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BELIZE NATURAL ENERGY L TO 11212003
TABLE OF CONTENTS
Article
Page
Definitions....................................................................................
4
II
Grant of Rights to Contract... . .. . ... . .. . .. . .. .. .. .. . .. .. . .. . .. . .. . .. . . .. . .. .. . .. .. . ... .. . ..
7
III
Tern1...................................................................................
9
IV
Relinquishment...............................................................................
10
V
General Obligations of the Contractor.....................................................
11
VI
Minimum Work and Expenditure Obligations..............
13
VII
Obligations of the Government........................................................ .....
21
VIII
Royalty/Production Payment
21
IX
Recovery of Petroleum Operations Expenditures Production Sharing................
22
X
Valuation and Measurement of Petroleum...
23
XI
Marketing, Production (Royalty) Payment in Kind and Domestic Requirement...
24
XII
Payment Procedure............................................
26
XIII
Surface Rentals..........
26
XIV
Natural Gas................................................................................. ...
27
XV
Taxes.........
28
XVI
Exemptions from Custom Duties.....
29
XVII
Exchange and Currency Controls...............................
30
XVIII
Title to Equipment...............................................................
30
XIX --
Government Participation...................................................................
30
XX
Training and Employment. .. . .. . .. ... .. ..... .. ... ....... ....... . .. . ... . .. . .. .. . ... . .... .. . . .
31
XXI
Purchases in Belize...........................................................................
32
XXII
Unitization..................................................................................
32
XXIII
Danger to Persons, Property or Environment.............................................
33
XXIV
Arbitration.....................................................................................
34
XXV
Ten11ination...............................................
35
XXVI
Books, Accounts and Audits, Records, Reports and Inspections..
36
XXVIJ!
Insurance and Indemnification..............................................................
38
XXVIII
Assignn1ent....................................................................
39
,.
. .. .
. .. .. . .. . . .. . .. ..
<,
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BELIZE NATURAL ENERGY LTD 1/2/2003
XXIX
Law of the Agreement...
.
..
.
.
40
XXX
Force Majeure...........
40
XXXI
Entire Agreement and Amendments...................
40
XXXII
Waiver......
40
XXXIII
Confidentially................................................................................
41
XXXIV
Notices...
41
Exhibit A
Description of contract area.....................
Exhibit B
Map of contract area...
Exhibit C
Security - Guarantee..............................................
44
Exhibit D
Letter of Assurance...............................................
46
Signing pages.................................................................................
48
.
42
..
43
--~\"
Annex-1
Commissioner's Bulletin (Income Tax)
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BELIZE NA rURAL ENERGY L TO 1/2/2003
PRODUCTION SHARING AGREEMENT
L
~
THIS AGREEMENT, made and entered into this
day of ~",-~v.:j, of2003, by and
between the GOVERNMENT OF BELIZE, (hereinafter referred to as the "Government") acting
through the Minister of Natural Resources, the Environment, Industry and Trade and BELIZE
NATURAL ENERGY LTD., a corporation duly organized under the laws of
BELIZE (hereinafter referred to as the "Contractor").
WHEREAS, the entire property in, and control over all Petroleum resources in or under the
territory of Belize is vested in the Government on behalf of Belize;
AND WHEREAS, no petroleum operations shall be conducted in Belize by any person other
than the Government unless such person has entered into a contract in accordance with the
Petroleum Act Chapter 225 Substantive Laws of Belize, Revised Edition 2000;
AND WHEH..EAS, the Government wishes to promote the exploration for and production of the
petroleum resources in and throughout the contract area, and the Contractor desires to join and
assist the Government in accelerating the exploration for and production of the petroleum
resources within the contract area;
AND WHEREAS, the Contractor represents that it has the financial resources, technical
competence and professional skills necessary to carry out the petroleum operations hereinafter
described;
AND WHEREAS, the Contractor is in agreement to the creation of Blocks - SA and 5B of
which negotiations may lead to the award of Block 5 of otherwise;
AND WHEREAS, the Contractor cognizance of the potential for land sterilization in Block SA
and/or 5B agree(s) to the timely negotiations and development of petroleum operations in Blocks
SA and/or 5B;
AND WHEREAS, the Contractor understands that successful implementation of contractor's
rights and obligations hereunder may involve cross-boundary and/or cross-border hydrocarbon
deposits and concomitant Joint Development Agreement(s) (JDAs);
AND WHEREAS, the Government and the Contractor agree that this Agreement is in
compliance with all Belize statutes, regulations and laws which govern or regulate the
exploration, development and production of petroleum in Belize;
AND WHEREAS, the Government and the Contractor agree that this Agreement is bound by all
Belize statutes, regulations and laws which govern or regulate the exploration, development and
production of petroleum in Belize which are in effect at the time this Agreement was signed;
AND WHEREAS, the Government and the Contractor agree that this Agreement was freely
negotiated at arms length;
AND WHEREAS, both the Government and the Contractor were represented by counsel with
respect to the drafting and negotiation of this Agreement;
AND WHEREAS, the Government and the Contractor agree that the geographic area covered
under this Agreement is that of Blocks 5B, 18, and parts of 15 and 6 respectively, referenced by
coordinates in exhibit A, attached hereto, and a map exhibit B, attached hereto;
AND WHEREAS, the Government has accepted the application for Blocks 5B, 18, and parts of
15 and 6 respectively, made by Belize Natural Energy Ltd. and submitted to the Geology &
Petroleum Department as a single area subject to an administrative fee of US$10,OOO);
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BELIZE NATURAL ENERGY LTD 1/2/2003
AND WHEREAS, the award of Blocks 5B, 18, and parts of 15 and 6 respectively, is dependent
on, infer alia, success of negotiation process and approval of project proposal (work programme)
including applicable Environmental Studies;
AND WHEREAS, the Government and Contractor agree in the event that Petroleum Block 5A
becomes vacant and available for application(s), the Contractor shall be accorded first
consideration to apply for Block A as an Amendment to the Block B Production Sharing
Agreement (PSA).
NOW, THEREFORE, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:
ARTICLE I
Definitions
1.1
In this Agreement, the following terms shall have the following
meanmgs:
1.1.1
"affiliated company" means any entity directly or indirectly
effectively controlling, or effectively controlled by, or under
direct or indirect effective common control of, a specified entity.
For the purposes of this definition, "control", when used with
respect to any specified entity, means the power to direct,
administer and dictate policies of such entity (it being understood
and agreed that it is not necessary to own directly or indirectly
fifty percent (50%) or more of such entity's voting securities to
have effective control over such entity, but ownership, direct or
indirect, of fifty percent (50%) or more of such entity's voting
securities shall automatically indicate effective control), and the
terms
"controlling" and "controlled" have
meanings
corresponding to the foregoing;
1.1.2
"appraisal well" means a well drilled within the contract area,
following a discovery, for the purpose of delineating the
petroleum reservoir(s) to which the discovery relates in terms of
thickness and lateral extent and estimating the quantity of
recoverable petroleum therein;
1.1.3
"barrel" means a quantity or unit of crude oil equal to 158.9874
liters (forty-two (42) United States gallons) at a temperature of
sixty (60) degrees Fahrenheit (15.56 degrees Centigrade) under
one atmosphere of pressure;
1.1.4
"barrel equivalent" means one barrel of oil is equivalent to six
thousand cubic feet of gas, equivalent to 1.64 Mega Watt Hours
Electricity.
1.1.5
"calendar year" means a period of twelve (12) consecutive
months, according to the Gregorian Calendar, starting with the
1st of January and ending with the 31st of December;
1.1.6
"calendar month" or "month" means any of the twelve (12)
months of the calendar year;
1.1.7
"carried interest" means a commercial arrangement between
Contractor and Government whereby, expenditures due from the
Government in ajoint venture are initially met by Contractor.
1.1.8
"commercial discovery" means a discovery of petroleum which
can be exploited commercially in accordance with accepted
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BELIZE NATURAL ENERGY LTD 1/2/2003
practices in the international petroleum industry;
I. I. 9
"continental shelf' means the part of the seabed and subsoil of
the submarine areas adjacent to the coast of Belize, but outside
the territorial waters, over which Belize is entitled by
international law to exercise sovereign rights for the purposes of
exploring and exploiting its natural resources;
1.1.10
"contract area" means a geographical area which is covered by
the contract; and includes the whole of, or such part or parts of,
the original area awarded to a Contractor which shall remain at
the disposal of such Contractor from time to time pursuant to the
terms of the contract;
1.1.11
"contract year" means a period of twelve (12) consecutive
calendar months, counted from the first day of the first calendar
month following the effective date of this agreement or from the
anniversary of such first day of such month;
1.1.12
"Contractor" means any person with whom the Government
enters into a contract and includes his agents, representatives and
assignees;
I. 1.13
"crude oil" means petroleum which is in liquid state at the well
head or gas/oil separator or which is extracted from natural gas,
including distillate and condensate;
1.1.14
"day" means a calendar day unless otherwise provided herein;
I. I.IS
"delivery point" means free on board (FOB) and/or the well-head
or the tank batteries in the field;
1.1.16
"development and production operations" means operations for
or in connection with the production of petroleum;
1.1.17
"development and production period" means the period referred
to in paragraph 3.4;
J . J .18
"discovery" in relation to petroleum, means petroleum not
previously known to have existed, recovered at the surface in a
flow measurable by conventional petroleum industry testing
methods;
J . J .19
"effective date" means the date first above written;
1.1.20
"exploration expenditures" means expenditures made in
conducting exploration operations hereunder, but excluding
expenditures made within the area of a field after a commercial
discovery has been declared.
These expenditures shall be
determined in accordance with the Income and Business Tax Act,
Chapter 55 Substantive Laws of Belize, Revised Edition 2000.
1.1.21
"exploration operations" means operations for or in connection
with exploration for petroleum;
1.1.22
"exploration period" means the period referred to in paragraph
3.1 ;
1.1.23
"exploration well" means a well other than an appraisal well
drj lled in the
C'()l1T
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BELIZE NATURAL ENERGY LTD 1/2/2003
drilled in the course of exploration operations;
1.1.24.1
"field" means an area, as designated by agreement between the
Government and the Contractor, where a commercial discovery
of crude oil or natural gas has been declared;
1.1.24.2
"field-small" means a field with a daily production not exceeding
10,000 barrels-equivalent.
1.1.25
"gross revenues" means the sum of all proceeds of sales and the
monetary equivalent of the value of other dispositions of
petroleum produced and saved and not used in petroleum
operations and any other proceeds derived from petroleum
operations;
1.1.26
"income tax" means that tax imposed on net income pursuant to
the Income and Business Tax Act, Chapter 55 Substantive Laws
of Belize, Revised Edition 2000.
1.1.27
"initial commercial production" means the date on which the first
regular shipment of crude oil or natural gas, or both, is made from
a field under a program of regular production and sale;
1.1.28
"Inspector" means the Inspector of Petroleum appointed under
section 4 of the Petroleum Act, Chapter 225 of the Substantive
Laws of Belize, Revised Edition 2000; or any officer of the
Geology and Petroleum Department duty designated on that
behalf;
1.1.29
"maximum efficient rate" means the maximum rate of production
of crude oil in a field, without excessive rate of decline of
production or excessive loss of reservoir pressure, and in
accordance with generally accepted practices in the international
petroleum industry and the provisions of paragraph 6.3;
1.1.30
"Minister" means the Minister responsible for petroleum affairs
in the Government of Belize;
1.1.3 1
"natural gas" means all petroleum which at atmospheric
conditions of temperature and pressure is in a gaseous state, and
includes wet mineral gas, dry mineral gas, wet gas and residue
gas remaining after the extraction, processing or separation of
liquid petroleum from wet gas, as well as non-petroleum gas or
gases produced in association with liquid or gaseous petroleum;
1.1.32
"net petroleum" means the value of the total quantity of
petroleum produced and saved in a given calendar year and not
used in petroleum operations after deductions of the value of the
royalties made in such calendar year and after recovery of
petroleum operations expenditures pursuant to paragraph 9.1;
1.1.33
"net taxable income" means net taxable income as determined in
accordance with the provisions of the Income and Business Tax
Act, Chapter 55 of the Substantive Laws of Belize, Revised
Edition 2000.
1.1.34
"petroleum" means all natural organic substances composed of
carbon and hydrogen; and includes crude oil and natural gas, and
all other mineral substances, products, by-products and
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BELIZE NATURAL ENERGY LTD 1/212003
derivatives that are found in conjunction with petroleum;
1.1.35
"Petroleum Act" means the Petroleum Act, Chapter 225
Substantive Laws of Belize, Revised Edition 2000, and any
subsidiary legislation made thereunder;
1.1.36
"petroleum operations" means the operations related to the
exploration,
development,
extraction,
production,
field
separation, transportation, storage, sale or disposal of petroleum;
but does not include any transportation or other operations (i)
beyond the point of export; or (ii) in the case of petroleum which
is processed within Belize, beyond the point of entry into a
refinery or liquefaction or natural gas treatment plant;
1.1.37
"petroleum operations expenditures" means expenditures
incurred in conducting petroleum operations hereunder,
determined in accordance with the Income and Business Tax Act,
Chapter 55 of the Substantive Laws of Belize, Revised Edition
2000;
1.1.38
"PSA" means Production Sharing Agreement
1.1.39
"quarter" means a period of three (3) consecutive months
commencing with the first day of January, April, July and
October, respectively, of each calendar year;
1.1.40
"royalty" means the royalty or production payment described in
Article VIII;
1.1.41
"well" means any opening in the ground made or being made by
drilling or boring, or in any other manner, in connection with
exploration operations or development and production operations,
other than a seismic hole;
1.1.42
"work programme" means an itemized statement of the petroleum
operations to be carried out in the contract area in each calendar
year, or to be carried out for specific activities such as drilling of
exploration wells and appraisal wells and development
programmes, all in a form acceptable to the Government;
1.1.43
"work programme budget" means the estimate of the costs of all
items included in the corresponding work programme, including
both capital and operating budgets, all in a form acceptable to the
Government.
ARTICLE II
Grant of Rights to
the Contractor
2.1
The Government grants to the Contractor, subject to the terms
and conditions set forth in this Agreement, the exclusive right to
conduct petroleum operations within the contract area for the
term of this Agreement. Except as provided in paragraph 11.3,
the Contractor shall have the right, during the term of this
Agreement, to freely lift, dispose of and export its share of the
petroleum produced hereunder.
2.2
Title to petroleum to which the Contractor is entitled hereunder
shall pass to the Contractor at the well-head or the tank batteries
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BELIZE NATURAL ENERGY L TO 1/2/2003
in the field;
2.3
The Contractor shall, except as expressly otherwise provided in
this Agreement, conduct all petroleum operations hereunder at his
sole risk, cost and expense. The Contractor shall look only to the
petroleum and to which he is entitled under this Agreement to
recover such costs and expenses, and such petroleum shall be the
Contractor's sole source of compensation thereunder.
2.4
The Contractor shall be responsible to the Government for the
execution of all petroleum operations in accordance with the
provisions of this Agreement. Without prejudice to the
Contractor's position as an independent contractor hereunder, the
extent and character of such work to be done by the Contractor
shall be subject to the general supervision, review and approval
of the Government to which the Contractor shall report and be
responsible as herein set forth. Government approval, as required
pursuant to any provision of this Agreement, shall not be
unreasonably withheld, and unless specified to the contrary in this
Agreement, Government approval will be deemed given if the
Government has not responded to the Contractor in writing
within thirty (30) working days of Contractor's compliance with
any provision of this Agreement.
