Document:

exv10w1

 

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (“Employment Agreement”), effective February 10, 2006 is between Harvest
Natural Resources, Inc. (the “Company”) and Kurt A. Nelson, a resident of Texas, (“Employee”), the
terms and conditions of which are as follows:

     WHEREAS, the Company and Employee entered into an amended and restated employment agreement
effective February 20, 2003 (the “Amended Employment Agreement”);

     WHEREAS, the Company wishes to provide Employee with certain additional benefits and the
Company and Employee wish to change the benefits described in the Amended Employment Agreement
provided to Employee in the event of a Change of Control;

     WHEREAS, the Company and Employee acknowledge that if Employee’s employment with the Company
terminates for any reason, Employee may inevitably disclose trade secrets of, and other proprietary
and confidential information about, the Company’s business, operations and prospects; and

     WHEREAS, Employee wishes to enter into this Employment Agreement to receive the benefit of the
provisions contained in it;

     NOW THEREFORE, for good and valuable consideration, the sufficiency and receipt of which are
acknowledged, the Company and Employee agree as follows:

	1.	 	TERM OF EMPLOYMENT.

Subject to the terms and conditions set forth in this Employment Agreement, the Company agrees to
employ Employee and Employee agrees to be employed by the Company for the term which started on
November 12, 2001 and ends on May 31, 2006. On May 31, 2006, and on each anniversary thereafter
(an “Extension Date”) the term of this Employment Agreement shall automatically be extended for a
one-year period unless and until either party has given written notice to the other at least one
year before any Extension Date that it or he wishes to terminate this Employment Agreement as of
such Extension Date.

	2.	 	POSITION AND DUTIES.

	 	(a)	 	Position. Subject to annual election by the Company’s Board of
Directors, Employee’s position shall be Vice President-Controller of Harvest Natural
Resources, Inc.
	 
	 	(b)	 	Duties and Responsibilities. Employee’s duties and responsibilities
initially shall be those normally associated with Employee’s position, plus any
additional duties and responsibilities the Company initially may assign orally or in
writing to Employee. Employee shall undertake to perform all Employee’s duties and
responsibilities for the Company and its affiliates in good faith and on a full-time
basis and shall at all times act in the course of Employee’s employment under this

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	 	 	 	Employment Agreement in the best interest of the Company and Company’s affiliates.
	 
	 	(c)	 	The Company’s Right to Change Position or Duties. Subject to the terms
of this Employment Agreement, the Company shall have the right, to the extent the
Company from time to time reasonably deems necessary or appropriate, to change
Employee’s position, or to expand or reduce Employee’s duties and responsibilities.

	3.	 	COMPENSATION AND BENEFITS.

	 	(a)	 	Base Salary. During the term of this Employment Agreement, Employee’
yearly base salary shall be not less than $170,000 US, which yearly base salary shall
be payable from the Company’s Houston offices to Employee in accordance with the
Company’s standard payroll practices and policies, and shall be subject to such
withholdings as required by U.S. Federal law and the State of Texas, or as otherwise
permissible under such practices or policies. The Company shall annually review
Employee’s base salary.
	 
	 	(b)	 	Annual Bonus. Employee shall be eligible for such annual bonus as may
be determined by the Human Resources Committee of the Company’s Board of Directors and
the Company’s Board of Directors, which bonus shall be based on Employee’s performance
under the guidelines adopted by the Company, the Company’s overall performance and any
special circumstances the Human Resources Committee and the Company’s Board of
Directors deem appropriate. Any such bonus is to be determined at the discretion of
the Company’s Human Resources Committee and the Company’s Board of Directors. Employee
acknowledges that the Company is not obligated to award him any bonus in any year.
	 
	 	(c)	 	Special Bonus. Concurrently with the execution and delivery of this
Employment Agreement by the Company, the Company is paying Employee a special bonus of
$25,000.
	 
	 	(d)	 	Employee Benefit Plans. Employee shall be eligible to participate in
the employee benefit plans, programs and policies maintained by the Company for
similarly situated employees in accordance with the terms and conditions to participate
in such plans, programs, and policies as in effect from time to time.
	 
	 	(e)	 	Stock Options and Restricted Stock. Previously Employee has been
granted certain stock options and restricted stock pursuant to the Company’s long-term
incentive plans. Except as provided in Section 4(a), this Employment Agreement neither
increases nor decreases the number of stock options and shares of restricted stock
previously granted, nor does it change the terms under which they were granted.
	 
	 	(f)	 	Vacation. Employee shall be entitled to four (4) weeks annual
vacation.

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	 	(g)	 	Expenses. The Company shall pay or reimburse Employee for all
reasonable expenses actually incurred or paid by Employee in the performance of his
services hereunder upon the presentation of expense statements or vouchers or such
other supporting information as the Company may reasonably require of Employee.
	 
	 	(h)	 	Office Facilities and Services. Employee shall be accorded such
benefits and support services, including without limitation, office facilities,
administrative assistant, communications, and such other perquisites as would normally
be accorded by a corporation of the size and at the stage of development in the
industry in which the Company is, to its Vice President-Controller.
	 
	 	(i)	 	Indemnification. Employee shall be entitled to the benefit of the
indemnification provisions contained in the bylaws of the Company as the same may be
amended.

	4.	 	TERMINATION OF EMPLOYMENT.

	 	(a)	 	Termination By The Company Other Than For Cause Or Disability, Or By
Employee For Good Reason.

	 	(1)	 	The Company shall have the right to terminate Employee’s
employment other than for Cause at any time, and Employee shall have the right
to quit or resign for Good Reason at any time.
	 
	 	(2)	 	If (a) the Company or its successors terminate Employee’s
employment with the Company other than (i) for Cause or (ii) pursuant to a
notice of termination delivered in accordance with Section 1 of this Employment
Agreement or (b) Employee resigns for Good Reason, then (v) the Company shall
pay to Employee within thirty (30) days after the termination or resignation an
amount equal to twenty-four months of Employee’s base salary as in effect
immediately before Employee’s termination of employment or resignation, (w) the
Company shall pay to Employee within thirty (30) days after the termination or
resignation an amount equal to twenty-four months of the maximum contribution
the Company may make for Employee under the Company’s 401(k) profit sharing
plan as in effect immediately before Employee’s termination of employment or
resignation, (x) any outstanding stock option(s) granted by the Company to
Employee shall become fully vested and shall remain exercisable for twelve (12)
months following Employee’s termination pursuant to this Section 4(a)(2), or
the tenth anniversary of the date(s) of the grant(s) specified in the relevant
option agreement(s), whichever is the shorter period, (y) the restriction
period on restricted shares of stock granted by the Company to Employee will
continue and will lapse as if Employee had continued in the employ of the
Company and a certificate(s) representing such shares will be delivered to
Employee within thirty (30) days after the end of the applicable restriction
period, and (z) Employee shall be reimbursed for up to $20,000 of outplacement
services with an outplacement service approved by the Company.

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	 	(3)	 	If the termination or resignation described in Section 4(a)(2)
occurs within 730 days after or 240 days before a Change of Control, then (s)
the Company shall pay to Employee, within thirty (30) days after the
termination of employment or resignation an amount equal to twenty-four months
of Employee’s base salary as in effect immediately before Employee’s
termination of employment or resignation, (t) the Company shall pay to
Employee, within thirty (30) days after the later to occur of the termination,
resignation or Change of Control, the Bonus Amount, (u) the Company shall pay
to Employee within thirty (30) days after the termination or resignation an
amount equal to twenty-four months of the maximum contribution the Company may
make for Employee under the Company’s 401(k) profit sharing plan as in effect
immediately before Employee’s termination of employment or resignation, (v) any
outstanding stock option(s) granted by the Company to Employee shall become
fully vested and shall remain exercisable for twelve (12) months following
Employee’s termination or resignation, or the tenth anniversary of the date(s)
of the grant(s) specified in the relevant option agreement(s), whichever is the
shorter period, (w) the restriction period on restricted shares of stock
granted by the Company to Employee will continue and will lapse as if Employee
had continued in the employ of the Company and a certificate(s) representing
such shares will be delivered to Employee within thirty (30) days after the end
of the applicable restriction period, (x) Employee shall be reimbursed for up
to $20,000 of outplacement services with an outplacement service approved by
the Company, (y) for a period of twenty-four months following the later to
occur of the termination, resignation or Change of Control, the Company shall
continue to provide Employee and Employee’s dependents with the same level of
life, disability, accident, dental and health insurance benefits Employee and
Employee’s dependents were receiving immediately before Employee’s termination
or resignation, and (z) the Company will pay Employee, within thirty (30) days
after the later to occur of the termination, resignation or Change of Control,
an additional amount such that the net amount retained by Employee pursuant to
the benefits described in this Section 4(a)(3) after any excise tax imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended from time
to time, shall be equal to the amount that Employee would have received
pursuant to those benefits before payment of any such excise tax.
	 
	 	(4)	 	If the Company or its successors terminate Employee’s
employment with the Company pursuant to a notice of termination delivered in
accordance with Section 1 of this Employment Agreement within 730 days after or
240 days before a Change of Control, then (s) the Company shall pay to
Employee, within thirty (30) days after the later to occur of the termination
or Change of Control an amount equal to twenty-four months of Employee’s base
salary as in effect immediately before Employee’s termination of employment,
(t) the Company shall pay to Employee, within thirty (30) days after the later
to occur of the termination or Change

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	 	 	 	of Control, the Bonus Amount, (u) the Company shall pay to Employee within
thirty (30) days after the later to occur of the termination or Change of
Control, an amount equal to twenty-four months of the maximum contribution
the Company may make for Employee under the Company’s 401(k) profit sharing
plan as in effect immediately before Employee’s termination of employment,
(v) any outstanding stock option(s) granted by the Company to Employee shall
become fully vested and shall remain exercisable for twelve (12) months
following the later to occur of Employee’s termination or Change of Control,
or the tenth anniversary of the date(s) of the grant(s) specified in the
relevant option agreement(s), whichever is the shorter period, (w) the
restriction period on restricted shares of stock granted by the Company to
Employee will continue and will lapse as if Employee had continued in the
employ of the Company and a certificate(s) representing such shares will be
delivered to Employee within thirty (30) days after the end of the
applicable restriction period, (x) Employee shall be reimbursed for up to
$20,000 of outplacement services with an outplacement service approved by
the Company, (y) for a period of twenty-four months following the later to
occur of Employee’s termination or Change of Control, the Company shall
continue to provide Employee and Employee’s dependents with the same level
of life, disability, accident, dental and health insurance benefits Employee
and Employee’s dependents were receiving immediately before Employee’s
termination, and (z) the Company shall pay to Employee, within thirty (30)
days after the later to occur of the termination or Change of Control, an
additional amount such that the net amount retained by Employee pursuant to
the benefits described in this Section 4(a)(4) after any excise tax imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended from
time to time, shall be equal to the amount that Employee would have received
pursuant to such benefits before payment of any such excise tax.

	 	(b)	 	Termination By The Company For Cause, Or By Employee Other Than For Good
Reason.

	 	(1)	 	The Company shall have the right to terminate Employee’s
employment at any time for Cause, and Employee shall have the right to quit or
resign at any time other than for Good Reason.
	 
	 	(2)	 	If the Company terminates Employee’s employment for Cause or
pursuant to a notice of termination delivered in accordance with Section 1 of
this Employment Agreement that is not delivered within 730 days after or 240
days before a Change of Control, or Employee quits or resigns other than for
Good Reason, the Company’s only obligation to Employee under this Employment
Agreement shall be to pay Employee’s base salary (including accrued vacation)
actually earned up to the date Employee’s employment terminates.

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	 	(c)	 	Termination for Disability or Death.

	 	(1)	 	The Company shall have the right to terminate Employee’s
employment on or after the date Employee has a Disability, and Employee’s
employment shall terminate at Employee’s death.
	 
	 	(2)	 	If Employee’s employment terminates under this Section 4(c),
the Company shall pay Employee or, if Employee dies, Employee’s estate the
amount provided for under Section 4(a)(2)(v) and, in addition, Employee or, if
Employee dies, Employee’s estate shall be entitled to the provisions of
Sections 4(a)(2)(w), (x) and (y) with respect to the Company’s 401(k) profit
sharing plan, Employee’s stock options and Employee’s restricted stock.

	 	(d)	 	Bonus Amount. The term “Bonus Amount” means twice the amount of the
higher of (i) the highest annual bonus earned by Employee for the last three fiscal
years ending prior to the termination date, and (ii) (A) the target bonus percentage as
established by the Company’s Board of Directors for the fiscal year in which the Change
of Control occurs, multiplied by (B) Employee’s annual base salary for that fiscal year
(whether or not paid or accrued for the full year at the time of Employee’s termination
or resignation.
	 
	 	(e)	 	Cause. The term “Cause” shall mean (1) Employee’s final conviction of
a felony by a trial court, (2) Employee’s material breach of this Employment Agreement
or (3) Employee’s material violation of any policy or code of conduct of the Company,
all as reasonably determined by the Company.
	 
	 	(f)	 	Good Reason. The term “Good Reason” shall mean any of the following,
unless Employee shall have given his express written consent thereto: (1) a material
breach of the terms and conditions of this Employment Agreement by the Company which
remains uncorrected for thirty (30) days after Employee delivers written notice of such
breach to the Company; (2) failure to maintain or reelect Employee to the position
described in Section 2(a); (3) a significant reduction of Employee’s duties, position
or responsibilities relative to Employee’s duties, position or responsibilities in
effect immediately prior to such reduction, unless Employee is provided with comparable
duties and responsibilities; (4) a substantial reduction, without good business
reasons, of the facilities and perquisites available to Employee immediately prior to
such reduction; (5) a reduction by the Company of Employee’s monthly base salary in
effect immediately prior to such reduction; (6) the Company fails to continue
Employee’s participation in any bonus, incentive, profit sharing,
performance, savings, retirement or pension policy, plan, program or arrangement on
substantially the same or better basis, both in terms of the amount of benefits
provided to Employee and the level of Employee’ s participation, relative to
other participants, (7) the relocation of Employee more than fifty (50) miles from the
location of the Company’s principal office on the date hereof; or (8) the failure of

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the Company to obtain a satisfactory agreement from a successor to assume and agree
to perform this Employment Agreement as contemplated by Section 6(d).

	 	(g)	 	Disability. Employee shall have a “disability” under this Employment
Agreement on the date the Company receives written notice from a physician selected by
the Company that Employee no longer can perform one or more of the essential functions
of Employee’s job even with reasonable accommodation.
	 
	 	(h)	 	Change of Control. A “Change of Control” means the occurrence of any
of the following:

	 	(1)	 	the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934)
(a “Covered Person”) of beneficial ownership (within the meaning of rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 50 percent or more of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the “Voting
Securities”); provided, however, that for purposes of this subsection (1) of
this Section 4(g) the following acquisitions shall not constitute a Change of
Control: (i) any acquisition by the Company, (ii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any entity controlled by the Company, or (iii) any acquisition by any entity
pursuant to a transaction which complied with clauses (i), (ii) and (iii) of
subsection (3) of this Section 4(g); or
	 
	 	(2)	 	individuals who, as of the date of this Employment Agreement,
constitute the board of directors of the Company (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the board of directors of
the Company; provided, however, that any individual becoming a director after
the date of this Employment Agreement whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors; or
	 
	 	(3)	 	the consummation of a reorganization, merger or consolidation
or sale of the Company, or a disposition of at least 50 percent of the assets
of the Company, together with its subsidiaries, including goodwill (a “Business
Combination”), provided, however, that for purposes of this subsection (3), a
Business Combination will not constitute a change of control if the following
three requirements are satisfied:

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	 	 	 	following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of
the Company’s voting securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50 percent
of the ownership interests of the entity resulting from such Business
Combination (including, without limitation, an entity which as a result of
such transaction owns the Company or all or substantially all of the assets
of the Company, together with its subsidiaries, either directly or through
one or more subsidiaries or other affiliated entities) in substantially the
same proportions as their ownership immediately prior to such Business
Combination, (ii) no Covered Person (excluding any employee benefit plan (or
related trust) of the Company or its subsidiaries or such entity resulting
from such Business Combination) beneficially owns, directly or indirectly,
50 percent or more of, respectively, the ownership interests in the entity
resulting from such Business Combination, except to the extent that such
ownership existed prior to the Business Combination, and (iii) at least a
majority of the members of the board of directors of the entity resulting
from such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of the
board of directors of the Company, providing for such Business Combination.
For this purpose any individual who becomes a director after the date of
this Employment Agreement, and whose election or nomination for election by
the Company’s stockholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors.

	 	(i)	 	Benefits. Employee shall have the right to receive any benefits
payable under the Company’s employee benefits plans, programs and policies (other than
the Company’s Policy for Termination and Separation of Employment (the “Severance
Plan”)) which Employee otherwise has a non-forfeitable right to receive under the terms
of such plans, programs and policies (other than severance benefits) independent of
Employee’s rights under this Employment Agreement upon a termination of employment in
addition to any other benefits under this Section 4 without regard to the reason for
such termination of employment. Employee acknowledges and agrees that until the
termination of this Employment Agreement, he shall not be entitled to participate in
the Severance Plan.
	 
	 	(j)	 	Notice of Termination. Any termination by the Company or by Employee
for any reason shall be communicated by a notice of termination to the other party
hereto and shall be given in accordance with Section 6(a). Such notice shall state the
specific termination provision in this Employment Agreement relied upon, and

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	 	 	 	shall set forth in reasonable detail the facts and circumstances claimed to provide
a basis for termination under the provision so indicated.

	 	(k)	 	No Mitigation. Employee shall not be required to mitigate the amount
of any severance payment contemplated by this Employment Agreement, nor shall any such
payment be reduced by any earnings that Employee may receive from any other source.
	 
	 	(l)	 	Stock Award Agreements. In the event of a conflict adverse to Employee
between the terms of this Employment Agreement and the terms of any agreement granting
Employee stock options or restricted stock, the terms of this Employment Agreement
shall govern.

	5.	 	COVENANTS BY EMPLOYEE

	 	(a)	 	Property of the Company.

	 	(1)	 	Employee covenants and agrees that upon the termination of
Employee’s employment for any reason or, if earlier, upon the Company’s
request, Employee shall promptly return all Property which had been entrusted
or made available to Employee by the Company or any of its subsidiaries.
	 
	 	(2)	 	The term “Property” shall mean all records, files, memoranda,
reports, price lists, drawing, plans, sketches, keys, codes, computer hardware
and software and other property of any kind or description prepared, used or
possessed by Employee during Employee’s employment by the Company (and any
duplicates of any such property) together with any and all information, ideas,
concepts, discoveries, and inventions and the like conceived, made, developed
or acquired at any time by Employee individually or with others during
Employee’s employment which relate to the business, products or services of the
Company or any of its subsidiaries.

	 	(b)	 	Trade Secrets.

	 	(1)	 	In consideration for the promises made in Section 5(d) of this
Employment Agreement, the Company promises that it shall provide and make
available to Employee certain confidential, proprietary information and trade
secrets.
	 
	 	(2)	 	Employee covenants and agrees that Employee shall hold in a
fiduciary capacity for the benefit of the Company and each of its affiliates,
and shall not directly or indirectly use or disclose, any Trade Secret that
Employee may have acquired pursuant to Section 5(b)(1) above during the term of
Employee’s employment by the Company for so long as such information remains a
trade secret.

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	 	(3)	 	The term “Trade Secret” shall mean information, including, but
not limited to, technical or non-technical data, a formula, a patent, a
compilation, a program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans, or that: (a) derives economic
value, actual or potential, from not being generally known to, and not being
generally readily ascertainable by proper means by other persons who can obtain
economic value from its disclosures or use, and (b) is the subject of
reasonable efforts by the Company and its affiliates to maintain its secrecy.
	 
	 	(4)	 	This Section 5(b) is intended to provide rights to the Company
and its subsidiaries which are in addition to those rights the Company and its
subsidiaries have under the common law or applicable statutes for the
protection of trade secrets.

	 	(c)	 	Confidential Information.

	 	(1)	 	Employee covenants and agrees while employed under this
Employment Agreement and thereafter during the Restricted Period he shall hold
in a fiduciary capacity for the benefit of the Company and each of its
affiliates, and shall not directly or indirectly use or disclose, any of the
Company’s or the Company’s affiliates’ Confidential or Proprietary Information
that Employee may have acquired (whether or not developed or compiled by
Employee and whether or not Employee is authorized to have access to such
information) during the term of, and in the course of, or as a result of
Employee’s employment by the Company or its affiliates.
	 
	 	(2)	 	The term “Confidential or Proprietary Information” shall mean
any secret, confidential or proprietary information of the Company or an
affiliate (not otherwise included in the definition of a Trade Secret under
this Employment Agreement) that has not become generally available to the
public by the act of one who has the right to disclose such information without
violation of any right of the Company or its affiliates.

