hydrocarbons that may
be found in the area of the Commercial Field. They further agree that, despite
the fact that this Contract - entered into for the commercial purposes provided
in Clause 1 thereof (Name of the Associated company) is the Operator, it is
hereby understood by The Parties who have so decided, that for all legal
purposes of a labor nature, (Name of the Associated company) does not act as a
representative of the Parties, but rather as the sole and true employer of the
workers it contracts for the operation of a commercial field and, consequently,
it shall be responsible for all labor obligations arising from the associated
relations or labor contracts, such as payment of wages and fringe benefits,
parafiscal contributions, affiliation and payments on account of pensions,
health, and professional risks to the Social Security System as provided for in
Law 100 of 1993 and its regulatory decrees or other regulations which may
substitute or amend it.
10.2 The Operator agrees to carry out all development and production operations
in compliance with the known standards and practices, to which end it shall use
the best technical methods and systems required for the economic and efficient
exploitation of the Hydrocarbons and to apply all relevant legal and regulatory
provisions.
10.3 In view of the above and considering that for the performance of and
compliance with the Commercial Field operation, (Name of the Associated company)
will perform all its activities using its own resources, with technical and
administrative autonomy, such Operator shall be considered an entity different
from the Parties for all purposes of this contract, as well as for the
application of civil, labor, and administrative law, and for its relations with
the personnel hired in accordance with Clause 32.
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10.4 The Operator shall have the right to resign from its position, by means of
a written notice given to the Parties at least six (6) months prior to its
effective date of resignation. The Executive Committee shall designate the new
Operator in compliance with Clause 19 (Item 19.3.5). In the event that the
Operator designated by the Executive Committee were a third party, other than
the Parties hereto, a contract must be executed between the Parties and the new
Operator.
10.5 The Operator shall carry out the operations provided for in this contract
in a prompt, efficient, and responsible manner, technically and economically
appropriate, whereby it is understood that it shall, in no way be responsible
for errors of judgment, or losses or damages not resulting from the Operator's
gross negligence.
10.6 The Operator shall be entitled to perform any work through a contractor,
subject to the powers of the Executive Committee, according to Clause 11 (Item
11.5). For purposes of compliance herewith, the Operator shall enter into
contracts following the procedure described in Annex B, and subject to the
principles of good faith, transparency, economy, equity, responsibility,
planning, quality, expeditiousness, and social and environmental responsibility
that should govern all contracting.
CLAUSE 11. EXPLOITATION PROGRAMS AND BUDGETS
11.1 Within three (3) months following the acceptance of a Commercial Field in
the Contracted Area, the Operator shall submit to the Parties the proposed
projects programs, and Development Plan Budget for the Commercial Field, for the
rest of the corresponding calendar year, to be approved by the Executive
Committee. In the event that less than six and a half (6 1/2) months remain
before the end of said year, the Operator shall prepare and submit the proposed
projects, programs, and budget for the following calendar year, within a
three-month period.
11.1.1 The projects, programs and Budget contained in the Development Plan for
the Commercial Field shall be reviewed and revised annually, and submitted to
the Parties by the Operator during the month of May, each calendar year, to
which end, the Operator shall submit its proposal within the first ten (10) days
of May. Within twenty (20) days following the receipt of the proposed projects,
programs, and Development Plan Budget for the Commercial Field, the Parties will
inform in writing to the Operator in regards to the changes they wish to
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propose. When this occurs, the Operator will take into consideration the remarks
and amendments proposed by the Parties in the preparation of the revised
Development Plan that will be submitted to the Executive Committee for final
approval in the ordinary meeting of July of each year. In case that the total
budget of the Commercial Field has not been approved before July, those aspects
of the Budget on which an agreement has been reached will be approved by the
Executive Committee, and those aspects not approved will be immediately
submitted to the Parties for further approval and final decision as provided in
Clause 20.
11.2 The Parties may propose additions or revisions to the projects, annual
budget and programs approved for every Commercial Field, but except for
emergency cases, they should not be suggested with a frequency less than three
months. The Executive Committee will decide about the additions and revisions
proposed in a meeting, which will be summoned within the 30 days following the
submission of the proposals.
11.3 The main objectives of projects, programs, and budgets are the following:
11.3.1 To determine the operations to be carried out, and the expenses and
investments (budget) which the Operator is authorized to make in each Commercial
Field during the following calendar year.
11.3.2 To keep a mid and long-term view on the development of every Field.
11.4 The projects, programs, and annual budget approved by the Executive
Committee and contemplated in the Development Plan are the scheduled working
plan, as well as the estimated expenses and investments to be made by the
Operator in the different aspects of the operation, such as:
11.4.1 Capital investment for production: Reservoir development drilling,
reconditioning or workover of xxxxx, and specific production facilities.
11.4.2 General construction and equipment: industrial and camp facilities,
transportation and construction equipment, drilling and production equipment.
Other constructions and equipment.
11.4.3 Maintenance and operating expenses: production, geological, and
administrative operating expenses.
11.4.4 Working capital requirements
11.4.5 Contingency funds
11.5 The Operator shall incur all expenses and investments and shall carry out
all development and production operations in accordance with the project,
programs and the annual budget to which Clause 11 (Item 11.1), refers, as per
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the Operating Agreement (Attachment B) that is an integral part of this
Contract, without exceeding the total budget for one year, except for
authorization from the parties in special cases.
11.6 The Operator is fully authorized to make disbursements which are not
expressly included in each Commercial Field's Budget and charge them to the
Joint Account without the Executive Committee's prior authorization, in the
event of emergency measures intended to protect the Parties' personnel or
property; emergency expenses caused by fires, floods, storms or other disasters;
emergency expenses considered essential to the operation and maintenance of
production facilities, including all maintenance works for producing xxxxx to
work with maximum efficiency; emergency expenses essential to the protection and
preservation of materials and equipment required in the operations. In such
cases, the Operator must summon, as soon as possible, a special Executive
Committee meeting, to obtain its approval of carrying on with the emergency
measures.
11.7 The only responsible for the expenses incurred and the contracts executed
by the Operator for amounts higher than those authorized by the Executive
Committee for each Commercial Field, in accordance with Clause 19 (Item 19.3.9)
or its equivalent in Colombian currency, is the Operator himself, except for the
ones regulated by Clause 11 (Item 11.6). Therefore, the Operator will assume the
corresponding total value at his expense. When such expense or contract be
ratified by the Executive Committee, the Operator will be reimbursed with the
corresponding value, in accordance with the guidelines to be approved by the
Executive Committee. In the event that the expenditure or the contract are not
approved by the Executive Committee, the Operator, whenever it is possible, will
be entitled to withdraw the asset by reimbursing the Parties for any expenditure
that its withdrawal may cause. In the event that the Operator cannot withdraw
such asset, or if he decides not to do so, the benefit or patrimony increase
resulting from such expenditures or contracts will become the property of the
Parties in a proportion equal to their interests in the operation.
CLAUSE 12. PRODUCTION
12.1 Subject to the approval of the Executive Committee, the Operator will
determine with the necessary frequency, the Maximum Efficiency Rate (MER) for
each Commercial Field. This Maximum Efficiency Rate (MER) for each producing
well will be the hydrocarbon maximum production rate that can be extracted from
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a reservoir in order to obtain the maximum economic benefit in the final
recovery of reserves, in accordance with the economic and engineering principles
and the practices and procedures generally employed and in use within the
international petroleum industry, under similar conditions and circumstances
vis-a-vis the activities under this contract. The estimated production shall be
adjusted as necessary to compensate the actual or anticipated operational
conditions, such as xxxxx being repaired which are not producing, capacity
limitations in collecting lines, pumps, separators, tanks, pipelines, and other
facilities.
12.2 The Operator will determine periodically, at least once a year, upon
approval of the Executive Committee, the area considered capable of producing
hydrocarbons in commercial quantities in each Commercial Field.
