Document:

MPLX-2015.3.31-EX10.3

Exhibit 10.3
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (this “Agreement”) is dated as of January 1, 2015 by and between Hardin Street Transportation LLC, a Delaware limited liability company (“HST”), and Marathon Pipe Line LLC, a Delaware limited liability company (“MPL”), each company being sometimes referred to as a “Party” or collectively as the “Parties”.
WITNESSETH:
WHEREAS, HST owns certain pipeline systems as shown on Exhibit “A” attached hereto and made a part hereof (collectively, the “Systems”) that are used for receiving, storing, transporting and delivering crude oil, indirect products and refined petroleum products; and 
WHEREAS, HST desires that MPL provide the services identified herein for the operation of the Systems for HST; and
NOW, THEREFORE, for and in consideration of the premises and the mutual benefits, covenants and agreements herein contained, the Parties hereto have agreed and do hereby agree as follows:

1.      DEFINITIONS

1.1    Definitions.  As used herein,

“Affiliates” means, as to any specified Person, any other Person that, directly or indirectly, through one or more intermediaries or otherwise, controls, is controlled by or is under common control with the specified Person.  For purposes of this definition, “control” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether by contract or otherwise.

“Agreement” has the meaning set forth in the preamble hereof.

“Calendar Year” means a year beginning on the first day of January and ending on the thirty-first day of December.

“Damages” has the meaning set forth in Section 10.1.

“Dispute” means any controversy or claim, whether based in contract, tort or 
otherwise.

“DOT” means the U.S. Department of Transportation.

“Effective Date” has the meaning set forth in Section 2.2.
    

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“Environmental Laws” means all laws, rules, regulations, statutes, ordinances, decrees or orders of any governmental authority relating to (i) the control of any potential pollutant or protection of the air, water or land, (ii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation, and (iii) exposure to hazardous, toxic or other substances alleged to be harmful, and includes without limitation, (1) the terms and conditions of any license, permit, approval, or other authorization by any governmental authority and (2) judicial, administrative, or other regulatory decrees, judgments, and orders of any governmental authority. The term “Environmental Law” shall include, but not be limited to the following statutes as amended and the regulations promulgated thereunder: the Clean Air Act, 42 U.S.C. §7401 et seq., the Clean Water Act, 33 U.S.C. §1251 et seq., the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. §6901 et seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C. §11011 et seq., the Toxic Substances Control Act, 15 U.S.C. §2601 et seq., the Safe Drinking Water Act, 42 U.S.C. §300f et seq., the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. §9601 et seq., and any state, county, or local statutes or regulations similar thereto.

“Environmental Liabilities” means any and all liabilities, responsibilities, claims, suits, losses, costs (including remediation, removal, response, abatement, clean-up, investigative, and/or monitoring costs and any other related costs and expenses), other causes of action recognized now or at any later time, damages, settlements, expenses, charges, assessments, liens, penalties, fines, prejudgment and post-judgment interest, attorney fees and other legal fees (i) pursuant to any agreement, order, notice, requirement, responsibility, or directive (including directives embodied in Environmental Laws), injunction, judgment or similar documents (including settlements) arising out of or in connection with any Environmental Laws, or (ii) pursuant to any claim by a governmental authority or other person or entity for personal injury, property damage, damage to natural resources, remediation, or similar costs or expenses incurred or asserted by such entity or person pursuant to common law or statute.

“Force Majeure” means acts of God, civil disturbances, interruptions by government or court orders, present and future valid orders, decisions or rulings of any government or regulatory entity having proper jurisdiction, acts of the public enemy, wars, riots, blockades, insurrections, inability to secure labor or inability to secure materials, including inability to secure materials by reason of allocations promulgated by authorized governmental agencies, epidemics, landslides, lightning, earthquakes, fire, storms, floods, washouts, inclement weather which necessitates extraordinary measures and expense to construct facilities and/or maintain operations, explosions, breakage or accident to machinery or lines of pipe, inability to obtain or delays in obtaining easements or rights-of-way, the making of repairs or alternations of pipelines or facilities, or any other cause, whether of the kind herein enumerated or otherwise, not reasonably within the control of the Party claiming Force Majeure.

“Initial Term” has the meaning set forth in Section 2.2.

“Management Fee” has the meaning set forth in Section 4.2.

“MPL” has the meaning set forth in the preamble hereof.

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“Operator” has the meaning set forth in Section 2.1.  

“Organization Chart” has the meaning set forth in Section 8.2(a). 

“HST” has the meaning set forth in the preamble hereof.

“Party” or “Parties” has the meaning set forth in the preamble hereof.

“Person” means a natural person, corporation, partnership, limited liability company, joint stock company, trust, estate, joint venture, union, association or unincorporated organization, governmental authority or any form of business or professional entity.

“Reimbursable Charges” has the meaning set forth in Section 8.2.

“Renewal Term” has the meaning set forth in Section 2.2.

“Services” has the meaning set forth in Section 3.1.

“SCADA” means supervisory control and data acquisition.  

“Systems” has the meaning set forth in the recitals hereof.

“Term” has the meaning set forth in Section 2.2.  

2.      APPOINTMENT AND TERM

2.1     Appointment. MPL is hereby engaged as the provider of operational and accounting expertise (“Operator”) for the Systems, subject to the terms and conditions of this Agreement.

2.2     Term. This Agreement shall commence on January 1, 2015 (the “Effective Date”).  This Agreement shall be binding upon the Parties under the same conditions and provisions for a time period commencing on the Effective Date and continuing through December 31, 2015 (the “Initial Term”); and this Agreement shall automatically extend from year to year thereafter (each a “Renewal Term”) unless either Party provides the other Party with written notice of its intent to terminate this Agreement at least six (6) months prior to the end of the Initial Term or any Renewal Term.  The Initial Term and Renewal Term, if any, shall be referred to in this Agreement as the “Term”. 

3.     AGREEMENT OF OPERATOR TO OPERATE

3.1     Agreement of Operator to Operate the Systems. Operator shall provide the personnel and support services necessary for the routine or normal operation of the Systems, including without limitation, the operation and maintenance of the Systems and for the repair, modification, activation, 

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and deactivation involved with the routine or normal operation and maintenance of all or parts of the Systems as they may be modified, improved or operated, and shall also include activities performed by Operator to comply with Environmental Laws (collectively and individually referred to throughout this Agreement as the “Services”). Without limiting the generality of the foregoing, Operator shall:

(a)perform operational activities as may be required to receive, transport, deliver and otherwise handle products including the delivery of crude oil, indirect products and refined petroleum products to other transportation mechanisms;

(b)purchase or cause to be purchased, for and in the name of HST (or Operator for the benefit of HST), necessary materials, supplies and services (including fuel and power) and incur such expenses and enter into such commitments as necessary in connection with the proper operation of the Systems; provided, however, no single purchase or commitment for an amount in excess of Fifty Thousand Dollars ($50,000.00) shall be made unless such was previously included in an approved budget or has been previously approved by HST;

(c)promptly pay and discharge, for and in the name of HST (or Operator for the benefit of HST), all expenses, costs and liabilities incurred in operation, replacement, improvement or modification of the Systems;

(d)periodically inspect the Systems for damage or other conditions which could affect the safe, efficient and economical operation of the Systems as required by laws, regulations, permit conditions, right of way agreements or good operational practices, and perform or cause to be performed such repairs to the Systems as may be required;

(e)act as agent for HST in contacts with government agencies relating to the physical operation and maintenance of the Systems, where required by laws, regulations, permit conditions, or agreements;

(f)prepare and maintain operating manuals, emergency response plans, and training programs satisfying applicable laws, rules, regulations, and other requirements of governmental authorities together with such other operating procedures or manuals as operation of the Systems may require;

(g)manage the scheduling and custody transfer of crude oil, indirect products and refined petroleum products into the Systems from the various delivery facilities and of crude oil, indirect products and refined petroleum products out of the Systems to other transportation means;

(h)file, store and maintain all as-built drawings or descriptions of the Systems, construction and maintenance records, inspection and testing records, operating procedures and manuals, custody transfer documents, and such other records as may be required by applicable laws, rules and regulations of governmental authorities or as may be requested by HST;

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(i)provide budgeting and accounting functions for HST, prepare and distribute monthly, quarterly and annual financial reports, prepare and distribute expense and capital expenditure budgets, and such other accounting matters required by governmental agencies or as requested by HST for the operation of the Systems;

(j)manage the environmental compliance of the Systems by obtaining all necessary permits to operate the Systems on behalf of HST, by managing and disposing of all wastes generated from the Systems, and by managing remediation projects, and by implementing health, environment and safety management programs that include appropriate auditing and similar techniques, all in accordance with applicable federal and state laws and regulations;

(k)promptly pay and discharge, for and in the name of HST (or Operator for the benefit of HST), all expenses, costs and liabilities incurred in performing activities on behalf of the Systems, including without limitation, payment of taxes, fees and related items;

(l)negotiate agreements and perform any and all activities which are necessary and 
required to operate and maintain the Systems;

(m)promptly respond to and remediate all releases or spills emanating from the Systems, and ensure that all applicable Environmental Laws are complied with in responding to and remediating such releases or spills;

(n)conduct periodic inspections of the Systems in accordance with industry standards and Environmental Laws and other applicable laws and regulations;

(o)provide community awareness, governmental affairs and public relations services as they relate to the operation of the Systems;

(p)provide legal support on issues of relevance to HST including appropriate reporting of such activities;

(q)provide surveillance and operation of the Systems via a SCADA system;

(r)monitor and maintain cathodic protection systems in accordance with DOT regulations;

(s)maintain such records, reports and other documents in connection with performing the Services hereunder as are required by DOT regulations;

(t)aerially patrol the Systems’ facilities in accordance with DOT regulations;

(u)perform vegetation control for the Systems; and

(v)remotely operate the Systems’ facilities and monitor pipeline activity for line integrity (such remote operation activities include, but are not limited to, monitoring pump unit 

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protection and control, pressure control, valve control, net metering, tank level changes, and periodic over and short calculations).