	 	(d)	 	Non-Competition. During the period of Employee’s employment with the
Company and thereafter during the Restricted Period, Employee covenants and agrees
that, in connection with the business operations and prospective interests of the
Company on the date of Employee’s termination as an employee of the Company, which
prospective interests are disclosed to Employee prior to or on the date of Employee’s
termination as an employee of the Company, he shall not, directly or indirectly, own
any interest in, manage, control, participate in, consult with, render services for, or
in any manner engage in any businesses in competition with the Company or materially
adverse to the Company (unless the Company’s Board of Directors shall have authorized
such activity and the Company shall have consented thereto in writing). Investments in
less than 5% of the outstanding securities of any class of the Company subject to the
reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of

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	 	 	 	1934, as amended, shall not be prohibited by this section. For purposes of this
Section 5(d), the term “Company” shall include Harvest Natural Resources, Inc. and
any of its affiliates or subsidiaries or any company in which it is a minority
shareholder or a joint venture partner. For purposes of this Section 5(d), the term
“businesses” shall mean any enterprise, commercial venture, or project involving oil
and gas exploration or production activities in the same geographic areas as the
Company’s activities during the period of Employee’s employment.
	 
	 	 	 	Further, during the period of Employee’s employment with the Company and thereafter
during the Restricted Period, Employee covenants and agrees that he will not
directly or indirectly through another entity induce or otherwise attempt to
influence any employee of the Company to leave the Company’s employment or in any
way interfere with the relationship between the Company and any employee thereof.
Further, Employee will not induce or attempt to induce any customer, supplier,
licensee, joint venture partner, shareholder, licensor or other business relation of
the Company to cease doing business with the Company or in any way interfere with
the relationship between any such customer, supplier, licensee, joint venture
partner, shareholder, licensor or business relation of the Company.
	 
	 	 	 	If (i) pursuant to the arbitration process described in Section 6(c) of this
Employment Agreement (or such other process as to which the Company and Employee may
agree upon in writing), it is determined that Employee has violated the provisions
of this Section 5(d), and (ii) Employee has received a payment from the Company
pursuant to Section 4(a)(2)(v), Section 4(a)(3)(s), Section 4(a)(3)(t), Section
4(a)(4)(s) or Section 4(a)(4)(t) of this Employment Agreement (the “Lump Sum
Severance Amount”), then, in addition to any other remedies that the Company may
have, Employee shall be obligated, and hereby agrees, to pay the Company, as
liquidated damages, an amount (but not less than zero) equal to the product of (x)
the Lump Sum Severance Amount and (y) a fraction whose numerator is the excess of
twenty-four (24) over the number of calendar months that have elapsed since the last
day of Employee’s termination of employment under Section 4 of this Employment
Agreement and whose denominator is twenty-four (24).

	 	(e)	 	Employment Restriction – Conflict of Interest. Employee covenants and
agrees that he will not receive and has not received any payments, gifts or promises
and Employee will not engage in any employment or business enterprises that in any way
conflict with his service and the interests of the Company or its affiliates. In
addition, Employee agrees to comply with the laws or regulations of any country,
including, without limitation, the United States of America, having jurisdiction over
Employee, the Company or any of the Company’s subsidiaries.
	 
	 	 	 	Employee shall not make any payments, loans, gifts or promises or offers of
payments, loans or gifts, directly or indirectly, to or for the use or benefit of
any official or employee of any government or to any other person if Employee knows,
or has reason to believe, that any part of such payments, loans or gifts, or

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	 	 	 	promise or offer, would violate the laws or regulations of any country, including,
without limitation, the United States of America, having jurisdiction over Employee,
the Company or any of the Company’s subsidiaries.
	 
	 	 	 	By signing this Employment Agreement, Employee acknowledges that he has not made and
will not make any payments, loans, gifts, promises of payments, loans or gifts to or
for the use or benefit of any official or employee of any government or to any other
person which would violate the laws or regulations of any country, including,
without limitation, the United States of America, having jurisdiction over Employee,
the Company or any of the Company’s subsidiaries.

	 	(f)	 	Restricted Period. The term “Restricted Period” shall mean the
two-year period which starts on the date Employee’s employment terminates with the
Company without regard to whether such termination comes before or after the end of
the term of this Employment Agreement.
	 
	 	(g)	 	Reasonable and Continuing Obligations. Employee agrees that Employee’s
obligations under this Section 5 are obligations which will continue beyond the date
Employee’s employment terminates and that such obligations are reasonable and necessary
to protect the Company’s legitimate business interests. The Company additionally shall
have the right to take such other action as the Company deems necessary or appropriate
to compel compliance with the provisions of this Section 5.

	6.	 	MISCELLANEOUS.

	 	(a)	 	Notices. Notices and all other communications shall be in writing and
shall be deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail. Notices to the Company shall be sent to
1177 Enclave Parkway, Suite 300, Houston, Texas 77077. Notices and communications to
Employee shall be sent to Employee’s home address as indicated by the records of the
Company.
	 
	 	(b)	 	No Waiver. Except for the notice described in Section 4(f), no failure
by either the Company or Employee at any time to give notice of any breach by the other
of, or to require compliance with, any condition or provision of this Employment
Agreement shall be deemed a waiver of any provisions or condition of this Employment
Agreement
	 
	 	(c)	 	Arbitration and Governing Law. ANY UNRESOLVED DISPUTE OR CONTROVERSY
BETWEEN EMPLOYEE AND THE COMPANY ARISING UNDER OR IN CONNECTION WITH THIS EMPLOYMENT
AGREEMENT SHALL BE SETTLED EXCLUSIVELY BY ARBITRATION, CONDUCTED IN ACCORDANCE WITH THE
RULES OF THE AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT. THE COMPANY WILL BEAR
THE ADMINISTRATIVE COSTS OF ANY ARBITRATION UNDER THIS EMPLOYMENT AGREEMENT, INCLUDING
THE ARBITRATOR’S FEES.

-12-

 

	 	 	 	THE ARBITRATOR SHALL NOT HAVE THE AUTHORITY TO ADD TO, DETRACT FROM, OR MODIFY ANY
PROVISION HEREOF. THE ARBITRATOR SHALL HAVE THE AUTHORITY TO ORDER REMEDIES WHICH
EMPLOYEE COULD OBTAIN IN A COURT OF COMPETENT JURISDICTION. A DECISION BY THE
ARBITRATOR SHALL BE IN WRITING AND WILL BE FINAL AND BINDING. JUDGMENT MAY BE
ENTERED ON THE ARBITRATOR’S AWARD IN ANY COURT HAVING JURISDICTION. THE ARBITRATION
PROCEEDING SHALL BE HELD IN HOUSTON, TEXAS, UNITED STATES OF AMERICA.
NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL BE ENTITLED TO SEEK INJUNCTIVE OR
OTHER EQUITABLE RELIEF FROM ANY COURT OF COMPETENT JURISDICTION, WITHOUT THE NEED TO
RESORT TO ARBITRATION IN THE EVENT THAT EMPLOYEE VIOLATES SECTIONS 5(b), 5(c), 5(d)
OR 5(e) OF THIS EMPLOYMENT AGREEMENT. THIS AGREEMENT SHALL IN ALL RESPECTS BE
CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
	 
	 	(d)	 	Assignment by Company; Meaning of “Company”. This Employment Agreement
shall be binding upon and inure to the benefit of the Company and any successor to all
or substantially all of the business or assets of the Company. The Company may assign
this Employment Agreement to any affiliate or successor, and no such assignment shall
be treated as a termination of Employee’s employment under this Employment Agreement;
provided, however, that in the case of an assignment to an affiliate, the Company shall
not be relieved of its obligations under this Employment Agreement. The Company will
require any successor corporation (whether direct or indirect, and whether by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and to agree to perform this Employment
Agreement in the same manner and to the same extent as the Company, as if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a material breach
of this Employment Agreement. As used in this Employment Agreement, “Company” shall
mean the Company as hereinbefore defined and any successor to its business or assets as
aforesaid which assumes and agrees to perform this Employment Agreement by operation of
law, or otherwise.
	 
	 	(e)	 	Assignment by Employee. Employee’s rights and obligations under this
Employment Agreement are personal, and they shall not be assigned or transferred
without the Company’s prior written consent.
	 
	 	(f)	 	Other Agreements. With the exception of any of the Company’s stock
option plans (and related agreements), restricted stock plan (and related agreements)
and incentive plans, and the guidelines referred to in Section 3(b), this Employment
Agreement replaces and merges any and all previous agreements and understandings
regarding all the terms and conditions of Employee’s employment relationship with the
Company, and this Employment Agreement constitutes the

-13-

 

	 	 	 	entire agreement of the Company and Employee with respect to such terms and
conditions.

	 	(g)	 	Amendment. No amendment to this Employment Agreement shall be
effective unless it is in writing and signed by the Company and by Employee.
	 
	 	(h)	 	Invalidity. If any provision of this Employment Agreement is held to
be invalid, illegal or otherwise unenforceable, the remaining provisions shall be
unaffected and shall continue in full force and effect, and there shall be deemed
substituted for the provision at issue a valid, legal and enforceable provision as
similar as possible to the provision at issue.
	 
	 	(i)	 	Enforceability by Beneficiaries. This Employment Agreement shall inure
to the benefit of and be enforceable by the parties hereto and their respective heirs,
legal or personal representatives and successors and if Employee should die while any
amount would still be payable to him hereunder if he had continued to live, all such
amounts shall be paid in accordance with the terms of this Employment Agreement to
Employee’s devisee, legatee or other designee or, if there is no such designee, to his
estate.
	 
	 	(j)	 	Reimbursement of Certain Expenses. To the extent Employee shall
prevail in any arbitration proceeding pursuant to Section 6(c) to resolve any dispute
or controversy between Employee and the Company arising under or in connection with
this Employment Agreement, then the Company shall reimburse Employee, or pay on
Employee’s behalf, all of Employee’s reasonable expenses, including without limitation
attorneys’ fees, incurred by Employee in connection with the arbitration.

	7.	 	NOVATION.

This Employment Agreement is a novation to the Amended and Restated Employment Agreement between
the Company and Employee effective February 20, 2003, which is hereby extinguished. As
consideration for this novation, Employee acknowledges the value of the matters described in the
recitals to this Employment Agreement and the other terms of this Employment Agreement and agrees
that they are adequate to make the novation binding in all respects.

     IN WITNESS WHEREOF, the Company and Employee have executed this Employment Agreement in
multiple originals to be effective as set out above.

	 	 	 	 	 	 	 	 	 	 	 
	HARVEST NATURAL RESOURCES, INC.	 	 	 	KURT A. NELSON	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 
	 	By:
	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	     James A. Edmiston	 	 	 	 	 	 	 	 
	 

	 	     President and Chief Executive Officer	 	 	 	 	 	 	 	 

-14-

 

-15-exv10w2

 

EXHIBIT 10.2

UNOFFICIAL TRANSLATION

MEMORANDUM OF UNDERSTANDING

Conversion to Empresa Mixta Process

This Memorandum of Understanding is celebrated between PDVSA PETROLEO, S.A. (“PPSA”),
mercantile society registered in the Second Mercantile Registry of the Federal District and Miranda
State Federal Circumscription on November 16, 1978, under No. 26, Book 127-A second, being the last
statutes modification on December 13, 2002, as it is recorded in document registered in said
Mercantile Registry, on December 19th, 2002, under No. 60, Book 193-A Second,
represented in this act by citizen Rafael Ramírez Carreño, Venezuelan, of legal age, of this
domicile and holder of Identity Card
No. [                ], acting as President of the company, duly
authorized for this act according to number one of the Twenty Fifth Clause of the Constitutive
Document Statutes; CORPORACIÓN VENEZOLANA DEL PETRÓLEO, S.A. (“CVP”), mercantile society registered
before the Second Mercantile Registry of the Federal District (currently Capital District) and
Miranda State Judicial Circumscription, on December 23rd, 1975, under No. 24 Book 58-A
Second, which Constitutive Document Statutes was included according to entry No. 141, Book 86-A
Pro., dated November 13th, 1981, before the First Mercantile Registry of the Federal
District (currently Capital District) and Miranda State Judicial Circumscription, again modified as
it is registered in Act of Shareholders Extraordinary Assembly on September 30th, 2004,
recorded before the Second Mercantile Registry of the Federal District (currently Capital District)
and Miranda State Judicial Circumscription on October 27th, 2004, under No. 75, Book
179-A-Second, represented in this act by citizen Eulogio Del Pino, Venezuelan, of legal age, of
this domicile and holder of the Identification Card No. [                ], acting in his condition of
President of the company, and HARVEST VINCCLER, C.A. (“Harvest Vinccler”) (previously Benton
Vinccler, C.A.) mercantile society domiciled in the city of Caracas and registered in the
Mercantile Registry of the Federal District and Miranda State Judicial Circumscription on June
29th, 1993, under No. 13, Book 146-A Second, which last modification to the Constitutive
Document –Statutes, in which the current social denomination is acquired, was performed according
to Act of Shareholders Extraordinary Assembly on May 3rd, 2004, recorded before the
Second Mercantile Registry of the Capital District and Miranda State Judicial Circumscription under
No. 17, Book 65-A Second, represented in this act by its Director, James Arthur Edmiston III,
American citizen, of legal age, domiciled in Houston, Texas, holder
of the passport No. [                ]
issued by the United States of America, whose nomination is certified in Act of Shareholders
Assembly duly registered before the Mercantile Registry of the Federal District and Miranda State
Judicial Circumscription on December 6th, 2004, under No. 39, Book 206-A Second,
sufficiently authorized for this act.

 

 

UNOFFICIAL TRANSLATION

This Memorandum of Understanding describes the current state of the negotiations between
Harvest-Vinccler C.A. (hereinafter “Harvest Vinccler”), PDVSA Petróleo, S.A. and Corporación
Venezolana del Petróleo, S.A. (“CVP”), in connection with the migration to empresa mixta of the
operating services agreement corresponding to the Monagas Sur Unit.

	 	1.	 	Subject to all necessary approvals and conditions, including, all corporate approvals
required by law or the charter and by-laws of the controlling entity or entities of
Harvest-Vinccler C.V. and the National Assembly’s approval mentioned in Section 2 below:

(A) CVP and Harvest Vinccler will incorporate an empresa mixta, in which CVP will own sixty
percent (60%) of the shares representing the capital stock (Class A shares) and Harvest
Vinccler will own the remaining forty percent (40%) (Class B shares).

(B) The empresa mixta will be in charge of the development of the primary activities set
forth in the Decree with Rank of Organic Hydrocarbons Law in the area specified in Annex A
of the draft Conversion Contract referred to in letter (C);

(C) The terms and conditions of the migration to empresa mixta, including the charter and
by-laws of the empresa mixta, shall be in substantial conformity with the draft Conversion
Contract attached to this Memorandum of Understanding, it being understood that, as
indicated in such draft, certain details are still pending and should be completed as soon
as possible.

(D) As part of the migration to empresa mixta, CVP shall recognize, with effects on the
Closing Date (as defined in Article 1.4 of the draft Contract for Conversion to Empresa
Mixta attached to this Memorandum of Understanding), a credit in favor of HVCA in an amount
to be agreed upon by CVP and Harvest Vinccler. The parties understand that the
aforementioned recognition of such amount, as well as the transactions to be carried out on
the Closing Date pursuant to Articles 1.4 and 2.1 of the draft Contract for the Conversion
to Empresa Mixta attached to this Memorandum of Understanding, shall not be create taxable
events within the Republic.

(E) Subject to all approvals and conditions set forth in this Memorandum of Understanding,
the parties have reached an agreement on the basis of economic calculations that assumes a
start of operations of the Empresa Mixta, including the execution of the Contract for
Purchase and Sale of Hydrocarbons with PPSA, on April 1, 2006. Promptly after the Closing
Date (as such term is defined in Article 1.4 of the draft Contract for

 

 

UNOFFICIAL TRANSLATION

the Conversion to Empresa Mixta attached to this Memorandum of Understanding), CVP and
Harvest Vinccler shall agree to the necessary adjustments in order to obtain the same
economic result that would have been obtained if the Closing Date would have occurred on
April 1, 2006, taking into account the value of the hydrocarbons produced from April 1,
2006 until the Closing Date, the costs incurred by the parties in relation to such
production, and the shareholding participations contemplated for CVP and Harvest Vinccler
in the Empresa Mixta, as indicated in paragraph (A) above.

(F) CVP understands that Harvest Vinccler is considering a possible sale or exchange of its
interest in the empresa mixta, referred in letter (A). Harvest Vinccler agrees that any
sale or exchange will only be undertaken with the consent of CVP and the Ministry of Energy
and Petroleum. CVP agrees to cooperate with Harvest Vinccler’s possible sale or exchange by
(i) permitting Harvest Vinccler to share information with third parties, including copies
of the Conversion Contract and the status of discussions; and (ii) meeting with potential
purchasers to confirm the understandings of the parties for the conversion to and
operations of the empresa mixta.

	 	2.	 	It is expressly understood that the incorporation of the empresa mixta, and the
conditions that will govern the performance of the primary activities by the empresa
mixta, shall be subject to the prior approval of the Ministry of Energy and Petroleum and
the National Assembly, in accordance with the Decree with Rank of Organic Hydrocarbons
Law.

The parties hereto sign this Memorandum of Understanding in the City of Caracas, on March 31, 2006.

	 
	PDVSA PETRÓLEO, S.A.

	 

	____________

	 

	CORPORACIÓN VENEZOLANA DEL PETRÓLEO, S.A.

	 

	____________

	 

	HARVEST VINCCLER C.A.

	 

	____________

 

 

CONFIDENTIAL

UNOFFICIAL TRANSLATION

03/04/06

FORM OF CONTRACT FOR

CONVERSION TO A MIXED COMPANY

BETWEEN

CORPORACIÓN VENEZOLANA DEL PETRÓLEO, S.A.

AND

HARVEST-VINCCLER, C.A.

APRIL ___, 2006

 

 

INDEX

	 	 	 	 	 
	Article 1. INCORPORATION OF THE MIXED COMPANY
	 	 	3	 
	 
	 	 	 	 
	1.1 Incorporation
	 	 	3	 
	1.2 Purpose
	 	 	3	 
	1.3 Initial Capital and Ownership Interests
	 	 	3	 
	1.4 Transactions on the Closing Date
	 	 	4	 
	1.5 Other Contributions or Loans
	 	 	5	 
	1.6 Failure to Make Contributions or Loans
	 	 	5	 
	1.7 Business Plan
	 	 	6	 
	1.8 Sole Risk Projects
	 	 	7	 
	1.9 Policies and Procedures of the Mixed Company
	 	 	7	 
	1.10 Compliance with Applicable Law
	 	 	8	 
	 
	 	 	 	 
	Article 2. CANCELLATION OF THE OPERATING AGREEMENT
	 	 	8	 
	 
	 	 	 	 
	2.1 Liabilities
	 	 	8	 
	2.2 Environmental Claims
	 	 	9	 
	 
	 	 	 	 
	Article 3. SALE OF HYDROCARBONS
	 	 	9	 
	 
	 	 	 	 
	Article 4. OPERATION, PERSONNEL AND TECHNOLOGY
	 	 	9	 
	 
	 	 	 	 
	4.1 Operating Company
	 	 	9	 
	4.2 Personnel
	 	 	10	 
	4.3 Technology
	 	 	10	 
	 
	 	 	 	 
	Article 5. TERM
	 	 	11	 
	 
	 	 	 	 
	Article 6. ASSIGNMENT AND TRANSFERS OF SHARES
	 	 	11	 
	 
	 	 	 	 
	6.1 Assignment
	 	 	11	 
	6.2 Transfer of Shares
	 	 	11	 
	6.3 Change of Control of Harvest Vinccler
	 	 	11	 
	 
	 	 	 	 
	Article 7. APPLICABLE LAW AND JURISDICTION
	 	 	12	 
	 
	 	 	 	 
	Article 8. AMENDMENTS AND WAIVERS
	 	 	13	 
	 
	 	 	 	 
	Article 9. CAPACITY AND REPRESENTATIONS OF THE PARTIES
	 	 	13	 
	 
	 	 	 	 
	9.1 Basic Representations of the Parties
	 	 	13	 
	9.2 Certain Practices
	 	 	13	 
	 
	 	 	 	 
	Article 10. NOTICES
	 	 	14	 
	 
	 	 	 	 
	Article 11. ENTIRE AGREEMENT
	 	 	14	 
	 
	 	 	 	 
	Article 12. HEADINGS AND REFERENCES
	 	 	14	 
	 
	 	 	 	 
	Article 13. LANGUAGE
	 	 	15	 
	 
	 	 	 	 
	Article 14. COUNTERPARTS
	 	 	15	 

 

 

CONTRACT FOR

CONVERSION TO A MIXED COMPANY

     This contract (hereinafter the “Contract”) is entered into on the ___day of April, 2006,
between CORPORACIÓN VENEZOLANA DEL PETRÓLEO, S.A. (hereinafter “CVP”), a corporation duly
incorporated in accordance with the laws of the Bolivarian Republic of Venezuela (hereinafter the
“Republic”), registered in the Second Commercial Registry of the Judicial Area of the Distrito
Federal (currently Distrito Capital) y Estado Miranda on December 23, 1975, under N° 24, Volume
58-A Segundo, which Charter and By-laws were reinstated as evidenced from registration N° 141,
Volume 86-A Pro., of November 12, 1981, made in the First Commercial Registry of the Judicial Area
of the Distrito Federal (currently Distrito Capital) y Estado Miranda, amended thereafter as
evidenced by the Minutes of the Special Shareholders’ Meeting dated September 30, 2004, filed in
the Second Commercial Registry of the Judicial Area of the Distrito Federal (currently Distrito
Capital) y Estado Miranda, on October 27, 2004 under N° 75, Volume 179-A-Sgdo., represented herein
by Eulogio Del Pino, Venezuelan, of legal age, domiciled herein, and bearer of Identity Card N°
11.041.914, acting in his capacity as President of the company, as one party, and HARVEST-VINCCLER,
C.A. (hereinafter “Harvest Vinccler”) (formerly Benton Vinccler, C.A.), a corporation domiciled in
the city of Caracas and registered in the Second Commercial Registry of the Judicial Area of the
Distrito Federaly Estado Miranda, on June 29, 1993, under No. 13, Volume 146-A Sgdo., which last
amendment to its Charter and By-laws in which it acquired its current corporate name was made as
evidenced by the Minutes of the Special Shareholders’ Meeting dated May 3, 2004, registered in the
Second Commercial Registry of the Judicial Area of the Distrito Capital y Estado Miranda under N°
17, Volume 65-A-Sgdo.; represented herein by its Director James Arthur Edmiston III, American, of
legal age, domiciled in the City of Houston, Texas and bearer of Passport No. 133151669 issued by
the United States of America, which appointment is evidenced by the Minutes of Shareholders’
Meeting duly registered in the Commercial Registry of the Judicial Area of the Distrito Capital y
Estado Miranda on December 6, 2004, under N° 39, Volume 206-A-Sgdo., duly authorized hereof, as the
other party (CVP and Harvest Vinccler shall hereinafter be referred to collectively as the
“Parties” and individually as a “Party”).

