Document:

Exhibit 10.3

 

EXPLORATION AND PRODUCTION CONTRACT NO. 27 OF 2009

MINIRONDA 2008 — LLANOS ORIENTALES BLOQUE LLA-34

 

AGENCIA NACIONAL DE HIDROCARBUROS/ NATIONAL HYDROCARBON AGENCY

 

	
SECTOR:
    	
LLANOS ORIENTALES BLOQUE LLA-34
    
	
CONTRACTOR:
    	
LLANOS 34 JOINT VENTURE (WINCHESTER   OIL AND GAS S.A.- RAMSHORN INTERNATIONAL LIMITED
    
	
DATE:
    	
MARCH 13, 2009
    

 

The Contracting parties:

 

Agencia Nacional de Hidrocarburos hereinafter referred to as ANH, a special administrative unit accountable the Ministry of Mines and Energy, created under Decree Law 1760 of June 26, 2003, having its principal place of business in Bogotá, D.C., represented by ARMANDO ZAMORA REYES, of legal age, bearer of Citizenship Card No. 19.303.017 issued in Bogotá, D.C., domiciled in Bogotá, D.C. and who states:

 

That as General Director of ANH, he acts on behalf of and represents this Agency.

 

That as evidenced in Minutes No. 15 of the Board of Director’s meeting held on December 18, 2007, he has been authorized by the Board of Directors of ANH to enter into this Agreement.

 

That under Resolution 254 dated June 20, 2008, the General Director acting under the authority granted by the Agency’s Superior Council in Agreement 01 of 2007, included the following areas as part of the Mini Ronda 2008 to contract the exploration and exploitation of hydrocarbons: Valle Medio Magdalena-Catatumbo, Valle Superior of the Magdalena River, Llanos Orientales, Putumayo and the Cordillera Oriental.

 

That under Resolution No. 401 dated July 30, the General Director of the ANH ordered the opening of a call to participate in Mini Ronda 2008 — Valle Medio Magdalena-Catatumbo, Valle Superior of the Magdalena River, Llanos Orientales, Putumayo and the Cordillera Oriental.

 

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After completing the above process, ANH awarded Bloque LLA-34 in Resolution No. 694 of December 26, 2008 to Winchester Oil and Gas S.A. and Ramshorn International Limited, which had presented a joint proposal, under the agreement that they would enter into a Joint Venture Agreement.

 

and UNION TEMPORAL LLANOS 34, formed by i) Ramshorn International Limited, a company organized and existing under the laws of Bermuda having its principal place of business in Bermuda, and a branch office established in Bogotá D.C., in accordance with public deed No. 3553 issued December 22, 2003 at the office of 11th Public Notary of Bogotá D.C., represented by Gladys Rocío del Pilar Bernal Duque, of legal age, a Colombian citizen, bearer of Citizenship Card No. 52.029.083 issued in Bogota, and ii) Winchester Oil and Gas S.A., a company organized and existing under the laws of Panama, having its principal place of business in Panama City and a branch office established in Bogotá D.C., in accordance with public deed No. 3429 issued on November 29, 2002, at the office of the 36th Public Notary of Bogotá D.C., represented by Orlando Sardi de Lima, of legal age, a Colombian citizen, bearer of Citizenship Card No. 14.983.640 issued in Cali.

 

That the Articles of Incorporation of Union Temporal Llanos 34 were executed on December four (4), 2008.

 

That Orlando Sardi de Lima is the main representative of Union Temporal Llanos 34 and that Gladys Rocío del Pilar Bernal Duque is the deputy representative.

 

That both are fully authorized to enter into this agreement, as stated in the Articles of Incorporation of Union Temporal Llanos 34, executed on December four (4), 2008.

 

The undersigned hereby state under oath that neither they nor the Joint Venture they represent have any incompatibility or are in any way ineligible to execute this Agreement

 

That the companies that make up Union Temporal Llanos 34, have proven to have and agree to maintain their legal, financial capacity, their technical expertise as well as the necessary professional skills to perform the activities included herein.

 

For all purposes hereof, Union Temporal Llanos 34 will be referred to as THE CONTRACTOR.

 

The companies that are part of Union Temporal Llanos 34 will be jointly and severally liable to the ANH and Third Parties for the full compliance of this Agreement.

 

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ANH and THE CONTRACTOR hereby agree to enter into this Exploration and Production Agreement (E&P) under the terms and conditions set forth in Annex A and in Annexes B,C,D, and E which are an integral part of this Agreement.

 

This Agreement will become effective upon its execution by the parties.

 

Notices and communications between the parties will be sent to the representative of each party, at the address indicated as the office registered for notices, which on the date hereof are as follows:

 

ANH: Calle 99 No. 9A-54, Piso 14, Bogotá, Colombia.

 

THE CONTRACTOR:

 

i)                                         RAMSHORN INTERNATIONAL LIMITED: Carrera 9 NO. 74-08, oficina 806, Bogotá, Colombia.

 

ii)                                      Winchester Oil and Gas S.A., Carrera 7 No. 71-52, Torre B, Oficina 1101, Bogotá, Colombia.

 

Any change in the individual acting as representative or in the addresses stated above must be officially reported to the other Party within the five (5) working days following the date in which it is registered before the Colombian Chamber of Commerce.

 

Communications between the parties with regards to his Agreement are effective upon receipt thereof by the Party to which they are addressed and at the address indicated above and in any event, when said communications have been received at the address registered at the Colombian Chamber of Commerce for judicial notices.

 

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In witness whereof, this Agreements is executed in Bogota, on the thirteenth (13) day of March, 2009 in three (3) originals.

 

AGENCIA NACIONAL DE HIDROCARBUROS

 

/s/ JOSE ARMANDO ZAMORA REYES

JOSE ARMANDO ZAMORA REYES

General Director

 

UNION TEMPORAL LLANOS 34

 

/s/ ORLANDO SARDI DE LIMA

ORLANDO SARDI DE LIMA

Representative

WINCHESTER OIL AND GAS S.A.

 

/s/ GLADYS ROCIO DEL PILAR BERNAL DUQUE

GLADYS ROCIO DEL PILAR BERNAL DUQUE

Representative

RAMSHORN INTERNATIONAL LIMITED

 

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ANNEX A- TERMS AND CONDITIONS

 

TABLE OF CONTENTS

	
 
    	
 
    
	
Clause
    	
 
    	
Section
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
DEFINITIONS
    	
 
    	
9
    
						

 

	
CHAPTER I- PURPOSE, SCOPE AND DURATION
    
	
 
    
	
1. Purpose
    	
11
    
	
2. Scope
    	
11
    
	
3. Contract Area
    	
14
    
	
4. Duration and   Periods
    	
15
    
	
5. Exclusion of   Rights Over Other Natural Resources 
    	
17
    
	
 
    	
 
    
	
CHAPTER II- EXPLORATION ACTIVITIES
    
	
 
    	
 
    
	
6. Mandatory   Exploration Program
    	
18
    
	
7. Exploration   Plan
    	
18
    
	
8. Modifications   to the Mandatory Exploration Program 
    	
19
    
	
9. Subsequent   Exploration Program
    	
19
    
	
10. Additional   Exploration
    	
20
    
	
11. Remaining   Investment
    	
20
    
	
12. Problems   Arising During the Drilling of Exploration Wells 
    	
21
    
	
13. Notice of   Discovery
    	
21
    
	
14. Assessment   Program
    	
21
    
	
15. Declaration   of Marketability
    	
24
    
	
 
    	
 
    
	
CHAPTER III- PRODUCTION   ACTIVITIES
    
	
 
    	
 
    
	
16. Production   Area
    	
24
    
	
17. Broadening   the Production Area
    	
24
    
	
18. Development   Plan
    	
25
    
	
19. Delivery of   the Development Plan
    	
25
    
	
20. Updating the   Development Plan
    	
26
    
	
21. Annual   Operations Plan
    	
26
    
	
22. Abandonment   Fund
    	
27
    

 

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CHAPTER IV- CONDUCTING OPERATIONS
    
	
 
    	
 
    
	
23. Autonomy
    	
29
    
	
24. Operator
    	
29
    
	
25. Designated   Operator
    	
29
    
	
26. Obtaining   Permits
    	
30
    
	
27.   Subcontractors
    	
30
    
	
28. Metering
    	
30
    
	
29. Production   Availability
    	
31
    
	
30. Unification
    	
31
    
	
31. Natural Gas   Present
    	
31
    
	
32. Damages and   Loss of Assets
    	
32
    
	
33. Inspection   and Follow Up
    	
32
    
	
34. Programs to   Benefit Communities
    	
32
    
	
 
    	
 
    
	
CHAPTER V- ROYALTIES AND OTHER   GENERAL OBLIGATIONS
    
	
 
    	
 
    
	
35. Royalties
    	
34
    
	
36. Price for   Internal Supply
    	
34
    
	
37. Local Goods   and Services
    	
34
    
	
 
    	
 
    
	
CHAPTER VI- CONTRACTUAL RIGHTS   OF ANH
    
	
 
    	
 
    
	
38. Rights for   Subsoil Use
    	
34
    
	
39. Fees for   High Prices
    	
35
    
	
40. Economic   Right for Participation in Production
    	
35
    
	
41. Economic   Rights in Production Tests
    	
35
    
	
42.   Participation in Production During the Extension of the Production Period
    	
35
    
	
43. Technology   Transfer
    	
35
    
	
 
    	
 
    
	
CHAPTER VII- INFORMATION AND   CONFIDENTIALITY
    
	
 
    	
 
    
	
44. Supply of   Technical Information
    	
37
    
	
45.   Confidentiality of the Information
    	
37
    
	
46. Rights Over   Information
    	
37
    

 

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47.   Environmental and Social Information
    	
37
    
	
48. Half Yearly   Executive Report
    	
38
    
	
49.   Informational Meetings
    	
38
    
	
 
    	
 
    
	
CHAPTER VIII- GUARANTEES,   RESPONSIBILITIES AND INSURANCE
    
	
 
    	
 
    
	
50. Compliance   Guarantee
    	
38
    
	
51.   Responsibilities of the Contractor 
    	
37
    
	
52. Compliance   Policy for Labor Obligations
    	
42
    
	
53. Insurance
    	
42
    
	
54. Indemnity
    	
42
    
	
 
    	
 
    
	
CHAPTER IX- RELINQUISHING AREAS
    
	
 
    	
 
    
	
55. Mandatory   Relinquishing of Areas
    	
43
    
	
56. Voluntary   Relinquishing of Areas
    	
43
    
	
57. Limiting the   Areas Relinquished
    	
43
    
	
58. Restoring   Relinquished Areas
    	
43
    
	
59. Formalizing   Relinquished Areas
    	
43
    
	
 
    	
 
    
	
CHAPTER X- RESOLUTORY   CONDITIONS, BREACH AND PENALTIES
    
	
 
    	
 
    
	
60. Prior   Resolutory Conditions
    	
43
    
	
61. Procedure in   Case of a Breach
    	
44
    
	
62. Penalties
    	
44
    
	
 
    	
 
    
	
CHAPTER XI- TERMINATION
    
	
 
    	
 
    
	
63. Causes for   Termination
    	
45
    
	
64. Termination   of the Agreement for Expiration of the Exploration Period
    	
45
    
	
65. Voluntary   Termination of the Exploration Period
    	
45
    
	
66. Unilateral   Termination
    	
46
    
	
67. Termination   due to Failure to Comply
    	
46
    
	
68. Mandatory   Termination and Expiration
    	
46
    
	
69. Reversion of   Assets
    	
44
    

 

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70. Later   Obligations
    	
47
    
	
71. Abandonment
    	
48
    
	
72. Liquidation   of this Agreement
    	
48
    
	
 
    	
 
    
	
CHAPTER XII- SETTLEMENT OF   DISPUTES
    
	
 
    	
 
    
	
73. Executive   Stage
    	
49
    
	
74. Expert   Intervention and Arbitration
    	
49
    
	
 
    	
 
    
	
CHAPTER XIII- FINAL   DISPOSITIONS
    
	
 
    	
 
    
	
75. Assignment   Rights
    	
51
    
	
76. Force   Majeure and Acts of Third Parties
    	
51
    
	
77. Taxes
    	
53
    
	
78. Currency
    	
53
    
	
79. Applicable   Law
    	
53
    
	
80. Language
    	
53
    
	
81. Domicile
    	
54
    
	
 
    	
 
    
	
OTHER ANNEXES
    	
 
    
	
 
    	
 
    
	
Annex B-   Contract Area
    	
57
    
	
Annex C-   Mandatory Exploration Program
    	
59
    
	
Annex D-   Economic Rights
    	
61
    
	
Annex E — Model   Letter of Credit
    	
65
    

 

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DEFINITIONS

 

For the purposes hereof and without prejudice to any legal definitions that may apply, the terms stated below will have the meaning provided herein:

 

Abandonment: The closing and abandonment of wells, the dismantling of constructions and the cleaning and environmental restoration of areas in which Exploration, Assessment, or Production Operations have been conducted by virtue of this Contract, pursuant to Colombian law.

 

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

 

Calendar Year: The twelve month period between January first (1st) and December thirty first (31st), both included, of each year.

 

Contract Area: The surface and its projection into the subsoil as identified in Chapter I, and whose boundaries are indicated in Annex B, in which THE CONTRACTOR is authorized by virtue of this Agreement, to undertake the Operations for the Exploration, Assessment and Production of hydrocarbons that are the subject of this Agreement.

 

Assessment Area: The portion of the Contract Area in which THE CONTRACTOR made a Discovery, and in which the CONTRACTOR decides to perform an Assessment Program in order to determine whether or not it is marketable under Clause 14.  This area will be framed on the surface, as a regular polygon preferably four-sided, which will include the limits of the vertical projection on the surface of the geological structure or trap, which contains the Discovery.

 

Production Area: The portion of the Contract Area containing one or more of the Commercial Fields, as determined in Chapter III. The area of each Commercial field will include the limits of the vertical projection on the surface of its oil field or oil fields and that is determined by the Ministry of Mines and Energy pursuant to Decree 1895 of 1973, Decree 3229 of 2003 or with any laws that amend or supersede them.

 

Barrel: The unit to measure the volume of Liquid Hydrocarbons equivalent to forty two (42) US gallons, corrected to standard conditions (a temperature of 60° Fahrenheit and one atmosphere of absolute pressure).

 

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Best Oil Industry Practices: These are good, safe and efficient operations and procedures, commonly used by prudent and diligent operators in the international oil industry, under conditions and circumstances similar to those arising in performing the activities of this Agreement, mainly in matters related to the use of proper methods and processes to obtain the maximum economic benefit in the final recovery of reserves, reduction of losses, operational safety, and protection of the environment, amongst others, to the extent that they are not contrary to Colombian law.

 

Commercial Field: Portion of the Contract Area, in the subsurface of which one or more oil fields have been discovered, and which THE CONTRACTOR has decided to exploit commercially.

 

Declaration of Marketability:  Written communication addressed by THE CONTRACTOR to ANH, declaring that the Discovery it has made in the Contract Area is a Commercial Field.

 

Discovery: A conventional oil field is considered discovered when drilling using a drill or equivalent equipment allows finding of the rock where hydrocarbons are accumulated and after undertaking the initial fluid tests its behavior as an independent unit in terms of production mechanisms, petro-physical and fluid properties is established.

 

Discovery of Non-associated Natural Gas: The Discovery whose official production test, provided that said test is representative of the oil field or oil fields discovered, indicates a Gas/Oil ratio (GOR) greater than 7,000 standard cubic feet of gas per barrel of Liquid Hydrocarbons, and a mole composition of heptane (C7+) less than 4.0%.  The GOR is understood to be the ratio between the volume of Natural Gas in cubic feet per day and the volume of Liquid Hydrocarbons in barrels per day produced by a well and the mole composition of heptane (C7+) as the mole percentage of heptane and other Hydrocarbons having higher molecular weight. The Gas/Oil Ratio (GOR) of a Discovery with several oil fields will be determined on the basis of the weighted average production of each oil field and the mole composition of heptane (C7+) as the simple arithmetic average.

 

Day: A period of 24 hours starting at zero hours (00:00) and ending at twenty four hours (24:00).

 

Development or Development Operations: Activities and work undertaken by THE CONTRACTOR, including, without this being the exhaustive list, drilling, completion of and provision of the equipment for development wells; the design, construction, installation and maintenance of equipment, pipe, flow lines, storage tanks, artificial lift systems, primary

 

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and secondary recovery systems, transfer systems, treatment, storage, among other, within an Exploitation Area under the Contract Area, and outside it when necessary.

 

Exploration or Exploration Activities and work undertaken by THE CONTRACTOR in the Contract Area with the purpose of determining the existence of hydrocarbons in the subsoil, including but not limited to geophysical, geochemical, geologic, cartographic methods and in general, superficial exploration activities, drilling of Exploration Wells and other activities that are directly related to the search for hydrocarbons ion the subsoil.

 

Assessment or Assessment Operations: All operations and activities undertaken by THE CONTRACTOR in an Assessment Area pursuant Clause 14 herein, addressed at assessing a Discovery, the geometry of the oil field or oil fields in the Assessment Area and determining, amongst other things, the viability of extracting the Hydrocarbons in economically exploitable quantities and qualities and the impact of commercial exploitation on the environment and social situation. Said operations include drilling of Exploration Wells, acquisition of detail seismic programs, conducting of production tests and, in general, other operations aimed at determining if a Discovery is a Commercial Filed and to establish its boundaries.

 

Exploitation: Includes Development and Production.

 

Effective Date: The calendar day that immediately follows the execution of this Agreement, or the date of termination of phase “zero” when applicable.

 

Natural Gas: The natural blend of Hydrocarbons in gaseous state at standard conditions (sixty degrees Fahrenheit (60oF) and at one (1) atmosphere of absolute pressure) composed of the most volatile elements of the paraffin series of Hydrocarbons.

 

Hydrocarbons: All organic compounds comprised mainly of the natural combination of carbon and hydrogen and substances that accompany or are derived therefrom.

 

Liquid Hydrocarbons: Hydrocarbons that at standard temperature and pressure conditions (60°F and one (1) atmosphere at absolute pressure) are in liquid state at the wellhead or at the separator, as well as distillates and condensates extracted from gas.

 

Heavy Liquid Hydrocarbons: Liquid Hydrocarbons with an API gravity less than or equal to fifteen degrees (15°API).

 

Non-Conventional Hydrocarbons: Hydrocarbons present in the subsoil in a state other than conventional Liquid Hydrocarbons or free gas, including gas associated with the

 

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former, or Hydrocarbons that are present in non-conventional oil fields. This definition includes crude hydrocarbons such as extra heavy grades of oil, tar sands, coal based gas, oil fields, tight oil fields and gas hydrates.

 

Penalty Interest: In pesos, the maximum legal penalty rate certified and allowed by the competent authority; in US dollars, 3-month LIBOR (London Interbank Borrowing Offered Rate) prime for deposits in US dollars plus four percentage points (LIBOR + 4%).

 

Month: Period counted from any Day of a calendar month and ending on the Day prior to the same Day of the next calendar month; or, if the first Day of a month, on the last Day of the month in progress.

 

Penalties: All constraints on the CONTRACTOR for the timely, effective and efficient compliance of its obligations; as a result, said penalties are not an anticipated estimate of damages, so they may accumulate with any other form of compensation. Payment or deduction of said penalties does not exempt the CONTRACTOR from complying with its obligations and commitments, nor from performing or terminating the activities under its responsibility, nor from providing results, products, documents or any other information that may be required.

 

Operator: Whoever has proven to ANH that pursuant to the contracting regulations of ANH, it has the legal, technical, operational, and financial capacity and that the ANH has approved for Exploration, Assessment, Development and Production. The operator will act as representative of the CONTRACTOR before ANH.

 

Designated Operator: The company designated by the CONTRACTOR prior approval by ANH to undertake the operations that are the subject of this Agreement under the responsibility of the CONTRACTOR.

 

Parties: At the time of execution of this Agreement, the parties are ANH and THE CONTRACTOR. Subsequently and at any time, ANH on one hand and THE CONTRACTOR and/or its assignees duly accepted by ANH, on the other. When the CONTRACTOR is made of a plural number of companies, the Operator will act as representative before ANH.

 

Production Period: With regards to the Production Area, a period of up to twenty-four (24) years and its extensions if any, starting on the corresponding Declaration of Marketability, during which THE CONTRACTOR must undertake the Development and Production Operations.

 

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Exploration Period: 6-Year Period counted as of the Effective Date, together with any extension granted, during which THE CONTRACTOR shall execute the Exploration Program.

 

Development Plan: The guiding document prepared by the CONTRACTOR in accordance with Clause 18 in order to undertake the technical, efficient and economic Exploitation of each Production Area and which will contain among others, an estimate of Hydrocarbon reserves, a description of Hydrocarbon production and transportation conditions, a short and medium term forecast of Hydrocarbon production, an Abandonment Program and an Exploitation Work Program for the time remaining in the current Calendar Year or the following Calendar Year.

 

Exploration Well: A well to be drilled by THE CONTRACTOR in the search for Hydrocarbon oil fields in an area not yet proven to be a Hydrocarbon producing area.

 

Production or Production Operations: All operations and activities undertaken by THE CONTRACTOR in an Production Area in relation to Hydrocarbon extraction, collection, treatment, storage and transfer processes up to the Delivery Point, Abandonment and other operations related to obtaining Hydrocarbons.

 

Exploration Program: The minimum Exploration Program that the CONTACTOR agrees to perform during each phase of the Exploration Period it enters.

 

Subsequent Exploration Program: Exploration Program THE CONTRACTOR agrees to undertake to execute after the end of the Exploration Period as stipulated in Clause 9.

 

Assessment Program: Assessment Operations plan presented by THE CONTRACTOR to ANH pursuant to Clause 14 below with the purpose of assessing a Discovery and determining whether or not it is a Commercial Field. The performance of the Assessment Program and the presentation of a final results report to ANH are mandatory to declare whether or not a Discovery is a Commercial Field.

 

Work Program: Description of activities and of Exploration, Assessment and/or Production Activities in the Contract Area under the terms of this Agreement. The Work Program will include the schedule according to which THE CONTRACTOR will begin and complete the activities, and the corresponding budget.

 

Point of Delivery: The place agreed by the Parties where THE CONTRACTOR will make available to ANH the portion of Hydrocarbons corresponding to the established legal Royalties and those stated in the law and in Chapter V, as well as the economic rights set 

 

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forth in Chapter VI resulting from the commercial field(s), with the minimum specifications to enter the CONTRACTOR’S transportation system and contained in applicable regulations. From this point onwards, the control and custody of said portion of Hydrocarbons produced will pass to ANH.In the event that the Parties do not reach an agreement to determine the Point of Delivery, ANH will determine this point and in any event, it will be a point located at the exit of the treatment unit or the entrance point to the CONTRACTOR’S transportation system.

 

Fiscalization Point: The place approved by the ministry of Mines and Energy or the entity that undertakes these responsibilities in the future, with the purpose of determining the volume of hydrocarbons corresponding to Royalties, the CONTRACTOR’S volume of Hydrocarbons, and defining the volumes relevant to estimate the rights of ANH as stated in Chapter VI.

 

Hydrocarbon Fields: All rock where accumulated hydrocarbons are found and that behaves as an independent unit with regards to production mechanisms, petro-physical properties and properties of fluids pursuant to the definitions of the Ministry of Mines and Energy in Decree 1895 of 1973, Decree 3229 of 2003 and any amendment thereto.

 

Discovered and Not Developed Hydrocarbon Field: A field discovered through drilling, returned to the administrator due to its non marketability or for any other reason and that is under its jurisdiction.

 

Note: In the event of a conflict between these definitions and legal definitions or judicial sentences, the latter will prevail.

 

CHAPTER I— PURPOSE, SCOPE AND DURATION

 

1. PURPOSE. By virtue of this Agreement, THE CONTRACTOR is granted the exclusive right to explore the Contract Area and to produce State-owned Hydrocarbons that are discovered in that area under the terms hereof. THE CONTRACTOR will be entitled to the share of the production of Hydrocarbons from the Contract Area, which are due to it under this Agreement.

 

2. SCOPE: In the exercise of this right, THE CONTRACTOR will perform the activities and conduct the operations that are the purpose of this Agreement, at its sole cost and risk, providing all necessary resources to project, prepare and perform all activities and Exploration, Assessment, Development and Production Operations in the Contract Area.

 

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Paragraph: Discovered and Not Developed Hydrocarbon Fields that are in the Contract Area, and that are known to any of the Parties at the time this Agreement is executed, are excluded from this Agreement. The CONTRACTOR hereby states that it is not aware of the existence of Discovered and Not Developed Hydrocarbon Fields other than those related to the minutes prior to the execution of this agreement, as the case may be.

 

3. CONTRACT AREA: This includes the surface enclosed by the co-ordinates in Annex B. The Contract Area will gradually reduce pursuant to the provisions stated in Chapter IX.

 

3.1 Restrictions: In the event that a portion of the Contract Area extends into areas included in the Colombian National Natural Parks system or other reserved, excluded or restricted zones, geographically limited the relevant authority, or whenever zones of the above mentioned characteristics extend into the Contracted Area, THE CONTRACTOR agrees to comply the conditions imposed on those areas by the relevant authority. ANH will not be responsible in any way.

 

When ANH becomes aware of any claim for private ownership of Hydrocarbons in the subsoil of the Contract Area, it will proceed as required by the relevant legal provisions.

 

4. DURATION AND PERIODS:  The duration of each period and phase in this Agreement will be regulated as follows:

 

4.1 Exploration Period. The Exploration Period will last six (6) Years, as of the Effective Date and will be divided into the phases described in Annex C. The first phase begins on the Effective Date and the following phases on the Calendar Day immediately following the end of the preceding phase:

 

4.1.1 Right to withdraw during the Exploration Period. During any phase of the Exploration Period, THE CONTRACTOR may withdraw from the present Agreement provided it has satisfactorily complied with the Exploration Program of the phase in progress and its remaining obligations. To this end, THE CONTRACTOR will advise ANH of its decision in writing, prior to the expiration of the phase in progress.

 

However, whenever a phase of the Exploration Program is greater than or equal to eighteen (18) months, THE CONTRACTOR may withdraw from this Agreement during this period. In this event, it must provide ANH with the amount pending execution until completing fifty per cent (50%) of the activities not performed in the Exploration Program of the corresponding phase and one hundred per cent (100%) of the Additional Exploration 

 

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Program of the corresponding phase when applicable, which are part of he mandatory exploration program.

 

4.1.2 Extension of one phase of the Exploration Period. Upon request of THE CONTRACTOR, ANH will extend the phase of the Exploration Period, until the drilling, testing and ending of exploration activities of Exploration Wells and/or the acquisition of the seismic program have been completed, without this period exceeding six (6) months, provided following conditions are met:

 

a)             That the aforementioned Exploration Operations are part of the Exploration Program and had begun at least one (1) Month prior to the expiration date for the corresponding phase of the Exploration Period;

 

b)             That THE CONTRACTOR has performed said Exploration Operations uninterruptedly; and

 

c)              That notwithstanding the diligence applied in the performance of said Exploration Operations, THE CONTRACTOR reasonably believes that the remaining time is insufficient to complete them before the expiration date of the phase in progress.

 

Upon submitting the extension request, THE CONTRACTOR will provide ANH the documents supporting said request together with a schedule of activities that ensures the completion of the work within a reasonable period of time. Pursuant to the requirements set forth in Clause 50 below, the extension of the corresponding guarantee must be delivered to ANH within the five (5) days following the approval of the extension.

 

It is understood that, to enforce this clause, the seismic Exploration Operations begin with the uninterrupted registry. It is understood to this same end, that the drilling of wells begins at the time in which the continuous rotation of the drill begins for this perforation.

 

Paragraph: In the event that an exploration activity affects a community in a reservation or an ethnic settlement, the existence of which has been certified by a competent authority, ANH will assess granting an additional period to comply with the activities that are to be performed within the community’s area of influence. This period may be graded provided that the competent authorities consider that THE CONTRACTOR is diligent in the performance of the activities necessary for prior consultation.

 

4.2 Production Period: The production period will last for a period of twenty-four (24) years, starting on the date in which ANH receives from THE CONTRACTOR the Declaration of Marketability mentioned in Clause 15 below.

 

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The Production Period will be estimated separately for each Production Area, and consequently, all references to duration, extension or termination of the Production Period refer to each particular Production Area.

 

4.2.1 Extension of the Production Period.  At THE CONTRACTOR’s choice, ANH will extend the Production Period for successive periods of up to ten (10) years and up to the economic limit of the Commercial Field, provided that the following conditions are met for each period:

 

a)             That THE CONTRACTOR submits a written request to ANH not more than 4 Years in advance and no less than one (1) Year prior to the expiry of the Production Period for the corresponding Production Area;

 

b)             That the Production Area is producing Hydrocarbons regularly in the five (5) years prior to the date of the request.

 

c)              That THE CONTRACTOR proves that during the four (4) Calendar Years prior to the date of the request, it has conducted a drilling program that includes at least one (1) well per Calendar Year and has had an active project for pressure maintenance or secondary, tertiary or enhanced recovery; and,

 

d)             That during the extensions, THE CONTRACTOR provides ANH at the point of delivery, an additional ten percent (10%) of the Heavy Liquid Hydrocarbons or five per cent (5%) of the non associated gas production or Heavy Liquid Hydrocarbons, after royalties and other participations, and pursuant to the terms of Clause 42 herein.

 

Paragraph: If THE CONTRACTOR does not fully meet the scope of the condition required in the preceding item c), ANH may or may not grant the extension having previously analyzed the justifications submitted by THE CONTRACTOR. It is understood that denial by ANH will not give rise to a disagreement and will not be subject to the procedure established in Chapter XII below. In any event, the extension of the Production Period will be formalized by the execution of an Amendment to this Agreement.

