Document:

Exhibit 10.2

 

JOINT OPERATING AGREEMENT

 

 

KOSMOS ENERGY GHANA HC (1)

 

 

THE E.O. GROUP     (2)

 

 

OPERATING AGREEMENT IN RESPECT OF

 

WEST CAPE THREE POINTS BLOCK

 

OFFSHORE GHANA

 

 

INDEX

 

	
ARTICLE I -   DEFINITIONS
    	
4
    
	
ARTICLE II -   EFFECTIVE DATE AND TERM
    	
8
    
	
ARTICLE III - SCOPE
    	
8
    
	
3.1
    	
Scope
    	
8
    
	
3.2
    	
Participating   Interest
    	
8
    
	
3.3
    	
Ownership,   Obligations and Liabilities Ownership
    	
9
    
	
3.4
    	
Government   Participation
    	
9
    
	
ARTICLE IV - OPERATOR
    	
9
    
	
4.1
    	
Designation   of Operator Designation
    	
9
    
	
4.2
    	
Rights   and Duties of Operator
    	
9
    
	
4.3
    	
Employees   of Operator
    	
11
    
	
4.4
    	
Information   Supplied by Operator
    	
11
    
	
4.5
    	
Settlement   of Claims and Lawsuits
    	
12
    
	
4.6
    	
Limitation   on Liability of Operator
    	
12
    
	
4.7
    	
Insurance   Obtained by Operator
    	
13
    
	
4.8
    	
Commingling   of Funds
    	
14
    
	
4.9
    	
Resignation   of Operator
    	
14
    
	
4.10
    	
Removal   of Operator
    	
14
    
	
4.11
    	
Appointment   of Successor
    	
15
    
	
ARTICLE V - OPERATING   COMMITTEE
    	
16
    
	
5.1
    	
Establishment   of Operating Committee
    	
16
    
	
5.2
    	
Powers   and Duties of Operating Committee
    	
16
    
	
5.3
    	
Authority   to Vote
    	
16
    
	
5.4
    	
Subcommittees
    	
16
    
	
5.5
    	
Notice   of Meeting
    	
16
    
	
5.6
    	
Contents   of Meeting Notice
    	
17
    
	
5.7
    	
Location   of Meetings
    	
17
    
	
5.8
    	
Operator’s   Duties for Meetings
    	
17
    
	
5.9
    	
Voting   Procedure
    	
17
    
	
5.10
    	
Record   of Votes
    	
17
    
	
5.11
    	
Minutes
    	
17
    
	
5.12
    	
Voting   by Notice
    	
18
    
	
5.13
    	
Effect   of Vote
    	
18
    
	
5.14
    	
Management   Committee Participation
    	
19
    
	
ARTICLE VI - WORK   PROGRAMS AND BUDGETS
    	
20
    
	
6.1
    	
Exploration   and Appraisal
    	
20
    
	
6.2
    	
Development
    	
21
    
	
6.3
    	
Itemization   of Expenditures
    	
22
    
	
6.4
    	
Contract   Awards
    	
22
    
	
6.5
    	
Authorization   for Expenditure (“AFE”) Procedure
    	
24
    
	
6.6
    	
Overexpenditures   of Work Programs and Budgets
    	
24
    
	
ARTICLE VII -   OPERATIONS BY LESS THAN ALL PARTIES
    	
24
    
	
7.1
    	
Limitation   on Applicability
    	
24
    
	
7.2
    	
Procedure   to Propose Exclusive Operations
    	
25
    
	
7.3
    	
Responsibility   for Exclusive Operations
    	
26
    
	
7.4
    	
Consequences   of Exclusive Operations
    	
26
    
	
7.5
    	
Premium   to Participate in Exclusive Operations
    	
29
    
	
7.6
    	
Order   of Preference of Operations
    	
29
    
	
7.7
    	
Stand-By   Costs
    	
30
    
	
7.8
    	
Use   of Property
    	
30
    

 

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7.9
    	
Production   Bonuses
    	
31
    
	
7.10
    	
Miscellaneous
    	
31
    
	
ARTICLE VIII -   DEFAULT
    	
32
    
	
8.1
    	
Default   and Notice
    	
32
    
	
8.2
    	
Operating   Committee Meetings and Data
    	
32
    
	
8.3
    	
Allocation   of Defaulted Accounts
    	
33
    
	
8.4
    	
Remedies
    	
33
    
	
8.5
    	
Survival
    	
35
    
	
8.6
    	
No   Right of Set Off
    	
35
    
	
ARTICLE IX - DISPOSITION   OF PRODUCTION
    	
35
    
	
9.1
    	
Right   and Obligation to Take in Kind
    	
35
    
	
9.2
    	
Offtake   Agreement for Crude Oil
    	
35
    
	
9.3
    	
Separate   Agreement for Natural Gas
    	
36
    
	
ARTICLE X -   ABANDONMENT
    	
37
    
	
10.1
    	
Abandonment   of Wells Drilled as Joint Operations
    	
37
    
	
10.2
    	
Abandonment   of Exclusive Operations
    	
37
    
	
ARTICLE XI -   SURRENDER, EXTENSIONS AND RENEWALS
    	
38
    
	
11.1
    	
Surrender
    	
38
    
	
11.2
    	
Extension   of the Term
    	
38
    
	
ARTICLE XII -   TRANSFER OF INTEREST OR RIGHTS
    	
38
    
	
12.1
    	
Obligations
    	
38
    
	
12.2
    	
Rights
    	
40
    
	
ARTICLE XIII -   WITHDRAWAL FROM AGREEMENT
    	
40
    
	
13.1
    	
Right   of Withdrawal
    	
40
    
	
13.2
    	
Partial   or Complete Withdrawal
    	
40
    
	
13.3
    	
Rights   of a Withdrawing Party
    	
41
    
	
13.4
    	
Obligations   and Liabilities of a Withdrawing Party
    	
41
    
	
13.5
    	
Emergency
    	
42
    
	
13.6
    	
Assignment
    	
42
    
	
13.7
    	
Approvals
    	
42
    
	
13.8
    	
Security
    	
42
    
	
13.9
    	
Withdrawal   or Abandonment by all Parties
    	
42
    
	
ARTICLE XIV -   RELATIONSHIP OF PARTIES AND TAX
    	
43
    
	
14.1
    	
Relationship   of Parties
    	
43
    
	
14.2
    	
Tax
    	
43
    
	
14.3
    	
United   States Tax Election
    	
43
    
	
ARTICLE XV -   CONFIDENTIAL INFORMATION
    	
44
    
	
15.1
    	
Confidential   Information
    	
44
    
	
15.2
    	
Continuing   Obligations
    	
45
    
	
15.3
    	
Proprietary   Technology
    	
45
    
	
15.4
    	
Trades
    	
45
    
	
ARTICLE XVI - FORCE   MAJEURE
    	
45
    
	
16.1
    	
Obligations
    	
45
    
	
16.2
    	
Definition   of Force Majeure
    	
45
    
	
ARTICLE XVII -   NOTICES
    	
46
    
	
ARTICLE XVIII -   APPLICABLE LAW AND DISPUTE RESOLUTION
    	
46
    
	
18.1
    	
Applicable   Law
    	
46
    
	
18.2
    	
Dispute   Resolution
    	
46
    
	
ARTICLE XIX - ALLOCATION   OF COST RECOVERY RIGHTS
    	
48
    
	
19.1
    	
Allocation   of Total Production
    	
48
    
	
19.2
    	
Allocation   of Cost Oil
    	
48
    

 

ii

 

	
19.3
    	
Allocation   of Profit Oil
    	
49
    
	
19.4
    	
Use   of Estimates
    	
49
    
	
ARTICLE XX - GENERAL   PROVISIONS
    	
49
    
	
20.1
    	
Warranties   as to no Payments, Gifts and Loans
    	
49
    
	
20.2
    	
Conflicts   of Interest
    	
50
    
	
20.3
    	
Public   Announcements
    	
50
    
	
20.4
    	
Successors   and Assigns
    	
51
    
	
20.5
    	
Waiver
    	
51
    
	
20.6
    	
Severance   of Invalid Provisions
    	
51
    
	
20.7
    	
Modifications
    	
51
    
	
20.8
    	
Headings
    	
51
    
	
20.9
    	
Singular   and Plural
    	
51
    
	
20.10
    	
Gender
    	
51
    
	
20.11
    	
Counterpart   Execution
    	
51
    
	
20.12
    	
Entirety
    	
52
    
	
20.13
    	
Rights   of Third Parties
    	
52
    

 

iii

 

OPERATING AGREEMENT

 

THIS AGREEMENT is made as of the Effective Date among Kosmos Energy Ghana HC, a Cayman Islands exempted company (hereinafter referred to as “Kosmos”); and the E.O. Group, a company incorporated in Ghana (hereinafter referred to as “EO”). The companies named above may sometimes individually be referred to as “Party” and collectively as the “Parties”.

 

WITNESSETH:

 

WHEREAS, the Parties have entered into a Petroleum Agreement dated July 22, 2004, with the Ghana National Petroleum Corporation (hereinafter referred to as “GNPC”) and the Government of the Republic of Ghana (hereinafter referred to as the “State”) covering West Cape Three Points Block, Offshore Ghana; and

 

WHEREAS, the Parties desire to define their respective rights and obligations with respect to their operations under the Contract.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements and obligations set out below and to be performed, the Parties agree as follows:

 

ARTICLE I - DEFINITIONS

 

As used in this Agreement, the following words and terms shall have the meaning ascribed to them below:

 

1.1           Accounting Procedure means the rules, provisions and conditions set forth and contained in Exhibit A to this Agreement.

 

1.2           AFE means an authorization for expenditure pursuant to Article 6.6.

 

1.3           Affiliate means, in relation to any Party, a company, partnership, person or other legal entity which controls, or is controlled by, or which is controlled by an entity which controls, such Party. Control means the ownership directly or indirectly of fifty (50) percent or more of the voting rights in a company, partnership or legal entity.

 

1.4           Agreed Interest Rate means interest compounded on a monthly basis, at the rate per annum equal to the one (1) month term, London Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits, as published by The Wall Street Journal or if not published, then by the Financial Times of London, plus five (5) percentage points, applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding calendar month. If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law.

 

1.5           Agreement means this agreement, together with the Exhibits attached to this agreement, and any extension, renewal or amendment hereof agreed to in writing by the Parties.

 

1.6           Appraisal Well has the meaning given in the Contract.

 

1.7           Barrel has the meaning given in the Contract.

 

1.8           Business Day means a day, other than a Saturday or Sunday, on which the banks in both Dallas, Texas, and Accra, Ghana are customarily open for business.

 

4

 

1.9           Calendar Quarter means a period of three (3) months commencing with January 1 and ending on the following March 31, a period of three (3) months commencing with April 1 and ending on the following June 30, a period of three (3) months commencing with July 1 and ending on the following September 30, or a period of three (3) months commencing with October 1 and ending on the following December 31 according to the Gregorian Calendar.

 

1.10         Calendar Year means a period of twelve (12) months commencing with January 1 and ending on the following December 31 according to the Gregorian Calendar.

 

1.11         Cash Premium means the payment made pursuant to Article 7.5(B) by a Non-Consenting Party to reinstate its rights to participate in an Exclusive Operation.

 

1.12         Commercial Discovery means any Discovery which is sufficient to entitle the Parties to apply for authorization from the Government to commence exploitation.

 

1.13         Completion means an operation intended to complete a well through the Christmas tree as a producer of Hydrocarbons in one or more Zones, including, but not limited to, the setting of production casing, perforating, stimulating the well and production Testing conducted in such operation. Complete and other derivatives shall be construed accordingly.

 

1.14         Consenting Party means a Party who agrees to participate in and pay its share of the cost of an Exclusive Operation.

 

1.15         Contract means the Petroleum Agreement concluded between GNPC, the State and the Parties identified in the recitals of this Agreement and any extension, renewal or amendment thereof agreed to in writing by the Parties and those laws, statutes, rules and regulations with respect to the exploration, development and production of Hydrocarbons that govern such instrument or are incorporated by the terms of such instrument.

 

1.16         Contract Area has the meaning given in the Contract

 

1.17         Cost Oil means that portion of the total production of Hydrocarbons, if any, which is allocated to the Parties under the Contract for the recovery of Petroleum Costs.

 

1.18         Day means a calendar day unless otherwise specifically provided.

 

1.19         Default Notice shall have the meaning ascribed in Article 8.1.

 

1.20         Defaulting Party shall have the meaning ascribed in Article 8.1.

 

1.21         Deepening means an operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled, or below the deepest Zone proposed in the associated AFE, whichever is the deeper. Deepen and other derivatives shall be construed accordingly.

 

1.22         Development Plan means a plan for the development of Hydrocarbons from an Exploitation Area.

 

1.23         Development Well has the meaning given in the Contract.

 

1.24         Discovery means the discovery of an accumulation of Hydrocarbons whose existence until that moment was unproven by drilling.

 

1.25         Effective Date means the date this Agreement comes into effect as stated in Article II.

 

5

 

1.26         Entitlement means a quantity of Hydrocarbons of which a Party has the right and obligation to take delivery pursuant to the Contract or, if applicable, an offtake agreement, and the terms of this Agreement, after adjustment for overlifts and underlifts.

 

1.27         Exclusive Operation means those operations and activities carried out pursuant to this Agreement, the costs of which are chargeable to the account of less than all the Parties.

 

1.28         Exclusive Well means a well drilled pursuant to an Exclusive Operation.

 

1.29         Exploitation Area means that part of the Contract Area which is established for development of a Commercial Discovery pursuant to the Contract or if the Contract does not establish an exploitation area, then that part of the Contract Area which is delineated as the exploitation area in a Development Plan approved as a Joint Operation or as an Exclusive Operation.

 

1.30         Exploitation Period means any and all periods of exploitation during which the production and removal of Hydrocarbons is permitted under the Contract.

 

1.31         Exploration Period means any and all periods of exploration set out in the Contract.

 

1.32         Exploration Well has the meaning given in the Contract.

 

1.33         G & G Data means only geological, geophysical and geochemical data and other similar information that is not obtained through a well bore.

 

1.34         GNPC has the meaning given in the recitals to this Agreement, and shall include any successor of GNPC (as defined therein) as a party to the Contract.

 

1.35         Government means the government of Ghana, including any state or municipal government or authority within Ghana, and any political subdivision or agency or instrumentality thereof, including without limitation GNPC.

 

1.36         Gross Negligence means any act or failure to act (whether sole, joint or concurrent) by any person or entity which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such person or entity knew, or should have known, such act or failure would have on the safety or property of another person or entity.

 

1.37         Hydrocarbons means all substances including liquid and gaseous hydrocarbons which are subject to and covered by the Contract.

 

1.38         Joint Account means the accounts maintained by Operator in accordance with the provisions of this Agreement and of the Accounting Procedure for Joint Operations.

 

1.39         Joint Management Committee means the committee established pursuant to Article 6 of the Contract.

 

1.40         Joint Operations means those operations and activities carried out by Operator pursuant to this Agreement, the costs of which are chargeable to all Parties.

 

1.41         Joint Property means, at any point in time, all wells, facilities, equipment, materials, information, funds and the property held for use in Joint Operations.

 

1.42         Minimum Work Obligations means those work and/or expenditure obligations specified in the Contract which must be performed during the then current Contract phase or period in order to satisfy the obligations of the Contract.

 

6

 

1.43         Non-Consenting Party means a Party who elects not to participate in an Exclusive Operation.

 

1.44         Non-Operator(s) means the Party or Parties to this Agreement other than Operator.

 

1.45         Operating Committee means the committee constituted in accordance with Article V.

 

1.46         Operator means a Party to this Agreement designated as such in accordance with this Agreement.

 

1.47         Participating Interest means the undivided percentage interest of each Party in the rights and obligations derived from the Contract and this Agreement.

 

1.48         Party means any of the entities named in the first paragraph to this Agreement and any respective permitted successors or assigns.

 

1.49         Petroleum Costs means costs and expenses incurred by the Parties and allowed to be recovered pursuant to the Contract.

 

1.50         Plugging Back means a single operation whereby a deeper Zone is abandoned in order to attempt a Completion in a shallower Zone. Plug Back and other derivatives shall be construed accordingly.

 

1.51         Production Bonus means any bonus payable by the Parties under the Contract on attainment of any specified rate, level or quantity of production of Hydrocarbons.

 

1.52         Profit Oil means that portion of the total production of Hydrocarbons, in excess of Cost Oil, which is allocated to the Parties under the terms of the Contract.

 

1.53         Reallocation Cost Oil shall have the meaning ascribed in Article 19.2.

 

1.54         Recompletion means an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in a different Zone within the existing wellbore. Recomplete and other derivatives shall be construed accordingly.

 

1.55         Reworking means an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations, but exclude any routine repair or maintenance work, or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of a well. Rework and other derivatives shall be construed accordingly.

 

1.56         Senior Supervisory Personnel means with respect to a Party, any individual who functions as such Party’s designated manager or supervisor who is responsible for, or in charge of onsite drilling, construction or production and related operations, or any other field operations.

 

1.57         Sidetracking means the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless done to straighten the hole or to drill around junk in the hole or to overcome other mechanical difficulties. Sidetrack and other derivatives shall be construed accordingly.

 

1.58         Testing means an operation intended to evaluate the capacity of a Zone to produce Hydrocarbons. Test and other derivatives shall be construed accordingly.

 

1.59         Work Program and Budget means a work program for Joint Operations and budget therefor as described and approved in accordance with Article VI.

 

7

 

1.60         Zone means a stratum  of earth containing or thought  to contain an accumulation of Hydrocarbons separately producible from any other accumulation of Hydrocarbons.

 

ARTICLE II- EFFECTIVE DATE AND TERM

 

This Agreement shall be effective as of the Effective Date of the Contract and shall continue in effect until the Contract terminates and all materials, equipment and personal property used in connection with the Joint Operations have been removed and disposed of, and final settlement has been made among the Parties.

 

Notwithstanding the preceding sentence:

 

(A)           Article X shall remain in effect until all wells have been properly abandoned; and

 

(B)           Article 4.5 and Article XVIII shall remain in effect until all obligations, claims, arbitrations and lawsuits have been settled or otherwise resolved.

 

ARTICLE III - SCOPE

 

3.1          Scope

 

(A)          The purpose of this Agreement is to establish the respective rights and obligations of the Parties with regard to operations under the Contract, including without limitation the joint exploration, appraisal, development and production of Hydrocarbon reserves from the Contract Area.

 

(B)           Without limiting the generality of Article 3.1(A), the following activities are outside of the scope of this Agreement and are not addressed herein:

 

(1)           Construction, operation, maintenance, repair and removal of facilities downstream from the point of delivery of the Parties’ shares of Hydrocarbons under the offtake agreement provided for in Article 9.2;

 

(2)           Transportation of Hydrocarbons beyond the point of delivery of the Parties’ shares of Hydrocarbons under the offtake agreement provided for in Article 9.2;

 

(3)           Marketing and sales of Hydrocarbons, except as expressly provided in Articles 7.5, 7.10(E) and 8.4 and in Article IX;

 

(4)           Acquisition of rights to explore for, appraise, develop or produce Hydrocarbons outside of the Contract Area (other than as a consequence of unitization with an adjoining contract area under the terms of the Contract); and

 

(5)           Exploration, appraisal, development or production of minerals other than Hydrocarbons, whether inside or outside of the Contract Area.

 

3.2           Participating Interest

 

(A)          The Participating Interests of the Parties as of the Effective Date are:

	
Kosmos
    	
 
    	
96.5
    	
%
    
	
EO
    	
 
    	
15
    	
%
    

 

8

 

(B)           If a Party transfers all or part of its Participating Interest pursuant to the provisions of this Agreement and the Contract, the Participating Interests of the Parties shall be revised accordingly.

 

(C)           The Parties recognize the rights of GNPC under Article 2.4 of the Contract pursuant to which GNPC has a 10% participating interest in ail petroleum operations under the Contract.

 

3.3           Ownership, Obligations and Liabilities Ownership

 

(A)          Unless otherwise provided in this Agreement, all the rights and interests in and under the Contract, all Joint Property and any Hydrocarbons produced from the Contract Area shall, subject to the terms of the Contract, be owned by the Parties in accordance with their respective Participating Interests.

 

(B)           Unless otherwise provided in this Agreement, the obligations of the Parties under the Contract and all liabilities and expenses incurred by Operator in connection with Joint Operations shall be charged to the Joint Account and all credits to the Joint Account shall be shared by the Parties, as among themselves, in accordance with their respective Participating Interests.

 

(C)           Each Party shall pay when due, in accordance with the Accounting Procedure, its Participating Interest share of Joint Account expenses, including cash advances and interest, accrued pursuant to this Agreement. The Parties agree that time is of the essence for payments owing under this Agreement. A Party’s payment of any charge under this Agreement shall be without prejudice to its right to later contest the charge.

 

3.4           Government Participation

 

If GNPC elects to acquire an Additional Paying Interest (as defined in the Contract) pursuant to Article 2.6 of the Contract, the Parties (other than EO) shall contribute, in proportion to their respective Participating Interests, to the additional interest to be acquired by GNPC and shall execute such documents as may be necessary to effect such transfer of interests. All payments received for the acquisition of such interests shall be credited to the Parties (other than HO or GNPC in the event that GNPC is or becomes a party to this Agreement) in proportion to their Participating Interests.

 

ARTICLE IV- OPERATOR

 

4.1           Designation of Operator Designation

 

Kosmos is designated as Operator and, without prejudice to the following provisions of this Article IV, agrees to act as such.

 

4.2           Rights and Duties of Operator

 

(A)          Subject to the terms and conditions of this Agreement, Operator shall have all of the rights, functions and duties of Operator under the Contract and shall have exclusive charge of and shall conduct all Joint Operations. Operator may employ independent contractors and/or agents (which may include Affiliates of Operator) in such Joint Operations.

 

9

 

(B)           In the conduct of Joint Operations Operator shall:

 

(1)           Perform Joint Operations in accordance with the provisions of the Contract, this Agreement and the instructions of the Operating Committee not in conflict with this Agreement;

 

(2)           Conduct all Joint Operations in a diligent, safe and efficient manner in accordance with good and prudent oil field practices and conservation principles generally followed by the international petroleum industry under similar circumstance;

 

(3)           Subject to Article 4.6 and the Accounting Procedure, neither gain a profit nor suffer a loss as a result of being the Operator in its conduct of Joint Operations, provided that Operator may rely upon Operating Committee approval of specific accounting practices not in conflict with the Accounting Procedure;

 

(4)           Perform the duties for the Operating Committee set out in Article V, and prepare and submit to the Operating Committee the proposed Work Programs, Budgets and AFEs as provided in Article VI;

 

(5)           Acquire all permits, consents, approvals, surface or other rights that may be required for or in connection with the conduct of Joint Operations;

 

(6)           Upon receipt of reasonable advance notice, permit the representatives of any of the Parties to have at all reasonable times and at their own risk and expense reasonable access to the Joint Operations with the right to observe all such Joint Operations and to inspect all Joint Property and to conduct financial audits as provided in the Accounting Procedure;

 

(7)           Maintain the Contract in full force and effect to the full extent possible in accordance with such good and prudent petroleum industry practices as are generally followed by operators in the international petroleum industry under similar circumstances. Operator shall, in a timely manner, pay and discharge all liabilities and expenses incurred in connection with Joint Operations and use its reasonable efforts to keep and maintain the Joint Property free from all liens, charges and encumbrances arising out of Joint Operations;

 

(8)           Pay to the Government for the Joint Account, within the periods and in the manner prescribed by the Contract and all applicable laws and regulations, all periodic payments, royalties, taxes, fees and other payments pertaining to Joint Operations, but excluding: (i) any taxes measured by the incomes of the Parties and (ii) any royalty payable under or in respect of the Contract;

 

(9)           Carry out the obligations of Operator pursuant to the Contract, including, but not limited to, preparing and furnishing such reports, records and information as may be required pursuant to the Contract;

 

(10)         Have in accordance with the decisions of the Operating Committee, the exclusive right and obligation to represent the Parties in all dealings with the Government with respect to matters arising under the Contract and Joint Operations. Operator shall notify the other Parties as soon as possible of such meetings. Non-Operators shall have the right to attend such meetings but only in the capacity of observers. Nothing contained in this Agreement shall restrict any Party from holding discussions with the Government with respect to any issue peculiar to its particular business interests arising under the Contract or this Agreement, but in such event such Party shall promptly

 

10

 

advise the Parties, if possible, before and in any event promptly after such discussions, provided that such Party shall not be required to divulge to the Parties any matters discussed to the extent the same involve proprietary information on matters not affecting the Parties;

 

(11)         Take all necessary and proper measures for the protection of life, health, the environment and property in the case of an emergency; provided, however, that Operator shall immediately notify the Parties of the details of such emergency and measures; and

 

(12)         Include, to the extent practical, in its contracts with independent contractors and to the extent lawful, provisions which: 

 

(a)           establish that such contractors can only enforce their contracts against Operator;

 

(b)           permit Operator, on behalf of itself and Non-Operators, to enforce contractual indemnities against, and recover losses and damages suffered by them (insofar as recovered under their contracts) from, such contractors; and

 

(c)        require such contractors to take insurance required by Article 4.7(F).

 

4.3           Employees of Operator

 

Subject to the Contract and this Agreement, Operator shall determine the number of employees, the selection of such employees, the hours of work and the compensation to be paid all such employees in connection with Joint Operations. Operator shall employ only such employees, agents and contractors as are reasonably necessary to conduct Joint Operations.

 

4.4           Information Supplied by Operator

 

(A)          Operator shall provide Non-Operators the following data and reports as they are currently produced or compiled from the Joint Operations:

 

(1)           Copies of all logs or surveys;

 

(2)           Daily drilling progress reports;

 

(3)           Copies of all Tests and core analysis reports;

 

(4)           Copies of the plugging reports;

 

(5)           Copies of the final geological and geophysical maps and reports;

 

(6)           Engineering studies, development schedules and annual progress reports on development projects;

 

(7)           Field and well performance reports, including reservoir studies and reserve estimates;

 

(8)           Copies of all reports relating to Joint Operations furnished by Operator to the Government, except magnetic tapes which shall be stored by Operator and made available for inspection and/or copying at the sole expense of the Non-Operator requesting same;

 

11

 

(9)           Other reports as frequently as is justified by the activities or as instructed by the Operating Committee; and

 

(10)         Subject to Article 15.3, such additional information for Non-Operators as they or any of them may request, provided that the requesting Party or Parties pay the costs of preparation of such information and that the preparation of such information will not unduly burden Operator’s administrative and technical personnel. Only Non-Operators who pay such costs shall receive such additional information.

 

(B)           Operator shall give Non-Operators access at all reasonable times to all other data acquired in the conduct of Joint Operations. Any Non-Operator may make copies of such other data at its sole expense.

 

4.5           Settlement of Claims and Lawsuits

 

(A)          Operator shall promptly notify the Parties of any and all material claims or suits and such other claims and suits as the Operating Committee may direct which arise out of Joint Operations or relate in any way to Joint Operations. Operator shall represent the Parties and defend or oppose the claim or suit. Operator may in its sole discretion compromise or settle any such claim or suit or any related series of claims or suits for an amount not to exceed the equivalent of U.S. dollars five hundred thousand (U.S. $500,000) exclusive of legal fees. Operator shall obtain the approval and direction of the Operating Committee on amounts in excess of the above stated amount. Each Non-Operator shall have the right to be represented by its own counsel at its own expense in the settlement, compromise or defense of such claims or suits.

 

(B)           Any Non-Operator shall promptly notify the other Parties of any claim made against such Non-Operator by a third party which arises out of or may affect the Joint Operations, and such Non-Operator shall defend or settle the same in accordance with any directions given by the Operating Committee. Those costs, expenses and damages incurred pursuant to such defense or settlement which are attributable to Joint Operations shall be for the Joint Account.

 

(C)           Notwithstanding Article 4.5(A) and Article 4.5(B), each Party shall have the right to participate in any such suit, prosecution, defense or settlement conducted in accordance with Article 4.5(A) and Article 4.5(B) at its sole cost and expense; provided always that no Party may settle its Participating Interest share of any claim without first satisfying the Operating Committee that it can do so without prejudicing the interests of the Joint Operations.

 

4.6           Limitation on Liability of Operator

 

(A)          Except as set out in this Article 4.6, neither the Party designated as Operator nor any other Indemnitee (as defined below) shall bear (except as a Party to the extent of its Participating Interest share) any damage, loss, cost, expense or liability resulting from performing (or failing to perform) the duties and functions of the Operator, and the Indemnitees are hereby released from liability to Non-Operators for any and all damages, losses, costs, expenses and liabilities arising out of, incident to or resulting from such performance or failure to perform, even though caused in whole or in part by a  pre-existing defect, the negligence (whether sole, joint or concurrent), gross negligence, strict liability or other legal fault of Operator (or any such Indemnitee).

 

(B)           Except as set out in this Article 4.6, the Parties shall in proportion to their Participating Interests defend and indemnify Operator and its Affiliates, and the officers and directors of both (collectively, the “Indemnitees”), from any and all damages, losses, costs, expenses (including reasonable legal costs, expenses and

 

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attorneys’ fees) and liabilities incident to claims, demands or causes of action brought by or on behalf of any person or entity, which claims, demands or causes of action arise out of, are incident to or result from Joint Operations, even though caused in whole or in part by a pre-existing defect, the negligence (whether sole, joint or concurrent), gross negligence, strict liability or other legal fault of Operator (or any such Indemnitee).

 

(C)           Notwithstanding Articles 4.6(A) and 4.6(B), if any Senior Supervisory Personnel of Operator or its Affiliates engage in Gross Negligence that proximately causes the Parties to incur damage, loss, cost, expense or liability for claims, demands or causes of action referred to in Articles 4.6(A) or 4.6(B), then, in addition to its Participating Interest share Operator shall bear the actual damage, loss, cost, expense and liability to repair, replace and/or remove Joint Property so damaged or lost, if any

 

(D)          Nothing in this Article 4.6 shall be deemed to relieve the Party designated as Operator from its Participating Interest share of any damage, loss, cost, expense or liability arising out of, incident to or resulting from Joint Operations.

 

(E)           Notwithstanding the foregoing, under no circumstances shall any Indemnitee (except as a Party to the extent of its participating interest) bear any damages, loss, cost, expense or liability for environmental, consequential, punitive or any other similar indirect damages or losses, including but not limited to those arising from business interruption, reservoir or formation damage, inability to produce hydrocarbons, loss of profits, pollution control and environmental amelioration or rehabilitation.

 

4.7           Insurance Obtained by Operator

 

(A)          Operator shall procure and maintain or cause to be procured and maintained for the Joint Account all insurance in the types and amounts required by the Contract and applicable laws, rules and regulations.

 

(B)           Operator shall obtain such further insurance, at competitive rates, as the Operating Committee may from time to time require.

 

(C)           Any Party may elect not to participate in the insurance to be procured under Article 4.7(B) provided such Party:

 

(1)        gives prompt notice to that effect to Operator;

 

(2)        does nothing which may interfere with Operator’s negotiations for such insurance for the other Parties; and

 

(3)        obtains and maintains such insurance (in respect of which an annual certificate of adequate coverage from a reputable insurer shall be sufficient evidence) or other evidence of financial responsibility which fully covers its Participating Interest share of the risks that would be covered by the insurance procured under Article 4.7 (B), and which the Operating Committee may determine to be acceptable. No such determination of acceptability shall in any way absolve a non-participating Party from its obligation to meet each cash call including any cash call in respect of damages and losses and/or the costs of remedying the same in accordance with the terms of this Agreement. If such Party obtains other insurance, such insurance shall contain a waiver of subrogation in favor of all the other Parties, the Operator and their insurers but only in respect of their interests under this Agreement.

 

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(D)          The cost of insurance in which all the Parties are participating shall be for the Joint Account and the cost of insurance in which less than all the Parties are participating shall be charged to the Parties participating in proportion to their respective Participating Interests.

 

(E)           Operator shall, in respect of all insurance obtained pursuant to this Article 4.7:

 

(1)        promptly inform the participating Parties when such insurance is obtained and supply them with certificates of insurance or copies of the relevant policies when the same are issued;

 

(2)        arrange for the participating Parties, according to their respective Participating Interests, to be named as co-insureds on the relevant policies with waivers of subrogation in favor of all the Parties; and

 

(3)        duly file all claims and take all necessary and proper steps to collect any proceeds and credit any proceeds to the participating Parties in proportion to their respective Participating Interests.

 

(F)           Operator shall use its reasonable efforts to require all contractors performing work in respect of Joint Operations to obtain and maintain any and all insurance in the types and amounts required by any applicable laws, rules and regulations or any decision of the Operating Committee and shall use its reasonable efforts to require all such contractors to name the Parties as additional insureds on such contractors’ insurance policies or to obtain from their insurers waivers of all rights of recourse against Operator, Non-Operators and their insurers.

 

4.8          Commingling of Funds

 

Operator may commingle with its own funds the monies which it receives from or for the Joint Account pursuant to this Agreement. Notwithstanding that monies of a Non-Operator have been commingled with Operator’s funds, the Operator shall account to the Non-Operators for the monies of a Non-Operator advanced or paid to Operator, whether for the conduct of Joint Operations or as proceeds from the sale of production under this Agreement. Such monies shall be applied only to their intended use and shall in no way be deemed to be funds belonging to Operator.

 

4.9          Resignation of Operator

 

Subject to Article 4.11, Operator may resign as Operator at any time by so notifying the other Parties at least one hundred and twenty (120) Days prior to the effective date of such resignation.

 

4.10        Removal of Operator

 

(A)          Subject to Article 4,11, Operator shall be removed upon receipt of notice from any Non-Operator if:

 

(1)           An order is made by a court or an effective resolution is passed for the reorganization under any bankruptcy law, dissolution, liquidation, or winding up of Operator;

 

(2)           Operator dissolves, liquidates, is wound up, or otherwise terminates its existence;

 

(3)           Operator becomes insolvent, bankrupt or makes an assignment for the benefit of creditors; or

 

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(4)           A receiver is appointed for a substantial part of Operator’s assets.

 

(B)           Subject to Article 4.11, Operator may be removed by the decision of the Non-Operators if Operator has committed a material breach of this Agreement and has either failed to commence to cure that breach within thirty (30) Days of receipt of a notice from Non-Operators detailing the alleged breach or failed to diligently pursue the cure to completion. Any decision of Non-Operators to give notice of breach to Operator or to remove Operator under this Article 4.10(B) shall be made by an affirmative vote of Non-Operators holding a combined Participating Interest of at least sixty seven percent (67%).

 

(C)           If Operator together with any Affiliate of Operator is or becomes the holder of a Participating Interest of less than ten percent (10%), then Operator shall be required to promptly notify the other Parties. The Operating Committee shall then vote within thirty (30) Days of such notification on whether or not a successor Operator should be named pursuant to Article 4.11.

 

4.11         Appointment of Successor

 

When a change of Operator occurs pursuant to Article 4.9 or Article 4.10:

 

(A)          The Operating Committee shall meet as soon as possible to appoint a successor Operator pursuant to the voting procedure of Article 5.9. However, no Party may be appointed successor Operator against its will.

 

(B)           If the Operator disputes commission of or failure to rectify a material breach alleged pursuant to Article 4.10(B) and proceedings are initiated pursuant to Article XVIII, no successor Operator may be appointed pending the conclusion or abandonment of such proceedings, subject to the terms of Article 8.3 with respect to Operator’s breach of its payment obligations.

 

(C)           If an Operator is removed, other than in the case of Article 4.10(C) or Article 4.10(D), neither Operator nor any Affiliate of Operator shall have the right to vote for itself on the appointment of a successor Operator, nor be considered as a candidate for the successor Operator.

 

(D)          A resigning or removed Operator shall be compensated out of the Joint Account for its reasonable expenses directly related to its resignation or removal, except in the case of Article 4.10(B).

 

(E)           The resigning or removed Operator and the successor Operator shall arrange for the taking of an inventory of all Joint Property and Hydrocarbons, and an audit of the books and records of the removed Operator. Such inventory and audit shall be completed, if possible, no later than the effective date of the change of Operator and shall be subject to the approval of the Operating Committee. The liabilities and expenses of such inventory and audit shall be charged to the Joint Account.

 

(F)           The resignation or removal of Operator and its replacement by the successor Operator shall not become effective prior to receipt of any necessary Government approvals.

 

(G)           Upon the effective date of the resignation or removal, the successor Operator shall succeed to all duties, rights and authority prescribed for Operator. The former Operator shall transfer to the successor Operator custody of all Joint Property, books of account, records and other documents maintained by Operator pertaining to the Contract  Area and  to Joint Operations.  Upon delivery of the above-described

 

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property and data, the former Operator shall be released and discharged from all obligations and liabilities as Operator accruing after such date.

 

ARTICLE V - OPERATING COMMITTEE

 

5.1           Establishment of Operating Committee

 

To provide for the overall supervision and direction of Joint Operations, there is established an Operating Committee composed of representatives of each Party holding a Participating Interest. Each Party shall appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee. Each Party shall as soon as possible after the date of this Agreement give notice in writing to the other Parties of the name and address of its representative and alternate representative to serve on the Operating Committee. Each Party shall have the right to change its representative and alternate at any time by giving notice to such effect to the other Parties.

 

5.2           Powers and Duties of Operating Committee

 

The Operating Committee shall have power and duty to authorize and supervise Joint Operations that are necessary or desirable to fulfill the Contract and properly explore and exploit the Contract Area in accordance with this Agreement and in a manner appropriate in the circumstances.

 

5.3           Authority to Vote

 

The representative of a Party, or in his absence his alternate representative, shall be authorized to represent and bind such Party with respect to any matter which is within the powers of the Operating Committee and is properly brought before the Operating Committee. Each such representative shall have a vote equal to the Participating Interest of the Party such person represents. Each alternate representative shall be entitled to attend all Operating Committee meetings but shall have no vote at such meetings except in the absence of the representative for whom he is the alternate. In addition to the representative and alternate representative, each Party may also bring to any Operating Committee meetings such technical and other advisors as it may deem appropriate.

 

5.4           Subcommittees

 

The Operating Committee may establish such subcommittees, including technical subcommittees, as the Operating Committee may deem appropriate. The functions of such subcommittees shall be in an advisory capacity or as otherwise determined unanimously by the Parties.

 

5.5           Notice of Meeting

 

(A)          Operator may call a meeting of the Operating Committee by giving notice to the Parties at least fifteen (15) Days in advance of such meeting.

 

(B)           Any Non-Operator may request a meeting of the Operating Committee by giving notice to all the other Parties. Upon receiving such request, Operator shall call such meeting for a date not less than fifteen (15) Days nor more than twenty (20) Days after receipt of the request.

 

(C)           The notice periods above may only be waived with the unanimous consent of all the Parties.

 

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5.6          Contents of Meeting Notice

 

(A)        Each notice of a meeting of the Operating Committee as provided by Operator shall contain:

 

(1)         The date, time and location of the meeting; and

 

(2)         An agenda of the matters and proposals to be considered and/or voted upon.

 

(B)           A Party, by nonce to the other Parties given not less than seven (7) Days prior to a meeting, may add additional matters to the agenda for a meeting.

 

(C)           On the request of a Party, and with the unanimous consent of all Parties, the Operating Committee may consider at a meeting a proposal not contained in such meeting agenda.

 

5.7            Location of Meetings

 

All meetings of the Operating Committee shall be held in Dallas, Texas, or elsewhere as may be decided by the Operator.

 

5.8          Operator’s Duties for Meetings

 

(A)          With respect to meetings of the Operating Committee and any subcommittee, Operator’s duties shall include, but not be limited to:

 

(1)         Timely preparation and distribution of the agenda;

 

(2)         Organization and conduct of the meeting; and

 

(3)         Preparation of a written record or minutes of each meeting.

 

(B)           Operator shall have the right to appoint the chairman of the Operating Committee and all subcommittees.

 

5.9            Voting Procedure

 

Except as otherwise expressly provided in this Agreement, all decisions, approvals and other actions of the Operating Committee on all proposals coming before it shall be decided by the affirmative vote of Parties which are not Affiliates then having collectively at least sixty percent (60%) of the Participating Interests.

 

5.10          Record of Votes

 

The chairman of the Operating Committee shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at each Operating Committee meeting. Each representative shall sign and be provided a copy of such record at the end of such meeting and it shall be considered the final record of the decisions of the Operating Committee.

 

5.11          Minutes

 

The secretary shall provide each Party with a copy of the minutes of the Operating Committee meeting within fifteen (15) Days after the end of the meeting. Each Party shall have fifteen (15) Days after receipt of such minutes to give notice of its objections to the minutes to the secretary. A failure to give notice specifying objection to such minutes within said fifteen (15) Day period shall be deemed to be approval of such minutes.   In any event,

 

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the votes recorded under Article 5.10 shall take precedence over the minutes described above.

 

5.12        Voting by Notice

 

(A)          In lieu of a meeting, any Party may submit any proposal to the Operating Committee for  a vote by notice. The proposing Party or Parties shall notify Operator who shall give each representative notice describing the proposal so submitted. Each Party shall communicate its vote by notice to Operator and the other Parties within one of the following appropriate time periods after receipt of Operator’s notice:

 

(1)           twenty four (24) hours in the case of operations which involve the use of a drilling rig that is standing by in the Contract Area.

 

(2)           fourteen (14) Days in the case of all other proposals.

 

(B)           Except in the case of Article 5.12(A)(1), any Non-Operator may by notice delivered to all Parties within five (5) Days of receipt of Operator’s notice request that the proposal be decided at a meeting rather than by notice. In such an event, that proposal shall be decided at a meeting duly called for that purpose.

 

(C)           Except as provided in Article X, any Party failing to communicate its vote in a timely manner shall be deemed to have voted against such proposal.

 

(D)          If a meeting is not requested, then at the expiration of the appropriate time period, Operator shall give each Party a confirmation notice stating the tabulation and results of the vote.

 

5.13        Effect of Vote

 

All  decisions  taken by the Operating Committee pursuant to this Article  V, shall  be conclusive and binding on all the Parties, except that:

 

(A)          If pursuant to this Article V, a Joint Operation, other than an operation to fulfill the Minimum Work Obligations, has been properly proposed to the Operating Committee and the Operating Committee has not approved such proposal in a timely manner, then any Party shall have the right for the appropriate period specified below to propose in accordance with Article VII, an Exclusive Operation involving operations essentially the same as those proposed for such Joint Operation.

 

(1)           For proposals involving the use of a drilling rig that is standing by in the Contract Area, such right shall be exercisable for twenty-four (24) hours after the time specified in Article 5.12(A)(1) has expired or after receipt of Operator’s notice given pursuant to Article 5.13(D), as applicable.

 

(2)           For proposals to develop a Discovery, such right shall be exercisable for ten (10) Days after the date the Operating Committee was required to consider such proposal pursuant to Article 5.6 or Article 5.12;

 

(3)           For all other proposals, such right shall be exercisable for five (5) Days after the date the Operating Committee was required to consider such proposal pursuant to Article 5.6 or Article 5.12.

 

(B)           If a Party voted against any proposal which was approved by the Operating Committee and which could be conducted as an Exclusive Operation pursuant to Article VII, other than any proposal relating to Minimum Work Obligations, then such Party shall have the right not to participate in the operation contemplated by

 

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such approval. Any such Party wishing to exercise its right of non-consent must give notice of non-consent to all other Parties within five (5) Days (or within twenty-four (24) hours if the drilling rig to be used in such operation is standing by in the Contract Area) following Operating Committee approval of such proposal. The Parties that were not entitled to give or did not give notice of non-consent shall be Consenting Parties as to the operation contemplated by the Operating Committee approval, and shall conduct such operation as an Exclusive Operation under Article VII. Any Party that gave notice of non-consent shall be a Non-Consenting Party as to such Exclusive Operation.

 

(C)           If the Consenting Parties to an Exclusive Operation under Article 5.13(A) or Article 5.13(B) concur, then the Operating Committee may, at any time, pursuant to this Article V, reconsider and approve, decide or take action on any proposal that the Operating Committee declined to approve earlier, or modify or revoke an earlier approval, decision or action.

 

(D)          Once a Joint Operation for the drilling, Deepening, Testing, Sidetracking, Plugging Back, Completing, Recomputing, Reworking or plugging of a well, has been approved and commenced, such operation shall not be discontinued without the consent of the Operating Committee; provided, however, that such operation may be discontinued, if:

 

(1)           an impenetrable substance or other condition in the hole is encountered which in the reasonable judgment of Operator causes the continuation of such operation to be impractical; or

 

(2)           other circumstances occur which in the reasonable judgment of Operator cause the continuation of such operation to be unwarranted and after notice the Operating Committee within the period required under Article 5.12(A)(1) approves discontinuing such operation.

 

On the occurrence of either of the above, Operator shall promptly notify the Parties that such operation is being discontinued pursuant to the foregoing, and any Party shall have the right to propose in accordance with Article VII an Exclusive Operation to continue such operation.

 

5.14        Management Committee Participation

 

(A)          Subject to the following provisions of this Article 5.14, each Party shall appoint one representative to serve as a member of the Joint Management Committee in accordance with Article 6.2 of the Contract.

 

(B)           In the event that there are fewer Parties to this Agreement than the number of Contractor representatives on the Joint Management Committee provided for in the Contract, the Operator shall, in addition to any representatives appointed by the Non-Operators in accordance with this Article 5.14, appoint such representatives as the Operator may in its absolute discretion select to serve on the Joint Management Committee in accordance with Article 6.2 of the Contract.

