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TIMOR SEA DESIGNATED AUTHORITY FOR THE
JOINT PETROLEUM DEVELOPMENT AREA
PRODUCTION SHARING CONTRACT
JPDA 03-13
Date: 2nd April 2003, 12:30PM
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PRODUCTION SHARING CONTRACT
JPDA 03-13
This production sharing contract, which has been approved by the Joint Commission established
under the Timor Sea Treaty (hereinafter called the Treaty), is made and entered into on this 2 day
of April 2003 by and between the Designated Authority established under the Treaty, party of the
first part, and ConocoPhillips JPDA Pty Ltd ABN 17 054 424 109, a corporation organised and
existing under the laws of Australia, ConocoPhillips (91-13) Pty Ltd ABN 77 099 996 782, a
corporation organised and existing under the laws of Australia, Phillips Petroleum Timor Sea Pty
Ltd ABN 39 000 751 59, a corporation organised and existing under the laws of Australia and
Agip Australia 91-13 Limited ARBN 054 729 930 a corporation existing and organised under the
laws of England hereinafter collectively called the “contractor”, parties of the second part, both
hereinafter sometimes referred to either individually as the “Party” or collectively as the
“Parties”.
WITNESSETH
WHEREAS, petroleum existing within the Joint Petroleum Development Area established by the
Treaty is a resource to be exploited by the Contracting States;
WHEREAS, the Designated Authority, with the approval of the Joint Commission, has an
exclusive authority to contract for petroleum activities in and throughout the area described in
Appendix A of this contract and outlined on the map which is Appendix B of this contract, which
area is hereinafter referred to as the “contract area”;
WHEREAS, the Designated Authority wishes to promote petroleum activities in the contract area
and the contractor desires to join and assist the Designated Authority in accelerating the
exploration and development of the potential petroleum resources within the contract area;
WHEREAS, the contractor has the necessary financial capability, and technical knowledge and
ability to carry out the petroleum activities hereinafter described;
WHEREAS, in accordance with the Treaty, including the Petroleum Mining Code as referred to
in Article 7(b) of the Treaty, a cooperative agreement in the form of a production sharing contract
may be entered into between the Designated Authority and corporations for the purpose of
petroleum activities; and
WHEREAS, by Annex F of the Treaty, a contract shall be offered to those corporations holding,
immediately before entry into force of the Treaty, contract numbered 91-13 in the same terms as
that contract, modified to take into account the administrative structure under the Treaty, or as
otherwise agreed by Timor-Leste and Australia, and this is that first mentioned contract;
NOW, therefore, in consideration of the mutual covenants herein contained, it is agreed as
follows:
Date: 2nd April 2003, 12:30PM
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SECTION 1
SCOPE AND DEFINITIONS
SCOPE
1.1
This contract is a production sharing contract subject to the Treaty, including the
Petroleum Mining Code. The Designated Authority shall be responsible for the management of
the activities contemplated hereunder in accordance with its management functions defined under
the Treaty, including the Petroleum Mining Code. The contractor appoints and authorises
ConocoPhillips JPDA Pty Ltd, being one of the contracting corporations, to be the contract
operator who, on behalf of the contractor, shall be responsible to the Designated Authority for the
execution of petroleum activities in accordance with the provisions of this contract, and is hereby
appointed and constituted as the exclusive corporation to conduct petroleum activities.
The contractor shall provide all human, financial and technical resources required for the
performance of petroleum activities authorised by this contract, and shall therefore have an
economic interest in the development of the petroleum pools in the contract area and be entitled
to share in petroleum produced from the contract area in accordance with the provisions of
Section 7 of this contract.
1.2
Except for expenditures on capital costs for the development of petroleum pools, the
contractor shall not incur interest expenses to finance petroleum activities.
DEFINITIONS
1.3
Words and terms used in this contract shall have the same meaning as those defined in
the Treaty, including the Petroleum Mining Code, as referred to in Article 7(b) to the Treaty,
except where a new definition is expressly provided for in this contract.
“affiliated corporation or affiliate” means a corporation or other entity that controls, or is
controlled by a Party to this contract, it being understood that control shall mean
ownership by one corporation or entity of at least fifty (50) per cent of:
(i)
(ii)
the voting stock, if the other corporation is a corporation issuing stock; or
the controlling rights or interests, if the other entity is not a corporation.
“barrel” means a quantity or unit of oil, having a volume of forty-two (42) United States
gallons at the temperature of sixty (60) degrees Fahrenheit.
“contract area” means the area, not relinquished or surrendered, constituted by the blocks
which are the subject of this contract and which are specified in Appendices A and B of
this contract.
Date: 2nd April 2003, 12:30PM
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“contract year” appearing before or in relation to a calendar year means the period
commencing on 17 December of that calendar year and ending on 16 December of the
following calendar year, except that when appearing before or in relation to the calendar
year 2002 it means the period commencing on 20 May 2002 and ending 16 December
2003.
“crude oil” means crude mineral oil and all liquid hydrocarbons in their natural state or
obtained from natural gas by condensation or extraction.
“development plan” means a description of the proposed petroleum reservoir
development and management program, details of the production facilities, the
production profile for the expected life of the project, the estimated capital and noncapital expenditure covering the feasibility, fabrication, installation and pre-production
stages of the project, and an evaluation of the commerciality of the development of the
petroleum from within a discovery area.