     WHEREAS, (i) Lagoven, S.A., as one party, and Benton Oil and Gas Co. and Venezolana de
Inversiones y Construcciones Clerico, C.A. (Vinccler, C.A.), as the other party, both as members of
the Benton-Vinccler Consortium; signed the document named Convenio de Servicios de Operación Unidad
Monagas Sur dated July 31, 1992 (hereinafter, and including all of its addenda and modifications,
the “Operating Agreement”), and (ii) currently the parties to the Operating Agreement are PDVSA
Petróleo, S.A. (hereinafter “PPSA”) and Harvest Vinccler;

 

 

     WHEREAS, on April 12, 2005, the Ministry for Energy and Petroleum of the Republic (hereinafter
the “Ministry”) issued Instructions to the respective Boards of Directors of Petróleos de
Venezuela, S.A. (hereinafter “PDVSA”) and of CVP, based on the reasons set forth in such text, for
the conversion of the Operating Agreement to the form of a mixed company in which the State or an
entity owned by the State will have control by virtue of a majority participation in the capital
stock, in accordance with the Decreto con Fuerza de Ley Orgánica de Hidrocarburos published in the
Official Gazette of the Republic No. 37,323 on November 13, 2001 (hereinafter the “Organic
Hydrocarbons Law”);

     WHEREAS, on August 4, 2005, Harvest Vinccler and PPSA signed a Convenio Transitorio with the
purpose of agreeing on the conversion to a mixed company that has as its purpose to carry out the
activities of exploration in search of hydrocarbons reservoirs, their extraction in their natural
state, initial gathering, transportation and storage referred to in Article 9 of the Organic
Hydrocarbons Law (hereinafter the “Primary Activities”);

     WHEREAS, on October 18, 2005, an Executive Transitory Committee was established for the
purpose of planning for the year 2006 the operations carried out by Harvest Vinccler in the Monagas
Sur area and to coordinate the conversion to a mixed company;

     WHEREAS, on November 4, 2005, the Ministry issued complementary Instructions to the Boards of
Directors of PDVSA and CVP, in relation to the process of conversion to a mixed company;

     WHEREAS, in accordance with Article 23 of the Organic Hydrocarbons Law, the Ministry has
designated the geographical area in which the mixed company can operate (hereinafter the
“Designated Area”) by means of Resolution No.                     , published in the Official Gazette of the
Republic No.                      on                     , 2006, attached to this Contract as Annex A;

     WHEREAS, in accordance with the last paragraph of Article 37 of the Organic Hydrocarbons Law,
the Council of Ministers has approved the direct selection of the mixed company that shall be
incorporated by the Parties to operate in the Designated Area by virtue of Decree No.                     , dated
                    , 2006, published in the Official Gazette of the Republic No.                     , of                                         ,
2006, which is attached to this Contract as Annex B;

     WHEREAS, in accordance with Article 33 of the Organic Hydrocarbons Law, the National Assembly
has approved the formation of a mixed company named                     , S.A. and the conditions that will
govern the conduct of Primary Activities by such mixed company by virtue of the Acuerdo published
in the Official Gazette of the Republic No.                      on                     , 2006 (hereinafter the “Acuerdo
of the National Assembly”), which is attached to this Contract as Annex C; and

-2-

 

WHEREAS, the National Executive, duly authorized by the National Assembly and in accordance
with Article 101 of the Ley Orgánica de la Administración Pública, has authorized the formation of
the mixed company                                         , S.A. by means of the Decree published in the Official Gazette
of the Republic No.                      on                     ’ 2006 (hereinafter the “Decree of Formation”), which is
attached to this Contract as Annex D.

     NOW, THEREFORE, the Parties agree as follows:

ARTICLE 1.

INCORPORATION OF THE MIXED COMPANY

          1.1 Incorporation. Promptly after the date hereof, the Parties shall incorporate
                                        , S.A. (hereinafter the “Mixed Company”), in accordance with the form of Charter and
By-laws attached hereto as Annex E, the terms and conditions of the Acuerdo of the National
Assembly and the provisions of the Commercial Code.

          1.2 Purpose. The purpose of the Mixed Company shall be to carry out Primary
Activities in the Designated Area in accordance with the terms and conditions set forth in the
Acuerdo of the National Assembly, in the Decree of Formation and in the Decree that transfers to
the Mixed Company the right to carry out the Primary Activities in the Designated Area (hereinafter
the “Transfer Decree”, the proposed terms of which are included in Annex F). In addition, the Mixed
Company is authorized to render services in exchange for arm’s length prices to other mixed
companies, to companies owned exclusively by the State or to other entities, provided that the
rendering of such services is in the interests of the Mixed Company, it being understood that (i)
the principal purpose of the Mixed Company is the carrying out of the Primary Activities and the
rendering of such services may not prejudice the carrying our of such principal object, and (ii)
the foregoing does not contemplate either the provision of petroleum services to third parties
outside of the Designated Area or the transfer of technology to third parties.

          1.3 Initial Capital and Ownership Interests. The initial capital stock of the Mixed
Company shall be one billion Bolívares (Bs.1,000,000,000) and shall consist of one hundred thousand
(100,000) shares of common stock with a par value of ten thousand Bolívares (Bs. 10,000) each,
which shall be classified as Class A and Class B. The Parties shall make the capital contributions
necessary to incorporate the Mixed Company in cash and in proportion to their stock ownership in
the Mixed Company by means of wire transfer to account                      in                      bank. The initial
stock ownership of the Parties in the Mixed Company shall be as follows:

	 	 	 
	CVP:

	 	___Class A shares, representing a ___% interest in the
capital stock of the Mixed Company.
	 
	 	 
	Harvest Vinccler:

	 	___Class B shares, representing a ___% interest in the
capital stock of the Mixed Company.

-3-

 

In accordance with the Organic Hydrocarbons Law, the State, directly or through companies or
entities that it owns exclusively, must at all times own more than a fifty percent (50%) interest
of the capital stock of the Mixed Company.

          1.4 Transactions on the Closing Date. On the date that CVP fixes (hereinafter the
“Closing Date”), which shall be (i) within the course of ten (10) calendar days (hereinafter
“Days”) following the date on which the Transfer Decree is published in the Official Gazette of the
Republic, and (ii) notified to Harvest Vinccler at least five (5) Days in advance, the Parties
shall effect the following transactions with the Mixed Company:

          (A) Forty billion Bolívares (Bs. 40,000,000,000) must be contributed in cash by the Parties in
proportion to their stock ownership in the Mixed Company, by means of wire transfers of funds to
the bank account of the Mixed Company that it designates;

          (B) Harvest Vinccler shall (i) transfer to the Mixed Company ownership of all of the tangible
assets located in the Republic that are owned by Harvest Vinccler and utilized in connection with
the operations derived from the Operating Agreement prior to the Closing Date, which are listed in
Annex G, and (ii) exercise its best efforts to assign to the Mixed Company the contracts, permits
and rights (including, among others, easements, water rights, rights-of-way and surface rights)
which pertain to the petroleum operations carried out pursuant to the Operating Agreement prior to
the Closing Date, and are listed in Annex G, it being understood that all contracts that are not
listed in such Annex shall be maintained under the exclusive responsibility of Harvest Vinccler;
and

          (C) CVP shall (i) ensure that the tangible assets of PPSA that are used in the activities
carried out under the Operating Agreement, which are listed in Annex H, are immediately made
available to the Mixed Company for the carrying out of its activities, and that thereafter
ownership thereof is transferred as soon as possible to the Mixed Company, complying with
applicable legal formalities, (ii) exercise best efforts to ensure that PPSA assigns to the Mixed
Company the contracts, permits and rights (including, among others, easements, water rights,
rights-of-way and surface rights) which pertain to petroleum operations carried out pursuant to the
Operating Agreement prior to the Closing Date and are listed in Annex H, and (iii) ensure that PPSA
enters into the Contract for Sale and Purchase of Hydrocarbons with the Mixed Company in accordance
with the form attached hereto as Annex K.

It is understood and agreed that the assets and rights referred to in clauses (B) and (C) of this
Article 1.4 shall be transferred to the Mixed Company in the condition in which they exist (“as
is”), without any cost or charge and without the Parties agreeing to any express or implied
guarantee with respect to the condition of such assets and rights at the time of transfer, but with
guaranty of title and of non-existence of liens over them. The Parties will agree in good faith on
the value of the non-monetary assets contributed.

-4-

 

Except for the part of the contribution in cash set forth in clause (A) of this Article 1.4 that
corresponds to the par value of the shares to be issued to the shareholders in proportion to their
participation in the capital of the Mixed Company, the value of all other contributions made to the
Mixed Company pursuant to this Article 1.4 shall be reflected in the financial statements of the
Mixed Company as paid-in surplus. The Parties understand that the transactions contemplated in
this Article 1.4 and in Article 2.1 will not generate any tax liabilities in the Republic.

          1.5 Other Contributions or Loans. The Shareholders’ Meeting of the Mixed Company may
from time to time request from the Parties, in accordance with the Business Plan referred to in
Article 1.7, additional contributions or loans (at arm’s length conditions) that it deems necessary
for the performance of its corporate purpose. All additional contributions or loans made by the
Parties to the Mixed Company shall be made in proportion to their respective ownership interests in
the Mixed Company. Each Party must pay its share of such additional contributions or loans in
United States of America dollars by wire transfer of funds to the bank account of the Mixed Company
that it designates within a period of thirty (30) Days after the date on which such contributions
or loans are requested by the Shareholders’ Meeting of the Mixed Company. No later than five (5)
Days prior to expiration of the agreed term to make an additional contribution or loan, each Party
shall have the right to require written confirmation from the other Party that it is willing to
make its share of the contribution or loan in question, and to suspend its payment of the
contribution or loan until it has received such confirmation. In the event it is authorized by the
Shareholders’ Meeting, the Mixed Company will seek to obtain financing for its working capital and
for investment projects on terms and conditions deemed appropriate by the Shareholders’ Meeting,
which terms and conditions should be in accordance with standards in the financial market and
consistent with this Contract, the Business Plan mentioned in Article 1.7, the policies and
procedures of the Mixed Company referred to in Article 1.9 and the Charter and By-laws of the Mixed
Company.

          1.6 Failure to Make Contributions or Loans. In the event that either Party
(hereinafter the “Debtor Party”) does not comply with its obligation to make any contribution or
loan on the date such contribution or loan was due (hereinafter the “Contribution Date”):

          (A) The other Party shall have the right, but not the obligation, to make such contribution or
loan on behalf of the Debtor Party within the period of thirty (30) Days following the Contribution
Date, in which case the Debtor Party shall be obligated to reimburse the other Party (hereinafter
“the Creditor Party”) for all funds contributed or granted as loans on behalf of the Debtor Party
within one hundred and twenty (120) Days following the date that such funds are paid in the name of
the Debtor Party, together with all interest accrued from the date such funds are paid on behalf of
the Debtor Party to the date on which the amounts owed are totally reimbursed by the Debtor Party
at an annual rate equal to LIBOR plus ten (10) percentage points. For purposes of this Article
1.6(A), LIBOR means, for each consecutive period of thirty (30) Days, the London Inter-Bank
Offering Rate for a month as indicated in the Telerate page 3750 at 11:00 a.m. (London time) on the
first Day of the applicable period or, if

-5-

 

commercial banks are not open for international operations in London on such Day, the rate on
the next Day on which banks in London are open for international operations. The Debtor Party
shall have no right to receive dividends from the Mixed Company until the date on which it fully
pays all amounts owed to the Creditor Party. Any annual dividend payment, advanced dividend (loan
to shareholders), reduction of capital or return of paid-in surplus that corresponds to the shares
of the Debtor Party and which is effected before payment in full of all amounts owed by the Debtor
Party, will be paid to the Creditor Party and will be credited against the amounts owed by the
Debtor Party until, after deducting any tax that may be applicable, all amounts owed, including
interest, have been paid. Until the date on which the Debtor Party fully pays all amounts owed to
the Creditor Party, the latter shall not be obligated to make contributions or grant loans to the
Mixed Company.

          (B) If the Debtor Party is Harvest Vinccler and the amounts owed are not paid in their
entirety within one hundred and twenty (120) Days from the Contribution Date, CVP shall have the
right (assuming that CVP has made its contribution or loan), at its election, to (i) apply the
provisions of Article 1.6(A) or (ii) demand the transfer in its favor, at the price established in
the next sentence, of the number of Class B shares of the Mixed Company owned by Harvest Vinccler
that is necessary to repay the total amount of the unpaid indebtedness calculated in accordance
with Article 1.6(A). (unless the amounts owed have been fully paid before the exercise of the
option set forth in this clause (ii)). For the purposes of this Article 1.6(B), the price of the
Class B shares of the Mixed Company owned by Harvest Vinccler shall be equal to the average of the
valuations of such shares made by two (2) internationally recognized independent experts, one to be
designated by CVP and the other by Harvest Vinccler, provided that: (a) if any of the Parties does
not designate an independent expert during a period of thirty (30) Days following the date on which
CVP shall have notified its decision to demand the transfer of the shares, the Minister of Energy
and Petroleum (hereinafter the “Minister”) may designate such expert on behalf of such Party; (b)
the independent experts so designated shall present their valuations within ninety (90) Days after
their appointment; (c) if one of such valuations exceeds the other by more than fifteen percent
(15%), either Party shall have the right to request new valuations by two (2) new internationally
recognized independent experts, which shall be designated in the same manner as the ones previously
designated (the same procedure will be repeated until the Parties either agree on the price of the
Class B shares or the new valuations of the independent experts do not differ by more than fifteen
percent); (d) the fees of such independent experts shall be paid in equal parts by the Parties; and
(e) CVP shall not have the obligation to accept the results of such valuations and the transfer of
the shares, maintaining the application of Article 1.6(A) with respect to the amounts owed in case
that CVP elects not to receive the transfer of such shares. The shares which Harvest Vinccler
transfers to CVP by application of this Article 1.6(B) shall automatically be converted into Class
A shares of the Mixed Company.

          1.7 Business Plan. The Mixed Company shall undertake its operations in accordance with
the business plan that is attached hereto as Annex I (“hereinafter the “Business Plan”). The work
programs and budgets that are adopted annually pursuant

-6-

 

to the Charter and By-laws of the Mixed Company shall be consistent with the Business Plan, it
being understood that the Business Plan may be modified by decision of the Shareholders’ Meeting of
the Mixed Company in accordance with its Charter and By-laws.

          1.8 Sole Risk Projects. In the event that CVP notifies Harvest Vinccler by means of a
detailed proposal to that effect presented for the consideration of the Shareholders’ Meeting of
the Mixed Company, of CVP’s intention that the Mixed Company carry out a new investment project
that can be technically and economically segregated from the ongoing petroleum operations of the
Mixed Company, then Harvest Vinccler shall, within thirty (30) Days following the date of receipt
of the notification from CVP, notify CVP of its agreement or disagreement with the new project. In
the case that Harvest Vinccler does not notify its disagreement within such period, it shall be
deemed to have agreed and the new project shall be carried out by the Mixed Company. In the case
that Harvest Vinccler notifies its disagreement within such period, CVP shall have sixty (60) Days
from the date of receipt of such notice from Harvest Vinccler to decide whether it wishes to
proceed with the new project at its sole risk (hereinafter the “Sole Risk Project”). If CVP decides
to proceed in that manner, it shall so notify Harvest Vinccler within such period of sixty (60)
Days. The Parties shall negotiate in good faith and agree, within a period of sixty (60) Days
commencing with the date of receipt by Harvest Vinccler of such notice, on the means of separating
the Sole Risk Project from the ongoing operations of the Mixed Company, including the waiver by the
Mixed Company of any rights relating to the Sole Risk Project, such that CVP or an affiliate
thereof can proceed with the Sole Risk Project exclusively assuming the risks and costs derived
therefrom. The Mixed Company will act as operator for the Sole Risk Project, provided that: (a) all
investment, costs, expenses and liabilities related to the Sole Risk Project shall be borne by CVP
or its affiliate in a direct manner through the appropriate advances of funds to the Mixed Company,
which must maintain such funds separately from its own funds and keep separate accounting records
of the same and of the associated investments, expenses, and liabilities, and (b) the Mixed Company
shall not have any participation in production or revenues generated by the Sole Risk Project, but
shall have the right to receive remuneration for the services rendered based on the cost of such
services and taking into consideration the market prices of similar services. Sole Risk Projects
shall not interfere or affect in a negative and substantial manner the existing or planned
petroleum operations of the Mixed Company. CVP or its affiliate shall indemnify the Mixed Company
for any loss, cost, expense, damage or other responsibility suffered or incurred by the Mixed
Company resulting from Sole Risk Projects, and shall maintain the Designated Area free and clear of
any liens that may be created in relation to or resulting from Sole Risk Projects.

          1.9 Policies and Procedures of the Mixed Company. The Mixed Company shall adopt
policies and procedures governing its operations, including, among others, policies and procedures
for safety, health and environment, contracting, maintenance of insurance, accounting, banking and
treasury, and human resources, following the guidelines established by CVP. To the extent
possible, such policies and procedures shall be consistent with the policies and procedures of
PDVSA and the ultimate parent company of Harvest Vinccler, it being understood that nothing in such

-7-

 

policies and procedures may alter the respective rights and obligations of the Parties under
this Contract or the Charter and By-laws of the Mixed Company. Attached as Annex J to this
Contract are certain of the initial policies and procedures of the Mixed Company, it being
understood that such policies and procedures will be modified by the Parties in accordance with the
principles established in this Article 1.9. In all cases, the policies and procedures of the Mixed
Company shall have as their objective that the Mixed Company carries out its operations in an
efficient and transparent manner, in accordance with prudent petroleum industry practices and
applicable laws, it being understood that, in the event of conflict, the applicable laws shall
prevail over petroleum industry practices. The Mixed Company shall maintain bank accounts outside
of the Republic, in which it may keep sufficient funds to make all payments that must be made
abroad, including, but not limited to, those related to dividend distributions, reductions in
capital, purchases, debt services (including those relating to loans from shareholders), and
contractors’ and suppliers’ fees and expenses. These funds may come from any source, including
sales, shareholders’ contributions or loans or third party financing.

          1.10 Compliance with Applicable Law. In the conduct of its operations the Mixed
Company will comply with the terms and conditions of the Acuerdo of the National Assembly, the
Decree of Formation, the Transfer Decree and the Organic Hydrocarbons Law and its Regulation, as
well as all other legal provisions applicable in the Republic. Neither Party shall take any action
or decision which constitutes grounds for revocation of the Transfer Decree or any other permit,
license or authorization of any kind required for the conduct of the operations of the Mixed
Company. The Mixed Company shall be responsible for the producing and filing of tax returns with
the competent tax authorities of the Republic, as well as, subject to applicable legislation, the
payment of the rates, taxes and contributions, as well as the requesting of refunds when
applicable.

ARTICLE 2.

