-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LYxnczGt/vAoGJbn3XNPXn7OiwrrEMCY5CQ0PDMarfqyNZdlL+Fo+9YnCjZpRHgM WaonGYpxKEGjygOeZoyE9g== /in/edgar/work/0000912057-00-043029/0000912057-00-043029.txt : 20000930 0000912057-00-043029.hdr.sgml : 20000930 ACCESSION NUMBER: 0000912057-00-043029 CONFORMED SUBMISSION TYPE: 20FR12G PUBLIC DOCUMENT COUNT: 33 FILED AS OF DATE: 20000928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSATLANTIC PETROLEUM CORP CENTRAL INDEX KEY: 0001092289 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 841147944 STATE OF INCORPORATION: A0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20FR12G SEC ACT: SEC FILE NUMBER: 000-31643 FILM NUMBER: 731435 BUSINESS ADDRESS: STREET 1: 340 12TH AVE SW, STE 1550 STREET 2: CALGARY ALBERTA T2R 1L5 CITY: CANADA STATE: A0 ZIP: 00000 BUSINESS PHONE: 7136269373 MAIL ADDRESS: STREET 1: 340 12TH AVE SW, STE 1550 STREET 2: CALGARY ALBERTA T2R 1L5 CITY: CANADA STATE: A0 ZIP: 00000 20FR12G 1 a2026270z20fr12g.txt 20FR12G - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 20-F --------------- (MARK ONE) /X/ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 / / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER ___________ TRANSATLANTIC PETROLEUM CORP. (Exact name of Registrant as specified in its charter) ALBERTA, CANADA (Jurisdiction of incorporation or organization) 340 - 12TH AVENUE S.W. SUITE 1550 CALGARY, ALBERTA T2R 1L5 (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: NONE Securities registered or to be registered pursuant to Section 12(g) of the Act. COMMON SHARES, WITHOUT PAR VALUE ------------------------------------------- (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 79,384,092 Common Shares as of August 31, 2000. Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 /X/ Item 18 / / - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I.......................................................... 4 Item 1. Description of Business 4 Item 2. Description of Property 11 Item 3. Legal Proceedings 20 Item 4. Control of Registrant 20 Item 5. Nature of Trading Market 21 Item 6. Exchange Controls and Other Limitations Affecting Security Holders 21 Item 7. Taxation 22 Item 8. Selected Consolidated Financial Data 25 Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Item 9a. Quantitative and Qualitative Disclosures About Market Risk 35 Item 10. Directors and Officers of Registrant 36 Item 11. Compensation of Directors and Officers 37 Item 12. Options to Purchase Securities from Registrant or Subsidiaries 40 Item 13. Interest of Management in Certain Transactions 41 PART II......................................................... 41 Item 14. Description of Securities to Be Registered 41 PART III........................................................ 41 Item 15. Defaults Upon Senior Securities 41 Item 16. Changes in Securities and Changes in Security for Registered Securities 41 PART IV......................................................... 42 Item 17. Financial Statements 42 Item 18. Financial Statements 42 Item 19. Financial Statements and Exhibits 43
-2- GLOSSARY
"Bbl"................... means one barrel. "Bcf"................... means one billion cubic feet. "Bcfe".................. means billion cubic feet of gas equivalent calculated on the basis that one Bbl of crude oil or natural gas liquids is equivalent to six Mcf of natural gas. "BOE"................... means barrels of oil equivalent calculated on the basis that six Mcf of natural gas is equivalent to one barrel of crude oil or natural gas liquids equivalent. "BOE/d"................. means barrels of oil equivalent per day. "Bopd".................. means barrels of oil per day. "Company"............... means TransAtlantic Petroleum Corp. and its wholly owned subsidiaries. "Development well"...... means a well drilled within or in close proximity to a discovered pool of oil or gas. "Exploratory well"...... means a well drilled either in search of a new and as yet undiscovered pool of oil or gas, or with the expectation of significantly extending the limit of a pool which is partly discovered. "Gross acres"........... means the total number of acres in which the Company or its subsidiaries own a working interest. "Gross wells"........... means the total number of wells in which the Company or its subsidiaries own a working interest. "MBbl".................. means one thousand barrels. "MBOE/d"................ means one thousand barrels of oil equivalent per day. "Mcf"................... means one thousand cubic feet. "Mcf/d"................. means one thousand cubic feet per day. "MMBbl"................. means one million barrels. "MMBOE"................. means one million barrels of oil equivalent. "MMcf".................. means one million cubic feet. "MMcf/d"................ means one million cubic feet per day. "Net acres"............. refers to Gross acres multiplied by the Company's or its subsidiaries' working interest percentage therein. "Net wells"............. refers to Gross wells multiplied by the Company's or its subsidiaries' working interest percentage therein. "NGLs".................. means natural gas liquids. "PV-10 Value"........... means the present value of proved reserves and is an estimate of the discounted pre-tax cash flows attributable to estimated net proved reserves. Pre-tax cash flow is defined as net revenues less production and ad valorem taxes, future capital costs and operating expenses, but before deducting federal income taxes. Estimated pre-tax cash flows have been discounted at an annual rate of 10% to determine their "present value." The present value is shown to indicate the effect of the value of the revenue and should not be construed as being the fair market value of the properties. Estimates of reserve quantities and future net cash flows have been made using oil and gas prices and operating costs held constant at prices in effect on the date of the report. "TransAtlantic"......... has the same meaning as Company. "Undeveloped land"...... refers to oil and gas properties to which no reserves are assigned.
CURRENCY REFERENCES Unless otherwise indicated, all sums of money set out in this Form 20-F are expressed in United States dollars. The consolidated financial statements of the Company were historically expressed in Canadian dollars. The U.S. dollar became the principal currency of the Company's business, beginning in January 1998. FORWARD-LOOKING STATEMENTS This Registration Statement on Form 20-F contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, financial condition, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the volatility of oil and gas prices, product supply and demand, market competition, risks inherent in the Company's oil and gas operations, imprecision of reserve estimates, the Company's ability to replace and expand oil and gas reserves, the Company's ability to generate sufficient cash flow from operations to meet its current and future obligations, the Company's ability to access external sources of debt and equity capital, and other factors referenced in this Registration Statement on Form 20-F. Certain of these factors are discussed in more detail elsewhere in this Registration Statement on Form 20-F, including without limitation "Item 1. Description of Business" and "Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations." Given these uncertainties, readers are cautioned not to place -3- undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such forward-looking statements to reflect future events or developments. PART I ITEM 1. DESCRIPTION OF BUSINESS. TransAtlantic Petroleum Corp. is an oil and gas exploration and production company with its primary assets located in Egypt, Nigeria and the United States. In December 1998, the Company's predecessor company, Profco Resources Ltd. ("Profco") amalgamated with GHP Exploration Corporation ("GHP"), a publicly-traded exploration and production company. The Company issued 19,003,828 shares of common stock having a fair market value of $9.1 million to the shareholders of GHP in the amalgamation in exchange for a working capital infusion of $1.9 million and exploration prospects in Egypt, Tunisia and the United States. Profco was incorporated under the laws of the Province of British Columbia in October 1985 and continued under the laws of the Province of Alberta in June 1997. In connection with the amalgamation, Profco changed its name to TransAtlantic Petroleum Corp. and the Company generally began operating under new management. The year ended December 31, 1999 was the Company's first full year of operations following the amalgamation. As of December 31, 1999, the Company's estimated proved reserves totaled 4.77 MMBbls with a PV-10 Value of $12.25 million. Approximately 93% of the Company's reserves are proved producing reserves. The corporate office of the Company is Suite 1550, 340 - 12th Avenue S.W., Calgary, Alberta, T2R lL5. The Company's international operations are conducted out of the office of its wholly owned subsidiary, TransAtlantic Petroleum (USA) Corp., located at Suite 900, 1900 West Loop South, Houston, Texas, 77027. RECENT DEVELOPMENTS In July 1999, the Company successfully completed an exploration well, the Hana-1, on its West Gharib concession, onshore Gulf of Suez, Egypt. The Company owns a 30% working interest in the concession. An appraisal well, the Hana-2, was successfully completed in September 1999. During the first half of 2000, four additional appraisal wells were successfully drilled and completed. Production from the wells is being trucked to a pipeline approximately ten kilometers away while permanent production facilities are being installed, which will be capable of handling up to 15,000 Bopd. These facilities are expected to be completed in the third quarter of 2000. For the six months ending June 30, 2000, average daily production net to the Company from its West Gharib concession was 241 Bopd. The wells are currently producing at an average of 2,473 Bopd (278 Bopd net to the Company). In June 2000, the Company and its partners acquired a 60 square kilometer 3-D survey over several prospects adjacent to the Hana field and recently completed the acquisition of a 400 square kilometer 3-D survey to delineate additional prospects in the West Gharib concession. Since December 1999, the Company has drilled five wells on the Central Sinai concession, onshore Gulf of Suez, Egypt, two of which were successful. The Company owns a 25% interest in the concession. The Company is currently evaluating options for commercializing the field, and further drilling is dependent upon determinations of commerciality and further study of the well results. The first exploration period expired on September 22, 2000. The Company and its partner extended the first exploration period by six months by conducting further operations on the concession, subject to regulatory approval. Should regulatory approval be denied, the Company and its partner will seek approval for a development lease surrounding the Lagia-6, Lagia-7 and South Lagia wells. During 1999, the Ejulebe field in Nigeria produced approximately 2.65 MMBbls at a gross daily average of approximately 7,230 Bopd. Over the final six months of 1999, the field averaged 6,100 Bopd and for the first six months of 2000, the field averaged 5,740 Bopd. The Company's arrangement with the service contractor of the field provides that the Company receives a minimum payment until the capital component of the service contract has been paid to the service contractor. At current production levels, the Company will continue to only receive its share of the minimum payment, but may realize increased cash flow in the early 2001 if oil prices remain at their current level. See "Item 2. Description of Property--Nigeria--Development and Exploration of OML-109." As of December 1999, the Company has withdrawn from further activities in Tunisia and has relinquished its acreage position there. STRATEGY TransAtlantic's strategy is to build a substantial reserve base and sustainable production revenue by: -4- - cost efficiently acquiring projects containing, or adjacent to, known hydrocarbon accumulations with significant exploration potential in proven basins. - mitigating exploration risk through participation in a balanced portfolio of exploration activity where the net risk and exposure to the Company are acceptable. - exploring in countries which have attractive fiscal regimes and governments eager to develop their petroleum industries. - taking advantage of areas where the Company has considerable knowledge and can use that knowledge swiftly to create its competitive advantage. The Company's primary mission is to participate in a portfolio of high quality, low to medium risk oil and gas exploration ventures in high graded international areas. These are areas that management believes have significant remaining reserve potential and where commercial production can be rapidly established. The medium to long term plan includes participation both as operator and non-operator in acreage within specific focal areas in Africa and other international opportunities that will be evaluated based on merit and risks. In addition, the Company plans to evaluate existing field discoveries where additional exploration potential remains. RISK FACTORS THE COMPANY HAS A HISTORY OF LOSSES. The Company incurred net losses from operations of $1,731,000, $713,000, $12,368,000, $12,686,000 and $2,888,000 for each of the years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively. In addition, for the six months ended June 30, 2000, the Company incurred a net loss from operations of $825,000. No assurance can be made that the Company will operate at a profit in the future. The likelihood of the Company's future profitability must be considered in light of the financial, business and operating risks, expenses, difficulties and delays frequently encountered in connection with the oil and gas acquisition, exploration, development and production business in which the Company is engaged.The financial statements included herein do not include any adjustments that may result from these uncertainties. BECAUSE THE COMPANY HAS HAD A LIMITED OPERATING HISTORY, OPERATING RESULTS TO DATE SHOULD NOT BE UNDULY RELIED UPON. On December 1, 1998, the Company acquired GHP Exploration Corporation in an amalgamation transaction. The resulting enterprise (formerly Profco Resources Ltd.) was renamed TransAtlantic Petroleum Corp. In addition, in September 1998, production from the Company's Nigerian operations commenced. Prior to this time, the Company was engaged in exploration and development activities in Nigeria and also owned interests in a few producing oil and gas properties in Alberta, Canada that were sold in mid-1997. TransAtlantic commenced production from the Hana Field, Egypt in late December 1999. The operating results to date provide insufficient information to make any assumptions with respect to future cash flow from operations. Accordingly, no assurance can be given that TransAtlantic will successfully operate at a profit or generate sufficient cash flow to satisfy its working capital and debt service requirements in the future. THE COMPANY MAY NOT BE ABLE TO REPLACE RESERVES OR GENERATE CASH FLOWS IF IT IS UNABLE TO RAISE CAPITAL. The Company will be required to make substantial capital expenditures to develop reserves and to discover new oil and gas reserves. If TransAtlantic's cashflow from operating activities is insufficient to fund such additional expenditures, it will be required to sell equity, issue debt or offer interests in the properties to be earned by another party or parties carrying out further exploration or development thereof. See "Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Capital Expenditures" for a discussion of the Company's capital budget. There can be no assurance that capital will be available to TransAtlantic from any source or that, if available, it will be at prices or on terms acceptable to TransAtlantic. If TransAtlantic is unable to meet its share of costs incurred under agreements to which it is a party, its interest in the properties subject to such agreements may be reduced. OIL AND NATURAL GAS PRICES ARE VOLATILE. TransAtlantic's revenues and profitability will be substantially dependent upon prevailing prices for crude oil, natural gas and natural gas liquids. For much of the past decade, the markets for crude oil and natural gas have been extremely volatile. Such markets are expected to continue to be volatile in the foreseeable future. In general, future prices of crude oil, natural gas and natural gas liquids are -5- dependent upon numerous external factors such as various economic, political and regulatory developments and competition from other sources of energy. The unsettled nature of the energy market and the unpredictability of worldwide political developments, including, for example, actions of the Organization of Petroleum Exporting Countries ("OPEC") members, make it particularly difficult to estimate future prices of oil, gas and natural gas liquids. Any significant decline in the price of oil, gas or natural gas liquids for an extended period would have a material adverse effect on TransAtlantic's financial condition and results of operations, and would, under certain circumstances, impair access to sources of capital. Currently, TransAtlantic has not entered into any derivative or long-term contracts to fix the prices received for its share of production. THE COMPANY MAY BE UNABLE TO REPLACE RESERVES IF ITS DRILLING OPERATIONS ARE UNSUCCESSFUL OR IF IT IS UNABLE TO ACQUIRE PROVED RESERVES. Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. TransAtlantic's future success depends upon its ability to find, develop and/or acquire oil and gas reserves at prices that permit profitable operations. Except to the extent that TransAtlantic conducts successful development, exploitation or exploration activities or acquires properties containing proved reserves, the proved reserves of TransAtlantic will decline. This rate of decline depends upon reservoir characteristics encountered in TransAtlantic's Egyptian and offshore Nigeria reservoirs, where the majority of its proved reserves are located. The market for acquiring proved reserves is extremely competitive, and TransAtlantic may not be able to buy reserves for development and exploitation at prices it considers to be reasonable or within its budgets. The cost of drilling, completing and operating wells may vary significantly from initial estimates. TransAtlantic's drilling operations may be unsuccessful or may be curtailed, delayed or canceled as a result of numerous factors not within TransAtlantic's control. These factors include, but are not limited to, title problems, weather conditions, compliance with governmental requirements, shortage of capital, mechanical difficulties and shortages or delays in the delivery of drilling rigs or other equipment. Accordingly, there can be no assurance that TransAtlantic's acquisition, development, or exploration activities will result in reserves added at acceptable costs. THE COMPANY'S FOCUS ON EXPLORATORY PROJECTS INCREASES THE RISKS INHERENT IN OIL AND GAS ACTIVITIES. TransAtlantic will be spending a large portion of its capital budget on exploration, primarily on international projects. Exploration activities involve substantially more risk than development or exploitation activities. Exploratory drilling is a speculative activity. Although the use of 3-D seismic data and other advanced technologies could increase the probability of success of its exploratory wells, and reduce the average finding costs through the elimination of prospects that might otherwise be drilled solely on the basis of 2-D seismic data and other traditional methods, TransAtlantic may not always be able to acquire 3-D seismic data over properties in which it owns an interest. Even when fully utilized and properly interpreted, 3-D seismic data and visualization techniques only assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not conclusively allow the interpreter to know if hydrocarbons will in fact be present, or present in economic quantities, in such structures. In addition, the use of 3-D seismic data and such technologies require greater predrilling expenditures than traditional drilling strategies and TransAtlantic could incur losses as a result of such expenditures. Failure of TransAtlantic's exploration activities would have a material adverse effect on TransAtlantic's future results of operations and financial condition. Should sufficient capital not be available, the development and exploration of TransAtlantic's properties could be delayed and, accordingly, the implementation of TransAtlantic's business strategy would be adversely affected. THE COMPANY'S FOCUS ON INTERNATIONAL OPERATIONS INCREASES THE RISKS INHERENT IN OIL AND GAS ACTIVITIES. TransAtlantic currently conducts operations and has proved reserves in Nigeria and Egypt and owns some minor properties in the United States. In the future, TransAtlantic may commence operations in other countries. International crude oil and natural gas exploration, development and production activities are subject to political, economic and other uncertainties including but not limited to changes, sometimes frequent or material, in governmental energy policies or the personnel administering them, expropriation of property, cancellation or modification of contract rights, foreign exchange restrictions, currency fluctuations, royalty and tax increases, retroactive tax claims, limits on allowable levels of production, labor disputes and other risks arising out of foreign governmental sovereignty over the areas in which TransAtlantic's operations will be conducted, as well as risks of loss due to civil strife, acts of war and insurrection. See "--Government Regulation." These risks may be higher in developing countries in which TransAtlantic may conduct such activities. TransAtlantic's international operations may also be adversely affected by laws and policies of Canada or the United States affecting foreign trade, taxation and investment. Consequently, TransAtlantic's international exploration, development and production activities may be substantially affected by factors beyond TransAtlantic's control, any of which could materially adversely affect TransAtlantic's financial position or results of operations. Furthermore, in the event of a dispute arising from international operations, TransAtlantic may be subject to the exclusive jurisdiction of courts outside the U.S. or Canada or may not be successful in subjecting persons to the jurisdictions of the courts in the U.S. or Canada, which could adversely affect the outcome of such dispute. -6- The Company's private ownership of oil and gas reserves under oil and gas leases in the United States differs distinctly from its ownership of foreign oil and gas properties. In the foreign countries in which the Company does business, the state generally retains ownership of the minerals and consequently retains control of (and in many cases, participates in) the exploration and production of hydrocarbon reserves. Accordingly, operations outside the United States may be materially affected by host governments through royalty payments, export taxes and regulations, surcharges, petroleum profits taxes, value added taxes, production bonuses, participation options and other charges. In addition, the Company may operate in such countries with a joint venture partner, and the Company's ability to conduct exploration, development and production activities may be materially adversely affected by decisions and actions of its joint venture partners. Certain of the Company's producing properties are located in Nigeria. Nigeria is a developing third world nation that has experienced periods of civil unrest and political and economic instability. In 1998, Nigeria made a peaceful transition from military rule to a democratically elected government. The establishment of a democratically elected government has brought with it the potential financial support of the international community. The amount of such financial support from the international community will be a factor in how well Nigeria thrives in the next several years. There can be no assurance of the extent of financial support by the international community if any. In addition, Nigeria and other African countries have occasionally asserted rights to land, including oil and gas properties, through border disputes. If a country claims superior rights to oil and gas leases or concessions granted to the Company by another country, the Company's interests could be lost or decreased in value. In addition, political and economic instability in Africa could result in new governments or the adoption of new policies that might assume a substantially more hostile attitude toward foreign investment. Actions taken by the international community, future political unrest or actions by companies doing business in Nigeria may have a materially adverse effect on Nigeria and in turn, on TransAtlantic's financial condition or results of operations. TransAtlantic has no ability to control the factors that may lead to such events. Nigerian laws require that foreign companies involved in the petroleum industry hire and train indigenous personnel in petroleum operations. Nigerian oil workers are organized into a number of labor unions. In the fall of 1994, these labor unions called a general strike to protest against a number of the political changes that had occurred within Nigeria. There is no assurance that there will not be strikes in the future. Any future labor interruptions could adversely affect the Company's ongoing operations and its ability to explore for, produce, market and sell its reserves. FACTORS BEYOND THE COMPANY'S CONTROL AFFECT ITS ABILITY TO MARKET PRODUCTION. The marketability of TransAtlantic's production will depend upon numerous factors beyond the Company's control. These factors include the availability and capacity of gathering systems, pipelines and other production transportation systems, the effect of federal, state and other governmental regulation of such production and transportation, general economic conditions and the supply of and demand for crude oil and natural gas, the availability of alternate fuel sources and the effects of inclement weather, all of which could adversely affect TransAtlantic's ability to market its production. In addition, the Company may be unable to obtain favorable prices for the oil and gas it produces. THE CONCENTRATION OF THE COMPANY'S PROPERTIES INCREASES THE RISKS INHERENT IN OIL AND GAS ACTIVITIES. TransAtlantic's production and prospects are concentrated in a small number of properties and prospects. See "Item 2. Description of Properties." TransAtlantic will remain vulnerable to the disproportionate impact of delays or interruptions of production from its discoveries and exploratory prospects until it develops a more diversified production base. THE RESERVE INFORMATION IN THIS REGISTRATION STATEMENT ARE ESTIMATES WHICH SHOULD NOT BE UNDULY RELIED UPON. Numerous uncertainties are inherent in estimating quantities of proved and other reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth herein represents only estimates based on available geological, geophysical, production and engineering data, the extent, quality and reliability of which vary. Oil and gas reserve engineering is a subjective process of estimating accumulations of oil and gas that cannot be measured in an exact manner, and estimates of other engineers might differ materially from those shown. The accuracy of any reserve estimate is a function of the quality and quantity of available data, engineering and geological interpretation and judgment. In addition, the estimates of future net cash flows from proved reserves and the present value thereof are based upon certain assumptions about future production levels, prices, costs and participation, if any, by third parties in the development of the Company's reserves that may not prove correct over time, for reasons which may or may not be under the control of or known to the Company. Any significant variance from these assumptions could materially affect the quantity and value of the Company's reserves as compared to the estimates contained herein. Information about reserves constitutes forward looking information. -7- PROCEEDINGS MAY BE INITIATED AGAINST THE COMPANY IF IT FAILS TO COMPLY WITH THE TERMS OF A SETTLEMENT AGREEMENT. In August 2000, the Company entered into a settlement agreement with Global Marine Integrated Services--International Inc. ("GMISI"), a wholly-owned subsidiary of Global Marine, Inc., relating to the payment of outstanding indebtedness on a promissory note from Tarpon-Benin S.A. to GMISI in the original amount of $3,071,060. See "Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Company, as the indirect majority owner of Tarpon, guaranteed the note. Although some payments had been made against the note, Tarpon failed to pay the note in accordance with its terms and as of January 31, 2000 the note was in default. GMISI has agreed that so long as the Company complies with the terms of the settlement agreement, GMISI will not seek to enforce the note against the Company or initiate any proceedings against the Company with regard to the note or the guarantee. If the Company fails to or is unable to comply with the terms of the settlement agreement, GMISI may pursue legal and equitable remedies against TransAtlantic. A RECENT ARBITRATION DECISION RULED AGAINST THE COMPANY; IF THE COMPANY IS REQUIRED TO PAY THE DAMAGES AWARDED, IT COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY. Several of the Company's wholly owned subsidiaries (the "Subsidiaries") are parties to a Shareholder Agreement, pertaining to the Company's interest in Tarpon-Benin S.A. ("Tarpon") of which the Company is the indirect majority owner. Tarpon owned a concession in the Republic of Benin. At a meeting of the shareholders in 1998, Tarpon elected to withdraw from the concession and allow the concession agreement to expire; however, a group of minority shareholders (the "Shareholders") objected. The Shareholders, along with the parent company of the Shareholders, initiated arbitration in October, 1998 under the American Arbitration Association. On September 18, 2000, the Company was advised that the arbitrator ruled that the Subsidiaries had breached the Shareholder Agreement and assessed damages of $1,848,359.32. While the Company was not a party to the Shareholder Agreement, the arbitrator ruled that the Company guaranteed all obligations of the Subsidiaries. The Company does not believe that the Subsidiaries have a basis to appeal the decision. However, the Company intends to contest the arbitrator's ruling against the Company. If the Company is required to pay the damages awarded, it could have a material adverse effect on the Company. THE COMPANY'S QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY AND SHOULD NOT BE UNDULY RELIED UPON. TransAtlantic's quarterly results of operations may fluctuate significantly as a result of variations in oil and gas production and prices and variations in TransAtlantic's drilling activities. Drilling activities can be affected by a number of factors including the availability of equipment for drilling or recompletions, weather, governmental regulations and available cash flow. WEATHER, UNEXPECTED SUBSURFACE CONDITIONS AND OTHER UNFORESEEN OPERATING HAZARDS MAY ADVERSELY IMPACT THE COMPANY'S ABILITY TO CONDUCT BUSINESS. The oil and gas business involves a variety of operating risks, including the risk of fire, explosion, blowout, pipe failure, casing collapse, stuck tools, abnormally pressured formations and environmental hazards such as oil spills, gas leaks, pipeline ruptures and discharges of toxic gases, the occurrence of any of which could result in substantial losses to TransAtlantic due to injury and loss of life, loss of or damage to well bores and/or drilling or production equipment, costs of overcoming downhole problems, severe damage to and destruction of property, natural resources and equipment, pollution and other environmental damage, clean-up responsibilities, regulatory investigation and penalties and suspension of operations. Gathering systems and processing facilities are subject to many of the same hazards and any significant problems related to those facilities could adversely affect TransAtlantic's ability to market its production. Moreover, offshore operations are subject to a variety of operating risks peculiar to the marine environment, such as hurricanes or other adverse weather conditions. TransAtlantic will maintain insurance against some, but not all, potential risks; however, there can be no assurance that such insurance will be adequate to cover any losses or exposure for liability. Insurance may not cover downhole-operating risks, such as the costs of retrieving stuck equipment. Furthermore, TransAtlantic cannot predict whether insurance will continue to be available at premium levels that justify its purchase or whether insurance will be available at all to cover the risks faced by TransAtlantic. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect the Company's financial condition and results of operations. COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS COULD BE COSTLY AND COULD NEGATIVELY IMPACT PRODUCTION. The drilling for and production, handling, transportation and disposal of oil and gas and byproducts are subject to extensive regulation under federal, provincial, state, local and foreign country environmental laws that may be changed from time to time in response to economic or political conditions. See "--Government Regulation." Matters subject to regulation include, but are not limited to, permits for drilling operations, drilling, plugging and reclamation bonds, operational practices and reporting, the spacing of wells, unitization -8- and pooling of properties, taxation and environmental protection. In most instances, the applicable regulatory requirements relate to water and air pollution control and solid waste management measures, permitting requirements, or restrictions on operations in environmentally sensitive areas, such as coastal zones, wetlands, and wildlife habitat. Under these laws and regulations, the Company could be liable for personal injury and clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. The Company maintains limited insurance coverage for sudden and accidental environmental damages. The Company does not believe that insurance coverage for environmental damages that occur over time is available at a reasonable cost. Moreover, the Company does not believe that insurance coverage for the full potential liability that could be caused by sudden and accidental environmental damages is available at a reasonable cost. Offshore operations are subject to more extensive governmental regulation, including regulation that may, in certain circumstances, impose absolute liability for environmental damage and allow interruption or termination of business activities by government authorities based on environmental or other considerations. COMPETITIVE INDUSTRY CONDITIONS MAY NEGATIVELY AFFECT THE COMPANY'S ABILITY TO CONDUCT OPERATIONS. Competition in the oil and gas industry is intense, particularly with respect to the acquisition of producing properties and proved undeveloped acreage. Major and independent oil and gas companies, as well as individuals and drilling programs, actively bid for desirable oil and gas properties, as well as for the equipment and labor required to operate and develop such properties. Many of TransAtlantic's competitors have financial resources and exploration and development budgets that are substantially greater than those of TransAtlantic, which may adversely affect TransAtlantic's ability to compete successfully. In addition, many of TransAtlantic's larger competitors may be better able to respond to factors that affect the demand for oil and natural gas production such as changes in worldwide oil and natural gas prices and levels of production, the cost and availability of alternative fuels, and the application of government regulations. Other factors which affect the Company's ability to successfully compete are: the Company's access to seismic, geological and other information, and the Company's ability to retain the personnel necessary to properly evaluate such information; the location of, and the Company's ability to access, platforms, pipelines and other facilities used to produce and transport oil and gas production; and the standards the Company establishes for the minimum projected return on an investment of its capital. INFORMATION IN THIS REGISTRATION STATEMENT REGARDING THE COMPANY'S PROSPECTS REFLECTS THE COMPANY'S CURRENT INTENT AND IS SUBJECT TO CHANGE. The Company's current prospects and plans to explore these prospects are described in this registration statement. A prospect is a property on which the Company has identified what its geoscientists believe, based on available seismic and geological information, to be indications of hydrocarbons. The Company's prospects are in various stages of evaluation, ranging from a prospect which is ready to drill to a prospect which will require substantial additional seismic data processing and interpretation. Whether the Company ultimately drills a prospect may depend on the following factors: receipt of additional seismic data or the reprocessing of existing data; material changes in oil or gas prices; the costs and availability of drilling rigs; success or failure of wells drilled in similar formations or which would use the same production facilities; availability and cost of capital; changes in the estimates of the costs to drill or complete wells; the Company's ability to attract other industry partners to acquire a portion of the working interest to reduce exposure to costs and drilling risks; and decisions of the Company's joint working interest owners. The Company will continue to gather data about its prospects, and it is possible that additional information may cause the Company to alter its drilling schedule or determine that a prospect should not be pursued at all. THE LOSS OF KEY PERSONNEL COULD NEGATIVELY AFFECT THE COMPANY'S OPERATIONS. TransAtlantic will depend to a large extent on the services of its senior management personnel. The loss of the services of any such personnel could have a potential adverse effect on TransAtlantic's operations. CERTAIN OFFICERS AND DIRECTORS MAY HAVE INTERESTS ADVERSE TO THE COMPANY. There may be potential conflicts of interest for certain of the officers and directors of TransAtlantic who are or may become engaged from time to time in the crude oil and natural gas business on their own behalf or on behalf of other companies with which they may serve in the capacity as directors or officers. Certain of the outside directors of TransAtlantic are officers and/or directors of other publicly traded crude oil and natural gas exploration and production companies. To the extent any such conflicts arise from time to time, they will be governed by and resolved in accordance with the applicable provisions of TransAtlantic's governing corporate legislation. GOVERNMENT REGULATION NIGERIA -9- All phases of oil exploration, development and production in Nigeria are regulated by the Nigerian government either directly, through the Nigerian Ministry of Petroleum Resources ("NMPR") or the Nigerian Department of Petroleum Resources ("NDPR") pursuant to the PETROLEUM DECREE, 1969, and under periodic policy statements issued by the Nigerian government and administrative practices of the NDPR. Areas of government regulation include restrictions on petroleum production, price controls, export controls, taxes and royalties, expropriation of property, environmental protection and rig safety. In addition, all petroleum drilling and production in Nigeria must be approved in advance by the Nigerian government through the NMPR or the NDPR. TransAtlantic's partner, Atlas Petroleum International Limited, as operator, and TransAtlantic's wholly owned subsidiary, Summit Oil & Gas Worldwide Ltd., as technical adivsor, must submit annual work programs and budgets to the NDPR for review and approval. Likewise, the NDPR must approve, in advance, all seismic and drilling activities as well as the installation of production facilities through the issuance of permits for such activities. Although the Company has no reason to believe that the applicable approval will not be received in the normal course, there is no assurance that the NDPR will grant the requisite approvals. Failure to obtain NDPR approval could have a materially adverse effect on the future results of operations of the Company. Producers are subject to a tax on adjusted petroleum profits. Adjusted petroleum profits consist generally of revenues from petroleum sales less operational expenses and certain capital costs (including drilling costs). The PETROLEUM PROFITS TAX ACT, 1969, prescribes a petroleum profits tax rate of 65.75% for the first five years and 85% thereafter. The Company understands that a reduced petroleum profits tax rate or other regulatory relief may be applicable to concession blocks awarded under the Indigenous Program. Any changes to the current royalty regime or the PETROLEUM PROFITS TAX ACT, 1969 or their applicability to the Indigenous Program will affect the Company. Under Nigerian legislation, a petroleum concession owner is required to engage in petroleum exploration and development. Concessions may be obtained directly from the NMPR or from an existing concession owner, provided that prior NMPR approval to an assignment is obtained. Petroleum concessions granted by the NMPR consist of either an oil exploration license, an oil prospecting license ("OPL") or an oil mining lease ("OML"). The PETROLEUM DECREE, 1969 provides that an OPL is issued for a maximum term of five years. An OPL gives the holder the exclusive right to conduct both seismic and exploratory drilling operations within a concession block and the right to carry away and dispose of petroleum produced during the term of the OPL. If, during the term of the OPL, testing or actual production demonstrates that the OPL is capable of producing 10,000 Bopd ("Commercial Quantities") and conditions imposed by the NMPR and NDPR are satisfied, including payment of applicable fees and the provision of specified documentation, the holder of an OPL becomes entitled to apply to the NMPR for an OML. An OML provides the holder with an exclusive right to conduct exploration and development drilling operations and the exploitation of petroleum discovered on the concession block for a term of up to twenty years. An OML may be renewed upon application to the NMPR. The PETROLEUM DECREE, 1969 contains provisions that require the holder of an OML to relinquish 50% of the geographic area encompassed by the OML after ten years upon the request of the NMPR. The acreage to be relinquished is identified by the holder of the OML. The lessee of an OML shall be entitled to apply in writing to the Minister, not less than twelve months before the expiration of the lease, for a renewal of the lease either in respect of the whole of the leased area or any particular part thereof, and the renewal shall be granted if the lessee has paid all rent and royalties due and has otherwise performed all his obligations under the lease. Under the PETROLEUM DECREE, 1969, the Nigerian government may elect, during the currency of an OML or OPL, to directly participate in the concession, which could result in a reduction of the participating interest of the Company. The PETROLEUM DECREE, 1969 does not specify the maximum level of government participation. Neither the PETROLEUM DECREE, 1969 nor any subsequent correspondence between the NMPR and the Company's Nigerian partner addresses either the payment to the Company or its Nigerian partner of a proportionate share of future costs or the reimbursement of past costs by the Nigerian government. EGYPT All phases of oil exploration, development and production in Egypt are regulated by the Egyptian government through Egyptian General Petroleum Corporation ("EGPC"). Areas of government regulation include exploration and production approvals, taxes and royalties, expropriation of property, environmental protection and safety. Concession holders are subject to an Egyptian corporate income tax of 42.5% that is paid by EGPC on behalf of the concession holder out of EGPC's share of revenues. Concessions are generally held under profit sharing agreements which are negotiated individually with EGPC. Under Egyptian legislation, a petroleum concession owner is required to engage in petroleum exploration and development. Concessions may be obtained directly from EGPC or from an existing concession owner, provided that prior EGPC approval to an assignment is obtained. The holders of the concession have the exclusive right to conduct both geophysical and exploratory drilling operations within the concession block and the right to carry away and dispose of production produced during the term of the concession. If, during the term of the concession, testing or production of commercial quantities of hydrocarbons is achieved and conditions imposed by EGPC are satisfied, including the provision of specified documentation, the holder of the concession has the right to apply to EGPC for a -10- conversion to a development lease and the formation of a joint operating company specifically set up to administer the development, exploration and administration of the development lease. The joint operating company is directed by a board of directors including, in equal numbers, members of EGPC and the concession holders. Management of the joint operating company is run by a chairman delegated by EGPC. Other senior management positions are negotiated between EGPC and the concession holders. The concession holder has the right to explore and produce oil from the development lease for a period of twenty years. A development lease can be extended upon proof of commercial reserves. Areas outside the development lease, but within the concession limits, are generally held for three exploration phases (generally consisting of three-year periods). Each exploration phase consists of a minimum work obligation, including minimum financial commitments. Following completion of the minimum work program and written acceptance by EGPC that the work program obligations have been fulfilled, the concession holder has the option to relinquish the concession or relinquish 25% of the concession and commit to a further exploration phase. The acreage to be relinquished is identified by the concession holder. The renewal of the lease shall be granted to the concession holder if all obligations have been performed under the lease. Egypt retains the right of requisition of production from Egyptian concessions and cancellation of the concession agreements upon the occurrence of specific events, including a national emergency due to war, imminent expectation of war or internal causes, unauthorized assignment of interests in the concession, the concession holder being adjudicated bankrupt by a court of competent jurisdiction and intentional extraction of any mineral not authorized by the concession agreement. Requisition or cancellation of the Company's concession agreements as a result of the foregoing or for any other reasons would have a material adverse effect on the Company. MANAGEMENT AND EMPLOYEES As of December 31, 1999, TransAtlantic and its subsidiaries had 10 employees of which three were executive officers. See "Item 10. Directors and Officers of Registrant." The Company utilizes consultants when necessary and engages field personnel on a contract basis to manage the Company's operated producing properties. ITEM 2. DESCRIPTION OF PROPERTY. The Company is engaged in the exploration, development and acquisition of oil and gas properties. The Company's activities are currently focused in evaluating and exploiting the petroleum potential of specific concessions in North and West Africa. These areas possess prolific source rocks that have charged some of the world's largest oil fields. Management believes that both areas offer good opportunity for the Company to explore for oil and in North Africa, for natural gas where existing infrastructure includes a network of oil and gas pipelines linking fields with ports and urban centers, as well as major gas transmission lines to European markets. The infrastructure for gas has not yet developed in West Africa. NIGERIA Nigeria began producing oil in 1957 and is currently Africa's largest oil producer and exporter. Given the critical role oil plays in the Nigerian economy, the Company believes that any potential civil or political unrest will not adversely affect the country's oil industry. The country offers numerous opportunities for continued oil exploration offshore at relatively shallow drilling depths and low exploration risk. THE INDIGENOUS PROGRAM TransAtlantic's participation in Nigeria is through a joint venture between the Company's wholly owned subsidiary, Summit Oil and Gas Worldwide Ltd. ("SOGW"), as technical advisor, and Atlas Petroleum International Limited ("Atlas"), a Nigerian company that serves as operator of the concession. The joint venture with Atlas is under a program (the "Indigenous Program") introduced in 1990 by the NMPR in an effort to increase production and domestic participation in the country's oil industry. The Indigenous Program provides qualified, privately-owned Nigerian companies with both preferential treatment in the allocation of available petroleum concession blocks and favorable economic terms for the development of such blocks. Participating Nigerian companies are permitted to establish revenue and cost sharing arrangements with foreign companies that provide the technical expertise, operational support and financial resources required for exploration and development operations. As part of the Indigenous Program, the Nigerian government receives production royalties and taxes and is not required to fund any exploration or development costs. The financial terms that are available to SOGW under the Indigenous Program differ from those generally available to most multinational companies that operate in Nigeria. Outside of the Indigenous Program, multinational companies are joint working interest owners with the Nigerian National Petroleum Company ("NNPC") under one of several different forms of joint ventures. The joint ventures generally provide that the participating company and the NNPC collectively fund operating and capital expenditures and recover their costs and profits from the -11- proceeds of production based on their relative participating interest. In addition, under the joint ventures, the NNPC has the right to approve proposed exploration and development projects. TransAtlantic believes that SOGW's ability under the Indigenous Program to proceed with exploration and development projects that it considers attractive without NNPC participation gives it increased flexibility to pursue other opportunities within Nigeria. Recent announcements by the Nigerian government and the NDPR have indicated that companies participating in the Indigenous Program should qualify for certain tax and royalty relief. However, no such royalty or tax relief has yet been instituted. In March 2000, SOGW initiated an arbitration to resolve certain differences of opinion between SOGW and Atlas relating to the interpretation of certain provisions of its joint operating agreement with Atlas. It also involves disagreements regarding reporting of royalties and lifting procedures. The dispute relates primarily to the undeveloped acreage on the concession, and does not affect the operation of the Ejulebe field. SOGW has filed an arbitration proceeding in Geneva. See "Item 3. Legal Proceedings." In addition, in 1996, SOGW loaned $5.0 million to the Chairman of Atlas by way of a three year promissory note, which was guaranteed by Atlas. Atlas pledged 50% of its 40% interest in OML-109 to SOGW as security. The note is in default and SOGW has initiated proceedings for its collection. The collection proceeding was filed in the High Court of England and Wales in London, England and is set for trial in early 2001. See "Item 3. Legal Proceedings." OIL MINING LICENSE ("OML") -- 109 SOGW owns a 30% interest in a 215,000 acre concession offshore Nigeria. Prior to the recovery of its accumulated costs incurred ("payout"), SOGW is responsible for the payment of 100% of capital costs and receives 60% of the net revenue accruing to SOGW and Atlas. With respect to 200,000 of the acres, SOGW has a 30% interest after payout (60,000 net acres) and a 22.5% working interest after payout in the remaining 15,000 acres (3,375 net acres) surrounding and including the Ejulebe field. Until a loan made by SOGW during 1996 to the Chairman of Atlas is repaid, SOGW is also entitled to receive 50% of Atlas' share of cash flow from the concession (20% net to SOGW) pursuant to Atlas's guarantee. See "--The Indigenous Program," above. The concession, located in the northwestern part of the Niger Delta, is 12 to 15 kilometers offshore in 50 to 250 feet of water. Originally granted as an oil prospecting license, OPL-75, the concession was converted to OML-109 in 1996. The oil mining license was granted for an initial term of 20 years and may be extended upon proof of additional commercial economic reserves. There are no governmental prescribed work program requirements for the concession; however, Atlas and SOGW must submit annual work programs and demonstrate continued activity to explore and develop the block. DEVELOPMENT AND EXPLORATION OF OML-109 The local geology offshore Nigeria is very similar in geophysical response, structural style and formation age to that of the Mississippi Delta in the Gulf of Mexico. Seismic interpretation techniques, such as "bright spot" identification, that have been proven to reduce exploration risk in the Gulf of Mexico and other areas are applicable to this area. Additionally, the Company believes that specialized seismic processing techniques will assist in delineating hydrocarbon type and extent of accumulations. In 1994, SOGW originally acquired and processed a 32 square mile 3-D seismic survey over a portion of the northern half of the concession, including the Ejulebe field. Subsequently, in 1996 SOGW and Atlas, through a service contractor, acquired and processed the "Ekura" survey consisting of approximately 127 square miles of 3-D seismic data. SOGW also acquired 2-D seismic in 1995 that covers the entire 215,000 acres, and in 1995 acquired additional 3-D coverage that had been previously acquired by Chevron. SOGW now has 3-D seismic surveys covering approximately 40% of the concession. EJULEBE FIELD Production under OML-109 first commenced in September 1998 with the development of the Ejulebe field. The field is located in the northern portion of the concession area, four miles northwest of the Mefa oilfield, which is located on the offsetting concession to OML-109 and operated by Chevron. The field was originally discovered by SOGW in 1994. Following the discovery, an appraisal well was drilled in 1995. Subsequently, SOGW and Atlas entered into a service contract dated January 14, 1996 whereby CXY Nigeria Oil Field Services Ltd., a subsidiary of Canadian Occidental Petroleum Ltd. ("CXY"), provides certain financial, technical and operational services in the 15,000 acres surrounding and including the Ejulebe field. Pursuant to the service contract, two additional exploratory wells and three development wells were drilled on or near the Ejulebe Field in 1996 and 1997. A production platform was built and pipeline laid for first production which commenced in September 1998. As compensation for providing the above services, CXY recovers its costs, which include actual -12- operating and capital costs and a financing fee, and receives 25% of the net operational revenues from Ejulebe and other hydrocarbon accumulations CXY discovers on the 15,000 acres. The 25% declines to 20% as certain cumulative production levels are attained. CXY pays the Company and Atlas a minimum payment of $510,000 ($306,000 net to the Company) per year if profits are not generated under the terms of the service contract. As part of their commitment, CXY drilled two successful development oil wells in the field, a pressure maintenance well on the flank of the structure and two unsuccessful exploratory wells. Currently, there are three wells producing oil in the field. Delivery of Ejulebe production is via a 14 mile, 6 inch pipeline from the central production facilities to a floating storage and off-loading facility operated by Conoco. TransAtlantic's capital expenditures to date total just over $14 million. CXY's capital expenditures to date exceed $105 million on the field. During 1999, the Ejulebe field produced approximately 2.65 MMBbls at a gross daily average of approximately 7,230 Bopd. Over the final six months of 1999, the field averaged 6,100 Bopd and for the first six months of 2000, the field averaged 5,740 Bopd. This rate is significantly lower than pre-production estimates. The Company's arrangement with CXY provides that the Company receives a minimum payment until CXY reaches payout. At current production levels, SOGW is realizing only the minimum payment of approximately $306,000 per year. If the production rate remains stable and oil prices remain above $25 per barrel, the Company estimates that the Ejulebe field should become profitable in year 2001. Otherwise, TransAtlantic will continue to receive only its share of the minimum payment under the services contract with CXY. Management continues to explore ways to increase daily rates and accelerate production of the remaining reserves; no assurances can be made, however, that management will be successful. At present production rates, it is not anticipated that the production quotas set by the Nigerian Government as a member of the Organization of Petroleum Exporting Countries will have an impact on the Ejulebe field. Estimated net proved reserves attributable to this field at December 31, 1999 were 4.25 MMBbls with a PV-10 Value of $ 4.57 million. ADDITIONAL PROSPECTS ON OML-109 The balance of the 200,000 acres on the OML-109 are to be explored and developed by SOGW and Atlas. SOGW continually reevlauates its interpretation of the seismic data covering this area and has identified eight prospects on or extending onto OML-109, including the Kahuna Prospect and the Tuna Prospect, described below. No exploration activities can be undertaken, however, until settlement of the dispute with the Company's indigenous partner. The Company anticipates that a drilling program will be undertaken with respect to the Kahuna and Tuna prospects approximately six to eight months after settlement or resolution of the arbitration. The Company continually reviews its drilling plans in light of changing circumstances. See "Item 1. Description of Business--Risk Factors--Prospects." The Company's drilling schedule with respect to its other prospects will depend on the results of the Company's program on the Kahuna and Tuna prospects and other factors described under "Item 1. Description of Business--Risk Factors--Prospects." Kahuna Prospect. A down to the basin fault closure to the east of the Sonam structural crest is the basis for the Kahuna prospect. It covers approximately 1,000 acres in area, with a water depth of approximately 125 feet. This area consists of major growth faults together with several small fault blocks. Several amplitude anomalies are associated with the fault closures, giving credence to the prospect. Estimated net dry hole costs to drill this well are $3.5 million. Tuna Prospect. This prospect is located upthrown and adjacent to the down-to-the-basin fault that forms the Kahuna prospect. The structure covers an area of approximately 800 acres and exhibits anomalous seismic amplitudes. Water depth at the prospect is approximately 125 feet. A well drilled to approximately 8,000 feet would test the primary section of interest. Estimated net dry hole costs to drill this well are $3.5 million. EGYPT Egypt is a major focal area for the Company. Management believes that the country offers excellent opportunities to build a large reserve base in areas with proven petroleum systems, excellent economics and shallow, inexpensive drilling. In addition, there are existing facilities for the gathering, treating, storage and transportation of crude oil located in and around the existing fields within each of the Company's concessions. CENTRAL SINAI CONCESSION The Central Sinai Concession consists of 4.5 million acres and is located onshore in the central portion of the Sinai Peninsula within the Gulf of Suez basin. The western portion of the block borders the Gulf of Suez shore for more than 100 kilometers. With the exception of the coastal lands and the interior basin, the terrain is primarily mountainous topography. There are three oil fields confined -13- within the boundaries of the concession but specifically excluded from the concession rights. The Egyptian government oil company holds these fields, which were discovered by Shell between 1946 and 1947 using gravity techniques before the emergence and use of seismic techniques. The producing horizons are shallow Miocene and Eocene formations at depths ranging from 2,000 feet to 4,000 feet. Refinery and tanker terminals exist at Suez, which is located adjacent to the northern boundary of the Central Sinai concession, and at Wadi Feiran, 20 kilometers south of the concession. Storage and loading facilities exist at Ras Budran on the southern boundary of the block. An excellent metaled road, capable of accommodating the heaviest of oilfield traffic, runs from north of Suez along the west coast of the Sinai Peninsula to Sharm el-Sheikh, though other roads are few. ACQUISITION OF INTEREST IN CONCESSION The Company's wholly-owned subsidiary, GHP Exploration (Egypt) Ltd. ("GHP-Egypt"), acquired its 25% interest in the concession pursuant to a Participation Agreement dated March 27, 1998 with Alliance Egyptian National Exploration Company ("Alliance"). In consideration of the 25% interest, GHP-Egypt repaid Alliance $1.0 million of their prior costs incurred. In addition, GHP-Egypt agreed to pay 40% of the $6.0 million minimum financial commitment ($2.4 million net to GHP-Egypt) associated with the initial work program required to be carried out on the concession of which all has been paid as of July 31, 2000. Alliance is the operator under the concession, and GHP-Egypt serves as the technical advisor. CONCESSION TERMS The concession agreement requires that GHP-Egypt and Alliance pay all of the operating and capital costs for developing the concession, while the production will be split between GHP-Egypt, Alliance and EGPC, the government partner. Up to 35% of the crude oil and natural gas produced from the concession is available to GHP-Egypt and Alliance to recover operating and capital costs ("Cost-Recovery Oil"). To the extent eligible costs exceed 35% of the crude oil and natural gas produced and sold from the concession in any given quarter, such excess costs may be carried into future quarters without limit. The remaining 65% of all crude oil and natural gas produced from the concession ("Profit Oil") is divided between EGPC and GHP-Egypt and Alliance, with the percentage received by GHP-Egypt and Alliance reducing from 26% to 15% as the gross daily average crude oil and natural gas equivalent produced on a quarterly basis increases from less than 5,000 Bbls/d to in excess of 50,000 Bbls/d. To the extent that eligible operating and capital costs do not exceed 35% of the crude oil and natural gas produced and sold from the concession in any given quarter, such excess Cost-Recovery Oil is split between EGPC and GHP-Egypt and Alliance in the same percentages as the Profit Oil outlined above. WORK PROGRAM OBLIGATION GHP-Egypt and Alliance are in the first exploration phase under the concession. The work program required under the terms of the concession agreement mandates the drilling of four wells and the acquisition of 200 square kilometers of 3-D seismic data and additional 500 line kilometers of 2-D seismic data in the initial three-year exploration period that expired September 22, 2000. The exploration period has been extended an additional six (6) months through operations, subject to regulatory approval. This program requires a net minimum financial commitment of $2.4 million. A 25% acreage relinquishment is required after the initial exploration period. As of June 30, 2000, the Company had incurred all of this amount and the government had waived any unmet work program obligations. Since then, the Company has expended a small amount of money employing the services of a workover rig on the Lagia-6, Lagia-7 and South Lagia wells. EXPLORATION PROGRAM In February 1999, TransAtlantic and its industry partner acquired approximately 310 kilometers of 2-D seismic data over several leads that had been identified from previous data. Seismic processing and interpretation of this data set was completed in October 1999. From this interpretation seven prospects and leads were identified. Four exploratory test sites were chosen from these prospects. Although called for in the concession agreement, no additional 2-D or 3-D seismic was shot on the concession. The government accepted the work program of GHP-Egypt and its partner which included drilling more than the minimum number of wells and which met the financial commitment called for under the concession agreement. West Asl-1, the first well in this drilling program, is located approximately three kilometers from the prolific Asl field. West Asl-1 was designed to target the same Miocene and Eocene section found to be productive at Asl field. Total depth of this exploration well was expected to be approximately 5,500 feet. The West Asl-1 test well began drilling on December 3, 1999 and reached the primary objective on December 14, 1999. When entering the primary Eocene target interval, the well experienced total loss of mud filtrate into the formation resulting in the loss of the hole. The well was officially plugged and abandoned on December 18, 1999. The Company next began drilling the South Lagia well in January 2000. This well, although showing promising indications of hydrocarbons, was determined to be non-commercial following testing. In March 2000, the Company drilled the Lagia-6 well. The Lagia-6 discovery well -14- was drilled to a total depth of 2,500 feet and production casing was set at 1,250 feet in order to evaluate the Miocene Nukhul formation. Electric logs and hydrocarbon shows while drilling indicated a gross sand section of 170 feet with over 60 feet of net oil pay. In April 2000, the Lagia-7 well was drilled approximately 380 meters downdip of Lagia-6 and encountered a gross hydrocarbon column of 177 feet with over 75 feet of net oil pay. A fifth well, drilled in May 2000, was a dry hole. The Company is evaluating options for commercializing the field, and further drilling is dependent upon determinations of commerciality and further study of the well results. The Company and its partner plan to extend the first exploration period by six months by conducting further operations on the concession, subject to regulatory approval. Should regulatory approval be denied, the Company and its partner will seek approval for a development lease surrounding the Lagia-6, Lagia-7 and South Lagia wells. WEST GHARIB CONCESSION The West Gharib concession consists of 630,000 acres and is located on the onshore portion of the Gulf of Suez Basin. Most of the concession's 120 kilometer length is located within the prolific Gulf of Suez petroleum system. The topography throughout the concession consists of coastal plain geology with minor surface faulting. There is one oil field located within the boundaries of the concession but specifically excluded from the concession rights. On the West Gharib concession, both oil and gas pipelines run the length of the concession with storage and loading facilities located adjacent to the concession at Ras Shukeir. ACQUISITION OF INTEREST IN CONCESSION The Company's wholly owned subsidiary, GHP Exploration (West Gharib) Ltd. ("GHP-West Gharib"), acquired its 30% interest in the concession pursuant to a Participation Agreement dated April 27, 1998 with Dublin International Petroleum (Egypt) Limited ("Dublin"), a wholly owned subsidiary of Tanganyika Oil Company Ltd. In consideration of the 30% interest, GHP-West Gharib repaid Dublin and Tanganyika $303,000 of their sunk costs. In addition, GHP-West Gharib agreed to pay 60% of the first two exploration wells to a maximum of $750,000 net to GHP-West Gharib. Thereafter, GHP-West Gharib will pay 30% of all exploration and development costs. Dublin is the operator of the concession. CONCESSION TERMS The concession agreement requires that GHP-West Gharib and its partners in the concession pay all of the operating and capital costs for developing the concession, while the production will be split between GHP-West Gharib, its joint venture partners, and EGPC. Up to 30% of the crude oil and natural gas produced from the concession is available to GHP-West Gharib and its partners to recover operating and capital costs ("Cost-Recovery Oil"). To the extent eligible costs exceed 30% of the crude oil and natural gas produced and sold from the concession in any given quarter, such excess costs may be carried into future quarters without limit. The remaining 70% of all crude oil and natural gas produced from the concession ("Profit Oil") is divided between EGPC and GHP-West Gharib and its partners, with the percentage received by GHP-West Gharib and its partners reducing from 30% to 15% as the gross daily average crude oil and natural gas equivalent produced on a quarterly basis increases from less than 5,000 Bopd to in excess of 100,000 Bopd. To the extent that eligible operating and capital costs do not exceed 30% of the crude oil and natural gas produced and sold from the concession in any given quarter, such excess Cost-Recovery Oil is split 70% to EGPC and 30% to GHP-West Gharib and its partners. WORK PROGRAM OBLIGATION The required work program for the initial three-year exploration period, which commenced on June 1, 1998, is to drill three wells, acquire 50 square kilometers of 3-D seismic data and 300 line kilometers of 2-D seismic data. All of the work program obligations have been met. Net financial exposure to GHP-West Gharib for this initial exploration period is approximately $1.86 million, of which all had been incurred as of December 31, 1999. In addition to meeting its work program obligations for the initial exploration period, through July 31, 2000, the Company has spent an additional $1.5 million on the West Gharib concession. EXPLORATION PROGRAM The joint venture has acquired 43 square kilometers of 3-D seismic data, 248 line kilometers of 2-D seismic data and reprocessed existing 2-D seismic data. Based on this seismic data, two exploration wells and one appraisal well were drilled during 1999 resulting in the discovery and subsequent commercial declaration of the Hana oil field and one dry hole (Farha 1). In June 2000, the Company and its partners acquired a 60 square kilometer 3-D survey over several prospects adjacent to the Hana field and commenced the acquisition of a 400 square kilometer 3-D survey to delineate additional prospects in the Hana field. HANA FIELD -15- On June 23, 1999, TransAtlantic and its partners spudded the Hana-1 exploration well. The Hana-1 well, drilled on the basis of 3-D seismic, resulted in a significant oil discovery. The well encountered over 60 feet of net pay in the Miocene-aged Kareem formation and tested oil at a stabilized rate of 568 Bopd. The Hana-2 appraisal well, drilled in September 1999, encountered the top of the Kareem Sand 47 feet updip from the discovery well. The well was perforated across the entire 76 feet of net pay interval and production tested at a stabilized rate of 2,180 Bopd with zero water cut. The test rate was restricted to the capacity of the bottom hole pump. The higher structural position and thicker contiguous pay interval in the Hana-2 well considerably enhanced the interpretive scope and size of the reservoir. One exploratory well drilled to the south of the Hana field was a dry hole. During the first half of 2000, four additional appraisal wells were successfully drilled and completed. Production from the wells is being trucked to a pipeline approximately ten kilometers away while permanent production facilities are being installed, which will be capable of handling up to 15,000 Bopd. These facilities are expected to be completed in the third quarter of 2000. For the six months ended June 30, 2000, average daily production net to the Company from its West Gharib concession was 1,578 Bopd (241 Bopd net to the Company). The wells are currently producing at an average of 2,473 Bopd (278 Bopd net to the Company). Estimated net proved reserves attributable to this field at December 31, 1999 were 525.9 MMBbls with a PV-10 Value of $7.68 million. TUNISIA During December 1999 and prior to incurring any expenditures, the Company elected to withdraw from its concession in Tunisia in order to focus its available resources on its Egyptian and Nigerian exploration and development opportunities. UNITED STATES The Company owns properties in the United States which are not material to its business. The Company does not have any proved reserved attributable to its U.S. properties. The Company does not have any current exploration plans with respect to its prospects in the United States. DRILLING ACTIVITY TransAtlantic participated in the drilling of six (1.92 net wells) from January 1, 1998 to December 31, 1999:
1999 1998 --------------------------------- ------------------------------- Gross Net Gross Net Wells Wells Wells Wells(1) ----- ----- ----- -------- Exploratory Egypt.................................. 4.00 1.15 -- -- Nigeria................................ -- -- -- -- United States.......................... 1.00 .67 1.00 0.10 ---- ---- ---- ---- Development................................. -- -- -- -- ---- ---- ---- ---- Total....................................... 5.00 1.82 1.00 0.10 ==== ==== ==== ====
(1) For purposes of this table, "net wells" reflects gross wells multiplied by the Company's or its subsidiaries' working interest before payout. Three of the exploratory wells drilled in 1999 were productive, while the one well drilled in 1998 was productive. Since December 31, 1999, the Company has drilled four exploratory wells and four development wells in Egypt, of which six were successful. The Company did not drill any additional wells in Nigeria or the United States. UNDEVELOPED LAND The following table sets forth TransAtlantic's and its subsidiaries' interests in properties on which no producing wells have been drilled as of December 31, 1999: -16-
Gross Acres Net Acres(1) -------------- --------------- Nigeria......................................................................... 212,000 62,700 Egypt........................................................................... 5,102,174 1,306,652 United States................................................................... 17,425 5,635 ====== ===== Total.................................................................. 5,331,599 1,374,987
(1) Calculated based on the Company's after-payout working interest. OIL AND GAS WELLS As of December 31, 1999, TransAtlantic owned interests in six producing oil wells, one producing gas well and one pressure maintenance well. The following table sets forth the producing wells and wells capable of producing in which TransAtlantic and its subsidiaries owned a working interest at December 31, 1999:
OIL WELLS GAS WELLS ----------------------------------------------- -------------------------------------------- PRODUCING SHUT-IN PRODUCING SHUT-IN ----------------------- ----------------------- ----------------------- -------------------- GROSS NET GROSS NET GROSS NET GROSS NET ----- --- ----- --- ----- --- ----- --- Nigeria............................ 3 1.80 - - - - - - Egypt.............................. 2 0.60 - - - - - - United States...................... 1 1.00 1 1.0 1 0.67 - - Total..................... 6 3.40 1 1.0 1 0.67 - -
-17- RESERVES AND FUTURE NET CASH FLOWS The Company's proved reserves and the PV-10 Values attributable to such reserves for the years ended December 31, 1998 and 1999 were estimated by Ryder Scott Company Petroleum Engineers ("Ryder Scott") of Calgary, Alberta, independent petroleum consultants. For the year ended December 31, 1997, the Company's proved reserves and the PV-10 Value attributable to such reserves were estimated by O'Neill Petroleum Consultants.
December 31, ---------------------------------------- 1999 1998 1997(2)(3) ------------ ------------ ------------ NIGERIA(1) PROVED DEVELOPED: Oil (Bbls) ........... 4,246,377 5,670,267 -- Gas (Mcf) ............ -- -- -- PROVED UNDEVELOPED: Oil (Bbls) ........... -- -- 10,866,000 Gas (Mcf) ............ -- -- -- TOTAL PROVED: Oil (Bbls) ........... 4,246,377 5,670,267 10,866,000 Gas (Mcf) ............ -- -- -- PV-10 Value ............. $ 4,568,046 $ 2,189,751 $24,785,000 EGYPT(4) PROVED DEVELOPED: Oil (Bbls) ........... 201,629 -- -- Gas (Mcf) ............ -- -- -- PROVED UNDEVELOPED: Oil (Bbls) ........... 324,319 -- -- Gas (Mcf) ............ -- -- -- TOTAL PROVED: Oil (Bbls) ........... 525,948 -- -- Gas (Mcf) ............ -- -- -- PV-10 Value ............. $ 7,682,324 $ -- $ -- TOTAL(5) PROVED DEVELOPED: Oil (Bbls) ........... 4,448,006 5,670,267 -- Gas (Mcf) ............ -- -- -- PROVED UNDEVELOPED: Oil (Bbls) ........... 324,319 -- 10,866,000 Gas (Mcf) ............ -- -- -- TOTAL PROVED: Oil (Bbls) ........... 4,772,325 5,670,267 10,866,000 Gas (Mcf) ............ -- -- -- PV-10 Value ............. $12,250,370 $ 2,189,751 $24,785,000
- --------------- (1) SOGW's indigenous partner has pledged 50% of its 40% interest in OML-109 to SOGW as security for amounts advanced by SOGW during 1996. See "Item 2. Description of Property--Nigeria--The Indigenous Program." This additional 20% interest is included in the reserve volumes and future net cash flows. (2) Effective July 1, 1997, the Company disposed of all of its Canadian oil and gas interests. Accordingly, no reserves are shown attributable to these interests. (3) The reserve report prepared by O'Neill Petroleum Consultants was prepared prior to the commencement of actual production from the Ejulebe field. The reserve report included proved undeveloped gas reserves at December 31, 1997 of 23,012,000 Mcf with no PV-10 Value. Based upon actual production results, the reservoir calculations were revised and the proved oil reserves for the Ejulebe field significantly reduced. The proved gas reserves in the O'Neill Report were written off in 1998 because no infrastructure exists to produce gas offshore Nigeria; accordingly, there is presently no market for gas from OML 109. -18- (4) The Company had an updated reserve report prepared by Ryder Scott as of May 31, 2000 for the Hana field to reflect the results of the wells drilled in the first part of 2000. Proved developed reserves and total proved reserves attributable to the Hana field were 404,342 Mbbls and 764,094 Mbbls, respectively, with an aggregate PV-10 Value of $13,058,596. (5) Does not include minimal proved reserves attributable to the Company's U.S. interests. In general, estimates of economically recoverable oil and natural gas reserves and of the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, the assumed effects of regulation by governmental agencies and assumptions concerning future oil and natural gas prices and future operating costs, all of which may vary considerably from actual results. All such estimates are to some degree speculative, and classifications of reserves are only attempts to define the degree of speculation involved. For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future net revenues expected therefrom, prepared by different engineers or by the same engineers at different times, may vary substantially. The Company's actual production, revenues, severance and excise taxes, and development and operating expenditures, with respect to its reserves will vary from such estimates, and such variances could be material. See "Item 1. Description of Business--Risk Factors." Estimates with respect to proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be substantial, in the estimated reserves. In accordance with applicable requirements of the SEC, the estimated discounted future net cash flows from estimated proved reserves are based on prices and costs as of the date of the estimate unless such prices or costs are contractually determined at such date. Actual future prices and costs may be materially higher or lower. Actual future net cash flows also will be affected by factors such as actual production, supply and demand for oil and natural gas, curtailments or increases in consumption by natural gas purchasers, changes in governmental regulations or taxation and the impact of inflation on costs. Set forth below are net quantities of oil (including condensate and natural gas liquids) and gas produced by the Company for each of the last three fiscal years. The Company is not a party to any long-term supply on similar agreements with foreign governments or authorities where it is a producer.
December 31, ---------------------------------------- 1999 1998 1997 ------------- -------------- --------- NIGERIA(1) Oil (MBbls) ................. 1,571 417 -- Gas (MMcf) .................. -- -- -- MBOE ........................ 1,571 417 -- EGYPT Oil (MBbls) ................. -- -- -- Gas (MMcf) .................. -- -- -- MBOE ........................ -- -- -- CANADA(2) Oil (MBbls) ................. -- -- 19 Gas (MMcf) .................. -- -- 418 MBOE ........................ -- -- 89 TOTAL(3) Oil (MBbls) ................. 1,571 417 19 Gas (MMcf) .................. -- -- 418 MBOE ........................ 1,571 417 89
- ----------------------------- (1) SOGW's indigenous partner has pledged 50% of the revenues attributable to its 40% interest in OML-109 to SOGW as security for amounts advanced by SOGW during 1996. See "Item 2--Description of Property--Nigeria--The Indigenous Program." This additional interest is included in the December 31, 1999 reserve report. The above table reflects only SOGW's 60% interest -19- and does not include the quantities attributable to the pledged interest. (2) Effective July 1, 1997, the Company disposed of all of its Canadian oil and gas interests. (3) Does not include minimal production attributable to the Company's U.S. interests. MARKETING AND PRICING The Company's Nigerian production is marketed by CXY to crude purchasers or refiners at market prices, adjusted for transportation and crude quality. The Company's Egyptian production is marketed by EGPC or, at TransAtlantic's option, by the Company, to crude purchasers or refiners at market prices, adjusted for handling charges, transportation and crude quality. The Company's United States natural gas and crude oil production is marketed to aggregators or marketers of crude oil and natural gas, generally under 30 day contracts that renew automatically at market prices. The price received for the Company's production is subject to fluctuation and volatility. See "Item 1. Description of Business--Risk Factors." ITEM 3. LEGAL PROCEEDINGS. Several of the Company's wholly owned subsidiaries (the "Subsidiaries") are parties to a Shareholder Agreement effective February 28, 1997, pertaining to the Company's interest in Tarpon-Benin S.A. ("Tarpon") of which the Company is the indirect majority owner. Tarpon owned a concession in the Republic of Benin. At a meeting of the shareholders in 1998, Tarpon elected to withdraw from the concession and allow the concession agreement to expire; however, a group of minority shareholders (the "Shareholders") objected. The Shareholders, along with the parent company of the Shareholders, initiated arbitration in October, 1998 under the American Arbitration Association. The claimants in the arbitration seek damages in an amount sufficient to perform certain alleged obligations which the claimants contend are required to be performed pursuant to the terms of the Shareholder Agreement, including the acquisition and processing of 500 kilometers of new seismic lines on the concession, an annual training program and a bank guarantee for seismic work. On September 18, 2000, the Company was advised that the arbitrator ruled that the Subsidiaries had breached the Shareholder Agreement and assessed damages of $1,848,359.32. While the Company was not a party to the Shareholder Agreement, the arbitrator ruled that the Company guaranteed all obligations of the Subsidiaries. The Company does not believe that the Subsidiaries have a basis to appeal the decision. However, the Company intends to contest the arbitrator's ruling against the Company. No assurances can be made that the Company will be successful. On the Company's South Fort Stockton Prospect in Pecos County, Texas, the Winfield Ranch #17-1E well was drilled to a total depth of 25,740 feet and was cased and logged. Log analysis indicated a potential for more than 1,100 feet of gross pay in the Ellenburger formation, a highly prolific gas zone in the region and the primary objective of the well. In early December 1998, during operations to clean out the production casing, a string of drill pipe supplied by Weatherford International, Inc. and manufactured by a Weatherford subsidiary parted and became stuck in the bottom section of the hole. Efforts to retrieve the stuck string of drill pipe were not successful. When settlement discussions with Weatherford and its insurer failed to yield an acceptable settlement, the working interest owners together with the operator, Baytech, Inc., filed a lawsuit against Weatherford in state court in Pecos County, Texas on March 3, 1999. Substantial discovery has taken place, and the trial is currently set for December 2000. The lawsuit against Weatherford seeks to require Weatherford to either redrill or pay to redrill another well to the Ellenburger formation. The lawsuit also seeks consequential and exemplary damages. Under its joint operating agreement (the "JOA") with Atlas, the Company, through its wholly owned subsidiary SOGW, owns a 30% interest (60% revenue interest prior to payout) in the remaining 200,000 acres of OML 109 outside the Ejulebe field. In March 2000, SOGW initiated an arbitration in Geneva, Switzerland with the International Chamber of Commerce to resolve certain differences of opinion relating to the interpretation of the JOA. In particular, the Company seeks a declaratory judgment as to how taxes are to be paid, how the bank account is to operate and how the assignment of proceeds to pay the outstanding loans should work. The arbitration proceeding is scheduled to commence in September 2000. Once resolved, the Company anticipates proceeding with further exploration of the remainder of OML 109. In addition, in 1996, SOGW loaned $5.0 million to the Chairman of Atlas, by way of a promissory note, which was guaranteed by Atlas. The note bears interest at LIBOR plus 3% per annum. At July 31, 2000, approximately $6.65 million of principal and interest was outstanding under the note. The note is currently in default. Under the terms of the guarantee, SOGW is entitled to receive 50% of Atlas' share of cash flow from the concession. Since the note is in default, SOGW has additional rights under the loan documents regarding the Atlas share of production. SOGW has initiated proceedings in the High Court of England and Wales in London, England for its collection, and trial is set for early 2001. ITEM 4. CONTROL OF REGISTRANT. The Company records its common shares on its transfer agent's books in registered form. Some of the Company's common shares are registered in the name of intermediaries, such as brokerage houses and clearing houses, on behalf of their clients and, as a result, the -20- Company does not know the identity of the beneficial owners. To the best of the Company's knowledge, it is not directly or indirectly owned or controlled by another corporation or by any foreign government nor is there any arrangement, the operation of which may, in the future, result in a change of control. As of August 31, 2000, the Company is not aware of any person, firm or corporation which beneficially owns, directly or indirectly, or exercises control or direction over, voting securities carrying more than ten percent of the voting rights attached to any class of the securities of the Company. The following table is furnished as of August 31, 2000, to indicate beneficial ownership of the Company's common shares by all executive officers and directors of the Company as a group:
Title of Class Identity of Person or Group Amount Beneficially Owned(1) Percent of Class - -------------- --------------------------- ---------------------------- ---------------- Common shares Directors and executive officers 8,701,282(2) 10.96% as a group (9 persons)
- ------------------- (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unissued common shares subject to options, warrants or other convertible securities currently exercisable or convertible, or exercisable or convertible within 60 days, are deemed outstanding for the purpose of computing the beneficial ownership of common shares of the person holding such convertible security but are not deemed outstanding for computing the beneficial ownership of common shares of any other person. (2) Includes 4,714,000 common shares issuable upon the exercise of outstanding stock options held by directors and officers as a group. ITEM 5. NATURE OF TRADING MARKET. The common shares of the Company are listed and posted for trading on The Toronto Stock Exchange and trade under the symbol "TNP.U". The following table sets forth the volume of trading, and the high and low sales price per common share for the periods indicated:
Volume High Low ---------- ----- ----- Quarter ended March 31, 1998............................. 2,735,950 $1.45 $0.65 Quarter ended June 30, 1998 ............................. 1,691,400 $0.93 $0.63 Quarter ended September 30, 1998......................... 3,420,641 $1.00 $0.63 Quarter ended December 31, 1998.......................... 4,272,689 $0.78 $0.30 Quarter ended March 31, 1999............................. 2,855,021 $0.50 $0.16 Quarter ended June 30, 1999.............................. 5,969,924 $0.28 $0.15 Quarter ended September 30, 1999......................... 11,602,283 $0.34 $0.12 Quarter ended December 31, 1999.......................... 4,940,968 $0.24 $0.15 Quarter ended March 31, 2000............................. 19,138,305 $0.42 $0.15 Quarter ended June 30, 2000.............................. 7,505,203 $0.25 $0.14
The price of the common shares, as reported by the Toronto Stock Exchange at the close of business on August 31, 2000 was $0.15. The Company's common shares are not traded on an exchange in the United States, and there is no established market in the United States for the Company's common shares. As at August 31, 2000, a total of 79,384,092 of our common shares were issued and outstanding and held by 330 holders of record, of which 47 holders of record, holding 9,128,192 of our common shares, were residents of the United States. The computation of the number of common shares held of record by residents of the United States is based upon the number of common shares held of record by holders with United States addresses. Residents of the United States may beneficially own common shares which are held of record by non-residents of the United States. ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS. There are no governmental laws, decrees, or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends, or other payments to non-resident holders on the Company's common stock. Any remittances of -21- dividends to United States residents are, however, subject to a 15% withholding tax (5% if the shareholder is a corporation owning at least 10% of the outstanding common stock of the Company) pursuant to Article X of the reciprocal tax treaty between Canada and the United States. See "Item 7 - Taxation." There are presently no applicable limitations specific to the rights of non-Canadians to hold or vote the common stock of the Company under the laws of Canada or the Province of Alberta or in the charter documents of the Company. Although certain such limitations exist in the provisions of the Investment Canada Act, management of the Company considers that they are inapplicable to the Company. The Investment Canada Act requires that a non-Canadian making an investment which would result in the acquisition of control of a Canadian business, the gross value of the assets of which exceed certain threshold levels or the business activity of which is related to Canada's cultural heritage or national identity, to either notify, or file an application for review with, Investment Canada, the federal agency created by the Investment Canada Act. At present, the Company does not have any assets in Canada and therefore does not constitute a Canadian business as that term is defined under the Act and such restrictions are therefore inapplicable. ITEM 7. TAXATION. CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES Management of the Company considers that the following general summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of common stock of the Company who is a resident of the United States and who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his shares of common stock of the Company in connection with carrying on a business in Canada (a "non-resident shareholder"). This summary is based upon the current provisions of the Income Tax Act (Canada) (the "ITA"), the regulations thereunder (the "Regulations"), the current publicly announced administrative and assessing policies of the Canada Customs & Revenue Agency and all specific proposals (the "Tax Proposals") to amend the ITA and Regulations announced by the Minister of Finance (Canada) prior to the date hereof. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. DIVIDENDS Dividends paid, or credited, or deemed to be paid or credited, on the common stock of the Company to a non-resident will be subject to withholding tax. The Canada-U.S. Income Tax Convention (1980) (the "Treaty") provides that the normal 25% withholding tax rate is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as the Company) to residents of the United States, and also provides for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation which is a resident of the United States which owns at least 10% of the voting shares of the corporation paying the dividend. Where the dividends are received by a resident of the United States carrying on business in Canada through a permanent establishment in Canada or by a person who performs independent personal services in Canada from a fixed base situated in Canada, and holding of the shares in respect of which the dividends are paid is effectively connected with that permanent establishment, the dividends are generally subject to Canadian tax as business profits or income from rendering such services and the Treaty does not limit the tax payable on such income under the Act. CAPITAL GAINS In general, a non-resident person is subject to tax in Canada at the rates generally applicable to residents of Canada on any "taxable capital gain" arising on the disposition of "taxable Canadian property." Shares of a corporation which are listed on a prescribed stock exchange will only be taxable Canadian property to a non-resident person if, at any time during the five year period immediately preceding the disposition, the non-resident shareholder, either alone or together with persons with whom such non-resident did not deal at arm's length, owned 25 percent or more of the issued shares of any class of series of the capital stock of the corporation, or the non-resident's shares were acquired in a tax deferred exchange in consideration for property that was itself taxable Canadian property. In situations where shares constitute taxable capital property, the taxable portion of a capital gain for dispositions occurring after February 27, 2000, is equal to two-thirds of the amount by which the proceeds of disposition of such shares, net of any reasonable costs associated with the disposition, exceeds the adjusted cost base to the holder of the shares. -22- Article XIII of the Treaty provides that gains realized by a United States resident on the disposition of shares of a corporation that is a resident of Canada, including shares which constitute taxable Canadian property, may not be taxed in Canada unless the value of those shares is derived principally from real property situated in Canada or the shares form part of the business property of a permanent establishment which the resident of the United States has or had in Canada within the 12 month period preceding the date of disposition or if the shares pertain to a fixed base in Canada which is or was available within the 12 month period preceding the date of disposition of the purpose of performing independent personal services. MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes the material United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as defined below) of the Company's common stock. This discussion does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, nonresident alien individuals, foreign corporations, or shareholders owning common stock representing 10% of the vote and value of the Company. In addition, this discussion does not cover any state, local or foreign tax consequences. The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, published Internal Revenue Service ("IRS") rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial of recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of the Company's common stock and no opinion or representation with respect to the United States federal income tax consequences, to any such holder or prospective holder is made. Accordingly, holders and prospective holders of the Company's common stock should consult their own tax advisors about the federal, state, local and foreign tax consequences of purchasing, owning and disposing of shares of common stock of the Company. U.S. HOLDERS As used herein, a "U.S. Holder" is defined as (i) a citizen or resident of the U.S., or any state thereof, (ii) a corporation or other entity created or organized under the laws of the U.S., or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income tax regardless of source, or (iv) a trust whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. fiduciaries who have the authority to control all substantial decisions of the trust. DISTRIBUTIONS ON SHARES OF COMMON STOCK U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the Company's common stock are required to include in gross income for United States federal income tax purposes the gross amount of such distributions to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder's United States federal income tax liability or, alternatively, may be deducted in computing the U S. Holder's United States federal taxable income by those who itemize deductions. (See more detailed discussion at "Foreign Tax Credit" below.) To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder's adjusted basis in the common stock and thereafter as gain from the sale or exchange of such shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation. Dividends paid on the Company's common stock will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. FOREIGN TAX CREDIT A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of the Company's common stock may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. Subject to certain limitations, Canadian taxes withheld will be eligible for credit against the U.S. Holder's United States federal income taxes. Under the Code, the limitation on foreign taxes -23- eligible for credit is calculated separately with respect to specific classes of income. Dividends paid by the Company generally will be either "passive" income or "financial services" income, depending on the particular U.S. Holder's circumstances. Foreign tax credits allowable with respect to each class of income cannot exceed the U.S. federal income tax otherwise payable with respect to such class of income. The consequences of the separate limitations will depend on the nature and sources of each U.S. Holder's income and the deductions appropriately allocated or apportioned thereto. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of common stock should consult their own tax advisors regarding their individuals circumstances. DISPOSITION OF SHARES OF COMMON STOCK A U.S. Holder will recognize gain or loss upon the sale of shares of common stock equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received; and (ii) the shareholder's tax basis in the common stock. This gain or loss will be capital gain or loss if the shares are a capital asset in the hands of the U.S. Holder, and such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the common stock for more than one year. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders who are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted. OTHER CONSIDERATIONS The Company has not determined whether it meets the definition of a "passive foreign investment company" (a "PFIC"). It is unlikely that the company meets the definition of a "foreign personal holding company" (a "FPHC") or a "controlled foreign corporation (a "CFC") under current U.S. law. If more than 50% of the voting power or value of the Company were owned (actually or constructively) by one or more U.S. Holders who each owned (actually or constructively) 10% or more of the voting power of the Company's common shares ("10% Shareholders"), then the Company would become a CFC and each 10% Shareholder would be required to include in its taxable income as a constructive dividend an amount equal to its share of certain undistributed income of the Company. If (1) more than 50% of the voting power or value of the Company's common shares were owned (actually or constructively) by five or fewer individuals who are citizens or residents of the United States and (2) 60% or more of the Company's gross income consisted of certain interest, dividend or other enumerated types of income, then the Company would be a FPHC. If the Company were a FPHC, then each U.S. Holder (regardless of the amount of the Company's common shares owned by such U.S. Holder) would be required to include in its taxable income as a constructive dividend its share of the Company's undistributed income of specific types. If 75% or more of the Company's annual gross income has ever consisted of, or ever consists of, "passive" income or if 50% or more of the average value of the Company's assets in any year has ever consisted of, or ever consists of, assets that produce, or are held for the production of, such "passive" income, then the Company would be or would become a PFIC. If the Company were to be a PFIC, then a U.S. Holder would be required to pay an interest charge together with tax calculated at maximum tax rates on certain "excess distributions" (defined to include gain on the sale of stock) unless such U.S. Holder made an election either to (1) include in his or her taxable income certain undistributed amounts of the Company's income or (2) mark to market his or her Company common shares at the end of each taxable year as set forth in Section 1296 of the Code. INFORMATION REPORTING AND BACKUP WITHHOLDING U.S. information reporting requirements may apply with respect to the payment of dividends to U.S. Holders of the Company shares. Under Treasury regulations currently in effect, non-corporate holders may be subject to backup withholding at a 31% rate with respect to dividends when such holder (1) fails to furnish or certify a correct taxpayer identification number to the payor in the required manner, (2) is notified by the IRS that it has failed to report payments of interest or dividends properly or (3) fails, under certain circumstances, to certify that it has not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments properly. -24- ITEM 8. SELECTED FINANCIAL DATA. The selected financia1data presented in the table below for the quarterly periods ended June 30, 2000 and 1999, and the five fiscal years ended December 31, 1999, are derived from the Company's consolidated financial statements. This data includes the accounts of the Company and its wholly-owned subsidiaries for periods owned by the Company. The following selected financial data is qualified by reference to, and should be read in conjunction with, the consolidated financial statements and related notes included elsewhere in this Form 20-F. Reference is also made to "Item 9 - - Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected consolidated financial data as at December 31, 1997, 1996 and 1995 and for the two years ended December 31, 1996 are derived from audited consolidated financial statements that are not included herein. The selected financial data as at June 30, 2000 and 1999 and for the six months ended June 30, 2000 and 1999 are unaudited. However, these interim financial statements have been prepared on the same basis as the audited annual financial data and in the opinion of management, contain all adjustments necessary for a fair presentation of the financial position and results of operations for such periods. The results of operations for the six months ended June 30, 2000 are not necessarily indicative of results to be expected for a full fiscal year. TransAtlantic follows the full cost method of accounting for oil and gas operations.
Six Months Ended June 30 Year ended December 31 ---------------------- ----------- ----------- --------- ---------- ---------- 2000 1999 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- ---- (in thousands of U.S. dollars, except per share amounts) Oil and gas revenues.................. $18,584 $10,198 $21,999 $3,391 $636 $1,485 $1,290 Cash from (used in) operating 210 (1,104) (595) (1,352) 763 (354) 228 activities ........................... Per share........................... - (0.02) (0.01) (0.04) (0.02) (0.01) 0.01 Net loss.............................. 825 1,392 2,888 12,686 12,368 713 1,731 Per share........................... 0.01 0.02 0.05 0.35 0.37 0.03 0.07 Dividends per share................... - - - - - - - Total assets.......................... 16,547 15,701 15,645 21,488 28,543 26,579 19,233 Long term debt........................ - - - - 5,906 - 1,960 Shareholders' equity.................. 12,480 11,655 11,059 10,798 15,347 26,294 16,440 Capital expenditures.................. 1,952 1,708 3,920 2,838 13,659 6,124 7,962 Acquisition of GHP.................... - - - 9,105 - - - Proceeds on disposition of oil and gas properties............................ - - 109 3,877 4,131 394 -
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). These principles, as they pertain to the Company's consolidated financial statements, are not materially different from United States' generally accepted accounting principles ("US GAAP"), except as follows: (a) There are certain diferences between the full cost method of oil and gas accounting as applied in Canada and as applied in the United States. The Company has reviewed such differences and determined that, except as discussed below, no material variances in financial statement balances would have resulted from the applicaiton of full cost accounting in accordance with US GAAP. The Company has completed ceiling test calculations in accordance with US GAAP at December 31, 1999, 1998 and 1997. The ceiling tests computed under US GAAP did not result in any differnces as at Decebmer 31, 1999 and 1997. However, at December 31, 1998 the US GAAP ceiling test results in an additional impairment of $488. This difference would increase the Company's net loss for the year ended December 31, 1998 and would reduce the Company's total assets and shareholders' equity at December 31, 1998 and subsequent periods. -25- (b) In accordance with US GAAP, the liability method of accounting for income taxes is used instead of the deferral method. Under the liability method, current and deferred income taxes are recognized at currently enacted rates to reflect the expected future tax consequences arising from the difference between transactions recorded in the financial statements and those in income tax returns. In addition, purchase price adjustments arising from business combinations are grossed up for the related income tax impact under US GAAP. No adjustments to the financial statements are required with respect to the accounting for income taxes. (c) The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, in accounting for its stock options issued to employees, directors and officers of the Company for purposes of reconciliation to US GAAP. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for Stock-based Compensation", established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensations plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above and has adopted the disclosure requirements of SFAS No. 123. Stock options issued to third parties are accounted at their fair values in accordance with SFAS No. 123. No adjustments to the financial statements are required with respect to the accounting for stock options, except for the inclusion of additional disclosures below. During the periods ended June 30, 2000, and December 31, 1999 and 1998, the Company granted options to employees, directors and officers which, for purposes of reconciling to US GAAP, have been accounted for in compliance with APB Opinion No. 25. All were granted with exercise prices at the market price of the Company's stock on the date of grant. Accordingly, no compensation expense is recorded in the Company's statement of operations and deficit. The Company has calculated the fair value of stock options granted to employees using the Black-Scholes option pricing model with the following weighted-average assumptions:
June 30 December 31, ------- -------------------- 2000 1999 1998 ------- ------- ------- Risk free interest rate.................. 5.75% 5.55% 5.15% Volatility............................... 5.27% 6.13% 5.27% Expected option life (in years).......... 4.5 4.5 4.5 Dividend Yield........................... 0% 0% 0%
Had the Company determined compensation cost based upon the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income and loss per share amounts would have been reduced to the pro forma amounts indicated below:
June 30 December 31, ------- -------------------- 2000 1999 1998 ------- ------- ------- Net loss under US GAAP: As reported........................ $825 $2,888 $12,686 Pro forma.......................... $834 $3,040 $12,999 Net loss per common share: As reported........................ 0.01 0.05 0.35 Pro forma.......................... 0.01 0.05 0.36
(d) The reduction in stated capital recorded during 1998 under Canadian GAAP would have to be reversed under US GAAP. As a result, the Company's shareholders' equity under US GAAP at December 31, 1998 and subsequent periods would be restated as follows: -26-
June 30 December 31, ------- --------------------- 2000 1999 1998 ------- ------- ------- Share capital............................ $43,757 $41,511 $38,362 Deficit.................................. (31,277) (30,452) (27,564) ------ ------ ------ $12,480 $11,059 $10,798 ====== ====== ======
(e) Supplementary disclosures required under US GAAP are as follows:
Six Months Ended JUNE 30 DECEMBER 31, 2000 1999 1998 ------------------- ---------- ------------ Cash interest paid.................................... - - - Cash taxes paid....................................... - - - Components of change in non-cash working capital: Restricted cash............................ $355 $1,187 - Accounts receivable........................ 47 167 49 Accounts payable and accrued liabilities... 31 (583) 79 Other...................................... (24) 82 (475) $410 $853 (347) === === ===
(f) Additional Disclosures Required Under US GAAP: The components of accounts payable and accrued liabilities are as follows:
June 30 December 31, ------------ ----------------------- 2000 1999 1998 ------------ ---------- ----------- Accounts payable........................... $501 $494 $647 Accrued liabilities........................ 446 1,210 874 $947 $1,704 $1,521 === ===== =====
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW On December 1, 1998, the Company's predecessor, Profco Resources Ltd., acquired GHP Exploration Corporation in an amalgamation transaction. The resulting enterprise was renamed TransAtlantic Petroleum Corp. The GHP acquisition provided a working capital infusion of $1.9 million and brought international exploration prospects in Egypt, Tunisia and the United States. The year ended December 31, 1999 was the first full year of operations of TransAtlantic Petroleum Corp. following the acquisition of GHP. In December 1999, the Company relinquished its interest in Tunisia. In September 1998, production from the Company's Nigerian operations commenced. The Hana oil discovery in Egypt in July 1999 represented a significant milestone in TransAtlantic's history. First oil sales occurred in late December 1999. The field has been developed in the first half of 2000, and it is expected to provide cash flow to offset a portion of the Company's ongoing exploration and development projects for the foreseeable future. Inflation has not had a material impact on our results of operations and is not expected to have a material impact on our results of operations in the future. -27- The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto included as an exhibit to this registration statement. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 AND SIX MONTHS ENDED JUNE 30, 1999 Total revenues for the first six months of 1999 and 2000 were $10.5 million and $18.7 million, respectively. The increase in revenues reflects the higher price per barrel received in the first six months of 2000 and the commencement of production from the Company's Hana field in the West Gharib concession, Egypt. Production from two Hana wells commenced at the end of 1999 with first sales being booked in 2000. An additional four wells were placed on production in the second quarter. For the six months ended June 30, 2000, the Hana field production averaged 241 Bopd net to the Company. This production helped the Company achieve improved operating income and operating cash flow for the period ended June 30, 2000, compared to the same period in 1999. Cash flow provided to the Company from the Hana field was used to partially pay for the developmental drilling on the Hana field. Although production and costs at the Ejulebe field offshore Nigeria remain relatively constant, the revenues from the Ejulebe field continue to be dedicated to payment of the service fee to the service contractor. This will continue until the capital component of the service fee has been reduced, at which point the Company will begin to share in a portion of the profits from the field. A minimum payment of $34,000 per month is paid by CXY Oilfield Services Nigeria, Ltd., the service contractor. This minimum payment revenue effectively pays the overhead costs of the Company's operations in Nigeria. OIL AND GAS SALES The Company commenced receiving revenues from production from the Hana field in the West Gharib Concession in Egypt in 2000. Production averaged 1,578 Bopd (to the 100% interest) in the first six months of 2000 from the Hana wells. Revenues net to the Company from the Hana field were $1.93 million in the period ending June 30, 2000; after payment of production taxes and operating expenses, the Company received $880,297. In the first six months of 2000, oil and gas sales from both the Ejulebe field and Hana field totaled $18.5 million, significantly more than the $10.2 million in the first half of 1999. This is attributable to the Hana field coming on stream and the higher price per barrel being realized on the sale of the Ejulebe crude. A portion of the revenues represents SOGW's 60% share of revenue from the Ejulebe field, less the royalty payable to the Nigerian government as well as an additional 20% share of revenue from the Ejulebe field the Company receives to apply against a promissory note owed by the Chairman of SOGW's Nigerian partner. During the period ended June 30, 2000 and 1999, the Company sold 745,412 and 952,706 barrels (net) produced from the Ejulebe field at average prices of $26.86 and $12.76, respectively. During the period ended June 30, 2000, the Company sold 43,948 barrels (net) produced from the Hana field at an average price of $21.18. The increased average sales price for production in 2000 reflects the increase in world oil prices in 2000 from prices in 1999. Due to the method by which the Nigerian government calculates royalty payments, SOGW also receives, in addition to the minimum revenue payment due from CXY discussed above, its 60% share of the difference between the royalty paid to the government and 18.5% of the actual sales price received for the crude oil sold. SOGW's share of this differential totaled approximately $0.08 million for the six months ended June 30, 2000 and $0.14 million for the six months ended June 30, 1999. PRODUCTION EXPENSES Production costs for the first six months of 2000 were $18.098 million as compared to $10.396 million for the first six months of 1999. Production costs for the Ejulebe field for the six months ended June 30, 2000 and June 30, 1999 consist of the service fee payable to CXY ($16.3 million in 2000 and $9.9 million in 1999) and other production related costs ($0.35 million in 2000 and $0.36 million in 1999). Both the service fee and other production costs for the first quarter of 1999 and 2000 relate primarily to the Ejulebe field operations in Nigeria. The large increase in production expense during 2000 reflects the start-up of production from the Hana field. Operating costs at the Hana field averaged $2.36 per barrel which includes transportation and terminalling costs. DEPRECIATION, DEPLETION AND AMORTIZATION -28- The provision for depreciation, depletion and amortization ("DD&A") is a function of the total costs of exploring, developing and placing on stream crude oil and natural gas properties, production from the properties and the proven reserves assigned to the properties throughout the year and also depreciation and amortization of non-oil and gas assets. During the six months ended June 30, 1999 and 2000, the Company recorded DD&A expense of $0.55 million and $0.6 million, respectively. DD&A expense for the first half of 2000 consisted of $0.29 million attributable to Nigerian operations, $0.28 million attributable to Egyptian operations with the remainder attributable to amortization of other Company assets. DD&A expense for the first half of 1999 consisted of $0.43 million attributable to Nigerian operations, $0.10 million attributable to amortization of the premium paid on the 7% Convertible Debentures due September 3, 1999 prior to redemption in 1999, with the remainder attributable to depreciation of other assets. LOSS ON DISPOSITION OF PROPERTY AND EQUIPMENT No significant dispositions were recorded in the first half of 2000 or the first half of 1999. GENERAL AND ADMINISTRATIVE EXPENSES As of June 30, 1999, the Company had cost centers for general and administrative expenses in Nigeria, the United States and Canada. As of December 31, 1999, the Company added the Egyptian cost center. All of the general and administrative charges in Nigeria for personnel and facilities were either capitalized or recorded as part of production expenses as they either related to exploration activities or were incurred in connection with producing activities from the Ejulebe field. In Canada and the United States, certain costs that related to the Company's international operations have been allocated to the applicable subsidiary and capitalized or charged to the operations of that country. Those costs which cannot be allocated to a specific country or which relate to revenue producing operations have been charged to general or administrative expenses. Total general and administrative expense and that portion allocated to oil and gas property is recapped in the following table:
Six Months Ended June 30, -------------------------- 2000 1999 --------- --------- (in thousands) Expenses prior to capitalization: Canada............................. $ 224 $ 284 Nigeria............................ 387 434 Egypt.............................. 196 124 United States...................... 406 491 ------ ------ Total......................... $1,213 $1,333 ====== ====== Capitalized costs directly related to geological and geophysical activites: Canada............................. -- -- Nigeria............................ (288) (434) Egypt.............................. (185) (124) United States...................... (27) (87) -- -- Total......................... (500) (645) ------ ------ General and administrative expense: $ 713 $ 688 ====== ======
INTEREST AND OTHER EXPENSE The Company recorded interest and other expense of $0.16 million for the six months ended June 30, 2000 and $0.13 million for the six months ended June 30, 1999. Interest and other expense in these periods in 1999 and 2000 consisted primarily of accrued interest related to the note payable to GMISI. YEAR ENDED DECEMBER 31, 1999 AND YEAR ENDED DECEMBER 31, 1998 -29- Comparison of the Company's results of operations for the years ending December 31, 1998 and December 31, 1999 is difficult because of the change in asset structure between the two years. Revenues and expenses for the year ended December 31, 1998 reflected 11 months of operations as Profco; during this period the principal asset of the Company was the Nigerian property which was not in commercial operation until September 1998. As of December 1, 1998, the Company acquired GHP and therefore oil and gas revenues from the GHP oil and gas assets for the month of December 1998 are included in the revenues and expenses for the year ending December 31, 1998. In December 1998, a substantial portion of GHP's United States assets were sold for $3.8 million and that property sale is reflected in the year ending December 1998. Total revenues for the years ended December 31, 1998 and 1999 were $3.7 million and $22.6 million, respectively. Revenues increased during 1999 as a result of production from the Ejulebe Field. Included in 1999 revenues is $3.8 million reimbursed to the Company from CXY for prior costs in connection with development of the Ejulebe field offshore Nigeria. See "Other" below. OIL AND GAS SALES The Company's oil and gas revenues and related production costs in 1999 and 1998 were primarily comprised of the Company's share of revenue and production expenses from the Ejulebe field offshore Nigeria. This field came on stream in September 1998 and the first crude lifting occurred in December 1998. In 1999, crude liftings occurred every month or in some cases, every other month. Although crude production commenced from the Hana field in Egypt in December 1999, no revenues for Hana crude oil sales were recorded in 1999. Oil and gas sales for 1999 and 1998 totaled $22.0 million and $3.4 million, respectively, and represent SOGW's 60% share of revenue from the Ejulebe field, less the royalty payable to the Nigerian government, as well as an additional 20% share of revenue from the Ejulebe field the Company receives to apply against a promissory note owed by the chairman of SOGW's Nigerian partner. During the years ended December 31, 1999 and 1998, the Company sold 1,571,200 and 416,500 barrels (net to SOGW's 60% interest) at average prices of $16.75 and $9.75, respectively. The increased production in 1999 reflects a full year of production. The increased average sales price for production in 1999 reflects the increase in world oil prices in 1999 from prices in 1998. Due to the method by which the Nigerian government calculates royalty payments, SOGW also receives, in addition to the minimum revenue payment due from CXY discussed above, its 60% share of the difference between the royalty paid to the government and 18.5% of the actual sales price received for the crude oil sold. SOGW's share of this differential totaled approximately $0.22 million for 1999 and $0.07 million for 1998. PRODUCTION EXPENSES Production costs for the years ended December 31, 1999 and December 31, 1998 consist of the service fee payable to CXY for operation of the Ejulebe field ($21.5 million in 1999 and $3.1 million in 1998) and other production related costs ($0.97 million in 1999 and $0.2 million in 1998). Both the service fee and other production costs for 1999 and 1998 relate primarily to the Ejulebe field operations in Nigeria. The large increase in production expense during 1999 reflects increased production from the Ejulebe field. DEPRECIATION, DEPLETION AND AMORTIZATION During the years ended December 31, 1999 and December 31, 1998, the Company recorded DD&A expense of $0.8 million and $1.1 million, respectively. DD&A expense for 1999 consisted of $0.65 million attributable to Nigerian operations, $0.1 million attributable to amortization of the Company's 7% Convertible Debentures due September 3, 1999 prior to redemption in 1999 and $0.05 million attributable to depreciation of corporate office equipment. DD&A expense for 1998 consisted of $0.8 million attributable to Nigerian operations, $0.15 million attributable to amortization of the premium paid on the 7% Convertible Debentures due September 3, 1999 and $0.14 million attributable to depreciation of office equipment. LOSS ON DISPOSITION OF PROPERTY AND EQUIPMENT No significant dispositions were recorded in 1999. The 1998 loss on disposition of property and equipment consists of a $0.14 million loss on the sale of marketable securities and a $0.6 million loss on the sale of miscellaneous office equipment. ADJUSTMENT OF OIL AND GAS PROPERTIES Companies in the oil and gas industry utilizing the full cost method of accounting are required to undergo a ceiling test quarterly, -30- on a country by country basis. The ceiling test calculation estimates future net revenues from proven reserves, based on current prices, together with the cost of unproven properties, with a reduction for future site restoration costs (where applicable), general and administrative expenses, financing costs and income taxes. The result is then compared to the current net book value of their crude oil and natural gas properties. If the calculation results in a deficiency, companies are required to reduce current year's earnings by a corresponding amount. During the years ended December 31, 1999 and December 31, 1998, the Company recorded writedowns of $0.89 million and $10.4 million, respectively. In 1998, the Company abandoned the Sud Nefta concession in Tunisia and the concession in Benin and wrote off $2 million of costs. The $0.16 million writedown recorded in 1999 relates to additional costs incurred in abandoning the Sud Nefta concession. In addition, during 1998 the Company recorded a writedown of $8.4 million in the value of its Nigerian oil and gas assets. This writedown was due to the decrease in reserve value as a result of historically low crude prices for the Ejulebe field at December 31, 1998. At current production rates, the Ejulebe field is not operating at a breakeven rate and SOGW is receiving only the guaranteed minimum revenue payment and royalty differential. With no assurance that the production rate can be increased or sustained, the Company was unable to record any increase to its reserve value attributable to these variables. However, it is possible if production rates remain steady and the crude price for the Ejulebe crude remains above $25 per barrel, that SOGW could begin receiving revenues in year 2001. GENERAL AND ADMINISTRATIVE EXPENSES As of December 31, 1999 and 1998, the Company had cost centers for general and administrative expenses in Nigeria, the United States and Canada. As of December 31, 1999, the Company added the Egyptian cost center. All of the general and administrative charges in Nigeria for personnel and facilities were either capitalized or recorded as part of production expenses as they either related to exploration activities or were incurred in connection with producing activities from the Ejulebe field. In Canada and the United States, certain costs that related to the Company's international operations have been allocated to the applicable subsidiary and capitalized or charged to the operations of that country. Those costs which cannot be allocated to a specific country or which relate to revenue producing operations have been charged to general or administrative expenses. Total general and administrative expense and that portion allocated to oil and gas property is recapped in the following table:
Years Ended December 31, ----------------------------- 1999 1998 ------- -------- (in thousands) Expenses prior to capitalization: Canada.................................................................. $ 393 $ 767 Nigeria................................................................. 820 1,286 Egypt................................................................... 262 -- United States........................................................... 730 104 ------- ------- Total...................................................... 2,205 2,157 ======= ======= Capitalized costs directly related to geological and geophysical activities: Canada.................................................................. (92) (274) Nigeria................................................................. (727) (1,286) Egypt................................................................... (262) -- ------- ------- Total...................................................... (1,179) (1,560) ======= ======= General and administrative expenses.......................................... $ 1,026 $ 597 ======= =======
The increase in general and administrative expenses between 1998 and 1999 is attributable to the acquisition of GHP and the consequent increase in foreign operations. The 1998 total consists only of the Profco operations whereas 1999 includes Egypt and the United States as well as corporate expenses. INTEREST AND OTHER EXPENSE The Company recorded interest and other expense of $0.3 million for the year ended December 31, 1999 and $0.8 million for the -31- year ended December 31, 1998. Interest and other expense in 1999 consisted primarily of accrued interest related to the note payable to GMISI. Interest and other expense for the year ended December 31, 1998 included $0.24 million in accrued interest relating to the note payable to GMISI, but also included $0.4 million of interest relating to the 7% Convertible Debentures due September 3, 1999 which were issued in September 1997 and redeemed in April 1999. The balance of interest and other expense for 1998 related primarily to impairment of marketable securities. OTHER The Company received cash of $3.8 million in the first quarter of 1999 from CXY as reimbursement of prior costs incurred in the Ejulebe field in Nigeria. The terms of the service contract with CXY required CXY to fund the drilling, completion and equipment costs of the Ejulebe field, incur certain other expenditures and reimburse SOGW for $10 million of prior costs incurred upon the Ejulebe field reaching one million barrels of cumulative oil production. During 1996, CXY advanced $5 million to SOGW as a loan bearing interest at LIBOR plus 3% per annum in respect of the service contract. The net payment of $3.8 million received in 1999 represents the $10 million payment less the principal and accrued interest due on the advance made during 1996. YEAR ENDED DECEMBER 31, 1998 AND YEAR ENDED DECEMBER 31, 1997 Revenues and production expenses for the year ended December 31, 1997 reflected the six month results from the Company's Canadian oil and gas assets which were sold effective June 30, 1997, resulting in the 1997 loss on disposition of property and equipment of $2.3 million. The Company's corresponding amounts for 1998 primarily represented SOGW's share of revenue and production costs from the Ejulebe field offshore Nigeria that came on stream during September 1998. Total revenues for the years ended December 31, 1998 and 1997 were $3.39 million and $0.64 million, respectively. Revenues increased during 1998 as a result of the commencement of production from the Ejulebe field. OIL AND GAS SALES The Company's oil and gas revenues and related production costs in 1998 were primarily comprised of revenues from the sale of production from the Ejulebe field, as well as an additional 20% share of revenue from the Ejulebe field the Company receives to apply against a promissory note owed by the Chairman of SOGW's Nigerian partner. The Company's oil and gas revenues and related production costs in 1997 were comprised of revenues from the Company's Canadian oil and gas assets which were sold effective June 30, 1997. Oil and gas sales for 1998 and 1997 totaled $3.39 million and $0.64 million, respectively. During the year ended December 31, 1998, the Company sold 416,500 Bbls (net to SOGW's 60% interest) at average price of $9.75 per barrel. The increased production in 1998 reflects the start-up of the Ejulebe field. PRODUCTION EXPENSES Production costs for the years ended December 31, 1998 ($3.3 million) and December 31, 1997 ($0.2 million) consist of production expenses for the Ejulebe field in 1998 and for the Canadian oil and gas properties in 1997. The increase in production expense during 1998 reflects the payment of the service fee to the service contractor for the Ejulebe field. DEPRECIATION, DEPLETION AND AMORTIZATION During the years ended December 31, 1998 and December 31, 1997, the Company recorded DD&A expense of $1.1 million and $0.55, respectively. DD&A expense for 1998 consisted of $0.8 million attributable to Nigerian operations, $0.15 million attributable to amortization of the premium paid on the 7% Convertible Debentures due September 3, 1999 and $0.15 million attributable to depreciation of office equipment. DD&A expense for 1997 consisted of the expense associated with the Company's Canadian properties and to depreciation of office equipment. LOSS ON DISPOSITION OF PROPERTY AND EQUIPMENT The 1998 loss on disposition of property and equipment consists of a $0.14 million loss on the sale of marketable securities and a $0.6 million loss on the sale of miscellaneous office equipment. The 1997 loss on disposition of property and equipment consists of a $2.3 million loss on the sale of the Company's Canadian oil and gas assets. ADJUSTMENT OF OIL AND GAS PROPERTIES -32- Companies in the oil and gas industry are required to undergo a ceiling test quarterly, on a country by country basis. The ceiling test calculation estimates future net revenues from proven reserves, based on current prices, together with the cost of unproven properties, with a reduction for future site restoration costs (where applicable), general and administrative expenses, financing costs and income taxes. The result is then compared to the current net book value of their crude oil and natural gas properties. If the calculation results in a deficiency, companies are required to reduce current year's earnings by a corresponding amount. During the years ended December 31, 1998 and December 31, 1997, the Company recorded writedowns of $10.4 million and $9.6 million, respectively. In 1998, the Company abandoned the Sud Nefta concession in Tunisia and the concession in Benin and wrote off $2 million of costs. In addition, during 1998 the Company recorded a writedown of $8.4 million in the value of its Nigerian oil and gas assets. This writedown was due to the decrease in reserve value as a result of historically low crude prices for the Ejulebe field at December 31, 1998. The $9.6 million writedown recorded in 1997 relates to the Company's Sud Nefta concession in Tunisia and the Benin concession as a result of drilling a non-commercial well on each of the prospects. GENERAL AND ADMINISTRATIVE EXPENSES As of December 31, 1998 and 1997, the Company had cost centers for general and administrative expenses in Nigeria, the United States and Canada. All of the general and administrative charges in Nigeria for personnel and facilities were either capitalized or recorded as part of production expenses as they either related to exploration activities or were incurred in connection with producing activities from the Ejulebe field. In Canada and the United States, certain costs that related to the Company's international operations have been allocated to the applicable subsidiary and capitalized or charged to the operations of that country. Those costs which cannot be allocated to a specific country or which relate to revenue producing operations have been charged to general or administrative expenses. Total general and administrative expense and that portion allocated to oil and gas property is recapped in the following table:
Years Ended December 31, ---------------------------------- 1998 1997 ------------- ------------ (in thousands) Expenses prior to capitalization: Canada.............................................................. $ 767 $ 491 Nigeria............................................................. 1,286 1,143 Egypt............................................................... - - United States....................................................... 104 - ------------- ------------ Total...................................................... 2,157 1,634 ============= ============ Capitalized costs directly related to geological and geophysical activities: Canada.............................................................. (274) (45) Nigeria............................................................. (1,286) (1,143) Egypt............................................................... - - United States....................................................... - - Total...................................................... (1,560) (1,188) General and administrative expenses.......................................... $ 597 $ 446 ============= ============
The increase in general and administrative expenses between 1998 and 1997 is primarily attributable to overhead increases associated with the amalgamation of Profco with GHP Exploration. The 1997 general and administrative expenses consist only of Profco operations which were localized in Canada and Nigeria. INTEREST AND OTHER EXPENSE The Company recorded interest and other expense of $0.8 million for the year ended December 31, 1998 and $0.15 for the year ended December 31, 1997. Interest and other expense for the year ended December 31, 1998 included $0.24 million in accrued interest relating to the note payable to Global Marine Integrated Services - International Inc., but also included $0.4 million of interest relating to the 7% Convertible Debentures due September 3, 1999 which were issued in September 1997 and redeemed in April 1999. The balance of interest and other expense for 1998 related primarily to impairment of marketable securities. Interest and other expense in 1997 consisted primarily of interest relating to the 7% Convertible Debentures due September 3, 1999 which -33- were issued in September 1997. LIQUIDITY AND CAPITAL RESOURCES CAPITAL SOURCES The Company has historically funded its operations, acquisitions, exploration and development expenditures from cash flows from operating activities, issuance of debt and equity securities and sales of non-strategic assets and oil and gas properties. On May 31, 2000, the Company completed a brokered private placement totaling 1.6 million units with gross proceeds of approximately $304,000. Each unit cost $0.19 and consisted of one common share and 0.6 common share purchase warrant. A whole warrant is exercisable at $0.25 until May 31, 2001. In connection with the placement, the Company paid costs of $8,156. The funds from this placement were used for general corporate purposes. On January 28, 2000, the Company completed a brokered private placement totaling 10 million units with gross proceeds of approximately $2 million. Each unit cost $0.20 and consisted of one common share and one-half common share purchase warrant. A whole warrant is exercisable at $0.25 until January 31, 2001. In connection with the placement, the Company paid costs of $0.163 million and issued one million warrants to the broker exercisable at $0.25 per share on or before January 31, 2001. The funds from this placement were used primarily to fund the four well drilling program on the Central Sinai concession and the development drilling on the West Gharib concession and for general corporate purposes. As a result of payments to GMISI and the redemption of outstanding debentures, the Company reduced its total principal and related accrued interest due on outstanding debt from $9.2 million at December 31, 1998, to $2.9 million at December 31, 1999. Because of interest payable on the GMISI debt, the outstanding debt at June 30, 2000 was $3.12 million. At December 31, 1999, the Company had a working capital deficiency of $3.5 million consisting primarily of approximately $2.85 million of principal and accrued interest attributable to the note payable to GMISI. At June 30, 2000, the Company had a working capital deficiency of $3.34 million; although there was additional interest on the note payable to GMISI, cash flow from the Hana field was used to pay for the expenditures on the Company's drilling programs in Egypt. Throughout 1999 and the first half of 2000, the Company had ongoing discussions with GMISI with respect to amounts due under the outstanding note payable that has been guaranteed by the Company. On August 24, 2000, the Company and GMISI entered into a settlement agreement that provides that the entire obligation can be satisfied if the Company pays GMISI $1.5 million before November 22, 2000, subject to certain regulatory approvals. If not paid, the entire note amount ($3.12 million at June 30, 2000) plus accrued interest is converted to long term debt bearing interest at 12% per annum and payable in monthly installments of $75,000 per month. On July 21, 1999, the Company completed a private placement of 4.65 million special warrants at $ 0.20 per unit for gross proceeds of $0.93 million. Each special warrant consisted of one common share and one-half of a common share purchase warrant. A whole purchase warrant entitles the purchaser to purchase one common share at $0.25 on or before December 31, 2000. The net proceeds were used to fund the ongoing exploration activities in Egypt and for general corporate purposes. On May 17, 1999, the Company redeemed its outstanding Cdn. $9 million of 7% Convertible Debentures due September 3, 1999 in exchange for the payment of $3.65 million in cash and the issuance of approximately 9.15 million common shares of TransAtlantic at a deemed price of $0.25 per share. CAPITAL EXPENDITURES AND COMMITMENTS In the first half of 2000, the Company incurred $2.0 million in capital expenses as compared to $1.7 in the first half of 1999. This increase is due to the increased activities on the Egyptian concessions. The Company incurred $3.9 million and $11.9 million in capital expenditures during 1999 and 1998, respectively. Of the 1999 amount, $2.7 million was incurred on the Egyptian concessions, $0.63 million was incurred in Nigeria and the U.S. and the balance represents capitalized costs. Of the 1998 amount, $9.1 million was incurred in the acquisition of GHP through the issuance of 19.0 million common shares. The remaining $2.8 million was incurred primarily on the Company's Nigerian concession and its abandoned Benin and Sud Nefta concessions. These costs were financed through existing working capital. -34- The Company has total remaining commitments on its Central Sinai concession and on its West Gharib concession, both located in Egypt, of approximately $0.1 million and expects to incur an additional $0.5 million over the next 6 months, excluding general and administrative expenses. In addition, the Company expects to incur additional expenses in the West Gharib concession to drill additional development wells and install production facilities. To meet its debt obligations and outstanding capital commitments for calendar year 2000, the Company will be required to use existing cash on hand and cash flow from operations, negotiate outstanding amounts due and obtain additional debt or equity financing. There can be no assurance that the Company will be able to continue to meet its obligations on the above commitments. See "Item 1. Description of Business-Risk Factors." FUTURE FINANCIAL CONDITION The Company's future financial condition and ability to provide value to its shareholders is contingent on the extent of the recoverable reserves from the Hana and Ejulebe fields, the discovery of other economically recoverable reserves, its ability to restructure or refinance its existing debt obligations and its ability to raise additional exploration and development capital. Success is also dependent on oil and gas product prices, the cost of acquiring, finding, developing, and producing crude oil and natural gas reserves and the ability to achieve profitable production rates on its existing reserve base and future discoveries, if any. To a large extent, the production rates on the Company's existing discoveries and potential future discoveries are, or may be, beyond the control of the Company. The production rate maintained by field operators or service contractors may significantly impact the Company's production limits with little influence by the Company. The prices received by the Company from the sale of its production are subject to fluctuation in response to changes in supply, market uncertainty and a variety of other factors beyond the Company's control. ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. -35- ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT. The following table provides the names of all of our directors and executive officers, their positions, terms of office and their principal occupations during the past five years. Each director is elected for a one year term or until his successor has been duly elected or appointed. Officers serve at the pleasure of the Board of Directors.
Name, Residence, Position with the Company and Term of Office Principal Occupations During the Past Five Years --------------------------------------------- --------------------------------------------------------------------- JOHN ANDRIUK(1).............................. President, Andriuk Enterprises, Ltd. Calgary, Alberta Director since August, 1995 JOHN J. FLEMING (2).......................... Chairman, Roseland Resources, Ltd. Calgary, Alberta Vice Chairman of the Board since December 1998 Director since November, 1992 DON V. INGRAM................................ President and Chief Executive Officer, Imco Recycling Inc. Dallas, Texas Director since March, 1995 STEPHEN S. KURTZ(2).......................... President and Chief Executive Officer of Shenkin Kurtz Baker & Co. Denver, Colorado LLC (an accounting firm) and SKB Business Services (a Century Director since December, 1998 Business Services firm). BARRY D. LASKER.............................. President, Chief Executive Officer and Chief Operating Officer of Houston, Texas TransAtlantic Petroleum Corp. President, Chief Executive Officer, Chief Operating Officer since December 1998 Director since December, 1998 GEORGE H. PLEWES(1)(2)....................... Chairman of Southwestern Gold Corporation (an international mining Pembroke, Bermuda exploration company). Chairman of the Board since December 1998 Director since December, 1998 TREVOR W. WILSON(1).......................... Senior Vice President of Lions Gate Entertainment Corp. from West Vancouver, British Columbia September, 1997 to May, 1998; prior thereto, Vice Chairman of Director since December, 1998 Yorkton Securities Inc. (a securities dealer). SCOTT C. LARSEN.............................. President of various subsidiaries of TransAtlantic Petroleum Corp. Dallas, Texas Acting Chief Financial Officer and Corporate Secretary since September 1999 MICHAEL J. GARTLAND.......................... Occupied various exploration positions with TransAtlantic Petroleum Houston, Texas Corp. and GHP. Vice President Exploration since September 1999
-36- - -------------------------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. The Company does not have an executive committee. Each of our directors were elected at our last annual general meeting of shareholders. The term of office of each director concludes at our next annual general meeting of shareholders, unless the director's office is earlier vacated in accordance with our by-laws. There are no family relationships among any of our directors, officers or key employees. ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS. During the fiscal year ended December 31, 1999, we paid our executive officers $440,000 in aggregate cash compensation. Bonuses of $85,000 were paid in the first quarter of 2000. We are required, under applicable securities legislation in Canada, to disclose to our shareholders details of compensation paid to our directors and officers. The following fairly reflects all material information regarding compensation paid by the Company to its directors and officers, which information has been disclosed to our shareholders in accordance with applicable Canadian law. The following table sets forth all annual and long term compensation for services in all capacities to the Company and its subsidiaries for the three most recently completed financial years in respect of the Company's CEO and, if they earned more than Cdn. $100,000 or its equivalent in U.S. dollars, each of the individuals who was, as of December 31, 1999, an executive officer of the Company (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation -------------------------------------------------------------- -------------------------------------- Securities Under Other Annual Options/ Restricted Compen- SARs Shares or LTIP All Other Salary Bonus sation Granted Restricted Payouts Compen- Year ($) ($)(1) ($)(2) (#)(3) Share Units ($) ($) sation ---- ------------ ------- ------------ ---------- --------------- ------- ----------- Barry D. Lasker 1999 $150,000 $50,000 - 825,000 - - - President & Chief 1998 $12,500 - - 606,350(5) - - - Executive Officer(4) 1997 - - - - - - - Michael J. Gartland 1999 $140,000 $15,000 - 300,000 - - - Vice President 1998 $11,666 - - 121,800 - - - Exploration 1997 - - - - - - - Scott C. Larsen 1999 $150,000 $20,000 - 300,000 - - - Acting CFO & 1998 - - - 110,000 - - - Corporate Secretary 1997 - - - 40,000 - - - John J. Fleming 1999 - - - 200,000 - - $20,000 Former Chief 1998 Cdn.$140,000 - - 153,300 - - $60,000 Executive Officer(6) 1997 Cdn.$140,000 - - 140,000 - - -
-37- - -------------------------------- (1) 1999 bonuses were paid in February 2000. (2) Perquisites and other personal benefits do not exceed the lesser of Cdn. $50,000 and 10% of the total of the annual salary and bonus of any of the named executive officers. (3) The Company has not granted any SARs. (4) Mr. Lasker was appointed Chief Executive Officer on December 1, 1998 upon completion of the amalgamation with GHP. Mr. Lasker was formerly Chief Executive Officer of GHP. (5) Includes 526,350 options to acquire common shares of the Company originally issued by GHP. (6) Mr. Fleming was Chief Executive Officer of the Company until December 1, 1998 at which time he ceased to be employed by the Company. In consideration thereof, Mr. Fleming was awarded 100,000 common shares of the Company with a deemed value of Cdn. $60,000 and US $100,000 in severance pay, US $25,000 of which was paid in 1999. Mr. Fleming remains Vice Chairman and a director of the Company. EMPLOYMENT CONTRACTS AND TERMINATION AGREEMENTS All of the Company's employment contracts with its executive officers are verbal. The agreements provide for the remuneration described above under the Summary Compensation Table. The agreements may be terminated at the election of the executive officer or the Company on reasonable notice. Bonuses and stock options may be paid or granted in the discretion of the Board of Directors upon recommendation of the Compensation Committee. PENSION PLANS The Company does not have any pension plans. The Company's U.S. subsidiary, TransAtlantic Petroleum (USA) Corp. has established a 401(k) Retirement Plan (the "Plan") under applicable U.S. income tax legislation. The Plan provides for voluntary contributions by both the employees and the Company, at their discretion. Directors are not eligible to participate in this plan. DIRECTORS' COMPENSATION The Company does not have any arrangements pursuant to which directors are remunerated by the Company or its subsidiaries for their services in their capacities as directors, consultants or experts other than stock options to purchase common shares of the Company which are granted to the Company's directors from time to time. OTHER REMUNERATION During the financial year ended December 31, 1999, there was no remuneration paid or payable, directly or indirectly, by the Company and its subsidiaries pursuant to any existing plan or arrangement to its directors or Named Executive Officers. OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR The following table discloses the particulars of options to purchase common shares granted by the Company during the 1999 fiscal year to the Named Executive Officers (the Company has not granted stock appreciation rights): -38-
Percentage Of Market Value Securities Total Of Securities Under Options Underlying Options Granted To Exercise or Options (1) Employees Base On the Granted In Financial Price Date Of Grant Optionee (#)0 Year ($/Share) ($/Security) Expiration Date - ------------------------------- ---------- ------------- ----------- -------------- --------------- John J. Fleming................ 50,000 5.3 $0.20 $0.20 May 27, 2004 150,000 7.9 $0.20 $0.20 Dec. 4, 2004 Barry D. Lasker................ 250,000 26.5 $0.20 $0.20 May 27, 2004 575,000 30.3 $0.20 $0.20 Dec. 4, 2004 George H. Plewes............... 50,000 5.3 $0.20 $0.20 May 27, 2004 400,000 21.1 $0.20 $0.20 Dec. 4, 2004 Scott C. Larsen................ 150,000 15.9 $0.20 $0.20 May 27, 2004 150,000 7.9 $0.20 $0.20 Dec. 4, 2004 Michael J. Gartland............ 150,000 15.9 $0.20 $0.20 May 27, 2004 150,000 7.9 $0.20 $0.20 Dec. 4, 2004
AGGREGATE OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR END OPTION VALUES The following table discloses the particulars of stock options exercised during 1999 by the Named Executive Officers (the Company has not granted stock appreciation rights):
Unexercised Value of Unexercised Securities Aggregate Options at FY-End In-The-Money Acquired Value (#)(2) Options at FY-End(1) On Exercise Realized(1) ------------------------------- ----------------------------- (#) ($) Exercisable Unexercisable Exercisable Unexercisable ----------- ----------- -------------- ------------- ----------- ------------- Barry D. Lasker..... - - 1,431,350 - - - George H. Plewes.... - - 887,550 - - - John J. Fleming..... - - 493,300 46,667 - - Scott C. Larsen..... - - 550,000 13,333 - - Michael J. Gartland. - - 421,800 - - -
- ------------------ (1) Value is the product of the number of shares multiplied by the difference between the closing market price on the relevant date and the exercise price. The closing market price on December 31, 1999 was US $0.19 per share. (2) As of December 31, 1999. -39- ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES. The Company may grant, pursuant to its stock option plan, which was established in 1995, stock options to its directors, officers, employees and consultants or to employees or consultants of a subsidiary or of a company providing management services to the Company or to a subsidiary in consideration of them providing their services. The Company's Board of Directors determines the number of shares subject to each option within the guidelines established by the plan. The options enable such persons to purchase shares of the Company at a price fixed pursuant to the rules of the plan. The option agreements must provide that the option can only be exercised by the optionee and only for so long as the optionee shall continue in the capacity outlined above or within a specified period after ceasing to continue in the capacity outlined above. The options are exercisable by the optionee giving the Company notice and payment of the exercise price for the number of shares to be acquired. Under the plan approved by the Company's shareholders, the Board of Directors is empowered to grant stock options to insiders; shareholder approval is not required. The maximum number of common shares issuable under the plan is 7,750,000. As of August, 31, 2000, there are outstanding stock options to purchase up to 5,302,550 shares of the Company's common stock. The following table discloses outstanding options held by directors and officers at such date:
No. of Company Common Shares Underlying Exercise Name/Group Options Price Date of Grant Expiration Date -------------------------------- -------------- --------- ----------------- ----------------- Executive Officers as a Group... 60,000 $1.00 (Cdn) March 13, 1996 March 13, 2001 40,000 $1.00 (Cdn) July 30, 1997 July 30, 2002 348,000 $0.57 December 1, 1998 December 1, 2001 130,500 $0.57 December 1, 1998 December 17, 2002 87,000 $0.57 December 1, 1998 April 1, 2003 82,650 $0.57 December 1, 1998 September 8, 2003 190,000 $0.57 December 23, 1998 December 23, 2003 550,000 $0.20 May 27, 1999 May 27, 2004 875,000 $0.20 December 3, 1999 December 3, 2004 Directors who are not Executive 200,000 $2.70 (Cdn) March 13, 1996 March 13, 2001 Officers........................ 75,000 $3.15 (Cdn) October 15, 1996 October 15, 2001 155,000 $2.30 (Cdn) May 23, 1997 May 23, 2002 215,000 $2.20 (Cdn) July 30, 1997 July 30, 2002 304,500 $0.57 December 1, 1998 December 1, 2001 43,500 $0.57 December 1, 1998 December 17, 2002 152,250 $0.57 December 1, 1998 April 1, 2003 52,200 $0.57 December 1, 1998 September 8, 2003 438,400 $0.57 December 23, 1998 December 23, 2003 300,000 $0.20 May 27, 1999 May 27, 2004 950,000 $0.20 December 3, 1999 December 3, 2004 -------------------------------------------------------------------------------------------------------------------- -40- Directors and Officers as a Group........................... 2,675,000 $0.20 628,400 $0.38 1,200,600 $0.57 100,000 $1.00 (Cdn) 200,000 $2.70 (Cdn.) 215,000 $2.20 (Cdn.) 155,000 $2.30 (Cdn.) 75,000 $3.15 (Cdn.)
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS. There have been no material transactions during the last three fiscal years, and there are no presently proposed transactions, to which the Company or any of its subsidiaries was or is to be a party, in which any director, officer or ten-percent shareholder, or any relative of the foregoing persons, had or is to have a direct or indirect material interest. During the last three fiscal years, none of the Company's directors or officers, or any associate of any director or officer was indebted to the Company. PART II ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED. AUTHORIZED AND ISSUED SHARES The authorized share capital of the Company consists of unlimited common shares without par value. As of August 31, 2000, the Company had a total of 79,384,092 common shares issued and outstanding. All of the common shares are fully paid and not subject to any future call or assessment. All of the common shares of the Company rank equally as to voting rights, participation in a distribution of the assets of the Company on a liquidation, dissolution or winding-up of the Company and the entitlement to dividends. Dividends are payable if, as and when declared by our board of directors subject to the prior rights of holders of shares ranking senior to the common shares with respect to dividends, if any. The holders of the common shares are entitled to receive notice of all shareholder meetings and to attend and to cast one vote per common share at such meetings. The common shares do not have preemptive or conversion rights. In addition, there are no sinking fund or redemption provisions applicable to the common shares. The Alberta Corporations Act provides that the rights and provisions attached to any class of shares may not be modified, amended or varied unless consented to by special resolution passed by a majority of not less than 2/3 of the votes cast in person or by proxy by holders of shares of that class. PART III ITEM 15. DEFAULTS UPON SENIOR SECURITIES. Not Applicable. ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES. Not Applicable. -41- PART IV ITEM 17. FINANCIAL STATEMENTS. The financial statements filed as part of this registration statement are listed in Item 19 - Financial Statements and Exhibits. All financial statements in this registration statement, unless otherwise stated, are presented in accordance with Canadian GAAP. ITEM 18. FINANCIAL STATEMENTS. Not applicable. -42- ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS. FINANCIAL STATEMENTS
DESCRIPTION PAGE ----------- ---- 1. TransAtlantic Petroleum Corp. Auditors' Report................................................................... Consolidated Balance Sheets as at June 30, 2000, December 31, 1999 and December 31, 1998 ........................................................ Consolidated Statements of Operations and Deficit for the six months ended June 30, 2000 and for the three years ended December 31, 1999, 1998 and 1997 .................................................. Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and for the three years ended December 31, 1999, 1998 and 1997 Notes to the Consolidated Financial Statements..................................... 2. GHP Exploration Corporation Consolidated Balance Sheet as at September 30, 1998................................ Consolidated Statement of Operations and Deficit for the nine months ended September 30, 1998.................................................... Consolidated Statement of Cash Flows for the nine months ended September 30, 1998................................................................. Consolidated Balance Sheets as at December 31, 1997 and December 31, 1996.............................................................. Consolidated Statements of Operations and Deficit for the two years ended December 31, 1997 and 1996............................................. Consolidated Statements of Cash Flows for the two years ended December 31, 1997 and 1996.........................................................
EXHIBITS -43-
EXHIBIT DESCRIPTION PAGE ------- ----------- ---- 1.1 Certificate of Continuance of Profco Resources Ltd. dated June 10, 1997. 1.2 Articles of Continuance of Profco Resources Ltd. dated June 4, 1997. 1.3 Certificate of Amendment of Profco Resources Ltd. dated July 21, 1997. 1.4 Certificate of Registration of Profco Resources Ltd. dated July 31, 1997. 1.5 By-Law No. 1 of Profco Resources Ltd. dated May 23, 1997. 1.6 Certificate of Amendment of Profco Resources Ltd. dated December 2, 1998. 1.7 Articles of Amendment of Profco Resources Ltd. dated December 2, 1998. 2.1 Profco Resources Ltd. Stock Option Plan (1995) dated April 7, 1995. 2.2 Amendment to Profco Resources Ltd. Stock Option Plan (1995), dated June 2, 1997. 2.3 Amendment to TransAtlantic Petroleum Corp. Stock Option Plan (formerly Profco Resources Ltd. Stock Option Plan) (1995), dated June 14, 1999. 2.4 Amendment to TransAtlantic Petroleum Corp. Stock Option Plan (1995), dated June 6, 2000. 3.1 Oil Mining Lease No. 109 granted by Federal Republic of Nigeria to Atlas Petroleum International Limited dated May 27, 1996. 3.2 Joint Operating Agreement of 1st of August, 1995 Relating to Oil Prospecting License 75 between Atlas Petroleum International Limited and Summit Oil & Gas Worldwide Ltd. 3.3 First Amendment to Joint Operating Agreement of 1st of August, 1995 Relating to Oil Prospecting License 75. 3.4 Petroleum Services Subcontract dated January 14, 1996 between CXY Nigeria Oilfield Services Ltd., Atlas Petroleum International Limited and Summit Oil & Gas Worldwide Ltd. 3.5 Amendment to Petroleum Services Subcontract dated July 2, 1997. 3.6 Amendment to Petroleum Services Subcontract dated October 26, 1998. -44- EXHIBIT DESCRIPTION PAGE ------- ----------- ---- 3.7 Deed of Assignment dated April 9, 1998 between the Alliance Egyptian National Exploration Company, as Assignor, and GHP Exploration (Egypt) Ltd., as Assignee. 3.8 Participation Agreement dated March 27, 1998 between Alliance Egyptian National Exploration Company and GHP Exploration (Egypt) Ltd. and GHP Exploration Corporation. 3.9 First Amendment to Participation Agreement dated February 4, 2000 between Alliance Egyptian National Exploration Company and GHP Exploration (Egypt) Ltd. and TransAtlantic Petroleum Corp (formerly GHP Exploration Corporation). 3.10 Concession Agreement for Petroleum Exploration and Exploitation between the Arab Republic of Egypt and The Egyptian General Petroleum Corporation and National Exploration Company, in Central Sinai Area, A.R.E., dated September 22, 1997. 3.11 Oil Prospecting License No. 75 granted by the Federal Republic of Nigeria to Atlas Petroleum International Nigeria Limited dated February 8, 1991. 3.12 Consent of the Federal Republic of Nigeria to the Assignment of 30% Interest by Atlas Petroleum International Limited dated Jul 22, 1992 3.13 Agreement dated July 17, 1992 between Atlas Petroleum International Limited and Summit Partners Management Co. relating to Oil Prospecting License 75. 3.14 Operating Agreement dated January 1, 1999 between Alliance Egyptian National Exploration Company and GHP Exploration (Egypt) Ltd. 3.15 Deed of Assignment dated March 17, 1999 between Dublin International Petroleum (Egypt) Limited and Tanganyika Oil Company, Ltd., as Assignors, and GHP Exploration (West Gharib) Ltd., as Assignee. 3.16 Farmout Agreement dated April 27, 1998 between Tanganyika Oil Company, Ltd., Dublin International Petroleum (Egypt) Limited and GHP Exploration (Egypt) Ltd. 3.17 Resolution No. 1 amending the Farmout Agreement approved by Dublin International Petroleum (Egypt) Limited and GHP Exploration (West Gharib) Ltd. 3.18 Concession Agreement for Petroleum Exploration and Exploitation between the Arab Republic of Egypt, the Egyptian General Petroleum Corporation, Tanganyika Oil Company Ltd. and Dublin International Petroleum (Egypt) Limited, in West Gharib Area, Eastern, A.R.E., dated June 1, 1998. -45- EXHIBIT DESCRIPTION PAGE ------- ----------- ---- 3.19 International Joint Operating Agreement dated April 27, 1998 between Dublin International Petroleum (Egypt) Limited and GHP Exploration (West Gharib) Ltd. and Drucker Petroleum Inc. 3.20 Petroleum Handling and Sale Agreement dated December 30, 1999 by and between General Petroleum Company and Dara Petroleum Company. 3.21 Settlement Agreement dated August 24, 2000 between Global Marine, Inc., Global Marine Integrated Services--International Inc. and TransAtlantic Petroleum Corp.
