Exhibit 10.1

 

CONTRACT

   :    CONTRACT OF SALE OF HARKEN CRUDE

VALUE

   :    UNDETERMINED.

TOTAL TERM

   :    1 MAY 2005 TO APRIL 30, 2006

 

The following contracting parties: On the one hand, PETROBRAS COLOMBIA LIMITED,
a corporation incorporated under the laws of the U.K. with a branch office duly
constituted in Colombia and represented in this act by JOSE RAIMUNDO BRANDAO
PEREIRA, of legal age, and alien I.D. No. 307.839 issued in Bogotá in his
capacity as General Manager, hereinafter referred to as THE BUYER, and on the
other hand, HARKEN DE COLOMBIA LTD, a corporation incorporated under the laws of
the Cayman Islands, with a branch office established in Colombia in accordance
with Public Deed No. 406 dated 19 February 1993, issued by the Eleventh Notary
Public of the Bogotá Circle, whose main business address is in Bogotá D.C.,
hereinafter referred to for all purposes as THE SELLER, represented by GUILLERMO
SÁNCHEZ B., as certified in the Certificate of Existence and Legal
Representation of the Bogotá Chamber of Commerce, of legal age, resident in the
city of Bogotá, identified with U.S. Passport No 132457597, have agreed to
execute this contract of oil purchase/sale subject to the following clauses:

 

WHEREAS:

 

a) On 29 December 2003, ECOPETROL S.A. and THE SELLER entered into the Alcaraván
Association Contract.

 

b) THE SELLER maintains in production under the Alcaraván Association Contract
the Estero and Cajaro wells located in the Paloblanco Field and the Canacabare
well, located in the Anteojos field, in the municipalities of Maní and Orocué,
province of Casanare.

 

c) On 14 September 2004, the AGENCIA NACIONAL DE HIDROCARBUROS and THE SELLER
entered into the Rio Verde exploration and explication contract.

 

d) THE SELLER maintains in production under the Rio Verde Field Contract the
Macarenas and Tilodiran wells. The Paloblanco, Anteojos and Rio Verde Fields
shall hereinafter be referred to as The Fields.

 

e) That THE SELLER maintains in production the Olivo well within the Bolivar
Association Contract and the Catalino-Olivo Field. Palo Blanco, Anteojos and Rio
Verde shall hereinafter be referred to as the “Fields”.

 

f) That THE SELLER maintains in production the Torcaz 2 and Torca 3 wells within
the Bocachico Association Contract and the Torcaz Field. Palo Blanco, Anteojos,
Rio Verde, Catalina-Olivo and Torcaz fields shall hereinafter be referred to as
the “Fields”.

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g) In performance of such contracts, 100% of their production belongs to THE
SELLER, after discounting the nation’s royalties, excluding production from the
Cajaro well in the Alcaravan Association Contract, whose Commerciality was
declared and, consequently, 50% of the production, discounting the nation’s
royalties, belongs to ECOPETROL.

 

h) By means of communication UN-COL/GEAL 0052/2005, THE SELLER presented a
proposal to THE BUYER for the purchase of Oil from the aforementioned fields
owned by THE BUYER.

 

i) THE SELLER by means of communication GG-095-05 accepted the above-mentioned
offer in the conditions indicated in such letter.

 

j) THE BUYER and THE SELLER hereby agree on the sale of the oil owned by THE
SELLER produced in the Fields.

 

Based on the above, THE BUYER and THE SELLER

 

AGREE:

 

CLAUSE ONE.—PURPOSE AND QUANTITIES: THE SELLER is hereby bound to sell and
deliver to THE BUYER and THE BUYER is bound to receive and pay for, in the
conditions provided herein, the oil corresponding to the Fields, corresponding
to the share it owns, as follows:

 

Alcaravan Association Contract, Sole Risk Modality:

  - Production equivalent to 100% after royalties.

Alcaravan Association Contract, Cajaro Commercial Area:

  - Production equivalent to 50% after royalties

Rio Verde Exploration and Exploitation Association Contract:

  - Production equivalent to 100% after royalties.

Bolívar Association Contract, Sole Risk Modality:

  - Production equivalent to 100% after royalties.

Bocachico Association Contract, Sole Risk Modality:

  - Production equivalent to 100% after royalties.

 

PARAGRAPH 1: The volumes of oil purchased shall be those included in each
shipment of Vasconia blend, made by Petrobras, as per the information provided
by OCENSA or by the party acting as the programmer of Vasconia Blend oil
shipments.

 

PARAGRAPH 2: THE BUYER shall ask OCENSA to include the oil in the volumetric
compensation carried out by the Company to establish the volume of Vasconia Mix
crude oil that corresponds to each barrel of oil produced in the Fields
delivered by THE SELLER in the Santiago Field.

