-----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, MMnQw0tOmjIkG8VrY77ACY8UyrlXAcwNrJiliCMWQ38v2s8P15N6DMR/Shln/94s 8L8kGKhKeGG6Gr4Pa9yXCg== 0000950129-03-000104.txt : 20030114 0000950129-03-000104.hdr.sgml : 20030114 20030113092031 ACCESSION NUMBER: 0000950129-03-000104 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030113 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: FILED AS OF DATE: 20030113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APACHE CORP CENTRAL INDEX KEY: 0000006769 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 410747868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04300 FILM NUMBER: 03511585 BUSINESS ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: ONE POST OAK CENTER STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 BUSINESS PHONE: 7132966000 MAIL ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 FORMER COMPANY: FORMER CONFORMED NAME: APACHE OIL CORP DATE OF NAME CHANGE: 19660830 8-K 1 h02486e8vk.txt APACHE CORPORATION - DATED 1/13/2003 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): January 13, 2003 (January 11, 2003) APACHE CORPORATION (Exact name of registrant as specified in Charter)
DELAWARE 1-4300 41-0747868 (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification Number)
ONE POST OAK CENTRAL 2000 POST OAK BOULEVARD SUITE 100 HOUSTON, TEXAS 77056-4400 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (713) 296-6000 ================================================================================ ITEM 5. OTHER EVENTS Exhibits are filed herewith in connection with the Registration Statement on Form S-3 (Registration No. 333-32580) filed on March 15, 2000, by Apache Corporation with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The Registration Statement, amended on March 29, 2000, and declared effective by the SEC on March 30, 2000, relates to the shelf registration of certain securities including Apache common stock, par value $1.25 per share, for delayed or continuous offering pursuant to Rule 415 under the Act of an aggregate initial offering price not to exceed $1,000,000,000. Reference is made to the Registration Statement for further information concerning the terms of the common stock and other securities and the offering thereof. As described in the Preliminary Prospectus Supplement, dated January 13, 2003, to the Prospectus dated March 30, 2000, Apache expects to issue 6,200,000 shares of its common stock to Morgan Stanley & Co. Incorporated, as representative for the underwriters, for offering to the public. Apache has granted to the underwriters an option to purchase up to 930,000 additional shares of common stock to cover over-allotments, if any. The Preliminary Prospectus Supplement, dated January 13, 2003, to the Prospectus dated March 30, 2000, is listed under Item 7 as Exhibit 99.1 and is incorporated herein by reference. On January 11, 2003, (i) a Purchase and Sale Agreement, by and between Apache Corporation and BP Exploration & Production Inc., for the sale and purchase of BP's interests in 61 producing fields, including 113 blocks, in the Gulf of Mexico, and (ii) a Sale and Purchase Agreement, by and between Apache North Sea Limited and BP Exploration Operating Company Limited, for the purchase and sale of BP's interests in two producing fields in the North Sea, were signed. The Purchase and Sale Agreement relating to the Gulf of Mexico properties is listed under Item 7 as Exhibit 2.1 and is incorporated herein by reference. The Sale and Purchase Agreement relating to the North Sea properties is listed under Item 7 as Exhibit 2.2 and is incorporated herein by reference. Apache Corporation also signed a Deed of Guaranty and Indemnity, dated January 11, 2003, in favor of BP Exploration Operating Company Limited relating to the acquisition of the North Sea properties, which is listed under Item 7 as Exhibit 10.1 and is incorporated herein by reference. The BP transactions have received all necessary corporate approvals by Apache and BP and are not conditioned upon financing, but are subject to customary closing conditions, regulatory approvals under the U.S. Hart-Scott-Rodino Act and, in the case of the North Sea properties, U.K. regulatory and other approvals. Both agreements will be effective as of January 1, 2003, with the purchase of the Gulf of Mexico properties scheduled to close late in the first quarter of 2003 and the purchase of the North Sea properties scheduled to close late in the second quarter of 2003. Apache expects to complete the transactions as scheduled. However, there can be no assurance that the transactions will be completed as expected until both are actually consummated. 1 The total purchase price for all of the properties being acquired is $1,300,000,000, with $670,000,000 being allocated to the Gulf of Mexico properties and the remaining $630,000,000 being allocated to the properties in the North Sea. The actual purchase price payable upon the closing of each purchase will be reduced by the net cash flow from the properties, and increased by interest on the purchase price, from January 1, 2003, until the date of closing. The purchase price is also subject to customary closing adjustments. Owners of working interests in certain Gulf of Mexico properties have preferential purchase rights which, if exercised, would reduce the interests Apache purchases in those properties and the purchase price Apache would pay. Neither acquisition is conditioned upon consummation of the other acquisition. Within 15 days of the closing of each transaction, Apache will file a current report under Item 2 of Form 8-K and within 60 days after such filing, if required, the financial statements and pro forma financial information under Item 7 of Form 8-K. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) EXHIBITS. In accordance with Rule 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request. EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Purchase and Sale Agreement, dated January 11, 2003, by and between Apache Corporation, as Buyer, and BP Exploration & Production Inc., as Seller. 2.2 Sale and Purchase Agreement, dated January 11, 2003, by and between Apache North Sea Limited, as Buyer, and BP Exploration Operating Company Limited, as Seller. 10.1 Deed of Guaranty and Indemnity, dated January 11, 2003, made by Apache Corporation in favor of BP Exploration Operating Company Limited. 99.1 Preliminary Prospectus Supplement, dated January 13, 2003, to Prospectus dated March 30, 2000 (relating to the Registration Statement on Form S-3, Registration No. 333-32580). 99.2 Press Release, dated January 13, 2003, "Apache to Offer 6.2 Million Shares of Common Stock." 99.3 Press Release, dated January 13, 2003, "Apache to Acquire BP Properties for $1.3 Billion; Legacy North Sea and Gulf of Mexico Assets." 2 ITEM 9. REGULATION FD DISCLOSURE Apache Corporation issued a news release on January 13, 2003, in accordance with SEC Rule 134, announcing that Apache has filed a Preliminary Prospectus Supplement dated January 13, 2003, to the Prospectus dated March 30, 2000, with the SEC relating to the proposed public offering of Apache's common stock. This news release is furnished as Exhibit 99.2 to this report. Apache issued a second news release on January 13, 2003, announcing that Apache is to acquire certain Gulf of Mexico and North Sea properties from BP. This news release is furnished as Exhibit 99.3 to this report. This news release also announces that, on January 13, 2003, at 9:30 a.m. Central Standard Time, Apache will have a live webcast of its conference call regarding the BP transaction. The webcast may be accessed at Apache's website at www.apachecorp.com. The information in Item 9 of this report (including the Exhibits described in Item 9 as furnished with this report) is being furnished, not filed, pursuant to Regulation FD. Accordingly, the information in Item 9 of this report will not be incorporated by reference into any registration statement filed by Apache under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference. The furnishing of the information in Item 9 of this report is not intended to, and does not, constitute a determination or admission by Apache that the information in Item 9 of this report is material or complete, or that investors should consider this information before making an investment decision with respect to any security of Apache or any of its affiliates. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Date: January 13, 2003 By: /s/ ERIC L. HARRY Eric L. Harry Vice President and Associate General Counsel 4 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Purchase and Sale Agreement, dated January 11, 2003, by and between Apache Corporation, as Buyer, and BP Exploration & Production Inc., as Seller. 2.2 Sale and Purchase Agreement, dated January 11, 2003, by and between Apache North Sea Limited, as Buyer, and BP Exploration Operating Company Limited, as Seller. 10.1 Deed of Guaranty and Indemnity, dated January 11, 2003, made by Apache Corporation in favor of BP Exploration Operating Company Limited. 99.1 Preliminary Prospectus Supplement, dated January 13, 2003, to Prospectus dated March 30, 2000 (relating to the Registration Statement on Form S-3, Registration No. 333-32580). 99.2 Press Release, dated January 13, 2003, "Apache to Offer 6.2 Million Shares of Common Stock." 99.3 Press Release, dated January 13, 2003, "Apache to Acquire BP Properties for $1.3 Billion; Legacy North Sea and Gulf of Mexico Assets."
EX-2.1 3 h02486exv2w1.txt PURCHASE AND SALE AGREEMENT DATED 1/11/2003 EXHIBIT 2.1 PURCHASE AND SALE AGREEMENT BY AND BETWEEN BP EXPLORATION & PRODUCTION INC. AND APACHE CORPORATION INDEX ARTICLE 1. DEFINITIONS...................................................... 1 1.1 Definitions........................................................... 1 ARTICLE 2. SALE OF PROPERTIES............................................... 12 2.1 Sale and Purchase..................................................... 12 2.2 Purchase Price........................................................ 12 2.3 Performance Deposit................................................... 13 2.4 State Water Properties................................................ 13 ARTICLE 3. PREFERENTIAL RIGHTS.............................................. 13 3.1 Preferential Rights To Purchase....................................... 13 ARTICLE 4. TITLE REVIEW..................................................... 14 4.1 Review of Title Records............................................... 14 4.2 Alleged Title Defects................................................. 14 4.3 Waiver................................................................ 17 ARTICLE 5. INSPECTION OF PREMISES........................................... 17 5.1 Inspection of Premises................................................ 17 5.2 Alleged Adverse Conditions............................................ 18 5.3 Waiver................................................................ 20 ARTICLE 6. ACCOUNTING....................................................... 20 6.1 Products.............................................................. 20 6.2 Revenues, Expenses and Capital Expenditures........................... 20 6.3 Taxes................................................................. 21 6.4 Credits............................................................... 21 6.5 Miscellaneous Accounting.............................................. 21 6.6 Final Accounting Settlement........................................... 22 6.7 Post-Final Accounting Settlement Revenues............................. 22 6.8 Post-Final Accounting Settlement Expenses............................. 22 ARTICLE 7. LOSS, CASUALTY AND CONDEMNATION.................................. 23 7.1 Notice of Loss........................................................ 23 7.2 Casualty Loss......................................................... 23
i ARTICLE 8. ALLOCATION OF RESPONSIBILITIES AND INDEMNITIES................... 24 8.1 Opportunity for Review................................................ 24 8.2 Seller's Indemnity With Respect to Retained Litigation................ 24 8.3 Seller's Non-Environmental Indemnity Obligation....................... 24 8.4 Seller's Environmental Indemnity Obligation........................... 25 8.5 Buyer's Non-Environmental Indemnity Obligation........................ 25 8.6 Buyer's Environmental Indemnity Obligation............................ 26 8.7 Notice of Claims...................................................... 26 8.8 Defense of Claims..................................................... 26 8.9 No Duplication of Remedies............................................ 27 8.10 Other Contracts Between the Parties................................. 27 8.11 Waiver of Certain Damages........................................... 27 ARTICLE 9. DISCLAIMERS...................................................... 28 9.1 Disclaimers........................................................... 28 9.2 Disclaimer of Statements and Information.............................. 28 ARTICLE 10. SELLER'S REPRESENTATIONS AND WARRANTIES......................... 28 10.1 Seller's Representations and Warranties............................. 28 ARTICLE 11. BUYER'S REPRESENTATIONS AND WARRANTIES.......................... 31 11.1 Buyer's Representations and Warranties.............................. 31 ARTICLE 12. ADDITIONAL COVENANTS............................................ 32 12.1 Subsequent Operations............................................... 32 12.2 Rights of Non-Exclusive Use......................................... 32 12.3 Buyer's Assumption of Obligations................................... 33 12.4 Asbestos and NORM................................................... 33 12.5 Plugging and Abandonment............................................ 34 12.6 Imbalances.......................................................... 35 12.7 Suspense Funds...................................................... 36 12.8 Sales Tax........................................................... 36 12.9 Guaranty Agreement.................................................. 37 12.10 Transition Agreement................................................ 37 12.11 Third Party Technology.............................................. 37 12.12 Interim Period...................................................... 38 12.13 Operator Acts....................................................... 40 12.14 Notification of Breaches............................................ 40
ii 12.15 Delivery of Certain Information..................................... 41 12.16 Financial Audit..................................................... 42 ARTICLE 13. HSR ACT......................................................... 43 13.1 HSR Filings......................................................... 43 ARTICLE 14. PERSONNEL....................................................... 43 14.1 Employees........................................................... 43 14.2 Restriction on Solicitation......................................... 43 ARTICLE 15. CONDITIONS PRECEDENT TO CLOSING................................. 44 15.1 Conditions Precedent to Seller's Obligation to Close................ 44 15.2 Conditions Precedent to Buyer's Obligation to Close................. 44 15.3 Conditions Precedent to Obligation of Each Party to Close........... 45 ARTICLE 16. THE CLOSING..................................................... 46 16.1 Closing............................................................. 46 16.2 Seller's Obligations at Closing..................................... 46 16.3 Buyer's Obligations at Closing...................................... 48 ARTICLE 17. TERMINATION..................................................... 49 17.1 Grounds for Termination............................................. 49 17.2 Effect of Termination............................................... 49 17.3 Dispute over Right to Terminate..................................... 49 17.4 Confidentiality..................................................... 50 ARTICLE 18. ARBITRATION..................................................... 51 18.1 Arbitration......................................................... 51 ARTICLE 19. MISCELLANEOUS................................................... 51 19.1 Notices............................................................. 51 19.2 Costs and Post-Closing Consents..................................... 52 19.3 Brokers, Agents and Finders......................................... 52 19.4 Records............................................................. 53 19.5 Further Assurances.................................................. 54 19.6 Survival of Certain Obligations..................................... 54 19.7 Amendments and Severability......................................... 54 19.8 Successors and Assigns.............................................. 55 19.9 Headings............................................................ 55
iii 19.10 Governing Law....................................................... 55 19.11 No Partnership Created.............................................. 55 19.12 Public Announcements................................................ 55 19.13 No Third Party Beneficiaries........................................ 55 19.14 Waiver of Consumer Rights........................................... 55 19.15 Redhibition Waiver.................................................. 56 19.16 UTPCPL Waiver....................................................... 56 19.17 Not to be Construed Against Drafter................................. 56 19.18 Indemnities and Conspicuousness of Provisions....................... 56 19.19 Possible Exchange................................................... 56 19.20 Recordation......................................................... 56 19.21 Execution in Counterparts........................................... 57 19.22 Entire Agreement.................................................... 57
iv EXHIBITS EXHIBIT "A" - PROPERTIES AND ALLOCATIONS OF PURCHASE PRICE EXHIBIT "A-1" - EASEMENTS EXHIBIT "B" - EXCLUDED PROPERTIES ANNEX 1 - RESERVED DEEP RIGHTS EXHIBIT "C" - LITIGATION EXHIBIT "D-1" - ASSIGNMENT AND BILL OF SALE - TEXAS EXHIBIT "D-2" - ASSIGNMENT AND BILL OF SALE - LOUISIANA EXHIBIT "E" - CERTIFICATE EXHIBIT "F" - LETTERS IN LIEU EXHIBIT "G" - NON-FOREIGN AFFIDAVIT EXHIBIT "H" - TRANSITION AGREEMENT EXHIBIT "I" - GUARANTY AGREEMENT EXHIBIT "J" - FORM OF ASSIGNMENT OF RECORD TITLE INTEREST EXHIBIT "K" - FORM OF ASSIGNMENT OF OPERATING RIGHTS EXHIBIT "L" - FORM OF PREFERENTIAL RIGHTS LETTER EXHIBIT "M" - FORM OF OPERATING AGREEMENT Exhibit "A" - Operator, Description of Leases, Division of Interests, and Notification Addresses Exhibit "B" - Insurance Provisions Exhibit "C" - Accounting Procedure Exhibit "D" - Non-discrimination Provisions Exhibit "E" - Gas Balancing Agreement Exhibit "F" - Memorandum of Operating Agreement and Financing Statement Exhibit "G" - Area of Mutual Interest Schedule 1 (Grand Isle 20 Prospect) Schedule 1 (West Delta 40/42 Prospect) EXHIBIT "N" - FORM OF SEISMIC LICENSE v SCHEDULES CONDITIONS ASSOCIATED WITH PROPERTIES 1.1.6 BP AMERICA PROPERTIES 1.1.12 NON-CONSENT OPERATIONS 1.1.33 DEFAULTS UNDER MATERIAL CONTRACTS 10.1.7 COMPLIANCE WITH LAWS 10.1.9 MARKETING CONTRACTS 10.1.11 PLUGGING AND ABANDONMENT 10.1.13 JOINTLY USED FACILITIES 12.2
vi PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (this "AGREEMENT") dated January 11, 2003, is between BP EXPLORATION & PRODUCTION INC., a Delaware corporation, with an office at 501 WestLake Park Boulevard, Houston, Texas 77079 ("SELLER") and APACHE CORPORATION, a Delaware corporation, with an office at 2000 Post Oak Blvd., Suite 100, Houston, Texas 77056-4400 ("BUYER") (individually, a "PARTY" and collectively, the "PARTIES".) WHEREAS, Seller desires to sell and deliver to Buyer, and Buyer desires to purchase and accept Seller's interests in certain oil and gas properties and related assets; and WHEREAS, the Parties have reached agreement regarding the sale and purchase, NOW, THEREFORE, for and in consideration of the mutual covenants herein, the Parties agree to all the terms and conditions in this Agreement: ARTICLE 1. DEFINITIONS 1.1 Definitions. Unless provided otherwise in this Agreement, each capitalized term in this Agreement has the meaning given to it in this Article. All defined terms include the singular and the plural. All references to Articles refer to Articles in this Agreement, and all references to Exhibits and Schedules refer to the Exhibits and Schedules attached to and made a part of this Agreement. When a term is defined as one part of speech (e.g., noun), any other part of speech (e.g., verb) with respect to the term has a comparable meaning. 1.1.1 "AAA" has the meaning given it in Article 18.1. 1.1.2 "ACCOUNTING REFEREE" means the accounting firm of Deloitte & Touche LLP or any other nationally recognized United States based accounting firm on which the Parties agree in writing. 1.1.3 "ADJUSTED PURCHASE PRICE" shall have the meaning given to it in Article 2.2. 1.1.4 "AFFILIATE" means any entity that, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the entity specified. For the purpose of this definition, the term "control" means ownership of fifty percent (50%) or more of voting rights (stock or otherwise) or ownership interest. 1.1.5 "AGREEMENT" has the meaning given it in the introductory paragraph of this Agreement. 1.1.6 "ALLEGED ADVERSE CONDITION" means any of the following individual conditions associated with the Properties and asserted by Buyer in accordance with Article 5.2, other than any such condition disclosed on Schedule 1.1.6, which individually (i) has an adverse effect on the value of the Properties exceeding one million United States dollars (US $1,000,000) and, (ii) if curable, has a cost to cure exceeding one million United 1 \ States dollars (US $1,000,000), in each case net to Seller's interests in the Properties affected by such individual Alleged Adverse Condition: (a) Any environmental condition not in compliance with existing Environmental Laws; (b) Any Contract, other than an operating agreement or unit agreement disclosed to Buyer on or prior to December 30, 2002 in the Indigo Pool dataroom for the sale of the Properties, whose terms would have a material adverse effect on Buyer's ability to operate the Properties as operated as of the Effective Time or any Contract (or failure to have a Contract in place prior to Closing) that would increase the Charges borne by the owner of the Properties or reduce the revenues received by the owner of the Properties relative to the Financial Model; (c) Any Equipment not in compliance with applicable Laws or incapable of performing consistently with Seller's practices as of the Effective Time; or (d) Any omissions from any of the lists supplied pursuant to Articles 12.15(b), (c) and (d). 1.1.7 "ALLEGED TITLE DEFECT" means an individual Title Defect associated with one or more Real Properties described on Exhibit "A" and/or one or more easements, rights-of-way, servitudes or subsurface leases included in the Real Properties but not described on Exhibit "A" that (a) is asserted by Buyer in accordance with Article 4.2, and (b) individually (i) has an adverse effect on the value of such Real Properties (including any increase in the negative value of any Property with a negative Buyer's Allocation) exceeding five hundred thousand United States dollars (US $500,000) and (ii) if curable, has a cost to cure exceeding five hundred thousand United States dollars (US $500,000), in each case net to Seller's interests in all Real Properties affected by such individual Title Defect. 1.1.8 "AMI" means any of the Areas of Mutual Interest described in the Operating Agreement attached hereto as Exhibit "M" with respect to those Excluded Properties described in paragraph 1 of Exhibit "B". 1.1.9 "ARBITRABLE DISPUTE" means, except as set forth below, any and all disputes, claims, counterclaims, demands, causes of action, controversies and other matters in question between Buyer and Seller arising out of or relating to this Agreement or alleged breach hereof, or relating to matters that are the subject of this Agreement or the relationship between the Parties under this Agreement, regardless of whether (a) extra-contractual in nature, (b) sounding in contract, tort or otherwise, (c) provided for by Law or otherwise, or (d) would result in damages or any other relief, whether at law, in equity or otherwise; provided that "ARBITRABLE DISPUTE" does not include disputes that by the terms of this Agreement (i) shall be determined by the Accounting Referee, (ii) relate to breach of confidentiality obligations, or (iii) concern either Party's failure or refusal to Close when required by this Agreement, right to terminate this Agreement, or termination of this Agreement. 2 1.1.10 "ASSIGNMENT AND BILL OF SALE" means a document in the form of Exhibit "D". 1.1.11 "BP AMERICA" means BP America Production Company. 1.1.12 "BP AMERICA PROPERTIES" means the Properties currently held by BP America, as described in Schedule 1.1.12. 1.1.13 "BUSINESS DAY" means between 8:00 a.m., Central Time and 4:00 p.m., Central Time, on a Day when federally chartered banks in the State of Texas are generally open for business. 1.1.14 "BUYER" has the meaning set forth in the introductory paragraph of this Agreement. 1.1.15 "BUYER GROUP" means each and all of: (a) Buyer and its officers, directors, agents, consultants and employees, and (b) Buyer's Affiliates and their officers, directors, agents, consultants and employees. 1.1.16 "BUYER'S ACQUISITION TEAM" means Richard D. Black (Corporate Counsel), John J. Christmann, IV (Director, Business Development), Eric L. Harry (Vice President, Associate General Counsel and Assistant Secretary), Jon Jeppesen (Regional Vice President- Gulf Coast), and Dominic Ricotta (Corporate Counsel). 1.1.17 "BUYER'S ALLOCATIONS" means Buyer's allocation of the Purchase Price among the Properties as set forth on Exhibit "A". 1.1.18 "BUYER'S REPRESENTATIVES" has the meaning given to it in Article 5.1. 1.1.19 "CASUALTY LOSS" means physical damage to the Properties that (a) occurs between execution of this Agreement and Closing, (b) is not the result of normal wear and tear, mechanical failure or gradual structural deterioration of materials, equipment and infrastructure, downhole failure (including: (i) failures arising or occurring during drilling or completing operations; (ii) junked or lost holes; or (iii) sidetracking or deviating a well) or reservoir changes; and (c) exceeds one million United States dollars (US $1,000,000). 1.1.20 "CERTIFICATE" means a document in the form of Exhibit "E". 1.1.21 "CHARGES" means (a) invoices or bills received under Contracts in the ordinary course of business; other ordinary course of business charges for acquiring and maintaining material, equipment, other personal property and fixtures, services, easements, rights-of-way, servitudes, subsurface leases, licenses and permits; costs of utilities and insurance; and directly chargeable salaries, wages and employee benefits, (b) producing, drilling and construction overhead costs, and (c) taxes and assessments of governmental authorities (other than income taxes, and Sales Tax, if any, on the transactions contemplated by this Agreement), which are in each case attributable to the Properties, but excluding without limitation (i) Non-Environmental Claims, (ii) obligations to plug and abandon wells, dismantle platforms and other Equipment and 3 clear sites and/or restore the seabed, (iii) obligations under Environmental Laws, including Environmental Claims, (iv) Imbalances, (v) royalty payment obligations, (vi) obligations to pay to Third Parties any Suspense Funds delivered to Buyer pursuant to Article 12.7, (vii) Casualty Losses or other physical damage to the Properties, and (viii) claims for indemnification or reimbursement from any Third Party with respect to items excluded from the definition of "Charges." 1.1.22 "CLAIM NOTICE" means a notice of Claim provided in accordance with Article 8.7. 1.1.23 "CLAIMANT" has the meaning set forth in Article 18.1. 1.1.24 "CLAIMS" means any and all claims, demands, suits, causes of action, losses, damages, liabilities, fines, penalties and costs (including attorneys' fees and costs of litigation), whether known or unknown, and whether an Environmental Claim or a Non-Environmental Claim, that are brought by or owed to a Third Party. 1.1.25 "CLOSING" means consummation of the transactions contemplated herein, including execution and delivery of all documents and other consideration as provided in this Agreement. 1.1.26 "CLOSING DATE" means, subject to Article 17.1, (a) the later of (i) March 31, 2003 or (ii) five (5) Business Days after all conditions precedent in Articles 15.1, 15.2 and 15.3 have been satisfied or waived, or (b) any other date agreed by the Parties in writing. 1.1.27 "CLOSING PAYMENT" has the meaning set forth in Article 16.1. 1.1.28 "CLOSING STATEMENT" refers to the document described in Article 16.1. 1.1.29 "COMPUTED INTEREST" means simple interest at a rate per annum equal to (i) four and one-quarter percent (4.25%) for any period through and including February 28, 2003 and (ii) one and four-tenths percent (1.4%) for any period after February 28, 2003, but in no event greater than the maximum rate of interest allowed by applicable Law. 1.1.30 "CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated December 5, 2002, between Seller and Buyer, as amended December 11, 2002, and as may be further amended from time to time. 1.1.31 "CONTRACTS" has the meaning given to it in the definition of "Properties". 1.1.32 "DAY" means a calendar day consisting of twenty-four (24) hours from midnight to midnight. 1.1.33 "DEFENSIBLE TITLE" means the title to the Real Properties held by Seller that (except for the Permitted Encumbrances): (a) entitles Seller to receive, as of the Effective Time, not less than the Net Revenue Interests set forth on Exhibit "A" of all oil, gas and associated liquid and gaseous hydrocarbon substances produced, saved and marketed from those leases, wells or 4 units set forth on Exhibit "A", except decreases resulting from operations where Seller is a non-consenting party that are reflected in the Financial Model or disclosed on Schedule 1.1.33 and decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under-deliveries; (b) obligates Seller to bear, as of the Effective Time, not greater than the Working Interest share set forth on Exhibit "A" of costs and expenses associated with ownership, operation, maintenance and repair of those leases, wells or units set forth on Exhibit "A", unless, in the case of a Property having a positive Buyer's Allocation, there is a corresponding and proportionate increase in the associated Net Revenue Interests, or unless such increase results from contribution requirements with respect to defaulting co-owners (providing that there is a corresponding and proportionate right to receive the proceeds of the defaulting co-owner's share of production while it remains in default); and (c) is free of liens, claims and encumbrances. 