-46- SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSATLANTIC PETROLEUM CORP. By: ------------------------------------------- Barry D. Lasker, President, Chief Executive Officer and Chief Operating Officer Date:___________, 2000 -47- KPMG Consolidated Financial Statements of TRANSATLANTIC PETROLEUM CORP. Unaudited as at June 30, 2000 and the six months ended June 30, 2000 and 1999 Audited as at December 31, 1999 and 1998 and for each of the years in the three year period ended December 31, 1999 AUDITORS' REPORT TO THE DIRECTORS We have audited the consolidated balance sheets of TransAtlantic Petroleum Corp. as at December 31, 1999 and 1998 and the consolidated statements of operations and deficit and cash flows for each of the years in the three year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1999 in accordance with Canadian generally accepted accounting principles. Accounting principles generally accepted in Canada vary in certain significant respects from accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected results of operations for each of the years in the three year period ended December 31, 1999 and shareholders' equity as at December 31, 1999 and 1998, to the extent summarized in note 11 to the consolidated financial statements. Chartered Accountants Calgary, Canada March 27, 2000 (except for notes 4(a), 9(c) and 11 which are as of September 22, 2000) COMMENTS FOR U.S. READERS In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the company's ability to continue as a going concern, such as those described in note 1(a) to the consolidated financial statements. Our report to the directors, dated March 27, 2000 (except for notes 4(a), 9(c) and 11 which are as of September 22, 2000) is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors' report when these are adequately disclosed in the financial statements. Chartered Accountants Calgary, Canada March 27, 2000 Page 1 TRANSATLANTIC PETROLEUM CORP. Consolidated Balance Sheets (Thousands of U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------- December 31, June 30, ---------------------------------- 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------- (unaudited) ASSETS Current assets: Cash and short-term investments $ 208 $ 161 $ 2,955 Restricted cash (note 9) 208 563 1,750 Accounts receivable 191 275 4,228 Other current assets 120 92 170 - --------------------------------------------------------------------------------------------------------------- 727 1,091 9,103 Property and equipment (note 3) 15,820 14,554 12,135 Other - - 250 - --------------------------------------------------------------------------------------------------------------- $ 16,547 $ 15,645 $ 21,488 =============================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities (note 2) $ 947 $ 1,704 $ 1,521 Indebtedness (note 4) 3,120 2,882 9,169 - --------------------------------------------------------------------------------------------------------------- 4,067 4,586 10,690 Shareholders' equity: Share capital (note 5) 28,879 26,633 23,484 Deficit (note 7) (16,399) (15,574) (12,686) - --------------------------------------------------------------------------------------------------------------- 12,480 11,059 10,798 Basis of presentation (note 1) Commitments and contingencies (note 9) Subsequent events (notes 4(a) and 9(c) ) - --------------------------------------------------------------------------------------------------------------- $ 16,547 $ 15,645 $ 21,488 ===============================================================================================================
See accompanying notes to consolidated financial statements. Page 2 TRANSATLANTIC PETROLEUM CORP. Consolidated Statements of Operations and Deficit (Thousands of U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------- Six Months Ended June 30, Years Ended December 31, ------------------------------- --------------------------------------------- 2000 1999 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- (unaudited) Revenues: Oil and gas sales, net of royalties $ 18,584 $ 10,198 $ 21,999 $ 3,391 $ 636 Interest income 158 333 564 328 177 - --------------------------------------------------------------------------------------------------------------- 18,742 10,531 22,563 3,719 813 Expenses: Production: Service fees 16,318 9,908 21,453 3,113 - Taxes 947 - - - - Other 833 488 970 199 196 Depreciation, depletion and amortization 598 554 800 1,120 551 Loss on disposition of property and equipment - - - 196 2,260 Write-down of oil and gas properties - 152 889 10,365 9,576 General and administrative 713 688 1,026 597 446 Interest and other 158 133 313 815 152 - --------------------------------------------------------------------------------------------------------------- 19,567 11,923 25,451 16,405 13,181 - --------------------------------------------------------------------------------------------------------------- Net loss for the period 825 1,392 2,888 12,686 12,368 Deficit, beginning of period 15,574 12,686 12,686 14,878 2,510 Reduction in stated capital (note 7) - - - (14,878) - - --------------------------------------------------------------------------------------------------------------- Deficit, end of period $ 16,399 $ 14,078 $ 15,574 $ 12,686 $ 14,878 =============================================================================================================== Net loss per share (note 8)
See accompanying notes to consolidated financial statements. Page 3
TRANSATLANTIC PETROLEUM CORP. Consolidated Statements of Cash Flows (Thousands of U.S. Dollars) - ----------------------------------------------------------------------------------------------------------------------- Six Months Ended June 30, Years Ended December 31, ---------------------------- --------------------------------------------- 2000 1999 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- (unaudited) Cash provided by (used in): Operating activities: Net loss for the period $ (825) $ (1,392) $ (2,888) $(12,686) $(12,368) Items not involving cash: Depreciation, depletion and amortization 598 554 800 1,120 551 Write-down of oil and gas properties - 152 889 10,365 9,576 Other items not involving cash 27 (240) (249) 196 2,260 - ---------------------------------------------------------------------------------------------------------------------- (200) (926) (1,448) (1,005) 19 Changes in non-cash working capital 410 (178) 853 (347) 744 - ---------------------------------------------------------------------------------------------------------------------- 210 (1,104) (595) (1,352) 763 Investing activities: Exploration and acquisition of oil and gas properties (1,952) (1,708) (3,920) (2,838) (13,659) Past cost reimbursement (note 3) - - 3,828 - - Proceeds from sale of property and equipment - - 109 3,877 4,131 Changes in non-cash working capital (601) 4,502 1,159 (511) 7,085 - ---------------------------------------------------------------------------------------------------------------------- (2,553) 2,794 1,176 528 (2,433) Financing activities: Issuance of common shares, net 2,152 - 889 - 1,421 Borrowings of long-term debt - - - - 5,906 Repayments of long-term debt - (4,354) (4,354) (3,588) - Changes in non-cash working capital 238 (242) 90 857 - - ---------------------------------------------------------------------------------------------------------------------- 2,390 (4,596) (3,375) (2,731) 7,327 - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and short-term investments 47 (2,906) (2,794) (3,555) 5,674 Cash and short-term investments, beginning of period 161 2,955 2,955 6,510 863 - ---------------------------------------------------------------------------------------------------------------------- Cash and short-term investments, end of period $ 208 $ 49 $ 161 $ 2,955 $ 6,510 ======================================================================================================================
Cash and short-term investments is comprised of cash and investments with maturities of thirty days or less. See accompanying notes to consolidated financial statements. Page 4 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - ------------------------------------------------------------------------------- The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and include the accounts of the Company and its wholly-owned subsidiaries. The application of accounting principles generally accepted in the United States would have affected these consolidated financial statements to the extent summarized in note 11. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from those estimates and assumptions; however, management believes that such differences would not be material. 1. BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (a) Basis of presentation: The consolidated financial statements have been presented on a going-concern basis which contemplates that TransAtlantic Petroleum Corp. (the "Company") will continue to meet its obligations as they come due in the foreseeable future. As at June 30, 2000, the Company had a working capital deficiency of $3.3 million (December 31, 1999 - $3.5 million). To meet its obligations as they come due, the Company will be required to use existing cash on hand, cash flow from operations, if any, re-negotiations of debt obligations and the issuance of additional debt or equity. If the going concern assumption were inappropriate, then adjustments would be necessary in the carrying value and classification of assets and the reported results of operations in the financial statements. (b) Nature of operations: The Company is an independent oil and gas company amalgamated under the laws of Alberta for the purpose of exploring for, developing and producing crude oil, natural gas and natural gas liquids. The Company's current activities are focused in Egypt and Nigeria and are conducted through various wholly-owned subsidiaries. The Company's viability, including the recoverability of the Company's oil and gas investments, and the results of its operations, is dependent upon the discovery of economically recoverable reserves, its ability to obtain the necessary financing to complete development of the reserves and the future profitable production from its developed reserves. Inherent in these requirements is the importance of product prices and the costs of acquiring, finding, developing and producing crude oil and natural gas reserves. The prices Page 5 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - ------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): received by the Company or its subsidiaries from the sale of their crude oil and natural gas production are subject to fluctuation in response to changes in supply, market uncertainty and a variety of factors beyond the Company's control. (c) Oil and gas properties: Under the full cost method of accounting, the Company capitalizes all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves in cost centers on a country-by-country basis. Costs associated with production and general corporate activities are expensed in the period incurred. Proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs, and gains or losses are not recognized unless the sale would alter the depletion rate by more than 20%. The Company computes the provision for depreciation, depletion and amortization of oil and gas properties using the unit-of-production method based upon production and estimates of proved reserve quantities as determined by independent reservoir engineers. Unevaluated property costs are excluded from the amortization base until the properties associated with these costs are evaluated and determined to be productive or become impaired. Depreciation of furniture, fixtures and computer equipment and software is provided for on the straight-line basis at rates between three and seven years designed to amortize the cost of the assets over their estimated useful lives. The net carrying value of the Company's oil and gas properties is limited to an estimated recoverable amount. This amount is determined by estimating the amount of future net revenues from proved properties based on period-end prices less future production, general and administrative, financing and site restoration costs and production and income taxes, together with the value of unproved properties at the lower of cost and realizable value on a country-by-country basis. When it is determined that the net realizable value is less than the carrying value of the oil and gas properties, the impairment is charged to income. Where appropriate, provisions are made in the accounts for estimated future net costs of well abandonment and site restoration, including removal of production facilities at the end of their useful life. Costs are based on estimates valued at year-end prices and in accordance with the current legislation and industry practices. The annual provision is computed on a unit-of-production basis and is recorded as an expense for the year. A substantial portion of the Company's activities are conducted jointly with industry partners and the accompanying consolidated financial statements reflect only the Company's proportionate interest in such activities. Page 6 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - ------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (d) Foreign currency translation: Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date for monetary items and at exchange rates in effect at the transaction dates for non-monetary items. Income and expenses are translated at the average exchange rates in effect during the applicable period. Exchange gains or losses are included in operations in the period incurred, except for unrealized gains and losses on long-term monetary items which are deferred and amortized to earnings over their remaining term. (e) Financial instruments: The fair value of cash and short-term investments, receivables and accounts payable and accrued liabilities approximates their carrying value. The Company has no derivative financial instruments. (f) Stock option policy: The Company has one stock-based compensation plan that is detailed in note 5(c). No compensation expense is recognized for this plan when stock options are granted. Consideration paid upon exercise of stock options is credited to share capital. (g) Income taxes: Effective January 1, 2000, the Canadian Institute of Chartered Accountants ("CICA") changed the accounting standard relating to the accounting for income taxes. The CICA's new standard on accounting for income taxes adopts the liability method of accounting for future income taxes. Under the liability method, future income tax assets and liabilities are determined based on "temporary differences" (differences between the accounting basis and the tax basis of the assets and liabilities), and are measured using the currently enacted, or substantively enacted, tax rates and laws expected to apply when these differences reverse. A valuation allowance is recorded against any future income tax assets if it is more likely than not that the asset will not be realized. Income tax expense or benefit is the sum of the Company's provision for current income taxes and difference between the opening and ending balances of the future income tax assets and liabilities. Prior to adoption of this new standard, income tax expense was determined using the deferral method. Under this method, deferred income tax expense was determined based on "timing differences" (differences between the accounting and tax treatment of items of expense or income), and were measured using the tax rates in effect in the year the differences originated. Certain deferred tax assets, such as the benefit of tax losses Page 7 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - ------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): carried forward, were not recognized unless there was virtual certainty that they would be realized. (g) Income taxes (continued): The Company has adopted the new income tax accounting standard retroactively without restatement of prior periods. There has not been any change in the Company's deficit or future income taxes as a result of adopting the new income tax accounting standard. 2. BUSINESS COMBINATION: On October 19, 1998, the Company entered into an Arrangement Agreement with GHP Exploration Company ("GHP"), a Yukon Territory corporation, and on November 24, 1998 the shareholders of GHP approved the Arrangement. On December 1, 1998, the Company and GHP completed the Arrangement and the Company acquired all of the issued and outstanding common shares of GHP. The Company was then re-named TransAtlantic Petroleum Corp. The acquisition was accounted for using the purchase method and, accordingly, the results of operations of GHP were included in the consolidated financial statements from the date of acquisition of December 1, 1998. Pursuant to the terms of the Arrangement Agreement, each common share of GHP was exchanged for 0.87 common shares of the Company. The Company issued a total of 19,003,828 common shares having a fair market value of $9.1 million. As of June 30, 2000, and December 31, 1999 and 1998, the Company had $0.16 million, $0.24 million and $0.51 million, respectively, of severance costs included in accounts payable and accrued liabilities related to the amalgamation. The purchase price was allocated to the assets and liabilities based on their estimated fair market value as follows: - --------------------------------------------------------------------------- Cash $ 758 Other current assets 1,887 Property and equipment 7,083 Other assets 150 Current liabilities (773) - --------------------------------------------------------------------------- Net assets acquired $ 9,105 ===========================================================================
Page 8 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 3. PROPERTY AND EQUIPMENT:
- ------------------------------------------------------------------------------------------------------------ Accumulated depletion, depreciation Net book December 31, 1999 Cost and amortization value - ------------------------------------------------------------------------------------------------------------ Crude oil and natural gas properties Nigeria $ 18,181 $ (9,841) $ 8,340 Egypt 5,071 -- 5,071 United States 1,730 (728) 1,002 Furniture, fixtures and other assets 376 (235) 141 - ------------------------------------------------------------------------------------------------------------ $ 25,358 $ (10,804) $ 14,554 ============================================================================================================ December 31, 1998 - ------------------------------------------------------------------------------------------------------------ Crude oil and natural gas properties Nigeria $ 17,743 $ (9,191) $ 8,552 Egypt 2,047 -- 2,047 United States 1,357 -- 1,357 Furniture, fixtures and other assets 365 (186) 179 - ------------------------------------------------------------------------------------------------------------ $ 21,512 $ (9,377) $ 12,135 ============================================================================================================ June 30, 2000 - ------------------------------------------------------------------------------------------------------------ Crude oil and natural gas properties Nigeria $ 18,181 $ (10,117) $ 8,064 Egypt 6,746 (282) 6,464 United States 1,920 (728) 1,192 Furniture, fixtures and other assets 377 (277) 100 - ------------------------------------------------------------------------------------------------------------ $ 27,224 $ (11,404) $ 15,820 ============================================================================================================
(a) The carrying value of capital assets is subject to uncertainty associated with the quantity of oil and gas reserves, future production rates, commodity prices and other factors. Future events could materially change the carrying values recognized in the accompanying consolidated financial statements. At December 31, 1998, the Company's capitalized costs of its Nigerian oil and gas properties exceeded the ceiling limitation and the Company recorded in the 1998 financial statements an $8.4 million non-cash impairment of these assets. At June 30, 2000, included within the Company's recorded balance for Nigerian crude oil and natural gas properties was $6.5 million (December 31, Page 9 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 3. PROPERTY AND EQUIPMENT (CONTINUED): 1999 - $6.5 million; December 31, 1998 - $6.4 million) of costs related to unproved properties not being amortized. During 1996, Summit Oil and Gas Worldwide Ltd. ("SOGW") signed a service contract with CXY Nigeria Oilfield Services Limited ("CXY"), a wholly-owned subsidiary of Canadian Occidental Petroleum Ltd. with respect to the Ejulebe field. The terms of the contract required CXY to fund the drilling, completion and equipment costs of the Ejulebe field, incur certain other expenditures and reimburse SOGW for prior costs incurred ("Past Cost Reimbursement") upon the Ejulebe field reaching one million barrels of cumulative oil production, which occurred in 1999. In February and March 1999, the Company was credited $10 million from CXY in satisfaction of the Past Cost Reimbursement; $3.8 million in cash and $6.2 million in satisfaction of the CXY loan. During 1996, CXY advanced $5 million to SOGW bearing interest at LIBOR plus 3% per annum in respect of the service contract. $6.2 million of the Past Cost Reimbursement was used to repay the CXY loan. SOGW advanced these funds, bearing interest at LIBOR plus 3% per annum and in return received, as security for the loan, an assignment from its indigenous partner of certain rights as to distributions from cash flows from the OML-109 concession offshore Nigeria. The Company has recorded this advance as a component of its unproved property as at December 31, 1999 and 1998. This note is non-performing as of December 31, 1999 and the Company has initiated a collection proceeding. Interest on the note has been recognized to the extent received, which equalled $0.6 million in 1999 and nil to June 30, 2000. Under the service contract with CXY, CXY paid all of the capital, which totaled in excess of $100 million, to drill development wells and install a production platform and pipeline for the Ejulebe field. CXY is paid a service fee by SOGW and its Nigerian partner out of production revenues. The service fee is comprised of several components including a return of capital invested by the service contractor. Currently, all production revenues, after payment of royalties, are paid to CXY. The Ejulebe field only becomes profitable to the Company after the combination of price and production rate pays down CXY's invested capital. (b) During 1998, the Company acquired, in its acquisition of GHP (see note 2), a 30% working interest in the West Gharib Concession, held by GHP Exploration (West Gharib) Ltd., and a 25% working interest in the Central Sinai Concession, held by GHP Exploration (Egypt) Ltd. Also acquired were several other properties which were sold in December 1998 for total proceeds of $3.8 million, and varying interests in exploration acreage all located in the United States. The recorded balances for the Company's United States properties primarily relate to unproved prospects and are not being Page 10 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 3. PROPERTY AND EQUIPMENT (CONTINUED): amortized. During 1999, the Company wrote down the net book value of its U.S. cost center by $0.7 million. (c) During 1997, several of the Company's subsidiaries entered into an agreement to acquire a 52.8% interest in Tarpon Benin S.A. ("Tarpon") for cash consideration of $1.4 million. Tarpon was the owner of an exploration and production concession in the Republic of Benin in which Tarpon had the exclusive right to explore for and produce oil and natural gas within the concession. The agreement required the Company's subsidiaries and other parties to fund the drilling of an exploratory well, seismic program and training program. At December 31, 1997, approximately $8.7 million of costs related to Tarpon were written off as the exploration program proved uneconomic. During 1998, an additional $1.6 million of costs were written off. (d) During 1997, SOGW Tunisia Ltd. entered into an agreement to earn a 6.7% working interest in a drilling permit located in Tunisia by paying 10% of the drilling costs associated with the initial well. The well was determined to be uneconomic and the costs incurred to December 31, 1997 were written off. Also, the Company participated in the El Hamra prospect in 1998 and 1999 but has made the decision to likewise abandon it. During 1999, $0.16 million was written off and in 1998, $0.4 million was written off on the Company's Tunisia prospects. (e) A total of $0.5 million, $1.2 million and $1.6 million of overhead costs incurred during the six months ending June 30, 2000 and the years ended December 31, 1999 and 1998, respectively, related to exploration and development activities was capitalized. 4. INDEBTEDNESS: (a) Note payable to Global Marine Integrated Services International Inc. ("GMISI"): A promissory note with a principal balance of $2.3 million plus accrued interest of $0.5 million as of December 31, 1999 issued by Tarpon, is related to the drilling of the exploratory well offshore Benin (see note 9(c)) and is guaranteed by the Company. The note payable, originally at prime plus 2% interest, became non-performing as of August, 1999. The note provides for default interest at prime plus 5%. Tarpon is insolvent and the Company notified GMISI in January, 1999 that it would be unable to meet its obligation under the guarantee at that time. The Company proposed a debt restructure plan and pursuant thereto, the Company made a principal payment of $0.5 million on February 17, 1999 and additional principal payments of $50,000 each month from March, 1999 through June, 1999. Since that time, there have been ongoing discussions but no further payments. On August 24, 2000, the Company and GMISI entered into a settlement agreement that provides for the entire amount to be satisfied if the Company pays GMISI $1.5 million prior to November 22, 2000. If not paid, the gross principal plus accrued Page 11 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 4. INDEBTEDNESS (CONTINUED): interest is converted to long-term debt, bearing interest at 12% per annum and payable in monthly instalments of $75,000. During 1999 and 1998, the Company recorded interest expense of $0.32 and $0.24 million, respectively, related to this note. The fair value of the note payable at December 31, 1999 and 1998 approximates its carrying value. (b) Convertible unsecured debenture: During 1999 and 1998, the Company recorded interest expense of $0.1 million and $0.4 million, respectively, related to the debentures. In April, 1999, the Company entered into an Amending Supplemental Trust Indenture allowing for the early redemption of its Cdn. $9 million (approximately $5.9 million U.S. dollars) 7% convertible debentures whereby the debenture holders were paid $3.6 million in cash and received 9.144 million common shares of the Company at an ascribed price of $0.25 per share. 5. SHARE CAPITAL: (a) Authorized: Unlimited number of common shares, without par value (b) Issued:
------------------------------------------------------------------------------------- Number of (In thousands) Shares Amount ------------------------------------------------------------------------------------- Balance, December 31, 1997 34,481 $ 30,225 Reduction in stated capital (note 7) - (14,878) Issued on acquisition of GHP (note 2) 19,004 8,137 ------------------------------------------------------------------------------------- Balance, December 31, 1998 53,485 23,484 Issuances of stock 4,880 930 Conversion of debentures 9,144 2,286 Issue costs - (67) ------------------------------------------------------------------------------------- Balance, December 31, 1999 67,509 26,633 Issuances of stock 11,875 2,400 Issue costs - (154) ------------------------------------------------------------------------------------- Balance, June 30, 2000 79,384 $ 28,879 =====================================================================================
Page 12 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 5. SHARE CAPITAL (CONTINUED): (c) Stock option plan: The Company has a directors and management Stock Option Plan under which 7.75 million common shares were reserved for issuance as at June 30, 2000. These options are granted with a five year expiry, the majority of which are fully vested. Details of the Company's plan as at June 30, 2000 and December 31, 1999 and 1998, and changes during the periods, are presented below.
------------------------------------------------------------------------------------------------------- Years Ended December 31, June 30, 2000 1999 1998 ------------------ ---------------------------------------- Weighted Weighted Weighted Number average Number average Number average of exercise of exercise of exercise options price options price options price ------------------------------------------------------------------------------------------------------- Outstanding at beginning of period 5,773 $ 0.44 4,764 $ 0.84 2,130 $ 1.23 Granted 140 0.26 3,120 0.20 2,634 0.52 Exercised - - - - - - Cancelled and expired (475) 1.30 (2,111) 0.98 - - ------------------------------------------------------------------------------------------------------- Outstanding at end of period 5,438 $ 0.36 5,773 $ 0.44 4,764 $ 0.84 ======================================================================================================= Exercisable at year period 5,244 $ 0.33 5,478 $ 0.40 4,174 $ 0.78 =======================================================================================================
The following table summarizes information about stock options as at June 30, 2000:
===================================================================================================== Options Outstanding Options Exercisable ----------------------------------------------------------------------------------------------------- Weighted- Average Range of Prices Remaining Weighted- Weighted - --------------------- Number Contractual Average Number Average Low High Outstanding Life Exercise Price Exercisable Exercise Price ----------------------------------------------------------------------------------------------------- $ 0.20 $ 0.20 2,845 4.0 $ 0.20 2,845 $ 0.20 0.26 0.57 2,140 3.0 0.50 2,140 0.50 0.67 2.11 453 1.5 0.78 259 0.47 ----------------------------------------------------------------------------------------------------- $ 0.20 $ 2.11 5,438 3.4 $ 0.36 5,244 $ 0.33 =====================================================================================================
Page 13 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 5. SHARE CAPITAL (CONTINUED): The following table summaries information about stock options at December 31, 1999:
===================================================================================================== Options Outstanding Options Exercisable ----------------------------------------------------------------------------------------------------- Weighted- Average Range of Prices Remaining Weighted- Weighted - --------------------- Number Contractual Average Number Average Low High Outstanding Life Exercise Price Exercisable Exercise Price ----------------------------------------------------------------------------------------------------- $ 0.20 $ 0.20 2,845 4.5 $ 0.20 2,845 $ 0.20 0.38 0.57 2,000 3.5 0.52 2,000 0.52 0.67 2.17 928 2.0 1.05 633 0.95 ----------------------------------------------------------------------------------------------------- $ 0.20 $ 2.17 5,773 4.0 $ 0.80 5,478 $ 0.78 =====================================================================================================
(d) Warrants: On July 21, 1999, the Company completed a private placement of 4.65 million units at $0.20 per unit for gross proceeds of $0.93 million. Each unit consisted of one common share and one-half common share purchase warrant. A whole warrant is exercisable at $0.25 per share until December, 2000. As at June 30, 2000 2.32 million share purchase warrants (December 31, 1999 - 2.32 million) were outstanding. On January 28, 2000, the Company completed a brokered private placement totaling 10 million units for gross proceeds of $2.0 million. Each unit cost $0.20 and consisted of one common share and one-half common share purchase warrant. A whole warrant is exercisable at $0.25 until January 31, 2001. In connection with the placement, the Company issued one million warrants to the broker, exercisable at $0.25 per share on or before January 31, 2001. On May 31, 2000, the Company completed a private placement totaling 1.6 million units for gross proceeds of $0.3 million. Each unit cost $0.19 and consisted of one common share and 0.60 of one common share purchase warrant. A whole warrant is exercisable at $0.25 until May 31, 2001. In addition, in May 2000, the Company issued 100,000 common shares to the Company's 40(K) retirement plan, and issued 175,000 common shares to former employees under a previously accrued December 1998 severance agreement. 6. INCOME TAXES: The Company and its wholly-owned subsidiaries have accumulated losses or resource related deductions available for income tax purposes, subject to confirmation by the Page 14 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 6. INCOME TAXES (CONTINUED): applicable authorities in Canada, in the United States and in Nigeria. No recognition has been given in these consolidated financial statements to the future benefits that may result from the utilization of these losses for income tax purposes. 7. REDUCTION IN STATED CAPITAL: On June 9, 1998, the shareholders of the Company approved a special resolution authorizing a reduction in statutory capital in respect of the common shares by U.S. $14.9 million. This resulted in a corresponding reduction in the accumulated deficit as shown in the consolidated balance sheets and the consolidated statements of operations and deficit. 8. NET LOSS PER SHARE:
======================================================================================= June 30, December 31, ----------------------- ------------------------------------ 2000 1999 1999 1998 1997 --------------------------------------------------------------------------------------- Net loss per share $ 0.01 $ 0.02 $ 0.05 $ 0.35 $ 0.37 =======================================================================================
Per common share amounts were calculated using a weighted average number of shares outstanding at June 30, 2000 of 76,509,779 and 55,918,882 at June 30, 1999 (December 31, 1999 - 61,685,180; 1998 - 36,064,916; 1997 - 33,870,621). Common share equivalents relating to options and share purchase warrants were not included in the weighted average number of shares for June 30, 2000 and December 31,1999, 1998 and 1997 since their inclusion would not have been dilutive. 9. COMMITMENTS AND CONTINGENCIES: (a) In March 1998, GHP Exploration (Egypt) Ltd. entered into a Participation Agreement to acquire a 25% working interest in the 18,150 square kilometer Central Sinai Concession located in Egypt's Sinai Peninsula. The work program requires a minimum financial commitment of $6.0 million to the 100% interest and expires September 22, 2000. The Company's share of this commitment is $2.4 million, of which $2.4 million had been incurred as of June 30, 2000 (December 31, 1999 - $1.6 million). (c) In April 1998, GHP Exploration (West Gharib) Ltd. entered into a Farmout Agreement to acquire a 30% working interest in the West Gharib Concession consisting of 2,530 square kilometers located on the Western shore of the Gulf of Suez basin. The work program requires a minimum financial commitment of $5.0 million to the 100% interest and expires June 1, 2001. The Company's share of this commitment is approximately $2 million, of which all had been incurred as of December 31, 1999. The Company has $0.6 Page 15 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - ------------------------------------------------------------------------------- 9. COMMITMENTS AND CONTINGENCIES (CONTINUED): million in escrow, which is recorded as restricted cash, to secure its interest in the concession. (c) Several of the Company's wholly-owned subsidiaries (the "Companies") are parties to an arbitration brought by a group of minority shareholders (the "Claimants") of Tarpon (see note 3(c)) seeking, among other things, damages in an amount sufficient to perform certain alleged obligations which the Claimants contend are required to be performed pursuant to the terms of a shareholder agreement. On September 18, 2000, the Company was advised that the arbitrator ruled that the Subsidiaries had breached the Shareholder Agreement and assessed damages of $1.8 million. While the Company was not a party to the Shareholder Agreement, the arbitrator ruled that the Company guaranteed all obligations of the Subsidiaries. The Company does not believe that the Subsidiaries have a basis to appeal the decision. However, the Company intends to contest the arbitrator's ruling against the Company. No provision for any possible loss with respect to this contingency has been made in the consolidated financial statements. No assurances can be made that the Company will be successful. (d) As at December 31, 1999 future minimum annual lease payments under operating lease agreements for office premises and equipment for the next five years are approximately $0.6 million in years 2000, 2001 and 2002, and $0.5 million in years 2003 and 2004. 10. SEGMENT INFORMATION: As at June 30, 2000, the Company and its subsidiaries operate in one dominant industry, the exploration for, and the development and production of crude oil and natural gas. Identifiable assets, revenues and net loss in each of its geographic areas are as follows:
- ------------------------------------------------------------------------------------------------------------------- Identifiable Net Loss June 30, 2000 Assets Revenues (Income) - ------------------------------------------------------------------------------------------------------------------- (in thousands) Nigeria $ 8,198 $ 16,727 $ 359 Egypt 6,576 1,934 (362) United States 1,463 81 328 Canada 306 - 210 Others 4 - 290 - ------------------------------------------------------------------------------------------------------------------- $ 16,547 $ 18,742 $ 825 =================================================================================================================== Page 16 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 10. SEGMENT INFORMATION (CONTINUED): December 31, 1999 - ------------------------------------------------------------------------------------------------------------------- Nigeria $ 8,475 $ 22,423 $ 574 Egypt 5,110 15 (15) United States 1,772 125 1,304 Canada 274 - 533 Others 14 - 492 - ------------------------------------------------------------------------------------------------------------------- $ 15,645 $ 22,563 $ 2,888 =================================================================================================================== December 31, 1998 - ------------------------------------------------------------------------------------------------------------------- Nigeria $ 12,627 $ 3,649 $ 9,172 United States 6,241 28 80 Egypt 2,297 - 2 Benin - - 1,613 Canada 311 42 1,417 Tunisia 12 - 402 - ------------------------------------------------------------------------------------------------------------------- $ 21,488 $ 3,719 $ 12,686 ===================================================================================================================
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). These principles, as they pertain to the Company's consolidated financial statements, are not materially different from United States' generally accepted accounting principles ("U.S. GAAP") except as follows: (a) There are certain differences between the full cost method of oil and gas accounting as applied in Canada and as applied in the United States. The Company has reviewed such differences and determined that, except as discussed below, no material variances in financial statement balances would have resulted from the application of full cost accounting in accordance with U.S. GAAP. The Company has completed ceiling test calculations in accordance with U.S. GAAP at December 31, 1999, 1998 and 1997. The ceiling tests computed under U.S. GAAP did not result in any differences as at December 31, 1999 and 1997. However, at December 31, 1998 the U.S. GAAP ceiling test results in an additional impairment of $488. This difference would increase the Company's net loss for the year ended Page 17 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - -------------------------------------------------------------------------------- 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): December 31, 1998 and would reduce the Company's total assets and shareholders' equity at December 31, 1988 and subsequent periods. (b) In accordance with U.S. GAAP (and Canadian GAAP effective January 1, 2000), the liability method of accounting for income taxes is used instead of the deferral method. Under the liability method, current and deferred income taxes are recognized, at currently enacted rates, to reflect the expected future tax consequences arising from the difference between transactions recorded in the financial statements and those in income tax returns. In addition, purchase price adjustments arising from business combinations are grossed up for the related income tax impact under U.S. GAAP. No adjustments to the financial statements are required with respect to the accounting for income taxes. (c) The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, in accounting for its stock options issued to employees, directors and officers of the Company for purposes of reconciliation to U.S. GAAP. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for Stock-based Compensation", established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above and has adopted the disclosure requirements of SFAS No. 123. Stock options issued to third parties are accounted at their fair values in accordance with SFAS No. 123. No adjustments to the financial statements are required with respect to the accounting for stock options, except for the inclusion of additional disclosures below. During the periods ended June 30, 2000, December 31, 1999 and 1998, the Company granted options to employees, directors and officers which, for purposes of reconciling to U.S. GAAP, have been accounting for in compliance with APB Opinion No. 25. All were granted with exercise prices at market price of the Company's stock on the date of grant. Accordingly, no compensation expense is recorded in the Company's statement of operations and deficit. The Company has calculated the fair value of stock options granted to employees using the Black-Scholes option pricing model with the following weighted-average assumptions: Page 18 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - ------------------------------------------------------------------------------- 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
---------------------------------------------------------------------------------------------------------- December 31, June 30, ----------------------------------- 2000 1999 1998 ---------------------------------------------------------------------------------------------------------- Risk free interest rate 5.75% 5.55% 5.15% Volatility 5.27% 6.13% 5.27% Expected option life (in years) 5.0 5.0 5.0 Dividend yield 0% 0% 0% ========================================================================================================== Had the Company determined compensation cost based upon the fair value at the grant date for its stock options under SFAS No. 123, the Company's pro forma net loss per share amounts would have been as follows: ---------------------------------------------------------------------------------------------------------- December 31, June 30, ----------------------------------- 2000 1999 1998 ---------------------------------------------------------------------------------------------------------- Net loss under U.S. GAAP: As reported $ 825 $ 2,888 $ 12,686 Pro forma 834 3,040 12,999 ---------------------------------------------------------------------------------------------------------- Net loss per common share: As reported $ 0.01 $ 0.05 $ 0.35 Pro forma 0.01 0.05 0.36 ========================================================================================================== (d) The reduction in stated capital recorded during 1998 under Canadian GAAP would have to be reversed under U.S. GAAP. As a result, the Company's shareholders' equity under U.S. GAAP at December 31, 1998 and subsequent periods would be restated as follows: ---------------------------------------------------------------------------------------------------------- December 31, June 30, ----------------------------------- 2000 1999 1998 ---------------------------------------------------------------------------------------------------------- Share capital $ 43,757 $ 41,511 $ 38,362 Deficit (31,277) (30,452) (27,564) ---------------------------------------------------------------------------------------------------------- $ 12,480 $ 11,059 $ 10,798 ==========================================================================================================
Page 19 TRANSATLANTIC PETROLEUM CORP. Notes to Consolidated Financial Statements Years ended December 31, 1999, 1998 and 1997 (Information as at June 30, 2000 and for the six months ended June 30, 2000 and 1999 is unaudited) (U.S. Dollars) - ------------------------------------------------------------------------------- 11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (e) Supplementary disclosures required under U.S. GAAP are as follows:
----------------------------------------------------------------------------------------------------------- Six months ended December 31, June 30, --------------------------------- 2000 1999 1998 ----------------------------------------------------------------------------------------------------------- Components of change in non-cash working capital: Restricted cash $ 355 $ 1,187 $ - Accounts receivable 47 167 49 Accounts payable and accrued liabilities 32 (583) 79 Other (24) 82 (475) ----------------------------------------------------------------------------------------------------------- $ 410 $ 853 $ (347) =========================================================================================================== (f) Additional Disclosures Required Under U.S. GAAP The components of accounts payable and accrued liabilities are as follows: ----------------------------------------------------------------------------------------------------------- December 31, June 30, --------------------------------- 2000 1999 1998 ----------------------------------------------------------------------------------------------------------- Accounts payable $ 501 $ 494 $ 647 Accrued Liabilities 446 1,210 874 ----------------------------------------------------------------------------------------------------------- $ 947 $ 1,704 $ 1,521 ===========================================================================================================
Page 20 AUDITORS' REPORT To the Directors of GHP EXPLORATION CORPORATION We have audited the consolidated balance sheet of GHP EXPLORATION CORPORATION as at December 31,1997 and the consolidated statements of operations and deficit and cash flows for each of the years in the two year period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 1997 and the results of its operations and the changes in its financial position for each of the years in the two year period ended December 31, 1997 in accordance with generally accepted accounting principles. Toronto, Canada, /s/ Ernst & Young February 17,1998 (except for note 10 ------------------------ which is as at June 24, 1998). Chartered Accountants 1 GHP EXPLORATION CORPORATION CONSOLIDATED BALANCE SHEETS (In U.S. Dollars)
December 31, 1997 ----------------- ASSETS CURRENT ASSETS Cash and short-term investments $ 3,573,368 Receivables 1,029,898 Prepaid expenses and other 106,727 ------------ 4,709,993 PROPERTY AND EQUIPMENT (NOTE 3) 10,987,859 ------------ $ 15,697,852 ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 2,387,041 SHAREHOLDERS' EQUITY Share capital (Note 5) 14,659,806 Deficit (1,348,995) ------------ 13,310,811 ------------ $ 15,697,852 ============
Approved by the Board of Directors: /s/ GEORGE H. PLEWES /s/ BARRY D. LASKER - ----------------------------- ----------------------------- George H. Plewes Barry D. Lasker Director Director The accompanying notes are an integral part of these financial statements. 2 GHP EXPLORATION CORPORATION CONSOLIDATED STATEMENTS OF OPERATION AND DEFICIT (In U.S. Dollars)
For The Years Ended December 31, 1997 1996 ---- ---- REVENUES Interest income $ 497,420 $ 49,407 Oil and gas sales 6,388 - ----------- ----------- 503,808 49,407 EXPENSES General and administrative (Note 7) 1,192,258 29,851 Depreciation, depletion and Amortization 23,232 - Impairment of oil and Gas properties - - Oil and gas production - - ----------- ----------- 1,215,490 29,851 ----------- ----------- NET INCOME (LOSS) FOR THE PERIOD (711,682) 19,556 DEFICIT, AT BEGINNING OF PERIOD (637,313) (656,869) ----------- ----------- DEFICIT, AT END OF PERIOD $(1,348,995) $ (637,313) ----------- ----------- NET INCOME (LOSS) PER SHARE $ (0.04) $ 0.00 =========== ===========
The accompanying notes are integral part of these financial statements. 3 GHP EXPLORATION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (IN U.S. DOLLARS)
Years Ended December 31, 1997 1996 ----------- ---------- OPERATING ACTIVITIES Net income(loss)for the period $ (711,682) $ 19,566 Add Items not Involving cash: Depreciation, depletion and amortization 23,232 - ----------- ---------- (688,450) 19,556 Changes in non-cash working capital balances: Increase in receivables (1,029,898) - Decrease in prepaid expenses and other (72,293) (30,130) Increase in accounts payable and accrued liabilities 4,532 30,092 ----------- ---------- Cash provided by (used in) operating activities (1,786,109) 19,518 ----------- ---------- INVESTING ACTIVITIES Exploration and acquisition of properties (Note 3) Non-cash portion of oil and gas property expenditures (9,979,433) (201,696) 2,350,947 - Issuance of common shares for properties (Note 5) (143,000) - Acquisition of corporate assets (136,684) - ----------- ---------- Cash used in investing activities (7,908,170) (201,696) ----------- ---------- FINANCING ACTIVITIES Issuance of common shares (Note 5) 11,250,000 3,000,000 Share issue expenses (Note 5) (937,316) (62,877) Issuance of common shares for properties (Note 5) 143,000 - Increase in note payable - 54,600 Decrease in note payable (Note 7) - (544,498) Issuance of common shares in satisfaction of note payable (Note 5) - 544,498 ----------- ---------- CASH PROVIDED BY FINANCING ACTIVITIES 10,455,684 2,991,723 ----------- ---------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 761,405 2,809,545 Cash and short-term investments, beginning of period 2,811,963 2,418 ----------- ---------- Cash and short-term investments, end of period $ 3,573,368 $2,811,963 =========== ==========
The accompanying notes are an integral part of these financial statements. 4 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in U.S. Dollars) 1. BASIS OF PRESENTATION On February 16, 1997, GHP Corporation, a company incorporated in the United States, was acquired by a newly-incorporated Canadian shell company, GHP Exploration Corporation, in exchange for 12,385,496 common shares. Since both entities were under common control, this transaction did not constitute a business combination under accounting principals generally accepted in Canada, and has been accounted for to recognize the continuity of interests of the shareholders of GHP Corporation in the consolidated assets, liabilities and operations of GHP Exploration Corporation. On April 17, 1997, GHP Exploration Corporation amalgamated with Laverty Industrial Development Inc., a company whose shares were quoted on the Canadian Dealing Network ("Laverty"), to form a new British Columbia corporation named "GHP Exploration Corporation". Under the terms of the amalgamation agreement, each common share of the Company and each 15 common shares of Laverty were exchanged into one common share of the amalgamated company. A total of 465,392 common shares were issued to the former Laverty shareholders. The amalgamated entity was continued into the Yukon Territory on April 30, 1997. This amalgamation was accounted for as an acquisition of Laverty by GHP Exploration Corporation using the purchase method of accounting; however, the fair market value of the acquired net assets of Laverty was nominal. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS GHP Exploration Corporation ("GHP" or the "Company") is a junior oil and gas company incorporated under the laws of the Yukon Territory for the purpose of exploring for, developing and producing crude oil, natural gas and natural gas liquids in the United States and internationally. The Company's U.S. exploration and production activities are focused along the Texas and Louisiana gulf coast, both onshore and offshore, and in the Delaware Basin of West Texas. The Company's international activities are currently focused in Egypt and Tunisia. The Company's future financial condition, including the recoverability of the Company's oil and gas investments, and the results of its operations is dependent upon the discovery of economically recoverable reserves, its ability to obtain the necessary financing complete development of the reserves and the future profitable production from its developed reserves. 5 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U. S. Dollars) Inherent in these requirements is the importance of product prices and the costs of acquiring, finding, developing and producing crude oil and natural gas reserves. The prices received by the Company from the sale of its crude oil and natural gas production are subject to fluctuation in response to changes in supply, market uncertainty and a variety of factors beyond the Company's control. These factors include worldwide political instability (especially in the Middle East), the foreign supply of oil and natural gas, the level of consumer demand, and the price and availability of alternative fuels. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and include the accounts of the Company and its wholly-owned subsidiaries; GHP Corporation (a Colorado corporation), GHP Exploration (Tunisia) Ltd. (a Bermuda corporation), GHP Exploration (Egypt) Ltd. (a Bermuda corporation) and GHP Exploration (West Gharib) Ltd. (a Bermuda corporation). A substantial portion of the Company's activities are conducted jointly with industry partners and the accompanying consolidated financial statements reflect only the Company's proportionate interest in such activities. OIL AND GAS PROPERTIES In connection with the events described in Note 1, the Company changed its method of accounting for oil and gas exploration and development activities from the successful efforts method to the full cost method. Due to the limited operating history of the Company, no adjustment to historical results was required. Under the full cost method of accounting, the Company capitalizes all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves in cost centres on a country-by-country basis. Costs associated with production and general corporate activities are expensed in the period incurred. Proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs, and gains or losses are not recognized unless the sale would alter the depletion rate by more than 20%. The Company computes the provision for depreciation, depletion and amortization (DD&A) of oil and gas properties using the unit-of-production method based upon production and estimates of proved reserve quantities as determined by independent reservoir engineers. Unevaluated costs are excluded from the amortization base until the properties associated with these costs are evaluated and determined to be productive or become impaired. The net carrying value of the Company's oil and gas properties is limited to an estimated recoverable amount. This amount is determined by estimating the amount of future net revenues from proved properties based on period-end prices less future production, general and administrative, financing and site-restoration costs and production and income taxes, together with the value of unproved properties at the lower of cost and realizable value. When it is determined that the net realizable value is less than the carrying value of the oil and gas properties the impairment is charged to income. Provision is made in the accounts for estimated future net costs of well abandonments and site restoration, including removal of production facilities at the end of their useful life. Costs are based on estimates valued at year-end prices and in accordance 6 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) with the current legislation and industry practices. The annual provision is computed on a unit-of-production basis and is recorded as an expense for the year. CORPORATE ASSETS Corporate assets consists primarily of furniture, fixtures and computer equipment. Depreciation of these, assets is provided for on the straight-line basis at rates between three and seven years designed to amortize the cost of the assets over their estimated useful lives. NET INCOME (LOSS) PER SHARE Net income (loss) per share is determined based on the weighted average number of common shares outstanding for the year. Common equivalent shares relating to options and warrants to purchase common shares were not included in the weighted average number of shares since their inclusion would not have been dilutive. FINANCIAL INSTRUMENTS The fair value of cash and short-term investments, receivables and accounts payable and accrued liabilities approximates their carrying value. The Company has no derivative financial instruments. 3. PROPERTY AND EQUIPMENT AS AT DECEMBER 31, 1997:
Accumulated Net Book Summary Cost DD&A Value - -------- ------------ ------------ ------------ Crude oil & natural gas properties Proved properties (all located in the U.S.) $ 5,816,173 $ (3,446) $ 5,812,727 Unproved properties and properties under development: (not being amortized) United Stales 4,276,699 - 4,276,699 Egypt - - - Tunisia 781,535 - 781,535 Corporate assets 136,684 (19, 786) 116,898 ------------ ----------- ------------ $ 11,011,091 $ (23,232) $ 10,987,859 ============ =========== ============
The net recoverable amount calculated under the Company's ceiling test exceeded the carrying value of the Company's proved crude oil and natural gas holdings for the period ended and December 31, 1997, on both an undiscounted and a 10% discounted value basis. The carrying value of capital assets are subject to uncertainty associated with the quantity of oil and gas reserves, future production rates, commodity prices and other factors. Future events could materially change the carrying values recognized in the accompanying consolidated financial statements. 4. INCOME TAXES The Company has accumulated losses for income tax purposes in Canada and in the United States that may be applied to reduce future years' income tax liabilities. Such losses in Canada of $274,000 expire commencing in 2004 and such losses in the United States of $2.8 million expire commencing in 2008. 7 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) No recognition has been given in these consolidated financial statements to the future tax benefits that may result from the utilization of these losses for income tax purposes. The benefit, if any, of the application of these losses will be recognized when and to the extent they are realized. 5. SHAREHOLDERS' EQUITY SHARE CAPITAL AUTHORIZED: GHP's authorized capital consists of an unlimited number of common shares without par value. The Company's share capital for the year ended December 31, 1997 is set forth below:
Common Net Shares Consideration ------ ------------- (No. of shares) Common shares outstanding at December 31,1996 12,385,496 $ 4,204,121 Shares issued for cash 4,500,000 10,312,684 Shares issued in Laverty amalgamation (Note 2) 465,392 1 Shares issued for oil and gas property 65,000 143,000 ----------- ----------- Common shares outstanding at December 31, 1997 17,415,888 14,659,806 =========== ===========
STOCK OPTIONS The Company has a Director's and Management Stock Option Plan under which 1.930 million shares were reserved for issuance as at December 31, 1997. These options are exercisable until varying dates ranging from 2001 until 2003 at prices ranging from $.50 to $3.00 per share. Details of options outstanding are as follows:
Year Ended December 31. ----------------------- Balance, beginning of period 950,000 Granted during the period 980,000 Expired during the period - --------- Balance, end of period 1,930,000 =========
WARRANTS As at December 31,1997, the Company had 2,144 million warrants outstanding at an exercise price of $2.50 per share and which are exercisable until March 1, 1999. 8 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U. S. Dollars) 6. COMMITMENTS AND CONTINGENCIES As at December 31, 1997, future minimum annual lease payments under operating lease agreements for office premises and equipment for the next five years are as follows: 1998-$105,000, 1999-$105,000, 2000- $102,000, 2001- $102,000, 2002- $77,000. 7. RELATED PARTY TRANSACTIONS FINANCIAL SERVICES A financial services firm controlled by a director of the Company provided services to the Company totaling $48,930 in 1997, $46,343 in 1996, $4,735 in 1995, $7,086 in 1994 and $3,164 in 1993. NOTE PAYABLE On October 31, 1996, the Chairman and Chief Executive Officer of the Company converted his note receivable from the Company, totaling $544,498, into 1,088,996 common shares of the Company. 8. SEGMENT INFORMATION As at December 31, 1997, the Company and its subsidiaries operated in the United States, Tunisia and Canada within one dominant industry segment; the exploration for, and the development and production of crude oil and natural gas. Identifiable assets, revenues and net loss in each of these geographic areas are as follows:
IDENTIFIABLE ASSETS REVENUES NET LOSS ------ -------- -------- United States $14,916,318 $ 503,808 $ (425,728) Tunisia 781,534 - (12,093) Canada - - (273,861) ----------- ----------- ----------- $15,697,852 $ 503,808 $ (711,682) =========== =========== ===========
9. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES These financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). In certain aspects, Canadian GAAP differs from accounting principles generally accepted in the United States ("U.S. GAAP") and from policies prescribed by the U.S. Securities and Exchange Commission. If U.S. GAAP had been followed, net income (loss) for each period and net income (loss) per share would have been the same as determined under Canadian GAAP. 9 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) 10. SUBSEQUENT EVENTS PRIVATE PLACEMENT In February 1998 the Company issued 3.888 million special warrants ("Special Warrants") at a price of$2.00 per Special Warrant. Each Special Warrant was exchangeable, without further payment, into one common share and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire an additional common share of the Company for a period of one year at a price of $2.50 per share. In addition, the Company granted to the agent of the Special Warrant placement 200,000 Agent's Special Warrants entitling the agent to acquire, without any payment, 200,000 share purchase warrants. In June 1998, the Company filed a final prospectus for the purpose of qualifying 3,888,000 common shares and 1,944,000 common share purchase warrants to be issued upon the exercise or deemed exercise of the 3,888,000 Special Warrants previously issued by the Company. EGYPT In March 1998, the Company entered into a Participation Agreement to acquire a 25% working interest in a 4.5 million acre block in Egypt's Sinai Peninsula ("Sinai Concession"). The minimum work requirement on the Sinai Concession totals $6 million to the 100% interest. The Company is required under its agreement to post a $2.4 million letter of guaranty for its share of the initial work requirements. Pursuant to the terms of the Participation Agreement, the Company was required to repay $1million of the concession holder's cost incurred to date. In 1998, the Company paid the concession holder $500,000 in cash and issued 214,592 common shares having a value of $500,000. In Apri1 1998, the Company entered into a Farmout Agreement to acquire a 30% working interest in the West Gharib Concession consisting of 2,530 square kilometres located on the Western shore of the Gulf of Suez basin. The application for the concession was accepted by the Egyptian government on November 17, 1997, and was ratified by the Egyptian government on June 1, 1998. The minimum work requirement on the concession totals $5 million to the 100% interest. The Company is required under its agreement to post a $1.5 million letter of guaranty for its share of the minimum work requirement. Pursuant to the terms of the Farmout Agreement, the Company was also required to repay $303,000 of the concession holder's cost incurred to date. SHARES ISSUED TO GHP CORPORATION 401 (K) RETIREMENT PLAN On March 30, 1998, the Company issued 25,000 Common Shares to the GHP Corporation 401 (k) Retirement Plan. 10 GHP EXPLORATION CORPORATION CONSOLIDATED BALANCE SHEETS (In U.S. Dollars)
September 30,1998 ----------------- (Unaudited) ASSETS CURRENT ASSETS Cash and short-term investments $ 2,725,822 Receivables 112,812 Prepaid expenses and other 389,736 ------------ 3,228,370 ------------ PROPERTY AND EQUIPMENT (NOTE 3) 13,248,439 ------------ $ 16,476,809 ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 588,747 SHAREHOLDERS' EQUITY Share capital (Note 5) 23,021,746 Deficit (7,133,684) ------------ 15,888,062 ------------ $ 16,476,809 ============
Approved by the Board of Directors: /s/ GEORGE H. PLEWES /s/ BARRY D. LASKER - -------------------- ------------------- George H. Plewes Barry D. Lasker Director Director The accompanying notes are an integral part of these financial statements. 1 GHP EXPLORATION CORPORATION CONSOLIDATED STATEMENTS OF OPERATION AND DEFICIT (In U.S. Dollars)
September 30, 1998 ---- REVENUES Interest income $ 218,542 Oil and gas sales 304,786 ----------- 523,328 EXPENSES General and administrative 1,470,685 Depreciation, depletion and Amortization 242,924 Impairment of oil and Gas properties 4,434,572 Oil and gas production 159,836 ----------- 6,308,017 ----------- NET LOSS FOR THE PERIOD (5,784,689) DEFICIT, AT BEGINNING OF PERIOD (1,348,995) ----------- DEFICIT, AT END OF PERIOD $(7,133,684) ----------- NET LOSS PER SHARE $ (0.30) ===========
The accompanying notes are integral part of these financial statements. 2 GHP EXPLORATION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In U.S. Dollars)
Nine Months Ended September 30, 1998 ------------------ (Unaudited) OPERATING ACTIVITIES Net loss for the period $(5,784,689) Add Items not Involving cash: Depreciation, depletion and amortization 242,924 Impairment of oil and gas properties 4,434,572 ----------- (1,107,193) Changes in non-cash working capital balances: Decrease in receivables 751,649 Decrease in prepaid expenses and other (283,009) Increase in accounts payable and accrued liabilities 12,804 ----------- Cash used in operating activities (460,312) ----------- INVESTING ACTIVITIES Exploration and acquisition of properties (Note 3) (5,740,011) Non-cash portion of oil and gas property expenditures (1,811,098) Issuance of common shares for properties (Note 5) (1,145,000) Acquisition of corporate assets (53,065) ----------- Cash used in investing activities (8,749,174) ----------- FINANCING ACTIVITIES Issuance of common shares (Note 5) 7,833,500 Share issue expenses (Note 5) (616,560) Issuance of common share for properties (Note 5) 1,145,000 ----------- Cash provided by financing activities 8,361,940 ----------- NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (847,546) Cash and short-term investments, beginning of period 3,573,368 ----------- Cash and short-term investments, end of period $ 2,725,822 ===========
The accompanying notes are an integral part of these financial statements. 3 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) (All amounts as at September 30, 1998 and for the nine months then ended are unaudited) 1. BASIS OF PRESENTATION On February 16, 1997, GHP Corporation, a company incorporated in the United States, was acquired by a newly-incorporated Canadian shell company, GHP Exploration Corporation, in exchange for 12,385,496 common shares. Since both entities were under common control, this transaction did not constitute a business combination under accounting principals generally accepted in Canada, and has been accounted for to recognize the continuity of interests of the shareholders of GHP Corporation in the consolidated assets, liabilities and operations of GHP Exploration Corporation. On April 17, 1997, GHP Exploration Corporation amalgamated with Laverty Industrial Development Inc., a company whose shares were quoted on the Canadian Dealing Network ("Laverty"), to form a new British Columbia corporation named "GHP Exploration Corporation". Under the terms of the amalgamation agreement, each common share of the Company and each 15 common shares of Laverty were exchanged into one common share of the amalgamated company. A total of 465,392 common shares were issued to the former Laverty shareholders. The amalgamated entity was continued into the Yukon Territory on April 30, 1997. This amalgamation was accounted for as an acquisition of Laverty by GHP Exploration Corporation using the purchase method of accounting; however, the fair market value of the acquired net assets of Laverty was nominal. On September 30,1998, the Company agreed to merge with Profco Resources Ltd. ("Profco") by way of a share exchange transaction, subject to the satisfaction of certain conditions including regulatory and court approvals and approval by the Company's shareholders. This merger was completed in the fourth quarter of 1998, with GHP shareholders receiving .87 of a common share of Profco for each common share of GHP. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS GHP Exploration Corporation ("GHP" or the "Company") is a junior oil and gas company incorporated under the laws of the Yukon Territory for the purpose of exploring for, developing and producing crude oil, natural gas and natural gas liquids in the United States and internationally. The Company's U.S. exploration and production activities are focused along the Texas and Louisiana gulf coast, both onshore and offshore, and in the Delaware Basin of West Texas. The Company's international activities are currently focused in Egypt and Tunisia. The Company's future financial condition, including the recoverability of the Company's oil and gas investments, and the results of its operations is dependent upon the discovery of economically recoverable reserves, its ability to obtain the necessary financing complete development of the reserves and the future profitable production from its developed reserves. 4 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) Inherent in these requirements is the importance of product prices and the costs of acquiring, finding, developing and producing crude oil and natural gas reserves. The prices received by the Company from the sale of its crude oil and natural gas production are subject to fluctuation in response to changes in supply, market uncertainty and a variety of factors beyond the Company's control. These factors include worldwide political instability (especially in the Middle East), the foreign supply of oil and natural gas, the level of consumer demand, and the price and availability of alternative fuels. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and include the accounts of the Company and its wholly-owned subsidiaries; GHP Corporation (a Colorado corporation), GHP Exploration (Tunisia) Ltd. (a Bermuda corporation), GHP Exploration (Egypt) Ltd. (a Bermuda corporation) and GHP Exploration (West Gharib) Ltd. (a Bermuda corporation). A substantial portion of the Company's activities are conducted jointly with industry partners and the accompanying consolidated financial statements reflect only the Company's proportionate interest in such activities. OIL AND GAS PROPERTIES In connection with the events described in Note 1, the Company changed its method of accounting for oil and gas exploration and development activities from the successful efforts method to the full cost method. Due to the limited operating history of the Company, no adjustment to historical results was required. Under the full cost method of accounting, the Company capitalizes all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves in cost centres on a country-by-country basis. Costs associated with production and general corporate activities are expensed in the period incurred. Proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs, and gains or losses are not recognized unless the sale would alter the depletion rate by more than 20%. The Company computes the provision for depreciation, depletion and amortization (DD&A) of oil and gas properties using the unit-of-production method based upon production and estimates of proved reserve quantities as determined by independent reservoir engineers. Unevaluated costs are excluded from the amortization base until the properties associated with these costs are evaluated and determined to be productive or become impaired. The net carrying value of the Company's oil and gas properties is limited to an estimated recoverable amount. This amount is determined by estimating the amount of future net revenues from proved properties based on period-end prices less future production, general and administrative, financing and site-restoration costs and production and income taxes, together with the value of unproved properties at the lower of cost and realizable value. When it is determined that the net realizable value is less than the carrying value of the oil and gas properties the impairment is charged to income. Provision is made in the accounts for estimated future net costs of well abandonments and site restoration, including removal of production facilities at the end of their useful life. Costs are based on estimates valued at year-end prices and in accordance 5 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) with the current legislation and industry practices. The annual provision is computed on a unit-of-production basis and is recorded as an expense for the year. CORPORATE ASSETS Corporate assets consists primarily of furniture, fixtures and computer equipment. Depreciation of these, assets is provided for on the straight-line basis at rates between three and seven years designed to amortize the cost of the assets over their estimated useful lives. NET INCOME (LOSS) PER SHARE Net income (loss) per share is determined based on the weighted average number of common shares outstanding for the period. Common equivalent shares relating to options and warrants to purchase common shares were not included in the weighted average number of shares since their inclusion would not have been dilutive. FINANCIAL INSTRUMENTS The fair value of cash and short-term investments, receivables and accounts payable and accrued liabilities approximates their carrying value. The Company has no derivative financial instruments. INTERIM FINANCIAL STATEMENTS In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which consist only of normal and reoccurring adjustments, necessary to present fairly the financial position at September 30, 1998 and the results of operations and the changes in financial position for the nine-month period ended September 30, 1998, in accordance with accounting principles generally accepted in Canada. 3. PROPERTY AND EQUIPMENT As at September 30, 1998:
Accumulated Net Book SUMMARY Cost DD&A Value ------- ------------ ------------- ------------ Crude oil & natural gas properties Proved properties (U.S. only) $ 12,144,429 $ (4,653,471) $ 7,490,958 Unproved properties and properties under development: (not being amortized) United States 2,636,932 - 2,636,932 Egypt 1,780,442 - 1,780,442 Tunisia 1,197,615 - 1,197,615 Corporate assets 189,749 (47,257) 142,492 $ 17,949,167 $ (4,700,728) $ 13,248,439 ============ ============ ============
6 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) The net recoverable amount calculated under the Company's ceiling test exceeded the carrying value of the Company's proved crude oil and natural gas holdings for the periods ended September 30, 1998, on both an undiscounted and a 10% discounted value basis. The carrying value of capital assets are subject to uncertainty associated with the quantity of oil and gas reserves, future production rates, commodity prices and other factors. Future events could materially change the carrying values recognized in the accompanying consolidated financial statements. On August 31, 1998, the Company sold its interest in a non-producing oil and gas property for cash, an overriding royalty interest and other consideration equal to approximately $600,000. It is undeterminable whether the Company will be required to record a loss on the sale of this asset until the results from two wells the Company is currently drilling are known. 4. INCOME TAXES The Company has accumulated losses for income tax purposes in Canada and in the United States that may be applied to reduce future years' income tax liabilities. Such losses in Canada of $274,000 expire commencing in 2004 and such losses in the United States of$2.8 million expire commencing in 2008. No recognition has been given in these consolidated financial statements to the future tax benefits that may result from the utilization of these losses for income tax purposes. The benefit, if any, of the application of these losses will be recognized when and to the extent they are realized. 5. SHAREHOLDERS' EQUITY SHARE CAPITAL AUTHORIZED: GHP's authorized capital consists of an unlimited number of common shares without par value. 7 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) The Company's share capital for the nine months ended September 30, 1998 is set forth below:
Common Net Shares Consideration ------ ------------- (No. of shares) Common shares outstanding at December 31, 1997 17,415,888 14,659,806 ----------- ----------- Shares issued for cash 3,888,000 7.159,440 Shares issued for oil and gas properties 514,592 1,145,000 Shares issued to the GHP Corporation 401 (k) Plan 25,000 57,500 ----------- ----------- Common shares outstanding at September 30, 1998 21,843,480 $23,021,746 ----------- -----------
STOCK OPTIONS The Company has a Director's and Management Stock Option Plan under which 2.277 million shares were reserved for issuance as at September 30, 1998. These options are exercisable until varying dates ranging from 2001 until 2003 at prices ranging from $.50 to $3.00 per share. Details of options outstanding are as follows:
Nine Months Ended September 30,1998 ----------------- (Unaudited) Balance, beginning of period 1,930,000 Granted during the period 397,000 Expired during the period (50,000) --------- Balance, end of period 2,277,000 =========
WARRANTS As at September 30,1998, the Company had 2,144 million warrants outstanding at an exercise price of $2.50 per share and which are exercisable until March 1, 1999. 8 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) 6. SEGMENT INFORMATION As at December 31, 1997, the Company and its subsidiaries operated in the United States, Egypt, Tunisia and Canada within one industry segment; the exploration for, and the development and production of crude oil and natural gas. Identifiable assets, revenues and net loss in each of these geographic areas are as follows:
IDENTIFIABLE ASSETS REVENUES NET LOSS ------------ -------- -------- United States $13,248,752 $523,328 $(5,483,097) Egypt 2,030,442 - 10,638 Tunisia 1,197,615 - (17,093) Canada - - (273,861) ------------ -------- ----------- $16,476,809 $523,328 $(5,784,689)
7. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES These financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). In certain aspects, Canadian GAAP differs from accounting principles generally accepted in the United States ("U.S. GAAP") and from policies prescribed by the U.S. Securities and Exchange Commission. If U.S. GAAP had been followed, net income (loss) for each period and net income (loss) per share would have been the same as determined under Canadian GAAP. 9 GHP EXPLORATION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In U.S. Dollars) 8. OTHER MATTERS PRIVATE PLACEMENT In February 1998 the Company issued 3.888 million special warrants ("Special Warrants") at a price of$2.00 per Special Warrant. Each Special Warrant was exchangeable, without further payment, into one common share and one-half of one common share purchase warrant. Each whole common share purchase warrant entitles the holder to acquire an additional common share of the Company for a period of one year at a price of $2.50 per share. In addition, the Company granted to the agent of the Special Warrant placement 200,000 Agent's Special Warrants entitling the agent to acquire, without any payment, 200,000 share purchase warrants. In June 1998, the Company filed a final prospectus for the purpose of qualifying 3,888,000 common shares and 1,944,000 common share purchase warrants to be issued upon the exercise or deemed exercise of the 3,888,000 Special Warrants previously issued by the Company. EGYPT In March 1998, the Company entered into a Participation Agreement to acquire a 25% working interest in a 4.5 million acre block in Egypt's Sinai Peninsula ("Sinai Concession"). The minimum work requirement on the Sinai Concession totals $6 million to the 100% interest. The Company is required under its agreement to post a $2.4 million letter of guaranty for its share of the initial work requirements. Pursuant to the terms of the Participation Agreement, the Company was required to repay $1million of the concession holder's cost incurred to date. In 1998, the Company paid the concession holder $500,000 in cash and issued 214,592 common shares having a value of $500,000. In Apri1 1998, the Company entered into a Farmout Agreement to acquire a 30% working interest in the West Gharib Concession consisting of 2,530 square kilometres located on the Western shore of the Gulf of Suez basin. The application for the concession was accepted by the Egyptian government on November 17, 1997, and was ratified by the Egyptian government on June 1, 1998. The minimum work requirement on the concession totals $5 million to the 100% interest. The Company is required under its agreement to post a $1.5 million letter of guaranty for its share of the minimum work requirement. Pursuant to the terms of the Farmout Agreement, the Company was also required to repay $303,000 of the concession holder's cost incurred to date. SHARES ISSUED TO GHP CORPORATION 401 (k) RETIREMENT PLAN On March 30, 1998, the Company issued 25,000 Common Shares to the GHP Corporation 401 (k) Retirement Plan. 10 EX-1.1 2 a2026270zex-1_1.txt EXHIBIT 1.1 CORPORATE ACCESS NUMBER 20741756 ALBERTA GOVERNMENT OF ALBERTA BUSINESS CORPORATIONS ACT CERTIFICATE OF CONTINUANCE PROFCO RESOURCES LTD. CONTINUED FROM BRITISH COLUMBIA TO ALBERTA ON JUNE 10, 1997. REGISTRIES GOVERNMENT OF ALBERTA (SIGNATURE) REGISTRAR OF CORPORATIONS REG 3066 (96/01) Certificate of Continuance 6.10.97 20F EX-1.2 3 a2026270zex-1_2.txt EXHIBIT 1.2 BUSINESS CORPORATIONS ACT FORM 11 (SECTIONS 181, 261 and 262) ALBERTA REGISTRIES ARTICLES OF CONTINUANCE 1. NAME OF CORPORATION. PROFCO RESOURCES LTD. 2. CORPORATE ACCESS NUMBER. 2 O 741 756 3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE. THE CORPORATION IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF ONE CLASS OF SHARES DESIGNATED AS COMMON SHARES. 4. RESTRICTIONS IF ANY ON SHARE TRANSFERS. NONE . 5. NUMBER (OR MINIMUM OR MAXIMUM NUMBER) OF DIRECTORS. A MINIMUM OF 3 AND A MAXIMUM OF 9, THE NUMBER WITHIN SUCH RANGE TO BE FIXED OR CHANGED BY RESOLUTION OF THE SHAREHOLDERS OR THE DIRECTORS OF THE CORPORATION. 6. RESTRICTIONS IF ANY ON BUSINESSES THE CORPORATION MAY CARRY ON. NONE. 7. IF CHANGE OF NAME EFFECTED, PREVIOUS NAME. N/A 8. DETAILS OF INCORPORATION. INCORPORATED UNDER THE COMPANY ACT (BRITISH COLUMBIA) ON OCTOBER 1, 1985 UNDER THE NAME "PROFCO RESOURCES LTD." 9. OTHER PROVISIONS IF ANY. THE SCHEDULE "I" IS INCORPORATED INTO AND FORMS PART OF THIS FORM. 7. DATE SIGNATURE TITLE JUNE 4, 1997 RICHARD K. JAGGARD CORPORATE SECRETARY Articles of Continuance 6.4.97 20F SCHEDULE "I" TO THE ARTICLES OF CONTINUANCE OF PROFCO RESOURCES LTD. 1. Without limiting the borrowing powers of the Corporation as set forth in the BUSINESS CORPORATIONS ACT (ALBERTA), the directors of the Corporation may from time to time, without authorization of the shareholders, (a) borrow money on the credit of the Corporation; (b) issue, reissue, sell or pledge bonds, debentures, notes or other evidences of indebtedness or guarantees of the Corporation, whether secured or unsecured; (c) subject to the BUSINESS CORPORATIONS ACT (ALBERTA), give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation. Nothing in this clause limits or restricts the borrowing of money by the Corporation on bills of exchange or promissory notes made, drawn, accepted or endorsed by or on behalf of the Corporation. 2. Subject to the BUSINESS CORPORATIONS ACT (ALBERTA), the directors may, between annual general meetings of shareholders, appoint one or more additional directors of the Corporation to serve until the next annual general meeting of shareholders. Filed June 10, 1997 Registrar of Corporations Province of Alberta Articles of Continuance 6.4.97 20F EX-1.3 4 a2026270zex-1_3.txt EXHIBIT 1.3 Saskatchewan Justice Corporations Branch 612962 CERTIFICATE OF AMENDMENT (Extra-Provincial Corporation) THE BUSINESS CORPORATIONS ACT I hereby certify that PROFCO RESOURCES LTD. has registered an amendment made to its articles under the laws of ALBERTA in accordance with the attached. Given under my hand and seal THIS 21ST day of JULY 1997 Philip J. Flory, Director EX-1.4 5 a2026270zex-1_4.txt EXHIBIT 1.4 Number: A-45547 COMPANY ACT CANADA PROVINCE OF BRITISH COLUMBIA CERTIFICATE OF REGISTRATION I HEREBY CERTIFY THAT PROFCO RESOURCES LTD. HAS THIS DAY BEEN REGISTERED AS AN EXTRAPROVINCIAL COMPANY UNDER THE COMPANY ACT ISSUED UNDER MY HAND AT VICTORIA, BRITISH COLUMBIA ON JULY 31, 1997 John S. Powell Registrar of Companies Misc. Corporate 20F EX-1.5 6 a2026270zex-1_5.txt EXHIBIT 1.5 BY-LAW NO.1 A By-Law relating generally to the transaction of the business and affairs of PROFCO RESOURCES LTD. CONTENTS SECTION SUBJECT One Interpretation Two Business of the Corporation Three Directors Four Committees Five Protection of Directors and Officers Six Shares Seven Dividends Eight Meetings of Shareholders Nine Notices Ten Effective Date and Repeal IT IS HEREBY ENACTED as By-law No. 1 of PROFCO RESOURCES LTD. (hereinafter called the "Corporation") as follows: SECTION ONE INTERPRETATION 1.01 DEFINITIONS In the by-laws of the Corporation, unless the context otherwise requires: "ACT" means the Business Corporations Act of Alberta, and any statute that may be substituted therefor, as from time to time amended; "APPOINT" includes "elect" and vice versa; "ARTICLES" means the articles attached to the Certificate of Continuance of the Corporation as from time to time amended or restated; Profco ByLaws 1 20F - -2- "BOARD" means the board of directors of the Corporation; "BY-LAWS" means this by-law and all other by-laws of the Corporation from time to time in force and effect; "MEETING OF SHAREHOLDERS" means any meeting of shareholders, including any meeting of one or more classes or series of shareholders; "RECORDED ADDRESS" means, in the case of a shareholder, his address as recorded in the securities register; in the case of joint shareholders, the address appearing in the securities register in respect of such joint holding or the first address so appearing if there are more than one; and in the case of a director, officer, auditor or member of a committee of the board, his latest address as recorded in the records of the Corporation; "SIGNING OFFICER" means, in relation to any instrument, any person authorized to sign the same on behalf of the Corporation by Section 2.03 or by a resolution passed pursuant thereto. Save as aforesaid, words and expressions defined in the Act have the same meanings when used herein; and words importing the singular number include the plural and vice versa; words importing gender include the masculine, feminine and neuter genders; and words importing persons include individuals, bodies corporate, partnerships, trusts and unincorporated organizations. 1.02 CONFLICT WITH THE ACT, THE ARTICLES OR ANY UNANIMOUS SHAREHOLDER AGREEMENT To the extent of any conflict between the provisions of the by-laws and the provisions of the Act, the articles or any unanimous shareholder agreement relating to the Corporation, the provisions of the Act, the articles or the unanimous shareholder agreement shall govern. 1.03 HEADINGS AND SECTIONS The headings used throughout the by-laws are inserted for convenience of reference only and are not to be used as an aid in the interpretation of the by-laws. "Section" followed by a number means or refers to the specified section of this by-law. 1.04 INVALIDITY OF ANY PROVISION OF BY-LAWS The invalidity or unenforceability of any provision of the by-laws shall not affect the validity or enforceability of the remaining provisions of the by-laws. SECTION TWO BUSINESS OF THE CORPORATION 2.0 1 CORPORATE SEAL The corporate seal of the Corporation, if any, shall be in such form as the board may from time to time by resolution approve. Profco ByLaws 1 20F - -3- 2.02 FINANCIAL YEAR The financial year of the Corporation shall end on such date in each year as the board may from time to time by resolution determine. 2.03 EXECUTION OF INSTRUMENTS Deeds, transfers, assignments, contracts, obligations, certificates and other instruments may be signed on behalf of the Corporation by two persons, one of whom holds the office of chairman of the board, president, vice-president or director and the other of whom holds one of the said offices or the office of secretary, treasurer, assistant secretary or assistant treasurer or any other office created by by-law or by resolution of the board; provided that if the Corporation only has one director, that director alone may sign any instruments on behalf of the Corporation. In addition, the board may from time to time direct the manner in which and the person or persons by whom any instrument or instruments mayor shall be signed. Any signing officer may affix the corporate seal to any instrument requiring the same. 2.04 BANKING ARRANGEMENTS The banking business of the Corporation including, without limitation, the borrowing of money and the giving of security therefor, shall be transacted with such banks, trust companies or other bodies corporate or other persons as may from time to time be authorized by the board. Such banking business or any part thereof shall be transacted under such agreements, instructions and delegations of powers as the board may from time to time prescribe or authorize. 2.05 VOTING RIGHTS IN OTHER BODIES CORPORATE The signing officers may execute and deliver proxies and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting rights attaching to any securities held by the Corporation. Such instruments, certificates or other evidence shall be in favour of such person or persons as may be determined by the persons executing such proxies or arranging for the issuance of voting certificates or such other evidence of the right to exercise such voting rights. In addition, the board or, failing the board, the signing officers may from time to time direct the manner in which and the person or persons by whom any particular voting rights or class of voting rights mayor shall be exercised. 2.06 INSIDER TRADING REPORTS AND OTHER FILINGS Anyone officer or director of the Corporation may execute and file on behalf of the Corporation insider trading reports and other filings of any nature whatsoever required under applicable corporate or securities laws. 2.07 DIVISIONS The board may from time to time cause the business and operations of the Corporation or any part thereof to be divided into one or more divisions upon such basis, including without limitation, types of business or operations, geographical territories, product lines or goods or services, as the board may consider appropriate in each case. From time to time the board may authorize upon such basis as may be considered appropriate in each case: (a) the designation of any such division by, and the carrying on of the business and operations of any such division under, a name other than the name of the Corporation; provided that Profco ByLaws 1 20F - -4- the Corporation shall set out its name in legible characters in all contracts, invoices, negotiable instruments and orders for goods or services issued or made by or on behalf of the Corporation; and (b) the appointment of officers for any such division and the determination of their powers and duties, provided that any such officers shall not, as such, be officers of the Corporation. SECTION THREE DIRECTORS 3.01 NUMBER OF DIRECTORS If the articles provide for a maximum number and a minimum number of directors, unless otherwise provided in the articles, the number of directors of the Corporation shall be determined from time to time by ordinary resolution of the shareholders or, in the absence of such resolution, by resolution of the directors. 3.02 CALLING AND NOTICE OF MEETINGS Meetings of the board shall be called and held at such time and at such place as the board, the chairman of the board, the president or any two directors may determine, and the secretary or any other officer shall give notice of meetings when directed or authorized by such persons. Notice of each meeting of the board shall be given to each director not less than forty-eight hours before the time when the meeting is to be held, provided that, if a quorum of directors is present, the board may without notice hold a meeting immediately following an annual meeting of shareholders. Notice of a meeting of the board may be given verbally, in writing or by telephone, telegraph, facsimile transmission or any other means of communication. A notice of a meeting of directors need not specify the purpose of or the business to be transacted at the meeting, except where required by the Act. Notwithstanding the foregoing, the board may from time to time fix a day or days in any month or months for regular meetings of the board at a place and hour to be named, in which case, provided that a copy of any such resolution is sent to each director forthwith after being passed and forthwith after each director's appointment, no other notice shall be required for any such regular meeting except where the Act requires specification of the purpose or the business to be transacted thereat. 3.03 PLACE OF MEETINGS Meetings of the board may be held at any place in or outside Alberta. A director who attends a meeting of directors, in person or by telephone, is deemed to have consented to the location of the meeting except when he attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held. 3.04 MEETINGS BY TELEPHONE With the consent of the chairman of the meeting or a majority of the directors present at the meeting, a director may participate in a meeting of the board or of a committee of the board by means of telephone or other communication facilities that permit all persons participating in the meeting to hear each other. A director participating in such a meeting in such manner shall be considered present at the meeting and at the place of the meeting. Profco ByLaws 1 20F - -5- 3.05 QUORUM The quorum for the transaction of business at any meeting of the board shall consist of two directors or such greater or lesser number of directors as the board may from time to time determine, provided that, if the board consists of only one director, the quorum for the transaction of business at any meeting of the board shall consist of one director. 3.06 CHAIRMAN The chairman of any meeting of the board shall be the director present and willing to so act at the meeting who is the first mentioned of the following officers as have been appointed: chairman of the board, president or a vice-president (in order of seniority). If no such officer is present and willing to act, the directors present shall choose one of their numbers to be chairman. 3.07 ACTION BY THE BOARD At all meetings of the board every question shall be decided by a majority of the votes cast on the question. In case of an equality of votes the chairman of the meeting shall be entitled to a second or casting vote. The powers of the board may be exercised by resolution passed at a meeting at which a quorum is present or by resolution in writing signed by all the directors who would be entitled to vote on that resolution at a meeting of the board. Resolutions in writing may be signed in counterparts. 3.08 ADJOURNED MEETING Any meeting of directors may be adjourned from time to time by the chairman of the meeting, with the consent of the meeting, to a fixed time and place. The adjourned meeting shall be duly constituted if a quorum is present and if it is held in accordance with the terms of the adjournment. If there is no quorum present at the adjourned meeting, the original meeting shall be deemed to have terminated forthwith after its adjournment. 3.09 REMUNERATION AND EXPENSES The directors shall be paid such remuneration for their services as the board may from time to time determine. The directors shall also be entitled to be reimbursed for reasonable travelling and other expenses properly incurred by them in attending meetings of the board or any committee thereof. Nothing herein contained shall preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor. 3.10 OFFICERS The board from time to time may appoint one or more officers of the Corporation and, without prejudice to rights under any employment contract, may remove any officer of the Corporation. The powers and duties of each officer of the Corporation shall be those determined from time to time by the board and, in the absence of such determination, shall be those usually incidental to the office held. 3.11 AGENTS AND ATTORNEYS The board shall have the power from time to time to appoint agents or attorneys for the Corporation in or outside Canada with such powers of management or otherwise (including the power to sub-delegate) as may be thought fit. Profco ByLaws 1 20F - -6- SECTION FOUR COMMITTEES 4.0 1 TRANSACTION OF BUSINESS The powers of any committee of directors may be exercised by a meeting at which a quorum is present or by resolution in writing signed by all the members of such committee who would have been entitled to vote on that resolution at a meeting of the committee. At all meetings of committees every question shall be decided by a majority of the votes cast on the question. In case of an equality of votes the chairman of the meeting shall be entitled to a second or casting vote. Resolutions in writing may be signed in counterparts. 4.02 PROCEDURE Unless otherwise determined by the board, a quorum for meetings of any committee shall be a majority of its members, each committee shall have the power to appoint its chairman and the rules for calling, holding, conducting and adjourning meetings of the committee shall be the same as those governing the board. Each member of a committee shall serve during the pleasure of the board of directors and, in any event, only so long as he shall be a director. The directors may fill vacancies in a committee by appointment from among their members. Provided that a quorum is maintained, the committee may continue to exercise its powers notwithstanding any vacancy among its members. SECTION FIVE PROTECTION OF DIRECTORS AND OFFICERS 5.01 LIMITATION OF LIABILITY No director or officer for the time being of the Corporation shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee, or for joining in any receipt or act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired by the Corporation or for or on behalf of the Corporation or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Corporation shall be placed or invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person, firm or corporation including any person, firm or corporation with whom or with which any moneys, securities or effects shall be lodged or deposited, or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets of or belonging to the Corporation or for any other loss, damage or misfortune whatsoever which may happen in the execution of the duties of his respective office or trust or in relation thereto unless the same shall happen by or through his failure to exercise the powers and to discharge the duties of his office honestly, in good faith and with a view to the best interests of the Corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 5.02 INDEMNITY The Corporation shall, to the maximum extent permitted under the Act, indemnify a director or officer, a former director or officer, and a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including any amount paid to settle an action Profco ByLaws 1 20F - -7- or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the Corporation or such body corporate, including (without limitation) any such action by or on behalf of the Corporation or such body corporate to procure a judgment in its favour, and the Corporation shall use its reasonable best efforts to obtain any approval or approvals necessary for such indemnification. SECTION SIX SHARES 6.01 NON-RECOGNITION OF TRUSTS Subject to the provisions of the Act, the Corporation may treat as the absolute owner of any share the person in whose name the share is registered in the securities register as if that person had full legal capacity and authority to exercise all rights of ownership, irrespective of any indication to the contrary through knowledge or notice or description in the Corporation's records or on the share certificate. 6.02 JOINT SHAREHOLDERS If two or more persons are registered as joint holders of any share: (a) the Corporation shall record only one address on its books for such joint holders; (b) the address of such joint holders for all purposes with respect to the Corporation shall be their recorded address; and (c) anyone of such persons may give effectual receipts for the certificate issued in respect thereof or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such share. 6.03 LIEN FOR INDEBTEDNESS If the articles provide that the Corporation has a lien on any shares registered in the name of a shareholder or his legal representative for a debt of that shareholder to the Corporation, such lien may be enforced, subject to the articles and to any unanimous shareholder agreement, by the sale of the shares thereby affected or by any other action, suit, remedy or proceeding authorized or permitted by law or by equity and, pending such enforcement, the Corporation may refuse to register a transfer of the whole or any part of such shares. SECTION SEVEN DIVIDENDS 7.01 DIVIDEND CHEQUES A dividend payable in cash shall be paid by cheque of the Corporation or of any dividend paying agent appointed by the board to the order of each registered holder of shares of the class or series in respect of which it has been declared and mailed by prepaid ordinary mail to such registered holder at his recorded address, unless such holder otherwise directs and the Corporation agrees to follow such direction. In the case of joint holders the cheque shall, unless such joint holders otherwise direct and the Corporation agrees to Profco ByLaws 1 20F - -8- follow such direction, be made payable to the order of all of such joint holders and mailed to them at their recorded address. The mailing of such cheque as aforesaid, unless the same is not paid on due presentation shall satisfy and discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold. 7.02 NON-RECEIPT OF CHEQUES In the event of non-receipt of any dividend cheque by the person to whom it is sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board may from time to time prescribe, whether generally or in any particular case. 7.03 UNCLAIMED DIVIDENDS Any dividend unclaimed after a period of six years from the date on which the same has been declared to be payable shall be forfeited and shall revert to the Corporation. SECTION EIGHT MEETINGS OF SHAREHOLDERS 8.01 CHAIRMAN, SECRETARY AND SCRUTINEERS The chairman of any meeting of shareholders, who need not be a shareholder of the Corporation, shall be the first mentioned of the following officers as has been appointed and is present and is willing to so act at the meeting: chairman of the board, president or a vice-president (in order of seniority). If no such officer is present and willing to act as chairman within fifteen minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their number to be chairman. The chairman shall conduct the proceedings at the meeting in all respects and his decision in any matter or thing, including, but without in any way limiting the generality of the foregoing, any question regarding the validity or invalidity of any instruments of proxy and any question as to the admission or rejection of a vote shall be conclusive and binding upon the shareholders. The secretary of any meeting of shareholders shall be the secretary of the Corporation, provided that if the Corporation does not have a secretary or if the secretary of the Corporation is absent, the chairman shall appoint some person who need not be a shareholder, to act as secretary of the meeting. The board may from time to time appoint in advance of any meeting of shareholders one or more persons to act as scrutineers at such meeting and, in the absence of such appointment, the chairman may appoint one or more persons to act as scrutineers at any meeting of shareholders. Scrutineers so appointed may, but need not be, shareholders, directors, officers or employees of the Corporation. 8.02 PERSONS ENTITLED TO BE PRESENT The only persons entitled to be present at a meeting of shareholders shall be: (a) those entitled to vote at such meeting; (b) the directors and auditors of the Corporation; (c) others who, although not entitled to vote, are entitled or required under any provision of the Act, the articles or the by-laws to be present at the meeting; Profco ByLaws 1 20F - -9- (d) legal counsel to the Corporation when invited by the Corporation to attend the meeting; and (e) any other person on the invitation of the chairman or with the consent of the meeting. 8.03 QUORUM A quorum for the transaction of business at any meeting of shareholders shall be at least two persons present in person, each being a shareholder entitled to vote thereat or a duly appointed proxy or representative for an absent shareholder so entitled, and representing in the aggregate not less than 10% of the outstanding shares of the Corporation carrying voting rights at the meeting, provided that, if there should be only one shareholder of the Corporation entitled to vote at any meeting of shareholders, the quorum for the transaction of business at a meeting of shareholders shall consist of the one shareholder. 8.04 REPRESENTATIVES The authority of an individual to represent a body corporate or association at a meeting of shareholders of the Corporation shall be established by depositing with the Corporation a certified copy of the resolution of the directors or governing body of the body corporate or association, as the case may be, granting such authority, or in such other manner as may be satisfactory to the chairman of the meeting. 8.05 ACTION BY SHAREHOLDERS The shareholders shall act by ordinary resolution unless otherwise required by the Act, articles, by-laws or any unanimous shareholders agreement. In case of an equality of votes either upon a show of hands or upon a poll, the chairman of the meeting shall be entitled to a second or casting vote. 8.06 SHOW OF HANDS Upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima facie evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of the shareholders upon the said question. 8.07 BALLOTS A ballot required or demanded shall be taken in such manner as the chairman shall direct. A requirement or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares which he is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the articles, and the result of the ballot so taken shall be the decision of the shareholders upon the said question. 8.08 MEETINGS BY TELEPHONE With the consent of the chairman of the meeting or the consent (as evidenced by a resolution) of the persons present and entitled to vote at the meeting, a shareholder or any other person entitled to attend a meeting of shareholders may participate in the meeting by means of telephone or other communication Profco ByLaws 1 20F - -10- facilities that permit all persons participating in the meeting to hear each other, and a person participating in such a meeting by those means shall be considered present at the meeting and at the place of the meeting. SECTION NINE NOTICES 9.01 OMISSIONS AND ERRORS The accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon. 9.02 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholder from whom he derives his title to such share prior to his name and address being entered on the securities register (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act. SECTION TEN EFFECTIVE DATE AND REPEAL 10.01 EFFECTIVE DATE This by-law shall come into force upon the date of continuance of the Corporation under the Act. 10.02 REPEAL All previous by-laws (including without limitation the Articles of the Corporation under the Company Act of British Columbia) of the Corporation are repealed as of the coming into force of this by-law. Such repeal shall not affect the previous operation of any by-law so repealed or affect the validity of any act done or right, privilege, obligation or liability acquired or incurred under, or the validity of any contract or agreement made pursuant to, or the validity of any articles (as defined in the Act) or predecessor charter documents of the Corporation obtained pursuant to, any such by-law prior to its repeal. All officers and persons acting under any such by-law so repealed shall continue to act as if appointed under the Profco ByLaws 1 20F - -11- provisions of this by-law and all resolutions of the shareholders, the board or a committee of the board with continuing effect passed under any repealed by-law shall continue to be good and valid except to the extent inconsistent with this by-law and until amended or repealed. MADE BY THE BOARD THE 23RD DAY of May 1997 (signature) Chairman of the Board CONFIRMED BY THE SHAREHOLDERS IN ACCORDANCE WITH THE ACT THE 2ND DAY OF JUNE 1997. CHAIRMAN OF THE BOARD Profco ByLaws 1 20F EX-1.6 7 a2026270zex-1_6.txt EXHIBIT 1.6 CORPORATE ACCESS NUMBER: 207417569 ALBERTA BUSINESS CORPORATIONS ACT CERTIFICATE OF AMENDMENT PROFCO RESOURCES LTD. CHANGED ITS NAME TO TRANSATLANTIC PETROLEUM CORP. ON 1998/12/02. [SEAL] REGISTRAR OF CORPORATIONS Certificate of Amendment 12.2.98 20F EX-1.7 8 a2026270zex-1_7.txt EXHIBIT 1.7 ALBERTA CONSUMER AND CORPORATE AFFAIRS BUSINESS CORPORATIONS ACT (SECTION 27 OR 171) ARTICLES OF AMENDMENT FORM 4 1. NAME OF CORPORATION PROFCO RESOURCES LTD 2. CORPORATE ACCESS NUMBER: 207417569 3.THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS: PURSUANT TO SECTION 1671(a) OF THE BUSINESS CORPORATIONS ACT (ALBERTA), ITEM 1 OF THE ARTICLES OF THE CORPORATION BE AND IS HEREBY AMENDED TO READ: "1. NAME OF CORPORATION TRANSATLANTIC PETROLEUM CORP." DATED THIS 2ND DAY of December, 1998. SIGNATURE POSITION HELD: Articles of Amendment 12.2.98 20F EX-2.1 9 a2026270zex-2_1.txt EXHIBIT 2.1 PROFCO RESOURCES LTD. STOCK OPTION PLAN (1995) PROFCO RESOURCES LTD. (the "Corporation") stock option plan known as the "Stock Option Plan (1995)" in effect as of April 7, 1995. This Plan governs the issuance of stock options (the "Stock Options") to employees, directors and officers of, and persons and companies who provide services to, the Corporation and subsidiaries of the Corporation. The terms and conditions of the Plan are as follows: 1. PURPOSES - The principal purposes of the Plan are: (a) to promote a proprietary interest in the Corporation among its employees, officers and directors and persons and companies providing services to the Corporation; (b) to retain and attract the qualified personnel and service support the Corporation requires; (c) to provide an incentive element in compensation; and (d) to promote the profitability of the Corporation. 2. RESERVATION OF SHARES - Subject to Section 11 of this Plan, the aggregate maximum number of common shares of the Corporation reserved for issuance pursuant to Stock Options shall be 1,745,000 common shares of the Corporation. 3. ELIGIBILITY - Stock Options shall be granted only to persons, firms or companies ("Eligible Optionees"): (a) who are employees (full-time or part-time), officers or directors of the Corporation, or who are providing services to the Corporation on an on-going basis, or have provided or are expected to provide a service or services of considerable value to the Corporation, and (b) who the Board of Directors of the Corporation determines should receive Stock Options. 4. GRANTING OF STOCK OPTIONS - The Board of Directors of the Corporation may from time to time grant Stock Options to Eligible Optionees. At the time a Stock Option is granted, the Board of Directors shall determine the number of common shares of the Corporation purchasable under the Stock Option, the date when the Stock Option is to become effective and, subject to the other provisions of this Plan, all other terms and conditions of the Stock Option. An Eligible Optionee may hold more than one Stock Option at any time, provided however that no one Eligible Optionee can receive Stock Options entitling the Eligible Optionee to purchase more than 5% of the outstanding common shares in the capital of the Corporation, calculated on a non-diluted basis. 5. EXERCISE PRICE - The exercise price of each Stock Option shall be determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Option, provided that the exercise price shall not be lower than the "Market Price". "Market Price" shall mean the closing price of the common shares on The Toronto Stock Exchange on the trading day immediately prior to the date the Stock Option is granted, or, if there is no reported trade of the common shares on The Toronto Stock Exchange on such date, the arithmetic average of the closing bid and the closing ask for the common shares on The Toronto Stock Exchange on such date; provided that in the event the common shares are not listed on The Toronto Stock Exchange but are listed on another stock exchange or stock exchanges, the foregoing references to The Toronto Stock Exchange shall be Profco Stock Option Plan 20F - -2- deemed to be references to such other stock exchange, or if more than one, to such one as shall be designated by the Board of Directors of the Corporation. 6. TERM AND EXERCISE PERIODS - Subject to Section 7 hereof, all Stock Options shall be for a term and exercisable from time to time as determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Options, provided that, (i) no Stock Option shall have a term exceeding ten (10) years, and (ii) where a Stock Option has been granted for a specific service, such Stock Option may be exercisable only after the completion of that service. Without limiting the generality of the foregoing or the discretion of the Board and subject to Section 7 hereof, the Board of Directors may, by way of example, determine that a Stock Option is exercisable only during the term of employment of the Eligible Optionee receiving it or during such term and for a limited period of time after termination of employment, that a Stock Option can be exercisable for a period of time or for its remaining term after the death or incapacity of an Eligible Optionee, that only a portion of a Stock Option is exercisable in a specified period, that the unexercised portion of a Stock Option is "cumulative" so that any portion of a Stock Option exercisable (but not exercised) in a specified period may be exercised in subsequent periods until the Stock Option terminates, or that a Stock Option may provide for early exercise and/or termination or other adjustment in the event of a death of a person and in other circumstances, such as if the Corporation shall resolve to sell all or substantially all of its assets, to liquidate or dissolve, or to merge, amalgamate, consolidate or be absorbed with or into any other corporation, or if any change of control of the Corporation occurs. 7. EXPIRY IN CERTAIN CIRCUMSTANCES - In the case of a Stock Option granted to an officer or director of the Corporation in their capacity as such, if such Eligible Optionee ceases to be an officer or director of the Corporation prior to the expiry of the term of the Stock Option, such Stock Option may only be exercised, as to those shares in respect of which the Stock Option has not been exercised, at any time up to and including the earlier of (i) a date three (3) months after the date the Eligible Optionee ceases to be an officer or director of the Corporation; or (ii) the expiry of the term of the Stock Option. Where a Stock Option has been granted to an Eligible Optionee, in the event of the death of the Eligible Optionee On or prior to the expiry of the term of the Stock Option, the Stock Option may only be exercised, as to those shares in respect of which the Stock Option has not been exercised, by the legal personal representatives of the Eligible Optionee at any time up to and including the earlier of (i) a date twelve (12) months following the date of death of the Eligible Optionee; or (ti) the expiry of the term of the Stock Option. 8. NON-ASSIGNABILITY - Stock Options shall not be assignable by the Eligible Optionees except for a limited right of assignment to allow the exercise of Stock Options by an Eligible Optionee's legal representative in the event of death or incapacity. Stock Options shall not be transferable by the Eligible Optionees. 9. PAYMENT ON EXERCISE - All shares issued pursuant to the exercise of a Stock Option shall be paid for in full in Canadian funds at the time of exercise of the Stock Option and prior to the issue of the shares. 10. NON-EXERCISE - If any Stock Option granted pursuant to the Plan is not exercised for any reason whatsoever, the shares reserved for issuance pursuant to such Stock Option shall revert to the Plan and shall be available for other Stock Options, however, at no time shall there be outstanding Stock Options exceeding in the aggregate the number of common shares of the capital stock of the Corporation reserved for issuance pursuant to Stock Options under this Plan. 11. ADJUSTMENT IN CERTAIN CIRCUMSTANCES - In the event: (a) of any change in the common shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or (b) of any stock divided to holders of common shares (other than such stock dividends issued at the Option of shareholders of the Corporation in lieu of substantially equivalent cash dividends); or Profco Stock Option Plan 20F - -3- (c) that any rights are granted to holders of common shares to purchase common shares at prices substantially below fair market value; or (d) that as a result of any recapitalization, merger, consolidation or otherwise the common shares are converted into or exchangeable for any other shares; then in any such case the Board of Directors of the Corporation may make such adjustment in the Plan and in the Stock Options granted under the Plan as the Board of Directors of the Corporation may in its sole discretion deem appropriate to prevent substantial dilution or enlargement of the rights granted to, or available for, holders of Stock Options, and such adjustments may be included in the Stock Options. 12. EXPENSES - All expenses in connection with the Plan shall be borne by the Corporation. 13. COMPLIANCE WITH LAWS - The Corporation shall not be obliged to issue any shares upon exercise of Stock Options if the issue would violate any law or regulation or any rule of any governmental authority or stock exchange. The Corporation shall not be required to issue, register or qualify for resale any shares issuable upon exercise of Stock Options pursuant to the provisions of a prospectus or similar document, provided that the Corporation shall notify The Toronto Stock Exchange and other appropriate regulatory bodies in Canada of the existence of the Plan and the issuance and exercise of Stock Options. 14. FORM OF STOCK OPTION AGREEMENT - All Stock Options shall be issued by the Corporation in a form which meets the general requirements and conditions set forth in this Plan. 15. AMENDMENTS AND TERMINATION OF PLAN - The Corporation shall retain the right to amend from time to time or to terminate the terms and conditions of the Plan by resolution of the Board of Directors of the Corporation. Any amendments shall be subject to the prior consent of any applicable regulatory bodies, including any stock exchange on which the Corporation's shares are listed. Amendments and termination shall take effect only with respect to Stock Options issued thereafter, provided that they may apply to any Stock Options previously issued with the mutual consent of the Corporation and the Eligible Optionees holding such Stock Options. 16. APPLICABLE LAW - This Plan shall be governed by and construed in accordance with the laws in force in the Province of Alberta. 17. SHAREHOLDER APPROVAL - No shares of the Corporation may be issued pursuant to Stock Options granted under this Plan after April 7, 1995 until the Plan is approved by the shareholders of the Corporation, given by way of confirmation at the next meeting of shareholders of the Corporation. Profco Stock Option Plan 20F EX-2.2 10 a2026270zex-2_2.txt EXHIBIT 2.2 PROFCO RESOURCES LTD. TO INFORMATION CIRCULAR - PROXY STATEMENT STOCK OPTION PLAN (1995) DATED JUNE 2, 1997 AMENDED PROFCO RESOURCES Ltd. (the "Corporation") stock option plan known as the "Stock Option Plan (1995)" in effect as of April 7, 1995. This plan governs the issuance of stock options (the "Stock Options") to employees, directors and officers of, and persons and companies who provide services to the Corporation and subsidiaries of the Corporation. The terms and conditions of the Plan are as follows: 1. PURPOSE - The principal purposes of the Plan are: a) to promote a proprietary interest in the Corporation among its employees, officers and directors and persons and companies providing services to the Corporation; b) to retain and attract the qualified personnel and service support the Corporation requires; c) to provide an incentive element in compensation; and d) to promote the profitability of the Corporation. 2. RESERVATION OF SHARES - Subject to Section II of this Plan, the aggregate maximum number of common shares of the Corporation reserved for issuance pursuant to Stock Options shall be 2,745,000 common shares of the Corporation. 3. ELIGIBILITY - Stock Options shall be granted only to persons, firms or companies ("Eligible Optionees"): a) who are employees (full-time or part-time), officers or directors of the Corporation, or who are providing services to the Corporation on an on-going basis, or have provided or are expected to provide a service or services of considerable value to the Corporation; and b) who the Board of Directors of the Corporation determines should receive Stock Options. 4. GRANTING OF STOCK OPTIONS - The Board of Directors of the Corporation may from time to time grant Stock Options to Eligible Optionees. At the time a Stock Option is granted, the Board of Directors shall determine the number of common shares of the Corporation purchasable under the Stock Option, the date when the Stock Option is to become effective and, subject to the other provisions of this Plan, all other terms and conditions of the Stock Option. An Eligible Optionee may hold more than one Stock Option at any time, provided however that no one Eligible Optionee can receive Stock Options entitling the Eligible Optionee to purchase more than 5% of the outstanding common shares in the capital of the Corporation, calculated on a non-diluted basis. and provided further that in no event shall shares exceeding 5% of the outstanding issue be issued to anyone insider of the Corporation, and such insider's associates (as defined in the SECURITIES ACT Profco Stock Option Plan 6.2.97 20F (Ontario), within any one-year period pursuant to Stock Options or any other share compensation arrangements of the Corporation. In this Section 4: a) "outstanding issue" is determined as the number of outstanding common shares of the Corporation on a non-diluted basis outstanding immediately prior to a particular share issuance, excluding shares issued pursuant to share compensation arrangements of the Corporation over the preceding one-year period; b) "insider" means an insider as defined in the SECURITIES ACT (Ontario), other than a person who falls within that definition solely by virtue of being a director or senior officer of a subsidiary of the Corporation and associates of such insiders: and c) "share compensation arrangement" means a stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism, including the issuance or potential issuance of shares to one or more service providers, including a share purchase from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise. 5. EXERCISE PRICE -The exercise price of each Stock Option shall be determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Option, provided that the exercise price shall not be lower than the "Market Price". "Market Price" shall mean the closing price of the common shares on The Toronto Stock Exchange on the trading day immediately prior to the date of Stock Option is granted, or, if there is no reported trade of the common shares on The Toronto Stock Exchange on such date, the arithmetic average of the closing bid and the closing ask for the common shares on The Toronto Stock Exchange on such date; provided that in the event the common shares are not listed on The Toronto Stock Exchange but are listed on another stock exchange or stock exchanges, the foregoing references to The Toronto Stock Exchange shall be deemed to be references to such other stock exchange, or if more than one, to such one as shall be designated by the Board of Directors of the Corporation. 6. TERM AND EXERCISE PERIODS -Subject to Section 7 hereof, all Stock Options shall be for a term and exercisable from time to time as determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Options, provided that (i) no Stock Option shall have a term exceeding ten (10) years, and (ii) where a Stock Option has been granted for a specific service, such Stock Option may be exercisable only after the completion of that service. Without limiting the generality of the foregoing or the discretion of the Board and subject to Section 7 hereof. the Board of Directors may, by way of example determine that a Stock Option is exercisable only during the term of employment of the Eligible Optionee receiving it or during such term and for a limited period of time after termination of employment, that a Stock Option can be exercisable for a period of time or for its remaining term after the death or incapacity of an Eligible Optionee, that only a portion of a Stock Option is exercisable in a specified period, that the unexercised portion of a Stock Option is "cumulative" so that any portion of a Stock Option exercisable (but not exercised) in a specified period may be exercised in subsequent periods until the Stock Option terminates. or that a Stock Option may provide for early exercise and/or termination or other adjustment in the event of a death of a person and in other circumstances, such as if the Corporation shall resolve to sell all or substantially all of its assets, to liquidate or dissolve or to merge, amalgamate, consolidate or be absorbed with or into any other corporation or if any change of control of the Corporation occurs. Profco Stock Option Plan 6.2.97 20F 7. EXPIRY IN CERTAIN CIRCUMSTANCES - In the case of a Stock Option granted to an officer or director of the Corporation in their capacity as such, if such Eligible Optionee ceases to be an officer or director of the Corporation prior to the expiry of the term of the Stock Option, such Stock Option may only be exercised as to those shares in respect of which the Stock Option has not been exercised at any time up to and including the earlier of (i) a date three (3) months after the date the Eligible Optionee ceases to be an officer or director or.the Corporation; or (ii) the expiry of the term of the Stock Option. Where a Stock Option has been granted to an Eligible Optionee. in the event of the death of the Eligible Optionee on or prior to the expiry of the term of the Stock Option the Stock Option may only be exercised. as to those shares in respect of which the Stock Option has not been exercised by the legal personal representatives of the Eligible Opticnee at any time up to and including the earlier of(i) a date twelve (12) months following the date or the Eligible Optionee; or (ii) the expiry of the term of the Stock Option. 8. NON-ASSIGNABILITY - Stock Options shall not be assignable by the Eligible Optionees except for a limited right of assignment to allow the exercise of Stock Options by an Eligible Optionee's legal representative in the event of death or incapacity Stock Options shall not be transferable by the Eligible Optionees. 9. PAYMENT ON EXERCISE - All shares issued pursuant to the exercise of a Stock Option shall be paid for in full in Canadian funds at the time of exercise of the Stock Option and prior to the issue of the shares. 10. NON-EXERCISE - If any Stock Option granted pursuant to the Plan is not exercised for any reason whatsoever the shares reserved for issuance pursuant to such Stock Options shall revert to the Plan and shall be available for other Stock Options, however, at no time shall there be outstanding Stock Options exceeding in the aggregate the number of common shares of the capital stock of the Corporation reserved for issuance pursuant to Stock Options under this Plan. 11. ADJUSTMENT IN CERTAIN CIRCUMSTANCES - In the event: a) of any change in the common shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or b) of any stock dividend to holders of common shares (other than such stock dividends issued at me option of shareholders of the Corporation in lieu of substantially equivalent cash dividends); or c) that any rights are granted to holders of common shares to purchase common shares at prices substantially below fair market value; or d) that as a result of any recapitalization, merger, consolidation or otherwise the common shares are converted into or exchangeable for any other shares: then in any such case the Board of Directors of the Corporation may make such adjustment in the Plan and in the Stock Options granted under the Plan as the Board of Directors of the Corporation may in its sole discretion deem appropriate to prevent substantial dilution or enlargement of the rights granted to or available for, holders of Stock Options and such adjustments may be included in the Stock Options. 12. EXPENSES - All expenses in connection with the Plan shall be borne by the Corporation. Profco Stock Option Plan 6.2.97 20F 13. COMPLIANCE WITH LAWS - The Corporation shall not be obligated to issue any shares upon exercise of Stock Options if the issue would violate any law or regulation or any rule of any governmental authority or stock exchange. The Corporation shall not be required to issue, register or qualify for resale any shares issuable upon exercise of Stock Options pursuant to the provisions of a prospectus or similar document, provided that the Corporation shall notify The Toronto Stock Exchange and other appropriate regulatory bodies in Canada of the existence of the Plan and the issuance and exercise of Stock Options. 14. FORM OF STOCK OPTION AGREEMENT - All Stock Options shall be issued by the Corporation in a form which meets the general requirements and conditions set forth in this Plan. 15. AMENDMENTS AND TERMINATION OF PLAN - The Corporation shall retain the right to amend from time to time or to terminate the terms and conditions of the Plan by resolution of the Board of Directors of the Corporation. Any amendments shall be subject to the prior consent of any applicable regulatory bodies, included any stock exchange on which the Corporation's shares are listed. Amendments and termination shall take effect only with respect to Stock Options issued thereafter, provided that they may apply to any Stock Options previously issued with the mutual consent of the Corporation and the Eligible Optionees holding such Stock Options. 16. APPLICABLE LAW - This Plan shall be governed by and construed in accordance with the laws in force in the Province of Alberta. 17. SHAREHOLDER APPROVAL - No shares of the Corporation may be issued pursuant to Stock Options granted under this Plan after April 7, 1995 until the Plan is approved by the shareholders of the Corporation, given by way of confirmation at the next meeting of shareholders of the Corporation. Profco Stock Option Plan 6.2.97 20F EX-2.3 11 a2026270zex-2_3.txt EXHIBIT 2.3 TRANSLANTIC PETROLEUM CORP. Stock Option Plan (1995) Dated June 14, 1999 AMENDED TransAtlantic Petroleum Corp. (the "Corporation") stock option plan known as the "Stock Option Plan (1995)" in effect as of April 7, 1995. This plan governs the issuance of stock options (the "Stock Options") to employees, directors and officers of, and persons and companies who provide services to the Corporation and subsidiaries of the Corporation. The terms and conditions of the Plan are as follows: 1. PURPOSE - The principal purposes of the Plan are: a. To promote a proprietary interest in the Corporation among its employees, officers and directors and persons and companies providing services to the Corporation; b. To retain and attract the qualified personnel and service support the Corporation requires; c. To provide an incentive element in compensation; and d. To promote the profitability of Corporation. 2. RESERVATION OF SHARES - Subject to Section II of this Plan, the aggregate maximum number of common shares of the Corporation reserved for issuance pursuant to Stock Options shall be 6,285,000 common shares of the Corporation. 3. ELIGIBILITY - Stock Options shall be granted only to persons, firms or companies ("Eligible Optionees"): a. Who are employees (full-time or part-time), officers or directors of the Corporation or who are providing services to the Corporation on an on-going basis, or have provided or are expected to provide a service or services of considerable value to the Corporation; and b. Who the Board of Directors of the Corporation determines should receive Stock Options. 4. GRANTING OF STOCK OPTIONS - The Board of Directors of the Corporation may from time to time grant Stock Options to Eligible Optionees. At the time a Stock Option is granted, the Board of Directors shall determine the number of common shares of the Corporation purchasable under the Stock Option, the date when the Stock Option is to become effective and, subject to the other provisions of this Plan, all other terms and conditions of the Stock Option. An Eligible Optionee may hold more than one Stock Option at any time, provided however that no one Eligible Optionee can receive Stock Options entitling the Eligible Optionee to purchase more than 5% of the outstanding common shares in the capital of the Corporation, calculated on a non-diluted basis, and provided further that in no event shall shares exceeding 5% of the outstanding issue be issued to anyone insider of the Corporation, and such insider's associates (as defined in the SECURITIES ACT (Ontario)), within any one-year period pursuant to Stock Options or any other share compensation arrangements of the Corporation. In this Section 4: a. "Outstanding Issue" is determined as the number of outstanding common shares of the Corporation on a non-diluted basis outstanding immediately prior to a particular share issuance, excluding shares issued pursuant to share compensation arrangements of the Corporation over the preceding one-year-period; TAPCOR Stock Option Plan 6.17.99 20F b. "Insider" means an insider as defined in the SECURITIES ACT (Ontario), other than a person who falls within that definition solely by virtue or being a director or senior officer of a subsidiary of the Corporation, and associates of such insiders; and c. "Share Compensation Arrangement" means a stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism, including the issuance or potential issuance of shares to one or more service providers, including a share purchase from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise. 5. EXERCISE PRICE - The exercise price of each Stock Option shall be determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Option, provided, that the exercise price shall not be lower than the "Market Price", "Market Price" shall mean the closing price of the common shares on The Toronto Stock Exchange on the trading day immediately prior to the date the Stock Option is granted, or, if there is no reported trade of the common shares on The Toronto Stock Exchange on such date, the arithmetic average of the closing bid and the closing ask for the common shares on The Toronto Stock Exchange on such date; provided that in the event the common shares are not listed on The Toronto Stock Exchange but are listed on another stock exchange or stock exchanges, the foregoing references to The Toronto Stock Exchange shall be deemed to be references to such other stock exchange or if more than one, to such one as shall be designated by the Board of Directors of the Corporation. 6. TERM AND EXERCISE PERIODS - Subject to Section 7 hereof, all Stock Options shall be for a term and exercisable from time to time as determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Options, provided that (i) no Stock Option shall have a term exceeding ten (10) years, and (ii) where a Stock Option has been granted for a specific service, such Stock Option may be exercisable only after the completion of that service. Without limiting the generality of the foregoing or the discretion of the Board and subject to Section 7 hereof, the Board of Directors may, by way of example, determine that a Stock Option is exercisable only during the term of employment of the Eligible Optionee receiving it or during such term and for a limited period of time after termination of employment, that a Stock Option can be exercisable for a period of time or for its remaining term after the death or incapacity of an Eligible Optionee, that only a portion of a Stock Option is exercisable in a specified period that the unexercised portion of a Stock Option is "cumulative" so that any portion of a Stock Option exercisable (but not exercised) in a specified period may be exercised in subsequent periods until the Stock Option terminates, or that a Stock Option may provide for early exercise and/or termination or other adjustment in the event of a death of a person and in other circumstances, such as if the Corporation shall resolve to sell all or substantially all of its assets, to liquidate or dissolve, or to merge, amalgamate, consolidate or be absorbed with or into any other corporation, of if any change of control of the Corporation occurs. 7. EXPIRY IN CERTAIN CIRCUMSTANCES - In the case of a Stock Option granted to an officer or director of the Corporation in their capacity as such, if such Eligible Optionee ceases to be an officer or director of the Corporation prior to the expiry of the term of the Stock Option, such Stock Option may only be exercised, as to those shares in respect of which the Stock Option has not been exercised, at any time up to and including the earlier of (i) a date three (3) months after the date the Eligible Optionee ceases to be an officer or director of the Corporation; or (ii) the expiry of the term of the Stock Option. Where a Stock Option has been granted to an Eligible Optionee, in the event of the death of the Eligible Optionee on or prior to the expiry of the term of the Stock Option, the Stock Option may only be exercised, as to those shares in respect of which the Stock Option has not been exercised, by the legal personal representatives of the Eligible Optionee at any time up to and including the earlier of (i) a date twelve (12) months following the date of the Eligible Optionee; or (ii) the expiry of the term of the Stock Option. TAPCOR Stock Option Plan 6.17.99 20F 8. NON-ASSIGNABILITY - Stock Options shall not be assignable by the Eligible Optionees except for a limited right of assignment to allow the exercise of Stock Options by an Eligible Optionee's legal representative in the event of death or incapacity, Stock Options shall not be transferable by the Eligible Optionees. 9. PAYMENT ON EXERCISE - All shares issued pursuant to the exercise of a Stock Option shall be paid for in full at the time of exercise of the Stock Option and prior to the issue of the shares. 10. NON-EXERCISE - If any Stock Option granted pursuant to the Plan is not exercised for any reason whatsoever, the shares reserved for issuance pursuant to such Stock Options shall revert to the Plan and shall be available for other Stock Options, however, at no time shall there be outstanding Stock Options exceeding in the aggregate the number of common shares of the capital stock of the Corporation reserved for issuance pursuant to Stock Options under this Plan. 11. ADJUSTMENT IN CERTAIN CIRCUMSTANCES - In the event: a. Of any change in the common shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or b. Of any stock dividend to holders of common shares (other than such stock dividends issued at the option of shareholders of the Corporation in lieu of substantially equivalent cash dividends); or c. That any rights are granted to holders of common shares to purchase common shares at prices substantially below fair market value; or d. That as a result of any recapitalization, merger, consolidation or otherwise the common shares are converted into or exchangeable for any other shares; Then in any such case the Board of Directors of the Corporation may make such adjustment in the Plan and in the Stock Options granted under the Plan as the Board of Directors of the Corporation may in its sole discretion deem appropriate to prevent substantial dilution or enlargement of the rights granted to, or available for, holders of Stock Options, and such adjustments may be included in the Stock Options. 12. EXPENSES - All expenses in connection with the Plan shall be borne by the Corporation. 13. COMPLIANCE WITH LAWS - The Corporation shall not be obligated to issue any shares upon exercise of Stock Options if the issue would violate any law or regulation or any rule of any governmental authority or stock exchange. The Corporation shall not be required to issue, register or qualify for resale any shares issuable upon exercise of Stock Options pursuant to the provisions of a prospectus or similar document, provided that the Corporation shall notify The Toronto Stock Exchange and other appropriate regulatory bodies in Canada of the existence of the Plan and the issuance and exercise of Stock Options. 14. FORM OF STOCK OPTION AGREEMENT - All Stock Options shall be issued by the Corporation in a form which meets the general requirements and conditions set forth in this Plan. 15. AMENDMENTS AND TERMINATION OF PLAN - The Corporation shall retain the right to amend from time to time or to terminate the terms and conditions of the Plan by resolution of the Board of Directors of the Corporation. Any amendments shall be subject to the prior consent of any applicable regulatory bodies, included any stock exchange on which the Corporation's shares are listed. Amendments and termination shall take effect only with respect to Stock Options issued thereafter, provided that they may apply to any Stock Options previously issued with the mutual consent of the Corporation and the Eligible Optionees holding such Stock Options. TAPCOR Stock Option Plan 6.17.99 20F 16. APPLICABLE LAW - This Plan shall be governed by and construed in accordance with the laws in force m the Province of Alberta. TAPCOR Stock Option Plan 6.17.99 20F EX-2.4 12 a2026270zex-2_4.txt EXHIBIT 2.4 TRANSATLANTIC PETROLEUM CORP. Stock Option Plan (1995) Dated June 6, 2000 AMENDED TransAtlantic Petroleum Corp. (the "Corporation") stock option plan known as the "Stock Option Plan (1995)" in effect as of April 7, 1995. This plan governs the issuance of stock options (the "Stock Options") to employees, directors and officers of, and persons and companies who provide services to the Corporation and subsidiaries of the Corporation. The terms and conditions of the Plan are as follows: 1. Purpose - The principal purposes of the Plan are: a. To promote a proprietary interest in the Corporation among its employees, officers and directors and persons and companies providing services to the Corporation; b. To retain and attract the qualified personnel and service support the Corporation requires; c. To provide an incentive element in compensation; and d. To promote the profitability of Corporation. 2. Reservation Of Shares - Subject to Section 11 of this Plan, the aggregate maximum number of common shares of the Corporation reserved for issuance pursuant to Stock Options shall be 7,750,000 common shares of the Corporation. 3. Eligibility - Stock Options shall be granted only to persons, firms or companies ("Eligible Optionees"): a. Who are employees (full-time or part-time), officers or directors of the Corporation, or who are providing services to the Corporation on an on-going basis, or have provided or are expected to provide a service or services of considerable value to the Corporation; and b. Who the Board of Directors of the Corporation determines should receive Stock Options. 4. Granting Of Stock Options - The Board of Directors of the Corporation may from time to time grant Stock Options to Eligible Optionees. At the time a Stock Option is granted, the Board of Directors shall determine the number of common shares of the Corporation purchasable under the Stock Option, the date when the Stock Option is to become effective and, subject to the other provisions of this Plan, all other terms and conditions of the Stock Option. An Eligible Optionee may hold more than one Stock Option at any time, provided however that no one Eligible Optionee can receive Stock Options entitling the Eligible Optionee to purchase more than 5% of the outstanding common shares in the capital of the Corporation, calculated on a non-diluted basis, and provided further that in no event shall shares exceeding 5% of the outstanding issue be issued to anyone insider of the Corporation, and such insider's associates (as defined in the SECURITIES ACT (Ontario), within any one-year period pursuant to Stock Options or any other share compensation arrangements of the Corporation. In this Section 4: a. "Outstanding Issue" is determined as the number of outstanding common shares of the Corporation on a non-diluted basis outstanding immediately prior to a particular share issuance, excluding shares issued pursuant to share compensation arrangements of the Corporation over the preceding one-year-period; TAPCOR Stock Option Plan Amended 6.6.00 20F b. "Insider" means an insider as defined in the SECURITIES ACT (Ontario), other than a person who falls within that definition solely by virtue of being a director or senior officer of a subsidiary of the Corporation, and associates of such insiders; and c. "Share Compensation Arrangement" means a stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism, including the issuance or potential issuance of shares to one or more service providers, including a share purchase from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise. 5. Exercise Price - The exercise price of each Stock Option shall be determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Option, provided that the exercise price shall not be lower than the "Market Price. "Market Price" shall mean the closing price of the common shares on The Toronto Stock Exchange on the trading day immediately prior to the date the Stock Option is granted, or, if there is no reported trade of the common shares on The Toronto Stock Exchange on such date, the arithmetic average of the closing bid and the closing ask for the common shares on The Toronto Stock Exchange on such date; provided that in the event the common shares are not listed on The Toronto Stock Exchange but are listed on another stock exchange or stock exchanges, the foregoing references to The Toronto Stock Exchange shall be deemed to be references to such other stock exchange or if more than one, to such one as shall be designated by the Board of Directors of the Corporation. 6. Term and Exercise Periods - Subject to Section 7 hereof, all Stock Options shall be for a term and exercisable from time to time as determined in the discretion of the Board of Directors of the Corporation at the time of the granting of the Stock Options, provided that (i) no Stock Option shall have a term exceeding ten (10) years, and (ii) where a Stock Option has been granted for a specific service, such Stock Option may be exercisable only after the completion of that service. Without limiting the generality of the foregoing or the discretion of the Board and subject to Section 7 hereof, the Board of Directors may, by way of example, determine that a Stock Option is exercisable only during the term of employment of the Eligible Optionee receiving it or during such term and for a limited period of time after termination of employment, that a Stock Option can be exercisable for a period of time or for its remaining term after the death or incapacity of an Eligible Optionee, that only a portion of a Stock Option is exercisable in a specified period, that the unexercised portion of a Stock Option is "cumulative" so that any portion of a Stock Option exercisable (but not exercised) in a specified period may be exercised in subsequent periods until the Stock Option terminates, or that a Stock Option may provide for early exercise and/or termination or other adjustment in the event of a death of a person and in other circumstances, such as if the Corporation shall resolve to sell all or substantially all of its assets, to liquidate or dissolve, or to merge, amalgamate, consolidate or be absorbed with or into any other corporation, or if any change of control of the Corporation occurs. 7. Expiry In Certain Circumstances - In the case of a Stock Option granted to an officer or director of the Corporation in their capacity as such, if such Eligible Optionee ceases to be an officer or director of the Corporation prior to the expiry of the term of the Stock Option, such Stock Option may only be exercised, as to those shares in respect of which the Stock Option has not been exercised, at any time up to and including the earlier of (i) a date three (3) months after the date the Eligible Optionee ceases to be an officer or director of the Corporation; or (ii) the expiry of the term of the Stock Option. Where a Stock Option has been granted to an Eligible Optionee, in the event of the death of the Eligible Optionee on or prior to the expiry of the term of the Stock Option, the Stock Option may only be exercised, as to those shares in respect of which the Stock Option has not been exercised, by the legal personal representatives of the Eligible Optionee at any time up to and including the earlier of (i) a date twelve (12) months following the date of the Eligible Optionee; or (ii) the expiry of the term of the Stock Option. TAPCOR Stock Option Plan Amended 6.6.00 20F 8. Non-Assignability - Stock Options shall not be assignable by the Eligible Optionees except for a limited right of assignment to allow the exercise of Stock Options by an Eligible Optionee's legal representative in the event of death or incapacity. Stock Options shall not be transferable by the Eligible Optionees. 9. Payment On Exercise - All shares issued pursuant to the exercise of a Stock Option shall be paid for in full at the time of exercise of the Stock Option and prior to the issue of the shares. 10. Non-Exercise - If any Stock Option granted pursuant to the Plan is not exercised for any reason whatsoever, the shares reserved for issuance pursuant to such Stock Options shall revert to the Plan and shall be available for other Stock Options, however, at no time shall there be outstanding Stock Options exceeding in the aggregate the number of common shares of the capital stock of the Corporation reserved for issuance pursuant to Stock Options under this Plan. 11. Adjustment In Certain Circumstances - In the event: a. Of any change in the common shares through subdivision, consolidation, reclassification, arnalgamation, merger or otherwise; or b. Of any stock dividend to holders of common shares (other than such stock dividends issued at the option of shareholders of the Corporation in lieu of substantially equivalent cash dividends); or c. That any rights are granted to holders of common shares to purchase common shares at prices substantially below fair market value; or d. That as a result of any recapitalization, merger, consolidation or otherwise the common shares are converted into or exchangeable for any other shares; Then in any such case the Board of Directors of the Corporation may make such adjustment in the Plan and in the Stock Options granted under the Plan as the Board of Directors of the Corporation may in its sole discretion deem appropriate to prevent substantial dilution or enlargement of the rights granted to, or available for, holders of Stock Options, and such adjustments may be included in the Stock Options. 12. Expenses - All expenses in connection with the Plan shall be borne by the Corporation. 13. Compliance With Laws - The Corporation shall not be obligated to issue any shares upon exercise of Stock Options if the issue would violate any law or regulation or any rule of any governmental authority or stock exchange. The Corporation shall not be required to issue, register or qualify for resale any shares issuable upon exercise of Stock Options pursuant to the provisions of a prospectus or similar document, provided that the Corporation shall notify The Toronto Stock Exchange and other appropriate regulatory bodies in Canada of the existence of the Plan and the issuance and exercise of Stock Options. 14. Form of Stock Option Agreement - All Stock Options shall be issued by the Corporation in a form which meets the general requirements and conditions set forth in this Plan. 15. Amendments And Termination Of Plan - The Corporation shall retain the right to amend from time to time or to terminate the terms and conditions of the Plan by resolution of the Board of Directors of the Corporation. Any amendments shall be subject to the prior consent of any applicable regulatory bodies, including any stock exchange on which the Corporation' s shares are listed. Amendments and termination shall take effect only with respect to Stock Options issued thereafter, provided that they may apply to any Stock Options previously issued with the mutual consent of the Corporation and the Eligible Optionees holding such Stock Options. TAPCOR Stock Option Plan Amended 6.6.00 20F 16. APPLICABLE LAW - This Plan shall be governed by and construed in accordance with the laws in force in the Province of Alberta. TAPCOR Stock Option Plan Amended 6.6.00 20F EX-3.1 13 a2026270zex-3_1.txt EXHIBIT 3.1 FEDERAL REPUBLIC OF NIGERIA OIL MINING LEASE NO. 109 THE MINING LEASE is granted to ATLAS PETROLEUM INTERNATIONAL LIMITED ----------------------------------------------------------------------- (Name of Company) 1B, IBIYINKA OLORUNIMBE CLOSE, VICTORIA ISLAND, LAGOS ----------------------------------------------------------------------- (Address of Company) for a term of TWENTY years commencing on the 27TH day of MAY 1996 to search for, win, work, carry away and dispose of all petroleum in under or thoughts the lands described in the Schedule hereto and delineated in red in the plan attached. 2. The lease is granted subject to the Petroleum Act 1969 and the regulations thereunder now in force or which may come into force during the continuance of this lease (and also subject to the special terms and conditions in the Annex attached hereto). In witness hereof the Minister of Petroleum Resources has hereunto set his hand and seal this 3RD day of OCTOBER 1996 Page 1 of 10 OML 109 Mining Lease 20 F Witnessed by --------------------------------------------- Signature and Name --------------------------------------- Occupation and Address LEGAL ADVISER MINS OF PET RES. LAGOS And the Attorney of the company has on their behalf hereunto set his hand and seal this 18TH day of October, 1996. Attorney Witnessed by --------------------------------------------- Signature and Name --------------------------------------- Occupation and Address ----------------------------------- Page 2 of 10 OML 109 Mining Lease 20 F OML 109 All that parcel of land contained in the Submarine Area in the Continental Shelf and Territorial Waters of the Federal Republic of Nigeria, edged red on plan (prepared by J.O.Olugbemi, Surveyor, attached to this schedule for OML 109 and containing an approximate area of 773.188 square kilometers, the vertices and boundaries of which are described as follows: VERTICES Vertex 75-1 (the Datum Point ) is the intersection of Latitude 05' 40 North and Longitude 04' 57' East and it coincides with vertex 95-5 of OML 95. Vertex 75-2 is the intersection of Latitude 05' 39' North and Longitude 04' 57' East and it coincides with vertex 95-4 of OML 95. Vertex 75-3 is the intersection of Latitude 05' 39' North and Longitude 05' 00' East and it coincides with vertex 95-3 OML 95. Vertex 75-4 is the intersection of Latitude 05' 33' North and Longitude 05' 00' East and it coincides with vertex 90-27 of OML 90. Vertex 75-5 is the intersection of Latitude 05' 33' North and Longitude 04' 57' East and it coincides with vertex 90-26 of OML 90. Vertex 75-6 is the intersection of Latitude 05' 29' North and Longitude 04' 57' East and it coincides with vertex 90-25 of OML 90. Vertex 75-7 is the intersection of Latitude 05' 29' North and Longitude 04' 58' East and it coincides with vertex 90-24 of OML 90. Vertex 75-8 is the intersection of Latitude 05' 26' North and Longitude 04' 58' East and it coincides with vertex 90-23 of OML 90. Vertex 75-9 is the intersection of Latitude 05' 26' North and Longitude 05' 00' East and it coincides with vertex 90-22 of OML 90. Page 3 of 10 OML 109 Mining Lease 20 F Vertex 75-10 is the intersection of Latitude 05' 25' North and Longitude 05' 00' East and it coincides with vertex 90-21 of OML 90. Vertex 75-11 is the intersection of Latitude 05' 25' North and Longitude 05' 03' East and it coincides with vertex 90-20 of OML 90. Vertex 75-12 is the intersection of Latitude 05' 23' North and Longitude 05' 03' East and it coincides with vertex 90-19 of OML 90. Vertex 75-13 is the intersection of Latitude 05' 23' North and Longitude 05' 04' East and it coincides with vertex 90-18 of OML 90. Vertex 75-14 is the intersection of Latitude 05' 22' North and Longitude 05' 04' East and it coincides with vertex 90-17 of OML 90. Vertex 75-15 is the intersection of Latitude 05' 22' North and Longitude 05' 07' East and it coincides with vertex 90-16 of OML 90. Vertex 75-16 is the intersection of Latitude 05' 21' North and Longitude 05' 07' East and it coincides with vertex 90-15 of OML 90. Vertex 75-17 is the intersection of Latitude 05' 21' North and Longitude 05' 10' East and it coincides with vertex 90-14 of OML 90. Vertex 75-18 is the intersection of Latitude 05' 18' North and Longitude 05' 10' East and it coincides with vertex 90-13 of OML 90. Vertex 75-19 is the intersection of Latitude 05' 18' North and Longitude 05' 11' East and it coincides with vertex 90-12 of OML 90. Vertex 75-20 is the intersection of Latitude 05' 16' North and Longitude 05' 11' East and it coincides with vertex 90-11 of OML 90. Vertex 75-21 is the intersection of Latitude 05' 16' North and Longitude 05' 12' East and it coincides with vertex 90-10 of OML 90. Page 4 of 10 OML 109 Mining Lease 20 F Vertex 75-22 is the intersection of Latitude 05' 15' North and Longitude 05' 12' East and it coincides with vertex 90-9 of OML 90. Vertex 75-23 is the intersection of Latitude 05' 15' North and Longitude 05' 05' East and it coincides with vertex 227-54 of OML 227. Vertex 75-24 is the intersection of Latitude 05' 11' North and Longitude 05' 05' East and it coincides with vertex 89-19 of OML 89. Vertex 75-25 is the intersection of Latitude 05' 11' North and Longitude 05' 03' East and it coincides with vertex 29-10 of OML 89. Vertex 75-26 is the intersection of Latitude 05' 12' North and Longitude 05' 03' East and it coincides with vertex 89-1 of OML 89. Vertex 75-27 is the intersection of Latitude 05' 12' North and Longitude 05' 02' East and it coincides with vertex 89-8 of OML 89. Vertex 75-28 is the intersection of Latitude 05' 15' North and Longitude 05' 02' East and it coincides with vertex 89-7 of OML 89. Vertex 75-29 is the intersection of Latitude 05' 15' North and Longitude 05' 01' East and it coincides with vertex 89-6 of OML 89. Vertex 75-30 is the intersection of Latitude 05' 16' North and Longitude 05' 01' East and it coincides with vertex 89-5 of OML 89. Vertex 75-31 is the intersection of Latitude 05' 16' North and Longitude 04' 59' East and it coincides with vertex 89-4 of OML 89. Vertex 75-32 is the intersection of Latitude 05' 20' North and Longitude 04' 59' East and it coincides with vertex 89-3 of OML 89. Vertex 75-33 is the intersection of Latitude 05' 20' North and Longitude 04' 57' East and it coincides with vertex 89-2 of OML 89. Page 5 of 10 OML 109 Mining Lease 20 F Vertex 75-34 is the intersection of Latitude 05' 20' North and Longitude 04' 57' East and it coincides with vertex 89-1 of OML 89. Vertex 75-35 is the intersection of Latitude 05' 25' North and Longitude 04' 54' East and it coincides with vertex 89-24 of OML 89. Vertex 75-36 is the intersection of Latitude 05' 23' North and Longitude 04' 54' East and it coincides with vertex 89-23 of OML 89. Vertex 75-37 is the intersection of Latitude 05' 23' North and Longitude 04' 53' East and it coincides with vertex 89-22 of OML 89. Vertex 75-38 is the intersection of Latitude 05' 22' North and Longitude 04' 53' East and it coincides with vertex 89-21 of OML 89. Vertex 75-39 is the intersection of Latitude 05' 22' North and Longitude 04' 50' East and it coincides with vertex 74-36 of OML 74. Vertex 75-40 is the intersection of Latitude 05' 25' North and Longitude 04' 50' East and it coincides with vertex 91-5 of OML 91. Vertex 74-41 is the intersection of Latitude 05' 25' North and Longitude 04' 52' East and it coincides with vertex 91-4 of OML 91. Vertex 75-42 is the intersection of Latitude 05' 30' North and Longitude 04' 52' East and it coincides with vertex 91-3 of OML 91. Vertex 75-43 is the intersection of Latitude 05' 30' North and Longitude 04' 53' East and it coincides with vertex 91-2 of OML 91. Vertex 75-44 is the intersection of Latitude 05' 33' North and Longitude 05' 53' East and it coincides with vertex 91-1 of OML 91. Vertex 75-45 is the intersection of Latitude 05' 33' North and Longitude 04' 50' East and it coincides with vertex 74-32 of OML 74. Page 6 of 10 OML 109 Mining Lease 20 F Vertex 75-46 is the intersection of Latitude 05' 35' North and Longitude 04' 50' East and it coincides with vertex 74-31 of OML 74. Vertex 75-47 is the intersection of Latitude 05' 35' North and Longitude 04' 51' East and it coincides with vertex 93-2 of OML 93. Vertex 75-48 is the intersection of Latitude 05' 37' North and Longitude 04' 51' East and it coincides with vertex 93-1 and 94-1 of OML 93 and OML 94 respectively. Vertex 75-49 is the intersection of Latitude 05' 39' North and Longitude 04' 51' East and it coincides with vertex 94-6 of OML 94. Vertex 75-50 is the intersection of Latitude 05' 39' North and Longitude 04' 50' East and it coincides with vertex 94-5 of OML 94. Vertex 75-51 is the intersection of Latitude 05' 40' North and Longitude 04' 50' East and it coincides with vertex 94-4 of OML 94. BOUNDARY DESCRIPTIONS From the Datum Point 75-1 whose grid (U.T.N. Zone 31) coordinates are 715977.930 metres East and 626662.930 metres East and 626662.936 metres North, the boundaries run in a straight lines, the bearings and distances of which are as follows: FROM TO VERTEX BEARINGS DISTANCES VERTEX 75-1 179 48 1843.25 75-2 75-2 89 48 5540.28 75-3 75-3 179 48 11059.79 75-4 75-4 269 49 5541.25 75-5 75-5 179 49 7372.96 75-6 75-6 89 49 1847.26 75-7 75-7 179 49 5529.27 75-8 Page 7 of 10 OML 109 Mining Lease 20 F FROM TO VERTEX BEARINGS DISTANCES VERTEX 75-8 89 49 3694.91 75-9 75-9 179 49 1843.27 75-10 75-10 89 49 5542.63 75-11 75-11 179 49 3686.69 75-12 75-12 89 48 1847.68 75-13 75-13 179 48 1843.33 75-14 75-14 89 48 5543.32 75-15 75-15 179 48 1843.37 75-16 75-16 89 48 5543.63 75-17 75-17 179 48 5530.40 75-18 75-18 89 48 1848.06 75-19 75-19 179 48 3687.01 75-20 75-20 89 48 1848.19 75-21 75-21 179 48 1843.55 75-22 75-22 269 48 12937.21 75-23 75-23 179 49 5529.27 75-24 75-24 269 49 3696.27 75-25 75-25 359 49 1843.42 75-26 75-26 269 49 1868.23 75-27 75-27 00 01 5531.61 75-28 75-28 179 49 5529.27 75-29 75-29 359 49 1843.29 75-30 75-30 269 31 3695.94 75-31 75-31 359 49 7386.05 75-32 75-32 269 49 3695.46 75-33 75-33 359 49 9216.27 75-34 75-34 269 49 5542.27 75-35 75-35 179 49 3686.35 75-36 75-36 269 49 1847.49 75-37 75-37 179 49 1843.14 75-38 75-38 269 31 5542.65 75-39 75-39 359 50 5559.83 75-40 75-40 89 50 3694.11 75-41
Page 8 of 10 OML 109 Mining Lease 20 F VERTEX EASTINGS NORTHINGS 75-14 729020.165 593527.299 75-15 734563.452 593546.217 75-16 734569.822 591702.855 75-17 740113.419 591722.130 75-18 740132.841 586191.766 75-19 741980.887 586198.251 75-20 741993.837 582511.263 75-21 743842.019 582517.781 75-22 743841.490 580674.258 75-23 730911.353 580630.011 75-24 730935.715 573256.508 75-25 727239.167 573244.508 75-26 727233.207 575087.815 75-27 725364.736 575082.007 75-28 125361.136 580613.612 75-29 723519.097 580605.798 75-30 725367.736 580673.612 75-31 725367.736 580673.612 75-32 725367.736 580673.612 75-33 716098.216 589798.434 75-34 716068.834 599014.516 75-35 710526.575 598996.941 75-36 710538.071 595310.610 75-37 708690.594 595.04.880 75-38 708696.218 593461.744 75-39 703153.833 593414.414 75-40 703137.133 598974.220 75-41 706831.826 598985.459 75-42 706803.256 608201.131 75-43 708650.379 608206.926 Page 9 of 10 OML 109 Mining Lease 20 F 75-44 708632.875 613733.393 75-45 703092.029 613719.005 75-46 703080.590 617405.222 75-47 704927.411 617410.995 75-48 704915.795 621097.271 75-49 704904.090 624783.517 75-50 703057.515 624777.657 75-51 703051.688 626620.781