 

(C)           In the event that there are more than two (2) Parties to this Agreement:

 

(1)           the Parties with the two (2) greatest Participating Interests; or

 

(2)           if the Operator is not one of such two Parties, the Operator and the Party with the greatest Participating Interest,

 

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shall each appoint one representative to serve on the Joint Management Committee in accordance with Article 6.2 of the Contract (and this Article 5.14 shall apply mutatis mutandis in the event that the Contract provides for any number of Contractor representatives on the Joint Management Committee other than two (2)).

 

(D)          The Joint Management Committee representative appointed by the Operator shall have the sole right to exercise all voting rights of the Contractor on the Joint Management Committee under Article 6 of the Contract and shall exercise such voting rights in accordance with the prior decisions of the Operating Committee.

 

(E)           At meetings of the Joint Management Committee, the representatives of any Non-Operator shall not vote and shall not seek or request any decision of the Joint Management Committee which is contrary to any prior decision of the Operating Committee.

 

ARTICLE VI – WORK PROGRAMS AND BUDGETS

 

6.1          Exploration and Appraisal

 

(A)          Not less than sixty (60) Days prior to each date on which a Work Program and Budget is required to be submitted to the Joint Management Committee pursuant to clause 6.1 of the Contract, Operator shall deliver to the Parties a proposed Work Program and Budget detailing the Joint Operations to be performed for the relevant Calendar Year. Within thirty (30) Days of such delivery, the Operating Committee shall meet to consider and to endeavor to agree on a Work Program and Budget.

 

(B)           If a Discovery is made. Operator shall deliver any notice of Discovery required under the Contract and shall as soon as possible submit to the Parties a report containing available details concerning the Discovery and Operator’s recommendation as to whether the Discovery merits appraisal. If the Operating Committee determines that the Discovery merits appraisal, Operator within thirty (30) Days, shall deliver to the Parties a proposed Work Program and Budget for the appraisal of the Discovery. Within thirty (30) Days of such delivery, or earlier if necessary to meet any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify and then either approve or reject the appraisal Work Program and Budget. If the appraisal Work Program and Budget is approved by the Operating Committee, Operator shall take such steps as may be required under the Contract to secure approval of the appraisal Work Program and Budget by the Government. In the event the Government requires changes in the appraisal Work Program and Budget, the matter shall be resubmitted to the Operating Committee for further consideration.

 

(C)           The Work Program and Budget agreed pursuant to this Article 6.1 shall include the Minimum Work Obligations, or at least that part of such Minimum Work Obligations required to be carried out during the Calendar Year in question under the terms of the Contract. If within the time periods prescribed in this Article 6.1 the Operating Committee is unable to agree on such a Work Program and Budget, then the proposal capable of satisfying the Minimum Work Obligations for the Calendar Year in question that receives the largest Participating Interest vote (even if less than the applicable percentage under Article 5.9) shall be deemed adopted as part of the annual Work Program and Budget. If competing proposals receive equal votes, then Operator shall choose between those competing proposals. Any portion of a Work Program and Budget adopted pursuant to this Article 6.1(D) instead of Article 5.9 shall include only such operations for the Joint Account as are necessary to maintain

 

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the Contract in full force and effect, including such operations as are necessary to fulfill the Minimum Work Obligations required for the given Calendar Year.

 

(D)          Any approved Work Program and Budget may be revised by the Operating Committee from time to time. To the extent such revisions are approved by the Operating Committee, the Work Program and Budget shall be amended accordingly. The Operator shall prepare and submit a corresponding work program and budget amendment to the Government if required by the terms of the Contract.

 

(E)           Subject to Article 6.7, approval of any such Work Program and Budget, which includes:

 

(1)           an Exploration Well, whether by drilling, Deepening or Sidetracking, shall include approval for all expenditures necessary for drilling, Deepening or Sidetracking, as applicable, and Testing and Completing such Exploration Well.

 

(2)           an Appraisal Well, whether by drilling, Deepening or Sidetracking, shall include approval for all expenditures necessary for drilling. Deepening or Sidetracking, as applicable, and Testing and Completing such Appraisal Well.

 

(F)           Any Party desiring to propose a Completion attempt, or an alternative Completion attempt, must do so within the time period provided in Article 5.12(A)(1) by notifying all other Parties. Any such proposal shall include an AFE for such Completion costs.

 

6.2           Development

 

(A)          If the Operating Committee determines that a Discovery may be commercial, the  Operator shall, as soon as practicable, deliver to the Parties a Development Plan together with the first annual Work Program and Budget and provisional Work Programs and Budgets for the remainder of the development of the Discovery, which shall contain, inter alia:

 

(1)           Details of the proposed work to be undertaken, personnel required and expenditures to be incurred, including the timing of same, on a Calendar Year basis;

 

(2)           An estimated date for the commencement of production;

 

(3)           A delineation of the proposed Exploitation Area; and

 

(4)           Any other information requested by the Operating Committee.

 

(B)           After receipt of the Development Plan and prior to any applicable deadline under the Contract, the Operating Committee shall meet to consider, modify and then either approve or reject the Development Plan and the first annual Work Program and Budget for the development submitted by Operator. If the Development Plan is approved by the Operating Committee, Operator shall, as soon as possible, deliver any notice of Commercial Discovery required under the Contract and take such other steps as may be required under the Contract to secure approval of the Development Plan by the Government. In the event the Government requires changes in the Development Plan, the matter shall be resubmitted to the Operating Committee for further consideration.

 

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(C)           If the Development Plan is approved, such work shall be incorporated into and form part of annual Work Programs and Budgets, and the Operating Committee shall endeavor to agree to such Work Program and Budgets, including any necessary or appropriate revisions to the Work Program and Budget for the approved Development Plan.

 

6.3           Production

 

On or before the 1st Day of April of each Calendar Year, Operator shall deliver to the Parties a proposed production Work Program and Budget detailing the Joint Operations to be performed in the Exploitation Area and the projected production schedule for the following Calendar Year. Within thirty (30) Days of such delivery, the Operating Committee shall agree upon a production Work Program and Budget.

 

6.3          Itemization of Expenditures

 

(A)          During the preparation of the proposed Work Programs and Budgets and Development Plans contemplated in this Article VI, Operator shall consult with the Operating Committee or the appropriate subcommittees regarding the contents of such Work Programs and Budgets and Development Plans.

 

(B)           Each Work Program and Budget and Development Plan submitted by Operator shall contain an itemized estimate of the costs of Joint Operations and all other expenditures to be made for the Joint Account during the Calendar Year in question and shall, inter alia:

 

(1)           identify each work category in sufficient detail to afford the ready identification of the nature, scope and duration of the activity in question;

 

(2)           include such reasonable information regarding Operator’s allocation procedures and estimated manpower costs as the Operating Committee may determine;

 

(3)           comply with the requirements of the Contract; and

 

(4)           contain an estimate of funds to be expended by Calendar Quarter.

 

(C)           The Work Program and Budget shall designate the portion or portions of the Contract Area in which Joint Operations itemized in such Work Program and Budget are to be conducted and shall specify the kind and extent of such operations in such detail as the Operating Committee may deem suitable.

 

6.4          Contract Awards

 

Operator shall award each contract for Joint Operations under any approved Work Program and Budget on the following basis (the amounts stated are in thousands of U.S. dollars):

 

	
 
    	
 
    	
Procedure A
    	
 
    	
Procedure B
    	
 
    	
Procedure C
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Exploration and Appraisal Operations
    	
 
    	
$0   to $250,000
    	
 
    	
$250,001   to $2,499,999
    	
 
    	
$2,500,000+
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Development Operations
    	
 
    	
$0   to $250,000
    	
 
    	
$250,001   to $2,499,999
    	
 
    	
$2,500,000+
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Production Operations
    	
 
    	
$0   to $250,000
    	
 
    	
$250,001   to $2,499,999
    	
 
    	
$2,500,000+
    	
 
    

 

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Procedure

 

(A)          Operator shall award the contract to the best qualified contractor as determined by cost and ability to perform the contract without the obligation to tender and without informing or seeking the approval of the Operating Committee, except that before entering into contracts with Affiliates of the Operator exceeding U.S. dollars one hundred thousand (U.S.$100,000). Operator shall obtain the approval of the Operating Committee.

 

Procedure

 

(B)           Operator shall:

 

(1)           Provide the Parties with a list of the entities whom Operator proposes to invite to tender for the said contract;

 

(2)           Add to such list any entity whom a Party requests to be added within fourteen (14) Days of receipt of such list;

 

(3)           Complete the tendering process within a reasonable period of time;

 

(4)           Inform the Parties of the entities to whom the contract has been awarded, provided that before awarding contracts to Affiliates of the Operator which exceed U.S. dollars one hundred thousand (U.S.$100,000), Operator shall obtain the approval of the Operating Committee;

 

(5)           Circulate to the Parties a competitive bid analysis stating the reasons for the choice made; and

 

(6)           Upon the request of a Party, provide such Party with a copy of the final version of the contract awarded.

 

Procedure

 

(C)           Operator shall:

 

(1)           Provide the Parties with a list of the entities whom Operator proposes to invite to tender for the said contract;

 

(2)           Add to such list any entity whom a Party requests to be added within fourteen (14) Days of receipt of such list;

 

(3)           Prepare and dispatch the tender documents to the entities on the list as aforesaid and to Non-Operators;

 

(4)           After the expiration of the period allowed for tendering, consider and analyze the details of all bids received;

 

(5)           Prepare and circulate to the Parties a competitive bid analysis, stating Operator’s recommendation as to the entity to whom the contract should be awarded, the reasons therefor, and the technical, commercial and contractual terms to be agreed upon;

 

(6)           Obtain the approval of the Operating Committee to the recommended bid; and

 

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(7)           Upon the request of a Party, provide such Party with a copy of the final version of the contract.

 

6.5           Authorization for Expenditure (“AFE”) Procedure

 

(A)          Prior to incurring any commitment or expenditure for the Joint Account, which is estimated to be:

 

(1)           In excess of U.S. dollars fifty thousand (U.S.$50,000) in an exploration or appraisal Work Program and Budget;

 

(2)           In excess of U.S. dollars fifty thousand (U.S.$50,000) in a development Work Program and Budget; and

 

(3)           In excess of U.S. dollars fifty thousand (U.S.$50,000) in a production Work Program and Budget, Operator shall send to each Non-Operator an AFE as described in Article 6.6(C). Notwithstanding the above, Operator shall not be obliged to furnish an AFE to the Parties with respect to any Minimum Work Obligations, workovers of wells and general and administrative costs that are listed as separate line items in an approved Work Program and Budget.

 

(B)           All AFEs shall be for informational purposes only. Approval of an operation in the current Work Program and Budget shall authorize Operator to conduct the operation (subject to Article 6.7) without further authorization from the Operating Committee.

 

6.6           Overexpenditures of Work Programs and Budgets

 

(A)          For expenditures on any line item of an approved Work Program and Budget, Operator shall be entitled to incur without further approval of the Operating Committee an overexpenditure for such line item up to ten percent (10%) of the authorized amount for such line item; provided that the cumulative total of all overexpenditures for a Calendar Year shall not exceed five percent (5%) of the total Work Program and Budget in question.

 

(B)           At such time that Operator is certain that the limits of Article 6.7(A) will be exceeded, Operator shall furnish a supplemental AFE for the estimated overexpenditures to the Operating Committee for its approval and shall provide the Parties with full details of such overexpenditures. Operator shall promptly give notice of the amounts of overexpenditures when actually incurred.

 

(C)           The restrictions contained in this Article VI shall be without prejudice to Operator’s rights to make expenditures as set out in Article 4.2(B)(11) and Article 13.5.

 

ARTICLE VII - OPERATIONS BY LESS THAN ALL PARTIES

 

7.1           Limitation on Applicability

 

(A)          No operations may be conducted in furtherance of the Contract except as Joint Operations under Article V or as Exclusive Operations under this Article VII. No Exclusive Operation shall be conducted which conflicts with a Joint Operation.

 

(B)           Operations which are required to fulfill the Minimum Work Obligations must be proposed and conducted as Joint Operations under Article V, and may not be proposed or conducted as Exclusive Operations under this Article VII.

 

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(C)           Except for Exclusive Operations relating to Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompletions or Reworking of a well originally drilled to fulfill the Minimum Work Obligations, no Exclusive Operations may be proposed or conducted during any period, subperiod or extension period of the Exploration Period until the Minimum Work Obligations under the Contract are fulfilled in relation to such period, subperiod or extension period.

 

(D)          No Party may propose or conduct an Exclusive Operation under this Article VII, unless and until such Party has properly exercised its right to propose an Exclusive Operation pursuant to Article 5.13, or is entitled to conduct an Exclusive Operation pursuant to Article X.

 

(E)           Any operation that may be proposed and conducted as a Joint Operation, other than operations pursuant to an approved Development Plan, may be proposed and conducted as an Exclusive Operation, subject to the terms of this Article VII.

 

7.2           Procedure to Propose Exclusive Operations

 

(A)          Subject to Article 7.1, if any Party proposes to conduct an Exclusive Operation, such Party shall give notice of the proposed operation to all Parties, other than Non-Consenting Parties who have relinquished their rights to participate in such operation pursuant to Article 7.4(B) or Article 7.4(F) and have no option to reinstate such rights under Article 7.4(C). Such notice shall specify that such operation is proposed as an Exclusive Operation, the work to be performed, the location, the objectives, and estimated cost of such operation.

 

(B)           Any Party entitled to receive such notice shall have the right to participate in the proposed operation.

 

(1)           For proposals to Deepen, Test, Complete, Sidetrack, Plug Back, Recomplete or Rework involving the use of a drilling rig that is standing by in the Contract Area, any such Party wishing to exercise such right must so notify Operator within twenty-four (24) hours after receipt of the notice proposing the Exclusive Operation.

 

(2)           For proposals to develop a Discovery, any Party wishing to exercise such right must so notify the Party proposing to develop within twenty (20) Days after receipt of the notice proposing the Exclusive Operation.

 

(3)           For all other proposals, any such Party wishing to exercise such right must so notify Operator within ten (10) Days after receipt of the notice proposing the Exclusive Operation;

 

(C)           Failure of a Party to whom a proposal notice is delivered to properly reply within the period specified above shall constitute an election by that Party not to participate in the proposed operation.

 

(D)          If all Parties properly exercise their rights to participate, then the proposed operation shall be conducted as a Joint Operation. The Operator shall commence such Joint Operation as promptly as practicable and conduct it with due diligence.

 

(E)           If less than all Parties entitled to receive such proposal notice properly exercise their rights to participate, then:

 

(1)           The Party proposing the Exclusive Operation, together with any other Consenting Parties, shall have the right exercisable for the applicable notice

 

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period set out in Article 7.2(B), to instruct Operator (subject to Article 7.10(G)) to conduct the Exclusive Operation.

 

(2)           If the Exclusive Operation is conducted, the Consenting Parties shall bear the sole liability and expense of such Exclusive Operation, with each Consenting Party bearing a fraction of such liability and expense, the numerator of which is such Consenting Party’s Participating Interest as stated in Article 3.2(A) and the denominator of which is the aggregate of the Participating Interests of the Consenting Parties as stated in Article 3.2(A), or as the Consenting Parties may otherwise agree.

 

(3)           If such Exclusive Operation has not been commenced within ninety (90) Days (excluding any extension specifically agreed by all Parties or allowed by the force majeure provisions of Article XVI) after the date of the instruction given to Operator under Article 7.2(E)(1), the right to conduct such Exclusive Operation shall terminate. If any Party still desires to conduct such Exclusive Operation, notice proposing such operation must be resubmitted to the Parties in accordance with Article V, as if no proposal to conduct an Exclusive Operation had been previously made.

 

7.3           Responsibility for Exclusive Operations

 

(A)          The Consenting Parties shall bear in accordance with the Participating Interests agreed under Article 7.2(E) the entire cost and liability of conducting an Exclusive Operation and shall indemnify the Non-Consenting Parties from any and all costs and liabilities incurred incident to such Exclusive Operation (including but not limited to all costs, expenses or liabilities for environmental, consequential, punitive or any other similar indirect damages or losses arising from business interruption, reservoir or formation damage, inability to produce petroleum, loss of profits, pollution control and environmental amelioration or rehabilitation) and shall keep the Contract Area free and clear of all liens and encumbrances of every kind created by or arising from such Exclusive Operation.

 

(B)           Notwithstanding Article 7.3(A), each Party shall continue to bear its Participating Interest share of the cost and liability incident to the operations in which it participated, including but not limited to plugging and abandoning and restoring the surface location, but only to the extent those costs were not increased by the Exclusive Operation.

 

7.4           Consequences of Exclusive Operations

 

(A)          With regard to any Exclusive Operation, for so long as a Non-Consenting Party has the option under Article 7.4(C) to reinstate the rights it relinquished under Article 7.4(B), such Non-Consenting Party shall be entitled to have access concurrently with the Consenting Parties to all data and other information relating to such Exclusive Operation, other than G & G Data obtained in an Exclusive Operation. If a Non-Consenting Party desires to receive and acquire the right to use such G & G Data, then such Non-Consenting Party shall have the right to do so by paying to the Consenting Parties its Participating Interest share as set out in Article 3.2(A) of the cost incurred in obtaining such G & G Data.

 

(B)           Subject to Article 7.4(C) (and Articles 7.6(E) and 7.8, if selected), each Non-Consenting Party shall be deemed to have relinquished to the Consenting Parties, and the Consenting Parties shall be deemed to own, in proportion to their respective Participating Interests in any Exclusive Operation:

 

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(1)           All of each such Non-Consenting Party’s right to participate in further operations in the well or Deepened or Sidetracked portion of a well in which the Exclusive Operation was conducted and on any Discovery made or appraised in the course of such Exclusive Operation; and

 

(2)           All of each such Non-Consenting Party’s right pursuant to the Contract to take and dispose of Hydrocarbons produced and saved:

 

(a)           From the well or Deepened or Sidetracked portion of a well in which such Exclusive Operation was conducted, and

 

(b)           From any wells drilled to appraise or develop a Discovery made or appraised in the course of such Exclusive Operation.

 

(C)          A Non-Consenting Party shall have only the following options to reinstate the rights it relinquished pursuant to Article 7.4(B):

 

(1)           If the Consenting Parties decide to appraise a Discovery made in the course of an Exclusive Operation, the Consenting Parties shall submit to each Non-Consenting Party the approved appraisal program. For thirty (30) Days (or forty-eight (48) hours if the drilling rig which is to be used in such appraisal program is standing by in the Contract Area) from receipt of such appraisal program, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such appraisal program. The Non-Consenting Party may exercise such option by notifying Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the expense and liability of such appraisal program, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B);

 

(2)           If the Consenting Parties decide to develop a Discovery made or appraised in the course of an Exclusive Operation, the Consenting Parties shall submit to the Non-Consenting Parties a Development Plan substantially in the form intended to be submitted to the Government under the Contract. For sixty (60) Days from receipt of such Development Plan or such lesser period of time prescribed by the Contract, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such Development Plan. The Non-Consenting Party may exercise such option by notifying the Party proposing to act as Operator for such Development Plan within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the liability and expense of such Development Plan and such future operating and producing costs, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B);

 

(3)           If the Consenting Parties decide to Deepen, Complete, Sidetrack, Plug Back or Recomplete an Exclusive Well and such further operation was not included in the original proposal for such Exclusive Well, the Consenting Parties shall submit to the Non-Consenting Parties the approved AFE for such further operation. For thirty (30) Days (or forty-eight (48) hours if the drilling rig which is to be used in such operation is standing by in the Contract Area) from receipt of such AFE, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such operation. The Non-Consenting Party may exercise such option by notifying the Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest

 

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share of the liability and expense of such further operation, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B);

 

A Non-Consenting Party shall not be entitled to reinstate its rights in any other type of operation.

 

(D)          If a Non-Consenting Party does not properly and in a timely manner exercise such option, including paying in a timely manner in accordance with Article 7.5 all lump sum amounts and Cash Premiums, if any. due to the Consenting Parties, such Non-Consenting Party shall have forfeited the options as set out in Article 7.4(C) and the right to participate in the proposed program, unless such program, plan or operation is materially modified or expanded (in which case a new notice and option shall be given to such Non-Consenting Party under Article 7.4(C)).

 

(E)           A Non-Consenting Party shall become a Consenting Party with regard to an Exclusive Operation at such time as the Non-Consenting Party gives notice pursuant to Article 7.4(C); provided that such Non-Consenting Party shall in no way be deemed to be entitled to any lump sum amount Cash Premium paid incident to such Exclusive Operation. Such Non-Consenting Party shall be entitled to recover its Participating Interest share of expenses paid pursuant to Article 7.5(A) (but not the amount of any associated Cash Premium) from Cost Oil in accordance with Article XIX. The Participating Interest of such Non-Consenting Party in such Exclusive Operation shall be its Participating Interest set out in Article 3.2(A). The Consenting Parties shall contribute to the Participating Interest of the Non-Consenting Party in proportion to the excess Participating Interest that each received under Article 7.2(E). If all Parties participate in the proposed operation, then such operation shall be conducted as a Joint Operation pursuant to Article V.

 

(F)           If after the expiry of the period in which a Non-Consenting Party may exercise its option to participate in a Development Plan the Consenting Parties desire to proceed, the Party chosen by the Consenting Parties proposing to act as Operator for such development, shall give notice to the Government under the appropriate provision of the Contract requesting a meeting to advise the Government that the Consenting Parties consider the Discovery to be a Commercial Discovery. Following such meeting such Operator for such development shall apply for an Exploitation Area (if applicable in the Contract). Unless the Development Plan is materially modified or expanded prior to the commencement of operations under such plan (in which case a new notice and option shall be given to the Non-Consenting Parties under Article 7.4(C)), each Non-Consenting Party to such Development Plan shall:

 

(1)           If the Contract so allows, elect not to apply for an Exploitation Area covering such development and forfeit all interest in such Exploitation Area, or

 

(2)           If the Contract does not so allow, be deemed to have:

 

(a)           Elected not to apply for an Exploitation Area covering such development;

 

(b)           Forfeited all economic interest in such Exploitation Area;

 

(c)           Assumed a fiduciary duty to exercise its legal interest in such Exploitation Area for the benefit of the Consenting Parties.

 

In either case such Non-Consenting Party shall be deemed to have withdrawn from this Agreement to the extent it relates to such Exploitation Area, even if the Development Plan is modified or expanded subsequent to the

 

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commencement of operations under such Development Plan and shall be further deemed to have forfeited any right to participate in the construction and ownership of facilities outside such Exploitation Area designed solely for the use of such Exploitation Area.

 

7.5          Premium to Participate in Exclusive Operations

 

(A)          Within thirty (30) Days of the exercise of its option under Article 7.4(C), each such Non-Consenting Party shall pay in immediately available funds to the Consenting Parties in proportion lo their respective Participating Interests in such Exclusive Operations a lump sum amount payable in the currency designated by such Consenting Parties. Such lump sum amount shall be equal to such Non-Consenting Party’s Participating Interest share of all liabilities and expenses, including overhead, that were incurred in every Exclusive Operations relating to the Discovery, or well, as the case may be, in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party.

 

(B)          In addition to Article 7.5(A), if a Cash Premium is due, then within thirty (30) Days of the exercise of its option under Article 7.4(C) each such Non-Consenting Party shall pay in immediately available funds, in the currency designated by the Consenting Parties who took the risk of such Exclusive Operations, to such Consenting Parties in proportion to their respective Participating Interests a Cash Premium equal to the total of:

 

(1)           five hundred percent (500%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the obtaining of the portion of the G & G Data which pertains to the Discovery, and that were not previously paid by such Non-Consenting Party; plus

 

(2)           five hundred percent (500%) of such Non-Consenting Party’s Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Exploration Well which made the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party; plus

 

(3)           five hundred percent (500%) of the Non-Consenting Party’s Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the drilling. Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Appraisal Well(s) which delineated the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party.

 

7.6          Order of Preference of Operations

 

(A)          Except as otherwise specifically provided in this Agreement, if any Party desires to propose the conduct of an operation that will conflict with an existing proposal for an Exclusive Operation, such Party shall have the right exercisable for five (5) Days, or twenty-four (24) hours if the drilling rig to be used is standing by in the Contract Area, from receipt of the proposal for the Exclusive Operation, to deliver to all Parties entitled to participate in the proposed operation such Party’s alternative

 

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proposal. Such alternative proposal shall contain the information required under Article 7.2(A).

 

(B)          Each Party receiving such proposals shall elect by delivery of notice to Operator within the appropriate response period set out in Article 7.2(B) to participate in one of the competing proposals. Any Party not notifying Operator within the response period shall be deemed to have voted against the proposal.

 

(C)          The proposal receiving the largest aggregate Participating Interest vote shall have priority over all other competing proposals. In the case of a tie vote, the Operator shall choose among the proposals receiving the largest aggregate Participating Interest vote. Operator shall deliver notice of such result to all Parties entitled to participate in the operation within five (5) Days of the end of the response period, or twenty-four (24) hours if the drilling rig to be used is standing by in the Contract Area.

 

(D)          Each Party shall then have two (2) Days (or twenty-four (24) hours if the drilling rig to be used is standing by in the Contract Area) from receipt of such notice to elect by delivery of notice to Operator whether such Party will participate in such Exclusive Operation, or will relinquish its interest pursuant to Article 7.4(B). Failure by a Party to deliver such notice within such period shall be deemed an election not to participate in the prevailing proposal.

 

7.7          Stand-By Costs

 

(A)          When an operation has been performed, all tests have been conducted and the results of such tests furnished to the Parties, stand by costs incurred pending response to any Party’s notice proposing an Exclusive Operation for Deepening, Testing, Sidetracking, Completing, Plugging Back, Recompleting, Reworking or other further operation in such well (including the period required under Article 7.6 to resolve competing proposals) shall be charged and borne as part of the operation just completed. Stand by costs incurred subsequent to all Parties responding, or expiration of the response time permitted, whichever first occurs, shall be charged to and borne by the Parties proposing the Exclusive Operation in proportion to their Participating Interests, regardless of whether such Exclusive Operation is actually conducted.

 

(B)          If a further operation is proposed while the drilling rig to be utilized is on location, any Party may request and receive up to five (5) additional Days after expiration of the applicable response period specified in Article 7.2(B) within which to respond by notifying Operator that such Party agrees to bear all stand by costs and other costs incurred during such extended response period. Operator may require such Party to pay the estimated stand by time in advance as a condition to extending the response period. If more than one Party requests such additional time to respond to the notice, stand by costs shall be allocated between such Parties on a Day-to-Day basis in proportion to their Participating Interests.

 

7.8          Use of Property

 

The Parties participating in any Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting or Reworking of any well drilled under this Agreement shall be permitted to use, free of cost, all casing, tubing and other equipment in the well that is not needed for operations by the owners of the wellbore, but the ownership of all such equipment shall remain unchanged. On abandonment of a well in which operations with differing participation have been conducted, the Parties abandoning the well shall account for all equipment in the well to the Parties owning such equipment by tendering to them their

 

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respective Participating Interest shares of the value of such equipment less the cost of salvage.

 

7.9          Production Bonuses

 

Production Bonuses (if any) shall be charged to the Joint Account if there is no Hydrocarbon production from an Exclusive Operation at the time they are incurred. If there is Hydrocarbon production from one or more Exclusive Operations, then any Production Bonus which becomes payable under the Contract shall be borne by each Exploitation Area in the proportion that its cumulative production of Hydrocarbons bears to the total cumulative production of Hydrocarbons from the Contract Area. The Parties in an Exploitation Area shall bear any Production Bonus allocated to that Exploitation Area in accordance with their Participating Interests in that Exploitation Area as of the date on which liability for the production bonus was incurred. Only types and grades of Hydrocarbons used for the determination of any Production Bonus under the Contract shall be utilized in the calculations in this Article 7.9.

 

7.10        Miscellaneous

 

(A)          Each Exclusive Operation shall be carried out by the Consenting Parties acting as the Operating Committee, subject to the provisions of this Agreement applied mutatis mutandis to such Exclusive Operation and subject to the terms and conditions of the Contract.

 

(B)          The computation of liabilities and expenses incurred in Exclusive Operations, including the liabilities and expenses of Operator for conducting such operations, shall be made in accordance with the principles set out in the Accounting Procedure.

 

(C)          Operator shall maintain separate books, financial records and accounts for Exclusive Operations which shall be subject to the same rights of audit and examination as the Joint Account and related records, all as provided in the Accounting Procedure. Said rights of audit and examination shall extend to each of the Consenting Parties and each of the Non-Consenting Parties so long as the latter are, or may be, entitled to elect to participate in such operations.

 

(D)          Operator, if it is conducting an Exclusive Operation for the Consenting Parties, regardless of whether it is participating in that Exclusive Operation, shall be entitled to request cash advances and shall not be required to use its own funds to pay any cost and expense and shall not be obliged to commence or continue Exclusive Operations until cash advances requested have been made, and the Accounting Procedure shall apply to Operator in respect of any Exclusive Operations conducted by it.

 

(E)           Should the submission of a Development Plan be approved in accordance with Article 5.9, or should any Party propose a development in accordance with Article VII, with either proposal not calling for the conduct of additional appraisal drilling, and should any Party wish to drill an additional Appraisal Well prior to development, then the Party proposing the Appraisal Well as an Exclusive Operation shall be entitled to proceed first, but without the right (subject to the following sentence) to future reimbursement pursuant to Article 7.5. If such an Appraisal Well is produced, the Consenting Party or Parties shall own and have the right to take in kind and separately dispose of all of the Non-Consenting Parties’ Entitlement from such Appraisal Well until the value thereof, determined in accordance with Article 7.5(F), equals one hundred percent (100%) of such Non-Consenting Parties’ Participating Interest shares of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the Appraisal Well. If, as the result of drilling such Appraisal Well as an Exclusive Operation, the Party proposing

 

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to apply for an Exploitation Area decides to not develop the reservoir, then each Non-Consenting Party who voted in favor of such Development Plan prior to the drilling of such Appraisal Well shall pay to the Consenting Party the amount such Non-Consenting Party would have paid had such Appraisal Well been drilled as a Joint Operation.

 

(F)           The value of Hydrocarbons received by a Consenting Party for the purposes of Article 7.10(E) shall be the weighted average price per Barrel (f.o.b. the point of delivery of the Cost Oil and Profit Oil to the Consenting Parties) which such Consenting Party receives from the sale of such Hydrocarbons to non-affiliated purchasers in arms length transactions. For sales to Affiliates, the price so used shall be the price at which Hydrocarbons of similar grade, gravity and quality (adjusted for differentials in accordance with regularly established practice) were sold generally on world markets during the particular period of sale, in free and fair arms-length transactions, with due adjustments being made for differing geographical locations. Notwithstanding the fact that royalty or any other payment obligation to the Government is based on an “official” or “Government” stated price, the price used for calculation of the value of Hydrocarbons for the purposes of Article 7.10(E) shall be the price determined in accordance with this Article 7.10(F).

 

(G)          If the Operator is a Non-Consenting Party to an Exclusive Operation to develop a Discovery, then subject to obtaining any necessary Government approvals the Operator may resign, but in any event shall resign on the request of the Consenting Parties, as Operator for the Exploitation Area for such Discovery and the Consenting Parties shall select a Party to serve as Operator.

 

ARTICLE VIII - DEFAULT

 

8.1          Default and Notice

 

Any Party that fails to pay when due its Participating Interest share of Joint Account expenses, including cash advances and interest, shall be in default under this Agreement (a “Defaulting Party”). Operator, or any non-defaulting Party in the case Operator is the Defaulting Party, shall promptly give notice of such default to the Defaulting Party and each of the non-defaulting Parties (the “Default Notice”). The amount not paid by the Defaulting Party shall bear interest from the date due until paid in full at the Agreed Interest Rate.

 

8.2          Operating Committee Meetings and Data

 

Beginning five (5) Business Days from the date of the Default Notice, and thereafter while the Defaulting Party remains in default, the Defaulting Party shall not be entitled to attend Operating Committee or subcommittee meetings or to vote on any matter coming before the Operating Committee or any subcommittee until all of its defaults have been remedied (including payment of accrued interest). Unless agreed otherwise by the non-defaulting Parties, the voting interest of each non-defaulting Party during this period shall be its percentage of the total Participating Interests of the non-defaulting Parties. Any matters requiring a unanimous vote of the Parties shall not require the vote of the Defaulting Party. In addition, beginning five (5) Business Days from the date of the Default Notice, and thereafter while the Defaulting Party remains in default, the Defaulting Party shall not have access to any data or information relating to Joint Operations. During this period, the non-defaulting Parties shall be entitled to trade data without such Defaulting Party’s consent, and the Defaulting Party shall have no right to any data received in such a trade unless and until its default is remedied in full. The Defaulting Party shall be deemed to have elected not to participate in any Joint Operations or Exclusive Operations that are voted upon at least five (5) Business Days after the date of the Default Notice but before all of its defaults have been

 

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remedied to the extent such an election would be permitted by Article 5.13(B) of this Agreement. The Defaulting Party shall be deemed to have approved, and shall join with the non-defaulting Parties in taking, any other actions voted on during that period.

 

8.3         Allocation of Defaulted Accounts

 

(A)          The Party providing the Default Notice pursuant to Article 8.1 shall include in the Default Notice to each non-defaulting Party a statement of the sum of money that the non-defaulting Party is to pay as its portion (such portion being in the ratio that each non-defaulting Party’s Participating Interest bears to the Participating Interests of all non-defaulting Parties) of the amount in default (excluding interest), subject to the terms of this Article 8.3. If the Defaulting Party remedies its default in full within five (5) Business Days from the date of the Default Notice, the notifying Party shall promptly notify each non-defaulting Party by telephone and facsimile, and the non-defaulting Parties shall be relieved of their obligation to pay a share of the amounts in default. Otherwise, each non-defaulting Party shall pay Operator, within five (5) Business Days after receipt of the Default Notice, its share of the amount which the Defaulting Party failed to pay. If any non-defaulting Party fails to pay its share of the amount in default as aforesaid, such Party shall thereupon be a Defaulting Party subject to the provisions of this Article VIII. The non-defaulting Parties which pay the amount owed by any Defaulting Party shall be entitled to receive their respective shares of the principal and interest payable by such Defaulting Party pursuant to this Article VIII.

 

(B)          If Operator is a Defaulting Party, then all payments otherwise payable to Operator for Joint Account costs pursuant to this Agreement shall be made to the notifying Party instead until the default is cured or a successor Operator appointed. The notifying Party shall maintain such funds in a segregated account separate from its own funds and shall apply such funds to third party claims due and payable from the Joint Account of which it has notice, to the extent Operator would be authorized to make such payments under the terms of this Agreement. The notifying Party shall be entitled to bill or cash call the other Parties in accordance with the Accounting Procedure for proper third party charges that become due and payable during such period to the extent sufficient funds are not available. When Operator has cured its default or a successor Operator is appointed, the notifying Party shall turn over all remaining funds in the account to Operator and shall provide Operator and the other Parties with a detailed accounting of the funds received and expended during this period. The notifying Party shall not be liable for damages, losses, costs, expenses or liabilities arising as a result of its actions under this Article 8.3(B) except to the extent Operator would be liable under Article 4.6.

 

8.4         Remedies

 

(A)          During the continuance of a default, the Defaulting Party shall not have a right to its Entitlement, which shall vest in and be the property of the non-defaulting Parties. Operator (or the notifying Party if Operator is a Defaulting Party) shall be authorized to sell such Entitlement in an arm’s-length sale on terms that are commercially reasonable under the circumstances and, after deducting all costs, charges and expenses incurred in connection with such sale, pay the net proceeds to the non-defaulting Parties in proportion to the amounts they are owed by the Defaulting Party hereunder (and apply such net proceeds toward the establishment of a reserve fund under Article 8.4(C), if applicable) until all such amounts are recovered and such reserve fund is established. Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the non-defaulting Parties. When making sales under this Article 8.4(A), the non-defaulting Parties shall have no obligation to share any existing market or obtain a price equal to the price at which their own production is sold.

 

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(B)          If Operator disposes of any Joint Property or any other credit or adjustment is made to the Joint Account while a Party is in default, Operator (or the notifying Party if Operator is a Defaulting Party) shall be entitled to apply the Defaulting Party’s Participating Interest share of the proceeds of such disposal, credit or adjustment against all amounts owing by the Defaulting Party to the non-defaulting Parties hereunder (and toward the establishment of a reserve fund under Article 8.4(C), if applicable). Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the non-defaulting Parties.

 

(C)          The non-defaulting Parties shall be entitled to apply proceeds received under Articles 8.4(A) and 8.4(B) toward the creation of a reserve fund in an amount equal to the Defaulting Party’s Participating Interest share of (i) the estimated cost to abandon any wells and other property in which the Defaulting Party participated, (ii) the estimated cost of severance benefits for local employees upon cessation of operations and (iii) any other identifiable costs that the non-defaulting Parties anticipate will be incurred in connection with the cessation of operations.

 

(D)          If a Defaulting Party fails to remedy its default by the sixtieth (60th) Day following the date of the Default Notice, then, without prejudice to any other rights available to the non-defaulting Parties to recover amounts owing to them under this Agreement, each non-defaulting Party shall have the option, exercisable at anytime thereafter until the Defaulting Party has completely cured its defaults, to require that the Defaulting Party completely withdraw from this Agreement and the Contract. Such option shall be exercised by notice to the Defaulting Party and each non-defaulting Party. If such option is exercised, the Defaulting Party shall be deemed to have transferred, pursuant to Article 13.6, effective on the date of the non-defaulting Party’s notice, all of its right, title and beneficial interest in and under this Agreement and the Contract to the non-defaulting Parties. The Defaulting Party shall, without delay following any request from the non-defaulting Parties, do any and all acts required to be done by applicable law or regulation in order to render such transfer legally valid, including, without limitation, obtaining all governmental consents and approvals, and shall execute any and all documents and take such other actions as may be necessary in order to effect a prompt and valid transfer of the interests described above. The Defaulting Party shall be obligated to promptly remove any liens and encumbrances which may exist on such transferred interests. For purposes of this Article 8.4(D), each Party constitutes and appoints each other Party its true and lawful attorney to execute such instruments and make such filings and applications as may be necessary to make such transfer legally effective and to obtain any necessary consents of the Government. Actions under this power of attorney may be taken by any Party individually without the joinder of the others. This power of attorney is irrevocable for the term of this Agreement and is coupled with an interest. If requested, each Party shall execute a form prescribed by the Operating Committee setting forth this power of attorney in more detail. In the event all Government approvals are not timely obtained, the Defaulting Party shall hold its Participating Interest in trust for the non-defaulting Parties who are entitled to receive the Defaulting Party’s Participating Interest. Notwithstanding the terms of Article XIII, in the absence of an agreement among the non-defaulting Parties to the contrary, any transfer to the non-defaulting Parties following a withdrawal pursuant to this Article 8.4(D) shall be in proportion to the Participating Interests of the non-defaulting Parties. The acceptance by a non-defaulting Party of any portion of a Defaulting Party’s Participating Interest shall not limit any rights or remedies that the non-defaulting Party has to recover all amounts (including interest) owing under this Agreement by the Defaulting Party.

 

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(E)           The non-defaulting Parties shall be entitled to recover from the Defaulting Party all reasonable attorneys’ fees and all other reasonable costs sustained in the collection of amounts owing by the Defaulting Party.

 

(F)           The rights and remedies granted to the non-defaulting Parties in this Agreement shall be cumulative, not exclusive, and shall be in addition to any other rights and remedies that may be available to the non-defaulting Parties, whether at law, in equity or otherwise. Each right and remedy available to the non-defaulting Parties may be exercised from time to time and so often and in such order as may be considered expedient by the non-defaulting Parties in their sole discretion.

 

8.5         Survival

 

The obligations of the Defaulting Party and the rights of the non-defaulting Parties shall survive the surrender of the Contract, abandonment of Joint Operations and termination of this Agreement.

 

8.6         No Right of Set Off

 

Each Party acknowledges and accepts that a fundamental principle of this Agreement is that each Party pays its Participating Interest share of all amounts due under this Agreement as and when required. Accordingly, any Party which becomes a Defaulting Party undertakes that, in respect of either any exercise by the non-defaulting Parties of any rights under or the application of any of the provisions of this Article VIII, such Party hereby waives any right to raise by way of set off or invoke as a defense, whether in law or equity, any failure by any other Party to pay amounts due and owing under this Agreement or any alleged claim that such Party may have against Operator or any Non-Operator, whether such claim arises under this Agreement or otherwise. Each Party further agrees that the nature and the amount of the remedies granted to the non-defaulting Parties hereunder are reasonable and appropriate in the circumstances.

 

ARTICLE IX – DISPOSITION OF PRODUCTION

 

9.1         Right and Obligation to Take in Kind

 

Except as otherwise provided in this Article IX or in Article VIII, each Party shall have the right and obligation to own, take in kind and separately dispose of the share of total production available to it from any Exploitation Area pursuant to the Contract and this Agreement in such quantities and in accordance with such procedures as may be set forth in the offtake agreement referred to in Article 9.2 or in the special arrangements for natural gas referred to in Article 9.3. If GNPC is party to the offtake agreement, then the Parties shall endeavor to obtain its agreement to the principles set forth in this Article IX.

 

9.2         Offtake Agreement for Crude Oil

 

If crude oil is to be produced from an Exploitation Area, the Parties shall in good faith, and not less than three (3) months prior to first delivery of crude oil, negotiate and conclude the terms of an agreement to cover the offtake of crude oil produced under the Contract. GNPC may, if necessary and practicable, also be party to the offtake agreement. This offtake agreement shall, to the extent consistent with the Contract, make provision for:

 

(A)         The delivery point, at which title and risk of loss of Participating Interest shares of crude oil shall pass to the Parties interested (or as the Parties may otherwise agree);

 

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(B)         Operator’s regular periodic advice to the Parties of estimates of total available production for succeeding periods, quantities of each grade of crude oil and each Party’s share for as far ahead as is necessary for Operator and the Parties to plan offtake arrangements. Such advice shall also cover for each grade of crude oil total available production and deliveries for the preceding period, inventory and overlifts and underlifts;

 

(C)         Nomination by the Parties to Operator of acceptance of their shares of total available production for the succeeding period. Such nominations shall in any one period be for each Party’s entire share of available production during that period subject to operational tolerances and agreed minimum economic cargo sizes or as the Parties may otherwise agree;

 

(D)         Elimination of overlifts and underlifts;

 

(E)          If offshore loading or a shore terminal for vessel loading is involved, risks regarding acceptability of tankers, demurrage and (if applicable) availability of berths;

 

(F)          Distribution to the Parties of available grades, gravities and qualities of Hydrocarbons to ensure, to the extent Parties take delivery of their Entitlements as they accrue, that each Party shall receive in each period Entitlements of grades, gravities and qualities of Hydrocarbons from each Exploitation Area in which it participates similar to the grades, gravities and qualities of Hydrocarbons received by each other Party from that Exploitation Area in that period.

 

(G)         To the extent that distribution of Entitlements on such basis is impracticable due to availability of facilities and minimum cargo sizes, a method of making periodic adjustments; and

 

(H)         The option and the right of the other Parties to sell an Entitlement which a Party fails 10 nominate for acceptance pursuant to (C) above or of which a Party fails to take delivery, in accordance with applicable agreed procedures, provided that such failure either constitutes a breach of Operator’s or Parties’ obligations under the terms of the Contract, or is likely to result in the curtailment or shut-in of production. Such sales shall be made only to the limited extent necessary to avoid disruption in Joint Operations. Operator shall give all Parties as much notice as is practicable of such situation and that a sale option has arisen. Any sale shall be of the unnominated or undelivered Entitlement as the case may be and for reasonable periods of time as are consistent with the minimum needs of the industry and in no event to exceed twelve (12) months. The right of sale shall be revocable at will subject to any prior contractual commitments. Payment terms for production sold under this option shall be established in the offtake agreement.

 

If an offtake agreement has not been entered into by the date of first delivery of crude oil, the Parties shall be bound by the principles set forth in this Article 9.2 until an offtake agreement has been entered into.

 

9.3          Separate Agreement for Natural Gas

 

The Parties recognize that if natural gas is discovered it may be necessary for the Parties to enter into special arrangements for the disposal of the natural gas, which are consistent with the Development Plan and subject to the terms of the Contract.

 

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ARTICLE X - ABANDONMENT

 

10.1       Abandonment of Wells Drilled as Joint Operations

 

(A)           A decision to plug and abandon any well which has been drilled as a Joint Operation shall require the approval of the Operating Committee.

 

(B)           Should any Party fail to reply within the period prescribed in Article 5.12(A)(1) or Article 5.12(A)(2), whichever is applicable, after delivery of notice of the Operator’s proposal to plug and abandon such well, such Party shall be deemed to have consented to the proposed abandonment.

 

(C)           If the Operating Committee approves a decision to plug and abandon an Exploration Well or Appraisal Well, any Party voting against such decision may propose, within the time periods allowed by Article 5.13(A), to conduct an alternate Exclusive Operation in the wellbore. If no Exclusive Operation is timely proposed, or if an Exclusive Operation is timely proposed but is not commenced within the applicable time periods under Article 7.2, such well shall be plugged and abandoned.

 

(D)           Any well plugged and abandoned under this Agreement shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of the Parties who participated in the cost of drilling such well.

 

(E)           Notwithstanding anything to the contrary in this Article 10.1 or elsewhere in this Agreement:

 

(1)           If the Operating Committee approves a decision to plug and abandon a well from which Hydrocarbons have been produced and sold, any Party voting against the decision may propose, within five (5) days after the time specified in Article 5.6 or Article 5.12 has expired, to take over the entire well as an Exclusive Operation. Any Party originally participating in the well shall be entitled lo participate in the operation of the well as an Exclusive Operation by response notice within ten (10) Days after receipt of the notice proposing the Exclusive Operation. The Consenting Parties shall be entitled to continue producing only from the Zone open to production at the time they assumed responsibility for the well and shall not be entitled to drill a substitute well in the event that the well taken over becomes impaired or fails.