12.3 The Operator will prepare and deliver to each of the Parties, at regular
three (3) month intervals, a program indicating each Party's share of
production, and another one indicating the share of production for each Party
for the following six (6) months. The production forecast will be based on the
Maximum Efficiency Rate (MER) as stipulated in Clause 12 (Item 12.1) and
adjusted to the rights of each Party, in accordance with this contract. The
production sharing program will be determined based on the periodic request of
each Party, and in accordance with Clause 14 (Item 14.2) with the necessary
corrections to ensure that none of the Parties, entitled to a share, will
receive less than the amount it is entitled to in accordance with the provisions
in Clause 14, and without prejudice to the provisions in Clauses 21 (Item 21.2),
and 22 (Item 22.5).
12.4 If any of the Parties foresees a reduction in its capacity to lift
hydrocarbons with respect to the forecast submitted to the Operator, it must so
inform him as soon as possible, and if such reduction is due to an emergency
situation, it will notify the Operator within twelve (12) hours immediately
following the event causing the reduction. Consequently, said Party will submit
the new lift program taking into account the pertinent reduction.
12.5 The Operator may use the hydrocarbons that are necessary in performance of
production operations in the Contracted Area, and these consumptions shall be
exempt from the royalties dealt with in Clause 13 (item 13.1).
CLAUSE 13. ROYALTIES
13.1 For purposes of paying royalties for the exploitation of State-owned
Hydrocarbons, the Operator shall pay ECOPETROL a production percentage as
determined by Law. The delivery of said production will take place at the same
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point and in the same moment in which the Parties distribute their production
share pursuant to Clause 14. In the case of Fields being exploited under the
Sole Risk mechanism, THE ASSOCIATE will deliver to ECOPETROL the percentage of
production corresponding to royalties at the point agreed by the Parties.
13.2 From the percentage of production delivered to ECOPETROL under the above
numbered terms, ECOPETROL, in the manner and under the terms established by Law,
shall pay to those agencies established by Law, the royalties caused in favor of
the State over the Field's total production and, in no event, will THE ASSOCIATE
be responsible for any payment to such agencies.
CLAUSE 14. OIL DISTRIBUTION AND AVAILABILITY
14.1 The Hydrocarbons produced, excepting those which may have been used in
benefit of the operations under this contract, which will inevitably be wasted
throughout the operations, will be transported to the jointly owned tanks of the
Parties or to other measuring facilities agreed by the Parties. Should no
agreement be reached, it shall be the metering location nearest to the
inspection site determined by the Ministry of Mines and Energy. Hydrocarbons
will be measured in compliance with the standards and methods accepted by the
petroleum industry and, based on such measurement, the volumes referred to in
Clause 13 will be determined. As of that moment, the remaining Hydrocarbons will
be the property of each party, in the proportions specified in this contract.
14.2 PRODUCTION DISTRIBUTION
14.2.1 After deducting the percentages corresponding to royalties, the remaining
produced Hydrocarbons from each Commercial Field, are owned by the Parties in
the proportion of thirty percent (30%) for ECOPETROL and seventy percent (70%)
for THE ASSOCIATE, until the Commercial Field's accrued production reaches sixty
(60) million barrels of liquid Hydrocarbons or the amount of nine hundred (900)
giga cubic feet of gaseous Hydrocarbons at standard conditions, whatever happens
first (giga cubic feet of gas = 1 x 10 cubic feet). For Fields exploited under
the sole risk method the production distribution after royalties is the Parties'
property in a proportion of one hundred percent (100%) for THE ASSOCIATE and
zero percent (0%) for ECOPETROL, up to the moment when the accrued production of
the Field reaches either one of the aforementioned accrued production limits.
14.2.2 Independently from the classification of Commercial Field given by
ECOPETROL regardless the limits stated on Item 14.2.1, production distribution
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of every Commercial Field (after royalties) is the property of the Parties in
the proportion resulting from applying the "R" factor as follows:
14.2.2.1 If the Hydrocarbon that first reached the limit stipulated in Item
14.2.1 of this Clause was the liquid, the following table will apply:
FACTOR R PRODUCTION DISTRIBUTION AFTER ROYALTIES (%)
THE ASSOCIATE ECOPETROL
0.0 to 1.5 70 30
1.5 to 2.5 70/(R-0.5) 100-[70/(R-0.5)]
2.5 or more 35 65
14.2.2.2 If the Hydrocarbon that first reached the limit stated on Item 14.2.1
of this Clause was the gaseous Hydrocarbon, the following table will apply:
FACTOR R PRODUCTION DISTRIBUTION AFTER ROYALTIES (%)
THE ASSOCIATE ECOPETROL
0,0 to 2,0 70 30
2,0 to 3,0 70/(R-1,0) 100-[70/(R-1,0)]
3,0 or more 35 65
14.2.3 Independently from the classification given by ECOPETROL in its
definition of "Commercial Field", above the limits pointed out by Item 14.2.1,
production of every Field under the sole risk method, according to Clause 9
(Item 9.5), after royalties, is owned by the Parties in the proportion resulting
from applying factor "R", as follows:
14.2.3.1 If the Hydrocarbon that first reached the limit stipulated in Item
14.2.1 of this Clause was the liquid Hydrocarbon, the following table will
apply:
FACTOR R PRODUCTION DISTRIBUTION AFTER ROYALTIES (%)
THE ASSOCIATE ECOPETROL
0,0 to 1,5 100 0
1,5 to 2,5 197,5-(65R) 100-[197,5-(65R)]
2,5 or more 35 65
14.2.3.2 If the Hydrocarbon that first reached the limit stipulated in Item
14.2.1 of this Clause was the gaseous Hydrocarbon, the following table will
apply:
FACTOR R PRODUCTION DISTRIBUTION AFTER ROYALTIES (%)
THE ASSOCIATE ECOPETROL
0,0 to 2,0 100 0
2,0 to 3,0 230-(65R) 100-[230-(65R)]
3,0 or more 35 65
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14.2.4 For the purpose of the above tables, factor R is the relation of
accumulated incomes, expressed in constant terms, over the accumulated expenses,
also expressed in constant terms, corresponding to THE ASSOCIATE for every
Commercial Field in the following terms:
AI
R = ---------------
DI + A - B + OE
Where:
AI (THE ASSOCIATE's Accumulated Incomes): This the appraisal of the accumulated
incomes corresponding to THE ASSOCIATE'S Hydrocarbons' yield produce after
royalties, at the price agreed between the Parties except for Hydrocarbons
re-injected in the Fields of the Contracted Area, those consumed in the
operation and burnt gas.
Hydrocarbons' average price will be agreed between the Parties.
Monthly incomes will be the basis to determine the accumulated incomes which
will be determined as the result of multiplying the average monthly price for
the monthly production, in accordance with the forms that have been issued by
the Ministry of Mines and Energy to that effect.
DI (Accumulated Development Investments): Seventy percent (70%) of the
accumulated Development Investments approved by the Association's Executive
Committee for every Commercial Field.
A: These are the Exploration Direct Costs incurred by THE ASSOCIATE, in
accordance with Clause 9 of this contract and adjusted in accordance to Clause 9
(Item 9.2.2), Paragraph.
B: This is the accumulated reimbursement of the aforementioned exploration
direct costs, according to Clause 9 of this contract.
OE (Accumulated Operation Expenses): These are the accumulated operation
expenses approved by the Association's Executive Committee, in the proportion
that corresponds to THE ASSOCIATE, plus THE ASSOCIATE's accumulated
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transportation expenses. It is understood as transportation costs the investment
and operation costs of Hydrocarbons produced in the Commercial Fields located in
the Contracted Area, from the Contracted Area to the exportation port or the
place that has been agreed to use the AI incomes calculation. Such
transportation costs will be agreed by the Parties once the accepted Commercial
Fields' exploitation stage starts.
Special contributions or the like that can be applied over Hydrocarbons
production in the Contracted Area are included in the operation's expenses.