Signed, J.O. OLUGBEMI SURVEYOR. Page 10 of 10 OML 109 Mining Lease 20 F EX-3.2 14 a2026270zex-3_2.txt EXHIBIT 3.2 JOINT OPERATING AGREEMENT OF 1ST AUGUST, 1995 RELATING TO OIL PROSPECTING LICENCE 75 THIS AGREEMENT is entered into on the 1st day of August, 1995, by and between ATLAS PETROLEUM INTERNATIONAL LIMITED, a company incorporated and existing under the laws of the Federal Republic of Nigeria, and having its registered office at No.1 B lbiyinka Olurunnimbe Close, Amodu Ojikutu Street, Victoria Island, Lagos, Nigeria (hereinafter referred to as "ATLAS") and SUMMIT OIL & GAS WORLDWIDE LTD., a company incorporated and existing under the laws of the Commonwealth of the Bahamas, and having its registered office at 2200 Ross Avenue, Suite 4500E, LB 170, Dallas, Texas, 75201 (hereinafter referred to as "SOGW"). RECITALS WHEREAS, Atlas was awarded an 0il Prospecting License dated March 27, 1991 covering Block 75 in the Federal Republic of Nigeria (the "Licence"); WHEREAS, ATLAS and SUMMIT PARTNERS MANAGEMENT CO. (SUMMIT) entered into that certain Agreement dated July 17, 1992 relating to the Licence (the "Contract") hereby attached as Exhibit A; WHEREAS, in accordance with the Contract, ATLAS assigned to SUMMIT an undivided 30% interest in the Licence, which assignment was approved by the Minister of Petroleum Resources; WHEREAS, based on the Contract, ATLAS and Summit entered into a Joint Operating Agreement dated August 31, 1992 (the "JOA"); WHEREAS, SUMMIT assigned its 30% interest in the Licence to SUMMIT OIL & GAS WORLDWIDE LTD. (SOGW), which assignment was approved by the Minister of Petroleum Resources in July, 1994; WHEREAS, SOGW became the successor in interest to SUMMIT with respect to all rights, duties and privileges in the Licence, the Contract and the JOA and accordingly, became the TECHNICAL ADVISOR under the JOA and continues to serve in that capacity (hereafter all references to TECHNICAL ADVISOR means SOGW); Page 1 of 71 OPL 75 JOA Atlas/SOGW 20F WHEREAS, ATLAS has raised certain questions concerning the JOA and has requested changes to certain provisions; WHEREAS, ATLAS and SOGW have reached agreement to amend the JOA and the Contract as hereinafter set forth to address the concerns of ATLAS and to eliminate all questions concerning the JOA and the status of SOGW as TECHNICAL ADVISOR under the JOA and as owner of the 30% interest in the Licence. NOW, THEREFORE, in consideration of the mutual promises and undertakings contained herein, ATLAS and SOGW agree to amend the JOA of 31st August 1992 and hereby replace it with this 1st August, 1995 JOA ("this Agreement") and to the extent the following provisions conflict with the Contract to likewise amend the Contract as follows: CONDITIONS TO EXECUTION A. As a condition precedent to ATLAS signing this 1st August, 1995 JOA, by resolution of the Board of ATLAS, a copy of which shall be provided to SOGW. ATLAS shall have approved and ratified this Agreement, the Contract, the assignment of the 30% interest in the Licence to SUMMIT and the subsequent assignment by SUMMIT of the 30% interest to SOGW. B. As a condition precedent to SOGW signing this Agreement, by resolution of the Board of SOGW, a copy of which shall be provided to ATLAS, SOGW shall have approved and ratified this Agreement and the Contract. C. If upon further review, the attorneys representing SOGW recommend that the 30% interest in the Licence should be held in the name of a Nigerian corporation or that SOGW should be registered in the Federal Republic of Nigeria for the purpose of fulfilling its duties under the JOA, ATLAS hereby waives all objections it has or may have to this alleged deficiency and agrees to wholehearted!y assist SOGW in taking those steps which will avoid any further concerns regarding the status of SOGW as TECHNICAL ADVISOR or its ownership of the 30% interest in the Licence. ATLAS hereby approves, in advance, the assignment of the 30% interest to a wholly owned subsidiary of SOGW incorporated under Nigerian law and further agrees that if such assignment is made, that ATLAS will take all necessary and appropriate steps to secure Government approval for that assignment provided that SOGW when or its Affiliates registered or incorporated in Nigeria shall: Page 2 of 71 OPL 75 JOA Atlas/SOGW 20F (i) Not engage in any business in direct competition with the aims and objectives of ATLAS Petroleum International Ltd; (ii) Insert in its Memorandum and Articles of Association that any of its decisions regarding Oil business in Nigeria outside OPL 75 shall be subject to the ratification of the Board of Atlas Petroleum International Limited. (iii) Appoint representatives of Atlas Petroleum International Limited to its Board of Directors. ARTICLE 1 DEFINITIONS The following terms when used in the Agreement shall have the meanings assigned to them in this Article, with words defined in the singular deemed to include those utilized in plural, and vice versa: 1.1 "ACCOUNTING PROCEDURE" means the Accounting Procedure attached hereto as Exhibit C and made a part of this Agreement 1.2 "AFFILIATE" or "AFFILIATED COMPANY" means, with respect to a Party, a corporation or other entity holding more than twenty-five percent (25%) of the voting rights of the other corporation or other entity. 1.3 "AFE" means Authorisation for Expenditure. 1.4 "AGREEMENT" means this instrument together with all Exhibits attached hereto. 1.5 "APPRAISAL PROGRAM" has the meaning assigned to it in Article 7.7.1. 1.6 "APPRAISAL WELL" means any well whose purpose at the time of commencement of drilling such well is the determination of the extent or the volume of Petroleum reserves contained in an existing Discovery. 1.7 "BUSINESS DAY" means a day on which the banks in Lagos, Nigeria are customarily open for business. 1.8 "CALENDAR QUARTER" means a period of three (3) months commencing with January 1 and ending on the following March 31, a period of three (3) months commencing with April 1 and ending on the following June 30, a period of three (3) months commencing with July 1 and ending on the following September 30, or a period of (3) months commencing with October 1 and ending on the following December 31 according to the Gregorian Calendar. Page 3 of 71 OPL 75 JOA Atlas/SOGW 20F 1.9 "CALENDAR YEAR" means a period of twelve (12) months commencing with January 1 and ending on the following December 31 according to the Gregorian Calendar. 1.10 "COMMERCIAL DISCOVERY" means any discovery of Petroleum which is sufficient to entitle the Parties to apply for an Oil Mining Lease from the Government to commence exploitation. 1.11 "CONTRACT" means the Agreement dated July 17, 1992 between ATLAS and SUMMIT, a copy of which is attached as EXHIBIT A hereto. 1.12 "CONTRACT AREA" means as of the Effective Date the surface area which is described in EXHIBIT B to this Agreement. The perimeter or perimeters of the Contract Area shall correspond to that area covered by the Licence, as such area may vary from time to time during the term of the Licence. 1.13 "CRUDE OIL" or "OIL" means any hydrocarbon which is in liquid state at the wellhead or separators at normal operating temperatures and pressures, and any liquid hydrocarbons extracted from Natural Gas. 1.14 "DAY" means a calendar day unless otherwise specifically provided. 1.15 "DEVELOPMENT PROGRAM" has the meaning assigned to it in Article 7.7.4. 1.16 "DEVELOPMENT WELL" means any well drilled for the production of Petroleum pursuant to a Development Program. 1.17 "DISCOVERY" means the discovery of an accumulation of Petroleum whose existence until that moment was unknown. 1.18 "EFFECTIVE DATE" means the date upon which this Agreement shall come into force and effect as provided for in Article 2.1 below. 1.19 "EXPLORATION WELL" means a well that is drilled during the course of exploration work other than an Appraisal Well or a Development Well. Page 4 of 71 OPL 75 JOA Atlas/SOGW 20F 1.20 "GOVERNMENT" means the Government of the Federal Republic of Nigeria, or any agency, department or ministry thereof. 1.21 "GOVERNMENT OIL COMPANY" means the Nigerian National Petroleum Corporation. 1.22 "GROSS NEGLIGENCE" means any act or failure to act (whether sole, joint or concurrent ) by a party which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such Party knew, or should have known, such act or failure would have had on the safety or property of another person or entity, but shall not include any error of judgment or mistake made by such party in the exercise in good faith of any function, authority or discretion conferred on the Party employing such under this Agreement. 1.23 "JOINT ACCOUNT" means the account established and maintained in accordance with the provisions of this Agreement and the Accounting Procedure for the Joint Operations. 1.24 "JOINT BUDGET" means a cost estimate of all items included in the Joint Program. 1.25 "JOINT OPERATIONS" means those operations and activities carried out under the general direction of the OPERATOR or the TECHNICAL ADVISOR pursuant to the provisions of this Agreement on behalf of all the parties. 1.26 "JOINT PROPERTY" means at any point in time, all wells, facilities, equipment, materials, information, funds and other property acquired or held for the Joint Account. 1.27 "JOINT PROGRAM" means any program of Joint Operations conducted hereunder. 1.28 "LICENCE" means the Oil Prospecting Licence covering Block 75 and shall include each Oil Mining Lease deriving therefrom that may be granted to the Parties in relation to all or a portion of the Contract Area. 1.29 "MANAGEMENT COMMITTEE" means the committee established pursuant to Article 7. Page 5 of 71 OPL 75 JOA Atlas/SOGW 20F 1.30 "MINIMUM WORK OBLIGATIONS" means those work and/or expenditure obligations specified in the Licence which must be performed in order to satisfy the obligations of the Licence. 1.31 "MINISTER" means the Minister of Petroleum and Mineral Resources of the Federal Republic of Nigeria. 1.32 "MONTH" means calendar month. 1.33 "NATURAL GAS" or "GAS" means any hydrocarbon which is a vapor under normal operating temperatures and pressures, including wet mineral gas, dry mineral gas, casing head gas and residue gas remaining after the extraction of liquid hydrocarbons from wet gas, and non-hydrocarbon gas which is in natural association and produced with gaseous hydrocarbons. 1.34 "NON-OPERATOR(S)" means the Party or Parties to this Agreement other than OPERATOR. 1.35 "OPERATING COSTS" means those costs associated with or attributable to the production, treatment, transportation, storage or lifting of Petroleum which are not generally recognized by the petroleum industry as representing investment in or acquisition of depreciable petroleum assets. 1.36 "OPERATOR" means a party to this Agreement designated as such pursuant to the provisions of Article 6 hereof. 1.37 "OIL MINING LEASE" has the same meaning attributed to such term in the Petroleum Act 1990, as amended. 1.38 "PARTICIPATING INTEREST" means the respective undivided percentage interest which each Party owns at any particular time in the rights, obligations and privileges, and bears in the cost and liabilities, in and under the Licence and this Agreement, initially as set out in Article 3 hereof, except as otherwise expressly provided in the Contract and this Agreement. Page 6 of 71 OPL 75 JOA Atlas/SOGW 20F 1.39 "PAYOUT" means that point in time when SOGW has been paid out of revenues attributable to the Petroleum produced from the Contract Area, after deducting Royalties and Petroleum Profits Tax allocated under Article 9.4, an amount equal to one hundred percent (100%) of the Petroleum Costs and other costs paid by SOGW pursuant to the terms of this Agreement and the Contract. 1.40 "PETROLEUM" means oil and gas hydrocarbons, sometimes called Crude Oil and Natural Gas respectively. 1.41 "PETROLEUM COSTS" means all costs and expenses incurred in carrying out exploration operations, including, but not limited to, interest on unrecovered funds advanced by SOGW prior to Payout, and costs of geological, geophysical, aerial and other surveys, the drilling of such shot holes, stratigraphic tests, or wells for the discovery of Petroleum, and the purchase or acquisition of such supplies, materials and equipment thereof. 1.42 "PETROLEUM OPERATIONS" means the same as it is defined in the Petroleum Profits Tax Act 1969 Cap 354 of the Laws of the Federation of Nigeria 1990, as amended. 1.43 "PETROLEUM PROFITS TAX" means the tax imposed upon the sale of Petroleum under the Petroleum Profits Tax Act of 1990, as amended. 1.44 "ROYALTIES" shall be as defined in Article 9.4 below. 1.45 "TECHNICAL ADVISOR" means SOGW or its affiliated assignee. 1.46 "TECHNICAL SERVICES" means those services to be provided by SOGW in its capacity as TECHNICAL ADVISOR as more particularly described in Exhibit D attached hereto and made a part of this Agreement. Unless the context otherwise requires, reference to any Article is to an article of this Agreement The headings are used for convenience only and shall not affect the construction or validity of this Agreement Page 7 of 71 OPL 75 JOA Atlas/SOGW 20F ARTICLE 2 EFFECTIVE DATE, DURATION AND SCOPE OF AGREEMENT 2.1 This Agreement shall be deemed to have become effective as of August 31, 1992, except those provisions that are newly incorporated in this Agreement which shall be deemed effective as from 1st August, 1995 or the date of execution of this Agreement (the "Effective Date") 2.2 This Agreement shall continue in force and effect from and after the Effective Date for so long as the Licence remains in force and until all Joint Property has been disposed of, and final settlement has been made between the parties in accordance with their respective rights and obligations under this agreement. 2.3 The scope of this Agreement shall extend to the exploration for and, subject to any necessary further authority from the Government, the production of Petroleum under the Licence and the treatment, storage and transportation of the same. 2.4 Subsequent to Payout the provisions of EXHIBIT E to this Agreement shall become applicable to operations on the Contract Area. 2.5 This Agreement supercedes all previous Agreements entered into by ATLAS and SOGW. Accordingly, any inconsistency between this agreement and any previous contracts, agreements or annextures to this agreement shall be void to the extent of its inconsistency with the provisions of this agreement. 2.6 At the end of the Licence period, the OPERATOR shall seek renewal of the OML and if granted this contract shall at the option of either Party be extended for the duration of such renewal. 2.7 This Agreement may be terminated at any time by: (a) Either Party giving to the other not less than ninety (90) days prior written notice of termination if any party has committed a material breach of its obligations hereunder including the Joint Programme approved for any given period under the Contract and that party fails to remedy such breach within three (3) months of the original notification of such breach, provided such breach is not a subject of Arbitration pursuant to Article 12.2. Page 8 of 71 OPL 75 JOA Atlas/SOGW 20F (b) Either Party giving to the other not less than ninety (90) days written notice of termination if any of the parties is declared bankrupt and is forced to make restitution to its creditors, or becomes insolvent, or is found by a court having competent and final jurisdiction to have willfully violated any Nigerian Laws and regulations governing Petroleum Operations, financial transaction and/or commercial operations during the term of the Contract; and such violations adversely affect the other Party's interest under this Contract in a substantial manner and the defaulting party has failed to remedy same within a reasonable period following the court finding. (c) Either Party giving to the other not less than ninety (90) days prior written notice to that effect 2.8 If at the end of the third year from the Effective Date of an agreed Joint Programme thereunder up till that time has not been substantially executed, this Agreement terminates forthwith. 2.9 Should this Agreement terminate either for breach by any party or insolvency either party is entitled to recovery of its recoverable investments in accordance with Nigeria laws. ARTICLE 3 PARTICIPATING INTEREST AND COST SHARING AGREEMENTS 3.1 The Participating Interests of the Parties in the Licence, expressed as percentages, are set out below: ATLAS 70% SOGW 30% ---- 100% In the event a Party should transfer or assign all or any part of its Participating Interest in accordance with the provisions of this Agreement, the Participating Interests shall be revised accordingly. 3.2 Prior to Payout, subject to the terms of Article 9.4 below, SOGW shall bear and pay the following costs and expenses: 3.2.1 All Petroleum Costs incurred for the Joint Account on the Contract Area; 3.2.2 In the event of a Commercial Discovery of Petroleum, all cost of all wells incurred on any Oil Mining Lease(s) resulting from the Licence; and 3.2.3 All Operating Costs incurred on said Oil Mining Lease(s). Page 9 of 71 OPL 75 JOA Atlas/SOGW 20F 3.3 After Payout, all costs and expenses attributable to the Contract Area shall be borne and paid by the Parties according to their respective Participating Interest in accordance with the provisions hereof. ARTICLE 4 GOVERNMENT PARTICIPATION 4.1 Should the provisions of the Oil Prospecting Licence, any Oil Mining Lease or Nigerian Law so permit or in the event that the Government elects to participate in the Oil Prospecting or any Oil Mining Lease derived therefrom, each of the Parties shall assign an interest to Government in proportion to their respective Participating Interest at the time of the Governments election to participate. 4.2 Any reimbursement received from the Government of costs incurred by any of the Parties shall be divided between the Parties in accordance with the respective expenditures of each Party, for which such reimbursement is made. ARTICLE 5 ANNUAL WORK PROGRAMME AND BUDGETS 5.1 JOINT PROGRAMS AND JOINT BUDGETS Within ten (10) days of the Effective Date of this Agreement, the OPERATOR shall direct the TECHNICAL ADVISOR to prepare and submit to the MANAGEMENT COMMITTEE a proposed Joint Program and the proposed Joint Budget thereof covering the remainder of the current Calendar Year. Thereafter, in subsequent Calendar Years, the OPERATOR shall direct the TECHNICAL ADVISOR to prepare a Joint Program and Joint Budget covering the next succeeding Calendar Year (the "Budget Year"). The Joint Program and Joint Budget shall set out in reasonable detail the performance of Joint Operations proposed for the Budget Year and the commitments and expenditures to be incurred in connection therewith. The proposed Joint Budget for the Budget Year shall consist of: 5.1.1 A capital budget phased by Calendar Year of commitment and expenditure and by Calendar Quarter in respect of the Budget Year, which shall include: (i) Details of each new capital budget item proposed to be initiated during such year; Page 10 of 71 OPL 75 JOA Atlas/SOGW 20F (ii) A latest estimate as at the end of the current Calendar Year for each capital budget item already included in an approved capital budget; (iii) A forecast of estimated capital expenditures to be required in each of the two (2) Calendar Years following the Budget Year; (iv) A forecast of Crude Oil production for the budget period. 5.1.2 An operating budget phased by Calendar Quarter and containing estimates of all Operating Costs to be incurred during such Year; 5.1.3 A progress report of the Nigerianization training program, as outlined in the Technical Services Agreement and the proposed training activities for the Budget Year and the costs associated therewith; 5.1.4 An estimate of warehouse stock movements; 5.1.5 An estimate of cash requirements anticipated to be required in the Budget Year; and 5.1.6 A specification of services and costs thereof to be provided by the OPERATOR and/or the TECHNICAL ADVISOR and major billings anticipated to be made for equipment and facilities furnished by the OPERATOR and/or the TECHNICAL ADVISOR OPERATOR and/or the TECHNICAL ADVISOR, when proposing to include such services, equipment or facilities in the Joint Budget shall have taken into account the cost of comparable services, equipment and facilities in the Federal Republic of Nigeria and shall justify, upon request, its proposal on the basis of cost, quality and effectiveness. The MANAGEMENT COMMITTEE shall be provided with provisional budget figures by October 30th of the Calendar Year preceding the Budget Year, provided that neither the OPERATOR nor the TECHNICAL ADVISOR shall accept any responsibility for the accuracy of such provisional figures. 5.2 APPROVAL OF ANNUAL BUDGET The MANAGEMENT COMMITTEE shall meet within Thirty (30) days of the submission of the proposed Joint Program and Joint Budget for the purpose of reviewing same and considering charges. A Joint Program and Joint Budget shall be approved by the MANAGEMENT COMMITTEE by December 3Oth of the Budget Year; provided, However, that when deliberating on such Joint Programs and Joint Budgets, the MANAGEMENT COMMITTEE shall approve a Joint Program and Budget sufficient to satisfy the Minimum Work Obligations under the Licence. Page 11 of 71 OPL 75 JOA Atlas/SOGW 20F 5.3 AMENDMENTS Any Party may by notice at any time propose amendments making changes, additions or deletions to the approved Joint Program and Joint Budget for any Budget Year. The OPERATOR or the TECHNICAL ADVISOR shall present such proposals to the MANAGEMENT COMMITTEE which shall decide such matter within sixty (60) days after such proposal is submitted. Any amendment so approved shall be included in the appropriate approved Joint program and Joint Budget for that Budget Year. No approved amendment shall invalidate expenditures or commitments previously approved and already incurred or made by the OPERATOR or the TECHNICAL ADVISOR. 5.4 AUTHORITY FOR EXPENDITURE Prior to incurring capital expenditures in respect of the approved Joint Budget, the OPERATOR or the TECHNICAL ADVISOR shall cause an AFE to be prepared for the approval of the MANAGEMENT COMMITTEE for: 5.4.1 Each item of such Budget having a value of Fifty Thousand US. Dollars ($50,000) or more, or; 5.4.2 Any aggregate of items with a value in excess of Fifty Thousand Dollars ($50,000) where such items are to be purchased as part of a single project or undertaking. The MANAGEMENT COMMITTEE shall not disapprove any AFE proposed for the Joint Operations which is required to satisfy the Minimum Work Obligations under the Licence. Should any such AFE be exceeded by ten percent (10%) pursuant to Article 5.5 below the OPERATOR and/or the TECHNICAL ADVISOR shall submit to the MANAGEMENT COMMITTEE a supplemental AFE for approval with an explanation of the reasons for the over-expenditure. 5.5 OVER-EXPENDITURE The OPERATOR and/or the TECHNICAL ADVISOR shall be obliged to carry out the approved Joint Program adopted by the MANAGEMENT COMMITTEE within the limits of the approved Joint Budget and shall not undertake any operations not included in any approved Joint Program or make any expenditures during a Budget Year in excess of the amounts in the approved Joint Budget, except that during anyone Budget Year the TECHNICAL ADVISOR may without prior approval of the MANAGEMENT COMMITTEE expend from the Joint Account amounts equal in the aggregate to five percent (5%) in excess of the total expenditures authorised in the approved Joint Budget in respect of items contained in the approved Joint Budget and, such expenditures necessary in the case of safe guarding of lives or Page 12 of 71 OPL 75 JOA Atlas/SOGW 20F property or the prevention of pollution, in the Contract Area not included in the approved Joint Budget; provided, however, that such expenditures shall not exceed Twenty-five Thousand U.S. Dollars ($25,000). Such expenditures shall be promptly reported to the MANAGEMENT COMMITTEE. ARTICLE 6 RIGHT AND OBLIGATIONS OF THE PARTIES TECHNICAL ADVISOR The parties jointly designate SOGW to assume the role of TECHNICAL ADVISOR to provide the services more particularly described in Exhibit D attached and made part of this Agreement. These duties include: (a) Provide before Payout all necessary funds for payment of Operating Costs including, but not limited to, funds required to provide all materials, equipment, supplies, and technical requirements (including personnel) purchased, paid for or leased in Foreign Currency; (b) Furnish before Payout such other funds for the performance of Work Programmes that require payment in foreign Currency including payments to third parties who perform services as sub-contractors; (c) Ensure before Payout that all lease equipment paid for in Foreign Currency and brought into Nigeria for Petroleum Operation is treated in accordance with the terms of the applicable leases; (d) To have the right to dispose of, assign, transfer, convey or otherwise dispose of any part of its rights and interest under the Contract to other parties including affiliates with the prior written consent of the OPERATOR which consent shall not be unreasonably withheld; (e) To have the right of ingress to and egress from the Contract Area and to and from facilities therein located at all times during the term of the Contract; (f) To submit to the OPERATOR for permanent custody copies of all geological geophysical, drilling, well production, operating and other data and reports as it may compile during the term hereof and at the end of the Contract surrender all original data and reports to the OPERATOR. Page 13 of 71 OPL 75 JOA Atlas/SOGW 20F (g) To prepare estimated and final PPT returns and submit same to the OPERATOR on a timely basis in accordance with the PPT Act; (h) To prepare and carry out plans and programs for industrial training and education of Nigerians for all job classification with respect to Petroleum Operations in accordance with the Petroleum Act Cap 350 Laws of the Federal Republic of Nigeria 1990, as amended; (i) To give preference to such goods which are available in Nigeria services rendered by Nigerian nationals, provided they meet the specifications, quality and the standards of the goods and services; (j) In respect of payment of customs duties and other like charges, the TECHNICAL ADVISOR shall not be treated differently from any other companies engaged directly in similar Petroleum Operations in Nigeria. (k) To have the right to finance Petroleum Operations from external sources under terms and conditions approved by the OPERATOR; and such approval shall not be unreasonably withheld. Information on any previous loans obtained prior to the effective date of this Agreement shall be made available to the OPERATOR (l) Not to exercise all or any rights or authority over the Contract Area in derogation of the rights of the OPERATOR. 6.2 ATLAS is hereby designated as OPERATOR and shall conduct all Joint Operations on the Contract Area in accordance with the terms and provisions of the Licence, the contract and this agreement. AlI such operations shall be conducted under the general direction of the OPERATOR by the TECHNICAL ADVISOR. Its duties shall include the following: (a) Ensure payment to the government in a timely manner, all Bonuses, royalties, concession Rentals and PPT accruing out of Petroleum Operations. Evidence of such payment shall be provided to the TECHNICAL ADVISOR on request (b) The operating staff of the OPERATOR shall work jointly TECHNICAL ADVISOR's professional staff. (c) Work with the TECHNICAL ADVISOR's to execute Petroleum Operations and Joint Programmes including, but not limited to, assistance in supplying or other wise making available all necessary visa, permits, rights of way and easements as may be requested by TECHNICAL ADVISOR. Expenses incurred by the OPERATOR at the TECHNICAL ADVISOR's request in providing such assistance shall be reimbursed to the OPERATOR by the TECHNICAL ADVISOR in accordance with Article 9.4. The TECHNICAL ADVISOR shall include such reimbursements in the Operating Costs. Page 14 of 71 OPL 75 JOA Atlas/SOGW 20F (d) Have title to all original data resulting from the Petroleum Operations including but not limited to geological, geophysical, engineering, well logs, completion, production, operations, status reports and any other data as the TECHNICAL ADVISOR may compile during the term hereof, provided however, that the TECHNICAL ADVISOR shall keep and use original data during the term of this Contract and the OPERATOR shall have access to such original data during the term of this Contract; (e) Have the right to dispose of assign, transfer, convey or otherwise dispose of any part of its rights and interest under the Contract to other parties including affiliates will the consent of the TECHNICAL ADVISOR which consent shall not be unreasonably withheld. (f) The OPERATOR shall subject to being satisfied by work accomplished in thee Operations Area apply for conversion of the OPL to OML in accordance will Article 7.7.2 and shall exercise all the rights and comply will all the obligations of a Licensee under the Petroleum Act 1990 and its amendment. (g) Relate with and report to the Government: (h) Provide security for the TECHNICAL ADVISOR's personnel and for all Joint Property; (i) Provide administration of logistics office support and infrastructure to support the TECHNICAL ADVISOR; (j) Provide local technical services to the TECHNICAL ADVISOR including without limitations those mandated by the Government Oil (such as biostratigraphy, well site services and mud logging); (k) Establish and maintain an office for the OPERATOR and the TECHNICAL ADVISOR; (l) Provide housing for expatriates including permanent housing for the Operations Manager and a guest house; (m) Acquire permits, consents, approvals, surface or other rights that may be required for or in connection with the conduct of Joint Operations; and Page 15 of 71 OPL 75 JOA Atlas/SOGW 20F (n) In accordance with the decision of the MANAGEMENT COMMITTEE, represent the Parties in all dealings with the Government with respect to matters arising under the Contract and Joint Operations. The OPERATOR shall notify the other Parties as soon as possible of such meetings. The TECHNICAL ADVISOR shall have the right to attend such meetings but only in the capacity of an observer. (o) The OPERATOR and the TECHNICAL ADVISOR shall ensure that all necessary actions are taken to maintain the License and all Joint Property free of all liens, charges and encumbrances which might arise by reason of the conduct of the Joint Operations. (p) The number of employees allocated to the Joint Operations, the selection of such employees, the hours of work and the compensation to be paid such employees in connection with operations hereunder shall be determined by the OPERATOR and TECHNICAL ADVISOR, subject to the approval of the MANAGEMENT COMMITTEE. All such employees shall be employees of the OPERATOR or the TECHNICAL ADVISOR. The OPERATOR and the TECHNICAL ADVISOR shall employ only such employees, agents and contractors as are reasonably necessary to conduct Joint Operations. (q) For contracts and purchase orders for the Joint Operations, the OPERATOR shall with the guidance and assistance of the TECHNICAL ADVISOR ensure that: (i) Competitive bids are obtained for all equipment, materials and services where the value exceeds Ten Thousand US. Dollars ($10,000), unless a different value is approved by the MANAGEMENT COMMITTEE (the word "value" as used herein shall mean the total, not incremental, amount of money reasonably expected to be paid for goods and services needed to accomplish a specific work objective or to construct a certain system for the Joint Account); and (ii) The approval of the MANAGEMENT COMMITTEE is obtained prior to awarding any contract or purchase order where the value exceeds Fifty Thousands US. Dollars ($50,000), unless a different value is approved by the MANAGEMENT COMMITTEE. 6.3 RESERVATION OF RIGHTS (a) Except as otherwise provided in the Contact or this Agreement, each Party reserves all its rights under the Licence. Page 16 of 71 OPL 75 JOA Atlas/SOGW 20F (b) Without prejudice to the provisions of the Accounting Procedure, each Party shall have the right to designate representatives to inspect, at all reasonable times during usual business hours, all books, records and inventories of any kind or nature maintained by or on behalf of the OPERATOR or the TECHNICAL ADVISOR and relating to the Joint Operations. ARTICLE 7 MANAGEMENT COMMITTEE FUNCTIONS 7.1 A MANAGEMENT COMMITTEE is hereby established for the purpose of providing orderly direction of all matters pertaining to the Petroleum Operations and Work Programme and provide overall supervision and control of the Joint Operations. The powers and duties of the MANAGEMENT COMMITTEE shall include but not limited to the following: (a) The review, revision and approval of all proposed Work Programmes and Budgets in accordance with Article 5 and 7.3(e); (b) The review, revision, and approval of any proposed recommendations made by either party or by any sub-committee, pursuant to Article 7.6 with respect to Petroleum Operations; (c) Ensuring that the OPERATOR and the TECHNICAL ADVISOR carry out the decisions of the MANAGEMENT COMMITTEE and conduct Petroleum Operations pursuant to this Agreement. (d) The consideration and decision on matters relating to government participation in the Contract Area pursuant to Article 4 and in accordance with the Petroleum Act. 1990. Page 17 of 71 OPL 75 JOA Atlas/SOGW 20F (e) Settlement of claims and litigation in excess of five hundred thousand naira (N500,000.00) or the equivalent thereof in Base Currency, or such other amount as may be approved by the MANAGEMENT COMMITTEE in so far as such claims are not covered by poIicies of insurance maintained under this Contract; (f) Consideration and approval of the sale or disposal of any items or movable property relating to Petroleum Operations in accordance will the provisions of this contract except for item/properties of historic costs less than one million naira (N1,000,000.00); and any sale or disposal of fixed asset shall be at the express approval of the OPERATOR (g) Settlement of unresolved audit exception arising from audits as provided for in Exhibit C (h) Ensuring that the TECHNICAL ADVISOR implements the provisions of the Accounting Procedure in Exhibit C (i) Any other matters relating to Petroleum Operations except; (i) Those matters elsewhere provided for in this Agreement, or (ii) Those matters reserved to the Parties in their respective rights pursuant to Article 6 (j) Consideration and approval of the sale or disposal and exchange of information to third parties other than routine exchange of seismic data and other such data commonly exchanged within the industry; (k) Consideration and determination of any other matter relating to the Petroleum Operations which may be referred to the Petroleum Operations which may be referred to it by any Party (other than any proposal to amend this Agreement) or which is otherwise designated under this Agreement for reference to it. 7.2 COMPOSITION OF THE MANAGEMENT COMMITTEE (a) The MANAGEMENT COMMITTEE shall consist of eight (8) persons appointed by the Parties as follows: The OPERATOR 4 The TECHNICAL ADVISOR 4 Page 18 of 71 OPL 75 JOA Atlas/SOGW 20F (b) Each Party shall designate by notice in writing to thee other Party the names of its representatives to serve as members of the MANAGEMENT COMMITTEE as provided in Article 7.2(a) hereof and their respective alternates, which members or alternates shall be authorised to represent that Party with respect to the deliberations of MANAGEMENT COMMITTEE. Such notice shall give the names, titles and address of the designated members and alternates. Each member may nominate in writing any other member or alternate to represent such member at meetings of the MANAGEMENT COMMITTEE and vote in such member's place. (c) At least fourteen (14) business days prior to each scheduled MANAGEMENT COMMITTEE meeting, the Secretary shall provide agenda of matters, with briefs, to be considered during such meeting. Any Party desiring to have other matters placed on the agenda shall give notice to the other party not less than seven (7) business days prior to the scheduled meeting. No other matter may be introduced into the agenda thereafter for deliberation at the meeting unless mutually agreed by the Parties. No agenda shall be required in the event of an emergency meeting called pursuant to Article 7.5(b). (d) Either Party may change any of its respective members or alternates as described in Article 7.2(b) from time to time by notifying the other Party in writing not less than ten (10) days in advance of the effective date of such change. (e) The OPERATOR shall appoint the Chairman of the MANAGEMENT COMMITTEE and the TECHNICAL ADVISOR shall appoint the Secretary. The Secretary shall keep minutes of all meetings and records of all decisions of the MANAGEMENT COMMITTEE. Within fourteen (14) days after each meeting, the Secretary shall forward drafts of the minutes to the Parties within fourteen (14) days thereafter each Party shall return the minutes with its comments to the Secretary who shall within (14) days thereafter forward the final draft to other Party. In addition, the Secretary shall at each meeting, prepare a written summary of any decision made by the MANAGEMENT COMMITTEE for approval and signature by the Parties at the next meeting. Page 19 of 71 OPL 75 JOA Atlas/SOGW 20F MEETINGS 7.3 (a) Not later than the thirty first (31st) day of January of each Year, the Chairman shall prepare and forward to the Parties, a calendar of meetings as agreed by the MANAGEMENT COMMITTEE for that Year. (b) Unless otherwise agreed by the Parties, the MANAGEMENT COMMITTEE shall meet at the head office of the OPERATOR once every three (3) calendar months or at such other intervals or venue as may be agreed by the MANAGEMENT COMMITTEE. In addition, a meeting will be convened whenever requested by either Party by giving at least twenty-one (21) days notice in writing to the other Party which notice shall specify the matter or matters to be considered at the meeting; or when summoned by the Chairman or by the TECHNICAL ADVISOR as an emergency meeting for which no specified notice period shall be required. (c) The quorum for any meeting of the MANAGEMENT COMMITTEE shall consist of a minimum of three (3) representatives of the OPERATOR and (3) representatives of the TECHNICAL ADVISOR. The Chairman or his alternate and the Managing Director or his alternate must be present at every MANAGEMENT COMMITTEE meeting for a quorum to be formed. If no such quorum is present, the Chairman shall immediately call another meeting of the MANAGEMENT COMMITTEE giving at least fourteen (14) days written notice of such meetings. (d) All meetings of the Management Committee shall be called at the instance of the Chairman. This is without prejudice to the secretary requesting for a meeting on behalf of the TECHNICAL ADVISOR. (e) Within four (4) weeks after the submission of a Joint Programme and Joint Budget by the OPERATOR and the TECHNICAL ADVISOR the MANAGEMENT COMMITTEE shall meet to consider and approve such submission. Should the OPERATOR wish to propose a revision as to certain specific features of the said Work Programme and Budget it shall within four (4) weeks after submission thereof so notify the TECHNICAL ADVISOR in writing specifying in reasonable detail the changes requested and its reasons thereof. The MANAGEMENT COMMITTEE will Page 20 of 71 OPL 75 JOA Atlas/SOGW 20F endeavour to resolve the request for revisions proposed by the OPERATOR. If the OPERATOR has not proposed any revisions in writing within six (6) weeks; then the said Joint Programme and Joint Budget as submitted shall be approved by a unanimous resolution of the MANAGEMENT COMMITTEE. Any portion of a Joint Programme about which the OPERATOR has not proposed a revision shall in so far as possible be carried out as prescribed therein. PROCEDURES 7.4(a) Except as may be expressly provided for in this Agreement, the MANAGEMENT COMMITTEE shall determine and adopt rules to govern its procedures. (b) Members attending a meeting of the MANAGEMENT COMMITTEE may be accompanied by advisers and experts to the extent reasonably necessary to assist with the conduct of such meeting. Such advisers and experts shall not vote or in any way participate in decisions, but may contribute in a non-binding way to discussions or debates of the MANAGEMENT COMMITTEE. (c) All decisions, approval and other actions of the MANAGEMENT COOMITTEE before Payout shall be decided by affirmative vote of at least six (6) of the members; provided, however, that any Joint Budget must be unanimously approved by the MANAGEMENT COMMITTEE. (d) The Parties shall be bound by, each decision of the MANAGEMENT COMMITTEE duly made in accordance with the provisions of this Agreement. EMERGENCY AND SPECIAL MATTERS 7.5(a) Any matter which is within the powers and duties of the MANAGEMENT COMMITTEE may be determined by the MANAGEMENT COMMITTEE without a MANAGEMENT COMMITTEE meeting if such matter is submitted by either Party to the Party with due notice and with sufficient information regarding the matter to be determined so as to enable the Parties to make an informed decision with respect to such matter. Page 21 of 71 OPL 75 JOA Atlas/SOGW 20F (b) Except for urgent matters referred to in Article 7.5(b), each party shall cast its vote with respect to such matter within twenty-one (21) days of receipt of such notice and such manner of determination shall be followed unless a Party objects, within fourteen (14) days of receipt of such notice, to having the matter determined in such manner. If any Party fails to vote by the expiration of the twenty-one (21) days period for voting, it shall be deemed to have voted in the affirmative. The Secretary shall promptly advise the Parties of the results of such vote and the Secretary shall draft a resolution to be signed as soon as possible by the Parties. (c) Each Party shall nominate one of its officers as its representative from whom the other Party may seek binding decisions on urgent matters, including, but not limited to on-going drilling operation, by telephone, letter, facsimile transmission, telex or in person and they shall advise each other in writing of the persons so nominated and any changes thereof. (d) In the event of an emergency requiring immediate operational action, either Party may take all actions it deems proper or advisable to protect its interest and those of its respective employees and any costs so incurred shall be included in the Operating Costs. Prompt notification of any such action taken by a Party and the estimated cost shall be given to the other Party with in forty-eight (48) hours of the commencement of event. (e) The decisions made pursuant to this Article 7.5 shall be recorded in the minutes of the next scheduled meeting of the MANAGEMENT COMMITTEE, and shall be binding upon the Parties to the same extent as if the matter had been determined at a meeting of the MANAGEMENT COMMITTEE. Page 22 of 71 OPL 75 JOA Atlas/SOGW 20F SUB COMMITTEES 7.6(a) The MANAGEMENT COMMITTEE shall establish exploration, cost verification and technical sub-committees and any other advisory sub committees as it considers necessary from time to time such as finance and budget, and legal/services sub-committees. (b) Each sub-committee established pursuant to this Article 7.6 shall be given terms of reference and shall be subject to such direction and procedure as the MANAGEMENT COMMITTEE may give or determine. (c) The MANAGEMENT COMMITTEE shall appoint the members of the sub-committees which shall be comprised of representation from both Parties. The Chairmen and the Secretaries of the sub-committees shall be appointed by the Chairman of the MANAGEMENT COMMITTEE. (d) The Cost verification sub-committee shall scrutinize, approve and refer to the MANAGEMENT COMMITTEE all cost expenditures of both parties before they are admitted for settlement. (e) The deliberations and recommendations of any sub-committee shall be advisory only and shall become binding and effective only upon acceptance by the MANAGEMENT COMMITTEE. 7.7 DECISIONS ON APPRAISAL AND DEVELOPMENT PROGRAMS 7.7.1 In the event that an Exploration Well results in a Discovery, the TECHNICAL ADVISOR and/or the OPERATOR shall prepare and submit to the MANAGEMENT COMMITTEE a proposed program of work and budget to be undertaken in order to evaluate the potential of the Discovery. Upon the approval of such proposed program and accompanying budget, or a modified version thereof, by the MANAGEMENT COMMITTEE, the TECHNICAL ADVISOR will proceed to carry out the approved program (hereinafter referred to as the "Appraisal Program") and such Appraisal Program, together with the budget approved for such work, shall be included in the appropriate Joint Programs and Joint Budgets. Page 23 of 71 OPL 75 JOA Atlas/SOGW 20F 7.7.2 If as a result of the Appraisal Program, the Discovery appears to be a Commercial Discovery, the Chairman shall call a MANAGEMENT COMMITTEE meeting for the purpose of proposing that the Parties proceed to apply for an Oil Mining Lease. At least forty-five (45) days prior to the date of such MANAGEMENT COMMITTEE such supporting data for the recommendation, including the estimated quantity of reserves, together with a proposed scheme of development and the estimated costs thereof. The MANAGEMENT COMITTEE shall vote to determine whether to proceed to apply for an Oil Mining Lease and on the configuration of the area to be covered by the Oil Mining Lease. In the event that a decision is reached to apply for an Oil Mining Lease, then the OPERATOR with the assistance of the TECHNICAL ADVISOR shall prepare the required application and submit it to the Minister. 7.7.3 As soon as practicable following notice of approval of the application for the Oil Mining Lease, the Chairman shall call a MANAGEMENT COMMITTEE meeting for the purpose of approving a development work program and budget. If not already provided pursuant to Article 7.7.2, the TECHNICAL ADVISOR, not less than thirty (30) days prior to such MANAGEMENT COMMITTEE meeting, shall furnish a proposed program of work and expenditures to be undertaken for the development of the Discovery development of the Discovery to the MANAGEMENT COMMITTEE for approval. The MANAGEMENT COMMITTEE shall then vote on the adoption of a development work program and budget. 7.7.4 Subject to any necessary Government consents, the OPERATOR and/or the TECHNICAL ADVISOR shall be authorised to carry out the approved development work program, such approved development work program hereinafter referred to as the "Development Program". 7.8 LICENCE PROVISIONS 7.8.1 In respect of decisions regarding the surrender of any portion of the Contract Area, the affirmative vote of all the Parties shall be required to determine the area to be so relinquished. 7.8.2 The affirmative vote of all Parties shall be required to relinquish the License. Page 24 of 71 OPL 75 JOA Atlas/SOGW 20F 7.9 SUPERVISORY PERSONNEL The Managing Director and the Operations Manager shall jointly implement the decisions of the MANAGEMENT COMMITTEE and carry out the day-to-day business and affairs on the Contract Area. The following key supervisory positions shall be established: 7.9.1 MANAGING DIRECTOR (i) ATLAS shall appoint the Managing Director. (ii) The Managing Director shall administer all business and affairs on the Contract Area in accordance with the directions of the MANAGEMENT COMMITTEE. 7.9.2 OPERATIONS MANAGER (i) SOGW shall appoint Operations Manager. (ii) The Operations Manager shall oversee all day-to-day operational activities on the Contract Area with the supervision of the Managing Director and in accordance with the directions of the MANAGEMENT COMMITTEE. 7.9.3 FINANCIAL DIRECTOR (i) Prior to Payout, the Financial Director shall be appointed by SOGW and after Payout he shall be appointed by ATLAS. (ii) The Financial Director shall be responsible (on behalf of the Technical Advisor prior to Payout and on behalf of the OPERATOR after Payout) for the management of the approved Joint Budgets and shall establish the primary banking relationships for the Parties. Page 25 of 71 OPL 75 JOA Atlas/SOGW 20F 7.9.4 FINANCIAL CONTROLLER (i) Prior to Payout, the Financial Controller shall be appointed by ATLAS and after Payout, he shall be appointed by SOGW. (ii) The Financial Controller shall have the right to be directly involved and participate meaningfully in the functions and activities of the Financial Director. The Financial Controller shall at all times have access to the books and records relating to the Contract, this Agreement and the Contract Area and shall have the right to cause audits of such books and records to be performed from time to time as he shall deem necessary or appropriate. 7.10 After Payout representation at the MANAGEMENT COMMITTEE shall reflect the participating interests such that 70% of the members are nominated by ATLAS and 30% by SOGW. To avoid fractions of members the membership of the MANAGEMENT COMMITTEE shall be increased to ten (10) such that ATLAS produces Seven (7) members while SOGW produces three (3) members. This is without prejudice to both Parties reviewing this provision so as to adopt the statusquo prior to payout. ARTICLE 8 INSURANCE 8.1 All property acquired under the provisions of this Agreement shall be adequately insured in an insurance company of good repute by the Technical Advisor in consultation with the OPERATOR, in its name and that of the OPERATOR with limits of liabilities not less than those required by Nigerian laws and regulations. The premium/premia for such policies shall be included in Operating Costs. All policies shall name the OPERATOR as a co-insured with a waiver of subrogation rights in favour of the OPERATOR. Page 26 of 71 OPL 75 JOA Atlas/SOGW 20F 8.2 In case of loss or damage to property indemnification's paid by the insurance companies shall be entirely received by the TECHNICAL ADVISOR for Petroleum Operations. The TECHNICAL ADVISOR shall determine whether the lost or damaged property should be repaired replaced or abandoned. If the decision is to repair or replace, the TECHNICAL ADVISOR shall immediately replace or repair such lost or damaged property .Any excess cost of repair or replacement above the amount reimbursed by the insurance companies shall be regarded as Operating Costs. If the decision is to neither repair nor replace then the proceeds of any coverage shall be credited to Operating Costs. Prior to Payout in the event that the loss or damage is attributed to the TECHNICAL ADVISOR's negligence the excess cost of replacement or repair shall not be reimbursed as Operating Cost. 8.3 The TECHNICAL ADVISOR shall take out and maintain and insurance policy covering any and all damages caused to the parties as a direct or indirect result of the Petroleum Operations. The TECHNICAL ADVISOR shall defend and hold the OPERA- TOR harmless from damages and losses caused to third parties in consequence of the TECHNICAL ADVISOR's negligence or willful misconduct in the performance of this Agreement. Similarly the OPERATOR shall defend and hold the TECHNICAL ADVISOR harmless from damages and losses caused to third parties in consequence of the OPERATOR's negligence or willful misconduct in the performance of this Agreement. 8.4 All insurance policies under this Article 8 shall be based on good international petroleum industry practice. 8.5 In entering into contracts with any sub-contractor for the performance of Petroleum Operations, the TECHNICAL ADVISOR shall require such sub- contractors to take adequate insurance in accordance with Article 8.1 and 8.3 above and to properly indemnify the OPERATOR and TECHNICAL ADVISOR for any damage done and to properly indemnify and hold the OPERATOR and TECHNICAL ADVISOR harmless against claims from third parties. 8.6 The TECHNICAL ADVISOR upon the advise of the OPERATOR shall maintain other insurance policies required under Nigerian Law for the Petroleum Operations. Page 27 of 71 OPL 75 JOA Atlas/SOGW 20F ARTICLE 9 COSTS AND ACCOUNTING 9.1 The Parties designate the Financial Director and the Financial Controller as being exclusively responsible for preparing and maintaining proper books, records and inventories of the Joint Operations which shall be kept in compliance with the Accounting Procedure and with due regard to the requirements of the License and appropriate laws and regulations, the maintenance of all bank accounts holding funds for the Joint Account and the disbursement of such funds. The Financial Director and the Financial Controller shall further be responsible for preparing and furnishing to the Parties, at Joint Account expense, such financial reports, statements, data and information required pursuant to the License and as may be reasonably required from time to time by the Parties. The Parties shall provide all data required by the Financial Director and the Financial Controller to comply with this provision. The Financial Controller shall not be prevented from effective participation in the keeping of proper books and accounts of the Joint Operations. The Financial Controller shall at all times have access to the books and records relating to the Contract, this Agreement and the Contract Area and shall have the right to cause audits of such books and records to be performed from time to time as he shall deem necessary or appropriate. 9.2 ACCOUNTING 9.2.1 The Financial Director and the Financial Controller shall maintain records in accordance with accepted accounting practices within the oil industry and shall also maintain whatever records are required to meet Nigerian statutory reporting requirements. These records shall include itemized, accurate accounts and records of production, costs and expenditures arising out of the Joint Operations. 9.2.2 All costs, expenses, credits and related matters and methods of handling the accounting for the Joint Operations shall be in accordance with the provisions of the Accounting Procedure. Page 28 of 71 OPL 75 JOA Atlas/SOGW 20F 9.3 The Accounting Procedure is hereby made part of this Agreement. In the event of any conflict between any provision in the main body of this agreement and any provision in the Accounting Procedure, the provision in the main body of this Agreement shall prevail. 9.4 ALLOCATION OF COST RECOVERY RIGHTS In accordance with the terms of this Agreement, revenues from sale of Petroleum produced from the Contract Area shall be applied and/or distributed in the following manner and order of priority prior to Payout: 9.4.1 Payment of royalties and other obligations pursuant to the terms of the License and/or any Oil Mining Leases resulting therefrom ("Royalties"); 9.4.2 Payment of Petroleum Profits Taxes and any other taxes charged to the Parties, whether attributable to operations on the Contract Area or to the Petroleum sold therefrom; 9.4.3 Payment of all actual ongoing costs of production, operating costs, general administrative and overhead costs, fees, Licence payments, duties and local taxes on property and activities associated with the Contract Area provided that cost of services and administrative overheads under paragraph 4.1and 4.2 of Exhibit D are recoverable only once. 9.4.4 Distribution into a reserve fund such funds as may be necessary to pay anticipated future Costs, the amount of such reserve to be established and/or adjusted from time to time by the MANAGEMENT COMMITTEE; and 9.4.5 Any remaining revenues shall be distributed to the Parties as follows: (i) ATLAS owns seventy percent (70%) interest and SOGW owns thirty percent (30%) interest in the License. ATLAS agrees to shed 30 percentage points out of the 70 percentage points which would otherwise be allocated to it to SOGW until Payout. This shall provide for the recovery of pre-production Petroleum Costs by SOGW. Accordingly, until Payout, SOGW shall receive its 30 percentage points plus 30 percentage points otherwise to be allocated to ATLAS and ATLAS shall receive 40 percentage points. Page 29 of 71 OPL 75 JOA Atlas/SOGW 20F (ii) Payout will have been attained when the cumulative 60% deductions from net revenue allocated to SOGW equals total pre-production Petroleum Costs. ARTICLE 1O DISPOSAL OF PETROLEUM 10.1 MARKETING OF PETROLEUM Prior to Payout, neither Party shall have the right to take in kind any Petroleum produced from the Contract Area. All such production shall be marketed and sold under the direction of the MANAGEMENT COMMITTEE. 10.2 NATURAL GAS The Parties recognize that, in the event of the discovery of Natural Gas, it may become desirable for them to enter into special arrangements for the disposal of the same and they agree that, in such event and upon the request of any of them, their respective representatives shall meet together as necessary to consider their entry into such arrangements and that, if and to the extent that any such arrangements are agreed, they will adopt and undertake the same. ARTICLE 11 CONFIDENTIALITY AND EXCHANGE OF DATA 11.1 CONFIDENTIAL DATA AND INFORMATION 11.1.1 The Parties agree to keep the terms of this Agreement, commercial, contractual and financial information with respect to or pertaining to the License or the Contract Area, as well as all data and information referred to in Article 14.1 of the Contract (hereinafter referred to as the "Information"), strictly confidential and shall not disclose the Information to any third party, other than an Affiliate, or its attorneys, or agencies delegated by the Federal Republic of Nigeria, without the prior written consent of the other Party and, when the Licenser applicable Nigerian law so requires, the Government. Page 30 of 71 OPL 75 JOA Atlas/SOGW 20F 11.1.2 The obligation of confidentiality in Article 13.2 shall not apply to: (i) Information which becomes available to any Party or its respective Affiliates from a third party as a matter of right without restriction of disclosure; (ii) Information which is, or which becomes, part of the public domain; and (iii) Information requested by governmental, judicial or financial authorities under the laws, rules or regulations of the United States of America or the Federal Republic of Nigeria. 11.1.3 Nothing in Article 11.1 shall prevent a Party from disclosing Information to: (i) Employees, Affiliates, consultants, contractors, and subcontractors to the extent required for the efficient conduct of operations on the Contract Area, provided such Information is disclosed on terms which provide for the Information to be treated as confidential by the recipient and, in the case of disclosures to consultants, contractors and sub-contractors, the Party making disclosure obtains from such individuals or entities prior to making disclosure a written confidentiality undertaking no less restrictive than the obligation of the disclosing Party under Article 11.1.1; (ii) Any bank or financial institution from which a Party may seek financing, after receiving from it a confidentiality agreement; and (iii) Any recognized stock exchange upon which the shares of the disclosing Party I or an Affiliate, are listed, provided that the Party is required to reveal such information by applicable law or regulation, and to shareholders to the extent a Party must disclose information in an annual or periodic report. 11.1.4 This confidentiality obligation shall continue throughout the term of this Agreement or for five (5) years after a withdrawal by a Party from this Agreement or until (5) years following termination of the License, whichever is the later Page 31 of 71 OPL 75 JOA Atlas/SOGW 20F 11.2 TRADING RIGHTS The OPERATOR and/or the TECHNICAL ADVISOR may, only with the prior written approval of the MANAGEMENT COMMITTEE and on such terms and conditions as it may approve, exchange any data and information for other similar data and information and the OPERATOR and/or the TECHNICAL ADVISOR shall promptly provide the Parties with a confirmed copy of the agreement relating to such exchange and all such data and information. ARTICLE 12 PUBLIC ANNOUNCEMENTS All press releases or public announcements in connection with or concerning the Joint Operations shall be issued by the OPERATOR, or if approved by the MANAGEMENT COMMITTEE by anyone of the Parties, provided that no such release or announcement shall be issued or made unless prior thereto all the Parties have been furnished with a copy thereof and the approval of the MANAGEMENT COMMITTEE has been obtained; and provided further that any Party may propose making a press release or public announcement and may do so only with the prior, approval (including the proposed text thereof) of the MANAGEMENT COMMITTEE; provided further that notwithstanding any failure to obtain such approval, a Party shall not be prohibited from making any press release, announcement, or report which such Party in good faith and in its sole judgment deems to be required by any applicable laws or regulations or the rules or regulations of any stock exchange on which such Party's shares, or the shares of any of its Affiliates, are listed or dealt in, or the Securities and Exchange Commission of the United States of America. ARTICLE 13 RELATIONSHIP OF THE PARTIES, TAXES AND ROYALTIES 13.1 The rights, duties, obligations and liabilities of the Parties shall be several and not joint or collective and each Party shall be responsible only for its individual obligations hereunder. 13.2 Notwithstanding any other provisions of this Agreement, in no event shall any Party be liable to the other Party for loss of prospective profits, or special, indirect or consequential damages, in connection with this Agreement or with Page 32 of 71 OPL 75 JOA Atlas/SOGW 20F respect to any operations related thereto except with regard to established and unremedied breach of dunes under this Agreement. 13.3 Subject to the other provisions of the Contract, this Agreement, the License and any Oil Mining Lease resulting therefrom, the Participating Interests of the Parties shall be owned and held severally and not jointly or collectively, in undivided interests, and each Party waives for itself, and for and on behalf of its successors and assigns, all rights of partition. 13.4 Except as otherwise provided in Article 9.4, each Party is solely and individually responsible for any and all taxes which may become due with respect to that Party's earnings or income resulting from the operations contemplated under this Agreement, as well as from any source (including its own depreciation and amortization policy); provided that each party shall indemnify, defend and hold harmless the other Party from and against any loss, cost or liability arising from that Party's obligations for any such taxes. ARTICLE 14 ASSIGNMENT 14.1 Neither Party may assign, transfer, divide or otherwise dispose of all or part of its rights or obligations hereunder, except to an Affiliate, without the prior written consent of the other Party. Any assignee or successor shall be bound by the terms of this Agreement, and any assignment shall be subject to any required approvals by the Minister. In the event a Party makes an assignment to an Affiliate, the Party shall promptly notify the other Party of such assignment. ARTICLE 15 ABANDONMENT 15.1 In so far as the Parties to the License are obligated by any law, rule or regulation to remove from the continental shelf installations, which are no longer in use, the Parties, in order to assure themselves that the funds for the removal of offshore installations will be available when needed, hereby agree that when the MANAGEMENT COMMITTEE shall determine that the current value of existing recoverable reserves (net of royalty and taxes) from the License equals the gross cost of production of such reserves plus the estimated gross cost of removal of such offshore installations, the Parties shall so advise the Minister for the purpose of determining what action should be taken, if any, to ensure necessary resources are available when the Commercial Discovery ceases to produce and the installations need to be dismantled. Each Party shall be liable for its Participating Interest share of the removal costs. Page 33 of 71 OPL 75 JOA Atlas/SOGW 20F ARTICLE 16 FORCE MAJEURE 16.1 No Party hereto shall be liable for any failure to perform, or delay in performing, any of its obligations hereunder, to the extent that such performance has been delayed, prevented or otherwise hindered by an event of Force Majeure. For the purpose of this Agreement "Force Majeure" shall include, but not be limited to, hostillities, restraints of rulers or people, revolution, civil commotion strike, labor disturbances, epidemic, accident, fire, lightning, flood, wind, storm, earthquake, explosion, blowout, crater, blockade or embargo, lack of or failure of transportation facilities or any law, proclamation, regulation, or ordinance, demand or requirement of any government or any government agency having or claiming to have jurisdiction over the Parties hereto, or any act of God, or any other act of any government, act or omission of supplier or any other cause, whether of the same or different nature, existing or future, that is beyond the control and without fault or negligence of the Party asserting benefit of this Article. 16.2 In the event Force Majeure causes a suspension of the obligations of any Party, that Party shall give notice as soon as reasonably possible to the other Parties stating the date and extent of the suspension and the nature of the Force Majeure. Any Party whose obligation has been suspended shall take all reasonable steps to remove the Force Majeure situation and shall resume the performance of that obligation as soon as reasonably possible after the removal of the Force Majeure and shall so notify the other Party. Force Majeure as to one obligation is not, per-se. Force Majeure as to any other obligations. 16.3 The settlement of strikes and lockouts shall be entirely within the discretion of the affected Party, and the requirement that Force Majeure shall be remedied with all reasonable dispatch, shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing Party when such a course is deemed inadvisable in the discretion of the affected Party. Page 34 of 71 OPL 75 JOA Atlas/SOGW 20F ARTICLE 17 GOVERNING LAW AND ARBITRATION 17.1 This Agreement shall be governed by and constructed in accordance with the laws of the Federal Republic of Nigeria, except such provisions hereof which would require the application of the laws of another jurisdiction. 17.2 For purposes of enforcing any arbitration award rendered pursuant to the provisions of Article 17.3 below: 17.2.1 SOGW hereby appoints the Attorney General of the Commonwealth of the Bahamas, as its agent for service of process and hereby waives any claim of lack of jurisdiction of the courts of the Bahamas OVER SOGW or any award, and agrees that any such award shall be enforceable in the Bahamas; and 17.2.2 ATLAS hereby appoints the Attorney General of the Federal Republic of Nigeria as its agent for service of process and hereby waives any claim of lack of jurisdiction of the courts of the Federal Republic of Nigeria over ATLAS or any such award, and agrees that any such award shall be enforceable in the Federal Republic of Nigeria. 17.2.3 Notwithstanding anything contained in the Contract to the contrary, any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination, shall be settled before an arbitration committee composer of three arbitrators, one to be appointed by ATLAS and one to be appointed by SOGW, in accordance with the Rules of Reconciliation and Arbitration of the International Chamber of Commerce, with the third arbitrator to be appointed by the two arbitrators appointed by the Parties. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The place of arbitration shall be Geneva, Switzerland, and all proceedings shall be conducted in the English language. A dispute shall be deemed to have arisen when any Party gives notice to the other Party to that effect. ARTICLE 18 NOTICES 18.1 Any notice to be given hereunder shall be in writing and may be delivered by hand, sent by certified or registered mail or transmitted by cable or facsimile to the relevant address set forth below, or such other address as may be communicated by the relevant Party to the other Party from time to time. Any notice, communication or delivery hereunder shall be deemed to have been duly made when personally delivered to, or when a cable or facsimile has been received at, the address indicated below; or if mailed, when received by the Party charged with such notice at the address indicated below. Page 35 of 71 OPL 75 JOA Atlas/SOGW 20F 18.2 The relevant addresses for all notices shall be as follows: If to ATLAS: ATLAS PETROLEUM INTERNATIONAL LIMITED No. 1B IBIYINKA OLORUNNIIMBE CLOSE OFF AMODU OJIKUTU STREET VICTORIA ISLAND LAGOS NIGERIA ATTENTION: ENGR. PRINCE ARTHUR EZE TELEPHONE No: (234)(1)2615296, 2615689 FACSIMILE No:(234)(1)2615689 If to SOGW: SUMMIT OIL & GAS WORLDWIDE LTD. 2200 ROSS AVENUE, SUITE 4300E, LB170 DALLAS, TEXAS 75201 U.S.A. ATTENTION: DON V. INGRAM TELEPHONE No: (214) 220-4300 FACSIMILE No.: (214) 220-4349 Any Party may at any time and from time to time change its address and the person to whose attention notices are to be sent on fifteen (15) days' advance written notice to the other Parties. ARTICLE 19 MISCELLANEOUS PROVISIONS 19.1 This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Parties; provided, however, this sub-Article shall not be deemed to authorize assignments permitted herein. 19.2 During the term of this Agreement, no Party shall in respect of its Participating Interest create any royalty interest, overriding royalty interest, net profits interest, or other similar interests, out of its Participating Interest hereunder which would in any way affect the Participation lnterest of any of the other Parties. Page 36 of 71 OPL 75 JOA Atlas/SOGW 20F 19.3 Notwithstanding any other provision in this Agreement, in performing under this Agreement, the OPERATOR, the TECHNICAL ADVISOR or any party acting on behalf of the OPERATOR or the TECHNICAL ADVISOR or refrain from taking any action or agree to take or refrain from taking any action, if such agreement, action or refraining from action would be penalized under Nigerian or United States law regulations. The OPERATOR and the TECHNICAL ADVISOR shall obligate any party acting on their behalf to agree to the provisions of this paragraph. 19.4 None of the rights, requirements or provisions of this Agreement shall be deemed to have been waived by any Party by reason of such Party's failure to enforce any right or remedy granted hereunder or to take advantage of any default and each Party shall at all times have the right to require strict compliance with the provisions of this Agreement. 19.5 At any time the Parties may unanimously agree to amend this Agreement. 19.6 No amendments, changes or modifications to this Agreement shall be valid except if the same are in writing and signed by a duly authorized representative of each of the Parties. 19.7 The Parties acknowledge and agree that the terms and provisions of this Agreement in material part are based upon and specify in greater detail the terms and provisions of this Contract. In the event of any irreconcilable conflict between the terms and provisions of this Agreement and the terms and provisions of the Contract, the terms and provisions of this Agreement shall prevail. In the event of a conflict of the main body of this Agreement with the terms and provisions of any of the other Exhibits attached hereto however, the terms and provisions of the main body of the Agreement shall prevail. Page 37 of 71 OPL 75 JOA Atlas/SOGW 20F 19.8 If the Contract and this Agreement are terminated prior to Payout, ATLAS shall ensure that all Joint Property is disposed of, in accordance with the directives of the MANAGEMENT COMMITTEE for the benefit of the Joint Account. Any dispositions of Joint Property not in accordance with the directives of the MANAGEMENT COMMITTEE shall be borne by ATLAS who shall account therefore to the Joint Account. 19.9 During the term of this Agreement, in the event Joint Property is stolen or disposed in a manner not in accordance with directives of the MANAGEMENT COMMITTEE through no fault of the Operations Manager, then the cost of replacement of such Joint Property shall be borne by the Parties in accordance with their Participating Interests. ARTICLE 20 The provisions of Article 27.1 of Exhibit "E" are hereby deleted. ARTICLE 21 The Contract and all other Exhibits attached to this Agreement are hereby amended to the extent of their inconsistency with this Agreement. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in triplicate originals by their duly authorized officers as of the day and year first above written. ATLAS PETROLEUM INTERNATIONAL LTD. By: ------------------------------ Name: ---------------------------- Title ---------------------------- SUMMIT OIL & GAS WORLDWIDE LTD. By: ------------------------------ Name: ---------------------------- Title ---------------------------- Page 38 of 71 OPL 75 JOA Atlas/SOGW 20F EXHIBIT "A" [copy of AGREEMENT between ATLAS PETROLEUM INTERNATIONAL LIMITED and SUMMIT PARTNERS MANAGEMENT CO. relating to OIL PROSPECTING LICENSE 75, FEDERAL REPUBLIC OF NIGERIA dated July 17, 1992] Page 39 of 71 OPL 75 JOA Atlas/SOGW 20F EXHIBIT "B" [copy of Grant of Oil Prospecting License 75 dated March 27, 1991 from the Minister of Petroleum Resources, Nigeria to Atlas Petroleum Int. Ltd.] Page 40 of 71 OPL 75 JOA Atlas/SOGW 20F EXHIBIT C To Joint Operating Agreement dated August 31st, 1992 between Atlas Petroleum International Limited and Summit Partners Management Co. ACCOUNTING PROCEDURE The purpose of this Accounting Procedure is to establish equitable methods for determining charges and credits applicable to operations carried out under the Agreement. The Parties agree that if any of such methods prove unfair or inequitable, the Parties shall meet and in good faith endeavor to agree on changes in methods as necessary to correct the unfairness or inequity. A. Definitions 1. "BASE CURRENCY" shall mean United States of America Dollars. 2. "CASH BASIS" means that basis of accounting under which costs and benefits are regarded as applicable to the period in which the liability or the cost is paid or the right to the benefit is received. 3. "CONTROLLABLE MATERIAL" shall mean material which is subject to record control and inventory. The Technical Advisor or Operator shall furnish a list of types of such materials to the Parties upon request. 4. "MATERIAL " shall mean personal property, including supplies and equipment, acquired and held for use in Joint Operations. If not specifically defined herein, capitalized terms appearing in this Accounting Procedure shall have the meanings ascribed to them in the Agreement. B. STATEMENTS 1. Each Party is responsible for preparing its own accounting and tax reports and for payment of its share of tax obligations to meet the requirements of the Government or any other country, except as otherwise agreed in writing between the Parties. The Technical Advisor shall furnish to the Parties statements and billings in such form as may be reasonably required for the discharge of such responsibilities. Page 41 of 71 OPL 75 JOA Atlas/SOGW 20F 2. Unless otherwise specified herein, all monetary sums stated herein, and all sums set out in the statements and reports required herein, shall be prepared and reported both in the currency expended and the Base Currency. 3. Statements shall be in a form that will satisfy the Parties without imposing an undue burden on the Technical Advisor . 4. Unless otherwise agreed or specified by the Management Committee, all statements and billings shall be prepared and submitted on a Cash Basis. 5. Any charges or credits resulting from the sale or transfer of Joint Account fixed assets or from prior transactions chargeable to the Joint Account shall be reported to the Parties in the currency that was originally expended for that item and if different also in the Base Currency. 6. All issues from and recoveries to warehouse stock shall be made at an average price for all such items held in warehouse stock priced in the Base Currency. All charges for purchases of additions to warehouse stock shall be reported in both the currency actually expended for that purchase and if different also in the Base Currency. 7. The Technical Advisor shall submit the following statements to the Parties within thirty (30) days following each Month, reflecting each Party's proportionate share of costs, expenditures and advances made or incurred during that Month and the Calendar Year to date: a. A summary of all charges and credits to the Joint Account summarized by appropriate classification indicative of the nature of the charge or credit, except that unusual charges and credits shall be detailed and items of Controllable Material shall be reasonably detailed. b. Such other statements as may be subsequently required or agreed to by the Management Committee. c. All billings shall be presented in the currencies for each of the classifications as described under Clause B. 7.a above. Each billing shall present the currency rate used in the current Month to convert one currency to the other. d. A reconciliation shall be provided to compare the amount of each currency advanced by the Parties with the actual expenditures made in each of the currencies by the Technical Advisor. Any resulting balance of this reconciliation shall be adjusted on the first available Cash Call. Page 42 of 71 OPL 75 JOA Atlas/SOGW 20F C. ADVANCES, PAYMENTS AND INTEREST RECOVERY 1. ADVANCES a. The Technical Advisor shall be entitled to request Cash Calls from the Parties in sufficient amounts to meet their proportionate share of all expenditures under the Joint Account with the objective that the requested Cash Calls would equal the anticipated expenditures; provided, however, that no Cash Calls shall be made against ATLAS until after Payout, except as specifically permitted in the Agreement. b. Requests for Cash Calls shall, be submitted to the Parties not later than the twentieth (2Oth) day of each Month. The Technical Advisor shall advise the Parties of the estimated total cash required for Joint Operations during the succeeding Month and an estimate of the amount required for the next three (3) Months. The total cash requirements shall be stated in the currencies in which expenditures are expected to be made. Forecasts of major expenditures shall be supported by an explanation upon request. c. Should the Technical Advisor be required to pay any large sums of money under the Joint Operations which were unforeseen at the time of providing the Parties with said monthly estimates of its requirements, the Technical Advisor may make a written request to the Parties for special advances covering the Parties' share of such payments. Similarly if any specific project is delayed or canceled, the Technical Advisor shall adjust the immediately ensuing Monthly cash advance requests to conform to the new cash requirements. d. The Parties shall be required to advance their proportionate share of requirements of each currency in accordance with payment instructions provided by the Technical Advisor by the tenth (10th) of the succeeding Month. e. Interest, if any, on Joint Account balances, should they be carried, shall accrue for the benefit of the Parties, provided that interest on costs and expenses recoverable by SUMMIT in computing Payout shall accrue for the benefit of SUMMIT. Page 43 of 71 OPL 75 JOA Atlas/SOGW 20F 2. PAYMENTS Each Party shall be billed for its share of the cost of the Joint Operations in the currency actually expended; provided, however, that no Cash Calls shall be made against ATLAS until after Payout, except as specifically permitted in the Agreement. Expenditures and commitments shall be recorded in the Joint Account in the currency expended by the Technical Advisor. A reconciliation shall be included as part of the Monthly billing as described under Clause B. 7 .d above. Any difference between the amount showing as advanced and expended shall be adjusted on the first available Cash Call. 3. LATE PAYMENTS If payments due under Clauses C.l and C.2 above, are not paid by the due date then, without prejudice to any of the rights of Operator or Technical Advisor under the terms of the Agreement, such unpaid balance shall bear interest at a rate of ten percent (10%) per annum on the amounts outstanding during the period of non-payment. D. ADJUSTMENTS 1. Payment of any billings shall not prejudice the right of any Party to question the correctness thereof . 2. Each statement for any Month during any Calendar Year shall be subject to correction or objection by each Party if such correction or objection is made in writing within two (2) Calendar Years after the end of such Calendar Year, with adequate specification of the item or items corrected or objected to and the reason for the correction or objection. Each statement that is not so corrected or objected to before the end of the said period of two (2) Calendar Years shall thereafter be final and conclusive except for adjustments resulting from physical inventory as provided in this Accounting Procedure. E. CURRENCY EXCHANGE It is the intent of this Agreement and Accounting Procedure that neither the Technical Advisor nor Operator shall experience any gain or loss on the exchange or conversion of currencies. The applicable exchange rate shall be the "Oil Rate" as published each month by the Central Bank of Nigeria. F. AUDITS Each of the Parties shall have the right at its sole expense to conduct an annual audit of the Joint Account and records relating to the accounting hereunder for any Calendar Year within twenty-four (24) Months next following the end of such Calendar Year. In this connection the auditing Parties shall have full access to all Joint Account books and records Page 44 of 71 OPL 75 JOA Atlas/SOGW 20F kept for the Joint Operations. The auditing Parties agree to restrict the number of auditors representing each Party to only those reasonably required. The conducting of an audit shall not extend the time for the taking of written exception to, and the adjustment of, the Joint Account under Clause D.2 above. As an alternative to the foregoing and, within the time limits set out above, the Management Committee may decide, but not more frequently than once per Calendar Year, to require the Financial Director to cause an audit of its books and accounts to be conducted by a firm of independent auditors possessing a good international reputation. If any Party desires to make an audit, it shall give the Financial Director and the other reasonable written notice prior to the date such audit is to start. If any party elects not to participate in the audit, it shall still be bound by the findings of the audit. The auditing Parties shall make every reasonable effort to conduct audits in a manner which will result in a minimum of inconvenience to the Technical Advisor or Operator. The auditing Parties shall provide the Financial Director with the audit report no later than sixty (60) days after completion of the audit and the Financial Director shall reply to the auditing Parties' audit report within sixty (60) days after receipt of the audit report. G. CHARGEABLE COSTS AND EXPENDITURES The Financial Director shall charge the Joint Account for all costs necessary to conduct the Joint Operations which are included in an approved Joint Budget or are otherwise incurred in accordance with the terms of the Agreement. Such costs shall include, but shall not be limited to: 1. LICENSE PAYMENTS Expenditures necessary to acquire and to maintain rights to the Contract Area. 2. LABOR AND RELATED COSTS Salaries and wages of employees of the Operator and the Technical Advisor who are directly engaged in the conduct of the Joint Operations, whether temporarily or permanently assigned in the Federal Republic of Nigeria or elsewhere, as well as the cost of employee benefits, customary allowances and personal expense incurred under the Operator's or the Technical Advisor's usual practice, and amounts imposed by Government authorities which are applicable to such employees. Page 45 of 71 OPL 75 JOA Atlas/SOGW 20F 3. MATERIAL Material purchased or furnished by the Operator or the Technical Advisor for use in Joint Operations as provided under Clause H below. 4. EMPLOYEE RELOCATION COSTS a. Transportation of personal effects of employees and their families and other related costs such as expediting, crating, dock charges, inland and ocean freight and unloading at destination. b. Transportation of employees and their families as required in the conduct of Joint Operations. c. Relocation costs to and from (except when employee is reassigned to another foreign location) the general vicinity of the Contract Area of employees permanently or temporarily assigned to the Joint Operations, in accordance with the Operator's or the Technical Advisor's usual practice. 5. SERVICES a. Contract services, including the charges for services provided by Technical Advisor or its Affiliates in accordance with the provisions of the Agreement and Exhibit D, professional consultants, and other services procured from outside sources. b. Use of equipment and facilities furnished by the Operator or the Technical Advisor at rates commensurate with the cost of ownership or rental, and the costs of operation thereof. 6. DAMAGES AND LOSSES TO JOINT PROPERTY All costs or expenses necessary for the repair or replacement of Joint Property resulting from damages or losses incurred by fire, flood, storm, theft, accident or any other cause. The Technical Advisor or Operator shall furnish the Parties notice of damage or losses in excess of Fifty Thousand U.S. Dollars ($50,000) each, as soon as practicable. 7. INSURANCE a. Premiums for insurance approved by the Management Committee except that the Parties not participating in any optional insurance shall not share in the costs of such insurance. b. Credits for settlements received from the insurance carrier and others; however, if some Parties do not participate in the insurance they shall not share in any such settlements. Page 46 of 71 OPL 75 JOA Atlas/SOGW 20F c. Actual expenditures incurred in the settlement of all losses, claims, damages, judgements, and other expenses for the benefit of the Joint Operations. 8. LEGAL EXPENSE All costs or expenses of handling, investigating and settling litigation or claims arising by reason of the Joint Operations or necessary to protect or recover the Joint Property, including, but not limited to, attorney fees, court costs, cost of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims. 9. DUTIES AND TAXES All duties, levies, and taxes (except taxes based on income), fees and government assessments of every kind and nature (other than those on profits or income of the Parties). 10. OFFICES, CAMPS AND MISCELLANEOUS FACILITIES The cost of equipping, furnishing, maintaining and operating any offices, suboffices, camps, shore bases, warehouses, housing and other facilities directly serving the Joint Operations. If such facilities serve operations in addition to the Joint Operations, the net cost shall be allocated to the properties served on the basis of time sheets maintained by the personnel who work in such facilities unless the Management Committee shall agree on an alternate method of allocation. 11. PROFESSIONAL AND ADMINISTRATIVE SERVICE EXPENSE The cost of professional and/or administrative services provided by the Technical Advisor, including, but not limited to, accounting, tax, treasury, and computer services, which the Technical Advisor may use in lieu of having to hire its own employees, when such services are for the direct benefit of the Joint Operations and have been requested by the Technical Advisor. 12. SCIENTIFIC OR TECHNICAL PERSONNEL The cost of scientific or technical personnel of the Technical Advisor or scientific or technical consultants, for performance of services for the benefit of Joint Operations. 13. PERSONNEL TRAINING COSTS Page 47 of 71 OPL 75 JOA Atlas/SOGW 20F All costs and expenditures incurred for training and developing personnel in accordance with the provisions of the Agreement and Nigerian law. 14. OTHER EXPENDITURES Any other expenditures not covered or dealt within the foregoing provisions which are incurred by the Operator or the Technical Advisor for the necessary and proper conduct of the Joint Operations. H. MATERIAL 1. Material purchased or furnished by the Operator or the Technical Advisor shall be charged at net cost incurred by the Operator or Technical Advisor. Net cost shall include but shall not be limited to, such items as transportation, duties, license fees, discount, inventory storage costs and applicable taxes. 2. New Material (Condition "1") transferred from the Operator's or the Technical Advisor's stock or other properties shall be priced at new purchase net cost determined in accordance with Clause H.l above. Good used Material (Condition "2"), being used Material in sound and serviceable condition, suitable to reuse without reconditioning, shall be priced at seventy-five percent (75 %) of such new purchase net cost. Used Material which cannot be classified as Condition "2" shall be priced at a value commensurate with its use. 3. When Material is temporarily transferred and its service to the Joint Account does not result in reduction in price under Clause H.2 above, such Material shall be priced on a basis that will leave a net charge to the Joint Account consistent with the value of the service rendered. I. DISPOSALS 1. Neither the Operator nor the Technical Advisor shall be under any obligation to purchase the interest of the Parties in new or used surplus Material. Operator and/or the Technical Advisor shall have the right to dispose of surplus Materials but shall advise and secure prior agreement of the Management Committee of all proposed dispositions of Materials the cost of which, in the aggregate, exceeded Fifty Thousand U.S. Dollars ($50,000). 2. Proceeds from all sales shall be credited to the Joint Account at the net amount actually collected. J. INVENTORIES Page 48 of 71 OPL 75 JOA Atlas/SOGW 20F 1. Inventories shall be taken by the Technical Advisor or Operator of all Controllable Material at least annually. The Technical Advisor or Operator shall give ninety (90) days' written notice of its intention to take such inventories to allow the Parties to be represented when any inventory is taken. Failure of any Party to be represented shall bind such Party to accept the inventory taken by the Technical Advisor or Operator. 2. Reconciliation of the inventory with the Joint Account shall be made and a list of overages and shortages shall be furnished to the Parties within ninety (90) days after the last day of the inventory. Inventory adjustments shall be made to the Joint Account. 3. Whenever there is a sale or change of interest in the Joint Property, a special inventory may be taken by the Technical Advisor or Operator, and the seller 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 governed by the inventory so taken. K. PARTY PROPERTY Whenever the Management Committee so agrees, the Operator or the Technical Advisor may utilize in Joint Operations equipment and/or facilities belonging to any Party hereto. For the use of such equipment and/or facilities the Joint Account shall be charged a rental rate as agreed upon by the Management Committee on the basis of actual usage on or service to the Joint Operations at rates commensurate with the cost of ownership and operations. Page 49 of 71 OPL 75 JOA Atlas/SOGW 20F EXHIBIT D to Joint Operating Agreement dated August 31st, 1992 between Atlas Petroleum International Limited and Summit Partners Management Co. TECHNICAL SERVICES The purpose of this exhibit is to describe the services to be provided by SUMMIT as the Technical Advisor, together with the charges and fees for such services. I DEFINITIONS Except as otherwise defined herein, the terms used herein shall have the same meaning as set forth in the Agreement. II TECHNICAL SERVICES AND ADVICE 2.1 DESIGNATION In accordance with Article 5 of the Agreement, the Parties designate SUMMIT as Technical Advisor for the License and SUMMIT agrees to accept and perform the responsibilities and duties associated therewith. 2.2 DUTIES AND RESPONSIBILITIES The Technical Advisor will have the general responsibility of providing, by itself or through Affiliates, services and technical and operational expertise necessary or appropriate for the conduct of Joint Operations on the Contract Area, including without limitation the recruitment of necessary experts and technical personnel. In this regard, the Technical Advisor shall be responsible for such matters as geological and geophysical services, interpretation and supervision; drilling and completion services and supervision; testing and producing services; shore based equipment, warehousing, etc; engineering services and facilities, including reservoir management and gas compression facilities; and maintaining the Joint Account prior to Payout. Without limiting the generality of the foregoing, the Technical Adviser shall: Page 50 of 71 OPL 75 JOA Atlas/SOGW 20F 2.2.1 Perform Joint Operations in accordance with the provisions of the Agreement and the instructions of the Management Committee; 2.2.2 Conduct all Joint Operations in a diligent, safe and efficient manner in accordance with Nigerian law and good and prudent oil field practices and conservation principles generally followed by the international petroleum industry under similar circumstances; 2.2.3 Prepare and submit to the Management Committee the proposed Joint Programs, Joint Budgets and AFEs, and perform other duties as assigned; 2.2.4 Permit the representatives of any of the Parties to have at all reasonable times and at their own risk and expense reasonable access to the Joint Operations with the right to observe all such Joint Operations and to inspect all Joint Property and to conduct financial audits as provided in the Accounting Procedure; 2.2.5 Take all necessary and proper measures for the protection of life, health, the environment and property in the case of an emergency; provided, however, the Technical Advisor shall immediately notify the Parties of the details of such emergency and measures; and 2.2.6 In accordance with the Agreement and Article 2.4 hereof, provide ATLAS with assistance and guidance in the development and execution of training plans and programs in order to develop competent Nigerian personnel. 2.3 WORKING RELATIONSHIP 2.3.1 In the conduct of the Joint Operations contemplated in the Agreement, the Technical Advisor and ATLAS shall fully consult with each other on a regular basis, in a harmonious manner and as frequently as may be required, for the purpose of reviewing and scheduling the activities being carried out under this Agreement. 2.3.2 Nothing contained herein shall be construed as representing any assignment by ATLAS of its responsibility as Operator of the License. Technical Advisor shall always fulfill its responsibilities and perform the duties described herein under the general direction of the Management Committee. Page 51 of 71 OPL 75 JOA Atlas/SOGW 20F 2.4 TRAINING In addition to providing the services specified hereinabove, the Technical Advisor shall, in accordance with training plans and programs approved by the Management Committee, do all that can be reasonably required to result in each Nigerian employee of the Operator reaching the highest possible level of qualification. Without limiting the generality of the foregoing, it is contemplated that the Technical Advisor shall: 2.4.1 assist ATLAS in the development of training programs, both for individuals and groups of trainees, 2.4.2 assist ATLAS in the evaluation and selection of training opportunities and materials such as industry seminars, specialty training, commercial programs, etc., 2.4.3 assist ATLAS in the development of individual programs for the provision of formal university education for its employees, especially in the fields of the earth sciences, engineering, computing and/or finance, 2.4.4 assist ATLAS in the periodic evaluation of the progress of trainees, including the development of meaningful evaluation criteria, 2.4.5 provide on-the-job training opportunities to qualified employees, in Nigeria where possible, and at foreign locations if necessary to provide the required training, 2.4.6 provide coordination and support services to trainees and students receiving training in foreign locations where SUMMIT has the required staff and facilities to provide such services, 2.4.7 bring to Nigeria and present training courses and programs which have been found to be successful elsewhere in the training and development of petroleum personnel, 2.4.8 provide to the Nigerian employees of ATLAS training in SUMMIT's sole discretion either in the U.S.A. or through its international network of branches or subsidiaries, 2.4.9 furnish such operational and procedural manuals, circulars and other publications prepared and used by the Technical Advisor as the Technical Advisor may in its sole discretion determine to be relevant to ATLAS' business, and 2.4.10 provide technical assistance in connection with the computerization projects of ATLAS. Page 52 of 71 OPL 75 JOA Atlas/SOGW 20F 2.5 NOMINATION OF TRAINEES, PROGRAMS AND COSTS ATLAS shall nominate all candidates for training and development carried out under this Agreement. All training shall be conducted in conformance with training programs and budgets approved by the Management Committee and the costs thereof shall be borne by the Joint Account. 2.6 SUBCONTRACTORS SUMMIT may subcontract any of the services to be provided hereunder to a parent company, Affiliate, subsidiary or third party. III ESTABLISHMENT OF PRESENCE IN NIGERIA 3.1 OFFICES AND EMPLOYMENT ATLAS will provide offices for the Technical Advisor in Nigeria. The number of employees required to perform such services will be at the sole discretion of the Technical Advisor; however, the Technical Advisor will employ no more than the number of employees which may reasonably be required to carry out such services. 3.2 PERSONNEL Any of SUMMIT's or its Affiliates' personnel performing services to be provided by the Technical Advisor hereunder shall remain at all times the employees of SUMMIT or its Affiliates and shall not, for any purposes, be regarded as employees of ATLAS. SUMMIT or its Affiliates shall remain solely responsible for the payment of their salaries and benefits. SUMMIT may, at any time, transfer and replace any such personnel. 3.3 VISAS AND WORK PERMITS 3.3.1 ATLAS pledges, if necessary, to use its good offices to assist in obtaining any visas, work permits or other like permits which may be required by the Government in connection with the use by the Technical Advisor of necessary expatriate employees in performing services for ATLAS as Technical Advisor hereunder. 3.3.2 SUMMIT pledges, whenever necessary, to use its good offices to assist in obtaining any visas, work or other like permits which may be required by the U.S. Government in connection with the training of Nigerian personnel. Page 53 of 71 OPL 75 JOA Atlas/SOGW 20F IV REIMBURSEMENT OF SERVICE5 4.1 COST OF SERVICES The Technical Advisor shall charge the Joint Account for the costs of providing the services described in this Exhibit. Such charges shall be in accordance with the Accounting Procedure of the Agreement and shall be subject to recovery out of the proceeds from the sale of Petroleum. The Parties agree that charges made by the Technical Advisor hereunder are expected to reflect one hundred five percent (105 %) of its actual cost of providing such goods and/or services. 4.2 ADMINISTRATIVE OVERHEAD In addition to the costs chargeable under the Accounting Procedure of the Agreement, the Technical Advisor shall charge monthly to the Joint Account a percentage of the total capital and operating expenditures, excluding charges for License payments, duties, levies and/or taxes and foreign exchange adjustments and Administrative Overhead itself , as follows:
Nature of Expenditure Overhead % - --------------------- ---------- Exploration & Appraisal Drilling 8% Development Expenditures (platforms, pipelines, producing wells, etc.) 6% Operating Expenses 5%
Administrative Overhead represents the overhead costs of the Technical Advisor's parent company and Affiliated Companies which, according to generally accepted accounting practices, are attributable and allocable to the Joint Operations. The Technical Advisor warrants that any overhead costs allocated and charged hereunder does not or will not duplicate any parent company or Affiliated Company direct charges billed under the Agreement. Page 54 of 71 OPL 75 JOA Atlas/SOGW 20F EXHIBIT E to Joint Operating Agreement Dated August 31st, 1992 Between Atlas Petroleum international Limited and Summit Partners Management PROVISIONS APPLICABLE AFTER PAYOUT After Payout, the terms and provisions of this EXHIBIT E shall become applicable to operations on the Contract Area. ARTICLE 22 ADDITIONAL DEFINITIONS 22.1 "CASH CALL" means any request for an advancement of cash to be made to the Parties in accordance with Article 23 and the Accounting Procedure to provide funds for the Joint Operations. 22.2 "COMPLETION" means an operation intended to complete a well through the Christmas tree as a producer of Petroleum in one or more Zones, including, but not limited to, the setting of production casing, perforating, stimulating the well and production testing conducted in such operation. Complete and other derivatives shall be construed accordingly. 22.3 "DEEPENING" means an operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled, or below the deepest Zone proposed in the associated APE, whichever is deeper. Deepen and other derivatives shall be construed accordingly. Page 55 of 71 OPL 75 JOA Atlas/SOGW 20F 22.4 "DELIVERY POINT" means the place of delivery , designated by the Management Committee, at which point each party shall assume its separate title to and risk of loss of offtake production from the Contract Area. 22.5 "PLUGGING BACK" means a single operation whereby a deeper Zone is abandoned in order to attempt a Completion in a shallower Zone. Plug Back, and other derivatives shall be construed accordingly. 22.6 "RECOMPLETION" means an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in a different Zone within the existing wellbore. Recomplete and other derivatives shall be construed accordingly. 22. 7 "REWORKING" means an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations, but exclude any routine repair or maintenance work, or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of a well. Rework and other derivatives shall be construed accordingly. 22.8 "SIDETRACKING" means the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless done to straighten the hole or to drill around junk in the hole. Sidetrack and other derivatives shall be construed accordingly. 22.9 "SOLE RISK DEVELOPMENT" means development operations conducted pursuant to the provisions of Article 26. 22.10 "SOLE RISK DRILLING" means drilling operations conducted pursuant to the provisions of Article 26. 22.11 "SOLE RISK PROJECT" means an operation conducted pursuant to Article 26 on behalf and at the risk, cost and expense of less than all the Parties. 22.12 "SOLE RISK PARTY(IES) " means a Party or Parties (comprising less than all of the Parties) on whose behalf and at whose risk, cost and expense, a Sole Risk Project is being conducted under the provisions of this Agreement. 22.13 "ZONE" means a stratum of earth determined to be correlatable by specific wells as containing or thought to contain a common accumulation of Petroleum separately producible from any other accumulation of Petroleum. Page 56 of 71 OPL 75 JOA Atlas/SOGW 20F ARTICLE 23 CASH CALLS 23.1 Requests for Cash Calls and payments in response thereto shall be made in accordance with the Accounting Procedure. 23.2 Each Party shall provide the type of currency requested by the Financial Director and deposit such funds in the bank accounts specified by the Financial Director 23.3 The Technical Advisor may make special Cash Calls which are approved by the Management Committee if unforeseen expenditures develop. Such approved special Cash Calls shall be paid as directed by the Technical Advisor within ten (10) Days after receipt of notice thereof by the Parties. 23.4 The Financial Director shall account for all sums advanced, and for all charges and commitments made to the Joint Account and shall provide monthly billings to the Parties as specified in the Accounting Procedure. ARTICLE 24 DEFAULT 24.1 FAILURE TO PAY 24.1.1 Should any Party (hereinafter called "Defaulting Party") fail to pay in full its share of any estimated cash requirements as provided in Article 23 or any amounts otherwise payable by it under this Agreement (hereinafter referred to as "Defaulted Amount") by the due date, such Defaulting Party shall be considered to be in default. The Financial Director shall immediately issue notice to and consult with the Defaulting Party and, if then necessary in the Financial Director's opinion, shall: (i) issue notice to the non-defaulting Parties of such default; and (ii) make a supplemental Cash Call in respect of the Defaulted Amount to such non-defaulting Parties. 24.1.2 If such default continues for more than six (6) Business Days following the receipt of such supplemental Cash Call by the non-defaulting Parties (receipt for these purposes being deemed to be within one Day of the making of the Cash Call), then each non-defaulting Party shall pay on the Business Day next following such sixth business Day a share of the Defaulted Amount in the proportion that its Participating Interest bears to the total of the Participating Page 57 of 71 OPL 75 JOA Atlas/SOGW 20F Interests of the non-defaulting Parties and, without detracting from the obligations of the Defaulting Party, shall thereafter, if the Defaulting Party continues to default or fails to pay in the future, continue to pay, in addition to its own share of subsequent Cash Calls, the same proportion of the Defaulting Party's shares of all subsequent Cash Calls until the default has been remedied as provided in Article 24.2. The non-defaulting Parties sha11 have a right of action against the Defaulting Party, among other things, for all monies paid out hereunder and any interest due thereon by such non-defaulting Parties on account of the Defaulting Party's failure to pay. 24.1.3 Should any non-defaulting Party fail to make any payment required under the terms of Article 24.1.2, such failure to pay shall likewise be a default under the provisions of this Agreement and the provisions of this Article shall apply, mutatis mutandis, to such default. 24.2 REMEDY OF DEFAULT The Defaulting Party shall have the right to remedy the default by payment in full to the Financial Director of all amounts in respect of which the Defaulting Party is in default together with interest thereon calculated on a day-to-day basis at a rate which shall be five percent (5% ) per Month, from and including the due date for payment of such amounts until the actual date of payment to the Financial Director. To the extent such amounts in default shall have been paid by any non-defaulting Party pursuant to Article 24.1.2, the Financial Director shall promptly reimburse such amounts to such non-de-faulting Party together with the interest thereon. To the extent that such amounts in default may not yet have been paid by the non-defaulting Parties, interest paid by the Defaulting Party shill be settled outside the Joint Account but in related records, among the non-defaulting Parties who have so contributed, in proportion to their actual contributions in respect of the Defaulted Amount. 24.3 CONTINUATION OF DEFAULT 24.3.1 Should the default continue for more than six (6) Business Days, then the Defaulting Party shall forfeit for as long thereafter as the default shall persist: (i) all of its rights under this Agreement to vote and to attend meetings of or otherwise participate in decisions taken by the Management Committee, and decisions of the Management Committee shall be made by excluding the members of the Management Committee appointed by the Defaulting party; Page 58 of 71 OPL 75 JOA Atlas/SOGW 20F (ii) all of its rights to Petroleum produced or otherwise deliverable to it until the non-defaulting Parties have recovered the amount in default; and (iii) all of its rights of access to data and information it would otherwise be entitled to; (iv) which rights shall (subject to the necessary consents of the Government) vest in the non-defaulting Parties in proportion to their respective contributions under Article 24.1.2 in respect of any payment obligations of the Defaulting Party. 24.3.2 Should final abandonment of the Joint operations occur within ten (10) Calendar Years of the default then, notwithstanding any forfeiture under this Article, the Defaulting Party shall remain liable for its Participating Interest share of the abandonment costs, provided always that if the final abandonment occurs more than ten (10) Calendar Years after the default, but the total revenues, net of surface rental, royalties, capital and operating costs which accrue from the Participating Interest so forfeited from the time the Defaulting Party were considered to be in default to the time of abandonment are less than the share of abandonment costs attributable to the Participating Interest so forfeited, the Defaulting Party shall remain liable for the difference between such revenues and such and such share of abandonment costs, and the Defaulting Party shall be obligated hereby to keep in place any security which hereafter may be required under applicable laws and regulations, or any agreement with the Minister relating to abandonment costs. ARTICLE 25 DISPOSAL OF PETROLEUM 25.1 Right and Obligation Subject to the other provisions of the Agreement, including this Exhibit, in respect of any Oil Mining Lease: 25.1.1 SUMMIT shall have the right to take and receive thirty percent (30% ) of all Petroleum produced from each Oil Mining Lease and ATLAS shall have the right to take and receive seventy percent (70% ) of all Petroleum produced from each Oil Mining Lease; and 25.1.2 each Party shall have the right to take in kind at the Delivery Point, at which point measurement shall be made and separately, at its own expense, dispose of its share in the total quantities of Petroleum available under an Oil Mining Lease and this Agreement, provided always that the Operator and/or the Technical Advisor shall have the right Page 59 of 71 OPL 75 JOA Atlas/SOGW 20F to use in any operations relating thereto as much of such Petroleum as may be needed by it therefor and the quantities to be so used shall be excluded from the forecasts to be provided by the Operator and/or the Technical Advisor. 25.2 OFFTAKE PROCEDURE Prior to the commencement of production of Crude on, the Management Committee shall adopt a written offtake procedure which shall establish procedures for nominating specific offtakes of Crude Oil on a periodic basis by each Party. 25.3 INABILITY TO DISPOSE 25.3.1 Subject to offtake procedures to be agreed, in the event that any Party shall consider that it will be unable for any reason to take in kind and separately dispose of the whole or any part of its share of the total quantities of Petroleum (other than Natural Gas) which the Operator and/or Technical Advisor has estimated to be available for the relevant period it shall, within twenty (20) Days or the estimate being submitted to the Parties, notify the other Parties to that effect, stating the quantities that it will be unable so to take. The other Parties shall thereupon have the right, exercisable by giving counter-notice within twenty (20) Days of receiving the said notification, to purchase the whole or any part of quantities so notified, subject to reaching agreement with the notifying Party as to the price and terms therefor. 25.3.2 If two or more of the other Parties wish to purchase quantities hereunder, each of them shall be entitled (subject to each of them giving notice and reaching agreement with the notifying Party as to the price and terms therefor) to purchase, first, any quantities required by it which do not exceed the proportion of the notified quantities which its share of Petroleum bears to the total share of Petroleum of those Parties and, secondly, any quantity required by it in excess thereof (or the appropriate proportion), if any, to the extent this is not required and purchased by the other Parties. 25.3.3 In the event that the whole or any part of such notified quantities shall not be purchased as aforesaid, the notifying Party shall be deemed to be unable to lift the unpurchased quantities and the provisions of Article 25.4 shall apply. Page 60 of 71 OPL 75 JOA Atlas/SOGW 20F 25.4 FAILURE TO LIFT CRUDE OIL In the event that any Party should find itself unable for any reason to lift such quantities of Petroleum as are to be lifted by it in accordance with offtake procedures to be agreed, it shall forthwith notify the other Parties to that effect and unless otherwise agreed or provided for in the said offtake procedures such quantities of Petroleum shall not be produced and shall remain and accrue for and to the benefit of all Parties (including the Party unable to lift as aforesaid) according to their respective shares of Petroleum to which they are entitled hereunder. ARTICLE 26 SOLE RISK DRILLING AND DEVELOPMENT 26.1 SOLE RISK PROJECTS 26.1.1 Except as provided under this Article, no work shall be done in the Contract Area other than as provided for in the annual Joint Program approved by the Management Committee in accordance with the provisions of Article 8.5 and Article 9 (hereinafter an "Approved Work Program"). 26.1.2 Any willing Party ("Sole Risk Party") may request the carrying out of drilling at its sole risk ("Sole Risk Drilling") or development at its sole risk ("Sole Risk Development") (either being a "Sole Risk Project") in accordance with the provisions of this Article. 26.1.3 Subject to Article 26.6 and 26.8, no Sole risk Project may be carried out if it is substantially similar to or conflicts with all or part of any program approved by the Management Committee. Furthermore, subject to Article 26.6, no Sole Risk Drilling may be carried out if it is substantially similar to or conflicts with any Minimum Work Ob1igations. 26.1.4 All costs (other than those necessarily expended on any Approved Program) arising from a rig remaining on location as the result of the proposal of a Sole Risk Project or carrying out of a Sole Risk Project shall be borne by the Sole Risk Parties. Page 61 of 71 OPL 75 JOA Atlas/SOGW 20F 26.2 TYPES OF SOLE RISK PROJECTS Only the following types of Sole Risk Projects may be proposed: 26.2.1 Subject to Article 26.6, Sole Risk Drilling consisting of: (a) The drilling of an Exploration Well or the Completion, Deepening , Plugging Back, Recompletion, Reworking or Sidetracking of a suspended Well, neither of such Wells being inside the interpreted closure of any geological structure or stratigraphic trap on which a Well has been drilled and a Discovery of potential commercial significance has been found; or (b) the drilling of an Exploration Well or the Completion, Deepening, Plugging Back, Recompletion, Reworking, or Sidetracking of a suspended Well, such Wells being inside the interpreted closure of any geological structure or stratigraphic trap on which a Well has been drilled and a Discovery of potential commercial significance has been found but which Well is drilled, Completed, Deepened, Plugged Back, Recompleted, Reworked or Sidetracked to a different stratigraphic level to that in which such Discovery was found within that interpreted closure and which is not Completed in the Zone in which such Discovery was found, provided always that the approval of the Management Committee shall be required before any such drilling, Completion, Deepening, Plugging Back, Recompletion, Reworking, Sidetracking or geophysical work is carried out; or (c) the Completion, Deepening, Plugging Back, Recompletion, Reworking, or Sidetracking of a Well which is being drilled, provided that, any test program previously agreed by the Parties must have been carried out and the Parties informed of its results and the decision of the Management Committee has been taken to abandon the Well before any such Completion, Deepening, Plugging Back, Recompletion, Reworking, or Sidetracking is carried out unless the Management Committee otherwise agrees; or (d) the drilling of an Appraisal Well inside the interpreted closure of any geological structure or stratigraphic trap on which a Well has been drilled and a Discovery of potential commercial significance has been found. 26.2.2 Subject to Article 26.8, Sole Risk Development consisting of the development of a Discovery. Page 62 of 71 OPL 75 JOA Atlas/SOGW 20F 26.3 RIGHTS AND OBLIGATIONS OF SOLE RISK PARTY 26.3.1 Any Sole Risk Project shall be carried out at the sole risk, cost and expense of the Sole Risk Party. If there is more than one Sole Risk Party, their interest in the Sole Risk Project (hereinafter referred to as the "Sole Risk Interest") shall be in the ratio of their Participating Interests in this Agreement, or in such other proportion the Sole Risk Parties may agree. 26.3.2 The Sole Risk Party shall exercise all necessary precautions to ensure that a Sole Risk Project does not jeopardize, hinder or unreasonably interfere with the Joint Operations, provided that a Sole Risk Development shall have priority over all Joint Operations, except that Minimum Work Obligations and Joint Operations commenced prior to the approval of the Sole Risk Development program shall have priority over such Sole Risk Development. 26.3.3 The Sole Risk Party shall: (a) indemnify and hold hamrm1ess the other Party or Parties ("Non-Sole Risk Party") against all actions, claims, demands and proceedings whatsoever brought by any third patty (including without limitation any employee of the Sole Risk Party) arising out of or in connection with the Sole Risk Project; and (b) insofar as it may be within its control, keep the License free from all liens, charges and encumbrances which might arise by reason of the Sole Risk Project; and (c) further indemnify the Non-Sole Risk Party against all damages, costs, losses and expenses whatsoever directly or indirectly caused to or incurred by it as a result of anything done or omitted to be done in the course of carrying out such Sole Risk Project, excepting only (i) damage inflicted to the sub-surface including any reservoir and (ii) consequential damages. The approval of the Management Committee under Article 26.2.1 (b) shall not constitute a waiver of these Provisions. 26.3.4 The Sole Risk Party wishing to use Joint Property for a Sole Risk Project shall give notice to the other Parties starting the purposes for which the Joint Property is to be used. Within thirty (30) Days after such notice (or in the case of Sole Risk Drilling where a rig is on location within no more than eighteen (18) hours or such longer time as such notice may specify), the Management Committee shall decide whether such Sole Risk Party shall be authorized to so use Joint Property and, if so, the terms and conditions upon which it may be used. The use of Joint Page 63 of 71 OPL 75 JOA Atlas/SOGW 20F Property shall not be unreasonably withheld and the charges for such use shall be on a reasonable and equitable basis. 26.3.5 The Sole Risk Party shall be entitled to use for a Sole Risk Project any data and information which it owns jointly with the Non-Sole Risk Party. Data and information obtained in respect of Sole Risk Drilling, undertaken pursuant to Article 26.2.1, shall be made available to the Non-Sole Risk Party but shall remain the property of the Sole Risk Party, until and in the event that the Non-Sole Risk Party discharges in full its liability to the Sole Risk party under Article 26.7 when such data and information shall become the joint property of the Party discharging such liability and the Sole Risk Party. 26.4 OPERATORSHIP 26.4.1 A Sole Risk Project will be carried out by the Technical Advisor on behalf of the Sole Risk Party under the Provision, of this Agreement: (a) in the case of Sole Risk Drilling, the Technical Advisor and/or the Operator may decline to carry out the Sole Risk Drilling; and (b) in the case of Sole Risk Development, the Technical Advisor and/or the Operator will not carry out the Sole Risk Development unless all the Parties agree that the Technical Advisor shall carry out such development. 26.4.2 Notwithstanding the provisions of Article 26.4.1, and subject to the provisions of Article 26.3.4, if a Sole Risk Project involves the use of substantial items of Joint Property ( e.g ., use of a jointly owned production platform or trunk pipeline), such Sole Risk Project will be carried out by the Technical Advisor on behalf of the Sole Risk Party under the provisions of this Agreement. 26.4.3 If, pursuant to Article 26.4.1, a Sole Risk Project is not carried out by the Technical Advisor, such Sole Risk Project will be carried out by the Sole Risk Party , and in respect of the conduct or such Sole Risk Project, such Sole Risk Party shall, unless the context otherwise requires, be deemed to be the operator for the Sole Risk Project and the provisions of this Agreement dealing with the rights and obligations of the Operator and Technical Advisor shall apply MUTATIS MUTANDIS. Page 64 of 71 OPL 75 JOA Atlas/SOGW 20F 26.5 CARRYING OUT OF SOLE RISK PROJECTS In connection with any Sole Risk Project: 26.5.1 the Sole Risk Project will be carried out under the overall supervision and control of the Sole Risk Party in lieu of the Management Committee; and 26.6.2 No Sole Risk Drilling under Article 26.2. (d) may be proposed unless: (a) the Management Committee has voted against or failed to vote in favor of a proposal to instruct the Technical Advisor to prepare an Appraisal Program in respect of the interpreted closure of any geological structure or stratigraphic trap on which a well has been drilled and a Discovery of potential commercial significance has been found or, having so instructed the Technical Advisor, has voted against or failed to vote in favor of such a program within ten (10) Days of its submission to the Management Committee; or (b) the Management Committee has voted against or failed to vote in favor of a proposal to instruct the Technical Advisor to prepare a Development Program in respect of the interpreted closure of any geological structure or stratigraphic trap on which a well has been drilled and a Discovery of potential commercial significance has been found to be present and no party has given notice under Article 26.8.1 that it intends to prepare such a Development Program. 26.6.3 Subject to Article 26.6.1 and 26.6.2, if a Party wishes to propose Sole Risk Drilling under Article 26.2.1(a), (b) or (d), it shall give notice to the other Parties setting out: (a) the proposed location, the proposed depth and the estimated cost of such drilling; and (b) whether payment will be made in cash or in Petroleum in the event that such drilling results in payment of any amount or amounts under Article 26.7.2; and (c) all other relevant information including, but not limited to, the date on which it proposes that operations should be commenced. Each Party receiving such notice shall respond to it, by notice to the other Parties, within sixty (60) Days of receipt thereof (or within a period of eighteen (18) hours of receipt thereof or such longer period as may be specified in such notice when the rig is on location), electing whether to participate. Any Party failing to respond within said period shall be deemed to have elected not to participate. If the Sole Risk Drilling is not commenced within a period of Page 65 of 71 OPL 75 JOA Atlas/SOGW 20F one hundred eighty (180) Days of the above notice proposing such Sole Risk Drilling the Sole Risk Party shall no longer have the right to carry out such Sole Risk Drilling. 26.6.4 If a Party wishes to propose Sole Risk Drilling under Article 26.2.1 (c), such Party shall give timely notice to the other Parties, setting out such relevant information as is necessary in order to allow the other Parties to consider the proposal and elect whether to participate. Each Party receiving such notice shall respond to it, by notice to the other Parties within eighteen (18) hours of receipt thereof or such longer period as may be specified in the notice, electing whether to participate. Any Party failing to respond within said period shall be deemed to have elected not to participate. The proposed Sole Risk Drilling may be commenced as soon as it is possible to do so without interference to the Joint Operations on that Well. The Party proposing such Sole Risk Drilling shall be liable for and shall bear all risks, and pay all costs and expenses with respect to the operations under Article 26.2.1 (c) in respect of which such Sole Risk Drilling was proposed, incurred as and from the time the above notice making such proposal was given. In the event the Sole Risk Party does not proceed with the proposed Sole Risk Drilling, such liability shall cease on such Sole Risk Party giving notice to the other Parties that it will not proceed with the proposed Sole Risk Drilling 26.7 ELECTION OF NON-SOLE RISK PARTIES TO PARTICIPATE 26.7.1 If Sole Risk Drilling carried out under Article 26.2.1 (a) through (c) has resulted in a Discovery, or if Sole Risk Drilling has been carried out under Article 26.2.1 (d) in respect of a Discovery, any Party which was a Non-Sole Risk Party in all or part of such Sole Risk Drilling may elect to participate in the appraisal program or in the development program relating to that Discovery as proposed by the Sole Risk Party in the same manner as provided in Article 26.6.3 or 26.8.1, as the case may be. The Non-Sole Risk Party shall make such election to participate by giving notice to such effect within ninety (90) Days of receipt of such proposed appraisal program or development program The Non-Sole Risk Party which has elected to participate as set out above, shall, as a condition precedent to its participating in such appraisal or, development relating to that Discovery, pay to the Sole Risk Party an amount equal to the amount it would have contributed if it had participated in the Sole Risk Drilling from its commencement on the Page 66 of 71 OPL 75 JOA Atlas/SOGW 20F basis of its respective interest as acquired by the aforementioned election. Such amount shall be paid in cash (in the currencies in which advances or payments were made by the Sole Risk Parties) before the date of commencement of further drilling or development with respect to that Discovery together with interest thereon calculated on a day-to-day basis at ten percent (10%) per annum from the date on which the costs were incurred to the date of payment. The Technical Advisor shall advise all Parties of such date of commencement of further drilling or development as far in advance thereof as practicable. 26.7.2 Upon the commencement of the development of the Discovery in respect of which the election referred to in Article 26.7.1 has been made, any Party which participates in such development and was required to pay the amount provided for in Article 26.7.1 to a Sole Risk Party in respect of that Discovery , shall in addition be liable to pay to such Sole Risk Party participating in the development an amount equal in value to twelve (12) times the amount which such Party paid pursuant to Article 26.7.1 and in the manner and times specified in Article 26.7.3. 26.7.3 Depending upon the payment method selected in the notice given pursuant to Article 26.6.3 and 26.8.1, any 1iability which arises under Article 26.7.2 shall be satisfied by: (a) if the liability is to be discharged in cash, the Non-Sole-Risk Party paying the entire costs and expenses relating to the operations under the respective Appraisal Program and/or Development Program, until it has thereby contributed, in addition to its normal Participating Interest share of such costs and expenses, the amount owed under Article 26.7.2; or (b) if the liability is to be discharged in Petroleum, the Non-Sole Risk Party delivering or causing to be delivered, free of cost, at the Delivery Point to the Sole Risk Party , which at that point shall take title thereto, the Non-Sole Risk Party's proportionate share of production from the development until the value of such production equals the amount owed under Article 26.7.2. 26.7.4 Notwithstanding any of the foregoing provisions of this Article 26.7, the Non-Sole Risk Party shall remain responsible for all Operating Costs, expenses, capital expenditures and liabilities attributable to its Participating Interest share and for all royalty, whether payable in cash or in kind, with respect to the Petroleum delivered by such Non-Sole Risk Party to the Sole-Risk Party pursuant to Article 26.7.3(b). Page 67 of 71 OPL 75 JOA Atlas/SOGW 20F 26.8 SOLE RISK DEVELOPMENT For the development of a Discovery by fewer than all the Parties, the following provisions shall apply: 26.8.1 Subject to Article 26.1.2, in the event that, following the submission to the Management Committee of a proposed Development Program pursuant to Article 8.5, the Management Committee does not approve such Development Program within the period therein provided, any Party may serve notice on the other Parties of its intention to develop the Discovery at its sole risk. Such notice shall be accompanied by its respective development program (a "Sole Risk Development Program") and shall advise whether payment under Article 26.7.2 shall be made in cash or in Petroleum in the event that such payments should become due. Each Party receiving such notice shall respond to it, by notice to all other Parties, within ninety (90) Days of receipt thereof, electing whether to participate. Any Party failing to respond within said ninety (90) Days shall be deemed to have elected not to participate. 26.8.2 If all Parties elect to participate pursuant to Article 26.8.1, all Parties shall proceed with the development in accordance with such development program for the Joint Account. In such event the Party which prepared the Sole Risk Development Program shall be entitled to charge to the Parties all reasonable costs incurred in the preparation thereof, together with interest thereon calculated on a day-to-day basis at the rate of ten percent (10%) per annum from the date on which the costs were incurred to the date of repayment. 26.8.3 If less than all the Parties decide to proceed with such Sole Risk Development Program, they shall do so as a Sole Risk Project and the Parties deciding not to proceed shall nevertheless be obligated to participate in the application for an Oil Mining Lease relating to the proposed Sole Risk Development Program. However, the Parties not participating in the Sole Risk Development shall forfeit and assign to the Sole Risk Parties all their rights and interests to the production from such Discovery . 26.8.4 If Sole Risk Development is carried out with respect to the Oil Mining Lease obtained in relation thereto, this Agreement shall so far as possible apply independently in the manner of a separate contract MUTATIS MUTANDIS to the interests of the Parties which participate in such Sole Risk Development. Page 68 of 71 OPL 75 JOA Atlas/SOGW 20F 26.8.5 Any Party which does not participate in the development of a Discovery shall have no right or interest or liability whatsoever with respect to such Development. 26.9 ABANDONMENTS Should any Sole Risk Drilling resulting a well which is a dry hole or a well which ceases to produce prior to the recovery of the amounts described in Articles 26.7.1 and 26.7.2 ("Sole Risk Premiums"), it shall be plugged and abandoned at the sole cost and risk of the Sole Risk Party(ies). Such abandonment shall be effected in accordance with accepted oil field practice. 26.10 DELINEATION OF DISCOVERY The delineation of the Discovery shall be determined by the Management Committee and shall conform as closely as practicable to the probable limits of the Discovery based on the best and latest geophysical, geological and petroleum engineering information. In the case of disagreement upon such delineation, the matter shall be referred to an independent expert whose delineation shall be final and binding upon the Parties. Such expert shall be agreed upon by the Management Committee but in the event that a majority of the members of the Management Committee cannot reach agreement, such expert shall be selected by the President of the American Petroleum Institute. The cost of the independent expert procedure shall be borne by the Joint Account. 26.11 VALUATION OF PETROLEUM For the purposes of recovering the Sole Risk Premium, the value to be attributed to the Petroleum produced and saved from the Sole Risk project during such recovery shall be determined by reference to the then current, documented, arm's-length sales prices of such Petroleum. The Parties intend that any Party receiving Petroleum attributable to the Sole Risk Premium will not include the Royalties and taxes with respect to any such production received. Page 69 of 71 OPL 75 JOA Atlas/SOGW 20F 26.12 DATA RESULTING FROM SOLE RISK PROJECTS Data and information obtained in respect of Sole Risk shall be made available in confidence to the other Parties but shall remain the property of the Sole Risk party(ies) during the recovery of the Sole Risk Premium. If during such period any of such infor- mation is sold, the amount received shall be paid to the So1e Risk Party(ies) with the amount of the Sole Risk Premium being reduced by the amount of the payment received. Data and information obtained in respect of any geophysical or seismic programs conducted with respect to such Sole Risk Projects (other than those conducted in respect of Sole Risk Drilling) shall be made available to the Non-Sole Risk Parties only if and when such Parties elect to participate and pay their proportionate share of the costs of such programs. 26.13 REPORTING The Operator and/or the Technical Advisor shall, upon request, calculate and provide Monthly, to all Parties a statement of the quantity of Petroleum which has been produced and saved from, or which is attributable to, each Sole Risk Development. ARTICLE 27 REMOVAL OF OPERATOR: ELECTION OF SUCCESSOR 27.1 REMOVAL With the consent of the Government, the Operator may be removed by the Management Committee in the event of the Operator's insolvency, bankruptcy, dissolution or an assignment for the benefit of creditors by the Operator, in the event that the Operator assigns all of its Participating Interest, or in the event of any material breach or failure to perform its obligations hereunder and such breach or failure to perform is not remedied within a period of thirty (30) days after the Operator's receipt of written notice. Such removal sha11 be effective upon thirty (30) days prior notice (or such other notice as may be agreed by the Management Committee), except in the case of the Operator's insolvency, bankruptcy, dissolution or an assignment for the benefit of creditors by the Operator such removal shall be effective upon ten (10) days prior notice (or such other notice as may be agreed by the Management Committee). Page 70 of 71 OPL 75 JOA Atlas/SOGW 20F 27.2 ELECTION OF SUCCESSOR As soon as practicable after notice is given as to the removal of the Operator pursuant to Article 27.1, a successor Operator shall be appointed by the Management Committee. The Operator which has been removed will fully cooperate with the newly designated Operator to ensure that there is an orderly transfer of all books, records and assets which are required by the newly appointed Operator to carry out its duties hereunder. Page 71 of 71 OPL 75 JOA Atlas/SOGW 20F EX-3.3 15 a2026270zex-3_3.txt EXHIBIT 3.3 FIRST AMENDMENT TO JOINT OPERATING AGREEMENT OF 1 ST AUGUST, 1995 RELATING TO OIL PROSPECTING LICENCE 75 This FIRST AMENDMENT (the "First Amendment") TO JOINT OPERATING AGREEMENT OF 1ST AUGUST, 1995 RELATING TO OIL PROSPECTING LICENCE 75 is entered into on the 14th day of January, 1996 by and between ATLAS PETROLEUM INTERNATIONAL LIMITED ("Atlas") and SUMMIT OIL & GAS WORLDWIDE L TD. ("SOGW"). Atlas, as Operator, and SOGW, as Technical Advisor, entered into that certain Joint Operating Agreement of 1 st August, 1995 Relating to Oil Prospecting Licence 75 (the "JOA") to govern all continuing operations on Oil Prospecting Licence 75 covering Block 75 off the coast of the Federal Republic of Nigeria ("OPL 75"); Atlas and SOGW have successfully drilled 2 wells on OPL 75 called the Ejulebe Nos. 1 & 2 Wells located in the northeast section of OPL 75 in an area known as the Ejulebe Field; CXY Nigeria Oilfield Services Ltd. ("CXY"), a Barbados corporation and wholly owned subsidiary of Canadian Occidental Petroleum Ltd., proposed that Atlas and SOGW subcontract CXY to provide certain service operations on OPL 75 to Atlas and SOGW; Atlas and SOGW have reached an agreement with CXY which sets for the terms and conditions of the agreements pursuant to which Atlas and SOGW will engage CXY to provide certain services to Atlas and SOGW as service subcontractor (the "CXY Service Subcontract"). Defined terms from the CXY Service Subcontract, if not defined herein or the JOA, are adopted by reference. The Board of Directors of Atlas, SOGW and CXY and the Management Committee for the Atlas/Summit Venture for OPL 75 have each approved the terms of the CXY Service Subcontract and authorized the respective parties to enter into the CXY Service Subcontract. The Board of Directors of Atlas and SOGW have each also approved the terms of this First Amendment. SOGW has agreed to relinquish certain rights it has under the JOA with respect to the activities to be covered under the CXY Service Subcontract. Under the JOA, SOGW is relieved of certain funding obligations: Atlas and SOGW have agreed to amend the JOA by this First Amendment to implement their agreements with respect to the CXY Service Subcontract. 1 OPL 75 1st Amendment to JOA 20F NOW, THEREFORE, in consideration of these premises and the mutual agreements and undertakings herein set forth, Atlas and SOGW agree to amend the JOA for all activities conducted under the CXY Service Subcontract as set forth below. All operations conducted or to be conducted on areas not subject to the CXY Service Subcontract (or a similar service subcontract with CXY) shall continue to be operated under the JOA and the amendments provided for below shall not apply to such areas. SERVICE SUBCONTRACT WITH CXY: Pursuant to the terms and conditions of the CXY Service Subcontract, CXY shall serve as service subcontractor to Atlas and SOGW. Atlas shall continue as Operator and SOGW as Technical Advisor for OPL 75. The CXY Service Subcontract only covers the Ejulebe Field Area (15,000 acres) and two additional Exploration Blocks of approximately 15,000 acres, it also shall cover for purposes of the seismic survey only, the area of OPL 75 covered by the seismic survey. All other operations on OPL 75 shall continue to be conducted pursuant to the terms of the JOA. Agreements with Respect to Specific Provisions of CXY Service Subcontract 1. Additional Prospects. In the event Atlas and SOGW agree to engage CXY to develop other areas of OPL 75 consisting of approximately 15,000 acres (an "Additional Prospect") under a service subcontract with CXY, such service subcontract shall be on terms mutually agreeable to all Parties. 2. Capital Costs. SOGW shall endeavor to refinance the Capital Costs under the CXY Service Subcontract after one year on terms which must be acceptable to both Atlas and SOGW. Payout under the JOA. The provisions regarding Payout under the JOA shall remain unchanged until Payout. Subject to verification by the Subcommittee for Cost Verification, Payout shall occur when SOGW has recovered all costs and expenses incurred by SOGW under the JOA. The charges related to the Ejulebe NO.2 Well which are, under the CXY Service Subcontract to be treated as a Capital Cost at the Effective Date shall not be included in the Payout amount. To the extent SOGW advances its own funds to fund operations under the JOA, SOGW shall continue to be entitled to the charges provided for under the JOA. Amendments to JOA Article 3 -Participating Interest and Cost Sharing Agreements. 2 OPL 75 1st Amendment to JOA 20F Section 3.1 -Insert at the end of Section 3.1: After Payout, SOGW hereby relinquishes to Atlas seven and half (7 1/2%) percent of its participating interest in areas of OPL 75 covered by the CXY Service Subcontract. This brings the interest of the parties after Payout to Atlas seventy-seven and half percent (77 1/2% ), Summit twenty-two and half percent (22 1/2%) with respect to and only with respect to the CXY Contract Area under the CXY Service Subcontract. Section 3.2 -Insert at the beginning of Section 3.2: For activities under CXY Service Subcontract, all Petroleum Costs, all costs of well incurred on any Oil Mining Lease relating to OPL 75 and all Operating Costs shall be provided by CXY, not SOGW. Section 3.2.4 -Insert new Section 3.2.4: SOGW shall continue to be responsible for the monthly stipend of $20,000 per month for operation of the Atlas office prior to Payout; provided that upon commencement of initial production from OPL 75, SOGW shall fund an additional $20,000 per month until the obligation to fund overhead expires. Section 3.3 -Add to the end of Section 3.3: After Payout, Atlas and SOGW shall each be responsible for overhead of their respective operations. Nothing in this agreement prevents Atlas or Summit from solely funding operations in the Contract Area pursuant to the terms of Exhibit "E" of the JOA. Article 5 -Annual Work Programs and Budgets. Section 5.1 -Insert at the beginning of Section 5.1: For all activities under the CXY Service Subcontract, proposals for Joint Programs and Joint Budgets, which are referred to as Development Plans, Work Programs and Budgets therein, shall be prepared by CXY in consultation with Atlas and approvals thereof shall be in accordance with the terms of the CXY Service Subcontract. Section 5.4 -Insert at the beginning of Section 5.4: 3 OPL 75 1st Amendment to JOA 20F For all activities under CXY Service Subcontract, AFE's shall be governed by the procedures set out in the CXY Service Subcontract. Article 6 -Rights and Obligations of the Parties. Under Technical Advisor (Section 6.1), add after the first sentence in the introduction: For all activities under the CXY Service Subcontract, funding both before and after Payout for both Atlas and SOGW shall be provided by CXY; however, SOGW shall continue to be responsible for the monthly stipend of $20,000 for overhead of the Atlas office prior to Payout which shall increase in accordance with Section 3.2.4 above. Under Technical Advisor (Section 6.1) add as new subparagraph (m); (m) For all activities under the CXY Service Contract, SOGW shall continue to advise Atlas as Technical Advisor. Under Section 6.2 (Operator), add after the first sentence in the introduction: For all activities under the CXY Service Subcontract, all activities shall be conducted under the general direction of Atlas as Operator by CXY as service subcontractor, with advice from SOGW as Technical Advisor. Article 7 -Management Committee. The provisions regarding the Management Committee remains the same except that presentations concerning discoveries on the Ejulebe Field or either Exploration Block as to proposed work programs and budgets shall be presented to Atlas and SOGW by CXY for approval. Article 8 -Insurance. As to all activities conducted under the CXY Service Subcontract, Atlas and SOGW shall require that CXY provide all necessary and appropriate insurance coverage (including coverage for secondees) and add Atlas and SOGW as additional insureds. Article 9 -Costs and Accounting. Except as modified by the CXY Service Subcontract and as follows, the accounting procedures and the allocation of cost recovery rights shall remain as stated in Article 9 of the JOA. 4 OPL 75 1st Amendment to JOA 20F Section 9.4.4 Section 9.4.4 which provides for a Reserve Fund, shall not apply with respect to all activities under the CXY Service Subcontract. Section 9.4.5 - Add as (iii); (iii) The provisions of Section 9.4.5 shall continue in full force and effect until Payout; the amount which constitutes Payout shall be subject to verification by the Cost Verification Subcommittee of the Management Committee and shall be reduced by any of Past Costs actually reimbursed to SOGW by CXY under the CXY Service Subcontract. Article 10 -Disposal of Petroleum. Section 10.1 -Insert at the beginning of Section 10.1: The rights of the parties to dispose of Petroleum both before and after Payout shall be modified by the CXY Service Subcontract with respect to Petroleum produced from areas operated under the CXY Service Subcontract. Article 17.3 In all cases in the CXY Service Subcontract or the Brokerage Agreement where Atlas and Summit are required to nominate an arbitrator, the operator shall exercise such rights. Under Article 7 of the CXY Service Subcontract, the operating Committee established thereby is composed of 1 representative of Operator and 1 representative of Technical Advisor before Payout. Decisions of the Operating Committee before Payout shall be unanimous. After Payout, the representation of Operator on the Operating Committee shall increase from 1 to 2 representatives and decisions of the Operating Committee after Payout shall be by majority vote. Exhibit C -Accounting Procedure The Accounting Procedures in Exhibit C are modified by and amended to the extent required to accommodate the provisions of CXY Service Subcontract. 5 OPL 75 1st Amendment to JOA 20F Exhibit D -Technical Services. Section 2 -Duties and Responsibilities. The duties and responsibilities of the Technical Advisor are modified with respect to areas covered by the CXY Service Subcontract. Under those areas covered by the CXY Service Subcontract, activities shall be conducted by CXY. Plans and budgets for such activities shall be prepared by CXY and must be approved by Atlas and SOGW. Section 4.1 -Cost of Services As to all activities conducted under the CXY Service Subcontract, the provision entitling SOGW as Technical Advisor to charge 105% of actual goods and services is deleted. Section 4.2 -Administrative Overhead. As to all operations conducted under the CXY Service Subcontract, the provisions entitling SOGW as Technical Advisor to charge 8% of Exploration and Drilling Costs, 6% of Development Expenditures and 5% of Operating Expenses as Administrative Overhead are deleted. Interest on Funds Advanced by CXY With respect to all funds advanced by CXY under Service Subcontract, SOGW shall not be entitled to assess any interest charge under the JOA. IN WITNESS WHEREOF, Atlas and SOGW have executed this First Amendment this 14th day of January, 1996. ATLAS PETROLEUM INTERNATIONAL LIMITED - ---------------------------- BY Prince Arthur Eze, Chairman SUMMIT GAS & OIL WORLDWIDE LTD. - ------------------------------- BY: ---------------------------- ITS: --------------------------- OPL 75 1st Amendment to JOA 20F EX-3.4 16 a2026270zex-3_4.txt EXHIBIT 3.4 PETROLEUM SERVICES SUBCONTRACT BETWEEN: CXY NIGERIA OILFIELD SERVICES LTD. -AND- ATLAS PETROLEUM INTERNATIONAL LIMITED SUMMIT OIL & GAS WORLDWIDE LTD. DATED: January 14, 1996 SOGW Petroleum Services Subcontract 20F PETROLEUM SERVICES SUBCONTRACT THIS AGREEMENT DATED AS OF JANUARY 14, 1996. BETWEEN: CXY NIGERIA OILFIELD SERVICES LTD., a body corporate incorporated under the laws of Barbados and having an office in the City of Christ Church, Barbados (hereinafter called "Contractor") wholly owned by Canadian Occidental Petroleum LTD. AND: ATLAS PETROLEUM INTERNATIONAL LIMITED, (also known as Atlas Petroleum International Nigeria Ltd.), a body corporate incorporated under the laws of the Federal Republic of Nigeria, and having an office in the City of Lagos, Nigeria (hereinafter called "Atlas") -and- SUMMIT OIL & GAS WORLDWIDE LTD, a body corporate incorporated under the laws of the Bahamas, and having an office in the City of Nassau, Bahamas (hereinafter called "Summit") wholly owned by Profco Resources Ltd. WHEREAS Atlas was awarded an Oil Prospecting License dated July 27, 1993 covering Block 75 in the Federal Republic of Nigeria (the "CONCESSION") AND WHEREAS Atlas by a certain Joint Operating Agreement (JOA) dated 1st August 1995 between Atlas and Summit assigned to Summit (30%) thirty percent interest in the Concession subject to duties and obligations undertaken by Summit in Article 6 of the said Joint Operating Agreement; AND WHEREAS this assignment was approved by the Hon. Minister of Petroleum Resources in July, 1994; AND WHEREAS Atlas became the Operator and Summit the Technical Advisor under the said Joint Operating Agreement; AND WHEREAS Summit introduced the Contractor to carry out on its behalf and by implication on behalf of the operator certain petroleum services upon and with respect to the Concession as more specifically set forth herein; AND WHEREAS the Contractor has offered to assist Atlas and Summit in the conduct of activities under the Concession by performing the petroleum services set forth and described herein; AND WHEREAS Atlas and Summit wish to retain Contractor to perform petroleum services upon and with respect to the Concession as more specifically set forth herein; AND WHEREAS the Contractor has agreed with Atlas and Summit to carry out such services for and on behalf of Atlas and Summit; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants herein contained, including the recitals hereto, the Parties hereby each agree as follows: SOGW Petroleum Services Subcontract 20F - -3- 1. INTERPRETATION AND CONDITION PRECEDENTS (A) DEFINITIONS As used in this Agreement, in addition to terms elsewhere herein and unless the context otherwise requires: (i) "ADDITIONAL PROGRAMS" means the activities contemplated in Article 17 hereof. (ii) "AFFILIATE" means in relation to any Party, any entity which directly or indirectly controls or is controlled by that Party or is controlled directly or indirectly by an entity which directly or indirectly controls that Party. For the purposes of this definition: (A) A company is directly controlled by another company or companies if the latter's shareholding carries fifty percent (50%) or more of the votes exercisable at a general meeting (or its equivalent) of the first mentioned company; (B) A company is indirectly controlled by another company or companies (hereinafter called the "parent company or companies), if the companies particular company, are so related that each company or companies is directly controlled by one or more of the companies earlier in the series. (iii) "AFE" means Authorization for Expenditure. (iv) "AGREEMENT" means this Agreement, including all schedules and all amendments hereto and "HERETO", "HEREUNDER", "HEREOF" and similar expressions mean and refer to this Agreement and not to any particular Article or Clause hereof. (v) "BUDGET" means estimates of investments and expenditures prepared by contractor pursuant to this Agreement for a specified period of time for an item on the entirety of a work program and shall include, as the context requires, preliminary, proposed or finally adopted versions thereof, and any revisions or supplements thereto. (vi) "CAPITAL COST" shall have the meaning attributed thereto in Schedule C. (vii) "COMMERCIAL DISCOVERY" means an accumulation of Petroleum in such quantities that the production rates, reservoir performance and recoverable reserves are sufficient to justify commercial development. (viii) "CONCESSION" means Federal Republic of Nigeria Oil Prospecting License No.75 dated July 27, 1993 and issued to Atlas Petroleum International (Nigeria) Limited, a copy of which is attached as Schedule "A" and for the purposes hereof shall include any Oil Mining License derived therefrom. (ix) "CONTRACT AREA" means the Ejulebe Field Area and the Exploration Blocks to be identified in accordance with Schedule "H" hereof, as the same may be amended from time in accordance with the terms hereof. (x) "DEVELOPMENT PLAN" means a scheduled program and cost estimate specifying the activities to be conducted to develop a Discovery, including, without limitation drilling of Appraisal and Development Wells, the engineering, building, erecting and installation of production platforms and pipelines and such other activities and services required or for the better conduct of the Services hereunder and the production, transportation and disposition of Petroleum from the Contract Area, and shall include, as the context requires, preliminary , proposed or finally adopted versions thereof and any revisions or supplements thereto. (xi) "DPR" means the Department of Petroleum Resources, Federal Republic of Nigeria. SOGW Petroleum Services Subcontract 20F - -4- (xii) "DISCOVERY" means the finding of a previously unknown or unproven underground accumulation of Petroleum. (xiii) "DOLLAR" or "$" means United States of America Dollars (xiv) "EFFECTIVE DATE" means the date of approval of this Agreement by the board of directors of Contractor, Atlas and Summit, which shall occur on or before January 31, 1996. (xv) "EJULEBE FIELD AREA" means the area set forth and described in Schedule "B". (xvi) "EXPLORATION BLOCKS" shall have the meaning attributed to it in Schedule "H". (xvii) "EXPLORATION PROGRAM" means that portion of the Services set forth and described in Schedule "H". (xviii) "FACILITIES" means the Contractor's offices and all improvements fixtures, machinery, materials and supplies and any other article of personal property of any kind or character whatsoever to be provided hereunder for the conduct of the Services and the costs of which are included in either Capital Costs or Operating Costs hereunder. (xix) "GOVERNMENT" means any federal, provincial, state or local government or administrative or regulatory body or its agencies and instrumentalities having jurisdiction over any aspect of the Services. (xx) "GROSS NEGLIGENCE AND/OR WILLFUL MISCONDUCT" shall mean that omission or misconduct which is intentionally done or that entire want of care which would raise the belief that the act or omission complained of was the result of conscious indifference to the rights or welfare of those who are or may be affected by it. (xxi) "NIGERIAN ROYALTY" means the royalty payable by Atlas and Summit to the Government of the Federal Republic of Nigeria in accordance with the PETROLEUM (DRILLING AND PRODUCTION) REGULATIONS 1969 and any successor legislation. (xxii) "OPERATING COMMITTEE" means, at any time, the committee established pursuant to Article 7 of this Agreement. (xxiii) "OPERATING COSTS" shall have the meaning attributed thereto in Schedule "C". (xxiv) "PARTY" or "PARTIES" means initially the Contractor and Atlas and Summit and/or their respective successors and permitted assigns. (xxv) "PERSONNEL" means the personnel to be provided by the Contractor to conduct the Services hereunder. (xxvi) "PETROLEUM" means petroleum, natural gas and related hydrocarbons and all substances associated therewith or any of them insofar as the rights to the same are granted by the Concession. (xxvii) "SERVICE FEE" means the moneys payable to the Contractor hereunder as set forth in Schedule "C" (xxviii) "SERVICES" means the services to be carried out hereunder as described in Schedule "D", as the same may be amended from time to time by mutual agreement. (xxix) "WORK PROGRAM" means a statement/program itemizing the Services to be conducted in the Contract Area, and elsewhere including those Services required to implement the Exploration Program and each Development Plan or a portion thereof pursuant to this Agreement during any year or part thereof and shall include, as the context requires, preliminary, proposed or finally adopted versions thereof, and any revisions or supplements thereto. SOGW Petroleum Services Subcontract 20F - -5- (b) CURRENCY Unless specifically stated otherwise, all references in this Agreement to dollars are expressed in the currency of the United States of America. (c) HEADINGS All headings to the Articles and Clauses of this Agreement are inserted for convenience of reference only and shall not affect construction or interpretation of this Agreement. (d) GOVERNING LAW THIS AGREEMENT TO BE PERFORMED IN THE FEDERAL REPUBLIC OF NIGERIA, AND THE SUBSTANTIVE LAWS OF THE FEDERAL REPUBLIC OF NIGERIA SHALL APPLY TO THE CONDUCT OF THE SERVICES HEREUNDER. In the event a disagreement arises as to the meaning of any provision or whether any such provision is valid, then the Parties, in the spirit of goodwill and recognizing that both Nigeria and Canadian law have their respective origins in English law, agree that reference shall be to the laws of England to resolve such dispute. (e) SUCCESSORS IN INTEREST This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. (f) EXPANDED MEANINGS In this Agreement, unless there is something in the subject matter or context inconsistent therewith: (i) the singular shall include the plural and the plural shall include the singular; (ii) a reference to a gender shall include the feminine, masculine, body corporate and body politic; (iii) a reference to any statute shall be deemed to extend to and include any amendment or re-enactment of such statute and all regulations passed pursuant thereto; and (iv) "day" means a calendar day and "year" means a calendar year. (g) SCHEDULES Attached to and forming part of this Agreement are the following Schedules: Schedule "A" - Concession Schedule "B" - Ejulebe Field Area Schedule "C" - Service Fee Schedule "D" - Description of Services Schedule "E" - Material Contracts Schedule "F" - Brokerage Agreement Schedule "G" - Accounting Procedure Schedule "H" - Exploration Program Schedule "I" - Ejulebe Past Cost Agreement (h) CONFLICT SOGW Petroleum Services Subcontract 20F - -6- In the event of a conflict between the body of this Agreement and any Schedule, the body of this Agreement shall prevail. In the event of a conflict between Schedules "C", "F", and "G", the following priority shall prevail: Schedule "C" Schedule "G" Schedule "F" SOGW Petroleum Services Subcontract 20F - -7- 2. REPRESENTATIONS AND WARRANTIES (a) CONTRACTOR'S REPRESENTATIONS AND WARRANTIES The Contractor hereby represents and warrants to and with Atlas and Summit and acknowledges that Atlas and Summit are relying on such representations and warranties that: (i) it has been duly incorporated and organized and is now a validly subsisting corporation under the laws of its jurisdiction of incorporation; (ii) CXY has the capacity and is, or will be, duly qualified to carry on business within the Federal Republic of Nigeria; (iii) it has full power, authority and capacity to enter into and to carry out its obligations under this Agreement; (iv) it has the experience and technical expertise, Facilities and Personnel to perform the Services in accordance with the terms and conditions of this Agreement; (v) the Facilities will each be fit for the particular use for which it is intended and meet all applicable Government and industry standards; (vi) all Personnel will be, by industry standards, qualified, efficient and experienced in their respective capacities; (vii) it has complied with the applicable laws of Canada and the applicable laws of those other jurisdictions applicable to it since its incorporation; and (viii) in discharging its obligations hereunder, it will propose Development Plans, Work Programs, Budget and AFE'S to Atlas and Summit so as to provide for the reasonable evaluation of the Petroleum potential of the Contract Area and, in the event of development, the prudent exploration of such Petroleum considering such factors as economics, reservoir size, Petroleum quality, development costs and such other matters as the Contractor and Atlas and Summit consider necessary. (b) ATLAS AND SUMMIT REPRESENTATIONS AND WARRANTIES Each of Atlas and Summit jointly and severally represents and warrants to the Contractor and acknowledges that the Contractor is relying on such representations and warranties that, as of the first date written above: (i) it has been duly incorporated and organised and is now a validly subsisting corporation under the laws of its jurisdiction of incorporation; (ii) it has the capacity and is, or will be, duly qualified to carry on business within the Federal Republic of Nigeria; (iii) it has full power, authority and capacity to enter into and to carry out its obligations under this Agreement; (iv) it has not, at any time, been in default in the due and punctual observance and performance of its obligations under the Concession and to the best of its knowledge and belief, the Concession is in full force and effect; (v) to the best of its knowledge and belief, there are no actions, suits or other proceedings pending or threatened against Atlas or Summit in any court or in any administrative or other tribunal which in any way might call into question or challenge the right, title and interest of Atlas and Summit in the Concession; SOGW Petroleum Services Subcontract 20F - -8- (vi) it has complied with the applicable laws of the Federal Republic of Nigeria and the applicable laws of those other jurisdictions applicable to it, in conducting operations under and acquiring its interest in the Concession; (vii) there are no mortgages, pledges, liens, charges or other encumbrances registered or existing against or relating to the Concession or the geographical area encompassed therein, save and except for the royalty obligation payable in accordance with the PETROLEUM (DRILLING AND PRODUCTION) REGULATIONS 1969, Federal Republic of Nigeria; (viii) to the best of its knowledge and belief, no action has been taken by the DPR or any other ministry or authority to cancel or forfeit the Concession, the Ministry of Petroleum and Mineral Resources of the Federal Republic of Nigeria has not given any notice of its intention to take such action (other than circumstances which should result from the failure to satisfy the obligations under the Concession), and it is not aware of any facts or circumstances which would result or would reasonably be expected to result in any such action by the Ministry of Petroleum and Mineral Resources of the Federal Republic of Nigeria; (ix) Schedule "E" hereto is a complete list of all material agreements applicable to the Concession; (x) it has made available to Contractor all material geological, geophysical, drilling, well production, engineering, field and development data and all other information obtained by it relating to the Concession and operations conducted thereon and such data and information consists of true and correct copies of all material information possessed by it; and (xi) the copy of the concession attached hereto as Schedule "A" is a true copy of the Concession and there are no amendments, or other documents that impose any special terms and conditions except as attached thereto. 3. SERVICES (a) PURPOSE OF THIS AGREEMENT The Parties hereto agree and acknowledge that the purpose of this Agreement is to appoint Contractor as the exclusive entity to conduct the Services for the exploration, development and production of Petroleum from the Contract Area. Subject to the terms of this Agreement, during the term hereof, Atlas as Operator and Summit as Technical Advisor shall conduct all operations in the Contract Area by and through the Contractor. This Agreement is acknowledged to be an arrangement whereby the Services are provided with respect to the Contract Area by the Contractor as the exclusive contractor of Atlas and Summit. The Parties recognize that this Agreement does not grant or award ownership rights over Petroleum "IN SITU" in the Contract Area, or at any time after production, but related to the provision of the Services, the manner in which such Services are to be conducted and the payment of the Service Fee in respect thereof. Consistent therewith, the Parties acknowledge that: (i) prior to the date of this Agreement, several wells have been drilled and temporarily abandoned outside of the boundaries of the Concession which have indicated the existence of commercially productive reserves in reservoirs that may in part extend into the Concession (the "Outside Reservoirs"); and (ii) Atlas and Summit shall be entitled to enter into pooling, unitization or other development arrangements with respect to the Outside Reservoirs and receive all benefits relating to the Outside Reservoirs without any consent, approval or participation by the Contractor. Atlas and Summit will notify Contractor of any action taken by Atlas and Summit with respect to the Outside Reservoirs. The only compensation payable to the Contractor hereunder for its conduct of the Services shall be the payment of the Service Fee and no title to Petroleum produced, saved and marketed from the Contract Area shall pass to or vest in the Contractor. SOGW Petroleum Services Subcontract 20F - -9- Nothing in this Agreement will alter Atlas' position as sole operator of the Concession (b) CONDUCT OF SERVICES (i) Contractor shall perform the Services in a lawful, efficient and workmanlike manner and in accordance with this Agreement and prevailing industry standards. Contractor shall be bound by all applicable Government laws, orders, decrees, ordinances, rules, requirements and regulations. (ii) Contractor shall provide Atlas and Summit with at least the same standard of service customarily provided by reputable contractors in the international petroleum industry. (iii) Contractor shall be fully responsible for any activities comprising the Services performed by its agents, subcontractors or assignees and persons either directly or indirectly employed by them to the same extent as if it had performed such activities. (iv) With the assistance of Atlas and Summit, Contractor shall acquire for the benefit of Atlas and Summit such Facilities, materials and rights (including all permits, consents and approvals) as may be required for the conduct of the Services. (v) The representatives of Atlas and Summit shall have access to areas in which activities are being conducted with the right to observe any and all Services being conducted. Contractor shall provide transportation and accommodations but sole risk therefore shall be borne by Atlas or Summit as the case may be. In addition to the data, information and reports to be furnished by contractor under Clause 3(b)(ix) Atlas and Summit, through their representatives, employees or agents duly authorized in writing for such purposed, shall be FREE to examine and have copies made on request of any and all data and information including but not limited to books, records, programs, cores, samples, logs and surveys concerning the Services; or upon request in writing by either Atlas or Summit, Contractor will make or cause to be made such copies (but no to the extent that an unreasonable burden shall thereby be places on Contractor) and shall furnish such copies to either Atlas or Summit so requesting them. (vi) Contractor shall freely and regularly consult with Atlas and Summit concerning the conduct of the Services and keep them currently advised of all developments arising in connection therewith. (vii) Contractor shall in consultation with Atlas and Summit, select all sub-contractors to be used in the conduct of the Services in accordance with the provisions of clause 18(g). In this regard Contractor shall maintain a system of competitive bidding for contracts for services requiring expenditures in excess of Two Hundred and Fifty Thousand Dollars ($250,000). Where bids are required, each party and its Affiliates shall have the right to submit a competitive bid, but shall not have any specific preference of award by virtue or being a Party. Contractor shall not award any contract which will, in Contractor's reasonable opinion, require expenditures in excess of: (A) Five Hundred Thousand Dollars ($500,000) for Exploration Operation and Appraisal Operations (as defined in Schedule "D"); and (B) One Million Dollars ($1,000,000) for Development Operations; without the prior written approval of the Operating Committee. Notwithstanding any provision herein, all contracts awarded to Affiliates of Contractor shall require prior written approval of the Operating Committee. Where payment to sub-contractors for work is based on reimbursable time and/or materials. Contractor shall ensure that the applicable contract or order provides for the right to audit sub contractors' records. SOGW Petroleum Services Subcontract 20F 10 If the sub-contractor is an Affiliate of the Contractor, the audit rights shall extend to Atlas and Summit. Contractor shall maintain all bid files for a period of not less than two (2) years following the end of the calendar year in which the bids were received. Such bid files shall be made available to Atlas and Summit, their authorized representatives, employees and agents. Contractor shall provide a copy of any executed contract upon the request of either Atlas or Summit. (viii) Contractor shall use best efforts to keep the Facilities and Concession assets free from liens, charges and encumbrances arising out of Contractor's conduct of the Services. Contractor shall promptly notify Atlas and Summit of any such liens, charges or encumbrances and take all reasonable steps to discharge same as expeditiously as possible. I(ix) Contractor shall keep true and proper books, accounts and records of the Services conducted and shall be entitled to retain originals of same at a location in the Federal Republic of Nigeria. Contractor shall furnish to Atlas and Summit copies of the following data, information, and reports as they are currently produced or compiled and in such format as created in connection with the Services performed hereunder (together with such other material concerning the Services as Atlas and Summit may request from time to time): (A) Copies of all well logs; (B) Copies of daily progress drilling reports; (C) Copies of all drill stem tests (including raw data) and core analysis reports; (D) Copies of the plugging record in the event that any well is completed as a dry hole or is otherwise abandoned; (E) Copies of the final geological record and the time drilling reports on all wells; (F) Copies of all seismic data and reports and all geological and geophysical reports and maps relating to work performed by the Contractor and its sub-contractors; (G) Field and well performance data; (H) A progress and operations report not less than once each quarter; (I) Reports of contract letting and construction projects; (J) Copies of all engineering studies and reports; (K) All reports required to be delivered to the Government of the Federal Republic of Nigeria or any agency, department or ministry thereof; (L) Copies of all software used in conducting the Services, excluding any proprietary software and software licensed to Contractor by non-Affiliated third parties. (M) Upon the request of Atlas or Summit, cuttings, cores and samples. Until such request Contractor shall store all such material. (c) RIGHTS AND OBLIGATIONS OF THE CONTRACTOR SOGW Petroleum Services Subcontract 20F 11 In addition to all other rights and obligations of the Contractor set forth elsewhere in this Agreement, the Contractor shall specifically have the following rights and obligations: (i) to incur all costs which are necessary and proper for the conduct of the Services in accordance with the terms and obligations of this Agreement including the purchase, lease, and import into the Federal Republic of Nigeria of all Facilities required to be purchased or leased for the conduct of the Services hereunder; (ii) to prepare and submit Development Plans to Atlas and Summit and Work Programs to the Operating Committee to implement Work Programs approved by the Operating Committee by appropriate scientific methods; (iii) to maintain in the Federal Republic of Nigeria or elsewhere as approved by the Operating Committee full original records of all Services conducted under this Agreement; (iv) to keep the accounts for the Services conducted hereunder in U.S. dollars, in the English Language and in such a manner as to present a fair, clear and accurate record of the costs, expenses and liabilities incurred in the conduct of such Services; (v) to use, as required, a portion of such Petroleum produced from the Contract Area for drilling, pumping, re-injection or fuel in the conduct of the Services as contemplated in the PETROLEUM (DRILLING AND PRODUCTION) REGULATIONS 1969; (vi) the right of ingress to and egress from the Contract Area and to and from all Facilities associated with the conduct of the Services whenever located at all times; (vii) subject to the provisions of Clause 14(e) and clause 14(f), to retain control of all Contractors property (including the Facilities) and all leased property brought into the Federal Republic of Nigeria; (viii) to accept by assignment all of the material contracts set forth and described in Schedule "E" hereto. (d) TRAINING OBLIGATION As part of the Services hereunder, the Contractor shall assist in the discharge of the training obligations of Atlas and Summit under the PETROLEUM (DRILLING AND PRODUCTION) REGULATIONS 1969 and any successor legislation, including the preparation of a detailed program for the recruitment and training of Nigerian nationals under Section 26(1) of the aforesaid Regulations. Such assistance shall include the training of Atlas personnel in the use of technology used in the conduct of the Services. All equipment and materials required for training shall be supplied by the Contractor. (e) CONTRACTOR'S INDEMNITY FOR TAX Contractor shall indemnify and save harmless Atlas and Summit and their respective Affiliates, directors, officers, employees and agents from and against any and all claims, expenses, costs, losses or damages, of any nature whatsoever arising out of the obligations of the Contractor to pay and discharge its tax liability in the Federal Republic of Nigeria and elsewhere, including its liability under the COMPANIES INCOME TAX ACT, Federal Republic of Nigeria. 