 

5. EXCLUSION OF RIGHTS OVER OTHER NATURAL RESOURCES: The rights granted under this Agreement refer exclusively to State-owned Hydrocarbons that are discovered 

 

17

 

within the Contract Area and consequently, said rights will not be made extensive to any other natural resource that may exist in the aforementioned area.

 

Paragraph: For the purpose of avoiding the Exploration, Assessment, Development and /or Production Activities intended to be undertaken by THE CONTRACTOR in the Contract Area to interfere with working programs or investments previously approved by competent authorities, corresponding to contracts for the exploration and exploitation of minerals existing in the Contract Area, THE CONTRACTOR will agree with the third parties holding rights over said contracts, on the way in which each will conduct Operations and working programs in order to guarantee sustainable development of natural resources.

 

In the event that THE CONTRACTOR and the third party(ies) holding rights over said exploration and exploitation contract(s) do not reach an agreement regarding the above paragraph, said disagreement will be subject to the Ministry of Mines and Energy or the entity undertaking its duties, to make a decision and solve the disagreement. In any event, during the time the negotiation and resolution of this disagreement takes place, the compliance of Exploration, Assessment, Development and / or Production obligations that may be affected will be suspended, and ANH will acknowledge all of the remaining contract period at the time of suspension, provided that THE CONTRACTOR evidences that it has acted diligently in managing the suspension.

 

CHAPTER II- EXPLORATION ACTIVITIES

 

6. MANDATORY EXPLORATION PROGRAM- During the Exploration Period, THE CONTRACTOR will undertake the Exploration Program for each phase described in Annex C.

 

To comply with the obligations under the Exploration Program, the Exploration Wells suggested by the CONTRACTOR must be Exploration Wells for a new, type A-3 oil field. In any event, ANH reserves the right to approve other types of Exploration Wells when technical conditions so require.

 

7. EXPLORATION PLAN: The CONTRACTOR agrees to present ANH the Exploration Plan for the phase about to begin, describing how it will fulfill its obligations, including the terms and conditions under which it will develop the programs to benefit the communities in the area affected by the exploration work, with no less than eight (8) calendar days in advance with respect to the beginning of each phase of the Exploration Period. For the first phase, THE CONTRACTOR must provide the Exploration Plan within a period of thirty (30) calendar days starting on the Effective Date.

 

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8. MODIFICATIONS TO THE MANDATORY EXPLORATION PROGRAM: Modifications to the Mandatory Exploration Program will be regulated by the rules set forth below:

 

8.1 During the first half of any phase of the Exploration Period, THE CONTRACTOR may replace the acquisition and processing of a seismic program contained in the Exploration Program initially presented for the phase in progress, for the drilling of one or more exploration wells or for the acquisition and processing of a seismic program having more modern technology, provided that the financial effort of the new Exploration Program is equivalent or superior to the one initially presented for the corresponding phase. In this event, THE CONTRACTOR will previously inform ANH in writing of the replacements it intends to make of the Exploration Operations.

 

8.2 If after drilling an Exploration Well that results in a dry well, THE CONTRACTOR considers that the forecast of the Contract Area does not justify the drilling immediately after of an Exploration Well included in the Exploration Program, THE CONTRACTOR may replace the drilling of up to one (1) Exploration Well for the acquisition and processing of a seismic program, provided that the financial effort of the new Exploration Program is equivalent or superior to the one initially presented for the corresponding phase and that THE CONTRACTOR previously informs ANH in writing of the replacements it intends to make.

 

9. SUBSEQUENT EXPLORATION PROGRAM At the end of the Exploration Period, and provided an Assessment or Production Area or a Discovery made by THE CONTRACTOR during the last phase of the Exploration Period of the Contract Area exists, THE CONTRACTOR may withhold fifty per cent (50%) of the Contract Area (excluding the Assessment and Production Areas) to undertake a Subsequent Exploration Program in the area withheld and outside the Assessment and Production Areas. In this case, the following procedure will apply:

 

a)             Prior to the date of termination of the last phase of the Exploration Period, THE CONTRACTOR will inform ANH in writing of its intention to undertake a Subsequent Exploration Program.

 

b)             Said notice must describe the Exploration Operations that are part of the Subsequent Exploration Program that THE CONTRACTOR agrees to undertake from the end of the last phase of the Exploration Program. Each of the phases of the Subsequent Exploration Program, with a maximum of two (2) eighteen (18) month phases each, must contain at least the drilling of one type A-3 Exploration Well.

 

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c)              Having duly fulfilled the obligations of the first phase of the Subsequent Exploration Program, THE CONTRACTOR may decide not to continue onto the second phase, will results in having to return all of the areas withheld for this purpose or, alternately, the right to continue onto the second phase if appropriate, in which case it agrees to return fifty per cent (50%) of the areas withheld, excluding the existing Assessment and Production Areas. THE CONTRACTOR will inform ANH in writing of its decision within the month following the termination of the first phase.

 

It is understood that returning the areas referred to herein is without prejudice to the existing Assessment and Production Areas.

 

Once the Subsequent Exploration program is completed, the Contract Area will be reduced to the Assessment and / or Production existing at that time.

 

10. ADDITIONAL EXPLORATION: THE CONTRACTOR may undertake Exploration Operations that are additional to the ones contained in the Exploration Program or in the Subsequent Exploration Program, without these Exploration Operations resulting in a modifying of the period agreed for the performance of the Exploration Period or the Subsequent Exploration Period of the ongoing phase or the phases that follow. THE CONTRACTOR must previously inform ANH of the performance of the additional Exploration Operations it intends to undertake. If said Exploration Operations are the ones defined in the Exploration Program of the phase that follows and it is THE CONTRACTOR’s desire that said additional Exploration Operations are credited to the compliance of the exploration duties for the phase that follows, THE CONTRACTOR will request ANH in writing and the latter will discretionally decide whether it accepts this accreditation. In the event that ANH accepts the request, it will determine how the exploration operations additional to the agreements made for the phase of the Exploration Period that follows, will be partially or fully credited.

 

11. REMAINING INVESTMENT: If THE CONTRACTOR does not make the total amount of mandatory investments associated with the Exploration Program, it must transfer the balance that has not been invested to ANH within the sixty (60) days following the termination of the corresponding phase. At ANH’s criteria, the above sum may be destined to exploration programs in other areas selected by mutual consent.

 

For the purpose of verifying the execution of the investment budget established, THE CONTRACTOR must present ANH the Auditor’s certification evidencing the amount of the investment executed for each phase, within the thirty (30) days following its termination.

 

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12. PROBLEMS ARISING DURING THE DRILLING OF THE EXPLORATION WELLS: If uncontrollable geologic problems such as cavities, abnormal pressure, severe circulation loss, impermeable formations, or other technical conditions that hinder the drilling of the Exploration Well occur during the drilling of an Exploration Well corresponding to the Exploration Program or a Subsequent Exploration Program, before the target depth is reached and notwithstanding THE CONTRACTOR’S determination to continue in accordance with Good Oil Industry Practices, when drilling reaches a depth of fifteen hundred (1,500) meters, THE CONTRACTOR may request ANH to declare the fulfillment of the obligation to drill by presenting a technical report that provides a detailed description of the situation arising and the efforts undertaken to overcome the problem. Said report must be presented to ANH within a term no greater than fifteen (15) calendar days starting from the moment in which the above-mentioned uncontrollable problem arose.

 

If ANH accepts that THE CONTRACTOR ends the drilling operations of the well in question, THE CONTRACTOR must obtain a registry of resistivity and another of gamma rays up to the maximum possible depth and abandon or complete the well up to de depth reached. In this case, it is understood that the obligation under the Exploration Program has been fulfilled.

 

Otherwise, THE CONTRACTOR must drill the well in sidetrack or drill a new well and ANH will grant the period necessary to fulfill this obligation.

 

13.  NOTICE OF DISCOVERY: THE CONTRACTOR must inform ANH in writing at any time during the four (4) months following the end of the drilling of any Exploration Well, the results of which indicate that a Discovery has been made; this notice must be accompanied by a technical report containing the results of the tests made, a description of geological features and the analysis made to fluids and rocks as indicated by the Ministry of Mines and Energy or the authority performing its duties.

 

Paragraph: If he discovery is a Discovery of non Associated Natural Gas or Heavy Liquid Hydrocarbons, THE CONTRACTOR must likewise provide the estimates and other supporting evidence for classification purposes, to the Ministry of Mines and Energy or to the authority performing its duties.

 

14. ASSESSMENT PROGRAM: THE CONTRACTOR will present and perform an Assessment Program of the Discovery if it considers that the Discovery has commercial potential, pursuant to the rules set forth in this Clause. If the Discovery is made during the Exploration Period, THE CONTRACTOR will present an Assessment Program within the six (6) months following the end of the drilling of the Exploration Well where the Discovery

 

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was made or the end of the Exploration Period, whichever happens first. If the Discovery results from the performance of a Subsequent Exploration Program, THE CONTRACTOR will present the Assessment Program within the six (6) months following the end of the drilling of the Exploration Well where the Discovery was made.

 

14.1 Contents of the Assessment Program:  The Assessment Program must contain at least:

 

a)                                     A geologic map with the coordinates of the Assessment Area at the top of the target formation.

 

b)                                     A description and purposes of each of the Assessment Operations and the information that has been set out to obtain to determine whether a Discovery can be declared as a Commercial Field.

 

c)                                      The total budget for the Assessment Program discriminated on a year-to-year basis.

 

d)                                     The total Assessment Program, which may not exceed two (2) years when it includes the drilling of Exploration Wells or one (1) year in all other cases; this term will be counted starting on the date in which the Assessment Program is presented to ANH and must include the estimated times necessary for obtaining permits that must be granted by authorities.

 

e)                                      The schedule to Undertake the Assessment Operations within the period mentioned in letter (d) above.

 

f)                                       The information concerning the destination of the Hydrocarbons and other fluids that THE CONTRACTOR expects to recover as a result of the Assessment Operations.

 

g)                                     A proposed Point of Delivery to be considered by ANH.

 

14.2 Extension of the Assessment Program: If THE CONTRACTOR decides to drill Exploration Wells not forecast in the Assessment Program initially presented, ANH may extend the duration of the Assessment Program for an additional period that will not exceed one (1) year, provided the following conditions are met:

 

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a)             That THE CONTRACTOR makes a written request to ANH at least two (2) months prior to the date of termination of the initial period.

 

b)             That THE CONTRACTOR is diligently undertaking the Assessment Operations included in the Assessment Program.

 

c)              That the extension requested is reasonable for the time necessary for drilling and testing the Well or additional Exploration Wells.

 

With the request, THE CONTRACTOR will provide ANH the documents supporting the request.

 

14.3 Modifications to the Assessment Program: THE CONTRACTOR may modify the Assessment Program at any time during the six (6) months following the date in which the Assessment Program is presented to ANH, to which end it will timely inform ANH and will adapt the total period of said program, which in no case may exceed the term established in 14.1 (d) hereof, without modifying the starting date indicated.

 

14.4 Assessment Report: THE CONTRACTOR will present ANH a full report of the results of the Assessment Program within the three (3) months following the date of its termination. Said report will include at least: a geologic description of the Discovery and its structural configuration; the physical properties of the rocks and fluids present in the fields associated to the Discovery; the pressure, volume and analysis of the field fluids temperature; the production capacity (per well and for the entire Discovery); and an estimate of the recoverable reserves of hydrocarbons.

 

Paragraph 1: If THE CONTRACTOR includes the drilling of Exploration Wells in the Assessment programs undertaken during the Exploration Period, it may credit both compliance of the Exploration Program as well as corresponding Assessment Program by drilling two (2) Exploration Wells, provided that the same type of Exploration Well is contemplated in the phase of the Exploration Program immediately following the beginning of the Assessment Program and drilling concludes prior to the date of termination of the Assessment Program in which they were included or the phase of the Exploration Program to which said wells correspond, whichever is closest. In this case, THE CONTRACTOR will return ANH the portion of the Contract Area in which no exploration activities will be undertaken during the time remaining in the Exploration Period.

 

Paragraph 2: In case the discovery of Non Associated Natural Gas or Heavy Liquid Hydrocarbons or Non Conventional Hydrocarbons, and at any time during the second half of the Assessment Period, THE CONTRACTOR may request ANH an extension of the Assessment Program for up to two (2) additional years; this term may be extended at ANH’s criteria, with the purpose of undertaking feasibility studies to build infrastructure, 

 

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with regards to production methods and/ or market development. In these cases, the request will include in the Assessment Program, the information related to the feasibility studies that THE CONTRACTOR considers necessary to undertake. At the end of the extension granted, THE CONTRACTOR will provide ANH the conclusions and recommendations of the feasibility studies.

 

Paragraph 3: This clause only applies to discovering Exploration Wells drilled by THE CONTRACTOR outside of the areas designated as Assessment or Production. Consequently, when new volumes of Hydrocarbons found are part of one same Assessment or production Area, there will be no new Assessment Period.

 

15. DECLARATION OF MARKETABILITY: Within the three (3) months following the expiration of the term stipulated for the performance of the Assessment Program, or upon expiration of the term agreed under the Paragraph 2 of Clause 14, if applicable, THE CONTRACTOR will deliver to ANH a written declaration stating clearly and precisely its unconditional decision to commercially exploit the Discovery, or otherwise. If the decision is positive, the Discovery will be treated as a Commercial Field as of the time of said declaration.

 

15.1 Non-Marketable Discovery: If THE CONTRACTOR does not provide ANH the declaration of marketability within the stipulated term, it will be understood that THE CONTRACTOR has concluded the Discovery is not a Commercial Field. In such case or in the event that the declaration is negative, THE CONTRACTOR accepts no rights have been generated in its favor and therefore waives any claim of rights over the Discovery. The corresponding Assessment Area will be returned to ANH.

 

CHAPTER III — PRODUCTION ACTIVITIES

 

16. PRODUCTION AREA: The Production Area will be enclosed by a polygon or by a regular geometric shape that will include the Commercial Field or the portion of said field that is within the Contract Area, plus a margin around the Commercial Field no greater than one (1) kilometer, provided the Contract Area allows it. Because the area of the Commercial Field included in the Production Area may vary, the Production Area will remain unaltered, with the exception of the provisions included in the following clause.

 

17. BROADENING THE PRODUCTION AREA: If during the course of the production Period, THE CONTRACTOR determines that a Commercial Field extends beyond the Production Area but within the Contract Area in force, it may request ANH to broaden said 

 

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Production Area, all corresponding support will accompany the request. Having complied with the above to ANH’s satisfaction, the latter may extend the Production Area, in the understanding that if said extension overlaps with another Production Area, the duration of the Production Period that will apply to the joined Production Area will be the one applied to the Production Area in regards to which marketability was first declared.

 

Paragraph: When pursuant to this clause, the Production Area requested by THE CONTRACTOR extends beyond the Contract Area, ANH may extend the Contract Area treating the extension requested with the same contract rules as the Assessment Area, unless any of the following situations arises in regards to the requested area:

 

a)             That there are rights granted to another entity for the performance of activities that are equal or similar to the subject of this Agreement.

 

b)             That it is in process of negotiation or contest for ANH to grant rights.

 

c)              That there are restrictions ordered by a competent authority that hinder the undertaking of the activities of this Agreement.

 

d)             That ANH believes that economic conditions need to be adjusted.

 

18. DEVELOPMENT PLAN: Within three (3) months following the presentation of the Declaration of Marketability mentioned in Clause 15, THE CONTRACTOR will deliver ANH the initial Exploitation Plan, which must contain at least the following information:

 

a) The map with coordinates of the Production Area.

 

b) An estimate reserves and accumulated production of Hydrocarbon, broken down by types of Hydrocarbons.

 

c) The general scheme projected for the Development of the Commercial Field, including a description of the drilling plan for development wells, extraction methods, respective facilities and processes to which fluids extracted will be subject before the Point of Delivery.

 

d) An annual Hydrocarbon production forecast and its sensitivities, using the optimum production rate that will allow the maximum economic recovery of reserves.

 

e) An identification of critical factors for the execution of the Development Plan such as environmental, social, economic, logistics factors and options to manage them.

 

f) The terms and conditions under which it will develop programs to benefit the communities in the areas influenced by the Production Area.

 

g) Proposed Point of Delivery for ANH to consider.

 

h) An Abandonment program for the purposes of Clause 71.

 

19. DELIVERY OF THE DEVELOPMENT PLAN: ANH will acknowledge receipt of the Development Plan when THE CONTRACTOR provides all the above-described information. If ANH has not received the Development Plan with all the above stated 

 

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information, in the sixty (60) calendar Days following presentation, it may demand delivery of the pending information and THE CONTRACTOR will have thirty (30) calendar Days counted as of the date of receipt of said delivery demand to provide the information. If ANH has made no statement within ninety (90) calendar Days of presentation of the Development Plan by THE CONTRACTOR, the Plan will be understood to be provisionally accepted, until ANH makes a statement in this regards, in which case THE CONTRACTOR must accept observations made by ANH, when adopting them is reasonably feasible.

 

If THE CONTRACTOR does not deliver the Development Plan on the date stipulated in the preceding subsection or if ANH has not received the pending documentation in the thirty (30) Day term mentioned in this subsection, this will be considered as a failure to comply under clause 67.

 

20. UPDATING THE DEVELOPMENT PLAN: When THE CONTRACTOR needs to amend the Development Plan, it will adjust and present the amended Development Plan for each of the existing Production Areas in the Agreement, following the process set forth in Clause 19. When the real Hydrocarbon production of the immediately preceding year has a difference of more than fifteen (15%) percent with respect to of the production forecast in the Development for a Production Area, THE CONTRACTOR will provide the necessary explanations.

 

21. ANNUAL OPERATION PLAN: Within three (3) months following the date of Declaration of Marketability and within the three (3) first months of each Calendar Year, THE CONTRACTOR will present ANH an Annual Operations Plan that must meet the following requirements:

 

21.1 Content: The Annual Operations Plan will include at least:

 

a)             A detailed description of the Development and Production Operations that THE CONTRACTOR expects to undertake during the same and the following year with the corresponding schedule broken down by project and calendar trimester, which must also include the periods required to obtain authorizations and permits from competent authorities.

 

b)             The monthly production forecast for the Production Area for each corresponding Calendar Year.

 

c)              The average annual production forecast until the end of the economic life of the fields located within the Production Area.

 

d)             The estimated outcome (investments and expenses) for the following four (4) calendar years or until the end of the Production Period, whichever is shortest, and

 

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e)              The terms and conditions pursuant to which the programs benefitting the communities located in the area influenced by the Production Area will be developed.

 

21.2 Performance and Adjustments: The Development and Production Operations of the Annual Operations Plan mentioned in letter (a) above are of mandatory performance. THE CONTRACTOR will begin said Development and Production Operations in accordance with the schedule presented.

 

During the performance of the Annual Operations program, THE CONTRACTOR may make adjustments to said plan for ongoing the Calendar Year, provided that such adjustments do not entail reducing the production by more than fifteen per cent (15%) with respect to the initial forecast. Except for emergencies, adjustments may not me formulated with a frequency less than three (3) months. THE CONTRACTOR will inform previously and in writing of any adjustments to the Annual Operations Program.

 

Paragraph: THE CONTRACTOR will present the first of the annual operations programs for the remaining period of the corresponding Calendar Year. When the termination of the first Calendar Year is less than three (3) months ahead, the first annual operations program will include the year immediately after.

 

22. ABANDONMENT FUND:  THE CONTRACTOR will establish a fund to guarantee the financing of activities that are necessary to undertake an Abandonment program of the wells and an environmental renewal of production areas when their Production Period ends, in accordance with Good Oil Industry Practices and pursuant to the following stipulations:

 

22.1 Creation: Upon the expiration of the first calendar Year from the Month in which THE CONTRACTOR began commercial and regular production of Hydrocarbons in a Production Area, and uninterruptedly from thereon THE CONTRACTOR will keep a special accounting record called Abandonment Fund, in order to implement the Abandonment Program. To guarantee that the necessary financial resources are available, THE CONTRACTOR will establish an escrow account, a bank guarantee or any other instrument accepted by the ANH. In either case, the Parties will determine the terms and conditions of the agreed instrument in the Year immediately preceding the date on which the Abandonment Fund must be established. Should no agreement be reached, THE CONTRACTOR will, at any rate, establish a bank guarantee pursuant to the terms of this Clause.

 

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2.22 The Amount of the Abandonment Fund.  The amount of the Abandonment Fund at the end of each Calendar Year will be the one resulting from applying the following formula:

 

AMA = (PAH / RIH)2 x CAB

 

where:

 

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

 

PAH is the accumulated volume of Hydrocarbons produced in each Production Area, from the beginning of its production until December 31 of the Year for which the calculation is made.

 

RIH are the proven reserves of Hydrocarbons in each Production Area, expressed in barrels of Liquid Hydrocarbons in accordance with the Development Plan and its updates.  This includes accumulated production (PAH   ) plus remaining proven reserves.

 

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

 

All estimates of Hydrocarbon production and reserves mentioned above (PAH and RIH) will be made in equivalent barrels of Liquid Hydrocarbons.  To this end, the Parties agree that for conversion purposes, fifty seven hundred cubic feet (5700 ft.3) of gas at standard conditions are equivalent to one Barrel of Liquid Hydrocarbons.

 

The variables in the formula will be reviewed and updated annually by THE CONTRACTOR, based on actual disbursements in Abandonment activities executed, and in terms of Hydrocarbons production and reserve volumes.

Paragraph 1: For the purposes of this Clause, proven reserves are those corresponding to the definition adopted by the competent authority in the Republic of Colombia, pursuant to the regulatory framework prevailing at the time the calculation is made.

 

Paragraph 2:  Compliance of the obligations referred to in this Clause does not relieve THE CONTRACTOR from its obligation to undertake, at its own cost and risk, all Abandonment operations in each Production Area.

 

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CHAPTER IV- CONDUCTING OPERATIONS

 

23. AUTONOMY: THE CONTRACTOR will have control over all operations and activities considered necessary for a technical, efficient and economic Exploration of the Contract Area and for the Assessment and Production of Hydrocarbons found in the area. THE CONTRACTOR will plan, prepare, perform and control all activities using its own means and with technical and management autonomy pursuant to Colombian legislation and observing Good Oil Industry Practices. THE CONTRACTOR will perform all activities directly or through subcontractors.

 

Paragraph: The autonomy of THE CONTRACTOR mentioned herein, does not hinder competent authorities, including ANH, from performing their legal and regulatory power with regards to every issue under their authority, which will in no way be limited by virtue of this Agreement.

 

24. OPERATOR: Whenever THE CONTRACTOR is formed by two or more companies, it will state which of them will act as operator. Prior approval of the operator by ANH is required.

 

If more than two (2) different operators are required at the same time in this Agreement, prior approval by ANH will be required.

 

25. DESIGNATED OPERATOR Without prejudice to direct operation, THE CONTRACTOR may contract a third party to act as Designated Operator provided it evidences legal, technical, operational and financial capacity pursuant to the contracting regulations of ANH. The third party designated by THE CONTRACTOR as operator may not perform its duties as such until it has been approved by ANH.

 

When the Designated Operator decides to resign, THE CONTRACTOR must inform ANH with no less than ninety (90) calendar day’s previous notice.

 

Paragraph:   Whenever ANH becomes aware that the Operator or Designated Operator has engaged in negligent practices or practices contrary to Good Oil Industry Practices in relation with the compliance of the obligations under this Agreement, it will so advise THE CONTRACTOR, who will have 90 calendar Days counted from the date of the requirement to adopt corrective measures.  If after this time the deficient conduct continues, ANH will require THE CONTRACTOR to change the operator. If within the sixty (60) calendar days following this demand, THE CONTRACTOR has not changed the operator, this will be considered as a breach with this Agreement.

 

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26. OBTAINING PERMITS: THE CONTRACTOR is under the obligation to obtain on its own and at its own risk, all licenses, authorizations, permits and any other rights granted under the law, and that are necessary to perform the operations subject to this Agreement.

 

27. SUBCONTRACTORS: To undertake the operations subject to this Agreement, and subject to Colombian law, only the Operator may enter into contracts at its own cost and risk, to obtain goods and services, including technical advising within the country or abroad.

 

The Operator will keep an updated relation of the work, service and supply agreements and will provide ANH with said relation when requested. The relation must specify at least the name of the supplier, contractor or subcontractor, the objective, value and duration of the agreement.

 

28. METERING: THE CONTRACTOR will effect metering, sampling and quality control of the Hydrocarbons produced and will keep the metering equipment or instruments calibrated in accordance with standards and methods accepted by Good Oil Industry Practice, and the legislation and regulations in force, making the analyses required, and effecting the relevant corrections to the Liquidation of the net volumes of Hydrocarbons received and delivered at standard conditions.

 

THE CONTRACTOR will adopt all actions necessary to preserve the integrity, reliability, and safety of the facilities and the equipment or instruments used for metering.  In addition during the term set forth by the Code of Commerce and additional relevant regulations, it will keep the regular calibration records for such equipment and instruments and of daily Hydrocarbon and fluids production and consumption metering in each Commercial Field, for ANH or the competent authorities to review.

 

ANH will be entitled to inspect the metering equipment installed by THE CONTRACTOR, and all the metering units used in general at any time.

 

Paragraph: When two or more production fields use the same development facilities, they must include a metering system, which enables determining the production resulting from each of those fields.

 

29. PRODUCTION AVAILABILTY: THE CONTRACTOR will transport produced Hydrocarbons to the Point of Delivery, except those used for the benefit of operations under this Agreement, and those that are inevitably lost in these functions.  The Hydrocarbons will be measured at the fiscalization point in accordance with the procedure described in Clause 28 above, and based on that measurement, the royalty volume 

 

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referred to in Chapter V and the ANH’s rights as stated in Chapter VI, as well as the volume which correspond to THE CONTRACTOR will be determined.

 

As of the Point of Delivery, and without prejudice of the legal provisions regulating this matter, THE CONTRACTOR will be free to sell its share of Hydrocarbons in Colombia or export them, or to dispose of them in any other manner.

 

30. UNIFICATION: When an economically viable oil field extends continuously to one or more areas outside the Contract area, THE CONTRACTOR, in agreement with ANH and the remaining interested parties, will implement, subject to prior approval by the competent authority, a cooperative unified exploitation plan, subject to the provisions of Colombian law.

 

31. NATURAL GAS PRESENT: Natural gas present in any assessment or Production area will be subject to the following rules:

 

31.1 Restriction of Waste and Use : THE CONTRACTOR is under the obligation to avoid wasting Natural Gas extracted from a field and, as provided for by the law and regulations in force on the matter, it may use that gas as fuel for operations, as a source of energy for maximum final recovery of Hydrocarbon reserves, or confine it in the same oil fields to be used for these purposes during the duration of the Agreement, before the corresponding Point of Delivery.

 

31.2 Associated Natural Gas.  If THE CONTRACTOR discovers one or more Commercial Fields with associated natural gas, it will present ANH a project for the use of the associated natural gas, in the three Years following the beginning of Production of each Commercial Field.  If THE CONTRACTOR fails to perform this obligation, ANH may dispose of the associated natural gas coming from those fields, free of charge, subject to the legal provisions in force.

 

32. DAMAGES AND LOSS OF ASSETS: All costs and / or expenses necessary to replace or repair damages or losses of goods or equipment resulting from fire, floods, storms, accidents or other similar events will be at the risk and expense of THE CONTRACTOR, which will inform ANH of the losses or damages occurred as fast as possible after the event.

 

33. INSPECTIONS AND FOLLOW UP: ANH will have the following rights and THE CONTRACTOR will have the following obligations related to the follow up of the agreements and inspections made by ANH and/ or its agents:

 

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33.1 Visits to the Contract Area.  During the duration of this Agreement, ANH may at its own risk and any time, and using procedures considered appropriate, visit the Contract Area to make inspections and to follow up on the activities of THE CONTRACTOR and subcontractors directly related to this Agreement, and to ensure that this Agreement is being complied.  Likewise, it may verify the accuracy of information received.

 

Whenever the inspector detects failures or irregularities on the part of THE CONTRACTOR, he may make observations that THE CONTRACTOR will respond to in writing, within the time given by ANH.

 

THE CONTRACTOR will place at its own expense, transport, accommodation, meals and other services at the disposal of the ANH representative on the same conditions to those provided for its own personnel, if required.

 

33.2 Delegation.  ANH may delegate the inspection of and the follow-up to the operations in the Contract Area in order to ensure that THE CONTRACTOR is complying with the obligations contracted under the terms of this Agreement, Colombian law and Good Oil Industry Practices.

 

Paragraph: The lack of inspection and follow-up activities by ANH in no way relieves THE CONTRACTOR from complying with obligations agreed by virtue of this Agreement, nor does it imply any reduction thereof.

 

34. PROGRAMS TO BENEFIT COMMUNITIES:  In the Exploration Plan, the Development Plan and the Annual Operations Plan, THE CONTRACTOR must include a chapter about the programs it will undertake to benefit the communities located within the areas affected by the project. This plan must adjust to the terms and conditions indicated by ANH, pursuant to the rules set forth in Article 5, subsection 5.7 of Decree Law 1760 of 2003. While ANH determines the terms ad conditions applicable to these programs, THE CONTRACTOR will subject them to ANH’s approval.

 

These activities are understood as agreed once ANH makes a statement in this regard within the three (3) months following the receipt of the corresponding plan or program referred to herein. THE CONTRACTOR will accept reasonable suggestions informed by ANH and which must be included in the plans and programs as the case may be. Once ANH has verified that its suggestions have been included, it will consider the corresponding activities as agreed upon. Should ANH fail to make any statement within the above-mentioned period, THE CONTRACTOR may undertake the programs to benefit the communities that were included in its initial proposal.

 

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CHAPTER V- ROYALTIES AND OTHER GENERAL OBLIGATIONS

 

35. ROYALTIES THE CONTRACTOR will make the percentage of Hydrocarbon production set forth by the law as royalties, available to ANH at the Point of Delivery. Royalty collection will be made in cash or in kind, as determined by ANH.

