Document:

Exhibit 10.1

 

RECORD No. 3.974/2005

 

AMENDMENT AND RESTATED

 

SPECIAL OPERATION CONTRACT FOR THE EXPLORATION

 

AND EXPLOITATION OF HYDROCARBON FIELDS

 

FELL BLOCK AREA

 

TWELFTH REGION OF MAGALLANES AND CHILEAN ANTACTICA
 TERRITORY

 

GOVERNMENT OF CHILE

 

AND

 

GEOPARK CHILE LIMITED

 

 

In the city of Santiago, Republic of Chile, on this seventeenth day of May two thousand and five, before me, FERNANDO ALZATE CLARO, lawyer, deputy notary public to ANTONIETA MENDOZA ESCALAS, Lawyer and Notary Public in charge of the Sixteenth Notary Office and Mines Custody Department of Santiago, domiciled at San Sebastián two thousand seven hundred and fifty, Las Condes, Santiago, appear: Mr. ALFONSO DULANTO RENCORET, Chilean, married, industrial civil engineer, holder of

 

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identity card number four million four hundred sixty-four thousand eight hundred and sixty-one hyphen K, acting in his capacity as MINISTER OF MINING, whose appointment is evidenced under Decree number cero nine issued by the Ministry of Internal Affairs on the seventh day of January, two thousand and two (the appointment is not transcribed herein since it is known by the parties) and appears on behalf of the GOVERNMENT OF CHILE (hereinafter, the “Government”), both domiciled at Teatinos one hundred and twenty, ninth floor, Santiago, and GEOPARK CHILE LIMITED (hereinafter, “GEOPARK”), an entity of private ownership organized and existing under the laws of Bermudas, domiciled at Milner House, eighteen Parliament Street, Hamilton, Bermuda, represented hereupon by Mr. PEDRO ENRIQUE AYLWIN CHIORRINI, Chilean, married, lawyer, holder of identity card number eight million three hundred three thousand four hundred and twenty hyphen three, domiciled in this city at Avenida Isidora Goyenechea three thousand one hundred and sixty-two, office eight hundred and one, Las Condes, and EMPRESA NACIONAL DEL PETROLEO, an state owned entity, hereinafter, “ENAP” represented hereupon by Mr. ENRIQUE DAVILA ALVEAL, Chilean, married, economist, holder of identity card number five million twenty-two thousand eight hundred and twenty hyphen three, both domiciled in Santiago, at Vitacura two thousand six hundred thirty-six, tenth floor, Las Condes, Santiago, hereinafter jointly as “the Contractor” or “the Contractors”. The Government and Contractors are sometimes jointly referred to as the “Parties” and individually as the “Party”; all appearing parties are of legal age, show proof of identity on the basis of the above-mentioned documents, and further state: Recitals: ONE) According to the requirements, terms and conditions set forth in Executive Order number five issued on the ninth day of January, one thousand nine hundred and ninety-seven by the Ministry of Mining, published in the Official Gazette number thirty-five thousand seven hundred and fifteen on the thirteenth day of March, one thousand nine hundred and ninety-seven, the Government of Chile and Contractor, formed by the ENAP partners and Cordex Petroleums, Inc., entered into a Special Contract for the Exploration and Exploitation of Hydrocarbon Fields, Fell Block Area, Twelfth Region of Magallanes and Chilean Antarctica Territory (hereinafter, the “Special Operation Contract” or the “Contract” or the “CEOP Fell Block”) under notarized document granted before the Notary Public of Santiago, Mr. José Musalem Saffie, on the twenty-ninth of April, one

 

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thousand nine hundred and ninety-seven. The Contract was later clarified and complemented under notarized document issued on the second day of July, one thousand nine hundred and ninety-seven before Mr. Martín Vásquez Cordero, Deputy Notary Public of the Notary Office in charge of Mr. José Musalem Saffie. The above-mentioned contract, together with the stated clarifications and amendments, was approved by Resolution number ten issued on the fourteenth day of July, one thousand nine hundred and ninety-seven, by the Ministry of Mining, and became effective on August, one thousand nine hundred and ninety-seven under the provisions of Article One, subsection One.Sixteen of the Contract, as evidenced in the notice sent by regular Official Letter number three hundred and eighty-five of the same date. TWO) According to the authorization given by the Ministry of Mining, Contractor’s Partner, Cordex Petroleums Inc., assigned in favor of Gener S.A. all its rights on the Contract, as evidenced under the notarized Ratification issued on the eighteenth day of August, one thousand nine hundred and ninety-seven by Gener S.A. and ENAP before Mr. Alberto Herman Montauban, Deputy Notary Public of the Notary Office in charge of Mr. Humberto Santelices Narducci, entitled “Notarized Declaration and Acceptance of Obligations under the Special Operation Contract for the Exploration and Exploitation of Hydrocarbon Fields — Fell Block Area - Twelfth Region of Magallanes and Chilean Antarctica Territory”. According to this assignment, the interest held by Gener S.A. and ENAP in the referred to contract, was distributed in fifty-five per cent to Gener S.A. and forty-five per cent to ENAP, keeping the latter its capacity as the Contract Operator. THREE) Afterwards, on the twelfth day of June, two thousand and two, Gener S.A. assigned in favor of GEOPARK all its rights on the contract identified in clause One above, as evidenced under the document “Assignment of Rights under the Special Operation Contract for the Exploration and Exploitation of Hydrocarbon Fields of the Fell Block/SPOC/ and the Joint Operation Contract /JOA/.” ENAP’s consent, as Contractor’s Partner, was given under letter number one thousand six hundred and twenty-one issued on the twenty-second day of August, two thousand and two, and under letter number one thousand seven hundred and eighty-three, issued on the thirtieth day of August, two thousand and two. Under this assignment, GEOPARK and ENAP’s interest in the referred to contract was distributed in forty-five per cent to ENAP and fifty-five per cent to GEOPARK. The above-mentioned assignment was authorized by the Ministry of Mining

 

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under official letters number four hundred and thirty-six, four hundred and thirty-seven and four hundred and thirty-eight, all of them issued on the twenty-fourth day of September, two thousand and two, and addressed to ENAP, AES Gener S.A. and GEOPARK, respectively. The stated assignment of rights was executed under notarized document issued on the fifth day of November, two thousand and two, by Gener S.A., ENAP and GEOPARK, before the Notary Public of Santiago, Mrs. Antonieta Mendoza Escalas, entitled “Declaration and Acceptance of Obligations under the Special Operation Contract for the Exploration and Exploitation of Hydrocarbon Fields — Fell Block Area — Twelfth Region of Magallanes and Chilean Antarctica Territory”. FOUR) The Special Operation Contract indicated in the previous clause was modified as follows: a) extension of the term of the Second Exploration Period from one and a half Contractual Year to two Contractual Years; b) extension of the term of the Third Exploration Period from one Contractual Year to three and a half Contractual Years. FIVE) On the twenty-third day of April, two thousand and four ENAP and GEOPARK requested from the Ministry a modification to the Contract related to the “Contract Area”; “Contractual Terms”; “Work Schedule and Commitment of Guaranteed Reimbursement”; “Guarantees”; “Area Restitutions”; and “Contractor’s Compensation per Field”. SIX) The Ministry of Mining, by means of regular Official Letter number three hundred and thirty-eight issued on the thirtieth day of June, two thousand and four informed Contractor its decision to accept the proposal regarding the modification of the Special Operation Contract - Fell Block Area - with remarks. SEVEN) Due to the remarks stated by the Ministry of Mining in regular Official Letter number three hundred and thirty-eight issued on the thirtieth day of June, two thousand and four, dated twenty-first of July of two thousand and four, ENAP and GEOPARK submitted to the Ministry of Mining a counterproposal regarding Guarantees, Area Restitutions and Contractor’s Compensation per Field in response to said Official Letter. EIGHT)  The Ministry of Mining by means of regular Official Letter number four hundred and eighty-one issued on the twenty-fifth day of August, two thousand and four informed Contractor that after having analyzed the records and the counterproposal submitted in response to the Official Letter of said Ministry, deems it fair to accept the modifications suggested by Contractor of the Special Operation Contract - Fell Block Area - in the terms described in the abovementioned Official Letter. Therefore, it authorizes to proceed with said

 

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modifications in the legal documents governing the Special Operation Contract - Fell Block Area. NINE) The President of the Republic, by means of Executive Order number sixty-two issued on the twenty-sixth day of August, two thousand and four by the Ministry of Mining and published in the Official Gazette on the thirteen day of January, two thousand and five, whose text is included in ANNEX ONE hereof, has modified certain requirements, terms and conditions to which the Special Operation Contract must be subject accepting Contactors’ submission dated twenty-third of April of the year two thousand and four whose text is included in ANNEX TWO hereof. Before the pronouncement of said Executive Order, the National Committee for Energy by means of regular Official Letter number eight hundred and twelve issued on the sixteenth day of June, two thousand and four, and regular Official Letter number one thousand seventeen issued on the sixteenth day of August, two thousand and four, issued a favorable report regarding the modification of the Special Contract whose texts are attached hereto as ANNEX THREE and ANNEX FOUR. The Department of Frontiers and Boundaries of the State by means of regular Official Letter number one thousand one hundred and five issued on the twenty-second day of July, two thousand and four, stated that no remarks were made regarding the modifications suggested whose text is included in ANNEX FIVE hereof. In Accordance with said Executive Order, the National Oil Company, ENAP and GEOPARK CHILE LIMITED are recognized as the current Parties associated to the GOVERNMENT OF CHILE in the Special Operation Contract - Fell Block Area; the Contract Area is modified; the term of the Exploration Stage is extended to fourteen years from the Contract Effective Date; Contractors’ Compensation is modified; and notwithstanding the fact of observing the terms, requirements and conditions of the Contract, the preparation of a consolidated text of the Contract is ordered. This text shall include all the stipulations necessary and leading to ensure the true and appropriate performance of the Contract and the entire harmony and concordance of all the clauses and commitments with those terms, conditions or requirements which were modified by said Order. TEN) Contractor has completely fulfilled - and to the Chilean Government’s full satisfaction — all the works committed and the obligations derived from this Contract until the Third Exploration Period including among others the obligations related to the area restitution in relation to the Original Area and the guarantees to comply with the faithful performance of the

 

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exploratory works. Besides, it is hereby stated that there are no pending debts of whichever nature between the Government of Chile and Contractor until the end of the Third Exploration Period. ELEVEN) Considering all the modifications made to the Special Operation Contract up to date and taking into account that section three of Executive Order number sixty-two issued on the twenty-sixth day of August, two thousand and four by the Ministry of Mining sets forth that it is necessary to prepare a consolidated text of the Contract including all the stipulations necessary and leading to ensure the true and appropriate performance of the Contract and the entire harmony and concordance of all the clauses and commitments with those terms, conditions or requirements which were modified by said Order, the Parties agree to have a consolidated text of the Special Operation Contract - Fell Block Area - in order to show the changes indicated above and which text is the following:

 

ONE. ARTICLE ONE. DEFINITIONS. The following terms used in this Contract shall have the meaning ascribed below: One.One. Complementary Activities. All activities required for the proper performance of Oil Operations including, but not limited to construction of camps, offices, warehouses, telephone or telegraphic lines, docks, wharfs, landing fields and similar works. One.Two. Evaluation Activities. All Exploration Operations carried out by Contractor in the vicinity of a Hydrocarbon Discovery to appraise the total area and importance of the discovery including, but not limited to extension or appraisal wells, detailed seismic lines; geological, geochemical, gravimetric and magnetic studies; interpretation of well logs, formation tests and other data obtained from the drilling of said wells. One.Three. Calendar Year. A period of twelve consecutive months commencing on January the first (included) and ending on December the thirty-first (included). One.Four. Contractual Year. A period of three hundred and sixty-five days or three hundred and sixty-six calendar days —in case of a leap year— from the Effective Date. One.Five. Contract Area. The Area modified by Executive Order Number Sixty-two issued by the Ministry of Mining on the twenty-sixth day of August, two thousand and four, the drawing, surface and coordinates of which are attached to this Contract as ANNEX SIX, or the part of it kept by Contractor after each area restitution as referred to in Article Five. One.Six. Original Contract Area. The area under the Contract before any reduction, as described and delimited in Article Three of Executive Order Number Five, issued by the

 

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Ministry of Mining on the ninth day of January, one thousand nine hundred and ninety-seven, the drawing, surface and coordinates of which are attached to this Contract as ANNEX SEVEN. One.Seven. Field Exploitation Area. The territorial area of each Commercially Exploitable Field, which limits, as established by the Coordination Committee, will match the extension determined by the vertical projection of the corresponding water-Hydrocarbon contact, or by other economic limiting factor of the subsoil accumulation plus a Protection Halation. If the economic limit of an accumulation is not due to the water-Hydrocarbon contact but the thinness or disappearance of the retaining rock, the limit of the Exploitation Area, as established by the Coordination Committee, shall be the vertical projection on surface of a line registering that condition, plus a Protection Halation. One.Eight. Oil Barrel. It means a measurement unit or amount for oil and oil products equal to zero point one million five hundred and eighty-nine thousand eight hundred and seventy-three cubic meters at a temperature of sixty degrees Fahrenheit. One.Nine. Coordination Committee. The Committee stated in Article Ten. One.Ten. Contractor. GEOPARK CHILE LIMITED — GEOPARK, having an interest of one hundred per cent, and its legal successors or authorized assignees. Each of these persons may be referred to as Contractor’s Partner. One.Eleven. Hydrocarbon Discovery. Discovery of a Hydrocarbon accumulation during a Test Boring drilling. One.Twelve. Area Restitution. Reductions of the Contract Area as referred to in Article Five. One.Thirteen. Decree-Law One Thousand Eighty-nine. Decree-Law number one thousand eighty-nine dated nineteen seventy-five, as amended as of the Effective Date. One.Fourteen. Measurement Station. Facility or facilities located at or close to each Field Exploitation Area to measure the total production of Oil and/or Gas of that area, in order to determine the Oil and/or Gas Monthly Average Production per Day of that Field Exploitation Area. One.Fifteen. Discovery Date. This is the date when drilling equipment stops working in a Test Boring that has lead to a Hydrocarbon Discovery. One.Sixteen. Effective Date. The date when the Minister of Mining notifies Contractor that the resolution approving this Contract has been fully filed; that is, August twenty-five, one thousand nine hundred and ninety-seven. The terms and conditions of this Contract shall be applicable as from this date. One.Seventeen. Contract Date. The date when the notarized document of this Contract is signed. One.Eighteen. Force Majeure. The events beyond

 

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the control of any of the Parties that prevent any of them from performing the obligations or meeting the conditions set forth in this Contract in whole or in part including, but not limited to Acts of God, earthquakes, storms, fire, strikes and/or labor disturbances, floods, laws, regulations or orders issued by any government or governmental agents or entities having, at any time, de facto or de jure control on any of the Parties or on the Contract Area, acts of war or conditions attributable to a war, whether declared or not, riots, civil disorders and any other events that cannot be anticipated nor avoided by the Parties, similar to or different from those stated herein. One.Nineteen. Gas or Natural Gas or Gaseous Hydrocarbons. Hydrocarbons which, under normal pressure and temperature conditions at the sea level, are in gaseous state in the place where the measurement is taken. The definition includes “non-associated gas” coming from a reservoir without or with little amount of Liquid Hydrocarbons, as well as the “associated gas” coming from the gas cap of a reservoir of Liquid Hydrocarbons or produced by mixing them. One.Twenty. Marketable Gas. The Gas produced and recovered as referred to in Clause Seven.Two.One. One.Twenty-one. Protection Halation. The Protection Halation is an integral part of the Field Exploitation Area and it represents the area delimited by the projection of the economic limit of accumulation in surface, and a parallel line circumscribing it at a distance of five kilometers. One.Twenty-two. Hydrocarbons. Organic substances composed of hydrogen and carbon. One.Twenty-three. Oil Terminal Facilities. Facilities located at the final exit point of the Oil Pipeline, in the Strait of Magellan (Estrecho de Magallanes) in a place to be agreed by the Parties through the Coordination Committee, to receive and prepare the Oil to be delivered to the Parties including, but not limited to equipment to take volumetric measurements, make temperature adjustments, determinations of sediment contents and other measurements, mooring for tank vessels, Oil loading and offloading equipment, storage tanks, security and control equipment for the terminal and navigation and port facilities. One.Twenty-four. Minister. The Minister of Mining. One.Twenty-five. Oil Pipeline. The main pipeline that carries the Oil to the Oil Terminal Facilities from a starting point located in or close to the Contract Area including, but not limited to measurement devices connected to the pipeline, minor pipelines, pumping stations, communication system, access and maintenance roads, and any other installation required and necessary for the uninterrupted and quick

 

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transportation of Oil. Contractor may build one or more Oil Pipelines. One.Twenty-six. Exploration Operations. All works carried out by Contractor himself or by subcontractors to determine the existence of Hydrocarbons or to evaluate a Hydrocarbon Discovery within the Contract Area. Regardless of whether the works are carried out in Chile or abroad, they shall include, without any restriction, geological and geophysical research, studies and measurements, data processing and evaluation, and related technical activities, such as Test Borings, appraisal wells, tests, sampling, coring and logging of Test Borings and appraisal wells located within the Contract Area. The expression “Exploration Operations” wherever used in the Contract, shall be deemed to include the Complementary Activities defined in One.One. One.Twenty-seven. Exploitation Operations. All activities related to the development and exploitation of fields, and the production, transportation, storage and delivery of Hydrocarbons. These operations include, but not limited to wells drilling, tests and completion, facilities to separate Liquid from Gaseous Hydrocarbons, transportation of Hydrocarbons, piping systems and storage facilities, as well as operations involving Gas or water re-injection, all those related to this Contract. The expression “Exploitation Operations” wherever used in this Contract shall be deemed to include the Complementary Activities defined in One.One. One-Twenty-eight. Oil Operations. All Exploration and Exploitation Operations. One.Twenty-nine. Contractor’s Partner. Each of the Parties that jointly act as the Contractor. One.Thirty. Oil or Liquid Hydrocarbons. Those Hydrocarbons that, under normal pressure and temperature conditions at the sea level, are in liquid state in the place where the measurement is taken. This definition includes condensate consisting of Liquid Hydrocarbons obtained from separation by cooling Gas or by other means. One.Thirty-one. Pre-existing Wells. Oil and Natural Gas wells existing in the Contract Area as of the Contract Date and that may have marginal Hydrocarbon reserves that are not being exploited. One.Thirty-two. Maximum Efficient Production. The maximum sustained daily Oil or Gas production of a field that enables to reach an optimum development and final recovery of the field from the technical-financial point of view, according to practices internationally accepted in the oil industry. One.Thirty-three. Maximum Production per Well. The maximum daily production rate at which the Hydrocarbons of a certain well can be produced in an Oil and Gas field, according to practices internationally accepted in the oil industry. One.Thirty-four. Average Monthly

 

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Production per Day. The Oil or Gas volume resulting from dividing the total Oil or Gas production of a certain calendar month by the number of days of that month. One.Thirty-five. Production Start-up. Time at which the sustained production of Hydrocarbons of a field begins. One.Thirty-six. Point of Delivery, Control and Final Measurement of the Oil. The place located at the outlet of the Oil Terminal Facilities where the final measurements of produced, recovered and unused Oil in Oil Operations shall take place, and where the Parties shall take possession, assume the risks of loss, and separately dispose of the Oil to which they are entitled under this Contract. One.Thirty-seven. Point of Delivery, Control and Final Measurement of the Gas. The place where the equipment and the appropriate installations are located to take all volumetric measurements, make temperature and pressure fits, and other measurements to establish the net volume of the Marketable Gas produced in the Contract Area. One.Thirty-eight. Compensation. The compensation earned by Contractor according to the provisions of Article Eight. One.Thirty-nine. Collection System. The whole set of pipes, pumping stations, compressors, storage tanks, delivery systems, roads and other necessary and/or useful installations or any other means, including their design, equipment, construction and maintenance which are required to collect and transport the Oil to the inlet of the Oil Pipeline, in the case of Oil, and to the Point of Delivery, Control and Final Measurement of the Gas, in the case of Gas. One.Forty. Test Boring. A well drilled to find Hydrocarbons in geological features which were still not proven to be productive or in non-tested territories or in virgin areas unknown to be productive. However, any well drilled to evaluate a Hydrocarbon Discovery shall not be considered a Test Boring in order to perform the minimum drilling obligations set forth in this Contract. For the purposes of Articles Four.Two and Four.Three, the Test Boring shall be considered drilled once it has reached the economic base or a productive horizon or the programmed depth. However, a Test Boring shall also be considered drilled once adverse drilling conditions including, but not limited to an impenetrable zone, overpressure or excessive geothermal gradient, indicate that the drilling operations shall be completed in accordance with standards generally accepted in the international oil industry. In this case, Contractor shall obtain the authorization of the Coordination Committee to complete the drilling operations, and the Coordination Committee shall enter a decision within a period not to exceed forty-eight

 

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hours, after the request made by Contractor. If the Coordination Committee fails to enter a decision within the stated term, or no agreement is reached within the same period of time, Contractor may proceed according to Article Ten.Six. One.Forty-one. Commercially Exploitable Field. One or more natural accumulations of Hydrocarbons in the subsoil of the Contract Area in one or more individual geological features or in closely related features which, in the opinion of Contractor, may produce Oil or Gas in commercial quantities and that Contractor decides to put into production according to Article Four-Twelve. One.Forty-two. Standard Conditions. All Gas volumes are stated at a temperature of zero degrees Celsius and a pressure of one kilogram per absolute square centimeter.

 

TWO. ARTICLE TWO. CONTRACT SUBJECT MATTER. Two.One. Under this Contract, Contractor acquires an exclusive right to perform Exploration Operations in the Contract Area. If as a result of these operations, Contractor declares a Field to be commercially exploitable, Contractor shall be entitled to perform Exploitation Operations. Two.Two. Exploration and Exploitation Operations shall be performed by Contractor according to the terms and conditions set forth herein. Two.Three. Contractor shall assume the risks related to the Hydrocarbon exploration and shall contribute, at his own expense, with the necessary technology, capital, equipment, machinery and other investments required for the prospecting and exploration of the Contract Area and for the further development and production of fields discovered and declared by Contractor as commercially exploitable. Two.Four. Contractor shall start earning a Compensation for his services once the production of a Field Exploitation Area starts-up. Two.Five. Contractor’s Partners may appoint one of their number to act as the Operator with authority and exclusive right to perform Oil Operations. Contractor’s Partners may change the Operator from time to time, and declare that GEOPARK shall act as the Operator for all purposes of this Contract.

 

THREE. ARTICLE THREE. TERMS. Three.One. Notwithstanding the provisions of Article Thirteen.Three, this Contract shall be in force from the Effective Date and for an uninterrupted period of thirty-five years or while the Hydrocarbon (gas or oil) production lasts, whatever is first, unless it is terminated by any of the grounds set forth in Article Eighteen. Three.Two. This Contract shall comprise an exploration stage that involves an

 

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initial exploration stage and a complementary exploration stage. The exploration stage that corresponds to the period available for Contractor to perform the obligations set forth in Article Four herein shall not exceed fourteen contractual years from the Effective Date. In addition, this stage shall comprise an exploitation stage running from the end of the exploration stage, or a development stage of each Commercially Exploitable Field, if applicable, until the termination of this Contract. This Contract shall also include the Oil Operations referred to in Article Three.Five. Three.Three. The initial exploration stage of the Contract Area, which shall be valid for thirteen Contractual Years and nine months, shall commence on the Effective Date. In addition, this stage shall consist of: A First Exploration Period lasting one Contractual Year and Six Months; a Second Exploration Period lasting two Contractual Years; a Third Exploration Period lasting three Contractual Years and six months; a Forth Exploration Period lasting two Contractual Years and three months, and the Exploration Periods from Fifth to Seventh which shall last one Contractual Year and six months each. The complementary exploration stage, which shall be valid for one Contractual Year at the most, shall consist of the Eighth Exploration Period lasting one Contractual Year at the most. The complementary exploration stage shall end before the twenty-fifth of August, two thousand and eleven. At the end of each Exploration Period, Contractor may choose between completing the exploration stage and continuing with the next Exploration Period but, in all cases, Contractor shall complete the exploration works agreed for the Exploration Period in progress, according to Article Four. Contractor shall notify the Minister of his decision at least thirty days before the end of the Exploration Period in progress. Three.Four. Contractor shall be only authorized to proceed —from the initial exploration stage to the complementary exploration stage— if: (i) Undertakes to drill a new Test Boring in the complementary exploration stage. This condition shall be also valid if the test drilling was initiated in the initial exploration stage and is to be completed in the complementary stage; (ii) has drilled —during the initial exploration stage— a Discovering Test Boring and, at the Coordination Committee’s discretion, it is not possible to conveniently perform the Evaluation Activities in this stage. If Contractor is not authorized to continue with the complementary exploration stage due to Contractor’s failure to meet at least one of the above-mentioned conditions, the exploration stage shall terminate —if this has not occurred before— at the end of the Seventh Exploration Period of the initial

 

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exploration stage. Three.Five. If the exploration stage ends in accordance with Articles Three.Three or Three.Four above, Contractor shall have the right to keep the Contract but only for the area or areas referred to in Article Five.Five to carry out Oil Operations in that areas. Three.Six. The exploitation stage of each field shall start on the date Contractor declares it as a Commercially Exploitable Field and shall last until the termination of the Contract, according to Article Three.One.