CANCELLATION OF THE OPERATING AGREEMENT

          2.1 Liabilities. Harvest Vinccler acknowledges and accepts that, without the need for
any additional act or instrument, the Operating Agreement shall be automatically cancelled on the
Closing Date, without Harvest Vinccler or any of its affiliates having a right to receive any
compensation derived from the Operating Agreement (except for the payments corresponding to the
first quarter of 2006 calculated as set forth in the Transitory Agreement) or without Harvest
Vinccler, or any of its affiliates, being able to assert any claim as a consequence of the
cancellation of the Operating Agreement. Harvest Vinccler shall defend and indemnify the Republic,
the Mixed Company, PDVSA, PPSA, CVP and their respective affiliates for any action, claim,
judgment, lawsuit, loss, cost, expense, damage or other liability arising from or related to the
Operating Agreement or to any activities derived therefrom, it being understood that this
obligation to indemnify does not extend to liabilities (i) attributable to acts or omissions of
PPSA or (ii) derived from circumstances or activities of any person prior to the date of execution
of the Operating Agreement. Harvest Vinccler’s indemnification obligation shall include any
third-party claim of any nature arising from

-8-

 

acts or omissions of Harvest Vinccler in connection with the Operating Agreement on or prior
to the Closing Date, it being understood that for these purposes the Republic, PDVSA, PPSA, CVP and
their respective affiliates shall not be considered as third parties. The Mixed Company shall not
assume any liabilities derived from the activities and the acts or omissions of Harvest Vinccler
relating to the Operating Agreement (including, without limitation, labor liabilities and those
derived from contributions other than taxes such as those provided for in the Ley del INCE, the
Instituto Venezolano del Seguro Social and the Ley que Regula el Subsistema de Seguridad Social, de
Vivienda y Política Habitacional), from the cancellation of the Operating Agreement, or from acts
or omissions of CVP, PPSA, PDVSA or their respective affiliates done prior to the commencement of
operations under the Operating Agreement.

          2.2 Environmental Claims. Without limiting the generality of the foregoing, the Mixed
Company shall not assume any responsibility for environmental claims or liabilities arising from
operations or events prior to the date of the Decreto de Transferencia. The Parties shall prepare
or cause to be prepared by an internationally renowned environmental consulting company an
environmental audit in accordance with applicable regulations and standard petroleum industry
practices for the purpose of determining the environmental conditions existing in the Designated
Area on the Closing Date. Such environmental audit shall include a base line natural physical
environment study, which shall constitute full proof of the existing environmental conditions. The
environmental audit done at the beginning of operations under the Operating Agreement shall
constitute full proof of the environmental conditions existing in the area at such time.

ARTICLE 3.

SALE OF HYDROCARBONS

     The Mixed Company shall sell to PPSA, or any other of the entities referred to in article 27
of the Organic Hydrocarbons Law that is designated by PPSA, all the liquid and gaseous hydrocarbons
that it produces in the Designated Area, except for the liquid hydrocarbons and associated natural
gas that the Mixed Company utilizes in its operations or for payment of royalties that the National
Executive may have decided to receive in kind. Such sales shall be in accordance with the form of
Contract for Sale and Purchase of Hydrocarbons attached to this Contract as Annex K.

ARTICLE 4.

OPERATION, PERSONNEL AND TECHNOLOGY

          4.1 Operating Company. The Mixed Company shall be the operating company of the
Designated Area, provided that it may not forego its function as operator. The Mixed Company may
enter into such service agreements as it deems necessary for the implementation of its operations.
The Parties shall cooperate to ensure a successful and safe transfer of the operations in the
Designated Area to the Mixed Company.

-9-

 

          4.2 Personnel. Harvest Vinccler shall use its best efforts to transfer or second to
the Mixed Company the technicians and other experts that the Board of Directors of the Mixed
Company may reasonably request for the performance of the Primary Activities in the Designated
Area, whose fees or salaries shall be borne by the Mixed Company (either directly in case such
experts become employees of the Mixed Company, or through secondment agreements). Harvest Vinccler
agrees to train the personnel designated by the Board of Directors of the Mixed Company to replace
any of the employees transferred or seconded by Harvest Vinccler. During the first two (2) years of
operations of the Mixed Company, the expenses of such training shall be the sole cost of Harvest
Vinccler up to an amount of ___United States of America dollars, such expenses being the
cost of the Mixed Company after such period has elapsed. In case that it is required by the Board
of Directors of the Mixed Company, Harvest Vinccler shall also train other employees of the Mixed
Company, in which case the cost of such training shall be the sole cost of the Mixed Company. The
appointment of all management personnel for the Mixed Company shall be subject to the prior
approval of CVP. A percentage of such management personnel equivalent to the ownership percentage
of Harvest Vinccler in the Mixed Company shall be nominated by Harvest Vinccler. The management of
the Mixed Company shall be composed of first line executives that shall occupy the offices of
General Manager, Technical and Operations Manager, Manager of Human Resources, Manager of External
Affairs, Purchasing Manager, Systems Manager, Planning Manager, Manager of Administration and
Finances, Legal Manager, and Manager of Safety, Health and Environment. The General Manager shall
be nominated by CVP and the Technical and Operations Manager shall be nominated by Harvest
Vinccler. The Mixed Company shall also have a Manager of Prevention and Control of Losses who, due
to the nature of his functions, shall be nominated by CVP. The Parties agree that certain of these
positions may be filled by personnel of CVP or Harvest Vinccler who are seconded to the Mixed
Company on a part-time basis and performs similar functions in other mixed companies or in
companies holding non-associated natural gas licenses in the Republic. The management structure of
the Mixed Company shall be reviewed periodically by the Parties for the purpose of assuring that it
responds to the objectives and purpose of the Mixed Company.

          4.3 Technology. To the extent it is legally possible, Harvest Vinccler shall put at
the Mixed Company’s disposal the rights to utilize the most modern and efficient technologies
available to Harvest Vinccler and its affiliates at present for the development of the petroleum
operations in the Designated Area. It is understood that neither Harvest Vinccler nor any of its
affiliates shall charge the Mixed Company any fees, royalties or charges for licenses or other
rights of use for the technologies owned by Harvest Vinccler or its affiliates, except for expenses
necessary to put such technologies at the disposition of the Mixed Company. In every negotiation
held with Harvest Vinccler’s technology suppliers, Harvest Vinccler shall use its best efforts to
obtain the necessary contractual rights to permit the continuous transfer and application of the
technology relevant to the Mixed Company’s business. The Mixed Company will maintain the
confidentiality of such transferred technologies.

-10-

 

ARTICLE 5.

TERM

     This Contract shall be effective commencing on the date indicated at the beginning hereof and
shall continue in effect until the date on which the first of the following events occurs: (i) CVP
or any other entity directly or indirectly owned by the State acquires all of the issued and
outstanding shares of the Mixed Company, or (ii) the right to carry out Primary Activities granted
pursuant to the Transfer Decree shall terminate, whether such termination occurs at the expiration
of the maximum term set forth in the Acuerdo of the National Assembly or earlier as a result of the
revocation of the Transfer Decree in accordance with the terms and conditions of the Acuerdo of the
National Assembly and the Organic Hydrocarbons Law. Notwithstanding the foregoing, in the event
that within thirty (30) Days after the date of this Contract (a) the Transfer Decree is not
published in the Official Gazette of the Republic or (b) PPSA and the Mixed Company have not
executed the Contract for Sale and Purchase of Hydrocarbons referred to in Article 3, this Contract
shall have no effect, it being understood that each Party shall bear any costs it may have incurred
in the preparation of this Contract and the formation of the Mixed Company.

ARTICLE 6.

ASSIGNMENT AND TRANSFERS OF SHARES

          6.1 Assignment. Neither Party may assign or transfer this Contract, in whole or in
part, or any of the rights or obligations hereunder, without the prior written consent of the other
Party and of the Minister, except for (i) the authority of CVP to assign or transfer this Contract
to any other entity that is, directly or indirectly, exclusively owned by the Republic, in which
case CVP shall notify Harvest Vinccler, and (ii) the authority of Harvest Vinccler to assign or
transfer this Contract to any other company that is, directly or indirectly, exclusively owned by
Harvest Vinccler’s ultimate parent entity, provided that Harvest Vinccler jointly and severally
guarantees the performance of the obligations assumed by the assignee.

          6.2 Transfer of Shares. Neither Party may, without the prior written consent of the
Minister, transfer, assign or pledge in any way its shares in the Mixed Company or permit the
transfer, assignment or pledge of such shares or any shareholder rights or interests, except for a
transfer of such shares to an entity that is, directly or indirectly, exclusively owned by the
ultimate parent entity of such Party, in which case, this Contract shall be assigned to such entity
pursuant to Article 6.1.

          6.3 Change of Control of Harvest Vinccler. Harvest Vinccler shall ensure that there
shall be no direct or indirect change of control of Harvest Vinccler (understanding as “control” of
a corporation, the power to appoint a majority of directors of its board of directors or the
ability to direct in any other manner its management or policies) during the term specified in the
Acuerdo of the National Assembly for the carrying out of Primary Activities by the Mixed Company
without the prior written consent of the Minister, to an entity that is involved in any judicial,
arbitral or

-11-

 

administrative proceeding, the latter of a significant nature, with the Republic, PDVSA, PPSA,
CVP or any of its affiliates, it being understood that in the event of non-compliance with the
foregoing: Harvest Vinccler’s ownership in the Mixed Company shall be deemed terminated and all of
Harvest Vinccler’s shares in the Mixed Company shall be transferred to CVP, without CVP having to
pay any amount for the transferred shares. In addition to the foregoing, in case that a change of
control of Harvest Vinccler occurs (irrespective of the fact that the acquiring party is involved
in any of the aforementioned proceedings) and such change of control is not approved by the
Minister, CVP shall acquire, within a period of twelve (12) months from the date of the notice of
that change in control, all of the Class B shares of the Mixed Company owned by Harvest Vinccler at
a price equal to the average valuations of such Class B shares made by two (2) internationally
recognized independent experts, one to be designated by CVP and the other by Harvest Vinccler,
provided that: (a) if neither CVP nor Harvest Vinccler designate an independent expert during a
period of thirty (30) Days following the date on which CVP shall have notified its decision to
demand the transfer of the shares, the Minister may designate such expert on behalf of such Party;
(b) the independent experts so designated shall present their valuations within a period of ninety
(90) Days after their appointment; (c) if one of such valuations exceeds the other by more than
fifteen percent (15%), both CVP and Harvest Vinccler shall have the right to request new valuations
by two (2) new internationally recognized independent experts, which shall be designated in the
same manner as the ones previously designated (the same procedure will be repeated until the
Parties either agree on the price of the Class B shares or the new valuations of the independent
experts do not differ by more than fifteen percent); (d) the fees of such independent experts shall
be paid in equal parts by CVP and Harvest Vinccler; and (e) the corresponding price shall be paid
in cash in United States Dollars within thirty (30) days following the determination of such price
in accordance with Article 6.3.

ARTICLE 7.

APPLICABLE LAW AND JURISDICTION

     This Contract shall be governed by and interpreted in accordance with the laws of the Republic
and any dispute or controversy that may arise in connection with this Contract which cannot be
resolved amicably by the Parties shall be submitted exclusively to the courts of the Republic
having jurisdiction. Before initiating any litigation, the Parties shall in good faith and within
the framework of the Organic Hydrocarbons Law explore the possibility of utilizing mechanisms to
amicably resolve controversies of any nature that may arise, including for technical matters, the
possible request of opinions of independent experts appointed by mutual agreement. It is understood
that any important dispute, including, for example, disputes relating to the Business Plan, work
programs, development plans and related budgets, shall be referred to the chief executives of both
Parties who shall meet to endeavor to resolve the differences. In case such dispute is not resolved
within sixty (60) Days following the meeting held for such purpose by the Parties, they shall
inform the Minister of the relevant details of the dispute.

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ARTICLE 8.

AMENDMENTS AND WAIVERS

     This Contract may not be amended without the prior written consent of both Parties. Any
waiver of rights conferred by this Contract must be in writing and signed by the authorized
representatives of the Party that is waiving such rights.

ARTICLE 9.

CAPACITY AND REPRESENTATIONS OF THE PARTIES

          9.1 Representations of the Parties. Each Party acknowledges that the other Party is
entering into this Contract in its own name and in its capacity as a legal entity empowered to
contract on its own behalf. In addition, each Party represents and warrants to the other Party
that: (i) it has full legal authority for the execution and performance of this Contract; (ii) it
has complied with all corporate and other action required for the execution and performance of this
Contract; (iii) it has obtained all governmental and other authorizations required for the
execution and performance of this Contract; and (iv) this Contract constitutes a legal, valid and
binding obligation of such Party, enforceable against such Party in accordance with its terms.

          9.2 Certain Practices. Each Party represents and warrants to the other Party that
neither it nor any of its affiliates, contractors or subcontractors or their affiliates, and no
employee, agent or representative of any of the foregoing, directly or indirectly, has offered,
promised, authorized, paid or given money or anything of value to any official or employee of any
government or international or national public organization, or to any political party, any
official or employee thereof or any candidate for public office to influence his or her actions or
decisions, or to gain any undue advantages, in connection with this Contract or any of the
activities that shall be carried out in accordance with this Contract. Each Party agrees, in
relation to any business activity to be conducted pursuant to this Contract, to require its
contractors and subcontractors to agree and comply with contractual clauses substantially
equivalent to those contained in this Article 9.2. Each Party agrees to: (i) maintain adequate
internal controls; (ii) duly record all transactions; and (iii) comply with the laws applicable to
it as well as with the provisions of this Article 9.2. Each Party shall immediately notify the
Mixed Company of any noncompliance with this Article 9.2 and shall investigate and promptly remedy
such noncompliance. Except in cases in which it receives such notification, each Party can assume
that the other Party is in compliance with this Article 9.2, that it has adequate internal control
systems, and that the factual, financial and other information of any nature submitted in relation
to the operations conducted by the Mixed Company is adequate, complete and truthful. No Party is
authorized in any way to take action on behalf of the other Party that would result in the
inadequate or inaccurate recording or reporting of assets, liabilities or any transaction that
would put the other Party in a position of violation of obligations set forth in the laws
applicable to the operations to be conducted under this Contract.

-13-

 

ARTICLE 10.

NOTICES

     All notices and other communications between the Parties must be in writing and shall be
deemed effective upon receipt by the recipient at the following addresses:

	 	 	 
	CVP:

	 	Corporación Venezolana del Petróleo, S.A.
	 

	 	Edificio PAWA
	 

	 	Calle Cali
	 

	 	Urb. Las Mercedes
	 

	 	Caracas 1010-A
	 

	 	República Bolivariana de Venezuela
	 
	 	 
	 

	 	Attention:
	 

	 	Fax:
	 

	 	E-Mail:
	 
	 	 
	Harvest Vinccler:
	 	 
	 
	 	 
	 

	 	Attention:
	 

	 	Fax:
	 

	 	E-Mail:

or at such other address as either Party may indicate to the other in writing, with at least ten
(10) Days’ prior notice, in accordance with the terms of this Article 10.

ARTICLE 11.

ENTIRE AGREEMENT

     This Contract represents the entire agreement of the Parties with respect to the subject
matter hereof and supersedes any previous agreement or understanding regarding the same subject
matter. All Annexes to the Contract are an integral part hereof.

ARTICLE 12.

HEADINGS AND REFERENCES

     The headings of the Articles in this Contract are included solely for convenience and shall
not be considered in the interpretation of this Contract. All references herein to

-14-

 

Articles and Annexes are to the Articles and Annexes of this Contract, unless otherwise
indicated.

ARTICLE 13.

LANGUAGE

     This Contract is entered into in the Spanish language, which is the language by which it
should be interpreted. Any translation of this Contract shall be solely for convenience and shall
not be considered in the interpretation hereof.

ARTICLE 14.

COUNTERPARTS

     This Contract is executed in four counterparts, with one meaning and effect, each of which
shall be considered an original.

     This Contract has been executed in the city of Caracas, on the ___day of the month of
April, in the year 2006.

	 	 	 	 	 
	 	 	CORPORACIÓN VENEZOLANA DEL PETRÓLEO, S.A.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	HARVEST-VINCCLER, C.A.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 

-15-

 

FORM OF CONTRACT FOR

CONVERSION TO A MIXED COMPANY

ANNEXES

	 	 	 
	Annex A:

	 	Designated Area
	Annex B:

	 	Approval of the Counsel of Ministers
	Annex C:

	 	Acuerdo of the National Assembly
	Annex D:

	 	Decree of Formation
	Annex E:

	 	Form of Charter and By-laws of the Mixed Company
	Annex F:

	 	Form of Transfer Decree
	Annex G:

	 	Assets and Contracts to be transferred by Harvest-Vinccler
	Annex H:

	 	Assets to be transferred by PPSA
	Annex I:

	 	Business Plan
	Annex J:

	 	Policies and Procedures of the Mixed Company
	Annex K:

	 	Form of Contract for Sale and Purchase of Hydrocarbons

 

 

ANNEX A

DESIGNATED AREA

 

 

ANNEX B

APPROVAL OF THE

COUNSEL OF MINISTERS

 

 

ANNEX C

ACUERDO OF THE

NATIONAL ASSEMBLY

 

 

ANNEX C

ACUERDO OF THE NATIONAL ASSEMBLY

[Note: This Annex will consist of the Acuerdo of the National Assembly to be published
in the Official Gazette. The following are the terms and conditions to be submitted by the
National Executive to the National Assembly for its review and approval].

1.- [Name of the MC] may engage in primary activities of exploration in search of hydrocarbons
reservoirs, their extraction in their natural state, initial gathering, transportation and storage,
as set forth in Article 9 of the Decreto con Fuerza de Ley Orgánica de Hidrocarburos, in the
geographical area designated by the Ministry of Energy and Petroleum, in accordance with article 23
of the Decreto con Fuerza de Ley Orgánica de Hidrocarburos, through Resolution No. ___, published
in the Official Gazette of the Bolivarian Republic of Venezuela No. ___, dated ___2006
(“Designated Area”). In addition, [name of the MC] may render services to other mixed companies, to
entities owned exclusively by the State or to other entities, it being understood that the
principal object of [name of the MC] shall be the carrying out of the aforementioned primary
activities, that such rendering of services shall not impair the carrying out of such principal
object, and that that the foregoing does not contemplate either the performance of petroleum
services to third parties outside of the Designated Area or the transfer of technology to third
parties.

2.- [Name of the MC] may engage in the aforementioned primary activities for a period of twenty
(20) years from the date of publication in the Official Gazette of the Bolivarian Republic of
Venezuela of the Decree that transfers to it the right to carry out such activities.

3.- [Name of the MC] will be the operator of the Designated Area having the power, in accordance
with article 25 of the Decreto con Fuerza de Ley Orgánica de Hidrocarburos, to contract such
specific petroleum services as may be necessary to assist it in carrying out its activities, such
as, for example, seismic, drilling and workover services, it being understood that [name of the MC]
may not enter into any contract or group of contracts which would result in the transfer, directly
or indirectly, of its function as operator.

4.- [Name of the MC] shall sell to PDVSA Petróleo, S.A., or any other of the entities referred to
in Article 27 of the Decreto con Fuerza de Ley Orgánica de Hidrocarburos that is designated by
PDVSA Petróleo, S.A., all of the hydrocarbons produced and not consumed in the execution of its
operations, with the exception of royalty in kind if applicable, in accordance with Article 45 of
the Decreto con Fuerza de Ley Orgánica de Hidrocarburos, and of the associated natural gas which
PDVSA Petróleo, S.A. or its affiliate does not accept to receive. Except for payments for the sale
of methane gas destined for the national market, payment for the sale of such hydrocarbons shall be
made to [name of the MC] in United States of America dollars, which may be maintained by [name of
the MC] in bank accounts abroad and used by it to pay all of its obligations which are payable
outside of the territory of the Bolivarian Republic of Venezuela, including the purchase price of
equipment purchased abroad, debt service and fees of contractors

 

 

and suppliers, as well as for the payment of dividends, reductions of capital, repayment of surplus
and any other amounts payable to shareholders.

5.- [Name of the MC] shall pay to the Bolivarian Republic of Venezuela the royalty and the taxes
established by law. The initial capitalization of [name of the MC], as well as the transactions
which according to the Form of Contract for Conversion to a Mixed Company submitted for review of
this National Assembly will take place on the Closing Date referred to in such form, will not
generate any tax liabilities in the Bolivarian Republic of Venezuela for any person or entity.

