The text of the contract, annexes and supplementary documents attached shall be written in both Chinese and English, and both versions shall have equal force and effect.
The parties agree that both Chinese and English shall be used as working languages. After the effective date of the contract, technical documents and information concerning the coalbed methane operations under this contract including work programs and budgets shall, in general, be written in English except for technical documents and information available previously and received from third parties.
The contract area as of the date of signature of the contract covers a total area of 2,317.4 km(2), as marked out by the geographic location and the coordinates of the connecting points of the boundary lines shown on Annex I.
The total contract area shall be reduced in accordance with Arts. 4, 5 and 11 of this contract. Associated with the contract area and included in the grants of rights will be a pipeline right-of-way, if required, from the contract area to an interconnection or delivery point.
The exploration period shall consist of 5 consecutive contract years, unless the contract is sooner terminated, or the exploration period is extended in accordance with Art. 24 and Art. 4.3.
The production period of any coalbed menthane field within the contract area shall bea period beginning on the date of commencement of commercial production of the coalbed field up to the date of the expiration of the production period as specified in the approved overall development program. However, the production period shall be extended for so long as there exist commercially recoverable reserves of coalbed menthane from the coalbed menthane field.
The production period of any coalbed methane field within the contract area shall be a period beginning on the date of commencement of commercial production of the said coalbed field up to the date of the expiration of the production period as specified in the approved overall development program. However, the production period shall be extended for so long as there exist commercially recoverable reserves of coalbed methane from the coalbed methane field. The extension of the production period shall not exceed the term of this contract set forth under Art. 4.7. Under such circumstances as where the construction of a coalbed methane field is to be conducted on a large scale, and the time span required therefore is long, or where separate production of each of the multiple coalbed methane producing zones of an coalbed methane field is required, or under other special circumstances, the production period shall, when it is necessary, be properly extended with the approval of the department or unit.
In the performance of the coalbed methane operations, the operator shall be subject to the laws, decrees, regulations and standards on environmental protection and safety promulgated by the Chinese government and carry out the coalbed methane operations according to international practice. The operator shall use all reasonable endeavors to protect farmland, aquatic resources, forest reserves and other natural resources, and prevent pollution and damage to the atmosphere, rivers, lakes, groundwater, harbors, other land environments and ecological environment and secure the safety and health of the operating personnel. The operator shall use all reasonable endeavors to eliminate promptly any pollution occurring as a direct result of and in the performance of the coalbed methane operations and minimize its consequences. Economic losses caused by any pollution shall be charged to the joint account, unless otherwise provided in Art. 8.4.
The operator shall conduct regular audits to ensure compliance with the operator's environmental, health and safety standards. All costs for such regular audits shall be charged to the joint account.
Any non-operator party to the contract shall have the right to audit all the operator's joint account accounting books and records after the end of each calendar year and shall give the operator a written notice of the auditing results. Any such audit shall be completed within 24 months after the end of each calendar year. In the absence of any written notice of an exception in the audit results given by the non-operator party within such period or if the annual joint account accounting books and records of the operator are not audited by any non-operator party within such period, the operator's joint account accounting books and records shall be deemed correct. A special audit of the operator's joint account accounting books and records may be made if specially required during any such calendar year. Any special audit will be limited to a specific topic and shall not be a general audit.
Prior to any special audit referred to in Art. 18.2.1, the non-operator agrees to furnish the operator with a letter outlining the special audit item(s) and reasons for its concern. The parties agree to first discuss the areas of concern and attempt to resolve any outstanding issues. If no resolution is reached, the operator shall be given 30 days notice prior to the date of commencement of such audit. There shall be no impediment to normal coalbed methane operations during the period of any audit. Any special audit of the operator's joint account accounting books and records for a calendar year due to various special circumstances shall require, in addition to the 30 days notice prior to the date of commencement of such audit, the consent of the operator, which consent shall not be unreasonably withheld.
The auditors shall be entitled to access to all relevant joint account records, files and other information including, but not limited to the salary and wage information of operator's personnel dedicated to the coalbed methane operations, and may inspect such sites and facilities as necessary.
The operator shall advise the subcontractors who render services for the contract that they and their employees shall pay taxes to the government of the People's Republic of China subject to the tax laws and regulations of the People's Republic of China.
Each of the companies comprising Phillips China shall pay taxes, including but not limited to, enterprise income taxes, to the government of the People's Republic of China subject to the tax laws and regulations of the People's Republic of China.
If any coalbed field is discovered within the contract area, the development costs of such coalbed field shall be borne by the parties in proportion to their participating interests: 30% by China United Coalbed Methane Corporation (CUCBM) and 70% by Phillips China.