2.5
(a) The Contractor is authorized to construct storage facilities,
electricity generating plants in the event that petroleum is found
in commercial quantities and the Contractor desires to sell on the
domestic market to established producers of electricity in Belize,
pipelines, bridges, ferries, landing fields. radio, telephone,
facsimile and related communication systems as may be
necessary for petroleum operations but subject to the laws in
force in Belize from time to time for the regulation and control of
such installations and their construction. In the event that the laws
or regulations of Belize change (after the signing of this
Agreement) in any manner that frustrates the purpose of this
Agreement, the Government agrees to use best efforts to take any
action necessary to effectuate the purpose of this Agreement.
(b) The government shall provide the Contractor with a secure
pipeline right-of-way for the transportation of petroleum and/or
petroleum products from production facilities to a coastal point of
delivery near Belize City.
(c) The Government does hereby grants the Contractor the right
to discharge any saltwater or other fluids produced in association
with oil or gas into such underground zones or formations or
along some location as the Contractor so elect, provided that it
does not affect fresh, near-surface potable water, the water table
or other locations and without interference from surface owners
who shall be reasonably compensated for surface damages to the
land, where applicable. Provided further that Contractor liaises
with the Inspector of Petroleum and Chief Environmental
Officer-Department of Environment (via the Inspector of
Petroleum) prior to any such discharge of salt water or other
fluids.
2.6
The Government reserves the right to grant licenses to others to
prospect for, explore for and mine minerals, other than
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BELIZE NATURAL ENERGY LTD 1/2/2003
hydrocarbons including petroleum, within the contract area, and
further reserves to itself the right to so prospect, explore and mine
directly, all subject to the provisions of paragraph 5.3.
ARTICLE III
Term
3.1
The Contractor is authorized to conduct exploration operations
during an exploration period which shall be comprised of (i) an
initial exploration period of two (2) contract years ("Initial
Exploration Period"), and (ii) subject to the conditions hereinafter
provided, three (3) successive renewal periods ("First Renewal
Period", "Second Renewal Period" and "Third Renewal Period")
of two (2) years each to the initial exploration period. Such
renewal periods shall be granted to the Contractor upon the
Contractor's request delivered to the Government in writing not
later than ninety (90) days prior to the expiration of the then
current period, subject to the Contractor having fulfilled his
obligations hereunder for the then current period, including the
relinquishment provisions of Article IV, and having submitted
with such application a work programme and work programme
budget for the period of renewal which is consistent with the
undertakings set forth in paragraph 6.1.
3.2
If at the end of the exploration period, no commercial discovery
has been made in any part of the contract area, this Agreement
shall automatically terminate in its entirety, provided, however,
that the Government undertakes to grant an extension for such
period, and for such area as may be necessary, in the opinion of
the Government and the Contractor, (i) for the Contractor to
complete the drilling, testing, appraisal or plugging of any well
actually being drilled, tested, appraised or plugged at the end of
the exploration period and (ii) for the Government and the
Contractor to determine that a discovery resulting from such a
well is a commercial discovery pursuant to paragraphs under 6.2.
3.3
If a commercial discovery is made in any portion of the contract
area during the exploration period, the Contractor will commence
development and product operations in that particular portion of
the contract area.
3.4
In the event of a commercial discovery, the extent of the area
capable of production of petroleum from the formation or
formations so identified shall be determined in accordance with
the provisions of the paragraphs under 6.2 or Article XIV. The
area so determined shall thereupon be converted automatically
into a field, with effect from the date of the declaration of the
commercial discovery.
The term of the development and
production period for each field shall extend for twenty-five (25)
contract years from the first day of the calendar year commencing
after the date of the declaration of the commercial discovery in
said field. Upon an application for extension of the initial
twenty-five (25) year production period, the Government shall
grant an extension for an additional twenty-five (25) years
pursuant to Regulation 11 of the Belize Petroleum Regulations,
1992 (Statutory Instrument No. 112 of 1992) even if Belize
passes subsequent regulations, laws, or statues that may be in
conflict with Regulations 11 of the Belize Petroleum Regulations,
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BELIZE NATURAL ENERGY LTD 1/2/2003
1992 (Statutory Instrument No. 112 of 1992). In the event of a
new commercial discovery as a result of new drilling in
formations that underline and overlie each other in an existing
field, such formations shall constitute a single field and the field
shall be redefined as necessary to incorporate all underlying and
overlying formations, and the term of the development and
underlying and overlying formations, and the term of the
development and production period for such redefined filed shall
extend for twenty-five (25) contract years from the first day of
the first calendar year commencing after the date of the
declaration of the latest commercial discovery therein.
ARTICLE IV
Relinquishment
4.\
On or before the end of the initial exploration period, the
Contractor shall relinquish fifteen percent (15%) of the original
contract area.
4.\.2
On or before the end of the first renewal period the Contractor
shall relinquish an additional fifteen percent (15%) of the original
contract area.
4.2
On or before the end of the second renewal period the Contractor
shall relinquish an additional area equal to twenty percent (20%)
of the original contract area.
4.3
At the end of the exploration period, the Contractor shall
relinquish the remainder of the original contract area not then
converted to a field.
4.4
The size and shape of the portion or portions to be reiinquished
shall be determined by the Contractor, provided however, that (a)
the Contractor shall advise the Government at least ninety (90)
days in advance of the date of relinquishment of the description
and area of the portion or portions to be relinquished, (b) the
Contractor shall consult with the Government regarding the shape
and size of each individual portion of the areas being
relinquished, (c) the area being relinquished shall not be divided
into more than two portions, unless otherwise initially agreed on
between Contractor and Government each of which shall be
comprised of, and be defined by reference to, blocks as described
in Exhibit B, save where no such area or areas can be identified
for relinquishment in accordance with this paragraph without
including in such area or areas in whole or in part a field or area
in which a discovery has been made which the Contractor is not
otherwise required to relinquish hereunder, and (d) each such
relinquished, individual portion shall be not less than twenty
percent (20%) of the area being relinquished at such time with
sides parallel to the boundaries of the original contract area, to the
extent that the boundaries of the original contract area permit, and
with the longest side not more than three times as long as the
shortest side, and shall in any event be of sufficient size and
convenient shape to enable petroleum operations to be conducted
thereon or thereunder.
4.5
The Contractor shall not be obliged to relinquish, pursuant to
paragraphs 4.1 and 4.2, any part of the original contract area
which has been converted to a field or in which a discovery has
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BELIZE NATURAL ENERGY LTO 1/2/2003
been made which the Contractor
relinquish hereunder.
IS
not otherwise required to
4.6
Upon at least ninety (90) days written notice to the Government
prior to the end of any contract year, the Contractor shall have the
right to relinquish all or any portion of the contract area effective
as of the end of such contract year, subject to the provisions of
paragraph 4.4, and such portion shall then be credited against that
portion of the contract area which the Contractor is next required
to relinquish pursuant to the provisions of paragraphs 4.1 and 4.2.
4.7
No relinquishment made in accordance with this Article IV shall
relieve the Contractor of: (a) its obligations to make payments
due as a result of surface rentals prior to the effective date of any
such relinquishment, or (b) the minimum work and expenditure
commitments undertaken pursuant to paragraphs 6.1.1 and 6.1.2.
4.8
Upon relinquishment of any area, the Contractor shall perform all
necessary clean-up activities in accordance with generally
accepted practices in the international petroleum industry, and
shall take all other action necessary to prevent hazards to human
life or third party property.
ARTICLE V
General Obligations
of the Contractor
5.1
The Contractor shall be responsible for conducting all petroleum
operations within the contract area diligently, expeditiously and
efficiently in accordance with generally accepted practices in the
international petroleum industry and the environmental laws of
Belize and pursuant to work programmes approved in accordance
with paragraph 5.4.
The Contractor shall ensure that all
equipment, materials, supplies, plant and installations used by
himself, and his contractors and subcontractors comply with
generally accepted standards in the international petroleum
industry and are of proper construction and kept in optimal
working order.
5.2
Except as otherwise provided in this Agreement, the Contractor
shall:
(a)
advance all necessary funds and purchase or lease all
equipment, materials and supplies required to be
purchased or leased in connection with petroleum
operations;
(b)
furnish all the technical expertise and assistance, including
foreign personnel, required for the conduct of petroleum
operations;
(c)
furnish all other funds for the performance of petroleum
operations as may be required, including payment to
foreign entities that perform services as contractors or
subcontractors to the Contractor;
(d)
appoint a local representative and in his absence, a
replacement therefor, with respect to this Agreement, who
shall have an office and be resident in Belize and who
shall have full authority to represent the Contractor for all
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BELIZE NATURAL ENERGY LTD 1/2/2003
purposes of this Agreement and whose name shall, on
appointment within ninety (90) days after the effective
date, be made known to the Government;
(e)
provide acceptable working conditions and living
accommodations, and access to medical attention and
nursing care, for all personnel employed by him , his
contractors and subcontractors in petroleum operations;
and
(f)
pay social security for all employees as per the Laws of
Belize.
5.3
If, after the effective date, others are granted licenses within the
contract area authorizing prospecting for, exploration for or
mining of any minerals or other substances other than petroleum,
or the Government proceeds with such prospecting, exploration
or mining directly in its own behalf, the Contractor shall use his
best efforts to avoid obstruction or interference with such
licensee's or Government's operations within the contract area.
The Government shall use its best efforts to ensure that
operations of third parties do not interfere with the Contractor's
petroleum operations within the contract area. Additionally, at the
request of the Contractor the Government shall notify Contractor
(and provide Contractor the name, phone number, and address) of
any companies which are granted licenses authorizing them to
prospect for, explore for or mine any minerals in the contract
area.
504
(a)
At least ninety (90) days prior to the beginning of each
calendar year, or at such other time as is mutually agreed by the
parties, the Contractor shall prepare and submit for approval to
the Government an annual work programme and work
programme budget of petroleum operations and petroleum
operations expenditures by quarters for the contract area setting
forth the petroleum operations the Contractor proposes to carry
out during the ensuing calendar year.
Such annual work
programmes and work programme budgets shall comply with the
minimum work and expenditure obligations described in
paragraphs 6.1. Approval by the Government of the proposed
annual work programme budget of petroleum operations and
petroleum operation expenditures will not be unreasonably
withheld or delayed. The Government and the Contractor shall
have reached agreement upon an annual work programme and
work programme budget for the period from the effective date
until the end of the calendar year in which the effective date falls
or for the ensuing calendar year if the effective date falls after the
30th day of September. kThe Government agrees to credit
Contractor for cost overruns in prior annual work programme and
budget against current and future obligations, provided that the
Contractor lodges with the Inspector of Petroleum receipts and
other supporting documents relevant to prior annual work
programme and budget expenditures within ninety (90) days of
submission of annual work programme and budget.]
(b)
Should the Government wish to propose revisions to the
annual work programme or work programme budget, it shall
within thirty (30) days after receipt thereof so notify the
Contractor specifying in reasonable detail its reasons therefor.
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BELIZE NATURAL ENERGY L TO 1/2/2003
Promptly thereafter the parties shall meet and endeavor to agree
on the revisions proposed by the Government. If the Contractor
and the Government fail to agree upon any revisions proposed by
the Government within sixty (60) days of the receipt of the
Contractor's proposals, the points of disagreement shall be
resolved as follows:
(i)
all other aspects of the annual work programme and work
programme budget to which the Government proposes
revisions shall be mutually agreed before such aspects of
the annual work programme and work programme budget
shall be adopted.
(c)
It is recognized by the parties that the details of an annual
work programme may require changes in light of then existing
circumstances. In such event, the Contractor may introduce such
changes as may be necessary, following consultation with the
Government, but subject to the following:
(i)
in the case of changes to an annual work
programme and work programme budget which relate to
exploration operations, such changes may be implemented
to the extent that they are not inconsistent with the
undertakings set forth in paragraph 6.1 or the general
objective of such annual work programme;
(ii)
in the case of changes to an annual work
programme and work programme budget which relate to
the development of a field, such changes may be
implemented to the extent that they are not inconsistent
with the applicable development work programme and
work programme budget adopted pursuant to paragraph
6.2 or the general objective of such annual work
programme;
(iii)
all other changes may be notified in writing to the
Government and shall be mutually agreed before they may
be implemented.
(d)
To the maximum extent practicable, the Contractor shall
involve representatives of the Government in the preparation of
the annual work programme and work programme budget.
(e)
Within thirty (30) days after the end of each quarter, the
Contractor shall submit to the Government a report describing
and summarizing petroleum operations carried out, and petroleum
operations expenditures incurred during such quarter.
Such
report shall be in a form acceptable to the Government based on
international petroleum practices.
ARTICLE VI
Minimum Work and
Expenditure
Obligations
6.\
The Contractor shall commence petroleum operations hereunder
not later than ninety (90) days after the effective date.
Exploration Period
6.1.\
The amount to be expended by the Contractor in conducting
exploration operations in accordance with approved work
programmes during the exploration period, shall not be less than
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BELIZE NATURAL ENERGY L TO 1/2/2003
the following as adjusted pursuant to paragraph 6.1.4.
6.1.1.1
Initial Exploration Period:
(a) First contract year $400,000.00 US$
(b) Second contract year $100,000.00 US$
6.1.1.2
First renewal period (if requested by the Contractor pursuant to
paragraph 3.1):
(a) First contract year 500,000.00 US$
(b) Second contract year 500,000.00 US$
6.1.1.3
Second renewal period (if requested by the Contractor pursuant to
paragraph 3.1):
(a) First contract year 500,000.00 US$
(b) Second contract year 500,000.00 US$
6.1.1.4
Third renewal period (if requested by the Contractor pursuant to
paragraph 3.1):
(a) First contract year 500,000.00 US$
(b) Second contract year 500,000.00 US$
6.1.2
The Contractor undertakes to carry out and comply with the
following minimum work commitments.
6.1.2.1
Initial exploration period:
INITIAL PERIOD
(a) First contract year:
-Data compilation and prospect generation.
- Seismic reprocessing and shooting geophysical survey and/or
drill rig mobilizing and site preparation followed by drilling and
testing of one well to a depth of two thousand (2000) feet below
the rig floor passing through the Hillbank and Yalbac formations
or to the top of Margaret Creek Formation, whichever is
shallower. As used above, the Margaret Creek Formation shall
mean, the geological equivalent of that certain zone found
between 2316 feet and 2370 feet on that certain Gamma-Ray Log
of the Eagle-l well drilled near Roaring Creek in 1984.
INITIAL PERIOD
(b) Second contract year:
Assessment of l st year results will include, inter alia,
interpretation and update of geophysical, geochemical and
structural geology.
Belize Natural Energy, shall undertake to drill at least one (1)
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BELIZE NATURAL ENERGY L TO 1/2/2003
exploratory well on or before the
6.1.2.2
so" June, 2004.
FIRST RENEWAL PERIOD
First renewal period (if requested by the Contractor pursuant to
paragraph 3.1):
-Exploration activities will depend on results for Initial Period
and will most likely include geological and geophysical work and
possibly exploration and/or development drilling.
6.1.2.3
SECOND RENEWAL PERIOD
Second renewal period (if requested by the Contractor pursuant to
paragraph 3.1):
-Exploration activities will depend on results for First Renewal
Period and will most likely include geological and geophysical
work and possibly exploration and/or development drilling.
6.1.2.4
THIRD RENEWAL PERIOD
Third renewal period (if requested by the Contractor pursuant to
paragraph 3.1):
-Exploration activities will depend on results for Second Renewal
Period and will most likely include geological and geophysical
work and possibly exploration and/or development drilling.
6.1.3
.If, during any contract year in the exploration period, the
Contractor should expend more than the required minimum
annual exploration expenditures, the Contractor may subtract an
amount equal to the excess amount spent from the required
minimum exploration expenditures for the ensuing contract year
in the exploration period.jlf works carried out in any contract year
exceed the minimum work commitment relating to such contract
year as provided in paragraph 6.1.2, the excesses will count
towards the satisfaction of the minimum work commitments for
the ensuing contract year.
