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EXPLORATION AND PRODUCTION SHARING AGREEMENT
BETWEEN
NATIONAL OIL CORPORATION
and
VERENEX ENERGY AREA 47 LIBYA LIMITED
and
MEDCO INTERNATIONAL VENTURES LIMITED
CONTRACT AREA 47
TABLE OF CONTENTS
Page No.
PARTIES...,......................................................................... 1
RECITALS........................................................ 1
ARTICLE 1 DEFINITIONS...................................................................................................2
1.1 “Abandonment”.......................................................................................................2
1.2 “Affiliate”...............................................................................................................2
1.3 “Agreement”............................................................................................................2
1.4 “Appraisal Operations”.........................................................................................2
1.5 “Appraisal Well”.................................... 3
1.6 “Associated Gas”..................................... 3
1.7 “Barrel”............................................................... 3
1.8 “Block”.....................................................................................................................3
1.9 “Budget”...................................................................................................................3
1.10 “Calendar Quarter”.............................................................. 3
1.11 “Calendar Year”....................................................................................................3
1.12 “Commercial Production Start Date”...............................................................3
1.13 A “Commercial Discovery”...................................................................................3
1.14 “Contract Area”....................................................................................................4
1.15 “Contract Year”.............................................. 4
1.16 “Crude Oil”.................... 4
1.17 “Development Expenditures”...............................................................................4
1.18 “Development Operations”...................................................................................4
1.19 “Development Plan”..............................................................................................4
1.20 A “Discovery”..........................................................................................................4
1.21 “Effective Date”.....................................................................................................5
1.22 “Excess Associated Gas”.......................................................................................5
1.23 “Exploitation Area”..............................................................................................5
1.24 “Exploitation Capital Expenditures”.................................................................5
1.25 “Exploitation Operations”...................................................................................5
1.26 “Exploitation Operations Expenditures”..........................................................5
1.27 “Exploitation Period”............................................................................................5
1.28 “Exploration and Appraisal Expenditures”......................................................5
1.29 “Exploration Operations”....................................................................................5
1.30 “Exploration Period”.............................................................................................6
1.31 “Exploration Program”........................................................................................6
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1.32 “Field”......................................................................................................................6
1.33 “Good Oilfield Practices”....................................................................................6
1.34 “LIBOR”......................................................................................................................6
1.35 “Liquid Hydrocarbon By-Products”...................................................................6
1.36 “Management Committee”....................................................................................6
1.37 “Maximum Efficient Rate” or “MER”..................................................................6
1.38 “Natural Gas”........................................................................................................7
1.39 “New-Field Wildcat Well”...................................................................................7
1.40 “Non-associated Gas”............................................................................................7
1.41 “Operator”...............................................................................................................7
1.42 “Operating Account”.............................................................................................7
1.43 “Operator’s Management Committee”...............................................................7
1.44 “Party”.....................................................................................................................7
1.45 “Petroleum”............................................................................................................7
1.46 “Petroleum Law”....................................................................................................7
1.47 “Petroleum Operations”.......................................................................................8
1.48 “Petroleum Operations Expenditures”...............................................................8
1.49 “Residue Gas”..........................................................................................................8
1.50 “Sector”...................................................................................................................8
1.51 “Signature Date”....................................................................................................8
1.52 “U.S. Dollars" or "U.S.S”......................................................................................8
1.53 “Work Program”.....................................................................................................8
ARTICLE 2 SCOPE...............................................................................................................8
ARTICLE 3 TERM.................................................................................................................9
3.1 Term of Agreement................................................................................................9
3.2 Early Termination.................................................................................................9
3.3 Withdrawal by Second Party..............................................................................10
ARTICLE 4 MANAGEMENT COMMITTEE......................................................................10
4.1 Appointment of Management Committee...........................................................10
4.2 Decisions..................................................................................................................11
4.3 Meetings...................................................................................................................11
4.4 Procedures........................................ 12
ARTICLE 5 OPERATOR.......................................................................................................12
5.1 Operator during Exploration Period.................................................................12
5.2 Operator during Exploitation Period................................................................12
iS£2 5.3 Removal of JOC.......................................................................................................13
'm 5 A Second Party rjghts..............................................................................................13
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5.5 Obligations of Operator.......................................................................................14
5.6 Contractors.............................................................................. 15
5.7 Libyan Personnel and Training...........................................................................15
5.8 Priority to Local Work......................................................... 16
5.9 Liability........................................ 16
ARTICLE 6 COMMENCEMENT OP PETROLEUM OPERATIONS................................16
ARTICLE 7 WORK PROGRAMS AND BUDGETS...........................................................16
7.1 Preparation by Operator and Approval by Management Committee..........16
7.2 Expenditures by Operator....................................................................................17
ARTICLE 8 SECOND PARTY’S MINIMUM EXPLORATION COMMITMENT.............17
ARTICLE 9 APPRAISAL......................................................................................................18
9.1 Appraisal Operations and Preliminary Appraisal Report by Operator.......18
9.2 Final Appraisal Report..........................................................................................18
ARTICLE 10 DECLARATION OF COMMERCIAL DISCOVERY OF CRUDE OIL.......19
AND SOLE RISK...................................................................................................................19
10.1 Review by Management Committee and Declaration of
Commercial Discovery..........................................................................................19
10.2 Subsequent Development Plan............................................................................20
10.3 Sole Risk...................................................................................................................20
ARTICLE 11 PRODUCTION PROGRAMS - LIFTING- MAKE-UP
OF UNDERLIFTINGS...........................................................................................................21
11.1 Production Programs............................................................................................21
11.2 Lifting.......................................................................................................................22
11.3 Underlifting............................................................................................................22
ARTICLE 12 SHARING PETROLEUM PRODUCTION....................................................23
12.1 Allocation of Crude Oil and Liquid Hydrocarbon By-Products
and Natural Gas.............................................................................................................23
12.2 Accounts..................................................................................................................24
12.3 Valuation................................................................................................................25
12.4 Illustration............................................................................................................25
12.5 Taking in Kind.........................................................................................................25
12.6 Production Rate.....................................................................................................26
ARTICLE 13 NATURAL GAS..............................................................................................26
13.1 General....................................................................................................................26
13.2 Excess Associated Gas...................... 26
13.3 Non-associated Gas...............................................................................................27
13.4 Gas Sales Agreement.............................................................................................28
13.5 Natural Gas for Domestic Use.............................................. 29
13.6 Transportation and Processing Agreement.....................................................30
ARTICLE 14 COSTS AND EXPENSES...............................................................................30
14.1 Costs and Expenses of Petroleum Operations..................................................30
14.2 Determination of Costs and Apportionment by Management Committee ... 31
14.3 Head Office Overhead Charges...........................................................................31
14.4 Calls for Funds......................................................................................................31
14.5 Default in Contribution of Funds.......................................................................31
ARTICLE 15 BONUSES AND MANNER OF PAYMENTS...............................................32
15.1 Bonuses....................................................................................................................32
15.2 Manner of Payments to First Party...................................................................33
ARTICLE 16 TITLE TO PURCHASED ITEMS..................................................................33
ARTICLE 17 TECHNICAL ASSISTANCE AND SERVICES............................................34
BY THE PARTIES AND AFFILIATES................................................................................34
ARTICLE 18 DATA...............................................................................................................34
18.1 Use of Data..............................................................................................................34
18.2 Title to Data...........................................................................................................34
18.3 Confidentiality......................................................................................................34
ARTICLE 19 RENTS. ROYALTY AND INCOME TAXES................................................35
19.1 Royalties and Taxes..............................................................................................35
19.2 Customs Duties.......................................................................................................36
19.3 Rentals and Fees................................................... 36
19.4 Other Income....................................... 36
ARTICLE 20 BOOKS. ACCOUNTS AND AUDITS...........................................................36
20.1 Operator's Responsibility for Books and Accounts........................................36
20.2 Audits.......................................................................................................................36
ARTICLE 21 GOVERNING LAW........................................................................................37
ARTICLE 22 FORCE MAJEURE.........................................................................................37
22.1 Excuse of Obligations...........................................................................................37
22.2 Notification.............................................................................................................37
22.3 Extension of Term; Termination..........................................................................37
ARTICLE 23 SETTLEMENT OF DIFFERENCES - ARBITRATION................................38
23.1 Amicable settlement..............................................................................................38
23.2 Arbitration.............................. 38
ARTICLE 24 ASSIGNMENT................................................................................................38
24.1 Assignment by First Party....................................................................................38
24.2 Assignment by Second Party................................................................................38
ARTICLE 25 TERMINATION................. 39
25.1 Right of Termination.............................................................................................39
25.2 Acceleration...........................................................................................................41
ARTICLE 26 ABANDONMENT..........................................................................................41
ARTICLE 27 MISCELLANEOUS........................................................................................43
27.1 Notices........................................................ 43
27.2 No Watver; Cumulative Remedies.......................................................................44
27.3 Amendments.............................................................................................................44
27.4 Satisfactory Documentation..............................................................................44
27.5 Entirety of Agreement.................................................................................. 45
27.6 No Third Party Beneficiaries...............................................................................45
27.7 Conflict in Terms................................... 46
27.8 Language................................................. 46
27.9 Headings...................................................................................................................46
27.1 (Indemnity.................................................................................................................46
27.11 Effective Date........................................................................................................46
EXHIBIT (A)............................CONTRACT AREA
EXHIBIT (B) .....................MINIMUM EXPLORATION PROGRAM
EXHIBIT (C).......................... ACCOUNTING PROCEDURE
EXHIBIT (D).......................... GUARANTEES
EXHIBIT (E)........................... EXAMPLE CALCULATIONS
EXHIBIT (F)........................... TAX RECEIPT
EXHIBIT (G)...........................SHAREHOLDER AGREEMENT
EXHIBIT (H) ........................... OPERATING AGREEMENT
THIS AGREEMENT is made and entered into the___day of Safar, 1373, corresponding
to the twelfth day of March, 2005, by and between NATIONAL OIL CORPORATION
(hereinafter referred to as "NOC" or “First Party”), a corporation established by Law No.
24 of 1970, as amended, reorganized under Decision No. 10/1979 of the General
Secretariat of the General People's Congress of the Great Socialist People's Libyan Arab
Jamahiriya (GSPLAJ), and having its principal office at Bashir Sadawi Street, Tripoli,
GSPLAJ, and
1) Verenex Energy Area 47 Libya Limited (hereinafter refereed to as "Verenex"), a
Corporation established under the laws of Jersey and having a branch registered in the
Commercial Register of Tripoli, GSPLAJ, under No.___with an office at
_____, GSPLAJ;
2) Medco International Ventures Limited (hereinafter referred to as "MTV"), a company
established under the laws of the Labuan, Malaysia and having a branch registered in the
Commercial Register of Tripoli, GSPLAJ, under No.____with an office at
__, GSPLAJ.
Both Verenex and MIV hereinafter being collectively referred to as Second Party.
WITNESSETH:
WHEREAS, Law No. 25 of 1955, as amended, establishes that all Petroleum existing and
being within the statutory' mining territory of GSPLAJ are national riches of the State;
WHEREAS, NOC has the exclusive right and authority to explore for, develop and
produce Petroleum in and throughout the Contract Area described in Exhibit "A" hereto;
WHEREAS, by virtue of Decree No. 10/1979 issued by the General Secretariat of the
General People's Congress of GSPLAJ on the 12th day of Ramadan, 1388, corresponding
to the 5th day of August, 1979, First Party is authorized and empowered to enter into this
Agreement subject to and effective upon the approval of the General People's Committee
of GSPLAJ;
WHEREAS, Second Part)' acknowledges that it is fully familiar with the laws and
regulations of GSPLAJ and has the means to maintain such familiarity during the term of
this Agreement;
WHEREAS, Verenex and MIV each hold an undivided participating interest share in
Second Party of fifty percent (50%) and fifty percent (50%) respectively; and
WHEREAS, First Party and each company comprising Second Party recognize and
acknowledge that each other party hereto is entering into this Agreement in its own name
and in its capacity as a legal entity empowered to contract on its own behalf and each party
accepts that no person or entity other than any other party hereto may be liable or
responsible for such other party's obligations hereunder, except in the event of an express
written guarantee such as the guarantee set forth in Exhibit "D" hereto.
NOW, THEREFORE, for and in consideration of the mutual covenants, conditions and
obligations herein contained, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
The following definitions of certain words and terms used in this Agreement shall apply (in
both singular and plural forms) for purposes of this Agreement:
1.1 “Abandonment’’
means, the abandonment activities, including but not limited to: the plugging and
abandonment of wells, the decommissioning and removal of all plants and facilities
and the restoration of sites used for Petroleum Operations hereunder to a standard
required under the laws and regulations of GSPLAJ and in accordance with Good
Oilfield Practices.
1.2 “Affiliate”
means, with respect to any party hereto, any other legal entity that, directly or
indirectly, controls, is controlled by or is under common control with such party.
"Control” means the ownership, directly or indirectly, of 50% or more of the voting
shares or voting rights of such entity.
1.3 “Agreement”
means this instrument, including all exhibits attached hereto, all of which are
hereby made a part hereof.
1.4 “Appraisal Operations”
means the appraising by all appropriate means of the limits and production capacity
of a Field, including, without limitation: geological and geophysical surveys;
drilling of Appraisal Well(s), reservoir and other suidies (including the reports and
studies referred to in Article 9 hereof), and all auxiliary operations and activities
required or expedient for the better conduct or result of die above activities.
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1.5 “Appraisal Weir
means any well drilled in the Contract Area whose purpose at the time of
commencement of drilling is the determination of the extent or volume of
Petroleum reserves contained in a Discovery within a single geological feature.
1.6 “Associated Gas”
means Natural Gas which existed or exists in a reservoir in solution with Crude Oil,
or as free gas cap gas.
1.7 “Barrel”
means a quantity or unit of Crude Oil equal to forty-two (42) United States gallons
at standard conditions (sixty (60) degrees Fahrenheit, 14.7 psi).
1.8 “Block”
means a division of the Contract Area as described in Exhibit "A" hereto.
1.9 “Budget”
means a cost estimate of all items included in a Work Program.
1.10 “Calendar Quarter”
means a period of three (3) consecutive months according to the Gregorian calendar
starting on 1 January, 1 April, 1 July or 1 October.
1.11 “Calendar Year”
means a period of twelve (12) months according to the Gregorian calendar
commencing on any January 1st and ending on the following December 31 st.
1.12 “Commercial Production Start Date”
means the date when regular production starts for the purpose of the line fill and
commercial use of such production.
1.13 A “Commercial Discovery”
will have been made:
(a) with respect to Crude Oil, if and at the time that the Management Committee
decides to proceed with the development of a Field pursuant to Article 10.1
herein, where a Discovery of Crude Oil has been made, or
(b) with respect to Non-associated Gas, if and at the time that the Management
Committee decides to proceed with the development of a Field pursuant to
Article 13.3.3 herein, where a Discovery of Non-associated Gas has been
made.
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1.14 “Contract Area”
means the entire area described in Exhibit "A" hereto, as the same may be amended
in accordance with Article 3.2 hereof.
1.15 “Contract Year”
means a period of twelve (12) consecutive months according to the Gregorian
calendar counted from the Effective Date or any anniversary thereof.
1.16 “Crude Oil”
means crude petroleum oil and all other hydrocarbons, regardless of gravity,
produced at the well in liquid form by ordinary production methods and which are
not the result of condensation of gas.
1.17 “Development Expenditures”
means any and all costs, expenses and liabilities of or relating to Development
Operations.
1.18 “Development Operations”
means any and all operations carried out in accordance with a Development Plan,
conducted with a view to developing a Field in which a Commercial Discovery has
been made, including, without limitation: the drilling of wells; primary and
subsequent recovery projects and pressure maintenance; the engineering, building
and erecting or laying of production plants and facilities (including, without
limitation: separators; compressors; generators; pumps and tankage; gathering lines;
pipelines; and all facilities required to be installed for production, pressure
maintenance, and treatment, storing and transporting of Petroleum, and loading
Petroleum into seagoing tankers); the obtaining of such materials, equipment,
machinery, articles and supplies as may be required or expedient for the above
activities; and all auxiliary operations and activities required or expedient for the
better conduct or result of the above activities.
1.19 “Development Plan”
means a time scheduled program specifying Development Operations required to
develop an increment of producing capacity in a particular Field, such as initial,
intermediate or complete Field Development, a Field extension, or a secondaiy or
other subsequent recovery project.
1.20 A “Discovery”
will have been made when Petroleum has been found as a result of the drilling,
completing and testing of a New-Field Wildcat Well.
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1.21 “Effective Date”
means the date of approval of this Agreement by the General People's Committee
of GSPLAJ.
1.22 “Excess Associated Gas”
means the Associated Gas available after deduction of the quantities of Associated
Gas required for Petroleum Operations.
1.23 “Exploitation Area”
means such number of Sectors within the Contract Area covering the whole
extension of the underlying structures or stratigraphic closures defining the
reservoir or pay zone of any Field where a Commercial Discovery has been made.
1.24 “Exploitation Capital Expenditures”
means, with respect to any Exploitation Area, all capital expenditures incurred after
the Commercial Production Start Date, including but not limited to, development
drilling, acquisition of physical assets related to Petroleum Operations, and
construction of new facilities.
1.25 “Exploitation Operations”
means any and all activities carried out in an Exploitation Area after the
Commercial Production Start Date, including, without limitation, petroleum
engineering, operating, servicing, repairing and maintaining any and all wells,
plants, equipment, pipelines, terminals and all other installation facilities.
i 1.26 “Exploitation Operations Expenditures”
means any and all costs, expenses and liabilities of or relating to Exploitation
Operations and all auxiliary activities required or expedient for the better conduct
ot result of the activities.