 

FOUR. ARTICLE FOUR. EXPLORATION. Four.One. Contractor shall commence the Exploration Operations within six months following the Effective Date. Four.Two. Works committed during the initial exploration stage lasting thirteen Contractual Years and nine months. Four.Two.One. First Exploration Period: One Contractual Year and Six Months. During the First Exploration Period, Contractor shall perform the following exploration activities in the Contract Area: (i) Reprocess the existing seismic and aeromagnetic-related data; (ii) obtain and submit details of the wells and of the properties of the reservoirs, and set out the distributions of the reservoir features; (iii) integrate the properties of the reservoirs with the seismic process; and (iv) redesign all the data to identify prospecting and set out the parameters to obtain seismic-related information. During the performance of the works stated in this Article Four.Two.One from (i) to (iv), Contractor shall spend at least four hundred thousand United States Dollars or its equivalent in national currency. Four.Two.Two. Second Exploration Period lasting two Contractual Years. The works committed in the Second Exploration Period are as follows: (i) Recording of at least one hundred and fifty kilometers of new seismic lines; (ii) data processing using the geological parameters for amplitude methods versus distance -AVO- and inversion; (iii) interpretation and integration of the data and preparation of final maps; and (iv) economic evaluation of each regional geological feature. During the performance of the works stated in this Article Four.Two.Two from (i) to (iv), Contractor shall spend at least two million United States Dollars or its equivalent in national currency. Four.Two.Three. Third Exploration Period lasting three Contractual Years and Six Months. The works committed in the Third Exploration Period are as follows: (i) drill two Test Borings to test concepts; and (ii) analyze the results of the Test Borings, update the maps, and perform an economic reappraisal. During the performance of the works stated in this Article Four.Two.Three from (i) to (ii), Contractor shall spend at least three million United States Dollars or its

 

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equivalent in national currency. Four.Two.Four. Fourth Exploration Period: Two Contractual Years and Three Months. During the exploration program, Contractor shall perform —in the Contract Area— the activities detailed in ANNEX EIGHT of the Contract for this period. During the performance of the works stated in this Article Four.Two.Four, Contractor shall spend at least five hundred thousand United States Dollars or its equivalent in national currency. Four.Two.Five. Fifth Exploration Period: One Contractual Year and Six Months. During the exploration program, Contractor shall perform —in the Contract Area— the activities detailed in Annex Eight of the Contract for this period. During the performance of the works stated in this Article Four.Two.Five, Contractor shall spend at least five hundred thousand United States Dollars or its equivalent in national currency. Four.Two.Six. Sixth Exploration Period: One Contractual Year and Six Months. During the exploration program, Contractor shall perform —in the Contract Area— the activities detailed in Annex Eight of the Contract. During the performance of the works stated in this Article Four.Two.Six, Contractor shall spend at least one million United States Dollars or its equivalent in national currency. Four.Two.Seven. Seventh Exploration Period: One Contractual Year and Six Months. During the exploration program, Contractor shall perform —in the Contract Area— the activities detailed in Annex Eight of the Contract for this Period. During the performance of the works stated in this Article Four.Two.Seven, Contractor shall spend at least one million United States Dollars or its equivalent in national currency. Four.Three. Works committed in the complementary exploration stage lasting one Contractual Year at the most. Four.Three.One. Once Contractor has complied with the requirements stated in Article Three.Four, Contractor may continue with the complementary exploration stage to perform the Exploration Operations stated in this article. This decision shall be notified to the Minister at least thirty days before the date of termination of the Seventh Exploration Period. The minimum investment required for the performance of the works stated in this Article Four.Three.One, shall be negotiated with Contractor at this stage. Four.Four. The performance by Contractor of the works requested in any of the periods of the exploration stage stated in Articles Four.Two and Four.Three, shall discharge Contractor from the obligation to spend the minimum amount stated in those articles. Four.Five. If during one of the periods of the exploration stage, Contractor performs more works and/or activities than the minimum obligations requested by the

 

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Minister, the extra works and borings may be credited in the next periods of the exploration stage. However, in any case no more than three consecutive periods of the exploration stage shall pass without a Test Boring being made. Four.Six. For each Exploration Period, Contractor shall furnish the Government, through the Minister, with an irrevocable bank guarantee or letter of credit issued by a bank agreed upon by the Parties. This irrevocable guarantee or letter of credit shall be issued for the amount stipulated for each exploration period in United States Dollars or its equivalent in national currency, to guarantee the faithful and timely performance of the obligations set forth herein. Four.Six.One. For the First Exploration Period, the guarantee or letter of credit shall be issued in the amount of four hundred thousand United States Dollars or its equivalent in national currency, and shall be handed in to the Minister within the next sixty days from the Effective Date. Four.Six.Two. For the Second Exploration Period, the guarantee or letter of credit shall be issued in the amount of two million United States Dollars or its equivalent in national currency, and shall be handed in to the Minister within the next thirty days following the beginning of the Second Exploration Period. Four.Six.Three. For the Third Exploration Period, the guarantee or letter of credit shall be issued in the amount of two million United States Dollars or its equivalent in national currency, and shall be handed in to the Minister within the next thirty days following the beginning of the Third Exploration Period. Four.Six.Four. For the Fourth Exploration Period, the guarantee or letter of credit shall be issued in the amount of one hundred fifty thousand United States Dollars or its equivalent in national currency, and shall be handed in to the Minister within the next thirty days following the beginning of the Fourth Exploration Period. Four.Six.Five. For the Fifth Exploration Period, the guarantee or letter of credit shall be issued in the amount of one hundred fifty thousand United States Dollars or its equivalent in national currency, and shall be handed in to the Minister within the next thirty days following the beginning of the Fifth Exploration Period. Four.Six.Six. For the Sixth Exploration Period, the guarantee or letter of credit shall be issued in the amount of three hundred thousand United States Dollars or its equivalent in national currency, and shall be handed in to the Minister within the next thirty days following the beginning of the Sixth Exploration Period. Four.Six.Seven. For the Seventh Exploration Period, the guarantee or letter of credit shall be issued in the amount of three hundred thousand United States Dollars or its equivalent in

 

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national currency, and shall be handed in to the Minister within the next thirty days following the beginning of the Seventh Exploration Period. Four.Six.Eight. The stated amounts shall be reduced where applicable, in the same amount as the expenses made by Contractor before the beginning of a period of the exploration stage, due to works involved in that period. Four.Six.Nine. If the same Contractor’s Partners have another special operation contract entered into for exploration and exploitation of hydrocarbon fields with guarantees still in force for the Exploration Operations of that contract, the Minister may approve, at the request of Contractor, the replacement of the above-mentioned bank guarantee or letter of credit with another type of guarantee including, but not limited to promissory notes issued by the head offices of Contractor’s Partners. Four.Seven. If Contractor decides to continue with the complementary exploration stage and exercises the power set forth in Article Three.Four, the bank guarantee or letter of credit to be furnished by Contractor shall be issued in an amount equivalent to thirty per cent of the minimum investment agreed, in United States Dollars or its equivalent in national currency. The bank guarantee or letter of credit shall be handed in to the Minister within the next thirty days following the beginning of the Eighth Exploration Period. Four.Eight. The amount of the bank guarantee or letter of credit may be reduced every three months based on the works performed by Contractor, who shall provide evidence showing that such works were effectively done within that period of time. Each reduction shall be made by means of a joint letter from Contractor and the Minister to the corresponding financial institution. The evidence includes, without restriction, reports and information handed in to the Minister according to Article Seventeen and Contractor’s accounting records of the joint operation. Four.Nine. Contractor shall furnish the Coordination Committee with the work schedules and the budget for the Exploration Operations to be performed in the Contract Area at least thirty days before the beginning of each period of the exploration stage. The Parties acknowledge that the work schedules may be modified from time to time to adjust them to the unexpected conditions that may arise, and nothing contained herein shall prevent Contractor from making the modifications, provided the general objectives of the schedule are not changed and the work schedules meet the minimum requirements set forth herein. Four.Ten. Contractor shall periodically inform the Coordination Committee in writing about the progress and results of the exploration works including, but not limited to

 

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Hydrocarbon Discovery, Evaluation Activities and other Exploration Activities and shall attach the corresponding records. Four.Eleven. If at least one Hydrocarbon Discovery has not been declared as a Commercially Exploitable Field, Contractor shall have a maximum of three years, in the case of Oil, and five years, in the case of Gas, to declare a Hydrocarbon Discovery as a Commercially Exploitable Field. From the date of the first declaration of a Commercially Exploitable Field, any other subsequent Hydrocarbon Discovery shall have a maximum of two years, in the case of Oil, and four years, in the case of Gas, from the Discovery Date to be declared a Commercially Exploitable Field. Four.Twelve. Within the corresponding term under Article Four.Eleven, Contractor shall inform the Ministry in writing of his decision to declare or not a Hydrocarbon Discovery as a Commercially Exploitable Field and shall include all the corresponding records. Should Contractor decide to declare a Hydrocarbon Discovery as a Commercially Exploitable Field, Contractor shall also include a preliminary schedule for the Exploration Operations for that field. If Contractor does not declare a Hydrocarbon Discovery as a Commercially Exploitable Field within the term stated in Article Four.Eleven, Contractor shall return an area pertaining to that Hydrocarbon Discovery to the Government. The area shall be established by the Coordination Committee in order to enforce the provisions set forth in Article Six.Seven.Three. FIVE. SECTION FIVE. AREA RESTITUTION. Five.One. In accordance with this Article, the Contract Area surface shall be reduced. Five.Two. At any time during the exploration stage, Contractor shall be entitled to voluntarily return any part of the Contract Area that Contractor may wish to the Government, by giving at least thirty-day written notice to the Minister. Contractor shall have no further rights or obligations in connection with the returned area from the date of restitution. Said voluntary area restitution, as well as any other area returned under Article Four.Twelve or Five.Seven, shall be allocated to the fraction of the Contract Area that Contractor is obliged to return in accordance with Article Five.Three. Five.Three. At the end of the Sixth Exploration Period and provided the exploration stage is still in force, Contractor shall select the area to be kept and shall return at least fifty per cent of the Contract Area to the Government. At least thirty days before the end of the Sixth Exploration Period, Contractor shall define and inform the Minister in writing of his decision to proceed with the next stage and the part or parts of the Contract Area Contractor has chosen to keep. The area to be returned by

 

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Contractor shall consist of surfaces of the appropriate size and shape to further perform Exploration Operations, at the Coordination Committee’s discretion. Notwithstanding the obligation to return the areas under this Article Five.Three, Contractor shall not be obliged to return Field Exploitation Areas or Commercially Exploitable Fields, including the Protection Halation surrounding these areas. At the end of the Seventh Exploration Period, and provided the exploration stage is still in force, Contractor shall return fifty per cent of the remaining Contract Area, or the total remaining Contract Area if Contractor has not informed the Ministry of Mining in charge of Field Exploitation Areas or Commercially Exploitable Fields of his decision to continue with the complementary exploration stage. Five.Four. Notwithstanding the foregoing, Contractor may return the total Contract Area at the end of the Seventh Exploration Period, if Contractor has submitted a new exploration program including the whole Contract Area, at the full satisfaction of the Ministry of Mining, six months before the expiration of the Sixth Exploration Period. Five.Five. At the completion of the exploration stage and, in order to carry out Oil Operations, Contractor shall only keep the Field Exploitation Areas with regards to which the correction term stated in Article Six.Three has expired, and a provisional protection area up to one hundred square kilometers, which shall be established by the Coordination Committee at the request of Contractor on the basis of the technical information available by then for each of the following: (i) Commercially Exploitable Fields which have been put into Production at least one year before the termination date of the Exploration Stage; (ii) Fields declared as Commercially Exploitable Fields that have not been put into Production; and (iii) Hydrocarbon Discoveries which terms to declare them as Commercially Exploitable Fields in the final Field Exploitation Area of each field under Article Six.Three have not expired. Contractor shall return all the corresponding surfaces not included in said areas to the Government, unless the Government and Contractor agree on additional Oil Operations for the above-mentioned surfaces with their corresponding work commitments. Five.Six. When Contractor returns the Government the whole Contract Area that, in accordance with the previous article, does not constitute Field Exploitation Areas, Contractor shall be released from all future rights and obligations in connection with the returned area, except for those obligations corresponding to the Contractual Year in force at that time and, subject to the legal rules in force, Contractor shall freely dispose of and use the equipment, machineries

 

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and installations used in the Exploration Operations. Five.Seven. If at any time during the exploitation stage, Contractor decides to finally stop the exploitation of a particular field, Contractor shall give six-month written notice to the Minister to that effect. Contractor shall return the Field Exploitation Area pertaining to that field to the Government and the wells, equipment, machineries and materials directly and exclusively used in the exploitation of that field, which shall be free of charge according to Article Eighteen.Four. Accordingly, Contractor shall have no further rights or obligations in connection with that field.

 

SIX. ARTICLE SIX. EXPLOITATION. Six.One. Each Commercially Exploitable Field shall be subject to an exploitation stage and its duration shall be in accordance with clause Three.Six. Six.Two. From the time Contractor declares a Hydrocarbon Discovery as a Commercially Exploitable Field, Contractor shall commence the Exploitation Operations in that field within a reasonable period which shall be determined according to the practices and standards of the international oil industry. Six.Three. Each Commercially Exploitable Field shall have its Field Exploitation Area which shall be determined by the Coordination Committee at the request of Contractor on the basis of the existing information including, but not limited to information obtained from the Oil Operations. During one year from the beginning of the production in an Exploitation Area or Field, the Coordination Committee may correct the Field Exploitation Area originally established within the Contract Area, taking into account the new information on subsurface as well as the practices and standards of the international oil industry. Six.Four. The maximum terms for the Start-up of Commercially Exploitable Fields, counted from the date Contractor declares them as such, shall be as follows: Six.Four.One. For Oil: Three years for the first field and two years for fields declared later, as long as this last term does not require that the fields subsequently declared as commercial fields, start-up their production before the first field declared. Six.Four.Two. For Gas: Six years for the first field and four years for fields declared later, as long as this last term does not require that the fields subsequently declared as commercial fields, start-up their production before the first field declared. Six.Five. During the exploitation stage of each Commercially Exploitable Field, Contractor shall perform all the necessary operations for the field development and Production Start-up. These operations shall conform to the rules applied by the general oil industry in the exploitation of Hydrocarbon fields and by the principles accepted by the production and

 

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conservation engineering. The operations shall be performed in an efficient and economical manner, in accordance with the terms and conditions of this Contract and with the laws, regulations and decrees in force in Chile. Six.Five.One. If two Field Exploitation Areas related to different Special Operation Contracts are adjoined, both contractors may be authorized to develop their activities together. Six.Six. Contractor shall have the following rights and obligations in the performance of Exploitation Operations, in all cases without prejudice to the rights of third parties and the fully effectiveness and mandatory nature of the laws, rules and regulations in force. Six.Six.One. Exclusive right to perform Oil Operations and Complementary Activities for the development and exploitation of the Hydrocarbon Field(s) discovered. Six.Six.Two. The right to enter or leave the Contract Area and any other facility related to the Oil Operations, wherever it is located. Six.Six.Three. The right to use geological, geophysical, wells and production-related information, as well as information related to the Contract Area that the Government may have under its control and that could be useful for the Hydrocarbon exploration and exploitation in that area. The Government shall make its best endeavors to provide Contractor with the information of such a nature which may be in its possession or in possession of any other state owned-company or service. The information shall be subject to the provisions of Article Seventeen. Six.Six.Four. The right to hire subcontractors’ services to perform Oil Operations. Both Contractor and his subcontractors may bring to Chile their technical and professional staff and the equipment and materials they may deem necessary to perform the Oil Operations in a proper, economical and fast manner. Six.Six.Five. The right to build and operate the facilities for the recovery of liquid from the “associated gas” produced in the field. Six.Six.Six. The right to build and operate within the Contract Area pipes and other means of transportation of Gas and Oil, and the right to build and operate pipelines, terminals and other facilities out of the Contract Area, requested by Contractor to explore, produce and export Hydrocarbons. Six.Six.Seven. Contractor may re-inject Gas to increase the Liquid Hydrocarbons recovery or as a means to preserve the gas. Six.Six.Eight. Contractor may burn or vent Natural Gas with the written authorization of the Minister, except in case of emergency where no prior and written authorization shall be required. The authorization may be rejected due to well-founded reasons. Six.Six.Nine. Contractor shall furnish the Coordination Committee with a work schedule and a budget for

 

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all activities to be performed during the Calendar Year. Said schedule and budget shall be submitted at least ninety days before the beginning of each Calendar Year of the exploitation stage. Six.Six.Ten. Contractor shall provide at his own risk and expense the financing, equipment, materials and technical staff and assistance required to perform the Oil Operations under this Contract. Six.Six.Eleven. To avoid environmental contamination and preserve the hydrological resources, wildlife and other natural resources, Contractor shall comply with Law number nineteen thousand three hundred on Environmental General Basis and the Environmental Impact Evaluation System Regulations included in Executive Order number thirty issued by the Ministry, General Secretariat of the Presidency of the Republic in one thousand nine hundred and ninety-seven, as amended, and all other laws, rules and regulations in force and applicable to the environment, as stated in Article Fifteen.Three. Notwithstanding the foregoing, Contractor shall purchase insurance to guarantee payment of the pertinent compensations in case of environmental contamination or damage to third parties. Six.Six.Twelve. According to the practices accepted in the oil industry, Contractor shall periodically perform tests and controls to verify the following items as needed: (i) Pressure of the field bottom and accumulation -build up-, etc.; (ii) wells production indexes; (iii) physical and chemical properties of hydrocarbons produced; (iv) typical field parameters such as: water saturation, porosity, permeability and volume factors for Oil and Gas; (v) primary and secondary recovery efficiency; and (vi) original reserves and primary and secondary recoverable reserves of each field. Six.Six.Thirteen. Contractor shall propose the Coordination Committee the proper Maximum Efficient Production for each field under production. The production rate of any field shall not exceed the Maximum Efficient Production established for that field according to the regular practices applied in the oil industry. Six.Six.Fourteen. Contractor shall provide and operate all facilities to produce, transport, store and deliver Hydrocarbons. In this sense, Contractor’s responsibility shall be up to the Point of Delivery, Control and Final Measurement of the Oil or Gas. Six.Six.Fifteen. In order to transport, store and deliver the Oil, Contractor shall freely decide if the Oil produced in different Field Exploitation Areas and/or the Oil referred to in Article Seven.One.Five shall be mixed or kept separately. Six.Seven. The Government shall have the following rights and obligations: Six.Seven.One. The Government shall have the right to use all data related to the Contract Area submitted by

 

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Contractor under Article Seventeen.Four. During the validity term of this Contract, this information shall not be disclosed to third parties without Contractor’s consent, which shall not be unreasonably withheld. Once an area has been partially or fully returned by Contractor, the Government may freely use and disclose the technical information about that area to third parties. Six.Seven.Two. The Government, at its own account and risk, shall be entitled to appoint inspectors to verify that the Oil Operations performed by Contractor are carried out in accordance with this Contract. The inspectors shall not unduly prevent or delay the Oil Operations. Contractor shall guarantee these inspectors free access to all facilities and shall provide any piece of information related to the Oil Operations that they may reasonably request. Six.Seven.Three. Subject to Articles Four, Five and Six, if Contractor considers that a Hydrocarbon Discovery is not commercially exploitable or loses the right to exploit it due to any of the grounds stated in the Contract, the Government shall have the right to directly exploit that Hydrocarbon discovery at its own risk and expense, through its companies or third parties. Six.Seven.Four. At the request of Contractor and without prejudice to the rights of third parties, the Government shall grant —under the conditions set forth in the general legislation and pertinent regulations— the rights of way to its lands and the rights to use the water developments owned by the Government, as well as the necessary permits and licenses to perform Oil Operations.

 

SEVEN. ARTICLE SEVEN. HYDROCARBON MEASUREMENT, TRANSPORTATION AND DELIVERY. Seven.One. Oil. Seven.One.One. The Oil produced in each Field Exploitation Area shall be measured at the Measurement Station of the corresponding area and transported by Contractor to the Oil Terminal Facilities where the net production of the whole Contract Area shall be measured, including the Field Exploitation Areas under the conditions stated in Article Seven.One.Five. These measurements shall conform to the rules and methods accepted in the oil industry. The Oil Compensation shall be transferred to Contractor at the Point of Delivery, Control and Final Measurement of the Oil. Seven.One.Two. Contractor shall be responsible for the equipment, construction, maintenance and operation of the Collection System, Oil Pipeline and Oil terminal Facilities. These facilities shall comply with the safety and operation requirements applied in the oil industry. Seven.One.Three. Contractor shall be responsible for the Oil produced in the Contract Area and for the transportation of that Oil and the Oil

 

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referred to in Article Seven.One.Five, to the Point of Delivery, Control and Final Measurement of the Oil, where the Parties shall take their proportional parts of each Oil quality. These operations shall be carried out in accordance with the rules and methods accepted in the international oil industry. Seven.One.Four. The Oil to be delivered by Contractor to the Government at the Point of Delivery, Control and Final Measurement of the Oil, including the volume reacquired under Article Eight.One.Four, shall meet the commercial conditions of delivery, measured at that place, and shall be reduced to dry-dry conditions at sixty degrees Fahrenheit. The maximum limit of basic sediments and water shall be one per cent and the maximum limit of total salinity shall be one hundred grams per cubic meter expressed in sodium chloride, both limits corrected for a temperature of sixty degrees Fahrenheit. If the water or Oil salinity exceeds the stated limits, the Government shall not be obliged to receive it. The Oil that is not received by the Government due to said reason shall be treated once again by Contractor until the above-mentioned limits are reached. However, the Government may voluntarily desist from following the previous commercial conditions of delivery. In special cases, if Contractor is unable to reach the stated limits due to serious operative reasons approved by the Coordination Committee, the Government shall receive the Oil out of specifications up to a maximum of two hundred and forty hours in a Calendar Year. In these cases, the volume of Oil to be delivered by Contractor to the Government shall be increased to a volume which percentage shall be equal to the highest of the following values: (i) The one resulting from multiplying the percentage of basic sediments and water contained in the volumes delivered out of specifications by two; or (ii) the one resulting from dividing the total salinity contained in the volumes delivered out of specification by fifty. The quantity and quality of Oil to be delivered by Contractor to the Government at the Point of Delivery, Control and Final Measurement of the Oil shall be certified by a qualified inspector appointed by Contractor and accepted by the Minister. The certification shall be reasonably made as needed according to the practices generally accepted in the international oil industry. Seven.One.Five. If during the validity term of this Contract, the Government decides to produce Oil directly or through its companies or third parties in a Field Exploitation Area returned by Contractor under Article Five.Six, the Government or the third parties, as the case may be, shall operate the area and the part corresponding to the Collection System at

 

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its own cost and risk up to the point where the Oil of that area is mixed with the Oil coming from other Field Exploitation Areas which were not returned by Contractor. At that point of the Collection System, Contractor shall install a measurement device and transport the Oil produced by the Government or a third party, as the case may be, from the above-mentioned point to the Oil Terminal Facilities under the following conditions: (i) If the facilities have capacity available, the Government or a third party, as the case may be, shall pay the proportional part of the operational costs of the facilities used. This right shall be limited to a maximum equal to the average of the Monthly Average Production per Day of the Field Exploitation Area returned, calculated based on the previous five production years to the date when the area is returned. If there are not five previous production years, it shall be calculated based on the years of effective production. If at the time this right is to be exercised there is not enough capacity, the Government’s right shall be limited to the capacity effectively available at that time and it may subsequently use the capacities that become available up to the maximum limit stated above. This right shall be exercised for a maximum period of twenty years counted as from the date when the Field Exploitation Area is returned. This right shall forfeit if the Government or a third party, as the case may be, fails to exercise the right within the first five years from that date; (ii) if the facilities have no available capacity, the Government or a third party, as the case may be, may expand, at its own cost, the capacity of the facilities owned by Contractor by paying only the proportional part of the operational costs of the facilities used. Seven.One.Six. Before starting the Oil production and upon proposal made by Contractor, the Coordination Committee shall establish the procedures on the Oil-pick ups to which each Party is entitled, at the Point of Delivery, Control and Final Measurement of the Oil. Said procedures shall include, among others, the requirements for the oil tank-vessels loading, volumes, nominations, overstays and pick-ups of larger or smaller quantity than those agreed. The procedures shall be established before the first Oil delivery by Contractor at the Point of Delivery, Control and Final Measurement of the Oil. Seven.Two. Gas. Seven.Two.One. If Contractor considers that all or part of the Gas discovered in the Contract Area can be sold, the sale of the Gas shall be subject to a previous agreement of the Parties with regard to: (i) Place, within the Contract Area, where the Point of Delivery, Control and Final Measurement of the Gas shall be located; (ii) conditions of the Gas

 

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delivery and quality at the Point of Delivery, Control and Final Measurement of the Gas; and (iii) price of the Gas at the Point of Delivery, Control and Final Measurement of the Gas according to Article Nine.Four. Seven.Two.Two. After the Liquid Hydrocarbons are removed through regular separation in the field, the Marketable Gas produced and recovered in each Field Exploitation Area, shall be measured at the Measurement Station of the respective area according to the rules and methods accepted in the international Gas industry and it shall be transported by Contractor to the Point of Delivery, Control and Final Measurement of the Gas agreed upon by the Parties. Seven.Two.Three. Contractor shall be responsible for the Marketable Gas produced in the Contract Area and for the transportation of the Gas to the Point of Delivery, Control and Final Measurement of the Gas, where it shall be delivered to the Government. The quantity and quality of the Gas delivered by Contractor to the Government at the Point of Delivery, Control and Final Measurement of the Gas shall be certified by a qualified inspector appointed by Contractor and accepted by the Minister. The certification shall be issued with founded reasons and as reasonably needed in accordance with the practices generally accepted in the international Gas industry. Seven.Two.Four. Contractor shall be responsible for the construction, maintenance and operation equipment of the Marketable Gas Collection System. These facilities shall meet all safety and operation requirements applied in the international Gas industry. The construction and operation of any of the facilities beyond the Point of Delivery, Control and Final Measurement of the Gas, are not included within the scope of this Contract and shall be subject to the agreements that the Parties may reach. Seven.Two.Five. If Contractor considers that the processing and use of all or part of the Gas of a Field Exploitation Area is not commercially viable or there are founded technical reasons, Contractor may re-inject Gas as a part of the program for the operation of the reservoir. If Contractor requests authorization to burn or vent the Gas, the Government may take and use the Gas free of charge, and the collection costs of this Gas shall be borne by the Government at its own risk and expense. Seven.Two.Six. If during the validity term of this Contract, the Government decides to produce Gas directly or through its companies or third parties in a Field Exploitation Area returned by Contractor under Article Five.Six, the Government or the third parties, as the case may be, shall operate the area and the part corresponding to the Collection System at its own cost and risk up to the point where the

 

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Gas of the area is mixed with the Gas coming from other Field Exploitation Areas which were not returned by Contractor. At that point of the Collection System, Contractor shall install a measurement device and transport the Gas produced by the Government or a third party, as the case may be, from the above-mentioned point to the Point of Delivery, Control and Final Measurement of the Gas under the following conditions: (i) If the facilities have capacity available, the Government or a third party, as the case may be, shall pay the proportional part of the operational costs of the facilities used. This right shall be limited to a maximum equal to the average of the Monthly Average Production per Day of the Field Exploitation Area returned, calculated based on the previous five production years to the date when the area is returned. If at the time this right is to be exercised there is not enough capacity, the Government’s right shall be limited to the capacity effectively available at that time and it may subsequently use the capacities that become available up to the maximum limit stated above. This right shall be exercised for a maximum period of twenty years counted as from the date when the Field Exploitation Area is returned. This right shall forfeit if the Government or a third party, as the case may be, fails to exercise the right within the first five years from that date; (ii) if the facilities have no available capacity, the Government or a third party, as the case may be, may expand, at its own cost, the capacity of the facilities owned by Contractor by paying only the proportional part of the operational costs of the facilities used. Seven.Three. To help Contractor perform his obligations to transport the Oil and Gas under this Contract, the Government agrees to make its best endeavors to obtain access for Contractor to the available capacity in oil pipelines, gas pipelines, storage terminals and water collection and separation facilities owned by third parties or by the Government, at a reasonable and fair cost for all the parties involved.