 

(2)           Each Non-Consenting Party shall be deemed to have relinquished free of cost to the Consenting Parties in proportion to their Participating Interests all of its interest in the wellbore of a produced well and related equipment in accordance with Article 7.4(B). The Consenting Parties shall thereafter bear all cost and liability of plugging and abandoning such well in accordance with applicable regulations, to the extent the Parties are or become obligated to contribute to such costs and liabilities, and shall indemnify the Non-Consenting Parties against all such costs and liabilities.

 

(3)           Subject to Article 7.10(G), Operator shall continue to operate a produced well for the account of the Consenting Parties at the rates and charges contemplated by this Agreement, plus any additional cost and charges which may arise as the result of the separate allocation of interest in such well.

 

10.2       Abandonment of Exclusive Operations

 

This Article X shall apply mutatis mutandis to the abandonment of an Exclusive Well or any well in which an Exclusive Operation has been conducted (in which event all Parties having

 

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the right to conduct further operations in such well shall be notified and have the opportunity to conduct Exclusive Operations in the well in accordance with the provisions of this Article X).

 

ARTICLE XI - SURRENDER, EXTENSIONS AND RENEWALS

 

11.1       Surrender

 

(A)        If the Contract requires the Parties to surrender any portion of the Contract Area, Operator shall advise the Operating Committee of such requirement at least one hundred and twenty (120) Days in advance of the earlier of the date for tiling irrevocable notice of such surrender or the date of such surrender. Prior to the end of such period, the Operating Committee shall determine pursuant to Article V the size and shape of the surrendered area, consistent with the requirements of the Contract. If a sufficient vote of the Operating Committee cannot be attained, then the proposal supported by a simple majority of the Participating Interests shall be adopted. If no proposal attains the support of a simple majority of the Participating Interests, then the proposal receiving the largest aggregate Participating Interest vote shall be adopted. In the event of a tie, the Operator shall choose among the proposals receiving the largest aggregate Participating Interest vote. The Parties shall execute any and all documents and take such other actions as may be necessary to effect the surrender. Each Party renounces all claims and causes of action against Operator and any other Parties on account of any area surrendered in accordance with the foregoing but against its recommendation if Hydrocarbons are subsequently discovered under the surrendered area.

 

(B)        A surrender of all or any part of the Contract Area which is not required by the Contract shall require the unanimous consent of the Parties.

 

11.2       Extension of the Term

 

(A)        A proposal by any Party to enter into or extend the term of any Exploration or Exploitation Period or any phase of the Contract, or a proposal to extend the term of the Contract, shall be brought before the Operating Committee pursuant to Article V.

 

(B)        Any Party shall have the right to enter into or extend the term of any Exploration or Exploitation Period or any phase of the Contract or to extend the term of the Contract, regardless of the level of support in the Operating Committee. If any Party or Parties take such action, any Party not wishing to extend shall have a right to withdraw, subject to the requirements of Article XIII.

 

ARTICLE XII - TRANSFER OF INTEREST OR RIGHTS

 

12.1        Obligations

 

(A)        Subject always to the requirements of the Contract, the transfer of all or part of a Party’s Participating Interest, excepting transfers pursuant to Article VIII or Article XIII, shall be effective only if it satisfies the terms and conditions of this Article XII.

 

(B)        Except in the case of a Party transferring all of its Participating Interest, no transfer shall be made by any Party which results in the transferor or the transferee holding a

 

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Participating Interest of less than five percent (5%) or holding any interest other than a Participating Interest in the Contract, the Contract Area and this Agreement.

 

(C)        The transferring Party shall, notwithstanding the transfer, be liable to the other Parties for any obligations, financial or otherwise, which have vested, matured or accrued under the provision of the Contract or this Agreement prior to such transfer. Such obligations shall include, without limitation, any proposed expenditure approved by the Operating Committee prior to the transferring Party notifying the other Parties of its proposed transfer.

 

(D)        The transferee shall have no rights in and under the Contract, the Contract Area or this Agreement unless and until it obtains any necessary Government approval and expressly undertakes in an instrument satisfactory to the other Parties to perform the obligations of the transferor under the Contract and this Agreement in respect of the Participating Interest being transferred and furnishes any guarantees required by the Government or the Contract.

 

(E)        A transferee other than an Affiliate shall have no rights in and under the Contract, the Contract Area or this Agreement unless each Party has consented in writing to such transfer, which consent shall be denied only if such transferee fails to establish to the reasonable satisfaction of each Party its capability to perform its obligations under the Contract and this Agreement.

 

(F)         Nothing contained in this Article XII shall prevent a Party from mortgaging, pledging, charging or otherwise encumbering all or part of its interest in the Contract Area and in and under this Agreement for the purpose of security relating to finance provided that:

 

(1)           such Party shall remain liable for all obligations relating to such interest;

 

(2)           the encumbrance shall be subject to any necessary approval of the Government and be expressly subordinated to the rights of the other Parties under this Agreement; and

 

(3)           such Party shall ensure that any such mortgage, pledge, charge or encumbrance shall be expressed to be without prejudice to the provisions of this Agreement.

 

(G)        Any transfer by or on behalf of EO of all or a portion of its Participating Interest whether directly or indirectly by assignment, merger, consolidation, or sale of stock, or other conveyance, other than with or to an Affiliate, shall be subject to the following procedure:

 

(1)           Once the transferor Party and a proposed transferee (a third party or a Party) have fully negotiated the final terms and conditions of a transfer, such final terms and conditions shall be disclosed in detail to all Parties in a notice from the transferor. Each Party shall have the right to acquire the Participating Interest from the transferor on the same terms and conditions agreed to by the proposed transferee if, within thirty (30) Days of transferor’s notice, such Party delivers to all other Parties a counter-notification that it accepts the agreed upon terms and conditions of the transfer without reservations or conditions. If no Party delivers such counter-notification, the transfer to the proposed transferee may be made, subject to the other provisions of this Article XII, under terms and conditions no more favorable to the transferee than those set forth in the notice to the Parties, provided that the transfer shall be concluded within one hundred eighty (180) Days from the date of

 

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the notice plus such reasonable additional period as may be required to secure governmental approvals.

 

(2)           If more than one Party counter-notifies that it intends to acquire the Participating Interest which is the subject of the proposed transfer, then each such Party shall acquire a proportion of the Participating Interest to be transferred equal to the ratio of its own Participating Interest to the total Participating Interests of all the counter-notifying Parties, unless they otherwise agree; and

 

(3)           In the event that a Party’s proposed transfer of part or all of its Participating Interest involves consideration other than cash or involves other properties included in a wider transaction (package deal) then the Participating Interest (or part thereof) shall be allocated a reasonable and justifiable cash value by the transferor in any notification to the other Parties. Such other Parties may satisfy the requirements of this Article 12.1(G) by agreeing to pay such cash value in lieu of the consideration payable in the third-party offer.

 

12.2        Rights

 

Each Party shall have the right, subject to the provisions of Article 12.1, to freely transfer its Participating Interest.

 

ARTICLE XIII- WITHDRAWAL FROM AGREEMENT

 

13.1       Right of Withdrawal

 

(A)        Subject to the provisions of this Article XIII, any Party may withdraw from this Agreement and the Contract by giving notice to all other Parties stating its decision to withdraw. Such notice shall be unconditional and irrevocable when given, except as may be provided in Article 13.7.

 

(B)        The effective date of withdrawal for a withdrawing Party shall be the end of the calendar month following the calendar month in which the notice of withdrawal is given, provided that if all Parties elect to withdraw, the effective date of withdrawal for each Party shall be the date determined by Article 13.9.

 

13.2       Partial or Complete Withdrawal

 

(A)        Within thirty (30) Days of receipt of each withdrawing Party’s notification, each of the other Parties may also give notice that it desires to withdraw from this Agreement and the Contract. Should all Parties give notice of withdrawal, the Parties shall proceed to abandon the Contract Area and terminate the Contract and this Agreement. If less than all of the Parties give such notice of withdrawal, then the withdrawing Parties shall take all steps to withdraw from the Contract and this Agreement on the earliest possible date and execute and deliver all necessary instruments and documents to assign their Participating Interest to the Parties which are not withdrawing, without any compensation whatsoever, in accordance with the provisions of Article 13.6.

 

(B)        Any Party withdrawing under Article 11.2 or under this Article XIII shall withdraw from the entirety of the Contract Area, including all Exploitation Areas and all Discoveries made prior to such withdrawal, and thus abandon to the other Parties not joining in its withdrawal all its rights to Cost Oil and Profit Oil generated by

 

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operations after the effective date of such withdrawal and all rights in associated Joint Property.

 

13.3      Rights of a Withdrawing Party

 

A withdrawing Party shall have the right to receive its Entitlement of Hydrocarbons produced through the effective date of its withdrawal. The withdrawing Party shall be entitled to receive all information to which such Party is otherwise entitled under this Agreement until the effective date of its withdrawal. After giving its notification of withdrawal, a Party shall not be entitled to vote on any matters coming before the Operating Committee, other than matters for which such Party has financial responsibility.

 

13.4      Obligations and Liabilities of a Withdrawing Party

 

(A)         A withdrawing Party shall, following its notification of withdrawal, remain liable only for its share of the following:

 

(1)          Costs of Joint Operations, and Exclusive Operations in which it has agreed to participate, that were approved by the Operating Committee or Consenting Parties as part of a Work Program and Budget or AFE prior to such Party’s notification of withdrawal, regardless of when they are actually incurred;

 

(2)          Any Minimum Work Obligations for the current period or phase of the Contract, and for any subsequent period or phase which has been approved pursuant to Article 11.2 and with respect to which such Party has failed to timely withdraw under Article 13.4(B);

 

(3)          Emergency expenditures as described in Articles 4.2(B)(11) and 13.5;

 

(4)          All other obligations and liabilities of the Parties or Consenting Parties, as applicable, with respect to acts or omissions under this Agreement prior to the effective date of such Party’s withdrawal for which such Party would have been liable, had it not withdrawn from this Agreement; and

 

(5)          In the case of a partially withdrawing Party, any costs and liabilities with respect to Exploitation Areas, Commercial Discoveries and Discoveries from which it has not withdrawn.

 

The obligations and liabilities for which a withdrawing Party remains liable shall specifically include its share of any costs of plugging and abandoning wells or portions of wells in which it participated (or was required to bear a share of the costs pursuant to Article 13.4(A)(1)), to the extent such costs of plugging and abandoning are payable by the Parties under the Contract. Any liens, charges and other encumbrances which the withdrawing Party placed on such Party’s Participating Interest prior to its withdrawal shall be fully satisfied or released, at the withdrawing Party’s expense, prior to its withdrawal. A Party’s withdrawal shall not relieve it from liability to the non-withdrawing Parties with respect to any obligations or liabilities attributable to the withdrawing Party under this Article XIII merely because they are not identified or identifiable at the time of withdrawal.

 

(B)         Notwithstanding the foregoing, a Party shall not be liable for any operations or expenditures it voted against (other than operations and expenditures described in Article 13.4(A)(2) or 13.4(A)(3)) if it sends notification of its withdrawal within five (5) Days (or within twenty-four (24) hours if the drilling rig to be used in such operation is standing by on the Contract Area) of the Operating Committee vote approving such operation or expenditure. Likewise, a Party voting against voluntarily entering into or extending of an Exploration Period or Exploitation Period

 

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or any phase of the Contract or voluntarily extending the Contract shall not be liable for the Minimum Work Obligations associated therewith provided that it sends notification of its withdrawal within thirty (30) Days of such vote pursuant to Article 11.2.

 

13.5       Emergency

 

If a well goes out of control or a fire, blow out, sabotage or other emergency occurs prior to the effective date of a Party’s withdrawal, the withdrawing Party shall remain liable for its Participating interest share of the costs of such emergency, regardless of when they are actually incurred.

 

13.6       Assignment

 

A withdrawing Party shall assign its Participating Interest free of cost to each of the non-withdrawing Parties in the proportion which each of their Participating Interests (prior to the withdrawal) bears to the total Participating Interests of all the non-withdrawing Parties (prior to the withdrawal), unless the non-withdrawing Parties agree otherwise. The expenses associated with the withdrawal and assignments shall be borne by the withdrawing Party.

 

13.7       Approvals

 

A withdrawing Party shall promptly join in such actions as may be necessary or desirable to obtain any Government approvals required in connection with the withdrawal and assignments. The non-withdrawing Parties shall use reasonable efforts to assist the withdrawing Party in obtaining such approvals. Any penalties or expenses incurred by the Parties in connection with such withdrawal shall be borne by the withdrawing Party. If the Government does not approve a Party’s withdrawal and assignment to the other Parties, then the withdrawing Party shall at its option either (1) retract its notice of withdrawal by notice to the other Parties and remain a Party as if such notice of withdrawal had never been sent or (2) hold its Participating Interest in trust for the sole and exclusive benefit of the non-withdrawing Parties with the right to be reimbursed by the non-withdrawing Parties for any subsequent costs and liabilities incurred by it for which it would not have been liable, had it successfully withdrawn.

 

13.8       Security

 

(A)          A Party withdrawing from this Agreement and the Contract pursuant to this Article XIII shall provide Security satisfactory to the other Parties to satisfy any obligations or liabilities which were approved or accrued prior to notice of withdrawal, but which become due after its withdrawal, including, without limitation, Security to cover the costs of an abandonment, if applicable.

 

(B)          Failure to provide Security shall constitute default under this Agreement.

 

(C)          “Security” means a standby letter of credit issued by a bank or an on demand bond issued by a surety corporation, such bank or corporation having a credit rating indicating it has sufficient worth to pay its obligations in all reasonably foreseeable circumstances.

 

13.9       Withdrawal or Abandonment by all Parties

 

In the event all Parties decide to withdraw, the Parties agree that they shall be bound by the terms and conditions of this Agreement for so long as may be necessary to wind up the affairs of the Parties with the Government, to satisfy any requirements of applicable law and to facilitate the sale, disposition or abandonment of property or interests held by the Joint Account.

 

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ARTICLE XIV – RELATIONSHIP OF PARTIES AND TAX

 

14.1       Relationship of Parties

 

The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective. It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create a mining or other partnership, joint venture or association or (except as explicitly provided in this Agreement) a trust. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in this Agreement.

 

14.2       Tax

 

Each Party shall be responsible for reporting and discharging its own tax measured by the profit or income of the Party and the satisfaction of such Party’s share of all contract obligations under the Contract and under this Agreement. Each Party shall protect, defend and indemnify each other Party from any and all loss, cost or liability arising from the indemnifying Party’s failure to report and discharge such taxes or satisfy such obligations. The Parties intend that all income and all tax benefits (including, but not limited to, deductions, depreciation, credits and capitalization) with respect to the expenditures made by the Parties hereunder will be allocated by the Government tax authorities to the Parties based on the share of each tax item actually received or borne by each Party. If such allocation is not accomplished due to the application of the laws and regulations of the Government or other Government action, the Parties shall attempt to adopt mutually agreeable arrangements that will allow the Parties to achieve the financial results intended. Operator shall provide each Party, in a timely manner and at such Party’s sole expense, with such information with respect to Joint Operations as such Party may reasonably request for preparation of its tax returns or responding to any audit or other tax proceeding.

 

14.3       United States Tax Election

 

(A)        If, for United States federal income tax puposes, this Agreement and the operations under this Agreement are regarded as a partnership (and if the Parties have not agreed to form a tax partnership), each “U.S. Party” (as defined below) elects to be excluded from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the United States Internal Revenue Code of 1986, as amended (the “Code”), to the extent permitted and authorized by Section 761(a) of the Code and the regulations promulgated under the Code. Operator is authorized and directed to execute and file for each U.S. Party such evidence of this election as may be required by the Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by United States Treasury Regulations Sections 1.761-2 and 1.6031(a)-1(b)(5), and shall provide a copy thereof to each U.S. Party. Should there be any requirement that any U.S. Party give further evidence of this election, each U.S. Party shall execute such documents and furnish such other evidence as may be required by the Internal Revenue Service or as may be necessary to evidence this election.

 

(B)        No Party shall give any notice or take any other action inconsistent with the election made above. If any income tax laws of any state or other political subdivision of the United States or any future income tax laws of the United States or any such political subdivision contain provisions similar to those in Subchapter “K”, Chapter 1, Subtitle “A” of the Code, under which an election similar to that provided by Section 761(a) of the Code is permitted, each U.S. Party shall make such election as may be permitted or required by such laws. In making the foregoing election, each U.S. Party states that the income derived by it from operations under this Agreement

 

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can be adequately determined without the computation of partnership taxable income.

 

(C)        For the purposes of this Article XIV, “U.S. Party” shall mean any Party which is subject to the income tax law of the United States in respect of operations under this Agreement.

 

(D)        No activity shall be conducted under this Agreement that would cause any Party that is not a U.S. Party to be deemed to be engaged in a trade or business within the United States under applicable tax laws and regulations.

 

(E)        A Party which is not a U.S. Party shall not be required to do any act or execute any instrument which might subject it to the taxation jurisdiction of the United States.

 

ARTICLE XV – CONFIDENTIAL INFORMATION

 

15.1        Confidential Information

 

(A)        Subject to the provisions of the Contract, the Parties agree that all information and data acquired or obtained by any Party in respect of Joint Operations shall be considered confidential and shall be kept confidential and not be disclosed during the term of the Contract to any person or entity not a Party to this Agreement, except:

 

(1)          To an Affiliate, provided such Affiliate maintains confidentiality as provided in this Article XV;

 

(2)          To a governmental agency or other entity when required by the Contract;

 

(3)          To the extent such data and information is required to be furnished in compliance with any applicable laws or regulations, or pursuant to any legal proceedings or because of any order of any court binding upon a Party;

 

(4)          To prospective or actual contractors, consultants and attorneys employed by any Party where disclosure of such data or information is essential to such contractor’s, consultant’s or attorney’s work;

 

(5)          To a bona fide prospective transferee of a Party’s Participating Interest (including an entity with whom a Party or its Affiliates are conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate’s shares);

 

(6)          To a bank or other financial institution to the extent appropriate to a Party arranging for funding;

 

(7)          To the extent such data and information must be disclosed pursuant to any rules or requirements of any government or stock exchange having jurisdiction over such Party, or its Affiliates; provided that if any Party desires to disclose information in an annual or periodic report to its or its Affiliates’ shareholders and to the public and such disclosure is not required pursuant to any rules or requirements of any government or stock exchange, then such Party shall comply with Article 20.3;

 

(8)          To its respective employees for the purposes of Joint Operations, subject to each Party taking customary precautions to ensure such data and information is kept confidential;

 

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(9)          Any data or information which, through no fault of a Party, becomes a part of the public domain.

 

(B)        Disclosure as pursuant to Article 15.1(A)(4), (5), and (6) shall not be made unless prior to such disclosure the disclosing Party has obtained a written undertaking from the recipient party to keep the data and information strictly confidential and not to use or disclose the data and information except for the express purpose for which disclosure is to be made.

 

15.2         Continuing Obligations

 

Any Party ceasing to own a Participating Interest during the term of this Agreement shall nonetheless remain bound by the obligations of confidentiality in Article 15.1 and any disputes shall be resolved in accordance with Article XVIII.

 

15.3         Proprietary Technology

 

Nothing in this Agreement shall require a Party to divulge proprietary technology to the other Parties; provided that where the cost of development of proprietary technology has been charged to the Joint Account, such proprietary technology shall be disclosed to all Parties bearing a portion of such cost and may be used by any such Party or its Affiliates in other operations.

 

15.4         Trades

 

Notwithstanding the foregoing provisions of this Article XV, Operator may, with approval of the Operating Committee, make well trades and data trades for the benefit of the Parties, with any data so obtained to be furnished to all Parties who participated in the cost of the data that was traded. Operator shall cause any third party to such trade to enter into an undertaking to keep the traded data confidential.

 

ARTICLE XVI – FORCE MAJEURE

 

16.1         Obligations

 

If as a result of Force Majeure any Party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligation to pay any amounts due or to furnish security, then the obligations of the Party giving such notice, so far as and to the extent that the obligations are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused and for such reasonable period thereafter as may be necessary for the Party to put itself in the same position that it occupied prior to the Force Majeure, but for no longer period. The Party claiming Force Majeure shall notify the other Parties of the Force Majeure within a reasonable time after the occurrence of the facts relied on and shall keep all Parties informed of all significant developments. Such notice shall give reasonably full particulars of the Force Majeure, and also estimate the period of time which the Party will probably require to remedy the Force Majeure. The affected Party shall use all reasonable diligence to remove or overcome the Force Majeure situation as quickly as possible in an economic manner, but shall not be obligated to settle any labor dispute except on terms acceptable to it and all such disputes shall be handled within the sole discretion of the affected Party.

 

16.2         Definition of Force Majeure

 

For the purposes of this Agreement, “Force Majeure” shall mean circumstances which were beyond the reasonable control of the Party concerned and shall include strikes, lockouts and

 

45

 

other industrial disturbances even if they were not “beyond the reasonable control” of the Party.

 

ARTICLE XVII – NOTICES

 

Except as otherwise specifically provided, all notices authorized or required between the Parties by any of the provisions of this Agreement, shall be in writing, in English and delivered in person or by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission, and addressed to such Parties as designated below. Oral communication does not constitute notice for purposes of this Agreement, and telephone numbers for the Parties are listed below as a matter of convenience only. The originating notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. The second or any responsive notice shall be deemed delivered when received. “Received” for purposes of this Article XVII shall mean actual delivery of the notice to the address of the Party to be notified specified in accordance with this Article XVII. Each Party shall have the right to change its address at any time and/or designate that copies of all such notices be directed to another person at another address, by giving written notice thereof to all other Parties.

 

	
Kosmos:
    	
EO:
    
	
 
    	
 
    
	
(Cosmos   Energy, LLC
    	
The   E.O. Group 
    
	
 
    	
 
    
	
8401   N. Central Expressway
    	
Private   Mailbag CT 123 
    
	
 
    	
 
    
	
Suite 280
    	
Cantonments   - Accra
    
	
 
    	
 
    
	
Dallas,   Texas 75225
    	
Ghana
    
	
 
    	
 
    
	
U.S.A.
    	
 
    
	
 
    	
 
    
	
Attention:   Mr Craig Glick
    	
Attention:   Mr George Y. Owusu 
    
	
 
    	
 
    
	
Facsimile:   +1 214 363 9024
    	
Facsimile:   001 281 470 9300 
    
	
 
    	
 
    
	
Telephone:+1   214 363 0700
    	
Telephone:   
    	
001   281 470 1784 (res)
    
	
 
    	
 
    
	
 
    	
 
    	
001   832 489 8100 (mobile)
    

 

ARTICLE XVIII – APPLICABLE LAW AND DISPUTE RESOLUTION

 

18.1       Applicable Law

 

This Agreement shall be governed by, construed, interpreted and applied in accordance with the laws of England and Wales, excluding any choice of law rules which would refer the matter to the laws of another jurisdiction.

 

18.2       Dispute Resolution

 

(A)        Any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement or the operations carried out under this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by

 

46

 

arbitration in accordance with this Article 18.2.  Any Party may submit such a dispute, controversy or claim to arbitration by notice to the other Parties.

 

(B)        The arbitration shall be heard and determined by three (3) arbitrators. Each side shall appoint an arbitrator of its choice within sixty (60) Days of the submission of a notice of arbitration. The Party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within sixty (60) Days following the appointment of both Party-appointed arbitrators. If the Party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal and/or one Party refuses to appoint its Party-appointed arbitrator within said sixty (60) Day period, the appointing authority for the implementation of such procedure shall be the London Court of International Arbitration (“LCIA”), who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be made by majority vote.

 

(A)        Unless otherwise expressly agreed in writing by the Parties to the arbitration proceedings:

 

(1)           The arbitration proceedings shall be held in London, England;

 

(2)           The arbitration proceedings shall be conducted in the English language and the arbitrator(s) shall be fluent in the English language;

 

(3)           The arbitrator(s) shall be and remain at all times wholly independent and impartial;

 

(4)           The arbitration proceedings shall be conducted in accordance with the Rules of Arbitration of the LCIA, except as specifically modified in this Agreement, as such rules may be amended from time to time;

 

(5)           The costs of the arbitration proceedings (including attorneys’ fees and costs) shall be borne in the manner determined by the arbitrator(s);

 

(6)           The decision of the sole arbitrator or a majority of the arbitrators, as the case may be, shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accountings presented to the arbitrator; made and promptly paid in U.S. dollars free of any deduction or offset; and any costs or fees incident to enforcing the award, shall to the maximum extent permitted by law be charged against the Party resisting such enforcement;

 

(7)           Consequential, punitive or other similar damages shall not be allowed except those payable to third parties for which liability is allocated among the Parties by the arbitral award;

 

(8)           The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at the Agreed Interest Rate; and

 

(9)           Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be.

 

(10)         Whenever the Parties are of more than one nationality, the single arbitrator or the presiding arbitrator, as the case may be, shall not be of the same nationality as any of the Parties or their ultimate parent entities.

 

47

 

(11)         For purposes of allowing the arbitration provided in this Article XVIII, the enforcement and execution of any arbitration decision and award, and the issuance of any attachment or other interim remedy, any governmental body or agency, including if applicable GNPC, which becomes a Party to this Agreement agrees to waive all sovereign immunity by whatever name or title with respect to disputes, controversies or claims arising out of or in relation to or in connection with this Agreement or the operations carried out under this Agreement.

 

(12)         The arbitration shall proceed in the absence of a Party who, after due notice, fails to answer or appear. An award shall not be made solely on the default of a Party, but the arbitrator(s) shall require the Party who is present to submit such evidence as the arbitrator(s) may determine is reasonably required to make an award.

 

(13)         If an arbitrator should die, withdraw or otherwise become incapable of serving, or refuse to serve, a successor arbitrator shall be selected and appointed in the same manner as the original arbitrator.

 

ARTICLE XIX – ALLOCATION OF COST RECOVERY RIGHTS

 

19.1        Allocation of Total Production

 

Each Party’s share of Cost Oil and Profit Oil during each Calendar Quarter shall be determined pursuant to this Article XIX.

 

19.2        Allocation of Cost Oil

 

(A)        Cost Oil available to the Parties from the Contract Area during the Calendar Quarter shall be allocated among Exploitation Areas separately by type and grade. The quantity of each type and grade of Cost Oil allocated to an Exploitation Area shall, subject to the remainder of this Article 19.2, equal the total quantity of Cost Oil of that type and grade available during the Calendar Quarter multiplied by a fraction, the numerator of which is the quantity of Hydrocarbons of that type and grade produced from that Exploitation Area during the Calendar Quarter and the denominator of which is the quantity of Hydrocarbons of that type and grade produced from the entire Contract Area during the Calendar Quarter.

 

(B)        Subject to the Contract, a quantity of Cost Oil initially allocated to an Exploitation Area pursuant to Article 19.2(A) shall be reallocated pursuant to Article 19.2(C) (“Reallocation Cost Oil”) if the value of the Cost Oil allocated to that Exploitation Area exceeds the Petroleum Costs specifically attributable to that Exploitation Area which have not previously been recovered through allocations of Cost Oil under this Article 19.2. The quantity of each type and grade of Cost Oil to be reallocated shall be determined by multiplying the quantity of Cost Oil of that type and grade allocated to the Exploitation Area under Article 19.2(A) by a fraction, the numerator of which is the aggregate value of all Cost Oil allocated to the Exploitation Area during the Calendar Quarter minus total previously unrecovered Petroleum Costs attributable to the Exploitation Area, and the denominator of which is the aggregate value of all Cost Oil allocated to the Exploitation Area during the Calendar Quarter. The value of each type and grade of Cost Oil, for purposes of this Article XIX, shall be the value of that type and grade of Hydrocarbon for cost recovery purposes under the Contract.

 

48

 

(C)        Reallocation Cost Oil shall be allocated, in pro rata shares by type and grade, in the following priority:

 

(1)           First, Reallocation Cost Oil shall be allocated to each Exploitation Area until the value allocated under this Article 19.2(C)(1) equals the difference between the value of Profit Oil to which that Exploitation Area would have been entitled during such Calendar Quarter if the Contract applied separately to each Exploitation Area and the value of Profit Oil actually received by that Exploitation Area under Article 19.3;

 

(2)           Second, any Reallocation Cost Oil that is not allocated pursuant to Article 19.2(C)(1) shall be allocated to Joint Operations to the extent necessary to permit the recovery of any Petroleum Costs which were incurred in the conduct of Joint Operations and which are recoverable in such Calendar Quarter but have not yet been recovered pursuant to this Article 19.2; and

 

(3)           Third, any Reallocation Cost Oil that is not allocated pursuant to Article 19.2(C)(1) or 19.2(C)(2) shall be allocated to Exclusive Operations to the extent necessary to permit the recovery, in the sequence incurred (regardless of the operation to which they relate), of any Petroleum Costs which were incurred in the conduct of Exclusive Operations and which are recoverable in such Calendar Quarter but have not yet been recovered pursuant to this Article 19.2.

 

(D)        Subject to Article 10.1(E), Cost Oil of each type and grade that is allocated to an Exploitation Area or an operation shall be allocated among the Parties in proportion to their respective Participating Interests in the Exploitation Area or operation.

 

19.3        Allocation of Profit Oil

 

Profit Oil available to the Parties from the Contract Area during the Calendar Quarter shall be allocated among Exploitation Areas separately by type and grade. The quantity of each type and grade of Profit Oil allocated to an Exploitation Area shall equal the total quantity of Profit Oil of that type and grade available during the Calendar Quarter multiplied by a fraction, the numerator of which is the quantity of Hydrocarbons of that type and grade produced from that Exploitation Area during the Calendar Quarter and the denominator of which is the quantity of Hydrocarbons of that type and grade produced from the entire Contract Area during the Calendar Quarter. Subject to Article 10.1(E), Profit Oil of each type and grade that is allocated to an Exploitation Area shall be allocated among the Parties in proportion to their respective Participating Interests in the Exploitation Area.

 

19.4        Use of Estimates

 

Initial distribution of Hydrocarbons pursuant to this Article XIX shall be based upon estimates furnished by the Operator pursuant to Article 9.2.

 

ARTICLE XX – GENERAL PROVISIONS

 

20.1         Warranties as to no Payments, Gifts and Loans

 

(A)          Each Party warrants that it and its Affiliates have not made, offered, or authorized and will not make, offer, or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether directly or through any other person or entity, to or for the use or benefit of any public official (i.e., any person holding a legislative, administrative or judicial office,

 

49

 

including any person employed by or acting on behalf of a public agency, a public enterprise or a public international organization) or any political party or political party official or candidate for office, where such payment, gift, promise or advantage would violate (i) the applicable laws of Ghana; (ii) the laws of the country of incorporation of such Party or such Party’s ultimate parent company and of the principal place of business of such ultimate parent company; or (iii) the principles described in the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed in Paris on December 17, 1997, which entered into force on February 15, 1999, and the Convention’s Commentaries. Each Party shall defend, indemnify and hold the other Parties harmless from and against any and all claims, damages, losses, penalties, costs and expenses arising from or related to, any breach by such first Party of such warranty. Such indemnity obligation shall survive termination or expiration of this Agreement. Each Party shall in good time (i) respond in reasonable detail to any notice from any other Party reasonably connected with the above-stated warranty; and (ii) furnish applicable documentary support for such response upon request from such other Party.

 

(B)           Each Party agrees to (i) maintain adequate internal controls; (ii) properly record and report all transactions; and (iii) comply with the laws applicable to it. Each Party must rely on the other Parties’ system of internal controls, and on the adequacy of full disclosure of the facts, and of financial and other data regarding the Joint Operations undertaken under this Agreement. No Party is in any way authorized to take any action on behalf of another Party that would result in an inadequate or inaccurate recording and reporting of assets, liabilities or any other transaction, or which would put such Party in violation of its obligations under the laws applicable to the operations under this Agreement.

 

20.2        Conflicts of Interest

 

(A)          Operator undertakes that it shall avoid any conflict of interest between its own interests (including the interests of Affiliates) and the interests of the other Parties in dealing with suppliers, customers and all other organizations or individuals doing or seeking to do business with the Parties in connection with activities contemplated under this Agreement.

 

(B)           The provisions of the preceding paragraph shall not apply to:

 

(1)        Operator’s performance which is in accordance with the local preference laws or policies of the Government; or

 

(2)        Operator’s acquisition of products or services from an Affiliate, or the sale thereof to an Affiliate, made in accordance with the terms of this Agreement.

 

20.3        Public Announcements

 

(A)          Operator shall be responsible for the preparation and release of all public announcements and statements regarding this Agreement or the Joint Operations; provided that, no public announcement or statement shall be issued or made unless prior to its release all the Parties have been furnished with a copy of such statement or announcement and the approval of at least two (2) non-affiliated Parties holding fifty percent (50%), or more, of the Participating Interests has been obtained. Where a public announcement or statement becomes necessary or desirable because of danger to or loss of life, damage to property or pollution as a result of activities arising under this Agreement, Operator is authorized to issue and make such announcement or statement without prior approval of the Parties, but shall promptly furnish all the Parties with a copy of such announcement or statement.

 

50

 

(B)           If a Party wishes to issue or make any public announcement or statement regarding this Agreement or the Joint Operations, it shall not do so unless prior to its release, such Party furnishes all the Parties with a copy of such announcement or statement, and obtains the approval of at least two (2) Parties which are not Affiliates holding fifty percent (50%) or more of the Participating Interests; provided that, notwithstanding any failure to obtain such approval, no Party shall be prohibited from issuing or making any such public announcement or statement if it is necessary to do so in order to comply with the applicable laws, rules or regulations of any government, legal proceedings or stock exchange having jurisdiction over such Party or its Affiliates as set forth in Articles 15.1(A)(3) and (7).

 

20.4        Successors and Assigns

 

Subject to the limitations on transfer contained in Article XII, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Parties.

 

20.5        Waiver

 

No waiver by any Party of any one or more defaults by another Party in the performance of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same Party, whether of a like or of a different character. Except as expressly provided in this Agreement no Party shall be deemed to have waived, released or modified any of its rights under this Agreement unless such Party has expressly stated, in writing, that it does waive, release or modify such right.

 

20.6        Severance of Invalid Provisions

 

If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.

 

20.7        Modifications

 

Except as is provided in Articles 11.2(B) and 20.6, there shall be no modification of this Agreement or the Contract except by written consent of all Parties.

 

20.8        Headings

 

The topical headings used in this Agreement are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Agreement relating to any topic are to be found in any particular Article.

 

20.9        Singular and Plural

 

Reference to the singular includes a reference to the plural and vice versa.

 

20.10      Gender

 

Reference to any gender includes a reference to all other genders.

 

20.11      Counterpart Execution

 

This Agreement may be executed in any number of original counterparts and each such counterpart shall be deemed an original Agreement for all purposes; provided no Party shall be bound to this Agreement unless and until all Parties have executed a counterpart. For

 

51

 

purposes of assembling all counterparts into one document, Operator is authorized to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart.

 

20.12      Entirety

 

This Agreement is the entire agreement of the Parties with respect to the subject matter contained herein and supersedes all prior understandings and negotiations of the Parties.

 

20.13      Rights of Third Parties

 

Without prejudice to the rights of any Indemnitee pursuant to Article 4.6, no person other than the Parties shall have any rights under this Agreement or be considered a third party beneficiary hereof and no person shall have any right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.

 

IN WITNESS of their agreement each Party has caused its duly authorized representative to sign this instrument on the date indicated below such representative’s signature.

 

52

 

	
 
    	
 
    	
KOSMOS   ENERGY GHANA HC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   KOSMOS ENERGY GHANA HC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Print or type name)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:   
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Date:   
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
THE E.O. GROUP
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   THE E.O. GROUP
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(Print or type name)
    
	
 
    	
 
    	
 
    
	
 
    	
Title:   
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Date:   
    	
 
    

 

53

 

EXHIBIT A

ACCOUNTING PROCEDURES

 

 

EXHIBIT “A”

 

ACCOUNTING PROCEDURE

 

TABLE OF CONTENTS

 

	
SECTION
    	
 
    	
 
    	
PAGE
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION I.
    	
 
    	
GENERAL   PROVISIONS
    	
1
    
	
 
    	
 
    	
 
    	
 
    
	
1.1
    	
 
    	
Purpose
    	
1
    
	
1.2
    	
 
    	
Conflict   with Agreement
    	
1
    
	
1.3
    	
 
    	
Definitions
    	
1
    
	
1.4
    	
 
    	
Joint   Account Records and Currency Exchange
    	
2
    
	
1.5
    	
 
    	
Statements   and Billings
    	
3
    
	
1.6
    	
 
    	
Payments   and Advances
    	
3
    
	
1.7
    	
 
    	
Adjustments
    	
5
    
	
1.8
    	
 
    	
Audits
    	
6
    
	
1.9
    	
 
    	
Allocations
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION II.
    	
 
    	
DIRECT   CHARGES
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
2.1
    	
 
    	
Licenses,   Permits, Etc
    	
8
    
	
2.2
    	
 
    	
Salaries,   Wages and Related Costs
    	
8
    
	
2.3
    	
 
    	
Employee   Relocation Costs
    	
9
    
	
2.4
    	
 
    	
Offices,   Camps, and Miscellaneous Facilities
    	
10
    
	
2.5
    	
 
    	
Material
    	
10
    
	
2.6
    	
 
    	
Exclusively   Owned Equipment and Facilities of Operator and Affiliates
    	
10
    
	
2.7
    	
 
    	
Services
    	
10
    
	
2.8
    	
 
    	
Insurance
    	
11
    
	
2.9
    	
 
    	
Damages   and Losses to Property
    	
12
    
	
2.10
    	
 
    	
Litigation   and Legal Expenses
    	
12
    
	
2.11
    	
 
    	
Taxes   and Duties
    	
12
    
	
2.12
    	
 
    	
Ecological   and Environmental
    	
13
    
	
2.13
    	
 
    	
Decommissioning   (Abandonment) and Reclamation
    	
13
    
	
2.14
    	
 
    	
Other   Expenditures
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION III.
    	
 
    	
INDIRECT   CHARGES
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
3.1
    	
 
    	
Purpose
    	
14
    
	
3.2
    	
 
    	
Amount
    	
14
    
	
3.3
    	
 
    	
Exclusions
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION IV.
    	
 
    	
ACQUISITION   OF MATERIAL
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
4.1
    	
 
    	
Acquisitions
    	
16
    
	
4.2
    	
 
    	
Materials   Furnished by Operator
    	
16
    
	
4.3
    	
 
    	
Premium   Prices
    	
17
    
	
4.4
    	
 
    	
Warranty   of Material Furnished by Operator
    	
17
    

 

 

	
SECTION
    	
 
    	
 
    	
PAGE
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION V.
    	
 
    	
DISPOSAL   OF MATERIALS
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
5.1
    	
 
    	
Disposal
    	
18
    
	
5.2
    	
 
    	
Material   Purchased by a Party or Affiliate
    	
18
    
	
5.3
    	
 
    	
Division   In Kind
    	
18
    
	
5.4
    	
 
    	
Sales   to Third Parties
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION VI.
    	
 
    	
INVENTORIES
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
6.1
    	
 
    	
Periodic   Inventories - Notice and Representation
    	
19
    
	
6.2
    	
 
    	
Special   Inventories
    	
19
    

 

 

EXHIBIT “A”

 

ACCOUNTING PROCEDURE

 

Attached to and made part of the Operating Agreement, hereinafter called the “Agreement,” effective as of the 22nd day of July, 2004, by and between Kosmos Energy Ghana HC and the E.O. Group.

 

SECTION I.

GENERAL PROVISIONS

 

1.1          Purpose.

 

1.1.1                     The purpose of this Accounting Procedure is to establish equitable methods for determining charges and credits applicable to operations under the Agreement which reflect the costs of Joint Operations to the end that no Party shall gain or lose in relation to other Parties.

 

1.1.2                     The Parties agree, however, that if the methods prove unfair or inequitable to Operator or Non-Operators, the Parties shall meet and in good faith endeavor to agree on changes in methods deemed necessary to correct any unfairness or inequity. 

 

1.2          Conflict with Agreement.

 

In the event of a conflict between the provisions of this Accounting Procedure and the provisions of the Agreement to which this Accounting Procedure is attached, the provisions of the Agreement shall prevail.

 

1.3          Definitions.

 

The definitions contained in Article I of the Agreement to which this Accounting Procedure is attached shall apply to this Accounting Procedure and have the same meanings when used herein. Certain terms used herein are defined as follows: 

 

“Accrual basis” means that basis of accounting under which costs and benefits are regarded as applicable to the period in which the liability for the cost is incurred or the right to the benefit arises, regardless of when invoiced, paid, or received.

 

“Cash basis” means that basis of accounting under which only costs actually paid and revenue actually received are included for any period. 

 

“Country of Operations” means the Republic of Ghana.

 

“Material” means machinery, equipment and supplies acquired and held for use in Joint Operations.

 

1

 

“Secondees” means technical and professional personnel employed by a Non-Operator or its Affiliate(s) who, with Operator’s approval, are loaned to Operator to perform services for, and under the direction and control of, Operator under a secondment agreement.

 

1.4          Joint Account Records and Currency Exchange.

 

1.4.1                     Operator shall at all times maintain and keep true and correct records of the production and disposition of all liquid and gaseous Hydrocarbons, and of all costs and expenditures under the Agreement, as well as other data necessary or proper for the settlement of accounts between the Parties hereto in connection with their rights and obligations under the Agreement and to enable Parties to comply with their respective applicable income tax and other laws.

 

1.4.2                     Operator shall maintain accounting records pertaining to Joint Operations in accordance with generally accepted accounting practices used in the international petroleum industry and any applicable statutory obligations of the Country of Operations as well as the provisions of the Contract and the Agreement.

 

1.4.3                     The Joint Account shall be maintained by Operator in the English language and in United States of America (“U.S.”) currency and in such other language and currency as may be required by the laws of the Country of Operations or the Contract. Conversions of currency shall be recorded at the rate actually experienced in that conversion. Currency translations for expenditures and receipts shall be recorded at the

 

arithmetic average of the buying and selling exchange rates at the close of business on the first Business Day of the month of the current accounting period

 

as published by The Wall Street Journal, or if not published by The Wall Street Journal, then by The Financial Times.

 

1.4.4                     Any currency exchange gains or losses shall be credited or charged to the Joint Account, except as otherwise specified in this Accounting Procedure.

 

1.4.5                     This Accounting Procedure shall apply, mutatis mutandis, to Exclusive Operations in the same manner that it applies to Joint Operations; provided, however, that the charges and credits applicable to Consenting Parties shall be distinguished by an Exclusive Operation Account.  For the  purpose of determining and calculating the remuneration of the Consenting Parties, including the premiums for Exclusive Operations, the costs and expenditures shall be expressed in U.S. currency (irrespective of the currency in which the expenditure was incurred).

 

1.4.6                     The accrual basis for accounting shall be used in preparing accounts concerning the Joint Operations. If a “cash” basis for accounting is used, Operator shall show accruals as memorandum items.

 

2

 

1.5          Statements and Billings.

 

1.5.1                     Unless otherwise agreed by the Parties, Operator shall submit monthly to each Party, on or before the 15th Day of each month, statements of the costs and expenditures incurred during  the  prior month, indicating by appropriate classification the nature thereof, the corresponding budget category, and the portion of such costs charged to each of the Parties.

 

These statements, as a minimum, shall contain the following information: 

 

·                                          advances of funds setting forth the currencies received from each Party,

 

·                                          the share of each Party in total expenditures,

 

·                                          the accrued expenditures,

 

·                                          the current account balance of each Party,

 

·                                          summary of costs, credits, and expenditures on a current month, year-to-date, and inception-to-date basis or other periodic basis, as agreed by Parties (such expenditures shall be grouped by the categories and line items designated in the approved Work Program and Budget submitted by Operator in accordance with Article 6.4 of the Agreement so as to facilitate comparison of actual expenditures against that work Program and Budget), and 

 

·                                          details of unusual charges and credits in excess of U.S. dollars U.S. $500,000.

 

1.5.2                     Operator shall, upon request, furnish a description of the accounting classifications used by it. 

 

1.5.3                     Amounts included in the statements and billings shall be expressed in U.S. currency and reconciled to the currencies advanced.

 

1.5.4                     Each Party shall be responsible for preparing its own accounting and tax reports to meet the requirements of the Country of Operations and of all other countries to which it may be subject.  Operator, to the extent that the information is reasonably available from the Joint Account records, shall provide Non-Operators in a timely manner with the necessary information to facilitate the discharge of such responsibility.

 

1.6          Payments and Advances.

 

1.6.1                     Upon approval of any Work Program and Budget, if Operator so requests, each Non-Operator shall advance its share of estimated cash requirements for the succeeding month’s operations. Each such cash call shall be equal to the Operator’s estimate of the money to be spent in the currencies required to perform its duties under the approved Work Program and Budget during the

 

3

 

month concerned. For informational purposes the cash call shall contain an estimate of the funds required for the succeeding two (2) months detailed by the  categories designated in the approved Work Program and Budget submitted by Operator in accordance with Article 6 of the Agreement.

 

1.6.2                     Each such cash call, detailed by the categories designated in the approved Work Program and Budget submitted by Operator in accordance with Article 6 of the Agreement shall be made in writing and delivered to all Non-Operators not less than fifteen (15) Days before the payment due date. The due date for payment of such advances shall be set by Operator but shall be no sooner than the first Business Day of the month for which the advances are required. All advances shall be made without bank charges. Any charges related to receipt of advances from a Non-Operator shall be borne by that Non-Operator.

