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EXHIBIT 10.5

TRANSPORTATION CONTRACT
SPECIFIC CONDITIONS

Date
Bogota D.C. January 30, 2012
 

Contract No.
VIT-001-2012
 

SENDER
GRAN TIERRA ENERGY COLOMBIA LTD
 
TAX ID
860.516.431-7
 

SHIPPER
ECOPETROL S.A.
 
TAX ID
899.999.068-1
 

TYPE OF CRUDE
OWN PRODUCTION  
x
PROPERTY
   

 
PURPOSE

Transportation Service of liquid hydrocarbons through the “Trasandino”
Pipeline(OTA) and Mansoyá-Orito (OMO) pipeline.

ECONOMIC CONDITIONS

Estimated Value of the Contract
Six millions seven hundred forty five thousand dollars of The United States of
America (USD$6.745.000).
Rate “Mansoyá-Orito” Pipeline (OMO)
Cero point five one nine two dollars of The Untied States of America
(USD$0,5192) per Barrel
Rate “Trasandino” Pipeline (OTA)
Three dollars eleven forty three cents of dollars of The Untied States of
America (USD$3,1143) per Barrel.

CONTRACTED CAPACITY

PRODUCT
Daily Average
(Barrels/calendar day)
Monthly average
(Barrels/month)
Crude
10.000
300.000

TERM OF EXECUTION
From January 30, 2012 until July 29, 2012

 
POINTS OF ENTRANCE AND EXIT
 
MANSOYÁ - TUMACO

Point
#
Type of Point
 
Name of Point
Distance
(km)
1
Point of Entrance
Entrance bridle to the srapers tramp in the PK 35+400 of OMO
377,3
2
Point of Exit
Exit bridle to the main tanks of Tumaco Plant.

 
 

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SPECIFICATIONS OF PRODUCTS TO BE SHIPPED

PRODUCT CHARACTERISTICS

Characteristics
Lower Limit
Upper Limit
Temperature
 
120°F
Viscosity
 
300 cSt  30ºC.
Water and sediments (BSW)
 
0,5 % in volume
Salt
 
20 PTB
Steam pressure
 
Eleven (11) psi at 100°F
Gravity in API degrees
18 degrees
50 degrees

Quality Specifications of Crude:

Bases on the operating conditions of the “Trasandino” Pipeline, ECOPETROL shall
only receive daily crude oil from the SENDER up to a maximum equivalent to 12%
of the total light crude received in the day at the Orito Plant.

The indicated Quality Specifications correspond to those which the final mix of
crude delivered by the SENDER shall have. In the event in which the Crude
delivered by the SENDER fails to meet the Quality Specification and if the
buying of dissolvent is required to make mixes, the SENDER shall request
approval from ECOPETROL before its delivery for transportation by ECOPETROL.

It is the SENDER’s responsibility to ensure its possession, control and
entitlement to deliver or make deliver on its behalf the crude received by
ECOPETROL at the Entrance Point. The SENDER shall hold ECOPETROL harmless
against any claim, action or damages which may result from suits, claims or
administrative, judicial or extrajudicial actions from any third persons
alleging ownership or possession on the crude to be shipped.

BONDS

TYPE OF BOND
AMOUNT
Performance Insurance Policy
Four thousand forty seven millions of Colombian pesos ($4.047.000.000)

In witness whereof, and accepting the General Conditions and the Specific
Conditions this Contract is subscribed in two (2) duplicates of the same content
in the city of Bogotá on the thirtieth (30th) day of the month of January, 2012.
 
 
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BY THE SENDER:
BY ECOPETROL S.A.:
   
Signature
“/s/ Duncan Nightingale”
Signature
“/s/ Rafael Espinosa Rozo”
       
Name:
DUNCAN NIGHTINGALE
Name:
RAFAEL ESPINOSA ROZO
Title:
Legal Representative
Pasaporte No. BA386341
Title:
Pipelines Manager
C.C. No. 79.432.773 de Bogotá D.C.
       
Signature
“/s/ Hugo Rodriguez”
           
Name:
HUGO RODRIGUEZ
   
Title:
Legal Representative
C.C. No. 3.093.980
   

All notifications and communications to be delivered to the Parties as a result
of the execution of the Contract hereof shall be made to the addresses indicated
as follows:

ECOPETROL

ADDRESS
5.1
Carrera 7 No. 37 – 69 Piso 9 Edificio Teusacá
TELEPHONE 5.2 2343491 FAX 5.3 2343532 CITY 5.4 Bogotá D.C.

THE SENDER
 
ADDRESS
5.5
Calle 113 No. 7 – 80 Piso 17
TELEPHONE 5.6 6585757 FAX 5.7 2139327 CITY 5.8 Bogotá D.C.

 
 
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TRANSPORTATION CONTRACT
GENERAL CONDITIONS

The Contract hereof executed between ECOPETROL and the SENDER shall be comprised
by these General Clauses and by the Specific Conditions subscribed by the
Parties. All current legal provisions shall apply thereto and therefore the
Parties are obliged to fulfill them regardless of whether or not they are stated
in this document or in the Specific Conditions.

PARTIES: The Parties of the Contract shall be: ECOPETROL S A, hereinafter
ECOPETROL, a company of mixed economy, authorized by law 1118 of 2006, attached
to the Ministry of Mines and Energy, acting pursuant to its by-laws with its
main domicile in Bogotá D C with Tax ID 899.999.068-1, represented by whoever
subscribes the Specific Conditions of the Contract and the SENDER, identified as
indicated in the Specific Conditions, who is obliged subject to the conditions
and terms set forth herein.

ECOPETROL and the SENDER may also be called in this Shipment Contract or
“Contract”, individually as the “Party” or jointly as the “Parties”.

RECITALS:

 
1.
ECOPETROL is the owner of the pipelines of private use indicated in the Specific
Conditions (hereinafter, the “Pipelines”).

 
2.
Currently the Pipelines have Available Capacity for the shipment of crudes from
third parties.

 
3.
The SENDER has crude oils of its own/production that wishes to ship through the
Pipelines under the conditions established in this Contract and its annexes,
with the quality specifications set forth by ECOPETROL for its shipment through
the Pipelines.

 
4.
The Parties have agreed to enter into this Contract under the “Spot” shipping
contract modality, by virtue of which, the SENDER shall be obliged to pay the
shipping fee applicable for the barrels effectively shipped through the
Pipelines during the Month of Operation and subject to the existence of
Available Capacity.

 
5.
The SENDER knows and accepts in all its terms the Manual of the Shipper of the
Pipelines, which is an integral part of the Contract hereof as Annex 1.

By virtue of the above the parties agree:

CLAUSE FIRST
PURPOSE

 
1.1
ECOPETROL is obliged within the terms and conditions set out in this Contract,
its annexes and in the applicable regulations, to ship through the Pipeline,
from the Entrance Points agreed and detailed in the Specific Conditions to the
Exit Points agreed and detailed in Specific Conditions, crudes owned/produced by
the SENDER and delivered in the Entrance Points pursuant to the instructions and
procedures set out by ECOPETROL (hereinafter, the “Service”).

 
 
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1.2
By virtue of this Contract and as indicated in the Specific Conditions, the
SENDER shall have a limited capacity for shipment by the Pipeline of crudes of
its own/production, subject to the existence of Available Capacity during the
month of operation of the Service (hereinafter, the “Contracted Capacity”).

 
1.3
The scope of the obligations of ECOPETROL is limited to the reception, custody,
shipment, decanting, and indispensable storage for the transportation and
shipment of Crude to the SENDER.

 
1.4
The Contract hereof does not include the provision of the unloading service in
unloading areas, the treatment of crudes, the storage in export terminals, or
any terminal services. It is the responsibility of the SENDER to execute or
contract these services whenever it may be necessary. The SENDER shall wave and
hold ECOPETROL harmless for any damage or prejudice suffered by ECOPETROL as a
result of failing to receive the Crude in the Exit Point, either by lack of the
services before mentioned or by failing to provide the appropriate facilities
for such purpose.

CLAUSE SECOND
DEFINITIONS

2.1 All capitalized terms shall have the meaning as defined in the Clauses of
this Contract and/or in Clause 2 of the Manual of the Shipper of ECOPETROL.

CLAUSE THIRD
TERM

3.1 The Contract shall be in force during the period indicated in the Specific
Conditions.

3.2 The term of execution of the Service for the Contracted Capacity being the
purpose of the Contract hereof may be extended by common agreement between the
Parties by a document subscribed prior to the date of termination of the
Contract, subject to the existence of Available Capacity in the Pipeline during
the month of Operation in which the Service is to be provided.

3.3 the obligation of the monthly payment borne by the SENDER for the Service
shall be made during the totality of the term of execution of the Contract.

CLAUSE FOURTH
AMOUNT OF THE CONTRACT

4.1 The initial estimated amount of the Contract hereof is as indicated in the
Specific Conditions. The final amount of the Contract shall correspond to the
total of the actual invoicing by ECOPETROL and shall be established upon
termination and final liquidation of the same.
 
 
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CLAUSE FIFTH
FEES

5.1 The Contract is agreed under the “Spot” modality, understanding that the
SENDER shall pay for the Barrels effectively transported through the Pipeline
subject to the existence of Available Capacity in the Pipeline during the Month
of Operation in which the Service is to be provided.

5.2 The SENDER is obliged irrevocably and unconditionally by subscription of
this Contract to the payment of the fee indicated in the Specific Conditions for
each Barrel effectively transported making use of its Contracted Capacity
(hereinafter, the “Fee”).

CLAUSE SIXTH
READJUSTMENTS

6.1 The Monthly Fee agreed in this Contract shall be adjusted each year pursuant
to the formula established by the Ministry of Mines and Energy in Resolution 124
386 of July 15th, 2010 or any provisions the amend, add or supersede it.

 CLAUSE SEVENTH
TERMS OF PAYMENT

 
7.1
The SENDER undertakes the obligation to pay irrevocably and unconditionally the
Service for the Contracted Capacity, twenty (20) calendar days at the latest,
after ECOPETROL files in the offices of the SENDER the invoice for the provision
of the Service.

 
7.2
ECOPETROL shall deliver to the SENDER on the twentieth (20) day of each month at
the latest a preliminary account (invoice) with the amount that the SENDER must
pay (corresponding to the current month) based on the Nomination made by the
SENDER for the current month.

 
7.3
Considering that the charging for the Service is made on the Nomination of the
current month, ECOPETROL in order to make the corresponding adjustment to the
nominated volume and the volume of Crude actually shipped, shall generate the
corresponding debit and credit vouchers and shall deliver said debit or credit
vouchers together with the invoice(s) of the nominated month to be charged. The
due date of the debit and credit vouchers shall be the same as for the invoice
(with the nominated volume) of the current month in order to facilitate the
SENDER the making of only one net payment for both items.

 
7.4
Payments shall be made in Colombian pesos using the arithmetic average of the
representative market exchange rate certified by the Superintendence of Finance
or the entity replacing it, of the days of the month corresponding to the
Service invoiced.

 
7.5
The SENDER shall make the payment by means of making a deposit in any of the
bank accounts as indicated by ECOPETROL. In case ECOPETROL requires any changes
in the bank account, it shall be informed in writing to the SENDER.

 
7.6
The SENDER is obliged to receive the invoice once ECOPETROL has filed it. Any
objections to the invoicing will not interrupt the term for the payment respect
to the sums that are not objected by the SENDER, pursuant to the term
established in this clause. ECOPETROL shall issue the note credit or equivalent
document respect to the sums objected by the SENDER, in order to rectify the
inaccuracy.

 
 
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7.7
ECOPETROL, in order to facilitate and expedite the verification of the invoices
by the SENDER shall deliver via e-mail the same day of its preparation and in
PDF format, to the account of institutional e-mail registered by the SENDER, a
copy of the invoices and corresponding debit and credit vouchers.

 
7.8
The SENDER shall pay late interests on any unpaid amounts pursuant to the
provisions set out by ECOPETROL in the Guidelines for Administration of Service
Receivables ECP-UTE-G-008 or a document that modifies or supersedes it, which is
an integral part of the Contract hereto as Annex 2.

 
7.9
The shipment tax shall be invoiced in Colombian pesos upon obtaining the
corresponding liquidation from the Ministry of Mines and Energy and shall be
paid to ECOPETROL by the SENDER, within the fifteen (15) calendar days after
ECOPETROL files in the offices of the SENDER the corresponding bills or
invoices.

 
7.10
The amounts deposited by the SENDER in any of the bank accounts of ECOPETROL
must come from the accounts owned by the SENDER, who by means of written
communication before the subscription of the Contract will certify the origin of
funds. This in accordance with the Policy for the Prevention and Control of
Asset Laundering of ECOPETROL.

CLAUSE EIGHTH
BONDS
8.1 The SENDER may pay in advance the Service for the Contracted Capacity, in
which case the corresponding invoice shall be adjusted pursuant to the
provisions in the Clause of Terms of Payment as it may apply.

8.2 Otherwise, In order to guarantee compliance with all and each of the
obligations of the SENDER under the Contract hereof, including but without being
limited to the payment of the Fee, the SENDER is obliged to constitute in favor
of ECOPETROL and to deliver within ten (10) business days after the subscription
of the Contract hereof for the amount indicated in the Specific Conditions
(hereinafter, the “Bond”):

a) A performance policy for the payment of Services issued by an insurance
policy legally established in the country, governed by the General Clauses of
ECOPETROL indicated in Annex 3; or

b) An irrevocable stand-by letter of credit at first requirement, issued by (i)
a banking establishment authorized to operate in Colombia with AAA credit rating
for its long-term debt in pesos, o (ii) a foreign financial entity with
representation or a confirming and payment bank in Colombia, with risk credit of
long term debt in dollars no less than the rating for the foreign sovereign debt
of Colombia issued pursuant to the International Standby Practices (ISP98) of
the International Chamber of Commerce, for which, it may be used the form
contained in Annex 4 of the Contract hereof.

8.3 The Bond shall be valid during all the term of execution of the Contract
plus one hundred twenty (120) calendar days.
 
 
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8.4 In the case of local financial institutions, the bond shall expressly state
that the issuer waves the benefit of excussio stipulated in article 2383 of the
Colombian Civil Code.

8.5 The issuance and validity of the Bond shall be an indispensable condition
for the provision of the Service. As a consequence, ECOPETROL may suspend the
provision of the Service or terminate the Contract in advance, when the Bond is
not in force, without this waiving the SENDER from its payment obligations and
all other obligations derived from the Contract hereof.

CLAUSE NINTH
OBLIGATIONS OF THE SHIPPER

9.1 In addition to the obligations set forth in the Manual of the Shipper and
those established in the law, ECOPETROL is obliged in a special manner to:

 
a)
Receive in the Entrance Point agreed in the Pipeline, the Crude owned by the
SENDER up to the volume corresponding to the Contracted Capacity, subject to the
Available Capacity of the Pipeline in the Month of Operation in which the
Service is to be provided.

 
b)
Maintain in custody the Crude delivered from the Point of Entrance until the
time of delivery to the SENDER in the Exit Point. Notwithstanding the foregoing,
in the event in which the SENDER does not receive the Crude in the Point of Exit
pursuant to the agreement, the responsibility by the ECOPETROL to maintain the
Crude in custody shall cease.

 
c)
Shipping and decanting through the Pipeline the Crude delivered by the SENDER
from the Point of Entrance until the Exit Point.

 
d)
Store the Crude from its reception in the Point of Entrance until delivered to
the SENDER in the Point of Exit, exclusively to facilitate its shipment under
the Contract hereof, not including the storage for export or the segregate
storage of Crude.

 
e)
Deliver the Crudes shipped to the SENDER or whoever is designated as receiver of
the same in the Point of Exit, in accordance with the instructions received by
the SENDER and with the conditions of the Manual of the Shipper.

 
f)
ECOPETROL shall not be obliged to receive Crude: (a) when the same fails to
fulfill the Specifications of Quality agreed in the Contract hereof; (b) when
the SENDER does not have an accepted nomination in the Shipment Schedule of the
Pipeline, or (c) when there are not valid agreements of the SENDER that allow
the delivery of Crude in the Point of Exit.

 
g)
Execute all other obligations derived from the nature of the Contract.

 
CLAUSE TENTH
OBLIGATIONS OF THE SENDER

10.1 In addition to the obligations set out in the Manual of the Shipper and
those in the law, the SENDER is obliged particularly to:
 
 
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a)
Undertake the nomination of the Crudes to be shipped, pursuant to the procedure
established in the Manual of the Shipper.

 
b)
Deliver at the Point of Entrance the Crudes of its own/production included in
the Shipment Schedule as a result of the nomination process.

 
c)
Receive in the Point of Exit the Crudes transported as established in the Manual
of the Shipper and the procedures set forth by ECOPETROL, or if a receiver
different than the SENDER has been designated, this shall take al necessary
measures so that the Crude is received in accordance with the stipulations in
the Manual of the Shipper and the procedures set out by ECOPETROL, the SENDER is
any case responsible for the reception of the Crude. In case the Crude is not
received at the Point of Exit, the provisions established in the Manual of the
Shipper shall be applied.

 
d)
Enter into the contracts with other shippers or terminal operators required to
ensure the delivery of crudes at the Point of Exit without affecting the
operation of the Pipeline.

 
e)
Make the Fee payment and all other items as they may apply in the terms and
conditions established in the Contract hereof.

 
f)
Execute the bond in favor of ECOPETROL.

 
g)
Make the payment of the shipping tax under the conditions set out in this
Contract and the law.

 
h)
Execute all other obligations derived from the nature of the Contract.

CLAUSE ELEVENTH
RISKS AND RESPONSIBILITY

11.1 Each Party shall be responsible for any damage caused to the other Party as
a result of failing to fulfill its obligations under the Contract hereof, in the
terms set out in the clause hereof.

11.2 Responsibility of ECOPETROL:

 
a)
In addition to the provisions in the Manual of the Shipper, ECOPETROL shall not
be responsible for any faults in the Service, or the loses, damage or
deterioration the Crude may suffer, if the fault in the Service, the loss,
damage or deterioration of the Crude are due to (i) events of force majeure or
acts of nature, (ii) Acts from third parties, (iii) vice inherent to the Crude,
or (iv) fault attributable to the Sender (hereinafter, the “Excusable Events”).

 
b)
ECOPETROL shall only be responsible for the faults in the Service or loses,
damage or deterioration the Crude may suffer to the extent it does not
demonstrate that (i) no Excusable Event has occurred, and also, (ii) ECOPETROL
failed to adopt the reasonable measures any shipper would have taken according
to the requirements of operation of a pipeline with similar characteristics to
the Pipeline, to avoid the damage or its aggravation.

 
c)
In all other events, different than those in connection with the provision of
the Service, ECOPETROL shall be liable to the extent in incurs in gross
negligence.

 
d)
Save the event of gross negligence or willful misconduct, pursuant to the
provisions in this numeral 11.2, the responsibility of ECOPETROL under the
Contract hereof under no circumstance shall exceed seventy five per cent (75%)
of the value of the Crude lost or damaged by causes attributable to ECOPETROL.

 
 
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e)
Save the event of gross negligence or willful misconduct, if any claims arise by
the SENDER such as the loss of profit, this shall not exceed twenty five percent
(25%) of the value that ECOPETROL is obliged to indemnify the SENDER under this
numeral 11.2(d) of the Contract hereof.

11.3 Crude Assessment:

In order to determine the value of the Crude for liability purposes based on the
previous numeral, ECOPETROL shall establish the following rules:

a) For those Pipelines using the mechanism of Volumetric Compensation for
Quality and pursuant to the indications in the Manual of the Shipper, the value
of the Crude shall be determined based on the result generated by the
application of said mechanism defined for the Pipeline for the month in which
the loss or damage of Crude occurs.

b) For intermediate Pipelines and/or ending in Sea Terminals and not using the
mechanism of Volumetric Compensation for Quality, the assessment of the Crude
shall be made taking the price of reference of export of Crude in the respective
Sea Terminal, reported for the month in which the loss or damage of Crude
occurs, based on the commercial balance of ECOPETROL for the export mix of which
the Crude was part, discounting the applicable monthly fee for the Services, and
including but not limited to, the handling services in plant, storage, terminal
services, etc., up to the Point of Entrance of the Pipeline in which the loss or
damage of the Crude has occurred.

11.4 Responsibility of the SENDER:

 
a)
The SENDER shall be liable for any damage caused to ECOPETROL for the default of
its obligations under the Contract hereof and shall be responsible for any
damage derived from or as a consequence of the actions or omissions of the
SENDER, its workers, subordinates, contractors and subcontractors, except in
cases of (i) gross negligence or willful misconduct by ECOPETROL, or (ii) a
force majeure or unforeseen circumstances.

 
b)
The SENDER shall not be waved from its responsibility to pay the Fee agreed in
this Contract, save the Service is not provided by causes exclusively
attributable to ECOPETROL as indicated in numeral 11.2 b).

11.5 In those events in which the SENDER may be involved, the technical
procedures defined for these occasions by ECOPETROL shall be followed:

11.6 Procedure under an Excusable Event: In the event of occurrence of an
Excusable Event:

 
a)
ECOPETROL shall notify the SENDER within twenty four hours (24) following the
moment of occurrence, making the commitment to submit all details within the
following five (5) business days.

 
 
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b)
ECOPETROL shall carry out all reasonable procedures as required to resume as
soon as possible the performance of the obligations of the Contract. Likewise,
it shall make efforts to minimize or mitigate any delay or additional costs that
may be generated.

11.7 The fulfillment of all legal obligations corresponding to each of the
Parties, among them and including, those in connection with its personnel,
compliance with environmental standards, those related with the legality of
intellectual property rights, tax provisions or any other similar obligation,
shall be borne and will be the exclusive responsibility of the Party to whom
said obligation corresponds and its failure to perform it shall only affect said
Party.

11.8 The fact that any of the Parties fails to enforce to the other Party any of
the stipulations hereof at any time, shall not be considered a waiver for the
performance of said stipulation, unless the other Party notifies it in writing.
No waiver to allege a violation of this Contract shall be considered as a waiver
to allege any other violation.

11.9 The Parties state to be aware of the public order and security conditions
of the areas in which the purpose of the Contract shall be developed, and each
Party assumes its own and exclusive responsibility for the risks derived from
such conditions, and therefore, shall not take any claim or action against the
other Party due to any damage or injuries suffered by said Party on its
property, personnel, its agents, contractors or subcontractors (including its
employees or subordinates) resulting from public order or security conditions.

11.10 Each Party shall be exclusively responsible for any damage caused to third
parties as a result of its proved and exclusive fault. In particular, each Party
shall be responsible for all loss or damage to the property of third parties or
injury, illness or death of all third parties as a result of its acts or
omission or those from its personnel.

CLAUSE TWELFTH
 PENAL PECUNIARY CLAUSE

12.1    In case of failing to fulfill the obligations of the SENDER as a result
of any actions or illegal omissions or deviations from the Contract, the SENDER
agrees to pay ECOPETROL as a penalty, an amount equivalent to ten percent (10%)
of the final value of the Contract.

12.2 Said sum shall be charged to the amount of damage suffered by ECOPETROL,
and its value may be taken directly from the balance in favor of the SENDER if
there is any, or else from the Bond. If this is not possible, the penal
pecuniary clause shall be collected by means of execution for which the Contract
shall be a writ of execution.

12.3 The application of the penal pecuniary clause does not include the
indemnification for any damages borne by the SENDER if the amounts of these are
higher, under the criteria of ECOPETROL, to the amount of the penal pecuniary
clause agreed hereof, nor it releases the SENDER from its payment obligation of
the totality of the value of the Contract pursuant to the conditions agreed.
 
 
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CLAUSE THIRTEENTH
SUSPENSION DUE TO NON-PERFORMANCE OF THE SENDER

13.1 ECOPETROL shall be entitled to suspend the Service in case of any events
that may represent a serious default on any of the obligations of the SENDER.
For this purpose, a communication from ECOPETROL addressed to the SENDER shall
be sufficient, notifying the serious default. ECOPETROL may, based on the
seriousness and the effects of the default, grant the SENDER a reasonable term
to fix the default (the “Grace Period”), which under no circumstance may be
granted if the default is due to the non-payment of the Fee in the terms set out
in the Contract hereof. If, upon expiration of the Grace Period the SENDER has
not resolved the default, ECOPETROL may suspend the Service and the SENDER shall
not be entitled to any indemnification under no circumstance. The
reestablishment of the provision of Services shall be subject to previous
approval in writing by ECOPETROL.

13.2 The suspension of the Contract is not a waiver or a release for the SENDER
on its responsibility to pay the Fee and all other concepts that may be
applicable under the Contract hereof.