 

35.1 Collection in kind. When royalties are collected in kind, THE CONTRACTOR will deliver the corresponding volume of Hydrocarbons to ANH, to which end the Parties will agree on a procedure to program deliveries and other necessary aspects.

 

At any rate, ANH will have one (1) Month to withdraw said amount. If this term expires and ANH has not withdrawn the royalty volume, and if THE CONTRACTOR has available storage capacity in its facilities, THE CONTRACTOR agrees to store the Hydrocarbons for up to three (3) consecutive months. In this event, ANH will pay a storage fee, which will be agreed by the Parties on a case-by-case basis. In the event that the Parties do not each an agreement on this fee, it will be determined by the Ministry of Mines and Energy or by the entity regulating Hydrocarbon transport in the country.  At the end of this last term, THE CONTRACTOR may market this volume pursuant to Section 35.3 below.

 

If there is no storage capacity available, THE CONTRACTOR may continue producing and taking the royalty volume, crediting to ANH the royalty volume it was entitled to take but did not, for a later delivery.

 

Paragraph: Once eighty per cent (80%) of the storage capacity in the Production Area has been used, THE CONTRACTOR may dispose of the corresponding volume and ANH may begin withdrawing at its convenience, at a delivery rate compatible to the field’s production capacity.

 

35.2 Collection in cash. When THE CONTRACTOR is required to pay the royalties in cash, it will deliver ANH the corresponding sums within the period stated in the law or by the competent authority or as agreed by the Parties as the case may be. In the event of late payment, THE CONTRACTOR will pay ANH the amount necessary to cover the owed sum, together with the corresponding penalty interest and any expenses incurred by ANH in securing payment.

 

35.3 Sale of royalty volumes. When ANH considers it convenient and provided that regulations allow it, THE CONTRACTOR will market the portion of Hydrocarbon production corresponding to royalties and will deliver the proceeds of said sale to ANH. To this end, the Parties will agree on the specific details of the sale.  At any rate, THE 

 

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CONTRACTOR will make its best effort to sell said production at the highest price in available markets. ANH will pay THE CONTRACTOR the direct cost and a reasonable selling margin to be agreed by the Parties. If no agreement has been made, the expert mechanism included in Clause 74 will apply.

 

35.4 Paying Participation: ANH will be solely responsible for making payments to which beneficiary entities are entitled under the law for royalty participation.

 

36.  PRICE FOR INTERNAL SUPPLY: Whenever THE CONTRACTOR is required to sell its crude to meet refining needs for internal supply, the price of said sale will be estimated based on international prices, as established in Resolution No. 18-1709 of December 23, 2003 issued by the Ministry of Mines and Energy, or in any other law or regulation that amends or substitutes it.

 

37. LOCAL GOODS AND SERVICES: THE CONTRACTOR will give preference to local suppliers of goods and services under equal competitive conditions in terms of quality, opportunity and price.

 

CHAPTER VI- CONTRACTUAL RIGHTS OF ANH.

 

38. RIGHTS FOR SUBSOIL USE:  THE CONTRACTOR’s use of subsoil will cause the following rights in favor of ANH:

 

38.1 Exploration Areas. For each phase, THE CONTRACTOR will acknowledge and pay ANH a fee per surface unit in accordance with the rules set forth in Annex D, subsection D.1. These sums will be paid within the month following the beginning of the corresponding phase.

 

38.2 Assessment and Production Areas. THE CONTRACTOR will acknowledge and pay ANH a fee per production unit it has ownership rights to, which sum, payable in United States dollars, will be the one defined in Annex D, subsection D.1. This payment will be made half-yearly in arrears, in the first month of the next half-year.

 

Paragraph: Production of natural gas destined to reinjection operations or to other processes directly related to the production of the same field from which extractions are made, will not give rise to payment for production rights as stated in this subsection.

 

39. FEE FOR HIGH PRICES:  THE CONTRACTOR will pay ANH a fee for high prices over the production it owns, whether in cash or in kind at ANH’s choice, as defined in Annex D, subsection D.2.

 

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40. ECONOMIC RIGHT FOR PARTICIPATION IN PRODUCTION: Whenever agreed, THE CONTRACTOR will pay ANH a percentage of total production after royalties, as a fee for participation in production pursuant to Annex D, subsection D.3. The fees referred to in Clauses 38 and 39 will not result from this participation. During the extension of the Production Period, the fees for subsoil use and high prices referred to in Clauses 38 and 39 respectively, will only result from THE CONTRACTOR’s volume, after subtracting the right to participation stated herein.

 

41. ECONOMIC RIGHTS IN PRODUCTION TESTS: Liquid Hydrocarbons obtained as a result of the production tests undertaken by THE CONTRACTOR will also cause the fees mentioned in the preceding clauses.

 

42. PARTICIPATION IN PRODUCTION DURING THE EXTENSION OF THE PRODUCTION PERIOD: In all extensions to the Production Period, THE CONTRACTOR will acknowledge and pay ANH as a fee for participating in production, a sum equivalent to ten percent (10%) of the cost of production of light Liquid Hydrocarbons at the Point of Delivery or five percent (5%) in the event of non associated Natural Gas or heavy Liquid Hydrocarbons — having API gravity less than or equal to fifteen degrees (15o) - obtained by THE CONTRACTOR from the date in which the initial Production Period ends, and valued at the Point of Fiscalization after discounting the percentage corresponding to royalties and the Economic Rights, as the participation percentage referred to in Clause 40. The fees stated in Clause 38 and 39 will not result from this participation.

 

Paragraph: During the extension of the Production Period, the rights resulting from the use of subsoil, from high prices and other ANH rights, will only result from the volume of THE CONTRACTOR after having subtracted the participation rights indicated herein.

 

43. TECHNOLOGY TRANSFER: In order to strengthen the institution and the sector, THE CONTRACTOR agrees to undertake at its own expense and cost, research, training, and education programs and to support ANH scholarships, the terms, conditions and beneficiaries of which will be determined by ANH during the duration of this Agreement.

 

All costs involved in research, training, education and support to ANH scholarships, until the limit indicated herein and except for labor rights, but which result from the compliance of the obligations agreed to by THE CONTRACTOR in this Clause, will be paid one hundred per cent (100%) by THE CONTRACTOR. THE CONTRACTOR will not pay under any circumstance for any labor costs related to the beneficiaries of the research, training, education or scholarships.

 

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To comply with the obligation to do stated in this Clause, during each phase of the Exploration Period and its extensions, THE CONTRACTOR agrees to undertake and pay for research, raining, education and ANH’s scholarships program in an amount up to twenty five per cent (25%) of the sum resulting from multiplying the number of hectares and the fraction hectare of the Contract Area, by the amount presented in the table in Annex D, subsection D.1. This estimate will be made at the beginning of each phase, including the first one. Regarding Production Areas, the obligation to do under this Clause will be up to ten percent (10%) of the amount corresponding to the right to use the subsoil indicated in Clause 38 (subsection 38.2) for each Calendar Year.

 

In no case, will THE CONTRACTOR be demanded to fulfill the obligation stated in this clause in an amount greater than one hundred thousand dollars (US$100,000.oo) constant in 2004 per phase or Calendar year as the case may be. The amount in current dollars of the nominal value of this maximum limit will be estimated for each calendar year considering the consumer index price published by the US Department of Labor for the end of June of the immediately preceding year.

 

Compliance of this obligation will be demanded from the month following the beginning of each phase or Calendar Year as the case may be, in accordance with the estimate made by ANH for that purpose.

 

Paragraph: THE CONTRACTOR may fulfill this obligation through a third party designated through and agreement by the Parties, or adhering as trustor in an administration and payment trust that is established for this purpose.

 

CHAPTER VII- INFORMATION AND CONFIDENTIALITY

 

44. SUPPLY OF TEHCNICAL INFORMATION: THE CONTRACTOR will keep ANH timely and permanently informed of the progress and results of operations.  Therefore, in addition to documents required in other Clauses herein, THE CONTRACTOR will provide ANH all scientific, technical and environmental information obtained during the performance of this Agreement, as they are obtained, and before the expiry date of each of the phases of the Exploration Period, and per Calendar Year during the Production Period.  This Exploration and Production information will be delivered to ANH in accordance with the Manual for the Provision of Information Concerning Exploration and Production.

 

45.  CONFIDENTIALITY OF THE INFORMATION.  The Parties agree that all data and information produced, obtained or developed as a result of the operations under this 

 

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Agreement are considered to be strictly confidential during the five (5) following calendar Years, starting as of the end of the calendar Year in which they are produced, obtained or developed, or until termination of the Agreement or upon the partial relinquishment of the area, regarding the information acquired in those relinquished areas, whichever occurs first.

 

For interpretations based on data from the operations performed under this Agreement, the term will be twenty (20) calendar years, counted as of the date of the obligation to relinquish to ANH or upon termination of the Agreement or the partial relinquishment of areas regarding the information acquired in the relinquished areas, whatever shall occur first.

 

This stipulation does not apply to data or information the Parties must provide in accordance with legal provisions or regulations in force, nor those required by its affiliates, consultants, contractors, auditors, legal advisors, financial institutions and competent authorities having venue over the Parties or their affiliates, or due to the regulations of any stock exchange in which the shares of THE CONTRACTOR or its related parties are listed; however, the delivery of information must be notified to the other Party.

 

Restrictions on the disclosure of information will not prevent THE CONTRACTOR from supplying data or information to companies interested in the eventual assignment of rights regarding the Contract Area, provided that such companies sign the corresponding confidentiality agreement that fulfills the stipulations contained in this clause.

 

ANH agrees to refrain from delivering to third parties any information or data obtained as a result of THE CONTRACTOR’s operations, except as necessary to comply with some legal provision applicable to ANH, or in the normal course of its duties. For the remaining cases, ANH will require prior authorization by THE CONTRACTOR.

 

46. RIGHTS OVER INFORMATION Upon the expiration of the period of confidentiality set forth in the preceding Clause, it is understood that THE CONTRACTOR transfers to ANH all rights over all data and its interpretations, without THE CONTRACTOR losing the right to use said information. From that moment on, ANH may dispose of the information freely.

 

47.                             ENVIRONMENTAL AND SOCAL INFORMATION: THE CONTRACTOR will maintain ANH timely and permanently informed of the progress of environmental processes, including everything related to: the beginning of said processes, the procurement of the corresponding licenses, permits and other substantial decisions, the beginning of administrative procedures to sanction and the imposing of preventive measures and sanctions. Likewise, THE CONTRACTOR will timely inform of any difficulty 

 

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presented during the course of these processes or that may affect the compliance of the foreseen periods.

 

48.  HALF-YEARLY EXECUTIVE REPORT.  In addition to the information referred to in other Clauses of this Agreement, the Manual for the Provision of Information, and the requirements of Colombian legislation, THE CONTRACTOR will deliver ANH basic and summarized information on matters such as but not limited to prospectivity, Exploration, Assessment and Production Operations, reserves- current production and forecasts, performance and projections for the following Calendar Year, personnel, industrial safety, environment and communities, national hiring percentage, among others.

 

These reports will be delivered within the sixty (60) calendar Days following the end of each calendar half-year. The report for the second semester will be the Annual operations Report.

 

49. INFORMATIONAL MEETINGS: ANH may summon THE CONTRACTOR to informational meetings at any time during the duration of this Agreement.

 

CHAPTER VIII- GUARANTEES, RESPONSIBILITIES AND INSURANCE

 

50. COMPLIANCE GUARANTEE: THE CONTRACTOR will issue guarantees in favor of ANH, in the form and on the terms and conditions provided for in this Agreement, to secure the compliance and appropriate performance of all obligations of each phase of the Exploration Period, and of the Subsequent Exploration Program, if any, and the remaining activities inherent to such obligations, and to secure payment of penalties imposed for failure to comply under this Agreement. The execution of this guarantee does not exempt THE CONTRACTOR from paying all damages resulting from failure to comply or for the inappropriate performance of this Agreement, and consequently, said payments may be cumulative.

 

50.1 Form Of Guarantees: THE CONTRACTOR will, at its own expense, establish one or more standby letters of credit, which shall be unconditional and irrevocable, payable at sight and opened with a bank or financial institution legally established in Colombia. THE CONTRACTOR may present another instrument and/or agency, which must be previously approved by ANH.

 

50.2 Amount Of Guarantees: THE CONTRACTOR: will grant the guarantees corresponding to each phase of the Exploration Period or the Subsequent Exploration Programs the case may be, in a percentage of the estimated value of the budget for each phase of the Exploration Program or the Subsequent Exploration Program as the case 

 

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may be, for no less than the ten percent (10%) commonly applied in areas directly assigned, estimated in dollars of the United States of America and payable in Colombian pesos as stated in Annex E. The amount of the guarantee may in no event be less than one hundred thousand dollars (US$100,000.oo) of the United States of America.

 

50.3 Delivery Of Guarantees: THE CONTRACTOR will deliver the guarantees mentioned in this Clause to ANH, in accordance with the essential terms in the forms included in Attachment E hereto, not less than eight (8) calendar Days prior to the start of each phase of the Exploration Period, or of the subsequent Exploration Program, as the case may be. For the first Phase, THE CONTRACTOR will provide the guarantee in the fifteen (15) calendar Days following the date the contract is executed. If THE CONTRACTOR is reasonably unable to deliver the guarantees to ANH for causes not attributable to THE CONTRACTOR in the term stipulated above, ANH may extend the delivery date upon the request of THE CONTRACTOR.

 

Paragraph: Pursuant to the rules set forth in Clause 60 (Resolution), if THE CONTRACTOR fails to deliver the guarantees or the extensions thereof requested by ANH within the terms stipulated, ANH may terminate this Agreement.

 

50.4.  Validity Of Guarantees:  Each and every guarantee must be valid for the (total or partial) term of the phase whose obligations are being secured, plus at least six (6) additional months.  In the event of extensions to the terms of the Agreement, guarantees must also be extended or replaced by others of the same value, and the minimum validity equal to the time of the extension or the term remaining in the phase plus six (6) additional months.

 

50.5 Rejection Of Guarantees:  ANH will reject guarantees provided by THE CONTRACTOR if they fail to comply with the requirements of this Clause.  ANH will advise THE CONTRACTOR of said rejection. As of said notice, THE CONTRACTOR will have fifteen (15) calendar Days to correct the mentioned guarantee. If not corrected, guarantees rejected will be deemed not delivered for the purposes of Subsection 50.3.

 

50.6 Calls On Guarantees:  ANH will call on guarantees if THE CONTRACTOR fails to comply all or part of any of the obligations secured, without prejudice to the performance of the remaining obligations contracted.  Payment of standby letter(s) of credit does not relieve THE CONTRACTOR of its obligation to pay indemnities for damages caused by its breach.  ANH reserves the right to resort to mechanisms for the settlement of disputes when the value of the guarantee is not sufficient to cover the amount of indemnities.

 

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51. RESPONSIBILITIES OF THE CONTRACTOR: THE CONTRACTOR will undertake the following responsibilities among others, at its own cost:

 

51.1 Labor Responsibilities: For all legal purposes, THE CONTRACTOR will be the sole employer of the workers hired to develop the activities under this Agreement and, as a result, shall be liable for all labor obligations resulting from labor contracts or relations, such as paying wages, benefits, tax related contributions, registration and contributions towards pension funds, health benefits and professional hazards to the Social Security System under the law.

 

THE CONTRACTOR will diligently and appropriately train any Colombian personnel required to replace foreign personnel that THE CONTRACTOR considers necessary to undertake the activities under this Agreement.

 

At any rate, THE CONTRACTOR must comply with the legal regulations indicating the percentage of local and foreign employees and workers.

 

51.2 Responsibility Resulting From Operations: THE CONTRACTOR will perform the obligations under this Agreement in a responsible, diligent, efficient as well as in a technically and economically appropriate manner. It will ensure that all subcontractors fulfill the terms of this Agreement, Colombian laws and follow Good Oil Industry Practices.

 

THE CONTRACTOR will be solely liable for damages and losses caused as a result of the activities and operations under this Agreement, including those caused by subcontractors, in the understanding that it will not be liable  to ANH at any time for mistakes in criteria or for losses or damages that do not result from gross negligence or intentional misconduct.

 

When THE CONTRACTOR subcontracts, the work or services subject to subcontracting will be performed in its name, as a result of which THE CONTRACTOR will keep its direct responsibility for the obligations established in the subcontract and resulting therefrom, an it cannot be released from said responsibilities as a result of the subcontract.

 

ANH will not undertake any responsibility for losses or damages caused to third parties by THE CONTRACTOR, its employees, subcontractors or the employees of the subcontractors in performing the activities under this Agreement.

 

51.3 Environmental Responsibility:  THE CONTRACTOR will give special care to the protection of the environment, and the compliance of regulations applicable on the matter and Good Practices. Likewise, THE CONTRACTOR will adopt and implement specific 

 

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contingency plans to attend to emergencies, and repair damages in the most efficient and timely manner possible.

 

In the phases of the Agreement involving activities the performance of which is subject to environmental licenses, permits, concessions or authorizations, THE CONTRACTOR must begin the corresponding procedure before the competent authorities within ninety (90) calendar days after starting the corresponding phase.

 

It is understood that the process to request an environmental license has begun when the following documents are filed:

 

a)             evidence of the request filed before the MAVDT, to make a statement concerning the need to elaborate he Environmental Alternative Diagnosis.

 

b)             Evidence of the request filed before the Ministry of the Interior and Justice to certify that ethnic groups exist in the area affected by the project.

 

c)              Evidence of the beginning of the environmental impact study or environmental management plan as the case may be.

 

THE CONTRACTOR’s failure to meet the terms stated in this subsection or lack of diligence during the corresponding procedures, will not allow THE CONTRACTOR to argue to ANH a delay in obtaining licenses, permits, concessions or authorizations as support to request an extension or suspension of the obligations of each corresponding phase, and will give rise to a breach of this Agreement.

 

Whenever any activity or Exploration Operation requires permits, authorizations, concessions or environmental licenses, THE CONTRACTOR will refrain from undertaking them until the said permits, authorizations, concessions or environmental licenses are obtained. THE CONTRACTOR may not start production if the environmental impact studies are not approved and the corresponding environmental licenses and other requirements are not issued.

All sanctions and preventive measures adopted by environmental authorities against THE CONTRACTOR for failure to comply with environmental duties under its charge will result in a breach of this Agreement and its subsequent termination, provided that said failure affects compliance of the obligations under this Agreement.

 

THE CONTRACTOR will inform ANH on a semester-by-semester basis, of the of the environmental aspects of the Operations, how preventive and contingency plans are applied, and the state of ongoing procedures before the competent environmental authorities regarding permits, authorizations, concessions or licenses as the case may be.

 

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52. COMPLIANCE POLICY FOR LABOR OBLIGATIONS: Within the fifteen (15) days after starting the first phase, THE CONTRACTOR will acquire an insurance policy that ensures payment of salaries, labor related benefits and compensations and any other labor related credits resulting from judicial decisions made to decide on a claim filed by a worker hired by THE CONTRACTOR as the sole and true employer to perform the activities under this Agreement.

 

Eight (8) days prior to the beginning of each subsequent phase of the Exploration Period, and of each calendar year during the Production Period, THE CONTRACTOR will renew the policy or present a new one to replace it. The policy may not have duration of less than the term of the corresponding phase plus three (3) additional years during the exploration period or four (4) years for the extensions during the Production Period and at any rate, for three (3) years starting on the date stipulated for the termination of the Agreement.

 

The value insured will be at least five per cent (5%) of the amount of the annual investment for each exploration phase or ten per cent (10%) of the total estimated costs for each Calendar Year during the Exploration Period, at THE CONTRACTOR’S choice; or ten per cent (10%) of the total annual cost of personnel directly assigned to the Production Area during the Production Period, for the first year of the duration of the policy or for each subsequent year, which will be adjusted every time it is renewed.

 

53. INSURANCE: THE CONTRACTOR will procure all insurances required by Colombian law and any other regular insurance expected in Good Oil Industry Practices.  Likewise, it will require each contractor performing works under this Agreement, to procure and maintain the insurances it considers necessary in full force and effect.  The costs incurred by the procurement and maintenance in full force and effect of these insurances will be borne by THE CONTRACTOR.

 

54. INDEMNITY: THE CONTRACTOR will compensate, defend and maintain ANH, as well as its employees and properties free of any claim or action resulting from acts or failures of THE CONTRACTOR, its directors, agents, personnel, employees and representatives during the development and performance of this Agreement. THE CONTRACTOR will be solely liable for losses or damages caused to third parties resulting from actions or failures of THE CONTRACTOR, its directors, agents, personnel, employees and representatives during the development and performance of this Agreement.

 

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CHAPTER IX- RELINQUISHING AREAS

 

55. MANDATORY RELINQUISHING OF AREAS: THE CONTRACTOR will relinquish the Exploration, Assessment and Production Areas in all cases stated in this Agreement as a cause to relinquish, whether by waiver, expiration of terms, for the causes stated in Clause 15 (subsection 15.1) hereof, for failing to undertake the activities corresponding to Work Programs or in general, for any other cause resulting from this Agreement that imposes onto THE CONTRACTOR the obligation to relinquishing areas.

 

56. VOLUNTARY RELINQUISHMENT OF AREAS: At any time, THE CONTRACTOR may relinquish parts of a Contract Area, provided that compliance of the obligations agreed to herein is not affected. If said areas are voluntarily relinquished during the Exploration Period, they will be credited to mandatory relinquishment.

 

57. LIMITING THE AREAS RELINQUISHED: The Areas relinquished by THE CONTRACTOR will include the minimum possible number of joint rectangular blocks limited by North-South and East-West boundaries, following whenever possible a grid similar to the maps of the Instituto Geográfico Agustin Codazzi with coordinates referred to datum MAGNA-SIRGAS.

 

58. RESTORING RELINQUISHED AREAS: THE CONTRACTOR will undertake all necessary abandonment activities and will restore the areas returned in accordance with Colombian laws and this Agreement.

 

59. FORMALIZING RELINQUISHED AREAS: All relinquishment of areas under this Agreement will be formalized by a minute executed by the Parties. If the above is not possible, ANH will formalize the relinquishment through an administrative decision.

 

CHAPTER X- RESOLUTORY CONDITIONS, BREACH AND PENALTIES

 

60. PRIOR RESOLUTORY CONDITIONS: In cases requiring compliance of conditions prior to starting a phase or period, or within a specific period after the beginning of a phase or period, ANH may terminate Agreement if the condition is not met. To this end, ANH will communicate to THE CONTRACTOR so it will provide the necessary explanations within a period of five (5) calendar days. If THE CONTRACTOR does not provide a reasonable explanation, ANH will terminate the Agreement and THE CONTRACTOR will not be entitled to any claim whatsoever.

 

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61. PROCEDURE IN CASE OF A BREACH: In the event that during the performance of this Agreement THE CONTRACTOR fails to fulfill obligation(s) herein, the Parties agree that penalties will be imposed and / or the Agreement will terminate, in which case

 

ANH will complete the following procedure:

 

In the event of a breach to this Agreement, ANH will report said breach to THE CONTRACTOR in writing, which will include the facts, supporting evidence and the reasons for which the Agreement is breached. If during the twenty (20) working days following receipt of the communication, THE CONTACTOR does not object it in a motivated and supported writing addressed to ANH within the same period indicated in the preceding paragraph, it is understood that THE CONTRACTOR accepts that the breach existed.

 

Once the breach has been established, ANH will have a period of sixty (60) days to repair the breach if it considers that the reasons for THE CONTRACTOR’S breach are acceptable.

 

If ANH considers that the reasons for the breach are unacceptable, or that it was not repaired within the period provided for this purpose, it will discretionally decide depending on how serious the breach is, whether it will impose a penalty or terminate the Agreement pursuant to the following clauses.

 

62.  PENALTIES: Once the breach has been established ANH may impose penalties as sanctions on THE CONTRACTOR that ensure the timely, effective and efficient compliance of the obligations of THE CONTRACTOR.

 

In the event that Penalties are imposed, these shall be a sum up to the value of the activity not fulfilled, if the obligation has a set amount. In the event that the amount of the obligation is undetermined, penalties will be up to fifty thousand (US$50,000.oo) dollars of the United States of America for the first time, and up to twice the fine initially imposed when there is a second breach and so on, doubling the maximum limit of the penalties caused until it equals the amount of the guarantee.

 

Once the periods set by ANH to pay Penalties and / or comply with THE CONTRACTOR’S failed obligations, without the latter fulfilling said obligations, ANH may terminate the Agreement and execute the guarantee.

 

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CHAPTER XI- TERMINATION

 

63. CAUSES FOR TERMINATION. This Agreement will terminate and THE CONTRACTOR’s rights will cease in any of the following circumstances:

 

a)             Resignation of THE CONTRACTOR during the Exploration Period, in the cases provided for in Clause 4 (Subsection 4.1.1);

 

b)             Expiry of the Exploration Period, without notice of discovery by THE CONTRACTOR under the provisions of Clause 13;

 

c)              Expiry of the Exploration Period when THE CONTRACTOR has given notice of Discovery without presenting the corresponding Assessment Program in accordance to Clause 14.

 

d)             Resignation of THE CONTRACTOR at any time during the Production Period;

 

e)              Termination of the Production Period;

 

In these cases, the effects of the Agreement will terminate concerning the Production Area in which the Production Period has terminated.

 

f)               Through the application of any of the causes for Unilateral Termination foreseen in this Agreement;

 

g)             Through a declaration of breach on the part of THE CONTRACTOR;

 

h)             With the occurrence of any of the causes for termination or lapsing ordered by the law.

 

i)                At any time, by mutual agreement between the Parties;

 

In the circumstances provided for in (f), (g) and (h) above, ANH will call on the guarantee mentioned in Clause 50, without prejudice to any recourse it may have, or actions the ANH may decide to file.

 

64. TERMINATION OF THE AGREEMENT FOR EXPIRATION OF THE EXPLORATION PERIOD: This Agreement will terminate upon the expiration of the Exploration Period if there is no Production Area, and Assessment Area or a Discovery made by THE CONTRACTOR in the last phase of the Exploration Period in the Contract Area. In this case, THE CONTRACTOR will return all of the Contract Area to ANH, without prejudice to the compliance of the remaining obligations and is under the obligation to provide evidence that it has complied with the Abandonment, evidencing that the wells drilled have been duly sealed and abandoned, that surface structures have been completely dismounted and it has completed cleaning and environmental restoration work in accordance with applicable legal provisions.

 

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65. VOLUNTARY TERMINATION OF THE PRODUCTION PERIOD:  THE CONTRACTOR may terminate this Agreement with regards to any Production Area at any time during Production Period, to which end it will inform ANH no less than three (3) months in advance, without prejudice to the compliance of remaining obligations.

 

66. UNILATERAL TERMINATION: ANH may unilaterally declare the termination of this Agreement at any time, in the following cases:

 

a)             The beginning of THE CONTRACTOR’S liquidation process, if it is a legal entity;

 

b)             A judicial embargo to THE CONTRACTOR if it seriously affects the compliance of this Agreement;

 

c)              When THE CONTRACTOR is composed of several legal entities and / or individuals, the causes stated in the preceding subsections will apply when they seriously affect the compliance of this Agreement;

 

67. TERMINATION DUE TO FAILURE TO COMPLY:  The causes for termination and / or penalties resulting from a breach, are as follows:

 

a) Failure to timely initiate the process to obtain environmental licenses, pursuant to the provisions of Clause 51, subsection 51.3.

 

b) Assigning of all or part of this Agreement, without observing the provisions of Clause 75;

 

c) Unreasonable suspension of Exploration Operations for more than six (6) consecutive months in any given phase;

 

d) Unreasonable suspension of Assessment and/or Exploration Operations for a period of time exceeding half the term of the Assessment Program in an Assessment Area, or for six (6) consecutive months in an Exploration Area.

 

In such cases, the effects of this Agreement will cease with regard to the Assessment or the Production Area in which the suspension of Operations has occurred;

 

e) Inappropriate use of resources and minerals, which are not part of the object of this Agreement;

 

f) Unreasonable omission of the delivery, in the terms set forth for this end, of technical information resulting from the Exploration, Assessment, Development or Production Operations;

 

g) Unreasonable breach of any other obligation agreed to by THE CONTRACTOR by virtue of this Agreement and related to its object.

 

68. MANDATORY TERMINATION AND EXPIRATION: ANH will declare termination, expiry and the mandatory liquidation of this Agreement with the occurrence of causes provided in the law, such as those foreseen in Law 418 of 1997, successively extended

 

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and amended by Laws 418 of 1997 successively by law 548 of 1999 amended and 782 of 2002 or Law 40 of 1993, or in laws which replace or amend them.

 

69.REVERSION OF ASSETS: Whenever the operating rights and obligations concerning a Production Area terminate, THE CONTRACTOR will leave the wells that are productive at the time in good condition, and construction and other real estate properties, all of which will be transferred free of charge to ANH with the right of passage and goods acquired to benefit production up to the Point of Delivery, even if such goods are outside the Production Area.

 

With regards to the movable goods exclusively destined to the service of the said Production Area, if termination results from the cause sated in Clause 63 subsection d), before the end of the ten (10) year production period, THE CONTRACTOR must offer them for sale to ANH at the price listed in accounting records. If in a period of three (3) months starting on the date the offer is made, ANH has not given a positive answer, THE CONTRACTOR may freely dispose of such goods. If termination occurs after the first ten (10) years of the Production Period, said goods will be transferred free of charge to ANH.   In all other cases, the goods will revert free of charge to ANH.

 

ANH will determine which wells, including those that are productive at the time, must be abandoned and which will continue producing.

 

Any disagreement concerning the nature and / or the destination given o those goods will be solved pursuant to the procedure indicated in Chapter XII.