“exploration and appraisal strategy” means a brief description of the
exploration/geological play concepts for, the extent to which the leads and prospects are
identified in, and the data reviews, seismic surveys and exploration wells planned for the
contract area.
“first tranche petroleum” means the quantity of petroleum production defined in
subsection 9 of Section 7.
“force majeure” means circumstances beyond the control and without the fault or
negligence of the contract operator and the Designated Authority including but not
restricted to acts of God or the public enemy, perils of navigation, fire, hostilities, war
(declared or undeclared), blockade, labor disturbances, strikes, riots, insurrections, civil
commotion, quarantine restrictions, epidemics, storms, earthquakes, or accidents.
“natural gas” means all gaseous hydrocarbons, including wet mineral gas, dry mineral
gas, casinghead gas and residue gas remaining after the extraction of liquid hydrocarbons
from wet gas.
“previous contract” means contract numbered 91-13 as mentioned in the Recitals.
SECTION 2
TERM OF THIS CONTRACT
2.1
Subject to the provisions of this Section and Section 13, the term of this contract shall
commence on the effective date of the Treaty, being 20 May 2002, (the effective date) and shall
expire on the last moment of 16 December 2021 (the expiration date). Notwithstanding the
foregoing, all work programmes, expenditures and approvals, including but not limited to
decisions, notices, returns and audits related thereto and all correspondence (written or oral),
results and submissions in support of such work programmes, expenditures, approvals, decisions,
notices, returns and audits under the previous contract shall be deemed to have occurred under
this contract and the contractor shall be entitled to rely upon such. Information supplied by the
Contractor under the previous contract is deemed to have been supplied under this contract.
Date: 2nd April 2003, 12:30PM
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[2.2 – paragraph deliberately omitted]
[2.3 – paragraph deliberately omitted]
2.4
If petroleum is discovered in any block or blocks of the contract area which the
Designated Authority and the contract operator agree can be produced commercially, based on
the consideration of all pertinent operating and financial data, then as to that particular block or
blocks of the contract area the Designated Authority shall declare a discovery area and the
contract operator shall commence development. In other blocks in the contract area, the contract
operator shall continue exploration.
2.5
If petroleum production has not ceased permanently in and from the contract area by the
expiration date, the Designated Authority shall give sympathetic consideration to extending the
term of this contract until production ceases permanently. In the case of a natural gas project, the
contract term shall be automatically extended to the end of the term of the natural gas sales
contract.
2.6
If petroleum production has ceased permanently in and from the contract area before the
expiration date, then this contract shall be terminated upon the permanent cessation of production.
SECTION 3
RELINQUISHMENT OF BLOCKS
[3.1 – paragraph deliberately omitted]
[3.2 – paragraph deliberately omitted]
[3.3 – paragraph deliberately omitted]
[3.4 – paragraph deliberately omitted]
3.5
Upon thirty (30) days written notice to the Designated Authority prior to the end of any
contract year, the contract operator shall have the right to surrender some, but not all, of the
blocks in the contract area, provided the conditions of the contract have been met to the
satisfaction of the Designated Authority.
3.6
The contract operator shall advise the Designated Authority in advance of the date of
relinquishment of the blocks to be relinquished. For the purpose of relinquishments, the contract
operator and the Designated Authority shall consult with each other regarding which blocks are to
be relinquished. So far as is reasonable, such blocks shall form an area of sufficient size and
convenient shape to enable petroleum activities to be conducted thereon.
[3.7 - paragraph deliberately omitted]
SECTION 4
WORK PROGRAM AND EXPENDITURES
Date: 2nd April 2003, 12:30PM
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4.1
The contract operator shall continue with petroleum activities being carried out on the
effective date.
The Designated Authority and the contract operator shall agree to an exploration work program
and expenditures for each contract year.
[4.2 – paragraph deliberately omitted]
[4.3 – paragraph deliberately omitted]
[4.4 – paragraph deliberately omitted]
[4.5 – paragraph deliberately omitted]
[4.6 – paragraph deliberately omitted]
4.7
At least two (2) months prior to the beginning of each contract year, the contract operator
shall prepare and submit, for approval by the Designated Authority, an exploration and appraisal
strategy to be adopted for the ensuing contract year for the contract area.
4.8
At least one (1) month prior to the beginning of each calendar year, the contract operator
shall prepare and submit, for approval by the Designated Authority, a work program and budget
of operating costs to be carried out during the ensuing calendar year for the contract area.
4.9
Before work can commence on the development of a petroleum discovery, the contract
operator shall prepare and submit, for approval by the Designated Authority, a development plan.
4.10
Should the Designated Authority wish to propose a revision to specified aspects of the
work program and budget of operating costs, the Designated Authority shall specify its reasons
for requesting those changes but shall not require the contract operator to undertake more
petroleum activities than the minimum work program and expenditure commitments specified in
this contract. The Parties shall reach agreement on any changes before they become effective.
4.11
It is recognised by the Designated Authority that the details of the work program and
budget of operating costs, and the development plan may require changes in the light of existing
circumstances and nothing herein contained shall limit the rights of the contract operator to make
such changes, provided they do not change the general objective, quantity and quality of the
petroleum activities.
4.12
The Designated Authority shall ensure that every effort is made to avoid delays in
approving the exploration and appraisal strategy, the work program and budget of operating costs,
and the development plan.