CLAUSE FOURTEENTH
TERMINATION OF THE CONTRACT

14.1 The Contract hereof shall terminate upon expiration of the term of validity
agreed.
 
14.2 The Parties agree that ECOPETROL may declare the termination in advance of
the Contract at any time, without any indemnity in favor of the SENDER in the
following events:

 
a)
Serious default of the obligations of the SENDER without solving them within the
Grace Period, when it may apply.

 
b)
The dissolution of the SENDER as a legal person.

 
c)
The unauthorized assignment of the Contract by the SENDER.

 
d)
Due to changes in regulations making more costly the fulfillment of obligations
undertaken by ECOPETROL.

 
e)
As a consequence of any of the following causes: (i) fraud of the SENDER; or
(ii) the SENDER incurs in acts or conducts that may endanger the operational
and/or technical stability of the Pipelines.

 
f)
The procedure to be followed by ECOPETROL to terminate the Contract is: notify
in writing with at least thirty (30) calendar days in advance to the SENDER its
intention to terminate the Contract, indicating the causes for such decision and
the effective date of termination. Upon fulfillment of this procedure the SENDER
shall not: (i) request any justifications or extensions to the motives explained
by ECOPETROL, or (ii) request or demand any kind of compensation or damages
derived from the decision to terminate the Contract.

 
g)
The termination shall not release the Parties from its corresponding obligations
and responsibilities attributable to periods before the date of termination of
the Contract.

 
 
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h)
The termination in advance of this Contract shall not release the SENDER from
the obligations that survive the termination of the Contract, especially that
related with the payment of the Fee pending of payment and the payment of the
penal clause. In the event of termination in advance of the Contract, the SENDER
shall have a sixty (60) day term following the issuance of the corresponding
invoice by ECOPETROL to pay the amount of any overdue fees.

14.3 It shall not be necessary any previous private or judicial requirement for
purposes of enforcement of this clause.

CLAUSE FIFTEENTH
TAXES

15.1 All taxes, contributions, rates, surcharges and any other national,
departmental, district or municipal taxes caused by the entering into, execution
and liquidation of the Contract hereof, shall be borne by the Party that has to
assume said payment pursuant to the law.

15.2 The collection and payment of the shipment tax shall be assumed by
ECOPETROL before the Ministry of Mines and Energy, and therefore the SENDER
shall pay the same to ECOPETROL pursuant to the provisions hereto.

CLAUSE SIXTEENTH
LIQUIDATION OF THE CONTRACT

16.1 Upon expiration of the Term of Validity, the Parties shall subscribe the
minutes of termination of the execution.

16.2 The Parties shall make the liquidation of the Contract by mutual agreement
within three (3) months following the expiration of the date of termination of
the Contract.

16.3 In case the SENDER fails to appear to the liquidation, or if there is not
an agreement of the same within the term previously mentioned, the SENDER
expressly authorizes ECOPETROL to proceed with the liquidation in one (1) month
term.

16.4 The following shall be expressly stated in the minutes of liquidation:

 
a)
The statement regarding the performance of the obligation undertaken by each of
the Parties (or from ECOPETROL if the liquidation is unilateral) derived from
the execution of the Contract; and

 
b)
Any agreements, settlements and transactions reached by the Parties to settle
any differences that may have arisen and to obtain the good standing and release
of any obligations.

16.5 Upon liquidation of the Contract, the SENDER shall pay ECOPETROL any Fees
or any amount of money owed or resulting from the final liquidation of the same,
after making any deduction that may be applicable.
 
 
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CLAUSE SEVENTEENTH
AUTHORIZED REPRESENTATIVES FROM THE PARTIES

17.1 Each of the Parties shall notify to the other in writing, before the
commencement of the execution of this Contract the name, position, addresses,
institutional electronic mails and telephone numbers of the person(s) authorized
to represent it. Likewise, any change of these representatives shall be notified
in writing.

17.2 Any instruction or notification addressed to the representative designated
in the manner previously established shall be considered as addressed to the
respective Party.

CLAUSE EIGHTEENTH
AMENDMENTS

18.1 Any amendment, clarification or addition to the conditions stipulated in
the Contract hereof, shall be in writing, in documents subscribed by the
authorized representatives by the Parties.

CLAUSE NINETEENTH
ASSIGNMENT

19.1 The SENDER shall not assign totally or partially the Contract hereof,
without the previous written consent by ECOPETROL.

19.2 The assignee shall assume all rights and obligations in the same terms
established hereto.

19.3 The assignment may be authorized by ECOPETROL, when the SENDER sufficiently
demonstrates to ECOPETROL that:

 
a)
The assignee is a legal person duly organized and the duration of the same shall
not be less that the term of the Contract and three (3) more years.

 
b)
The assignee has an adequate financial capacity to meet the obligations derived
from the Contract assigned.

 
c)
The assignee has Crude of its own/production.

 
d)
The assignee provides and adequate and acceptable Bond payment to ECOPETROL for
the fulfillment of the obligations derived from the Contract.

19.4 ECOPETROL may assign the Contract without the authorization from the
SENDER.

CLAUSE TWENTIETH
LICENSES, PERMITS AND AUTHORIZATIONS

20.1 The Parties are obliged to have or obtain all required licenses, permits
and authorizations for the execution of the purpose of the Contract. Each Party
shall be individually liable for all those risks, fines, sanctions or damage
caused as a result of the absence of any license, permit or authorization that
is obliged to obtain and therefore shall defend and hold the other Party
harmless before any authorities, judges and third parties.
 
 
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CLAUSE TWENTY-FIRST
EXCLUSION OF THE LABOR RELATION

21.1 The Parties do not assume any labor relationship with personnel that, by
virtue of the Contract, are assigned to the other Party for the appropriate
execution of the same. All future or present obligations resulting from the
relations of the Parties with its personnel shall be exclusively borne by the
Party involved, and therefore, each Party assumes full responsibility concerning
compliance with labor regulations and social security and shall hold the other
Party harmless against any claim in connection with any violation to the
mentioned regulations.

CLAUSE TWENTY-SECOND
INDEMNITY

22.1 ECOPETROL is obliged to protect, indemnify and hold the SENDER harmless
against any loss, cost or damage to be caused or derived from, or related with
the breaching of the Contract by ECOPETROL, save the same are caused by
Excusable Events.

22.2 The SENDER is obliged to protect, indemnify and hold ECOPETROL harmless and
its parent, affiliates and subsidiaries, and the directors, employees, agents
and representatives of ECOPETROL, and of its affiliates and subsidiaries against
any loss, cost or damage to be caused or derived from or related with the
execution of the Contract, except (i) by causes exclusively attributable to
ECOPETROL or (ii) force majeure or unforeseen circumstances and acts of third
parties.

CLAUSE TWENTY-THIRD
CONFIDENTIALITY

23.1 The Parties make the commitment to keep strict confidentiality and not to
disclose to any person any information considered as confidential (the
“Information”), which has been provided through the development of the Contract
hereof, and through the development of the activities inherent to ECOPETROL
and/or the SENDER.

23.2 Without prejudice of the foregoing, only in the following cases information
may be disclosed:

 
a)
When the disclosure of information is mandatory by law;

 
b)
When the disclosure of information is ordered by a competent authority;

 
c)
When the information in question is of public domain, without any action or
omission from the Parties; or

 
d)
When the entity providing the information authorizes it, in each case,
previously and in writing;

23.3 For any information to be disclosed, that must be or wished to be disclosed
as established in previous numerals, only the disclosure in question shall
proceed after consulting, if the period granted by law or the authority
ordaining the disclosure of the information allows it, with the Party that has
provided the information.
 
 
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23.4 Furthermore, it shall be understood that the Information may be disclosed
to employees, advisors and officers of the Parties, as well as employees,
advisors, officers, auditors and insurance companies of the shareholders of
ECOPETROL or the SENDER (including parents, affiliates and subordinates).

23.5 In any case, the Parties shall ensure that persons to whom the Information
is disclosed hold, in turn, said Information as confidential and refrain from
disclosing it. The Parties shall be responsible for any disclosure of
Information to any of its employees, advisors and officers. If the Parties
become aware of any unauthorized disclosure of confidential Information, it
shall be notified immediately to the other Party and jointly shall take all
measures necessary and/or convenient to prevent other disclosures of Information
in the future.

23.6 The SENDER shall solely use or permit the use of the Confidential
Information disclosed under the execution of this Contract to perform it. The
disclosure of Confidential Information under this Contract shall not grant any
other right.

23.7 The SENDER shall be responsible for ensuring that all persons to whom the
Confidential Information is revealed under the execution of this Contract
maintain said Information as Confidential and without disclosing it to any
unauthorized persons. The SENDER shall be liable for any damage caused to
ECOPETROL in case of breaching the Contract hereto, or if through negligent
actions or omissions, discloses or makes public any Confidential Information
outside the terms set out herein in accordance with law.

23.8 ECOPETROL may request the return of the Information at any time after
notifying in writing to the other Party. Within thirty (30) days following the
reception of said notification, the SENDER shall return all original Information
and destroy or make to be destroyed all copies and reproductions (in any manner,
including but without being limited to electronic means) in its possession and
in possession of persons to whom it was disclosed pursuant with the Contract
hereof. In any case, upon expiration of the term of execution of the Contract,
the SENDER shall return all original Information and destroy or make to be
destroyed all copies and reproductions (in any manner, including but without
being limited to electronic means) in its possession and in possession of
persons to whom it was disclosed pursuant with the Contract hereof.

23.9 During the term of execution of the Contract, ECOPETROL is obliged to keep
in reserve and not to disclose the information expressly identified and in
writing by the SENDER that is protected by copyrights or industrial secret
pursuant to the regulations in force, that is directly delivered by the SENDER
as a result of the execution of the Contract, and makes the commitment not to
deliver said information to any third parties, except as ordered by the judicial
or administrative authorities or in events required by the legal provisions in
force.

23.10 This confidentiality clause shall keep its validity, inclusively after the
date of termination of the Contract hereto, until the date in which all
obligations set out in this clause are fulfilled.
 
 
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CLAUSE TWENTY-FOURTH
SOCIAL CORPORATE RESPONSIBILITY

24.1 The SENDER undertakes the commitment to:

a) Respect and obey the Good Governance Code and Policies of Integral
Responsibility and Social Corporate Responsibility of ECOPETROL.

b) Make the best efforts to establish and maintain, as best as possible, good
relations with the institutions (authorities) and communities settled in the
region and in the area where the Contract shall be executed.

c) Report to ECOPETROL or whoever replaces it, any incidents or new actions that
may affect its image and/or the image of ECOPETROL, within three (3) business
days after the occurrence of said incidents, in order to have consensus in the
handling of said incidents.

CLAUSE TWENTY-FIFTH
COMMITMENT WITH TRANSPARENCY

25.1 The SENDER undertakes the obligation to:

 
a)
Maintain conducts and appropriate controls to ensure an ethical conduct and in
accordance with regulations in force.

 
b)
Refrain from making (directly or indirectly, or through employees,
representatives, affiliates or contractors) payments, loans, gifts,
gratifications, commissions, to employees, managers, administrators, contractors
or suppliers of ECOPETROL, public officials, members of corporations of popular
election or political parties, in order to induce such persons to conduct any
action or make any decision or use their influence in order to contribute to
obtain or retain businesses in connection with the Contract.

 
c)
Refrain from originating records or inaccurate information, or publish
information that affects the image of the other Party when based on assumptions
that have not been demonstrated.

 
d)
Avoid any situation which may generate a conflict of interest.

 
e)
Communicate mutually and reciprocally any deviation from the line of conduct
indicated in this clause.

25.2 The SENDER states to be aware of and accepts the Code of Ethics of
ECOPETROL found in the following website: www.ecopetrol.com.co, and the
provisions on conflict of interest existing in the by-laws of ECOPETROL found in
the same website. In case ECOPETROL determines that the SENDER has incurred in
conducts that violate the clause hereof, ECOPETROL may terminate the Contract.
 
 
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CLAUSE TWENTY-SIXTH
INTEGRITY

26.1 The Contract hereof constitutes a sole and integral agreement regarding the
purpose of the same and replaces any previous agreement that has not been
written in this Contract.

26.2 The following documents are an integral part of the Contract:

ANNEX 1
MANUAL OF THE SHIPPER OF THE ECOPETROL S A PIPELINE

 
ANNEX 2
GUIDELINES FOR THE ADMINISTRATION OF RECEIVABLE SERVICES OF ECOPETROL

ANNEX 3
GENERAL CLAUSES OF ECOPETROL FOR PERFORMANCE POLICIES

ANNEX 4
STAND-BY LETTER OF CREDIT FORM

26.3 Likewise, all regulations and procedures that ECOPETROL has established for
the development of the activities being the purpose hereto are an integral part
of this Contract.

CLAUSE TWENTY-SEVENTH
LEGAL REGIME

27.1 The relation established in the Contract hereof is of commercial nature and
therefore is governed by the regulations of Colombian private law.

CLAUSE TWENTY-EIGHTH
NOTIFICATIONS

28.1 All communications and invoices between the SENDER and ECOPETROL delivered
as a result of this Contract shall require for its validity to be in writing,
and depending on the will of the Party issuing it, they will have to be:

 
a)
delivered personally; or

 
b)
transmitted by facsimile, electronic mail or any other means through which it
may be proved its delivery and reception (with proved reception and confirmation
by mail).

28.2 All communications shall deemed as served and valid:

 
a)
On the reception date if delivered personally, or

 
b)
Twenty four (24) hours after the transmission date, if transmitted by facsimile,
electronic mail or any other means through which its delivery and reception may
be proved; provided however, confirmation is received within the following three
(3) days; whatever occurs first.

 
 
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28.3 Each Party may change the address for these purposes, with previous written
communication to the other Party with fifteen (15) calendar days in before the
expected date for such change.

28.4 All notifications and communications to be made to the Parties as a result
of the execution of this Contract shall be delivered to the addresses indicated
in the Specific Conditions.

CLAUSE TWENTY-NINTH
MISCELLANEOUS

29.1 Severability: the voidance, nullity or inefficacy of any provision of this
Contract shall not affect the validity, efficacy and enforceability of all other
provisions of the same. In these events the Parties are obliged to negotiate in
good faith a clause resulting legally valid, and enforceable, whose purpose is
the same of the provision or provisions having vices of nullity, invalidity or
non-enforceability, as the case may be.

29.2 Administration and Inspection: ECOPETROL shall designate an administrator
and inspector of the Contract, whose functions shall be established in the
Manual of Administration and Inspection of ECOPETROL.

29.3 Survival: The termination of this Contract shall not relieve the Parties
from any obligation towards the other Party pursuant to this Contract, or any
other loss, cost, damage, expense or responsibility which may occur under this
Contract before or as a result of said termination.

CLAUSE THIRTEENTH
PERFECTION AND EXECUTION

30.1 The Contract hereof is perfected with the subscription of the same. For its
execution the approval of the bond assumed by the SENDER is required.
 
 
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ANNEX 1
 
MANUAL FOR THE TRANSPORTER OF PIPELINES ECOPETROL S A
 
 
 

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Operation and Transport Regulations
 Version 1
 
MANUAL FOR THE TRANSPORTER OF PIPELINES ECOPETROL S A
 
TABLE OF CONTENTS
 
CLAUSE 1. PURPOSE
3
   
CLAUSE 2 DEFINITIONS
3
   
CLAUSE 3 GENERAL DESCRIPTION OF THE PIPELINE
10
   
CLAUSE 4 OBLIGATIONS OF THE PARTIES
10
   
CLAUSE 5 FEES
13
   
CLAUSE 6 SPECIAL SERVICES
14
   
CLAUSE 7 ADJUSTMENT OF THE EFFECTIVE CAPACITY OF THE SYSTEM DUE TO VARIATIONS IN
THE SPECIFICATIONS OF HYDROCARBONS
14
   
CLAUSE 8 PROJECTIONS, NOMINATION AND TRANSPORTATION SCHEDULE OF THE PIPELINE
15
   
CLAUSE 9 BALANCE IN EXCESS OR DEFECT
18
   
CLAUSE 10 PRIORITIES IN THE NOMINATION PROCESS
19
   
CLAUSE 11 REJECTION OF A TRANSPORTATION REQUEST
20
   
CLAUSE 12 QUALITY REQUIREMENTS
21
   
CLAUSE 13 DETERMINATION OF QUANTITIES AND QUALITY
22
   
CLAUSE 14 VOLUMETRIC COMPENSATION FOR QUALITY
25
   
CLAUSE 15 BULLETIN OF TRANSORTATION BY THE PIPELINE – BTO
26
   
CLAUSE 16 SPECIAL TRANSPORTATION CONDITIONS
28
   
CLAUSE 17 REGULATIONS FOR THE TRANSPORTATION OF SEGREGATED HYDROCARBON
29
   
CLAUSE 18 RISKS AND RESPONSIBILITY
29
   
CLAUSE 19 FILLING THE PIPELINE OR FILLING THE LINE
31
   
CLAUSE 20 HANDLING LOSSES IN THE PIPELINE
32

 
 
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CLAUSE 21 CLAIMS
33
   
CLAUSE 22 SANCTIONS TO OPERATING AGENTS FOR NON-PERFORMANCE OF THE
TRANSPORTATION SCHEDULE
34
   
CLAUSE 23 HYDROCARBON AFFECTED BY LITIGATION
35
   
CLAUSE 24 INVESTMENTS IN THE PIPELINE
35
   
CLAUSE 25 SOLE RISK PROPOSALS
36
   
CLAUSE 26 PROCEDURES FOR COORDINATION OF OPERATIONS, COMMUNICATIONS AND
EMERGENCY ASSISTANCE
38
   
CLAUSE 27 SETTLEMENT OF CONTROVERSIES
39
   
CLAUSE 28 VALIDITY
39
   
CLAUSE 29 ADDITIONS AND MODIFICATION
39
   
CLAUSE 30 APPLICABLE LEGISLATION
39
   
ANNEX 1: MECHANISMS OF QUALITY COMPENSATION FOR THE MIXTURE OF CRUDE OIL
40
   
ANNEX 2: DEFINITION OF STANDARD BARRELS PER SYSTEM
49
   
ANNEX 3: DESCRIPTION OF THE SYSTEMS
50
   
ANNEX 4: MINIMUM SPECIFICATIONS OF QUALITY PER SYSTEM
51

 
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CLAUSE 1. PURPOSE
 
1.1
The Pipeline is for private use considering its nature and in accordance to the
provisions in the Colombian Code of Crude Oils.

 
1.2
The purpose of this Manual of the Transporter of the Pipeline (hereinafter the
“Transporter’s Manual) is to establish the general conditions for the
Transportation of Hydrocarbons of the Owners through the Pipeline.

 
1.3
Likewise, conditions for the access of Third Parties to the Pipeline are
established in those events in which there is Available Capacity in the
Pipeline.

 
CLAUSE 2 DEFINITIONS
 
2.1 All terms listed hereunder shall have the meaning assigned in this Manual
without any difference when the term is used either in singular or plural, upper
or lower case letters.
 
2.1.1. Transportation Agreement or Transportation Contract: means the agreement
between the Transporter and a Sender whose purpose is the Transportation of
Crude Oil through the Pipeline.
 
2.1.2. Operating agent or agent: means any natural or legal person, public or
private person involved the technical and/or commercial relations for the
provision of Transportation services of Crude Oil through Pipelines.
 
2.1.3. Water and sediment: means any material coexisting with Crude Oil without
being part of the same.
 
2.1.4. Fiscal Year: means the period of time starting at 00:01 hours of January
1st of a year and ending at 24:00 hours of 31 December of the same year. Always
being referred to Colombian time
 
2.1.5. API: means the American Petroleum Institute.
 
Also it will have the meaning corresponding to the measuring unit for density
(API 141.5/GE-131.5; where GE is defined as specific gravity), known
internationally as one of the sale properties of Hydrocarbons depending on the
context used.
 
2.1.6. ASTM: American Society for Testing Materials.
 
2.1.7. Provisional Notice: means the notification that the Transporter will
deliver to the Sender regarding any damage or additional costs incurred, or
about its intention to withdraw and use the Sender’s Crude to pay monies in
favor of the Transporter or the owner, borne by the Sender and/or to avoid any
Operational affectations in the Pipeline.
 
 
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2.1.8. Balance for the Sender: means the volumetric balance for each of the
Senders using the Pipeline.
 
2.1.9. Volumetric Balance: means the balance of Operations conducted by the
Transporter at the end of each month of Operation, in order to establish the
amounts of Crude handled in the Pipeline and to make the determination and
distribution of Crude losses.
 
2.1.10. Barrel: means a volume equal to 42 United States of America gallons.
Each gallon is equal to three liters and seven thousand eight hundred and fifty
three ten thousands of liters (3.7853).
 
2.1.11. Standard Barrel: means the volume of Hydrocarbons including dissolved
water, suspended water and suspended sediment but excluding free water and
bottom sediments, calculated at standard conditions (60F and 14.7 lbf/in, or 15C
and 1.01325 bares).
 
2.1.13. Net Standard Barrel: means the volume of Hydrocarbon excluding total
water and total sediment, calculated at standard conditions (60F and 14.7
lbf/in, or 15C and 1.01325 bars).
 
2.1.14 Barrels per Calendar Day (bpdc): means the measuring unit of flow volume
referring to the average value of a specific period.
 
2.1.15 Barrels per Operational Day (bpdo): means the measuring unit of flow
volume referring to the average value of days effectively operated.
 
2.1.16 Bulletin of Transportation by Pipeline: means the website in which the
Transporter makes available to agents and all other interested parties, the
information indicated in resolutions No 18-1258 and 12-4386 of 2010, issued by
the Ministry of Mines and Energy, which regulates Transportation through
Pipelines and the methodology to set out the rates, as amended or superseded.
 
2.1.17 Quality of a Hydrocarbon: means a set of characteristics contained in a
volume of Hydrocarbon. These characteristics are referred, among others, to
viscosity, API gravity, specific gravity, percentage in weight of sulfur, Point
of fluidity, acidity, steam pressure, percentage in volume of water, percentage
in weight of sediments and salt content.
 
2.1.18 Contracted Capacity: means the Capacity of the Pipeline committed through
Transportation Contracts.
 
2.1.19 Designed Capacity or Transportation Capacity: means the Transportation
Capacity for Crude Oil established for the Pipeline, based on the Crude
properties and specifications of the equipment and tubing for the calculation
and design of the Pipeline. If the design of the Pipeline is modified to
increase said Capacity, then this will be the new design Capacity.
 
 
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2.1.20 Owners Capacity: means the Transportation Capacity of the Pipeline
necessary in a period of time for the Transportation Crude Oil owned by its
owners, its parent companies or subsidiaries.
 
2.1.21 Available Capacity: means, for a specific period of time, the difference
between the effective Capacity and the sum of: i) the owner’s Capacity, ii) the
Contracted Capacity and iii) the preferred rights, which shall be available for
the Transportation of Third Party’s Crude under the conditions set out in the
Manual hereof.
 
2.1.22 Effective Capacity or Transportation Effective Capacity: means the
maximum average Capacity of Transportation, which may be used for Crude
Transportation in a specific period of time. This is calculated as the product
of the nominal Capacity by the service factor.
 
2.1.23 Nominated Capacity: this means the Crude volume that, according to a
letter from the Sender or Third-Party delivered to the Transporter in the
respective month of nomination, and in accordance with the procedures
established in this Manual, they require it to be transported through the
Pipeline.
 
2.1.24 Nominal Capacity: means the maximum Transportation Capacity between a
pumping station and a Pipeline terminal, or between two pumping stations,
calculated considering the installed equipment in the system and the expected
quality of Crude for a specific period of time. It is expressed in BOPD for a
Hydrocarbon of standard barrel characteristics in terms of viscosity in cstks at
30 C and API at 60 F according to the design Capacity of the Pipeline.
 
2.1.25 Programmed Capacity: this means the portion of the effective Capacity of
Transportation of the Pipeline assigned to each Sender or Third Party requesting
the Transportation service in accordance with the provisions in this Manual.
 
2.1.26 Volumetric Compensation for Quality or CVC: this means the procedure by
which Senders are compensated for the gain or loss in the discounts of Crude as
determined by the difference between the Crude delivered by the Sender at the
Point of Entrance compared to the Crude withdrawn at the Point of Exit.
 
2.1.27 Monetary Conditions: means the tables or formulas to calculate any extra
charge and bonuses for Crude quality and commercial discounts applied on the
Rate for the Line.
 
 
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2.1.28 Connection: this means the installation that allows delivery of Crude to
the Pipeline and/or withdrawal of Crude from the Pipeline.
 
2.1.29 Ship or Pay Transportation Contract: this means the agreement between the
Transporter and a Sender that regulates the provision of the Transportation
service of Hydrocarbons for a specific Contracted Capacity in firm,
understanding that the Sender has a permanent right for the Transportation of a
specific volume of Hydrocarbons, and that the Payment of the rate is agreed in
firm, regardless of the volume effectively transported or even if no volume is
transported.
 
2.1.30 Spot Transportation Contract: this means the agreement between the
Transporter and a Sender that regulates the provision of the Transportation
service of Hydrocarbons for a specific Contracted Capacity in a month of
Operations, subject to the available Capacity of the Pipeline in the process of
nomination.
 
2.1.31 Coordination of Operations: means the set of activities conducted by the
Transporter to control the development of the Transportation program and procure
its fulfillment.
 
2.1.32 Crude Oil or Hydrocarbon: means the natural mix of Hydrocarbons in
accordance with the definition through the article 1 of the Petroleum Code,
which exists in underground deposits and remains liquid at atmospheric pressure
after going through the separation facilities on surface, as well as the
products necessary to make viable its Transportation such as diluents.
 
2.1.33 Crude for Transportation: means the inspected Crude Oil delivered to the
Pipeline for Crude Transportation. This category includes inspected Crude Oils
both segregated or separated from others as well as those mixed between them,
when they may be mixed, in both cases, with any other substance for
Transportation purposes.
 