1.27 “Exploitation Period”
means the period of twenty five (25) Contract Years commencing from the end of
the Exploration Period and any extension thereof.
1.28 “Exploration and Appraisal Expenditures”
means any and all costs, expenses and liabilities of or relating to Exploration
Operations and Appraisal Operations.
1.29 “Exploration Operations”
means any and all operations conducted with a view to discovering Petroleum,
including, without limitation: any and all activities necessary to commence
operations; any and all topographical, hydrographical, geological, geophysical,
aerial and other surveys and activities (including interpretations, analyses and
5 Area 47
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related studies) having as a scope the subsurface investigation for the proper
location of New-Field Wildcat Wells; the drilling of shot holes, core holes and
stratigraphic test holes; the spudding, drilling, testing, coring, logging and
equipping of New-Field Wildcat Wells; the obtaining of such material, equipment,
machinery, articles and supplies as may be required or expedient for the above
activities; and all auxiliary' operations and activities required or expedient for the
better conduct or result of the above activities. !
1.30 “Exploration Period” i i
means the period of five (5) Contract Years commencing on the Effective Date and
any extension thereof.
1.31 “Exploration Program”
means the minimum exploration program specified in Exhibit "B" hereto.
1.32 “Field”
means one or several petroleum reservoirs that are related to a single geological
feature and their projection(s) on the ground surface, \ j
1.33 “Good Oilfield Practices” i
means those practices, methods, standards, and procedures generally accepted and
followed by prudent, diligent, skilled and experienced operators in petroleum
exploration, development and production operations and which, at the particular
time in question, in the exercise of reasonable judgment and in light of facts then
known at the time a decision was made, would be expected to accomplish the
desired results and goals. i
1.34 “Libor”
means the London Inter-Bank Offered Rate at which U.S. Dollar deposits for three
(3) months are offered in the Inter Bank market in London as quoted by the British
Bankers Association for the day or days in question.
1.35 “Liquid Hydrocarbon By-Products”
means any hydrocarbon liquid resulting from processing of Natural Gas.
1.36 “Management Committee”
means the committee to be appointed under Article 4.1 hereof.
1.37 “Maximum Efficient Rate” or “MER”
means the maximum rate, according to Good Oilfield Practices, at which oil or gas
can be produced without excessive decrease of reservoir pressure or loss of
reservoir energy. m
6 Area 47
1.38 “Natural Gas”
means any and all hydrocarbon substances which are or would be in gaseous or
vaporous form at atmospheric pressure and temperature, regardless of their status in
the reservoir.
1.39 “New-Field Wildcat Well”
means a hole drilled on a geologic structure or in a geologic environment where
Petroleum has not yet been discovered.
1.40 “Non-associated Gas”
means Natural Gas other than Associated Gas and Residue Gas.
1.41 “Operator”
means such entity as may be appointed pursuant to Article 5 hereof to serve as
Operator with responsibility for carrying out Petroleum Operations in the Contract
Area subject to and under the provisions of this Agreement. If, in accordance with
the provisions of Article 5 hereof, more than one Operator exists at any time under
this Agreement, references herein to the term “Operator” shall be to each Operator
with respect to the parts of the Contract Area in which it conducts Petroleum
Operations.
1.42 “Operating Account”
means the operating account defined in the Accounting Procedure attached hereto
as Exhibit (C).
1.43 “Operator’s Management Committee”
means the committee to be appointed under Article 5.2 hereof.
1.44 “Party”
means First Party or Second Party.
1.45 “Petroleum”
means Crude Oil, Natural Gas, solid petroleum (such as asphalt, ozokerite,
petroliferous rocks and petroleum shale) and all other hydrocarbon substances that
may be found in and produced or otherwise obtained and saved from the Contract
Area.
1.46 “Petroleum Law”
means the Libyan Petroleum Law No. 25 of 1955, as it has been and may be
amended from time to time, and all regulations thereunder.
7 Area 47
1.47 “Petroleum Operations”
means any and all Exploration Operations, Appraisal Operations, Development
Operations, Exploitation Operations and Abandonment, as well as any other
operation or activity related thereto and authorized or contemplated hereunder.
1.48 “Petroleum Operations Expenditures”
means any and all costs, expenses and liabilities of or related to Petroleum
Operations hereunder. Provided, however, that, notwithstanding anything in this
Agreement to the contrary, (i) no costs, expenses or liabilities incurred prior to the
Effective Date shall constitute Petroleum Operations Expenditures and (ii) no
interest expenses or other financing charges of any nature incurred by Second Party
shall constitute Petroleum Operations Expenditures.
1.49 “Residue Gas”
means the gaseous hydrocarbons remaining after the processing of Natural Gas and
deduction therefrom of commercial substances.
1.50 “Sector”
means a subdivision of a Block covering an area of one (l) minute in latitude by (1)
one minute in longitude.
1.51 “S ignature Date’ ’
means the date on which this Agreement is signed by the Parties.
1.52 “U.S. Dollars" or MU.S.$”
means dollars of the United States of America.
1.53 “Work Program”
means a statement itemizing the Petroleum Operations to be carried out in the
Contract Area pursuant to this Agreement during any Calendar Year or part thereof.
ARTICLE 2
SCOPE
This Agreement is an exploration and production sharing arrangement with respect to the
Contract Area. The Parties recognize that this Agreement does not award ownership rights
over Petroleum "in situ" in the Contract Area, but relates to providing of: (i) technical and
financial resources for Petroleum Operations in the Contract Area, (ii) the manner in which
such Petroleum Operations are to be conducted and (iii) the allocation of Petroleum
produced and saved under this Agreement from the Contract Area.
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ARTICLE 3
TERM
3.1 Tenn of Agreement
Subject to the terms and conditions of this Agreement, the term of this Agreement,
shall be composed of the Exploration Period and the Exploitation Period. If
commercial production continues during the last three (3) years before the end of
the term, Second Party may request an extension of the term of this Agreement for
a reasonable time. First Party may, at its sole discretion, approve such a request
subject to terms and conditions to be agreed upon between the Parties.
3.2 Early T ermination
At the end of the Exploration Period, only the Exploitation Area(s) shall be retained
under this Agreement, and this Agreement shall terminate in respect of all other
parts of the Contract Area. The Exploration Period may only be extended in the
following cases:
a) If a New-Field Wildcat Well(s) is being drilled or tested at the end of the
Exploration Period, then the Exploration Period shall be extended for a period
of time, not to exceed ninety (90) days, in order to complete the drilling and
testing, if any, of such well(s).
b) If a Discovery has been made within six (6) months prior to the end of the
Exploration Period but there has not been sufficient time to conduct adequate
Appraisal Operations thereof prior to the end of the Exploration Period, then the
Exploration Period shall be extended for the Block(s) in which such Discovery
was made for a period of time, sufficient to conduct such Appraisal Operations,
not to exceed two (2) Contract Years.
c) By agreement of the Parties for an initial period of one (1) Calendar Year, if at
the end of the Exploration Period the Management Committee is still
considering declaring a Commercial Discovery and approving a Development
Plan related thereto pursuant to Article 10.1. If the Management Committee
does not adopt a Development Plan within such initial period, then such period
may be extended by agreement of the Parties for a period not exceeding three
(3) Calendar Years.
d) As per Article 13.3 herein.
9 Area 41
3.3 Withdrawal by Second Party
3.3.1 Second Party shall have the right, upon one (1) month’s prior notice to First Party,
to withdraw from this Agreement at any time during the Exploration Period,
provided that the Exploration Program has been properly completed or Second Party
has paid to First Party the amounts specified in Article 8 hereof for the number of
kilometres of seismic survey not executed and the number of well(s) not drilled.
3.3.2 Second Party shall have the right upon one (1) year prior notice (the “Notice
Period”) to First Party to withdraw from this Agreement with respect to any
Exploitation Area at any time during the term of this Agreement. At the end of the
Notice Period, this Agreement shall terminate with respect to such Exploitation
Area and any outstanding amounts owed by Second Party with respect to such
Exploitation Area shall become immediately due and payable to First Party.
During the Notice Period, Second Party shall continue to enjoy all its rights under
this Agreement, provided that, Second Party satisfies all obligations and liabilities it
has incurred prior to its withdrawal, including, without limitation, any expenditures
budgeted and/or approved by the Management Committee prior to its notification of
withdrawal, and any liability for acts, occurrences or circumstances taking place or
existing prior to the effective date of its withdrawal. Furthermore, any liens, charges
and other encumbrances which Second Party placed on its interest prior to its
withdrawal shall be fully satisfied or released, at its expense, prior to its withdrawal.
Second Party's withdrawal shall not relieve it from liability' to First Party with
respect to any obligations or liabilities attributable to Second Party which are not
identified or identifiable for a period of time not exceeding fifteen (15) years after
withdrawal.
ARTICLE 4
MANAGEMENT COMMITTEE
4.1 Appointment of Management Committee
Petroleum Operations in the Contract Area shall be conducted under the control and
supervision of a Management Committee composed of four (4) members, two (2),
including the chairman, to be appointed by First Party, and two (2) to be appointed
by Second Party. The Management Committee shall be formed not later than one
(1) month after the Effective Date. Each Party shall notify the other of the members
of the Management Committee it appoints.
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4.2 Decisions
The Management Committee shall make all important decisions relating to
Petroleum Operations, including, without limitation, the approval of Work
Programs and Budgets prepared by Operator for Petroleum Operations. Decisions
of the Management Committee shall be made by the unanimous vote of its
members. Decisions of the Management Committee may be made by
correspondence if the members of the Management Committee have indicated their
approval of a decision in such correspondence.
In case of a deadlock, the Management Committee shall refer the matter to the
senior management of Parties. In case the Parties reach an agreement, the
Management Committee shall convene and adopt such a decision.
Without prejudice to the provisions of Article 10.3 hereof, the decisions of the
Management Committee shall be final and binding on the Parties and shall be
implemented with due diligence by Operator.
4.3 Meetings
4.3.1 The Management Committee shall meet at least twice per Calendar Year upon a
call by (he chairman giving not less than twenty (20) days’ notice to the other
members, or shorter notice in a case requiring urgent action. Such call shall specify
the proposed time, place and agenda of the meeting.
Any member of the Management Committee may request an extraordinary meeting
by notice to the chairman, specifying the agenda and the time of the meeting. The
chairman shall, after consultation with the other members of the Management
Committee, call for the extraordinary meeting observing the requirements for
calling a meeting set forth above unless waived by unanimous agreement of all
members.
All meetings of the Management Committee shall require the presence of all
members in person or through a proxy. Any and all costs related to the
Management Committee meetings shall be charged to the Operator.
4.3.2 The Operator shall be generally responsible, in consultation with the chairman of
the Management Committee, for preparation of the agenda and supporting
documents for each meeting of the Management Committee and for preparing and
keeping minutes of the meetings and decisions. Copies of such minutes shall be
forwarded to each Party.
it Area 47
4.3.3 Observers from each Parly may be invited to attend the meetings of the
Management Committee in a non-voting capacity.
4.3.4 The Parties shall have the right to inspect the records of the Management
Committee at any time.
4.4 Procedures
The Management Committee shall adopt such procedures as it deems appropriate
regarding the conduct of its meetings and the fonn of its decisions.
ARTICLE 5
OPERATOR
5.1 Operator during Exploration Period
5.1.1 Verenex is hereby appointed and agrees to serve as Operator on behalf ofthe Parties
with responsibility for carrying out Exploration and Appraisal Operations and
Abandonment related to such operations in accordance with the terms of this
Agreement under the control and supervision ofthe Management Committee. In its
capacity as Operator, Verenex shall not enjoy any profit or suffer any loss, except as
provided in Article 5.9 hereof.
5.1.2 In the event that Verenex in its capacity as Operator commits a material breach of its
duties as Operator under this Agreement during the Exploration Period (including,
without limitation, its duty to implement decisions of the Management Committee)
and fails to remedy such breach within ninety (90) days from receipt of a notice
from First Party detailing such breach, then First Party may remove the Operator
and appoint another operator to carry out Petroleum Operations under this
Agreement upon written notice to Second Party. In such case the replacement
Operator may be one of the other companies comprising Second Party, subject to
First Party approval.
5.2 Operator during Exploitation Period
5.2.1 After the first declaration of a Commercial Discovery by the Management
Committee, the Parties shall enter into a shareholders agreement substantially in the
form attached as Exhibit “G” hereto and fonn a Joint Operating Company ("JOC")
to be established in a jurisdiction to be agreed upon. The JOC shall act as Operator
for the Development Operations, Exploitation Operations and Abandonment for
■?
12 Area 47
A
and on behalf of the Parties according to an operating agreement substantially in the
form attached as Exhibit “H” hereto. The JOC shall be managed by an Operator's
Management Committee which will be entrusted with the management of the
affairs and the running of the day-to-day business of the JOC under the control and
supervision of the Management Committee. The organisation and functional
divisions of the JOC shall be agreed upon by the Parties. Each member of the
Operator’s Management Committee shall be responsible for a functional division or
more as may be agreed upon by the Parties.
Unless the Parties otherwise agree, or a substitute Operator has been appointed
under Article 5.1.2, Verenex shall continue to act as Operator for all parts of the
Contract Area which remain outside the Exploitation Area(s).
5.2.2 The Operator's Management Committee shall be composed of three (3) members,
two (2), including the chairman, to be appointed by First Party and one (1) to be
appointed by Second Party. The members of the Operator's Management
Committee may not be at the same time members of the Management Committee.
5.2.3 Any meeting of the Operator's Management Committee shall require the presence
of all members in person or through a proxy. Decisions of the Operator's
Management Committee shall be made by simple majority vote of its members.
5.2.4 The Operator's Management Committee shall adopt such procedures as it deems
appropriate regarding the conduct of its meetings and the form of its decisions and
shall keep records containing minutes of its meetings clearly stating the resolutions
and decisions adopted and the manner of the voting.
5.3 Removal of JOC
Notwithstanding the foregoing, First Party may, if warranted by general
circumstances such as regional or national planning or restructuring of petroleum
activities, decide to remove the JOC and replace it with any other related entity to
act as Operator to carry out Petroleum Operations hereunder.
5.4 Second Party rights
The removal of the Operator for all or part of the Contract Area pursuant to Article
5.1.2 or Article 5.3 shall not in any way affect the rights or obligations of Verenex
in its capacity as a company comprising Second Party under this Agreement.
13 Area 47
5.5 Obligations of Operator
Throughout the term of this Agreement, Operator shall conduct the Petroleum
Operations diligently and continuously and shall be governed in accordance with
the applicable provisions of the Petroleum Law and all other applicable laws and
regulations of the GSPLAJ, in particular laws and regulations concerning the
protection of health, safety and environment.
In addition to all other obligations of Operator set forth elsewhere in this
Agreement, Operator shall have the following obligations:
(a) to conduct Petroleum Operations in the Contract Area in a manner consistent
with Good Oilfield Practices;
(b) to purchase or lease all material, equipment, machinery, articles and supplies
required to be purchased or leased pursuant to the Work Program, subject to
the prior consent of the Management Committee in case the aggregate value
of the purchase or lease contract exceeds the amount of
(c) to prepare and submit Work Programs to the Management Committee and to
implement the Work Programs adopted by the Management Committee, by
appropriate scientific methods and in the most efficient and economic
manner;
(d) to keep the Parties informed of the course of all Petroleum Operations under
this Agreement and to provide the Parties with progress reports on the
Petroleum Operations for each Calendar Quarter;
(e) to conduct an assessment of the impact of each planned Petroleum Operations
on the environment in the relevant part of the Contract Area and submit to the
Management Committee prior to the commencement of such Petroleum
Operations a detailed assessment report containing the measures required to
be taken to ensure that the conduct of the Petroleum Operations does not
cause damage to the environment;
(f) to permit representatives of the Parties to inspect at all reasonable times the
conduct of Petroleum Operations under this Agreement;
(g) to maintain in GSPLAJ full original records of all technical operations under
•a this Agreement and to submit to the Parties, in a format and media as may be
'.3 required by them, copies of all original geological, geophysical, cuttings,
•s?
4
cores, magnetic tapes, drilling reports, fluid samples, well production data
and such other data and reports as it may compile or obtain during the term of
this Agreement;
(h) to keep the accounts of the Petroleum Operations hereunder in Libyan Dinars
and in U.S. Dollars and in such manner as to present a fair, clear and accurate
record of the Petroleum Operations Expenditures;
(i) to properly use Petroleum produced from the Contract Area for Petroleum
Operations; and
(j) to procure and maintain insurance satisfactory to the Management
Committee, including, without limitation, insurance against loss or damage
resulting from blowouts.
5.6 Contractors
Operator may engage contractors to carry out any part of the Petroleum Operations
authorized under this Agreement; provided, however, that
(a) Operator has obtained the approval of the Management Committee for
standard terms and conditions of contracting;
(b) Operator has obtained the specific prior written consent of the Management
Committee in any case where the total contract price for the Petroleum
Operations to be carried out by a contractor exceeds
and
(c) Operator shall at all time use Libyan contractors, provided that they are
competitive in terms of performance, price and availability.
5.7 Libyan Personnel and Training
5.7.1 Operator shall hire Libyan nationals to carry out Petroleum Operations in the
Contract Area. Except that in cases where specialized technical personnel or key
management positions are required and not available among Libyan personnel,
Operator may hire non-Libyan nationals to carry out such Petroleum Operations.
5.7.2 Operator shall prepare and submit to the Management Committee for approval an
annual training program. The objective of which is to enable Libyan personnel to
fill posts of higher responsibility and to replace any non-Libyan personnel in the
areas of specialization for which such non-Libyan personnel were hired, The annual
15 Area 47
budget allocated for such training program shall be sufficient to cover all costs
associated with t*lc training per Calendar Year
during the Exploration Period and shall not be less the
manpower cost during each year of the Exploitation Period. For the purpose of this
Article, manpower costs means the total direct and indirect costs associated with
the Operator’s employees.