 

PARAGRAPH 3: THE BUYER shall be in control of all the operations and activities
deemed necessary for an efficient technique and economical operation of the oil
management in the Santiago

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Station. THE BUYER shall not be held responsible for losses caused on THE SELLER
for delays in receipt of the crude due to operational difficulties of the
Santiago Field production station.

 

PARAGRAPH 4: THE BUYER shall be responsible for any damage caused to THE SELLER,
provided these have been caused due to negligence or willful misconduct of THE
BUYER, for not shipping the oil that is the subject matter of this contract in
accordance with Paragraph One.

 

PARAGRAPH 5: Oil from the Torcaz fields (Puerto Salgar, Cundinamarca) and Olivo
(Aguachica, Cesar), will be included in the blend available for sale in the
Estero Field, except that Harken de Colombia Ltd., shall make use at any time of
the crude blend from Olivo, Torcaz, Macarenas and Cajaro to market it as it
deems convenient. To such end, THE SELLER shall so notify in writing at least
thirty (30) days in advance.

 

CLAUSE TWO.—QUALITY: The typical quality of the oil to be purchased shall have
the following specifications: Minimum API gravity 18° API, 0.5% of BS&W and less
than 1% sulfur content, with the specifications indicated in Attachment A to
this Contract, which forms a part of it.

 

PARAGRAPH 1: The quality referenced in this Clause corresponds to that of the
oil delivered to THE BUYER, produced in the Fields. When any of the
specifications indicated are not within those that have been pointed out, THE
BUYER reserves the right to receive the oil and purchase it. It is understood
that THE SELLER shall make his best effort to deliver the crude oil contracted
with the BSW and salt content within the parameters agreed. Any variation
regarding the quality specifications indicated above that is accepted by both
parties shall be registered in a document signed by the representatives of the
parties.

 

PARAGRAPH 2: The quality mentioned in this Clause shall refer to the CRUDE BLEND
passing through the inlet flange of the LACT unit described herein in Clause
Three.

 

CLAUSE THREE.—DELIVERY SITE AND OWNERSHIP: The oil that is the subject matter of
this purchase/sale contract shall be delivered by THE SELLER to THE BUYER at the
inlet flange of the LACT unit, point of arrival of the Estero pipeline to the
Santiago Field Station, which belongs to the Upia Association.

 

CLAUSE FOUR.—EFFECT: This contract shall be in effect as of 1 May 2005 to 30
April 2006. Notwithstanding the above, this contract shall be extended
automatically for a period equal to the initial period, unless either of the
Parties gives thirty days notice of its intent not to renew the contract.

 

CLAUSE FIVE.—PRICES: The oil price indicated in this contract, placed at the
delivery site agreed upon and mentioned in Clause Three of this Contract, shall
be that obtained by Petrobras in its Vasconia Blend exports, deducting the
following charges as indicated below:

 

a) Commercialization charges of US$ 0.05/barrel exported

b) Rate for third parties of the Oleoducto de Colombia, minus a 10% discount.

c) Transportation fees from Ocensa’s El Porvenir—Vasconia pipeline

d) Transportation fees to El Porvenir through the pipeline of US$ 0.5708/barrel.

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  e) Transportation taxes from the Santiago—El Porvenir, El Porvenir—Vasconia,
and Oleoducto de Colombia pipelines from Vasconia to Coveñas.

 

PARAGRAPH: The transportation fees shall be readjusted every year on January
1st, n accordance with the “F” factor established in Resolution 058 / 2 May
1980, issued by the Ministry of Mines and Energy. Notwithstanding the above, if
for any reason a new resolution is enacted by the Ministry of Mines and Energy
and, thus, new fees are established, then the new ones shall immediately apply.

 

CLAUSE SIX.—BILLING AND FORM OF PAYMENT: Based on the volume of oil exported by
THE BUYER, THE SELLER shall bill THE BUYER, at his offices in Bogotá. D.C., once
THE BUYER has provided the information required, which shall be provided ten
(10) days following the date on the “Bill of Lading” corresponding to the export
in which the oil from the Fields has been included. Payments shall be made in
U.S. Dollars thirty days following the date on the “Bill of Lading” to the
account indicated by THE SELLER. In order to do so, THE SELLER shall present the
invoice at least 15 days in advance of the date on the “Bill of Lading”. The
original invoice must be sent in original and registered at the window that
receives invoices. PARAGRAPH 1: THE BUYER shall have a period of ten (10) days
after receiving the bills of oil sale to check or object to them. Any invoice
that has not been objected to within these periods shall be considered final,
correct and indisputable. Any adjustment or correction required on the invoice
shall mean that the valid date of presentation is that upon which said
adjustment or correction is received by THE BUYER. THE BUYER shall inform THE
SELLER within the term provided of any invoice that has been objected to, for it
to be adjusted and corrected, clearly specifying the items that must be adjusted
or corrected and the corresponding reasons therefor.