2.1.34 Inspected Crude: means the Crude Oil treated, dehydrated, degasified,
drained, settled, stabilized and measured at the inspection facilities.
 
2.1.35 Mixed Crude or Mix: means the combination of different Crude before
and/or after delivered to the Pipeline to be transported.
 
2.1.36 Segregated Crude: means Crude Oil that by agreement between the
Transporter and a Sender is decided to be transported through the Pipeline
without being mixed with other Crude.
 
2.1.37 Preferred Right: means the power that the National Government has through
the National Agency of Hydrocarbons (ANH) or whoever replaces it, on the Design
Capacity of the Pipeline for the Transportation of royalty Crude. This
preference is limited to Crude Oil coming from royalties corresponding to
production served through the Pipeline. The preferred right shall be up to 20%
of the design Capacity.
 
 
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2.1.38 Day: means the period of twenty four (24) hours starting at 00:01 of one
day and ends at 24:00 of the same day, always referring to Colombian time.
 
2.1.39 Diluent: means the natural or refined product mixed with heavy Oil to
facilitate Transportation through the Pipeline.
 
2.1.40 Delivery: means the action by which the custody of the volume of the
Sender’s Crude is transferred to the Transporter to be shaped through the
Pipeline.
 
2.1.41 Reasonable Effort: means the effort that a prudent person makes in
handling his own business while protecting his interests.
 
2.1.42 Initial Pumping Station: means the initial station of the Pipeline.
 
2.1.43 Final Station: means the final Station on the Pipeline.
 
2.1.44 Justified Event: means any event or circumstance beyond the Transporter's
control such as, including but not limited to, strange cause, force majeure,
acts of nature, acts of a Third-Party or the victim, labor disputes or actions
of any kind arising from organized labor, outside war (whether or not declared),
civil war, sabotage, revolution, insurrection, riots, civil unrest, terrorism,
illegal actions from Third parties, epidemics, cyclones, tsunamis, landslides,
lightning, earthquakes, floods, rainstorms, fire, adverse atmospheric
conditions, expropriation, nationalization, laws, regulations or orders for any
competent authority, distortions, damage or accidents in machinery, equipment,
Pipelines, power transmission lines or other facilities, attachments,
impossibility or delays in obtaining equipment or materials, inherent vices of
crude oil, among others.
 
2.1.45 Service Factor: means that percentage effectively uses of the nominal
Capacity due to temporary operating and maintenance restrictions of the Pipeline
and its complementary facilities, calculated for a specific period of time in
which the effects of unavailability of mechanical equipment, maintenance
programs of the line and the number of days of the period considered must be
taken into account.
 
2.1.46 Line Fill or Pipeline Fill: means the volume of Crude necessary to fill
in the lines of the Pipeline between the initial pumping station under final
station, the bottom of the storage tanks that cannot be pumped o that serve the
Pipeline, and all installations, lines, pumping and measuring equipment.
 
 
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2.1.47 Calendar Month: means the period of time starting at 00:01 hours of the
first day of the Gregorian month and ends at 24:00 hours of the last day of the
same Gregorian month.
 
2.1.48 Nomination Month: means the calendar month immediately before a month of
Operations.
 
2.1.49 Operation Month: means the calendar month during which the Transporter
executes the Transportation program.
 
2.1.50 Entrance Node: means the set of facilities located in a determined
geographical area where the Sender delivers the Crude and in which a distance is
started.
 
2.1.51 Exit Node: means the set of facilities located in a determined
geographical area where the Sender withdraws the Crude and in which a distance
ends.
 
2.1.52 Nomination: means that transportation service request formalized by each
Sender or Third-Party for the month of Operation, specifying the required
Transportation volume, the Point of Entrance, the Point of Exit and the quality
of Crude and the characteristics of Crude required to be transported.
 
2.1.53 Pipeline: means all the necessary physical facilities for the
Transportation of Crude Oil from the nodes of Entrance to the nodes of Exit
including, among others, pipes, pumping units, measuring units, control systems
and tanks used for the Operation of the Pipeline.
 
2.1.54 Operator: means the Transporter or the natural or legal person that
performs the Operation tasks of the Pipeline.
 
2.1.55 Party: means the Transporter and/or Sender, or there assignees as the
case may be.
 
2.1.56 Identifiable Losses: means the losses of Crude that may be located in a
specific Point of the Pipeline and attributable to specific events such as
breakages, spills, attacks, theft, force majeure or acts for nature.
 
2.1.57 Non-identifiable Losses: means the normal losses inherent to the
Operation of Transportation in the Pipeline corresponding, among others, to what
volumetric contractions as a result of the mix, leakages in the equipment,
drainages, evaporation and other reasons originated in the handling of the
Pipeline.
 
2.1.58 Transportation Plan: means the projection of the volumes to be
transported through the Pipeline and the available Capacity in the medium and
long term.
 
 
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2.1.59 Transportation Program or Program: means program of Operations of the
Pipeline for a month of Operations prepared by the Transporter, days on the
cycle of nomination of Transportation. It specifies the use of the effective
Capacity, the volumes of Crude entering at the Points of Entrance and volumes of
Crude coming out from the Pipeline at the Points of Exit.
 
2.1.60 Owner: means Capacity S.A. as an exporter company and/or refiner of Crude
Oil and its parent and/or branches, holders of the goods and Pipeline’s
facilities.
 
2.1.61 Point of Entrance: means the exact Point of the Pipeline, in which the
Transporter assumes custody of the Crude delivered by the Sender at the node of
Entrance. This must be specified in the Transportation agreement.
 
2.1.62 Point of Fluidity: means the temperature at which a Crude Oil ceases to
flow.
 
2.1.63 Point of Exit: means the exact of the Pipeline in which the Sender takes
the Crude Oil delivered by the Transporter that the node of Exit and the ceases
custody of the Crude by the Transporter. This must be specified in the
Transportation contract.
 
2.1.64 Sender: means the natural or legal person to whom the Transporter
provides Transportation service of Hydrocarbons through the Pipeline. It shall
be understood that the Sender acts as the owner of the Crude to be transported
unless specified otherwise. Among the Senders are the ANH and the owner. Any
Third parties and the ANH acquire the Capacity of Senders when enter into a
Transportation contract with the Transporter.
 
2.1.65 Withdrawal: means the act by which he Transporter returns to the Sender
or whoever is designated, at the Point of Exit, a volume of Hydrocarbons ceasing
its custody.
 
2.1.66 Withdrawal by Defect: means the volume of Crude that is Sender is not
withdrawn according to the Transportation program.
 
2.1.67 Withdrawal by Excess: means the volume of Crude that has been withdrawn
from a Sender above the limits in the Transportation program.
 
2.1.68 Transportation Rate or Rate: means the monetary value per barrel charged
by the Transporter to the Senders for the Transportation service. Surcharges,
bonuses and discounts shall be applied to this rate as specified in the monetary
conditions.
 
2.1.69 Third Party: means the person that has the ownership title or holding of
the Crude Oil and requires from the Transporter the provision of the
Transportation service through the Pipeline, conditioned to the existence of
available Capacity.
 
 
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2.1.70 Transporter: means Capacity S A owner of the Pipeline, or the person
appointed as a representative or assignee, whose activity is the provision of
the Transportation service.
 
2.1.71 Distance: means the portion of the Pipeline from a node of Entrance and a
node of Exit, which must have a rate.
 
2.1.72 Volume to Transport: means the Gross Standard Barrels delivered by the
Sender to the Transporter at the Point of Entrance.
 
CLAUSE 3 GENERAL DESCRIPTION OF THE PIPELINE
 
The descriptions of the systems to which this Transporter Manual applies are
published in Annex 3, description of the systems.
 
CLAUSE 4 OBLIGATIONS OF THE PARTIES
 
4.1 Obligations of the Senders: The following are obligations of the Sender:
 
4.1.1 Enter into Transportation Contracts with the Transporter.
 
4.1.2 Report to the Office of Hydrocarbons of the Ministry of Mines and Energy
by communication delivered within ten (10) days following the contracting of the
service its Transportation through the Pipeline and the Distance to be used, the
origin (regions, municipalities and fields) of the Crude Oil to be transported
and the term of the Transportation contract.
 
4.1.3 Provide the Transporter in on a timely basis and in accordance with the
time schedule set out for said purpose, the necessary information for
preparation of the Transportation Plan.
 
4.1.4 Timely present the nomination to the Transporter pursuant to the
conditions, specifications, and based on the procedure set out in this Manual.
 
4.1.5 Comply with and implement the commercial, Operational and administrative
procedures of the Manual hereof.
 
4.1.6 Comply with the Transportation program defined for the month of Operation
for the delivery of Crude to the Pipeline at the Point of Entrance and implement
whatever may be necessary for its reception at the Point of Exit in accordance
with the procedures defined in this Manual.
 
4.1.7 Deliver and withdraw the Crude Oil within the limits of quality, volume,
opportunity and all other conditions set out in this Manual.
 
 
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4.1.8 Accountable for the consequences derived for its failure to comply with
the obligations agreed in the Transportation contract.
 
4.1.9 Refrain from conducting restrictive commercial practices or those
considered as unfair competition as set forth in laws 155 of 1959, 256 of 1996,
Decree 2153 of 1992, Law 1340 of 2009 and all other regulations as amended and
superseded.
 
4.1.10 Comply with the regulations set out by the competent authority on
environmental protection and preservation.
 
4.1.11 Comply with the regulations and procedures set out in this Manual for the
connection of the Pipeline, as it may be applicable under the Transporter’s
judgment.
 
4.1.12 Pay the rates established for the distances being the purpose of the
Transportation service.
 
4.1.13 Pay to the Transporter, acting as a collector, the Transportation tax
established by the legislation for Crude Oil Transportation through Pipelines.
 
4.1.14 Provide the information as required by the Office of Hydrocarbons of the
Ministry of Mines and Energy in order to exercise adequate control of the
activity.
 
4.1.15 Refrain from conducting any actions that may affect the normal Operation
of the Pipeline and may cause damage to the Transporter or other Senders.
 
4.1.16 Contribute and maintain in the Pipeline the quantity  of Crude Oil as may
be necessary to fill in the line according to the instructions provided by the
Transporter.
 
4.1.17 Indemnify the Transporter and the owner for any damage which may be
caused by, or as a consequence of failing to fulfill its obligations.
 
4.1.18 all those derived from the Transportation contract of this Manual and any
applicable regulations.
 
4.2 Obligations of the Transporter: The following are obligations of the
Transporter:
 
4.2.1 Maintain the Pipeline in adequate operating conditions.
 
4.2.2 Allow access to the Pipeline of any Third parties requesting it in those
cases in which there is available Capacity, provided they fulfill the
requirements established in this Manual.
 
 
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4.2.3 Enter into Transportation Contracts with Senders and Third parties which
comply with the requirements of this Manual.
 
4.2.4 Prepare, publish and keep the BTO updated.
 
4.2.5 Submit the Manual to the Office of Hydrocarbons of the Ministry of Mines
and Energy, keep it updated and publish it in the BTO.
 
4.2.6 Report to the Office of Hydrocarbons of the Ministry of Mines and Energy,
the Transportation Contracts subscribed with the Senders within ten (10) days
after its execution.
 
4.2.7 Pursuant to Article 47 of the Petroleum Code of Colombia give notice to
the Office of Hydrocarbons of the Ministry of Mines and Energy on the
Transportation requests made by Third parties to use the available Capacity
within (30) days following reception of the applications, indicating the
Contracting Party or applicant, the distance and the volumes to be transported.
 
4.2.8 Conduct its Transportation activity separately from other activities and
giving an objective treatment to all agents in connection with the Pipeline.
 
4.2.9 Refrain from conducting restrictive commercial practices or those
considered as unfair competition as set forth in laws 155 of 1959, 256 of 1996,
Decree 2153 of 1992, Law 1340 of 2009 and all other regulations as amended and
superseded.
 
4.2.10 Provide suitable facilities to receive the Crude Oil according to their
specifications set out in this Manual, control volumes and the quality of the
same and carry out the Transportation according to the industry’s
specifications.
 
4.2.11 Attend the Transportation requirements from Third parties and Senders,
and implement the nomination process under the terms set out in this Manual and
the applicable regulations.
 
4.2.12 Provide the Senders the information on volumes at the Point of Entrance,
volume withdrawn at the Point of Exit and the inventory of Crude in the
Pipeline.
 
4.2.13 Establish control and inspection mechanisms to maintain the integrity of
the Pipeline, and based on this, schedule maintenance and required repairs.
 
4.2.14 Calibrate the measurement and quality control instruments of Crude Oil,
according to the procedures and timing required by the producers, the technical
regulations and provisions established for this purpose in this Manual, inviting
the Senders or their representatives to provide support if considered necessary.
 
4.2.15 Charge the corresponding rates for Transportation services.
 
 
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4.2.16 collect and Pay the Transportation tax pursuant to article 26 of Law 141
of 1994 or any other regulations as amended or superseded.
 
4.2.17 Publish the Transportation rates in the BTO.
 
4.2.18 Comply with all regulations set out for the protection and preservation
of the environment foreseeing all procedures for closing and abandonment of the
Pipeline.
 
4.2.19 Submit to the Office of Hydrocarbons of the Ministry of Mines and Energy
before March 1 of each year, the special annual report referred to in article
204 of the Petroleum Code or any other regulations as amended or superseded.
 
4.2.20 Use the available Capacity if there is any, for the Transportation of
Third Party’s Crude, upon request, and with the previous subscription of the
respective Transportation contract.
 
4.2.21 Maintain rules and procedures to attend expansion requests, when the
available Capacity is not sufficient to cope with the Transportation requests of
Crude from Third parties
 
4.2.22 allow preferred Transportation of Crude Oil to refineries in order to
satisfy the country's needs and avoid a national shortage pursuant to article 58
of the petroleum code.
 
4.2.23 Permit that, in the event there is available Capacity, the Sender or
Third Party conduct additional investments as required, to provide access and
Capacity to use that means of Transportation pursuant to the regulations on
access and investments indicated in this Manual and other applicable
regulations.
 
4.2.24 Submit to the Office of Hydrocarbons of the Ministry of Mines and Energy
the information on cost, rates on volumes and all other information as required.
 
4.2.25 All those derived from the Transportation contract of this Manual and
other applicable regulations.
 
CLAUSE 5 FEES
 
5.1 The Pipeline fee shall correspond to the rate established according to the
methodology to set out rates pursuant to resolution 124386 of 2010 from the
Ministry of Mines and Energy as amended or superseded.
 
5.2 Without prejudice of the foregoing, the Transporter may agree with the
Senders the monetary conditions for the Pipeline fee considering the commercial
and technical items listed hereunder, including but without being limited to:
 
 
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5.2.1 Commercial Conditions
 
5.2.2 Contracted Capacity
 
5.2.3 Contracted Term
 
5.2.4 Contracted Type
 
5.2.5 Payment Terms
 
5.2.6 Crude Oil Quality
 
5.2.7 About Utilization
 
5.3 The corresponding Party shall assume any taxes as indicated by law. The
Transportation Tax is the responsibility of the Sender and is not included in
the fee.
 
CLAUSE 6 SPECIAL SERVICES
 
6.1 Increases in the Transportation Capacity.
 
6.1.1 In the event in which the Pipeline falls short in the effective Capacity
of Transportation for the Shipment of Hydrocarbons of any of the Senders and if
there is the technical possibility to increase it through the use of any
friction reduction agents or other Operational adjustments, the Transporter may
technically assess and approve this option, in which case the Sender may use
this alternative under the agreements and commercial conditions established by
the parties. The Sender understands and accepts that any costs resulting from
the implementation of this alternative are additional to the rate agreed, shall
be borne by the Sender and shall not be considered as an additional rate for the
Transportation service.
 
6.2 Transportation of Segregated Hydrocarbon
 
6.2.1In the event in which any Sender requires to transport Hydrocarbons in a
segregated manner, the Transporter may agree with this option if it is
technically and commercially viable, in which case the Sender may use that
alternative under the agreements and technical and commercial conditions
established with the Transporter. The Sender understands and accepts that any
costs and damage resulting from the implementation of this alternative are
additional to the rate agreed, shall be assumed by the Sender and under no
circumstance constitute an additional rate for the Transportation service.
 
CLAUSE 7 ADJUSTMENT OF THE EFFECTIVE CAPACITY OF THE SYSTEM DUE TO VARIATIONS IN
THE SPECIFICATIONS OF HYDROCARBONS
 
7.1 The effective Transportation Capacity may vary as a function of the
Hydrocarbon specifications pumped in the Pipeline. The specifications of the
Hydrocarbon delivered by the Senders may vary from this standard, obtaining as a
result a variation in the effective Transportation Capacity in the Pipeline.
 
 
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7.2 In case there is an increase in the effective Transportation Capacity by
using a Hydrocarbon of different specifications to those agreed in the
Transportation contract, this Capacity in excess shall be assigned according to
the order of priorities established in this Manual.
 
7.3 If a Sender with a Ship or Pay contract nominates a Hydrocarbon of lower
specifications to those agreed in the Transportation contract and this generates
a decrease in the Transportation effective Capacity, the Transporter may accept
the delivery of the Hydrocarbon, in which case the Sender understands and
accepts that it will transport a lower equivalent quantity dude to the change in
the specification and the economic conditions of the Ship or Pay contract shall
not be modified.
 
7.4 The Transporter shall be in charge of defining the increases or decreases of
Capacity generated by a variation in the specifications of the Hydrocarbon. This
process shall be conducted once a month as part of the nomination process.
 
CLAUSE 8 PROJECTIONS, NOMINATION AND TRANSPORTATION SCHEDULE OF THE PIPELINE
 
8.1 Projections.
 
8.1.1 In the month of October of each year, the Transporter shall prepare the
Transportation plan for the following five (5) fiscal years, expressed in
barrels per calendar day (bpdc in Spanish). For the first year volumes per month
shall be provided and for subsequent years there will be volumes per year. As a
result of the preparation of this Transportation plan, the estimation of the
available Capacity the Transportation of Third Party’s Crude shall be available
in compliance with the provisions in article 47 of the petroleum code as amended
or superseded. These information and Transportation Capacity shall be available
for consultation in the BTO.
 
8.1.2 The procedure to be followed shall be as follows:
 
8.1.2.1 The first day of each September or before, all Senders shall submit to
the Transporter the information on the projections of the volumes to be
nominated for the five subsequent fiscal years and for the following fiscal year
this information shall be specified monthly. Such information shall include the
following:
 
8.1.2.1.1 The best estimate of the Sender, the volume to be transported in bpdc,
assuming uniform flow rates expressed separately for each Hydrocarbon to be
delivered;
 
 
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8.1.2.1.2 The quality characteristics of each Hydrocarbon;
 
8.1.2.1.3 The Points of Entrance, expressed separately for each Hydrocarbon,
with the delivery program for each of them; and
 
8.1.2.1.4 The Points of Exit, expressed separately for each Hydrocarbon, with
the withdrawal program for each of them.
 
8.1.2.2 Within the first 15 days of the Third calendar month of each quarter,
the Sender shall deliver to the Transporter the update of the volume projections
to be nominated in average per day for the remaining calendar months of the
current fiscal year and the average per day for the following two fiscal years.
 
8.2 Nomination Scheme and Transportation Schedules
 
8.2.1 Nominations are accepted and scheduled independently from the incoming
restrictions to other systems, upon which there is no responsibility from the
Transporter to make these schedules or to contract Transportation quotas in
other Transportation systems.
 
8.2.2 The following process is established in order to comply with and enforce
Transportation schedules:
 
8.3 Nomination of the ANH, Owners and Senders with Ship or Pay Contract.
 
8.3.1 At the latest on the Third calendar day of the month of nomination, the
ANH or whoever is designated shall carry out the nomination of the royalties of
Crude Oil coming from the fields served by the Pipeline. In this same term, the
owners shall nominate the Crude Oils possessed and all other Senders with Ship
or Pay contract shall carry out the nomination of their Transportation
requirements for the following month of Operation. Additionally, the Senders
previously mentioned shall deliver their tentative Transportation needs for the
following five calendar months. The Sender shall specify: name of the
Hydrocarbon, the requested volume to be transported, quality, regime of
deliveries during the month of Operation, Point of Entrance and Point of Exit,
as well as any other specific information as required or requested by the
Transporter.
 
8.3.2 If the nomination of royalties is higher than the preferred right, the
nomination shall be adjusted to that value. Royalty Crude Oils are considered
those directly nominated by the ANH in its Capacity as Sender or whoever is
designated, except when these are sold to another Sender or to a Third Party. If
the owners buy Crude from royalties, the Transporter shall account for them
within the preferred right without affecting the Capacity of the owner.
 
8.4 Acceptance and rejection of Nominations and disclosure of Available
Capacity.
 
 
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8.4.1At the latest on the seventh calendar day of the month of nomination, the
Transporter shall communicate to the ANH, the owners and all other Senders with
Ship or Pay Contracts its acceptance or rejection of the nominations and the
final volume accepted, taking into account the priorities, the overutilization
and the generation of additional Capacity due to change in specifications of the
Hydrocarbon. Senders with Ship or Pay contract shall be assigned volumes to be
transported up to the volume of their Contracted Capacity. Based on the accepted
nominations, the Transporter shall calculate the available Capacity, which shall
be published in the BTO as previous requirement to any additiona nominations of
Senders and of Third parties having any interest and contracting the
Transportation service.
 
8.5 Additional Nominations of Senders and nominations from Third Parties
 
8.5.1At the latest on the ninth calendar day of the month of nomination, any
Third Party may carry out the nominations of their Transportation requirements
under the modality of Spot Contracts for the month of Operation. All Senders may
nominate additional volumes at this stage. Additionally, all Third parties and
Senders with additional nominations to their Contracted Capacity shall deliver
the tentative Transportation needs for the following five (5) calendar months.
Third parties and Senders shall specify: name of the Hydrocarbon, request for
the volume to be transported, delivery schedules during the month of Operation,
Point of Entrance and Point of Exit, as well as any other information as
required by the Transporter.
 
8.5.2 if nominations exceed the available Capacity of the Pipeline, the
assignment of the volumes to be transported shall be at a prorate of the
requests received and up to the available Capacity.
 
8.6 Closing the Nomination Process
 
8.6.1At the latest on the twelfth calendar day of the month of nomination the
Transporter shall conduct the closing of the nomination process and shall
publish the nominations approved for all Senders and Third parties as well as
the Programmed Capacity of the Pipeline. Likewise, it will carry out the
publication of any available Capacity if such is the case.
 
8.7 Final Scheduled of Transportation
 
8.7.1 The Transporter shall prepare the final scheduled Transportation for the
month of Operation and an estimate for the following five (5) calendar months
and shall submit it to the Senders and Third parties with assigned Capacity at
the latest on the twelfth calendar day of each month of nomination.
 
8.7.2 This schedule may be modified by the Transporter, among other reasons:
 
8.7.2.1 Due to justified events that affect the Transportation Capacity
 
 
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8.7.2.2 By request of the Transporter, accepted by the Senders or by request of
a Sender accepted by the other Senders and the Transporter.
 
8.7.2.3 Derived from any other circumstances beyond the control of the
Transporter.
 
8.7.3 Priority criteria for assignment of capacities en case of the
aforementioned modifications shall be those established in clause 10 of this
Manual.
 
8.7.4 The Sender shall notify the Transporter as soon as possible, if it is
found that: (i) its deliveries during a month of Operation at a Point of
Entrance will be less than 95% of the Scheduled Capacity or (ii) its withdrawals
at any Point of Exit shall be less than 95% of the Scheduled Capacity. With the
reception of the information, the Transporter shall analyze the impact of the
acquired commitments for Transportation and will make decisions at its Sole
discretion to mitigate the impact.
 
8.8 Extemporary Nominations
 
8.8.1 If any Third Party or the Sender fails to meet the terms set out to
nominate in accordance with the procedures contained herein, the Transporter
shall not be obliged to accept such nominations. The Transporter shall only
accept extemporary nominations as long as the Pipeline has available Capacity.
If the nomination is accepted, the Third Party or Sender shall Pay to the
Transporter as a penalty, two (2%) of the applicable rate to the volumes in
barrels delivered in the Pipeline in the respective month.
 
8.9 Final Report of Operation
 
8.9.1 At the end of each month of Operation, the Transporter shall prepare a
report which shall be delivered to the Senders at the latest on the tenth (10)
working day of the following calendar month of the month of Operation indicating
the volumes in Gross Standard Barrels and Net Standard Barrels delivered and
withdrawn and the average qualities at each Point of Entrance and Point of Exit.
 
CLAUSE 9 BALANCE IN EXCESS OR DEFECT
 
9.1 The following procedure for the balance of each Sender is established as
follows:
 
9.1.1 Each Sender shall schedule its withdrawals according to its delivery
schedules.
 
9.1.2 In case that a Sender fails to fulfill or is not meeting its delivery
schedule during the month of Operation, the Transporter may adjust the
withdrawal schedule of the Sender in question, to comply at all times with
numeral 9.1.1 of this clause. In any case, if the Sender fails to meet its
delivery or withdrawal schedule, the Sender shall Pay the Transporter the full
amount of costs associated to such breaching, including but without being
limited to those referred to storage or disposal of the Hydrocarbon, which shall
be reported through a provisional notice.
 