All values included in the equation to determine factor R will be taken in
constant terms and to such effect they will be updated monthly with the average
consumer index prices in industrialized countries as of its execution date to
the last day of the month to which the R factor is being applied. For the
monthly update it will be used 1/12 of the value resulting of averaging the
annual percentage variation during the last two years of the consumer index
prices in industrialized countries, after "International Financial Statistics"
of the International Money Market Fund (page S63 or its substitute), or the
issue that agreed by the Parties.
To such effect expenses in Colombian currency must be exchanged to U.S. dollars
at the representative rate in the market, duly approved by Superintendencia
Bancaria (Bank Superintendency) that is in force on the date that the
corresponding reimbursements occur.
PARAGRAPH: For Fields exploited under the Sole Risk method, according to Clause
9 (Item 9.5) of this contract, to the purpose of applying the equation to
calculate factor R, is necessary to have in mind the following:
DI (Accumulated Development Investments): is one hundred percent (100%) of the
accumulated Development Investments made by THE ASSOCIATE.
The accumulated reimbursement value of the exploration direct costs (B) will be
equal to zero (0).
OE (Accumulated Operation Expenses): These are the accumulated operation
expenses made by THE ASSOCIATE, plus THE ASSOCIATE's accumulated transportation
expenses to move Hydrocarbosn from the Contracted Area to the exportation port
or the place that has been agreed to use the AI incomes calculation.
14.2.5 CALCULATION OF FACTOR R: Production distribution based on factor R will
start the first day of the third calendar month as of the date on which
accumulated production of every Commercial Field reaches the amount of sixty
(60) million barrels of liquid Hydrocarbons, or the amount of nine hundred
(900)
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cubic giga cubic feet of gaseous Hydrocarbons at standard conditions, according
to Item 14,2.1 of this Clause.
Calculation of every Commercial Field's factor R will be made based on the
accounting closure corresponding to the calendar month on which the surveyed
accrued production of sixty (60) million barrels of liquid Hydrocarbons or the
amount of nine hundred giga cubic feet of gaseous Hydrocarbons at standard
conditions, in accordance with Item 14.2.1.
Resulting production distribution will be applied until June 30th of the next
year. From that moment on, production distribution to which factor R has been
applied will be made for one-year terms (from July 1st to June 30th) over factor
R's liquidation based on the accumulated values as of December 31st of the
previous year, in accordance with the corresponding accounting closing term.
Provisions contemplated herein also apply for the exploited Fields under the
sole risk method.
14.3 In addition to the tanks and other joint facilities, each Party will be
entitled to build its own production facilities in the Contracted Area for its
own and exclusive usage, previous fulfilling of legal regulations.
Transportation and delivery of Hydrocarbons by each Party to the pipeline and
other receivers different from the jointly owned ones will be made on the sole
account and risk of the Party receiving the Hydrocarbons.
14.4 In case that production is yielded in places not connected to pipelines,
the Parties will be able to agree the installation of pipelines up to a
hydrocarbon point of sale, or to a location connected to the pipeline. If the
Parties agree to the construction of such pipelines, they shall enter in to the
contracts they deem appropriate to this end, and shall designate the Operator in
keeping with the legal provisions in force.
14.5 Each Party will be the owner of the Hydrocarbons that have been yielded and
stored as a result of the operation and that have been made available to it,
according to what this contract deals on such respect and, at its expense, it
should receive them in kind, sell them or have them at its disposal separately,
according to when Clause 14 (Item 14.3) deals about.
14.6 If any of the Parties, by any reason, cannot have them at its disposal
separately or withdraw from the Joint Account's tanks partially or totally its
share of the Hydrocarbons, in accordance with this contract, the following
procedure will apply:
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14.6.1 If ECOPETROL is the party that cannot withdraw partially or totally, it
Hydrocarbons share (share plus royalties), according to Clause 12 (Item 12,3),
the Operator will be able to go ahead with the Field's production and delivering
to THE ASSOCIATE the portion represented by THE ASSOCIATE'S share in the
operation, based on one hundred percent (100%) maximum efficiency rate, all
those Hydrocarbons that THE ASSOCIATE is capable of withdrawing up to a limit of
one hundred per cent (100%) of the maximum efficiency rate and crediting
ECOPETROL, for further delivery, the amount of Hydrocarbons that ECOPETROL was
entitled to withdraw but did not.
However, as regards the volume of Hydrocarbons not withdrawn that corresponds to
ECOPETROL during the month as royalties, THE ASSOCIATE shall pay ECOPETROL at
the latter`s request, in dollars of the United States of America, the
difference between the amount of Hydrocarbons it actually withdraw and the
amount of Hydrocarbons to wich it was entitled for royalty that Clause 13 deals
about, it is understood that any withdrawal made by ECOPETROL will be applied,
in the first place, to the payment of the royalties in kind and, when it has
been canceled, additional Hydrocarbons withdrawals will be applied to its
corresponding share, according to Clause 14 (Item 14.2).
14.6.2 In the event that THE ASSOCIATE is the Party which cannot take all or
part of its share designated under Clause 12 (Item 12.3), the Operator shall
deliver to ECOPETROL, on the basis of one hundred percent (100%) of the MER, not
only its own share and quota, but also all the hydrocarbons that ECOPETROL is
capable of taking up to a limit of one hundred percent (100%) of the MER,
crediting THE ASSOCIATE for later delivery, with the portion that corresponds to
its quota and that it has not been able to take.
14.7 When both Parties are able to take the hydrocarbons designated in Clause 12
(Item 12.3), the Operator will deliver to the Party which has previously been
unable to take its share of the production, and upon its request, and in
addition to its participation in the operation, a minimum of ten percent (10%)
per month of the production belonging to the other Party, and by mutual
agreement, until one hundred percent (100%) of the quota not taken, up to the
point in which the total amount that had not been credited to the Party that was
unable to take its hydrocarbon share have been canceled.
14.8 Without prejudice of legal regulations on the subject, each Party will be
free, at any time, to sell or export its share of the hydrocarbons obtained,
according to this contract, or dispose of same in any manner.
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CLAUSE 15. UTILIZATION OF THE ASSOCIATED NATURAL GAS
In the event that one or more Associated Natural Gas Fields are discovered, the
Operator within the three (3) years following the date of commencement of field
exploitation as defined by the Ministry of Mines and Energy, shall submit a
project for utilization of Natural Gas for the benefit of the Joint Operation.
The Executive Committee will decide on the project, and if that is the case, it
shall determine the timing for execution of same. If the Operator does not
submit any project within the three (3) years or does not perform the project
approved in the terms determined by the Executive Committee, ECOPETROL may take,
gratuitously, all the Associated Natural Gas available from the reservoirs being
developed, as long as it is not required for the efficient development of the
field.
CLAUSE 16. UNIFICATION
When an economically exploitable field extends continuously to another area or
areas out of the Contracted Area, the Operator, in agreement with ECOPETROL and
the other interested Parties, subject to the approval of the Ministry of Mines
and Energy, shall formulate a unified exploitation plan, which must conform to
the engineering techniques for hydrocarbon exploitation.
CLAUSE 17. SUPPLY OF INFORMATION AND INSPECTION DURING EXPLOITATION
17.1 The Operator shall deliver to the Parties, as they are obtained,
reproducible originals (sepias) and copies of the drilled xxxxx' electric,
radioactive, and sonic logs, history, core analyses, cores, production tests,
reservoir studies, and other relevant technical data, as well as routine data
produced or received in relation with the operations and activities performed in
the Contracted Area.
17.2 Each of the Parties, at its own risk and expense, shall be entitled,
through authorized representatives, to inspect the xxxxx and facilities in the
Contracted Area, as well as all the activities related thereto. Such
representatives shall have the right to examine cores, samples, maps, records of
drilled xxxxx, surveys, books, and any other source of information related to
performance of this contract.
17.3 In order for ECOPETROL to comply with the provisions of Clause 29, the
Operator shall prepare and deliver to ECOPETROL all the reports required by the
National Government.
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17.4 All information and data related to exploitation works must be held as
confidential pursuant to the same conditions of Clause 6 (Item 6.3) of this
contract.