5.8 Priority to Local Work
Operator shall at all times give priority for use of local supplies, equipment and
services, provided that they are competitive in terms of performance, price and
availability.
5.9 Liability
Operator shall not be liable to the Parties for loss, damages or claims of any kind
except in the event of gross negligence or wilful misconduct, provided that in no
event shall Operator be liable for any indirect or consequential loss or damage.
ARTICLE 6
COMMENCEMENT OF PETROLEUM OPERATIONS
Operator, shall commence Exploration Operations hereunder not later than six (6) months
from the Effective Date.
ARTICLE 7
WORK PROGRAMS AND BUDGETS
7.1 Preparation by Operator and Approval by Management Committee
As soon as possible after the Effective Date as regards the remaining portion of the
relevant Calendar Year and, thereafter, at least two (2) months prior to the
beginning of each succeeding Calendar Year, Operator shall prepare and submit to
the Management Committee for approval a Work Program and Budget for the
Contract Area and a tentative Work Program and Budget for the ensuing two (2)
Calendar Years during the Exploration Period and the ensuing four (4) Calendar
Years during the Exploitation Period, setting forth the Petroleum Operations which
Operator plans to carry out during such Calendar Years. The Management
Committee may make such modifications in each such Work Program or Budget as
it deems appropriate, and shall notify the Operator and the Parties of each Work %
Program and Budget as so modified and approved.
7.2 Expenditures by Operator
Operator shall carry out each Work Program approved by the Management
Committee within the limits of the Budget approved therefor and shall not
undertake any operations not included in an approved Work Program or make any
expenditures not budgeted in an approved Budget, except as follows:
(a) Operator is authorized to make such excess expenditures, provided, however,
that the aggregate amount of such excess expenditures shall not exceed i
in any Calendar Year; and provided, further, that
such excess expenditures shall be reported promptly by Operator to the
Management Committee for approval.
(b) Operator is authorized to make expenditures for Petroleum Operations not
included in an approved Work Program and not provided for in an approved
Budget, up to but not exceeding
however, that such expenditures sKal
reported promptly to the Management Committee by Operator.
(c) In case of emergency, Operator may make such immediate expenditures as it
deems necessary for the protection of life, environment and property. Such
emergency expenditures shall be reported promptly to the Management
Committee by Operator and shall be considered as legitimate costs as if they
had been approved by the Management Committee.
ARTICLE 8
SECOND PARTY'S MINIMUM EXPLORATION COMMITMENT
Second Party undertakes, as a minimum exploration commitment, to complete the
Exploration Program in accordance with Good Oil Field Practices. In the event that
Second Party has not completed the Exploration Program by the earlier of (i) the
end of the Exploration Period or (ii) the date of any temiination of this Agreement,
then Second Party shall pay to First Party, not later than thirty (30) days after such
17 Area 47
(a) the number of kilometres of
two dimensional (2D) seismic survey not completed; and
the number of square
kilometres of three dimensional (3D) seismic survey not completed; and
times the number of wells not
drilled.
If Second Party fails to pay, when due, any amount owed to First Party under this
Article 8, then (in addition to all other rights, powers and remedies provided to First
Party hereunder or otherwise) interest shall accrue on such unpaid amount at the
rate annum, payable on demand.
ARTICLE 9
APPRAISAL
Appraisal Operations and Preliminary Appraisal Report by Operator
Not later thanjttMpg^gttWpfter making a Discovery of Crude Oil, Operator
shall submit to the ManagemenfCommittee a preliminary report containing:
a) the results of the drilling of the Discovery well; and
b) a proposed appraisal program, together with the time frame for the conduct
thereof.
As soon as possible after the approval of the appraisal program, Operator shall
commence the corresponding Appraisal Operations.
Final Appraisal Report
fter the completion of the appraisal program, Operator shall
prepare and submit a final appraisal report to the Management Committee
containing:
(a) the relevant technical data pertaining to the Field where the Discovery was
made, including, but not limited to: topographical, geological, geophysical and
soil test information; the thickness of the producing zones; the depths of the
different gas and/or fluids contacts; the petrophysical properties of reservoir
rocks; a PVT data analysis of reservoir and separator fluids and gases; the
characteristics and relevant analysis of the Petroleum discovered; and depth,
pressure and other characteristics of the reservoir and the fluids contained
therein;
(b) an estimate of the original hydrocarbons in place and the ultimate recovery
from the reservoir;
(c) the forecasted MER of the individual wells and the reservoir;
(d) a feasibility study for the development of the Field where the Discovery was
made, which shall include an economic analysis based (generally, among other
factors) on reasonable forecasts, year-by-year, of production profile,
investments required, revenues and operating costs, a gas utilization scheme for
the Associated Gas which includes i) use in Petroleum Operations, ii)
commercialisation of the Excess Associated Gas; and iii) storage or disposal of
the Excess Associated Gas according to the laws and regulations;
(e) any opinions expressed by third party experts entrusted to perform operational,
technical and economic studies relating to the Discovery; and
(f) any other relevant facts relied upon by the Operator and conclusions drawn
therefrom.
ARTICLE 10
DECLARATION OF COMMERCIAL DISCOVERY OF CRUDE OIL
AND SOLE RISK
10.1 Review by Management Committee and Declaration of Commercial Discovery.
Pne Management Committee shall examine the final appraisal report provided for
in Article 9.2 and any other data it may obtain within a hundred and eighty (180)
days and extensions the Management Committee may agree upon to determine
whether to proceed with the development of the Field where a Discovery has
occurred. The Management Committee shall be entitled to obtain opinions, reports
and studies, including a feasibility study, from independent third parties. If the
results of the final appraisal report or the independent third parties opinion shows
that:
19 Area 47
✓
i) the proceeds from the sales of the quantities of Crude Oil forecasted to be
produced are sufficient to recover the Petroleum Operations Expenditures,
royalty, taxes and allow for a reasonable return on investment; and
ii) the gas utilization scheme is in conformity with the laws and regulations,
then such Discovery shall be considered commercial. In such an event, unless the
Second Party decides to withdraw from the Agreement with respect to such
Discovery, the Management Committee shall declare a Commercial Discovery and
adopt a Development Plan with respect to such Field, and immediately notify the
Parties thereof. The JOC shall implement the approved Development Plan without
unreasonable delay.
10.2 Subsequent Development Plan
The Management Committee may from time to time adopt subsequent
Development Plan(s) with respect to a Commercial Discovery. The Operator shall
prepare and submit to the Management Committee a subsequent Development Plan
which shall be sufficiently detailed and comprehensive in scope to provide a basis
for calculating Development Expenditures and determining Work Program and
Budget requirements. The subsequent Development Plan should demonstrate that
the proceeds from the sales of the quantities of Crude Oil forecasted to be produced
is sufficient to recover the Petroleum Operations Expenditures, royalty and, tax and
allow for a reasonable return on investment. If such subsequent Development Plan
is approved by the Management Committee, Operator shall implement such
subsequent Development Plan without unreasonable delay.
10.3 Sole Risk
10.3.1 Sole Risk by First Party
If the Management Committee members representing Second Party vote against
any subsequent Development Plan for a Commercial Discovery presented by the
Operator to enhance or maintain reservoir performance and/or reserves, First Party
shall have the right, upon thirty (30) days notice served after the date of the
Management Committee meeting in which the Second Party voted against the
adoption of such subsequent Development Plan, to begin implementing, through
Operator the said subsequent Development Plan at its sole cost and for its sole
benefit. As of the date of start up of regular production from such subsequent
Development Plan as notified by First Party, Second Party shall:
a
a) cease to have any interest or receive any benefit from the respective Field;
20 Area 47
b) cease to participate in any Management Committee or Operator Management
Committee meetings with respect to such Field; and
c) Continue to receive ail technical and financial reports produced by the Operator
for a period of time not exceeding one (1) year as stipulated in Article 10.3.2.
10.3.2 Rejoining by Second Party
Second Party shall have the option to rejoin in such subsequent Development Plan
to be exercised not later than one (1) year from the date of start up of regular
production from such subsequent Development Plan. The rejoining shall become
effective upon, a) giving notice to that effect to First Party, and b) payment to First
Party of an amount equal to Second Party’s share of Development Expenditures
(determined as per the terms of this Agreement) related to such subsequent
Development Plan plus interest to be calculated at the rate of Libor plus five (5%)
percentage points. It is understood that such interest shall not be considered as
Petroleum Operations Expenditures for Second Party and shall not be recovered
under this Agreement. Second Party shall be deemed to have forfeited its share of
production for the period prior to its rejoining becoming effective.
ARTICLE 11
PRODUCTION PROGRAMS - LIFTING- MAKE-UP OF UNDERLIFTINGS
11.1 Production Programs
Six (6) months prior to the first Commercial Production Start Date of Crude Oil and
Liquid Hydrocarbon By-Products, Operator shall present to the Management
Committee for its consideration and approval a production program stating the
quantities of Crude Oil and Liquid Hydrocarbon By-Products which Operator
estimates will be produced and delivered to the Parties during the period from the
anticipated Commercial Production Start Date to the end of the relevant Calendar
Year. Thereafter and so long as the Agreement remains in effect, Operator shall,
not later than six (6) months before the end of each Calendar Year, present a similar
production program for the following year to the Management Committee for its
consideration and approval. Each production program shall be suitably detailed and
divided into such periods as may be requested by the Management Committee. The
Management Committee shall promptly inform the Parties of each approved
production program.
*
&
#
11.2 Lifting
First Party and each company comprising Second Party shall have the right and
obligation to take in kind and separately sell or otherwise dispose of its total share
of Crude Oil and Liquid Hydrocarbon By-Products in accordance with Article 12.
After a Commercial Discovery has been declared by the Management Committee,
the Parties and the Operator shall meet as soon as practicable to agree upon and
enter into a separate detailed agreement governing the nomination of tankers and
lifting of Crude Oil and Liquid Hydrocarbon By-Products produced hereunder.
Such agreement shall include, inter alia, the following:
(a) an obligation of First Party and each company comprising Second Party to lift
its share of Crude Oil and Liquid Hydrocarbon By-Products produced
hereunder regularly throughout each Calendar Year;
(b) notification procedure by Operator to First Party and each company comprising
Second Party concerning availability of Crude Oil and Liquid Hydrocarbon By-
Products for lifting by each Party during each lifting period;
(c) procedures for nomination of tankers by First Party and each company
comprising Second Party for the lifting of all or part of its share of the available
Crude Oil and Liquid Hydrocarbon By-Products in each lifting period; and
(d) the right of First Party and each company comprising Second Party to lift any
available Crude Oil and Liquid Hydrocarbon By-Products not scheduled for
lifting and/or not lifted by the other Party during each lifting period, subject to
Article 11.3 hereof.
11.3 Underlifting
In tire event that during any given Calendar Quarter the quantity of Crude Oil and
Liquid Hydrocarbon By-Products offtaken by either Party is less than the quantity
of Crude Oil and Liquid Hydrocarbon By-Products such Party (referred to in this
Article 11.3 as the "Underlifting Party") is entitled to offtake under Article 12 (the
difference between such quantities being referred to in this Article 11.3 as the
"Shortfall1’) and the Shortfall exceeds five hundred thousand (500,000) Barrels,
then the Underlifting Party shall make up the Shortfall by offtaking over and above
its share of Crude Oil and Liquid Hydrocarbon By-Products produced, ten percent
(10%) of the Shortfall per month during each of the succeeding ten (10) months out
of the other Party's share of Crude Oil and Liquid Hydrocarbon By-Products
produced. Provided, however, that such other Party shall not, in any month, suffer
under this provision a reduction of its share of Crude Oil and Liquid Hydrocarbon
22 Area 47
By-Products produced in such month, exceeding twenty percent (20%) of such
share. Any quantity not made up pursuant to the above provisions of this Article
11.3 shall be treated in a manner to be agreed upon by the Parties.
ARTICLE 12
SHARING PETROLEUM PRODUCTION
12.1 Allocation of Crude Oil and Liquid Hydrocarbon By-Products and Natural Gas
For any Calendar Year or part thereof; Crude Oil, Liquid Hydrocarbon By-Products
and Natural Gas produced under this Agreement (“Production”) shall be allocated
to the Parties as follows:
12.1.1 First Party Allocation
100% of Production less Second Party allocation according to Article 12.1.2 below
shall be allocated to First Party.
12.1.2 Second Parly Allocation
a) thirteen point seven percent (13.7%) of Production shall be allocated to Second
Party for cost recovery until the cumulative value (determined in accordance
with Article 12.3) of such allocation equals the cumulative Petroleum
Operations Expenditures incurred by Second Party including its share of the
Petroleum Operations Expenditures of such Calendar Year. Thereafter any
excess of such allocation to Second Party, hereinafter referred to as "Excess
Petroleum", shall be allocated as provided in Article 12.1.2(b).
b) Second Party's allocation of Excess Petroleum shall be determined by applying
the following formula:
“Base Factor” multiplied by “A Factor” multiplied by “Excess Petroleum”
where
(i) the Base Factor at the indicated levels of the average total daily production of
Crude Oil and Liquid Hydrocarbon by-Product, in Barrels, for the relevant
Calendar Year shall be:
23 Area 47
G
&
i
Portion of average total daily production Base Factor f
(Barrels per day)
The Base Factor for Natural Gas shall always be equal to one (1).
(ii) the A Factor at the indicated ratios of the cumulative value (determined in
accordance with Article 12.3) of Production received by Second Party over the
cumulative Petroleum Operations Expenditures incurred by Second Party shall
be;
Ratio A Factor
less than or equal tojBMP
more than •Pmt less than or equal to
more than|Bphit less than or equal to
more than
For purposes of this Article 12.1.2(b) (ii), the ratio applied to each Calendar
Year shall be the ratio prevailing as of December 31 of the immediately
preceding Calendar Year. Liiii ..............ii i............ ............... mm
c) Allocations made under a) and b) above shall be revised and adjusted each
Calendar Quarter during the current Calendar Year on the basis of the actual
relevant data pertaining to the preceding Calendar Quarter.
12.2 Accounts
Operating Account records shall be maintained in Libyan Dinars and in U.S.
Dollars. For purposes of this Article 12, Petroleum Operations Expenditures
incurred by Second Party shall be determined according to that part of tire
Operating Account records which is maintained in U.S. Dollars and shall refer only
to the actual costs and expenses paid by Second Party (determined on cash rather
than an accrual basis, except for the Abandonment provisions).
24 Area 47
J.
12.3 Valuation
12.3.1 For the purposes of determining the value of Crude Oil received by Second Party,
the monthly weighted arithmetic average of the market price realized by the First
Party on the world market (in arms' length trading between non-Affiliates) for the
same Crude Oil or similar crude shall be applied.
Where the Crude Oil produced from Contract Area is of insufficient quantities and
therefore is blended with other Crude Oil(s) to comprise blended stocks which do
have a market price(s), then such market price(s) of the blended stock shall be
applied.
12.3.2 For the purpose of determining the value of Natural Gas received by Second Party,
the actual selling price according to the gas sales agreement shall be used.
12.3.3 For the purpose of determining the values of the Liquid Hydrocarbon By-Products,
received by Second Party, the valuation shall be in accordance with the following:
(a) Propane shall be valued at the monthly average of high/low spot Prices FOB X-
REF/STOR. W.MED as published in Platt's LPG Gaswire.
(b) Butane shall be valued at the monthly average of high/low spot prices, FOB X-
REF/STOR. W.MED as published in Platt's LPG Gaswire.
(c) C5+ stabilized condensates shall be valued as “Naphta” FOB MED basis Italy
monthly average (Platt's) high/low quotations as published in Platt's European
Marketscan.
12.4 Illustration
For illustrative purposes a sample allocation determined in accordance with this
Article 12 is attached to this Agreement as Exhibit "E" and made a part hereof.
12.5 Taking in Kind
a) First Party and each company comprising Second Party shall be entitled to
take, receive, export and dispose of its respective portion of Production in kind;
provided that, First Party shall have the first right of refusal to purchase all or
part of the Second Party’s share of Production under this Agreement which is
traded on the world market, subject to the Parties mutually agreeing in advance
on prices and procedures applicable thereto.
25 Area 47
b) First Party and each company comprising Second Party shall take and receive
its respective share of Production hereunder at the delivery point to the
transportation system or at such other point as the Parties may agree.
12.6 Production Rate
The production rate shall be set by the regulatory body in GSPLAJ. In the event
that the production rate is set below the MER of the individual wells and the
reservoir, any reduction shall be allocated amongst the producing companies then
operating in GSPLAJ prorata according to their respective production rates, and the
Parties shall consider an extension of the term of this Agreement for a reasonable
period of time not to exceed five (5) Contract Years.
ARTICLE 13
NATURAL GAS
13.1 General
The provisions of this Agreement applicable to Crude Oil shall apply “mutatis
mutandis” to Natural Gas unless otherwise specified herein.
13.2 Excess Associated Gas
13.2.1 If the proposed Development Plan submitted to the Management Committee
provides for the commercialization of Excess Associated Gas, then upon approval
of such Development Plan:
(a) The Parties (as sellers) shall endeavour to conclude with buyers a long-term gas
sales agreement(s) incorporating the principles set forth in Article 13.4.
(b) When such gas sales agreement(s) is concluded, Operator shall commence
implementation of the Development Plan and construct the necessary facilities,
such as, but not limited to, the gathering, treating, compressing, transporting
and processing facilities required for the production and delivery to the delivery
point of Excess Associated Gas as specified in the Development Plan or as may
be otherwise agreed to in the gas sales agreement(s).