 
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9.1.3 In case of withdrawals in excess and in defect it is establish that if a
Sender withdraws in excess or fails to withdraw its Hydrocarbon at the Points of
Exit, pursuant to the current schedule, the Transporter may at its Sole judgment
start the following procedure:
 
9.1.3.1 The Transporter shall offer the withdrawal in defect or a portion of it
to other Senders in proportion to the assignment of Capacity in the nomination
process in the month of Operation. Each Sender to whom this volume has been
offered shall be respond to this offer in the following forty eight (48) hours.
 
9.1.3.2 As a result of the responses received, according to the offer of numeral
 
9.1.3.1, the Transporter may make new offerings or assign the withdrawal in
defect.
 
9.1.3.3 Based on the implementation of the procedure, the Senders who will
withdraw the volumes in defect shall be determined.
 
9.1.3.4 The balance of the withdrawals in excess shall be reflected in the
volumetric compensation by quality.
 
9.1.3.5 In no case the Transporter shall be responsible for the Hydrocarbon that
a Sender has not withdrawn and as a result of that, the Pipeline had to be
evacuated. The Sender that has not withdrawn shall have the exclusive
responsibility for all damages and costs caused in the procedures for evacuation
that the Transporter has to implement, which shall be informed through
provisional notices.
 
9.1.4 The Transporter shall prepare a monthly balance showing for each Sender,
the situation of deliveries and withdrawals in excess or withdrawals in defect.
This balance shall be the result of the process of volumetric compensation for
quality (CVC)
 
CLAUSE 10 PRIORITIES IN THE NOMINATION PROCESS
 
10.1 For purposes of the nomination process the priorities indicated in this
clause shall be followed. In the event in which the sum of the volumes requested
by the Senders exceeds the effective Transportation Capacity, o when due to the
events mentioned in numeral 8.7.2 the effective Transportation Capacity is
reduced below the sum of the volumes assigned to the Senders, the Transporter
shall calculate the volumes assigned in the Transportation schedule to each
Sender according to the following priorities:
 
 
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10.1.1First: Crude of royalties of the State coming from the fields served by
the Pipeline. This priority makes reference to a preferred right that Crude Oils
from royalties shall have in the nomination process for the preparation of the
Transportation schedules. For purposes of this first priority, Crude Oil sold by
the State to a Third Party or Sender non-owner, shall not be considered as Crude
of royalties of the State.
 
10.1.2 Second: Nominations of the owners, its parent and subsidiaries.
 
10.1.3 Third: Nominations of Senders non-owners with Ship or Pay Transportation
Contracts.
 
10.1.4 Fourth: Nominations of Third Parties.
 
10.2 For Transportation Contracts different than Ship or Pay Contracts in force
prior to the enforcement of this Manual, a transitory priority between Third and
fourth priority shall be applied.
 
10.3 Within the Third and fourth priority, the assignment of volumes or the
reduction of volumes assigned shall be made at prorate of the capacities of each
Sender and the nomination of each Third Party respectively.
 
CLAUSE 11 REJECTION OF A TRANSPORTATION REQUEST
 
11.1 The Transporter reserves the right to reject any Transportation request in
addition to the reasons mentioned during the nomination process and the
Transportation schedule, those coming from a Sender who has breached a
Transportation contract, this Manual or any applicable regulations, including
but without being limited to:
 
11.1.1 Delivery of Hydrocarbons without the minimum quality specifications
indicated in this Manual.
 
11.1.2 Failing to deliver sufficient Hydrocarbons to fill in the line in the
proportion that corresponds,
 
11.1.3 Late Payment or no Payment of the rate,
 
11.1.4 Failing to comply with the Transportation schedule either in deliveries
and/or withdrawals.
 
11.2 The rejection of a request due to any justified event by the Transporter
shall not be considered as a breaching of the obligations of the same and this
shall be made without prejudice of other actions the Transporter or the owner
may have to make effective the any damages that a Sender or a Third Party may
have caused.
 
 
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CLAUSE 12 QUALITY REQUIREMENTS
 
12.1 The minimum values of quality that the Crude delivered by the Senders must
have to be accepted for Transportation in the Pipeline are:
 
TEST PARAMETER
VALUE OF THE
PARAMETER
TEST
STANDARD
Sediment and water or particles
Not to exceed 0.5% in volume
Sediments –ASTM D473
Water – Karl Fisher
API at 60 °F
Higher than 18 degrees API but less than 50 degrees API
D 1298
Viscosity @ temperature of reference
Not to exceed 300 cSt at 30 °C
ASTM D445 or D446
Vapor pressure
Not to exceed 11 lb/square inch
Reid Vapour Pressure
ASTM D323
Temperature of reception
Not to exceed 120 °F
 
Salt content
20 PTB
ASTM D 3230
Point of fluidity
Not higher than 12 °C
ASTM D 93

 
For specific systems the Transporter defines minimum parameters for quality
which are listed in Annex 4 Minimum Quality Specifications by System.
 
12.2 Quality Certification.
 
12.2.1 The Sender shall always provide the Transporter a certificate evidencing
the characteristics and quality specifications of the Hydrocarbon, which shall
be delivered to the Transporter. The certificate referred to in this numeral
shall be issued by a company specialized in this matter and independent from the
Sender. If the Sender fails to provide the corresponding certificate, the
Transporter shall not have the obligation to accept or transport the Hydrocarbon
through the Pipeline.
 
12.2.2 The minimum characteristics of the Hydrocarbon which must be included in
the certificate are: Viscosity cST and SSU at 86°F, 100°F and 140°F, gravity API
at 60°F, sulfur content, salt content, BSW, Acidity and Point of fluidity.
 
12.3 Extra costs
 
12.3.1 The Transporter and the Sender may agree on the delivery of Hydrocarbons
with lower characteristics than the minimum required, in which case the Sender
shall pay all costs and expenses to improve the Hydrocarbon and to bring it to
acceptable Transportation specifications for the Transporter.
 
 
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12.3.2 The agreement to make this scheme Operational shall be recorded in
writing.
 
CLAUSE 13 DETERMINATION OF QUANTITIES AND QUALITY
 
13.1 Measuring equipment and applicable regulations.
 
13.1.1 Quantity and quality measurements and Hydrocarbon samples delivered or
withdrawn shall be conducted by the Transporter or whoever is designated through
the measurement systems installed at the node of Entrance and node of Exit; each
measuring system installed may include among other things:
 
13.1.1.1 Calibration unit (Prover) installed and calibrated according to the
method “water-draw” (for water distillation) as specified in the Manual API
MPMS-4 “Petroleum Measurement Standards”, Chapter 4 “Proving Systems” in the
most recent edition.
 
13.1.1.2 Turbine meters of positive displacement or Coriolis type installed in
accordance with Manual API MPM-6 MPMS-4 “Petroleum Measurement Standards”,
Chapter 6 “Metering Assemblies Standards” in its last edition. The meters
factors shall be derived by calibration using the same standards, taking into
account correction by temperature and pressure.
 
13.1.1.3 A device for continuous sampling as specified in Manual API MPMS
“Petroleum Measurement Standards”, Chapter 8 “Sampling” in its last edition. The
methods to be used to determine the characteristics of the samples are the
following:
 
- Water (by distillation) ASTM D 4006
 
- Water by Karl Fisher ASTM D 4377
 
- Salt content ASTM D 3230
 
- Sediments (by extraction) ASTM D 473
 
- Density API 1298
 
- Sulfur ASTM D 4294
 
13.1.1.4 A BS&W measuring equipment may also be available by the centrifuge
method, following in that case, the proving method ASTM D 4007. The density of
samples shall be determined in the event of damage of the density meter or to
validate or calibrate the density meter measurements.
 
13.1.1.5 A density meter for permanent measurement of density.
 
13.1.1.6 An electronic system for the measurement of flow adjusted to API MPMS,
Chapter 21.2 requirements in the last edition.
 
 
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13.1.1.7 The volumetric correction factor to be applied shall be the one
appearing in the last edition of tables 23 and 24 of the ASTM 1250 method.
 
13.1.1.8 The calculation of the dynamic and static measurements shall be made in
accordance with the current API, Chapter 12 or 4 regulations as it may
correspond.
 
13.1.2 The Transporter shall return to the Sender, measured in those nodes of
Exit specified by the Sender, a volume of Crude equivalent to the volume
delivered by the Sender and measured at the nodes of Entrance with the following
adjustments:
 
13.1.2.1 Deductions for Identifiable Losses and Non-identifiable losses. The
Identifiable Losses and Non-identifiable losses shall be distributed among the
Senders according to the provisions in the Procedure for Adjustments for
Volumetric Compensation for Quality.
 
13.1.2.2 Increases or reductions necessary to be made as a result of making
adjustments for Volumetric Compensation.
 
13.2 Accounting for losses
 
13.2.1 The volume of all Crude Oil losses produced in the system shall be
calculated by the Transporter using its best Operational and engineering
judgment.
 
13.3 Process to determine quantities and qualities at the Points of Entrance and
Points of Exit.
 
13.3.1 Quantity measurements and quality sampling of deliveries and withdrawals
(including calibration of instruments) shall be the Transporter’s responsibility
and shall be made according to the standards and accepted prevailing practices
by the API and the ASTM. The installed equipment to conduct measurements and
sampling shall be determined by the Transporter.
 
13.3.2 The Transporter shall ensure to set out adequate measuring and
calibration procedures at the nodes of Entrance and nodes of Exit. Calibration
of the measuring systems shall be made as required by operating circumstances
under the Transporter’s criteria. The calibration factor of the meters shall be
effective only after the date of the latest calibration except in case of
manifest error in which case the last factor of valid calibration shall be
applied.
 
13.3.3 The Transporter has the responsibility to take two samples of
representative Crude Oil according to the API standards and with the adequate
volume for each delivery and withdrawal made. The frequency of such sampling
shall be determined occasionally by the Transporter based on the continuity of
the Crude’s quality among other factors. Samples shall be used for the following
purposes:
 
 
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13.3.3.1 To determine the quality.
 
13.3.3.2 The Transporter shall retain a sample for each delivery and withdrawal,
which shall be used as a counter-sample. The Transporter shall preserve said
sample for a period no longer than 15 calendar days in case there are any claims
regarding a specific delivery or withdrawal. After this lapse of time it will
not be possible to make any claims in this sense.
 
13.3.4 Crude volumes that the Transporter shall be committed to transport shall
be determined using the measurement systems of the Pipeline following the API
and ASTM standards. The Transporter shall ensure the filling in of all official
forms for each kind of measurement, which shall contain as a minimum the
following information: the date, the readings of the meters or the measures of
the storage tank or tanks before starting and upon completion of the deliveries
or withdrawals, the API gravity, densities, temperatures, pressures, sediment
and water percentages and any other necessary characteristic for its
identification. The forms above mentioned constitute documents, which shall be
used to make calculations for the Transportation value and the adjustment for
volumetric compensation and shall serve as proving documents for any other
purpose.
 
13.3.5 At any time before starting any delivery or withdrawal and in intervals
with a frequency not higher than two (2) times per month, the Sender may
inspect, through an independent inspector, with previous approval from the
Transporter, the accuracy of the results of the measurements and the samples
taken to determine the quantity and quality of the Hydrocarbon. The Sender shall
bear the cost of said inspection. For this purpose the respective Sender shall
notify the Transporter the name and title of the independent inspector at least
five business days before the measurement of the corresponding Crude.
 
13.3.6 The calibration of the measurement equipment shall be made as required by
the Operational circumstances or by written request received from a Sender in
particular under the Transporter’s judgment. The meters factors shall be updated
every time this procedure is conducted. Prior to the calibration of the meters,
the Transporter shall notify the Senders the dates in which said calibration
shall be carried out so that they if deemed necessary, may be present in the
calibration. The meters calibration factor shall be effective only after the
date of the last calibration and the parties participating in the calibration
shall issue a certificate; otherwise this shall be documented in a letter from
the Transporter to the Senders.
 
 
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13.3.7 Pursuant to API recommendations, testers shall be re-calibrated at least
once every five years (from the date of the last calibration) o immediately
after any alteration in the measuring section.
 
13.3.8 The Hydrocarbon volumes that the Transporter accepts and schedules for
its Transportation shall be determined by meters installed in the nodes of
Entrance and/or Exit. Notwithstanding the foregoing, the Transporter may use
alternate methods included in the API standards. If the static measurement of
tanks is used, these must have their measurement approved by the Ministry of
Mines and Energy or the competent entity. The tank measurement shall be
determined following the current existing standards for such purpose.
 
CLAUSE 14 VOLUMETRIC COMPENSATION FOR QUALITY
 
14.1 The Regulations of Volumetric Compensation for Quality is an integral part
of this Manual as annex 1 (MECHANISMS OF COMPENSATION OF QUALITY FOR THE MIX OF
CRUDE OILS).
 
14.2 Each of the Senders shall deliver to the Transporter at a Point of Entrance
a Hydrocarbon volume which, and only for purposes of Volumetric Compensation for
Quality (CVC), shall be valued according to the procedure defined for the
Pipeline and in accordance with its particular quality. This quality shall be
determined by an independent quantity and quality inspector accepted and
recognized both by the Transporter and the Sender.
 
14.3 Considering that as a result of the Transportation the Hydrocarbons
delivered in the Pipeline are mixed without distinction, each Sender shall
withdraw at the Point of Exit a volume of Hydrocarbons with a different quality
than its Hydrocarbon delivered, except when it has been requested and has been
accepted the Transportation of Hydrocarbons in a segregated manner. The quality
of this segregated Hydrocarbon shall also be determined by an independent
quantity and quality inspector accepted and recognized both by the Transporter
and the Senders. This Hydrocarbon shall be assessed only for purposes of
Volumetric Compensation for Quality and shall take into account the compensation
for quality due to the interfaces occurring when transported with other Crude
Oils.
 
14.4 The Transporter shall apply the mechanism of Volumetric Compensation for
Quality defined by the same for the Pipeline which shall have the following main
characteristics:
 
14.4.1 The Senders who have delivered to the Transporter Hydrocarbons with a
better quality than the mixed Hydrocarbon withdrawn at the Point of Exit of the
Pipeline shall be entitled to compensation in volume, equivalent to the volumes
that Senders who have delivered Hydrocarbons of lower quality than the ones
withdrawn at the Point of Exit will have to assume. For such purpose, individual
qualities of all volumes delivered and withdrawn shall be taken into account as
well as the final inventories of the preceding month of Operation and the last
month of Operation, with its respective qualities.
 
 
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14.4.2 The Volumetric Compensation for Quality shall be internal between the
Senders in such a way that the final volumetric balances equal cero and the
Transporter shall neither charge nor Pay any volume for this purpose and shall
only serve as a mediator, regulator, liquidator and responsible for the
volumetric distribution of the compensations.
 
14.4.3 The Volumetric Compensation for Quality is not part of the Rate and
therefore shall not be compensated or will have any variation as a result of
this.
 
14.5 In each month of Operation the Transporter shall make a balance of the
existing volumes and qualities at the beginning of the month delivered to the
Pipeline, lost, withdrawn and existing at the end of the month, both for the
total of Hydrocarbons as well as for individual Hydrocarbons of each Sender.
 
14.6 The Sender shall hold the Transporter and owner harmless against any cost,
action, claim, intended procedures by any Third parties, losses and all damage
and obligations incurred and inherent to the mix of Hydrocarbons in the
Transportation process and the Volumetric Compensation for Quality.
 
14.7 In any case the Transporter may modify the mechanism of Volumetric
Compensation for Quality contained herein, in the respective annexes and all
other documents in connection with the CVC.
 
14.8 Senders of a specific Hydrocarbon may agree with the Transporter not to
apply the Volumetric Compensation for Quality to said Hydrocarbon. The foregoing
shall be applicable as long as the Hydrocarbon of other Senders is not affected
negatively.
 
14.9 By agreement between the totality of Senders and the Transporter, it may be
decided not to implement the Volumetric Compensation for Quality (CVC) for Crude
Oils transported through the system. In this case the Transporter may implement
any other mechanism validated with the Senders to carry out the volumetric
balances.
 
CLAUSE 15 BULLETIN OF TRANSORTATION BY THE PIPELINE – BTO
 
15.1 The Transporter shall implement the Bulletin of Transportation by the
Pipeline – BTO – which shall contain as a minimum the following information:
 
15.2 Information of public access:
 
15.2.1 General description of the Pipeline
 
15.2.2 Current rates for each Distance
 
 
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15.2.3 Value tables or current calculation formulas of Monetary Conditions
 
15.2.4 Design Capacity of the Pipeline and Nominal Capacity
 
15.2.5 Monthly available Capacity of the Pipeline estimated for the next (6)
months and annual for the next five (5) years.
 
15.2.6 Excerpts of this Manual corresponding to connection requests, nomination
process and minimum quality requirements of Crude Oil
 
15.3 Information of exclusive access for Senders and Third parties:
 
15.3.1 This valid Manual.
 
15.3.2 Discussion on modifications to the Manual
 
15.3.3 General information on the programmed maintenance schedule of the
Pipeline and other programed activities affecting the effective Capacity during
the next six (6) months.
 
15.3.4 Listing of expansion projects and changes in the Pipeline’s
infrastructure
 
15.3.5 Effective Capacity confirmed for each month of Operation and estimated
for the following five (5) months and the corresponding available Capacity for
each Distance.
 
15.3.6 Transportation program for the month of Operation and tentative for the
following (5) months for each Distance
 
15.3.7 Description of the mechanism established by the Transporter and foreseen
in the nomination process to assign the available Capacity equitably
 
15.3.8 Last volumetric balance prepared for the Pipeline.
 
15.3.9 Daily statistics for the last month of Operation and monthly statistics
since the enforcement of Resolution 181258 of 2010 from the Ministry of Mines
and Energy on the information on Effective Capacity and Volumetric Balances.
 
15.3.10 The annual rates and the Monetary Conditions for each Distance from the
date of enforcement of Resolution 181258 of 2010 from the Ministry of Mines and
Energy.
 
15.4 The Transporter is no obliged to publish any information of reserved
character.
 
15.5 The Transporter shall provide to Senders and any Third parties interested
in transporting Hydrocarbons through the Pipeline as requested, within the
following ten (10) calendar days after the request and with previous
verification from the Transporter of their Capacity as Sender or Third Party an
access password to the information of exclusive character referred to in numeral
15.3 of this clause. The access with a password shall be active while the
requestor maintains its Capacity as Sender or Third Party.
 
 
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15.6 The Transporter shall communicate any updates, amendments or additions of
relevant information in the BTO by means of electronic mail or direct
communication to the Office of Hydrocarbons of the Ministry of Mines and Energy
and to all those with active access to the information of exclusive character
pursuant to the previous numeral.
 
CLAUSE 16 SPECIAL TRANSPORTATION CONDITIONS
 
16.1 The Transportation of Hydrocarbons shall be subject to the following
conditions:
 
16.1.1 The Hydrocarbon shall be delivered by the Sender at a Point of Entrance
and withdrawn at a Point of Exit.
 
16.1.2 The Transportation of Hydrocarbon shall be subject to performance of the
conditions foreseen in the Transportation Contract, the Manual hereof, its
modifications, additions or updates, including its annexes and the applicable
regulations.
 
16.1.3 The Transporter reserves the right to receive or reject a Hydrocarbon
that fails to meet the minimum specified values; in case of reception, the
Sender shall Pay the Transporter any costs incurred in the analysis and eventual
treatment of this Hydrocarbon to place it within the required specifications or
to implement the scheme required for its Transportation.
 
16.1.4 The Transporter reserves the right to require, reject or approve the
injection at any other Point in the Pipeline of products such as corrosion
inhibitors, depressors of Point of fluidity, friction reducers or any other
additive in the Hydrocarbon to be transported. The Sender shall Pay the
Transporter all costs incurred in the analysis and eventual treatment of this
Hydrocarbon to place it within the required specifications or to implement the
scheme required for its Transportation.
 
16.1.5 The Transporter reserves the right to transport Hydrocarbons delivered by
Senders that exceed the limits determined by Transporter for organic chloride,
sand, dust, dirtiness, glues, impurities, other objectionable substances or any
other compounds with physical or chemical characteristics that, under the
exclusive determination of the Transporter may cause that the Hydrocarbon would
not be easily transported, may damage the Pipeline or may interfere with the
Transportation and the withdrawals. The Sender shall Pay the Transporter all
costs incurred in the analysis and eventual treatment of this Hydrocarbon to
place it within the required specifications or to implement the scheme required
for its Transportation.
 
 
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16.1.6 The Transporter shall be entitled, with a previous provisional notice, to
remove and sell the Crude of any Sender that fails to comply with any of the
specifications at its Sole discretion. If the Transporter exercises its right of
sale pursuant to this clause, the Transporter shall deduct from the proceeds of
such sale all costs incurred by the Transporter with respect to the storage,
removal and sale of such Crude Oil. The Transporter shall pay the balance to the
Sender.
 
16.1.7 The Transporter shall not accept Crude Oil delivered by any Sender if
this may cause impairment to the Pipeline of the Crudes or mixtures transported
(without consideration of whether or not the Crude Oil meets the minimum quality
specifications).
 
16.1.8 The Transporter acting reasonably and in good faith, shall be entitled to
make any changes to the minimum quality specifications of Crude Oil in
accordance with operating practices, which may be necessary or pertinent,
including but without being limited to, prevent material damage or the material
degradation of the effective Capacity of the Pipeline in order to prevent any
personal injuries or damage to the property or the environment.
 
CLAUSE 17 REGULATIONS FOR THE TRANSPORTATION OF SEGREGATED HYDROCARBON
 
17.1 With a previous request from the Sender or Third Party, the Transporter may
accept the Transportation of segregated Hydrocarbon to the extent that this is a
technical and economically viable alternative. The Transportation of segregated
Hydrocarbon cannot change the scheme set out in clause 10 and shall be conducted
pursuant to the provisions in this Manual.
 
17.2 As a consequence of the foregoing, the Transporter shall inform the Sender
its disposition to start the Transportation of segregated Hydrocarbon. The
Transportation of segregated Hydrocarbon shall be subject to the nomination
process set forth in this Manual.
 
17.3 Any additional charges for Transportation of segregated Hydrocarbon shall
be borne by the Sender or Third Party requesting the service, and it will be
taken into account, including but without being limited, any costs and damage
caused to the Transporter, owner or other Senders.
 
CLAUSE 18 RISKS AND RESPONSIBILITY
 
18.1 The Transporter shall exercise custody on the Hydrocarbon from the time the
Sender or whoever the Sender designates, delivers it at the Point of Entrance
and until the Point of Exit.
 
 
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18.2 Neither the Transporter nor the owner shall be responsible for the
consequences of failing to comply with the deliveries and withdrawals generated
by the Sender in the Transportation program, commitments of operators and/or
Transporters of Transportation systems connected to the Pipeline.
 
18.3 The Transporter shall not be responsible for any damage or deterioration
that a Hydrocarbon delivered by a Sender may suffer, such as contamination with
strange materials, contamination by contact of different types of Hydrocarbons
if the damage or deterioration is due to Justified Events. In the event any of
the cases previously mentioned occurs, and one or more Senders are involved, all
the Hydrocarbons affected shall be prorated between the Senders in proportion to
the ownership of each of the Hydrocarbons involved, without prejudice of any
indemnities afterwards which may be applicable between the Senders affected. The
Transporter shall prepare the information corresponding to the volume of
Hydrocarbon affected and the proportion corresponding to each Sender.
 
18.4 The Transporter shall be responsible for the Transportation service, for
any losses, damage or deterioration that the Hydrocarbon may suffer. The
Transporter shall be released from any responsibility in the Justified Events
and the Transporter is not incurring in any gross negligence.
 
18.5 Any damage or prejudice caused to the Transporter by virtue of failing to
comply with the regulations contained in this Manual by any Sender shall be the
responsibility of the Sender who shall indemnify the Transporter for such damage
or prejudice.
 
18.6 Hydrocarbons delivered by each Sender and transported through the Pipeline
may vary in their quality as a result of the mix with other Hydrocarbons. Except
for events in which segregated Hydrocarbons are transported, the Transporter
shall not have any obligation to return at the Point of Exit a Hydrocarbon of
the same quality as the Hydrocarbon delivered for its Transportation at the
Point of Entrance. The adjustments of Volumetric Compensation for Quality shall
be applied to the transported mixed Hydrocarbons.
 
18.7 In the Transportation of Hydrocarbon mix and Hydrocarbon segregated through
the Pipeline, contamination fronts are generated. All Senders of the Pipeline
shall accept as withdrawn volume, a portion of the contamination fronts
generated in the Transportation through the Pipeline. If the Sender requires
some special conditions for the Transportation of a Hydrocarbon, these shall be
agreed with the Transporter who reserves the right to accept them and require
the Sender to bear all costs associated to such conditions.
 
 
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18.8 The following shall be considered in the Transportation of Hydrocarbon mix
and Hydrocarbon segregated through the Pipeline:
 
18.8.1 The Hydrocarbon of higher quality with respect to the Hydrocarbon of
lower quality shall always be degraded in the contamination fronts.
 
18.8.2 The Transporter shall estimate a maximum volume corresponding to the
contamination fronts and shall be responsible to comply with this value.
 
18.9 The Transporter is obliged to return the Sender and the latter to withdraw
at a Point of Exit, the volume of equivalent Hydrocarbon upon application of the
mechanism of Volumetric Compensation for Quality.
 