 

ARTICLE EIGHT. CONTRACTOR’S COMPENSATION AND REACQUISITION OF OIL BY THE GOVERNMENT. Eight.One. Oil. Eight.One.One. The Government shall pay Contractor a monthly Compensation for the Oil. This compensation shall be equivalent to a percentage of the Oil production of the Contract Area, measured at the Point of Delivery, Control and Final Measurement of the Oil. Eight.One.Two. Contractor’s Compensation shall be calculated for each calendar month as follows: Rp equal to, open parenthesis, r. one plus r. two plus and so on up to r. n divided by Q. one plus Q. two plus and so on up to Q. n plus V, close parenthesis, multiplied by W and multiplied by N; where

 

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for each Field Exploitation Area -one, two, three and so on up to n- the corresponding r shall be calculated based on its corresponding Q, which shall be determined at the Measurement Station as follows: r shall be equal to zero point ninety-five multiplied by Q, if Q is smaller than five thousand bpd; r shall be equal to zero point ninety multiplied by Q, plus two hundred and fifty bpd, if Q is larger than or equal to five thousand and smaller than fifteen thousand bpd; r shall be equal to, zero point sixty-five multiplied by Q, plus four thousand bpd, if Q is larger than or equal to fifteen thousand and smaller than thirty thousand bpd; r shall be equal to, zero point fifty multiplied by Q, plus eight thousand five hundred bpd, if Q is larger than or equal to thirty thousand bpd. Being: Rp: Contractor’s monthly compensation in Oil Barrels.- r one, r two, and so on up to r n: Volume in bdp of each Field Exploitation Area of the Contract Area -one, two, three and so on up to n-, that is obtained from applying the above formula to determine r.- Q one, Q two, and so on up to Q n: Average Monthly Production per Day in bpd of each Field Exploitation Area of the Contract Area -one, two, three and so on up to n-, measured at the pertinent Measurement Station.- n: Number of Field Exploitation Areas of the Contract Area that are producing Liquid Hydrocarbons. N: Number of days of the month. W: Average Monthly Production per Day in bpd measured in the Oil Terminal Facilities, including both the Oil of the Contract Area and the Oil coming from the Field Exploitation Areas under the conditions stated in Article Seven.One.Five. V: Sum of the Average Monthly Productions per Day in bpd of the Field Exploitation Areas under the conditions stated in Article Seven.One.Five, measured at the points where the measurement devices referred to in said clause are installed. bpd: Oil Barrels per day. The formula described in Article Eight.One.Two is shown in figures in ANNEX TEN. Eight.One.Three. The Government, whether directly or through its companies, shall have the right to reacquire from Contractor’s Partners, excluding the companies controlled by the Government, the Oil received by Contractor’s Partners by way of Compensation. The Oil shall be reacquired at the Point of Delivery, Control and Final Measurement of the Oil and shall be paid in United States Dollars. Under no circumstances shall Contractor’s Partners, excluding the companies controlled by the Government, be required to supply Oil to be reacquired by the Government in excess of the amount received by said Partners by way of Compensation according to the terms and conditions of this Contract. Eight.One.Four. In order to meet the internal consumption

 

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demand of Chile, which is not satisfied with the total Oil that the Government and the companies controlled by the Government receive under the operations contracts in force, including the internal production of the companies controlled by the Government that is independently generated, the Government shall have the right to reacquire from the Compensation of Contractor’s Partners, excluding the companies controlled by the Government, at a price calculated according to Article Nine.One, the maximum amount of Oil that shall be determined for any Calendar Year as follows: WR is equal to R divided by TCR and the result of this multiplied by, open parenthesis, D minus TER, close parenthesis, if D is larger than TER; WR is equal to zero, if D is smaller than TER; WR is equal to R, if WR is larger than R. Being: R: Contractor Partners’ Compensation excluding the companies controlled by the Government. WR: Volume of Contractor Partners’ Compensation, excluding the companies controlled by the Government that can be reacquired by the Government. TCR: Sum of the Compensations of all contractors with contracts in force, excluding the companies controlled by the Government. D: Oil demand in Chile. TER: Sum of all Oil productions of all contractors, plus the internal production of the companies controlled by the Government that is independently generated, minus the sum of the Compensations of all contractors with contracts in force, excluding the companies controlled by the Government. The national consumption figures shall be obtained from projecting the corresponding figures to the last twelve months before the date of calculation. The internal production figures of the companies controlled by the Government and that of contractors with contracts in force, shall be obtained from the annual production forecasts submitted by those companies and contractors for the following year from the calculation date. Before the first of July of every Calendar Year, the Minister shall notify Contractor of the Oil volume he has determined, in accordance with the above-mentioned formula, and that shall be reacquired from his Compensation during the next Calendar Year. In case of disagreement in determining the volume, the procedure stated in Article Sixteen shall be followed. Eight.One.Five. All the Oil Compensation that the Government may wish to reacquire on the volumes established in the previous article shall be paid at a reasonable price to Contractor’s Partners, excluding the companies controlled by the Government. Eight.One.Six. Contractor’s Partners shall be entitled to freely receive and export all the Oil Compensation in excess of the volume reacquired under Articles

 

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Eight.One.Three, Eight.One.Four and Eight.One.Five, without need to obtain further governmental approvals and without being subject to the applicable export regulations. Eight.One.Seven. The Parties acknowledge that, in the calculation of Contractor’s Compensation under Article Eight.One.Two., it is implied that each Party shall assume his own pertinent portion for any reduction in the Oil volume that may occur between the field Measurement Station and the Point of Delivery, Control and Final Measurement of the Oil due evaporation, volumetric contraction adjustments, use in Oil Operations, fulfillment of the Oil delivery specifications set forth in Article Seven.One.Four or due to any other reason in accordance with the practices accepted by the standards and practices of the international oil industry, as well as the total Oil volume used before the field Measurement Station in Oil Operations required to produce Oil. However, Contractor shall be responsible for insuring the risk of Oil loss due to an accident in the Oil Pipeline, in the Collection System or in the Oil Terminal Facilities. Eight.One.Eight. The Parties acknowledge that, in the calculation of Contractor’s Compensation under Eight.One.Two and Eight.One.Seven, it is implied that the compensation shall not exceed ninety-five per cent and shall not be less than fifty per cent of the Oil production of the Contract Area measured at the Point of Delivery, Control and Final Measurement of the Oil, as stated in Table one included in Annex Ten. Such production shall be determined based on the production of every field. Eight.One.Nine. Contractor shall invoice to the purchasers of the Oil, together with his Compensation, the interest held by the Government in the Oil production. The proceeds of the sale to which the Government is entitled shall be returned to the government coffers in the same currency of the sale, within a term not to exceed five business days from the time when they were deposited in its current account. The application of the Value Added Tax levied on the sale of the total oil production shall be in accordance with the applicable legislation. Eight.Two. Gas. Eight.Two.One. The Government shall pay Contractor a monthly Compensation for the Marketable Gas. This compensation shall be equivalent to a percentage of the Marketable Gas production of the Contract Area, measured at the Point of Delivery, Control and Final Measurement of the Gas. Eight.Two.Two. Contractor’s Compensation shall be calculated for each calendar month as follows: Rg: is equal to, open parenthesis, r. one plus r. two plus and so on up to r. n, divided by Q. one plus Q. two plus and so on up to Q. n plus V, close parenthesis,

 

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multiplied by W and multiplied by N; where for each Field Exploitation Area -one, two, three, and so on up to n- the corresponding r shall be calculated based on its corresponding Q, which shall be determined at the Measurement Station as follows: r equal to zero point ninety-seven multiplied by Q, if Q is smaller than twenty-five thousand uspd divided by P; r equal to zero point ninety-five multiplied by Q, plus five hundred uspd divided by P, if Q is larger than or equal to twenty-five thousand uspd divided by P and smaller than fifty thousand uspd divided by P; r equal to zero point seventy-five multiplied by Q, plus ten thousand five hundred uspd divided by P, if Q is larger than or equal to fifty thousand uspd divided by P and smaller than one hundred thousand uspd divided by P; r equal to zero point sixty multiplied by Q, plus twenty-five thousand five hundred uspd divided by P, if Q is larger than or equal to one hundred thousand uspd divided by P. Being: Rg: Contractor’s monthly compensation in Standard cubic meters.- r one, r two, and so on up to r n: Marketable Gas Production in Standard cubic meters per day of each Field Exploitation Area of the Contract Area -one, two, three and so on up to n-, that is obtained from applying the above formula to determine r.- Q.one, Q.two, and so on up to Q.n: Marketable Gas Monthly Average Production per Day in Standard cubic meters of each Field Exploitation Area of the Contract Area -one, two, three and so on up to n-, according to the Marketable Gas volume measured at the pertinent Measurement Station.- n: Number of Field Exploitation Areas of the Contract Area that are producing Marketable Gas. P: Price of the Gas at the Point of Delivery, Control and Final Measurement of the Gas agreed by the Parties, expressed in United States Dollars per Standard cubic meter. If the gas price, as determined according to Article Seven.Two.One, is expressed in national currency, it shall be converted into United States Dollars, as stated in Article Eleven.Seven. N: Number of days of the month. W: Marketable Gas Monthly Average Production per Day in Standard cubic meters per day according to the volume of the Gas measured at the Point of Delivery, Control and Final Measurement of the Gas, including both the Gas of the Contract Area and the Gas coming from the Field Exploitation Areas under the conditions stated in Article Seven.Two.Six. V: Sum of the Marketable Gas Monthly Average Productions per Day in Standard cubic meters per day of the Field Exploitation Areas under the conditions stated in Article Seven.Two.Six, according to the volumes of Gas measured at the points where the measurement devices referred to in said clause are installed.- uspd: United States Dollars

 

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per day. The formula described in this Article Eight.Two.Two is shown in figures in Annex Ten. Eight.Two.Three. The Parties acknowledge that, in the calculation of Contractor’s Compensation under Article Eight.Two.Two., it is implied that each party shall assume his own pertinent portion for any reduction in the Gas volume that may occur between the field Measurement Station and the Point of Delivery, Control and Final Measurement of the Gas due volumetric contraction adjustments, use in Oil Operations, fulfillment of the Gas delivery specifications set forth in Article Seven.Two.Two or due to any other reason in accordance with the practices internationally accepted in the Gas industry, as well as the total Gas volume used before the field Measurement Station in Oil Operations required to produce Gas including, but not limited to Gas re-injection to keep the pressure, gas lift, pumping stations, production batteries, compressor and electricity generation stations for the Oil Operations. However, Contractor shall be responsible for insuring the risk of Gas loss due to an accident in the Collection System or at the Point of Delivery, Control and Final Measurement of the Gas. Eight.Two.Four. The Parties acknowledge that, in the calculation of Contractor’s Compensation under Articles Eight.Two.Two and Eight.Two.Three, it is implied that the compensation shall not exceed ninety-seven per cent and shall not be less than sixty per cent of the Marketable Gas production of the Contract Area measured at the Point of Delivery, Control and Final Measurement of the Gas, as stated in Table two included in Annex Ten. Eight.Two.Five. Contractor shall commercialize the total Marketable Gas production of the Contract Area at the Point of Delivery, Control and Final Measurement of the Gas, under the best market conditions according to Article Nine.Four. The Chilean Government authorizes to and grants a power of attorney in favor of the Operator so that the Operator can sell, transfer and deliver to the Purchaser on behalf of the Government, the interest held by the Government in the Marketable Gas coming from the Fell Block, at the Point of Delivery, Control and Final Measurement of the Gas and under the terms and conditions stated in this subsection. Eight.Two.Six. Contractor shall invoice to the purchasers of the Marketable Gas, together with his Compensation, the interest held by the Government in the Marketable Gas production. The proceeds of the sale to which the Government is entitled shall be returned to the government coffers in the same currency of the sale, within a term not to exceed five business days from the time when they were deposited in its current account. The

 

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application of the Value Added Tax levied on the sale of the total Gas volume shall be in accordance with the applicable legislation. NINE. ARTICLE NINE. HYDROCARBON APPRAISAL. Nine.One. For the purposes of Articles Eight.One.Three, Eigth.One.Five and Twelve.Two.Four.One, Twelve.Two.Four.Three, the Oil shall be appraised at an average price of three crude oil baskets of similar quality coming from different countries, f.o.b. original port of shipment corresponding to the last fifteen days immediately preceding the month of the production delivery, published in Platt’s Oilgram Price Report in the column titled “Short Term Contract/Spot” of the chart so-called “World Crude Oil Prices”. If the Platl’s Oilgram Price Report is no longer published, the Coordination Committee shall select a similar publication. Nine.Two. The Coordination Committee shall select the crude oils of the respective basket based on the similarity of the oil quality being appraised and on its capacity to be freely commercialized in significant quantities in the international market. Nine.Three. If any of the Parties considers that the basket being used is no longer representative of a fair value in the oil international market on evaluation, the Party may request the Coordination Committee to choose an alternative basket which represents the fair value in the international market or any other fair method. For the purposes of Article Nine.One, the Oil appraisal shall be based on the basket in use until an alternative basket is selected. Nine.Four. Regarding the appraisal of the Marketable Gas, the Parties shall timely agree on the performance of the necessary actions to sell the Gas at the best market price at the Point of Delivery, Control and Final Measurement of the Gas. The price shall be the value considered to calculate the Compensation payable for the Gas.

 

TEN. ARTICLE TEN. COORDINATION COMMITTEE. Ten.One. The Contract performance shall be supervised by a Coordination Committee composed of the same number of representatives form each Party, but no more than three. One of the representatives from the Government shall preside over the Committee meetings. Each Party shall inform the names of his regular and alternate representatives to the other Party within ninety days following the Effective Date. The Parties may substitute one or more of their representatives at their convenience. The name of the new representative(s) shall be informed to the other Party at least ten days before the next meeting of the Committee. Ten.Two. The Coordination Committee shall be entitled to perform the activities it was entrusted with under this Contract and those activities that the Parties may agree to assign

 

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to it occasionally. Ten.Three. The Committee shall have the following duties and obligations: Ten.Three.One. To determine the shape and size of the provisional protection areas of up to one hundred square kilometers, for the fields under the conditions stated in Article Five.Four and to determine the shape and size of the areas that have to be returned to the Government under Article Thirteen. Ten.Three.Two. To define the Field Exploitation Area of each field that Contractor declares as Commercially Exploitable Field. Ten.Three.Three. To know the budgets and annual work schedules that Contractor shall submit, and examine the modifications to those budgets and schedules. Ten.Three.Four. To analyze and agree the Maximum Efficient Production of each field and the Maximum Production per Well for the wells under production to be proposed by Contractor, and to review them annually. Ten.Three.Five. To select the crude oil of the basket that will be considered to fix the Oil price, according to Articles Nine.Two and Nine.Three, and select the similar publication referred to in Article Nine.One. Ten.Three.Six. To obtain from Contractor the necessary reports and documents for the performance of its duties. Ten.Three.Seven. To request accounting and technical inspections to determine the conditions for the performance of Oil Operations. The cost of the inspections shall be only borne by the Party who proposed them. To this end, services of external experts may be considered. In any case, these technical or accounting inspections shall not be performed after a period of twenty-four months from the Calendar Year in relation to which the inspection is made. Any objection raised as a result of such inspection shall be made in writing and within the above-mentioned period of twenty-four months. Ten.Three.Eight. To regularly examine the relevant Contract-related information and to facilitate the exchange of relevant information about Oil Operations between the Parties. Ten.Three.Nine. To prepare the procedure regulations which shall rule the duties of the Committee to perform its obligations. Ten.Three.Ten. To authorize Contractor to complete the drilling operations of a Test Boring or Appraisal Well in accordance with Article One.Thirty-Nine. Ten.Three.Eleven. To give the opinion requested in Article Five.Three. Ten.Three.Twelve. To establish the procedures for Oil pick-ups established in Article Seven.One.Six. Ten.Three.Thirteen. To carry out any other activity requested under this Contract. Ten.Four. Each Party shall be responsible for the expenses incurred by their respective representatives in the Committee. Ten.Five. The Committee shall meet at the

 

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request of any of the Parties at the place, date and time that the Parties may agree. Ten.Six. The decisions of the Committee shall be made by unanimous consent of the Parties. If the members of the Committee cannot agree on a specific matter, Contractor may take action with regard to that matter in the manner Contractor may deem necessary to exercise his rights and perform his obligations under this Contract. Contractor’s right to act in this way shall not prevent the Government from exercising the right to resort to the technical determination or the legal procedure set forth in Article Sixteen with regard to the matter in dispute.

 

ELEVEN. ARTICLE ELEVEN. PAYMENTS AND REMITTANCES IN FOREIGN CURRENCY. Eleven.One. Unless otherwise agreed in this Contract, all cash payments Contractor is obliged to make to the Government under this Contract shall be made in United States Dollars. Eleven.Two. All payments owed by the Government to its companies and Contractor for the reacquisition of Oil or by way of Compensation for the Marketable Gas shall be made in United States Dollars to Contractor’s account in a bank to be determined by Contractor in the United States of America. For payments denominated in foreign currency, the Central Bank of Chile shall give access to the Formal Exchange Market to purchase the necessary foreign currency. To this end, this Special Operation Contract for the Exploration and Exploitation of Hydrocarbon Fields shall be filed with said institution. Eleven.Three. All payments that the Government or its companies, except for the companies controlled by the Government that are Contractor’s Partners, shall make to Contractor for reasons other that the ones stated in Article Eleven.Two, shall be made in national currency. Any money refund that the Parties shall make under this Contract shall be made in the same currency as the original payment. Eleven.Four. All payments to be made by Contractor to the Government or by the Government or its companies to Contractor under this Contract, shall be made within fifteen days from the invoice date or the date on which the payment obligation is due, except for the provisions stated in Articles Eight.One.Nine and Eight.Two.Six. In the case of Oil reacquisition, this date shall be the day on which the Oil is delivered to the Government or its companies at the Point of Delivery, Control and Final Measurement of the Oil, and in the case of Compensation of Marketable Gas, this date shall be the fifth day of the next calendar month from the month in which the deliveries were made to the Government at the Point of Delivery, Control and

 

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Final Measurement of the Gas. Eleven.Five. The Government guarantees Contractor’s Partners, if they are foreign persons, free access to the foreign exchange market known as Formal Exchange Market or the one that may replace it in the future to convert and subsequently transfer abroad the income earned from the sale of equipment and other property of their own, made under the terms and conditions of this Contract. Eleven.Six. Contractor’s Partners, if they are foreign persons, shall be entitled to hold abroad and freely dispose of the foreign currency generated from exports of Oil received as Compensation. In addition, they shall be entitled to freely receive and hold abroad the foreign currency received under Article Eleven.Two. Eleven.Seven. If any of the Parties fails to make timely payment within the term stated in Article Eleven.Four, without prejudice to the other rights the Parties may exercise, the debt shall be paid with default interest at the interest Prime Rate applicable by Citibank N.A, New York, New York, United States of America prevailing on the date of payment of the debt. To this end, debts in pesos —national legal tender— shall be calculated in United States Dollars at the exchange rate established in subsection six, Chapter One, Title One of the Compendium of Rules on International Exchange (Compendio de Normas de Cambios Internacionales) of the Central Bank of Chile or any other that may replace it in force at the due date. However, if the Government and/or a state-owned company that has reacquired Oil from a Contractor’s Partners under Articles Eight.One.Four and Eight.One.Five, is in default in the payment of the Oil acquired for more than sixty days from the due date, Contractor’s Partner shall be entitled to stop selling Oil to the Government and/or the state-owned company, as the case may be, until the debt is paid-off, including the corresponding interest. Eleven.Eight. The rights of Contractor and Contractor’s Partners referred to in Articles Eleven.Two, Eleven.Five and Eleven.Six, shall remain unchanged during the validity term of this Contract. Eleven.Nine. If appropriate only, the Central Bank of Chile shall enter into an agreement with GEOPARK before a Notary Public of Santiago, regarding certain matters in connection with foreign currency transactions. The text of the agreement shall be made an integral part of this Contract. Therefore, notice shall be given to the Ministry of Mining.

 

TWELVE. ARTICLE TWELVE. TAXES AND ENCUMBRANCES. Twelve.One. The tax regime applicable to Contractor, Contractor’s Partners and subcontractors for income obtained, services rendered, sales or payments made, documents subscribed or issued and

 

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for imports and/or exports made by Contractor, Contractor’s Partners or subcontractors, shall be the one stated in this article with regard to taxes, duties or encumbrances related to this Contract and/or Oil Operations contracts entered into by Contractor with third parties. Regarding those taxes or encumbrances that are not expressly stated in this Article, the general regime in force in the country shall apply. Twelve.Two. Income tax regime applicable to Contractor’s Partners. According to Executive Order number five issued by the Ministry of Mining on the ninth day of January, one thousand nine hundred and ninety-seven, which sets forth the requirements and conditions applicable to this Contract, the income tax regime including, but not limited to the income tax rates, is established for the term of this Contract as follows: Twelve.Two.One. According to Article Five, subsection one of Decree-Law one thousand eighty-nine, Contractor Partners’ income shall be subject to the general tax system established in the Income Tax Law and the opinions that have interpreted such law in force at the Contract Date, including the opinion contained in Official Letter number seven hundred and fourteen, issued on the eighth day of April, one thousand nine hundred and ninety-seven by the National Directorate of Internal Revenue Service (hereinafter, the “Opinion”) required for the execution of this Contract that is attached hereto as ANNEX NINE and made an integral part hereof. The provisions of this Law and its opinions, that shall constitute the income tax regime, shall substitute any other direct or indirect tax applicable to the Compensation or to Contractor’s Partners themselves due to such Compensation, and shall remain unchanged for the term of this Contract, as stated in Article Five, subsection three and Article Twelve of Decree-Law one thousand eighty-nine. To this end, the Income Tax Law is the one established under Article One of Decree-Law eight hundred twenty-four, published in the Official Gazette on the thirty-first day of December, one thousand nine hundred and seventy-four, as amended as of the Contract Date. Twelve.Two.Two. According to the foregoing, and in accordance with the total application of the above-mentioned Income Tax Law and its opinions and regulations, the general tax regime applicable to each Contractor’s Partner, including their shareholders, partners or Main Offices shall be the following, without prejudice to the provisions of Article Fourteen bis of the Income Tax Law in force as of the Contract Date. Twelve.Two.Two.One. The annual taxable net income accrued by each Contractor’s Partner shall be subject to the first category annual tax of the Income Tax Law at the rate of

 

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fifteen per cent. Twelve.Two.Two.Two. All items related to reimbursements of expenses which tax deduction is not authorized under Article Thirty-three, subsection One of the Income Law, shall be subject, in the manner and under the conditions set forth in Article Twenty-one of the above-mentioned Law, to an annual single tax at the rate of thirty-five per cent and shall be applied to any Contractor’s Partner being a corporation, stock limited partnership or an agency of a corporation not residing or domiciled in Chile. This tax shall be also applied to those amounts considered withdrawn under Articles Thirty-five, Thirty-six, subsection two, Thirty-eight, subsection two, Seventy and Seventy-one, as the case may be. The taxable base of the referred to tax shall consist of the stated amounts, excluding the taxes of the Income Law and the territorial taxes already paid. Interest, readjustments and penalties paid to the Tax Authority, Municipalities and public institutions or agencies created under the law and the payment of non-deductible mining patents shall be also exempt. In addition, anticipated expenses shall be exempt. The tax shall accrue regardless of the results of the tax year, and shall be borne by the corporation, agency or stock limited partnership but, in the last case, only regarding the proportional part to which each shareholder or limited partner is liable. Twelve.Two.Two.Three. The additional tax applicable to Contractor’s Partner and/or his authorized assignees not domiciled and not residing in Chile and/or to Contractor Partner’s shareholders or partners not domiciled and not residing in Chile, shall be as follows: Twelve.Two.Two.Three.One. The total income of Chilean source obtained by foreign natural persons not domiciled and not residing in Chile or legal persons incorporated abroad, including those incorporated according to Chilean Laws which are domiciled in Chile and do business through agencies or permanent establishments in Chile, shall be also liable to an additional tax at the rate of thirty-five per cent to be accrued on the year in which the company’s income is withdrawn or remitted according to Article Fifty-eight, subsection one of the Income Law. Taxpayers liable to this tax shall have a tax credit to be charged to the above-mentioned tax equivalent to fifteen per cent of the taxable amounts subject to the first category tax. When the credit stated in Article Sixty-three of the Income Tax Law shall be applicable, an equivalent amount shall be added to determine the taxable base of the same tax year of the additional tax and, in order to calculate the credit, it shall be considered an amount subject to the first category tax. Such tax is applicable without prejudice to the obligation of making

 

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provisional payments for earned or accrued gross income according to Article Eighty-four of the Income Law. Twelve.Two.Two.Three.Two. Dividends and other amounts received by Contractor Partners’ shareholders not domiciled and not residing in Chile, incorporated under the Chilean Laws as corporations or stock limited partnerships, shall be liable to the additional tax set forth in subsection two of Article Fifty-eight at the rate of thirty-five per cent. This tax shall be withheld by the corporation distributing the dividends. The above-mentioned tax shall not affect dividends or other distributions of a non-income category as long as they are a result of a distribution in excess of the income or profits subject to the additional tax as stated in Article Fourteen of the Income Law. The above-mentioned taxpayers shall have a tax credit charged to said tax equivalent to fifteen per cent of the amounts levied, provided they have been subject to the first category tax, in accordance with Article Sixty-three of the Income Law. When the credit stated above shall be applicable, an equivalent amount shall be added to determine the taxable base of the same tax year of the additional tax and, in order to calculate the credit, it shall be considered an amount subject to the first category tax. Twelve.Two.Two.Three.Three. Income obtained or accrued of Chilean source not subject to tax according to Articles Fifty-eight and Fifty-nine of the Income Law, withdrawn or remitted according to Article Fourteen of the Law by Contractor Partners’ partners not domiciled and not residing in Chile shall be liable to the additional tax set forth in Article Sixty of the Income Law at the rate of thirty-five per cent. This tax shall be also applicable, according to Article Twenty-one of the Income Law to all items stated in subsection One of Article Thirty-three of the law, related to withdrawals in kind or to reimbursements of money that shall not be charged to the cost of the assets except for the anticipated expenses that shall be accepted in the next years. Interest, readjustments and penalties paid to the Tax Authority, Municipalities and public institutions or agencies created under the law and the payment of non-deductible mining patents shall be also exempt. Also, this tax shall be also applied to those amounts withdrawn in accordance with Articles Thirty-five, Thirty-six, subsection two, Thirty-eight, subsection two, Seventy and Seventy-one of the stated law, as the case may be. The taxpayer liable to this tax shall have a credit to be charged to said tax equivalent to fifteen per cent of the amounts levied, provided these amounts have been subject to the first category tax, according to Article Sixty-three of the Income Law. When the credit stated

 

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above shall be applicable, an equivalent amount shall be added to determine the taxable base of the same tax year of the additional tax and, in order to calculate the credit, it shall be considered an amount subject to the first category tax. Twelve.Two.Three. The taxable gross income of each Contractor’s Partner shall be determined according to the results of their own accounting books and financial statements in accordance with the rules contained in Articles Twenty-nine, Thirty, Thirty-one, Thirty-two and Thirty-three and other provisions of the Income Law, the Opinion and/or the Tax Code together with the regulations and opinions that are not incompatible with the text of the Opinion in force as of the Contract Date. In the absence of regulations to the contrary, the accounting principles and practices generally accepted shall apply despite their general or special application to the oil activities. Twelve.Two.Four. In order to calculate the income tax of each Contractor’s Partner, the Oil shall be valued as follows: Twelve.Two.Four.One. The Oil received by way of Compensation and sold directly to the Government or to its companies within the Republic of Chile under Article Eight.OneFour, shall be valued according to Article Nine. Twelve.Two.Four.Two. All or part of the Oil received by a Contractor’s Partner as Compensation and not included in Article Twelve.Two.Four.One, provided it involves a transaction with non-affiliate entities or a sale where there are no other elements that may create a price not reflecting the market conditions, shall be valued according to the price effectively received for said Oil, as evidenced by the invoice or bill of landing. Twelve.Two.Four.Three. The oil sold by a Contractor’s Partner to affiliates or in a transaction involving other elements that may create a price not reflecting the market conditions considering the terms and conditions of the operations, shall be valued to the highest of the following prices: (i) The price effectively received for that Oil, as evidenced by the invoice or bill of landing; or (ii) a price calculated according to the procedure stated in Article Nine.One. To the purposes of this article, “affiliate” of a Contractor’s Partner shall mean any entity that, directly or indirectly controls, or is controlled by or is under a common control with the Contractor’s Partner. Without limiting the generality of the foregoing, “control” shall exist when a company has more than fifty per cent of the votes or other interest of an entity. Twelve.Three. Contractor’s Partners shall operate according to the Opinion which sets forth that the Joint Venture among all Contractors’ Partners shall not give rise to a new taxpayer, and each Contractor’s Partner shall be considered a separate