 

THE CONTRACTOR is obliged to assign to ANH the environmental license and the economic resources necessary to meet the obligations concerning Abandonment. Enforcement of this clause does not entail a substitution of employers between THE CONTRACTOR and ANH.

 

69.1 Project Financing: Upon the return of the area or termination of the Agreement when one or the other have occurred after the ten (10) year Production Period, THE CONTRACTOR will transfer free of charge to ANH all rights resulting from contracts under project financing mode such as Leasing, Construction, Operation and Reversal of Goods — BOT (Build, Operate and Transfer), BOM (Build, operate, Maintain and Transfer), MOT (Modernize, Operate and Transfer) and any similar contracts, upon the termination of which said contracts establish the obligation to transfer property of goods, equipment and facilities to THE CONTRACTOR, when said contracts have been executed to develop the Production Period of the corresponding Area. At any rate, said contracts will require prior

 

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authorization of ANH in the event that are executed for a period greater than the Production Period.

 

69.2 Inventories: THE CONTRACTOR may dispose at any time of the goods and equipment located up to the Point of Delivery and that are not essential to maintain the existing production conditions. Notwithstanding the above, after ten (10) years of the Production Period for each Production Area, or when eighty per cent (80%) of proven reserves have been produced, whichever happens first, THE CONTRACTOR will require prior authorization from ANH to make said disposals.

 

70. LATER OBLIGATIONS: Once this Agreement is terminated for any cause and at any time, the Parties are under the obligation to satisfactorily meet their legal obligations, whether mutual or with third parties and those agreed to under this Agreement. For THE CONTRACTOR, this includes the responsibility for losses or damages resulting when the Agreement has terminated unilaterally and when for causes attributable to THE CONTRACTOR, compensation whether legal or otherwise is due.

 

71. ABANDONMENT: Without prejudice to the terms of Clause 69 of this Agreement, in all cases where there is an application for the relinquishment of onshore or offshore areas, THE CONTRACTOR will schedule and undertake all Abandonment activities, pursuant to Colombian legislation, and observing Good Oil Industry Practices.

 

71.1 Starting Abandonment.  In the sixty (60) Days following the date on which an Exploration or Assessment Area should be relinquished, THE CONTRACTOR will begin an Abandonment process to ANH’s satisfaction, which may not be unreasonably interrupted.

 

71.2 Abandonment Of Production Areas.  The Exploitation Plan for each Production Area will include the corresponding Abandonment Program. Likewise, when updating the Development Plan mentioned in Clause 20, THE CONTRACTOR will make the necessary adjustments to the Abandonment Program.

 

72. LIQUIDATION OF THIS AGREEMENT: Within the four (4) months following the termination of activities concerning this Agreement, the Parties will liquidate the Agreement, to which end they will execute a minute of liquidation. If the Parties have not liquidated the Agreement or have not agreed on the contents of said liquidation within the term provided, ANH will unilaterally liquidate the Agreement when it has all the information necessary for this purpose and will inform THE CONTRACTOR whether there are or not any obligations pending.

 

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CHAPTER XII- SETTLEMENT OF DISPUTES

 

73. EXECUTIVE STEP.  Any difference or disagreement arising in regard to the performance of this Agreement and related hereto, will be solved by the officers of the Parties authorized for this purpose.

 

If the disagreement has not been resolved within thirty (30) calendar Days from the date of written notice, the matter will be referred to the most senior executive of the Parties residing in Colombia, in order to seek a joint solution.

 

If within thirty (30) calendar Days following the date on which one of the Parties has requested the other to subject the disagreement to the above mentioned senior executives, the Parties reach an agreement or decision on the matter in question, that agreement or decision adopted will be signed within fifteen (15) calendar Days after reaching such an agreement or decision.

 

74. EXPERT INTERVENTION AND ARBITRATION:  If within the thirty (30) Days mentioned, the senior executives of the Parties (residing in Colombia) cannot reach an agreement or decision, or if within the fifteen (15) Days mentioned, no agreement or decision or agreement reached is signed, either Party may resort to the mechanisms provided for in this Clause as the case may be, and as follows:

 

74.1 Technical Experts.  If the matter is a technical disagreement, it will be submitted to the opinion of experts appointed as follows: one by each party, and the third named by the other two experts.  Should the experts not agree and upon the petition of either party, the third expert will be appointed by the association of professionals with greatest relation to the matter under dispute or a related area, where the association is a technical consultative body for the Government, based in Bogotá.

 

Once the experts have been appointed:

 

a)             They will issue their opinion in the thirty (30) Days following their appointment.  The experts will indicate the place and time for the receipt of information from the Parties.  At the request of the experts, the Parties may grant an extension of the initial term allowed.

 

49

 

b)             The Parties will deliver all relevant information, which the experts may consider necessary;

 

c)              The Parties will focus on and set a limit to the matters which they are to decide;

 

d)             The costs and expenses of technical experts will be borne by the Parties in equal portions.

 

e)              The opinion will be issued by majority, will be binding on the Parties and will have the effect of a transaction.

 

74.2 Accounting Experts.  If the disagreement concerns an accounting matter, it will be submitted to the opinion of experts who will be certified public accountants, appointed as follows: one appointed by each party, and the third by the two principal experts.  Should the two experts fail to agree, and at the petition of either party, the third expert will be appointed by the Junta Central de Contadores de Bogotá (Bogotá’s Board of Public Accountants). Once the experts have been appointed, the procedure will be similar to that stipulated in the preceding Subsection.

 

74.3 Dispute As To Nature.  If the disagreement between the Parties is with regard to the technical, accounting or legal quality of the dispute, then it will be considered to be a legal matter.

 

74.4 Arbitration.  Any disagreement or controversy derived from or related to this Agreement, and which is not a technical or accounting in nature, will be solved by arbitration.

 

The arbitration tribunal will be composed of three (3) arbitrators appointed by mutual consent between the Parties.  If the Parties cannot agree on the appointment of the arbitrators, they will be appointed by the Bogota Chamber of Commerce Arbitration and Conciliation Centre, prior request of either Party.

 

At any rate, the arbitrators must have credited experience of more than five (5) Years in matters related to the oil industry.  The tribunal will apply Colombian substantive law in force, and its decision will be in law.

 

Arbitration proceedings will be conducted in Spanish.

 

50

 

74.5 Exclusion.  In accordance with the terms of Clause 4 (Subsection 4.2.1) above, the lack of agreement between the Parties regarding the extension of the Production Period for each Production Area will not be deemed to be a disagreement, and will not be subject to the procedures established in this Clause.

 

CHAPTER XIII- FINAL DISPOSITIONS

 

75. ASSIGNMENT RIGHTS: THE CONTRACTOR has the right to assign or transfer all or part of its interest, rights and obligations under this Agreement, prior written authorization by ANH, to another person or company with the financial capacity, the technical competence, the professional skills and the legal capacity required to act in Colombia.

 

75.1 Procedure. To this end, THE CONTRACTOR will submit a written request to ANH, indicating the essential elements of the negotiations, such as the name of the potential assignee, the information on its legal, financial, technical and operational capacities, the value of the rights and obligations to be assigned, the scope of operations, etc.

 

Within sixty (60) business Days of receipt of the request presented in full form, ANH will exercise its discretion to analyze information supplied by THE CONTRACTOR, after which it will make a decision it will not be obliged to explain.

 

If any of the companies making up THE CONTRACTOR is involved in any merger, spin off, absorption, or transformation into another type of Corporation, prompt advise thereof to ANH will suffice, without prejudice to the information that other Colombian authorities may require.

 

ANH reserves the right to evaluate the new circumstance of THE CONTRACTOR or any of the companies that are a part thereof, concerning its financial capacity, technical competence, professional skills and legal capacity required to act, and may require that guarantees be procured.

 

Paragraph: When assignments are made in favor of companies that control or manage THE CONTRACTOR, or in favor of one of the companies that are a part thereof or its affiliates or subsidiaries, or among the companies that make up the same financial group if ANH does not provide an answer within the established term, it will be understood that the operation has been authorized, provided that the assignee meets the minimum regulatory requirements.

 

51

 

76 - FORCE MAJEURE AND ACTS OF THIRD PARTIES: For the purposes of this Agreement, force majeure is an unforeseen event impossible to resist, such as a law, an act of authority, shipwreck, earthquake, or similar events; an act by a third party is an irresistible act, legally alien to the party alleging it, such as war, and ill-intentioned act by third parties, or similar acts.

 

For the purposes of this Agreement, both force majeure and acts by third parties will be considered to relieve from liability, and to suspend performance of non-financial obligations affected by such circumstances, provided that they constitute a cause that is alien to the party effected, and the Party receiving notice of the same accepts that it is irresistible, and that the event occurring is an impediment to fulfilling the contractual obligations of the alleged event.

 

The performance of obligations under this Agreement will be suspended during the time in which either Party is unable to perform all or part of its obligations, due to force majeure or irresistible acts by third parties.

 

The existence of Force Majeure and / or Irresistible Acts by Third Parties will be determined as follows:

 

76.1 Notice: Whenever either Party is affected by any of said circumstances, it will advise the other within the following fifteen (15) calendar Days, invoking this Clause, and presenting proper justification, specifying the nature of the circumstances arising, the manner in which compliance of the related obligation is affected, the estimated period of suspension of activities, and any other information indicating the occurrence of the event and the irresistibility of its effects.

 

76.2 Acceptance and Temporary Suspension.  Within twenty (20) calendar Days following receipt of notice, the unaffected Party will respond in writing, accepting or not the circumstance relieving liability. This acceptance will suspend the terms to fulfill the obligations affected. In this case, suspension of affected obligations will commence from the moment when the event invoked as a cause for exoneration occurred.

 

If the Party not affected does not reply within the stipulated time, it will be provisionally understood that it accepts the occurrence of the cause invoked, and performance of the obligations affected will be suspended until the unaffected party makes a statement.  Suspension will only interrupt compliance of the obligations affected.

 

52

 

76.3 End of Suspension.  The Party affected by the cause relieving liability will resume compliance of obligations suspended within the month following the disappearance of the event invoked as a cause for suspension.  In this case, it will inform the other Party in the following twenty (20) calendar Days.

 

The Party obliged to perform the obligation will make its best efforts to perform it according to the terms and conditions agreed by the Parties.

 

76.4 Restoration of Terms.  If the suspension prevents the performance of any of the Operations and said impediment is prolonged for more than two (2) consecutive months, ANH will acknowledge the entire contract term that was missing when the suspension began, in order to terminate the corresponding phase or period without prejudice to the fact that THE CONTRACTOR must extend the existing guarantee or procure a new one, under the terms of Clause 50.

 

Paragraph: For the purposes hereof, normal winter or the process to obtain an environmental license will not be cause to relieve responsibility as force majeure or acts of third parties with respect to the obligation to drill the well, while said circumstances are foreseeable by THE CONTRACTOR.

 

77. TAXES: THE CONTRACTOR will be subject to Colombian tax laws.

 

78. CURRENCY. All payments made by THE CONTRACTOR to ANH under this Agreement will be made in United States dollars when permitted by exchange regulations or in Colombian pesos and at the bank designated for this purpose by ANH. THE CONTRACTOR may make payments in other currencies when exchange regulations allow it and ANH authorizes it.

 

78.1 Exchange Rate. If currency conversion is required from United States dollars to Colombian pesos, the market index rate certified by the Office of the Colombian Financial Superintendent or the agency that replaces it, for the date of payment will be applied.

 

78.2 Penalty interest. If payments due from THE CONTRACTOR to ANH by virtue of this Agreement are not made within the terms established, THE CONTRACTOR will pay Penalty Interest.

 

79 — EXTERNAL COMMUNICATIONS- Whenever THE CONTRACTOR needs to make a public statement or announcement or communiqué with respect to this Agreement concerning information that might affect the normal performance thereof, THE CONTRACTOR will previously advise ANH.

 

53

 

In any case external communications with regard to Discoveries made, Discoveries declared or to be declared commercial and Hydrocarbon volume reserves will be informed to ANH at least two (2) business days in advance.

 

80- APPLICABLE LAW: This Contract will be governed in all its parts by Colombian law. THE CONTRACTOR waives any attempt at diplomatic claims to support its rights and obligations under this Agreement, except in the case of denial of justice.  It is understood that there will be no denial of justice if THE CONTRACTOR has had access to all recourses and means of action available under Colombian law.

 

81— LANGUAGE: The official language for all purposes and actions related to this Agreement will be Spanish.

 

82- DOMICILE For all purposes of this Agreement, the Parties establish the city of Bogota, D.C., Republic of Colombia as their domicile.

 

(END OF ANNEX A)

 

54

 

ANNEX B

CONTRACT AREA

 

ANNEX TO THE EXPLORATION AND PRODUCTION AGREEMENT FOR THE “LLA34” BLOCK

 

The total area comprised in the block described below is thirty three thousand two hundred and fifty eight (33,258) hectares with one thousand seventy five (1,075) square meters. The Cartographic information was taken from the political map of Colombia, I.G.A.C’s digital file at a scale of 1:1’500.000.

 

BLOCK LLA34

 

The area of the polygon formed by the vertexes listed below is thirty three thousand two hundred and fifty eight (33,258) hectares and one thousand seventy five (1,075) square meters, which is in its entirety within Polygon B as defined in Article 4 of Agreement No. 008 of May 3, 2004.The block is located within the municipalities of Tauramena and Villanueva in the Department of Casanare and Cabuyaro in the Department of Meta.  This area is described below and, as indicated in the map attached as attachment “B” that is a part of this Agreement, as well as in the corresponding charts; the Geodesic Vertex “GPS-D-CA-001” of the Instituto Geográfico Agustín Codazzi has been taken as the point of reference, and whose GAUSS Bogotá origin flat coordinates datum MAGNA- SIRGAS are: N-1069800,670 meters, E — 1146047.362 meters, corresponding to the geographic coordinates datum MAGNA-SIRGAS Latitude 5o 13’ 33,6964” North of the Equator, Longitude 72o 45’ 36, 7819” West of Greenwich.

 

Point A:

 

From this vertex a S 1o 27’ 49,873” W direction is followed for a distance of 80342,788 meters until reaching point “A”, whose coordinates are N- 989484,103 meters, E- 1143994,902 meters.

 

Point B:

 

From this vertex a N 89o 53’ 44 026” E is followed for a distance of 7968,622 meters until reaching point “B”, whose coordinates are N- 989498,628 meters, E- 1151963,496 meters Line “A-B” limits in its entirety with the BALAY sector that is operated by PETROBRAS.

 

55

 

Point C:

 

From this point an N 0o 6’ 33,184” W is followed for a distance of 7,869 meters until reaching point “C”, whose coordinates are N- 989506,497 meters, E- 1151963,496 meters. Line “B-C” limits in its entirety with sector LLA 32 that is operated by TC OIL & SERVICES S.A.

 

Point D:

 

From this point a N 89o 53’ 21,42” E is followed for a distance of 19588,904 meters until reaching point “D”, whose coordinates are N- 989544,35 meters, E- 1171552,363 meters. Line “C-D” limits in its entirety with sector LLA 32 that is operated by TC OIL & SERVICES S.A.

 

Point E:

 

From this point a S 43o 1’ 34,9” W is followed for a distance of 2257,527 meters until reaching point “E”, whose coordinates are N- 987894,008 meters, E 1170011,974- meters. Line “D-E” limits in its entirety with sector GARIBAY sector that is operated by SOLANA.

 

Point F:

 

From this point a N 89o 59’ 59,712”W is followed for a distance of 5017,821 meters until reaching point “F”, whose coordinates are N- 987894,015 meters, E- 1164994,153 meters. The “E-F” line limits along its entire extension with the TIPLE sector operated by CEPCOLSA.

 

Point G:

 

From this point a S 0o 0’ 0,255” W is followed for a distance of 13770,316 meters until reaching point “G”, whose coordinates are N- 974123,699 meters, E- 116994,136 meters. The “F-G” line limits along its entire extension with the TIPLE sector operated by CEPCOLSA.

 

Point H:

 

From this point a N 89o 59’ 59,745” W is followed for a distance of 20999 meters until reaching point “H”, whose coordinates are N- 974123,725 meters, E- 1143994,885 meters. The “G-H” line limits along its entire extension with the CABRESTERO sector operated by CEPCOLSA.

 

From this point a N 0o 0’ 0,228 E is followed for a distance of 15360,378 meters until reaching point “A”, starting and finishing points to establishment of boundaries. Line “ H-A” limits in its entirety with sector CORCEL that is operated by PETROMINERALES.

 

56

 

ANNEX B

 

 

(End of Annex B)

 

57

 

Calculation of the Area, Directions and Distances based on Gauss Coordinates,
 Bogotá Origin. Datum MAGNA-SIRGAS

Data and Results Table for the BLOUQUE LLA34sector

 

Municipal jurisdictions of Tauramena and Villanueva in the Department of Casanare and Cabuyaro in the Department of Meta

 

	
 
    	
 
    	
FLAT COORDINATES
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Point
    	
 
    	
NORTH
    	
 
    	
EAST
    	
 
    	
Distance
    	
 
    	
Dif. North
    	
 
    	
Dif. East
    	
 
    	
DIRECTION
    
	
VERT
    	
 
    	
1069800,670
    	
 
    	
1146047,362
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
80342,788
    	
 
    	
-80316,57
    	
 
    	
-2052,46
    	
 
    	
S 1o 27’   49.873” W
    
	
A
    	
 
    	
989484,103
    	
 
    	
1143994,902
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
7968,622
    	
 
    	
14,53
    	
 
    	
7968,61
    	
 
    	
N 89o 53’   44.026” E
    
	
B
    	
 
    	
989498,628
    	
 
    	
1151963,511
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
7,869
    	
 
    	
7,87
    	
 
    	
-0.01
    	
 
    	
N 0o 6’   33.184” W
    
	
C
    	
 
    	
989506,497
    	
 
    	
11151963,496
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
19588,904
    	
 
    	
37,85
    	
 
    	
19,588,87
    	
 
    	
N 89o 53’   21.42” E
    
	
D
    	
 
    	
989544,350
    	
 
    	
1171552,363
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
2257,527
    	
 
    	
-1,650,34
    	
 
    	
-1,540,39
    	
 
    	
S 43o 1’   34.9” W
    
	
E
    	
 
    	
987894,008
    	
 
    	
1170011,974
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
5017,82
    	
 
    	
0,01
    	
 
    	
-5,017,82
    	
 
    	
N 89o59’   59.712” W
    
	
F
    	
 
    	
987894,015
    	
 
    	
1164994,153
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
13770,316
    	
 
    	
-13,770,32
    	
 
    	
-0,02
    	
 
    	
S 0o   40’0,225” W
    
	
G
    	
 
    	
974123,699
    	
 
    	
1164994,136
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
20999,251
    	
 
    	
0.03
    	
 
    	
-20,999,25
    	
 
    	
N 89o 59’   59.745” W
    
	
H
    	
 
    	
1,127,460.934
    	
 
    	
1,388,166.614
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
15360,378
    	
 
    	
15,360,38
    	
 
    	
0.02
    	
 
    	
N 0o 0’   0.228” E
    
	
A
    	
 
    	
989494,103
    	
 
    	
1143994,902
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

Area of the Block (Ha) :              33.258,1075

 

58

 

ANNEX C

 

MANDATORY EXPLORATION PROGRAM

 

THE CONTRACTOR agrees to undertake at least the Exploration Program described below:

 

Phase 0 Prior to including Phase 0, the presence of ethnical groups in the areas affected by the exploration work must be identified. To this end, THE CONTRACTOR must confirm this circumstance by informing ANH in writing, within the first thirty (30) days after the execution of the Agreement.

 

Duration: Up to six (6) months starting on the date the Agreement is executed.

 

Activities:

 

To undertake the process for prior consultation, whenever necessary, before beginning the first phase.

 

During this period, the contractor companies are expected to simultaneously undertake the planning, work location, socialization and environmental license as well as he processes prior to contracting goods and services.

 

Note. ANH may terminate Phase 0 when the process of making prior consultation has ended or when THE CONTRACTOR does not advance diligently in the above activities. This phase may be extended if difficulties arise in the process of making prior consultation that are beyond the control of THE CONTRACTOR. Prior consultation will be made in coordination with ANH.

 

No payment or obligation will be due to ANH during the performance of Phase 0.

 

To begin both Phase 0 as well as Phase 1 of the Agreement, THE CONTRACTOR agrees to issue an insurance policy in favor of State entities within the ten (10) calendar days following the signing of the Agreement, to secure compliance of the initial obligations of the Agreement in an amount equivalent to one hundred thousand dollars (US$100,000.oo) and for a term of six (6) months starting on the date the Agreement is executed. The above does not exclude the obligation to execute the compliance guarantee referred to in Clause 50 and Annex E of the Agreement draft.

 

59

 

Minimum Exploration Program

 

	
Phase
    	
 
    	
Duration
    	
 
    	
Activity
    	
 
    	
Total Activity
    US$
    	
 
    
	
1
    	
 
    	
36 months
    	
 
    	
Acquisition,   processing and interpretation of 67km of 2D seismic.
    	
 
    	
1,223,889  
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Drilling of 1 A3   exploratory well.
    	
 
    	
7,900,000
    	
 
    
	
2
    	
 
    	
36 months
    	
 
    	
Drilling of 2 A3   exploratory wells.
    	
 
    	
15,800,000
    	
 
    
	
Investment: X
    	
 
    	
24,923,889
    	
 
    

 

Additional Exploratory Program:

 

	
Phase
    	
 
    	
Duration
    	
 
    	
Activity
    	
 
    	
Total Activity
    US$
    	
 
    
	
1
    	
 
    	
36 months
    	
 
    	
Acquisition,   processing and interpretation of 253 km of 2D seismic.
    	
 
    	
4,700,000  
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Drilling of 1 A3   exploratory well.
    	
 
    	
7,888,000
    	
 
    
	
2
    	
 
    	
—
    	
 
    	
—
    	
 
    	
—
    	
 
    
	
Investment: X
    	
 
    	
12,588,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Total Investment  
    	
 
    	
37,511,889
    	
 
    

 

Note 1: THE CONTRACTOR agrees to undertake preliminary studies in environmental matters, such as identifying the area where possible changes that generate the foreseen activities and the measures required for managing each one.

 

Note 2: It is understood that this exploratory program is exclusively designed to search for Conventional Hydrocarbons. It does not include any exploratory activity related to Methane Gas Associated to Coal, a hydrocarbon for which exploratory permits have been suspended under Agreement 042 issued on November 29, 2006 by the Director’s Council at ANH.

 

(End of Annex C)

 

60

 

ANNEX D

 

ECONOMIC RIGHTS

 

D.1 Fee for the use of the subsoil. Under the provisions of Article 38, Annex A, for each phase during the exploration period, THE CONTRACTOR will pay ANH a fee in United States Dollars, which will result from multiplying  the number of hectares and fraction of hectare of each Contract Area, excluding Production Areas, by the value indicated in the table below:

 

TABLE A: 2009 Value per phase in US$ / Hectare

 

	
 
    	
 
    	
For the first 100,000
   Has.
    	
 
    	
For each additional
   Hectare to 100,000
   Has
    
	
Size of area à
    	
 
    	
<18
    	
 
    	
> 18
    	
 
    	
<18
    	
 
    	
> 18
    
	
Duration of the Phase
    	
 
    	
months
    	
 
    	
months
    	
 
    	
months
    	
 
    	
months
    
	
In polygons A and B
    	
 
    	
2.29
    	
 
    	
3.06
    	
 
    	
3.06
    	
 
    	
4.59
    
	
Outside the Polygons
    	
 
    	
1.53
    	
 
    	
2.29
    	
 
    	
2.29
    	
 
    	
3.06
    
	
Offshore Areas
    	
 
    	
0.76
    

 

Note: This fee will not apply When the first phase of the exploration period is less than or equal to twelve (12) months.

 

Assessment and Production Areas. THE CONTRACTOR will pay ANH a fee in United States dollars, which results from multiplying the production of Hydrocarbons corresponding to THE CONTRACTOR pursuant to Clause 29 by US$0.1162 for each barrel of Liquid Hydrocarbons.

 

For natural gas, this amount will be US$0.01162 per 1000 cubic feet.

 

Paragraph: The production of natural gas destined to reinjection operations or other processes directly related with production in the same field from which it is extracted, will not result in paying for productions rights under Clause 38, subsection 38.2.

 

D.2 FEE FOR HIGH PRICES.

 

From the moment when the accumulated production of liquid hydrocarbons from each Production Area, including the royalty volume, exceeds five (5) million Barrels, and in the event the price of the marker crude West Texas Intermediate  (WTI) exceeds the base price Po depending on the API gravity of crude oil, or when gas production has been

 

61

 

ongoing for a period of five (5) years and it is destined for exports, and the marker Natural Gas “U.S. Gulf Coast Henry Hub” exceeds the base price Po under Table A, THE CONTRACTOR will pay ANH at the Point of Delivery, a participation in the net production of royalties as determined by the following formula:

 

Q= [(P – Po)/P] x S

 

Where:

 

Q    = The economic right to deliver to ANH

P    =   WTI Price

Po  = Reference Base Price under Table A

S    = Percentage of Participation under Table B.

 

TABLE A. Reference Base Price

 

	
API Gravity of Liquid Hydrocarbons Produced
    	
 
    	
Po (USD$/BI)
    2009
    	
 
    
	
Greater than 29o API
    	
 
    	
$30.22
    	
 
    
	
Greater than 22 o API and less than or equal to 29o API
    	
 
    	
$31.39
    	
 
    
	
Greater than 15o API and less than or equal to 22o API
    	
 
    	
$32.56
    	
 
    
	
Discoveries located beyond 300 mts. depth of water
    	
 
    	
$37.20
    	
 
    
	
Greater than 10o and less than or equal to 15o API
    	
 
    	
$46.50
    	
 
    
	
Natural Gas Exported
    	
 
    	
Po
    	
 
    
	
Distance in a straight line   between the point of delivery and the point of receipt in the destination   country
    	
 
    	
(USD$/MMBTU)
    	
 
    
	
Less than or   equal to 500km
    	
 
    	
$6.98
    	
 
    
	
Greater than 500   and less than or equal to 1000km
    	
 
    	
$8.13
    	
 
    
	
Greater than 1000km or LNG plant
    	
 
    	
9.30
    	
 
    

 

TABLE B: Participation Percentages:

 

	
WTI Price (P)
    	
 
    	
Participation Percentage (S)
    	
 
    
	
Po < P < 2Po
    	
 
    	
30
    	
%
    
	
2Po < P < 3Po
    	
 
    	
35
    	
%
    
	
3Po < P < 4Po
    	
 
    	
40
    	
%
    
	
4Po < P < 5Po
    	
 
    	
45
    	
%
    
	
5Po < P
    	
 
    	
50
    	
%
    

 

62

 

The following definitions will apply to the formula above:

 

P:                 For Liquid Hydrocarbons, is the average price per barrel of the marker crude oil “West Texas Intermediate” (WTI), in US dollars per Barrel (USD $/Bl), and for Natural Gas is the average price of the marker natural gas “U.S. Gulf Coast Henry Hub” in US dollars per million of British Thermal Units (USD $/MMBTU). These average prices are for the relevant calendar Month, whose specifications and quotations are published by prestigious international media.

 

Po:   For Liquid Hydrocarbons, is the marker crude base price, in US dollars per Barrel (USD $/Bl), and for Natural Gas is the average price in US dollars per million of British Thermal Units (US$/MMBTU) stated in TABLE A.

For the exploitation of Heavy Liquid Hydrocarbons with an API less than or equal to ten degrees (10o) THE CONTRACTOR will pay no High Price Fees to ANH.

 

THE CONTRACTOR will not pay ANH a High Price fee For the production of Heavy Liquid Hydrocarbons with an API gravity less than or equal to ten degrees (10o).

 

For Natural Gas: This fee will be due starting on the fifth year after starting production in the oil field, as evidenced in the resolution of approval issued by the competent authority and provided the following conditions are met:

 

·  For natural gas destined for exports: This fee will be caused in the event that the average price for the calendar month of production of Natural Gas “U.S. Gulf Coast Henry Hub” marker is above the Po Base Price.

 

·  For natural gas destined for internal use: In the event its price is regulated by the Comisión de Regulación de Energía y Gas — CREG — or the agency acting on its behalf, THE CONTRACTOR will pay no High Price Fees to the ANH; otherwise, the parties will agree the natural gas marker reflecting internal market conditions and Po value, which must be equivalent to the regulated price and will sign the corresponding agreement.

 

All values corresponding to the economic rights referred to in this Annex, with the exception of the Po base Price corresponding to the regulated Price for gas for domestic use, will be adjusted annually as of January 1st of each year, applying the following formula:

 

63

 

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

Where

n                                         is the calendar year starting and for which the estimate is being made.

n-1                              is the calendar year immediately preceding the year starting.

n-2                              is the calendar year immediately preceding n-1.

Po(n-1)               is the value of Po for the new year as a result of the formula and to the nearest two decimal points.

In-2)                           is the annual variation expressed as a fraction of the US producer price index during the Calendar Year, as published by the US Department of Labor - PPI Finished Goods WPUSOP 3000- between the end of calendar year n-2 and the index corresponding to the end of the year immediately preceding n-2 to the nearest four (4) decimal points.

 

The calculation mentioned above will be made in December of each Year and will apply to the following calendar year.

 

Paragraph: if the price of the marker crude oil “West Texas Intermediate” or of the natural gas marker “US Gulf Coast Henry Hub” (P) were to lose recognition as international marker price, ANH will select a new marker crude oil or natural gas marker to be used, and will modify the table based on the new index, maintaining equivalencies with the Po values for the marker crude oil “West Texas Intermediate” or for the Natural Gas marker “US Gulf Coast Henry Hub”.

 

ANH may request Contractor in writing to pay this fee to ANH in kind or in cash. In the event that ANH decides to change the way in which the fee will be paid, it must inform of this decision in writing to THE CONTRACTOR not less than three (3) months in advance.