SECTION 5
RIGHTS AND OBLIGATIONS OF THE PARTIES
5.1
The contract operator shall have the rights accorded to it under the Treaty, including the
Petroleum Mining Code and the taxation code, and in particular shall:
Date: 2nd April 2003, 12:30PM
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(a)
subject to paragraph (k) of subsection 2 of this Section, have the right to enter
and leave the contract area and move to and from the contract operator’s facilities
wherever located at all times;
(b)
have the right to have access to and use all geological, geophysical, drilling, well
(including well location maps), production and other information held by the
Designated Authority relating to the contract area; and
(c)
in accordance with the provisions of the Petroleum Mining Code, have the right
to have access to and use all geological, geophysical, drilling, well, production
and other information now or in the future held by the Designated Authority
relating to the blocks in the Joint Petroleum Development Area adjacent to the
contract area.
5.2
The contract operator shall comply with all of the obligations imposed on it by the
Treaty, including the Petroleum Mining Code and the taxation code, and the regulations and
directions issued under the Petroleum Mining Code and, in particular, shall:
(a)
provide all human, financial and technical resources required for the performance
of the petroleum activities;
(b)
carry out petroleum activities in a proper and workmanlike manner and in
accordance with good oilfield practice;
(c)
take the necessary precautions to avoid interference with navigation and fishing;
(d)
develop an environmental management plan to be approved by the Designated
Authority, prevent pollution of the marine environment, and pay for the costs
associated with clean-up of any pollution from any petroleum activities within
the contract area;
(e)
upon the termination of this contract, clean-up the contract area and remove all
structures, equipment and other property brought into the contract area;
(f)
submit to the Designated Authority copies of all original geological, geophysical,
drilling, well, production and other data (including cores, cuttings and samples
taken in connection with petroleum activities in the contract area) and reports
compiled during the term of this contract;
(g)
appoint and authorise a person to represent the contract operator and
communicate with the Designated Authority, and that person shall have an office
in either Dili or Darwin or both;
(h)
give preference to goods and services which are produced in Australia or TimorLeste, or provided by subcontractors operating out of Australia or Timor-Leste,
provided they are offered on competitive terms and conditions compared with
those available from other countries;
Date: 2nd April 2003, 12:30PM
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(i)
give preference to the employment of Timor-Leste nationals and permanent
residents, having due regard to safe and efficient activities and good oilfield
practice;
(j)
take out and maintain, to the Designated Authority’s satisfaction, from the
effective date of this contract, insurance cover to the value of not less than
US$40 million in accordance with Article 25 of the Petroleum Mining Code;
(k)
except as otherwise approved by the Designated Authority, ensure that all
persons, equipment and goods do not enter structures in the contract area without
first entering Australia or Timor-Leste, and notify the Designated Authority of all
persons, vessels, aircraft and structures entering or leaving the contract area, and
of movements within the contract area; and
(l)
make secure and safe all structures in the contract area, including the installation
of warning lights, radar and other appropriate equipment.
5.3
The contractor shall have the rights accorded under the Treaty, including the Petroleum
Mining Code and the taxation code, and in particular shall:
(a)
have the right to appoint a new contract operator subject to prior approval by the
Designated Authority;
(b)
have the right to transfer all or part of its undivided participating interest in this
contract to any affiliated corporation or any other corporation with the approval
of the Designated Authority. Such approval shall not be unreasonably withheld
provided the corporation taking up those rights and obligations under this
contract has, in the opinion of the Designated Authority, the necessary financial
capability and technical knowledge and ability, in accordance with Article 11 of
the Petroleum Mining Code.
(c)
have the right during the term of this contract to lift, dispose of and export its
share of petroleum production, subject to Section 7 of this contract, and retain
abroad the proceeds obtained therefrom; and
(d)
have the right to retain ownership and control of all property purchased or leased
for the purposes of complying with the conditions of this contract, and be entitled
to freely remove the same from the contract area, Australia or Timor-Leste
provided the conditions of this contract have been met.
5.4
The contractor shall comply with all of the obligations imposed on it by the Treaty,
including the Petroleum Mining Code and the taxation code, and the regulations and directions
issued under the Petroleum Mining Code and, in particular, shall:
(a)
be jointly and severally liable to meet the obligations imposed on the contract
operator; and
(b)
be subject to the taxation law of the Contracting States, in accordance with
Article 5 of the Treaty and Annex (G) of the Treaty.
Date: 2nd April 2003, 12:30PM
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5.5
The Designated Authority shall comply with all of the obligations imposed on it by the
Treaty, including the Petroleum Mining Code and, in particular, shall be responsible for the
management of the petroleum activities contemplated hereunder having regard to the contract
operator’s responsibilities for undertaking the petroleum activities.
SECTION 6
OPERATING COSTS
GENERAL PROVISIONS
6.1
The accounting procedures in this Section shall be followed and observed in the
performance of the contractor’s obligations under the contract.
6.2
The contractor’s books and accounts shall be prepared and maintained in accordance with
a generally accepted and recognised accounting system consistent with modern petroleum
industry practices and procedures. Books and accounts shall be available for the use of the
Designated Authority in order that it may carry out its auditing responsibilities under this
contract.
6.3
“Operating costs” means the sum of the following costs incurred in petroleum activities
undertaken before or at the point of tanker loading:
(a)
current calendar year exploration costs;
(b)
current calendar year non-capital costs;
(c)
current calendar year depreciation of capital costs; and
(d)
allowable operating costs incurred in previous calendar years which have not
been recovered in accordance with subsection 2 of Section 7 of this contract;
less
(e)
miscellaneous receipts as defined in subsection 8 of this Section.