 

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taxpayer having separate profits and expenses. Twelve.Four. Taxation of Contractor’s Compensation. Without prejudice to paragraph Twelve.Two herein and according to Article Five, subsection three of Decree-Law one thousand eighty-nine, the Compensation, in cash or in kind, earned by Contractor or Contractor’s Partners under this Contractor shall be exempt from any other direct or indirect tax including, but not limited to the added value tax that may be applied to that Compensation or to Contractor or Contractor’s Partners based on such Compensation. This exemption shall remain unchanged during the term of this Contract. Twelve.Five. Tax exemption related to the transfer of Hydrocarbons. According to Article Eight of Decree-Law one thousand eighty-nine, Hydrocarbon transfers made to Contractor or any Contractor’s Partner as Compensation under this Contract, as well as the re-acquisitions the Government or its companies make with Contractor or Contractor’s Partners, shall be exempt from any tax or encumbrance, including the Value Added Tax. This exemption shall remain unchanged during the validity term of this Contract. Twelve.Six. Tax regime for payments made by Contractor. Twelve.Six.One. According to Article Fifty-nine, subsection Two of the Income Law, all fund remittances related to this Contract and made to pay engineering or technical consulting services rendered by third parties or affiliated companies to Contractor, in Chile or abroad, shall be subject to an additional tax at the rate of twenty per cent. In order to determine the Chilean income tax, Contractor’s Partners shall be entitled to deduct as expenses from their gross income, the proportional amount paid for services rendered abroad, provided the corresponding documentation is submitted and all other requirements stated in the final subsection of section six, Article Thirty-one of the Income Law, are met. Twelve.Six.Two. According to Article Fifty-nine, subsection Two of the Income Law, the amounts paid abroad for freight, boarding and landing fees, storage, weighting, product sampling and analysis, insurance and reinsurance operations not taxable under subsection three of this article, commissions, international telecommunications, and for Chilean products ironing, refining or other special processes and commissions, shall be exempt from the additional tax, provided the following requirements are met: That the remunerations are paid in Chile or abroad, that the services are rendered abroad by persons not domiciled and not residing in Chile, and that the pertinent operations are previously authorized by the Central Bank according to the legislation in force and that the sums paid are verified by the pertinent

 

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official entities, where applicable. The sums paid on this account may be deducted by Contractor’s Partners from their gross income to determine the income tax of Chilean source. Twelve.Seven. Exemption of all taxes and obligations applicable to Hydrocarbons. According to Article Eight of Decree-Law number one thousand eighty-nine, Hydrocarbon exports made by any Contractor’s Partner are exempt from any tax or encumbrance. This exemption shall remain unchanged during the validity term of this Contract. Twelve.Eight. Tax regime applicable to subcontractors. According to Article Nine of Decree-Law one thousand eighty-nine, foreign subcontractors who have not formed a Chilean company or any other business or who have not registered an agency in Chile, shall be liable to a twenty-per cent tax on any remuneration received. In addition, the twenty-per cent tax applicable to foreign subcontractors shall replace any other direct or indirect tax that may affect the remuneration of the subcontractor or the subcontractor himself and shall remain unchanged during the term of the Contract. Twelve.Eight.One. Except for the exemption of the global, complementary and additional tax, the provisions set forth in the final subsection of Article Six of Decree-Law one thousand eighty-nine, shall be applied to owners, shareholders and partners of the subcontractor. This exemption shall remain unchanged during the validity term of this Contract. Twelve.Eight.Two. According to the Opinion, natural foreign persons not domiciled and not residing in Chile, who are hired by the foreign subcontractor, shall not be liable to the additional tax for their remunerations of Chilean source, provided the sums are paid by the subcontractor and charged to the remittances made or to be made in favor of the latter. Twelve.Nine. Provisional admission regime applicable to Contractor and subcontractors. According to Article Ten of Decree-Law one thousand eighty-nine, the machinery, devices, instruments, equipment, tools and their parts or pieces required to comply with a specific oil contract of employment, whether they are owned or not by the subcontractor, can enter the country under a provisional admission regime, established by Customs Ordinance as of the Contract Date. The stated goods to be used for the exploration of Hydrocarbons shall enter the country under the above-mentioned regime, and they are exempt from any duty, tax, charge or encumbrance, for a period of up to five years which can be extended annually by the Customs National Director according to the needs and characteristics of the pertinent specific oil contract of employment. The provisions of this Article Twelve.Nine shall be also applicable to

 

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Contractor with regard to the machinery, devices, facilities, equipment, tools and their parts or pieces to be used in Hydrocarbon Exploration Operations. The provisions of this Article Twelve.Nine shall remain unchanged during the validity term of this Contract. Twelve.Ten. Value Added Tax applicable to Contractor. According to Article Five of Decree-Law one thousand eighty-nine, Contractor shall be subject to the same tax treatment applicable to exporters under Decree-Law eight hundred and twenty-five passed in one thousand nine hundred seventy-four, with regard to the Value Added Tax refund even when Contractor neither exports nor performs operations subject to this tax. The administrative rules established for the enforcement of Value Added Tax refunds, shall be those set forth in Decree number five issued by the Ministry of Mining on the ninth day of January, one thousand nine hundred and ninety-seven. The provisions of this article Twelve.Ten shall remain unchanged during the validity term of this Contract. Twelve.Eleven. Taxes or other encumbrances on documents subscribed or issued by Contractor and/or subcontractors. According to Article Eight of Decree-Law one thousand eighty-nine: Hydrocarbon transfers made to Contractor as payment of his Compensation as well as the reacquisition that the Government or its companies make with Contractor under subsection four, Article Three, and the actions, contracts or documents supporting them, shall be exempt from any tax or encumbrance. Likewise, the documents where the special contracts of operations referred in Article One are recorded, and the specific contracts for oil services stated in the same article and the documents supporting any other operation, act or contract issued in occasion of those contracts between the same parties specified in such dispositions, shall be also exempt from any tax or encumbrance. Exports of hydrocarbons shall be exempt from any tax or encumbrance. Twelve.Twelve. Imports regime applicable to Contractor and subcontractors. According to Article Five, paragraph four of Decree-Law one thousand eighty-nine, imports of machinery, tools, materials, spare parts, elements and goods used for the exploration and exploitation of Hydrocarbons made by Contractor or subcontractor, are subject to the general regime in force as of the Contract Date. This regime shall remain unchanged during the validity term of this Contract. This regime includes the duties, taxes, charges or contributions and all payments or encumbrances in general, regardless of the authority or organization that collects them, including the substitute tax established in Article Three of the Stamps Law as well as the Value Added Tax provided for in Decree-

 

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Law number eight hundred and twenty-five dated nineteen seventy-four and, in general, any other payment or encumbrance that directly or indirectly may affect such imports.

 

THIRTEEN. ARTICLE THIRTEEN. SUSPENSION OF OBLIGATIONS DUE TO FORCE MAJEURE. Thirteen.One. Except for the payment obligations, failure by one of the Parties to perform any of the obligations under this Contract shall not be attributable to the party provided the failure is due to a Force Majeure event. The Parties shall invoke as Force Majeure, the actions or omissions of the Government or any other entity or public service only when such actions or omissions are caused by events or circumstances that cannot be anticipated nor avoided. Thirteen.Two. Any of the Parties to this Contract that is unable to perform any of the obligations set forth herein due to a Force Majeure event shall notify the other Party in writing of that fact stating the reasons for the non-performance of the obligations as soon as possible. The Party affected by the Force Majeure event shall resume the performance of the corresponding obligation within a reasonable period after the reason or reasons for the non-performance have disappeared. Thirteen.Three. If the operations are stopped or delayed due to a Force Majeure event, the validity term of this Contract and the period of time established to exercise the rights and perform the obligations under the Contract shall be suspended for the same period of time that the delay or impediment subsists. Thirteen.Four. If due to Force Majeure circumstances occurred outside Chile and invoked by Contractor, the oil activities to be carried out by Contractor are interrupted for more than three years, the Government may terminate this Contract.

 

FOURTEEN. ARTICLE FOURTEEN. ASSIGNMENT. Fourteen.One. Contractor or a Contractor’s Partner may sell, assign, transfer or otherwise dispose, all or a part of his rights, interests and obligations under this Contract only provided he has been previously authorized in writing by the Minister, and the assignee has previously accepted the obligations under this Contract. The Minister shall accept or reject in writing and with justified cause, the sale, assignment or transfer requested within sixty days after receipt of the pertinent request.

 

FIFTEEN. ARTICLE FIFTEEN. APPLICABLE LAW. Fifteen.One. All relations between the Parties deriving from this Contract shall be governed by the laws of Chile. In the exercise of the rights and the performance of the obligations deriving from this Contract, Contractor shall comply with all legal rules in force in the country. Contractor

 

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expressly waives the right to take action or file a claim by means of diplomatic channels in connection with his rights and obligations under this Contract. Fifteen.Two. Without prejudice to the provisions of this Contract, Contractor, Contractor’s Partners and subcontractors shall have the rights and assume the obligations set forth in Decree-Law one thousand eighty-nine. Fifteen.Three. Contractor shall comply with the Chilean Constitution, Laws, Rules, Regulations and Official Rules and those established in international treaties in force accepted by the Republic of Chile regarding the subject matters stated in the following articles, without any restriction: Fifteen.Three.One. To carry out activities to protect the environment, preserve nature and the environmental heritage and to be liable for infringement according to the regulations governing this matter and for damages caused to third parties. Fifteen.Three.Two. Design, construction, erection, operation and maintenance of all elements used in the operations arising out of this Contract. Fifteen.Three.Three. Navigation and anchoring of ships and maritime devices. Fifteen.Three.Four. The labor system, safety, precaution, sanitary conditions and occupational accidents.

 

SIXTEEN. ARTICLE SIXTEEN. CONSULTING, TECHNICAL DETERMINATION AND JUDICIAL DECISION. Sixteen.One. In case of disagreement between the Parties regarding any of the matters under this Contract, or if the Coordination Committee fails to make a decision on any matter under its responsibility, the Parties shall meet to discuss the problem and shall make all their best endeavors to find a friendly solution. Sixteen.Two. If the difference cannot be solved by the Parties’ friendly consultations, they shall make their best endeavors to agree on the appointment of a qualified expert who shall analyze the matter in detail and then suggest the Parties a proper solution at his discretion. The expert shall neither be considered nor act as an arbitrator. Sixteen.Three. Immediately after one of the Parties notifies the other on the existence of the disagreement, the Parties shall consult each other to appoint the person or entity that shall act as expert. To be appointed as expert, the proposed person or entity shall be qualified by education, experience and/or training in the technical field in disagreement. Sixteen.Four. The appointed expert shall set a reasonable date and place to receive the presentations and information from the interested Parties or from any other person the expert may consider convenient, and the expert may carry on the enquiries and request the

 

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evidence he may deem necessary for making a proposal on the matter in dispute. According to the difficulty of the problem, the expert shall set a reasonably period of time for the accomplishment of his duties. The costs and expenses of the appointed expert shall be paid by the Parties in equal shares. Sixteen.Five. Without prejudice to the foregoing, either before or after the expert’s proposal, any of the Parties shall be entitled to submit the dispute to the Ordinary Courts of the city of Santiago, Chile. The termination of this Contract shall be subject to the provisions of Article Eighteen. Sixteen.Six. Administrative disagreements with regard to taxes or exchange control matters shall be first submitted to the proper Governmental agencies of Chile that are responsible for those matters, and shall be solved in accordance with the legislation and procedures applicable to such disputes on taxes or exchange control.

 

SEVENTEEN. ARTICLE SEVENTEEN. INFORMATION MANAGEMENT. Seventeen.One. Unless otherwise agreed by the Parties, all data and technical information obtained during the validity term of this Contract shall be kept confidential. Seventeen.Two. However, Contractor may disclose a Hydrocarbon Discovery or any other relevant information related to that discovery to his affiliates, consultants, financial institutions or relevant authority that may request it, and shall inform the Government accordingly. Seventeen.Three. Contractor shall, at all times, keep the original and copies of the above-mentioned technical information in Chile. However, Contractor may temporarily and with the prior authorization of the Minister or the corresponding authority, take original seismic tapes of the Contract Area out of the country or any other technical information for processing or special studies without leaving copies in Chile. Seventeen.Four. Contractor shall timely furnish the Government with a copy of all the technical information obtained during the performance of the Oil Operations in the Contract Area including, but not limited to geophysical and geological data, seismic magnetic tapes, processed seismic sections and the pertinent terrain-related data, gravimetric and magnetic records, in a form that could be reproduced, if applicable, copies of the original geophysical reports (in a form that could be reproduced) of all electrical logs of each well drilled by Contractor, including the final log of each well and copy of the drilling final report, samples of drill cores and chutes and copies of their analysis, results of production tests and any other information obtained by Contractor in connection with records or interpretations

 

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of any kind of data, without limitation.

 

EIGHTEEN. ARTICLE EIGHTEEN. CONTRACT TERMINATION. Eighteen.One. Without prejudice to the provisions of Article Fifteen.One, this Contract shall terminate if any of the following events occur: Eighteen.One.One. Upon expiration of any exploration period during the Exploration Stage if Contractor decides to finally suspend all the operations in the Contract Area and gives thirty-day written notice to the Minister to that effect. Eighteen.One.Two. Upon termination of the exploration stage unless Contractor is authorized to keep one or more areas under the Contract, as stated in Article Three.Five. Eighteen.One.Three. If at any time during the validity term of this Contract, Contractor stops performing any of the substantial obligations assumed under the Contract without justified cause, and the Government has given Notice and the breach has not been remedied by Contractor according to Article Nineteen. In this case, the termination shall be declared by judicial decision. Eighteen.One.Four. After thirty-five years of validity of this Contract have elapsed in accordance with Article Three.One. Eighteen.One.Five. If the exploration stage has finished and Contractor returns the Government all Field Exploitation Areas and those areas that are under the conditions described in Article Five.Five. Eighteen.One.Six. If the Government exercises the option of terminating the Contract as stated in Article Three.Four. Eighteen.Two. If the Contract is terminated during the exploration stage, Contractor shall return the Contract Area to the Government, and shall be exempt from all subsequent rights and obligations in that respect, except for the contractual obligations corresponding to the exploration period in force at that time. Simultaneously, Contractor shall be entitled to freely dispose of and use all equipment, machineries and facilities used in the Exploration Operation, according to the applicable legislation. Eighteen.Three. If the Contract terminates after the exploration stage is started, Contractor shall return the Contract Area and transfer to the Government, free of charge and on an “as is” basis, all production wells and necessary fixtures to keep the area under the same operability conditions exiting at that time including, but not limited to camps, flow lines, storage reservoir, pumping stations, communication systems and compressor stations, and Contractor’s properties where any of the above-mentioned facilities are located. The foregoing provisions shall also apply to the Oil Pipeline and the Oil Terminal Facilities built under this Contract if, within a maximum term of three years counted as from the

 

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Contract termination date, Contractor neither sells nor leases the properties to third parties for a period exceeding five years for their use at the place they are located. If the properties are sold or leased, the Government or a third party, as the case may be, shall be entitled to use the Oil Pipeline and the Oil Terminal Facilities to transport the Oil of the Contract Area up to a maximum equal to the average of the Monthly Average Production per Day of the Contract Area. This shall be calculated on the basis of the previous five production years to the Contract termination date, and the Government or the third party shall pay the proportional part of the stated operational costs. However, if at the Contract termination date, a third party is using the Oil Pipeline and/or the Oil Terminal Facilities, the Government’s right shall be limited to the capacity effectively available in these facilities at that time and shall be entitled to use afterwards the capacities that become available up to the maximum limit stated above. The above-mentioned right shall be exercised for a maximum period of twenty years from the Contract termination date, and shall forfeit if the Government or a third party, as the case may be, fails to exercise that right within the first five years from that date. Eighteen.Three.One. Contractor may decide, subject to the applicable legislation, to sell or export materials, equipment, tools, machineries, spare parts and other goods other than those stated in Article Eighteen.Three, which were purchased by Contractor within the last five years before the Contract termination and which are located in Chile. In this case, the Government shall have the first purchase option which shall be exercised within sixty days from the date of notice of its decision by paying the commercial value of such goods at the transfer date. If the Government fails to exercise the option, Contractor may sell, export or otherwise dispose of such goods. Eighteen.Three.Two. The goods not included in Article Eighteen.Three.One, belonging to Contractor and used in Chile for the performance of Oil Operations, as well as those goods included in Article Eighteen.Three.One not sold, exported or otherwise disposed of by Contractor, shall be transferred to the Government free of charge and the Government shall accept them on an “as is” basis and at the place they are found. Eighteen.Three.Three. Real estate and buildings not included in Article Eighteen.Three shall not be subject to this Article Eighteen. Eighteen.Four. In the case of a particular field, the Exploitation Operations shall end: (i) When the maximum term for such operations as stated in Article Three.Six, expires; (ii) if Contractor interrupts or reduces the Hydrocarbon production of that field to

 

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less than ten per cent of the Maximum Efficient Production then applicable to that field, for more than six consecutives months and without authorization of the Government except for Force Majeure or well-founded technical reasons given by Contractor and accepted by the Coordination Committee; (iii) if the Contractor stops performing any of the substantial obligations related to that field under the Contract without a good reason, and the Government has given Notice and the breach has not been remedied by Contractor according to Article Nineteen; and (iv) by Contractor’s own decision after giving six-month written notice to the Government to that effect. Once the Exploitation Operations of a certain field are finished, the Government shall take possession of the field and of all the machineries and fixings directly and exclusively related to the field.

 

NINETEEN. ARTICLE NINETEEN. BREACH. Nineteen.One. If one of the Parties (“First Party”) considers that the other Party has failed to perform any of his obligations under this Contract, shall give written notice to the other Party (“Second Party”) stating the details of the alleged breach. Upon receipt of said notice, the Second Party may request for a meeting within the next ten days after receipt of notice to discuss the alleged breach. After that meeting or once a period of ten days has expired, the First Party may issue a notice of breach. Nineteen.Two. If Notice has been served regarding an alleged breach, the Second Party shall remedy the alleged breach without delay or, if this is related to an obligation that, due its nature, cannot be reasonably remedied without delay, the Second Party shall promptly make his best endeavors to remedy the breach until it is solved. However, if the Notice indicates that Contractor has stopped performing the obligations set forth in Article Four.Two and Four.Three, or the commitment referred to in Article Three.Four herein, the period of time Contractor shall have to remedy the breach shall not exceed ninety days from the date of Notice. If the alleged breach is not remedied within the period of time applicable under this Article Nineteen.Two, the First Party may exercise his rights under Article Eighteen.One.Three, in the case of a substantial obligation, or the other rights the party is entitled to exercise under the Contract or the Chilean laws in case of substantial obligations or other obligations. The substantial obligations include, but not limited to the obligations under Articles Four.Two, Four.Three and the commitment referred to in Article Three.Four. Nineteen.Three. If the Second Party considers that there was no breach, that Party shall inform the First Party that he is remedying the breach

 

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“Under Protest”. If the Second Party remedies the breach Under Protest, that Party shall have the right to exercise the rights set forth in Article Sixteen to verify the existence of the breach. If according to Article Sixteen, it is finally determined that no breach has occurred, the First Party shall pay the actual costs and expenses incurred by the Second Party to remedy the alleged breach, together with the interest payable on said costs and expenses at the highest rate allowed by the Chilean law or twelve per cent a year, whichever is less. In order to determine the costs and expenses incurred in national currency, these costs and expenses in national currency shall be calculated in equivalent United States Dollars at the average free banking exchange rate or any other exchange rate that may replace it and prevailing at the date the costs or expenses are effectively incurred.

 

TWENTY. ARTICLE TWENTY. GUARANTEE OF THE MAIN OFFICE. Twenty.One. Contractor’s Partners shall submit the Government within sixty days following the declaration of their first Commercially Exploitable Field, a declaration from their respective Main Offices guaranteeing the timely financial support to the pertinent Branch for the latter to duly perform the obligations for the Exploitation Operations. Twenty.Two. For the purposes of Articles Eight.One.Three, Eight.One.Four, Eight.One.Five, Eleven.Three and Twenty.One, “companies controlled by the Government” shall mean the state-owned companies or the companies in which the Government —whether directly or through another legal person— controls more than fifty per cent of the voting share capital or of the capital, if it is not a stock company.

 

TWENTY-ONE. ARTICLE TWENTY-ONE. EXCEPTIONS APPLICABLE TO PRE-EXISTING WELLS. Twenty-one. One. From the Contract Date, Contractor shall be entitled to perform Evaluation Activities in Pre-existing Oil and Natural Gas Wells included in the Contract Area. Depending on the results of such activities, Contractor shall be entitled to declare the evaluated well(s) as a Commercially Exploitable Field. ANNEX ELEVEN includes a list of the Pre-existing Wells. Twenty-one. Two. During the Evaluation Activities of Pre-existing Wells, Contractor shall be entitled to receive his remuneration from any Oil and Natural Gas production according to Article Eight of the Contract. Twenty-one.Three. During the course of the Evaluation Activities, Contractor shall be entitled to burn the associated natural gas for a maximum period of thirty running days or at intervals. Twenty-one.Four. The provisions of this Contract which are not

 

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expressly modified by this Article Twenty-one, shall remain unaltered and shall be fully applicable to the Pre-existing Wells.

 

TWENTY-TWO. ARTICLE TWENTY-TWO. NOTICES AND COMMUNICATIONS. Twenty-two.One. All notices and communications required or sent by one of the Parties to the other shall be sent by telex or fax to the following addresses: To the Government: Ministry of Mining. Teatinos 120, Piso 9, Santiago, Chile. Fax number: 56-2-6884229. To Contractor: GEOPARK CHILE LIMITED, Florida 981, Piso 2 (C1005AAS), Buenos Aires, Argentina. Attention: Mr. JAMES F. PARK, President. Fax number: 54114312-8883. With copy to: GEOPARK CHILE LIMITED’s legal representative, Aylwin Attorneys, Avda. Isidora Goyenechea 3162, Oficina 801, Las Condes, Santiago, Chile, Attention: Mr. PEDRO AYLWIN CHIORRINI. Fax number: 56-2-2456636. Twenty-two.Two. For all purposes of this Contract, any of the Parties may change their fax numbers or the person stated above to whom the communications shall be sent upon ten-day notice to the other Party.- ANNEX ONE through ANNEX ELEVEN, singularized before, are registered under the notary public protocol before Notary Public Mrs. Antonieta Mendoza Escalas on this date under the number six hundred eighty-six.

 

LEGAL CAPACITIES: The appointment of Mr. ALFONSO DULANTO RENCORET in his capacity as MINISTER OF MINING, and acting on behalf of the GOVERNMENT OF CHILE, is evidenced under Decree number cero nine issued by the Ministry of Internal Affairs on the seventh day of January, two thousand and two. The legal capacity of Mr. PEDRO ENRIQUE AYLWIN CHIORRINI, to represent GEOPARK CHILE LIMITED, is evidenced under notarized document issued on the eighth day of August, two thousand and two, in Bermuda, duly granted before the Notary Public of Santiago. Mrs. Antonieta Mendoza Escalas, under record number six thousand thirty-seven/two thousand and two, on the tenth day of September, two thousand and two. The legal capacity of Mr. ENRIQUE DÁVILA ALVEAL, to represent EMPRESA NACIONAL DEL PETROLEO, is evidenced under public deed granted on March 1, two thousand and five, before the Santiago Notary Public Mr. José Musalem Saffie. In witness whereof, after this document is read, the appearing parties sign it. A copy of this document is given to the parties. I attest.

 

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/s/ Alfonso Dulanto Rencoret
    	
 
    
	
Alfonso Dulanto Rencoret
    	
 
    
	
Ministry of Mining
    	
 
    
	
acting on behalf of the
    	
 
    
	
GOVERNMENT OF CHILE
    	
 
    

 

 

	
/s/ Pedro Enrique Aylwin Chiorrini
    	
 
    
	
Pedro Enrique Aylwin Chiorrini
    	
 
    
	
on behalf of
    	
 
    
	
GEOPARK CHILE LIMITED
    	
 
    

 

 

	
/s/ Enrique Davila Alveal
    	
 
    
	
Enrique Davila Alveal
    	
 
    
	
on behalf of
    	
 
    
	
EMPRESA NACIONAL DEL PETROLEO
    	
 
    

 

51HYDROCARBON EXPLORATION AND PRODUCTION CONTRACT No. 09 OF 2008

LA CUERVA

 

Exhibit 10.2

 

	
(Colombian   National Seal)
    	
(ANH   logo)
    

 

AGENCIA NACIONAL DE HIDROCARBUROS

 

HYDROCARBON EXPLORATION AND PRODUCTION CONTRACT

 

	
SECTOR:
    	
LA CUERVA
    
	
CONTRACTOR:
    	
HUPECOL   CARACARA LLC
    
	
EFFECTIVE   DATE:
    	
APRIL   16, 2008
    

 

The contracting Parties: for one party, the Agencia Nacional de Hidrocarburos (National Hydrocarbons Agency), hereinafter THE ANH, a special administrative unit attached to the Ministry of Mines and Energy, created by virtue of Decree Law 1760 of June 26, 2003, with principal domicile in Bogota, D.C., represented by JOSE ARMANDO ZAMORA REYES, of legal age, identified with citizenship card No. 19.303.017 issued in Bogota, domiciled in Bogota, D.C., who states: 1. That in his capacity as General Director of THE ANH, he acts in representation of this Agency. 2. That by virtue of Resolution 188 of July 5, 2007 of THE ANH, Special Bidding Process 01 of 2007 —a public request for proposals for the awarding of Blocks in the areas known as Alea, Altair, Altamira, Jagüeyes, La Cuerva, Mantecal, Sierra and La Maye — was opened. 3. That after said Process was initiated, the Directive Council authorized the General Director to execute this Contract, as evidenced by Minutes No. 02 of February 5, 2008, provided the contracting company first set up a back-to-back guarantee. 4. That once the necessary requirements were met, the Contract was awarded pursuant to Resolution 116 of March 19, 2008.

 

For the other party:

 

HUPECOL CARACARA LLC., company organized under the laws of the State of Texas, with principal domicile in the city of Houston, Texas, United States, with a branch in Bogota, D.C., as established in Public Deed No. 0001178 of June 12 1997, issued by the Fifteenth (15) Notarial Office of the District of Bogota, D.C., represented by MARCELA VACA TORRES, of legal age and a Colombian citizen identified with citizenship card No. 51.903.390, who states: 1. That in her capacity as Legal Representative, she acts in representation of the company HUPECOL CARACARA LLC. 2. That she is fully authorized to enter into this Contract, as recorded in the certificate of existence and legal representation issued by the Chamber of Commerce of Bogota, D.C. on April 8, 2008. 3. That she declares under oath that neither she nor the company she represents have incurred in any grounds for disability or incompatibility to enter into this Contract, and 4. That HUPECOL CARACARA LLC. has proven that it has and agrees to maintain the financial standing, technical competence and professional skills that are necessary to carry out the activities of this Contract.