1.1.34 "EFFECTIVE TIME" as to each Property, means January 1, 2003, at 7:00 a.m., local time where the Property is located. 1.1.35 "ENVIRONMENTAL CLAIMS" means all Claims based on breach of Environmental Laws; provided that only with respect to Claims for which Seller owes an obligation of indemnity to Buyer, the term "Environmental Claims" is limited to Claims based on breach of Environmental Laws as such Laws were in effect on the Effective Time. 1.1.36 "EQUIPMENT" has the meaning given to it in the definition of "Properties". 1.1.37 "ENVIRONMENTAL LAWS" means any and all Laws that relate to (a) prevention of pollution or environmental damage, (b) removal or remediation of pollution or environmental damage, or (c) protection of the environment. 1.1.38 "EXCLUDED PROPERTIES" means the properties set forth in Exhibit "B" or otherwise excepted, reserved or retained by Seller (or, as applicable, its Affiliates) under the terms of this Agreement. 1.1.39 "FINAL ACCOUNTING SETTLEMENT" means the post-Closing accounting activities conducted in accordance with Article 6.6. The Final Accounting Settlement shall be conducted in accordance with generally accepted accounting principles and consistent with Seller's practices with respect to the Properties on the date of this Agreement. 1.1.40 "FINAL ACCOUNTING STATEMENT" means a statement prepared by Seller and delivered to Buyer in accordance with Article 6.6 setting forth the final calculation of the Adjusted Purchase Price. 1.1.41 "FINANCIAL MODEL" means the Excel model named "GOM shelf properties projection model.xls", dated as of December 12, 2002 and included in the IndigoPool dataroom for the sale of the Properties. 5 1.1.42 "GUARANTY AGREEMENT" means (if applicable under the terms of this Agreement) that certain Guaranty Agreement in the form of Exhibit "I" dated as of the date hereof. 1.1.43 "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. 1.1.44 "IMBALANCE" means over-production or under-production or over-deliveries or under-deliveries with respect to oil or gas produced from or allocated to the Properties, regardless of whether such over-production or under-production or over-deliveries or under-deliveries arise at the platform, wellhead, pipeline, gathering system, transportation or other location. 1.1.45 "INCLUDING", whether or not capitalized, means including without limitation. 1.1.46 "INDEMNIFIED PARTY" has the meaning set forth in Article 8.7. 1.1.47 "INDEMNIFYING PARTY" has the meaning set forth in Article 8.7. 1.1.48 "INTERIM PERIOD" means the period between the date of this Agreement and the Closing Date. 1.1.49 "KNOWLEDGE" (whether or not capitalized) means, in the case of Seller, the actual knowledge of Seller's Disposition Team and, in the case of Buyer, the actual knowledge of Buyer's Acquisition Team. 1.1.50 "LAWS" means any and all laws, statutes, codes, ordinances, permits, licenses, authorizations, decrees, orders, judgments, rules or regulations (including, for the avoidance of doubt, Environmental Laws) that are promulgated, issued or enacted by a governmental entity or authority having appropriate jurisdiction of the Property or the Parties. 1.1.51 "LETTERS-IN-LIEU" means a document in the form of Exhibit "F" in connection with oil production from the Properties. 1.1.52 "MATERIAL ADVERSE EFFECT" means, with respect to any individual breach of representation or warranty, that such breach would have an adverse effect on the value of the Properties exceeding one million United States dollars ($1,000,000). 1.1.53 "MMS" means the Minerals Management Service of the United States. 1.1.54 "NET REVENUE INTERESTS" means the "Net Revenue Interests" set forth in Exhibit "A". 1.1.55 "NON-ENVIRONMENTAL CLAIMS" means all Claims other than (i) Environmental Claims and (ii) invoices or bills received under Contracts in the ordinary course of business; other ordinary course of business charges for acquiring and maintaining material, equipment, other personal property and fixtures, services, easements, rights-of-way, servitudes, subsurface leases, licenses and permits; costs of utilities and insurance; 6 directly chargeable salaries, wages and employee benefits; producing, drilling and construction overhead costs; and taxes and assessments of governmental authorities. 1.1.56 "NON-FOREIGN AFFIDAVIT" means a document in the form of Exhibit "G". 1.1.57 "NORM" means naturally occurring radioactive materials. 1.1.58 "OPERATING AGREEMENTS" means operating agreements with respect to those Excluded Properties and related AMI's described in item 1 of Exhibit "B", each substantially in the form of Exhibit "N." 1.1.59 "OPERATING REVENUES" means sales proceeds attributable to oil, gas and other hydrocarbons produced from the Properties, net of royalties, excise, severance and other production taxes, and marketing costs (which include for purposes of this definition, among other things, costs of gathering, treating, processing, compression, and transportation), to the extent such items are not treated as "Charges" under Article 6, and all other operating revenues attributable to the Properties, including producing, drilling and construction overhead receipts under operating agreements with Third Parties. 1.1.60 "PARTIES" has the meaning given it in the introductory paragraph of this Agreement. 1.1.61 "PARTY" has the meaning given it in the introductory paragraph of this Agreement. 1.1.62 "PERFORMANCE DEPOSIT" has the meaning given it in Article 2.3. 1.1.63 "PERMITTED ENCUMBRANCES" means any and all: (a) royalties, overriding royalties, sliding scale royalties, production payments, reversionary interests, convertible interests, net profits interests and similar burdens encumbering the Properties to the extent the net cumulative effect of such burdens does not operate to reduce the Net Revenue Interests to less than that set forth in Exhibit "A" or increase the Working Interests above that set forth in Exhibit "A" without a corresponding and proportionate increase in the associated Net Revenue Interests; (b) consents to assignment and similar contractual provisions affecting the Properties, as set forth on the list delivered pursuant to Article 12.15(c)(ii); provided that, with respect to transfers or assignments to Seller or its predecessors, such consents have been obtained prior to Closing; (c) preferential rights to purchase and similar contractual provisions affecting the Properties, as set forth on the lists delivered pursuant to Articles 12.15(b)(ii) and 12.15(c)(i); provided that, with respect to transfers or assignments to Seller or its predecessors, such preferential rights have expired or been waived prior to Closing; 7 (d) rights to consent by, required notices to, and filings with a governmental entity or authority associated with the conveyance of the Properties pursuant hereto which are obtained by Closing or are customarily obtained post-closing; (e) rights reserved to or vested in a governmental entity having jurisdiction to control or regulate the Properties in any manner whatsoever, and all Laws of such governmental entities or authorities; (f) easements, rights-of-way, servitudes, sub-surface leases, equipment, pipelines, and utility lines on, over and through the Properties, provided that they do not materially interfere with the operation of the Properties in the manner such operations were conducted as of the Effective Time; (g) terms and conditions of unitization, communitization, and pooling agreements, and any other agreements affecting the Properties, provided that they do not (i) reduce Seller's Net Revenue Interests to less than that set forth on Exhibit "A" or increase Seller's Working Interests above that set forth on Exhibit "A" without a corresponding and proportionate increase in the associated Net Revenue Interests, or (ii) materially interfere with the operation of the Properties in the manner such operations were conducted as of the Effective Time; (h) terms and conditions of governmental licenses and permits affecting the Properties; (i) liens for taxes or assessments not yet delinquent or, if delinquent, being contested by Seller in good faith in the normal course of business; provided, however, this provision will not diminish or affect in any way the Parties' rights and obligations under Article 6.3 or under the indemnities in Article 8 of this Agreement; (j) liens of operators relating to obligations not yet delinquent or, if delinquent, being contested by Seller in good faith in the normal course of business; provided, however, this provision will not diminish or affect in any way the Parties' rights and obligations under Article 6.2 or under the indemnities in Article 8 of this Agreement; (k) matters that would otherwise be Alleged Title Defects but that do not meet the individual threshold set forth in Article 1.1.7, provided that this clause (k) shall not apply for purposes of Seller's special warranty of title in Article 10.1.6; (l) matters that Buyer waives in writing; (m) litigation or claims referenced in Exhibit "C"; (n) production, gathering, processing and transportation related gas imbalances associated with the Properties; 8 (o) Alleged Title Defects consisting of failure to file any instrument in Seller's chain of title in the records of any adjoining county or parish, so long as the instrument in question is filed with the MMS; (p) matters specifically listed on Exhibit "A" or otherwise disclosed on Schedule 1.1.6 to this Agreement; and (q) such defects or irregularities in the title to the Properties that do not materially interfere with the ownership, operation, value or use of the Properties affected thereby and that would not be considered material when applying general standards in the oil and gas industry. 1.1.64 "PROPERTIES" means all of Seller's (or in the case of the BP America Properties, BP America's) right, title and interests (real, personal, mixed, contractual or otherwise) in, to and under or derived from the following: (a) all oil and gas leasehold interests, royalty interests, overriding royalty interests, mineral interests, production payments, and net profits interests that are attributable to the interests described in Exhibit "A" (irrespective of the Working Interests or Net Revenue Interests set forth on Exhibit "A"), and the production of oil, gas or other hydrocarbon substances attributable thereto; (b) all unitization, communitization and pooling declarations, orders and agreements (including all units formed by voluntary agreement and those formed under the rules, regulations, orders or other official acts of any governmental entity having jurisdiction) to the extent they relate to any of the interests described in Exhibit "A", or the production of oil, gas or other hydrocarbon substances attributable thereto; (c) all product sales contracts, processing contracts, gathering contracts, transportation contracts, farm-in and farm-out contracts, areas of mutual interest, operating agreements, balancing contracts and other contracts, agreements and instruments to the extent they relate to any of the interests described in Exhibit "A", or the production of oil, gas or other hydrocarbon substances attributable thereto (collectively, the "CONTRACTS"); (d) all easements, rights-of-way, servitudes, and subsurface leases, to the extent they relate to the interests described on Exhibit "A", including the easements, rights-of-way, servitudes and subsurface leases described in Exhibit "A-1" attached hereto; (e) all tangible personal property, equipment, improvements, and fixtures (collectively, the "EQUIPMENT"), and all other personal property and appurtenances, to the extent situated upon and primarily used, or situated upon and held primarily for use, by Seller in connection with ownership, operation, maintenance or repair of the Real Properties, or production of oil, gas or other hydrocarbon substances attributable thereto, including all wells (whether producing, shut-in, injection, disposal, water supply or plugged and abandoned), 9 gathering and processing systems, platforms, pipelines, compressors, meters, tanks, equipment, machinery, tools, permits, and licenses; (f) all Imbalances; (g) Suspense Funds, to the extent provided in Article 12.7; (h) the Records; and (i) all partnerships (tax, state law or otherwise) affecting any Properties. The term "Properties" does not include the Excluded Properties. 1.1.65 "PURCHASE PRICE" has the meaning set forth in Article 2.2. 1.1.66 "REAL PROPERTIES" means those Properties consisting of interests in oil, gas and/or other hydrocarbon reserves in place or otherwise classified as real property under applicable property Law. 1.1.67 "RECORDS" means, except as otherwise provided under the terms of this Agreement, Seller's (or, in the case of the BP America Properties, BP America's) original books, records, files, data, information, drawings and maps to the extent related to the Properties (including electronic copies of all computer records where available, contract files, division order files, title opinions and other title information (including abstracts, evidences of rental payments, maps, surveys and data sheets), production records, engineering files and environmental records); provided, however, Buyer acknowledges that Seller images and retains Records in electronic format, and may provide imaged or electronic Records rather than originals of seismic data and of data not maintained in hard copy form, and further provided that "Records" shall not include any Excluded Properties, and with respect to seismic data the Records shall consist of the proprietary Transferable Seismic Data pursuant to licenses in substantially the form of Exhibit "N" and, where applicable under Article 12.11, copies of licensed Transferable Seismic Data. 1.1.68 "RESPONDENT" has the meaning set forth in Article 18.1. 1.1.69 "SALES TAX" means any and all transfer, sales, gross receipts, compensating use, use or similar taxes, and any associated penalties and interest. 1.1.70 "SELLER" has the meaning set forth in the introductory paragraph of this Agreement. 1.1.71 "SELLER GROUP" means each and all of: (a) Seller and its officers, directors, agents, consultants and employees, and (b) Seller's Affiliates and their officers, directors, agents, consultants and employees. 1.1.72 "SELLER'S DISPOSITION TEAM" means John Kaffenes (Manager, Mergers and Acquisitions), Shawn Conner (Director Business Development, Gulf of Mexico Shelf), David Brumfield (Project Manager, Mergers and Acquisitions), Hunter Rowe (Asset 10 Manager, Gulf of Mexico Shelf), Randy Joseck (Commercial Team Lead, Gulf of Mexico Shelf), Susan Starr (Performance Unit Leader, Gulf of Mexico Shelf), Kent Wells (VP and Business Unit Leader, Gulf of Mexico Shelf) and Sara Reilly (Managing Attorney). 1.1.73 "SUSPENSE FUNDS" means proceeds of production, and penalties and interest with respect thereto, payable to Third Parties but held in suspense by Seller as operator of any of the Properties. 1.1.74 "THIRD PARTY" means any person or entity, governmental or otherwise, other than Seller, Buyer, and their respective Affiliates. 1.1.75 "TITLE BENEFIT" means any right, circumstance or condition that is asserted in accordance with Article 4.2 and that operates to (i) increase the Net Revenue Interest of Seller in any Real Property described on Exhibit "A" having a positive Buyer's Allocation above the Net Revenue Interest set forth in Exhibit "A", without causing a greater than proportionate increase in the Working Interest above that shown in Exhibit "A", (ii) decrease the Working Interest of Seller in a Real Property described on Exhibit "A" having a positive Buyer's Allocation below the Working Interest set forth in Exhibit "A" without decreasing the Net Revenue Interest for such Real Property below that shown in Exhibit "A", or (iii) decrease the Working Interest of Seller in any Real Property described on Exhibit "A" having a negative Buyer's Allocation below the Working Interest set forth in Exhibit "A", without causing a greater than a proportionate decrease in the Net Revenue Interest below that shown in Exhibit "A", which in each case increases the value of the Real Properties (including any reduction in the negative value of any Real Property with a negative Buyer's Allocation) by more than five hundred thousand United States dollars (US $500,000) net to Seller's interests in the Real Properties affected by any such individual Title Benefit. 1.1.76 "TITLE DEFECT" means an (a) individual defect in Seller's title to one or more Real Properties described on Exhibit "A" and/or one or more easements, rights-of-ways, servitudes or subsurface leases included in the Real Properties but not described on Exhibit "A", or (b) inaccuracy in the Working Interests or Net Revenue Interests for such a Real Property (where such Working Interests or Net Revenue Interests are stated on Exhibit "A"), that in either case would cause Seller not to have Defensible Title. 1.1.77 "TRANSFERABLE SEISMIC DATA" means Seller's proprietary and licensed seismic data covering the Properties or AMI and extending not more than one mile beyond the boundaries thereof provided that such data shall not include data the transfer or disclosure of which is restricted by the terms of any Third Party agreement unless consent to such transfer or disclosure has been obtained, and shall not include the codes for processing such data. 1.1.78 "TRANSITION AGREEMENT" means a document in the form of Exhibit "H". 1.1.79 "TRANSITION PERIOD" has the meaning set forth in the Transition Agreement. 1.1.80 "WORKING INTERESTS" means the "Working Interests" set forth in Exhibit "A". 11 ARTICLE 2. SALE OF PROPERTIES 2.1 Sale and Purchase. On the Closing Date, but effective as of the Effective Time, and upon the terms and conditions of this Agreement: (a) Seller (and, with respect to the BP America Properties, BP America) shall sell, assign and convey the Properties to Buyer, and (b) Buyer shall purchase and accept the Properties from Seller (and BP America); provided, however, Seller (and, if applicable, BP America) expressly excepts, reserves and retains, unto itself, its Affiliates, successors and assigns the Excluded Properties. 2.2 Purchase Price. The total purchase price, subject to adjustments as described below, that Buyer shall pay Seller (on behalf of Seller and BP America) for the Properties is Six Hundred Seventy Million United States Dollars (US $670,000,000) ("PURCHASE PRICE"), payable in full at Closing in immediately available funds. The Purchase Price shall be adjusted as follows: (a) Increased by Computed Interest for the period from the Effective Time through the Closing Date; (b) Decreased by the amount of Operating Revenues to which Buyer is entitled under Article 6.2 but which are collected and retained by Seller; (c) Increased by US $450,000 per month (pro-rated on a daily basis for any partial month) pursuant to Article 6.2(b); (d) Increased by the amount of Charges for which Buyer is responsible under Article 6.2 but which are paid by Seller; (e) Decreased by the amount of Charges for which Seller is responsible under Article 6.2 but which are paid by Buyer; (f) Increased by amounts to which Seller is entitled pursuant to Article 6.1 with respect to inventory; (g) Increased by the amount of taxes and assessments for which Buyer is responsible under Article 6.3 but which are paid by Seller; (h) Decreased by the amount of taxes or assessments for which Seller is responsible under Article 6.3 but which are paid by Buyer; (i) Increased by amounts owing by Buyer pursuant to Article 6.4; (j) Increased or decreased, as appropriate, pursuant to Article 6.5; (k) Decreased by the agreed or arbitrated net adjustment, if any, for Alleged Title Defects pursuant to Article 4.2, and increased by the agreed or arbitrated net adjustment, if any, for Title Benefits pursuant to Article 4.2; 12 (l) Decreased by the agreed or arbitrated net adjustment, if any, to which Buyer is entitled for Alleged Adverse Conditions pursuant to Article 5.2; (m) Decreased or increased, as appropriate, by any adjustments made for Properties excluded pursuant to Article 3.1; (n) Decreased for any agreed reduction in value pursuant to Article 7.2, and decreased or increased, as appropriate, by any adjustments made for Properties excluded pursuant to Article 7.2; and (o) Increased or decreased, as the case may be, by any other amount mutually agreed to by the Parties in writing. The Purchase Price, as so adjusted, shall be the "ADJUSTED PURCHASE PRICE." 2.3 Performance Deposit. Upon execution of this Agreement and prior to its delivery to Buyer, Buyer shall deposit with Seller cash equal to the lesser of (i) ten percent (10%) of the unadjusted Purchase Price or (ii) twenty million United States dollars (US $20,000,000) ("PERFORMANCE DEPOSIT"), provided however, that if this Agreement is executed on a day other than a Business Day, Buyer shall deliver the Performance Deposit to Seller on the next Business Day. 2.4 State Water Properties. Title to the BP America Properties is currently held by BP America, an Affiliate of Seller. Seller agrees to cause BP America to comply with the terms of the various covenants contained in Article 12 that are expressly applicable to BP America under the terms thereof and to provide the deliveries at Closing required of BP America under the terms of Article 16, and shall be liable for BP America's failure to comply to the same extent as if Seller had failed to comply. Seller's representations, indemnities and agreements under this Agreement with respect to the Properties shall apply to the BP America Properties as fully as if title to such Properties were held by Seller. ARTICLE 3. PREFERENTIAL RIGHTS 3.1 Preferential Rights To Purchase. Seller shall use Buyer's Allocations to provide any required preferential right to purchase notifications as promptly as practicable after Buyer has furnished Buyer's Allocations, based on the form of Preferential Purchase Right Notice Letter attached hereto as Exhibit "L". If, prior to the Closing Date, a holder of a preferential purchase right notifies Seller that it elects to exercise its rights with respect to the Properties to which its preferential purchase right applies (determined by and in accordance with the agreement in which the preferential purchase right arises), the Properties covered by that preferential purchase right will not be sold to the Party originally executing this Agreement as "Buyer" (subject to the remaining provisions in this Article), and the Purchase Price will be reduced by Buyer's Allocations for such Properties if Buyer's Allocations are positive numbers and increased by Buyer's Allocations for such Properties if Buyer's Allocations are negative numbers. Buyer remains obligated to purchase the remainder of the Properties not affected by exercised preferential rights to purchase. If for any reason, other than Seller's breach, the purchase 13 and sale of the Properties covered by the preferential purchase right is not or cannot be consummated with the holder of the preferential purchase right, Seller shall so notify Buyer promptly, but no later than thirty (30) Days after the date set forth in Article 17.1.4, and within ten (10) Business Days after Buyer's receipt of such notice, Seller shall sell, assign and convey to Buyer and Buyer shall purchase and accept from Seller such Properties pursuant to the terms of this Agreement and for the value allocated to such Properties in Buyer's Allocations (except "CLOSING DATE" with respect to such Properties shall mean the date of assignment of such Properties from Seller to Buyer). Any preferential purchase right must be exercised subject to all the terms and conditions of this Agreement, including successful Closing of this Agreement pursuant to Article 16. ARTICLE 4. TITLE REVIEW 4.1 Review of Title Records. After execution and delivery of this Agreement, Seller shall make available (during Seller's regular business hours and at their current location) for Buyer's review, Records in Seller's possession or under Seller's control relating to title to the Properties. If Buyer requests copies of title Records, Seller shall use reasonable efforts to provide the requested copies to Buyer at Buyer's expense. Such review of Records will be conducted in accordance with the terms of the Confidentiality Agreement. 4.2 Alleged Title Defects. (a) Should Seller's Disposition Team discover a Title Defect on or before Closing, Seller shall as soon as practicable, but in any event prior to Closing, deliver to Buyer a notice including a specific description of the Title Defect and the Real Properties affected. As soon as reasonably practicable (and on an ongoing basis), but no later than fifteen (15) Days prior to Closing, Buyer may notify Seller in writing of any Alleged Title Defects. Buyer's notice asserting Alleged Title Defects must include a reasonably detailed description and explanation (including any available supporting documentation) of each Alleged Title Defect claimed, the Real Properties affected, and the value Buyer in good faith attributes to the Alleged Title Defect. Buyer and Seller shall meet from time-to-time to attempt to agree on resolution with respect to Alleged Title Defects. Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove on or before the Closing Date any Alleged Title Defects with respect to the Real Properties. If prior to Closing, Seller has commenced to cure the Alleged Title Defect in a timely manner and pursues such cure diligently, then Seller may, by notice to Buyer prior to Closing, elect to continue diligently attempting to cure such defect to completion for up to one hundred eighty (180) Days following Closing. (b) Should Buyer's Acquisition Team discover any Title Benefit on or before Closing, Buyer shall as soon as practicable, but in any case prior to Closing, deliver to Seller a notice including a specific description of the Title Benefit and the Real Properties affected. Seller shall have the right to deliver to Buyer a similar notice on or before Closing with respect to each Title Benefit discovered 14 by Seller, which in the case of Seller, shall include the value Seller in good faith attributes to the Title Benefit. (c) A Purchase Price adjustment shall be made under Article 2.2(k) by reducing the Purchase Price by the net aggregate value of all actual Alleged Title Defects timely reported under this Article (or of which Seller had knowledge and should have reported under Article 4.2(a)) and not timely cured as permitted under this Article, and increasing the Purchase Price by the net aggregate value of all actual Title Benefits timely reported under this Article (or of which Buyer had knowledge and should have reported under Article 4.2(b)), subject to the other terms of this Article. The value attributable to the uncured Alleged Title Defects shall be determined as follows: (i) Where Seller agrees in writing with the value of the Alleged Title Defect as set forth in Buyer's notice, that value shall be the value of the Alleged Title Defect. (ii) If the Alleged Title Defect is a lien, encumbrance or other charge upon a Real Property which is undisputed and liquidated in amount, then the value of the Alleged Title Defect shall be the amount necessary to be paid to the obligee to remove the Alleged Title Defect from the affected Real Property. (iii) If the Buyer's Allocation for any Real Property is positive and the Alleged Title Defect represents a discrepancy between the Net Revenue Interest for such Real Property and the Net Revenue Interest for that Real Property stated on Exhibit "A", then the value of such Alleged Title Defect shall be the product of the Buyer's Allocation for such Real Property multiplied by a fraction, the numerator of which is the decrease in Net Revenue Interest and the denominator of which is the Net Revenue Interest stated on Exhibit "A". (iv) If the Alleged Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the affected Real Property of a type not described in subsections (i), (ii) or (iii) above, the value of the Alleged Title Defect shall be determined by taking into account Buyer's Allocation for the Real Property so affected, the portion of the Real Property affected by the Alleged Title Defect, the legal effect of the Alleged Title Defect, the potential economic effect of the Alleged Title Defect over the life of the affected Real Property, and such other factors as are necessary to make a proper evaluation. Where the affected Real Property is an easement, right-of-way, servitude or subsurface lease that is not given a separate Buyer's Allocation, that easement, right-of-way, servitude or subsurface lease shall be considered a part of the Real Property or Real Properties to which it is appurtenant for purposes of taking into account Buyer's Allocation. 