4. FACILITIES (a) PROVISION OF FACILITIES Thc Contractor shall provide, at its cost and expense, all of the Facilities necessary or desirable to conduct the Services. Subject to the provisions of Clause 14(e) and Clause 14(f), all facilities including all materials, equipment, machinery article and supplies purchased by Contractor for use in the conduct of the services shall remain the property of the Contractor throughout the term of this Agreement and SOGW Petroleum Services Subcontract 20F 12 thereafter. To the extent practicable, Contractor shall endeavour to give preference to the utilization of materials and services available in the Federal Republic of Nigeria, provided such materials and/or services meet the requisite specifications, quality, availability and standards and the cost for such materials and/or services does not exceed those available in the international market by more than ten (10%) percent. (b) STATE OF FACILITIES All of the Facilities shall: (i) be of a quality acceptable for use by a reasonably prudent company conducting international petroleum activities; (ii) be fit for the respective purpose intended; and, (iii) subject to the provisions hereof, at all times be subject to Atlas and Summit examination testing and inspection; provided that nothing herein shall be construed so as to expose the Contractor to any greater liability or responsibility than that available against the manufacturer or supplier of such Facilities. Contractor shall take all reasonable steps to ensure that all of the Facilities are in good repair and proper working order prior to use in the conduct of the Services. (c) MAINTENANCE OF FACILITIES Subject to the provisions of Clause 14(e) and Clause 14(f), the Contractor shall operate the Facilities and maintain the Facilities in good repair and proper order and shall provide all fuel, oil, grease and consumables necessary during the term of this Agreement. (e) REPLACEMENT OF FACILITIES If any of the Facilities are damaged or lost, Contractor shall repair or replace such Facilities by substituting equipment of comparable standard. (f) SPARE PARTS AND OPERATING SUPPLIES Contractor shall maintain an adequate supply of spare parts and operating supplies. Such parts and supplies shall be included in the definition of Facilities hereunder. Contractor shall be responsible for ordering and obtaining, in a timely manner, all replacements and stock replenishments so as to ensure that there will be a minimum of delays and a security of supply. (g) PERMITS FOR FACILITIES Atlas shall in a timely manner and with the assistance of Contractor and Summit, obtain and maintain all Government permits, approvals and authorizations necessary or desirable for the conduct of the Services, including all Government permits, approvals and authorizations necessary or desirable to import the Facilities into, and export the Facilities out of the Federal Republic or Nigeria and to move and operate thc Facilities within the Federal Republic of Nigeria. (h) MOBILIZATION AND DEMOBILIZATION Contractor shall be responsible for the mobilization and, subject to the provisions of Clause 14(e), and Clause 14(f), demobilization of the Facilities to and from and within the Federal Republic of Nigeria. SOGW Petroleum Services Subcontract 20F - -13- 5. PERSONNEL (a) PROVISION OF PERSONNEL (i) The Contractor shall provide all of the Personnel necessary to carry out the Services. (ii) The Contractor shall be responsible for the control and direction of the Personnel. (iii) Contractor shall determine the selection of the Personnel, the hours of work and the compensation to be paid in respect thereof, provided that the remuneration paid are competitive with those paid for personnel of similar education, training and experience in the international petroleum industry. (b) STATE OF PERSONNEL The Contractor shall ensure that all of the Personnel are duly qualified, experienced and efficient in their respective capacities. (c) REPLACEMENT OF PERSONNEL Upon discovery by Contractor or notice from the Operating Committee complaining of and establishing a case of substandard performance, illness, professional inadequacy, serious misconduct, or non-compliance with discipline or safety regulations by any of the Personnel, Contractor shall replace such Personnel as soon as reasonably possible. (d) PAYMENTS REGARDING PERSONNEL The Contractor shall make all payments with regard to the Personnel, in accordance with the accounting procedures attached hereto as Schedule "G". (e) RECORDS AND FILINGS REGARDING THE PERSONNEL (i) the contractor shall maintain all records required under all applicable laws with regard to the Personnel. (ii) The Contractor shall make, in a timely manner, all filings with all appropriate Government authorities regarding the Personnel. (f) PERMITS FOR PERSONNEL Contractor, with the assistance of Atlas and Summit, shall obtain and maintain all Government permits, approvals and authorizations necessary or desirable for the entry, exit and movement of the Personnel to, from and within the Federal Republic of Nigeria. 6. ASSISTANCE AND INDEMNITY OF ATLAS AND SUMMIT (a) OBLIGATIONS OF ATLAS AND SUMMIT In addition to all other obligations set forth elsewhere in this Agreement, Atlas and Summit covenant and agree that they shall specifically provide the Contractor with the following assistance: (i) to do all things reasonably necessary to ensure that the Contractor has all the rights set forth herein throughout the term hereof; (ii) to furnish to Contractor, as and when requested by Contractor, copies of all geological. geophysical, drilling, well production, engineering and other information (including, but not limited to, well location maps) held by Atlas and Summit or reasonably obtainable by Atlas and Summit from any other agency or enterprise of the Government of the Federal Republic of Nigeria relating to the Contract Area or areas adjacent to the Contract Area which are available to Atlas and Summit; SOGW Petroleum Services Subcontract 20F 14 (iii) use reasonable efforts to otherwise assist and expedite the conduct of all Work Programs by providing assistance to the Contractor, its sub-contractors and their respective employees and representatives, including without limitation, assistance in the acquisition of all necessary visas, work permits, drivers licenses, security protection and rights of way and easements as may be requested by the Contractor; (iv) use reasonable efforts to assist and expedite customs clearance arrangements and procedures; (v) use reasonable efforts to assist in obtaining such military and Government consents as may be necessary for the utilization of aircraft (including helicopters) and. communication facilities in the conduct of the Services hereunder; and, (vi) use reasonable efforts to obtain all necessary Government consents, approvals and permits for the conduct of the Services hereunder; (b) INDEMNITY Each of Atlas and Summit shall, jointly and severally, indemnify and hold harmless the Contractor, its Affiliates and their respective directors, officers, employees and agents from and against any and all claims, expenses, costs, losses or damages, of any nature whatsoever arising out of: (i) Atlas and/or Summit conduct of operations on the Concession prior to the Effective Date; (ii) The obligations of Atlas and Summit to pay and discharge their respective tax and royalty liabilities in the Federal Republic of Nigeria and elsewhere as a result of the production of Petroleum attributable to Atlas and Summit from the Concession and sale or other disposition thereof, including tax of Atlas and Summit under the Petroleum Profits Tax Act, Federal Republic of Nigeria; and (iii) contracts entered into by Atlas and Summit which have not been assigned to Contractor and, with respect to contracts assigned to the Contractor, any claims, expenses, costs, losses or damages attributable to operations conducted prior to the Effective Date. (c) COVENANTS Atlas and Summit, jointly and severally, covenant that they will: (i) maintain the Concession in full force and effect throughout the term hereof. Without limiting the generality of the above, Atlas and Summit shall not amend, surrender or terminate the Concession or surrender any or all of the Contract Area without the prior agreement of the Contractor; (ii) have title to all Petroleum produced from the Contract Area (subject to the right of the Government of the Federal Republic of Nigeria to participate in the Concession and to take its royalty in kind) and be responsible for the payment of all royalties and taxes related to such production, including the Nigerian Royalty and the taxes payable under Petroleum Profits Tax, Federal Republic of Nigeria. 7. OPERATING COMMITTEE (a) OPERATING COMMITTEE AND REPRESENTATIVES Atlas and Summit hereby establish an Operating Committee to provide supervision and direction of Contractor's conduct of the Services. Each of Atlas and Summit shall designate one (1) representative and one (1) alternate representative (who shall vote only in the absence or disability of the representative) and after payout, Atlas shall designate an additional representative to the Operating Committee. Atlas and Summit shall inform Contractor and each other, in writing, of the names of the representative and alternate designated by it, who shall be authorized by Atlas and SOGW Petroleum Services Subcontract 20F - -15- Summit to communicate decisions of Atlas and Summit and bind them with respect to matters properly coming before and within the powers of the Operating Committee. Reference to all action by either Atlas or Summit shall be construed as applying to the action taken by or directed to its representative, or the alternate representative acting in lieu of the representative. Reference to an action by Atlas and Summit shall be construed as action taken by or directed to the Operating Committee. (b) SUBSTITUTION AND ALTERNATIVE VOTING PROCEDURES Atlas and Summit may, at any time, by notice to the Contractor and to each other, substitute another person to be its representative or to be its alternate representative on the operating Committee. If neither the representative nor the alternate representative of either Atlas or Summit is able to attend a meeting of the Operating Committee, such party may vote on agenda matters by letter, telex or facsimile directed to the Contractor. Each representative may be accompanied by such advisers as he may require at any Operating Committee meeting, but advisers shall not be entitled to vote. (c) NOTICE OF MEETINGS AND AGENDA Atlas or Summit may, at any time, and if requested by Contractor shall call a meeting of the Operating Committee upon at least thirty (30) days notice, by any means specified in Clause l8(c), with an agenda of the matters proposed to be dealt with. Any Party may add matters to such agenda by giving notice thereof as aforesaid to the Contractor and the other Parties at least ten (10) days before the meeting to which the agenda pertains. No decision shall be taken at any meeting on any matter not listed on the agenda for that meeting unless the Parties agree unanimously to consider such matter. The Operating Committee shall meet at least twice during each calendar year. (d) CONDUCT OF MEETINGS The Operating Committee shall meet on the date specified in the aforesaid notice and such meeting shall be chaired by a representative of Atlas. The venue for all meetings shall be in the Federal Republic of Nigeria unless otherwise agreed by the Parties. A record of all Contractor recommendations submitted for approval which have been made during a meeting and the result of all votes on Contractor recommendations shall be prepared by the representative of Summit who shall act as Secretary of the Operating Committee and shall be distributed by Summit to all representatives prior to the conclusion of the relevant meeting. The representatives shall sign the same indicating their receipt and understanding that such matters were so approved. Minutes of the meeting recording the decisions of the Operating Committee shall be sent within fifteen (15) days after the meeting by Summit to Atlas for approval and signature and to the Contractor for information and, in the absence of any response from Atlas within fifteen (15) days from the date of receipt, Atlas shall be deemed to have approved the said minutes. One representative of Contractor, accompanied by appropriate advisers, shall be entitled to attend meetings of the Operating Committee. (e) ALTERNATIVES TO MEETINGS By notice to Atlas and Summit, a written proposal may be submitted to Atlas and Summit for consideration without holding an Operating Committee meeting unless either Atlas or Summit, within five (5) days after receipt of the notice, instead of voting on the proposal, requests, by notice to the Contractor and the other of Atlas or Summit, a meeting of the Operating Committee to discuss the proposal. If no such timely request is made, each of Atlas and Summit shall give to each of the Contractor and the other party, within fifteen (15) days of receipt of the notice of the matter for consideration, notice in writing of its decision. In addition, representatives may participate in a meeting of the Operating Committee by means of a telephone conference or similar communications equipment by means of which all persons participating in such a conference shall constitute presence in person at such meeting and waiver of notice of such meeting. All references in this Agreement to approval by the Operating Committee shall be read to mean either approval taken in a meeting or the approval of Atlas and Summit obtained without holding an Operating Committee meeting in accordance with the terms hereof. SOGW Petroleum Services Subcontract 20F 16 (f) MATTERS REQUIRING IMMEDIATE ACTION When an approval by rapid communication (for example, facsimile, telex or cable) is requested on any proposal requiring immediate action, including, but not limited to, the deepening, completing, sidetracking, plugging back, reworking, testing or abandoning of a well on which drilling equipment is then located, the decision of Atlas and Summit shall be made by such rapid communication within forty-eight (48) hours after receipt of a request for instructions from Contractor in accordance with Clause 18(c) hereof. Other proposals which require prompt action shall contain a reasonable deadline by which the decisions of either Atlas and Summit shall be communicated. The decisions of Atlas and Summit shall be provided to the Contractor on or before the deadline specified in the notice. Summit shall keep a written record of each such decision and shall promptly provide copies of such record to Atlas and Contractor. (g) ATLAS AND SUMMIT APPROVAL It is the intent of this Agreement that Contractor, subject to the terms and conditions hereof, shall have exclusive control over the conduct of those activities comprising the Services and, without limiting the generality of the foregoing, shall recommend to the Operating Committee for approval all matters contained in all Development Plans, Work Programs and Budgets, the existence of a Commercial Discovery and the methods for developing and producing each Commercial Discovery. In this regard, Contractor shall submit matters to the Operating Committee with Contractor's recommended course of action. (h) APPROVAL/DEEMED APPROVAL The Operating Committee's approval of Contractor's recommended course of action shall not be unreasonably withheld or delayed. Any of Atlas and Summit not approving Contractor's recommended course of action shall demonstrate that such disapproval is duly justified and shall state the reasons for such disapproval. Thereafter the Parties shall meet to resolve the matter. If Contractor's recommended course of action has been submitted to the Operating Committee and no response has been given by the Operating Committee within: (i) forty-eight hours (48) where an immediate response has been requested in accordance with Clause 6(f) hereof; or (ii) thirty (30) days after submission to the Operating Committee in all cases; then such recommended course of action shall be deemed approved by the Operating Committee. (i) VOTING Voting approvals in the Operating Committee shall be the province of Atlas and Summit who have agreed that approvals shall be governed by the JOA. 8. DEVELOPMENT PLANS, WORK PROGRAMS AND BUDGETS SOGW Petroleum Services Subcontract 20F 17 (a) EJULEBE DEVELOPMENT PLAN As soon as practicable but in no event later than April 15, 1996, the Contractor shall prepare a Development Plan with respect to the existing Discoveries on the Ejulebe Field Area and submit such plan to Atlas and Summit for their approval. The Development Plan may include activities that are conditional or contingent on the outcome of other activities. In light of anticipated scheduling, the Parties agree and acknowledge that portions of the Development Plan, such as activities for the drilling of the third well on the Ejulebe Field Area, may be presented for approval prior to April 15, 1996. Thc specific contents of the Development Plan will have regard to economics, reservoir size, quality of Petroleum, transportation and processing alternatives and such other terms as the Parties may consider necessary and shall address: (i) the drilling, testing and completion and/or abandonment of a third well on the Ejulebe Field Area anticipated to be drilled in December, 1995 but in any event on or before February 8, 1996 (or such later date as agreed by the DPR so as to satisfy the minimum drilling obligations of Atlas and Summit under the Concession); (ii) the completion of the two (2) wells previously drilled on the Ejulebe Field Area; and (iii) the drilling of such additional well(s) and the installation of production facilities to commercially produce the Petroleum from the Ejulebe Field Area. The Development Plan shall also address the possibility of processing Petroleum through third party facilities and stand alone Facilities provided by Contractor and shall include Contractor's recommendation of the best economic alternative. Within thirty (30) days of their receipt of the Development Plan proposed by Contractor, Atlas and Summit shall notify Contractor of their approval or disapproval of the Development Plan. If either Atlas or Summit does not approve the proposed Development Plan, it shall demonstrate that such disapproval is duly justified and shall state its reasons for such disapproval. Thereafter the parties shall meet to agree on the Development Plan. Once approved by Atlas and Summit, the activities contemplated in the Development Plan shall be the subject of Work Programs, Budgets and AFE's prepared by Contractor and submitted to the Operating Committee for its prior approval, such approval not to be unreasonably withheld or delayed. (b) OTHER DEVELOPMENT PLANS Upon a Discovery, Contractor shall, within one hundred and twenty (120) days from rig release of the rig used to drill such Discovery , submit a Development Plan to Atlas and Summit for their approval, such approval not to be unreasonably withheld or delayed. The Development Plan may include activities that are conditional or contingent on other activities. The Development Plan shall include work programs, budgets and AFE's so as to provide for the reasonable evaluation of the petroleum potential of the Exploration Blocks and, in the event of development, the prudent exploitation of petroleum considering such factors as reservoir size, petroleum quality, development costs; and such other matters as Atlas and Summit consider necessary. Within thirty (30) days of their receipt of such Development Plan proposed by Contractor, Atlas and Summit shall notify Contractor of their approval or disapproval. If either Atlas or Summit do not approve a proposed Development Plan it shall demonstrate that such disapproval is duly justified and shall state its reasons therefore. Thereafter the parties shall meet to agree on the Development Plan. Once approved by Atlas and Summit, the activities contemplated in the Development Plan shall be the subject of Work Programs, Budgets and AFE's prepared by Contractor and submitted to the Operating Committee for its prior approval, such approval not to be unreasonably withheld. (c) WORK PROGRAMS AND BUDGETS UNDER THE CONCESSION SOGW Petroleum Services Subcontract 20F 18 Within thirty (30) days of the approval of the Development Plan described in Clause 8(a), Contractor shall prepare and submit to the Operating Committee a proposed Work Program and Budget for those services to be conducted in the 1996 calendar year. Thereafter, Contractor shall prepare and submit to the Operating Committee, on or before the 1st of October of each year, and from time to time as Contractor deems necessary, a proposed Work Program and Budget for those Services to be conducted in the following year, which shall be accompanied by Contractor's report on the status of thc Services performed under previous Work Programs and Budgets. (d) COMMERCIAL DISCOVERY Upon Contractor's determination that a Discovery is a Commercial Discovery, the Contractor shall request a meeting of the Operating Committee to consider and approve the existence of a Commercial Discovery, Upon such approval, Atlas, with the assistance of the Contractor, shall submit the necessary documentation and supporting information to the DPR as required under the Concession or the applicable laws or regulations of the Federal Republic of Nigeria for an Oil Mining Lease. (e) CONTENTS OF PROPOSED WORK PROGRAMS AND BUDGETS Each proposed Work Program shall set out in reasonable detail the Services proposed to be carried out, principal Facilities to be purchased and to be erected or acquired for the period which such Work Program applies, and shall be accompanied by a preliminary Budget showing an estimate of the expenditures and funds to be expended, expressed in Dollars for the respective year broken down by quarters. Each proposed Work Program and Budget shall be in sufficient detail and accompanied by such supporting documentation as may be reasonably requested by Operating Committee in order that they may ascertain all details thereof and appreciate their significance. Without limiting the generality of the foregoing, a proposed Work Program and Budget shall include: (i) an estimate in Dollars of the total cost of each relevant program and a sub-division of each total into each main classification and sub-classification of cost. The estimate for each such classification of cost should be based on an accrual basis for each quarter of the relevant period, year or years and the accruals for each classification in each year should be separately identified; (ii) the amount of any escalation or contingency allowance; (iii) a statement indicating which Budget items, if any, are contingent on the outcome of other Budget items; (iv) an estimate of the cost and number of all employees and contract personnel analyzed by function; (v) a description of the specific Services to be provided by Contractor's Affiliates including the terms and conditions thereof; and, (vi) estimated Operating Costs for the relevant period. (f) AUTHORIZATION FOR EXPENDITURE (AFE) PROCEDURE (i) All Capital Costs in excess of Two Hundred and Fifty Thousand Dollars ($250,000) shall be the subject of an AFE. Each AFE shall be in sufficient detail and accompanied by such supporting documentation as may be reasonably requested by Atlas and Summit in order that they may ascertain the basis for all charges therein (ii) Contractor shall obtain the approval of the Operating Committee to each AFE. SOGW Petroleum Services Subcontract 20F 19 (iii) Either Atlas or Summit, when voting to disapprove an AFE issued in furtherance of an approved Work Program and Budget shall demonstrate that such disapproval is duly justified and shall state the reasons for such disapproval. Failing resolution, the matter shall be resolved in accordance with the provisions of Clause l8(b). (iv) At such time as the Contractor determines that the financial authorization contained in an approved AFE may be exceeded, Contractor shall submit a supplemental AFE for the estimated over-expenditure to the Operating Committee for its approval and shall provide the Operating Committee with full details of such over-expenditures. (v) Approval of an AFE shall not operate so as to relieve the Contractor from the bidding and approval requirements specified in Clause 3(b)(vii). (g) OVER-EXPENDITURES Contractor shall make every reasonable effort to conduct each approved Work Program within the limits of such Work Program and related approved Budget and AFE's and shall not undertake any Services not included in any approved Work Program nor make any expenditures during a Budget period in excess of the amounts approved in such related Budget or AFE, (including any supplemental Budget or AFE), except in case of emergency, where Contractor may make such immediate expenditures as it deems necessary for the protection of life or property or prevention of pollution, notwithstanding that the expenditure limits contained in such applicable Budget or AFE may be exceeded. Such expenditures shall be promptly reported to Atlas and Summit by the Contractor. 9. TITLE TO PROPERTY Subject to the provisions of Clause 14(e) and Clause 14(f), the Contractor shall retain exclusive title to all Facilities, including all materials, equipment, machinery, articles and supplies, clothing, foodstuff, housing and recreational supplies, used by the Contractor to perform the Services hereunder. 10. SECONDMENT (a) SPECIFIC SECONDEES Atlas, Summit and the Contractor shall consult so as to determine the identities of specific individuals to be seconded by Atlas and Summit to the Contractor to assist in the conduct of the Services hereunder. Any individual may be replaced at Contractor's election in the event of illness, professional misconduct, serious misconduct, substandard performance or non-compliance with discipline or safety regulations. All such individuals shall remain employees of Atlas and Summit. Contractor shall provide insurance for such seconded individuals and expose them to appropriate training programs. (b) NUMBER OF SECONDEES The maximum number of secondees of Atlas and Summit shall be 10. The number of secondees to be provided hereunder shall be reviewed by the Parties semi-annually. For training purposes as well as meeting its obligations as operator of the Concession, the number of Atlas personnel to be seconded shall be greater than that of Summit. 11. PROPRIETARY INFORMATION SOGW Petroleum Services Subcontract 20F 20 (a) OBLIGATION OF CONFIDENTIALITY Subject to the requirements of the Concession, this Agreement, all plans, programs, maps, records, reports and scientific and technical data developed in connection with the conduct of Services hereunder, (the "Confidential Information") shall be treated in the strictest confidence by all Parties, and their contents or effects shall not be disclosed by any of the Parties to any third parties without the approval of all Parties, except: (i) to the extent that any such Confidential Information is required to be furnished in any arbitration or other legal proceeding under the Concession, or this Agreement or is to be furnished because of any applicable law, rule or regulation; (ii) to the extent that any such Confidential Information is required to be disclosed by a Party to any contractor, consultant, financial or banking institution or other third party in connection with the conduct of the Services hereunder, provided such third party executes an undertaking to keep such information confidential; (iii) to an Affiliate, provided such Affiliate shall be committed in writing to treat such Confidential Information as confidential and return it to the disclosing Party in the event such Affiliate ceases to be an Affiliate of such Party; (iv) to the extent that any such Confidential Information is necessarily disclosed to a third party for the purpose of negotiating an assignment of an interest hereunder, provided that such third party executes a written undertaking to keep such information confidential; (v) to the extent required to make an announcement or statement to comply with legal obligation in The Federal Republic of Nigeria, Barbados, Bahamas, Canada, the United States of America or elsewhere, or with the applicable requirements of a Government agency or other regulatory body, or an established stock exchange on which such Party or its Affiliate has its shares or securities listed or proposed to be listed in which event a copy of the same will be provided to the other Parties where practicable prior to publication; (vi) to the extent that any such confidential information is required to be disclosed by a party to the DPR; and (b) EXCLUSIONS For the purposes hereof, "Confidential Information" shall not include information: (i) which is lawfully in the public domain at the time of its receipt by such Party; (ii) which can be shown to have been in the possession of the Party in question prior to receipt of such information by such Party pursuant to the provisions of this agreement or any prior agreements or understandings related to the subject matter hereof, including the latter Agreement dated June 20, 1995 among Contractor, Summit and Profco Resources Limited, as amended, and the Memorandum of Understanding dated November 19, 1995 among the Contractor, Atlas, Summit and Profco Resources Limited, as amended; (iii) which after receipt of such information by such Party pursuant to the provisions of this Agreement, becomes part of the public domain through no act of such Party (but only after such data or information becomes part of the public domain); or (iv) which subsequent to receipt of such information by, .such Party pursuant to the provisions of this Agreement is lawfully obtained by such Party from a third party without restriction on disclosure (but only after such information is so received) provided such third party is under no obligation of confidentiality with respect to such data or information. SOGW Petroleum Services Subcontract 20F 21 Specific items of information shall not be considered to be in the public domain simply because such items of specific information are encompassed or are included within more general information in the public domain. In addition, any combination of specific items of information which comprises part of the Confidential Information shall not be included in the foregoing exceptions merely because individual parts of such information were within the public domain or were within the prior possession of a party unless the combination itself was in the public domain or within the prior possession of the Party. (c) CUSTODY OF DATA (i) All data and information obtained by contractor as a result of the conduct or the Services shall be delivered to Atlas and Summit upon termination of this Agreement. (ii) Upon termination of this Agreement as it applies to the Ejulebe Field Area or an Exploration Block, the data and information applicable to such area or block shall be delivered to Atlas and Summit. 12. RISK AND INSURANCE (a) Except as may be otherwise specifically provided in this Agreement, Atlas, Summit and Contractor agree that each party shall, with respect to: (i) its own officers, directors, servants, agents, employees, invitees and subcontractors; (ii) the property of its own officers, directors, servants, agents and employees; (iii) its own property; be liable for all liabilities, losses, costs, damages, expenses and legal fees which it may suffer, sustain, pay or incur directly or indirectly arising from or in connection with this Agreement on account of bodily injury to or death of such persons, or damages to such persons, or loss of or damage to such property; and in addition, protect, indemnify and hold harmless, the other Parties against all actions, proceedings, claims, demands, liabilities, losses, costs, damages, expenses and legal fees whatsoever which may be brought against or suffered by such Party or which such Party may sustain, pay, or incur directly or indirectly arising from, or in connection with this Agreement on account of bodily injury to or death of such person, or loss of or damage to such property. This liability and indemnity shall apply without limit and without regard to cause or causes, including, without limitation, the negligence, whether sole, concurrent, gross, active, passive, primary or secondary, or the willful act, or omission, of any of the parties or any other person or otherwise. (b) THIRD PARTY LIABILITY Except as may be otherwise specifically provided in this Agreement, Contractor shall protect, indemnify and hold harmless Atlas and Summit and their respective directors, officers, employees, agents and representatives and, at the request of Atlas and Summit, investigate and defend such entities from and against all liabilities, claims, demands, and causes of action of every kind and character without limitation, arising in favour of or made by third parties, on account of bodily injury, death or damage to or loss of their property resulting from any negligent act or willful misconduct of Contractor or Contractor's officers, directors, servants, agents., employees, invitees and subcontractors. Except as may be otherwise specifically provided in this Agreement, Atlas and Summit, jointly and severally, shall protect, indemnify and hold harmless Contractor, and its directors, officers, employees, agents and representatives and, at Contractor's request, investigate and defend such entities from and against all liabilities, claims, demands and causes of action, of every kind and character, without limitation, arising in favour of or made by third parties on account of bodily injury, death or damage to or loss of their property resulting from any negligent act or willful misconduct of Atlas and Summit or any officers, directors, servants, agents, employees, invitees and subcontractors of Atlas and Summit. SOGW Petroleum Services Subcontract 20F 22 For the purposes hereof, "third party" means any party other than Atlas and Summit, Atlas and Summit's Personnel, Contractor, Contractor's Personnel and their respective officers, directors, servants, agents, employees, invitees and subcontractors. (c) CLAIMS MADE AGAINST ATLAS AND SUMMIT Atlas and Summit shall notify the Contractor of any suit, claim or demand made against Atlas and Summit to which the Contractor's agreement to indemnify in Clause 12(a) or (b) applies and the Contractor shall have the right to participate in any defense and to approve any settlement. (d) CLAIMS MADE AGAINST THE CONTRACTOR The Contractor shall notify Atlas and Summit of any suit, claim, or demand made against the Contractor to which the agreement of Atlas and Summit to indemnify in Clause 12(a) or (b) applies and Atlas and Summit shall have the right to participate in any defense thereof and to approve any settlement. (e) PARTICIPATION IN LAW SUITS Each Party shall cooperate with the other Parties in the defense of any law suit. In this regard, it is agreed and acknowledged that: (i) Contractor shall: (A) give notice to Atlas and Summit of any claims asserted as a result of its performance of the Services; (B) cooperate and provide all reasonable assistance to Atlas and Summit in the prosecution or defense of any claim for which Atlas and Summit may be liable for or which Atlas and Summit desire to pursue or contest; (C) not admit any material fact or liability for or make any payment of a settlement of any claim for which Atlas and Summit may be liable without the prior written consent of Atlas and Summit; and (ii) Atlas and Summit shall: (A) give notice to Contractor of any claims asserted as a result of Contractor's performance of the Services; (B) co-operate and provide all reasonable assistance to Contractor in the prosecution or defense of any claim for which Contract may be liable which Contractor desires to pursue or contest; (C) not admit any material fact or liability for or make any payment of a settlement of any claims for which Contractor may be liable without the prior written consent of Contractor. (f) INSURANCE (i) The Contractor shall maintain in full force and effect with reputable insurance companies, the following insurance at all times during the term of this Agreement; (a) WORKERS' COMPENSATION INSURANCE covering the Personnel engaged in the carrying out of the work and operations under this Agreement in accordance with applicable statutory requirements and Employers Liability Insurance covering such Personnel not covered by Workers' Compensation Insurance in an amount of not less than one million dollars ($1,000,000). SOGW Petroleum Services Subcontract 20F 23 (b) COMPREHENSIVE AUTOMOBILE AND MOTOR VEHICLE LIABILITY AND AIRCRAFT LIABILITY INSURANCE covering all automobiles, motor vehicles and aircraft, owned or non-owned, engaged in the carrying out of the work and operations under this Agreement, in accordance with Nigeria's statutory requirements for bodily injury, death and property damage not to exceed limits of One million Dollars ($1,000,000) inclusive of auto and motor vehicle liability and Five Million Dollars ($5,000,000) inclusive of aircraft liability. (c) COMPREHENSIVE GENERAL LIABILITY INSURANCE with a bodily injury, death and property damage limit of not less than One Million Dollars ($1,000,000) inclusive. (d) CONTROL OF WELL INSURANCE with a limit of Twenty-five Million Dollars ($25,000,000) and having a One Million Dollar ($1,000,000) deductible, (e) SUDDEN AND ACCIDENTEL POLLUTION INSURANCE With a limit of Two Million ($2,000,000) Dollars. (f) MEDICAL EVACUATION INSURANCE covering all emergencies for which adequate medical facilities are not available in the Federal Republic of Nigeria. Atlas and Summit shall be additional insured under each of the policies referred to above and shall be provided with certificates evidencing that such policies are in full-force and effect throughout the term of this agreement. The policies shall contain a waiver of subrogation in favour of Atlas and Summit. No insurance may be canceled or materially changed without the prior written approval of Atlas and Summit, such approval not to be unreasonably withheld or delayed. The requirements by Atlas and Summit that Contractor (and each of its permitted subcontractors) furnish certificates of insurance as evidence of the insurance coverage required hereunder and the amount of insurance required to be obtained shall not be interpreted as, in any way, limiting the liability of Contractor hereunder. (g) ADDITIONAL INSURANCE Upon request by Atlas and Summit, the Contractor shall promptly obtain and maintain in full force and effect, at the expense of Atlas and Summit any additional insurance specified by Atlas and Summit from time to time. (h) SUBCONTRACTORS In the event that the Contractor subcontracts part of its obligations hereunder to a third party, the Contractor shall cause such subcontractor to maintain in full force and effect the insurance coverages set out in Clauses 12(f) and 12(g). (i) FAILURE TO OBTAIN INSURANCE Should Contractor at any time neglect or refuse to provide insurance, or the evidence thereof, as required herein, or should any insurance be canceled or materially altered without the prior written consent of Atlas and Summit, they may, at their option directly procure such insurance. Any action by Atlas and Summit pursuant to this Clause l2(i) shall not constitute a waiver of any other rights Atlas and Summit may have under other provisions of this Agreement. Failure to secure the insurance coverage, or the failure to comply fully with any of the insurance provisions of this Agreement, or the failure to secure such endorsements on the policies as may be necessary to carry out the terms and provisions of this Agreement, shall in no way act to relieve Contractor from the obligations of this Agreement, any provisions hereof to the contrary notwithstanding. In the event that liability for loss or damage be denied by the underwriter(s), in all or in part, because of breach of said insurance by Contractor, or if Contractor fails to maintain any of the insurance herein required, Contractor shall hold harmless and indemnify Atlas and Summit, and their affiliates, agents, employees, directors, officers, and servants against all liabilities, claims, demands, costs and expenses, including attorney's fees, which would otherwise be covered by the insurance to be obtained and maintained hereunder. SOGW Petroleum Services Subcontract 20F - -24- (j) CONTINUING OBLIGATION The obligations contained in this Article 12 (excluding Clauses 12(f), (g) and (h) shall survive the termination of this Agreement. (k) EXCLUSION OF LIABILITY Notwithstanding anything to the contrary contained herein, no Party, including Affiliates, directors, officers, employees and invitees shall be liable to any other party for any punitive, incidental, consequential or special damages arising hereunder. (l) Whenever a Nigerian insurance company is required for services under this agreement the Contractor shall consult with Atlas in determining which Nigerian insurance company will be engaged. 13. SERVICE FEE (a) Service Fee The Parties agree that Contractor shall recover the Service Fee payable hereunder out of, and only out of, the sale proceeds or proceeds from any other disposition of Petroleum produced, saved and marketed from the Contract Area. Atlas, Summit and West Africa Crude Marketing Ltd. shall open an account (the "Joint Account") into which all sales proceeds or other disposition of Petroleum shall be paid. From the proceeds of sale or other disposition of Petroleum, Atlas and Summit shall direct West Africa Crude Marketing Ltd., the broker of such Petroleum under the Brokerage Agreement attached hereto as Schedule "F", to: (i) pay and transfer an amount equal to the Nigerian Royalty into an Imprest Account for and on behalf of Atlas and Summit; then (ii) based on an invoice approved by Atlas and Summit, pay and transfer an amount equal to the actual costs incurred in marketing the Petroleum to West African Crude Marketing Ltd.; then (iii) based on an invoice presented by West Africa Crude Marketing Ltd. and approved by Atlas and Summit, pay and transfer the marketing fee payable under Clause 7.2 of the Brokerage Agreement; then (iv) based on an invoice presented by the Contractor and approved by Atlas and Summit, pay and transfer the Service Fee to the Contractor; then (v) pay and transfer the balance of the revenues to Atlas and Summit pursuant to a written directive signed jointly by Atlas and Summit. (b) NO CHANGE IN THE SERVICE FEE The manner in which the Service Fee is to be calculated as set out in Schedule "C" shall not change during the term of this Agreement. (c) INVOICES (i) The Contractor shall invoice Atlas and Summit on a monthly basis. (ii) The invoice shall be in sufficient detail (dates, hours, material charges etc.) and accompanied by such supporting documentation as may be reasonably requested by Atlas and Summit in order the they may ascertain the basis for such charges. (iii) Invoices shall be sent or delivered to: SOGW Petroleum Services Subcontract 20F 25 ATLAS PETROLEUM INTERNATIONAL LIMITED IB. IBIYINKA OLORUNNIMBE CLOSE. ON AMODU OJIKUTU STREET VICTORIA ISLAND, LAGOS, NIGERIA ATTENTION: MANAGING DIRECTOR - -and- SUMMIT OIL AND GAS WORLDWIDE LTD. IB. IBIYINKA OLORUNNIMBE CLOSE ON AMODU OJIKUTU STREET VICTORIA ISLAND, LAGOS, NIGERIA ATTENTION: MANAGING DIRECTOR (d) DISPUTE REGARDING INVOICE (i) In the event that there is a dispute regarding some portion of an invoice, then the parties shall meet to determine a satisfactory solution, failing which the dispute shall be submitted to arbitration in accordance with the provisions of Clause 18(b) hereof. (ii) Atlas and Summit shall promptly inform Contractor of any questions or disputes and Contractor shall reasonably endeavour to satisfy such concerns. (iii) The disputed portion, where revised shall be rebilled after resolution of the dispute under a supplementary invoice. (iv) Payment of any invoice shall not prejudice the rights of Atlas and Summit to question the proprietary of any charge therein by delivery to Contractor of a written notice of objection specifying the reasons therefore. (e) ACCOUNTING PROCEDURE All costs, expenses, credits, payments, disbursements or related matters applicable to the Service and the method of handling the accounting with respect thereto shall be in accordance with the provisions of the Accounting Procedure attached hereto as Schedule "G". (f) PREPAYMENT Atlas and Summit shall be entitled to make periodic prepayments of the Service Fee to Contractor. All prepayments shall at the direction of Atlas and Summit. be applied to reduce the amount of: (i) Capital Costs utilized by Contractor in the calculations of Depreciation and the Corporate Charge referred to in Schedule "C" hereto: or (ii) Any balance of unrecovered Service Fee then outstanding, Failing a direction by Atlas and Summit in any prepayment, the amount shall be applied in accordance with (i) above. 14. TERMINATION (a) TERMINATION UPON DEFAULT SOGW Petroleum Services Subcontract 20F 26 (i) Atlas and Summit shall have the right to terminate this Agreement in the event of: (A) the failure of the Contractor to comply with, or the breach by the Contractor of, any of the obligations or covenants in this Agreement to be performed by the Contractor, after ninety (90) days prior notice thereof and the failure by Contractor to rectify such non-compliance or breach within such ninety (90) day period; (B) the Gross Negligence and/or Willful Misconduct of the Contractor; or (C) the insolvency or bankruptcy of the Contractor; (ii) In the event of termination of this Agreement pursuant to this Clause 14(a), the Parties shall continue to be liable for all obligations under this Agreement accruing up to that time, and termination of this Agreement shall be without prejudice to any other right or claim which a Party may have against the other Party hereunder; (iii) Upon Atlas and Summit electing to terminate this Agreement pursuant to this Clause 14(a), Atlas or Summit shall promptly notify the Contractor of its election and the basis therefore. (b) TERMINATION BY CONTRACTOR Contractor, at any time during the term of this Agreement, shall be entitled to terminate the conduct of Services hereunder upon at least ninety (90) days notice to Atlas and Summit and upon completing all committed, unconditional Services, the subject matter of any Work Program and Budget then in effect including the Exploration Program. (c) PARTIAL TERMINATION BY CONTRACTOR/SURRENDER OF PORTIONS OF CONTRACT AREA Contractor may, upon at least ninety (90) days prior written notice to Atlas and Summit, terminate this Agreement as it applies to the Ejulebe Field Area or either of the Exploration Blocks provided that Contractor shall have completed all committed, unconditional Services, the subject matter of the applicable Work Program and Budget then in effect including the Exploration Program. Such termination shall have no effect on Contractor's right and obligation to conduct the Services on the balance of the Contract Area. (d) DEEMED PARTIAL TERMINATION/SURRENDER Contractor shall be deemed to have elected to terminate this Agreement as it applies to an Exploration Block if it has not submitted a Work Program and Budget for the conduct of Services upon such Exploration Block to Atlas and Summit within one hundred and eighty (180) days of the date of rig release for the rig utilized to drill the second New Field Wildcat Well of the Exploration Program. (e) TRANSFER ON PARTIAL TERMINATION In the event of partial termination under either Clause 14(c) or Clause 14 (d) the following provisions shall apply: (i) The definition of "Contract Area" shall be deemed modified to exclude the area to which this Agreement no longer applies (the "Excluded Area"); (ii) Atlas and Summit shall have the option to purchase the Facilities located on the Excluded Area that cannot be used by the Contractor in the conduct of the Services on the remaining Contract Area in accordance with the following: SOGW Petroleum Services Subcontract 20F 27 (A) With its notice of termination contemplated in Clause 14(c) or upon deemed termination in accordance with Clause 14(d), the Contractor shall advise Atlas and Summit which Facilities are available for purchase and the purchase price with respect to each item; (B) Within thirty (30) days of receipt of such information, Atlas and Summit shall advise the Contractor which Facilities they wish to purchase; (C) The purchase price payable by Atlas and Summit for such Facilities should be: (1) Zero ($0) if the specific Facility is characterized as part of Operating Costs and the cost for same has been recovered by the Contractor as part of the Service Fee; (2) The actual cost of the specific Facility if it is characterized as part of Operating Costs and the cost for same has not been recovered by the Contractor as part of the Service Fee; (3) The actual cost of the specific Facility if it is characterized as a Capital Cost less the depreciation component calculated using the ten (10%) percent per year declining balance method calculated on a monthly basis contemplated in accordance with Clause 3(c)(iv) of Schedule "C" hereof and which has been recovered by the Contractor as part of the Service Fee. Calculation of the Service Fee shall be adjusted to account for any of the purchases referred to in this Clause 14(e)(ii). (iii) The purchase price shall be payable in U.S. Dollars within NINETY (90) days of receipt or Contractor's invoice. For the purposes hereof, the provisions of Clause 13(c) to (e), inclusive, shall apply with respect to the invoicing procedure, mutatis mutandis. (f) TRANSFER ON COMPLETE TERMINATION In the event of complete termination by either Atlas or Summit pursuant to Clause 14(a) hereof or by the Contractor pursuant to Clause 14(b) hereof or as a result of the expiration of the term hereof set forth in Article 15, Atlas and Summit shall have the option to purchase the Facilities in accordance with the following: (i) Within thirty (30) days of such termination, Atlas and Summit shall advise Contractor which Facilities they wish to purchase; (ii) The purchase price payable by Atlas and Summit for such Facilities shall be: (A) Zero ($0) if the specific Facility is characterized as part of Operating Costs and the cost for same has been recovered by the Contractor as part of the Service Fee: (B) The actual cost of the specific Facility if it is characterized as part of Operating Costs and the cost for same has not been recovered by the Contractor, as part of the Service Fee; (C) The actual cost of the specific Facility if it is characterized as a Capital Cost less the depreciation component calculated using the ten (10%) percent per year declining balance method calculated on a monthly basis contemplated in accordance with Clause 3(c)(iv) of Schedule "C" hereof and which has been recovered by the Contractor as part of the Service Fee, (iii) The purchase price shall be payable in U.S. Dollars within ninety (90) days of receipt of Contractor's invoice. For the purposes hereof, the provisions of Clause 13(c) to (e), inclusive shall apply with respect to the invoicing procedure, mutatis mutandis. SOGW Petroleum Services Subcontract 20F 28 15. TERM (a) COMMENCEMENT OF TERM The term of this Agreement shall commence on the Effective Date. (b) CONTINUATION OF TERM Subject to earlier termination as provided herein, the term of this Agreement shall continue for a term commensurate with the term of the Concession and all Oil Leases derived therefrom (including any extensions thereof) and for so long thereafter as is necessary to settle accounts among the parties. (c) EFFECT OF TERMINATION The termination of this Agreement shall not relieve the Parties from any obligations accruing to them under this Agreement prior to the termination date. 16. FORCE MAJEURE (a) DEFINITION The term, "Force Majeure" shall mean acts of God, epidemic, flood, explosion, fire, lightning, earthquake, wind, storm, blowout, crater, blockade or embargo, lack of or failure of transportation facilities, omission of a supplier, war, riot, civil disturbance, strike, Government order, decision or administrative ruling, Government action or inaction or any other circumstances which is unforeseeable and outside the control and without the fault or negligence of the Party asserting the benefit of this Article. (b) FORCE MAJEURE If any Party is prevented or delayed from performing its obligations hereunder as a result of Force Majeure, such prevention or delay shall not be considered a breach of this Agreement and that Party shall be relieved from its obligations for the duration of such Force Majeure, provided however that: (i) there is a direct relation between such prevention or delay and the Force Majeure; and (ii) notice of such Force Majeure is provided to the other Party specifying in reasonably full particulars of the nature of the Force Majeure and the action being performed to remedy same. A party invoking the provisions of this Article 16, shall use all reasonable diligence to resolve the Force Majeure situation as expeditiously as possible; provided that a party shall not be obligated to settle strikes, lockouts or other labor difficulties contrary to its interests. (c) OBLIGATION TO CONSULT In the event of Force Majeure, the Parties shall promptly consult one another as to the measures to be taken regarding the continuation of the Services. (d) OPTION TO TERMINATE Subject to the Contractor satisfying its committed, unconditional obligations, the subject matter of the Work Program and Budget then in effect, including the Exploration Program, in the event that the conduct of Services hereunder is reasonably expected to be suspended due to Force Majeure for more than Ninety (90) days, Contractor shall have the option to terminate this Agreement in its entirety upon notice to Atlas and Summit. SOGW Petroleum Services Subcontract 20F 29 17. ADDITIONAL PROGRAMS (a) ADDITIONAL PROGRAMS Upon Contractor's satisfaction of the obligations comprised within the Exploration Program Contractor and Atlas and Summit shall each have the right exercisable from time to time, to propose additional drilling seismic operations (the" Additional Programs") upon the Concession; PROVIDED HOWEVER THAT no Additional Programs may be proposed or conducted on the Contract Area. (b) CONTRACTOR'S OPTIONS In the event Contractor delivers a proposal for an Additional Program to Atlas and Summit. Atlas and Summit shall have ninety (90) days from receipt of such proposal to elect to: (i) Conduct the Additional Program at their sole risk and for their own account and without cost or expense to Contractor; or (ii) Appoint Contractor as the exclusive service contractor to conduct the Additional Program in accordance with the terms and conditions of a separate service contract having the same terms and conditions as this Agreement, MUTATIS MUTANDIS (the "AP Service Contract") and appoint West Africa Crude Marketing Ltd. to sell or otherwise dispose of Petroleum produced under the AP Service Contract in accordance with the terms and conditions as the separate brokerage agreement having the same terms and conditions as the Brokerage Agreement attached hereto as Schedule "F", MUTATIS MUTANDIS (Thc "AP Brokerage Agreement"). (c) ATLAS AND SUMMIT RIGHTS In the event Atlas and Summit elect to conduct any Additional Program, Atlas and Summit shall notify the Contractor in Writing of their election, and such notice shall specify: (i) that Atlas and Summit have elected to conduct the Additional Program at their sole risk and for their own account and without cost or expense to Contractor; or (ii) in addition to the information to be included as set forth in Clause 17(d) that Atlas and Summit have determined to offer Contractor the right to act as exclusive service contractor to conduct the Additional Program in accordance with the terms and conditions of the AP Service Contract and to offer West Africa Crude Marketing Ltd., the right to sell or otherwise dispose of Petroleum produced under the AP Service Contract in accordance with the AP Brokerage Agreement. In the event Atlas and Summit elect to conduct the Additional Program at their sole risk and for their own account in accordance with Clause 17(c)(i) above, Atlas and Summit shall not enter into an agreement for the conduct of such operations which entitles the third party contractor to payment in substantially the same manner as that contemplated in this Agreement. In the event Atlas and Summit offer Contractor the right to act as exclusive service contractor in accordance with Clause l7(c)(ii) above, Contractor and West Africa Crude Marketing Ltd. shall have ninety (90) days to elect to accept such offer. (d) DETAILS IN PROPOSALS All proposals contemplated shall be in sufficient detail to allow the other Party to conduct a reasonable evaluation of same and shall include well location and depth, parameters of any seismic program, estimated cost, program schedule and all other reasonably pertinent data and information. (e) SIZE OF AREA SOGW Petroleum Services Subcontract 20F 30 Contractor's appointment as exclusive service contractor in respect of each Additional Program under the AP Service Contract and right of Atlas and Summit to conduct the Additional Program on their own account shall apply to the area containing the operation and having a size of approximately 15,000 acres. Delineation of the area shall be done in the same manner as set forth in Schedule "H". (1) FEES NOT TRANSFERABLE The service fee payable in respect of an AP Service Contract and an AP Brokerage Agreement shall be solely recoverable from production proceeds from the sale of Petroleum attributable to activities under such AP Service Contract. 18. MISCELLANEOUS (a) INDEPENDENT CONTRACTOR All of Contractor's operations hereunder are those of an independent contractor. Contractor is not, and none of its employees or agents are employees of Atlas and Summit. Contractor shall be solely responsible for the performance of the Services and for the manner and details of the carrying out of the Services and shall have the exclusive direction and control of the Personnel. All contractual obligations incurred by Contractor in connection with the Services shall be in the name of Contractor but with full recognition that, consistent with DPR regulations, operations on the lands covered by the Concession must be conducted under the overall supervision and control of Atlas as operator. (b) ARBITRATION (i) The Parties shall endeavour to settle by negotiation any dispute arising out of or in connection with the validity, performance, interpretation or termination of this Agreement. (ii) Any dispute which has not been settled by negotiation within thirty (30) days after notice of the existence of such dispute has been given by one Party to the other Party shall be finally settled pursuant to the Rules of Conciliation and Arbitration of the International Chamber of Commerce, as amended and any rules and regulations made thereunder. Each dispute shall be determined by a panel of three (3) arbitrators. Each Party to any dispute shall appoint one (1) arbitrator and the two (2) arbitrators so appointed shall appoint the third. If a Party fails or refuses to appoint an arbitrator, or if the two (2) arbitrators cannot agree on the third arbitrator such arbitrator shall be appointed by the Chairman of the ICC Court of Arbitration. The award of the arbitrators shall be final and binding on all of the Parties and there shall be no appeal on questions of law or fact to the courts following such award and in particular with regard to any question of law. (iii) The arbitration shall take place in Geneva, Switzerland and shall be conducted in the English Language. (iv) All cost and expenses incurred with respect to an arbitration shall be allocated between the Parties in manner determined by the Panel of Arbitrators. (c) NOTICES (i) Any notice which may be given herein shall be given in writing either by personal delivery or by overnight delivery service to the following offices of a Party, or by fax, return receipts requested, addressed as follows: TO CONTRACTOR: CXY Nigeria Oilfield Service Ltd. SOGW Petroleum Services Subcontract 20F 31 Stevmar House Rockley ChristChurch, Barbados ATTENTION: ANGELA WEBBER PHONE: (809) 435-9960 FAX:(809) 435-9955 with a copy to: Canadian Petroleum International Limited Mallard Court Market Square Staines Middlesex TW 18 4RH Telephone: 01144 17184429555 Fax: 01144 171 84 429 570 ATTENTION: President TO ATLAS: Atlas Petroleum International Limited IB, Ibiyinka Olorunnimbe Close On Amodu Ojikutu Street Victoria Island, Lagos, Nigeria ATTENTION: PRINCE ARTHUR EZE Telephone: 0 11-234-42-251-219 Fax: 011-234-42-253-000 with a copy to: Atlas Petroleum International Limited IB, Ibiyinka Olorunnimbe Close On Anodu Ojikutu Street Victoria Island, Lagos, Nigeria ATTENTION: MANAGING DIRECTOR Telephone: 011-234-1-2615689 Fax: 011-234-1-2615689 Summit Oil and Gas Worldwide, Ltd. Providence House East Hill Street P.O.Box N-3944 Nassau, Bahamas ATTENTION SCOTT LARSEN Telephone: (809) 322-6154 with a copy to: 2200 Ross Avenue Suite 4500E Dallas, Texas 75202 Attention: President SOGW Petroleum Services Subcontract 20F 32 Telephone: (214) 220-4300 Fax: (214) 220-4349 or such other addresses as any party hereafter from time to time may designate in writing to the other Parties. (ii) Any notice if sent by fax shall be deemed to have been received by the Party to whom it was addressed on the first (lst) business day after the day upon which the fax was transmitted. Any notice if personally delivered to the said office or if sent by overnight delivery service shall be deemed to have been received by the addressee on the date of delivery if the said date is a business day; otherwise, on the next business day following. (d) FURTHER ACTS The Parties shall from time to time and at all times do such further acts and things and execute all such further documents and instruments as may be reasonably required in order to carry out and implement the true intent and purpose of this Agreement. (e) TIME OF ESSENCE Time shall be of the essence of this Agreement. (f) ENTIRE AGREEMENT This Agreement, including the Brokerage Agreement and other Agreements executed contemporaneously herewith, when accepted and executed by the Parties hereto constitute the entire agreement between Contractor and Atlas and Summit concerning its subject matter, superseding any and all prior negotiations, discussions, agreements and understandings, whether oral or written relating to such subject matter, including without limitations that certain letter agreement dated June 20, 1995 among Summit, Profco Resources Limited and Contractor, as amended, and that certain Memorandum of Understanding dated November 19, 1995 among Atlas, Summit, Profco Resources Limited and Contractor as amended, both of which shall terminate and be of no further force and effect as of the Effective Date. No contrary or additional conditions specified by Contractor nor any subsequent amendment or supplement shall have any effect without Atlas and Summit's written approval. No provision of any delivery ticket, invoice or other instrument used by Contractor in setting forth the Services conducted hereunder shall be included in this Agreement and any conflicting provisions of any delivery ticket, invoice or other instrument used by Contractor shall have no force or effect and shall not be binding upon Atlas and Summit for any purpose. (g) ASSIGNMENT No Party shall have the right to assign or delegate the rights or obligations hereunder without previous consent in writing from the other Parties, provided that; (i) Upon prior notice to other Parties, a party may execute such assignment or delegation to an Affiliate without consent, provided that the Assignor shall be responsible for the proper and correct performance of its obligations hereunder and shall not be released from its obligations hereunder by reason of the assignment without the prior consent of all Parties (ii) Subject to the provisions of clause 3(b)(vii) the Contractor may sub-contract any part of the Services or activities thereof hereunder, provided that the sub-contracts shall be subject to reasonable market conditions and shall be awarded to sub-contractors who are technically and financially reliable. The Contractor shall further be responsible for the performance of such sub-contractors as if the sub-contracted services were performed by the Contractor. (h) CONTRACTOR'S NIGERIAN SUBSIDIARY SOGW Petroleum Services Subcontract 20F 33 Contractor shall establish a wholly owned subsidiary in the Federal Republic of Nigeria (referred to wherein as "CXN") to provide support services for the Contractor in the Federal Republic of Nigeria in compliance with DPR regulations governing oil service companies. CXN shall be formed exclusive to performing activities under this agreement. Immediately following the Effective Date, Contractor agrees to cause its representatives on the Board of Directors of CXN to elect Prince Arthur Eze as Chairman of CXN and John J. Fleming and one Nigerian National designated by Prince Arthur Eze as Director. Contractor shall also be entitled to appoint its representative as the Managing Director of CXN. The duties and obligations of the Chairman and the Managing Director shall be established, from time to time, by the Board of Directors of CXN; provided that Prince Eze shall serve as Chairman and John J. Fleming and the Nigerian national shall serve as Directors of CXN for so long as this Agreement remains in effect. Atlas shall be responsible for all compensation and benefits payable to Prince Arthur Eze and the other Nigerian nominee for the performance of their duties and obligations for CXN, Summit shall be responsible for all compensation and benefits payable to John J. Fleming for the performance of his duties and obligations for CXN and Contractor shall be responsible for all compensation and benefits for the balance of the Board of Directors of CXN, unless otherwise decided by the Board of Directors of CXN. Subject to the above, Contractor shall appoint other members of the Board of Directors of CXN. (j) CONDITION The obligations of the Contractor in this Agreement are subject to the following conditions precedent: (i) confirmation from the DPR of adequate extension to the term of the Concession so as to allow for drilling of the third well within the term of the Concession and in accordance with section 31 of the Petroleum Drilling and Production Regulations 1969 of the Federal Republic of Nigeria; and (ii) the approval of the Contractor's Board of Directors within twenty (20) days of the date of the execution of this Agreement by all parties. Such conditions are acknowledged to be for the sole and exclusive benefit of the Contractor and may be waived by the Contractor at any time prior to February 1,1996 upon notice to Atlas and Summit. IN WITNESS WHEREOF the Parties hereto executed this Agreement as of the date first above written. CXY NIGERIA OILFIELD SERVICES LTD. Per: --------------------------------------------- ATLAS PETROLEUM INTERNATIONAL LIMITED Per: --------------------------------------------- Per: --------------------------------------------- SUMMIT OIL & GAS WORLDWIDE LTD. Per: --------------------------------------------- Per: --------------------------------------------- Exhibits Petr. Serv. Subcontract 20F EX-3.5 17 a2026270zex-3_5.txt EXHIBIT 3.5 AGREEMENT BETWEEN CXY NIGERIA OIL FIELD SERVICES LTD. (CXY) ATLAS PETROLEUM INTERNATIONAL (ATLAS) , - -AND SUMMIT OIL AND GAS WORLDWIDE LTD (SOGW} CXY, ATLAS AND SOGW AGREE AS FOLLOWS: 1. ATLAS AND SOGW AGREE TO, AND THE OPERATING COMMITTEE SHALL IMMEDIATELY APPROVE, ALL MATTERS LISTED ON ATTACHED SCHEDULE "A" (INCLUDING ASSOCIATED PO'S) ENTITLED "RESOLUTIONS OF THE OPERATING COMMITTEE". 2. THE ATTACHED ECONOMICS AND CALCULATION PROCEDURES, FROM THE JUNE 21, 1997 LETTER BY CXY (THE COVER LETTER, SCHEDULE "B" AND SCHEDULE "C") ARE APPROVED AS DEMONSTRATING THE SERVICE FEE AND CORPORATE CHARGE. 3. CXY IS RELIEVED FROM DRILLING THE REMAINING OBLIGATORY EXPLORATION WELL. ALL RIGHTS EARNED BY CXY OUTSIDE OF THE EJULEBE DEVELOPMENT BLOCK WITHIN OML-l 09 AREA ARE FORFEITED. 4. THE STORAGE AND HANDLING FEE TO CONOCO ENERGY NIGERJA LTD. WILL BE RENEGOTIATED, THE TARGET BEING $1.00 U.S.D. OR LESS, TO BE ACCOMPLISHED BY JULY 31, 1997. 5. A MINIMUM TOTAL JOINT REVENUE TO ATLAS AND SUMMIT OF $510,000 PER CALENDAR YEAR WILL BE GUARANTEED BY CXY (UNDER SCHEDULE C, CLAUSE 2(E)) DURING THE LIFE OF THE EJULEBE FIELD OR THE SUBCONTRACT IS TERMINATED. IT WILL BE PAYABLE WITHIN 15 BUSINESS DAYS FOLLOWING DECEMBER 31 OF THE RELEVANT CALENDAR YEAR OF PRODUCTION BEGINNING IN THE SECOND CALENDAR YEAR FOLLOWING FIRST PRODUCTION. SUCH PAYMENTS WILL NOT BE COST RECOVERABLE AND PAYMENTS WILL BE PRORATED TO THE NUMBER OF DAYS THAT THE EJULEBE FIELD IS PRODUCING DURING THE RELEVANT YEAR (NON-PRODUCTION DAYS MUST BE 30 CONSECUTIVE DAYS OR MORE). 6. IF THE EJULEBE FIELD IS NOT PRODUCING WITHIN 15 MONTHS OF THIS AGREEMENT, ALL CORPORATE CHARGES WILL NOT BE CHARGED FROM THE END OF THE 15TH MONTH UNTIL FIRST PRODUCTION. 7. ATLAS AND SOGW SHALL SELECT A BANK FOR THE JOINT ACCOUNT WITHIN 60 DAYS OF BEING FURNISHED A LIST OF SWISS BANKS BY CXY. DATED THIS 02 DAY OF JULY, 1997. FOR: ATLAS PETROLEUM INTERNATIONAL LTD. SUMMIT OIL AND GAS WORLDWIDE LTD. CXY NIGERIA OIL FIELD SERVICES LTD. SOGW OP Comm Resolutions 7.02.97 20F SCHEDULE A RESOLUTIONS OF OPERATING COMMITTEE I. APPROVAL OF DEVELOPMENT PLAN, CONCEPT PLAN AND ASSOCIATED AFES FOR THE DEVELOPMENT OF THE EJULEBE FIELD: The Development Plan, Concept Plan and associated AFEs (attached summary) for the development of the Ejulebe Field, summaries of which are attached hereto, are hereby approved. II. APPROVAL OF DRILLING CONTRACT WITH GLOBAL MARINE LTD. AND ASSOCIATED AFE: The award of the Contract for Drilling Services between CXY Nigeria Oilfield Services Ltd. and Global Marine Ltd. as assigned to CXY Nigeria Oilfield Services Ltd. by Atlas and the associated AFEs (summaries attached) are hereby approved. III. APPROVAL OF FACILITY AND RELATED SUPPLEMENTAL AFE: The Facility AFE and related supplemental (attached summaries) are hereby approved. IV. APPROVAL OF CONTRACT WITH SERT-BAKER LTD: The award of the Contract for water injection equipment and services to Sert - -Baker Ltd. is hereby approved; and CXY Nigeria Oilfield Services Ltd. is hereby authorised to enter into such contract. V. CONTRACT FOR ENGINEERING SERVICES FOR PRODUCTION PLATFORM WITH MUSTANG ENGINEERS & CONTRACTORS, INC.: The award of the Contract for Services regarding the engineering of the production platform for the Ejulebe Field between International Capital Corporation Ltd., (being an Affiliate of CXY Nigeria Oilfield Services Ltd.), and Mustang Engineers & Contractors, Inc. is hereby approved; and International Capital Corporation Ltd. is hereby authorised to enter into such contract. VI. PLATFORM FABRICATION AND INSTALLATION AGREEMENT WITH DICKSON ALUSTEEL JOINT VENTURE: The award of the contract for the fabrication and installation of the production platform for the Ejulebe Field between International Capital Corporation Ltd., (being an Affiliate of CXY Nigeria Oilfield Services Ltd.), and Dickson Alusteel Joint Venture is hereby approved; and International Capital Corporation Ltd. is hereby authorised to enter into such a contract. VII. APPROVAL OF STORAGE AND HANDLING AGREEMENT WITH CONOCO ENERGY NIGERIA LTD. The award of the contract for the storage and handling of production from the Ejulebe Field with Conoco Energy Nigeria Ltd. .is hereby approved subject to the provisions of Clause 4 of this agreement; and CXY Nigeria Oilfield Services Ltd. is hereby authorised to enter into such contract. SOGW OP Comm Resolutions 7.02.97 20F SCHEDULE A CONT'D VIII. APPROVAL OF SERVICE AGREEMENTS WITH AFFILIATES: The following Affiliates of CXY Nigeria Oilfield Service Ltd. have been requested by CXY Nigeria Oilfield Services Ltd. to perform selected duties and services under the Subcontract. The Operating Committee recognizes and approves the involvement of these Affiliates subject to the provisions of Schedule C, Clause 5 of the Subcontract. A. International Capital Corporation Ltd; B. Canadian Occidental Petroleum Ltd.; C. Canadian Petroleum International Resources Ltd.; and D. Canadian Petroleum International Ltd. SOGW OP Comm Resolutions 7.02.97 20F SCHEDULE B June 21, 1997 Via Fax Ray Crockett (Hand Delivery) Atlas Petroleum International Ltd., 1B, Ibiyinka Olorunnimbe Close, On Amodu Ojkutu Street, Victoria Island Lagosn Nigeria ATTENTION: PRINCE ARTHUR EZE Dear Sir: RE: FEDERAL REPUBLIC OF NIGERIA OML 109 CASH FLOW FORECASTS Attached are the cash flows in detail that you have requested. As you know, there are many assumptions in a cash flow forecast, including prices and reserves. These assumptions are outlined as follows: Prices: $18/bbl for Nigerian crude escalated at 3% per year. Inflation: 3% Operating Expenses: Composed of a variable: $1.57/bbl includes the Conoco tariff, chemicals, treating costs, fuel costs, electricity and other items of a variable to throughput, and Fixed which includes platform operating expenses such as living accommodation and supplies, technical and administration expenses.
CAPITAL EXPENSE 1996 1997 1998 - ----------------------------------------------------------------------------------- Drilling Note 1 15.0 3.6 5.5 - 1.5 7.7 Subtotal: 22.0 11.3 Facilities: Note 1 13.0 34.4 ---- ----
Note 1: The 1996 capital breakdown is as per Rha Dawood's Progress sheet as of Dec 31, 1996. SOGW OP Comm Resolutions 7.02.97 20F From the attached spreadsheet we would point out the following over the life of the project
$MM - ------------------------------------------------------------ Gross Revenues: 369 Royalties: 68 -- Net Revenue: 301 Capital Costs: 102 Past Costs Reim.: 10 Operating Costs: 92 -- SubTotal: 204 Remainder: 97 to be split plus 10 reimbursement Atlas/SOGW Share: 50.4 (40.4+10) CXYN Share: 58.4 less non-recoverable G&A of 6.0
It should be noted that income taxes are also a part of the netback calculation. These are company specific but will be in addition to the royalties paid to the government. We have already pointed out the need for quick decisions. We sincerely hope that this information will be useful to reaching the necessary recommendations and decisions required for proceeding. We also have pointed out that these are forecasts. Reserves and price changes make a significant difference to all our cash flows but at this time we feel this is a best estimate. We hope that you will find these attachments useful. Yours truly, CANADIAN PETROLEUM INTERNATIONAL RESOURCES LTD. Gord Harris Region Manager, Africa Gh/dm Cc: Ray Crockett - CPFSNL Atlas/SOGW Operating Committee Dr. Okey Eze - Atlas Petroleum Emeka Okafor - Atlas Petroleum Bob Cowen - SOGWN Scott Larsen - SOGW John Fleming - Profco Resources SOGW OP Comm Resolutions 7.02.97 20F EX-3.6 18 a2026270zex-3_6.txt EXHIBIT 3.6 AMENDMENT TO PETROLEUM SERVICES SUBCONTRACT AND 2ND JULY 1997 AGREEMENT THIS AMENDMENT TO PETROLEUM SERVICES SUBCONTRACT is made and effective ________day of October 1998. BETWEEN CXY NIGERIA OILFIELD SERVICES LTD., a body corporate incorporated under the laws of Barbados and an office in St. Michael, Barbados (hereafter referred to as "Contractor"); ATLAS PETROLEUM INTERNATIONAL LIMITED, a body corporate incorporated under the laws of Federal Republic of Nigeria and having an office in Lagos, Nigeria (hereinafter referred to as "Atlas"). SUMMIT OIL & GAS WORLDWIDE LTD. a body corporate incorporated in the Commonwealth of Bahamas and having an office in the city of Nassau (hereinafter referred to as "Summit"). The Contractor and Atlas and Summit are collectively referred to as the "Parties" and individually a "Party". RECITALS (1) WHEREAS, under the terms and provisions of the Federal Republic of Nigeria Oil Mining Lease No.109 dated 27 May, 1996 issued to Atlas and held by Atlas and Summit (the technical advisor to Atlas), Atlas and Summit are engaged in the production of petroleum from OML 109; and (2) WHEREAS, pursuant to the terms of the Petroleum Services Subcontract dated January 14, 1996, as amended (the "Petroleum Services Subcontract") between Contractor, Atlas and Summit, Contractor performs the "Services" (as defined therein) to, inter alia, facilitate the production of Petroleum from the area of OML109 known as the "Contract Area" for and on behalf of Atlas and Summit. All defined terms in the Petroleum Services Subcontract are incorporated herein and adopted by reference, and (3) WHEREAS, the Petroleum Services Subcontract was amended pursuant to an agreement dated July 2, 1997 between the Parties (the "July 2, 1997 Agreement") and PSS Amendment 10.26.98 20F (4) WHEREAS, pursuant to the terms of agreement between Atlas and Summit and Atlas/ Summit Crude Marketing Ltd, entered into, or to be entered into, all Petroleum produced from the Contract Area will be sold by Atlas and Summit to Atlas/ Summit Crude/Marketing Ltd., subject, however, to terms and conditions of the Petroleum Services Subcontract; and (5) WHEREAS, the sale of the Petroleum produced from the Contract Area to Atlas/ Summit Crude Marketing Ltd. changes the manner in which the parties originally contemplated the Petroleum would be marketed and sold. Accordingly, certain modifications to the Petroleum Services Subcontract are required to accommodate the new marketing arrangements; and (6) WHEREAS, the Parties agree that the Joint Account shall be revised to require the signatures of all three parties to the Joint Account for distributions therefrom; and (7) WHEREAS, the Parties agree to provide that in the event Atlas and Summit can secure from the Federal Government of Nigeria relief from some or all Nigerian Royalty payable to the Federal Government of Nigeria which is currently chargeable against the Petroleum or the producers of the Petroleum, then Atlas and Summit shall retain the benefits of relief from Nigerian Royalty and the revenues resulting therefrom shall not be included in the revenues subject to Contractor's Service Fee; and (8) WHEREAS, the Parties agree to provide that the receipt by Atlas and Summit of any relief from Nigerian Royalty shall not reduce the annual non-recoverable payment of $510,000 per year provided for in Paragraph 5 of the July 2, 1997 Agreement between the Parties; and (9) WHEREAS, the Parties now wish to provide that instead of the annual non-recoverable payment of $510, 000 provided for in Paragraph 5 of the July 2, 1997 Agreement, being paid in a lump sum, that it shall accrue daily (over a period of 365 days and such accrued amount shall be paid upon the distribution of funds associated with each lifting from the Joint Account. (10) The payment to Atlas and Summit described in Recital (9) above shall be made pursuant to the Petroleum Services Subcontract (as amended herein) and not under the July 2, 1997 Agreement which shall be amended to reflect this NOW THEREFORE, in consideration of the covenants herein contained, including the recitals hereto, the Parties hereby agree to amend the Petroleum Services Subcontract as follows: SUSPENSION OF ORIGINAL BROKERAGE AGREEMENT Pursuant to the Petroleum Services Subcontract, Atlas and Summit entered into a Brokerage Agreement dated January 14,1996 (the "Original Brokerage Agreement) with West Africa Crude Marketing Ltd. (hereinafter called "WACM"), Under the new marketing arrangements, Atlas and Summit shall sell all Petroleum produced from the Contract Area to - -2- PSS Amendment 10.26.98 20F Atlas/SOGW Crude Marketing Ltd. (hereinafter called and "ASCML") and WACM shall act as broker for ASCML (pursuant to a brokerage agreement hereinafter called the ASCLM Brokerage Agreement"). For so long as Atlas and Summit sell all Petroleum produced from the Contract area to ASCML and that WACM acts as broker under the ASCLM Brokerage Agreement for such sales, then the Original Brokerage Agreement shall be treated as suspended and its terms and provisions shall not apply between the parties thereto. The Original Brokerage Agreement shall automatically be received and reinstated if any party to the ASCML Brokerage Agreement terminates the services of WACM as broker as set out thereunder. 2. AMENDMENTS TO THE PETROLEUM SERVICES SUBCONTRACT (a) Definitions "Contract Area" shall be amended to mean the following, "means the Ejulebe field Area and the Exploration Blocks to be identified in accordance with Schedule "H" hereof, (as the same may be amended from time to time in accordance with the terms hereof) but excluding the area drained by any well within such area that was not drilled by the Contractor pursuant to the provisions of this Agreement." (b) SERVICE FEE: Section 13 (a) of the Petroleum Services Subcontract and Clause 2 of Schedule "C" Entitled "Service Fee" to the Petroleum Services Subcontract are identical and provide for the establishment of the" Joint Account" and provide further how proceeds from the sale of Petroleum produced from the Contract Area and deposited into the Joint Account are to be paid and distributed. The parties hereby agree to delete Section 13 (a) of the Petroleum Services Subcontract and Clause 2 of Schedule "C" to the Petroleum Services Subcontract and replace each of the paragraphs with the following. "The parties agree that Contractor shall recover the Service Fee payable hereunder out of, and only out of, the sale proceeds or proceeds from any other disposition of Petroleum produced saved and marketed from the Contract Area. Atlas, Summit and West Africa Crude Marketing Ltd. (WACM) shall open an account (the "Joint Account} into which all sales proceeds or other disposition of Petroleum from the Contract Area shall be paid. WACM, Atlas and Summit shall each be a signatory to the Joint Account. The operation of the Joint Account shall require all three (3) signatories of the account holders. Out of the receipt of proceeds of sale or other disposition of Petroleum from the Contract Area into the Joint Account the distribution of funds shall be in accordance with the terms of this Agreement. (A) From that portion of the proceeds of sale or other dispositions of sale that are received into the Joint Account equating to 18.5% of the total proceeds received from a discrete sale, Atlas and Summit shall direct W ACM to pay and transfer: (1) Firstly, into an account nominated by the Federal Government of Nigeria, an amount equal to the Nigerian Royalty for and on behalf of Atlas and Summit; then secondly - -3- PSS Amendment 10.26.98 20F (2) to Atlas and/or Summit and or such other party the amount of any Nigerian Royalty previously paid directly to the Government of the Federal Republic or Nigeria by Atlas and or Summit and or directly by such other party, as the case mav be, for which reimbursement has not been previously made, and then finally. (3) Once all Nigerian Royalty has been discharged or reimbursed relating to the period of production ending on the date that export production volumes from the Conoco FPSO moored in OML 108 are calculated (ten days prior to each lifting or such other time period as Contractor may agree with from time to time with Conoco) there shall be transferred into an account nominated by Atlas and Summit the balance of the proceeds remaining from the 18.5(degree) of total proceeds received into the Joint Account as aforesaid. (B) From that portion of the proceeds of sale or other dispositions of sale that are received into the Joint Account equating to 81.5% of the total proceeds received from a discrete sale, Atlas and Summit shall direct WACM to pay and transfer: (1) Firstly, to WACM, based on an invoice approved by ASCML an amount equal to the Brokerage Costs (as that term is defined in the ASCML Brokerage Agreement); then secondly; (2) To WACM, based on an invoice approved by ASCML, the Marketing Fee (as that term is defined in the ASCML Brokerage Agreement); then thirdly (3) To Contractor, based on an invoice presented by Contractor and approved by Atlas and Summit, the Service Fee, then finally (4) To Atlas, Summit and ASCML the balance of the proceeds remaining from the 81.5% of total proceeds received into the Joim Account, as aforesaid Such payment herein to be made pursuant to a written directive signed jointly by Atlas and Summit. The order of priority of payment referred to in Clause 13(a)(A) and (B) above shall not be changed without the consent of the Parties hereto." Clause 13(b) is amended through adding the following: "For the avoidance of doubt any and all advances made by Contractor (if any) to pay Nigerian Royalty shall not be charged the 10% Operation Cost Overhead Allowance specified in paragraph 3(a) of Schedule "C". Further, any costs included as Brokerage Costs under the Brokerage Agreement between West Africa Crude Marketing Ltd. and Atlas/SOGW Crude Marketing Ltd. shall not be included as Operating Costs under the Service Fee calculation." - -4- PSS Amendment 10.26.98 20F The parties agree to amend the Petroleum Services Subcontract to add a new subsection 13(i) entitled "'Other Conditions Pertaining to Crude Sales" and to amend Schedule "C" to add a new Clause 8 which is identical to new subsection 13(i) as follows: 13(i) OTHER CONDITIONS PERTAINING TO CRUDE OIL SALES AND THE JOINT ACCOUNT If the law, decree, regulation or legal notice of any jurisdiction requires the withholding of tax levy, duty or assessment from payments due hereunder, then the Parties shall comply with such requirements to withhold such funds in the Joint Account and so complying shall remit such withholding to the proper authorities on behalf of the other Parties. The amount to be withheld in the Joint Account pursuant to this subsection shall be restricted to the legal minimum. The remitting Party. shall provide and deliver to the other Parties receipts in respect of all sums remitted. Under Paragraph 5 of the Agreement dated July 2, 1997 between the Parties, Contractor agreed to pay to Atlas and Summit a minimum guaranteed annual payment of $510,000 per calendar year. The Parties hereby agree to amend the terms defining the manner in which the $510,000 per year payment shall be made. Accordingly, Paragraph 5 of the July 2, 1997 Agreement is deleted and the Petroleum Services Subcontract is amended by adding new Subsection 13(j) entitled "Guaranteed Annual Payment" to read as follows. "13(j) GUARANTEED ANNUAL PAYMENT (a) A guaranteed annual payment to Atlas and Summit of $510,000 per year (accruing daily) will be paid by Contractor for the term of production from the Ejulebe Field or, if earlier, until the Subcontract is terminated ("the Guaranteed Annual Payment"). (b) In the event that the Subcontract is terminated mid-year the Guaranteed Annual Payment that has accrued on a daily basis for that part of the year will become the amount that is payable to Atlas and Summit. (c) The Guaranteed Annual Payment will not be cost recoverable. (d) The Guaranteed Annual Payment will be payable for each year commencing with the year starting 1st January 1999. (e) The Guaranteed Annual Payment shall be payable by Contractor into an account to be nominated by Atlas and Summit as follows: AS soon as reasonably possible following - -5- PSS Amendment 10.26.98 20F the final distribution of the proceeds of sale or other dispositions of sale that are received into the Joint Account pursuant to Clause 13(a)(B) Contractor shall pay to Atlas and Summit that portion of the Guaranteed Annual Payment that shall have accrued on a daily basis since the 1st January for the relevant year to the date of the first bill of lading in that same year, or if there has a been a previous lifting in that current year, from the day following the immediately preceding bill of lading date to the date of the bill of lading for the current lifting (inclusive). Contractor shall pay to Atlas and Summit within 10 days of the start of the next succeeding year the outstanding balance (if any) of the Guaranteed Annual Payment not paid to Atlas and Summit for the preceding year due, arising as a result of Contract Area Petroleum not lifted on 31st December of the preceding year. The payment of the Guaranteed Annual Payment can be expressed by the formula: $ = A X B ----- C A = $510,00000 B = Number of elapsed days from 1st January to the bill of lading date, or the number of days elapsed between two successive bill of lading dates, or the number of days elapsed between the last bill of lading date in the current year and 31stDecember in that year, as the case maybe. C = 365 (366 in leap years) The Petroleum Services Subcontract and the July 2, 1997 Agreement, as both are amended by the provisions contained in this Agreement, are and shall remain in full force and effect, and save as otherwise provided defined terms used in this Agreement shall, unless otherwise provided, have the same meaning as that used in the Petroleum Services Subcontract. - -6- PSS Amendment 10.26.98 20F IN WITNESS WHEREOF, the parties have executed this Amendment to Petroleum Services subcontract effective as of the date first stated above. ATLAS PETROLEUM INTERNATIONAL LIMITED CXY NIGERIA OILFIELD SERVICES, LTD. BY: BY: --------------------------------- -------------------------------- NAME: NAME: --------------------------------- ------------------------------ TITLE: TITLE: ------------------------------ ----------------------------- SUMMIT OIL & GAS WORLDWIDE LTD. CXY NIGERIA OILFIELD SERVICES BY: BY: --------------------------------- -------------------------------- NAME: NAME: --------------------------------- ------------------------------ TITLE: TITLE: ------------------------------ ----------------------------- PSS Amendment 10.26.98 20F EX-3.7 19 a2026270zex-3_7.txt EXHIBIT 3.7 DEED OF ASSIGNMENT This Deed of-Assignment is made and entered into on this 9th day of April 1998 by and between Alliance Egyptian National Exploration Company, a Company organized and existing under the laws of the Cayman Islands, hereinafter referred to as ("Alliance") as Assignor; and GHP Exploration Egypt Ltd., a Corporation organized and existing under thc laws of Bermuda U.S.A., hereinafter referred to as ("GHP") as Assignee; Whereas, Alliance has certain rights, privileges, duties and obligations under the Concession Agreement dated 22/9/97, (hereinafter referred to as the Concession Agreement) and issued by Law No.11 of 1997, entered into by the Government of the Arab Republic of Egypt ("Government") and the Egyptian General Petroleum Corporation ("EGPC") and the National Exploration Company, for Petroleum Exploration and Exploitation, covering Central Sinai Area as described in Annex "A" and outlined in Annex "B" of the above mentioned Concession Agreement Whereas, the National Exploration Company, has assigned all of its interests, rights, privileges, duties and obligations in the above mentioned Concession Agreement to "Alliance" by virtue of the Deed of Assignment approved by the Government of A.R.E. on 3rd December 1997, Whereas, Alliance wishes to assign all undivided twenty five percent (25%) of its interests, rights, Central Sinai Deed of Assignment 20F privileges, duties and obligations in the above mentioned Concession Agreement to GHP, Whereas, GHP accepts such assignment, Whereas, pursuant to Article (XXI) of the aforementioned Concession Agreement, EGPC must review and approve the text of this Assignment, Whereas, such assignment is subject to approval of the Government Now, Therefore, the parties to this Assignment agree as follows: 1 -This Assignment is made in accordance with tile provisions of Article (XXI) of the aforementioned Concession Agreement. 2 -Alliance hereby assigns twenty five percent (25%) an undivided of its interests, rights, privileges, duties and obligations in tile aforementioned Concession Agreement to GHP, 3 -This Assignment shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. 4 -GHP (the Assignee) hereby expressly states that it is bound by all the provisions and covenants contained in tile Concession Agreement and any modifications or additions in writing as well as any contracts concluded by Alliance (the Assignor) with EGPC in implementation of the Concession Agreement thereof that may have been made up to the date of this Deed of Assignment. Central Sinai Deed of Assignment 20F 5- Alliance and GHP state that the rights and privileges of both the Government and EGPC contained in the Concession Agreement shall not be prejudiced by tile Provisions of this Deed of Assignment. 6- Pursuant to Article (XXI) paragraph (e) of the Concession Agreement, Alliance and GHP state that they shall be vis-a-vis the Government and EGPC jointly and severally liable for the performance of the obligations of contractor under the aforementioned Concession Agreement, 7- Alliance Egyptian National Exploration Company (the Operator) through its office in the A.R.E., its address: 10 Ahmed Sami El Said Sq. -Dakki -Giza, shall further be the entity to which, from which and in whose name, all notifications related to or in connection with this Concession Agreement shall be made. 8- This Assignment shall be effective as of the date of tile approval of the Government. In witness whereof, parties have duly executed this Deed of Assignment on this 9 day of April, 1998. Central Sinai Deed of Assignment 20F ASSIGNOR: BY: ALLIANCE EGYPTIAN NATIONAL EXPLORATION COMPANY NAME: JEFFREY M. WATEROUS TITLE: CHAIRMAN SIGNATURE: ASSIGNEE: BY: GHP EXPLORATION (EGYPT) LTD. NAME: BARRY LASKER TITLE: DIRECTOR SIGNATURE: Central Sinai Deed of Assignment 20F THE ABOVE MENTIONED DEED OF ASSIGNMENT DATED 9 DAY OF APRIL, 1998 OF THE CENTRAL SINAI CONCESSION AGREEMENT IN THE ARAB REPUBLIC OF EGYPT SIGNED BY VIRTUE OF LAW NO.11 OF 1997 IS ACCEPTED AND APPROVED. THE EGYPTIAN GENERAL PETROLEUM CORPORATION BY: ENG ABDEL KHALEK AYAD TITLE: CHAIRMAN OF THE BOARD SIGNATURE: DATE: / / 1998 ARAB REPUBLIC OF EGYPT GOVERNMENT BY: DR. HAMDY ALY ABDEL WAHAB EL BANBI TITLE: MINISTER OF PETROLEUM SIGNATURE: DATE: 8/9/1998 Central Sinai Deed of Assignment 20F EX-3.8 20 a2026270zex-3_8.txt EXHIBIT 3.8 PARTICIPATION AGREEMENT DATED MARCH 27, 1998 AMONG ALLIANCE EGYPTIAN NATIONAL EXPLORATION COMPANY - -AND- GHP EXPLORATION (EGYPT), LTD. -AND- GHP EXPLORATION CORPORATION Central Sinai Participation Agreement PARTICLPATION AGREEMENT THIS AGREEMENT MADE AS OF THE 27TH DAY OF MARCH, 1998. BETWEEN: ALLIANCE EGYPTIAN NATIONAL EXPLORATION COMPANY, A CAYMAN ISLAND CORPORATION HAVING AN OFFICE IN THC CITY OF NASSAU, IN THE BAHAMAS (HEREINAFTER CALLED "ALLIANCE") - -AND- GHP EXPLORATION CORPORATION, a YUKON TERRITORY CORPORATION HAVING AN OFFICE IN THE CITY OF HOUSTON, in THC STATE OF TEXAS, U.S.A. (HEREINAFTER CALLED "GHP") - -AND- GHP EXPLORATION (EGYPT), LTD., a Bermuda corporation having an office in the City of Houston, in the State of Texas, U.S.A. (hereinafter called "GHP Egypt") WHEREAS Alliance has become a party to a Concession Agreement originally between the Government, The Egyptian General Petroleum Corporation ("EGPC") and National Exploration Company (the "Concession Agreement") with Alliance's interest in the Concession Agreement ratified by the Government on September 22, 1997; AND WHEREAS by Deed of Assignment dated September 23, 1997, a 100% working interest in the Concession was formally deeded to Alliance; AND WHEREAS Alliance and GHP seek to jointly explore, deve1op and produce Hydrocarbons in the Concession Area and by this Agreement seek to define and establish their respective participating interests in the Concession and in the rights and obligations contained in and under the Concession Agreement; NOW THEREFORE, in consideration of thc premises and mutual covenants, agreements and obligations set out below and to be performed, the Parties agree as follows: ARTICIE I DEFINITIONS 1. 1 "AFFILIATE" means a company, partnership or other legal entity which controls, or is controlled by, or which is controlled by an entity which controls, a Party. Control means the ownership, directly or indirectly, of fifty percent (50%) or more of the voting rights in a company, partnership or legal entity. 1.2 "AGREEMENT" means this agreement, together with the Appendices attached to this agreement and any extension, renewal or amendment hereof agreed to in writing by the Parties. 1.3 "BUSINESS DAY" means any day other than a Saturday, Sunday or statutory ho1iday on which chartered banks in Houston, Texas are closed. 1.4 "CLOSING DATE" means the date that this Agreement is executed and delivered by the Parties scheduled to occur on or about March 27, 1998 or such earlier or later date as the Parties sha11 agree upon. 1.5 "COMMON SHARES" means the common shares in the capital of GHP to be issued to accordance with subparagraph 2.1(b); 1.6 "CONCESSION" means the rights held by Alliance pursuant to the Concession Agreement or otherwise, for the exploration, development and production of Hydrocarbons in thc Concession Area. 1.7 "CONCESSION AREA" means the area described as Central Sinai Concession, Block G and specified in the Concession Agreement, as such area may vary from time to time during the validity of the Concession Agreement. Central Sinai Participation Agreement 1.8 "G&A COSTS" means indirect charges; as contemplated in Section 3.1 of thc Accounting Procedure attached to the Operating Agreement, including, without limitation, administrative overhead costs, salaries of support personnel, office rent, utilities, insurance, business taxes, telephone costs, fax, printing, stationary, use of computer facilities and technica1 equipment and other similar overhead costs that provide a real benefit to joint operations. 1.9 "GOVERNMENT" means the government of thc Arab Republic of Egypt and any political subdivision or agency or instrumentality thereof. 1.10 "HYDROCARBONS" means all substances including liquid and gaseous hydrocarbons which are subject to and covered by thc Concession Agreement. 1.11 "INITIAL EXPLORATION PERIOD" has the meaning ascribed to that term in Article III (b) of the Concession Agreement. 1.12 "INITIAL EXPLORATION WORK BUDGET" means the aggregate of costs and expenses, including G&A Costs, incurred in conducting the Initial Exploration Work Program. 1.13 "INITIAL EXPLORATION WORK PROGRAM" means those work and/or expenditure obligations specified in the Concession Agreement which must be performed during the Initial Exploration Period in order to satisfy the obligations of the Concession Agreement. 1.14 "OPERATING AGREEMENT" means the operating agreement in the form of the AIPN Model Form of International Operating Agreement and Accounting Procedure to be negotiated and entered into by thc Parties in accordance with Article IV. 1.15 "OPERATOR" means "Operator" under the Operating Agreement. 1.16 "PARTICIPATING INTEREST" means the percentage undivided working interest of each party in the rights and obligations derived under this Agreement, the Operating Agreement and of the "Contractor" under the Concession Agreement as set forth in Section 3.1. 1.17 "PARTY OR PARTIES" means, respectively, one or all of the Parties to this Agreement and any respective permitted successors or assigns. ARTICLE II EARNING OBLIGATIONS 2.1 From and after the Closing Date, GHP Egypt shall have earned an undivided twenty-five percent (25%) working interest in the Concession Agreement (the "GHP Interest") subject to, and provided that GHP and GHP Egypt fulfill their respective obligations set out below: (a) On the Closing Date, GHP Egypt shall pay to Alliance U.S. $500,000 by way of bank draft or wire transfer, as Alliance may direct. (b) On the Closing Date, subject to thc provisions of Schedule 7.3 and any relevant securities laws, ru1es and policies. GHP sha11 issue in the name of Alliance or its Affiliate that number of Common Shares in the capital of GHP having a market value on the Closing Date equal to U.S. $500,000. The Common Shares shall be issued at a price equal to the weighted average closing price of Common Shares of GHP for the twenty (20) trading days immediately prior to the Closing Date. (c) GHP Egypt shall pay forty percent (40%) of the Initial Exploration Work Budget until the earlier of: (i) the completion of the Initial Exploration Work Program; or Central Sinai Participation Agreement (ii) the Initial Exploration Work Budget equals U..S. $8,000,000; from and after which time GHP Egypt shall pay twenty-five percent (25%) of all costs and expenses associated with activities conducted by the Operator in thc Concession Area. (d) Notwithstanding subparagraph 2.I(c), during each year of the Initial Exploration Period, GHP Egypt shall pay forty percent (40%) of the G&A Costs until the G&A Costs equal U.S. $650,000 for such year, from and after which time GHP Egypt shall pay twenty-five percent (25%) of all further G&A Costs associated with activities conducted by the Operator in the Concession Area during that particular year. (e) On the Closing Date, GHP Egypt shall pay to Bennett Jones Verchere, in trust. U.S. $250,000 by way of bank draft or wire transfer (the "Escrowed Monies") for the benefit of Alliance which Escrowed Monies shall, in addition to the forfeiture contemplated in Section 3.3, be forfeited to Alliance, as a genuine pre-estimate of liquidated damages and not a penalty, in the event that GHP Egypt fails to pay any cash call, authorization for expenditure or invoice issued by the Operator for GHP Egypt's share of the costs and expenses incurred in conducting the Initial Exploration Work Program. The Escrowed Monies shall be released to GHP Egypt upon GHP Egypt posting a letter of guarantee in the amount of U.S. $2,400,000 (the "GHP Guarantee"), in favour of the Government, in a form contemplated by the Concession Agreement and acceptable to the Government or upon notification from the Government that it does not approve the transfer of the GHP Interest. The Parties acknowledge that it is intended the GHP Guarantee replace forty percent (40%) of A1liance's outstanding U .S. $6,000,000 letter of guaranteed in favour of the Government (the" AlIiance Guarantee") such that thc Alliance Guarantee will be rcduced to U.S. $4,600.000, as may be approved by the Government. Any amounts paid by GHP Egypt to Bennett Jones Verchere, in trust, shall be paid in accordance with the provisions of the letter agreement attached hereto as Schedule 2.1. Upon acceptance of the GHP Guarantee by thc Government or upon notification from the Government that it does not approve the transfer of the GHP Interest, Alliance and GHP shall provide Bcnnett Jones Vcrchere written notice thereof. (f) If the Government notifies Alliance that it does not approve the transfer of the GHP Interest, GHP Egypt shall be responsible and liable for forty percent (40%) of the Alliance Guarantee and shall, upon receipt by GHP Egypt of the Escrowed Monies, pay to Alliance by way of bank draft or wire transfer, forty percent (40%) of the amount required to be on deposit in support of the Alliance Guarantee or such other security as is reasonably acceptable to Alliance (such as a letter of credit in favour of Alliance). Alliance shall reimburse GHP Egypt such amount deposited by GHP to support the Alliance Guarantee or release such other security us may be posted upon release of the Alliance Guarantee by the Government. (g) As soon as practical after receipt of any necessary Government approvals of the transfer of the GHP Interest, GHP or GHP Egypt shall post thc GHP Guarantee with the Government. Until the GHP Guarantee has been accepted by the Government or until GHP Egypt is required to deposit funds or post security with A1liance as provided in Article 2.1 (f) above, in addition to thc other payments contemplated in paragraph 2.1, GHP Egypt shall pay to Alliance in posting the Alliance Guarantee. 2.2 On the Closing Date, Alliance shall transfer the GHP Interest to GHP Egypt by way of assignment substantially similar to the form of assignment attached hereto as Exhibit " A" and made a part hereof (the "Assignment"). Alliance and GHP Egypt shall execute the Assignment and Alliance shall deliver the Assignment to GHP Egypt. The transfer of thc GHP Interest to GHP Egypt and the Assignment is subject to the approval of the Government which the Parties agree to use all reasonable efforts to obtain as soon as practical after the Closing Date. Central Sinai Participation Agreement ARTICLE III PARTICIPATING I NTERESTS 3.1 (a) Subject to the terms and conditions set forth in Article II and subparagraph 3.1(c) below, all the rights and interests of the Parties in the Concession and under the Concession Agreement and this Agreement shall be owned by the Parties, as among themselves, in accordance with the following participating interests: Alliance 75% GHP Egypt 25% (the "Participating Interests"). (b ) Subject to the terms and conditions set forth in Article II, the obligations of the Parties under the Concession Agreement and this Agreement and all liabilities, costs and expenses incurred by Operator in connection with activities conducted in the Concession Area. shall be shared by the Parties, as among themselves, in accordance with their respective Participating Interests. (c) Notwithstanding the Parties' Participating Interests, GHP Egypt and Alliance agree that forty percent (40%) of the Hydrocarbons a1located to thc Contractor for recovery of costs provided for in Article VII of the Concession Agreement shall be received by GHP Egypt until such time as the value of such forty percent (40%) of such Hydrocarbons (as determined by the proceeds received or due to GHP Egypt from the sale of such Hydrocarbons) equals the aggregate of all costs incurred by GHP Egypt pursuant to Subparagraph 2.1 (c) hereof that are eligible for cost recovery in accordance with the Concession Agreement. Thereafter, such Hydrocarbons shall bc shared in proportion to the Parties' Participating Interests. 3.2 Upon execution and delivery of this Agreement, AlIiance, GHP and GHP Egypt shall use all reasonable efforts to have the GHP Interest formally recognized by the Government by way of execution of a deed of assignment or in such other manner as the Government shall require. Until formal recognition of the GHP Interest by the Government is achieved, Alliance agrees that it holds the GHP Interest in trust for the benefit of, and on behalf of, GHP Egypt. 3.3 If GHP Egypt fails to completely meet any of its earning obligations set forth in Article II, thirty (30) days after receipt of written notification from Alliance of any such failure, the GHP Interest shall be automatica1ly forfeited and revert back to Alliance, unless GHP Egypt has remedied such failure within such thirty (30) day period. Any such forfeiture and reversion is a genuine pre-estimate of liquidated damages and not a penalty, and shall be without compensation or reimbursement for any amount paid to the date of such failure and this Agreement shall be terminated from and as of such date. Central Sinai Participation Agreement ARTICLE IV BUDGET 4.1 As soon as practical after the Closing Date, Alliance and GHP Egypt shall agree on an estimate for the Initial Exploration Work Budget. Any such estimate shall not reduce the earning obligations of GHP Egypt set forth in Article II. Subject to the terms and conditions of the Concession Agreement and the Operating Agreement, the Parties shall mutually agree to an annual budget of costs and expenses for each year of the Initial Exploration Period, which annual budgets shall implement thc agreed estimated Initial Exploration Work Budget. ARTICLE V OPERATING AGREEMENT AND OPERATOR 5.1 The Parties shall use all reasonable efforts to execute and deliver the Operating Agreement within thirty (30) days of the Closing Date and the Operating Agreement shall be effective as of and from the Closing Date. Notwithstanding the participating interests of Alliance and GHP Egypt in the Operating Agreement, the costs and expenses of the Initial Exploration Work Budget shall be paid in accordance with Section 2.l(c) and (d). 5.2 The Parties agree that the Operator shall be Alliance. The Operator shall conduct all operations in accordance with the provisions of the Concession Agreement, the Operating Agreement and the directions and instructions of the Operating Committee created under the Operating Agreement. 5.3 The Operating Agreement shall govern the operations on the Concession including, but not limited to, the design and implementation of any seismic and drilling programs. Under the Operating Agreement, there shall be created an Operating Company which shall provide overall supervision and direction of all operations and which shall, without limitation, have the right to approve all key agreements with consultants and contractors in connection with the Concession.. GHP Egypt shall be entitled to have one of its technical personnel work with the personnel of Alliance in the formulation of the seismic and drilling programs. 5.4 Article IV(c) of the Concession Agreement provides for a joint committee to be established by EGPC and the Contractor, referred to as the "Exploration Advisory Committee". The Exploration Advisory Committee consists of six members, three of whom shall be appointed by EGPC and three of whom shall be appointed by Contractor. Alliance shall provide for one of its three members to be a representative of GHP Egypt, subject to approval by EGPC. Alliance shall consult with GHP Egypt and consider GHP Egypt's input, regarding all meetings and negotiations with the Egyptian Government and shall keep GHP Egypt informed of all matters relative thereto, including but not limited to budgets and work programs. ARTICLE VI RELATIONSHIP OF THE PARTIES 6.1 The rights, duties, obligations and liabilities of the Parties under this Agreement shall he individual, not joint or collective. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other party for any purpose whatsoever except as explicitly set forth in this Agreement, the Concession Agreement, or the Operating Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries of each other except as expressly provided in this Agreement. Central Sinai Participation Agreement ARTICLE VII REPRESENTATIONS AND WARRANTIES 7.1 Alliance, GHP and GHP Egypt each represent and warrant to each other, as to itself only, that: (a) it is a corporation duly incorporated and validly subsisting under the laws of the jurisdiction of its incorporation; (b) it has all requisite corporate capacity and authority to enter into this Agreement and to perform its obligations in accordance with the terns of this Agreement; (c) this Agreement is a valid and binding agreement enforceable against such party in accordance with thc terms of this Agreement, subject to bankruptcy , insolvency, reorganization, arrangement. moratorium or other similar laws relating to or affecting the rights of creditors and subject to general principles of equity; (d) it is not the subject of an order for liquidation or winding up, nor has it entered into a scheme or arrangement with its creditors or any class of them, nor has any official manager, receiver and/or trustee been appointed in respect of it or its property or assets; and (e) it has duly executed and delivered this Agreement. 7.2 Alliance represents and warrants to GHP and GHP Egypt that: (a) there have been no actions taken in relation to the Concession, by or on behalf of Alliance, that would cause GHP, GHP Egypt or Alliance to be in violation of the FOREIGN CORRUPT PRACTICES ACT of the United States of America; (b) it is qualified to carry on business in The Arab Republic of Egypt; (c) the Concession Agreement is in full force and effect and has been ratified by the Government as being in full force and effect, and, to the best of its knowledge after due inquiry , it has not received any notice of c1aim by the Government that it will or may terminate the Concession Agreement and subject to receiving consent from the Government for the transfer of the GHP Interest, it has no knowledge, information or belief of any cause for such termination; (d) Alliance owns a 100% working interest in the Concession Agreement and has been formally recognized by the Government as owning a 100% working interest in the Concession Agreement; (e) there has been material compliance with the Concession Agreement and all applicable laws and all taxes, rentals, charges and other payments required in connection with thc Concession Agreement and any applicable laws have been fully paid; (f) to the best of its knowledge, other than the obligation to complete the Initial Exploration Work Program, there are no outstanding obligations under the Concession Agreement; Central Sinai Participation Agreement (g) there are no mortgages, charges, liens, encumbrances or adverse interests of any nature whatsoever against or relating to the Concession Agreement or the GHP Interest created by, through or under Alliance other than those contained in the Concession Agreement; (h) to the best of its knowledge after due inquiry, Alliance has not received notice of any pending or threatened litigation, arbitration or other claim related to the Concession Agreement or the Concession Area; (i) it is not aware of any facts which may give rise to any proceeding, and is not involved in or aware of any dispute with any person or entity , prejudicial to the exercise of any rights related to the GHP Interest; and (j) the statements set forth in Schedule 7.2 are true and correct in all material respects. 7.3 GHP presents and warrants to Alliance that: (a) the rights, privileges, restrictions and conditions attaching to the Common Shares are as set out in Schedule "7.3" attached hereto; (b) the Common shares have been du1y authorized and are reserved for issuance and upon c1osing will be issued to Alliance as fully paid and non-assessable; (c) the authorized capital of GHP as of the Closing Date will consist of an unlimited nunber of common shares of which 17,715,888 common shares are issued and outstanding as at the date hereof; (d) subject to the by-laws and articles of GHP , the Common Shares at the Closing Date will be free of any liens, pledges, voting trusts, proxies, adverse claims or other encumbrances of any kind; and (e) as at the data hereof, no person, firm or corporation has any agreement or option, or any right or privilege (whether pre-emptive or contractual) capable of becoming an agreement or option, for the purchase, subscription or issuance of any shares in the capital of GHP or for any securities convertible or exchangeable for such shares, other than the 3.888 million special warrants (convertible into 3.888 million common shares and 1.944 million common share purchase warrants), 2.4 million share purchase warrants and 2.130 million options to purchase common shares outstanding as the date hereof; (f) GHP is a reporting issuer under the SECURITIES ACT (Ontario) and to the knowledge of GHP is not in default of any requirement of securities or corporate laws, regulations, orders, notices and policies; (g) no securities commission or similar regulatory authority has issued any order preventing or suspending trading in any securities of GHP; (h) the issued and outstanding common shares in the capital of GHP are listed and posted for trading on the Canadian Dealing Network; and (i) application has been made, and approval has been received from thc Ontario Securities Commission in of the completion of the transactions contemplated by this Agreement, a copy or which approval is attached hereto as part of Schedule 7.3. Central Sinai Participation Agreement 7.4 GHP and GHP Egypt each represent and warrant to A11iance that: (a) it will use all reasonable efforts to qualify GHP Egypt to carry on business in The Arab Republic of Egypt within 90 days of the Closing Date; and (b) it is experienced in the international oil and gas industry and it is aware of the inherent risks associated with international petroleum operations. It has made an independent investigation or the legal, tax, business and other risks and consequences of this transaction and the nature and extent, if any, of the petroleum, natural gas and other hydrocarbon reserves in the Concession Area. 7.5 The representations and warranties set forth in Article VII shall survive the completion of the sale and purchase herein provided for and shall continue in full force and effect for the benefit of each Party for a period of 12 month from the date hereof. 7.6 Alliance makes no representation or warranty except as and to the extent set forth in Sections 7.1 and 7.2. Except as set forth in this Agreement, Alliance disclaims and shall not be liable for any covenant, representation or warranty (whether in contract or in tort) which may have been made in any document or instrument relative hereto, or in any statement or information made or communicated to GHP and GHP Egypt in any manner including, without limitation any opinion, information or advice which may have been provided to GHP and GHP Egypt. GHP and GHP Egypt confirm that they have only relied upon the representations and warranties contained in Sections 7.1 and 7.2 and not on any covenants, representations or warranties outside this Agreement. GHP and GHP Egypt acknowledge and confirm that they have performed their own due diligence and, except for such reliance, have relied, and will continue to rely, upon their own engineering, other evaluations and projections the same relate to the GIIP Interest and on their own inspections of all other physical property and assets which comprise the GHP Interest. ARTICLE VIII TERM AND TERMINATION 8.1 This Agreement shall commence and have effect as of the Closing Date and shall continue in effect until the earlier of: (i) the Concession Agreement is terminated; or (i) this Agreement is terminated pursuant to paragraph 3.3; or (ii) others as agreed by the Parties. ARTICLE IX OPERATIONS INDEMNITY 9.1 Alliance shall defend, indemnify and hold GHP Egypt, its directors, officers, employees, agents and representatives harmless from and against any and all claims, demands, causes of action, judgments and liabilities of every kind and character arising out of or in connection with any operations or activities conducted by Alliance pursuant or in relation to the Concession Agreement prior to January 20, 1998. Central Sinai Participation Agreement ARTICLE X DATA 10.1 Within thirty (30) days after thc Closing Date and subject to any consents required from the Government, Alliance shall provide GHP Egypt with one copy of all geophysical, geological and other data corresponding to the Concession Agreement and the Concession Area. GHP Egypt shall bear the cost of any reproduction necessary for providing data to GHP Egypt. Alliance shall provide GHP Egypt with an invoice for such reproduction costs and GHP Egypt shall pay undisputed amounts on such invoice within thirty (30) days of receipt. GHP Egypt sha11 keep all such data confidential in accordance with Article XIV. ARTICLE XI DISPUTE RESOLUTION 11.1 Any disputes arising under this Agreement shall be resolved by arbitration in the London Court of International Arbitration, by three arbitrators, under the Rules of the London Court of International Arbitration. ARTICLE XII NOTICES 12.1 All notices, requests, demands, and other communication hereunder shall be in writing and shall be furnished to the Parties at the addresses listed below. Notices shall be deemed to have been given if delivered personally, transmit1cd by telecopy or sent by courier service. Any such communication shall be deemed to be received when delivered personally (including by courier service) or sent by telecopier upon receipt or confirmation of successful telecopy transmission. (a) to Alliance: c/o Alliance International Petroleum Inc. Churchill House #9 West Hill Street Nassau, Bahamas Fax No.: (242) 356-0507 (b) to GHP Egypt: 1900 West Loop South Suite 900 Houston, Texas 77027 U.S.A. Fax No.: (713) 626-9374 (c) to GHP: 1900 West Loop South Suite 900 Houston, Texas 77027 U.S.A. Fax No.: (713) 626-9374 Central Sinai Participation Agreement ARTICLE XIII FURTHER DOCUMENTATION 13.1 This Agreement and the Operating Agreement supersede all prior agreements, understandings and commitments, whether oral or writing, between the Parties concerning the subject matter and in particular, the Memorandum of Understanding between the Parties dated January 20, 1998. The terms of this Agreement and the Operating Agreement express and constitute the entire agreement between the Parties and no implied covenant, representation, warranty or liability of any kind is created or shall be created by reason of these presents or anything herein contained. In the event of any conflict between the provisions of this Agreement and the Concession Agreement the provisions of the latter shall prevail. ARTICLE XIV CONFIDENTIALITY 14.1 (a) Subject to the provisions of the Concession Agreement, thc Parties agree that all information and data acquired or obtained by any Party in respect of the Concession or the rights and obligations granted under the Concession Agreement shall be considered confidential and shall be kept confidential and not be disclosed during the term of this Agreement to any person or entity not a Party except: (i) to an Affiliate, provided such Affiliate maintains confidentiality as provided in this Article XIV; (ii) to a governmental agency or other entity when required by the Concession Agreement; (iii) to the extent such data and information is required to be furnished in compliance with any applicable laws or regulations, or pursuant to any legal proceedings or because of any order of any court binding upon a Party; (iii) to prospective or actual contractors, consultants and attorneys employed by the Operator or any Party where disclosure of such data or information is essential to such contractor's, consultant's or attorney's work; (iv) to a bona fide prospective transferee of a Party's Participating Interest (including an entity with whom a Party or its Affiliates are conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate's shares); (v) to a bank or other financial institution to the extent appropriate to a Party arranging for funding; (vii) to the extent such data and information must be disclosed pursuant to any rules or requirements of any government or stock exchange having jurisdiction over such Party, or its Affiliates; (vi) any data or information which, through no fault of a Party, becomes a part of the public domain; or (ix) to a broker providing insurance. Central Sinai Participation Agreement (b) Disclosure as pursuant to Section 14(a)(iv), (v), (vi) (ix) shall not be made unless prior to such disclosure the disclosing Party or the Operator, as thc case may be, has obtained a written undertaking from the recipient party to keep the data and information strictly confidential for at least three (3) years and not to use or disclose the data and information except for the express purpose for which disclosure is to be made. 14.2 Any Party ceasing to own a Participating Interest during the term of this Agreement shall nonetheless remain bound by the obligations of confidentiality in this Article XIV and any disputes shall be resolved in accordance with Article XI. ARTICLE XV ASSIGNMENT OF PARTICIPATING INTERESTS 15.1 No Party may assign all or an undivided portion of its Participating Interest or any of such Party's rights or obligations hereunder unless it has obtained the prior written consent of the other Parties, such consent not to be unreasonably withheld. 15.2 GHP and GHP Egypt acknowledge and consent to Alliance being in discussions with third parties to find additional participants to farmin and contribute to the Initial Exploration Work Program. GHP Egypt consents to any assignment or disposition resulting therefrom on the condition that the terms and conditions of Article XII of the Operating Agreement arc complied with. ARTICLE XVI MISCELLANEOUS 16.1 This Agreement shall enure to the benefit of and shall be binding upon the Parties hereto and their respective successors and assigns as permitted. 16.2 Time shall be the essence of this Agreement. 16.3 Each Party shall prepare and submit any and all filing in relation to this Agreement required or such Party by any government agency having jurisdiction. Each party shall in a timely fashion provide the other with copies of all such filings by the Party . 16.4 Thc Parties shall execute, acknowledge and deliver such other instruments or documents and shall take such other actions as may be necessary to carry out their respective obligations under this Agreement or to consummate the transactions contemplated by this Agreement. 16.5 No amendment to this Agreement shall be valid unless it is in writing, signed by all Parties. 16.6 If any provision of this Agreement, or the application thereof to any particular circumstance, is held or deemed invalid, thc remaining provisions or this Agreement and the application of thc provisions to circumstance other than those as to which it has been held or deemed to bc inva1id, shall not be affected by the invalidity. Central Sinai Participation Agreement 16.7 The failure of a Party to insist upon strict performance of a provision of this Agreement, irrespective of the length of time for which the failure continues, shall not constitute a waiver of that Party's right to demand strict compliance thereafter. No consent or waiver, express or implied, to or of any breach or default in the performance of any provision of this Agreement shall constitute a consent to or waiver of any other breach or default, whether of a like or different character. 16.8 Headings are used for reference purposes only and do not constitute a part of this Agreement, nor are they interpretive thereof. In the event of any conflict between the provisions of this Agreement and a Schedule to this Agreement, the provisions of this Agreement shall prevail. 16.9 This Agreement may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument which shall be sufficiently evidenced by any such original counterpart. The parties shall be entitled to rely upon delivery of an executed facsimile copy of this Agreement and such facsimile copy shall be legally effective to create a valid and binding agreement among the Parties. 16.10 GHP unconditionally and irrevocably guarantees, for the benefit of Alliance only, the punctual and complete performance by GHP Egypt of all of the obligations of GHP Egypt stated in this Agreement and agrees to be liable to Alliance in respect of such obligations to the same extent as if they were obligations of GHP to Alliance. 16.11 There shall be no third party beneficiaries of this Agreement. ARTICLE XVII GOVERNING LAW 17.1 This Agreement shall in all respects be subject to and be interpreted, construed and enforced in accordance with the laws of England, without regard to conflicts of law rules. IN WITNESS WHEREOF the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. GHP EXPLORATION (EGYPT) LTD. ALLIANCE EGYPTIAN NATIONAL EXPLORATION COMPANY Per: Per: ---------------------------- --------------------------- Per: Per: ---------------------------- --------------------------- GHP EXPLORATION CORPORATION Per: --------------------------- Per: --------------------------- Central Sinai Participation Agreement EX-3.9 21 a2026270zex-3_9.txt EXHIBIT 3.9 FIRST AMENDMENT TO PARTICIPATION AGREEMENT This First Amendment (the "First Amendment") to that certain Participation Agreement dated March 27, 1998 (the "Participation Agreement") is entered into this 4th day of February, 2000 by and between Alliance Egyptian National Exploration Company (" Alliance"), GHP Exploration (Egypt) Ltd. ("GHP-Egypt") and GHP Exploration Corporation now TransAtlantic Petroleum Corp. ("TransAtlantic"). WHEREAS, Alliance GHP-Egypt and TransAtlantic entered into the Participation Agreement which provided for GHP-Egypt's acquisition of a twenty-five percent (25%) Participating Interest in that certain Concession Agreement for Petroleum Exploration and Exploitation between the Arab Republic of Egypt, The Egyptian General Petroleum Corporation and National Exploration Company (the "Concession Agreement") covering Block G, Central Sinai Area (the "Concession Area"), subject to and provided that TransAtlantic and GHP-Egypt fulfilled their respective obligations under the Participation Agreement. WHEREAS, Alliance GHP-Egypt and TransAtlantic desire to amend the Participation Agreement to reflect the changes and agreements between the parties. NOW THEREFORE, in consideration of the mutual promises and agreements set out below and for other good and consideration, the receipt and sufficiency of which is hereby acknowledged, Alliance, GHP-Egypt and TransAtlantic do hereby amend the Participation Agreement and agree as follows: 1. Alliance acknowledges receipt in full of the payment by GHP-Egypt of US $500,000 as required under Section 2.1(a) 2. Alliance acknowledges receipt of Common Shares in the capital of GHP Exploration Corporation having a market value on the Closing Date equal to US $500,000 as required under Section 2.1 (b). 3. Alliance acknowledges that by payment received on December 15, 1999, GHP-Egypt paid the outstanding balance of $38,656.00 billed to GHP- Egypt by Alliance by Cash Call dated January 29, 1999, in accordance with Sections 2.1(c) and 2.1(d) of the Participation Agreement. 4. Alliance acknowledges that by payment received concurrent with execution of this First Amendment, GHP-Egypt paid the outstanding balance of $854,572.00 (the "Cash Call Amount") billed to GHP- Egypt by Alliance by Cash Call dated December 13, 1999, in accordance with Sections 2.1 ( c) and 2.1 ( d) of the Participation Agreement. 5. Alliance acknowledges that the Escrowed Monies which were on deposit pursuant to Section 2.1 (e) have been released to GHP-Egypt by the agreement of the parties dated July 12, 1999 and have, in turn. been paid Amend Central Sinai PA 20-F - 1 - to Alliance in partial payment of GHP-Egypt's obligations under Section 2.1 (c). 6. Alliance agrees that if GHP-Egypt (i) pays the Cash Call Amount specified in Paragraph 4 above and (ii) posts the security in favor of Alliance in accordance with Paragraph 8 below, GHP-Egypt will be relieved of its obligation to post the GHP Guarantee under Section 2.1 (e) and 2.1 (g). Alliance has posted with the Government the U.S. $6,000,000 Alliance Guarantee as required under the Concession Agreement and GHP-Egypt will not be required to provide any offsetting or replacement guarantee for any portion thereof; however, GHP Egypt shall pay to Alliance 40% of the direct out-of-pocket costs incurred by Alliance in posting the Alliance Guarantee within 15 days of being invoiced for such costs by Alliance. 7. GHP-Egypt agrees to fully fund its 40% share of the Initial Exploration Work Program under the Concession Agreement up to U.S. $8 million. 8. To secure GHP-Egypt's obligation to pay GHP-Egypt's share of Initial Exploration Work Program, TransAtlantic agrees to cause the pledge to Alliance of the cash proceeds which are released from that certain Letter of Credit in the amount of $562,918.11 (the "Escrow Amount") at the Bank of Montreal in an account styled GHP Exploration (West Gharib) Ltd., Account No.0010-929823. The Escrow Amount, upon release from the Bank of Montreal, will be deposited into an escrow account, in trust, at the law firm of Bennett Jones, in accordance with the terms of the letter agreement attached hereto as Schedule " A ". Interest earned on the Escrow Amount shall be for the account of GHP Egypt, unless the Escrow Amount is paid to Alliance. Release of funds from the escrow account will require the consent of Alliance. 9. Upon: (i) execution of this First Amendment; (ii) payment of the Cash Call Amount in accordance with Paragraph 4 above; and (iii) posting of the security in accordance with Paragraph 8 above, the parties agree GHP-Egypt and TransAtlantic shall be in full compliance with the Participation Agreement, as amended by this First Amendment, subject to the continuing obligations of GHP-Egypt and TransAtlantic as specified in the Participation Agreement. 10. Concurrent with execution of this First Amendment, the parties have entered into that certain Operating Agreement contemplated in Article 5.1 of tile Participation Agreement. The parties agree GHP-Egypt has been engaged as Technical Advisor since January, 1999 and will continue in that capacity. As compensation for providing these technical services, GHP-Egypt shall invoice Alliance as operator on a time-write basis. Charges shall be at GHP-Egypt's actual cost which includes actual salary Amend Central Sinai PA 20-F - 2 - and benefits, an office overhead allocation plus out-of-pocket costs. Alliance shall have the right to audit such charges. Within thirty (30) days of the conclusion of the four (4) well drilling program now underway on the Concession, Alliance and GHP-Egypt shall agree upon a work program and budget in accordance with Article VI of the Operating Agreement for the remainder of the Initial Exploration Work Program. 11. Concurrent with execution of this First Amendment, upon presentation of paid invoices, GHP-Egypt and TransAtlantic shall pay up to U.S. $12,000 to Alliance to reimburse Alliance for legal fees and costs paid by Alliance to McCarthy Tetrault for preparing loan documents for a proposed U.S. $2.5 million loan from Alliance to GHP-Egypt which was not consummated. 12. The rights and remedies granted to Alliance in this First Amendment and the Participation Agreement shall be cumulative, not exclusive, and shall be in addition to any other rights and remedies that may be available to Alliance, whether at law, in equity or otherwise. Each right and remedy available to Alliance may be exercised from time to time and so often and in such order as may be considered expedient by Alliance in its sole discretion. Each Party acknowledges and accepts that a fundamental principle of the Participation Agreement is that each Party pays its share of all amounts due under the Participation Agreement as and when required by cash call, invoice or authorization for expenditure. TransAtlantic and GHP-Egypt further agree that the nature and the amount of the remedies granted to Alliance hereunder are reasonable and appropriate in the circumstances. 13. Capitalized terms used but not defined herein shall have the same meaning given them in the Participation Agreement on the Concession Agreement. 14. This First Amendment shall be binding upon the successors and assigns of Alliance, GHP-Egypt and TransAtlantic. 15. Except as provided for above, the Participation Agreement is not otherwise amended and remains in full force and effect in accordance with its terms. Amend Central Sinai PA 20-F - 3 - IN WITNESS WHEREOF, Alliance, GHP Egypt and TransAtlantic have caused their authorized representatives to sign in the spaces provided below signifying their agreement to the above terms and provisions effective as of the date first written above. Alliance Egyptian National Exploration Company - ----------------------- By: ------------------- Its: ------------------- GHP Exploration (Egypt) Ltd. By: ------------------- Its: ------------------- TransAtlantic Petroleum Corp. (formerly GHP Exploration Corporation) - ----------------------- By: ------------------- Its: ------------------- By its execution below, GHP Exploration (West Gharib) Ltd. indicates its agreement to the provisions of Paragraph 8 of the First Amendment to the Participation Agreement set out above. GHP Exploration (West Gharib) Ltd. - ----------------------- By: ------------------- Its: ------------------- Amend Central Sinai PA 20-F - 4 - EX-3.10 22 a2026270zex-3_10.txt EXHIBIT 3.10 CONCESSION AGREEMENT FOR PETROLEUM EXPLORATION AND EXPLOITATION BETWEEN THE ARAB REPUBLIC OF EGYPT AND THE EGYPTIAN GENERAL PETROLEUM CORPORATION AND NATIONAL EXPLORATION COMPANY IN CENTRAL SINAI AREA A. R. E. Central Sinai Concession 20-F INDEX
ARTICLE TITLE PAGE I Definitions 02 II Annexes to the Agreement 04 III Grant of Rights and Term 05 IV Work Program and Expenditures During Exploration Period 12 V Mandatory and Voluntary Relinquishments 16 VI Operations and Commercial Discovery 17 VII Recovery of Costs and Expenses and Production Sharing 19 VIII Title to Assets 32 IX Bonuses 33 X Office and Service of Notices 34 XI Saving of Petroleum and Prevention of Loss 34 XII Customs Exemptions 35 XIII Books of Account: Accounting and Payments 37 XIV Records, Reports and Inspection 38 XV Responsibility for Damages 39 XVI Privileges of Government Representatives 39 XVII Employment Rights and Training of Arab Republic of Egypt Personnel 40 XVIII Laws and Regulations 41 XIX Stabilization 42 XX Right of Requisition 42 XXI Assignment 43 XXII Breach of Agreement and Power to Cancel 44 XXIII Force Majeure 45 XXIV Disputes and Arbitration 46 XXV Status of the Parties 47 XXVI Local Contractors and Locally Manufactured Material 48 XXVII Arabic Text 48 XXVIII General 48 XXIX Approval of the Government 49 ANNEXES TO THE CONCESSION AGREEMENT ANNEX "A" Boundary Description of the Concession Area 50 ANNEX "B" Illustrative Map showing Area Covered 53 ANNEX "C" Letter of Guaranty 54 ANNEX "D" Charter of Operating Company 56 ANNEX "E" Accounting Procedure 59 ANNEX "F" Map of the National Gas Pipeline Grid System 72
2 Central Sinai Concession 20-F CONCESSION AGREEMENT FOR PETROLEUM EXPLORATION AND EXPLOITATION BETWEEN THE ARAB REPUBLIC OF EGYPT AND THE EGYPTIAN GENERAL PETROLEUM CORPORATION AND NATIONAL EXPLORATION COMPANY IN CENTRAL SINAI AREA A. R. E. This Agreement made and entered on this __________day of _________1999 by and between the ARAB REPUBLIC OF EGYPT (hereinafter referred to variously as "A.R.E." or as "GOVERNMENT"), The EGYPTIAN GENERAL PETROLEUM CORPORATION, a legal entity created by Law No.167 of 1958 as amended (hereinafter referred to as " EGPC) and NATIONAL EXPLORATION COMPANY, a company organized and existing under the laws of the Arab Republic of Egypt (hereinafter referred to as "NAGECO" of "CONTRACTOR"); WITNESSETH WHEREAS, all minerals including petroleum existing in mines and quarries in A.R.E., including the territorial waters, and in the sea bed subject to its jurisdiction and extending beyond the territorial waters, are the property of the State; and WHEREAS, EGPC has applied for an exclusive concession for the exploration and exploitation of petroleum in and throughout the area referred to in Article II, and described in Annex "A" and shown approximately on Annex "B", which are attached hereto and made part hereof (hereinafter referred to as the "Area" ); and WHEREAS, NAGECO agrees to undertake its obligations provided hereinafter as CONTRACTOR with respect to the exploration, development and production of petroleum in Central Sinai Area; and WHEREAS, the GOVERNMENT desires hereby to grant such Concession; and WHEREAS, the Minister of Petroleum pursuant to the provisions of Law No.86 of 1956, may enter into a concession agreement with EGPC, and with NAGECO as CONTRACTOR in the said Area; NOW, THEREFORE, the parties hereto agree as follows: 3 Central Sinai Concession 20-F ARTICLE I DEFINITIONS (a) "Exploration" shall include such geological, geophysical, aerial and other surveys as may be contained in the approved Work Programs and Budgets, and the drilling of such shot holes, core holes, stratigraphic tests, holes for the discovery of Petroleum or the appraisal of Petroleum discoveries and other related holes and wells, and the purchase or acquisition of such supplies, materials, services and equipment therefor, all as may be contained in the approved Work Programs and Budgets. The verb "explore" means the act of conducting exploration. (b) "Development" shall include, but not be limited to, all the operations and activities pursuant to approved Work Programs and Budgets under this Agreement with respect to: (i) the drilling, plugging, deepening, side tracking, redrilling, completing, equipping of development wells, the changing of the status of a well, and (ii) design, engineering, construction, installation, servicing and maintenance of equipment, lines, systems facilities, plants and related operations to produce and operate said development wells, taking, saving, treating, handling, storing, transporting and delivering petroleum, repressuring, recycling and other secondary recovery projects, and (iii) transportation, storage and any other work or activities necessary or ancillary to the activities specified in (i) and (ii). (c) "Petroleum" means liquid crude oil of various densities, asphalt, gas, casinghead gas and all other hydrocarbon substances that may be found in, and produced, or otherwise obtained and saved from the Area under this Agreement, and all substances that may be extracted therefrom. (d) "Liquid Crude Oil" or "Crude Oil" or "Oil" means any hydrocarbon produced from the Area which is in a liquid state at the wellhead or lease separators or which is extracted from the gas or casinghead gas in a plant. Such liquid state shall exist at sixty degrees Fahrenheit (60DEG. F) and atmospheric pressure of 14.65 PSIA. Such term includes distillate and condensate. (e) " Gas" means natural gas both associated and non-associated, and all of its constituent elements produced from any well in the Area (other than Liquid Crude Oil) and all non-hydrocarbon substances therein. Said term shall include residual gas, that gas remaining after removal of LPG. 4 Central Sinai Concession 20-F (f) "LPG" means liquefied petroleum gas, which is a mixture principally of butane and propane liquefied by pressure and temperature. (g) A "Barrel" shall consist of forty-two (42) United States gallons, liquid measure, corrected to a temperature of sixty degrees Fahrenheit (60DEG. F) at atmospheric pressure of 14.65 PSIA. (h) (1) "Commercial Oil Well" means the first well on any geological feature which after testing for a period of not more than thirty (30) consecutive days where practical, but in any event in accordance with sound and accepted industry production practices and verified by EGPC, is found to be capable of producing at the average rate of not less than two thousand (2000) Barrels of Oil per day (BOPD). The date of discovery of a "Commercial Oil Well" is the date on which such well is tested and completed according to the above. (2) "Commercial Gas Well " means the first well on any geological feature which after testing for a period of not more than thirty (30) consecutive days where practical, but in any event in accordance with sound and accepted industry production practices and verified by EGPC, is found to be capable of producing at the average rate of not less than fifteen million (15,000,000) standard cubic feet of Gas per day ("MMSCFD"). The date of discovery of a "Commercial Gas Well" is the date on which such well is tested and completed according to the above. (i) "A.R.E." means ARAB REPUBLIC OF EGYPT. (j) "Effective Date" means the date on which the text of this Agreement is signed by the GOVERNMENT, EGPC and CONTRACTOR, after the relevant Law is issued. (k) (1) "Year" means a period of twelve (12) months according to the Gregorian Calendar. (2) "Calendar Year" means a period of twelve (12) months according to the Gregorian Calendar being 1st January to 31st December. (l) "Financial Year" means the GOVERNMENT's financial year according to the laws and regulations of the A.R.E. (m) "Tax Year" means the period of twelve (12) months according to the laws and regulations of the A.R.E. (n) An "Affiliated Company" means a company: (i) of which the share capital, conferring a majority of votes at stockholders' meetings of such company, is owned directly or indirectly by a party hereto; 5 Central Sinai Concession 20-F (ii) which is the owner directly or indirectly of share capital conferring a majority of votes at stockholders' meetings of a party hereto; or (iii) of which the share capital conferring a majority of votes at stockholders' meetings of such company and the share capital conferring a majority of votes at stockholders' meetings of a party hereto are owned directly or indirectly by the same company. (o) "Exploration Block" shall mean an area, the corner points of which have to be coincident with six (6) minutes by six (6) minutes latitude and longitude divisions, according to the International Grid System where possible or with the existing boundaries of the Area covered by this Concession Agreement as set out in Annex "A". (p) "Development Block" shall mean an area, the corner points of which have to be coincident with one (1) minute by one (1) minute latitude and longitude divisions, according to the International Grid System where possible or with the existing boundaries of the Area covered by this Concession Agreement as set out in Annex "A". (q) "Development Lease(s)" shall mean the Development Block or Blocks covering the geological structure capable of production, the corner points of which have to be coincident with one (1) minute by one (1) minute latitude and longitude divisions according to the International Grid System where possible or with the existing boundaries of the Area covered by this Concession Agreement as set out in Annex "A". (r) "Agreement" shall mean this Concession Agreement and its Annexes. (s) "Gas Sales Agreement" shall mean a written agreement between EGPC and CONTRACTOR (as seller) and EGPC (as buyer), which contains the terms and conditions for Gas sales from a Development Lease entered into pursuant to Article VII (e). (t) "Standard Cubic Foot" (SCF) is the amount of Gas necessary to fill one (1) cubic foot of space atmospheric pressure of 14.65 PSIA at a base temperature of sixty degrees Fahrenheit (60DEG. F). ARTICLE II ANNEXES TO THE AGREEMENT Annex "A" is a description of the area covered and affected by this Agreement, hereinafter referred to as the "Area". 6 Central Sinai Concession 20-F Annex "B" is a provisional illustrative map on the scale of approximately 1:3,000,000 indicating the Area covered and affected by this Agreement and described in Annex "A". Annex "C" is the form of a Letter of Guaranty to be submitted by CONTRACTOR to EGPC one (1) day before the time of signature by the Minister of Petroleum of this Agreement, for the sum of six million (6,000,000) U. S. Dollars guaranteeing the execution of CONTRACTOR's minimum exploration obligations for the initial three (3) year Exploration period. In case CONTRACTOR extends the initial Exploration period for two (2) additional periods each of two (2) years respectively each in accordance with Article III (b) of the Agreement, a similar Letter of Guaranty shall be issued and be submitted by CONTRACTOR on the day the CONTRACTOR exercises its option to extend. The first such letter of Guaranty shall be for the sum of four million (4,000,000) U.S. Dollars and the second such Letter of Guaranty shall be for the sum of five million (5,000,000) U.S. Dollars less in both instances any excess expenditures of the preceding Exploration period permitted for carry forward in accordance with Article IV (b) third paragraph of this Agreement. Each of the three Letters of Guaranty shall remain effective for six (6) months after the end of the Exploration period for which it has been issued except as it may be released prior to that time in accordance with the terms thereof. Annex "D" is the form of a Charter of the Operating Company to be formed as provided for in Article VI. Annex "E" is the Accounting Procedure. Annex "F" is a current map of the National Gas Pipeline Grid System established by the GOVERNMENT. The point of delivery for gas shall be agreed upon by EGPC and CONTRACTOR under a Gas Sales Agreement, which point of delivery shall be located at the flange connecting the development lease pipeline to the nearest point on the National Gas pipeline Grid System as depicted in such Annex "F", or as otherwise agreed upon between EGPC and CONTRACTOR. Annexes "A", "B" , "C", "D", "E" and "F" to this Agreement are hereby made part hereof, and they shall be considered as having equal force and effect with the provisions of this Agreement. ARTICLE III GRANT OF RIGHTS AND TERM The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to the terms, covenants and conditions set out in this Agreement, which insofar as they are contrary to, or inconsistent with any provisions of Law No.66 of 1953, as amended, shall have the force of Law, an exclusive concession in and to the Area described in Annexes "A" and "B". 7 Central Sinai Concession 20-F (a) The GOVERNMENT shall own and be entitled, as hereinafter provided to a royalty in cash or in kind of ten percent (10%) of the total quantity of Petroleum produced and saved from the Area during the development period including renewal. Said royalty shall be borne and paid by EGPC and shall not be the obligation of CONTRACTOR. The payment of royalties by EGPC shall not be deemed to result in income attributable to CONTRACTOR. (b) An initial Exploration Period of three (3) years shall start from the Effective Date. Two (2) successive extensions to the initial Exploration Period, each of two (2) years respectively shall be granted to CONTRACTOR at its option, upon not less than thirty (30) days prior written notice to EGPC, such notice to be given not later than the end of the then current period, as may be extended pursuant to the provisions of Article V (a), and subject only to its having fulfilled its obligations hereunder for that period. This Agreement shall be terminated if neither a Commercial Oil Discovery nor a Commercial Gas Discovery is established by the end of the seventh (7th) year of the Exploration Period, as may be extended pursuant to Article V (a). The election by EGPC to undertake a sole risk venture under paragraph (c) below shall not extend the Exploration Period nor affect the determination of this Agreement as to CONTRACTOR. (c) Commercial Discovery: (i) A Commercial Discovery- whether of Oil or Gas- may consist of one producing reservoir or a group of producing reservoirs which is worthy of being developed commercially. After discovery of a Commercial Oil or Gas Well CONTRACTOR shall, unless otherwise agreed upon with EGPC, undertake as part of its Exploration program the appraisal of the discovery by drilling one or more appraisal wells, to determine whether such discovery is worthy of being developed commercially, taking into consideration the recoverable reserves, production, pipeline, and terminal facilities required, estimated Petroleum prices, and all other relevant technical and economic factors. (ii) The provisions laid down herein postulate the unity and indivisibility of the concepts of Commercial Discovery and Development Leases. They shall apply uniformly to Oil and Gas unless otherwise specified. (iii) CONTRACTOR shall give notice of a Commercial Discovery to EGPC immediately after the discovery is considered by CONTRACTOR to be worthy of commercial development, but in any event with respect to a Commercial Oil Well not later than thirty (30) days following the completion of the second appraisal well, or twelve (12) months following the date of the discovery of the Commercial Oil Well, (unless EGPC agrees that such period may be extended), whichever is earlier, or with respect to a Commercial Gas Well not later than twenty-four (24) months following the date of the discovery of the Commercial Gas Well (unless EGPC agrees that such period may be extended) except that CONTRACTOR shall also have the right to give such notice of Commercial Discovery with respect to any reservoir or reservoirs even if the well or wells thereon are not "Commercial" within the definition of the "Commercial Well" if, in its opinion, a reservoir or a group of reservoirs, considered collectively, could be worthy of commercial development. 8 Central Sinai Concession 20-F CONTRACTOR may also give a notice of Commercial Oil Discovery in the event it wishes to undertake a Gas Recycling Project. A notice of Commercial Gas Discovery shall contain all detailed particulars of the discovery and especially the area of Gas reserves, the estimated production potential and profile and field life. Within sixty (60) days following receipt of a notice of a Commercial Oil or Gas Discovery, EGPC and CONTRACTOR " shall meet and review all appropriate data with a view to mutually agreeing upon the existence of a Commercial Discovery. The date of a Commercial Discovery shall be the date EGPC and CONTRACTOR jointly agree in writing that a Commercial Discovery exists. (iv) If Crude Oil is discovered but is not deemed by CONTRACTOR to be a Commercial Oil Discovery under the above provisions of this paragraph (c), EGPC shall one (1) month after the expiration of the period specified above within which CONTRACTOR can give notice of a Commercial Oil Discovery, or thirteen (13) months after completion of a well not considered to be a "Commercial Oil Well" have the right, following sixty (60) days notice in writing to CONTRACTOR, at its sole cost, risk and expense, to develop, produce, and dispose of all Crude Oil from the geological feature on which the well has been drilled. Said notice shall state the specific area covering said geological feature to be developed, the wells to be drilled, the production facilities to be installed and EGPC's estimated cost thereof. Within thirty (30) days after receipt of said notice CONTRACTOR may, in writing, elect to develop such area as provided for in the case of Commercial Discovery hereunder. In such event all terms of this Agreement shall continue to apply to the specified area. If CONTRACTOR elects not to develop such area, the specific area covering said geological feature shall be set aside for sole risk operations by EGPC, such area to be mutually agreed upon by EGPC and CONTRACTOR on the basis of good petroleum industry practice. EGPC shall be entitled to perform, or in the event Operating Company has come into existence, to have Operating Company perform such operations for the account of EGPC and at EGPC's sole cost, risk and expense. When EGPC has recovered from the Crude Oil produced from such specific area a quantity of Crude Oil equal in value to three hundred percent (300%) of the cost it has incurred in carrying out the sole risk operations, CONTRACTOR shall have the option, only in the event there has been a separate Commercial Oil Discovery elsewhere within the Area, to share in further development and production of that specific area upon paying EGPC one hundred percent (100%) of such costs incurred by EGPC. 9 Central Sinai Concession 20-F Such one hundred percent (100%) payment shall not be recovered by CONTRACTOR. Immediately following such payment the specific area shall either (i) revert to the status of an ordinary Development Lease under this Agreement and thereafter shall be operated in accordance with the terms hereof; or (ii) alternatively, in the event that at such time EGPC or its Affiliated Company is conducting Development operations in the area at its sole expense and EGPC elects to continue operating, the area shall remain set aside and CONTRACTOR shall only be entitled to its production sharing percentages of the Crude Oil as specified in Article VII (b). The sole risk Crude Oil shall be valued in the manner provided in Article VII (c). In the event of any termination of this Agreement under the provisions of Article III(b), this Agreement shall however, continue to apply to EGPC's operation of any sole risk venture hereunder, although such Agreement shall have been terminated with respect to CONTRACTOR pursuant to the provisions of Article III (b). (d) Conversion to a Development Lease: (i) Following a Commercial Oil Discovery or a Commercial Gas Discovery, the extent of the whole area capable of production to be covered by a Development Lease shall be mutually agreed upon by EGPC and CONTRACTOR and be subject to the approval of the Minister of Petroleum. Such area shall be converted automatically into a Development Lease without the issue of any additional legal instrument or permission. (ii) Following the conversion of an area to a Development Lease based on a Commercial Gas Discovery (or upon the discovery of Gas in a Development Lease granted following a Commercial Oil Discovery), EGPC shall endeavour with diligence to find adequate local markets capable of absorbing the production of Gas and shall advise CONTRACTOR of the potential outlets for such Gas, and the expected annual schedule of demand. Thereafter, EGPC and CONTRACTOR shall meet with a view to assessing whether the outlets for such Gas and other relevant factors warrant the development and production of the Gas and in case of agreement the Gas thus made available shall be disposed of to EGPC under a long-term Gas Sales Agreement in accordance with and subject to the conditions set forth in Article VII . (iii) The Development period of each Development Lease shall be as follows: (aa) In respect of a Commercial Oil Discovery, twenty (20) years from the date of such Commercial Discovery plus the Optional Extension Period (as defined below) provided that, in the event that, subsequent to the conversion of a Commercial Oil Discovery into a Development Lease, Gas is discovered in the same in Development Lease and is used or is capable of being used locally or for export hereunder, the period of the Development Lease shall be extended only with respect to such Gas, LPG extracted from such Gas and Crude Oil in the form of condensate produced with such Gas for twenty (20) years from the date of first deliveries of Gas locally or for export plus the Optional Extension Period (as defined below) provided that, the duration of such Development Lease based on a Commercial Oil Discovery c may not be extended beyond thirty-five (35) years from the date of such Commercial Oil Discovery unless otherwise agreed upon between EGPC and CONTRACTOR and subject to the approval of the Minister of Petroleum 10 Central Sinai Concession 20-F CONTRACTOR shall immediately notify EGPC of any Gas Discovery but shall not be required to apply for a new Development Lease in respect of such Gas. (bb) In respect of a Commercial Gas Discovery, twenty (20) years from the date of first deliveries of Gas locally or for export plus the Optional Extension Period (as defined below) provided that, if subsequent to the conversion of a Commercial Gas Discovery into a Development Lease, Crude Oil is discovered in the same Development Lease, CONTRACTOR's share of such Crude Oil from the Development Lease (except LPG extracted from Gas or Crude Oil in the form of condensate produced with Gas) and Gas associated with such Crude Oil shall revert entirely to EGPC upon the lapse of twenty (20) years from the date of such Crude Oil Discovery plus the Optional Extension Period (as defined below). Notwithstanding, anything to the contrary under this Agreement, the duration of a Development Lease based on a Commercial Gas Discovery shall in no case exceed thirty-five (35) years from the date of such Commercial Discovery, unless otherwise agreed upon between EGPC and CONTRACTOR and subject to the approval of the Minister of Petroleum. CONTRACTOR shall immediately notify EGPC of any Oil Discovery but shall not be required to apply for a new Development Lease in respect of such Crude Oil. The "Optional Extension Period" shall mean a period of five (5) years which may be elected by CONTRACTOR upon six (6) months written notice to EGPC prior to the expiry of the "' relevant twenty (20) year period. (e) Development operations shall upon the issuance of a Development Lease granted following a Commercial Oil Discovery , be started promptly by Operating Company and be conducted in accordance with good oil field practices and accepted petroleum engineering principles, until the field is considered to be fully developed, it being understood that if associated gas is not utilized, EGPC and CONTRACTOR shall negotiate in good faith on the best way to avoid impairing the production in the interests of the parties. Central Sinai Concession 20F 11 In the event no Commercial Production of Oil in regular shipments is established in any Development Block within four (4) years from the date of the Commercial Oil Discovery, such Development Block shall immediately be relinquished unless there is a Commercial Gas discovery on the Development Lease. Each Development Block in a Development Lease being partly within the radius of drainage of any producing well in such Development Lease shall be considered as participating in the Commercial Production referred to above. Development operations in respect of Gas and Crude Oil in the form of condensate or LPG to be produced with or extracted from such Gas shall, upon the signature of a Gas Sales Agreement or commencement of a scheme to dispose of the Gas, whether for export as referred to in Article VII or otherwise, be started promptly by Operating Company and be conducted in accordance with good gas field practices and accepted petroleum engineering principles and the provisions of such agreement or scheme. In the event no Commercial Production of Gas is established in accordance with such Gas Sales Agreement or scheme, the Development Lease relating to such Gas shall be relinquished, unless otherwise agreed upon by EGPC. If upon application by CONTRACTOR it is recognized by EGPC that Crude Oil or Gas is being drained from on Exploration Block under this Agreement into a Development Block on an adjoining concession area held by CONTRACTOR, the block being drained shall be considered as participating in the Commercial Production of the Development Block in question and the Block being drained shall be converted into a Development Lease with the ensuing allocation of costs and production (calculated from the Effective Date or the date such drainage occurs, whichever is later) between the two Concession Areas. The allocation of such costs and production under each Concession Agreement shall be in the same portion that the recoverable reserves in the drained geological structure underlying each Concession Area bears to the total recoverable reserves of such structure underlying both Concession Areas. The production allocated to a Concession Area shall be priced according to the Concession Agreement covering that concession area. (f) CONTRACTOR shall bear and pay all the costs and expenses required in carrying out all the operations under this Agreement but such costs and expenses shall not include any interest on investment. CONTRACTOR shall look only to the Petroleum to which it is entitled under this Agreement to recover such costs and expenses. Such costs and expenses shall be recoverable as provided in Article VII. During the term of this Agreement and its renewal, the total production achieved in the conduct of such operations shall be divided between EGPC and CONTRACTOR in accordance with the provisions of Article VII. Central Sinai Concession 20F 12 (g) 1. Unless otherwise provided, CONTRACTOR shall be subject to Egyptian income tax laws and shall comply with the requirements of such laws with respect to the filing of returns, the assessment of tax, and keeping and showing of books and records. 