13.2.2 If the Management Committee does not declare a Commercial Discovery for a
Discover)' of Crude Oil containing Excess Associated Gas due to lack of a gas
utilization scheme, then First Party shall have the option to take the Excess
Associated Gas, free of charge, at the delivery point which is immediately after the
26 Area 47
gas oil separation plant(s). If the Management Committee then declares a
Commercial Discovery: a) Operator shall operate the separation facilities which
will permit the delivery as aforesaid; b) Costs of such operation shall be considered
Exploitation Operations Expenditures; and c) First Party shall be responsible for the
gathering at the delivery point specified in this Article 13.2.2, compressing and
transporting of said Excess Associated Gas and shall bear all costs related thereto.
Any receipt and disposition of such Excess Associated Gas by First Party shall be
carried out in accordance with Good Oilfield Practices in a maimer which will not
unreasonably interfere with the Petroleum Operations regarding the said
Commercial Discovery.
If First Party does not exercise the aforesaid option, the Parties shall meet to
discuss an appropriate alternative.
13.3 Non-associated Gas
13.3.1 In the event of a Discovery of Non-Associated Gas, Operator shall prepare and
submit to the Management Committee an appraisal program for review and
approval.
13.3.2 If the Management Committee decides not to proceed with Appraisal Operations,
then the Exploration Period shall be extended with respect to such Discovery for a
period of five (5) Contract Years, provided that Second Party shall submit to the
Management Committee a bi-yearly assessment for a gas exploitation scheme.
After such extension, this Agreement shall terminate with respect to such
Discovery unless an appraisal program is approved by the Management
Committee.
13.3.3 If the Management Committee decides to proceed with Appraisal Operations,
Operator shall without delay implement the appraisal program as approved by the
Management Committee and prepare and submit to the Management Committee
the final appraisal report according to Article 9.2, taking into consideration Article
13.4 below.
(a) The Management Committee shall review the proposed Development Plan
according to Article 10.1 and decide whether the development and production
of the Non-associated Gas is feasible.
(b) If the Management Committee decides that development and production of the
Non-associated Gas is not feasible or Second Party decides not to proceed with
the Development Plan, then this Agreement shall terminate with respect to such
Discovery.
(c) If the Management Committee decides that development and production of the
Non-associated Gas is feasible, then it shall declare a Commercial Discovery
and adopt a Development Plan. The Parties shall then execute the gas sales
agreement pursuant to Article 13.4 below. Operator shall not commence
Development Operations under the adopted Development Plan until such time
as a gas sales agreement(s) has been executed.
13.3.4 If Second Party approves a Development Plan for a Discovery of Non-associated
Gas but First Party does not approve such Development Plan, then this Agreement
shall remain in force for the remaining term of this Agreement with respect to the
Exploitation Area as identified in the proposed Development Plan.
13.4 Gas Sales Agreement
In ease of a Discovery of Non-Associated Gas and/or availability of Excess
Associated Gas, the Parties shall negotiate a gas sales agreement with buyer(s).
The disposition of Natural Gas under a long-term gas sales agreement between the
Parties (as sellers) and buyer(s) of such Natural Gas shall, unless otherwise agreed
by the Parties incorporate the following principles:
13.4.1 The Parties (as sellers) shall have the obligation to deliver the Natural Gas to the
delivery point specified in the gas sales agreement, where the Natural Gas shall be
metered.
13.4.2 The commencement of Natural Gas deliveries and the date by which buyer’s
facilities will be ready to accept deliveries of Natural Gas shall be specified in the
gas sales agreement.
13.4.3 Pricing provisions shall be no less favorable than those applicable to gas sales into
the same market and originating from competing sources, including, without
limitation:
(a) base price reflecting the value of competing fuels in the marketplace which
shall be in line with the level prevailing in the region for similar sales, hiking
into account appropriate location differential;
(b) an adjustment formula based on acceptable indicators of competing energy
fuels in the market place and/or other appropriate indices such as inflation;
28 Area 4?
(c) an acceptable combination of a floor price and a “Take-or-Pay” commitment V
from buyer so as to ensure the economic viability of the Development Plan;
and
(d) a price revision clause to provide for regular review of the pricing provisions to
ensure that the resulting contractual price remains competitive in the
marketplace.
13.4.4 If the Natural Gas is marketed pursuant to Article 13.5, the ‘Take-or-Pay”
provision shall at least be applicable until the ratio for determining the “A-Factor”
according to Article 12.1.2(b) (ii) ’|p'. f
13.4.5 Payment for Natural Gas shall be made by the buyer(s) at intervals provided for in
the relevant gas sales agreement and shall provide for bank or other appropriate
guarantees of amounts owed to the Parties hereunder.
13.5 Natural Gas for Domestic Use
13.5.1 The Parties agree to give priority to supply the domestic market in GSPLAJ from
all or part of the Natural Gas produced under this Agreement.
13.5.2 The Parties (as sellers) and First Party or another local buyer ("local buyer") shall
proceed in good faith to negotiate a gas sales agreement incorporating the principles
set forth in Article 13.4 and the price shall be stipulated in accordance with Article
13.4.3 lessj
For the purpose of determining the values of fuel oils referred to in the gas sales
agreement for local market, the following shall be used:
(a) low sulphur fuel oil (1% sulphur) shall be valued as cargo CIF MED, basis
Genova-Lavera monthly average (Platt’s) high/low quotations as published in
Platt’s Oilgram;
(b) high sulphur fuel oil (3.5% sulphur) shall be valued as cargo CIF MED, basis
Genova-Lavera monthly average (Platt’s) high/low quotations as published in
Platt’s Oilgram; and
(c) gas oil (0.2% sulphur) shall be valued as cargo CIF MED, basis Genova-
Lavera monthly average (Platt’s) high/low quotations as published in Platt’s
Oilgram.
29 Area 47
If Platt’s as defined in Articles 12.3.3 and 13.5 ceases to be published or
substantially changes the basis for pricing the products referred to in such Articles,
either Party' may request changes of the pricing quotes referred to in such Articles.
Second Party’s share of the Natural Gas sold under the agreement referred to in
Article 13.5.2 shall be paid by the local buyer in U.S. Dollars or other freely
convertible currency or in kind from crude(s) and/or Liquid Hydrocarbon by¬
products.
13.6 Transportation and Processing Agreement
The Parties shall enter into Natural Gas transportation and processing agreements
with the owners of pipelines and, if necessary, processing facilities. First Party shall
warrant that the terms and conditions of such agreement, to the extent such
facilities are owned or controlled by First Party, shall not be less favorable than
those granted to other shippers or users of the processing facilities, if any,
according to the Petroleum Law'.
ARTICLE 14
COSTS AND EXPENSES
14.1 Costs and Expenses of Petroleum Operations
14.1.1 All Exploration and Appraisal Expenditures shall be bome by Second Party.
14.1.2 All costs, expenses and liabilities incurred for Abandonment, Development
Expenditures and Exploitation Capital Expenditures shall be shared between the
Parties, fifty percent (50%) by First Party and fifty percent (50%) by Second Party.
14.1.3 Exploitation Operations Expenditures shall be shared between the Parties, eighty
six point three percent (86.3%) by First Party and thirteen point seven percent
(13.7%) by Second Party.
14.1.4 Costs, expenses and liabilities incurred for Petroleum Operations, other than costs,
expenses and liabilities of Exploration and Appraisal Expenditures, Development
Expenditures, Exploitation Capital Expenditures and Exploitation Operations
Expenditures, shall be shared between the Parties eighty six point three percent
(86.3%) by First Party and thirteen point seven percent (13.7%) by Second Party.
30 Area 4?
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14.2 Determination of Costs and Apportionment by Management Committee
Costs, expenses and liabilities incurred for Petroleum Operations shall be
determined in accordance with the Accounting Procedure attached hereto as Exhibit
"C". Costs, expenses and liabilities incurred for Petroleum Operations but not
directly attributable to Abandonment, Exploration Operations, Appraisal
Operations or Development Operations, shall be apportioned by the Management
Committee among the Fields and/or among the various operations and/or classes of
costs in accordance with generally accepted accounting principles.
14.3 Head Office Overhead Charges
Head office overhead may be charged by the Second Party to the Operator;
provided, however, that:
(i) the allocation method for such overhead charges is the same as that used for the
parent company’s global operations and such allocation method is certified by
the parent company's external auditor to be accurate and according to generally
accepted accounting principles; and
(ii) such charges do not in any Calendar Year exceed the lesser of a)<
JMfeof the Petroleum Operations Expenditures of the Operator for such
Calendar Year or b) the sum of j
14.4 Calls for Funds
After the declaration of a Commercial Discovery, Operator shall be entitled to
make to First Party and each company comprising Second Party calls for the funds
{“Cash Calls”) to be contributed by such Party according to the Budget approved
by the Management Committee and pursuant to the provisions of this Article 14,
and First Party and each company comprising Second Parly shall pay to Operator
its share of the funds called as specified in the Accounting Procedure attached
hereto as Exhibit “C”.
14.5 Default in Contribution of Funds
If First Party or any company comprising Second Party fails to pay its share of any
Cash Call, when due, such Party shall be in default and Operator shall notify the
Parties thereof. The non-defaulting Party(ies) shall have the right to advance to
Operator any and all amounts the defaulting Party has not paid. Any such advance
shall be considered as a loan by the non-defaulting Party(ies) to the defaulting Party
and shall bear interest at the rate per annum equal to
31 Area 47
'per annum from the date such advance is received by the Operator
in addition to any actual handling costs.
In the event that the defaulting Party does not repay all such amounts to the
non-defaulting Party(ies), together with interest accrued thereon, within ninety (90)
days from the date on which such amounts were advanced by the non-defaulting
Party(ies), the non-defaulting Party(ies) shall have the right to offtake and own the
defaulting Party's share of production from the Contract Area up to the time when
such offtaken production, valued at the market price prevailing on the date of lifting
by the non-defaulting Party(ies), equals the aggregate of such amounts, together
with interest accrued thereon.
ARTICLE 15
BONUSES AND MANNER OF PAYMENTS
15.1 Bonuses
15.1.1 Signature Bonus
(a) Second Party shall pay to First Party, within forty five (45) days after the
Effective Date of this Agreement, as a signature bonus, a lump sum amount of
(b) Such signature bonus shall not be considered as Petroleum Operation
Expenditures and shall not be recovered under this Agreement.
15.1.2 Production Bonus
Second Party shall pay to First Party a production bonus as follows:
a) an amount of 'oe paid in respect of
each Commercial Discovery within sixty (60) days after Commercial Production
Start Date of such Commercial Discovery; and
cumulative Barrels of oil
equivalent from each Commercial Discoveiy and thereafter, an amount oftf^pR
achieving each additional thirty
million (30,000,000) barrels of oil equivalent.
32 Area 47
All payments under this Article 15.1.2b) shall be made within forty five (45) days
alter the date of achieving the relevant cumulative production.
The production bonus shall not be considered as Petroleum Operation Expenditures
and shall not be recovered under this Agreement.
15.2 Manner of Payments to First Party
All payments due to First Party under this Agreement shall be made in U.S. Dollars
or any freely convertible currency as requested by First Party or in Libyan Dinars
converted at the official buying rate of exchange for such currency issued by the
Central Bank of GSPLAJ on the day on which such payments are paid. Such
payments shall be made without setoff, counterclaim, or deduction of any nature.
ARTICLE 16
TITLE I'd PURCHASED ITEMS
Material, equipment, machinery, articles and supplies ("Material") purchased by
Operator during the Exploration Period shall become the property of First Party
when first actually used in Petroleum Operations. Operator shall have the right to
use such Material for Petroleum Operations under this Agreement free of charge.
Material not used in Petroleum Operations by the end of the Exploration Period
shall remain the property of the Second Party and shall only be charged as
Petroleum Operations Expenditures when used during Exploitation Period, subject
to Article 3.2 of Exhibit "C".
Material purchased by Operator during the Exploitation Period shall become the
property of First Party (a) immediately after purchase if purchased within GSPLAJ
and (b) when landed at Libyan ports of import if purchased outside GSPLAJ.
Income from the sale or use by a third party of Material which becomes the
property of First Party according to this Article, shall belong exclusively to First
Party.
ARTICLE 17
TECHNICAL ASSISTANCE ANT) SERVICES
BY THE PARTIES AND AFFILIATES
First Party and each company comprising Second Party shall furnish, and shall
cause their Affiliates to furnish, all assistance, including technical assistance,
personnel (subject to the provisions of Articles 5.6 and 5.7 hereof), training and
services, as may be requested by the Operator in connection with Petroleum
Operations hereunder. All technical assistance and service contracts or
arrangements of any nature shall be subject to the approval of the Management
Committee.
ARTICLE 18
DATA
18.1 Use of Data
Second Party shall have the right to use and have access to all geological,
geophysical, drilling, well production, well location maps and other information
held by First Party related to the Contract Area, free of charge, and areas adjacent
to the Contract Area, in consideration of the payment of fees as declared by NOC
from time to time.
18.2 Title to Data
First Party shall have title to all original data resulting from Petroleum Operations
under this Agreement, including, but not limited to: geological, geophysical,
petrophysical and engineering data; well logs and completion status reports; and
any other data Operator may compile or obtain during the term of this Agreement.
Second Party is entitled to retain and use a copy of all such data, subject to Article
18.3.
18.3 Confidentiality
Second Party acknowledges the proprietary rights of First Party in all data referred
to in this Article 18 and agrees to treat all such data as confidential.
Each company comprising Second Party may disclose any such information to its
employees to the extent required for efficient conduct of Petroleum Operations,
provided such individuals have signed an undertaking relating to the confidentiality
of the information as part of their employment contract or to Affiliates and
34 Aren 47
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consultants, or to bona fide prospective assignees of rights under this Agreement or
to banks or financial institutions from which finance is sought, provided that such
company comprising Second Part)' obtains from such entities prior to disclosure a
written confidentiality undertaking. In the case of disclosure to prospective
assignees, any disclosure of such information shall require the prior written consent
of First Party, which consent shall not be unreasonably withheld.
Each company comprising Second Party may disclose information as and to the
extent required by a regulatory or judicial authority having proper jurisdiction over
such company comprising Second Party, provided that First Part)' is notified of
such disclosure and the information disclosed.
Each company’s comprising Second Party obligation of confidentiality under this
Article 18.3 shall be of a continuing nature and shall not be canceled by the
expiration, suspension or termination of this Agreement.
ARTICLE 19
RENTS. ROYALTY AND INCOME TAXES
19.1 Royalties and Taxes
19.1.1 Each company comprising Second Party shall be subject to royalty and corporate
income tax imposed by the Petroleum Law under this Agreement.
19.1.2 First Party agrees to meet and discharge any royalty and corporate income tax
obligations relating to each company’s comprising Second Part)' share of
production as imposed by the Petroleum Law.
Each company comprising Second Party shall prepare die corporate income tax
declaration as required by the Petroleum Law' and submit same to First Party for
review and audit one month prior to the due date for submitting the declaration to
the relevant tax authority. First Party shall notify such company comprising Second
Party of any comments thereon, in which event such company comprising Second
Party shall prepare a revised corporate income tax declaration incorporating such
comments and submit same to First Part)' prior to the due date mentioned above.
First Party shall process the tax declaration and obtain a tax certificate from the
competent tax authority in the name of each company comprising Second Party,
substantially in the form attached hereof as Exhibit “F”. Such certificate shall
promptly be delivered to each company comprising Second Party
35 Area 4?
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For the purpose of corporate income tax and royalty calculations, the official
selling price of GSPLAJ shall be used for calculating the revenue derived from
disposal of Crude Oil, the actual selling price according to the gas sales
agreement(s) shall be used for calculating the revenue derived from disposal of the
Natural Gas and for calculating the revenue derived from disposal of Liquid !
Hydrocarbon by-Products, the prices referred to in Article 12.3.3 shall be used.
t
19,2 Customs Duties
Second Party shall be exempt from customs duties according to the Petroleum Law.
19.3 Rentals and Fees
Second Party shall be exempt from payment of rentals and fees with respect to the
Contract Area.
19.4 Other Income
For purposes of determining Libyan taxes and other Libyan Governmental charges
due from Second Party, Second Party shall not be allowed to charge costs incurred
under this Agreement against income realized under other agreements; nor shall
income under this Agreement be consolidated with income from other activities.
ARTICLE 20
BOOKS. ACCOUNTS AND AUDITS
20.1 Operator's Responsibility for Books and Accounts
Operator shall be responsible for keeping complete books and accounts reflecting
costs, expenses and liabilities of Petroleum Operations under this Agreement, n
consistent with Good Oilfield Practices as described in the Accounting Procedure
attached hereto as Exhibit "C".
20.2 Audits i
Each Party shall have the right to inspect and audit, at its own cost, Operator’s
books and accounts relating to this Agreement for any Calendar Year within the
period of three (3) years following the date of submission of the annual account
related to such Calendar Year. Any such audit shall be completed within twelve
(12) months from its commencement, and any exceptions shall be made in writing m
E3
30 Area 47
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within ninety (90) days following the end of such audit. Failure to give such written
exceptions within such time shall establish the correctness of Operator’s books and
accounts, except in the case of manifest error.
ARTICLE 21
GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the laws
and regulations of GSPLAJ, including, without limitation, the Petroleum Law.
ARTICLE 22
FORCE MAJEURB
22.1 Excuse of Obligations
Any failure or delay on the part of a Party in the performance of its obligations or
duties hereunder shall be excused to the extent attributable to force majeure. Force
majeure shall include, without limitation: Acts of God; insurrection; riots; war; and
any unforeseen circumstances and acts beyond the control of such Party which
render the performance of its obligations impossible.
22.2 Notification
The Party whose ability to perform its obligations is affected by force majeure shall
notify the other Party thereof in writing within thirty (30) days after date of
occurrence of the force majeure event, stating the cause.