18.10 The Senders and Third parties shall indemnify and hold the Transporter and
the owner harmless against any costs, claims, litigations, judicial or
extra-judicial action, and decisions of any kind, which may be brought against
the Transporter or owner, and in general by any procedure intended by any Third
parties.
 
CLAUSE 19 FILLING THE PIPELINE OR FILLING THE LINE
 
19.1 It is the necessary volume to fill the Pipeline between the initial pumping
station and the final station, the non-pumping bottom of the storage tanks of
the Pipeline, and all installations, tubes, equipment, pumping and measuring
accessories.
 
19.2 For the Pipeline Operation, the Transporter may request to each Sender,
including the ANH, to deliver to the Transporter the necessary quantity of
Hydrocarbon to fill in the line of the Pipeline. The participation of each
Sender in filling in the line shall be determined by the Transporter based on
criteria such as: Ownership of the Pipeline and Contracted Capacity.
 
19.3 The Transporter shall determine at its judgment the Day in which each
Sender shall deliver its proportional participation in filling the line of the
Pipeline, and shall communicate the corresponding volume indicating the date of
delivery.
 
19.4 The Hydrocarbon delivered by the Senders to fill in the line of the
Pipeline shall not be withdrawn from the Pipeline without the previous
authorization from the Transporter. Without prejudice of the foregoing, the
Sender shall not lose the ownership of the Hydrocarbon remaining in the
Pipeline.
 
19.5 When segregated Hydrocarbon is transported, it shall be understood that the
ownership of the filling of the line of the Pipeline varies according to the
volumes of segregated Hydrocarbon present in the Pipeline at a given time.
Without prejudice of the foregoing, the Sender shall not lose the ownership of
the segregated Hydrocarbon remaining in the Pipeline.
 
 
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CLAUSE 20 HANDLING LOSSES IN THE PIPELINE
 
20.1 The identification and handling of losses in the Pipeline shall be carried
out as follows:
 
20.1.1 All identifiable losses of mix or segregated Hydrocarbon not attributable
to the Transporter as per numeral 18.4 shall be assumed by the Senders of the
mix or segregated Hydrocarbon according to the calculation made by the
Transporter based on the Operational parameters and formalized in the CVC. In
this sense, the Senders accept the liquidation made by the Transporter.
 
20.1.2 The report prepared by the Transporter shall be considered as the basis
to calculate the identifiable losses, indicating the Operation conditions of
that day, time, place, causes, deliveries, dispatches, withdrawals, mix or
segregated Hydrocarbon, recovered and lost and determined after the filling of
the line and the restarting of the pumping.
 
20.1.3 Non-identifiable loses are understood only those losses during
Transportation to which its cause cannot be determined with precision throughout
the process, from the Points of Entrance to the Points of Exit, including but
without being limited to the following:
 
 
·
Stops/ starts of the Pipeline

 
·
Illegal extractions non-detected

 
·
Faults in the meter factors

 
·
Volumetric contractions

 
·
Leakages/passes in the valves

 
·
Evaporation

 
·
Escapes

 
·
Inherent uncertainties on the measurement systems and associated instrumentation

 
·
Inherent uncertainties of laboratory analysis associated to the calculation of
volumes

 
·
Propagation of inherent uncertainties of the procedures set out at the
international level for the calculation of volumes by static and dynamic
measurement.

 
·
Handling loses inherent to the Pipeline

 
20.1.4 The Transporter shall calculate these losses each semester in such a
manner that the semester calculation reflects the real losses occurring during
each semester. The average semester of all losses shall be up to cero Point five
percent (0.5%) of the deliveries of the period. This calculation shall be made
by means of balances that the Transporter shall carry out at the beginning of
each calendar month with respect to the previous calendar month, which shall
reflect the deliveries and withdrawals, the inventory movement and the
identifiable losses, if there are any, to be calculated each semester.
 
 
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20.1.5 In the case of mix Hydrocarbon, the Non-identifiable Losses of the
semester shall be assumed by each of the Senders at prorate of the deliveries of
the period.
 
20.1.6 In the case of segregated Hydrocarbon, the Sender of the segregated
Hydrocarbon shall assume the Non-identifiable losses of the semester.
 
20.1.7 In the event that Non-identifiable losses exceed cero Point five percent
(0.5%) of the deliveries, calculated each semester, the Transporter shall
inquire on the possible causes in order to take the corrective actions
immediately.
 
20.1.8 The calculation procedure of losses in the Pipeline shall be governed by
the provisions in this clause and the current Compensation Mechanism for Quality
for the Mix of Crude Oil.
 
20.1.9 Non-identifiable losses equal or less than 0.5% monthly shall be
distributed according to the value in US dollars of the deliveries by each
Sender of the calendar month in which they were detected or the calendar month
in which they are reported.
 
20.1.10  Identifiable losses are distributed according to the value in US
dollars of the deliveries by each Sender on the calendar month in which they
were detected
 
CLAUSE 21 CLAIMS
 
21.1 Any claim by a Sender or Third Party in connection with the Transportation
service of Hydrocarbons shall be resolved pursuant to the internal procedures of
the Transporter and the applicable regulations. These claims shall be delivered
to the Transporter’s Operational area and they shall conduct the respective
internal procedure and shall communicate the result to the Sender.
 
21.2 For claims regarding the quantity or quality of Hydrocarbons, these shall
be presented in writing at the latest within fifteen (15) calendar days after
the date of delivery or withdrawal of the Hydrocarbon or the date in which the
report for the Volumetric Compensation for Quality is issued. The claim shall be
justified within the following thirty calendar days after being presented.
 
21.3 If the Sender does not present its claim, or if made extemporaneously, or
if it is not duly and timely justified, it shall mean the acceptance by the
Sender of the Hydrocarbon delivered or withdrawn or the Volumetric Compensation
by Quality, as the case may be.
 
 
 
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CLAUSE 22 SANCTIONS TO OPERATING AGENTS FOR NON-PERFORMANCE OF THE
TRANSPORTATION SCHEDULE
 
22.1 Each of the nominations made by Senders and Third parties shall constitute
their commitment to comply with the delivery and withdrawal schedule with
quantities and flow rates previously agreed between the parties.
 
22.2 For the Operation of the Pipeline the following particular provisions shall
be taken into account to apply the following sanctions depending on the type of
Sender:
 
22.2.1 Sender with Contracted Capacity in Firm:
 
22.2.1 If by any reason the delivery is less than 95% or more than 105% of their
Scheduled Capacity, the Sender shall Pay:
 
22.2.1.1.1 The Transportation fee for volumes delivered when they are higher
than the Contracted Capacity in firm. When they are equal or less the Sender
shall Pay Transportation fee on the Contracted Capacity in firm.
 
22.2.1.1.2 The Transporter may decide to charge the Sender a sanction equivalent
to 5% of the Transportation Fee of the Scheduled Capacity.
 
22.2.1.2 If by any reason, delivery is between 95% and up to 105% of its
scheduled Capacity, the Transporter shall charge the Transportation fee for
volumes delivered when these are above the Contracted Capacity in firm. When
they are equal or less the Sender shall pay the Transportation fee on the
Contracted Capacity in firm. In this case there shall not be any sanction,
without prejudice of the application of other types of sanctions.
 
22.2.2 Sender without Contracted Capacity in firm:
 
22.2.2.1 If by any reason, the delivery is less than 95% or more than 105% of
its scheduled Capacity, the Sender shall Pay:
 
22.2.2.1.1 The Transportation fee for volumes delivered
 
22.2.2.1.1 The Transporter may decide to charge the Sender a sanction equivalent
to 5% of the Transportation Fee of the Scheduled Capacity.
 
22.2.2.2 If by any reason, delivery is between 95% and up to 105% of its
scheduled Capacity, the Transporter shall charge the Transportation fee for
volumes delivered. In this case there shall not be any sanction, without
prejudice of the application of other types of sanctions.
 
22.3 For the second and all faults thereafter occurring in a twelve month period
counted from the date of occurrence of the last fault, sanctions shall be 10%,
without prejudice of other types of sanctions as the may be applicable.
 
 
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CLAUSE 23 HYDROCARBON AFFECTED BY LITIGATION
 
23.1 Any Sender or Third Party is in the obligation to notify in writing before
delivery to the Transporter, if the Hydrocarbon being the purpose of the
Transportation request is being affected by any encumbrance, claim or litigation
both judicial and extra-judicial.
 
23.2 The Transporter reserves the right to either accept or reject any
Hydrocarbon being affected under the terms abovementioned. Without prejudice or
the power mentioned, the Transporter shall coordinate with the Sender possible
action plans in order to ensure the rights acquired by the Senders regarding the
Owner’s Capacity and/or Contracted Capacity in firm.
 
23.3 In case of accepting its Transportation, the Transporter may request to the
Sender the presentation of a bond at satisfaction of the Transporter to cover
any damage which may be caused to the Transporter, the owner, to other Senders
and Third parties as a result of the Transportation.
 
23.4 Likewise, the Sender shall indemnify and hold the transported and the owner
harmless under the terms set out in the clause of Risks and responsibility.
 
CLAUSE 24 INVESTMENTS IN THE PIPELINE
 
24.1 Regarding any requests made to the Transporter to carry out any works and
additional investments to those made in the Pipeline by the Transporter or the
owner, the following provisions shall be considered:
 
24.1.1 Whoever is interested or needs the execution of works for the
construction, adaptation, expansion, connection and/or addition of assets and
facilities required, as a result of the Transportation of Crude Oil through the
Pipeline, shall request it (hereinafter the “Proposal”) to the Transporter with
due justification and indicating the needs and specifications of the works to be
carried out.
 
The Transporter shall indicate whether or not the Proposal meets and/or is in
accordance with the safety, and environmental requirements as well as the
technical, commercial, legal and engineering aspects in connection with the
Pipeline and the common practices of the industry in general in Colombia.
 
24.1.2 The Proposal submitted to the Transporter under the previous terms shall:
 
Include all relevant details, including but without being limited to, a(1) the
necessary additional infrastructure and the modifications to be made on the
existing infrastructure, (2) the estimated costs, (3) the time schedule for
construction of the works and start-up of the services associated to these
works, (4) all estimated operating and maintenance costs considered during the
service associated to these works and (5) basic engineering;
 
 
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The Proposal shall be addressed to the Transporter through the legal
representative of the person interested, for consideration and analysis of the
Transporter during a lapse not to exceed 60 calendar days counted after the
following day of submission of the Proposal with all the information required.
 
24.1.3 As a result of the analysis conducted, the Transporter shall determine
whether or not the Proposal is accepted, or if conditioned totally or partially,
if executed directly, or through a person designated by said Transporter, as
well as the scope of the investment and all other aspects relevant to the
Proposal.
 
24.1.4 If the new infrastructure modifies the Effective Capacity, the Senders or
Third parties participating in the Proposal may enter into a Ship or Pay
Transportation Contract to contract a portion of the new Capacity. In the case
of the Capacity corresponding to the Transporter or Owner given the scope of the
Proposal, this shall be considered as Owner’s Capacity.
 
24.1.5 No one may carry out any constructions, connections or adaptations in the
Pipeline without the previous written agreement duly signed by the Transporter’s
representative.
 
CLAUSE 25 SOLE RISK PROPOSALS
 
25.1 Proposals made to be carried out at the Sole and exclusive Risk or Senders
or Third parties (hereinafter, “Sole Risk Proposal”) shall only be executed upon
completion of the process indicated in clause 24 with the decision that the
Transporter will not participate initially in the Proposal.
 
25.2 The Sole Risk Proposal shall cover the same aspects as the Proposal
presented in accordance with clause 24. In any case, all Sole Risk Proposals
shall meet the technical specifications in terms of measurement, the applicable
determinations of quality and safety and the regulations of this Manual, and
shall have the respective licenses, and required permits by the competent
authorities as well as compliance with the provisions that regulate the
acquisition of lands and any other applicable regulations.
 
25.3 For this purpose the following shall be taken into account:
 
25.3.1 Presentation of the Sole Risk Proposal: The interested Party shall
request authorization for the Sole Risk Proposal submitting all the necessary
documentation for its study. The Transporter shall verify compliance with the
regulations on these matters and may request any clarifications or details
regarding the information. The response accepting or rejecting the request for
the Sole Risk Proposal shall not exceed a term of three (3) months from its
reception, without including in this term the time necessary to submit and
respond any clarifications or details requested by the Transporter.
 
 
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25.3.2 Participation of the Transporter: At any time during the approval,
design, construction and start-up of a Sole Risk Proposal, the Transporter may
express its intention to participate in it. The proportion and conditions in
which the Transporter shall participate shall be determined by common agreement
between the parties. If no agreement is reached between the parties, the
mechanisms set out in clause 27 (Settlement of Controversies) shall be applied.
 
25.3.3 Conditions for the Execution: The Transporter may deny the authorization
for the implementation of the Sole Risk Proposal duly justified, including but
without being limited to, safety, technical, Operational or Capacity reasons,
alleging they may affect the integrity of the Pipeline or the Operation of other
Senders or by disposition of the competent authority. The Transporter shall not
be in the obligation to provide the Transportation service until the execution
of the Sole Risk Proposal fulfills the requirements established in the Manual,
the applicable engineering standards, the Transporter’s provisions and
requirements and any other applicable regulations. In the case of associated
systems to the Pipeline, the Sender shall not modify the facilities or its way
of Operation without the Transporter’s authorization.
 
The Transporter reserves the right to carry out the construction,
administration, Operation and maintenance totally or partially of the Sole Risk
Proposals and shall define the scope of its participation. The costs implied
thereto shall be borne by the Sender or Third Party presenting the Sole Risk
Proposal. The Sender and the Transporter may freely agree on the means for
financing and Payment.
 
25.3.4 Indemnity: Any Sender or Third Party participating in the execution of
the Sole Risk Proposal shall indemnify and hold the Transporter and owner
harmless under the terms set forth in the Risks and Responsibilities clause.
 
25.3.5 Bonds and Insurance: the Transporter and the interested Senders in the
Sole Risk Proposal shall obtain the necessary bonds and insurance to cover any
Risk derived from the Sole Risk Proposal under terms reasonably acceptable for
the Transporter, without prejudice of obtaining all other bonds and insurance
requested by the Transporter.
 
25.3.6 Property, financing and Operation of the Sole Risk Proposal: For those
investments that somehow change the existing infrastructure of the Pipeline and
if the Operation affects the functioning of the same, the ownership shall belong
to the Transporter or the owner. In this case the Transporter and the Sender or
Third Party executing the Sole Risk Proposal, shall agree on the mechanism for
amortization.
 
All funds required to undertake the execution of the Sole Risk Proposal shall be
procured, obtained and guaranteed by the Senders or Third parties participating
in the Sole Risk Proposal, and under no circumstances neither the Transporter
nor the owners or any other Sender shall be affected by the financing
instruments that the Senders or Third parties participating in the Proposal
adopted by, or as a result therefrom.
 
 
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25.3.6.1 If the new infrastructure modifies the effective Capacity, the Senders
or Third parties participating in the Sole Risk Proposal may enter into a Ship
or Pay Transportation contract to contract a portion of the new Capacity. In the
case of the Capacity corresponding to the Transporter or owner given the scope
of the Sole Risk Proposal, it shall be considered as an owner’s Capacity.
 
25.3.6.2 The Transporter shall facilitate to the Senders or Third parties that
will execute or have executed the Sole Risk Proposal the access to their own
infrastructure. Without prejudice of the foregoing, the Senders or Third parties
that have executed a Sole Risk Proposal shall ensure to the Transporter or owner
that the Transportation Capacity of the latter shall not be affected by the
execution of the Sole Risk Proposals. In any case, if the Capacity of the owner
or Senders is affected as a result of the execution of the Sole Risk Proposal,
the Sender(s) and Third parties that have executed it shall be liable and
indemnify the owner and all other Senders.
 
25.3.7 Information: The Senders and Third parties participating in the Sole Risk
Proposal shall provide the Transporter all the information arising from the
design, construction, implementation, adaptation, expansion, connection,
addition of assets and facilities, and the start-up of services associated to
the Sole Risk Proposal.
 
CLAUSE 26 PROCEDURES FOR COORDINATION OF OPERATIONS, COMMUNICATIONS AND
EMERGENCY ASSISTANCE
 
26.1 Communications and all other aspects associated to the coordination of the
activities related to the Manual hereof, shall be attended by the operating area
of the Transporter. These communications may be directed through field
representatives of the Transporter or processed directly by personnel of the
operating coordination in the Transporter’s Offices.
 
26.2 Meetings shall be held, depending on the requirements from the parties, in
which the Transporters and the Senders shall participate in order to review
compliance with the Transportation schedule under execution and review the
Transportation plan. In these meetings aspects impacting the Transporter’s
Operation shall be reviewed and aspects or interest for the Senders shall be
disclosed.
 
26.3 With a monthly frequency, in the Third week of the calendar month after the
month of Operation the exercise of volumetric compensation for quality shall be
conducted.
 
 
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26.4 The Transporter has available a Contingency Plan that compiles the
structure and required procedures to assist in any type of emergencies which may
affect the integrity of people, the environment or the infrastructure. To
provide assistance with emergencies the Transporter applies a System Model
Command of Incidents, which contemplates different flows of horizontal and
vertical communication required to ensure an effective notification and response
preparation to the event.
 
26.5 In the assistance of emergencies, the Transporter’s Operations and
maintenance personnel participates, as well as personnel from corporate support
to contribute in the handling of communications and the required logistics
support by the assistance group.
 
26.6 Likewise, the Transporter has agreements with different authorities and
emergency assistance bodies at the local, regional and national level as
complement to its internal assistance equipment. This is complemented with
agreements established with companies from the sector to provide support and
mutual assistance before any event, in order to mitigate any emergency impact.
 
CLAUSE 27 SETTLEMENT OF CONTROVERSIES
 
27.1 In the event of occurrence of any conflict or disagreement in connection
with the Manual hereof or the Transportation service, it shall be initially
resolved by a representative duly authorized from each of the parties within
thirty (30) days following the notification issued by the Party who considers
the existence of a disagreement and effectively received by the other Party.
 
27.2 If, after the thirty (30) days abovementioned, the disagreement continues
totally or partially, the parties shall rely on any alternative mechanism to
settle conflicts contained in the Colombian legislation.
 
CLAUSE 28 VALIDITY
 
28.1 The validity of this Manual is the date of its disclosure which shall be
made through a publication in the Transporter’s website.
 
CLAUSE 29 ADDITIONS AND MODIFICATION
 
29.1 The Transporter may carry out additions or modifications to this Manual,
pursuant to the provisions in Resolution 18-1258 of July 14, 2010 from the
Ministry of Mines and Energy as substituted or amended.
 
CLAUSE 30 APPLICABLE LEGISLATION
 
30.1 This Manual is governed in all its parts by the applicable regulations of
the Republic of Colombia.
 
 
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ANNEX 1:  MECHANISMS OF QUALITY COMPENSATION FOR THE MIXTURE OF CRUDE OIL
 
ADJUSTMENT PROCEDURES OR VOLUMETRIC BALANCES
 
The Transporter shall conduct the volumetric balance with a monthly frequency in
order to establish the volumes injected by each Sender to the Pipeline, the
identifiable losses, the Non-identifiable losses, consumptions, inventory
variations, and any adjustments for quality if the latter is applicable.
 
 
1.
LOSSES

 
For purposes of the procedure hereof, the provisions set out in the Manual of
the Transporter for handling Losses in the Pipeline and in the annex hereof
shall be applied.
 
 
2.
CRUDE OIL CONSUMPTION

 
The Transporter assumes the totality of costs for consumption of Crude Oil.
 
 
3.
VOLUMETRIC COMPENSATION FOR QUALITY – CVC

 
 
3.1
When Crude Oils are delivered to the Pipeline of different quality and from
different Senders, the result shall be a Crude Oil with different
characteristics of quality and market value than the Crude Oil delivered to the
Pipeline by each of the Senders. Due to different qualities of Crude Oil
delivered to the Pipeline, some Senders shall withdraw Crude of higher value
than the Oil delivered while others shall withdraw Crude Oil with less value
than the Oil delivered to the Pipeline.

 
 
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In order to make equitable adjustments between the Senders of the Pipeline by
the differences in value resulting for differences in quality of Crude Oils
delivered I the Pipeline, a procedure of volumetric compensation for quality
shall be established (“CVC” in Spanish).
 
The purpose of the CVC is to establish a system to compensate Senders for the
degradation or improvement of the Crude Oil withdrawn compared with the Crude
delivered. The Sender withdrawing a Crude o lower quality than the Crude
delivered shall be compensated with a higher volume. The Sender withdrawing a
Crude with higher quality than the Crude delivered shall compensate others
Senders of better quality accepting a lower volume. At any rate, the sum of
debits and credits by CVC for all Senders shall be cero.
 
At any node of Entrance of the Pipeline where two or more Crude Oil flows merge
in order to be transported, a volumetric compensation for quality shall be
established on the resulting mix.
 
 
3.2
SAMPLING AND SYSTEM MEASUREMENT

 
For purposes of the procedure hereof, the provisions in the Manual of the
Transporter shall be applied for measurements in the Pipeline.
 
 
3.3
CVC PROCEDURES

 
The Transporter set out detailed procedures for the CVC following the guidelines
established hereto.
 
 
3.3.1
The Transporter shall administer the CVC process and the Senders may audit the
process or request reviews thereto as long as the Transporter is timely informed
and a working plan is coordinated between the parties.

 
 
3.3.2
The Transporter shall establish monthly the coefficients for adjustments of
quality and sulfur pursuant to the criteria established herein.

 
 
3.3.3
The CVC shall be settled in kind.

 
 
3.3.4
The Transporter shall make monthly adjustments to the corresponding volume of
Crude to each Sender, based on the coefficients of adjustment for quality.

 
For any month of Operation the corresponding quantity of Crude of each Sender
shall be:
 
 
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(a)
Reduced if such Sender of the Pipeline delivers Crude of lower quality than the
average quality of the mix,

 
 
(b)
Increased if said Sender of the Pipeline delivers Crude of ah higher quality
than the average quality of the mix.

 
 
3.3.5
At the latest on the 15th day of the calendar month following the Operation,
Senders shall report to the Transporter the export prices, the API gravity and
the sulfur content of its Crude for the Month of Operation.

 
 
3.3.6
Each month of Operation the Transporter shall measure the volumes delivered by
the Senders and shall determine the weighted average for the quality parameters
of Crude Oils delivered.

 
 
3.3.7
The Transporter shall calculate the adjustments to the volume for each Sender
and shall determine the Crude volume that corresponds. No adjustment in the
volume as a consequence of the CVC shall affect the Transportation fee that a
Sender shall Pay to the Transporter.

 
 
3.3.8
Senders acknowledge that adjustments to their Crude volumes to be withdrawn as a
result of these principles and procedures of the CVC may affect the volume of
Crude Oil for a withdrawal afterwards.

 
 
3.3.9
Senders are entitled to review the Transporter’s calculations regarding the
adjustments by CVC and the due application of this procedure.

 
The parties may jointly review:
 
 
(a)
The appropriateness of the Crude Oil reference basket regarding their terms of
quality.

 
 
(b)
The information on prices available to the public.

 
 
(c)
The calculations of the coefficients and the volumes adjusted.

 

 
3.3.10
A data base for the API gravity shall be developed and sulfur content for Crude
delivered from reliable samples of laboratory of Crude Oil flows. The quality
data of Crude Oil must comply with the following criteria:

 
The API gravity and the sulfur content on the data base of the Crude quality are
representative of the current qualities of Crude which is being delivered.
 
The variability of the API gravity and sulfur is within an allowed tolerance to
be determined by the parties. Analyses of sulfur content shall be conducted
based on a schedule agreed by the parties after the beginning of the Fiscal
Year.
 
 
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3.4
METHODOLOGY FOR CRUDE OIL VALUATION

 
By means of using the Crude Oil basket of reference the variation of price shall
be determined regarding the API grade and sulfur content for Crude Oil
delivered. The method is based on the use of the linear regression of prices of
a Crude Oil basket of reference delivered in the coast of the Gulf of The United
States of America with API gravity and sulfur content.
 
 
3.4.1
BASKET OF REFERENCE FOR CRUDE OIL

 
The basket of Crude Oil to be used shall always include a minimum of ten (10)
Crude Oils. The basket of reference for Crude Oil with prices and qualities
historically recognized shall be used to determine the coefficients of
adjustment for API grade and sulfur content. The price information of the basket
shall be continuously available from sources open to the public for each Crude
Oil of reference. Prices reported used in the basket of Crude Oil of reference
shall be obtained from independent price information services recognized by the
industry and shall come from real Operations.
 
This basket provides a range of qualities to develop the coefficients for the
regressions and therefore cover the flows that may be injected to the Pipeline.
The initial basket of Crude Oils to be used is the one established in table I of
this procedure which may be reviewed by common agreement between the Transporter
and the Senders.
 
 
3.4.2
CALCULATION OF CRUDE OIL PRICES FOR THE BASKET IN THE COAST OF THE GULF

 
All price quotes of Crude Oil for a common location in the Coast of the Gulf of
The United States of America shall be adjusted.
 
All prices of Crude Oil of reference shall be adjusted with respect to the
location and based on the availability of price information according to the
following list:
 
 
1.
FOB quotation

 
 
-
Transportation to the Coast of the Gulf of The United States of America is added
using the appropriate vessel size.