2. CONTRACTOR's annual income for Egyptian income tax purposes under this Agreement shall be an amount calculated as follows: The total of the sums received by CONTRACTOR from the sale or other disposition of all Petroleum acquired by CONTRACTOR pursuant to Article VII (a) and Article VII (b); reduced by: (i) The costs and expenses of CONTRACTOR; (ii) The value, as determined according to Article VII (c), of EGPC's share of the Excess Cost Recovery Petroleum repaid to EGPC in cash or in kind, if any, Plus: An amount equal to CONTRACTOR's Egyptian income taxes grossed up in the manner shown in Annex "E" Article VI. For purposes of above tax deductions in any Tax Year, Article VII (a) shall apply only in respect of classification of costs and expenses and rates of amortization, without regard to the percentage limitation referred to in the first paragraph of Article VII (a) (1). All costs and expenses of CONTRACTOR in conducting the operations under this Agreement which are not controlled by Article VII (a) as above qualified shall be deductible in accordance with the provisions of the Egyptian Income Tax Law. 3. EGPC shall assume, pay and discharge, in the name and on behalf of CONTRACTOR, CONTRACTOR's Egyptian income tax out of EGPC's share of the Petroleum produced and saved and not used in operations under Article VII. All taxes paid by EGPC in the name and on behalf of CONTRACTOR shall be considered income to CONTRACTOR, 4. EGPC shall furnish to CONTRACTOR the proper official receipts evidencing the payment of CONTRACTOR's Egyptian income tax for each Tax Year Within ninety (90) days following the receipt by EGPC of CONTRACTOR's tax declaration for the preceding Tax Year. Such receipts shall be issued by the proper Tax Authorities and shall state the amount and other particulars customary for such receipts. Central Sinai Concession 20F 13 5. As used herein, Egyptian Income Tax shall be inclusive of all income taxes payable in the A.R E. (including tax on tax) such as the tax on income from movable capital and the tax on profits from Commerce and industry, and inclusive of taxes based on income or profits including all dividends, withholding with respect to shareholders and other taxes imposed by the GOVERNMENT on the distribution of income or profits by CONTRACTOR. 6. In calculating its A.R.E. income taxes, EGPC shall be entitled to deduct all royalties paid by EGPC to the GOVERNMENT and, CONTRACTOR's Egyptian income taxes paid by EGPC on, CONTRACTOR's behalf. ARTICLE IV WORK PROGRAM AND EXPENDITURES DURING EXPLORATION PERIOD (a) CONTRACTOR shall commence Exploration operations hereunder not later than six (6) months after the Effective Date with a commitment of acquiring five hundred (500) km seismic and two hundred (200) sq.km 3D seismic. Not later than the end of the twenty-four (24) months after the Effective Date, CONTRACTOR shall start Exploratory drilling in the Area during the initial Exploration period with a commitment of drilling four (4) wells. EGPC shall make available for CONTRACTOR's use all seismic wells and other Exploration data in EGPC's possession with respect to the Area as EGPC is entitled to do so. (b) The initial Exploration period shall be three (3) years. CONTRACTOR may extend this Exploration period for two (2) successive extensions each of two (2) years respectively in accordance with Article 1II(b), each of which upon at least thirty (30) days prior written notice to EGPC subject to its expenditure of its minimum Exploration obligations and of its fulfillment of the drilling obligations hereunder, for the then current period. CONTRACTOR shall spend a minimum of six million (6,000,000) U.S. Dollars on Exploration operations and activities related thereto during the initial three (3) year Exploration period; provided that CONTRACTOR shall drill four (4) wells and acquire five hundred (500) km seismic and two hundred (200) sq.km 3D seismic. For the first two (2) year extension period that CONTRACTOR elects to extend beyond the initial Exploration period, CONTRACTOR shall spend a minimum of four million (4,000,000) U.S.Dollars and for the second two (2) year extension period that CONTRACTOR elects to extend beyond the two (2) year first extension period, " CONTRACTOR shall also spend a minimum of five million (5,000,000) U.S. Dollars. During the first and second extension periods that CONTRACTOR elects to extend beyond the initial Exploration period, CONTRACTOR elects to extend beyond the initial Exploration period, CONTRACTOR shall drill three (3) wells in the first extension and four (4) wells in the second extension. Central Sinai Concession 20F 14 Should CONTRACTOR spend more than the minimum amount required to be expended or drilled or acquire more seismic than the minimum required during the initial three (3) year Exploration period, or during any period thereafter, the excess may be subrtracted from the minimum amount of money required to be expended by CONTRACTOR or minimum number of wells required to be drilled or minimum kilometers of seismic to be acquired during any succeeding Exploration Period, or Periods, as the case may be. In case CONTRACTOR surrenders its Exploration rights under this Agreement as set forth above before or at the end of the third (3rd) year of the initial Exploration period, having expended less than the total sum of six million (6,000,000) U.S. Dollars On Exploration or in the event at he end of the three (3) years, CONTRACTOR has expended less than said sum in the Arena, an amount equal to the difference between the said six million (6,000,000) U.S. Dollars and the amount actually spent on Exploration shall be paid by CONTRACTOR to EGPC at the time of surrending or within three (3) months from the end of the third (3rd) year of the initial Exploration period, as the case may be. Any expenditure deficiency by CONTRACTOR to EGPC of such deficiency. Provided this Agreement is still in force as to CONTRACTOR, CONTRACTOR shall be entitled to recover any such payments as Exploration expenditure in the manner provided for under Article VII in the event of Commercial Production. Without prejudice to Article III (b), in case no Commercial Oil Discovery is established or no notice of Commercial Gas Discovery is given by the end of the seventh (7th) year, as may be extended pursuant to Article V(a), or in case CONTRACTOR surrenders the Area under this Agreement prior to such time, EGPC shall not bear any of the aforesaid expenses spent by CONTRACTOR. (c) At least four (4) months prior to the beginning of each Financial Year or at such other times as may mutually be agreed to by EGPC and CONTRACTOR, CONTRACTOR shall prepare an Exploration Work Program and Budget for the Area setting forth the Exploration operations which CONTRACTOR proposes to carry out during the ensuing year. The Exploration Work Program and Budget shall be reviewed by a joint committee to be established by EGPC and CONTRACTOR after the Effective Date of this Agreement. This Committee, hereinafter referred to as the "Exploration Advisory Committee, shall consist of six (6) members, three (3) of whom shall be appointed by EGPC and three (3) by CONTRACTOR. The Chairman of the Exploration Advisory Committee shall be designated by EGPC from among the members appointed by it. The Exploration Advisory Committee shall review and give such advice as it deems appropriate with respect to the proposed Work Program and Budget. Following review by the Exploration Advisory Committee, CONTRACTOR shall make such revisions as CONTRACTOR deems appropriate and submit the Exploration Work Program and Budget to EGPC for its approval. Central Sinai Concession 20F 15 Following such approval, it is further agreed that: (i) CONTRACTOR shall not substantially revise or modify said Work Program and Budget nor reduce the approved budgeted expenditure without the approval of EGPC; (ii) In the event of emergencies involving danger or loss of lives or property, CONTRACTOR may expend such additional unbudgeted amounts as may be required to alleviate such danger. Such expenditure shall be considered in all respects as Exploration expenditure and shall be recovered pursuant to the provisions of Article VII. (d) CONTRACTOR shall advance all necessary funds for all materials, equipment, supplies, personnel administration and operations pursuant to the Exploration Work Program and Budget and EGPC shall not be responsible to bear or repay any of the aforesaid costs. (e) CONTRACTOR shall be responsible for the preparation and performance of the Exploration Work Program which shall be implemented in a workmanlike manner and consistent with good industry practices. Except as is appropriate for the processing of data, specialized laboratory engineering and development studies thereon, to be made in specialized centers outside the A.R.E., all geological and geophysical studies as well as any other studies related to the performance of this Agreement, shall be made in the A.R.E. CONTRACTOR shall entrust the management of Exploration operations in the A.R.E. to its technically competent General Manager and Deputy General Manager. The names of such Manager and Deputy General Manager shall, upon appointment, be forthwith notified to the GOVERNMENT and to EGPC. The General Manager and, in his absence, the Deputy General Manager shall be entrusted by CONTRACTOR with sufficient powers to carry out immediately all lawful written directions given to them by the GOVERNMENT or its representative , under the terms of this Agreement. All lawful regulations issued " or hereafter to be issued which are applicable hereunder and not " in conflict with this Agreement shall apply to CONTRACTOR. (f) CONTRACTOR shall supply EGPC, within thirty (30) days from the end of each calendar quarter, with a Statement of Exploration Activity, showing costs incurred by CONTRACTOR during such quarter. CONTRACTOR's records and necessary supporting documents shall be available for inspection by EGPC at any time during regular working hours for three (3) months from the date of receiving each Statement. Central Sinai Concession 20F 16 Within the three (3) months from the date of receiving such Statement, EGPC shall advise CONTRACTOR in writing if it considers: (1) that the record of costs is not correct; (2) that the costs of goods or services supplied are not in line with the international market prices for goods or services of similar quality supplied on similar terms prevailing at the time such goods or services were supplied, provided however, that purchases made and services performed within the A.R.E. shall be subject to Article XXVI; (3) that the condition of the materials furnished by CONTRACTOR does not tally with their prices; or (4) that the costs incurred are not reasonably required for operations. CONTRACTOR shall confer with EGPC in connection with the problem thus presented, and the parties shall attempt to reach a settlement which is mutually satisfactory. Any reimbursement due to EGPC out of the Cost Recovery Petroleum as a result of reaching agreement or of an arbitral award shall be promptly made in cash to EGPC, plus simple interest at LIBOR plus two and one-half percent (2.5% ) per annum from the date on which the disputed amount(s) would have been paid to EGPC according to Article VII (a) (2) and Annex "E" (i.e. the date of rendition of the relevant Cost Recovery Statement) to the date of payment. The LIBOR rate applicable shall be the average of the figure or figures published by the Financial Times representing the mid-point of the rates (bid and ask) applicable to one month U. S. Dollar deposits in the London Interbank Eurocurrency Market on each fifteenth (15th) day of each month occurring between the date on which the disputed amount (s) would have been paid to EGPC and the date on which it is settled. If the LIBOR rate is available on any fifteenth (15th) day but is not published in the Financial Times in respect of such day for any reason, the LIBOR rate chosen shall be that offered by Citibank N. A. to other leading banks in the London Interbank Eurocurrency Market for one month U. S. Dollar deposits. If such fifteenth (15th) day is not a day on which LIBOR rates are quoted in the London Interbank Eurocurrency Market, the LIBOR rate to be used shall be that quoted on the next following day on which such rates are quoted. If within the time limit of the three (3) month period provided for in this paragraph, EGPC has not advised CONTRACTOR of its objection to any Statement, such Statement shall be considered as approved. Central Sinai Concession 20F 17 (g) CONTRACTOR shall supply all funds necessary for its operations in the A.R.E. under this Agreement in freely convertible currency from abroad. CONTRACTOR shall have the right to freely purchase Egyptian currency in the amounts necessary for its operations in the A.R.E. from any bank or entity authorized by the GOVERNMENT to conduct foreign currency exchanges. (h) EGPC is authorized to advance to CONTRACTOR the Egyptian currency required for the operations under this Agreement against receiving from CONTRACTOR an equivalent amount of U .S. Dollars at the official A.R.E. rate of exchange. Such amounts in U.S. Dollars shall be deposited in an EGPC account abroad with a correspondent bank of the National Bank of Egypt, Cairo. Withdrawals from said account shall be used for financing EGPC's and its Affiliated Companies' foreign currency requirements subject to the approval of the Minister of Petroleum. ARTICLE V MANDATORY AND VOLUNTARY RELINQUISHMENTS (a) MANDATORY At the end of the third (3rd) year after the Effective Date hereof, CONTRACTOR shall relinquish to the GOVERNMENT a total of twenty-five percent (25%) of the original Area not then converted to a Development Lease or Leases. Such relinquishment shall be in units of whole Exploration Blocks or parts of Exploration Blocks not converted to Development Leases so as to enable the relinquishment requirements to be precisely fulfilled. At the end of the fifth (5th) year after the Effective Date hereof, CONTRACTOR shall relinquish to the GOVERNMENT an additional twenty-five percent (25%) of the original Area not then converted to a Development Lease or Leases. Such relinquishment shall be in units of whole Exploration Blocks or parts of Exploration Blocks not converted to Development Leases so as to enable the relinquishment requirements to be precisely fulfilled. Without prejudice to Articles III and XXIII and the last three paragraphs of this Article V (a), at the end of the seventh (7th) year of the Exploration period, CONTRACTOR shall relinquish the remainder of the Area not then converted to a Development Lease or Leases. It is understood that at the time of any relinquishment the areas to be converted into Development Leases and which are submitted to the Minister of Petroleum for his approval, according to Article III (d) shall, subject to such approval, be deemed converted to Development Leases. Central Sinai Concession 20F 18 CONTRACTOR shall not be required to relinquish any Exploration Block or Blocks on which a Commercial Oil or Gas Well is discovered before the period of time referred to in Article III (c) given to CONTRACTOR to determine whether such Well is a Commercial Discovery worthy of Development, or to relinquish an Exploration Block in respect of which a notice of Commercial Gas Discovery has been given to EGPC subject to EGPC's right to agree on the existence of a Commercial Discovery pursuant to Article III(c), and without prejudice to the requirements of Article III (e). In the event at the end of the initial Exploration Period or either of the two successive extensions of the initial Exploration Period, a well is actually drilling or testing, CONTRACTOR shall be allowed up to six (6) months to enable it to discover a Commercial Oil or Gas Well or to establish a Commercial Discovery, as the case may be. However, any such extension of up to six (6) months shall reduce the length of the next succeeding Exploration Period, as applicable, by that amount. (b) VOLUNTARY: CONTRACTOR may, voluntarily, during any period relinquish all or any part of the Area in whole Exploration Blocks or parts of Exploration Blocks provided that at the time of such voluntary relinquishment its Exploration obligations under Article IV (b) have been satisfied for such period. Any relinquishments hereunder shall be credited toward the mandatory provision of Article V(a) above. Following Commercial Discovery, EGPC and CONTRACTOR shall mutually agree upon any area to be relinquished thereafter, except for the relinquishment provided for above at the end of the total Exploration period. ARTICLE VI OPERATIONS AFTER COMMERCIAL DISCOVERY (a) On Commercial Discovery, EGPC and CONTRACTOR shall form in the A. R. E. an operating company pursuant to Article VI (b) and Annex (D) (hereinafter referred to as "Operating Company") which Company shall be named by mutual agreement between EGPC and CONTRACTOR and such name shall be subject to the approval of the Minister of Petroleum. Said Company shall be a private sector company. Operating Company shall be subject to the laws and regulations in force in the A.R.E. to the extent that such laws and regulations are not inconsistent with the provisions of this Agreement or the Charter of Operating Company. Central Sinai Concession 20F 19 However, Operating Company and CONTRACTOR shall, for the purpose of this Agreement, be exempted from the following laws and regulations as now or hereafter amended or substituted: - -Law No.48 of 1978, on the employee regulations of public sector companies; - -Law No.159 of 1981, promulgating the law on joint stock companies, partnership limited by shares and limited liability companies; - -Law No.97 of 1983, promulgating the law concerning public sector Organizations and companies. - -Law No.203 of 1991, promulgating the law on public business sector companies; and - -Law No.38 of 1994, organizing dealings in foreign currencies. (b) The Charter of Operating Company is hereto attached as Annex 'D". Within thirty (30) days after the date of Commercial Oil Discovery or within thirty (30) days after the signature of a Gas Sales Agreement or commencement of a scheme to dispose of Gas (unless otherwise agreed upon by EGPC and CONTRACTOR), the Charter shall take effect and Operating Company shall automatically come into existence without any further procedures. The Exploration Advisory Committee shall be dissolved forthwith upon the coming into existence of the Operating Company. (c) Ninety (90) days after the date Operating Company comes into existence in accordance with paragraph (b) above, it shall prepare a Work Program and Budget for further Exploration and Development for the remainder of the year in which the Commercial Discovery is made; and not later than four (4) months before the end of the current Financial Year (or such other date as may be agreed upon by EGPC and CONTRACTOR) and four (4) months preceding the commencement of each succeeding Financial Year thereafter (or such other date as may be agreed upon by EGPC and CONTRACTOR), Operating Company shall prepare an annual Production Schedule, Work Program and Budget for further Exploration and Development for the succeeding Financial Year. The Production Schedule, Work Program and Budget shall be submitted to the Board of Directors for approval. (d) Not later than the twentieth (20th) day of each month, Operating Company shall furnish to CONTRACTOR a written estimate of its total cash requirements for expenditure for the first half and the second half of the succeeding month expressed in U .S. Dollars having regard to the approved budget. Such estimate shall take into consideration any cash expected to be on hand at month end. Payment for the appropriate period of such month shall be made to the correspondent bank designated in paragraph (e) below on the first (lst) day and fifteenth (15th) day respectively, or the next following business day, if such day is not a business day. 20 Central Sinai Concession 20-F (e) Operating Company is authorized to keep at its own disposal abroad in an account opened with a correspondent bank of the. National Bank of Egypt, Cairo, the foreign funds advanced by CONTRACTOR. Withdrawals from said account shall be used for payment for goods and services acquired abroad and for transferring to a local bank in the A.R.E. the required amount to meet the expenditures in Egyptian Pounds for Operating Company in connection with its activities under this Agreement. Within sixty (60) days after the end of each Financial Year, Operating Company shall submit to the appropriate exchange control authorities in the A.R.E. a statement, duly certified by a recognized firm of auditors, showing the funds credited to that account, the disbursements made out of that account and the balance outstanding at the end of the year. (f) If and for as long during the period of production operations there exists an excess capacity in facilities which cannot during the period of such excess be used by the Operating Company, EGPC and CONTRACTOR will consult together to find a mutually agreed formula whereby EGPC may use the excess capacity if it so desires without any unreasonable financial or unreasonable operational disadvantage to the CONTRACTOR. ARTICLE VII RECOVERY OF COSTS AND EXPENSES AND PRODUCTION SHARING (a) 1. COST RECOVERY PETROLEUM: Subject to the auditing provisions under this Concession Agreement, CONTRACTOR shall recover quarterly all costs, expenses and expenditures in respect of all the Exploration, Development and related operations under this Agreement to the extent and out of thirty-five percent (35%) of all Petroleum produced and saved from all; Development Leases within the Area hereunder and not used in Petroleum operations. Such Petroleum is hereinafter referred to as "Cost Recovery Petroleum". For the purpose of determining the classification of all costs, expenses and expenditures for their recovery, the following terms shall apply: 1. "Exploration Expenditures" shall mean all costs and expenses for Exploration and the related portion of indirect expenses and overheads. 21 Central Sinai Concession 20-F 2. "Development Expenditures" shall mean all costs and expenses for Development (with the exception of Operating Expenses) and the related portion of indirect expenses and overheads. 3. "Operating Expenses" shall mean all costs, expenses and expenditures made after initial commercial production, which costs, expenses and expenditures are not normally depreciable. However, Operating Expenses shall include workover, repair and maintenance of assets but shall not include any of the following: sidetracking, redrilling and changing of the status of a well, replacement of assets or part of an asset, additions, improvements, renewals or major overhauling that extend the life of the asset. Exploration Expenditures, Development Expenditures and Operating Expenses shall be recovered from Cost Recovery Petroleum in the following manner: (i) Exploration Expenditures including those accumulated prior to the commencement of initial commercial production, which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas are made, shall be recoverable at the rate of twenty-five percent (25%) per annum starting either in the Tax Year in which such expenditures are incurred and paid or the Tax Year in which initial commercial production commences, whichever is the later date. (ii) Development Expenditures, including those accumulated prior to the commencement of initial commercial production which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas "are made, shall be recoverable at the rate of twenty percent (20%) per annum starting either in the Tax Year in which such expenditures are incurred and paid or the Tax Year in which initial commercial production commences, whichever is the later date. (iii) Operating Expenses, incurred and paid after the date of initial commercial production which for the purposes of this Agree- ment shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas are made, shall be recoverable either in the Tax Year in which such costs and expenses are incurred and paid or the Tax Year in which initial commercial production occurs, whichever is the later date. (iv) To the extent that, in a Tax Year, costs, expenses or expenditures recoverable per paragraphs (i), (ii) and (iii) above, exceed the value of all Cost Recovery Petroleum for such Tax Year , the excess shall be carried forward for recovery in the next succeeding Tax Year or years until fully recovered, but in no case after the termination of this Agreement, CONTRACTOR. 22 Central Sinai Concession 20-F (v) The recovery of costs and expenses, based upon the rates referred to above, shall be allocated to each quarter proportionately (one fourth to each quarter). However, any recoverable costs and expenses not recovered in one quarter as thus allocated, shall be carried forward for recovery in the next quarter. (2) Except as provided in Article VII (a) 3 and Article VII (e) 1 , CONTRACTOR shall each quarter be entitled to take and own all Cost Recovery Petroleum, which shall be taken and disposed of in the manner determined pursuant to Article VII (e). To the extent that the value of all Cost Recovery Petroleum (as determined in Article VII (c)) exceeds the actual recoverable costs and expenditures, including any carry forward under Article VII (a) 1 (iv), to be recovered in that quarter, then the value of such Excess Cost Recovery Petroleum, shall be divided between EGPC and CONTRACTOR in accordance with the percentages specified in Article VII (b) 1 and EGPC's share shall be paid by CONTRACTOR to EGPC either (i) in cash in the manner set forth in Article IV of the Accounting Procedure contained in Annex "E" or (ii) in kind in accordance with Article VII (a) (3). (3) Ninety (90) days prior to the commencement of each Calendar Year EGPC shall be entitled to elect by notice in writing to CONTRACTOR to require payment of up to one hundred percent (100%) of EGPC's share of Excess Cost Recovery Petroleum in kind. Such payment will be in Crude Oil from the Area F.O.B. export terminal or other agreed delivery point provided that the amount of Crude Oil taken by EGPC in kind in a quarter shall not exceed the value of Cost Recovery Crude Oil actually taken and separately disposed of by CONTRACTOR from the Area during the previous quarter. If EGPC's entitlement to receive payment of its share of the Excess Cost Recovery Petroleum in kind is limited by the foregoing provision, the balance of such entitlement shall be paid in cash. (b) PRODUCTION SHARING (1) The remaining sixty-five percent (65%) of the Petroleum, shall be divided between EGPC and CONTRACTOR according to the following shares. Such shares shall be taken and disposed of pursuant to Article VII (e): (i) Crude Oil
EGPC CONTRACTOR SHARE SHARE Crude Oil produced and saved under this Agreement and not used in Petroleum Operations. Barrels per day (BOPD) (quarterly average): That portion or increment up to (74%) (26%) 5,000 BOPD. Seventy-four percent twenty-six percent 23 Central Sinai Concession 20-F That portion or increment in (76%) (24%) excess of 5,000 BOPD seventy-six percent twenty-four percent and up to 10,000 BOPD. That portion or increment in (78%) (22%) excess of 10,000 BOPD seventy-eight percent twenty-two percent and up to 20,000 BOPD. That portion or increment in (81%) (19%) excess of 20,000 BOPD eighty-one percent nineteen percent and up to 40,000 BOPD. That portion or increment in (83%) (17%) excess of 40,000 BOPD eighty-three percent seventeen percent and up to 50,OOOBOPD. That portion or increment in (85%) (15%) excess of 50,000 BOPD eighty-five percent fifteen percent
(ii) Gas and LPG: Gas and LPG produced and saved under this Agreement and not used in Petroleum Operations by MMSCFD (quarterly average). EGPC share: seventy-five percent (75%) CONTRACTOR share: twenty-five percent (25% ) (2) After the end of each contractual year during the term of any Gas Sales Agreement entered into pursuant to Article VII {e), EGPC and CONTRACTOR (as sellers) shall render to EGPC (as buyer) a statement for an amount of Gas, if any, equal to the amount by which the quantity of Gas of which EGPC (as buyer) , has taken delivery falls below seventy five percent (75%) of the contract quantities of Gas as established by the applicable Gas Sales Agreement (the "Shortfall"), provided the Gas is available. Within sixty (60) days of receipt of the statement, EGPC (as buyer) shall pay EGPC and CONTRACTOR (as sellers) for the amount of the "shortfall", if any. The Shortfall shall be included in EGPC's and CONTRACTOR 's entitlement to Gas pursuant to Article VII (a) and Article VII (b) in the fourth (4th) quarter of such contractual year. 24 Central Sinai Concession 20-F Quantities of Gas not taken but to be paid for shall be recorded in a separate " Take-or-Pay Account". Quantities of Gas ("Make Up Gas") which are delivered in subsequent years in excess of seventy five percent (75%) of the contract quantities of Gas as established by the applicable Gas Sales Agreement, shall be set against and. reduce quantities of Gas in the Take-or-Pay account to the extent thereof and, to that extent, no payment shall be due in respect of such Gas. Such Make Up Gas shall not be included in CONTRACTOR's entitlements to Gas pursuant to Article VII (a) and Article VII (b). CONTRACTOR shall have no rights to such Make Up Gas. The percentages set forth in Article VII (a) hereinabove and this Article VII (b) in respect of LPG produced from a plant constructed and operated by or on behalf of EGPC and CONTRACTOR shall apply to all LPG available for delivery . (c) VALUATION OF PETROLEUM : 1. CRUDE OIL : (i) The Cost Recovery Crude Oil to which CONTRACTOR is entitled hereunder shall be valued by EGPC and CONTRACTOR at "Market Price" for each calendar quarter. (ii) "Market Price" shall mean the weighted average prices realized from sales by EGPC or CONTRACTOR during the quarter, whichever is higher, provided that the sales to be used in arriving at the weighted average (s) shall be sales of comparable quantities on comparable credit terms in freely convertible currency from F. 0. B. point of export sales to non-affiliated companies at arm's length under all Crude Oil sales contracts then in effect, but excluding Crude Oil sales contracts involving barter and: (1) Sales, whether direct or indirect, through brokers or otherwise, of EGPC or CONTRACTOR to any Affiliated Company. (2) Sales involving a quid pro quo other than payment in a freely convertible currency or motivated in whole or in part by considerations other than the usual economic incentives for commercial arm's length crude oil sales. (iii) It is understood that in the case of C.I.F. sales, appropriate deductions shall be made for transport and insurance charges to calculate the F.O.B. point of export price; and always taking into account the appropriate adjustment for quality of Crude Oil, freight advantage or disadvantage of port of loading and other appropriate adjustments. Market Price shall be determined separately for each Crude Oil or Crude Oil mix, and for each port of loading. 25 Central Sinai Concession 20-F (iv) If during any calendar quarter, there are no such sales by EGPC and/or CONTRACTOR under the Crude Oil sales contracts in effect, EGPC and CONTRACTOR shall mutually agree upon the Market Price of the barrel of Crude Oil to be used for such quarter, and shall be guided by all relevant and available evidence including current prices in freely convertible currency of leading crude oils produced by major oil producing countries (in the Arabian Gulf/at the Mediterranean Area), which are regularly sold in the open market according to actual sales contracts but excluding paper sales and sales promises where no crude oil is delivered, to the extent that such sales are effected under such terms and conditions (excluding the price) not significantly different from those under which the Crude Oil to be valued, was sold, and always taking into consideration appropriate adjustments for Crude Oil quality, freight advantages or disadvantages of port of loading and other appropriate adjustments, as the case may be, for differences in gravity, sulphur, and other factors generally recognized by sellers and purchasers, as reflected in crude prices, transportation ninety (90) days insurance premiums, unusual fees borne by the seller, and for credit terms in excess of sixty ( 60) days, and the cost of loans or guarantees granted for the benefit of the sellers at prevailing interest rates. It is the intent of the parties that the value of the Cost Recovery Crude Oil shall reflect the prevailing market price for such Crude Oil. (v) If either EGPC or CONTRACTOR considers that the Market, Price as determined under sub-paragraph (ii) above does not reflect the prevailing market price or in the event EGPC and CONTRACTOR fail to agree on Market Price for any Crude Oil produced under this Agreement for any quarter within fifteen (15) days after the end thereof, any party may elect at any time thereafter to submit to a single arbitrator the question, what single price per barrel, in the arbitrator's judgment, best represents for the pertinent quarter the Market Price for the Crude Oil in question. The arbitrator shall make his determination as soon as possible following the quarter in question. His determination shall be final and binding upon all the parties. The arbitrator shall be selected in the manner described below. In the event EGPC and CONTRACTOR fail to agree on the arbitrator within thirty (30) days from the date any party notifies the other that it has decided to submit the determination of the Market Price to an arbitrator, such arbitrator shall be chosen by the appointing authority designated in accordance with Article XXIV (e), or such other appointing authority with access to such expertise as may be agreed to between EGPC and CONTRACTOR, with regard to the qualifications for arbitrators set forth below, upon written application of one or both of EGPC and CONTRACTOR. Copies of such application by one of them shall be promptly sent to the other. 26 Central Sinai Concession 20-F The arbitrator shall be as nearly as possible a person with an established reputation in the international petroleum industry as an expert in pricing and marketing crude oil in international commerce. The arbitrator shall not be a citizen of a country which does not have diplomatic relations with both the A.R.E., and the country of CONTRACTOR. He may not be, at the time of selection, employed by, or an arbitrator or consultant on a continuing or frequent basis to, the American Petroleum Institute, the Organization of the Petroleum Exporting Countries or the Organization of Arab Petroleum Exporting Countries, or a consultant on a continuing basis to EGPC, CONTRACTOR or an Affiliated Company of either, but past occasional consultation with such companies, with other petroleum companies, with governmental agencies or organizations shall not be a ground for disqualification. He may not have been, at any time during the two (2) years before selection, an employee of any petroleum company or of any government agency or organization. Should a selected person decline or be unable to serve as arbitrator or should the position of arbitrator fall vacant prior to the decision called for, another person shall be chosen in the same manner provided in this paragraph. EGPC and CONTRACTOR shall share equally the expenses of the arbitrator. The arbitrator shall make his determination in accordance with the provisions of this paragraph, based on the best evidence available to him. He will review oil sales contracts as well as other sales data and information, but shall be free to evaluate the extent to which any contracts, data or information is substantiated or pertinent. Representatives of EGPC and CONTRACTOR shall have the right to consult with the arbitrator and furnish him written materials provided the arbitrator may impose reasonable limitations on this right. EGPC and CONTRACTOR each shall cooperate with the arbitrator to the fullest extent and each shall insure such cooperation of its trading companies. The arbitrator shall be provided access to crude oil sales contracts and related data and information which EGPC and CONTRACTOR or their trading companies are able to make available and which in the judgement of the arbitrator might aid the arbitrator in making a valid determination. (vi) Pending Market Price agreement by EGPC and CONTRACTOR or determination by the arbitrator, as applicable, the Market Price agreed for the quarter preceding the quarter in question shall remain temporarily in effect. In the event either EGPC or CONTRACTOR should incur a loss by virtue of the temporary continuation of the Market Price of the previous quarter, it shall promptly be reimbursed such loss by the other party plus simple interest at the LIBOR plus two and one-half percent (2.5%) per annum rate provided for in Article IV (f) from the date on which the disputed amount(s) should have been paid to the date of payment. 27 Central Sinai Concession 20-F (2) GAS AND LPG (i) The Cost Recovery and Production Shares of Gas subject to a Gas Sales Agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer) entered into pursuant to Article VII (e) shall be valued, delivered to and purchased by EGPC at a price determined monthly according to the following formula: F X H ----------- PG = 0.85 X 42.96 X 106 Where: PG = the value of the Gas in U.S. Dollars per thousand standard cubic feet (MSCF). F = a value in U .S. Dollars per metric ton of the Crude of Gulf of Suez blend priced "FOB Ras Shukheir" calculated by referring to "Platt's Oilgram Price Report" during a month under the heading "Spot Crude Price Assessment for Suez Blend". This value reflects the total averages of the published high and low values for a Barrel during such month divided by the number of days in such month for which such values were quoted. The value per metric ton shall be calculated on the basis of a conversion factor to be agreed upon annually between EGPC and CONTRACTOR. H = the number of British Thermal Units (BTU's) per thousand standard cubic feet (MSCF) of the Gas based on gross calorific value. In the event that the value of F cannot be determined because Platt's Oilgram Price Report is not published at all during a month, EGPC and CONTRACTOR shall meet and agree the value of F by reference to other published sources. In the event that there are no such published sources or if the value of F cannot be determined pursuant to the foregoing for any other reason, EGPC and CONTRACTOR shall meet and agree to a value of F. Such evaluation of Gas under a formula providing for a fifteen percent (15%) discount is based upon delivery at the delivery point specified in Article VII (e) (2) (ii) hereinafter and is to enable EGPC to finance and maintain the portions of the pipeline distribution system to be provided by EGPC. 28 Central Sinai Concession 20-F (ii) The Cost Recovery and Production Shares of LPG produced from a plant constructed and operated by or on behalf of EGPC and CONTRACTOR shall be separately valued for Propane and Butane at the outlet of such LPG plant according to the following formula (unless otherwise agreed between EGPC and CONTRACTOR): PLPG = 0.95 PR - ( J X 0.85 X F ) ------------ 42.96 X 10(6) Where: PLPG = LPG price (separately determined for Propane and Butane) in U.S. Dollars per metric ton. PR = the average over a period of a month of the figures representing the mid-point between the high and low prices in U.S. Dollars per metric ton quoted in "Platt's LPGaswire" during such month for Propane and Butane FOB Ex-Ref/Stor. West Mediterranean. J = BTU's removed from the Gas Stream by the LPG plant per metric ton of LPG produced. F = the same value as F under sub-paragraph (i) above. In the event that Platt's LPGaswire is issued on certain days during a month but not on others, the value of PR shall be calculated using only those issues which are published during such month. In the event that the value of PR cannot be determined because Platt's LPGaswire is not published at all during a month, EGPC and CONTRACTOR shall meet and agree to the value of PR by reference to other published sources. In the event that there are no such other published sources or if the value of PR cannot be determined pursuant to the foregoing for any other reason, EGPC and CONTRACTOR shall meet and agree to the value of PR by reference to the value of LPG (Propane and Butane) delivered FOB from the Mediterranean Area. Such valuation of LPG is based upon delivery at the delivery point specified in Article VII (e) (2) (iii) hereinafter. (iii) The prices of Gas and LPG so calculated shall apply during the same month. (iv) The Cost Recovery and production shares of Gas and LPG disposed of by EGPC and CONTRACTOR other than to EGPC pursuant to Article VII (e) hereinafter shall be valued at their actual realized price. 29 Central Sinai Concession 20-F (d) FORECASTS Operating Company shall prepare (not less than ninety (90) days prior to the beginning of each calendar semester following first regular production) and furnish in writing to CONTRACTOR and EGPC a forecast setting out a total quantity of Petroleum that Operating Company estimates can be produced, saved and transported hereunder during such calendar semester in accordance with good oil and gas industry practices. Operating Company shall endeavor to produce each calendar semester the forecast quantity. The Crude Oil shall be run to storage tanks or offshore loading facilities constructed, maintained and operated according to GOVERNMENT regulations, by Operating Company in which said Crude Oil shall be metered or otherwise measured for royalty, and the other purposes required by this Agreement. Gas shall be handled by Operating Company in accordance with the provisions of Article VII(e). (f) DISPOSITION OF PETROLEUM (1) EGPC and CONTRACTOR shall have the right and the obligation to separately take and freely export or otherwise dispose of currently all of the Crude Oil to which each is entitled under Article VII (a) and Article VII (b). Subject to payment of sums due to EGPC under Article VII (a) 2 and Article IX, CONTRACTOR shall have the right to remit and retain abroad all funds acquired by it including the proceeds from the sales of its share of Petroleum. Notwithstanding anything to the contrary under this Agreement priority shall be given to meet the requirements of the A.R.E. market from CONTRACTOR's share under Article VII (b) of the Crude Oil produced from the Area and EGPC shall have the preferential right to purchase such Crude Oil at a price to be determined pursuant to Article VII (c). The amount of Crude Oil so purchased shall be a portion of CONTRACTOR's share under Article VII (b). Such amount shall be proportional to CONTRACTOR's share of the total production of crude oil from the concession areas in the A.R.E. that are also subject to EGPC's preferential right to purchase. The payment for such purchased amount shall be made by EGPC in U.S. Dollars or in any other freely convertible currency remittable by CONTRACTOR abroad. It is agreed upon that EGPC shall notify CONTRACTOR, at least forty-five (45) days prior to the beginning of the calendar semester, of the amount to be purchased during such semester under this Article VII (e) (1). (2) With respect to Gas and LPG produced from the Area: (i) Priority shall be given to meet the requirements of the local market as determined by EGPC. 30 Central Sinai Concession 20-F (ii) In the event that EGPC is to be the buyer of Gas, the disposition of Gas to the local market as indicated above shall be by virtue of long term Gas Sales Agreements to be entered into between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer). EGPC and CONTRACTOR (as sellers) shall have the obligation to deliver Gas to the following point where such Gas shall be metered for sales, royalty, and other purposes required by this Agreement. (a) In the event no LPG Plant is constructed to process such Gas, the delivery point shall be the flange connecting the lease pipeline to the nearest point on the National Gas Pipeline Grid System as depicted in Annex "F" or as otherwise agreed by EGPC and CONTRACTOR. (b) In the event an LPG Plant is constructed to process such Gas, such Gas shall, for the purpose of valuation and sales, be metered at the inlet to such LPG Plant. However, notwithstanding the fact that the metering shall take place at the LPG Plant inlet, CONTRACTOR shall through the Operating Company build a pipeline suitable for transport of the processed Gas from the LPG Plant outlet to the nearest point on the National as Pipeline Grid System as depicted in Annex "F", or as otherwise agreed by EGPC and CONTRACTOR. Such pipeline shall be owned in accordance with Article VIII (a) by EGPC, and its cost shall be financed and recovered by CONTRACTOR as Development Expenditures pursuant to Article VII. (iii) EGPC and CONTRACTOR shall consult together to determine whether to build an LPG plant for recovering LPG from any Gas produced hereunder. In the event EGPC and CONTRACTOR decide to build such a plant, the plant shall, as is appropriate, be in the vicinity of the point of delivery as determined in Article VII (e) 2 (ii) above Delivery of LPG for royalty and other purposes required by this Agreement shall be at the outlet of the LPG plant. The costs of any such LPG plant shall be recoverable in accordance with the provisions of this Agreement unless the Minister of Petroleum agrees to accelerated recovery. (iv) EGPC (as buyer) shall have the option to elect, by ninety (90) days prior written notice to EGPC and CONTRACTOR (as sellers), whether payment for the Gas which is subject to a Gas Sales Agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer) and LPG produced from a plant constructed and operated by or on behalf of EGPC and CONTRACTOR, as valued in accordance with Article vn (c), and to which CONTRACTOR is entitled under the Cost Recovery and Production Sharing provisions of Article vn herein, shall be made I) in cash or 2) in kind. 31 Central Sinai Concession 20-F Payments in cash shall be made by EGPC (as buyer) at intervals provided for in the relevant Gas Sales Agreement in U.S. Dollars, remittable by CONTRACTOR abroad. Payments in kind shall be calculated by converting the value of Gas and LPG to which CONTRACTOR is entitled into equivalent barrels of Crude Oil to be taken concurrently by CONTRACTOR from the Area, or to the extent that such Crude Oil is insufficient, Crude Oil from CONTRACTOR 's other concession areas or such other areas as may be agreed. Such Crude Oil shall be added to the Crude Oil that CONTRACTOR is otherwise entitled to lift under this Agreement. Such equivalent barrels shall be calculated on the basis of the provisions of Article VII (c) relating to the valuation of Cost Recovery Crude Oil, PROVIDED THAT: (aa) Payment of the value of Gas and LPG shall always be made in cash in U.S. Dollars remittable by CONTRACTOR abroad to the extent that there is insufficient Crude Oil available for conversion as provided for above; (bb) Payment of the value of Gas and LPG shall always be made in kind as provided for above to the extent that payments n cash are not made by EGPC. Payments, to CONTRACTOR (whether in cash or kind), when related to CONTRACTOR's Cost Recovery Petroleum, shall be included in CONTRACTOR's Statement of Recovery of Costs and of Cost Recovery Petroleum referred to in Article IV of Annex "E" of this Agreement. (v) Should EGPC (as buyer) fail to enter into a long-term Gas Sales Agreement with EGPC and CONTRACTOR (as sellers) within five (5) years (unless otherwise agreed) from a notice of Commercial Gas Discovery pursuant to Article III, EGPC and CONTRACTOR shall have the right to take and freely dispose of the quantity of Gas and LPG in respect of which the notice of Commercial Discovery is given by exporting such Gas and LPG. (vi) The proceeds of sale of CONTRACTOR's share of Gas and LPG disposed of pursuant to the above sub-paragraph (v) may be freely remitted or retained abroad by CONTRACTOR. 32 Central Sinai Concession 20-F (vii) In the event EGPC and CONTRACTOR agree to accept new Gas and LPG producers to join in an ongoing export project, such producers shall have to contribute a fair and equitable share of the investment made. (viii) (aa) Upon the expiration of the five (5) year period referred to in Article VII (e) 2 (v) above, CONTRACTOR shall have the obligation to exert its reasonable efforts to find an export market for Gas reserves. (bb) In the event, at the end of the five (5) year period referred to under Article VII (e) 2 (v) above, CONTRACTOR and EGPC have not entered into a Gas Sales Agreement, CONTRACTOR shall retain its rights to such Gas reserves for a further period of up to seven (7) years, subject to Article VII (e) 2 (viii) (cc) below, during which period EGPC shall attempt to find a market for the Gas reserves. (cc) CONTRACTOR shall, at any time prior to the expiry of such further seven (7) year period, surrender the Gas reserves, if CONTRACTOR does not accept an offer from EGPC of a Gas Sales Agreement within six (6) months from the date such offer is made, provided, that in such Gas Sales Agreement or Gas disposal scheme offered to CONTRACTOR, the relevant technical and economic factors to enable a commercial contract or scheme are taken into consideration, including: - A sufficient delivery rate. - Delivery pressure to enter the National Gas Pipeline Grid System at a mutually accepted point of delivery . - Delivered Gas quality specifications not more stringent than those imposed or required for the National Gas Pipeline Grid System; and - The Gas prices specified in this Agreement. (dd) In the event that CONTRACTOR is not exporting the Gas and CONTRACTOR has not entered a Gas Sales Agreement pursuant to Article VII (e) (2) prior to the expiry of twelve (12) years from "CONTRACTOR's notice of Commercial Discovery of Gas, CONTRACTOR shall surrender the Gas reserves in respect of which such notice has been given. 33 Central Sinai Concession 20-F (ix) CONTRACTOR shall not be obligated to surrender a Development Lease based on a Commercial Gas Discovery, if Crude Oil has been discovered in commercial quantities in the same Development Lease and vice versa. (f) OPERATIONS If following the reversion to EGPC of any rights to Crude Oil hereunder, CONTRACTOR retains rights to Gas in the same Development Lease, or if, following surrender of rights to Gas hereunder, CONTRACTOR retains rights to Crude Oil in the same Development Lease, operations to explore for or exploit the Petroleum, the rights to which have reverted or been surrendered (Oil or Gas as the case may be) may only be carried out by Operating Company which shall act on behalf of EGPC alone, unless CONTRACTOR and EGPC agree otherwise. (g) TANKER SCHEDULING At a reasonable time prior to the commencement of Commercial Production EGPC and CONTRACTOR shall meet and agree upon a procedure for scheduling tanker liftings from the agreed upon point of export. ARTICLE VIII TITLE TO ASSETS (a) EGPC shall become the owner of all CONTRACTOR acquired and owned assets which assets were charged to Cost Recovery by CONTRACTOR in connection with the operations carried out by CONTRACTOR or Operating Company in accordance with the following: (1) Land shall become the property of EGPC as soon as it is purchased. (2) Title to fixed and moveable assets shall be transferred automatically and gradually from CONTRACTOR to EGPC as they become subject to recovery in accordance with the provisions of Article VII; however the full title to fixed and movable assets shall be transferred automatically from CONTRACTOR to EGPC when its total cost has been recovered by CONTRACTOR in accordance with the provisions of Article VII or at the time of termination of this Agreement with respect to all assets chargeable to tJ1e operations whether recovered or not, whichever first occurs. The book value of the assets created during each calendar quarter shall be communicated by CONTRACTOR to EGPC or by Operating Company to EGPC and CONTRACTOR within thirty (30) days of the end of each quarter. 34 Central Sinai Concession 20-F (b) During the term of this Agreement and the renewal period EGPC, CONTRACTOR and Operating Company are entitled to the full use and enjoyment of all fixed and movable assets referred to above in connection with operations hereunder or under any other Petroleum concession agreement entered into by the parties. Proper accounting adjustment shall be made. CONTRACTQR and EGPC shall not dispose of the same except with agreement of the other. (c) CONTRACTOR and Operating Company may freely import into the A.R.E., use therein and freely export at the end of such use, machinery and equipment which they either rent or lease in accordance with good industry practices, including but not limited to the lease of computer hardware and software. ARTICLE IX BONUSES (a) CONTRACTOR shall pay to EGPC as a signature bonus the sum of one million (1,000,000) U.S. Dollars on the Effective Date. (b) CONTRACTOR shall pay to EGPC the sum of two million (2,000,000) U .S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of twenty-five thousand (25,000) barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter. (c) CONTRACTOR shall also pay to EGPC the additional sum of four million (4,000,000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of fifty thousand (50,000) barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter. (d) CONTRACTOR shall also pay to EGPC the additional sum of eight million (8,000,000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of one-hundred thousand (100,000) barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter. (e) All the abovementioned bonuses shall in no event be recovered by CONTRACTOR. (f) In the event that EGPC elects to develop any part of the Area pursuant to the sole risk provisions of Article III (c) (iv), production from such sole risk Area shall be considered for the purposes of this Article IX only if CONTRACTOR exercises its option to share in such production, and only from the initial date of sharing. 35 Central Sinai Concession 20-F (g) Gas shall be taken into account for purposes of determining the total average daily production from the Area under Article IX (b)-(d) by converting daily Gas delivered into equivalent barrels of daily Crude Oil production in accordance with the following formula: MSCF x H x 0.136 = equivalent barrels of Crude Oil Where MSCF = one thousand standard cubic feet of Gas. H = the number of million British Thermal Units (BTU's) per MSCF. ARTICLE X OFFICE AND SERVICE OF NOTICES CONTRACTOR shall maintain an office in the A.R.E. at which notices shall be validly served. The General Manager and Deputy General Manager shall be entrusted by CONTRACTOR with sufficient power to carry out immediately all local written directions given to them by the GOVERNMENT or its representatives under the terms of this Agreement. All lawful regulations issued or hereafter to be issued which are applicable hereunder and not in conflict with this Agreement shall apply to the duties and activities of the General Manager and Deputy General Manager. All matters and notices shall be deemed to be validly served which are delivered to the office of the General Manager or which are sent to him by registered mail to CONTRACTOR's office in the A.R.E. All matters and notices shall be deemed to be validly served which are delivered to the office of the Chairman of EGPC or which are sent to him by registered mail at EGPC's main office in Cairo. ARTICLE XI SAVING OF PETROLEUM AND PREVENTION OF LOSS (a) Operating Company shall take all proper measures, according to generally accepted methods in use in the Oil and Gas industry to prevent loss or waste of Petroleum above or under the ground in any form during drilling, producing, gathering and distributing or storage operations. The GOVERNMENT has the right to prevent any operation on any well that it might reasonably expect would result in loss or damage to the well or the Crude Oil or Gas field. 36 Central Sinai Concession 20F (b) Upon completion of the drilling of a productive well, Operating Company shall inform the GOVERNMENT or its representative of the time when the well will be tested and the production rate ascertained. (c) Except in instances where multiple producing formations in the same well can only be produced economically through a single tubing string, Petroleum shall not be produced from multiple oil bearing zones through one string of tubing at the same time, except with the prior approval of the GOVERNMENT or its representative, which shall not be unreasonably withheld. (d) Operating Company shall record data regarding the quantities of Petroleum and water produced monthly from each Development Lease. Such data shall be sent to the GOVERNMENT or its representative on the special forms provided for that purpose within thirty (30) days after the data are obtained. Daily or weekly statistics regarding the production from the Area shall be available at all reasonable times for examination by authorized representatives of the GOVERNMENT. (e) Daily drilling records and the graphic logs of wells must show the quantity and type of cement and the amount of any other materials used in the well for the purpose of protecting Petroleum, gas bearing or fresh water strata. Any substantial change of mechanical conditions of the well after its completion shall be subject to the approval of the representative of the GOVERNMENT. ARTICLE XII CUSTOMS EXEMPTIONS (a) EGPC, CONTRACTOR, and Operating Company shall be permitted to import and shall be exempted from customs duties, any taxes, levies or fees (including fees imposed by Ministerial Decision No.254 of 1993 issued by the Minister of Finance, as now or hereafter amended or substituted) of any nature (except where an actual service has been rendered to CONTRACTOR by a competent authority), and from the importation rules with respect to the importation of machinery, equipment, appliances, materials, items, means of transport and transportation (the exemption from taxes and duties for cars shall only apply to cars to be used in operations), electric appliances, air conditioners for offices, field housing and facilities, electronic appliances, computer hardware and software, as well as spare parts required for any of the imported items, all subject to a duly approved certificate issued by the responsible representative nominated by EGPC for such purpose, which states that the imported items are required for conducting the operations pursuant to this Agreement. Such certificate shall be final and binding and shall automatically result in the importation and the exemption without any further approval, delay or procedure. 37 Central Sinai Concession 20F (b) Machinery, equipment, appliances and means of transport and transportation imported by EGPC's, CONTRACTOR's and Operating Company's contractors and sub-contractors temporarily engaged in any activity pursuant to the operations which are the subject of this Agreement, shall be cleared under the "Temporary Release System" without payment of custom duties, any taxes, levies or fees (including fees imposed by Ministerial Decision No. 254 of 1993 issued by the Minister of Finance, as now or hereafter amended or substituted) of any nature (except where an actual service has been rendered to CONTRACTOR by a competent authority), upon presentation of a duly approved certificate issued by an EGPC responsible representative nominated by EGPC for such purpose which states, that the imported items are required for conducting the operations pursuant to this Agreement. Items (excluding cars not to be used in operations) set out in Article XII (a) imported by EGPC's, CONTRACTOR's and Operating Company's contractors and sub-contractors for the aforesaid operations, in order to be installed or used permanently or consumed shall meet the conditions for exemption set forth in Article XII (a) after being duly certified by an EGPC responsible representative to be used for conducting operations pursuant to this Agreement. (c) The expatriate employees of CONTRACTOR, Operating Company and their contractors and sub-contractors shall not be entitled to any exemptions from custom duties and other ancillary taxes and charges except within the limits of the provisions of the laws and regulations applicable in the A.R.E. However, personal household goods and furniture (including one (1) car) for each expatriate employee of CONTRACTOR and/or Operating Company shall be cleared under the "Temporary Release System (without payment of any customs duties and other ancillary taxes) upon presentation of a letter to the appropriate customs authorities by CONTRACTOR or Operating Company approved by an EGPC responsible representative that the imported items are imported for the sole use of the expatriate employee and his family, and that such imported items shall be re-exported outside the A.R.E. upon the repatriation of the concerned expatriate employee. (d) Items imported into the A.R.E. whether exempt or not exempt from customs duties and other ancillary taxes and charges hereunder, may be exported by the importing party at any time after obtaining EGPC's approval, which approval shall not be unreasonably withheld, without any export duties, taxes or charges or any taxes or charges from which such items have been already exempt, being applicable. Such items may be sold within the A.R.E. after obtaining the approval of EGPC which approval shall not be unreasonably withheld. In this event the purchaser of such items shall pay all applicable customs duties and other ancillary taxes and charges according to the condition and value of such items and the tariff applicable on the date of sale, unless such items have already been sold to an Affiliated Company of CONTRACTOR, if any, or EGPC, having the same exemption, or unless title to such items (excluding cars not used in operations) has passed to EGPC. 38 Central Sinai Concession 20F In the event of any such sale under this paragraph (d), the proceeds from such sale shall be divided in the following manner: CONTRACTOR shall be entitled to reimbursement of its unrecovered cost, if any, in such items and the excess, if any, shall be paid to EGPC. (e) The exemption provided for in Article XII (a) shall not apply to any imported items when items of the same or substantially the same kind and quality are manufactured locally meeting CONTRACTOR's and/or Operating Company's specifications for quality and safety and are available for timely purchase and delivery in the A.R.E. at a price not higher than ten percent (10%) of the cost of the imported item, before customs duties but after freight and insurance costs, if any, have been added. (f) CONTRACTOR, EGPC and their respective buyers shall have the right to freely export the Petroleum produced from the Area pursuant to this Agreement. No license shall be required, and such petroleum shall be exempted from any customs duties, any taxes, levies or any other imposts in respect of the export of Petroleum hereunder. ARTICLE XIII BOOKS OF ACCOUNT: ACCOUNTING AND PAYMENTS (a) EGPC, CONTRACTOR and Operating Company shall each maintain at their business offices in the A.R.E. books of accounts, in accordance with the Accounting Procedure in Annex "E" and accepted accounting practices generally used in the petroleum industry, and such other books and records as may be necessary to show the work performed under this Agreement, including the amount and value of all Petroleum produced and saved hereunder. CONTRACTOR and Operating Company shall keep their books of account and accounting records in United States Dollars. Operating Company shall furnish to the GOVERNMENT or its representative monthly returns showing the amount of Petroleum produced and saved hereunder. Such returns shall be prepared in the form required by the GOVERNMENT, or its representative and shall be signed by the General Manager or by the Deputy General Manager or a duly designated deputy, and delivered to the GOVERNMENT or its representative within thirty (30) days after the end of the month covered in the return. (b) The aforesaid books of account and other books and records referred to above shall be available at all reasonable times for inspection by duly authorized representatives of the GOVERNMENT. 39 Central Sinai Concession 20F (c) CONTRACTOR shall submit to EGPC a profit and loss Statement of its Tax Year not later than four ( 4) months after the commencement of the following Tax Year to show its net profit or loss from the Petroleum operations under this Agreement for such Tax Year. CONTRACTOR shall at the same time submit a year-end Balance Sheet for the same Tax Year to EGPC. The Balance Sheet and financial Statements shall be certified by an Egyptian certified accounting firm. ARTICLE XIV RECORDS, REPORTS AND INSPECTION (a) CONTRACTOR and/or Operating Company shall prepare and, at all times while this Agreement is in force, maintain accurate and current records of its operations in the Area. CONTRACTOR and/or Operating Company shall furnish the GOVERNMENT or its representative, in conformity with applicable regulations or as the GOVERNMENT or its representative may reasonably require information and data concerning its operations under this Agreement. Operating Company will perform the functions indicated in this Article XIV in accordance with its respective role as specified in Article VI. (b) CONTRACTOR and/or Operating Company shall save and keep for a reasonable period of time a representative portion of each sample of cores and cuttings taken from drilling wells, to be disposed of, or forwarded to the GOVERNMENT or its representative in the manner directed by the GOVERNMENT. All samples acquired by CONTRACTOR and/or Operating Company for their own purposes shall be considered available for inspection at any reasonable time by the GOVERNMENT or its representatives. (c) Unless otherwise agreed to by EGPC, in case of exporting any rock samples outside the A.R.E., samples equivalent in size and quality shall, before such exportation, be delivered to EGPC as representative of the GOVERNMENT. (d) Originals of records can only be exported with the permission of EGPC; provided, however, that magnetic tapes and any other data which must be processed or analyzed outside the A.R.E. may be exported if a monitor or a comparable record, if available, is maintained in the A.R.E. and provided that such exports shall be repatriated to the A.R.E. promptly following such processing or analysis on the understanding that they belong to EGPC. (e) During the period CONTRACTOR is conducting the Exploration operations, EGPC's duly authorized representatives or employees shall have the right to full and complete access to the Area at all reasonable times with the right to observe the operations being conducted and to inspect all assets, records and data kept by CONTRACTOR. EGPC's representative, in exercising its rights under the preceding sentence of this paragraph (e), shall not interfere with CONTRACTOR's operations. CONTRACTOR shall provide EGPC with copies of any and all data (including, but not limited to, geological and geophysical reports, logs and well surveys) information and interpretation of such data, and other information in CONTRACTOR's possession. 40 Central Sinai Concession 20F For the purpose of obtaining new offers, the GOVERNMENT and/or EGPC may, after the seventh (7th) year of the Exploration period or the date of termination of this Agreement, whichever is the earlier, show any other party uninterpreted, basic geophysical and geological data (such data to be not less than one (I) year old unless CONTRACTOR agrees to a shorter period, which agreement shall not be unreasonably withheld) with respect to the Area, provided that the GOVERNMENT and/or EGPC may at any time show another party such data directly obtained over or acquired from those parts of the Area which CONTRACTOR has relinquished as long as such data is at least one (1) year old. ARTICLE XV RESPONSIBILITY FOR DAMAGES CONTRACTOR shall entirely and solely be responsible in law toward third parties for any damage caused by CONTRACTOR's Exploration operations and shall indemnify the GOVERNMENT and/or EGPC against all damages for which they may be held liable on account of any such operations. ARTICLE XVI PRIVILEGES OF GOVERNMENT REPRESENTATIVES Duly authorized representatives of the GOVERNMENT shall have access to the Area covered by this Agreement and to the operations conducted thereon. Such representatives may examine the books, registers and records of EGPC, CONTRACTOR and Operating Company and make a reasonable number of surveys, drawings and tests for the purpose of enforcing this Agreement. They shall, for this purpose, be entitled to make reasonable use of the machinery and instruments of CONTRACTOR or Operating Company on the condition that no danger or impediment to the operations hereunder shall arise directly or indirectly from such use. Such representatives shall be given reasonable assistance by the agents and employees ,of CONTRACTOR or Operating Company so that none of the activities shall endanger or hinder the safety or efficiency of the operations. CONTRACTOR or Operating Company shall offer such representatives all privileges and facilities accorded to its own employees in the field and shall provide them, free of charge, the use of reasonable office space and of adequately furnished housing while they are in the field for the purpose of facilitating the objectives of this Article. Without prejudice to Article XIV (e), any and all information obtained by the GOVERNMENT or its representatives under this Article XVI shall be kept confidential with respect to the Area. 41 Central Sinai Concession 20F ARTICLE XVII EMPLOYMENT RIGHTS AND TRAINING OF ARAB REPUBLIC OF EGYPT PERSONNEL (a) It is the desire of EGPC and CONTRACTOR that operations hereunder be conducted in a business-like and efficient manner. (1) The expatriate administrative, professional and technical personnel employed by CONTRACTOR or Operating Company and the personnel of its contractors for the conduct of the operations hereunder, shall be granted a residence as provided for in Law No.89 of 1960 as amended and Ministerial Order N0. 280 of 1981 as amended, and CONTRACTOR agrees that all immigration, passport, visa and employment regulations of the A.R.E. shall be applicable to all alien employees of CONTRACTOR working in the A.R.E. (2) A minimum of twenty-five percent (25%) of the combined salaries and wages of each of the expatriate administrative, professional and technical personnel employed by CONTRACTOR or Operating Company shall be paid monthly in Egyptian currency. (b) CONTRACTOR and Operating Company shall each select its employees and determine the number thereof, to be used for operations hereunder. (c) CONTRACTOR shall, after consultation with EGPC, prepare and carry out specialized training programs for all its A.R.E. employees engaged in operations hereunder with respect to applicable aspects of the petroleum industry. CONTRACTOR and Operating Company undertake to replace gradually their non-executive expatriate staff by qualified nationals as they are available. (d) During any of the Exploration phases, CONTRACTOR shall give mutually agreed numbers of EGPC employees an opportunity to attend and participate in CONTRACTOR's and CONTRACTOR 's Affiliated Companies training programs relating to Exploration and Development operations. In the event that the total cost of such programs is less than fifty thousand (50,000) u.s. Dollars in any Financial Year during such period, CONTRACTOR shall pay EGPC the amount of the shortfall within thirty (30) days following the end of such Financial Year. However, EGPC shall have the right that said amount (U.S. $50,000) allocated for training, be paid directly to EGPC for such purpose. 42 Central Sinai Concession 20F ARTICLE XVM LAWS AND REGULATIONS (a) CONTRACTOR and Operating Company shall be subject to Law No.66 of 1953 (excluding Article 37 thereof) as amended by Law No.86 of 1956 and the regulations issued for the implementation thereof, including the regulations for the safe and efficient performance of operations carried out for the execution of this Agreement and for the conservation of the petroleum resources of the A.R.E. provided that no regulations, modification or interpretation thereof, shall be contrary to or inconsistent with the provisions of this Agreement. (b) Except as provided in Article III (g) for income taxes, EGPC, CONTRACTOR and Operating Company shall be exempted from all taxes and duties, whether imposed by the GOVERNMENT or municipalities including among others, Sales Tax, Value Added Tax and Taxes on the Exploration, Development, extracting, producing, exporting or transporting of Petroleum and LPG as well as any and all withholding taxes that might otherwise be imposed on dividends, interest, technical service fees, patent and trademark royalties, and similar items. CONTRACTOR shall also be exempted from any tax on the liquidation of CONTRACTOR, or distributions of any income to the shareholders of CONTRACTOR, and from any tax on capital. (c) The rights and obligations of EGPC and CONTRACTOR under, and for the effective term of this Agreement shall be governed by and in accordance with the provisions of this Agreement and can only be altered or amended by the written mutual agreement of the said contracting parties. (d) The contractors and sub-contractors of CONTRACTOR and Operating Company shall be subject to the provisions of this Agreement which affect them. Insofar as all regulations which are duly issued by the GOVERNMENT apply from time to time and are not in accord with the provisions of this Agreement, such regulations shall not apply to CONTRACTOR, Operating Company and their respective contractors and sub-contractors, as the case may be. (e) EGPC, CONTRACTOR, Operating Company and their respective contractors and sub-contractors shall for the purposes of this Agreement be exempted from all professional stamp duties, imposts and levies imposed by syndical laws with respect to their documents and activities hereunder. (f) All the exemptions from the application of A.R.E. laws or regulations granted to EGPC, CONTRACTOR, the Operating Company, their contractors and sub-contractors under this. Agreement shall include such laws and regulations as presently in effect or hereafter amended or substituted. 43 Central Sinai Concession 20F ARTICLE XIX STABILIZATION In case of changes in existing legislation or regulations applicable to the conduct of Exploration, Development and production of Petroleum, which take place after the Effective Date, and which significantly affect the economic interest of this Agreement to the detriment of CONTRACTOR or which imposes on CONTRACTOR an obligation to remit to the A.R.E. the proceeds from sales of CONTRACTOR's Petroleum, CONTRACTOR shall notify EGPC of the subject legislative or regulatory measure. In such case, the Parties shall negotiate possible modifications to this Agreement designed to restore the economic balance thereof which existed on the Effective Date. The Parties shall use their best efforts to agree on amendments to this Agreement within ninety (90) days from aforesaid notice. These amendments to this Agreement shall not in any event diminish or increase the rights and obligations of CONTRACTOR as these were agreed on the Effective Date. Failing agreement between the Parties during the period referred to above in this Article XIX, the dispute may be submitted to arbitration, as provided in Article XXIV of this Agreement. ARTICLE XX RIGHT OF REQUISITION (a) In case of national emergency due to war or imminent expectation of war or internal causes, the GOVERNMENT may requisition all or part of the production from the Area obtained hereunder and require Operating Company to increase such production to the utmost possible maximum. The GOVERNMENT may also requisition the Oil and/or Gas field itself and, if necessary, related facilities. 44 Central Sinai Concession 20F (b) In any such case, such requisition shall not be effected except after inviting EGPC and CONTRACTOR or their representative by registered letter, with acknowledgment of receipt, to express their views with respect to such requisition. (c) The requisition of production shall be effected by Ministerial Order. Any acquisition of an Oil and/or Gas field, or any related facilities shall be effected by a Presidential Decree duly notified to EGPC and CONTRACTOR. (d) In the event of any requisition as provided above, the GOVERNMENT shall indemnify in full EGPC and CONTRACTOR for the period during which the requisition is maintained, including: (1) All damages which result from such requisition; and (2) Full repayment each month for all Petroleum extracted by the GOVERNMENT less the royalty share of such production. However, any damage resulting from enemy attack is not within the meaning of this paragraph (d). Payment hereunder shall be made to CONTRACTOR in U.S. Dollars remittable abroad. The price paid to CONTRACTOR for Petroleum taken shall be calculated in accordance with Article VII (c). ARTICLE XXI ASSIGNMENT (a) Neither EGPC nor CONTRACTOR may assign to a person, firm or corporation, in whole or in part, any of its rights, privileges, duties or obligations under this Agreement without the written consent of the GOVERNMENT. (b) To enable consideration to be given to any request for such consent, the following conditions must be fulfilled: (1) The obligations of the assignor deriving from this Agreement must have been duly fulfilled as of the date such request is made. (2) The instrument of assignment must include provisions stating precisely that the assignee is bound by all covenants contained in this Agreement and any modifications or additions in writing that up to such time may have been made. A draft of such instrument of assignment shall be submitted to EGPC for review and approval before being formally executed. (c) Notwithstanding the provisions of Article XXI(a), CONTRACTOR may assign all or any of its rights, privileges, duties or obligations under this Agreement to an Affiliated Company, provided that CONTRACTOR shall advise the GOVERNMENT and EGPC in writing of the assignment. 45 Central Sinai Concession 20F (d) Any assignment, sale, transfer or other such conveyance made pursuant to the provisions of this Article XXI shall be free of any transfer, capital gains taxes or related taxes, charges or fees including without limitation, all income tax, sales tax, value added tax, stamp duty, or other taxes or similar payments. (e) As long as the assignor shall hold any interest under this Agreement the assignor together with the assignee shall be jointly and severally liable for all duties and obligations of CONTRACTOR under this Agreement. ARTICLE XXII BREACH OF AGREEMENT AND POWER TO CANCEL The GOVERNMENT shall have the right to cancel this Agreement by Order or Presidential Decree, with respect to CONTRACTOR, in the following instances: (1) If it knowingly has submitted any false statements to the GOVERNMENT which were of a material consideration for the execution of this Agreement; (2) If it assigns any interest hereunder contrary to the provisions of Article XXI; (3) If it is adjudicated bankrupt by a court of a competent jurisdiction; (4) If it does not comply with any final decision reached as the result of a court proceedings conducted under Article XXIV (a); (5) If it intentionally extracts any mineral other than Petroleum not authorized by this Agreement or without the authority of the GOVERNMENT, except such extractions as may be unavoidable as the result of operations conducted hereunder in accordance with accepted petroleum industry practice and which shall be notified to the GOVERNMENT or its representative as soon as possible; and (6) If it commits any material breach of this Agreement or of the provisions of Law No.66 of 1953, as amended by Law No. 86 of 1956, which are not contradicted by the provisions of this Agreement. 46 Central Sinai Concession 20F Such cancellation shall take place without prejudice to any rights which may have accrued to the GOVERNMENT against CONTRACTOR in accordance with the provisions of this Agreement, and, in the event of such cancellation, CONTRACTOR, shall have the right to remove from the Area all its personal property. (b) If the GOVERNMENT deems that one of the aforesaid causes (other than a force majeure cause referred to in Article XXIII hereof) exists to cancel this Agreement, the GOVERNMENT shall give CONTRACTOR ninety (90) days written notice personally served on CONTRACTOR IS General Manager in the legally official manner and receipt of which is acknowledged by him or by his legal agents, to remedy and remove such cause; but if for any reason such service is impossible due to unnotified change of address, publication in the Official Journal of the GOVERNMENT of such notice shall be considered as validly served upon CONTRACTOR. If at the end of the said ninety (90) day notice period such cause has not been remedied and removed, this Agreement may be cancelled forthwith by Order or Presidential Decree as aforesaid; provided, however, that if such cause, or the failure to remedy or remove such cause results from any act or omission of one party, cancellation of this Agreement shall be effective only against that party and not as against any other party hereto. ARTICLE XXIII FORCE MAJEURE (a) The non-performance or delay in performance by EGPC and CONTRACTOR, or either of them of any obligation under this Agreement shall be excused if, and to the extent that, such non- performance or delay is caused by force majeure. The period of any such non-performance or delay, together with such period as may be necessary for the restoration of any damage done during such delay, shall be added to the time given in this Agreement for the performance of such obligation and for the performance of any obligation dependent thereon and consequently, to the term of this Agreement, but only with respect to the block or blocks affected. (b) "Force Majeure", within the meaning of this Article XXIII, shall be any order, regulation or direction of the GOVERNMENT with respect to CONTRACTOR whether promulgated in the form of a law or otherwise or any act of God, insurrection, riot, war, strike, and other labor disturbance, fires, floods or any cause not due to the fault or negligence of EGPC and CONTRACTOR or either of them, whether or not similar to the foregoing, provided that any such cause is beyond the reasonable control of EGPC and CONTRACTOR, or either of them. (c) Without prejudice to the above and except as may be otherwise provided herein, the GOVERNMENT shall incur no responsibility whatsoever to EGPC and CONTRACTOR, or either of them for any damages, restrictions or loss arising in consequence of such case of force majeure except a force majeure caused by the order, regulations or direction of the GOVERNMENT. 47 Central Sinai Concession 20F (d) If the force majeure event occurs during the initial Exploration Period or any extension thereof and continues in effect for a period of six (6) months CONTRACTOR shall have the option upon ninety (90) days prior written notice to EGPC to terminate its obligations hereunder without further liability of any kind. ARTICLE XXIV DISPUTES AND ARBITRATION (a) Any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination or invalidity thereof, between the GOVERNMENT and the parties hereto shall be referred to the jurisdiction of the appropriate A. R. E. Courts and shall be finally settled by such Courts. (b) Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, between CONTRACTOR and EGPC shall be settled by, arbitration in accordance with the Arbitration Rules of the Cairo Regional Centre for International Commercial Arbitration (the Centre) in effect on the date of the Concession Agreement. The award of the arbitrators shall be final and binding on the parties. (c) The number of arbitrators shall be three (3). (d) Each party shall appoint one arbitrator. If, within thirty (30) days after receipt of the claimant's notification of the appointment of an arbitrator, the respondent has not notified the claimant in writing of the name of the arbitrator he appoints, the claimant may request the Centre to appoint the second arbitrator. (e) The two arbitrators thus appointed shall choose the third arbitrator who will act as the presiding arbitrator of the tribunal. If within thirty (30) days after the appointment of the second arbitrator, the two arbitrators have not agreed upon the choice of the presiding arbitrator, then either party may request the Secretary General of the Permanent Court of Arbitration at the Hague to designate the appointing authority. Such appointing authority shall appoint the presiding arbitrator in the same way as a sole arbitrator would be appointed under Article 6.3 of the UNCITRAL Arbitration Rules. Such presiding arbitrator shall be a person of a country which has diplomatic relations with the A.R.E., and who shall have no economic interest in the Petroleum business of the signatories hereto. 48 Central Sinai Concession 20F (f) Unless otherwise agreed by the parties to the arbitration, the arbitration, including the making of the award, shall take place in Cairo, A.R.E. (g) The decisions of a majority of the arbitrators shall be final and binding upon the Parties and the arbitral award rendered shall be final and conclusive. Judgment on the arbitral award rendered may be entered in any court having jurisdiction or application may be made in such court for a judicial acceptance of the award and for enforcement, as the case may be. (h) Egyptian Law shall apply to the dispute except that in the event of any conflict between Egyptian Laws and this Agreement the provisions of this Agreement (including the arbitration provision) shall prevail. The arbitration shall be conducted in the English Language. (i) EGPC and CONTRACTOR agree that if, for whatever reason, arbitration in accordance with the above procedure cannot take place, or is likely to take place under circumstances for CONTRACTOR which could prejudice CONTRACTOR's right to fair arbitration, all disputes, controversies or claims arising out of or relating to this Agreement or the breach, termination or invalidity thereof shall be settled by ad hoc arbitration in accordance with the UNCITRAL Rules in effect on the Effective Date. ARTICLE XXV STATUS OF THE PARTIES (a) The rights, duties, obligations and liabilities in respect of EGPC and CONTRACTOR hereunder shall be several and not joint or collective, it being understood that this Agreement shall not be construed as constituting an association or corporation or partnership. (b) CONTRACTOR shall be subject to the laws of the place where it is incorporated regarding its legal status or creation, organization, charter and by-laws, shareholding, and ownership. CONTRACTOR shares of capital which are entirely held abroad shall not be negotiable in the A.R.E. and shall not be offered for public subscription nor shall they be subject to the stamp tax on capital shares nor any tax or duty in the A.R.E. CONTRACTOR shall be exempted from the application of Law No.159 of 1981 as amended. (c) CONTRACTOR shall be jointly and severally liable for the performance of the obligations of CONTRACTOR under this Agreement. 49 Central Sinai Concession 20F ARTICLE XXVI LOCAL CONTRACTORS AND LOCALLY MANUFACTURED MATERIAL CONTRACTOR or Operating Company, as the case may be, and their contractors shall: (a) Give priority to local contractors and sub-contractors, including EGPC's Affiliated Companies as long as their performance is comparable with international performance and the prices of their services are not higher than the prices of other contractors and sub-contractors by more than ten percent (10%). (b ) Give preference to locally manufactured material, equipment, machinery and consumables so long as their quality and time of delivery are comparable to internationally available material, 0equipment, machinery and consumables. However, such material, equipment, machinery and consumables may be imported for operations conducted hereunder if the local price of such items at CONTRACTOR's or Operating Company's operating base in the A. R. E. is more than ten percent (10%) higher than the price of such imported items before customs duties, but after transportation and insurance costs have been added. ARTICLE XXVII ARABIC TEXT The Arabic version of this Agreement shall, before the Courts of the A.R.E., be referred to in construing or interpreting this Agreement, provided however, that in any arbitration pursuant to Article XXIV herein between EGPC and CONTRACTOR the English and Arabic version shall both be referred to as having equal force in construing or interpreting the Agreement. ARTICLE XXVIII GENERAL The headings or titles to each of the Articles to this Agreement are solely for the convenience of the parties hereto and shall not be used with respect to the interpretation of said Articles. 50 Central Sinai Concession 20F ARTICLE XXIX APPROVAL OF THE GOVERNMENT This Agreement shall not be binding upon any of the parties hereto unless and until a law is issued by the competent authorities of the A.R.E. authorizing the Minister of Petroleum to sign this Agreement and F giving this Agreement full force and effect of law, notwithstanding any countervailing governmental enactment, and the Agreement is signed by the GOVERNMENT, EGPC, and CONTRACTOR. NATIONAL EXPLORATION COMPANY BY: -------------------------------- EGYPTIAN GENERAL PETROLEUM CORPORATION BY: -------------------------------- ARAB REPUBLIC OF EGYPT BY: -------------------------------- DATE: ------------------------------ 51 Central Sinai Concession 20F EX-3.11 23 a2026270zex-3_11.txt EXHIBIT 3.11 FEDERAL REPUBLIC OF NIGERIA OIL Prospecting License No. 75 ------------------- THIS LICENSE is hereby granted for a term of XXXXXXXXX FIVE XXXXXX years Commencing on the 8TH day of FEBRUARY 1991 to ATLAS PETROLEUM INTERNATIONAL NIGERIA LIMITED Name of Company of 1B, IBIYINKA OLORUNIMBE CLOSE, OFF AMODU OJIKUTU STREET VICTORIA Address of Company ISLAND LAGOS, -------------------------------------- ----------------------------------- --------------------------- to prospect for petroleum in, upon and under the lands described in the schedule hereto and delineated in red in the plan attached. 2. The license is granted subject to the petroleum Act 1969 and the regulation thereunder now in force or which may come into force during the continuance of this license * (and also subject to the special terms and conditions in the Annex attached hereto). 3. In witness hereof the Secretary of Petroleum and Mineral Resources has hereunto set his hand and sealed this 27TH day of JULY 1995. -------------------------- SECRETARY of PETROLEUM AND MINERAL RESOURCES EX-3.12 24 a2026270zex-3_12.txt EXHIBIT 3.12 Office of the Minister Ministry of Petroleum and Mineral Resources P.M. B. 12844 Federal Secretariat, Phase I Ikoyi, Lagos 22nd July 1994 The Chairman Atlas Petroleum International Ltd. 1B, Iblyinka Olorumimbe Close Off Amodu Olikutu Street Victoria Island, Lagos Dear Sir, CONSENT TO THE ASSIGNMENT TO SUMMIT OIL AND GAS WORLDWIDE LIMITED OF UNDIVIDED INTEREST IN OPL 75 I refer to your letter of April 7, 1994 applying for my consent to the assignment of undivided interest in the subject oil prospecting license. 2. In exercise of the powers conferred on me by paragraph 14, Schedule 1 of the Petroleum Act of 1969, I hereby grant my consent to the assignment of 30% undivided participating interest in your OPL 75 by Summit Partners Management Company to its offshore affiliate - Summit Oil and Gas Worldwide Limited with affect from July 4, 1994. 3. This consent is subject to the strict compliance with the agreement of 17th day of July, 1992 between Atlas Petroleum International Limited and SUMMIT PARTNERS MANAGEMENT COMPANY. Yours faithfully, D. O. Etiebet EX-3.13 25 a2026270zex-3_13.txt EXHIBIT 3.13 AGREEMENT BETWEEN ATLAS PETROLEUM INTERNATIONAL LIMITED AND SUMMIT PARTNERS MANAGEMENT CO. RELATING TO: OIL PROSPECTING LICENSE 75 FEDERAL REPUBLIC OF NIGERIA TABLE OF CONTENTS ARTICLE 1 2 1.0 DEFINITIONS 2 ARTICLE 2 4 2.0 TERM 4 ARTICLE 3 5 3.0 ASSIGNMENT 5 ARTICLE 4 6 4.0 GOVERNMENT APPROVAL 6 ARTICLE 5 7 5.0 REPRESENTATIONS AND WARRANTIES; INDEMNITY 7 ARTICLE 6 9 6.0 SUMMIT'S OBLIGATIONS 9 ARTICLE 7 10 7.0 PRODUCTION, TAXES AND ROYALTIES 10 ARTICLE 8 12 8.0 CONDITIONS PRECEDENT 12 ARTICLE 9 14 9.0 OTHER AGREEMENTS/LEGISLATION 14 ARTICLE 10 19 10.0 FORCE MAJEURE 19 ARTICLE 11 20 11.0 ASSIGNMENT 20 ARTICLE 12 21 12.0 GOVERNING LAW, ARBITRATION AND LIABILITIES 21 ARTICLE 13 24 13.0 NOTICIES 24 ARTICLE 14 25 14.0 CONFIDENTIALITY 25 ARTICLE 15 27 5.0 MISCELLANEOUS 27
Page 2 of 28 Atlas/SOGW Agr. 8.31.92 20F AGREEMENT THIS AGREEMENT, made and entered into this l7th day of July, 1992, between ATLAS PETROLEUM INTERNATIONAL LIMITED, a corporation organized and existing under the laws of the Federal Republic of Nigeria (hereinafter referred to as "ATLAS"), and SUMMIT PARTNERS MANAGEMENT CO., a corporation organized and existing under the laws of the State of Texas, United States of America (hereinafter referred to as "SUMMIT"). W I T N E S S E T H WHEREAS, ATLAS has been awarded an Oil Prospecting License covering Block 75 in the Federal Republic of Nigeria, a copy of which is attached to this Agreement as EXHIBIT "A" (hereinafter referred to as the "OPL"); and WHEREAS, ATLAS has agreed to assign to SUMMIT an undivided thirty percent (30%) interest in the OPL; and WHEREAS, SUMMIT desires to acquire from ATLAS an undivided thirty percent (30%) interest in the OPL for the consideration and upon the terms and conditions contained herein; and WHEREAS, the OPL has been awarded to ATLAS on condition that ATLAS shall be the Operator of the License Area (as hereinafter defined), which condition shall further be spelled out in the Operating Agreement (as hereinafter defined). NOW, THEREFORE, in consideration of the mutual covenants and promises set forth below, the Parties do hereby agree as follows: Page 3 of 28 Atlas/SOGW Agr. 8.31.92 20F ARTICLE 1 1.0 DEFINITIONS 1.1 "AFFILIATE" shall mean, with respect to a Party, a corporation or other entity that controls or is controlled by such Party or a corporation or other entity which controls or is controlled by a corporation or other entity which controls such Party directly or indirectly. For purposes hereof, "control" shall mean ownership by one corporation or other entity of more than twenty-five percent (25%) of the voting rights of the other corporation or other entity. 1.2 "AGREEMENT" shall mean this Agreement between ATLAS and SUMMIT relating to the OPL. 1.3 "APPROVAL DATE" shall mean the date on which the Assignment is approved by the Government. 1.4 "THE 30% INTEREST" shall mean the undivided thirty percent (30%) interest in the OPL to be assigned by ATLAS to SUMMIT hereunder. 1.5 "ASSIGNMENT" shall mean that certain instrument to be executed by ATLAS and SUMMIT whereby ATLAS assigns The 30% Interest to SUMMIT, which shall be substantially in the form set forth in EXHIBIT "B" . 1.6 "ASSIGNMENT DATE" shall mean the date on which ATLAS assigns The 30% Interest to SUMMIT. 1.7 "DOLLARS" or "US$" shall mean the currency of the United States of America. 1.8 "ECODRILL CONTRACT" shall mean that certain Agreement dated February 7, 1992 between ATLAS and Ecodrill U.S. Inc., covering the OPL. Page 4 of 28 Atlas/SOGW Agr. 8.31.92 20F 1.9 "EXPLORATION COSTS" shall mean Petroleum Costs as such term is defined in the Operating Agreement. 1.10 "FORCE MAJEURE" shall be as defined in Article 10 below. 1.11 "Government" shall mean the Government of the Federal Republic of Nigeria. 1.12 "INTERIM MANAGEMENT COMMITTEE" shall be as defined in Article 9.3 below. 1.13 "LICENSE AREA" shall mean that geographical area covered by the OPL, as more particularly outlined and described in the schedules attached to the OPL and as reduced from time to time in accordance with the provisions of Petroleum Decree 1969 and the Petroleum (Drilling and Production) Regulations 1969, as amended. The License Area is shown on EXHIBIT "C" attached to this Agreement. 1.14 "MANAGEMENT COMMITTEE" shall be as defined in Article 9.2(d) below. 1.15 "MPMR" shall mean the Ministry of Petroleum and Mineral Resources. 1.16 "OIL MINING LEASE" shall mean an Oil Mining Lease resulting from the OPL obtained in accordance with the laws of the Federal Republic of Nigeria. 1.17 "OPERATING AGREEMENT" shall mean the Joint Operating Agreement to be entered into between ATLAS and SUMMIT to govern the conduct of petroleum operations under the OPL and any Oil Mining Leases resulting therefrom, using the document attached as EXHIBIT "D" as the basis for negotiations. 1.18 "PARTICIPATING INTEREST" shall mean the undivided interest held at any given time by ATLAS and, after approval of the Assignment by the Government, by SUMMIT in and to the OPL, the License Area and the Operating Agreement. 1.19 "PARTY" OR "PARTIES" shall mean ATLAS and/or SUMMIT, individually or jointly, as the text may require. Page 5 of 28 Atlas/SOGW Agr. 8.31.92 20F 1.20 "PAYOUT" shall mean that point in time when SUMMIT has been paid out of revenues attributable to the sale of Hydrocarbons produced from the License Area, after deducting its proportionate share of Royalties and Petroleum Profits Tax, an amount equal to one hundred percent (100%) of the costs and expenses paid by SUMMIT pursuant to the terms of this Agreement. After Payout has occurred, there shall be no reversion to a "before Payout" status. 1.21 "PETROLEUM PROFITS TAX" shall mean the tax imposed upon the sale of Hydrocarbons under the Petroleum Profits Tax Act of 1959, as amended. 1.22 "ROYALTIES" shall be as defined in Article 7.1(a) below. 1.23 All terms, other than the foregoing terms, which are not defined in this Agreement but which are defined in the Operating Agreement shall have the same meaning as expressed in the Operating Agreement. ARTICLE 2 2.0 TERM 2.1 This Agreement shall be effective as of the date first written above and, except as otherwise provided in this Agreement, shall continue until the occurrence of Payout. Thereafter, the rights, duties and obligations of the Parties with respect to the OPL and the License Area shall be governed by the terms and provisions of the Operating Agreement. Page 6 of 28 Atlas/SOGW Agr. 8.31.92 20F ARTICLE 3 3.0 ASSIGNMENT 3.1 (a) Subject to the conditions of this Agreement and in exchange for the consideration set forth in Article 6 below, ATLAS hereby agrees to assign The 30% Interest to SUMMIT. (b) Subject to the conditions of this Agreement, SUMMIT hereby agrees to accept such assignment of The 30% Interest and to perform its obligations as set forth in Article 6 below. 3.2 The Assignment shall be free of all liens, claims, mortgages and encumbrances and shall be thirty percent (30%) of one hundred percent (100%) of ATLAS' interests in data, materials, equipment and other assets now owned or hereafter acquired pertaining to or in connection with the OPL (hereinafter referred to as the "Assets"). 3.3 The Assignment shall be executed contemporaneously with the execution of this Agreement. The Assignment shall be subject to approval by the Government and will become effective as of the Approval Date. Between the Parties, the Assignment and this Agreement shall be effective as of the Assignment Date, and ATLAS and SUMMIT shall be bound by this Agreement and shall fully perform all of their respective obligations under this Agreement, pending approval of the Assignment by the Government, in accordance with and subject to the terms of this Agreement. Page 7 of 28 Atlas/SOGW Agr. 8.31.92 20F 3.4 AFTER THE APPROVAL OF THE ASSIGNMENT, the RESPECTIVE PARTICIPATING INTERESTS OF THE PARTIES in THE OPL SHALL be AS FOLLOWS:
COMPANY PARTICIPATING INTEREST ------- ---------------------- ATLAS 70% SUMMIT 30%
THE DISPROPORTIONATE SHARING OF REVENUES CONTEMPLATED BY ARTICLE 7.1(e) SHALL in NO WAY AFFECT THE PARTIES' OWNERSHIP OF THEIR RESPECTIVE PARTICIPATING INTEREST SHARES in THE OPL. ARTICLE 4 4.0 GOVERNMENT APPROVAL 4.1 As soon as reasonably possible following the execution of the Assignment, ATLAS shall submit the Assignment to the Government requesting approval of the Assignment. ATLAS shall promptly provide SUMMIT with satisfactory evidence of the submission of the Assignment to the Government. In addition, ATLAS shall keep SUMMIT fully informed with respect to the status of such approval and shall promptly advise SUMMIT of any communications to or from the Government relating to the Assignment. ATLAS agrees to use good faith and reasonable efforts and to perform all reasonable and required acts in order to obtain the Government's approval of the Assignment. 4.2 ATLAS shall bear and pay any and all benefit, stamp, transfer and documentary taxes, filing, registration, recording and notary fees or similar costs assessed by the Government in connection with the Assignment, and ATLAS agrees to indemnify and hold SUMMIT harmless from any such taxes, fees or other costs relating to the Assignment. Page 8 of 28 Atlas/SOGW Agr. 8.31.92 20F ARTICLE 5 5.0 REPRESENTATIONS AND WARRANTIES; INDEMNITY 5.1 ATLAS hereby represents and warrants that: (a) Its corporate entity has been duly formed and currently exists in good standing under the laws of the Federal Republic of Nigeria and that it has full power and authority to execute and deliver, and to complete its obligations under, this Agreement; and the person or persons signing this Agreement and the Assignment on behalf of ATLAS has the authority to do so. (b) As of the date of this Agreement and as of the Approval Date, the OPL will be valid and in full force and effect in all respects, without variance or amendment. Prior to the Approval Date, without the prior written approval of SUMMIT (which approval SUMMIT shall not delay or withhold unreasonably), ATLAS shall not amend, surrender or withdraw from the OPL. (c) To the best of its knowledge, no act or omission of or affecting ATLAS or affecting the OPL has occurred or will occur prior to the Approval Date which would entitle the Government to revoke or modify the OPL. (d) All of the obligations contained in the OPL requiring performance on or before the Assignment Date have been fully and timely performed by ATLAS. Page 9 of 28 Atlas/SOGW Agr. 8.31.92 20F (e) As of the Assignment Date, The 30% Interest will have good and defensible title and will not be subject to any material adverse contractual obligations, or any mortgages, pledges, liens, burdens or other encumbrances created by ATLAS and there is no agreement to create the same. (f) There are no outstanding lawsuits or other proceedings and there has been no judgment or award given or made by any court, tribunal or governmental agency which relates to or is connected with or relating to the OPL and, to the best of its knowledge, there are no outstanding claims which would affect the OPL or The 30% Interest being assigned to SUMMIT pursuant to this Agreement. (g) No payments were made or will be made, or consideration given or will be given to obtain the OPL in violation of Nigerian law or which would be in violation of the laws of the United States of America or the State of Texas, if such payments were made or such consideration were given by SUMMIT. (h) As of the Assignment Date, ATLAS will be the sole legal and beneficial owner of The 30% Interest with the right to sell, transfer and assign the full legal and beneficial ownership of The 30% Interest to SUMMIT. (i) The Ecodrill Contract has terminated by its own terms and is no longer in force effect with respect to any part of the OPL. (j) ATLAS shall indemnify and hold SUMMIT harmless from any costs, expenses, claims, demands, actions or other liability which SUMMIT may incur as a result of the failure of any of the representations and/or the breach of any of the warranties contained in this Article 5.1, including without limitation those claims, demands or actions that may be made by Ecodrill U.S., Inc. arising out of the previous Ecodrill Contract. Page 10 of 28 Atlas/SOGW Agr. 8.31.92 20F 5.2 SUMMIT hereby represents and warrants that: (a) Its corporate entity has been duly formed and currently exists in good standing under the laws of the State of Texas and that it has full power and authority to execute and deliver, and to complete its obligations under, this Agreement; and the person or persons signing this Agreement and the Assignment on behalf of SUMMIT has the authority to do so. (b) The execution and delivery of this Agreement by SUMMIT is authorized by sufficient corporate action and, on the Assignment Date, SUMMIT will have all necessary corporate power and authority to execute and accept the Assignment. (c) SUMMIT has the ability to meet all of its financial obligations hereunder. (d) SUMMIT has not gone into liquidation, made an assignment for the benefit of creditors, declared or been declared bankrupt or insolvent by a competent court or had a receiver appointed in respect of the whole or any part of its assets and has no plans to do so. ARTICLE 6 6.0 SUMMIT'S OBLIGATIONS 6.1 For and in consideration of receiving The 30% Interest from ATLAS, after SUMMIT has moved a drilling rig into the License Area and is set to commence actual drilling but prior to commencement of actual drilling, SUMMIT shall pay to ATLAS the sum of us Dollars One Million (US$1,000,000.00); provided, however, that SUMMIT shall have no obligation hereunder to make such payment until all of the conditions precedent set forth in Article 8.1 have been fully satisfied (or waived by SUMMIT and ATLAS has obtained the clearance of all necessary approvals, permits, etc. Page 11 of 28 Atlas/SOGW Agr. 8.31.92 20F 6.2 Prior to Payout, and subject to the terms of Article 7, SUMMIT shall bear and pay the following costs and expenses: a. All Exploration Costs incurred for the Joint Account on the License Area; b. In the event of a Commercial Discovery of Hydrocarbons, all costs of all wells incurred on any Oil Mining Lease(s) resulting from the OPL; and c. All operating costs incurred on said Oil Mining Lease(s). 6.3 After Payout, all costs and expenses attributable to the License Area shall be borne and paid by the Parties according to their respective Participating Interests in accordance with the terms and provisions of the Operating Agreement. ARTICLE 7 7.0 PRODUCTONS, TAXES AND ROYALTIES 7.1 Upon evidence of the successful completion of a commercially viable well on the License Area and the sale of Hydrocarbons produced therefrom, revenues from the sale of Hydrocarbons shall be applied and/or distributed in the following manner and order of priority: Page 12 of 28 Atlas/SOGW Agr. 8.31.92 20F (a) Payment of royalties and other obligations to the MPMR pursuant to the terms of the OPL and/or any Oil Mining Leases resulting therefrom ("Royalties"); (b) Payment of Petroleum Profits Taxes and any other taxes charged to the Parties, whether attributable to operations on the License Area or to the Hydrocarbons sold therefrom; (c) Payment of all actual ongoing costs, fees and expenses of any kind whatsoever, including but not limited to general administrative and overhead costs and interest expense, incurred in connection with (i) the exploration, development, operation or maintenance of the OPL and the License Area for the production of Hydrocarbons, and (ii) the lifting, handling, gathering, producing, treating, storing, marketing or transporting of Hydrocarbons from the OPL/Oil Mining Leases and the License Area (such costs, fees and expenses are hereinafter referred to as "Costs"); (d) Distribution into a reserve fund such funds as may be necessary to pay anticipated future Costs, the amount of such reserve to be established and/or adjusted from time to time by the Management Committee; and (e) Any remaining revenues shall be distributed to the Parties as follows: (i) Until Payout, ATLAS shall receive forty percent (40%) and SUMMIT shall receive sixty percent (60%) of such remaining revenues; and Page 13 of 28 Atlas/SOGW Agr. 8.31.92 20F (ii) After Payout, ATLAS shall receive seventy percent (70%) and SUMMIT shall receive thirty percent (30% ) of all revenues in accordance with the terms and provisions of the Operating Agreement. 7.2 Prior to Payout, neither Party shall have the right to take in kind any of the Hydrocarbons produced from any and all Oil Mining Leases resulting from the OPL. All such production shall be marketed and sold under the direction of the Management Committee in accordance with the terms of the Operating Agreement. Royalties and Petroleum Profits Taxes shall be allocated to the Parties in the same proportion as revenues are being allocated to them under Article 7.1 (e) above. 7.3 After Payout, ATLAS and SUMMIT shall each be entitled to take and receive their respective Participating Interest shares of all Hydrocarbons produced from any and all Oil Mining Leases resulting from the OPL in accordance with the terms and provisions of the Operating Agreement. 7.4 After Payout, ATLAS and SUMMIT shall separately pay Royalties and Petroleum Profits Tax on the share of Hydrocarbons actually received by each Party. ARTICLE 8 8.0 CONDITIONS PRECEDENT 8.1 SUMMIT's obligation to make any payments or the performance by SUMMIT of its other obligations under this Agreement shall be subject to the prior satisfaction of the following conditions: Page 14 of 28 Atlas/SOGW Agr. 8.31.92 20F (a) Execution and delivery of the Assignment by ATLAS to SUMMIT and approval of such Assignment by the Government; (b) Recording of the OPL and the Assignment from ATLAS to SUMMIT in the appropriate records; (c) Appropriate action by the Government acceptable to SUMMIT's to legally permit and authorize SUMMIT to own up to a thirty percent (30%) interest in the OPL and any resulting Oil Mining Lease(s) and to share in any Hydrocarbons produced therefrom and the revenues from the sale of such Hydrocarbons; (d) Assurances satisfactory to SUMMIT by the Government that SUMMIT and its successors and assigns may freely export and sell their share of Hydrocarbons produced from any Oil Mining Lease(s) resulting from the OPL and may retain abroad the proceeds of such sales; and (e) The negotiation and execution of a mutually acceptable Operating Agreement between ATLAS and SUMMIT in accordance with the provisions of Article 9.1 and 9.2 below. 8.2 If any of the conditions set forth in Article 8.1 have not been satisfied in the sole opinion of SUMMIT or waived in writing by SUMMIT within a period of thirty (30) days from the date of this Agreement, SUMMIT shall have the right and option, but not the obligation, to terminate this Agreement by giving written notice to ATLAS. In any event, failure by ATLAS to satisfy such conditions relieves SUMMIT of its obligations hereunder until such conditions are satisfied by ATLAS or waived by SUMMIT. Page 15 of 28 Atlas/SOGW Agr. 8.31.92 20F ARITCLE 9 9.0 OTHER AGREEMENTS/LEGISLATION 9.1 The activities of the Parties in the License Area shall be governed by the terms of the OPL and the Operating Agreement. The Parties shall use their best efforts to negotiate and execute the Operating Agreement within thirty (30) days after the date of this Agreement. If the Operating Agreement has not been executed within that period, SUMMIT and ATLAS each shall have the right and option, but not the obligation, to elect to terminate this Agreement. In any event, SUMMIT shall be relieved of its obligations hereunder until the Operating Agreement has been executed. 9.2 The Operating Agreement shall include, among other things, the following provisions: (a) ATLAS shall be the Operator of the License Area on behalf of ATLAS and SUMMIT. (b) ATLAS, as Operator of the License Area, shall delegate to SUMMIT the authority under the Operating Agreement to obtain or provide services and technical and operational expertise necessary or appropriate for the conduct of operations on the License Area, including without limitation the recruitment of necessary experts and technical personnel. The Patties will use good faith efforts to employ Nigerian personnel and companies to the extent the same are available and qualified, and the Patties shall vigorously pursue transfer of technology until the number of expatriate personnel is reduced to the barest minimum in compliance with Nigerian law. (c) The Parties shall enter into a mutually agreeable initial work program in compliance with the terms of the OPL, pursuant to which the Parties will conduct operations on the License Area, including without limitation geological and geophysical operations, seismic studies, drilling and completion operations, seismic studies and any other necessary or appropriate operations in connection with the License Area. (d) ATLAS and SUMMIT shall form a management committee (the "Management Committee") which shall serve as the decision- making body for the Parties. The Management Committee, which shall consist of seven members, shall exercise overall supervision and control of all Page 16 of 28 Atlas/SOGW Agr. 8.31.92 20F matters pertaining to the License Area. Each Party shall appoint three representatives to serve on the Management Committee. In addition, until Payout, SUMMIT shall be entitled to appoint one additional representative who must be approved by ATLAS, and after Payout ATLAS will be entitled to appoint such additional representative. The representatives shall be authorized to attend, represent and exercise the rights, powers and authorities of, and bind the Patties with respect to any matter within the authority or power of the Management Committee. Any member of the Management Committee may delegate its voting authority to any other member. (e) The Management Committee shall, among other things, have the authority to do the following: (i) approve plans for the exploration of the License Area, the drilling and completion of wells thereon and the production of Hydrocarbons therefrom; and (ii) approve a regularly prepared budget to govern activities with respect to the License Area; provided, however, that any such budget must be unanimously approved by the Management Committee. (f) The positions of Managing Director, Operations Manager, Financial Director and Financial Controller shall be established and their duties, authority and responsibilities shall be fully described in the Operating Agreement. The Managing Director and the Operations Manager shall manage, administer and operate all day-to-day business and affairs on the License Area. ATLAS shall be entitled to appoint the Managing Director and SUMMIT shall be entitled to appoint the Operations Manager. (g) Prior to Payout, SUMMIT shall be entitled to appoint the Financial Director and ATLAS shall be entitled to appoint the Financial Controller. After Payout, such Financial Director shall be appointed by ATLAS and the Financial Controller shall be appointed by SUMMIT. The Financial Director shall establish the primary banking relationship for the Parties with a Swiss bank such as Union Bank of Switzerland, or such other bank as the Financial Director may from time to time select with the approval Page 17 of 28 Atlas/SOGW Agr. 8.31.92 20F of the Management Committee. All transactions with respect to the License Area shall be conducted in Dollars, except to the extent otherwise required under the OPL. (h) For the period during which both ATLAS and SUMMIT own an interest in the License Area, (i) SUMMIT agrees that neither it nor any of its Affiliates shall enter into the Oil and Gas Business in the Federal Republic of Nigeria; and (ii) ATLAS agrees that neither it nor any of its Affiliates shall acquire any right or interest in the Oil and Gas Business in the Federal Republic of Nigeria unless ATLAS or its Affiliates first offer to SUMMIT the right to acquire an undivided thirty percent (30%) of such right or interest to be acquired by ATLAS in the Oil and Gas Business. ATLAS shall promptly notify SUMMIT in writing of each and every proposed acquisition and SUMMIT shall have thirty (30) days after receipt of each notice within which to elect to participate in the acquisition described in such notice. For purposes hereof, "Oil and Gas Business" means (i) the acquisition and ownership of any oil and gas properties or interests of any kind whatsoever ("Oil and Gas Interests"); (ii) the exploration, development or operation of Oil and Gas Interests; (iii) the marketing, gathering, compression, treating or processing of oil and gas production; or (iv) the transportation of oil and gas production. 9.3 In the case of a conflict between the provisions of this Agreement and the Operating Agreement, except as otherwise specifically provided in the Operating Agreement, the provisions of this Agreement shall govern as between the Parties. 9.4 To facilitate the orderly conduct of operations on the License Area under the OPL pending the execution of the Operating Agreement, the Parties shall establish an interim management committee (the "Interim Management Committee") upon execution of this Agreement which shall serve as the decision-making body for the Parties until execution of the Operating Agreement. The Interim Management Committee shall exercise overall supervision and control of all matters pertaining to the License Area. Each Party shall appoint one representative to serve on the Interim Management Committee. Each representative Page 18 of 28 Atlas/SOGW Agr. 8.31.92 20F shall be deemed authorized to attend, represent and exercise the rights, powers and authorities of, and bind that Party with respect to any matter within the authority or power of the Interim Management Committee. 9.5 Either member of the Interim Management Committee may convene a meeting of the Interim Management Committee upon three (3) days' advance written notice. Proposals for activities on the License Area shall be in writing and shall, to be effective, be approved by all members of the Interim Management Committee. 9.6 ATLAS shall obtain all necessary or appropriate licenses, permits or other official (or unofficial) clearances to permit the exploration and development of the License Area (OPL 75) and the marketing of Hydrocarbons therefrom, including without limitation (a) approvals from the MPMR and other necessary or appropriate governmental agencies to ensure that production from the License Area participates pro rata under any production or sales limitation imposed by OPEC or any like organization, and (b) an oil allocation contract for the benefit of the Parties, where possible. ARTICLE 10 10.0 FORCE MAJEURE 10.1 No Party hereto shall be liable for any failure to perform, or delay in performing, any of its obligations hereunder, other than its obligations to pay money, to the extent that such performance has been delayed, prevented or otherwise hindered by an event of "Force Majeure." For purposes hereof, the term "Force Majeure" shall include, but not limited to, hostilities, restraints of rulers or people, revolution, civil commotion, strike, labor disturbances, epidemic, accident, fire, lightning, f1ood, wind, storm, earthquake, explosion, blowout, crater, blockade or embargo, lack of or failure of transportation facilities or any law, proclamation, regulation or ordinance, demand or requirement of any government or any government agency having or claiming to have jurisdiction over the Parties hereto, or any act of God, or any other act of Government, act of omission of supplier or any other cause, whether of the same or different nature, existing or future, that is beyond the control and without the fault or negligence of the Party assessing benefit of this Article. Page 19 of 28 Atlas/SOGW Agr. 8.31.92 20F 10.2 If Force Majeure causes a suspension of an obligation of any Party, that Party shall give notice as soon as reasonably possible to the other Party stating the date and extent of the suspension and the nature of the Force Majeure. Any Party whose obligation has been suspended shall take all reasonable steps to remove the Force Majeure situation and shall resume the performance of that obligation as soon as reasonably possible after the removal of the Force Majeure and shall so notify the other Party. Force Majeure as to one obligation is not, PER SE, Force Majeure as to any other obligations. 10.3 The settlement of strikes and lockouts shall be entirely within the discretion of the affected Party, and the requirement that Force Majeure shall be remedied with all reasonable dispatch, shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such a course is deemed inadvisable in the discretion of the affected Party. ARTICLE 11 11.0 ASSIGNMENT 11.1 Neither Party may assign, transfer or otherwise dispose of all its rights or obligations hereunder, except to an Affiliate, without the prior written consent of the other Party. Any assignee or successor shall be bound by the terms of this Agreement, and any assignment shall be subject to any required approvals by the MPMR. In the event a Party makes an assignment to an Affiliate, the Party shall promptly notify the other Party of such assignment. 11.2 At any time after the earlier to occur of (a) the date which is ninety (90) days after completion or abandonment of three (3) wells drilled on the License Area, and (b) December 31, 1993, SUMMIT shall have the option to withdraw from this Agreement and reassign its Participating Interest to ATLAS (or its designee) and thereafter SUMMIT shall have no further rights or obligations hereunder; provided, however, that SUMMIT shall be entitled to continue to receive its Participating Interest share of revenues attributable to the sale of Hydrocarbons from wells drilled on the License Area prior to the date of its election to reassign. Page 20 of 28 Atlas/SOGW Agr. 8.31.92 20F 11.3 In the event that SUMMIT elects to reassign its Participating Interest to ATLAS(or its designee) pursuant to Article 11.2 above, ATLAS hereby agrees to accept such reassignment and to protect, indemnify and hold SUMMIT harmless from and against any and all costs, expenses and liabilities arising after the date of SUMMIT's election to reassign in connection with the License Area, whether under the OPL, any Oil Mining Lease resulting therefrom, this Agreement, the Operating Agreement, or otherwise. SUMMIT hereby agrees to protect, indemnify and hold ATLAS harmless from and against any and all costs and expenses arising from obligations contracted for by SUMMIT prior to the date of SUMMIT's election to reassign. ARTICLE 12 12.0 GOVERNING LAW, ARBITRATION AND LIABILITIES 12.1 This Agreement shall be governed by and construed in accordance with the laws of the Federal Republic of Nigeria, except such provisions hereof which would require the application of the laws of another jurisdiction. For purposes of enforcing any arbitration award rendered pursuant to the provisions of Article 12.2 below, (a) SUMMIT hereby appoints the Secretary of State of the State of Texas in Austin, Texas, as its agent for service of process and hereby waives any claim of lack of jurisdiction of the courts of Texas over SUMMIT or any award, and agrees that any such award shall be enforceable in Texas; and (b) ATLAS hereby appoints the Attorney General of the Federal Republic of Nigeria as its agent for service of process and hereby waives any claim of lack of jurisdiction of the courts of the Federal Republic of Nigeria over ATLAS or any such award, and agrees that any such award shall be enforceable in the Federal Republic of Nigeria. 12.2 Any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination, shall be settled before an arbitration committee composed of two arbitrators, one to be appointed by ATLAS and one to be appointed by SUMMIT, in accordance with the Rules of Reconciliation and Arbitration of the International Chamber of Commerce, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The place of Page 21 of 28 Atlas/SOGW Agr. 8.31.92 20F arbitration shall be Geneva, Switzerland, and all proceedings shall be conducted in the English language. A dispute shall be deemed to have arisen when any Party gives notice to the other Party to that effect. 12.3 Notwithstanding any other provisions of this Agreement, in no event shall any Party be liable to the other Party for loss of prospective profits, or special, indirect or consequential damages, in connection with this Agreement or with respect to any operations related thereto. 12.4 Subject to the other provisions of this Agreement, the OPL, any Oil Mining Lease resulting therefrom, the Operating Agreement, the Participating Interests of the Parties shall be owned and held severally and not jointly or collectively, in undivided interests, and each Party waives for itself, and for and on behalf of its successors and assigns, all rights of partition. 12.5 Each Party is solely and individually responsible for any and all taxes which may become due with respect to that Party's earnings or income resulting from the operations contemplated under this Agreement, as well as from any other source (including its own depreciation and amortization policy); provided that each Party shall indemnify, defend and hold harmless each other Party from and against any loss, cost or liability arising from that Party's obligations. 12.6 The obligations and liabilities of the Parties are several and not joint. 12.7 It is the intention of the Parties that this Agreement shall not be regarded as a partnership, and the Parties agree that the Agreement shall not be construed to create the relationship between the Parties of a tax partnership. Each Party acknowledges that there is no obligation to jointly compute or report any item of income, gain, loss, credit or deduction. All items of income, gain, loss, credit or deduction derived by each Party under the Agreement may and shall be separately determined for their separate accounts without the requirement or necessity for computing partnership income or loss. Each Party elects exclusion from the application of all of the provisions of Subchapter K, Chapter 1, Subtitle A of the United States Internal Revenue Code of 1986, as amended (the "Code"). SUMMIT is authorized, after due consultation with ATLAS, to execute and file on behalf of each Party the elections, statements and related documents with appropriate officers of the United States Internal Revenue Service which may be Page 22 of 28 Atlas/SOGW Agr. 8.31.92 20F necessary and desirable under the provisions of Section 761 of the Code and the regulations thereunder to perfect exclusion from the provisions of Subchapter K. ARTICLE 13 13.0 NOTICES 13.1 Any notice to be given hereunder shall be in writing and may be delivered by hand, sent by certified or registered mail or transmitted by cable or facsimile to the relevant address get forth below, or such other address as may be communicated by the relevant Party to the other Party from time to time. Any notice, communication or delivery hereunder shall be deemed to have been duly made when personally delivered to, or when a cable or facsimile bas been received at, the address indicated below; or if mailed, when received by the Party charged with such notice at the address indicated below. 13.2 The relevant addresses for all notices shall be as follows: If to ATLAS : Atlas Petroleum International Limited No. IB Ibiyinka Olorunibe Close Off Ahmodu Ojikuta Street Victoria Island Lagos Nigeria Attention: Alhaji Ndanusa Telephone No.: (234)(1)615296 Facsimile No.: (234)(1)615689 If to SUMMIT: Summit Partners Management Co. 2200 Ross Avenue, Suite 4300E, LB170 Dallas, Texas 75201 U.S.A. Attention: Don V. Ingram Telephone No.: (214) 220-4300 Facsimile No.: (214) 220-4349 Page 23 of 28 Atlas/SOGW Agr. 8.31.92 20F ARTICLE 14 14.0 CONFIDENTIALITY 14.1 Upon execution of this Agreement, SUMMIT shall be entitled to all data and information developed with respect to the OPL or the License Area. In this regard, ATLAS shall make available to SUMMIT: (a) copies of all decrees, permits, licenses, contracts, agreements and any other documents relating to the OPL or the License Area, including any English translations of the same: (b) all geological and geophysical data, maps, models, interpretations and other technical data relating to the OPL or the License Area; and any work programs and/or budgets relating to the OPL or the License Area which have been submitted to the Government, together any and all correspondence or other communications with Government regarding the same. 14.2 The Parties agree to keep the terms of this Agreement, commercial, contractual and financial information with respect to or pertaining to the OPL or the License Area, as well as all data and information referred to in Article 14.1 (hereinafter referred to as the "Information"), strictly confidential and shall not disclose the information to any third party other than an Affiliate, or its attorneys, or agencies delegated by the Federal Republic of Nigeria, without the prior written consent of the other Party and, when the OPL or applicable Nigerian laws so requires, the Government. 14.3 The obligation of confidentiality in Article 14.2 shall not apply to: (a) Information which becomes available to any Party or its respective Affiliates from a third party as a matter of right without restriction of disclosure; (b) Information which is, or which becomes, part of the public domain; and (c) Information requested by governmental, judicial or financial authorities under the laws, rules or regulations of the United States of America or the Federal Republic of Nigeria. 14.4 Nothing in Article 14.2 shall prevent a Party from disclosing Information to: (a) Employees, Affiliates, consultants, contractors and sub-contractors to the extent required for the efficient conduct of operations on the License Area, provided such Information is disclosed on terms which provide for the Information to be treated as confidential by the recipient and, in the Page 24 of 28 Atlas/SOGW Agr. 8.31.92 20F case of disclosures to consultants, contractors and sub-contractors, the Party making disclosure obtains form such individuals or entities prior to making disclosure a written confidentiality undertaking no less restrictive than the obligation of the disclosing Party under Article 14.1; (b) Any bank or financial institution from which a Party may seek financing, after receiving from it a confidentiality agreement; and (c) Any recognized stock exchange upon whicl1 the shares of the disclosing Party, or an Affiliate, are listed, provided that the Party is required to reveal such Information by applicable Jaw or regulation, and to shareholders to the extent a Party must disclose Information in an annual or periodic report. ARTICLE 15 15.0 MISCELLANEOUS 15.1 The captions and headings for the Articles of this Agreement are made for convenience only and shall not be interpreted or construed so as to limit or in any way or change the substantive provisions of any part of this Agreement. 15.2 None of the rights, requirements or provisions of this Agreement shall be deemed to have been waived by any Party by reason of such Party's failure to enforce any right or remedy granted it hereunder or to take advantage of any default, and each Party shall at all times hereunder have the right to require the strict compliance of the other Parties to the provisions of this Agreement. 15.3 Except as otherwise provided herein, this Agreement constitutes the entire understanding of the Parties with respect to the subject matter hereof and supersedes all prior negotiations and agreements, whether oral or written, of the Parties. 15.4 The Parties acknowledge that SUMMIT is subject to the laws of the United States of America and the Parties agree to use their best efforts to ensure that no actions under this Agreement or the Operating Agreement shall be taken or permittes which are in contravention of such laws. 15.5 Each Party shall do all such further acts and execute and deliver all such further documents, as shall be reasonably required, in order to fully perform and carry out this Agreement. Page 25 of 28 Atlas/SOGW Agr. 8.31.92 20F 15.6 This Agreement shall inure to the benefit of, shall bind, and shall be enforceable by and against each Party and its respective successors and assigns. 15.7 Each of the Parties represents and warrants to the other that it has not made any arrangement or in any way incurred any liability for a finder's fee or any other remuneration to a broker, finder or agent whereby the other Party hereto might become liable for any such fee or other remuneration, and if any such fee or any remuneration becomes payable by any Party hereto as a result of any arrangements made by the other Party, the Party which has made such arrangement agrees to protect, defend, indemnify and hold hann1ess the other Party hereto to the full extent of such liability. IN WITNESS WHEREOF, the duly authorized representatives of the Parties hereto have executed this Agreement in triplicate originals on the day, month and year first written above. SUMMIT PARTNERS MANAGEMENT CO. By: Don V. Ingram, President By: Scott C. Larsen, Senior Vice President ATLAS PETROLEUM INTERNATIONAL LIMITED By: Prince Arthur Eze, Chairman By: Alhaji Ndanusa, Vice Chairman Page 26 of 28 Atlas/SOGW Agr. 8.31.92 20F Exhibit "A" [copy of letter dated March 27, 1991 from the Nigerian Minister of Petroleum Resources to The Group Chairman, Atlas Petroleum Int. Ltd. Re : Grant of Oil Prospecting License: Authorization to Commence Operation in OPL 75] Page 27 of 28 Atlas/SOGW Agr. 8.31.92 20F EXHIBIT "B" ASSIGNMENT FOR GOOD AND VALUABLE CONSIDERATION, ATLAS PETROLEUM INTERNATIONAL LIMITED, being a corporation organized and existing under the laws of the Federal Republic of Nigeria ("ATLAS"), hereby assigns to SUMMIT PARTNERS MANAGEMENT CO., a corporation organized and existing under the laws of the State of Texas ("SUMMIT"), an undivided thirty percent (30% ) interest in and to the rights, privileges, benefits, duties, burdens and obligations in and under Oil Prospecting License 75, dated March 27, 1991, hereinafter the "OPL ". After Government approval of this Assignment, the parties to the OPL and their interests shall be as follows:
COMPANY PARTICIPATING INTEREST - ------- ---------------------- SUMMIT 30% ATLAS 70%
This Assignment shall become effective as of the date signed, subject to the written consent and approval of the Minister of Petroleum and Mineral Resources. IN WITNESS WHEREOF, the parties have executed this Assignment on this 17th day of July, 1992, but effective as of the date set forth above. SUMMIT PARTNERS MANAGEMENT CO. By: By: ----------------------------- ----------------------------- Don V. Ingram, President Scott C. Larsen, Senior Vice President ATLAS PETROLEUM INTERNATIONAL LIMITED By: By: ----------------------------- ----------------------------- Prince Arthur Eze, Chairman Alhaji Ndanusa, Vice Chairman APPROVED on this day of 1992. By: ---------------------------- Title: ---------------------------- Page 28 of 28 Atlas/SOGW Agr. 8.31.92 20F EX-3.14 26 a2026270zex-3_14.txt EXHIBIT 3.14 OPERATING AGREEMENT THIS AGREEMENT is made as of the Effective Date among Alliance Egyptian National Exploration Company, a company incorporated in the Cayman Islands (hereinafter referred to as Alliance); and GHP Exploration (Egypt), Ltd., a company incorporated in Bermuda (hereinafter referred to as GHP). The companies named above may sometimes individually be referred to as "Party" and collectively as "Parties". WITNESSETH: WHEREAS, the Parties have entered into or have been assigned rights in and to the Concession Agreement with Government and the EGPC covering the Concession Area; and WHEREAS, the Parties desire to define their respective rights and obligations with respect to their operations under the Concession Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements and obligations set out below and to be performed, the Parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following words and terms shall have the meaning ascribed to them below: "ACCOUNTING PROCEDURE" means the rules, provisions and conditions set forth and contained in Exhibit A to this Agreement. "AFE" means an authorization for expenditure pursuant to Article 6.6. "AFFILIATE" means a company, partnership or other legal entity which controls, or is controlled by, or which is controlled by an entity which controls, a Party. Control means the ownership directly or indirectly of fifty (50) percent or more of the voting rights in a company, partnership or legal entity. "AGREED INTEREST RATE" means interest compounded on a monthly basis, at the rate per annum equal to the one (1) month term, London Interbank Offered Rate (LIBOR rate) for U.S. dollar deposits, as published by THE WALL STREET JOURNAL or if not published, then by the FINANCIAL TIMES OF LONDON, plus two (2%) percentage points, applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding calendar month. If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law. "AGREEMENT" means this agreement, together with the Exhibits attached to this agreement, and any extension, renewal or amendment hereof agreed to in writing by the Parties. "APPRAISAL WELL" means any well (other than an Exploration Well or a Development Well) whose purpose at the time of commencement of drilling such well is to appraise the extent or the volume of Hydrocarbon reserves contained in an existing Discovery. "BARREL" means a quantity consisting of forty-two (42) United States gallons, corrected to a temperature of sixty (60) degrees Fahrenheit under one (1) atmosphere of pressure. Alliance Operating Agreement - 20F - -2- "BOARD OF DIRECTORS" means the Board of Directors of the Operating Company and "Director" means a member of the Board of Directors. "BUSINESS DAY" means a day on which the banks in Calgary, Alberta and Houston, Texas are customarily open for business. "CALENDAR QUARTER" means a period of three (3) months commencing with January 1and ending on the following March 31, a period of three (3) months commencing with April 1and ending on the following June 30, a period of three (3) months commencing with July 1 and ending on the following September 30, or a period of three (3) months commencing with October 1 and ending on the following December 31 according to the Gregorian Calendar. "CALENDAR YEAR" means a period of twelve (12) months commencing with January 1 and ending on the following December 31 according to the Gregorian Calendar. "CASH PREMIUM" means the payment made pursuant to Article 7.5(B) by a Non-Consenting party to reinstate its rights to participate in an Exclusive Operation. "COMMERCIAL DISCOVERY" means any discovery of Hydrocarbons which in the opinion of the Operating Committee (or the Consenting Parties pursuant to Article 7.2) would warrant the development of the Hydrocarbons bearing reservoir, having regard to recoverable reserves, production, pipeline and terminal facilities, estimated petroleum prices and al other relevant technical and economic factors is sufficient to entitle the Parties to apply for authorization from the Government to commence exploitation. "COMPLETION" means an operation intended to complete a well through the Christmas tree as a producer of Hydrocarbons in one or more Zones, including, but not limited to, the setting of production casing, perforating, stimulating the well and production Testing conducted in such operation. Complete and other derivatives shall be construed accordingly. "CONCESSION AGREEMENT" means the instrument concluded between the Government, EGPC and National Exploration Company, ratified by the Government on September 22, 1997 and any extension, renewal or amendment thereof agreed to in writing by the Parties and those laws, statutes, rules and regulations with respect to the exploration, development and production of Hydrocarbons that govern such instrument or are incorporated by the terms of such instrument. "CONCESSION AREA" means as of the Effective Date the surface area which is described in Annex "A" to the Concession Agreement. The perimeter or perimeters of the Concession Area shall correspond to that area covered by the Concession Agreement, as such area may vary from time to time during the term of validity of the Concession Agreement. "CONSENTING PARTY" means a Party who agrees to participate in and pay its share of the cost of an Exclusive Operation. "CONTRACTOR" shall have the meaning ascribed to that term in the Concession Agreement. "COST OIL" means that portion of the total production of Hydrocarbons which is allocated to the Parties under the Concession Agreement for the recovery of Petroleum Costs and referred to and defined as "Cost Recovery Petroleum" in the Concession Agreement. "DAY" means a calendar day unless otherwise specifically provided. "DEFAULT NOTICE" shall have the meaning ascribed in Article 8.1. Alliance Operating Agreement - 20F - -3- "DEFAULTING PARTY" shall have the meaning ascribed in Article 8.1. "DEEPENING" means an operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled, or below the deepest Zone proposed in the associated AFE, whichever is the deeper. DEEPEN and other derivatives shall be construed accordingly. "DEVELOPMENT BLOCK" shall have the meaning ascribed to that term in the Concession Agreement. "DEVELOPMENT LEASE" shall have the meaning ascribed to that term in the Concession Agreement. "DEVELOPMENT PERIOD" shall have the meaning given to that term in the Concession Agreement. "DEVELOPMENT PLAN" means a plan for the development of Hydrocarbons from a Development Lease. "DEVELOPMENT WELL" means any well drilled in the Contract Area pursuant to a Development Plan. "DISCOVERY" means the discovery of an accumulation of Hydrocarbons whose existence until that moment was unproven by drilling. "EFFECTIVE DATE" means the date this Agreement comes into effect as stated in Article II. "EGPC" means The Egyptian General Petroleum Corporation. "ENTITLEMENT" means a quantity of Hydrocarbons of which a Party has the right and obligation to take delivery of, pursuant to the Concession Agreement or, if applicable, an offtake agreement, and the terms of this Agreement, which, subject to the terms of the Participation Agreement, shall be derived in proportion to that Party's Participating Interest in the Hydrocarbons produced, after adjustment for overlift and underlifts. "EXCESS COST OIL" shall have the meaning given to "Excess Cost Recovery Oil" in the Concession Agreement. "EXCLUSIVE OPERATION" means those operations and activities carried out pursuant to this Agreement, the costs of which are chargeable to the account of less than all the Parties. "EXCLUSIVE WELL" means a well drilled pursuant to an Exclusive Operation. "EXPLORATION ADVISORY COMMITTEE" means the committee of that name provided for in the Concession Agreement. "EXPLORATION PERIOD" means any and all periods of exploration set out in the Concession Agreement. "EXPLORATION SUB-PERIOD" means one of the periods for exploration set out in the Concession Agreement. "EXPLORATION WELL" means any well whose purpose at the time of the commencement of drilling is to explore for an accumulation of Hydrocarbons whose existence was at that time unproven by drilling. "FINANCIAL YEAR" shall have the meaning given to that term in the Concession Agreement. "G&G DATA" means only geological, geophysical and geochemical data and other similar information that is not obtained through a well bore. Alliance Operating Agreement - 20F - -4- "GOVERNMENT" means the government of The Arab Republic of Egypt and any political subdivision or agency or instrumentality thereof, including without limitation EGPC. "GROSS NEGLIGENCE" means any act or failure to act (whether sole, joint or concurrent) by any person or entity which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such person or entity knew, or should have known, such act or failure would have on the safety or property of another person or entity. "HYDROCARBONS" means all substances including liquid and gaseous hydrocarbons which are subject to and covered by the Concession Agreement. "INITIAL EXPLORATION PERIOD" shall have the meaning given to that term in the Concession Agreement. "JOINT ACCOUNT" means the accounts maintained by Operator in accordance with the provisions of this Agreement and of the Accounting Procedure for Joint Operations. "JOINT OPERATIONS" means those operations and activities carried out by Operator pursuant to this Agreement and the Concession Agreement, including "Exploration" and "Development", as those terms are defined in the Concession Agreement, the costs of which are chargeable to all Parties. "JOINT PROPERTY" means, at any point in time, all wells, facilities, equipment, materials, information, funds and the property held for use in Joint Operations. "MANDATORY APPRAISAL WELL" means an Appraisal Well which, unless otherwise agreed to by EGPC, is required pursuant to the terms of the Concession to be drilled before notice of a Commercial Discovery may be given, provided this shall not include any such well which would qualify as an obligatory well under the Minimum Work Obligations for the then current Exploration Sub-Period. "MINIMUM WORK OBLIGATIONS" means those work and/or expenditure obligations specified in Article IV of the Concession Agreement. "NON-CONSENTING PARTY" means a Party who elects not to participate in an Exclusive Operation. "Non-Operator(s)" means the Party or Parties to this Agreement other than Operator. "OPERATING COMMITTEE" means the committee constituted in accordance with Article V. "OPERATING COMPANY" means the company to be created to conduct operations under the Concession after a Commercial Discovery. "OPERATOR" means a Party to this Agreement designated as such in accordance with this Agreement. "PARTICIPATING INTEREST" means the undivided percentage interest of each Party in the rights and obligations derived from the Concession Agreement and this Agreement. "PARTICIPATION AGREEMENT" means the Participation Agreement between Alliance and GHP dated March 27, 1998 and any amendments and revisions thereto. Alliance Operating Agreement - 20F "PARTY OR PARTIES" means any or all of the entities named in the first paragraph to this Agreement and any respective permitted successors or assigns. "PETROLEUM COSTS" means costs and expenses incurred by the Parties and allowed to be recovered pursuant to the Concession Agreement. Alliance Operating Agreement - 20F - -5- "PLUGGING BACK" means a single operation whereby a deeper Zone is abandoned in order to attempt a Completion in a shallower Zone. Plug Back and other derivatives shall be construed accordingly. "PRODUCTION BONUS" means a bonus payable by the Parties under Article IX of the Concession Agreement. "PROFIT OIL" means that portion of the total production of Hydrocarbons, in excess of Cost Oil, which is allocated to the Parties under the terms of the Concession Agreement and includes the Parties' share of Excess Cost Oil contemplated in the Concession Agreement. "RECOMPLETION" means an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in a different Zone within the existing wellbore. RECOMPLETE and other derivatives shall be construed accordingly. "REWORKING" means an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations, but exclude any routine repair or maintenance work, or drilling, Sidetracking, Deepening, Completing, Recompleting. or Plugging Back of a well. REWORK and other derivatives shall be construed accordingly. "SIDETRACKING" means the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless done to straighten the hole or to drill around junk in the hole or to overcome other mechanical difficulties. SIDETRACK and other derivatives shall be construed accordingly. "TESTING" means an operation intended to evaluate the capacity of a Zone to produce Hydrocarbons. TEST and other derivatives shall be construed accordingly. "WORK PROGRAM AND BUDGET" means a work program for Joint Operations and budget therefor as described and approved in accordance with Article VI. "ZONE" means a stratum of earth containing or thought to contain an accumulation of Hydrocarbons separately producible from any other accumulation of Hydrocarbons. ARTICLE II EFFECTIVE DATE AND TERM This Agreement shall have effect from January 1, 1999 and shall continue in effect until the Concession Agreement terminates and all materials, equipment and personal property used in connection with the Joint Operations have been removed and disposed of, and final settlement has been made among the Parties. Notwithstanding the preceding sentence: (A) Article X shall remain in effect until all wells have been properly abandoned; and (B) Article 4.5 and Article XVIII shall remain in effect until all obligations, claims, arbitrations and lawsuits have been settled or otherwise resolved; and (C) Article XV shall remain in effect until the time relating to the protection of confidential information and proprietary technology has expired. Alliance Operating Agreement - 20F - -6- ARTICLE III SCOPE 3.1 SCOPE (A) The purpose of this Agreement is to establish the respective rights and obligations of the Parties with regard to operations under the Concession Agreement, including without limitation the joint exploration, appraisal, development and production of Hydrocarbon reserves from the Concession Area. (B) Without limiting the generality of Article 3.1(A), the following activities are outside of the scope of this Agreement and are not addressed herein: (1) Construction, operation, maintenance, repair and removal of facilities downstream from the point of delivery of the Parties' shares of Hydrocarbons under the offtake agreement provided for in Article 9.2; (2) Transportation of Hydrocarbons beyond the point of delivery of the Parties' shares of Hydrocarbons under the offtake agreement provided for in Article 9.2; (3) Marketing and sales of Hydrocarbons, except as expressly provided in Articles 7.11(E) and 8.4 and in Article IX; (4) Acquisition of rights to explore for, appraise, develop or produce Hydrocarbons outside of the Concession Area (other than as a consequence of unitization with an adjoining Concession Area under the terms of the Concession Agreement); and (5) Exploration, appraisal, development or production of minerals other than Hydrocarbons, whether inside or outside of the Concession Area. 3.2 PARTICIPATING INTEREST (A) The Participating Interests of the Parties as of the Effective Date are: Alliance 75% GHP 25% (B) If a Party transfers all or part of its Participating Interest pursuant to the provisions of this Agreement and the Concession Agreement, the Participating Interests of the Parties shall be revised accordingly. 3.3 OWNERSHIP, OBLIGATIONS AND LIABILITIES (A) Unless otherwise provided in this Agreement or the Participation Agreement, all the rights and interests in and under the Concession Agreement, all Joint Property and any Hydrocarbons produced from the Concession Area shall, subject to the terms of the Concession Agreement, be owned by the Parties in accordance with their respective Participating Interests. (B) Unless otherwise provided in this Agreement or the Participation Agreement, the obligations of the Parties under the Concession Agreement and all liabilities and expenses incurred by Operator in connection with Joint Operations shall be charged to the Joint Account and all credits to the Joint Account shall be shared by the Parties, as among themselves, in accordance with their respective Participating Interests. Alliance Operating Agreement - 20F - -7- (C) Each Party shall pay when due, in accordance with the Accounting Procedure, its Participating Interest share of Joint Account expenses, including cash advances and interest, accrued pursuant to this Agreement and the Participation Agreement. The Parties agree that time is of the essence for payments owing under this Agreement. A Party's payment of any charge under this Agreement shall be without prejudice to its right to later contest the charge. ARTICLE IV OPERATOR 4.1 DESIGNATION OF OPERATOR Alliance is designated as Operator, and agrees to act as such. 4.2 RIGHTS AND DUTIES OF OPERATOR (A) Subject to the terms and conditions of this Agreement, Operator shall have all of the rights, functions and duties of the Contractor in respect of the conduct of Joint Operations under the Concession Agreement and shall have exclusive charge of and shall conduct all Joint Operations. Operator may employ independent contractors and/or agents (which may include Affiliates of Operator) in such Joint Operations. (B) In the conduct of Joint Operations Operator shall: (1) perform Joint Operations in accordance with the provisions of the Concession Agreement, this Agreement and the instructions of the Operating Committee not in conflict with this Agreement and in compliance with applicable laws, rules, regulations and decrees of the Arab Republic of Egypt.; (2) conduct all Joint Operations in a diligent, safe and efficient manner in accordance with good and prudent oil field practices and conservation principles generally followed by the international petroleum industry under similar circumstances; (3) subject to Article 4.6 and the Accounting Procedure, neither gain a profit nor suffer a loss as a result of being the Operator in its conduct of Joint Operations, provided that Operator may rely upon Operating Committee approval of specific accounting practices not in conflict with the Accounting Procedure; (4) perform the duties for the Operating Committee set out in Article V, and prepare and submit to the Operating Committee the proposed Work Programs, and Budget and AFE's as provided in Article VI; (5) acquire all permits, consents, approvals, surface or other rights that may be required for or in connection with the conduct of Joint Operations; (6) upon receipt of reasonable advance notice, permit the representatives of any of the Parties to have at all reasonable times and at their own risk and expense reasonable access to the Joint Operations with the right to observe all such Joint Operations and to inspect all Joint Property and to conduct financial audits as provided in the Accounting Procedure; Alliance Operating Agreement - 20F - -8- (7) maintain the Concession Agreement in full force and effect. Operator shall promptly pay and discharge all liabilities and expenses incurred in connection with Joint Operations and use its reasonable efforts to keep and maintain the Joint Property free from all liens, charges and encumbrances arising out of Joint Operations; (8) pay to the Government for the Joint Account, within the periods and in the manner prescribed by the Concession Agreement and all applicable laws and regulations, all periodic payments, royalties, taxes, fees and other payments pertaining to Joint Operations, but excluding any taxes measured by the incomes of the Parties; (9) carry out the obligations of Contractor pursuant to the Concession Agreement, including, but not limited to, preparing and furnishing such reports, records and information as may be required pursuant to the Concession Agreement; (10) have, in accordance with the decisions of the Operating Committee, Article 5.14 and Article 6.3(B), the exclusive right and obligation to represent the Parties in all dealings with the Government with respect to matters arising under the Concession Agreement and Joint Operations. Operator shall notify the other Parties as soon as possible of such meetings. Non-Operators shall have the right to attend such meetings but only in the capacity of observers. Nothing contained in this Agreement shall restrict any Party from holding discussions with the Government with respect to any issue peculiar to its particular business interests arising under the Concession Agreement or this Agreement, but in such event such Party shall promptly advise the Parties, if possible, before and in any event promptly after such discussions, provided that such Party shall not be required to divulge to the other Parties any matters discussed to the extent the same involve proprietary information or matters not affecting the other Parties; and (11) take all necessary and proper measures for the protection of life, health, the environment and property in the case of an emergency; provided, however, that Operator shall immediately notify the Parties of the details of such emergency and measures. (12) Include, to the extent practical, in its agreements with independent contractors to the extent lawful, provisions which: (a) establish that such contractors can only enforce their agreements against Operator; (b) permit operator, on behalf of itself and Non-Operators, to enforce contractual indemnities against, and recover losses and damages suffered by them (insofar as recovered under their contracts) from, such contractors; and (c) require such contractors to take insurance required by Article 4.8(F). 4.3 TECHNICAL ADVISOR (A) The Parties designate GHP to assume the role of Technical Advisor under this Agreement and GHP agrees to accept and perform the responsibilities and duties associated therewith. (B) The Technical Advisor will have the general responsibility of providing, by itself or through Affiliates, geological and geophysical technical expertise necessary or appropriate for the conduct of Joint Operations on the Concession Area. Alliance Operating Agreement - 20F - -9- (C) Without limiting the generality of the foregoing, the Technical Advisor shall: (1) Perform its duties in accordance with the provisions of this Agreement and the instructions of the Operating Committee; (2) Conduct its duties and responsibilities in a diligent, safe and efficient manner in accordance with good and prudent oil field practices generally followed by the international petroleum industry under similar circumstances; (3) Prepare and submit to the Operating Committee, in a timely manner, proposals for the Work Program and Budget pertaining to its work; and (4) Consult with Operator on a regular basis for the purpose of reviewing and scheduling the activities being carried out under this Agreement. (D) The Technical Advisor shall charge the Joint Account for the costs of providing the services described in this Article 4.3. GHP shall charge a rate of one hundred U.S. dollars (U. S. $100.00) per hour to cover the salaries, wages and related daily office expenses of any of its professional employees performing any duties of Technical Advisor as described in Article 4.3 (C) above. The hourly rate does not include extraordinary costs and expenses incurred by GHP in performing its role as Technical Advisor. (E) Costs incurred hereunder by Technical Advisor shall be billed to the Operator, on a monthly basis. Operator shall reimburse Technical Advisor for such costs and charge the Joint Account. 4.4 EMPLOYEES OF OPERATOR Subject to the provisions of the Concession Agreement and this Agreement, Operator shall determine the number of employees, the selection of such employees, the hours of work and the compensation to be paid all such employees in connection with Joint Operations. Operator shall employ only such employees, agents and contractors as are reasonably necessary to conduct Joint Operations. 4.5 INFORMATION SUPPLIED BY OPERATOR (A) Operator shall provide Non-Operators the following data and reports as they are currently produced or compiled from the Joint Operations: (1) copies of all logs or surveys; (2) daily drilling progress reports; (3) advance notice of logging, coring and testing operations; (4) copies of all Tests and core analysis reports; (5) copies of the plugging reports; (6) copies of the final geological and geophysical maps and reports; (7) engineering studies, development schedules and annual progress reports on development projects; (8) field and well performance reports, including reservoir studies and reserve estimates; Alliance Operating Agreement - 20F - -10 - (9) copies of all reports relating to Joint Operations furnished by Operator to the Government, except magnetic tapes which shall be stored by Operator and made available for inspection and/or copying at the sole expense of the Non-Operator requesting same; (10) other reports as frequently as is justified by the activities or as instructed by the Operating Committee; and (11) subject to Article 15.3, such additional information for Non-Operators as they or any of them may request, provided that the requesting party or Parties pay the costs of preparation of such information and that the preparation of such information will not unduly burden Operator's administrative and technical personnel. Only Non-Operators who pay such costs shall receive such additional information. (B) Operator shall give Non-Operators access at all reasonable times to all other data acquired in the conduct of Joint Operations. Any Non-Operator may make copies of such other data at its sole expense. 4.6 Settlement of Claims and Lawsuits (A) Operator shall promptly notify the Parties of any and all material claims or suits and such other claims and suits as the Operating Committee may direct which arise out of Joint Operations or relate in any way to Joint Operations. Operator shall represent the Parties and defend or oppose the claim or suit. Operator may in its sole discretion compromise or settle any such claim or suit or any related series of claims or suits for an amount not to exceed the equivalent of U.S. dollars fifty thousand (U.S. $50,000) exclusive of legal fees. Operator shall obtain the approval and direction of the Operating Committee on amounts in excess of the above stated amount. Each Non-Operator shall have the right to be represented by its own counsel at its own expense in the settlement, compromise or defense of such claims or suits. (B) Any Non-Operator shall promptly notify the other Parties of any claim made against such Non-Operator by a third party which arises out of or may affect the Joint Operations, and such Non-Operator shall defend or settle the same in accordance with any directions given by the Operating Committee. Those costs, expenses and damages incurred pursuant to such defense or settlement which are attributable to Joint Operations shall be for the Joint Account. (C) Not-withstanding Article 4.6(A) and Article 4.6(B), each Party shall have the right to participate in any such suit, prosecution, defense or settlement conducted in accordance with Article 4.6(A) and Article 4.6(B) at its sole cost and expense; provided a1ways that no Party may settle its Participating Interest share of any claim without first satisfying the Operating Committee that it can do so without prejudicing the interests of the Joint Operations or the other Parties. 4.6 Limitation on Liability of Operator (A) Except as set out in this Article 4.7, neither the Party designated as Operator nor the Technical Advisor nor any other indemnitee (as defined below) shall bear (except as a party to the extent of its Participating Interest share) any damage, loss, cost, expense or liability resulting from performing (or failing to perform) the duties and functions of the Operator or the Technical Advisor, and the indemnitees are hereby released from liability to Non-Operators for any and all damages, losses, costs, expenses and liabilities arising out of, incident to or resulting from such performance or failure to perform, even though caused in whole or in part by a pre-existing defect, the negligence (whether sole, joint or concurrent), Gross Negligence, strict liability or other legal fault of Operator (or any such indemnitee). Alliance Operating Agreement - 20F - -11- (B) except as set out in this Article 4.7, the parties shall in proportion to their Participating Interests defend and indemnify Operator and its Affiliates, and the officers and directors of both (collectively, the "indemnitees"), from any and all damages, losses, costs, expenses (including reasonable legal costs. expenses and attorneys' fees) and liabilities incident to claims, demands or causes of action brought by or on behalf of any person or entity, which claims, demands or causes of action arise out of, are incident to or result from Joint Operations, even though caused in whole or in part by a pre-existing defect, the negligence (whether sole, joint or concurrent), Gross Negligence, strict liability or other legal fault of Operator or the Technical Advisor (or any such indemnitee) as the case may be. (C) Nothing in this Article 4.7 shall be deemed to relieve the Party designated as Operator or designated as Technical Advisor from its Participating Interest share of any damage, loss, cost, expense or liability arising out of, incident to or resulting from Joint Operations. 4.8 INSURANCE OBTAINED BY OPERATOR (A) Operator shall procure and maintain or cause to be procured and maintained for the Joint Account all insurance in the types and amounts required by the Concession Agreement and applicable laws, rules and regulations and as provided in Exhibit B. (B) Operator shall obtain such further insurance, at competitive rates, as the Operating Committee may from time to time require. (C) Any Party may elect not to participate in the insurance to be procured under Article 4.8(B) provided such Party: (1) gives prompt notice to that effect to Operator; (2) does nothing which may interfere with Operator's negotiations for such insurance for the other Parties; and (3) obtains and maintains such insurance (in respect of which an annual certificate of adequate coverage from a reputable insurance broker shall be sufficient evidence) or other evidence of financial responsibility which fully covers its Participating Interest share of the risks that would be covered by the insurance procured under Article 4.8(B), and which the Operating Committee may determine to be acceptable. No such determination of acceptability shall in any way absolve a non-participating Party from its obligation to meet each cash call including any cash call in respect of damages and losses and/or the costs of remedying the same in accordance with the terms of this Agreement. If such Party obtains other insurance, such insurance shall contain a waiver of subrogation in favor of all the other Parties, the Operator and their insurers but only in respect of their interests under this Agreement and the Concession Agreement. (D) The cost of insurance in which all the Parties are participating shall be for the Joint Account and the cost of insurance in which less than all the Parties are participating shall be charged to the Parties participating in proportion to their respective Participating Interests. (E) Operator shall, in respect of all insurance obtained pursuant to this Article 4.8: Alliance Operating Agreement - 20F - -12- (1) promptly inform the participating Parties when such insurance is obtained and supply them with certificates of insurance or copies of the relevant policies when the same are issued; (2) arrange for the participating Parties, according to their respective Participating Interests, to be named as co-insureds on the relevant policies with waivers of subrogation in favor of all the Parties; and (3) duly file all claims and take all necessary and proper steps to collect any proceeds and credit any proceeds to the participating Parties in proportion to their respective Participating Interests. (F) Operator shall use its reasonable efforts to require all contractors performing work in respect of Joint Operations to obtain and maintain any and all insurance in the types and amounts required by any applicable laws, rules and regulations or any decision of the Operating Committee and shall use its reasonable efforts to require a11 such contractors to name the Parties as additional insureds on such contractors' insurance policies or to obtain from their insurers waivers of all rights of recourse against Operator, Non-Operators and their insurers. 4.9 COMMINGLING OF FUNDS Operator may not commingle the Operator's own funds the monies which Operator receives from or for the Joint Account pursuant to this Agreement. Such monies shall be applied only to their intended use and shall not be deemed to be funds belonging to Operator. Operator shall maintain a separate bank account solely for purposes on funds received in relation to the Joint Account pursuant to this Agreement and the Concession Agreement. 4.10 RESIGNATION OF OPERATOR Subject to Article 4.12, Operator may resign as Operator at any time by so notifying the other Parties at least one hundred and twenty (120) Days prior to the effective date of such resignation. 4.11 REMOVAL OF OPERATOR (A) Subject to Article 4.12, Operator sha11 be removed upon receipt of notice from any Non-Operator if: (1) an order is made by a court or an effective resolution is passed for the reorganization under any bankruptcy law, dissolution, liquidation, or winding up of Operator; (2) operator dissolves, liquidates, is wound up, or otherwise terminates its existence; (3) operator becomes insolvent, bankrupt or makes an assignment for the benefit of creditors; or (4) a receiver is appointed for a substantial part of Operator's assets. (B) Subject to Article 4.12, Operator may be removed by the decision of the Non-Operators if Operator has committed a material breach of this Agreement and has either failed to commence to cure that breach within thirty (30) Days of receipt of a notice from Non-Operators detailing the alleged breach or failed to diligently pursue the cure to completion. Any decision of Non-Operators to give notice of breach to Operator or to remove Operator under this Article 4.11(B) shall be made by an affirmative vote of Non-Operators holding a combined Participating Interest of at least twenty five percent (25%). Alliance Operating Agreement - 20F - -13- (B) If Operator together with any Affiliate of Operator is or becomes the holder of a Participating Interest of less than twenty five percent (25%) then Operator shall be required to promptly notify the other Parties. The Operating Committee shall then vote within fifteen (15) Days of such notification on whether or not a successor Operator should be named pursuant to Article 4.12. 