15 The Parties agree for all purposes of this Article 4 that Buyer's Allocation for each Real Property is the value of that Real Property if it has the Net Revenue Interest and Working Interest stated on Exhibit "A" and is free of liens, claims and encumbrances other than Permitted Encumbrances. The value of any Alleged Title Defect or Title Benefit consisting of a discrepancy in Net Revenue Interest and/or Working Interest shall be determined solely by starting with the Buyer's Allocation and calculating the effect of the percentage change in Net Revenue Interest and/or Working Interest. Such calculation shall be based on the same assumptions with respect to production rate, production profile, price, and amounts of future capital expenditures as were used in the calculation of Buyer's Allocation, which assumptions shall be disclosed to Seller and any applicable arbitrator. Furthermore, if an Alleged Title Defect is reasonably susceptible of being cured, the adjustments or payments with respect to that Alleged Title Defect shall not exceed the reasonable costs of cure. (d) If prior to Closing, the Parties are unable to agree on a resolution associated with any Alleged Title Defects raised by Buyer (or of which Seller had knowledge and should have reported under Article 4.2(a)), the Parties shall Close with the Purchase Price being reduced by Seller's estimate of the value of all uncured Alleged Title Defects, in accordance with Article 4.2(c), excluding those Alleged Title Defects with respect to which Seller has provided notice of its election to continue curing under Article 4.2(a); provided, however, that within thirty (30) Days after the Closing Date, either Party may initiate binding arbitration in accordance with the provisions set forth in Article 18.1 to resolve the dispute. If prior to Closing, the Parties are unable to agree on a resolution associated with any Title Benefit raised pursuant to Article 4.2(b) (or of which Buyer had knowledge and should have reported under Article 4.2(b)), the Parties shall Close with the Purchase Price being increased by Seller's estimate of the increase in the value of the Properties above that shown in Buyer's Allocations (including any reduction in the negative value of any Property with a negative Buyer's Allocation) as a consequence of the Title Benefit, subject to the right of either Party to initiate binding arbitration in accordance with the provisions set forth in Article 18.1 to resolve the dispute. (e) If by one hundred eighty (180) Days following Closing, Seller has failed to cure any Alleged Title Defects with respect to which Seller has provided notice of its election to continue curing under Article 4.2(a), and the Parties have been unable by such date to agree upon a resolution associated with such Alleged Title Defects, then Seller shall make a payment to Buyer equal to Seller's estimate of the value of such uncured Alleged Title Defects, in accordance with Article 4.2(c). Within thirty (30) Days after the one hundred eighty (180) Day cure period has expired, either Party may initiate binding arbitration in accordance with the provisions set forth in Article 18.1 to resolve the dispute. (f) ANY CLAIM FOR PAYMENT WITH RESPECT TO ANY ALLEGED TITLE DEFECT, AND ANY ASSERTION THAT ANY ALLEGED TITLE DEFECT FOR WHICH SELLER HAS PROVIDED NOTICE OF ITS INTENT TO CURE HAS NOT BEEN CURED, THAT ARE NOT RESOLVED BY AGREEMENT OF 16 THE PARTIES OR REFERRED TO ARBITRATION WITHIN THIRTY (30) DAYS FOLLOWING CLOSING (OR, IN THE EVENT SELLER PROVIDES NOTICE THAT IT WILL CONTINUE ATTEMPTING TO CURE THE ALLEGED TITLE DEFECT AFTER CLOSING, WITHIN THIRTY (30) DAYS AFTER THE ONE HUNDRED EIGHTY (180) DAY CURE PERIOD FOLLOWING CLOSING HAS EXPIRED) SHALL BE DEEMED WAIVED, UNLESS THE THIRTY (30) DAY PERIOD IS EXTENDED BY MUTUAL WRITTEN AGREEMENT OF THE PARTIES. (g) Any limitations contained in the definition of Alleged Title Defect or in this Article 4.2 on Buyer's right to compensation with respect to any Title Defect shall have no effect on Buyer's right to compensation, if any, with respect to any Claim for damages or other matter (except title) involving the Real Property subject to the Title Defect under any other provision of this Agreement. (h) Seller's election to attempt to cure an Alleged Title Defect shall not constitute a waiver of Seller's right to dispute the existence, nature or value of, or cost to cure, the Alleged Title Defect. Buyer's acceptance of any payment or adjustment based on Seller's estimate of the value of an uncured Alleged Title Defect shall not constitute a waiver of Buyer's right to dispute such estimate by initiating arbitration within the time permitted by this Article. 4.3 Waiver. EXCEPT FOR THE SPECIAL WARRANTY OF TITLE GIVEN BY SELLER IN ARTICLE 10.1.6, BUYER WAIVES FOR ALL PURPOSES ALL OBJECTIONS ASSOCIATED WITH THE TITLE TO THE PROPERTIES (INCLUDING ALLEGED TITLE DEFECTS), UNLESS RAISED BY PROPER NOTICE WITHIN THE APPLICABLE TIME PERIOD SET FORTH IN ARTICLE 4.2; AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME. ARTICLE 5. INSPECTION OF PREMISES 5.1 Inspection of Premises. After execution and delivery of this Agreement, Seller shall provide Buyer access (during Seller's regular business hours) to Seller-operated Properties, and Seller will use reasonable efforts to obtain permission for Buyer to gain access to third party-operated Properties, to inspect the condition of the same. Such inspection shall be conducted in accordance with the terms of the Confidentiality Agreement and subject to any boarding agreements or releases or other agreements required by the operator of the Properties and the rules and regulations of such operator with respect to health, safety and the environment. Buyer may not operate equipment during such inspection. At Buyer's reasonable request, Seller shall conduct tests for sustained casing pressure on wells included in the Properties and any other equipment tests that Seller's on-site personnel deem reasonably acceptable in connection with Buyer's site visits. Buyer may not conduct testing or sampling of materials during such inspection without Seller's prior written consent, such consent not to be unreasonably withheld or delayed (and Seller shall use good faith efforts, considering the circumstances, to respond to Buyer's requests made while on-site on a Property prior to Buyer's departure from the Property). Seller shall arrange, at Buyer's cost, for any transportation to and from any such Properties as is reasonably requested by Buyer. BUYER TO THE FULLEST EXTENT PERMITTED BY LAW, SHALL INDEMNIFY, DEFEND AND HOLD 17 HARMLESS SELLER GROUP, THE OTHER OWNERS OF INTERESTS IN THE PROPERTIES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND REPRESENTATIVES, FROM ANY AND ALL CLAIMS, DEMANDS, SUITS, CAUSES OF ACTION, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES AND COSTS (INCLUDING ATTORNEYS' FEES AND COSTS OF LITIGATION), INCLUDING THOSE FOR (1) ANY INJURY TO PERSONS (INCLUDING OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, CONSULTANTS, LEGAL AND FINANCIAL ADVISORS AND OTHER REPRESENTATIVES OF BUYER (COLLECTIVELY, "BUYER'S REPRESENTATIVES") OR SELLER GROUP); (2) DAMAGES TO PROPERTY (INCLUDING DAMAGE TO THE PROPERTY OF THIRD PARTIES, PROPERTY OF SELLER GROUP, AND PROPERTY OF BUYER AND BUYER'S REPRESENTATIVES); AND (3) DAMAGES TO NATURAL RESOURCES OR ENVIRONMENTAL DAMAGE TO OR ASSOCIATED WITH THE PROPERTIES, TO THE EXTENT CAUSED BY, ARISING OUT OF, OR RESULTING FROM THE ACTIONS OF BUYER AND/OR BUYER'S REPRESENTATIVES IN CONNECTION WITH SAID SITE VISIT OR PHYSICAL INVESTIGATION OF THE PROPERTIES, EVEN IF SUCH INDEMNIFIED EVENT IS CAUSED BY, ARISES OUT OF OR RESULTS FROM NEGLIGENCE, STRICT LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW OR OTHER FAULT OF ANY OF THE AFORESAID INDEMNIFIED PARTIES, OR ANY PRE-EXISTING DEFECT, BUT NOT TO THE EXTENT THAT SUCH INDEMNIFIED EVENT OR OCCURRENCE IS CAUSED BY OR THE RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTIES. As promptly as practicable, and taking into account to the extent practicable any priorities of which Buyer has provided notice, but in any event within ten (10) Business Days after execution and delivery of this Agreement, Seller shall make available (during Seller's regular business hours and at their current location) for Buyer's review, Records in Seller's possession or under Seller's control relating to the Properties. If Buyer requests copies of Records, Seller shall use reasonable efforts to provide the requested copies to Buyer at Buyer's expense. Such review of Records will be conducted in accordance with the terms of the Confidentiality Agreement. 5.2 Alleged Adverse Conditions. (a) As soon as reasonably practicable (and on an ongoing basis), but no later than fifteen (15) Days prior to Closing, Buyer may notify Seller in writing of any Alleged Adverse Conditions. Buyer's notice asserting Alleged Adverse Conditions must include a reasonably detailed description and explanation (including any available supporting documentation) of each Alleged Adverse Condition claimed, the Properties affected, and the value Buyer in good faith attributes to the Alleged Adverse Condition. Buyer and Seller shall meet from time-to-time to attempt to agree on resolution with respect to Alleged Adverse Conditions. Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove on or before the Closing Date any Alleged Adverse Conditions with respect to the Properties. If prior to Closing, Seller has commenced to cure the Alleged Adverse Condition in a timely manner and pursues such cure diligently, then Seller may, by notice to Buyer prior to Closing, elect to continue diligently attempting to cure such condition to completion for up to one hundred eighty (180) Days following Closing. (b) A Purchase Price adjustment shall be made under Article 2.2(l) by reducing the Purchase Price by the net aggregate value of all actual Alleged Adverse Conditions timely reported under this Article and not timely cured as permitted 18 under this Article, subject to Article 5.2(g) and the other terms of this Article. When calculating the value of any Alleged Adverse Conditions, if an Alleged Adverse Condition is reasonably susceptible of being cured, the adjustments or payments with respect to that Alleged Adverse Condition shall not exceed the reasonable costs of cure. (c) Notwithstanding the other terms of this Article 5.2, Seller may elect by notice to Buyer at least five (5) Business Days prior to the Closing Date to exclude from this Agreement any Real Property and associated personal Property affected by an Alleged Adverse Condition of which Buyer has provided timely notice if (i) the Real Property has a positive Buyer's Allocation and the cumulative adjustments and payments associated with the effects of Alleged Adverse Conditions on such Real Property and associated personal Property would exceed Buyer's Allocation for such Real Property or (ii) the Real Property has a negative Buyer's Allocation. In the event any Property is excluded from this Agreement pursuant to this Article, the Purchase Price shall be reduced by Buyer's Allocation for such Property, and no other adjustment shall be made with respect to such Property. (d) If prior to Closing, the Parties are unable to agree on a resolution associated with any Alleged Adverse Conditions raised by Buyer, the Parties shall Close with the Purchase Price being reduced by Seller's estimate of the value of all uncured Alleged Adverse Conditions, excluding those Alleged Adverse Conditions with respect to which Seller has provided notice of its election to continue curing under Article 5.2(a); provided, however, that within thirty (30) Days after the Closing Date, either Party may initiate binding arbitration in accordance with the provisions set forth in Article 18.1 to resolve the dispute. (e) If by one hundred eighty (180) Days following Closing, Seller has failed to cure any Alleged Adverse Conditions with respect to which Seller has provided notice of its election to continue curing under Article 5.2(a), and the Parties have been unable by such date to agree upon a resolution associated with such Alleged Adverse Conditions, Seller shall make a payment to Buyer equal to Seller's estimate of the value of such uncured Alleged Adverse Conditions. Within thirty (30) Days after the one hundred eighty (180) Day cure period has expired, either Party may initiate binding arbitration in accordance with the provisions set forth in Article 18.1 to resolve the dispute. (f) ANY CLAIM FOR PAYMENT WITH RESPECT TO ANY ALLEGED ADVERSE CONDITION, AND ANY ASSERTION THAT ANY ALLEGED ADVERSE CONDITION FOR WHICH SELLER HAS PROVIDED NOTICE OF ITS INTENT TO CURE HAS NOT BEEN CURED, THAT ARE NOT RESOLVED BY AGREEMENT OF THE PARTIES OR REFERRED TO ARBITRATION WITHIN THIRTY (30) DAYS FOLLOWING CLOSING (OR, IN THE EVENT SELLER PROVIDES NOTICE THAT IT WILL CONTINUE ATTEMPTING TO CURE THE ALLEGED ADVERSE CONDITIONS AFTER CLOSING, WITHIN THIRTY (30) DAYS AFTER THE ONE HUNDRED EIGHTY (180) DAY CURE PERIOD FOLLOWING CLOSING HAS EXPIRED) SHALL BE DEEMED WAIVED, UNLESS THE THIRTY (30) DAY PERIOD IS EXTENDED BY MUTUAL WRITTEN AGREEMENT OF THE PARTIES. 19 (g) Notwithstanding anything contained in this Agreement to the contrary, Buyer shall not be entitled to an adjustment or other remedy under Articles 5.2, 8.3 or 8.4 unless the aggregate value (determined in accordance with those Articles) of all Alleged Adverse Conditions, Non-Environmental Claims and Environmental Claims timely reported under those Articles and not cured by Seller exceeds seventeen million five hundred thousand United States dollars (US $17,500,000), and then only to the extent such aggregate value exceeds seventeen million five hundred thousand United States dollars (US $17,500,000), and as between Buyer and Seller Group, Buyer shall be solely responsible for and bear all costs and expenses associated with any and all Alleged Adverse Conditions, Non-Environmental Claims and Environmental Claims up to seventeen million five hundred thousand United States dollars (US $17,500,000). (h) Seller's election to attempt to cure an Alleged Adverse Condition shall not constitute a waiver of Seller's right to dispute the existence, nature, or value of, or cost to cure, the Alleged Adverse Condition. Buyer's acceptance of any payment or adjustment based on Seller's estimate of the value of an uncured Alleged Adverse Condition shall not constitute a waiver of Buyer's right to dispute such estimate by initiating arbitration within the time period permitted by this Article. 5.3 Waiver. BUYER WAIVES FOR ALL PURPOSES ALL OBJECTIONS ASSOCIATED WITH THE ENVIRONMENTAL AND PHYSICAL AND OTHER CONDITION OF THE PROPERTIES (INCLUDING ALLEGED ADVERSE CONDITIONS), UNLESS RAISED BY PROPER NOTICE WITHIN THE APPLICABLE TIME PERIOD SET FORTH IN ARTICLE 5.2; AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS, EXCEPT CLAIMS UNDER SELLER'S INDEMNITIES PURSUANT TO ARTICLES 8.2, 8.3 AND 8.4, THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME. ARTICLE 6. ACCOUNTING 6.1 Products. Seller (or operator of the Properties) shall gauge all merchantable oil and liquid hydrocarbon substances associated with the Properties and stored in tanks and vessels to the bottom of the flange, as of the Effective Time. Buyer shall purchase from Seller, at Closing, all such oil and liquid hydrocarbon substances at a price equal to the average price received by Seller from sales during the month of December 2002 of comparable oil and liquid hydrocarbon substances from each field from which such substances were produced, net of royalties, excise, severance and other production taxes, and marketing costs (which include for purposes hereof, among other things, costs of gathering, treating, processing, compression, and transportation), to the extent such items are not treated as "Charges" under this Article 6. Oil and liquid hydrocarbon substances in treating and separation equipment upstream of pipeline connections, as of the Effective Time, shall not be considered merchantable and shall become the property of Buyer. Actual amounts shall be accounted for in the Final Accounting Settlement. 6.2 Revenues, Expenses and Capital Expenditures. Except as expressly provided otherwise in this Agreement: (a) Seller (or, if applicable, BP America) is entitled to all Operating Revenues attributable to the Properties during the period prior to the Effective Time and 20 is responsible for all Charges attributable to the Properties during the period prior to the Effective Time; (b) Seller (on behalf of Seller and BP America) is entitled to the sum of US $450,000 per month (prorated on a daily basis for any partial month) (as an agreed reimbursement in lieu of actual overhead) for the period from and after the Effective Time to but excluding the Closing Date; and (c) Buyer is entitled to all Operating Revenues attributable to the Properties during the period on and after the Effective Time and is responsible for all Charges (except producing, drilling and overhead costs payable to Seller or its Affiliates, other than pursuant to Section 6.2(b)) attributable to the Properties during the period on and after the Effective Time. Actual amounts shall be accounted for in the Final Accounting Settlement, unless previously accounted for under the Transition Agreement. Whether Charges and Operating Revenues with respect to the Properties are attributable to periods before or after the Effective Time shall be determined in accordance with United States generally accepted accounting principles (as published by the Financial Accounting Standards Board) and Council of Petroleum Accountants Societies (COPAS) standards, based on the accrual method of accounting. 6.3 Taxes. Seller (or, if applicable, BP America) shall bear all taxes and assessments, including excise taxes, severance or other production taxes, ad valorem taxes and any other federal, state or local taxes or assessments attributable to ownership or operation of the Properties prior to the Effective Time; and all deductions, credits or refunds pertaining to the aforementioned taxes and assessments, no matter when received, belong to Seller (or BP America). Buyer shall bear all taxes and assessments, including sales taxes, excise taxes, severance or other production taxes, ad valorem taxes and any other federal, state or local taxes and assessments attributable to ownership or operation of the Properties on and after the Effective Time (excluding Seller's and BP America's income taxes from the Effective Time through Closing); and all deductions, credits and refunds pertaining to the aforementioned taxes and assessments, no matter when received, belong to Buyer. Ad valorem or property or other taxes based on revenue from the Properties shall apply to the tax year for which the tax rendition is issued and be prorated based on the percentage of the assessment period occurring before and after the Effective Time. Actual amounts shall be accounted for in the Final Accounting Settlement. Buyer shall bear all Sales Tax, if any, on the transaction contemplated by this Agreement. Each Party is responsible for filing any tax returns and handling payment of any tax due under Law during the period when it or its Affiliate holds title to the Properties. 6.4 Credits. Buyer shall reimburse Seller (on behalf of itself and BP America) for any and all prepaid utility charges, rentals, deposits and any other prepays (excluding taxes) applicable to the period on and after the Effective Time that are attributable to the Properties. Actual amounts shall be accounted for in the Final Accounting Settlement. 6.5 Miscellaneous Accounting. Unless previously accounted for under the Transition Agreement, in addition to the items set forth in Articles 6.1 through 6.4, any other amounts due between Buyer and Seller associated with ownership or operation of the Properties from the Effective Time through the end of the Transition Period will be accounted for in the Final Accounting Settlement. 21 6.6 Final Accounting Settlement. As soon as reasonably practicable, but no later than one hundred eighty (180) Days after the end of the Transition Period, Seller shall deliver the Final Accounting Statement to Buyer. As soon as reasonably practicable, but no later than sixty (60) Days after Buyer receives the Final Accounting Statement, Buyer may deliver to Seller a written report containing any changes Buyer proposes to such statement. Any matters covered by the Final Accounting Statement as delivered by Seller to which Buyer fails to object in the written report shall be deemed correct and is final and binding on the Parties and not subject to further review, audit or arbitration. As soon as reasonably practicable, but no later than forty-five (45) Days after Seller receives Buyer's written report, the Parties shall meet to attempt to agree on any adjustments to the Final Accounting Statement. If the Parties fail to agree on final adjustments within that forty-five (45) Day period, either Party may submit the disputed items to the Accounting Referee no later than the thirtieth (30th) Day following the expiration of such forty-five (45) Day period. ANY ADJUSTMENT DISPUTE THAT IS NOT RESOLVED BY AGREEMENT OF THE PARTIES OR SUBMITTED TO THE ACCOUNTING REFEREE BY SUCH THIRTIETH (30TH) DAY SHALL BE DEEMED WAIVED UNLESS THE THIRTY (30) DAY PERIOD IS EXTENDED BY MUTUAL WRITTEN AGREEMENT OF THE PARTIES. The Parties shall direct the Accounting Referee to resolve the disputes within thirty (30) Days after its receipt of relevant materials pertaining to the dispute. The Accounting Referee shall act as an expert for the limited purpose of determining the specific disputed matters submitted by either Party and may not award damages or penalties to either Party with respect to any matter. Seller and Buyer shall share equally the Accounting Referee's fees and expenses. The Final Accounting Statement, whether as agreed between the Parties or as determined by a decision of the Accounting Referee, shall be binding on and non-appealable by the Parties. Within fifteen (15) Business Days after the earlier of (i) the date the amounts are agreed by the Parties and (ii) the date the Parties receive the Accounting Referee's decision (A) Buyer shall pay to Seller (on behalf of itself and BP America) the amount by which the Adjusted Purchase Price exceeds the Closing Payment, or (B) Seller shall pay to Buyer the amount by which the Closing Payment exceeds the Adjusted Purchase Price, as applicable. Any post-Closing payment pursuant to this Article 6.6 shall bear Computed Interest from the Closing Date to the date of payment. The revenues and expenses included in the Final Accounting Settlement shall be final and binding on the Parties and not subject to further review, audit or arbitration. 6.7 Post-Final Accounting Settlement Revenues. (a) Buyer shall pay Seller (on behalf of itself and BP America) any and all Operating Revenues received by Buyer (to the extent not accounted for in the Final Accounting Settlement or under the Transition Agreement) attributable to the Properties prior to the Effective Time, and (b) Seller shall pay Buyer any and all Operating Revenues received by Seller (or BP America) (to the extent not accounted for in the Final Accounting Settlement or under the Transition Agreement) attributable to the Properties on and after the Effective Time. The Party responsible for the payment of Operating Revenues shall make full payment to the other Party, together with reasonably available supporting documentation with respect to such amounts, within sixty (60) Days after receipt of such amounts. 6.8 Post-Final Accounting Settlement Expenses. (a) Seller shall reimburse Buyer for any and all Charges paid by Buyer (to the extent not accounted for in the Final Accounting 22 Settlement or under the Transition Agreement) attributable to the Properties prior to the Effective Time, and (b) Buyer shall reimburse Seller (on behalf of itself and BP America) for any and all Charges paid by Seller (or BP America) (to the extent not accounted for in the Final Accounting Settlement or under the Transition Agreement) attributable to the Properties on and after the Effective Time. The Party responsible for the payment of such Charges shall make full payment to the other Party within sixty (60) Days after receipt of an applicable invoice and proof that such invoice was paid. Seller or BP America, as applicable, shall be entitled to resolve all joint interest audits or other audits of such costs for periods for which Seller or BP America is responsible, and neither Party shall agree to settle any audit with respect to periods for which the other is in part responsible without the prior written consent of the other, such consent not to be unreasonably withheld. ARTICLE 7. LOSS, CASUALTY AND CONDEMNATION 7.1 Notice of Loss. Seller shall promptly notify Buyer of all instances of Casualty Loss that occur and become known to Seller between the date of this Agreement and Closing. 7.2 Casualty Loss. If, prior to Closing, a portion of the Properties is damaged or destroyed by a Casualty Loss, Seller and Buyer shall meet to attempt to agree on an adjustment to the Purchase Price reflecting the "reduction in value" of the Properties because of such Casualty Loss. For this purpose, "reduction in value" is based on the principle that Seller should generally bear the costs of repairing the Properties to the state existing immediately prior to the Casualty Loss, but if such repair results in equipment or facilities that are newer than or upgraded from that which existed immediately prior to the Casualty Loss, Buyer should bear a portion of such costs that is equitable under the circumstances because of the benefit to Buyer of such newer or upgraded equipment or facilities. Except as to those Real Properties with a negative Buyer's Allocation, no adjustment associated with a Casualty Loss shall exceed Buyer's Allocation for the affected Property. For those Real Properties with a negative Buyer's Allocation, Buyer may give Seller written notice at least five (5) Business Days prior to Closing and exclude from this Agreement the Real Property subject to the Casualty Loss and increase the Purchase Price by an amount equal to the Buyer's Allocation for such Real Property. If the Parties are unable to agree on resolution of a Casualty Loss, the Parties shall Close with the Purchase Price being reduced by Seller's estimate of the reduction in the value of the Properties as a result of the Casualty Loss; provided, however, either Party may, within sixty (60) Days after the Closing Date (but not later), initiate binding arbitration in accordance with Article 18.1 to resolve the dispute. Any claim for a Casualty Loss not referred to arbitration within sixty (60) Days after Closing shall be deemed waived. Notwithstanding the preceding, if a platform is damaged or destroyed by a Casualty Loss, Buyer may elect by notice to Seller at least five (5) Business Days prior to the Closing Date to exclude from this Agreement the Real Properties on which wells served by such platform are located and other related Properties and the Purchase Price shall be reduced by Buyer's Allocations for such Real Properties, and no other adjustment shall be made with respect to such platform and other Properties. Seller shall retain any and all insurance proceeds and other payments associated with or attributable to any pre-Closing Casualty Loss. Notwithstanding the foregoing, if the aggregate Casualty Losses and 23 Property exclusions under this Article exceed twenty-five percent (25%) of the Purchase Price, either Party may, by notice to the other at least one Business Day prior to Closing, elect to terminate this Agreement under Article 17.1.5. ARTICLE 8. ALLOCATION OF RESPONSIBILITIES AND INDEMNITIES 8.1 OPPORTUNITY FOR REVIEW. EACH PARTY REPRESENTS THAT IT HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW ALL RELEASE, INDEMNITY AND DEFENSE PROVISIONS IN THIS AGREEMENT, INCLUDING THE OPPORTUNITY TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND ADVICE. BASED ON THE FOREGOING REPRESENTATION, THE PARTIES AGREE TO THE PROVISIONS SET FORTH BELOW. 8.2 SELLER'S INDEMNITY WITH RESPECT TO RETAINED LITIGATION. SELLER RETAINS SOLE RESPONSIBILITY AND LIABILITY FOR THE LITIGATION AND CLAIMS SET FORTH IN EXHIBIT "C" TO THE EXTENT (AND ONLY TO THE EXTENT) SUCH LITIGATION AND CLAIMS RELATE TO THE PERIOD PRIOR TO THE EFFECTIVE TIME, AND SELLER RELEASES BUYER GROUP FROM AND SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD BUYER GROUP HARMLESS FROM AND AGAINST ALL CLAIMS TO THE EXTENT RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SUCH LITIGATION AND CLAIMS. 8.3 SELLER'S NON-ENVIRONMENTAL INDEMNITY OBLIGATION. SELLER RELEASES BUYER GROUP FROM AND, SUBJECT TO THE LIMITATIONS SET FORTH IN THIS AGREEMENT, SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD BUYER GROUP HARMLESS FROM AND AGAINST THE FOLLOWING: (i) CLAIMS FOR INJURY OR DEATH TO ANY PERSON TO THE EXTENT RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SELLER'S OR SELLER'S AFFILIATES' OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF PRIOR TO THE EFFECTIVE TIME, OF WHICH BUYER PROVIDES SELLER NOTICE IN ACCORDANCE WITH ARTICLE 8.7 WITHIN THREE YEARS AFTER THE CLOSING DATE, (OR, IF BUYER RECEIVES NOTICE OF SUCH CLAIM WITHIN THE LAST THIRTY (30) DAYS OF SUCH PERIOD, WITHIN THIRTY (30) DAYS OF BUYER'S RECEIPT OF NOTICE); (ii) CLAIMS THAT SELLER FAILED TO PAY ROYALTIES (INCLUDING OVERRIDING ROYALTIES) TO THE EXTENT RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SELLER'S OR SELLER'S AFFILIATES' OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF PRIOR TO THE EFFECTIVE TIME, OF WHICH BUYER PROVIDES SELLER NOTICE IN ACCORDANCE WITH ARTICLE 8.7 WITHIN THREE YEARS AFTER THE CLOSING DATE (OR, IF BUYER RECEIVES NOTICE OF SUCH CLAIM WITHIN THE LAST THIRTY (30) DAYS OF SUCH PERIOD, WITHIN THIRTY (30) DAYS OF BUYER'S RECEIPT OF NOTICE); AND (iii) ALL OTHER NON-ENVIRONMENTAL CLAIMS TO THE EXTENT RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SELLER'S OR SELLER'S AFFILIATES' OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF PRIOR TO THE EFFECTIVE TIME, OF WHICH BUYER PROVIDES SELLER NOTICE IN ACCORDANCE WITH ARTICLE 8.7 WITHIN ONE YEAR AFTER THE CLOSING 24 DATE (OR, IF BUYER RECEIVES NOTICE OF SUCH CLAIM WITHIN THE LAST THIRTY (30) DAYS OF SUCH PERIOD, WITHIN THIRTY (30) DAYS OF BUYER'S RECEIPT OF NOTICE), INCLUDING NON-ENVIRONMENTAL CLAIMS RELATING TO: (A) DAMAGES TO OR LOSS OF ANY PROPERTY OR RESOURCES, (B) BREACH OF CONTRACT, (C) COMMON LAW CAUSES OF ACTION SUCH AS NEGLIGENCE, STRICT LIABILITY, NUISANCE OR TRESPASS, OR (D) FAULT IMPOSED BY LAW OR OTHERWISE. THESE INDEMNITY AND DEFENSE OBLIGATIONS APPLY REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF BUYER GROUP, OR ANY PRE-EXISTING DEFECT. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, SELLER HAS NO OBLIGATION UNDER THIS AGREEMENT OR OTHERWISE TO PROTECT, DEFEND, INDEMNIFY, AND HOLD BUYER GROUP HARMLESS FROM AND AGAINST ANY NON-ENVIRONMENTAL CLAIMS FOR WHICH BUYER IS NOT ENTITLED TO A REMEDY UNDER ARTICLE 5.2(G). AS BETWEEN BUYER AND SELLER GROUP, BUYER ASSUMES AND IS SOLELY RESPONSIBLE FOR ALL NON-ENVIRONMENTAL CLAIMS NOT SUBJECT TO INDEMNIFICATION BY SELLER AT THE TIME IN QUESTION UNDER THE TERMS OF THIS ARTICLE. 8.4 SELLER'S ENVIRONMENTAL INDEMNITY OBLIGATION. SELLER RELEASES BUYER GROUP FROM AND SUBJECT TO THE LIMITATIONS SET FORTH IN THIS AGREEMENT, SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD BUYER GROUP HARMLESS FROM AND AGAINST ALL ENVIRONMENTAL CLAIMS TO THE EXTENT RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SELLER'S OR SELLER'S AFFILIATES' OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF PRIOR TO THE EFFECTIVE TIME OF WHICH BUYER PROVIDES SELLER WITH NOTICE IN ACCORDANCE WITH ARTICLE 8.7 WITHIN ONE YEAR AFTER THE CLOSING DATE (OR, IF BUYER RECEIVES NOTICE OF SUCH CLAIM WITHIN THE LAST THIRTY (30) DAYS OF SUCH PERIOD, WITHIN THIRTY (30) DAYS AFTER BUYER'S RECEIPT OF NOTICE). THIS INDEMNITY AND DEFENSE OBLIGATION APPLIES REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF BUYER GROUP, OR ANY PRE-EXISTING DEFECT. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, SELLER HAS NO OBLIGATION UNDER THIS AGREEMENT OR OTHERWISE TO PROTECT, DEFEND, INDEMNIFY, AND HOLD BUYER GROUP HARMLESS FROM AND AGAINST ANY ENVIRONMENTAL CLAIMS FOR WHICH BUYER IS NOT ENTITLED TO A REMEDY UNDER ARTICLE 5.2(G). AS BETWEEN BUYER AND SELLER GROUP, BUYER ASSUMES AND IS SOLELY RESPONSIBLE FOR ANY AND ALL ENVIRONMENTAL CLAIMS NOT SUBJECT TO INDEMNIFICATION BY SELLER AT THE TIME IN QUESTION UNDER THE TERMS OF THIS ARTICLE. 