CHAPTER IV - EXECUTIVE COMMITTEE
CLAUSE 18. CONSTITUTION
18.1 Within the first thirty (30) calendar days following the acceptance of the
first Commercial Field, each Party must appoint a representative and its
respective first and second alternates, to form the Executive Committee and
shall notify the other party in writing the names and addresses of its
representative and alternates. The Parties may change their representative or
alternates at any time, but must so advise the other Party in writing.. The vote
or decision of each Party representative is binding on said Party. Should the
main representative of one of the Parties not be able to attend a Committee
meeting, his first or second alternates, in order, may attend and will have the
same authority as the principle.
18.2 The Executive Committee shall hold ordinary meetings during the months of
March, July, and November, at which the development program and immediate plans
submitted by the Operator will be reviewed. Annually, in the ordinary meeting
held in July, the Operator will submit to the Executive Committee for its
approval, the annual operations program and the expense and investment Budget
for each Commercial Field for the next calendar year, and if such is the case,
the reviewed Development Plan.
18.3 The Parties and the Operator may summon for special meetings of the
Executive Committee, to analyze specific operating conditions. The
representative of the interested Party shall notify ten (10) calendar days in
advance about the date of the meeting and the topics that will be dealt in them.
Any matter not included in the meeting agenda may be dealt during the said
meeting, after acceptance by the representatives of the Parties in the
Committee.
18.4 The representative of each of the Parties will have right to vote
equivalent to the percentage of his total interests in the Joint Operation when
discussing all the matters dealt in the Executive Committee. But, Executive
Committee's decisions related from clauses 19.3.4 to 19.3.9 will be adopted by
unanimous votes of the Parties. The whole Executive Committee's decisions, in
accordance with the aforementioned procedure, will be mandatory and final for
the Parties and for the Operator.
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CLAUSE 19. FUNCTIONS
19.1 The representatives of the Parties will form the Executive Committee,
having full authority and responsibility to set and adopt exploitation,
development, operations and budgets related with this contract. One
representative of the Operator will attend the meetings of the Executive
Committee.
19.2 The Executive Committee will appoint a secretary for every
session. The said secretary will write the corresponding minute containing a
summary of all the discussions and determinations adopted by the Committee. The
minutes must be approved and signed by the representatives of the Parties within
the ten (10) working days following the closing of the meeting and will be
delivered to them as soon as possible.
19.3 The functions of the Executive Committee are, among others, the following:
19.3.1 Adopt its own regulations.
19.3.2 Decide about the matters submitted by the Operator for its consideration.
19.3.3 Supervise the operation of the Joint Account and the Joint Operation.
19.3.4 Create the subcommittees deemed necessary and assign their functions
under its direction.
19.3.5 Appoint the Operator in case of resignation or removal and write the
regulations to be followed by the Operator, when he is a third party, indicating
in detail the reasons for his removal.
19.3.6 Appoint the external auditor of the Joint Account.
19.3.7 Approve or reject projects, programs and annual Budgets of each
Commercial Field and any recommendation for extra-expenses made by the Operator
which have not been included in the approved budget.
19.3.8 Determine the expense regulations and policies.
19.3.9 Approve or reject the Development Plan and any amendment or change and
authorize extraordinary expenditures that were not included in the Budget.
19.3.10 In general, perform all the functions authorized by this contract and
not corresponding to the Operator or another entity or individual based on an
express clause or by legal or regulatory provision.
CLAUSE 20. DECISION IN CASE OF DISAGREEMENT IN OPERATION
20.1. Any disagreement that cannot be resolved in the Executive Committee will
be directly submitted to the highest executive of each of the Parties who
resides in Colombia, so as to take a joint decision. If in the sixty calendar
days following the submission of the consultation, the parties agree on a
decision in regards to
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the matter being dealt, they will inform about it to the Operator who should
call for a meeting of this entity with the Executive Committee within the
fifteen (15) calendar days following the receipt of the communication being the
members of said committee bound to ratify said agreement or decision in the
meeting. 20.2 If within sixty (60) calendar days following the date of
consultation to the highest executive of each of the Parties that be resident in
Colombia, an agreement is not reached, the procedure will be as provided in
Clause 28 of this contract, except for differences related to the operations, in
which case they could be executed in accordance with Clause 21.
CLAUSE 21. OPERATIONS AT THE RISK OF ONE OF THE PARTIES
21.1 If at any time one of the Parties wishes to drill a development not
approved in the operating program, it shall notify the other Party in writing,
at least thirty (30) calendar days prior to the following meeting of the
Executive Committee, of its desire to drill such well and include information,
such as location, drilling recommendation, depth and estimated costs. The
Operator shall include this proposal among the items to be discussed at the
following Executive Committee meeting. Should the proposal be approved by the
Executive Committee, said well shall be drilled charged to the Joint Account.
Should the proposal not be accepted by the Executive Committee, the party
wishing to drill such well, hereinafter the "Participating Party", shall have
the right to drill, complete, produce, or abandon such well at its own risk and
expense. The party not wishing to participate in the above mentioned operation
shall be known as the "Non Participating Party". The Participating Party must
commence drilling of the well within one hundred eighty (180) days following the
refusal of the Executive Committee. Should drilling not be commenced within this
period, it must be submitted to the Executive Committee's consideration once
again. At the request of the Participating Party, the Operator shall drill the
aforementioned well at the risk and expense of the Participating Party, provided
that in the Operator's opinion, such operation does not interfere with the
normal operation of the Field, whereby the Participating Party shall have
advanced to the Operator the amount that the Operator deems necessary to drill
the well. In the event that the well cannot be drilled by the Operator without
interfering with the normal operation of the field, the Participating Party
shall have the right to drill such well itself, or through a service company
that is competent and, in such event, the
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Participating Party shall be responsible for such operation, without interfering
with the normal development of field operations.
21.2 Should the well referred to in Clause 21 (Item 21.1), be completed as
producer, it shall be administered by the Operator and the production from such
well, after deducting the royalties referred to in Clause 13, shall be property
of the Participating Party, which will bear all costs of operating such well
until the net value of production, after deducting production, collection,
storage, transport and other similar costs, as well as the cost of sale, equal
to hundred percent (200%) of the costs of drilling and completing such well. As
of that moment, and for the purposes of this contract, such well shall become
the property of the Joint Account holders, in the proportion established, as
though it had been drilled with the approval of the Executive Committee at the
Parties' risk and expense. To this effect, the investments made and costs
incurred in the development of this well shall be part of the R Factor of the
Commercial Field. For purposes of this clause, the value of each barrel of
Hydrocarbon produced from such well, during a calendar month, before deducting
the aforementioned costs, shall be the price agreed between the Parties.
21.3 If at any time, one of the Parties wishes to workover, deepen to reach the
production targets, or plug a well that is not producing commercial quantities,
or a dry hole that was drilled by the Joint Account, and if such operations have
not been included in the program approved by the Executive Committee, such Party
must notify the other party of its intention to workover, deepen, or plug such
well. Should there be no equipment on site, the procedure described in Clause 21
(Items 21.1 and 21.2) shall be followed. Should there be no adequate equipment
to conduct the proposed operations at the wellsite, the Party receiving the
notice of the operations that the other Party wished to conduct, shall
forty-eight (48) hours, starting at the time it received the notice, within
which to approve or disapprove the operation, if during this term, no reply is
received, it is understood that the operation will be carried out at the risk
and expense of the Joint Account. Should the proposed work be carried out at the
sole risk and expense of a participating party, the well shall be administered
subject to Clause 21 (Item 21.2).
21.4 If at any time, one of the Parties wishes to build new facilities for the
extraction of gaseous Hydrocarbon liquids and for the transport and export of
the Hydrocarbons produced, hereinafter additional facilities, said party shall
notify the other Party in writing and provide the following information:
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21.4.1 General description, design, specifications, and estimated costs of the
additional facilities.