4.12 APPOINTMENT OF SUCCESSOR When a change of Operator occurs pursuant to Article 4.10 or Article 4.11: (A) The Operating Committee shall meet as soon as possible to appoint a successor Operator pursuant to the voting procedure of Article 5.9. However, no party may be appointed successor Operator against its will. (B) If the Operator disputes commission of or failure to rectify a material breach alleged pursuant to Article 4.11(B) and proceedings are initiated pursuant to Article XVIII, no successor Operator may be appointed pending the conclusion or abandonment of such proceedings, subject to the terms of Article 8.3 with respect to Operator's breach of its payment obligations. (C) If an Operator is removed, other than in the case of Article 4.11(C), neither Operator nor any Affiliate of Operator shall have the right to vote for itself on the appointment of a successor Operator, nor be considered as a candidate for the successor Operator. (D) A resigning or removed Operator shall be compensated out of the Joint Account for its reasonable expenses directly related to its resignation or removal, except in the case of Article 4.11(B). (E) The resigning or removed Operator and the successor Operator shall arrange for the taking of an inventory of all Joint Property and Hydrocarbons, and an audit of the books and records of the removed Operator. Such inventory and audit shall be completed, if possible, no later than the effective date of the change of Operator and shall be subject to the approval of the Operating Committee. The liabilities and expenses of such inventory and audit shall be charged to the Joint Account. (F) The resignation or removal of Operator and its replacement by the successor Operator shall not become effective prior to receipt of any necessary Government approvals. (G) Upon the effective date of the resignation or removal, the successor Operator shall succeed to all duties, rights and authority prescribed for Operator. The former Operator shall transfer to the successor Operator custody of all Joint Property, books of account. records and other documents maintained by Operator pertaining to the Concession Area and to Joint Operations. Upon delivery of the above-described property and data, the former Operator shall be released and discharged from all obligations and liabilities as Operator accruing after such date. ARTICLE V OPERATING COMMITTEE 5.1 ESTABLISHMENT OF OPERATING COMMITTEE To provide for the overall supervision and direction of Joint Operations, there is established an Operating Committee composed of representatives of each Party holding a Participating Interest. Each Party shall appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee. Each Party shall as soon as possible after the date of this Agreement give notice in writing to the other Parties of the name and address of its representative and alternate representative to serve on the Operating Committee. Each Party shall have the right to change its representative and alternate at any time by giving notice to such effect to the other Parties. Alliance Operating Agreement - 20F - -14- 5.2 POWERS AND DUTIES OF OPERATING COMMITTEE The Operating Committee shall have power and duty to authorize and supervise Joint Operations that are necessary or desirable to fulfill the Concession Agreement and properly explore and exploit the Concession Area in accordance with this Agreement and in a manner appropriate in the circumstances. 5.3 AUTHORITY TO VOTE Subject to Article 8.2, the representative of a Party, or in his absence his alternate representative, shall be authorized to represent and bind such Party with respect to any matter which is within the powers of the Operating Committee and is properly brought before the Operating Committee. Each such representative shall have a vote equal to the Participating Interest of the Party such person represents. Each alternate representative shall be entitled to attend all Operating Committee meetings but shall have no vote at such meetings except in the absence of the representative for whom he is the alternate. In addition to the representative and alternate representative, each Party may also bring to any Operating Committee meetings such technical and other advisors as it may deem appropriate. 5.4 SUBCOMMITTEES The Operating Committee may establish such subcommittees, including technical subcommittees, as the Operating Committee may deem appropriate. The functions of such subcommittees shall be in an advisory capacity or as otherwise determined unanimously by the Parties. 5.5 NOTICE OF MEETING (A) Operator may call a meeting of the Operating Committee by giving notice to the Parties at least fifteen (15) Days in advance of such meeting. (B) Any Non-Operator may request a meeting of the Operating Committee by giving notice to all the other Parties. Upon receiving such request, Operator shall call such meeting for a date not less than fifteen (15) Days nor more than twenty (20) Days after receipt of the request. (C) The notice periods above may only be waived with the unanimous consent of all the Parties. 5.6 CONTENTS OF MEETING NOTICE (A) Each notice of a meeting of the Operating Committee as provided by Operator shall contain: (1) the date, time and location of the meeting; and (2) an agenda of the matters and proposals to be considered and/or voted upon. (B) A Party, by notice to the other Parties given not less than seven (7) Days prior to a meeting, may add additional matters to the agenda for a meeting. (C) On the request of a Party, and with the unanimous consent of all Parties, the Operating Committee may consider at a meeting a proposal not contained in such meeting agenda. Alliance Operating Agreement - 20F - -15- 5.7 LOCATION OF MEETINGS All meetings of the Operating Committee shall be held in Dallas, Texas, or elsewhere as may be decided by the Operating Committee. 5.8 OPERATOR'S DUTIES FOR MEETINGS (A) With respect to meetings of the Operating Committee and any subcommittee, Operator's duties shall include, but not be limited to: (1) timely preparation and distribution of the agenda, any proposed Work Programs and Budgets; (2) organization and conduct of the meeting; and (3) preparation of a written record or minutes of each meeting. (B) Operator shall have the right to appoint the chairman of the Operating Committee and all subcommittees. 5.9 VOTING PROCEDURE (A) Except as otherwise expressly provided in this Agreement, all decisions, approvals and other actions of the Operating Committee on all proposals coming before it shall be decided by the affirmative vote of two (2) or more Parties which are not Affiliates then having collectively at least sixty percent (60%) of the Participating Interests. (B) During any period during which there are only two (2) Parties to this Agreement, all decisions, approvals and other actions of the Operating Committee on all proposals coming before it shall be decided by the unanimous affirmative vote of the Parties. A failure to reach unanimity on any such matter shall be deemed to be a negative vote. 5.10 RECORD OF VOTES The chairman of the Operating Committee shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at each Operating Committee meeting. Each representative shall sign and be provided a copy of such record at the end of such meeting and it shall be considered the final record of the decisions of the Operating Committee. 5.11 MINUTES The secretary shall provide each Party with a copy of the minutes of the Operating Committee meeting within fifteen (15) Days after the end of the meeting. Each Party shall have fifteen (15) Days after receipt of such minutes to give notice of any comments to the minutes to the secretary. A failure to give notice specifying any comments to such minutes within said fifteen (15) Day period shall be deemed to be approval of such minutes. In any event. the votes recorded under Article 5.10 shall take precedence over the minutes described above. 5.12 VOTING BY NOTICE (A) In lieu of a meeting, any Party may submit any proposal to the Operating Committee for a vote by notice. The proposing Party or Parties shall notify Operator who shall give each representative notice describing the proposal so submitted. Each party shall communicate its vote by notice to the Operator and the other Parties within one of the following appropriate time periods after receipt of Operator's notice: (1) Forty-eight (48) hours in the case of operations which involve the use of a drilling rig that is standing by in the Concession Area. (2) Twenty (20) Days in the case of all other proposals. Alliance Operating Agreement - 20F - -16- (B) Except in the case of Article 5.12(A)(1), any Non-Operator may by notice delivered to all Parties within ten (10) Days of receipt of Operator's notice request that the proposal be decided at a meeting rather than by notice. In such an event, that proposal shall be decided at a meeting duly called for that purpose. (C) Except as provided in Article X, any Party failing to communicate its vote in a timely manner shall be deemed to have voted against such proposal. (D) If a meeting is not requested, then at the expiration of the appropriate time period, Operator shall give each Party a confirmation notice stating the tabulation and results of the vote. 5.13 EFFECT OF VOTE All decisions taken by the Operating Committee pursuant to this Article V, shall be conclusive and binding on all the Parties, except that: (A) If pursuant to this Article V, a Joint Operation, other than an operation to fulfill the Minimum Work Obligations, has been properly proposed to the Operating Committee and the Operating Committee has not approved such proposal in a timely manner, then any Party shall have the right for the appropriate period specified below to propose in accordance with Article VII, an Exclusive Operation involving operations essentially the same as those proposed for such Joint Operation. (1) For proposals involving the use of a drilling rig that is standing by in the Concession Area, such right shall be exercisable for twenty-four (24) hours after the time specified in Article 5.12(A)(1) has expired or after receipt of Operator's notice given pursuant to Article 5.13(D), as applicable. (2) For proposals to develop a Discovery, such right shall be exercisable for ten (10) Days after the date the Operating Committee was required to consider such proposal pursuant to Article 5.6 or Article 5.12. (3) For all other proposals, such right shall be exercisable for five (5) Days after the date the Operating Committee was required to consider such proposal pursuant to Article 5.6 or Article 5.12. (B) If a Party voted against any proposal which was approved by the Operating Committee and which could be conducted as an Exclusive Operation pursuant to Article VII, other than any proposal relating to Minimum Work Obligations, then such party shall have the right not to participate in the operation contemplated by such approval. Any such Party wishing to exercise its right of non-consent must give notice of non-consent to all other Parties within five (5) Days (or within twenty-four (24) hours if the drilling rig to be used in such operation is standing by in the Concession Area) following Operating Committee approval of such proposal. The Parties that were not entitled to give or did not give notice of non-Consent shall be Consenting Parties as to the operation contemplated by the Operating Committee approval, and shall conduct such operation as an Exclusive Operation under Article VII. Any Party that gave notice of non-consent shall be a Non-Consenting Party as to such Exclusive Operation. Alliance Operating Agreement - 20F - -17- (C) If the Consenting Parties to an Exclusive Operation under Article 5.13(A) or Article 5.13(B) concur, then the Operating Committee may, at any time, pursuant to Article V, reconsider its approval, decide or take action on any proposal that the Operating Committee declined to approve earlier, or modify or revoke an earlier approval, decision or action. (D) Once a Joint Operation for the drilling, Deepening. Testing, Sidetracking, Plugging Back, Completing, Recompleting, Reworking or plugging of a well has been approved and commenced, such operation shall not be discontinued without the consent of the Operating Committee; provided. however, that such operation may be discontinued, if: (1) an impenetrable substance or other condition in the hole is encountered which in the reasonable judgment of Operator causes the continuation of such operation to be impractical; or (2) other circumstances occur which in the reasonable judgment of Operator cause the continuation of such operation to be unwarranted [and after notice to the Operating Committee within the period required under Article 5.12(A)(1) the Operating Committee approves discontinuing such operation.] On the occurrence of either of the above, Operator shall promptly notify the Parties that such operation is being discontinued pursuant to the foregoing, and any Party shall have the right to propose in accordance with Article VII an Exclusive Operation to continue such operation. 5.14 REPRESENTATION OF NON-OPERATORS (A) GHP shall have the right to appoint one (1) representative to the Exploration Advisory Committee with the remaining two (2) members appointed by Contractor under the Concession Agreement filled by the Operator. This right is assignable by any of such Parties to any other of such Parties, to an Affiliate of any of such Parties and to a third party permitted assignee. The Operator shall be entitled to appoint a representative to the Exploration Advisory Committee if a Party fails or refuses to appoint its representative or, without prejudice to Article 8.2, if a Party's Participating Interest is transferred pursuant to Article 8.4. (B) Notwithstanding the appointment of a representative to the Exploration Advisory Committee by one or more Non-Operator, and provided that the Operator consults with and considers the input of the representative(s) appointed by the Non-Operator, the Operator shall be the primary spokesman for the Joint Operators on the Exploration Advisory Committee. The respective Party's member to the Exploration Advisory Committee shall fully support and vote in conformity with the decisions and instructions of the Operating Committee with respect to matters brought before the Exploration Advisory Committee, notwithstanding that such decision or instruction may not have been approved unanimously by the Operating Committee. ARTICLE VI WORK PROGRAMS AND BUDGETS 6.1 EXPLORATION AND APPRAISAL (A) The Work Program and Budget for the Initial Exploration Period is attached as Exhibit "C" to this Agreement and is hereby deemed to be approved by each Party upon execution of this Agreement by said Party. Alliance Operating Agreement - 20F - -18- (B) At least sixty (60) days prior to the applicable deadline under Article IV(C) of the Concession Agreement or such other deadline as may be agreed to by EGPC, Operator shall deliver to the Parties a proposed Work Program and Budget detailing the Joint Operations to be performed for the following Financial Year. Within thirty (30) Days of such delivery, the Operating Committee shall meet to consider and to endeavor to agree on a Work Program and Budget. Upon receipt of Operating Committee approval, such Work Program and Budget shall be submitted to the Exploration Advisory Committee as required by the Concession. The Operating Committee shall further meet and consider any revisions to the Work Program and Budget recommended by the Exploration Advisory Committee and make any such revisions as may be agreeable prior to submission to the EGPC. (C) If a Discovery is made, Operator shall deliver any notice of Discovery required under the Concession Agreement and shall as soon as possible submit to the Parties a report containing available details concerning the Discovery and Operator's recommendation as to whether the Discovery merits appraisal. If the Operating Committee determines that the Discovery merits appraisal, Operator within thirty (30) Days, shall deliver to the Parties a proposed Work Program and Budget for the appraisal of the Discovery. Within fifteen (15) Days of such delivery, or earlier if necessary to meet any applicable deadline under the Concession Agreement, the Operating Committee shall meet to consider, modify and then either approve or reject the appraisal Work Program and Budget. If the appraisal Work Program and Budget is approved by the Operating Committee, Operator shall take such steps as may be required under the Concession Agreement to secure approval of the appraisal Work Program and Budget by the Government. In the event the Government requires changes in the appraisal Work Program and Budget, the matter shall be resubmitted to the Operating Committee for further consideration. (D) In addition to the requirements of Article 6.l(C), if a Discovery is made and the drilling of a Mandatory Appraisal Well or Wells is required under the Concession in order to obtain a Development Lease in respect of the Discovery, the Operating Committee shall consider the drilling of the Mandatory Appraisal Well(s). Each of the Parties shall have the right not to participate in the drilling of such Mandatory Appraisal Well in which case the provisions of Article VII (and Article 7.4(C) in particular) shall apply; provided, for the avoidance of doubt, a Mandatory Appraisal Well that also qualifies as an obligatory well under the Minimum Work Obligation for the then current Exploration Sub-period shall be drilled as a Joint Operation. (E) The Work Program and Budget agreed pursuant to this Article 6.1 shall include the Minimum Work Obligations, or at least that part of such Minimum Work Obligations required to be carried out during the Financial Year in question under the terms of the Concession Agreement. If within the time periods prescribed in this Article 6.1 the Operating Committee is unable to agree on such a Work Program and Budget, then the proposal capable of satisfying the Minimum Work Obligations for the Financial Year in question that receives the largest Participating Interest vote (even if less than the applicable percentage under Article 5.9) shall be deemed adopted as part of the annual Work Program and Budget. If competing proposals receive equal votes, then Operator shall choose between those competing proposals. Any portion of a Work Program and Budget adopted pursuant to this Article 6.1(E) instead of Article 5.9 shall include only such operations for the Joint Account as are necessary to maintain the Concession Agreement in full force and effect, including such operations as are necessary to fulfill the Minimum Work Obligations required for the given Financial Year. Alliance Operating Agreement - 20F - -19- (F) Any approved Work Program and Budget may be revised by the Operating Committee from time to time. To the extent such revisions are approved by the Operating Committee, the Work Program and Budget shall be amended accordingly. The Operator shall prepare and submit a corresponding work program and budget amendment to the Government if required by the terms of the Concession Agreement. (G) Subject to Article 6.7, approval of any such Work Program and Budget, which includes an Exploration or Appraisal Well, whether by drilling, Deepening or Sidetracking, shall include approval for only expenditures necessary for the drilling, Deepening, or Sidetracking, of such well, as applicable. When an Exploration Well or Appraisal Well has reached its authorized depth, all logs, cores and other approved Tests have been conducted and the results furnished to the Parties, Operator shall submit to the Parties in accordance with Article 5.12(A)(1) an election to participate in an attempt to Complete or perform additional downhole operations for such well. Operator shall include in such submission Operator's recommendation on such Completion attempt and an AFE for such Completion costs. In the event that less than all of the Parties elect to participate in such Completion, the Completion may proceed as an Exclusive Operation under Article VII. Any Party that gave notice of non-consent shall be a Non-Consenting Party as to such Exclusive Operation. (H) Any Party desiring to propose a Completion attempt, or an alternative Completion attempt, must do so within the time period provided in Article 5.12(A)(1) by notifying all other Parties. Any such proposal shall include an AFE for such Completion costs. 6.2 DEVELOPMENT (A) If, before or after the drilling of any Mandatory Appraisal Wells, the Operating Committee determines that a Discovery may be a Commercial Discovery the Operator shall, as soon as practicable but prior to providing notice of the Commercial Discovery to EGPC, deliver to the Parties a Development Plan which shall contain, INTER ALIA: (1) details of the proposed work to be undertaken, personnel required and expenditures to be incurred, including the timing of same, on a Calendar Year basis; (2) an estimated date for the commencement of production; (3) a delineation of the proposed Development Lease; and (4) any other information requested by the Operating Committee. (B) Within thirty (30) days of receipt of the Development Plan and prior to any applicable deadline to file for a Commercial Discovery under the Concession Agreement, the Operating Committee shall meet to consider, modify and then either approve or reject the Development Plan. If the Development Plan is approved by the Operating Committee, Operator shall, as soon as possible, deliver notice of Commercial Discovery to EGPC. Within sixty (60) Days following receipt of such notice by the Government and EGPC, Operator and EGPC shall meet to review all appropriate data with a view to agreeing on the existence of a Commercial Discovery. If EGPC or the Government require changes in the Development Plan, Operator shall resubmit the matter to the Operating Committee for review and approval. Upon EGPC's agreement that the Discovery constitutes a Commercial Discovery under the Concession the Operating Company contemplated in Article VI of the Concession shall be formed for the purposes of conducting further operations and activities under the Concession. Alliance Operating Agreement - 20F - -20 - 6.3 OPERATING COMPANY (A) Upon formation of the Operating Company, as provided for in Article 6.2(B), the Parties shall meet to allocate duties and responsibilities between the Operating Company and the Operator. To the extent that the Operator's duties and responsibilities under this Agreement are assumed by the Operating Company, the Operator shall be released from any further responsibility and liability therefor. (B) GHP shall be entitled to appoint one (1) Director to represent Contractor on the Board of Directors of the Operating Company. In all other cases, each Party shall be entitled to appoint one (1) Director to the Board of Directors for each twenty-five percent (25%) Participating Interest held by such Party. Parties having a Participating Interest less than twenty-five percent (25%) shall be entitled to have a representative attend Directors' meetings as an observer only. The Operator shall be entitled to appoint representatives to fill any vacancy in the four (4) positions allotted to Contractor on the Board of Directors. (C) Notwithstanding the formation of the Operating Company, the Operator shall continue to represent the interests of the Parties in all matters that are not specifically delegated to the Operating Company under the Concession and, except for the appointment of Contractor's Directors to the Board of Directors of the Operating Company as set forth in Article 6.3(B), shall continue to satisfy the obligations of Contractor under the Concession on behalf of the Non-Operators in accordance with the terms of this Agreement. Without limiting the generality of the foregoing, Operator shall: (1) Review and provide recommendations to the Parties with respect to proposals and recommendations submitted by the Operating Company to the Board of Directors thereof, including, without limitation, proposed Work Programs and Budgets, production schedules and estimated cash requirements; (2) Assist the Operating Company, by secondment of personnel or through a service contract, in the conduct of the Operating Company's operations under the Concession as agent for the Parties and EGPC; (3) Make reasonable efforts to cause the Operating Company to submit the proposed Work Program and Budget to the Operating Committee within a time frame so as to allow for a reasonable period to conduct its review and obtain its approval prior to submission to the Board of Directors; and (4) In the event that the Board of Directors require changes to any Work Program and Budget, resubmit the matter to the Operating Committee for approval. (D) In the meetings of the Board of Directors and of the shareholders of the Operating Company, each Party's respective member(s) of the Board of Directors and their respective representative(s) and the Party's representatives at the shareholder meetings (and any proxy for them) and the members of the Operating Company management appointed by the Operator, shall fully support and vote in conformity with the decisions of the Operating Committee previously made in accordance with the provisions of the Agreement and any other resolution previously taken by the Parties under this Agreement. If a Party will not have a representative present at a meeting of either the Board of Directors or the shareholders of the Operating Company, such Party shall, prior to such meeting, furnish the other Party a written proxy for the votes to be taken at such meeting, consistent with the vote of the Operating Committee. If an Exclusive Operation is to be conducted by the Operating Alliance Operating Agreement - 20F - -21- Company, the Parties shall agree upon procedures regarding decision making within and governance of the Parties' interests in the Operating Company in conducting such operations, including without limitation, procedures for Board of Directors voting by the Parties, confidentiality and allocation of the Exclusive Operations costs and expenses within the Operating Company. (E) After formation of the Operating Company, certain of the Joint Operations shall be carried out by Operating Company, pursuant to the Concession, as agent on behalf of the shareholders of Operating Company, or where necessary by Operator or through duly authorized agents or independent contractors engaged by either Operator or Operating Company. (F) In the conduct of Joint Operations, Operator, under the direction and supervision of the Operating Committee, shall use all reasonable efforts to require that Operating Company shall: (1) Conduct diligently all Joint Operations in accordance with Operator's standards and the practices generally followed by the petroleum industry in the Arab Republic of Egypt under similar circumstances and conditions and in conformance with good oilfield and engineering practices; perform all Joint Operations in an efficient and economic manner and in compliance with the provisions of the Concession and all applicable laws and regulations; (2) Proceed with due diligence to acquire for the Joint Account any and all surface rights that may be required for or in connection with the conduct of the Joint Operations; (3) Keep the Joint Property free from liens, charges and encumbrances arising out of the Joint Operations; (4) Pay all costs and expenses incurred by it in the Joint Operations promptly and when due and payable; (5) Purchase and maintain in force any and all insurance required by law and purchase or provide any additional insurance authorized by the Board of Directors; and (6) Carry out each program of Joint Operations adopted by the Operating Committee within the limits of the approved Operating Company budget and shall not undertake any Joint Operations not included in an approved budget or make any expenditures during a budget period in excess of the budgeted amounts approved therefor except in compliance with the internal rules and regulations of the Operating Company and subject to approval as may be required under Articles 6.6 and 6.7 of this Agreement, as applicable. 6.4 ITEMIZATION OF EXPENDITURES (A) During the preparation of the proposed Work Programs and Budgets and Development Plans contemplated in this Article VI, Operator shall consult with the Operating Committee or the appropriate subcommittees regarding the contents of such Work Programs and Budgets and Development Plans. (B) Each Work Program and Budget and Development Plan submitted by Operator shall contain an itemized estimate of the costs of Joint Operations and all other expenditures to be made for the Joint Account during the Calendar Year in question and shall, INTER ALIA: Alliance Operating Agreement - 20F - -22- (1) identify each work category in sufficient detail to afford the ready identification of the nature, scope and duration of the activity in question; (2) include such reasonable information regarding Operator's allocation procedures and estimated manpower costs as the Operating Committee may determine; (3) comply with the requirements of the Concession Agreement. (C) The Work Program and Budget shall designate the portion or portions of the Concession Area in which Joint Operations itemized in such Work Program and Budget are to be conducted and shall specify the kind and extent of such operations in such detail as the Operating Committee may deem suitable. 6.5 CONTRACT AWARDS Subject to the requirements contained in the Concession Agreement and applicable laws, Operator shall award each contract for approved Joint Operations on the following basis (the amounts stated are in thousands of U.S. dollars):
PROCEDURE A PROCEDURE B PROCEDURE C ---------------------------------------------------------- Exploration and $0 to $200 $ 200 to $ 1,000 >$1,000 Appraisal Operations Development Operations $0 to $200 $200 to $1,000 >$1,000 Production Operations $0 to $200 $200 to $1,000 >$1,000
PROCEDURE (A) Operator shall award the contracts to the best qualified contractor as determined by cost and ability to perform the contract without the obligation to tender and without informing or seeking the approval of the Operating Committee, except that before entering into contracts with Affiliates of the Operator exceeding U.S. dollars Fifty Thousand (U.S. $50,000), Operator shall obtain the approval of the Operating Committee. If requested by any Party, Operator shall circulate to the Parties a copy of the final version of the contract awarded. PROCEDURE (B) Operator shall: (1) provide the Parties with a list of the entities whom Operator proposes to invite to tender for the said contracts; (2) add to such list any entity whom a Party requests to be added within fourteen (14) Days of receipt of such list; (3) complete the tendering process within a reasonable period of time; (4) inform the Parties of the entities to whom the contract has been awarded, provided that before awarding contracts to Affiliates of the Operator which exceed U .S. dollars Fifty Thousand (U.S. $50,000), Operator shall obtain the approval of the Operating Committee; Alliance Operating Agreement - 20F - -24- contract in excess of five hundred thousand ($500,000) Dollars (U.S.), Operating Committee shall vote on the award in advance of the vote by the Board of Directors. 6.6 AUTHORIZATION FOR EXPENDITURE ("AFE") PROCEDURE (A) Prior to incurring any commitment or expenditure for the Joint Account, which is estimated to be in excess of U.S. dollars One Hundred Thousand (U.S. $ 100,000), Operator shall send to each Non-Operator an AFE as described in Article 6.6(C). (B) Prior to making any expenditures or incurring any commitments for work subject to the AFE procedure in Article 6.6(A), Operator shall obtain the approval of the Operating Committee to an AFE. If the Operating Committee approves an AFE for the operation within the applicable time period under Article 5.12, Operator shall be authorized to conduct the operation under the terms of this Agreement. If the Operating Committee fails to approve an AFE for the operation within the applicable time period, the operation shall be deemed rejected. Operator shall promptly notify the Parties if the operation has been rejected, and, subject to Article VII, any Party may thereafter propose to conduct the operation as an Exclusive Operation under Article VII. When an operation is rejected under this Article 6.6(B) or an operation is approved for differing amounts than those provided for in the applicable line items of the approved Work Program and Budget, the Work Program and Budget shall be deemed to be revised accordingly. Notwithstanding the above, if an AFE covers commitments or expenditures for Minimum Work Obligations listed as separate line items in an approved Work Program and Budget, the AFE is for informational purposes only and Operator shall be obliged to proceed, subject to Article 6.7, without additional Operating Committee Approval. (C) Each AFE issued by the Operator shall: (1) identify the operation by specific reference to the applicable line items in the Work Program and Budget; (2) describe the work in detail; (3) contain Operator's best estimate of the total funds required to carry out such work; (4) outline the proposed work schedule; (5) provide a timetable of expenditures, if known; and (6) be accompanied by such other necessary supporting information. 6.7 OVEREXPENDITURES OF WORK PROGRAMS AND BUDGETS (A) For expenditures on any line item of an approved Work Program and Budget, Operator shall be entitled to incur without further approval of the Operating Committee an overexpenditure for such line item up to ten percent (10%) of the authorized amount for such line item; provided that the cumulative total of all overexpenditures for a Calendar Year shall not exceed five percent (5%) of the total Work Program and Budget in question. (B) At such time that Operator is certain that the limits of Article 6.7(A) will be exceeded, Operator shall furnish a supplemental AFE for the estimated overexpenditures to the Operating Committee for its approval and shall provide the Parties with full details of such Alliance Operating Agreement - 20F - -25- overexpenditures. Operator shall promptly give notice of the amounts of overexpenditures when actually incurred. Should the Operating Committee fail to approve the supplemental AFE, all work in question shall immediately cease. (C) The restrictions contained in this Article VI shall be without prejudice to Operator's rights to make expenditures as set out in Article 4.2(B)(11) and Article 13.5. ARTICLE VII OPERATIONS BY LESS THAN ALL PARTIES 7.1 LIMITATIONS ON APPLICABILITY (A) No operations may be conducted in furtherance of the Concession Agreement except as Joint Operations under Article V or as Exclusive Operations under this Article VII. No Exclusive Operation shall be conducted which conflicts with a Joint Operation. (B) Operations which are required to fulfill the Minimum Work Obligations must be proposed and conducted as Joint Operations under Article V, and may not be proposed or conducted as Exclusive Operations under this Article VII. (C) Except for Exclusive Operations relating to Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompletions or Reworking of a well originally drilled to fulfill the Minimum Work Obligations or the drilling of any Mandatory Appraisal Well, no Exclusive Operations may be proposed or conducted until the Minimum Work Obligations are fulfilled. (D) No Party may propose or conduct an Exclusive Operation under this Article VII, unless and until such Party has properly exercised its right to propose an Exclusive Operation pursuant to Article 5.13, or is entitled to conduct an Exclusive Operation pursuant to Article 5.13(B), Article 6.1(D), Article 6.1(G), Article 10.1(C) or this Article VII. (E) Any operation that may be proposed and conducted as a Joint Operation, other than operations pursuant to an approved Development Plan, may be proposed and conducted as an Exclusive Operation, subject to the terms of this Article VII. 7.2 PROCEDURE TO PROPOSE EXCLUSIVE OPERATIONS (A) Subject to Article 7.1, if any Party proposes to conduct an Exclusive Operation, such Party shall give notice of the proposed operation to all Parties, other than Non-Consenting Parties who have relinquished their rights to participate in such operation pursuant to Article 7.4(B) or Article 7.4(F) and have no option to reinstate such rights under Article 7.4(C). Such notice shall specify that such operation is proposed as an Exclusive Operation, the work to be performed, the location, the objectives, and estimated cost of such operation. (B) Any Party entitled to receive such notice shall have the right to participate in the proposed operation. (1) For proposals to Deepen, Test, Complete, Sidetrack. Plug Back, Recomplete or Rework involving the use of a drilling rig that is standing by in the Concession Area or proposals to acquire G&G Data where the seismic crew and equipment are standing by in the Concession Area, any such Party wishing to exercise such right must so notify Operator within twenty-four (24) hours after receipt of the notice proposing the Exclusive Operation. Alliance Operating Agreement - 20F - -26- (2) For proposals to develop a Discovery, any Party wishing to exercise such right must so notify the Party proposing to develop within twenty (20) Days after receipt of the notice proposing the Exclusive Operation. (3) For all other proposals, any such Party wishing to exercise such right must so notify Operator within ten (10) Days after receipt of the notice proposing the Exclusive Operation; (C) Failure of a Party to whom a proposal notice is delivered to properly reply within the period specified above shall constitute an election by that Party not to participate in the proposed operation. (D) If all Parties properly exercise their rights to participate, then the proposed operation shall be conducted as a Joint Operation. The Operator shall commence such Joint Operation as promptly as practicable and conduct it with due diligence. (E) If less than all Parties entitled to receive such proposal notice properly exercise their rights to participate, then: (1) The Party proposing the Exclusive Operation, together with any other Consenting Parties, shall have the right exercisable for the applicable notice period set out in Article 7.2(B), to instruct Operator (subject to Article 7.11(F)) to conduct the Exclusive Operation. (2) If the Exclusive Operation is conducted, the Consenting Parties shall bear the sole liability and expense of such Exclusive Operation, with each Consenting party bearing a fraction of such liability and expense, the numerator of which is such Consenting Party's Participating Interest as stated in Article 3.2(A) and the denominator of which is the aggregate of the Participating Interests of the Consenting Parties as stated in Article 3.2(A), or as the Consenting Parties may otherwise agree. (3) If such Exclusive Operation has not been commenced within sixty (60) Days (excluding any extension specifically agreed by all Parties or allowed by the force majeure provisions of Article XVI) after the date of the instruction given to Operator under Article 7.2(E)(1), the right to conduct such Exclusive Operation shall terminate. If any Party still desires to conduct such Exclusive Operation, notice proposing such operation must be resubmitted to the Parties in accordance with Article V, as if no proposal to conduct an Exclusive Operation had been previously made. 7.3 RESPONSIBILITY FOR EXCLUSIVE OPERATIONS (A) The Consenting Parties shall bear in accordance with the Participating Interests agreed under Article 7.2(E) the entire cost and liability of conducting an Exclusive Operation and shall indemnify the Non-Consenting Parties from any and all costs and liabilities incurred incident to such Exclusive Operation (including but not limited to all costs, expenses or liabilities for environmental, consequential, punitive or any other similar indirect damages or losses arising from business interruption, reservoir or formation damage, inability to produce petroleum, loss of profits, pollution control and environmental amelioration or rehabilitation) and shall keep the Concession Area free and clear of all liens and encumbrances of every kind created by or arising from such Exclusive Operation. Alliance Operating Agreement - 20F - -27- (B) Notwithstanding Article 7.3(A), each Party shall continue to bear its Participating Interest share of the cost and liability incident to the operations in which it participated, including but not limited to plugging and abandoning and restoring the surface location, but only to the extent those costs were not increased by the Exclusive Operation, 7.4 CONSEQUENCES OF EXCLUSIVE OPERATIONS (A) With regard to any Exclusive Operation, for so long as a Non-Consenting Party has the option under Article 7.4(D) to reinstate the rights it relinquished under Article 7.4(B), such Non-Consenting Party shall be entitled to have access concurrently with the Consenting Parties to all data and other information relating to such Exclusive Operation, other than G&G Data obtained in an Exclusive Operation. If a Non-Consenting Party desires to receive and acquire the right to use such G&G Data, then such Non-Consenting Party shall have the right to do so by paying to the Consenting Parties its Participating Interest share as set out in Article 7.5(A) and the Cash Premium set out in Article 7.5(B)(3). (B) With regard to any Exclusive Operation, other than an Exclusive Operation which is a Mandatory Appraisal Well and subject to Articles 7.4(D) and (E), 7.6(E) and 7.8, each Non-Consenting Party shall be deemed to have relinquished to the Consenting Parties, and the Consenting Parties shall be deemed to own, in proportion to their respective Participating Interests in any Exclusive Operation as determined in accordance with Article 7.2(E)(2): (1) All of each such Non-Consenting Party's right to participate in further operations in the well, or Deepened or Sidetracked portion of a well, in which the Exclusive Operation was conducted and on any Discovery made or appraised in the course of such Exclusive Operation; and (2) All of each such Non-Consenting Party's right pursuant to the Concession Agreement to take and dispose of Hydrocarbons produced and saved: (a) From the well or Deepened or Sidetracked portion of a well in which such Exclusive Operation was conducted, and (b) From any wells drilled to appraise or develop a Discovery made or appraised in the course of such Exclusive Operation. A Non-Consenting Party in an Exploratory Well, including the Completion or conduct of additional down hole operations in an Exploratory Well, shall have no option to reinstate such relinquished rights and Article 7.4 (D) shall not apply. (C) Where an Exclusive Operation is the drilling of a Mandatory Appraisal Well, each Non-Consenting Party in such Exclusive Operation shall be deemed to have relinquished to the Consenting Parties, and the Consenting Parties shall be deemed to own in proportion to their Participating Interest in such Exclusive Operation as detern1ined in accordance with Article 7.2(E)(3): (3) All of each such Non-Consenting Party's right to participate in further operations in the Development Lease containing such Mandatory Appraisal Well; and (4) All of each such Non-Consenting Party's right pursuant to the Concession to take and dispose of Hydrocarbons produced and saved from the Development Lease containing such Mandatory Appraisal Well. Alliance Operating Agreement - 20F - -28- In such case, a Non-Consenting Party shall have no option to reinstate such relinquished rights and Article 7.4(D) shall not apply. (D) A Non-Consenting Party shall have only the following options to reinstate the rights it relinquished pursuant to Article 7.4(B): (1) Without prejudice to Article 7.4 (C), if the Consenting Parties decide to further appraise a Discovery appraised in the course of an Exclusive Operation, the Consenting Parties shall submit to each Non-Consenting Party the approved appraisal program. For thirty (30) Days (or forty-eight (48) hours if the drilling rig which is to be used in such appraisal program is standing by in the Concession Area) from receipt of such appraisal program, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such appraisal program. The Non-Consenting Party may exercise such option by notifying Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the expense and liability of such appraisal program, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B) (2) Without prejudice to Article 7.4(C), if the Consenting Parties decide to develop a Discovery appraised in the course of an Exclusive Operation, the Consenting Parties shall submit to the Non-Consenting Parties a Development Plan substantially in the form intended to be submitted to the Government under the Concession Agreement. For sixty (60) Days from receipt of such Development Plan or such lesser period of time prescribed by the Concession Agreement, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such Development Plan. The Non-Consenting Party may exercise such option by notifying the Party proposing to act as Operator for such Development Plan within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the liability and expense of such Development Plan and such future operating and producing costs, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B). (3) If the Consenting Parties decide to Deepen. Complete, Sidetrack, Plug Back or Recomplete an Exclusive Well other than a Mandatory Appraisal Well and such further operation was not included in the original proposal for such Exclusive Well, the Consenting Parties shall submit to the Non-Consenting Parties the approved AFE for such further operation. For thirty (30) Days (or forty-eight (48) hours if the drilling rig which is to be used in such operation is standing by in the Concession Area) from receipt of such AFE, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such operation. The Non-Consenting Party may exercise such option by notifying the Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the liability and expense of such further operation, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B). A Non-Consenting Party shall not be entitled to reinstate its rights in any other type of operation. (E) If a Non-Consenting Party does not properly and in a timely manner exercise such option, including paying in a timely manner in accordance with Article 7.5 all lump sum amounts and Cash Premiums, if any, due to the Consenting Parties, such Non-Consenting Party shall have forfeited the options as set out in Article 7.4(D) and the right to participate in the proposed program, unless such program, plan or operation is materially modified or expanded (in which case a new notice and option shall be given to such Non-Consenting party under Article 7.4(D). Alliance Operating Agreement - 20F - -29- (F) A Non-Consenting Party shall become a Consenting Party with regard to an Exclusive Operation at such time as the Non-Consenting party gives notice pursuant to Article 7.4(D); provided that such Non-Consenting Party shall in no way be deemed to be entitled to any lump sum amount Cash Premium paid incident to such Exclusive Operation. Such Non-Consenting Party shall be entitled to recover its Participating Interest share of expenses paid pursuant to Article 7.5(A) (but not the amount of any associated Cash Premium) from Cost Oil in accordance with Article XIX. The Participating Interest of such Non-Consenting Party in such Exclusive Operation shall be its Participating Interest set out in Article 3.2(A). The Consenting Parties shall contribute to the Participating Interest of the Non-Consenting Party in proportion to the excess Participating Interest that each received under Article 7.2(E). If all Parties participate in the proposed operation, then such operation shall be conducted as a Joint Operation pursuant to Article V. (G) If after the expiry of the period in which a Non-Consenting Party may exercise its option to participate in a Development Plan the Consenting Parties desire to proceed, the Party chosen by the Consenting Parties proposing to act as Operator for such development, shall give notice to the Government under the appropriate provision of the Concession Agreement requesting a meeting to advise the Government that the Consenting Parties consider the Discovery to be a Commercial Discovery. Following such meeting such Operator for such development shall apply for a Development Lease as applicable in the Concession Agreement. Unless the Development Plan is materially modified or expanded prior to the commencement of operations under such plan (in which case a new notice and option shall be given to the Non-Consenting Parties under Article 7.4(D), each Non-Consenting Party to such Development Plan shall be deemed to have: (1) elected not to apply for an Development Lease covering such development; (2) forfeited all economic interest in such Development Lease; (3) assumed a fiduciary duty to exercise its legal interest in such Development Lease for the benefit of the Consenting Parties. Such Non-Consenting Party shall be deemed to have withdrawn from this Agreement to the extent it relates to such Development Lease, even if the Development Plan is modified or expanded subsequent to the commencement of operations under such Development Plan and shall be further deemed to have forfeited any right to participate in the construction and ownership of facilities outside such Development Lease designed solely for the use of such Development Lease. In the event that such Development Lease represents the only interest of the Non-Consenting Party in the Concession Area and as such the Non-Consenting Party is deemed to have withdrawn from the entire Concession. then such Party shall also forfeit all of its shares and voting rights in the Operating Company that were issued pursuant to the Concession. 7.5 PREMIUM TO PARTICIPATE IN EXCLUSIVE OPERATIONS (A) Within thirty (30) Days of the exercise of its option under Article 7.4(D), or with respect to G&G Data, within thirty (30) days of its request to acquire the right to use all or part of such G&G Data under Article 7.4(A), each such Non-Consenting Party shall pay in immediately available funds to the Consenting Parties in proportion to their respective Participating Interests in such Exclusive Operations a lump sum amount payable in the currency designated by such Consenting Parties. Such lump sum amount shall be equal to such Non-Consenting Party's Participating Interest share of all liabilities and expenses, including overhead, that were incurred in every Exclusive Operation relating to the G&G Data, Discovery , or well, as the case may be, in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party. Alliance Operating Agreement - 20F - -30- (B) In addition to Article 7.5(A), if a Cash Premium is due, then within thirty (30) Days of the exercise of its option under Article 7.4(A) or 7.4(D) each such Non-Consenting Party shall pay in immediately available funds, in the currency designated by the Consenting Parties who took the risk of such Exclusive Operations, to such Consenting parties in proportion to their respective Participating Interests a Cash Premium equal to the total of: two hundred percent (200%) of such Non-Consenting Party's Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operation relating to the obtaining of the portion of the G&G Data in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(D), and that were not previously paid by such Non-Consenting Party; plus (1) five hundred percent (500%) of the Non-Consenting Party's Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operation relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Appraisal Well(s) which delineated the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party . 7.6 ORDER OF PREFERENCE OF OPERATIONS (A) Except as otherwise specifically provided in this Agreement, if any Party desires to propose the conduct of an operation that will conflict with an existing proposal for an Exclusive Operation, such Party shall have the right exercisable for five (5) Days, or twenty-four (24) hours if the drilling rig to be used is standing by in the Concession Area, from receipt of the proposal for the Exclusive Operation, to deliver to all Parties entitled to participate in the proposed operation such Party's alternative proposal. Such alternative proposal shall contain the information required under Article 7.2(A). (B) Each Party receiving such proposals shall elect by delivery of notice to Operator within the appropriate response period set out in Article 7.2(B) to participate in one of the competing proposals. Any Party not notifying Operator within the response period shall be deemed to have voted against the proposal. (C) The proposal receiving the largest aggregate Participating Interest vote shall have priority over all other competing proposals. In the case of a tie vote, the Operator shall choose among the proposals receiving the largest aggregate Participating Interest vote. Operator shall deliver notice of such result to all Parties entitled to participate in the operation within five (5) Days of the end of the response period, or twenty-four (24) hours if the drilling rig to be used is standing by in the Concession Area. (D) Each Party shall then have two (2) Days (or twenty-four (24) hours if the drilling rig to be used is standing by in the Concession Area) from receipt of such notice to elect by delivery of notice to Operator whether such Party will participate in such Exclusive Operation, or will relinquish its interest pursuant to Article 7.4(B). Failure by a Party to deliver such notice within such period shall be deemed an election not to participate in the prevailing proposal. Alliance Operating Agreement - 20F - -31- (E) Notwithstanding the provisions of Article 7.4(B), if for reasons other than the encountering of granite or other practically impenetrable substance or any other condition in the hole rendering further operations impracticable, a well drilled as an Exclusive Operation fails to reach the deepest objective Zone described in the notice proposing such well, Operator shall give notice of such failure to each Non-Consenting Party who submitted or voted for an alternative proposal under this Article 7.6 to drill such well to a shallower Zone than the deepest objective Zone proposed in the notice under which such well was drilled. Each such Non-Consenting Party shall have the option exercisable for forty-eight (48) hours from receipt of such notice to participate for its Participating Interest share in the initial proposed Completion of such well. Each such Non-Consenting Party may exercise such option by notifying the Operator that it wishes to participate in such Completion and by paying its Participating Interest share of the cost of drilling such well to its deepest depth drilled in the Zone in which it is Completed. All liabilities and expenses for drilling and Testing the Exclusive Well below that depth shall be for the sole account of the Consenting Parties. If any such Non-Consenting Party does not properly elect to participate in the first Completion proposed for such well, the relinquishment provisions of Article 7.4(B) shall continue to apply to such Non-Consenting Party's interest. 7.7 STAND-BY COSTS (A) When an operation has been performed, all tests have been conducted and the results of such tests furnished to the Parties, stand by costs incurred pending response to any Party's notice proposing an Exclusive Operation for Deepening, Testing, Sidetracking, Completing, Plugging Back, Recompleting, Reworking or other further operation in such well (including the period required under Article 7.6 to resolve competing proposals) shall be charged and borne as part of the operation just completed. Stand by costs incurred subsequent to all Parties responding, or expiration of the response time permitted, whichever first occurs, shall be charged to and borne by the Parties proposing the Exclusive Operation in proportion to their Participating Interests, regardless of whether such Exclusive Operation is actually conducted. (B) If a further operation is proposed while the drilling rig to be utilized is on location, any Party may request and receive up to five (5) additional Days after expiration of the applicable response period specified in Article 7.2(B ) within which to respond by notifying Operator that such Party agrees to bear all stand by costs and other costs incurred during such extended response period. Operator may require such Party to pay the estimated stand by time in advance as a condition to extending the response period. If more than one Party requests such additional time to respond to the notice, stand by costs shall be allocated between such Parties on a Day-to-Day basis in proportion to their Participating Interests. 7.8 SPECIAL CONSIDERATION REGARDING DEEPENING AND SIDETRACKING (A) An Exclusive Well shall not be Deepened or Sidetracked without first affording those Non-Consenting Parties that proposed Deepening or Sidetracking at the time the original proposal was made, in accordance with this Article 7.8, the opportunity to participate in such operation. (B) In the event any Consenting Party desires to Deepen or Sidetrack an Exclusive Well, such Party shall initiate the procedure contemplated by Article 7.2. If a Deepening or Sidetracking operation is approved pursuant to such provisions, and if any Non-Consenting Party to the Exclusive Well with the right to do so elects to participate in such Deepening or Sidetracking operation, such Non-Consenting Party shall not owe any Cash Premium or In Kind Premium and such Non-Consenting Party's payment pursuant to Article 7.5(A) shall be such Non-Consenting Party's Participating Interest share of the liabilities and expenses incurred in connection with drilling the Exclusive Well from the surface to the depth previously drilled which such Non-Consenting Party would have paid had such Non-Consenting Party agreed to participate in such Exclusive Well; provided, however, all liabilities and expenses for Testing and Completing or attempting Completion of the well incurred by Consenting Parties prior to the Commencement of actual operations to Deepen or Sidetrack beyond the depth previously drilled shall be for the sole account of the Consenting Parties. Alliance Operating Agreement - 20F - -32- 7.9 USE OF PROPERTY (A) The Parties participating in any Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting or Reworking of any well drilled under this Agreement shall be permitted to use, free of cost, all casing, tubing and other equipment in the well that is not needed for operations by the owners of the wellbore, but the ownership of all such equipment shall remain unchanged. On abandonment of a well in which operations with differing participation have been conducted, the Parties abandoning the well shall account for all equipment in the well to the Parties owning such equipment by tendering to them their respective Participating Interest shares of the value of such equipment less the cost of salvage. 7.10 MISCELLANEOUS (A) Each Exclusive Operation shall be carried out by the Consenting Parties acting as the Operating Committee, subject to the provisions of this Agreement applied MUTATIS MUTANDIS to such Exclusive Operation and subject to the terms and conditions of the Concession Agreement. (B) The computation of liabilities and expenses incurred in Exclusive Operations, including the liabilities and expenses of Operator for conducting such operations, shall be made in accordance with the principles set out in the Accounting Procedure. (C) Operator shall maintain separate books, financial records and accounts for Exclusive Operations which shall be subject to the same rights of audit and examination as the Joint Account and related records, all as provided in the Accounting Procedure. Said rights of audit and examination shall extend to each of the Consenting Parties and each of the Non-Consenting Parties so long as the latter are, or may be, entitled to elect to participate in such operations. (D) Operator, if it is conducting an Exclusive Operation of the Consenting Parties, regardless of whether it is participating in that Exclusive Operation. shall be entitled to request cash advances and shall not be required to use its own funds to pay any cost and expense and shall not be obliged to commence or continue Exclusive Operation until cash advances requested have been made, and the Accounting Procedure shall apply to Operator in respect of any Exclusive Operations conducted by it. (E) Should the submission of a Development Plan be approved in accordance with Article 5.9, or should any Party propose a development in accordance with Article VII, with either proposal not calling for the conduct of additional appraisal drilling, and should any party wish to drill an additional Appraisal Well prior to development, the Party proposing the Appraisal Well as an Exclusive Operation shall be entitled to proceed first, but without the right (subject to the following sentence) to future reimbursement pursuant to Article 7.5. If such an Appraisal Well is produced, the Consenting Party or Parties shall own and have the right to take in kind and separately dispose of all of the Non-Consenting Parties' Entitlement from such Appraisal Well until the value thereof, determined in accordance with Article 7.5(F), equals one hundred percent (100%) of such Non-Consenting Parties' Participating Interest shares of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the Appraisal Well. If, as the result of drilling such Appraisal Well as an Exclusive Operation, the Party proposing to apply for an Development Lease decides to not develop the reservoir, then each Non-Consenting Party who voted in favor of such Development Plan prior to the drilling of such Appraisal Well shall pay to the Consenting Party the amount such Non-Consenting Party would have paid had such Appraisal Well been drilled as a Joint Operation. (F) If the Operator is a Non-Consenting Party to an Exclusive Operation to develop a Discovery, then subject to obtaining any necessary Government approvals the Operator may resign, but in any event shall resign on the request of the Consenting Parties, as Operator for the Development Lease for such Discovery and the Consenting Parties shall select a party to serve as Operator. Alliance Operating Agreement - 20F - -33- ARTICLE VIII DEFAULT 8.1 DEFAULT AND NOTICE Any Party that fails to pay when due its Participating Interest share of Joint Account expenses, including cash advances and interest, shall be in default under this Agreement (a "Defaulting Party"). Operator, or any non-defaulting Party in the case Operator is the Defaulting Party, shall promptly give notice of such default to the Defaulting Party and each of the non-defaulting Parties (the "Default Notice"). The amount not paid by the Defaulting Party shall bear interest from the date due until paid in full at the Agreed Interest Rate. 8.2 OPERATING COMMITTEE MEETINGS AND DATA Beginning ten (10) Business Days from the date of the Default Notice, and thereafter while the Defaulting Party remains in default, the Defaulting Party shall not be entitled to attend Operating Committee or subcommittee meetings or to vote on any matter corning before the Operating Committee or any subcommittee until all of its defaults have been remedied (including payment of accrued interest). Further, the Defaulting Party shall not be entitled to attend meetings of the Exploration Advisory Committee, nor the Directors' Meetings of the Operating Company, nor shall it have the right to vote in any meeting held by the Operating Company. Unless agreed otherwise by the non-defaulting Parties, the voting interest of each non-defaulting Party during this period shall be its percentage of the total Participating Interests of the non-defaulting Parties. Any matters requiring a unanimous vote of the Parties shall not require the vote of the Defaulting Party. In addition, beginning ten (10) Business Days from the date of the Default Notice, and thereafter while the Defaulting Party remains in default, the Defaulting Party shall not have access to any data or information relating to Joint Operations" During this period, the non-defaulting Parties shal1 be entitled to trade data without such Defaulting Party's consent, and the Defaulting Party shall have no right to any data received in such a trade unless and until its default is remedied in full. The Defaulting party shall be deemed to have elected not to participate in any Joint Operations or Exclusive Operations that are voted upon at least ten (10) Business Days after the date of the Default Notice but before all of its defaults have been remedied to the extent such an election would be permitted by Article 5.13(B) of this Agreement. The defaulting Party shall be deemed to have approved, and shall join with the non-defaulting Parties in taking, any other actions voted on during that period. Alliance Operating Agreement - 20F - -34- 8.3 ALLOCATION OF DEFAULTED ACCOUNTS (A) The Party providing the Default Notice pursuant to Article 8.1 shall include in the Default Notice to each non-defaulting Party a statement of the sum of money that the non-defaulting Party is to pay as its portion (such portion being in the ratio that each non-defaulting Party's Participating Interest bears to the Participating Interests of all non-defaulting Parties) of the amount in default (excluding interest). subject to the terms of this Article 8.3. If the Defaulting Party remedies its default in full within ten (10) Business Days from the date of the Default Notice, the notifying Party shall promptly notify each non-defaulting Party by telephone and facsimile, and the non-defaulting Parties shall be relieved of their obligation to pay a share of the amounts in default. Otherwise. each non-defaulting Party shall pay Operator, within ten (10) Business Days after receipt of the Default Notice, its share of the amount which the Defaulting Party failed to pay. If any non-defaulting Party fails to pay its share of the amount in default as aforesaid, such Party shall thereupon be a Defaulting Party subject to the provisions of this Article VIII. The non-defaulting Parties which pay the amount owed by any Defaulting Party shall be entitled to receive their respective shares of the principal and interest payable by such Defaulting Party pursuant to this Article VIII. If Operator is a Defaulting Party, then all payment otherwise payable to Operator for Joint Account costs pursuant to this Agreement shall be made to the notifying Party instead until the default is cured or a successor Operator appointed. The notifying Party shall maintain such funds in a segregated account separate from its own funds and shall apply such funds to third party claims due and payable from the Joint Account of which it has notice, to the extent Operator would be authorized to make such payments under the terms of this Agreement. The notifying Party shall be entitled to bill or cash call the other Parties in accordance with the Accounting Procedure for proper third party charges that become due and payable during such period to the extent sufficient funds are not available. When Operator has cured its default or a successor Operator is appointed, the notifying Party shall turn over all remaining funds in the account to Operator and shall provide Operator and the other parties with a detailed accounting of the funds received and expended during this period. The notifying Party shall not be liable for damages, losses, costs, expenses or liabilities arising as a result of its actions under this Article 8.3(B) except to the extent Operator would be liable under Article 4.6. (B) The total of all amounts paid by the non-defaulting Parties for the Defaulting Party, together with interest accrued on such amounts, shall constitute a debt due and owing by the Defaulting Party to the non-defaulting Parties in proportion to such amounts paid. In addition, the non-defaulting Parties may, in the manner contemplated by this Article, satisfy such debt (together with interest) and may accrue an amount equal to the Defaulting Party's Participating Interest share of the estimated cost to abandon any Joint Property. (C) A Defaulting party may remedy its default by paying to Operator the total amount due, together with interest calculated as provided in Article 8.1, at any time prior to transfer of its interest pursuant to Article 8.4, and upon receipt of such payment Operator shall remit to each non-defaulting party its proportionate share of such amount. (D) The rights granted to each non-defaulting party pursuant to this Article, shall be in addition to, and not in substitution for any other rights or remedies which each non-defaulting party may have at law or equity or pursuant to the other provisions of this Agreement. 8.4 REMEDIES (A) During the continuance of a default, the Defaulting Party shall not have a right to its Entitlement, which shall vest in and be the property of the non-defaulting Parties. Operator (or the notifying Party if Operator is a Defaulting Party) shall be authorized to sell such Entitlement in an arm's-length sale on terms that are commercially reasonable under the circumstances and, after deducting all costs, charges and expenses incurred in connection with such sale, pay the net proceeds to the non-defaulting Parties in proportion to the amounts they are owed by the Defaulting Party hereunder (and apply such net proceeds toward the establishment of a reserve fund under Article 8.4(C), if applicable) until all such amounts are recovered and such reserve funds is established. Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the non-defaulting Parties. When making sales under this Article 8.4(A), the non-defaulting Parties shall have no obligation to share any existing market or obtain a price equal to the price at which their own production is sold. (B) If Operator disposes of any Joint Property or any other credit or adjustment is made to the Joint Account while a Party is in default, Operator (or the notifying Party if Operator is a Defaulting Party) shall be entitled to apply the Defaulting Party's Alliance Operating Agreement - 20F - -35- Participating Interest share of the proceeds of such disposal, credit or adjustment against all amounts owing by the Defaulting Party to the non-defaulting Parties hereunder (and toward the establishment of a reserve fund under Article 8.4(C), if applicable). Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the non-defaulting Parties. (C) The non-defaulting Parties shall be entitled to apply proceeds received under Articles 8.4(A) and 8.4(B) toward the creation of a reserve fund in an amount equal to the Defaulting Party's Participating Interest share of (i) the estimated cost to abandon any wells and other property in which the Defaulting Party participated, (ii) the estimated cost of severance benefits for local employees upon cessation of operations and (iii) any other identifiable costs that the non-defaulting Parties anticipate will be incurred in connection with the cessation of operations. (D) If a Defaulting Party fails to remedy its default by the sixtieth (60th) Day following the date of the Default Notice, then, without prejudice to any other rights available to the non-defaulting Parties to recover amounts owing to them under this Agreement, each non-defaulting Party shall have the option, exercisable at anytime thereafter until the Defaulting Party has completely cured its defaults, to require that the Defaulting Party completely withdraw from this Agreement and the Concession Agreement. Such option shall be exercised by notice to the Defaulting Party and each non-defaulting Party. If such option is exercised, the Defaulting Party shall be deemed to have transferred, pursuant to Article 13.6, effective on the date of the non-defaulting Party's notice, all of its right, title and beneficial interest in and under this Agreement and the Concession Agreement to the non-defaulting Parties. The Defaulting Party shall, without delay following any request from the non-defaulting Parties, do any and all acts required to be done by applicable law or regulation in order to render such transfer legally valid, including, without limitation, obtaining all governmental consents and approvals, and shall execute any and all documents and take such other actions as may be necessary in order to effect a prompt and valid transfer of the interest described above. The Defaulting Party shall be obligated to promptly remove any liens and encumbrances which may exist on such transferred interests. For purposes of this Article 8.4(D), each Party constitutes and appoints each other Party its true and lawful attorney to execute such instruments and make such filings and applications as may be necessary to make such transfer legally effective and to obtain any necessary consents of the Government. Actions under this power of attorney may be taken by any Party individually without the joinder of the others. This power of attorney is irrevocable for the term of this Agreement and is coupled with an interest. If requested, each Party shall execute a form prescribed by the Operating Committee setting forth this power of attorney in more detail. In the event all Government approvals are not timely obtained, the Defaulting Party shall hold its Participating Interest in trust for the non-defaulting Parties who are entitled to receive the Defaulting Party's Participating Interest. Notwithstanding the terms of Article XIII, in the absence of an agreement among the non-defaulting Parties to the contrary, any transfer to the non-defaulting Parties following a withdrawal pursuant to this Article 8.4(D) shall be in proportion to the Participating Interests of the non-defaulting Parties. The acceptance by a non-defaulting Party of any portion of a defaulting Party's Participating Interest shall not limit any rights or remedies that the non-defaulting Party has to recover all amounts (including interest) owing under this Agreement by the Defaulting Party. (E) The non-defaulting Parties shall be entitled to recover from the Defaulting Party all reasonable attorneys' fees and all other reasonable costs sustained in the collection of amounts owing by the Defaulting Party. The rights and remedies granted to the non-defaulting Parties in this Agreement shall be cumulative, not exclusive, and shall be in addition to any other rights and remedies that may be available to the non-defaulting Parties, whether at law, in equity or otherwise. Each right and remedy available to the non-defaulting Parties may be exercised from time to time and so often and in such order as may be considered expedient by the non-defaulting Parties in their sole discretion. 8.5 SURVIVAL The obligations of the Defaulting Party and the rights of the non-defaulting Parties shall survive the surrender of the Concession Agreement, abandonment of Joint Operations and termination of this Agreement. 8.6 NO RIGHT OF SET OFF Each Party acknowledges and accepts that a fundamental principle of this Agreement is that each Party pays its Participating Interest share of all amounts due under this Agreement as and when required. Accordingly, any Party which becomes a Defaulting Party undertakes that, in respect of either any exercise by the non-defaulting Parties of any rights under or the application of any of the provisions of this Article VIII, such Party hereby waives any right to raise by way of set off or invoke as a defense, whether in law or Alliance Operating Agreement - 20F - -36- equity, any failure by any other Party to pay amounts due and owing under this Agreement or any alleged claim that such Party may have against Operator or any Non-Operator, whether such claim arises under this Agreement or otherwise. Each Party further agrees that the nature and the amount of the remedies granted to the non-defaulting Parties hereunder are reasonable and appropriate in the circumstances. ARTICLE IX DISPOSITION OF PRODUCTION 9.1 RIGHT AND OBLIGATION TO TAKE IN KIND Except as otherwise provided in this Article IX or in Article VIII and subject to the provisions of the Concession Agreement, each Party shall have the right and obligation to own, take in kind and separately dispose of the share of total production available to it from any Development Lease pursuant to the Concession Agreement and this Agreement in such quantities and in accordance with such procedures as may be set forth in the offtake agreement referred to in Article 9.2 or in the special arrangement for natural gas referred to in Article 9.3. If EGPC is party to the offtake agreement, the Parties shall endeavor to obtain its agreement to the principles set forth in this Article IX. 9.2 OFFTAKE AGREEMENT FOR CRUDE OIL In the event that EGPC elects not to exercise its preferential right to purchase the Parties' share of Crude Oil in accordance with Article VII (e) of the Concession Agreement, the Parties shall in good faith, and not less than three (3) months prior to first delivery of crude oil, negotiate and conclude the terms of an agreement to cover the offtake of crude oil produced under the Concession Agreement. The EGPC may, if necessary and practicable, also be party to the offtake agreement. This offtake agreement shall, to the extent consistent with the Concession Agreement, make provision for: (A) the delivery point, at which title and risk of loss of Participating Interest shares of crude oil shall pass to the Parties interested (or as the Parties may otherwise agree); (B) operator's regular periodic advice to the Parties of estimates of total available production for succeeding period, quantities of each grade of crude oil and each Party's share for as far ahead as is necessary for Operator and the Parties to plan offtake arrangements. Such advice shall also cover for each grade of crude oil total available production and deliveries for the preceding period, inventory and overlifts and underlifts; (C) nomination by the Parties to Operator of acceptance of their shares of total available production for the succeeding period. Such nominations shall in any one period be for each Party's entire share of available production during that period subject to operational tolerances and agreed minimum economic cargo sizes or as the Parties may otherwise agree; (D) elimination of overlifts and underlifts; (E) if offshore loading or a shore terminal for vessel loading is involved, risks regarding acceptability of tankers, demurrage and (if applicable) availability of berths; (F) distribution to the Parties of available grades, gravities and qualities of Hydrocarbons to ensure, to the extent Parties take delivery of their Entitlement as they accrue, that each Party shall receive in each period Entitlement of grades, gravities and qualities of Hydrocarbons from each Development Lease in which it participates similar to the grades, gravities and qualities of Hydrocarbons received by each other Party from that Development Lease in that period; (G) to the extent that distribution of Entitlement on such basis is impracticable due to availability of facilities and minimum cargo sizes, a method of making periodic adjustments; and Alliance Operating Agreement - 20F - -37- (H) the option and the right of the other Parties to sell an Entitlement which a Party fails to nominate for acceptance pursuant to (C) above or of which a Party fails to take delivery , in accordance with applicable agreed procedures, provided that such failure either constitutes a breach of Operator's or Parties' obligations under the terms of the Concession Agreement, or is likely to result in the curtailment or shut-in of production. Such sales shall be made only to the limited extent necessary to avoid disruption in Joint Operations. Operator shall give all Parties as much notice as is practicable of such situation and that a sale option has arisen. Any sale shall be of the unnominated or undelivered Entitlement as the case may be and for reasonable periods of time as are consistent with the minimum needs of the industry and in no event to exceed twelve (12) months. The right of sale shall be revocable at will subject to any prior contractual commitments. Payment terms for production sold under this option shall be established in the offtake agreement. If an offtake agreement has not been entered into by the date of first delivery of crude oil, the Parties shall be bound by the principles set forth in this Article 9.2 until an offtake agreement has been entered into. 9.3 SEPARATE AGREEMENT FOR NATURAL GAS The Parties recognize that if natural gas is discovered it may be necessary for the Parties to enter into special arrangements for the disposal of natural gas, which are consistent with the Development Plan and subject to the terms of the Concession Agreement. 9.4 EGPC PREFERENTIAL RIGHT OF PURCHASE In the event EGPC exercises its preferential right to purchase Hydrocarbons produced under the Concession, each Party shall contribute the quantity required proportionately to its Entitlement thereof. Or, if EGPC requires that Crude Oil from the Concession be sold to or with EGPC under a joint marketing arrangement or otherwise, Operator shall use its best efforts to obtain the unanimous agreement of the Operating Committee to the terms and conditions of any such arrangement or agreement. ARTICLE X ABANDONMENT 10.1 ABANDONMENT OF WELLS DRILLED AS JOINT OPERATIONS (A) A decision to plug and abandon any well which has been drilled as a Joint Operation shall require the approval of the Operating Committee. (B) Should any Party fail to reply within the period prescribed in Article 5.12(A)(1) or Article 5.12(A)(2), whichever is applicable, after delivery of notice of the Operator's proposal to plug and abandon such well, such Party shall be deemed to have consented to the proposed abandonment. (C) If the Operating Committee approves a decision to plug and abandon an Exploration Well or Appraisal Well, any Party voting against such decision may propose, within the time periods allowed by Article 5.13(A), to conduct an alternate Exclusive Operation in the wellbore. If no Exclusive Operation is timely proposed, or if an Exclusive Operation is timely proposed but is not commenced within the applicable time periods under Article 7.2, such well shall be plugged and abandoned. (D) Any well plugged and abandoned under this Agreement shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of the Parties who participated in the cost of drilling such well. (E) Notwithstanding anything to the contrary in this Article 10.1 or elsewhere in this Agreement: (1) If the Operating Committee approves a decision to plug and abandon a well from which Hydrocarbons have been produced and sold, any Party voting against the decisions may propose, within five (5) days after the time specified in Article 5.6 or Article 5.12 has expired, to take over the entire well as an Exclusive Operation. Any Party originally participating in the well shall be entitled to participate in the operation of the well as an Exclusive Operation by response notice within ten (10) Days after receipt of the notice proposing the Exclusive Operation. The Alliance Operating Agreement - 20F - -38- Consenting Parties shall be entitled to continue producing only from the Zone open to production at the time they assumed responsibility for the well and shall not be entitled to drill a substitute well in the event that the well taken over becomes impaired or fails. (2) Each Non-Consenting Party shall be deemed to have relinquished free of cost to the Consenting Parties in proportion to their Participating Interests all of its interest in the wellbore of a produced well and related equipment in accordance with Article 7.4(B). The Consenting Parties shall thereafter bear all cost and liability of plugging and abandoning such well in accordance with applicable regulations, to the extent the Parties are or become obligated to contribute to such costs and liabilities, and shall indemnify the Non-Consenting Parties against all such costs and liabilities. (3) Subject to Article 7.11 (F), Operator shall continue to operate a produced well for the account of the Consenting Parties at the rates and charges contemplated by this Agreement, plus any additional cost and charges which may arise as a result of the separate allocation of interest in such well. 10.2 ABANDONMENT OF EXCLUSIVE OPERATIONS This Article X shall apply MUTATIS MUTANDIS to the abandonment of an Exclusive Well or any well in which an Exclusive Operation has been conducted (in which event all Parties having the right to conduct further operations in such well shall be notified and have the opportunity to conduct Exclusive Operations in the well in accordance with the provisions of this Article X). ARTICLE XI SURRENDER, EXTENSIONS AND RENEWALS 11.1 SURRENDER (A) The Operating Committee shall in accordance with Article V of the Concession Agreement determine those portions of the Concession Area to be relinquished from time to time. The Operator shall propose to the Operating Committee the area to be relinquished at least sixty (60) Days prior to the end of the applicable year or Exploration Period. If a sufficient vote of the Operating Committee cannot be attained, then the proposal supported by a simple majority of the Participating Interests shall be adopted. If no proposal attains the support of a simple majority of the Participating Interests, then the proposal receiving the largest aggregate Participating Interest vote shall be adopted. In the event of a tie, the Operator shall choose among the proposals receiving the largest aggregate Participating Interest vote. The Parties shall execute any and all documents and take such other actions as may be necessary to effect the surrender. Each Party renounces all claims and causes of action against Operator and any other Parties on account of any area surrendered in accordance with the foregoing but against its recommendation if Hydrocarbons are subsequently discovered under the surrendered area. (B) A surrender of all or any part of the Concession Area which is not required by the Concession Agreement shall require the unanimous consent of the Parties. 11.2 EXTENSION OF THE TERM (A) A proposal by any Party to enter into or extend the term of any Exploration Period or any phase of the Concession Agreement, or a proposal to extend the term of the Concession Agreement, shall be brought before the Operating Committee pursuant to Article V. (B) Any Party shall have the right to enter into or extend the term of any Exploration Period or any phase of the Concession Agreement or to extend the term of the Concession Agreement, regardless of the level of support in the Operating Committee. If any Party or Parties take such action, any Party not wishing to extend shall have a right to withdraw, subject to the requirements of Article XIII. Alliance Operating Agreement - 20F - -39- ARTICLE XII TRANSFER OF INTEREST OR RIGHTS 12.1 Obligations (A) Subject always to the requirements of the Concession Agreement, the transfer of all or part of a Party's Participating Interest, excepting transfers pursuant to Article VIII or Article XIII, shall be effective only if it satisfies the terms and conditions of this Article XII. (B) Except in the case of a Party transferring all of its Participating Interest, no transfer shall be made by any Party which results in the transferor or the transferee holding a Participating Interest of less than five percent (5%) or holding any interest other than a Participating Interest in the Concession Agreement, the Concession Area and this Agreement. (C) The transferring Party shall, notwithstanding the transfer, be liable to the other Parties for any obligations, financial or otherwise, which have vested, matured or accrued under the provisions of the Concession Agreement or this Agreement prior to such transfer. Such obligations shall include, without limitation, any proposed expenditure approved by the Operating Committee prior to the transferring Party notifying the other Parties of its proposed transfer. (D) The transferee shall have no rights in and under the Concession Agreement, the Concession Area or this Agreement unless and until it obtains any necessary Government approval and expressly undertakes in an instrument satisfactory to the other Parties to perform the obligations of the transferor under the Concession Agreement and this Agreement in respect of the Participating Interest being transferred and furnishes any guarantees required by the Government or the Concession Agreement. (E) A transferee, other than an Affiliate, shall have no rights in and under the Concession Agreement, the Concession Area or this Agreement unless each Party has consented in writing to such transfer, which consent shall be denied only if such transferee fails to establish to the reasonable satisfaction of each Party its capability to perform its obligations under the Concession Agreement and this Agreement. (F) Nothing contained in this Article XII shall prevent a Party from mortgaging, pledging, charging or otherwise encumbering all or part of its interest in the Concession Area and in and under this Agreement for the purpose of security relating to finance provided that: (1) such Party shall remain liable for all obligations relating to such interest; (2) the encumbrance shall be subject to any necessary approval of the Government and be expressly subordinated to the rights of the other parties under this Agreement; and (3) such Party shall ensure that any such mortgage, pledge, charge or encumbrance shall be expressed to be without prejudice to the provisions of this Agreement. 12.2 RIGHTS (A) Each Party shall have the right, subject to the provisions of Article 12.1, to freely transfer its Participating Interest to an Affiliate or to a third party transferee. Alliance Operating Agreement - 20F - -40- ARTICLE XIII WITHDRAWAL FROM AGREEMENT 13.1 RIGHT OF WITHDRAWAL (A) Subject to the provisions of this Article XIII, any Party may withdraw from this Agreement and the Concession Agreement by giving notice to all other Parties stating its decision to withdraw. Such notice shall be unconditional and irrevocable when given, except as may be provided in Article 13.7. (B) The effective date of withdrawal for a withdrawing Party shall be the end of the calendar month following the calendar month in which the notice of withdrawal is given, provided that if all Parties elect to withdraw, the effective date of withdrawal for each Party shall be the date determined by Article 13.9. 13.2 PARTIAL OR COMPLETE WITHDRAWAL (A) Within thirty (30) Days of receipt of each withdrawing Party's notification, each of the other Parties may also give notice that it desires to withdraw from this Agreement and the Concession Agreement. Should all parties give notice of withdrawal, the Parties shall proceed to abandon the Concession Area and terminate the Concession Agreement and this Agreement. If less than all of the Parties give such notice of withdrawal, then the withdrawing Parties shall take all steps to withdraw from the Concession Agreement and this Agreement on the earliest possible date and execute and deliver all necessary instruments and documents to assign their Participating Interest to the Parties which are not withdrawing, without any compensation whatsoever, in accordance with the provisions of Article 13.6. (B) If any part of the withdrawing Party's Participating Interest remains unclaimed after sixty (60) Days from the date of the first notice of withdrawal, the Parties shall be deemed to have decided to withdraw from the Concession and this Agreement, unless at least one Party agrees to accept the unclaimed Participating Interest. (C) Any Party withdrawing under Article 11.2(B) or under this Article XIII shall, at its option, (1) withdraw from the entirety of the Concession Area; or (2) withdraw only from all exploration activities under the Concession, but not from any Development Lease whether appraised or not, made prior to such withdrawal. A Party withdrawing pursuant to this Article 13.2(C)(2) shall retain its rights in the Joint Property, but only insofar as they relate to any such Development Lease, and shall abandon all other rights in the Joint Property. 13.3 RIGHTS OF A WITHDRAWING PARTY A withdrawing Party shall have the right to receive its Entitlement of Hydrocarbons produced through the effective date its withdrawal. The withdrawing Party shall be entitled to receive all information to which such Party is otherwise entitled under this Agreement until the effective date of its withdrawal. After giving its notification of withdrawal, a Party shall not be entitled to vote on any matters coming before the Operating Committee, other than matters for which such Party has financial responsibility. Alliance Operating Agreement - 20F - -41- 13.4 OBLIGATIONS AND LIABILITIES OF A WITHDRAWING PARTY (A) A withdrawing Party shall, following its notification of withdrawal, remain liable only for its share of the following: (1) cost of Joint Operations, and Exclusive Operations in which it has agreed to participate, that were approved by the Operating Committee or Consenting Parties as part of a Work Program and Budget or APE prior to such Party's notification of withdrawal, regardless of when they are actually incurred; (2) any Minimum Work Obligations for the current period or phase of the Concession Agreement, and for any subsequent period or phase which has been approved pursuant to Article 11.2 and with respect to which such Party has failed to timely withdraw under Article 13.4(B); (3) emergency expenditures as described in Articles 4.2(B)(11) and 13.5; (4) all other obligations and liabilities of the Parties or Consenting Parties, as applicable, with respect to acts or omissions under this Agreement prior to the effective date of such Party's withdrawal for which such Party would have liable, had it not withdrawn from this Agreement; and (5) in the case of a partially withdrawing Party, any costs and liabilities with respect to Development Leases, Commercial Discoveries and Discoveries from which it has not withdrawn. The obligations and liabilities for which a withdrawing Party remains liable shall specifically include its share of any costs of plugging and abandoning wells or portions of wells in which it participated (or was required to bear a share of the costs pursuant to Article 13.4(A)(1), to the extent such costs of plugging and abandoning are payable by the parties under the Concession Agreement. Any liens, charges and other encumbrances which the withdrawing Party place on such Party's Participating Interest prior to its withdrawal shall be fully satisfied or released, at the withdrawing Party's expense, prior to its withdrawal. A Party's withdrawal shall not relieve it from liability to the non-withdrawing Parties with respect to any obligations or liabilities attributable to the withdrawing Party under this Article XIII merely because they are not identified or identifiable at the time of withdrawal. (B) Notwithstanding the foregoing, a Party shall not be liable for any operations or expenditures it voted against (other than operations and expenditures described in Article 13.4(A)(2) or 13.4(A)(3) if it sends notification of its withdrawal within five (5) Days (or within twenty- four (24) hours if the drilling rig to be used in such operation is standing by on the Concession Area) of the Operating Committee vote approving such operation or expenditure. Likewise, a Party voting against voluntarily entering into or extending of an Exploration Period or Exploitation Period of any phase of the Concession Agreement or voluntarily extending the Concession Agreement shall not be liable for the Minimum Work Obligations associated therewith provided that it sends notification of its withdrawal within thirty (30) 38 Days of such vote pursuant to Article 11.2. 13.5 EMERGENCY If a well goes out of control or a fire, blowout, sabotage or other emergency occurs prior to the effective date of a Party's withdrawal, the withdrawing Party shall remain liable for its Participating Interest share of the costs of such emergency, regardless of when they are actually incurred. 13.6 ASSIGNMENT A withdrawing Party shall assign its Participating Interest free of cost to each of the non-withdrawing Parties in the proportion which each of their Participating Interests (prior to the withdrawal) bears to the total Participating Interest of all the non-withdrawing Parties (prior to the withdrawal), unless the non-withdrawing Parties agree otherwise. The expenses associated with the withdrawal and assignment shall be borne by the withdrawing Party. Alliance Operating Agreement - 20F - -42- 13.7 APPROVALS A withdrawing Party shall promptly join in such actions as may be necessary or desirable to obtain any Government approvals required in connection with the withdrawal and assignments. The non-withdrawing Parties shall use reasonable efforts to assist the withdrawing Party in obtaining such approvals. Any penalties or expenses incurred by the Parties in connection with such withdrawal shall be borne by the withdrawing Party. If the Government does not approve a Party's withdrawal and assignment to the other Parties, then the withdrawing Party shall at its option either (1) retract its notice of withdrawal by notice to the other Parties and remain a Party as if such notice of withdrawal had never been sent or (2) hold its Participating Interest in trust for the sole and exclusive benefit of the non-withdrawing Parties with the right to be reimbursed by the non-withdrawing Parties for any subsequent costs and liabilities incurred by it for which it would not have been liable, had it successfully withdrawn. 13.8 SECURITY (A) A Party withdrawing from this Agreement and the Concession Agreement pursuant to this Article XIII shall provide Security satisfactory to the other Parties to satisfy any obligations or liabilities which were approved or accrued prior to notice of withdrawal, but which become due after its withdrawal, including, without limitation, Security to cover the costs of an abandonment, if applicable. (B) Failure to provide Security shall constitute default under this Agreement. (C) "Security" means a standby letter of credit issued by a bank or an on demand bond issued by a surety corporation, such bank or corporation haying a credit rating indicating it has sufficient worth to pay its obligations in all reasonably foreseeable circumstances. 13.9 WITHDRAWAL OR ABANDONMENT BY ALL PARTIES In the event all Parties decide to withdraw, the Parties agree that they shall be bound by the terms and conditions of this Agreement for so long as may be necessary to wind up the affairs of the Parties with the Government, to satisfy any requirements of applicable law and to facilitate the sale, disposition or abandonment of property or interests held by the Joint Account. ARTICLE XIV RELATIONSHIP OF PARTIES AND TAX 14.1 RELATIONSHIP OF PARTIES The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective. It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create a mining or other partnership, joint venture or association or (except as explicitly provided in this Agreement) a trust. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in this Agreement. 14.2 TAX Each Party shall be responsible for reporting and discharging its own tax measured by the profit or income of the Party and the satisfaction of such Party's share of all Concession Agreement obligations under the Concession Agreement and under this Agreement. Each Party shall protect, defend and indemnify each other Party, from any and all loss, cost or liability arising from the indemnifying Party's failure to report and discharge such taxes or satisfy such obligations. The Parties intend that all income and all tax benefits (including. but not limited to, deductions, depreciation, credits and capitalization) with respect to the expenditures made by the Parties hereunder will be allocated by the Government tax authorities to the Parties based on the share of each tax item actually received or Alliance Operating Agreement - 20F - -43- borne by each Party. If such allocation is not accomplished due to the application of the laws and regulations of the Government or other government action, the Parties shall attempt to adopt mutually agreeable arrangements that will allow the Parties to achieve the financial results intended. Operator shall provide each Party, in a timely manner and at such Party's sole expense, with such information with respect to Joint Operations as such Party may reasonably request for preparation of its tax returns or responding to any audit or other tax proceeding. 14.3 UNITED STATES TAX ELECTION (A) If, for United States federal income tax purposes, this Agreement and the operations under this Agreement are regarded as a partnership (and if the Parties have not agreed to form a tax partnership) each "U.S. Party" (as defined below) elects to be excluded from the application of all of the provisions of Subchapter "K", Chapter 1, Subtitle "A" of the United States Internal Revenue Code of 1986, as amended (the "Code",), as permitted and authorized by Section 761 (a) of the Code and the regulations promulgated under the Code. The Operator is authorized and directed to execute and file for each U.S. Party such evidence of this election as may be required by the Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by United States Treasury Regulations Sections 1.761-2 and 1.6031-1(d)(2), and shall provide a copy thereof to each U.S. Party. Should there be any requirement that any U.S. Party give further evidence of this, each U.S. Party shall execute such documents and furnish such other evidence as may be required by the Internal Revenue Service or as may be necessary to evidence this election. (B) No Party shall give any notice or take any other action inconsistent with the election made above. If any income tax laws of any state or other political subdivision of the United States or any future income tax (laws of the United States or any such political subdivision contain provisions similar to those in Subchapter "K", Chapter 1, Subtitle "A" of the Code, under which an election similar to that provided by Section 761(a) of the Code is permitted, each U.S. Party shall make such election as may be permitted or required by such laws. In making the foregoing election, each U.S. Party states that the income derived by it from operations under this Agreement can be adequately determined without the computation of partnership taxable income. (C) For the purposes of this Article XIV, "U.S. Party" shall mean any Party which is subject to the income tax laws of the United States in respect of operations under this Agreement. (D) No activity shall be conducted under this Agreement that would cause any Party that is not a U.S. Party to be deemed to be engaged in a trade or business within the United States under applicable tax laws and regulations. (E) A Party which is not a U.S. Party shall not be required to do any act or execute any instrument which might subject it to the taxation jurisdiction of the United States. Alliance Operating Agreement - 20F - -44- ARTICLE XV CONFIDENTIAL INFORMATION -PROPRIETARY TECHNOLOGY 15.1 CONFIDENTIAL INFORMATION (A) Subject to the provisions of the Concession Agreement, the Parties agree that all information and data acquired or obtained by any Party in respect of Joint Operations shall be considered confidential and shall be kept confidential and not be disclosed during the term of the Concession Agreement to any person or entity not a Party to this Agreement, except: (1) to an Affiliate, provided such Affiliate maintains confidentiality as provided in this Article XV; (2) to a governmental agency or other entity when required by the Concession Agreement; (3) to the extent such data and information is required to be furnished in compliance with any applicable laws or regulations, or pursuant to any legal proceedings or because of any order of any court binding upon a party; (4) to prospective or actual contractors, consultants and attorneys employed by any Party where disclosure of such data or information is essential to such contractor's, consultant's or attorney's work; (5) to a bona fide prospective transferee of a Party's Participating Interest (including an entity with whom a Party or its Affiliates are conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate's shares); (6) to a bank or other financial institution to the extent appropriate to a Party arranging for funding; (7) to the extent such data and information must be disclosed pursuant to any rules or requirements of any government or stock exchange having jurisdiction over such Party, or its Affiliates; provided that if any Party desires to disclose information in an annual or periodic report to its Affiliates' shareholders and to the public and such disclosure is not required pursuant to any rules or requirements of any government or stock exchange, then such Party shall comply with Article 20.3; (8) to its respective employees for the purposes of Joint Operations, subject to each Party taking customary precautions to ensure such data and information is kept confidential; and (9) any data or information which, through no fault of a Party, becomes a part of the public domain. (B) Disclosure as pursuant to Article l5.1 (A)(4) and (5), shall not be made unless prior to such disclosure the disclosing Party has obtained a written undertaking from the recipient party to keep the data and information strictly confidential for at least two (2) years and not to use or disclose the data and information except for the express purpose for which disclosure is to be made. 15.2 CONTINUING OBLIGATIONS Any Party ceasing to own a Participating Interest during the term of this Agreement shall nonetheless remain bound by the obligations of confidentiality in Article 15.1 and any disputes shall be resolved in accordance with Article XVIII. 15.3 PROPRIETARY TECHNOLOGY Nothing in this Agreement shall require a Party to divulge proprietary technology to the other Parties; provided that where the cost of development of proprietary technology has been charged to the Joint Account, such proprietary technology shall be disclosed to all Parties bearing a portion of such cost and may be used by any such Party or its Affiliates in other operations. Alliance Operating Agreement - 20F - -45- 15.4 TRADES Notwithstanding the foregoing provisions of this Article XV, Operator may, with approval of the Operating Committee, make well trades and data trades for the benefit of the Parties, with any data so obtained to be furnished to all Parties who participated in the costs of the data that was traded. Operator shall cause any third party to such trade to enter into an undertaking to keep the traded data confidential. ARTICLE XVI FORCE MAJEURE 16.1 OBLIGATIONS If as a result of Force Majeure any Party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligations to pay any amounts due or to furnish security, then the obligations of the Party giving such notice, so far as and to the extent that the obligations are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused and for such reasonable period thereafter as may be necessary for the Party to put itself in the same position that it occupied prior to the Force Majeure, but for no longer period. The Party claiming Force Majeure shall notify the other Parties of the Force Majeure within a reasonable time after the occurrence of the facts relied on and shall keep all Parties informed of all significant developments. Such notice shall give reasonably full particulars of the Force Majeure, and also estimate the period of time which the Party will probably require to remedy the Force Majeure. The affected Party shall use all reasonable diligence to remove or overcome the Force Majeure situation as quickly as possible in an economic manner, but shall not be obligated to settle any labor dispute except on terms acceptable to it and all such disputes shall be handled within the sole discretion of the affected Party. 16.2 DEFINITION OF FORCE MAJEURE For the purposes of this Agreement, "Force Majeure" shall have the same meaning as is set out in the Concession Agreement. ARTICLE XVII NOTICES Except as otherwise specifically provided, all notices authorized or required between the Parties by any of the provisions of this Agreement, shall be in writing, in English and delivered in person or by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission, and addressed to such Parties as designated below. Oral communication does not constitute notice for purposes of this Agreement, and telephone numbers for the Parties are listed below as a matter of convenience only. The originating notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. The second or any responsive notice shall be deemed delivered when received. "Received" for purposes of this Article XVII shall mean actual delivery of the notice to the address of the Party to be notified specified in accordance with this Article XVII. Each Party shall have the right to change its address at any time and/or designate that copies of all such notices be directed to another person at another address by giving written notice thereof to all other parties. Alliance Operating Agreement - 20F - -46- Alliance Egyptian National Exploration Company c/o Alliance International Petroleum Inc. Churchill House #9 West Hill Street Nassau, Bahamas Attention: Jeffrey Waterous Facsimile: (242) 356-0507 Telephone: (242) 356-2040 GHP Exploration (Egypt) Ltd. 1900 West Loop South Suite 900 Houston, Texas 77027 Attention: Barry Lasker Facsimile: (713) 626-9374 Telephone: (713) 626-9373 ARTICLE XVIII APPLICABLE LAW AND DISPUTE RESOLUTION 18.1 APPLICABLE LAW This Agreement shall be governed by, construed, interpreted and applied in accordance with the laws of England. excluding any choice of law rules which would refer the matter to the laws of another jurisdiction. 18.2 DISPUTE RESOLUTION (A) Any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement or the operations carried out under this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration in accordance with this Article 18.2. Any Party may submit such a dispute, controversy or claim to arbitration by notice to the other Parties. (B) A single arbitrator shall be appointed by unanimous consent of the Parties. If the Parties, however, cannot reach agreement on an arbitrator within forty-five (45) Days of the submission of a notice of arbitration, the administrator (the American Arbitration Association) for the implementation of such procedure shall be the chief justice of the London Court of International Arbitration, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. (C) Unless otherwise expressly agreed in writing by the Parties to the arbitration proceedings: (1) The arbitration proceedings shall be held in Dallas, Texas; (2) The arbitration proceedings shall be conducted in the English language and the arbitrator(s) shall be fluent in the English language; (3) The arbitrator(s) shall be and remain at all times wholly independent and impartial; (4) The arbitration proceedings shall be conducted under the International Arbitration Rules of the American Arbitration Association, as amended from time to time; Alliance Operating Agreement - 20F - -47- (5) Any procedural issues not determined under the arbitrator rules selected pursuant to Article 18.2(C)(4) shall be determined by the arbitration act and any other applicable laws of London, England, other than those laws which would refer the matter to another jurisdiction; (6) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the matter determined by the arbitrator(s); (7) The decision of the sole arbitrator or a majority of the arbitrators, as the case may be, shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accountings presented to the arbitrator; made and promptly paid in U.S. dollars free of any deduction or offset; and any costs or fees incident to enforcing the award, shall to the maximum extent permitted by law be charged against the Party resisting such enforcement; (8) Consequential, punitive or other similar damages shall not be allowed except those payable to third parties for which liability is allocated among the Parties by the arbitral award; (9) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at the Agreed Interest Rate; (10) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be; (11) Whenever the Parties are of more than one nationality, the single arbitrator or the presiding arbitrator, as the case may be, shall not be of the same nationality as any of the Parties or their ultimate parent entities; (12) For purposes of allowing the arbitration provided in this Article XVIII, the enforcement and execution of any arbitration decision and award, and the issuance of any attachment or other interim remedy, any governmental body or agency, including if applicable the EGPC, which becomes a Party to this Agreement agrees to waive all sovereign immunity by whatever name or title with respect to disputes, controversies or claims arising out of or in relation to or in connection with this Agreement or the operations carried out under this Agreement; (13) The arbitration shall proceed in the absence of a Party who, after due notice, fails to answer or appear. An award shall not be made solely on the default of a Party, but the arbitrator(s) shall require the party who is present to submit such evidence as the arbitrator(s) may determine is reasonably required to make an award; and (14) If an arbitrator should die, withdraw or otherwise become incapable of serving, or refuse to serve, a successor arbitrator shall be selected and appointed in the same manner as the original arbitrator. Alliance Operating Agreement - 20F - -48- ARTICLE XIX ALLOCATION OF COST RECOVERY RIGHTS 19.1 ALLOCATION OF TOTAL PRODUCTION For the purposes of recovery of Petroleum Costs, the total quantity of Hydrocarbons which are produced and saved from all Development Leases in a Calendar Quarter and to which the Parties are entitled under the Concession shall be designated as either Cost Oil or Production Sharing Oil. 19.2 ALLOCATION OF COST OIL Subject to Article 3.1 (c) of the Participation Agreement and Article 19.4, Cost Oil shall be allocated in accordance with the Parties' respective Participating Interests. The allocation of Cost Oil shall be as required to recover, in the sequence incurred, all Petroleum Costs and which are recoverable in such Calendar Quarter. 19.3 ALLOCATION OF PRODUCTION SHARING OIL Production Sharing Oil shall be allocated among the Parties in proportion to their respective Participating Interests. 19.4 EXCLUSIVE OPERATIONS AND EXTENSIONS OF THE EXPLORATION PERIOD Prior to the extension of the term of the Exploration Period and/or Exploration Sub-Period by less than all Parties or, where practicable, prior to the conduct of an Exclusive Operation (or if not, as soon thereafter as is practicable), the Parties shall meet to determine: (A) the allocation of Cost Oil and Production Sharing Oil between Development Leases in which the Parties have different Participating Interests; (B) the allocation of Cost Oil and Production Sharing Oil between the Parties where Petroleum Costs have been incurred but do not relate to Joint Operations resulting in the creation of a Development Lease but which become recoverable as a result of production from another Development Lease elsewhere in the Concession Area, provided always that Petroleum Costs in relation to a Development Lease shall be recovered first; (C) without prejudice to Article 7.9, the manner in which the bonuses contemplated in Article IX of the Concession will be discharged; and (D) such other matters as the Parties may agree. ARTICLE XX GENERAL PROVISIONS 20.1 WARRANTIES AS TO NO PAYMENTS, GIFTS AND LOANS Each of the Parties warrants that neither it nor its affiliates has made or will make, with respect to the matters provided for hereunder, any offer, payment, promise to pay or authorization of the payment of any money, or any offer, gift, promise to give or authorization of the giving of anything of value, directly or indirectly, to or for the use or benefit of any official or employee of the Government or EGPC or to or for the use or benefit of any political party, official, or candidate for the purpose of influencing an official act or decision of that person; inducing that person to do or omit to do any act in violation of his or her lawful duty; or inducing that person Alliance Operating Agreement - 20F - -49- to use his or her influence with the Government or EGPC to affect or influence any Government or EGPC decision; unless such offer, payment, gift, promise or authorization is authorized by the written laws or regulations of the Arab Republic of Egypt. Each of the Parties further warrants that neither it nor its affiliates has made or will make any such offer, payment, gift, promise or authorization to or for the use or benefit of any other person if the Party knows, has a firm belief, or is aware that there is a high probability that the other person would use such offer, payment, gift, promise or authorization for any of the purposes described in the preceding sentence. The foregoing warranties do not apply to any facilitating or expediting payment to secure the performance of routine Government action. Routine Government action, for purposes of this Article 20.1, shall not include, among other things, Government action regarding the terms, award or continuation of the Concession. Each Party shall respond promptly, and in reasonable detail, to any notice from any other Party or its auditors pertaining to the above stated warranty and representation and shall furnish documentary support for such response upon request from such other Party. 20.2 CONFLICTS OF INTEREST (A) Operator undertakes that it shall avoid any conflict of interest between its own interests (including the interests of Affiliates) and the interests of the other Parties in dealing with suppliers, customers and all other organizations or individuals doing or seeking to do business with the Parties in connection with activities contemplated under this Agreement. (B) The provisions of the preceding paragraph shall not apply to: (1) Operator's performance which is in accordance with the local preference laws or policies of the Government; or (2) Operator's acquisition of products or services from an Affiliate, or the sale thereof to an Affiliate, made in accordance with the terms of this Agreement. 20.3 PUBLIC ANNOUNCEMENTS (A) Operator shall be responsible for the preparation and release of all public announcements and statements regarding this Agreement or the Joint Operations; provided that, no public announcement or statement shall be issued or made unless prior to its release all the Parties have been furnished with a copy of such statement or announcement and the approval of the Operating Committee has been obtained. [Where a public announcement or statement becomes necessary or desirable because of danger to or loss of life, damage to property or pollution as a result of activities arising under this Agreement, Operator is authorized to issue and make such announcement or statement without prior approval of the Operating Committee, but shall promptly furnish all the Parties with a copy of such announcement or statement. (B) If a Party wishes to issue or make any public announcement or statement regarding this Agreement or the Joint Operations, it shall not do so unless prior to its release, such Party furnishes all the Parties with a copy of such announcement or statement, and obtains the approval of the Operating Committee; provided that, notwithstanding any failure to obtain such approval, no Party shall be prohibited from issuing or making any such public announcement or statement if it is necessary to do so in order to comply with the applicable laws, rules or regulations of any government, legal proceedings or stock exchange having jurisdiction over such Party or its Affiliates as set forth in Articles 15.1(A)(3) and (7). 20.4 SUCCESSORS AND ASSIGNS Subject to the limitations on transfer contained in Article XII, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Parties. Alliance Operating Agreement - 20F - -50- 20.5 WAIVER No waiver by any Party of anyone or more defaults by another Party in the performance of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same Party, whether of a like or of a different character. Except as expressly provided in this Agreement no Party shall be deemed to have waived, released or modified any of its rights under this Agreement unless such Party has expressly stated, in writing, that it does waive, release or modify such right. 20.6 SEVERANCE OF INVALID PROVISIONS If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement. 20.7 MODIFICATIONS Except as is provided in Articles 11.2(B) and 20.6, there shall be no modification of this Agreement or the Concession Agreement except by written consent of all Parties. 20.8 HEADINGS The topical headings used in this Agreement are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Agreement relating to any topic are to be found in any particular Article. 20.9 SINGULAR AND PLURAL Reference to the singular includes a reference to the plural and vice versa. 20.10 GENDER Reference to any gender includes a reference to all other genders. 20.11 COUNTERPART EXECUTION This Agreement may be executed in as many original counterparts as there are Parties and each such Counterpart shall be deemed an original Agreement for all purposes; provided no Party shall be bound to this Agreement unless and until all Parties have executed a counterpart. For purposes of assembling all counterparts into one document, Operator is authorized to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart. Alliance Operating Agreement - 20F - -51- 20.12 ENTIRETY AND CONFLICT This Agreement is the entire agreement of the Parties with respect to the subject matter contained herein and supersedes all prior understandings and negotiations of the Parties, with the exception of Articles II and III of the Participation Agreement and the First Amendment to Participation Agreement dated February 4, 2000. In the event of a conflict between Article II or Article III of the Participation Agreement or the First Amendment to Participation Agreement and this Agreement, the terms of the Participation Agreement or First Amendment to Participation Agreement shall govern to the extent of the conflict. IN WITNESS of their agreement each Party has caused its duly authorized representative to sign this instrument on the date indicated below such representative's signature. ALLIANCE EGYPTIAN NATIONAL EXPLORATION COMPANY By: ----------------------- (Print or type name) Title: -------------------- Date: --------------------- GHP EXPLORATION (EGYPT) LTD. By: ----------------------- (Print or type name) Title: -------------------- Date: --------------------- Alliance Operating Agreement - 20F EXHIBIT "A" ACCOUNTING PROCEDURE ATTACHED TO THAT CERTAIN OPERATING AGREEMENT DATED JANUARY 1, 1999 Between: Alliance Egyptian National Exploration Company And GHP Exploration (Egypt) Ltd. Alliance Operating Agreement - 20F TABLE OF CONTENTS SECTION I -GENERAL PROVISIONS 1 1.1 Purpose 1 1.2 Conflict with Agreement 1 1.3 Definitions 1 1.4 Joint Account Records and Currency Exchange 2 1.5 Statements and Billings 3 1.6 Payments and Advances 3 1.7 Adjustments 5 1.8 Audits 6 1.9 Allocations 7 SECTION II -DIRECT CHARGES 7 2.1 Licenses, Permits, Etc. 7 2.2 Salaries, Wages and Related Costs 7 2.3 Employee Relocation Costs 8 2.4 Offices, Camps, and Miscellaneous Facilities 9 2.5 Material 9 2.6 Exclusively Owned Equipment and Facilities of Operator and Affiliates 9 2.7 Services 9 2.8 Insurance 10 2.9 Damages and Losses to Property 10 2.10 Litigation and Legal Expenses 11 2.11 Taxes and Duties 11 2.12 Other Expenditures 11 SECTION III -INDIRECT CHARGES 12 3.1 Purpose 12 3.2 Amount 12 3.3 Exclusions 12 3.4 Indirect Charge for Projects 13 3.5 Changes 13 SECTION IV -ACQUISITION OF MATERIAL 13 4.1 Acquisitions 13 4.2 Materials Furnished by Operator 13 4.3 Premium Prices 14 4.4 Warranty of Material Furnished by Operator 15 SECTION V -DISPOSAL OF MATERIALS 15 5.1 Disposal 15 5.2 Material Purchased by a Party of or Affiliate 15 5.3 Division in Kind 15 5.4 Sales to Third Parties 15 SECTION VI INVENTORIES 16 6.1 Periodic Inventories - Notice and Representation 16 6.2 Special Inventories Alliance Operating Agreement - 20F EXHIBIT A ACCOUNTING PROCEDURE Attached to and made part of the Operating Agreement, hereinafter called the "Agreement," effective as of the 1st day of January, 1999, by and between Alliance Egyptian National Exploration Company and GHP Exploration (Egypt) Ltd. SECTION I GENERAL PROVISIONS 1.1 PURPOSE 1.1.1 The purpose of this Accounting Procedure is to establish equitable methods for determining charges and credits applicable to operations under the Agreement which reflect the costs of Joint Operations to the end that no Party shall gain or lose in relation to other Parties. It is intended that approval of the Work Program and Budget and AFE's as provided in the Agreement shall constitute approval of the rates and allocation methods used therein to currently charge the Joint Account, but subject to verification by audit at a later date as provided in the Accounting Procedure. 1.1.2 The Parties agree, however, that if the methods prove unfair or inequitable to Operator or Non-Operators, the Parties shall meet and in good faith endeavor to agree on changes in methods deemed necessary to correct any unfairness or inequity. 1.2 CONFLICT WITH AGREEMENT In the event of a conflict between the provisions of this Accounting Procedure and the provisions of the Agreement to which this Accounting Procedure is attached, the provisions of the Agreement shall prevail. 1.3 DEFINITIONS The definitions contained in Article I of the Agreement to which this Accounting Procedure is attached shall apply to this Accounting Procedure and have the same meanings when used herein. Certain terms used herein are defined as follows: "COUNTRY OF OPERATIONS" shall mean the Arab Republic of Egypt; "EXCLUSIVE OPERATION ACCOUNT" shall mean the account maintained by the Operator to record all costs and expenses incurred in connection with an Exclusive Operation. "MATERIAL" shall mean personal property (including, but not limited to, equipment and supplies) acquired and held for use in Joint Operations. Alliance Operating Agreement - 20F - -2- 1.4 JOINT ACCOUNT RECORDS AND CURRENCY EXCHANGE 1.4.1 Operator shall at all times maintain and keep true and correct records of the production and disposition of all liquid and gaseous Hydrocarbons, and of all costs and expenditures under the Agreement, as well as other data necessary or proper for the settlement of accounts between the Parties hereto in connection with their rights and obligations under the Agreement and to enable Parties to comply with their respective applicable income tax and other laws. 1.4.2 Operator shall maintain accounting records pertaining to Joint Operations in accordance with generally accepted accounting practices used in the international petroleum industry and any applicable statutory obligations of the Country of Operations as well as the provisions of the Concession Agreement and the Agreement. Operator shall maintain its Accounting records in its office in the Country of Operations, unless otherwise directed by the Operating Committee. In addition, all original records must be kept in the Country of Operations unless the Government agrees otherwise. 1.4.3 Joint Account records shall be maintained by Operator in the English language and in United States of America ("U.S.") currency and in such other language and currency as may be required by the laws of the Country of Operations. All U.S. dollar expenditures shall be charged in the amount expended. All Egyptian Pound expenditures shall be converted to U.S. dollars at the applicable rate of exchange issued by the Central Bank of Egypt on the first day of the month in which expenditures are recorded and all other non-U.S. dollar expenditures shall be translated to U.S. dollars at the arithmetic average buying and selling exchange rates for such currency as quoted by National Westminster Bank Limited, London at 10:30 a.m., G.M.T., on the first day of the month in which the expenditures are recorded. A record shall be kept of the exchange rates used in translating Egyptian Pounds or other non-U.S. dollar expenditures to U.S. dollars. 1.4.4 Any currency exchange gain or losses shall be credited or charged to the Joint Account, except as otherwise specified in this Accounting Procedure. 1.4.5 This Accounting Procedure shall apply, MUTATIS MUTANDIS, to Exclusive Operations in the same manner that it applies to Joint Operations; provided, however, that the charges and credits applicable to Consenting Parties shall be distinguished by an Exclusive Operation Account. For the purpose of determining and calculating the remuneration of the Consenting Parties, including the premiums for Exclusive Operations, the costs and expenditures shall be expressed in U.S. currency (irrespective of the currency in which the expenditure was incurred). 1.4.6 Unless otherwise agreed to by all the Parties, the accrual basis of accounting shall be used in preparing accounts concerning the Joint Operations. Alliance Operating Agreement - 20F - -3- 1.5 STATEMENTS AND BILLINGS 1.5.1 Unless otherwise agreed by the Parties, Operator shall submit monthly to each Party, on or before the fifteenth (15th) Day of each month, statements of the costs and expenditures incurred during the prior month, indicating by appropriate classification the nature thereof, the corresponding budget category, and the portion of such costs charged to each of the Parties and crediting each Party for its share of all income and other amounts received. These statements, at a minimum, shall contain the following information: -advances of funds setting forth the currencies received from each party -the share of each Party in total expenditures -the current account balance of each Party -summary of costs, credits, and expenditures on a current month, year-to-date, and inception-to-date basis or other periodic basis, as agreed by Parties -details of unusual charges and credits in excess of ten thousand U.S. dollars (U.S.$10,000.00). 1.5.2 Operator shall, upon request, furnish a description of the accounting classifications used by it. 1.5.3 Amounts included in the statements and billings shall be expressed in U.S. currency and reconciled to the currencies advanced. 1.5.4 Operator shall be responsible for preparing each Party's accounting and tax reports to meet the requirements of the Country of Operations. Each party shall be responsible for preparing its own accounting and tax reports to meet the requirements of all other countries to which it may be subject. Operator, to the extent that the information is reasonably available from the Joint Account records, shall provide Non-Operators in a timely manner with the necessary statements to facilitate the discharge of such responsibility. 1.6 PAYMENTS AND ADVANCES 1.6.1 Upon approval of any Work Program and Budget, if Operator so requests, each Non-Operator shall advance its share of estimated cash requirements for the succeeding month's operations. Each such cash call shall be equal to the Operator's estimate of the money to be spent in the currencies required to perform its duties under the approved Work Program and Budget during the month concerned. For informational purposes the cash call shall contain an estimate of the funds required for the succeeding two (2) months. Alliance Operating Agreement - 20F - -4- 1.6.2 Each such cash call, detailed by major budget categories, shall be made in writing and delivered to all Non-Operators not less than fifteen (15) Days before the payment due date. The due date for payment of such advances shall be set by Operator but shall be no sooner than the first Business Day of the month for which the advances are required. All advances shall be made without bank charges. Any charges related to receipt of advances from a Non-Operator shall be borne by that Non-Operator. 1.6.3 Each Non-Operator shall wire transfer its share of the full amount of each such cash call to Operator on or before the due date, in the currencies requested or any other currencies acceptable to Operator, and at a bank designated by Operator. If currency provided by a Non-Operator is other than the requested currency, then the entire cost of converting to the requested currency shall be charged to that Non-Operator. 1.6.4 Notwithstanding the provisions of Section 1.6.2, should Operator be required to pay any sums of money for the Joint Operations which were unforeseen at the time of providing the Non-Operators with said estimates of its requirements, Operator may make a written request of the Non-Operators for special advances covering the Non-Operators' share of such payments. Each such Non-Operator shall make its proportional special advances within ten (10) Days after receipt of such notice. 1.6.5 If a Non-Operator's advances exceed its share of cash expenditures, the next succeeding cash advance requirements, after such determination, shall be reduced accordingly. A Non-Operator may request that its excess advances be refunded. Operator shall make such refund within ten (10) Days after receipt of the Non-Operator's request provided that the amount is in excess of the requesting Non-Operator's share of the cash advance requirements for the succeeding month. 1.6.6 If Non-Operator's advances are less than its share of cash expenditures, the deficiency shall, at Operator's option, be added to subsequent cash advance requirements or be paid by Non-Operator within ten (10) Days following the receipt of Operator's billing to Non-Operator for such deficiency. 1.6.7 Any interest received on Joint Account funds shall be applied against the next succeeding cash call or, if directed by the Operating Committee, distributed quarterly. The interest thus received shall be allocated to the Parties on an equitable basis taking into consideration date of funding by each party to the accounts in proportion to the total funding into the account. A monthly statement summarizing receipts, disbursements, transfers to each joint bank account and beginning and ending balances thereof shall be provided by Operator to the Parties. 1.6.8 If Operator does not request Non-Operators to advance their share of estimated cash requirements, each Non-Operator shall pay its share of cash expenditures within fifteen (15) Days following receipt of Operator's billing. Alliance Operating Agreement - 20F - -5- 1.6.9 Payments of advances or billings shall be made on or before the due date. If these payments are not received by the due date the unpaid balance shall bear and accrue interest from the due date until the payment is received by Operator at the Agreed Interest Rate. For the purpose of determining the unpaid balance and interest owed, Operator shall translate to U.S. currency all amounts owed in other currencies using the currency exchange rate readily available to Operator at the close of the last Business Day prior to the due date for the unpaid balance as quoted by the applicable authority identified in Section 1.4.3 of this Section I. 1.6.10 Subject to governmental regulation, Operator shall have the right, at any time and from time to time, to convert the funds advanced or any part thereof to other currencies to the extent that such currencies are then required for Joint Operations. The cost of any such conversion shall be charged to the Joint Account. 1.6.11 Operator shall endeavor to maintain funds held for the Joint Account in bank accounts at a level consistent with that required for the prudent conduct of Joint Operations. 1.6.12 If under the Agreement, Operator is required to segregate funds received from or for the Joint Account, the provisions under this Section 1.6 for payments and advances by Non-Operators shall apply also to Operator. 1.7 ADJUSTMENTS Payments of any advances or billings shall not prejudice the right of any Non-Operator to protest or question the correctness thereof; provided, however, all bills and statements rendered to Non-Operators by Operator during any Calendar Year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of such Calendar Year, unless within the said twenty-four (24) month period a Non-Operator takes written exception thereto and makes claim on Operator for adjustment. Failure on the part of a Non-Operator to make claim on Operator for adjustment within such period shall establish the correctness thereof and preclude the filing of exceptions thereto or making claims for adjustment thereon. No adjustment favorable to Operator shall be made unless it is made within the same prescribed period. The provisions of this paragraph shall not prevent adjustments resulting from a physical inventory of the Property as provided for in Section VI. Operator shall be allowed to make adjustments to the Joint Account after such twenty-four (24) month period if these adjustments result from audit exceptions outside of this Agreement, third party claims, or Government or Government Oil Company requirements. Any such adjustments shall be subject to audit within the time period specified in Section 1.8.1. Alliance Operating Agreement - 20F - -6- 1.8. AUDITS 1.8.1 A Non-Operator, upon at least sixty (60) Days advance notice in writing to Operator and all other Non-Operators, shall have the right to audit the Joint Accounts and records of Operator relating to the accounting hereunder for any Calendar Year within the twenty-four (24) month period following the end of such Calendar Year. The cost of each such audit shall be borne by Non-Operators conducting the audit. It is provided, however, that Non-Operators must take written exception to and make claim upon the Operator for all discrepancies disclosed by said audit within said twenty-four (24) month period. Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct joint or simultaneous audits in a manner which will result in a minimum of inconvenience to the Operator. Operator and Non-Operators shall make every effort to resolve any claim resulting from an audit within a reasonable period of time. In any event, Operator shall respond to auditors report within ninety (90) days of receipt of same. Adjustments agreed between Operator and Non-Operator will be paid to the Parties entitled to such adjustments and recorded in the Joint Account as soon as possible after agreement is reached. A Non-Operator may audit the records of an Affiliate of Operator relating to that Affiliate's charges. The provisions of this Accounting Procedure shall apply MUTATIS MUTANDIS to such audits. 1.8.2 The auditors shall have the right to audit the supporting documentation considered necessary to audit and verify the charges and credits to such Joint Accounts. The auditors shall also have reasonable access to the personnel and facilities, warehouses and offices directly or indirectly serving Joint Operations. Operator shall make every reasonable effort to cooperate with the auditors and provide them with reasonable facilities and assistance in performing each audit. 1.8.3 If the Operator and Non-Operators are unable to agree on a proposed audit adjustment, such adjustment may be referred to an internationally recognized independent firm of public accountants selected by the Non-Operators as a Joint Account expense, whose result or decision shall be binding on all Parties. 1.8.4 Any information obtained by a Non-Operator under the provisions of this Section 1.8 which does not relate directly to the Joint Operations shall be kept confidential and shall not be disclosed to any party, except as would otherwise be permitted by Article 15.1(A)(3) and (9) of the Agreement. 1.8.5 In the event that the Operator is required by law to employ a public accounting firm to audit the Joint Account and records of Operator relating to the accounting hereunder, the cost thereof shall be a charge against the Joint Account, and a copy of the audit shall be furnished to each Party. Alliance Operating Agreement - 20F - -7- 1.9 ALLOCATIONS If it becomes necessary to allocate any costs or expenditures to or between Joint Operations and any other operations, such allocation shall be made on an equitable basis. Upon request, Operator shall furnish a description of its allocation procedures pertaining to these costs and expenditures. SECTION II DIRECT CHARGES Operator shall charge the Joint Account with all costs and expenditures under any Work Program and Budget (or under Article 4.2(B)(11) of the Agreement) in the event of an emergency) and incurred in connection with Joint Operations. It is also understood that charges for services normally provided by an operator such as those contemplated in Section 2.7.2 which are provided by Operator's Affiliates shall reflect the cost to the Affiliate, excluding profit, for performing such services, except as otherwise provided in Section 2.6, Section 2.7.1, and Section 2.5.1 if selected. The costs and expenditures shall be recorded as required for the settlement of accounts between the Parties hereto in connection with the rights and obligations under this Agreement and for purposes of complying with the tax laws of the Country of Operations and of such other countries to which any of the Parties may be subject. Without in any way limiting the generality of the foregoing, chargeable costs and expenditures shall include: 2.1 LICENSES, PERMITS, ETC. All costs, if any, attributable to the acquisition, maintenance, renewal or relinquishment of licenses, permits, contractual and/or surface rights acquired for Joint Operations and bonuses paid in accordance with the Concession when paid by Operator in accordance with the provisions of the Agreement. 2.2 SALARIES, WAGES AND RELATED COSTS 2.2.1 The employees of Operator and its Affiliates in the Country of Operations directly engaged in Joint Operations whether temporarily or permanently assigned. 2.2.2 The employees of Operator and its Affiliates outside the Country of Operations directly engaged in Joint Operations whether temporarily or permanently assigned, and not otherwise covered in Section 2.7.2. 2.2.3 Salaries and wages, including everything constituting the employees' total compensation. To the extent not included in salaries and wages, the Joint Account shall also be charged with the cost to Operator of holiday, vacation, sickness, disability benefits, living and housing allowances, travel time, bonuses, and other customary allowances applicable to the salaries and wages chargeable hereunder, as well as costs to Operator for employee benefits, including but not limited to employee group life insurance, group medical insurance, hospitalization, retirement, and other benefit plans of a like nature applicable to labor costs of Operator. Operator's employees participating in Country of Operations benefit plans may be charged at a percentage rate to reflect payments or accruals made by Operator applicable to such employees. Such accruals for Country of Operations benefit plans shall not be paid by Non-Operators, unless otherwise approved by the Operating Committee, until the same are due and payable to the employee, upon withdrawal of a Party pursuant to the Agreement, or upon termination of the Agreement, which ever occurs first. Alliance Operating Agreement - 20F - -8- 2.2.4 Expenditures or contributions made pursuant to assessments imposed by governmental authority for payments with respect thereto or on account of such employees. 2.2.5 Salaries and wages charged in accordance with Operator's usual practice, when and as paid or accrued, or on a basis of the Operator's average cost per employee for each job category; and the rates to be charged shall be reviewed at least annually. In determining the average cost per employee for each job category, expatriate and national employee salaries and wages shall be calculated separately. During a given period of time it is understood that some costs for salaries and wages may be charged on an actual basis while the remaining costs for salaries and wages are charged at a rate based upon the above described average cost. 2.2.6 Reasonable expenses (including related travel costs) of those employees whose salaries and wages are chargeable to the Joint Account under Sections 2.2.1 and 2.2.2 of this Section II and for which expenses the employees are reimbursed under the usual practice of Operator. 2.2.7 If employees are engaged in other activities in addition to the Joint Operations, Operator shall promptly notify Non-Operators and the cost of such employees shall be allocated on an equitable basis. The Parties agree that allocation on the basis of time spent on the other activities versus time spent on Joint Operations constitutes an equitable basis. 2.3 EMPLOYEE RELOCATION COSTS 2.3.1 Except as provided in Section 2.3.3, Operator's cost of employees' relocation to or from the Contract Area vicinity or location where the employees will reside or work, whether permanently or temporarily assigned to the Joint Operations. If such employee works on other activities in addition to Joint Operations, such relocation costs shall be allocated on an equitable basis, or specified in 2.2.7. 2.3.2 Such relocation costs shall include transportation of employees, families, personal and household effects of the employee and family, transit expenses, and all other related costs in accordance with the Operator's usual practice. Alliance Operating Agreement - 20F - -9- 2.3.3 Relocation costs from the vicinity of the Contract Area to another location classified as a foreign location by Operator shall not be chargeable to the Joint Account unless such foreign location is the point of origin of the employee. 2.4 OFFICES, CAMPS, AND MISCELLANEOUS FACILITIES Costs of maintaining any offices, sub-offices, camps, warehouses, housing, and other facilities of the Operator and/or Affiliates directly serving the Joint Operations. If such facilities serve operations in addition to the Joint Operations the costs shall be allocated to the properties served on an equitable basis. 2.5 MATERIAL Cost net for discounts taken by Operator, of Material purchased or furnished by Operator. Such costs shall include, but are not limited to, export brokers' fees, transportation charges, loading, unloading fees, export and import duties and license fees associated with the procurement of Material and in-transit losses, if any, not covered by insurance. So far as it is reasonably practical and consistent with efficient and economical operation, only such Material shall be purchased for, and the cost thereof charged to, the Joint Account as may be required for immediate use. 2.6 EXCLUSIVELY OWNED EQUIPMENT AND FACILITIES OF OPERATOR AND AFFILIATES Charges for exclusively owned equipment, facilities, and utilities of Operator and its Affiliates at rates not to exceed the average commercial rates of non-affiliated third parties then prevailing for like equipment, facilities, and utilities for use in the area where the same are used hereunder. On request, Operator shall furnish Non-Operators a list of rates and the basis of application. Such rates shall be revised from time to time if found to be either excessive or insufficient, but not more than once every six months. Drilling tools and other equipment lost in the hole or damaged beyond repair may be charged at replacement costs less depreciation plus transportation costs to deliver like equipment to the location where used. 2.7 SERVICES 2.7.1 The cost of services provided by third parties including Affiliates of Operator other than those services covered by Section 2.7.2. Such charges for services by Operator's Affiliates shall not exceed those currently prevailing if performed by non-affiliated third parties pursuant to a competitive bid, considering quality and availability of services. 2.7.2 The cost of services performed by Operator's Affiliates technical and professional staffs not located within the Country of Operation and which have been approved by the Operating Committee to be performed by Operator or its Affiliate. Alliance Operating Agreement - 20F - -10- The charges for such services shall not exceed those currently prevailing if performed by non-affiliated third parties pursuant to a competitive bid, considering the quality and availability of such services. Examples of such services include, but are not limited to, the following: Geologic Studies and Interpretation Seismic Data Processing Well Log Analysis, Correlation and Interpretation Laboratory Services Well Site Geology Project Engineering Source Rock Analysis Petrophysical Analysis Geochemical Analysis Drilling Supervision Development Evaluation Accounting and Professional Services Other Data Processing Costs shall include salaries and wages of such technical and professional personnel, lost time, governmental assessments, employee benefits, and reasonable expenses. Costs shall also include all support costs necessary for such technical and professional personnel to perform such services, such as, but not limited to, rent, utilities, support staff, drafting, telephone and other communications expenses, computer support, supplies, and depreciation. 2.8 INSURANCE Premiums paid for insurance required by law or the Agreement to be carried for the benefit of the Joint Operations. 2.9 DAMAGES AND LOSSES TO PROPERTY 2.9.1 All costs or expenditures necessary to replace or repair damages or losses incurred by fire, flood, storm, theft, accident, or any other cause. Operator shall furnish Non-Operators written notice of damages or losses incurred in excess of ten thousand U.S. dollars (U.S. $10,000.00) as soon as practicable after report of the same has been received by Operator. All losses in excess of ten thousand U.S. dollars (U.S. $10,000.00) shall be listed separately in the monthly statement of costs and expenditures. 2.9.2 Credits for settlements received from insurance carried for the benefit of Joint Operators and from others for losses or damages to Joint Property or Materials. Each Party shall be credited with its Participating Interest share thereof except where such receipts are derived from insurance purchased by Operator for less than all Parties in which event such proceeds shall be credited to those Parties for whom the insurance was purchased in the proportion of their respective contributions toward the insurance coverage. Alliance Operating Agreement - 20F - -11- 2.9.3 Expenditures incurred in the settlement of all losses, claims, damages, judgments, and other expenses for the account of Joint Operators. 2.10 LITIGATION AND LEGAL EXPENSES The costs and expenses of litigation and legal services necessary for the protection of the Joint Operations under this Agreement as follows: 2.10.1 Legal services necessary or expedient for the protection of the Joint Operations, and all costs and expenses of litigation, arbitration or other alternative dispute resolution procedure, including reasonable attorneys' fees and expenses, together with all judgements obtained against the Parties or any of them arising from the Joint Operations. 2.10.2 If the Parties hereunder shall so agree, actions or claims affecting the Joint Operations hereunder may be handled by the legal staff of one of any of the Parties hereto; and a charge commensurate with the reasonable costs of providing and furnishing such services rendered may be made by the Party providing such service to the Operator for the Joint Account, but no such charges shall be made until approved by the Parties. 2.11 TAXES AND DUTIES All taxes, duties, assessments and governmental charges, of every kind and nature, assessed or levied upon or in connection with the Joint Operations, other than any that are measured by or based upon the revenues, income and net worth of a Party. If Operator or an Affiliate is subject to income or withholding tax as a result of services performed at cost for the operations under the Agreement, its charges for such services may be increased by the amount of such taxes incurred (grossed up). 2.12 OTHER EXPENDITURES Any other costs and expenditures incurred by Operator for the necessary and proper conduct of the Joint Operations in accordance with approved Work Programs and Budgets and not covered in this Section II or in Section III. Alliance Operating Agreement - 20F - -12- SECTION III INDIRECT CHARGES 3.1 PURPOSE Operator shall charge the Joint Account monthly for the cost of indirect services and related office costs of Operator and its Affiliates not otherwise provided in this Accounting Procedure. Indirect costs chargeable under this Section III represent the cost of general counseling and support services provided to Operator by its Affiliate. These costs are such that it is not practical to identify or associate them with specific projects but are for services which provide Operator with needed and necessary resources which Operator requires and provide a real benefit to Joint Operations. No cost or expenditure included under Section II shall be included or duplicated under this Section III. 3.2 AMOUNT The charge for the period beginning with the Calendar Year through the end of the period covered by Operator's invoice ("Year-to-Date") under Section 3.1 above shall be a percentage of the Year-to-Date expenditures, calculated on the following scale (U.S. Dollars): ANNUAL EXPENDITURES $0 to $1,000,000 of expenditures = 2.5% Next $2,000,000 of expenditures = 2.0% Excess above $3,000,000 of expenditures = 1.0% Notwithstanding the foregoing, the indirect rates and related calculation method for Joint Operations subsequent to formation of the Operating Company shall be agreed upon by the Parties prior to the submission of the Development Plan. 3.3 EXCLUSIONS The expenditures used to calculate the monthly indirect charge shall not include the indirect charge (calculated either as a percentage of expenditures or as a minimum monthly charge), rentals on surface rights acquired and maintained for the Joint Account, the cost of guarantee deposits or letters of credit obtained in connection with Joint Operations, the yearly training cost payment required to be made to the government pursuant to the Concession, pipeline tariffs, concession acquisition costs, bonuses paid in accordance with the Concession, royalties and taxes paid under the Contract, expenditures associated with major construction projects for which a separate indirect charge is established hereunder, payments to third parties in settlement of claims, and other similar items. Credits arising from any government subsidy payments, disposition of material, and receipts from third parties for settlement of claims shall not be deducted from total expenditures in determining such indirect charge. Alliance Operating Agreement - 20F - -13- 3.4 BILLINGS Indirect costs chargeable by Operator under this Section III during the initial Exploration Phase under the Concession Agreement shall be accrued during the initial Exploration Phase. In the event Joint Operations continue beyond the initial Exploration Phase, Operator may bill each Non-Operator for its proportionate share of such indirect costs accrued hereunder. Any indirect costs incurred in the conduct of Joint Operations subsequent to the initial Exploration Phase shall be charged to the Joint Account on a monthly basis. 3.5 INDIRECT CHARGE FOR PROJECTS As to major construction projects (such as, but not limited to, pipelines, gas reprocessing and processing plants, and final loading and terminalling facilities) when the estimated cost of each project amounts to more than U.S. $10,000,000, a separate indirect charge for such project shall be set by the Operating Committee at the time of approval of the project. 3.6 CHANGES The indirect charges provided for in this Section III may be amended periodically by mutual agreement between the Parties if, in practice, these charges are found to be insufficient or excessive. SECTION IV ACQUISITION OF MATERIAL 4.1 ACQUISITIONS Materials purchased for the Joint Account shall be charged at net cost paid by the Operator. The price of Materials purchased shall include, but shall not be limited to export broker's fees, insurance, transportation charges, loading and unloading fees, import duties, license fees, and demurrage (retention charges) associated with the procurement of Materials. 4.2 MATERIALS FURNISHED BY OPERATOR Materials required for operations shall be purchased for direct charge to the Joint Account whenever practicable, except the Operator may furnish such Materials from its stock under the following conditions: 4.2.1 NEW MATERIALS (CONDITION "I"). New Materials transferred from the Waterhouse or other properties of Operator shall be priced at net cost determined in accordance with Section 4.1 above, as if Operator had purchased such new material just prior to its transfer. Such net costs shall in no event exceed the then current market price. Alliance Operating Agreement - 20F - -14- 4.2.2 Used Materials (Conditions "2" and "3"). 4.2.2.1 Material which is in sound and serviceable condition and suitable for use without repair or reconditioning shall be classed as Condition "2" and priced at seventy-five percent (75%) of such new purchase net cost at the time of transfer. 4.2.2.2 Materials not meeting the requirements of Section 4.2.2.1 above, but which can be made suitable for use after being repaired or reconditioned shall be classed as Condition "3" and priced at fifty percent (50%) of such new purchase net cost at the time of transfer. The cost of reconditioning shall also be charged to the Joint Account provided the Condition "3" price, plus cost of reconditioning, does not exceed the Condition "2" price; and provided that Material so classified meet the requirements for Condition "2" Material upon being repaired or reconditioned. 4.2.2.3 Material which cannot be classified as Condition "2" or Condition "3", shall be priced at a value commensurate with its use. 4.2.2.4 Tanks, derricks, buildings, and other items of Material involving erection costs, if transferred in knocked-down condition, shall be graded as to condition as provided in this Section 4.2.2 of Section IV, and priced on the basis of knocked-down price of like new Material. 4.2.2.5 Material including drill pipe, casing and tubing, which is no longer useable for its original purpose but is useable for some other purpose, shall be graded as to condition as provided in this Section 4.2.2 of Section IV. Such material shall be priced on the basis of the current price of items normally used for such other purposes if sold to third parties. 4.3 PREMIUM PRICES Whenever Material is not readily obtainable at prices specified in Sections 4.1 and 4.2 of this Section IV because of national emergencies, strikes or other unusual causes over which Operator has no control, Operator may charge the Joint Account for the required Material at Operator's actual cost incurred procuring such Material, in making it suitable for use, and moving it to the Concession Area, provided that notice in writing, including a detailed description of the Material required and the required delivery date, is furnished to Non-Operators of the proposed charge at least fifteen (15) Days (or such shorter period as may be specified by Operator) before the Material is projected to be needed for operations and prior to billing Non-Operators for such Material the cost of which exceeds ten thousand U.S. dollars (U.S. $10,000.00). Each Non-Operator sha11 have the right, by so electing and notifying Operator within fifteen (15) Days (or such shorter period as may be specified by Operator) after receiving notice form Operator, to furnish in kind all or part of his share of such Material per the terms of the notice which is suitable for use and acceptable to Operator both as to quality and time of delivery. Such acceptance by Operator shall not be unreasonably withheld. If Material furnished is deemed unsuitable for use by Operator, all costs incurred in disposing of such Material or returning Material to owner shall be borne by the Non-Operator furnishing the same unless otherwise agreed by the Parties. If a Non-Operator fails to properly submit an election notification within the designated period, Operator is not required to accept Material furnished in kind by that Non-Operator. If Operator fails to submit proper notification prior to billing Non-Operators for such Material, Operator shall only charge the Joint Account on the basis of the price allowed during a "normal" pricing period in effect at time of movement. Alliance Operating Agreement - 20F - -15- 4.4 WARRANTY OF MATERIAL FURNISHED BY OPERATOR Operator does not warrant the Material furnished. In case of defective Material, credit shall not be passed to the Joint Account until adjustment has been received by Operator from the manufacturers or their agents. SECTION V DISPOSAL OF MATERIALS 5.1 DISPOSAL Operator shall be under no obligation to purchase the interest of Non-Operators in new or used surplus Materials. Operator shall have the right to dispose of Material but shall advise and secure prior agreement of the Operating Committee of any proposed disposition of Materials having an original cost to the Joint Account either individually or in the aggregate of ten thousand U.S. Dollars (U.S. $10,000.00) or more. When Joint Operations are relieved of Material charged to the Joint Account, Operator shall advise each Non-Operator of the original cost of such Material to the Joint Account so that the Parties may eliminate such costs from their asset records. Credits for Material sold by Operator shall be made to the Joint Account in the month in which the payment is received for the Material. Any Material sold or disposed of under this Section shall be on an "as is, where is" basis without guarantees or warranties of any kind or nature. Costs and expenditures incurred by Operator in the disposition of Materials shall be charged to the Joint Account. 5.2 MATERIAL PURCHASED BY A PARTY OF OR AFFILIATE Material purchased from the Joint Property by a Party or an Affiliate thereof shall be credited by Operator to the Joint Account, with new Material valued in the same manner as new Material under Section 4.2.1 and used Material valued in the same manner as used Material under Section 4.2.2, unless otherwise agreed by the Operating Committee. 5.3 DIVISION IN KIND Division of Material in kind, if made between the Parties, shall be in proportion to their respective interests in such Material. Each Party will thereupon be charged individually with the value (determined in accordance with the procedure set forth in Section 5.2) of the Material received or receivable by it. Alliance Operating Agreement - 20F - -16- 5.4 SALES TO THIRD PARTIES Material purchased from the Joint Property by third parties shall be credited by Operator to the Joint Account at the net amount collected by Operator from the buyer. If the sales price is less than that determined in accordance with the procedure set forth in Section 5.2, then approval by the Operating Committee shall be required prior to the sale. Any claims by the buyer for defective materials or otherwise shall be charged back to the Joint Account if and when paid by Operator. SECTION VI INVENTORIES 6.1 PERIODIC INVENTORIES - NOTICE AND REPRESENTATION At reasonable intervals, but at least annually, inventories shall be taken by Operator of all Material on which detailed accounting records are normally maintained. The expense of conducting periodic inventories shall be charged to the Joint Account. Operator shall give Non-Operators written notice at least thirty days (30) in advance of its intention to take inventory, and Non-Operators, at their sole cost and expense, shall be entitled to have a representative present. The failure of any Non-Operator to be represented at such inventory shall bind such Non-Operator to accept the inventory taken by Operator, who shall in that event furnish each Non-Operator with a reconciliation of overages and shortages. Inventory adjustments to the Joint Account shall be made for overages and shortages. Any adjustments equivalent to fifty thousand U.S. Dollars (U.S. $50,000) or more shall be brought to the attention of the Operating Committee. 6.2 SPECIAL INVENTORIES Whenever there is a sale or change of interest in the Agreement, a special inventory may be taken by the Operator provided the seller and/or purchaser of such interest agrees to bear all of the expense thereof. In such cases, both the seller and the purchaser shall be entitled to be represented and shall be governed by the inventory so taken. Alliance Operating Agreement - 20F EXHIBIT "B" INSURANCE Alliance Operating Agreement - 20F EXHIBIT "C" WORK PROGRAM & BUDGET Alliance Operating Agreement - 20F EX-3.15 27 a2026270zex-3_15.txt EXHIBIT 3.15 DEED OF ASSIGNMENT This deed of assignment is made and entered into on this 17th day of March 1999 by and between Dublin International Petroleum (Egypt) Limited, a corporation organized and existing under the laws of the Republic of Ireland hereinafter referred to as ("Dublin") and Tanganyika Oil Company Ltd., a corporation organized and existing under the laws of Canada hereinafter referred to as ("Tanganyika") as ASSIGNORS, and GHP Exploration (West Gharib ) Ltd., a corporation organized and existing under the laws of Bermuda hereinafter referred to as ("GHP"), and Drucker Petroleum Inc. a corporation organized and existing under the laws of the British Virgin Islands, hereinafter referred to as ("Drucker"), as ASSIGNEES, Whereas, Dublin and Tanganyika have certain rights, privileges, duties and obligations under the Concession Agreement dated 1st June, 1998 (hereinafter referred to as "The Concession Agreement") issued by law number (15) of 1998 entered into by the Government of the Arab Republic of Egypt ("Government"), the Egyptian General Petroleum Corporation ("EGPC") and Dublin International Petroleum (Egypt) West Gharib Deed 20-F Limited (Dublin) and Tanganyika Oil Company Ltd. (Tanganyika) for Petroleum exploration and exploitation covering the West Gharib concession in the Gulf of Suez area, as described in Annex " A " and outlined in Annex "B" of the above mentioned Concession Agreement. Whereas Dublin and Tanganyika wish to assign an undivided thirty percent (30%) of their interests, rights, privileges, duties and obligations in thc above mentioned Concession Agreement to GHP, Whereas, Dublin and Tanganyika wish also to assign an undivided twenty percent (20% ) of their interests, rights, privileges, duties and obligations in the above mentioned Concession Agreement to. Drucker, Whereas GHP and Drucker accept such Assignment; Whereas, pursuant to Article XXI of the aforementioned Concession Agreement, EGPC must review and approve the text of this Assignment, Whereas, such Assignment is subject to the approval of the Government of Arab Republic of Egypt. Now, therefore, the parties to this assignment agree as follows: 1. This Deed of Assignment is made in accordance with the provisions of Article XXI of the aforementioned Concession Agreement. 2. Dublin and Tanganyika hereby assign an undivided thirty-percent (30%) of their interests, rights, privileges, duties and obligations in the aforementioned Concession Agreement to GHP. West Gharib Deed 20-F Also Dublin and Tanganyika assign an undivided twenty percent (20%) of their interests, rights, privileges, duties and obligations in the aforementioned Concession Agreement to Drucker. Upon the approval of this Deed of Assignment, the interests of the parties constituting the Contractor under the aforementioned Concession Agreement shall be as follows: Dublin and Tanganyika 50% GI-IP 30% Drucker 20% 3. This Deed of Assignment shall be binding upon and inure to the benefits of the parties hereto, their successors and assignees. 4. GHP and Drucker (The Assignees) hereby expressly state that they are bound by all the provisions and covenants contained in the Concession Agreement and any modifications or additions in writing as well as any contracts concluded by Dublin and Tanganyika (The Assignors) with EGPC in implementation thereof that may have been made up to the date of this Deed of Assignment. 5. Dublin, Tanganyika, GHP and Drucker state that the rights and privileges of both the Government and EGPC contained in the Concession Agreement shall not be prejudiced by the provisions of this Deed of Assignment. West Gharib Deed 20-F 6. Pursuant to Article XXI paragraph (e) of the Concession Agreement, Dublin, Tanganyika, GHP , and Drucker state that they shall be vis-a-vis the Government and EGPC jointly and severally liable for the performance of the obligations of Contractor under the aforementioned Concession Agreement. 7. Dublin (The Operator) through its office in the Arab Republic of Egypt shall further be the entity to which, from which and in whose name all notifications related to or in connection with this Concession Agreement shall be made. 8. This Assignment shall be effective as of the date of approval of the Government. In witness whereof, the Assignment Parties have duly executed this Deed of Assignment on this 17th day of March 1999 ASSIGNORS: Dublin International Petroleum (Egypt) Limited and Tanganyika Oil Company Ltd. Name: Mamdouh Nagati Title: General Manager of Dublin International. Petroleum (Egypt) Limited and Executive Vice President of Tanganyika Oil Company Ltd. Signature: West Gharib Deed 20-F ASSIGNEES: GHP Exploration (West Gharib) Ltd. Name: Barry D. Lasker Title: Director Signature: Drucker Petroleum Inc. Name: Gerry Runolfson Title: Director: Signature: The above mentioned Deed of Assignment dated March 17, 1999 of West Gharib Concession Agreement in Arab Republic of Egypt signed by virtue of law number No.15 of 1998 is accepted and approved. EGYPTIAN GENERAL PETROLEUM CORPORATION BY: ENG. ABD EL KHALEK AYAD TITLE: CHAIRMAN OF THE BOARD SIGNATURE: DATE: ARAB REPUBLIC OF EGYPT GOVERNMENT BY: DR. HAMDY ALY EL BANBI TITLE: MINISTER OF PETROLEUM SIGNATURE: DATE: West Gharib Deed 20-F EX-3.16 28 a2026270zex-3_16.txt EXHIBIT 3.16 FARMOUT AGREEMENT BETWEEN TANGANYIKA OIL COMPANY LTD. DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED AND GHP EXPLORATION (EGYPT) LTD. Farmout Agreement 4.27.98.doc 20F INDEX