 
 
-
Customs Tariffs, Oil pollution Liability Insurance, “Superfund” taxes are
included and others as appropriate.

 
 
2.
CIF quotation

 
 
-
Customs Tariffs, Oil pollution Liability Insurance, “Superfund” taxes are
included and others as appropriate.

 
 
3.
Crude Oil delivered by the Pipeline

 
 
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-
Any Pipeline fee is added if necessary

 
 
-
“Superfund” is included and other fees/tariffs as appropriate.

 
Tables II to IV of this procedure show examples for calculation of basket Crude
prices delivered in the Gulf Coast.
 
 
3.4.3
LINEAR REGRESSION FOR PRICES, GRAVITY AND SULFUR

 
To determine API gravity and sulfur coefficients linear regressions shall be run
using the minimum square method.
 
First the arithmetic average is calculated for prices of the basket of Crude
Oils of reference delivered in the Gulf coast for three months. The cumulative
average for three months shall be calculated at the closing of the settling
month using the prices for the settling month and the two (2) previous months
prior to the settling month (See 1 in table V).
 
To determine the API gravity coefficient, a linear regression analysis shall be
performed using the three months average of Crude prices from the basket
calculated in the paragraph above as the dependent variable. Likewise, the API
gravity and sulfur content is used for each Crude Oil of reference as the
independent variables. The formula to be used makes a regression of the price as
a function of API gravity and sulfur simultaneously (See 2 in table V).
 
To determine the sulfur content a linear regression analysis shall be conducted
using the three month average of Crude prices from the basket calculated in the
previous paragraph as the dependent variable. Likewise, the API gravity and
sulfur content is used for each Crude Oil of reference as the independent
variables. The formula to be used makes a regression of the price as a function
of API gravity and sulfur simultaneously (See 3 in table V).
 
The results of the determination of the linear relation between the price
delivered and the API gravity and sulfur content may be stated in the following
lineal equation:
 
Y  = A1* X1+ B* X2 + b
 
Pr = A1* APIR+ B*SR + b   (1)
 
Where:
 
PR = Crude price in $/Bbl
 
A1 = API gravity coefficient determined through linear regression in $ by grade
API-Bbl
 
APIR = Independent variable of API gravity
 
 
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B = Sulfur coefficient determined through linear regression in $/%S-Bbl
(negative number)
 
SR = Independent variable of sulfur content
 
b = Y interception determined from the linear regression in $/Bbl.
 
 
3.4.3
ADJSUTMENT OF VOLUMES FOR SENDERS (TABLE VI)

 
After obtaining the API and sulfur coefficients, a volumetric adjustment shall
be calculated to conciliate differences between the quality of each Sender and
the mix transported. The quantity to be adjusted for each Sender is determined
as is follows:
 
The relative value of Crude Oil for each Sender shall be calculated at the Point
of Entrance. To obtain this, the API gravity of Crude from each Sender is
multiplied by the API coefficient obtained in the regression and then adding to
this result, the multiplication of the sulfur percentage of Crude from each
Sender by the sulfur coefficient obtained in the regression. See table VI in the
column – Relative value of Crude $/BBL
 
The relative value of the mix transported is calculated with the data of the
relative value of each Crude Oil from all Senders. This value is obtained
calculating the weighted average of the relative values of each Crude Oil
multiplied by the volume delivered by the Sender. (See (1) table VI
 
After this, the average export price of the mix must be obtained with the data
from exports of all Senders in the month in which the adjustments are made. (See
(2) in table VI
 
To obtain the calculated price, the difference between the relative value of
each Crude Oil and the relative value calculated for mix (1) must be obtained,
and add this difference to the average export price of the mix.
 
Then, the quantity delivered by the Sender is multiplied by its calculated price
and this product is divided between the average export price of the mix,
obtaining as a result the total adjusted volume by Sender.
 
The volume to be adjusted shall be the difference between the total adjusted
volume by Sender and the volume delivered by a Sender to the Pipeline.
 
The sum of volumes to be adjusted from all Senders must be cero.
 
The Transporter shall run the linear regression using a spreadsheet such as
Excel. The Transporter shall document the statistical results of the linear
regression so that the information can be provided to any Sender upon request.
 
 
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Table I
 
Reference Crude Basket
 
Degree
Origin
API, °
Sulfur%
Source for Pricing
BBL/MT
Arab Light
Saudi Arabia
33.2
1.9
Argus, Formula
7.34
Arab Medium
Saudi Arabia
30.5
2.4
Argus, Formula
7.22
Arab Heavy
Saudi Arabia
27.6
2.8
Argus, Formula
7.09
Castilla
Colombia
18.8
2.0
Platts
6.70
LLS
US Gulf Coast
36.2
0.3
Argus
7.47
Mars
US Gulf Coast
28.0
2.1
Argus
7.15
Maya
Mexico
21.1
3.5
Argus
6.80
Napo
Ecuador
18.0
2.3
Platts
6.66
East
Ecuador
24.0
1.2
Platts
6.93
Vasconia
Colombia
26.5
0.9
Platts
7.04

 
Table II
 
Illegible Information
 
Table III
 
Illegible Information
 
Table IV
 
Illegible Information
 
 
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Table V
 
Linear regression of prices, API gravity and sulfur – August 2010 Closing
Example
 

 
API
Sulfur
JUN-2010
JUL-2010
AUG-2010
Average of
3 previous
months (1)
Arab Light
33.2
1.9
77.60
76.26
76.29
76.72
Arab Medium
30.5
2.4
75.84
74.59
74.62
75.02
Arab Heavy
27.6
2.8
74.34
73.32
73.25
73.64
Castilla
18.8
2.0
69.84
69.20
69.20
69.41
LLS
36.2
0.3
78.94
78.84
79.79
79.19
Mars
28.9
2.1
74.63
74.18
74.35
74.39
Maya
21.1
3.5
66.27
67.47
68.65
67.46
Napo
18.0
2.3
69.56
69.02
69.08
69.22
East
24.0
1.2
72.12
71.93
72.15
72.07
Vasconia
26.5
0.9
74.93
75.89
75.29
75.37

 
(2) API, $/API-BBL Coefficient
0,495
   
(3) Sulfur, $%S-BBL
(1,191)

 
Table VI
 
Adjustments of volumes for senders – August 2010 example
 

Bank of Quality Coefficients  

   
API Coefficient
(0.50)
Sulfur Coefficient
(1.19)

 
 
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Sender
Volume
injected
by sender
MBBL/mo
API in
the
injection
point
Sulfur in
the
injection
point
Relative
value of
the crude
S$/BBL
Calculated
Price
$/BBL
Total
Volume
adjusted
by sender
MBBL/mo
Volume
to adjust
MBBL/mo
Sender A
900
31
0.5
14.75
77.97
935
36
Sender B
1,200
26
1.0
11.69
74.90
1,195
(2)
Sender C
600
20
2.0
7.53
70.74
566
(34)
Total
2,700
       
2,700
-

 
(1)
Relative value calculated for mix
11.79
(2)
Average price of exportation of mix, August 2012
75.00

 
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ANNEX 2: DEFINITION OF STANDARD BARRELS PER SYSTEM
 
Image 1 [image1.jpg]
 
 
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ANNEX 3: DESCRIPTION OF THE SYSTEMS
 
See File Annex 3 attached. Description of the Systems.
 
 
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ANNEX 4: MINIMUM SPECIFICATIONS OF QUALITY PER SYSTEM
 
Image 2 [image2.jpg]

 
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Image 3 [image3.jpg]
 
*, **, *** : for Crude
 
 
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ANNEX 2
 
ECOPETROL
MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES
ECP-UTE-G-008

 
 

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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
TABLE OF CONTENTS
 
1.
OBJECTIVE
2.
GLOSSARY
3.
GENERAL CONDITIONS
3.1 
Commercial Principles for Credit and Receivables Management
3.2 
Analysis of Credit Quality of the Client
3.3 
Internal Rating by ECOPETROL
 
3.3.1
Guidelines for the Analysis of the Client
 
3.3.2
Modalities in which Payments can be Made
 
3.3.3
Clients with Acceptable Guarantee Created for Purchase
 
3.3.4
Clients of Leasing
3.4 
Process for Approval of a Line of Credit by ECOPETROL
 
3.4.1
Credit application
 
3.4.2
Determination of the Credit Quality of the Client
 
3.4.3
Officers Authorized for the Analysis and Consideration of Lines of Credit
 
3.4.4
Amounts above the Ceiling Approved in Lines of Credit
3.5 
Acceptable Guarantees
3.6 
Follow-up
3.7 
Managing the Relation with the Client that Buys on Credit
 
3.7.1
Sale Prices and Terms
 
3.7.2
Claims and Discrepancies in Invoicing
3.8 
Collection of Receivables
3.9 
Guarantees Delivery and Custody
3.10 
Late Interests
3.11 
Collections Management
 
3.11.1
Starting Legal Actions to Collect Overdue Balances
 
3.11.2
Modifications in the Long Term
3.12 
Restructuring by General Agreements
3.13 
Provision for Accounts Receivables
3.14 
Receivables Write-offs

 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
 
1.
OBJECTIVE

 
To define uniform guidelines for the management of service Receivables from
ECOPETROL in order to mitigate the inherent risks in the sale of said services.
 
 
2.
GLOSSARY

 
Credit Lines: This is a debt facility granted by ECOPETROL to a specific client.
Approval of a credit line is an autonomous decision by ECOPETROL based on
objective criteria such as the credit history of the client, its historical
behavior on payments or the type of client according to the Internal
Classification Chart. ECOPETROL at its sole judgment may suspend any credit line
at any time without any legal or formal requirement to be fulfilled before the
client.
 
Acceptable Guarantees: Payment mechanisms that provide collateral for payment
issued by financial entities (financial guarantees), securities or instruments
providing immediate liquidity for their realization. See Guidelines for the
Management of Acceptable Guarantees ECP-UTE-G-006.
 
Other Services: includes all those provided to third parties such as provision
of electricity, water, information network, leasing of tangible and intangible
assets, machinery and tools among others.
 
Receivables Risk: Associated to the risk of credit1, the Receivables risk
concerning this document is defined as the potential inability to pay from
clients requesting any type of services from ECOPETROL.
 
Services: Provision or execution that satisfies some necessity with a specific
purpose. ECOPETROL provides industrial, technical, technological, research and
transportation services among others.
 
Research Services:  Research services applied to projects generally internal,
with the Business Units.
 
Transportation Services: transportation services different from those defined by
the Vice-presidency of supply and marketing (VSM) referred to transportation
services of products delivered by pipeline.
 
Industrial Services: provision offering solutions given the infrastructure
facilities of ECOPETROL, part of industrial services are the following:
 
Unloading Services: Services provided to exploration companies which must
transport the oil produced in truck- by land from the production wells to a
point in the pipeline system.
 

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1 The risk of credit is the possible loss assumed by an economic agent as a
result of  default in  contractual obligations regarding the counterparties
involved.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
Filling Services: Services provided to client companies who, in order to take
the refined products purchased at the plant, need to be connected to the product
loading infrastructure in truck-tankers, identified as filling in.
 
Storage Services: services provided to client companies for storage of products
owed by third parties in tanks owed by ECOPETROL.
 
Port Services: Use services of sea terminal facilities and necessary operations
for a ship to carry out its task of product loading and unloading.
 
Technical Services: laboratory studies or tests, sample analyses, industrial
laboratory, technical assistance and gas compression (agreements with gas
transportation companies to provide gas compression services to gas going
through the gas pipeline).
 
Technological Services: design and development of equipment, machinery and
specialized products.
 
 
3.
GENERAL CONDITIONS.

 
This document applies to those cases in which ECOPETROL acts as a seller or
service provider and as a supplement to those contracts already signed and the
regulations in force, notwithstanding anything to the contrary. This does not
include anything in connection with transportation services associated to the
commercialization of products derived from oil, propane gas and crude oils whose
policy is defined by the Vice-presidency of supply and marketing in the
reference documents for credit to clients.
 
 
3.1
Commercial Principles for Credit and Receivables Management.

 
Throughout all stages referred to the analyses, consideration of terms and
commercial conditions, approval of credit facilities and client’s follow-up,
good faith, ethics, transparency, economy, responsibility, equity, planning, and
customer service criteria shall prevail as described hereunder (those terms not
defined in this numeral shall be given a meaning according to the law, otherwise
they will have their natural and obvious meaning).
 
Ethics: all officers from ECOPETROL shall avoid any conflict between their
personal interests and the interests from ECOPETROL when dealing with purchasers
or any other person - natural or legal, national or foreign - who is making, or
intends to do Business with ECOPETROL order with companies in which
ECOPETROL  has an interest directly or indirectly. In case of any conflict of
interests, inabilities for incompatibilities, the officer from ECOPETROL shall
refrain from participating in any manner in the respective act.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
Transparency: decisions shall be made, based on objective criteria and clear and
known rules.
 
Equity: all necessary measures to keep a healthy balance with the client,
regarding terms and conditions of commercial, technical, economic and financial
character shall be adopted in all transactions.
 
Planning: all commercial and credit procedures shall correspond to a careful
planning to contribute in an efficient manner to fulfill the mission and
achievement of ECOPETROL’s objectives.
 
Economy: all resources used in the process of approving and managing Businesses
shall be administered with a healthy criterion of austerity in means, time and
expenses.
 
Customer Service: the rules set out in this document shall be applied by
officers as a vehicle to expedite decisions and to conduct all commercial and
credit procedures with efficiency and efficacy.
 
 
3.2
Analysis of Credit Quality of the Client

 
Considering the risks ECOPETROL is exposed to, ECOPETROL shall only negotiate
with natural or legal persons of whom ECOPETROL  has knowledge about their
history in the market and their condition as users of services, consumers or
traders of products in the oil sector.
 
The basic client’s information shall provide answers to the questions asked
hereunder and it is the responsibility of the Business Unit providing the
service, which handles the relation with the client, to have clarity on the
answers to the following questions:
 
 
·
Who is the client?

 
·
What reputation does it have in the market?

 
·
What has been its history with ECOPETROL?

 
·
What type of Business does it make?

 
·
Does it have capacity to meet its commitments?

 
 
3.3
Internal Rating by ECOPETROL

 
3.3.1 Guidelines for the Analysis of the Client
 
For an appropriate decision-making it is required to have knowledge of the
client and its activities.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
In addition, it is mandatory to comply with the Prevention Manual for assets
laundering.
 
In the client interested in buying to ECOPETROL any service, shall conduct
through the Business Unit providing this service the registration process in the
client’s master database of ECOPETROL. The respective manager and/or director of
the Business Unit must record the validation indicating that validation has been
made in the restrictive listings on the client
 
 
·
Any client applying for a line of credit must be subject to a preapproval from
the Business Unit providing the service or the division of ECOPETROL in charge
of conducting the credit analysis.

 
·
The risk rating does not guarantee the approval of credit of confidence;
ECOPETROL reserves the right of whether or not to approve such type of credit.

 
·
All guarantees presented must be adjusted in their content to the stipulations
of ECOPETROL, and must be issued by an entity equally accepted by the company.

 
·
All documents in connection with the credit application must remain in ECOPETROL
's files, and as the case may be, those documents were the line of credit is
awarded.

 
·
In case of default by a client of any of the obligations undertaken with
ECOPETROL, the Company reserves the right to whether or not accept a
restructuring of the debt or to start a legal proceeding.

 
·
Annually, or with less frequency depending on market conditions, an officer
appointed by the Business Unit providing the service must conduct a follow-up,
both to the credit quality as well as the line of credit assigned to each
client, updating the risk rate before a Risk Rating Agency or by an Agency of
Research Service, Collection and Processing of Credit and Company Information
approved and accepted by ECOPETROL.

 
3.3.2 Modalities in which payments can be made
 
Payment commitments with ECOPETROL can be based on:
 
 
·
Payments in advance

 
·
Through credits of confidence

 
·
By means of financial instruments of payment such as banking acceptance or
commercial letter of credit.

 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
The determination of the type of client is the responsibility of the Business
Unit providing the service considering objective criteria such as its payment
behavior and the current relation with ECOPETROL, in addition to the financial
assessment conducted by a Risk Rating Agency.
 
Payments in Advance:
 
ECOPETROL may accept payments in advance from clients having liquidity and/or
who would like to benefit from discounts that ECOPETROL  may offer for the
purchasing of specific services. Notwithstanding, each management office shall
set out the discount policy for its line of services.
 
Payment in advance shall be requested to those who cannot offer any payment
support through financial entities or offer collateral at satisfaction.
 
Credits of Confidence:
 
These are credits granted by ECOPETROL to clients with well recognized
commercial and/or industrial history, or to clients that, even though they are
new haveproved financial strength in the oil sector and its derivatives,
biofuels and energy products with an impeccable payment history, are classified
in category 1 of internal rating Table 1 of these guidelines and execute
promissory notes with letter or instructions in favor of ECOPETROL .
 
Impeccable payment history is understood as the client who has timely paid its
obligations with ECOPETROL, or with any other agent with whom it as obligations
within the payment terms set out in the bills, has acknowledged and paid all
late interests resulting from any possible delays in payments, and no payment
instrument has been made effective from any agent with whom it has obligations
to support for its purchases.
 
A client shall lose access to credits of confidence when there is a default in a
period of one calendar year in the payment of its commitments with ECOPETROL
under the terms set out in the previous paragraph or when its rating falls below
the Superior category.
 
Default shall be understood as the act of enforcing the guarantee or promissory
note supporting the obligations undertaken with ECOPETROL, or when in a calendar
year a notice has been delivered to the insurance company or banking entity for
the execution of the guarantee, even if the client is in good standing on the
date before making the policy effective.
 
Without prejudice of the foregoing, ECOPETROL reserves the right to whether or
not approve a credit of confidence to a client, even if said client has obtained
the highest rating based on Table 1 of these guidelines.
 
 
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Likewise, a client of confidence may use, in addition to the credit of
confidence, other financial instruments for payment and/or payment in cash.
 
Payment by financial instruments:
 
These are instruments for payment in cash or through credit in favor of
ECOPETROL, issued by a financial entity on behalf of the client and limited to a
particular transaction as indicated in the Guidelines for the Administration of
Acceptable Guarantees ECP-UTE-G-006.
 
3.3.3 Clients with Acceptable Guarantee Created for the Purchase of Products.
 
For clients with a current line of credit with ECOPETROL for the purchase of
products, the Business Unit providing the service shall request to the
corresponding commercialization management to review with the legal department
whether or not the guarantee provided covers the provision of the service, and
if so, generate a memorandum to the Coordination of Receivables indicating the
distribution of the line of credit for the sale of product and the sale of
services. In any case, the arithmetic sum of the line of credit for the product
and the line of service shall not exceed the total value of the guarantee
provided by the client.
 
3.3.4 Clients of Leasing
 
For the clients of leasing, the leasing contract entered into is writ of
execution, the Head of the Unit for Real Estate Management must request through
a memorandum the line of credit to the Coordination of Receivables and
Collections indicating the contract number, starting date, termination date, the
amount of the leasing installment, and the value of the line of credit applied
for, said memorandum shall indicate that the contract has approval from the
legal area or attach approval from the legal office advising the Business Unit.
 
3.4 Process for Approval of a Line of Credit by ECOPETROL
 
The process for approving a line of credit by ECOPETROL is explained as follows:
 
3.4.1 Credit Application
 
Any client interested in purchasing through credit any product or service of
ECOPETROL, shall carry out with the Business Unit providing the service an
application for a line of credit and the client will be informed of the result
of the Decision. If the decision is not approved, the client shall be informed
of the reasons by which the same was not approved.  Decisions in this sense
shall be adopted based on objective criteria regarding terms and conditions of
commercial, technical, economic and financial character and within the frame of
current legal regulations.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
3.4.2 Determination of the Credit Quality of the Client
 
The officer appointed by the Business Unit providing the service shall examine
the content of the application form and request to the client or to a Risk
Rating Agency or an Agency of Research Services, Collection and Processing of
Credit and Company information, the Rating Certificate2 in order to have the
rating given by such Agencies. This Rating Certificate shall be attached to the
application form if it is a new client or to the client's file in the central
archives of ECOPETROL if it is a client already registered wishing to have a
direct credit with ECOPETROL .
 
Based on the information described above, you'll consider appointed by the
Business Unit providing the service shall examine and classify the client in the
Table of Internal Rating for Clients of Services from ECOPETROL Table 1, taking
as a basis (when there is more than one rating) the lowest rating given by a
Risk Rating Agency or by Agencies Specialized in Credit. If the rating of
obtained classifies the client as a superior client, at the latest 10 days after
having the complete information from the client the officer appointed by the
Business Unit providing the service shall fill out the application form for a
line of credit for the approval of his/her Manager and or respective Director3
in accordance with the template that appears in form ECP-UTE-005 Application
Line of Credit Services.
 
With the purpose to classify ECOPETROL 's clients who wish to buy through credit
after this document is in force, such clients shall be classified through the
application of an internal general risk rating according to the methodology
presented hereunder. Such classification shall be conducted and reviewed by each
of the officers appointed by the Business Unit providing the service annually or
from time to time but at least once a year or when the economic or market
conditions or the financial situation of the company requires so.
 
The position of a client within the internal rating table shall be in accordance
to table 1, whose categories have their equivalence with the risk rating given
by rating agencies or by agencies specialized in credit analysis.
 
The foregoing shall not apply to: (i) bodies and state entities at different
levels (central and decentralized) with whom ECOPETROL subscribes contracts for
the sale of products and/or services provided there is a risk assessment of
Receivables for the respective entity duly authorized and/or (ii) companies
associated with ECOPETROL in oil production fields, associated through
collaboration, participation, strategic alliances and joint venture contracts,
these companies shall subscribe a promissory note with a letter of instructions
to ensure their payment obligations, however, in this case  the Manager  and/or
Director of the Business Unit providing the service shall assess the pertinence
of requesting an acceptable guarantee (policy, bank collateral, etc.) to ensure
the payment obligations in lieu of the promissory note with letter of
instructions.
 

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2 Risk Rating Agency or by Agencies of Research Services, Collection and
Processing of Credit and Company Information approved by the Vice-presidency of
corporate finance of ECOPETROL .
3 Managers and Directors shall have 10 calendar days to make a decision. Reviews
of lines of credit shall be approved for up to 12 months.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
Table 1
 
INTERNAL RISK RATING FOR CLIENTS OF SERVICES OF ECOPETROL 4
 
Rating
Definition
Description
Equivalence
(Credit Risk in
the Short Term
1
Superior
Wide and strong capacity to meet commitments.
Minimum risk. May be defined as a client of trust. Sufficient requesting a
promissory note with letter of instructions5. For larger lines of credit the
respective manager and/ or director may increase the lines up to 100% of the
lines approved with previous authorization from the corresponding vice-president
of the Business Unit providing the service.
The line of credit conservative and liberal recommended by risk rating agencies
shall be understood as an indication and does not oblige ECOPETROL with the
client, or the respective manager to use this as a ceiling for the approval of
the line of credit at the time of defining a line of credit for a client of
confidence.
Duff / Phelps (D&P): DP  to DP1
BRC Investors Services (BRC): BRC 1 to BRC 1
Byington: 1 to 2
BPR Asociados (BPR): A (1.00-1.50)
Bureau Veritas: 1
 
2
Average
Superior
Sufficient capacity to fulfill commitments.
Low risk.
D&P: DP1-
BRC: BRC 2
Byington: 2.1 to 2.9
BPR: B(1.51-2.00)
Bureau Veritas:2

 

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4 Comments and considerations included by the risk rating agency in its report
about a company are understood as already included in the rating given by the
risk rating agency, in that sense the same shall not affect again either in a
positive or negative manner the rating issued and shall not be taken into
account in the analysis conducted by Management at the time of considering,
approving or rejecting credit applications.
5 New clients with rating risks equivalent to superior level (1) and without
purchasing records with ECOPETROL  may be considered as clients of confidence
with previous approval from the vice president of the Business Unit providing
the service and the line of credit shall be established by said officer.
 
 
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3
Average
Acceptable capacity to fulfill commitments.
Medium risk.
D&P: DP2
BRC: BRC 2
Byington: 3 to 3.4
Byington (N)6: 3 to 3.4
BPR: C(2.01-2.50)
Bureau Veritas:3
 
4
Average
Inferior
Capacity to fulfill commitments; uncertain performance. High risk.
D&P: DP3
BRC: BRC 3
Byington: 3.5 to 4.0
Byington (N): 2.1 to 3.0
BPR: D(2.51-2.75)
Bureau Veritas:4
5
Low
Quality
Uncertainty or inability to fulfill commitments.
High risk.
D&P: DP4 or below
BRC: BRC 4 or below
Byington: 4.1 to 5.0
Byington (N): 3.1 to 4.5
BPR: D(2.76-3.00)
Bureau Veritas:5

 
Clients whose internal rating is level 1 (superior) according to the table
above, in order to have a line of credit shall not offer acceptable guarantees
issued by third parties in favor of ECOPETROL as indicated in Table 1. Instead,
they shall subscribe a promissory note with a letter of instructions as support
for their payment obligations. In any case, it is understood that clients of
confidence shall only be limited to a number of recognized companies.
 