If CUCBM opts to participate at a level less than 30% of the participating interests, or not to participate in the development of the coalbed field, Phillips China shall bear the remaining development costs necessary for the development of the coalbed field in accordance with Art. 12.1.2
Phillips China may give preference to the employment of Chinese personnel in the performance of the coalbed methane operations in accordance with relevant regulations. As such, Phillips China may submit in advance to China United Coalbed Methane Corporation (CUCBM) and the joint management committee respectively a plan for the employment of Chinese personnel listing all the posts and number of the persons involved. CUCBM shall, at the request of Phillips China and in accordance with the plan, provide or assist in recruiting Chinese employee candidates for such employment. Phillips China shall, as the coalbed methane operations require, with the approval of CUCBM and joint management committee, revise the training and employment plan to make the plan the most efficient and economical for the coalbed methane operations. For the performance of the coalbed methane operations, Phillips China may have the obligation to employ competent Chinese personnel and to employ those who have become qualified after having being trained in accordance with the training program.
Phillips China may give preference in employing the Chinese personnel who have participated in the training program provided by Phillips China. It is agreed between CUCBM and Phillips China that total Chinese personnel employment levels, including the costs, for the purpose of conducting coalbed methane operations, including training shall always be consistent with conducting such operations in an efficient and economic manner in accordance with good and generally accepted international oil field practices.
All Chinese employees shall sign with the operator, employment contracts whose terms shall cover hiring, resignation and dismissal, production and work responsibilities, wages and bonuses, health, safety and environmental rules, working hours and holidays, labor insurance and welfare benefits, labor protection and labor discipline. Such contracts shall include the right of the operator to dismiss in accordance with applicable Chinese laws and regulations such employees who do not observe such contract, Phillips China rules, or other rules applicable to their work.
For the performance of the coalbed methane operations, Phillips China's procurement of necessary goods, leasing of equipment and signature of subcontracts or other construction and service contracts shall be subject to relevant regulations. Phillips China may give preference to Chinese goods, equipment and service, provided that they are competitive in terms of price, quality and terms of delivery.
Phillips China shall, as the coalbed methane operations require, with the approval of the China United Coalbed Methane Corporation (CUCBM) and joint management committee, revise the training and employment plan to make the plan the most efficient and economical for the coalbed methane operations. For the performance of the coalbed methane operations, Phillips China may have the obligation to employ competent Chinese personnel and to employ those who have become qualified after having being trained in accordance with the training program.
Phillips China may give preference in employing the Chinese personnel who have participated in the training program provided by Phillips China. It is agreed between CUCBM and Phillips China that total Chinese personnel employment levels, including the costs, for the purpose of conducting coalbed methane operations, including training therefore, shall always be consistent with conducting such operations in an efficient and economic manner in accordance with good and generally accepted international oil field practices.
Phillips China shall fulfill the minimum exploration work commitment and expected minimum exploration expenditures for each phase of the exploration period in accordance with the following provisions:
- During the first phase of the exploration period, Phillips China shall: Drill 1 exploration well with footage totaling 700 meters estimated to cost US$ 350,000, or acquire an equivalent amount of seismic equal to the estimated cost of drilling 1 exploration well.
- During the second phase of the exploration period, Phillips China shall:
(a) drill 2 exploration wells with footage totaling 1,400 meters;
(b) spend US $700,000 as its expected minimum exploration expenditures for such exploration operations.
- During the third phase of the exploration period, Phillips China shall:
(a) drill and complete 1 pilot development consisting of 6 wells; and
(b)spend US$ 1.8 million as its expected minimum exploration expenditures for such exploration operations.
- With respect to the minimum exploration work commitment for each phase of the exploration period committed by Phillips China in accordance with Art. 6.2.1, 6.2.2 and 6.2.3, when calculating whether the minimum exploration work commitment has been fulfilled, the number of exploration wells and pilot development wells shall be he basis of such calculation.
Funds required for the coalbed methane operations shall be raised by the operator in accordance with work programs and budgets determined pursuant to the relevant provisions of the contract, the provisions described in Annex II - Accounting procedure, and the provisions of this Article 12.1.
Any dispute mentioned in Art. 25.1 under this contract, including without limitation disputes arising under Art. 27.2 that has not been settled through such consultation within 90 days after the dispute arises may be referred to arbitration at the request of and by either party to the contract. The arbitration shall be conducted in accordance with the following provisions:
-If agreed upon by the parties, such dispute shall be referred to arbitration conducted by the China International Economic and Trade Arbitration Commission in accordance with the arbitration proceeding rules and if the parties fail to reach an agreement on the arbitration arrangement mentioned in Art. 25.2.1 within 60 days after a party has requested in writing that a dispute be referred to arbitration, the parties shall establish an ad hoc arbitration tribunal to conduct arbitration in accordance with the following provisions:
- The ad hoc arbitration tribunal shall consist of 3 arbitrators.