Compliance with the required minimum exploration expenditures
for a given contract year shall not relieve the Contractor of his
obligation to comply with the required minimum work
commitment, nor shall compliance with the required minimum
work commitment for a given contract year relieve the Contractor
of his obligation to comply with the required minimum
exploration expenditures for such contract year.
Security
6.1.4
(a) Within ninety (90) days of the effective date and where this
Agreement has been extended pursuant to Regulation 9 of the
Belize Petroleum Regulation S.J. No. 112 of 1992, and within
thirty (30) days of each extension period, the Contractor shall
provide security by means of a bank guarantee, in a form
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BELIZE NATURAL ENERGY L TO 1/2/2003
substantially similar to that set forth in Exhibit C, equal to the
total potential penalties for the initial exploration period, or, as
the case may be, for the first, second and third renewal periods, as
set forth in paragraph 6.1.1.
Upon prior confirmation by
independent accountants acceptable to both the Contractor and
the Government of the exploration expenditures actually incurred,
such security shall be reduced at the end of each contract year in
the exploration period to the extent that the Contractor has spent
the prescribed minimum amounts stipulated in paragraph 6.1.1,
provided that the outstanding balance shall not be less than the
required minimum exploration expenditures for the remaining
contract year of the exploration period in question, as stipulated
in paragraph 6.1.1 and as adjusted pursuant to paragraph 6.1.4.
(b) If, at the expiration of the exploration period, or upon the
date of termination of this Agreement, or upon relinquishment of
the entire contract area by the Contractor pursuant to paragraph
4.6, whichever first occurs, the Contractor has not expended for
exploration operations sums at least equal to the total minimum
exploration expenditures, as adjusted, required hereunder, the
balance of the security corresponding to the unexpended
minimum exploration expenditures, as adjusted automatically
shall be paid to the Government.
(c) If, at the end of any contract year in the exploration period,
the Contractor has not expended for exploration operations sums
at least equal to the minimum exploration expenditures, as
adjusted, required hereunder for such contract year, a portion of
the security corresponding to the unexpended minimum
exploration expenditures, as adjusted, for such contract year
automatically shall be paid to the Government.
Discovery and
Development Period
6.2
The terms and conditions relating to the
development period shall be as follows:
6.2. I
When in the course of petroleum operations, a discovery of
petroleum is made, the Contractor shall immediately notify the
Government in writing accordingly, specifying in such notice all
pertinent information concerning the discovery.
6.2.2
If the Contractor determines to conduct a drill-stem or production
test, in open hole or through perforated casing, with regard to the
discovery, he shall notify the Government that a drill-stem or
production test will be made within twenty-four (24) hours of the
time that such proposed test has been called. and the Government
shall have the right to have a representative present during such
test. Within two hundred (200) days after completion of such test
or tests, the Contractor shall complete the analysis and
interpretation of the data resulting from such test and submit a
report to the Government which shall contain copies of such data
and its analysis and interpretation thereof, and which shall also
contain a written notification of whether or not, in the
Contractor's opinion, such discovery is of potential commercial
interest. If the Contractor plugs and abandons the well which
encountered such discovery without conducting a drill stem or
production test, or fails to conduct a drill stem or production test
with respect to such discovery within two hundred (200) days
from the date on which such discovery has been made, it shall be
deemed to have notified the Government that, in the Contractor's
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discovery and
BELIZE NATURAL ENERGY LTD 1/2/2003
opinion, such discovery is not of potential commercial interest.
6.2.3
If, pursuant to paragraph 6.2.2, the Contractor notifies, or is
deemed to have notified, the Government that such discovery is
not of potential commercial interest, within thirty (30) days, the
Government shall have the option, exercisable by notice in
writing to the Contractor given within thirty (30) days, to require
the Contractor to relinquish the area corresponding to such
discovery and forfeit any rights relating to such discovery and
any production therefrom. The area subject to relinquishment
shall not exceed the prospective producing area determined by
taking into account the area of the structural closure of the
prospective horizon and other relevant technical factors,
including inter alia, permeability, porosity, pressure, drive,
trapping mechanism, reservoir depth and thickness. Any such
relinquishment by the Contractor of the area relating to such
discovery before the end of the exploration period shall be carried
out in accordance with paragraphs 4.4, 4.6 and 4.8.
6.2.4
If, pursuant to paragraph 6.2.2, the Contractor notifies the
Government that the discovery is of potential commercial
interest, the Contractor shall promptly prepare and submit for
approval to the Government a reasonable work programme and
work programme budget for the appraisal of such discovery.
Such appraisal work programme and work programme budget
shall include a complete programme of appraisal operations
necessary to determine whether such discovery is a commercial
discovery.
6.2.5
Within fifteen (15) days after the submission of the appraisal
work programme and work programme budget pursuant to
paragraph 6.2.4, the Contractor and the Government shall meet
with a view to adopting such work programme and work
programme budget or mutually agreeing upon amendments or
additions thereto.
Failing agreement between the Contractor
and the Government as to such work programme and work
programme budget at such meeting, or within fifteen (15) days
thereafter, the original appraisal work programme and work
programme budget submitted by the Contractor, revised in
accordance with any agreed amendments or additions thereto,
shall be deemed adopted, and the Contractor shall immediately
commence implementation thereof. On adoption of the appraisal
work programme and work programme budget, the annual work
programme and work programme budget adopted pursuant to
paragraph 5.6 shall be revised accordingly.
6.2.6
If, pursuant to paragraph 6.2.2, the Contractor has notified the
Government that the discovery is of potential commercial
interest, it shall, unless otherwise agreed:
(a) in respect of a discovery of crude oil, advise the Government
by notice in writing, whether or not in its opinion, the discovery
is commercial within a period of agreed eighteen (18) months
from the date on which the Contractor notified the Government
that said discovery was of potential commercial interest:
(b) in respect of a discovery of non-associated natural gas, advise
the Government by notice in writing, whether or not in its
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BELIZE NA rURAL ENERGY L TO 1/2/2003
opinion, the discovery is commercial, within such period as may
be stipulated in an Agreement made pursuant to Article XIV with
respect to such discovery or, in the absence of such Agreement,
within thirty-six (36) months from the date on which the
Contractor notified the Government that said discovery was of
potential commercial interest.
6.2.7
If the Contractor notifies the Government that the discovery is not
commercial, or fails to notify the Government that the discovery
is commercial within the periods prescribed in paragraphs
6.2.6(a) and (b), the Government shall have the option,
exercisable by notice in writing to the Contractor, to require the
Contractor to relinquish the area corresponding to such discovery
and forfeit any rights relating to such discovery and any
production therefrom. The area subject to relinquishment shall
not exceed the prospective producing area determined by taking
into account the area of structural closure of the prospective
horizon and other relevant technical factors.
Any such
relinquishment by the Contractor of the area relating to such
discovery before the end of the exploration period shall be carried
out in accordance with paragraphs 4.4, 4.6 and 4.8.
6.2.8
(a) The notice submitted to the Government by the Contractor
pursuant to paragraph 6.2.6 (a) and (b) shall be accompanied by a
report on the discovery setting forth all relevant technical and
economic data, including, but not limited to, geological and
geophysical information, areas, thicknesses and extent of the
productive strata, petrophysical properties of the reservoir
formations, PVT data, the reservoir's productivity indices for the
wells tested at various rates of flow, permeability and porosity of
the reservoir formations, the relevant characteristics and qualities
of the petroleum discovered, additional geological data and
evaluations of the reservoir, crude oil and natural gas reserves
estimates and any other relevant characteristics and properties of
the reservoirs and fluids contained therein, as well as all
evaluations, interpretations and analyses of such data and
feasibility studies relating to the discovery prepared by the
Contractor, his contractors, subcontractors and affiliated
compames.
(b) In addition, if the Contractor believes that the discovery is
commercial, he shall submit to the Government with the report
described in paragraph 6.2.8 (a) a work programme and work
programme budget for the development of such discovery. Such
development work programme and work programme budget shall
set out detailed proposals, including cost estimates, drilling
schedules, number of wells and well spacing, production
forecasts and a timing schedule, in accordance with generally
accepted engineering practices and economics of the international
petroleum industry, for the establishment and operation of all the
facilities, installations and services required for the production,
processing, storage and transportation of petroleum from the area
in which the discovery is located and any other activities
incidental thereto. Proposals relating to production procedures
shall ensure that the area does not suffer an excessive rate of
decline of production or an excessive loss of reservoir pressure.
Such development work programme and work programme budget
shall also contain particulars of feasible alternatives, if any,
considered by the Contractor for the development and
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BELIZE NATURAL ENERGY LTD 1/2/2003
exploitation of the discovery and economic feasibility studies
carried out by or for the Contractor with respect to the discovery
taking into account the location, meteorological conditions, cost
estimates, the price of petroleum and any other relevant data and
evaluations thereof.
6.2.9
The Government shall examine the report and any work
programme and work programme budget submitted pursuant to
paragraph 6.2.8 and may require the Contractor to provide, within
a specified period of time, such additional information and data
as it may reasonably require to evaluate such report, work
programme and work programme budget. As soon as possible
after the submission of the report and any work programme and
work programme budget pursuant to paragraph 6.2.8 or receipt of
such additional information and data, the Government and the
Contractor shall meet (i) to determine at such meeting, or at such
later date as may be mutually agreed, the boundaries of the area
to be delineated as a field, and (ii) to adopt a work programme
and work programme budget for the development of the
discovery.
6.2.10
(a) At the meeting described in paragraph 6.2.9, the Contractor
shall carefully consider and take into account the proposals of the
Government and the reasons therefor and shall attempt in good
faith to reach an agreement with the Government on the points at
issue paying particular consideration to the objective of achieving
initial commercial production expeditiously taking into account
generally accepted engineering practices and economics of the
international petroleum industry.
(b) If the Government and the Contractor agree upon the
boundaries of the area to be delineated as a field and upon the
adoption of a work programme and work programme budget for
the development of the discovery, the date upon which such
agreement is reached, as reflected in writing signed by both
parties, shall be the date of the declaration of the commercial
discovery for all purposes of this Agreement. The area so
determined shall, on such date, be automatically converted into a
t field, and the Contractor shall, as soon as is practicable,
commence development and production operations in the field
according to the adopted work programme and work programme
budget. Upon adoption of the development work programme and
work programme budget, the annual work programme and work
programme budget adopted pursuant to paragraph 5.6 shall be
revised accordingly.
V
(c) In the event that no agreement is reached between the
Government and the Contractor within one hundred and eighty
(180) days from the date of submission of the report and work
programme and work programme budget pursuant to paragraph
6.2.8 as to (i) matters relating to the adoption of the work
programme and work programme budget for the development of
the discovery or (ii) the boundaries of the area to be delineated as
a field, the Government or the Contractor may refer the matter for
determination pursuant to Article XXIV. The determination in
accordance with Article XXIV shall be final and the work
programme and work programme budget for the development of
the discovery and the boundaries of the area to be delineated as a
field, as the case may be, shall be deemed to have been adopted
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BELIZE NATURAL ENERGY L TO 1/2/2003
and agreed as determined, except that the Contractor may, within
sixty (60) days of receipt of such determination, notify the
Government that the discovery to which such work programme
and work programme budget and area so determined is no longer
considered to be commercial. If the Contractor so notifies the
Government, the provisions of paragraph 6.2.7 shall apply.
Failing such notification, the date after sixty (60) days of the
receipt of such determination shall be deemed to be the date of
the declaration of the commercial discovery for all purposes of
this Agreement. The area so determined shall, on such date, be
automatically converted into a field and the Contractor shall, as
soon as is practicable, commence development and production
operations in the field according to the work programme and
work programme budget so adopted. Upon adoption of the
development work programme and work programme budget as
aforesaid, the annual work programme and work programme
budget adopted pursuant to paragraph 5.6 shall be revised
accordingly.
Production Period
6.2.11
Notwithstanding any other provision of this Agreement, in the
event that initial commercial production has not occurred within
three (3) years, in the case of a crude oil discovery on land, or
five (5) years, in the case of non-associated natural gas discovery,
or such longer period as the Government may have agreed in the
development work programme and work programme budget,
from the date of declaration of commercial discovery for a field,
the Contractor shall relinquish the area comprising such field and
shall forfeit any rights relating to such field and any production
therefrom.
6.3
The terms and conditions of the production period shall be as set
out below.
6.3.1
The Contractor shall not produce crude oil from the contract area
at a rate below the maximum efficient rate. In conjunction with
the adoption of the development work programme and work
programme budget pursuant to paragraph 6.2.10 the Contractor
and the Government shall establish at that time the maximum
efficient rate of production for crude oil and the production rate
for non-associated natural gas. Such rates shall be reviewed
annually at the time of submission of the annual work programme
by the Contractor pursuant to paragraph 5.4 and revised, if
necessary, by mutual agreement. In the case of non-associated
natural gas, the production rate shall not be required by the
Government to be less than that required to satisfy any contracts
then in existence for the sale of such natural gas.
6.3.2
Not less than ninety (90) days prior to the beginning of each
calendar year following initial commercial production, the
Contractor shall prepare and furnish to the Government for
approval a forecast statement setting forth by quarters the total
quantity of crude oil (by quality, grade and gravity) and natural
gas that the Contractor estimates can be produced, saved and
transported hereunder during such calendar year in accordance
with generally accepted practices in the international petroleum
industry. The Contractor shall endeavor to produce in each
calendar year the forecast quantity. The crude oil shall be run to
storage tanks, constructed, maintained and operated by the
Contractor in accordance with Government Regulations, in which
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BELIZE NATURAL ENERGY LTD 1/2/2003
such crude oil shall be metered or otherwise measured for all
purposes required by this Agreement.
ARTICLE VII
Obi igations of the
Government
The Government shall:
7.1
assist the Contractor in the execution of work programmes by
supplying or otherwise making available all geological,
geophysical, geographical, drilling, well, production and other
information, including well location maps, relating to the contract
area in the possession of the Government or coming into the
possession of the Government;
7.2
provide the right of ingress to and egress from the contract area
and any facilities used in petroleum operations, and, upon
application in the prescribed manner, all necessary visas, work
permits, import licenses and rights of way and easements as may
be required by the Contractor and his contractors and
subcontractors and which may be available from resources within
the Government's control.
ARTICLE VIII
Royalty/Production
Payment
8.1
The Contractor shall pay to the Government a royalty equal to (i)
seven and one half percent (7.5%) of the value of the annual gross
production of crude oil produced and saved in each calendar year
and not used or consumed in petroleum operations and (ii) five
percent (5%) of the value of the annual gross production of natural
gas produced, saved and sold in each calendar year and not used or
consumed in the conduct of petroleum operations.
8.2
The royalty with respect to crude oil shall be payable in cash
and/or kind at the option of the Government. The royalty with
respect to natural gas shall always be paid in cash.
8.3
For the purposes of determining the amount of the royalty due,
crude oil and natural gas shall be valued in accordance with
paragraphs 10.1, 10.2 and 14.4~J~_s_s__SQc:..b..c:'Q?J.s.a&.1heGovernment
may reasonably allow for handling and transportation from the
wellhead to the delivery point as described in such paragraphs, and
--the royalty shalCbe payable quarterly within thirty (30) days of the
end of each quarter on the basis of crude oil production or natural
gas sales which occur in each such quarter. Payment shall be
accompanied by a certificate from the Contractor setting forth in
detail the basis for computation of the royalty. Such certificate
shall be in a form acceptable to the Government.
8.4
If the Government elects to take the Royalty with respect to Crude
Oil, or any part thereof, in kind, it shall notify the Contractor in
accordance with the provisions of paragraph 11.2.