6.4
All calculations required to determine operating costs shall be done in United States
dollars. Where costs are denoted in any other currency, they shall be translated into United States
dollars at the exchange rate set, on the day the cost was incurred, by a bank designated by the
Designated Authority.
EXPLORATION COSTS
6.5
“Exploration costs” means those operating costs incurred which relate directly to the
current calendar year’s exploration activities in the contract area and include but are not limited to
the following:
(a)
costs of exploratory and appraisal drilling in the contract area including labor,
materials and services used in the drilling of wells with the object of finding
unproven reservoirs of petroleum;
Date: 2nd April 2003, 12:30PM
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(b)
costs of surveys in the contract area including labor, materials and services
(including desk studies and analysis of survey data) used in aerial, geological,
geochemical, geophysical and seismic surveys, and core hole drilling; and
(c)
costs of other exploration directly related to petroleum activities in the contract
area, including the cost of auxiliary or temporary facilities used in exploration.
NON-CAPITAL COSTS
6.6
“Non-capital costs” means those operating costs incurred that relate directly to the current
calendar year’s activities in the contract area, excluding exploration costs and capital costs. Noncapital costs include, but are not limited to the following:
(a)
costs of labor, materials and services used in day to day well activities, field
production facilities activities, secondary recovery activities, storage handling,
transportation and delivery activities, gas processing auxiliaries and utilities, and
other operating activities, including repairs and maintenance;
(b)
costs of office, services and general administration directly related to the
petroleum activities carried out in the contract area including technical and
related services, office supplies, office rentals and other rentals of services and
property, and personnel expenses;
(c)
costs of production drilling in the contract area including labor, materials and
services used in drilling wells with the object of penetrating a proven reservoir
such as the drilling of delineation wells as well as redrilling, deepening or
recompleting wells;
(d)
costs of feasibility studies and environmental impact assessments directly related
to petroleum activities in the contract area;
(e)
application fees, contract service fees, and registration fees directly related to
petroleum activities in the contract area;
(f)
premiums paid for insurance normally required to be carried for the petroleum
activities carried out by the contract operator under this contract;
(g)
closing down costs, being those expenditures incurred at the end of the
production life of a petroleum pool in the contract area which could include the
costs of:
(h)
(i)
removal of all production facilities including the removal of platforms
and associated facilities;
(ii)
environmental restoration including any feasibility studies; and
costs of purchased geological and geophysical information.
CAPITAL COSTS
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6.7
“Capital costs” means expenditures made for items directly related to petroleum activities
in the contract area and which normally have a useful life of more than one (1) year. Capital costs
include but are not limited to the following:
(a)
costs of construction utilities and auxiliaries, workshops, power and water
facilities, warehouses, site offices, access and communication facilities;
(b)
costs of production facilities including offshore platforms (including the costs of
labor, fuel hauling and supplies for both the offsite fabrication and onsite
installation of platforms, and other construction costs in erecting platforms),
wellhead production tubing, sucker rods, surface pumps, flow lines, gathering
equipment, delivery lines, storage facilities, all other equipment, facilities and
modules on platforms, oil jetties and anchorages, treating plants and equipment,
secondary recovery systems, gas plants and steam systems;
(c)
costs of pipelines and other facilities for the transporting of petroleum produced
in the contract area to the point of tanker loading;
(d)
costs of movable assets and subsurface drilling and production tools, equipment
and instruments, and miscellaneous equipment used for production in the
contract area;
(e)
costs of floating craft, automotive equipment, furniture and office equipment; and
(f)
if approved by the Designated Authority, costs of employee and welfare housing,
recreational, educational, health and meals facilities, and other similar costs
necessary for petroleum activities in the Joint Petroleum Development Area.
MISCELLANEOUS RECEIPTS
6.8
“Miscellaneous receipt” means the value of property defined in paragraph (c) below and
all monies received by the contractor, other than for the disposal of petroleum produced from the
contract area, which are directly related to the conduct of petroleum activities in the contract area.
Miscellaneous receipts include, but are not limited to, the following:
(a)
any amounts received from the sale or disposal of petroleum produced from
production testing activities undertaken in exploration and appraisal wells;
(b)
any amounts received for the disposal, loss, or destruction of property the cost of
which is an operating cost;
(c)
the value of property, the cost of which is an operating cost, when that property
ceases to be used in petroleum activities in the contract area;
(d)
any amounts received by the contract operator under an insurance policy, the
premiums of which are operating costs, in respect of damage to or loss of
property;
(e)
any amounts received as insurance, compensation or indemnity in respect of
petroleum production lost or destroyed prior to the point of tanker loading;
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(f)
any amounts received from the hiring or leasing of property, the cost of which is
an operating cost;
(g)
any amounts received from supplying information obtained from surveys,
appraisals, or studies the cost of which is an operating cost;
(h)
any amounts received as charges for the use of employee amenities, the cost of
which is an operating cost; and
(i)
any amounts received in respect of expenditures which are operating costs, by
way of indemnity or compensation for the incurring of the expenditure, refund of
the expenditure, or rebate, discount or commission in respect of the expenditure.