22.3 Extension of Term; Termination
If operations are delayed, curtailed or prevented by force majeure, and the time for
carrying out obligations under this Agreement is thereby affected, the term of this
Agreement and all rights and obligations hereunder shall be extended for a period
equal to the period thus involved.
The Parties shall meet as soon as possible after notification of force majeure with a
view to mitigating the effects thereof. Failing to reach an agreeable arrangement,
this Agreement shall terminate if force majeure continues for a period of two (2)
years from the date of notification pursuant to Article 22.2 hereinabove.
37 Area 47
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ARTICLE 23
SETTLEMENT OF DIFFERENCES - ARBITRATION
23.1 Amicable settlement !
The Parties shall make every effort to settle amicably any dispute arising under this
Agreement.
23.2 Arbitration
Any controversy or claim arising out of or relating to this Agreement, or breach
thereof, shall be finally settled by arbitration, in accordance with the Rules of
Arbitration of the International Chamber of Commerce, in Paris, France, in Arabic
or English as the Parties may agree, by three (3) arbitrators. Each Party shall
appoint one arbitrator, and the International Chamber of Commerce shall appoint
the third arbitrator who must be in no way related to either Party and who will be
the Chairman of the arbitration body. The Parties agree that, in the event that an
arbitration is commenced under the Guarantee attached hereto as Exhibit "D"
involving the same subject matter as an arbitration commenced hereunder, the
arbitrations shall be consolidated and treated as one arbitration, with the arbitral
body being the tribunal appointed pursuant to the foregoing provision of this
Article 23.
ARTICLE 24
ASSIGNMENT rn
24.1 Assignment by First Party
First Party may freely assign this Agreement or any of its rights or obligations
hereunder upon written notice to Second Party.
24.2 Assignment by Second Party
Any company comprising Second Party may not assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of First Party.
No assignment by any company comprising Second Party shall be allowed before
Mi.,
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Notwithstanding any assignment by any company comprising Second Party in -ft
accordance with the provisions of this Article 24.2, the assignor shall be jointly and
severally liable with its assignee for all of its obligations hereunder, unles.s the assignee
has provided First Party with a guarantee covering its share of the commitment during
the Exploration Period similar to the guarantee provided by the parent company of the
assignor, or First Party, during the Exploitation Period, has provided a waiver to the
joint liability condition. In the event that the company comprising Second Party
appointed as Operator assigns its interest, it shall continue to act as Operator except to
the extent that a new Operator has been appointed pursuant to Article 5.1 hereof.
ARTICLE 25
TERMINATION
25.1 Right of Termination
First Party shall have the right (in addition to all other rights, powers and remedies
provided to First Party hereunder or otherwise) to tenninate the Agreement upon
thirty (30) days’ notice to Second Party in the event that:
25.1.1 Where any company comprising Second Party:
(a) fails to make any payment (or any part thereof) required to be made by it to
First Party under this Agreement when and as the same shall become due and
payable (whether by acceleration or otherwise);
39 Area 47
(b) is in material breach of any of its other obligations under this Agreement;
In either case, First Party shall give notice to the relevant company comprising
Second Party, specifying the breach, and demanding that the relevant company
comprising Second Party remedy same. If, within ninety (90) days after the receipt
of such notice, the relevant company comprising Second Party does not remedy the
breach or is not in tire process of diligently proceeding to remedy the breach, First
Party may terminate this Agreement in respect to such company comprising Second
Party.
25.1.2 Where any company comprising Second Party and/or its Guarantor under Exhibit
“D” hereto:
(a) shall institute proceedings to be adjudged bankrupt or insolvent, consent to or
suffer the institution of any such proceedings against it, seek or suffer
reorganization under court order, seek the benefit of any law for the relief of
debtors, make an assignment for the benefit of creditors, admit in writing its
inability to pay its debts generally as they become due, or perform any other
generally recognized act of insolvency or bankruptcy, or the general financial
responsibility or condition of any company comprising Second Party or its
Guarantor under Exhibit ’fD” hereto shall otherwise become impaired or
changed so as to affect adversely its ability to perform its respective obligations
under this Agreement or the Guarantee set forth in Exhibit "D" hereto; or
(b) shall without the written consent of First Party (which shall not be
unreasonably withheld), merge into or consolidate with any other entity, or a
controlling voting block of the voting securities or other ownership interest in
any company comprising Second Party or its Guarantor shall be acquired after
the date hereof by one person or entity or by more than one person or entity
acting as a group, or
(c) fail to provide any funds (or any pan thereof) required to be provided by it for
Petroleum Operations under this Agreement when and as the same become due
and payable in accordance with the Accounting Procedure attached hereto as
Exhibit "C", and such default shall continue for a period of six (6) months.
In the event that any company comprising Second Party and/or its Guarantor is
affected by any of the events under (a) and (b) such company comprising Second
Party, and/or its Guarantor shall notify First Party of such an event within thirty
(30) days from its occurrence.
25.1.3 If less than all the companies comprising Second Party are affected by any of the
circumstances described in Articles 25.1.2(a) or 25.1.2(b) or 25.1.2(c) above, then
First Party shall terminate this Agreement only with respect to the affected
company(ies) and the non-affected company(ies) may elect to take over the affected
company(ies) interests and assume all its liabilities and obligations by giving First
Party' notice within sixty (60) days from the date of First Party’s notice of
termination.
25.2 Acceleration
In the event of any termination of this Agreement by First Party pursuant to this
Article 25 or any other provision of this Agreement, all amounts of whatever nature
owed by the affected company(ies) comprising Second Party to First Party under
this Agreement shall become immediately due and payable.
ARTICLE 26
ABANDONMENT
26.1 All costs, expenses and liabilities for Abandonment related to Exploration
Operations and Appraisal Operations shall be considered Exploration and Appraisal
Expenditures.
26.2 Each Party shall bear and finance fifty' percent (50%) of the costs, expenses and
liabilities for Abandonment which may be incurred as a result of Development
Operations and Exploitation Operations.
26.3 Without prejudice to Article 26,8, Abandonment provisions shall be calculated in
accordance with Article 26.6 and shall be included in the Petroleum Operations
Expenditures for each Field in the Contract Area. Second Party’s share of such
Abandonment provisions shall be recovered as per the terms of this Agreement.
26.4 As soon as the ratio indicated in Article 12.1.2 (b) (ii) for the Contract Area equals
or exceeds one (1.0), the Operator shall submit to the Management Committee for
approval, plans and cost estimates for the Abandonment operations for each Field
in the Contract Area. Such cost estimates shall be updated each Calendar Year.
26.5 Once Abandonment cost estimates are approved, Operator shall amend the current
Budget to include an Abandonment provision for each Field for that current
Calendar Year and shall thereafter include in the annual Budget of each Calendar
Year an updated Abandonment provision for each Field.
26.6 Annual Abandonment provisions (“AP”) for each Field shall be determined for
each Calendar Year on the basis of the following formula:
AP = (UE - AA) X PR / RRR
Where:
UE: is the Abandonment cost estimate for the relevant Field as updated for the
current Calendar Year pursuant to Article 26.5.
A A: is the accumulated amounts of the Abandonment provisions budgeted as per
Article 26.5 for the relevant Field for previous years plus any accumulated
interest as per Article 26.7 below.
PR: is the anticipated annual production for the relevant Calendar Year from the
relevant Field.
RRR: is the estimate of remaining recoverable reserves for the remaining term of
this Agreement for the relevant Field.
26.7 Operator shall make a monthly special Cash Call to Second Party only for Second
Party’s share of the Abandonment provisions budgeted for the relevant Calendar
Year. Operator shall deposit such amounts in a special interest bearing bank
account established by First Party and dedicated to fund Abandonment operations
in the Contract Area.
Second Party shall be relieved from any liability related to Abandonment
operations in the Contract Area to the extent of the accumulated amounts paid by
Second Party in the said account.
26.8 If production terminates within the term of this Agreement or both Parties decide to
abandon a Field before the end of the term of this Agreement, Operator shall
proceed with the Abandonment operations and shall make Cash Calls to the First
Party to cover the Abandonment costs. Any un-abandoned fixed assets shall be left
in a safe condition.
Notwithstanding the provisions of Article 26.2, in the event that Second Party’s
share of the actual Abandonment costs exceeds the accumulated Abandonment
provisions paid by it, Second Party shall be liable for and pay its share of the
balance to the Operator.
If, at the end of this Agreement, First Party decides to continue the Petroleum
'1TV "IK Operations, Second Party shall be discharged from any costs of Abandonment
related to future Petroleum Operations, which shall be borne by First Party alone, it fts-
42 Area 4?
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being understood that Second Party shall have no claims with respect to any
Abandonment provisions deposited by it under 26.7. \
First Party shall indemnify and hold Second Party harmless against any claim
relating to such future Petroleum Operations carried, out in the Contract Area.
Provided that Second Party shall indemnify and hold First Party harmless against
any claim arising from previous joint Petroleum Operations to the extent of its
share under the Agreement for a period of time not exceeding fifteen (15) years.
26.9 The provisions of Article 26.8 shall also apply in case of withdrawal by Second
Parly pursuant to Article 3.3.2; in case the sole risk option becomes final and
effective pursuant to Article 10.3; and in case of termination of this Agreement
pursuant to Article 22.3.
ARTICLE 27
MISCELLANEOUS
27.1 Notices
All notices, proposals and other communications to a Party provided for in this
Agreement shall be in writing and shall be deemed to have been properly given and
received when delivered during regular business hours at the office of such Party or
sent by registered mail.
All such notices shall be addressed to:
NATIONAL OIL CORPORATION
Bashir Sadawi Street
P.O. Box 2655
Tripoli, Great Socialist People's Libyan Arab Jamahiriya
ATTN: Secretary of the People’s Committee
Verenex Energy Area 47 Libya Limited
Tripoli, Great Socialist People's Libyan Arab Jamahiriya
ATTN:-
43 Area 47
Medeo International Ventures Limited
Tripoli, Great Socialist People's Libyan Arab Jamahiriya
ATTN:-
First Party and any company comprising Second Party may substitute or change its
address stated above to another address in the Great Socialist People's Libyan Arab
Jamahiriya upon written notice thereof to the other Party(ies).
27.2 No Waiver; Cumulative Remedies
No failure of either Party to exercise, nor any delay in exercising, any right, power
or remedy under this Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
Without prejudice to Article 23 hereof, all rights, powers and remedies provided
hereunder are (whether or not expressly so stated elsewhere in this Agreement with
respect to any particular right, power or remedy) cumulative and not exclusive of
any other rights, powers and remedies provided by law or otherwise.
27.3 Amendments
This Agreement shall not be amended or modified in any respect except by the
mutual consent in writing of the Parties executed and approved in the same manner
as this Agreement.
27.4 Satisfactory Documentation
27.4.1 On or prior to the Signature Date, each company comprising the Second Party shall
furnish to First Party:
(a) a list of those individuals authorized to represent each company comprising
Second Party in its dealings with First Party;
(b) a certificate of the Secretary or other similar officer of each company
comprising Second Party certifying as to the authority and incumbency of each
person named in clause (a) above and the person(s) executing this Agreement
44 Area 47
on behalf of such company comprising Second Party, and a certificate of the
Secretary or other similar officer of the Guarantor under Exhibit "D" hereto
certifying as to the authority and incumbency of the person(s) executing the
Guarantee set forth in said Exhibit "D";
(c) such other documentation, including, without limitation, a special or general
power of attorney empowering the person(s) executing this Agreement on
behalf of each company comprising Second Party and the person(s) executing
the Guarantee set forth in Exhibit "D" hereto on behalf of the Guarantor therein
to act in such capacity, as may reasonably be requested by First Party;
(d) updated copies of the Charter and By-laws of each company comprising Second
Party and of its Guarantor under Exhibit "D" hereto, certified by the respective
Secretary or other similar officer thereof;
(e) an updated balance sheet and income statement of each company comprising
Second Party which participated in winning bid and of its Guarantor under
Exhibit "D" hereto, certified by independent public accountants satisfactory to
First Party.
27,4.2 Each company comprising Second Party shall at all times keep current the
information required to be given to First Party under Article 27.4.1 above, shall
provide First Party with each subsequent balance sheet and income statement of
each company comprising Second Party and of its Guarantor under Exhibit "D”
hereto (certified as above provided), and shall furnish to First Party such other
information and documentation concerning the financial and corporate status of
each company comprising Second Party and said Guarantor as may from time to
time reasonably be requested by First Party.
27.5 Entirety of Agreement
Tills Agreement constitutes the entire agreement of the Parties and supersedes any
and all prior understandings or agreements in respect of the subject matter of this
Agreement.
27.6 No Third Party Beneficiaries
Nothing in this Agreement is intended or shall be construed to confer upon or give
to any person or entity any rights as a third party beneficiary of this Agreement or
any part hereof.
27.7 Conflict in Terms
In the event of a conflict between the terms and conditions of the main Agreement
and its Exhibits, the first shall prevail.
27.8 Language
This Agreement is made in six (6) originals, three (3) in the Arabic language and
three (3) in the English language, all having equal validity.
27.9 Headings
The Article headings used in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose or in any way effect the construction of this Agreement.
27.10 Indemnity
Second Party hereby agrees to indemnify First Party against all claims, losses or
damage caused by or resulting from any operations conducted by it under or in
connection with this Agreement during the Exploration Period (except to the extent
that such claims, losses and damage resulted from an action taken upon written
instruction of First Party), provided that the First Party shall notify and consult with
the Second Party as regards the conduct of any proceedings relating to any such
claim, losses or damage and shall not oppose the joinder of the Second Party as a
third party to any such proceedings.
27.11 Effective Date
This Agreement shall become effective on the Effective Date. First Party shall
notify Second Party of the approval of this Agreement by tire General People's
Committee of GSPLAJ.
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46 Area 47
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IN WITNESS WHEREOF, the Parties have executed this Agreement in Tripoli, Great
Socialist People's Libyan Arab Jamahiriya, on the date first above written.
NATIONAL OIL CORPORATION
Abdulla Salem El Badri Robert Anthony Christensen
Secretary of Management Committee Director
Medco International Ventures Limited
47 Area 47
EXHIBIT "A”
Attached to and made a part of the Exploration and Production Sharing Agreement
between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya
Limited and Medco International Ventures Limited dated the day of Safar,
1373, corresponding to the twelfth day of March, 2005.
“CONTRACT AREA”
j\ ] Area 47
A
National Oil Corporation
Area: 047 Number of Blocks: 4
Open Acreage: 6,182 sq. km
11“ 00 'oc ” E 12“ 00 00" E
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A2 Area 47
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Area: 047 - Description
Block: 1
Starting at the intersection of 31° 00’00” Latitude
and 11° 00' QQ”Longitude
Thence East till 11° 30' G0"Longitude
« North 31° 30' 00”Latitude
«
West 11° 00'00” Longitude
tc South Point of Origin
Excluded Area (NC118)
Starting at the intersection of 31° 00'00” Latitude
and 11° 00' G0”Longitude
Thence East till 11° 30’ 00”Longitude
u North a 31° 25' 00”Latitude
«« West “ 11° 00'00” Longitude
u South Point Of Origin
Block : 2
Starting at the intersection of 31° 00’00” Latitude
and 11° 30' 00”Longitude
Thence East till 12° 00! 00”Longitude
it North “ 31° 30' 00”Latitude
« West “ 11° 30' 00” Longitude
South Point Of Origin
Block: 3
Starting at the intersection of 31° 30'00” Latitude
and 11° 00' OOXongitude
Thence East till 11° 30' 00”Longitude
North “ 32° 00’ 00”Latitude
« “
West 11° 00' 00” Longitude
“ South “ Point Of Origin
A3 Area 47
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Excluding (NC2)
Starting at the intersection of 31° 50'00” Latitude
and 11° 00' 00”Longitude
Thence East till 11° 10’ 00”Longitude
it South «c 31° 45’ 00”Latitude
tc East 44 11° 20’ 00” Longitude
u South il 31° 35' 00”Latitude
It East “ 11° 30’00” Longitude
ct South £1 31° 30’ 00”Latitude
tc West 44 11° 00’00” Longitude
44 North Point of Origin
Block : 4
Starting at the intersection of 31° 30’00” Latitude
and 11° 30’ 00”Longitude
Thence East till 12° 00' 00”Longitude
it North <4 32° 00’ 00”Latitude
44 U
West 11° 30' 00” Longitude
u South u Point of Origin
Excluding (NC143)
Starting at the intersection of 31° 30’00” Latitude
and 11° 50’ 00’Xongitude
Thence East till 12° 00' Q0”Longitude
“ North ci 32° 00’ 00”Latitude
it West cc 11° 50’ 00” Longitude
it South “ Point Of Origin
Excluding (NC2)
Starting at the intersection of 31° 30’00” Latitude j
and 11° 30’ OO’Xongitude f
Thence East till 11° 40’00”Longitude :
£< North 44 31° 35’ 00”Latitude
£4 West 44 11° 30’ 00” Longitude
44 South 44 Point of Origin. ?
A4 Area 47
EXHIBIT "B
Attached to and made a part of the Exploration and Production Sharing Agreement
between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya
Limited and Medco International Ventures Limited dated the_day of Safar,
1373, corresponding to the twelfth day of March, 2005.
EXPLORATION PROGRAM
During the Exploration Period, Second Party shall, as a minimum, carry out
the following Exploration Program with respect to the entire Contract Area:
1. conduct such number of seismic crew-months as may be necessary to survey
one thousand (1000) kilometres of two dimensional (2D) seismic lines; and
2. conduct such number of seismic crew-months as may be necessary to survey two
hundred square (200) kilometres of three dimensional (3D) seismic lines; and
3. conduct such number of rig-months as may be necessary to complete the
drilling of three (3) New-Field Wildcat Well.