 

1

 

For all purposes, the aforementioned company shall be known as THE CONTRACTOR.

 

THE ANH and THE CONTRACTOR hereby state that they have entered into the Contract described in the following Clauses:

 

CLAUSE 1 — DEFINITIONS

 

For purposes of this Contract, the terms listed below shall have the meaning assigned to them herein:

 

Schedules A, B, and C are an integral part of this Contract, therefore whenever the terms in this Clause are used therein, these shall have the same meaning attributed to them hereunder.

 

1.1. Abandonment: Means plugging and abandoning wells, dismantling construction and cleaning and restoring the environment in the areas where Exploration, Assessment, or Exploitation Operations were carried out by virtue of this Contract and in accordance with Colombian legislation.

 

1.2. Year: Means the period of twelve (12) consecutive months according to the Gregorian calendar, counted from a specific date.

 

1.3. Calendar Year: Means the period of twelve (12) months counted as of the first (1) of January until the thirty-first (31) of December, both inclusive, of each year.

 

1.4. Contracted Area: Means the surface and its projection into the subsoil identified in Clause 3 and demarcated in Schedule A, where THE CONTRACTOR is authorized, by virtue of this Contract, to carry out Hydrocarbon Exploration, Assessment and Exploitation Operations.

 

1.5 Assessment Area: Means the portion of the Contracted Area in which THE CONTRACTOR made a Discovery and has decided to carry out an Assessment Program to establish whether or not said Discovery is marketable, in accordance with Clause 7. This area shall be demarcated by a regular surface polygon, preferably four-sided, which will enclose the vertical projection from the surface of the shell or geological trap containing the Discovery.

 

1.6 Exploitation Area: Means the portion of the Contracted Area in which one or more Commercial Fields are found, as established in Clause 9 (subsection 9.3) herein. The area of each Commercial Field shall include the vertical projection to the surface of the reservoir or reservoirs that make it up, as defined by the Ministry of Mines and Energy, in accordance with Decree 3229 of November 11, 2003, or with the regulations that modify or substitute it.

 

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1.7. Barrel: Means the unit of measurement of the volume of Liquid Hydrocarbons comprised of forty-two (42) U.S. gallons, corrected to standard conditions (a temperature of sixty degrees Fahrenheit [60oF] and one [1] atmosphere of absolute pressure).

 

1.8. Good Oil Industry Practices: Means the good, safe and efficient operations and procedures commonly employed by sensible and diligent operators in the international petroleum industry, under similar conditions and circumstances to those presented in the development of the activities in this Contract, mainly regarding aspects related to the use of adequate methods and processes for obtaining maximum economic benefit in the final recovery of reserves, for minimizing losses, for operational security and for environmental protection, among others, as long as they do not contradict Colombian law.

 

1.9. Commercial Field: Means subsoil of the portion of the Contracted Area containing one or more discovered reservoirs, which THE CONTRACTOR has decided to exploit commercially.

 

1.10. Declaration of Marketability: Means the written communication from THE CONTRACTOR to THE ANH wherein the former declares that the Discovery made in the Contracted Area is a Commercial Segment.

 

1.11. Discovery: A Hydrocarbons reservoir discovery is understood to exist when, after drilling with a rig or similar equipment and having carried out the corresponding fluids tests, the rock in which Hydrocarbons are accumulated is found, and it behaves as an independent unit in terms of production mechanisms, petro-physical properties, and fluid properties.

 

1.12. Nonassociated Natural Gas Discovery: Means a Discovery in which the official production test indicates a Gas-Oil Ratio (GOR) greater that 7,000 standard cubic feet of gas for each Liquid Hydrocarbons Barrel and a molar composition of heptane (C7+) of less than 4.0%. GOR means the ratio between the volume of Natural Gas in cubic feet per day and the volume of Liquid Hydrocarbons in barrels produced per day by a well. The molar composition of heptane (C7+) is the molar percentage of heptanes and other Hydrocarbons of a greater molecular weight. The Gas-Oil Ratio (GOR) of a Discovery with many reservoirs shall be determined based on the weighted average of the production of each reservoir and the molar composition of heptane (C7+) as a simple arithmetic average.

 

1.13. Day: Means the period of twenty-four (24) hours that begins at zero hours (00:00) and ends at twenty-four (24:00) hours.

 

1.14. Development or Development Operations: Means the activities and works carried out by THE CONTRACTOR which include, without limitation, the drilling, completing and outfitting of development wells; the design, construction, installation and maintenance of equipment, pipelines, transfer lines, storage tanks, artificial production methods, primary and enhanced recovery systems, decantation, treatment, and storage systems, among others, within an Exploitation Area in the Contracted Area and outside of it, if necessary.

 

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1.15. Exploration or Exploration Operations: Means all of the research, work and construction carried out by THE CONTRACTOR to determine the existence and location of Hydrocarbons in the subsoil, including, without limitation, geophysical, geochemical, geological, and cartographic methods, and, in general, all activities for surface prospecting, Wildcat Well drilling and other operations directly related to the search for Hydrocarbons in the subsoil.

 

1.16. Assessment or Assessment Operations: Means all operations and activities carried out by THE CONTRACTOR within an Assessment Area in conformity with Clause 7 herein, aimed at evaluating a Discovery, demarcating the geometry of the reservoir or reservoirs within the Assessment Area and determining, among others, the viability of extracting Hydrocarbons in and of an economically exploitable quantity and quality, and the potential impact caused on the natural and social environments by its commercial exploitation. These operations include drilling Wildcat Wells, detailed seismic acquisition, carrying out production tests, and, in general, other operations to determine whether the Discovery is a Commercial Field and to demarcate it.

 

1.17. Exploitation: Means Development and Production.

 

1.18. Effective Date: Means the day on which this Contract is signed and as of which all periods of this agreement shall be counted.

 

1.19. Natural Gas: Means the mixture of Hydrocarbons in a gaseous state under standard conditions (temperature of sixty degrees Fahrenheit [60oF] and one [1] atmosphere of absolute pressure) composed of the most volatile components of the paraffinic series of Hydrocarbons.

 

1.20. Hydrocarbons: Means all organic compounds consisting mainly of the natural mixture of carbon and hydrogen, as well as of the substances associated with or that derive from them.

 

1.21. Liquid Hydrocarbons: Means all Hydrocarbons produced in the Contracted Area which, under standard temperature and pressure conditions (sixty degrees Fahrenheit [60oF] and one [1] atmosphere of absolute pressure), are found in liquid state at the wellhead or at the separator, as well as those distilled and condensed from the gas.

 

1.22. Heavy Liquid Hydrocarbons: Means all Liquid Hydrocarbons with an API gravity equal to or less than fifteen degrees (15o API).

 

1.23. Default Interest: In the case of Colombian Pesos, it shall mean the maximum legally permitted interest rate certified by the competent authority; in the case of United States Dollars, it shall mean the principal LIBOR rate (London Interbank Borrowing Offered Rate) at three (3) months for dollar deposits, increased by four percentage points (LIBOR plus 4%).

 

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1.24. Month: Means the period counted from any Day of a Calendar Month and ending on the Day before the same Day of the following month or, in the case of the First Day of the month, the last Day of said month.

 

1.25. Parties: Upon execution of the Contract, THE ANH and THE CONTRACTOR. Subsequently and at any moment, THE ANH for one party and THE CONTRACTOR and/or its assignees duly accepted by THE ANH, for the other party.

 

When THE CONTRACTOR Party is made up of more than one company, they shall name one that will act as their representative before THE ANH.

 

1.26. Exploration Period: Means the period of six (6) Years and three (3) Months counted as of the Effective Date, as well as any extension granted, during which time THE CONTRACTOR must carry out the Minimum Exploration Program.

 

1.27. Exploitation Period: Means, with respect to each Exploitation Area, the period up to twenty-four (24) Years and their extensions, if such is the case, counted as of the date of the Declaration of Marketability of the corresponding Commercial Field, during which time THE CONTRACTOR shall carry out Production and Development Operations.

 

1.28. Exploitation Plan: Means the guiding document prepared by THE CONTRACTOR in accordance with Clauses 9 and 10 herein, to perform the technical, efficient and economic Exploitation of each Exploitation Area, and it will include, among others, the calculation of Hydrocarbon reserves, the description of Hydrocarbon Production and Transport facilities, the Hydrocarbon Production projections for the short and medium term, an Abandonment program, and Exploitation Works Program for the remaining part of the Calendar Year in progress or of the following Calendar Year.

 

1.29. Wildcat Well: Means a well to be drilled by THE CONTRACTOR in the Contracted Area to search for Hydrocarbon reservoirs within an area that has not been tested for Hydrocarbons, or to find additional reservoirs to a Discovery, or to extend the limits of the known reservoirs of a Discovery.

 

1.30. Production or Production Operations: Means all operations and activities carried out by THE CONTRACTOR in an Exploitation Area with relation to the Hydrocarbon extraction, collection, treatment, storage and decantation processes up to the Point of Delivery, Abandonment and other operations related to obtaining Hydrocarbons.

 

1.31. Minimum Exploration Program: Means the Exploration Operations plan described in Clause 5 (subsection 5.1) herein, that THE CONTRACTOR agrees to carry out, as a minimum, during each phase of the Exploration Period.

 

1.32. Subsequent Exploration Program: Means the Exploration Operations plan that THE CONTRACTOR agrees to carry out after the Exploration Period has ended, in accordance with the provisions of Clause 6 (subsection 6.1).

 

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1.33. Assessment Program: Means the Assessment Operations plan submitted by THE CONTRACTOR to THE ANH in compliance with Clause 7 herein, with the purpose of assessing a Discovery and determining if said Discovery is a Commercial Field. The execution of the Assessment Program and a report on the results for THE ANH are required in order to declare whether a Discovery is a Commercial Field.

 

1.34. Work Program: Means the description of activities and of the Exploration, Assessment and/or Exploitation Operations within the Contracted Area in accordance with the terms of this Contract. The Work Program shall include the timeline that THE CONTRACTOR must follow in terms of initiating and completing activities, as well as the corresponding budget.

 

1.35. Delivery Point: Means the location defined by the Parties where THE CONTRACTOR makes a portion of the Hydrocarbon production available to THE ANH. This portion corresponds to the Royalties established in the Law and to the economic fees described in Clause 16.4, regarding Hydrocarbons that originate from the Commercial Field(s) and meet the minimum specifications for entry into the transport system used by THE CONTRACTOR, which are described in the applicable regulations. From that point on, control and custody of said portion of the produced Hydrocarbons will pass to THE ANH. In case the Parties do not reach an agreement regarding the definition of the Delivery Point, said location shall be determined by THE ANH and, in any case, it will be a location situated at the outlet of the treatment unit or at the entrance to the transport system used by THE CONTRACTOR. In any event, the Delivery Point will not be located before the Control Point.

 

1.36. Control Point: Means the location approved by the Ministry of Mines and Energy in order to determine the volume of Hydrocarbons corresponding to Royalties, the volume of Hydrocarbons for THE CONTRACTOR, and to define the volume for calculating the fee for THE ANH discussed in Clauses 16.2 and 16.4.

 

CLAUSE 2 — PURPOSE

 

2.1. Purpose: By virtue of this Contract, THE CONTRACTOR is exclusively granted the right to explore the Contracted Area and to exploit Hydrocarbons belonging to the State that may be found within said area. THE CONTRACTOR shall have the right to a portion of the Hydrocarbon production originating from the corresponding Contracted Area, in accordance with Clause 14 herein.

 

2.2. Scope: THE CONTRACTOR, exercising the aforementioned right, shall carry out the activities and operations established in this Contract, at its own risk and expense, providing all the necessary resources to plan, prepare, and carry out activities and Exploration, Assessment, Development, and Production Operations within the Contracted Area.

 

2.3. Exclusion of Rights to Other Natural Resources: The rights granted in this Contract refer exclusively to Hydrocarbons belonging to the State that may be

 

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discovered within the Contracted Area, and, therefore, they do not extend to any other natural resource that may be present in said area.

 

Paragraph: In order to avoid interference from the Exploration, Assessment, Development and/or Production Operations that THE CONTRACTOR wishes to carry out in the Contracted Area with work plans and investments corresponding to contracts previously approved by the competent authorities for the exploration and exploitation of minerals that exist in the Contracted Area, THE CONTRACTOR shall reach an agreement with the third parties involved in the aforementioned contracts in order to carry out Operations and work programs for each stakeholder to guarantee the sustainable development of the natural resources. In case THE CONTRACTOR and the third parties involved in contracts for exploration and exploitation of minerals do not reach an agreement to this respect, the disagreement will be submitted to a decision from the Ministry of Mines and Energy, or to the entity that represents it, for reaching a settlement. In any case, compliance with the Exploration, Assessment, Development and/or Production obligations that may be affected will be suspended during the period of negotiations and of the settlement of the disagreement. THE ANH will extend the contractual period by a duration equivalent to the suspension period, if and only if THE CONTRACTOR demonstrates that it has acted diligently in the negotiations.

 

CLAUSE 3 — CONTRACTED AREA

 

3.1. Surface Area: The Contracted Area is comprised of a total surface area of approximately nineteen thousand four hundred and five (19,405) hectares and six thousand eight hundred sixty seven (6,867) square meters. This area is described in Schedule A to this Contract and is located within the municipal jurisdiction of Paz de Ariporo in the Department of Casanare. The Contracted Area shall be reduced gradually in accordance with the provisions of this Clause.

 

3.2. Restrictions: In case a portion of the Contracted Area extends into areas included in the National Natural Park System or other reserved, excluded or restricted zones geographically demarcated by the corresponding authority, or when zones with said characteristics extend into the Contracted Area, THE CONTRACTOR agrees to comply with the conditions imposed by the competent authorities regarding said areas. THE ANH shall not be accountable in any way in this respect.

 

Whenever THE ANH learns of a private property claim for the Hydrocarbons in the subsoil of the Contracted Area, it will proceed in accordance with the corresponding legal provisions.

 

3.3. Return of Exploration, Assessment and Exploitation Areas: THE CONTRACTOR shall return the Exploration, Assessment and Exploitation Areas in all the cases provided herein as grounds for return, such as renouncing, expiry of terms, reasons provided in Clause 8 (subsection 8.2), not carrying out the activities of the corresponding Work Programs, or, in general, any other contractual reason obligating THE CONTRACTOR to return the respective area.

 

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3.4. Voluntary Returns: THE CONTRACTOR may, at any moment, make partial returns of the Contracted Area, as long as these do not interfere with the performance of the contractual obligations herein. If said voluntary returns are made during the Exploration Period, they shall be counted as part of the mandatory return of areas.

 

3.5. Restoration of Returned Areas: THE CONTRACTOR shall carry out all the necessary Abandonment activities and will restore the returned areas in accordance with Colombian law and with this Contract.

 

3.6. Demarcation of Returned Areas: The areas returned by THE CONTRACTOR shall include the minimum possible amount of contiguous rectangular blocks delineated by north-south and east-west lines, following a similar grid to the one shown in the cartographic sheets found in the Agustín Codazzi Geography Institute, with coordinates from the MAGNA-SIRGAS datum.

 

3.7. Formalization of Area Returns: Any return of an area carried out during the course of this Contract shall be formalized by a record signed by the Parties.

 

CLAUSE 4 — DURATION AND PERIODS

 

4.1. Duration: The duration of this Contract shall be determined according to the following Clauses.

 

4.2. Exploration Period: The Exploration Period shall have a duration of six (6) Years and three (3) Months as of the Effective Date and shall be divided into the phases described below. The first phase of the Exploration Period shall begin on the Effective Date and the following phases on the Calendar Day immediately following termination of the previous phase:

Phase 1 for a period of fifteen (15) months

Phase 2 for a period of twelve (12) months

Phase 3 for a period of twelve (12) months

Phase 4 for a period of twelve (12) months

Phase 5 for a period of twelve (12) months

Phase 6 for a period of twelve (12) months

 

Paragraph: In the event that any or part of the exploration activities in Phase 1 affects a community in a reservation or an ethnic settlement whose existence has been certified by the competent authority, THE ANH will assess the granting of a six-month extension in order to comply with the activities that must be carried out within the area of influence of said communities. The extension will be granted if the competent authorities consider that THE CONTRACTOR is diligently carrying out the necessary activities for the prior consultation. In any case, the activities in Phase 1 will not last for a period grater than twenty-one (21) months, counted as of the Effective Date of the Contract.

 

4.2.1. Right of Relinquishment during the Exploration Period: During the course of any of the phases of the Exploration Period, THE CONTRACTOR has the right to relinquish this Contract, provided it has complied satisfactorily with the Minimum

 

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Exploration Program of the phase in progress and with other obligations incumbent upon it. To that end, THE CONTRACTOR shall notify THE ANH in writing before termination of the phase in progress.

 

4.2.2. Extension of a Phase of the Exploration Period: At the request of THE CONTRACTOR, THE ANH will extend the phase in progress of the Exploration Period until termination of Wildcat Well drilling and/or until the seismic acquisition plus two (2) Months, as long as the following conditions are met:

 

a)                                     That the Exploration Operations mentioned above form part of the Minimum Exploration Program and they have begun at least one (1) Month before the respective Termination Date of the relevant phase of the Exploration Period;

b)                                     That THE CONTRACTOR has carried out said Exploration Operations in an uninterrupted manner; and

c)                                      That notwithstanding the diligence in carrying out said Exploration Operations, THE CONTRACTOR reasonably believes that the remaining period is insufficient for completing them before the expiry of the phase in progress.

 

Along with the extension request, THE CONTRACTOR will submit to THE ANH the documents supporting said request and the corresponding guarantee, in accordance with the requirements of Clause 22 herein.

 

4.2.3. Termination of the Contract due to Expiry of the Exploration Period: The Contract will terminate upon expiry of the Exploration Period if there is no Assessment Area, Exploitation Area or Discovery made in the Contracted Area by THE CONTRACTOR during the final phase of the Exploration Period. In which case, THE CONTRACTOR shall return the entire Contracted Area to THE ANH, without prejudice to the fulfillment of other obligations. THE CONTRACTOR must demonstrate that it has carried out the necessary Abandonment obligations, by proving that the drilled wells have been duly plugged and abandoned, that the surface facilities have been entirely dismantled, and that the environmental cleaning and restoration works have been performed in accordance with the applicable regulations.

 

4.3. Exploitation Period:

The Exploitation Period is planned separately with respect to each Exploitation Area and, therefore, all references to duration, extension or termination of the Exploitation Period refer to each Exploitation Area in particular.

 

4.3.1. Duration: The Exploitation Period shall have a duration of 24 Years counted as of the date on which THE ANH receives the Declaration of Marketability described in Clause 8 herein from THE CONTRACTOR.

 

4.3.2. Extension of the Exploitation Period: THE ANH shall extend the Exploitation Period up to the economic limit of the Commercial Field, at the option of THE CONTRACTOR, as long as the following conditions are met:

 

a)                                    That THE CONTRACTOR submit the extension request in writing to THE ANH no more than (4) Years but no less than one (1) Year in advance with

 

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respect to the expiry date of the Exploitation Period of the respective Exploitation Area.

b)                                    That the Exploitation Area continue to produce Hydrocarbons regularly on the date of the request.

c)                                     That THE CONTRACTOR demonstrate that during the four (4) Calendar Years preceding the date of the request it has carried out a drilling program including at least one Well for each Calendar Year and/or that it has kept an active pressure maintenance project, or a secondary, tertiary or enhanced recovery project.

 

Paragraph: If THE CONTRACTOR does not meet the required conditions of sub-item c) above in their entirety or to their full extent, THE ANH may still grant the extensions, having previously analyzed the arguments presented by THE CONTRACTOR. It is understood that denial of the extension by THE ANH shall not be considered grounds for disagreement and will not undergo the procedure established in Clause 28 herein. In any case, extension of the Exploitation Period shall be formalized by executing an amendment to this Contract.

 

4.3.3. Voluntary Termination of the Exploitation Period: At any moment during the Exploitation Period, THE CONTRACTOR may terminate this Contract with respect to any Exploitation Area, for which it shall submit written notice to THE ANH no less than three (3) months in advance, without prejudice to the fulfillment of the remaining obligations.

 

4.3.4. Effects of the Termination of the Exploitation Period: Whenever the operational rights and obligations are terminated for any grounds regarding any Exploitation Area, THE CONTRACTOR shall hand over the wells that are productive at that time as well as the facilities and other buildings, to THE ANH including the acquired goods and easements that benefit exploitation up to the Point of Delivery, even if said goods are located outside the Exploitation Area. With regards to the movable assets destined exclusively for said Exploitation Area, if the termination takes place before completing the first eighteen (18) Years of the Exploitation Period, THE CONTRACTOR shall be obligated to offer to sell them to THE ANH at their book value. If within three (3) Months counted as of the offering date THE ANH has not accepted the offer, THE CONTRACTOR may freely make use of said assets. If the termination takes place after the first eighteen (18) Years of the Exploitation Period, these movable items will automatically be handed over without cost to THE ANH. THE ANH shall decide which wells that are active at that time shall be abandoned and which shall continue to be active. Any disagreement with respect to the nature and the destination of the assets shall undergo the procedure described in Clause 28. Likewise, THE CONTRACTOR agrees to hand over its Environmental License and the necessary financial resources to THE ANH or to whomever THE ANH chooses, in order to fulfill the Abandonment obligations. The application of this Clause will not imply an employer substitution between THE CONTRACTOR and THE ANH.

 

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CLAUSE 5 – MINIMUM EXPLORATION PROGRAM

 

5.1. Minimum Exploration Program per Phase: During the Period of Exploration, THE CONTRACTOR shall carry out the Minimum Exploration Program for each phase described in Schedule B, which is an integral part of this Contract. In order to fulfill the Minimum Exploration Program obligations, the Wildcat Wells proposed by THE CONTRACTOR must be Wildcat Wells for a new field (A-3 or A-2 types) or Wildcat Wells that make part of an Assessment Program in accordance with the provisions of Clause 7 (subsection 7.3, sub-item b) herein. In the remaining cases, the Wildcat Wells proposed by THE CONTRACTOR must be previously approved by THE ANH.

 

5.2. Exploration Works Programs: THE CONTRACTOR agrees to submit the Exploration Works Program to THE ANH regarding the phase it is undertaking, wherein it describes how it plans to fulfill its obligations, no less than eight (8) Calendar Days previous to each phase of the Exploration Period. During the first phase, THE CONTRACTOR shall submit the Exploration Work Program within a period of thirty (30) Calendar Days counted as of the Effective Date.

 

5.3. Modifications to the Minimum Exploration Program:

 

5.3.1. During the Phase in Progress: In the course of the first half of the term of any Exploration Period phase, excluding the first phase, THE CONTRACTOR may replace the acquisition and processing of a seismic program contained in the Minimum Exploration Program presented initially for the phase in progress, by reason of the drilling of one or more Wildcat Wells or of the acquisition and processing of a more technologically advanced seismic program, as long as the financial effort of the new Minimum Exploration Program is equivalent to or greater than the initial program presented for the corresponding phase. In this case, THE CONTRACTOR shall notify THE ANH in advance and in writing of the replacement of the Exploration Operations that it intends to carry out.

 

5.3.2. For the Following Phase: If, following the drilling of a Wildcat Well that turns out dry, THE CONTRACTOR deems that the outlook of the Contracted Area does not justify drilling one (1) Wildcat Well contained in the Minimum Exploration Program for the following phase of the Exploration Period, THE CONTRACTOR may substitute said drilling with the acquisition and processing of a seismic program, as long as the financial effort is equivalent to or greater than the Minimum Exploration Program presented for the corresponding phase and THE CONTRACTOR notifies THE ANH in advance and in writing of the substitution that it intends to carry out.

 

5.4. Additional Exploration: THE CONTRACTOR may perform additional Exploration Operations to those contained in the Minimum Exploration Program or in the Subsequent Exploration Program, without having to modify the term agreed upon for the execution of the Minimum Exploration Program or the Subsequent Exploration Program of the phase in progress or of the following phases. In order to exercise this right, THE CONTRACTOR shall inform THE ANH in advance of the additional Exploration Operations that it intends to pursue. If said additional Exploration Operations are the same as those described in the Minimum Exploration Program of the following Phase, THE ANH may count said Exploration Operations

 

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as fulfillment of the exploration obligations agreed upon for the following phase. Conversely, if THE CONTRACTOR wishes to count these additional Exploration Operations as fulfillment of the exploration obligations agreed upon for the following phase, if there is one, THE CONTRACTOR must request this, in writing, from THE ANH who will judge whether it accepts this request or not. If THE ANH accepts the request, THE ANH will determine the manner, either entirely or partially, in which the additional Exploration Operations of the following Exploration Period will be credited.

 

5.5. Problems during Wildcat Well Drilling: If during the drilling of a Wildcat Well corresponding to the Minimum Exploration Program or to the Subsequent Exploration Program and before reaching the target depth there were to be uncontrollable problems of a geological nature, such as cavities, abnormal pressure, impenetrable formations, severe circulation losses, or other conditions of a technical nature that do not allow further drilling of the Wildcat Well, even if THE CONTRACTOR is willing to continue with drilling operations in keeping with the Good Oil Industry Practices, THE CONTRACTOR may request that THE ANH write off the drilling obligation as fulfilled, by presenting a technical report where the problem and the efforts made to solve it are described in detail. Said report must be submitted to THE ANH within a period of no more than fifteen (15) Calendar Days counted as of the manifestation of the uncontrollable problem mentioned above. If THE ANH allows THE CONTRACTOR to terminate drilling operations for the well in question, THE CONTRACTOR shall Abandon it or complete it up to the reached depth, and the obligation of the Minimum Exploration Program or the corresponding Subsequent Exploration Program shall be understood as performed.

 

CLAUSE 6 — SUBSEQUENT EXPLORATION PROGRAM

 

6.1. Subsequent Exploration Program: Upon termination of the Exploration Period and whenever there is at least one Assessment Area or one Exploitation Area or one Discovery made by THE CONTRACTOR in the last phase of the Exploration Period within the Contracted Area, THE CONTRACTOR will be allowed to retain up to fifty percent (50%) of the Contracted Area (excluding Assessment and Exploitation Areas) to carry out a Subsequent Exploration Program in the retained area but outside of the Assessment and Exploitation Areas. In this case, the following procedure will be applied:

 

a)                                     Before the termination date of the last phase of the Exploration Period, THE CONTRACTOR shall notify THE ANH in writing of its intention to carry out a Subsequent Exploration Program.

b)                                     The notice must describe the Exploration Operations that constitute the Subsequent Exploration Program that THE CONTRACTOR intends to carry out. The Program will be divided in two (2) phases lasting two (2) Years each, the first one counted as of the termination of the last phase of the Minimum Exploration Program. Each phase of the Subsequent Exploration Program must have at least the same Exploration Operations agreed to for the last phase of the Minimum Exploration Period.