Article Number Heading Page - -------------- ------- ---- 1.0 Definitions 2 2.0 Obligations of the Parties 4 3.0 Joint Operating Agreement 6 4.0 Representations and Warranties 7 5.0 Relationship of the Parties 9 6.0 Information 9 7.0 Applicable Law & Resolution of Disputes 10 8.0 Miscellaneous 11
Annexure "A" Concession Agreement Annexure "B" Deed of Assignment Farmout Agreement 4.27.98.doc 20F FARMOUT AGREEMENT THIS AGREEMENT is made and entered into as of the ________ day of April 1998, by and between: TANGANYIKA OIL COMPANY LTD., a company organised and existing under the laws of Canada ("Tanganyika"); DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED, a company organised and existing under the laws of the Republic of Ireland ("Dublin"), a wholly-owned subsidiary of Tanganyika; and GHP EXPLORATION (EGYPT) LTD., a company organised and existing under the laws of Bermuda ("GHP") a wholly-owned subsidiary of GHP EXPLORATION CORPORA TION, a company organised and existing under the laws of the Yukon Territory. WITNESSETH WHEREAS: A. On November 17, 1997, Dublin was notified of the acceptance by the Exploration Offers Committee of the Egyptian General Petroleum Corporation (EGPC) of Dublin's application in a concession covering an area of approximately 2,320 onshore square kilometres known as Block H, West Gharib, Gulf of Suez, Egypt. B. On December 1, 1997, Dublin and EGPC initiated a concession agreement (the "CA") pursuant to which Dublin was granted the right to explore for and exploit petroleum in the Contract Area (as hereinafter defined). The CA is subject to ratification by the Government of the Arab Republic of Egypt (the "Government"). C. On December 28, 1997, Dublin and EGPC signed a Pre-Effective Date Expenditure Agreement pursuant to which Dublin's Concession expenditures after December 28, 1997 would be recoverable under the CA prior to the effective date of the CA. D. On March 24, 1998 Dublin was notified by EGPC that Law No. 15 for 1998 concerning the CA was issued. Farmout Agreement 4.27.98.doc 20F - -2- E. Subject to the approvals of the Government and EGPC, Dublin is willing to transfer and assign to GHP an undivided thirty percent (30%) Participating Interest in the CA, together with all rights and obligations pertaining thereto; and F. GHP is desirous of acquiring the said thirty-percent (30%) Participating Interest on the basis of the terms and conditions set forth herein. NOW THEREFORE in consideration of the mutual promises, agreements and covenants hereinafter set forth, the parties hereto agree as follows: 1.0 DEFINITIONS 1.01 The terms defined in the recitals hereof or at other instances herein shall have the meanings attributed to them thereby. In addition, the following words and expressions shall, for the purpose of this Agreement, bear the meanings respectively set opposite them: "Acquired Interest" means a thirty (30%) undivided Participating Interest free and clear of all encumbrances to be transferred and assigned as contemplated herein by Dublin to GHP; " Affiliate" means in relation to each Party, any company, corporation or other entity a. which is directly or indirectly controlled by such Party; or b. which directly or indirectly controls such Party; or c. which is directly or indirectly controlled by a company, corporation or other entity that also directly or indirectly controls such Party. To this effect, control is conclusive by fact of owning directly or indirectly shares, or other ownership rights, in the company, corporation or entity representing more than fifty percent (50%) of the voting rights. " Agreernent" means this Farmout Agreement; Farmout Agreement 4.27.98.doc 20F - -3- "Contract Area" means the area described in the Concession Agreement (CA); "Contract Depth" means at depth of 200 feet into the Nubia Formation or 9,000 feet whichever is shallower. "Deed of Assignment" means the instrument of transfer to be submitted to the Government and EGPC for the purpose of obtaining all the necessary official consents to the assignment of the Acquired Interest by Dublin to GHP, which instrument will substantially be in the form set forth in Annex "B" attached hereto or in the form required by the Government and EGPC; "Effective Date" means the date of execution of this Agreement; "Joint Operating means the Joint Agreement to be enter into Agreement" or "JOA" between the Parties which shall govern the rights and duties of the Parties in relation to the CA. The JOA shall be based on, and shall be substantially in the form of, the 1995 Association of International Petroleum Negotiators Model Form International Operating Agreement; "Participating Interest" means an undivided percentage in the CA and the JOA and all rights and obligations pertaining thereto; "Party" means a party to this Agreement. All other terms specifically defined in the CA and not defined herein shall have the meanings assigned to them in the CA unless the context clearly requires otherwise. A copy of the CA is attached hereto as Annexure "A". 1.02 Unless the context otherwise requires, reference to any Article is to an Article of this Agreement. In addition, where the context requires, the singular shall include the plural and the plural shall include the singular. Farmout Agreement 4.27.98.doc 20F - -4- 2.0 OBLIGATIONS OF THE PARTIES 2.01 GHP shall, within seven (7) days of the later of the Effective Date or the date GHP receives written notification from Dublin that the CA is signed by the Government, pay to Dublin the following: a. fifty-one thousand United States Dollars (US$51,000), being thirty percent (30%) of all costs incurred prior to the Effective Date; b. two hundred twenty five thousand United States Dollars (US$225,000), being thirty percent (30%) of the Signature Bonus payable to EGPC; c. twelve thousand United States Dollars (US $12,000), being thirty percent (30%) of the CA administration costs payable to EGPC; d. fifteen thousand United States Dollars (US$15,O00), being thirty percent (30%) of the annual training bonus payable to EGPC. Payments shall be effected to Tanganyika's bank account numbered 1489057.202 with Cantrade Ormond Burrus Banque Privee S.A., 12 rue Ami-Lullin, P.O. Box 3142, CH-1211 , Geneva 3, Switzerland. 2.02 From and after the effective date of the CA, GHP shall, subject to the provisions of this Agreement and the JOA, bear and pay thirty percent (30%) of all costs and expenses including but not limited to the Financial Obligations related to the CA. 2.03 At such time as the CA is executed by the Government, GHP shall be obligated to bear and pay sixty percent (60%) of the costs and expenses associated with the drilling of an exploratory well to Contract Depth including casing to total depth and subsequent testing approved by the Parties or abandonment of said well in the Initial Exploration Period. Notwithstanding the above, upon the earlier to occur of (a) the drilling and testing (if approved) of this exploratory well, or (b) total cumulative costs incurred in drilling and completing or abandoning the said well equal to one million five hundred thousand United States Dollars (US$1 ,500,000), or a maximum cost to GHP of nine hundred thousand United Farmout Agreement 4.27.98.doc 20F - -5 - States Dollars (US$900,000); GHP thereafter shall pay thirty percent (30%) of all costs and expenses with any further activity related to this well. 2.04 GHP shall, within seven (7) days of the Effective Date, provide either Dublin or Tanganyika (at Dublin's option) with a corporate surety bond issued by Underwriters Indemnity (or a form of guarantee acceptable to Dublin's bank) in favour of either Dublin or in favour of either Dublin or Tanganyika (at Dublin's option) for the amount of one million five hundred thousand United States Dollars (US$1,500,000), being thirty percent (30%) of the letter of Guarantee. GHP shall be entitled to reduce the amount of the bond, or guarantee, as the amount of the Letter of Guarantee is reduced pursuant to the CA. Until the Deed of Assignment is approved by EGPC and the Government, Dublin and Tanganyika shall hold the Acquired Interest in trust for GHP. Dublin and Tanganyika shall immediately provide GHP with a Trust Agreement covering the Acquired Interest. 2.05 Dublin shall, upon receipt of the sums set out in Article 2.01 and the security set out in Article 2.04, prepare, execute and submit the Deed of Assignment to GHP for execution by GHP. 2.06 Dublin shall, as soon as possible following the date of receiving the fully executed Deed of Assignment, submit the same for approval by EGPC and the Government and will use its best efforts to obtain said approvals. 2.07 Following the approval of the Deed of Assignment by EGPC and the Government, the respective Participating Interests of the Parties shall be as follows: Dublin 70% GHP 30% ---- 100%
Notwithstanding the Parties' Participating Interests, GHP and Dublin agree that hydrocarbons allocated to the Contractor for recovery of costs as provided in Article VII of the CA shall be allocated between the Parties in the same percentages as recoverable expenditures are incurred by the Parties. Farmout Agreement 4.27.98.doc 20F - -6- 2.08 GHP agrees, subject to the provisions of this Agreement and the JOA, to assume its respective share of the rights and obligations of Dublin arising from and under the CA with respect to the Acquired Interest from and after the date of execution of the Deed of Assignment. 2.09 Notwithstanding anything herein to the contrary, Dublin and Tanganyika shell defend, indemnify and hold GHP, its directors, officers, employees, agents and representatives harmless from and against any and all claims, demands, causes of action, judgments and liabilities of every kind and character arising out of or in connection with any operations or activities conducted pursuant to or in relation to the CA prior to the Effective Date. 3.0 JOINT OPERATING AGREEMENT 3.01 The Parties shall use reasonable efforts to execute the JOA, which shall take effect as of the Effective Date, within thirty (30) days after execution of this Agreement. 3.02 The Parties agree that the Operator shall be Dublin. The Operator shall conduct all operations in accordance with the provisions of the CA, the JOA and the directions and instructions of the Operating Committee created under the JOA. 3.03 The JOA shall govern the operations on the Contract Area including, but not limited to, the design and implementation of any seismic and drilling programs. Under the JOA, there shall be created an Operating Committee which shall provide overall supervision and direction of all operations and which shall, without limitation, have the right to approve all key agreements with consultants and contractors in connection with the CA. Each Party shall have a representative on the Operating Committee with a voting interest equal to that Party's Participating Interest. GHP shall be entitled to have one of its technical personnel work with the personnel of Dublin, at GHP's cost, in the formation of the seismic and drilling programs. 3.04 Article IV(c) of the CA provides for a joint committee to be established by EGPC and the Contractor, referred to as the "Exploration Advisory Committee". The Exploration Advisory Committee consists of six members, three of whom shall be appointed by EGPC and three of whom shall be appointed by Contractor. Dublin shall provide for one of its three members to be a representative of GHP, subject to approval by EGPC. Dublin shall consult Farmout Agreement 4.27.98.doc 20F - -7- with GHP and consider GHP's input, regarding all meetings and negotiations with EGPC and the Government and shall keep GHP informed of all matters relative thereto, including but not limited to budgets and work programs. 3.05 The JOA shall provide that hydrocarbons allocated to the Contractor for recovery of costs as provided in Article VII of the CA shall be allocated among the parties to the JOA in the percentages that such parties have incurred recoverable expenditures under the CA. 4.0 REPRESENTATIONS AND WARRANTIES 4.01 Dublin and Tanganyika hereby represent and warrant to GHP that: a. Dublin is duly established and existing under the Jaws of the Republic of Ireland and has the power and authority to own its own assets and to conduct the business which it carries on; b. Dublin has the corporate power to enter into this Agreement, the JOA and the Deed of Assignment and to carry out the transactions provided for therein, it has taken all necessary corporate action to authorise the execution and delivery of this Agreement, the Deed of Assignment and the JOA, which agreements constitute legally binding obligations on it, and it has duly executed and delivered this Agreement; c. Dublin is not the subject of an order for the liquidation or winding up, nor has it entered into a scheme or arrangement with its creditors or any class of them, nor has any official manager, receiver and/or trustee been appointed in respect of it or its property or assets; d. there have been no actions taken in relation to the CA, by or on behalf of Dublin or Tanganyika, that would cause GHP, Dublin or Tanganyika to be in violation of the FOREIGN CORRUPT PRACTICES ACT of the United States of America; e. Dublin in qualified to carry on business in The Arab Republic of Egypt; Farmout Agreement 4.27.98.doc 20F - -8 - f. the CA is valid and in full force and effect, approved by Majlis AI Shaab (Egyptian Parliament) and in good standing and there has been no default by Dublin under, or breach by Dublin of the CA and Dublin has not received any notice or claim by EGPC or the Government that the CA will or may be terminated; g. Dublin and Tanganyika own a 100% interest in the CA and Law No. 15 for 1998 has been issued by the Government recognizing that Dublin and Tanganyika own a 100% interest in the CA and authorizing the Minister of Petroleum to sign the CA on behalf of the Government of the Arab Republic of Egypt; h. the CA and all applicable laws, prior to the signing of the CA by the Minister of Petroleum and Dublin and Tanganyika, have been complied with and all taxes, rentals, charges and other payments required in connection with the CA and any applicable laws have been paid; i. other than the payment of the administration costs payable to EGPC, the deposit of the Letter of Guarantee and the obligation to complete the minimum work commitment for the Initial Exploration Phase of the CA, there are no outstanding obligations under the CA; j. there are no mortgages, charges, liens, encumbrances or adverse interests of any nature against or relating to the CA or the Acquired Interest, other than those of EGPC and the Government set out in the CA; k. there is no pending or threatened litigation, or other claim related to the CA or the Contract Area, which would materially affect the consumption of, and benefits under this Agreement, the Deed of Assignment and/or the JOA; and l. they are not aware of any facts which may give rise to any proceeding and they are not involved in or aware of any dispute with any person or entity prejudicial to the exercise of any rights related to the Acquired Interest. Farmout Agreement 4.27.98.doc 20F - - 9 - 4.02 GHP hereby represents and warrants to Dublin and Tanganyika that: a. it is duly established and existing under the laws of the United States of America; b. it has the corporate power to enter into this Agreement, the Deed of Assignment and the JOA, and to carry out the transactions provided for therein and has taken all necessary corporate action to authorise the execution and delivery of this Agreement the Deed of Assignment and the JOA which agreements constitute legally binding obligations on it and it has duly executed and delivered this Agreement. 5.0 RELATIONSHIP OF THE PARTIES 5.01 The rights, duties, obligations and liabilities of the Parties herein shall be several and not joint or collective; and nothing herein contained shall ever be construed as creating a partnership of any kind, an association, or a trust, or as imposing upon any or all of the Parties hereto any partnership duty, obligation or liability. Each Party shall be individually responsible only for its obligations as set out in this Agreement. 6.0 INFORMATION 6.01 On the Effective Date, Dublin will make available and furnish to GHP all data and information related to the Contract Area and the CA. 6.02 Subject to the CA, the Parties hereto agree that the terms of this Agreement shall be considered confidential and shall not be disclosed to any third party, except to the extent provided below. Neither Party shall, without the prior written consent of the other Party , disclose during the currency of this Agreement to any third party any data or information acquired or obtained by any of them under the CA, except to the extent provided below: a. to the Government and EGPC; b. to an Affiliate; Farmout Agreement 4.27.98.doc 20F - -10 - c. to any technical, financial or other professional consultant retained by it or its Affiliate, which requires the information or data to provide professional services to Dublin or GHP; to the extent required: i. by law, or ii. by the rules and regulations of any stock exchange upon which the shares or other securities of any Party or an Affiliate are listed or in connection with an application to any stock exchange for listing of any such shares or other securities; e. to any third party with which bona fide negotiations for a Participating Interest are conducted; or f. to the extent that the information is in the public domain; provided always that with the exception of disclosure under (a), (b), (d), and (f) hereinabove, the recipient of any information agrees in writing to keep the same strictly confidential. Upon execution of the JOA, the confidentiality provisions in the JOA shall control. 7.0 APPLICABLE LAW AND RESOLUTION OF DISPUTES 7.01 This Agreement shall be governed by and construed in accordance with the laws of Canada, excluding, however, any of its conflict of law rules which would direct or refer to the laws of another jurisdiction. The Parties hereto specifically attorn and submit themselves to the jurisdiction of the courts of Canada. In addition, each Party irrevocably waives any objection which it may now or hereafter have to laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in the courts of Canada, and irrevocably waives any claim that any such suit, action or proceeding brought in the courts of Canada has been brought in an inconvenient forum and further irrevocably waives the right to object, with respect to such claim, suit action or proceeding brought in the courts of Canada that such court does not have jurisdiction over such Party. Farmout Agreement 4.27.98.doc 20F - -11- 8.0 MISCELLANEOUS 8.01 Each Party shall prepare and submit any and all filings in relation to this Agreement required of such Party by any governmental agency having jurisdiction. Each Party shall in a timely fashion provide the other with copies of all such filings. 8.02 Any obligation of the Parties hereunder shall be suspended while they or any of them is prevented or hindered from complying therewith by any cause of force majeure as that term is defined in the Force Majeure Article of the CA. Any time limitations set forth in the Agreement shall be automatically extended for the same period of time that the obligations are so suspended. 8.03 The terms, conditions, warranties and representations in this Agreement shall survive the execution of the Deed of Assignment and the JOA. 8.04 This Agreement may be amended only by a written instrument executed by the Parties hereto. 8.05 Whether or not the transactions contemplated herein shall be consummated, each of the Parties shall (except as otherwise specifically provided herein) pay his own expenses incidental to the preparation, execution and performance of this Agreement. 8.06 Either of the Parties shall execute and deliver such other certificates, agreements and other documents and take such other actions as may reasonably be requested by the other Party in order to consummate or implement the transactions contemplated by this Agreement. 8.07 All notices, requests, demands or other communications hereunder shall be in writing, and shall be delivered by hand or sent by courier. Notices sent by fax are deemed to be received on the working day of the recipient following dispatch provided that the recipient acknowledge receipt by return fax. Farmout Agreement 4.27.98.doc 20F - -12 - a. If to DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED: Suite 1320-885 West Georgia Street Vancouver, BC Canada V6V3E8 Attention: Mr. Lukas Lundin Telephone: (604) 6897842 Facsimile: (604) 689 4250 b. If to GHP EXPLORATION (EGYPT) LTD: Suite 900, 1900 West Loop South Houston, Texas U.S.A. 77027 Attention: Mr. Barry Lasker Telephone: (713) 626 9373 Facsimile: (713) 626 9374. The address of each Party hereto may be changed for any or all purposes of the Agreement by five (5) days advance written notification from the Party changing its address to the other Party. 8.08 This Agreement and all the provisions hereof shall be binding upon and enure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interest or obligations hereunder shall be assigned by operation of law or otherwise, without the consent of the other Party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, each Party shall be entitled, upon notification, to assign to an Affiliate without the consent of the other Party. 8.09 This Agreement may be executed in one or more counterparts, all of which will constitute one and the same instrument. 8.10 The section headings in this Agreement are for convenience and reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision thereof. Farmout Agreement 4.27.98.doc 20F - -13- 8.11 This Agreement and the JOA supersede any and all other agreements, oral or written, and constitutes the entire agreement among the Parties hereto Respect of the subject matter of this Agreement. IN WITNESS WHEREOF, The Parties hereto have executed this Agreement as of the day and year first above written. TANGANYIKA OIL COMPANY LTD. Name: Title: DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED Name: Title: GHP EXPLORATION (EGYPT) LIMITED Name: Title: Farmout Agreement 4.27.98.doc 20F EX-3.17 29 a2026270zex-3_17.txt EXHIBIT 3.17 APPENDIX "A" RESOLUTION NO.1 It is acknowledged by all parties that exploration activities must be conducted as cost effectively as possible with particular regard to the risk/reward aspects of each and every expenditure. It was agreed that the earning provisions of the Farmout Agreements between Dublin International Petroleum (Egypt) Limited ("Dublin") (Farmor) and GHP Exploration (Egypt) Ltd. ("GHP") (Farmee) and Drucker Petroleum Inc.("Drucker") (Farmee) did not necessarily represent the most efficient use of funds by requiring a deep test, regardless of technical merit. It was therefore unanimously agreed that the Farmout Agreement between Dublin and GHP dated April 27, 1998 be amended as follows: - - The corporate name of the Farmee be changed "to "GHP Exploration (West Gharib) Ltd. - - "Clause I :0 1 -"Contract Depth" means a depth sufficient to adequately evaluate the full potential of the Rudeis Sand but to a depth of no less than 200 feet below the top of the uppermost sand in the Rudeis Formation." - - "Clause 2.03- GHP shall be obligated to bear and pay sixty percent (60%) of the costs and expenses associated with the drilling of one or more exploratory wells to Contract Depth including casing to total depth and subsequent testing approved by the Parties or abandonment of the said well(s) in the Initial Exploration Period. When total cumulative costs incurred in drilling and completing or abandoning the said well(s) equal to one million two hundred and fifty thousand United States Dollars (US$1,250,000), or a maximum cost to GHP of seven hundred and fifty thousand United States Dollars (US$750,OOO); GHP thereafter shall pay thirty percent (30%) of all costs and expenses with any further activity related to the well(s)." APPROVED AND ACCEPTED DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED - ---------------------------------------- EDWARD L. MOLNAR, PRESIDENT GHP EXPLORATION (WEST GHARIB) LTD. - ---------------------------------------- BARRY D. LASKER, PRESIDENT Resolution 1 Amend. WG FO 20F EX-3.18 30 a2026270zex-3_18.txt EXHIBIT 3.18 CONCESSION AGREEMENT FOR PETROLEUM EXPLORATION AND EXPLOITATION BETWEEN THE ARAB REPUBLIC OF EGYPT AND THE EGYPTIAN GENERAL PETROLEUM CORPORATION AND DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED AND TANGANYIKA OIL COMPANY LTD. IN WEST GHARIB AREA EASTERN DESERT A. R. E. "W Gharib Concession 20-F" INDEX
ARTICLE TITLE PAGE - ------- ------ ------ I DEFINITIONS 2 II ANNEXES TO THE AGREEMENT 6 III GRANT OF RIGHTS AND TERM 8 IV WORK PROGRAM AND EXPENDITURES DURING EXPLORATION PERIOD 18 V MANDATORY AND VOLUNTARY RELINQUISHMENTS 25 VI OPERATIONS AFTER COMMERCIAL DISCOVERY 27 VLI RECOVERY OF COSTS AND EXPENSES AND PRODUCTION SHARING 30 VIII TITLE TO ASSETS 50 IX BONUSES 51 X OFFICE AND SERVICE OF NOTICES 52 XI SAVING OF PETROLEUM AND PREVENTION OF LOSS 53 XII CUSTOMS EXEMPTIONS 54 XIII BOOKS OF ACCOUNT: ACCOUNTING AND PAYMENTS 57 XIV RECORDS, REPORTS AND INSPECTION 58 XV RESPONSIBILITY FOR DAMAGES 60 XVI PRIVILEGES OF GOVERNMENT REPRESENTATIVES 60 XVII EMPLOYMENT RIGHTS AND TRAINING OF ARAB REPUBLIC OF EGYPT PERSONNEL 61
"W Gharib Concession 20-F" INDEX
ARTICLE TITLE PAGE ------- ------ ----- XVIII LAWS AND REGULATIONS 63 XIX STABILIZATION 64 XX RIGHT OF REQUISITION 65 XXI ASSIGNMENT 66 XXII BREACH OF AGREEMENT AND POWER TO CANCEL 67 XXIII FORCE MAJEURE 69 XXIV DISPUTES AND ARBITRATION 70 XXV STATUS OF PARTIES 72 XXVI LOCAL CONTRACTORS AND LOCALLY MANUFACTURED MATERIAL 72 XXVII ARABIC TEXT 73 XXVIII GENERAL 73 XXIX APPROVAL OF THE GOVERNMENT 74 ANNEXES TO THE CONCESSION AGREEMENT ANNEX "A" BOUNDARY DESCRIPTION OF THE CONCESSION AREA 75 ANNEX "B" ILLUSTRATIVE MAP SHOWING AREA COVERED 78 ANNEX "C" LETTER OF GUARANTY 79 ANNEX "D" CHARTER OF OPERATING COMPANY 81 ANNEX "E" ACCOUNTING PROCEDURE 86 ANNEX "F" MAP OF THE NATIONAL GAS PIPELINE GRID SYSTEM 104
"W Gharib Concession 20-F" - -2- CONCESSION AGREEMENT FOR PETROLEUM EXPLORATION AND EXPLOITATION BETWEEN THE ARAB REPUBLIC OF EGYPT AND THE EGYPTIAN GENERAL PETROLEUM CORPORATION AND DUBLIN INTERNATIONAL PETROLEUM (EGYPT} LIMITED AND TANGANYIKA OIL COMPANY LTD. IN WEST GHARIB AREA EASTERN DESERT A.R.E. This Agreement made and entered on this _____ day of ____________, 199__ , by and between the ARAB REPUBLIC OF EGYPT (hereinafter referred to variously as" A.R.E." or as the "GOVERNMENT"), the EGYPTIAN GENERAL PETROLEUM CORPORATION, a legal entity created by Law No.167 of 1958 as amended (hereinafter referred to as "EGPC") and DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED., a company organized and existing under the laws of the REPUBLIC OF IRELAND, (hereinafter referred to as "DUBLIN") and TANGANYIKA OIL COMPANY LTD., a company organized and existing under the laws of the province of British Columbia, Canada (hereinafter referred to as "TANGANYIKA") (DUBLIN and TANGANYIKA shall be hereinafter referred to collectively as "CONTRACTOR" and individually as "CONTRACTOR MEMBER". WITNESSETH WHEREAS, all minerals including petroleum, existing in mines and quarries in A.R.E., including the territorial waters, and in the seabed subject to its jurisdiction and extending beyond the territorial waters, are the property of the State; and WHEREAS, EGPC has applied for an exclusive concession for the exploration and exploitation of petroleum in and throughout the area referred to in Article II, and described in Annex "A" and shown approximately on Annex "B", which are attached hereto and made a part hereof (hereinafter referred to as the "Area"); and WHEREAS, "DUBLIN and TANGANYIKA" agree to undertake their obligations provided hereinafter as a CONTRACTOR with respect to the exploration, development and production of petroleum in West Gharib Area in Eastern Desert; and WHEREAS, the GOVERNMENT desires hereby to grant such Concession; and WHEREAS, the Minister of Petroleum pursuant to the provisions of Law No.86 of 1956, may enter into a concession agreement with EGPC, and with DUBLIN and TANGANYIKA as a contractor in the said Area. "West Gharib Concession 20-F" - -3- NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS (a) "Exploration" shall include such geological, geophysical, aerial; and other surveys as may be contained in the approved Work Programs and Budgets, and the drilling of such shot holes, core holes, stratigraphic tests, holes for the discovery of Petroleum or the appraisal of Petroleum discoveries and other related holes and wells, and the purchase or acquisition of such supplies, materials, services and equipment therefore, all as may be contained in the approved Work Programs and Budgets. The verb "explore" means the act of conducting Exploration. (b) "Development" shall include, but not be limited to, all the operations and activities pursuant to approved Work Programs and Budgets under this Agreement with respect to: (i) the drilling, plugging, deepening, side tracking, redrilling, completing, equipping of development wells, the changing of the status of a well, and (ii) design, engineering, construction, installation, servicing and maintenance of equipment, lines, systems facilities, plants and related operations to produce and operate said development wells, taking, saving, treating, handling, storing, transporting and delivering petroleum, repressuring, recycling and other secondary recovery projects, and (iii) transportation, storage and any other work or activities necessary or ancillary to the activities specified in (i) and {ii). (c) "Petroleum" means liquid crude oil of various densities, asphalt, gas, casinghead gas and all other hydrocarbon substances that may be found in, and produced, or otherwise obtained and saved from the Area under this Agreement, and all substances that may be extracted therefrom. (d) "Liquid Crude Oil' or "Crude Oil" or "Oil" means any hydrocarbon produced from the Area which is in a liquid state at the wellhead or lease separators or which is extracted from the gas or casinghead gas in a plant. Such liquid state shall exist at sixty degrees Fahrenheit (60(Deg.)F) and atmospheric pressure of 14.65 PSIA. Such term includes distillate and condensate. (e) "Gas" means natural gas both associated and non-associated, and all of its constituent elements produced from any well in the Area (other than Liquid Crude Oil) and all non-hydrocarbon substances therein. Said term shall include residual gas, that Gas remaining after removal of LPG. (f) "LPG" means liquefied petroleum gas, which is a mixture principally of butane and propane liquefied by pressure and temperature. (g) A "Barrel" shall consist of forty-two (42) United States gallons, liquid measure, corrected to a temperature of sixty degrees Fahrenheit (60(Deg.)F) at atmospheric pressure of 14.65 PSIA. "West Gharib Concession 20-F" - -4- (h) (1) "Commercial Oil Well" means the first well on any geological feature which after testing for a period of not more than thirty (30) consecutive days where practical, but in any event in accordance with sound and accepted industry production practices, and verified by EGPC, is found to be capable of producing at the average rate of not less than two thousand (2000) Barrels of oil per day (BOPD). The date of discovery of a "Commercial Oil Well" is the date on which such well is tested and completed according to the above. (2) "Commercial Gas Well" means the first well on any geological feature which after testing for a period of not more than thirty (30) consecutive days where practical, but in any event in accordance with sound and accepted industry production practices and verified by EGPC, is found to be capable of producing at the average rate of not less than fifteen million (15,000,000) standard cubic feet of Gas per day (MMSCFD). The date of discovery of a "Commercial Gas Well" is the date on which such well is tested and completed according to the above. (i) "A.R.E." means ARAB REPUBLIC OF EGYPT. (j) "Effective Date" means the date on which the text of this Agreement is signed by the GOVERNMENT, EGPC and CONTRACTOR, after the relevant Law is issued. (k) (1) "Year" means a period of twelve (12) months according to the Gregorian Calendar. (2) "Calendar Year" means a period of twelve (12) months according to the Gregorian Calendar 1st January to 31st December. (l) "Financial Year" means the GOVERNMENT's financial year according to the laws and regulations of the A.R.E. (m) "Tax Year" means the period of twelve (12) months according to the laws and regulations of the A.R.E. (n) An "Affiliated Company" means a company: (i) of which the share capital, conferring a majority of votes at stockholders' meetings of such company, is owned directly or indirectly by a party hereto; or (ii) which is the owner directly or indirectly of share capital conferring a majority of votes at stockholders' meetings of a party hereto; or (iii) of which the share capital conferring a majority of votes at stockholders' meetings of such company and the share capital conferring a majority of votes at stockholders' meetings of a party hereto are owned directly or indirectly by the same company. (o) "Exploration Block" shall mean an area, the corner points of which have to be coincident with three (3) minutes by three (3) minutes latitude and longitude divisions, according to the International Grid System where possible or with the existing boundaries of the Area covered by this Concession Agreement as set out in Annex "A". (p) "Development Block" shall mean an area, the corner points of which have to be coincident with one (1) minute by one (1) minute latitude and longitude divisions, according to the International Grid System where possible or with the existing boundaries of the Area covered by this Concession Agreement as set out in Annex "A". "West Gharib Concession 20-F" - -5- (q) "Development Lease(s)" shall mean the Development Block or Blocks covering the geological structure capable of production, the corner points of which have to be coincident with one (1) minute by one (1) minute latitude and longitude divisions according to the International Grid System where possible or with the existing boundaries of the Area covered by this Concession Agreement as set out in Annex "A". (r) "Agreement" shall mean this Concession Agreement and its Annexes. (s) "Gas Sales Agreement" shall mean a written agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer), which contains the terms and conditions for Gas sales from a Development Lease entered into pursuant to Article VII (e). (t) "Standard Cubic Foot" (SCF) is the amount of gas necessary to fill one (1) cubic foot of space at atmospheric pressure of 14.65 PSIA at a base temperature of sixty degrees Fahrenheit (60 F). ARTICLE II ANNEXES TO THE AGREEMENT Annex "A" is a description of the area covered and affected by this Agreement, hereinafter referred to as the "Area". Annex "B" is a provisional illustrative map on the scale of approximately 1: 600 000 indicating the Area covered and affected by this Agreement and described in Annex "A". Annex "C" is the form of a Letter of Guarantee to be submitted by CONTRACTOR to EGPC one (1) day before the time of signature by the Minister of Petroleum of this Agreement, for the sum of five million (5,000,000) U.S. Dollars guaranteeing the execution of CONTRACTOR's minimum Exploration obligations hereunder for the initial three (3) year Exploration period. In case CONTRACTOR extends the initial Exploration Period for two (2) additional periods of three (3) years and of two (2) years respectively, each in accordance with Article III(b) of this Agreement, similar Letters of Guarantee shall be issued and be submitted by CONTRACTOR on the day the CONTRACTOR exercises its option to extend. The first such Letter of Guarantee shall be for the sum of four million (4,000,000) U.S. Dollars and the second such Letter of Guarantee shall be for the sum of four million and five hundred thousand {4,500,000) U.S. Dollars less in both instances any excess expenditure of the preceding Exploration period permitted for carry forward in accordance with Article IV (b) third paragraph of this Agreement. Each of the three Letters of Guarantee shall remain effective for six (6) months after the end of the Exploration period for which it has been issued except as it may be released prior to that time in accordance with the terms thereof. Annex "D" is the form of a Charter of the Operating Company to b e formed as provided for in Article VI. Annex "E" is the Accounting Procedure. Annex "F" is a current map of the National Gas Pipeline Grid System established by the Government. The point of delivery for gas shall be agreed upon by EGPC and CONTRACTOR under a Gas Sales Agreement, which point of delivery shall be located at the flange connecting the development lease pipeline to the nearest point on the National Gas pipeline Grid System as depicted in this Annex "F" or as otherwise agreed upon between EGPC and CONTRACTOR . "West Gharib Concession 20-F" - -6- Annexes "A", "B", "C", "D", "E", and "F" to this Agreement are hereby made part hereof, and they shall be considered as having equal force and effect with the provisions of this Agreement. ARTICLE III GRANT OF RIGHTS AND TERM The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to the terms, covenants and conditions set out in this Agreement, which insofar as they are contrary to, or inconsistent with any provisions of Law No.66 of 1953, as amended, shall have the force of Law, an exclusive concession in and to the Area described in Annexes "A" and "B". (a) The GOVERNMENT shall own and be entitled, as hereinafter provided to a royalty in cash or in kind of ten percent (10%) of the total quantity of Petroleum produced and saved from the Area during the development period including renewal. Said royalty shall be borne and paid by EGPC and shall not be the obligation of CONTRACTOR. The payment of royalties by EGPC shall not be deemed to result in income attributable to the CONTRACTOR. (b) An initial Exploration Period of three (3) years shall start from the Effective Date. Two (2) successive extensions to the initial Exploration period of three (3) years and two (2) years respectively, shall be granted to CONTRACTOR at its option, upon not less than thirty (30) days prior written notice to EGPC, such notice to be given not later than the end of the then current period, as may be extended pursuant to the provisions of Article V (a), and subject only to its having fulfilled its obligations hereunder for that period. This Agreement shall be terminated if neither a Commercial Oil Discovery nor a Commercial Gas Discovery is established by the end of the eighth (8th) year of the Exploration period, as may be extended pursuant to Article V (a) The election by EGPC to undertake a sole risk venture under paragraph (c) below shall not extend the Exploration Period nor affect the termination of this Agreement as to CONTRACTOR. (c) Commercial Discovery: (i) A Commercial Discovery - whether of Oil or Gas - may consist of one producing reservoir or a group of producing reservoirs which is worthy of being developed commercially. After discovery of a Commercial Oil or Gas Well CONTRACTOR shall, unless otherwise agreed upon with EGPC, undertake as part of its Exploration program the appraisal of the discovery by drilling one or more appraisal wells, to determine whether such discovery is worthy of being developed commercially, taking into consideration the recoverable reserves, production, pipelines and terminal facilities required, estimated Petroleum prices, and all other relevant technical and economic factors. (ii) The provisions laid down herein postulate the unity and indivisibility of the concepts of Commercial Discovery and Development Lease. They shall apply uniformly to Oil and Gas unless otherwise specified. "West Gharib Concession 20-F" - -7- (iii) CONTRACTOR shall give notice of a Commercial Discovery to EGPC immediately after the discovery is considered by CONTRACTOR to be worthy of commercial development but in any event with respect to a Commercial Oil Well not later than thirty (30) days following the completion of the second appraisal well or twelve (12) months following the date of the discovery of the Commercial Oil Well, whichever is earlier or with respect to a Commercial Gas Well not later than twenty four (24) months following the date of the discovery of the Commercial Gas Well unless EGPC agrees that such period may be extended), except that CONTRACTOR shall also have the right to give such notice of Commercial Discovery with respect to any reservoir or reservoirs even if the well or wells thereon are not "Commercial" within the definition of the "Commercial Well" if, in its opinion, a reservoir or a group of reservoirs, considered collectively, could be worthy of commercial development. CONTRACTOR may also give a notice of a Commercial Oil Discovery in the event it wishes to undertake a gas recycling project. A notice of Commercial Gas Discovery shall contain all detailed particulars of the discovery and especially the area of Gas reserves, the estimated production potential and profile and field life. Within sixty (60) days following receipt of a notice of a Commercial Oil or Gas Discovery, EGPC and CONTRACTOR shall meet and review all appropriate data with a view to mutually agreeing upon the existence of a Commercial. Discovery. The date of Commercial Discovery shall be the date EGPC and CONTRACTOR jointly agree in writing that a Commercial Discovery exists. (iv) If Crude Oil is discovered but is not deemed by CONTRACTOR to be a Commercial Oil Discovery under the above provisions of this paragraph (c), EGPC shall one (1) month after the expiration of the period specified above within which CONTRACTOR can give notice of a Commercial Oil Discovery, or thirteen (13) months after the completion of a well not considered to be a "Commercial Oil Well", have the right, following sixty (60) days notice in writing to CONTRACTOR, at its sole cost, risk and expense, to develop, produce and dispose of all Crude Oil from the geological feature on which the well has been drilled. Said notice shall state the specific area covering said geological feature to be developed, the wells to be drilled, the production facilities to be installed and EGPC's estimated cost thereof. Within thirty (30) days after receipt of said notice CONTRACTOR may, in writing, elect to develop such area as provided for in the case of Commercial Discovery hereunder. In such event all terms of this Agreement shall continue to apply to the specified area. If CONTRACTOR elects not to develop such area, the specific area covering said geological feature shall be set aside for sole risk operations by EGPC, such area to be mutually agreed upon by EGPC and CONTRACTOR on the basis of good petroleum industry practice. EGPC shall be entitled to perform or in the event Operating Company has come into existence, to have Operating Company perform such operations for the account of EGPC and at EGPC's sole cost, risk and expense. When EGPC has recovered from the Crude Oil produced from such specific area a quantity of Crude Oil equal in value to three hundred percent (300%) of the cost it has incurred in carrying out the sole risk operations, CONTRACTOR shall have the option, only in the event there has been a separate Commercial Oil Discovery, elsewhere within the Area, to share in further development and production of that specific area upon paying EGPC one hundred percent (100%) of such costs incurred by EGPC. "West Gharib Concession 20-F" - -8- Such one hundred percent (100%) payment shall not be recovered by CONTRACTOR. Immediately following such payment the specific area shall either (i) revert to the status of an ordinary development Lease under this Agreement and thereafter shall be operated in accordance with the terms hereof: or (ii) alternatively, in the event that at such time EGPC or its Affiliated Company is conducting Development operations in the area at its sole expense and EGPC elects to continue operating, the area shall remain set aside and CONTRACTOR shall only be entitled to its production sharing percentages of the Crude Oil as specified in Article VII (b). The sole risk Crude Oil shall be valued in the manner provided in Article VII (c). In the event of any termination of this Agreement under the provisions of Article III (b), this Agreement shall, however, continue to apply to EGPC's operations of any sole risk venture hereunder, although such Agreement shall have been terminated with respect to CONTRACTOR pursuant to the provisions of Article III (b) (d) Conversion to a Development Lease: (i) Following a Commercial Oil Discovery or a Commercial Gas Discovery the extent of the whole area capable of production to be covered by a Development Lease shall be, mutually agreed upon by EGPC and CONTRACTOR and be subject to the approval of the Minister of Petroleum. Such area shall be converted automatically into a Development Lease without the issue of any additional legal instrument or permission. (ii) Following the conversion of an area to a Development Lease based on a Commercial Gas Discovery (or upon the discovery of Gas in a Development Lease granted following a Commercial Oil Discovery), EGPC shall endeavor with diligence to find adequate local markets capable of absorbing the production of Gas and shall advise CONTRACTOR of the potential outlets for such Gas, and the expected annual.schedule of demand. Thereafter, EGPC and CONTRACTOR shall meet with a view to assessing whether the outlets for such Gas and other relevant factors warrant the development and production of the Gas and in case of agreement the Gas thus made available shall be disposed of to EGPC under a long-term Gas Sales Agreement in accordance with and subject to the conditions set forth inn Article VII. (iii) The Development period of each Development Lease shall be as follows: (aa) In respect of a Commercial Oil Discovery, twenty (20) years from the date of such Commercial Discovery plus the Optional Extension Period (as defined below) provided that, in the event that, subsequent to the conversion of a Commercial Oil Discovery into a Development Lease, Gas is discovered in the same Development Lease and is used or is capable of being used locally or for export hereunder, the period of the Development Lease shall be extended only with respect to such Gas, LPG extracted from such Gas and Crude Oil in the form of condensate produced with such Gas for twenty (20) years from the date of first deliveries of Gas locally or for export plus the Optional Extension Period (as defined below) provided that the duration of such Development Lease based on a Commercial Oil Discovery may not be extended beyond thirty-five (35) years from the date of such Commercial Oil Discovery, unless otherwise agreed upon between EGPC and CONTRACTOR and subject to the approval of the Minister of Petroleum. CONTRACTOR shall immediately notify EGPC of any Gas Discovery but shall not be required to apply for a new Development Lease in respect of such Gas. "West Gharib Concession 20-F" - -9- (bb) In respect of a Commercial Gas Discovery, twenty (20) years from the date of first deliveries of Gas locally or for export plus the Optional Extension Period (as defined below) provided that if subsequent to the conversion of a Commercial Gas Discovery into a Development Lease, Crude Oil is discovered in the same Development Lease, CONTRACTOR's share of such Crude Oil from the Development Lease (except LPG extracted from Gas or Crude Oil in the form of condensate produced with Gas) and Gas associated with such Crude Oil shall revert entirely to EGPC upon the lapse of twenty (20) years from the date of such Crude Oil Discovery plus the Optional Extension Period (as defined below), Notwithstanding, anything to the contrary under this Agreement, the duration of a Development Lease based on a Commercial Gas Discovery shall in no case exceed thirty-five (35) years from the date of such, Commercial Gas Discovery, unless otherwise agreed upon between EGPC and CONTRACTOR and subject to the approval of the Minister of Petroleum. CONTRACTOR shall immediately notify EGPC of any Oil Discovery but shall not be required to apply for a new Development Lease in respect of such Crude Oil. The "Optional Extension Period" shall mean a period of five. (5) years which may be elected by CONTRACTOR upon six (6) months written notice to EGPC prior to the expiry of the relevant twenty (20) year period. (e) Development operations shall upon the issuance of a Development Lease granted following a Commercial Oil Discovery, be promptly by Operating Company and be conducted in accordance with good oil field practices and accepted petroleum engineering principles, until the field is considered to be fully developed, it being understood that if associated gas is not utilized, EGPC and CONTRACTOR shall negotiate in good faith to determine the best way to avoid impairing the production in the interest of the parties. In the event no Commercial Production of Oil in regular shipments is established in any Development Block within four (4) years from the date of the Commercial Oil Discovery, such Development Block shall immediately be relinquished, unless there is a Commercial Gas discovery on the Development Lease. Each Development Block in a Development Lease being partly within the radius of drainage of any producing well in such Development Lease shall be considered as participating in the Commercial Production referred to above. Development operations in respect of Gas and Crude Oil in the form of condensate or LPG to be produced with or extracted from such Gas shall, upon the signature of a Gas Sales Agreement or commencement of a scheme to dispose of the Gas, whether for export as referred to in Article VII or otherwise, be started promptly by Operating Company and be conducted in accordance with good gas field practices and accepted petroleum engineering principles and the provisions of such Gas Sales Agreement or scheme. In the event no Commercial Production of Gas is established in accordance with such Gas Sales Agreement or scheme, the Development Lease relating to such Gas shall be relinquished, unless otherwise agreed upon by EGPC. "West Gharib Concession 20-F" - -10- If, upon application by CONTRACTOR it is recognized by EGPC that Crude Oil or Gas is being drained from an Exploration block under this Agreement into a Development Block on an adjoining concession area herd by CONTRACTOR, the Block being drained shall be considered as participating in the Commercial Production of the Development Block in question and the Block being drained shall be converted into a Development Lease with the ensuing allocation of costs and production (calculated from the Effective Date or the date such drainage occurs, whichever is later) between the two Concession Areas. The allocation of such costs and production under each Concession Agreement shall be in the same portion that the recoverable reserves in the drained geological structure underlying each Concession Area bears to the total recoverable reserves of such structure underlying both Concession Areas. The production allocated to a concession area shall be priced according to the concession agreement covering that concession area. (f) CONTRACTOR shall bear and pay all the costs and expenses required in carrying out all the operations under this Agreement but such costs and expenses shall not include any interest on investment. CONTRACTOR shall look only to the Petroleum to which it is entitled under this Agreement to recover such costs and expenses. Such costs and expenses shall be recoverable as provided in Article VII. During the term of this Agreement and its renewal, the total production achieved in the conduct of such operations shall be divided between EGPC and CONTRACTOR in accordance with the provisions of Article VII. (g) (1) Unless otherwise provided, CONTRACTOR shall be subject to Egyptian income tax laws and shall comply with the requirements of such laws with respect to the filing of returns, the assessment of tax, and keeping and showing of books and records. (2) CONTRACTOR's annual income for Egyptian income tax purposes under this Agreement shall be an amount calculated as follows: The total of the sums received by CONTRACTOR from the sale or other disposition of all Petroleum acquired by CONTRACTOR pursuant to Article VII (a) and Article VII (b); Reduced by: (i) The costs and expenses of CONTRACTOR; (ii) The value as determined according to Article VII (c), of EGPC's share of the Excess Cost Recovery Petroleum repaid to EGPC in cash or in kind, if any, "West Gharib Concession 20-F" - -11- Plus: An amount equal to CONTRACTOR's Egyptian income taxes grossed up in the manner shown in Annex "E" Article VI. For purposes of above tax deductions in any Tax Year, Article VII (a) shall apply only in respect of classification of costs and expenses and rates of amortization, without regard to the percentage limitation referred to in the first paragraph of Article VII (a) (1). All costs and expenses of CONTRACTOR in conducting the operations under this Agreement which are not controlled by Article VII (a) as above qualified shall be deductible in accordance with the provisions of the Egyptian Income Tax Law. (3) EGPC shall assume, pay and discharge, in the name on behalf of CONTRACTOR, CONTRACTOR's Egyptian income tax out of EGPC's share of the Petroleum produced and saved and not used in operations under Article VII. All taxes paid by EGPC in the name and on behalf of CONTRACTOR shall be considered income to CONTRACTOR. (4) EGPC shall furnish to CONTRACTOR the proper official receipts evidencing the payment of CONTRACTOR's Egyptian income tax for each Tax Year within ninety" (90) days following the receipt by EGPC of CONTRACTOR's tax declaration for the preceding Tax Year. Such receipts shall be issued by the proper Tax Authorities and shall state the amount and other particulars customary for such receipts. (5) As used herein. Egyptian Income Tax shall be inclusive of all income taxes payable in the A.R.E. (including tax on tax) such as the tax on income from movable capital and the tax on profits from commerce and industry and inclusive of taxes based on income or profits including all dividends. Withholding with respect to shareholders and other taxes imposed by the GOVERNMENT on the distribution of income or profits by CONTRACTOR. (6) In calculating its A.R.E. income taxes, EGPC shall be entitled to deduct all royalties paid by EGPC to the GOVERNMENT and CONTRACTOR's Egyptian income taxes paid by EGPC on CONTRACTOR's behalf. ARTICLE IV WORK PROGRAM AND EXPENDITURES DURING EXPLORATION PERIOD (a) CONTRACTOR shall commence Exploration operations hereunder not later than six (6) months after the Effective Date with a commitment of reprocessing most of the existing seismic data, acquire and process three hundred (300) km seismic survey and fifty (50) sq. km 3D seismic survey. Not later than the end of the twelfth (12th) month after the Effective Date, CONTRACTOR shall start Exploratory drilling in the Area during the initial Exploration period with a commitment of drilling three (3) wells. EGPC shall make available for CONTRACTOR's use all seismic wells and other Exploration data in EGPC's possession with respect to the Area as EGPC is entitled to so do. "West Gharib Concession 20-F" 11 a. (b) The initial Exploration period shall be three (3) years. CONTRACTOR may extend this Exploration period for two (2) successive extension periods of three (3) years and two (2) years respectively, in accordance with Article III (b), each of which upon at least thirty (30) days prior written notice to EGPC, subject to its expenditure of its minimum Exploration obligations and of its fulfillment of the drilling obligations hereunder, for the then current period. CONTRACTOR shall spend a minimum of five million (5,000.000) U.S. Dollars on Exploration operations and activities related thereto during the initial three (3) year Exploration period; provided that CONTRACTOR shall drill three (3) wells and reprocessing most of the existing seismic data and acquire and process three hundred (300) km. seismic survey and fifty (50) sq. km. 3D seismic survey. For the first three (3) year extension period that CONTRACTOR elects to extend beyond the initial Exploration period, CONTRACTOR shall spend a minimum of four million (4,000,000) U.S. Dollars and acquire and process two hundred (200) km seismic survey and fifty (50) sq. km 3D seismic survey and for the second two (2) year extension period that CONTRACTOR elects to extend beyond the three (3) year first extension period, CONTRACTOR shall also spend a minimum of four million and five hundred thousand (4,500,000) U.S. Dollars. During the first and second extension periods that CONTRACTOR elects to extend beyond the initial Exploration period, CONTRACTOR shall drill two (2) wells in the first extension and three (3) wells in the second extension. Should CONTRACTOR spend more than the minimum amount required to be expended or drill more wells than the minimum required to be drilled or acquire more seismic survey than the minimum required during the initial three (3) year Exploration period or during any period thereafter the excess may be subtracted from the minimum amount of money required to be expended by CONTRACTOR or minimum number of wells required to be drilled or minimum kilometres of seismic survey to be acquired during any succeeding Exploration period(s) as the case may be. In case CONTRACTOR surrenders its Exploration rights under this Agreement as set forth above before or at the end of the third (3rd) year of the initial Exploration period, having expended less than the total sum of five million (5,000,000) U.S. Dollars, on Exploration or in the event at the end of the three (3) years, of the initial Exploration period. CONTRACTOR has expended less than said sum in the Area, an amount equal to the difference between the said five million (5.000.000) U.S. Dollars and the amount actually spent on Exploration shall be paid by CONTRACTOR to EGPC at the time of surrendering or within three (3) months from the end of the third (3rd) year of the initial Exploration period. as the case may be. Any expenditure deficiency by CONTRACTOR at the end of any additional period for the reasons above noted shall similarly result in a payment by CONTRACTOR to EGPC of such deficiency. Provided this Agreement is still in force as to CONTRACTOR, CONTRACTOR shall be entitled to recover any such payments as Exploration expenditure in the manner provided for under Article VII in the event of Commercial Production. Without prejudice to Article III (b), in case no Commercial Oil Discovery is established or no notice of Commercial Gas Discovery is given by the end of the eighth (8th) year, as may be extended pursuant to Article V (a) or in case CONTRACTOR surrenders the Area under this Agreement prior to such time EGPC shall not bear any of the aforesaid expenses spent by CONTRACTOR. (c) At least four (4) months prior to the beginning of each Financial Year or at such other times as may mutually be agreed to by EGPC and CONTRACTOR. CONTRACTOR shall prepare an Exploration Work Program and Budget for the Area setting forth the Exploration operations which CONTRACTOR proposes to carry out during the ensuing Year. The Exploration Work Program and Budget shall be reviewed by a joint committee to be established by EGPC and CONTRACTOR after the Effective Date of this Agreement. This Committee, hereinafter referred to as the "Exploration Advisory Committee", shall consist of six (6) members, three (3) of whom shall be appointed by EGPC and three (3) by CONTRACTOR. The Chairman of the Exploration Advisory Committee shall be designated by EGPC from among the members appointed by it. The Exploration Advisory Committee shall review and give such advice as it deems appropriate with respect to the proposed Work Program and Budget. Following review by the Exploration Advisory Committee, CONTRACTOR shall make such revisions as CONTRACTOR deems appropriate and submit the Exploration Work Program and Budget to EGPC for its approval. "West Gharib Concession 20-F" - -12- Following such approval, it is further agreed that: (i) CONTRACTOR shall not substantially revise or modify said Work Program and Budget nor reduce the approved budgeted expenditure without the approval of EGPC; (ii) In the event of emergencies involving danger of loss of lives or property, CONTRACTOR may expend such additional unbudgeted amounts as may be required to alleviate such danger. Such expenditure shall be considered in all aspects as Exploration expenditure and shall be recovered pursuant to the provisions of Article VII. (d) CONTRACTOR shall advance all necessary funds for all materials, equipment, supplies, personnel administration and operations pursuant to the Exploration Work Program and Budget and EGPC shall not be responsible to bear or repay any of the aforesaid costs. (e) CONTRACTOR shall be responsible for the preparation and performance of the Exploration Work Program which shall be implemented in a workmanlike manner and consistent with good industry practices. Except as is appropriate for the processing of data, specialized laboratory engineering and development studies thereon, to be made in specialized centers outside A.R.E. all geological and geophysical studies as well as any other studies related to the performance of this Agreement shall be made in the A.R.E. CONTRACTOR shall entrust the management of Exploration operations in the A.R.E. to its technically competent General Manager and Deputy General Manager. The names of such manager and Deputy General Manager shall upon appointment be forthwith notified to the GOVERNMENT and to EGPC. The General Manager and, in his absence, the Deputy General Manager shall be entrusted by CONTRACTOR with sufficient powers to carry out immediately all lawful written directions given to them by the GOVERNMENT or its representative under the terms of this Agreement. All lawful regulations issued or hereafter to be issued which are applicable hereunder and not in conflict with this Agreement shall apply to CONTRACTOR. (f) CONTRACTOR shall supply EGPC, within thirty (30) days from the end of each calendar quarter, with a Statement of Exploration activity showing costs incurred by CONTRACTOR during such quarter. CONTRACTOR's records and necessary supporting documents shall be available for inspection by EGPC at any time during regular working hours for three (3) months from the date of receiving each statement. Within the three (3) months from the date of receiving such Statement. EGPC shall advise CONTRACTOR in writing if it considers: (1) that the record of costs is not correct; (2) that the costs of goods or services supplied are not in line with the international market prices for goods or services of similar quality supplied on similar terms .prevailing at the time such goods or services were supplied, provided however, that purchases made and services performed within the A.R.E. shall be subject to Article XXVI; (3) that the condition of the materials furnished by CONTRACTOR does not tally with their prices; or (4) that the costs incurred are not reasonably required for operations. "West Gharib Concession 20-F" - -13- CONTRACTOR shall confer with EGPC in connection with the problem thus presented, and the parties shall attempt to reach a settlement which is mutually satisfactory. Any reimbursement due to EGPC out of the Cost Recovery Petroleum as a result of reaching agreement or of an arbitral award shall be promptly made in cash to EGPC, plus simple interest at LIBOR plus two and half percent (2.5%) per annum from the date on which the disputed amount(s) would have been paid to EGPC according to Article VII (a) (2) and Annex "E" (i.e., the date of rendition of the relevant Cost Recovery Statement) to the date of payment. The LIBOR rate applicable shall be the average of the figure or figures published by the Financial Times representing the mid-point of the rates (bid and ask) applicable to one month U.S. Dollars deposits in the London Interbank Eurocurrency Market on each fifteenth (15th) day of each month occurring between the date on which the disputed amount(s) would have been paid to EGPC and the date on which it is settled. If the LIBOR rate is available on any fifteenth (15th) day but is not published in the Financial Times in respect of such day for any reason, the LIBOR rate chosen shall be that offered by Citibank N.A. to other leading banks in the London Interbank Eurocurrency Market for one month U.S. Dollar deposits. If such fifteenth (15th) day is not a day on which LlBOR rates are quoted in the London Interbank Eurocurrency Market, the LIBOR rate to be used shall be that quoted on the next following day on which such rates are quoted. If within the time limit of the three (3) month period provided for in this paragraph, EGPC has not advised CONTRACTOR of its objection to any Statement, such Statement shall be considered as approved. (g) CONTRACTOR shall supply all funds necessary for its operations in the A.R.E. under this Agreement in freely convertible currency from abroad. CONTRACTOR shall have the right to freely purchase Egyptian currency in the amounts necessary for its operations in the A.R.E. from any bank or entity authorized by the GOVERNMENT to conduct foreign currency exchanges. (h) EGPC is authorized to advance to CONTRACTOR the Egyptian currency required for the operations under this Agreement against receiving from CONTRACTOR an equivalent amount of U.S. Dollars at the official A.R.E. rate of exchange. Such amount in U.S. Dollars shall be deposited in an EGPC account abroad with a correspondent bank of the National Bank of Egypt, Cairo. Withdrawals from said account shall be used for financing EGPC's and its Affiliated Companies foreign currency requirements subject to the approval of the Minister of Petroleum. "West Gharib Concession 20-F" - -14- ARTICLE V MANDATORY AND VOLUNTARY RELINQUISHMENTS (a) MANDATORY: At the end of the third (3rd) year after the Effective Date hereof, CONTRACTOR shall relinquish to the GOVERNMENT a total of twenty five percent (25%} of the original Area not then converted to a Development Lease or leases. Such relinquishment shall be in units of whole Exploration Blocks or parts of Exploration Blocks not converted to Development Leases so as to enable the relinquishment requirements to be precisely fulfilled. At the end of the sixth (6th) year after the Effective Date hereof, CONTRACTOR shall relinquish to the GOVERNMENT an additional twenty-five percent (25%) of the original Area not then converted to a Development Lease or Leases. Such relinquishment shall be in units of whole Exploration Blocks or parts of Exploration Blocks not converted to Development Leases so as to enable the relinquishment requirements to be precisely fulfilled. Without prejudice to Articles III and XXIII and the last three paragraphs of this Article V (a), at the end of the eighth (8th) year of the Exploration period, CONTRACTOR shall relinquish the remainder of the Area not then converted to a Development Lease or Leases. It is understood that at the time of any relinquishment the areas to be converted into Development Leases and which are submitted to the Minister of Petroleum for his approval according to Article III (d) shall, subject to such approval, be deemed converted to Development Leases. CONTRACTOR shall not be required to relinquish any Exploration Block or Blocks on which a Commercial Oil or Gas, Well is discovered before the period of time referred to in Article III (c) given to CONTRACTOR to determine whether such Well is a Commercial Discovery worthy of Development or to relinquish an Exploration Block in respect of which a notice of Commercial Gas Discovery has been given to EGPC subject to EGPC's right to agree on the existence of a Commercial Discovery pursuant to Article III (c), and without prejudice to the requirements of Article III (e). In the event at the end of the initial Exploration period or either of the two successive extensions of the initial Exploration period, a well is actually drilling or testing, CONTRACTOR shall be allowed up to six (6) months to enable it to discover a Commercial Oil or Gas Well or to establish a Commercial Discovery, as: the case may be. However, any such extension of up to six (6) months shall reduce the length of the next succeeding Exploration Period, as applicable, by that amount. (b) VOLUNTARY: CONTRACTOR may, voluntarily, during any period relinquish all or any part of the Area in whole Exploration Block or parts of Exploration Blocks provided that at the time of such voluntary relinquishment its Exploration obligations under Article IV (b) have been satisfied for such period. Any relinquishments hereunder shall be credited toward the mandatory provisions of Article V (a) above. "West Gharib Concession 20-F" - -15- Following Commercial Discovery, EGPC and CONTRACTOR shall mutually agree upon any area to be relinquished thereafter, except for the relinquishment provided for above at the end of the total Exploration period. ARTICLE VI OPERATIONS AFTER COMMERCIAL DISCOVERY (a) On Commercial Discovery, EGPC and CONTRACTOR shall form in the A.R.E. an operating company pursuant to Article VI (b) and Annex (D) (hereinafter referred to as "Operating Company") which company shall be named by mutual agreement between EGPC and CONTRACTOR and such name shall be subject to the approval of the Minister of Petroleum. Said company shall be a private sector company. Operating Company shall be subject to the laws and regulations in force in the A.R.E. to the extent that such laws and regulations are not inconsistent with the provisions of this Agreement or the Charter of Operating Company. However, Operating Company and CONTRACTOR shall, for the purpose of this Agreement, be exempted from the following laws and regulations as now or hereafter amended or substituted: - - Law No.48 of 1978, on the employee regulations of public sector companies; - - Law No.159 of 1981, promulgating the law on joint stock Companies, partnership limited by shares and liability companies; - - Law No.97 of 1983 promulgating the law concerning public sector organizations and companies; - - Law No.203 of 1991 promulgating the law on public business sector companies; and - - Law No.38 of 1994, organizing dealings in foreign currencies. (b) The Charter of Operating Company is hereto attached as Annex "D". Within thirty (30) days after the date of Commercial Oil Discovery or within thirty (30) days after signature of a Gas Sales Agreement or commencement of a scheme to dispose of Gas (unless otherwise agreed upon by EGPC and CONTRACTOR), the Charter shall take effect and Operating Company shall automatically come into existence without any further procedures. The Exploration Advisory Committee shall be dissolved forthwith upon the coming into existence of the Operating Company. "West Gharib Concession 20-F" - -16- (c) Ninety (90) days after the date Operating Company comes into existence in accordance with paragraph (b) above, it shall prepare a Work Program and Budget for further Exploration and Development for the remainder of the year in which the Commercial Discovery is made; and not later than four (4) months before the end of the current Financial Year (or such other date as may be agreed upon by EGPC and CONTRACTOR) and four (4) months preceding the commencement of each succeeding Financial Year thereafter (or such other date as may be agreed upon by EGPC and CONTRACTOR), Operating Company shall prepare an annual Production Schedule, Work Program and Budget for further Exploration and Development for the succeeding Financial Year. The Production Schedule, Work Program and Budget shall be submitted to the Board of Directors for approval. (d) No later than the twentieth (20th) day of each month, Operating Company shall furnish to CONTRACTOR a written estimate of its total cash requirements for expenditure for the first half and second half of the succeeding month expressed in U.S. Dollars having regard to the approved Budget. Such estimate shall take into consideration any cash expected to be on hand at month end. Payment for the appropriate period of such month shall be made to the correspondent bank designated in paragraph (e) below on the first (1st) day and fifteenth (15th) day respectively, or the next following business day, if such day is not a business day. (e) Operating Company is authorized to keep at its own disposal abroad in an account opened with a correspondent bank of the National Bank of Egypt. Cairo the foreign funds advanced by CONTRACTOR. Withdrawals from said account shall be used for payment for goods and services acquired abroad and for transferring to a local bank in the A.R.E. the required amount to meet the expenditures in Egyptian Pounds for Operating Company in connection with its activities under this Agreement. Within sixty (60) days after the end of each Financial Year, Operating Company shall submit to the appropriate exchange control authorities in the A.R.E. a statement, duly certified by a recognized firm of auditors, showing the funds credited to that account, the disbursements made out of that account and the balance outstanding at the end of the Year. (f) If and for as long during the period of production operations there exists an excess capacity in facilities which can not during the period of such excess be used by the Operating Company, EGPC and CONTRACTOR will consult together to find a mutually agreed formula whereby EGPC may use the excess capacity if it operational disadvantage to the CONTRACTOR. "West Gharib Concession 20-F" - -17- ARTICLE VII RECOVERY OF COSTS AND EXPENSES AND PRODUCTION SHARING (a)1. COST RECOVERY PETROLEUM: Subject to the auditing provisions under this Agreement CONTRACTOR shall recover quarterly all costs, expenses and expenditures in respect of all the Exploration, Development and related operations under this Agreement to the extent and out of thirty percent (30%) of all Petroleum produced and saved from all Development Leases within the Area hereunder and not used in Petroleum operations. Such Petroleum is hereinafter referred to as "Cost Recovery Petroleum". For the purpose of determining the classification of all costs, expenses and expenditures for their recovery, the following terms shall apply: 1. "Exploration Expenditures" shall mean all costs and expenses for Exploration and the related portion of indirect expenses and overheads. 2. "Development Expenditures" shall mean all costs and expenses for Development (with the exception of Operating Expenses) and the related portion of indirect expenses and overheads. 3. "Operating Expenses" shall mean all costs, expenses and expenditures made after initial Commercial Production, which costs, expenses and expenditures are not normally depreciable. However, Operating Expenses small include workover, repair and maintenance of assets buy shall not include any of the following sidetracking, redrilling and changing of the status of a well, replacement of assets or part of an asset. Additions, improvements renewals or major overhauling that extend the life of the asset. Exploration Expenditures. Development Expenditures and Operating Expenses shall be recovered from Cost Recovery Petroleum in the following manner: (i) Exploration Expenditures, including those accumulated prior to the commencement of initial Commercial Production. which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas are made shall be recoverable at the rate of twenty-five percent (25%) per annum starting either in the Tax Year in which such expenditures are incurred and paid or the Tax Year in which initial Commercial Production commences, whichever is the later date. (ii) Development Expenditures, including those accumulated prior to the commencement of initial Commercial Production which for the purposes of this Agreement shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas are made, shall be recoverable at the rate of twenty-five percent (25%) per annum starting either in. the Tax Year in which such expenditures are incurred and paid or the Tax Year in which initial Commercial Production commences, whichever is the later date. "West Gharib Concession 20-F" - -18- (iii) Operating Expenses, incurred and paid after the date of initial Commercial Production, which for the purposes; of this Agreement shall mean the date on which the first regular shipment of Crude Oil or the first deliveries of Gas are made, shall be recoverable either in the Tax Year in which such costs and expenses are incurred and paid or the Tax Year in which initial Commercial Production occurs whichever is the later date. (iv) To the extent that, in a Tax Year, costs, expenses or expenditures recoverable per paragraphs (i), (ii) and (iii) preceding, exceed the value of all Cost Recovery Petroleum for such Tax Year, the excess shall be carried forward for recovery in the next succeeding Tax Year(s) until fully recovered, but in no case after the termination of this, Agreement as to CONTRACTOR. (v) The recovery of costs and expenses, based upon the rates referred to above, shall be allocated to each quarter proportionately (one fourth to each quarter). However, any recoverable costs and expenses not recovered in one quarter as thus allocated shall be carried forward for recovery in the next quarter. 2. Except as provided in Article VII (a) (3) and Article VII (e) (1), CONTRACTOR shall each quarter be entitled to take and own all Cost Recovery Petroleum, which shall be taken and disposed of in the manner determined pursuant to Article VII (e). To the extent that the value of all Cost Recovery Petroleum (as determined in Article VII (c>> exceeds the actual recoverable costs and expenditures, including any carry forward under Article VII (a) (1) (iv), to be recovered in that quarter, then the value of such Excess Cost Recovery Petroleum shall be split as: Seventy percent (70%) for EGPC and thirty percent (30%) for CONTRACTOR and EGPC's share shall be paid by CONTRACTOR to EGPC either (i) in cash in the manner set forth in article IV of the Accounting Procedure contained in Annex "E" or (ii) in kind in accordance with Article VII(a) (3). 3. Ninety (90) days prior to the commencement of each Calendar Year, EGPC shall be entitled to elect by notice in writing to CONTRACTOR to require payment of up to one hundred percent (100%) of EGPC's share of Excess Cost Recovery Petroleum in kind. Such payment will be in Crude Oil from the Area F.O.B. export terminal or other agreed delivery point provided that the amount of Crude Oil taken by EGPC in kind in a quarter shall not exceed the value of Cost Recovery Crude Oil actually taken and separately disposed of by CONTRACTOR from the Area during the previous quarter. If EGPC's entitlement to receive payment of its share of Excess Cost Recovery Petroleum in kind is limited by the foregoing provision. the balance of such entitlement shall be paid in cash. (b) PRODUCTION SHARING 1. The remaining seventy percent (70%) of the Petroleum shall be divided between EGPC and CONTRACTOR according to the following shares: Such shares shall be taken and disposed of pursuant to Article VII (e): (i) Crude Oil Crude Oil produced and saved under this Agreement and not used EGPC CONTRACTOR in Petroleum operations. Barrels per day (BOPD) (quarterly average). SHARE SHARE That portion of increment up to 5,000 BOPD. (seventy percent) (thirty percent) (70%) (30%) That portion of increment in excess of 5,000 (seventy-two & (twenty-seven & BOPD and up to 10,000 BOPD. half percent) half percent) (72.5%) (27.5%) That portion of increment in excess of (seventy-five (twenty-five 10,000 BOPD and up to 15,000 BOPD percent) percent) (75%) (25%) "West Gharib Concession 20-F" - -19- That portion or increment in excess of (seventy-seven (twenty-two & 15,000 BOPD and up to 25,000 BOPD & half percent) half percent) (77.5%) (22.5%) That portion or increment in excess of (eighty (twenty 25,000 BOPD and up to 50,000 BOPD percent) percent) (80%) (20%) That portion or increment in excess of (eighty-two & (seventeen & 50,000 BOPD and up to 100,000 BOPD half percent) half percent) (82.5%) (17.5%) That portion or increment in excess of (eighty-five (fifteen 100,000 BOPD percent) percent) (85%) (15%)
(ii) Gas and LPG: Gas and LPG produced and saved under this Agreement and not used in petroleum operations Barrels oil equivalent per day (BOEPD) (Quarterly average)
EGPC CONTRACTOR SHARE SHARE That portion or increment up to 5000 sixty-five percent thirty-five percent BOEPD (65%) (35%) That portion or increment in excess of seventy percent thirty percent 5000 BOEPD and up to 10,000 BOEPD (70%) (30%) That portion or increment in excess of seventy-five percent twenty-five percent 10,000 BOEPD and up to 15,000 BOEPD (75%) (25%) That portion or increment in excess of eighty percent twenty percent 15,000 BOEPD and up to 25,000 BOEPD (80%) (20%) That portion or increment in excess of eighty-five percent fifteen percent 25,000 BOEPD (85%) (15%)
2. After the end of each contractual year during the term of any Gas Sales Agreement entered into pursuant to Article VII (e), EGPC and CONTRACTOR (as sellers) shall render to EGPC (as buyer) a statement for an amount of Gas. if any, equal to the amount by which the quantity of Gas of which EGPC (as buyer) has taken delivery falls below seventy five percent (75%) of the Contract quantities of Gas as established by the applicable Gas Sales Agreement (the "Shortfall"), provided the Gas is available. Within sixty (60) days of receipt of the statement, EGPC (as buyer) shall pay EGPC and CONTRACTOR (as sellers) for the amount of the Shortfall, if any. The Shortfall shall be included in EGPC's and CONTRACTOR's entitlement to Gas pursuant to Article VII (a) and Article VII (b) in the fourth (4th) quarter of such contractual year. Quantities of Gas not taken but to be paid for shall be recorded in a separate "Take-or-Pay" account. Quantities of Gas ("Make Up Gas") which are delivered in subsequent years in excess of seventy five percent (75%) of the contract quantities of Gas as established by the applicable Gas Sales Agreement, shall be set against and reduce quantities of Gas in the ("Take-or-Pay") account to the extent thereof and, to that extent, no payment shall be due in respect of such Gas. Such Make Up Gas shall not be included in CONTRACTOR's entitlement to Gas pursuant to Article VII (a) and Article VII (b) Contractor shall have no rights to such "Make Up Gas". The percentages set forth in Article VII (a) hereinabove and this Article VII (b) in respect of LPG produced from a plant constructed and operated by or on behalf of EGPC and CONTRACTOR shall apply to all LPG available for delivery. (c) VALUATION OF PETROLEUM: "West Gharib Concession 20-F" - -20- 1. CRUDE OIL: (i) The Cost Recovery Crude Oil to which CONTRACTOR is entitled hereunder shall be valued by EGPC and CONTRACTOR at "Market Price" for each calendar quarter. (ii)"Market Price" shall mean the weighted average prices realized from sales by EGPC or CONTRACTOR during the quarter, whichever is higher, provided that the sales to be used in arriving at the weighted average(s) shall be sales of comparable quantities on comparable credit terms in freely convertible currency from F.O.B. point of export sales to non-affiliated companies at arm's length under all Crude Oil sales contracts then in effect, but excluding Crude Oil sales contracts involving barter and, (1) Sales, whether direct or indirect, through brokers or otherwise, of EGPC or CONTRACTOR to any Affiliated Company. (2) Sales involving a quid pro quo other than payment in a freely convertible currency or motivated in whole or in part by considerations other than the usual economic incentives for commercial arm's length crude oil sales. (iii) It is understood that in the case of C.I.F. sales, appropriate deductions shall be made for transport and insurance charges to calculate the F.O.B. point of export price; and always taking into account the appropriate adjustment for quality of Crude Oil freight advantage or disadvantage of port of loading and other appropriate adjustments. Market Price shall be determined separately for each Crude Oil or Crude Oil mix, and for each port of loading. (iv) If during any calendar quarter, there are no such sales by EGPC and/or CONTRACTOR under the Crude Oil sales contracts in effect, EGPC and CONTRACTOR shall mutually agree upon the Market Price of the barrel of Crude Oil to be used for such quarter, and shall be guided by all relevant and available evidence including current prices in freely convertible currency of leading crude oils produced by major oil producing countries (in the Arabian Gulf or the Mediterranean Area), which are regularly sold in the open market according to actual sales contracts terms but excluding paper sales and sales promises where no crude oil is delivered, to the extent that such sales are effected under such terms and conditions (excluding the price) not significantly different from those under which the crude oil to be valued, was sold, and always taking into consideration appropriate adjustments for crude oil quality, freight advantage or disadvantage of port of loading and other appropriate adjustments, as the case may be, for differences in gravity, sulphur, and other factors generally recognized by sellers and purchasers, as reflected in crude prices, transportation ninety (90) days insurance premiums, unusual fees borne by the seller, and for credit terms in excess of sixty (60) days, and the cost of loans or guarantees granted for the benefit of the sellers at prevailing interest rates. It is the intent of the Parties that the value of the Cost Recovery Crude Oil shall reflect the prevailing market price for such Crude Oil. (v) If either EGPC or CONTRACTOR considers that the Market Price as determined under sub-paragraph (ii) above does not reflect the prevailing Market Price or in the event EGPC and CONTRACTOR fail to agree on Market Price for any Crude Oil produced under this Agreement for any quarter within fifteen (15) days after the end thereof, any party may elect at any time thereafter to submit to a single arbitrator the question, what single price per barrel, in the arbitrator's judgment, best represents for the pertinent quarter the Market Price for the Crude Oil In question. The arbitrator shall make his determination as soon as possible following the quarter in question. His determination shall be final and binding upon all the parties. The arbitrator shall be selected in the manner described below. "West Gharib Concession 20-F" - -21- In the event EGPC and CONTRACTOR fail to agree on the arbitrator within thirty (30) days from the date any party notifies the other that it has decided to submit the determination of the Market Price to an arbitrator, such arbitrator shall be chosen by the appointing authority designated in accordance with Article XXIV (e), or such other appointing authority with access to such expertise as may be agreed to between EGPC and CONTRACTOR, with regard to the qualifications for arbitrators set forth below, upon written application of one or both of EGPC and CONTRACTOR. Copies of such application by one of them shall be promptly sent to the other. The arbitrator shall be as nearly as possible a person with an established reputation in the international petroleum industry as an expert in pricing and marketing crude oil in international commerce. The arbitrator shall not be a citizen of a country which does not have diplomatic relations with both the A.R.E., the REPUBLIC OF IRELAND and CANADA. He may not be at the time of selection, employed by, or an arbitrator or consultant on a continuing or frequent basis to the American Petroleum Institute, the Organization of the Petroleum Exporting Countries or the Organization of Arab Petroleum Exporting Countries or a consultant on a continuing basis to EGPC, CONTRACTOR or an Affiliated Company of either, but past occasional consultation with such companies, with other petroleum companies, governmental agencies or organizations shall not be a ground for disqualification. He may not have been at any time during the two (2) years before selection, an employee of any petroleum company or of any governmental agency or organization. Should a selected person decline or be unable to serve as arbitrator or should the position of arbitrator fall vacant prior to the decision called for, another person shall be chosen in the same manner provided in this paragraph. EGPC and CONTRACTOR shall share equally the expenses of the arbitrator. The arbitrator shall make his determination in accordance with the provisions of this paragraph, based on the best evidence available to him. He will review oil sales contracts as well as other sales data and information but shall be free to evaluate the extent, to which any contracts, data or information is substantiated or pertinent. Representatives of EGPC and CONTRACTOR shall have the right to consult with the arbitrator and furnish him written materials provided the arbitrator may impose reasonable limitations on this right. EGPC and CONTRACTOR each shall cooperate with the arbitrator to the fullest extent and each shall insure such cooperation of trading companies. The arbitrator shall be provided access to crude oil sales contracts and related data and information which EGPC and CONTRACTOR or their trading companies are able to make available and which in the judgment of the arbitrator might aid the arbitrator in making a valid determination. (vi) Pending Market Price agreement by EGPC and CONTRACTOR or determination by the arbitrator, as applicable, the Market Price agreed for the quarter preceding the quarter in question shall remain temporarily in effect. In the event either EGPC or CONTRACTOR should incur a loss by virtue of the temporary continuation of the Market Price of the previous quarter, it shall promptly be reimbursed such loss by the other party plus simple interest at the LIBOR plus two and one-half percent (2.5%) per annum rate provided for in Article IV (f) from the date on which the disputed amount(s) should have been paid to the date of payment. 2. Gas and LPG (i) The Cost Recovery and Production Shares of Gas subject to a Gas Sales Agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer) entered into pursuant to Article VII (e) shall be valued, delivered to and purchased by EGPC at a price determined monthly according to the following formula: PG = 0.85 X F X H ---------------- 42.96 X 106 Where: "West Gharib Concession 20-F" - -22- PG = the value of the Gas in U.S. Dollars per thousand Standard cubic feet (MSCF). F = a value In U.S. Dollars per metric ton of the crude oil of Gulf of Suez Blend "FOB Ras Shukheir" A.R.E. calculated by referring to "Platt's Oilgram Price Report" during a month under the heading "Spot Crude Price Assessment for Suez Blend". This value reflects the total averages of the published low and high values for a Barrel during such month divided by the number of days in such month for which such values were quoted. The value per metric ton shall be calculated on the basis of a conversion factor to be agreed upon annually between EGPC and CONTRACTOR. H = the number of British Thermal Units (BTU's) per thousand standard cubic feet (MSCF) of the Gas, based on gross calorific value. In the event that the value of F cannot be determined because Platt's Oilgram Price Report is not published at all during a month, EGPC and CONTRACTOR shall meet and agree the value of F by reference to other published sources. In the event that there are no such published sources or if the value of F cannot be determined pursuant to the foregoing for any other reason, EGPC and CONTRACTOR shall meet and agree to a value of F. Such evaluation of Gas under a formula providing for a fifteen percent (15%) discount is based upon delivery at the delivery point specified in Article II and Article VII (e) 2 (ii) hereinafter, and is to enable EGPC to finance and maintain the portions of the pipeline distribution system to be provided by EGPC. (ii) The Cost Recovery and Production Shares of LPG produced from a plant constructed and operated by or on behalf of EGPC and CONTRACTOR shall be separately valued for Propane and Butane at the outlet of such LPG plant according to the following formula (unless otherwise agreed between EGPC and CONTRACTOR): PLPG = 0.95 PR - (J X 0.85 X ________F__________) 42.96 X 10(6) Where PLPG = LPG price (separately determined for Propane and Butane) in U.S. Dollars per metric ton. PR = The average over a period of a month of the figures representing the mid-point between the high and low prices in U.S. Dollars per metric ton quoted in "Platt's LPGaswire" during such month for Propane and Butane FOB Ex-Ref/Stor. West Mediterranean J = BTU's removed from the Gas stream by the LPG plant per metric ton of LPG produced. F = the same value as F under sub-paragraph (i) above. In the event that Platt's LPGaswire is issued on certain day during a month but not on others, the value of PR shall be calculated using only those issues which are published during such month. In the event that the value of PR can not be determined because Platt's LPGaswire is not published at all during a month, EGPC and CONTRACTOR shall meet and agree to the value of PR by reference to other published sources. In the event that there are no such other published sources or if the value of PR cannot be determined pursuant to the foregoing for any other reason EGPC and CONTRACTOR shall meet and agree to the value of PA by reference to the value of LPG (Propane and Butane) delivered FOB from the Mediterranean Area. Such valuation of LPG is based upon delivery at the delivery point specified in Article VII (e) 2 (iii) hereinafter. (iii) The prices of Gas and LPG 30 calculated shall apply during the same month "West Gharib Concession 20-F" - -23- (iv) The Cost Recovery and Production Shares of Gas and LPG disposed of by EGPC and CONTRACTOR other than to EGPC pursuant to Article VII (e) hereinafter shall be valued at their actual realized price. (d) FORECASTS: Operating Company shall prepare (not less than ninety (90) days prior to the beginning of each calendar semester following first regular production) and furnish in writing to CONTRACTOR and EGPC a forecast setting out a total quantity of Petroleum that Operating Company estimates can be produced, saved and transported hereunder during such calendar semester in accordance with good oil and gas industry practices. Operating Company shall endeavor to produce each calendar semester the forecast quantity. The Crude Oil shall be run to storage tanks or offshore loading facilities constructed, maintained and operated according to Government Regulations, by Operating Company in which said Crude Oil shall be metered or otherwise measured for royalty, and other purposes required by this Agreement. Gas shall be handled by Operating Company in accordance with the provisions at Article VII (e). (e) DISPOSITION OF PETROLEUM: (1) EGPC and CONTRACTOR shall have the right and the obligation to separately take and freely export or otherwise dispose of, currently all of the Crude Oil to which each is entitled under Article VII (a) and Article VII (b). Subject to payment of sums due to EGPC under Article VII (a) (2) and Article IX, CONTRACTOR shall have the right to remit and retain abroad all funds acquired by including the proceeds from the sale of its share of Petroleum. Notwithstanding anything to the contrary under this Agreement priority shall be given to meet the requirements of the A.R.E. market from CONTRACTOR's share under Article VII (b) of the Crude Oil produced from the Area and EGPC shall have the preferential right to purchase such Crude Oil at a price to be determined pursuant to Article VII (c). The amount of Crude Oil so purchased shall be a portion of CONTRACTOR's share under Article VII (b). Such amount shall be proportional to CONTRACTOR's share of the total production of crude oil from the concession areas in the A.R.E. that are also subject to EGPC's preferential right to purchase. The payment for such purchased amount shall b e made by EGPC in U.S. Dollars or in any other freely convertible currency remittable by CONTRACTOR abroad. It is agreed upon that EGPC shall notify CONTRACTOR, at least forty-five (45) days prior to the beginning of the Calendar Semester, of the amount to be purchased during such semester under this Article VII (e) (1). (2) With respect to Gas and LPG produced from the Area: (i) Priority shall be given to meet the requirements of the local market as determined by EGPC. (ii) In the event that EGPC is to be the buyer of Gas, the disposition of Gas to the local markets as indicated above shall be by virtue of long term Gas Sales Agreements to be entered into between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer). "West Gharib Concession 20-F" - -24- EGPC and CONTRACTOR (as sellers) shall have the obligation to deliver Gas to the following point where such Gas shall be metered for sales, royalty, and other purposes required by this Agreement: (a) In the event no LPG plant is constructed to process such Gas the delivery point shall be at the flange connecting the Lease pipeline to the nearest point on the National Gas Pipeline Grid System as depicted in Annex "F" hereto, or as otherwise agreed by EGPC and CONTRACTOR. (b) In the event an LPG plant is constructed to process such Gas, such Gas shall, for the purposes of valuation and sales, be metered at the inlet to such LPG Plant. However, notwithstanding the fact that the metering shall take place at the LPG Plant inlet, CONTRACTOR shall through the Operating Company build a pipeline suitable for transport of the processed Gas from the LPG Plant outlet to the nearest point on the National Gas Pipeline Grid System as depicted in Annex "F" hereto, or as otherwise agreed by EGPC and CONTRACTOR. Such pipeline shall be owned in accordance with Article VIII (a) by EGPC, and its cost shall be financed and recovered by CONTRACTOR as Development Expenditures pursuant to Article VII. (iii) EGPC and CONTRACTOR shall consult together to determine whether to build an LPG plant for recovering LPG from any Gas produced hereunder. In the event EGPC and CONTRACTOR decide to build such a plant, the plant shall, as is appropriate, be in the vicinity of the point of delivery as determined in Article II and Article VII (e)2(ii) .above. The delivery of LPG for, royalty and other purposes required by this Agreement shall be at the outlet of the LPG plant. The costs of any such LPG plant shall be recoverable in accordance with the provisions of this Agreement unless the Minister of Petroleum agrees to accelerated recovery. (iv) EGPC (as buyer) shall have the option to elect, by ninety (90) days prior written notice to EGPC and CONTRACTOR (as sellers), whether payment for the Gas which is subject to a Gas Sales Agreement between EGPC and CONTRACTOR (as sellers) and EGPC (as buyer) and LPG produced from a plant constructed and operated by or on behalf of EGPC CONTRACTOR. as valued in accordance with Article VII (c), and to which CONTRACTOR is entitled under the Cost Recovery and Production Sharing provisions of Article VII, shall be made 1) in cash or 2) in kind. Payments in cash shall be made by EGPC (as buyer), at intervals provided for in the relevant Gas Sales Agreement in U.S. Dollars, remittable by CONTRACTOR abroad. Payments in kind shall be calculated by converting the value of Gas and LPG to which CONTRACTOR is entitled into equivalent barrels of Crude Oil to be taken concurrently by CONTRACTOR from the Area or to the extent that such Crude Oil is insufficient, Crude Oil from CONTRACTOR's other concession areas or such other areas as may be agreed. Such Crude Oil shall be added to the Crude Oil that CONTRACTOR is otherwise entitled to lift under this Agreement. Such equivalent barrels shall be calculated on the basis of the provisions of Article VII (c) relating to the valuation of Cost Recovery Crude Oil. Provided that: (aa) Payment of the value of Gas and LPG shall always be made in cash in U.S. Dollars remittable by CONTRACTOR abroad to the extent that there is insufficient Crude Oil available for conversion as provided for above; (bb) payment of the value of Gas and LPG shall always be made in kind as provided for above to the extent that payments in cash are not made by EGPC. Payments to CONTRACTOR (whether in cash or kind), when related to CONTRACTOR's Cost Recovery Petroleum, shall be included in CONTRACTOR's Statement of Recovery of Costs and of Cost Recovery Petroleum referred to in Article IV of Annex "E" of this Agreement. "West Gharib Concession 20-F" - -25- (v) Should EGPC (as buyer) fail to enter into a long-term Gas Sales Agreement with EGPC and CONTRACTOR (as sellers) within five (5) years (unless otherwise agreed) from a notice of Commercial Gas Discovery pursuant to Article III, EGPC and CONTRACTOR shall have the right to take and freely dispose of the quantity of Gas and LPG in respect of which the notice of Commercial Discovery is given by exporting such Gas and LPG. (vi) The proceeds of sale of CONTRACTOR's share of Gas and LPG disposed of pursuant to the above sub-paragraph (v) may be freely remitted or retained abroad by CONTRACTOR. (vii) In the event EGPC and CONTRACTOR agree to accept new Gas and LPG producers to join in an ongoing export project such producers shall have to contribute a fair and equitable share of the investment made. (viii) (aa) Upon the expiration of the five (5) year period referred to in Article VII (e) (2) (v) above. CONTRACTOR shall have the obligation to exert its reasonable efforts to find an export market for Gas reserves. (bb) In the event at the end of the five (5) year period referred to under Article VII (e) (2) (v)above. CONTRACTOR and EGPC have not entered into a Gas Sales Agreement. CONTRACTOR shall retain its rights to such Gas reserves for a further period of up to seven (7) years, subject to Article VII (e) (2) (viii) (cc) below, during which period EGPC shall attempt to find a market for the Gas reserves. (cc) In the event that CONTRACTOR is not exporting the Gas and CONTRACTOR has not entered into a Gas Sales Agreement pursuant to Article VII (e) (2) prior to the expiry of twelve (12) years from CONTRACTOR's notice of Commercial Gas Discovery, CONTRACTOR shall surrender the Gas reserves in respect of which such notice has been given. It being understood that CONTRACTOR shall, at any time prior to the expiry of such twelve (12) year period, surrender the Gas reserves, if CONTRACTOR is not exporting the Gas and CONTRACTOR does not accept an offer of a Gas Sales Agreement from EGPC within six (6) months from the date such offer is made provided that the Gas Sales Agreement offered to CONTRACTOR shall take into consideration the relevant technical and economic factors to enable a commercial contract including: -A sufficient delivery rate. -Delivery pressure to enter the National Gas Pipeline Grid System at the point of delivery. -Delivered Gas quality specifications not more stringent than those imposed or required for the National Gas Pipeline Grid System. -The Gas prices as specified in this Agreement. (ix) CONTRACTOR shall not be obligated to surrender a Development Lease based on a Commercial Gas Discovery, if Crude Oil has been discovered in commercial quantities in the same Development Lease and vice versa. (f) OPERATIONS: If following the reversion to EGPC of any rights to Crude Oil hereunder, CONTRACTOR retains rights to Gas in the same Development Lease, or if, following surrender of rights to Gas hereunder, CONTRACTOR retains rights to Crude Oil in the same Development Lease, operations to explore for or exploit the Petroleum, the rights to which have reverted or been surrendered (Oil or Gas as the case may be) may only be carried out by Operating Company which shall act on behalf of EGPC alone, unless CONTRACTOR and EGPC agree otherwise. (g) TANKER SCHEDULING: At a reasonable time prior to the commencement of Commercial Production EGPC and CONTRACTOR shall meet and agree upon a procedure for scheduling tanker liftings from the agreed upon point of export. "West Gharib Concession 20-F" - -26- ARTICLE VIII TITLE TO ASSETS (a) EGPC shall become the owner of all CONTRACTOR acquired and owned assets which assets were charged to Cost Recovery by CONTRACTOR in connection with the operations carried out by CONTRACTOR or Operating Company in accordance with the following: (1) Land shall become the property of EGPC as soon as it is purchased. (2) Title to fixed and moveable assets shall be transferred automatically and gradually from CONTRACTOR to EGPC as they become subject to recovery in accordance with the provisions of Article VII; however the full title to fixed and movable assets shall be transferred automatically from CONTRACTOR to EGPC when its total cost has been recovered by CONTRACTOR in accordance with the provisions of Article VII or at the time of termination of this Agreement with respect to all assets chargeable to the operations whether recovered or not, whichever first occurs. The book value of the assets created during each calendar quarter shall be communicated by CONTRACTOR to EGPC or by Operating Company to EGPC and CONTRACTOR within thirty (30) days of the end of each quarter. (b) During the term of this Agreement and the renewal period EGPC, CONTRACTOR and Operating Company are entitled to the full use and enjoyment of all fixed and movable assets referred to above in connection with operations hereunder or under any other Petroleum concession agreement entered into by the Parties. Proper accounting adjustment shall be made. CONTRACTOR and EGPC shall not dispose of the same except with agreement of the other. (c) CONTRACT0R and Operating Company may freely import into the A.R.E. use therein and freely export at the end of such use, machinery and equipment which they either rent or lease in accordance with good industry practices, including but not limited to the lease of computer hardware and software. ARTICLE IX BONUSES (a) CONTRACTOR shall pay to EGPC as a signature bonus the sum of seven hundred and fifty thousand (750,000) U.S. Dollars on the Effective Date. (b) CONTRACTOR shall pay to EGPC the sum of two million (2,000.000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of twenty five thousand (25,000) Barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter. (c) CONTRACTOR shall also pay to EGPC the additional sum of three million (3,000,000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of fifty thousand (50,000) barrels per day for a period of thirty (30) consecutive producing days. Payment will be made within fifteen (15) days thereafter. (d) CONTRACTOR shall also pay to EGPC the additional sum of five million (5,000,000) U.S. Dollars as a production bonus when the total average daily production from the Area first reaches the rate of one-hundred thousand (100,000) barrels per day for a period of thirty (30) consecutive producing days. Payment "West Gharib Concession 20-F" - -27- will be made within fifteen (15) days thereafter. (e) All the above mentioned bonuses shall in no event be recovered by CONTRACTOR. (f) In the event that EGPC elects to develop any part of the Area pursuant to the sole risk provisions of Article III (c) (iv), production from such sole risk area shall be considered for the purposes of this Article IX only if CONTRACTOR exercises its option to share in such production, and only from the initial date of sharing. (g) Gas shall be taken into account for the purposes of determining the total average daily production from the Area under Article IX (b-d) by converting daily Gas delivered into equivalent barrels of daily Crude Oil production in accordance with the following formula: MSCF x H x 0.136 = equivalent barrels of Crude Oil where MSCF = one thousand Standard Cubic Feet of Gas. H = the number of million British Thermal Units (BTU's per MSCF). ARTICLE X OFFICE AND SERVICE OF NOTICES CONTRACTOR shall maintain an office in A.R.E. at which notices shall be validly served. The General Manager and Deputy General Manager shall be entrusted by CONTRACTOR with sufficient power to carry out immediately all local written directions given to them by the Government or its representatives under the terms of this Agreement. All lawful regulations issued or hereafter to be issued which are applicable here under and not in conflict with this Agreement shall pay to the duties and. activities of the General Manager and Deputy General Manager. All matters and notices shall be deemed to be validly served which are delivered to the office of the General Manager or which are sent to him by registered mail to CONTRACTOR's office in the A.R.E. All matters and notices shall be deemed to be validly served which are delivered to the office of the Chairman of EGPC or which are sent to him by registered mail at EGPC's main office in Cairo. ARTICLE XI SAVING OF PETROLEUM AND PREVENTION OF LOSS (a) Operating Company shall take all proper measures, according to generally accepted methods in use in the oil and gas industry to prevent loss or waste of Petroleum above or under the ground in any form during drilling, producing, gathering, and distributing or storage operations. The GOVERNMENT has the right to prevent any operation on any well that it might reasonably expect would result in loss or damage to the well or the Oil or Gas field. (b) Upon completion of the drilling of a productive well, Operating Company shall inform the GOVERNMENT or its representative of the time when the well will be tested and the production rate ascertained. "West Gharib Concession 20-F" - -28- (c) Except in instances where multiple producing formations in the same well can only be produced economically through a single tubing string, Petroleum shall not be produced from multiple oil bearing zones through one string of tubing at the same time, except with the prior approval of the GOVERNMENT or its representatives which shall not be unreasonably withheld. (d) Operating Company shall record data regarding the quantities of Petroleum and water produced monthly from each Development Lease. Such data shall be sent to the GOVERNMENT or its representative on the special forms provided for that purpose within thirty (30) days after the data are obtained. Daily or weekly statistics regarding the production from the Area shall be available at all reasonable times for examination by authorized representatives of the GOVERNMENT. (e) Daily drilling records and the graphic logs of wells must show the quantity and type of cement and the amount of any other materials used in the well for the purpose of protecting Petroleum, gas bearing or fresh water strata. (f) Any substantial change of mechanical conditions of the well after its completion shall be subject to the approval of the representative of the GOVERNMENT. ARTICLE XII CUSTOMS EXEMPTIONS (a) EGPC, CONTRACTOR, and Operating Company shall be permitted to import and shall be exempted from customs duties, any taxes, levies or fees (including fees imposed by Ministerial Decision No. 254 of 1993 issued by the Minister of Finance, as now or hereafter amended or substituted) of any nature (except where an actual service has been rendered to CONTRACTOR by a competent authority), and from the importation rules with respect to the importation of machinery, equipment, appliances, materials, items, means of transport and transportation (the exemption from taxes and duties for cars shall only apply to cars to be used in operations), electric appliances, air conditioners for offices, field housing and facilities, electronic appliances, computer hardware and software as well as spare parts required for any of the imported items all subject to a duly approved certificate issued by the responsible representative nominated by EGPC for such purpose, which states that the imported items are required for conducting the operations pursuant to this Agreement. Such certificate shall be final and binding and shall automatically result in the importation and the exemption without any further approval, delay or procedure. (b) Machinery, equipment, appliances and means of transport and transportation imported by EGPC's, CONTRACTOR's and Operating Company's contractors and sub-contractors temporarily engaged in any activity pursuant to the operations which are the subject of this Agreement, shall be cleared under the "Temporary Release System" without payment of customs duties, any taxes, levies or fees (including fees imposed by Ministerial Decision No. 254 of 1993 issued by the Minister of Finance, as now or hereafter amended or substituted) of any nature (except where an actual service has been rendered to CONTRACTOR by a competent authority), upon presentation of a duly approved certificate issued by an EGPC responsible representative nominated by EGPC for such purpose which states, that the imported items are required for conducting the operations pursuant to this Agreement. Items (excluding cars not to be used in operations) set out in Article XII (a) imported by EGPC's, CONTRACTOR's and Operating Company's contractors and sub-contractors for the aforesaid operations, in order to be installed or used permanently or consumed shall meet the conditions for exemption set forth in Article XII (a) after being duly certified by an EGPC responsible representative to be used for conducting operations pursuant to this Agreement. "West Gharib Concession 20-F" - -29- (c) The expatriate employees of CONTRACTOR, Operating Company and their contractors and sub-contractors shall not be entitled to any exemptions from customs duties and other ancillary taxes and charges except within the limits of the provisions of the laws and regulations applicable in the A.R.E. However, personal household goods and furniture (including one (1) car) for each expatriate employee of CONTRACTOR and/or Operating company shall be cleared under the "Temporary Release System" (without payment of any customs duties and other ancillary taxes) upon presentation of a letter to the appropriate customs authorities by CONTRACTOR or Operating Company approved by an EGPC responsible representative that the imported items are imported for the sole use of the expatriate employee and his family, and that such imported items shall be re-exported outside the A.R.E. upon the repatriation of the concerned expatriate employee. (d) Items imported into the A.R.E. whether exempt or not exempt from customs duties and other ancillary taxes and charges hereunder, may be exported by the importing party at any time after obtaining EGPC's approval, which approval shall not be unreasonably withheld, without any export duties, taxes or charges or any taxes or charges from which such items have been already exempt, being applicable. Such items may be sold within the A.R.E. after obtaining the approval of EGPC which approval shall not be unreasonably withheld. In this event, the purchaser of such items shall pay all applicable customs duties and other ancillary taxes and charges according to the condition and value of such items and the tariff applicable on the date of sale, unless such items have already been sold to an Affiliated Company of C0NTRACTOR, if any, or EGPC, having the same exemption, or unless title to such items (excluding cars not used in operations) has passed to EGPC. In the event of any such sale under this paragraph (d), the proceeds from such sale shall be divided in the following manner: CONTRACTOR shall be entitled to reimbursement of its unrecovered cost if any, in such items and the excess, if any, shall be paid to EGPC. (e) The exemption provided for in Article XII (a) shall not apply to any imported items when items of the same kind and quality are manufactured locally meeting CONTRACTOR's and/or Operating Company's specifications for quality and safety and are available for timely purchase and delivery in the A.R.E. at a price not higher than ten percent (10%) of the cost of the imported item, before customs duties but after freight and insurance costs, if any, have been added. (f) CONTRACTOR, EGPC and their respective buyers shall have the right to freely export the Petroleum produced from the Area pursuant to this Agreement; no license shall be required, and such petroleum shall be exempted from any customs duties, any taxes, levies or any other imposts in respect of the export of Petroleum hereunder. ARTICLE XIII BOOKS OF ACCOUNT: ACCOUNTING AND PAYMENTS (a) EGPC, CONTRACTOR and Operating Company shall each maintain at their business offices in the A.R.E. books of account, in accordance with the Accounting Procedure in Annex "E" and accepted accounting practices generally used in the petroleum industry, and such other books and records as may be necessary to show the work performed under this Agreement, including the amount and value of all Petroleum produced and saved hereunder. CONTRACTOR and Operating Company shall keep their books of: account and accounting records in United States Dollars. Operating Company shall furnish to the GOVERNMENT or its representatives monthly returns showing the amount of Petroleum produced and saved hereunder. Such returns shall be prepared in the form required by the GOVERNMENT; or its representative and shall be signed by the General Manager or by the Deputy General Manager or a duly designated deputy and delivered to the Government, or its representative within thirty (30) days after the end of the month covered in the return. "West Gharib Concession 20-F" - -30- (b) The aforesaid books of account and other books and records referred to above shall be available at all reasonable times for inspection by duly authorized representatives of the GOVERNMENT. (c) CONTRACTOR shall submit to EGPC a Profit and Loss Statement of its Tax Year not later than four (4) months after the commencement of the following Tax Year to show its net profit or loss from the Petroleum operations under this Agreement for such Tax Year. (d) CONTRACTOR shall at the same time submit a year-end Balance Sheet for the same Tax Year to EGPC. The Balance Sheet and financial statements shall be certified by an Egyptian certified accounting firm. ARTICLE XIV RECORDS, REPORTS AND INSPECTION (a) CONTRACTOR and/or Operating Company shall prepare and, at all times while this Agreement is in force, maintain accurate and current records of its operations in the Area. CONTRACTOR and/or Operating Company shall furnish the GOVERNMENT or its representative, in conformity with applicable regulations or as the GOVERNMENT or its representative may reasonably require information and data concerning its operations under this Agreement. Operating Company will perform the functions indicated in this Article XIV in accordance with its respective role as specified in Article VI. (b) CONTRACTOR and/or Operating Company shall save and keep for a reasonable period of time a representative portion of each sample of cores and cuttings taken from., drilling wells, to be disposed of, or forwarded to the GOVERNMENT or its representative in the manner directed by the GOVERNMENT. All samples acquired by CONTRACTOR and/or Operating Company for their own purposes shall be considered available for inspection at any reasonable time by the GOVERNMENT or its representatives. (c) Unless otherwise agreed to by EGPC in case of exporting any rock samples outside A.R.E. samples equivalent in size and quality shall, before such exportation, be delivered to EGPC as representative of the GOVERNMENT. (d) Originals of records can only be exported with the permission of EGPC; provided, however, that magnetic tapes and any other data which must be processed or analyzed outside the A.R.E. may be exported if a monitor or a comparable record, if available, is maintained in the A.R.E. and provided that such exports shall be repatriated to A.R.E. promptly following such processing or analysis on the understanding that they belong to EGPC. (e) During the period CONTRACTOR is conducting the Exploration operations, EGPC's duly authorized representatives or employees shall have the right to full and complete access to the Area at all reasonable times with the right to observe the operations being conducted and to inspect all assets, records and data kept by CONTRACTOR. EGPC's representative, in exercising its rights under the preceding sentence of this paragraph (e), shall not interfere with CONTRACTOR's operations. CONTRACTOR shall provide EGPC with copies of any and all data (including, but not limited to, geological and geophysical reports, logs and well surveys) information and interpretation of such data and other information in CONTRACTOR's possession. "West Gharib Concession 20-F" - -31- For the purpose of obtaining new offers the GOVERNMENT and/or EGPC may, after the eighth (8th) year of the Exploration period or the date of termination of this Agreement, whichever is the earlier, show any other party uninterpreted basic geophysical and geological data (such data to be not less than one (1) year old unless CONTRACTOR agrees to a shorter period, which agreement shall not be unreasonably withheld) with respect to the Area, provided that the GOVERNMENT and/or EGPC may at any time show another party such data directly obtained over or acquired from those parts of the Area which CONTRACTOR has relinquished as long as such data is at least one (1) year old. ARTICLE XV RESPONSIBILITY FOR DAMAGES CONTRACTOR shall entirely and solely be responsible in law toward third parties for any damage caused by CONTRACTOR's Exploration operations and shall indemnify the GOVERNMENT and/or EGPC against all damages for which they may be held liable on account of any such operations. ARTICLE XVI PRIVILEGES OF GOVERNMENT REPRESENTATIVES Duly authorized representatives of the GOVERNMENT shall have access to the Area covered by this Agreement and to the Operations conducted thereon. Such representatives may examine the books, registers and records of EGPC, CONTRACTOR and Operating Company and make a reasonable number of surveys, drawings and tests for the purpose of enforcing this Agreement. They shall, for this purpose, be entitled to make reasonable use of the machinery and instruments of CONTRACTOR or Operating Company on the condition that no danger or impediment to the operations hereunder shall arise directly or indirectly from such use. Such representatives shall be given reasonable assistance by the agents and employees of CONTRACTOR or Operating Company so that none of the activities shall endanger or hinder the safety or efficiency of the operations. CONTRACTOR or Operating Company shall offer such representatives all privileges and facilities accorded to its own employees in the field and shall provide them, free of charge, the use of reasonable office space and of adequately furnished housing while they are in the field for the purpose of facilitating the objectives of this Article. Without prejudice to Article XIV (e) any and all information obtained by the GOVERNMENT or its representatives under this Article XVI shall be kept confidential with respect to the Area. ARTICLE XVII EMPLOYMENT RIGHTS AND TRAINING OF ARAB REPUBLIC OF EGYPT PERSONNEL (a) It is the desire of EGPC and CONTRACTOR that operations hereunder be conducted in a business-like and efficient manner. "West Gharib Concession 20-F" - -32- (1) The expatriate administrative, professional and technical personnel employed by CONTRACTOR or Operating Company and the personnel of its contractors for the conduct of. the operations hereunder, shall be granted a residence as provided for in Law No.89 of 1960 as amended and Ministerial Order No. 280 of 1981 as amended, and CONTRACTOR agrees that all immigration, passport, visa and employment regulations of the A.R.E., shall be applicable to all alien employees of CONTRACTOR working in the A.R.E. (2) A minimum of twenty-five percent (25%) of the combined salaries and wages of each of the expatriate administrative, professional and technical personnel employed by CONTRACTOR or Operating Company shall be paid monthly in Egyptian Currency. (b) CONTRACTOR and Operating Company shall each select its employees and determine the number thereof, to be used for operations hereunder. (c) CONTRACTOR, shall after consultation with EGPC, prepare and carry out specialized training programs for all its A.R.E. employees engaged in operations hereunder with respect to applicable aspects of the petroleum industry. CONTRACTOR and Operating Company undertake to replace gradually their non-executive expatriate staff by qualified nationals as they a re available. (d) During any of the Exploration phases, CONTRACTOR shall give mutually agreed numbers of EGPC employees an opportunity to attend and participate in CONTRACTOR's and CONTRACTOR's Affiliated Companies training programs relating to Exploration and Development operations. In the event that the total cost of such programs is less than fifty thousand (50,000) United States Dollars in any Financial Year during such period, CONTRACTOR shall pay EGPC the amount of the shortfall within thirty (30) days following the end of such Financial Year. However, EGPC shall have the right that said amount (U.S. $50,000) allocated for training, be paid directly to EGPC for such purpose. ARTICLE XVIII LAWS AND REGULATIONS (a) CONTRACTOR and Operating Company shall be subject to Law No. 66 of 1953 (excluding Article 37 thereof) as amended by Law No. 86 of 1956 and the regulations issued for the implementation thereof, including the regulations for the safe and efficient performance of operations carried out for the execution of this Agreement and for the conservation of the petroleum resources of the A.R.E. provided that no regulations, or modification or interpretation thereof, shall be contrary to or inconsistent with the provisions of this Agreement. (b) Except as provided in Article III (g) for Income Taxes, EGPC, CONTRACTOR and Operating Company shall be exempted from all taxes and duties, whether imposed by the GOVERNMENT or municipalities including among others, Sales Tax, Value Added Tax and Taxes on the Exploration, Development, extracting, producing, exporting or transporting of Petroleum and LPG as well as any and all withholding taxes that might otherwise be imposed on dividends, interest, technical service fees, patent and trademark royalties, and similar items. CONTRACTOR shall also be exempted from any tax on the liquidation of CONTRACTOR, or distributions of any income to the shareholders of CONTRACTOR, and from any tax on capital. "West Gharib Concession 20-F" - -33- (c) The rights and, obligations of EGPC and CONTRACTOR under, and for the effective term of this Agreement shall be governed by and in accordance with the provisions of this Agreement and can only be altered or amended by the written mutual agreement of the said contracting parties. (d) The contractors and sub-contractors of CONTRACTOR and Operating Company shall be subject to the provisions of this Agreement which affect them. Insofar as all regulations which are duly issued by the GOVERNMENT apply from time to time and are not in accord with the provisions of this Agreement, such regulations shall not apply to CONTRACTOR, Operating Company and their respective contractors and sub-contractors, as the case may be. (e) EGPC, CONTRACTOR, Operating Company and their respective contractors and sub-contractors shall for the purposes of this Agreement be exempted from all professional stamp duties, imposts and levies imposed by syndical laws with respect to their documents and activities hereunder. (f) All the exemptions from the application of the A.R.E. laws or regulations granted to EGPC, CONTRACTOR, the Operating Company, their contractors and sub-contractors under this Agreement shall include such laws and regulations as presently in effect or hereafter amended or substituted. ARTICLE XIX STABILIZATION In case of changes in existing legislation or regulations applicable to the conduct of Exploration, Development and production of Petroleum, which take place after the Effective Date, and which significantly affect the economic interest of this Agreement to the detriment of CONTRACTOR or which imposes on CONTRACTOR an obligation to remit to the A.R.E. the proceeds from sales of CONTRACTOR's Petroleum, CONTRACTOR shall notify EGPC of the subject legislative or regulatory measure. In such case, the Parties shall negotiate possible modifications to this Agreement designed to restore the economic balance thereof which existed on the Effective Date. The Parties shall use their best efforts to agree on amendments to this Agreement within (90) days from aforesaid notice. These amendments to this Agreement shall not in any event diminish or increase the rights and obligations of CONTRACTOR as these were agreed on the Effective Date. Failing agreement between the Parties during the period referred to above in this Article XIX, the dispute may be submitted to arbitration, as provided in Article XXIV of this Agreement. ARTICLE XX RIGHT OF REQUISITION (a) In case of national emergency due to war or imminent expectation of war or internal causes. the GOVERNMENT may requisition all or part of the production from the Area obtained hereunder and require Operating Company to increase such production to the utmost possible maximum. The GOVERNMENT may also requisition the Oil and/or Gas field itself and, if necessary, related facilities. (b) In any such case, such requisition shall not be effected except after inviting EGPC and CONTRACTOR or their representative by registered letter, with acknowledgement of receipt, to express their views with respect to such requisition. "West Gharib Concession 20-F" - -34- (c) The requisition of production shall be effected by Ministerial Order. Any requisition of an Oil and/or Gas field, or any related facilities shall be effected by a Presidential Decree duly notified to EGPC and CONTRACTOR. (d) In the event of any requisition as provided above, the GOVERNMENT shall indemnify in full EGPC and CONTRACTOR for the period during which the requisition is maintained, including: (1) All damages which result from such requisition; and (2) Full repayment each month for all Petroleum extracted by the GOVERNMENT less the royalty share of such production. However, any damage resulting from enemy attack is not within the meaning of this paragraph (d). Payment hereunder shall be made to CONTRACTOR in U.S. Dollars remittable abroad. The price paid to CONTRACTOR for Petroleum taken shall be calculated in accordance with Article VII (c). ARTICLE XXI ASSIGNMENT (a) Neither EGPC nor CONTRACTOR may assign to a person, firm or corporation, in whole or in part, any of its rights, privileges, duties or obligations under this Agreement without the written consent of the GOVERNMENT. (b) To enable consideration to be given to any request for such consent, the following conditions must be fulfilled: (1) The obligations of the assignor deriving from this Agreement must have been duly fulfilled as of the date such request is made. (2) The instrument, of assignment must include provisions stating precisely that the assignee is bound by all covenants contained in this Agreement and any modifications or additions in writing that up to such time may have been made. A draft of such instrument of assignment shall be submitted to EGPC for review and approval before being formally executed. (c) Notwithstanding the provisions of Article XXI (a), CONTRACTOR may assign all or any of its rights, privileges, duties or obligations under this Agreement to an Affiliated Company, provided that CONTRACTOR shall advise the GOVERNMENT and EGPC in writing of the assignment. (d) Any assignment, sale, transfer or other such conveyance made pursuant to the provisions of this Article XXI shall be free of any transfer, capital gains taxes or related taxes, charges or fees including without limitation all Income Tax. Sales Tax, Value Added Tax, Stamp Duty, or other Taxes or similar payments. (e) As long as the assignor shall hold any Interest under this Agreement. the assignor together with the assignee shall be jointly and severally liable for all duties and obligations of CONTRACTOR under this Agreement. "West Gharib Concession 20-F" - -35- ARTICLE XXII BREACH OF AGREEMENT AND POWER TO CANCEL (a) The GOVERNMENT shall have the right to cancel this Agreement by Order or Presidential Decree, with respect to CONTRACTOR, in the following instances: (1) If it knowingly has submitted any false statements to the GOVERNMENT which were of a material consideration for the execution of this Agreement; (2) If it assigns any interest hereunder contrary to the provisions of article XXI; (3) if it is adjusted bankrupt by a court of a competent jurisdiction; (4) If it does not comply with any final decision reached as the result of court proceedings conducted under Article XXIV(a); (5) If it intentionally extracts any mineral other than Petroleum not authorized by this Agreement or without the authority of the GOVERNMENT, except such extractions as may be unavoidable as the result of the operations conducted hereunder in accordance with accepted petroleum industry practice and which shall be notified to the GOVERNMENT or its representative as soon as possible; and (6) If it commits any material breach of this Agreement or of the provisions of Law No.66 of 1953, as amended by Law No. 86 of 1956, which are not contradicted by the provisions of this Agreement. Such cancellation shall take place without prejudice to any rights which may have accrued to the GOVERNMENT against CONTRACTOR in accordance with the provisions of this Agreement, and, in the event of such cancellation, CONTRACTOR, shall have the right to remove from the Area all its personal property. (b) If the GOVERNMENT deems that one of the aforesaid causes (other than a force majeure cause referred to in Article XXIII) hereof exists to cancel this Agreement, the GOVERNMENT shall give CONTRACTOR ninety (90) days written notice personally served on CONTRACTOR's General Manager in the legally official manner and receipt of which is acknowledged by him or by his legal agents, to remedy and remove such cause; but if for any; reason such service is impossible due to unotified change of address, publication in the Official Journal of the GOVERNMENT of such notice shall be considered as valid service upon CONTRACTOR. If at the end of the said ninety (90) day notice period such cause has not remedied and removed, this Agreement may be canceled forthwith by Order or Presidential Decree as aforesaid: provided however, that if such cause, or the failure to remedy or remove such cause, results from any act or omission of one party, cancellation of this Agreement shall be effective only against that party and not a s against any other party hereto. ARTICLE XXIII FORCE MAJEURE (a) The nonperformance or delay in performance by EGPC and CONTRACTOR, or either of them of any obligation under this Agreement shall be excused if, and to the extent that, such non-performance or delay is caused by force majeure. The period of any such non-performance or delay, together with such period as may be necessary for the restoration of any damage done during such delay, shall be added to the time given in this Agreement for the performance of such obligation and for the performance of any obligation dependent thereon and consequently, to the term of this Agreement, but only with respect to the block or blocks affected. "West Gharib Concession 20-F" - -36- (b) "Force Majeure" within the meaning of this Article XXIII, shall be any order, regulation or direction of the GOVERNMENT of the ARAB REPUBLIC OF EGYPT, or the Government of the REPBULIC OF IRELAND or the government of CANADA, with respect to CONTRACTOR whether promulgated in the form of a law or otherwise or any act of God, insurrection, riot, war, strike, and other labor disturbance, fires, floods or any cause not due to .the fault or negligence of EGPC and CONTRACTOR or either of them, whether or not similar to the foregoing, provided that any such cause is beyond the reasonable control of EGPC and CONTRACTOR or either of them. (c) Without prejudice to the above and except as may be otherwise provided herein, the GOVERNMENT shall incur no responsibility whatsoever to EGPC and CONTRACTOR, or either of them for any damages, restrictions or loss arising in consequence of such case of force majeure except a force majeure caused by the order, regulations or direction of the GOVERNMENT. (d) If the force majeure event occurs during the initial Exploration period or any extension thereof and continues in effect for a period of six (6) months CONTRACTOR shall have the option upon ninety (90) days prior written notice to EGPC to terminate its obligations hereunder without further liability of any kind. ARTICLE XXIV DISPUTES AND ARBITRATION (a) Any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination or invalidity thereof, between the GOVERNMENT and the parties shall be referred to the jurisdiction of the appropriate A.R.E. Courts and shall b e finally settled by such Courts. (b) Any dispute, controversy or claim arising out of or relating to this, Agreement, or breach, termination or invalidity thereof between EGPC and CONTRACTOR shall be settled by arbitration in accordance with the Arbitration Rules. of the- Cairo Regional Center for International Commercial Arbitration (the Center) in effect on the date of this Concession Agreement. The award of the arbitrators shall be final and binding on the parties. (c) The number of arbitrators shall be three (3). (d) Each party shall appoint one arbitrator. If, within thirty (30) days after receipt of the claimant's notification of the appointment of an arbitrator the respondent has not notified the claimant in writing of the name of the arbitrator he appoints, the claimant may request the Center to appoint the second arbitrator. (e) The two arbitrators thus appointed shall choose the third arbitrator who will act as the presiding arbitrator of the tribunal. If within thirty (30) days after the appointment of the second arbitrator, the two arbitrators have not agreed upon the choice of the presiding arbitrator, then either party may request the Secretary General of the Permanent Court of Arbitration at the Hague to designate the appointing authority. Such appointing authority shall appoint the presiding arbitrator in the same way as a sole arbitrator would be appointed under Article 6.3 of the UNCITRAL Arbitration Rules. Such presiding arbitrator shall be a person of a nationality other than the A.R.E. or IRELAND or Canada and of a country which has diplomatic relations with the A.R.E. IRELAND and Canada, and who shall have no economic interests in the Petroleum business of the signatures hereto. "West Gharib Concession 20-F" - -37- (f) Unless otherwise agreed by the parties to the arbitration, the arbitration, including the making of the award, shall take place in Cairo, A.R.E. (g) The decision of a majority of the arbitrators shall be final and binding upon the Parties and the arbitral award rendered shall be final and conclusive. Judgment on the arbitral award rendered, may be entered in any court having Jurisdiction or application may be made in such court for a judicial acceptance of the award and for enforcement, as the case may be. (h) Egyptian Law shall apply to the dispute except that in the event of any conflict between Egyptian Laws and this Agreement the provisions of this Agreement (including the arbitration provision) shall prevail. The arbitration shall be conducted in the English language. (i) EGPC AND CONTRACTOR agree that if, for whatever reason, arbitration, in accordance with the above procedure cannot take piece, or is likely to take place under circumstances for CONTRACTOR which could prejudice CONTRACTOR'S RIGHT TO fair arbitration, all disputes, controversies, or claims arising out of or relating to this Agreement or the breach, termination or invalidity thereof shall be settled by ad hoc arbitration in accordance with the UNCITRAL Rules in effect on the Effective Date. ARTICLE XXV STATUS OF PARTIES (a) The rights, duties, obligations and liabilities in respect of EGPC and CONTRACTOR hereunder shall be several and not joint or collective, it being understood that this Agreement shall not be construed as constituting an association or corporation or partnership. (b) Each CONTRACTOR MEMBER shall be subject to the laws of the place where it is incorporated regarding its legal status or creation, organization, charter and by-laws, shareholding, and, ownership. Each CONTRACTOR MEMBER's shares of capital which are entirely held abroad shall not be negotiable in the A.R.E. and shall not be offered for public subscription nor shall be subject to the stamp tax on capital shares nor any tax or duty in the A.R.E. CONTRACTOR shall be exempted from the application of Law No.159 of 1981 as amended. (c) All CONTRACTOR MEMBERS shall be jointly and severally liable for the performance of the obligations of CONTRACTOR under this Agreement. ARTICLE XXVI LOCAL CONTRACTORS AND LOCALLY MANUFACTURED MATERIAL CONTRACTOR or Operating Company, as the case may be, and their contractors shall: (a) Give priority to local contractors and sub contractors including EGPC's Affiliated Companies as long as their performance is comparable with international performance and the prices of their services are not higher than the prices of other contractors and sub-contractors by more than ten percent (10%). "West Gharib Concession 20-F" - -38- (b) Give preference to locally manufactured material, equipment, machinery and consumables so long as their quality and time of delivery are comparable to internationally available material, equipment, machinery and consumables. However, such material, equipment, machinery and consumables may be imported for operations conducted hereunder if the local price of such items at CONTRACTOR's or Operating Company's operating base in A.R.E. is more than ten percent (10%) higher than the price of such imported items before customs duties, but after transportation and insurance costs have been added. ARTICLE XXVII ARABIC TEXT The Arabic version of this Agreement shall, before the courts of A.R.E. be referred to in construing or interpreting this Agreement; provided however, that in any arbitration pursuant to Article XXIV herein between EGPC and CONTRACTOR the English and Arabic versions shall both be referred to as having equal force in construing or interpreting the Agreement. ARTICLE XXVIII GENERAL The headings or titles to each of the Articles to this Agreement are solely for the convenience of the parties hereto and shall not be used with respect to the interpretation of said Articles. Nothing in this Agreement shall be constructed as constituting any relationship to any petroleum concession agreement heretofore entered into by the parties and each of these agreements shall be treated separately and independently in all respects, including but not limited to royalties, taxes and the computation of the net profits of EGPC, DUBLIN, AND TANGANYIKA respectively, except where this Agreement expressly provides to the contrary. ARTICLE XXIX APPROVAL OF THE GOVERNMENT This Agreement shall not be binding upon any of the parties hereto unless and until a law is issued by the competent authorities of the A.R.E. authorizing the Minister of Petroleum to sign this Agreement and giving this Agreement full force and effect of law notwithstanding any countervailing Governmental enactment, and the Agreement is signed by the GOVERNMENT, EGPC, and CONTRACTOR. DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED BY: ----------------------------------- TANGANYIKA OIL COMPANY LTD. BY: ----------------------------------- EGYPTIAN GENERAL PETROLEUM CORPORATION BY: ----------------------------------- ARAB REPUBLIC OF EGYPT BY: ----------------------------------- DATE "West Gharib Concession 20-F" EX-3.19 31 a2026270zex-3_19.txt EXHIBIT 3.19 INTERNATIONAL JOINT OPERATING AGREEMENT Between: DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED - -and- GHP EXPLORATION (WEST GHARIB) L TD. -and- DRUCKER PETROLEUM INC. West Gharib Area Arab Republic of Egypt West Gharib JOA 20-F TABLE OF CONTENTS ARTICLE I DEFINITIONS 1 ARTICLE II EFFECTIVE DATE AND TERM 7 ARTICLE III PARTICIPATING INTERESTS 8 ARTICLE IV OPERATOR 10 ARTICLE V OPERATING COMMITTEE 17 ARTICLE VI WORK PROGRAMS AND BUDGETS 21 ARTICLE VII OPERATIONS BY LESS THAN ALL PARTIES 28 ARTICLE VIII DEFAULT 38 ARTICLE IX DISPOSITION OF PRODUCTION 42 ARTICLE X ABANDONMENT OF WELLS 44 ARTICLE XI SURRENDER, EXTENSIONS AND RENEWALS 45 ARTICLE XII TRANSFER OF INTEREST OR RIGHTS 46 ARTICLE XIII WITHDRAWAL FROM AGREEMENT 48 ARTICLE XIV RELATIONSHIP OF PARTIES AND TAX 51 ARTICLE XV CONFIDENTIAL INFORMATION -PROPRIETARY TECHNOLOGY 52 ARTICLE XVI FORCE MAJEURE 54 ARTICLE XVII NOTICES 55 ARTICLE XVIII APPLICABLE LAW AND DISPUTE RESOLUTION 57 ARTICLE XIX ALLOCATION OF COST RECOVERY RIGHTS 59 ARTICLE XX GENERAL PROVISIONS 60 West Gharib JOA 20-F INTERNATIONAL JOINT OPERATING AGREEMENT WEST GHARIB AREA THIS AGREEMENT is made as of the Effective Date, AMONG: DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED, a body corporate organized under the laws of the Republic of Ireland (hereinafter referred to as "Dublin"); -and- GHP EXPLORATION (WEST GHARIB) Ltd., a body corporate organized under the laws of Bermuda (hereinafter referred to as "GHP"); -and- DRUCKER PETROLEUM INC., a body corporate organized under the laws of the British Virgin Islands (hereinafter referred to as "Drucker"). WITNESSETH: WHEREAS, Dublin and Tanganyika Oil Company Ltd. ("Tanganyika") entered into the Concession Agreement for Petroleum Exploration and Exploitation (the "Concession") with the Government of the Arab Republic of Egypt and the Egyptian General Petroleum Corporation ("EGPC") for the West Gharib Area, Arab Republic of Egypt, a copy of which is attached hereto as Exhibit "B"; and WHEREAS Tanganyika has transferred its entire right, title and interest in the Concession to Dublin; and WHEREAS Dublin and Drucker are parties to a Farmout Agreement dated Apri127, 1998, pursuant to which and subject to the terms thereof, Dublin agreed to assign a Participating Interest to Drucker; and WHEREAS Dublin and GHP are parties, or successors to the parties, to a Farmout Agreement dated April 27, 1998, pursuant to which and subject to the terms thereof, Dublin agreed to assign a Participating Interest to GHP; and WHEREAS, the Parties desire to define their respective rights and obligations with respect to their operations under the Concession. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements and obligations set out below and to be performed, the Parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following words and terms shall have the meaning ascribed to them below: West Gharib JOA 20-F -2- 1.1 "ACCOUNTING PROCEDURE" means the rules, provisions and conditions set forth and contained in Exhibit "A" to this Agreement. 1.2 "AFE." means an authorization for expenditure pursuant to Article 6.6. 1.3 "AFFILIATE" means a company, partnership or other legal entity which controls, or is controlled by, or which is controlled by an entity which controls a Party. Control means the ownership or the right to cast or cause to be cast, directly or indirectly, of fifty (50%) percent or more of the shares or voting rights in a company, partnership or legal entity . 1.4 "AGREED INTEREST RATE" means interest compounded on a monthly basis, at the rate per annum equal to the one (1) month term, LIBOR rate for U.S. dollar deposits, as published by The Wall Street Journal or if not so published, then by the Financial Times of London, plus five percent (5%), applicable on the first Business Day prior to the due date of payment and thereafter on the first Business Day of each succeeding one (1) month term. If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such applicable law. 1.5 "AGREEMENT" means this agreement, together with Exhibits "A" and "B" attached to this agreement and forming a part hereof. 1.6 "APPRAISAL WELL" means any well whose purpose at the time of commencement of drilling such well is the determination of the extent or the volume of Hydrocarbon reserves contained in an existing Discovery. 1.7 "BOARD OF DIRECTORS" means the Board of Directors of the Operating Company and "DIRECTOR" means a member of the Board of Directors. 1.8 "BUSINESS DAY" means a day on which the banks in Cairo, Egypt are customarily open for business. 1.9 "CALENDAR QUARTER" means a period of three (3) months commencing with January 1 and ending on the following March 31, a period of three (3) months commencing with April 1 and ending on the following June 30, a period of three (3) months commencing with July 1 and ending on the following September 30, or a period of three (3) months commencing with October 1 and ending on the following December 31 according to the Gregorian Calendar. 1.10 "CALENDAR YEAR" means a period of twelve (12) months commencing with January 1 and ending on the following December 31 according to the Gregorian Calendar. 1.11 "CASH PREMIUM" means the payment made pursuant to Article 7.5(B) by a Non-Consenting Party to reinstate its rights to participate in an Exclusive Operation. 1.12 "COMMERCIAL DISCOVERY" shall have the meaning set out in Article lII(c)(i) of the Concession. 1.13 "COMPLETION" means an operation intended to complete a well through the Christmas tree as a producer of Hydrocarbons in one or more Zones, including, but not limited to, the setting of production casing, perforating, stimulating the well and production Testing conducted in such operation. "COMPLETE" and other derivatives shall be construed accordingly. 1.14 "CONCESSION" means collectively the Concession Agreement authorized and put in full force by Law 15 of 1998 of the Arab Republic of Egypt and which agreement is attached as Exhibit "B" hereto, and any Development Leases or other mineral rights which may be derived from the Concession Agreement including any extension, renewal or amendment of any of the foregoing. West Gharib JOA 20-F -3- 1.15 "CONCESSION AREA" has the meaning ascribed to the term 'Area' in the Concession as the same may be adjusted from time to time in accordance with the terms thereof. 1.16 "CONSENTING PARTY" means a party who agrees to participate in and pay its share of the cost of an Exclusive Operation. 1.17 "COST OIL" means that portion of the total production of Hydrocarbons which is allocated to the Parties under the Concession for the recovery of Petroleum Costs and referred to and defined as "Cost Recovery Petroleum" in Article VII (a) l of the Concession. 1.18 "CRUDE OIL" has the meaning given to such term in the Concession. 1.19 "DAY" means a calendar day unless otherwise specifically provided. 1.20 "DEEPENING" means an operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled, or below the deepest Zone proposed in the associated AFE, whichever is the deeper. "DEEPEN" and other derivatives shall be construed accordingly. 1.21 "DEFAULTING PARTY" shall have the meaning ascribed in Article 8.1. 1.22 "DEVELOPMENT BLOCK" has the meaning given to such term in the Concession. 1.23 "DEVELOPMENT LEASE" has the meaning given to such term in the Concession. 1.24 "DEVELOPMENT PERIOD" has the meaning given to such term in Article III (d) (iii) of the Concession. 1.25 "DEVELOPMENT PLAN" means the plan for the development of Hydrocarbons from a Development Lease which shall include, inter alia: A) Details of the proposed work to be undertaken, personnel required and expenditures to be incurred, including the timing of same; B) An estimated date for the commencement of production; C) A delineation of the proposed Development Lease; and D) Any other information requested by the Operating Committee. 1.26 "DEVELOPMENT WELL" means any well drilled for the production of Hydrocarbons in the Development Period. 1.27 "DISCOVERY" means the discovery of an accumulation of Hydrocarbons whose existence until that moment was unproven by drilling, and for greater certainty, shall include a Commercial Oil Well and a Commercial Gas Well (as those terms are defined in the Concession). 1.28 "DRUCKER FARMOUT AGREEMENT" means the Farmout Agreement between Dublin and Drucker dated April 27, 1998 and any amendments and revisions thereto. 1.29 "EFFECTIVE DATE" means the date this Agreement comes into effect as stated in Article II. 1.30 "EGPC" means the Egyptian General Petroleum Corporation. 1.31 "ENTITLEMENT" means a quantity of produced Hydrocarbons of which a Party has the right and obligation to take delivery pursuant to the Concession or, if applicable, an offtake agreement, West Gharib JOA 20-F -4- which, subject to the terms of the GHP Farmout Agreement and the Drucker Farmout Agreement, shall be derived in proportion to that Party's Participating Interest in the Hydrocarbons produced after adjustment for overlifts and underlifts. 1.32 "EXCESS COST OIL" has the meaning given to "Excess Cost Recovery Petroleum" in Article VII (a)2 of the Concession. 1.33 "EXCLUSIVE OPERATIONS" means those operations and activities carried out by Operator, pursuant to this Agreement, the costs of which are chargeable to the account of less than all the Parties. 1.34 "EXCLUSIVE WELL" means a well drilled pursuant to an Exclusive Operation. 1.35 "EXPLORATION ADVISORY COMMITTEE" means the committee of that name provided for in the Concession. 1.36 "EXPLORATION PERIOD" means any and all periods of exploration set out in the Concession. 1.37 "EXPLORATION SUB-PERIOD" means one of the periods for exploration set out in the Concession. 1.38 "EXPLORATION WELL" means any well drilled during the course of exploration work other than an Appraisal Well or Development Well. 1.39 "FARMOUT AGREEMENTS" means the Drucker Farmout Agreement and the GHP Farmout Agreement. 1.40 "FINANCIAL YEAR" has the meaning given to such term in the Concession. 1.41 "G & G DATA" means geological, geophysical and geochemical data and other information that is not obtained through a wellbore. 1.42 "GHP FARMOUT AGREEMENT" means the Farmout Agreement between Dublin and GHP dated April 27, 1998 and any amendments and revisions thereto. 1.43 "GOVERNMENT" means the Government of the Arab Republic of Egypt or any agency thereof. 1.44 "GROSS NEGLIGENCE" means any act or failure to act (whether sole, joint or concurrent) by a Party which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences such Party knew, or should have known, such act or failure would have had on the safety or property of another person or entity, or which was in reckless disregard of or wanton indifference to the rights of another party or the Government, but shall not include any error of judgement or mistake made by such Party in the exercise in good faith of any function, authority or discretion conferred on the Party employing such under this Agreement. 1.45 "HYDROCARBONS" means all substances including liquid and gaseous hydrocarbons which are subject to and covered by the Concession. 1.46 "JOINT ACCOUNT" means the accounts and records established and maintained by Operator for Joint Operations in accordance with the provisions of this Agreement and of the Accounting Procedure. 1.47 "JOINT OPERATIONS" means those operations and activities carried out by Operator pursuant to this Agreement, the costs of which are chargeable to all Parties. 1.48 "JOINT PROPERTY" means, at any point in time and subject to the Concession, all wells, facilities, equipment, materials, information, funds and the property held for the Joint Account. West Gharib JOA 20-F -5- 1.49 "MANDATORY APPRAISAL WELL" means an Appraisal Well which, unless otherwise agreed to by EGPC, is required pursuant to the terms of the Concession to be drilled before notice of a Commercial Discovery may be given, excepting any such well which would qualify as an obligatory well under the Minimum Work Obligations for the then current Exploration Sub- Period. 1.50 "MINIMUM WORK OBLIGATIONS" means the work and/or expenditure obligations during the Exploration Period, as specified in the Concession, which must be performed or expended in order to satisfy the obligations contained in the Concession. 1.51 "NON-CONSENTING PARTY" means a Party who elects not to participate in an Exclusive Operation. 1.52 "NON-OPERATOR(S)" means the Party or Parties to this Agreement other than Operator. 1.53 "OPERATING COMMITTEE" means the committee constituted in accordance with Article V. 1.54 "OPERATING COMPANY" means the company to be created to conduct operations under the Concession after a Commercial Discovery. 1.55 "OPERATOR" means a Party to this Agreement designated as such in accordance with this Agreement. 1.56 "PARTICIPATING: INTEREST" means the undivided percentage interest of each Party in the rights and obligations derived from the Concession and this Agreement. 1.57 "Party" means any of the entities named in the fIrst paragraph to this Agreement and any respective successors or assigns in accordance with the provisions of this Agreement. 1.58 "PETROLEUM COSTS" means costs and expenses incurred by the Parties and allowed by EGPC to be recovered pursuant to the Concession. 1.59 "PLUGGING BACK" means a single operation whereby a deeper Zone is abandoned in order to attempt a Completion in a shallower Zone. "PLUG BACK" and other derivatives shall be construed accordingly. 1.60 "PRODUCTION SHARING OIL" means that portion of the total production of Hydrocarbons, in excess of Cost Oil, which is allocated to the Parties under the terms of Article VII(b) of the Concession and includes the Parties share of Excess Cost Oil contemplated in Article VII(a)2 of the Concession. 1.61 "RECOMPLETION" means an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in a different Zone within the existing wellbore. "RECOMPLETE" and other derivatives shall be construed accordingly. 1.62 "REWORKING" means an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations, but exclude any routine repair or maintenance work, or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of a well. "REWORK" and other derivatives shall be construed accordingly. 1.63 "SENIOR SUPERVISORY PERSONNEL" means with respect to a Party, any individual who functions as such Party's senior resident manager, who directs all operations and activities of such Party in the country or region in which he is resident, and any individual who functions for such Party or one of its Affiliates at a management level equivalent to or superior to the senior resident manager, or any officer or director of such Party or one of its Affiliates, but excluding all managers or supervisors who are responsible for or in charge of installations or facilities, onsite drilling, construction or production and related operations, or any other field operations. West Gharib JOA 20-F -6- 1.64 "SIDETRACKING" means the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless done to straighten the hole or to drill around junk in the hole or to overcome other mechanical difficulties. "SIDE-TRACK" and other derivatives shall be construed accordingly. 1.65 "TESTING" means an operation intended to evaluate the capacity of a Zone to produce Hydrocarbons. "Test" and other derivatives shall be construed accordingly. 1.66 "WORK PROGRAM AND BUDGET" means a work program for Joint Operations and budget therefor as described and approved in accordance with Article VI. 1.67 "Zone" means a stratum of earth containing or thought to contain a common accumulation of Hydrocarbons separately producible from any other common accumulation of Hydrocarbons. West Gharib JOA 20-F -7- ARTICLE II EFFECTIVE DATE AND TERM 2.1 Effective Date and Term This Agreement shall have effect from the 27th Day of April, 1998 and shall, subject always to the Parties' continuing obligations under Article XV, continue in effect until the Concession terminates and thereafter until all materials, equipment and personal property used in connection with the Joint Operations have been removed and disposed of, and final settlement has been made among the Parties. For the avoidance of doubt, the portions of this Agreement described in (A), (8) and (C) below shall remain in effect until: A) all wells have been properly abandoned in accordance with Article X; and B) all obligations, claims, arbitrations and lawsuits have been settled or otherwise disposed of in accordance with Article 4.5 and Article XVIII; and C) the time relating to the protection of confidential information and proprietary technology has expired in accordance with Article XV. West Gharib JOA 20-F -8- ARTICLE III PARTICIPATING INTERESTS 3.1 Scope A) The purpose of this Agreement is to establish the respective rights and obligations of the Parties with regard to operations under the Concession, including without limitation, the joint exploration, appraisal, development and production of Hydrocarbon reserves from the Concession Area. B) Without limiting the generality of Article 3.1(A), the following activities are outside of the scope of this Agreement and are not addressed herein: 1) Construction, operations, maintenance, repair and removal of facilities downstream from the point of delivery of the Parties' share of Hydrocarbons under the offtake agreement provided for in Article 9.2; 2) Transportation of Hydrocarbons beyond the point of delivery of the Parties' shares of Hydrocarbons under the offtake agreement provided for in Article 9.2; 3) Marketing and sales of Hydrocarbons, except as expressly provided in Articles 8.7 and in Article IX; 4) Acquisition of rights to explore for, appraise, develop or produce Hydrocarbons outside of the Concession Area (other than as a consequence of unitization with an adjoining area under the terms of the Concession); and 5) Exploration, appraisal, development or production of minerals other than Hydrocarbons, whether inside or outside of the Concession Area. 3.2 Participating Interests A) The Participating Interests of the Parties shall be as follows: Dublin 50% GHP 30% Drucker 20% B) If a Party transfers all or part of its Participating Interest pursuant to the provisions of this Agreement and the Concession, the Participating Interests of the Parties shall be revised accordingly. 3.3 Ownership, Obligations and Liabilities A) Unless otherwise provided in this Agreement or either of the Farmout Agreements, all the rights and interests in and under the Concession, all Joint Property and any Hydrocarbons produced from the Concession Area shall, subject to the terms of the Concession and any laws and regulations which may be applicable, be owned by the Parties in accordance with their respective Participating Interests. West Gharib JOA 20-F -9- B) Unless otherwise provided in this Agreement or either of the Farmout Agreements, the obligations of the Parties under the Concession and all liabilities and expenses incurred by Operator in connection with Joint Operations shall be charged to the Joint Account and all credits to the Joint Account shall be shared by the Parties, as among themselves, in accordance with their respective Participating Interests. C) Subject to the terms of this Agreement and the Farmout Agreements, each Party shall pay when due, in accordance with the Accounting Procedure, its Participating Interest share of Joint Account expenses, including cash advances and interest, accrued pursuant to this Agreement and the Accounting Procedure shall govern the accrual and satisfaction of the respective obligations, liabilities and credits among the Parties. West Gharib JOA 20-F -10- ARTICLE IV OPERATOR 4.1 Designation of Operator Dublin is designated as Operator and agrees to act in accordance with the terms and conditions of the Concession and this Agreement, which terms and conditions shall also apply to any successor Operator. 4.2 Rights and Duties of Operator A) Subject to the terms and conditions of this Agreement, Operator shall have exclusive charge of and shall conduct all Joint Operations. Operator may employ independent contractors and/or agents (which may include Affiliates of Operator) in such Joint Operations. B) In the conduct of Joint Operations, Operator shall exercise its best efforts to: 1) Perform Joint Operations in accordance with the provisions of the Concession, this Agreement and the instructions of the Operating Committee not IN conflict with this Agreement and in material compliance with applicable laws, rules, regulations and decrees of the Arab Republic of Egypt; 2) Conduct all Joint Operations in a diligent, safe and efficient manner in accordance with good and prudent oil field practices and conservation principles generally followed by the international petroleum industry under similar circumstances; 3) Subject to Article 4.6 and the Accounting Procedure, neither gain a profit nor suffer a loss as a result of being the Operator in its conduct of Joint Operations, provided that Operator may rely on Operating Committee approval of specific accounting practices not in conflict with the Accounting Procedure; 4) Perform the duties for the Operating Committee set out in Article V and prepare and submit to the Operating Committee the proposed Work Programs and Budgets and AFEs as provided in Article VI; 5) Acquire all licenses, permits, consents, approvals, surface or other rights that may be required for or in connection with the conduct of Joint Operations; 6) Upon receipt of reasonable advance notice, permit the representatives of any of the Parties to have at all reasonable times and at their own risk and expense reasonable access to the Joint Operations with the right to observe all such Joint Operations and to inspect all Joint Property and to conduct financial audits as provided in the Accounting Procedure; 7) Maintain the Concession IN full force and effect. Operator shall promptly pay and discharge all liabilities and expenses incurred IN connection with Joint Operations and use its reasonable efforts to keep and maintain the Joint Property free from all liens, charges and encumbrances arising out of Joint Operations; 8) Pay to the Government for the Joint Account, within the periods and in the manner prescribed by the Concession and all applicable laws and regulations, all West Gharib JOA 20F -11- periodic payments, royalties, taxes, fees and other payments pertaining to Joint Operations, but excluding any taxes measured by the incomes of the Parties; 9) Carry out the obligations of Contractor, as such term is defined in the Concession, including, but not limited to, preparing and furnishing such reports, records and information as may be required pursuant to the Concession; 10) Have, in accordance with the decisions of the Operating Committee, Article 5.14, and Article 6.3(C), the exclusive right and obligation to represent the Parties in all dealings with the Government with respect to matters arising under the Concession and Joint Operations. Operator shall notify the other Parties as soon as possible of such meetings. Non-Operators shall have the right to attend such meetings but only in the capacity of observers. Nothing contained in this Agreement shall restrict any Party from holding discussions with the Government with respect to any issue peculiar to its particular business interests arising under this Agreement, but in such event such Party shall promptly advise the Parties, if possible, before and in any event promptly after such discussions, provided that such Party shall not be required to divulge to the Parties any matters discussed to the extent the same involve proprietary information on matters not affecting the Parties; and 11) Take all necessary and proper measures for the protection of life, health, the environment and property in the case of an emergency; provided, however, that Operator shall immediately notify the Parties of the details of such emergency and measures. 