8.5 BUYER'S NON-ENVIRONMENTAL INDEMNITY OBLIGATION. BUYER RELEASES SELLER GROUP FROM AND SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ALL NON-ENVIRONMENTAL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF PRIOR TO THE EFFECTIVE TIME (NO MATTER WHEN ASSERTED) FOR WHICH SELLER'S INDEMNITY AND DEFENSE OBLIGATION IN ARTICLE 8.3 HAS CEASED, TERMINATED (IN ACCORDANCE WITH ARTICLE 8.3 OR OTHERWISE) OR DOES NOT APPLY, AS WELL AS FOR ANY CLAIMS ARISING AGAINST SELLER GROUP FROM BUYER'S ALLOCATION OF THE PURCHASE PRICE FOR THE PURPOSES OF ARTICLE 3, AND FROM AND AGAINST ALL NON-ENVIRONMENTAL CLAIMS RELATING TO, ARISING 25 OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF ON AND AFTER THE EFFECTIVE TIME (NO MATTER WHEN ASSERTED), INCLUDING IN EACH CASE NON-ENVIRONMENTAL CLAIMS RELATING TO (A) INJURY OR DEATH OF ANY PERSON WHOMSOEVER, (B) DAMAGES TO OR LOSS OF ANY PROPERTY OR RESOURCES, (C) BREACH OF CONTRACT, (D) PAYMENT OF ROYALTIES, (E) COMMON LAW CAUSES OF ACTION SUCH AS NEGLIGENCE, STRICT LIABILITY, NUISANCE OR TRESPASS, OR (F) FAULT IMPOSED BY LAW OR OTHERWISE. THESE INDEMNITY AND DEFENSE OBLIGATIONS APPLY REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. 8.6 BUYER'S ENVIRONMENTAL INDEMNITY OBLIGATION. BUYER RELEASES SELLER GROUP FROM AND SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ALL ENVIRONMENTAL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF PRIOR TO THE EFFECTIVE TIME (NO MATTER WHEN ASSERTED) FOR WHICH SELLER'S INDEMNITY AND DEFENSE OBLIGATION IN ARTICLE 8.4 HAS CEASED, TERMINATED (IN ACCORDANCE WITH ARTICLE 8.4 OR OTHERWISE) OR DOES NOT APPLY, AND FROM AND AGAINST ANY AND ALL ENVIRONMENTAL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, OWNERSHIP OR OPERATION OF THE PROPERTIES OR ANY PART THEREOF ON AND AFTER THE EFFECTIVE TIME. THESE INDEMNITY AND DEFENSE OBLIGATIONS APPLY REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. 8.7 Notice of Claims. If a Claim is asserted against a Party for which the other Party may have an obligation of indemnity and defense or may be entitled to indemnity or defense (whether under this Article 8 or any other provision of this Agreement), the Party against whom the Claim is asserted shall give the other Party prompt written notice of the Claim, setting forth the particulars associated with the Claim (including a copy of the written Claim, if any) as then known by the Indemnified Party. In the event that the Party sending the notice is seeking indemnification under this Agreement, it shall include that request in its notice (a "CLAIM NOTICE"). Any Party seeking indemnification under the terms of this Agreement shall be referred to herein as the "INDEMNIFIED PARTY" and the Party from whom the Indemnified Party seeks indemnification shall be referred to herein as the "INDEMNIFYING PARTY." The failure of any Indemnified Party to give prompt notice of a Claim as required by this Article shall not relieve the Indemnifying Party of its obligations under this Agreement except to the extent such failure materially prejudices the Indemnifying Party's ability to defend against the Claim. 8.8 Defense of Claims. Within thirty (30) Days after the Indemnifying Party receives a Claim Notice, the Indemnifying Party shall notify the Indemnified Party whether or not the Indemnifying Party will assume responsibility for defense and payment of the Claim. The Indemnified Party is authorized, prior to and during such thirty (30) Day period, to file any motion, pleading or other answer that it deems necessary or appropriate to protect its interests, or those of the Indemnifying Party, and that is not prejudicial to the Indemnifying Party. If the Indemnifying Party elects not to assume responsibility for 26 defense and payment of the Claim, the Indemnified Party may defend against, or enter into any settlement with respect to, the Claim as it deems appropriate without relieving the Indemnifying Party of any indemnification obligations the Indemnifying Party may have with respect to such Claim. The Indemnifying Party's failure to respond in writing to a Claim Notice within the thirty (30) Day period shall be deemed an election by the Indemnifying Party not to assume responsibility for defense and payment of the Claim. If the Indemnifying Party elects to assume responsibility for defense and payment of the Claim: (a) the Indemnifying Party shall defend the Indemnified Party against the Claim with counsel of the Indemnifying Party's choice (reasonably acceptable to Indemnified Party which shall cooperate with the Indemnifying Party in all reasonable respects in such defense), (b) the Indemnifying Party shall pay any judgment entered or settlement with respect to such Claim, (c) the Indemnifying Party shall not consent to entry of any judgment or enter into any settlement with respect to the Claim that (i) does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect to the Claim or (ii) contains terms that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity), and (d) if the Indemnified Party consents to entry of any judgment or enters into any settlement with respect to the Claim without the Indemnifying Party's prior written consent, then the Indemnified Party shall be conclusively deemed to have waived any right to indemnification under this Agreement with respect to such Claim. In all instances the Indemnified Party may employ separate counsel and participate in defense of a Claim, but the Indemnified Party shall bear all fees and expenses of counsel employed by the Indemnified Party. 8.9 No Duplication of Remedies. In no event shall either Party be entitled to duplicate compensation with respect to any Claim or breach of representation, warranty or agreement asserted under the terms of this Agreement, even though such Claim or breach may be addressed by more than one provision of this Agreement. Non-Environmental Claims and Environmental Claims are excluded from Charges, which are adjusted between the Parties in accordance with the terms of Article 6. Payments for Claims under Article 8 shall not effect allocations of Charges and Operating Revenues under Article 6 and allocations of Charges and Operating Revenues under Article 6 shall not effect payments for Claims under Article 8. For the avoidance of doubt, Buyer's claims for indemnification under this Agreement are limited to Seller's ownership interest in the asset giving rise to such a claim. 8.10 Other Contracts Between the Parties. The releases in this Article 8 are not intended to waive any existing contractual rights between any member of Seller Group and any member of Buyer Group under operating agreements, unit agreements, service contracts or other agreements not entered into and delivered in connection with this Agreement or the transactions contemplated hereunder. 8.11 WAIVER OF CERTAIN DAMAGES. EACH PARTY IRREVOCABLY WAIVES AND AGREES NOT TO SEEK INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND IN CONNECTION WITH ANY DISPUTE ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE BREACH HEREOF. FOR THE AVOIDANCE OF DOUBT, THIS ARTICLE 8.11 DOES NOT DIMINISH OR OTHERWISE AFFECT THE PARTIES' RIGHTS AND OBLIGATIONS TO BE INDEMNIFIED AGAINST, AND PROVIDE INDEMNITY 27 FOR, INDIRECT, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES AWARDED TO ANY THIRD PARTY FOR WHICH INDEMNIFICATION IS PROVIDED IN THIS AGREEMENT OR SELLER'S RIGHT TO RECEIVE LIQUIDATED DAMAGES, INCLUDING THE PERFORMANCE DEPOSIT, PURSUANT TO THE TERMS OF ARTICLE 17.2. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED ELSEWHERE IN THIS AGREEMENT, SELLER SHALL NOT BE REQUIRED TO INDEMNIFY BUYER UNDER THIS ARTICLE 8 FOR AGGREGATE DAMAGES IN EXCESS OF THE PURCHASE PRICE. ARTICLE 9. DISCLAIMERS 9.1 DISCLAIMERS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ARTICLE 10 OR AS OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT: (A) SELLER SHALL ASSIGN AND CONVEY THE PROPERTIES TO BUYER "AS-IS, WHERE-IS", AND WITH ALL FAULTS AND DEFECTS IN THEIR PRESENT CONDITION AND STATE OF REPAIR, WITHOUT RECOURSE, EVEN FOR THE RETURN OF THE PURCHASE PRICE, AND (B) SELLER DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PROPERTIES, EXPRESS, STATUTORY, IMPLIED OR OTHERWISE, INCLUDING ANY WARRANTY AS TO (I) TITLE, (II) COMPLIANCE WITH LAWS, (III) EXISTENCE OF ANY AND ALL PROSPECTS OR RECOMPLETION OPPORTUNITIES, (IV) GEOGRAPHIC, GEOLOGIC OR GEOPHYSICAL CHARACTERISTICS, (V) EXISTENCE, QUALITY, QUANTITY OR RECOVERABILITY OF HYDROCARBON SUBSTANCES, (VI) ABILITY TO PRODUCE, INCLUDING PRODUCTION OR DECLINE RATES, (VII) COSTS, EXPENSES, REVENUES, RECEIPTS, PRICES, ACCOUNTS RECEIVABLE OR ACCOUNTS PAYABLE, (VIII) CONTRACTUAL, ECONOMIC OR FINANCIAL INFORMATION AND DATA, (IX) CONTINUED FINANCIAL VIABILITY, INCLUDING PRESENT OR FUTURE VALUE OR ANTICIPATED INCOME OR PROFITS, (X) ENVIRONMENTAL OR PHYSICAL CONDITION, (XI) FEDERAL, STATE, OR LOCAL INCOME OR OTHER TAX CONSEQUENCES, (XII) ABSENCE OF PATENT OR LATENT DEFECTS, (XIII) SAFETY, (XIV) STATE OF REPAIR, (XV) MERCHANTABILITY, (XVI) FITNESS FOR A PARTICULAR PURPOSE AND (XVII) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS; AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME OTHER THAN BUYER'S RIGHT TO ASSERT THE EXISTENCE OF ALLEGED ADVERSE CONDITIONS UNDER ARTICLE 5.2 OR BUYER'S RIGHT TO CLAIM BREACHES OF REPRESENTATIONS AND WARRANTIES UNDER ARTICLE 10. 9.2 DISCLAIMER OF STATEMENTS AND INFORMATION. SELLER EXPRESSLY DISCLAIMS ANY AND ALL LIABILITY AND RESPONSIBILITY FOR AND ASSOCIATED WITH THE QUALITY, ACCURACY, COMPLETENESS OR MATERIALITY OF INFORMATION, DATA AND MATERIALS SHOWN TO OR FURNISHED (ELECTRONICALLY, ORALLY, IN WRITING OR ANY OTHER MEDIUM) TO BUYER GROUP ASSOCIATED WITH THE PROPERTIES OR THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT; AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME. FOR THE AVOIDANCE OF DOUBT, BUYER'S WAIVER OF CLAIMS UNDER THIS ARTICLE 9.2 DOES NOT WAIVE BUYER'S RIGHT TO ASSERT UNDER ARTICLE 5.2 THE EXISTENCE OF ALLEGED ADVERSE CONDITIONS DESCRIBED IN ARTICLE 1.1.6(B). ARTICLE 10. SELLER'S REPRESENTATIONS AND WARRANTIES 10.1 Seller's Representations and Warranties. Seller represents and warrants to Buyer that on the date of this Agreement and as of Closing (unless another time is set forth below): 28 10.1.1 Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the Laws of Delaware and has all requisite corporate power and authority to own the Properties. Seller is duly licensed or qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the Properties are located. 10.1.2 Corporate Authority; Authorization of Agreement. Seller has all requisite corporate power and authority to execute and deliver this Agreement, to consummate the transaction contemplated by this Agreement and to perform all obligations placed on Seller in this Agreement. This Agreement, when executed and delivered by Seller, constitutes the valid and binding obligation of Seller, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other Laws relating to or affecting the enforcement of creditors' rights and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 10.1.3 No Violations. Seller's execution and delivery of this Agreement and consummation of the transaction contemplated by this Agreement will not: (a) conflict with or require consent of any person or entity under any terms, conditions or provisions of Seller's certificate of incorporation or bylaws; (b) violate any provision of, or require any consent or approval under any Law applicable to Seller (except for consents and approvals of governmental entities or authorities customarily obtained subsequent to Closing); or (c) result in creation or imposition of any lien or encumbrance on any of the Properties. 10.1.4 Litigation. Except as set forth in Exhibit "C", (i) there is no litigation, action or proceeding pending to which Seller or Seller's Affiliate is a party which relates to all or any portion of the Properties; (ii) to Seller's knowledge, there is no litigation, action or proceeding threatened against Seller or Seller's Affiliates (nor, to the knowledge of Seller, has any claim been threatened against Seller or Seller's Affiliates in writing or notice of royalty audit been received from the MMS) that would have a Material Adverse Effect or that would prevent timely consummation of the transaction contemplated by this Agreement. 10.1.5 Bankruptcy. There are no bankruptcy or receivership proceedings pending against, being contemplated by or, to Seller's knowledge, threatened against Seller. 10.1.6 Special Warranty of Title. Seller shall warrant title to the Real Properties, subject to the Permitted Encumbrances, against adverse claims of title by, through or under Seller, but not otherwise. However, Seller shall subrogate to Buyer all warranties and indemnities in favor of Seller and its Affiliates from Third Parties relating to the Properties, except to the extent such warranties and indemnities are not transferable or are subject to a transfer fee or similar payment (unless Buyer assumes responsibility for such transfer fee or similar payment). 29 10.1.7 Contracts. To the knowledge of Seller, no Person is in default under any material contract comprising a part of the Properties except as disclosed on Schedule 10.1.7 and except such defaults as would not have a Material Adverse Effect. 10.1.8 Payments for Production. Seller is not obligated by virtue of any take or pay payment, advance payment or other similar payment (except royalties, overriding royalties and other burdens on production reflected in the Net Revenue Interests) to deliver hydrocarbons from the Real Properties at a future time without receiving payment at or after the time of delivery. 10.1.9 Compliance with Laws. To the knowledge of Seller, except as shown on Schedule 10.1.9 each of Seller and its Affiliates has conducted its operations with respect to the Properties in compliance with all applicable Laws, except such failures to comply as would not have a Material Adverse Effect. 10.1.10 Tax Matters. With respect to the Properties, (i) Seller or Seller's Affiliate has filed all material tax returns that are due, (ii) all taxes shown to be due on such returns have been paid, and (iii) to the knowledge of Seller there is no material dispute or claim concerning any tax liability of Seller or Seller's Affiliate with respect to the Properties of which Seller or Seller's Affiliate has received written notice from any tax authority to the knowledge of Seller. 10.1.11 Marketing Contracts. Except as disclosed on Schedule 10.1.11, (i) Seller is not a party to any contract for the sale and marketing of hydrocarbons produced from or attributable to the Properties which has a term in excess of thirty (30) Days; and (ii) there are no calls on, or other rights to purchase, hydrocarbons produced from or attributable to the Properties, whether or not the same are currently being exercised. 10.1.12 Leases. Seller is not in default in any material respect regarding any of Seller's obligations, including Seller's obligations to pay royalties, under the oil and gas leases for the Properties which Seller operates and, to Seller's knowledge, under the oil and gas leases for the Properties on which Seller is not the operator. 10.1.13 Plugging and Abandonment. To Seller's knowledge, except as set forth on Schedule 10.1.13, as of the date of this Agreement there are no existing wells, pipelines, or other facilities included in the Properties which, in accordance with applicable Law, must be plugged and abandoned within twelve (12) months after the date of execution of this Agreement. To Seller's knowledge, as of the date of this Agreement all existing wells on the Properties that have been plugged and abandoned have been properly plugged and abandoned. 10.1.14 Encumbrances. Neither Seller nor any of Seller's Affiliates has granted liens for borrowed money or other voluntary liens against the Properties, except liens granted under operating agreements, production sales contracts, or other Contracts in the ordinary course of business that would not have a Material Adverse Effect. 30 ARTICLE 11. BUYER'S REPRESENTATIONS AND WARRANTIES 11.1 Buyer's Representations and Warranties. Buyer represents and warrants to Seller that on the date of this Agreement and as of Closing: 11.1.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of Delaware and has all requisite corporate power and authority to own the Properties. Buyer is qualified under Law to own and operate the Properties and in particular, Buyer is qualified pursuant to the rules and regulations of the Minerals Management Service (the "MMS") to own and operate federal oil and gas leases in the Outer Continental Shelf, Gulf of Mexico, and is in good standing with, authorized by and qualified with all governmental agencies with jurisdiction or cognizance over operations on the Outer Continental Shelf, Gulf of Mexico, to the extent Buyer is required by such agencies to so qualify and maintain good standing. Buyer is duly licensed or qualified to do business as a foreign corporation and is in good standing in all adjoining states onshore from where the Properties are located. 11.1.2 Corporate Authority; Authorization of Agreement. Buyer has all requisite corporate power and authority to execute and deliver this Agreement, to consummate the transaction contemplated by this Agreement and to perform all obligations placed on Buyer in this Agreement. This Agreement, when executed and delivered by Buyer, constitutes the valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other Laws relating to or affecting the enforcement of creditors' rights and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 11.1.3 No Violations. Buyer's execution and delivery of this Agreement and consummation of the transaction contemplated by this Agreement will not: (a) conflict with or require consent of any person or entity under any terms, conditions or provisions of Buyer's certificate of incorporation or bylaws; or (b) violate any provision of, or require any consent or approval under any Law applicable to Buyer (except for consents and approvals of governmental entities or authorities customarily obtained subsequent to transfer of title). 11.1.4 SEC Disclosure. Buyer is acquiring the Properties for its own account for use in its trade or business, and not with a view toward or for sale associated with any distribution thereof, nor with any present intention of making a distribution thereof within the meaning of the Securities Act of 1933, as amended. 11.1.5 Litigation. There is no litigation, action or proceeding pending against Buyer or, to Buyer's knowledge, threatened against Buyer that would prevent timely consummation of the transaction contemplated by this Agreement. 11.1.6 Independent Evaluation. Buyer is sophisticated in evaluation, purchase, ownership and operation of oil and gas properties and related facilities similar to the 31 Properties and in making its decision to enter into this Agreement and consummate the transaction contemplated herein, Buyer (a) relied solely on its own independent investigation and evaluation of the Properties, and (b) satisfied itself as to the environmental, physical and other condition of, and contractual arrangements affecting, the Properties. 11.1.7 Bankruptcy. There are no bankruptcy or receivership proceedings pending against, being contemplated by or, to Buyer's knowledge, threatened against Buyer. ARTICLE 12. ADDITIONAL COVENANTS 12.1 Subsequent Operations. Seller makes no representations or warranties to Buyer as to transferability or assignability of operatorship of any Properties Seller currently operates. Rights and obligations associated with operatorship of the Properties are governed by operating and similar agreements covering the Properties and will be decided in accordance with the terms of such agreements. 12.2 Rights of Non-Exclusive Use. (a) At Closing, Buyer shall execute and deliver to Seller recordable instruments, in form and substance reasonably acceptable to Seller and Buyer, granting Seller (and, if requested by Seller, Seller's Affiliates) certain non-exclusive rights-of-way on, over and through the Properties and certain rights to use facilities (including pipeline usage rights, production handling arrangements, and other reasonable rights to use improvements) as appropriate for Seller and its Affiliates to continue to conduct operations on, over and across such Properties, as specified on Schedule 12.2, in connection with properties owned by Seller or its Affiliates at Closing and not being conveyed from Seller to Buyer in the transactions contemplated by this Agreement, provided that where an existing Contract governs such use, the terms of such Contract shall continue to govern such use following Closing. (b) At Closing, Seller shall execute and deliver to Buyer recordable instruments, in form and substance reasonably acceptable to Seller and Buyer, granting Buyer certain non-exclusive rights-of-way on, over and through properties owned by Seller or its Affiliates as of Closing other than the Properties and certain rights to use facilities (including pipeline usage rights, production handling arrangements, and other reasonable rights to use improvements), to the extent appropriate for Buyer to continue to operate the Properties in the manner in which they were being operated at the Effective Time, as specified in Schedule 12.2, provided that where an existing Contract governs such use, the terms of such Contract shall continue to govern such use following Closing. (c) Articles 12.2(a) and 12.2(b) are not intended to apply to facilities of a regional nature not associated with any particular field or field area (e.g. oil spill facilities, fire training facilities, shorebases, communications systems, etc.). 32 (d) Provided that Buyer acquires Properties covering twenty (20) or more OCS blocks, Buyer shall be provided with certain mutually agreed rights to the shared use of certain of Seller's retained communication equipment to the extent appropriate for Buyer to continue to operate the Properties in the manner in which they were being operated at the Effective Time, as specified in Schedule 12.2. (e) Seller shall be provided with certain mutually agreed rights to the shared use of certain of Buyer's communication equipment transferred as part of the Properties to the extent appropriate for Seller to continue to operate properties owned by Seller or its Affiliates at Closing in the manner in which they were being operated at the Effective Time, as specified in Schedule 12.2. (f) Neither Buyer nor Seller shall be obligated to offer rights of use under Article 12.2(a), 12.2(b), 12.2(d) or 12.2(e) above, as applicable, if such use would materially impair that Party's ability to operate the Properties, or Seller's and its Affiliates' other properties, as applicable, in the manner they were being operated at the Effective Time or make it uneconomic to do so. (g) It is the intent of the Parties that the arrangements described in Articles 12.2(a), 12.2(b), 12.2(d) and 12.2(e) above be on a cost-sharing basis with neither Seller nor Buyer making a profit or suffering a loss as a result of such arrangements. Without limiting the generality of the preceding sentence, the Party to whom a benefit is assigned or with whom a benefit is shared shall, where provided under the terms of the applicable agreement, pay its pro rata share, based on usage, of required payments to Third Parties for the use of the shared facilities. If either Party proposes to sell or abandon its interest in the shared improvements separately from its rights in the lease on which the facility is located, it is the intent of the Parties that the other Party shall have, in the case of a sale, a preferential right of purchase or, in the case of abandonment, the right to acquire the interest to be abandoned at a price equal to the estimated cost of abandonment less any salvage value, each of the foregoing subject to any applicable rights of Third Parties. 12.3 Buyer's Assumption of Obligations. If Closing occurs, Buyer effective at Closing assumes and shall timely perform and discharge all of Seller's duties and obligations associated with the Properties (including any and all contractual duties and obligations) relating to the period on and after the Closing Date, and in fulfilling these obligations, Buyer shall comply with Laws. Buyer shall provide Seller (and its employees and contractors) reasonable access to the Properties as may be necessary or convenient to Seller from time to time for Seller to exercise any retained rights or comply with any retained obligations Seller may have associated with the Properties. 12.4 Asbestos and NORM. The Properties may currently or have in the past contained asbestos and NORM, and special procedures associated with assessment, remediation, removal, transportation or disposal of asbestos and NORM may be necessary. It is the Parties' intent that Seller shall not be liable for and Buyer shall have no claim against Seller for the mere existence of asbestos or NORM on the Properties (except to the extent 33 the asbestos or NORM is as of the date of execution of this Agreement in a condition that violates applicable Environmental Laws and Buyer would be entitled to a remedy with respect to such violation under another term of this Agreement) or Buyer's actions such as removal or remediation thereof. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, INCLUDING ARTICLE 8: (a) IF CLOSING OCCURS, BUYER, FROM AND AFTER CLOSING, ACCEPTS SOLE RESPONSIBILITY FOR AND AGREES TO PAY ANY AND ALL COSTS AND EXPENSES ASSOCIATED WITH ASSESSMENT, REMEDIATION, REMOVAL, TRANSPORTATION AND DISPOSAL OF ASBESTOS AND NORM ASSOCIATED WITH THE PROPERTIES, AND MAY NOT CLAIM THE FACT THAT ASSESSMENT, REMEDIATION, REMOVAL, TRANSPORTATION OR DISPOSAL OF ASBESTOS AND NORM ARE NOT COMPLETE OR THAT ADDITIONAL COSTS AND EXPENSES ARE REQUIRED IN CONNECTION WITH ASSESSMENT, REMEDIATION, REMOVAL, TRANSPORTATION OR DISPOSAL OF ASBESTOS AND NORM AS AN ALLEGED ADVERSE CONDITION OR A BREACH OF SELLER'S REPRESENTATIONS AND WARRANTIES UNDER THIS AGREEMENT OR THE BASIS FOR ANY OTHER REDRESS AGAINST SELLER, AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME, EXCEPT (I) TO THE EXTENT THE ASBESTOS OR NORM IS AS OF THE DATE OF EXECUTION OF THIS AGREEMENT IN A CONDITION THAT VIOLATES APPLICABLE ENVIRONMENTAL LAWS AND BUYER WOULD BE ENTITLED TO A REMEDY WITH RESPECT TO SUCH VIOLATION UNDER ANOTHER TERM OF THIS AGREEMENT OR (II) THE ASBESTOS OR NORM IS THE BASIS OF A CLAIM FOR DEATH OR BODILY INJURY THAT ACCRUED PRIOR TO THE EFFECTIVE TIME AND BUYER WOULD BE ENTITLED TO A REMEDY WITH RESPECT TO SUCH CLAIM UNDER ANOTHER TERM OF THIS AGREEMENT; AND (b) IF CLOSING OCCURS, BUYER, FROM AND AFTER CLOSING, RELEASES SELLER GROUP FROM AND SHALL FULLY PROTECT, DEFEND, INDEMNIFY, AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, THE ASSESSMENT, REMEDIATION, REMOVAL, TRANSPORTATION AND DISPOSAL OF ASBESTOS AND NORM FROM THE PROPERTIES AFTER THE EFFECTIVE TIME. THIS INDEMNITY AND DEFENSE OBLIGATION WILL APPLY REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. FOR THE REMOVAL OF DOUBT, BUYER'S RELEASE UNDER THIS ARTICLE 12.4(B) DOES NOT PREVENT BUYER FROM ASSERTING THE EXISTENCE OF AN ALLEGED ADVERSE CONDITION UNDER ARTICLE 5.2 FOR ASBESTOS OR NORM THAT IS, AS OF THE DATE OF EXECUTION OF THIS AGREEMENT, IN A CONDITION THAT VIOLATES EXISTING ENVIRONMENTAL LAWS. 12.5 Plugging and Abandonment. In addition to any wells and facilities currently in use, the Properties contain wells and facilities that have been temporarily or permanently abandoned. EXCEPT TO THE EXTENT OF A BREACH OF SELLER'S REPRESENTATION IN ARTICLE 10.1.13 ASSERTED DURING THE TERM OF SUCH REPRESENTATION, NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, INCLUDING ARTICLE 8: 34 (a) IF CLOSING OCCURS, BUYER, FROM AND AFTER CLOSING, ACCEPTS SOLE RESPONSIBILITY FOR AND AGREES TO PAY ALL COSTS AND EXPENSES ASSOCIATED WITH PLUGGING AND ABANDONMENT OF ALL WELLS, DECOMMISSIONING OF ALL FACILITIES, AND CLEARING OF SITES AND RESTORING SEABEDS ASSOCIATED WITH THE PROPERTIES, AND MAY NOT CLAIM THE FACT THAT PLUGGING AND ABANDONMENT, DECOMMISSIONING, SITE CLEARANCE OR SEABED RESTORATION OPERATIONS ARE NOT COMPLETE OR THAT ADDITIONAL COSTS AND EXPENSES ARE REQUIRED TO COMPLETE PLUGGING AND ABANDONMENT, DECOMMISSIONING, SITE CLEARANCE OR SEABED RESTORATION OPERATIONS AS AN ALLEGED ENVIRONMENTAL CONDITION OR A BREACH OF SELLER'S REPRESENTATIONS AND WARRANTIES UNDER THIS AGREEMENT OR THE BASIS FOR ANY OTHER REDRESS AGAINST SELLER, AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME; AND (b) IF CLOSING OCCURS, BUYER, FROM AND AFTER CLOSING, RELEASES SELLER GROUP FROM AND SHALL FULLY PROTECT, DEFEND, INDEMNIFY, AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, PLUGGING AND ABANDONMENT OF WELLS, DECOMMISSIONING OF FACILITIES, AND CLEARING OF SITES AND RESTORING SEABEDS ASSOCIATED WITH THE PROPERTIES, NO MATTER WHETHER ARISING BEFORE OR AFTER THE EFFECTIVE TIME. THIS INDEMNITY AND DEFENSE OBLIGATION WILL APPLY REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. 12.6 Imbalances. Buyer acknowledges that Imbalances may exist that are associated with the Properties and all Imbalances (whether for overproduction by Seller or underproduction by Seller) shall pass to Buyer as of the Effective Time, and Buyer shall thereupon be entitled to all rights and obligations with respect to any and all such Imbalances. Except as provided below in this Article, there shall be no amounts paid to or from either Party to the other as a Purchase Price adjustment, as part of the Final Accounting Settlement or otherwise, based on Imbalances. Except as provided below in this Article, NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, INCLUDING ARTICLE 8: (a) IF CLOSING OCCURS, BUYER FROM AND AFTER CLOSING ACCEPTS SOLE RESPONSIBILITY FOR AND AGREES TO PAY ALL COSTS AND EXPENSES ASSOCIATED WITH IMBALANCES ASSOCIATED WITH THE PROPERTIES, AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS IT AND THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME; AND (b) IF CLOSING OCCURS, BUYER FROM AND AFTER CLOSING RELEASES SELLER GROUP FROM AND SHALL FULLY PROTECT, DEFEND, INDEMNIFY AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, IMBALANCES ASSOCIATED WITH THE PROPERTIES, NO MATTER WHETHER ARISING BEFORE OR AFTER THE EFFECTIVE TIME. THIS INDEMNITY 35 AND DEFENSE OBLIGATION WILL APPLY REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. Notwithstanding the preceding, the following adjustment shall be made between the Parties with respect to Imbalances: (i) If Seller's aggregate production Imbalances on January 1, 2003 vary from - 1.0 Bcfe (underproduced) to the detriment of Seller by more than 1.0 Bcfe, then Seller shall pay Buyer the product of $2.00/mcf and the entire amount of such variance (including the first 1.0 Bcfe); or (ii) If Seller's aggregate production Imbalances on January 1, 2003 vary from - 1.0 Bcfe (underproduced) to the benefit of Seller by more than 1.0 Bcfe, then Buyer shall pay Seller the product of $2.00/mcf and the entire amount of such variance (including the first 1.0 Bcfe), AND EACH PARTY WAIVES ANY OTHER REMEDIES. 