Except with respect to Services provided pursuant to Sections 3.1 (a), (d), (j), (m), (n), (q), (r), (t) and (u) above, or absent a written agreement of the Parties to the contrary, the Parties agree that the Services are performed in Ohio and are received by HST at HST’s headquarters.  Subject to the terms of this Agreement, Operator shall perform the Services hereunder with the same degree of diligence and care that it would exercise if operating its own property, and in accordance with all valid and applicable laws, rules and regulations of the appropriate governmental authorities.

3.2     No Liens. Operator shall protect and defend the Systems and related rights-of-way from the existence of mechanic’s, materialmen’s and similar claims and liens arising from any action caused by Operator or any of its subcontractors and shall indemnify and hold harmless HST from all loss, cost and expense arising from any such claims and liens.

4.     EMPLOYMENT OF PERSONNEL; MANAGEMENT FEE

4.1     Personnel. Operator, or one of its Affiliates (other than HST), shall employ or contract for such personnel as may be required by Operator to perform the Services.  All such personnel, whether full or part-time, who are assigned to the Systems shall at all times remain employees of Operator, or its Affiliates, and shall be subject to their respective employer’s employee benefit plans and policies. Operator shall employ reasonable efforts to maintain the number of personnel performing Services for HST at the optimum level and to keep them organized in a manner which will afford cost effective and efficient day-to-day operation of the Systems.

4.2     Management Fee. Operator shall be paid a management fee (the “Management Fee”) in the amount of $12,177,200.00 per year in twelve (12) equal monthly installments starting as of the Effective Date and payable by the first day of the month for each succeeding month thereafter. Such Management Fee shall be in addition to any Reimbursable Charges contained in Section 8.2 and shall compensate Operator for the Services performed for HST by Operator.

4.3     Adjustment of Management Fee. Effective January 1, 2015 and annually thereafter, the Management Fee shall be adjusted by the same percentage that the annual “Average Hourly Earnings of Production Workers” reported in the North American Industry Classification System, Section 486, as published by the U.S. Department of Labor, Bureau of Labor Statistics, changed during the preceding Calendar Year; provided, however, that in no event shall the Management Fee ever be adjusted to less than $12,177,200.00 per year.  Should the scope of the Services performed by Operator significantly change during the Term, either Party may immediately notify the other Party, at which time the Parties will enter into good faith negotiations for a period of thirty (30) days to examine the change in scope of the Services and adjust the Management Fee accordingly.  In the event the Parties, following such good faith negotiations, fail to agree on an appropriate adjustment to the Management Fee, either Party may terminate this Agreement without liability to the other Party.

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4.4     Non-Operator Personnel. For the purpose of providing the Services, Operator may utilize its common law employees, the services of leased employees or third party contractors or Affiliates.  If Operator uses third party contractors or Affiliates to provide such Services, Operator will insure that the same are qualified to perform the Services in accordance with Operator’s standards and that they coordinate all of their activities with Operator and keep Operator fully informed of their plans and activities sufficiently in advance for Operator to perform its obligations under this Agreement.
 
4.5     Liability for Compensation, Benefits, Severance and Taxes. HST shall only be responsible for payment of Operator’s fees and expenses as set out in this Agreement. Operator shall ensure that all such personnel expenses incurred in connection with the personnel referred to in this Section 4 are paid, including compensation, salary, wages, overhead and administrative expenses incurred by Operator and its Affiliates and if applicable, social security, taxes, workers compensation insurance, benefits and other such expenses. Operator shall indemnify and save harmless HST from all claims or liability for wages, salary, taxes or benefits in respect of Operator’s personnel.

5.     BUDGETS AND FORECAST OF REVENUE

5.1     Operating Budget and Capital Budget. In order to inform HST as to the operating and capital expenditures contemplated for a forthcoming Calendar Year, to obtain HST’s approval in respect thereof and to provide the authority to Operator to make certain extraordinary expenditures, an expense budget, a capital budget and a forecasted statement of income and cash flow shall be prepared annually for the Systems in consultation with HST and presented to HST for approval and utilized in accordance with the following:

(a)Preparation of Budgets and Presentation to HST. Operator shall prepare and submit to HST for review and approval, each Calendar Year in accordance with HST’s budget and forecast timing requirements, an expense budget, a capital budget and a forecasted statement of income and cash flow, all to include the current and two (2) additional year forecasts.  Such budgets shall set forth (i) the sums projected to be expended during the current Calendar Year, (ii) a proposed budget of the sums to be expended during the next Calendar Year, (iii) the sums it proposes to expend for such purposes during the next two Calendar Years following the budget year, and (iv) such other information as is reasonably requested by HST. It is understood between HST and Operator that Operator is preparing the budgets at the direction of HST and that the Budgets are based on the most current information available to Operator both from its own knowledge of the Systems and from that knowledge supplied to Operator by HST.

(b)Budget Amendments. Operator may propose amendments to any budget at any time by preparing a written budget amendment in a format similar to that described in Section 5.1(a) and by submitting it to HST.  HST shall approve or deny any proposed amendments within thirty (30) days of submission to HST.

(c)Prior Budget in Effect. Until any new expense budget, capital budget, or amendment thereto is approved by HST, the prior budget shall remain in effect. 

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5.2     Emergency Expenditures. Operator shall be responsible for handling emergencies occurring with respect to the Systems.  In cases of emergency, Operator may proceed with expenditures for required work when such is necessary in Operator’s good faith judgment to alleviate the emergency or to reduce or eliminate damage or danger to persons, property or the environment, without the necessity of submitting such proposed expenditures in advance for approval by HST. In such emergency cases, Operator shall be allowed to use, in its good faith discretion, any of its or its Affiliates’ operating or administrative personnel to take corrective action, including without limitation, the use of emergency response service assets of Operator or its Affiliates or their emergency contract agents. Costs associated with such occurrence shall be billed directly to HST and shall not be subject to any limitation set forth in Section 5 of this Agreement. In such event, Operator shall, as soon as practicable, by telephone notice or otherwise inform the person designated by HST of the existence or occurrence of the emergency, full particulars thereof, the corrective action being taken or proposed and the estimated cost, as known. Such notice shall be confirmed in writing, as soon as practicable.

Operator has established an emergency response plan which will be provided to HST.  Operator shall comply with the plan terms and requirements in responding to one-call and emergency notifications received, and to emergency conditions indicated at Operator’s operations center.

6.      CASH DEFICIENCIES

If, at any time, Operator determines that HST’s cash generations are insufficient to cover cash expenditures, including but not limited to, activities associated with the operation of the Systems as defined in this Agreement and Operator expenses chargeable to HST, Operator will notify HST as soon as possible.  HST shall advance to Operator on a timely basis, and in no event in more than ten (10) business days, monies in the aggregate sufficient to cover the costs incurred by Operator in the operation of the Systems.  Nothing in this Section 6 is intended to authorize expenditures in excess of those authorized under this Agreement.

7.      ACCOUNTING

7.1     Records. Operator will prepare and preserve for and in the name of HST a complete set of operating, tax and investment records in accordance with generally accepted accounting principles; and, in addition, will keep and maintain for HST an accurate and complete set of books, records, and accounts which will reflect any and all financial transactions of HST.  Such records shall be kept in a form and in a manner so as to be able to readily identify them as belonging to HST, to be accessed by HST and to allow them to be segregated from Operator’s records.  Operator shall furnish all such information and reports as may be required for HST’s meetings and by any federal or state agency having appropriate jurisdiction.  HST and its duly authorized representatives may, at its option and at its sole expense at all reasonable times, but not more often than once in any Calendar Year, audit the accounts of Operator for the operation of the Systems.  Nothing herein shall limit HST’s ability to have full access to HST’s books, accounts, records and all other documents, in the possession or control of Operator, of whatever nature, whether prepared by Operator or otherwise, at all reasonable times.

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Separate bank accounts will be maintained by HST or, by Operator if so directed by HST, in HST’s name, into which all revenues and receipts belonging to HST shall be deposited and from which all payments on behalf of HST shall be made.  Operator shall have such authority as delegated by HST, from time to time, to manage the day to day cash receipts and disbursements through the bank accounts of HST and to invest surplus funds from time to time, all in accordance with guidelines approved by HST.

7.2    Periodic Reports and Statements. Operator will analyze operating costs for control purposes, prepare cash and movements forecasts, and will furnish monthly financial statements and such other reports, statistics, and statements relative to the operation of the Systems as HST may reasonably request or as may be required by its financial commitments now in existence or hereafter entered into.  Operator will prepare and file or assist in the preparation and filing with the appropriate regulatory agencies, in the name of HST, all reports required by law in connection with the ownership and operation of the Systems as provided in Section 3.1.