INELIGIBLE COSTS
6.9
The following expenditures are not eligible as operating costs:
(a)
payments of principal or interest on a loan or other borrowing costs unless
approved by the Designated Authority under paragraph (c) of subsection 10 of
this Section;
(b)
payments of interest components of credit-purchase payments;
(c)
payments of dividends or the cost of issuing shares;
(d)
repayments of equity capital;
(e)
payments of private override royalties;
(f)
payments associated with a farm-in agreement;
(g)
payments of taxes under the taxation law of either Contracting State made in
accordance with Article 5 of the Treaty and Annex (G) of the Treaty;
(h)
payments of administrative accounting costs, and other costs indirectly associated
with petroleum activities in the contract area;
(i)
costs incurred once petroleum production has passed the point of tanker loading;
(j)
costs incurred as a result of non-compliance by the contract operator with the
provisions of this contract, the Petroleum Mining Code or the regulations and
directions issued under the Petroleum Mining Code; and
(k)
unless otherwise approved by the Designated Authority, costs incurred by
contractors other than the contract operator.
ACCOUNTING METHODS TO BE USED TO CALCULATE RECOVERY OF OPERATING
COSTS
6.10
The following methods shall be used to calculate the recovery of operating costs.
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(a)
Depreciation
Depreciation shall be calculated beginning in the calendar year in which the asset
to be depreciated is placed into service. A full year’s depreciation shall be
allowed in that calendar year. In each calendar year the allowable recovery of
capital cost depreciation shall be twenty (20) per cent of the individual asset’s
initial capital cost (calculated using the straight line method of depreciation).
(b)
Allocation of overhead costs
General and administration costs, such as those listed in paragraph (b) of
subsection 6 of this Section, but other than direct charges, allocable to petroleum
activities in the contract area shall be determined by a detailed study, and the
method determined by such a study shall be applied each year consistently. The
method determined shall require agreement of the Designated Authority and the
contractor.
(c)
Interest Recovery
Interest on loans obtained by a contractor at rates not exceeding prevailing
commercial interest rates on loans for capital investments in development of
petroleum pools may be recoverable as an operating cost provided the
Designated Authority has given its approval. The Designated Authority may give
its approval if it is satisfied that recovery of interest is necessary to ensure the
financial viability of the project.
(d)
Gas Costs
The following procedures shall be used to allocate operating costs related to
natural gas production.
(i)
Operating costs directly related to the production of natural gas shall be
directly chargeable against natural gas revenues in determining the
entitlements of the Designated Authority and the contractor under
Section 7.
(ii)
Operating costs incurred for the production of both natural gas and crude
oil shall be allocated to natural gas and crude oil revenues based on the
relative value of the products produced for the current calendar year.
Common support costs shall be allocated on an equitable basis agreed to
by both Parties.
(iii)
If after commencement of production, the natural gas revenues do not
permit full recovery of natural gas costs, as outlined above, then the
excess costs shall be recovered from crude oil revenues. Likewise, if
there are excess crude oil costs (crude oil costs less crude oil revenues),
this excess shall be recovered from natural gas revenues.
(iv)
If production of either natural gas or crude oil has commenced while the
other has not, the allocable production costs and common support costs
shall be allocated on an equitable basis agreed to by both Parties.
Propane and butane fractions extracted from natural gas but not spiked in
crude oil shall be deemed as natural gas for the purpose of accounting.
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(e)
Inventory Accounting
Inventory levels shall be based on normal good oilfield practice. The value of
inventory items used outside the contract area or sold, the cost of which has been
recovered as an operating cost, shall be treated as miscellaneous receipts in
accordance with subsection 8 of this Section. The costs of items purchased for
inventory shall be recoverable as operating costs at such time as the items are
landed in the Joint Petroleum Development Area.
(f)
Insurance and Claims
Operating costs shall include premiums paid for insurance normally required to
be carried for the petroleum activities relating to the contractor’s obligations
conducted under the contract, together with all expenditures incurred and paid in
settlement of any and all losses, claims, damages, judgements and other
expenses, including fees relating to the contractor’s obligations under the
contract.
(g)
Apportioning of Costs and Miscellaneous Receipts
Where property, or any other thing, for which an operating cost is allowable or a
miscellaneous receipt is assessable, is only used partially in conducting
petroleum activities in the contract area, only that proportion of the cost or the
receipt which relates to the conduct of petroleum activities in the contract area
shall be allowed as an operating cost or assessed as a miscellaneous receipt.
SECTION 7
RECOVERY OF OPERATING COSTS AND SHARING OF PETROLEUM PRODUCTION
7.1
The contractor is authorised by the Designated Authority and obliged to market all
petroleum produced and saved from the contract area subject to the following provisions.
7.2
Subject to subsections 9 and 10 of this Section, to recover operating costs, the contract
operator shall be entitled to a quantity of petroleum production, which is produced and saved
hereunder and not used in petroleum activities, equal in value to those costs. If in any calendar
year, the operating costs exceed the value of petroleum produced and saved hereunder and not
used in petroleum activities, then the unrecovered excess of operating costs shall be carried
forward and recovered in succeeding years.
7.3
In each calendar year in which petroleum is produced from the contract area, if the
investment credit and operating costs recoverable under subsections 10 and 2 of this Section
respectively are less than the value of the quantity of petroleum produced from the contract area,
then of the petroleum production remaining after deducting the quantity of petroleum production
equal in value to the investment credit and operating costs, the Parties shall be entitled to take and
receive the following:
(a)
the Designated Authority fifty (50) per cent and the contractor fifty (50) per cent
for the tranche of 0 to 50,000 barrels daily average of all crude oil production
from the contract area for the calendar year;
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(b)
the Designated Authority sixty (60) per cent and the contractor forty (40) per cent
for the tranche of 50,001 to 150,000 barrels daily average of all crude oil
production from the contract area for the calendar year; and
(c)
the Designated Authority seventy (70) per cent and the contractor thirty (30) per
cent for the tranche of more than 150,000 barrels daily average of all crude oil
production from the contract area for the calendar year.