12.7 Suspense Funds. Buyer acknowledges that Suspense Funds may exist that are associated with the Properties. Seller shall transfer all Suspense Funds and the obligation for the Suspense Funds to Buyer in the Final Accounting Statement. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, INCLUDING ARTICLE 8: (a) IF CLOSING OCCURS, BUYER, FROM AND AFTER CLOSING, ACCEPTS SOLE RESPONSIBILITY FOR AND AGREES TO PAY ALL COSTS AND EXPENSES ASSOCIATED WITH SUSPENSE FUNDS (INCLUDING ANY ADDITIONAL FINES, PENALTIES OR INTEREST (I) THAT ACCRUE PRIOR TO CLOSING TO THE EXTENT, BUT ONLY TO THE EXTENT, THAT THE SUSPENSE FUNDS DELIVERED TO BUYER INCLUDE SUCH AMOUNTS AND (II) THAT MAY ACCRUE AFTER CLOSING), AND BUYER (ON BEHALF OF BUYER GROUP AND THEIR SUCCESSORS AND ASSIGNS) IRREVOCABLY WAIVES ANY AND ALL CLAIMS THEY MAY HAVE AGAINST SELLER GROUP ASSOCIATED WITH THE SAME; AND (b) IF CLOSING OCCURS, BUYER, FROM AND AFTER CLOSING, RELEASES SELLER GROUP FROM AND SHALL FULLY PROTECT, DEFEND, INDEMNIFY AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SUSPENSE FUNDS (INCLUDING ANY ADDITIONAL FINES, PENALTIES OR INTEREST (I) THAT ACCRUE PRIOR TO CLOSING TO THE EXTENT, BUT ONLY TO THE EXTENT, THAT THE SUSPENSE FUNDS DELIVERED TO BUYER INCLUDE SUCH AMOUNTS AND (II) THAT MAY ACCRUE AFTER CLOSING), NO MATTER WHEN ASSERTED. THIS INDEMNITY AND DEFENSE OBLIGATION APPLIES REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. 12.8 Sales Tax. Although it is believed that no Sales Tax will be due with respect to the transactions contemplated herein, Buyer acknowledges that if Sales Tax is due and owing 36 as a result of Seller's or BP America's transfer of the Properties to Buyer, Buyer shall be liable for any and all such Sales Tax. Before the Closing Date, Buyer and Seller shall agree on the value of the tangible personal property being transferred and Buyer shall provide Seller with documentation detailing the basis for Buyer's allocation of the Purchase Price to any Properties that are subject to Sales Tax. Buyer shall provide Seller with an exemption certificate for any tangible personal property included in the Properties for which it claims a Sales Tax exemption. Seller shall invoice, and Buyer shall pay, any Sales Tax on Buyer's acquisition of all nonexempt tangible personal property and Seller or BP America shall remit the Sales Tax to the applicable governmental entity. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY (INCLUDING ARTICLE 8), BUYER RELEASES SELLER GROUP FROM AND SHALL FULLY PROTECT, DEFEND, INDEMNIFY AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS (NO MATTER WHEN ASSERTED) RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SALES TAX RESULTING FROM OR ASSOCIATED WITH SELLER'S TRANSFER OF PROPERTIES TO BUYER. THIS INDEMNITY AND DEFENSE OBLIGATION APPLIES REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. IF SELLER IS LATER REQUIRED TO PAY ANY ADDITIONAL SALES TAX, INTEREST, OR PENALTY THEREON, BUYER SHALL REIMBURSE SELLER WITHIN THIRTY (30) DAYS AFTER RECEIPT OF SELLER'S WRITTEN NOTICE OF THE PAYMENT. 12.9 Guaranty Agreement. If the Buyer does not have a net worth as shown on its most recent audited annual financial statements and most recent quarterly reviewed financial statements (each prepared in accordance with generally accepted accounting principles) of at least one billion dollars (US $1,000,000,000), Buyer has caused an Affiliate of Buyer, which has a net worth of at least one billion dollars (US $1,000,000,000), to execute and deliver the Guaranty Agreement simultaneously with the execution of this Agreement or, if Buyer has no such Affiliate, Buyer has provided Seller with a letter of credit or surety bond from a bank or other financial institution having a net worth of at least one billion dollars (US $1,000,000,000), in form and substance satisfactory to Seller, in an amount sufficient to secure Buyer's performance of all obligations of Buyer hereunder, including plugging and abandonment obligations. 12.10 Transition Agreement. Provided that Buyer acquires Properties covering twenty (20) or more OCS blocks, Buyer and Seller shall execute and deliver the Transition Agreement and Letters-in-Lieu as provided in the Transition Agreement on the Closing Date. 12.11 Third Party Technology. Third Party proprietary seismic and other proprietary technology, including software, is used in connection with ownership or operation of the Properties. Notwithstanding anything in this Agreement to the contrary, Buyer is responsible for obtaining any necessary consents to Seller's (or, if applicable with respect to the BP America Properties, BP America's) assignment of any licenses or other agreements or for Buyer to enter into new licenses or other agreements as may be needed to permit Buyer to continue to utilize any Third Party seismic or Third Party technology used on the Properties after the Closing Date. Seller shall reasonably assist Buyer in contacting the relevant Third Parties, but Buyer shall be solely responsible for and shall 37 bear all costs and transfer and other fees required to obtain licenses, assignments or new agreements. In the event Buyer acquires any such Third Party licenses, then Seller shall provide (or, if applicable, Seller shall cause BP America to provide) Buyer with all Transferable Seismic Data with respect to such licenses to the extent Seller's (or, if applicable, BP America's) licenses permit, with the cost of supplying and copying such data borne one-half by Buyer and one-half by Seller. 12.12 Interim Period. (a) During the Interim Period, Seller shall (or, where applicable, Seller shall cause BP America to): (i) maintain and operate the Properties and dispose of production from the Properties in the ordinary course of business consistent with the Seller's (or BP America's, where applicable) past custom and practice with respect to the Properties, (ii) to the extent practicable in the circumstances, consult with Buyer in relation to any material decision in connection with the Properties, provided that nothing in this sub-clause shall operate to fetter the discretion of Seller (or BP America, where applicable) in acting with respect to the Properties except as explicitly provided in this Article 12.12, and (iii) generally keep Buyer in a timely manner informed of matters (not of a routine or minor nature) relating to the Properties. (b) Without the consent of Buyer (which shall not be unreasonably withheld or delayed), during the Interim Period, Seller shall not, (or, if applicable with respect to the BP America Properties, Seller shall cause BP America not to) with respect to the Properties: (i) except with respect to matters retained by Seller that are referenced in Exhibit "C", waive, compromise or settle any right or claim for an amount in excess of US $250,000 or which may reasonably be expected to have an adverse effect on the value of the Properties as a whole in excess of US $250,000; (ii) incur obligations with respect to the Properties for which Buyer would be responsible after Closing, other than transactions (x) not exceeding US $250,000 individually which are incurred in the normal, usual and customary manner, of a nature and in an amount consistent with past practices employed by Seller (or, if applicable, BP America) with respect to the Properties, and/or (y) in connection with situations believed in good faith by Seller to constitute an emergency (in which case Seller's obligation is limited to notifying Buyer as soon as reasonably practicable of such emergency and obligations); (iii) encumber, sell, lease, remove from the Real Property or otherwise dispose of any of the Properties (excluding sales of production therefrom in the ordinary course of business under existing Contracts or new contracts allowed under Article 12.12(b)(v)), except to the extent replaced by 38 equivalent property or used, consumed or abandoned in the normal operations of Seller's (or, if applicable, BP America's) business; (iv) enter into a contract or commitment for capital expenditures or the acquisition or construction of fixed assets for which Buyer shall have financial responsibility after Closing in an amount individually in excess of two hundred fifty thousand dollars (US $250,000), except in connection with situations believed in good faith by Seller to constitute an emergency (in which case Seller's obligation is limited to notifying Buyer as soon as reasonably practicable of such emergency and obligations); (v) enter into a contract or agreement with an Affiliate of Seller or a contract or agreement with a term of greater than thirty (30) Days unless it can be terminated without penalty on no more than thirty (30) Days notice; or (vi) terminate, or materially amend or modify, or agree to terminate or materially amend or modify, any of the contracts included in the Properties, except renewals or extensions of such contracts on substantially the same terms. (c) Regardless of whether all of the operations conducted by Seller (or, if applicable, BP America) during the Interim Period with respect to any of the Properties have been fully completed by Seller (or, if applicable, BP America) prior to Closing, Buyer shall, upon Closing, assume full responsibility for the completion of all such operations applicable to the Properties not in violation of this Article 12.12, subject, however, to the terms of the Transition Agreement during the Transition Period. (d) During the Interim Period, Seller shall use (and, with respect to the BP America Properties, Seller shall cause BP America to use) its reasonable efforts to obtain all required consents and approvals, and all waivers of preferential purchase rights, applicable to the transactions contemplated by this Agreement, provided that Seller (and BP America) shall not be required to make payments or undertake obligations to or for the benefit of the holders of such rights in order to obtain the required consents, approvals and waivers. Buyer shall cooperate with Seller (and BP America) in seeking to obtain such consents, approvals and waivers. (e) If any approvals are required under this Article 12.12, requests shall be delivered to the following individuals, each of whom shall have full authority to grant or deny such requests for approvals: 39 As to Buyer: As to Seller (and BP America): Name: David Carmony Name: Susan Starr Title: Drilling & Engineering Title: Performance Unit Manager, Gulf Coast Region Leader Address: 2000 Post Oak Blvd, Suite Address: 200 Westlake 100, Houston, Texas 77056 Park Blvd, WL-4, Room 417 Phone: (713) 296-6294 Phone: (281) 366-0561 Fax: (713) 296-6333 Fax: (281) 366-0014 Email:david.carmony@apachecorp.com Email: StarrS@bp.com and and Name: Alex Nash Name: Shawn Conner Title: Production Manager, Gulf Title: Director, Coast Region Business Development Address: 2000 Post Oak Blvd, Suite Address: 200 Westlake 100, Houston, Texas 77056 Park Blvd, WL-4, Room 435 Phone: (713) 296-6308 Phone: (281) 366-4845 Fax: (713) 296-6319 Fax: (281) 366-0014 Email:alex.nash@apachecorp.com Email: Connerse@bp.com
12.13 Operator Acts. Seller shall not be deemed or held in breach of any of Seller's representations, warranties, covenants or agreements contained in this Agreement to the extent that any such breach arises out of the actions of Buyer as operator of certain of the Properties. 12.14 Notification of Breaches. Until the Closing: (a) Seller shall notify Buyer at the time any Schedule or Exhibit is delivered pursuant to Article 12.15(a) or Article 12.15(e) of any item in such Schedule or Exhibit that to Seller's knowledge is inaccurate or missing, and Buyer shall notify Seller following Buyer's review, but before the Parties have agreed upon such Schedule or Exhibit, of any item in such Schedule or Exhibit that to Buyer's knowledge is inaccurate or missing. (b) Buyer shall notify Seller promptly after Buyer obtains actual knowledge that any representation or warranty of Seller contained in this Agreement is untrue in any material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Seller prior to or on the Closing Date has not been so performed or observed in any material respect. (c) Seller shall notify Buyer promptly after Seller obtains actual knowledge that any representation or warranty of Buyer contained in this Agreement is untrue in any 40 material respect or will be untrue in any material respect as of the Closing Date or that any covenant or agreement to be performed or observed by Buyer prior to or on the Closing Date has not been so performed or observed in a material respect. (d) If any of Buyer's or Seller's representations or warranties is untrue or shall become untrue in any material respect between the date of execution of this Agreement and the Closing Date, or if any of Buyer's or Seller's covenants or agreements to be performed or observed prior to or on the Closing Date shall not have been so performed or observed in any material respect, but if such breach of representation, warranty, covenant or agreement shall (if curable) be cured by the Closing, then such breach shall be considered not to have occurred for all purposes of this Agreement. 12.15 Delivery of Certain Information. (a) As soon as practicable and not later than twenty (20) Business Days after the date of this Agreement, but in no event later than twenty (20) Days prior to the Closing Date, Seller shall deliver to Buyer Schedules 10.1.7, 10.1.11 and 12.2, each in a form and substance reasonably acceptable to Seller and Buyer. (b) Prior to execution of this Agreement, Seller has delivered to Buyer: (i) A list of all partnerships expressly established by written agreement to which any Properties are subject (not including tax partnerships contained in joint operating agreements or "mining partnerships" imposed under applicable Law); and (ii) A list of all preferential rights under the operating agreements and unit agreements affecting the Properties and applicable to the transactions contemplated by this Agreement; (c) As soon as practicable and not later than twenty (20) Business Days after the date of this Agreement, but in no event later than twenty (20) Days prior to the Closing Date, Seller shall provide Buyer with the following information: (i) A list of all preferential rights to purchase affecting the Properties and applicable to the transactions contemplated by this Agreement not otherwise delivered under Article 12.15(b), and (ii) A list of all filing, registration, permit, authorization, consent or approval requirements in favor of any governmental authority or other Third Party affecting the Properties that must be satisfied for consummation of the transactions contemplated by this Agreement, other than those governmental filings, registrations, permits, authorizations, consents and approvals that are customarily made or obtained post-Closing; (d) As soon as practicable, and not later than ten (10) Business Days after the date of this Agreement, Seller shall provide Buyer with the following information: 41 (i) A list of all Properties where proceeds from the sale of hydrocarbons produced from or attributable to the Properties were held as of the date hereof without Seller's consent by any Third Party after the due date for payment, in suspense accounts or otherwise, and (ii) A list of any capital commitments or agreements of Seller as of the Effective Time which Seller reasonably anticipates will require capital expenditures by the owner of the Properties after the Effective Time individually in excess of US $250,000. (e) As soon as practicable, and not later than January 24, 2003, Seller shall deliver to Buyer a replacement for Exhibit "A" containing detailed Net Revenue Interest and Working Interest information and an Exhibit "A-1." Within three (3) Business Days after receipt of the replacement Exhibit "A," Buyer shall deliver to Seller Buyer's Allocations. Buyer and Seller shall reach agreement in writing upon the form and content of each such Exhibit and Buyer's Allocations, consent by each Party not to be unreasonably withheld or delayed. As of the date on which Buyer and Seller have agreed in writing upon a revised Exhibit "A" and Buyer's Allocations, such Exhibit "A" (including Buyers' Allocations) shall replace in its entirety the Exhibit "A" attached to this Agreement at signing, and shall be deemed to be Exhibit "A" hereto for all purposes. The adjustments for Alleged Title Defects and Title Benefits under Article 4.2 and Seller's representation and warranty in Article 10.1.6 shall not come into force and effect until the date on which Buyer and Seller have agreed in writing upon such revised Exhibits and Buyer's Allocations. (f) Seller may amend Exhibit "C", the Schedules to this Agreement and, once submitted, the lists supplied pursuant to this Article, subject to the consent of Buyer, which consent shall not be unreasonably withheld, provided that Buyer's withholding consent shall be deemed reasonable if the amendment would result in a material decrease in the value of the Properties or a negative impact on Buyer unless Seller has agreed in writing to indemnify Buyer Group from and against any and all claims, demands, suits, causes of action, losses, damages, liabilities, fines, penalties and costs (including attorneys' fees and costs of litigation) to the extent relating to, arising out of, or connected with, directly or indirectly, the subject matter of such amendment, provided that Seller's right to indemnify Buyer Group under this Article shall not apply to with respect to claims, demands, suits, causes of action, losses, damages, liabilities, fines, penalties and costs (including attorneys' fees and costs of litigation) that in aggregate can be reasonably expected to exceed twenty-five percent (25%) of the Purchase Price. 12.16 Financial Audit. Both prior to and after the Closing, Seller shall provide Buyer with access to Seller's financial records for the Properties for the calendar years 2001 and 2002 which were previously made available to Seller's auditors for purposes of preparing Seller's annual audited and quarterly reviewed financial statements for those years and to Seller's corresponding financial records for any portion of 2003 prior to the Closing, including in each case records with respect to direct lease operating costs with respect to 42 each of the Properties and the gross revenues from such Properties and such other information as may be required for Buyer's Form 8-K filing with respect to the transactions contemplated by this Agreement. Seller shall cause Seller's and Seller's Affiliates' personnel to cooperate with Buyer in providing such access and to reasonably assist Buyer in locating and interpreting such records and Seller shall cause Seller's contractor IBM to provide reasonable assistance to Buyer in the preparation of certain supporting financial schedules and audit work papers. The cost incurred by Seller in providing the financial data to Buyer and assisting Buyer shall be borne by Buyer. BUYER RELEASES SELLER GROUP FROM AND SHALL FULLY PROTECT, DEFEND, INDEMNIFY AND HOLD SELLER GROUP HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, SELLER'S PREPARATION OR FURNISHING OF ANY SUCH RECORDS TO BUYER, ANY ACTIONS, REPRESENTATIONS OR CERTIFICATIONS OF SELLER'S AND ITS AFFILIATES' PERSONNEL OR AUDITORS WITH RESPECT TO THE INFORMATION CONTAINED IN SUCH RECORDS, OR BUYER'S USE OF THE INFORMATION CONTAINED IN SUCH FINANCIAL RECORDS, REGARDLESS OF CAUSE OR OF ANY NEGLIGENT ACTS OR OMISSIONS (INCLUDING SOLE NEGLIGENCE, CONCURRENT NEGLIGENCE OR STRICT LIABILITY), BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF SELLER GROUP, OR ANY PRE-EXISTING DEFECT. ARTICLE 13. HSR ACT 13.1 HSR Filings. If compliance with the HSR Act is required in connection with the transaction contemplated by this Agreement, as promptly as practicable and in any event not more than thirty (30) Days after the date of this Agreement, both Parties shall file with the Federal Trade Commission and the Department of Justice, as applicable, the required notification and report forms and shall as promptly as practicable furnish any supplemental information that may be requested in connection therewith. Each Party shall take all reasonable steps to achieve early termination of applicable waiting periods. ARTICLE 14. PERSONNEL 14.1 Employees. Seller has no obligation to provide Buyer an opportunity to interview for employment any individuals who support the Properties and Buyer has no obligation to hire any such individuals. 14.2 Restriction on Solicitation. Buyer may not (without obtaining the prior written consent of Seller), for a period of twelve (12) months after the Closing Date, solicit employment of, or contact except for such contact as may be necessary in respect to litigation, claims or other business matters unrelated to the solicitation of employment, any of Seller's employees directly or indirectly engaged in operation of the Properties as of the date hereof and as of the Closing Date or engaged in the negotiation or Closing of the transactions contemplated by this Agreement. For purposes of this Article 14.2, a general published solicitation or advertisement for employment (whether in print or on-line) shall not be a breach hereof. 43 ARTICLE 15. CONDITIONS PRECEDENT TO CLOSING 15.1 Conditions Precedent to Seller's Obligation to Close. Seller shall, subject to satisfaction or waiver of the conditions to Closing in Article 15.3, consummate the sale of the Properties on the Closing Date, provided the following conditions precedent have been satisfied or waived by Seller: 15.1.1 ALL REPRESENTATIONS AND WARRANTIES OF BUYER CONTAINED IN THIS AGREEMENT ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS; PROVIDED, HOWEVER, FOR THE PURPOSES OF THIS ARTICLE 15.1.1, IF BUYER AGREES IN WRITING TO INDEMNIFY SELLER GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, SUITS, CAUSES OF ACTION, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES AND COSTS (INCLUDING ATTORNEYS' FEES AND COSTS OF LITIGATION) RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, FAILURE OF THE REPRESENTATION OR WARRANTY IN ARTICLE 11.1.5, SUCH REPRESENTATION SHALL BE DEEMED TRUE AND CORRECT IN ALL MATERIAL RESPECTS; 15.1.2 Buyer shall have complied in all material respects with all Buyer's material obligations, covenants and conditions in this Agreement to be performed or complied with prior to Closing; 15.1.3 Buyer shall have provided Seller evidence satisfactory to Seller that Buyer is as of Closing qualified with the MMS to hold oil and gas leases on the U.S. Outer Continental Shelf and has posted with the MMS an area wide bond and any supplemental or additional bonds required by the MMS with respect to the Properties, and provided satisfactory evidence of financial responsibility under the Oil Pollution Act; and 15.1.4 The aggregate reduction in the Purchase Price through exclusion of Properties pursuant to Articles 5.2 and 7.2 shall not exceed twenty-five percent (25%) of the Purchase Price. 15.2 Conditions Precedent to Buyer's Obligation to Close. Buyer shall, subject to satisfaction or waiver of the conditions to Closing set forth in Article 15.3, consummate the purchase of the Properties contemplated by this Agreement on the Closing Date, provided the following conditions precedent have been satisfied or waived by Buyer: 15.2.1 ALL REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS; PROVIDED, HOWEVER, FOR PURPOSES OF THIS ARTICLE 15.2.1 IF SELLER AGREES IN WRITING TO INDEMNIFY BUYER GROUP FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, SUITS, CAUSES OF ACTION, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES AND COSTS (INCLUDING ATTORNEYS' FEES AND COSTS OF LITIGATION) RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, FAILURE OF A REPRESENTATION OR WARRANTY IN ARTICLES 10.1.4, 10.1.7, 10.1.8, 10.1.9 (OTHER THAN AS A RESULT OF CONTAMINATION ON THE PROPERTIES), 10.1.10, 10.1.11, 10.1.12, 10.1.13 AND 10.1.14, SUCH REPRESENTATION OR WARRANTY WILL BE DEEMED TO BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS; 44 15.2.2 Seller shall have complied in all material respects with all Seller's material obligations, covenants and conditions in this Agreement to be performed or complied with prior to Closing; and 15.2.3 The aggregate reduction in the Purchase Price through exclusion of Properties pursuant to Articles 5.2 and 7.2 shall not exceed twenty-five percent (25%) of the Purchase Price. 15.3 Conditions Precedent to Obligation of Each Party to Close. The Parties shall, subject to satisfaction or waiver of their respective conditions to Closing set forth in Articles 15.1 and 15.2, consummate the sale and purchase of the Properties on the Closing Date, provided the following conditions precedent have been satisfied or waived by both Parties: 15.3.1 if applicable, consummation of the transaction contemplated by this Agreement is not prevented by (and the required waiting period, if any, has expired or been terminated under) the HSR Act and the rules and regulations of the Federal Trade Commission and the Department of Justice; 15.3.2 No injunction, order or award restraining, enjoining or otherwise prohibiting consummation of or granting material damages associated with the transactions contemplated by this Agreement or sale of any one or more of the Properties has been issued by any court, governmental entity or arbitrator of competent jurisdiction, and no suits, actions or other proceedings are pending before any such court, governmental entity or arbitrator in which a third party seeks to restrain, enjoin or otherwise prohibit consummation of or obtain material damages associated with the transactions contemplated by this Agreement or sale of any one or more of the Properties; nor to the Parties' knowledge are there any pending investigations by a governmental entity that would be likely to result in any suit, action or other proceedings to restrain, enjoin or otherwise prohibit consummation of the transaction contemplated by this Agreement or sale of any one or more of the Properties; provided that if such an injunction, order, award, suit, action or other proceeding applicable to some (but not all) of the Properties is pending on the Closing Date, Closing with respect to the unaffected Properties shall proceed and the Parties shall conduct a second closing for the affected Properties if and when the above-referenced condition to Closing is removed. If the above-referenced condition to Closing is not removed as to the affected Properties within one hundred twenty (120) Days after the Closing Date, the affected Properties, automatically and without need for amendment of this Agreement, shall be removed from this Agreement, and Buyer shall not be obligated to make payment to Seller for that portion of the Purchase Price allocated to such Properties in Buyer's Allocations, and the Parties shall have no further obligations to each other with respect to the same; 15.3.3 all material consents and approvals (except for consents and approvals of governmental entities or authorities customarily obtained subsequent to transfer of title) have been obtained; provided, however, if on the Closing Date consents applicable to some (but not all) of the Properties have not been obtained, Closing with respect to the unaffected Properties shall proceed, and the Parties shall conduct a second closing for the 45 affected Properties if and when the above-referenced condition to Closing is removed. If the above-referenced condition to Closing is not removed as to the affected Properties within one hundred eighty (180) Days after the Closing Date, the affected Properties automatically and without need for amendment of this Agreement shall be removed from this Agreement, and Buyer shall not be obligated to make payment to Seller for that portion of the Purchase Price allocated to such Properties in Buyer's Allocations, and the Parties shall have no further obligations to each other with respect to the same; and 15.3.4 (a) preferential purchase rights applicable to the Properties either have been exercised and affected Properties excluded from the Closing in accordance with Article 3.1, or have been waived; or (b) the time to elect under such preferential purchase rights has elapsed. If on the Closing Date preferential purchase rights applicable to some (but not all) Properties have not been waived, or the time to elect has not elapsed, Closing with respect to the unaffected Properties shall proceed, and the Parties shall conduct a second closing with respect to the affected Properties if and when the above-referenced condition to Closing is removed. If the above-referenced condition to the Closing Date is not removed as to the affected Properties within one hundred twenty (120) Days after the Closing Date, the affected Properties, automatically and without need to amend this Agreement, shall be removed from this Agreement and the Parties shall have no further obligations to each other with respect to the same. ARTICLE 16. THE CLOSING 16.1 Closing. No later than three (3) Business Days prior to the Closing Date, Seller shall provide Buyer a statement setting forth Seller's good faith estimate of the Adjusted Purchase Price after giving effect to all Purchase Price adjustments set forth in Article 2.2 ("CLOSING STATEMENT"). The estimate delivered in the Closing Statement shall constitute the dollar amount to be paid by Buyer to Seller at Closing (the "CLOSING PAYMENT"). Seller also shall provide Buyer wiring instructions designating the account(s) to which Buyer shall deliver the Purchase Price. Closing shall be held on the Closing Date in Seller's office at 501 WestLake Park Boulevard, Houston, Texas 77079 or such other place as Seller may notify Buyer before Closing. 16.2 Seller's Obligations at Closing. At Closing, Seller shall deliver to Buyer, unless waived by Buyer, the following: 16.2.1 a document substantially in the form of the Assignment and Bill of Sale, conveying all of Seller's right, title and interests in the Properties, executed by an Attorney-in-Fact of Seller and acknowledged, in four (4) multiple originals plus such additional originals as are necessary to allow recording in all appropriate jurisdictions, or such greater number as the Parties agree; 16.2.2 a document substantially in the form of the Assignment and Bill of Sale, conveying all of BP America's right, title and interests in the BP America Properties, executed by an Attorney-in-Fact of BP America and acknowledged, in four (4) multiple originals plus such additional originals as are necessary to allow recording in all appropriate jurisdictions, or such greater number as the Parties agree; 46 16.2.3 documents substantially in the form of the Assignment of Record Title Interest, a form of which is attached as Exhibit "J", conveying all of Seller's right, title and interest in the Properties to which Seller holds record title, and documents substantially in the form of Assignment of Operating Rights attached hereto as Exhibit "K", conveying all of Seller's right, title and interest in all other Properties, each executed by an Attorney-in-Fact of Seller and acknowledged in four (4) executed multiple originals plus such additional originals as are required by the MMS or other governmental entity or authority or such greater number as the Parties agree. 