 

1.6.3                     Each Non-Operator shall wire transfer its share of the full amount of each such cash call to Operator on or before the due date, in the currencies requested or any other currencies acceptable to Operator and at a bank designated by Operator. If currency provided by a Non-Operator is other than the requested currency, then the entire cost of converting to the requested currency shall be charged to that Non-Operator.

 

1.6.4                     Notwithstanding the provisions of Section 1.6.2, should Operator be required to pay any sums of money for the Joint Operations which were unforeseen at the time of providing the Non-Operators with said estimates of its requirements, Operator may make a written request of the Non-Operators for special advances covering the Non-Operators’ share of such payments. Each such Non-Operator shall make its proportional special advances within ten (10) Days after receipt of such notice.

 

1.6.5                     If a Non-Operator’s advances exceed its share of cash expenditures, the next succeeding cash advance requirements, after such determination, shall be reduced accordingly. However, if the amount of such excess advance is greater than the amount of the next month’s estimated cash requirements for such Non-Operator, the Non-Operator may request a refund of the difference, which refund shall be made by Operator within ten (10) Days after receipt of the Non-Operator’s request provided that the amount is in excess of U.S. $500,000.

 

1.6.6                     If Non-Operator’s advances are less than its share of cash expenditures, the deficiency shall, at Operator’s option, be added to subsequent cash advance requirements or be paid by Non-Operator within ten (10) Days following the receipt of Operator’s billing to Non-Operator for such deficiency.

 

1.6.7                     If, under the provisions of the Agreement, Operator is required to segregate funds received from the Parties, any interest received on such funds shall be applied against the next succeeding cash call or, if directed by the Operating Committee, distributed quarterly. The interest thus received shall be allocated to the Parties on an equitable basis taking into consideration date of funding by each Party to the accounts in proportion to the total funding into the account. A

 

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monthly statement summarizing receipts, disbursements, transfers to each joint bank account and beginning and ending balances thereof shall be provided by Operator to the Parties.

 

Any interest received by Operator from interest-bearing accounts containing commingled funds received from the Parties shall be credited to the Parties in accordance with the allocation procedure as set forth above.

 

1.6.8                     If Operator does not request Non-Operators to advance their share of estimated cash requirements, each Non-Operator shall pay its share of cash expenditures within ten (10) Days following receipt of Operator’s billing.

 

1.6.9                     Payments of advances or billings shall be made on or before the due date. In accordance with Article VIII of the Agreement, if these payments are not received by the due date the unpaid balance shall bear and accrue interest from the due date until the payment is received by Operator at the Agreed Interest Rate.   For the purpose of determining the unpaid balance and interest owed, Operator shall translate to U.S. currency all amounts owed in other currencies using the currency exchange rate readily available to Operator at the close of the last Business Day prior to the due date for the unpaid balance as quoted by the applicable authority identified in Section 1.4.3 of this Section I.

 

1.6.10              Subject to governmental regulation, Operator shall have the right, at any time and from time to time, to convert the funds advanced or any part thereof to other currencies to the extent that such currencies are then required for operations.   The cost of any such conversion shall be charged to the Joint Account.

 

1.6.11              Operator shall endeavor to maintain funds held for the Joint Account in bank accounts at a level consistent with that required for the prudent conduct of Joint Operations.

 

1.6.12              If under the Agreement, Operator is required to segregate funds received from or for the Joint Account, the provisions under this Section 1.6 for payments and advances by Non-Operators shall apply also to Operator.

 

1.7          Adjustments.

 

Payments of any advances or billings shall not prejudice the right of any Non-Operator to protest or question the correctness thereof; provided, however, all bills and statements rendered to Non-Operators by Operator during any Calendar Year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of such Calendar Year, unless within the said twenty-four (24) month period a Non-Operator takes written exception thereto and makes claim on Operator for adjustment. Failure on the part of a Non-Operator to make claim on Operator for adjustment within such period shall establish the correctness thereof and preclude the filing of exceptions thereto or making claims for adjustment thereon.   No adjustment favorable to Operator shall be made unless it is made within the same prescribed period.   The provisions of this paragraph shall not prevent adjustments resulting from a physical inventory of the Material as provided for in Section VI. Operator shall be allowed to make adjustments to

 

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the Joint Account after such twenty-four (24) month period if these adjustments result from audit exceptions outside of this Agreement, third party claims, or Government or Government Oil Company requirements. Any such adjustments shall be subject to audit within the time period specified in Section 1.8.1

 

1.8          Audits.

 

1.8.1                     A  Non-Operator, upon at least sixty (60) Days advance notice in writing to Operator and all other Non-Operators, shall have the right to audit the Joint Accounts and records of Operator relating to the accounting hereunder for any Calendar Year within the twenty-four (24) month period following the end of such Calendar Year except as otherwise provided in Section 3.1. As provided in Article 4.2(B)(6) of the Agreement, Non-Operators shall have reasonable access to Operator’s personnel and to the facilities, warehouses, and offices directly or indirectly serving Joint Operations. The cost of each such audit shall be borne by Non-Operators conducting the audit. Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct joint or simultaneous audits in a manner that will result in a minimum of inconvenience to the Operator. Non-Operators must take written exception to and make claim upon the Operator for all discrepancies disclosed by said audit within said twenty-four (24) month period.

 

1.8.2                     Operator shall endeavor to produce information from its Affiliates reasonably necessary to support charges from those Affiliates to the Joint Account other than those charges referred to in Section 3.1. If an Affiliate considers such information confidential or proprietary or if such Affiliate will not allow the Non-Operators to audit its accounts, the statutory auditor of the Affiliate shall be used to confirm the details and facts as required, provided such statutory auditor is an internationally recognized firm of public accountants. The auditing Non-Operator may instruct the statutory auditor on the scope of such confirmation; however, the scope shall be subject to the approval of the Affiliate in question, such approval not to be unreasonably withheld. Should the statutory auditor of the Affiliate decline to act in such capacity, or not be an internationally recognized independent firm of public accountants, the auditing Non-Operators shall select an internationally recognized independent firm of public accountants to carry out such confirmation, subject to the approval of the Affiliate in question, such approval not to be unreasonably withheld. The cost of such audit by the statutory auditor or the independent firm of public accountants, as the case may be, shall be borne by Non-Operators who requested such audit.

 

1.8.3                     Any information obtained by a Non-Operator under the provisions of this Section 1.8 which does not relate directly to the Joint Operations shall be kept confidential and shall not be disclosed to any party, except as would otherwise be permitted by Article 15.1(A)(3) and (9) of the Agreement.

 

1.8.4                     In the event that the Operator is required by law or the Contract to employ a public accounting firm to audit the Joint Account and records of Operator

 

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relating to the accounting hereunder, the cost thereof shall be a charge against the Joint Account, and a copy of the audit shall be furnished to each Party.

 

1.8.5                     At the conclusion of each audit, the Parties shall endeavor to settle outstanding matters expeditiously.  To this end the Parties conducting the audit will make a reasonable effort to prepare and distribute a written report to the Operator and all the Parties who participated in the audit as soon as possible and in any event within ninety (90) Days after the conclusion of each audit.   The report shall include all claims arising from such audit together with comments pertinent to the operation of the accounts and records. Operator shall make a reasonable effort to reply to the report in writing as soon as possible and in any event no later than ninety (90) Days after receipt of the report. Should the Non-Operators consider that the report or reply requires further investigation of any item therein; the Non-Operators shall have the right to conduct further investigation in relation to such matter notwithstanding the provisions of Sections 1.7 and 1.8.1 that the period of twenty-four (24) months may have expired.   However, conducting such further investigation shall not extend the twenty-four (24) month period for taking written exception to and making a claim upon the Operator for all discrepancies disclosed by said audit. Such further investigations shall be commenced within thirty (30) Days and be concluded within sixty (60) Days after the receipt of such report or reply, as the case may be.

 

1.8.6                     All adjustments resulting from an audit agreed between the Operator and the Non-Operator conducting the audit shall be reflected promptly in the Joint Account by the Operator and reported to the Non-Operator(s). If any dispute shall arise in connection with an audit, it shall be reported to and discussed by the Operating Committee, and, unless otherwise agreed by the parties to the dispute, resolved in accordance with the provisions of Article XVIII of the Agreement. If all the parties to the dispute so agree, the adjustment(s) may be referred to an independent expert agreed to by the parties to the dispute. At the election of the parties to the dispute, the decision of the expert will be binding upon such parties.   Unless otherwise agreed, the cost of such expert will be shared equally by all parties to the dispute.

 

1.9          Allocations.

 

If  it becomes necessary to allocate any costs or expenditures to or between Joint Operations and any other operations, such allocation shall be made on an equitable basis. For informational purposes only, Operator shall furnish a description of it allocation procedures pertaining to these costs and expenditures and its rates for personnel and other charges, along with each proposed Work Program and Budget.

 

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SECTION II.

DIRECT CHARGES

 

Operator shall charge the Joint Account with all costs and expenditures incurred in connection with Joint Operations.  It is also understood that charges for services normally provided by an operator such as those contemplated in Sections 2.7.2 and 2.7.3 which are provided by a Party’s Affiliate shall reflect the cost to the Affiliate, excluding profit, for performing such services, except as otherwise provided in Section 2.6, Section 2.7.1, and Section 2.5.1 if selected.

 

The costs and expenditures shall be recorded as required for the settlement of accounts between the Parties hereto in connection with the rights and obligations under this Agreement and for purposes of complying with the tax laws of the Country of Operations and of such other countries to which any of the Parties may be subject.  Without in any way limiting the generality of the foregoing, chargeable costs and expenditures shall include:

 

2.1          Licenses. Permits, Etc.

 

All costs, if any, attributable to the acquisition, maintenance, renewal or relinquishment of licenses, permits, contractual and/or surface rights acquired for Joint Operations and bonuses paid in accordance with the Contract when paid by Operator in accordance with the provisions of the Agreement.

 

2.2          Salaries. Wages and Related Costs.

 

Salaries, wages and related costs include everything constituting the employees’ total compensation, as well as the cost to Operator of holiday, vacation, sickness, disability benefits, living and housing allowances, travel time, bonuses, and other customary allowances applicable to the salaries and wages chargeable hereunder, as well as the costs to Operator for employee benefits, including but not limited to employee group life insurance, group medical insurance, hospitalization, retirement, severance payments required by the laws or regulations of the Country of Operations approval of the Operating Committee shall be required to charge the Joint Account with any severance payments in excess of those provided by the laws or regulations of the Country of Operations, and other benefit plans of a like nature applicable to labor costs of Operator.

 

All costs associated with organizational restructuring (e.g., separation benefits, relocation costs, asset disposition costs) of Operator or its Affiliates, other than those costs which are directly related to employees of Operator who are directly engaged in Joint Operations on a full time basis, will require the approval of the Parties to be chargeable to the Joint Account. 

 

Any costs associated with Country of Operations benefit plans which are not currently funded shall be accrued and not be paid by Non-Operators, unless otherwise approved by the Operating Committee, until the same are due and payable to the employee, upon withdrawal of a Party pursuant to the Agreement and then only by the withdrawing Party, or upon termination of the Agreement, whichever occurs first.

 

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Expenditures or contributions made pursuant to assessments imposed by governmental authority for payments with respect to or on account of employees described in Section 2.2.1 and Section 2.2.2 shall be chargeable to the Joint Account.

 

2.2.1                     The salaries, wages and related costs of employees of Operator and its Affiliates temporarily or permanently assigned in the Country of Operations and directly engaged in Joint Operations shall be chargeable to the Joint Account.

 

2.2.2                     The salaries, wages and related costs of employees of Operator and its Affiliates temporarily or permanently assigned outside the Country of Operations directly engaged in Joint Operations and not otherwise covered in Section 2.7.2 shall be chargeable to the Joint Account.

 

2.2.3                     Costs for salaries, wages and related costs may be charged to the Joint Account on an actual basis or at a rate based upon the average cost in accordance with Operator’s usual practice.  In determining the average cost, expatriate and national employees’ rates shall be calculated separately and reviewed at least annually.

 

2.2.4                     Reasonable expenses (including related travel costs) of those employees whose salaries and wages are chargeable to the Joint Account under Sections 2.2.1 and 2.2.2 of this Section II and for which expenses the employees are reimbursed under the usual practice of Operator shall be chargeable to the Joint Account.

 

2.2.5                     If employees are engaged in other activities in addition to the Joint Operations, the cost of such employees shall be allocated on an equitable basis.

 

2.3          Employee Relocation Costs.

 

2.3.1                     Except as provided in Section 2.3.3, Operator’s cost of employees’ relocation to or from an assignment with the Joint Operations, whether within or outside the Country of Operations and whether permanently or temporarily assigned to the Joint Operations, shall be chargeable to the Joint Account. If such employee works on other activities in addition to Joint Operations, such relocation costs shall be allocated on an equitable basis.

 

2.3.2                     Such relocation costs shall include transportation of employees, families, personal and household effects of the employee and family, transit expenses, and all other related costs in accordance with Operator’s usual practice.

 

2.3.3                     Relocation costs from an assignment with the Joint Operations to another location classified as a foreign location by Operator shall not be chargeable to the Joint Account unless such foreign location is the point of origin of the employee or unless otherwise agreed by the Operating Committee. 

 

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2.4          Offices, Camps, and Miscellaneous Facilities.

 

Cost of maintaining any offices, sub-offices, camps, warehouses, housing, and other facilities of the Operator and/or Affiliates directly serving the Joint Operations.  If such facilities serve operations in addition to the Joint Operations the costs shall be allocated to the properties served on an equitable basis.

 

2.5          Material.

 

Cost, net of discounts taken by Operator, of Material purchased or furnished by Operator.  Such costs shall include, but are not limited to, export brokers’ fees, transportation charges, loading, unloading fees, export and import duties and license fees associated with the procurement of Material and in-transit losses, if any, not covered by insurance. So far as it is reasonably practical and consistent with efficient and economical operation, only such Material shall be purchased for, and the cost thereof charged to, the Joint Account as may be required for immediate use. 

 

2.6          Exclusively Owned Equipment and Facilities of Operator and Affiliates.

 

Charges for exclusively owned equipment, facilities, and utilities of Operator or any of its Affiliates at rates not to exceed the average commercial rates of non-affiliated third parties then prevailing for like equipment, facilities, and utilities for use in the area where the same are used hereunder.  On request, Operator shall furnish Non-Operators a list of rates and the basis of application.  Such rates shall be revised from time to time if found to be either excessive or insufficient, but not more than once every six months. 

 

Exclusively owned drilling tools and other equipment lost in the hole or damaged beyond repair may be charged at replacement cost less depreciation plus transportation costs to deliver like equipment to the location where used.

 

2.7          Services.

 

2.7.1                     The charges for services provided by third parties, including the Affiliates of the respective Parties which have contracted with Operator to perform services that are normally provided by third parties, other than those services covered by Section 2.7.2 and Section 2.7.3, shall be chargeable to the Joint Account. Such charges for services by the Affiliates of the respective Parties shall not exceed those currently prevailing if performed by non-affiliated third parties, considering quality and availability of services.

 

2.7.2                     The cost of services performed by Operator’s Affiliates technical and professional staffs not located within the Country of Operation and not otherwise covered under Section 2.2.2, shall be chargeable to the Joint Account.  The individual rates shall include salaries and wages of such technical and professional personnel, lost time, governmental assessments, and employee benefits. Costs shall also include all support costs necessary for such technical and professional personnel to perform such services, such as, but not limited to, rent, utilities, support staff, drafting, telephone and other

 

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communication expenses, computer support, supplies, depreciation, and other reasonable expenses.

 

2.7.3                     The cost of services performed with the approval of Operator by the technical and professional staffs of the Non-Operators and the Affiliates of the respective Non-Operators, including the cost to such Affiliates and Non-Operators of their respective Secondees, shall be chargeable to the Joint Account. The individual rates shall include salaries and wages of such technical and professional personnel and Secondees, lost time, governmental assessments, and employee benefits. Costs (other than for Secondees) shall also include all support costs necessary for such technical and professional personnel to perform such services, such as, but not limited, to rent, utilities, support staff, drafting, telephone and other communication expenses, computer support, supplies, depreciation, and other reasonable expenses.

 

2.7.4                     A Non-Operator shall bill Operator for direct costs of services and of Secondees charged under the provisions of Section 2.7.3 on or before the last day of each month for charges for the preceding month, to which charges Non-Operator shall not add an administrative overhead rate. Within thirty (30) Days after receipt of a bill for such charges, Operator shall pay the amount due thereon.

 

The charges for such services under Section 2.7.2 and Section 2.7.3 shall not exceed those currently prevailing if performed by non-affiliated third parties, considering the quality and availability of such services.

 

Examples of such services covered under Sections 2.7.2 and Section 2.7.3 include, but are not limited to, the following:

 

Geologic Studies and Interpretation

Seismic Data Processing

Well Log Analysis, Correlation and Interpretation

Laboratory Services

Well Site Geology

Project Engineering

Source Rock Analysis

Petrophysical Analysis

Geochemical Analysis

Drilling Supervision

Development Evaluation

Accounting and Professional Services

Other Data Processing

 

2.8          Insurance.

 

Premiums paid for insurance required by law or the Agreement to be carried for the benefit of the Joint Operations.

 

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2.9          Damages and Losses to Property.

 

2.9.1                     All costs or expenditures necessary to replace or repair damages or losses incurred by fire, flood, storm, theft, accident, or any other cause shall be chargeable to the Joint Account.  Operator shall furnish Non-Operators written notice of damages or losses incurred in excess of U.S. $500,000 as soon as practical after report of the same has been received by Operator. All losses in excess of U.S. $500,000 shall be listed separately in the monthly statement of costs and expenditures.

 

2.9.2                     Credits for settlements received from insurance carried for the benefit of Joint Operations and from others for losses or damages to Joint Property or Materials shall be chargeable to the Joint Account.  Each Party shall be credited with its Participating Interest share thereof except where such receipts are derived from insurance purchased by Operator for less than all Parties in which event such proceeds shall be credited to those Parties for whom the insurance was purchased in the proportion of their respective contributions toward the insurance coverage.

 

2.9.3                     Expenditures incurred in the settlement of all losses, claims, damages, judgments, and other expenses for the account of Joint Operations shall be chargeable to the Joint Account.

 

2.10        Litigation and Legal Expenses.

 

The costs and expenses of litigation and legal services necessary for the protection of the Joint Operations under this Agreement as follows:

 

2.10.1              Legal services necessary or expedient for the protection of the Joint Operations, and all costs and expenses of litigation, arbitration or other alternative dispute resolution procedure, including reasonable attorneys’ fees and expenses, together with all judgments obtained against the Parties or any of them arising from the Joint Operations.

 

2.10.2              If the Parties hereunder shall so agree, actions or claims affecting the Joint Operations hereunder may be handled by the legal staff of one or any of the Parties hereto; and a charge commensurate with the reasonable costs of providing and furnishing such services rendered may be made by the Party providing such service to Operator for the Joint Account, but no such charges shall be made until approved by the Parties.

 

2.11                        Taxes and Duties.

 

All taxes, duties, assessments and governmental charges, of every kind and nature, assessed or levied upon or in connection with the Joint Operations, other than any that are measured by or based upon the revenues, income and net worth of a Party.

 

If Operator or an Affiliate is subject to income or withholding tax as a result of services

 

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performed at cost for the operations under the Agreement, its charges for such services may be increased by the amount of such taxes incurred (grossed up).

 

2.12                        Ecological and Environmental.

 

Costs incurred on the Joint Property as a result of statutory regulations for archaeological and geophysical surveys relative to identification and protection of cultural resources and/or other environmental or ecological surveys as may be required by any regulatory authority.  Also, costs to provide or have available pollution containment and removal equipment plus costs of actual control, clean up and remediation resulting from responsibilities associated with Hydrocarbon contamination as required by all applicable laws and regulations.

 

2.13                        Decommissioning (Abandonment) and Reclamation.

 

Costs incurred for decommissioning (abandonment) and reclamation of the Joint Property, including costs required by governmental or other regulatory authority or by the Contract.

 

2.14                        Other Expenditures.

 

Any other costs and expenditures incurred by Operator for the necessary and proper conduct of the Joint Operations in accordance with approved Work Programs and Budgets and not covered in this Section II or in Section III.

 

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SECTION III.

INDIRECT CHARGES

3.1          Purpose.

 

Operator shall charge the Joint Account monthly for the cost of indirect services and related office costs of Operator and its Affiliates not otherwise provided in this Accounting Procedure. Indirect costs chargeable under this Section III represent the cost of general assistance and support services provided by Operator and its Affiliates. These costs are such that it is not practical to identify or associate them with specific projects but are for services which provide the Joint Operations with needed and necessary resources which Operator requires and provide a real benefit to Joint Operations.  No cost or expenditure included under Section II shall be included or duplicated under this Section III.  The charges under Section III are not subject to audit under Sections 1.8.1 and 1.8.2 other than to verify that the overhead percentages are applied correctly to the expenditure basis.

 

3.2         Amount.

 

3.2.1                     The indirect charge under Section 3.1 for any month shall equal the greater of the total amount of indirect charges for the period beginning at the start of the Calendar Year through the end of the period covered by Operator’s invoice (“Year-to-Date”) determined under Section 3.2.2, less indirect charges previously made under Section 3.1 for the Calendar Year in question, or the amount of the minimum assessment determined under Section 3.2.3, calculated on an annualized basis (but reduced pro rata for periods of less than one year), less indirect charges previously made under Section 3.1 for the Calendar Year in question.

 

3.2.2                     Unless exceeded by the minimum assessment under Section 3.2.3, the aggregate Year-to-Date indirect charges shall be a percentage of the Year-to-Date expenditures, calculated on the following scale (U.S. Dollars): 

 

Annual Expenditures

 

$0 to $5,000,000 of expenditures = 5%

 

Next $10,000,000 of expenditures = 3%

 

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Excess above $15,000,000 of expenditures = 1%

 

3.2.3                     A minimum amount of U.S. $50,000 shall be assessed each Calendar Year calculated from the Effective Date and shall be reduced pro rata for periods of less than a year.

 

3.2.4                     Indirect Charge for Projects.

 

As to major projects (such as, but not limited to, pipelines, gas reprocessing and processing plants, final loading and terminalling facilities, and dismantling for decommissioning of platforms and related facilities) when the estimated cost of each project amounts to more than U.S. $ 25,000,000, a separate indirect charge for such project shall be approved by the Operating Committee at the time of approval of the project.

 

During its process of winding-up Joint Operations Operator shall have the right to charge the greater of the sliding scale percentage rate or the minimum indirect charge for a period of twenty-four (24) months.  If the winding-up process continues beyond the end of such period, the charge shall be confined to and based upon the sliding scale percentage rate.

 

Notwithstanding the foregoing, the indirect rates and related calculation method for development operations, production operations, and dismantling for decommissioning of platforms and related facilities shall be agreed upon by the Operating Committee prior to the submission of the first annual budget for those phases of operations.

 

3.3         Exclusions.

 

The expenditures used to calculate the monthly indirect charge shall not include the indirect charge (calculated either as a percentage of expenditures or as a  minimum monthly charge), rentals on surface rights acquired and maintained for the Joint Account, guarantee deposits, pipeline tariffs, concession acquisition costs, bonuses paid in accordance with the Contract, royalties and taxes on production or revenue to the Joint Account paid by Operator, expenditures associated with major construction projects for which a separate indirect charge is established hereunder, payments to third parties in settlement of claims, and other similar items.

 

Credits arising from any government subsidy payments, disposition of Material, and receipts from third parties for settlement of claims shall not be deducted from total expenditures in determining such indirect charge. 

 

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SECTION IV.

ACQUISITION OF MATERIAL

 

4.1         Acquisitions.

 

Materials purchased for the Joint Account shall be charged at net cost paid by the Operator.  The price of Materials purchased shall include, but shall not be limited to export broker’s fees, insurance, transportation charges, loading and unloading fees, import duties, license fees, and demurrage (retention charges) associated with the procurement of Materials, and applicable taxes, less all discounts taken.

 

4.2         Materials Furnished by Operator.

 

Materials required for operations shall be purchased for direct charge to the Joint Account whenever practicable, except the Operator may furnish such Materials from its stock under the following conditions:

 

4.2.1                     New Materials (Condition “A”). 

 

New Materials transferred from the warehouse or other properties of Operator shall be priced at net cost determined in accordance with Section 4.1 above as if Operator had purchased such new Material just prior to its transfer. 

 

Such net costs shall in no event exceed the then current market price.

 

4.2.2                     Used Materials (Conditions “B” and “C”).

 

4.2.2.1                                                           Material which is in sound and serviceable condition and suitable for use without repair or reconditioning shall be classed as Condition “B” and priced at seventy-five percent (75%) of such new purchase net cost at the time of transfer.

 

4.2.2.2                                                           Materials not meeting the requirements of Section 4.2.2.1 above, but which can be made suitable for use after being repaired or reconditioned, shall be classed as Condition “C” and priced at fifty percent (50%) of such new purchase net cost at the time of transfer.  The cost of reconditioning shall also be charged to the Joint Account provided the Condition “C” price, plus cost of reconditioning, does not exceed the Condition “B” price; and provided that Material so classified meet the requirements for Condition “B” Material upon being repaired or reconditioned.

 

4.2.2.3                                                           Material which cannot be classified as Condition “B” or Condition “C”, shall be priced at a value commensurate with its use.

 

4.2.2.4                                                           Tanks, derricks, buildings, and other items of Material involving erection costs, if transferred in knocked-down condition, shall be graded as to condition as provided in this Section 4.2.2 of Section

 

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IV, and priced on the basis of knocked-down price of like new Material. 

 

4.2.2.5                                                           Material including drill pipe, casing and tubing, which is no longer useable for its original purpose but is useable for some other purpose, shall be graded as to condition as provided in this Section 4.2.2 of Section IV.  Such Material shall be priced on the basis of the current price of items normally used for such other purpose if sold to third parties.

 

4.3         Premium Prices.

 

Whenever Material is not readily obtainable at prices specified in Sections 4.1 and 4.2 of this Section IV because of national emergencies, strikes or other unusual causes over which Operator has no control, Operator may charge the Joint Account for the required Material at Operator’s actual cost incurred procuring such Material, in making it suitable for use, and moving it to the Contract Area, provided that notice in writing, including a detailed description of the Material required and the required delivery date, is furnished to Non-Operators of the proposed charge at least 3 Days (or such shorter period as may be specified by Operator) before the Material is projected to be needed for operations and prior to billing Non-Operators for such Material the cost of which exceeds U.S. $500,000.  Each Non-Operator shall have the right, by so electing and notifying Operator within 3 Days (or such shorter period as may be specified by Operator) after receiving notice from Operator, to furnish in kind all or part of his share of such Material per the terms of the notice which is suitable for use and acceptable to Operator both as to quality and time of delivery.  Such acceptance by Operator shall not be unreasonably withheld.  If Material furnished is deemed unsuitable for use by Operator, all costs incurred in disposing of such Material or returning Material to owner shall be borne by the Non-Operator furnishing the same unless otherwise agreed by the Parties. If a Non-Operator fails to properly submit an election notification within the designated period, Operator is not required to accept Material furnished in kind by that Non-Operator.  If Operator fails to submit proper notification prior to billing Non-Operators for such Material, Operator shall only charge the Joint Account on the basis of the price allowed during a “normal” pricing period in effect at time of movement.

 

4.4         Warranty of Material Furnished by Operator.

 

Operator does not warrant the condition or fitness for the purpose intended of the  Material furnished.  In case defective Material is furnished by Operator for the  Joint Account, credit shall not be passed to the Joint Account until adjustment  has been received by Operator from the manufacturers or their agents. (Note: This  Section has been made conspicuous so as to comply with the requirement of Section 2-316 of the Uniform Commercial Code.)

 

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SECTION V.

DISPOSAL OF MATERIALS

 

5.1          Disposal.

 

Operator shall be under no obligation to purchase the interest of Non-Operators in new or used surplus Materials. Operator shall have the right to dispose of Materials but shall advise and secure prior agreement of the Operating Committee of any proposed disposition of Materials having an original cost to the Joint Account either individually or in the aggregate of U.S. $500,000 or more.  When Joint Operations are relieved of Material charged to the Joint Account, Operator shall advise each Non-Operator of the original cost of such Material to the Joint Account so that the Parties may eliminate such costs from their asset records.  Credits for Material sold by Operator shall be made to the Joint Account in the month in which payment is received for the Material.  Any Material sold or disposed of under this Section shall be on an “as is, where is” basis without guarantees or warranties of any kind or nature.  Costs and expenditures incurred by Operator in the disposition of Materials shall be charged to the Joint Account.

 

5.2          Material Purchased by a Party or Affiliate.

 

Proceeds received from Material purchased from the Joint Property by a Party or an Affiliate thereof shall be credited by Operator to the Joint Account, with new Material valued in the same manner as new Material under Section 4.2.1 and used Material valued in the same manner as used Material under Section 4.2.2, unless otherwise agreed by the Operating Committee.

 

5.3          Division In Kind.

 

Division of Material in kind, if made between the Parties, shall be in proportion to their respective interests in such Material.  Each Party will thereupon be charged individually with the value (determined in accordance with the procedure set forth in Section 5.2) of the Material received or receivable by it.

 

5.4          Sales to Third Parties.

 

Proceeds received from Material purchased from the Joint Property by third parties shall be credited by Operator to the Joint Account at the net amount collected by Operator from the buyer.  If the sales price is less than that determined in accordance with the procedure set forth in Section 5.2, then approval by the Operating Committee shall be required prior to the sale.  Any claims by the buyer for defective materials or otherwise shall be charged back to the Joint Account if and when paid by Operator.

 

18

 

SECTION VI.

INVENTORIES

 

6.1          Periodic Inventories - Notice and Representation.

 

At reasonable intervals, but at least annually, inventories shall be taken by Operator of all Material held in warehouse stock on which detailed accounting records are normally maintained.  The expense of conducting periodic inventories shall be charged to the Joint Account. Operator shall give Non-Operators written notice at least sixty Days (60) in advance of its intention to take inventory, and Non-Operators, at their sole cost and expense, shall each be entitled to have a representative present.  The failure of any Non-Operator to be represented at such inventory shall bind such Non-Operator to accept the inventory taken by Operator, who shall in that event furnish each Non-Operator with a reconciliation of overages and shortages.  Inventory adjustments to the Joint Account shall be made for overages and shortages. Any adjustment equivalent to U.S. $500,000 or more shall be brought to the attention of the Operating Committee.

 

6.2          Special Inventories.

 

Whenever there is a sale or change of interest in the Agreement, a special inventory may be taken by the Operator provided the seller and/or purchaser of such interest agrees to bear all of the expense thereof.  In such cases, both the seller and the purchaser shall be entitled to be represented and shall be governed by the inventory so taken.

 

19

 

********************

 

THIS PAGE IS NOT A PART OF 

 

THE ACCOUNTING PROCEDURE OR 

 

THE OPERATING AGREEMENT

 

**********************

 

References to the following Model Operating Agreement Articles may be found in this Accounting Procedure in the Sections indicated.

 

	
Article I
    	
 
    	
Section 1.3
    
	
Article 1.4
    	
 
    	
Section 1.6.13.3
    
	
Article 4.2(B)(6)
    	
 
    	
Section 1.8.1
    
	
Article 4.11
    	
 
    	
Section 1.6.13.5
    
	
Article 6.4
    	
 
    	
Sections   1.5.1, 1.6.1 and 1.6.2
    
	
Article VII
    	
 
    	
Sections   1.6.13.1 and 1.6.13.5
    
	
Article VIII
    	
 
    	
Section 1.6.9
    
	
Article 15.1(A)(3) and   (9)
    	
 
    	
Section 1.8.3
    
	
Article XVIII
    	
 
    	
Section 1.8.6
    

 

AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE

MAY 17, 2000Exhibit 10.3

 

PETROLEUM AGREEMENT

 

AMONG

 

 

GOVERNMENT OF THE REPUBLIC OF GHANA

GHANA NATIONAL PETROLEUM CORPORATION

 

 

AND

 

TULLOW GHANA LIMITED

SABRE OIL AND GAS LIMITED

KOSMOS ENERGY GHANA HC

 

IN RESPECT OF

 

THE DEEPWATER TANO

CONTRACT AREA

 

DATED MARCH 10, 2006

 

 

TABLE OF CONTENTS

 

	
ARTICLE 1
    	
5
    
	
 
    	
 
    
	
DEFINITIONS
    	
5
    
	
 
    	
 
    
	
ARTICLE 2
    	
12
    
	
 
    	
 
    
	
SCOPE   OF THE AGREEMENT, INTERESTS OF THE PARTIES AND CONTRACT AREA
    	
12
    
	
 
    	
 
    
	
ARTICLE 3
    	
15
    
	
 
    	
 
    
	
EXPLORATION   PERIOD
    	
15
    
	
 
    	
 
    
	
ARTICLE 4
    	
18
    
	
 
    	
 
    
	
MINIMUM   EXPLORATION PROGRAMME
    	
18
    
	
 
    	
 
    
	
ARTICLE 5
    	
22
    
	
 
    	
 
    
	
RELINQUISHMENT
    	
22
    
	
 
    	
 
    
	
ARTICLE 6
    	
24
    
	
 
    	
 
    
	
JOINT   MANAGEMENT COMMITTEE
    	
24
    
	
 
    	
 
    
	
ARTICLE 7
    	
28
    
	
 
    	
 
    
	
RIGHTS   AND OBLIGATIONS OF CONTRACTOR AND GNPC
    	
28
    
	
 
    	
 
    
	
ARTICLE 8
    	
31
    
	
 
    	
 
    
	
COMMERCIALITY
    	
31
    
	
 
    	
 
    
	
ARTICLE 9
    	
36
    
	
 
    	
 
    
	
SOLE   RISK ACCOUNT
    	
36
    
	
 
    	
 
    
	
ARTICLE 10
    	
39
    
	
 
    	
 
    
	
SHARING   OF CRUDE OIL
    	
39
    
	
 
    	
 
    
	
ARTICLE 11
    	
47
    
	
 
    	
 
    
	
MEASUREMENT   AND PRICING OF CRUDE OIL
    	
47
    
	
 
    	
 
    
	
ARTICLE 12
    	
50
    
	
 
    	
 
    
	
TAXATION   AND OTHER IMPOSTS
    	
50
    
	
 
    	
 
    
	
ARTICLE 13
    	
53
    
	
 
    	
 
    
	
FOREIGN   EXCHANGE TRANSACTIONS
    	
53
    
	
 
    	
 
    
	
ARTICLE 14
    	
55
    
	
 
    	
 
    
	
SPECIAL   PROVISIONS FOR NATURAL GAS
    	
55
    
	
PART I - GENERAL
    	
55
    
	
PART II -ASSOCIATED GAS
    	
55
    
	
PART III - NON-ASSOCIATED GAS
    	
56
    
	
PART IV NATURAL GAS PROJECTS
    	
58
    

 

 

	
ARTICLE 15
    	
62
    
	
 
    	
 
    
	
DOMESTIC   SUPPLY REQUIREMENT (CRUDE OIL)
    	
62
    
	
 
    	
 
    
	
ARTICLE 16
    	
63
    
	
 
    	
 
    
	
INFORMATION   AND REPORTS : CONFIDENTIALITY
    	
63
    
	
 
    	
 
    
	
ARTICLE 17
    	
66
    
	
 
    	
 
    
	
INSPECTION,   SAFETY AND ENVIRONMENTAL PROTECTION
    	
66
    
	
 
    	
 
    
	
ARTICLE 18
    	
68
    
	
 
    	
 
    
	
ACCOUNTING   AND AUDITING
    	
68
    
	
 
    	
 
    
	
ARTICLE 19
    	
70
    
	
 
    	
 
    
	
TITLE   TO AND CONTROL OF GOODS AND EQUIPMENT
    	
70
    
	
 
    	
 
    
	
ARTICLE 20
    	
72
    
	
 
    	
 
    
	
PURCHASING   AND PROCUREMENT
    	
72
    
	
 
    	
 
    
	
ARTICLE 21
    	
73
    
	
 
    	
 
    
	
EMPLOYMENT   AND TRAINING
    	
73
    
	
 
    	
 
    
	
ARTICLE 22
    	
75
    
	
 
    	
 
    
	
FORCE   MAJEURE
    	
75
    
	
 
    	
 
    
	
ARTICLE 23
    	
76
    
	
 
    	
 
    
	
TERM   AND TERMINATION
    	
76
    
	
 
    	
 
    
	
ARTICLE 25
    	
82
    
	
 
    	
 
    
	
ASSIGNMENT
    	
82
    
	
 
    	
 
    
	
ARTICLE 26
    	
83
    
	
 
    	
 
    
	
MISCELLANEOUS
    	
83
    
	
 
    	
 
    
	
ARTICLE 27
    	
86
    
	
 
    	
 
    
	
NOTICE
    	
86
    
	
 
    	
 
    
	
ANNEX 1 - CONTRACT AREA
    	
1
    
	
 
    	
 
    
	
ANNEX 2 - ACCOUNTING GUIDE
    	
4
    
	
 
    	
 
    
	
SECTION 1
    	
5
    
	
1.1
    	
GENERAL PROVISIONS
    	
5
    
	
1.2
    	
STATEMENTS REQUIRED TO BE   SUBMITTED BY CONTRACTOR
    	
5
    
	
1.3
    	
LANGUAGE, MEASUREMENT,   AND UNITS OF ACCOUNTS
    	
6
    
	
SECTION 2
    	
8
    
	
2.0
    	
CLASSIFICATION AND   ALLOTMENT OF COSTS AND EXPENDITURE
    	
8
    
	
2.1
    	
ALL EXPENDITURE RELATING   TO PETROLEUM OPERATIONS SHALL BE CLASSIFIED, AS FOLLOWS:
    	
8
    
	
SECTION 3
    	
12
    
	
3.0
    	
COSTS, EXPENSES,   EXPENDITURES AND CREDITS OF CONTRACTOR
    	
12
    
	
3.1
    	
CONTRACTOR FOR THE   PURPOSE OF THIS AGREEMENT SHALL CHARGE THE FOLLOWING ALLOWABLE COSTS TO THE   ACCOUNTS:
    	
12
    
	
3.2
    	
COST OF ACQUIRING SURFACE   RIGHTS AND RELINQUISHMENT
    	
12
    
	
3.3
    	
LABOUR AND ASSOCIATED   LABOUR COSTS
    	
12
    

 

2

 

	
3.4
    	
TRANSPORTATION COSTS
    	
13
    
	
3.5
    	
CHARGES FOR SERVICES
    	
13
    
	
3.6
    	
RENTALS, DUTIES AND OTHER   ASSESSMENTS
    	
14
    
	
3.7
    	
INSURANCE AND LOSSES
    	
14
    
	
3.8
    	
LEGAL EXPENSES
    	
14
    
	
3.9
    	
TRAINING COSTS
    	
15
    
	
3.10
    	
GENERAL AND   ADMINISTRATIVE EXPENSES
    	
15
    
	
3.11
    	
UTILITY COSTS
    	
15
    
	
3.12
    	
OFFICE FACILITY CHARGES
    	
15
    
	
3.13
    	
COMMUNICATION CHARGES
    	
15
    
	
3.14
    	
ECOLOGICAL AND ENVIRONMENTAL   CHARGES
    	
15
    
	
3.15
    	
ABANDONMENT COST
    	
16
    
	
3.16
    	
OTHER COSTS
    	
16
    
	
3.17
    	
COSTS NOT ALLOWABLE UNDER   THE AGREEMENT
    	
16
    
	
3.18
    	
ALLOWABLE AND   DEDUCTIBILITY
    	
17
    
	
3.19
    	
CREDITS UNDER THE   AGREEMENT
    	
17
    
	
3.20
    	
DUPLICATION OF CHARGES   AND CREDITS
    	
18
    
	
SECTION 4
    	
19
    
	
4.0
    	
MATERIAL
    	
19
    
	
4.1
    	
VALUE OF MATERIAL CHARGED   TO THE ACCOUNTS UNDER THE AGREEMENT
    	
19
    
	
4.2
    	
VALUE OF MATERIAL   PURCHASED FROM AN AFFILIATE
    	
19
    
	
4.3
    	
CLASSIFICATION OF   MATERIALS
    	
20
    
	
4.4
    	
DISPOSAL OF MATERIALS
    	
20
    
	
4.5
    	
WARRANTY OF MATERIALS
    	
20
    
	
4.6
    	
CONTROLLABLE MATERIALS
    	
20
    
	
SECTION 5
    	
22
    
	
5.0
    	
CASH CALL STATEMENT
    	
22
    
	
SECTION 6
    	
23
    
	
6.0
    	
PRODUCTION STATEMENT
    	
23
    
	
SECTION 7
    	
24
    
	
7.0
    	
VALUE OF PRODUCTION   STATEMENT
    	
24
    
	
SECTION 8
    	
25
    
	
8.0
    	
COST STATEMENT
    	
25
    
	
SECTION 9
    	
26
    
	
9.0
    	
STATEMENT OF EXPENDITURES   AND RECEIPTS
    	
26
    
	
SECTION 10
    	
27
    
	
10.0
    	
FINAL END-OF-YEAR   STATEMENT
    	
27
    
	
SECTION 11
    	
28
    
	
11.0
    	
BUDGET STATEMENT
    	
28
    
	
SECTION 12
    	
29
    
	
12.0
    	
LONG RANGE PLAN AND   FORECAST
    	
29
    
	
 
    	
 
    	
 
    
	
ANNEX 3 - SAMPLE AOE CALCULATION
    	
31
    

 

3

 

THIS PETROLEUM AGREEMENT, made this                   day of                                             2006 by and among the Government of the Republic of Ghana (hereinafter referred to as “The State”), represented by the Minister for Energy (hereinafter referred to as the “Minister”), the Ghana National Petroleum Corporation, a public corporation established by Provisional National Defence Council Law 64 of 1983 (hereinafter referred to as “GNPC”), and Tullow Ghana Limited, a Jersey company (hereinafter referred to as “Tullow”), Sabre Oil and Gas Limited, a United Kingdom company (hereinafter referred to as “Sabre”) and Kosmos Energy Ghana HC, a Cayman Islands company (hereinafter referred to as “Kosmos”), (the three companies hereinafter collectively referred to as “Contractor”)

 

WITNESSETH:

 

1.             All Petroleum existing in its natural state within Ghana is the property of the Republic of Ghana and held in trust by the State.

 

2.             GNPC has by virtue of the Petroleum Law the right to undertake Exploration, Development and Production of Petroleum over all blocks declared by the Minister to be open for Petroleum Operations.

 

3.             GNPC is further authorised to enter into association by means of a Petroleum Agreement with a contractor for the purpose of Exploration, Development and Production of Petroleum.

 

4.             The Contract Area that is the subject matter of this Petroleum Agreement has been declared open for Petroleum Operations by the Minister and the Government of Ghana desires to encourage and promote Exploration, Development and Production within the said area. GNPC and the State have assured Contractor that all of said area is within the jurisdiction of the Republic of Ghana.

 

5.             Contractor, having the financial ability, technical competence and professional skills necessary for carrying out the Petroleum Operations herein described, desires to associate with GNPC in the Exploration for, and Development and Production of the Petroleum resources of the said area.

 

6.             The Parties recognise that Ghanaian nationals should as soon as reasonably possible be engaged in employment at all levels in the Petroleum industry, including technical, administrative and managerial positions, and that to achieve this objective an adequate programme of training must be established as an integral part of this Agreement.

 

4

 

NOW THEREFORE, in consideration of the mutual covenants herein contained, it is hereby agreed and declared as follows:

 

ARTICLE 1

 

DEFINITIONS

 

1.             In this Agreement:

 

1.1           “Accounting Guide” means the accounting guide which is attached hereto as Annex 2 and made a part hereof;

 

1.2           “Additional Interest” means the Additional Interest of GNPC provided for in Article 2.5 and Article 2.6;

 

1.3           “Affiliate” means any person, whether a natural person, corporation, partnership, unincorporated association or other entity:

 

a)     in which one of the Parties hereto or one of the companies comprising Contractor directly or indirectly hold more than fifty percent (50%) of the share capital or voting rights;

 

b)    which holds directly or indirectly more than fifty percent (50%) of the share capital or voting rights in a Party hereto or of the companies comprising Contractor;

 

c)     in which the share capital or voting rights are directly or indirectly and to an extent more than fifty percent (50%) held by a company or companies holding directly or indirectly more than fifty percent (50%) of the share capital or voting rights in a Party hereto or in one of the companies comprising Contractor; or

 

d)    which holds directly five percent (5%) or more of the share capital or voting rights in Contractor.

 

1.4           “Agreement” means this Agreement between the State, GNPC and Contractor, and includes the Annexes attached hereto;

 

1.5           “Appraisal Programme” means a programme carried out following a Discovery of Petroleum for the purpose of delineating the accumulation of Petroleum to which that Discovery relates in terms of thickness and lateral extent and estimating the quantity of recoverable Petroleum therein;

 

5

 

 

1.6                               “Appraisal Well” means a well drilled for the purposes of an Appraisal Programme;

 

1.7                               “Associated Gas” means Natural Gas produced from a well in association with Crude Oil;

 

1.8                               “Barrel” means a quantity or unit of Crude Oil equal to forty-two (42) United States gallons at a temperature of sixty (60) degrees fahrenheit and at 14.65 psia pressure.