For the purposes of calculating the daily average of all crude oil production in the calendar year
when the first commercial production of crude oil from the contract area is produced, the daily
average production shall be calculated by reference to the number of days in the calendar year
from the day when commercial production commenced. In the calendar year when commercial
production of crude oil from a contract area is terminated, the daily average production shall be
calculated by reference to the number of days in the calendar year up to the day on which
production is terminated in the contract area.
7.4
The method of recovering investment credits and operating costs before the entitlements
are taken by each Party as provided under subsection 3 of this Section shall be subject to the
following proration method. For each calendar year, the recoverable investment credits and
operating costs shall be apportioned for deduction from the production of each of the tranches
defined in subsection 3 of this Section using the same ratios as the production from each such
tranche over the total production of that calendar year.
7.5
Of the amount of natural gas, including propane and butane fractions extracted from
natural gas but not spiked in crude oil, remaining after recovering investment credits and
operating costs associated with natural gas activities, the Designated Authority shall be entitled to
take and receive fifty (50) per cent and the contractor shall be entitled to take and receive fifty
(50) per cent.
7.6
Title to the contractor’s share of petroleum production under subsections 3, 5 and 9 of
this Section as well as to the shares of petroleum production exported and sold to recover
investment credits and operating costs under subsections 10 and 2 of this Section respectively
shall pass to the contractor at the point of tanker loading.
7.7
The contractor shall use its best reasonable efforts to market petroleum production to the
extent markets are available.
7.8
Any natural gas produced from the contract area and not used in petroleum activities
hereunder may be flared if the processing and utilisation of the natural gas is not considered by
the Parties to be economic. Such flaring shall be permitted to the extent that gas is not required to
enable the maximum economic recovery of petroleum by secondary recovery activities, including
repressuring and recycling.
7.9
Notwithstanding the other provisions of this Section, in the initial five (5) calendar years
of production from the contract area (such period to be determined without regard to whether
production commenced under this contract or the previous contract), the Parties shall be entitled
to take and receive a quantity of petroleum equal to ten (10) per cent of the petroleum production
in those years, called the “first tranche petroleum”, before any recovery of investment credits and
operating costs. In each subsequent calendar year, the first tranche petroleum shall be equal to
twenty (20) per cent of the petroleum produced in that year. The quantity of first tranche
petroleum from crude oil production for each calendar year shall be shared between the
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Designated Authority and the contractor in accordance with the sharing percentages as provided
under subsection 3 of this Section, by apportioning it as applicable to the respective production
tranches as therein defined, using the same ratios as the production from each such tranche over
the total production of that calendar year. The quantity of first tranche petroleum from natural gas
production for each calendar year, including propane and butane fractions extracted from natural
gas but not spiked in crude oil, shall be shared between the Designated Authority and the
contractor in accordance with the sharing percentages as provided under subsection 5 of this
Section. The initial five (5) calendar years of production is to commence on the day when the first
commercial production of petroleum is produced and shall end at midnight (2400 hours) local
time, being 1600 hours Greenwich Mean Time on the day preceding the fifth anniversary of this
first commercial production from the contract area.
7.10
Investment credits for exploration and capital costs defined in subsection 5 of Section 6
and paragraphs (b), (c) and (d) of subsection 7 of Section 6 shall be allowed to the contract
operator, and, in each calendar year, shall be recoverable by the contract operator after the sharing
of the first tranche petroleum but before the recovery of operating costs. The contract operator
shall recover the investment credits, as a quantity of petroleum production equal in value to one
hundred and twenty seven (127) per cent of such exploration and capital costs incurred.
Investment credits not recovered in the calendar year in which the exploration and capital costs
were incurred may be carried forward and recovered in subsequent years.
7.11
Notwithstanding the provisions of subsection 1 of this Section which oblige the
contractor to market all petroleum produced from the contract area, the Designated Authority may
market any or all petroleum when the Designated Authority secures a net realized price for the
petroleum, f.o.b. the contract area, which is greater than the price which can be realized by the
contractor. The Designated Authority’s right to market any or all of the petroleum shall continue
for such period as it can secure a net realized price, f.o.b. the contract area, greater than that
which can be realized by the contractor. The contract operator shall coordinate the efficient lifting
of the petroleum production, including tanker nomination and scheduling.
SECTION 8
VALUATION OF PETROLEUM PRODUCTION
8.1
Petroleum production sold to third parties shall be valued as follows:
(a)
all petroleum production to which the contractor is entitled under this contract
and which is sold to third parties, shall be valued at the net realized price, f.o.b.
the contract area;
(b)
all petroleum production to which the Designated Authority is entitled under this
contract which is sold to third parties shall be valued at the net realized price.
f.o.b. the contract area; and
(c)
where a contract of sale involves other than a net realized price f.o.b., the
Designated Authority shall determine a fair and reasonable net f.o.b. price for the
purposes of that sale.