 

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c)                                      After the obligations of the first phase of the Subsequent Exploration Program have been successfully performed, THE CONTRACTOR may decide not to continue with the second phase, which implies returning the areas retained for this purpose in their entirety, or to commence the second phase which means that THE CONTRACTOR will only return fifty percent (50%) of said retained area, excluding the existing Assessment and Exploitation Areas. THE CONTRACTOR shall inform THE ANH in writing of the decision within the Month following termination of the first phase.

 

It is understood that the returns mentioned in this Clause do not include the existing Assessment and the Exploitation Areas.

 

6.2. Upon termination of the Subsequent Exploration Program, the Contracted Area shall be limited to the Assessment Areas and/or the Exploitation Areas existing at that time.

 

CLAUSE 7 — DISCOVERY AND ASSESSMENT

 

7.1. Notification of Discovery: At any moment within the four (4) Months following the completion of the drilling of any Wildcat Well whose results indicate that there has been a Discovery, THE CONTRACTOR shall inform THE ANH in writing, along with a technical report containing the results of the tests that were preformed, a description of the geological aspects, and the analyses of the fluids and rocks, in the manner indicated by the Ministry of Mines and Energy or by the authority that represents it.

 

Paragraph: If the Discovery is a Nonassociated Natural Gas Discovery or a Heavy Liquid Hydrocarbon Discovery, THE CONTRACTOR shall equally submit the calculations and other supporting evidence presented to the Ministry of Mines and Energy or to the authority acting in its stead for classification purposes.

 

7.2. Submittal of the Assessment Program: If THE CONTRACTOR deems that the Discovery has potential commercial value, it will submit and carry out an Assessment Program regarding said Discovery, in accordance with this Clause. If the Discovery takes place during the Exploration Period, THE CONTRACTOR shall submit the Assessment Program within the six (6) Months following completion of the drilling of the Wildcat Discovery Well and, in any case, before expiry of the Exploration Period. If the Discovery is the result of the Subsequent Exploration Program, THE CONTRACTOR shall submit the Assessment Program within the six (6) Months following completion of the drilling of the Wildcat Discovery Well and, in any case, before the next return of areas discussed in Clause 6.

 

7.3. Content of the Assessment Program: The Assessment Program shall consist, as a minimum, of:

 

a)            A map with coordinates of the Assessment Area;

b)                                     The description and objectives of each of the Assessment Operations and the potential data that will be collected to determine if the Discovery may be declared as a Commercial Field. If THE CONTRACTOR includes Wildcat

 

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Well drilling in the Assessment Programs carried out during the Exploration Period, THE CONTRACTOR may credit both performance of the Minimum Exploration Program as well as of the corresponding Assessment Program, with up to two (2) Wildcat Wells, as long as said task is completed before the termination date of the Assessment Program where they were included, or of the phase of the Exploration Period to which said Wells correspond, depending on which comes first;

c)                                      The total annual budget of the Assessment Program;

d)                                     The total duration of the Assessment Program which may not exceed two (2) Years if it includes drilling Wildcat Wells or one (1) Year in any other case, which term will be counted as of the date of submittal of the Program to THE ANH and shall take into consideration the estimated time that will be necessary to obtain permits granted by other authorities;

e)                                      The timeline for carrying out Assessment Operations within the term mentioned in the previous sub-item;

f)                                       The information regarding the destination of Hydrocarbons and other fluids that THE CONTRACTOR intends to extract as a result of the Assessment Operations; and

g)                                     A proposed Delivery Point for consideration by THE ANH.

 

7.4. Extension of the duration of the Assessment Program: If THE CONTRACTOR decides to drill Wildcat Wells that are not contemplated on the initial Assessment Program, THE ANH will extend the duration of the Assessment Program by an additional duration that will not exceed one (1) Year, as long as the following conditions are met:

 

a)                                     That THE CONTRACTOR present the request to THE ANH in writing at least two (2) months before the expiry date of the initial period;

b)                                     That THE CONTRACTOR is actively performing the Assessment Operations provided in the Assessment Program;

c)                                      That the required extension is justified by the necessary drilling time and the evidence of the additional Wildcat Well or Wells; and

 

THE CONTRACTOR must submit the supporting documents to THE ANH along with the extension request.

 

7.5. Modifications to the Assessment Program: At any moment during the six (6) Months following the date on which the Assessment Program was submitted to THE ANH, THE CONTRACTOR may modify it, for which reason THE CONTRACTOR must inform THE ANH in a timely manner, and adjust the total term of the Program, pursuant to subsection 7.3 sub-item d) in this Clause, without thereby modifying the established initial date.

 

7.6. Assessment Program Results: THE CONTRACTOR shall present a complete report to THE ANH regarding the Assessment Program results, within three (3) Months following its completion date. Said report shall include, at least: the geological description of the Discovery and its structural configuration; the physical properties of the rocks and fluids present in the reservoirs associated to the Discovery; the pressure, volume, and temperature analysis of the reservoir fluids; the production

 

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capacity (per well and for the entire Discovery); and an estimate of the recoverable Hydrocarbon reserves.

 

Paragraph: In case the Discovery consists of Nonassociated Natural Gas or Heavy Liquid Hydrocarbon, and at any moment during the second half of the Assessment Program period, THE CONTRACTOR may request THE ANH to extend the Assessment Program for up to two (2) additional Years in order to perform feasibility studies for constructing infrastructure, about production methods, and/or for the development of markets. In these cases, the request shall include the data related to the feasibility studies in the Assessment Program that THE CONTRACTOR deems necessary. Upon expiry of the granted extension, THE CONTRACTOR shall submit the conclusions and recommendations of the feasibility studies to THE ANH.

 

7.7. This Clause will only be effective for the Discovery Wildcat Wells drilled by THE CONTRACTOR outside the areas designated as Assessment or Exploitation Areas. Therefore, there will be no Assessment Period whenever the new volumes of Hydrocarbons found are part of an Assessment or Exploitation Area.

 

CLAUSE 8 — DECLARATION OF MARKETABILITY

 

8.1. Notice: If applicable, THE CONTRACTOR will submit a written Statement to THE ANH within the three (3) Months following the expiry date of the stipulated term for the execution of the Assessment Program or of the agreed term in accordance with the Paragraph of subsection 7.6 of Clause 7, wherein THE CONTRACTOR declares clearly and precisely its unconditional decision to commercially exploit that Discovery or not. In the affirmative case, the Discovery will be known as a Commercial Field as of the date of the Statement.

 

8.2. Waiver of rights in the negative case: If THE CONTRACTOR does not submit said declaration to THE ANH within the stipulated term, it shall be understood that THE CONTRACTOR has concluded that the Discovery is not a Commercial Field. If the statement is negative or if no statement is submitted, THE CONTRACTOR accepts that no rights accrued in its favor and, therefore, THE CONTRACTOR waives any claim on the Discovery.

 

CLAUSE 9 — EXPLOITATION PLAN

 

9.1. Submittal and Content: THE CONTRACTOR will submit the initial Exploitation Plan to THE ANH within the three (3) months following the Declaration of Marketability discussed in Clause 8, which will include, at least, the following information:

 

a)            A map with the Exploitation Area coordinates;

b)                                    An estimate of the Hydrocarbon reserves and accumulated production, classified by types of Hydrocarbons;

c)                                      The general outline for the Development of the Commercial Field, which includes a description of the development well drilling program, of the

 

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extraction methods, of the respective facilities and of the processes to which the extracted fluids will be submitted before the Delivery Point.

d)                                     The annual production forecast for Hydrocarbons and their sensitivities, by using the optimal production rate that allows for maximum economic recovery of reserves.

e)                                      Identification of the critical factors for executing the Exploitation Plan, such as environmental, social, economic, and logistic aspects as well as the methods of dealing them.

f)                                       A proposed Delivery Point for consideration by THE ANH.

g)                                     A basket proposal of maximum three (3) crude oils of a similar quality in order to calculate the Fees for High Prices described in Clause 16.

h)                                     An abandonment program for purposes of Clause 31.

 

9.2. Delivery of Exploitation Plan: THE ANH will consider the Exploitation Plan as received once THE CONTRACTOR submits all of the above mentioned information. If THE ANH does not receive the Exploitation Plan in its entirety, within the fifteen (15) Calendar Days following the Statement, THE ANH may request delivery of the missing information and THE CONTRACTOR shall have thirty (30) Calendar Days counted as of the receipt of the delivery request. If THE ANH does not issue a pronouncement on the matter within the fifteen (15) Calendar Days following the submittal of the Exploitation Plan by THE CONTRACTOR, it shall be understood that said Plan has been accepted. If THE CONTRACTOR does not deliver the Exploitation Plan on the date established in the previous subsection, or if THE ANH does not receive the missing information within the thirty-day period established in this subsection, this will be considered non-compliance and will require the application of Clause 29.

 

9.3. Exploitation Area: The Exploitation Area shall be demarcated by a regular polygon, preferably four-sided, that includes the Commercial Field or the portion of it within the Contracted Area, plus a margin no greater than one (1) kilometer surrounding the Commercial Field, whenever the Contracted Area allows it. However the area of the Commercial Field contained in the Exploitation Area may vary, the Exploitation Area will remain unaltered, except for the provisions of the following subsection.

 

9.4. Extension of the Exploitation Area: If during the course of the Exploitation Period of an Exploitation Area THE CONTRACTOR determines that a Commercial Field extends beyond the Exploitation Area, but within the existing Contracted Area, THE CONTRACTOR may submit to THE ANH a request along with the corresponding supporting documentation for the extension of said Exploitation Area. Having satisfactorily received the aforementioned documentation, THE ANH shall extend the Exploitation Area with the understanding that if said extension overlaps with a different Exploitation Area, the duration of the Exploitation Period that shall apply to the overall Exploitation Area shall be that of the Exploitation Area that was initially declared as marketable.

 

Paragraph: When the Exploitation Area requested by THE CONTRACTOR in accordance with subsection 9.4 above extends beyond the Contracted Area, THE ANH shall extend the Contracted Area as requested, by proceeding in accordance

 

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with the contractual procedure of the Assessment Area, except if the following situations present themselves within the requested area:

 

a)                                     A third party holds the rights granted for the performance of similar or identical activities to those established herein;

b)                                     It is undergoing tender or negotiation proceedings to obtain rights from THE ANH; or

c)                                      There are restrictions imposed by a competent authority, which do not allow performance of the contractual activities.

 

9.5. Exploitation Plan Update: THE CONTRACTOR shall adjust and present the Exploitation Plan for each of the Exploitation Areas of the Contract, following the procedure described in subsection 9.2 of this Clause, every Calendar Year during the Month of February. If the real Hydrocarbon production from the previous Calendar Year differs from the annual production projection in the Exploitation plan by more than fifteen percent (15%) for any given Exploitation Area, THE CONTRACTOR shall provide justification for the situation.

 

CLAUSE 10 — EXPLOITATION WORKS PROGRAMS

 

10.1. Preparation and presentation: If the Exploitation Plan discussed in Clause 9 is presented more than six (6) Months before the end of the Calendar Year in progress, THE CONTRACTOR shall submit the first Exploitation Work Program for the remaining duration of the Calendar Year. For the following Calendar Years, THE CONTRACTOR shall present the Exploitation Works Program for each Calendar Year in the month of November of the preceding Calendar Year.

 

10.2. Content of the Exploitation Works Program: The Exploitation Works Program for each Exploitation Area shall include, at least:

 

a)                                     A detailed description of the Development and Production Operations Program that THE CONTRACTOR wishes to carry out during said Year and its corresponding timeline, divided by project and Yearly Quarters, bearing in mind the necessary waiting times for obtaining authorizations and permits from the competent authorities;

b)                                     A monthly production projection for the Exploitation Area during the corresponding Calendar Year;

c)                                      An estimate of the cost (investments and expenses) for the following four (4) Calendar Years or until the Exploitation Period expires, whichever occurs first;

d)                                     The terms and conditions according to which it shall carry out programs in order to benefit the communities of the areas influenced by the Exploitation Area.

 

10.3. Performance and Adjustments: The Development and Production Operations of the Exploitation Works Program discussed in sub-item (a) above must be performed unreservedly. THE CONTRACTOR shall begin said Exploitation Operations in accordance with the presented timeline. During the performance of the

 

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Exploitation Works Program, THE CONTRACTOR may make adjustments to said program for the Calendar Year in course, as long as said adjustments do not involve reducing production by more than fifteen percent (15%) with respect to the initial projection. Adjustments may not occur with a frequency of less than three Months, except for emergency situations. THE CONTRACTOR shall give notice of any adjustment to the Exploitation Works Program previously and in writing.

 

CLAUSE 11 — OPERATION MANAGEMENT

 

11.1. Autonomy: THE CONTRACTOR shall control all of the operations and activities considered necessary for a technical, efficient and economic Exploration of the Contracted Area and for the Assessment and Exploitation of Hydrocarbons found in said Area. THE CONTRACTOR shall plan, prepare, carry out and control all activities at its own expense and exercising technical and administrative autonomy, in accordance with Colombian law and in keeping with the Good Oil Industry Practices. THE CONTRACTOR shall carry out activities directly or through subcontractors.

 

11.2. Liability: THE CONTRACTOR shall carry out the operations mentioned herein in a diligent, responsible, efficient, and economically and technically appropriate manner. THE CONTRACTOR will ensure compliance with the terms established in this Contract and in Colombian law from all of its subcontractors. THE CONTRACTOR will be exclusively liable for any damages and losses caused as a result of the activities and operations derived from this Contract, including those caused by its subcontractors, on the understanding that THE CONTRACTOR will not be liable at any time before THE ANH for judgment errors, or for loss or damages that do not result from gross negligence or willful misconduct. If THE CONTRACTOR subcontracts, the subcontracted works and services shall be performed in its name, for which reason THE CONTRACTOR will be directly liable for the obligations established in the subcontract and derived thereof, from which THE CONTRACTOR will not be exonerated by reason of the subcontracting. THE ANH shall not assume any liability for damages caused to third parties by THE CONTRACTOR in furtherance of the operations object of this Contract, or for the contracts or subcontracts, not even by way of joint and several liability.

 

11.3. Permits: THE CONTRACTOR agrees to obtain at its own risk and expense all licenses, authorizations, permits and other appropriate rights in accordance with the law, in order to carry out the operations in this Contract.

 

11.4. Loss and Damages of Assets: All costs and expenses necessary to replace losses or repair damages of assets or equipment caused by fire, floods, storms, accidents or other similar events shall be covered by THE CONTRACTOR. THE CONTRACTOR shall inform THE ANH as soon as possible of the losses or damages that have occurred.

 

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CLAUSE 12 - ROYALTIES

 

12.1. Collection: THE CONTRACTOR shall leave the Hydrocarbon production percentage corresponding to royalties established in the regulations at THE ANH’s disposal at the Delivery Point. Collection of royalties either in cash or in kind shall be determined by the competent authority.

 

12.2. Payment of Participations: THE ANH will be the sole body responsible for the payment of participating interests corresponding to royalties to the entities established by the law.

 

12.3. Collection in Kind: When the collection of royalties is made in kind, THE CONTRACTOR shall deliver the corresponding Hydrocarbon quantity to THE ANH, for which the Parties will have agreed on a procedure to program deliveries and other necessary aspects. In any case, THE ANH shall have one month to withdraw said quantity. If, upon expiry of this term, THE ANH has not collected the Hydrocarbon volume corresponding to royalties, and if THE CONTRACTOR has available storage space in its facilities, THE CONTRACTOR agrees to store said hydrocarbons for up to three (3) consecutive Months, and THE ANH will pay a storage fee which will be agreed upon between the Parties for each individual case. Upon expiry of said term, THE CONTRACTOR may market said volume, in accordance with subsection 12.4 below.

 

Paragraph: If there is no storage space available, THE CONTRACTOR may continue to use the field and the volume of royalties, crediting to a future delivery the volume corresponding to the royalties that THE ANH had the right to withdraw but did not do so.

 

12.4. Marketing the royalties volume: Whenever THE ANH deems it convenient and as long as the regulatory provisions allow it, THE CONTRACTOR shall market the portion of the Hydrocarbon production that corresponds to royalties and it will deliver the money originating from said sales to THE ANH. For this purpose, the Parties will agree on the specific terms of said sale, but, in any case, THE CONTRACTOR will make its best effort to sell said production at the highest price in the available markets. THE ANH will acknowledge the direct costs for THE CONTRACTOR as well as a reasonable market margin agreed upon between the Parties.

 

12.5. Collection in cash: Whenever THE CONTRACTOR must pay royalties in cash, it will give THE ANH the corresponding amounts at the times specified by the competent authority. In case THE CONTRACTOR defaults on the payment, THE CONTRACTOR shall pay THE ANH the necessary quantity to cover the default amount, the corresponding default interest, and the expenses incurred in to carry out the payment.

 

CLAUSE 13 — MEASUREMENT

 

13.1. Measurement: THE CONTRACTOR will carry out the measurement, sampling, and quality control procedures for the Hydrocarbons produced and it will maintain the equipment and measuring instruments duly serviced, in accordance with

 

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the rules and methods accepted in the Good Oil Industry Practices. Following the legal and regulatory provisions in force, it shall carry out the necessary analyses and the pertinent corrections in order to calculate the net volumes for the Hydrocarbons received and delivered under standard conditions. THE CONTRACTOR shall take the necessary measures to preserve the integrity, reliability and security of the facilities and of the control equipment or instruments. THE CONTRACTOR shall also keep periodic service records for said equipment and instruments as well as of the daily Hydrocarbon and fluid production and consumption measurements for each Commercial Field to be revised by THE ANH and by the competent authorities, for the period of time established in the Commercial Code and in the other relevant regulations. THE ANH will have the right to inspect the measuring equipment set up by THE CONTRACTOR, as well as all of the measuring stations in general.

 

13.2. Common Facilities: Whenever two or more production fields make use of the same development facilities, said facilities must be equipped with a measuring system capable of distinguishing between the productions originating from each field.

 

CLAUSE 14 — PRODUCTION AVAILABILITY

 

14.1. Determining volumes: The Hydrocarbons produced, excluding those that have been used for the benefit of the operations of this Contract and those that are inevitably wasted during these functions, shall be transported by THE CONTRACTOR to the Delivery Point. The Hydrocarbons will be measured in the Control Point in compliance with the proceedings mentioned in subsection 13.1 above, and, based on this measurement, the royalty volume discussed in Clause 12 and the remaining Hydrocarbons that belong to THE CONTRACTOR will be determined.

 

14.2. Availability: After the Control Point and without prejudice to the legal provisions that regulate the matter, THE CONTRACTOR may freely export the Hydrocarbons that correspond to it, or sell them in the country, or administer them in any other way.

 

CLAUSE 15 — NATURAL GAS

 

15.1. Use: THE CONTRACTOR agrees to avoid wasting natural gas extracted from a field and, in accordance with the legal and regulatory provisions in force on the matter, THE CONTRACTOR will be allowed to use said gas, before reaching the corresponding Control Point, as fuel for the operations, as an energy source for maximum final recovery of Hydrocarbon reserves, or to store it in the reservoirs for future use for these purposes during the term of the Contract.

 

15.2. Associated Natural Gas Use: In case THE CONTRACTOR discovers one or more Commercial Fields containing associated Natural Gas, THE CONTRACTOR must submit a project for the use of the associated Natural Gas to THE ANH within the three (3) Years following commencement of the exploitation of each Commercial Field. If THE CONTRACTOR does not comply with this obligation, THE ANH

 

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may freely use the associated Natural Gas originating from said fields, subject to the legal provisions in force.

 

CLAUSE 16 — CONTRACTUAL ECONOMIC RIGHTS OF THE ANH

 

16.1. Fees for the Use of the Subsoil: The use of the subsoil by THE CONTRACTOR shall accrue the following fees in favor of THE ANH:

 

16.1.1 Exploration Areas: Starting from the second phase of the Exploration Period and in each subsequent phase, THE CONTRACTOR shall acknowledge and pay THE ANH a fee in dollars of the United States of America, which amount shall be the result of the multiplication of the number of hectares and hectare fractions of the Contracted Area, excluding the Exploitation Areas, by the figures in the table below. This payment shall be made in the course of the Month following commencement of the corresponding phase.

 

Amount per phase in USD / Hectare

 

	
Area size
    	
 
    	
For the first
   100,000 Ha.
    	
 
    	
For each additional hectare
   to the 100,000 Ha.
    	
 
    
	
Duration of
   Phase
    	
 
    	
< 12
   months
    	
 
    	
> 12
   months
    	
 
    	
< 12 months
    	
 
    	
> 12 months
    	
 
    
	
In Polygons A and B
    	
 
    	
0.75
    	
 
    	
1.0
    	
 
    	
1.0
    	
 
    	
1.5
    	
 
    
	
Outside of the Polygons
    	
 
    	
0.5
    	
 
    	
0.75
    	
 
    	
0.75
    	
 
    	
1.0
    	
 
    
	
Offshore Areas
    	
 
    	
0.25
    	
 
    

 

16.1.2. Assessment and Exploitation Areas: THE CONTRACTOR shall acknowledge and pay THE ANH a fee in dollars of the United States of America, which amount shall be the result of multiplying the hydrocarbon production that corresponds to THE CONTRACTOR in accordance with Clause 14 by eleven point nineteen cents (USD 0.1119) per Liquid Hydrocarbon barrel. This amount shall increase annually according to the I(n-2) defined in Clause 16.2, starting on January first of every year, by rounding the result of the update to four decimal places. For Natural Gas, this amount shall be of one point one hundred nineteen cents of a dollar of the United States of America (USD 0.01119) per one thousand cubic feet (1,000 CF). This amount shall increase annually in accordance with I(n-2) defined in Clause 16.2, starting on January first of every year and rounding the result of the update to five decimal places. This payment shall be made per calendar semester in arrears, during the first month of the following semester.

 

Paragraph: The natural gas production destined for re-injection operations or other processes directly related to the production of the same field from which it was extracted shall not incur the payment of production fees mentioned in subsection 16.1.2.

 

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16.2. High Price Fees:

 

For Liquid Hydrocarbons: From the point on which the accumulated production of each Exploitation Area, including the royalty volume, surpasses five (5) million Liquid Hydrocarbon barrels, and in the event that the price of the crude oil referenced in “West Texas Intermediate” (WTI) surpasses the Base Price Po, THE CONTRACTOR shall pay THE ANH a fee in United States Dollars, payable per Calendar Month in arrears during the thirty (30) Calendar Days following each expiry.

 

For Natural Gas: Five (5) years after commencing exploitation of the field, marked by the resolution of acceptance issued by the competent authority, and in the event that the price of Natural Gas referenced in “U.S. Gulf Coast Henry Hub” surpasses the Base Price Po, THE CONTRACTOR shall pay THE ANH a fee in United States Dollars, payable per Calendar Month in arrears, during the thirty (30) Calendar Days following each expiry.

 

The amount payable for this fee for each Exploitation Area shall be the result of the following formula:

 

 

Where:

 

Value of Hydrocarbons at Delivery Point:

 

For Liquid Hydrocarbons:

 

For the purposes of this formula, it shall be the reference price for the corresponding Calendar Month, expressed in dollars of the United States of America per Barrel (USD/Bl) of a basket of maximum three (3) crude oils of a similar quality to those originating from each Exploitation Area, presented by THE CONTRACTOR in the Exploitation Plan, agreed upon with THE ANH, and adjusted for the Delivery Point, by a pre-established margin.

 

If, after the procedure for determining the Value of Liquid Hydrocarbons in accordance with the previous paragraph, there are differences, either in excess or deficiency, of the reference price of the basket and the real sales price at the Delivery Point by more than three percent (3%), the affected party may demand a revision of the basket or of the adjustment margin. For purposes

 

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provided herein, the real sales price of Liquid Hydrocarbons produced in the Exploitation Area for the corresponding Calendar Month shall be the weighted average of the sales prices settled by THE CONTRACTOR with non-economically related buyers, or who have any other type of corporate relationship, so that the transactions may be set within regular commercial practices, deducting transportation and decanting prices between the Delivery Point and the reference sales point in accordance with the rates set by the Ministry of Mines and Energy or whoever represents it.

 

Whenever THE CONTRACTOR sells Liquid Hydrocarbons for purposes of refining them for local supply, the provisions of subsection 16.5 of this Clause will be applied.

 

For Natural Gas:

 

For purposes of this formula, it shall be the real sales price for Natural Gas for the production of the corresponding Calendar Month, expressed in Dollars of the United States of America per million British Thermal Units (BTU) (USD / MMBTU), settled between THE CONTRACTOR and the buyers, deducting transportation costs between the Delivery Point and the real sales point, as long as the result is not less than the calculation resulting from using the Henry Hub reference price minus the reference transportation cost established by the Ministry of Mines and Energy. If the result is lower, the value used shall be that of the result of the Henry Hub reference price minus the reference transportation cost established by the Ministry of Mines and Energy.

 

THE ANH may revise this price at any moment.

 

Po:

 

For liquid hydrocarbons, it is the base crude petroleum price marker, expressed in dollars of the United States of America per Barrel (USD / Bl) and for Natural Gas, it is the average price for Natural Gas in Dollars of the United States of America per million British Thermal Units (USD / MMBTU) shown in the following table:

 

	
API gravity of the Liquid Hydrocarbons Produced
    	
 
    	
Po (USD / Bl)
   (Year 2008)
    	
 
    
	
>15 and <22
    	
 
    	
$31.35
    	
 
    
	
>22 and <29
    	
 
    	
$30.22
    	
 
    
	
>29
    	
 
    	
$29.10
    	
 
    
	
Discoveries located more   that 300 meters in water depth
    	
 
    	
$35.82
    	
 
    
	
Exported Natural Gas   produced - distance in a straight line between Delivery Point and Reception   Point in country of destination, in kilometers
    	
 
    	
Po  USD /   MMBTU
    	
 
    
	
>0 and <500
    	
 
    	
$6.72
    	
 
    
	
>500 and <1000
    	
 
    	
$7.83
    	
 
    
	
>1000 or
    	
 
    	
$8.95
    	
 
    

 

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For the exploitation of Heavy Liquid Hydrocarbons with an API gravity greater than ten degrees (10o), the Po shall be of forty-four dollars and seventy seven cents of a dollar of the United States of America per barrel (USD 44.77/Bl) and for Heavy Liquid Hydrocarbons with an API gravity less than or equal to ten degrees (10o), THE CONTRACTOR shall not pay any Fees to THE ANH for High Prices. For Natural Gas that is destined for local consumption, in cases where the price is regulated by the Energy and Gas Regulation Commission (CREG) or by the entity that substitutes it, THE CONTRACTOR shall not pay any Fees to THE ANH for High Prices; otherwise, the Parties shall agree upon the Natural Gas marker and the Po value and execute the corresponding contract.

 

The Po base price shall be adjusted annually as of the first (1st) of January of each Year, according to the following formula:

 

Po = Po(n-1) x (1 + I(n-2))

 

Where:

 

	
n:
    	
 
    	
Is   the beginning Calendar Year for which the calculation is being made
    
	
n-1:
    	
 
    	
Is   the immediately previous Calendar Year
    
	
n-2:
    	
 
    	
Is   the Calendar Year immediately previous to year n-1
    
	
Po:
    	
 
    	
Is   the Po if force for the beginning year as a result of the formula, rounded to   two decimal points.
    
	
Po(n-1):
    	
 
    	
Is   the Po value for the immediately previous Calendar Year (n-1)
    
	
I (n-1):
    	
 
    	
Is   the annual variation, expressed in a fraction, of the producer price index   for the United States of America published by the Department of Labor of that   country — PPI Finished Goods WPUSOP 3000 — between the end of Calendar Year   n-2 and the corresponding index of the year immediately previous to n-2   rounded to four decimal points.
    