6.- [Name of the MC] shall deliver to the Bolivarian Republic of Venezuela as “ventajas
especiales”: (a) a participation, in the form of an additional royalty of three point thirty three
percent (3.33%) of the volumes of hydrocarbons produced from the Designated Area and delivered to
PDVSA Petróleo, S.A. (or to any other of the companies referred to in Article 27 of the Decreto con
Fuerza de Ley Orgánica de Hidrocarburos that PDVSA Petróleo, S.A. may designate) two thirds of
which shall be distributed to the municipalities conforming the Designated Area, which shall
replace the payments that will no longer be received by such municipalities on account of municipal
taxes, and one third of which shall be distributed to a fund to be administered by the National
Executive through Corporación Venezolana del Petróleo, S.A., to finance endogenous development
projects, and (b) an amount equal to the difference, if any, between (i) fifty percent (50%) of the
value of hydrocarbons produced in the Designated Area and delivered to PDVSA Petróleo, S.A. (or to
any other of the companies referred to in Article 27 of the Decreto con Fuerza de Ley Orgánica de
Hidrocarburos that PDVSA Petróleo, S.A. may designate) during each calendar year (determined in
accordance with the prices established for such hydrocarbons in the contract for sale and purchase
of hydrocarbons that shall be entered into between [name of the MC] and PDVSA Petróleo, S.A. or its
affiliate), and (ii) the sum of all payments made by [name of the MC] to the Bolivarian Republic of
Venezuela, in respect of the activities carried out by the Mixed Company during such calendar year
on account of applicable royalties on the hydrocarbons produced (including the additional royalty
described in clause (a) above), income taxes, any other tax or levy calculated based on revenues
(whether gross or net), and the investments in endogenous development projects of one percent (1%)
of its profits before taxes required pursuant to Condition Tenth below. The amount of the “ventaja
especial” described in the preceding clause (b) shall be equal to zero (0) when the sum of the
payments described in clause (b)(ii) is equal to or greater than the amount calculated in
accordance with clause (b)(i). For purposes of the calculation indicated in (b)(ii) above, if
royalty is taken in kind, then the value of such royalty shall be equal to the amount that would
have been payable as royalty if the same had been payable in cash. The “ventaja especial”
described in clause (b) shall be paid on April 20 of each year, beginning on April 20, 2007, being
it possible to use tax refund certificates of [name of the MC] for purposes of such payment, in
which case such certificates shall be assigned in favor of the Republic. On or before each payment
date, [name of the MC] shall deliver to the Ministry of Energy and Petroleum a written report
setting forth the calculation of the payment obligation for such “ventaja especial.” The
reimbursement of any amount for income taxes that was taken into account in the calculation of any
payment of such “ventaja especial” and that had the effect of reducing the same, shall obligate
[name of the MC] to pay to the Bolivarian Republic of Venezuela the amount reimbursed to the extent
of such reduction in the payment of the respective “ventaja especial”, within thirty (30)
consecutive days following the reimbursement.

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In no event shall the Bolivarian Republic of Venezuela reimburse any amounts paid on account of
this “ventaja especial”, but any amount which in relation to any calendar year has been paid by
[name of
 the MC] in excess of what would have been applicable computing any due adjustment within
the parameters of calculation here established, may be deducted by [name of the MC] from the
payment of this “ventaja especial” in subsequent years.

7.- The right to engage in primary activities granted to [name of the MC] pursuant to the transfer
decree, as well as such other rights as may be granted in connection therewith, such as property
rights or other rights to real or personal property within the private domain of the Bolivarian
Republic of Venezuela, may be revoked by the National Executive in the manner and in the cases set
forth in article 24 of the Decreto con Fuerza de Ley Orgánica de Hidrocarburos.

8.- All geological, geophysical and any other information of a technical character relating to the
primary activities carried out in the Designated Area shall be the property of the Bolivarian
Republic of Venezuela from the moment such information is obtained and [name of the MC] shall be
entitled to use such information only in connection with the primary activities. Should the right
to engage in primary activities be terminated for any reason, [name of the MC] shall deliver the
original materials containing such information to the Ministry of Energy and Petroleum.

9.- [Name of the MC] shall plan and execute all actions necessary to restore the Designated Area
and any other geographical area affected by the activities of [name of the MC] to the condition
that such area was in on the date of the Decree which transferred to [name of the MC] the right to
conduct primary activities. In addition, unless it receives a different instruction from the
Ministry of Energy and Petroleum and the Ministry of Environment and Natural Resources, [name of
the MC] shall, before the end of the period established in the mentioned Decree, remove and dispose
of the contaminants resulting from the primary activities, in accordance with the procedures and
standards set forth by the Ministry of the Environment and Natural Resources and, should these not
apply, with the generally accepted scientific and technical procedures and standards of the oil
industry for such activities.

10.- [Name of the MC] shall develop and put into effect a policy of endogenous development based
upon the principles of preservation of the cultural and biological diversity, minimization of
adverse environmental effects and social responsibility as expressed in the National Development
Plan. In the same manner, based on such policy, [name of the MC] will develop and implement a
social investment plan with the purpose of implementing social improvement programs, which should
be submitted for the approval of the National Executive. [Name of the MC] shall invest in such
programs within any calendar year an amount equal to one percent (1%) of its profits before taxes
during the previous calendar year, in accordance with its duly audited financial statements, it
being understood that, with regard to the investments expected to be made for the first calendar
year, such amount shall be calculated based on the profits that the [name of the MC] reasonably
estimates to attain during such period.

11.- The remaining basic terms and conditions which shall govern [name of the MC] are set forth in
the form of the Contract for Conversion to a Mixed Company and of the Charter and By-laws submitted
for review of this National Assembly together with the Informe of the National Executive relating
to the formation of [name of the MC] and the Memorandum of Understanding

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between Corporación Venezolana del Petróleo, S.A., PDVSA Petróleo, S.A. and Harvest-Vinccler, C.A.,
dated March 31, 2006.

12.- The differences or controversies arising from failure to comply with the conditions,
standards, proceedings and actions which constitute the purpose of this document or arising
herefrom shall be resolved in accordance with the laws of the Bolivarian Republic of Venezuela and
before its legal tribunals.

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ANNEX D

DECREE OF FORMATION

 

 

ANNEX E

FORM OF CHARTER AND BY-LAWS

OF THE MIXED COMPANY

 

 

INDEX

	 	 	 	 	 
	CHAPTER I Name, Purpose, Domicile and Duration
	 	 	1	 
	 
	 	 	 	 
	Article 1. Name
	 	 	1	 
	Article 2. Purpose
	 	 	1	 
	Article 3. Domicile, Branches
	 	 	2	 
	Article 4. Duration
	 	 	2	 
	 
	 	 	 	 
	CHAPTER II Capital, Shares and Shareholders
	 	 	3	 
	 
	 	 	 	 
	Article 5. Capital
	 	 	3	 
	Article 6. Subscription of Capital Stock
	 	 	3	 
	Article 7. Shares
	 	 	4	 
	Article 8. Single Ownership
	 	 	4	 
	Article 9. Certificates
	 	 	4	 
	Article 10. Equality of Rights
	 	 	5	 
	Article 11. Right of First Refusal for the Purchase of Class B Shares
	 	 	5	 
	Article 12. Authorization for Transfer of Shares
	 	 	6	 
	 
	 	 	 	 
	CHAPTER III Shareholders’ Meetings
	 	 	7	 
	 
	 	 	 	 
	Article 13. General Powers
	 	 	7	 
	Article 14. Ordinary and Extraordinary Meetings
	 	 	7	 
	Article 15. Notice
	 	 	7	 
	Article 16. Quorum and Decisions
	 	 	8	 
	Article 17. Representation in the Shareholders’ Meetings
	 	 	13	 
	Article 18. Minutes of the Meeting
	 	 	13	 
	 
	 	 	 	 
	CHAPTER IV Administration
	 	 	13	 
	 
	 	 	 	 
	Article 19. Board of Directors
	 	 	13	 
	Article 20. The President
	 	 	14	 
	Article 21. Directors’ Term of Office
	 	 	15	 
	Article 22. Obligation to Deposit Shares
	 	 	16	 
	Article 23. Meetings of the Board of Directors
	 	 	16	 
	Article 24. Quorum and Decisions of the Board of Directors
	 	 	17	 
	Article 25. Powers of the Board of Directors
	 	 	18	 
	Article 26. The General Manager and Other Management Personnel
	 	 	19	 
	 
	 	 	 	 
	CHAPTER V Legal Representative
	 	 	21	 
	 
	 	 	 	 
	Article 27. Legal Representative
	 	 	21	 
	 
	 	 	 	 
	CHAPTER VI Statutory Auditor
	 	 	22	 
	 
	 	 	 	 
	Article 28. Statutory Auditor
	 	 	22	 
	 
	 	 	 	 
	CHAPTER VII Balance Sheet, Capital, Reserves, Earnings and Dividend Distribution
	 	 	22	 
	 
	 	 	 	 
	Article 29.Fiscal Year of the Corporation
	 	 	22	 

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	Article 30.Corporate Reserves
	 	 	23	 
	Article 31.Additional Reserves
	 	 	23	 
	Article 32.Dividends and Other Distributions
	 	 	23	 
	 
	 	 	 	 
	CHAPTER VIII Liquidation of the Corporation
	 	 	24	 
	 
	 	 	 	 
	Article 33.Liquidation
	 	 	24	 
	 
	 	 	 	 
	CHAPTER IX Audit and Access to Information
	 	 	25	 
	 
	 	 	 	 
	Article 34. Shareholders’ Audit Right and Access to Information of the Corporation
	 	 	25	 
	 
	 	 	 	 
	CHAPTER X Miscellaneous
	 	 	25	 
	 
	 	 	 	 
	Article 35.Approval of Amendments to this Charter and By-laws
	 	 	25	 
	Article 36.Matters not Provided for Herein
	 	 	26	 
	 
	 	 	 	 
	CHAPTER XI Transitory Provisions
	 	 	26	 

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CHARTER AND BY-LAWS

OF THE MIXED COMPANY

CHAPTER I

NAME, PURPOSE, DOMICILE AND DURATION

     Article 1. Name. The corporation is named ___, S.A. (hereinafter the
“Corporation”).

     Article 2. Purpose. The purpose of the Corporation is to carry out the activities of
exploration in search of hydrocarbons reservoirs, extraction of hydrocarbons in their natural
state, gathering, transportation and initial storage as defined in Article 9 of the Decreto con
Fuerza de Lay Orgánica de Hidrocarburos, published in the Official Gazette of the Bolivarian
Republic of Venezuela No. 37.323 dated November 13, 2001 (hereinafter the “Organic Hydrocarbons
Law” and the “Primary Activities”) in the geographic area designated by the Ministry of Energy and
Petroleum (hereinafter the “Designated Area”) by means of Resolution No. ___, published in the
Official Gazette of the Bolivarian Republic of Venezuela (hereinafter the “Official Gazette”) No.
___, dated ___, 2006. In addition, the Corporation may render services to other
mixed companies, to companies owned exclusively by the State or other entities, in exchange for
fees on an arm’s length basis, provided that the rendering of such services is in the interests of
the Mixed Company, it being understood that the principal purpose of the Mixed Company is the
carrying out of the Primary Activities, that the rendering of such services may not prejudice the
carrying out of such principal object, and that the foregoing does not contemplate either the
provision of petroleum services to third parties outside of the Designated Area or the transfer of
technology to third parties. The Corporation shall be governed by (i) the Organic Hydrocarbons Law,

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(ii) the terms and conditions
established in the Acuerdo of the National Assembly, published
in the Official Gazette No. ___, dated ___, 2006 (hereinafter the “Acuerdo of
the National Assembly”), (iii) the provisions of this Charter and By-laws, (iv) in the Decree of
authorization issued by the National Executive for the formation of the Corporation published in
the Official Gazette No. ___on March ___, 2006 (hereinafter the “Decree of Formation”), (v) the
Decree that transfers to the Corporation the right to carry out the Primary Activities in the
Designated Area (hereinafter the “Transfer Decree”), (vi) the Contract for Conversion to a Mixed
Company between Corporación Venezolana del Petróleo, S.A. (hereinafter “CVP”) and Harvest-Vinccler,
C.A. (hereinafter “Harvest Vinccler”), dated April___, 2006 (hereinafter the “Conversion
Contract”), (vii) the provisions of the Commercial Code, and (viii) all other laws of the
Bolivarian Republic of Venezuela (hereinafter the “Republic”).

     Article 3. Domicile, Branches. The domicile of the Corporation shall be the city of
Caracas, with the power to establish agencies, branches or offices in any other location within the
Republic or abroad when so decided by the Board of Directors.

     Article 4. Duration. The
term of the Corporation’s existence shall be the period established in the Acuerdo of the National
Assembly and in the Transfer Decree for the Corporation to carry out the Primary Activities in the
Designated Area.

CHAPTER II

CAPITAL, SHARES AND SHAREHOLDERS

     Article 5. Capital. The Corporation’s capital shall be one billion Bolívares (Bs.
1.000.000.000), which shall be divided into one hundred thousand (100.000) shares of common stock,
with a par value of ten thousand Bolívares (Bs. 10.000 ) each.

-2-

 

     Article 6. Subscription of Capital Stock. The Corporation’s capital stock is divided
into two classes of shares: Class A and Class B. Only the State or companies owned exclusively by
the State may own Class A shares. The capital stock has been one hundred percent (100%) subscribed
and paid for in the following manner:

Class A

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Percentage of Total
	Shareholder	 	Number of Shares	 	Subscribed Capital	 	Paid-in Capital	 	Capital
	CVP

	 	60,000
	 	Bs. 600,000,000
	 	Bs. 600,000,00
	 	60%

Class B

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Percentage of Total
	Shareholder	 	Number of Shares	 	Subscribed Capital	 	Paid-in Capital	 	Capital
	Harvest Vinccler
	 	40,000
	 	Bs. 400,000,000
	 	Bs. 400,000,000
	 	40%

The number of shares of the Corporation owned by the State or companies owned exclusively by the
State must always represent, at a minimum, a percentage greater than fifty percent (50%) of the
capital stock of the Corporation. Such requirement may not be altered as a result of the issuance
or cancellation of shares by the Corporation or by any other circumstance.

     Article 7. Shares. The shares of stock of the Corporation shall be registered in the
names of the shareholders and shall not be convertible into bearer shares. Ownership of shares in
the Corporation is established by inscription in the Book of Shareholders, and transfer of the
shares may be effected by means of a written statement in the Book of Shareholders signed by the
assignor, the assignee and the President of the Board of Directors or the director to whom such
function has been delegated.

-3-

 

     Article 8. Single Ownership. The Corporation will recognize only one owner for each
share. If a share is owned by several persons, the Corporation shall not be obligated to register
or to recognize more than one such person as owner, who shall be designated by the owners of such
share for purposes of exercising shareholder rights derived from such share before the Corporation.

     Article 9. Certificates. The certificates representing shares shall be issued subject
to the requirements of Article 293 of the Commercial Code and must be executed by two (2)
directors. The Board of Directors, at the request of the shareholders, shall determine the number
of shares represented by each certificate. Shares may be redistributed in new certificates by
exchanging the prior certificates, if so decided by the Board of Directors at the request of the
owner of the shares. All such exchanges shall be recorded in the Book of Shareholders. In the
event of damage to or loss of one or more certificates, the affected shareholder shall request the
President to issue new certificates, upon the cancellation of the lost or damaged certificates, and
the shareholder shall pay any related costs.

     Article 10. Equality of Rights. Except as otherwise provided in this Charter and
By-laws, all shares of stock in the Corporation grant their owners the same rights.

     Article 11. Right of First Refusal for the Purchase of the Class B Shares.
The Class A shareholder shall have a right of first refusal to acquire all (but not part) of the
Class B shares offered for sale by a Class B shareholder in accordance with this Article (except in
the case of a sale or transfer to an entity owned, directly or indirectly, exclusively by the
ultimate parent entity of the selling shareholder). A Class B shareholder wanting to sell all or
part of its Class B shares must first provide written

-4-

 

notice to the remaining shareholders of both Classes through the President of the Board of
Directors, indicating the number of Class B shares being offered, the price for such shares and all
other conditions of the offer (hereinafter the “Offer Notice”). Sales of Class B shares shall
require all cash consideration. The selling shareholder shall include in the Offer Notice the name
and contact information of the party ready to purchase the shares offered for sale. Within thirty
(30) calendar days (hereinafter “Days”) after receipt of the Offer Notice by the Class A
shareholder, it must indicate whether or not it desires to acquire the offered shares upon the
terms and conditions contained in the Offer Notice and must communicate this decision to the
selling shareholder through the President of the Board of Directors. In case that the Class A
shareholder has not stated its intention to acquire all of the offered shares during such period,
the Class B shareholders shall have the right, in proportion to their participation in the Class B
shares, to acquire such shares upon the terms indicated in the Offer Notice by notifying the
selling shareholder through the President of the Board of Directors of their intention to acquire
such Class B shares, such notice to be delivered within thirty (30) Days after the expiration of
the period set forth above for the exercise by the Class A shareholder of its preferential right.
The failure of any of the Class B shareholders to acquire the percentage of shares to which it is
entitled shall proportionately increase the right of the other Class B shareholders. In case none
of the Class A shareholder or the Class B shareholders has stated its intention to acquire the
Class B shares of the selling shareholder within the respective periods indicated above, it shall
be understood that such shareholders approve the sale on the same terms and conditions contained in
the Offer Notice. The selling shareholder may,

-5-

 

subject to the condition set forth in Article 12, conclude the approved sale of the Class B shares
in accordance with the terms and conditions described in the Offer Notice within a period of one
hundred eighty (180) Days after the foregoing period of thirty (30) Days for the Class B
shareholders to exercise their preferential right has lapsed. In case the sale is not concluded
within such one hundred eighty (180) Days period, the approval for such sale shall be deemed
withdrawn and any subsequent sale will be subject to the same preferential rights and procedures
set forth above. Upon the consummation of the transfer of the offered shares, the selling
shareholder shall notify the President of the Board of Directors thereof and shall certify the
price, terms and conditions upon which such transfer was made.

     Article 12. Authorization for Transfer of Shares. Notwithstanding anything in this
Charter and By-laws to the contrary, no holder of shares of the Corporation may pledge, grant as
guarantee, assign or transfer (except for a transfer to an entity which is, directly or indirectly,
exclusively owned by the ultimate parent entity of the transferring shareholder) its shares without
the prior written consent of the Minister of Energy and Petroleum of the Republic. In the event of
a change in control of any Class B shareholder without the prior written consent of the Minister of
Energy and Petroleum of the Republic, the provisions of Article 6.3 of the Conversion Contract
shall apply.

CHAPTER III

SHAREHOLDERS’ MEETINGS

     Article 13. General Powers. The ruling and definitive decisions of the Corporation
correspond to the shareholders duly convened in a meeting in which the

-6-

 

respective quorum is present (hereinafter a “Shareholders’ Meeting”), which shall have the
powers granted to it by law and by this Charter and By-laws.

     Article 14. Ordinary and Extraordinary Meetings. Ordinary Shareholders’ Meetings will
be held annually within ninety (90) Days after the close of the Corporation’s fiscal year and the
Extraordinary Shareholders’ Meetings shall be held when called by the Board of Directors or at the
request of the majority of the Class A or Class B shareholders. The Shareholders’ Meeting, duly
convened, represents the entirety of the shareholders. Its decisions adopted within the
limitations of its authority are obligatory for the Corporation, including the shareholders that
did not attend the meeting.

     Article 15. Notice. Ordinary and Extraordinary Shareholders’ Meetings shall be called
with at least fifteen (15) Days’ notice prior to the date fixed for the meeting by means of an
announcement prepared by the President that shall be published in one of the newspapers with major
national circulation. Such announcement will state the location, date and time of the meeting as
well as the agenda of the matters to be discussed. The notices shall be confirmed by communication
sent to all of the shareholders by fax, certified mail or electronic mail not less than ten (10)
Days prior to the date fixed for the Meeting, to the last address duly given by the shareholders to
the Corporation. Such communication shall also indicate the location, date and time of the meeting
as well as the agenda of the matters to be discussed and shall have enclosed copies of any
proposals to be presented, including proposals which any shareholder may have notified to the
President. If within a period of three (3) Days following receipt of the notice any shareholder
notifies the President in writing that it cannot attend such

-7-

 

meeting, the President shall, one time only, set (by means of a communication sent to all of
the shareholders by fax, certified mail or electronic mail at least seven (7) Days in advance), a
new date for holding the Shareholders’ Meeting within twenty one (21), but not earlier than seven
(7), Days following the date originally set, which date will be notified in writing to all the
shareholders. Any decision made without the previous compliance with what is set forth in this
Article 15 shall be null and shall have no legal effect. A Shareholders’ Meeting at which the
entire capital stock, including all of the Class A and Class B shares, is present or represented
shall be valid, provided that all of the shareholders indicate agreement in writing with the agenda
to be discussed at such meeting, without the required prior notice.

     Article 16. Quorum and Decisions. Ordinary and Extraordinary Shareholders’ Meetings
will be validly convened when more than fifty percent (50%) of the capital stock of the Corporation
is present, and for any resolutions adopted by the Shareholders’ Meeting to be valid, a favorable
vote of more than fifty percent (50%) of the capital stock of the Corporation shall be required,
except in those cases where decisions require a qualified majority.