8.2
Petroleum production sold to other than third parties shall be valued by the Designated
Authority as follows:
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(a)
by using the weighted average per unit price, adjusted as necessary for quality,
quantity, grade and specify gravity of the petroleum production, received by the
contractor and the Designated Authority from sales to third parties during the
three (3) months preceding such sale, excluding commissions and brokerages
incurred in relation to such third party sales; and
(b)
if there are no third party sales as defined in paragraph (a), at prevailing market
prices, adjusted to take account of quality, quantity, grade and specific gravity of
the petroleum production and taking into consideration any special circumstances
with respect to sales of such petroleum production.
8.3
For the purpose of this Section, 'third party sales' means sales by the contractor to
independent purchasers with whom, at the time the sale is made, the contractor has no direct or
indirect contractual relationship or joint interest.
8.4
Commissions or brokerages incurred in connection with sales to third parties, if any, shall
not exceed the customary and prevailing rate.
8.5
During any calendar year in which petroleum is produced from the contract area, the
contractor shall be liable to make provisional payments to the Designated Authority, equal to the
estimated value of petroleum to which the Designated Authority is entitled under Section 7 of this
contract. The provisional payments shall be made on a monthly basis unless the Designated
Authority and the contractor agree on alternate arrangements. The amount of each provisional
payment shall be calculated by the contractor using the estimates of operating costs contained in
the work program and budget of operating costs, and the contractor's estimate of the value of
quantities of petroleum sold. During the calendar year the provisional payments may be adjusted
having regard to actual operating costs and the actual value of sales of petroleum. Within
thirty(30) days after the end of the calendar year, adjustments and cash settlements between the
Designated Authority and the contractor shall be made on the basis of the actual amounts of the
operating costs and actual value of sales of petroleum made during the calendar year, in order to
comply with Section 7. Similarly, where the Designated Authority markets petroleum production
pursuant to subsection 11 of Section 7, the Designated Authority shall be liable to make
provisional payments to the contractor in a manner consistent with this subsection.
8.6
Petroleum production disposed of other than by sale or destruction shall be valued using
the method defined in subsection 2 of this Section.
8.7
The contractor shall notify the Designated Authority of quantities and sales prices of all
petroleum production sold or disposed of before the sales or disposals are made.
SECTION 9
PAYMENTS
9.1
The contract operator shall make all payments to the Designated Authority for which it is
liable under this contract in United States dollars or some other currency agreed between the
contract operator and the Designated Authority. Payments shall be made to a bank designated by
the Designated Authority. Where a payment is made in currency other than United States dollars,
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the exchange rate used to convert the United States dollars liability into that currency shall be the
exchange rate set down on the day of payment by a bank designated by the Designated Authority.
9.2
The Designated Authority shall make all payments to the contract operator in United
States dollars or some other currency agreed between the contract operator and the Designated
Authority. Where a payment is made in currency other than United States dollars, the exchange
rate used to convert the United States dollar liability into that currency shall be the exchange rate
set down on the day of payment by a bank designated by the Designated Authority.
9.3
Any payments required to be made pursuant to this contract shall be made within ten (10)
days following the end of the month in which the obligation to make such payments is incurred.
SECTION 10
TENDERS FOR PETROLEUM ACTIVITIES
10.1
The contract operator shall draw invitations to tender or sub-contracts to the attention of
Australian and Timor-Leste sub-contractors
10.2
Subject to subsection 4 of this Section, all tenders for petroleum activities called by the
contract operator shall be subject to approval by the Designated Authority.
10.3
The Designated Authority shall provide its approval or non-approval within thirty (30)
days of receipt of the tender details from the contract operator. The tender details to be provided
by the contract operator shall include a summary of the tenders received compared against the
tender criteria determined by the contract operator and the reasons for the selection of the
preferred tender.
10.4
Notwithstanding subsection 2 of this Section, the contract may enter into sub-contracts
without the approval of the Designated Authority where:
(a)
the tender for petroleum activities is expected to involved expenditure of less
than US$ two million (2,000,000);
(b)
the tender for petroleum activities is expected to involve expenditure of less than
US$ ten million (10,000,000) and those activities form part of a project for the
development of petroleum resources, the cost of which is expected to exceed
US$ one hundred million (100,000,000); or
(c)
the tender selected by the contract operator is the lowest cost tender and has been
submitted by an Australian or Timor-Leste corporation.
10.5
The contract operator shall provide the Designated Authority, for information, with full
financial details of the sub-contract, irrespective of the amount of the expenditure involved.
SECTION 11
TITLE TO EQUIPMENT
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11.1
Equipment purchased by the contract operator pursuant to the work program and budget
of operating costs remains the property of the contractor and shall be used in petroleum activities.
SECTION 12
CONSULTATION AND ARBITRATION
12.1
Periodically, the Designated Authority and the contract operator shall meet to discuss the
conduct of petroleum activities under this contract and shall make every effort to settle amicably
any problems arising therefrom.
12.2
Disputes, if any, arising between the Designated Authority and contractor relating to this
contract or the interpretation and performance of this contract which cannot be settled amicably
shall be submitted to arbitration.
12.3
Except as may be otherwise agreed by the Parties, arbitration shall be conducted in
accordance with the Rules of Arbitration of the International Chamber of Commerce.
12.4
The Designated Authority on the one hand and the contractor on the other hand shall each
appoint one arbitrator and so advise the other Party, and these two arbitrators shall appoint a third.