8.      SCHEDULE OF CHARGES

8.1     Chargeable Items. The items set forth in this Section 8 are among the items properly chargeable to the account of HST in connection with the operation of the Systems and its facilities, subject to the limitations prescribed in this Section 8 and to the extent set forth in an approved budget pursuant to Section 5.

8.2     Reimbursable Charges.  Costs for the following items (collectively, 
 
“Reimbursable Charges”) shall be paid by Operator and reimbursed by HST:

(a)The salaries and wages (including incentive compensation) of Operator’s direct 
charge positions that provide direct charge services, as identified on the Organization Chart Exhibit “B” attached hereto and made a part hereof, for the actual hours worked by such personnel on behalf of HST.

(b)Operator’s allocated costs of employee benefits, employee insurance plans, unemployment compensation, medical plans, vacation, holiday, pension plans, thrift plans, and other similar indirect payroll costs applicable to the employees for that portion of their salaries and wages (including incentive compensation) which are chargeable to HST under Section 8.2(a).

(c)Actual travel and business expenses reasonably incurred for the benefit of HST.  

(d)Insurance required and purchased pursuant to Section 10.3 or Section 10.4.

(e)Vehicles and equipment which directly support operation of the Systems will be charged at Operator’s standard unit or day rate.

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(f)Any other documented costs, expenses, or liabilities incurred for the necessary 
and proper operation of the Systems.

9.      MATERIAL PURCHASE AND DISPOSAL

Operator will exercise control over all requisitions and purchases originated by Operator on behalf of HST, subject to HST’s approval of the expense and capital budgets as set forth in Section 5 of this Agreement.  Operator will approve all requisitions for materials and will initiate, verify, and conclude all purchase orders for any and all supplies, material, and equipment deemed by Operator to be necessary for the operation of the Systems all in accordance with the approved expense or capital budget pursuant to Section 5.  Operator is authorized to offer for sale on behalf of HST from time to time to the general public worn out, defective, replaced, or idle materials, tools, facilities or equipment of HST provided that Operator’s estimate of the fair market value of each such item does not exceed One Hundred Thousand Dollars ($100,000.00).  Any hazardous materials or wastes removed from such equipment must be managed in compliance with all applicable Environmental Laws.

10.      INDEMNIFICATION, INSURANCE, AND CLAIMS

10.1     As used in this section, the term “Damages” means any and all (i) obligations; (ii) liabilities; (iii) compensatory and punitive damages (including, but not limited to, damages for injury to or death of persons and damages to or destruction or loss of property); (iv) costs, losses, liabilities, damages, and expenses in any way associated with contamination pursuant to any current, past, or future federal, state, or local laws, including, but not limited to, Environmental Laws, rules, permits, regulations, orders, or ordinances including, but not limited to, the Oil Pollution Act of 1990 (33 U.S.C.A. Section 2701 et seq.), the Comprehensive Environmental Response Compensation Liability Act (42 U.S.C.A. Section 9601 et seq.), and the Resource Conservation and Recovery Act as amended (42 U.S.C.A. Section 6901 et seq.); (v) fines and penalties; (vi) losses; (vii) actions; (viii) suits; (ix) claims; (x) judgments, orders, directives, injunctions, decrees or awards of any federal, state, or local court or administrative or governmental authority, bureau or agency; and (xi) costs and expenses (including, but not limited to, reasonable attorneys’ fees) incurred in the defense of any of the foregoing.

10.2    (A) HST HEREBY AGREES TO RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND OPERATOR, ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, BOARD OF MANAGERS, SHAREHOLDERS, DIRECTORS, MEMBERS, EMPLOYEES, CONTRACTORS, SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL DAMAGES ARISING OUT OF, IN ANY WAY RELATING TO, OR IN ANY DEGREE CAUSED BY THE OPERATION OF THE SYSTEMS INCLUDING THOSE ALLEGED TO RESULT FROM THE NEGLIGENCE OF OPERATOR, EXCEPT FOR OPERATOR’S CONDUCT AMOUNTING TO GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AND WHETHER OCCURRING AS THE SOLE OR A CONCURRENT CAUSE OF AN ACT OR EVENT GIVING RISE TO AN INDEMNITY OBLIGATION HEREUNDER

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(B) OPERATOR HEREBY AGREES TO RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND HST, ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, BOARD OF MANAGERS, SHAREHOLDERS, DIRECTORS, MEMBERS, EMPLOYEES, CONTRACTORS, SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL DAMAGES ARISING OUT OF, IN ANY WAY RELATING TO, OR IN ANY DEGREE CAUSED BY, OPERATOR’S CONDUCT AMOUNTING TO GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AND WHETHER OCCURRING AS THE SOLE OR A CONCURRENT CAUSE OF AN ACT OR EVENT GIVING RISE TO AN INDEMNITY OBLIGATION HEREUNDER.

10.3    Operator shall maintain, at HST’s expense, workers’ compensation insurance, employer’s liability insurance and all other insurance required by the applicable state and federal laws.  Should any state in which Operator’s (or Operator’s Affiliates’) employees perform work hereunder permit self-insurance regarding workers’ compensation, including employer’s liability, Operator (or Operator’s Affiliates) may self-insure against any such losses and bill to HST only actual costs incurred in administering such program.  Upon request of HST, Operator will provide reasonable evidence of self-insurance.  Claims incurred by Operator (or Operator’s Affiliates) in excess of the statutory limit on employer’s liability insurance shall be settled by Operator, at the expense of HST, subject to the provisions of Section 10.7.

10.4    Operator shall obtain, in the name and at the expense of HST, such additional insurance as HST may direct.

10.5    Operator shall require all contractors and subcontractors to indemnify, defend, and hold harmless HST to the same extent and degree of protection as Operator is able to negotiate for itself.  Operator shall further require all such contractors and subcontractors to include insurance coverage for HST to the same extent that Operator is covered by any such insurance provided by the contractor or the subcontractor.

10.6    Contractors and subcontractors to Operator shall not ordinarily be required to provide performance bonds; however, Operator may require a performance bond if it deems it necessary and desirable under particular circumstances, the cost of which, if paid by Operator, shall be reimbursed by HST.

10.7    In the event that either Party receives written notice of the commencement of any action or proceeding, the assertion of any claim by a third party or the imposition of any penalty or assessment for which indemnity may be sought pursuant to Section 10.2(A) or 10.2(B), and such Party intends to seek indemnity from the other Party pursuant to this Section 10.7, such Party shall provide the other Party with written notice of such intent, within sixty (60) days of the receipt by the Party seeking indemnification of notice of such action, proceeding, claim, penalty or assessment, and such other Party shall be entitled to participate in or, at such other Party’s option, assume control of the defense, appeal, settlement or remedial activities of such action, proceeding, claim, penalty or assessment with respect to which such indemnity has been invoked, and the Party that requested indemnification will fully cooperate with the other Party in connection therewith.  No Party shall settle or compromise any such action, proceeding, claim, penalty or assessment with respect to 

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which indemnification has been sought without the other Party’s prior written consent, which consent shall not be unreasonably withheld.

10.8    The terms and conditions of Sections 10.1 and 10.2 shall survive any termination of this Agreement or the dismantlement, removal, abandonment of, or discontinuance of service of the Systems.

11.      TAXES

Operator will pay, in the name of HST, with HST funds, prior to the delinquent date thereof unless otherwise directed, all ad valorem taxes, federal, state and local income taxes, franchise taxes, sales and use taxes, property and any other taxes arising out of the ownership and operation of the Systems, other than income, franchise and similar taxes on Operator for which Operator shall be responsible to pay for its own account.  Operator will prepare and file HST’s income tax returns, including all federal, state and local income tax returns.

12.      LAW GOVERNING

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT, OR ANY TRANSACTION OR CONDUCT IN CONNECTION HEREWITH, IS WAIVED.

13.      FORCE MAJEURE

13.1    Effect of Force Majeure. (a) In the event that either HST or Operator is rendered unable, by reason of an event of Force Majeure, to perform, wholly or in part, any obligation under this Agreement, then upon such Party’s giving notice and full particulars of such event as soon as practicable after the occurrence thereof, the obligations of both Parties, to the extent they are affected by such event of Force Majeure, except for unpaid financial obligations arising prior to such event of Force Majeure and except for Operator’s obligation to take steps to deal with any emergency in the Systems, shall be suspended to the extent and for the period of such Force Majeure condition.

(b)Non-Force Majeure Situations. Neither HST nor Operator shall be entitled to the benefit of the provisions of Section 13.1(a) of this Agreement under the following circumstances:

(i)to the extent that the failure was caused by the Party claiming suspension having failed to remedy the condition by taking all reasonable acts, short of litigation, if such remedy requires litigation, and having failed to resume performance of such commitments or obligations with reasonable dispatch, provided, however, that neither Party shall be required to settle a labor dispute against its own better judgment;

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(ii)if the failure was caused by failure of the Party claiming suspension to request or pay necessary funds in a timely manner, or with respect to the payment of any amounts then due hereunder; or

(iii)to the extent that the failure was caused or contributed to by gross negligence or willful misconduct of the Party claiming suspension.

(c)Resumption of Normal Performance.  Should there be an event of Force Majeure affecting performance hereunder, the Parties shall cooperate, other than financially, to take all reasonable steps to remedy such event with all reasonable dispatch to insure resumption of normal performance.