16.2.4 documents substantially in the form of the Assignment of Record Title Interest, a form of which is attached as Exhibit "J", conveying all of BP America's right, title and interest in the Properties to which BP America holds record title, and documents substantially in the form of Assignment of Operating Rights attached hereto as Exhibit "K", conveying all of BP America's right, title and interest in all other Properties, each executed by an Attorney-in-Fact of BP America and acknowledged in four (4) executed multiple originals plus such additional originals as are required by the MMS or other governmental entity or authority or such greater number as the Parties agree. 16.2.5 with respect to Properties on the U.S. Outer Continental Shelf which Seller operates and in which Seller owns one hundred percent of the Working Interest, designation of operator forms (Form MMS 1123 (July 2002)), as applicable, executed by an Attorney-in-Fact of Seller, designating Buyer as operator of such Properties; 16.2.6 four (4) originals of the Certificate executed by an authorized officer or an Attorney-in-Fact of Seller; 16.2.7 four (4) originals of a Non-Foreign Affidavit executed by an Attorney-in-Fact of Seller, and four (4) originals of a Non-Foreign Affidavit executed by an Attorney-in-Fact of BP America; 16.2.8 four (4) originals of a Secretary's Certificate or Assistant Secretary's Certificate of Seller, dated as of the Closing Date, certifying (A) as to the incumbency and due authorization of Seller's signatory to this Agreement and Seller's and BP America's signatories to the documents signed at Closing; and (B) that a true and correct copy of the resolutions of Seller's board of directors authorizing this Agreement and the transactions contemplated hereby are attached thereto; 16.2.9 four (4) originals of the Transition Agreement executed by an Attorney-in-Fact of Seller; 16.2.10 four (4) originals of each Operating Agreement executed by an Attorney-in-Fact of Seller; 16.2.11 four (4) originals of each facilities sharing agreement to be entered into pursuant to Section 12.2; 16.2.12 four (4) originals of a Seismic License in substantially the form of Exhibit "N"; and 47 16.2.13 any other instruments and agreements (including ratification or joinder instruments required to transfer Properties from Seller or BP America to Buyer) as are necessary or appropriate to comply with Seller's obligations under this Agreement. 16.3 Buyer's Obligations at Closing. At Closing, Buyer shall deliver to Seller (on behalf of itself and BP America), unless waived by Seller, the following: 16.3.1 the Closing Payment, less the amount of the Performance Deposit plus Computed Interest thereon from the date of receipt, by wire transfer of immediately available funds to the account(s) designated by Seller in accordance with this Agreement; 16.3.2 the documents referred to in Articles 16.2.1, 16.2.2, 16.2.3 and 16.2.4, executed by an authorized officer or an Attorney-in-Fact of Buyer and acknowledged; 16.3.3 the federal and state assignments executed by an authorized officer or an Attorney-in-Fact of Buyer and acknowledged; 16.3.4 four (4) originals of the Certificate executed by an authorized officer or an Attorney-in-Fact of Buyer; 16.3.5 four (4) originals of (i) certificates of the appropriate governmental authorities, dated as of a date not earlier than five (5) Business Days prior to the Closing Date, evidencing Buyer's existence and good standing in the States of Texas, Louisiana and Delaware and (ii) certificates of the Secretary or Assistant Secretary of Buyer (and with respect to the Guaranty Agreement, if any, Buyer's Affiliate), dated on the Closing Date, certifying (A) that a true and correct copy of the resolutions of Buyer's board of directors authorizing this Agreement and the transaction contemplated hereby are attached thereto (and with respect to Buyer's Affiliate, if applicable, the resolutions of such Affiliate's board of directors authorizing the Guaranty Agreement) have been duly adopted and are in full force and effect; and (B) as to the incumbency and authorization of Buyer's signatory executing on behalf of Buyer this Agreement and the other documents executed in connection herewith (and Buyer's Affiliate's signatory, if applicable, with respect to the Guaranty Agreement); 16.3.6 four (4) originals of the Transition Agreement executed by an authorized officer or an Attorney-in-Fact of Buyer; 16.3.7 four (4) originals of each Operating Agreement executed by an Attorney-in-Fact of Buyer; 16.3.8 evidence that Buyer is at Closing qualified with the MMS to hold oil and gas leases on the U.S. Outer Continental Shelf, and has posted with the MMS bonds (area-wide, supplemental and/or additional) required by the MMS with respect to the Properties, and provided satisfactory evidence of financial responsibility under the Oil Pollution Act; 16.3.9 four (4) originals of each facilities sharing agreement to be entered into pursuant to Section 12.2; 48 16.3.10 four (4) originals of a Seismic License in substantially the form of Exhibit "N"; and 16.3.11 any other instruments and agreements (including ratification or joinder instruments required to transfer the Properties from Seller or BP America to Buyer) as necessary or appropriate to comply with Buyer's obligations under this Agreement. ARTICLE 17. TERMINATION 17.1 Grounds for Termination. This Agreement may be terminated (except for the individual provisions specifically referenced in Article 17.2 below) at any time prior to Closing (unless another date is stated below): 17.1.1 by the Parties' mutual written agreement; 17.1.2 by either Party, if consummation of the transaction contemplated by this Agreement would violate any non-appealable final order, decree or judgment of any state or federal court or agency enjoining, restraining, prohibiting or awarding substantial damages in connection with (a) the proposed sale of Properties to Buyer hereunder, or (b) consummation of the transaction contemplated by this Agreement; 17.1.3 by Seller, if Buyer refuses or fails for any reason to deliver to Seller the Performance Deposit in accordance with Article 2.3; 17.1.4 notwithstanding anything contained in this Agreement to the contrary, by either Seller or Buyer, if Closing has not occurred on or before June 1, 2003 provided the terminating party is not then in breach in any material respect of its obligations under Articles 12, 13 and 16; or 17.1.5 by either Seller or Buyer pursuant to Article 7.2. 17.2 Effect of Termination. If this Agreement is terminated in accordance with Article 17.1, such termination is without liability to either Party, except performance of obligations in this Article 17.2 and Articles 14.2, 17.3, 17.4, 19.1, 19.3, 19.10, 19.11, 19.12, 19.13, 19.14, and 19.15 (all of which provisions survive termination of this Agreement), and except as provided in the following sentence. If Closing does not occur, Seller shall refund the Performance Deposit together with Computed Interest to Buyer unless the Closing did not occur because of a failure of Buyer's representations and warranties in this Agreement to be true and correct in all material respects, Buyer's material breach of a material obligation, covenant or condition of this Agreement, Buyer's failure to furnish satisfactory evidence pursuant to Section 15.1.3, or Buyer's failure or refusal to Close that is not permitted by the terms of this Agreement, in any of which events Buyer shall pay to Seller as Seller's exclusive remedy an amount equal to five percent (5%) of the Purchase Price, less the Performance Deposit, which Seller shall be entitled to retain together with any interest earned thereon as liquidated damages and not a penalty. 17.3 Dispute over Right to Terminate. If there is a dispute between the Parties over the termination of or over the right of a Party to terminate this Agreement, Closing shall not 49 occur on the Closing Date, and the Party that disputes the right of the other Party to terminate is entitled, within thirty (30) Days after the date on which notice of termination was provided by either Party to the other, to initiate litigation to resolve the dispute, unless the Parties mutually agree in writing to extend such time. If the Party that disputes the other Party's right to terminate this Agreement does not initiate litigation within the thirty (30) Day period (as extended in writing, if applicable), this Agreement shall be deemed properly terminated as of the original date of termination (without prejudice to Seller's right to receive liquidated damages, including retention of the Performance Deposit together with any interest earned thereon, pursuant to Article 17.2), AND THE PARTY THAT DISPUTES OR HAS A RIGHT TO DISPUTE TERMINATION OF THIS AGREEMENT, ON BEHALF OF ITSELF, ITS AFFILIATES, AND THE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS OF ITSELF AND ITS AFFILIATES, IRREVOCABLY WAIVES ANY AND ALL CLAIMS IT AND THEY MAY HAVE AGAINST THE TERMINATING PARTY FOR TERMINATION OF THIS AGREEMENT. In the event that there is a dispute between the Parties with regard to the termination of or the right to terminate this Agreement and litigation is initiated, Buyer may elect to place into an escrow account an amount equal to five percent (5%) of the Purchase Price, less the Performance Deposit, pending the resolution of the litigation. If Buyer so elects, Seller shall place into an escrow account an amount equal to the Performance Deposit. 17.4 Confidentiality. Notwithstanding the termination of this Agreement or any other provision of this Agreement to the contrary, the terms of the Confidentiality Agreement remain in full force and effect, provided that if and when Closing occurs and effective on the Closing Date, the Confidentiality Agreement shall terminate to the extent (and only to the extent) it applies to the Properties conveyed at Closing. The foregoing notwithstanding, after Closing: (a) Seller shall continue to comply with all current Third Party confidentiality agreements, as applicable, with respect to the Records, (b) Seller shall treat the geological, geophysical and engineering Records in accordance with the same standards of conduct by which Seller treats its own geological, geophysical and engineering records, provided that nothing in (b) above shall be construed as prohibiting Seller from disclosing the Records or information contained therein (i) to an Affiliate, (ii) to a governmental agency or other entity when required by Law or to the extent such data and information is required to be furnished in compliance with any applicable Laws, or pursuant to any legal proceedings or because of any order of any court binding upon Seller or Seller's Affiliate, (iii) to prospective or actual contractors, consultants and attorneys employed by Seller where disclosure of such data or information is essential to such contractor's, consultant's or attorney's work, (iv) to co-owners or joint venturers and bona fide prospective transferees of Seller's ownership interest in properties to which the information relates, (v) to a bank or other financial institution in order to arrange for financing, (vi) to the extent that it must be disclosed pursuant to any rules or requirements of any government or stock exchange having jurisdiction over Seller or an Affiliate of Seller, and (vii) to the extent it, through no fault of Seller, becomes a part of the public domain, provided that, in the cases of (i), (iii), (iv) and (v) above, the person to whom such Records or information is disclosed shall maintain the confidentiality thereof in accordance with Article 17.4. 50 ARTICLE 18. ARBITRATION 18.1 Arbitration. Arbitrable Disputes must be resolved through use of binding arbitration using three (3) arbitrators, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") as in effect on January 11, 2003, as supplemented to the extent necessary to determine any procedural appeal questions by the Federal Arbitration Act (Title 9 of the United States Code). If there is any inconsistency between this Article and the Commercial Arbitration Rules or the Federal Arbitration Act, this Article shall control. Arbitration must be initiated within the applicable time limits set forth in this Agreement and not thereafter or if no time limit is given, within the time period allowed by the applicable statute of limitations. Arbitration, if initiated, must be initiated by a Party ("CLAIMANT") serving written notice on the other Party ("RESPONDENT") that the Claimant elects to refer the Arbitrable Dispute to binding arbitration. Claimant's notice initiating arbitration must identify the arbitrator Claimant has appointed. The Respondent shall respond to Claimant within thirty (30) Days after receipt of Claimant's notice, identifying the arbitrator Respondent has appointed. If the Respondent does not name an arbitrator within the thirty (30) Day period, the administrator of the Houston office of the AAA shall provide the Parties with a list of potential arbitrators from the National Panel of Commercial Arbitrators maintained by the AAA (subject to the qualification requirements of this Article 18) and an arbitrator for Respondent's account shall be determined in accordance with the procedures set forth in Section R-13.b of the Commercial Arbitration Rules of the AAA. The two (2) arbitrators so chosen shall select a third arbitrator within thirty (30) Days after the second arbitrator has been appointed. If the Party-appointed arbitrators cannot reach agreement upon the third arbitrator within the thirty (30) Day period, the third arbitrator shall be selected in accordance with the procedures set forth in Section R-15.c of the Commercial Arbitration Rules of AAA, provided that, all potential arbitrators shall meet the qualification requirements of this Article 18. With respect to arbitrators selected using the procedures set out in R-13.b or R-15.c, if any, the AAA shall submit lists to the Parties until an arbitrator is selected and shall not have the power to make an appointment other than through the exchange of lists. The Parties each shall pay one-half of the compensation and expenses of the arbitrators. All arbitrators must (a) be neutral persons who have never been officers, directors, employees, or consultants or had other business relationships with the Parties or any of their Affiliates, officers, directors or employees, and (b) have not less than seven (7) years recent experience in the U.S. oil and gas industry relevant to the matters in dispute. The hearing will be conducted in Houston, Texas, and commence as soon as practicable after the selection of the third arbitrator. The Parties and the arbitrators should proceed diligently and in good faith so that the award can be made as promptly as possible. Except as provided in the Federal Arbitration Act, the decision of the arbitrators shall be binding on and non-appealable by the Parties. The arbitrators shall have no right or authority to grant or award indirect, consequential, punitive or exemplary damages of any kind. ARTICLE 19. MISCELLANEOUS 19.1 Notices. All notices and other communications required or desired to be given hereunder must be in writing and sent (properly addressed as set forth below) by (a) certified or 51 registered U.S. mail, return receipt requested, with all postage and other charges fully prepaid, (b) hand or courier delivery, or (c) facsimile transmission. Date of service by mail and delivery is the date on which such notice is received by the addressee and by facsimile is the date sent (as evidenced by fax machine generated confirmation of transmission); provided, however, if such date received is not a Business Day, then date of receipt will be on the next date that is a Business Day. Each Party may change its address by notifying the other Party in writing of such address change, and the change will be effective thirty (30) Days after such notification is received by the other Party. To Seller: BP Exploration & Production Inc. 501 WestLake Park Boulevard Houston, Texas 77079 Facsimile: 281-388-7583 Attention: Assistant General Counsel, Legal Group To Buyer: Apache Corporation 2000 Post Oak Blvd, Suite 100 Houston, Texas 77056 Telephone: 713-296-6569 Facsimile: 713-296-6569 Attention: Lisa A. Stewart Executive Vice President - Business Development and E&P Services 19.2 Costs and Post-Closing Consents. Notwithstanding other provisions of this Agreement, Buyer shall be responsible for recording and filing documents associated with assignment of the Properties to it and for all costs and fees associated therewith, including filing the assignments with appropriate federal, state and local authorities as required by Law and in all adjoining counties or parishes onshore of the Properties. As soon as practicable after recording or filing, Buyer shall furnish Seller all recording data and evidence of all required filings. Buyer shall be responsible for obtaining all consents and approvals of governmental entities or authorities customarily obtained subsequent to transfer of title and all costs and fees associated therewith. Except as expressly provided otherwise in this Agreement, all fees, costs and expenses incurred by the Parties in negotiating this Agreement and in consummating the transaction contemplated by this Agreement shall be paid in full by the Party that incurred such fees, costs and expenses. 19.3 Brokers, Agents and Finders. Seller has not retained any brokers, agents or finders in this matter for which Buyer shall have any liability. SELLER RELEASES BUYER FROM AND SHALL FULLY PROTECT, INDEMNIFY AND DEFEND BUYER AND HOLD IT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, COMMISSIONS, FINDERS' FEES OR OTHER REMUNERATION DUE TO ANY AGENT, BROKER OR FINDER CLAIMING BY, THROUGH OR UNDER SELLER. Buyer represents to Seller that it has not retained any agent or broker for Buyer associated with the proposed transaction 52 for which Seller shall have any liability, and no undisclosed Person has a right to act on Buyer's behalf with regard to the proposed transaction. BUYER RELEASES SELLER FROM AND SHALL FULLY PROTECT, INDEMNIFY AND DEFEND SELLER AND HOLD IT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS RELATING TO, ARISING OUT OF, OR CONNECTED WITH, DIRECTLY OR INDIRECTLY, COMMISSIONS, FINDERS' FEES OR OTHER REMUNERATION DUE TO ANY AGENT, BROKER OR FINDER CLAIMING BY, THROUGH OR UNDER BUYER. 19.4 Records. At Closing, and through the Transition Period, Seller shall grant Buyer reasonable access to the Records and shall, to the extent reasonably possible, grant Buyer access during normal business hours, to copy the Records at Buyer's expense. As soon as practicable, but in no event later than sixty (60) Days after the end of the Transition Period (except as provided below), Seller shall furnish Buyer Records that are maintained by Seller; provided, however, Seller may retain (a) copies of any or all Records, (b) originals of any Records associated with litigation or other proceedings pending or threatened by or against Seller or Seller Group, (c) originals of tax records, (d) originals of any Records in connection with the Final Accounting Settlement until payments made thereunder have been agreed and paid in full, (e) originals of any Records required in connection with any Transition Period activities, and (f) originals of any Records associated with any properties not conveyed to Buyer pursuant to this Agreement. To the extent Records to be transferred hereunder are not needed by Seller during the Transition Period, Seller shall to the extent practicable deliver such Records prior to the end of the Transition Period as requested by Buyer. If Seller retains originals of Records, other than Records described in clause (e) which will be delivered after the Transition Period, or Records described in clause (f), Seller shall furnish copies thereof to Buyer at Seller's expense (provided that the cost of supplying and copying any seismic Records shall be borne one-half by Buyer and one-half by Seller). Buyer shall maintain the Records received from Seller for ten (10) years after the Closing Date and afford Seller full access to the Records and a right to copy the Records at Seller's expense as reasonably requested by Seller. If Buyer desires to destroy the Records within such ten (10) year period, it shall notify Seller prior to such destruction, and provide Seller an opportunity to take possession of them at Seller's expense. In addition, Buyer shall afford Seller full access to records and data produced after the Closing Date and reasonably requested by Seller in connection with any claim by Buyer for indemnity or breach of representation and warranty under this Agreement (excluding, however, attorney work product and attorney-client communications entitled to legal privilege), and a right to copy such records and data at Seller's expense. Seller shall afford Buyer full access to records and data produced after the Closing Date and reasonably requested by Buyer in connection with any claim by Seller for indemnity or breach of representation and warranty under this Agreement (excluding, however, attorney work product and attorney-client communications entitled to legal privilege), and a right to copy such records and data at Buyer's expense. Disclosure or transfer of the Records to Buyer pursuant to this Agreement is not intended to waive legal privilege for any privileged documents that may be included among the Records. Should Seller determine after the disclosure or transfer of any Records that such Records are entitled to legal privilege, including attorney work product and 53 attorney-client communications, and should Seller notify Buyer to that effect, Buyer agrees to use all reasonable efforts to preserve the privilege to which such materials are or may be entitled, including segregation and/or return of such materials, execution of a joint defense agreement, or any other reasonable arrangement, and shall cooperate with and provide reasonable assistance to Seller in Seller's efforts to preserve such privilege. 19.5 Further Assurances. After Closing and on an on-going basis: (a) Buyer shall execute and deliver or use reasonable efforts to cause to be executed and delivered any other instruments of conveyance and take any other actions as Seller reasonably requests to more effectively put Seller in possession of any property that was not intended by the Parties to have been conveyed or was conveyed in error (including reassignment from Buyer to Seller of any Properties that were conveyed in violation of valid preferential purchase rights or consents to assignment), or to implement Buyer's assumption of obligations pursuant to Article 12.3; and (b) Seller shall execute and deliver or use reasonable efforts to cause to be executed and delivered any other instruments of conveyance and take any other actions as Buyer reasonably requests to more effectively put Buyer in possession of the Properties conveyed or to have been conveyed in accordance with the terms of this Agreement. In particular, Seller and Buyer agree to execute and deliver such instruments and take such other actions as may be necessary and advisable to: (i) make all filings, registrations, and recordings which must be made with respect to the Properties in the records of the MMS in order that the records maintained by the MMS shall accurately reflect the transfer of the Properties from Seller to Buyer, (ii) enable Seller to promptly take all reasonable actions within Seller's control to allow Buyer to be designated as operator with respect to the Properties, of which Seller is the sole owner and to recommend that Buyer be designated as operator with respect to the other Properties of which Seller is currently operator; and (iii) obtain prompt and unconditional MMS approvals of transfer of the Properties. To the extent the MMS requires, Buyer agrees to promptly take any and all action necessary to post with the MMS any supplemental bonds and provide any and all documentation that the MMS requires, to evidence Buyer's financial responsibility under applicable federal regulations and MMS policies. 19.6 Survival of Certain Obligations. Representations and warranties in Article 10 of this Agreement terminate one (1) year after the Closing Date; and thereafter no action can be commenced either in court or disputes brought to arbitration based on breach of those representations and warranties, without prejudice to the right to recovery in connection with actions or disputes commenced in the appropriate forum prior to the end of the one-year period. Except as expressly provided otherwise in this Agreement, waivers, disclaimers, releases and obligations of indemnity and defense contained in this Agreement survive the Closing indefinitely. 19.7 Amendments and Severability. No amendments, waivers or other modifications of terms of this Agreement shall be effective or binding on the Parties unless they are written and signed by both Parties. Invalidity of any provisions in this Agreement shall not affect the validity of this Agreement as a whole, and in case of such invalidity, this Agreement shall be construed as if the invalid provision had not been included herein. 54 19.8 Successors and Assigns. Except as provided otherwise in this Agreement, this Agreement may not be assigned, either in whole or in part, without the express prior written consent of the non-assigning Party, except that Seller may assign its rights and obligations hereunder to any one or more of Seller's Affiliates without Buyer's consent, and may freely assign its rights to proceeds hereunder. The terms, covenants and conditions contained in this Agreement are binding upon and inure to the benefit of the Parties and their successors and permitted assigns. 19.9 Headings. Titles and headings in this Agreement have been included solely for ease of reference and shall not be considered in interpretation or construction of this Agreement. 19.10 Governing Law. THIS AGREEMENT (INCLUDING ADMINISTRATION OF BINDING ARBITRATION PURSUANT TO ARTICLE 18) IS GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CHOICE OF LAW RULES THAT WOULD DIRECT APPLICATION OF LAWS OF ANOTHER JURISDICTION. ANY ACTION PERMITTED BY THIS AGREEMENT TO BE COMMENCED IN COURT SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN FEDERAL OR STATE COURT LOCATED IN HARRIS COUNTY, TEXAS, AND EACH PARTY HEREBY WAIVES ANY OBJECTION IT MAY HAVE THERETO. 19.11 No Partnership Created. It is not the purpose or intention of this Agreement to create (and it shall not be construed as creating) a joint venture, partnership or any type of association, and neither Party is authorized to act as an agent or principal for the other Party with respect to any matter related hereto. 19.12 Public Announcements. Seller (on behalf of Seller Group) and Buyer (on behalf of Buyer Group) agree not to issue any public statement or press release concerning this Agreement or the transaction contemplated by it (including price or other terms) without prior notice to and consultation with the other Party. 19.13 No Third Party Beneficiaries. Nothing contained in this Agreement entitles anyone other than Seller or Buyer or their authorized successors and assigns to any claim, cause of action, remedy or right of any kind whatsoever, except with respect to waivers and indemnities that expressly provide for waivers or indemnification of Buyer Group or Seller Group, in which case members of such groups are considered third party beneficiaries for the sole purposes of those waiver and indemnity provisions. 19.14 Waiver of Consumer Rights AS PARTIAL CONSIDERATION FOR THE PARTIES ENTERING INTO THIS AGREEMENT, EACH PARTY CAN AND DOES HEREBY WAIVE THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES CONSUMER PROTECTION ACT, ARTICLE 17.41 ET SEQ., TEXAS BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTION, AND ALL OTHER CONSUMER PROTECTION LAWS OF THE STATE OF TEXAS, OR OF ANY OTHER STATE THAT MAY BE APPLICABLE TO THIS TRANSACTION, THAT MAY BE WAIVED BY SUCH PARTY. IT IS NOT THE INTENT OF EITHER PARTY TO WAIVE AND NEITHER PARTY DOES WAIVE ANY LAW OR PROVISION THEREOF THAT IS PROHIBITED BY LAW FROM BEING WAIVED. EACH PARTY REPRESENTS THAT IT HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW THE PRECEDING WAIVER PROVISION, INCLUDING THE OPPORTUNITY TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND ADVICE AND AFTER CONSULTATION WITH AN ATTORNEY OF ITS OWN SELECTION VOLUNTARILY CONSENTS TO THIS WAIVER, AND UNDERSTANDS THE RIGHTS BEING WAIVED HEREIN. 55 19.15 Redhibition Waiver. BUYER: (I) WAIVES ALL RIGHTS IN REDHIBITION PURSUANT TO LOUISIANA CIVIL CODE ARTICLES 2520, ET SEQ.; (II) ACKNOWLEDGES THAT THIS EXPRESS WAIVER SHALL BE CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS SALE AND THE CONSIDERATION THEREOF; AND (III) ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO THE ATTENTION OF BUYER, HAS BEEN EXPLAINED IN DETAIL AND THAT BUYER HAS VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER OF WARRANTY OF FITNESS AND WARRANTY AGAINST REDHIBITORY VICES AND DEFECTS FOR THE PROPERTIES. 19.16 UTPCPL Waiver. TO THE EXTENT APPLICABLE TO THE PROPERTIES OR ANY PORTION THEREOF, BUYER HEREBY WAIVES THE PROVISIONS OF THE LOUISIANA UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (LA. R.S. 51:1402, ET SEQ.). BUYER WARRANTS AND REPRESENTS THAT IT: (I) IS EXPERIENCED AND KNOWLEDGEABLE WITH RESPECT TO THE OIL AND GAS INDUSTRY GENERALLY AND WITH TRANSACTIONS OF THIS TYPE SPECIFICALLY; (II) POSSESSES AMPLE KNOWLEDGE, EXPERIENCE AND EXPERTISE TO EVALUATE INDEPENDENTLY THE MERITS AND RISKS OF THE TRANSACTIONS HEREIN CONTEMPLATED; AND (III) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION. 19.17 Not to be Construed Against Drafter. EACH PARTY HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW EACH AND EVERY PROVISION OF THIS AGREEMENT AND TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND ADVICE. BASED ON THE FOREGOING, THE RULE OF CONSTRUCTION, IF ANY, THAT A CONTRACT BE CONSTRUED AGAINST THE DRAFTER SHALL NOT APPLY TO INTERPRETATION OR CONSTRUCTION OF THIS AGREEMENT. 19.18 Indemnities and Conspicuousness of Provisions. THE RELEASE, DEFENSE, INDEMNIFICATION AND HOLD HARMLESS PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE CLAIMS, DEMANDS, SUITS, CAUSES OF ACTION, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES AND COSTS (INCLUDING ATTORNEYS' FEES AND COSTS OF LITIGATION) IN QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE), VIOLATION OF LAW, OR OTHER FAULT OF ANY INDEMNIFIED PARTY, OR FROM ANY PRE-EXISTING DEFECT. THE PARTIES AGREE THAT PROVISIONS OF THIS AGREEMENT IN "BOLD" TYPE SATISFY ANY REQUIREMENT OF THE "EXPRESS NEGLIGENCE RULE" AND OTHER REQUIREMENT AT LAW OR IN EQUITY THAT PROVISIONS BE CONSPICUOUSLY MARKED OR HIGHLIGHTED. 19.19 Possible Exchange. Each Party reserves the right to structure the transaction contemplated under the terms of this Agreement as a non-simultaneous like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. If either Party elects to so structure this transaction, the Parties shall execute all documents reasonably necessary for such Party to effectuate the non-simultaneous like-kind exchange. 19.20 Recordation. The Assignment and Bill of Sale in the form attached as Exhibits "D-1" and "D-2" is intended to convey all of the Properties being conveyed pursuant to this Agreement. Certain Properties or specific portions of the Properties that are leased from, or require the approval to transfer by, a governmental entity are conveyed under the Assignment and Bill of Sale and also are described and covered by Assignments of Record Title Interest and Assignments of Operating Rights, and other separate 56 assignments made by Seller to Buyer on officially approved forms, or forms acceptable to such entity, in sufficient multiple originals to satisfy applicable statutory and regulatory requirements. THE INTERESTS CONVEYED BY SUCH SEPARATE ASSIGNMENTS ARE THE SAME, AND NOT IN ADDITION TO, THE INTERESTS CONVEYED IN THE ASSIGNMENT AND BILL OF SALE. Further, such assignments shall be deemed to contain the special limited title warranty of Seller and all of the exceptions, reservations, rights, titles, power and privileges set forth herein as fully and only to the extent as though they were set forth in each such separate assignment. 19.21 Execution in Counterparts. This Agreement may be executed in counterparts, that when taken together constitute one valid and binding agreement. 19.22 Entire Agreement. This Agreement and the Confidentiality Agreement supersede all prior and contemporaneous negotiations, understandings, letters of intent and agreements (whether oral or written) between the Parties or their Affiliates relating to the terms of purchase and sale of the Properties and constitute the entire understanding and agreement between the Parties with respect to the sale, assignment and conveyance of the Properties and other transactions contemplated by this Agreement. The Parties have caused this Agreement to be executed by their duly authorized representatives on the day and year first set forth above. SELLER BUYER BP EXPLORATION & PRODUCTION INC. APACHE CORPORATION By: /s/ J. KENT WELLS By: /s/ G. STEVEN FARRIS ------------------------- ---------------------------- Name: J. Kent Wells Name: G. Steven Farris Title: Attorney-in-Fact Title: President, Chief Executive Officer and Chief Operating Officer 57