Those clients  offering  acceptable guarantees  to support their
purchases,  shall not  require  a risk rating from any risk rating
agency  acknowledged and accept it   by   ECOPETROL  because the risk is assumed
by the guarantor. The contents and the type of guarantee shall be fully adjusted
to the minimum characteristics required by ECOPETROL, and the same shall be
issued by entities accepted by the company through the listing of acceptable
companies for such purpose issued by the vice-presidency of corporate finance.
 

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6 Byington (N) corresponds to companies recently created.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
Clients classified in level 5 shall be those without a rating or analysis by
specialized agencies in credit analysis. Those clients shall require acceptable
guarantees contained in the guidelines for administration of acceptable
guarantees ECP-UTE-G-006.
 
ECOPETROL reserves the right not to sell through credit to any client,
regardless of whether or not it is in capacity to provide guarantees or
securities, and therefore the amount of the purchases shall be a cash or in
advance.
 
A client classified as Superior may make purchases in cash and/or complement the
line of credit awarded with acceptable guarantees in favor of ECOPETROL.
 
For guarantees in US dollars, in case the guarantee is made effective, the
payment shall be at the representative market exchange rate (TRM) valid on the
day of payment of the guarantee.
 
3.4.3 Officers Authorized for the Analysis and Consideration of Lines of Credit.
 
The officer appointed by the Business Unit providing the service shall be in
contact and permanent interaction with the client, shall determine the credit
quality of the same through the report from the risk rating company, shall
process the application and review from time to time the lines of credit, and
shall provide support to the vice-presidency of corporate finance in the
handling of Receivables.
 
Upon classification of the client in the internal rating table of ECOPETROL, and
if and any station of the maximum they were a specific client. is no information
that prevents the processing of the application or that would imply any risk in
the performance of the obligations that the client may undertake with ECOPETROL,
the approval of the client shall be established by filling out the form,
Application for a Line of Credit contained in Form ECP-UTE-F-005 Application for
a Line of Credit for Services.
 
Each manager and/or director shall have the responsibility to consider, approve
or reject in a justified manner, all credit applications filled out by the
clients, which should be recorded in the forms defined for such purpose, or
otherwise in the electronic mails which shall be equally valid as the other
forms and shall be printed and delivered to the central archives of ECOPETROL to
the file opened for each client.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
The lines of credit recommended by the risk rating company and/or approved are
strictly of internal character and an indication of the maximum debt of a
specific client.
 
3.4.4 Amounts above the Ceilings Approved in Lines of Credit
 
When a client has reached the maximum debt approved, within the term of the
validity of the lines of credit and temporality requires7 from additional
services not exceeding beyond 100% the amount of the line of credit, the
respective manager and/or director may approve at his sole discretion this
higher debt, provided however, that the same are covered with an extension of
acceptable guarantees originally issued to have access to the credit facility.
 
3.5
Acceptable Guarantees.

 
 
·
ECOPETROL shall not make any sales on credit to clients not providing acceptable
guarantees except for those clients with internal rating Superior (clients of
confidence) or who have been considered in numeral 3.4.2 of this guideline.

 
·
For the provision of services only guarantees offering endorsement of payment by
financial entities will (financial guarantees) shall only be accepted, or those
representing securities or instruments that guarantee immediate liquidity when
realized.8

 
·
The coverage of the guarantees or the amount of financial instruments for
payment must be sufficient to cover eventual increases in the price of services.

 
·
Guarantees in foreign currencies may be accepted (dollars of the United States
of America or any other currency) pursuant to the current foreign exchange
regulations. If guarantees are in a foreign currency are made effective, they
shall be registered in the central bank in order to convert them in the
equivalent of the market representative exchange rate from peso with respect to
the dollar on the day of payment of the guarantee. Guarantees in currencies
different than the US dollar, in order to be accepted, shall require approval
from the vice presidency of corporate finance.

 
·
Only guarantees established in the guide for administration of acceptable
guarantees ECP-UTE-G-006 shall be acceptable.

 
·
Guarantees received by the respective management offices shall be previously
reviewed and approved by the legal office advising on the same. The
standardization and updating of the respective forms shall be under the
responsibility of the legal vice presidency.

 

--------------------------------------------------------------------------------

7 For a maximum period of three months, renewable with previous approval from
the vice president of the corresponding Business area
8 Enforced and executed at the latest 30 days after default, and only in the
event of a pledge on CDs.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
 
·
Acceptance of any other type of guarantee established in the Contracting Manual
shall require approval from the respective manager and/or director with previous
approval from the legal vice presidency.

 
3.6
Follow-up.

 
To the extent that the updating of the rating provided by the risk rating
agencies or by agencies specialized in credit implies a higher risk for
ECOPETROL , or if default in the payments by clients occur, the conditions of
the relation with the clients shall be reviewed, in particular, those having to
do with the requirement or improvement of the specific guarantees.
 
The same exercise shall be conducted through the vice presidency of corporate
finance with financial entities guaranteeing obligations in favor of ECOPETROL .
 
Particular attention is given to those clients classified in categories of the
internal rating table not requiring any specific guarantee and the superior
clients. Those clients shall be monitored through the updating of the ratings
given by specialized agencies in credit or risk rating agencies. The period for
obtaining such reports shall be a least annually. Based on the results of the
updated information, the vice presidency of corporate finance shall adjust the
internal rating of the client and shall review the payment conditions originally
approved.
 
The updating of the ratings for clients shall not be conducted before the month
of March each year because the financial statements of the previous year have
not yet been disclosed before the respective entities of vigilance and control,
and from which official data for studies are taken. Therefore, if the study
mentioned falls during the first three months of the year, the current rating
shall be applied until the last day of the month of March of the current year.
 
Notwithstanding the foregoing, if the promissory note and that was the letter of
instructions has completed one year, said documents must be updated for this
period and the subsequent ratification or denial of the credit granted by
ECOPETROL.
 
3.7
Managing the Relation with the Client that Buys on Credit.

 
 In the commercialization of services, ECOPETROL must observe the norms,
mercantile and credit customs, collect Receivables in a timely manner, assess
any Receivables in default from time to time, and record in its financial
statements any provisions and write-offs as they may apply, pursuant to the
provisions in the document hereof.
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
Each sale of services, depending on each specific case, must be instrumented in
writing either through a buy-sell contract, a supply contract, or commercial
offer, or registered in an invoice or an equivalent in document.
 
Each invoice shall detail the value of services and taxes, pursuant to the law
and applicable regulations. Invoicing prices are those current prices on the
date of sale or provision of services and may change without previous is notice.
 
Commercial invoices shall be issued in two original counterparts of the same
content with writ of execution9. One of them for the client and the other duly
signed by the client in signal of acceptance destined to ECOPETROL. This copy
shall remain with the appropriate custody in the files of ECOPETROL for
collection and eventual discount of the instrument in the secondary market.
 
3.7.1
Sale Prices and Terms

 
These correspond to the policies already designed for each Business Unit
providing the service regarding sale prices and terms, which must be in
accordance with those set out by the presidency of the company and the manual of
delegations – MAD.
 
3.7.2
Claims and Discrepancies in Invoicing

 
In those cases in which there may be claims by clients due to differences in
price and/or terms duly justified, under the judgment of the Business Units in
charge of handling the client it must be the determined the viability of the
claim and adopt the pertinent decision in a reasonable period of time in
accordance with the complexity of the discrepancy. To resolve any discrepancies,
each of the parties shall deliver to the other, a copy of the documents
supporting the invoice and the claim. The review process of any claims shall be
in accordance with the provisions in each contract for the provision of services
entered into between the parties.
 
Any disagreement regarding any invoice does not exempt the buyer from its
obligations to pay the non-disputed portion of said invoice or any other
invoice.
 
If the claim is resolved favor of ECOPETROL, having the client omitted payments
on services rendered and invoiced by ECOPETROL, the buyer is obliged to pay a
sanction for default on the amounts not paid within the term established, at the
highest late interest rate established by the Superintendence of Finance of
Colombia or whoever replaces it.
 
If the buyer has made payments in excess, ECOPETROL shall credit the same to the
next due date or make the corresponding reimbursement after clarification of the
amount under discrepancy.
 

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9 A carbon copy being valid
 
 
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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
3.8
Collection of Receivables

 
The Business Unit providing the service with the support of the Coordination for
Receivables and Collections, shall control any payments for Receivables as well
as the actions are collections derived from the sale or provision of services
and will be responsible for collecting any late interests (as they may apply)
and any verification of accounts with the client.
 
3.9
Guarantees Delivery and Custody

 
With previous approval from the legal area and after the guarantees have been
reviewed and accepted by the commercialization areas, they shall be delivered
for custody to the Coordination of Receivables. The custody and collection of
guarantees is responsibility of the ordination of Receivables and collections,
and all security measures shall be taken to keep guarantees in a safe place.
Before a guarantee is received for custody, the Coordination of Receivables
shalt make sure that it has the approval from the legal area and the dates of
validity.
 
In addition, the Coordination for Receivables shall be responsible for the
integrity of the documents and shall adopt measures to prevent access to places
established for custody to non-authorized personnel. In the event that a client
fails to perform the requirements from Receivables, the collection of the
guarantee shall be made within the terms established for such purpose and each
of the reported to the respective Business Unit providing the service to
discontinue the provision of such services.
 
In those cases in which it applies, the guarantees once they have been reviewed
and approved by the legal area assigned to the Business Units providing the
service and accepted by the respective management office, they shall be
delivered for custody to each of the managers and/or directors through a
memorandum, to the Coordination of Receivables and collections from the Treasury
Unit responsible for the corresponding record in SAP and of its collection if
necessary. ECOPETROL through the Business Unit providing the service shall
immunity suspend any credit or cash sales, to clients to whom the execution of
guarantees has started until a certificate of good standing is received from the
Coordination are Receivables and a new guarantee acceptable to ECOPETROL is
presented.
 
The Coordination of Receivables and collections shall adopt all security
measures to keep the guarantees in a safe place.
 
The Coordination of Receivables and collections of the Treasury Unit shall
update and activate in an individual manner in SAP each guarantee for the
corresponding area of credit control; indicating "the limit authorized” which
becomes a rotatory limit in pesos authorized for the provision of services and
establishing that period of time in which the limit of credit shall be covered
with the guarantee, taking into account the term of the credit given to the
client for the provision of the service (5, 15 or 30 days).
 
 
15

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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
3.10
Late Interests

 
The payment of Receivables by clients after the due date generates a late
interest as a sanction. Late interests are a applicable without exception to all
kinds are Receivables handled by ECOPETROL. Late interests shall be calculated
on any overdue balances and in proportion to the time lapsed from the date in
which the payment should have been made until that date in which it is actually
made.
 
The record of these interests shall be under the responsibility of the
Coordination of Receivables and collections; control and collection activities
shall be the responsibility of the Business Unit providing the service, which
may check these charges through consultations to the account statement of the
client in the SAP integrated information system.
 
Any payment made by a client in accordance with the provisions in the Colombian
Civil Code in its article 1653, except as otherwise agreed, when principal and
interests are owed, payment shall apply first to interests and then to
principal. Late interests are not forgivable, the General Controller of the
country has issued several opinions denying this prerogative based on the
constitutional principle by which public servants can only do whatever the law
and the Constitution allows. Currently there is no regulation that allows
cancellation of interests by public entities such as ECOPETROL.
 
ECOPETROL in each of its invoices shall indicate that the interest rate to be
charged as late interest for the payment is the highest monthly rate allowed by
the Superintendence of Finance or whoever replaces it (the Treasury Unit shall
communicate the late interest rate to be applied for each period).
 
For invoices or bills issued in US dollars an interest rate in dollars in
equivalent to the Prime rate +2 percentage points shall be applied (Prime +2%).
The resulting amounts shall be converted into pesos at the market representative
exchange rate (TRM) valid on the date of payment.
 
If the due date of the invoice falls on Saturday, Sunday or in a holiday, the
payment may be made on the following Business day and said payment shall not
generate any late interest. If a client pays after the first Business day, the
calculation for late interest shall be made from the due date of the invoice
 
The charging of interests shall be made through a bill addressed to the client,
which shall contain a Receivables statement on which interests are calculated.
 
 
16

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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
3.11
Collections Management

 
When an invoice or bill is not collected within the due dates or payment has
been made partially, the collection action shall start immediately by the
Business Units providing the service and the Coordination of Receivables and
collections.
 
The Coordination of Receivables and collections shall proceed to make effective
the sources of payment and guarantees, in case of clients covered by financial
collateral who have not made full or partial payments of all their obligations
represented in the sale invoices within the due dates in accordance with the
terms established in said invoices, with the support of their respective
Business Unit and legal counsel.
 
For such purposes, the loss shall be reported to the insurance company (in case
there is a policy covering the default), the documentation required shall be
presented before the banking entities (bank guarantees, bank acceptances or
letters of credit), the client shall be contacted in the case of a promissory
note and in the case of guarantees, they shall be made effective before the
corresponding entity in order to collect any overdue amounts together with late
interests.
 
3.11.1
Starting Legal Actions to Collect Overdue Balances

 
If a client fails to make a payment within the normal process of collection and
all instances have been used before going to court without any positive results,
in a peremptory term of 90 days, the Business Units providing the service must
request to the respective legal advising Unit to carry out collection actions
pursuant to the provisions in the applicable regulations.
 
For such purpose, the respective Business must prepare and deliver the following
documentation to the legal area:
 
 
-
A request memorandum indicating actions undertaken by the Business Unit
providing the service and the Coordination of Receivables and collections to
obtain recovery of money owed.

 
-
Documents supporting the credit in favor of ECOPETROL  (invoices or promissory
notes).

 
-
Copies of all correspondence held with the client.

 
-
Copy of the contract or certificate for the provision of services.

 
3.11.2
Modifications in the Long Term.

 
In the event that under special circumstances a client is late in meeting its
obligations with ECOPETROL and does not have immediate payment capacity, upon
request, the Business Units providing the service may request to the Head of the
Treasury Unit of ECOPETROL, attaching the commercial and legal analysis of the
client, an authorization for the extension of the term of the credit, and this
financing shall not cause an impairment of the guarantee in the force in favor
of ECOPETROL.
 
 
17

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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
Without prejudice of the foregoing, ECOPETROL reserves the right to request an
acceptable guarantee that allows covering a higher risk for the extension of the
term for the payment. The interest rate for the refinancing term shall be in
accordance with the conditions of the financial market.
 
Clients under legal proceedings to recover any amounts in favor of the company
may be eligible for refinancing when lacking any property or liquid guarantees
executable in favor of ECOPETROL.
 
In the case of individual agreements, the interest rate for the refinancing
period must be associated with the opportunity cost of ECOPETROL as indicated by
the Treasury Unit of the vice presidency of corporate finance. The amortization
of the debt in default shall be applied first, to sanctions and late interests,
second, to current interests and third, to the principal. The mentioned option
for refinancing if adopted by ECOPETROL, must offer better expected results than
those continuing under the legal proceeding or execution of guarantees.
 
Any refinancing must be subject to the approval of the Head of the Treasury Unit
with the previous commercial, financial and legal analysis.
 
3.12
Restructuring by General Agreements.

 
ECOPETROL may participate in payment agreements of clients with their creditors,
under modalities aimed to ensure the maximum collection of their Receivables in
terms of present value as indicated hereunder:
 
Restructuring Agreement under Law 550 or reorganization agreements under Law
1116 of 2006 (company insolvency). Regarding the guarantees in the proceedings
to prevent bankruptcy, creditors still governed under Law 550/1999 (that is,
territorial entities, decentralized entities and state universities at the
national or territorial level) have the power to inform the promoter within the
following ten (10) days after starting the negotiation, if the decision is only
to make the guarantee effective without waving their right to obtain from the
debtor the payment of the obligation under default pursuant to the paragraph of
article 14 of said Law. In those cases, ECOPETROL through the vice presidency of
corporate finance and the respective manager and/or director shall inform the
Promoter if the guarantee will be made effective. Furthermore, Law 1116 of 2006
did not include the provision of the foregoing paragraph, instead, in article 43
the Law regulated the issue of real estate guarantees within the process of
insolvency, and therefore the power to make them effective was suspended, save
by authorization of all creditors to wave said limitation. Said decision shall
be made with an absolute majority and included within the Agreement. Thus, the
creditor may present in the proceedings, together with its debt, the guarantee
covering it and a request to make it effective, or else wait the development of
the proceeding, and if terminated by breaching, the enforceability will be then
“reactivated”.
 
 
18

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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
Provision of services to clients with whom global payment agreements have been
executed or under Law 550/99 or Law 1116/06 shall only be made under the
modality of payment in advance. Interests in favor of ECOPETROL derived from
individual refinancing processes or restructurings cannot be cancelled.
Presently there are no regulations that allow the cancellation of interests by
public entities such as ECOPETROL.
 
All refinancing shall be subject to approval by the respective manager and/or
director with previous approval from the vice presidency of corporate finance
and after a commercial, financial and legal analysis; and evidence of economic
support.
 
3.13
Provision for Accounts Receivable10

 
The calculation for the provision shall correspond to a technical evaluation
(individual study based on the factors previously described) that will allow to
determine the contingency of loss or risk for non-collecting the right. Based on
this the recording of an individual provision shall be made.
 
Accounting Provision: The Coordination of Receivables and collections together
with the officers responsible for the management the Business Units providing
this service shall conduct an individual analysis of Receivables in default to
determine which accounts are considered un-collectible, and based on that, make
the recording of an individual provision. To do this, the manager and/or
director of the Business Unit of providing the service must submit a memorandum
requesting the recording of the corresponding provision.
 
Fiscal Provision: For purposes of this provision, Receivables are classified by
seniority and are calculated according to the percentages set out by tax
regulations. Any of the two methods indicated hereunder may be applied as a
deduction for the provision:
 
 
·
Individual: four debts between 12 and 24 months (33%), between 24 and 36 months
(66%) and over 36 months (99%).

 
·
General: the corresponding percentages are applied depending on the seniority of
their Receivables. (5% 3-6 months; 10% 6-12 months; 15% over 12 months).

 

--------------------------------------------------------------------------------

10 Defined according to the contingency of loss of the rights to be collected as
a result of the degree of seniority, default, prescription, and collection
action through legal means; the provision includes the amount estimated as
uncollectable.
 
 
19

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ECOPETROL MANAGEMENT GUIDELINES FOR RECEIVABLES SERVICES ECP-UTE-G-008

 
3.14
Receivables Write-offs

 
Accounts Receivable  classified as lost or  uncollectible, and upon which
all  procedures  for collection have been conducted and with a provision  of
100% are subject  to a request for a write-off  pursuant  to the
provisions  in  the MAD.
 
Accounts Receivable classified as lost or uncollectible, whose value does not
exceed 150 (SMLMV) (current monthly minimum legal wage) and upon which all
procedures for collection have been conducted and with a provision of 100% are
subject to a request for a write-off by the Coordinator of Records and Analysis
of Accounts Payable if their value is between 1 and 70 monthly minimum legal
wages, and by the Head of the Unit of Accounting and Tax Information if their
value is between 71 and 150 monthly minimum legal wages upon exhaustion of all
legal and other instances by the Business Unit generating it and the legal vice
presidency. When Accounts Receivables classified as lost or uncollectible exceed
180 monthly minimum wages, its write off must be authorized by the Board of
Directors upon exhaustion of instances such as: current collection, execution of
guarantees and previous legal collection.
 
It is understood as debt that is lost and without any value, all that debt whose
collection is not possible to make it effective due to insolvency of debtors and
guarantors as a result of lack of property guarantees or by any other cause that
allows them to be considered as currently lost according to commercial
practices. This definition includes those accounts receivable of less value
whose collection procedures is significantly more onerous than the write-off of
said debt.
 
Version: 01
 
Date: 10/09/2010
 
Reviewed by:
 
Jose David Roldan
 
Professional Receivables and Collections
 
Approved by:
 
Elkin Leonardo Suarez
 
Coordinator Receivables and Collections
 
 
20

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ANNEX 3
 
INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
 
 

--------------------------------------------------------------------------------

 

INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
Front Page
 
 
1.
CITY AND DATE OF ISSUANCE

 
 
2.
POLICY NUMBER

 
 
3.
INTERMEDIARY

 
 
4.
INSURER

 
 
a)
name

 
 
b)
tax ID

 
 
5.
POLICYHOLDER

 
 
a)
name

 
 
b)
tax ID

 
 
c)
address

 
 
6.
ENTITY INSURED (ECOPETROL S A)

 
 
a)
name

 
 
b)
tax ID

 
 
c)
address

 
 
7.
BENEFICIARY ENTITY (ECOPETROL S A)

 
 
8.
COVERAGE GRANTED

 
 
9.
INSURED LIMITS GRANTED FOR EACH COVERAGE

 
 
10.
VALIDITY FOR EACH OF THE COVERAGE GRANTED

 
 
a)
From
at 00:00 hours

 
 
b)
Until
at 00:00 hours

 
 
c)
Days

 
 
11.
IDENTIFICATION AND PURPOSE OF THE CONTRACT GUARANTEED BY THE INSURANCE

 
 
12.
PARTICULAR CONDITIONS OF THE INSURANCE

 
 
13.
PREMIUM FOR EACH OF THE COVERAGE GRANTED

 
 
14.
TOTAL PREMIUM FOR ALL COVERAGE CONTRACTED

 
 
15.
VALUE ADDED TAX

 
 
16.
FINAL PREMIUM TO BE PAID BY THE BONDED POLICYHOLDER AND DATE OF PAYMENT

 
 
17.
ADDRESS FOR NOTIFICATION AND COLLECTIONS

 
 
18.
CITY

 
 
19.
ANNEXES

 
 
20.
AUTHORIZED SIGNATURE

 
ANY DEFAULT IN PAYMENT OF THE POLICY PREMIUM, THE CERTIFICATES OR ANNEXES ISSUED
BASED ON SAID POLICY, SHALL NOT GENERATE THE AUTOMATIC TERMINATION OF THE
CONTRACT, WITHOUT PREJUDICE OF THE RIGHT UNDER THE NAME OF THE INSURER TO
REQUEST PAYMENT OF THE PREMIUM AND ANY EXPENSES CAUSED AS A RESULT OF THE
ISSUANCE OF THE CONTRACT, ALL THESE PURSUANT TO THE PROVISIONS IN THE FINAL
PARAGRAPH OF NUMERAL 19 OF ARTICLE 25 OF LAW 80, 1993.
 
 
2

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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
INDEX
 
SECTION I: COVERAGE
 
 
1.
COVERAGE FOR SERIOUSNESS OF THE BID

 
 
2.
COVERAGE FOR ADVANCEMENT

 
 
3.
COVERAGE FOR PREPAYMENT

 
 
4.
COVERAGE FOR PERFORMANCE OF THE CONTRACT

 
 
5.
COVERAGE FOR THE PAYMENT OF SALARIES, FRINGE BENEFITS AND INDEMNIFICATION

 
 
6.
COVERAGE FOR STABILITY OF WORKS

 
 
7.
COVERAGE FOR QUALITY OF EQUIPMENT PROVIDED

 
 
8.
COVERAGE FOR PROPER OPERATION OF EQUIPMENT

 
 
9.
COVERAGE FOR QUALITY OF SERVICE

 
 
10.
COVERAGE FOR THE PROVISION OF SPARE PARTS AND ACCESSORIES

 
 
11.
OTHER COVERAGE

 
SECTION II: EXCLUSIONS
 
 
1.
FORCE MAJEURE OR ACTS OF NATURE

 
 
2.
AMENDMENTS TO THE ORIGINAL CONTRACT

 
 
3.
INJURIES TO PERSONS OR DAMAGE TO PROPERTY

 
 
4.
IMPAIRMENT BY THE PASSING OF TIME

 
SECTION III: GENERAL CONDITIONS
 
 
1.
TERM

 
 
2.
LOSS CLAIM

 
 
2.1
IN THE EVENT OF EXPIRATION

 
 
2.2
TO MAKE EFFECTIVE THE PAYMENT OF PENALTY OR THE PENALTY CLAUSE

 
 
2.3
IN ALL OTHER EVENTS

 
 
3.
PROVING THE AMOUNT TO BE INDEMNIFIED

 
 
4.
PAYMENT OF THE LOSS

 
 
5.
AMOUNT INSURED

 
 
6.
COMPENSATION OF OBLIGATIONS

 
 
7.
SUBROGATION

 
 
8.
ASSIGNMENT OF THE CONTRACT

 
 
9.
COEXISTING INSURANCE

 
 
10.
NO EXPIRATION BY  FAILURE OF PAYMENT OF THE PREMIUM AND IRREVOCABILITY

 
 
11.
CONDUCT OF THE POLICYHOLDER

 
 
12.
NOTIFICATION AND RECOURSES

 
 
13.
AMENDMENTS

 
 
14.
GUARANTEE CALL

 
 
15.
VIGILANCE

 
 
16.
CO-INSURANCE

 
 
17.
BANKRUPTCY PROCEEDINGS

 
 
18.
TIME BAR

 
 
19.
INCOMPATIBLE CLAUSES

 
 
20.
SETTLEMENT OF CONFLICTS

 
 
21.
DOMICILE

 
 
3

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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
_____________________, A COMPANY LEGALLY ESTABLISHED IN COLOMBIA AND DULY
AUTHORIZED BY SUPERINTENDENCE OF FINANCE OF COLOMBIA TO OPERATE IN THE COUNTRY,
WHICH, HEREINAFTER SHALL BE CALLED THE INSURER, GRANTS IN FAVOR OF ECOPETROL S
A, HEREINAFTER CALLED ECOPETROL, THE INSURED AND BENEFICIARY ENTITY, THE
COVERAGE SPECIFIED IN THE FRONT PAGE OF THIS POLICY SUBJECT IN ITS SCOPE AND
CONTENT TO THE GENERAL AND PARTICULAR CONDITIONS THERETO WITHOUT EXCEEDING THE
CORRESPONDING INSURED AMOUNT, PURSUANT TO THE PROVISIONS IN ARTICLE 1079 OF THE
COLOMBIAN CODE OF COMMERCE ACCORDING TO THE DEFINITIONS AND SCOPE OF THE
RESPECTIVE COVERAGE DESCRIBED HEREUNDER:
 
SECTION I: COVERAGE
 
 
1.
COVERAGE FOR SERIOUSNESS OF THE BID

 
BY MEANS OF THIS COVERAGE ECOPETROL IS PROTECTED AGAINST ANY EQUITY DAMAGE
CAUSED BY THE BIDDER AS THE RESULT OF ANY BREACHING ONCE THE CONTRACT HAS BEEN
AWARDED AND FROM ANY OF THE OBLIGATIONS AND NECESSARY REQUIREMENTS FOR THE
EXECUTION, PERFECTION AND A COMMENCEMENT OF THE SAME, AND MORE SPECIFICALLY AS A
RESULT OF ANY DEFAULT ON THE OBLIGATIONS TO ENTERED INTO AND TO PERFECT THE
CONTRACT UNDER THE TERMS IN WHICH THE BID HAS BEEN PRESENTED AND PROVIDE IN THE
APPROPRIATE MANNER ANY PERFORMANCE POLICY OR BANK COLLATERAL REQUIRED TO COMPLY
WITH THE SAME. ALL OF THIS, PURSUANT TO THE PARAMETERS SET FORTH IN THE
SELECTION PROCESS AND ALL OTHER CONDITIONS REQUIRED BY ECOPETROL.
 