(d)Suspension.  In the event that, by reason of Force Majeure, the Systems, or any individual pipeline, are shut down or unable to operate for any continuous period of sixty (60) days, or (ii) Operator is unable to resume its obligations described in this Agreement for any continuous period of thirty (30) days such that it materially affects the ongoing economic operation of the Systems or this Agreement, then HST, on thirty (30) days written notice to the Operator may elect to suspend this Agreement, unless within such thirty (30) day notice period such event of Force Majeure is relieved and all operations which had been shut down by such Force Majeure shall have been recommenced.  If this Agreement is suspended, all fees and charges will be reduced by an amount that is appropriate under the facts and circumstances of the nature and duration of the period of such suspension.  Operator will be entitled to reimbursement for severance costs of direct charge position employees terminated as a result of the suspension of Operator’s operations to the extent Force Majeure is claimed by HST.

13.2    Term. Nothing in Section 13.1 shall have the effect of extending any Term of this
 
Agreement.

14.      EXAMINATION OF RECORDS

HST may, at all reasonable times, examine the books, accounts and records of HST in the possession or control of Operator, in accordance with Section 7.1 hereof.  The cost of such examination shall be borne by HST and Operator shall cooperate with and give access to the representatives of HST at all reasonable times.

15.      TERMINATION OF OPERATIONS

15.1    Termination Costs. If HST decides to terminate the operation of the Systems, or to sell or lease the Systems to a third party, other provisions of this Agreement to the contrary notwithstanding, Operator may be removed as Operator upon HST giving not less than ninety (90) days advance written notice to Operator.  Subject to Section 15.2 below, in the event Operator is removed as aforesaid, all costs and expenses incurred by Operator, including severance costs of direct charge position employees terminated, to effectuate such termination and not otherwise reimbursed under Section 8 of this Agreement, shall be reimbursed by HST.

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15.2    Removal of Operator.  Operator may be removed by HST and this Agreement shall be terminated if:

(a)Operator shall neglect or fail to perform any or all of its material obligations under this Agreement and after thirty (30) days written notice of such default fails to rectify the same; or

(b)Operator becomes bankrupt or insolvent, commits or suffers any act of bankruptcy or insolvency, is placed in receivership, seeks debt or relief protection under any applicable legislation and such is not rectified within thirty (30) days of such event; or

(c)Operator assigns or purports to assign its general powers and responsibility of supervision and management as Operator hereunder without the prior written consent of HST.

If Operator is terminated under Section 15.2, Operator shall only be entitled to its Reimbursable Charges due or incurred to the date of termination.

15.3    Resignation by Operator. Operator may resign as Operator and this Agreement
 
shall be terminated if:

(a)HST shall neglect or fail to perform any or all of its material obligations under this Agreement and after thirty (30) days written notice of such default fails to rectify the same; or

(b)HST becomes bankrupt or insolvent, commits or suffers any act of bankruptcy or insolvency, is placed in receivership, seeks debt or relief protection under any applicable legislation and such is not rectified within thirty (30) days from such event; or

(c)If HST decides to terminate the operation of the Systems.

If Operator resigns under Section 15.3, then Operator shall be entitled to receive Reimbursable Charges due or incurred to the date of termination, and reimbursement of all costs and expenses incurred by Operator, including severance costs of direct charge position employees terminated as a result of the resignation, not otherwise reimbursed under Section 8 of this Agreement.

15.4     Nonapplicability.  For greater certainty, it is understood and agreed that Sections 15.1 to 15.3 do not apply where this Agreement is terminated and Operator ceases to be Operator as a result of the termination of this Agreement pursuant to Section 2.2; in which case
 
Operator shall be paid the Reimbursable Charges only up to the date of termination of this Agreement.

16.      MISCELLANEOUS

14

16.1    Entirety of Agreement.  This Agreement constitutes the entirety of the agreement between the Parties with respect to operation, maintenance, direction and management of the Systems from and after the Effective Date.

16.2    Captions or Headings. The headings appearing at the beginning of each section and at the beginning of various subsections are all inserted and included solely for convenience and shall never be considered or given any effect in construing this Agreement or any provisions hereof or liabilities of the respective Parties or in ascertaining intent, if any question of intent should arise.

16.3    Assignability.  The rights, duties and privileges under this Agreement shall not be assigned by either Party without the prior written consent of the other Party, provided, however, Operator may, without obtaining HST’s consent (a) engage contract personnel and personnel employed by its Affiliates to perform the Services contemplated under this Agreement, or (b) assign this Agreement to one of its Affiliates.

16.4    Notices. All notices, claims, certificates, requests, demands and other communications hereunder must be in writing and will be deemed to have been duly given if delivered by hand, telex, telecopy or mailed (registered or certified mail, postage prepaid, return receipt requested) as follows:

(a)If to Operator:

Marathon Pipe Line LLC
539 South Main Street
Findlay, OH 45840
Attention: President
Facsimile No.: (419) 421-3125

(b)If to HST:

Hardin Street Transportation LLC
200 East Hardin Street 
Findlay, OH 45840 
Attention: President
Facsimile No.: (419) 421-3125

16.5    Confidentiality. Each Party acknowledges that it may receive information from or regarding the other Party in the nature of trade secrets or that otherwise is confidential.  Except as permitted herein, each Party agrees not to disclose to any third party (including any Affiliates of such Party other than those Affiliates required by a Party to carry out such Party’s obligations hereunder and then only to the extent necessary) or to use except in furtherance of the purposes and objectives of this Agreement, any information it receives from or about the other Party that, if such information is in written form and is clearly designated as being confidential at the time of receipt, or, if such information is not in written form, is specifically designated as being confidential in a written notice received within thirty (30) days after the receipt of such information. Notwithstanding 

15

the foregoing, “confidential information” shall include customer-specific prices, cost or pricing formulas, descriptions of customer negotiations, or marketing and strategic plans of any other Party, other cost information, shipper information (including volumes and grade), contract terms (including the terms and provisions and existence of this Agreement), price information, and strategic or marketing methods or plans.  All information not so designated or classified or not of the type described in the immediately preceding sentence, shall be deemed not to be confidential.  Without the consent of the other Party, each Party agrees not to disclose to any third party (including such Party’s Affiliates other than those Affiliates required by a Party to carry out such Party’s obligations hereunder and then only to the extent necessary), other than in furtherance of the purposes and objectives of this Agreement, any such confidential information, except for disclosure (a) compelled by law (but the disclosing Party must notify the other Party promptly of any request for such information before disclosing it, if practicable), (b) to advisors, consultants or representatives of the applicable Party (provided that such persons agree in writing to maintain the confidentiality of such information), (c) of information that is or becomes available to the publicly generally (except through the breach of the provisions of this Agreement), or (d) of information a Party has also received from a source independent of the other Party and the receiving Party reasonably believes obtained that information without breach of any obligation of confidentiality.  With respect to other information that is not specifically designated as being confidential or which otherwise pursuant to the terms hereof is confidential, it is the intent of the Parties that each Party should treat all such information regarding the other Party according to the same standard applied by such Party to similar information pertaining to its own business.

16.6    Waiver.  No waiver by any Party of any default by any other Party in the performance of any provision, condition or requirement herein shall be deemed to be a waiver of, or in any manner release the other Party from, performance of any other provision, condition or requirement herein, nor shall such waiver be deemed to be a waiver of, or: in any manner a release of, the other Party from future performance of the same provision, condition or requirement. Any delay or omission of any Party to exercise any right hereunder shall not impair the exercise of any such right, or any like right, accruing to it thereafter.  No waiver of a right created by this Agreement by one Party shall constitute a waiver of such right by the other Party except as may otherwise be required by law with respect to persons not Parties hereto. The failure of one Party to perform its obligations hereunder shall not release the other Party from the performance of such obligations.

16.7    Severability. Should any provision of this Agreement be deemed in contradiction with the laws of any jurisdiction in which it is to be performed or unenforceable for any reason, such provision shall be deemed null and void, but this Agreement shall remain in force in all other respects.  Should any provision of this Agreement be or become ineffective because of changes in applicable laws or interpretations thereof or should this Agreement fail to include a provision that is required as a matter of law, the validity of the other provisions of this Agreement shall not be affected thereby.  If such circumstances arise, the Parties hereto shall negotiate in good faith appropriate modifications to this Agreement to reflect those changes that are required by law.

16.8    Conflicts.  In the event there is any conflict between this Agreement and any schedule or subsequent agreement referred to herein, the provisions hereof shall be deemed controlling unless expressly provided to the contrary in the schedule or subsequent agreement.

16

IN TESTIMONY WHEREOF, this Agreement may be executed in counterparts, each of which shall be considered an original and effective as of the date first above written.
  