 

In the event that ANH decides to receive this fee in cash, subsections 35.2, 35.3, and 35.4 of Annex A will apply.

 

D.3 ECONOMIC RIGHTS AS A PARTICIPATION PERCENTAGE

 

THE CONTRACTOR will pay ANH a fee for participation percentage of 1% of total production after royalties.

 

(End Annex D)

 

64

 

ANNEX E

MODEL LETTER OF CREDIT

 

	
LETTER OF CREDIT NO
    	
:
    	
 
    
	
 
    	
 
    	
 
    
	
ISSUANCE PLACE AND DATE
    	
:
    	
 
    
	
 
    	
 
    	
 
    
	
EXPIRATION DATE
    	
:
    	
[       Initially   corresponds to half of the duration of the first one]
    
	
 
    	
 
    	
 
    
	
NOMINAL VALUE
    	
:
    	
                                     (US$                )

[Corresponds to 50% of the value of the Exploration Program]
    
	
 
    	
 
    	
 
    
	
ISSUING BANK
    	
:
    	
[           Name of Issuing Bank              ]
    
	
 
    	
 
    	
 
    
	
BENEFICIARY
    	
:
    	
Agencia Nacional de Hidrocarburos - ANH
    
	
 
    	
 
    	
 
    
	
ORDERING ENTITY
    	
:
    	
[           Name of Company              ]
    
	
 
    	
 
    	
 
    
	
CONTRACT NAME
    	
:
    	
 
    

 

 

Please be advised that in the name and on account of [           Name of the Company            ] hereinafter referred to as THE CONTRACTOR, we have issued this Standby Irrevocable Setter of Credit to your name for the amount in Colombian currency resulting from the conversion at the market representative rate of the day a notice of non compliance foreseen below is sent to us, in an amount of                                        dollars of the United Status of America (US$                            ), to secure compliance and the appropriate performance of all or any of the obligations of Phase                  of the Exploration Period, with a duration up to               and the remaining activities inherent to said obligations stemming from the HYDROCARBON EXPLORATION AND PRODUCTION AGREEMENT entered by and between THE CONTRACTOR and ANH on                , hereinafter referred to as THE AGREEMENT.

 

It is understood that the liability of [           Name of the Issuing Bank           ] derived from the present standby letter of credit is limited solely to the aforementioned sum in Colombian legal tender.

 

65

 

In the event THE CONTRACTOR fails to comply any or all the obligations and the remaining activities inherent to said obligations derived from THE AGREEMENT mentioned in the first paragraph of this standby letter of credit, hereinafter referred to as GUARANTEED OBLIGATIONS, the Beneficiary will advise [           Name of Issuing Bank            ] of said failure to comply addressing said notice to its offices at                                  , within the term of the present letter of credit. On the same date we receive the mentioned communication we will proceed to unconditionally pay, to the name of the Beneficiary, the sums said Beneficiary claims from the present letter of credit, which will in no event exceed the total guaranteed value.

 

If the aforementioned non-compliance related communication is not sent within the term of the present letter of credit, our liability stemming here from will cease.

 

The communication informing [           Name of the Issuing Bank            ] of the failure to comply with the GUARANTEED OBLIGATIONS, will consist of a document duly signed by the Legal Representative of the ANH or whoever acts in this capacity, stating THE CONTRACTOR’s failure to comply with GUARANTEED OBLIGATIONS and requesting payment of the present letter of credit. This communication must mention the number of the letter of credit and the value for which it is used, converted to Colombian legal tender at the market representative rate in force on the date said communication is sent to us, as stated in a certification issued by the Colombian Financial Superintendence or the agency that may act in that capacity for such purposes.

 

This document will be ruled by the “Rules and Uniform Practices relevant to Documentary Credit (last Draft) published by the International Chamber of Commerce (ICC).

 

 

	
 
    	
 
    
	
Legal   Representative of the Issuing Bank
    	
 
    

 

END OF ANNEX E

 

66Exhibit 10.4

 

	
EXECUTION COPY
    
	
 
    

 

INVESTMENT NUMBER 24689

 

Subscription and Shareholders Agreement

 

between

 

GEOPARK HOLDINGS LIMITED,

as the Company

 

GERALD O’SHAUGHNESSY AND JAMES F. PARK

as the Lead Investors

 

and

 

INTERNATIONAL FINANCE CORPORATION

 

Dated February 7, 2006

	
 
    

 

 

TABLE OF CONTENTS

 

	
Article or
    	
 
    	
 
    	
 
    	
 
    
	
Section
    	
 
    	
Item
    	
 
    	
Page No.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE I
    	
 
    	
 
    	
 
    	
2
    
	
Definitions -   References and Headings
    	
 
    	
2
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Section 1.01.
    	
 
    	
Definitions
    	
 
    	
2
    
	
Section 1.02. 
    	
 
    	
Interpretation
    	
 
    	
9
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE II
    	
 
    	
 
    	
 
    	
10
    
	
Description of   Project
    	
 
    	
10
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Section 2.01. 
    	
 
    	
Description of   Project
    	
 
    	
10
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE III
    	
 
    	
 
    	
 
    	
10
    
	
Representations   and Warranties
    	
 
    	
10
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Section 3.01. 
    	
 
    	
Representations   regarding the Lead Investors and the Company
    	
 
    	
10
    
	
Section 3.02. 
    	
 
    	
Representations   regarding this Agreement by the Company
    	
 
    	
16
    
	
Section 3.03. 
    	
 
    	
Representations   regarding this Agreement by the Lead Investors
    	
 
    	
17
    
	
Section 3.04. 
    	
 
    	
Representations   regarding this Agreement by IFC
    	
 
    	
17
    
	
Section 3.05. 
    	
 
    	
Warranty
    	
 
    	
18
    
	
Section 3.06. 
    	
 
    	
Representations   for IFC Subscription
    	
 
    	
18
    
	
Section 3.07. 
    	
 
    	
Limitations on   claims against the Company and the Lead Investors
    	
 
    	
19
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE IV
    	
 
    	
 
    	
 
    	
19
    
	
Agreement for   Subscription
    	
 
    	
19
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Section 4.01. 
    	
 
    	
Subscription by   IFC
    	
 
    	
19
    
	
Section 4.02. 
    	
 
    	
Suspension and   Cancellation
    	
 
    	
19
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE V
    	
 
    	
 
    	
 
    	
20
    
	
Conditions of   IFC Subscription and Payment
    	
 
    	
20
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Section 5.01. 
    	
 
    	
Conditions of   IFC Subscription
    	
 
    	
20
    

 

 

	
Article or
    	
 
    	
 
    	
 
    	
 
    
	
Section
    	
 
    	
Item
    	
 
    	
Page No.
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VI
    	
 
    	
 
    	
 
    	
24
    
	
Covenants
    	
 
    	
 
    	
 
    	
24
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Section 6.01. 
    	
 
    	
Company   Covenants
    	
 
    	
24
    
	
Section 6.02. 
    	
 
    	
Reporting   Requirements
    	
 
    	
26
    
	
Section 6.04. 
    	
 
    	
Survival of   Covenants; De-listing
    	
 
    	
28
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
ARTICLE VII
    	
 
    	
 
    	
 
    	
29
    
	
Miscellaneous
    	
 
    	
 
    	
 
    	
29
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Section 7.01. 
    	
 
    	
Taxes
    	
 
    	
29
    
	
Section 7.02. 
    	
 
    	
Fees and   Expenses
    	
 
    	
29
    
	
Section 7.03. 
    	
 
    	
Notices and Requests
    	
 
    	
29
    
	
Section 7.04. 
    	
 
    	
Evidence of   Authority
    	
 
    	
30
    
	
Section 7.05. 
    	
 
    	
Saving of   Rights
    	
 
    	
30
    
	
Section 7.06. 
    	
 
    	
English   Language
    	
 
    	
31
    
	
Section 7.07. 
    	
 
    	
Choice of Law   and Jurisdiction
    	
 
    	
31
    
	
Section 7.08. 
    	
 
    	
Counterparts
    	
 
    	
32
    
	
Section 7.09. 
    	
 
    	
Entire   Agreement
    	
 
    	
33
    

 

ii

 

	
Article or
    	
 
    	
 
    	
 
    	
 
    
	
Section
    	
 
    	
Item
    	
 
    	
Page No.
    
	
 
    	
 
    	
 
    
	
SCHEDULE 1
    	
 
    	
35
    
	
FORM OF SUBSCRIPTION REQUEST
    	
 
    	
35
    
	
 
    	
 
    	
 
    
	
SCHEDULE 2
    	
 
    	
37
    
	
FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY
    	
 
    	
37
    
	
 
    	
 
    	
 
    
	
SCHEDULE 3
    	
 
    	
39
    
	
DISCLOSURES
    	
 
    	
39
    
	
 
    	
 
    	
 
    
	
SCHEDULE 4
    	
 
    	
49
    
	
LIMITATIONS ON THE LIABILITY OF THE COMPANY AND THE LEAD   INVESTORS
    	
 
    	
49
    
	
 
    	
 
    	
 
    
	
ANNEX 1
    	
 
    	
50
    
	
AFFILIATE AND RELATED PARTY TRANSACTIONS
    	
 
    	
50
    
	
 
    	
 
    	
 
    
	
ANNEX 2
    	
 
    	
51
    
	
INSURANCE REQUIREMENTS
    	
 
    	
51
    
	
 
    	
 
    	
 
    
	
ANNEX 3
    	
 
    	
53
    
	
PROHIBITED ACTIVITIES
    	
 
    	
53
    
	
 
    	
 
    	
 
    
	
ANNEX 4
    	
 
    	
54
    
	
TIMETABLE FOR 6.01(C)
    	
 
    	
54
    
	
 
    	
 
    	
 
    
	
ANNEX 5
    	
 
    	
56
    
	
ANNUAL MONITORING REPORT
    	
 
    	
56
    

 

iii

 

SUBSCRIPTION AND SHAREHOLDERS AGREEMENT

 

AGREEMENT, dated February 7, 2006, between:

 

1)                                     GEOPARK HOLDINGS LIMITED, a company organized and existing under the laws of Bermuda (hereinafter referred to as the “Company”);

 

2)                                     GERALD O’SHAUGHNESSY AND JAMES F. PARK (hereinafter referred to as the “Lead Investors”); and

 

3)                                     INTERNATIONAL FINANCE CORPORATION, an international organization established by Articles of Agreement among its member countries, including the Argentine Republic and the Republic of Chile (hereinafter referred to as “IFC”);

 

WHEREAS:

 

(A)                               As of the date in which a subscription request is submitted hereunder, the Lead Investors will Control (as hereinafter defined) 63.2% of the issued and common share capital of the Company;

 

(B)                               The Company owns all of the issued share capital of GeoPark Argentina Limited, a company formed and existing under the laws of Bermuda, which company (“GeoPark Argentina”), and GeoPark Argentina through its branch office registered in the Argentine Republic under the name GeoPark Argentina Limited (Sucursal Argentina), is concessionaire under the exploitation concessions more fully described in the schedule to the legal opinion on Argentine law to be delivered pursuant to Section 5.01(h)(ii) hereof  (the “Argentina Concessions”);

 

(C)                               The Company owns all of the share capital of GeoPark Chile Limited, a company formed and existing under the laws of Bermuda, which company (“GeoPark Chile”), and GeoPark Chile through its branch office registered in the Republic of Chile under the name GeoPark Chile Limited Agencia en Chile, is licensee under a special operation contract as more fully described in the schedule to the legal opinion on Chilean law to be delivered pursuant to Section 5.01(h)(iii) hereof  (the “Chile Concession”);

 

(D)                               On the date a subscription request is submitted hereunder, the issued share capital of the Company consists of US$21,310.868 represented by 21,310,868 common shares of par value US$0.001 each, all of which are fully paid and outstanding (the “Existing Common Shares”);

 

 

(E)                                The Company entered into a Private Loan Agreement dated September 21, 2005 (as amended, the “Convertible Loan Agreement”) with GeoPark Funding Company LLC, a limited liability company formed under the laws of the State of Kansas, pursuant to which loans in an amount of US$5,027,500 (the “Convertible Loan”) which Convertible Loan, and accrued interest thereon, shall, on or prior to the date in which a subscription request is submitted hereunder, be converted into common shares of Company  resulting in the holders of the Convertible Loan owning 1,310,868 common shares of the Company representing approximately five point five per cent (5.5%) of the common shares of the Company following the completion of the subscription by IFC pursuant to this Agreement;

 

(F)                                 The Company has an authorized capital of 5,171,949,000 common shares of which 2,507,161 will be for IFC which shall be comprised of new common shares of par value US$0.001 each (the “IFC Shares”); and

 

(G)                               Subject to the terms and conditions of this Agreement IFC has accepted to subscribe and pay for the IFC Shares, and the Company and IFC agree that upon full subscription of the IFC Shares, IFC shall be the owner of approximately 10.5% of all of the issued and outstanding common shares of the Company.

 

NOW THEREFORE, the parties hereto agree as follows:

 

ARTICLE I

 

Definitions - References and Headings

 

Section 1.01.  Definitions.  Wherever used in this Agreement, unless the context otherwise requires, the following terms shall have the following meanings:

 

	
“Accounting   
    	
 
    	
 
    
	
Principles”
    	
 
    	
International   Financial Reporting Standards promulgated by the International Accounting   Standards Board (“IASB”) (which includes standards and interpretations   approved by the IASB and International Accounting Standards issued under   previous constitutions), together with its pronouncements thereon from time   to time, and applied on a consistent basis;
    

 

2

 

	
“Affiliates”
    	
 
    	
with   respect to the Company, any person directly or indirectly Controlling,   Controlled by or under common Control with the Company;
    
	
 
    	
 
    	
 
    
	
“Annual Monitoring 
    	
 
    	
 
    
	
Report”
    	
 
    	
the report to be prepared annually by or on   behalf of the Company pursuant to Section 6.02(b)(iii) of this Agreement, in   the form of Annex 5, relating to the environmental, social and development   aspects of the Project and the operations of the Company and its   Subsidiaries, together with a duly completed development impact data sheet;
    
	
 
    	
 
    	
 
    
	
“Argentina
    	
 
    	
 
    
	
Concessions”
    	
 
    	
has   the meaning ascribed to it in Recital (B);
    
	
 
    	
 
    	
 
    
	
“Authority”
    	
 
    	
any   national, supranational, regional or local government or governmental,   administrative, fiscal, judicial or government-owned body, department,   commission, authority, tribunal, agency or entity, or central bank (or any   person, whether or not government owned and howsoever constituted or called,   that exercises the functions of a central bank;
    
	
 
    	
 
    	
 
    
	
“Authorized
    	
 
    	
 
    
	
Representative”
    	
 
    	
any   of the authorized representatives of the Company as designated in the   Certificate of Incumbency and Authority;
    
	
 
    	
 
    	
 
    
	
“Certificate   of
    	
 
    	
 
    
	
Incumbency   and
    	
 
    	
 
    
	
Authority”
    	
 
    	
the   certificate to be provided to IFC by the Company pursuant to   Section 5.01(d) in the form of Schedule 2;
    
	
 
    	
 
    	
 
    
	
“Charter”
    	
 
    	
in   respect of any person, its charter, memorandum and articles of association,   byelaws, statutes and/or other constitutional document (howsoever called);
    
	
 
    	
 
    	
 
    
	
“Chile   Concession”
    	
 
    	
has   the meaning ascribed to it in Recital (C);
    

 

3

 

	
“Community
    	
 
    	
 
    
	
Development   Plan”
    	
 
    	
the   community development plan describing how the Company intends to promote   sustainable economic growth in the communities in which it operates to be   prepared by the Company in a form and substance satisfactory to IFC and in   accordance to Annex 4 hereto;
    
	
 
    	
 
    	
 
    
	
“Concession
    	
 
    	
 
    
	
Documents”
    	
 
    	
means   Argentina Concession and the Chile Concession;
    
	
 
    	
 
    	
 
    
	
“Consolidated Cash
    	
 
    	
 
    
	
Flow   from
    	
 
    	
 
    
	
Operations”
    	
 
    	
for   any period is defined as, (a) the sum of all proceeds, in whatever   currency, received from the sale of the Company or its Subsidiaries’ share of   hydrocarbons and any other revenues received by the Company or its Subsidiaries,   less (b) the sum of the Company   or its Subsidiaries’ share of (i) operating expenditures (excluding any   charges related to depreciation, amortization, exploration and extraordinary   items), (ii) general, administrative, sales, transportation and other   expenses not included in (i) above, (iii) taxes, and   (iv) royalties;
    
	
 
    	
 
    	
 
    
	
“Control”
    	
 
    	
the   power to direct the management or policies of a Person, directly or   indirectly, whether through the ownership of shares or other securities, by   contract or otherwise, provided that the direct or indirect ownership of   fifty-one per cent (51%) or more of the voting share capital of a Person is   deemed to constitute control for that Person, and “Controlling” and   “Controlled” have corresponding meanings;
    
	
 
    	
 
    	
 
    
	
“Convertible   Loan”
    	
 
    	
has   the meaning ascribed to it in Recital (E);
    
	
 
    	
 
    	
 
    
	
“Convertible   Loan
    	
 
    	
 
    
	
Agreement”
    	
 
    	
has   the meaning ascribed to it in Recital (E);
    
	
 
    	
 
    	
 
    
	
“Disclosures”
    	
 
    	
means   the disclosures contained in Schedule 3;
    
	
 
    	
 
    	
 
    
	
“Dollars”   and
    	
 
    	
 
    
	
“US$”
    	
 
    	
the   lawful currency of the United States of America;
    

 

4

 

	
“Environmental,
    	
 
    	
 
    
	
Health   and Safety
    	
 
    	
 
    
	
Guidelines”
    	
 
    	
(a) World   Bank Group Oil and Gas (Onshore) Guidelines, dated July 1998;   (b) IFC Hazardous Materials Management Guidelines, dated   December 2001; (c) IFC Occupational Health and Safety, dated   June 2003; and (d) the Policy and Performance Standards on Social   and Environmental Sustainability as approved by the World Bank Group;
    
	
 
    	
 
    	
 
    
	
“Environmental   and
    	
 
    	
 
    
	
Social   Policies”
    	
 
    	
(a) Policy on Environmental Assessment   (OP 4.01), dated October 1998; (b) World Bank Operational Policy   Note No. 11.03 Management of Cultural Property; (c) IFC Policy   Statement on Forced Labor and Harmful Child Labor, dated March 1998;   (d) IFC Policy on Disclosure of Information, dated September 1998;   (e) World Bank Operational Directive (OD 4.30) Involuntary Resettlement,   dated June 1990; and (f) the Policy and Performance   Standards on Social and Environmental Sustainability as approved by the World   Bank Group;
    
	
 
    	
 
    	
 
    
	
“Environmental   and
    	
 
    	
 
    
	
Social   Management
    	
 
    	
 
    
	
System”   or “ESMS”
    	
 
    	
the   system created or to be created by the Company for managing and monitoring   the environmental and social aspects of the activities undertaken by the   Company and its Subsidiaries, as agreed with IFC, and updated from time to   time;
    
	
 
    	
 
    	
 
    
	
“Environmental
    	
 
    	
 
    
	
and   Social
    	
 
    	
 
    
	
Requirements”
    	
 
    	
(i)                                  the   Environmental, Health and Safety Guidelines;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(ii)                               the   Environmental and Social Policies;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(iii)                            the   Environmental Review Summary;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(iv)                           the ESMS;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(v)                              the Annual   Monitoring Report;
    

 

5

 

	
 
    	
 
    	
(vi)                           the   Socio-Economic Baseline;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(vii)                        the Community   Development Plan;
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(viii)                     the Land   Titling Survey and Maps; and
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
(ix)                           the   environmental, social and occupational health and safety laws and regulations   of the Argentine Republic and the Republic of Chile (including any   international treaties) or promulgated by the relevant Argentina Authorities,   in each case as applicable or any other country in which the Company and/or   its subsidiaries have operations;
    
	
 
    	
 
    	
 
    
	
“Environmental
    	
 
    	
 
    
	
Review   Summary”
    	
 
    	
 
    
	
or   “ERS”
    	
 
    	
means   the summary dated December 21, 2005, prepared by IFC and approved by the   Company, as amended or supplemented from time to time as appropriate in a   manner consistent with the Environmental and Social Requirements;
    
	
 
    	
 
    	
 
    
	
“Existing   Common
    	
 
    	
 
    
	
Shares”
    	
 
    	
has   the meaning ascribed to it in Recital (D);
    
	
 
    	
 
    	
 
    
	
“Financial   Half Year”
    	
 
    	
any   consecutive six-month period ending on June 30, and December 31;
    
	
 
    	
 
    	
 
    
	
“Financial   Year”
    	
 
    	
the   accounting year of the Company commencing each year on January 1 and   ending on the following December 31, or such other period as the   Company, with IFC’s consent, from time to time designates as its accounting   year;
    
	
 
    	
 
    	
 
    
	
“GeoPark   Argentina”
    	
 
    	
has   the meaning ascribed to it in Recital (B);
    
	
 
    	
 
    	
 
    
	
“GeoPark   Chile”
    	
 
    	
has   the meaning ascribed to it in Recital (C);
    
	
 
    	
 
    	
 
    
	
“IBRD”   or
    	
 
    	
 
    
	
“World   Bank”
    	
 
    	
the   International Bank for Reconstruction and Development;
    

 

6

 

	
“IFC   Shares”
    	
 
    	
shall   have the meaning ascribed to it in Recital (F);
    
	
 
    	
 
    	
 
    
	
“IFC
    	
 
    	
 
    
	
Subscription”
    	
 
    	
the   subscription of common shares by IFC provided for in Article IV;
    
	
 
    	
 
    	
 
    
	
“Land
    	
 
    	
 
    
	
Titling   Survey
    	
 
    	
 
    
	
and   Maps”
    	
 
    	
the   land titling survey and maps of the areas covered by the Concession Documents   as well as a list of all titled landowners, to be developed in accordance   with Annex 5 hereto and in a form and substance satisfactory to IFC;
    
	
 
    	
 
    	
 
    
	
“Lien”
    	
 
    	
any   mortgage, pledge, charge, assignment, hypothecation, security interest, title   retention, preferential right, trust arrangement, right of set-off,   counterclaim or banker’s lien, privilege or priority of any kind having the   effect of security, any designation of loss payees or beneficiaries or any   similar arrangement under or with respect to any insurance policy or any   preference of one creditor over another arising by operation of law;
    
	
 
    	
 
    	
 
    
	
“Loan   Note
    	
 
    	
 
    
	
Instruments”
    	
 
    	
the   deed polls constituting an aggregate of US$6,864,902 of subordinated   convertible debt of the Company in the agreed form;
    
	
 
    	
 
    	
 
    
	
“Material   Contract”
    	
 
    	
each   agreement, contract or commitment entered into by any of Company and/or any   of its Subsidiaries pursuant to which the liability of any such party   thereunder may reasonably be expected to be in excess of US$500,000;
    
	
 
    	
 
    	
 
    
	
“Official”
    	
 
    	
any   officer of a political party or candidate for political office in the   Argentine Republic or the Republic of Chile or any other country in which the   Company or any of its Subsidiaries has business activities or any officer or   employee (i) of the Argentine Republic or the Republic of Chile or any   other country in which the Company or any of its Subsidiaries has business   activities (including any legislative, judicial, executive or administrative   department, agency or instrumentality thereof), (ii) of any local   authority in the Argentine Republic or the Republic of 
    

 

7

 

	
 
    	
 
    	
Chile   or any other country in which the Company or any of its Subsidiaries has   business activities, or (iii) of a public international organization;
    
	
 
    	
 
    	
 
    
	
“Prohibited
    	
 
    	
 
    
	
Payments”
    	
 
    	
any   offer, gift, payment, promise to pay or authorization of the payment of any   money or anything of value, directly or indirectly, to or for the use or   benefit of any Official (including to or for the use or benefit of any other   person if the Company or any Affiliate of the Company knows, or has   reasonable grounds for believing, that the other person would use such offer,   gift, payment, promise or authorization of payment for the benefit of any   such Official), for the purpose of influencing any act or decision or   omission of any Official in order to obtain, retain or direct business to, or   to secure any improper benefit or advantage for, the Company, any Affiliate   of the Company or any other person;
    
	
 
    	
 
    	
 
    
	
“Project”
    	
 
    	
the   projects described in Section 2.01 (The Project);
    
	
 
    	
 
    	
 
    
	
“Related   Party”
    	
 
    	
any   Affiliate of the Company or any Subsidiary, the Lead Investors, and any   spouse, children or step-children of any of the Lead Investors;
    
	
 
    	
 
    	
 
    
	
“Socio-Economic
    	
 
    	
 
    
	
Baseline”
    	
 
    	
a   socio-economic description of the affected areas including both primary and   secondary data to be prepared by the Company in a form and substance   satisfactory to IFC and in accordance with Annex 5 hereto; and
    
	
 
    	
 
    	
 
    
	
“Subsidiary”
    	
 
    	
with   respect to any person, any entity:
    

 

	
 
    	
 
    	
(i)
    	
over   50% of whose capital is owned, directly or indirectly by that person;
    
	
 
    	
 
    	
(ii)
    	
for   which that person may nominate or appoint a majority of the members of the   board of directors or such other body performing similar functions; and
    
	
 
    	
 
    	
(iii)
    	
which   is otherwise effectively controlled by that person.
    

 

8

 

Section 1.02.  Interpretation.

 

(a)           Unless otherwise specified, any reference in this Agreement to:

 

(i)            an “authorization”, includes an authorization, consent, approval, resolution, license, permit, exemption, filing, registration or notarization;

 

(ii)           the “financial statements” of any person is a reference to such person’s financial statements, including a balance sheet, an income statement and a statement of changes in financial position, and notes thereon;

 

(iii)          “law” includes any applicable common or customary law and any treaty, constitution, statute, legislation, decree, act, regulation, rule, official,, directive, judgment, order, writ, injunction, determination, or judicial or arbitral decision of any governmental Authority or organization in any jurisdiction which has the force of law or compliance with which is customary in the relevant jurisdiction;

 

(iv)          a “person” includes any individual firm, company corporation, trust, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing; and

 

(v)           ‘tax” includes any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying of the same);

 

(b)           Unless otherwise specified, any reference in this Agreement to:

 

(i)            an Article, Section or Schedule is a reference to an Article, Section or Schedule to, this Agreement;

 

(ii)           an agreement or instrument is a reference to that agreement or instrument as amended, supplemented or novated from time to time;

 

9

 

(iii)          a person includes such person’s successors in title, permitted assigns or permitted transferees;

 

(iv)          a provision of law is a reference to that provision as amended or re-enacted from time to time, except to the extent that the liability of any party is thereby increased or amended; and

 

(v)           a document expressed to be in the “agreed form” means a document in a form of which has been agreed by the parties on or before execution of this Agreement and signed or initialed by them or on their behalf for the purposes of identification.

 

(c)           In this Agreement,

 

(i)            words denoting the singular include the plural and vice versa; and

 

(ii)           the Table of Contents and Article and Section headings are for ease of reference only and are to be ignored in interpreting this Agreement.

 

ARTICLE II

 

Description of Project

 

Section 2.01.  Description of Project.  The Project to be financed consists of the exploration, development and exploitation of the development blocks provided for under the Concession Documents, and the acquisition of other exploration, development and exploitation blocks in Latin America.

 

ARTICLE III

 

Representations and Warranties

 

Section 3.01.  Representations regarding the Lead Investors and the Company.  The representations in this Article III are qualified to the extent of the

 

10

 

Disclosures, and the representations made in Section 3.01(d)(ii) and 3.01(e) in respect of the Lead Investors, are made only to the extent the Lead Investors are aware, after due inquiry on their part. Each of the Lead Investors and the Company severally represents and warrants as follows:

 

(a)           Incorporation.  Each of the Company, GeoPark Argentina and GeoPark Chile is a duly organized and validly existing under the laws of Bermuda and registered with all relevant registration bodies in Bermuda. Each of the Company, GeoPark Argentina and GeoPark Chile has full power to own the properties which it owns or will own and to carry out the business which it carries out or proposes to carry out, including, without limitation, the Project.

 

(b)           Subsidiaries and Branches.  The Company has no Subsidiaries, other than GeoPark Argentina and GeoPark Chile.  GeoPark Argentina is a validly existing as a branch in the Argentine Republic, and registered with all relevant registration bodies of the Argentine Republic necessary for it to operate as a branch in the Argentine Republic.  GeoPark Chile is a validly existing as a branch in the Republic of Chile, and registered with all relevant registration bodies of the Republic of Chile necessary for it to operate as a branch in the Republic of Chile.

 

(c)           Share Capital.

 

(i)            As of the date on which a subscription request is submitted hereunder, the Company shall have an authorized share capital of US$5,171,949consisting of 5,171,949,000 common shares with a nominal value of US$0.001 each and an issued share capital of US$21,310.868 consisting of 21,310,868 common shares with a nominal value of US$0.001.

 

(ii)           All of the Existing Shares and, upon issuance, the IFC Shares and any shares issued in connection with the conversion of the Convertible Loan, have been validly issued and are fully paid, and there exist no Liens or assessments on any of the Existing Common Shares, or, upon issuance, the IFC Shares or any other shares issued in connection therewith.

 

(iii)          GeoPark Argentina has an authorized and issued share capital of US$12,000 consisting of 12,000 common shares with a nominal value of US$1 each.  All of the existing shares of GeoPark Argentina have been validly issued and

 

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are fully paid and are owned by the Company, and there exist no Liens on any of the existing shares of GeoPark Argentina.

 

(iv)          GeoPark Chile has an authorized and issued share capital of US$12,000 consisting of 12,000 common shares with a nominal value of US$1 each.  All of the existing shares of GeoPark Chile have been validly issued and are fully paid and are owned by the Company, and there exist no Liens on any of the existing shares of GeoPark Chile.