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BELIZE NATURAL ENERGY L TO 11212003
ARTICLE IX
Recovery of
Petroleum
Operations
Expend itures:
Production Sharing
.....
9.1
LIn each calendar year, after discharging its obligation for the
royalty payment due to the Government pursuant to Article VIII,
the Contractor shall be entitled to recover all petroleum operations
expenditures incurred hereunder, out of one hundred percent
(100%) of the petroleum produced and saved in such calendar year
and not used in petroleum operations by retaining and disposing of
that amount of petroleum equal in value to the unrecovered
petroleum operations expenditures for that calendar year plus all
unrecovered petroleum operations expenditures from prior
calendar year~ This Percentage will be reduced from one hundred
percent (100%) to no less than ninety percent (90%) if the
government decides to purchase up to a ten percent (10%) equity.
All such petroleum operations expenditures shall be recovered
without a ceiling in the manner, to the extent provided for, in the
Income and Business Tax Act, Chapter 55 of the Substantive Laws
of Belize, Revised Edition 2000. For the purpose of determining
the value of the quantity of petroleum to which the Contractor is
entitled in each calendar year pursuant to this paragraph 9.1, the
provisions of Article X shall be applied.
9.2
The remaining quantity of petroleum produced and saved in a
given calendar year and not used in petroleum operations, after
deduction of the value of the royalty payments made in such
calendar year and after recovery by the Contractor of petroleum
operations expenditures pursuant to paragraph 9.1, ("Net
Petroleum") shall be taken and disposed of separately by the
Government and the Contractor in each calendar year in the
following proportions:
Daily Average Production: ( in barrel or equivalent-barrel):
Government's Share
Percent (%)
Contractor's Share
Percent (%)
First 25,000 barrels
1.5
98.5
Next 25,000 barrels
2.5
97.5
Next 25,000 barrels
5
95
Next 50,000 barrels
7.5
92.5
Next 50,000 barrels
10
90
Next 50,000 barrels
12.5
87.5
Any volume above first
225,000 barrels
15
85
ARTICLE X
Valuation and
Measurement of
Petroleum
10.1
Crude oil sold to third parties shall be valued at the net realized
price at the delivery point, well-head or tank batteries in the
field in Belize received by the Contractor for such crude oil.
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BELIZE NATURAL ENERGY LTD 1/2/2003
field in Belize received by the Contractor for such crude oil.
10.2
Crude oil sold to other than third parties shall be valued as
follows:
10.2.1
By using the weighted average unit price received by the
Contractor from sales to third parties at the delivery point, net of
any commissions and brokerages paid in relation to such third
party sales, during the ninety (90) days preceding such sale,
adjusted as necessary for quality, grade and gravity, and taking
into consideration any special circumstances with respect to such
sales, unless less than fifty percent (50%), by volume, of crude oil
sales during such period are made to third parties, in which case
crude oil sold to other than third parties shall be valued in
accordance with paragraph 10.2.2.
10.2.2
If no third party sales have been made during such period of time,
then (a) on the basis used to value other crude oil from Belize of
similar quality, grade and gravity (or, if not similar, adjusted as
necessary for quality, grade and gravity) and taking into
consideration any special circumstances with respect to sales of
such crude oil, or (b) if there is no other crude oil from Belize, on
the basis used to value crude oil from other sources in the
Caribbean, Central America, Colombia and Venezuela as posted in
Platt's Oil Gram for Caribbean/Central American Crudes of
similar quality, grade and gravity and taking into consideration
any special circumstances with respect to sales of such similar
crude oil.
10.3
Natural gas shall be valued in accordance with the provisions of
paragraph 14.4.
10.4
Third party sales referred to in this Article shall mean sales other
than barter sales made by the Contractor to purchasers who are not
affiliated companies of the Contractor in arms length transactions
and with whom (at the time the same is made) the Contractor has
no contractual interest involving directly or indirectly any joint
interest.
10.5
Commissions or brokerages incurred in connection with sales to
third parties, if any, shall not exceed the customary and prevailing
rate.
10.6
In the event that petroleum operations involve the segregation of
crude oils of different quality, grade or gravity, and if the parties
do not otherwise mutually agree, any and all provisions of this
Agreement concerning valuation of crude oil shall separately
apply to each segregated crude oil. However, in electing to take
crude oil for internal consumption pursuant to paragraph 11.7 and
to take royalty in kind pursuant to paragraph 11.2, the Government
shall have the right to receive, at its own expense and risk, crude
oil of the quality, grade and gravity of its choice.
10.7
The Contractor shall supply, operate and maintain equipment for
measuring the volume and quality of the petroleum produced and
saved hereunder, including gravity, density, temperature and
pressure measuring devices and any other devices that may be
required. All measurement equipment and devices shall, prior to
their installation or usage, be approved by the Inspector of
Petroleum. Such equipment and devices shall at all reasonable
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BELIZE NATURAL ENERGY LTD 1/2/2003
times be available for inspection and testing by the Inspector of
Petroleum or other authorized representatives. Any such
inspection or testing shall not interfere with the normal operation
of the facilities involved. The equipment and devices used or
installed pursuant to this paragraph shall not be replaced or altered
without the prior approval of the Government.
10.8
The Contractor shall undertake to measure the volume and quality
of the petroleum produced and saved hereunder, consistent with
generally accepted practices in the international petroleum
industry, with the frequency and according to procedures which
shall be approved by the Government.
10.9
The Contractor shall give the Inspector of Petroleum timely notice
of its intention to conduct measuring operations and the Inspector
shall have the right to be present at and supervise, either directly or
through authorized representatives, such operations.
10.10
If it is determined, following an inspection or test carried out by
the Government or its representatives, that the equipment, devices
or procedures used for measurement are inaccurate and exceed the
permissible tolerances which shall be established by agreement
between the Government and the Contractor, and such
determination is verified by an independent surveyor acceptable to
both parties, such inaccuracy shall be deemed to have existed for
one-half of the period since the last previous such inspection or
test, unless it is proved that such inaccuracy has been in existence
for a longer or shorter period. Appropriate adjustments covering
such period shall be made within thirty (30) days from the date of
such determination.
ARTICLE XI
Marketing, Production
(Royalty) in Kind and
Domestic
Regui rements
11.1
The Contractor shall be obligated to market all crude oil produced
and saved from the contract area, subject to the provisions
hereinafter set forth.
11.2
If the Government elects to take the royalty payment on crude oil
in kind, it shall so notify the Contractor in writing not less than
sixty (60) days prior to the commencement of each six month
period of each calendar year specifying the quantity, and
designating the grade and quality that it elects to take in kind,
based upon estimates, including those contained in the forecast
statement furnished pursuant to paragraph 6.3.2.
Final
adjustments shall be made within ninety (90) days of the end of
each calendar year on the basis of actual quantities. Such notice
shall be effective for the ensuing six month semester of that
calendar year. Failure to give such notice shall be conclusively
deemed to indicate the election by the Government not to take in
kind.
11.3
Any sale by the Contractor of any part of the Government's share
of crude oil production shall not be for a term expiring more than
six (6) months after the date of execution of the sales contract
without the Government's written consent. If the Government so
consents, the Government shall not exercise its rights to receive
crude oil in kind pursuant to paragraph 11.2.
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BELIZE NATURAL ENERGY LTD 1/2/2003
11.4
Any sale by the Contractor of any part of its share of the crude oil
produced and saved from the contract area shall not be for a term
expiring more than twelve (12) months after the date of execution
of the sales contract without the Government's written consent.
The Government shall not exercise its rights under paragraph 11.7
to require the Contractor to satisfy the internal consumption
requirements of Belize from crude oil which is subject to such
contract.
11.5
Crude oil which the Government has elected to take in kind shall
be delivered by the Contractor, free of cost to the Government, at
regularly spaced intervals at the delivery point or to the
Government's storage facilities in the field, or both, at the option
of the Government. The Government shall provide at such
delivery points, at its sole risk and expense, all storage,
transportation and other facilities necessary to receive such crude
oil, provided, however, that if the Government requests, the
Contractor shall provide adequate storage facilities at such places,
free of charge, at the risk of the Government, for a quantity of the
Government's crude oil not exceeding one hundred thousand
(100,000) barrels for each field. If storage exceeds one hundred
thousand (100,000) barrels per field at any time, the Government
shall pay to the Contractor a reasonable storage charge for such
excess. If such storage is provided, and the Government has no
need for such storage capacity, the Contractor has the right to use
such storage capacity for its own use and Government shall not
pay any storage charge for any such period in which Contractor
uses the storage facilities.
11.6
If the Government elects to meet all or part of the requirements of
the domestic market of Belize from crude oil production in Belize,
it shall use its share of production from all crude oil production in
Belize to do so. If in any year there is domestic demand in excess
of the Government's share of such production, the Government
may require the Contractor to sell crude oil in Belize on a pro rata
basis with other producers in Belize, according to the quantity of
crude oil production of each producer in each year.
The
Government shall give the Contractor at least three (3) months
notice in advance of such requirement and the term of supply will
be on an annual basis. The price for such sales shall be the price
as calculated pursuant to paragraph 10.2 above.
11.7
If the Government elects to exercise its rights under paragraph
11.6, it shall notify the Contractor in accordance with the
provisions of paragraph 11.2 relating to the Government's election
to take royalty payment in kind. The amounts to be taken shall be
based upon estimates, including those contained in the forecast
statement furnished pursuant to paragraph 6.3.2, and final
adjustments shall be made within ninety (90) days of the end of
each calendar year on the basis of actual quantities.
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BELIZE NATURAL ENERGY LTD 1/2/2003
11.8
Not less than twelve (12) months prior to initial commercial
production in any field, the Contractor shall submit to the
Government for approval, proposed procedures and related
operating regulations and financial terms covering the scheduling,
storage and lifting of crude oil from such field. The procedures,
regulations and terms shall be in accordance with accepted
standards and practices in the international petroleum industry and
comprehend the subjects necessary to efficient and equitable
operations including, but not limited to:
rights of parties,
notification time, maximum and minimum quantities: duration of
storage, scheduling, conservation, spillage, liabilities of the
parties, and penalties for over and under lifting, safety and
emergency procedures.
ARTICLE XII
Payment Procedure
12.1
All payments due to the Government hereunder shall be made in
United States dollars at a bank to be designated by the
Government, or at the Contractor's election, such other currency
as is acceptable to the Government.
12.2
All payments due to the Contractor hereunder shall be made in
United States dollars at a bank to be designated by the Contractor,
or, at the Government's election, such other currency as is
acceptable to the Contractor.
12.3
Except as otherwise expressly provided herein, all payments
required to be made pursuant to this Agreement shall be made
within thirty (30) days following the end of the calendar month in
which the obligation to make such payment occurs.
12.4
First year administrative fees for the Initial Exploration period
shall be paid to the Government of Belize (GOB) via the Inspector
of Petroleum within ninety (90) days of execution of PSA. Fees
for the subsequent years of the Exploration period shall be paid on
or before anniversary of effective date of PSA.
12.5
If any payment is not made when due, such unpaid amount shall
bear interest from and after the due date at an interest rate
compounded annually at two percent (2%) greater than the interest
rate charged by any Commercial Bank in Belize to prime
commercial customers for ninety (90) day loans as in effect from
time to time until the date of payment or US prime rate plus three
percent (3%).
ARTICLE XIII
Surface Rentals
13.1
The Contractor shall be liable for payment of such fees and surface
rentals as are stipulated in the Petroleum Regulations 1992. The
fees payable for each year shall be paid in advance and in
accordance with paragraph 12.4. The fees for the first year shall
be paid within ninety (90) days of the effective date of this
Agreement.
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BELIZE NATURAL ENERGY LTD 1/2/2003
ARTICLE XIV
Natural Gas
\4.\
The Contractor shall have the right to use associated natural gas
for petroleum operations, including re-injection for pressure
maintenance in the field or adjacent fields of the Contractor.
Associated natural gas which is, in the opinion of both the
Contractor and the Government, not economical, shall be returned
to the subsurface structure, or may be flared with the consent of
the Government. In the event that the Contractor chooses to
process and sell associated natural gas, the Contractor shall notify
the Government of the same and upon such notification, the
Government and the Contractor shall, as soon as practicable
thereafter, meet together with a view to reaching an agreement on
the production, processing and sale of such gas. In the event the
Contractor chooses not to process and sell associated natural gas,
the Government may elect to off-take at the outlet flange of the
gas-oil separator and use such associated natural gas which is not
required for petroleum operations. There shall be no charge to the
Government for such associated natural gas, provided that the cost
to gather such associated natural gas in the field at the point of
being flared and to process and utilize it shall be for the account of
the Government.
14.2
Where non-associated natural gas is discovered in the contract area
and the Contractor has, pursuant to paragraph 6.2 informed the
Government that the discovery is of potential commercial interest,
the Government and the Contractor will, on completion of the
appraisal programme relating to such discovery, or sooner if so
agreed, meet together with a view to reaching an agreement on the
development, production, processing, utilization, disposition or
sale of such gas.
14.3
In the event that the development, production, processing,
utilization, disposition or sale of natural gas from the contract area
is determined by the parties to be economically feasible in
accordance with this Article XIV, the costs of development and
production of the same from the reservoir to the delivery point,
and the revenue derived therefrom, shall, unless otherwise agreed
pursuant to paragraphs 14.1 and 14.2, be included in petroleum
operations expenditures and gross revenues, respectively, for all
purposes of this Agreement, subject to the accounting procedure
outlined in the Bulletin of the Income Tax Commissioner
(Annex 1).
\4.4
The price to be paid for natural gas, or the value to be attributed
thereto shall
14.4.1
for sales to third parties, be equal to the net realized price obtained
by the Contractor for such Natural Gas at the delivery point;
\4.4.2
for sales other than to third parties, be determined by agreement
between the Government and the Contractor, provided, however,
that such price or value shall reflect the following: (i) the quality
and quantity of the natural gas (ii) the price at which sales of
natural gas from other sources in Belize, if any, are then being
made, (iii) the price at which sales, if any, of natural gas imported
into Belize are being made, (iv) the purpose for which the natural
gas is to be used, and (v) the international market price of
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BELIZE NATURAL ENERGY L TO 1/2/2003
competing or alternative fuels or feedstocks.
14.4.3
Third party sales shall mean sales as described in paragraph lOA
ARTICLE XV
Taxes
15.1
The Contractor and his contractors and subcontractors shall be
obligated to pay income tax for the applicable calendar year upon
net taxable income derived from petroleum operations pursuant to
the Income and Business Tax, Act Chapter 55 Substantive Laws of
Belize, Revised Edition 2000.
15.2
In each calendar year, the Contractor's income tax shall be payable
to the Government in installments on the last day of each quarter
on the basis of the estimate, and quarterly updates thereto,
provided to the Government. The estimated unpaid liability for
income tax for each calendar year as of the current estimate or
quarterly update shall be payable equally over the remaining
quarterly installments for such calendar year. Adjusting payments
or refunds, as the case may be, shall be made within ninety (90)
days of the end of the calendar year based upon the detailed
accounts submitted for such calendar year pursuant to paragraph
26.2 as approved by the Government.
15.3
(a) The Contractor shall within ninety (90) days of the end of each
calendar year, notify the Government of any and all amounts paid
to its contractors with respect to operations carried out by them in
Belize and in turn shall notify its contractors that they must
similarly advise the Government within ninety (90) days after the
end of each calendar year of any and all amounts paid to their sub
contractors with respect to operations carried out by them in
Belize.
(b) The Contractor shall also advise each of its contractors, and
shall require such contractors to likewise notify their
subcontractors that for every six (6) months such contractors and
subcontractors shall furnish to the Government a list of all their
Belizean and expatriate personnel, along with the remuneration
received by each of such personnel, and that they shall be required,
prior to leaving Belize, to establish to the satisfaction of the
Government that the necessary income taxes have been paid.