EXHIBIT "C
Attached to and made a part of the Exploration and Production Sharing Agreement
between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya
Limited and Medco International Ventures Limited dated the__day of Safar,
1373, corresponding to the twelfth day of March, 2005.
ACCOUNTING PROCEDURE
1. General Provisions
1.1 Definitions
All terms used in this Accounting Procedure and defined in Article 1 of the
Agreement shall have herein the meaning ascribed to them in said Article 1. In
addition, the following terms shall have the following meaning:
(a) “Advance” shall mean payment of cash required to be made by the
Parties pursuant to a Cash Call.
(b) “Cash Call” shall mean any request for funds made by the Operator to
the Parties in accordance with the Agreement.
(c) “Controllable Material” shall mean Material which is ordinarily subject
to record, control and inventory in accordance with Good Oilfield
Practice.
(d) “Material” shall mean and include any and ail materials, equipment,
machinery, articles and supplies acquired and held for use in Petroleum
Operations.
(e) “Operating Account” shall mean the account or set of accounts
maintained by Operator to record all charges and credits related to
Petroleum Operations Expenditures.
f
l .2 Purpose and intent of Accounting Procedure
l .2.1 The purpose of this Accounting Procedure is to establish methods and rules of
accounting for the Petroleum Operations under the Agreement.
1.2.2 Any procedure established herein may be modified by mutual agreement of
the Parties.
1.2.3 No charge shall be made to the Operating Account unless from such charge
some direct or indirect benefit is derived for the Petroleum Operations covered
by the Agreement.
1.3 Operating Account Records
1.3.1 Operator shall open and maintain all accounts and records necessary to record
in reasonable detail and in separate accounts the transactions relating to
Exploration Operations, Appraisals, Development Operations and other
Petroleum Operations, in accordance with generally accepted and recognized
accounting principles consistent with Good Oilfield Practice, all in accordance
with and subject to the provisions of the Agreement.
1.3.2 Operator shall maintain appropriate cost control records as required to meet
1 requirements and obligations under fee Agreement.
1.3.3 Production records shall be maintained as may be required by the laws and
regulations of the GSPLAJ, but further supplementary records may also be
maintained.
1.3.4 The Operating Account shall be maintained in Libyan Dinars and in U.S.
Dollars on Operator's premises in the GSPLAJ, using the exchange rate
prevailing on the date of payment.
1.4 Advances and Cash Requirements
1.4.1 After a Commercial Discovery is made, Operator shall be entitled to make to
each Party monthly Cash Calls covering estimated future expenditures in
respect of costs, expenses and liabilities to be incurred for Petroleum
Operations related to such Commercial Discovery, all in accordance with and
subject to the terms of the Agreement. f.r-
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1.4.2 At least thirty (30) days prior to the beginning of each month, Operator shall,
on the basis of the annual Work Program and Budget (broken down by
quarters) approved by the Management Committee pursuant to the Agreement,
transmit to each Party a statement of the aforesaid estimated expenditures to
be made in respect of each of the succeeding three (3) months for Petroleum
Operations other than Exploration Operations and Appraisals.
1.4.3 For purposes of this paragraph, the estimated expenditure to be made in each
month is the estimated cash outlay for such month, including any payment for
liabilities accrued during previous months. The estimate for the first such
month shall, at Operator's option, constitute a Cash Call. The estimates for the
second and third succeeding months shall be tentative only and may be revised
in subsequent submittals.
1.4.4 Operator may use its discretion in dividing the approved Budget among the
months of a Calendar Year based on its estimated cash requirements for the
respective months. The aforesaid statement shall indicate the currencies in
which sums are needed for Petroleum Operations other than Exploration
Operations and Appraisals, as well as the place designated by Operator for
payments.
1.4.5 Each Party shall pay its Cash Calls in full on or before the due date in
accordance with the terms of the Agreement and in such currency, as
requested by Operator, within fifteen (15) days after receipt of such request or i
LM on the first day of the month for which the Advances are required, whichever i
is later. If payments of Advances are not so paid, the unpaid balance shall t-
carry interest for each month or pro-rata portion thereof, in accordance with r
Article 14.5 of the Agreement.
1.4.6 In case Advances for a given month are not sufficient to cover the cash
requirements (within the limits of the approved Budget or authorized overrun), f
Operator shall transmit to each Party a supplementary Cash Call showing such
additional amounts to be Advanced by each Party, and the date the funds are
required.
1.4.7 Each Party shall furnish to Operator on the date requested its share of
Advances indicated in each supplementary Cash Call, provided at least ten
(10) days’ notice is given by Operator. Operator shall keep records of
Advances and payments in all currencies and submit a statement to each Party
showing such Advances and payments in each currency. Adjustments for over
and under-calls shall be settled for each currency separately according to the
provisions of Article 1.6 of this Accounting Procedure. is
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C3 Aren 4?
The Operator shall open and maintain for the Petroleum Operations separate interest
bearing bank accounts in such currencies as Advances are requested. Such interest
shall be credited to the Operating Account.
1.5 Statements and Reports
Within thirty (30) days after the end of each month, Operator shall submit to
each Party a statement of the costs, income, expenses and liabilities incurred in
such month for the year to date and inception to date figures for Exploration
Operations, Appraisals, Development Operations and Exploitation Operations.
The monthly statements shall include all balance sheet accounts.
Such statements shall be in Libyan Dinars and U.S. Dollars and shall consist
of a statement of the charges and credits to the Operating Account properly
summarized by nature and in such a way as to permit a comparison between
the costs, expenses and liabilities incurred and the budgeted amounts. The
amount billed to each Party shall be on the basis of the provisions of the
Agreement. A detailed description shall be given of unusual charges and
credits. At the time of submission of each monthly statement, Operator shall
indicate adjustments to the statement which will be necessary to account for
cash expenditures incurred during the month for which such statement is
submitted.
Within sixty (60) days from the end of each Calendar Year, Operator shall
submit to each Party a statement of the final costs, expenses and liabilities
incurred during such Calendar Year for all operations under the Agreement
such as Exploration Operations, Appraisals, Development Operations and
other Petroleum Operations, shown separately together with statements of the
Operating Account including all balance sheet items.
1 -6 Settlement of Overpayments and Underpayments
If Advances by a Party for a given month are not sufficient to cover the
Party’s share of the monthly costs provided in this Accounting Procedure,
such Party shall pay the difference together with the payment of the next
succeeding Cash Call.
If Advances by a Party for a given month are in excess of said Party’s share of
the monthly costs, the difference shall be deducted from the amount due by
said Party at the next succeeding Cash Call, provided that if the amount to be
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deducted is larger than the next succeeding Advance, Operator shall promptly
reimburse the excess amount to said Party.
1.7 Adjustments
Payments of any Advance shall not prejudice the right of any Party to protest
or question the correctness of any amount included in a billing statement. All
Statements rendered to a Party by Operator during any Calendar Year shall be
presumed to be true and correct, except in the case of manifest error, after
three (3) Calendar Years following the end of any such Calendar Year unless
within the said three (3) Calendar Years period such Party takes written
exception thereto and makes claim on Operator for adjustment or unless such
Party carries out an audit and submits an exception within the period provided
in Article 20.2 of the Agreement. Failure on the part of a Party to make claim
on Operator for adjustment within the applicable period shall establish the
correctness thereof and preclude the filing of exceptions thereto or the making
of claims for adjustment thereon, except in the case of manifest error.
1.8 Audits
Each Party, upon written notice to Operator, shall have the right, at its sole
cost, to audit Operator's accounts and records relating to the accounting
hereunder for any Calendar Year within a three (3) Calendar Year period
following the date on which Operator submitted the annual account related to
such Calendar Year and submit a report covering the exceptions within the
period provided in Article 20.2 of the Agreement. Each Party shall make every
reasonable effort to conduct audits in a manner which will result in a
minimum of inconvenience to Operator. The audit report will be submitted to
the Operator within ninety (90) days of completing the audit.
The Operator shall give a written reply to the report within three (3) months of
receipt of the report.
All agreed adjustments resulting from an audit shall be made promptly in the
Operating Account by the Operator and reported to each Party.
Any unresolved disputes arising in connection with an audit shall be referred
to the Management Committee for settlement.
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2. Petroleum Operations Charges
Subject to the provisions of the Agreement and of this Accounting Procedure,
Operator shall charge the Operating Account with all costs and expenses
incurred in connection with the Petroleum Operations carried out under the
Agreement. In respect of Exploitation Operations Expenditures relating to
production of Liquid Hydrocarbon By-Products together with Natural Gas,
such Exploitation Operations Expenditures shall be allocated pro-rata to
barrels of oil equivalent. Such costs and expenses shall include, but shall not
be limited to, the following items:
2.1 Labor
2.1.1 Salaries and wages of Operator’s employees engaged for the benefit of the
Petroleum Operations under the Agreement, whether temporarily or
permanently assigned, in accordance with the relevant employment contract
agreement. Salaries and wages shall include gross pay to employees as
reflected on Operator's payrolls.
To the extent not included in salaries and wages, the Operating Account shall
also be charged with overtime, rest, holiday, vacation pay and vacation travel
pay, sickness and disability benefits, accommodation costs, bonuses and other
customary allowances applicable to the salaries and wages as well as costs to
Operator for employee benefits and all costs incidental to the employment of
personnel.
2.1.2 Expenditures or contributions made pursuant to assessments imposed by
Libyan authorities which are applicable to Operator's labor costs or salaries
and wages.
2.1.3 Costs of a Party’s personnel who are seconded or assigned to Operator. These
costs shall be established by the terms and conditions of the service contract.
2.1.4 For personnel not assigned exclusi vely to the Petroleum Operations carried out
under the Agreement, the amounts referred to above shall be charged to the
Operating Account according to the procedure defined in Article 2.11 (i)
below.
C6 Area 47
2.2 Material
Material purchased for or furnished to the Petroleum Operations shall be
charged in accordance with Article 3 hereinunder. All such Material shall be
stored in a separate warehouse and separate stock accounts shall be maintained
therefor.
2.3 Transportation
2.3.1 Transportation of Material necessary for the performance of Petroleum
Operations, including costs of packaging, brokerage, insurance and other
related costs.
2.3.2 Employee transportation costs, to the extent covered by the established policy
of Operator, shall include travel expenses for employees and their families to
and from the employees' points of origin at the time employment commences,
at the time of final departure and for vacations, as well as travel expenses in
the GSPLAJ for employees and their families incurred as a result of transfers
from one location to another, and travel expenses relating to the periodical
recuperation leaves of personnel.
2.4 Buildings
Building costs, maintenance and related costs and rents paid for all offices,
houses, warehouses and other types of buildings and cost of equipment,
furniture, fixtures and supplies necessary for the operation of such buildings
and facilities, all in the GSPLAJ.
2.5 Services
2.5.1 The service of consultants, contract services, utilities and other services
procured from outside sources, rentals or compensation paid or incurred for
the use of any equipment and facilities. The aforesaid services shall be
charged to the Operating Account at the price paid by Operator.
2.5.2 Use of equipment and facilities of Operator or Parties as provided in Article
3.4 hereof.
2.5.3 Services rendered by Second Party or their Affiliates shall be charged to the
Operating Account in accordance with the provisions of a Service Contract
between Operator and the Parties or their Affiliate as approved by the
Management Committee,
2.5.4 Per diem at a rate per day as approved by the Management Committee, plus
travel expenses, living and accommodation expenses for expert employees of
Operator or a Party or its Affiliate called on from areas other than the GSPLAJ
for periods of short duration.
2.6 Damages and Losses
All costs or expenses necessary to replace or repair damages or losses not
recovered from insurance incurred by fire, flood, storm, theft, accident, or any
other cause not within the control of Operator or not within Operator’s liability
the same has been received by Operator.
2.7 Legal Expenses
All costs and expenses of litigation, or legal services otherwise necessary or
expedient for the protection of the joint interests, of the Parties in and under
the Agreement, including attorneys’ fees and expenses, as hereinafter
provided, together with all judgments obtained against the Parties or any of
them on account of the operations under the Agreement, and actual expenses
incurred with the prior consent of the Parties by any Party hereto in securing
evidence for the puipose of defending against any action or claim prosecuted
or urged against the operations hereunder. In the event that actions or claims
affecting the joint interests hereunder shall be handled by the legal staff of one
or more of the Parties hereto, a charge commensurate with the cost of
providing and furnishing such services may be made to the Operating
Account. Any settlement of claims or litigation above U.S Dollars
shall be subject to the approval of the
Management Committee.
2-8 Taxes
Subject to the provisions of the Agreement, all Libyan taxes of every kind,
levies, duties, imposts or any other such charges assessed or levied upon or in
C8 Area 47
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connection with the Petroleum Operations and which taxes have been paid by
Operator for the benefit of the Parties hereto.
2.9 Insurance and Claims
2.9.1 Premiums paid for insurance required by law or authorized by the
Management Committee for Petroleum Operations, it being understood that,
for those insurances subscribed by Operator at a world level (if permitted
under Libyan law), a share of premiums proportional to Petroleum Operations
carried out under the Agreement shall be charged to the Operating Account.
2.9.2 All actual expenditures incurred and paid by Operator in settlement of any and
all losses, claims, damages and judgments and any other expenses, including
legal services, shall be charged to the Operating Account. The Operating
Account shall be credited with all settlements received from insurance carriers
or others.
2.10 Currency Exchange
The gain or loss, if any, through currency conversion or exchange.
2.11 General and Administrative Expenses
Operator shall charge the Operating Account with the costs of the personnel,
and related office costs, performing administrative, legal, accounting,
purchasing, treasury, employee relations, computer services and other similar
functions in Operator's offices in the GSPLAJ not charged under the preceding
provisions of this Accounting Procedure. In the event such personnel and
office costs are not fully attributable to the Petroleum Operations carried out
under the Agreement, the charge shall be as follows:
(i) Personnel costs to be charged to the Operating Account shall be
determined according to the actual time spent by the personnel for
Petroleum Operations as evidenced by the summary of the "time sheets"
adopted by the Operator's organization in the GSPLAJ.
(ii) Other office costs will be charged to the Operating Account pro rata to the
direct costs of personnel as determined pursuant to clause (i) above. The
system of allocation of expenses above provided for may be amended from
C9 Area 47
time to time by the Parties if, in practice, it is found to be inaccurate or
inequitable.
2.12 Head Office Overhead
The head office overhead will be charged to the Operating Account in
accordance with Article 14.3 of the Agreement.
2.13 Other Expenditures
Any other legitimate expenditures, other than expenditures which are covered
by the foregoing provisions of this Article 2, incurred by Operator for the
performance of Petroleum Operations under the Agreement.
2.14 Currency of Operating Account
Operating Account records shall be maintained in Libyan Dinars and in U.S.
Dollars on the Operator's premises in the GSPLAJ. Conversion of Libyan
Dinars into U.S Dollars and vice versa shall be at the rate of exchange fixed by
the Central Bank of the GSPLAJ from time to time.
Costs and expenditures incurred as well as Advances made in currencies other
than Libyan Dinars and U.S. Dollars shall be converted into Libyan Dinars
and U.S. Dollars at the monthly average of the buying and selling official rate m :i
quoted by the Central Bank of the GSPLAJ, for the currency in question in the
month in which such costs and expenditures were incurred or Advances made.
Any gain or loss resulting from the application of the aforesaid conversions
shall be credited or debited as the case may be to the respective cost centers of
the Operating Account as a non-cash cost. It is understood that none of the
Parties shall experience a gain or loss at the expense of or to the benefit of the
oilier Parties due to exchange or conversion of currencies.
3. Basis Of Charges To Operating Account
3.1 Purchases
Material purchased from third parties shall be charged at cost price paid by
Operator after deduction of all discounts actually received, plus actual costs
including duties to deliver the materials to areas covered by the Agreement.
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3.2 Materials Furnished by Parties
Material required for Petroleum Operations shall be purchased for direct
charge to the Operating Account whenever practicable, except that the Parties
may furnish such Material from their stock under the following conditions:
(a) New Material
New Material transferred from a Party's warehouse or other properties
shall be priced at new price. New price, as used herein, shall mean the cost
price as per the stock ledger of such Party maintained in the GSPLAJ
provided that the cost of Material so transferred is not higher than
international prices plus all delivery costs for Material of similar quality
supplied on similar terms, prevailing at the time such Material was
transferred.
(b) Used Material
The price charged for used Material will be new price, as hereinabove
defined, discounted by a percentage representing the Material utilization.
Technicians according to the condition of the Material shall assess such
percentage.
It is understood, however, that Material purchased for use in the Petroleum
Operations shall be stored in a separate warehouse and that such Material
should satisfy normal requirements for the Petroleum Operations.
3.3 Warranty of Material Furnished by Parties
The Party furnishing the new Material does not warrant the Material furnished
beyond the dealer's or manufacturer's guarantee, and in case of defective
Material, credit shall not be passed until adjustment has been received by said
Party furnishing Material hereunder from manufacturers or their agents.
3.4 Use of Parties’ Exclusively Owned Equipment and Facilities
For the use of any such wholly owned equipment, the Operating Account shall
be charged a rental commensurate with the cost of ownership and operation.
The rental rates, which will not include any profit element, will be approved
by the Management Committee each Calendar Year. Such rates should not
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exceed rates obtainable from other contractors in the area, unless otherwise
agreed between the Parties.
3.5 Distribution of Petroleum Operations Expenditures
For the purpose of this Accounting Procedure, the Petroleum Operations
Expenditures shall be distributed between the Crude Oil, Natural Gas and
Liquid Hydrocarbon By-Products streams prorata to their respective
production volumes.
For the purpose of cost recovery calculations, the Second Party excess profit
shall be distributed among the Production streams, prorata to their respective
values as stipulated in Exhibit “E”.