HARDIN STREET TRANSPORTATION LLC    MARATHON PIPE LINE LLC 

By:     /s/ Craig O. Pierson    ____________    By:     /s/ Shawn M. Lyon    ____________

Name:     Craig O. Pierson                Name:     Shawn M. Lyon    ___        

Title:     President                    Title:     Vice President                

17

Exhibit A

Pipeline Systems

Bellevue 4” Products
Campbell Branch – Vina 6” Crude
Columbus Locals
Detroit LPG – Woodhaven #1-4” LPG
Detroit LPG – Woodhaven #2-4” LPG
High Island – Texas City 14” Crude
Lima - Canton 12”-16” Crude
Lima Pump Out
Princeton – Robinson 4” LPG
Princeton to Robinson 8”-6” Products
RIO 8” Products
St. James - Garyville 30” Crude
Toledo – Steubenville 6”-4” Products
Woodhaven Buckeye – Woodhaven 8” LPG
 
Canton Crude Truck Unload
Campbell Branch Truck Unload & Tankage

Bellevue Tankage 
Findlay Tank Farm
Griffith Terminal
Heath Tank Farm
Lima Tank Farm
Martinsville Terminal (Tanks 1210, 1235, 1279, 1280, 1283)
Pasadena Terminal
Stockbridge Tank 681
Wood River Products Tank #627
Zachary Terminal

** Separate agreement is in place for the Louisville-Lexington 8” Products system.

{368210.DOC  }

{368210.DOC  }Exhibit 10.1

 

MINISTRY OF THE ECONOMY AND OF INNOVATION

 

CONTRACT BY AND BETWEEN THE PORTUGUESE STATE AND PETROBRAS INTERNATIONAL BRASPETRO BV, PETRÓLEOS DE PORTUGAL — PETROGAL, S.A., AND PARTEX OIL AND GAS (HOLDINGS) CORPORATION, IN A CONSORTIUM, FOR THE GRANTING OF RIGHTS OF EXPLORATION (PROSPECTION AND RESEARCH), DEVELOPMENT AND PRODUCTION OF OIL IN THE AREA KNOWN AS “AMÊIJOA”

 

On the 18th day of the month of May 2007, at eleven thirty in the morning, at Torre de Belém, in Lisboa, with the Minister of the Economy and of Innovation present, Mr. Manuel António Gomes de Almeida de Pinho, as the first grantor and representative of the Portuguese State (hereinafter the “State”), and, as the second grantors, Mr. Nestor Cuñat Cerveró, married, Brazilian, residing at Rua Garcia d’Ávila, 25 — apartment 1202, Ipanema, Rio de Janeiro, Brazil, representing PETROBRAS INTERNATIONAL BRASPETRO BV, a corporation formed and existing pursuant to the laws of the Netherlands, with its main offices at Prins Bernhardplein 200, 1097 JB, Amsterdam, the Netherlands, with Corporate Identification Number 24339383, and with corporate capital of 5,000,000 euros, with permanent representation in Portugal at Avenida Eng. Duarte Pacheco, Torre 2, 16 Andar, 1070-274, Lisboa, and corporate identification number 980367263 (hereinafter “Petrobras”), Mr. Manuel Ferreira de Oliveira, married, Portuguese, residing in Aldoar, Porto, and Mr. Fernando Manuel dos Santos Gomes, divorced, Portuguese, residing in Lordelo do Ouro,

 

 

Porto, representing PETRÓLEOS DE PORTUGAL — PETROGAL, S.A., a corporation with its main offices at Rua Tomás da Fonseca, Torre C, 1600-209, Lisboa, registered in the Commercial Registry of Lisbon under number 00523 — 4th Section, with corporate capital of 516,750,000 euros, and corporate identification number 500697370 (hereinafter “Galp”), and Mr. António José da Costa Silva, married, Portuguese, residing at Rua Passos Manuel, 24 — 2.o andar, 1150-260 Lisboa, representing PARTEX OIL AND GAS (HOLDINGS) CORPORATION, a corporation (wholly owned by Fundação Calouste Gulbenkian), formed and existing under the laws of the Cayman Islands, with its main offices at Walker House, P.O. Box 265 GT, in George Town, Grand Cayman, and an office at Pflugstrasse 20, Postfach 473, FL 9490 Vaduz, Lichtenstein, recorded in the Commercial Registry of the Cayman Islands under number WK80617, with corporate capital of US$ 50,000 and corporate identification number 980272173, represented in Portugal through its subsidiary HIDREXPAND, S.A. located at Rua Ivone Silva, no. 6, 1o andar, 1050-124, Lisboa, and corporate identification number 507839188 (hereinafter “Partex.”).

 

I have verified the identities, capacities and powers of representation, respectively, through presentation of Passport No. CO 822896 issued on September 14, 2004, by SR/DPF/RJ — Immigration Police Division — NUPAS Passport Center, Rio de Janeiro; from Identification Card No. 957625-8, issued on June 23, 2000, by Civil Identification Services of Porto; from Identification Card No. 1935266-2, issued on June 6, 2006, by Civil Identification Services of Porto; and by Identification Card No. 9692380 issued on June 22, 2004, by the Identification Division of Lisbon, and by presentation of the affidavits and certificates, which documents are archived in the Division for Oil Research and Exploration, in the General Division of Energy and Geology (hereinafter “DGEG”).

 

 

This contract was prepared before me, Maria Cristina Vieira Lourenço, an attorney acting as a public official, which contract will be governed by the following articles:

 

CHAPTER I

 

ACTIVITY PROVIDED IN CONCESSION

 

ARTICLE ONE

 

(CONCESSION)

 

1.              Pursuant to the terms of Decree Law No. 109/94 of April 26 (hereinafter DL 109/94), the companies Petrobras, Galp and Partex, in a consortium (hereinafter designated as “Petrobras Consortium / Galp / Partex” or the “Concession Holder”), are awarded a concession to carry out the activities of prospection, research, development and production of oil on the Portuguese continental shelf, beyond the 200-meter deep water polygon in Area No. 236 — known as “Amêijoa”, whose implantation is shown on the attached map (Annex I), including 1 (one) block of 42 (forty two) lots, whose description is also attached hereto (Annex II).

 

2.              The members of the consortium are jointly and severally liable for complying with the obligations arising under this Contract (“Concession Contract”), except in the cases in which, according to the terms of Portuguese tax legislation in force, that liability is individual. Petrobras is the operator for the Concession Holder (“Operator”). The appointment of a new Operator for all or any portion of the area, and at all times subject to this Concession Contract, must be authorized in advance by DGEG, which will assess the competence and technical capacity of the new Operator.

 

3.              The Concession Holder appoints the Operator to lead and carry out all operations and activities to be developed within the scope of this Concession Contract, to submit all work

 

 

plans, projects, proposals and other communications to DGEG, and to receive all responses, requests, solicitations, proposals and any other communications from DGEG.-

 

4.              The work to be performed within the scope of this Contract in areas subject to administrative rights-of-way, restrictions on public works, or any other limitations that are administrative in nature lack legal authorizations, licenses, approvals or favorable opinions from entities with jurisdiction in those areas, to the extent that the exercise of rights conferred by this Concession Contract is or might be prohibited, limited or even conditioned by the respective special legislation.

 

5.              The authorizations, licenses, approvals or favorable opinions mentioned in the previous number must be obtained by the Concession Holder.

 

ARTICLE TWO

 

(PROSPECTION AND RESEARCH)

 

1.              Without prejudice to what is established in Annex IV of this Contract, and the waiver right (“drill or drop”) to which refers article 63 of DL 109/94, during the initial period the Concession Holder will perform a minimum of the following prospection and research work:

 

	
First   year:
    	
·
    	
Purchase   of 1500 km of speculative seismic, gravimetric data, information on wells and   geochemistry, with an estimated investment of US$ 750,000.00 (seven hundred   and fifty thousand United States dollars).
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Initiate   nearly 500 km of seismic 2D, with an estimated investment of US$ 125,00.00   (one hundred and twenty-five thousand United States dollars).
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Seismic   mapping and data integration.
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Regional   analysis and modeling of the basin.
    

 

 

	
 
    	
·
    	
Market   prospection for seismic acquisition campaign.
    
	
 
    	
 
    	
 
    
	
Second   year:
    	
·
    	
Conclusion   of reprocessing and geological and geophysical reintegration as a function of   reprocessing data.
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Start   of preparation of seismic acquisition campaign.
    
	
 
    	
 
    	
 
    
	
Third   year:
    	
·
    	
Start   of market prospection regarding the availability of drilling / ships /   equipment for wells to be drilled as agreed for the fourth year.
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Realization   of 2D seismic campaign (1000 km) or 3D equivalent (250 km2), with an estimated   investment of US$ 1,000,000.00 (one million United States dollars).
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Initiate   processing and interpretation of data collected.
    
	
 
    	
 
    	
 
    
	
Fourth   year:
    	
·
    	
Conclusion   of processing new seismic data collected and its interpretation.
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Preparation   and realization of a research drill, with an estimated investment of US$ 15,000,000.00 (fifteen million United States dollars).
    
	
 
    	
 
    	
 
    
	
Fifth   year:
    	
·
    	
Geological   and geophysical studies.
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Reinterpretation   of seismic lines based on new data obtained in the research drill done during   the previous year.
    
	
 
    	
 
    	
 
    
	
Sixth   year:
    	
·
    	
Realization   of research drill, with an estimated investment of US$ 15,000,000.00 (fifteen   million United States dollars).
    

 

 

	
Seventh   year:
    	
·
    	
Geological   and geophysical studies.
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Reinterpretation   of seismic lines based on new data obtained in the research drill done during   the prior year.
    
	
 
    	
 
    	
 
    
	
 
    	
·
    	
Preparation   of third research drill.
    