15.4
The Contractor and his contractors and subcontractors and their
respective personnel shall be obligated to pay such reasonable
transfer taxes and stamp duties as may be in effect from time to
time at the rates which are generally applicable to all persons or
entities in Belize.
15.5
Except as may be otherwise agreed in wntmg between the
Government and the Contractor, all transactions giving rise to
revenues, costs or expenses which will be credited or charged to
the books, accounts, records and reports prepared, maintained or
submitted hereunder shall be conducted at arm's length or on such
a basis as will assure that all such revenues, costs or expenses will
not be higher or lower, as the case may be, than would result from
a transaction conducted at arm's length on a competitive basis
with third parties.
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ARTICLE XVI
Exemptions from
Custom Duties
16.1
The Contractor and his non- Belizean contractors and
subcontractors engaged III conducting petroleum operations
under this Agreement shall be permitted to import upon
application to and approval by the Minister of Finance for
exemptions from customs duties with respect to the importation of,
machinery, equipment, spare parts, materials, supplies,
consumable items, moveable property, and any other items or
articles connected with petroleum operations, subject to the
provisions of paragraph 16.2. Furthermore the Contractor and his
subcontractors shall be permitted to purchase in Belize the
following products duty-free, including, inter alia, gasoline, diesel
fuel and gas to be used in petroleum exploration and production
operations.
16.2
The exemptions provided in paragraph 16.1 shall not apply to any
imported item when, in the reasonable opinion of the Government,
items of the same, or substantially the same, kind and quality are
manufactured locally and/or are available locally for purchase and
timely delivery at the Contractor's operating base in Belize at a
price equal to the cost of the imported item(s).
16.3
The Government reserves the right to inspect during normal
business hours the records, documentation or the physical item or
items for which an exemption is or has been provided under
paragraph 16.1 to determine that such item or items are being or
have been imported solely for the purpose for which the
exemption was granted.
16.4
The item or items exempt from customs duties hereunder shall not
be sold to third parties (who are not in their own right exempt from
such customs duties) for use or consumption in Belize unless prior
written authorization is obtained from the Government and the
importing party pays the tax or duty due on the assessed value of
such item or items at the time of sale.
16.5
Any of the items imported into Belize, whether exempt or non
exempt from customs duties, may be exported by the importing
party at any time without the payment of any export duties, taxes
or imposts.
16.6
"Custom duties" as used herein shall include all duties, taxes, or
imposts (except those charges, as may be in force from time to
time, paid to the Government for actual services rendered such as
normal handling and storage charges) which are payable as a result
of the importation of the item or items under consideration.
16.7
The Contractor shall be exempted from any duty, fee or any other
financial imposts (except those charges paid to the Government for
actual services rendered such as normal handling and storage
charges if any) in respect of the export of petroleum to which the
Contractor is entitled hereunder.
16.8
The Contractor shall not, directly or indirectly, export any
petroleum produced from the contract area to any country or
person which the Government has by law or official
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BELIZE NATURAL ENERGY LTD 11212003
pronouncement declared to be hostile or unfriendly.
ARTICLE XVII
Exchange and
Currency Controls
17.1
The Contractor shall be subject to the applicable exchange control
legislation and regulations in effect from time to time in Belize,
provided, however, that:
(i) the Contractor shall be permitted to freely dispose of any crude
oil produced after satisfying its obligations of payment of taxes,
bonuses, royalties and other fees to the Government and with the
prior approval of the Central Bank of Belize to receive and hold
the proceeds from the sale of any petroleum, crude oil, natural gas
and casinghead petroleum spirit produced therefrom in its offshore
banking account;
(ii) the Contractor shall be permitted to remit any profits,
dividends, capital, or sums owed in repayment of loans including
sums owed to affiliates, which are not required for conducting the
petroleum operations, to their home office or non-resident
shareholders free of any charges, taxes, imposts or other duties;
(iii) the Contractor shall have the right to establish and maintain
local bank accounts which may be denominated in Belize dollars
or, subject to the prevailing conditions of the Central Bank of
Belize, in United States dollars which may be utilized as necessary
for payment of Contractor's obligations in Belize;
(iv) no restriction shall be placed on the importation by the
Contractor of funds necessary for carrying out the petroleum
operations stipulated in this Agreement;
(v) the Contractor shall have the right to pay directly outside of
Belize from its offices abroad for purchases or services for
petroleum operations hereunder, provided, however, that no such
payments shall be made to residents of Belize or to firms using
Belize as their main base of operations (whether natural or
juridical) contrary to the Laws of Belize.
ARTICLE XVIII
Title to Equipment
18.1
All equipment and assets which are fixed installations and are not
exported by the Contractor under paragraph 16.6 shall become the
property of the Government without cost as soon as this
Agreement is terminated.
ARTICLE XIX
Government
Participation
19.1
The Government shall have the option to acquire for itself or for
its designee an equity interest of up to ten percent (10%) of the
total interest of the Contractor in this Agreement and in return
therefore shall furnish its working interest share of the funds as
provided in paragraph 19.2. The equity interest shall be made up
of two portions, a reimbursed Working Interest share of up to five
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BELIZE NATURAL ENERGY L TO 1/2/2003
percent (up to 5%) and a Carried Interest of up to an additional
five percent (up to 5%).
\9.2
\9.3
Within ninety (90) days following the date of declaration of
commercial discovery for any field, the Government, by written
notice to the Contractor, may exercise its option to participate in
this Agreement. If the Government exercises its option to
participate, (a) it shall promptly reimburse the Contractor an
amount, equivalent to the Working Interest up to five (up to 5%)
percent of all exploration expenditures incurred within the entire
contract area prior to the date of declaration of commercial
discovery for such field and (b) the Contractor (or each
corporation, individual or entity comprising the Contractor at that
time pro rata) shall assign and transfer to the Government or its
designee up to five percent (up to 5%) Working Interest that the
Government has opted to acquire. The Government or its designee
shall assume all rights and obligations of the Contractor pro rata
with its equity interest, in connection with this Agreement.
The Government may, upon giving the Contractor reasonable
written notice, require the Contractor to lend the Government up to
one hundred percent (100%) of the funds required to pay the
Government's pro-rata share of expenditures for up to five percent
( up to 5%) Carried Interest. Those expenditures represent the pro
rata share of all exploration expenditures incurred within the entire
contract area prior to the date of declaration of commercial
discovery for such field and the pro-rata share of capital and
operating costs. The loan shall bear interest at US prime rate plus
three percent (3%). The Government shall make repayments of
the loan on a quarterly basis in amount equal to fifty percent
(50%) of the differences between the gross revenues attributable Lo
the Government's Carried Interest in the field and the operating
costs and capital expenses, including royalty but excluding income
taxes, attributable to the Government's Participating Interest in the
field for Petroleum Operations. Repayments of the loan shall be
applied first to accrued and unpaid interest and the balance shall be
applied in reduction of the outstanding principal balance. The
terms of the loan shall be no longer than 10 years. The percentage
Carried Interest revert to a Working Interest after repayment of the
loan. Provided that, where parties agree that a well and/or field is
small, the Government shall not participate via Carried Interest
Equity.
ARTICLE XX
Training and
Employment
20.\
The Contractor agrees to train and employ qualified nationals of
Belize in its petroleum operations and, after initial commercial
production, will undertake the schooling and training of nationals
of Belize for staff positions, including administrative and
executive management positions. The Contractor will require his
contractors and subcontractors to do the same. The Contractor
undertakes to gradually replace its expatriate staff with qualified
nationals of Belize as they become available. An annual
programme for training and phasing in of nationals of Belize shall
be established by the Contractor and shall be submitted for
approval to the Government. Such programme shall be included in
the annual work programmes submitted by the Contractor pursuant
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")~>
I
tr .cr"
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BELIZE NATURAL ENERGY L TO 1/2/2003
to paragraph 5.4. Within thirty (30) days of the end of each
calendar year, the Contractor shall submit a written report to the
Government describing the number of personnel employed, their
nationality, their positions and the status of training programmes
for nationals of Belize.
20.2
The Contractor shall also be required to establish a programme,
satisfactory to the Government, to train personnel of the
Government to undertake skilled and technical jobs in petroleum
operations for the Government. Such programme shall also include
provisions for involving representatives of the Government in
preparation of the annual work programme and work programme
budgets as required by paragraph 5.4 (d).
20.3
The Contractor shall be responsible for on-the-job training of
Belizean nationals during the exploration and development periods
pursuant to paragraphs 20.1 and 20.2. Commencing with the first
contract year following initial commercial production in the first
field, the Contractor shall undertake responsibility of training not
less than three (3) Belizean nationals per each calendar year in
accordance with paragraphs 20.1.
ARTICLE XXI
Purchases in Belize
21.\
In procurement, the Contractor shall give preference to goods
which are produced or available in Belize and services which are
rendered by nationals of Belize and companies of Belize, provided
such goods and services are offered on terms equal to or better
than imported goods and services with regard to quality, price and
availability at the time and in the quantities required.
21.2
Locally produced or available equipment, materials and supplies
shall be deemed equal in price to imported items if the local cost
of such locally produced or available items at the Contractor's
operating base in Belize is not more than ten percent (10%) higher
than the cost of such imported items before customs duties but
after transportation and insurance costs have been added.
ARTICLE XXII
U11 itization
22.1
If a field is designated within the contract area and such field
extends beyond the contract area to other areas of Belize over
which other parties have the right to conduct exploration,
development and production operations the Government may
require that the development of the field and the production of
petroleum therefrom be carried out in collaboration with the other
contractors consistent with accepted practices in the international
petroleum industry. The same rule shall be applicable if deposits
of petroleum within the contract area, although not equivalent to a
commercial discovery if developed alone, would be deemed to be
a commercial discovery if developed with those parts of the
deposits which extend to areas controlled by other contractors.
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BELIZE NATURAL ENERGY L TO 11212003
22.2
If the Government so requests, the Contractor shall collaborate
with other contractors in preparing a collective proposal for
common development and production of the deposits of petroleum
for approval by the Government.
22.3
If the proposal for common development and production has not
been presented within ninety (90) days of the request described in
paragraph 22.2, or if the Government does not approve such
proposal, the Government may prepare or cause to be prepared, for
the account of the Contractor and the other contractors involved, a
reasonable plan for common development and production. If the
Government adopts such plan, the Contractor shall comply with all
conditions established in such plan.
22.4
The Contractor may within twenty eight (28) days from the date
on which notice in writing of such plan has been given to him by
the Minister refer the matter to arbitration pursuant to Article
XXIV. In such event the plan shall not be implemented until the
arbitrators render a decision or the parties agree on a compromise
plan, whichever occurs first.
22.5
This Article XXII shall also be applicable to discoveries of
deposits of petroleum within the contract area which extend to
areas that are not within the dominion of Belize, provided that in
these cases the Government shall be empowered to impose the
special rules and conditions which may be necessary to satisfy
obligations under any agreements with international organizations
or adjacent states with respect to the development and production
of such deposits of petroleum.
22.6
Within ninety (90) days following the approval or adoption of a
unitization plan for common development and production, the
Contractor shall proceed to operate under any such plan. If a
clause of a cooperative or unitary development and production
plan which by its terms affects the contract area or a part of the
same, contradicts a clause of this Agreement, the clause of the
cooperative or unitary plan shall prevail.
ARTICLE XXIII
Danger to Persons,
Property or
Environment
23.1
The Contractor shall undertake relevant studies to identify sources
of potential environmental damage and pollution which may result
as a consequence of petroleum operations under PSA I of 2003.
The Contractor shall identify mitigation/prevention measures to be
adopted to minimize the effect(s) of any and all such sources
identified, and shall submit these to the approval of the
Government prior to the execution of any work.
23.2
If the Government reasonably determines that any works or
installations erected by the Contractor or any operations conducted
by the Contractor endanger or may endanger persons or third party
property or cause pollution or harm wild-life or the environment to
a degree that is unacceptable according to international petroleum
standards, the Government may require the Contractor to take
remedial measures within a reasonable period established by the
Government and to repair any damage to the environment that
may be necessary in accordance with international petroleum
standards. In the event that the Contractor fails to take the
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BELIZE NATURAL ENERGY LTD 1/2/2003
remedial measures required by the Government within the time
period established by the Government, the Government may carry
out such remedial measures for the Contractor's account.
23.3
(a) The Contractor shall contribute: one tenth of one percent
(Ill o" of 1%) of the value of the annual gross production of crude
oil and/or natural gas produced and saved in each calendar year
and not used or consumed in petroleum operations to a Common
Fund to be held in trust by the Government and managed for the
sole purpose of indemnification against any or all environmental
damages caused during the petroleum operations.
(b) Furthermore the Contractor agrees that nine tenths of one
percent (911 oth of 1%) of the value of the annual gross production
of crude oil and/or natural gas produced and saved in each
calendar year and not used or consumed in petroleum operation
shall be lodged in a Trust Fund to be managed by a board of
trustees comprising no less than fifty-one percent (51 %) of
Belizean nationals and/or residents of Belize and no more than
forty-nine percent (49%) of Foreign nationals, for the sole
purposes of environmental conservation and general education.
Half of the trustees will be named by the contractor and the other
half by the Inspector of Petroleum of the Geology & Petroleum
Department.
23.4
The Contractor shall not be held responsible for any hazard
created by the present condition of the Eagle-l well that endanger
or may endanger persons or third party property or cause pollution
or harm wild-life or the environment. Provided that Contractor
undertakes to secure the Eagle 1 Well via methods acceptable to
well security as employed within the International Petroleum
Industry (IPI).
ARTICLE XXIV
Arbitration
24.1
If any time during the continuance of this Agreement or any
renewal thereof or after the termination thereof any question,
disagreement or dispute shall arise regarding this Agreement or
any matter or thing connected therewith or the breach thereof or
the powers, duties, or liabilities of the parties thereunder, the
parties shall first attempt to amicably solve the question,
disagreement or dispute between themselves by consulting and
negotiating with each other in good faith. If the Government and
the Contractor are not able to amicably resolve their differences
within a period of forty-five (45) days after such difference arises,
then the dispute or differences shall be finally settled by arbitration
in accordance with the Arbitration Rules of the United Nations
Commission on International Trade Law (hereinafter referred to as
UNCITRAL Arbitration Rules).
24.2
The number of arbitrators shall be three. The Government shall
appoint one and the Contractor shall appoint one. The two
arbitrators thus appointed shall choose the third arbitrator who will
act as the Presiding Arbitrator. If the two arbitrators cannot come
to an agreement on the designation of the third, the third arbitrator
shall be designated in accordance with the UNCITRAL
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BELIZE NATURAL ENERGY LTO 1/2/2003
Arbitration Rules.
24.3
The place of arbitration shall be Belmopan, Belize if at the time of
such arbitration, Belize is recognized as a member state of the
1958 Convention on the Recognition and Enforcement of Foreign
Arbitral Awards ("New York Convention"). If Belize is not a
member state of the New York Convention at that time, the place
of arbitration shall be Mexico City, Mexico.
24.4
The language to be used in the arbitration proceeding shall be
English.
24.5
The arbitral tribunal shall decide all questions presented on the
basis of:
(a)
the laws and regulations of Belize applicable to this
Agreement and other relevant laws, both national and
international;
(b) the provisions of the Agreement, and
(c) trade usages and customs of the international petroleum
industry.
24.6
Arbitral awards shall be final and binding upon the parties from
the date they are made and judgment upon the award may be
entered in any court having jurisdiction.