 

(v)           There are no options, warrants or instruments convertible into shares or other agreements relating to the existing shares of the Company, GeoPark Argentina or GeoPark Chile for the issuance of additional shares of any class or description of the Company, GeoPark Argentina or GeoPark Chile nor any such shares subject to any preemptive or preferential rights of any person, other than in respect of the Company, as provided in this Agreement the Convertible Loan Agreement and the Loan Note Instruments.  Except for the royalty override agreements which are Concession Documents, no person has a right (other than as a common shareholder) to share in the profits of the Company, GeoPark Argentina or GeoPark Chile.

 

(vi)          Upon payment by IFC pursuant to Section 4.01(a), IFC will be the owner of the IFC Shares, which shall represent approximately 10.5% of all of the common shares in issue immediately following the IFC Subscription.

 

(d)           Concession Documents.

 

(i)            Each of the Concession Documents is in full force and effect without modification, and each of the Concession Documents represents the legal, valid, binding and enforceable obligations of each party thereto.

 

(ii)           Each of the Company, GeoPark Argentina and GeoPark Chile is in compliance in all material respects with all of its obligations under the Concession Documents with respect to which they are a party, there exist no grounds for any governmental Authority to issue a notice to any of the

 

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Company, GeoPark Argentina or GeoPark Chile indicating that any such party is in non-compliance with any of the Concession Documents, and, no extensions of any time period specified in the Concession Documents is required or being sought in connection with the compliance by any such entity of any of its obligations thereunder.  Each of the Company, GeoPark Argentina and GeoPark Chile has all authorizations (other than authorizations that are of a routine nature and are obtained in the ordinary course of business) needed to conduct its business, carry out the Project and execute, and comply with its obligations under, this Agreement and each of the Concession Documents.

 

(e)           Compliance with Law, Taxes and no Prohibited Payments.  Neither the Company nor any of its Subsidiaries is in violation of any law presently in effect, the violation of which would have a material adverse effect on the Company or any of its Subsidiaries.  All tax returns and reports of the Company and its Subsidiaries (or any other party in connection with the Concession Documents, including, without limitation, any prior holder of any interests under any of the Concession Documents) required by law to be filed have been duly filed and all tax assessments, fees and other governmental charges upon any of the Company or any Subsidiary (or other person in connection with the Concession Documents), or any of their respective properties or income, which are due and payable, have been paid.  Neither the Company, nor any of its Subsidiaries, nor any person acting on its behalf or their behalf, has made, with respect to the Project, the Concession Documents or any transaction contemplated by this Agreement, any Prohibited Payment.

 

(f)            Litigation.  Neither the Company, nor any of its Subsidiaries, is engaged in, or threatened by, any litigation, arbitration or administrative proceeding, the outcome of which might have a material adverse effect on the business, operations or financial condition of the Company and its Subsidiaries (taken as a whole), or the ability of any of them to perform any of their respective obligations under this Agreement or the Concession Documents.  Neither the Company, nor any of its Subsidiaries is subject to any judgment, order or decree restricting their respective business activities.

 

(g)           Environmental Compliance.

 

(i)            Neither the Company nor any of its Subsidiaries is in violation of any of the Environmental and Social 

 

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Requirements or any other applicable environmental law or authorization.

 

(ii)           Neither the Company nor any of its Subsidiaries has received, nor is it aware of, any complaint, order, directive claim, citation, or notice from any Authority with respect to any material matter of compliance with the relevant environmental, health and safety laws and regulations in effect in the Argentine Republic or the Republic of Chile such as, air emissions, discharges to surface water or ground water, noise emissions, solid or liquid waste disposal, or the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes.

 

(iii)          The Company has received copies of the policies described in items (a), (b) and (c) of the definition of Environmental Health and Safety Guidelines, and policies (a), (b), (c), (d) and (e) of the definition of Environmental and Social Policies, and the Company has acknowledged receipt of such policies pursuant to a letter from the Company to IFC dated December 21, 2005.

 

(h)           Title to Assets.  Each of the Company and its Subsidiaries owns and has good and marketable title to all of assets purported to be owned by it, and a valid leasehold interest in all assets purported to be leased by it, and all such assets are free from any Liens or other restrictions which might have a material adverse effect on the Company and its Subsidiaries or their respective ability to exercise their rights under the Concession Documents.

 

(i)            Financial Statements and Financial Condition.  As of the date on which a subscription request is submitted hereunder, the pro forma consolidated balance sheet of the Company as at December 31, 2005 (delivered to IFC pursuant to Section 4.01(p), were prepared in accordance with the Accounting Principles and present a true and fair view of the financial condition of the Company and its Subsidiaries as at the date of such balance sheet.  Neither the Company nor any of its Subsidiaries has had any material contingent obligations, liabilities for taxes or unusual forward or long term commitments not disclosed by, or reserved against in, such balance sheets or notes thereto.  Since the date of such balance sheets, neither the Company nor any of its Subsidiaries has suffered any material adverse change in its business, operations or financial condition, incurred any substantial or unusual loss or liability or undertaken or agreed to undertake any substantial or unusual obligation.

 

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(j)            Arm’s Length and Affiliate Transactions.

 

(i)            Neither the Company nor any of its Subsidiaries have entered into any agreements or transactions, with any person, other than on an arm’s length basis on commercial terms.

 

(ii)           Neither the Company nor any of its Subsidiaries conducts its business through any Affiliates, Subsidiaries or any Related Parties, except as disclosed on Annex 1 hereto.

 

(k)           Material Contracts.  Except for the Concession Documents, the Loan Note Instruments and as set forth in the Disclosures, neither the Company nor any of its Subsidiaries is a party to, or committed to enter into, any contract which may reasonably be expected to result in a liability for the Company in excess of US$500,000.

 

(l)            Books and Records.  The books and records of the Company and its Subsidiaries are complete and accurate in all material respects.

 

(m)          No Broker’s Fees.  None of the Company, nor any of its Subsidiaries has engaged, or caused to be incurred any liability to, any finder, broker or sales agent in connection with the execution, delivery or performance of this Agreement or any of the transactions contemplated hereby or thereby.

 

(n)           Information.  Each of the Concession Documents, the Material Contracts and the information provided in the legal opinions and due diligence reports provided pursuant to Section 5.01(g) and (h) is true and accurate in all material respects and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect in light of the circumstances under which such information was provided.

 

(o)           No Insolvency.  Neither the Company nor any of its Subsidiaries has, or is taking any steps (including petition, proposal or convening a meeting nor (to the best of its knowledge, after due inquiry) is any such step being taken nor are any legal proceedings pending or, so far as the Company and the Lead Investors are aware, being threatened against it for or in respect of: (i) the composition, assignment or arrangement with all or any general class of its creditors; (ii) the making of any petition in respect of it under any applicable insolvency, bankruptcy or similar laws in any jurisdiction; or (iii) the passing of any resolution for (or petitioning for) its winding up, dissolution or reorganization

 

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or administration or appointment of any trustee, receiver or similar officer or in respect of it or any or all of its assets or revenues.

 

(p)           No Immunity.  Neither the Company nor its Subsidiaries are entitled to claim immunity from legal proceedings with respect to itself or any of its assets on the grounds of sovereignty or otherwise under any law or in any jurisdiction where an action may be brought for the enforcement of any of the obligations under or relating to this Agreement.

 

(q)           No Event of Default.  No event of default, force majeure or other event or condition exists which permits any party to any of the Concession Documents or any other material agreement with respect to which the Company or any of its Subsidiaries are a party, to cancel, suspend or terminate its performance under such agreement in accordance with the terms and provisions thereof.  Each of the Company and the Subsidiaries are in material compliance with their respective obligations under the Concession Documents and all authorizations necessary under the Concession Documents or for the purposes of implementing the Project.

 

(r)            Convertible Loans.  All governmental, creditors’ and other authorizations necessary for the conversion of the Convertible Loans into common shares of the Company as contemplated in this Agreement, have been obtained and are in full force and effect.

 

Section 3.02.  Representations regarding this Agreement by the Company.  The Company represents and warrants as follows:

 

(a)           Corporate Power; Capacity.  The Company has the corporate power to enter into and perform its obligations under this Agreement, including, without limitation, full power and authority to issue and deliver to IFC the IFC Shares pursuant to this Agreement.

 

(b)           Due Authorization; Enforceability; No Conflict.  This Agreement has been duly authorized and executed by the Company and constitutes valid and legally binding obligations of the Company, enforceable in accordance with their terms.  The making of this Agreement, the compliance with the terms thereof, and the issuance of any share capital to IFC pursuant to this Agreement:

 

(i)            will not result in the violation of the Charter of the Company or its Subsidiaries, or any provision contained in any law applicable to the Company or its Subsidiaries;

 

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(ii)           will not conflict with or result in the breach of any provision of, or require any consent under, or result in the imposition of any Lien under, any agreement or instrument to which, the Company or its Subsidiaries is a party or by which, the Company or its Subsidiaries, or any of their respective assets is bound; and

 

(iii)          will not constitute a default or an event which, with the giving of notice, the passage of time or the making of any determination, or any combination thereof, would constitute a default under any such agreement or instrument, including without limitation under any of the Concession Documents.

 

(c)           No Breach.  This Agreement is in full force and effect insofar as it relates to the Company, and no event which with the giving of notice, the passage of time or the making of any determination, or any combination thereof, would constitute a breach of this Agreement by the Company.

 

Section 3.03.  Representations regarding this Agreement by the Lead Investors.  Each of the Lead Investors, severally, represents and warrants as follows:

 

(a)           Capacity.  The Lead Investors have the power to enter into and perform their obligations under this Agreement;

 

(b)           Validity.  This Agreement constitutes valid and legally binding obligations of the Lead Investors; and

 

(c)           Full force.  This Agreement is in full force and effect insofar as it relates to the Lead Investors.

 

Section 3.04.  Representations regarding this Agreement by IFC.  IFC represents and warrants as follows:

 

(a)           Capacity.  IFC has the corporate power and authority to enter into and perform their obligations under this Agreement;

 

(b)           Validity.  This Agreement constitutes valid and legally binding obligations of IFC; and

 

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(c)           Full force.  This Agreement is in full force and effect insofar as it relates to IFC.

 

Section 3.05.  Warranty.  Each of the Company and the Lead Investors acknowledges that it has made the representations referred to in Sections 3.01, 3.02 and 3.03 with the intention of persuading IFC to enter into this Agreement and that IFC has entered into this Agreement on the basis of, and in full reliance on, each of such representations.  Each of the Company and the Lead Investors, warrants to IFC that each of such representations is true and correct in all material respects as of the date of this Agreement.

 

Section 3.06.  Representations for the IFC Subscription .

 

(a)           For the purpose of the subscription and payment of IFC Shares, each of the Company and the Lead Investors shall severally represent that:

 

(i)            the representations and warranties made or confirmed in Sections 3.01, 3.02 and 3.03 continue to be true up to the completion of the IFC Subscription;

 

(ii)           since the date of this Agreement nothing has occurred which might materially and adversely affect the carrying out of the Project or the business prospects or financial condition of the Company or its Subsidiaries (taken as a whole), or which makes it improbable that the Company or its Subsidiaries will be able to fulfill any of its obligations under this Agreement or the Concession Documents; nor has the Company or any of its Subsidiaries incurred any material loss or liability; and

 

(iii)          the proceeds of such subscription and payment are needed by the Company for the purposes of investing in the Project.

 

(b)           The representations contained in subsection (a) above shall be expressed to be effective as of the date of the request for subscription and payment and to continue to be effective as of the date(s) of subscription and payment.  If any of such representations is no longer valid as of or prior to the date(s) of the subscription and payment, the Company shall immediately notify IFC and shall repay the amount paid upon demand by IFC if payment is made prior to receipt of such notice.

 

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Section 3.07.  Limitations on claims against the Company and the Lead Investors.  The provisions of Schedule 4 shall apply to any claim against the Company or the Lead Investors under this Agreement.

 

ARTICLE IV

 

Agreement for Subscription

 

Section 4.01.  Subscription by IFC.

 

(a)           Subject to the terms and conditions of this Agreement, IFC agrees to subscribe and pay in full for 2,507,161 common shares in the Company, at an aggregate subscription price of ten million Dollars ($10,000,000) and at a price per share of US$3.99, all (but not less than all) of the IFC Shares.

 

(b)           The payment by IFC made pursuant to this Section 4.01 shall be made to the credit of the Company at Correspondent: Citibank N.A., 111 Wall Street, New York, NY FED ABA 021000089  CHIPS ABA 0008 SWIFT Code: CITIUS33 Beneficiary Bank: The Bank of Bermuda Ltd. Hamilton, Bermuda CHIPS UID 005584 SWIFT Code:  BBDA BMHM Beneficiary: GeoPark Holdings Limited Beneficiary Account: 819956 or at such other bank in such place as the Company shall from time to time designate with the consent of IFC.

 

(c)           Notwithstanding anything contained in this Agreement, IFC shall have the right, at any time and from time to time, in its discretion and without request by the Company, to subscribe and pay, on the terms set out in subsection (a), for any or all of the IFC Shares.

 

(d)           Upon the subscription and payment by IFC under subsection (a) above, the Company shall issue to IFC, or as IFC may direct, 2,507,161 fully paid shares common shares with a par value of US$0.001 for which such payment is made, such shares to rank pari passu in all respects with, and to be identical to the Existing Common Shares, and shall deliver to IFC, or as IFC shall direct, a share certificate evidencing valid title to the shares so issued free from any Liens or preemptive rights, and shall furnish to IFC a share certificate and an extract from the register of members of the Company demonstrating that such shares have been duly and validly authorized, issued and delivered.

 

Section 4.02.  Suspension and Cancellation.  IFC may, by notice to the Company, suspend or cancel its obligation to subscribe and pay for the IFC Shares, as follows:

 

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(a)           if subscription and payment shall not have been made by September 30, 2006, or such other date as may be agreed by the parties hereto;

 

(b)           if, at any time, in the reasonable opinion of IFC, there shall exist any situation which indicates that (1) any of the Company or the Lead Investors is not in compliance with any of its obligations under this Agreement, or (2) any of the Company or any of its Subsidiaries is not in compliance with the Concession Documents;

 

(c)           if any representation or warranty confirmed or made in this Agreement, or otherwise in connection with the execution and delivery of this Agreement shall be found to be incorrect in any material respect; or 

 

(d)           any provision of this Agreement is or becomes invalid, illegal or unenforceable.

 

Upon the giving of such notice, the right of the Company to subscriptions for any IFC Shares shall be suspended or cancelled as the case may be.  The exercise by IFC of the right of suspension does not preclude IFC from exercising its right of cancellation as provided in this Agreement, either for the same or another reason, and shall not limit any other provision of this Agreement.

 

ARTICLE V

 

Conditions of IFC Subscription and Payment

 

Section 5.01.  Conditions of IFC Subscription.  The share subscription by IFC shall be conditional upon satisfaction of, inter alia, the following conditions in form and substance satisfactory to IFC:

 

(a)           Agreement.  IFC shall have received a duly executed original of this Agreement and this Agreement shall be unconditional and fully effective by its terms;

 

(b)           Charter.  IFC shall have received certified copies of the Charter (and if relevant, certificates of registration and good standing, and branch registrations) of each of the Company, GeoPark Argentina and GeoPark Chile in each case in the agreed form;

 

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(c)           Corporate Resolutions.  IFC shall have received certified copies of all corporate (including, if required, shareholder) authorizations and approvals necessary for the due execution, delivery and performance of this Agreement;

 

(d)           Certificate of Incumbency.  IFC shall have received a certificate of incumbency and authority of the Company, substantially in the form of Schedule 2;

 

(e)           Governmental and other Approvals and Consents.  IFC shall have received confirmation through the legal opinions and due diligence reports to be delivered pursuant to Section 5.01(h) hereof and this shall (in addition to the representations provided in this Agreement) constitute confirmation that all governmental, creditor’s and other authorizations necessary for the execution, delivery and performance of this Agreement and the Concession Documents (other than authorizations that are of a routine nature and are obtained in the ordinary course of business) have been received, including without limitation:

 

(i)            the subscription to the IFC Shares by IFC and the issuance of the IFC Shares;

 

(ii)           the carrying out of the Project at the relevant time;

 

(iii)          the remittance to IFC in convertible currency of all moneys payable in respect of the IFC Shares, including, without limitation, dividends, distributions in the event of liquidation and the proceeds of the sale of the IFC Shares, including the amounts originally invested and any capital gains;

 

(iv)          the remittance to the Company in convertible currency of all moneys payable to GeoPark Argentina and GeoPark Chile under the Concession Documents, and the remittance to the Company in convertible currency of all moneys payable in respect of the Company’s shares in GeoPark Argentina and GeoPark Chile;

 

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(v)           the eventual sale of the IFC Shares to third parties (other than any consents required as agreed by the IFC in connection with any initial public offering); and

 

(vi)          the carrying on of the business of the Company and its Subsidiaries as it is contemplated to be carried on;

 

(f)            Dividend Policy.  IFC shall have received evidence reasonably satisfactory to it confirming that the Board of Directors of the Company shall have adopted a dividend policy in a form and substance acceptable to IFC and consistent with Section 6.01(q) hereof;

 

(g)           Concession Documents, Charters and Material Contracts.  IFC shall have received a certificate signed by an authorized officer of the Company listing each of the Concession Documents, the Charters of the Company and its Subsidiaries and each Material Contract, and confirming that attached to such certificate is a true and accurate copy of each listed document as in effect on the date of such certificate.

 

(h)           Legal Opinions.  IFC shall have received the following legal opinions and legal due diligence reports, each in the agreed form (except for item (i) below which shall be in form and substance satisfactory to IFC):

 

(i)            the opinion of Cox Hallett Wilkinson, special counsel in Bermuda to the Company;

 

(ii)           the opinion and legal due diligence report of Maciel, Norman & Asociados, special counsel in the Argentine Republic to the Company; and

 

(iii)          the opinion and legal due diligence report of Aylwin Abogados, special counsel in Chile to the Company.

 

(i)            Material Adverse Effect.  No event or circumstance has occurred which has or could reasonably be expected to have a material adverse effect on the Project, the business or operations of the Company or any of its Subsidiaries, or the Lead Investors;

 

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(j)            Fee and Expenses.  All fees and reimbursable expenses payable to IFC pursuant to this Agreement have been paid;

 

(k)           Representations and Warranties.  The representations and warranties confirmed or made in Article III above shall be true on and as of the date of the IFC Subscription or payment and with the same effect as though such representations and warranties had been made on and as of the date of such IFC Subscription or payment;

 

(l)            No Violation.  After giving effect to such IFC Subscription and payment, the Company shall not be in violation of its Charter, any provision contained in any document to which the Company is a party (including this Agreement) or by which the Company is bound, or any applicable law, rule or regulation;

 

(m)          Process Agent.  IFC has received letters, each in form and substance satisfactory to IFC, relating to the appointment of an agent for service of process by the Lead Investors and the Company, together with evidence satisfactory to IFC of each such process agent’s unconditional acceptance of such appointment;

 

(n)           Conversion of Convertible Loan.  IFC shall have received evidence reasonably satisfactory to it confirming that the Convertible Loans shall have been converted into common shares on substantially similar terms and conditions as the IFC Subscription;

 

(o)           Share Ownership Letter.  IFC shall have received a letter in form and substance reasonably satisfactory to it from the Lead Investors confirming their respective ownership and/or Control of common shares of the Company, as at the date of the submission of a subscription request hereunder;

 

(p)           Financial Statements.  IFC shall have received the pro forma consolidated financial statements of the Company as at December 31, 2005 prepared in accordance with the Accounting Principles; and

 

(q)           Subscription Request.  At least ten (10) days prior to the date of the proposed IFC Subscription or payment, the Company shall have delivered to IFC a subscription request, in the form of Schedule 1 and in substance satisfactory to IFC containing, inter alia, certifications with respect to the foregoing conditions, signed by an Authorized Representative and expressed to be effective as of the date of the relevant IFC Subscription and/or payment.

 

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ARTICLE VI

 

Covenants

 

Section 6.01.  Company Covenants.  Unless IFC otherwise agrees in writing, the Company shall (and shall as applicable cause its Subsidiaries to):

 

(a)           maintain an accounting and control system, management information system and books of account and other records, which together adequately reflect truly and fairly the financial condition of the Company and its Subsidiaries and the results of its operations in conformity with the Accounting Principles;

 

(b)           appoint and maintain at all times a firm of internationally recognized independent public accountants acceptable to IFC as auditors of the Company and its Subsidiaries;

 

(c)           ensure that the Company’s operations are in compliance with the Environmental and Social Requirements and all applicable laws in the Argentine Republic and the Republic of Chile, comply with the undertakings and timetable set forth in Annex 5 hereto, and develop (i) an ESMS acceptable to IFC no later than June 30, 2006, (ii) a Socio-Economic Baseline by July 31, 2006, (iii) a Community Development Plan by July 31, 2006, and (iv) a Land Titling Survey and Maps by July 31, 2006;

 

(d)           appoint and maintain a technically qualified individual as the person responsible for the environmental and social management of the activities of the Company and its Subsidiaries;

 

(e)           ensure that with effect from March 31, 2006 each of the Company and its Subsidiaries (i) maintains insurance coverage for public liability and director & officers’ liability reasonably acceptable to IFC, (ii) maintains any insurance required by applicable law, (iii) in respect of any investment in which the Company or a Subsidiary of the Company is an operator (and, in respect of any other investment of the Company, use all reasonable endeavours to ensure) that adequate insurance is maintained against customary risks and liabilities in amounts which are appropriate where such insurance is available at commercially reasonable terms, and (iv) in respect of the assets and operations of GeoPark Argentina and GeoPark Chile, insurance as specified in Annex 2;

 

(f)            not undertake any of the activities described as “prohibited activities” on Annex 3;

 

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(g)           not enter into any transaction other than in the ordinary course of business on the basis of arm’s length arrangements (including, without limitation, transactions whereby the Company or its Subsidiaries might pay more than the ordinary commercial price for any purchase or might receive less than the full ex-works commercial price (subject to normal trade discounts) for its product);

 

(h)           ensure that no Prohibited Payment is made by or on behalf of either the Company or the Lead Investors with respect to the operations of the Company and its Subsidiaries;

 

(i)            until all of the IFC Shares have been subscribed or IFC’s obligation to subscribe has been cancelled as provided in Section 4.03, unless IFC shall otherwise agree, not (i) issue any shares of any class, (ii) increase its capital except in accordance with the provisions of this Agreement, (iii) change the par value of, or the rights attached to, any of its shares of any class, or (iv) take any other action by amendment of its Charter or through reorganization, consolidation, sale of share capital, merger or sale of assets or otherwise which might result in a dilution of the interest in the Company represented by the IFC Shares;

 

(j)            permit IFC to act as an observer to the Board of Directors of the Company (or upon the request of IFC provide for a member of the Board of Directors to be appointed by IFC, subject to any such IFC appointed member not being a citizen or permanent resident of the United States of America) and reimburse IFC for any out-of-pocket expenses reasonably incurred in connection with the attendance by IFC at such board meetings;

 

(k)           establish, on or before June 30, 2006, and maintain thereafter, a board of directors which shall include at least one independent member, an audit committee, a remuneration committee and a nomination committee, consistent with the agreed form terms of reference of each of these committees;

 

(l)            not change the Charter for the Company or any of its Subsidiaries, or otherwise take action which may alter the rights or privileges associated with the ownership of common shares in the Company or reduce the capital of the Company;

 

(m)          not authorise the issuance of any security, equity or quasi-equity instrument, having a preference to the IFC Shares;

 

(n)           not undertake or permit any merger, consolidation or reorganisation;

 

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(o)           not sell, transfer, lease or otherwise disposes of all or a substantial part of its assets (whether in a single transaction or in a series of transactions), or the sale of any of the Company’s Subsidiaries;

 

(p)           not change the nature of the business of the Company and its Subsidiaries;

 

(q)           maintain a dividend policy pursuant to which the Company must, from and after December 31, 2007, distribute to its shareholders as a dividend at least fifty per cent (50%) of the Consolidated Cash Flow from Operations of the Company to the extent permitted by applicable law; and

 

(r)            permit IFC to subscribe to its pro rata share of any issuance of equity securities (other than new shares issued by the Company in connection with the conversion of the Convertible Loan, the Loan Note Instruments and the proposed initial public offering of the Company’s shares and the associated quotation on the AIM market of the London Stock Exchange plc or other recognised investment exchange).

 

Section 6.02.  Reporting Requirements.  The Company shall (and shall as applicable cause its Subsidiaries to):

 

(a)           as soon as available, but in any event within thirty (30) days after the end of each Financial Half Year, deliver to IFC:

 

(i)            two (2) copies of the Company’s unaudited consolidated financial statements for the half-year prepared in accordance with the Accounting Principles, with such other clarifications as IFC may reasonably request;

 

(ii)           a report on the actual capital expenditures of the Company and its Subsidiaries for preceding half-year against planned capital expenditures;

 

(iii)          a comprehensive report on the progress and implementation of the Project and the activities of the Company and its Subsidiaries, including, work programs, compliance (or non-compliance) with obligations under the Project Agreements, a description of available data on monthly production rates for oil, gas, condensate and water production and injection rates, sales volumes, prices, payment record and other items of maintenance and

 

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improvements and extraordinary items relating to the operations of the Company and its Subsidiaries; and

 

(iv)          a statement of all transactions during that quarter between the Company and/or its Subsidiaries and each of the Company’s Affiliates and/or Related Parties, and a certification by an Officer of the Company that those transactions were on an arm’s-length basis.

 

(b)           as soon as available, but in any event within ninety (90) days after the end of each Financial Year, deliver to IFC,

 

(i)            two copies of the Company’s audited consolidated financial statements, together with notes on such financial statements, prepared in accordance with the Accounting Principles, and such other clarifications as IFC may reasonably request;

 

(ii)           a management letter, to the extent it was received, from its auditors commenting on, among other things, the adequacy of the Company’s financial control procedures, accounting systems and management information systems, and any litigation;

 

(iii)          an Annual Monitoring Report, confirming compliance with applicable national or local requirements and the Environmental and Social Requirements in accordance with Annex 5;

 

(iv)          a report indicating the amounts paid during the relevant Financial Year to any governmental Authority under or in connection with the Concession Documents, which report shall, be made public; and

 

(v)           certificates of insurance, and a certificate from the Company’s insurers or insurance brokers confirming that such policies are in full force and effect and all premiums then due and payable under those policies have been paid.

 

(c)           no later than 45 days prior to each Financial Year, the Company’s proposed annual business plan and budget for the next Financial Year;

 

27

 

(d)           as soon as available, but in any event within three (3) days after its occurrence, notify IFC by facsimile of any incident or accident which has or may reasonably be expected to have an adverse effect on the environment, health or safety, including, without limitation, explosions, spills or workplace accidents which result in death, serious or multiple injury or major pollution, specifying, in each case, the nature of the incident or accident, the on-site and off-site impacts arising or likely to arise therefrom and the measures the Company or its Subsidiaries is taking or plans to take to address those impacts; and keep IFC informed of the on-going implementation of those measures;

 

(e)           as soon as available, copies of any notices, reports or other communications between the Company and its board of directors and/or shareholders, including, without limitation, any monthly or quarterly report on operations prepared for the board of directors, and any notices or minutes of meetings of the board of directors or shareholders of the Company; and

 

(f)            as soon as available, but in any event within five (5) days after its receipt thereof, copies of any reports, correspondence, documentation or notices (including any notices of any claims) from any third party, governmental Authority, or state-owned company, that could reasonably be expected to materially impact the operations of the Company and/or its Subsidiaries.

 

Section 6.03.  Lead Investor Covenants.  Each of the Lead Investors shall:

 

(a)           procure that shareholders holding fifty-one per cent (51%) of the common shares cause the Company and its Subsidiaries to comply with each of the covenants contained in Sections 6.02 and 6.03; and

 

(b)           for so long as IFC is a shareholder in the Company, procure that the collective shareholdings Controlled by the Lead Investors in the Company do not fall below fifty-one per cent (51%) of the common shares, and share capital, of the Company.

 

Section 6.04.  Survival of Covenants; De-listing.  (a)  The covenants of the Company provided in Section 6.01(c), (d), (e), (f) and (h), and Section 6.02(b)(iii) and (b)(iv), (d) and (e), and the covenants of the Lead Investors to cause the Company to comply with such covenants) shall survive for so long as IFC shall remain for so long as IFC shall be a shareholder in the Company.  All other covenants set forth in this Article VI, shall cease to apply to the Company and the Lead Investors from and after the date on which the shares of the Company (including the IFC Shares) shall be listed on the AIM market of the London Stock Exchange plc or any other recognized investment exchange.

 

28

 

(b)           In the event the Company is listed on the AIM market of the London Stock Exchange plc or any other recognized investment exchange, and subsequent to such listing a decision is made by the shareholders of the Company to de-list, in the event IFC votes against such decision to de-list, all of the covenants set forth in Section 6.01, 6.02 and 6.03 shall, effective on the date of such de-listing,  become binding once again on the parties hereto for so long as IFC shall remain a shareholder of the Company.

 

ARTICLE VII

 

Miscellaneous

 

Section 7.01.  Taxes.  The Company shall pay all taxes (including stamp taxes), duties, fees or other charges payable on or in connection with the execution, issue, delivery, registration or notarization of this Agreement, the IFC Shares and any documents related thereto, and shall, upon notice from IFC, reimburse IFC or its assigns for any such taxes, duties, fees or other charges paid by IFC or its assigns thereon.