	
 
    	
 
    	
 
    
	
Eighth   year:
    	
·
    	
Realization   of research drill with an estimated investment of US$ 15,000,000.00 (fifteen   million United States dollars).
    

 

2.              Prospection and research work will be included in annual plans, duly broken down and budgeted, to be submitted for approval by DGEG, according to the terms of Articles 31 and 32 of DL 109/94. 

 

3.              The field work projects to which Articles 33 and 34 of DL 109/94 refer, which foresee the realization of drilling, must include the conditions of their eventual closure. 

 

4.              Any research work done in a certain year beyond the work projected as being mandatory for that year will be deducted from the work that must be done in following years. 

 

ARTICLE THREE

 

(MANDATORY RELINQUISHMENT OF AREAS)

 

1.              Without prejudice to the waiver right (“drill or drop”) to which refers Article 63 of DL 109/94, the Concession Holder must relinquish at least 50% (fifty percent) of the area of the concession at the end of the 5th (fifth) year of the initial period, under Article 84(2)(b) of DL 109/94. 

 

2.              At the end of the 8th (eighth) year of the initial period, and in the event of a request for the extension mentioned in Article 35(4) of DL 109/94, the Concession Holder must relinquish at least 50% (fifty percent) of the area in force at that time. 

 

 

3.              Relinquishment of areas must comply with numbers 3 to 6 of Article 36 of DL 109/94, taking into consideration subsections (b) and (c) of Article 84(2) of that same Decree Law and of Annex IV. 

 

ARTICLE FOUR

 

(DEVELOPMENT AND PRODUCTION)

 

1.              Within the scope of exploration (prospection and research activities), whenever the Concession Holder establishes the existence of an economically viable oil field, it must develop the respective preliminary demarcation and the general working plan for development and production, which must include the closing plan and the return of the area to its original or equivalent status, and the respective schedule for execution, submitting them to DGEG for discussion, according to the terms of Articles 37 to 39 of DL 109/94. 

 

2.              The development and/or production work established for each year will be in the annual plans, duly broken down and budgeted for, to be submitted for discussion by DGEG, according to Articles 31, 32 and 40 of DL 109/94. 

 

3.              Within the period of 5 (five) years from the approval date of each general development and production plan, according to the terms of Article 41 of DL 109/94, the Concession Holder must definitively demarcate the boundaries of the oil blocks in which the acknowledged oil fields are located. 

 

4.              The period to which the previous number refers may be extended when it is shown to be technically justified, pursuant to Article 41(2) of DL 109/94. 

 

5.              The commercial production of an oil field may only be initiated as of the date of approval of the respective general development and production plan. 

 

 

6.              The Concession Holder must perform the work in a regular and continuous manner, employing good oil industry techniques and practices and rigorously observing the technical rules that might be established in the future. 

 

7.              Except in the special situations established in Article 72 of DL 109/94, the Concession Holder may freely make use of the oil it produces. 

 

8.              The conditions regarding oil development and production activities will be established in the general development and production plan to be agreed to by and between DGEG and the Concession Holder according to the terms of Articles 38 and 39 of DL 109/94. 

 

ARTICLE FIVE

 

(REPORTS)

 

1.              Every quarter the Concession Holder will send DGEG a report in triplicate summarizing the activities performed. 

 

2.              Every year, the Concession Holder will send DGEG a technical report in triplicate on its activities, attaching a copy of all technical information produced during the period. 

 

3.              At the end of the 3rd (third) year in the initial period, and even up to 90 (ninety) days after exercising the waiver right (“drill or drop”) mentioned in Article 63 of DL 109/94, if applicable, the Concession Holder will present a complete report on assessment of the concession area.

 

4.              Whenever geophysical or drilling campaigns are done, the Concession Holder will provide DGEG with additional specialized reports, attaching all of the information produced in accordance with guidance to be provided in a timely manner by DGEG.

 

 

ARTICLE SIX

 

(SAFETY AND HYGIENE OF PERSONNEL AND FACILITIES)

 

1.              In the exercise of the activities awarded in concession, the Concession Holder must observe the general rules regarding the conditions of work-related safety, hygiene and health, as well as Community provisions in relation to protecting workers in extraction industries. 

 

2.              The Concession Holder must also present DGEG with the plans referred to in Article 70(2) of DL 109/94. 

 

ARTICLE SEVEN

 

(PROTECTION OF THE ENVIRONMENT AND RECOVERY OF THE LANDSCAPE)

 

1.              In the exercise of the activities awarded in concession, the Concession Holder must adopt, pursuant to the terms of Article 71 of DL 109/94, adequate measures to minimize the environmental impact, ensuring protection of the surrounding ecosystem and safeguarding cultural patrimony, in compliance with the legal norms in force in that regard, whatever their source. 

 

2.              Return, on any grounds whatsoever, in whole or in part, of the concession area will mean for the Concession Holder, the obligation to return the abandoned area, when applicable, to its original or equivalent status. 

 

ARTICLE EIGHT

 

(INSURANCE)

 

1.              The Concession Holder is obligated to purchase insurance policies and to keep them updated, which contracts are entered into with any renowned international insurance company, against the risks inherent to its activity, namely assuring coverage of damage arising from the Concession Holder’s civil liability. 

 

 

2.              Every year when the annual work plans are presented, the Concession Holder must prove the existence of insurance to DGEG by presenting a copy of the respective policy. 

 

3.              According to the criteria of reasonability, DGEG has the authority to notify the Concession Holder regarding update of the contractual conditions of the insurance policy within a reasonable period of time. 

 

4.              Failure to comply with what is stated in numbers 1 and 2 of this article, as well as failure to comply with the obligation imposed by DGEG according to the terms of notification referred to in the previous number of this article, are serious violations of the Concession Holder’s contractual duties, which justify termination of the Concession Contract. 

 

ARTICLE NINE

 

(THE CONCESSION HOLDER’S CIVIL LIABILITY)

 

1.              Pursuant to general legal terms, the Concession Holder is liable for negligence or risk for any damage caused to the State or to third parties that result from its activity. 

 

2.              The Concession Holder will also be liable for damage caused by the entities it has contracted, regardless of the terms under which the party causing the damage was contracted. 

 

ARTICLE TEN

 

(RISK)

 

The Concession Holder assumes full liability for losses and damage and for other risks associated with the activity granted in concession, and the State will not have any liability or right or recourse against the Concession Holder by virtue of events that occur during the exercise of that same activity or in relation to that activity. 

 

 

CHAPTER II

 

DURATION AND TERMINATION OF THE CONCESSION

 

ARTICLE ELEVEN

 

(PERIODS OF THE CONCESSION)

 

1.              The period of the initial period of the concession is 8 (eight) years from the date this Contract is signed, which period may be extended twice for periods of 1 (one) year, pursuant to numbers 4 and 5 of Article 35 of DL 109/94, without prejudice to the waiver right (“drill or drop”) by the Concession Holder as provided in Article 63 of the same legal document. 

 

2.              The period of production is 30 (thirty) years from the date of approval of the corresponding general development and production plan, pursuant to numbers 3 and 4 of Article 22, and Article 84(2)(b) of DL 109/94, which may be extended one or more times, up to a maximum of 15 (fifteen) years. 

 

3.              The production period may be extended under numbers 5 and 6 of Article 22 of DL 109/94, as long as the Concession Holder requests this up to 1 (one) year prior to the end of the period and as long as the considerations and other conditions offered as compensation for the requested extension are accepted by the State. 

 

ARTICLE TWELVE

 

(TERMINATION OF THE CONTRACT)

 

This Contract may be terminated for any of the reasons listed in Article 59 of DL 109/94 and according to the terms of Articles 60 to 64 of that same document, without prejudice to what is stated in the following article. 

 

 

ARTICLE THIRTEEN

 

(REVERSAL TO THE STATE)

 

1.              With termination of the Contract for any of the reasons stated in Article 59 of DL 109/94, and according to the State’s option, the equipment, instruments, work done, facilities and any other assets directly and permanently affected by the concession will revert at no charge to the State, in which case the State will assume the liability for eventual transfer, or those assets will remain the property of the Concession Holder, in which case their possible transfer will be the responsibility of the Concession Holder.  

 

2.              In the event that the Concession Holder does not request an extension pursuant to the terms of Article 11 of this Contract, or if it is not possible to reach an agreement as established in number 3 of that same Article 11, then the State must exercise the option referred to in the previous number, up to 6 (six) months prior to termination of the Contract, without prejudice to what is provided in the following numbers. 

 

3.              If the cause for termination of the Contract is rescission, the State must exercise the option mentioned in the previous number regarding the notification of rescission to the Concession Holder.  

 

4.              In the event of the end of the contract by agreement between the State and the Concession Holder, the Concession Holder must verify establishment of the option referred to in number 1 of this article. 

 

5.              If the State does not exercise the option referred to in the previous numbers within the time periods established therein, this will mean that it chose not to receive those assets. 

 

 

CHAPTER III

 

SPECIAL OBLIGATIONS OF THE CONCESSION HOLDER

 

ARTICLE FOURTEEN

 

(FEES)

 

1.              The Concession Holder will pay DGEG a fee for entering into the contract in the amount of 45,000 € (forty-five thousand euros). 