ARTICLE XXV
Termination
25.1
The Government shall have the right to terminate this Agreement
upon giving thirty (30) days written notice of its intention to do so
if the Contractor (a) fails to make any monetary payment required
by law or under this Agreement for a period of thirty (30) days
after the due date for such payment, (b) fails to comply with any
other material obligation that he has assumed under this
agreement, or (c) fails to comply with the Petroleum Act Chapter
225 Substantive Laws of Belize, Revised Edition 2000 and any
lawful acts, regulations, orders or instructions issued by the
Government or any department or agency of the Government, or
(d) becomes bankrupt, or goes into liquidation because of
insolvency or makes a composition with its creditors.
25.2
If the circumstance or circumstances that result in termination
under paragraph 25.1(a), (b) or (c) are remedied by the Contractor
within the thirty (30) days period following the notice of
termination as aforesaid, such termination shall not become
effective.
25.3
If the circumstance or circumstances that would otherwise result in
termination under paragraph 25.1 are the result of force majeure,
then termination shall not take place so long as such force majeure
continue and for such period thereafter as is reasonable.
25.4
The termination of this Agreement for whatever reason shall be
without prejudice to the obligations incurred and not discharged by
the Contractor prior to the date of termination.
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BELIZE NATURAL ENERGY LTD 1/2/2003
25.5
In the event of termination pursuant to paragraph 25.1 or 25.7, the
Government may require the Contractor, where reasonable, for a
period not to exceed one hundred eighty (180) days, to continue,
for the account of the Government at the Government's sole risk
and expense, crude oil or natural gas production activities until the
right to continue such production has been transferred to another
entity.
25.6
Within ninety (90) days after the termination of this Agreement
pursuant to paragraph 25.1 or paragraph 25.7, unless the Minister
has granted an extension of this period, the Contractor shall
complete any reasonably necessary action as directed by the
Government to avoid environmental damage or a hazard to human
life or third party property.
25.7
The Contractor has the right to terminate this Agreement for
material nonperformance of the Government consistent with all
available remedies at law and equity. Additionally, Contractor
shall have the right to terminate this Agreement totally, or
partially, (a) with respect to any part of the contract area other than
a field then producing, or that prior thereto had produced, crude oil
or natural gas upon giving thirty (30) days written notice of its
intention to do so, and (b) with respect to any field then producing,
or that prior thereto had produced crude oil or natural gas upon
giving ninety (90) days written notice of its intention to do so.
Upon termination, the provisions of paragraphs 4.7 and 4.8 shall
apply.
ARTICLE XXVI
Books, Accounts
and Audits. Records,
Reports and
Inspections
26.1
The Contractor shall be responsible for keeping complete
accounts, books and records reflecting all petroleum operations
expenditures and gross revenues consistent with generally
accepted procedures and standards in the international petroleum
industry and in accordance with the accounting procedure outlined
in the Bulletin of the Income Tax Commissioner (Annex 1).
26.2
Within ninety (90) days after the expiration of each calendar year,
the Contractor shall submit to the Government detailed accounts
showing all petroleum operations expenditures and all gross
revenues during the past calendar year. Before submission to the
Government, the accounts shall be audited by an independent
chartered accountant or certified public accountant acceptable to
both parties, at the expense of the Contractor. It is understood that
the Government, through the Auditor General's Department,
retains the authority to review and audit the Contractor's accounts,
books and records with respect to petroleum operations conducted
hereunder either directly or through an independent accountant
designated by the Government.
26.3
The Government and its duly authorized representatives shall have
full and complete access to the contract area at all reasonable times
with a right to observe petroleum operations and shall have the
right to inspect all assets, records, books, accounts and data kept
by the Contractor relating to petroleum operations and this
Agreement. In so doing, the Government and its representatives
shall not unduly interfere with the Contractor's petroleum
operations. However, the Government and its representatives may
- 36
BELIZE NATURAL ENERGY LTD 1/2/2003
make a reasonable number of surveys, drawings, tests and copies
for the purpose of implementing this Agreement. In doing so, the
Government and its representatives shall be entitled to make
reasonable use of the equipment and instruments of the Contractor
provided that no damage to the equipment or instruments or
impediment to the petroleum operations hereunder shall result
from such use. The Government shall indemnify and reimburse the
Contractor for any loss or damage which may in fact result from
any such use of equipment and instruments, provided that such
loss or damage is reported to the Government within twenty-four
(24) hours from the time of such inspection. The Government and
its representatives shall be given reasonable assistance by the
Contractor for such functions, and the Contractor shall afford to
the Government and its representatives all facilities and privileges
afforded to its own personnel in the field.
26.4
The Contractor shall prepare and maintain accurate and current
records of its activities in the contract area hereunder. The
Contractor shall furnish the Government in conformity with the
applicable regulations, and as the Government may reasonably
require, information, reports and data concerning its activities and
operations under this Agreement.
26.5
The Contractor shall save and keep for the duration of this
Agreement all unused cores and samples taken from the wells
drilled, which shall be forwarded to the Inspector of Petroleum or
his authorized representatives at such time and in the manner
directed by the Government. All cores and samples acquired by
the Contractor shall be available for inspection by the Inspector of
Petroleum or his authorized representatives at all reasonable times.
Unless previously forwarded to the Government pursuant to
instructions given under this paragraph, the Contractor shall
forward to the Government all remaining cores and samples upon
the expiration or termination of this Agreement.
26.6
Unless otherwise agreed to by the Government, in the case of
exporting any rock or petroleum samples from Belize for the
purpose of testing and analysis, samples equivalent in size and
quantity shall, before such exportation, be delivered to the
Inspector of Petroleum.
26.7
Originals of records and other data can be exported only with the
permission of the Government, provided, however, that magnetic
tapes and any other data which must be processed or analyzed
outside Belize may be exported if a comparable record is
maintained in Belize and provided that such exported records and
data shall be repatriated to Belize.
26.8
The Contractor shall provide to the Inspector of Petroleum in
appropriate form all original data resulting from petroleum
operations, including, but not limited to, geological, geophysical,
petrophysical engineering, well logs,
production data and
completion status reports and any other data which the Contractor
may compile during the term hereof including all reports, analyses,
interpretations, maps and evaluations thereof prepared by the
Contractor and any contractors, subcontractors or consultants to
the Contractor or by affiliated companies, and cuttings of all
samples that have been obtained or compiled during the term
hereof ("data"). The Government shall have title to all such data.
- 37
BELIZE NATURAL ENERGY L TD 1/2/2003
Such data shall not be disclosed to third parties by the Government
prior to relinquishment of the area to which they relate, or prior to
the end of the exploration period if such area is not sooner
relinquished, provided, however, that the Government may make
copies available to professional consultants, legal counsel,
accountants, underwriters, lenders and such Government entities
as may need to be made aware thereof or have the right to require
disclosure. In any event, the Contractor may retain copies of all
such data. The Contractor shall not disclose such data to any third
parties without the Government's prior written consent, provided,
however, that the Contractor may make copies available to
professional consultants, legal counsel, accountants, underwriters,
lenders, affiliated companies and contractors and subcontractors of
the Contractor and such government entities as may need to be
made aware thereof or have the right to require disclosure. Any
data which are disclosed by the Government or the Contractor to
third parties pursuant to this paragraph (26.8) shall be disclosed on
terms which ensure that such data are treated as confidential by the
recipient. To the extent that there is any inconsistency between
the provisions of this paragraph (26.8) and the provisions of
Article XXXIII, the provisions of this paragraph (26.8) shall
govern.
ARTICLE XXVII
Insurance and
Indemnification
27.1
To ensure that the Contractor shall meet his obligations to third
parties, or to Government agencies, that might arise in the event of
damage or injury (including environmental damage or injury,
removal of wrecks and cleaning up caused by accidents) caused by
petroleum operations, notwithstanding that the damage is
accidental, the Contractor shall maintain in force a third party
liability insurance policy covering the activities of himself, his
contractors and subcontractors and the employees of all such
parties. Such insurance policy shall include the Government as an
additional insured, shall waive subrogation against the
Government and shall provide that it may not be cancelled except
upon thirty (30) days prior written notice to the Government. A
certificate evidencing such insurance policy shall be furnished to
the Government within ninety (90) days of the effective date. The
limits, coverage, deductibles and other terms thereof shall be
subject to approval in writing by the Government. To the extent
that such third party liability insurance is unavailable or is not
obtained, or does not cover part or all of any claims or damage
caused by or resulting from petroleum operations, the Contractor
shall remain fully responsible and shall defend, indemnify and
hold the Government harmless against all such nature whatsoever.
The Contractor shall maintain in force a third party liability
insurance policy covering the activities of himself, his contractors
and subcontractors and the employees of all such parties. Such
insurance policy shall include the Government as an additional
insured, shall waive subrogation against the Government, and shall
provide that it may not be canceled except upon thirty (30) days
prior written notice to the Government. A certificate evidencing
such insurance policy shall be furnished to the Government within
ninety (90) days of the effective date. The Contractor shall
procure at his own expense and maintain in full force at all times,
- 38
BELIZE NATURAL ENERGY LTD 11212003
where applicable and available, the following:
1. Workmen's Compensation Insurance in full compliance with
the laws of the applicable country and state of hire.
2. Employer's liability Insurance.
3. Commercial General Liability Insurance with Bodily Injury
(other than automobile)
4. Pollution Liability: Sudden and accidental pollution liability on
a claims made basis.
5. Umbrella Liability or Excess Insurance: Excess liability
insurance pursuant to an "umbrella" policy covering claims III
excess of the underlying insurance as set forth in (3) above.
6. Automobile Liability: Coverage with Bodily Insurance and
Property Damage with combined Single Limit per Occurrence.
7.
Energy Exploration and Development Policy: Blowout
insurance covering cost of well control, redrilling and pollution
liability.
Such insurance will be purchased within limits that are mutually
agreed to and acceptable based on international industry standards.
Originals of all insurances obtained under Article XXVII, this
para. 27.1 shall be lodged with the Inspector of Petroleum within
thirty (30) days of execution of insurances.
27.2
The Contractor shall indemnify, defend and hold the Government
harmless against claims, losses and damages, without limitation,
claims for loss or damage to property or injury or death to persons
caused by or resulting from only petroleum operations conducted
by or on behalf of the Contractor, provided that the Contractor
shall not be held responsible to the Government under this
paragraph (27.2) for any loss, claim, damage or injury caused by
or resulting from any negligent action of personnel of the
Government.
27.3
Nothing contained in paragraph 27.3 above shall be construed to
relieve the Contractor of his obligations of indemnification as set
elsewhere out in this Agreement.
ARTICLE XXVIII
Assignment
28.1
The Contractor may assign, transfer, conveyor otherwise dispose
of any part or all of its rights or interest under this Agreement with
the prior written consent of the Government, which consent shall
not be unreasonably withheld.
28.2
Notwithstanding the provisions of paragraph 28.1, if the
Contractor assigns to any affiliated company, the Contractor shall
remain fully liable for the performance of this Agreement and
shall be fully liable for the performance of any such assignee.
28.3
In the case of an assignment to any non-affiliated company, the
Contractor shall provide to the Government an unconditional
undertaking by the assignee to assume all obligations of the
- 39
BELIZE NA rURAL ENERGY L TO 11212003
Contractor under this Agreement.
Notwithstanding such
undertaking, the Contractor shall remain jointly and severally
liable with the assignee for performance of the obligations of the
Contractor unless the Contractor assigns his entire interest under
this Agreement.
ARTICLE XXIX
Law of the
Agreement
29.1
This Agreement shall be construed under, governed by and
interpreted in accordance with the laws of Belize and such
principles of international law as may be applicable.
ARTICLE XXX
Force Majeure
30.1
Except as otherwise provided in this Article, each party shall be
excused from complying with the terms of this Agreement, if such
compliance is prevented by strikes, wars (declared or undeclared),
acts of God, governmental intervention not otherwise addressed in
this Agreement, third-party intervention, or by any act or cause
that is reasonably beyond the control of such party, such causes
being herein called "force majeure". In the event that either party
hereto is rendered unable, wholly or in part, by any of these causes
to carry out its obligations under this Agreement, such party shall
give notice and details of force majeure in writing to the other
party within thirty (30) days after the party giving notice of such
force majeure is aware of its occurrence. In such cases, the
obligations of the party giving the notice shall be suspended
The
during the continuance of any inability so caused.
Government and Contractor will do all that is reasonably within
their power to remove such cause.
ARTICLE XXXI
Entire Agreement
and Amendments
31.1
This Agreement embodies the entire agreement and understanding
between the Contractor and the Government relative to the subject
matter hereof, and supercedes and replaces any provisions on the
same subject in any other Agreement between the parties, whether
written or oral, prior to the date of this Agreement. This
Agreement may not be amended, modified, varied or
supplemented except by an instrument in writing signed by the
Contractor and the Government.
ARTICLE XXXII
Waiver
32.1
Performance of any condition or obligation to be performed
hereunder shall not be deemed to have been waived or postponed
except by an instrument in writing signed by the party which is
claimed to have granted such waiver or postponement.
32.2
No waiver by any party of anyone or more obligations or defaults
by any other party in the performance of this Agreement shall
operate or be construed as a waiver of any other obligations or
- 40
BELIZE NATURAL ENERGY LTD 1/2/2003
defaults whether of a like or of a different character.
ARTICLE XXXIII
Confidentiality
33.1
This Agreement and any confidential information of any party
hereto which becomes known to the other party in connection with
the performance of this Agreement shall not be published or
disclosed to third parties without the former party's prior written
consent, except as otherwise provided herein, and provided
however that such other party may communicate confidential
information to legal counsel, accountants, other professional
consultants, underwriters, lenders, agents, contractors or shipping
companies to the extent necessary in connection with this
Agreement, with the obligation of the parties receiving such
information to maintain confidentiality, or to an agency of the
Government of the country of the Contractor having authority to
require such disclosure.
The term "confidential information", as used herein shall mean
information identified as "confidential" by the party originally in
possession of it and disclosed to the other party, excluding
information previously known to the other party or information
which is publicly known (except through disclosure of the other
party in violation of this Article XXXIII) or information that
comes into the legitimate possession of such other party.
33.2
The confidentiality obligations of this Article XXXIII shall expire
upon relinquishment of the area to which the information relates.
ARTICLE XXXIV
Notices
34.1
All notices and other communications required or permitted
hereunder or any notices that one party may desire to give to the
other party shall be in writing in the English language and deemed
to have been properly delivered if personally handed to an
authorized representative of the party for whom intended, or sent
by registered airmail, cable, telex, facsimile and/or e-mail, at or to
the address of such party for whom intended, or such other
addresses as any party may from time to time designate by notice
in writing to the other party.
- 41
BELIZE NATURAL ENERGY L TO 1/2/2003
EXHIBIT "A"
THIS EXHIBIT"A" is attached to and is incorporated as part of the award and delivery of
acreage dated this).
",,6
day of \~",,,,,d.I(1-' 2003 from Government of Belize (GOB) to
Belize Natural Energy Ltd. (BNE Ltd), covering 470 Sub-sectors or 467,672 acres more or
less.
ACREAGE DESCRIPTION
SECTOR
SUB-SECTORS
NO. SUB
AREA
SECTORS
(ACRES)
138
C,D,E,H,I,J,M,N,O,R,S,T,W,X,Y and parts of B,G,L,Q,V
>15
15522
139
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
140
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
156
Parts ofX,Y
<1
786
157
C,D,E,H,I,J,M,N,O,R,S,T,W,X,Y and parts of B,G,L,Q,U,V
>15
16426
158
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X, Y
25
24710
159
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
175
A,B,C,D"E, F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
176
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
177
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
193
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
194
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
195
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
196
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
ill
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
212
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X, Y
25
24710
213
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T, U,V,W,X,Y
25
24710
214
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
228
C,D,E,H,I,J,M,N,O,R,S,T,W,X,Y
15
14826
229
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
230
A,B,C,D"E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y
25
24710
>470
467672
TOTAL:
- 42
Belize Natural Energy Ltd 11212003
EXHIBIT "B"
MAP OF CONTRACT AREA
340,OOOmE
1,950,OOOmN
313,765mE
1,950,OOOmN
'~
\
.)i'"
W+E
!1' .fIiI:'
,
;1.