     (I) Simple Majority: In order to make the following decisions, among others, the
favorable vote of more than fifty percent (50%) of the shares in the capital stock of the
Corporation shall be required:

	(a)	 	Appoint the principal Statutory Auditor and his alternate and determine their compensation;
	 
	(b)	 	Approve any proposal to increase or reduce the capital stock of the Corporation as well as
any reclassification of shares, that does not alter the percentage

-8-

 

	 	 	participation of the existing shareholders in the capital stock of the Corporation and whose
purpose is consistent with the Business Plan incorporated as Annex I to the Conversion
Contract;
	 
	(c)	 	Approve the annual work programs and budgets of the Corporation in accordance with the
general framework established in the Business Plan incorporated as Annex I to the Conversion
Contract, without prejudice, in accordance with Article 1.8 of the Conversion Contract, to the
right of the Class B shareholders not to participate in new investment projects that can be
technically and economically segregated from the ongoing operations of the Corporation and the
right of CVP to carry out such projects at its sole risk;
	 
	(d)	 	Appoint and remove the secretary of the Shareholders’ Meeting; and
	 
	(e)	 	Decide as to any other matter specifically submitted to it for consideration and which, in
accordance with the following, should not be decided by a qualified majority of shareholders,
it being understood that the simple majority shall not take decisions contrary to the
interests of the Corporation, including, among others, any decision which would result in the
revocation of the Transfer Decree or of any permit, license or authorization of any kind
required for the conduct of the Corporation’s business, or in the early termination or breach
of the Contract for the Purchase and Sale of Hydrocarbons signed by the Company in accordance
with Article 3 of the Conversion Contract, or in the omission to act to preserve the rights of
the Corporation under such Contract for the Purchase and Sale of Hydrocarbons.

-9-

 

     (II) Qualified Majority: In order to make the following decisions, shareholders
owning at least three quarters (3/4) of the capital stock of the Corporation must be present or
represented at the Shareholders’ Meeting and shareholders owning at least three quarters (3/4) of
the shares of the Corporation must vote in favor:

	(a)	 	Approve any modifications to this Charter and By-laws (except changes to Articles 5 and 6, in
the case of increases or decreases of capital approved in accordance with Article 16(I)(b)),
it being understood that, in accordance with Article 35, the validity of such modifications
shall be subject to the approval of the Ministry of Energy and Petroleum and, in case of
amendments to this Article 16, of the National Assembly;
	 
	(b)	 	Approve any proposal for the increase or decrease in the capital stock of the Corporation
that alters the percentage participation of the current shareholders in the capital stock of
the Corporation or whose purpose is inconsistent with the Business Plan incorporated as Annex
I to the Conversion Contract;
	 
	(c)	 	Approve any liquidation or anticipated dissolution of the Corporation;
	 
	(d)	 	Decide regarding the merger, consolidation, or combination of businesses with other companies
or the breaking up of the Corporation;
	 
	(e)	 	Decide regarding the disposition of all or a substantial part of the assets of the
Corporation, by sale, grant, lease, exchange, transfer or any other manner, except for the
disposition of assets in the ordinary course of business or assets that are no longer useful
to the Corporation in accordance with the Business Plan, all in accordance with the legal
provisions regarding reversion;

-10-

 

	(f)	 	Decide the terms and conditions of any financing agreement for an amount greater than ten
million United States of America dollars (US$ 10,000,000) (or any group of lesser financing
agreements which, together, exceed such amount), or its equivalent in other currency, as well
as any modification of such contract;
	 
	(g)	 	Approve or modify the general balance sheet and profit and loss statement, duly audited,
pursuant to the information provided by the Statutory Auditor, it being understood that no
shareholder shall withhold its approval unless it demonstrates the existence of errors in such
financial statements;
	 
	(h)	 	Approve the creation and financing of any reserve fund that is not the legal reserve fund
referred to in Article 30 of this Charter and By-laws or others that may be provided for under
the applicable laws;
	 
	(i)	 	Order the distribution of dividends or return of paid-in surplus, it being understood that no
shareholder can withhold its approval of any Board of Directors proposal for distributions
that is consistent with the policy established in Article 32 of this Charter and By-laws, and
that any refund or repayment of paid-in surplus to the shareholders, as well as its
capitalization if that is the case, corresponds to such shareholders according to their
participation in the capital stock registered and paid in pursuant to Article 6 of this
Charter and By-Laws;
	 
	(j)	 	Agree on any proposed changes to the policy regarding dividends and other distributions
established in Article 32 of this Charter and By-laws;
	 
	(k)	 	Agree on any proposal to change the Business Plan incorporated as Annex I of the Conversion
Contract (as the same may have been modified in accordance with this provision);

-11-

 

	(l)	 	Agree on any amendment, early termination or submission to the dispute settlement procedure
in relation with the Contract for Sale and Purchase of Hydrocarbons that shall be entered into
by the Corporation, pursuant to Article 3 of the Conversion Contract;
	 
	(m)	 	Agree on any contract with shareholders or their affiliated companies that is not at market
price, it being understood that any contract with a shareholder or any of its affiliates shall
be notified to all other shareholders, who shall be given an opportunity to object in the case
that the contract is not at market price;
	 
	(n)	 	Agree on any social investment in excess of the amount required in the Acuerdo of the
National Assembly;
	 
	(o)	 	Agree on any waiver of material rights, including the rights to carry out Primary Activities
in the Designated Area pursuant to the Transfer Decree, or the filing, initiation,
termination, settlement or any other act relating to or derived from any litigation,
proceedings, or judicial, arbitral or administrative action, in which the Corporation is a
party and that involves an amount in excess of one million United States of America dollars
(US$1,000,000), or its equivalent in other currencies;
	 
	(p)	 	Select the external auditors and approve their engagement;
	 
	(q)	 	Appoint the judicial representative or any general agent of the Corporation; and
	 
	(r)	 	Designate a liquidator in the event of the liquidation of the Corporation.

Every decision adopted without meeting the respective majorities set forth in this Article shall be
considered null and void. In addition, every decision not in conformity with any

-12-

 

of the provisions of the Acuerdo of the National Assembly, the Decree of Formation, the Transfer
Decree, or the Conversion Contract, shall be considered null and void.

     Article 17. Representation in the Shareholders’ Meetings. Every shareholder has the
right to be represented in the Shareholders’ Meetings by its attorney-in-fact. The power of
attorney, duly authenticated, shall be sent by fax or certified mail to the Secretary of the Board
of Directors.

     Article 18. Minutes of the Meeting. The proceedings of the Shareholders’ Meetings
shall be recorded in minutes which shall set forth the names of those attending, the number and
Class of the shares they represent and the decisions and measures which were adopted. The minutes
referred to will be recorded in the appropriate Book duly approved by the Commercial Registry and
signed by all attendees and certified, as well as any extract therefrom, by the President or
Secretary of the Board of Directors or by any other officer or employee of the Corporation
designated by the Shareholders’ Meeting. The previously mentioned documents shall accurately
reflect the decisions made in the Meetings.

CHAPTER IV

ADMINISTRATION

     Article 19. Board of Directors. The governance and administration of the Corporation
shall be entrusted to a Board of Directors composed of five (5) members, one of whom shall be its
President. The Class A shareholders, making the decision on behalf of its Class in the
corresponding Shareholders’ Meeting, shall have the exclusive right to appoint three (3) principal
members of the Board of Directors, including the President, and their respective alternates. The
Class B shareholders, making the

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decision on behalf of its Class in the corresponding Shareholders’ Meeting, shall have the
exclusive right to appoint, by vote of a simple majority of the Class B shares, two (2) principal
members of the Board of Directors and their respective alternates. In case of the President’s
absence, the Class A shareholders shall elect a substitute who shall assume the same duties and
powers attributed to such office by this document. In case of the absence of any director, such
director will be replaced in the exercise of his duties, by the corresponding alternate, who shall
be summoned by the Board of Directors. If the alternate of any director is unable to replace such
director, the President or whoever acts for him will call as the replacement any of the alternates
of the other directors corresponding to the same Class of stock with the purpose of filling such
alternate position. On the occurrence of the definitive absence of any director, the President or
whoever acts for him will call a Shareholders’ Meeting to elect a substitute for the remaining term
of office, with the understanding that such substitute will be elected by shareholders of the Class
which corresponds to the appointment of the absent director. Chapter XI of this Charter and
By-laws lists the current principal directors, including the President, and their alternates, all
of whom shall serve in such capacity during the first statutory period.

     Article 20. The President. The President of the Board of Directors shall have the
following powers and duties:

	(a)	 	Call Shareholders’ Meetings, in accordance with Article 15 of this Charter and By-laws;
	 
	(b)	 	Call the meetings of the Board of Directors on his own initiative or that of two (2)
directors, in accordance with Article 23 of this Charter and By-laws;

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	(c)	 	Prepare the agenda and notices of the Shareholders’ Meetings and Board of Directors’
Meetings;
	 
	(d)	 	Preside over the Shareholders’ Meetings and Board of Directors’ Meetings, it being understood
that his absence shall not affect the validity of the meeting and the decisions taken;
	 
	(e)	 	Act as the Corporation’s legal representative, except for the judicial representation of the
Corporation, which is governed by Article 27 of this Charter and By-laws and applicable legal
provisions; and
	 
	(f)	 	All other powers or obligations conferred upon the President by the Shareholders’ Meeting or
by the Board of Directors.

If the President does not call the meetings mentioned in clauses (a) and (b) above within a period
of five (5) Days following the respective requests, any two (2) of the directors may call such
meetings.

     Article 21. Directors’ Term of Office. The members of the Board of Directors and
their respective alternates shall be elected for a term of three (3) years by the shareholders of
the corresponding Class meeting in a Shareholders’ Meeting. Any director who is not replaced upon
expiration of his term shall continue to exercise his functions with all powers inherent thereto
until his replacement is made effective. The Shareholders’ Meeting may replace them at any time,
by the vote of the majority of the shares of the Class that designated such directors.

     Article 22. Obligation to Deposit Shares. Each member of the Board of Directors must
deposit with the Corporation one (1) share of the Corporation’s stock, which shall be stamped with
the seal of inalienability as provided by the Commercial

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Code. If the members of the Board of Directors are not shareholders in the Corporation, such
shares must be deposited by the shareholder electing such directors and will remain on deposit as a
guarantee of the directors’ performance of their duties for the term set forth in the Commercial
Code.

     Article 23. Meetings of the Board of Directors. The Board of Directors shall meet
with the frequency as it may itself determine but normally shall meet at least once a month. The
Board of Directors may also be convened at any time by the President on his own initiative or at
the request of two (2) directors. Notice of the meeting must be sent by fax, certified mail,
electronic mail or other proper means to all of the directors at the last addresses given by them
to the President with at least seven (7) Days notice prior to the meeting, except in emergency
situations, in which case the notice of the meeting may be given with fewer days’ notice. The
notice shall indicate the place, date and time of the meeting, as well as the matters to be
discussed at the meeting and should have enclosed copies of all proposals presented, including
proposals which any director may have notified to the President. The Board of Directors may not
adopt valid resolutions or decisions on matters not included in the agenda except by unanimous
agreement. The notices may be made unnecessary when all of the principal directors, or their
alternates in the absence of the principals, are present. If within the three (3) Days following
receipt of the notice any Director notifies the President in writing that neither he nor his
alternate can attend the meeting, the President shall, one time only, fix a new date for holding of
the meeting in question within ten (10) Days following the date originally set, except when there
is an emergency situation, in which case the meeting shall not be postponed. The directors, or
their respective alternates, must

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attend the meetings of the Board of Directors for their votes to be validly cast. This
requirement may be met by means of teleconference or videoconference. Meetings of the Board of
Directors shall take place in Venezuela and, as an exception, may take place outside of the country
when required by special and duly justified reasons.

     Article 24. Quorum and Decisions of the Board of Directors. For the validity of the
deliberations and decisions of the Board of Directors the presence of no less than four (4) members
is required, except in the case expressly provided below in this Article. If in the meeting of the
first notice less than four (4) members of the Board of Directors attend, a second notice for
another meeting shall be given at least five (5) Days in advance with the understanding that for
the validity of the deliberations and decisions made in that second meeting, there shall only be
required the presence of at least three (3) members. Decisions of the Board of Directors shall be
taken by the favorable vote of at least three (3) of its members, except in the case of any
decision implementing a decision of the Shareholders’ Meeting relating to any of the matters listed
in Article 16(II) (Qualified Majority) or proposals relating to such matters, which shall require
the favorable vote of at least four (4) members. The meetings of the Board of Directors shall be
recorded in minutes which shall be recorded in the appropriate Book and signed by the attendees.
The minutes of the Board of Directors and all extracts therefrom must be certified by the Secretary
or the President of the Board of Directors or by the employees that it designates, and they shall
accurately reflect the decisions made in the Board of Directors’ meeting.

     Article 25. Powers of the Board of Directors. Except for those items specifically
reserved for the Shareholders’ Meeting, the Board of Directors shall have

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the most ample powers of administration and disposition expressly granted in this Charter and
By-laws, including, without limitation, the following:

	(a)	 	Propose to the Shareholders’ Meeting the approval of the general budget applicable to the
following fiscal year of the Corporation, which general budget should be consistent with the
Business Plan incorporated as Annex I in the Conversion Contract, and once approved, forward
it to the National Budget Office before September 30 of the year preceding the year in which
the budget becomes effective;
	 
	(b)	 	Present to the Shareholders’ Meeting an annual report regarding the management of the
Corporation;
	 
	(c)	 	Appoint and dismiss personnel of the Corporation and, in addition, determine their
compensation, consistent with the provisions of this Charter and By-laws and the Conversion
Contract;
	 
	(d)	 	Make recommendations that it deems useful to the Shareholders’ Meeting regarding the
maintenance of reserves and the utilization of surplus;
	 
	(e)	 	Prepare for the Shareholders’ Meeting the proposals for annual dividend distributions,
advance payments and return of surplus, in accordance with the policy contained in Article 32
of this Charter and By-laws;
	 
	(f)	 	Agree upon the execution of contracts and actions necessary for the proper conduct of the
Corporation and its business, with the understanding that such contracts and actions (i) shall
be consistent with the work programs and budgets approved by the Shareholders’ Meeting in
accordance with this Charter and By-laws and with the policies and procedures adopted by the
Board of Directors,

-18-

 

	 	 	and (ii) in no case may affect the position and authority of the Corporation as operator in
the Designated Area;
	 
	(g)	 	Authorize the opening, movement and closing of bank accounts, and designating the persons
authorized to manage them;
	 
	(h)	 	Make, accept, endorse and guarantee bank drafts and any other commercial instruments, it
being understood that such acts shall be consistent with the work programs and budgets
approved by the Shareholders’ Meeting in accordance with this Charter and By-laws;
	 
	(i)	 	Supervise the implementation of the policies and procedures necessary to carry forward the
business of the Corporation in accordance with the Conversion Contract; and
	 
	(j)	 	Carry out the resolutions of the Shareholders’ Meetings.

     The Board of Directors can, within the limits it determines to be suitable and reserving its
rights, delegate to officers of the Corporation the powers set forth in clauses (c), (f), (g), (h)
and (i) of this Article 25.

     Article 26. The General Manager and Other Management Personnel. The General Manager
shall be appointed and removed by the Board of Directors. The General Manager shall be in charge
of the daily management of the business of the Corporation and shall have the following powers and
duties:

	(a)	 	Execute and cause to be executed the agreements and resolutions of the Shareholders’ Meeting
and the Board of Directors;

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	(b)	 	Authorize with his signature those documents or other materials to which he should attend
pursuant to resolutions of the Shareholders’ Meeting or the Board of Directors;
	 
	(c)	 	Direct the payment of day-to-day expenses of the Corporation, giving regard to the budget
approved by the Shareholders’ Meeting;
	 
	(d)	 	Present every semester to the Board of Directors a detailed account of the income, expenses
and assets of the Corporation, and a general report on the management;
	 
	(e)	 	Upon request of the Board of Directors, inform the Board of Directors on any matter regarding
the Corporation or the management thereof;
	 
	(f)	 	Direct and supervise on a daily basis the accounting of the Corporation;
	 
	(g)	 	Ensure that the employees of the Corporation carry out their duties, and request their
dismissal of the Board of Directors when justified or necessary, or carry out such dismissals
when such authority has been delegated to him; and
	 
	(h)	 	Implement the policies and procedures for the operation of the Corporation and carry out any
other actions of disposition or management as may be expressly authorized by the Board of
Directors.

     A percentage of management personnel of the Corporation equivalent to the ownership percentage
of the Class B shareholders of the Corporation shall be nominated by the Class B shareholders. In
addition to the General Manager, the management of the Corporation shall be composed of first line
executives that shall occupy the positions of Technical and Operations Manager, Manager of Human
Resources, Manager of External Affairs, Purchasing Manager, Systems Manager,

-20-

 

Planning Manager, Manager of Administration and Finances, Legal Manager and Manager of Safety,
Health and Environment. The General Manager shall be nominated by the Class A shareholder while
the Technical and Operations Manager shall be nominated by the Class B shareholder. The Corporation
shall also have a Manager of Prevention and Loss Control that shall be nominated by the Class A
shareholder. The management structure of the Corporation shall be reviewed periodically by the
shareholders for the purpose of assuring that it responds to the objectives and purposes of the
Corporation.  

CHAPTER V

LEGAL REPRESENTATIVE

     Article 27. Legal Representative. The legal representation of the Corporation shall
be carried out by a Legal Representative who shall be a legal professional. The Shareholders’
Meeting shall make the appointment for a period of three (3) years and upon the expiration of such
period, the Legal Representative shall remain in such position until a successor takes office. The
Shareholders’ Meeting may also make consecutive extensions of the term of office. In addition, the
Shareholders’ Meeting may proceed at any time to remove the Legal Representative. The Legal
Representative shall attend Shareholders’ Meetings or meetings of the Board of Directors when
summoned, it being correspondent to him the legal representation of the Corporation in
administrative, judicial or legislative proceedings, that he shall exercise exclusively, subject to
Articles 16 and 25 of this Charter and By-laws. The Legal Representative who shall exercise his
functions during the first statutory period is designated in Chapter XI of this Charter and
By-laws.

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CHAPTER VI

STATUTORY AUDITOR

     Article 28. Statutory Auditor. The Corporation shall have a principal Statutory
Auditor and a corresponding alternate who shall have the functions set forth in the Commercial
Code. Both shall serve terms of three (3) years in their offices and their appointment or removal
corresponds to the Shareholders’ Meeting. If not replaced upon expiration of the aforementioned
term, the officers governed by this Article shall continue to perform their duties with all powers
inherent to their office until the appointment of their respective replacements. The principal
Statutory Auditor and his alternate who shall exercise their functions during the first statutory
period are designated in Chapter XI of this Charter and By-laws.

CHAPTER VII

BALANCE SHEET, CAPITAL,

RESERVES, EARNINGS AND DIVIDEND DISTRIBUTION

     Article 29. Fiscal Year of the Corporation. The Corporation’s fiscal year shall
commence on January 1 and end on December 31 of each year. However, the first fiscal year shall
commence on the date of registration of this Charter and By-laws and will end on December 31, 2006.
At the end of each fiscal year, the inventory and financial statements shall be prepared in
accordance with the provisions of the Commercial Code and accounting principles generally accepted
in the Republic. The Shareholders’ Meeting may consider and approve by qualified majority such
financial statements for shorter periods as may be presented by the Board of Directors.

     Article 30. Corporate Reserves. Five percent (5%) of the Corporation’s net earnings
from the general balance sheet and profit and loss statement approved in

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accordance with Article 16, shall be set aside annually for the purpose of creating a legal
reserve fund until such fund is equal to ten percent (10%) of the total contributed capital.

     Article 31. Additional Reserves. In addition to contributed capital and established
reserve funds, or any other capital accounts that may exist in accordance with the law or generally
accepted accounting principles, the Corporation may create, with the prior consent of the
Shareholders’ Meeting in accordance with Article 16(II) of this Charter and By-laws, additional
capital reserve accounts. The amounts in such accounts may not be reduced or distributed in any
way except with the consent of the Shareholders’ Meeting. The capital reserve accounts shall be
considered a diminution of the losses, if any, for the determination of a diminution of the
contributed capital as established in Article 264 of the Commercial Code.

     Article 32. Dividends and Other Distributions. Subject to Article 1.6(A) of the
Conversion Contract, dividends and other distributions set forth in this Article 32 shall be paid
pro rata among the number of issued shares, independently of their Class. The Corporation’s
dividend policy, once the requirements for the reserve funds mentioned in Article 30, its
investment plans and its financial, fiscal and other obligations are satisfied, shall consist of an
annual payment in cash of the maximum amount of dividends that is feasible, avoiding the
unnecessary retention of funds. The policy of the Corporation regarding distributions shall also
contemplate the advance payment of dividends (loans to shareholders), reductions in capital and
repayments of surplus, to the extent that the Board of Directors considers feasible and prudent
given the financial condition and projections of the Corporation, in order to pay to the

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shareholders retained funds which are not required for the purposes set forth above. The Board
of Directors shall consider the possibility of making such distributions at least quarterly. All
payments of dividends, advances, reductions in capital or repayments of surplus in accordance with
this Article, shall be made by the Corporation to each shareholder registered as such at the moment
of the declaration or approval of such action by transfer of immediately available funds within
five (5) Days after the date of such declaration or approval. All payments to shareholders in
accordance with this Article 32 shall be made in United States of America dollars from accounts
maintained by the Corporation abroad. The right to receive the payment shall arise at the moment
in which the Shareholders’ Meeting approves it. In no event shall distributions be made to the
shareholders if the Corporation does not have available funds to make such payment.