If either Party fails to appoint an arbitrator within thirty (30) days after receipt of a written request
to do so, such arbitrator shall, at the request of the other Party, if the Parties do not otherwise
agree, be appointed by the President of the International Chamber of Commerce. If the first two
arbitrators appointed as aforesaid fail to agree on a third within thirty (30) days following the
appointment of the second arbitrator, the third arbitrator shall, if the Parties do not otherwise
agree, be appointed, at the request of either Party, by the President of the International Chamber
of Commerce. If an arbitrator fails or in unable to act, that arbitrator's successor shall be
appointed in the same manner as the arbitrator who is replaced.
12.5
The decision of the majority of the arbitrators shall be final and binding upon the Parties
and an award may be enforced in any court having jurisdiction for that purpose. In accordance
with paragraph (b) of Article 4 of the Treaty, in the event that the Designated Authority cannot
meet an obligation under an arbitral award arising from a dispute under this contract, the
Contracting States shall contribute the necessary funds in the same proportion as set out in
paragraph (a) of Article 4 of the Treaty to enable the Designated Authority to meet that
obligation.
12.6
The place of arbitration shall be Singapore. The language of arbitration shall be the
English language.
SECTION 13
TERMINATION
[13.1 – paragraph deliberately omitted]
13.2
This contract may be terminated at any time by agreement of the Parties or in accordance
with Article 48 of the Petroleum Mining Code.
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SECTION 14
BOOKS, ACCOUNTS AND AUDITS
BOOKS AND ACCOUNTS
14.1
In addition to any requirements pursuant to paragraph (b) of subsection 4 of Section 5,
the contractor shall keep complete books and accounts recording all operating costs as well as
monies received from the sale or disposal of petroleum production.
AUDITS
14.2
The Designated Authority may require independent auditing of the contractor's books and
accounts relating to this contract for any calendar year and may require the independent auditor to
perform such auditing procedures as are deemed appropriate by the Designated Authority. The
contractor shall forward a copy of the independent accountant's report to the Designated
Authority within sixty (60) days following the completion of the audit. The Designated Authority
reserves the right to inspect and audit the contractor's books and accounts relating to this contract.
SECTION 15
OTHER PROVISIONS
NOTICES
15.1
Any notices required or given by either Party to the other shall be served in accordance
with Article 35 of the Petroleum Mining Code.
15.2
All notices to be served on the contract operator shall be addressed to:
ConocoPhillips JPDA Pty Ltd
Level3, 53 Ord Street
West Perth, WA 6872
Australia
Facsimile: +61 8 9423 6675
15.3
All notices to be served on the Designated Authority relating to matters for which the
office of the Designated Authority is responsible shall be addressed to:
Timor Sea Designated Authority for the Joint Petroleum Development Area
8th Floor, Northern Territory House
22 Mitchell Street, Darwin N.T
Australia 0800
Facsimile: +61 8 8981-7365
15.4
All notices to be served on the Designated Authority relating to matters for which the
Technical Directorate of the Designated Authority is responsible shall be addressed to:
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Timor Sea Designated Authority for the Joint Petroleum Development Area
8th Floor, Northern Territory House
22 Mitchell Street, Darwin N.T
Australia 0800
Facsimile: +61 8 8981-7365
15.5
Either Party may substitute or change the above such address by giving written notice to
the other.
APPLICABLE LAW
15.6
Subject to the provisions of the Treaty, including the Petroleum Mining Code, the law of
England shall apply to this contract.
SUSPENSION OF OBLIGATIONS
15.7
Any failure or delay on the part of either Party in the performance of its obligations or
duties under the contract shall be excused to the extent that such failure or delay is attributable to
force majeure.
15.8
If exploration is delayed, curtailed or prevented by force majeure the Designated
Authority shall agree to vary the work program and expenditure commitments or exempt the
contract operator from part or all of the work program and expenditure commitments during the
period of force majeure.
15.9
The Party whose ability to perform its obligations is so affected by force majeure shall
immediately notify the other Party in writing, stating the cause, and both Parties shall do all that
is reasonably within their power to discharge their obligations.
SECTION 16
EFFECTIVENESS
16.1
This contract shall be deemed to come into effect on 20 May 2002.
16.2
This contract shall not be amended or modified in any respect, except by the mutual
consent in writing of the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this contract, in five original copies
and in the English language, on this 2 day of April, 2003.
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APPENDIX A
Description of contract area
Commencing at the point of Latitude 10°59'00" South and Longitude 126 40'00" East; proceed
east to the point of Latitude 10°59'00" South and Longitude 126°46'00" East; then proceed south
to the point of Latitude 11°00'00" South and Longitude 126°46'00" East; then proceed east to the
point of Latitude 11°00'00" South and Longitude 126°47'00" East; then proceed south to the point
of Latitude 11°01'00" South and Longitude 126°47'00" East; then proceed east to the point of
Latitude 11°01'00" South and Longitude 126°48'00" East; then proceed south to the point of
11°02'00" South and Longitude 126°48'00" East; then proceed east to the point of Latitude
11°02'00" South and Longitude 126°51'00" East; then proceed south to the point of Latitude
11°07'00" South and Longitude 126°51'00" East; then proceed west to the point of Latitude
11°07'00" South and Longitude 126°50'00" East; then proceed south to the point of Latitude
11°09'00" South and Longitude 126°50'00" East; then proceed west to the point of Latitude
11°09'00" South and Longitude 126°42'00" East; then proceed south to the point of Latitude
11°10'00" South and Longitude 126°42'00" East; then proceed west to the point of Latitude
11°10'00 South and 126°40'00 East; then proceed north to the point of Latitude 10°59'00 South
and Longitude 126°40'00 East.
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APPENDIX B
Map of contract area
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