- The parties shall each appoint an arbitrator and the 2 arbitrators so appointed shall designate a third arbitrator. If one of the parties does not appoint its arbitrator within 60 days after the first appointment, or if the 2 arbitrators once appointed fail to appoint the third within 60 days after the appointment of the second arbitrator, the relevant appointment shall be made by the Arbitration Institute of the Stockholm Chamber of Commerce, Sweden.
- The third arbitrator shall be a citizen of a country which has formal diplomatic relations with both the People's Republic of China and the
home country of any of the companies comprising the contractor, and shall not have any economic interests or relationship with the parties. The place of arbitration shall be determined by the parties through consultations or, failing the agreement of the parties within 60 days after the appointment of the third arbitrator, by the majority of arbitrators of the ad hoc arbitration tribunal.
The ad hoc arbitration tribunal shall conduct the arbitration in accordance with the arbitration rules of the United Nations Commission on International Trade Law of 1976, as amended. However, if the above-mentioned arbitration rules are in conflict with the provisions of this Art. 25, including the provisions concerning appointment of arbitrators, the provisions of this Art. 25 shall prevail.
Both the Chinese and English languages shall be official languages used in the arbitration proceedings. All hearing materials, statements of claim or defense, awards and the reasons supporting them shall be written in both Chinese and English.
China United Coalbed Methane Corporation (CUCBM) shall, in conformity with applicable laws and regulations of the government of the People's Republic of China on confidentiality and by taking into account international practice, determine in consultation with Phillips China the confidentiality periods for which the contract and all documents, information, data and reports related to the coalbed methane operations within the contract area shall be kept confidential.
Without the written consent of the other party, no party to the contract shall disclose, during such confidentiality periods, the contract, documents, information, data and reports referred to in Art. 21.1 under this contract or any other information regarded by joint management committee as confidential, to any third party except the third parties specified in Art. 21.5 and to any affiliate not directly connected with the implementation of the contract, and no party to the contract shall otherwise transfer, donate, sell or publish them in any way within the confidentiality periods. CUCBM shall have the right to disclose confidential information to relevant to third parties upon the termination of this contract.
CUCBM shall, in conformity with relevant provisions of laws and regulations of the People's Republic of China and lawful requests of relevant government departments and units, provide them with all documents, information, data and reports as mentioned under this contract.
During the term of the contract and after the termination of the contract, the government shall not disclose to any third party any patent, know-how or proprietary technology transferred to CUCBM by the contractor without the written consent of the contractor except for any technology, the patent of which has expired and any proprietary and confidential technology which has entered the public domain.
After the termination of the contract or after any assignment of rights and/or obligations of the contract under Art. 22, the contractor and any assignee shall, within the confidentiality periods, continue to be obligated to keep confidential documents, information, data and reports mentioned in Art. 21.2 except for official documents and information published with the consent of the parties.
For the implementation of the contract, CUCBM and each company comprising the contractor may furnish the necessary documents, information, data and reports to Affiliates related to the coalbed methane operations. CUCBM and each company comprising the Phillips China may, after review by the joint management committee and CUCBM, furnish the necessary documents, information, data and reports to the third party related to the coalbed methane operations. The third parties include:
- Banks or other credit institutions from which financing is sought by any party to the contract for the implementation of the contract;
- Third parties which provide services for the coalbed methane operations, including subcontractors and other service contractors; and
- Any assignee or assignees to whom the rights and/or obligations under the contract may be assigned.
Necessary information, documents, data and reports may be furnished by the parties or an affiliate of the parties related to coalbed methane operations in accordance with the laws of their home countries to the governments and stock exchanges, provided that the parties report to joint management committee in advance.
CUCBM and each company comprising the Phillips China when furnishing the documents, information, data and reports to third parties and affiliates as mentioned in Art. 21.5 shall require them to assume the confidentiality obligations as set forth herein, or shall bear full responsibility for any violation.
The validity, interpretation and implementation of the contract shall be governed by the laws of the People's Republic of China. Failing the relevant provisions of the laws of the People's Republic of China for the interpretation or implementation of the contract, the principles of the applicable laws widely used in coalbed methane resources countries acceptable to the parties shall be applicable.
If a material change occurs to Phillip China's economic benefits after the effective date of the contract due to the promulgation of new laws, decrees, rules and regulations or any amendment to the applicable laws, decrees, rules and regulations of the People's Republic of China, the parties shall consult promptly and make necessary revisions and adjustments to the relevant provisions of the contract in order to maintain Phillips China's normal economic benefits.