CHAPTER VIII

LIQUIDATION OF THE CORPORATION

     Article 33. Liquidation. Except as otherwise provided by law, liquidation of the
Corporation shall be effected by one (1) liquidator appointed by the Shareholders’ Meeting that may
have approved the liquidation. In the liquidation, all of the Corporation’s assets of whatever
nature, whether tangible or intangible, real or personal, shall be transferred only to the owners
of the Class A shares, except for cash not reserved for the payment of expenses or other
obligations, which shall be distributed to the shareholders in proportion to their shareholdings in
the Corporation.

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CHAPTER IX

Audit and Access to Information

     Article 34. Shareholders’ Audit Right and Access to Information of the Corporation.
Any shareholder shall have the right to have an independent auditor verify the accounting and
financial books of the Corporation, for which purpose it shall give written notice to the
Corporation at least thirty (30) Days in advance. During the course of such audits, which shall
not interfere with the normal carrying out of activities of the Corporation, the Corporation shall
offer to the auditors designated by the shareholder reasonable access to its facilities during
working hours. The cost of such audits shall be assumed by the shareholder that requests them. In
addition to the foregoing, the shareholders shall have complete access to all information related
to the business of the Corporation. The Corporation will report periodically to all the Class A and
Class B shareholders the financial, tax, health, safety and environmental, and other types of
information necessary to enable them to prepare their reports and accounts in accordance with
regulations applicable to them.

CHAPTER X

MISCELLANEOUS

     Article 35. Approval of Amendments to this Charter and By-laws. Except as provided
under sections I(b) and II(b) of Article 16 of this Charter and By-laws, any amendment to this
Charter and By-laws in order to be valid shall be approved by the Ministry of Energy and Petroleum
and, in case of an amendment to Article 16, by the National Assembly.

     Article 36. Matters not Provided for Herein. All matters not provided for in this
Charter and By-laws shall be governed by the laws of the Bolivarian Republic of

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Venezuela. Except for what is established in the applicable laws and regulations of Public Law
(Derecho Público), the Corporation shall be governed by the laws and regulations of Private Law
(Derecho Privado), including, among the latter, the provisions of the Commercial Code that are
applicable.

CHAPTER XI

TRANSITORY PROVISIONS

FIRST: The following persons are designated to carry out the duties of member of the Board of
Directors, President of the Board of Directors, Statutory Auditor and Legal Representative, both as
principal and alternate, which persons shall exercise their functions during the first statutory
period until the Shareholders’ Meeting shall appoint their successors:

	 	 	 
	                                                                                 -C.I.

	 	- President
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Principal)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Principal)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Principal)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Principal)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Alternate)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Alternate)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Alternate)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Alternate)
	 
	 	 
	                                                                                 -C.I.

	 	- Director (Alternate)
	 
	 	 
	                                                                                 -C.I.

	 	- Statutory Auditor
	 
	 	 
	                                                                                 -C.I.

	 	- Statutory Auditor (Alternate)
	 
	 	 
	                                                                                 -C.I.

	 	- Legal Representative

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SECOND: We hereby authorize ___and ___, Venezuelans and holders of
identity cards number ___and ___, respectively, to make the presentation of
the Corporation before the Commercial Registry of Judicial Inscription of the Capital District and
the State of Miranda, as well as the publication of this document, so as to comply with the
provisions of the Commercial Code of Venezuela.

	 	 	 	 	 	 	 
	 	 	Caracas, on the date of presentation.	 	 
	 
	 	 	 	 	 	 
	 	 	CORPORACIÓN VENEZOLANA DEL PETRÓLEO, S.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	HARVEST-VINCCLER, C.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 

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ANNEX F

FORM OF TRANSFER DECREE

 

 

ANNEX F

TRANSFER DECREE PROJECT

BOLIVARIAN REPUBLIC OF VENEZUELA

Decree No. _____ of ______ 2006

TRANSFER DECREE

HUGO CHÁVEZ FRÍAS

PRESIDENT OF THE BOLIVARIAN REPUBLIC OF VENEZUELA

     Exercising the powers conferred by Article 156, Paragraph 16 and Article 236, Paragraphs
2 and 24, all of the Constitución de la República Bolivariana de Venezuela; Articles 100 and 101 of
the Ley Orgánica de la Administración Pública; and Articles 24 and 37 of the Decreto con Fuerza de
Ley Orgánica de Hidrocarburos,

     In Council of Ministers,

WHEREAS

     That the Decreto con Fuerza de Ley Orgánica de Hidrocarburos, set forth that hydrocarbon
primary activities may be directly carried out by the National Executive through companies which it
exclusively owns; as well as through companies in which it holds control of its decisions for
having an interest greater than 50% of the capital stock, stating for this purpose that companies
engaged in the performance of primary activities shall be operating companies,

 

 

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WHEREAS

     That the company ___, has been directly chosen by the Ministry of Energy and
Petroleum to become a minority partner in the joint venture [name of the MC], prior approval by the
Council of Ministers in accordance with Article 37 of the Decreto con Fuerza de Ley Orgánica de
Hidrocarburos, and that the National Assembly has approved the incorporation of the corresponding
mixed company on ___, in compliance with the provisions in Article 33 of the Decreto con
Fuerza de Ley Orgánica de Hidrocarburos,

WHEREAS

     That Article 24 of the referred Decreto con Fuerza de Ley Orgánica de Hidrocarburos sets
forth the authority of this Office to transfer by decree to the operating companies the right to
carry out primary activities and also to revoke such rights when the operators do not fulfill their
obligations in such a way as to prevent achieving the purpose for which such rights were
transferred,

WHEREAS

     That the State, as exclusive owner of the hydrocarbons, which are depletable and
non-renewable resources, has the sovereign right to regulate production and to decide on the forms
of exploitation that are most convenient for the national interests, the social and endogenous
development and for the protection of the environment and the maintenance of the existing
ecological balance,

WHEREAS

     That it is necessary to demand from the operating companies their active cooperation in
the tasks of technological experimentation, research and development, and, in addition, that the
activities carried out by operating companies should contribute to the integral development of the
country and its workers by giving the most strict compliance to the guidelines and rules on which
the Rule of Law (Estado Social de Derecho) is based,

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DECREES

     The transfer of the right to carry out primary activities and the determination of the
Area

     Article 1. The right to carry out the primary activities provided in Article 9 of the Decreto
con Fuerza de Ley Orgánica de Hidrocarburos is hereby transferred to [Name of the MC], subject to
the conditions set forth in the Acuerdo issued by the National Assembly on ___, 2006 and
published in the Official Gazette of the Bolivarian Republic of Venezuela on ___, 2006, in this
Decree and in the Venezuelan legal framework. Consequently, [Name of the MC] shall carry out
primary exploration activities in search of hydrocarbon reservoirs, their extraction in their
natural state, initial gathering, transportation and storage in the geographical area designated by
the Ministry of Energy and Petroleum in accordance with the provisions of Article 23 of the
abovementioned Law governing this matter, through Resolution No ___, published in the Official
Gazette of the Bolivarian Republic of Venezuela No ___, dated ___, 2006 (“Designated Area”).

     Duration of the mixed company

     Article 2. [Name of the MC] may carry out the abovementioned primary activities during twenty
(20) year from the date of publication of this Decree in the Official Gazette of the Republic.

     Capacity as operator and exclusion of contracts dealing with primary activities

     Article 3. [Name of the MC] shall be the operator in the Designated Area and may, in
accordance with the provisions of Article 25 of the Decreto con Fuerza de Ley Orgánica de
Hidrocarburos, contract the specific petroleum services that may be necessary to assist it with the
performance of its activities, such as, for example, seismic, drilling and maintenance services, it
being understood that [name of the MC] may not enter into any contract or set of contracts by which
it transfers, either directly or indirectly, its function as operator.

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     Payment of the royalty and taxes

     Article 4. [Name of the MC] shall pay the Republic the royalty based on the hydrocarbons
volumes extracted from any reservoir and the taxes established in the law. The royalty may be
demanded by the National Executive either in kind or in cash, in the modalities provided for in
Articles 46 and 47 of the the Decreto con Fuerza de Ley Orgánica de Hidrocarburos.

     Special advantages

     Article 5. [Name of the MC] shall deliver to the Republic as “ventajas especiales”: (a) a
participation, in the form of an additional royalty of three point thirty three percent (3.33%) of
the volumes of hydrocarbons produced from the Designated Area and delivered to PDVSA Petróleo, S.A.
(or to any other of the companies referred to in Article 27 of the Decreto con Fuerza de Ley
Orgánica de Hidrocarburos that PDVSA Petróleo, S.A. may designate), two thirds of which shall be
distributed to the municipalities conforming the Designated Area, which shall replace the payments
that will no longer be received by such municipalities on account of municipal taxes, and one third
of which shall be distributed to a fund to be administered by the National Executive through
Corporación Venezolana del Petróleo, S.A., to finance endogenous development projects; and (b) an
amount equal to the difference, if any, between (i) fifty percent (50%) of the value of
hydrocarbons produced in the Designated Area and delivered to PDVSA Petróleo, S.A. (or to any other
of the companies referred to in Article 27 of the Decreto con Fuerza de Ley Orgánica de
Hidrocarburos that PDVSA Petróleo, S.A. may designate) during each calendar year (determined in
accordance with the prices established for such hydrocarbons in the contract for sale and purchase
of hydrocarbons entered into between [name of the MC] and PDVSA Petróleo, S.A. or its affiliate),
and (ii) the sum of all payments made by [name of the MC] to the Republic, in respect of the
activities carried out by the Mixed Company during such calendar year on account of applicable
royalties on the hydrocarbons produced (including the additional royalty described in clause (a)
above), income taxes, any other tax or levy calculated based on revenues (whether gross or net),
and the investments in endogenous development projects of one percent (1%) of its profits before
taxes required pursuant to Article Nine below. The amount of the “ventaja especial” described in
the preceding clause (b) above shall be equal to zero when the sum of the payments described in
clause (b)(ii) is equal to or greater than the amount calculated in accordance with clause (b)(i).
For purposes of the calculation indicated in (b)(ii) above, if royalty is taken in kind, then the
value of such royalty shall be equal to the amount that would have been payable as royalty if the
same had been payable in cash. The “ventaja especial” described in clause (b) shall be paid on
April 20 of each year, beginning on April 20, 2007, being it possible to use tax refund
certificates of [name of the MC] for purposes of such payment, in which case such certificates
shall be assigned in favor of the Republic. On or before each payment date, [name of the MC] shall
deliver to the Ministry of Energy and Petroleum a written report setting forth the calculation of
the payment obligation for such “ventaja especial.” The reimbursement of any amount for income
taxes that was taken into account in the calculation of any payment of such “ventaja especial” and
that had the effect of reducing the same, shall obligate [name of the MC] to pay to the Republic
the amount reimbursed to the extent of such reduction in the payment of the respective “ventaja
especial”,

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within thirty (30) consecutive days following the reimbursement. In no event shall the
Bolivarian Republic of Venezuela reimburse any amounts paid on account of this “ventaja especial”,
but any amount which in relation to any calendar year has been paid by [name of the MC] in excess
of what would have been applicable computing any due adjustment within the parameters of
calculation here established, may be deducted by [name of the MC] from the payment of this “ventaja
especial” in subsequent years.

     Authority to revoke of the executive

     Article 6. The National Executive may revoke the rights transferred through this Decree, as
well as any other rights that may have been transferred, such as the property right or other rights
on real or personal property of the Republic’s private domain, if [name of the MC] does not
fulfill the obligations set forth in the Decreto con Fuerza de Ley Orgánica de Hidrocarburos, the
Acuerdo of the National Assembly and this Decree, in such a way as to prevent achieving the purpose
for which such rights were transferred, as provided in Article 24 of the law regulating the
hydrocarbons activity.

     Property of the information collected

     Article 7. All the geological, geophysical and any other technical information related to the
primary activities carried out within the Designated Area shall be the property of the Republic as
of the time in which it is obtained and [name of the MC] shall only have the right to use it in
order to carry out the transferred activities. If for any reason the right to perform primary
activities is extinguished, [name of the MC] shall deliver to the Ministry of Energy and Petroleum
the originals comprising the information.

     Conservation measures

     Article 8. [Name of the MC] should plan and carry out all the steps necessary to restore the
Designated Area and any other geographical area affected by the activities of [name of the MC] to
the condition it had on the date of this Decree. Similarly, unless otherwise instructed by the
Ministry of Energy and Petroleum and the Ministry of the Environment and the Natural Resources,
before completion of the period established in this Decree, [name of the MC] shall remove and
dispose of the contaminants resulting from the primary activities, in compliance with the
procedures and quality standards required by the el Ministry of the Environment and the Natural
Resources and, lacking them, by those generally accepted scientifically and technically and the
standards of the oil industry for such activities.

     Social and Endogenous Development

     Article 9. [Name of the MC] shall prepare and carry out an endogenous development policy
based on the principles of cultural and biological diversity preservation, the minimization of
adverse environmental impacts and the social responsibility expressed in the National Development
Plan. Moreover, based on the abovementioned policy, [name of the MC] shall prepare and implement a
social investment plan aimed at developing improvement programs, which shall be submitted to the
National Executive for approval. [Name of the MC] shall, within

-5-

 

CONFIDENTIAL

UNOFFICIAL TRANSLATION

07/03/06

any calendar year, invest in such programs a sum equal to one per cent (1%) of its profits in
the previous calendar year before taxes in accordance with its duly audited financial statements,
it being understood that, with regard to the investment corresponding to the first calendar year,
such sum shall be calculated based on the profits that [name of the MC] expects to obtain during
such period.

     Duty to maintain the facilities and reversion

     Article 10. [Name of the MC] shall maintain in good condition the land lots and permanent
works, including the facilities, accessories and equipment that are an integral part of them, and
any other assets acquired for the performance of such activities, irrespective of their nature or
their acquisition title, which shall be delivered to the Republic free of liens and without any
indemnity upon extinguishment, for whatsoever reason, of the rights granted in order to guarantee
the possibility of continuing with the activities, if this were the case, or their cessation with
the less economic and environmental damage possible.

     No guarantee of exploitable substances or obligation to redress

     Article 11. The Republic does not guarantee the existence of substances within the area
delimited by the Ministry of Energy and Petroleum, nor does the Republic undertakes its redress.
The performance of the activities shall be at full risk of those performing them with regard to the
existence of such substances.

     Applicable jurisdiction

     Article 12. The conflicts and controversies arising from the non-compliance of the
conditions, guidelines, procedures and proceedings constituting the object of this Decree or
arising therefrom, shall be resolved in accordance with the legislation of the Republic and before
its jurisdictional bodies.

HUGO CHAVEZ FRIAS

-6-

 

ANNEX G

ASSETS AND CONTRACTS TO BE

TRANSFERRED BY HARVEST VINCCLER

 

 

ANNEX G

ASSETS AND CONTRACTS TO

BE TRANSFERRED BY HARVEST VINCCLER

[Note: The list of assets and contracts of Harvest Vinccler that will constitute this Annex
shall be determined in each case in accordance with Article 1.4(B) of the Conversion Contract.]

 

 

ANNEX H

ASSETS TO BE

TRANSFERRED BY PPSA

 

 

ANNEX H

ASSETS TO BE TRANSFERRED BY PPSA

[Note: The list of assets that shall be transferred by PPSA that will constitute this Annex
shall be determined in each case by the Decree of the National Executive that will transfer them to
the MC.]

 

 

ANNEX I

BUSINESS PLAN

 

 

ANNEX I

BUSINESS PLAN

[Note: To be determined in accordance with Article 1.7 of the Conversion Contract.]

The following is the initial Business Plan, which may be modified in accordance with the provisions
of Article 1.7 of the Conversion Contract. In case of conflict between the Business Plan (or any
revision thereof) and the other provisions of the Conversion Contract or the Charter and By-laws of
the Mixed Company, the latter shall prevail.

 

 

ANNEX J

POLICIES AND PROCEDURES

OF THE MIXED COMPANY

 

 

ANNEX J

POLICIES AND PROCEDURES

OF THE MIXED COMPANY

[Note: To be determined in accordance with Article 1.9 of the Conversion Contract.]

The following are the initial policies and procedures of the Mixed Company, which shall be adjusted
in accordance with the provisions of Article 1.9 of the Conversion Contract. In case of conflict
between such policies and procedures (or any adjustment thereof) and the other provisions of the
Conversion Contract or the Charter and By-laws of the Mixed Company, the latter shall prevail.

 

 

ANNEX K

FORM OF CONTRACT FOR SALE AND PURCHASE

OF HYDROCARBONS

 

 

ANNEX K

FORM OF CONTRACT FOR SALE AND PURCHASE OF HYDROCARBONS

between

________________, S.A.

and

PDVSA PETRÓLEO, S.A.

April  , 2006

 

 

INDEX

	 	 	 	 	 
	 	 	Page No.
	WHEREAS
	 	 	1	 
	FIRST. PURPOSE
	 	 	2	 
	SECOND. QUANTITY AND QUALITY
	 	 	2	 
	THIRD. TITLE AND CUSTODY
	 	 	3	 
	FOURTH. CALCULATION OF PAYMENTS
	 	 	3	 
	FIFTH. INVOICES AND DATE OF PAYMENT
	 	 	3	 
	SIXTH. ADJUSTMENTS
	 	 	4	 
	SEVENTH. PENALTY INTEREST
	 	 	4	 
	EIGHTH. ASSIGNMENT
	 	 	4	 
	NINTH. FORCE MAJEURE
	 	 	4	 
	TENTH. LIMITATION OF LIABILITY
	 	 	5	 
	ELEVENTH. TERM
	 	 	5	 
	TWELFTH. REPRESENTATIONS OF THE PARTIES
	 	 	5	 
	THIRTEENTH. NOTICES
	 	 	6	 
	FOURTEENTH. AMENDMENTS AND WAIVERS
	 	 	6	 
	FIFTEENTH. APPLICABLE LAW AND JURISDICTION
	 	 	6	 
	SIXTEENTH. ENTIRE AGREEMENT
	 	 	7	 
	SEVENTEENTH. HEADINGS AND REFERENCES
	 	 	7	 
	EIGHTEENTH. LANGUAGE
	 	 	7	 
	NINETEENTH. COUNTERPARTS
	 	 	7	 

 

 

FORM OF CONTRACT FOR SALE AND PURCHASE

OF HYDROCARBONS

     This Contract for sale and purchase of natural hydrocarbons (the “Contract”) is entered
into on the ___day of April, 2006, between ___, S.A. (the “Mixed Company”), a corporation
established in accordance with the laws of the Bolivarian Republic of Venezuela (the “Republic”),
represented herein by ___, as one party, and PDVSA Petróleo, S.A. (“PPSA”), a
corporation established in accordance with the laws of the Republic, represented herein by
___, as the other party (hereinafter, the Mixed Company and PPSA shall be referred to
collectively as the “Parties” and individually as a “Party”).

WHEREAS

     The Mixed Company shall carry out activities of exploration, extraction, gathering,
transportation and initial storage of hydrocarbons (the “Primary Activities”) in the area
designated by the Ministry of Energy and Petroleum (the “Ministry”) pursuant to Resolution No.
___, published in the Official Gazette of the Republic No. ___, dated ___, 2006 (the
“Designated Area”), in accordance with the Transfer Decree published in the Official Gazette of the
Republic No. ___, dated ___, 2006, issued by the National Executive in accordance with the
Decreto con Fuerza de Ley Orgánica de Hidrocarburos, published in the Official Gazette of the
Republic No. 37.323 (the “Organic Hydrocarbons Law);

     In accordance with the Acuerdo of the National Assembly approving the formation of the Mixed
Company and the terms and conditions that will govern the conduct of the Primary Activities by the
Mixed Company, published in the Official Gazette of the Republic No. ___on ___, 2006, the
Mixed Company is obligated to sell all of the hydrocarbons produced by it and not used in its
operations in the Designated Area (except for the hydrocarbons corresponding to the payment of the
royalty in kind, if applicable, and the associated natural gas which PPSA has not accepted to
receive) to PPSA or another entity owned exclusively by the State; and

     PPSA, in its character as a company exclusively owned by the State, presently receives, treats
and commercializes the hydrocarbons produced in the Designated Area, and desires to continue to do
so.

-1-

 

     NOW, THEREFORE, the Parties hereby agree as follows:

ARTICLES

FIRST

PURPOSE

     In accordance with the terms and conditions set forth in this Contract, the Mixed Company
agrees to sell and deliver to PPSA, and PPSA agrees to purchase and receive from the Mixed Company,
the crude oil and associated natural gas that the Mixed Company produces from the Designated Area
and does not use in the conduct of its Primary Activities or for the payment of royalties that the
National Executive has decided to receive in kind (the “Hydrocarbons”).

SECOND

QUANTITY AND QUALITY

     Within the first twenty (20) calendar days (hereinafter “Days”) of each calendar month
(hereinafter “Month”), the Mixed Company shall inform PPSA of the volume of Hydrocarbons it
estimates to deliver to PPSA the following Month. The delivery points for the Hydrocarbons shall
be the fiscalization points established by the Ministry (the “Delivery Points”), and the conditions
of delivery, the volume and quality (API grades and sulfur content) of the Hydrocarbons actually
delivered, shall be determined in accordance with the royalty agreement entered into with the
Ministry (the “Royalty Agreement”) in effect at the time of delivery. Each Party and each
shareholder of the Mixed Company shall have the right to request tests of the meters in place at
the Delivery Points by an independent expert, and to witness such tests and receive the test
results.