 

1.9                               “Block” means an area of approximately 685 square kilometres as depicted on the reference map prepared by the Minister in accordance with the provisions of the Petroleum Law;

 

1.10                         “Calendar Year” means the period of twelve (12) months of the Gregorian calendar, commencing on January 1 and ending on the succeeding December 31;

 

1.11                         “Carried Interest” means an interest held by GNPC in respect of which Contractor pays for the conduct of Petroleum Operations without any entitlement to reimbursement from GNPC as expressly provided for in this Agreement;

 

1.12                         “Commercial Discovery” means a Discovery which is determined to be commercial in accordance with the provisions of this Agreement;

 

1.13                         “Commercial Production Period” means in respect of each Development and Production Area the period from the Date of Commencement of Commercial Production until the termination of this Agreement or earlier relinquishment of such Development and Production Area;

 

1.14                         “Contract Area” means the area of 1,108 sq km covered by this Agreement in which Contractor is authorised to explore for, develop and produce Petroleum, which is described in Annex 1 attached hereto and made a part of this Agreement, but excluding any portions of such area in respect of which Contractor’s rights hereunder are from time to time relinquished or surrendered pursuant to this Agreement;

 

1.15                         “Contractor” means Tullow Ghana Limited, Sabre Oil and Gas Limited and Kosmos Energy Ghana HC and their respective successors and assignees;

 

1.16                         “Contract Year” means a period of twelve (12) Months, commencing on the Effective Date or any anniversary thereof;

 

6

 

1.17                         “Crude Oil” means hydrocarbons which are liquid at 14.65 psia pressure and sixty (60) degrees Fahrenheit and includes condensates and distillates obtained from Natural Gas;

 

1.18                         “Date of Commencement of Commercial Production” means, in respect of each Development and Production Area, the date on which production of Petroleum under a programme of regular production, lifting and sale commences;

 

1.19                         “Date of Commercial Discovery” means the date referred to in Article 8.12;

 

1.20                         “Delivery Point” shall have the meaning ascribed it in Article 10.5;

 

1.21                         “Development” or “Development Operations” means the preparation of a Development Plan, the design, engineering, building and installation of facilities for Production, and includes drilling of Development Wells, construction and installation of equipment, pipelines, facilities, plants and systems, in and outside the Contract Area, which are required for achieving Production, treatment, transport, storage and lifting of Petroleum, and preliminary Production and testing activities carried out prior to the Date of Commencement of Commercial Production, and includes all related planning and administrative work, and also includes drilling and installation of wells and equipment for pressure maintenance and/or for increasing production rates and may also include the construction and installation of secondary and tertiary recovery systems, where these are included as part of the Development Plan;

 

1.22                         “Development Costs” means Petroleum Costs incurred in Development Operations;

 

1.23                         “Development and Production Area” means that portion of the Contract Area reasonably determined by Contractor (or by GNPC if a Sole Risk Operation pursuant to Article 9) on the basis of the available seismic and well data to cover the areal extent of an accumulation of Petroleum constituting a Commercial Discovery, enlarged in area by ten percent (10%), such enlargement to extend uniformly around the perimeter of such accumulation; and further enlarged by the area covering any extension of the accumulation which is revealed by further development work provided such extension is within the Contract Area;

 

1.24                         “Development Period” means in respect of each Development and Production Area, the period from the Date of Commercial Discovery until the Date of Commencement of Commercial Production;

 

1.25                         “Development Plan” means the plan for development of a Commercial Discovery prepared by Contractor in consultation with the Joint Management Committee and approved by the Minister pursuant to Article 8;

 

7

 

1.26                         “Development Well” means a well drilled in accordance with a Development Plan for producing Petroleum, for pressure maintenance or for increasing the Production rate;

 

1.27                         “Discovery” means finding during Exploration Operations an accumulation of Petroleum not previously known or proven to have existed, which is recovered or recoverable at the surface in a flow measurable by conventional petroleum industry testing methods;

 

1.28                         “Discovery Area” means that portion of the Contract Area, reasonably determined by Contractor (or by GNPC if a Sole Risk Operation pursuant to Article 9) on the basis of the available seismic and well data to cover the areal extent of the geological structure in which a Discovery is made. A Discovery Area may be modified at any time by Contractor (or by GNPC if applicable), if justified on the basis of new information, but may not be modified after the date of completion of the Appraisal Programme;

 

1.29                         “Effective Date” shall have the meaning ascribed to it in Article 26.9;

 

1.30                         “Exploration” or “Exploration Operations” means the search for Petroleum by geological, geophysical and other methods and the drilling of Exploration Well(s) and includes any activity in connection therewith or in preparation thereof and any relevant processing and appraisal work, including technical and economic feasibility studies, that may be carried out to determine whether a Discovery of Petroleum constitutes a Commercial Discovery;

 

1.31                         “Exploration Costs” means all expenditures made and costs incurred, both within and outside Ghana, in conducting Exploration Operations hereunder determined in accordance with the Accounting Guide attached hereto an Annex 2;

 

1.32                         “Exploration Period” means the period commencing on the Effective Date and continuing during the time provided for in Article 3.1 within which Contractor is authorised to carry out Exploration Operations and shall include any periods of extensions provided for in this Agreement. The period shall terminate with respect to any Discovery Area on the Date of Commercial Discovery in respect of such Discovery Area;

 

1.33                         “Exploration Well” means a well drilled in the course of Exploration Operations conducted hereunder during the Exploration Period, but does not include an Appraisal Well;

 

8

 

1.34                         “Extension Period” means any of the First Extension Period or Second Extension Period;

 

1.35                         “First Extension Period” shall have the meaning ascribed to it in Article 3.1(a)(ii);

 

1.36                         “First SubPeriod shall have the meaning ascribed to it in Article 3.1(a)(i);

 

1.37                         “Force Majeure” means any event beyond the reasonable control of the Party claiming to be affected by such event which has not been brought about at its instance, including, but not limited to, earthquake, storm, flood, lightning or other adverse weather conditions, war, embargo, blockade, riot or civil disorder;

 

1.38                         “Foreign National Employee” means an expatriate employee of Contractor, its Affiliates, or its Sub-contractors who is not a citizen of Ghana;

 

1.39                         “Ghana” means the territory of the Republic of Ghana and includes the sea, seabed and subsoil, the continental shelf and all other areas within the jurisdiction of the Republic of Ghana;

 

1.40                         “Gross Production” means the total amount of Petroleum produced and saved from a Development and Production Area during Production Operations which is not used by Contractor in Petroleum Operations and is available for distribution to the Parties in accordance with Article 10;

 

1.41                         “Gross Negligence” means any act or failure to act (whether sole, joint or concurrent) which was in reckless disregard of or wanton indifference to harmful consequences such person or entity knew or should have known such act or failure would have on another person or entity;

 

1.42                         “Initial Exploration Period” shall have the meaning ascribed to it in Article 3.1(a)(i);

 

1.43                         “Initial Interest” means the interest of GNPC in all Petroleum Operations provided for in Article 2.4;

 

1.44                         “Joint Management Committee (JMC)” means the committee established pursuant to Article 6.1 hereof;

 

1.45                         “Market Price” shall have the meaning ascribed to it in Article 11.7;

 

1.46                         “Minister” means Minister for Energy;

 

1.47                         “Month” means a month of the Calendar Year;

 

9

 

1.48                         “Natural Gas” means all hydrocarbons which are gaseous at 14.65 psia pressure and sixty (60) degrees fahrenheit temperature and includes wet gas, dry gas and residue gas remaining after the extraction of liquid hydrocarbons from wet gas;

 

1.49                         “Non-Associated Gas” means Natural Gas produced from a well other than in association with Crude Oil;

 

1.50                         “Operator” means Tullow or such other Party as may be appointed by Contractor with the approval of GNPC and the State, which approval shall not be unreasonably withheld or delayed;

 

1.51                         “Participating Interest” means for GNPC, the interest held by GNPC in accordance with the provisions of Article 2.4 and Article 2.5 and for Contractor, the interest held by Contractor in accordance with the provisions of Article 2.9;

 

1.52                         “Party” means the State, GNPC or Contractor, as the case may be;

 

1.53                         “Paying Interest” means an interest held by GNPC in respect of which GNPC pays for the conduct of Petroleum Operations;

 

1.54                         “Petroleum” means Crude Oil or Natural Gas or a combination of both;

 

1.55                         “Petroleum Costs” means all expenditures made and costs incurred, both within and outside Ghana, in conducting Petroleum Operations hereunder determined in accordance with the Accounting Guide attached hereto as Annex 2;

 

1.56                         “Petroleum Income Tax Law” means the Petroleum Income Tax Law, 1987 (PNDCL 188);

 

1.57                         “Petroleum Law” means the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84);

 

1.58                         “Petroleum Operations” means all activities, both in and outside Ghana, relating to the Exploration for, Appraisal, Development, Production, handling and transportation of Petroleum contemplated under this Agreement and includes Exploration Operations, Development Operations and Production Operations and all activities in connection therewith;

 

1.59                         “Petroleum Product” means any product derived from Petroleum by any refining or other process;

 

10

 

1.60                         “Production” or “Production Operations” means activities not being Development Operations, undertaken in order to extract, save, treat, measure, handle, store, load and transport Petroleum to storage and/or loading points and to carry out any type of primary and secondary operations, including recycling, recompression, maintenance of pressure and water flooding and all related activities such as planning and administrative work and shall also include maintenance, repair and replacement of facilities, and well workovers, conducted after the Date of Commencement of Commercial Production of the respective Development and Production Area;

 

1.61                         “Production Costs” means Petroleum Costs incurred in Production Operations;

 

1.62                         “Quarter” means a period of three (3) Months, commencing January 1, April 1, July 1 or October 1;

 

1.63                         “Rate of Return” shall have the meaning ascribed to it in Article 10;

 

1.64                         “Second Extension Period” shall have the meaning ascribed to it in Article 3.1(a)(ii);

 

1.65                         “Second Sub Period” shall have the meaning ascribed to it in Article 3.1(a)(i);

 

1.66                         “Sole Risk Operation” means an operation conducted at the sole cost, risk and expense of GNPC referred to in Article 9;

 

1.67                         “Specified Rate” means the rate which the National Westminster Bank, Plc, London, certifies to be the London Interbank offered rate (LIBOR) in the London Interbank Eurodollar market on thirty (30) day deposits, in effect on the last business day of the last respective preceding month, plus one point five percent (1.5%);

 

1.68                         “Standard Cubic Foot” or “SCF” means the quantity of gas that occupies one (1) cubic foot at 14.65 psia pressure and sixty (60) degrees fahrenheit temperature;

 

1.69                         “State” means the Government of the Republic of Ghana;

 

1.70                         “Subcontractor” has the meaning assigned to that term in the Petroleum Income Tax Law;

 

1.71                         “Termination” means termination of this Agreement pursuant to Article 23 hereof;

 

1.72                         “Work Programme” means the annual plan for the conduct of Petroleum Operations prepared pursuant to Articles 4.3, 6.4 and 6.5;

 

11

 

ARTICLE 2

 

SCOPE OF THE AGREEMENT, INTERESTS OF THE PARTIES AND CONTRACT AREA

 

2.1                                 This Agreement provides for the Exploration for and Development and Production of Petroleum in the Contract Area by GNPC in association with Contractor.

 

2.2                                 Subject to the provisions of this Agreement, Contractor shall be responsible for the execution of such Petroleum Operations as are required by the provisions of this Agreement and subject to Article 9, is hereby appointed the exclusive entity to conduct Petroleum Operations in the Contract Area. GNPC shall at all times participate in the management of Petroleum Operations and in order that the Parties may cooperate in the implementation of Petroleum Operations GNPC and Contractor shall establish a Joint Management Committee, to conduct and manage Petroleum Operations.

 

2.3                                 In the event that no Commercial Discovery is made in the Contract Area, or that Gross Production achieved from the Contract Area is insufficient fully to reimburse Contractor in accordance with the terms of this Agreement, then Contractor shall bear its own loss; GNPC and the State shall have no obligations whatsoever to contractor in respect of such loss.

 

2.4                                 GNPC shall have a ten percent (10%) Initial Interest in all Petroleum Operations under this Agreement. With respect to all Exploration and Development Operations GNPC’s Initial Interest shall be a Carried Interest. With respect to all Production Operations GNPC’s Initial Interest shall be a Paying Interest.

 

2.5                                 GNPC shall have the option to acquire an Additional Interest of five percent (5%) in every Commercial Discovery. In order to acquire the Additional Interest, GNPC must notify Contractor within ninety (90) days after Contractor’s notice to the Minister that a Discovery is a Commercial Discovery, of its intention to acquire the Additional Interest. If within such ninety (90) day period GNPC does not give such notice, GNPC’s interest will remain as described in Article 2.4. If GNPC acquires the Additional Interest, GNPC shall be responsible for paying five percent (5%) of all future Petroleum Costs including Development and Production Costs as approved by the JMC. GNPC and Contractor shall agree on the mode of financing such Additional Interest.

 

In the event that Contractor decides to seek project finance from a bank or group of banks for the financing of Development Operations, Contractor shall offer GNPC

 

12

 

the opportunity (but not an obligation) to join in the said project financing with respect to its Additional Interest. GNPC shall not, by its action or inaction, impede or delay Contractor in its efforts to obtain such project financing.

 

If GNPC fails to pay for the costs associated with its Additional Interest and those associated with Production Operations as described in Article 2.4 and Article 2.6, then Contractor shall be entitled to recover the said costs, together with interest at the Specified Rate, from Production revenues.

 

In the event that GNPC, having acquired the Additional Interest, subsequently wishes to dispose of it (or part of it) to a third party, GNPC shall notify Contractor of such intent and shall inform Contractor of the price which is to be paid by such third party for the same, and Contractor shall have the right for a period of forty five days from receipt of such notice to inform GNPC that it wishes to acquire such interest at the price notified to it by GNPC, being the price at which it was to have been sold to the third party.

 

2.6                                 If GNPC opts to take an Additional Interest as provided for in Article 2.5 then within six (6) Months of its election, GNPC shall reimburse Contractor for all expenditures attributable to GNPC’s Additional Interest and incurred from the Date of Commercial Discovery to the date GNPC notifies Contractor of its election.

 

2.7                                 For the avoidance of doubt GNPC shall only be liable to contribute to Petroleum Costs:

 

a)                       incurred in respect of Development Operations in any Development and Production Area and to the extent only of any Additional Interest acquired in such Development and Production Area under Article 2.5; and

 

b)                      incurred in respect of Production Operations in any Development and Production Area both to the extent of:

 

i)      its ten percent (10%) Initial Interest; and

 

ii)     any Additional Interest acquired in such development and Production Area under Article 2.5

 

2.8                                 GNPC may during the Exploration Period assist Contractor in carrying out Contractor’s obligations expeditiously and efficiently as stipulated in Article 7.3. Upon completion of the work associated with said assistance, GNPC shall invoice the Contractor for the costs incurred and shall provide reasonable supporting documentation in respect of such costs. Contractor shall pay GNPC the invoiced amount within thirty (30) days of receipt of the invoice. The actual amount of the

 

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invoice submitted by GNPC shall be at rates agreed by GNPC and the Contractor for such services.

 

2.9                                 Contractor’s Participating Interest in all Petroleum Operations and in all rights under this Agreement shall be ninety per cent (90%), reduced proportionately at any given time and in any given part of the Contract Area by the Additional Interest of GNPC pursuant to Article 2.5 or the Sole Risk Interest of GNPC pursuant to Article 9.

 

2.10                           As of the Effective Date, the Contract Area shall cover a total of approximately one thousand one hundred and eight square kilometres (1,108 km2) as depicted by Annex 1 and shall from time to time during the term of this Agreement be reduced according to the terms herein. During the term of the Agreement, Contractor shall pay rentals to the State for that area included within the Contract Area at the beginning of each Contract Year according to the provisions of Article 12.2 (e) below provided that a pro-rata payment shall be made to cover a period of less than one (1) full Contract Year.

 

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ARTICLE 3

 

EXPLORATION PERIOD

 

3.1                                 The Exploration Period shall begin on the Effective Date and shall not cover a period of more than six and one half (61/2) years except as provided for in accordance with this Agreement and the Petroleum Law.

 

a)              The Exploration Period shall be divided as follows:

 

(i)            an Initial Exploration Period of two and one half (21/2) years (“Initial Exploration Period”) further divided into Subperiods:

1.               One (1) year (“First Subperiod”);

2.               One and one half (11/2) years (“Second Subperiod”) plus

 

(ii)           Two (2) extension periods totalling four (4) years:

1.               Two (2) years for the first such period (“First Extension Period”); and

2.               Two (2) years for the second of such periods ("Second Extension Period").

 

b)              At the end of The First Subperiod, Contractor shall elect to drill a well during the Second Subperiod or relinquish the entire Contract Area. Contractor shall have the right to relinquish the entire Contract Area and withdraw from this Agreement upon the expiration of any of the First Subperiod, the Second Subperiod, the First Extension Period or the Second Extension period; subject only to notifying GNPC not less than thirty (30) days before expiration of the relevant period and provided Contractor has completed the applicable work obligation of the First Subperiod or Second Subperiod, or any of the Extension Periods (as applicable) during which such relinquishment and withdrawal is made.

 

c)              Where Contractor has fulfilled its work and expenditure obligations set out in Article 4.3 before the end of a specific Subperiod or any of the Extension Periods and has exercised its option by applying to the Minister in writing for an extension into the next phase, the Minister will be deemed to have granted an extension into the Second Subperiod, First Extension Period or, Second Extension Period, as applicable.

 

d)             For each well drilled by Contractor or with Contractor’s participation during the Initial Exploration Period (beyond those referred to in Article 4.3), the Initial Exploration Period shall be extended by three (3) Months and the commencement of subsequent periods shall be postponed in their entirety accordingly.

 

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3.2                                 Following the end of the Second Extension Period, subject to the provisions of Article 3.4, Contractor will be entitled to an extension or extensions, by reference to Article 8, of the Exploration Period as follows:

 

a)              Where at the end of the Second Extension Period Contractor is drilling or testing any well, Contractor shall be entitled to an extension for such further period as may be reasonably required to enable Contractor to complete such work and assess the results and, in the event that Contractor notifies the Minister that the results from any such well show a Discovery which merits appraisal, Contractor shall be entitled to a further extension for such period as may be reasonably required to carry out an Appraisal Programme and determine whether the Discovery constitutes a Commercial Discovery;

 

b)             Where at the end of the Second Extension Period Contractor is engaged in the conduct of an Appraisal Programme in respect of a Discovery which has not been completed, Contractor shall be entitled to a further extension following the end of the Second Extension for such period as may be reasonably required to complete that Appraisal Programme and determine whether the Discovery constitutes a Commercial Discovery;

 

c)              Where at the end of the Second Extension Period Contractor is in the process of completing an aspect of the Approved Work Programme not falling under paragraphs (a) or (b) in this Article 3.2 above, or under Article 4.3(c), Contractor will be entitled to such extension of time as the Minister considers reasonable for the purpose of completing such work;

 

d)             Where pursuant to Article 8 Contractor has before the end of the Second Extension Period , including extensions under (a), (b) and (c) above, given to the Minister a notice of Commercial Discovery, Contractor shall, if the Exploration Period would otherwise have been terminated, be entitled to a further extension of the Exploration Period in which to prepare the Development Plan in respect of the Discovery Area to which that Development Plan relates until either:

 

i)                                         the Minister has approved the Development Plan as set out in Article 8, or

 

ii)                                      in the event that the Development Plan is not approved by the Minister as set out in Article 8 and the matter or matters in issue between the Minister and Contractor have been referred for resolution under Article 24, one (1) Month after the date on which the final decision thereunder has been given.

 

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3.3                                 Where Contractor has during the Initial Exploration Period or, as the case may be, during the First Extension Period failed to fulfill its work and expenditure obligations under Article 4 in respect of that period but has made reasonable arrangements to remedy its default during the First Extension Period or, as the case may be, the Second Extension Period, Contractor shall be entitled to an extension subject to such reasonable terms and conditions as the Minister may stipulate to assure performance of the work.

 

3.4                                 Save in respect of a Discovery Area:

 

a)              In the circumstances and subject to the limitations set forth in Section 12 (3) of the Petroleum Law; or

 

b)             In a case falling within the provisions of Article 3.2 (d)

 

nothing in Article 3.2 shall be read or construed as requiring or permitting the extension of the Exploration Period beyond seven (7) years from the Effective Date except for reasons of Force Majeure.

 

3.5                                 The provisions of Article 3.2 (a), (b) and (c) so far as they relate to the duration of the extension period to which Contractor will be entitled shall be read and construed as requiring the Minister to give effect to the provisions of Article 8 relating to the time within which Contractor must meet the requirements of that Article.

 

3.6                                 In the event that the Contractor is in the course of drilling or testing any well at the end of the Second Subperiod or the First Extension Period then it shall be permitted to complete the said drilling or testing without breaching this Agreement.

 

If Contractor elects thereafter to enter into the First Extension Period or the Second Extension Period, as the case may be, the commencement of the First Extension Period or the Second Extension Period shall not be affected by the duration of the period required for the completion of drilling or testing as referred to above, but shall remain as stated in Article 4.3 (b) or Article 4.3 (c) as applicable.

 

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ARTICLE 4

 

MINIMUM EXPLORATION PROGRAMME

 

4.1                                 Exploration Operations shall begin as soon as practicable and in any case not later than sixty (60) days after the Effective Date.

 

4.2                                 GNPC shall, at the request of Contractor, make available to it such records and information relating to the Contract Area as are relevant to the performance of Exploration Operations by Contractor and are in GNPC’s possession, provided that Contractor shall reimburse GNPC for the costs reasonably incurred in procuring or otherwise making such records and information available to Contractor.

 

4.3                                 Subject to the provisions of this Article, in discharge of its obligations to carry out Exploration Operations in the Contract Area, Contractor shall during the several phases into which the Exploration Period is divided carry out the work specified hereinafter:

 

a)                   Initial Exploration Period:  Commencing on the Effective Date and terminating at the end of the two and one half (21/2) Contract Years which is made up of the following;

 

First Subperiod (1 year):

 

Description of Work:  By the end of the First Subperiod of the Initial Exploration Period Contractor shall have undertaken a work programme including the reprocessing of 3D seismic data and seabed logging.

 

Minimum Expenditure:  Contractor’s minimum expenditure for the work in the First Subperiod of the Initial Exploration Period shall be two million United States dollars (U.S.$2,000,000).

 

Second Subperiod (11/2 years):

 

Description of Work:  By the end of the Second Subperiod of the Initial Exploration Period, Contractor shall have drilled at least one (1) Exploration Well in the Contract Area.

 

Minimum Expenditure:  Contractor’s minimum expenditure for the work in the Second Subperiod of the Initial Exploration Period shall be twenty million United States dollars (U.S.$20,000,000).

 

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b)                  First Extension Period:  Commencing at the end of the Initial Exploration Period and terminating at the end of a further two (2) Contract Years. 

 

Minimum Expenditure:  Contractor’s minimum expenditure for the work in the First Extension Period shall be twenty million United States dollars U.S.$20,000,000).

 

Description of Work:  By the end of the First Extension Period, Contractor shall have drilled at least one (1) Exploration Well in the Contract Area.

 

c)                   Second Extension Period:  Commencing at the end of the First Extension and terminating at the end of a further two (2) Contract Years.

 

Description of Work:  By the end of the Second Extension Period, Contractor shall have drilled one (1) Exploration Well in the Contract Area.

 

Minimum Expenditure:  minimum expenditure for work in the Second Extension Period shall be twenty million United States dollars (U.S.$20,000,000).

 

d)                  Work and expenditures accomplished in any Subperiod or Extension Period in excess of the above obligations may be applied as credit in satisfaction of obligations called for in any other Subperiod or Extension Period. The fulfillment of any work obligation shall relieve Contractor of the corresponding minimum expenditure obligation, but the fulfillment of any minimum expenditure obligation shall not relieve Contractor of the corresponding work obligation.

 

(e)               The principle of Article 4 is that, the fulfillment of any minimum Work Programme supersedes its corresponding minimum expenditure. However, for any Extension Period or Subperiod, for which the entire minimum work obligation is not met by Contractor, the corresponding part of the minimum expenditure obligation relating to the unfulfilled work obligation shall be paid to GNPC whereupon Contractor shall be deemed to have fulfilled such minimum work obligation. However, Contractor’s entitlement to proceed to the next Extension Period or Subperiod shall be at the discretion of the Minister.

 

4.4                                 No Appraisal Wells drilled or seismic surveys carried out by Contractor as part of an Appraisal Programme undertaken pursuant to Article 8 and no expenditure incurred by Contractor in carrying out such Appraisal Programme shall be treated as discharging the minimum work obligations under Article 4.3.

 

4.5                                 The seismic reprocessing and seabed logging programme in Article 4.3(a), when combined with existing data, shall be such as will enable a study of the regional 

 

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geology of the Contract Area and the preparation of a report thereon with appropriate maps, cross sections and illustrations, as well as a geophysical survey of the Contract Area which, when combined with existing data, shall provide:

 

a)                   a minimum seismic grid adequate to define prospective drill sites over prospective closures as interpreted from data available to Contractor; and

 

b)                  a seismic evaluation of structural and stratigraphic conditions over the remaining portions of the Contract Area.

 

4.6                                 Each Exploration Well shall be drilled at a location and to an objective depth determined by Contractor in consultation with GNPC. Except as otherwise provided in Article 4.7 and 4.8 below, the minimum depth of each obligatory Exploration Well shall be whichever of the following is first encountered:

 

a)                   the depth of 3,600 metres measured from the Rotary Table Kelly Bushing (RTKB);

 

b)                  the depth sufficient to penetrate 500 metres into the primary target;

 

c)                   the depth at which Contractor encounters geologic basement.

 

4.7                                 The minimum depth of the first obligatory Exploration Well in Article 4.3 shall be whichever of the following is first encountered:

 

a)                                      the depth of 4,400 meters measured from the Rotary Table Kelly Bushing (RTKB);

 

b)                                     the depth sufficient to penetrate 300 metres into the Santonian; or

 

c)                                      the depth at which Contractor encounters geological basement.

 

4.8                                 If in the course of drilling an Exploration Well the Contractor concludes that drilling to the minimum depth specified in Article 4.6 or 4.7 above is impossible, impracticable or imprudent in accordance with accepted international petroleum industry drilling and engineering practice, then Contractor may plug and abandon the Exploration Well and GNPC shall have the option of either:

 

a)                   waiving the minimum depth requirement, in which case Contractor will be deemed to have satisfied the obligation to drill such Exploration Well; or

 

b)                  requiring Contractor to drill a substitute Exploration Well at a location determined by Contractor in consultation with GNPC and to the relevant 

 

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minimum depth set forth in Article 4.6 or 4.7, except that if in the course of drilling such substitute Exploration Well Contractor establishes that drilling to the relevant minimum depth specified in Article 4.6 or 4.7 above is impossible, impracticable or imprudent in accordance with accepted petroleum industry drilling and engineering practice, then Contractor may plug and abandon the substitute Exploration Well and will be deemed to have satisfied the obligation to drill one (1) Exploration Well to the minimum depth to which such well had been planned.

 

The above option shall be exercised by GNPC within thirty (30) days from the plugging and abandonment of the Exploration Well, and failure to exercise such option shall constitute a waiver of the minimum depth requirement pursuant to Articles 4.6 and 4.7 as the case may be.

 

4.9                                 During the Exploration Period, Contractor shall have the right to perform additional Exploration Operations, including without limitation performing gravity and magnetic surveys, drilling stratigraphic wells and performing additional geological and geophysical studies, provided the minimum work obligations are performed within the applicable period.

 

4.10                           During the Exploration Period, Contractor shall deliver to GNPC and the Minister reports on Exploration Operations conducted during each Calendar Quarter within thirty (30) days following the end of that Quarter. Further requests for information by the Minister under Section 9(1) of the Petroleum Law shall be complied with within a reasonable time and copies of documents and other material containing such information shall be provided to GNPC.

 

4.11                           If, upon completion of the minimum exploration programme set forth in Article 4.3, Contractor desires to conduct a further programme of Exploration on those retained areas that will be relinquished upon expiry of the Exploration Period, Contractor shall have a right of first refusal to the granting of a new petroleum agreement covering such retained areas. If Contractor elects to exercise this right, it must do so in writing to GNPC not less than one (1) year before the expiry of the Exploration Period. If GNPC receives such written election from Contractor, the Parties shall use best efforts to negotiate in good faith a new petroleum agreement to cover such retained areas, with the intention that if possible there shall be no lapse between the expiration of this Petroleum Agreement and the effective date of the new petroleum agreement.

 

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ARTICLE 5

 

RELINQUISHMENT

 

5.1                                 Except as provided in Article 8.3, 8.9, 14.9 and 14.14, Contractor shall relinquish portions of the Contract Area in the manner provided hereafter.

 

a)                   If on or before the expiration of the Initial Exploration Period, Contractor elects to enter into the First Extension Period pursuant to Article 3.1(c) then subject to Article 5.2 at the commencement of the First Extension Period the area retained shall be one hundred per cent (100%) of the original Contract Area as at the Effective Date;

 

b)                  If on or before the expiration of the First Extension Period, Contractor elects to enter into the Second Extension Period pursuant to Article 3.1(c) then subject to Article 5.2 at the commencement of the Second Extension Period the area retained shall not exceed fifty (50%) of the original Contract Area as at the Effective Date. Provided always that the area retained shall be permitted to exceed fifty percent (50%) of the original Contract Area but not to exceed seventy-five percent (75%) of the original Contract Area in the event that at that time, the Contractor commits to the drilling of a total of two (2) or more wells in the Second Extension Period in which case the provisions of Article 4.3(c) shall be deemed amended accordingly;

 

c)                   On the expiration of the Second Extension Period, Contractor shall subject to Article 5.2 relinquish the remainder of the retained Contract Area.

 

5.2                                 The Provisions of Article 5.1 shall not be read or construed as requiring Contractor to relinquish any portion of the Contract Area which constitutes or forms part of either a Discovery Area or a Development and Production Area.

 

PROVIDED HOWEVER THAT if at the end of the First Subperiod, Second Subperiod, First Extension Period or Second Extension Period as the case may be, Contractor elects not to enter into the Second Subperiod, the First Extension Period or the Second Extension Period, Contractor shall relinquish the entire Contract Area, other than any Discovery or Development and Production Area.

 

5.3                                 Each area to be relinquished pursuant to this Article shall be selected by Contractor and shall be measured as far as possible in terms of continuous and compact units of a size and shape which will permit the carrying out of Petroleum Operations in the relinquished portions.

 

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5.4                                 Without prejudice to the foregoing provisions of this Article 5, in the event that, following the relinquishment of the Contract Area, the Contractor has retained one or more Development and Production Areas, and Contractor and GNPC have, after reviewing all the relevant technical data and information, determined that the field or reservoirs for which a Development and Production Area was granted covers Petroleum lying outside such Development and Production Area, and provided such outside areas are not under any contract, the Contractor and GNPC shall endeavour to reach an agreement on unitization between the Contractor (with respect to the Contract Area) and GNPC (as holder of the area outside of the Contract Area) to cover the full development of the reservoir or field.

 

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ARTICLE 6

 

JOINT MANAGEMENT COMMITTEE

 

6.1                                 In order that the Parties may at all times cooperate in the implementation of Petroleum Operations, GNPC and Contractor shall not later than thirty (30) days after the Effective Date establish a Joint Management Committee (JMC). Without prejudice to the rights and obligations of Contractor for day-to-day management of the operations, the JMC shall oversee and supervise the Petroleum Operations and ensure that all approved Work Programmes and Development Plans are complied with and also that accounting for costs and expenses and the maintenance of records and reports concerning the Petroleum Operations are carried out in accordance with this Agreement and the accounting principles and procedures generally accepted in the international petroleum industry.

 

6.2                                 The composition of and distribution of functions within the JMC shall be as follows:

 

i)                                         The JMC shall constitute of four (4) representatives of GNPC and four (4) representatives of Contractor. GNPC and Contractor shall also designate a substitute or alternate for each member. In the case of absence or incapacity of a member of the JMC, his alternate shall automatically assume the rights and obligations of the absent or incapacitated member;

 

ii)                                      The Chairperson of the JMC shall be designated by GNPC from amongst the members of the JMC;

 

iii)            Contractor shall be responsible in consultation with GNPC for the preparation of agenda and supporting documents for each meeting of the JMC and for keeping records of the meetings and decisions of the JMC (GNPC shall have the right to inspect all records of the JMC at any time);

 

iv)                                  At any meeting of the JMC six (6) representatives shall form a quorum, provided that at least two (2) of such representatives shall be representatives of GNPC and at least two (2) of such representatives shall be representatives of the Contractor.

 

6.3                                 Meetings of the JMC shall be held and decisions taken as follows:

 

i)                                         All meetings of the JMC shall be held in Accra, Dublin or London or such other place as may be agreed upon by members of the JMC;

 

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ii)                                      The JMC shall meet at least twice yearly and at such times as the members may agree;

 

iii)            A meeting of the JMC may be convened by either GNPC or the Contractor giving not less than twenty (20) days notice to the other or, in a case requiring urgent action, notice of such lesser duration as the members may agree upon;

 

iv)                                  Decisions of the JMC shall require unanimity provided, however, that decisions and approvals required for budgets and day-to-day operational matters associated with Appraisal, Development and Production Operations the expenditures, outlays or advances for which Contractor will be required to make on a one hundred percent (100%) basis shall require approval of the Contractor’s representatives only;

 

v)                                     Any member of the JMC may vote by written and signed proxy held by another member;

 

vi)                                  Decisions of the JMC may be made without holding a meeting if all representatives of both Parties notify their consent thereto in the manner provided in Article 27;

 

vii)                               GNPC and Contractor shall have the right to bring expert advisors to any JMC meetings to assist in the discussions of technical and other matters requiring expert advice;

 

viii)         The JMC may also establish subcommittees it deems appropriate for carrying out its functions, such as:

 

a)                   a technical subcommittee;

b)                  an audit subcommittee; and

c)                   an accounting subcommittee,

 

ix)            costs and expenses related to attendance by GNPC outside Ghana (e.g. business class travel, transportation, lodging, per diem and insurance), shall be borne by Contractor and treated as Petroleum Costs. Subject to GNPC providing to Contractor reasonable supporting documentation in respect of such costs and expenses, those costs and expenses shall be reimbursed by Contractor to GNPC.

 

6.4                                 The JMC shall oversee Exploration Operations as follows:

 

i)                                         Not later than sixty (60) days after the Effective Date and thereafter at least ninety (90) days before the commencement of each subsequent Contract Year,

 

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Contractor shall prepare and submit to the JMC for its review a reasonably detailed Work Programme and budget setting forth all Exploration Operations which Contractor proposes to carry out in that Contract year and the estimated cost thereof, and shall also give an indication of Contractor’s tentative preliminary exploration plans for the succeeding Contract year;

 

ii)                                      Upon notice to the Minister and GNPC, Contractor may amend any Work Programme or budget submitted to the JMC pursuant to this Article which notice will state why in Contractor’s opinion the amendment is necessary or desirable. Any such amendment shall be submitted to the JMC for review;

 

iii)            Every Work Programme submitted to the JMC pursuant to this Article 6.4 and every revision or amendment thereof shall be consistent with the requirements set out in Article 4.3 relating to minimum work and expenditure for the period of the Exploration Period in which such Work Programme or budget falls;

 

iv)                                  Contractor shall report any Discovery to GNPC immediately following such Discovery and shall place before the JMC for review its Appraisal Programme prior to submission thereof to the Minister. Within thirty (30) days of completion of the Appraisal Programme a JMC meeting to discuss the results of the Appraisal Programme shall be convened to take place before submission of the detailed Appraisal Programme report provided for in Article 8.7;

 

v)                                     The JMC will review Work Programmes and budgets and any amendments or revisions thereto, and Appraisal Programmes, submitted to it by Contractor pursuant to this Article 6, and timely give such advice as it deems appropriate which Contractor shall consider before submitting the Programme to GNPC and the Minister for their information;

 

vi)                                  After the date of the first Commercial Discovery, Contractor shall seek the concurrence of GNPC’s JMC representatives, which concurrence shall not be unreasonably withheld, on any proposal for the drilling of an Exploration Well or Wells not associated with the Commercial Discovery and not otherwise required to be drilled under Article 4.3. If concurrence is not secured by Contractor, Contractor may nevertheless elect to drill the Exploration Well or Wells but the costs of such Well or Wells shall be considered Petroleum Costs for AOE purposes and deductible cost for Ghana income tax purposes only in the event there is a subsequent Commercial Discovery associated with the Well or Wells.

 

6.5                                 From the first occurring Date of Commercial Discovery the JMC shall have supervision of Petroleum Operations as follows:

 

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i.                                          Within sixty (60) days after the Date of Commercial Discovery Contractor shall prepare and submit to the JMC for approval any revisions to its annual Work Programme and budget that may be necessary for the remainder of that Contract Year and for the rest of the Exploration Period;

 

ii.                                       At least ninety (90) days before the Commencement of each subsequent Calendar Year Contractor shall submit to the JMC for review and approval a reasonably detailed Work Programme and budget setting forth all Development and Production Operations which Contractor proposes to carry out in that Calendar Year and the estimated cost thereof and shall also give an indication of Contractor’s plans for the succeeding Calendar Year;

 

iii.            Within sixty (60) days of the Date of Commencement of Commercial Production and thereafter not later than one hundred and twenty (120) days before the commencement of each Calendar Year Contractor shall submit to the JMC for its review and approval an annual production schedule which shall be in accordance with good international oilfield practice, and shall be designed to provide the most efficient, beneficial and timely production of the Petroleum resources.

 

6.6                                 The JMC shall approve lifting schedules for Development and Production Areas as well as review all of Contractor’s reports on the conduct of Petroleum Operations.

 

6.7                                 The JMC shall approve Contractor’s insurance programme and the programmes for training and technology transfer submitted by Contractor and the accompanying budgets for such schemes and programmes.

 

6.8                                 If during any meeting of the JMC the Parties are unable to reach agreement concerning any of the matters provided for in Article 6.5 and 6.6, the matter shall be deferred for reconsideration at a further meeting to be held not later than fifteen (15) days following the original meeting. If after such further meeting the Parties are still unable to reach agreement, the matter in dispute shall be referred to the Parties forthwith. Failing agreement within fifteen (15) days thereafter, the matter in dispute shall, at the request of any Party, be referred for resolution under Article 24.

 

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ARTICLE 7

 

RIGHTS AND OBLIGATIONS OF CONTRACTOR AND GNPC

 

7.1                                 Subject to the provisions of this Agreement, Contractor shall be responsible for the conduct of Petroleum Operations and shall:

 

a)                                      conduct Petroleum Operations with utmost diligence, efficiency and economy, in accordance with accepted International Petroleum Industry practices, under the same or similar circumstances observing sound technical and engineering practices using appropriate advanced technology and effective equipment, machinery, materials and methods;

 

b)                                     take all practicable steps to ensure compliance with Section 3 of the Petroleum Law including ensuring the recovery and prevention of waste of Petroleum in the Contract Area in accordance with accepted International Petroleum Industry practices under the same or similar circumstances;

 

c)                                      prepare and maintain in Ghana full and accurate records of all Petroleum Operations performed under this Agreement;

 

d)                                     prepare and maintain accounts of all Petroleum Operations under this Agreement in such a manner as to present a full and accurate record of the costs of such Petroleum Operations, in accordance with the Accounting Guide;

 

e)                                      disclose to GNPC and the Minister any operating or other agreement among the Parties that constitute Contractor relating to the Petroleum Operations hereunder, which agreement shall not be inconsistent with the provisions of this Agreement.

 

7.2                                 In connection with its performance of Petroleum Operations, Contractor shall have the right within the terms of applicable law:

 

a)                                      to establish offices in Ghana and to assign to those offices such representatives as it shall consider necessary for the purposes of this Agreement;

 

b)                                     to use public lands for installation and operation of shore bases, and terminals, harbours and related facilities, pipelines from fields to terminals and delivery facilities, camps and other housing; 

 

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c)                                      to receive licenses and permission to install and operate such communications and transportation facilities as shall be necessary for the efficiency of its operations;

 

d)                                     to bring to Ghana such number of Foreign National Employees as shall be necessary for its operations, including employees assigned on permanent or resident status, with or without families, as well as those assigned on temporary basis such as rotational (rota) employees;

 

e)                                      to provide or arrange for reasonable housing, schooling and other amenities, permanent and temporary, for its employees and to import personal and household effects, furniture and vehicles, for the use of its personnel in Ghana;

 

f)                                        to be solely responsible for provision of health, accident, pension and life insurance benefit plans on its Foreign National Employees and their families; and such employees shall not be required to participate in any insurance, compensation or other employee or social benefit programs established in Ghana;

 

g)                                     to have, together with its personnel, at all times the right of ingress to egress from its offices in Ghana, the Contract Area, and the facilities associated with Petroleum Operations hereunder in Ghana including the offshore waters, using its owned or chartered means of land, sea and air transportation;

 

h)                                     to engage such Subcontractors, expatriate and national, including also consultants, and to bring such Subcontractors and their personnel to Ghana as are necessary in order to carry out the Petroleum Operations in a skillful, economic, safe and expeditious manner; and said Subcontractors shall have the same rights as Contractor specified in this Article 7.2 to the extent they are engaged by Contractor for the Petroleum Operations hereunder.

 

7.3                                 GNPC shall assist Contractor in carrying out Contractor’s obligations expeditiously and efficiently as stipulated in this Agreement, and in particular GNPC shall use its best efforts to assist Contractor and its Subcontractors to:

 

a)                                      establish supply bases and obtain necessary communications facilities, equipment and supplies;

 

b)                                     obtain necessary approvals to open bank accounts in Ghana;

 

c)                                      subject to Article 21 hereof, obtain entry visas and work permits for such number of Foreign National Employees of Contractor and its Subcontractors engaged in Petroleum Operations and members of their families who will be

 

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resident in Ghana, and make arrangements for their travel, arrival, medical services and other necessary amenities;

 

d)             comply with Ghana customs procedures and obtain permits for the importation of necessary materials;

 

e)              obtain the necessary permits to transport documents, samples or other forms of data to foreign countries for the purpose of analysis or processing if such is deemed necessary for the purposes of Petroleum Operations;

 

f)                contact Government agencies dealing with fishing, meteorology, navigation and communications as required;

 

g)             identify qualified Ghanaian personnel as candidates for employment by Contractor in Petroleum Operations; and

 

h)             procure access on competitive commercial terms, to infrastructure owned by the State or GNPC or any Affiliate of or entity controlled by the State or GNPC or owned by any third party, required for the transportation and/or processing of Petroleum produced under this Agreement.

 

7.4                                 All reasonable expenses incurred by GNPC in connection with any of the matters set out in Article 7.3 above shall be borne by Contractor.

 

7.5                                 GNPC shall use its best efforts to render assistance to Contractor in emergencies and major accidents, and such other assistance as may be requested by Contractor, provided that any reasonable expenses involved in such assistance shall be borne by Contractor.

 

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ARTICLE 8

 

COMMERCIALITY

 

8.1                                 Contractor shall notify the Minister and GNPC in writing as soon as possible after any Discovery is made, but in any event not later than thirty (30) days after any Discovery is made.

 

8.2                                 As soon as possible after the analysis of the test results of such Discovery is complete and in any event not later than one hundred (100) days from the date of such Discovery, Contractor shall by a further notice in writing to the Minister indicate whether in the opinion of Contractor the Discovery merits appraisal.

 

8.3                                 Where the Contractor indicates that the Discovery does not merit appraisal, Contractor shall, subject to Article 8.17 below, relinquish the Discovery Area associated with the Discovery.

 

8.4                                 Where Contractor indicates that the Discovery merits appraisal, Contractor shall submit to the Minister within one hundred and eighty (180) days from the date of Discovery, an Appraisal Programme to be carried out by Contractor in respect of such Discovery. After thirty (30) days following its submission the Appraisal Programme shall be deemed approved as submitted, unless the Minister has before the end of the said thirty (30) period given the Contractor a notice in writing stating:

 

i.                       that the Appraisal Programme as submitted has not been approved; and

 

ii.                    the revisions proposed by the Minister to the Appraisal Programme submitted, and the reasons therefor.

 

8.5                                 Unless Contractor and the Minister otherwise agree in any particular case, Contractor shall have a period of two (2) years from the date of Discovery to complete the Appraisal Programme.

 

8.6                                 Contractor shall commence to conduct the Appraisal Programme within one hundred and fifty (150) days from the date of approval or deemed approval of the Appraisal Programme by the Minister. Where the Contractor is unable to commence the conduct of the Appraisal Programme within one hundred and fifty (150) days from the date of approval or deemed approval of the Appraisal Programme by the Minister, GNPC shall be entitled to exercise the option provided for in Article 9.1 to enable prompt appraisal, provided however that after Contractor actually embarks on appraisal work or obtains an extension of time for such work, this option may not be exercised.

 

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8.7                                 Not later than ninety (90) days from the date on which said Appraisal Programme relating to the Discovery is completed, Contractor will submit to the Minister a report containing the results of the Appraisal Programme. Such report shall include all available technical and economic data relevant to a determination of commerciality, including, but not limited to, geological and geophysical conditions, such as structural configuration, physical properties and the extent of reservoir rocks, areas, thickness and depth of pay zones, pressure, volume and temperature analysis of the reservoir fluids; preliminary estimates of Crude Oil and Natural Gas reserves; recovery drive characteristics; anticipated production performance per reservoir and per well; fluid characteristics, including gravity, sulphur percentage, sediment and water percentage and refinery assay pattern.

 

8.8                                 Not later than ninety (90) days from the date on which said Appraisal Programme is completed Contractor will, by a further notice in writing, inform the Minister whether the Discovery in the opinion of Contractor is or is not a Commercial Discovery.