 

PARAGRAPH 1: In the event that for any reason the price of an export made by THE
BUYER, in which the crude that is the subject matter of this Contract is not
available within the term established in this Clause, THE BUYER can use a
provisional price for THE SELLER to invoice provisionally the oil for the time
being and for the payment to be made within the term of thirty days following
the date on the “Bill of Lading” agreed in this Clause. As soon as THE BUYER
learns the actual price of the export, he shall inform THE SELLER for the latter
to make the respective adjustments on the invoice corresponding to the following
shipment in which Estero oil will be included.

 

PARAGRAPH 2: THE SELLER shall bill THE BUYER for the value of the oil sales of
the corresponding period plus the VAT applicable on domestic sales.

 

CLAUSE SEVEN. INSPECTION AND MEASUREMENT: The quality parameters indicated in
Clause Two of this Contract (    °API,    % of sulfur, BSW and Salt) shall be
determined in accordance with the operating procedures established by mutual
agreement between the Parties according to a written document. The certification
of quality and volume received shall be delivered by PETROBRAS COLOMBIA LIMITED.
If both the dynamic and static measurements are available, the dynamic
measurement shall be considered official and the static measurement shall be
used as a redundant measurement. As for the sites where there is only static
measurement (manual and automatic), the manual measurement shall be considered
official and the automatic measurement shall be redundant. All the equipment
and/or instruments used for dynamic and static measurement systems must be
calibrated.

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The sulfur content of the oil for effects of billing shall be the value reported
by the Instituto Colombiano del Petróleo—ICP, in accordance with the biannual
analyses carried out on each crude. THE BUYER shall update this information
biannually and present it to THE SELLER. Either of the Parties may designate an
independent inspector at any time to certify the quality and quantity, verify
the gauging of the tanks or the calibration of the volume measurement
instruments. The cost shall be shared in equal parts between THE BUYER and THE
SELLER.

 

CLAUSE EIGHT.—TERMINATION: THE SELLER or THE BUYER may at any time consider this
contract of sale terminated with no obligation to indemnify the other party for
any damage, provided said decision is communicated to the other party in writing
at least thirty (30) calendar days in advance of the actual date of termination
of the contract.

 

CLAUSE NINE.—TRANSFER: THE SELLER may not assign, sell or transfer all or any
part of its rights and obligations contracted herein to a third party without
the prior written consent from the other party.

 

CLAUSE TEN.—RESPONSIBILITY: THE SELLER SHALL be held responsible for the
management and transportation of the crude oil that is the subject matter of
this contract to the delivery site established in Clause Three herein.
Therefore, THE SELLER assumes responsibility for any event that may arise before
reaching the delivery site. THE SELLER must have a contingency plan to remedy
these situations, including those derived from spills and damage caused by the
transporters used by THE SELLER. PARAGRAPH: THE SELLER is bound to comply with
and have its contractors comply with all the security policies in effect to
access the Petrobras facilities in the Santiago Field. THE BUYER reserves the
right to allow access to the facilities of the Santiago Field in the event of
non-compliance with these norms, which, in turn, must be informed by THE BUYER
to THE SELLER for their fulfillment.

 

CLAUSE ELEVEN.—FORCE MAJEURE: Neither THE BUYER nor THE SELLER shall be held
responsible for the failure to fulfill nor the unsatisfactory fulfillment of any
or all of the obligations indicated herein, if said failure is caused by events
that constitute duly proven force majeure or acts of God. Force majeure shall
not release THE BUYER from his obligation to pay THE SELLER for the invoices on
account of oil delivered by THE SELLER, in accordance with the terms stipulated
herein.

 

CLAUSE TWELVE.—APPLICATION OF COLOMBIAN LAW: This contract is governed by
Colombian law and the Parties waive the right to diplomatic claim as regards the
rights and obligations in this contract, except in the event of denial of
justice. PARAGRAPH: For all purposes of this contract, it is understood that the
provisions of Article 25 of Law 40 / 1993 have been incorporated herein, along
with the ruling issued by the Constitutional Court regarding said Article on
November twenty fourth (24), 1993 (Docket D-275) and Chapter Two, Section Two,
Part Two of Law 418 / 1997.