 

The above mentioned calculation shall be calculated during the month of December of each year.

 

Paragraph: In case the crude oil price marker “West Texas Intermediate” or the natural gas marker “US Gulf Coast Henry Hub” (P) is no longer recognized as the international benchmark price marker, THE ANH shall choose the new crude oil or natural gas marker to be used and modify the table based on the new index, maintaining the equivalences for Po values for the crude oil marker “West Texas Intermediate” or for the natural gas marker “US Gulf Coast Henry Hub”.

 

THE ANH may request THE CONTRACTOR in writing, no less than three months in advance, that this payment be made in kind during a period of no less than six (6) months. THE CONTRACTOR shall agree to this request as long as it does not affect the commercial agreements it has entered into. The volume corresponding to THE ANH shall be determined by calculating Factor “A”.

 

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16.3. Production Tests: The Liquid Hydrocarbons obtained as a result of the production tests carried out by THE CONTRACTOR shall also incur the fees mentioned in the previous items.

 

16.4. Participation in Production during the Extension to the Exploitation Period: In all cases of extension to the Exploitation Period of an Exploitation Area, THE CONTRACTOR shall acknowledge and pay THE ANH a sum equal to ten percent (10%) of the light Liquid Hydrocarbons value at the Delivery Point, or to five percent (5%) in the case of nonassociated Natural Gas or Heavy Liquid Hydrocarbons, as a fee for participation in the production obtained by THE CONTRACTOR as of the expiry date of the initial duration of the Exploitation Period, which production has been assessed in the Control Point, after having deducted the percentage corresponding to royalties. The economic fees discussed in items 16.1.2 and 16.2. shall not be accrued on this participation. The fees for the use of the subsoil during the extension to the Exploitation Period and for high prices mentioned in items 16.1.2 and 16.2 respectively, shall only be accrued on the volume of THE CONTRACTOR after deducting the participation fee discussed in this subsection.

 

16.5. Prices for Local Supply: Whenever THE CONTRACTOR sells its crude oil to meet the refinery needs for local supply, prices shall be calculated based on the international price, pursuant to Resolution No. 18-1709 of December 23, 2003 issued by the Ministry of Mines and Energy, or to any legal or regulatory provision that modifies or substitutes it.

 

CLAUSE 17 — UNIFICATION

 

When an economically exploitable reservoir extends continuously to another area or areas outside the Contracted Area, THE CONTRACTOR, in agreement with THE ANH and with the other interested parties, must put into practice, with the prior approval of the competent authority, a unified exploitation cooperative plan, subject to the provisions of Colombian law.

 

CLAUSE 18 — OWNERSHIP OF ASSETS

 

18.1. Ownership: In compliance with the dispositions of Clause 4 (subsection 4.3.4), the facilities, assets, materials, and equipment owned by THE CONTRACTOR permanently destined for developing Exploitation Operations up to the Delivery Point, shall be handed without cost to THE ANH at the moment of returning the Contracted Area or upon termination of this Contract, whichever takes place first after the initial eighteen (18) Years of the Exploitation Period, even if said assets are located outside the Contracted Area.

 

18.2. At the moment of returning the Contracted Area or upon termination of this Contract, whichever takes place first after the initial eighteen (18) Years of the Exploitation Period, THE CONTRACTOR shall transfer to THE ANH, without cost, all of the rights derived from contracts under the project financing mode, such as

 

25

 

Leasing, construction, Exploitation and asset reversion, BOT (Build, Operate, and Transfer), BOMT (Build, Operate, Maintain, and Transfer), BOOT (Build, Own, Operate, and Transfer), MOT (Modernize, Operate, and Transfer) and the like, which establish the obligation of transferring property of the assets, equipment, and facilities to THE CONTRACTOR upon termination, and when said contracts have been executed for the development of the Exploitation Period of the corresponding area. In any case, in the event that said contracts are executed for a period greater than the Exploitation Period, they shall require previous authorization from THE ANH.

 

18.3. Inventory: THE CONTRACTOR shall carry out physical inventories of the equipment and assets related to Exploitation Operations, at reasonable intervals, at least every three (3) Calendar Years, cataloguing them as owned by THE CONTRACTOR or by a third party. THE ANH will have the right to representation when these inventories take place. For this purpose, THE CONTRACTOR shall notify THE ANH no less than fifteen (15) Calendar Days in advance.

 

18.4. Asset Use: THE CONTRACTOR may use the assets or equipment located up to the Delivery Point and that are not vital for maintaining the existing exploitation conditions. Nevertheless, after the initial eighteen (18) Years of the Exploitation Period for each Exploitation Area or when 80% of its tested reserves have been produced, whichever occurs first, THE CONTRACTOR will require previous authorization from THE ANH to use said assets.

 

CLAUSE 19 — INFORMATION SUPPLY AND CONFIDENTIALITY

 

19.1.       Technical Information: THE CONTRACTOR shall keep THE ANH permanently and continuously informed of the progress and the results of the operations. Therefore, apart from the documents required by different Clauses herein, THE CONTRACTOR shall present THE ANH with all of the data of a scientific, technical, and environmental nature as it is being obtained and before the expiry date of each of the phases of the Exploration Period and/or by Calendar Year during the Exploitation Period, obtained in accordance with this Contract. This Exploration and Exploitation data shall be delivered to THE ANH according to the Exploration and Exploitation Data Supply Manual.

 

19.2. Confidentiality: The Parties agree that all of the data and information produced, obtained or developed as a result of the operations herein is considered strictly confidential during the following five (5) Calendar Years counted as of the end of the Calendar Year wherein they were produced, obtained, or developed; or until the termination of the Contract; or until the partial return of an area with regards to the information obtained from the returned area, whichever occurs first. Regarding interpretations based on data obtained as a result of the operations herein, this term shall be of twenty (20) Calendar Years counted as of the date of mandatory delivery to THE ANH; or until termination of this Contract; or until the partial return of an area with regards to the information obtained from the returned area, whichever occurs first. This regulation does not include information or data that the Parties must provide in compliance with the legal and regulatory provisions in force; or requested by its affiliates or by the regulations for any stock market in which THE

 

26

 

CONTRACTOR or its associates are registered. Nevertheless, the Party must inform the other Party of the delivery of said information. Restrictions to the release of information shall not interfere with the data and information supply from THE CONTRACTOR to interested companies in the event of an assignment of rights regarding the Contracted Area, as long as said companies execute the corresponding confidentiality agreement that complies with the provisions of this Clause. THE ANH agrees to refrain from divulging to third parties any data or information obtained as a result of the operations carried out by THE CONTRACTOR, except when necessary for compliance with any legal provision applicable to THE ANH, or for the correct performance of its functions. In any other case, THE ANH will require previous authorization from THE CONTRACTOR.

 

19.3. Information Rights: Upon completion of the confidentiality term established in the above Clause, it is understood that THE CONTRACTOR transfers to THE ANH all of its rights regarding said Data and their interpretations, without prejudice to the right of THE CONTRACTOR to use said information. As of this moment, THE ANH may freely make use of this information.

 

19.4. Informative Meetings: THE ANH may summon THE CONTRACTOR at any moment during the term of this Contract for informative meetings.

 

19.5. Semi-annual Executive Report: Apart from the information discussed in other Clauses herein, in the Data Supply Manual, and the information requested by Colombian law, THE CONTRACTOR shall provide THE ANH with the basic and summarized information on topics such as: marketability, reserves, real and projected production, Exploration, Assessment and Exploitation Operations carried out and estimated for the following Calendar Year, personnel, industrial security, environment and communities, national content in contracting, among others. The second semester report shall be the Annual Operations Report and the program to be carried out in the following Calendar Year. These reports shall be presented within the sixty (60) Calendar Days following the end of each calendar semester.

 

CLAUSE 20 — INSPECTION AND MONITORING

 

20.1. Visits to the Contracted Area: During the term of this Contract, THE ANH will be allowed to visit the Contracted Area, at its own risk, at any moment, and using the proceedings it considers necessary, in order to inspect and monitor the activities of THE CONTRACTOR and of the subcontractors directly related to this Contract, in order to confirm compliance herewith. THE ANH may likewise verify the accuracy of the received information. If the inspector detects errors or irregularities by THE CONTRACTOR, the inspector may make observations that must be answered to by THE CONTRACTOR in writing and within the period of time established by THE ANH.

 

THE CONTRACTOR shall provide THE ANH representative with transportation, lodging, food and other facilities at its own expense and under the same conditions as those provided for its own staff.

 

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20.2. Delegation: THE ANH may delegate inspection and monitoring of the operations of the Contracted Area, in order to confirm that THE CONTRACTOR is abiding by the contractual obligations herein as well as Colombian law. The absence of inspection and monitoring activities by THE ANH does not exempt THE CONTRACTOR in any way from complying with the obligations of this Contract nor does it imply an abatement thereof.

 

CLAUSE 21 — INSURANCE

 

21.1. Insurance policies: THE CONTRACTOR will acquire the necessary insurance policies required by Colombian law and any other regular insurance according to the Good Oil Industry Practices. THE CONTRACTOR will likewise request each subcontractor who carries out any work for the development of this Contract, to obtain the insurance policies it considers necessary and to maintain them in force. The expenses that originate from contracting and maintaining these insurance policies in force will be covered by THE CONTRACTOR.

 

21.2. Policy for Compliance with Work Obligations: THE CONTRACTOR shall create an insurance policy that guarantees the payment of salaries, service provision, indemnifications, and other work-related amounts owed for possible law suits originating from claims from personnel hired by THE CONTRACTOR acting as their sole and true employer. The term of the policy will not be less than three (3) Years counted as of the termination date of this Contract and the insured value shall be equal to ten percent (10%) of the budget of THE CONTRACTOR allocated for the execution of this Contract during the year previous to its termination.

 

CLAUSE 22 — GUARANTEES

 

22.1. Purpose of the Guarantees: THE CONTRACTOR shall furnish guarantees in favor of THE ANH in the manner, terms, and conditions provided in the Contract, which shall ensure compliance and the correct performance of all of the obligations for each phase of the Exploration Period and of the Subsequent Exploration Program, if such is the case, and of all other activities inherent in said obligations. Under no circumstances will this guarantee have the nature of a penalty clause.

 

22.2. Form of the Guarantee: THE CONTRACTOR shall establish, at its own expense, one or more “stand by” letter of credits, of an unconditional and irrevocable nature and payable upon presentation, with a bank or a financial institution legally established in Colombia, or any other instrument or institution previously accepted by THE ANH.

 

22.3. Guarantee Delivery: THE CONTRACTOR shall deliver to THE ANH the guarantees mentioned in this Clause, in accordance with the essential terms of the format contained in Schedule C hereof, no less than eight (8) Calendar Days in advance of the starting date of each phase of the Exploration Period or of the Subsequent Exploration Program, according to the case. THE CONTRACTOR shall deliver the guarantee for the initial phase within the fifteen (15) Calendar Days

 

28

 

following the signing of the Contract. If THE CONTRACTOR is not able to present the guarantees to THE ANH within the stipulated term for duly evidenced reasons beyond its control, THE CONTRACTOR may postpone the delivery date. If THE CONTRACTOR does not deliver the guarantees according to the established terms, said omission shall be considered grounds for non-compliance with the Contract.

 

22.4. Value of the Guarantees: THE CONTRACTOR shall furnish the guarantees corresponding to each phase of the Exploration Period or of the Subsequent Exploration Program accordingly, for ten percent (10%) of the budget of the phase of the Minimum Exploration Program or of the Subsequent Exploration Program respectively, denominated in dollars of the United States of America and payable in Colombian pesos. Under no circumstance will the value of the guarantee for each phase be less than one hundred thousand dollars of the United States of America (USD 100.000) or more than three million dollars of the United States of America (USD 3.000.000).

 

22.5. Duration of the Guarantees: Each and every one of the guarantees shall have a period equal to the term of the phase whose obligations they guarantee plus three (3) Months. In case of an extension, the guarantees shall likewise be extended or replaced by other guarantees for the same value and with a minimum duration equal to the duration of the extension plus three (3) more Months.

 

22.6. Rejection of Guarantees: THE ANH will reject the guarantees furnished by THE CONTRACTOR if these do not meet the requirements established in this Clause.  THE ANH shall have one (1) Month, as of the date of receipt discussed in subsection 22.3, to notify THE CONTRACTOR of its rejection and to return the presented guarantees. THE CONTRACTOR shall have eight (8) Calendar Days as of said notification to correct the guarantee. If the guarantee is not corrected, the rejected guarantees will be understood as not delivered for purposes of the provisions of subsection 22.3.

 

22.7. Enforceability of the Guarantees: THE ANH will enforce the guarantees whenever THE CONTRACTOR breaches any of the guaranteed obligations, without prejudice to the fulfillment of the remaining contractual obligations. Payment of the standby letter of credit(s) does not exonerate THE CONTRACTOR from its obligation to indemnify the damages caused by its default. THE ANH reserves the right to resort to the mechanisms for resolution of controversies when the value of the guarantee does not cover the indemnification amount.

 

CLAUSE 23 — SUBCONTRACTORS, PERSONNEL AND TECHNOLOGY TRANSFER

 

23.1. Subcontractors: In order to carry out the operations discussed in this Contract, THE CONTRACTOR may execute contracts to obtain services and assets, either nationally or internationally, abiding by Colombian law, and at its own risk and expense. THE CONTRACTOR must include in the subcontracts the stipulations that require subcontractors to abide by Colombian legislation and by the provisions of this Contract.

 

29

 

23.2. Contractor and Subcontractor Lists: THE CONTRACTOR shall keep an updated record of all the work, service, and supplies contracts, which shall be available to THE ANH whenever it requires. The record must specify, at least, the name of the supplier, contractor or subcontractor, the purpose, the value and the duration of the Contract.

 

23.3. Domestic Component: THE CONTRACTOR will make an effort to give priority to domestic bidders with assets and services of a domestic origin, with equal competitive conditions for quality, opportunity and price.

 

23.4. Personnel: For all legal purposes, THE CONTRACTOR shall act as the sole employer of the workers it hires to develop the activities of this Contract and, as a result, THE CONTRACTOR will be liable for the labor obligations that arise from the respective relations or employment contracts, such as payment of salaries and fringe benefits, payroll taxes, pension, health, and professional risk contributions and affiliation fees to the Integral Social Security Systems in accordance with the law. THE CONTRACTOR shall train Colombian personnel adequately and diligently in order to replace foreign personnel that THE CONTRACTOR considers necessary for the execution of the operations herein. In any case, THE CONTRACTOR shall comply with the legal provisions that regulate the proportion of national and foreign employees and workers.

 

23.5. Technology Transfer. Obligation to carry out research, training, education and support programs for the scholarship program of THE ANH:

 

For purposes of supporting institutional and sector strengthening, THE CONTRACTOR agrees to carry out research, training, and education programs at its own expense, and to support the scholarship program of THE ANH, whose objectives, terms, conditions, and beneficiaries will be determined by THE ANH during the course of this Contract.

 

All expenses for the research, training and education programs as well as for supporting the scholarship program of THE ANH, up to the limit established in this Clause, except for work programs carried out to comply with the affirmative covenant in this Clause, shall be assumed entirely by THE CONTRACTOR. Under no circumstances will THE CONTRACTOR bear the work expenses derived from the research, training, education and scholarship beneficiaries.

 

In order to comply with the affirmative covenant provided in this Clause, THE CONTRACTOR agrees to carry out and pay for research, training, and education programs, as well as for the scholarship program of THE ANH in each phase of the Exploration period and the corresponding extensions, for up to twenty-five percent (25%) of the amount resulting from the multiplication of the number of hectares and the fraction of hectares of the Contracted Area by the amount shown in the table defined in Clause 16 (subsection 16.1.1). This calculation shall be made at the beginning of each phase, including the first one.

 

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With respect to the Exploitation Areas, the affirmative covenant provided in this Clause shall be calculated for up to ten percent (10%) of the amount of the fee for the use of the subsoil discussed in Clause 16 (subsection 16.1.2) for each Calendar Year.

 

Under no circumstance will THE CONTRACTOR pay an affirmative covenant pursuant to this Clause for a value greater than one hundred thousand dollars of the United States of America (USD 100,000) per phase or per Calendar Year, as the case may be. The covenant shall be paid within the Month following commencement of the respective phase or per Calendar Year, as the case may be, according to the calculation that THE ANH has made for this purpose.

 

Compliance with the affirmative covenant provided in this Clause shall be made by THE CONTRACTOR through a third party designated by THE ANH.

 

For purposes of this Contract, THE CONTRACTOR may comply by adhering as trustor to the payment and administration autonomous capital created for this function at the Financiera Energética Nacional —FEN-.

 

CLAUSE 24 — OPERATOR

 

24.1. Without prejudice to the fulfillment of operations directly, THE CONTRACTOR may hire a third party to act as operator, as long as said third party has experience, proficiency and financial stability. In these cases, the naming of a third party as operator will require definitive approval by THE ANH.

 

24.2. If THE CONTRACTOR is a group made up of two or more companies, it must indicate which one will act as operator.

 

24.3. THE CONTRACTOR must request previous authorization by THE ANH, for cases where more than two different operators at the same time are required, according to this Contract.

 

24.4. If the operator decides to quit, it must notify of its decision no less than ninety (90) Calendar Days in advance.

 

24.5. If the operator is a third party and THE ANH becomes aware that it has carried out negligent behavior or behavior contrary to the Good Oil Industry Practices regarding compliance with the obligations herein, THE ANH must notify THE CONTRACTOR, who shall have ninety (90) Calendar Days counted as of the request to exercise the corrective measures for the case. If said behavior continues after the mentioned term has expired, THE ANH shall request THE CONTRACTOR to change the operator.

 

CLAUSE 25 — ASSIGNMENT RIGHTS

 

25.1. Right: THE CONTRACTOR has the right to assign or transfer, in whole or in part, its interests, rights, and/or obligations granted by this Contract, having obtained

 

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previous written authorization from THE ANH, to another company, consortium, or temporary association who has the financial standing, technical competence, professional skills and legal capacity required to work in Colombia.

 

25.2. Procedure: To this end, THE CONTRACTOR will file a written request with THE ANH indicating the essential elements of the negotiation, such as the name of the possible assignee, the information regarding their legal personality, financial standing, and technical and operational capacity, the value of the fees and obligations to be assigned, the scope of the operation, etc. Within the sixty (60) business days following receipt of the request presented in its totality, THE ANH shall exercise its discretionary power to analyze the information submitted by THE CONTRACTOR, after which it shall make its decision without having to provide reasons thereto. In case any of the companies that make up the group of THE CONTRACTOR undergoes fusion, separation, takeover, or associative transformations of any other nature, it will suffice to inform THE ANH in a timely manner, without prejudice to the information that may be required by other Colombian authorities. THE ANH reserves the right to assess the new conditions provided by THE CONTRACTOR or by any of the companies that make it up, with regards to financial capacity, technical competence, professional skills, and legal personality necessary to act and may require the furnishing of guarantees.

 

Paragraph: When the assignments occur in favor of companies that control or direct THE CONTRACTOR, any of the companies that form it, or their affiliates or subsidiaries, or among companies that form the same economic group, said assignment will be considered accepted by THE ANH if the latter does not issue a statement during the given term.

 

CLAUSE 26 — INDEMNITY

 

THE CONTRACTOR shall indemnify, defend, and keep THE ANH indemnified, as well as its employees and property, for any claim or suit brought by THE CONTRACTOR, its directors, agents, personnel, employees and representatives, derived from actions or omissions during the development and execution of this Contract. THE CONTRACTOR shall be solely responsible for damages or losses caused to third parties by actions or omissions from THE CONTRACTOR, its directors, agents, personnel, employees and representatives, during the development and execution of this Contract.

 

CLAUSE 27 — FORCE MAJEURE AND THIRD PARTY ACTS

 

27.1. Definitions: For purposes of this Contract, Force Majeure means an unforeseeable event that cannot be resisted, such as a law, an authority act, a flood or earthquake, etc.; and Third Party Acts means the unavoidable, judicially beyond control of the Party that puts it forward, such as a war, a malicious act by a third party, etc. For purposes of this Contract, both Force Majeure as well as Third Party Acts will be considered reasons for exemption from liability and will suspend compliance with non-financial obligations that have been affected by these

 

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circumstances, as long as they are an external cause, and the party receiving the notification accepts the unforeseeable or unavoidable nature of the event claimed.

 

Paragraph: For purposes of this Contract, the rainy season and the environmental license proceedings will not be grounds for exoneration by force majeure or act of god with respect to the drilling obligations, as those situations are foreseeable by THE CONTRACTOR.

 

27.2. Suspension: Compliance with the obligations of this Contract will be suspended for the time during which either of the Parties is unable to fulfill them, in whole or in part, for reasons of Force Majeure or Unavoidable Third Party Acts. When either of the Parties is affected by said circumstances, it shall notify the other Party within the following fifteen (15) Calendar Days, invoking this Clause and providing the appropriate justifications that specify the causes for said impediment, the way in which these affect fulfillment of the corresponding obligation, the estimated duration of the suspension of activities, and any other information that may demonstrate the event that occurred and its unavoidability.

 

27.3. Acceptance: Within the fifteen Calendar Days following receipt of the notification, the non-affected Party shall reply, in writing, whether it accepts the reason for exemption of liability. The periods for fulfillment of the affected obligations will be suspended upon acceptance. In this case, the suspension shall come into effect as of the moment on which the Force Majeure act occurred. If the non-affected party does not reply within said period, the reason for exemption of liability will be understood as accepted and compliance with the affected obligation will be suspended. Said suspension will only interrupt the affected obligations.

 

27.4. Resumption of activities: The Party affected by the reason for the exemption of liability shall resume performance of the suspended obligations within the Month following the cessation of the event that triggered the suspension. In which case, it shall inform the other Party within the following fifteen (15) Calendar Days. The Party that must comply with the obligation will make its best effort to comply with it following the terms and conditions agreed upon by the Parties.

 

27.5. Effects on duration: If the suspension hinders performance of any of the Exploitation Operations of any of the phases in the Minimum Exploration Program or in the Subsequent Exploration Program, and said hindrance lasts for more than two (2) consecutive Months, THE ANH shall restore the contractual term with a term equal to the duration of the hindrance, without prejudice to the extension of the existing guarantee or to a new guarantee that THE CONTRACTOR must produce, in accordance with the terms of Clause 22.

 

CLAUSE 28 — RESOLUTION OF CONTROVERSIES BETWEEN THE PARTIES

 

28.1. Executive Instance: Any difference or disagreement that may arise during the execution of and with relation to the Contract shall be resolved by the agents of the Parties authorized for said purpose. If the disagreement has not been settled within a

 

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period of thirty (30) Calendar Days counted as of the written notice, the issue shall be presented before the highest executive residing on Colombia of each of the Parties, in order to seek a joint solution. If the Parties reach an agreement or make a decision regarding the issue in question within the thirty (30) Calendar Days following the date on which one of the Parties requested the other to present the disagreement before the aforementioned executives, said agreement or decision shall be signed and executed within the fifteen (15) Calendar Days following the date on which the agreement was reached.

 

28.2. Arbitration and Expert Testimony Instance: If the highest executives of the Parties do not reach an agreement or make a decision within the aforementioned thirty (30) days, or if they do not sign or execute the agreement within the aforementioned fifteen (15) days, either party may make use of the mechanisms provided in items 28.2.1, 29.2.2, and/or 28.2.4, as the case may be, in the following manner:

 

28.2.1. Technical Expert Opinion: If the issue involves a technical disagreement, it shall be subject to an expert advisory opinion chosen as follows: one expert from each Party and a third expert chosen by the two primary experts and, if there is a disagreement between them, and at the request of either Party, said third expert will be appointed by the professional association that deals with the issue in question, or the like, who acts as technical consultant for the National Government with head offices in Bogota.

 

Once the experts have been chosen:

 

a)                                     The experts will give their opinion within thirty (30) Days as of the date of their designation. The experts will indicate the time and place where they will receive information from the Parties.  If the experts consider it necessary, the Parties may request an extension on the initial period:

b)                                     The Parties will deliver all of the pertinent information that the experts consider necessary;

c)                                      The Parties will focus on and define the issues subject to expertise;

d)                                     The costs and expenses of the technical experts will be paid by the Parties in equal amounts; and

e)                                      The final decision will be made by a majority and will be binding for the Parties with the effects of a settlement.

 

28.2.2. Accounting Expert Opinion: If the issue involves an accounting disagreement, it will be subject to the opinion of experts who must be qualified public accountants chosen as follows: one expert from each Party and a third expert chosen by the two primary experts and, if there is a disagreement between them, and at the request of either Party, said third expert will be appointed by the Central Board of Accountants of Bogota (Junta Central de Contadores de Bogotá). Once said experts have been appointed, the process shall proceed as stipulated in items a) through e) above.

 

28.2.3. Controversy regarding the nature of the issue: In case the Parties disagree on the nature of the technical, accounting or legal controversy, it shall be considered of a legal nature.

 

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28.2.4. Arbitration: Any disagreement or controversy derived from or related to this Contract, which is not a technical or accounting disagreement, shall be resolved by arbitration. The Arbitral Tribunal shall be made up of three (3) arbitrators appointed by both Parties by common consent. If the Parties do not reach an agreement on the designation of arbitrators, upon submittal of a request by either Party, the arbitrators shall be appointed by the Center for Commercial Arbitration and Conciliation of the Chamber of Commerce of Bogota, D.C. In any case, the arbitrators shall have a qualified experience of more than five (5) years regarding oil industry issues. The Tribunal shall be governed by the relevant Colombian legislation in force and its decision shall be at law. The arbitration will be carried out in Spanish.

 

28.2.5. Exclusion: In accordance with the provisions of Clause 4 herein (subsection 4.3.2 — Paragraph), a lack of agreement between the Parties for the extension of the Exploitation Period of each Exploitation Area shall not be grounds for disagreement and will not be subject to the procedures established in this Clause.

 

CLAUSE 29 — TERMINATION

 

29.1 Grounds for Termination: This Contract as well as all of the rights of THE CONTRACTOR will be terminated in any of the following cases:

 

a)                                     Upon expiry of the Exploration Period if THE CONTRACTOR has not made a Discovery;

b)                                     Upon expiry of the Exploitation Period. In this case, the effects of the Contract regarding the Exploitation Area where the Exploitation Period has ended will also end;

c)                                      Upon renouncement of THE CONTRACTOR during the Exploration Period, in the cases provided in Clause 4 (subsection 4.2.1);

d)                                     Upon relinquishment by THE CONTRACTOR during any moment of the Exploitation Period;

e)                                      At any moment by mutual agreement between the Parties;

f)                                       Upon declaration of non-compliance by THE CONTRACTOR;

g)                                     As a result of any of the grounds for Unilateral Termination provided in this Contract;

h)                                     As a result of grounds for termination or expiry established by the Law.

 

In the cases provided in items f), g), and h), THE ANH shall make the guarantee discussed in Clause 22 effective, without prejudice to any remedy or action it decides to file.