 

8.9                                 If Contractor informs the Minister that the Discovery is not a Commercial Discovery, then subject to Articles 8.17, Contractor shall relinquish such Discovery Area; provided, however, that in appropriate cases, before declaring that a Discovery is not a Commercial Discovery, Contractor shall consult with the other Parties and may make appropriate representations proposing minor changes in the fiscal and other provisions of this Agreement which may, in the opinion of Contractor, affect the determination of commerciality. The other Parties may, where feasible, and in the best interests of the Parties agree to make such changes or modifications in the existing arrangements.

 

8.10                           If Contractor pursuant to Article 8.8 informs the Minister that the Discovery is a Commercial Discovery, Contractor shall not later than one hundred and eighty (180) days thereafter, prepare and submit to the Minister a Development Plan.

 

8.11                           The Development Plan referred to in Article 8.10 shall be based on detailed engineering studies and shall include:

 

a)              Contractor’s proposals for the delineation of the proposed Development and Production Area and for the development of any reservoir(s), including the method for the disposal of Associated Gas in accordance with the provisions of Article 14.4;

 

b)             the way in which the Development and Production of the reservoir is planned to be financed;

 

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c)              Contractor’s proposals relating to the spacing, drilling and completion of wells, the production, storage, transportation and delivery facilities required for the production, storage and transportation of the Petroleum, including without limitation:

 

i)                 the estimated number, size and production capacity of production platforms if any;

 

ii)              the estimated number of Production Wells;

 

iii)           the particulars of feasible alternatives for transportation of the Petroleum, including pipelines;

 

iv)          the particulars of onshore installations required, including the type and specifications or size thereof; and

 

v)             the particulars of other technical equipment required for the operations;

 

d)             the estimated production profiles for Crude Oil and Natural Gas from the Petroleum reservoirs;

 

e)              estimates of capital and Production Operation expenditures;

 

f)                the economic feasibility studies carried out by or for Contractor in respect of alternative methods for Development of the Discovery, taking into account:

 

i)                 location;

ii)              water depth (where applicable);

iii)           meteorological conditions;

iv)          estimates of capital and Production Operation expenditures; and

v)             any other relevant data and evaluation thereof;

 

g)             the safety measures to be adopted in the course of the Development and Production Operations, including measures to deal with emergencies;

 

h)             the necessary measures to be taken for the protection of the environment;

 

i)                 Contractor’s proposals with respect to the procurement of goods and services obtainable in Ghana;

 

j)                 Contractor’s plan for training and employment of Ghanaian nationals; and

 

k)              the timetable for effecting Development Operations.

 

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8.12                           The date of the Minister’s approval of the Development Plan shall be the Date of Commercial Discovery.

 

8.13                           After thirty (30) days following its submission, the Development Plan shall be deemed approved as submitted, unless the Minister has before the end of the said thirty (30) day period given Contractor a notice in writing stating:

 

i)                 that the Development Plan as submitted has not been approved; and

 

ii)              the revisions, proposed by the Minister, to the Development Plan as submitted, and the reasons thereof.

 

8.14                           Where the Development Plan is not approved by the Minister as provided under Article 8.13 above, the Parties shall within a period of thirty (30) days from the date of the notice by the Minister as referred to under Article 8.13 above meet to agree on the revisions proposed by the Minister to the Development Plan. In the event of failure to agree to the proposed revisions, within fourteen (14) days following said meeting any matters in dispute between the Minister and the Contractor shall be referred for resolution in accordance with Article 24.

 

8.15                           Where the issue in dispute referred for resolution pursuant to Article 24 is finally decided in favour of Contractor the Minister shall forthwith give the requisite approval to the Development Plan submitted by Contractor.

 

8.16                           Where the issue in question referred for resolution pursuant to Article 24 is finally decided in favour of the Minister in whole or in part, Contractor shall forthwith:

 

i)                 amend the proposed Development Plan to give effect to the final decision rendered under Article 24, and the Minister shall give the requisite approval to such revised Development Plan; or

 

ii)              subject to Article 8.19 below relinquish the Discovery Area.

 

8.17                           Notwithstanding the relinquishment provisions of Articles 8.3 and 8.9 above, if Contractor indicates that a Discovery does not at the time merit appraisal, or after appraisal does not appear to be commercial but may merit appraisal or potentially become commercial at a later date during the Exploration Period, then Contractor need not relinquish the Discovery Area and may continue its Exploration Operations in the Contract Area during the Exploration Period provided that the Contractor shall explain what additional evaluations, including Exploration work or studies (within or outside the Discovery Area), are or may be planned in order to determine whether subsequent appraisal is warranted or that the Discovery is commercial. Such

 

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evaluations shall be performed by Contractor according to a specific time table, subject to its right of earlier relinquishment of the Discovery Area. After completion of the evaluations, Contractor shall make the indications called for under Article 8.2 or 8.8 and either proceed with appraisal, confirm commerciality or relinquish the Discovery Area. In any case, if at the end of the Exploration Period Contractor has not indicated its intent to proceed with an Appraisal Programme or that the Discovery is a Commercial Discovery, then the Discovery Area shall be relinquished.

 

8.18                           Before Contractor indicates that the Discovery will not merit appraisal, or after an Appraisal Programme, indicates it will not be a Commercial Discovery, Contractor may consult with the other Parties and may make appropriate representations proposing minor changes in the fiscal and other provisions of this Agreement which may, in the opinion of Contractor, affect the determination of commerciality. The other Parties may, agree to make such changes or modifications in the existing arrangements. In the event the Parties do not agree on such changes or modifications, then subject to Article 8.17 and Article 8.19 Contractor shall relinquish the Discovery Area.

 

8.19                           Nothing in Article 8.3, 8.9, 8.16 or 8.17 above shall be read or construed as requiring Contractor to relinquish:

 

a)              any area which constitutes or forms part of another Discovery Area in respect of which:

 

i)                 Contractor has given the Minister a separate notice indicating that such Discovery merits appraisal or confirmation; or

 

ii)              Contractor has given the Minister a separate notice indicating that such Discovery is a Commercial Discovery; or

 

b)             any area which constitutes or forms part of a Development and Production Area.

 

8.20                           In the event a field extends beyond the boundaries of the Contract Area, the Minister may require Contractor if it so wishes, to exploit said Field in association with the third party holding the adjacent area, pursuant to unitization and engineering principles and practices in accordance with accepted international Petroleum industry practices.

 

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ARTICLE 9

 

SOLE RISK ACCOUNT

 

9.1                                 Subject to Article 8.6, unless and until Contractor has notified GNPC that it wishes to appraise a Discovery, GNPC may notify Contractor that it will at its sole cost, risk and expense commence to appraise that Discovery, provided that within thirty (30) days of such notification from GNPC, Contractor may elect to commence to appraise that Discovery within its Work Programme.

 

9.2                                 Where an appraisal undertaken under Article 9.1 at the sole expense of GNPC results in a determination that a Discovery is commercial, Contractor may develop the Commercial Discovery upon reimbursement to GNPC of all expenses incurred in undertaking the appraisal and arranging with GNPC satisfactory terms for the payment of a premium equivalent to seven hundred per cent (700%) of such expenses. Such premium shall not be reckoned as cost of Petroleum Operations for the purpose of the Accounting Guide. In the event that Contractor declines to develop said Discovery, Contractor shall relinquish the Development and Production Area established by the Appraisal Programme conducted by GNPC under Article 9.1.

 

9.3                                 During the Exploration Period GNPC may, at its sole risk and expense, require Contractor to continue drilling to penetrate and test horizons deeper than those contained in the Work Programme of Contractor or required under Article 4. GNPC may also at its sole risk ask the Contractor to test a zone or zones which Contractor has not included in Contractor’s test programme. Notice of this shall be given to Contractor in writing as early as possible prior to or during the drilling of the well, but in any case not after Contractor has begun work to test, complete or abandon the well. The exercise by GNPC of this right shall be in an agreed manner which does not prevent Contractor from complying with its work obligations under Article 4.3.

 

9.4                                 At any time before commencing such deeper drilling or testing under Article 9.3, Contractor may elect to embody the required drilling or testing in its own Exploration Operations, in which case any resulting Discovery shall not be affected by the provisions of this Article 9.

 

9.5                                 Where any sole risk deeper drilling or testing results in a Discovery, GNPC shall have the right, at its sole cost, risk and expense, to appraise, develop, produce and dispose of all Petroleum from that deeper horizon, provided however that if at the time such Petroleum is tested from the well, Contractor’s Work Programme includes a well or wells to be drilled to the same producing horizon, and provided that that the well or wells result (s) in a Petroleum producing well producing from the same

 

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horizon, Contractor shall, after reimbursing GNPC for all costs associated with its Sole Risk deeper drilling in said well, have the right to include production from that well in its total production for the purposes of establishing a Commercial Discovery, and, if a Commercial Discovery is subsequently established, to develop, produce and dispose of the Petroleum in accordance with the provisions of this Agreement.

 

9.6                                 Alternatively, if at the time such Petroleum is tested from the well, Contractor’s Work Programme does not include a well to be drilled to said horizon, Contractor has the option to appraise and /or develop, as the case may be, the Discovery for its account under the terms of this Agreement if it so elects within a period of sixty (60) days after such Discovery. In such case, Contractor shall reimburse GNPC for all expenses incurred by GNPC in connection with such sole risk operations, and shall make satisfactory arrangements with GNPC for the payment of a premium equivalent to seven hundred percent (700%) of such expenses.

 

9.7                                 During the term of this Agreement, GNPC shall have the right, at its sole cost, risk and expense, and upon six (6) months prior notice to Contractor, to drill one (1) or two (2) wells per Calendar Year within the Contract Area provided that the work intended to be done by GNPC had not been scheduled for a Work Programme to be performed by Contractor and the exercise of such right by GNPC and the arrangement made by GNPC for undertaking such drilling do not hinder Contractor from satisfying its work obligations or delay it in so doing. Within thirty (30) days after receipt of such notice Contractor may elect to drill the required well or wells as part of Contractor’s Exploration Operations.

 

9.8                                 In the event that a well drilled for the account and risk of GNPC in accordance with Article 9.7 above results in a Discovery, GNPC shall have the right to appraise and develop as the case may be or require Contractor to develop, after GNPC declares a Commercial Discovery, such Commercial Discovery for a mutually agreed service fee, so long as Contractor has an interest in the Contract Area, GNPC taking all the interest risk and costs and hence having the right to all Petroleum produced from the Commercial Discovery, provided however that Contractor has the option to appraise and/or develop, as the case may be, the Discovery for its account under the terms of this Agreement if it so elects within a period of sixty (60) days after receipt of GNPC’s written notice of such Discovery.

 

9.9                                 Contractor shall reimburse GNPC for all expenses incurred by GNPC in connection with such Sole Risk Operations, and shall make satisfactory arrangements with GNPC for the payment of a premium equivalent to seven hundred percent (700%) of such expenses before exercising the option under Article 9.7. Such premium shall not be reckoned as Petroleum Costs for the purposes of Accounting Guide.

 

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9.10                           In the event that Contractor declines to develop the Commercial Discovery or no agreement is reached on the service fee arrangement as provided for in Article 9.8, Contractor shall relinquish the Development and Production Area associated with such Commercial Discovery.

 

9.11                           Sole Risk Operations under this Article shall not extend the Exploration Period nor the term of this Agreement and Contractor shall complete any agreed programme of work commenced by it under this Article at GNPC’s sole risk, and subject to such provisions hereof as the Parties shall then agree, even though the Exploration Period as defined in Article 3 or the term of this Agreement may have expired.

 

9.12                           GNPC shall indemnify and hold harmless Contractor against all actions, claims, demands and proceedings whatsoever brought by any third party or the State, arising out of or in connection with Sole Risk Operations under this Article 9, unless such actions, claims, demands and proceedings are caused by Contractor’s Gross Negligence provided that under no circumstances shall Contractor be liable for consequential loss (including but not limited to loss of profit or loss of production).

 

9.13                           The exercise by GNPC of its sole risk rights under this Article 9 shall be performed in an agreed manner with Contractor, which does not prevent Contractor from complying with its work obligations under Article 4.3, an Appraisal Programme or a Development Plan and shall include a financing plan satisfactory to Contractor where GNPC has nominated Contractor to perform the Sole Risk Operations on its behalf.

 

9.14                           GNPC shall not elect to conduct any Sole Risk Operations during the First Subperiod or within the boundaries of a Development and Production Area.

 

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ARTICLE 10

 

SHARING OF CRUDE OIL

 

10.1                           Gross Production of Crude Oil from each Development and Production Area shall (subject to a Calendar Year adjustment developed under the provisions of Article 10.7) be distributed amongst the Parties in the following sequence and proportions:

 

a)              Five per cent (5%) of the Gross Production of Crude Oil shall be delivered to the State as ROYALTY, pursuant to the provisions of the Petroleum Law. Royalty for any Crude Oil having an API gravity of less than eighteen degrees (18°) shall be four per cent (4%). The rate of royalty on the Gross Production of Natural Gas shall be three per cent (3%). Upon notice to Contractor, the State shall have the right to elect to receive cash in lieu of its royalty share of such Petroleum. The State’s notice shall be given to Contractor at least ninety (90) days in advance of each lifting period, such periods to be established pursuant to the provisions of Article 10.7. In such case, said share of Crude Oil shall be delivered to Contractor and it shall pay to the State the value of said share in cash at the relevant weighted average Market Price for the relevant period as determined in accordance with Article 11.7;

 

b)             The State’s AOE (as hereinafter defined) Share of Crude Oil if any, shall be distributed to the State out of the Contractor’s share of Crude Oil determined under Article 10.1 (d). The State shall also have the right to elect to receive cash in lieu of the AOE share of Crude Oil accorded to it pursuant to Article 10.2. Notification of said election shall be given in the same notice in which the State notifies Contractor of its election to receive cash in lieu of Crude Oil under Article 10.1 (a). In such case, said share of Crude Oil shall be delivered to Contractor and it shall pay to the State the value of said share in cash at the Market Price for the relevant period as determined in accordance with Article 11.7 for Crude Oil;

 

c)              After distribution of such amounts of Crude Oil as are required pursuant to Article 10.1(a), the amount of Crude Oil, if any, shall be delivered to GNPC to the extent it is entitled for Sole Risk operations under Article 9;

 

d)             After distribution of such amounts of Crude Oil as are required pursuant to Article 10(a) and (c) above, the remaining Crude Oil produced from each Development and Production Area shall be distributed to Contractor and, subject to (e) below, to GNPC on the basis of their respective Participating Interests pursuant to Article 2.4, 2.5 and 2.9;

 

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e)              In the event that GNPC has failed to pay any amounts due to Contractor pursuant to Article 15.2 of this Agreement (such amounts together with interest thereon in accordance with Article 26.7 being hereinafter called “Default Amounts”) and for so long as any such advances and interest thereon remain unrecovered by Contractor, an amount of Crude Oil shall be delivered to GNPC sufficient in value to reimburse it for its share of Production Costs paid by it to that date, until such share of Production Costs has been fully reimbursed to it, after which a volume of Crude Oil shall be delivered to Contractor equivalent in value to the outstanding amounts of the aforesaid Default Amounts until such Default Amounts are fully recovered by Contractor. The value of the Crude Oil for the purposes of this Article 10 shall be the Market Price determined pursuant to Article 11.7.

 

10.2                           At any time the State shall be entitled to a portion of Contractor’s share of Crude Oil then being produced from each separate Development and Production Area (hereinafter referred to as “Additional Oil Entitlements” or “AOE”) on the basis of the after-tax inflation-adjusted rate of return (“ROR”) which Contractor has achieved with respect to such Development and Production Area as of that time. Contractor’s ROR shall be calculated on its NCF and shall be determined separately for each Development and Production Area at the end of each Quarter in accordance with the following computation:

 

(a)                                  Definitions:

 

“ NCF” means Contractor’s net cash flow for the Quarter for which the calculation is being made and shall be computed in accordance with the following formula:

 

NCF = x - y - z

 

where

 

“x” equals all revenues received during such Quarter by Contractor from the Development and Production Area, including an amount computed by multiplying the amount of Crude Oil taken by Contractor during such Quarter in accordance with Article 10.1 (d) and (e); excluding such Crude Oil taken by Contractor for payment of advances and interest in respect of Petroleum Costs incurred by Contractor on GNPC’s behalf, and Default Amounts as defined in Article 10.1 (e) by the Market Price applicable to Crude Oil during the Quarter when lifted, plus any other proceeds specified in the Accounting Guide received by Contractor, including, without limitation, the proceeds from the sale of any assets to which Contractor continues to have title. For the avoidance of doubt, “x” shall not include revenues from Royalty or AOE Crude Oil delivered to Contractor because the State has elected to receive cash in lieu or which is Crude Oil lifted by

 

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Contractor which is part of another Party’s entitlement (e.g. Crude Oil purchased by Contractor from GNPC or the State) but shall include revenues from Crude Oil owned by Contractor but lifted by another Party (e.g. Crude Oil purchased by GNPC or the State from Contractor).

 

“y” equals one quarter (1/4) of the income tax paid by the Contractor to the State with respect to the Calendar Year in respect of the Development and Production Area. If there are two (2) or more Development and Production Areas, the total income tax paid by Contractor in accordance with the Petroleum Income Tax Law 1987 shall for purposes of this calculation be allocated to the Development and Production Area on the basis of hypothetical tax calculations for the separate Development and Production Areas. The hypothetical tax calculation for each Development and Production Area shall be determined by allocating the total amount of tax incurred for each Calendar Year by Contractor under the Petroleum Income Tax Law to each Development and Production Area based on the ratio that the chargeable income from a given Development and Production Area bears to the total chargeable income of Contractor. The chargeable income of Contractor is determined under section 2 of the Petroleum Income Tax Law and the chargeable income of a Development and Production Area shall be calculated by deducting from the gross income derived from or allocated to that Area those expenses deductible under section 3 of the Petroleum Income Tax Law which are directly allocable to that Area as well as those expenses deductible under the said Section 3 which are not attributable to any Development and Production Area where the Development and Production in question had the earliest Date of Commencement of Commercial Production. A negative chargeable income for an Area shall be treated as zero for purposes of this allocation and not more (or less) than the total income tax paid by Contractor shall be allocated between the Areas.

 

“z” equals all Petroleum Costs specified in the Accounting Guide and expended by Contractor during such Quarter with respect to the Development and Production Area, including any Petroleum Costs paid by Contractor on GNPC’s behalf, and not reimbursed by GNPC within the Quarter, provided that all Petroleum Costs for Exploration Operations not directly attributable to a specific Development and Production Area shall for purposes of this calculation be allocated to the Development and Production Area having the earliest date of Commencement of Commercial Production; and provided further that for the purpose of the ROR calculation Petroleum Costs shall not include any amounts in respect of interest on loans obtained for the purposes of carrying out Petroleum Operations.

 

For the avoidance of doubt, where Petroleum Costs are expended before the first Date of Commencement of Commercial Production, the NCF computation shall nonetheless be made for each such Quarter and once a Development and Production Area is delineated, costs directly attributable to such Area as well as

 

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Exploration Costs not attributable to any other Area shall be retrospectively deemed allocated to the Development and Production Area having the first Date of Commencement of Commercial Production; provided that where, after the delineation of such Development and Production Area but before its Date of Commencement of Commercial Production, another Development and Production Area is delineated, Contractor may elect either to maintain the original retrospective allocation or reallocate those Exploration Costs attributable to the new Development and Production Area to such new area.

 

“FAn” “SAn”, “TAn”, “YAn”, and “ZAn” means First Account, Second Account, Third Account, Fourth Account and Fifth Account, respectively, and represent amounts as of the last day of the Month in question as determined by the formulae in (b) below.

 

“FAn-1”, “SAn-1”. “TAn-1”, “YAn-1” and “ZAn-1”, respectively, mean the lesser of (i) the FAn, SAn, TAn, YAn-1 or ZAn, as the case may be, as of the last day of the Quarter immediately preceding the Quarter in question, or (ii) zero. Stated otherwise, FAn-1 shall equal FAn as of the last day of the Quarter immediately preceding the Quarter in question if such FAn was a negative number, but shall equal zero if such FAn was a positive number. Likewise, SAn-1 shall equal SAn as of the last day of the Quarter immediately preceding the Quarter in question if such SAn was a negative number, but shall equal zero if such SAn was a positive number. Likewise TAn-1 shall equal TAn as of the last day of the Quarter immediately preceding the Quarter in question if such TAn was a negative number, but shall equal zero if such TAn was a positive number. Likewise YAn-1 shall equal YAn as of the last day of the Quarter immediately preceding the Quarter in question if such YAn was a negative number, but shall equal zero if such YAn was a positive number. Likewise, ZAn-1 shall equal ZAn as of the last day of the Quarter immediately preceding the Quarter in question if such ZAn was a negative number, but shall equal zero if such ZAn was a positive number. In the ROR calculation for the first Quarter of Petroleum Operations, FAn-1, SAn-1, TAn-1, YAn-1 and ZAn-1 shall be zero.

 

“i” for the Quarter in question equals one (1) subtracted from the quotient of the United States Industrial Goods Wholesale Price Index (“USIGWPI) for the Quarter second preceding the Quarter in question as first reported in the International Financial statistics of the International Monetary Fund, divided by the USIGWPI for the same second preceding Quarter as first reported in the International Financial Statistics of the International Monetary Fund. If the USIGWPI ceases to be published, a substitute U.S. Dollar-based price index shall be used.

 

“n” refers to the nth Quarter in question.

 

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“n-1” refers to the Quarter immediately preceding the nth Quarter

 

b)  Formulae:

 

 

 

In the calculation of SAn an amount shall be subtracted from NCF identical to the value of any AOE which would be due to the State if reference were made hereunder only to the FAn.

 

 

In the calculation of TAn an amount shall be subtracted from NCF identical to the value of any AOE which would be due to the State if reference were made hereunder only to the FAn and SAn.

 

 

In the calculation of YAn an amount shall be subtracted from NCF identical to the value of any AOE which would be due to the State if reference were made hereunder only to the FAn, SAn and TAn.

 

 

In the calculation of ZAn an amount shall be subtracted from NCF identical to the value of any AOE which would be due to the State if reference were made hereunder only to the FAn, SAn, TAn and YAn.

 

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c)                                      Prospective Application:

 

The State’s AOE measured in barrels of Crude Oil will be as follows:

 

i)                 If FAn, SAn, TAn, YAn and ZAn are all negative, the State’s AOE for the Quarter in question shall be zero;

 

ii)              If FAn is positive and SAn, TAn, YAn and ZAn are all negative, the State’s AOE for the Quarter in question shall be equal to the absolute amount resulting from the following monetary calculation:

 

Five percent (5%) of the FAn for that Quarter divided by the weighted average Market Price of Crude Oil as determined in accordance with Article 11.7.

 

iii)           If both FAn and SAn are positive, but TAn YAn and ZAn are negative, the State’s AOE for the Quarter in question shall be equal to an absolute amount resulting from the following monetary calculation:

 

the aggregate of five percent (5%) of FAn for that Quarter plus ten percent (10%) of the SAn for that Month all divided by the weighted average Market Price of Crude Oil as determined in accordance with Article 11.7.

 

iv)          If FAn, SAn, and TAn are all positive but both YAn and ZAn are negative, the State’s AOE for the Quarter in question shall be equal to the absolute amount resulting from the following monetary calculation:

 

the aggregate of five percent (5%) of the FAn for that Quarter plus ten percent (10%) of the SAn for that Quarter plus fifteen percent (15%) of the TAn for that Quarter all divided by the weighted average Market Price of Crude Oil as determined in accordance with Article 11.7.

 

v)             If FAn, SAn TAn and YAn are all positive but ZAn is negative, the State’s AOE for the Quarter in question shall be equal to the absolute amount resulting from the following monetary calculation:

 

the aggregate of five percent (5%) of the FAn for that Quarter plus ten percent (10%) of the SAn for that Quarter plus fifteen percent (15%) of the TAn for that Quarter plus twenty percent (20%) of the YAn for that Quarter all divided by the weighted average Market Price of Crude Oil as determined in accordance with Article 11.7.

 

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vi)          If FAn, SAn, TAn YAn and ZAn are all positive, the State’s AOE for the Quarter in question shall be equal to the absolute amount resulting from the following monetary calculation:

 

the aggregate of five percent (5%) of the FAn for that Quarter plus ten percent (10%) of the SAn for that Quarter plus fifteen percent (15%) of the TAn for that Quarter plus twenty percent (20%) of the YAn for that Quarter plus twenty five percent (25%) of the ZAn for that Quarter all divided by the weighted average Market Price as determined in accordance with Article 11.7.

 

d)                                     The AOE calculations shall be made in U.S. Dollars with all non-dollar expenditures converted to U.S. Dollars in accordance with Section 1.3.5 of Annex 2. When the AOE calculation cannot be definitively made because of disagreement on the Market Price or any other factor in the formulae, then a provisional AOE calculation shall be made on the basis of best estimates of such factors, and such provisional calculation shall be subject to correction and revision upon the conclusive determination of such factors, arid appropriate retroactive adjustments shall be made.

 

e)                                      The AOE shall be calculated on a Quarterly basis, with the AOE to be paid commencing with the first Quarter following the Quarter in which the FAn, SAn, TAn, YAn or ZAn, (as applicable) becomes positive. Because the precise amount of the AOE for a Quarter cannot be determined with certainty until after the end of that Quarter, deliveries (or payments in lieu) of the AOE with respect to a Quarter shall be made during such Quarter based upon the Contractor’s good faith estimates of the amounts owing, with any adjustments following the end of the Quarter to be settled pursuant to the procedures agreed to pursuant to Article 10.7.  Final calculations of the AOE shall be made within thirty (30) days following the filing by the Contractor of the annual tax return for such Calendar year pursuant to the Petroleum Income Tax Law, and the amount of the AOE shall be appropriately adjusted in the event of a subsequent adjustment of the amount of tax owing on such term.

 

10.3                           GNPC shall act as agent for the State in the collection of all Petroleum or money accruing to the State under this Article and delivery or payment to GNPC by Contractor shall discharge Contractor’s liability to deliver the share of the State.

 

10.4                           The State or GNPC, having met the requirements of Article 15.1, may elect, in accordance with terms and conditions to be mutually agreed by the Parties, that all or part of the Crude Oil to be distributed to the State or to GNPC pursuant to this Article shall be sold and delivered by the State or GNPC to Contractor or its Affiliate for use and disposal and in such case Contractor or its Affiliate shall pay to the State or to GNPC, as the case may be, the Market Price for any Crude Oil so sold and delivered.

 

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Market Price for purposes of this Article 10.4 shall be determined in the manner specified in Article 11.7.

 

10.5                           Except as otherwise provided in this Agreement, GNPC’s and Contractor’s respective right and entitlement to the volume of gross production of Petroleum at the first metering of fiscalization point shall be shared according to Articles 2.4, 2.5, 2.7 and 2.9. Ownership and risk of loss of all Petroleum lifted or sold by Contractor or GNPC shall pass to Contractor or GNPC, as the case may be, after the custody transfer at the fiscal metering skid at the outlet flange (“Delivery Point”) of the marine terminal or other storage or holding facility or pipeline for loading into tankers or other transportation equipment referred to in Article 11.1.

 

10.6                           Subject to the provisions of Article 15 hereof, Contractor shall have the right freely to export and dispose of all the Petroleum allocated and/or delivered to it pursuant to this Article.

 

10.7                           The Parties shall through consultation enter into supplementary agreements concerning Crude Oil lifting procedures, lifting and tanker schedules, loading conditions, Crude Oil metering, and the settlement of lifting imbalances, if any, among the Parties at the end of each Quarter. The Crude Oil to be distributed or otherwise made available to the Parties in each Calendar Year in accordance with the preceding provisions of this Article shall insofar as possible be in reasonably equal Monthly quantities.

 

10.8                           To assist in the making of the AOE calculation in accordance with Article 10.2, there is attached as Annex 3 to this Agreement a worked example of the calculation using hypothetical figures, rates and thresholds, for the purpose of illustration only.

 

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ARTICLE 11

 

MEASUREMENT AND PRICING OF CRUDE OIL

 

11.1                           Crude Oil shall be delivered by Contractor to storage tanks constructed, maintained and operated in accordance with applicable laws and good international petroleum industry oilfield practice under the same or similar circumstances. Crude Oil shall be metered or otherwise measured for quantity and tested for quality in such storage tanks for all purposes of this Agreement. Any Party may request that measurements and tests be done by an internationally recognised inspection company. Contractor shall arrange and pay for the conduct of any measurement, or test so requested provided, however, that in the case of (1) a test requested for quality purposes and (2) a test requested on metering (or measurement) devices, where the test demonstrates that such devices are accurate within acceptable tolerances, the Party requesting the test shall reimburse Contractor for the costs associated with the test or tests.

 

11.2                           GNPC or its authorised agent shall have the right:

 

a)              to be present at and to observe such measurement of Crude Oil; and

 

b)             to examine and test whatever appliances are used by Contractor.

 

11.3                           In the event that GNPC considers Contractor’s methods of measurement to be inaccurate GNPC shall notify Contractor to this effect and the Parties shall meet within ten (10) days of such notification to discuss the matter. If after thirty (30) days the Parties cannot agree over the issue they shall refer for resolution under Article 24 the sole question of whether Contractor’s method of measuring Crude Oil is accurate and reasonable. Retrospective adjustments to measurements shall be made where necessary to give effect to the decision rendered under Article 24.

 

11.4                           If upon the examination or testing of appliances provided for in Article 11.2 any such appliances shall be discovered to be defective:

 

a)              Contractor shall take immediate steps to repair or replace such appliance; and

 

b)             subject to the establishment of the contrary, such error shall be deemed to have existed for three (3) Months or since the date of the last examination and testing, whichever occurred more recently.

 

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11.5                           In the event that Contractor desires to adjust, repair or replace any measuring appliance, it shall give GNPC reasonable notice to enable GNPC or its authorised agent to be present.

 

11.6                           Contractor shall keep full and accurate accounts concerning all Petroleum measured as aforesaid and provide GNPC with copies thereof on a monthly basis, not later than ten (10) days after the end of each month.

 

11.7                           The market price for Crude Oil delivered to Contractor hereunder shall be established with respect to each lifting as follows:

 

a)              on Crude Oil sold by Contractor in “arm’s length commercial transactions” (defined in Article 11.7 (c) below), the Market Price shall be the price actually realized by Contractor on such sales;

 

b)             on other sales by Contractor, on exports by Contractor without sale and on sales under Article 15.2, the Market Price shall be determined by reference to world Market Prices of comparable Crude Oils sold in arm’s length transactions for export in the major world petroleum markets, and adjusted for oil quality, location and conditions of pricing, delivery and payment, provided that in the case of sales under Article 15.2 where such sales relate to part only of Contractor’s entitlement, prices actually realized by Contractor in sales of the balance of its proportionate share falling within Article 11.7(a) above shall be taken into account in determining Market Price;

 

c)              sales in “arm’s length commercial transactions” shall mean sales to purchasers independent of the seller, which do not involve Crude Oil exchange or barter transactions, government to government transaction, sales directly or indirectly to Affiliates, or sales involving consideration other than payment in U.S. Dollar or currencies convertible thereto, or affected in whole or in part by considerations other than the usual economic incentives for commercial arm’s length Crude Oil sales;

 

d)             the price of Crude Oil shall be expressed in U.S. Dollars per barrel, F.O.B. the Delivery Point by Contractor;

 

e)              if the quality of various Crude Oils produced from the Contract Area is different, segregated and sold separately, the Market Price shall be determined separately for each type sold and/or exported by Contractor only to the extent that the different quality grades remain segregated through to the point where they are sold, and if grades of different quality are commingled into a common stream, Contractor and GNPC shall agree to an equitable methodology for assessing relative value for each grade of Crude Oil comprising the blend and shall

 

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implement the agreed methodology for having the producer(s) of higher quality Crude Oil(s) reimbursed by the producer(s) of lower quality Crude Oil(s) as appropriate.

 

11.8                           Contractor shall notify GNPC of the market Price determined by it for its respective lifting during each Quarter not later than thirty (30) days after the end of that Quarter.

 

11.9                           If GNPC considers that the price notified by Contractor was not correctly determined in accordance with the provisions of Article 11.7, it shall so notify Contractor not later than thirty (30) days after notification by Contractor of such price, and GNPC and Contractor shall meet not later than twenty (20) days thereafter to agree on the correct Market Price.

 

11.10                     In the event that GNPC and Contractor fail to agree upon the commencement of meetings for that purpose, or if, having met, cannot agree on the applicable Market Price, the Market Price shall be referred for determination in accordance with Article 24 of this Agreement.

 

11.11                     Pending a determination under Article 11.10, the Market Price will be deemed to be the last Market Price agreed or determined, as the case may be, or if there has been no such previous agreement or determination, the price notified by Contractor for the lifting in question under Article 11.8. Should the determined price be different from that used in accordance with the foregoing then the difference plus interest at the Specified Rate shall be paid in cash or in Crude Oil by or to Contractor, as the case may be, within thirty (30) days of such determination.

 

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ARTICLE 12

 

TAXATION AND OTHER IMPOSTS

 

12.1                           No tax, duty, fee or other impost shall be imposed by the State or any political subdivision on Contractor, its Subcontractors or its Affiliates in respect of activities related to Petroleum Operations and to the sale and export of Petroleum other than as provided in this Article.

 

12.2                           Contractor shall be subject to the following:

 

i)                               Royalty as provided for in Article 10;

 

ii)                            Income Tax in accordance with the Petroleum Income Tax Law 1987 (PNDCL188) levied at the rate of thirty-five percent (35%) as stipulated in the Petroleum Income Tax Law 1987, PNDC Law 188. Where a new income tax rate comes into force as a result of the promulgation of the new Petroleum Income Tax Law currently before Cabinet, Contractor shall have the option of either applying the new income tax rate to this Agreement or remaining under the Petroleum Income Tax Law, 1987, PNDC Law 188;

 

iii)                         Additional Oil Entitlement as provided for in Article 10.2;

 

iv)                        Payments for rental of Government property, public lands or for the provision of specific services requested by Contractor from public enterprises; provided, however, that the rates charged Contractor for such rentals or services shall not exceed the rates charged to other members of the public who receive similar services or rentals;

 

v)                           Surface rentals payable to the State pursuant to Section 18 of the Petroleum Law per square kilometre of the area remaining at the beginning of each Contract Year as part of the Contract Area, in the amounts as set forth below:

 

	
Phase of Operation
    	
 
    	
Surface Rentals Per Annum
    
	
 
    	
 
    	
 
    
	
Initial Exploration Period
    	
 
    	
US $ 30 per sq. km.
    
	
 
    	
 
    	
 
    
	
1st Extension Period
    	
 
    	
US $ 50 per sq. km.
    
	
 
    	
 
    	
 
    
	
2nd Extension Period
    	
 
    	
US $ 75 per sq. km.
    
	
 
    	
 
    	
 
    
	
Development & Production Area
    	
 
    	
US $100 per sq. km.
    

 

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vi)                        Taxes, duties, fees or other imposts of a minor nature and amount insofar as they do not relate to the stamping and registration of this (1) Agreement, (2) any assignment of interest in this Agreement, or (3) any contract in respect of Petroleum Operations between Contractor and any Subcontractor.

 

12.3                           Save for withholding tax at a rate of five percent (5%) from the aggregate amount due to any Subcontractor (other than the State or any entity wholly-owned or controlled by the State, where such entity is in possession of a certificate of exemption from withholding tax from the Commissioner of Internal Revenue Service, in which case withholding tax shall not be payable) if and when required by Section 27 (1) of the Petroleum Income Tax Law, Contractor shall not be obliged to withhold any amount in respect of tax from any sum due from Contractor to any Subcontractor. Notwithstanding the foregoing, the withholding tax in respect of services provided to Contractor by an Affiliate of any company comprising Contractor shall be waived provided such services are charged at cost.

 

12.4                           Contractor shall not be liable for any export tax on Petroleum exported from Ghana and no duty or other charge shall be levied on such exports. Vessels or other means of transport used in the export of Contractor’s Petroleum from Ghana shall not be liable for any tax, duty or other charge by reason of their use for that purpose.

 

12.5                           Subject to the local purchase obligations hereunder, Contractor and Subcontractors may import into Ghana all plant, equipment and materials to be used solely and exclusively in the conduct of Petroleum Operations without payment of customs and other duties, taxes, fees and charges on imports save minor administrative charges.

 

PROVIDED THAT:

 

a)              GNPC shall have the right of first refusal for any item imported duty free under this Article which is later sold in Ghana; and

 

b)             where GNPC does not exercise its right of purchase Contractor may sell to any other person only subject to all import duty and taxes as if such items were being imported at the time of such sale; provided, however, that no duty or tax shall be levied if the purchaser could have imported the item sold free of duty or tax under an exemption similar to Contractor’s hereunder.

 

12.6                           Foreign National Employees of Contractor or its Affiliates, and of its Subcontractors, shall be permitted to import into Ghana free of import duty their personal and household effects in accordance with Section 22.7 of PNDCL 64; provided, however, that no property imported by such employee shall be resold by such employee in Ghana except in accordance with Article 12.5.

 

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12.7                           Subject to GNPC’s rights under Article19, Contractor, Subcontractors and Foreign National Employees shall have the right to export from Ghana all previously imported items as defined. Such exports shall be exempt from all customs and other duties, taxes, fees and charges on exports save minor administrative charges.

 

12.8                           The Ghana Income Tax law applicable generally to individuals who are not employed in the petroleum industry shall apply in the same fashion and at the same rates to employees of Contractor, its Affiliates and its Subcontractors; provided, however, that Foreign National Employees of Contractor, its Affiliates, and its Subcontractors shall be exempt from the income tax and withholding tax liabilities unless they are resident in Ghana for more than thirty (30) continuous days or sixty (60) days in aggregate in any Calendar Year.

 

12.9                           Pursuant to part 1 section 3 (2) of the Petroleum Income Tax Law, the parties hereby confirm that in respect of Capital allowance deductions for the purposes of calculating chargeable income of the Contractor, the Contractor shall fully depreciate in five (5) years. The mode of calculation shall be in accordance with the Capital Allowances schedule annexed to the Petroleum Income Tax Law 1987 (PNDCL.188).

 

12.10                     With regard to each Development and Production Area, Contractor shall accrue estimated costs of decommissioning and abandonment of operations and facilities, site restoration and other associated operations and have such costs allowed prior to abandonment as a deduction against chargeable income over the estimated life of the estimated reserves on a straight line basis, commencing on the date when fifty percent (50%) of the estimated reserves have been produced from such area. Estimates with regard to costs will be reviewed on an annual basis for adjustment and will be adjusted to reflect actual expenses as incurred. The implementation of this Article 12.10 shall be subject to detailed guidelines to be issued by the Minister, but to the extent that such guidelines suggest potential changes to what is agreed in this Article 12.10, any such changes shall be subject to prior agreement between the Parties hereto.

 

12.11                     It is the intent of the Parties that payments by Contractor of tax levied by the Petroleum Income Tax Law qualify as creditable against the income tax liability of each company comprising Contractor in its jurisdiction. Should the fiscal authority involved determine that the Petroleum Income Tax Law does not impose a creditable tax, the Parties agree to negotiate in good faith with a view to establishing a creditable tax on the precondition that no adverse effect should occur to the economic rights of GNPC or the State.

 

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ARTICLE 13

 

FOREIGN EXCHANGE TRANSACTIONS

 

13.1                           Contractor shall for the purpose of this Agreement be entitled to receive, remit, keep and utilise freely abroad all the foreign currency obtained from the sales of the Petroleum assigned to it by this Agreement or purchased hereunder, or from transfers, as well as its own capital, receipts from loans and in general all assets thereby acquired abroad. Upon making adequate arrangements with regard to its commitment to conduct Petroleum Operations, Contractor shall be free to dispose of this foreign currency or assets as it deems fit.

 

13.2                           Contractor shall have the right to open and maintain in Ghana bank accounts in foreign currency and Ghanaian currency. No restriction shall be made on the import by Contractor in an authorised manner of funds assigned to the performance of the Petroleum Operations and Contractor shall be entitled to purchase Ghanaian currency through authorised means, without discrimination, at the prevailing rate of exchange; provided, however, that such prevailing rate applicable to Contractor hereunder for all transactions for converting Ghanaian currency into U.S. Dollars, and vice versa, shall be at a buying or selling, as the case may be, rate of exchange not less favourable to Contractor than that quoted by the State or its foreign exchange control authority to any person or entity on the dates of such conversion (excepting those special rates provided by the State to discretely defined groups for special, limited purposes).

 

13.3                           Contractor shall be entitled to convert in an authorised manner into foreign currencies of its choice funds imported by Contractor for the Petroleum Operations and held in Ghana which exceeds its local requirements at the prevailing rate of exchange referred to in Article 13.2 and remit and retain such foreign currencies outside Ghana.

 

13.4                           In the event of resale by Contractor or its Affiliate of Crude Oil purchased from the State or GNPC, the State or GNPC shall have the right to request payment for such sales of its share of production to Contractor or its Affiliate to be held in the foreign currency in which the resale transaction took place or in U.S. Dollars.

 

13.5                           Contractor shall have the right to make direct payments outside of Ghana from its home offices, and elsewhere, to its Foreign National Employees, and to those of its Subcontractors and suppliers ‘not resident in Ghana’ (as that term is defined in Part IV, Division 1, Section 160 of the Internal Revenue Act, 2000 (Act 592) for wages, salaries, purchases of goods and performance of services, whether imported into Ghana or supplied or performed therein for Petroleum Operations carried out

 

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hereunder, in accordance with the provisions of this Agreement, in respect of services performed within the framework of this Agreement, and such payments shall be considered as part of the costs incurred in Petroleum Operations. In the event of any changes in the location of Operator’s home or other offices, Operator shall so notify GNPC and the State.

 

13.6                           All payments which this Agreement obligates Contractor to make to GNPC or the State, including income taxes, shall be made in U.S. Dollars, except as requested otherwise pursuant to Article 13.4 above. All payments shall be made by electronic transfer in immediately available funds to a bank to be designated by GNPC or the State, and reasonably accessible to Contractor by way of its being able to receive payments made by Contractor and give a confirmation of receipt thereof, or in such other manner as may be mutually agreed.

 

13.7                           All payments which this Agreement obligates GNPC or the State to make to Contractor shall be made in U.S. Dollars. All payments shall be made by electronic transfer in immediately available funds to a commercial bank to be designated by Contractor, and reasonably accessible to GNPC or the State by way of its being able to receive payments made by GNPC or the State and give confirmation of receipt thereof, or in such other manner as may be mutually agreed.

 

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ARTICLE 14

 

SPECIAL PROVISIONS FOR NATURAL GAS

 

PART I - GENERAL

 

14.1                           Contractor shall have the right to use Natural Gas produced from any Development and Production Area for Petroleum Operation within the Contract Area such as reinjection for pressure maintenance and/or power generation.

 

14.2                           Contractor shall have the right to flare Natural Gas:

 

a)              to the extent provided in an approved Development Plan;

 

b)             during production testing operations;

 

c)              when required for the safety of persons engaged in Petroleum Operations in accordance with Petroleum Industry practice;

 

d)             where reinjection is inadvisable from the point of view of good reservoir or petroleum engineering practice; or

 

e)              as otherwise authorised by the Minister.

 

14.3                           Contractor shall have the right to extract condensate and Natural Gas liquids for disposition under the provisions relating to Crude Oil. Residual Natural Gas remaining after the extraction of condensate and Natural Gas liquids is subject to the provisions of this Article.

 

PART II -ASSOCIATED GAS

 

14.4                           Based on the principle of full utilisation of Associated Gas and without substantial impediment to Crude Oil production, the Development Plan of each Development and Production Area shall include a plan of utilisation for Associated Gas.

 

14.5                           If Contractor considers that production processing and utilisation of Associated Gas from any Development and Production Area to be non-economic, GNPC shall have the option to offtake such Associated Gas at the outlet flange of the gas-oil separator at its Sole Risk for its own use and to that end the Development Plan proposed by Contractor shall include:

 

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a)     a statement of the facilities necessary for the delivery to GNPC of such Associated Gas; and

 

b)    a plan for the reinjection of such Associated Gas into the reservoir.

 

14.6         A.    If GNPC elects to offtake Associated Gas under Article 14.5 above, GNPC shall pay for the cost of any additional facilities and any related production cost required for the delivery of the gas to GNPC, provided that:

 

a)     if Contractor subsequently wishes to participate in GNPC’s gas utilisation programme, it shall reimburse GNPC for the costs of such facilities plus a premium of three hundred percent (300%); or

 

b)    if Contractor subsequently develops a gas utilisation programme and requires the use of such facilities, Contractor shall pay GNPC an agreed fee for such use.

 

B.    The decision of GNPC as to whether or not to exercise the option provided for in Article 14.5 shall be made in a timely manner. In making any such decision and in its subsequent conduct GNPC shall avoid the prevention of , or delay to, the orderly start-up or continuation of the production of Crude Oil as envisaged in Contractor’s Development Plan.

 

PART III - NON-ASSOCIATED GAS

 

14.7         Contractor shall notify the Minister in writing as soon as any Discovery of Non-Associated Gas is made in the Contract Area.

 

14.8         As soon as possible after the technical evaluation of the test results of such Discovery is complete and in any event not later than one hundred eighty (180) days from the date of Discovery, Contractor shall by a further notice in writing to the Minister (the “Notice”) indicate whether in Contractor’s opinion the Discovery merits Appraisal.

 

14.9         Where Contractor’s Notice indicates that the Discovery does not at that time merit Appraisal but may merit Appraisal or additional evaluation at a later date during the Exploration Period or during the initial period under a new petroleum agreement made pursuant to Article 14.18 below, then Contractor need not submit a proposed Appraisal Programme at that time but instead shall indicate what other studies or evaluations may be warranted before an Appraisal Programme is undertaken. Where Contractor’s Notice indicates that the Discovery will not merit appraisal at any time during the Exploration Period or during the initial period under a new petroleum agreement made pursuant to Article 14.18, then GNPC may by Notice to Contractor

 

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require Contractor to relinquish the rights to the Non-Associated Gas within that Discovery Area.