 

2.              In the event of transfer of the contractual position to unaffiliated parties, when authorized, the Concession Holder will pay DGEG a fee in the amount of: 

 

a.              15,000 € (fifteen thousand euros) if the transfer occurs in the first 3 (three) years of the initial period; 

 

b.              30,000 € (thirty thousand euros) if the transfer occurs during the remaining years of the initial period, considering possible extensions to be covered; 

 

c.               45,000 € (forty-five thousand euros) if the transfer occurs during the production period. 

 

3.              For the purposes of this Concession Contract, “Affiliate” means any company or individual that:

 

a.              Directly or indirectly controls a Party, or; 

 

b.              Is directly or indirectly controlled by that Party, or; 

 

c.               Is directly or indirectly controlled by a company or individual who directly or indirectly controls that Party. 

 

“To control” means to exercise the right to 50% (fifty percent) or more of the votes in the appointment of members of the Administration — or members of a similar body, as applicable — of that company or individual. 

 

4.              The rates referred to in this article will be paid and collected as provided for in Article 55 of DL 109/94. 

 

 

ARTICLE FIFTEEN

 

(YIELD FROM AREA)

 

1.              During the valid period of this Contract, the Concession Holder will pay the state an annual surface yield per square kilometer of the area held, to be determined as follows: 

 

a.              During the first 3 (three) years of the initial period, 15 € (fifteen euros) /km2;

 

b.              During the remaining years in the initial period: 30 € (thirty euros) / km2;

 

c.               During the 1st (first) year of extension of the initial period: 60 € (sixty euros / km2;

 

d.              During the 2nd (second) year of extension of the initial period: 80 € (eighty euros) /km2;

 

e.               During the production period: 240 € (two hundred and forty euros / km2). 

 

2.              The amount of surface yield corresponding to the year of signature of this Contract will be calculated in proportion to the number of months remaining until the end of the same year.

 

3.              In the payment and collection of surface yields, Article 53 of DL 109/94 will be observed. 

 

ARTICLE SIXTEEN

 

(CONFIDENTIALITY)

 

1.              The Concession Holder, as well as the entities with which it cooperates, will keep all data or informational elements obtained throughout the course of their activities confidential, for the entire valid period of this Contract, and they cannot transfer them to third parties unless expressly authorized in advance by DGEG. 

 

2.              All information and data sent to DGEG by the Concession Holder will be kept confidential for the period of 5 (five) years after it has been received, or until extinction of the Concession Contract, if this should occur first.

 

 

ARTICLE SEVENTEEN

 

(PAYMENTS TO THE STATE)

 

1.              During the valid period of the Concession Contract, the Concession Holder agrees to make available to DGEG, annually, during the initial period of the concession (eight years, which may be extended twice for periods of one year), annual financing equal to 50,000 € (fifty thousand euros) in the first five years, and 75,000 € (seventy-five thousand euros) in the remaining years in the initial period of the concession, for: 

 

a.              Technology transfer programs, updates/training and promotional activities; 

 

b.              Acquisition and/or contracting of equipment / specialized technical means; 

 

c.               Preservation and treatment of technical data and information. 

 

2.              During the valid period of the Concession Contract, the Concession Holder must transfer, every year for the period of five years, with priority given to the University of Lisbon and the University of Coimbra, the amount of 25,000 € (twenty-five thousand euros), for technology transfer programs, special studies and training. 

 

3.              In the event of discovery, and once production is initiated, the Concession Holder, after recovering the costs for research and development of the oil field(s), and after discounting the operating costs for production, that is, when it attains a positive net result, must also pay the following to DGEG in a continuous manner: 

 

·                  2% (two percent) of the value of the first 5 (five) million barrels of oil equivalent produced and effectively commercialized;

 

 

·                  5% (five percent) of the amount of production and commercialization of oil equivalent between 5 (five) and 10 (ten) million barrels; 

 

·                  7% (seven percent) of the amount of the remaining barrels of oil equivalent produced and commercialized. 

 

4.              Within 30 (thirty) days after the end of each quarter, the Concession Holder will present all relevant information for calculating the amount it owes to DGEG, in accordance with what is established in number 2 above. This information must include production values, plus the costs of research, development, production and operation, the amounts obtained from sales of oil, and the taxes charged or to be charged. The Concession Holder will provide its estimate of what it should pay to DGEG in relation to the quarter in question. The DGEG will then issue an invoice of amounts owed, and it will notify the Concession Holder of this invoice. This amount must be paid within 30 (thirty) days following the date that invoice is received. Failure to pay this amount is a serious violation of the Concession Holder’s contractual duties, assuming that if the Concession Holder does not agree with the amount of the invoice, after payment of the amount that is not contested it will have the right to submit the difference in dispute to an Arbitration Court, as per Article 22. 

 

5.              The verification and collection of the amount stated in the previous number will have as reference the conversions internationally accepted by the oil industry, which are 1 boe (barrel of oil equivalent) = 6000 cubic feet of gas = 1 barrel of liquid oil. 

 

 

CHAPTER IV

 

INSPECTION AND GUARANTEES

 

ARTICLE EIGHTEEN

 

(INSPECTION)

 

1.              The activities that comprise the concession are subject to inspection by the DGEG, without prejudice to inspections by other competent entities, namely those that comprise the Maritime Authority System. 

 

2.              The Concession Holder may not impede or make access to the concession area difficult for the purposes established in the previous number, and it must place adequate means at the disposal of the inspection entities so that they can perform their functions. 

 

3.              The Concession Holder must provide all books and registries with respect to the establishment and the activities allowed in the concession that DGEG considers necessary for inspections, and it must provide clarifications that are requested of it. 

 

4.              If the Concession Holder has not followed instructions issued by the DGEG within the scope of its inspection powers, then the Concession Holder must correct the situation, directly or through third parties, and all corresponding costs will be paid by the Concession Holder. 

 

ARTICLE NINETEEN

 

(INSPECTIONS)

 

All expenses resulting from extraordinary inspections are to be paid by the Concession Holder, namely those due to complaints from third parties, as long as the existence of irregularities is found that can be attributed to it. 

 

 

ARTICLE TWENTY

 

(BONDS)

 

1.              As a guarantee of good and complete compliance with the obligations arising from the Concession Contract, including the payment of fines and indemnity for losses caused to the State or to third parties within the scope of those obligations, the Concession Holder will provide a bond in favor of DGEG, according to the terms established in the following numbers. During the production period, no bonds whatsoever will be provided. 

 

2.              Bonds will be provided by means of a bank deposit to the order of DGEG, of an autonomous bank guarantee payable upon the first request or of an insurance bond with a clause regarding payment upon the first request, whatever the case understanding that the payment, to which there can be no exceptions, must be made as soon as requested in writing by DGEG, and without the need for documental or any other type of justification. 

 

3.              Pursuant to the terms of Article 74 of DL 109/94, the bonds will be provided annually, simultaneously with presentation of the annual work plans for prospection and research, during the initial period, and its amount will be equal to 50% (fifty percent) of the value of the budgeted work included in the respective annual plans, to which Article 31 of DL 109/94 refers.

 

4.              The bonds end once the respective valid period has passed, except those that must be renewed or replaced, which will remain in force as long as the corresponding renewal or substitution with a new bond has not been issued. 

 

 

ARTICLE TWENTY-ONE

 

(FORCE MAJEURE)

 

1.              Breach or delay in compliance with any obligation by the Concession Holder, in whole or in part, will be considered justifiable if, and only to the extent that such breach or delay is caused, due to reasons of Force Majeure. The period of time of that breach or delay, together with the period necessary for repair of any damage caused during such delay, must be added to the period established in this Concession Contract for compliance with such obligations and for the execution of any obligation dependent upon it and, consequently, added to the period of this Concession Contract. 

 

2.              For the purposes of this Concession Contract, “Force Majeure” means any event or circumstance considered, according to criteria of reasonability, outside of the control of any of the parties, which impedes or delays compliance with the obligations established in this Concession Contract and which, despite taking adequate measures, such party is not able to avoid, including but not limited to, acts of war, acts of terrorism, uprisings, rebellions or civil disturbances, earthquakes, storms or other natural disasters, explosions, fires or expropriations, nationalizations, requisitions or other interference from governmental authorities, and even national or regional strikes or labor conflicts (whether official or not).

 

3.              The party that invokes Force Majeure must communicate this with the other party within a reasonable period of time after the occurrence of the facts on which it is based, and it must keep the other party informed regarding all significant developments. This communication must be reasonably detailed regarding all reasons of Force Majeure and it must include a projection of the time that will probably be necessary for that party to be able to overcome the causes of Force Majeure. 

 

4.              If the causes of Force Majeure continue for more than fifteen (15) consecutive days, the Parties will meet immediately to go over the situation and to agree to the measures to be

 

 

taken for removal of the cause of Force Majeure, and to re-establish compliance with the obligations established in this Concession Contract in accordance with legal provisions. 

 

5.              If the case of Force Majeure were to occur during the initial period of prospection and research, or during any of its extensions, and its impacts continue for a period of six (6) consecutive months, the Concession Holder may, within the scope of what is stated in Article 60(e) of DL 109/94, request DGEG ninety (90) days in advance of the expiration of this Concession Contract, for a founded demonstration of the impossibility of complying with its obligations. DGEG will assess the claim of the Concession Holder and will provide its opinion, submitting the process to the decision of the Minister, who will determine the expiration of the Concession Contract or its review, with the agreement of the Concession Holder, in order to ensure the conditions of fulfillment of the work.