EX-2.2 4 h02486exv2w2.txt SALE AND PURCHASE AGREEMENT DATED 1/11/2003 EXHIBIT 2.2 DATED 11 JANUARY 2003 (1) BP EXPLORATION OPERATING COMPANY LIMITED (2) APACHE NORTH SEA LIMITED SALE AND PURCHASE AGREEMENT IN RESPECT OF CERTAIN INTERESTS IN UNITED KINGDOM CONTINENTAL SHELF PETROLEUM PRODUCTION LICENCES CMS CAMERON MCKENNA MITRE HOUSE 160 ALDERSGATE STREET LONDON EC1A 4DD T +44(0)20 7367 3000 F +44(0)20 7367 2000 TABLE OF CONTENTS 1. Definitions.......................................................... 1 2. Sale and Purchase of the Interests................................... 9 3. Consideration........................................................ 9 4. Interim Period....................................................... 15 5. Completion........................................................... 19 6. Indemnities.......................................................... 21 7. Warranties........................................................... 23 8. Ongoing obligations and liabilities.................................. 30 9. Confidentiality and Announcements.................................... 31 10. Notices.............................................................. 33 11. Costs and Expenses................................................... 34 12. Taxation............................................................. 35 13. Variation............................................................ 42 14. Assignment........................................................... 42 15. Further Assurance.................................................... 42 16. General.............................................................. 43 17. Rights of Third Parties.............................................. 43 18. Governing Law........................................................ 44 Schedule 1 Interests...................................................... 45 Schedule 2 Allocation of Consideration.................................... 59 Schedule 3 Working Capital................................................ 60 Schedule 4 Interim and Final Completion Statement Formats................. 64 Schedule 5 Employees...................................................... 65 Schedule 6 Pensions....................................................... 70
THIS AGREEMENT is made the 11th day of January 2003 BETWEEN (1) BP EXPLORATION OPERATING COMPANY LIMITED, a company incorporated in England (registered number 00305943) whose registered office is at Britannic House, 1 Finsbury Circus, London EC2M 7BA, England ("BPEOC"); and (2) APACHE NORTH SEA LIMITED, a company incorporated in England (registered number 04614761) whose registered office is at Level 1, Exchange House, Primrose Street, London EC2A 2HS, England ("PURCHASER"). WHEREAS Seller wishes to sell and Purchaser wishes to buy the Interests on the terms and conditions set out herein. NOW THEREFORE IT IS HEREBY AGREED as follows: 1. DEFINITIONS 1.1 In this Agreement (including the recital and Schedules hereto), the following expressions shall, except where the context otherwise requires, have the following respective meanings: "ADJUSTMENT": means any or all (as the context may require) of the Working Capital Adjustment, the Cash Calls Adjustment, the NPR Adjustment, the Petroleum Sales Adjustment and the Interim Period Adjustment; "ADJUSTMENT CLAUSES": has the meaning given in clause 3.3; "AFE": means an authorisation for expenditure pursuant to an agreement relating to the Interests; "AFFILIATE": means in relation to any Party, a subsidiary or a holding company of that Party and includes the ultimate holding company of that Party and any subsidiary of that holding company and for the purposes of this definition "holding company" and "subsidiary" shall be construed in accordance with section 736 of the Companies Act 1985; "AGREED RATE": means one percentage point above LIBOR; "BENEFITS": has the meaning given in clause 6.2; "BLOCK": means a licence block on the United Kingdom Continental Shelf; "BUSINESS DAY": means a day (other than a Saturday, a Sunday or a bank or public holiday) on which banks are or, as the context may require, were generally open for business in England; -1- "CASH CALLS ADJUSTMENT": has the meaning given in clause 3.5; "CHARGEABLE PERIOD": means a period of six months ending at the end of June or December; "COMPLETION": means the completion of the sale and purchase of the Interests in accordance with the provisions of this Agreement; "COMPLETION DOCUMENTS": means those documents referred to in Schedule 1 Parts 1(g) and 2(g); "COMPLETION DATE": means the date on which Completion takes place; "CONDENSATE": means a mixture of hydrocarbons of primarily C5+ molecular weight which is produced from the processing of Raw Gas at the Terminal; "CONDITIONS PRECEDENT": means those conditions precedent listed in Schedule 1 Parts 1(f) and 2(f); "CONSIDERATION": has the meaning given in clause 3.1; "CT": means Corporation Tax as charged under the Income and Corporation Taxes Act 1988 including, for the avoidance of doubt, the supplementary charge of 10% on the profits from United Kingdom and United Kingdom Continental Shelf oil and gas production (the "Supplementary Charge"); "DATA": means in respect of the Interests all files, memoranda, reports, interpretations, documents and other data in the possession, custody or control of Seller (excluding Traded Data) relating directly to the Interests (and forming part of the property jointly owned by the Seller (or its Affiliates) and the other parties to the JOAs in accordance with the terms of such JOAs) whether in hard copy or in original form (where available) including geoscientific, seismic and engineering data and logs, but excluding internal memoranda, reports, interpretations and documents created for Seller's (or its Affiliates') own use and not forming part of the Interests; "DECOMMISSIONING LIABILITIES": means any claims, costs, charges, expenses, liabilities or obligations incurred in relation to decommissioning and/or removing and making safe all of the property related to the Interests (including but not limited to platforms, pipelines, plant, machinery, wells, facilities and all other offshore and onshore installations and structures) whether such liabilities are incurred under or pursuant to any of the Licensed Interest Documents or under statutory, common law or other obligation and including, without limitation, any residual liability for anticipated and/or necessary continuing insurance, maintenance and monitoring costs; "DISCLOSURE LETTER": means the letter of even date herewith delivered to Purchaser by Seller which sets out certain disclosures against the Warranties; "DOLLARS" or "$": means the lawful currency of the United States of America; -2- "DRY GAS": means natural gas produced from the processing of Raw Gas at the Terminal; "ECONOMIC DATE": means 00:01 hours (London time) on 1 January 2003; "EMPLOYEES": means those persons employed wholly or mainly by BPEOC or its Affiliates in the Interests immediately prior to Completion whose presence as an employee is necessary for the efficient operation of the Interests; "ENCUMBRANCES": means all liens, charges, security interests royalties, pledges, options, net profit interests, royalty interests, deferred payments, carried interests, production payments, rights of pre-emption, mortgages and other third party rights, including claims relating to any of the foregoing; "ENVIRONMENT": means all or any of the following, alone or in combination, the air (including the air within buildings and the air within any other natural or man-made structures above or below ground or above or below water), water (including seawater inside or outside any territorial limits, freshwater and water under or within land or in pipes or sewerage systems), soil and land (including the seabed and land under water) and any ecological systems and living organisms supported by those media including man; "ENVIRONMENTAL LAW": means all European Community, international treaties, national, federal, provincial, state or local statutes, the common law, and any codes of law (having legal effect), in the form as existent and applied at the Economic Date in any relevant jurisdiction concerning: (a) harm or damage to or protection of the Environment and/or the provision of remedies in respect of or compensation for harm or damage to the Environment; and/or (b) emissions, discharges, releases or escapes into or the presence in the Environment of Hazardous Substances or the production, processing, management, treatment, storage, transport, handling or disposal of Hazardous Substances or the disposal or abandonment of any oil platform; and/or (c) worker or public health and safety, and any bylaws, regulations or subordinate legislation, judgements, decisions, notices, orders, circulars, technical instructions, licences or permits and codes of practice from time to time issued or made thereunder at the Economic Date; "ENVIRONMENTAL LIABILITIES": means any claims, costs, charges, expenses, liabilities or obligations in respect of the Interests under any Environmental Law or in relation to cleaning up, decontamination of, removing and disposing of debris or any property (including, but not limited to, platforms, pipelines, plant, machinery, wells, facilities and all other offshore and onshore installations and structures) from and for reinstating any area of land, foreshore or seabed, wherever situated, whether such claims, costs, charges, expenses, liabilities or obligations are incurred under or pursuant to any of the Licensed Interest -3- Documents or under any Environmental Law or other obligation and including, without limitation, any residual liability for anticipated and/or necessary continuing insurance, maintenance and monitoring costs; "FIELD": means an oil or gas field which forms part of the Interests as described in Schedule 1; "FIELD FACILITIES": means the petroleum production, processing and transportation facilities and the interconnecting pipelines used in relation to a Field and wholly owned by the Field Group; "FIELD GROUP": means the parties to a JOA; "FINAL COMPLETION STATEMENT": has the meaning given in clause 3.11; "FORTIES FIELD FACILITIES": means the Unit Facilities as defined in the Forties UOA at the date of this Agreement; "FORTIES UOA": means the Forties Field Unit Operating Agreement dated 15 October 1985; "FPS": means certain facilities on the Forties C platform, the subsea pipeline from Forties C Platform to Cruden Bay via Unity, the BP Unity riser platform, the buried landline from Cruden Bay to the Terminal, an oil stabilisation plant at the Terminal, the onshore pipeline from the Terminal to the crude oil tankage at Dalmeny, the crude oil tankage at Dalmeny, the pipeline connecting Dalmeny to the Hound Point terminal and equipment at the Kerse of Kinneil and Grangemouth; "FPS PLATFORM SERVICES AGREEMENT": means the agreement of even date herewith between BPEOC (in its capacity as owner and operator of the FPS) and the Purchaser in respect of the continued operation of certain equipment relating to the FPS which is located on the Forties Field Facilities; "GLOBAL INSURANCE PROGRAM": means Purchaser's current insurance program and any renewal thereof which covers its assets and the liabilities for its operations throughout the world; "HAZARDOUS SUBSTANCES": means any wastes, pollutants, contaminants and any other natural or artificial substances (whether in the form of a solid, liquid, gas or vapour, and whether alone or in combination) which are capable of causing harm or damage to the Environment; "HISTORICAL DATA": means the information set out in the CD marked `Historical Data'; "INTERESTS": means: (a) BPEOC's undivided legal interest in the Licences; (b) BPEOC's entire interest in and under:- -4- (i) each JOA; (ii) the Licensed Interest Documents, together in each case with all rights and obligations attaching thereto and including but not limited to (i) the right to take and receive a consequent share of all Petroleum produced under the Licences on and after the Economic Date and (subject to clauses 3.7 and 12) to receive the gross proceeds from the sale or other disposition thereof; and (ii) a consequent share of BPEOC's right, title and interest in and to jointly-owned funds, jointly owned property and all other assets which are or may be owned pursuant to or under any of the Licensed Interest Documents but excluding the Retained Assets; all as more particularly described in Schedule 1; and (c) Data; "INTERIM COMPLETION STATEMENT": has the meaning given in clause 3.9; "INTERIM PERIOD": means the period from and including the Economic Date up to and including the Completion Date; "INTERIM PERIOD ADJUSTMENT": has the meaning given in clause 3.8; "JOAS": means those agreements, details of which are set out in Schedule 1 Parts 1(d) and 2(d) and, where the context so admits, any one or more of such agreements; "LIBOR": means the rate of interest per annum at which deposits of not less than $1,000,000 in Dollars are offered in the London Interbank offered interest rate market created by major London clearing banks for deposits in Dollars for a thirty day period as appearing on Telerate Page 3750 as of 11:00 a.m. (London time) on the first Business Day of the calendar month in which interest begins to accrue and thereafter on the first Business Day of each succeeding calendar month; "LICENCES": means the licences details of which are set out in Schedule 1 Parts 1(b) and 2(b) and, where the context so admits, any one or more of such licences; "LICENCE OPERATOR": means the entity appointed operator pursuant to a JOA; "LICENCE ROYALTY": means royalty payable pursuant to the terms of the Licence, being the royalty abolished with effect from the Economic Date; "LICENSED INTEREST DOCUMENTS": means those documents referred to in Schedule 1 Parts 1(e) and 2(e) and, where the context so admits, any one or more of such documents; "LOSSES AND EXPENSES": means actions, proceedings, losses, damages, liabilities, claims, demands, costs and expenses including fines, penalties, clean-up -5- costs, legal and other professional fees and any VAT payable in relation to any such matter, circumstances or item; "NGLS": means hydrocarbons comprising primarily propane and butane which are produced from the processing of Raw Gas at the Terminal; "NOTIONAL CT": means an amount calculated in accordance with the principles of corporation tax as defined in Income and Corporation Taxes Act 1988 ("ICTA88"), including a basic rate of thirty per cent (30%) and an additional ten per cent (10%) supplementary charge in accordance with sections 91 to 93 of the Finance Act 2002 (sections 501A to 501B ICTA88) arising in respect of profits from ring fence trades in accordance with Section 502 ICTA88; "NPR ADJUSTMENT": (being the Adjustment in respect of non-Petroleum receipts) has the meaning given in clause 3.6; "OBLIGATIONS": has the meaning given in clause 6.2; "OIL": means crude oil which has been stabilised such that it is suitable for loading into tankships for sale; "OPERATOR": means where the context so admits any of or all of the following: (a) a Licence Operator; (b) a Pipeline Operator; and/or (c) the Terminal Operator; "OTO": the Oil Taxation Office of the Inland Revenue; "PARTY" or "PARTIES": a party or parties to this Agreement; "PENSION SCHEME": means the BP Group pension scheme applicable to the Employees; "PETROLEUM": shall have the meaning given in the Licences; "PETROLEUM SALES ADJUSTMENT": has the meaning given in clause 3.7; "PIPELINE OPERATOR": the entity appointed operator in relation to a Pipeline System; "PIPELINE SYSTEM": a pipeline system through which Petroleum produced from a Field is transported; "POST COMPLETION DOCUMENTS": means those documents referred to in Schedule 1 Parts 1(h) and 2(h); "POUNDS", "L" or "STERLING": pounds sterling of the United Kingdom; "PRT": Petroleum Revenue Tax as charged under the Oil Taxation Act 1975; -6- "PURCHASER'S ACCOUNT": Bank One Chicago, Illinois, ABA No. 071000013, Account No. 5577446, Account Name: Apache Corporation Master; "PURCHASER'S GUARANTEE": means the deed entered into on or about the date of this agreement pursuant to which, inter alia, Apache Corporation guarantees in favour of the Seller, the obligations of the Purchaser hereunder; "PURCHASER'S SOLICITORS": means Herbert Smith, Exchange House, Primrose Street, London EC2A 2HS; "RAW GAS": means gas and interstage liquid hydrocarbons produced from the processing of pipeline liquids at the Terminal; "RAW GAS SALE AND PURCHASE AGREEMENT": means the agreement of even date herewith between Purchaser and BPEOC for the sale by Purchaser to BPEOC of Raw Gas produced from the Interests; "RELEVANT CLAIM": means any claim against Seller for breach of the Warranties; "RELEVANT THIRD PARTIES": means the parties, other than the Parties, to any or all of the Licensed Interest Documents; "RETAINED ASSETS": means the Brae, Buchan and MonArb risers and associated pig receivers, one 36" pig launcher, two drag reducing agent skids, eight drag reducing agent tanks, 1 corrosion inhibitor skid, 1 corrosion inhibitor tank, the Forties Charlie export riser, and all valves, including subsea valves, pipework and control panels associated with the foregoing; "SECRETARY": means the Secretary of State for Trade and Industry; "SECRETARY'S CONSENT": means the consent in writing of the Secretary to the transfer of the Interests to the Purchaser including the Licences; "SELLER": means BPEOC; "SELLER'S ACCOUNT": Citibank New York, Swift CITIUS33XXX; Account of BP International Limited, Account Number 40550445; "SELLER GROUP": means Seller, Seller's Affiliates and each of their officers, directors, agents, consultants and employees; "SOLE-CONTRACTORS": means those individuals, rather than corporate entities (save to the extent that such corporate entities are personal service companies), who have entered into contracts for services with BPEOC or its Affiliates as independent contractors for the supply of services in relation to the Interests or who have contracted with agencies who then supply the services of such individuals to BPEOC in relation to the Interests; "TERMINAL": means the terminal at the Kerse of Kinneil; "TERMINAL OPERATOR": means the entity appointed operator of the Terminal; -7- "THE LONDON STOCK EXCHANGE": means London Stock Exchange plc; "TRADED DATA": means, with respect to a Block comprised within the Interests, data which relates to an area outside such Block and which has been acquired by trade, purchase or otherwise by and on behalf of Seller (either alone or in conjunction with third parties) from a third party or parties, and/or data which relates to such a Block and has been acquired as aforesaid which in both cases cannot be provided to Purchaser because such transfer is prohibited by the agreement under which it was acquired; "UK LISTING AUTHORITY": means the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000; "VAT": Value Added Tax as charged under the Value Added Tax Act 1994 (as amended); "WARRANTIES": means the warranties given by Seller to Purchaser under clause 7.1 (including Parts 2 of Schedules 5 and 6); and "WORKING CAPITAL ADJUSTMENT": means the adjustment to the Consideration in respect of each Interest to be made pursuant to clause 3.4. 1.2 All references to clauses, recitals and Schedules are, unless otherwise expressly stated, references to clauses, recitals and schedules to this Agreement. 1.3 The headings in this Agreement are inserted for convenience only and shall be ignored in construing this Agreement. Unless the context otherwise requires in this Agreement the singular shall include the plural and vice versa. 1.4 Reference to statutory provisions shall be construed as reference to those provisions as amended, consolidated, extended or re-enacted from time to time. 1.5 Any document expressed to be "in the agreed form" means a document in a form approved by (and for the purpose of identification signed on behalf of) the Parties. 1.6 References in this Agreement to the words "include", "including" and "other" shall be construed without limitation. 1.7 References in this Agreement to any agreement shall be construed as a reference to any such agreement as the same may have been supplemented, amended and/or novated from time to time. 1.8 Where a warranty is qualified by the words "so far as Seller is aware", or any similar expression, such Warranty is given only to the extent that any of Mark Bly (Mid North Sea Business Unit Leader), David Campbell (Performance Unit Leader for Forties - Montrose - Arbroath), John Skipper (Assistant General Counsel), Bryan Tadeo (HSE Team Leader, Forties) and Graeme Young (Commercial Manager, Mid North Sea) are aware of the matters to which it refers -8- as at the date hereof and neither those persons nor Seller shall be required to make enquiries of any other person. 2. SALE AND PURCHASE OF THE INTERESTS 2.1.1 Subject to the terms of this Agreement, Seller hereby agrees to sell with full title guarantee and free from all Encumbrances (subject to the provisions of the Licensed Interest Documents) to Purchaser and Purchaser hereby agrees to acquire from Seller the Interests. 2.1.2 The transfer referred to in clause 2.1.1 shall, as between the Parties, be deemed for all purposes to be made with effect on and from the Economic Date. 2.2 The obligations of the Parties to complete the sale and purchase of the Interests under this Agreement are conditional on fulfilment or waiver of the Conditions Precedent. If the Conditions Precedent have not been satisfied or waived on or before 30 September 2003 (the "Backstop Date") (or such later date as the Parties may agree) then, subject to clause 9, this Agreement shall automatically terminate. Following any such termination of this Agreement neither Party shall have any rights against the other Party in respect thereof, save for any pre-existing rights of any Party in respect of any prior breach hereunder or pursuant to Clause 9. 2.3 The Conditions Precedent consisting of necessary consents, approvals or waivers by Relevant Third Parties and governmental authorities shall be deemed satisfied upon receipt of such consents, approvals or waivers in form and substance reasonably satisfactory to Seller and Purchaser. 2.4 The Parties shall each use all reasonable endeavours to obtain fulfilment of the Conditions Precedent as soon as practicable and in any event by the Backstop Date. The Parties shall keep each other informed of the progress in satisfying these conditions and the date when they have been fulfilled. 2.5 Waiver of any of the Conditions Precedent shall require the mutual consent of Seller and Purchaser. 3. CONSIDERATION 3.1 The consideration for the transfer of the Interests shall be the payment by Purchaser to Seller of the sum of $630,000,000 (six hundred and thirty million Dollars) (the "Consideration"), as adjusted pursuant to this Agreement. 3.2 Subject to clause 12, the Consideration shall be allocated as set out in Schedule 2. Seller and Purchaser agree that the said allocation is a just and reasonable apportionment of the Consideration. 3.3 Where any sums are taken into account in an Adjustment or are payable by Purchaser to Seller or by Seller to Purchaser pursuant to this clause 3, clause 6.4 or clause 12 (together the "Adjustment Clauses") or pursuant to a Relevant Claim -9- under clause 7, the same shall operate by way of increases or decreases, as the case may be, in the Consideration. The following principles shall apply in respect of the Adjustments and the Consideration: 3.3.1 No item taken into account in calculating any one Adjustment or other increases or decreases as the case may be under the Adjustment Clauses or clause 7 shall be taken into account in calculating any of the other Adjustments so as to result in a Party making or receiving payment twice in respect thereof nor will any Party be entitled under clause 6 to reimbursement of any payment received from a third party to the extent such payment has been taken into account (to the benefit of that Party) in calculating any of the Adjustments. 3.3.2 No adjustment to the Consideration shall be made in respect of any matter to which clauses 6.6 or 6.7 apply. 3.4 WORKING CAPITAL ADJUSTMENT The Working Capital Adjustment, which if positive shall increase the Consideration and if negative shall reduce the Consideration, shall be the sum of all the amounts calculated separately in respect of the Interests as at the Economic Date by reference to the statements provided by the relevant Operators and otherwise in accordance with Schedule 3. 3.5 CASH CALLS ADJUSTMENT The Cash Calls Adjustment, which if positive shall increase the Consideration and if negative shall reduce the Consideration, shall be the net sum of the total amounts specified in clauses 3.5.1 and 3.5.2: 3.5.1 the positive adjustments are the total amount of all cash calls, billing invoices, claims, demands or statements paid pursuant to the Licensed Interest Documents by the Seller or on behalf of the Seller by the Operator, and which accrue or relate to the period from the Economic Date until Completion; and 3.5.2 the negative adjustments are the total amount of all credits, receipts, income, reimbursements or recoveries of any kind (other than any credit, receipt, income, reimbursement or recovery, which forms part of the Petroleum Sales Adjustment under clause 3.7) received pursuant to the Licensed Interest Documents by the Seller or on behalf of the Seller by the Operator which accrue or relate to the period from the Economic Date until Completion. 3.6 NPR ADJUSTMENT The NPR Adjustment, which shall decrease the Consideration, shall be the sum of all income and other receipts received by the Seller (other than those dealt with by the Petroleum Sales Adjustment under clause 3.7 or otherwise dealt with in clause 3.5) in respect of the Interests during the Interim Period, provided that any such income or receipt which relates to any period prior to the Economic Date and -10- which has not been taken into account in the Working Capital Adjustment shall be for the benefit of the Seller and shall not result in any adjustment to the Consideration. 3.7 PETROLEUM SALES ADJUSTMENT 3.7.1 The Petroleum Sales Adjustment, which shall decrease the Consideration, shall be the sum of all receipts for the sale and/or supply of Petroleum from and in relation to the Interests that, on and from the Economic Date and in respect of any Petroleum which (being Oil) is lifted or (being Raw Gas) is delivered at any time on and after the Economic Date, are received by or credited to the Seller. 3.7.2 For the avoidance of doubt, the Parties agree that no adjustment shall be made at Completion as part of the Petroleum Sales Adjustment in respect of any receipts for the sale and/or supply of Petroleum as aforesaid where such receipts have not been received by or credited to the Seller prior to the Completion Date. Instead, the Parties agree that forthwith following each receipt by or crediting to the Seller of any such receipts after Completion, the Seller shall pay Purchaser the amount in Dollars or Sterling (as appropriate) equal to such receipts. The Parties further agree that any payments made by the Seller to Purchaser under this clause 3.7.2 shall be treated as a reduction in the Consideration where any Petroleum (being Oil) is lifted or (being Raw Gas) is delivered prior to the Completion Date and shall not be so treated where such lifting or delivery takes place after the Completion Date. 3.7.3 Receipts attributed to Raw Gas in accordance with clause 3.7.1 shall be determined by reference to the price set out in the Raw Gas Sale and Purchase Agreement. Receipts attributed to Oil in accordance with clause 3.7.1 shall be determined by reference to the arithmetic average of the Platts Crude Oil Marketline quotations for each publication day for Forties Blend f.o.b. Hound Point in Dollars per barrel for the month of lifting in question. 