,0-'::",;,
,<
<
~
N
~38
139
14n
s
~
~~
~
-.
313,595mE
1,93O,750mN
306,060mE
1,929,690mN
306,070mE
1,930,825mN
\,
300,010mE
1,929,745mN~
t·
'~
175
-,
<,
'l;,
',;1,
i-'
't
280,OOOmE
1,910,OOOmN
\
280,OOOmE
1,900,OOOmN
m~\
j
~£
192
4
290,OOOmE
1,910,OOOmN
1-
-.. I
r-
;) II
"4
~
~
1~'~
,
~,
:'."",
Et
~~.
111
;,>13
I I~
~,.,~
~
z
191:1
;
'(I
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-.
320,OOOmE
1,910,OOOmN
214
I, 9OO,OOOmN
<.
~
3OO,OOOmE
1,900,OOOmN
?:m
<,
?)q
230
f-......
Nad 27 UTM Zone 16
300,OOOmE
1,890,OOOmN
274,OOOmE
1,890,OOOmN
o
10
L
KILOMETRES
- 43
'~
:",1
.... ,
?1~~
320,OOOmE
1,900,OOOmN
~~
.~
<.
I
340,OOOmE
1,930,OOOmN
1
,
'J .. ~ ~.
"
330,OOOmE
1,930,OOOmN
"
,177
176
I Ir
212
-.
"
I
1ge
'it
~.
~
I -D
I U
159
·W
'"
~
300,OOOmE
1,920,OOOmN
290,OOOmE
1,920,OOOmN
158
157
33O,OOOmE
1,910,OOOmN
BELIZE NATURAL ENERGY LTD 1/2/2003
EXHIBIT "C"
SECURITY - GUARANTEE
Ministry of Finance,
Government of Belize,
Belmopan, Belize
Gentlemen,
RE: OUR IRREVOCABLE LETTER OF GUARANTEE NO.1 OF 2003.
In compliance with the request of BELIZE NATURAL ENERGY LTD. ("the Contractor"), we
INTERNATIONAL NATURAL ENERGY LLC, (Parent Company of BELIZE NATURAL
ENERGY LTD.) issue this unconditional irrevocable letter of guarantee in your favour for a
sum not exceeding One (1) Million United States Dollars (US $1,000,000.00), which
represents twice the total minimum exploration expenditures set forth in paragraph 6.1.1 of the
Agreement ("Agreement"), dated
r"'~ January,
2003, between the Contractor and the
Government of Belize ("Government"), relating to petroleum exploration, development and
production in the territory of Belize, to guarantee the Contractor's faithful performance of its
minimum exploration expenditures obligations as provided for in the Agreement, the said sum of
One (1) Million United States Dollars (US $1,000,000.00) is to be reduced at the end of each
contract year, as defined in the Agreement, by the amount stipulated to be expended in such
contract year, if such amount is in fact expended as evidenced by a signed certificate from the
Government, provided, however, that said sum shall under no circumstances be reduced below
the stipulated minimum exploration expenditures for the remaining contract year of the Initial
Exploration Period, as set forth in paragraphs 6.1.1 of the Agreement, as evidenced by a signed
certificate from the Government.
The terms and conditions of this Letter of Guarantee are as follows:
1.
A sum not exceeding fifty percent (50%) shall be paid to you upon our receipt of your
written statement that the amount claimed is duly payable under the Agreement.
2.
We hereby waive diligence, presentment, demand for payment, protest, any requirement
that the Government exhaust any right or power or take any action against the Contractor,
all notices (whether of non-payment by the Contractor, dishonour, protest or otherwise)
and all demands whatsoever.
Our obligations hereunder are continuing, absolute and
unconditional, and will not in any way affected by giving of time or any forbearance by the
Government, the waiver or consent by the Government with respect to any provisions of
the Agreement, and irrespective of the validity, regularity, enforceability or value of the
- 44
BELIZE NATURAL ENERGY LTD 1/2/2003
Agreement, or by any other circumstances which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor, all of which are hereby expressly
waived.
3.
The obligations hereunder shall be paid in United States Dollars to the bank account
designated by the Government, free and clear of and without reduction by reason of any
and all present and future taxes, levies, assessed, imposed or collected with respect thereto
by the Government of or any political subdivision or taxing authority thereof of therein.
We shall bear connection with this Letter of Guarantee.
4.
In order to give effect to this Letter of Guarantee, we hereby declare that the Government
shall be at liberty to act as though we were the principal debtor, and we hereby waive all
and any of the rights as surety which may at any time be inconsistent with any of the above
provisions.
5.
Any claim or demand under this Letter of Guarantee shall be presented, to us on or before
the expiration of the date of the validity of the Letter of Guarantee.
G.
This Letter of Guarantee shall be effective the date of Production Sharing Agreement
(PSA) and expire ninety (90) days after the end of the Initial Exploration period as defined
in the Agreement, and thereafter automatically without any formality become null and void
for all its effects and this Letter of Guarantee shall be returned to us immediately.
Yours very truly,
-~-
MICHAEL USHER
FOR INTERNATIONAL NATURAL ENERGY LLC
- 45
BELIZE NATURAL ENERGY L TO 1/2/2003
EXHIBIT "D"
LETTER OF ASSURANCE
INTERNATIONAL NATURAL ENERGY LLC
January 2, 2003
Ministry of Natural Resources & the Environment
Geology & Petroleum Department
Belmopan City
Cayo District
Belize
Attention:
Ms. Evadne Wade
Dear Sirs,
Re:
Assurance & Guarantee of Performance by Belize Natural Energy Limited
This letter serves to inform you, inter alia, that Belize Natural Energy Limited ("BNE"),
a Belizean corporation, is a subsidiary of our company International Natural Energy LLC, a
Nevis corporation. Under this structure, International Natural Energy LLC shall procure the
necessary financing for the intended oil exploration project and petroleum operations of BNE,
whether by way of dept or equity financing. BNE, with the financing from our company, will
then carryon all petroleum operations in Belize in pursuance of a production sharing agreement
to be agreed between BNE and the Government of Belize ("Government").
We understand that the Government is concerned as captioned above with the
performance by BNE of the works, expenditures and petroleum operations as BNE has
represented and agreed that it shall do in accordance with the proposed production sharing
agreement with the Government of Belize.
In furtherance of discussions and representations of legal representatives of BNE in
respect thereof, we wish to formally and irrevocably undertake hereby that any funds raised by
International Natural Energy LLC, a Nevis corporation, shall be used to finance BNE's
petroleum operations in Belize to the extent necessary to meet its obligations under the said
proposed production sharing agreement (PSA).
We currently maintain an account with
Provident Bank & Trust of Belize Limited in which we already hold in or about Seven Hundred
Fifty Thousand Dollars United States Currency. These funds shall be directed to the financing
of BNE' s petroleum operations in Belize.
We are hopeful that this undertaking shall satisfy your concerns of BNE's performance.
We assure you that BNE and International Natural Energy LLC are totally committed to this
endeavour and to its success.
We further guarantee up to limit of liability of Five Hundred Thousand Dollars United
States Currency (US$500,000.00) ("Guarantee Sum") BNE's faithful performance of its
minimum exploration expenditure obligations as provided for in the said PSA. The said
Guarantee Sum is to be reduced at the end of each contract year, as defined in the PSA, by the
amount stipulated to be expended in such contract year, if such amount is in fact expended as
evidenced by a signed certificate from the Government, provided however that the said sum shall
under no circumstances be reduced below the stipulated minimum exploration expenditures for
the remaining contract year of the Initial Exploration Period, as set forth in paragraph 6.1.1 of the
PSA, as evidenced by a signed certificate from the Government.
- 46
BELIZE NATURAL ENERGY LTD 1/2/2003
The terms and conditions of this Guarantee are as follows:
1.
A sum not exceeding the above-mentioned Guarantee Sum shall be paid to you
upon our receipt of your written statement that the amount claimed is duly payable
under the PSA.
2.
We hereby waive diligence, presentment, demand for payment, protest, any
requirement that the Government exhaust any right or power or take any action
against BNE, all notices (whether of non-payment by BNE, dishonour, protest or
otherwise) and all demands whatsoever. Our obligations hereunder are continuing,
absolute and unconditional, and will not in any way affected by giving of time or
any forbearance by the Government, the waiver or consent by the Government
with respect to any provisions of the PSA, and irrespective of the validity,
regularity, enforceability or value of the PSA, or by any other circumstances which
might otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, all of which are hereby expressly waived.
3.
The obligations hereunder shall be paid in United States Dollars to the bank
account designated by the Government, free and clear of an without reduction by
reason of any and all present and future taxes, levies, assessed, imposed or
collected with respect thereto by the Government or any political subdivision or
taxing authority thereof or therein. We shall bear connection with this Guarantee.
4.
In order to give effect to this Guarantee, we hereby declare that the Government
shall be at liberty to act as though we were the principal debtor, and we hereby
waive all and any of the rights as surety which may at any time be inconsistent
with any of the above provisions.
5.
Any claim or demand under this Guarantee shall be presented to us on or before
the expiration of the date of the validity of this Guarantee.
6.
This Guarantee shall be effective the date of execution of the Production Sharing
Agreement (PSA) and expire ninety (90) days after the end of the Initial
Exploration period as defined in the PSA, and thereafter automatically without any
formality become null and void for all its effects and this Guarantee shall be
retuned to us immediately.
Yours sincerely,
INTERNATIONAL NATURAL ENERGY LLC
~~,
PER: MICHAEL USHER
DIRECTOR
- 47
BELIZE NATURAL ENERGY L TO 1/2/2003
IN WITNESS WHEREOF, the Government and the Contractor have hereunto set their hands and
seals the day and year first herein before written.
SIGNED, SEALED AND DELIVERED BY
the above-named HONOURABLE JOHN BRICENO
for and on behalf
of the Government of Belize
in the presence of:
,(; ,
SIGNED, SEALED AND DELIVERED BY
f---r------__/__~
SUSAN MORRICE FOR
BELIZE NATURAL ENERGY LTD.
EFOR
GYLTD.
in the presence of:
f~,~
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WITNESS
I, JOHN BRICENO of Belmopan, hereby acknowledge that I did sign, seal and deliver the
within-written document as my act and deed.
"J
Acknowledged at BELMOPAN this ~ day of .~~ ~J' 2003.
Before me,
BE IT REMEMBERED, that on the
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'7
day of
<
JL~:::>
Iv
2003 personally appeared
before me the within named JOHN BRICENO and acknowledged before me that he did sign,
seal and deliver the within-written instrument as his act and deed and that the signature of JOHN
BRICENO is in his writing.
- 48
BELIZE NATURAL ENERGY L TO 1/2/2003
1, EVADNE L. WADE MAKE OATH AND SAY as follows:
I.
1 am subscribing witness to the execution of this agreement by SUSAN MORRICE
FOR BELIZE NATURAL ENERGY LTD.
2.
1 was present and did see SUSAN MORRICE FOR BELIZE NATURAL ENERGY
LTD. sign, seal, and deliver this agreement as her act and deed.
3.
Signature~,
The
MORRICE FOR
fLt ~.c~,
is
in
the
proper
handwriting
B~~'~ATU'LENERGY LTD. and the signature" 'f!
of SUSAN
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" is my own proper handwriting.
SWORN AT BELMOPAN
TI-IIS 3AI) DAY OF'~) D/1..
e-iil<}':j,
2003
J
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WITNESS
Before me,
C
BE IT REMEMBERED that on the
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day of
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2003, personally appeared before
me the within-named EVADNE L. WADE and made oath that she was a subscribing witness to
the execution of this AGREEMENT by SUSAN MORRICE FOR BELIZE NATURAL
r
ENERGY LTD. and was present and did see SUSAN MORRICE FOR BELIZE NATURAL
ENER Y LTD. sign, seal, and deliver this agreement as her act and deed and that the signature
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"is in her proper handwriting.
- 49
BELIZE NA rURAL ENERGY L TO 1/2/2003
I hereby certify that I have count the within-written document and that it contains two hundred
and seventy-three (273) folios of seventy-two words each and forty-four (44) words over and no
more.
AS WITNESS my hand this ~ of
1onuory, 2003.
s
THIS DOCUMENT was prepared in the Geology & Petroleum Department for the Inspector
of Petroleum for and on behalf of the Government of Belize.
INSPECTOR OF PETROLEUM
- 50
Annex-I
INCOME TAX COMMISSIONER'S BULLETIN
Article I
1.1
; 1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1. 11
1.12
1.13
General Provi sions
Definitions
Inconsistency
Accounting Records and Reports
Language - and Units of Account
Tax Accounting Principles
Accrual Basis
Definitions of Capital and Operating Expenditures
Depreciation
Arm's Length Transactions
General Exclusions
Currency Exclusions
Revision of the Accounting Procedure
Acceptance of Costs
Articlell
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Petroleum Operations Expenditures
2.1
Definition for the Purpose of Determining Compliance with the Minimum
Exploration Expenditures Commitment
2.2
Definition for the Purpose of Article IX
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Article III
3.1
3.2
3,3
3.4
3.5
3.6
, 3.7
3.8
3.9
Accounting Methods and Principles
.
I
Labour Costs
Material Costs
Technical Services Costs
Insurance and Claims
Legal and Litigation Costs
General Administration and Services
Interest, etc
Office Costs, etc. in Belize
Example of Production Share Calculation
!I
ARTICLE I
GENERAL PROVISIONS
1.1
1. 2
The Accounting Procedure described herein is to be
followed and observed in the performance of both parties'
obligations under this Agreement. The definitions appearing
in Article I of this Agreement shall also apply to this Exhibit.
In the event of any inconsistency or conflict between the
provisions of this Exhibit and the other provisions of this
Agreement, then the other provisions of this Agreement shall
prevail.
ACCOUNTING
RECORDS AND
REPORT
1.3
(a) The Contractor shall establish and maintain at its business
office in Belize complete accounts, books and records of all
revenues, costs and expenses relating to all Petroleum
Operations hereunder in accordance with generally accepted
procedures and standards in the international petroleum
industry. Such accounts, books, records and reports will be
available for the Inspection and use of the Government and
its representatives in carrying out its supervisory function
under the Agreement.
(b) Wi thin thirty (30) day s of the Effective Date of this
Agreement, the Contractor shall submit to and discuss with
the Government a proposed outline of charts of accounts,
books, records and reports, which outline shall be in
accordance with generally accepted and recognized
accounting systems applied by Certified Public Accountants
in the United States of America and consistent with modern
petroleum industry practices and procedures. Within ninety
(90) days of receiving the above submission, the
Government shall either indicate its approval of the proposal
or request revisions to the proposal. Within one hundred
and eighty (180) day s after the Effecti ve Date of the
Agreement, the Contractor and the Government shall agree
on the outline of charts of accounts, books, records and
reports which shall describe the basis of the accounting
system and procedure to be developed and used under this
Agreement. Following such agreement, the Contractor shall
expeditiously prepare and provide the Government with
fonnal copies of the comprehensive charts of accounts and
manuals related to the accounting, recording and reporting
functions, and procedures which are, and shall be, observed
under this Agreement.
(c) All reports and statements will be prepared in
accordance with this Agreement, the laws of Belize, and
where there are no relevant provisions of either of these, in
accordance with generally accepted practices in the
international petroleum industry .
.' LANGUAGE
AND UNITS OF
ACCOUNT
14
TAX ACCOUNTING 1. 5
PROCEDURES
1.5.1
Unless otherwise agreed, all accounts, records, books and
reports shall be maintained and prepared in the English
language and shall be recorded in United States dollars.