3.6 Services Rendered by Affiliates of the Parties
Technical and professional services, including, but not limited to, laboratory
analysis, drafting, geophysical and geological interpretation, engineering, and
related data processing, performed by the Parties or by any of their Affiliates
for the benefit of the Petroleum Operations shall be charged at cost determined
according to the cost accounting of such Party or its Affiliate, as the case may
be.
4. Inventories
4.1 Periodic Inventories, Notice and Representation
At reasonable intervals, at least once annually, inventories shall be taken by
Operator of all Controllable Material and physical assets entered into the
Operating Account. Written notice of intention to take inventory shall be given
by Operator at least ninety (90) days before any inventory is to begin so that
the Parties may be represented when any inventory is taken. Failure of the
Parties to be represented at an inventory shall bind the Parties to accept the
inventory taken by Operator, who shall in that event furnish the Parties with a
copy thereof.
4.2 Reconciliation and Adjustment oflnventories
Reconciliation of inventory with the Operating Account shall be made and a (S3
list of overages and shortages shall be furnished to the Parties. Inventory
02 Area 47
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adjustments shall be made by Operator to the Operating Account if required
;tment over a value of U.S, Dollars
shall be subject to the approval of
the Management Committee.
4.3 Special Inventories
Whenever there is a sale or change of participating interest in the Agreement, a
special inventory may be taken by the Operator. The seller and/or purchaser of
such participating interest shall bear all of the expense thereof. In such case,
both the seller and the purchaser shall be entitled to be represented and shall be
bound by the inventory so taken, whether represented or not.
5. Assets Register
Operator shall maintain an asset register showing the cost of assets purchased
or installed or constructed, location of such assets, and assets disposed of or
scrapped.
6. Disposal of Material and/or Assets
Operator shall inform the Management Committee of any surplus of
disposable Material and/or assets and shall act with respect to such Material
and/or assets according to the instructions of the Management Committee.
Any proceeds of disposal of such material and/or assets by Operator with the
authorization of the Management Committee shall be credited to the
appropriate accounts in accordance with the provisions of Article 16 of the
Agreement.
7. Sums Received From Third Parties
Without prejudice to Article 16 of the Agreement, all sums received from any
third party, in compensation for the use by them of Material held and facilities
built for Petroleum Operations shall be credited to the Operating Account.
8• Special Abandonment Account
Subject to Article 26 of the Agreement, First Party shall establish a special
account for the sole purpose of depositing such abandonment provisions to be
designated as the “Abandonment Fund”.
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All amounts received from Second Party based on a Cash Call raised by
Operator against the abandonment provisions, as per Article 26 of the
Agreement and shall be deposited in the Abandonment Fund and recorded in
the Operating Account. The Abandonment Fund shall be adjusted according to
the actual expenditures of the Abandonment cost.
Second Party shall pay any short fall for its share of the Abandonment costs
and Operator shall raise any Cash Call required for such expenditures. Any
remaining amounts in the Abandonment Fund shall be credited to First Party
account.
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EXHIBIT "P"
GUARANTEE
VEBENEX ENERGY Inc,
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EXHIBIT "D"
GUARANTEE
THIS GUARANTEE is made in Tripoli, Socialist People's Libyan Arab Jamahiriya, on
this_ day of Safar,1373, corresponding to the twelfth day of March, 2005, by
Verenex Energy Inc., a corporation duly constituted and existing under the laws of
Alberta, Canada, having its principal office at Calgary, Canada (hereinafter referred to
as the "Guarantor"), to NATIONAL OIL CORPORATION, a corporation duly
constituted and existing under the laws of the Socialist People's Libyan .Arab
Jamahiriya, and having its principal office in Tripoli, Great Socialist People's Libyan
Arab Jamahiriya (hereinafter referred to as "NOC").
WHEREAS, the Guarantor is the parent entity of Verenex Energy' Area 47 Libya
Limited, a Corporation duly constituted and existing under the law?s of the Jersey, with
a branch in the Socialist People's Libyan Arab Jamahiriya, registered in the
Commercial Register of Tripoli under No._(hereinafter referred to as "
Verenex”); and
WHEREAS, the Guarantor desires to furnish this Guarantee as contemplated by the
Exploration and Production Sharing Agreement ("EPSA") to which this Guarantee is
attached, as an inducement to NOC to enter into the EPSA and in consideration of the
rights and benefits inuring to Verenex under the EPSA.
NOW, THEREFORE, the Guarantor hereby agrees as follows:
Scope of Guarantee
The Guarantor hereby guarantees to NOC the timely payment and performance of any
and all indebtedness and obligations whatsoever of Verenex to NOC arising under or
relating to the EPSA, including, without limitation, the payment of any amounts
required to be paid by Verenex to NOC under the EPSA when and as the same shall
become due and payable; provided, however, that the liability of the Guarantor to NOC
hereunder shall not exceed.
[during the Exploration Period.
Waiver of Notice. Agreement to All Modifications
The Guarantor hereby waives notice of the acceptance of this Guarantee and of the
state of indebtedness of Verenex at any time, and expressly agrees to any extensions,
Dl Area 47
renewals, modifications or acceleration of sums due to NOC under the EPSA or any of
the terms thereof, all without relieving the Guarantor of any liability under this
Guarantee.
Absolute and Unconditional Guarantee
The obligations of the Guarantor hereunder shall be an absolute, unconditional, and
(except as provided herein) unlimited guarantee of payment and performance to be
performed strictly in accordance with the terms hereof, and without respect to such
defences as might be available to Verenex.
No Discharge of Guarantor
The obligations of the Guarantor hereunder shall not in any way be released or
otherwise affected by any release or surrender by NOC of any collateral or other
security it may hold or hereafter acquire for the payment of any obligation hereby
guaranteed; by any change, exchange or alteration of such collateral or other security;
by the taking of or the failure to take any action with respect thereto either for or
against the Guarantor; or by any other circumstance which might otherwise constitute a
legal or equitable discharge or defence of a guarantor.
No Prior Action Required
NOC shall not be required to make demand for payment or performance first against
Verenex or any other person, firm or corporation or to proceed against any collateral or
other security which may be held by NOC or otherwise to take any action before
resorting to the Guarantor hereunder.
Cumulative Rights
All rights, powers and remedies of NOC hereunder shall be cumulative and not
alternative, and shall be in addition to all rights, powers and remedies given to NOC by
law or otherwise.
Continuing Guarantee
This Guarantee is intended to be and shall be construed as a continuing guarantee of
payment and performance and shall remain in full force and effect for so long as there
is any commitment during the Exploration Period to be fulfilled or there exists any
liability of Verenex relating to the Exploration Period to NOC thereunder.
8. Notice of Demand
Upon default in the performance of any of the obligations of Verenex guaranteed
hereunder, NOC or its duly authorized attorney may give written notice to the
guarantor at its principal office in Suite 3050 400-4,h Avenue SW Calgary, AB T2P0J4
Canada of the amount due, and the Guarantor, within a period of ten (10) business
days, will make, or cause to be made, payment of such amount as noticed, in U.S.
Dollars, in Tripoli, Socialist People's Libyan Arab Jamahiriya, at such bank or other
place as NOC shall designate and without setoff or reduction whatsoever of such
payment in respect of any claim the Guarantor or Verenex may then have or thereafter
might have.
9. Assignment
The Guarantor shall not in any way effect, or cause or permit to be effected, the
assignment or transfer of any of its obligations hereunder without the express written
consent of NOC. This Guarantee and every part hereof shall inure to the benefit of the
successors and assigns of NOC. U
10. Subrogation
Until all indebtedness hereby guaranteed has been paid in full, the Guarantor shall have
no right of subrogation to any security, collateral or other rights which may be held by
11. Payment of Expenses
The Guarantor shall pay to NOC all reasonable costs and expenses, including
attorney’s fees, incurred by it in collecting or compromising any indebtedness hereby
guaranteed or in enforcing the EPSA or this Guarantee.
12. Governing Law and Arbitration
This Guarantee shall be governed by and interpreted in accordance with the laws of the
Socialist People's Libyan Arab Jamahiriya.
Ail disputes or claims arising out of or relating to this Guarantee shall be finally settled
by arbitration, in accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, in Paris, France, by three arbitrators. Each party
shall appoint one arbitrator, and the International Chamber of Commerce shall appoint
the third arbitrator who must be in no way related to either party and who will be the
D3 Area 47
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Chairman of the arbitral body; provided, however, that in the event that an arbitration
involving obligations hereby guaranteed has also been commenced under the EPSA,
the arbitration hereunder shall be consolidated with such arbitration under the EPSA
and the arbitral body shall be the first appointed arbitral body appointed pursuant to the
EPSA or the Guarantee.
13. Severability of Provisions
Any provision hereof which may, for any reason, prove illegal, unenforceable or
invalid shall not affect the validity or enforceability of other provisions hereof.
14. Confidentiality
The Guarantor agrees to treat this Guarantee and the EPSA to which it is attached as
confidential and shall not disclose the terms and conditions hereof or thereof, willingly
or unwillingly, to any third party without the prior written consent of NOC, except to
the extent required by law.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed on the
date first above written.
Tames d. McFarland
President and CEO
Accepted by
Secretary of Management Committee
GUARANTEE
PX Medco Knerei Intemasional Tbk
Accepted by
NATIONAL OIL CORPORATION
Abdulla Salem ETBadri
Secretary of the management Committee
D4 Area 47
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EXHIBIT UE”
Attached to and made a part of the Exploration and Production Sharing Agreement
between NATIONAL OIL CORPORATION and Verenex Energy Area 47 Libya
Limited and Medeo International Ventures Limited dated the_day of Safar,
1373, corresponding to the twelfth day of March, 2005.
EXAMPLE CALCULATION to DETERMINE
EACH PARTY'S SHARE of PETROLEUM
(Numbers for illustration only)
Area 47
£3
HL.;:*
E4 A rat 47
vCl.
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EXHIBIT “F”
RECEIPT OF TAX PAYMENT (EXAMPLE)
Great Socialist People’s Libyan Arab Jamahiriya
RECEIPT OF TAX PAYMENT
Name:
Title: -
Date: -
p ] Area 47
V
EXHIBIT “G”
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT
BETWEEN
NATIONAL OIL CORPORATION
and
Verenex Energy Area 47 Libya Limited
and
Medco International Ventures Limited
Area 47
THIS AGREEMENT is made and entered into the.....day of............., corresponding to
the......day of............., by and between:
(1) NATIONAL OIL CORPORATION ("NOC") or (“First Party”) a corporation
established by Law No 24 of 1970 as amended and reorganised under Decision No
10/1979 of the General Secretariat of the General People’s Congress of the Great
Socialist People's Libyan Arab Jamahiriya ("GSPLAJ"); and
(2) Verenex Energy Area 47 Libya Limited ("Verenex"), a Corporation established under
the laws of Jersey, having its registered office at Templar House, Don Road, St. Helier,
Jersey JE4 8WH and shall have a branch office in Tripoli, GSPLAJ.
(3) Medco International Ventures Limited ("MIV"), a company established under the laws
of Labuan, Malaysia, having its registered office in Jalan Bahasa, 8700 Labuan FT,
Malaysia and shall have a branch office in Tripoli. GSPLAJ.
Both Verenex and MIV hereinafter collectively referred to as Second Party
NOC, Verenex and MTV are referred to individually as "Party" and collectively as "the
Parties",
WHEREAS:
(A) NOC, Verenex and MIV entered into an Exploration and Production Sharing
Agreement dated ............. ("EPSA") to carry out Petroleum Operations in the
Contract Area; and
(B) A Commercial Discovery has been declared by the Management Committee in the
Contract Area; and
(C) The EPSA contemplates that the Parties set up a joint operating company (the
“Company”) upon declaring the first Commercial Discovery thereunder to act as
Operator under the EPSA according to an operating agreement to be entered into
between the Parties and the Company; and
(D) NOC, Verenex and MIV wish to regulate the principles governing their relations in the
Company and lay down the basic rules of its structure and organisation.
NOW THEREFORE it is hereby agreed as follows:
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1. DEFINITIONS
Words and expressions defined in the EPSA when used in this Operating Agreement shall
have the meanings ascribed to them in EPSA unless the context otherwise requires. For the
purpose of this Agreement the following terms shall have the following meaning:
1.1 "Board"
means the board of directors of the Company;
1.2 "Branch"
means the branch of the Company referred to in Article 8 hereinafter;
1.3 "Shareholder”
means any holder of Shares and "Shareholders" means all holders of Shares;
1.4 "Shares"
means shares of capital stock of the Company;
2. THE COMPANY
2.1 A joint stock company (the "Company") shall be incorporated under the laws of
..............(the ’’Jurisdiction” ).
2.2 The name of the Company shall be...............................
3. LEGAL STRUCTURE
Memorandum and articles of association of the Company shall be prepared according to
the requirements of the Jurisdiction and shall incorporate, to the extent legally possible, the
principles set forth in this Agreement.
4. CAPITAL
The authorized and issued capital of the Company shall be ............ US Dollars
(............... US$) all paid by and upon incorporation by the respective Shareholder
according to their share holding percentage set forth below.
5. SHAREHOLDING
5.1 NOC and Second Party as Shareholders shall each subscribe to the following number
of shares of the authorised and issued capital of the Company:
A G2 Area 47
NOC : fifty one percent (51 %)
Second Party : forty nine percent (49%)
5.2 The Shares of the Company shall only be transferable to Affiliates of the Shareholders
or their assignor, if any. The Shareholders shall cause the directors of the Company to
adopt a resolution to the effect that this limitation on transferability be properly
embodied in all issued Share certificates.
6. MANAGEMENT
6.1 The Company shall be managed by the Board of Directors consisting of four (4)
members who shall be the same members of the Management Committee appointed
under the EPSA.
6.2 A quorum of three (3) directors present and in attendance shall be required for the
validity of any Board meeting; and all resolutions and decisions to be taken by the
Board shall require a unanimous vote of die directors present and in attendance.
6.3 In the absence of a quorum at any meeting duly convened by a resolution of the Board
or by notice served to all directors not less than (10) calendar days before such
meeting, the director(s) in attendance may without further notice adjourn such meeting
to the seventh following calendar day, at the same time and venue as originally
convened. The quorum required for the validity of such adjourned Board meeting shall
be one (1) director from NOC and one (1) director from Second Party present and in
attendance.
6.4 The Shareholders shall cause the chairman of the Company to be one of the directors
designated by NOC; and the treasurer to be the director designated by Second Party.
7. CONDUCT OF BUSINESS
7.1 The undertaking by the Company of any activities, other than the carrying out through
the Branch and as Operator of Petroleum Operations related to the EPSA, shall require
the previous consent in writing of the Shareholders.
7.2 Insofar as the activities of the Company shall remain within the limits herein above
defined, it is the intent of the Shareholders that the Branch be managed and operated
on a strict no profit -no loss basis.
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8. BRANCH
8.1 The Company shall register and properly establish a branch in GSPLAJ ("Branch").
8.2 The Branch is structured so as to be able to carry out such Petroleum Operations as
may be entrusted to the Company.
9. ORGANISATION OF THE BRANCH
9.1 The business and affairs of the Branch of in its capacity as
Operator for the conduct of Petroleum Operations shall be managed by a committee,
"Operator's Management Committee" consisting of three (3) members, two of whom,
including the chairman, shall be designated by NOC and the other one shall be
designated by Second Party.
9.2 The basic organisation and structure of the Branch shall be in accordance with the
standard principles usually adopted in the international oil industry.
9.3 Each member of the Operator's Management Committee shall be vested with
executive duties and responsibilities and shall supervise operating division(s) and
department(s) of the Branch ("Operating Divisions").
9.4 The Operating Division to be entrusted to each member of the Operator’s Management
®rm .............................. ............ ......... an Committee shall be consistent with the basic organisation chart which shall be
approved by the Management Committee.
9.5 The activities and functions of the Operator's Management Committee shall in all
cases be subject to the overall guidance and direction of the Management Committee.
10. OPERATOR'S MANAGEMENT COMMITTEE i
i
10.1 The Operator’s Management Committee shall be responsible for the ordinary
organisation and structure of the Branch and the performance in GSPLAJ of such
Petroleum Operations as may be entrusted to the Company, both in accordance with
the standard principles usually adopted in the international oil industry. The Operator's j
Management Committee shall further have the task to secure the necessary i
coordination among the Operating Divisions and therefore the overall management of
the Branch, and will exercise such other powers as may be conferred upon it by the
Board. I
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10.2 The duties of the Operator’s Management Committee shall in particular include the
preparation and review the policies for the administrative, financial and technical
affairs of the Branch, the policies to be implemented for a proper establishment of its
organisation and structure, and the policies concerning training and qualification
programs for Libyan nationals in order to enable them to gradually assume positions at
all levels; all in accordance with the relevant terms of the EPSA and Operating
Agreement.
10.3 All decisions made by the Operator's Management Committee shall be taken by
simple majority vote of its Members.
11. DELEGATION OF AUTHORITY
'Hie Board shall delegate to the chairman of the Operator's Management Committee such
powers of attorney as are required in order for him to validly represent and bind the Branch
vis-a-vis third parties to the extent necessary for the conduct of Petroleum Operations
entrusted to the Branch by the Management Committee. Such powers of attorney shall be
granted by the Board to the chairman of the Operator’s Management Committee as soon as
he is duly and properly appointed.
12. TERM
This Agreement shall remain in full force and effect as long as the EPSA is in effect
unless terminated by an instrument in writing by NOC and Second Party and shall not be
amended or modified in any respect, except by the mutual consent in writing of the Parties
hereto.
13. WAIVER
The failure of any Party hereto to enforce at any time any of the provisions of this
Agreement shall in no way be construed to be a waiver of any such provision, or of the
right of any Party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to be a waiver of any other or subsequent breach.