 

14.10       Where Contractor’s Notice indicates that the Discovery merits the drilling of one or more Appraisal Wells at that time, Contractor shall prepare and submit to the JMC the appropriate Appraisal Programme which Appraisal Programme shall be scheduled to be completed within two (2) years of the submission of the Notice to the Minister.

 

14.11       Not later than ninety (90) days from the date on which the Appraisal Programme relating to a Discovery is concluded, Contractor shall submit to the Minister a report containing the results of the Appraisal Programme. If the report concludes that the Discovery merits commercial assessment, Contractor shall notify the Minister within one hundred eighty (180) days from the date on which the Appraisal Programme relating to the Discovery was completed of a programme of such assessment and shall conduct such programme during the rest of the Exploration Period and, if applicable, during the initial period under a new petroleum agreement made pursuant to Article 14.18. Notwithstanding the above, Contractor may also notify the Minister that commercial assessment of the Discovery is not warranted at that time but the Discovery may merit such assessment at a later date during the Exploration Period or during the initial period aforesaid. If Contractor so notifies the Minister, Contractor shall also indicate what other studies or evaluation may be warranted before a commercial assessment is undertaken.

 

14.12       The purpose of the commercial assessment shall be to study the uses to which production from the Discovery Area, separately or together with any Natural Gas referred to in Part II of this Article 14, can be devoted and whether involving exports or domestic utilisation. As part of the assessment, the Parties shall also pursue discussions on the required contractual arrangements for disposition of the Natural Gas to potential purchasers and/or consumers of the Natural Gas.

 

14.13       Contractor may consult with the other Parties and may make appropriate representations proposing changes in the fiscal and other provisions of this Agreement which may, in the opinion of Contractor, affect the above determinations made pursuant to Articles 14.10 and 14.11. The other Parties may, where feasible and in the best interests of the Parties, agree to make such changes or modifications in the existing arrangements.

 

14.14       Nothing in this Part III of Article 14 shall be read or construed as requiring Contractor to relinquish any area:

 

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i)      which constitutes or forms part of another Discovery Area in respect of which Contractor has given to the Minister a separate notice indicating that such Discovery merits confirmation or commercial assessments; or

 

ii)     which Contractor has given the Minister a separate notice in respect of indicating that such Discovery is a Commercial Discovery; or

 

iii)    which constitutes or forms part of a Development and Production Area. 

 

PART IV  NATURAL GAS PROJECTS

 

14.15       If at any time during the commercial assessment Contractor informs the Minister in writing that the Discovery can be produced commercially, it shall as soon as reasonably possible thereafter submit to the Minister and to GNPC its proposals for an agreement in accordance with Article 8 relating to the development of the Discovery on the principles set forth in this Part IV of Article 14. The State and GNPC undertake on receipt of such notice to negotiate in good faith with Contractor with a view to reaching agreement on terms for such production. Any such agreement will be based on terms and fiscal requirements which shall be no less favourable to Contractor than those provided for in Articles 10 and 11 and which take full account of the legitimate interest of the State as the resource owner.

 

14.16       If at any time during the commercial assessment Contractor has identified a market in Ghana for the reserves of Associated and/or Non-Associated Gas or any part thereof that can be saved without prejudice to an export project, the Parties shall proceed in good faith to negotiate the appropriate contractual arrangements for the disposition of the Natural Gas. In the event of a domestic market for such Natural Gas, Contractor and GNPC shall receive for delivery onshore of its share of the Natural Gas at a price to be agreed between GNPC and Contractor taking into account among other things the cost of developing the Natural Gas and the uses which will be made of the Natural Gas.

 

14.17       In the event of a Discovery of Natural Gas in the Contract Area which is to be developed and commercially produced, the provisions of this Agreement in respect to interests, rights and obligations of the Parties regarding Crude Oil shall apply to Natural Gas, with the necessary changes in points of detail, except with respect to specific provisions in this Agreement concerning Natural Gas and different or additional provisions concerning Natural Gas which may be agreed by the Parties in the future:

 

a)     The system for the allocation of Natural Gas among the Parties shall follow the same general format as Article 10.1 provides for Crude Oil, with the exception

 

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that the Royalty to be delivered to the State on Natural Gas shall be at the rate of three percent (3%) of the annual Gross Production of Natural Gas as an incentive to enhance the viability of a Gas project on the basis herein provided for.

 

b)    The Parties recognise that projects for the Development and Production of Natural Gas are generally long-term in nature for both the project developers and the customers who purchase the Natural Gas. Substantial investments and dedication of facilities require long-term commitments on both sides. This Agreement, being for a specific term of years, may not cover the length of time for which customers in given cases will require commitments on the part of the Parties to this Agreement to deliver their respective shares of the output. Accordingly the Parties agree to consider undertaking such commitments where reasonably required for the efficient and viable development of a Natural Gas project. It is recognised that, unless otherwise agreed by the Parties hereto, Contractor will have no right or interest in the project or the Natural Gas produced and delivered after the term of this Agreement has expired unless a petroleum agreement pursuant to Article 14.18(A) has been entered into.

 

c)     In the event that Contractor or an Affiliate decides to construct facilities to receive Natural Gas from the Development and Production Area for further processing or for use as a feedstock or fuel in order to convert such Natural Gas into one or more commercially marketable products, the Contractor shall be entitled to pay for such Natural Gas the price paid by the State or GNPC under Article 14.16.

 

d)    The Parties will consider collaboration in obtaining any common external financing available for Natural Gas processing or Natural Gas utilisation facilities, including project financing; however, each Party shall remain free to finance externally its share of such facilities to the extent it prefers to do so.

 

14.18       A)   Where Contractor has during the continuance of the Exploration Period made a Discovery of Non-Associated Gas but has not before the end of the Exploration Period declared that Discovery to be a Commercial Discovery, the State and GNPC will, if Contractor so requests, enter into a new petroleum agreement with Contractor in respect of the Discovery Area to which that Discovery relates.

 

B)    The State and GNPC shall not be under any obligation to enter into an Agreement pursuant to Article 14.18(A) unless before the end of the Exploration Period Contractor has carried out an Appraisal Programme in respect of that Discovery pursuant to Article 14.10 and submitted to the Minister a report thereon pursuant to Article 14.11, or has notified the Minister of reasonable

 

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arrangements to undertake and complete such an Appraisal Programme during the period provided for in (C) (i) below.

 

C)    A Petroleum Agreement entered into pursuant to Article 14.18 (A):

 

i)      shall unless the Discovery in respect of which the Agreement has been made is declared by Contractor to be a Commercial Discovery continue in force for an initial period not exceeding five (5) years;

 

ii)     shall in the event that the Discovery is declared by Contractor to be a Commercial Discovery

 

a)     continue in force for an aggregate period not exceeding thirty (30) years;

 

b)    include, or be deemed to include, all the provisions which, mutatis  mutandis, would have applied to a Commercial Discovery of Non-Associated Gas if Contractor had declared such Discovery to be a Commercial Discovery under this Agreement;

 

iii)    shall contain in respect of the initial period or of any renewal period details of the evaluations or studies which Contractor proposes to undertake in order to determine or keep under review the commerciality of the Discovery;

 

iv)   shall confer on GNPC preemptive rights in respect of the Gas contained in the reservoir to which the Discovery relates substantially in the form of the provisions hereinafter set out in Article 14.18 (D).

 

D             In the event that the Parties are unable to agree to the detailed terms of the Petroleum Agreement contemplated in Article 14.18(a) and the Exploration Period expires, GNPC itself, or a third party may, at its sole risk and expense, complete the Appraisal Programme relating to the Discovery and/or develop the Discovery, provided that Contractor shall have the right of first refusal in respect of any transaction proposed by GNPC or such third party for the development of the Discovery.

 

E              i)      Where Contractor has not, before the end of the initial period, declared the Discovery to be commercial and the Minister has in his discretion determined that further evaluation or studies may be required before the Discovery can be declared commercial, the right of Contractor to retain the Discovery Area shall continue for a further period not exceeding in the aggregate five (5) years. The

 

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right of Contractor to retain the Discovery Area aforesaid shall be secured by the renewal of the Agreement referred to in Article 14.18 (a) or where necessary by a new Agreement entered into by the Parties for that purpose.

 

ii)      Where Contractor has not declared the Discovery to be a Commercial Discovery, if GNPC has identified a market for the Gas contained in the reservoir to which the Discovery relates, or any part thereof, it may at any time during the initial period or the aggregate period referred to in 14.18 D above serve on Contractor a notice giving particulars of the quantities of Natural Gas required to serve that market and the price offered; and on the basis of the procedure detailed in Article 9, exercise the right referred to in Article 14.18 C (iv) above.

 

4.19         For the purposes of calculating the State’s 3% Royalty share on Natural Gas, if the State elects to take its royalty on Natural Gas in cash, the value of such Natural Gas shall be the actual price realized.

 

4.20         Within four (4) months from the receipt of a notice as aforesaid Contractor may declare the Discovery to be a Commercial Discovery and in accordance with the Agreement and the Petroleum Law prepare and submit to the Minister a Development Plan for the production of the Gas in association with GNPC to serve the market identified at the price offered.

 

4.21         If Contractor has not, within the period of four (4) months aforesaid, declared the Discovery to be a Commercial Discovery, GNPC may at its sole risk and expense develop the Discovery to the extent necessary to meet the requirements of the market identified as aforesaid, and in that event the Contractor shall cease to have any rights in respect of the Natural Gas in the reservoir required for that purpose.

 

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ARTICLE 15

 

DOMESTIC SUPPLY REQUIREMENT (CRUDE OIL)

 

15.1         Crude Oil for consumption in Ghana (in this Article called the “Domestic Supply Requirement”) shall be supplied, to the extent possible, by the State and GNPC from their respective entitlements under this Agreement and under any other contract for the production of Crude Oil in Ghana.

 

5.2           In the event that Crude Oil available to the State pursuant to Article 15.1 is insufficient to fulfill the Domestic Supply Requirement, Contractor shall upon three (3) Month’s notice from the State, be obliged together with any third parties which produce Crude Oil in Ghana, to supply a volume of Crude Oil to be used for such Domestic Supply Requirement, calculated on the basis of the ratio of Contractor’s entitlement to Crude Oil under Article 10.1 (d) to the entitlements of all such third parties producing Crude Oil in Ghana and provided that Contractor’s obligation to supply Crude Oil for purposes of meeting the Domestic Supply Requirement shall not exceed the total of Contractor’s entitlement of Gross Production of Crude Oil after deduction of the State’s Royalty under this Agreement.

 

15.3         The Contractor shall ensure that any contract for the supply of the Contractor’s share of Crude Oil under this Agreement shall be made subject to the requirement in this Article 15 to meet the Domestic Supply Requirement.

 

15.4         The State shall purchase any Crude Oil supplied by Contractor pursuant to this Article at a price which matches the Market Price determined under Article 11.7 for the Month of delivery. The State shall pay such prices in accordance with Article 13.7 within thirty (30) days after receipt of Contractor’s invoice, failing which Contractor’s obligations in respect of the Domestic Supply Requirement under this Article 15 shall be suspended until payment is made good, at which time deliveries shall be resumed subject to any alternative commitments that may have been reasonably entered into by Contractor to dispose of the Domestic Supply Requirement Crude Oil during the period of default in payment. Contractor shall recover any amount due and unpaid by State, plus interest at the interest rate defined in Article 26.7, from GNPC’s share of Crude Oil as provided in Article 10.1 (e).

 

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ARTICLE 16

 

INFORMATION AND REPORTS : CONFIDENTIALITY

 

16.1         Contractor shall keep GNPC regularly and fully informed of operations being carried out by Contractor and provide GNPC with all information, data, (film, paper and digital forms), samples, interpretations and reports, (including progress and completion reports) including but not limited to the following:

 

a)      processed seismic data and interpretations thereof;

 

b)      well data, including but not limited to electric logs and other wireline surveys, and mud logging reports and logs, samples of cuttings and cores and analyses made therefrom;

 

c)      any reports prepared from drilling data or geological or geophysical data, including maps or illustrations derived therefrom;

 

d)      well testing and well completion reports;

 

e)      reports dealing with location surveys, seabed conditions and seafloor hazards and any other reports dealing with well, platform or pipeline locations;

 

f)       reservoir investigations and estimates regarding reserves, field limits and economic evaluations relating to future operations;

 

g)      daily, weekly, monthly and other regular reports on Petroleum Operations;

 

h)      comprehensive final reports upon the completion of each specific project or operation;

 

i)       contingency programmes and reports on safety and accidents;

 

j)       procurement plans, Subcontractors and contracts for the provision of services to Contractor.

 

Where appropriate, data shall be provided on film, paper and in digital format. In respect of the reports, including text and graphics, paper and digital copies shall be submitted.

 

16.2         Contractor shall have the right to retain for its own use in connection with the conduct of Petroleum Operations under this Agreement copies of data, well logs,

 

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maps, magnetic tapes, other geological and geophysical information, portions of core samples and copies of reports, studies and analyses, referred to in Article 16.1.

 

16.3         Not later than ninety (90) days following the end of each Calendar Year, Contractor shall submit to GNPC a report covering Petroleum Operations performed in the Contract Area during such Calendar Year. Such report shall include, but not be limited to:

 

a)      a statement of the number of Exploration Wells, Appraisal Wells and Development Wells drilled, the depth of each such well, and a map on which drilling locations are indicated;

 

b)      a statement of any Petroleum encountered during Petroleum Operations, as well as a statement of any fresh water layers encountered and of any other minerals discovered;

 

c)      a statement of the quantity of Petroleum produced and of all other minerals produced therewith from the same reservoir or deposit;

 

d)      a summary of the nature and extent of all exploration activities in the Contract Area;

 

e)      a general summary of all Petroleum Operations in the Contract Area; and

 

f)       a statement of the number of employees engaged in Petroleum Operations in Ghana, identified as Ghanaian or non-Ghanaian. Contractor will inform the latter that details as to nationality are required by GNPC and that Contractor is available to assist them to supply that information.

 

16.4         All data, information and reports including interpretation and analysis supplied by Contractor pursuant to this Agreement, including without limitation, that described in Articles 16.1, 16.2 and 16.3 shall be treated as confidential and shall not be disclosed by any Party to any other person without the express written consent of the other Parties.

 

16.5         The provisions of Article 16.4 shall not prevent disclosure:

 

a)             by GNPC or the State:

 

i)      to any agency of the State or to any adviser or consultant to GNPC or the State; or

 

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ii)     for the purpose of obtaining a Petroleum Agreement in respect of any acreage adjacent to the Contract Area.

 

b)            by Contractor:

 

i)      to its Affiliates, advisers or consultants;

 

ii)     to a bona fide potential assignee of all or part of Contractor’s Interest hereunder provided GNPC is given prior notice of such potential assignee;

 

iii)    to banks or other lending institutions for the purpose of seeking external financing of costs of the Petroleum Operations;

 

iv)   to non-Affiliates who shall provide services for the Petroleum Operations, including Subcontractors, vendors and other service contractors, where this is essential for their provision of such services, and provided GNPC is notified about such disclosure;

 

v)    to governmental agencies for obtaining necessary rulings, permits, licenses and approvals, or as may be required by applicable law or financial stock exchange, accounting or reporting practices, and provided GNPC is notified about such disclosure; or

 

vi)   to such persons and for such purposes as the Joint Management Committee may permit from time to time.

 

c)             by any Party:

 

i)      to the extent necessary in any arbitration proceedings or proceedings before a Sole Expert or in proceedings before any court;

 

ii)     with respect to data, etc., which already through, no fault of the disclosing Party is in the public domain.

 

16.6         Any Party disclosing information or providing data to any third party under this Article shall require such persons to observe the confidentiality of such data. Promptly after the Effective Date, the Parties shall agree upon a mutually acceptable international petroleum industry standard form of confidentiality agreement. Contractor shall require the execution of an agreement substantially on the terms contained in such agreed form of agreement by a potential assignee prior to disclosure of such data; and shall provide copies of all such signed agreements to GNPC.

 

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ARTICLE 17

 

INSPECTION, SAFETY AND ENVIRONMENTAL PROTECTION

 

17.1         GNPC shall have the right of access to all sites and offices of Contractor and the right to inspect all buildings and installations used by Contractor relating to Petroleum Operations. Such inspections and audits shall take place in consultation with Contractor and at such times and in such manner as not unduly to interfere with the normal operations of Contractor.

 

17.2         Contractor shall take all necessary steps, in accordance with accepted Petroleum industry practice, to perform activities pursuant to the Agreement in a safe manner and shall comply with all requirements of the Law of Ghana, including labour, health safety and environmental laws and regulations issued by the Environmental Protection Agency.

 

17.3         Contractor shall provide an effective and safe system for disposal of water and waste oil, oil base mud and cuttings in accordance with accepted Petroleum industry practice, and shall provide for the safe completion or abandonment of all boreholes and wells.

 

17.4         Contractor shall exercise its rights and carry out its responsibilities under this Contract in accordance with accepted Petroleum industry practice, and shall take steps in such manner as to:

 

a)      result in minimum ecological damage or destruction;

 

b)      control the flow and prevent the escape or the avoidable waste of Petroleum discovered in or produced from the Contract Area;

 

c)      prevent damage to Petroleum-bearing strata;

 

d)      prevent the entrance of water through boreholes and wells to Petroleum-bearing strata, except for the purpose of secondary recovery;

 

e)      prevent damage to onshore lands and to trees, crops, buildings or other structures; and

 

f)       avoid any actions which would endanger the health or safety of persons.

 

17.5         If Contractor’s failure to comply with the requirements of Article 17.4 results in the release of Petroleum or other materials on the seabed, in the sea, on land or in fresh water, or if Contractor’s operations result in any other form of pollution or otherwise

 

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cause harm to fresh water, marine, plant or animal life, Contractor shall, in accordance with accepted Petroleum industry practice, promptly take all necessary measures to control the pollution, to clean up Petroleum or other released material, or to repair, to the maximum extent feasible, damage resulting from any such circumstances. If such release or pollution results directly from the Gross Negligence of Contractor, the cost of subcontract clean-up and repair activities shall be borne by Contractor and shall not be included as a Petroleum Cost under this Agreement.

 

17.6         Contractor shall notify GNPC immediately in the event of any emergency or major accident and shall take such action as may be prescribed by GNPC’s emergency procedures and by accepted international petroleum industry practices in the same or similar circumstances.

 

17.7         If Contractor does not act promptly so as to control, clean up or repair any pollution or damage, GNPC may, after giving Contractor reasonable notice in the circumstances, take any actions which are necessary, in accordance with accepted international petroleum industry practice in the same or similar circumstances and the reasonable costs and expenses of such actions shall be borne by Contractor and shall, subject to Article 17.5 be included as Petroleum Costs.

 

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ARTICLE 18

 

ACCOUNTING AND AUDITING

 

18.1         Contractor shall maintain, at its offices in Ghana, books of account and supporting records in the manner required by applicable law and accepted accounting principles generally used in the international petroleum industry and shall file reports, tax returns and any other documents and any other financial returns which are required by applicable law.

 

18.2         In addition to the books and reports required by Article 18.1 Contractor shall maintain, at its office in Ghana, a set of accounts and records relating to Petroleum Operations under this Agreement. Such accounts shall be kept in accordance with the requirements of the applicable law and accepted accounting principles generally used in the international petroleum industry.

 

18.3         The accounts required by Articles 18.1 and 18.2 shall be kept in United States Dollars.

 

18.4         Contractor will provide GNPC with quarterly summaries of the Petroleum Costs incurred under this Agreement.

 

18.5         GNPC shall review all financial statements submitted by the Contractor as required by this Agreement, and shall signify its provisional approval or disapproval of such statements in writing within ninety (90) days of receipt failing which the financial statements as submitted by Contractor shall be deemed approved by GNPC; in the event that GNPC indicates its disapproval of any such statement, the parties shall meet within fifteen (15) days of Contractor’s receipt of the notice of disapproval to review the matter.

 

18.6         Notwithstanding any provisional approval pursuant to Article 18.5 GNPC shall have the right at its sole expense and upon giving reasonable notice in writing to Contractor to audit the books and accounts of Contractor relating to Petroleum Operations within two (2) years from the submission by Contractor of any report of financial statement. GNPC shall not, in carrying out such audit, interfere unreasonably with the conduct of Petroleum Operations. Any such audit shall be undertaken by an independent international auditing firm and shall be completed within nine (9) months after commencement. An extension of time to complete an audit shall be allowed upon receipt by Contractor from GNPC’s auditing firm of a written statement representing that the auditors have used reasonable efforts to complete the subject audit and they require additional time not to exceed three (3) months to complete such audit. If after a period of one (1) year the subject audit has

 

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not been completed by GNPC the books and accounts covering such period shall be deemed approved. Contractor shall provide all necessary facilities for auditors appointed hereunder by GNPC including working space and access to all relevant personnel, records, files and other materials.

 

If GNPC desires verification of charges from an Affiliate, Contractor shall at GNPC’s sole expense obtain for GNPC or its representatives an audit certificate to this purpose from the statutory auditors of the Affiliate concerned. Copies of audit reports shall be provided to the Contractor and GNPC. Any unresolved audit claim resulting from such audit, upon which Contractor and GNPC are unable to agree shall be submitted to the JMC for decision which must be unanimous. In the event that a unanimous decision is not reached in respect of any audit claim, then such unresolved audit claim shall be submitted for resolution in accordance with Article 24. Subject to any adjustments resulting from such audits, Contractor’s accounts and financial statements shall be considered to be correct on expiry of a period of two (2) years from the date of their submission unless before the expiry of such two year period GNPC has notified Contractor of any exceptions to such accounts and statements.

 

18.7         Nothing in this Article shall be read or construed as placing a limit on GNPC’s access to Contractor’s books and accounts in respect of matters arising under Article 23.4 (a).

 

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ARTICLE 19

 

TITLE TO AND CONTROL OF GOODS AND EQUIPMENT

 

19.1         GNPC shall be the sole and unconditional owner of:

 

a)                                      Petroleum produced and recovered as a result of Petroleum Operations, except for such Petroleum as is distributed to the State and to Contractor pursuant to Article 10 or 14 hereof;

 

b)                                     all physical assets other than those to which Article 19.3 or 19.4 apply, which are purchased, installed, constructed or used by Contractor in Petroleum Operations as from the time that:

 

i)                                         the full cost thereof has been recovered by Contractor in accordance with the provisions of the Accounting Guide from its proportionate share of Petroleum revenues and any other revenues it receives in respect of Petroleum Operations; or

 

ii)                                      this Agreement is terminated pursuant to Articles 23.3 and 23.4 and Contractor has not disposed of such assets prior to such termination, whichever occurs first.

 

19.2         Contractor shall have the use of the assets referred to in Article 19.1(b) for purposes of its operations under this Agreement without payment provided that Contractor shall remain liable for maintenance, insurance and other costs associated with such use in accordance with international petroleum industry practices in the same or similar circumstances. Where Contractor has failed to keep any such asset in good working condition (normal wear and tear excepted), GNPC shall have the right to recover the cost of repair or replacement of such assets from Contractor. Contractor shall indemnify GNPC against all losses, damages, claims or legal action resulting from Contractor’s use of such assets, if and in as far as such losses, damages, claims or legal actions were directly caused by Contractor’s Gross Negligence.

 

19.3         Equipment or any other assets rented or leased by Contractor which is imported into Ghana for use in Petroleum Operations and subsequently re-exported therefrom, which is of the type customarily leased for such use in accordance with international petroleum industry practice or which is otherwise not owned by Contractor shall not be transferred to GNPC. No equipment or assets owned or leased by a Subcontractor shall by reason of the provisions of this Article 19 be deemed to be transferred to GNPC.

 

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19.4         All assets owned by Contractor which are not affected by the provisions of Article 19.1 (b) above may, where required for further Petroleum Operations, be retained by GNPC for such operations provided that GNPC shall thereby be liable to pay a reasonable and mutually agreed fee for such use, and shall bear the cost of repair or replacement upon failure to keep such assets in good working condition (normal wear and tear excepted), and further provided that Contractor does not require such assets for its Petroleum Operations.

 

19.5         Upon the termination of Petroleum Operations in any Area, Contractor shall give GNPC the option to acquire any movable and immovable assets used for such Petroleum Operations and not affected by the provisions of Article 19.1 (b) at a reasonable and mutually agreed price, always provided that Contractor does not require such assets for Contractor’s Petroleum Operations in the Contract Area.

 

19.6         All assets which are not affected by Article 19.1 (b) nor subject to Article 19.3 above, and all subcontractor equipment, may be freely exported by Contractor or its Subcontractor, respectively, at its discretion.

 

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ARTICLE 20

 

PURCHASING AND PROCUREMENT

 

20.1         In the acquisition of plant, equipment, services and supplies for Petroleum Operations, Contractor shall give preference to materials, services and products produced in Ghana including shipping services provided by vessels owned or controlled by Ghanaian shipping companies if such materials, services and products meet standards generally acceptable to international oil and gas companies and supplied at prices, grades, quantities, delivery dates and on other commercial terms equivalent to or more favourable than those at which such materials, services and products can be supplied from outside Ghana.

 

20.2         For the purposes of Article 20.1, price comparisons shall be made on a c.i.f. Accra delivered basis.

 

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ARTICLE 21

 

EMPLOYMENT AND TRAINING

 

21.1         In order to establish programmes to train Ghanaian personnel for work in Petroleum Operations and for the transfer of management and technical skills required for the efficient conduct of Petroleum Operations, Contractor shall pay to GNPC the sum of two hundred and fifty thousand US dollars (US$250,000) per year from the Effective Date to maintain and implement such programmes. Such expenditure shall qualify for deduction against income tax under the Income Tax law and shall be considered as Petroleum Costs.

 

The above amounts shall be payable within thirty (30) days after the beginning of each Calendar Year, provided that the sum payable shall be pro rata for any period of less than a full Calendar Year (e.g. from the Effective Date to the end of the Calendar Year). GNPC shall prepare and present to JMC its intentions for such programmes on an annual basis and shall consider any suggestions made by Contractor’s JMC representatives.

 

21.2         In addition to the annual sums payable pursuant to Article 21.1 above, Contractor shall pay to GNPC on a once-off basis a single further sum of four hundred thousand US dollars (U.S.$400,000) in respect of technical support for GNPC. Such expenditure shall also qualify for deduction against income tax under the Income Tax law and shall be considered as a Petroleum Cost.

 

21.3         Where qualified Ghanaian personnel are available for employment in the conduct of Petroleum Operations, Contractor shall ensure that in the engagement of personnel it shall as far as reasonably possible provide opportunities for the employment of such personnel. For this purpose, Contractor shall submit to GNPC an employment plan with number of persons and the required professions and technical capabilities prior to the performance of Petroleum Operations. GNPC shall provide the qualified personnel according to the said plan.

 

21.4         Contractor shall, if so requested by GNPC, provide opportunities for a mutually agreed number of GNPC personnel nominated by GNPC to be seconded for on-the-job training or attachment in all phases of its Petroleum Operations under a mutually agreed secondment contract. Expenses of secondment shall not be credited against the training obligation under Article 21.1. Such secondment contract shall include continuing education and short industry courses mutually identified as beneficial to the secondee. Costs and other expenses connected with such assignment of GNPC personnel on secondment shall be borne by the Contractor and

 

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shall qualify for deduction against income under the Petroleum Income Tax Law and shall be considered as Petroleum Costs.

 

21.5         Contractor shall regularly provide to GNPC information and data relating to worldwide Petroleum science and technology, Petroleum economics and engineering available to Contractor, and shall assist GNPC personnel in every way to acquire knowledge and skills in all aspects of the Petroleum industry.

 

21.6         It is agreed that there will be no disclosure or transfer of any documents, data, know-how, technology or other information owned or supplied by Contractor, its Affiliates, or non-Affiliates, to third parties without Contractor’s prior written consent, and then only upon agreement by the recipients to retain such information in strict confidence.

 

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ARTICLE 22

 

FORCE MAJEURE

 

22.1         The failure of a Party to fulfil any term or condition of this Agreement, except for the payment of monies, shall be excused if and to the extent that such failure arises from Force Majeure, provided that, if the event is reasonably foreseeable such party shall have prior thereto taken all appropriate precautions and all reasonable alternative measures with the objective of carrying out the terms and conditions of this Agreement. A Party affected by an event of Force Majeure shall promptly give the other Parties notice of such event and also of the restoration of normal conditions.

 

22.2         A Party unable by an event of Force Majeure to perform any obligation hereunder shall take all reasonable measures to remove its inability to fulfil the terms and conditions of this Agreement with a minimum of delay, and the Parties shall take all reasonable measures to minimise the consequences of any event of Force Majeure.

 

22.3         Any period set herein for the completion by a Party of any act required or permitted to be done hereunder, shall be extended for a period of time equal to that during which such Party was unable to perform such actions as a result of Force Majeure, together with such time as may be required for the resumption of Petroleum Operations.

 

22.4         Except in the case of:

 

a)      a law of general application;

 

b)      an action taken in consequence of an emergency arising from a condition of Force Majeure;

 

GNPC may not claim Force Majeure in respect of any action or provision of the State or any agency of the State.

 

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ARTICLE 23

 

TERM AND TERMINATION

 

23.1         Subject to this Article 23 and to the Petroleum (Exploration and Production) Law PNDCL 84 (Section 12) the term of this Agreement shall be thirty (30) years commencing from the Effective Date.

 

23.2         At the end of the term provided for in Article 23.1, provided that this Agreement has not earlier been terminated, the Parties may negotiate concerning the terms and conditions of a further agreement with respect to the Contract Area or any part thereof, but no failure to enter any such further agreement shall give rise to arbitration pursuant to Article 24 hereof.

 

23.3         Subject to Article 22, Termination of this Agreement shall result upon the occurrence of any of the following:

 

a)      the relinquishment or surrender of the entire Contract Area;

 

b)      the termination of the Exploration Period including extensions pursuant to Article 3 without notification by Contractor of commerciality pursuant to Article 8 in respect of a Discovery of Petroleum in the Contract Area; provided, however, Termination shall not occur while Contractor has the right to evaluate a Discovery for appraisal or commerciality and/or propose a Development Plan pursuant to Articles 8 or 14, or once a Development Plan has been approved, nor when the provisions of Articles 8.13 through 8.19 are applicable;

 

c)      if, following a notice that a Discovery is a Commercial Discovery the Exploration Period terminates under Article 3 without a Development Plan being approved, provided however that Termination shall not occur when the provisions of Articles 8.13 through 8.19 are applicable; or

 

d)      the failure of Contractor through any cause other than Force Majeure, to commence preparations with respect to Development Operations pursuant to Article 8.11.

 

23.4         Subject to Article 22 and pursuant to procedures described in Article 23.5 below GNPC and/or the State may terminate this Agreement upon the uncorrected occurrence of any of the events (or failures to act listed) below:

 

a)      the submission by Contractor to GNPC of a written statement which Contractor knows or should have known to be false, in a material particular; provided that

 

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in the event of intent on the part of Contractor to cause serious damage to GNPC or the State, a period for remedy of such false statement shall not be given;

 

b)      the assignment or purported assignment by Contractor of this Agreement contrary to the provisions of Article 25 hereof;

 

c)      the insolvency or bankruptcy of Contractor, the entry by Contractor into any agreements or composition with its creditors, taking advantage of any law for the benefit of debtors or Contractor’s entry into liquidation, or receivership, whether compulsory or voluntary, and there is thereby justifiable anticipation that the obligations of Contractor hereunder will not be performed; provided, however, if the Contractor is comprised of more than one non-Affiliated entity, then the insolvency or bankruptcy of one Contractor Party shall not lead to a termination of the Agreement if the other Contractor Parties will assume the rights and obligations of the defaulting Contractor Party under the Petroleum Agreement;

 

d)      the intentional extraction by Contractor of any material of potential economic value other than as authorised under this Agreement, or any applicable law except for such extraction as may be unavoidable as a result of Petroleum Operations conducted in accordance with accepted international petroleum industry practice, in the same or similar circumstances;

 

e)      failure by Contractor

 

i)      to fulfil its minimum work obligations pursuant to Article 4.3, save where the Minister has waived the default; or

 

ii)     to carry out an approved Appraisal Programme undertaken by Contractor pursuant to Article 8, unless Contractor notifies GNPC and the Minister that the Appraisal Programme should be amended and submits said amendment to the JMC for its review;

 

f)       substantial and material failure by Contractor to comply with any of its obligations pursuant to Article 7.1 hereof;

 

g)      failure by Contractor to make any payment of any sum due to GNPC or the State pursuant to this Agreement within thirty (30) days after receiving notice that such payment is due, except where liability for payment of such sum is disputed in good faith by Contractor in which case the matter shall, if agreement in relation to it cannot be reached after thirty (30) days, be referred to arbitration under Article 24;

 

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h)      failure by Contractor to comply with any decisions reached as a result of any arbitration proceedings conducted pursuant to Article 24 hereof.

 

23.5         If GNPC and/or the State believe an event or failure to act as described in Article 23.4 above has occurred, a written notice shall be given to Contractor describing the event or failure. Contractor shall have thirty (30) days from receipt of said notice to commence and pursue remedy of the event or failure cited in the notice. If after said thirty (30) days Contractor has failed to commence appropriate remedial action, GNPC and/or the State may then issue a written Notice of Termination to Contractor which shall become effective thirty (30) days from receipt of said Notice by Contractor unless Contractor has referred the matter to arbitration. In the event that Contractor disputes whether an event specified in Article 23.3 or Article 23.4 has occurred or been remedied, Contractor may, any time up to the effective date of any Notice of Termination refer the dispute to arbitration pursuant to Article 24 hereof. If so referred, GNPC and/or the State may not terminate this Agreement in respect of such event except in accordance with the terms of any resulting arbitration award.

 

23.6         Upon termination of this Agreement, all rights of Contractor hereunder shall cease, except for such rights as may at such time have accrued, and without prejudice to any obligation or liability imposed or incurred under this Agreement prior to Termination and to such rights and obligations as the Parties may have under applicable law.

 

23.7         Upon termination of this Agreement or in the event of an assignment of all the rights of Contractor, all wells and associated facilities shall be left in a state of good repair in accordance with accepted international petroleum industry practice.

 

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ARTICLE 24

 

CONSULTATION, ARBITRATION AND INDEPENDENT EXPERT

 

24.1         Except in the cases specified in Article 26.4 any dispute arising between the State and GNPC or either of them on one hand and Contractor on the other hand in relation to or in connection with or arising out of any terms and conditions of this Agreement shall be resolved by consultation and negotiation among senior personnel authorized by each Party. In the event that no agreement is reached within thirty (30) days after the date when either Party notifies the other that a dispute or difference exists within the meaning of this Article or such longer period specifically agreed to by the Parties or provided elsewhere in this Agreement, any Party shall have the right subject to Article 24.7 to have such dispute or difference finally settled through international arbitration under the auspices of the International Chamber of Commerce (the “ICC”) and adopting the Rules of Arbitration of the International Chamber of Commerce (the “ICC Rules”), which ICC Rules are deemed incorporated by reference into this Article 24, save as otherwise provided herein.

 

24.2         The tribunal shall consist of three (3) arbitrators. Each Party to the dispute shall appoint one (1) arbitrator and those so appointed shall designate a chairman arbitrator. If a Party’s arbitrator and/or the chairman arbitrator is not appointed within the periods provided in the rules referred to in Article 24.1 above, such Party’s arbitrator and/or the chairman arbitrator shall at the request of any Party to the dispute be appointed by the ICC International Court of Arbitration in accordance with the ICC Rules.

 

24.3         No arbitrator or Sole Expert shall be a citizen of the home country of any Party hereto, and no arbitrator or Sole Expert shall have any economic interest or relationship with any such Party.

 

24.4         The arbitration proceedings shall be conducted in London, England or at such other location as selected by the arbitrators unanimously, but which must be located in a State which is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and located within any one of the States specified in the Schedule to the Arbitration (Foreign Awards) Instrument, 1963 (LI 261), as may be amended from time to time. The proceedings shall be conducted in the English language.

 

24.5         The award of the tribunal shall be final and binding upon the Parties and enforceable by the Parties in whose favour the award is made. Each of the Republic of Ghana and GNPC hereby irrevocably agree that to the extent that such party, has any right of immunity from any legal proceedings whether in Ghana, England or elsewhere

 

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in connection with or arising from terms and conditions of this Agreement, including immunity from service of process, immunity from jurisdiction or judgement or any arbitration tribunal, immunity from execution of judgement or tribunal award, such party hereby expressly and irrevocably waives any such immunity and agrees not to assert or invoke any such rights or claim in any such proceedings whether in Ghana, England or elsewhere.

 

24.6         The right to arbitrate disputes arising out of this Agreement shall survive the termination of this Agreement.

 

24.7         Unless where a matter is specifically required to be referred to a Sole Expert under this Agreement, the Parties to a dispute arising under this Agreement may, in lieu of resorting to arbitration, mutually agree to refer such matter for determination by a Sole Expert to be appointed by agreement of the Parties. The Sole Expert proceedings shall be administered in accordance with the Rules for Expertise of the International Chamber of Commerce and any hearings or meetings shall take place in Accra, Ghana. Where, however, the Parties fail to agree upon the appointment of a Sole Expert within forty-five (45) days of the notice by one Party to the other Parties of a dispute pursuant to this Agreement, the Sole Expert shall be appointed by the International Centre for Expertise established by the International Chamber of Commerce (ICC). The decision of the Sole Expert shall be given in writing with full reasoning and shall be final and binding upon the Parties and shall be treated as if it was an award by a sole arbitrator. The Sole Expert shall have ninety (90) days after his appointment to decide the case, subject to any extensions mutually agreed to by the Parties to the dispute. Upon failure of the Sole Expert to decide the matter in a prompt and timely manner, any Party may call for arbitration under Article 24.1 above.

 

24.8         Each Party to a dispute shall pay its own counsel and other costs; however, costs of the arbitration tribunal shall be allocated in accordance with the decision of the tribunal. The costs and fees of the Sole Expert shall be borne equally by the Parties to the dispute.

 

24.9         Any arbitration or Sole Expert proceeding pursuant to this Agreement shall be conducted in accordance with the ICC Rules or the ICC Rules for Expertise (as applicable) in effect on the date on which the proceeding is instituted.

 

24.10       In the event of a matter being referred for resolution under this Article 24; any obligations of the Parties relating to such matter shall (unless otherwise provided by this Agreement) be suspended, without liability to any Party, until said matter has been resolved pursuant to this Article 24.

 

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24.11       Neither the State and/or GNPC, on the one hand, and the Contractor, on the other hand, shall be held liable to the other for any consequential, special, indirect or punitive damages (including loss of profit or loss of production) arising directly or indirectly out of or in relation or in connection to this Agreement, regardless of cause or fault.

 

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ARTICLE 25

 

ASSIGNMENT

 

25.1         This Agreement shall not be assigned by any or all of the companies comprising Contractor directly or indirectly in whole or in part, without the prior written consent of GNPC, and the Minister, which consent shall not be unreasonably withheld or delayed.

 

25.2         Any assignment of this Agreement shall bind the assignee as a Party to this Agreement to all the terms and conditions hereof unless otherwise agreed and as a condition to any assignment Contractor shall provide an unconditional undertaking by the assignee to assume all obligations assigned by Contractor under this Agreement.

 

25.3         Where in consequence of an assignment hereunder Contractor is more than one person:

 

a)             any operating or other agreement made between the persons who constitute contractor and relating to the Petroleum Operations hereunder shall be disclosed to GNPC and the Minister and shall not be inconsistent with the provisions of this Agreement;

 

b)            no change in the scope of the Petroleum Operations may take place without the prior approval in writing of GNPC, which approval shall not be unreasonably delayed or withheld; and

 

c)             the duties and obligations of Contractor hereunder shall be joint and several except those relating to the payment of income tax pursuant to Article 12 which shall be the several obligation of each such person.

 

25.4         GNPC’s acquisition of Additional Interest under Article 2 or a Sole Risk Interest pursuant to Article 9 shall not be deemed to be an assignment within the meaning of this Article.

 

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ARTICLE 26

 

MISCELLANEOUS

 

26.1         This Agreement and the relationship between the State and GNPC on one hand and Contractor on the other shall be governed by and construed in accordance with the laws of the Republic of Ghana consistent with such rules of international law as may be applicable, including rules and principles as have been applied by international tribunals.

 

26.2         The State, its departments and agencies, shall support this Agreement and shall take no action which prevents or impedes the due exercise and performance of rights and obligations of the Parties hereunder. As of the Effective Date of this Agreement and throughout its Term, the State guarantees Contractor the stability of the terms and conditions of this Agreement as well as the fiscal and contractual framework hereof specifically including those terms and conditions and that framework that are based upon or subject to the provisions of the laws and regulations of Ghana (and any interpretations thereof) including, without limitation, the Petroleum Income Tax Law, the Petroleum Law, the GNPC Law and those other laws, regulations and decrees that are applicable hereto.

 

26.3         This Agreement and the rights and obligations specified herein may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the Parties. Any legislative or administrative act of the State or any of its agencies or subdivisions which purports to vary any such right or obligation shall, to the extent sought to be applied to this Agreement, constitute a breach of this Agreement by the State provided, however, where a new income tax rate comes into force as a result of the promulgation of the new Petroleum Income Tax Law currently before Cabinet, Contractor shall have the option of either applying the new income tax rate to this Agreement or remaining under the Petroleum Income Tax Law, 1987, PNDC Law 188.

 

26.4         Where a Party considers that a significant change in the circumstances prevailing at the time the Agreement was entered into, has occurred affecting the economic balance of the Agreement, the Party affected hereby shall notify the other Parties in writing of the claimed change with a statement of how the claimed change has affected the relations between the Parties.

 

26.5         The other Parties shall indicate in writing their reaction to such representation within a period of three (3) Months of receipt of such notification and if such significant changes are established by the Parties to have occurred, the Parties shall meet to engage in negotiations and shall effect such changes in, or rectification of, these

 

83

 

provisions as they may agree are necessary to restore the relative economic position of the Parties at the date of this Agreement.

 

26.6         No waiver by any Party of any of its rights hereunder shall be construed or implied, but shall be binding on such Party only if made specifically, expressly and in writing.

 

26.7         Except for payment obligations arising under the Petroleum Income Tax Law, any Party failing to pay any amounts payable by it under this Agreement (including the provisions of Annex 2) on the respective dates on which such amounts are payable by such Party hereunder shall be obligated to pay interest on such unpaid amounts to the Party to which such amounts are payable. The rate of such interest with respect to each day of delay during the period of such nonpayment shall be the Specified Rate. Such interest shall accrue from the respective dates such amounts are payable until the amounts are duly paid. The Party to whom any such amount is payable may give notice of nonpayment to the Party in default and if such amount is not paid within fifteen (15) days after such notice, the Party to which the amount is owed may, in addition to the interest referred to above, and without prejudice to Article 10.1 (e) seek remedies available pursuant to Article 24.

 

26.8       A)             The rights and obligations under this Agreement of the State and GNPC on the one hand and Contractor on the other shall be separate and proportional and not joint. This Agreement shall not be construed as creating a partnership or joint venture, nor an association or trust (under any law other than the Petroleum Law), or as authorising any Party to act as agent, servant or employee for any other Party for any purpose whatsoever except as provided in Article 10.4.

 

B)            The duties and obligations of each Party constituting Contractor hereunder shall be joint and several and it is recognised that each such Party shall own and be responsible for its undivided Interest in the rights and obligations of Contractor hereunder; provided, however, that the following payments shall be the separate obligation of and shall be made by each Party which constitutes the Contractor:

 

i)         Payments under the Petroleum Income Tax Law;

 

ii)        Payments of royalty taken in cash under the provisions of Article 10.1 (a); and

 

iii)       AOE share under the provisions of Article 10.1 (b).

 

26.9         Each Party warrants that it and its Affiliates have not made, offered, or authorized and will not make, offer, or authorize with respect to the matters which are the subject of this Agreement, any payment, gift, promise or other advantage, whether

 

84

 

directly or through any other person or entity, to or for the use or benefit of any public official (i.e., any person holding a legislative, administrative or judicial office, including any person employed by or acting on behalf of a public agency, a public enterprise or a public international organization) or any political party or political party official or candidate for office, where such payment, gift, promise or advantage would violate (i) the applicable laws of Ghana; (ii) the laws of the country of incorporation of such Party or such Party’s ultimate parent company and of the principal place of business of such ultimate parent company; or (iii) the principles described in the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed in Paris on December 17, 1997, which entered into force on February 15, 1999, and the Convention’s Commentaries. Each Party shall defend, indemnify and hold the other Parties harmless from and against any and all claims, damages, losses, penalties, costs and expenses arising from or related to, any breach by such first Party of such warranty. Such indemnity obligation shall survive termination or expiration of this Agreement. Each Party shall in good time (i) respond in reasonable detail to any notice from any other Party reasonably connected with the above-stated warranty; and (ii) furnish applicable documentary support for such response upon request from such other Party.

 

26.10       This Agreement shall not take effect unless and until it is ratified by the Parliament of Ghana and this Agreement has been executed by the parties which ever occurs later (the “Effective Date”).