The following tax accounting principles shall apply:
In the event that the Contractor at any time comprises more
than one corporation, individual or entity, in the form of a
partnership, joint venture, unincorporated association or
other combination of entities or individuals, Income Tax
shall in all cases be calculated and assessed on the basis of
the Net Taxable Income of each corporation, individual,
partner, joint venturer, associate or other entity comprising
the Contractor. In the event the Government or its assignee
elects, pursuant to paragraph 19.2 of the Agreement to
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participate herein, the Government or Its assignee shall not
be treated differently for purposes hereof than the
Contractor.
CARRYFORWARD 1.5.2
. OFLOSSES
Commencing with the Calendar Year in which Initial
Commercial Production first occurs, any allowable
deductions for Income Tax purposes with respect to
Petroleum Operations Expenditures, the Production Payment
(Royalty) and the Government's share of Crude Oil
/:'
production which remain unrecovered In any Calendar Year
from Gross Revenue shall be treated as an operating loss
and may be carried forward as an allowable deduction to
subsequent Calendar Years until fully recovered from Gross
Revenues. In the event that an operating loss remains
unrecovered upon the termination of this Agreement, such
loss may be carried over and deducted from other revenues
of the Contractor from Petroleum Operations in Belize.
: ACCRUAL BASIS
All books, accounts and records shall be prepared on an
accrual basis. Revenue shall be deemed to be earned, in the
case of petroleum sales, in the accounting period when title
passes to the purchaser. Revenues shall be attributed to the
accounting period in which they are earned, and costs and
expenses to the accounting period in which they are
incurred, without the need to distinguish whether cash is
received or disbursed in connection with a particular
transaction. Costs and expenses shall be deemed to have
been incurred, in the case of physical items, in the
accounting period when title thereto passes, and in the case
of services, in the accounting period when such services are
performed.
1.6
1.7
DEFINITION OF
PETROLEUM
OPERATIONS
EXPENDITURES
CAPIT AL
; EXPENDITURES
1. 7.1
Petroleum Operations Expenditures may consist of capital
and operating expenditures as follows:
Capital expenditures are those Petroleum Operations
Expenditures for asset that normally have a useful life which
extends beyond the year in which the asset was acquired.
In addition to expenditures relating to assets that normally
have a useful life beyond the year in which the asset was
acquired, the costs of development and production drilling
operations, as described in paragraph 1.7.1 (e) of this
Exhibit, will be classified as capital expenditures.
Capital expenditures include, but are not limited to, the
following:
(a) Construction utilities, but are not limited to, the
following: water facilities, warehouses, and field roads.
Cost of Crude Oil treating plants and equipment, secondary
recovery systems, natural gas plants and steam systems,
(b) Construction housing and welfare housing - recreational
facilities and other tangible Property incidental to
constructi on,
(c) Production facilities - production rigs (including the costs
oflabor, fuel, hauling and supplies for both the offsite
fabrication and onsite installation of rigs, and other
construction costs in erecting rigs and installing pipelines),
wellhead equipment, subsurface lifting equipment,
production tubing, sucker rods, surface pumps, flow lines,
gathering equipment, delivery lines and storage facilities,
(d) Movables - surface and subsurface drilling and
production tools, equipment and instruments, barges,
floating craft, automotive equipment, aircraft, construction
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equipment, furniture and office equipment and miscellaneous
equipment,
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(e) Development and production drilling labor, materials
and services used in drilling wells with the object of
penetrating a proven reservoir, including the drilling of
delineation wells as well as redrilling, deepening or
recompleting wells, and access roads, if any, leading directly
to wells,
OPERATING
EXPENDITURES
1.7.2
I
Operating expenditures are all Petroleum Operations
Expenditures other than capital expenditures.
•
Operational expenditures include, but are not limited to, the
following:
(a)
Exploration drilling -labor, materials and services
used in the drilling of walls with the object offinding
unproven reservoirs of crude oil and natural gas, and access
roads, if any, leading directly to wells.
(b)
Surveys -labor, materials and services used in aerial,
geological, topographical, geophysical and seismic surveys,
and core hole drilling, and
(c)
Other exploration expenditures - auxiliary or
temporary facilities having lives of one year or less used in
exploration and purchased geological and geophysical
information.
DEPRECIATION
1.8
Capital expenditures, as defined in paragraph 1.7 of this
Exhibit, shall be depreciated only for -the purpose of the
calculation ofIncome Tax. For the purpose of determining
the amount of depreciation which is allowable as a deduction
in each calendar year, the following principles shall apply,
1.8.1 Capital expenditures will be depreciated using the straight
line method over five (5) years,
1.8.2
A full year's depreci ation may be taken in the first cal end ar
year in which such depreciation is allowable,
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1.8.3 Deductions with respect to depreciation of capital
expenditures incurred shall be allowable commencing with
(A) the calendar year in which the capital asset is placed -into
service, or, if the capital expenditure does not relate to an
asset that normally has a useful life beyond the year in which
it is placed in service, the calendar year in which the capital
expenditure is incurred, or (B) the calendar year in which
Initial Commercial Production first occurs, whichever Is
later.
ARM'S LENGTH
TRANSACTIONS
1.9
Except as may be otherwise agreed in writing between the
Government and the Contractor, all transactions giving rise
to revenues, costs or expenses which will be credited or
charged to the books, accounts, records and reports
prepared, maintained or submitted hereunder shall.be
conducted at arm's length or on such a basis as will assure
that all such revenues, costs or expenses will not be
higher or lower, as the case may be, than would result from
a transaction conducted at arm's length on a competitive
basis with third parties.
GENERAL
EXCLUSIONS
1. 10 The following expenditures shall not be included in
Petroleum Operations Expenditures:
(a)
costs and expenses incurred at any time prior to the
Effecti ve Date,
(b)
costs relating to petroleum marketing or
transportation beyond the15e1ivery Point,
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(c)
contributions and donations, except those approved
by the Government,
(d)
gifts or rebates to suppl iers, and gifts or
commissions to intermediaries arranging service or supply
contracts,
(e)
any interest, fines, monetary corrections or increases
i n expenses resulti ng from the Contractor's failure to
comply with its obligations under this Agreement, applicable
law or agreements with third parties, and
(f) any other expenditures not directly related to Petroleum
Operations or not in compliance with the provisions of this
Exhibit.
For conversion purposes between any other currency and
United States dollars, the average of the buying and selling
rate of exchange shall be used as Issued by the Central Bank
of Belize on the first day of the month in which 'the
revenues, costs or expenses are recorded. Any realized or
unrealized gains or losses from the exchange of currency
shall be charged or creditedto Petroleum Expenditures. A
record of the exchange rates used in converting other
currencies into United States dollars shall be kept by the
Contractor.
'REVISION OF THE I. 12 By mutual agreement between the Government and the
A C C 0 U NT I N G
Contractor this Accounting Procedure may be revised
PROCEDURE
from time to time.
ACCEPTANCE OF
; COSTS
1.13
The acceptance by the Government of the values and
treatment proposed by the Contractor relating to all costs and
expenses may be condi tional upon the presentation by the
Contractor, following a request by the Government or its
representatives, of all records and original documents
supporting such costs and expenses, such as invoices, cash
vouchers, debit notes, price lists or similar documentation
verifying the value and treatment proposed. For a period of
twenty four (24) months following the delivery by the
Contractor of the records and original documents described
above, the Government shall have the right, but not the
obligation to audit the books and records of the contractor.
In the event that no claim for adjustment is lodged by the
Government within said twenty-four (24) month period, the
values and treatment afforded by the contractor shall be
deemed to be final for the periods covered by said records.
ARTICLE II
PETROLEUM OPERATIONS EXPENDITURES
DEFINITIONFOR 2.1
THE PURPOSE OF
DETERMINING
COM PL I A N C E
WITH THE
MIN IMUM
EXPLORATION
EXPENDITURES
COMMITMENT
In determining the Contractor's compliance with the
minimum Exploration Expenditures obligations
undertaken pursuant to this Agreement, Petroleum
Operations Expenditures shall include all costs and
expenses incurred in the performance of exploration
operations in accordance with approved work
programmes, but excluding those incurred in the
performance of development and production operations
in the contract year in question without the need to
distinguish, between capital and operating expenditures.
DEFINITION FOR 2.2
THE PURPOSE OF
ARTICLE IX
2.2.1 For each calendar year, including any calendar year prior to
the calendar year in which Initial commercial production
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first occurs, petroleum operations expendi tures, for the
purposes of Article IX of this Agreement, shall include all
petroleum operations expenditures incurred in that calendar
year in the contract area. Provided however, that Contractor
shall also be entitled to all previously.approved petroleum
operations expenditures submitted under thosecertain- .._~..........
Production Sharing Agreements dated May 21, 1993
(Gladden Basin PSA) and January 30, 1996 (Block 13 PSA)
between the Government and Belize Natural Resources, Ltd.
and its assigns.
2.2.2 The following costs and expenses shall not be included in
petroleum operations expenditures for the purposes of
Article IX of this Agreement:
(a) surface rentals payable pursuant to Article XIII of
this Agreement,
(b) any costs relating to the provision of the security
described in paragraph 6.1.6 of this Agreement including
payments made to the Government pursuant to such security
or otherwise for failure to incur the minimum exploration
expenditures in accordance with paragraph 6.1 of this
Agreement, and
(c) any interest, fees, duties, taxes and other fi nancial
charges, referred to in paragraph 3.7 of this Exhibit, relating
to loans and credits obtained by the Contractor to acquire
funds for the execution of its obligations under this
Agreement.
2.3
DEFINITION FOR
THE PURPOSE OF
THE INCOME TAX
For each calendar year, commencing with the calendar year
in which Initial commercial production first occurs, .
petroleum operations expenditures which shall be deductible
for the purpose of the calculation of Income Tax payable
shall consist of the sum of:
(I) the current calendar year's operating expendi tures
incurred, including the current calendar year's allowable
deductions for depreciation of capital expenditures
determined In accordance with subparagraphs 1.5.2 of this
Exhibit,
ARTICLE III
ACCOUNTING METHODS AND PRINCIPLES
Petroleum operations expenditures incurred
hereunder shall be calculated and accounted for in a manner
consistent with the followi ng principles and definitions and
shall include:
LABOUR COSTS
MATERlAL COSTS
3. 1
3.2
Costs of salaries and wages of the Contractor's
employees directly engaged in petroleum operations,
including costs of holidays, vacations, sickness, living and
housing allowances, travel time, bonuses and other
established plans for employee benefits customarily granted
to the Contractor's employees and their families In similar
ventures
Costs of materials, equipment, machines, tools and any
other goods of a similar nature used or consumed in
petroleum operations subject to the following:
(a) Acquisition - the Contractor shall only supply or
purchase materials f or use in petroleum operations that may
be used in the foreseeable future. The accumulation of
surplus stocks and inventory shall be avoided. Inventory
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levels shall, however, take into account the time lag for
replacement, emergency needs and similar considerations,
(b) Components of costs - costs of materials purchased by
the Contractor for use in petroleum operations may include,
in addition to the invoice price (subtracting the discounts
given, if any), freight costs and costs of transportation
between the supply point and delivery point (provided that
such costs are not Included in the invoice price), inspection
costs, insurance, custom duties, taxes and other items that
may be charged to imported materials or to materials
purchased in the Belize,
(c) Accounting - such materials costs shall be charged to the
accounting records and books based on the "First In-First
Out" (FIFO) method,
(d) Supply of Materials by Affiliated Companies - materials
supplied by the Contractor's Affiliated Companies shall be
charged to the accounting records and books at prices no
higher than the prices comparable material purchased on a
competitive basis from third party suppliers. This criterion
shall apply to both new and used materials,
(e) Inventories - the Contractor shall maintain both a
physical and accounting inventory of all materials in stock in
accordance with generally accepted practices in the
international petroleum industry. The Contractor shall make
a physical inventory of all such materials at least twice in any
Contract Year. The Government may carry out total or
partial inventories whenever it deems it necessary. The costs
of non capital items purchased for inventory shall be charged
to operating expenditure when issued from stock for
consumption,
.
The value of technical services Costs relating to Petroleum
Operations shall be:
(a) In the case of technical services performed by third
parties directly subcontracted, including outside consultants,
contractors and utilities, the price paid by the Contractor,
provided that such prices are no higher than the pri ces
charged by other suppliers for comparable work and
services, and
(b) In the case.of technical services performed by the
Contractor or its Affiliated Companies, prices which are no
higher than the most favorable prices charged to other
Affiliated Companies of the Contractor and to third parties
for comparable services,
··INSURANCE AND
3. 4
.• CLAIMS
LEGAL AND
3 .5
LITIGATION COSTS
Costs relating to insurance, provided such insurance is
customary, affords prudent protecti on agai nst risks and is at
a premium no higher than that charged on a competitive basis
by insurance companies which are not Affiliated Companies
of the Contractor. The proceeds of any insurance or claim
shall be credited against Petroleum Operations Expenditures.
Except in cases where insurance coverage is required
pursuant to Article XXV of this Agreement, ifno insurance
is carried for a particular risk, all costs incurred by the
Contractor in settlement of any related loss, claim, damage
or judgement, :including legal services, shall be includable in
Petroleum Operations Expenditures so long as they or the
matters they relate to, were incurred incidental to an
approved work program budget.
Costs and expenses of litigation and legal or related services
necessary or expedient for the protection of the Contract
area. Any damages or compensation received shall be
credited against Petroleum Operations Expenditures. Under
no circumstances may the Contractor's costs incurred in the
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course of arbitration, entered into under Article XXII of this
Agreement, be included in Petroleum Operations
Expendi tures,
GENERAL
3.6
ADMINlSTRATION
AND SERVICES
OVERHEAD
COSTS
General services and administrative costs, other than direct
costs, including, but not limited to:
(a) The Contractor's personnel and services costs including
reasonable office space in the United States relating to
administration, legal, accounting, treasury, auditing,
taxation, planning, employee relations, purchasing and other
functions required for Petroleum Operations under this
Agreement, and
(b) Reasonable travel expenses of the Contractor's
personnel in the general and administrative categories listed
in (a) above for the purpose of inspection and supervision of
Petroleum Operations in Belize shall be allocable to
Petroleum Operations Expenditures according to methods
agreed to by the Contractor and the Government. The
methods agreed shall result from a detailed study and the
methods selected following such study shall be applied each
year consistently unless otherwise agreed by the parties. In
the case of Exploration Operations, these general
administration and services overhead costs shall not exceed
three percent (3%) of the direct costs incurred in such
operations in each Calendar Year. Following the date of
declaration of Commercial Discovery in the first Field, the
Government and the Contractor shall agree upon the level of
General Administration and Services Overhead Costs which
may be allocable to Petroleum Operations Expenditures and
the percentage of direct costs ceiling shall be reduced
accordingly.
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INTEREST, ETC.
3,7
~
Interest, fees, duties, taxes and other financial charges
relating to loans and credits obtained by the Contractor to
acquire funds for the execution of its obligations under this
Agreement at rates not exceeding the prevailing commercial
rates may be charged to Petroleum Operations Expenditures.
Details of any financing plan, and amounts thereof, shall be
Included in each annual Work Programme Budget.
OFFICE COSTS,
ETC. IN BELIZE
3. 8
Staffing and maintenance of the Contractor's head office in
Belize and other offices in Belize, including rent, telephone,
telex and radio expenses, as well as the expenses of general
facilities such as shore bases, warehouses, water, power and
communications systems, roads and bridges.
EXAMPLE OF
3.9
The example below shows the application of the scale of
Production Sharing for a field producing 360,000 bbls per
day 011 an average in the course of a quarter.
PPODUCTION
SHARE
CALCU'~ATION
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