THE AMOUNT INSURED ESTABLISHED FOR THE COVERAGE OF SERIOUSNESS OF THE BID HAS
PUNITIVE OR PENALTY IMPLICATIONS AND CONSTITUTES AN ADVANCE ASSESSMENT OF
DAMAGES.
 
 
2.
COVERAGE FOR ADVANCEMENT

 
THIS COVERAGE GUARANTEES THE REIMBURSEMENT TO ECOPETROL OF THE FUNDS AND GOODS
GIVEN TO THE CONTRACTOR AS AN ADVANCE FOR THE EXECUTION OF THE CONTRACT IF SAID
CONTRACTOR HAS MADE INAPPROPRIATE USE OF SAID FUNDS.
 
IT SHALL BE UNDERSTOOD THAT THERE HAS BEEN INAPPROPRIATE USE OF THE FUNDS OR
GOODS GIVEN IN ADVANCE, IN THE EVENT THAT SUCH FUNDS OR GOODS HAVE NOT BEEN USED
FOR THE PURPOSE FOR WHICH THEY WERE GIVEN AT THE BEGINNING OR DURING THE
DEVELOPMENT OF THE EXECUTION OF THE CONTRACT WHICH INCLUDES NO-REIMBURSEMENT, AS
IT MAY APPLY.
 
THIS COVERAGE DOES NOT EXTEND TO THE USE OF FUNDS GIVEN AT PREPAYMENT TO THE
CONTRACTOR. THIS RISK SHALL ALSO BE COVERED IN THE EVENTS AS THEY MAY APPLY AS
DEFINED HEREUNDER.
 
 
4

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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
 
3.
COVERAGE FOR PREPAYMENT

 
THIS COVERAGE GUARANTEES THE REIMBURSEMENT TO ECOPETROL BY THE CONTRACTOR OF ANY
BALANCE CORRESPONDING TO THE DIFFERENCE BETWEEN THE TOTAL AMOUNT RECEIVED BY THE
CONTRACTOR AS PREPAYMENT AND ANY AMOUNT CORRESPONDING TO THE PORTION PERFORMED
OF THE CONTRACT.
 
THEREFORE, IF THE CONTRACT IS PARTIALLY PERFORMED, ANY REIMBURSEMENT AS IT MAY
APPLY SHALL BE CALCULATED DEDUCTING FROM THE FULL AMOUNT GIVEN BY ECOPETROL TO
THE CONTRACTOR AS THE PREPAYMENT, THE AMOUNT CORRESPONDING TO THE REMUNERATION
OR PAYMENT OF THE PERFORMED PORTION OF THE CONTRACT.
 
 
4.
COVERAGE FOR PERFORMANCE OF THE CONTRACT

 
THIS COVERAGE PROTECTS ECOPETROL AGAINST ANY EQUITY DAMAGE SUCH AS GENERAL
DAMAGE AND LOSS OF PROFITS RESULTING FROM ANY BREACHING ATTRIBUTABLE TO THE
CONTRACTOR ON ANY OF THE OBLIGATIONS ARISING FROM THE GUARANTEED CONTRACT.
 
THIS COVERAGE COMPRISES ANY FINES AND THE AMOUNT OF THE PENALTY CLAUSE IF
ENFORCED. THE TOTAL INDEMNITY SHALL NOT EXCEED IN ANY CASE THE AMOUNT INSURED
SET FORTH FOR SAID PURPOSE.
 
 
5.
COVERAGE FOR THE PAYMENT OF SALARIES, FRINGE BENEFITS AND INDEMNIFICATION

 
AS PROVIDED IN ARTICLE 34 OF THE COLOMBIAN CODE OF LABOR, THIS COVERAGE PROTECTS
ECOPETROL AGAINST THE RISK OF DEFAULT BY THE CONTRACTOR ON ANY LABOR OBLIGATIONS
ACQUIRED BY SAID CONTRACTOR WITH PERSONNEL USED IN THE EXECUTION OF THE CONTRACT
BEING THE PURPOSE OF COVERAGE UNDER THIS POLICY.
 
THE INSURANCE COMPANY SHALL MAKE THE PAYMENTS TO THE EXTENT THAT EACH OF THE
WORKERS DEMONSTRATES THEIR RIGHTS AND THE AMOUNT INSURED SHALL BE DECREASING TO
THE EXTENT THAT PAYMENTS ARE BEING MADE UNTIL COMPLETION, IF SUCH IS THE CASE.
 
 
6.
COVERAGE FOR STABILITY OF WORKS

 
THIS COVERAGE PROTECTS ECOPETROL AGAINST ANY EQUITY DAMAGE INCLUDING LOSS OF
PROFITS RESULTING FROM ANY IMPAIRMENT THAT, UNDER NORMAL CONDITIONS OF USE,
SUFFERS ANY OF THE GOODS BUILT OR MANUFACTURED BEING THE PURPOSE OF THIS
CONTRACT, FOR THE ACTIONS OR OMISSIONS ATTRIBUTABLE TO THE CONTRACTOR DERIVED
FROM DEFICIENCIES IN THE EXECUTION AND COMPLIANCE WITH CONTRACT AND DETECTED
AFTER THE TERMINATION AND DELIVERY OF THE SAME.
 
THIS COVERAGE SHALL START TO BE IN FORCE AFTER THE ISSUANCE OF THE MINUTES OF
THE DELIVERY OF WORKS DULY COMPLETED WITH THE RESPECTIVE RECORD OF RECEPTION AT
SATISFACTION BY ECOPETROL.
 
 
5

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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
 
7.
COVERAGE FOR QUALITY OF EQUIPMENT PROVIDED

 
THIS COVERAGE PROTECTS ECOPETROL AGAINST ANY EQUITY DAMAGE INCLUDING LOSS OF
PROFITS RESULTING FROM ANY IMPAIRMENT THAT, UNDER NORMAL CONDITIONS OF USE,
SUFFERS ANY OF THE GOODS BEING THE PURPOSE OF THIS CONTRACT, FOR THE ACTIONS OR
OMISSIONS ATTRIBUTABLE TO THE CONTRACTOR DERIVED FROM THE DEFICIENT QUALITY OF
THE GOODS OR EQUIPMENT PROVIDED IN ACCORDANCE WITH THE TECHNICAL SPECIFICATIONS
AGREED IN THE CONTRACT AND DETECTED AFTER THE TERMINATION AND DELIVERY OF THE
SAME.
 
THIS COVERAGE SHALL START TO BE IN FORCE AFTER THE ISSUANCE OF THE MINUTES OF
THE DELIVERY OF THE EQUIPMENT PROVIDED DULY COMPLETED WITH THE RESPECTIVE RECORD
OF RECEPTION AT SATISFACTION BY ECOPETROL.
 
 
8.
COVERAGE FOR PROPER OPERATION OF EQUIPMENT

 
THIS COVERAGE PROTECTS ECOPETROL AGAINST ANY EQUITY DAMAGE INCLUDING LOSS OF
PROFITS RESULTING FROM ANY DEFICIENCIES IN THE OPERATION THAT, UNDER NORMAL
CONDITIONS OF USE, SUFFERS ANY OF THE EQUIPMENT PROVIDED TO INSTALLED IN THE
DEVELOPMENT OF THE CONTRACT, FOR THE ACTIONS OR OMISSIONS ATTRIBUTABLE TO THE
CONTRACTOR DERIVED FROM THE DEFICIENT QUANTITY OR IMPROPER INSTALLATION OF THE
SAME IN ACCORDANCE WITH THE TECHNICAL SPECIFICATIONS AGREED IN THE CONTRACT AND
DETECTED AFTER THE TERMINATION AND DELIVERY OF THE SAME.
 
THIS COVERAGE SHALL START TO BE IN FORCE AFTER THE ISSUANCE OF THE MINUTES OF
THE DELIVERY OR INSTALLATION OF THE EQUIPMENT PROVIDED WITH THE RESPECTIVE
RECORD OF RECEPTION AT SATISFACTION BY ECOPETROL.
 
 
9.
COVERAGE FOR QUALITY OF SERVICE

 
THIS COVERAGE PROTECTS ECOPETROL AGAINST ANY EQUITY DAMAGE INCLUDING LOSS OF
PROFITS ATTRIBUTABLE TO THE CONTRACTOR RESULTING FROM NONCOMPLIANCE OR DEFICIENT
NON-COMPLIANCE WITH THE SPECIFICATIONS AND REQUIREMENTS OF THE SERVICE
CONTRACTED BY ECOPETROL PURSUANT TO THE TERMS AND CONDITIONS DEFINED IN THE
CONTRACT GUARANTEED AND IDENTIFIED IN THE PARTICULAR CONDITIONS OF THIS POLICY.
 
THIS COVERAGE SHALL START TO BE IN FORCE AFTER THE ISSUANCE OF THE MINUTES OF
THE DELIVERY OF THE SERVICE CONTRACTED WITH THE RESPECTIVE RECORD OF RECEPTION
AT SATISFACTION BY ECOPETROL.
 
 
10.
COVERAGE FOR THE PROVISION OF SPARE PARTS AND ACCESSORIES

 
THIS COVERAGE PROTECTS ECOPETROL AGAINST ANY EQUITY DAMAGE INCLUDING LOSS OF
PROFITS ATTRIBUTABLE TO THE CONTRACTOR RESULTING FROM NONCOMPLIANCE WITH THE
PROVISION OF SPARE PARTS AND ACCESSORIES PURSUANT TO THE STIPULATIONS IN THE
CONTRACT.
 
THIS COVERAGE SHALL START TO BE IN FORCE AFTER THE ISSUANCE OF THE MINUTES OF
TERMINATION OF THE CONTRACT WITH THE RESPECTIVE RECORD OF RECEPTION AT
SATISFACTION BY ECOPETROL.
 
 
6

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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
 
11.
OTHER COVERAGE

 
THE INSURANCE COMPANY SHALL PROVIDE TO ECOPETROL ALL OTHER COVERAGE AS
DETERMINED IN THE FRONT PAGE OR IN THE ANNEXES ISSUED TO THE POLICY HEREOF.
 
PARAGRAPH; THE LISTED COVERAGE IS INDEPENDENT FROM ONE ANOTHER REGARDING THE
COVERAGE PROVIDED AND THE AMOUNT INSURED. THEREFORE, THEY ARE MUTUALLY EXCLUSIVE
AND NON-CUMULATIVE.
 
SECTION II: EXCLUSIONS
 
COVERAGE PROVIDED IN THE POLICY HEREOF SHALL NOT APPLY IN THE FOLLOWING CASES:
 
 
1.
FORCE MAJEURE OR ACTS OF NATURE

 
IN THE EVENT OF FORCE MAJEURE, ACTS OF NATURE OR ANY OTHER LEGAL CAUSE OF
EXEMPTION OF RESPONSIBILITY BY THE CONTRACTOR.
 
 
2.
AMENDMENTS TO THE ORIGINAL CONTRACT

 
ANY EQUITY DAMAGE GENERATED BY OR FROM BREACHING ATTRIBUTABLE TO THE CONTRACTOR
AND RESULTING IN AMENDMENTS TO THE ORIGINAL CONTRACT, SAVE THERE HAS BEEN
ACCEPTANCE OF THE SAME BY THE INSURANCE COMPANY WITH A WRITTEN RECORD.
 
 
3.
INJURIES TO PERSONS OR DAMAGE TO PROPERTY

 
ANY INJURY CAUSED BY THE CONTRACTOR OR BY ITS WORKERS TO ECOPETROL’S PERSONNEL
OR ANY THIRD PARTIES, OR ANY DAMAGE CAUSED TO ECOPETROL’S PROPERTY OR ANY THIRD
PARTIES, OCCURRING DURING THE EXECUTION OF THE CONTRACT, OR THOSE DERIVED IN
GENERAL FROM THE EXTRA-CONTRACTUAL CIVIL LIABILITY OF THE CONTRACTOR.
 
 
4.
IMPAIRMENT BY THE PASSING OF TIME

 
THE IMPAIRMENT OR NORMAL DETERIORATION SUFFERED BY THE GOODS, PROPERTY OR WORKS
CARRIED OUT AND COVERED BY THE POLICY, AS A CONSEQUENCE OF THE MERE PASSING OF
TIME.
 
SECTION III: GENERAL CONDITIONS
 
 
1.
TERM

 
The term of the coverage included in the policy hereof shall be recorded in the
front page of the same or through annexes according to the nature of each of
them. The term for the performance coverage under no circumstances shall be less
than that term of execution and liquidation of the contract.
 
The term may be extended by request from ECOPETROL or the contractor, if so
stated. If the insurance company accepts the extension, it will issue the
certificates and annexes recording said amendment subject to the payment of the
corresponding premium.
 
 
7

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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
 
2.
LOSS CLAIM

 
Pursuant to the provisions in article 1077 of the Colombian code of commerce,
ECOPETROL shall demonstrate both the occurrence of the incident as well as the
amount of the loss and shall correspond to the insurance company to demonstrate
the facts or circumstances waving its responsibility.
 
The occurrence of the loss may be accredited as follows:
 
 
2.1
IN THE EVENT OF EXPIRATION

 
By means of an administrative action duly executed stating the expiration of the
contract, which shall be notified both to the insurance company as well as the
contractor, pursuant to the provisions of article 44 of the Colombian
administrative code.
 
 
2.2
TO MAKE EFFECTIVE THE PAYMENT OF PENALTY OR THE PENALTY CLAUSE

 
By delivery to the insurance company of the decision made ordering the payment
of a fine or the penalty clause in accordance with the terms and conditions of
the respective contract being the purpose of the coverage.
 
 
2.3
IN ALL OTHER EVENTS

 
For all contracts entered into by ECOPETROL in all other events in which there
is claim under this policy, by delivering to the insurance company all documents
or evidence accrediting the occurrence of the loss and the amount of the damage
being the purpose of the claim, pursuant to the provisions in article 1077 of
the code of commerce.
 
 
3.
PROVING THE AMOUNT TO BE INDEMNIFIED

 
The amount of the loss may be proved, depending on the case: with the minutes of
liquidation of the contract; with the administrative action in firm of the
unilateral liquidation of the contract; with the decision duly justified
claiming the payment of a fine or a penalty clause accompanied by the text of
the contract stipulating the enforcement of the same, or by any other means that
allows to prove the amount of the loss suffered as provided in article 1077 of
the code of commerce.
 
 
4.
PAYMENT OF THE LOSS

 
Pursuant to the provision in article 1110 of the code of commerce, the indemnity
may be paid in cash, or by replacement, repair or reconstruction of the goods
insured at the option of the insurance company.
 
If the option is to indemnify with an amount in cash, pursuant to the
indications in Article 1080 of the code commerce, this payment shall be made as
follows:
 
In the case of numeral 2.1 the payment shall be made within the following month
after a written communication delivered by ECOPETROL to the insurance company,
accompanied with the corresponding administrative act, duly executed declaring
the expiration of the contract and the minutes of liquidation of the same or a
resolution executed adopting its unilateral liquidation.
 
 
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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
In the cases of numerals 2.2 and 2.3 payment shall be made within the following
month after delivery of the written communication by ECOPETROL to the insurance
company accompanied by the documents proving the occurrence of the loss and the
amount of any damage.
 
 
5.
AMOUNT INSURED

 
The insurance company’s liability in connection with each coverage is limited to
the value established as insured amount in the from page or the annexes issued
based on the policy, and shall not exceed in any case said amount, pursuant to
the provisions in article 1079 of the code of commerce.
 
The amount of the insured value may be reestablished with the express previous
acceptance from the insurance company when there is a formal request by
ECOPETROL or the contractor, thus generating an additional premium charge which
shall be previously paid by the policyholder.
 
 
6.
COMPENSATION OF OBLIGATIONS

 
If ECOPETROL owes any money to the contractor by virtue of the contract
guaranteed at the time of filing the judicial or extrajudicial claim of the
loss, ECOPETROL shall compensate the amounts owed pursuant to the provisions in
articles 1714 and the following, of the Colombian civil code, thus decreasing
the amount of indemnity to be paid by the insurance company to ECOPETROL.
 
 
7.
SUBROGATION

 
By virtue of the indemnity payment pursuant to article 1096 of the code of
commerce and according to article 203 of Decree 663 of 1993 (EOSF) Code of the
Financial System, the insurance company subrogates up to the amount paid by said
company on the rights ECOPETROL may be entitled against the contractor resulting
from the occurrence of the loss.
 
 
8.
ASSIGNMENT OF THE CONTRACT

 
If by any breaching from the contractor, the insurance company resolves to
continue with the execution of the contract and if ECOPETROL is in agreement,
the contractor accepts hereafter the assignment of the contract in favor of the
insurance company.
 
 
9.
COEXISTING INSURANCE

 
Pursuant to the provisions in the code of commerce, in case of existence, at the
time of the incident or loss, of any other insurance for the same coverage in
connection with the contract thereto, the amount of the indemnity as it may
apply shall be distributed between the insurers in proportion to the amounts of
their respective insurance contracts without exceeding the amount insured as set
forth in the contract.
 
 
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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
 
10.
NO EXPIRATION BY FAILURE OF PAYMENT OF THE PREMIUM AND IRREVOCABILITY

 
The policy hereof shall not expire by failure of payment of the premium and said
premium shall not be revocable in a unilateral manner neither by the insurance
company nor by the contractor.
 
 
11.
CONDUCT OF THE POLICYHOLDER

 
It is stated for the record that ECOPETROL shall not accept any objections from
the insurance company regarding the exceptions or defense resulting from the
conduct of the policyholder, in particular those derived from any inaccuracy or
reticence incurred by the contactor in the contracting of insurance or its
omission regarding the duty to report the seriousness of a risk situation, or in
general any other exceptions the insurance company may have against the
contractor.
 
 
12.
NOTIFICATION AND RECOURSES

 
ECOPETROL shall timely notify the insurance company on any administrative action
issued in connection with the guaranteed contract, in particular those on
expiration and unilateral termination of the contract, being the insurance
company entitled to file any pertinent legal action against said administrative
actions pursuant to the provisions in the Administrative Code.
 
 
13.
AMENDMENTS

 
In those cases in which the amount of the contract or the term of the same are
increased or decreased, or in general when the stipulations of the original
contract are somehow amended according to the law by the parties, the respective
amendment to the insurance as it may apply, must be previously accepted by the
insurance company in order to make it effective.
 
 
14.
GUARANTEE CALL

 
When the discussion regarding any breaching of the contract occurs in an
arbitration process between ECOPETROL and the contractor, the insurance company
is committed in advance to accept the guarantee call made inside said process.
 
 
15.
VIGILANCE

 
The insurance company is entitled to conduct vigilance on the contractor
regarding the execution of the contract, and ECOPETROL shall provide the
necessary cooperation. In those cases in which the contract has as a purpose any
issues in connection with public order and the national security, ECOPETROL
shall forbid or limit this power to the insurance company.
 
ECOPETROL makes the commitment to carry out strict control on the development of
the contract and the handling of the corresponding funds and goods within the
legal provisions that said control confers.
 
 
16.
CO-INSURANCE

 
If there is any co-insurance as referred to in article 1095 of the code of
commerce, the amount of the indemnity, as it may apply, shall be distributed
between the insurers at a pro rate of the amounts of their respective insurance,
without solidarity between participating insurers and without exceeding the
amount insured under the insurance contract.
 
 
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INSURANCE ONLY POLICY OF PERFORMANCE FOR STATE CONTRACTS IN FAVOR OF ECOPETROL S
A
 
 
17.
BANKRUPTCY PROCEEDINGS

 
ECOPETROL is obliged to protect its rights in any bankruptcy proceedings as set
out in the Colombian legislation in which the contractor may be admitted, as it
may do it if there was no guarantee as provided by the policy hereof, its
application certificates and its coverage, giving notice to the insurance
company of said conduct. Any failure to comply with this obligation would cause
to ECOPETROL the consequences stipulated in article 1078 of the code of
commerce.
 
 
18.
TIME BAR

 
The time bar for the actions derived from the contract hereof shall be governed
pursuant to article 1081 of the code of commerce as added or amended or any
other special applicable law to the case.
 
 
19.
INCOMPATIBLE CLAUSES

 
In case of any incongruity or differences between the general and particular
conditions of the policy, the latter shall prevail.
 
 
20.
SETTLEMENT OF CONFLICTS

 
In case of any disputes or conflicts in connection with the interpretation,
execution and enforcement of the policy hereof, the parties shall make their
best effort to use the alternative settlement mechanisms as stated in Law 80 of
1993.
 
 
21.
DOMICILE

 
 Without prejudice of any proceedings stipulations, for all purposes regarding
the contract hereof, the parties establish as a domicile the city of Bogota D C.
 
 
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ANNEX 4
 
SAMPLE STAND-BY LETTER OF CREDIT
 
 
 

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SAMPLE STAND-BY LETTER OF CREDIT
 
Letter of Credit No [________]
 
Place and date of issuance: [_____________]
 
Nominal Value: US$ [______________]
 
Issuing  Bank: [____________________]
 
Beneficiary:  Ecopetrol S A
 
Applicant: [_______________________]
 
By means of this document we are informing to you, Ecopetrol S A (the
“Beneficiary”) that, by request from [________________________] (the
“Applicant”), a company created pursuant to the laws of
[_______________________], through its branch duly established in Colombia,
the  Bank [_________________] (the "Bank”) that we have issued in favor of
Ecopetrol S A, a company incorporated pursuant to the laws of the Republic of
Colombia and with tax ID [______] (the “Beneficiary”), this Stand-by Letter of
Credit irrevocable at first request (the “Letter of Credit”) to ensure payments
of up to the nominal value as indicated above (The “Secured Obligations”).
 
This Letter of Credit shall be valid from [______] of 20 [     ] until the date
of occurrence [       ][         ] calendar days after [        ]  of
[                 ].
 
It is understood that the Bank’s responsibility derived from the Letter of
Credit hereof is limited only and exclusively to the amounts and the terms
indicated in the heading of the Letter of Credit.
 
In case of default by the Applicant of all or any of the Secured Obligations,
the Beneficiary shall report said default to the Bank in its offices located at
[_____________________], within the term of the Letter of Credit hereof. On the
same date of reception of the referred communication by the Bank, the Bank shall
directly proceed to pay in an unconditional manner to the Beneficiary the
amounts indicated in the document reporting the default to the Beneficiary,
without exceeding at any time the total secured value drawn on this Letter of
Credit in (i) pesos, the legal currency of the Republic of Colombia, or (ii)
dollars of the United States of America.
 
If the communication of default previously mentioned is not received within the
term of the Letter of Credit hereof, the Bank’s responsibility derived therefrom
shall cease.
 
The communication informing the Bank regarding the default of the Secured
Obligations shall consist of a document duly signed by the legal representative
of the Beneficiary or whoever replaces him, stating the default by the Applicant
of the Secured Obligations and thus requesting the payment of the guarantee
hereof. Said communication shall indicate the number of this Letter of Credit,
and the amount drawn thereto. In case the Beneficiary decides to use the Letter
of Credit in pesos, the legal currency in the Republic of Colombia, the amount
of the nominal value of the Letter of Credit shall be converted at the market
representative exchange rate certified by the Superintendence of Finance of
Colombia on the date in which the communication is submitted to the Bank.
 
This document shall be governed by the International Standby Practices (ISP98)
from the International Chamber of Commerce.
 
 
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