 

85

 

ARTICLE 27

 

NOTICE

 

27                                    Any Notice, Application, Requests, Agreements, Consent, Approval, Instruction, Delegation, Waiver or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been properly given when delivered in person to an authorised representative of the Party to whom such notice is directed or when actually received by such Party through registered mail, facsimile or telegram at the following address or at such other address as the Party shall specify in writing fifteen (15) days in advance:

 

FOR THE STATE:

 

MINISTER FOR ENERGY 

MINISTRY OF ENERGY 

PRIVATE MAIL BAG

MINISTRY POST OFFICE 

ACCRA, GHANA

 

Telephone:                                   233 21 667151 - 3

 

Telefax:                                                   233 21 668262

 

FOR GHANA NATIONAL PETROLEUM CORPORATION:

 

THE MANAGING DIRECTOR

GHANA NATIONAL PETROLEUM CORPORATION 

PETROLEUM HOUSE

HARBOUR ROAD

PRIVATE MAIL BAG

TEMA, GHANA

 

Telephone:                                   233-22-204726

 

Telefax:                                                   233-22-205449

 

86

 

FOR CONTRACTOR:

 

EXPLORATION MANAGER 

TULLOW GHANA LIMITED 

P. O. BOX 532

CHANNEL HOUSE

7 ESPLANADE

ST. HELIER, JERSEY

CHANNEL ISLANDS

JE4 5UW

 

Telephone:           + 3531 737 700

Telefax:                           + 3531 239 0400

 

MANAGING DIRECTOR

SABRE OIL AND GAS LIMITED 

4 RUBISLAW PLACE

ABERDEEN

AB10 1XN

 

Telephone:           + 44 1244 649 400

Telefax:                           + 44 1244 649 700

 

KOSMOS ENERGY GHANA HC 

C/O KOSMOS ENERGY, LLC 

8401 N. CENTRAL EXPRESSWAY 

SUITE 280

DALLAS, TEXAS 75225

U.S.A

ATTN:                                     MR CRAIG CLICK

 

Telephone:                                                                + 1 214 363 0700

Telefax:                                                                                + 1 214 363 9024

 

87

 

IN WITNESS WHEREOF the parties have caused this agreement to be executed by their duly authorized representatives as of the date first written above.

 

	
FOR THE STATE
    	
 
    	
Witnessed:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By
    	
/s/ AUTHORIZED SIGNATORY
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
HON MINISTER
    	
 
    	
 
    	
 
    
	
Its
    	
MINISTRY OF ENERGY
    	
 
    	
Its
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
FOR GHANA NATIONAL PETROLEUM CORPORATION
    	
 
    	
Witnessed:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By
    	
/s/ GHANA NATIONAL PETROLEUM CORPORATION
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Its
    	
 
    	
 
    	
Its
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
FOR TULLOW GHANA LIMITED
    	
 
    	
Witnessed:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By
    	
/s/ TULLOW GHANA LIMITED
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Its
    	
 
    	
 
    	
Its
    	
 
    

 

88

 

	
FOR SABRE OIL GAS LIMITED
    	
 
    	
Witnessed:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By
    	
/s/ SABRE OIL GAS LIMITED
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Its
    	
 
    	
 
    	
Its
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
FOR KOSMOS ENERGY GHANA HC
    	
 
    	
Witnessed:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By
    	
/s/ KOSMOS ENERGY GHANA HC
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
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89

 

ANNEXES

 

 

ANNEX 1 - CONTRACT AREA

 

The Contract Area is bounded to the North, starting at point ‘A’ along the Ghana Ivory Coast boarder at Latitude 4° 47’ 34.874” N and Longitude 3° 10’ 35.296” W; thence proceed Southeast to point ‘B’ at Latitude 4° 40’ 00.000” N and Longitude 2° 55’ 00.00” W; thence proceed South to point ‘C’ at Latitude 4° 25’ 54.00” N and Longitude 2° 55’ 00.00” W; thence proceed West to point ‘D’ at Latitude 4° 25’ 54.00” N and Longitude 3° 14’ 53.00” W; thence proceed North along the Ghana-Ivory Coast border to the beginning of point ‘A’ resulting in an area comprising of approximately one thousand and one hundred and eight (1,108) square kilometers.

 

The Contract Area is designated by the coordinates of the following points as shown in Table 1 and the area covered by the points A, B, C and D as indicated on the map on the following page.

 

Table 1

 

	
Point
    	
 
    	
Latitude
    	
 
    	
Longitude
    
	
A
    	
 
    	
4° 47’ 34.874” N
    	
 
    	
3° 10’ 35.296” W
    
	
B
    	
 
    	
4° 40’ 00.000” N
    	
 
    	
2° 55’ 00.000” W
    
	
C
    	
 
    	
4° 25’ 54.000” N
    	
 
    	
2° 55” 00.000” W
    
	
D
    	
 
    	
4° 25’ 54.000” N
    	
 
    	
3° 14’ 53.000” W
    

 

 

Contract Area Plat

 

 

3

 

ANNEX 2 - ACCOUNTING GUIDE

 

The purpose of this Accounting Guide is to establish equitable methods as between the Parties for determining charges and credits applicable to operations under the Agreement. Principles established by this Accounting Guide shall truly reflect the Contractor’s actual cost.

 

4

 

SECTION 1

 

1.1                               GENERAL PROVISIONS

 

1.1.1        Words and terms appearing in this Annex shall have the same meaning as in the Agreement and to that end shall be defined in accordance with Article 1 of the Agreement. A reference to an Article in this Annex shall, unless otherwise indicated, refer to an Article in the Agreement.

 

1.1.2        This Annex may be amended by written agreement upon a unanimous decision of the JMC.

 

1.1.3        In the event of a conflict between the provisions of the Accounting Guide and the provisions of the Agreement, the provisions of the Agreement shall prevail.

 

1.2                               STATEMENTS REQUIRED TO BE SUBMITTED BY CONTRACTOR

 

1.2.1        Within sixty (60) days from the Effective Date, Contractor shall propose to GNPC an outline of the chart of accounts, operating records and reports to be prepared and maintained, which shall describe the basis of the accounting principles and procedures to be used during the term of the Agreement, and shall be consistent with normal practice of the international petroleum industry and Article 18.2.

 

1.2.2        Within ninety (90) days of the receipt of such proposal GNPC shall either accept it or request such revisions as GNPC deems necessary. Failure to notify Contractor of any requested revisions within a ninety (90) day period shall be deemed acceptance of such proposal.

 

1.2.3        Within one hundred and eighty (180) days from the Effective Date, the parties shall either agree on such outline or submit any outstanding issue for determination by a Sole Expert pursuant to the provisions of Article 24.

 

1.2.4        Following agreement over the outline Contractor shall prepare and submit to GNPC formal copies of the chart of accounts

 

5

 

relating to the accounting, recording and reporting functions listed in such outline. Contractor shall also permit GNPC to inspect its manuals and to review all procedures which are to be followed under the Agreement.

 

1.2.5        Without prejudice to the generality of the foregoing, Contractor shall make separate statements relating to Petroleum Operations for each Development and Production Area as follows:

 

a)              Cash Call Statement (see Section 5)

b)             Production Statement (see Section 6)

c)              Value of Production Statement (see Section 7)

d)             Cost Statement (see Section 8)

e)              Statement of Expenditures and Receipts (see Section 9)

f)                Final End-of-Year Statement (see Section 10)

g)             Budget Statement (see Section 11)

h)             Long Range Plan and Forecast (see Section 12)

 

1.3                          LANGUAGE, MEASUREMENT, AND UNITS OF ACCOUNTS

 

1.3.1      The U.S. Dollar being the currency unit for investments and compensation hereunder shall therefore be the unit of currency for all bookkeeping and reporting under the Agreement. When transactions for an asset, capital item or liability are in Ghana Cedis or currency other than the U.S. Dollar, amounts in such other currency shall be immediately converted to U.S. Dollars at the rate actually incurred and accounts required for the purposes of this Agreement shall be maintained only in U.S. Dollars.

 

1.3.2      Measurement required under this Annex shall be in the metric system and Barrels.

 

1.3.3      The English language shall be employed.

 

1.3.4      Where necessary for purposes of clarification, Contractor may also prepare financial reports in other languages, units of measurement and currencies.

 

1.3.5      It is the intent of the Parties that no Party shall experience any gain or loss at the expense of or to the benefit of the other as a result of exchange of currency. Where any such currency exchange gain or loss arises it shall be charged or credited to the accounts under the Agreement.

 

6

 

SECTION 2

 

2.0                     CLASSIFICATION AND ALLOTMENT OF COSTS AND EXPENDITURE

 

2.1                     ALL EXPENDITURE RELATING TO PETROLEUM OPERATIONS SHALL BE CLASSIFIED, AS FOLLOWS:

 

a)                             Exploration Expenditure;

b)                            Development Expenditure;

c)                             Production Expenditure;

d)                            Service Costs; and

e)                             General and Administrative expenses

 

and shall be defined and allotted as herein below provided.

 

2.2                     EXPLORATION EXPENDITURE

 

Exploration Expenditure shall consist of all direct, indirect and allotted costs incurred in Exploration Operations, in the search for Petroleum in the Contract Area, including but not limited to expenditure on:

 

a)              aerial, geographical, geochemical, paleontological, geological, bathymetrical, topographical and seismic surveys, and all relevant studies and their interpretation;

 

b)             borehole drilling and water well drilling;

 

c)              labour, consumables, materials and services used in drilling wells with the objective of finding new Petroleum reservoirs or for the purpose of appraising of Petroleum reservoirs already discovered, provided such wells are not completed as producing wells save such wells temporarily abandoned for future use as producing wells;

 

d)             facilities used solely for Exploration Operations, including access roads, where applicable, and purchased geological and geophysical information;

 

8

 

e)              all service costs allotted to the Exploration Operations on an equitable basis;

 

f)                all General and Administrative Expenses allotted to Exploration Operations based on the percentage share of projected budget expenditure which will be adjusted to actual expenditure at the end of each year.

 

g)             all of the above costs in connection with or related to an Appraisal Programme.

 

2.3                     DEVELOPMENT EXPENDITURE

 

Development Expenditure shall consist of all expenditure incurred in Development Operations, including but not limited to expenditure on:

 

a)              drilling wells which are completed as producing wells and drilling wells for purposes of producing a Petroleum reservoir already discovered, whether these wells are dry or producing;

 

b)             tangible drilling costs for completing wells such as installation of casing or equipment or otherwise equipping a well after it has been drilled for the purpose of bringing such well into use as a producing well;

 

c)              intangible drilling costs such as labour, consumable material and services having no salvage value which are incurred in drilling and deepening of wells for producing purposes;

 

d)             field facilities such as pipelines, flow lines, production and treatment units, wellhead equipment, subsurface equipment, enhanced recovery systems, offshore platforms and production facilities, Petroleum storage facilities (whether offshore or onshore) and access roads for Production Operations;

 

e)              engineering and design studies for field facilities;

 

f)                all service costs allotted to Development Operations on an equitable basis;

 

g)             all General and Administrative Expenses (incurred within or outside Ghana) allocated to Development Operations based on the

 

9

 

percentage share of projected budget expenditure which will be adjusted to actual expenditure as the end of the year.

 

2.4                       PRODUCTION EXPENDITURE

 

Production Expenditure shall consist of but not be limited to all expenditure incurred in Petroleum Operations, including appropriate abandonment charges, after the Date of Commencement of Commercial Production, such expenditure being other than Exploration Expenditure, Development Expenditure, General and Administrative Expenses and Service Costs. The balance of General and Administrative Expenses and Service Costs not allocated to Exploration Operations or to Development Operations under Section 2.2 and 2.3 shall be allocated to Production Expenditure.

 

2.5                       SERVICE COSTS

 

2.5.1        Service Costs shall consist of but not be limited to all direct and indirect expenditure incurred in support of Petroleum Operations (within and/or outside the Republic of Ghana), including (but not limited to) the construction, installation, purchase, hire or charter (as applicable) of the following: of warehouses, piers, marine vessels, vehicles, motorised rolling equipment, aircraft, fire security stations, workshops, water and sewerage plants, power plants, offices, housing, community and recreational facilities and furniture, fixtures, tools, land and equipment used in such construction or installation.

 

Service Costs in any Calendar Year shall include the total costs incurred in such year to purchase and construct or install such facilities as well as the annual costs of maintaining and operating such facilities.

 

2.5.2        All Service Costs will be regularly allotted on an equitable basis to Exploration Expenditure, Development Expenditure and Production Expenditure.

 

10

 

2.6                          GENERAL AND ADMINISTRATIVE EXPENSES

 

General and Administrative Expenses shall consist of:

 

2.6.1          All main office, field and general administrative costs, benefiting Petroleum Operations the Republic of Ghana), including but not limited to supervisory, technical, accounting, financial, legal and employee relations services;

 

2.6.2          An overhead charge for the actual unallocated cost of services rendered outside the Republic of Ghana by Contractor or its Affiliates for managing Petroleum Operations and for staff advice and assistance, including but not limited to financial, legal, accounting and employee relations services. Such overhead charges shall be allocated at a rate equivalent to the following percentages of the total costs attributable to Petroleum Operations as follows:

 

For the Exploration Phase:

 

	
U.S. Dollars 0 – 20   million    –One point two five percent (1.25%)
    
	
U.S. Dollars 20 – 25   million  –One percent (1%)
    
	
U.S. Dollars 25 million   and above–Zero point five percent (0.5%)
    

 

For the Development Phase:

 

	
U.S. Dollars 0 – 50   million      –One point two five percent   (1.25%)
    
	
U.S. Dollars 50 – 100   million  –One percent (1.0%)
    
	
U.S. Dollars 100 – 500   million–Zero point five percent (0.5%)
    
	
U.S. Dollars 500 million   and above–A lump sum of not less than U.S. Dollars two point five million   (U.S. Dollars 2.5 million)
    

 

2.6.3        All General and Administrative Expenses will be regularly allocated as specified in subsections 2.2(f), 2.3(g) and 2.4 to Exploration Expenditure, Development Expenditure and Production Expenditure.

 

11

 

SECTION 3

 

3.0                               COSTS, EXPENSES, EXPENDITURES AND CREDITS OF CONTRACTOR

 

3.1                               CONTRACTOR FOR THE PURPOSE OF THIS AGREEMENT SHALL CHARGE THE FOLLOWING ALLOWABLE COSTS TO THE ACCOUNTS:

 

a)              costs of acquiring surface rights;

b)             labour and associated costs;

c)              transportation costs;

d)             charges for services;

e)              material costs;

f)                rentals, duties and other assessments;

g)             insurance and losses;

h)             legal expenses;

i)                 training expenses;

j)                 general and administrative expenses;

k)              utility costs;

1)              office facility charges;

m)           communication charges;

n)             ecological and environmental charges;

o)             abandonment cost; and

p)             such other costs necessary for the Petroleum Operations

 

3.2                               COST OF ACQUIRING SURFACE RIGHTS AND RELINQUISHMENT

 

Cost of acquiring surface rights shall consist of all direct costs attributable to the acquisition, renewal or relinquishment of surface rights acquired and maintained in force over the Contract Area.

 

3.3                               LABOUR AND ASSOCIATED LABOUR COSTS

 

Labour and associated labour costs shall include but not be limited to:

 

12

 

a)              gross salaries and wages including bonuses of those employees of Contractor and of its Affiliates engaged in Petroleum Operations who are permanently or temporarily assigned to Ghana;

 

b)             costs regarding holidays, vacation, sickness and disability payments applicable to the salaries and wages chargeable under (a);

 

c)              expenses or contributions made pursuant to assessments or obligations imposed under the laws of the Republic of Ghana which are applicable to cost of salaries and wages chargeable under (a);

 

d)             cost of established plans for employees’ life insurance, hospitalisation, pensions and other benefits of a like nature customarily granted to employees; and

 

e)              reasonable travel and personal expenses of employees and families, including those made for travel and relocation of the personnel, all of which shall be in accordance with usual practice of the Contractor.

 

3.4                               TRANSPORTATION COSTS

 

Transportation costs and other related costs of transportation of employees, equipment, materials and supplies necessary for the conduct of Petroleum Operations.

 

3.5                               CHARGES FOR SERVICES

 

3.5.1                     Charges for services shall include:

 

a)                   actual costs under third party contracts for technical and all other services entered into by Contractor for Petroleum Operations made with third parties other than Affiliates of Contractor, provided that the prices paid by Contractor are no higher than the prevailing rates for such services in the regional (Gulf of Guinea) market;

 

b)                  cost of technical and other services of personnel assigned by the Contractor and its Affiliates when performing management, engineering, geological, geophysical, operations, technical, administrative, legal, accounting,

 

13

 

treasury, tax, employee relations, computer services, purchasing, and all other functions for the direct benefit of Petroleum Operations;

 

c)                   cost of general services, including, but not without limitation, professional consultants and others who perform services for the direct benefit of Petroleum Operations.

 

3.5.2                     Services furnished by Contractor and its Affiliates shall be charged at rates commensurate with those currently prevailing for such services in the regional (Gulf of Guinea) market.

 

3.6                               RENTALS, DUTIES AND OTHER ASSESSMENTS

 

All rentals, taxes, duties, levies, charges, fees, contributions and any other assessments and charges levied by the Government in connection with Petroleum Operations or paid for the benefit of Petroleum Operations, with the exception of the income tax specified in the Article 12.2 (ii).

 

3.7                               INSURANCE AND LOSSES

 

a)                   Insurance premia and costs incurred for insurance, provided that if such insurance is wholly or partly placed with an Affiliate of Contractor, such premia and costs shall be recoverable only to the extent not in excess of those generally charged by competitive insurance companies other than Affiliate;

 

b)                  costs and losses incurred as a consequence of events, which are, insofar as not made good by insurance, allowable under 17 of the Agreement; and

 

c)                   Costs or expenses necessary for the repair or replacement of property resulting from damage or losses incurred.

 

3.8                               LEGAL EXPENSES

 

All costs and expenses of litigation, arbitration, mediation and legal or related services necessary or expedient for the procuring, perfecting, retaining and protecting the rights hereunder and in defending or prosecuting lawsuits involving the Contract Area or any third party claim arising out of activities under the Agreement, or sums paid in respect of legal services necessary or expedient for the protection of the joint interest of GNPC and Contractor, provided that where legal services are rendered in such matters by salaried or regularly retained lawyers of Contractor or an Affiliate of Contractor, such compensation will be included instead under either Section 3.3 or 3.5, as applicable.

 

14

 

3.9                               TRAINING COSTS

 

All costs and expenses incurred by Contractor in training of its employees and nominees of GNPC to the extent that such training is attributable to Petroleum Operations under the Agreement, including, without limitation, the amounts referred to in Article 21.1.

 

3.10                        GENERAL AND ADMINISTRATIVE EXPENSES

 

General and Administrative Expenses shall consist of the costs described in Subsection 2.6.1 and the charge described in Subsection 2.6.2.

 

3.11                        UTILITY COSTS

 

Any water, electricity, heating, fuel or other energy and utility costs used and consumed for the Petroleum Operations.

 

3.12                        OFFICE FACILITY CHARGES

 

The cost and expenses of constructing, establishing, maintaining and operating offices, camps, housing and any other facilities necessary to the conduct of Petroleum Operations. The cost of constructing or otherwise establishing any operating facility which may be used at any time in operations of more than one Development and Production Area shall be charged initially to the Development and Production Area for which the facility is first used. Costs incurred thereafter shall be allocated in a reasonable manner, consistent with generally accepted international petroleum industry accounting practice, to the Development and Production Area for which the facility is used.

 

3.13                        COMMUNICATION CHARGES

 

The costs of acquiring, leading, installing, operating, repairing and maintaining communication systems, including radio and microwave facilities.

 

3.14                        ECOLOGICAL AND ENVIRONMENTAL CHARGES

 

All charges for environmental protection and safety measures conducted in the Contract Area including, without limitation, those incurred in accordance with Article 17 of the Agreement.

 

15

 

3.15        ABANDONMENT COST

 

Cost relating to the decommissioning and abandonment of Petroleum Operations and facilities, site restoration and other associated operations pursuant to Article 12.10.

 

3.16        OTHER COSTS

 

Any other costs not covered or dealt with in the foregoing provisions which are incurred and not mentioned in Section 3.17 for the necessary and proper conduct of Petroleum Operations.

 

3.17        COSTS NOT ALLOWABLE UNDER THE AGREEMENT

 

The following costs shall not be allowable under the Agreement:

 

a)                   commission paid to intermediaries by Contractor;

 

b)                  charitable donations and contributions, except where prior approval has been obtained from GNPC;

 

c)                   interest incurred on loans raised by the Contractor, provided that it shall be deductible for income tax purposes pursuant to the Petroleum Income Tax Law;

 

d)                  petroleum marketing costs or costs of transporting petroleum beyond the Delivery Point;

 

e)                   the costs of any Bank Guarantee under the Agreement and any other amounts spent on indemnities with regard to nonfulfilment of contractual obligations;

 

f)                     premium paid as a result of GNPC exercising a Sole Risk option under Article 9 of this Agreement;

 

g)                  cost of arbitration under Article 24 of the Agreement or dispute settlement by any independent expert under the terms of the Agreement;

 

h)                  final and unappealable fines and penalties imposed by a competent Court of Law;

 

16

 

i)                      cost incurred as a result of Contractor’s Gross Negligence chargeable to Contractor or the Operator under the terms of the Agreement.

 

3.18        ALLOWABLE AND DEDUCTIBILITY

 

The costs and expenses set forth herein shall be for the purpose of determining allowable or non-allowable costs and expenses only and shall have no bearing on Contractor’s eligibility or otherwise for deductions in computing Contractor’s net income from Petroleum Operations for income tax purposes under Article 10 of the Agreement.

 

3.19        CREDITS UNDER THE AGREEMENT

 

The net proceeds of the following transactions will be credited to the accounts under the Agreement:

 

a)                   the net proceeds of any insurance or claim in connection with Petroleum Operations or any assets charged to the accounts under the Agreements when such operations or assets were insured and the premia charged to the accounts under the Agreement;

 

b)                  revenue received from third parties for the use of property or assets charged to the accounts under this Agreement;

 

c)                   any adjustment from the suppliers or manufacturers or their agents in connection with a defective equipment or material the cost of which was previously charged to the account under the Agreement;

 

d)                  the proceeds received for inventory materials previously charged to the account under the Agreement and subsequently exported from the Republic of Ghana or transferred or sold to third parties without being used in the Petroleum Operations;

 

e)                   rentals, refunds or other credits received which apply to any charge which has been made to the account under the Agreement, but excluding any award granted under arbitration or sole expert proceedings;

 

f)                     the proceeds from the sale or exchange of plant or facilities from the Development and Production Area or plant or facilities the acquisition costs of which have been deducted in the AOE computation under Article 10for the relevant Development and Production Area;

 

17

 

g)         the proceeds derived from the sale or issue of any intellectual property the development costs of which were incurred pursuant to this Agreement; and

 

h)         the proceeds from the sale of any petroleum information derived from Petroleum Operations under this Agreement.

 

3.20      DUPLICATION OF CHARGES AND CREDITS

 

Notwithstanding any provision to the contrary in this Annex, it is the intention that there shall be no duplication of charges or credits in the accounts under the Agreement.

 

18

 

SECTION 4

 

4.0          MATERIAL

 

4.1          VALUE OF MATERIAL CHARGED TO THE ACCOUNTS UNDER THE AGREEMENT

 

Material purchased, leased or rented by Contractor for use in Petroleum Operations shall be valued at the actual net cost incurred by Contractor. The net cost shall include invoice price less trade and cash discounts, if any, purchase and procurement fees plus freight and forwarding charges between point of supply and point of shipment, freight to port of destination and to point of usage or installation, including but not limited to, insurance, taxes, customs duties, consular fees, other costs incurred on such material, and any other related costs actually paid.

 

4.2          VALUE OF MATERIAL PURCHASED FROM AN AFFILIATE

 

Contractor shall notify GNPC of any goods supplied by an Affiliate of Contractor. Materials purchased from Affiliate of Contractor shall be charged at the prices specified in Sections 4.2.1, 4.2.2 and 4.2.3.

 

4.2.1       New Material (Condition “A”)

 

New material shall be classified as Condition “A”. Such material shall be valued at the prevailing market price, plus expenses incurred in procuring such new materials, and in moving such materials to the locations where the material shall be used.

 

4.2.2       Used Material (Condition “B”)

 

Used material shall be classified as Condition “B” provided that it is in sound and serviceable condition and is suitable for reuse without reconditioning. Such material shall be valued at not more than seventy five percent (75%) of the current price of new material valued according to Section 4.2.1 above.

 

19

 

4.2.3       Used Material (Condition “C”)

 

Used material which is serviceable for original function as good second hand material after reconditioning and cannot be classified as Condition “B” shall be classified as Condition “C”. Such material shall be valued at not more than fifty percent (50%) of the current price of new material valued according to Section 4.2.1 above. The cost of reconditioning shall be charged to the reconditioned material provided that that the value of such Condition “C” material plus the cost of reconditioning does not exceed the value of Condition “B” material.

 

4.3         CLASSIFICATION OF MATERIALS

 

Material costs shall be charged to the respective Exploration Expenditure, Development Expenditure, Operating Expenditure accounts at the time the material is acquired and on the basis of the intended use of the material. Should such material subsequently be used other than as intended, the relevant charge will be transferred to the appropriate account.

 

4.4         DISPOSAL OF MATERIALS

 

Sales of property shall be recorded at the net amount collected by the Contractor from the purchaser.

 

4.5         WARRANTY OF MATERIALS

 

In the case of defective material or equipment, any adjustment received by Contractor from the suppliers or manufacturers of such materials or their agents will be credited to the accounts under the Agreement. Contractor does not warrant any material.

 

4.6         CONTROLLABLE MATERIALS

 

4.6.1        The Contractor shall control the acquisition, location, storage and disposition of materials which are subject to accounting record control, physical inventory and adjustment for overages and shortages (hereinafter referred to as Controllable Material).

 

20

 

4.6.2        Unless additional inventories are scheduled by the JMC, Contractor shall conduct one physical inventory of the Controllable Material each Calendar Year which shall be completed prior to the end of each such year. The Contractor shall conduct said inventory on a date to be approved by the JMC. Failure on the part of GNPC to participate in a JMC schedule or approved physical inventory shall be regarded as approval of the results of the physical inventory as conducted by the Contractor.

 

4.6.3        The gain or loss resulting from the physical inventory shall be reflected in the stock records of Controllable Materials. The Contractor shall compile a reconciliation of the inventory with a reasonable explanation for such gains or losses. Failure on the part of GNPC to object to Contractor’s reconciliation within thirty (30) days of compilation of said reconciliation shall be regarded as approval by GNPC.

 

21

 

SECTION 5

 

5.0          CASH CALL STATEMENT

 

5.1           In respect of any Petroleum Costs to which GNPC is contributing as provided in Article 2 and in any case where Contractor conducts Sole Risk Operations for GNPC’s account, Contractor shall at least fifteen (15) days prior to the commencement of any Month submit a Cash Call Statement to GNPC for its share of Petroleum Costs. Such Cash Call Statement shall include the following information:

 

a)     Due Date;

b)    Payment Instructions;

c)     The balance prior to the Cash Call being issued;

d)    Amount of US Dollars due; and

e)     An estimation of the amounts of US Dollars required from GNPC for the following Month.

 

5.2           Not later than the twenty-fifth (25th ) day of each Month, Contractor will furnish GNPC a statement reflecting for the previous Month:

 

a)      Payments;

b)      The nature of such payments by appropriate classifications; and

c)      The balance due to or from GNPC.

 

5.3           Contractor may in the case where a large unforeseen expenditure becomes necessary issue a special Cash Call Statement requiring GNPC to meet such Cash Call within ten (10) days of receipt of such Statement.

 

22

 

SECTION 6

 

6.0          PRODUCTION STATEMENT

 

6.1           Subsequent to the Date of Commencement of Commercial Production from the Contract Area, Contractor shall submit a monthly Production Statement to GNPC showing the following information for each Development and Production Area as appropriate:

 

a)        the quantity of Crude Oil produced and saved;

 

b)        the quantity of Natural Gas produced and saved;

 

c)        the quantities of Petroleum used for the purpose of conducting drilling and Production Operations, pumping to field storage and reinjections;

 

d)        the quantities of Natural Gas flared;

 

e)        the size of Petroleum stocks held at the beginning of the Month;

 

f)         the size of Petroleum stocks held at the end of the Month.

 

6.2           The Production Statement of each Calendar Month shall be submitted to GNPC not later than ten (10) days after the end of such Month.

 

23

 

SECTION 7

 

7.0          VALUE OF PRODUCTION STATEMENT

 

7.             Contractor shall prepare a statement providing calculations of the value of Crude Oil produced and saved during each Quarter based on the Market Price established under Article 11 of the Agreement as well as the amounts of Crude Oil allocated to each of the Parties during that Quarter. Such Statement shall be submitted to the Minister and to GNPC not later than thirty (30) days following the determination, notification and acceptance of the Market Price to GNPC according to Article 11 of the Agreement.

 

24

 

SECTION 8

 

8.0          COST STATEMENT

 

8.1           Contractor shall prepare with respect to each Quarter, a Cost Statement containing the following information:

 

a)      Total Petroleum Costs in previous Quarters, if any;

 

b)      Petroleum Costs for the Quarter in question;

 

c)      Total Petroleum Costs as of the end of the Quarter in question (subsection 8.1(a) plus subsection 8.1(b));

 

d)      Petroleum Costs for Development Operations advanced in the Quarter in respect of GNPC’s Participating Interest pursuant to Article 2 of the Agreement;

 

e)      Costs as specified in (d) above which have been recovered during the Quarter pursuant to Article 10.1(e) of the Agreement and the balance, if any, of such costs unrecovered and carried forward for recovery in a later period.

 

Petroleum Costs for Exploration, Development and Production Operations as detailed above shall be separately identified for each Development and Production Area. Petroleum Costs for Exploration Operations not directly attributable to a specific Development Area shall be shown separately.

 

8.2           The Cost Statement of each Quarter shall be submitted to GNPC no later than thirty (30) days after the end of such Quarter.

 

25

 

SECTION 9

 

9.0          STATEMENT OF EXPENDITURES AND RECEIPTS

 

9.1           Subsequent to the Date of Commencement of Commercial Production from the Contract Area, Contractor shall prepare with respect to each Quarter a Statement of Expenditures and Receipts. The Statement will distinguish between Exploration Expenditure and Development Expenditure and Production Expenditure and will identify major items of expenditure within these categories. The statement will show the following:

 

a)        actual expenditures and receipts for the Quarter in question;

 

b)        cumulative expenditure and receipts for the budget year in question;

 

c)        latest forecast of cumulative expenditures at the year end; and

 

d)        variations between budget forecast and latest forecast and explanations therefor.

 

9.2           The Statement of Expenditures and Receipts of each Quarter shall be submitted to GNPC not later than thirty (30) days after the end of such Quarter for provisional approval by GNPC.

 

26

 

SECTION 10

 

10.0                        FINAL END-OF-YEAR STATEMENT

 

10.1       The Contractor will prepare a Final End-of-Year Statement. The Statement will contain information as provided in the Production Statement, Value of Production Statements, Cost Statement and Statements of Expenditures and Receipts, as appropriate. The Final End-of-year Statement of each Calendar Year shall be submitted to GNPC within ninety (90) days of the end of such Calendar Year. Any necessary subsequent adjustments shall be reported promptly to GNPC.

 

27

 

SECTION 11

 

11.0        BUDGET STATEMENT

 

11.1         The Contractor shall prepare an annual budget Statement. This will distinguish between Exploration Expenditure, Development Expenditure and Production Expenditure and will show the following:

 

a)             Forecast Expenditures and Receipts for the budget year under the Agreement;

 

b)            cumulative Expenditures and Receipts to the end of said budget year; and

 

c)             the most important individual items of Exploration, Development and Production Expenditures for said budget year.

 

The budget may include a budget line or lines for unforeseen expenditures which, however, shall not exceed ten percent (10%) of the total budgetary expenditure.

 

11.2         The Budget Statement shall be submitted to GNPC and JMC with respect to each budget year no less than ninety (90) days before the start of such year except in the case of the first year of the Agreement when the Budget Statement shall be submitted within sixty (60) days of the Effective Date.

 

11.3         Where Contractor foresees that during the budget period expenditures have to be made in excess of the ten percent (10%) pursuant to Section 11.1.1 hereof, Contractor shall submit a revision of the budget to GNPC.

 

28

 

SECTION 12

 

12.0        LONG RANGE PLAN AND FORECAST

 

12.1         Contractor shall prepare and submit to GNPC the following:

 

a)             During Exploration Period, an Exploration Plan for each year commencing as of the Effective Date which shall contain the following information:

 

i)       Estimated Exploration Costs showing outlays for each of the years or the number of years agreed and covered by the Plan;

 

ii)      Details of seismic operations for each such year;

 

iii)     Details of drilling activities planned for each such year;

 

iv)     Details of infrastructure utilisation and requirements.

 

The Exploration Plan shall be revised on each anniversary of the Effective Date. Contractor shall prepare and submit to GNPC the first Exploration Plan for the First Subperiod of twelve months of the Initial Exploration Period within sixty (60) days after the Effective Date and thereafter shall prepare and submit to GNPC no later than forty five (45) days before each anniversary of the Effective Date a revised Exploration Plan.

 

b)            In the event of a Development Plan being approved, the Contractor shall prepare a Development Forecast for each Calendar Year of the Development Period, which shall contain the following information:

 

i)       forecast of capital expenditure portions of Development and Production expenditures for each Calendar Year of the Development Period;

 

ii)      forecast of operating costs for each Calendar Year;

 

iii)     forecast of Petroleum production for each Calendar Year;

 

iv)     forecast of number and types of personnel employed in the Petroleum Operations in the Republic of Ghana;

 

29

 

v)        description of proposed Petroleum marketing arrangements;

 

vi)       description of main technologies employed; and

 

vii)      description of the working relationship of Contractor to GNPC.

 

c)             The Development forecast shall be revised at the beginning of each Calendar Year commencing as of the second year of the first Development forecast Contractor shall prepare and submit to GNPC the first Development forecast within one hundred and twenty (120) days of the date when the first Development Plan is approved by the Minister and Contractor commences the implementation of such plan and thereafter shall prepare and submit a revised Development Forecast to GNPC no later than thirty (30) days before each Calendar Year commencing as of the second year of the first Development forecast.

 

12.2        CHANGES OF PLAN AND FORECAST

 

It is recognised by Contractor and GNPC that the details of the Exploration Plan and Development forecast may require changes in the light of existing circumstances and nothing herein contained shall limit the flexibility to make such changes. Consistent with the foregoing the said Plan and Forecast may be revised when appropriate. The Exploration Plan and Development Forecast are for planning purposes only.

 

30

 

ANNEX 3 - SAMPLE AOE CALCULATION

 

SAMPLE ADDITIONAL OIL ENTITLEMENT CALCULATION

 

This sample calculation has been prepared to illustrate the Additional Oil Entitlement (AOE) provisions of Article 10 of the Petroleum Agreement to which this Annex 3 is attached and made a part thereof. The assumptions used, year-by-year cash flows, inflation rate, and resulting AOE payments are hypothetical only and are neither based upon nor do they represent an actual situation. They are designed to illustrate the mechanics of each of the hypothetical AOE calculations only.

 

Sample AOE Calculation:

 

Contractor’s Revenues minus Income Taxes minus “Petroleum Costs”

 

Income Tax Rate: 35%

 

Petroleum Costs: Contractor’s Petroleum Costs including costs advanced on GNPC’s behalf

 

Additional Oil Entitlement (AOE):

 

Discounted Cash Flow

 

	
Real Rate of Return (%*)
    	
 
    	
AOE Rate (%)
    	
 
    
	
19% or less
    	
 
    	
0
    	
%
    
	
Over 19%
    	
 
    	
5
    	
%
    
	
Over 20%
    	
 
    	
10
    	
%
    
	
Over 25%
    	
 
    	
15
    	
%
    
	
Over 30%
    	
 
    	
20
    	
%
    
	
Over 40%
    	
 
    	
25
    	
%
    

 

*Rate of Return exclusive of Inflation

 

31

 

SAMPLE AOE CALCULATION (MILLION US DOLLARS)

 

	
YEAR
    	
 
    	
NCF
    	
 
    	
FAn@19
   % p.a.
    	
 
    	
AOE 1 @
   5%
    	
 
    	
SAn@10
   % P.a.
    	
 
    	
AOE 2 @
   10% p.a.
    	
 
    	
TAn@25
   % p.a.
    	
 
    	
AOE 3 @
   15%
    	
 
    	
YAn @
   30% p.a.
    	
 
    	
AOE 4 @
   20% p.a.
    	
 
    	
ZAn @
   40% p.a.
    	
 
    	
AOE 5 @
   25%
    	
 
    	
Total AOE
   Payments
    	
 
    
	
1
    	
 
    	
$
    	
-2.0
    	
 
    	
$
    	
-2.0
    	
 
    	
 
    	
 
    	
$
    	
-2.0
    	
 
    	
 
    	
 
    	
$
    	
-2.0
    	
 
    	
 
    	
 
    	
$
    	
-2.0
    	
 
    	
 
    	
 
    	
$
    	
-2.0
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2
    	
 
    	
$
    	
-15.0
    	
 
    	
$
    	
-17.5
    	
 
    	
 
    	
 
    	
$
    	
-17.5
    	
 
    	
 
    	
 
    	
$
    	
-17.6
    	
 
    	
 
    	
 
    	
$
    	
-17.7
    	
 
    	
 
    	
 
    	
$
    	
-17.9
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
3
    	
 
    	
$
    	
-150.0
    	
 
    	
$
    	
-171.7
    	
 
    	
 
    	
 
    	
$
    	
-171.9
    	
 
    	
 
    	
 
    	
$
    	
-172.9
    	
 
    	
 
    	
 
    	
$
    	
-173.9
    	
 
    	
 
    	
 
    	
$
    	
-176.0
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
4
    	
 
    	
$
    	
-20.0
    	
 
    	
$
    	
-232.9
    	
 
    	
 
    	
 
    	
$
    	
-234.8
    	
 
    	
 
    	
 
    	
$
    	
-244.7
    	
 
    	
 
    	
 
    	
$
    	
-254.8
    	
 
    	
 
    	
 
    	
$
    	
-275.1
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
5
    	
 
    	
$
    	
10.0
    	
 
    	
$
    	
-278.8
    	
 
    	
 
    	
 
    	
$
    	
-283.6
    	
 
    	
 
    	
 
    	
$
    	
-308.2
    	
 
    	
 
    	
 
    	
$
    	
-333.9
    	
 
    	
 
    	
 
    	
$
    	
-388.9
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
6
    	
 
    	
$
    	
340.0
    	
 
    	
$
    	
-5.7
    	
 
    	
 
    	
 
    	
$
    	
-14.4
    	
 
    	
 
    	
 
    	
$
    	
-60.6
    	
 
    	
 
    	
 
    	
$
    	
-110.8
    	
 
    	
 
    	
 
    	
$
    	
-224.0
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
7
    	
 
    	
$
    	
220.0
    	
 
    	
$
    	
213.0
    	
 
    	
$
    	
10.6
    	
 
    	
$
    	
191.3
    	
 
    	
$
    	
19.1
    	
 
    	
$
    	
111.4
    	
 
    	
$
    	
16.7
    	
 
    	
$
    	
23.9
    	
 
    	
$
    	
4.8
    	
 
    	
$
    	
-156.0
    	
 
    	
 
    	
 
    	
$
    	
51.3
    	
 
    
	
8
    	
 
    	
$
    	
200.0
    	
 
    	
$
    	
200.0
    	
 
    	
$
    	
10.0
    	
 
    	
$
    	
190.0
    	
 
    	
$
    	
19.0
    	
 
    	
$
    	
171.0
    	
 
    	
$
    	
25.7
    	
 
    	
$
    	
145.4
    	
 
    	
$
    	
29.1
    	
 
    	
$
    	
-110.0
    	
 
    	
 
    	
 
    	
$
    	
83.7
    	
 
    
	
9
    	
 
    	
$
    	
150.0
    	
 
    	
$
    	
150.0
    	
 
    	
$
    	
7.5
    	
 
    	
$
    	
142.5
    	
 
    	
$
    	
14.3
    	
 
    	
$
    	
128.3
    	
 
    	
$
    	
19.2
    	
 
    	
$
    	
109.0
    	
 
    	
$
    	
21.8
    	
 
    	
$
    	
-72.2
    	
 
    	
 
    	
 
    	
$
    	
62.8
    	
 
    
	
10
    	
 
    	
$
    	
100.0
    	
 
    	
$
    	
100.0
    	
 
    	
$
    	
5.0
    	
 
    	
$
    	
95.0
    	
 
    	
$
    	
9.5
    	
 
    	
$
    	
85.5
    	
 
    	
$
    	
12.2
    	
 
    	
$
    	
72.7
    	
 
    	
$
    	
14.5
    	
 
    	
$
    	
-46.6
    	
 
    	
 
    	
 
    	
$
    	
41.9
    	
 
    
	
11
    	
 
    	
$
    	
65.0
    	
 
    	
$
    	
65.0
    	
 
    	
$
    	
3.3
    	
 
    	
$
    	
61.8
    	
 
    	
$
    	
6.2
    	
 
    	
$
    	
55.6
    	
 
    	
$
    	
8.3
    	
 
    	
$
    	
47.2
    	
 
    	
$
    	
9.4
    	
 
    	
$
    	
-29.8
    	
 
    	
 
    	
 
    	
$
    	
27.2
    	
 
    
	
12
    	
 
    	
$
    	
45.0
    	
 
    	
$
    	
45
    	
 
    	
$
    	
2.3
    	
 
    	
$
    	
42.8
    	
 
    	
$
    	
4.3
    	
 
    	
$
    	
38.5
    	
 
    	
$
    	
5.8
    	
 
    	
$
    	
32.7
    	
 
    	
$
    	
6.5
    	
 
    	
$
    	
-17.1
    	
 
    	
 
    	
 
    	
$
    	
18.8
    	
 
    
	
13
    	
 
    	
$
    	
35
    	
 
    	
$
    	
35.0
    	
 
    	
$
    	
1.8
    	
 
    	
$
    	
33.3
    	
 
    	
$
    	
3.3
    	
 
    	
$
    	
29.9
    	
 
    	
$
    	
4.5
    	
 
    	
$
    	
25.4
    	
 
    	
$
    	
5.1
    	
 
    	
$
    	
-4.4
    	
 
    	
 
    	
 
    	
$
    	
14.7
    	
 
    
	
14
    	
 
    	
$
    	
25.0
    	
 
    	
$
    	
25.0
    	
 
    	
$
    	
1.3
    	
 
    	
$
    	
23.8
    	
 
    	
$
    	
2.4
    	
 
    	
$
    	
21.4
    	
 
    	
$
    	
3.2
    	
 
    	
$
    	
18.2
    	
 
    	
$
    	
3.6
    	
 
    	
$
    	
8.2
    	
 
    	
$
    	
2.0
    	
 
    	
$
    	
12.5
    	
 
    
	
15
    	
 
    	
$
    	
10.0
    	
 
    	
$
    	
10.0
    	
 
    	
$
    	
0.5
    	
 
    	
$
    	
0.5
    	
 
    	
$
    	
1.0
    	
 
    	
$
    	
8.6
    	
 
    	
$
    	
1.3
    	
 
    	
$
    	
7.3
    	
 
    	
$
    	
1.5
    	
 
    	
$
    	
5.8
    	
 
    	
$
    	
1.3
    	
 
    	
$
    	
5.6
    	
 
    
	
Totals
    	
 
    	
$
    	
1013.0
    	
 
    	
 
    	
 
    	
$
    	
42.1
    	
 
    	
 
    	
 
    	
$
    	
79.0
    	
 
    	
 
    	
 
    	
$
    	
97.5
    	
 
    	
 
    	
 
    	
$
    	
96.4
    	
 
    	
 
    	
 
    	
$
    	
3.5
    	
 
    	
$
    	
318.5
    	
 
    

 

1.             Rates of return used above include annual inflation of 5%.

 

2.             Year 7: AOE 1 = 0.05 * $213.0 MM (i.e. 0.05 times Cumulative Cash Flows compounded annually at 19% p.a. + 5% inflation) = $10.6 MM.

 

3              Years 8 through 15: AGE 1 in nth year = nth Year FA * 0.05

 

4.             Year 7: SA = -$14.4 MM* 1.25 + $220.0 MM - $10.6 MM = $191.3 MM 

 

5.             Year 7: AOE 2 = 0.10 * $191.3 MM (i.e. AOE Rate times Cumulative Cash Flow LESS AOE 1 compounded at 20% p.a. + 5% inflation) = $19.1 MM

 

6.             Year 7: TA = -$60.6 MM * 1.30 + $220.0 MM - $10.6 MM - $19.1 MIV1 = $111.4 MM

 

7.             Year 7: AOE 3 = 0.15 * $111.4 MM (i.e. AOE Rate times Cumulative Cash Flow - AOE 1 – AOE 2 compounded at 25% p.a. + 5% inflation) = $16.7 MM

 

8.             Year 7: YA = -$110.8 MM * 1.35 + $220.0MM - $10.6 MM - $19.1 MM - $16.7 = $23.9 MM

 

9.             Year 7: AOE 4 = 0.20 * $23.9 MM (i.e. AOE Rate times Cumulative Cash Flow - AOE 1 – AOE 2 – AOE 3 compounded at 30% p.a. + 5% inflation) = $4.8 MM

 

10.           Year 14: ZA = -$4.4 MM* 1.45 + $25.0 MM - $1.3 MM - $2.4 MM - $3.2 - $3.6 MM = $8.2 MM

 

11.           Year 14: AOE 5 = 0.25 * $8.2 MM (i.e. AOE Rate times Cumulative Cash Flow - AOE 1 – AOE 2 – AOE 3 – AOE 4 compounded at 40% p.a. + 5% inflation) = $2.0 MM

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00185-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00185-of-00352.parquet"}]]