14. GOVERNING LAW AND ARBITRATION
The Governing Law and Arbitration provisions of the EPSA shall apply to this
Shareholders Agreement.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and
year first above written.
NATIONAL OIL CORPORATION Verenex Energy Area 47 Libya Limited
By: By:
Title: Title:
Medco International Ventures Limited
By: ..
Title:
G6 Area 47
OPERATING AGREEMENT
Area ‘17
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OPERATING AGREEMENT
Between
NATIONAL OIL COPOPRATION
and
Verenex Energy Area 47 Libya Limited
and
Medco International Ventures Limited
and
(.....................................................)
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a? THIS OPERATING AGREEMENT is made and entered into in Tripoli, the Great
Socialist People's Libyan Arab Jamahiriya ("GSPLAJ"), the ......... day of
...................., corresponding to the........day of.............., by and among.
NATIONAL Oil CORPORATION ("NOC") , a corporation established by law No.24
of 1970 as amended and reorganised under Decision No. 1011979 of the General
Secretariat of the General People's Congress of the ("GSPLAJ”), having its principal
office at Bashir Sadawi Street, Tripoli, GSPLAJ; hereinafter referred to as ’NOC" or
"First Party.
and
(2) Verenex Energy Area 47 Libya Limited ("Verenex"), a Corporation established
under the laws of Jersey, having its registered office at Templar House, Don Road,
St, Helier, Jersey JE4 8WII and shall have a branch office in Tripoli, GSPLAJ.
(3) Medco International Ventures Limited ("MIV”), a company established under the
laws of Labuan, Malaysia having its registered office in Jalan Bahasa, 8700 Labuan
FT, Malaysia and shall have a branch office in Tripoli, GSPLAJ.
Both Verenex and MIV hereinafter collectively referred to as Second Party
NOC, Verenex and MIV are referred to individually as "Party" and collectively as "the
Parties",
and
...................................... (hereinafter referred to as "___"or
“Operator”) a company established under the laws of___and having a branch
registered in the Commercial Register of Tripoli, GSPLAJ, under No.
_____with an office at__GSPLAJ.
WHEREAS:
A) NOC and Second Party entered into an Exploration and Production Sharing
Agreement ( “EPSA” ) dated..............; and
B) A joint stock company (.................................) has been established to act as
Operator under the EPSA upon and subject to the terms and conditions hereinafter
Ml-i :ii contained; and
HI Area 47
C) The Parties have resolved to appoint ................................... as Operator to
carry out Petroleum Operations on behalf of the Parties in the Contract Area; and
D) The Parties hereto deem it convenient to establish in this Operating Agreement
certain uniform operating procedures for the conduct of Petroleum Operations
under the EPSA.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the Parties hereby agree as follows:
1. DEFINITIONS
Words and expressions defined in the EPSA when used in this Operating Agreement
shall have the same meanings ascribed to them in the EPSA unless the context
otherwise requires.
2. SCOPE
The purpose of this Operating Agreement is to establish the respective rights and
obligations of the Parties and Operator with regard to the conduct of Petroleum
Operations under the EPSA.
3. OPERATIONS:
3-1 Appointment of Operator
Subject to the supervision and direction of the Management Committee,
................ is hereby appointed, and hereby agrees to serve as Operator to
conduct Petroleum Operations with respect to the EPSA in accordance with the
terms and conditions of this Agreement...........................shall not resign as
Operator without the prior written consent of the Parties and, in the absence of
such consent, shall continue to act as Operator during the term of this Operating
Agreement, except to the extent that the Parties appoint a new Operator.
3-2 Conduct of Operations
3.2.1 The Operator shall conduct all Petroleum Operations and in particular implement
the Development Plan on behalf of the Parties in accordance with this Operating
Agreement, the EPSA, the decisions of the Management Committee, and the
Petroleum Law.
3.2.2 Immediately upon the Effective Date of this Operating Agreement, the Operator
shall prepare a policy and procedures manual regulating the technical, financial,
contracting and other rules and procedures for the carrying out of Petroleum
&
&
Operations under the EPSA and shall submit the same for approval to the
Management Committee within three(3) months from the date hereof. The
Operator shall strictly comply with such manual, when so approved, in the
performance of its duties hereunder.
3.3 Certain Duties of the Operator
Throughout the term of this Agreement, Operator shall conduct the Petroleum
Operations diligently and continuously and shall be governed in accordance with
the applicable provisions of the Petroleum Law and all other applicable laws and
regulations of the GSPLAJ, in particular laws and regulations concerning the
protection of health, safety and environment.
In addition to all other obligations of Operator set forth elsewhere in this
Operating Agreement, Operator shall have the following obligations:
3.3.1 to carry out all of its other duties set forth in this Operating Agreement and the
EPSA and promptly implement all decisions of the Management Committee;
and
3.3.2 to conduct Petroleum Operations other than Exploration Operations and
Appraisal Operations in the Contract Area in a manner consistent with Good
Oilfield Practices; and
3.3.3 to prepare the Development Plan in accordance with provisions of the EPSA
and submit Work Programs to the Management Committee and to implement
the Development Plan and Work Programs adopted by the Management
Committee, by appropriate scientific methods and in the most efficient and
economic manner; and
3.3.4 to prepare and furnish to the Parties all relevant reports and information for
technical meetings as provided for in clause 12.6 of this Operating Agreement
at least fifteen (15) days before such meetings; and.
3.3.5 to purchase or lease all material, equipment, machinery, articles and supplies
required to be purchased or leased pursuant to the Work Program, subject to
the prior consent of the Management Committee in case the aggregate value of
the purchase or lease contract exceeds the amount oi
and
3.3.6 to pay all costs and expenses incurred by it in respect of Petroleum Operations
under this Operating Agreement when due and payable from bank accounts
maintained by the Operator for that purpose and pay to the appropriate
H3 Area 47
authorities within the periods prescribed by the applicable law and regulations
all taxes and duties that are applicable to the activities of the Operator; and
3.3.7 Salvage and dispose of all economically recoverable material, equipment and
supplies, which have become obsolete, surplus, or junk, in accordance with the
procedure approved by Management Committee and the applicable
regulations, and credit the proceeds in accordance with the provisions of the
Accounting Procedure; and
3.3.8 to keep the Parties informed of the course of all Petroleum Operations under
this Agreement and to provide the Parties with progress reports on the
Petroleum Operations for each Calendar Quarter; and
3.3.9 to promptly notify the Management Committee of claims and litigation relating
to operations under this Operating Agreement and prosecute, defend or settle
such claims and litigation; provided, however, that the Operator shall notify the
3.310 to conduct an assessment of the impact of each planned Petroleum Operations
on the environment in the relevant part of the Contract Area and submit to the
Management Committee prior to the commencement of such Petroleum
Operations a detailed assessment report containing the measures required to be
taken to ensure that the conduct of the Petroleum Operations does not cause
damage to the environment; and
3.3.11 to permit representatives of the Parties to inspect at all reasonable times the
conduct of Petroleum Operations under this Agreement; and
3.3.12 to maintain in GSPLAJ full original records of all technical operations under
this Agreement and to submit to the Parties, in a format and media as may be
required by them, copies of all original geological, geophysical, cuttings, cores,
magnetic tapes drilling reports, fluid samples, well production data and such
other data and reports as it may compile or obtain during the term of this
Agreement; and
»
3.3.p to keep the accpjjnts of the Petroleum Operations hereunder in Libyan Dinars
and in U.S. Dollars and in such manner as to present a fair, clear and accurate
record of the Petroleum Operations Expenditures; and
3.3.14 to properly use Petroleum produced from the Contract Area for Petroleum
Operations; and
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3.3.15 to procure and maintain insurance satisfactory to the Management Committee
including without limitation insurance against loss or damage resulting from
blowouts.
4. LIBYAN PERSONNEL AND TRAINING
4.1 Operator shall hire Libyan nationals to carry out Petroleum Operations in the
Contract Area. Except that in cases where specialized technical personnel or key
management positions are required and not available among Libyan personnel,
Operator may hire non-Libyan nationals to cany' out such Petroleum Operations.
4.2 Operator shall prepare and submit to the Management Committee for approval an
annual training program. The objective of which is to enable Libyan personnel to
fill posts of higher responsibility and to replace any non-Libyan personnel in the
areas of specialization for which such non-Libyan personnel were hired. The
annual budget allocated for such training program shall be sufficient to cover all
costs for training per Calendar Year di iring the Exploration Period and shall not be
less than the manpower cost during each year of the
Exploitation Period. For the purpose of this Article, manpower costs means the
total direct and indirect costs associated of the Operator’s employees.
5. OTHER PETROLEUM OPERATIONS
The Operator may not enter into an operating agreement with any third party without
the prior approval of the Parties.
6. WORK PROGRAMS AND BUDGETS
6.1 Preparation by the Operator
The Operator shall prepare and submit to Management Committee programs itemising
the Petroleum Operations to be carried out under tire EPSA and detailed programs for
the implementation of the Development Plan including, without limitation, the
installation and operation of the relevant plants and facilities, as well as Budgets with
respect thereto which shall contain sufficient details of all costs, expenses and
advances to be made in respect of such program. The Work Programs and Budgets
shall separately identify Development Expenditures and Exploitation Operating
Expenses as defined in the EPSA.
6.2 Procedures
6.2.1 As soon as possible after the Effective Date of this Operating Agreement as
regards the remaining portion of the relevant Calendar Year and, thereafter, at
H5 Area 47
least two (2) months prior to the beginning of each succeeding Calendar Year,
Operator shall prepare and submit to the Management Committee, a Work
Program and Budget for each of the next four (4) Calendar Years, which shall
include:
a) A program for the implementation of the Development Plan and a program
for the operation of petroleum reservoirs and production forecasts, (with
alternate programs where appropriate), providing for the wells, gathering
systems, pipelines, terminals and other facilities.
b) An estimate of manpower and general costs associated with or incidental to
the above programs.
c) A training program for Libyan nationals, and
d) An estimate of capital and operating costs of each of the above programs
with proper justification when appropriate.
6.2.2 The programs and budgets so adopted by the Management Committee shall
constitute the approved Work Program and Budget for the first year and tentative
Work Program and Budget for the following four (4) years, and shall be
implemented by the Operator.
6.3 Expenditures bv the Operator
Notwithstanding anything to the contrary' contained in the EPSA, the Operator shall
cany' out each Work Program approved by the Management Committee within the
limits of the Budget approved therefor and shall not undertake any operation not
included in an approved Work Program or make any expenditures not budgeted in an
approved Budget, except as follows:
6.3.1 Operator is authorized to make such excess expenditures, provided, however,
excess expenditures shall be reported promptly by Operator to the Management
Committee for approval.
6.3.2 Operator is authorized to make expenditures for Petroleum Operations not
H6 Area 47
fST
6.3.3 In case of emergency, Operator may make such immediate expenditures as it
deems necessary for the protection of life and/or property. Such emergency
expenditures shall be reported promptly to the Management Committee by
Operator and shall be considered as legitimate costs as if they had been approved
by the Management Committee.
6.4 Priority To Local Work
Operator shall at all times give priority for use of local supplies, equipment and
services, provided that they are competitive in terms of performance, price and
availability.
7. COSTS AND EXPENSES
7-1 Costs and Expenses
All costs and expenses attributable to Petroleum Operations being conducted by die
Operator under this Operating Agreement and the EPSA shall be allocated between the
Parties, as set forth in the EPSA.
7.2 Call for Funds
7.2.1 Each month the Operator shall estimate the payments required for Petroleum
Operations under the EPSA for the following month on the basis of outstanding
invoices and any additional payments envisaged under the annual Work Program
and Budget therefor, approved by the Management Committee pursuant to this
Operating Agreement, and shall notify the First Party and each company
comprising Second Party thereof, twenty (20) days prior to the beginning of such
following month of the call for funds ("Cash Call"). The aforesaid Cash Call
shall indicate the currencies in which sums are needed for Petroleum Operations
as well as the place designated by the Operator for payment.
7.2.2 First Party and each company comprising Second Party, undertake to, and shall
pay to the Operator their respective shares according to the EPSA, of such Cash
Calls in the currencies requested, within fifteen (15) days from the date of
receipt of the notification from the Operator, or on the first day of such
following month, whichever is later.
7.2.3 The Operator shall keep records of funds advanced, expended and held in each
currency as well as the dates when the funds are credited into Operator's bank
account(s).
H7 Area 47
7.3 Defaults
If First Party or any company comprising Second Party fails to pay its share of
any Cash Call, when due, such Party shall be in default and Operator shall
notify the Parties thereof. The non-defaulting Party(ies) shall have the right to
advance to Operator any and all amounts the defaulting Party has not paid. Any
such advance shall be considered as a loan by the non-defaulting Party(ies) to
the defaulting Party and shall bear interest at the rate per annum equal tdVHjU
). Bper annum from fie date such advance is
received by the Operator in addition to any actual handling costs.
In the event that the defaulting Party does not repay all such amounts to the
non-defaulting Party(ies), together with interest accrued thereon, within ninety
(90) days from the date on which such amounts were advanced by the
non-defaulting Party(ies), the non-defaulting Party(ies) shall have the right to
offtake and own the defaulting Party's share of production from the Contract
Area up to the time when such offtaken production, valued at the market price
prevailing on the date such amounts were advanced by the non-defaulting
Party(ies), equals the aggregate of such amounts, together with interest accrued
thereon.
8. BOOKS ACCOUNTS AND AUDITS
8.1 Operator’s responsibility for Books and Accounts
The Operator shall maintain complete books and accounts for the EPSA in
accordance with the Accounting Procedure, reflecting costs, expenses and
liabilities of Petroleum Operations, itemised in accordance with the approved
Budget, as well as all amounts received from the Parties pursuant to clause 7.2
hereof.
8.2 Audits
Each Party shall have the right to inspect and audit, at its own cost, Operator's
books and accounts relating to this Agreement for any Calendar Year within the
period of three (3) Calendar Years following the date of submission of the annual
account related to such Calendar Year. Any such audit shall be completed within
twelve (12) months after its commencement, and any exceptions must be made in
writing within ninety (90) days following the end of such audit. Failure to give
such written exceptions within such time shall establish the correctness of
Operator’s books and accounts, except in the case of manifest error.
8.3 Conflict in Terms
In the event of a conflict between the terms and conditions of this Operating
Agreement and Exhibit “C” of the Agreement, the terms and conditions of the
main body of the Agreement shall prevail followed by this Operating Agreement.
9. JOINT LIABILITY OF THE PARTIES
NOC and Second Party shall indemnify and hold harmless the Operator against any
loss, damage or claim asserted by any third party and NOC and Second Party shall
each share such losses, damages or claims in the proportions set forth in Article 14 of
the EPSA.
10. SETTLEMENT OF DIFFERENCES
All disputes between the Operator and any of the Parties arising in connection with
this Operating Agreement shall be referred to the Management Committee, which
shall make its best endeavours to settle the matter amicably.
11. GOVERNING LAW
This Operating Agreement shall be governed by and interpreted in accordance with
the laws of GSPLAJ.
12. MISCELLANEOUS
12.1 Effective Date
This Operating Agreement shall become effective on the date first written
above.
12.2 Term
Without prejudice to the provisions of Article 12.1 hereof, this Operating
Agreement shall remain in force and effect for as long as the EPSA is in effect
unless the Parties otherwise agree.
12.3 Notices
All notices, proposals and other communications to a Party and/or Operator
provided for in this Operating Agreement shall be in writing and shall be
deemed to have been properly given and received when delivered during
Tegular business hours at the office of such Party or sent by registered mail.
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All such notices shall be addressed to:
NATIONAL OIL CORPORATION
Bashir Sadawi Street
P.O. Box 2655
Tripoli, Great Socialist People's Libyan Arab Jamahiriya
ATTN: Secretary of the People’s Committee
Verenex Energy Area 47 Libya Limited
Tripoli, Great Socialist People's Libyan Arab Jamahiriya
ATTN:_
Medco International Ventures Limited
Tripoli, Great Socialist People's Libyan Arab Jamahiriya
ATTN: _
Operator
Tripoli, Great Socialist People's Libyan Arab Jamahiriya
ATTN:_
Either Party may substitute or change its address stated above to another
address in the Great Socialist People's Libyan Arab Jamahiriya upon written
notice thereof to the other Party.
12.4 Amendments
This Operating Agreement shall riot be amended or modified in any respect.
12.5 Assignment
Operator may not assign any of its rights or obligations under this Operating
Agreement without prior written consent of NOC and Second Party.
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12.6 Technical Meetings l
Operator shall organize technical meetings which shall be held at least twice a
year to discuss technical and operational matters among First Party, Second
Party and Operator.
The Operator shall furnish the First Party and Second Party with the relevant
technical reports and information at least fifteen (15) days before the date of
such meetings in order to allow them to duly consider the Operator's proposals
in respect of such matters.
12.7 Service Agreement
'Hie Operator may enter into service agreement(s) with the Parties and/or their
Affiliates, provided such service agreement(s) is approved by the Management
Committee.
17.8 Originals
This Operating Agreement is made in eight (8) originals, four (4) in the Arabic
language and four (4) in the English language, all having equal validity.
12.9 Headings
The headings used in this Operating Agreement are included herein for
convenience of reference only and shall not constitute a part of this Operating
Agreement for any other purpose or in any way affect the construction of this
Operating Agreement.
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Hll Area 47
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IN WITNESS WHEREOF, the Parties hereto have caused this Operating Agreement X> |
to be executed as of the day and year first above written.
NATIONAL OIL CORPORATION Verenex Energy Area 47 Libya Limited
By:....................................... By:..
Title:..................................... Title:
OPERATOR Medeo International Ventures Limited
By:....................................... By:.........................................
Title:..................................... Title:.......................................
X H12 Area 4?