THIRD

TITLE AND CUSTODY 

     The Mixed Company shall assume the risk of loss or contamination of the Hydrocarbons until the
receipt of such Hydrocarbons by PPSA at the Delivery Points, where the title and custody of the
Hydrocarbons shall be deemed transferred to PPSA. All costs incurred by PPSA at or downstream of
such Delivery Points, including, among others, costs of receiving, transportation, treatment,
processing and commercialization of the Hydrocarbons, shall be the exclusive responsibility of
PPSA.

-2-

 

FOURTH

CALCULATION OF PAYMENTS 

     PPSA shall pay to the Mixed Company the amounts calculated in accordance with Annex A for the
volumes of Hydrocarbons delivered in accordance with this Contract in any Month, net of volumes
corresponding to royalty which the National Executive decides to receive in kind.

FIFTH

INVOICES AND DATE OF PAYMENT

     Within the first fifteen (15) Days of each Month, the Mixed Company shall send to PPSA an
invoice setting forth, in relation to the immediately preceding Month: (i) the volume of each type
of Hydrocarbons delivered to PPSA net of the volumes corresponding to royalty which the National
Executive decides to receive in kind; (ii) the detailed calculations of the payment in Bolívares
owed for the methane gas delivered and the payment in United States of America dollars owed for the
crude oil and natural gas liquids delivered, determined in accordance with Annex A; and (iii) the
total amounts that PPSA must pay to the Mixed Company for the Hydrocarbons delivered, net of the
volumes corresponding to royalties which the National Executive decides to receive in kind, in
accordance with this Contract during the prior Month. The payments owed in accordance with each
invoice shall be effected on the last Day of the second Month following the Month in which the
Hydrocarbons covered by such invoice were delivered. PPSA shall make payment of each invoice by
wire transfer, in United States of America dollars in the case of payment for crude oil and natural
gas liquids delivered, and in Bolivars in the case of payment for methane gas delivered, in
immediately available funds, without any set-off or discount, to the bank accounts that the Mixed
Company indicates in writing.

SIXTH

ADJUSTMENTS

     Upon reaching a definitive resolution of any adjustment resulting from errors in the
determination of the quantity or quality (API grades or sulfur content) of the delivered
Hydrocarbons, or in the calculation of the payments owed, the creditor Party resulting from the
adjustment shall send to the other Party an invoice with details of the cause and amount of the
adjustment and indicating the bank account for payment of the invoice, and the other Party shall,
within fifteen (15) Days following the receipt of such invoice, pay the adjustment by means of an
electronic transfer of United States of America dollars in immediately available funds to such
account.

-3-

 

SEVENTH

PENALTY INTEREST

     For any period of delay in making payments owed in accordance with this Contract, the Party
that incurs such delay shall pay to the other Party interest on the amount owed and not paid, at an
annual rate equal to LIBOR plus four (4) percentage points. For the purposes of this Contract,
LIBOR means, for each consecutive period of thirty (30) Days, the London Inter-Bank Offering Rate
for a month as indicated in the Telerate page 3750 at 11:00 a.m. (London Time) on the first day of
the applicable period or, if commercial banks are not open for international operations in London
on such day, the rate on the next day on which commercial banks in London are open for
international operations.

EIGHTH

ASSIGNMENT

     Neither Party may assign or transfer this Contract or any of the rights or obligations
hereunder, without the prior written consent of the other Party. Notwithstanding the foregoing,
PPSA can assign its rights and obligations under this Contract to any other of the entities
referred to in Article 27 of the Organic Hydrocarbons Law, and the Mixed Company can assign its
rights for receipt of payment derived from the sale of Hydrocarbons under this Contract.

NINTH

FORCE MAJEURE

     Neither Party shall be liable to the other Party for losses or damages resulting from
interruptions, reductions or delays in the delivery or receipt of Hydrocarbons caused by events of
force majeure. The following, among others, shall be considered force majeure events: natural
disasters; wars, blockades, sabotage or other similar hostilities; labor conflicts; interruptions
in electricity service; accidents or other problems with equipment or installations for production,
processing, delivery, receipt or transportation of Hydrocarbons; and governmental acts. The Party
that believes that it has been affected by an event of force majeure shall notify the other Party
as soon as possible of the occurrence, duration and effect of the event in question, as well as its
termination. No event of force majeure shall excuse the failure to pay any amount due in
accordance with this Contract by either of the Parties.

TENTH

LIMITATION OF LIABILITY

     Neither Party shall be responsible to the other for indirect or incidental damages of any kind
resulting from the breach of this Contract.

-4-

 

ELEVENTH

TERM

     The term of this Contract shall be from the date it is executed until the date on which the
right of the Mixed Company to carry out the Primary Activities in the Designated Area expires or is
revoked in accordance with its terms and the Mixed Company has been paid for all of the
Hydrocarbons delivered in accordance with this Contract.

TWELFTH

REPRESENTATIONS OF THE PARTIES

     Each Party acknowledges that the other Party is entering into this Contract in its own name
and in its capacity as a legal entity empowered to contract on is own behalf. In addition, each
Party represents and warrants to the other Party that: (i) it has full legal authority to execute
and perform this Contract; (ii) it has complied with all corporate and other actions required for
it to execute and perform this Contract; (iii) it has obtained all governmental and other
authorizations required for the execution and performance of this Contract; (iv) upon its execution
and delivery, this Contract shall constitute the legal, valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms; and (v) neither it nor any of it
affiliates, contractors or subcontractors or their affiliates, and no employee, agent or
representative of any of the foregoing, directly or indirectly, has offered, promised, authorized,
paid or delivered money or anything of value to any official or employee of any government or
public national or international organization or political party, any official or employee thereof
or any candidate for public office to influence his or her action or decision, or to gain any undue
advantage, in connection with this Contract or any of the activities that are carried out in
accordance with this Contract.

THIRTEENTH

NOTICES

     All notices and other communications between the Parties shall be in writing and shall be
deemed effective upon receipt by the intended recipient at the following addresses, or at any other
address timely indicated by either of the Parties in writing to the other:

          To the Mixed Company:

          To PPSA:

-5-

 

or at such other address as either Party may indicate to the other in writing, with at least ten
(10) Days’ prior notice, in accordance with the terms of this Article.

FOURTEENTH

AMENDMENTS AND WAIVERS

     This Contract may not be amended without the prior written consent of both Parties. Any
waiver of rights conferred by this Contract must be in writing and signed by the authorized
representatives of the Party that is waiving such rights.

FIFTEENTH

APPLICABLE LAW AND JURISDICTION

     This Contract shall be governed by and interpreted in accordance with the laws of the
Republic. Any dispute or controversy that may arise from or in connection with this Contract shall
be submitted exclusively to the courts of the Republic having jurisdiction. Before initiating any
litigation, the Parties shall in good faith and within the framework of the Organic Hydrocarbons
Law, explore the possibility of utilizing mechanisms to amicably resolve controversies of any
nature that my arise, including, for technical matters, the possible request of opinions of
independent experts appointed by mutual agreement. In case that it is decided to use such
mechanisms, there shall be a written record of the contents of such agreement.

SIXTEENTH

ENTIRE AGREEMENT

     This Contract represents the entire agreement of the Parties regarding the subject matter
hereof. The Annexes of this Contract are an integral part hereof.

SEVENTEENTH

HEADINGS AND REFERENCES

     The headings of the Articles of this Contract are included solely for convenience and shall
not be considered in the interpretation of this Contract. All references herein to Articles and
Annexes shall be considered references to Articles and Annexes of this Contract.

EIGHTEENTH

LANGUAGE

     This Contract is entered into in the Spanish language, which is the language by which it
should be interpreted. Any translation that is made shall not be considered for purposes of the
interpretation hereof.

-6-

 

NINETEENTH

COUNTERPARTS

     This Contract is executed in four counterparts, with one meaning and effect, each of which
shall be considered an original.

     This Contract has been executed in the City of Caracas, Bolivarian Republic of Venezuela, on
the ___day of April 2006.

	 	 	 	 	 	 	 
	 	 	[MIXED COMPANY’S NAME]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	PDVSA PETRÓLEO, S.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 

	 	 

-7-

 

ANNEX A

CALCULATION OF PAYMENTS 

Payments to the Mixed Company by PPSA for the volumes of Hydrocarbons delivered in any Month
under this Contract, net of any volume corresponding to royalties that the National Executive may
decide to receive in kind, shall be calculated in accordance with the formulas set forth below in
numerals (1), (2) and (3) of this Annex A.

(1) Calculation of Payment for Crude Oil Delivered.

PPC = VPC * (PRG * FPG + PRC * FPC + PRE * FPE + PRA * FPA)

Where:

	 	 	 	 	 
	PPC

	 	=
	 	Payment for crude oil delivered by the Mixed Company to PPSA during the Month in
question (US$).
	 
	 	 	 	 
	VPC

	 	=
	 	Volume of crude oil delivered by the Mixed Company to PPSA during the Month in
question, net of any volume corresponding to royalties that the National
Executive decides to receive in kind (barrels).
	 
	 	 	 	 
	PRG

	 	=
	 	Reference price for Merey 16 crude oil destined for the Gulf of Mexico during
the Month in question (US$/barrel), determined pursuant to the following
formula:
	 
	 	 	 	 
	 

	 	 	 	PRG = 0.60 * (WTS + FO3) — 0.20 * WTI + AGA — ACC + K
	 
	 	 	 	 
	 

	 	 	 	Where:

	 	 	 	 	 	 	 
	 

	 	WTS
	 	=
	 	Average of the daily high and low spot prices during the
Month in question of West Texas Sour crude oil delivered in Midland, Texas, as
reported in Platts Oilgram Price Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	FO3
	 	=
	 	Average of the daily high and low spot prices during the
Month in question of fuel oil with a 3% sulfur content in the Gulf of Mexico
(No. 6 Fuel Oil, 3% S, Waterborne, USGC), as reported in Platts Oilgram Price
Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	WTI
	 	=
	 	Average of the daily high and low spot prices during the
Month in question of West Texas Intermediate crude oil delivered in Cushing,
Oklahoma, as reported in Platts Oilgram Price Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	AGA
	 	=
	 	Sum of the adjustments for variations of gravity and sulfur
content of the crude oil delivered from the standard of Merey 16 crude oil

 

 

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	(16.5o API; 2.5% sulfur) during the Month in question, which values
shall be published monthly by the Ministry, for all crude oils
destined to the Gulf of Mexico for which Merey 16 is the reference
crude oil (US$/barrel). These adjustments are intended to reflect the
values of such variations in gravity and sulfur content in the Gulf
of Mexico during the Month in question.
	 
	 	 	 	 	 	 
	 

	 	ACC
	 	=
	 	Adjustments for commercialization costs, during the Month in
question, consisting of the sum of (a) US$0.00125 per barrel and kilometer,
indexed in accordance with the United States of America consumer price index
from April 1st, 2006 and multiplied by the distance in kilometers
between the delivery point and the shipping port, plus (b) US$  per barrel,
indexed in accordance with the United States of America consumer price index
from April 1st, 2006, on account of additional maritime
transportation costs in connection with crude oils commercialized as part of
blends loaded in ports of Lake Maracaibo, plus (c) US$  per barrel, indexed
in accordance with the United States of America consumer price index from April
1st, 2006, on account of other handling costs of crude oil between
delivery and shipping, plus (d) US$0.05 per barrel, indexed in accordance with
the United States of America consumer price index from April 1st,
2006, on account of commercialization fees, plus (e) any other tax or duty
applicable to the export of Merey 16 crude oil, denominated in US$  per barrel.
	 
	 	 	 	 	 	 
	 

	 	K
	 	=
	 	Constant for Merey 16 crude oil in the Gulf of Mexico during
the Month in question, as published monthly by the Ministry, for all crude oils
destined to the Gulf of Mexico for which Merey 16 is the reference crude oil
(US$/barrel). This constant is intended to neutralize any distortions that may
occur given the reference prices for Merey 16 crude oil and the prevailing
market conditions for such crude oil in the Gulf of Mexico during the Month in
question (competition, refining and other factors that may affect demand and
supply).

	 	 	 	 	 
	FPG

	 	=
	 	Weighting factor for the reference price of Merey 16 crude oil
destined to the Gulf of Mexico, which will be equal to 0.7097
for the year 2006. In January 2007, and in January of each
year thereafter, the Ministry will publish the FPG for such
year based on the proportion of exports of Merey 16 crude oil
and related crude oils to the Gulf of Mexico during the prior
calendar year to the total exports of Merey 16 crude oil and
related crude oils during the prior calendar year, expressed in
decimal form.
	 
	 	 	 	 
	PRC

	 	=
	 	Price reference for Merey 16 crude oil destined to the
Caribbean during the Month in question, determined in
accordance with the formula for the calculation of the
reference price for the Merey 16 crude oil destined to the Gulf
of Mexico

-2-

 

	 	 	 	 	 
	 

	 	 	 	(PRG), except for the constant K, which shall be published monthly by the Ministry for the Merey 16 crude oil destined to the
Caribbean, and which will reflect the difference in transportation costs as between the Gulf of Mexico (Houston) and the Caribbean
(Curacao) (US$/barrel).
	 
	 	 	 	 
	FPC

	 	=
	 	Weighting factor for the reference price of Merey 16 crude oil destined to the Caribbean, which shall be
equal to 0.2345 during 2006. In January 2007, and in January of each year thereafter, the Ministry will
publish the FPC for such year based on its estimate of the proportion of exports of Merey 16 crude oil and
related crude oils to the Caribbean during the prior calendar year to the total exports of Merey 16 crude
oil and related crude oils during the prior calendar year, expressed in decimal form.
	 
	 	 	 	 
	PRE

	 	=
	 	Reference price for Merey 16 crude oil destined to Europe during the Month in question (US$/barrel),
determined in accordance with the following formula.
	 
	 	 	 	 
	 

	 	 	 	PRE = 0.75 * (BRD + FO3.5) – 0.50 * FRT + AGA — ACC + K
	 
	 	 	 	 
	 

	 	 	 	Where:

	 	 	 	 	 	 	 
	 

	 	BRD
	 	=
	 	Average of the daily high and low spot prices during the
Month in question of the North Sea Dated Brent crude oil, delivered in Sullom
Voe, U.K., as reported in Platts Oilgram Price Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	FO3.5
	 	=
	 	Average of the daily high and low spot prices during the
Month in question of fuel oil CIF with a 3.5% sulfur content delivered in
Rotterdam (Fuel Oil, 3.5% S, CIF ARA Barges), as reported in Platts Oilgram
Price Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	FRT
	 	=
	 	Average of the daily high and low spot prices during the
Month in question of North Sea Forties crude oil delivered in Hound Point,
U.K., as reported in Platts Oilgram Price Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	AGA
	 	=
	 	Sum of the adjustments for variations of gravity and sulfur
content of the crude oil delivered from the standard of Merey 16 crude oil
(16.5o API; 2.5% sulfur) during the Month in question, which values shall be
published monthly by the Ministry, for all crude oils destined to Europe for
which Merey 16 is the reference crude oil (US$/barrel). These adjustments are
intended to reflect the values of such variations in gravity and sulfur content
in Europe during the Month in question.
	 
	 	 	 	 	 	 
	 

	 	ACC
	 	=
	 	Shall have the same meaning as provided above in the
definition of the term ACC included in the formula for the price calculation of
the Merey 16 crude oil destined to the Gulf of Mexico (PRG).

-3-

 

	 	 	 	 	 	 	 
	 

	 	K
	 	=
	 	The constant for the Merey 16 crude oil destined to Europe
during the Month in question, as published monthly by the Ministry, for all
crude oils destined to Europe for which Merey 16 is the reference crude oil
(US$/barrel). This constant is intended to neutralize any possible distortions
that may occur given the reference prices for Merey 16 crude oil and the
prevailing market conditions for such crude oil in Europe during the Month in
question (competition, refining and other factors that may affect demand and
supply).

	 	 	 	 	 
	FPE

	 	=
	 	Weighting factor for the reference price of Merey 16 crude oil
destined to Europe, which will be equal to 0.0250 during 2006.
In January 2007, and in January of each year thereafter, the
Ministry will publish the FPE for such year based on the
proportion of exports of Merey 16 crude oil and related crude
oils to Europe during the prior calendar year to the total
exports of Merey 16 crude oil and related crude oils for the
prior calendar year, expressed in decimal form.
	 
	 	 	 	 
	PRA

	 	=
	 	Reference price for the Merey 16 crude oil destined to Asia
during the Month in question (US$/barrel), determined in
accordance with the following formula:
	 
	 	 	 	 
	 

	 	 	 	PRA = 0.30 * DUB + 0.70 * FO2 + AGA — ACC + K
	 
	 	 	 	 
	 

	 	 	 	Where:

	 	 	 	 	 	 	 
	 

	 	DUB
	 	=
	 	Average of the daily high and low spot prices during the
Month in question for Dubai crude oil delivered in Fateh, Dubai, as reported in
Platts Oilgram Price Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	FO2
	 	=
	 	Average of the daily high and low spot prices during the
Month in question for fuel oil 180 CTS with a 2% sulfur content delivered in
Singapore (Fuel Oil, 2% S, 180. Singapore), as reported in Platts Oilgram Price
Report (US$/barrel).
	 
	 	 	 	 	 	 
	 

	 	AGA
	 	=
	 	Sum of the adjustments for variations of gravity and sulfur
content of the crude oil delivered from the standard of Merey 16 crude oil
(16.5o API; 2.5% sulfur) during the Month in question, which values shall be
published monthly by the Ministry, for all crude oils destined to Asia for
which Merey 16 is the reference crude oil (US$/barrel). These adjustments are
intended to reflect the values of such variations in gravity and sulfur content
in Asia during the Month in question.
	 
	 	 	 	 	 	 
	 

	 	ACC
	 	=
	 	Shall have the same meaning as provided above in the
definition of the term ACC included in the formula for the price calculation of
the Merey 16 crude oil destined to the Gulf of Mexico (PRG).

-4-

 

	 	 	 	 	 	 	 
	 

	 	K
	 	=
	 	The constant for the Merey 16 crude oil destined to Asia
during the Month in question, as published monthly by the Ministry, for all
crude oils destined to Asia for which Merey 16 is the reference crude oil
(US$/barrel). This constant is intended to neutralize any distortions that may
occur given the reference prices for Merey 16 crude oil and the prevailing
market conditions for such crude oil in Asia during the Month in question
(competition, refining and other factors that may affect demand and supply).

	 	 	 	 	 
	FPA

	 	=
	 	Weighting factor for the reference price of Merey 16 crude oil destined to Asia, which will
be equal to 0.0308 during 2006. In January of 2007, and in January of each year thereafter,
the Ministry will publish the FPA for such year based on the proportion of exports of Merey 16
crude oil and related crude oils to Asia during the prior calendar year to the total volume of
exports of Merey 16 crude oil and related crude oils during the prior calendar year, expressed
in decimal form.

In the event that one of the Parties or any shareholder of the Mixed Company, believes that due to
changes in the markets or in the application of the adjustment factors published by the Ministry,
any formula included in this Annex A no longer accurately reflects the export value to the market
in question of the crude oil delivered by the Mixed Company to PPSA, such Party or shareholder may
request a prospective adjustment to such formula. Once this request has been made, the Parties and
shareholders will meet as soon as possible to discuss in good faith the necessity of the requested
prospective adjustment and, if appropriate, the specific amount of such adjustment. The intention
of the Parties is that the formulas contained in this Annex A should adequately reflect the long
term export value to the relevant markets of the crude oil delivered, in the understanding that no
request for adjustment may be based on disagreements regarding such value in the short term, or the
use of Merey 16 as the reference crude oil.

In case that the Platts Oilgram Price Report ceases to be published or is otherwise unavailable,
the Parties will agree on an alternate source of information for the reference prices reported
therein. If any such reference price is not available in any alternate source of information, the
Parties will select a new reference price.

(2) Calculation of payment for Associated Natural Gas Delivered

PM = (PG / 0.6667) * TC * VG

Where:

	 	 	 	 	 
	PM

	 	=
	 	Payment for the associated natural gas delivered by the Mixed Company
to PPSA during the Month in question (Bs.)
	 
	 	 	 	 
	PG

	 	=
	 	1.03 US$/MPCE (one United States dollar and three cents per each
thousand standard cubic feet)

-5-

 

	 	 	 	 	 
	TC

	 	=
	 	Value of the United States dollar expressed in Bolívares, in
accordance to the official exchange rate published by the Central
Bank of Venezuela for the last Day of the Month in question.
	 
	 	 	 	 
	VG

	 	=
	 	Volume of associated natural gas delivered by the Mixed Company to
PPSA during the Month in question, net of the volume corresponding to
any royalty that the National Executive decides should be paid in
kind (MPCE).

-6-

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