 

Section 7.02.  Fees and Expenses.  The Company shall pay or cause to be paid to IFC or as IFC may direct:

 

(a)           the fees and expenses of IFC’s counsel reasonably incurred in connection with: (i) the preparation of IFC’s investment in the Company; (ii) the preparation, review, execution and, where appropriate, registration, delivery and translation of this Agreement, the IFC Shares and any other documents related to this Agreement or the IFC Shares; (iii) the giving of any legal opinion required by IFC under this Agreement; (iv) any amendment or modification to, or waiver under, this Agreement; and (v) the registration (where appropriate) and delivery of the evidences of payments by or to IFC in relation to the IFC Subscription; and

 

(b)           all of IFC’s costs and expenses, including legal fees, reasonably and properly incurred by IFC in relation to the protection or enforcement, or attempted protection or enforcement, of any rights under this Agreement.

 

Section 7.03.  Notices and Requests.  Any notice, request or other communication to be given or made under this Agreement shall be in writing.  Any such notice, request or other communication may be delivered by hand, facsimile, or established courier service to the party’s address specified below or at

 

29

 

such other address as such party notifies to the other parties from time to time and will be effective upon receipt.

 

For the Company and the Lead Investors:

 

GeoPark Holdings Limited

Florida 981, 2nd Floor

Buenos Aires, Argentina

 

Facsimile:  +541 4312883

Attention:  James F. Park, Chief Executive Officer

 

For IFC:

 

International Finance Corporation

2121 Pennsylvania Avenue, N.W.

Washington, D.C. 20433

United States of America

 

Facsimile:              +1 (202) 974 4322

Attention:              Director, Oil, Gas, Mining and Chemicals Department

 

Section 7.04.  Evidence of Authority.  The Company shall furnish to IFC the Certificate of Incumbency and Authority, that is, a certificate, in the form of Schedule 2 and in substance satisfactory to IFC, evidencing the authority of the person or persons who will, on behalf of the Company, sign the requests and certifications provided for in this Agreement, or take any other action or execute any other document required or permitted to be taken or executed by the Company under this Agreement, and the authenticated specimen signature of each such person.

 

Section 7.05.  Saving of Rights.

 

(a)           The rights and remedies of IFC in relation to any misrepresentations or breach of warranty on the part of the Company shall not be prejudiced by any investigation by or on behalf of IFC into the affairs of the Company, by the execution or the performance of this Agreement or by any other act or thing which may be done by or on behalf of IFC in connection with this Agreement and which might, apart from this Section, prejudice such rights or remedies.

 

30

 

(b)           No course of dealing or waiver by IFC in connection with any condition of IFC Subscriptions and/or payment under this Agreement shall impair any right, power or remedy of IFC with respect to any other condition, or be construed to be a waiver thereof; nor shall the action of IFC in respect of any IFC Subscription and/or payment affect or impair any right, power or remedy of IFC in respect of any other IFC Subscription and/or payment.

 

(c)           Unless otherwise notified to the Company by IFC and without prejudice to the generality of subsection (b) above, the right of IFC to require compliance with any condition under this Agreement which may be waived by IFC in respect of any IFC Subscription and/or payment is expressly preserved for the purposes of any subsequent IFC Subscription and/or payment.

 

(d)           No course of dealing and no delay in exercising, or omission to exercise, any right, power or remedy accruing to IFC upon any default under this Agreement or any other agreement shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquiescence therein; nor shall the action of IFC in respect of any such default, or any acquiescence by it therein, affect or impair any right, power or remedy of IFC in respect of any other default.

 

Section 7.06.  English Language.  All documents to be furnished or communications to be given or made under this Agreement shall be in the English language or, if in another language, shall be accompanied by a translation into English certified by a representative of the Company, which translations shall be the governing version between the Company and IFC.

 

Section 7.07.  Choice of Law and Jurisdiction.

 

(a)           This Agreement is governed by and shall be construed in accordance with the laws of England.

 

(b)           Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force.  There shall be three arbitrators and the appointing authority shall be the London Court of International Arbitration.  The seat and place of arbitration shall be London, England and the English language shall be used throughout the arbitral proceedings.  The parties hereby waive any rights under the Arbitration Act 1996 or otherwise to appeal any arbitration award to, or to seek determination of a preliminary point of law by, the courts of England.  The arbitral tribunal shall not be authorised to take or provide, and the Company agrees that it shall not seek

 

31

 

from any judicial authority, any interim measures of protection or pre-award relief against IFC, any provisions of UNCITRAL Arbitration Rules notwithstanding.  The arbitral tribunal shall have authority to consider and include in any proceeding, decision or award any further dispute properly brought before it by IFC (but no other party) insofar as such dispute arises out of this Agreement, but, subject to the foregoing, no other parties or other disputes shall be included in, or consolidated with, the arbitral proceedings.

 

(c)           Notwithstanding Section 7.07(b), this Agreement, and any rights of IFC arising out of or relating to this Agreement, may, at the option of IFC, be enforced by IFC in the courts of England, Bermuda or any other court having jurisdiction.  For the benefit of IFC, the Company and each of the Lead Investors hereby irrevocably submits to the non-exclusive jurisdiction of the courts of England with respect to any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof or thereof.  Each of the Company and the Lead Investors hereby irrevocably designates, appoints and empowers The Law Debenture Trust Corporation plc at its registered office (being, on the date hereof, at 100 Wood Street, London EC2V 7EX, England) to act as its authorized agent to receive service of process and any other legal summons in England for purposes of any legal action or proceeding brought by IFC in respect of this Agreement.  Each of the Company and the Lead Investors hereby irrevocably consents to the service of process or any other legal summons out of such courts by mailing copies thereof by registered airmail postage prepaid to its address specified herein.  Each of the Company and the Lead Investors covenants and agrees that, so long as it has any obligations under this Agreement, it shall maintain a duly appointed agent to receive service of process and any other legal summons in England for purposes of any legal action or proceeding brought by IFC in respect of this Agreement and shall keep IFC advised of the identity and location of such agent.  Nothing herein shall affect the right of IFC to commence legal actions or proceedings against the Company or the Lead Investors in any manner authorized by the laws of any relevant jurisdiction.  The commencement by IFC of legal actions or proceedings in one or more jurisdictions shall not preclude IFC from commencing legal actions or proceedings in any other jurisdiction, whether concurrently or not.  Each of the Company and the Lead Investors irrevocably waives any objection it may now or hereafter have on any grounds whatsoever to the laying of venue of any legal action or proceeding and any claim it may now or hereafter have that any such legal action or proceeding has been brought in an inconvenient forum.

 

Section 7.08.  Counterparts.  This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

 

32

 

Section 7.09.  Entire Agreement.  This Agreement, together with any documents referred to in it, or expressed to be entered into in connection with it, constitutes the entire agreement of the parties concerning the subject matter of this Agreement.

 

[The remainder of this page is intentionally left blank]

 

33

 

IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names, as of the date first above written.

 

 

	
 
    	
GEOPARK   HOLDINGS LIMITED
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Gerald O’Shaughnessy
    	
 
    
	
 
    	
Name:
    	
Gerald   O’Shaughnessy
    	
 
    
	
 
    	
Title:
    	
Executive   Chairman
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   James F. Park
    	
 
    
	
 
    	
Name:
    	
James   F. Park
    	
 
    
	
 
    	
Title:
    	
Chief   Executive Officer
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
LEAD   INVESTORS
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   Gerald O’Shaughnessy
    	
 
    
	
 
    	
Gerald   O’Shaughnessy
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
/s/   James F. Park
    	
 
    
	
 
    	
James   F. Park
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
INTERNATIONAL   FINANCE CORPORATION
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Rashad Rudolf Kaldany
    	
 
    
	
 
    	
Name:
    	
Rashad   Rudolf Kaldany
    
	
 
    	
Title:
    	
Director,   Oil, Gas, Mining and Chemicals Department
    

 

34

 

SCHEDULE 1

Page 1 of 2

 

Form of Subscription Request

 

(Letterhead of the Company)

 

[Date:]

 

International Finance Corporation

2121 Pennsylvania Avenue, N.W.

Washington D.C. 20433

United States of America

 

Reference:  IFC Investment No. 24689

Purpose:  Request for Subscription

 

Gentlemen:

 

1.             Please refer to the Subscription and Shareholders Agreement (the “Agreement”) dated February 7, 2006, between International Finance Corporation (“IFC”) and the undersigned Company (the “Company”).

 

2.             Expressions defined in the Agreement shall bear the same meanings herein.

 

3.             In accordance with the provisions of the Agreement and the enclosed resolution of the Company’s Board of Directors, the Company hereby requests the subscription by IFC of: the IFC Shares and payment therefor as follows:

 

35

 

SCHEDULE 1

Page 2 of 2

 

	
Amount   requested:
    	
 
    	
US$10,000,000
    	
 
    
	
Date   required:
    	
 
    	
 
    	
 
    
	
At   Bank:
    	
 
    	
 
    	
 
    
	
Address:
    	
 
    	
 
    	
 
    
	
Account:
    	
 
    	
 
    	
 
    

 

4.             For the purposes of this subscription and payment, the Company hereby confirms that the conditions to subscription set forth in Section 5.01 are fulfilled, and makes the representations contained in Article III of the Agreement.  Such representations are effective as of the date of this request for subscription and payment and shall continue to be effective as of the date(s) of subscription and payment.  If any of such representations is no longer valid as of or prior to the date(s) of the subscription and payment, the Company shall immediately notify IFC and shall repay the amount paid upon demand by IFC if payment is made prior to receipt of such notice.

 

 

	
 
    	
Very   truly yours,
    
	
 
    	
 
    
	
 
    	
GEOPARK   HOLDINGS LIMITED
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    
	
 
    	
 
    
	
 
    	
Authorized Representative(1)
    

 

[Enclosures:          Resolution of the Company’s Board of Directors; and Subscription Form]

 

(1)           As named in the Certificate of Incumbency and Authority.

 

36

 

SCHEDULE 2

Page 1 of 2

Form of Certificate of Incumbency and Authority

 

(Section 5.01(d) of Subscription and Shareholders Agreement refers)

 

(Letterhead of the Company)

 

[Address]

[Date]

 

International Finance Corporation

2121 Pennsylvania Avenue, N.W.

Washington, D.C. 20433

United States of America

 

Ladies and Gentlemen:

 

Certificate of Incumbency and Authority

 

With reference to the Subscription and Shareholders Agreement signed between us, dated February 7, 2006 (the “ Agreement”), I the undersigned [Chairman] [Director] of the undersigned Company (the “Company”) with the authority of my Board of Directors, hereby certify that the following are the names, offices and true specimen signatures of the persons each of whom will, and shall continue to be (until you receive authorized written notice from the Company that they, or any of them, no longer continue to be) authorized:

 

(a)                         to sign on behalf of the Company the requests for IFC Subscription and payment provided for in the Agreement;

 

(b)                         to sign the certificates provided for in the Agreement; and

 

(c)                          to take, in the name of the Company, any other action required or permitted to be taken, done, signed or executed under the Agreement and under any other agreement to which we are both parties;

 

37

 

SCHEDULE 2

Page 2 of 2

 

	
Name
    	
 
    	
Office
    	
 
    	
Specimen Signature
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
(2)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
(3)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

 

	
 
    	
Yours   faithfully,
    
	
 
    	
 
    
	
 
    	
GEOPARK   HOLDINGS LIMITED
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By
    	
 
    
	
 
    	
 
    	
[Chairman]   [Director]
    

 

(2)         As many, or as few, names may be included as the Company shall desire.

 

(3)         Designations may be changed by the Company at any time by issuing a new Certificate of Incumbency and Authority authorized by the Board of Directors of the Company.

 

38

 

SCHEDULE 3

 

Disclosures

 

The representations given in Article III of the Agreement (“Representations”) are made and given subject to the disclosures contained in this Schedule and/or the documents referred to in this Schedule.

 

Although for ease of reference certain numbered paragraphs in the Schedule to this letter correspond with particular paragraphs of the Representations, all disclosures in this Schedule relate, and are to be taken as relating, to all of the Representations.

 

General Disclosures

 

The Company is not and shall not be deemed to be in breach of any of the Representations (and no claim shall lie or liability attach) in respect of any matter disclosed in, or deemed to be disclosed by, this Schedule and/or the documents referred to in this Schedule.

 

Where brief particulars of a matter are given in this letter, or a document is referred to or a reference is made to a particular part only of a document, full particulars of the matter and the entire contents of the document shall be deemed to be disclosed.

 

In addition, the following are disclosed or are deemed to have been disclosed by this letter:

 

·                  the contents of the Agreement and any other agreement or document entered into upon signing of the Agreement or to be entered into at the time of the IFC Subscription; and

·                  the contents of:

 

·                  each of the legal opinions referred to in section 5.01(h) of this Agreement;

·                  the due diligence report prepared by Aylwin Abogados dated as of 7 February 2006; and

·                  the due diligence report prepared by Maciel, Norman & Asociados dated as of 7 February 2006.

 

Specific Disclosures

 

In addition, there are disclosed the specific matters set out below.

 

39

 

	
Representation
   reference
    	
 
    	
Specific Disclosure
    
	
 
    	
 
    	
 
    
	
3.01   (c) (v)

 
    	
 
    	
1                               It is   intended that an employee share scheme will be set up by the Company just   prior to the initial public offering of the Company’s shares on the AIM   market of the London Stock Exchange plc.    Options or shares will be issued to certain directors and key   employees in accordance with the terms of the scheme.  These options have already been verbally   promised to certain key employees.  The   Company proposes to implement a share incentive scheme (which it is still   designing with compensation experts) at the time of the proposed initial   public offering and quotation on the AIM Market of the London Stock Exchange   plc which will set aside approximately 10% of the share capital of the   Company from time to time for grants to employees.  The expectation is that at the time of the   initial public offering the Company will make grants in respect of shares   representing not more than 3% of the Company’s issued share capital   immediately following the initial public offering.

 

2                               Richard Cole,   an ex-employee of the Company, was promised options or shares as part of his   remuneration package from the Company in exchange for lowering his daily   consulting fee. There was never a formal service agreement between him and   the Company.  The number of options or   shares he was eligible for was to be calculated dependent on the length of   his service and performance.  Following   the termination of his employment, this grant of options or shares has never   been fulfilled.  The Company is   currently in discussions with Mr Cole to agree a settlement of any   claims he may allege.  The Company does   not expect any such settlement to exceed US$250,000.

 

3                              Under a stock   and asset purchase agreement dated May 2, 2002 (as amended by an   amendment agreement dated October 18, 2002) between AES Gener S.A.,   Gener Argentina S.A., Oilgener Inc. (as Sellers), and Energy Holdings LLC (as   Buyer) (the “SAPA”) Energy Holdings LLC granted AES Gener SA a capped royalty   of 3.0% on the net remuneration from the Fell Block up to a maximum of US$ 3,250,000.  The rights and obligations   of Energy Holdings LLC were transferred to
    

 

40

 

	
 
    	
 
    	
GeoPark Argentina Limited by an acknowledgement agreement on 5   November 2002.

 

4                               As partial   consideration for the acquisition of the Del Mosquito exploitation   concession, Cordex Petroleums Argentina Limited (now GeoPark Argentina   Limited), as assignee, agreed to pay to EPP Petróleo S.A., as assignor, an   overriding royalty interest of 2.5% (two point five percent) of the marketed   hydrocarbons produced from the Del Mosquito area, if any.

 

5                               As partial   consideration for the acquisition of the Cerro Doña Juana and Loma Cortaderal   exploitation concessions, Cordex Petroleums Argentina Limited (now GeoPark   Argentina Limited), as assignee, agreed to pay to Triton Argentina Inc. (now   Vintage Petroleum), as assignor, an overriding royalty interest of 8.0% (eight   percent) of the aggregate future hydrocarbon production, if any, from the   areas covered by the Cerro Doña Juana and Loma Cortaderal concessions.   Vintage shall be entitled to take the hydrocarbon production in kind or have   such production marketed by GeoPark Argentina Limited on arms length   competitive commercial basis from time to time. If Vintage chooses to have   GeoPark Argentina Limited market such production, GeoPark Argentina Limited   shall pay the proceeds to Vintage within 10 days of receipt of the funds by   GeoPark Argentina Limited from the sale of hydrocarbons from the Cerro Doña   Juana and Loma Cortaderal areas. 
    

 

41

 

	
3.01(g)(ii)
    	
 
    	
1                              Secretary of   Energy Resolution 5/1996 requires the holder of an Exploitation Concession to   file yearly, on or before January 31 each year:

 

·             A proposed   schedule of well abandonment works to be undertaken during relevant year; and

 

·                                A report on   well abandonment works completed during previous year.

 

The well abandonment schedules filed by the   branch of GeoPark Argentina Limited with the Argentine Secretary of Energy on   February 24, 2005 display the following situation:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
CONCESSION
    	
 
    	
# of Plugged
   Wells
    	
 
    	
# of Inactive Wells
   to be plugged
    	
 
    	
Deadline to plug
   inactive wells
    
	
 
    	
 
    	
Del Mosquito
    	
 
    	
26
    	
 
    	
16
    	
 
    	
January 9,   2011
    
	
 
    	
 
    	
Cerro Doña Juana
    	
 
    	
4
    	
 
    	
1
    	
 
    	
January 9,   2011
    
	
 
    	
 
    	
Loma Cortaderal
    	
 
    	
2
    	
 
    	
1
    	
 
    	
January 9,   2011
    

 

42

 

	
 
    	
 
    	
2                               Until   December 31, 2003, the branch of GeoPark Argentina Limited held a gas   flaring licence to flare up to 25,000m3/day of natural gas at Del Mosquito   block. Such licence was granted by Disposition 80/2003 of the Sub-secretary   of Fuels, as there were no natural gas connection and transmission facilities   to allow the marketing of the natural gas production. After the expiration of   such licence, upon notice to the Secretary of Energy and based on technical   evidence that the natural gas production was being exhausted, the branch of   GeoPark Argentina Limited continued to flare gas volumes within the limits of   what the Company is able to flare under Argentine law.

 

3                               Mendoza Water   Departments Inspections: During 2002, the Water Department of the Province of   Mendoza inspected the Loma Cortaderal and Cerro Doña Juana blocks and made   the following observations:

 

LCx-1 well: the discharge system was not considered safe enough to   prevent spills into the Buta Mayin creek. The branch of GeoPark Argentina   Limited replied that it was not necessary to build an additional system to   prevent a possible leak into the Buta Mayin creek, since the natural flow of   the well is extremely low. That notwithstanding, the branch of GeoPark   Argentina Limited committed to level the loading facility area and to   construct a natural ditch with natural walls to contain possible oil leaks in   that area. The branch of GeoPark Argentina Limited did not receive any   further requirements from the authorities in connection with this event.

 

ABM x-1 well: two containers with hydrocarbon were allegedly found   flowing into the Buta Ranquil creek. The branch of GeoPark Argentina Limited   replied that during the last environmental audits, the fluids in the   containers were tested and proved extremely low hydrocarbon content.  Accordingly, there was no possibility the   creek would be polluted. That notwithstanding, the branch of GeoPark   Argentina Limited  will study other   additional improvements such as the improvement of the walls of both   containers to ease the natural drainage of clean water therein contained to   the Buta Mayin creek. The branch of GeoPark Argentina Limited did not receive   any further requirements from the authorities in
    

 

43

 

	
 
    	
 
    	
connection with this event.

 

CDJ-x1 well: Oil and water leaks were allegedly observed between   flanges. The branch of GeoPark Argentina Limited replied that it would evaluate   the intervention of the well to either put it in production or abandon it   definitively. The well was repaired twice and its final repair is not   considered appropriate until a final decision is taken on the abandonment or   activation of the well. The branch of GeoPark Argentina Limited did not   receive any further requirements from the authorities in connection with this   wellhead.
    

 

44

 

	
 
    	
 
    	
CDJ-x2 well: The wellhead cellar was allegedly found   loaded with water and oil due to wellhead leakage. The branch of GeoPark   Argentina Limited replied that it would undertake studies to decide the   intervention or final abandonment of the well.  That notwithstanding, a cellar was built to   contain the leaks and works were carried to minimize them. The well is   inspected regularly to prevent any spills. On January 4th, 2006, the branch of   GeoPark Argentina Limited was notified of Resolution 388 passed by the   Sub-secretary of the Environment whereby the branch of GeoPark Argentina   Limited  was required to submit within   10 days a work plan to remediate the soil contaminated with oil in old spills   near the location of the CDJ-x2 well. The branch of GeoPark Argentina   Limited committed to carry out a remediation plan which has now been   implemented.

 

4                              Secretary of   Energy Resolutions 340/93 and 25/04 require the holders of Exploitation   Concessions in the Austral Basin to file on or before February 28 each   year an Annual Survey of Works and Tasks Study prepared by an environmental   consulting firm registered with the Secretary of Energy.

 

Del Mosquito: The 2005 Annual Survey of   Works and Tasks Study for the Del Mosquito block reports that all material   mitigation and remediation measures recommended in the immediately preceding   year are either in process or have already been implemented by the branch of   GeoPark Argentina Limited. Newly recommended high priority mitigation and   remediation measures include: to build a spill tray in battery “A”, to build   waterproof collecting trays to prevent harm to the soil, to fix up emergency   pools in batteries “A” and “B”, to protect pumping equipment in productive   wells, to remedy the pool in the “DM-5” well and to remedy and patch the pool   in the “DM-18” well.

 

Cerro Doña Juana & Loma   Cortaderal: An inspection of all wells is carried out every two months at the   Loma Cortaderal block. Some of the 2004 recommended mitigation and   remediation measures were not implemented and the 2005 Annual Survey of Works   and Tasks Study has recommended the following high priority measures: to   signal both the area and the wells in it, to waterproof the LC x-1 well, to   keep the roads in good general condition, and to prevent water 
    

 

45

 

	
 
    	
 
    	
accumulation in the pools of the ABM X-1 well.

 

5                              GeoPark Chile   Limited is obligated to obtain an environmental permit to operate a pipeline.   On October 17, 2005, an advisor was hired to prepare and file an   Environmental Impact Declaration (Declaración de Impacto Ambiental) before   the regional environmental agency COREMA. This Environmental Impact   Declaration is expected to be submitted by GeoPark Chile Limited by   February of 2006.

 

If environmental impact is small, an Environmental Impact Declaration   will be sufficient and after 60 business days a permit will be granted.  If the impact is deemed to be other than   small, an Environmental Impact Study will have to be prepared which is used   for wider consultation-. According to the information that GeoPark Chile   Limited possesses at present and based on the conclusion of the environmental   consultant, an Environmental Impact Declaration would be sufficient for this   preliminary stage of the project.

 
    
	
3.01(k)
    	
 
    	
1                               Under a stock   and asset purchase agreement dated May 2, 2002
    

 

46

 

	
 
    	
 
    	
(as amended by an amendment agreement dated   October 18, 2002) between AES Gener S.A., Gener Argentina S.A., Oilgener   Inc. (as Sellers), and Energy Holdings LLC (as Buyer) (the “SAPA”) Energy   Holdings LLC granted AES Gener SA the Buyer must pay the Sellers a capped   royalty of 3.0% on the net remuneration from the Fell Block up to a maximum   of US$ 3,250,000. The rights and obligations of Energy Holdings LLC were   transferred to GeoPark Argentina Limited by an acknowledgement agreement on 5   November 2002.

 
    
	
 
    	
 
    	
2                               As partial consideration for the   acquisition of the Del Mosquito exploitation concession, Cordex Petroleums   Argentina Limited. (now GeoPark Argentina Limited.), as assignee, agreed to   pay to EPP Petróleo S.A., as assignor, an overriding royalty interest of 2.5%   (two point five percent) overriding royalty of the marketed hydrocarbons   produced from the Del Mosquito area, if any.
    

 

47

 

	
 
    	
 
    	
3                               As partial consideration for the   acquisition of the Cerro Doña Juana and Loma Cortaderal exploitation   concessions, Cordex Petroleums Argentina Ltd. (now GeoPark Argentina Ltd.),   as assignee, agreed to pay to Triton Argentina Inc. (now Vintage Petroleum),   as assignor, an overriding royalty interest of 8.0% (eight percent) of the   aggregate future hydrocarbon production, if any, from the areas covered by   the Cerro Doña Juana and Loma Cortaderal concessions. Vintage shall be   entitled to take the hydrocarbon production in kind or have such production   marketed by GeoPark on arms length competitive commercial basis from time to   time. If Vintage chooses to have GeoPark market such production, GeoPark   shall pay the proceeds to Vintage within 10 days of receipt of the funds by   GeoPark from the sale of hydrocarbons from the Cerro Doña Juana and Loma   Cortaderal areas.

 

4                               Geopark Argentina Limited (Sucursal   Argentina) entered into an agreement with Western Geco S.A., dated   January 2nd, 2006, to acquire 3D seismics. It is currently estimated   that the total cost under this agreement will be US$3 million, however this   is subject to change as a result of delays and/or adjustments to the surface.   Associated with this is the cost to pay the relevant surface landowners for   permission to complete the seismic. This amounts to US$ 273 (50% of this   amount has already been paid).

 

5                               The Company owes Pride Drilling   US$997,059 in respect of the services it provided during the recent drilling   programme.

 
    
	
3.01(m)
    	
 
    	
1                               Canaccord Capital (Europe) Limited will   be paid a brokers fee of 6% of the proceeds raised by the placing, in   connection with the admission of the Company to trading on the AIM market of   the London Stock Exchange plc. In addition, the Company has entered into a   number of engagement letters with a number of other advisers.
    

 

48

 

SCHEDULE 4

Page 1 of 1

 

Limitations on the Liability of the Company and the Lead Investors

 

1.                                      Limitation on quantum

 

1.1                               The total liability in respect of all claims as against the Lead Investors shall be limited to US$10,000,000; provided that no such limit shall apply in respect of all claims made against the Company.

 

2.                                      Time limit for bringing a claim

 

2.1                               There shall be no liability for a claim unless the IFC has given notice of that claim stating in reasonable detail the nature of the claim by no later than 31 July 2007.

 

2.2                               Any claim (if not been previously satisfied, settled or withdrawn) be deemed to have been waived or withdrawn on the expiry of six months after the date it was made unless court or arbitral proceedings in respect of it have been commenced.

 

2.3                               Where the matter of default giving rise to a claim is capable of remedy, the IFC may not bring a claim unless notice of the breach is given to the Company and the Lead Investors within 30 days of the IFC becoming aware of the matter or default, and the matter or default (where capable of being remedied) is not remedied to the reasonable satisfaction of the IFC within 30 days after the date on which such notice is given.

 

3.                                      No duplication of liability

 

3.1                           In respect of any matter which may give rise to a claim, no such liability shall be met more than once.

 

49

 

ANNEX 1

 

Affiliate and Related Party Transactions

 

1                              GeoPark Argentina Limited (Sucursal Argentina) and James F. Park are parties to certain guaranty or surety agreements whereby the relevant guarantor agreed to be jointly and severally liable with the relevant lessee vis a vis lessor for the payment of the monthly leases, as well as for any damages caused to the leased properties, as follows;

 

	
Lessee
    	
 
    	
Guarantor
    	
 
    	
Property
    	
 
    	
Monthly lease in US$
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
James F. Park
    	
 
    	
GeoPark Argentina Branch
    	
 
    	
James F. Park ́s apartment
    	
 
    	
1800+VAT+utilities
    	
 
    
	
GeoPark Argentina Branch
    	
 
    	
James F. Park
    	
 
    	
Buenos Aires Office
    	
 
    	
1750+VAT+utilities
    	
 
    
	
GeoPark Argentina Branch
    	
 
    	
James F. Park
    	
 
    	
Buenos Aires Office
    	
 
    	
1700+VAT+utilities
    	
 
    
	
GeoPark Argentina Branch
    	
 
    	
James F. Park
    	
 
    	
Apartment for employees of the Branch
    	
 
    	
1200+VAT+utilities
    	
 
    

 

2                               Lease Contract between Oilgener Argentina Limited (now GeoPark Argentina Limited) and GeoPark Chile Limited:

 

	
Contractor
    	
 
    	
Dated
    	
 
    	
Term
    	
 
    	
Object
    	
 
    	
Governing
   Law
    	
 
    	
Jurisdiction
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Oilgener Argentina
    	
 
    	
8/12/05
    	
 
    	
180 days
    	
 
    	
Lease machinery
    	
 
    	
Chile
    	
 
    	
Punta Arenas
    	
 
    

 

50

 

ANNEX 2

Page 1 of 2

 

Insurance Requirements

 

1.              Operational Insurances — Energy Package

 

A.                                    COVERAGE

 

Section A:                                                                                        All Risks of Physical Loss or Damage to property forming part of Borrowers’ operations and/or other Property in the Care, Custody or Control of the Assured including Removal of Debris and/or Wreck and for Sue & Labor.

 

Section B:                                                                                        Operator’s Extra Expense including Control of Well, Extended and Restoration Limited Cost Redrill, Seepage and Pollution and Clean Up and Containment, Underground Blowout, Making Wells Safe, Removal of Debris/Wreck, Evacuation Expenses, Deliberate Well Firing.

 

Section C:                                                                                        Comprehensive General Liabilities arising out of or incidental to the Borrowers’ operations.

 

B.                                    SUM INSURED/LIMIT OF LIABILITY

 

Section A:                                                                                        An amount sufficient to reinstate the property

 

Section B:                                                                                        US$5,000,000, or such lower limit as may be agreed by IFC.

 

Section C:                                                                                        US$5,000,000, or such lower limit as may be agreed by IFC.

 

C.                                    DEDUCTIBLES AND/OR EXCESS

 

Section A:                                                                                        US$25,000

Section B:                                                                                        US$250,000

Section C:                                                                                        US$50,000

 

51

 

ANNEX 2

Page 2 of 2

 

2.              Miscellaneous

 

Other insurance which,

 

a)                                     is customary or necessary to comply with local or other requirements, such as contractual insuring responsibility, Workers’ Compensation and Employers’ Liability insurances in relation to all workmen employed at the sites or in connection with its operation; motor vehicle liability insurance for all vehicles owned, hired, leased, used or borrowed;

 

b)                                     is considered by the Borrowers to be desirable or prudent, or required by IFC; or

 

c)                                      are required by local legislation and/or any Project Document.