21.4.2 Projected capacity
21.4.3 Approximate date of commencement of the construction and duration
thereof. Within ninety (90) days starting on the date of notification, the other
Party shall have the right to decide whether it intends to participate in the
projected additional facilities, by giving written notice. In the event that
such Party should elect not to participate in the additional facilities, or does
not reply to the Participating Party's proposal, hereinafter "the Constructing
Party", the latter may proceed with the additional facilities and will instruct
the Operator to build, operate, and maintain such facilities at the exclusive
risk and expense of the Constructing Party, without prejudice to the normal
development of the Joint Operation. The Constructing Party may negotiate the use
of such facilities for the Joint Operations, with the other Party. During the
time the facilities are operated at the risk and expense of the Constructing
Party, the Operator shall charge such Party for all operating and maintenance
costs of the additional facilities, in accordance with generally accepted
accounting practices.
CHAPTER V - JOINT ACCOUNT
CLAUSE 22. MANAGEMENT
22.1 Without prejudice to the provisions of other clauses in this contract, the
expenses attributable to exploration works will be at the risk and expense of
THE ASSOCIATE.
22.2 From the moment ECOPETROL accepts the existence of a Commercial Field and
subject to the provisions of Clause 5 (Item 5.2) and of Clause 13 (Items 13.1
and 13.2), the ownership of the rights or interests in the Contracted Area shall
be divided as follows: ECOPETROL, thirty percent (30%), THE ASSOCIATE, seventy
percent (70%). From that point on, all the expenses, payments, investments,
costs, and obligations performed and assumed for development of the Joint
Operation, in compliance with this contract, shall be charged to the Joint
Account and the Direct Exploration Costs made by THE ASSOCIATE before and after
acknowledgment of each Commercial Field and its extensions, in compliance with
Clause 9 (Item 9.8), shall be entered in the Joint Account. Except as provided
in Clauses 14 (Item 14.3) and 21, all the property acquired or used from that
moment on for the fulfillment of operating activities of
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the Commercial Field, shall be paid for and belong to the Parties, in the same
proportions described in this clause.
22.3 The Parties shall tender to the Operator their proportionate shares in the
budget, as needed, within the first five (5) days of each month in the same
currency in which the expenses must be made, that is, in Colombian pesos, or in
USA dollars, as requested by the Operator, in accordance with the programs and
budgets approved by the Executive Committee. When THE ASSOCIATE does not have
the necessary pesos to cover its portion of this currency, ECOPETROL shall have
the right to furnish such pesos and be credited for the contribution that is to
be made in dollars, converted at the official rate for purchase of exchange
certified by the Superintendencia Bancaria (Bank Superintendency), or the
official entity in charge, on the day when ECOPETROL should make the
corresponding contribution, provided such transaction does not violate any legal
provision.
22.4 The Operator shall submit to the Parties, and within the ten (10) calendar
days following the end of each month, a monthly statement showing the
anticipated amounts, the expenses made, outstanding obligations, and a report of
all charges and credits to the Joint Account. Such report shall be prepared in
compliance with Attachment B and in a separate attachment, the parameters and R
factor calculation referred to in Clause 14 (Items 14.2.4 and 14.2.5). If the
payments referred to in Clause 22 (Item 22.3) are not made within the agreed
term and the Operator decides to make them, the delinquent Party shall pay the
Arrears interest, in the same currency during the delinquency period.
22.5 If one of the Parties should fail to pay to the Joint Account the
corresponding amounts on time, from that date on said Party shall be considered
a Delinquent Party and the other Party the Performing Party. If the Performing
Party should make the payment belonging to the Delinquent Party, in addition to
its own, said party shall have the right after sixty (60) days of delinquency to
have the Operator deliver to it the total of the Delinquent Party's
participation in the Contracted Area (excluding the percentage corresponding to
royalties), up to a production amount such that permits the Performing Party a
net income from the sales made equal to the amount the Delinquent Party failed
to pay, plus an annual interest equal to the Arrears interest starting after the
initial date of the delinquency. "Net income" is understood as the difference
between the sale price of the Hydrocarbons taken by the Performing Party, minus
the cost of transportation, storage, loading and other reasonable expenses
incurred by the
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Performing Party from the sale of the products taken. The right of the
Performing Party may be exercised at any time thirty (30) days after written
notification to the Delinquent Party of its intention to take part or all of the
production corresponding to the Delinquent Party.
22.6 Direct and Indirect Costs
22.6.1 All Direct Costs of the Joint Operation shall be charged to the Parties
in the same proportion that the production is allocated after royalties.
22.6.2 Indirect Costs shall be charged to the Parties in the same proportion
that has been established for Direct Costs in Item 22.6.1 of this Clause. The
amount of such costs shall be the result of applying equation a + m (X-b) to the
total annual value of investments and Direct Costs (excepting technical and
administrative support). In such equation, "X" is the total value for
investments and annual expenses and "a", "m", and "b" are constants whose values
are indicated in the following table in relation with the amount of investments
and annual expenses:
INVESTMENTS AND EXPENSES VALUE OF THE CONSTANTS
"X" (US$)
"A" (US$) M (FRACT.) "B"(US$)
--------- ---------- --------
1. 0 to 25.000.000 0 0.10 0
2. 25.000.001 to 50.000.000 2.500.000 0.08 25.000.000
3. 50.000.001 to 100.000.000 4.500.000 0.07 50.000.000
4.100.000.001 to 200.000.000 8.000.000 0.06 100.000.000
5.200.000.001 to 300.000.000 14.000.000 0.04 200.000.000
6.300.000.001 to 400.000.000 18.000.000 0.02 300.000.000
7.400.000.001 and over 20.000.000 0.01 400.000.000
The equation will be applied once a year in each case with the value of the
constants corresponding to the total value of annual investments and expenses.
22.7 The monthly statements referred to in Clause 22 (Item 22.4) may be reviewed
or objected to by either of the Parties from the moment they receive them, up to
two (2) years after the end of the calendar year to which they pertain, clearly
specifying the entries corrected or objected to and the reason therefor. Any
account which has not been corrected or objected to within such period of time
shall be considered final and correct.
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22.8 The Operator shall keep accounting records, vouchers and reports for the
Joint Account in Colombian pesos in accordance with Colombian law and all
charges and credits to the Joint Account shall be made following the accounting
procedure described in Attachment B, which is part of this contract. In the
event of discrepancy between such Accounting Procedure and the provisions of
this contract, the provisions of the latter shall prevail.
22.9 The Operator may perform sales of materials or equipment during the first
twenty (20) years of the Exploitation Period, or the first twenty eight (28)
years of the Exploitation Period, in the case of a Gas Field, for the benefit of
the Joint Account when the value of the sold items does not exceed five thousand
USA dollars (US$5,000) or its equivalent in Colombian pesos. This type of
operation, per calendar year, may not exceed fifty thousand USA dollars
(US$50,000) or its equivalent in Colombian pesos. The sales exceeding these
amounts or those of real estate property are subject to the Executive
Committee's approval. The sale of such materials or equipment will be made at a
reasonable commercial price in accordance with the conditions of use of the
item.
22.10 All the machinery, equipment, or other goods or items acquired by the
Operator for the execution of this contract and charged to the Joint Account,
will be the property of the Parties in equal shares. However, in the event that
one of the Parties should decide to terminate its interest in the contract
before the end of the first seventeen (17) years of the Exploitation Period,
except as foreseen in Clause 25, said Party agrees to sell to the other Party,
part or all of its interest in said assets at a reasonable commercial price or
their book value, whichever is lower. In the event that the other Party does not
wish to buy such assets within ninety (90) days following the formal offer to
sell, the Party wishing to withdraw shall have the right to assign to a third
party the interest corresponding it in such machinery, equipment and items. If
THE ASSOCIATE decides to withdraw after seventeen (17) years of the Exploitation
Period, its right in the Joint Operations will pass free of charge to ECOPETROL
upon its acceptance.