4.3 Employees of Operator Subject to the Concession and this Agreement, Operator shall determine the number of employees, the selection of such employees, the hours of work and the compensation to be paid all such employees in connection with Joint Operations and Exclusive Operations conducted by Operator under this Agreement. Operator shall employ only such employees, agents and contractors as are reasonably necessary to conduct Joint Operations. 4.4 Information Supplied by Operator A) Operator shall provide each Non-Operator with one (1) paper copy of the following data and reports as they are currently produced or compiled from the Joint Operations: 1) Copies of all logs or surveys; 2) Daily drilling progress reports; 3) Copies of all tests and core analysis reports; 4) Copies of the plugging reports; 5) Copies of the final geological and geophysical maps and reports in seismic digital format; 6) Engineering studies, development schedules and annual progress reports on development projects; 7) Field and well performance reports, including reservoir studies and reserve estimates; West Gharib JOA 20F -12- 8) Copies of all reports relating to Joint Operations furnished by Operator to the Government, except magnetic tapes which shall be stored by Operator and made available for inspection and/or copying at the sole expense of the Non-Operator requesting same; 9) Other reports as frequently as is justified by the activities or as instructed by the Operating Committee; and 10) Subject to Article 15.3, such additional information for Non-Operators as they or any of them may request, provided that the requesting party or Parties pay the costs of preparation of such information and that the preparation of such information will not unduly burden Operator's administrative and technical personnel. Only Non-Operators who pay such costs shall receive such additional information. B) Operator shall give Non-Operators access at all reasonable times to all other data acquired in the conduct of Joint Operations. Any Non-Operator may make copies of such other data at its sole expense. 4.5 Settlement of Claims and Lawsuits A) Operator shall promptly notify the Parties of any and all material claims or suits and such other claims and suits as the Operating Committee may direct which arise out of Joint Operations or relate in any way to Joint Operations. Operator shall represent the Parties and defend or oppose or settle the claim or suit. Operator may in its sole discretion compromise or settle any such claim or suit or any related series of claims or suits for an amount not to exceed the equivalent of one hundred thousand (U.S.$100,000) Dollars (U.S.) inclusive of legal fees. Operator shall obtain the approval and direction of the Operating Committee on amounts in excess of the above stated amount. Each Non- Operator shall have the right to be represented by its own counsel at its own expense in the settlement, compromise or defense of such claims or suits. B) Any Non-Operator shall promptly notify the other Parties of any claim made against such Non-Operator by a third party which arises out of or which may affect the Joint Operations and such Non-Operator shall defend or settle the same in accordance with any directions given by the Operating Committee. Those costs, expenses and damages incurred pursuant to such defense or settlement which are attributable to Joint Operations shall be for the Joint Account. C) Notwithstanding Article 4.5(A) and Article 4.5(B), each Party shall have the right to participate in any such suit, prosecution, defense or settlement conducted in accordance with Article 4.5(A) and Article 4.5(B) at its sole cost and expense; provided always that no Party may settle its Participating Interest share of any claim without first satisfying the Operating Committee that it can do so without prejudicing the interests of the Joint Operations. 4.6 Liability of Operator A) Except as set out in this Article 4.6, neither the Party designated as Operator nor any other Indemnitee (as defined below) shall bear (except as a party to the extent of its Participating Interest share) any damage, loss, cost, expense or liability resulting from performing ( or failing to perform) the duties and functions of the Operator and the Indemnitees are hereby released from liability to Non-Operators for any and all damages, West Gharib JOA 20F -13- losses, costs, expenses and liabilities arising out of, incident to or resulting from such performance or failure to perform, even though caused in whole or in part by a pre-existing defect, the negligence (sole, joint or concurrent), Gross Negligence, strict liability or other legal fault of Operator (or any such Indemnitee). B) Except as set out in this Article 4.6, the Parties shall in proportion to their Participating Interests defend and indemnify Operator and its Affiliates, and their respective consultants, agents, employees, officers and directors (the "Indemnitees"), from any and all damages, losses, costs, expenses (including reasonable legal costs, expenses and attorneys' fees) and liabilities incident to claims, demands or causes of action of every kind and character brought by or on behalf of any person or entity, which claims, demands or causes of action arise out of, are incident to or result from Joint Operations regardless of the cause of such damage, loss, injury, illness or death and even though caused in whole or in part by a pre-existing defect, the negligence (whether sole, joint or concurrent), Gross Negligence, strict liability or other legal fault of Operator (or any such Indemnitee). C) Nothing in this Article 4.6 shall be deemed to relieve the Party designated as Operator from its Participating Interest share of any damage, loss, cost, expense or liability arising out of, incident to or resulting from Joint Operations. D) Notwithstanding Articles 4.6(A) and 4.6(B), if any Senior Supervisory Personnel of Operator or its Affiliates engage in Gross Negligence that proximately causes the Parties to incur damage, loss, cost, expense or liability for claims, demands or causes of action referred to in Articles 4.6(A) or 4.6(B), Operator shall solely be responsible for the first five million ($5,000,000) Dollars (U.S.) of such damages, losses, costs, expenses and liabilities. E) Notwithstanding the foregoing, under no circumstances shall any Indemnitee (except as a Party to the extent of its Participating Interest) bear any cost, expense or liability for environmental, consequential, punitive or any other similar indirect damages or losses, including but not limited to, those arising from business interruption, reservoir or formation damage, inability to produce Hydrocarbons, loss of profits, pollution control and environmental amelioration or rehabilitation. 4.7 Insurance Obtained by Operator A) Operator shall procure and maintain or cause to be procured and maintained for the Joint Account all insurance in the types and amounts required by the Concession and applicable laws, rules and regulations. B) Operator shall obtain for the Joint Account such further insurance, at competitive rates, as the Operating Committee may from time to time require. C) Any Party may elect not to participate in the insurance to be procured under Article 4.7(B) provided such Party: 1) gives prompt written notice to that effect to Operator; 2) does nothing which may interfere with Operator's negotiations for such insurance for the other Parties; and 3) obtains and maintains such insurance (in respect of which an annual certificate of adequate coverage from a reputable insurance broker shall be sufficient West Gharib JOA 20F -14- evidence) or other evidence of financial responsibility which fully covers its Participating Interest share of the risks that would be covered by the insurance procured under Article 4.7(B), and which the Operating Committee may determine to be acceptable. No such determination of acceptability shall in any way absolve a non-participating Party from its obligation to meet each cash call, including any cash call in respect of damages and losses and/or the costs of remedying the same, in accordance with the terms of this Agreement. If such Party obtains other insurance, such insurance shall contain a waiver of subrogation in favor of all the other Parties and the Operator, but only in respect of their interests under this Agreement. D) The cost of insurance in which all the Parties are participating shall be for the Joint Account and the cost of insurance in which less than all the Parties are participating shall be charged to the Parties participating in proportion to their respective Participating Interests. E) Operator shall, in respect of all insurance obtained pursuant to this Article: 1) promptly inform the participating Parties when such insurance is obtained and supply them with copies of the relevant policies when the same are issued; 2) arrange for the participating Parties, according to their respective Participating Interests, to be named as co-insurers on the relevant policies with waivers of subrogation in favor of all the Parties; and 3) duly file all claims and take all necessary and proper steps to collect any proceeds and credit any proceeds to the participating Parties in proportion to their respective Participating Interests. F) Operator shall use its reasonable efforts to require all contractors performing work in respect of Joint Operations to obtain and maintain any and all insurance in the types and amounts required by any applicable laws, rules and regulations or any decision of the Operating Committee and shall use its reasonable efforts to require all such contractors to name the Parties as additional insureds on contractors' insurance policies or to obtain from their insurers waivers of all rights of recourse against Operator, Non-Operators and their insurers. 4.8 Commingling of Funds Operator may not commingle with Operator's own funds the monies which Operator receives from or for the Joint Account pursuant to this Agreement. 4.9 Resignation of Operator Subject to Article 4.11, Operator may resign as Operator at any time by so notifying the other Parties at least one hundred and twenty (120) Days prior to the effective date of such resignation. Operator shall continue to act as such until a successor has taken over. 4.10 Removal of Operator A) Subject to Article 4.11, Operator shall be removed upon receipt of notice from any Non-Operator if: West Gharib JOA 20F -15- 1) An order is made by a court or an effective resolution is passed for the dissolution, liquidation, winding up or reorganization by creditors of Operator; 2) Operator dissolves, liquidates or terminates its corporate existence; 3) Operator becomes insolvent, bankrupt or makes an assignment for the benefit of creditors; or 4) A receiver is appointed for a substantial part of Operator's assets. 8) Subject to Article 4.11, Operator may be removed by the decision of the Non-Operators if Operator has committed a material breach of this Agreement and has either failed to commence to rectify the breach within thirty (30) Days of receipt of a notice from Non-Operators detailing the alleged breach or failed to diligently pursue such activities to completion. Any decision of Non-Operators to give notice of breach to Operator or to remove Operator under this Article 4.10(8) shall be made by the unanimous vote of all Non-Operators. C) If Operator together with any Affiliate of Operator is or becomes the holder of a Participating Interest of less than twenty percent (20%), then Operator shall be required to promptly notify the other Parties. The Operating Committee shall then vote within thirty (30) Days of such notification on whether or not a successor Operator should be named pursuant to Article 4.11. D) If there is a direct or indirect change in control of Operator (other than a transfer of control to an Affiliate of Operator), Operator shall be required to promptly notify the other Parties. Upon a Non-Operator's inquiry in respect of a change of control, Operator shall reply within ten (10) Days of receipt of such inquiry or of such change of control. The Operating Committee shall vote within thirty (30) Days of receipt of such notice or reply from Operator on whether or not a successor Operator should be appointed pursuant to Article 4.11. For purposes of this Article, control means the ownership directly or indirectly of fifty percent (50%) or more of the shares or voting rights of Operator. 4.11 Appointment of Successor When a change of Operator occurs pursuant to Article 4.9 or Article 4.10: A) The Operating Committee shall meet as soon as possible to appoint a successor Operator pursuant to the voting procedure of Article 5.9. However, no Party may be appointed successor Operator against its will. B) If the Operator disputes the commission of or failure to rectify a material breach alleged pursuant to Article 4.10(B) and proceedings are initiated pursuant to Article XVIII, no successor Operator may be appointed pending the conclusion or abandonment of such proceedings and during the period such proceedings are pending Operator shall continue to act as such, subject to the terms of Article 8.3 with respect to Operator's breach of its payment obligations. C) If an Operator is removed, other than in the case of Article 4. 10(C) or Article 4.10(D), neither Operator nor any Affiliate of Operator shall have the right to vote for itself on the appointment of a successor Operator, nor be considered as a candidate for the successor Operator. West Gharib JOA 20F -16- D) A resigning or removed Operator shall be compensated out of the Joint Account for its reasonable expenses directly related to its resignation or removal, except in the case of Article 4.10(B). E) If requested by the resigning Operator or the successor Operator or any Non-Operator, the Operating Committee shall arrange for the taking of an independent inventory of all Joint Property and Hydrocarbons, and an audit of the books and records of the removed Operator. Such inventory and audit shall be completed, if possible, no later than the effective date of the change of Operator. The liabilities and expenses of such inventory and audit shall be charged to the Joint Account. F) The resignation or removal of Operator and its replacement by the successor Operator shall not become effective prior to receipt of any necessary Government approvals. (G) Upon the effective date of the resignation or removal, the successor Operator shall succeed to all duties, rights and authority prescribed for Operator. The former Operator shall transfer to the successor Operator custody of all Joint Property, Hydrocarbons in storage or in transit, books of account, records and other documents maintained by Operator pertaining to the Concession and to Joint Operations. Upon delivery of the above-described property and data, the former Operator shall be released and discharged from all obligations and liabilities as Operator accruing after such date. West Gharib JOA 20F -17- ARTICLE V OPERATING COMMITTEE 5.1 Establishment of Operating Committee To provide for the overall supervision and direction of Joint Operations, there is established an Operating Committee composed of representatives of each party holding a Participating Interest. Each Party shall appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee. Each Party shall as soon as possible and in any event within thirty (30) Days after the date of this Agreement give notice in writing to the other Parties of the name and address of its representative and alternate representative to serve on the Operating Committee. Each Party shall have the right to change its representative and alternate at any time by giving proper notice to such effect to the other Parties. 5.2 Powers and Duties of Operating Committee The Operating Committee shall have power and duty to authorize and supervise Joint Operations that are necessary or desirable to discharge the obligations of the Parties under the Concession, any applicable laws and regulations and to properly explore and exploit the Concession Area in accordance with this Agreement and in a manner appropriate in the circumstances. 5.3 Authority to Vote The representative of a Party, or in his absence his alternate representative, shall be authorized to represent and bind such Party with respect to any matter which is within the powers of the Operating Committee and is properly brought before the Operating Committee. Each such representative shall have a vote equal to the Participating Interest of the Party such person represents. Each alternate representative shall be entitled to attend all Operating Committee meetings but shall have no vote at such meetings except in the absence of the representative for whom he is the alternate. In addition to the representative and alternate representative, each Party may also bring to any Operating Committee meetings such technical and other advisors as it may deem appropriate. 5.4 Subcommittees The Operating Committee may establish such subcommittees, including technical subcommittees, as the Operating Committee may deem appropriate. The functions of such subcommittees shall be in an advisory capacity or as otherwise determined unanimously by the Parties. Each subcommittee shall appoint a chairman. 5.5 Notice of Meeting A) Operator may call a meeting of the Operating Committee by giving notice to the Parties at least fifteen (15) Days in advance of such meeting. B) Any Non-Operator may request a meeting of the Operating Committee by giving proper notice to all the other Parties. Upon receiving such request, Operator shall call such meeting for a date not less than fifteen (15) Days nor more than twenty (20) Days after receipt of the request. C) The notice periods above may only be waived with the unanimous consent of all the Parties. West Gharib JOA 20F -18- 5.6 Contents of Meeting Notice A) Each notice of a meeting of the Operating Committee as provided by Operator shall contain: 1) The date, time and location of the meeting; and 2) An agenda of the matters and proposals to be considered and/or voted upon, together with copies of all materials relating or relevant thereto or reasonably necessary for the consideration thereof. B) A Party, by notice to the other Parties given not less than seven (7) Days prior to a meeting, may add additional matters to the agenda for a meeting. C) On the request of a Party, and with the unanimous consent of all Parties, the Operating Committee may consider at a meeting a proposal not contained in such meeting agenda. 5.7 Location of Meetings All meetings of the Operating Committee shall be held in Cairo, Arab Republic of Egypt or elsewhere as may be decided by the Operating Committee. 5.8 Operator's Duties for Meetings A) With respect to meetings of the Operating Committee and any subcommittee, Operator's duties shall include, but not be limited to: 1) Timely preparation and distribution of the agenda; 2) Organization and conduct of the meeting; and 3) Preparation of a written record or minutes of each meeting. B) Operator shall have the right to appoint the chairman of the Operating Committee and all subcommittees. 5.9 Voting Procedure Except as otherwise expressly provided in this Agreement, all decisions, approvals and other actions of the Operating Committee on all proposals coming before it under this Agreement shall be decided by the affirmative vote of two (2) or more Parties, which are not Affiliates, then having collectively at least sixty five percent (65%) of the Participating Interests. 5.10 Record of Votes The chairman of the Operating Committee shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at each Operating Committee meeting. Each representative shall sign and be provided a copy of such record at the end of such meeting and it shall be considered the final record of the decisions of the Operating Committee. 5.11 Minutes The secretary shall provide each Party with a copy of the minutes of the Operating Committee meeting within seven (7) Days after the end of the meeting. Each Party shall have fifteen (15) West Gharib JOA 20F -19- Days after receipt of such minutes to give notice of its objections to the minutes to the secretary. Any objection to the minutes shall become an agenda item for the next meeting unless earlier resolved. A failure to give notice specifying objection to such minutes within said fifteen (15) Day period shall be deemed to be approval of such minutes. In any event, the votes recorded under Article 5.10 shall take precedence over the minutes described above. 5.12 Voting by Notice A) In lieu of a meeting, Operator may submit any proposal for a decision of the Operating Committee by giving each representative proper notice describing the proposal so submitted. Each party shall communicate its vote by proper notice to Operator and the other Parties within the following time periods after receipt of Operator's notice as is applicable thereto: 1) twenty four (24) hours in the case of operations which involve the use of a drilling rig, service rig, well servicing equipment or seismic crew that is standing by in the Concession Area; or 2) ten (10) Days in the case of all other proposals. B) Except in the case of Article 5.12(A)(1), any Non-Operator may, by notice delivered to all Parties within five (5) Days of receipt of Operator's notice, request that the proposal be decided at a meeting rather than by notice. In such an event, that proposal shall be decided at a meeting duly called for that purpose. C) Except as provided in Article X, any Party failing to communicate its vote shall be deemed to have voted against such proposal. D) If a meeting is not requested, then at the expiration of the appropriate time period, Operator shall give each Party a confirmation notice stating the tabulation and results of the vote. 5.13 Effect of Vote All decisions taken by the Operating Committee pursuant to this Article, shall be conclusive and binding on all the Parties, except that: A) If pursuant to this Article, a Joint Operation, other than an operation to fulfil the Minimum Work Obligations, has been properly proposed to the Operating Committee and the Operating Committee has not approved such proposal in a timely manner, then any Party shall have the right for the appropriate period specified below to propose, in accordance with Article VII, an Exclusive Operation involving operations essentially the same as those proposed for such Joint Operation. 1) For proposals involving the use of a drilling rig that is standing by the Concession Area, such right shall be exercisable for twenty-four (24) hours after the time specified in Article 5.12(A)(1) has expired or after receipt of Operator's notice given pursuant to Article 5.13(D), as applicable; 2) For proposals to develop a Discovery, such right shall be exercisable for ten (10) Days after the date the Operating Committee was required to consider such proposal pursuant to Article 5.6 or Article 5.12; or 3) For all other proposals, such right shall be exercisable for five (5) Days after the date the Operating Committee was required to consider such proposal pursuant to Article 5.6 or Article 5.12. West Gharib JOA 20F -20- B) If a party voted against any proposal which was approved by the Operating Committee and which could be conducted as an Exclusive Operation pursuant to Article VII, then such party shall have the right not to participate in the operation contemplated by such approval. Any such party wishing to exercise its right of non-consent must give notice of non-consent to all other Parties within ten (10) Days (or within twenty-four (24) hours if the drilling rig, service rig, well servicing equipment or seismic crew to be used in such operation is standing by in the Concession Area) following Operating Committee approval of such proposal. The Parties that were not entitled to give or did not give notice of non-consent shall be Consenting Parties as to the operation contemplated by the Operating Committee approval, and shall conduct such operation as an Exclusive Operation under Article VII. Any Party that gave notice of non-consent shall be a Non-Consenting Party as to such Exclusive Operation. C) If the Consenting Parties to an Exclusive Operation under Article 5.13(A) or (B) concur, then the Operating Committee may, at any time, pursuant to this Article, reconsider and approve, decide or take action on any proposal that the Operating Committee declined to approve earlier, or modify or revoke an earlier approval, decision or action. D) Once a Joint Operation for the drilling, Deepening, Testing, Side-tracking, Plugging Back, Completing, Recompletion, Reworking or plugging of a well, has been approved and commenced, such operation shall not be discontinued without the consent of the Operating Committee; provided, however, that such operation may be discontinued, if: 1) an impenetrable substance or other condition in the hole is encountered which in the reasonable judgement of Operator causes the continuation of such operation to be impractical; or 2) other circumstances occur which in the reasonable judgement of Operator causes the continuation of such operation to be unwarranted. On the occurrence of either of the above, Operator shall promptly notify the Parties that such operation is being discontinued pursuant to the foregoing, and any Party shall have the right to propose, in accordance with Article VII, an Exclusive Operation to continue such operation. 5.14 Representation of Non-Operators A) Each of Dublin, GHP and Drucker shall have the right to appoint one (1) representative to the Exploration Advisory Committee. This right is assignable by any of such Parties to any other of such Parties, to an Affiliate of any of such Parties and to a third party permitted assignee. The Operator shall be entitled to appoint a representative to the Exploration Advisory Committee if a Party fails or refuses to appoint its representative or, without prejudice to Article 8.2, if a Party's Participating Interest is transferred pursuant to Article 8.4. B) Notwithstanding the appointment of a representative to the Exploration Advisory Committee by one or more Non-Operators, and provided that the Operator consults with and considers the input of the representative(s) appointed by the Non-Operators, the Operator shall be the primary spokesman for the Joint Operators on the Exploration Advisory Committee. The respective Party's member to the Exploration Advisory Committee shall fully support and vote in conformity with the decisions and instructions of the Operating Committee with respect to matters brought before the Exploration Advisory Committee, notwithstanding that such decision or instruction may not have been approved unanimously by the Operating Committee. West Gharib JOA 20F -21- ARTICLE VI WORK PROGRAMS AND BUDGETS 6.1 Exploration and Appraisal A) Immediately after the date of execution of this Agreement, Operator shall deliver to the Parties a proposed Work Program and Budget detailing the Joint Operations to be performed in the Concession Area for the remainder of the current Financial Year and the next ensuing Financial Year. Within fifteen (15) Days of such delivery, the Operating Committee shall meet to consider and to endeavour to agree on a Work Program and Budget. B) At least sixty (60) Days prior to the applicable deadline under Article IV(c) of the Concession or such other deadline as may be agreed to by EGPC, Operator shall deliver to the Parties a proposed Work Program and Budget detailing the Joint Operations to be performed in the Concession Area for the following Financial Year. Within thirty (30) Days of such delivery, the Operating Committee shall meet to consider and to endeavour to agree on a Work Program and Budget. Upon receipt of Operating Committee approval, such Work Program and Budget shall be submitted to the Exploration Advisory Committee as required by the Concession. The Operating Committee shall further meet and consider any revisions to the Work Program and Budget recommended by the Exploration Advisory Committee and make any such revisions as may be agreeable prior to submission to the EGPC. C) If a Discovery is made, Operator shall deliver any notice of Discovery required under the Concession and shall as soon as possible or within such time period as directed by the Operating Committee, submit to the Parties a report containing available details concerning the Discovery and Operator's recommendation as to whether the Discovery merits appraisal. If the Operating Committee determines that the Discovery merits appraisal, Operator, within ninety (90) Days, shall deliver to the Parties a proposed Work Program and Budget for the appraisal of the Discovery. Within thirty (30) Days of such delivery, or earlier if necessary to meet any applicable deadline under the Concession, the Operating Committee shall meet to consider, modify and then either approve or reject the appraisal Work Program and Budget. If the appraisal Work Program and Budget is approved by the Operating Committee, Operator shall take such steps as may be required under the Concession to secure approval of the appraisal Work Program and Budget by EGPC. In the event EGPC requires changes in the appraisal Work Program and Budget, the matter shall be resubmitted to the Operating Committee for further consideration. D) In addition to the requirements of Article 6.1(C), if a Discovery is made and the drilling of a Mandatory Appraisal Well or Wells is required under the Concession in order to obtain a Development Lease in respect of the Discovery, the Operating Committee shall consider the drilling of the Mandatory Appraisal Well(s). Each of the Parties shall have the right not to participate in the drilling of such Mandatory Appraisal Well in which case the provisions of Article VII (and Article 7.4(C) in particular) shall apply. E) The Work Program and Budget agreed pursuant to this Article shall include the Minimum Work Obligations, or at least that part of such Minimum Work Obligations required to be carried out during the Financial Year in question under the terms of the Concession. If, within the time periods prescribed in this Article, the Operating Committee is unable to agree on such Work Program and Budget, then the proposal capable of satisfying the Minimum Work Obligations for the Financial Year in question that receives the largest Participating Interest vote (even if less than the applicable percentage under Article 5.9) shall be deemed adopted as part of the annual Work Program and Budget. If competing proposals receive equal votes, then Operator shall West Gharib JOA 20F -22- choose between those competing proposals. Any portion of a Work Program and Budget adopted pursuant to this Article, instead of Article 5.9 shall include only such operations for the Joint Account as are reasonably necessary to maintain the Concession in full force and effect, including such operations as are necessary to fulfill the Minimum Work Obligations required for the given Financial Year. F) Subject to Article 6.7, approval of any such Work Program and Budget, which includes an Exploration or Appraisal Well, whether by drilling, Deepening or Sidetracking, shall include approval for only expenditures necessary for the drilling, Deepening, or Sidetracking, of such well, as applicable. When an Exploration Well or Appraisal Well has reached its authorized depth, all logs, cores and other approved Tests have been conducted and the results furnished to the Parties, Operator shall submit to the Parties in accordance with Article 5.12(A)(1) an election to participate in an attempt to Complete or perform additional downhole operations for such well. Operator shall include in such submission Operator's recommendation on such Completion attempt and an AFE for such Completion costs. In the event that less than all of the Parties elect to participate in such Completion, the Completion may proceed as an Exclusive Operation under Article VII. Any Party that gave notice of non-consent shall be a Non-Consenting Party as to such Exclusive Operation. 6.2 Development If, before or after the drilling of any Mandatory Appraisal Wells, the Operating Committee determines that a Discovery may be a Commercial Discovery, the Operator shall prepare and submit a Development Plan to the Operating Committee for approval prior to providing notice of the Commercial Discovery to EGPC. The Operating Committee shall meet to consider, modify and either approve or reject the Development Plan. If the Development Plan is approved by the Operating Committee, Operator shall, as soon as possible and in accordance with the timing requirements set out in the Concession, provide notice of the Commercial Discovery to EGPC. Within sixty (60) Days following receipt of such notice by the Government and EGPC, Operator and EGPC shall meet to review all appropriate data with a view to agreeing on the existence of a Commercial Discovery. If EGPC or the Government require changes in the Development Plan, Operator shall resubmit the matter to the Operating Committee for review and approval. Upon EGPC's agreement that the Discovery constitutes a Commercial Discovery under the Concession the Operating Company contemplated in Article VI of the Concession shall be formed for the purposes of conducting further operations and activities under the Concession. 6.3 Operating Company A) Upon formation of the Operating Company, as aforesaid, the Parties shall meet to allocate duties and responsibilities between the Operating Company and the Operator. To the extent that the Operator's duties and responsibilities under this Agreement are assumed by the Operating Company, the Operator shall be released from any further responsibility and liability therefor. B) Provided there are three (3) Parties and no more than three (3) Parties to this Agreement, each Party that holds at least a twenty percent (20%) Participating Interest shall be entitled to appoint one (1) Director to represent Contractor on the Board of Directors of the Operating Company. In all other cases, each Party shall be entitled to appoint one (1) Director to the Board of Directors for each twenty-five percent (25%) Participating Interest held by such Party. Parties having a Participating Interest less than twenty-five percent (25%) shall be entitled to have a representative attend Directors' meetings as an observer only. The Operator shall be entitled to appoint representatives to fill any vacancy in the four (4) positions allotted to Contractor on the Board of Directors. West Gharib JOA 20F -23- C) Notwithstanding the formation of the Operating Company, the Operator shall continue to represent the interests of the Parties in all matters that are not specifically delegated to the Operating Company under the Concession and, except for the appointment of Contractor's Directors to the Board of Directors of the Operating Company as set forth in Article 6.3(B), shall continue to satisfy the obligations of Contractor under the Concession on behalf of the Non-Operators in accordance with the terms of this Agreement. Without limiting the generality of the foregoing, Operator shall: 1) Review and provide recommendations to the Parties with respect to proposals and recommendations submitted by the Operating Company to the Board of Directors thereof, including, without limitation, proposed Work Programs and Budgets, production schedules and estimated cash requirements; 2) Assist the Operating Company, by secondment of personnel or through a service contract, in the conduct of the Operating Company's operations under the Concession as agent for the Parties and EGPC; 3) Make reasonable efforts to cause the Operating Company to submit the proposed Work Program and Budget to the Operating Committee within a timeframe so as to allow for a reasonable period to conduct its review and obtain its approval prior to submission to the Board of Directors; and 4) In the event that the Board of Directors require changes to any Work Program and Budget, resubmit the matter to the Operating Committee for approval. D) In the meetings of the Board of Directors and of the shareholders of the Operating Company, each Party's respective member(s) of the Board of Directors and their respective representative(s) and the Party's representatives at the shareholder meetings (and any proxy for them) and the members of the Operating Company management appointed by the Operator, shall fully support and vote in conformity with the decisions of the Operating Committee previously made in accordance with the provisions of the Agreement and any other resolution previously taken by the Parties under this Agreement. If a Party will not have a representative present at a meeting of either the Board of Directors or the shareholders of the Operating Company, such Party shall, prior to such meeting, furnish the other Party a written proxy for the votes to be taken at such meeting, consistent with the vote of the Operating Committee. If an Exclusive Operation is to be conducted by the Operating Company, the Parties shall agree upon procedures regarding decision making within and governance of the Parties' interests in the Operating Company in conducting such operations, including without limitation, procedures for Board of Directors voting by the Parties, confidentiality and allocation of the Exclusive Operations costs and expenses within the Operating Company. E) After formation of the Operating Company, certain of the Joint Operations shall be carried out by Operating Company, pursuant to the Concession, as agent on behalf of the shareholders of Operating Company, or where necessary by Operator or through duly authorized agents or independent contractors engaged by either Operator or Operating Company. F) In the conduct of Joint Operations, Operator, under the direction and supervision of the Operating Committee, shall use all reasonable efforts to require that Operating Company shall: 1) Conduct diligently all Joint Operations in accordance with Operator's standards and the practices generally followed by the petroleum industry in the Arab Republic of Egypt under similar circumstances and conditions and in conformance with good oilfield and engineering practices; perform all Joint West Gharib JOA 20F -24- Operations in an efficient and economic manner and in compliance with the provisions of the Concession and all applicable laws and regulations; 2) Proceed with due diligence to acquire for the Joint Account any and all surface rights that may be required for or in connection with the conduct of the Joint Operations; 3) Keep the Joint Property free from liens, charges and encumbrances arising out of the Joint Operations; 4) Pay all costs and expenses incurred by it in the Joint Operations promptly and when due and payable; 5) Purchase and maintain in force any and all insurance required by law and purchase or provide any additional insurance authorized by the Board of Directors; and 6) Carry out each program of Joint Operations adopted by the Operating Committee within the limits of the approved Operating Company budget and shall not undertake any Joint Operations not included in an approved budget or make any expenditures during a budget period in excess of the budgeted amounts approved therefor except in compliance with the internal rules and regulations of the Operating Company and subject to approval as may be required under Articles 6.6 and 6.7 of this Agreement, as applicable. 6.4 Itemization of Expenditures A) During the preparation of the proposed Work Programs and Budgets contemplated in this Article, Operator shall consult with the Operating Committee regarding the contents of such Work Programs and Budgets. B) Each Work Program and Budget and Development Plan submitted by Operator shall contain an itemized estimate of the costs of Joint Operations and all other expenditures to be made for the Joint Account during the Calendar Year in question and shall inter alia: 1) identify each work category in sufficient detail to afford the ready identification of the nature, scope and duration of the activity in question; 2) include such reasonable information regarding Operator's allocation procedures and estimated manpower costs as the Operating Committee may determine; and 3) comply with the requirements of the Concession. C) The Work Program and Budget shall designate the portion or portions of the Concession Area in which Joint Operations itemized in such Work Program and Budget are to be conducted and shall specify the kind and extent of such operations in such detail as the Operating Committee may deem suitable. 6.5 Contract Awards A) Operator shall award each contract for approved Joint Operations tendered or placed by Operator on the following basis: West Gharib JOA 20F -25- 1) For contracts in amounts less than or equal to two hundred thousand ($200,000) Dollars (U.S.) Operator shall award the contract to the best qualified contractor as determined by cost and ability to perform the contract without the obligation to tender and without informing or seeking the approval of the Operating Committee, except that before entering into contracts with Affiliates of the Operator, Operator shall obtain the approval of the Operating Committee. If requested by any Party, Operator shall circulate to the Parties a copy of the final version of the contract awarded. 2) For contracts anticipated to be in an amount greater than two hundred thousand ($200,000) Dollars (U.S.) Operator shall: (a) Provide the Parties with a list of the entities whom Operator proposes to invite to tender for the said contract; (b) Add to such list any entity whom a Party requests to be added within fourteen (14) Days of receipt of such list; (c) Prepare and dispatch the tender documents to the entities on the list as aforesaid and to Non-Operators; (d) After the expiration of the period allowed for tendering, consider and analyze the details of all bids received; (e) Prepare and circulate to the Parties a bid analysis, stating Operator's determination as to the entity to whom the contract should be awarded, the reasons therefore, and the technical, commercial and contractual terms to be agreed upon; and (1) Upon the request of a Party, provide such Party with a copy of the final version of the contract. 3) For contracts in amounts greater than five hundred thousand ($500,000) Dollars (U.S.), Operator shall obtain Operating Committee approval of its award recommendation. B) Notwithstanding the above, Operator shall comply with all applicable rules, procedures, decrees and regulations regarding tendering for and awarding of contracts, services and importation of equipment, materials and consumables as required from time to time by EGPC. Approval of the Operating Committee shall be required if Operator proposes to not comply with such EGPC tender and award rules in respect of any contract, service or materials with a value in excess of fifty thousand ($50,000) Dollars (U.S.). C) Operator undertakes to use all reasonable efforts to require Operating Company to submit contracts to tender in compliance with the internal rules and regulations of the Operating Company and EGPC policies or practice. Operator shall use all reasonable efforts to require the Operating Company to competitively tender for all purchases of materials or equipment and hiring of services or equipment with a value estimated to exceed fifty thousand ($50,000) Dollars (U.S.). In all purchases of materials or equipment and hiring of services or equipment, it is understood that Operating Company or Operator, as the case may be, are subject to the provisions regarding use of local contractors and supplies set out in Article XXVI of the Concession. If Operating Company estimates a contract value will exceed five hundred thousand ($500,000) Dollars (U.S.), Operator shall provide each Party with a list of the proposed bidders and each Party shall have the right to make suggestions for inclusion on such list and this shall be conveyed to the Operating Company. Upon the Operating Company's completion of its evaluation and submission of same to Operator, Operator shall notify the Operating Committee of the entity to whom the Operating Company proposes to award such contract. Operator's notice shall be supported by a summary of the Operating Company's analysis of the various bids West Gharib JOA 20F -26- received. For purposes of approval of any tender or contract in excess of five hundred thousand ($500,000) Dollars (U.S.), Operating Committee shall vote on the award in advance of the vote by the Board of Directors. 6.6 Authorization for Expenditure (" AFE") Procedure Subject to the requirements of the Operating Company, A) If a commitment or expenditure has been approved as part of a Work Program and Budget, and if such commitment or expenditure is estimated to be in excess of one hundred thousand ($100,000) Dollars (U.S.), or if the expenditure or commitment is not included in an approved Work Program and Budget, then prior to making such commitment or expenditure, Operator shall send to each Non-Operator an AFE containing Operator's best estimate of the total funds required to carry out such work, the estimated timing of expenditures, and any other necessary supportive information. B) If an AFE covers commitments or expenditures within the monetary amounts set out in the Work Program and Budget, it is for informational purposes only, unless: 1) the AFE costs exceed the costs for such operation in the approved budget by more than ten percent (10%) of the applicable line item amount for such operation or by more than five percent (5%) of the total Work Program and Budget; or 2) the AFE is technically incorrect. In the event that the circumstances in either Article 6.6(B)(1) or (2) occur, the Operating Committee shall vote on the AFE. If such AFE is not approved by the Operating Committee, the work in question shall immediately cease. C) Each AFE proposed by the Operator shall: 1) Identify the operation by specific reference to the applicable line items in the Work Program and Budget; 2) Describe the work in detail; 3) Contain Operator's best estimate of the total funds required to carry out such work; 4) Outline the proposed work schedule; 5) Provide a timetable of expenditures, if known; and 6) Be accompanied by such other supporting information as is necessary for an informed decision. 6.7 Overexpenditures of Work Programs and Budgets Subject to the requirements of the Operating Company, A) For expenditures on any line item of an approved Work Program and Budget, Operator shall be entitled to incur without further approval of the Operating Committee an overexpenditure for such line item up to ten percent (10%) of the authorized amount for West Gharib JOA 20F -27- such line item; provided that the cumulative total of all expenditures for a Calendar Year shall not exceed five percent (5%) of the total Work Program and Budget in question. B) At such time that Operator is certain that the limits of Article 6.7(A) will be exceeded, Operator shall furnish a supplemental AFE for the estimated overexpenditures to the Operating Committee for its approval and shall provide the Parties with full details of such overexpenditures. Operator shall promptly give notice of the amounts of overexpenditures when actually incurred. Should the Operating Committee fail to approve the supplemental AFE, all work in question shall immediately cease. West Gharib JOA 20F -28- ARTICLE VII OPERATIONS BY LESS THAN ALL PARTIES 7.1 Limitation on Applicability A) No operations may be conducted in furtherance of the Concession except as Joint Operations under Article V, or as Exclusive Operations under this Article. B) Operations which are required to fulfil the Minimum Work Obligations must be proposed and conducted as Joint Operations under Article V and may not be proposed or conducted as Exclusive Operations under this Article VII. Except for Exclusive Operations relating to Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompletions or Reworking of a well drilled to fulfil the Minimum Work Obligations or the drilling of any Mandatory Appraisal Well, no Exclusive Operations may be proposed or conducted until the Minimum Work Obligations for the then current Exploration Sub-Period are fulfilled. C) No Exclusive Operation shall be conducted: 1) until it has been proposed as a Joint Operation; 2) which conflicts or would interfere with a Joint Operation; 3) which relates to a Zone which the Parties have agreed to appraise or develop under an approved Work Program and Budget; 4) which relates to a currently producing Zone or to any previously discovered Zone which is capable of producing Hydrocarbons in commercial quantities; 5) which relates to a Zone which is above the stratigraphic equivalent of the deepest Zone producing or capable of producing Hydrocarbons in commercial quantities; and 6) if a well proposed thereunder is to be drilled at substantially the same location, to the same subsurface target or into the same Zone as a well included in an approved Work Program and Budget. D) No Party may propose or conduct an Exclusive Operation under this Article unless and until such Party has properly exercised its right to propose an Exclusive Operation pursuant to Article 5.l3 (A), or is entitled to conduct an Exclusive Operation pursuant to Article 5.13(B), Article 6.1(D), Article 6.1(F), Article VII or Article 10.1(C). E) Subject to this Article, any operation that may be proposed and conducted as a Joint Operation may be proposed and conducted as an Exclusive Operation. 7.2 Procedure to Propose Exclusive Operations A) Subject to Article 7.1, if any Party proposes to conduct an Exclusive Operation, such Party shall give notice of the proposed operation to all Parties, other than Non-Consenting Parties who have relinquished their rights to participate in such operation and have no option to reinstate such rights under Article 7.4(D). Such notice shall specify that such operation is proposed as an Exclusive Operation, the work to be performed, the location, the objectives, and estimated cost of such operation. West Gharib JOA 20F -29- B) Any party entitled to receive such notice shall have the right to participate in the proposed operation in accordance with the following: 1) For proposals to Deepen, Test, Complete, Side-track, Plug Back, Recomplete or Rework involving the use of a drilling rig, service rig, well servicing equipment that is standing by in the Concession Area, or proposals to acquire G & G Data where the seismic crew and equipment are standing by in the Concession Area, any such Party wishing to exercise such right must so notify Operator within twenty-four (24) hours after receipt of the notice proposing the Exclusive Operation; or 2) For all other proposals, any such Party wishing to exercise such right must so notify Operator within ten (10) Days after receipt of the notice proposing the Exclusive Operation. C) Failure of a Party to whom a proposal notice is delivered to properly reply within the period specified above shall constitute an election by that Party not to participate in the proposed operation. D) If all Parties properly exercise their rights to participate, then the proposed operation shall be conducted as a Joint Operation. The Operator shall commence such Joint Operation as promptly as practicable and conduct it with due diligence, provided that with respect to operations pursuant to which a party has given a notice under Article 7.2(F), the Operator may proceed with operations prior to the expiry of the applicable time period in this Article 7.2. E) If less than all Parties entitled to receive such proposal notice properly exercise their rights to participate, then: 1) Immediately after the expiration of the applicable notice period set out in Article 7.2(B), the Operator shall notify all Parties of the names of the Consenting Parties and the recommendation of the proposing Party as to whether the Consenting Parties should proceed with the Exclusive Operation. 2) Concurrently, Operator shall request the Consenting Parties to specify the Participating Interest each Consenting Party is willing to bear in the Exclusive Operation. 3) Within twenty-four (24) hours after receipt of such notice, each Consenting Party shall respond to the Operator stating that it is willing to bear a Participating Interest in such Exclusive Operation equal to: (a) Only its Participating Interest; (b) A fraction, the numerator of which is such Consenting Party's Participating Interest and the denominator of which is the aggregate of the Participating Interests of the Consenting Parties; or (c) The total of its Participating Interest as contemplated by Article 7.2(E)(3)(b) plus all or any part of the difference between one hundred percent (100%) and the total of the Participating Interests subscribed by the other Consenting Parties. 4) Any Consenting Party failing to advise Operator within the response period set out above shall be deemed to have elected to bear the Participating Interest set out in Article 7.2(E)(3)(b) as to the Exclusive Operation. West Gharib JOA 20F -30- 5) If within the response period set out above, the Consenting Parties subscribe for less than one hundred percent (100%) of the Participating Interest in the Exclusive Operation, the Party proposing such Exclusive Operation shall be deemed to have withdrawn its proposal for the Exclusive Operation, unless within twenty-four (24) hours of the expiry of the response period set out in Article 7.2(E)(3), the proposing Party notifies the other Consenting Parties that the proposing Party shall bear the unsubscribed Participating Interest. 6) If one hundred percent (100%) subscription to the proposed Exclusive Operation is obtained, Operator shall promptly notify the Consenting Parties of their Participating Interests in the Exclusive Operation. 7) As soon as any Exclusive Operation is fully subscribed pursuant to Article 7.2(E)(6), Operator (subject to Article 7.8(G), shall commence such Exclusive Operation as promptly as practicable and conduct it with due diligence in accordance with this Agreement. 8) If such Exclusive Operation has not been commenced within One Hundred Twenty (120) Days (excluding any extension specifically agreed by all Parties or allowed by the force majeure provisions of Article XVI), the right to conduct such Exclusive Operation shall terminate. If any Party still desires to conduct such Exclusive Operation, written notice proposing such operation must be resubmitted to the Parties in accordance with Article V, as if no proposal to conduct an Exclusive Operation had been previously made. F) In accordance with Article 6.1 (F), in the event that less than all of the Parties elect to participate in the Completion or other downhole operations referred to in Article 6.1 (F), such Completion or downhole operations referred to in the election notice may be conducted as an Exclusive Operation. In anticipation of such possibility, and notwithstanding anything to the contrary in the provisions of Article 5.12, Article 5.13 and this Article VII: 1) Should the Operator, at the time it submits the election to the Parties pursuant to Article 6.1(F), be prepared to undertake such Completion or downhole operations regardless of the election of the other Parties, the Operator may, at the same time it submits the notice under Article 5.12(A) to the other Parties, also provide a notice under Article 7.2(A) to conduct such Completion or downhole operations as an Exclusive Operation. In such a case, the time periods under Article 5.12(A) and 7.2(B) shall run concurrently and, notwithstanding Article 5.13, Operator may proceed immediately with such Completion or other downhole operations at the risk and expense of it and the other Parties who elect to participate. 2) Should a Non-Operator, at the time it makes its election pursuant to Article 6.I(F), be prepared to undertake such Completion or downhole operations regardless of the election of the other Parties, it may immediately notify the other Parties of such by providing a notice under Article 7.2(A). In such a case, the time periods under Article 5.12(A) and 7.2(B) shall run concurrently and upon receipt of such notice under Article 7.2(A), Operator may proceed immediately with such Completion or other downhole operations at risk and expense of the Party giving such notice and the other Parties electing to participate. West Gharib JOA 20F -31- Should less than all Parties elect to participate, then if a Party has given a notice under Article 7.2(A), it shall be deemed to have elected to bear a Participating Interest in such Exclusive Operation in accordance with Article 7.2(E)(3)(c). 7.3 Responsibility for Exclusive Operations A) The Consenting Parties shall bear in accordance with the Participating Interests agreed under Article 7.2(E) the entire cost and liability of conducting an Exclusive Operation and shall indemnify the Non-Consenting Parties from any and all costs and liabilities incurred incident to such Exclusive Operation (including but not limited to all costs, expenses or liabilities for environmental, consequential, punitive or any other similar indirect damages or losses arising from business interruption, reservoir or formation damage, inability to produce petroleum, loss of profits, pollution control and environmental amelioration or rehabilitation) and shall keep the Concession Area free and clear of all liens and encumbrances of every kind created by or arising from such Exclusive Operation. B) Notwithstanding Article 7.3(A), each Party shall continue to bear its Participating Interest share of the cost and liability incident to the operations in which it participated, including but not limited to plugging and abandoning and restoring the surface location, but only to the extent those costs were not increased by the Exclusive Operation. 7.4 Consequences of Exclusive Operations A) With regard to any Exclusive Operation, other than an Exclusive Operation which is a Mandatory Appraisal Well, for so long as a Non-Consenting Party has the option to reinstate the rights it relinquished under Article 7.4(D) below, such Non-Consenting Party shall be entitled to have access, concurrently with the Consenting Parties, to all data and other information relating to such Exclusive Operation, other than G & G Data obtained in an Exclusive Operation. For the acquisition of G&G Data, if a Non- Consenting Party desires to receive and acquire the right at any time to use all or part of such G & G Data, then such Non-Consenting Party shall have the right to do so by paying to the Consenting Parties the amount set out in Article 7.5(A) and the Cash Premium set out in Article 7.5(B)(3). B) With regard to any Exclusive Operation, other than an Exclusive Operation which is a Mandatory Appraisal Well and subject to Articles 7.4(C) and (D) below, each Non- Consenting Party shall be deemed to have relinquished to the Consenting Parties, and the Consenting Parties shall be deemed to own, in proportion to their respective Participating Interests in the Exclusive Operation as determined in accordance with Article 7.2(E)(3): 1) All of each such Non-Consenting Party's right to participate in operations for the acquisition of, and all rights to have access to, all G & G Data obtained from such Exclusive Operation or in further operations in a well or Deepened or Sidetracked portion of a well in which the Exclusive Operation was conducted and in any Discovery made or appraised in the course of such Exclusive Operation; and 2) All of each such Non-Consenting Party's right pursuant to the Concession to take and dispose of Hydrocarbons produced and saved: (a) From the well or Deepened or Sidetracked portion of a well in which such Exclusive Operation was conducted, and West Gharib JOA 20F -32- (b) From any wells drilled to appraise or develop a Discovery made or appraised in the course of such Exclusive Operation, and (c) From the Development Lease containing the Discovery arising out of such Exclusive Operation. C) Where an Exclusive Operation is the drilling of a Mandatory Appraisal Well, each Non-Consenting party in such Exclusive Operation shall be deemed to have relinquished to the Consenting Parties, and the Consenting Parties shall be deemed to own in proportion to their Participating Interest in such Exclusive Operation as determined in accordance with Article 7.2(E)(3): 1) All of each such Non-Consenting Party's right to participate in further operations in the Development Lease containing such Mandatory Appraisal Well; and 2) All of each such Non-Consenting Party's right pursuant to the Concession to take and dispose of Hydrocarbons produced and saved from the Development Lease containing such Mandatory Appraisal Well. In such case, a Non-Consenting Party shall have no option to reinstate such relinquished rights and Article 7.4(D) shall not apply. D) With the exception of the right to reinstate set out in Article 7.4(G), a Non-Consenting Party shall have the following and only the following options to reinstate the rights it relinquished pursuant to Article 7.4(B): 1) If the Consenting Parties decide to appraise a Discovery made in the course of an Exclusive Operation, the Consenting Parties shall submit to each Non-Consenting Party the approved appraisal program. For thirty (30) Days (or forty-eight (48) hours if the drilling rig which is to be used in such appraisal program is standing by in the Concession Area) from receipt of such appraisal program, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such appraisal program. The Non-Consenting Party may exercise such option by notifying Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the expense and liability of such appraisal program, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B); 2) Without prejudice to Article 7.4(C), if the Consenting Parties decide to develop a Discovery made or appraised in the course of an Exclusive Operation, each Non-Consenting Party shall have the option, exercisable for a period of sixty (60) Days from the receipt by the Non-Consenting Parties of all information pertaining to the Discovery, including the proposed Development Plan, to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such development. Each Non-Consenting Party may exercise such option by notifying the Party proposing to act as Operator for such development within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the liability and expense of such development and such future operating and production costs, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B). 3) If the Consenting Parties decide to Deepen, Test, Complete, Side-track, Plug Back, Recomplete or Rework an Exclusive Well, other than a Mandatory Appraisal Well, and such further operation was not included in the original proposal for such Exclusive Well, the Consenting Parties shall submit to the West Gharib JOA 20F -33- Non-Consenting Parties the approved AFE for such further operation. For thirty (30) Days (or forty-eight (48) hours if the drilling rig which is to be used in such operation is standing by in the Concession Area) from receipt of such AFE, each Non-Consenting Party shall have the option to reinstate the rights it relinquished pursuant to Article 7.4(B) and to participate in such operation. Each Non-Consenting Party may exercise such option by notifying the Operator within the period specified above that such Non-Consenting Party agrees to bear its Participating Interest share of the liability and expense of such further operation, to pay the lump sum amount as set out in Article 7.5(A) and to pay the Cash Premium as set out in Article 7.5(B). E) If a Non-Consenting Party does not properly and in a timely manner exercise such option, including paying in a timely manner in accordance with Article 7.5, all lump sum amounts and Cash Premiums, if any, due to the Consenting Parties, such Non-Consenting Party shall have forfeited the options as set out in Article 7.4(D) and the right to participate in the proposed program, plan or operation, unless such program, plan or operation is materially modified or expanded. F) A Non-Consenting Party shall become a Consenting Party with regard to an Exclusive Operation at such time as the Non-Consenting Party gives proper notice pursuant to Article 7.4(D); provided that such Non-Consenting Party shall in no way be deemed to be entitled to any lump sum amount or Cash Premium paid incident to such Exclusive Operation. The Participating Interest of such Non-Consenting Party in such Exclusive Operation shall be its Participating Interest at the time the Non-Consenting Party elected not to participate. The Consenting Parties who assumed a portion of the Non-Consenting Party's Participating Interest in such Exclusive Operation shall contribute the Participating Interest of the Non-Consenting Party proportionately to their assumption of same. If all Parties participate in the proposed operation, then such operation shall be conducted as a Joint Operation pursuant to Article V. G) If, after the expiry of the period in which a Non-Consenting Party may exercise its option to participate in the development of a Discovery, the Consenting Parties desire to proceed, Operator, or if Operator is a Non-Consenting Party, the Party chosen by the Consenting Parties to act as Operator, shall, subject to Article 6.2 hereof, give notice to EGPC under Article lII(c)(iii) of the Concession that the Consenting Parties consider the Discovery to be a Commercial Discovery. Conditional upon EGPC's agreement that such Discovery constitutes a Commercial Discovery, the Parties and EGPC shall meet to determine the extent of the area capable of production to be covered by a Development Lease and shall submit such area to the Government for approval in accordance with Article III(d)(i) of the Concession. Upon written concurrence by EGPC of the Consenting Party's determination that the Discovery is a Commercial Discovery and Government approval of the Development Lease, each Non-Consenting Party in such Discovery shall forfeit its right to reinstate its interest in the applicable Development Lease and shall be deemed to have withdrawn from the Concession and this Agreement to the extent that it relates to such Development Lease; provided, however, if EGPC or the Government require revision or modification to the Development Plan approved by the Consenting Parties, each Non-Consenting Party shall be notified, provided with all requested revisions or modifications to the Development Plan and shall have ten (10) Days in which to reinstate its right as to the Development Lease. In the event that such Development Lease represents the only interest of the Non-Consenting Party in the Concession Area and as such the Non-Consenting Party is deemed to have withdrawn from the entire Concession, then such Party shall also forfeit all of its shares and voting rights in the Operating Company that were issued pursuant to the Concession. West Gharib JOA 20F -34- 7.5 Premium to Participate in Exclusive Operations A) Within thirty (30) Days of the exercise of its option under Article 7.4(D), or with respect to G&G Data, within thirty (30) Days of its request to acquire the right to use all or part of such G&G Data under Article 7.4(A), each such Non-Consenting Party shall pay in immediately available funds to the Consenting Parties that took all or a portion of the cost obligation of the Participating Interest of the Non-Consenting Party in such Exclusive Operation proportionately to their assumption of such obligation, a lump sum amount payable in the currency designated by such Consenting Parties. Such lump sum amount shall be equal to such Non-Consenting Party's Participating Interest share of all liabilities and expenses, including overhead, that were incurred in every Exclusive Operation relating to the G&G Data, Discovery or well, as the case may be, in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party. B) In addition to Article 7.5(A), if a Cash Premium is due, then within thirty (30) Days of the exercise of its option under Article 7.4(A) or 7.4(D) each such Non-Consenting Party shall pay in immediately available funds, in the currency designated by the Consenting Parties who took the risk of such Exclusive Operations, to such Consenting Parties in proportion to their assumption of such risk, a Cash Premium equal to the total of: 1) Six hundred percent (600%) of such Non-Consenting Party's Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Exploration Well which made the Discovery in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party; plus 2) Four hundred percent (400%) of the Non-Consenting Party's Participating Interest share of all liabilities and expenses, including overhead, that were incurred in any Exclusive Operations relating to the drilling, Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting and Reworking of the Appraisal Well(s) other than Mandatory Appraisal Well(s), which delineated the Discovery made in the Exclusive Operations in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party; plus 3) One hundred percent (100%) of the Non-Consenting Party's Participating Interest share of all liabilities and expenses, including overhead, that were incurred by the Consenting Parties in any Exclusive Operation for the acquisition of G&G Data in which the Non-Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by such Non-Consenting Party. 7.6 Order of Preference of Operations A) Except as otherwise specifically provided in this Agreement, if any Party desires to propose the conduct of an operation that will conflict with an existing proposal for an Exclusive Operation, such Party shall have the right exercisable for five (5) Days, or twenty-four (24) hours if the drilling rig to be used is standing by in the Concession Area, from receipt of the proposal for the Exclusive Operation, to deliver to all Parties entitled to participate in the proposed operation such Party's alternative proposal. Such alternative proposal shall contain the information required under Article 7.2(A). West Gharib JOA 20F -35- B) Each party receiving such proposals shall elect by delivery of notice to Operator within the appropriate response period set out in Article 7.2(B) to participate in one of the competing proposals. Any party not notifying Operator within the response period shall be deemed not to have voted. C) The proposal receiving the largest aggregate Participating Interest vote shall have priority over all other competing proposals. In the case of a tie vote, the Operator shall choose among the proposals receiving the largest aggregate Participating Interest vote. Operator shall deliver notice of such result to all Parties entitled to participate in the operation within five (5) Days of the end of the response period, or twenty-four (24) hours if the drilling rig to be used is standing by in the Concession Area. D) Each Party shall then have two (2) Days (or twenty-four (24) hours if the drilling rig to be used is standing by in the Concession Area) from receipt of such notice to elect by delivery of notice to Operator whether such Party will participate in such Exclusive Operation, or will relinquish its interest pursuant to Article 7.4(B). Failure by a Party to deliver such notice within such period shall be deemed an election not to participate in the prevailing proposal. E) Notwithstanding the provisions of Article 7.4(B), if for reasons other than the encountering of granite or other practically impenetrable substance or any other condition in the hole rendering further operations impracticable, a well drilled as an Exclusive Operation fails to reach the deepest objective Zone described in the notice proposing such well, Operator shall give notice of such failure to each Non-Consenting Party who submitted or voted for an alternative proposal under this Article to drill such well to a shallower Zone than the deepest objective Zone proposed in the notice under which such well was drilled. Each such Non-Consenting Party shall have the option exercisable for forty-eight (48) hours from receipt of such notice to participate in the initial proposed Completion of such well. Each such Non-Consenting Party may exercise such option by notifying the Operator that it wishes to participate in such Completion and by paying its share of the cost of drilling such well, calculated in the manner provided in Article 7.8(B), to its deepest depth drilled in the Zone in which it is Completed. If any such Non-Consenting Party does not properly elect to participate in the first Completion proposed for such well, the relinquishment provisions of Article 7.4(B) shall continue to apply to such Non-Consenting Party's interest. 7.7 Stand-By Costs When an operation has been performed, all tests have been conducted and the results of such tests furnished to the Parties, stand by costs incurred pending response to any Party's notice proposing an Exclusive Operation for Deepening, Testing, Sidetracking, Completing, Plugging Back, Recompleting, Reworking or other further operation in such well (including the period required under Article 7.6 to resolve competing proposals) shall be charged and borne as part of the operation just completed. Stand by costs incurred subsequent to all Parties responding, or expiration of the response time permitted, whichever first occurs, shall be charged to and borne by the Parties proposing the Exclusive Operation in proportion to their Participating Interests, regardless of whether such Exclusive Operation is actually conducted. 7.8 Miscellaneous A) Each Exclusive Operation shall be carried out by the Consenting Parties acting as the Operating Committee, subject to the provisions of this Agreement applied mutatis mutandis to such Exclusive Operation and subject to the terms and conditions of the Concession. West Gharib JOA 20F -36- B) The computation of liabilities and expenses incurred in Exclusive Operations, including the liabilities and expenses of Operator for conducting such operations, shall be made in accordance with the principles set out in the Accounting Procedure. C) Operator shall maintain separate books, financial records and accounts for Exclusive Operations which shall be subject to the same rights of audit and examination as the Joint Account and related records, all as provided in the Accounting Procedure. Said rights of audit and examination shall extend to each of the Consenting Parties and each of the Non-Consenting Parties so long as the latter are, or may be, entitled to elect to reinstate its interest in such operations. D) Operator, if it is not a Consenting Party and it is conducting an Exclusive Operation for the Consenting Parties, shall be entitled to request cash advances and shall not be required to use its own funds to pay any cost and expense and shall not be obliged to commence or continue Exclusive Operations until cash advances requested have been made, and the Accounting Procedure shall apply to Operator in respect of any Exclusive Operations conducted by it. E) Should the Parties determine that a Discovery constitutes a Commercial Discovery, and prior to notification of EGPC regarding such Commercial Discovery, should any Party wish to drill an additional Appraisal Well other than a Mandatory Appraisal Well, prior to development, then subject to Article 7.1(B), the Party proposing such well as an Exclusive Operation shall be entitled to proceed first, but without the right to future reimbursement of costs or to any premium pursuant to Article 7.5. If, as the result of drilling such well as an Exclusive Operation, the Parties proposing to develop a Discovery decide to not develop the Discovery, then each Non-Consenting Party who voted in favor of such development prior to the drilling of such appraisal well shall pay to the Consenting Party the amount such Non-Consenting Party would have paid had such appraisal well been drilled as a Joint Operation. F) In the case of any Exclusive Operation for Deepening, Testing, Completing, Sidetracking, Plugging Back, Recompleting or Reworking, the Consenting Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, that is not needed for Joint Operations, but the ownership of all such equipment shall remain unchanged. On abandonment of a well after such Exclusive Operation, the Consenting Parties shall account for all such equipment to the Parties who shall receive their respective Participating Interest shares, in value, less cost of salvage. G) If the Operator is a Non-Consenting Party to an Exclusive Operation to develop a Discovery, then, subject to obtaining any necessary Government approval, the Operator may resign, but in any event shall resign on the request of the Consenting Parties, as Operator for the Development Lease for such Discovery and the Consenting Parties shall select a Party to serve as Operator for such Development Lease. 7.9 Production Bonuses Production bonuses shall be charged to the Joint Account if there is no production of Hydrocarbons from an Exclusive Operation at the time they are incurred. If there is production of Hydrocarbons from one (1) or more Exclusive Operations, then any production bonus which becomes payable under the Concession shall be borne by each Development Lease in the proportion that its average daily production of Hydrocarbons bears to the total average daily production of Hydrocarbons from the Concession Area during the ninety (90) Day period preceding the date on which the liability for the production bonus was incurred. West Gharib JOA 20F -37- The Parties in a Development Lease shall bear the production bonus allocated to that Development Lease in accordance with their Participating Interests in the Development Lease as of the date on which liability for the production bonus was incurred. West Gharib JOA 20F -38- ARTICLE VIII DEFAULT 8.1 Default and Notice Any party that fails to pay when due its Participating Interest share of Joint Account expenses, including cash advances and interest, incurred pursuant to this Agreement (a "Defaulting Party") shall be in default under this Agreement. Operator, or any non-defaulting Party in the case of the default of Operator, shall promptly give written notice of such default to the Defaulting Party and each of the non-defaulting Parties (the "Default Notice"). The amount not paid by the Defaulting Party shall bear interest from the date due until paid in full. Interest will be calculated using the Agreed Interest Rate. 8.2 Operating Committee Meetings and Data After any default has continued for ten (10) Days from the date of the Default Notice and for as long thereafter as the Defaulting Party remains in default on any payment due under this Agreement, the Defaulting Party shall not be entitled to attend Operating Committee meetings or to vote on any matter coming before the Operating Committee until all of its defaults have been remedied (including payment of accrued interest). Further, the Defaulting Party shall not be entitled to attend meetings of the Exploration Advisory Committee, nor the Directors' Meetings of the Operating Company, nor shall it have the right to vote in any meeting held by the Operating Company. Unless agreed otherwise by the non-defaulting Parties, the voting interest of each non-defaulting Party shall be in the proportion which its Participating Interest bears to the total of the Participating Interests of all the non-defaulting Parties. Any matters requiring unanimous vote of the Parties shall not require the vote of the Defaulting Party. After the said ten (10) Days and while the Defaulting Party remains in default as aforesaid, the Defaulting Party shall not have access to any data or information relating to Joint Operations, and non-defaulting Parties shall be entitled to trade data without such Defaulting Party's consent and the Defaulting Party shall have no right to any data received on such trade unless and until its default is remedied in full. Notwithstanding the foregoing, the Defaulting Party shall be deemed to have approved, and shall join with the non-defaulting Parties in taking any action to maintain and preserve the Concession. 8.3 Allocation of Defaulted Accounts A) The Party providing the Default Notice shall, either include in the Default Notice or by separate notice, notify each non-defaulting Party of the sum of money it is to pay as its portion (such portion being in the ratio that each non-defaulting Party's Participating Interest bears to the Participating Interests of all non-defaulting Parties) of such amount in default (excluding interest). Each non-defaulting Party shall, if such default continues, pay Operator, within five (5) Days after receipt of the Default Notice, its share of the amount which the Defaulting Party failed to pay. If any non-defaulting Party fails to pay its share of the amount in default as aforesaid, such non-defaulting Party shall thereupon be in default and shall be a Defaulting Party subject to the provisions of this Article. The non-defaulting Parties which pay the amount owed by any Defaulting Party shall be entitled to receive their respective share of the principal and interest payable by such Defaulting Party pursuant to Article 8.1. B) If Operator is a Defaulting Party, then all payments otherwise payable to Operator for Joint Account costs pursuant to this Agreement shall be made to the notifying Party instead, until the default is cured or a successor Operator appointed. The notifying Party shall maintain such funds in a segregated account separate from its own funds and shall apply such funds to third party claims due and payable from the Joint Account of which it has notice, to the extent Operator would be authorized to make such payments under the terms of this Agreement. The notifying Party shall be entitled to bill or cash call the West Gharib JOA 20F -39- other Parties in accordance with the Accounting Procedure for proper third party charges that become due and payable during such period to the extent sufficient funds are not available. When Operator has cured its default or a successor Operator is appointed, the notifying Party shall turn over all remaining funds in the account to Operator and shall provide Operator and the other Parties with a detailed accounting of the funds received and expended during this period. The notifying Party shall not be liable for damages, losses, costs, expenses or liabilities arising as a result of its actions under this Article 8.3(B) except to the extent Operator would be liable under Article 4.6. C) The total of all amounts paid by the non-defaulting Parties for the Defaulting Party, together with interest accrued on such amounts, shall constitute a debt due and owing by the Defaulting Party to the non-defaulting Parties in proportion to such amounts paid. In addition, the non-defaulting Parties may, in the manner contemplated by this Article, satisfy such debt (together with interest) and may accrue an amount equal to the Defaulting Party's Participating Interest share of the estimated cost to abandon any Joint Property. D) A Defaulting Party may remedy its default by paying to Operator the total amount due, together with interest calculated as provided in Article 8.1, at any time prior to transfer of its interest pursuant to Article 8.4, and upon receipt of such payment Operator shall remit to each non-defaulting Party its proportionate share of such amount. E) The rights granted to each non-defaulting Party pursuant to this Article, shall be in addition to, and not in substitution for any other rights or remedies which each non-defaulting Party may have at law or equity or pursuant to the other provisions of this Agreement. 8.4 Transfer of Interest A) For thirty (30) Days after each failure by the Defaulting Party to remedy its default by the thirtieth (30th) Day following the Defaulting Party's receipt of the Default Notice, without prejudice to any other rights of the non-defaulting Parties to recover the amounts paid for the Defaulting Party, together with interest accrued on such amount, each non-defaulting Party shall have the option to give notice to the Defaulting Party requiring the Defaulting Party to transfer its Participating Interest to the non-defaulting Parties. To that end if any of the non-defaulting Parties so elect, the Defaulting Party shall be deemed to have transferred and to have empowered the electing non-defaulting Parties to execute on said Defaulting Party's behalf any documents required to effect a transfer, of all of its right, title and beneficial interest in and under this Agreement and the Concession, and in all wells and Joint Property to the electing non-defaulting Parties. If requested, each Party shall execute a Power of Attorney in the form prescribed by the Operating Committee. The Defaulting Party shall, without delay following any request from the non-defaulting Parties, do any and all acts required to be done by applicable law or regulation in order to render such transfer legally valid, including, without limitation, the obtaining of all Government consents and approvals, and shall execute any and all documents and take such other actions as may be necessary in order to effect prompt and valid transfer of the interests described above, free of all liens and encumbrances. In the event all Government consents and approvals are not timely obtained, the Defaulting Party shall hold its Participating Interest in trust for such non-defaulting Parties who elected to assume such Defaulting Party's Participating Interest. 8) In the absence of an agreement among the non-defaulting Parties to the contrary, any such transfer to the non-defaulting Parties shall be in the proportion that the non-defaulting Parties have paid the amounts due from the Defaulting Party. West Gharib JOA 20F -40- C) Subject to Article 12.1(C), on the effective date of such transfer the Defaulting Party shall forthwith cease to be a Party to this Agreement. The acceptance or non-acceptance by a non-defaulting Party of any portion of a Defaulting Party's Participating Interest shall be without prejudice to any rights or remedies such non-defaulting Parties have to recover the outstanding debts (including interest) owed by the Defaulting Party. 8.5 Continuation of Interest If, within thirty (30) Days after each failure by the Defaulting Party to remedy its default by the thirtieth (30th) Day following the Defaulting Party's receipt of the Default Notice, the non-defaulting Parties fail to elect to acquire the Defaulting Party's Participating Interest or elect not to acquire the Defaulting Party's Participating Interest, as provided in Article 8.4 and to continue to bear the Defaulting Party's Participating Interest share of liabilities and expenses, then the non-defaulting Parties shall either (a) abandon operations hereunder pursuant to Article 8.6, or (b) accumulate all such liabilities and expenses as a debt pursuant to Article VIII, but the Defaulting Party shall continue to be a Party subject to Article 8.2 and Article 8.7. If Operator disposes of any Joint Property or any other credit or adjustment is made to the Joint Account, or if Operator sells any of the Defaulting Party's Participating Interest share of Hydrocarbons, then, in respect of the Defaulting Party's Participating Interest share of the proceeds of such disposal, credit or adjustment or sale, Operator shall be entitled to retain and to set off the same against all amounts, together with interest accrued on such amount, due and owing from the Defaulting Party plus an accrued amount equal to the Defaulting Party's Participating Interest share of the estimated cost to abandon any Joint Property. Any surplus remaining after setting off the same as aforesaid shall be paid promptly to the Defaulting Party. 8.6 Abandonment If, within thirty (30) Days after the failure by the Defaulting Party to remedy its default by the thirtieth (30th) Day as aforesaid, no non-defaulting Party elects to acquire the Defaulting Party's Participating Interest as provided in Article 8.4, or to bear the Defaulting Party's Participating Interest share of liabilities and expenses as provided in Article 8.5, then no transfer shall be made and Joint Operations shall be abandoned subject to any necessary consents and notices being given, and each Party, including the Defaulting Party, shall pay its Participating Interest share of all costs of abandoning and relinquishing the Concession. If abandonment occurs as aforesaid, all monies paid by the non-defaulting Parties for the Defaulting Party pursuant to Article 8.3, together with interest accrued on such amount, shall remain a debt due and owing by the Defaulting Party. 8.7 Sale of Hydrocarbons If a Party defaults after the commencement of commercial production and has not remedied the default by the thirtieth (30th) Day as aforesaid, then, during the continuance of such default, the Defaulting Party shall not be entitled to its Entitlement which shall vest in and be the property of the non-defaulting Parties, and Operator shall be authorized to sell such Hydrocarbons at the best price obtainable under the circumstances and, after deducting all costs, charges and expenses incurred by Operator in connection with such sale, pay the proceeds proportionately to the non-defaulting Parties which proceeds shall be credited against all monies advanced pursuant to Article 8.3, together with interest accrued thereon. Any surplus remaining shall be paid to the Defaulting Party, and any deficiency shall remain a debt due from the Defaulting Party to the non-defaulting Parties. Notwithstanding any such sales by Operator, the provisions of Article 8.4 shall continue to apply. 8.8 No Right of Set Off Each Party acknowledges and accepts that a fundamental principle of this Agreement is that each Party pays its Participating Interest share of all amounts due under this Agreement as and when West Gharib JOA 20F -41- required. Accordingly, any Party which becomes a Defaulting Party undertakes that, in respect of either any exercise by the non-defaulting Parties of any rights under or the application of any of the provisions of this Article, such Party shall not raise by way of set off or invoke as a defense, whether in law or equity, any failure to pay amounts due and owing under this Agreement or any alleged or unliquidated claim that such Party may have against Operator or any Non-Operator, whether such claim arises under this Agreement or otherwise. Such Party further undertakes not to raise by way of defense, whether in law or in equity, that the nature or the amount of the remedies granted to the non-defaulting Parties is unreasonable or excessive. West Gharib JOA 20F -42- ARTICLE IX DISPOSITION OF PRODUCTION 9.1 Right and Obligation to Take in Kind Except as otherwise provided in this Article 9 and Article 8.7, each party shall have the right and obligation to own, take in kind and separately dispose of its Participating Interest share of total production available to the Parties pursuant to the Concession in such quantities and in accordance with such procedures as may be set forth in the offtake agreement referred to in Article 9.2 or in the special arrangements for natural gas referred to in Article 9.3. If EGPC is party to the offtake agreement, then the Parties shall endeavor to obtain its agreement to the principles set forth in this Article 9. To the extent that a Party requires separate facilities to exercise its rights under this Article 9.1, the costs of such separate facilities will be borne solely by such Party. 9.2 Offtake Agreement for Crude Oil If Crude Oil is to be produced from the Concession, the Operator shall submit an offtake agreement for the Parties consideration, and the Parties shall in good faith, and not less than three (3) months prior to first delivery of Crude Oil, negotiate and conclude the terms of an agreement to cover the offtake of Crude Oil produced under the Concession. EGPC may, if necessary and practicable, also be party to the offtake agreement. This offtake agreement shall, to the extent consistent with the Concession, make provision for: A) The delivery point, at which title and risk of loss of Participating Interest shares of Crude Oil shall pass to the Parties interested (or as the Parties may otherwise agree); B) Operator's regular periodic advice to the Parties of estimates of total available production for succeeding periods, Entitlements, and grades of Crude Oil for as far ahead as is necessary for Operator and the Parties to plan offtake arrangements. Such advice shall also cover for each grade of Crude Oil total available production and deliveries for the preceding period, inventory and overlifts and underlifts; C) Nomination by the Parties to Operator of acceptance of their Entitlement of total available production for the succeeding period. Such nominations shall in anyone period be for each Party's entire Entitlement arising during that period subject to operational tolerances and agreed minimum economic cargo sizes or as the Parties may otherwise agree; D) Elimination of overlifts and underlifts; E) If offshore loading or a shore terminal for vessel loading is involved, risks regarding acceptability of tankers, demurrage and (if applicable) availability of berths; F) Distribution to the Parties of Entitlements to ensure, to the extent Parties take delivery of their Entitlements in proportion to the accrual of such Entitlements, that each Party shall receive currently Entitlements of grades, gravities and qualities of Hydrocarbons similar to Hydrocarbons received by each other Party; G) To the extent that distribution of Entitlements on such basis is impracticable due to availability of facilities and minimum cargo sizes, a method of making periodic adjustments; and H) The option and the right of the other Parties to sell an Entitlement which a Party fails to nominate for acceptance pursuant to Article 9.2(C) above or of which a Party fails to take delivery, in accordance with applicable agreed procedures, provided that such failure West Gharib JOA 20F -43- either constitutes a breach of Operator's or Parties' obligations under the terms of the Concession, or is likely to result in the curtailment or shut-in of production. Such sales shall be made only to the limited extent necessary to avoid disruption in Joint Operations. Operator shall give all Parties as much notice as is practicable of such situation and that a sale option has arisen. Any sale shall be of the unnominated or undelivered Entitlement as the case may be and for reasonable periods of time in no event to exceed twelve (12) months. The right of sale shall be revocable at will subject to any prior contractual commitments. Sales to non-affiliated third parties shall be for the realized price f.o.b. the delivery point. Sales to any of the Parties or their Affiliates shall be at current market value f.o.b. the delivery point. The Party arranging the sale shall pay to the Party whose Entitlement is involved the above price after deduction of all costs, including storage costs, incurred in respect of such sale and a marketing fee of an agreed percentage of the applicable price less deductions, reflecting actual costs of disposal at immediate notice. Current market value shall be the value of the Entitlement in international markets (unless the Entitlement was required to be delivered into the Government's domestic market, in which case it shall be the value therein) between a willing buyer and a willing seller and shall be agreed between the two Parties concerned, or failing agreement, determined by an expert to be appointed in accordance with procedures set forth in the offtake agreement. If an offtake agreement has not been entered into by the date of first delivery of Crude Oil, the Parties shall be bound by the principles set forth in this Article 9.2 until an offtake agreement has been entered into. 9.3 Separate Agreement for Natural Gas The Parties recognize that if natural gas is discovered it may be necessary for the Parties to enter into a long term Gas Sales Agreement as contemplated in Article III (d)(ii) of the Concession. Failing such agreement, the Parties shall negotiate special arrangements, including gas balancing, for the disposal of same. 9.4 EGPC Preferential Right of Purchase In the event EGPC exercises its preferential right to purchase Hydrocarbons produced under the Concession, each Party shall contribute the quantity required proportionately to its Entitlement thereof. Or, if EGPC requires that Crude Oil from the Concession be sold to or with EGPC under a joint marketing arrangement or otherwise, Operator shall use its best efforts to obtain the unanimous agreement of the Operating Committee to the terms and conditions of any such arrangement or agreement. 9.5 Government's Right of Requisition In the event the Government requisitions Contractor's share of Hydrocarbons produced under the Concession, each Party shall contribute the quantity required proportionately to its Participating Interest share thereof. West Gharib JOA 20F -44- ARTICLE X ABANDONMENT OF WELLS 10.1 Abandonment of Wells Drilled as Joint Operations A) Any well which has been drilled as a Joint Operation and which is proposed to be plugged and abandoned shall not be plugged and abandoned without the consent of all Parties, and in the event that the Operating Company has been formed, the consent of EGPC. B) Should any such Party fail to reply within the period prescribed in Article 5.12(A)(1) or Article 5.12(A)(2), whichever is applicable, after delivery of notice of the Operator's proposal to plug and abandon such well, such Party shall be deemed to have consented to the proposed abandonment. If all the Parties consent to abandonment, such well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of the Parties or the Consenting Parties, as applicable. C) If all Parties do not agree to the abandonment of such well, those wishing to continue operations shall assume financial responsibility over the well and shall be deemed to be Consenting Parties conducting an Exclusive Operation pursuant to Article VII. In the case of a producing well, the Consenting Parties shall be entitled to continue producing only from the Zone open to production at the time they assumed responsibility for the well. D) Each Non-Consenting Party shall be deemed to have relinquished to the Consenting Parties in proportion to their Participating Interests all of its interest in the wellbore of a produced well and related equipment in accordance with Article 7.4(B), insofar and only insofar as such interest covers the right to obtain production from that wellbore in the Zone then open to production. E) Subject to Articles 6.3 and 7.8(G), Operator shall continue to operate a produced well for the account of the Consenting Parties at the rates and charges contemplated by this Agreement, plus any additional cost and charges which may arise as the result of the separate allocation of interest in such well. 10.2 Abandonment of Exclusive Operations This Article shall apply mutatis mutandis to the abandonment of an Exclusive Well or any well in which an Exclusive Operation has been conducted; provided that no well shall be permanently plugged and abandoned unless and until all Parties having the right to conduct further operations in such well have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well in accordance with the provisions of this Article X. West Gharib JOA 20F -45- ARTICLE XI SURRENDER, EXTENSIONS AND RENEW ALS 11.1 Surrender A) Operator shall advise the Operating Committee of any surrender requirement under the Concession at least one hundred and twenty (120) Days in advance of the earlier of the date for filing an irrevocable notice of such surrender or the date of such surrender. Prior to the end of such period, the Operating Committee shall determine, pursuant to Article V, the size and shape of the surrendered area, consistent with the requirements of the Concession. If a sufficient vote of the Operating Committee cannot be attained, then the proposal supported by a simple majority of the Participating Interests shall be adopted. If no proposal attains the support of a simple majority of the Participating Interests, then the proposal receiving the largest aggregate Participating Interest vote shall be adopted. In the event of a tie, the Operator shall choose among the proposals receiving the largest aggregate Participating Interest vote. The Parties shall execute any and all documents and take such other actions as may be necessary to effect the surrender. Each Party renounces all claims and causes of action against Operator and any other Parties on account of any area surrendered in accordance with the foregoing but against its recommendation if Hydrocarbons are subsequently discovered under the surrendered area. B) A surrender of all or any part of the Concession Area which is not required by the Concession shall require the unanimous consent of the Parties. 11.2 Extension of the Term A) A proposal by any Party to extend the term of the Exploration Period or Development Period or any Exploration Sub-Period of the Concession, a proposal to enter into a new phase of the Exploration Period, and a proposal to extend the term of the Concession shall be brought before the Operating Committee pursuant to Article V. B) Any Party shall have the right to enter into or extend the term of the Exploration Period or Development Period or any Exploration Sub-Period of the Concession or extend the term of the Concession, regardless of the level of support in the Operating Committee. If any Party or Parties take such action, any Party not wishing to extend or enter into a new period shall have a right to withdraw, subject to the requirements of Article XIII. West Gharib JOA 20F -46- ARTICLE XII TRANSFER OF INTEREST OR RIGHTS 12.1 Obligations A) Subject always to the requirements of the Concession and subject to the terms of transfer contained in Articles VIII or XIII, the transfer of all or part of a Party's Participating Interest shall be effective only if it satisfies the terms and conditions of this Article. B) Except in the case of a Party transferring all of its Participating Interest, no transfer shall be made by any Party which results in the transferor or the transferee holding a Participating Interest of less than five (5%) percent or holding any interest other than a Participating Interest in the Concession and this Agreement. C) The transferring Party shall, notwithstanding the transfer, be liable to the other Parties for any obligations, financial or otherwise, which have vested, matured or accrued under the provision of the Concession or this Agreement prior to such transfer. Such obligations shall include, without limitation, any proposed expenditure approved by the Operating Committee prior to the transferring Party notifying the other Parties of its proposed transfer. D) The transferee shall have no rights in and under the Concession or this Agreement unless and until it obtains any necessary Government approval and expressly undertakes in writing to perform all obligations of the transferor under the Concession and this Agreement in respect of the Participating Interest being transferred, to the satisfaction of the Parties. E) The transferee other than an Affiliate shall have no rights in and under the Concession or this Agreement unless each Party has consented in writing to such transfer, which consent shall be denied only if such transferee fails to establish to the reasonable satisfaction of each Party its financial and technical capability to perform its obligations under the Concession and this Agreement. With respect to a transfer to an Affiliate, the transferring Party shall provide each of the Parties with prior written notice of the transfer. Notwithstanding such transfer, the transferring Party shall remain liable for any and all obligations under this Agreement unless such Affiliate establishes to the reasonable satisfaction of each Party its financial and technical capability to perform its obligations under the Concession and this Agreement. F) Nothing contained in this Article shall prevent a Party from mortgaging, pledging, charging or otherwise encumbering all or part of its interest in the Concession and in this Agreement for the purpose of security relating to a financing provided that: 1) such Party shall remain liable for all obligations relating to such interest; 2) the encumbrance shall be subject to any necessary approval of the Government and be expressly subordinated to the rights of the other Parties under this Agreement; 3) such Party shall ensure that any such mortgage, pledge, charge or encumbrance shall be expressed to be without prejudice to the provisions of this Agreement; and West Gharib JOA 20F -47- 4) such party shall advise the remaining Parties of the existence of any financing, subject to said Party's right to disclosure under its financing agreements and shall provide proof of compliance with Article 12.1(F)(3). 12.2 Rights Each Party shall have the right, subject to the provisions of the Concession and Article 12.1 hereof, to freely transfer its Participating Interest. West Gharib JOA 20F -48- ARTICLE XIII WITHDRAWAL FROM AGREEMENT 13.1 Right of Withdrawal A) Subject to the provisions of this Article, any party may withdraw from this Agreement and the Concession by giving notice to all other Parties stating its decision to withdraw and specifying a proposed effective date of withdrawal which shall be at least sixty (60) Days, but not more than one hundred eighty (180) Days after the date of such notice. Such notice shall be unconditional and irrevocable when given. 8) Notwithstanding Article 13.1(A), a Party shall not have the right to withdraw from this Agreement and the Concession until the Minimum Work Obligation for the then current Exploration Sub-Period set forth in the Concession has been fulfilled. However, if the Operating Committee or any Party decides to accept new Minimum Work Obligations by voluntarily extending the current or entering into a new Exploration Sub-Period under the Concession, a Party that voted against such decision shall not be prevented from withdrawing; provided that such Party delivers notice of its withdrawal to all Parties within thirty (30) Days of such vote pursuant to Article 11.2 and fully satisfies its Participating Interest share of the outstanding Minimum Work Obligation for the then current Exploration Sub-Period, if any. C) Subject to Articles 13.1(A) and (B), 13.5 and 13.9, the effective date of withdrawal for a withdrawing Party shall be the end of the calendar month following the calendar month in which notice of withdrawal is given. D) Notwithstanding anything to the contrary contained herein, a Party that elects to withdraw shall not, unless such Party otherwise agrees, be considered to have withdrawn from this Agreement or the Concession as it applies to a Development Lease in which such Party has a Participating Interest. 13.2 Withdrawal by Some or All of the Parties A) Within thirty (30) Days of receipt of each withdrawing Party's notification, each of the other Parties may also give notice that it desires to withdraw from this Agreement and the Concession. Should all Parties give notice of withdrawal, the Parties shall proceed to abandon the Concession Area and terminate the Concession and this Agreement in accordance with their respective terms. If less than all of the Parties give such notice of withdrawal, then the withdrawing Parties shall take all steps to withdraw from the Concession and this Agreement on the earliest possible date and execute and deliver all necessary instruments and documents to assign their Participating Interest to the Parties that are not withdrawing, at its sole cost and expense and without any compensation whatsoever, in accordance with the provisions of Article 13.6. 8) If any part of the withdrawing Party's Participating Interest remains unclaimed after sixty (60) Days from the date of the first notice of withdrawal, the Parties shall be deemed to have decided to withdraw from the Concession and this Agreement, unless at least one Party agrees to accept the unclaimed Participating Interest. C) Any Party withdrawing under Article 11.2(B) or under this Article XIII shall, at its option, 1) withdraw from the entirety of the Concession Area; or West Gharib JOA 20-F -49- 2) withdraw only from all exploration activities under the Concession, but not from any Development Lease made prior to such withdrawal. A party withdrawing pursuant to this Article 13.2(C)(2) shall retain its rights in the Joint Property, but only insofar as they relate to any such Development Lease, and shall abandon all other rights in the Joint Property. 13.3 Rights of a Withdrawing Party A withdrawing Party shall have the right to receive its Entitlement of Hydrocarbons produced through the effective date of its withdrawal. The withdrawing Party shall be entitled to receive all information to which such Party is otherwise entitled under this Agreement until the effective date of its withdrawal. After giving its notification of withdrawal, a Party shall not be entitled to vote on any matters coming before the Operating Committee, other than matters for which such Party continues to have financial responsibility. 13.4 Obligations and Liabilities of a Withdrawing Party A) A withdrawing Party shall, following its notification of withdrawal, remain liable only for its share of the following: 1) Costs of Joint Operations, and Exclusive Operations in which it has agreed to participate, that were approved by the Operating Committee or Consenting Parties as part of a Work Program and Budget or AFE prior to such Party's notification of withdrawal, regardless of when they are actually incurred; 2) Any Minimum Work Obligations for the current Exploration Sub-Period or phase of the Concession, and for any subsequent period or phase which has been approved pursuant to Article 11.2 and with respect to which such Party has failed to give its notice of withdrawal within the time periods set out in Article 13.4(8); 3) Emergency expenditures as described in Articles 4.2(B)(ii) and 13.5; 4) All other obligations and liabilities of the Parties or Consenting Parties, as applicable, with respect to acts or omissions under this Agreement which were incurred or are attributable to the period prior to the effective date of such Party's withdrawal for which such Party would have been liable, had it not withdrawn from this Agreement; and 5) In the case of a partially withdrawing Party, any costs and liabilities with respect to Development Leases from which it has not withdrawn. The obligations and liabilities for which a withdrawing Party remains liable shall specifically include its share of any costs of plugging and abandoning wells or portions of wells in which it participated (or was required to bear a share of the costs pursuant to Article 13.4(A)(1)>>, to the extent such costs of plugging and abandoning are payable by the Parties under the Concession. Any liens, charges and other encumbrances which the withdrawing Party placed on such Party's Participating Interest prior to its withdrawal shall be fully satisfied or released, at the withdrawing Party's expense, prior to its withdrawal. A Party's withdrawal shall not relieve it from liability to the non- withdrawing Parties with respect to any obligations or liabilities attributable to the withdrawing Party under this Article XIII merely because they are not identified or identifiable at the time of withdrawal. West Gharib JOA 20-F -50- B) Notwithstanding the foregoing, a party shall not be liable for any operations or expenditures it voted against (other than operations and expenditures described in Article 13.4(A)(2) or 13.4(A)(3)) if it sends notification of its withdrawal within five (5) Days (or within twenty-four (24) hours if the drilling rig to be used in such operation is standing by on the Concession Area) of the Operating Committee vote approving such operation or expenditure. Likewise, a party voting against voluntarily entering into or extending of an Exploration Sub-Period, Exploration Period or Development Period or any phase of the Concession or voluntarily extending the Concession shall not be liable for the Minimum Work Obligations associated therewith provided that it sends notification of its withdrawal within the earlier of thirty (30) Days of such vote pursuant to Article 11.2 or five (5) Days prior to the last date upon which the Parties must give notice to EGPC pursuant to the Concession in order to enter such period or obtain such extension. 13.5 Emergency A Party's notification of withdrawal shall not become effective if prior to the proposed effective date of withdrawal a well goes out of control or a fire, blowout, sabotage or other emergency occurs. The notification of withdrawal shall become effective only after the emergency has been contained and the withdrawing Party has paid, or has provided, security satisfactory to the Parties for its Participating Interest share of the costs of such emergency. 13.6 Assignment A withdrawing Party shall assign its Participating Interest to each of the non-withdrawing Parties which shall be allocated to them in the proportion which each of their Participating Interests (prior to the withdrawal) bears to the total Participating Interests of all the non-withdrawing Parties (prior to the withdrawal), unless the non-withdrawing Parties agree otherwise. The expenses associated with the withdrawal and assignments shall be borne by the withdrawing Party. 13.7 Approvals A withdrawing Party shall promptly join in such actions as may be necessary or desirable to obtain any Government approvals required in connection with the withdrawal and assignments, and any penalties or expenses incurred by the Parties in connection with such withdrawal shall be borne by the withdrawing Party. 13.8 Abandonment Security A withdrawing Party shall provide Security satisfactory to the other Parties to satisfy any such obligations or liabilities which were approved or accrued prior to notice of withdrawal, but which become due after its withdrawal, including, without limitation, Security to cover the costs of an abandonment, if applicable; provided that the withdrawing Party was participating or was obligated to participate in the operations which gave rise to such obligations or liabilities. "Security" means a standby letter of credit issued by a bank or an on demand bond issued by a corporation, such bank or corporation having a credit rating indicating it has sufficient worth to pay its obligations in all reasonably foreseeable circumstances. 13.9 Withdrawal or Abandonment by all Parties In the event all Parties decide to withdraw or are required to do so pursuant to this Article, the Parties agree that they shall be bound by the terms and conditions of this Agreement for so long as may be necessary to wind up the affairs of the Parties with the Government, to satisfy any requirements of applicable law or to facilitate the sale, disposition or abandonment of property or interests held by the Joint Account. West Gharib JOA 20-F -51- ARTICLE XIV RELATIONSHIP OF PARTIES AND TAX 14.1 Relationship of Parties The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective. It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create a mining or other partnership, joint venture, association or trust, or as authorizing any Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries except as expressly provided in this Agreement. 14.2 Tax Operator shall provide each Party, in a timely manner and at such Party's sole expense, with such information with respect to Joint Operations as such party may reasonably request for preparation of its tax returns or responding to any audit or other tax proceeding. West Gharib JOA 20-F -52- ARTICLE XV CONFEDENTIAL INFORMATION -PROPRIETARY TECHNOLOGY 15.1 Confidential Information A) Subject to the provisions of the Concession, the Parties agree that all information and data acquired or obtained by any Party in respect of Joint Operations shall be considered confidential and shall be kept confidential and not be disclosed during the terms of the Concession and for a period of two (2) years after expiration of the Concession to any person or entity not a Party to this Agreement, except: 1) To an Affiliate, provided such Affiliate maintains confidentiality as provided in this Article; 2) To a governmental agency or other entity when required by the Concession; 3) To the extent such data and information is required to be furnished in compliance with any applicable laws or regulations, or pursuant to any legal proceedings or because of any order of any court binding upon a Party; 4) Subject to Article 15.1(B), to potential contractors, contractors, consultants and attorneys employed by any Party where disclosure of such data or information is essential to such contractor's, consultant's or attorney's work; 5) Subject to Article 15.1(B), to a bona fide prospective transferee of a Party's Participating Interest (including an entity with whom a Party or its Affiliates is conducting bona fide negotiations directed toward a merger, consolidation or the sale of a majority of its or an Affiliate's shares); 6) Subject to Article 15.1(B), to a bank or other financial institution to the extent appropriate to a Party arranging for funding for its obligations under this Agreement; 7) To the extent such data and information must be disclosed pursuant to any rules or requirements of any government or stock exchange having jurisdiction over such Party, or its Affiliates; provided that if any Party desires to disclose information in an annual or periodic report to its or its Affiliates' shareholders and to the public and such disclosure is not required pursuant to any rules or requirements of any government or stock exchange, then such Party shall comply with Article 20.2; 8) To its respective employees for the purposes of Joint Operations, subject to each Party taking customary precautions to ensure such data and information is kept confidential; and 9) Where any data or information which, through no fault of a Party, becomes a part of the public domain. 8) Disclosure as pursuant to Article 15. 1 (A)(4), (5), and (6) shall not be made unless prior to such disclosure the disclosing Party has obtained a written undertaking from the recipient party to keep the data and information strictly confidential and not to use or disclose the data and information except for the express purpose for which disclosure is to be made. West Gharib JOA 20-F -53- 15.2 Continuing Obligations Any party ceasing to own a Participating Interest during the term of this Agreement shall nonetheless remain bound the obligations of confidentiality and any disputes shall be resolved in accordance with Article III. 15.3 Proprietary Technology Nothing in this Agreement shal1 require a Party to divulge proprietary technology to the other Parties; provided that where the cost of development of proprietary technology has been charged to the Joint Account, such proprietary technology shall be disclosed to all Parties bearing a portion of such cost and may be used by such Party or its Affiliates in other operations. 15.4 Trades Notwithstanding the foregoing provisions of this Article, Operator may, with prior approval of the Operating Committee, make well trades and data trades for the benefit of the Parties, with any data, the cost of which has been charged to the Joint Account, so obtained to be furnished to all Parties. Operator shall obtain an undertaking from the third party receiving such information to keep such information confidential. West Gharib JOA 20-F -54- ARTICLE XVI FORCE MAJEURE 16.1 Obligations If as a result of Force Majeure any party is rendered unable, wholly or in part, to carry out its obligations under this Agreement, other than the obligation to pay any amounts due or to furnish security, then the obligations of the party giving such notice, so far as and to the extent that the obligations are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused, but for no longer period. The party claiming Force Majeure shall notify the other Parties of the Force Majeure situation within a reasonable time after the occurrence of the facts relied on and shall keep all Parties informed of all significant developments. Such notice shall give reasonably full particulars of said Force Majeure, and also estimate the period of time which said Party will probably require to remedy the Force Majeure. The affected Party shall use all reasonable diligence to remove or overcome the Force Majeure situation as quickly as possible in an economic manner, but shall not be obligated to settle any labor dispute except on terms acceptable to it and all such disputes shall be handled within the sole discretion of the affected Party. 16.2 Definition of Force Majeure For the purposes of this Agreement, "Force Majeure" shall have the meaning as set forth in Article XXIIl (b) of the Concession. West Gharib JOA 20-F -55- ARTICLE XVII NOTICES 17.1 Notices Except as otherwise specifically provided, all notices authorized or required between the Parties by any of the provisions of this Agreement, shall be in writing, in English and delivered in person or by registered mail or by courier service or by any electronic means of transmitting written communications which provides confirmation of complete transmission, and addressed to such Parties as designated below. The originating notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. The second or any responsive notice shall be deemed delivered when received. "Received" for purposes of this Article with respect to written notice delivered pursuant to this Agreement shall be actual delivery of the notice to the address of the Party to be notified specified in accordance with this Article. Each Party shall have the right to change its address at any time and/or designate that copies of all such notices be directed to another person at another address, by giving written notice thereof to all other Parties. In the case of a notice to Dublin at: Dublin International Petroleum (Egypt) Limited #52 Youssif Abbass Street Nasr City, Cairo Telephone: (202) 405-0002 Facsimile: (202) 405-0003 With a copy to: Tanganyika Oil Company Ltd. 802- 1015- 4th Street S. W. Calgary , Alberta, Canada T2R IJ4 Telephone: (403) 234-8199 Facsimile: (403) 234-8140 In the case of a notice to GHP at: GHP Exploration (West Gharib) Ltd. 1900 W. Loop South, Suite 900 Houston, Texas U.S.A .77027 Attention: Mr. Barry Lasker Telephone: (713) 626-9373 West Gharib JOA 20-F - 56- Facsimile: (713) 626-9374 In the case of notice to Drucker: Drucker Petroleum Inc. #830, 789 West Fender Street Vancouver, British Columbia V6C IH2 Telephone: (604) 689-4407 Facsimile: (604) 689-7654 West Gharib JOA 20-F -57- ARTICLE XVIII APPLICABLE LAW AND DISPUTE RESOLUTION 18.1 Applicable Law This Agreement shall be governed by, construed, interpreted and applied in accordance with the laws of Alberta, Canada, excluding any choice of law rules which would refer the matter to the laws of another jurisdiction. 18.2 Dispute Resolution A) Any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement or the operations carried out under this Agreement, including without limitation any dispute as to the construction validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such a dispute, controversy or claim to arbitration. B) The arbitration shall be heard and determined by three (3) arbitrators. All decisions and awards by the arbitration tribunal shall be made by majority vote. C) Unless otherwise expressly agreed in writing by the Parties to the arbitration proceedings: 1) The arbitration proceedings shall be held in Calgary, Alberta; 2) The arbitration proceedings shall be conducted in the English language and the arbitrators shall be fluent in the English language; 3) The arbitrators shall be and remain at all times wholly independent and impartial; 4) The arbitration proceedings shall be conducted in accordance with the UNCITRAL Model Law on International Commercial Arbitration, in effect upon commencement of arbitration; 5) Any procedural issues not determined under the arbitral rules selected pursuant to Article 18.2(C)(4) shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; 6) The costs of the arbitration proceedings (including legal fees and costs) shall be borne in the manner determined by the arbitrators; 7) The decision of the majority of the arbitrators, shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accountings presented to the arbitrator; made and promptly paid in U.S. dollars free of any deduction or setoff (except if the Party is a Defaulting Party under Article VIII) and any costs or fees incident to enforcing the award, shall to the maximum extent permitted by law, be charged against the Party resisting such enforcement; 8) Consequential, punitive or other similar damages shall not be allowed; 9) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at the Agreed Interest Rate; and West Gharib JOA 20-F -58- 10) Judgement upon the award may be entered in any court having jurisdiction over the person or the assets of the party. Application may also be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. West Gharib JOA 20-F -59- ARTICLE XIX ALLOCATION OF COST RECOVERY RIGHTS 19.1 Allocation of Total Production For the purposes of recovery of Petroleum Costs, the total quantity of Hydrocarbons which are produced and saved from all Development Leases in a Calendar Quarter and to which the Parties are entitled under the Concession shall be designated as either Cost Oil or Production Sharing Oil. 19.2 Allocation of Cost Oil Subject to each of the Farmout Agreements and Article 19.4, Cost Oil shall be allocated in accordance with the Parties' respective Participating Interests. The allocation of Cost Oil shall be as required to recover, in the sequence incurred, all Petroleum Costs and which are recoverable in such Calendar Quarter. 19.3 Allocation of Production Sharing Oil Production Sharing Oil shall be allocated among the Parties in proportion to their respective Participating Interests. 19.4 Exclusive Operations and Extensions of the Exploration Period Prior to the extension of the term of the Exploration Period or and Exploration Sub-Period by less than all Parties or, where practicable, prior to the conduct of an Exclusive Operation (or if not, as soon thereafter as is practicable), the Parties shall meet to determine: A) the allocation of Cost Oil and Production Sharing Oil between and Development Leases in which the Parties have different Participating Interests; B) the allocation of Cost Oil and Production Sharing Oil between the Parties where Petroleum Costs have been incurred but do not relate to Joint Operations resulting in the creation of a Development Lease but which become recoverable as a result of production from another Development Lease elsewhere in the Concession Area, provided always that Petroleum Costs in relation to a Development Lease shall be recovered first; C) without prejudice to Article 7.9, the manner in which the bonuses contemplated in Article IX of the Concession will be discharged; and D) such other matters as the Parties may agree. West Gharib JOA 20-F -60- ARTICLE XX GENERAL PROVISIONS 20.1 Warranties as to no Payments, Gifts and Loans Each of the Parties warrants that neither it nor its affiliates has made or will make, with respect to the matters provided for hereunder, any offer, payment, promise to pay or authorization of the payment of any money, or any offer, gift, promise to give or authorization of the giving of anything of value, directly or indirectly, to or for the use or benefit of any official or employee of the Government or EGPC or to or for the use or benefit of any political party, official, or candidate for the purpose of influencing an official act or decision of that person; inducing that person to do or omit to do any act in violation of his or her lawful duty; or inducing that person to use his or her influence with the Government or EGPC to affect or influence any Government or EGPC decision; unless such offer, payment, gift, promise or authorization is authorized by the written laws or regulations of the Arab Republic of Egypt. Each of the Parties further warrants that neither it nor its affiliates has made or will make any such offer, payment, gift, promise or authorization to or for the use or benefit of any other person if the Party knows, has a firm belief, or is aware that there is a high probability that the other person would use such offer, payment, gift, promise or authorization for any of the purposes described in the preceding sentence. The foregoing warranties do not apply to any facilitating or expediting payment to secure the performance of routine Government action. Routine Government action, for purposes of this Article 20.1, shall not include, among other things, Government action regarding the terms, award or continuation of the Concession. Each Party shall respond promptly, and in reasonable detail, to any notice from any other Party or its auditors pertaining to the above stated warranty and representation and shall furnish documentary support for such response upon request from such other Party. 20.2 Conflicts of lnterest A) Each Party undertakes that it shall avoid any conflict of interest between its own interests (including the interests of Affiliates) and the interests of the other Parties in dealing with suppliers, customers and all other organizations or individuals doing or seeking to do business with the Parties in connection with activities contemplated under this Agreement. B) The provisions of the preceding paragraph shall not apply to: 1) A Party's performance which is in accordance with the local preference laws or policies of the Government; or 2) A Party's acquisition of products or services from an Affiliate, or the sale thereof to an Affiliate, made in accordance with rules and procedures established by the Operating Committee. 20.3 Public Announcements A) Operator shall be responsible for the preparation and release of all public announcements and statements regarding this Agreement and the Joint Operations; provided that, no public announcement or statement shall be issued or made unless prior to its release all the Parties have been furnished with a copy of such statement or announcement and two (2) or more Parties holding more than fifty percent (50%) of the Participating Interests have approved the same. Where a public announcement or statement becomes necessary or desirable because of danger to or loss of life, damage to property or pollution as a West Gharib JOA 20-F -61- result of activities arising under this Agreement, Operator is authorized to issue and make such announcement or statement without prior approval of the Parties, but shall promptly furnish all the Parties with a copy of such announcement or statement. B) If a Party wishes to issue or make any public announcement or statement regarding this Agreement or the Joint Operations, it shall not do so unless prior to its release, such Party furnishes all the Parties with a copy of such announcement or statement, and obtains the approval of the Parties holding fifty percent (50%) or more of the Participating Interests; provided that, notwithstanding any failure to obtain such approval, no party shall be prohibited from issuing or making any such public announcement or statement if it is necessary to do so in order to comply with the applicable laws, rules or regulations of any government, legal proceedings or stock exchange having jurisdiction over such Party as set forth in Articles 15.1(A)(3) and (7). 20.4 Successors and Assigns Subject to the limitations on transfer contained in Article XII, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Parties. 20.5 Waiver No waiver by any Party of anyone or more defaults by another party in the performance of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same Party, whether of a like or of a different character. Except as expressly provided in this Agreement no party shall be deemed to have waived, released or modified any of its rights under this Agreement unless such Party has expressly stated, in writing, that it does waive, release or modify such right. 20.6 Severance of Invalid Provisions If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement. 20.7 Modifications Except as is provided in Article 20.6, there shall be no modification of this Agreement except by written consent of all Parties. 20.8 Headings The topical headings used in this Agreement are for convenience only and shall not be construed as having any substantive significance or as indicating that all of the provisions of this Agreement relating to any topic are to be bound in any particular Article. 20.9 Singular and Plural Reference to the singular includes a reference to the plural and vice versa. 20.10 Gender Reference to any gender includes a reference to all other genders. West Gharib JOA 20-F -62- 20.11 Counterpart Execution This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes; provided no party shall be bound to this Agreement unless and until all Parties have executed a counterpart. For purposes of assembling all counterparts into one document, Operator is authorized to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart. 20.12 Entirety and Conflict This Agreement constitutes the entire agreement of the Parties and supersedes all prior understandings and negotiations of the Parties, with the exception of Article 2 of the GHP Farmout Agreement and Article 2 of the Drucker Farmout Agreement. In the event of a conflict between Article 2 of the GHP Farmout Agreement and this Agreement, as between GHP and Dublin, the terms of Article 2 of the GHP Farmout Agreement shall govern to the extent of the conflict. In the event of a conflict between Article 2 of the Drucker Farmout Agreement and this Agreement, as between Drucker and Dublin, the terms of Article 2 of the Drucker Farmout Agreement shall govern to the extent of the conflict. IN WITNESS of their agreement each Party has caused its duly authorized representative to sign this instrument on the date indicated below such representative's signature. DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED BY: ------------------------------ TITLE: ---------------------------- DATE: ----------------------------- GHP EXPLORATION (WEST GHARIB) LTD. BY: ------------------------------ TITLE: ---------------------------- DATE: ----------------------------- DRUCKER PETROLEUM INC. BY: ------------------------------ TITLE: ---------------------------- DATE: ----------------------------- West Gharib JOA 20-F EX-3.20 32 a2026270zex-3_20.txt EXHIBIT 3.20 Petroleum Handling And Sale Agreement By and Between General Petroleum Company and Dara Petroleum Company Page 1 of 11 Petr. Handling Agr. GPC/Dara 20 F Table of Contents Preamble Article (l): Definitions and scope Article (2): Delivery and Receipt Arrangements, Quantities and Operational Emergencies. Article (3): Delivery Standards, Quality and Measurement Article (4): Effective Date and Term Article (5): Tariff Article (6): Liabilities Article (7): Warranties Article (8): Settlement of Disputes by Arbitration Article (9): Applicable Law Article(10): Assignment Article (11): Payments Article (12): Final Provisions, Headings and Force Majeure Article (13): Notices
Appendix A: Description of Facilities Appendix B: Quantity of Unprocessed Crude Oil Page 2 of 11 Petr. Handling Agr. GPC/Dara 20 F PETROLEUM HANDLING AND SALE AGREEMENT This Agreement was made and entered as of 301 12/1999 by and between: The General Petroleum Company herein referred to as "COMPANY", a company organized and existing under the laws of the Government of the Arab Republic of Egypt. Legally represented by Engineer / Hassan Rizk - Chairman of the Board And Dara Petroleum Company, an operating company organized and existing under the laws of the Arab Republic of Egypt, herein referred to as "Petro Dara" Legally represented by Mr./Mamdouh Nagati - General Manager and Eng./ Essam A. Moniem Chairman of the Board & MD PREAMBLE Whereas "Petro Dara" is in need of handling its crude oil produced from the Hana oilfield, West Gharib Area to the "COMPANY" which owns and operates facilities for processing, storing ,handling and exporting Crude Oil at Ras Gharib and Ras Bakr in the Arab Republic of Egypt and whereas Petro Dara desires to utilize the "COMPANY" Facilities for handling Crude Oil produced and saved from the Hana Field subject to the conditions specified herein. WHEREAS COMPANY agrees to allow Petro Dara to utilize the COMPANY Facilities in accordance with the terms and conditions of this Agreement, and whereas Petro Dara desire to sell all of its Crude Oil to the "COMPANY" and the "COMPANY" as the purchaser of such Crude Oil, agrees to purchase all the Crude Oil from Petro Dara. NOW THEREFORE, in consideration of the premises and mutual understanding set out herein, COMPANY and Petro Dara hereby agree as follows: ARTICLE (1): DEFINITIONS AND SCOPE In addition to terms defined parenthetically herein and unless the context requires otherwise, capitalized terms shall have the definitions attributed thereto in the Concession Agreement: "Affiliated Company" means a company its share capital conferring a majority of votes at stockholders' meetings of such company, of which is owned directly or indirectly by a party hereto; which is the owner directly or indirectly of share capital conferring a majority of votes at stockholders' meetings of a party hereto; or whose share capital conferring a majority of votes at stockholders' meetings of such company and the share capital conferring of majority of votes at stockholders' meetings of a party hereto are owned directly or indirectly by the same company. "Barrel" means forty-two (42) United States gallons corrected to a temperature of 60 of 14.65 PSIA "Concession Agreement" means West Gharib Concession Agreement issued by Law No. 15 of 1998 between Dublin International Petroleum Limited (Dublin), EGPC and Government of Egypt. Page 3 of 11 Petr. Handling Agr. GPC/Dara 20 F "Crude Oil" means crude oil produced from the Hana Field and delivered by Petro Dara to the COMPANY at the Receiving Point either as Net Processed Crude Oil or Unprocessed Crude Oil. "Day" means a period beginning at zero six hundred hours (0600) and ending twenty-four (24) hours later at zero six hundred hours (0600), local time at the Gulf of Suez. "Receiving Point" means that point or points at which the quantity of the crude oil measured and delivered to the COMPANY at Ras Bakr No. 1 Station (Bakr South) either via pipeline or by Oil trucks "Facilities" means the Facilities as described in Appendix "A" of this Agreement. "COMPANY Facilities" means the Facilities owned and operated by COMPANY which is necessary for the execution of this agreement. "Hana Facilities" means the Facilities, operated by Petro Dara. "Month" means a Gregorian Calendar Month. "Net Processed Crude Oil" means that quantity of Processed Crude Oil determined after the adjustments contemplated in Article 3. "Net Unprocessed Crude Oil" means that quantity of Unprocessed Crude Oil determined after the adjustments contemplated in Article 3. "Pipeline Specifications" means minimum crude oil quality specifications for the acceptance of Processed Crude Oil; as set out in this Agreement. "Processed Crude Oil" means crude oil which has been processed at the Hana Facilities for the removal of water, bottom sediments and salt in accordance with Pipeline Specifications as set out herein, and delivered to the COMPANY at the Receiving Point. "EGPC" means Egyptian General Petroleum Corporation. "Gharib Blend" means processed Crude Oil which has the following specifications API 22(DEG.), Sulphur 3.5% by weight. "Delivery Month" means the Gregorian Calendar Moth during which quantity of either Processed or Unprocessed Crude Oil was delivered by Petro Dara to the COMPANY. Petro Dara, in consultation with COMPANY, shall be responsible for the design, construction and commissioning of the pipeline at its own cost to be constructed between the Hana Facilities and the Receiving Point at the COMPANY Bakr No.1 Station" Petro Dara shall have full exclusive use and enjoyment of the Pipeline for transportation of crude oil produced and saved in accordance with the Concession agreement Petro Dara shall have the right to use COMPANY roads to transport crude oil by trucks to Bakr No.1 Station Page 4 of 11 Petr. Handling Agr. GPC/Dara 20 F Petro Dara, at its sole election, may deliver Crude Oil either as Processed Crude Oil or as Unprocessed Crude Oil to COMPANY at the Receiving Point and receive payment and be subject to tariff charges accordingly as set out in this Agreement. ARTICLE (2) DELIVERY AND RECEIPT ARRANGEMENTS, QUANTITIES AND OPERATIONAL EMERGENCIES Subject to the terms and conditions of this Agreement, Petro Dara shall deliver Crude Oil produced and saved from the Hana Field to COMPANY. COMPANY shall accept all such quantities of delivered Crude Oil. COMPANY shall accept all quantities of, Crude Oil delivered by Petro Dara at the Receiving Point. Notwithstanding the above, in case of 10, capacity limitations in COMPANY's Facilities due to operational emergencies, COMPANY may reduce the quantity of delivered Crude Oil pro rata with all other production from oil fields using Bakr No.1 Station and shall, as soon as possible, remedy or remove the, operational emergency and resume receipt of all Crude Oil. In cases of operational emergencies, COMPANY shall give immediate notice 401 thereof to Petro Dara's designated Representatives. COMPANY will subsequently confirm the nature of the operational emergency in writing. COMPANY, in its capacity as the purchaser of Crude Oil, has agreed that EGPC and Dublin's Crude Oil shall be sold, transferred and assigned to COMPANY at the Receiving Point, subject to payment by COMPANY of the purchase price in accordance with the provisions of Article 11.3 hereof. Petro Dara shall have the right to audit the books and records of the COMPANY with respect to volumes of Crude Oil sold by COMPANY and prices received for said deliveries either for export or for selling locally. ARTICLE (3) DELIVERY STANDARDS, QUALITY AND MEASUREMENT Quality specifications of Crude Oil delivered by Petro Dara and accepted by COMPANY at Receiving Point is stipulated as follows: Minimum API 22(DEG.) at 60(DEG.) F Maximum Sulfur Content 3% by weight Maximum Viscosity 20 CP at 70(DEG.) F Maximum W.C 10% By In the event that the monthly average quality deviates from the aforementioned specifications in any given month, then Petro Dara and COMPANY will consult to establish a mutually acceptable basis for handling such Crude Oil. Page 5 of 11 Petr. Handling Agr. GPC/Dara 20 F The quantity of Unprocessed Crude Oil delivered and accepted at the Receiving Point shall be adjusted in volume to 15(DEG.) C, in accordance with ASTM-IP P.M.T (ASTM D-1250) or designation IP 200, table 54 (unabridged) or latest revision thereof. All measurements will be carried out in calibrated tanks in accordance with the procedures adopted by industry standards for measurements carried out in oilfields and which procedures are more fully described in Appendix B. COMPANY's staff will make all calculations and copies thereof will be furnished to Petro Dara. A representative of Petro Dara may witness and check such calibrations and measurements. COMPANY will provide Petro Dara with twenty-four (24) hours advance notice of said calibrations. The quality of Unprocessed Crude Oil will be determined in COMPANY's chemical laboratories from samples withdrawn from Unprocessed Crude Oil at the Receiving Point in accordance with standard procedures. The samples shall be tested to determine the quality of Unprocessed Crude Oil delivered as well as the quantities of water and sediments. Representatives of Petro Dara shall have the right to witness these procedures. The characteristics that will be determined and advised to Petro Dara are: API gravity degree at 60(DEG.) F Sulphur content as a percent of Wt. Viscosity CP at 70(DEG.) F - -Water content and sediments The quantity of Net Unprocessed Crude Oil will be calculated by deducting the following from the quantity of Unprocessed Crude Oil delivered by Petro Dara and accepted by COMPANY at the Receiving Point: 3-1. Bottom sediments and water (BS&W) determined in accordance with Appendix B of this agreement. 3-2a Temperature calibration and volume adjustment at 15(DEG.) C for, Petro Dara crude, similar to what is applied to West Bakr, Assran, GPC Bakr and North area Crude Oil at the Receiving Point. 3-2b The actual production loss due to the measurements at the dedicated tanks in shipping terminal shall be accounted for at the end of every month according to the measurements at the dedicated tanks and the loading quantity. The losses will be distributed to the Ras Gharib crude oil partners according to their delivered quantities proportionally to COMPANY and Petro Dara representative will be allowed to check these measurements or run separate measurements independently. In the case that more quantities of oil were measured at the terminal tanks than what was measured at the dedicated tanks. These incremental quantity shall be divided between the partners according to their delivered quantities proportionally to the COMPANY. 3.3 The quality specification of Processed Crude Oil delivered by Petro Dara and accepted by COMPANY at Receiving Point shall conform to the Pipeline Specifications, stipulated as follows: Maximum BS& W 0.25% (volume) Maximum Salt Content 0.007% (weight) The quantity of Processed Crude Oil delivered by Petro Dara and accepted by COMPANY at the Receiving Point will be adjusted for volume in the same manner as set out in Article 3.1 b. Page 6 of 11 Petr. Handling Agr. GPC/Dara 20 F The quality of Processed Crude Oil delivered by Petro Dara and accepted by, COMPANY at the Receiving Point will be determined in the same manner set out in Article 3.1 ARTICLE (4) EFFECTIVE DATE AND TERM 4.1 This Agreement shall become effective ("Effective Date") on the date that this Agreement is executed by all parties hereto (the date of receiving the first quantity from Hana crude oil. This Agreement shall expire at the date when Petro Dara's production rights under the Concession Agreement issued as law No. 15 of 1998 have expired or GPC concession right in this area expiration which ever is earlier. 4.2 Petro Dara or COMPANY, however, may terminate this Agreement upon giving two (2) Months prior written notice to the other party. It is understood that such termination notice shall not be, given during the first ninety (90) days after the Effective Date. ARTICLE (5) TARIFF 5-1 UNDROCESSED OIL Subject to the provisions as set forth in this Article, Petro Dara shall pay to the (COMPANY the following tariff per Barrel of Unprocessed Crude Oil delivered to COMPANY at the Receiving 11 Point for all services rendered to Petro Dara under the terms of this Agreement: US $1.20 per Barrel for the first 3,000 Barrels per day. US $1.10 per Barrel for the quantity above 3,000 up to 6,000 Barrels per day. US $1.00 per Barrel for the quantity above 6,000 up to 10,000 Barrels per day. US$0.80 per Barrel for the quantity above 10,000 Barrels per day. 5.2 PROCESSED OIL: Subject to the provisions as set forth in this article, Petro Dara shall pay to the COMPANY the following tariff per Barrel of Net Processed Crude Oil delivered to COMPANY at the Receiving Point for all services rendered to Petro Dara under the terms of this Agreement: US $ 0.49 per Barrel. 5.3 The Tariff will be revised every two years from the Effective Date subject to the both parties agreeing. The minimum Tariff payment is based on a minimum production of 500 B/D (1.2 x 500 = 600 U.S $1/Day) except for Force Majeure or Crude Oil reduction by instructions from EGPC during the first year of this Agreement Minimum Tariff shall increase to 1000 B/D in subsequent years (1.2 x 1000 = 1200 US D $/day) except for Force Majeure or Crude Oil reduction by instructions from EGPC . At the end of each Delivery Month COMPANY shall submit to Petro Dara, Tariff invoice and Petro Dara shall pay during 30 days from receiving the invoice. Page 7 of 11 Petr. Handling Agr. GPC/Dara 20 F The services given by COMPANY against such invoice shall include receiving Hana crude oil in the Receiving Tanks, Crude oil analysis processing, pumping, and storing of Petro Dara's Net Unprocessed Crude Oil and Net Processed Crude Oil in the COMPANY Facilities, disposal of waste products and loading such Crude Oil from COMPANY Facilities for export from Ras Gharib terminal. Well Sample to be analyzed at Petro Dara's cost. 5-4 In the event that Petro Dara's deliveries of Crude Oil have to be reduced due to Force Majeure or operational difficulties and/or emergencies, then in respect of the period in which deliveries of Crude Oil are so reduced: Petro Dara shall pay only the tariff per Barrel applicable under Articles 5.1 and 5.2 on actual deliveries. 5-5 Force Majeure shall not include production fluctuation of the wells or mechanical failure of Petro Dara's equipment unless such mechanical failure is due to Force Majeure. 5-6 It is acknowledged that the COMPANY operates a fuel gas pipeline in the vicinity of the Hana Field. COMPANY agrees that Petro Dara has the right to connect to this line and shall have access to fuel gas for processing Hana Field crude oil production and Petro Dara shall pay for the used gas at the formal prevailing price. 5-7 It is acknowledged that COMPANY operates a water supply line in the vicinity of the Hana Field. COMPANY agrees that Petro Dara has the right to connect to this line and shall have access to water for use at the Hana Facilities, Petro Dara shall pay for the used water price at the formal prevailing price. ARTICLE (6) LIABILITIES 6-l Upon delivery of Petro Dara's Crude oil into COMPANY's custody at the Receiving Point, COMPANY shall exercise due care in handling such Crude Oil in accordance with the terms and conditions of this Agreement. Petro Dara shall have the right independently to inspect the COMPANY Facilities. 6-2 Petro Dara shall not be liable for any death or injury of COMPANY's employees nor for any damage to or loss of COMPANY's property except to the extent such injury, loss or damage is caused by gross negligence or willful misconduct of Petro Dara's own employees, their contractors or contractors' employees. 6-3 COMPANY shall not be liable for death or injury of Petro Dara's employees nor for any damage to or loss of EGPC and Petro Dara's properties and any loss of EGPC and Petro Dara's Crude Oil prior to the Receiving Point, except to the extent such damage, loss or injury is caused by gross negligence or willful misconduct of COMPANY, its employees, contractors or contractors' employees. Page 8 of 11 Petr. Handling Agr. GPC/Dara 20 F 6-4 Not withstanding Article 3.2 b, after the delivery at the Receiving Point, Petro Dara shall bear no liability or responsibility for any damage or spillage or loss of Crude Oil in the COMPANY Facilities and any such damage or spillage or loss shall not release COMPANY from its obligation to pay Petro Dara for its share of Crude Oil delivered hereunder except for the Force Majeure. ARTICLE (7) WARRANTIES Petro Dara hereby warrants that it is or will be entitled to a share of Crude Oil delivered at the Receiving Point according to the Concession Agreement, and further warrants that its share is free from all liens, claims, taxes, assessments and encumbrances of any kind and nature and agrees to indemnify COMPANY against all suits, judgements, actions, debts, accounts, damages, costs, losses and expenses arising from or out of any r adverse legal claims of any and all persons to or against any such Crude Oil. Petro Dara shall, within a reasonable time after receiving notice of the assertion of any such lien or adverse claim, notify COMPANY of such fact and shall permit COMPANY to participate in the defense against lien or adverse claim if COMPANY wishes to do so. ARTICLE (8) SETTLEMENT OF DISPUTES BY ARBITRATION Any dispute, controversy or claim arising out of or relating to this Agreement, or breach, termination or invalidity there of between parties shall be settled by Arbitration in accordance with Arbitration Rules of the Regional Center for commercial Arbitration -Cairo ("the Center") in effect on the date of this Agreement. The award of the Arbitrators shall be final, binding on the parties and subject to no appeal. The Arbitration tribunal shall be composed of three arbitrators. Each party shall appoint one arbitrator. If, within thirty days after receipt of the Claimant's notification of the appointment of an arbitrator, the respondent has not notified the Claimant in writing of the name of the arbitrator, he appoints, the Claimant may request "The Center" to appoint the second arbitrator. The two arbitrators thus appointed shall choose the third arbitrator who will act as the Presiding Arbitrator of the tribunal. If within thirty days after the appointment of the Presiding Arbitrator, then either party may request the Secretary General of Permanent Court of Arbitration at the Hague to appoint the Presiding Arbitrator in the same way as a Sole Arbitrator would be appointed under article 6.3 of the UNCITRAL. Arbitration Rules. The Presiding Arbitrator shall be a person of a nationality other than A.R.E. or... and of a country which has a diplomatic relations with both A.R.E and Canada Page 9 of 11 Petr. Handling Agr. GPC/Dara 20 F The arbitration proceedings including the making of the award shall take place in Cairo. The provisions of this agreement relating to arbitration shall continue in force not withstanding the termination of this agreement. The award rendered may be entered in any court having jurisdiction and application may be made in such court for a judicial acceptance of the award or an order of enforcement, as the case may be. ARTICLE (9) APPLICABLE LAW 9-1 The laws of the Arab Republic of Egypt will be applied in interpreting this agreement and in resolving any dispute arising hereunder. The formal language for this contract is Arabic. ARTICLE (10) ASSIGNMENT Any party shall have the right to assign its rights and obligations under this Agreement whether in part or in whole to its Affiliated Companies provided that a written notice will be given to the other party ARTICLE (11) PAYMENTS 11-1 All tariff payments under this Agreement shall be paid in U.S. Dollars within thirty (30) days after receipt of billing on the account indicated on the bill. 11-2 In the event Petro Dara has reasonable objections to any item or items of the tariff bill, it may withhold fifty (50) percent of the disputed part of the bill until a settlement is reached. 11-3 COMPANY shall pay the price of the net Crude Oil which delivered from Petro Dara within (30) days after receiving the invoice from Petro Dara according to the EGPC instructions to the COMPANY. 11-4 The price shall be paid in U.S $ Dollars to Petro Dara bank account. In the event of payments delay for any reason either for Tariff payment or Crude Oil price the delayed party shall pay delay penalty equals to LIBOR rate plus 2%. ARTICLE (12) FINAL PROVISIONS, HEADINGS AND FORCE MAJEURE The Article headings of this Agreement: are for convenience only and are not to be taken into consideration in interpreting the terms and conditions hereof. No party shall be deemed to be in default of its contractual obligations to the extent that performance thereof is prevented by Force Majeure. Force Majeure are contingencies caused by none of the parties which are unforeseeable at the time of signature, uncontrollable by the parties and which render the performance of the contractual obligations impossible as, for instance, Acts of God, Acts of War, blockage, revolution and strike. ARTICLE (13) NOTICES All notices, including invoices and other communications, required or permitted to be given under this Agreement, shall be in writing in the English and Arabic languages and shall be sufficiently given if delivered, sent by hand or registered mail or by prepaid telegraph, telex, cable or radiogram to COMPANY at the following address; GENERAL PETROLEUM COMPANY 8, Dr, Mustafa Abou Zahra -Nasr City- Cairo, A.R.E. Attention- Chairman of the Board Page 10 of 11 Petr. Handling Agr. GPC/Dara 20 F DARA PETROLEUM COMPANY 5 Ramsis Street Heliopolis -Cairo A.R.E Attention: Chairman of the Board & General Manager Notices, including invoices and other communications shall be deemed to have been given when received, whether delivered, by hand mailed, by registered mail or couriers. A party may change its address for the purposes set forth in Article 13.1 by giving seven (7) days prior written notice to the other party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. GENRAL PETROLEUM COMPANY By: Name: Eng./ Hassan Rizk Chairman of the Board DARA PETROLEUM COMPANY By: Name: Geol./ Mamdouh Nagati General Manager and M.D Name: Eng Essam A.Moniem Chairman of the Board and MD Page 11 of 11 Petr. Handling Agr. GPC/Dara 20 F EX-3.21 33 a2026270zex-3_21.txt EXHIBIT 3.21 TRANSATLANTIC PETROLEUM (USA) CORP. - ------------------------------------------------------------------------------- 1900 West Loop South, Suite 900 Houston TX 77027 USA Telephone 713 626-9373 Facsimile 713 626-9374 August 24, 2000 Global Marine Inc. 777 N. Eldridge Parkway Houston, TX 77079-4493 Attention: Matt Rawls Senior Vice President, Chief Financial Officer and Treasurer RE: Settlement of Outstanding Indebtedness on Promissory Note from Tarpon-Benin S.A. to Global Marine Integrated Services - International Inc. dated March 31, 1998 in the original principal amount of $3,071,059.85 (the "Tarpon Note") Gentlemen: For settlement purposes only, TransAtlantic Petroleum Corp. hereby sets out a proposal to satisfy the outstanding indebtedness on the Tarpon Note. BACKGROUND Tarpon-Benin S. A. ("Tarpon") engaged Global Marine Integrated Services - -International Inc., a wholly owned subsidiary of Global Marine Inc., to provide certain drilling services. Global Marine Inc., Global Marine Integrated Services - International Inc. and all of the other subsidiaries of Global Marine Inc. are hereinafter referred to as "Global". When Tarpon was unable to pay for all of the services rendered, the parties agreed to a payout of Tarpon's obligations to Global pursuant to the Tarpon Note. The indirect majority owner of Tarpon, Profco Resources Ltd., now TransAtlantic Petroleum Corp. ("TransAtlantic"), guaranteed the Tarpon Note (the "Guarantee"). Although some payments have been made against the Tarpon Note, Tarpon failed to pay the Tarpon Note in accordance with the terms of the Tarpon Note; accordingly, the Tarpon Note is now in default. As of December 31, 1999, the amount due on the Tarpon Note equaled $2,908,813. This amount together with accrued interest (at the rate set forth in the Tarpon Note) to the Expiration Date (defined below) is hereafter referred to as the "Note Amount". Proposal to Global Marine 8/24/00 PROPOSAL To satisfy the Tarpon Note, TransAtlantic proposes the following: 1. In full satisfaction of the Tarpon Note, Global will accept the sum of $1.5 million dollars payable in cash (the "Settlement Amount"), on the terms and conditions set forth below. 2. TransAtlantic shall have ninety (90) days from the date of acceptance of this proposal by Global to pay the Settlement Amount to Global. 3. In the event TransAtlantic has not paid the Settlement Amount to Global within ninety (90) days from the date of acceptance of this proposal by Global (the "Expiration Date"), the parties agree that the Tarpon Note shall be automatically converted into long term debt payable in accordance with the following terms: A. A "Convertible Debenture" of TransAtlantic shall evidence the debt. The amount of Convertible Debenture shall equal the Note Amount; B. Upon acceptance of this proposal by Global, TransAtlantic will seek the approval of the Toronto Stock Exchange ("TSE") of the terms of the Convertible Debenture. The issuance of the Convertible Debenture is subject to approval by the TSE. In its application to the TSE, TransAtlantic will seek to have the hold period (anticipated to be 4 to 6 months) for the shares issuable upon conversion commence on the Expiration Date such that if TransAtlantic defaults after the hold period and Global exercises its right of conversion, the common shares issued would be freely tradable in Canada upon issuance. C. Interest shall accrue at 12% per annum on the Convertible Debenture commencing as of the Expiration Date. D. A monthly installment of $75,000 per month shall be paid until the Convertible Debenture is fully paid, to be applied first to accrued interest and then to principal. The monthly installment shall be payable on the last day of each month with the first payment due the last day of the month in which the Expiration Date occurs. E. The Convertible Debenture shall provide that in the event TransAtlantic defaults under the terms of the Convertible Debenture, that is, it fails to timely pay any installment, or is otherwise in material default (i.e., any payment default), Global shall have the option, in its sole discretion, to elect to convert the outstanding indebtedness as of the date of default into shares of common stock of TransAtlantic. The FOR SETTLEMENT PURPOSES ONLY PAGE 2 OF 5 Proposal to Global Marine 8/24/00 price per share for the conversion shall be at a discount of 15% to the average closing price for TransAtlantic common shares for the ten (10) days prior to the date of default. This remedy shall be in addition to all other rights at law, or in equity, which Global may have regarding the Convertible Debenture; provided if Global elects to convert to shares, that will fully satisfy the Debenture debt. F. The Convertible Debenture shall contain an early payment option. TransAtlantic will have the right, anytime within 12 months of the Expiration Date to pay off the Convertible Debenture by payment of $2 million less any principal reductions (under Paragraph 3.D above) made prior to that date pursuant to the payment terms of the Convertible Debenture. G. From and after the Expiration Date, if TransAtlantic raises money in a debt or equity financing, within ten (10) days of receipt of the funds, TransAtlantic must pay 50% of the net proceeds it receives to Global Marine as a payment on the Convertible Debenture. A failure to do so shall constitute a default under the terms of the Convertible Debenture. Global shall have the same rights upon default as are set out in Paragraph 3.E. above, provided, however, the price per share for the conversion shall be at a discount of 25%, not 15%, to the average closing price for TransAtlantic common shares for the ten (10) days prior to the date of default. H. Upon delivery to Global of the Settlement Amount, or in lieu thereof, the Convertible Debenture, on or before the Expiration Date, Global shall mark the Tarpon Note "Cancelled" and deliver it to TransAtlantic. Until delivery of the Settlement Amount or the Convertible Debenture, the Tarpon Note and the Guarantee will remain in full force and effect. 4. Global agrees that so long as TransAtlantic fully complies with the terms of this proposal, Global will not seek to enforce the Tarpon Note against TransAtlantic nor will it initiate or cause to be initiated any legal or equitable proceeding against TransAtlantic with regard to the Tarpon Note or the Guarantee. If TransAtlantic (i) fails to pay Global the Settlement Amount, or (ii) in lieu thereof, fails to deliver to Global the Convertible Debenture by the Expiration Date, or (iii) if the TSE does not approve the terms of the Convertible Debenture as described herein, or (iv) defaults in paying the Convertible Debenture and Global Marine does not convert the Convertible Debenture to common shares of TransAtlantic pursuant to the terms of the Convertible Debenture, then Global shall have the complete and unfettered right to pursue any and all legal and equitable remedies it has or may have against TransAtlantic. FOR SETTLEMENT PURPOSES ONLY PAGE 3 OF 5 Proposal to Global Marine 8/24/00 5. Global Representations: A. Global is the sole owner of the Tarpon Note; B. Global has not assigned, pledged or otherwise granted any interest or power regarding the Note; and C. As of the Expiration Date, Global will be the sole owner of the Tarpon Note, free and clear of any liens, claims or encumbrances. 6. TransAtlantic Representations: A. TransAtlantic is a corporation incorporated under the Business Corporations Act (Alberta), has not been discontinued or dissolved under that Act and is good standing with respect to annual returns under that Act; B. This agreement has been, and all instruments issued and delivered hereunder will have been, duly authorized by all necessary action of the Borrower and each constitutes or will constitute a legal, valid and binding obligation of TransAtlantic enforceable in accordance with its terms, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights and remedies of creditors, and to general principles of equity; and C. The execution and delivery of this agreement and all instruments issued incident hereto, and the performance of the terms hereof will not be, or result in, a violation or breach of, or default under, any law, agreement or instrument to which TransAtlantic is a party or to which it is bound. 7. Upon receipt of the Settlement Amount, or upon receipt of final payment pursuant to the terms of the Convertible Debenture, whichever earlier occurs, Global shall release TransAtlantic, its successors and assigns, and its officers, directors, employees, attorneys and agents from all claims, actions or causes of actions relating to the Tarpon Note and the Guaranty. 8. Miscellaneous: A. This agreement is the entire agreement between the parties with respect to the subject matter addressed herein. B. The parties will each bear their own expenses and attorney fees relating to this matter; provided, however, nothing herein shall limit Global's right to collect attorney fees and costs if TransAtlantic fails to comply with this proposal as specified in paragraph 4 above. FOR SETTLEMENT PURPOSES ONLY PAGE 4 OF 5 Proposal to Global Marine 8/24/00 C. The parties covenant they will execute such other and further instruments and documents as are necessary or appropriate to effectuate this agreement. D. This agreement shall be construed under and in accordance with the laws of the State of Texas. Sincerely, "SCOTT C. LARSEN" Scott C. Larsen Acting CFO TransAtlantic Petroleum Corp. Agreed and Accepted this 24th day of August, 2000. Global Marine, Inc. Global Marine Integrated Services - International Inc. "W. MATT RAWLS" "W. MATT RAWLS" ------------------------ --------------------- By: W. Matt Rawls By: W. Matt Rawls Its: Senior Vice President, Its: Vice President and Chief Financial Officer and Treasurer Treasurer FOR SETTLEMENT PURPOSES ONLY PAGE 5 OF 5 -----END PRIVACY-ENHANCED MESSAGE-----