 

CHAPTER V

 

TRANSFER OF RIGHTS AND RESPONSIBILITIES OF THE CONCESSION HOLDER

 

ARTICLE TWENTY-TWO

 

(ASSOCIATION WITH THIRD PARTIES AND TRANSFER OF POSITION)

 

1.              The Concession Holder may not associate with third parties in a system of non-corporate participation of interests, nor may it transfer its position as Concession Holder to third parties without prior authorization from the responsible Minister, pursuant to the terms established in Article 77 of DL 109/94. While an Affiliate cannot be considered a third party, any transfer of position in favor of an Affiliate will be subject to the same procedures, therefore approval cannot be denied if there are no reasons that do not comply with reasonability criteria. 

 

 

If the DGEG does not issue a statement within 30 days, transfer to the Affiliate will be considered as having been approved. 

 

2.              For the purposes of the previous number, transfer of the position of Concession Holder is equivalent to transfer to third parties of the respective quotas or shares that represent more than 50% (fifty percent) of the corporate capital. 

 

CHAPTER VI

 

CONTRACTUAL DISPUTES, NOTIFICATIONS

 

ARTICLE TWENTY-THREE

 

FORUM

 

Differences will be resolved according to Portuguese law, by an arbitration court, in accordance with Article 80 of DL 109/94, which will function according to the terms of Law No. 31/86 of August 29, 1986, and of the Arbitration Clause, now also entered into and whose terms are established in Annex III of this Contract. 

 

ARTICLE TWENTY-FOUR

 

(NOTIFICATIONS)

 

1.              All notifications, communications and other correspondence related to performance of this Concession Contract will be sent to the Petrobras / Galp / Partex Consortium and to the permanent representative in Portugal of the Head of the Consortium, whose address is Avenida Eng. Duarte Pacheco, Torre 2, 16°, 1070-274, Lisbon, with copies to Petrobras International Braspetro B.V. and Petróleo Brasileiro S.A. — Petrobras, whose addresses are, respectively, Prins Bernhardplein 200, 1097 JB, Amsterdam, the Netherlands, and Avenida República do Chile, 500, 30° Piso, Centro, Rio de Janeiro, Brazil. 

 

 

2.              In the event of a change in address, the Head of the Consortium will communicate the new address to be used for these purposes to DGEG in writing 30 (thirty) days in advance. 

 

3.              Except what is provided in the previous paragraph, notifications related to modification of this Concession Contract, or its termination according to the terms of Articles 61 and 64 of DL 109/94, which will also be sent to the permanent representative in Portugal of the members who are not the Head of the Consortium and whose addresses are the following: Petróleos de Portugal — Petrogal, S.A., Edificio Galp, Rua Tomás da Fonseca, Torre C, 1600-209 Lisbon, and Partex Oil and Gas (Holdings) Corporation — Rua Ivone Silva, No. 6, 1° andar, 1050-124, Lisbon. In the event of a change in address, that which is stated in the previous number will apply. 

 

4.              The Concession Holder is considered to have been notified on the third business day following the date of postal registration sent in accordance with the terms established in the previous numbers. 

 

5.              The assumption established in the previous number may be refuted by the notified party when the fact of receipt of the notification occurs on a date subsequent to the assumed date, for reasons not attributable to it. 

 

Two true and correct copies of this Concession Contract are prepared, comprised of pages numbered from one to twenty-four, and by four Annexes, with Annexes I and II comprised of one sheet of paper with one page each, and Annexes III and IV of one sheet with two pages, all initialed by the participating parties — grantors, witnesses and public servant, with the exception of the page that contains the respective signatures, with one copy of the contract and its Annexes remaining in the files of the General Division of Energy and Geology. 

 

 

All witnesses were present, Mr. Miguel Barreto Caldeira Antunes and Mr. Carlos Augusto Amaro Caxaria, respectively the Director General and Assistant Director General of Energy and Geology, who sign along with the granting parties, after having been read out loud by me, María Cristina Vieira Lourenço, which I also sign, and in the presence of all of the participating parties I attest to acceptance by the granting parties of this Concession Contract. 

 

This Contract is stamped according to Law 150/99 of September 11, 1999. 

 

	
 
    	
First Granting Party:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ Manuel António Gomes de   Almeida de Pinho
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Second Granting Parties:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ Nestor Cunat Cerveró
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ Manuel Ferreira de   Oliveira
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ Fernando Manuel dos   Santos Gomes
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ António José da Costa   Silva
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Witnesses:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ Miguel Barreto Caldeira   Antunes
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ Carlos Augusto Amaro   Caxaria
    	
 
    

 

 

	
 
    	
Public Official:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/ María Cristina Vieira   Lourenço
    	
 
    

 

 

ANNEX I

 

MINISTRY OF THE ECONOMY AND OF INNOVATION

PETROBRAS / GALP / PARTEX CONSORTIUM

 

 

	
 
    	
CONCESSION   AREA
    
	
 
    	
236   – “AMÊIJOA”
    
	
 
    	
SCALE:   1/500,000     UTM-ED 50
    

 

 

ANNEX II

 

MINISTRY OF THE ECONOMY AND OF INNOVATION

PETROBRAS / GALP / PARTEX CONSORTIUM

AREA OF CONCESSION NO. 236 – “AMÊIJOA”

 

 

(a)         Polygon that defines the 200-meter deep water line in water, for the purposes of the single article of Decree Law No. 79/85 of March 26, 1985.

 

 

ANNEX III

 

ARBITRATION CLAUSE

 

The Arbitration Clause to which Article Twenty-Three of the Concession Contract for Rights to Prospection, Research, Development and Production of Oil refers, for an area known as “AMÊIJOA”, is governed by the following clauses: 

 

ONE

 

The Arbitration Court will be comprised of 3 (three) arbitrators. Each party must appoint 1 (one) arbitrator, and the 3rd (third) arbitrator will perform the functions of President, and will be chosen by the arbitrators appointed by the parties within the period of 15 (fifteen) days. In the absence of an agreement, the 3rd (third) arbitrator will be indicated by the President of the Court of Appeals of Lisbon. For the purposes of this Arbitration Convention, the parties are understood to be the Portuguese State, on one side, and the Petrobras / Galp / Partex Consortium on the other. 

 

TWO

 

The arbitrators must agree to the rules of the arbitration process, and also to the location of installation or the seat of the court, which will function in Lisbon, using the rules of the International Chamber of Commerce in force at that time for the arbitration proceeding . 

 

THREE

 

The period for a decision from the Arbitration Court will be 6 (six) months from the date of appointment of the last arbitrator. 

 

FOUR

 

The Arbitration Court will rule according to fairness and its decisions are final and enforceable, and no type of appeal to those decisions is allowed. 

 

 

FIVE

 

The Arbitration Court may, if it so understands and is requested by any of the parties, to decree precautionary measures or measures to conserve rights, with respect to the adversary principle. 

 

SIX

 

Filing a request for arbitration will have a suspensive effect, except in relation to payments of any type, by force of law or the Concession Contract. 

 

SEVEN

 

Each party will pay all remuneration and fees of the arbitrator that they name. 

 

EIGHT

 

The remuneration and fees of the 3rd (third) arbitrator will be paid in full by the losing party, or if both parties lose, that remuneration and those fees will be shared by them, with each party paying half. 

 

 

ANNEX IV

 

SPECIAL CONDITIONS WITH RESPECT TO THE

 

“CAMARÃO”, “AMÊIJOA”, “OSTRA” AND “MEXILHÃO” CONTRACTS

 

The 4 (four) concessions are considered to be a global research project, therefore allowing the following: 

 

1.              Minimal mandatory work: 

 

a.              The reprocessing of up to a maximum of 250 km of 2D seismic of the 500 km projected so that each concession area is eventually transferred from one to another or other areas, when technically justified; 

 

b.              The acquisition of up to a maximum of 500 km of 2D seismic lines (or 125 km2 3D seismic) of the 1000 km 2D (or 250 km2 3D) projected so that each concession area is eventually moved from one to another or other areas, when technically justified; 

 

c.               Delays in complying with the obligations for seismic acquisition and/or drilling in some of the concessions are allowed when duly justified by technical and/or logistical reasons (lack of availability of drills, ships and/or equipment), and the contracting process having the adequate means initiated in a timely manner by the Concession Holder. The process of contracting adequate means will be considered as having been initiated in a timely manner by the Concession Holder when it shows, by any means, that it began the preparation work for selection of drills, ships or adequate equipment, as per the program defined in Article 2(1) of this Contract; 

 

 

d.              If, due to the reasons listed in the previous point, once they are approved and accepted, there is a delay in finalization of execution of the seismic campaign during the third year, or in the realization of drilling in any concession, the Concession Holder may, as of the fourth year, exercise the waiver right (“drill or drop”) established in sections (a) and (b) of Article 63(1) of Decree Law No. 109/94. 

 

e.               Location of the mandatory drill corresponding to the 8th (eighth) year of effectiveness of the concession contracts may equally be transferred from one area to another concession area, if technically justified;

 

2.              Relinquishment of areas: 

 

Relinquishment at the end of the 5th (fifth) year of at least 50% (fifty percent) of the area of the concession may be distributed in an unequal manner among the 4 (four) concessions, to be proposed and subject to authorization, thus the relinquishment of at least 25% (twenty-five percent) of the concession area is therefore mandatory per concession.

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