 

3.              General

 

a)                                     Each policy effected pursuant to this Annex:

 

i)                                         shall be in such form and substance as is consistent with the obligations of the Borrowers under this Annex, as may be approved by IFC.

 

52

 

ANNEX 3

Page 1 of 1

 

Prohibited Activities

 

·                        Production or activities involving harmful or exploitative forms of forced labor/harmful child labor.

 

·                        Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements.

 

·                        Production or trade in weapons and munitions.

 

·                        Production or trade in alcoholic beverages (excluding beer and wine).

 

·                        Production or trade in tobacco.

 

·                        Gambling, casinos and equivalent enterprises.

 

·                        Trade in wildlife or wildlife products regulated under Convention on International Trade in Endangered Species of Wild Fauna and Flora.

 

·                        Production or trade in radioactive materials.

 

·                        Production or trade in or use of unbonded asbestos fibers.

 

·                        Commercial logging operations or the purchase of logging equipment for use in primary tropical moist forest (prohibited by the Forestry policy).

 

·                        Production or trade in products containing Poly Chlorinated Biphenyls.

 

·                        Production or trade in pharmaceuticals subject to international phase outs or bans.

 

·                        Production or trade in pesticides/herbicides subject to international phase out.

 

·                        Production or trade in ozone depleting substances subject to international phase out.

 

·                        Drift net fishing in the marine environment using nets in excess of 2.5 km in length.

 

53

 

ANNEX 4

Page 1 of 2

 

Timetable for 6.01(c)

 

	
#
    	
 
    	
Task Description
    	
 
    	
Output
    	
 
    	
Required
   Completion/
    Submittal Date
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1.
    	
 
    	
Environmental and Social Management   System: Develop   system for managing and monitoring the environmental and social aspects of   the activities undertaken by the Company and its Subsidiaries.
    	
 
    	
·                  Provide detailed description of ESMS with   implementation timeline.
    	
 
    	
June 30, 2006
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2.
    	
 
    	
Socio-Economic Baseline: Conduct socio-economic baseline study   of affected municipalities, communities and estancias in Chile and Argentina.   The study should provide input on: the key economic activities in the area   including constraints and accelerators of development; the social structure   of surrounding communities and ranches; municipal, community and regional   governance structures; list of relevant non-governmental organizations and   civil society groups; description of laws regarding royalties, right of way,   and compensation for access to land. The study should also include   recommendations on how the Company can contribute to the communities in terms   of capacity building, in kind support, supply chains and economic   development.
    	
 
    	
·                  Provide copy of study to IFC.
    	
 
    	
July 31, 2006
    	
 
    

 

54

 

	
#
    	
 
    	
Task Description
    	
 
    	
Output
    	
 
    	
Required
   Completion/
    Submittal Date
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
3.
    	
 
    	
Community Development Plan: The Company will prepare a Community   Development Plan based on the recommendations from the Socio-Economic   Baseline. The Community Development Plan will present a plan for how the   Company intends to promote sustainable economic growth in the communities in   which it operates. The Community Development Plan will include a framework   for the Company’s social responsibility program as well as a guideline for   incorporating community participation in the process.
    	
 
    	
·                  Provide copy of the Community   Development Plan to IFC.

 

·                  Provide description of all community development   activities including donations, training programs and capacity building to   date.
    	
 
    	
July 31, 2006
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
4.
    	
 
    	
Land Titling Survey and Maps: As part of its compensation program   the Company will develop titling maps of the areas covered by the Concession   Documents as well as a list of all titled landowners.
    	
 
    	
·                  Provide IFC with copies of the Land Titling Survey   and land ownership maps. Please also indicate if there are any people who are   negatively impacted by the Company’s use of land (for example interruptions   to ranching activities) who do not have title to the land.
    	
 
    	
July 31, 2006
    	
 
    

 

55

 

ANNEX 5

 

Annual Monitoring Report

 

Attached.

 

56

 

	

    	
Annual   Environmental and Social Monitoring Report (AMR)
    

 

The following template may be supplemented with annexes as appropriate to ensure all relevant information on project performance is reported.

 

General Questions

 

Company Details

 

GEOPARK:

 

Project Country:

 

Project Name:

 

IFC Project ID:

 

GEOPARK authorized representative:

I certify that the data contained in this AMR completely and accurately represents operations during this reporting period. I further certify that analytical data summaries(4) are based upon data collected and analyzed in a manner consistent with the World Bank Group’s Pollution Prevention and Abatement Handbook, Monitoring.

 

	
Signature:
    	
 
    	
 
    	
Date:
    	
 
    

 

Reporting Period

 

AMR reporting period:    

 

Project Status

 

	
o Design
    	
o Construction
    	
o Expansion
    	
o Operation
    	
o Closure
    	
o Other (specify)
    

 

o            List any developments which have taken place in relation to the project over the reporting period.  For example, has construction been started or completed, has new equipment been installed, or has production capacity increased?

 

(4)  Raw analytical data upon which summaries are based should not be submitted with this AMR but should be preserved  and presented to IFC upon request.

 

57

 

o            Describe any changes to management procedures instigated as a result of project changes or completion.

 

Significant Events and Issues

 

o            Are you aware of any events(5) that may have caused damage; brought about injuries or fatalities or other health problems; attracted the attention of outside parties; affected project labor or adjacent populations; affected cultural property; or created liabilities for your company?

 

o            If yes please provide details of the event/issue or complete an incident report.

 

Liaison with External Parties

 

o            Describe any reporting/monitoring requirements imposed by local regulatory authorities.

 

o            Describe any ongoing public consultation and disclosure, liaison with non-governmental organizations (NGOs), civil society or public relations efforts (e.g. establishment of a web page).

 

o            Describe any ongoing social or community development initiatives, programs or dialogue.

 

(5)  Examples of significant incidents follow.  Chemical and/or hydrocarbon materials spills; fire, explosion or unplanned releases, including during transportation; ecological damage/destruction; local population impact, complaint or protest; failure of emissions or effluent treatment; legal/administrative notice of violation; penalties, fines, or increase in pollution charges; negative media attention; chance cultural finds; labor unrest or disputes; local community concerns.

 

58

 

Management Capability

 

o            Have you received or are you working toward an environmental/social or quality management system (e.g. to ISO 14001 or ISO 9000)?

 

o            Please describe the management system.

 

o            If you answered no to the question above, have you got an environmental policy and/or a set of environmental/social or quality management objectives or programs in place?

 

o            Are  there staff in the company with identified roles relating to environment, health and safety or social issues?

 

o            Please list the staff names along with their job title.

 

o            Describe the level of environmental, social and health and safety training provided to staff.

 

Environmental and Social Monitoring Data

 

The following tables should be completed to provide IFC with the necessary monitoring data for this reporting period.  If you already have all the data requested on the tables available in another format, then this can be used instead.  Please provide the name and location of all monitoring points and provide data in the units requested in the WBG guidelines as summarized below.  Please refer to Annex A of ‘Guidance to Project GEOPARK on the submission of the AMR’ if you would like additional guidance on the most appropriate ways to measure and report monitoring data.

 

	
 
    	
Ambient Air Quality
    

 

GEOPARK is required to collect representative samples of ambient air at an agreed number of locations outside the property boundary fence, submit collected samples for analysis and report the results to IFC.

 

59

 

	
Sample
   Frequency
   (e.g.
   quarterly)
    	
 
    	
Ambient Air
   Quality Parameter
    	
 
    	
World Bank
   Group/IFC
   Maximum
   Levels
    	
 
    	
Performance
   In
   WBG/IFC
   Units
   Annual
   Average
    	
 
    	
Argentina-
   Chile
   Regulatory
   Limits and
   units
    	
 
    	
Performance
   in
   Argentina-
   Chile units
   Annual
   average
    	
 
    
	
Monitoring Location   (please specify)
    	
 
    
	
 
    	
 
    	
Particulate   Matter (PM10)
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Annual   arithmetic mean
    	
 
    	
50 μg/m3
    	
 
    	
μg/m3
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Maximum   24 hour average
    	
 
    	
150 μg/m3
    	
 
    	
μg/m3
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Nitrogen   Dioxide
    	
 
    	
μg/m3
    	
 
    	
μg/m3
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Annual   arithmetic mean
    	
 
    	
100 mg/m3
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Maximum   24 hour average 
    	
 
    	
150 mg/m3
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Sulfur   Dioxide
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Annual   arithmetic mean
    	
 
    	
80 mg/m3
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Maximum   24 hour average
    	
 
    	
150 mg/m3
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

Green House Gas Emissions

 

GEOPARK is required to report GHG emissions in ton/year of CO2 equivalent.

 

GEOPARK should include the evaluations made during this reporting period for the reduction of GHG.

 

Flaring Activities

 

GEOPARK is required to report flaring activities which include the amounts of gas flaring and any activity toward their reduction.

 

60

 

Ambient Noise

 

GEOPARK is required to monitor ambient noise at an agreed number of representative receptors immediately outside the property boundary and report the results to IFC annually.  Ambient noise monitoring must take place while the facility is operating.

 

	
Sample
   Frequency
   (e.g.
   quarterly)
    	
 
    	
Ambient Noise
   Parameters
    	
 
    	
Performance
   in WBG/IFC
   units
    	
 
    	
Project
   Performance
   In WBG/IFC
   Units
   Average
    	
 
    	
Argentina-
   Chile
   Regulatory
   Limits and
   Units
    	
 
    	
Performance
   in Argentina-
   Chile Unit
   Average of
   Biannual
   Events
    	
 
    
	
Monitoring Location (please specify)
    	
 
    
	
 
    	
 
    	
Residential,   institutional, educational receptors, Daytime (07:00-22:00 hours)
    	
 
    	
Leq (hourly),
   55 dB(A)
    	
 
    	
dB(A)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Residential,   institutional, educational receptors, Nighttime (22:00-07:00 hours)
    	
 
    	
Leq (hourly),
   45 dB(A)
    	
 
    	
dB(A)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Industrial,   commercial receptors Daytime (07:00-22:00 hours)
    	
 
    	
Leq (hourly),
   70 dB(A)
    	
 
    	
dB(A)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Industrial,   commercial receptors, Nighttime (22:00-07:00 hours)
    	
 
    	
Leq (hourly),
   70 dB(A)
    	
 
    	
dB(A)
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

61

 

Liquid Effluent Discharges

 

GEOPARK is required to collect representative samples of liquid effluent discharges to surface waters at an agreed frequency, submit these samples for laboratory analysis and report the results to IFC.  Individual samples and individual reports are required for each surface water discharge point (e.g. sanitary waste, process effluent, and contaminated storm water). Create sufficient sections in the table for each separate emission point by copying and pasting the sections.

 

o            Please describe the water course(s) which the effluent is discharged into (e.g. river, municipal system, sea).

 

o            If the effluent is treated prior to discharge from the site please describe the level of treatment provided.

 

o            If the effluent is discharged into a municipal system please confirm the level of treatment provided and where the municipal system discharges to.

 

	
Sample
   Frequency
   (e.g.
   quarterly)
    	
 
    	
Required Laboratory Analysis for
   Collected Samples
    	
 
    	
WBG/IFC
   Maximum
   Levels
    	
 
    	
Performance
   in WBG/IFC
   units
   Annual
   average
    	
 
    	
Argentina-
   Chile
   Regulatory
   Limits and
   Units
    	
 
    	
Performance
   in Argentina-
   Chile Units
    	
 
    
	
 
    	
 
    	
pH
    	
 
    	
6-9
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Biochemical   oxygen demand (BOD5)
    	
 
    	
50 mg/L
    	
 
    	
mg/L
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Chemical   oxygen demand (COD)
    	
 
    	
250 mg/L
    	
 
    	
mg/L
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Oil   and grease
    	
 
    	
10 mg/L
    	
 
    	
mg/L
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Total   suspended solids (TSS)
    	
 
    	
50 mg/L
    	
 
    	
mg/L
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Total   coliform bacteria, Most Probable Number (MPN) or plate count (PC)
    	
 
    	
£ 400 /100 ml
    	
 
    	
/100 mls
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Ambient   temperature of receiving waters at edge of zone where mixing with effluent   takes place (if not defined, 100 meters from discharge point).
    	
 
    	
£ 3°C (maximum increase is 3°C)
    	
 
    	
°C
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Heavy   Metals, Total
    	
 
    	
10 mg/L
    	
 
    	
mg/L
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
(list   other parameters)
    	
 
    	
mg/L
    	
 
    	
mg/L
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
mg/L
    	
 
    	
mg/L
    	
 
    	
 
    	
 
    	
 
    	
 
    
													

 

	
 
    	
Corrective Actions
    

 

If any of the World Bank Group or Argentina-Chile guideline levels in any of the above tables are exceeded please explain the cause and, if appropriate, describe the planned corrective actions to prevent re-occurrence.

 

	
Parameter Exceeded
    	
 
    	
Cause of Exceedance
    	
 
    	
Corrective Action and Completion
   Schedule
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

Solid and Hazardous

 

GEOPARK is  required to monitor collection and disposal of solid and hazardous waste and report the measurement results for each period to IFC.

 

	
Waste Type
    	
 
    	
Quantities
   Generated(6)
    	
 
    	
Method of Storage
   and/or Treatment(7)
    	
 
    	
Disposal Method(8) (9) (10)
    	
 
    
	
·       chemical containers
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
    
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       chemical   sludge
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
    
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       containers/pallets   
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
     
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

(6) Provide total weight (metric tons) or volume (m3)/month and total weight (metric tons) or volume (m3)/year.

(7) State how collected waste is stored on site (e.g. drums, bins, other containers, etc.) and any treatment rendered (e.g. solidification, filtration, etc.).

(8) Provide additional sheets as needed to fully describe disposal, organizations involved in waste management, facility permits, agency authorizations, etc.

(9) Provide name and location of disposal facility used; state if waste is sold as byproduct, scrap or a material to be used by others; state name and business of purchaser

(10) Describe disposal method (e.g. landfill, incineration, land farming, reuse, etc.)

 

62

 

	
Waste Type
    	
 
    	
Quantities
   Generated(6)
    	
 
    	
Method of Storage
   and/or Treatment(7)
    	
 
    	
Disposal Method(8) (9) (10)
    	
 
    
	
·       liquids
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
     
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       waste fuel hydrocarbons
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
    
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       sludge
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
     
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       solids
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
    
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       waste   lubricating hydrocarbons
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
     
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       waste   solvents
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
     
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·       waste treatment sludge
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
      
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
·        contaminated   soil
    	
 
    	
Month/Year:
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
      
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

Corrective Actions

 

Provide the following information for all waste streams that are not actively managed to prevent environmental and social damage.  Provide the information indicated in the table for each affected waste stream.

 

List and Describe Uncontrolled Waste Streams

 

1.

2.

3.

 

Explain why waste streams are not actively managed.

 

1.

2.

3.

 

63

 

Describe corrective action(s) to actively manage waste stream and a schedule for completion of needed improvements.

 

1.

2.

3.

 

Health and Safety Monitoring Data

 

Occupational Health and Safety

 

GEOPARK is required to monitor and record occupational health and safety incidents throughout the reporting period for both the company and any contractors.  These reports are to be submitted to IFC annually.

 

Incident statistics reporting for Company and Contractors

 

	
Occupational
   Health and Safety
   Incidents
    	
 
    	
Number
   of
   Incidents
    	
 
    	
GEOPARK Occupational Health and Safety Incident
   Details(11)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Fatalities
    	
 
    	
 
    	
 
    	
1. Date(s) of fatality:  

 

2. Cause of fatality:  

 

3. Corrective or preventive measures to   prevent reoccurrence:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total Lost Time Accidents (including   vehicular)(12) 
    	
 
    	
 
    	
 
    	
1. Date(s) of lost time accidents:

 

2. Cause(s) of lost time accident(s):  

 

3. Corrective or preventive measures to   prevent reoccurrence:
    	
 
    

 

(11)  Provide additional sheets as needed.

(12)  Incapacity to work for at least one full workday beyond the day on which the accident or illness occurred.

 

64

 

	
Occupational
   Health and Safety
   Incidents
    	
 
    	
Number
   of
   Incidents
    	
 
    	
GEOPARK Occupational Health and Safety Incident
   Details(11)
    	
 
    
	
Total number of lost workdays(13) resulting from incidents. 
    	
 
    	
 
    	
 
    	
1.              Total lost workdays this reporting period:  

2.              Total lost workdays last reporting period:
    	
 
    
	
Total man-hours worked (total hours worked by all employees) during the   reporting period and Incidence calculation. 
    	
 
    	
 
    	
 
    	
1.              Total man-hours worked this reporting period:  

2.              Incidence = total lost workdays/total hours worked

3.              Incidence this reporting period:  

4.              Incidence last reporting period:  

5.              Incidence next to last reporting period:
    	
 
    
	
Training(14)
    	
 
    	
 
    	
 
    	
1.              For each type of training, list the date and number of employees that   attended during this reporting period.
    	
 
    

 

Employee Workplace Monitoring

 

GEOPARK is  required to monitor and record workplace conditions (air and physical parameters which are potentially impacted by industrial processes) throughout the reporting period.  These reports are to be submitted to IFC annually.

 

(13) Lost workdays are the number of workdays (consecutive or not) beyond the date of injury or onset of illness that the employee was away from work or limited to restricted work activity because of an occupational injury or illness.

(14) Personnel should be trained in environmental, health and safety matters including accident prevention, safe lifting practices, the use of Material Safety Data Sheets (MSDS), safe chemical handling practices, proper control and maintenance of equipment and facilities, emergency response, personal protective equipment (PEP), emergency response, etc.

 

65

 

Fire Safety Monitoring

 

	
Fire Safety
   Verification
   Activities
    	
 
    	
Mandatory
   Frequency
    	
 
    	
Date(s)
   Performed
    	
 
    	
Observed
   Deficiencies(15)
    	
 
    	
Corrective Actions and
   Schedule For
   Implementation(16)
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1.              Fire Drills 
    	
 
    	
Minimum: three (3)/year
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2.              Inspection   and certification of fire detection and suppression electrical and mechanical   systems.
    	
 
    	
Minimum: one (1)/year
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
3.              Portable fire   extinguisher inspection, refilling/recharging 
    	
 
    	
Minimum: two (2) inspections/year
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

If any of the World Bank Group or Argentina-Chile guideline levels are exceeded please explain the cause and, if  appropriate, describe the planned corrective actions.

 

Borrow Pits and/or Pits Recovery

 

During the reporting period how many borrow pits have been open/close and how many Mud Pits have been recovered.

 

(15)  Attach additional sheets as needed to fully describe observed deficiencies.

(16)  Attach additional sheets as needed to fully describe corrective actions and implementation.

 

66

 

Land Acquisition and Use

 

I.

 

Please also provide an update of any procedures discussed in the document “GEOPARK Compensacion a Superviciarios” or refer to relevant sections of current ESMS on this topic.  For any updates on the statues of  the Plan De Compensacion associated with the Acambuco pipeline, please provide updates on the form originally submitted and attach as an annex to this AMR.

 

·                  Are there any changes in land access acquisition (amount or location) planned?  Provide details and date of notification to IFC.

 

·                  Have there been any complaints with regard to the land access process? Please provide details.

 

	
In case of Permanent Land Acquisition
   (Purchase, etc), include the following
   information on each property acquired,
   including:
    	
 
    	
Description
    
	
Total   area acquired
    	
 
    	
 
    
	
Price   paid
    	
 
    	
 
    
	
Land   use and occupancy prior to acquisition
    	
 
    	
 
    
	
Ownership   status (privately titled, Cooperatively owned, rented etc.)
    	
 
    	
 
    
	
Location   of the property (according to operation: Acambuco, Cerro Dragon, etc)
    	
 
    	
 
    

 

II.

 

	
In case of temporary acquisition of easements,
   include the following information for each
   property affected
    	
 
    	
Description
    
	
Types   of easements acquired (easements for pipelines, access roads, exploration   activities, etc.) Was land acquired through expropriation
    	
 
    	
 
    
	
Area   affected by easements, by type of easement
    	
 
    	
 
    
	
Ownership   status (privately titled, Cooperatively owned, rented etc.)
    	
 
    	
 
    
	
Land   use and occupancy prior to purchase/imposition of easement rights
    	
 
    	
 
    
	
Procedures   used to compensate landowners and occupants and description of compensation
    	
 
    	
 
    

 

67

 

III.

 

In cases where new purchases of properties or easement rights resulted in physical relocation, include information on the status of implementation of the Resettlement Action Plan or if physical relocation does not occur, provide information on the status of the Compensation Plan.  Please note that GEOPARK should abstain from engaging in any activities that will directly or indirectly result in the resettlement of individuals or business until the Company has submitted to IFC, and IFC has approved, a specific Resettlement Action Plan to deal with such situation in compliance with IFC policies.

 

IV.

 

Describe measures taken to minimize the impact of  GEOPARK activities on the landowners.  (These measures should be incorporated into the Environmental and Social Management Plan.)

 

Protection of Cultural Property

 

List any Cultural Property discovered over the last year in the course of GEOPARK operations.  For each case, describe:

 

·                  Is GeoPark in full compliance with the Cultural Property Management Plan set with IFC?

·                  Describe location of discovery

·                  Explain procedures used to protect cultural property discovered

·                  Reference relevant sections of ESMS to explain any updates in GeoPark’s protocol for treating cultural properties

 

PUBLIC CONSULTATION AND DISCLOSURE ACTIVITIES REPORT

 

Please provide updates on the following topics:

 

·                  Public Relations/Communication Programs: Describe all ongoing public consultation and social communication efforts.  Please provide an up-dated plan for the Public Relations program for the coming year including any up-dates on such things as the establishment of a web page, hotline numbers, etc

 

·                  Public Consultation and Disclosure Activities: Please describe any changes in the organization structure and staffing during the reporting year.  List any new documentation that was disclosed to the public

 

68

 

·                  Media Coverage: Describe any print or broadcast media attention given to the project during this reporting period..

 

·                  NGOs: Describe in detail, interactions with non-governmental organizations (NGOs) or public scrutiny of GEOPARK by Project site.  Describe the NGOs or civil society groups that are raising issues.

 

Informal Meetings Summary(17)

 

	
Planned Meeting
   Date
    	
 
    	
Subject of Meeting
    	
 
    	
Attendees (First Group of
   Participants, Second
   Group of Participants or
   both), Others
    	
 
    	
Meeting Completion
   Date
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

1.              Any relevant Political/Technical Group Meetings Summary(18)

 

	
Planned Meeting
   Date
    	
 
    	
Subject of Meeting
    	
 
    	
Attendees (First Group of
   Participants, Second
   Group of Participants or
   both), Others
    	
 
    	
Meeting Completion
   Date
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

2.              Formal Public Hearings Summary(19)

 

	
Planned
   Meeting Date
    	
 
    	
Subject of
   Meeting
    	
 
    	
Attendees (First Group of
   Participants, Second Group of
   Participants or both), Others
    	
 
    	
Meeting Completion
   Date
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

(17)  Use additional sheets as needed to summarize informal meetings.

(18)  Use additional sheets as needed to summarize Political/Technical Group informal meetings.

(19)  Use additional sheets as needed to summarize Formal Public Hearings.

 

69

 

3.              Grievances and Resolutions Activities Summaries Summary (20)

 

	
Description of Grievances Presented by
   operation site
    	
 
    	
Description of Resolutions for Specific
   Grievances by operation site
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    

 

COMMUNITY DEVELOPMENT ACTIVITIES REPORT

 

Please provide a copy of the Community Development Plan (CDP). If already provided indicate the date it was provided.

 

Please describe all interactions GeoPark has with the community including, but not limited to, a community relations program, meetings and activities with interested stakeholders, a charitable foundation, staff dedicated to community issues. Please include the following points in your description:

 

a.              Activity name

b.              Activity description

c.               Describe how long-term sustainability has been built into the project design

d.              How is it aligned with the CDP

e.               Activity schedule

f.                Number of individuals benefited

g.               Annual budget for such programs

h.              The company’s personnel allocation to monitor community programs

i.                  Any reports the company produces pertaining to community development programs or projects

 

1.              Planned Projects Summary

 

	
Future Planned Social
   Projects Description
    	
 
    	
Total Planned Budget
    	
 
    	
Commencement Date (Month-Year)
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    

 

(20)  Use additional sheets as needed to summarize Grievances and Resolutions.

 

70

 

Progress on Annex 4 Timetable

 

Provide information on progress made in Annex 4 of the Subscription and Shareholders Agreement. If items on Annex 4 have already been completed and reported, indicate the date.

 

Feedback

 

Please use this section of the report to give us feedback.

 

o            Do you understand the environmental requirements of IFC, or do you need additional assistance (e.g., training)?

 

o            How could we improve our support to you?  Please provide suggestions.

 

o            If you contacted IFC during this reporting period for assistance, did you receive a satisfactory response?  If no, please detail the reasons why and suggest ways to improve information exchange and interactions with IFC professionals.

 

o            How could we improve our support to you?  Please provide suggestions.

 

o            If you contacted IFC during this reporting period for assistance, did you receive a satisfactory response?  If no, please detail the reasons why and suggest ways to improve information exchange and interactions with IFC professionals.

 

71

 

Page 1 of 3

 

GeoPark - Development Impact Datasheet

 

	
 
    	
 
    	
Base year (2005)
    	
 
    	
Year: xxxx
    	
 
    
	
 
    	
 
    	
Argentina
    	
 
    	
Chile
    	
 
    	
Argentina
    	
 
    	
Chile
    	
 
    
										

 

1                                         Employees (Project Company and Contractors)

 

a                      Direct Employees (#)

% Local

% National

Wage rates compared to alternative (+/-%)

 

b                      Contractors (#)

% Local

% National

Wage rates compared to alternative (%)

Nationals share in top management (%)

Total wage bill (US$)

Local project jobs as share of local community (%)

 

c                  Training (US$)

Numbers receiving (#)

Special efforts to recruit and train local workers?

 

d                 Other Worker Benefits (US$)

Pension Fund Contributions (US$)

Insurance Benefits (US$)

Other (US$)

 

2                                         Trading partners/market for goods and services (US$)

 

a                 Total National Suppliers Construction (US$)

Total Purchases (US$)

· National Purchases (US$)

· Community Purchases (US$)

· Imports (US$)

Local supplier/SME development program?

Number of community suppliers (#)

Number of national suppliers (#)

 

b                 Total National Suppliers Operation (US$)

Total Purchases (US$)

· National Purchases (US$)

· Community Purchases (US$)

· Imports (US$)

Local supplier/SME development program?

Number of community suppliers (#)

Number of national suppliers (#)

 

c                  Domestic Sales (US$)

Exports (US$)

 

d                 Other Impacts of operation?

Greater competition?

New industries?

Demonstration Impact?

 

3                                         Direct Community Impacts (via cash or kind)

 

Education (US$M)

Culture Programs (US$M)

Health Programs (US$M)

Environment (US$M)

Other (US$M)

Total (US$M)

 

4                                         Benefits to Governments

 

Total Tax/Royalty Revenues paid (US$) (See Schedule)

Direct to National Government (US$)

Direct to Regional/Provincial Government (US$)

Provisions for revenues to flow back to region/provincial government from national government (US$ or %)

 

5                                         Other benefits - not specified elsewhere

(describe/quantify)

 

72

 

Page 2 of 3

 

GeoPark - Development Impact Datasheet

 

6                                         Environment and Social Impacts and Issues (see note)

(If not covered in other reports to IFC such as AMR)

 

a(i) Environment General (yes/no/specify)?

Displacement of other activities?

Any significant adverse environmental impacts?

Any significant environmental benefits?

Incidents/problems?

Gas Flaring?

Greenhouse Gas Emissions (Tons)

Hazardous materials emergency response plan in place?

Community consulted about plan?

 

Accidents

Days away from work

Total # of accidents

Vehicle accidents

 

Oil Spills

# of spills between 1 - 100 bbls

Total # of barrels

# of cases > 100 bbls

Total # of barrels

 

a (ii) Social Impacts (specify)

 

(i) Any direct adverse health impacts from operations

(ii) Any indirect health impacts (e.g. HIV/AIDs)

(iii) Any nuisance impacts on community (noise, dust etc)

(iv) Other negative social impacts of development

e.g. increased tensions/alcoholism etc

 

b                 Resettlement (#)

Measures of welfare of resettled (better off/worse off/comment)?

 

c                  Inward Migration to site (#)

Conflict or acceptance by locals (yes/no/comment) ?

 

d                 Engagement with community (yes/no/comment)

Frequency of consultations (annual, quarterly, other)?

Community say in social spending?

Community development plan?

Independent community fund in place?

 

e                  Planning for Project Closure (yes/no/comment)

Project closure plans in place ?

Plans for community beyond closure?

Plans public and consulted about?

Independent financing/guarantees in place - fully/part/no?

 

73

 

	
GeoPark   - Development Impact Datasheet
    	
Page 3 of 3
    

 

	
Payments to Argentine Government
    	
Year:
    
	
(In   cash/kind US$)
    	
 
    
	
 
    	
Paid to:
    

 

	
Type of Payment 
    	
 
    	
Community
    	
 
    	
Regional/Provincial
   Government
    	
 
    	
National
   Government
    	
 
    	
Others
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Landowner fees
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Private royalties
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Fiscal royalties
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income   taxes
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Others - specify
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Social and other levies
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other forms of payments   other than in return for goods or services - list
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

	
Payments to Chilean Government
    	
Year:
    
	
(In   cash/kind US$)
    	
 
    
	
 
    	
Paid to:
    

 

	
Type of Payment 
    	
 
    	
Community
    	
 
    	
Regional/Provincial
   Government
    	
 
    	
National
   Government
    	
 
    	
Others
    	
 
    	
Total
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Landowner fees
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Fiscal royalties
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Income   taxes
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Others - specify
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Social and other levies
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Other forms of payments   other than in return for goods or services - list
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

74

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