CHAPTER VI - DURATION OF THE CONTRACT
CLAUSE 23. MAXIMUM DURATION
This contract shall be in force as of its Effective Date and shall have a
maximum duration of twenty eight (28) years, divided as follows: up to six (6)
years as the Exploration Period in compliance with Clause 5, without prejudice
to the
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provisions of Clause 5 (Item 5.4) and Clause 9 (Item 9.3) and twenty-two (22)
years as the Exploitation Period starting on the date when the Exploration
Period ends. It is understood that in the events provided for in this contract,
in which the Exploration Period is extended, the total term shall not be
extended beyond twenty eight (28) years under any circumstance.
PARAGRAPH 1: The Exploitation Period for the Gas Fields discovered within the
Contracted Area shall have a maximum duration of thirty (30) years as of the
date of expiration of the Exploration Period or Retention Period granted. In any
case, the total contract term for such Fields shall not exceed forty (40) years
counted as of the Effective Date.
PARAGRAPH 2: Notwithstanding the foregoing, ECOPETROL and THE ASSOCIATE, no less
than five (5) years before the date of expiration of the Exploitation Period for
each Field, shall study the conditions to continue with their exploitation after
the term referred to in this Clause. In the event that the Parties agree to
continue with said exploitation, they shall define the terms and conditions
under which it shall be performed.
CLAUSE 24. TERMINATION
This contract shall terminate in each of the following cases on which THE
ASSOCIATE'S rights contained within this contract shall cease, either in its
capacity as interested Party, or as Operator, provided both mentioned capacities
concur at the termination time:
24.1 At the end of the Exploration Period if THE ASSOCIATE has not discovered a
Commercial Field, except as provided in Clauses 5 (Item 5.4), 9 (Item 9.5), and
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24.2 When the contract term established in Clause 23 expires.
24.3 At any time and at THE ASSOCIATE'S will, after having complied with its
obligations referred to in Clause 5 and the other obligations acquired in
compliance with this contract up to the date of termination.
24.4 If THE ASSOCIATE should assign this contract, in whole or in part, without
complying with the provisions of Clause 27.
24.5 Due to breach of the obligations assumed by THE ASSOCIATE in accordance
with this contract.
24.5.1 ECOPETROL shall not be able to terminate this contract until sixty (60)
calendar days after having notified THE ASSOCIATE or its assignees in writing,
clearly specifying the causes for making such a declaration and only if the
other
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Party has not submitted explanations that are satisfactory to ECOPETROL or if
THE ASSOCIATE has not corrected the fault in complying with the contract,
without prejudice to THE ASSOCIATE'S right to file the legal suits it deems
convenient.
24.5.2 If, within the period of time mentioned above, THE ASSOCIATE submits
explanations that are satisfactory to ECOPETROL and in the remaining term for
completing the period of sixty (60) days it is insufficient to meet the
obligations pending according to good oil industry practice, the Parties may
agree to an additional term to allow said compliance, without prejudice to
ECOPETROL's right to demand the guaranties necessary for backing it. If, after
this period of time has elapsed, all of the works agreed to have still not been
performed, ECOPETROL shall terminate the contract.
24.6 At any time upon mutual agreement between the Parties.
24.7 Due to the unilateral termination causes contemplated in Clause 25.
CLAUSE 25. CAUSES OF UNILATERAL TERMINATION
25.1 Unilaterally, ECOPETROL may terminate this contract at any time before the
period agreed in Clause 23 expires, in the following cases:
25.1.1 Death or permanent physical disability or legal interdiction of THE
ASSOCIATE in the case of an individual.
25.1.2 Due to initiation of a wind-up process of THE ASSOCIATE if it is a
corporation.
25.1.3 Due to legal embargo of THE ASSOCIATE that seriously affects contract
performance.
25.1.4 When THE ASSOCIATE is made up of several corporations and/or individuals,
the reasons given in items 25.1.1 and 25.1.2 shall be applied when they
seriously affect contract performance.
25.2 In the event of a declaration of unilateral termination, the rights of THE
ASSOCIATE'S rights stated in this contract shall cease, not only as an
interested Party, but also as Operator, if at the moment of the declaration of
unilateral termination THE ASSOCIATE acts in both capacities.
CLAUSE 26. OBLIGATIONS IN CASE OF TERMINATION
26.1 If the contract is terminated as per the provisions in Clause 24, during
its Exploitation, Retention, or Exploration Period, THE ASSOCIATE shall leave in
production those xxxxx which on that date are producing and shall deliver the
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facilities, pipelines, transfer lines and other real estate property belonging
to the Joint Account located in the Contracted Area, all of which shall pass,
free of charge, to ECOPETROL'S ownership, together with the rights of way and
assets acquired exclusively for the benefit of the contract, regardless of
whether or not these assets are located outside the Contracted Area.
26.2 If the contract is terminated for any reason after the first seventeen (17)
years of its Exploitation Period, all of THE ASSOCIATE'S machinery, equipment or
other assets or items used or acquired by THE ASSOCIATE or by the Operator in
performance of this contract shall pass, free of charge, to ECOPETROL.
26.3 If the contract is terminated before the end of the seventeen (17) year
Exploitation Period, the provisions of Clause 22 (Item 22.10) shall apply.
26.4 If the contract is terminated through a declaration of unilateral
termination issued at any time, all current assets and fixed assets acquired for
the exclusive benefit of the Joint Account, shall pass, free of charge, to
ECOPETROL'S ownership.
26.5 If the contract is terminated for any reason and at any time, the Parties
have the obligation to satisfactorily fulfill their legal obligations to each
other and to third Parties and those acquired under this contract.
CHAPTER VII - MISCELLANEOUS PROVISIONS
CLAUSE 27. ASSIGNMENT RIGHTS
27.1 After previous written approval by ECOPETROL, THE ASSOCIATE is hereby
entitled to assign or transfer either partially or totally its interests, rights
and obligations in the association contract to another individual, company or
group that is technically capable and competent with the necessary professional
skills and legal capacity to work in Colombia.
For such purpose, THE ASSOCIATE shall submit a written request to ECOPETROL,
indicating the main elements of the negotiation, such as possible assignee,
information on its legal, financial, technical, and operational capacities,
value of the rights and obligations to be assigned, scope of the operation, etc.
Within sixty (60) work days following receipt of the complete request, ECOPETROL
shall exercise the discretional faculty of analyzing the information furnished
by THE ASSOCIATE, after which it shall make its decision, without the obligation
of expressing its reasons for it.
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27.1.1 When assignments are made in favor of companies that control or direct
THE ASSOCIATE, or to any of the companies that make it up or their affiliates or
subsidiaries, or between companies that comprise the same economic group, it
shall suffice to inform ECOPETROL beforehand and in a timely fashion regarding
the essential elements of the negotiation set forth above.
27.1.2 The actions taken to develop this clause that might be taxable according
to the Colombian tax legislation will cause payment of the corresponding taxes.
PARAGRAPH: When THE ASSOCIATE is made up of more than one company and one of
them wishes to assign their interests, rights and obligations in the contract,
in whole or in part, in accordance with this clause, it must prefer the other
companies that comprise THE ASSOCIATE, offering to them before to other
interested third parties, the interests, rights and obligations it wishes to
assign, unless the companies THE ASSOCIATE is comprised of have agreed
otherwise.
CLAUSE 28. DISAGREEMENTS
28.1 In any case where a discrepancy or contradiction arises in the
interpretation of the clauses of this Contract relative to the contents in
Attachment B called "Operation Agreement", the stipulations of the former shall
prevail.
28.2 Disagreements between the Parties as to regulations related to the
interpretation and performance of the contract, which cannot be resolved
amicably, shall be submitted for examination and determination by the proper
Colombian legal public authority.
28.3 Any factual or technical difference between the Parties, related to the
interpretation and application of this contract, which cannot be resolved
amicably, shall be submitted to arbitration in the following manner: each Party
shall appoint an expert representative, one for each Party, and a third mutually
agreed by the main experts appointed. If the Parties cannot agree as to the
naming of the third, the Board of Directors of the "Colombian Association of
Engineers", with headquarters in Bogota, will choose the third candidate
proposed by either Party.