 

CLAUSE THIRTEEN.—NOTICES: All notices provided in accordance with this contract
must be sent by registered mail, fax, telex, or delivered at the addresses
indicated below, and they will be considered received at the respective address
on the date that appears on the receipt of the letter or on the date upon which
it is sent by telex or fax: THE BUYER Petrobras Colombia Limited Care of:

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Miguel Olarte, Carrera 7 número 71 –21, piso 17 Torre B - FAX 3135149. THE
SELLER Harken de Colombia Ltd, Calle 114 No. 9-01, Oficina 10-03, Edificio
Teleport, Torre A, Bogotá.

 

CLAUSE FOURTEEN.—TAXES AND EXPENSES: Both parties of this purchase/sale contract
declare that they are aware of and accept the taxes and/or withholding
applicable to them in accordance with the current laws. In the event that
remittance taxes are caused, these will be paid for by THE SELLER. The stamp tax
shall be paid in equal parts between THE SELLER and THE BUYER. For the effects
of the stamp tax, this sale shall be considered for an undetermined but
determinable amount. Its final value will result from applying the unit prices
agreed in Clause Five herein by the volume delivered in accordance with
production and the share interest of THE SELLER in the Alcaraván Association
Contract or the Rio Verde Exploration and Exploitation Contract. In addition,
THE SELLER hereby declares that he is aware of and will subject to any other
withholding applicable by virtue of entering into and fulfilling of this
transaction.

 

CLAUSE FIFTEEN.—SETTLEMENT OF CONTROVERSIES: a) Any controversy that may arise
due to this Contract related to technical matters that cannot be settled
directly by the Parties during the performance of the Contract shall be settled
recurring to friendly procedures as regulated in the Colombian Business Code.
The friendly mediator for each controversy shall be appointed by mutual
agreement between THE BUYER and THE SELLER. The friendly settlement process
shall take place at the offices of the friendly mediator in Bogotá D.C., in
Spanish. Each party shall have the right to refer any controversy to the
friendly mediator, notifying the other Party and the friendly mediator in a
timely manner, where said notice must indicate the following terms that must be
accepted by the friendly mediator by means of a tripartite agreement with THE
BUYER and THE SELLER: (I) the friendly settlement shall be made in accordance
with the applicable Colombian law; (II) The documentary evidence shall not
require the presentation of certificates of legalization, unless required by the
friendly mediator; (III) The term to prepare the pleadings and supporting
evidence by the parties shall be forty five (45) business days as of the date of
the tripartite agreement indicated above; (IV) The last day of the period of
forty-five (45) business days referred to in Section III shall be the only date
upon which the pleadings can be presented before the friendly mediator; and (V)
A term of 30 Colombian business days for the Friendly mediator to settle the
controversy in writing staring on the Colombian business day following the
period of forty-five (45) business days indicated in Section III. Each friendly
settlement shall have the effect of a transaction as per Colombian Law, and
therefore constitutes res judicata. If the Friendly mediator fails to deliver
the settlement within the term established above, the decision, if any, shall
not be binding for the Parties, and either Party shall have the right to refer
the controversy to arbitration in accordance with Section b) of this clause. If
THE BUYER and THE SELLER cannot agree on the friendly mediator by the thirtieth
(30) day following the notice of said controversy, either Party shall have the
right to refer it to arbitration as prescribed by Section b) of this clause. b)
Any controversy regarding this Contract other than those settled in accordance
with Section a) of this clause, except for that agreed expressly therein, which
cannot be settled directly by the parties during the performance of the
contract, shall be settled by arbitration in accordance with the rules of
arbitration subject to the Bogotá Chamber of Commerce. Said arbitration shall be
carried out with a panel of three arbitrators appointed by mutual agreement
between the parties. Should an agreement not be reached, the arbitrators will be
chosen by lots drawn to decide on them by the Chamber of Commerce in Bogotá,
D.C., Colombia and conducted in Spanish. The decision of the arbitrators shall
be final and binding for the Parties, to obtain jurisdictional decision of
enforcement in any court with jurisdiction over the Party that will execute it.

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c) The arbitrators shall base their decision on the law and the applicable law
will be Colombian law. d) Any fees and expenses associated with the friendly
settlement according to Section a) of this clause or arbitration according to
Section b) of this clause shall be paid by the losing party. The fees and
expenses associated with the actions required to enforce the decision of the
arbitrator shall be paid by the party against which the execution has been
established.

 

In witness whereof, this document is signed in Bogotá D.C. on the eighteen day
of April 2005, two thousand five (2005), in two identical copies.

 

THE BUYER       THE SELLER            

JOSE RAIMUNDO BRANDAO PEREIRA

     

GUILLERMO SANCHEZ B.