 

29.2. Grounds for Termination by Non-compliance: The following are grounds for termination for non-compliance:

 

a)                                     Assigning this Contract, in whole or in part, without complying with the stipulations of Clause 25;

b)                                     Suspending Exploration Operations without justification for more than six (6) continuous months within a same phase;

 

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c)                                      Suspending Assessment and/or Exploitation operations without justification for a period of more than half the period of the Assessment Program in any given Assessment Area, or for six (6) continuous months in an Exploitation Area;

d)                                     Take wrongful advantage of resources and minerals that are not included in this Contract;

e)                                      Omitting the timely delivery of technical data originating from the Exploration, Assessment, Development, or Production Operations, thus hindering the ability of THE ANH to carry out its functions properly;

f)                                       Failing to comply with the delivery of guarantees in accordance with the provisions of Clause 22 (subsection 22.3);

g)                                     Failing to comply, without justification, with any other obligation contracted by THE CONTRACTOR by virtue and related to the purpose of this Contract.

 

29.3. Procedure for Declaration of Non-compliance: If any of the grounds for non-compliance occur, THE ANH may terminate this Contract sixty (60) Calendar Days as of the date on which THE ANH presents a request in writing to THE CONTRACTOR, indicating the grounds for the declaration of non-compliance, provided THE CONTRACTOR has not presented satisfactory explanations to THE ANH within the twenty (20) Business Days following the date of receipt of the request, or if THE CONTRACTOR has not corrected the reason for non-compliance with the Contract within a period of sixty (60) Days. If THE CONTRACTOR presents satisfactory explanations to THE ANH within the period of twenty (20) Business days mentioned above, and the remaining period of sixty (60) Calendar Days is insufficient to comply with the pending obligations, THE ANH may grant an additional period to allow said compliance and it will demand that THE CONTRACTOR present the necessary guarantees for the additional period plus three (3) Months, within three (3) business days following receipt of the communication in which THE ANH grants the additional period. If the necessary corrective measures have not yet been taken at the expiry of the additional period, THE ANH shall declare non-compliance and the termination of this Contract. It is understood that the period for compliance with pending obligations considered in this subsection does not constitute, in any case, an extension of the period agreed for execution of the Minimum Exploration Program of any phase in progress, nor does it modify the periods for the phases following the Exploration Period.

 

29.4. Unilateral Grounds for Termination: THE ANH may unilaterally declare termination of this Contract in the following cases:

 

a)                                     By reason of a liquidation process of THE CONTRACTOR, if it is a legal entity.

b)                                     By reason of judicial attachment of THE CONTRACTOR that gravely affects compliance with the Contract.

 

If THE CONTRACTOR is made up of more than one legal entities and/or natural persons, the grounds for termination in the items above shall be enforced only when these gravely affect compliance with the Contract.

 

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Paragraph: Regarding each phase where there is an obligation to drill a Wildcat Well or Wells, THE CONTRACTOR shall file the relevant requests before the Ministry of the Environment, Housing and Territorial Development, to obtain the corresponding environmental license within ninety (90) Calendar Days, at the latest, following commencement of the corresponding phase. Non-fulfillment by THE CONTRACTOR of this obligation shall be grounds for termination by reason of non-compliance with the terms of Clause 29 (section 29.2, sub-section (g)).

 

29.5. Mandatory clauses: THE ANH shall declare this Contract effectively terminated, expired, or liquidated upon the occurrence of the clauses enacted by the rule of law, such as those provided in Law 418 of 1997 and subsequently extended and amended by Laws 548 of 1999 and 782 of 2002, or in Law 40 of 1993, or in the laws that substitute or amend them.

 

29.6. Subsequent Obligations: Upon termination of this Contract on any grounds and at any moment, the Parties are obligated to comply in a satisfactory manner with their mutual legal obligations as well as with the obligations towards third parties and contracted herein. This shall include assuming responsibility for losses and damages arising after the Contract has been unilaterally terminated, and there will be indemnifications and compensations of a legal nature for reasons attributable to THE CONTRACTOR.

 

CLAUSE 30 — ENVIRONMENT

 

30.1. THE CONTRACTOR shall pay special attention to protection of the environment and to compliance with the applicable regulations in these matters. It shall likewise adopt and carry out specific contingency plans to attend to emergencies and repair damages, in the most efficient and timely manner.

 

30.2. THE CONTRACTOR shall inform THE ANH semiannually on the environmental aspects of the Operations that are being conducted, on the application of preventive plans and contingency plans, and on the status of any steps taken before the competent environmental authorities in the matter of permits, authorizations, concessions or licenses, as the case may be.

 

In those phases of the Contract involving activities whose performance is subject to the granting of environmental licenses, permits, concessions or authorizations, THE CONTRACTOR shall commence, before the competent authorities and within ninety (90) Calendar Days following the start of the relevant phase, all steps required for such purpose.

 

Non-observance by THE CONTRACTOR of the period established in this subsection, or its lack of diligence in the relevant procedures, shall prevent it from invoking before THE ANH delays in obtaining the licenses, permits, concessions or authorizations as grounds to request an extension or suspension of the obligations related to the relevant phase.

 

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30.3. When any activity or Exploration Operation requires environmental permits, authorizations, concessions or licenses, THE CONTRACTOR shall abstain from carrying them out unless and until it obtains said permits, authorizations, concessions or licenses.

 

30.4. Without the approval of the environmental impact studies and the issuance of the corresponding environmental licenses or other requirements, THE CONTRACTOR may not commence Exploitation.

 

30.5. The non-performance of any of the obligations referred to in subsections 30.1, 30.2, 30.3 and 30.4 is grounds for termination due to breach of the terms of Clause 29 (subsection 29.2, sub-item (g)).

 

CLAUSE 31 — ABANDONMENT

 

31.1. Abandonment: Without prejudice to the provisions of subsection 4.3.4 of this Contract, in all cases where there is to be a return of areas, both inland and offshore, THE CONTRACTOR shall schedule and carry out all Abandonment activities, in accordance with Colombian law and observing Good Oil Industry Practices.

 

31.2. Return of Exploration Areas and Assessment Areas: Within sixty (60) days following the date on which the return of Exploration Areas or Assessment Areas is to take place, THE CONTRACTOR shall carry out an Abandonment program, to the satisfaction of THE ANH and other competent authorities.

 

31.3. In Exploitation Areas: The Exploitation Plan of each Exploitation Area shall include the relevant Abandonment program. In addition, in the updates to the Exploitation Plan referred to in subsection 9.4, THE CONTRACTOR shall make the necessary adjustments to the Abandonment program.

 

31.4. Abandonment Fund:

 

31.4.1. Creation: At the end of the first Calendar Year of the Month in which THE CONTRACTOR began commercial and regular production of Hydrocarbons in any Exploitation Area, and from that moment on, THE CONTRACTOR shall keep in its accounts a special record called Abandonment Fund and, to guarantee the availability of the necessary financial resources to carry out the Abandonment program mentioned in the preceding subsection, THE CONTRACTOR shall establish a fiduciary mandate, a bank guarantee, or another instrument accepted by THE ANH. In either case the terms and conditions of the instrument agreed upon shall be determined by the Parties within the year immediately preceding the date on which the Abandonment Fund is to be established. In the event that no agreement is reached, THE CONTRACTOR must still furnish a bank guarantee upon the terms of this Clause.

 

31.4.2 Value of the Abandonment Fund: The value of the Abandonment Fund at the end of each Calendar Year shall be that resulting from applying the following formula:

 

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AMA = (PAH ÷ RIH)2 x CAB

where:

 

AMA                       is the value of the Abandonment Fund that THE CONTRACTOR must record for each Exploitation Area, at the end of each Calendar Year.

PAH                          is the cumulative volume of Hydrocarbons produced from each Exploitation Area, from the start of its production until December 31 of the Year for which this calculation is made.

RIH                            are the proven Hydrocarbon reserves of each Exploitation Area, expressed in Barrels of Liquid Hydrocarbons, in accordance with the Exploitation Plan and its updates. This value includes the cumulative production (PAH) plus the remaining proven reserves.

CAB                          is the updated estimated cost of the Abandonment operations of each Exploitation Area. In the case of annual adjustments, the CAB will be reduced by the value of the already executed Abandonment costs.

 

All Hydrocarbon production and reserve calculations referred to above (PAH and RIH) shall be made in Barrels of Liquid Hydrocarbons. Therefore the Parties agree that for purposes of making the relevant conversion, five thousand seven hundred (5,700) cubic feet of gas, at Standard Conditions, are equivalent to one (1) Barrel of Liquid Hydrocarbons.

 

The variables of the formula shall be reviewed and updated annually by THE CONTRACTOR, based on the actual disbursements of the Abandonment activities carried out and the Hydrocarbon production and reserve volumes.

 

Paragraph: For purposes of this Clause, Proven Reserves are the amount of Hydrocarbons which, based on the geological and engineering analyses, THE CONTRACTOR deems with reasonable certainty can be commercially recoverable, as of a specified date, based on the known reservoirs and in accordance with economic conditions, operating methods and the prevailing regulatory framework at the time of the calculation.

 

31.5. Compliance with the obligations referred to in this Clause does not exempt THE CONTRACTOR from its obligation to carry out at its own expense and risk all Abandonment operations in each Exploitation Area.

 

CLAUSE 32 — CONTRACTUAL DOMICILE AND GOVERNING LAW

 

For all purposes of this Contract, the Parties fix the city of Bogota, D.C., Republic of Colombia as their domicile. This Contract is governed in all its parts by Colombian law and THE CONTRACTOR waives any attempt at a diplomatic claim in all matters related to its rights and obligations arising from this Contract, except in case of denial of justice. It is understood that there will be no denial of justice when THE CONTRACTOR has had access to all resources and means of action that are in order in accordance with Colombian law.

 

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CLAUSE 33 — SPOKESPERSON

 

Without prejudice to the rights which THE CONTRACTOR may legally have, derived from legal provisions or from the Clauses of this Contract, THE ANH shall be the spokesperson for THE CONTRACTOR with respect to the Colombian authorities in all matters related to the activities conducted under this Contract, whenever it is required to do so, and shall provide the officers and government entities with all data and reports that may be legally required. THE CONTRACTOR will be required to prepare and furnished to THE ANH the relevant reports. The expenses incurred by THE ANH to attend to any matter referred to in this Clause, shall charged to THE CONTRACTOR, and when said expenses exceed five thousand dollars of the United States of America (USD$5,000) or their equivalent in Colombian currency, the prior approval of THE CONTRACTOR will be required. The Parties declare, for any relationship with third parties, that neither what is established in this Clause nor elsewhere in the Contract, implies the granting of a general power-of-attorney nor that the Parties have established a civil or commercial partnership or any other relationship under which either Party may be considered jointly and severally liable for the acts or omissions of the other Party or as having the authority or mandate which may compromise the other Party with respect to any obligation. This Contract relates to activities within the territory of the Republic of Colombia.

 

CLAUSE 34 - PAYMENTS AND CURRENCY

 

34.1. Currency: All payments to be made by THE CONTRACTOR in favor of THE ANH, by virtue of this Contract, shall be made in dollars of the United States of America, when the exchange regulations allow it, or in Colombian pesos and at the bank designated by THE ANH for such purpose. THE CONTRACTOR may make payments in foreign currency, when so permitted by the exchange regulations and upon previous authorization by THE ANH.

 

34.2. Exchange Rate:  When it is necessary to convert dollars of the United States of America into Colombian pesos, the market reference exchange rate certified by the Banking Superintendence, or the entity acting in its stead, applicable to the date of payment, shall be used.

 

34.3. Default Interest: If the payments to be made by THE CONTRACTOR in favor of THE ANH, by virtue of this Contract, are not made upon the established terms, THE CONTRACTOR shall pay Default Interest at the maximum legal rate permitted.

 

CLAUSE 35 — TAXES

 

THE CONTRACTOR will be subject to Colombian tax legislation.

 

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CLAUSE 36 — NOTICES AND COMMUNICATIONS

 

36.1. Domicile for Notices and Communications: Notices and communications between the Parties shall be sent to the representatives of the Parties, to the domicile registered for legal notices which, as of the date of execution of this Contract are:

 

For THE ANH: Calle 99 No. 9 A 54, Torre 3, Of. 1401. Bogota D.C., Colombia

 

For THE CONTRACTOR: Calle 113 No. 7-21. Torre A Of. 812. Bogota D.C., Colombia.

 

36.2. Change: Any change in the person of the representative or in the domicile indicated above must be officially reported to the other Party within five (5) Days following its occurrence.

 

36.3. Effectiveness: Communications between the Parties in connection with this Contract shall be effective upon receipt by the Party to which they were addressed at the domiciles indicated above and in any case when they have been delivered at the domicile for legal notices registered with the Chamber of Commerce.

 

CLAUSE 37 — EXTERNAL COMMUNICATIONS

 

Whenever THE CONTRACTOR must issue public statements, announcements or communications with respect to this Contract regarding information that might affect the normal development of this Contract, THE CONTRACTOR shall request prior written authorization from THE ANH. In any event, external communications regarding Discoveries made, Discoveries declared or to be declared commercial, and volume of Hydrocarbon reserves must be authorized by THE ANH.

 

CLAUSE 38 — LANGUAGE

 

For all purposes and actions related to this Contract the official language is Spanish.

 

CLAUSE 39 — CONTRACT DOCUMENTS

 

The following documents are an integral part of this Contract:

1.  Schedule A (Boundaries and map)

2.  Schedule B (Minimum Exploration Program)

3.  Schedule C (Model Letter of credit)

 

CLAUSE 40 — FORMALIZATION

 

This Contract will be formalized through its signing by the Parties.

 

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In witness whereof, this Contract is signed in Bogotá on the sixteenth (16th) day of April of the year two thousand eight (2008), in two original copies bearing the same weight.

 

AGENCIA NACIONAL DE HIDROCARBUROS

 

/s/ JOSÉ ARMANDO ZAMORA REYES

JOSÉ ARMANDO ZAMORA REYES

DIRECTOR GENERAL

 

HUPECOL CARACARA LLC

 

/s/ MARCELA VACA TORRES

MARCELA VACA TORRES

LEGAL REPRESENTATIVE

 

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SCHEDULE A

 

CONTRACTED AREA

SCHEDULE TO THE EXPLORATION AND PRODUCTION CONTRACT FOR “LA CUERVA” BLOCK

 

The block described below has a total area of nineteen thousand four hundred and five (19,405) hectares and six thousand eight hundred and sixty-seven (6,867) square meters. The cartographic information was taken from the Colombian Political Map, digital file from IGAC (Agustin Codazzi Geological Institute) at a scale of 1:1,500,000.

 

LA CUERVA BLOCK

 

The polygon formed by the vertices listed below has an area of nineteen thousand four hundred and five (19,405) hectares and six thousand eight hundred and sixty-seven (6,867) square meters and it is located within the municipal jurisdiction of Paz de Ariporo in the Department of Casanare. This Area is described below and shown in the map labeled “Exhibit A” which forms an integral part of this Contract, as well as the corresponding charts; the reference point used is Geodesic Vertex “GPS-D-AR-014” of the Agustin Codazzi Geological Institute, whose GAUSS flat coordinates originating in Bogota, MAGNA-SIRGAS datum are: E: 1,367,881.722 meters, N: 1,277,133.934 meters, which correspond to MAGNA-SIRGAS datum geographical coordinates Latitude 7o 5’ 25,131” North of the Equator, Longitude 70o 44’ 57,486” West of Greenwich.

 

Point A:

 

From said vertex, proceed in a direction S 1o 47’ 12.874” E, for a distance of 149745.772 meters until reaching point A, which coordinates are N: 1127460.982 meters, E: 1372551,154 meters.

 

Point B:

 

From that point, proceed in a direction S 89o 59’ 59,366” E, for a distance of 1561546 meters until reaching point B, whose coordinates are: N: 1127460,934 meters, E: 1388166.614 meters. The entire length of the “A-B” line borders the AGUA VERDE section operated by CEPCOLSA.

 

Point C

 

From that point, proceed in a direction S 0o 0’ 0,714” W, for a distance of 5781,488 meters until reaching point C, whose coordinates are: N: 1121679,446 meters, E: 1388166.594 meters. The entire length of the “B-C” line borders the AGUA VERDE section operated by CEPCOLSA.

 

Point D

 

From that point, proceed in a direction S 44o 49’ 14,871” W, for a distance of 6130,693 meters until reaching point E, whose coordinates are: N: 1112135,157 meters, E: 1372551,111 meters. The entire length of the “A-B” line borders the AGUA VERDE section operated by CEPCOLSA.

 

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From that point, proceed in a direction N 0o 0’ 0,579” E, for a distance of 15325,825 meters until reaching A, the starting and finishing point for the demarcation. The entire length of the “E-A” line borders the AGUA VERDE section operated by CEPCOLSA.

 

AREAS, DIRECTION AND DISTANCE CALCULATION FROM GAUSS COORDINATES WITH ORIGIN IN BOGOTA, MAGNA-SIRGAS DATUM

Data and Results Table for LA CUERVA Block

 

Municipal Jurisdiction of Paz de Ariporo in the Department of Casanare

 

	
 
    	
 
    	
FLAT COORDINATES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Point
    	
 
    	
NORTH
    	
 
    	
EAST
    	
 
    	
Distance
    	
 
    	
Dif. North
    	
 
    	
Dif. East
    	
 
    	
DIRECTION
    	
 
    
	
VERT
    	
 
    	
1,277,133.934
    	
 
    	
1,367,881.722
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
149,745.772
    	
 
    	
-149,672.95
    	
 
    	
4,669.43
    	
 
    	
S 1o 47’ 12.874” E
    	
 
    
	
A
    	
 
    	
1,127,460.982
    	
 
    	
1,372,551.154
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
15,615.460
    	
 
    	
-0.05
    	
 
    	
15,615.46
    	
 
    	
S 89o 59’ 59.366” E
    	
 
    
	
B
    	
 
    	
1,127,460.934
    	
 
    	
1,388,166.614
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
5,781.488
    	
 
    	
-5,781.49
    	
 
    	
-0.02
    	
 
    	
S 0o 0’ 0.714” W
    	
 
    
	
C
    	
 
    	
1,121,679.446
    	
 
    	
1,388,166.594
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
13,455.669
    	
 
    	
-9,544.31
    	
 
    	
-9,484.79
    	
 
    	
S 44o 49’ 14.871” W
    	
 
    
	
D
    	
 
    	
1,112,135.139
    	
 
    	
1,378,681.804
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
6,130.693
    	
 
    	
0.02
    	
 
    	
-6,130.69
    	
 
    	
N 89o 59’ 59.394” W
    	
 
    
	
E
    	
 
    	
1,112,135.157
    	
 
    	
1,372,551.111
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
15,325.825
    	
 
    	
15,325.83
    	
 
    	
0.04
    	
 
    	
N 0o 0’ 0.579” E
    	
 
    
	
A
    	
 
    	
1,127,460.982
    	
 
    	
1,372,551.154
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

AREA OF THE POLYGON (Ha): 19,405.6867

 

44

 

 

45

 

SCHEDULE B - MINIMUM EXPLORATION PROGRAM

SCHEDULE TO THE EXPLORATION AND PRODUCTION CONTRACT FOR “LA CUERVA” BLOCK

 

THE CONTRACTOR agrees to carry out, as a minimum, the following Exploration Program:

 

Phase 1

 

Duration: Fifteen (15) months

 

Minimum Exploration Activities:

 

1.                                      Acquisition, processing, and interpretation of seventy-nine (79) Km(2) of new seismic 3D.

2.                                      Drilling 2 (two) Wildcat Wells of a minimum depth of four thousand (4000) feet.

3.                                      Environmental Licensing

 

Phase 2 to 6

 

Duration: Twelve (12) months each

 

Minimum Exploration Activities:

 

1.                                      Drilling one (1) Wildcat Well per phase of a minimum depth of four thousand (4000) feet.

 

NB: It is understood that this exploration program is designed to search exclusively for Conventional Hydrocarbons. It does not include any activity related to Carbon Associated Methane Gas, a hydrocarbon whose exploration licenses are currently suspended pursuant to Agreement 042 of November 29, 2006, issued by the Directive Counsel of THE ANH.

 

46

 

SCHEDULE C — LETTER OF CREDIT MODEL

SCHEDULE TO THE EXPLORATION AND PRODUCTION CONTRACT FOR “LA CUERVA” BLOCK

 

	
LETTER   OF CREDIT NO.
    	
:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
PLACE   AND DATE OF ISSUANCE
    	
:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
EXPIRY   DATE
    	
:   (Corresponds to the duration of the respective phase plus three   (3) months)
    
	
 
    	
 
    	
 
    
	
NOMINAL   VALUE
    	
:
    	
                            (US$               )
    
	
 
    	
 
    	
 
    
	
ISSUING   BANK
    	
:   
    	
[Name   of the Issuing Bank ]
    
	
 
    	
 
    	
 
    
	
BENEFICIARY
    	
:   Agencia Nacional de Hidrocarburos - ANH
    
	
 
    	
 
    	
 
    
	
ORDER   PLACED BY
    	
:   [Name of the Company]
    
	
 
    	
 
    	
 
    
	
NAME   OF CONTRACT
    	
:
    	
 
    	
 
    

 

We hereby notify you that for account and by order of [ Name of the Company ], hereinafter THE CONTRACTOR, we have issued this irrevocable standby letter of credit in your favor, for the amount in Colombian pesos resulting from the market representative exchange rate at the date on which the non-compliance communication provided below was sent to us, for the sum of                 dollars of the United States of America (US$             ), in order to guarantee compliance and the correct execution of any or all obligations of Phase          of the Exploration Period, which has a duration of                      and all other activities inherent in said obligations arising from HYDROCARBON EXPLORATION AND PRODUCTION CONTRACT xxxxxxxxxxxx signed between THE CONTRACTOR and THE ANH on the          day of                 , hereinafter THE CONTRACT.

 

It is understood that the responsibility of [Name of Issuing Bank] derived from this standby letter of credit is limited solely and exclusively to the amount in Colombian lawful currency mentioned above.

 

In case of non-compliance by THE CONTRACTOR with all or any of the obligations and other activities inherent in said obligations derived from THE CONTRACT, mentioned in the first paragraph of this standby letter of credit, hereinafter the GUARANTEED OBLIGATIONS, the Beneficiary shall notify [Name of Issuing Bank] at its offices in               , of said non-compliance, within the effective term of this letter of credit. On the same date on which we receive said notice, we shall proceed to pay to the order of the Beneficiary the amount claimed and charged to this letter of credit, without exceeding, in any case, the total guaranteed amount.

 

47

 

If no communication of non-compliance is sent within the period of this letter of credit, our responsibility derived from said letter will cease.

 

The notice by which [ Name of Issuing Bank] is informed of the non-compliance of the GUARANTEED OBLIGATIONS shall consist of a document duly signed by the Legal Representative of THE ANH or whoever represents him/her, wherein the non-compliance by THE CONTRACTOR with the GUARANTEED OBLIGATIONS is presented, and payment of this letter of credit is requested. Said communication must include the number of the letter of credit as well as the amount for which it will be used, converted into Colombian lawful currency at the market representative exchange rate in force at the date on which said communication is sent to us, evidenced by a certificate from the Financial Superintendency of Colombia or the entity representing it for said purpose.

 

This document shall be governed by the “Uniform Customs and Practices Documentary Credits” (latest edition) published by the International Chamber of Commerce (ICC).

 

	
 
    	
 
    
	
Name   and Signature of the Legal Representative for the Issuing Bank
    	
 
    

 

48

 

TABLE OF CONTENTS

 

	
CLAUSE   1 —
    	
DEFINITIONS
    	
2
    
	
CLAUSE   2 —
    	
PURPOSE
    	
6
    
	
CLAUSE   3 —
    	
CONTRACTED   AREA
    	
7
    
	
CLAUSE   4 —
    	
DURATION   A PERIODS
    	
8
    
	
CLAUSE   5 —
    	
MINIMUM   EXPLORATION PROGRAM
    	
10
    
	
CLAUSE   6 —
    	
SUBSEQUENT   EXPLORATION PROGRAM
    	
12
    
	
CLAUSE   7 —
    	
DISCOVERY   AND ASSESSMENT
    	
13
    
	
CLAUSE   8 —
    	
DECLARATION   OF MARKETABILITY
    	
15
    
	
CLAUSE   9 —
    	
EXPLOITATION   PLAN
    	
15
    
	
CLAUSE   10 —
    	
EXPLOITATION   WORKS PROGRAMS
    	
17
    
	
CLAUSE   11 —
    	
OPERATION   MANAGEMENT
    	
18
    
	
CLAUSE   12 —
    	
ROYALTIES
    	
18
    
	
CLAUSE   13 —
    	
MEASUREMENT
    	
19
    
	
CLAUSE   14 —
    	
PRODUCTION   AVAILABILITY
    	
20
    
	
CLAUSE   15 —
    	
NATURAL   GAS
    	
20
    
	
CLAUSE   16 —
    	
CONTRACTUAL   ECONOMIC RIGHTS OF THE ANH
    	
21
    
	
CLAUSE   17 —
    	
UNIFICATION
    	
25
    
	
CLAUSE   18 —
    	
OWNERSHIP   OF ASSETS
    	
25
    
	
CLAUSE   19 —
    	
INFORMATION   SUPPLY AND CONFIDENTIALITY
    	
26
    
	
CLAUSE   20 —
    	
INSPECTION   AND MONITORING
    	
27
    
	
CLAUSE   21 —
    	
INSURANCE
    	
28
    
	
CLAUSE   22 —
    	
GUARANTEES
    	
28
    
	
CLAUSE   23 —
    	
SUBCONTRACTORS,   PERSONNEL AND TECHNOLOGY TRANSFER
    	
29
    
	
CLAUSE   24 —
    	
OPERATOR
    	
31
    
	
CLAUSE   25 —
    	
ASSIGNMENT   RIGHTS
    	
31
    
	
CLAUSE   26 —
    	
INDEMNITY
    	
32
    
	
CLAUSE   27 —
    	
FORCE   MAJEURE AND THIRD PARTY ACTS
    	
32
    
	
CLAUSE   28 —
    	
RESOLUTION   OF CONTROVERSIES BETWEEN THE PARTIES
    	
33
    
	
CLAUSE   29 — 
    	
TERMINATION
    	
35
    
	
CLAUSE   30 —
    	
ENVIRONMENT
    	
37
    
	
CLAUSE   31 —
    	
ABANDONMENT
    	
38
    
	
CLAUSE   32 —
    	
CONTRACTUAL   DOMICILE AND GOVERNING LAW
    	
39
    
	
CLAUSE   33 —
    	
SPOKESPERSON
    	
39
    
	
CLAUSE   34 —
    	
PAYMENTS   AND CURRENCY
    	
40
    
	
CLAUSE   35 —
    	
TAXES
    	
40
    
	
CLAUSE   36 —
    	
NOTICES   AND COMMUNICATIONS
    	
40
    
	
CLAUSE   37 —
    	
EXTERNAL   COMMUNICATIONS
    	
41
    
	
CLAUSE   38 —
    	
LANGUAGE
    	
41
    
	
CLAUSE   39 —
    	
CONTRACT   DOCUMENTS
    	
41
    
	
CLAUSE   40 —
    	
FORMALIZATION
    	
41
    
	
SCHEDULE   A — 
    	
CONTRACTED   AREA
    	
43
    
	
SCHEDULE   B — 
    	
MINIMUM   EXPLORATION PROGRAM
    	
46
    
	
SCHEDULE   C — 
    	
LETTER   OF CREDIT MODEL
    	
47
    
				

 

49

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