28.4 Any difference concerning the accounting which may arise between the
Parties by reason of the interpretation and performance of this contract, which
cannot be resolved amicably, shall be submitted to arbitration. The arbitrators
shall be sworn Certified Public Accountants, and shall be appointed as follows:
one by each of the Parties and a mutually agreed upon third one by the two main
experts. Upon failure of the former two to reach agreement and at the request of
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either of the Parties, said third expert shall be appointed by the Central Board
of Accountants (Junta Central de Contadores) in Bogota.
28.5 Both parties agree that the decision of the experts shall have the same
effect as a transaction between themselves and, consequently, said decision
shall be binding.
28.6 In the event of a disagreement between the Parties concerning the
technical, accounting or legal aspects of the controversy, said disagreement
shall be considered legal and Clause 28 (Item 28.2) shall apply.
CLAUSE 29. LEGAL REPRESENTATION
Without prejudice to the rights which THE ASSOCIATE may legally have, as a
consequence of legal regulations or pursuant to the provisions of this contract,
ECOPETROL shall represent the Parties before the Colombian authorities with
respect to the exploitation of the Contracted Area whenever it must do so, and
it shall submit to governmental officials and entities all the data and
information which may be legally required. The Operator shall be obliged to
prepare and furnish ECOPETROL with the pertinent information. Any expense that
ECOPETROL may incur pursuant to any matter referred to herein, shall be at the
expense of the Joint Account, and when such expenses exceed five thousand USA
dollars (US$5,000) or its equivalent in Colombian pesos, the Operator's prior
approval shall be required. The Parties declare that, insofar as any
relationship with third Parties is concerned, neither the conditions of this
clause nor of any other clause of this contract, shall imply the granting of a
general power of attorney, or give the right for the Parties to form a joint
civil or commercial venture or allow the Parties to associate in any manner
which would exempt either Party from being responsible for the other Party's
acts or omissions with respect to the obligations stated in this contract. This
contract has to do with operations within the territory of the Republic of
Colombia, and although ECOPETROL is an industrial and commercial company of the
Colombian government, the parties agree that THE ASSOCIATE, if necessary, may
elect to be excluded from the application of all the provisions of Subchapter K,
entitled PARTNERS AND PARTNERSHIPS of the Internal Revenue Code of the United
States of America. THE ASSOCIATE shall make this election on its behalf in a
proper manner.
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CLAUSE 30. RESPONSIBILITIES
30.1 The responsibilities contracted by ECOPETROL and THE ASSOCIATE in
connection with this contract before third parties shall not be joint
liabilities and, therefore, each Party shall be solely responsible for its share
of the expenses, investments and obligations arising from such responsibilities.
30.2 ENVIRONMENTAL MANAGEMENT: THE ASSOCIATE or the Operator, in development of
all the contract activities, must opportunely comply with that set forth in the
National Code of Renewable Natural Resources and Protection of the Environment
and other legal provisions on the subject. Likewise, they shall promote amongst
their contractors, supplies, intermediaries and/or workers working in benefit of
the contract, the conservation of a healthy environment, taking the necessary
precautions to protect the environment, human life and the property of others
and prevent contamination of the Contracted Area. As of contract initiation, THE
ASSOCIATE shall prepare a general diagnosis of the environmental and social
reality of the zones where the Exploration Works shall be performed and shall
establish the communications channels with the authorities and the communities
present there.
THE ASSOCIATE agrees to execute a permanent plan, of a preventive nature, in
order to ensure the conservation and restoration of the natural resources within
the zones where the Exploration, exploitation and transportation works
subject-matter of this contract are performed.
Said plans and programs must be divulged by THE ASSOCIATE to the communities and
entities of a national and regional order that are related to this subject.
Likewise, specific contingency plans must be established to take care of the
emergencies that may arise and to perform the remedying actions called for. For
such purpose, THE ASSOCIATE must coordinate said plans and actions with the
competent agencies.
The respective plans and budgets must be prepared by THE ASSOCIATE in accordance
with the corresponding Clauses of this contract. All costs caused shall be borne
by THE ASSOCIATE during the Exploration Period and exploitation under the sole
risk mode, and by both Parties, charged to the Joint Account in the Exploitation
Period.
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CLAUSE 31. TAXES, LIENS, AND OTHERS
The taxes, liens and fares caused after establishing the Joint Account and
before the Parties receive their production shares in and that be chargeable to
oil exploitation shall be charged to the Joint Account. The income, patrimony
and complementary taxes will be solely at the expense of each of the Parties,
accordingly.
CLAUSE 32. PERSONNEL
32.1 When THE ASSOCIATE is the Operator, the Manager's appointment will be
consulted previously with ECOPETROL.
32.2 Pursuant to the terms of this contract and subject to the regulations
established herein, the Operator, as the sole and actual employer, shall have
administrative autonomy to designate personnel required for the operations under
this contract, and may establish their salaries, functions, categories, and
conditions. The Operator will adequately and diligently train the Colombian
personnel required to substitute the foreign personnel that the Operator may
consider required for the performance of the operations of this contract.
32.3 TECHNOLOGICAL TRANSFER
THE ASSOCIATE agrees to implement, at its expense, a training program for
ECOPETROL professionals in areas related with the development of the contract.
For compliance with this obligation in the Exploration Period, training may be,
among others, in the areas of geology, geophysics and related areas, evaluation
and definition of characteristics of reservoirs, drilling and production.
Training shall be provided during the entire Exploration Period of six (6)
months and its extensions, through the integration of the professionals
appointed by ECOPETROL to the work group THE ASSOCIATE organizes for the
Contracted Area or for other similar activities of THE ASSOCIATE. To decide for
the waiver dealt with in Clause 5 of this contract, THE ASSOCIATE must have
previously complied with the training programs herein provided for.
In the Exploitation Period, the scope, duration, place, participants, training
conditions and other aspects shall be established by the Association's Executive
Committee.
All of the costs of supervised training, with the exception of the labor ones
caused in favor of the professionals who get said training, shall be borne by
THE
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ASSOCIATE in the Exploration Period and by both Parties charged to the Joint
Account in the Exploitation Period.
PARAGRAPH: To be agreed.
CLAUSE 33. INSURANCE
THE ASSOCIATE or the Operator will take all the insurance policies required by
the Colombian laws. Likewise, it will require each contractor that perform any
job in development of this contract to acquire and keep in effect all the
insurance policies that the Operator may consider necessary. Also the Operator
will take all the insurance policies that the Executive Committee may consider
advisable.
Upon termination of this contract, at any time during the exploitation period or
due to expiration of the term set forth in Clause 23, the Operator and/or THE
ASSOCIATE shall take out an insurance policy that guarantee payment of salaries,
benefits and indemnities and other labor debts due to eventual legal sentences
derived from claims from the workers hired by the Operator in its condition as
their sole and true employer and during the time of operation of the Commercial
Field. The policy term shall not be less than three (3) years counted as of the
date of termination of the Association contract and the insured value shall be
defined by the Executive Committee, subject to that set forth in the labor
provisions applicable to the respective employment contracts.
CLAUSE 34. FORCE MAJEURE OR ACTS OF GOD
The obligations of this contract, shall be suspended whenever the Parties are
unable to fulfill them totally or partially, due to unforeseen events which
constitute force majeure or acts of God such as strikes, shutdowns, war,
earthquakes, floods or other catastrophes, governmental laws or regulations
which prevent obtainment of essential material and, in general, any
non-financial cause which may actually obstruct the works even though not
mentioned above, but affecting the Parties beyond their control. If one of the
Parties is not able, due to force majeure or acts of God, to fulfill its
obligations under this contract, it must immediately notify the other Party for
its consideration, specifying the causes of such failure. In no event shall the
occurrences of force majeure or acts of God extend the total Exploration and
Exploitation Periods beyond the twenty-eight (28) calendar days as of the
Effective Date, in compliance with the provisions in Clause 23, but any failure
due to force majeure during the six (6) year
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Exploration Period indicated in Clause 5, which lasts longer than sixty (60)
consecutive days, will extend this six (6) year period for the same period that
the failure lasts.
CLAUSE 35. APPLICATION OF COLOMBIAN LAWS
For all the purposes of this contract, the Parties set as their domicile the
city of Bogota, Republic of Colombia. This contract is in force under Colombian
Law and THE ASSOCIATE is subject to the jurisdiction of the Colombian Courts and
waives any attempt to make any diplomatic claim in regards to the rights and
obligations arising from this contract, except in the event that justice is
denied. It is understood that justice will not be denied when THE ASSOCIATE, in
its capacity as Operator or Party, has exhausted all the resources and actions
that, in compliance with Colombian Law, may be used before Colombian legal
authorities.
CLAUSE 36. NOTICES
The services or communications between the Parties in regards to this contract
will require to be valid, to mention the relevant clauses and should be sent to
the representatives or delegates designated by the Parties to the following
addresses: To ECOPETROL: Xxx 00 #00-00, Xxxxx Xx xx Xxxxxx, X.X., Xxxxxxxx. To
THE ASSOCIATE: ________________ No. ___-___ Santa Fe de Bogota, Colombia. Any
change of address and representatives should be duly notified in advance to the
other Party.
CLAUSE 37. HYDROCARBON VALUATION
The payments or reimbursements referred to in Clauses 9 (Items 9.2 and 9.4) and
22 (Item 22.5), will be made in USA dollars, or in Hydrocarbons based on its
current market price and the limitations established by Colombian Law for the
sale of the portion payable in USA dollars, of Hydrocarbons coming from the
Contracted Area to be used in refining in the Colombian territory.
CLAUSE 38. HYDROCARBON PRICES
38.1 The Hydrocarbons corresponding to THE ASSOCIATE in development of this
contract, destined to the refinery or to internal fueling, shall be paid placed
at the refinery that must process them or at the receiving station agreed to by
the
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Parties, in accordance with the governmental provisions or rules in force or
that replace them.
38.2 The differences arising from the application of this clause will be
settled in the manner provided by this contract.
CLAUSE 39. COMPLETION BOND
At ECOPETROL's discretion, in order to ensure completion of the Exploration
Works corresponding to the stages in each phase of the Exploration Period, in
accordance with Clause 5, THE ASSOCIATE, at its expense, agrees to submit in
favor of ECOPETROL one or more irrevocable Stand-By Letters of Credit or Bank
Bonds issued by a financial corporation acceptable to ECOPETROL, for an amount
in dollars of the United States of America equal to the estimated cost of the
Exploration Works agreed to as the minimal program to be developed during each
stage and with a term corresponding to the stage covered plus ninety (90) days
more, counted as of the date on which it is issued. The bond for backing the
first stage of the Exploration Period shall be submitted within the ten (10)
business days following the date on which the resolution of approval of this
contract by the Ministry of Mines and Energy is official and the later ones
within the first ten (10) business days following the initiation of each
subsequent phase. Upon request of THE ASSOCIATE, the value of this bond may be
reduced every six (6) months as of the Effective Date, in proportion to the
physical amount of Exploration Works performed, agreed to in Clause 5.
Note: The completion bond dealt with in this clause may be replaced by the
constitution of autonomous equity, according to the conditions established by
ECOPETROL for this purpose
CLAUSE 40. DELEGATION AND ADMINISTRATION
The President of EMPRESA COLOMBIANA DE PETROLEOS - ECOPETROL - delegates on the
Exploration and Production Vice-President the administration of this contract,
according to ECOPETROL's standards and provisions, with faculties for executing
all transactions and processes inherent to Contract Development. The
Vice-President of Exploration and Production may exercise this delegation
through the Joint Operations Vice-President.
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CLAUSE 41. LANGUAGE
For all purposes and actions regarding this contract, the official language is
Spanish.
CLAUSE 42. VALIDITY
This contract requires approval from the Ministry of Mines and Energy (and the
incorporation and approval of the branch office in Colombia, if pertinent) in
order to be valid.
In witness whereof, this is executed in Santa Fe de Bogota, D.C., in the
presence of witnesses, on February 23, 2001.
EMPRESA COLOMBIANA DE PETROLEOS
ECOPETROL
XXXXXXX XXXXXXXX XXXXXX
PRESIDENT
SEVEN SEAS PETROLEUM COLOMBIA INC.
XXXXXXX XXXXXX XXXX
ALTERNATE LEGAL REPRESENTATIVE
WITNESSES:
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TABLE OF CONTENTS
CHAPTER I - GENERAL PROVISIONS...........................................................................2
CLAUSE 1. OBJECT OF THE CONTRACT......................................................................2
CLAUSE 2. APPLICATION OF THE CONTRACT.................................................................2
CLAUSE 3. CONTRACTED AREA.............................................................................2
CLAUSE 4. DEFINITIONS.................................................................................3
CHAPTER II - EXPLORATION.................................................................................7
CLAUSE 5. TERMS AND CONDITIONS........................................................................7
CLAUSE 6. SUPPLY OF INFORMATION DURING EXPLORATION...................................................10
CLAUSE 7. BUDGET AND EXPLORATION PROGRAMS............................................................11
CLAUSE 8. RELINQUISHMENT OF AREAS....................................................................11
CHAPTER III - EXPLOITATION..............................................................................13
CLAUSE 9. TERMS AND CONDITIONS.......................................................................13
CLAUSE 10. OPERATOR..................................................................................17
CLAUSE 11. EXPLOITATION PROGRAMS AND BUDGETS.........................................................18
CLAUSE 12. PRODUCTION................................................................................20
CLAUSE 13. ROYALTIES.................................................................................21
CLAUSE 14. OIL DISTRIBUTION AND AVAILABILITY.........................................................22
CLAUSE 15. UTILIZATION OF THE ASSOCIATED NATURAL GAS.................................................28
CLAUSE 16. UNIFICATION...............................................................................28
CLAUSE 17. SUPPLY OF INFORMATION AND INSPECTION DURING EXPLOITATION..................................28
CHAPTER IV - EXECUTIVE COMMITTEE........................................................................29
CLAUSE 18. CONSTITUTION..............................................................................29
CLAUSE 19. FUNCTIONS.................................................................................30
CLAUSE 20. DECISION IN CASE OF DISAGREEMENT IN OPERATION.............................................30
CLAUSE 21. OPERATIONS AT THE RISK OF ONE OF THE PARTIES..............................................31
CHAPTER V - JOINT ACCOUNT...............................................................................33
CLAUSE 22. MANAGEMENT................................................................................33
CHAPTER VI - DURATION OF THE CONTRACT...................................................................36
CLAUSE 23. MAXIMUM DURATION..........................................................................36
CLAUSE 24. TERMINATION...............................................................................37
CLAUSE 25. CAUSES OF UNILATERAL TERMINATION..........................................................38
CLAUSE 26. OBLIGATIONS IN CASE OF TERMINATION........................................................38
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CHAPTER VII - MISCELLANEOUS PROVISIONS..................................................................39
CLAUSE 27. ASSIGNMENT RIGHTS.........................................................................39
CLAUSE 28. DISAGREEMENTS.............................................................................40
CLAUSE 29. LEGAL REPRESENTATION......................................................................41
CLAUSE 30. RESPONSIBILITIES..........................................................................42
CLAUSE 31. TAXES, LIENS, AND OTHERS..................................................................43
CLAUSE 32. PERSONNEL.................................................................................43
CLAUSE 33. INSURANCE.................................................................................44
CLAUSE 34. FORCE MAJEURE OR ACTS OF GOD..............................................................44
CLAUSE 35. APPLICATION OF COLOMBIAN LAWS.............................................................45
CLAUSE 36. SERVICES..................................................................................45
CLAUSE 37. HYDROCARBON VALUATION.....................................................................45
CLAUSE 38. HYDROCARBON PRICES........................................................................45
CLAUSE 39. COMPLETION BOND...........................................................................46
CLAUSE 40. DELEGATION AND ADMINISTRATION.............................................................46
CLAUSE 41. LANGUAGE..................................................................................47
CLAUSE 42. VALIDITY..................................................................................47