3.8 INTERIM PERIOD ADJUSTMENT The Interim Period Adjustment, which shall increase the Consideration, shall be the sum of all expenditure incurred and paid in respect of the Interests by Seller including, without limitation, Licence Royalty, demurrage, brokers' fees (other than fees of stockbrokers and advisers engaged in relation to the matters referred to herein), employees salaries, rent, insurance premia and deductibles and all other costs and expenses incurred and paid by Seller in respect of the Interests during the Interim Period and which have not been met by cash calls or other payments taken into account under the foregoing provisions of this clause 3. Any such costs and expenses which relate to any period prior to the Economic Date and which have not been taken into account in the Working Capital Adjustment shall be for the cost of Seller and shall not result in any adjustment to the Consideration. -11- INTERIM COMPLETION STATEMENT/ESTIMATE OF ADJUSTMENTS 3.9 Seller shall provide Purchaser with a written statement (being a consolidation of separate statements prepared in respect of each Interest, with the separate statements attached), of the Consideration in Dollars, giving an estimate of the sum of all Adjustments (including, for the avoidance of doubt, the Working Capital Adjustment referred to under clause 3.4 and the Cash Calls Adjustment under clause 3.5) which are expected to be required as at the Completion Date, together with amounts equivalent to interest in accordance with clause 3.15 to be made hereunder in respect of the Interests. Such statement shall be provided no later than seven (7) Business Days prior to Completion. Seller may update the same and the Parties shall endeavour to agree the statement before Completion, failing which the matter shall be dealt with in accordance with clauses 3.11 and 3.12. This interim completion statement (the "Interim Completion Statement") shall be in the format set out in Schedule 4. 3.10 If any of the amounts or portions thereof contained in the Interim Completion Statement to be delivered pursuant to clause 3.9 have not been agreed or determined prior to Completion, the disputed amounts or portions of the Adjustments shall be left out of account and shall be dealt with as part of the Final Completion Statement in accordance with clauses 3.11 and 3.12, and the undisputed balances of the Adjustments shall be set off against each other. The resultant balance in relation to the Interests shall be added to or subtracted from (as the case may be) the amount of the Consideration stated in clause 3.1, and such amount so adjusted shall be payable at Completion. 3.11 FINAL COMPLETION STATEMENT/FINAL ADJUSTMENTS Within sixty days after Completion, and without prejudice to the provisions of clause 6, Seller shall provide Purchaser with a written statement (being a consolidation of separate statements prepared in respect of the Interests, with the separate statements attached), together with reasonably detailed supporting documentation, giving the final amount of the Consideration and all Adjustments to be made hereunder in respect of the Interests (including any amounts left out of account under clause 3.10) together with amounts equivalent to interest in accordance with clause 3.15. If the Parties shall fail to agree any such amounts in dispute (the "Disputed Amounts") within fifteen Business Days of receipt by Purchaser, the statement shall be referred for determination in accordance with the provisions of clause 3.12. Any amounts so agreed within fifteen Business Days (the "Second Adjustment"), to the extent not already paid or taken into account on Completion, shall be paid by Purchaser or Seller within five Business Days following agreement of the relevant Parties. Payment of the Disputed Amounts or portions thereof shall be made within five Business Days following either agreement of the Parties or determination under clause 3.12 (as the case may be). This final completion statement (the "Final Completion Statement") shall be in the format set out in Schedule 4. For the avoidance of doubt, the provisions of this clause 3.11 shall not apply to any tax adjustments pursuant to clause 12. -12- 3.12 INDEPENDENT DETERMINATION If the Parties cannot reach agreement on the contents of all or part of the statements referred to in clauses 3.9 and/or 3.11 within the time limit provided in clause 3.11, the Disputed Amounts may be referred by any Party for determination by an independent chartered accountant nominated by the Parties or, in the absence of agreement between the Parties within five Business Days of a Party notifying the other that it proposes to refer the dispute to an expert, by the President of the Institute of Chartered Accountants in England and Wales. Within ten Business Days after the appointment of such expert, each Party may submit to the expert a statement of the nature of the dispute, a description of the submitting Party's claims with respect thereto, and any other supporting documentation or materials with respect thereto that the submitting Party desires the expert to consider. The Party submitting such statement shall provide a copy thereof to the other Party, who shall have five Business Days from receipt thereof to submit an answering statement to the expert. The nominated chartered accountant shall be afforded such access to books, records, accounts and documents in the possession of the Parties as he may reasonably request, and he shall act as expert not as arbitrator. The said accountant's determination shall, in the absence of fraud or manifest error or bias, be final and binding on the Parties, his fees and disbursements shall be borne by Seller as to one half and Purchaser as to the other half and each Party shall bear its own costs in respect of such reference. 3.13 Seller shall provide Purchaser with copies of all Operator's reports, billing statements and correspondence and any and all other relevant documentation in its possession or under its control necessary to support the statements referred to in clauses 3.9 and 3.11. The Parties shall liaise on the compilation and agreement of the said statements. 3.14 FINANCIAL INFORMATION Both prior to and after Completion, Seller shall provide Purchaser with access to Seller's financial records for the Interests for the calendar years 2001 and 2002 which were previously made available to Seller's auditors for purposes of preparing Seller's annual audited and quarterly reviewed financial statements for those years and to Seller's corresponding financial records for any portion of 2003 prior to Completion, including in each case records with respect to direct operating costs with respect to each of the Interests and the net revenues from such Interests and such other information as may be required for Purchaser's Form 8-K filing with respect to the transactions contemplated by this Agreement. Seller shall cause Seller's and Seller's Affiliates' personnel to cooperate with Purchaser in providing such access and to reasonably assist Purchaser in locating and interpreting such records and Seller shall cause Seller's contractor Accenture to provide reasonable assistance to Purchaser in the preparation of certain supporting financial schedules and audit work papers. The cost incurred by Seller in providing the financial data to Purchaser and assisting Purchaser shall be borne by Purchaser. Purchaser releases Seller Group from and shall fully protect, defend, indemnify and hold Seller Group harmless from and against any and all claims relating to, arising out of, or connected with, directly or indirectly, Seller's -13- preparation or furnishing of any such records to Purchaser, any actions, representations or certifications of Seller's and its Affiliates' personnel or auditors with respect to the information contained in such records, or Purchaser's use of the information contained in such financial records, regardless of cause or of any negligent acts or omissions (including sole negligence, concurrent negligence or strict liability), breach of duty (statutory or otherwise), violation of law, or other fault of Seller Group, or any pre-existing defect. 3.15 TIME-VALUE ADJUSTMENTS 3.15.1 An amount equivalent to simple interest (calculated on a daily basis on the basis of a 365 day year) at the Agreed Rate shall be payable to Seller on the amount of the Consideration stated in clause 3.1 from the Economic Date up to and including the Completion Date. 3.15.2 In respect of the Adjustments: (a) an amount equivalent to simple interest (calculated on a daily basis on the basis of a 365 day year) at the Agreed Rate shall be payable on the Working Capital Adjustment from the Economic Date up to and including the Completion Date, and, in the case of that element of the Second Adjustment attributable to it or Disputed Amounts, thereafter up to and including the date of settlement thereof; (b) an amount equivalent to simple interest (calculated on a daily basis on the basis of a 365 day year) at the Agreed Rate shall be payable on each cash call or invoice, claim, demand or statement (adjusted in accordance with clause 12) comprised in the Cash Calls Adjustment from the date on which such cash call or invoice, claim, demand or statement is paid by Seller up to and including the date of settlement of such element of the Cash Calls Adjustment; (c) an amount equivalent to simple interest (calculated on a daily basis on the basis of a 365 day year) at the Agreed Rate shall be payable on each receipt comprised in the NPR Adjustment from the date such income is received by the Seller up to and including the date of settlement of such element of the NPR Adjustment; (d) an amount equivalent to simple interest (calculated on a daily basis on the basis of a 365 day year) at the Agreed Rate shall be payable on each receipt comprised in the Petroleum Sales Adjustment from the date of such receipt by or credit to the Seller up to and including the date of settlement of such element of the Petroleum Sales Adjustment; and (e) an amount equivalent to simple interest (calculated on a daily basis on the basis of a 365 day year) at the Agreed Rate shall be payable on each item of expenditure comprised in the Interim -14- Period Adjustment from the date such item of expenditure is paid by the Seller up to and including the date of settlement of such element of the Interim Period Adjustment. 3.16 Where any sums payable by Purchaser to Seller or by Seller to Purchaser pursuant to clauses 3, 6 or 7 are expressed in currencies other than Dollars, the same shall be translated into Dollars at the arithmetical average of the spot closing midpoint rates quoted in the Financial Times for the currency concerned on each Business Day during the calendar month prior to the month in which the relevant payment is made or received (as the case may be) and shall be paid in Dollars. 3.17 Where this Agreement provides for any payment to the Seller's Account, the Seller irrevocably authorises and instructs the Purchaser to make that payment to the Seller's Account, delivery to which account shall be an effective discharge of the Purchaser's obligation to pay the amount concerned. The Purchaser shall not be concerned to see to the application of any such amounts so paid. Likewise, where this Agreement provides for any payment to the Purchaser's Account, the Purchaser irrevocably authorises and instructs the Seller to make that payment to the Purchaser's Account, delivery to which account shall be an effective discharge of the Seller's obligation to pay the amount concerned. The Seller shall not be concerned to see to the application of any such amounts so paid. 4. INTERIM PERIOD 4.1 During the Interim Period (to the extent the same falls after the date hereof), Seller shall: 4.1.1 to the extent practicable in the circumstances consult with Purchaser in relation to any material decision in connection with the Interests (in particular in respect of the non-compliant X-10 oil cooler on the Forties Charlie platform) and take reasonable account of Purchaser's reasonable representations but so that nothing in this sub-clause shall operate to fetter the discretion of the Seller in exercising its votes in respect thereto; 4.1.2 not approve any work programme, budget, expenditure or capital commitment relating to any Licence involving expenditure in excess of L1,000,000 (net Seller's share) in any case other than: (a) any such expenditure covered by any budget approved prior to the date of this Agreement; or (b) any such expenditure in respect of which Purchaser has given its prior written approval (not to be unreasonably withheld or delayed); or (c) any expenditure necessitated by any emergency (in which case Seller shall consult with Purchaser to the extent practicable in the circumstances); -15- 4.1.3 continue to carry on their activities in relation to the Interests in the ordinary and usual course (and in accordance with the terms of the Licences and other Licensed Interest Documents) so as to protect and maintain the same in accordance with good oilfield practice; 4.1.4 consult with the Purchaser with regard to the Interests and co-operate with the Purchaser so as to ensure an efficient handover of the Interests on Completion; 4.1.5 generally keep the Purchaser in a timely manner informed of matters (not of a routine or minor nature) relating to the Interests; 4.1.6 not, without the Purchaser's written consent (not to be unreasonably withheld or delayed), waive, compromise or settle any material right or claim with respect to the Interests insofar as such right or claim relates or is capable of relating to periods after the Economic Date; 4.1.7 not, without the Purchaser's written consent (not to be unreasonably withheld or delayed), encumber, sell, lease or otherwise dispose of any of the Interests (excluding sales of production therefrom in the ordinary course of business consistent with past practices), or purport to do any of the same; 4.1.8 not, without the Purchaser's written consent (not to be unreasonably withheld or delayed), terminate, amend, or modify, or agree to terminate, amend or modify, any of the Licensed Interest Documents or withdraw from the Licences (or any of them); 4.1.9 not, without the Purchaser's written consent (not to be unreasonably withheld or delayed), and excluding any contract or agreement covered by any budget approved prior to the date hereof, enter into a contract or agreement relating to the Interests and attributable to the period after the Economic Date that is (i) a contract or agreement with an Affiliate of Seller; or (ii) a contract or agreement for which Purchaser shall have financial responsibility after Completion in an amount in excess of L1,000,000; or (iii) a contract or agreement which materially interferes with the operation of the Interests in the manner in which they were operated as of the Economic Date; or (iv) a joint operating agreement, unitization agreement or co-operation agreement; 4.1.10 provide the Purchaser with all reasonable information and assistance requested by the Purchaser so as to enable the Purchaser to include the Interests under its Global Insurance Program. 4.2 4.2.1 Notwithstanding any other provision of this Agreement, if prior to Completion (but not thereafter), an event giving rise to physical damage to the Forties Field Facilities occurs which causes a total shutdown in production from the Interests which total shutdown is estimated in good faith by both Parties (as evidenced by written agreement to that effect) as -16- likely to continue for not less than one year from the date of such event, (or if for any reason the Parties are unable or unwilling to agree upon such estimate within fifteen (15) Business Days of a request to do so from either Party, estimated as aforesaid by an independent expert appointed by the Parties, or if the Parties are unable to agree on such appointment within twenty-four (24) hours, as appointed by the President of the Institute of Petroleum); then the Purchaser shall have the right as prescribed in clause 4.2.2 to terminate this Agreement by notice in writing to the Seller, without either Party having any liability to the other. Save in the event of fraud, the agreement of the Parties or the expert's determination, as the case may be, shall be final and binding on the Parties and the expert shall be deemed to be acting as an expert and not as an arbitrator. 4.2.2 If the Parties agree or the expert determines that a total shutdown as provided in clause 4.2.1 is likely to continue for not less than one (1) year from the date of such event, the Purchaser shall be entitled at any time prior to the close of business on the fifth (5th) Business Day after the Parties reach agreement or receive the expert's determination to give notice to the Seller to terminate this Agreement. If the Purchaser does not give such a notice or is not entitled to give such a notice by reason of the Parties reaching agreement or the expert determining that a total shutdown is not likely to continue for one year or longer, then the Parties shall (subject to the fulfilment or waiver of the Conditions Precedent) proceed to Completion or if the date of Completion has been delayed pursuant to clause 4.2.3 then as soon as reasonably practicable and in any event within ten (10) Business Days of such agreement or the receipt of such determination. 4.2.3 If the Parties' estimate or expert's determination referred to in clause 4.2.1 has not been agreed or received, as the case may be, by the Purchaser prior to the date which is five (5) Business Days prior to Completion then the Completion shall be delayed until after receipt by the Purchaser of the Parties' estimate or expert's determination (subject to the fulfilment or waiver of the Conditions Precedent). 4.2.4 If the Purchaser does not exercise any right it may have under this clause 4.2 to terminate this Agreement and proceeds to Completion, the Purchaser shall be deemed to have waived any and all other rights it may have hereunder or otherwise in relation to the event referred to in clause 4.2.1 it being accepted by the Parties that the right of termination shall be in lieu of any other right of the Purchaser in relation to such event, including any right to claim damages, make any claim in respect of the Warranties or seek any reduction in the Consideration. 4.2.5 The rights set out in this clause 4.2 shall not apply in respect of any event giving rise to physical damage to the Forties Field Facilities which occurs after Completion. -17- 4.3 INTERIM PERIOD RISK AND INSURANCE 4.3.1 Subject to clause 4.2 and the other provisions of this Agreement, the Purchaser shall accept the assets comprising the Interests in the physical condition in which they exist at the date of this Agreement and, notwithstanding that title will not pass until Completion, shall assume the risk of damage thereto or the destruction thereof as from the date of this Agreement. 4.3.2 The Purchaser shall with effect from the date of this Agreement until this Agreement is terminated or Completion takes place (as the case may be) ensure that the insurance coverage provided by its Global Insurance Program includes the Interests. The Purchaser will not vary such insurance coverage in respect of the Interests without the Seller's prior written consent (not to be unreasonably withheld or delayed). The Purchaser shall provide to the Seller evidence that the Interests have been included under the Global Insurance Program as soon as reasonably practicable after the date of this Agreement. 4.3.3 If after the date of this Agreement the Interests sustain damage or are destroyed, the Seller shall cooperate with and provide all reasonable assistance and provide all such relevant information to the Purchaser or its insurers (including such insurers' representatives and contractors) as may be reasonably requested by the Purchaser or its insurers, so as to enable the Purchaser to effect recovery under the Global Insurance Program. 4.4 Without prejudice to clause 4.1, Seller shall (subject to any confidentiality obligations by which it is bound, from which obligations Seller shall use reasonable endeavours to procure its release) ensure that pending Completion the Purchaser is kept informed in a timely manner of all material matters in relation to the Interests, including, but not limited to: (a) the making of any cash call; (b) the approval of any AFE; (c) the adoption or proposal of, or amendment to, any work programmes and budgets; (d) the receipt of Operators' billing statements and invoices; and (e) the receipt of any Data. 4.5 After execution of this Agreement, Seller shall make available (during Seller's regular business hours and at their current location) for review by Purchaser and its representatives all Data. If Purchaser requests copies of any of the Data, Seller shall use reasonable efforts to provide the requested copy to Purchaser at Purchaser's expense. -18- 4.6 As soon as practicable after execution of this Agreement, Seller and Purchaser will create a transition team ("TRANSITION TEAM") consisting of approximately three (3) persons on each side for the purpose of: (a) providing information and background to Purchaser and Purchaser's personnel relating to the operation of the Interests (including the provision of services under the FPS Platform Services Agreement); (b) providing liaison with the Employees and any other personnel of the Seller who are responsible for such operations; and (c) planning the anticipated transfer of operatorship of the Interests to Purchaser. Seller will allow the Purchaser's representatives on the Transition Team reasonable access to Seller's premises at Dyce, Aberdeen and to sites on-shore and off-shore associated with the operation of the Interests which sites are under Seller's control all at Purchaser's sole risk and expense. 5. COMPLETION 5.1 Completion under this Agreement shall take place at the offices of Herbert Smith, Brussels (or at such other location as the Parties may agree) on the Business Day which falls ten Business Days after the date on which the last of the Conditions Precedent have been fulfilled or waived (or at such other time as the Parties may agree). Promptly after receipt of a governmental or Relevant Third Party consent, approval or waiver which is a Condition Precedent, the receiving Party shall notify the other Party that such consent, approval or waiver has been obtained. 5.2 On the Completion Date all but not part only of the following business shall be transacted: 5.2.1 Purchaser shall: (a) pay to Seller the Consideration, as adjusted in accordance with clauses 3.3 to 3.10 inclusive together with amounts equivalent to interest pursuant to clause 3.15, by means of telegraphic transfer in immediately available funds to Seller's Account on such Completion Date; (b) deliver to Seller (to the extent not already delivered prior to Completion) a copy of the relevant consents, approvals, confirmations or waivers, necessary to satisfy the Conditions Precedent and obtained by or on behalf of Purchaser; (c) deliver to Seller (to the extent not already delivered prior to Completion) a copy, certified as a true copy and in full force and effect by a director or the secretary of Purchaser, of a resolution of the board of directors of Purchaser authorising its entry into the transactions contemplated by this Agreement and -19- authorising a person or persons to sign the same and the Completion Documents on behalf of Purchaser; and (d) execute and deliver those of the Completion Documents to which it is a signatory. 5.2.2 Seller shall deliver to Purchaser (to the extent not already delivered prior to Completion): (a) the Completion Documents duly executed by all the parties thereto other than Purchaser (and, in the case of the Deeds of Licence Assignment, the Secretary); (b) a copy of other relevant consents, approvals, confirmations or waivers, necessary to satisfy the Conditions Precedent and obtained by or on behalf of Seller; and (c) a copy, certified as a true copy and in full force and effect by a director or the secretary of Seller, of a power of attorney authorising the execution of this Agreement and the Completion Documents on behalf of Seller. 5.3 Seller and Purchaser undertake to each other and agree to use all reasonable endeavours to ensure the execution of each of the Post Completion Documents (to the extent not delivered at Completion) by all parties thereto as soon as possible after Completion. 5.4 Without prejudice to its obligations under clause 4, Seller shall ensure that (to the extent not delivered prior to Completion) the Licensed Interest Documents and all Data in the possession or control of Seller (or copies thereof, if originals are not in Seller's possession) are made available for collection by Purchaser at its own expense within normal business hours as soon as reasonably practicable after the Completion Date. 5.5 Purchaser acknowledges that Seller shall have the right to retain copies of any of the Licensed Interest Documents, subject to the same being maintained in confidence, and the provisions of clause 9 shall apply to Seller in the same way as they apply to Purchaser. 5.6 Purchaser undertakes that, following Completion, it shall not and it shall procure that its Affiliates shall not make use of any stationery, invoices, forms, seals, trade marks, logos and any other similar articles or symbols showing the expression "BP", "Amoco" or "BP Amoco" or any other expression likely to suggest a connection with the BP group of companies, provided that any signs, placards or other marks bearing such trade marks, logos and symbols of Seller or the BP group of companies shall be removed by Purchaser from the properties comprising the Interests within 45 Business Days after the Completion Date. 5.7 Notwithstanding Completion: -20- 5.7.1 each provision of this Agreement (and any other document referred to in it) not performed at or before Completion but which remains capable of performance; 5.7.2 the Warranties; and 5.7.3 all covenants and other undertakings contained in or entered into pursuant to this Agreement, will remain in full force and effect and (except as otherwise expressly provided) without limit in time. 6. INDEMNITIES 6.1 The provisions of this clause 6 shall only take effect once Completion has occurred. All adjustments and reimbursements made and the ascertainment of all Obligations and Benefits under this clause 6 will be calculated using the accruals method of accounting. 6.2 Seller shall be liable for costs, charges, expenses, liabilities and obligations in connection with or arising out of the Interests (other than Environmental Liabilities and the Decommissioning Liabilities) (together "Obligations") which accrue in or relate to any period before the Economic Date and Seller shall be entitled to all income, receipts, rebates and other benefits in connection with or arising out of the Interests (together "Benefits") which accrue in or relate to any period before the Economic Date. 6.3 Purchaser shall be liable for all Obligations and entitled to all Benefits which accrue in or relate to any period on or after the Economic Date. 6.4 Subject to clause 6.9, save to the extent that the Consideration is adjusted to take account thereof under clause 3, and subject to clauses 7 and 12: 6.4.1 if any Obligations are incurred by Seller in respect of any period on or after the Economic Date, Purchaser shall reimburse and indemnify Seller in respect thereof; 6.4.2 if any Obligations are incurred by Purchaser in respect of any period prior to the Economic Date, Seller shall reimburse and indemnify Purchaser in respect thereof; 6.4.3 if any Benefits accrue to Seller in respect of any period on or after the Economic Date, Seller shall account to and reimburse Purchaser in respect thereof; and 6.4.4 if any Benefits accrue to Purchaser in respect of any period prior to the Economic Date, Purchaser shall account to and reimburse Seller in respect thereof. -21- 6.5 Any amount to be paid or reimbursed in accordance with clause 6.4 or any other provision of this clause 6 shall (i) in the case of those amounts that arise prior to the Completion Date, be paid or reimbursed on Completion and (ii) in the case of those amounts that arise after the Completion Date be paid or reimbursed within ten Business Days of receipt thereof (or, in the case of Obligations, within ten Business Days of receipt of notification from the Party which has incurred such Obligations) in each case, to the Seller's Account or the Purchaser's Account (as the case may be). 6.6 For the avoidance of doubt and without prejudice to the generality of the foregoing provisions of this clause 6, as between Seller and Purchaser, Purchaser shall at its cost and expense be responsible for decommissioning and/or removing and/or making safe all plant, equipment and machinery, wells and other installations (including pipelines) and facilities relating to operations under the Licences and/or under each and any JOA or other Licensed Interest Document to the extent that such obligations are attributable to the Interests whether such Losses and Expenses are incurred under or pursuant to any of the Licence Documents or under statutory, common law or other obligation. The Purchaser covenants that it shall indemnify and hold Seller and its Affiliates harmless against any and all Losses and Expenses which Seller or any of its Affiliates may incur arising out of or in connection with the Decommissioning Liabilities regardless of whensoever such Decommissioning Liabilities may arise or may have arisen, regardless of whosoever is or was a licensee under the relevant Licence or a party to the relevant JOA or owned or leased the relevant property and regardless of whether such Losses and Expenses arise as a consequence of negligence on the part of Seller or any of its Affiliates, Provided that, for the avoidance of doubt, Purchaser shall not be required to reimburse Seller for amounts actually expended by Seller prior to the Economic Date in respect of Decommissioning Liabilities. 6.7 Purchaser covenants that it shall indemnify and hold Seller and its Affiliates harmless against any Losses and Expenses Seller or any of its Affiliates may incur arising out of or in connection with the Environmental Liabilities regardless of whensoever such Environmental Liabilities may arise or may have arisen, regardless of whosoever is or was a licensee under the relevant Licence or a party to the relevant JOA or owned or leased the relevant property and regardless of whether such Losses and Expenses arise as a consequence of negligence or breach of any Environmental Law on the part of Seller or any of its Affiliates. 6.8 Notwithstanding clauses 6.2 and 6.7, Seller shall indemnify and hold harmless the Purchaser and its Affiliates against all fines and financial penalties which are imposed under any Environmental Law in respect of the following events: 6.8.1 the rupture of a gas pipeline on the Forties Alpha platform which resulted in the release of an estimated amount of 1 tonne of gas in November 2002; and 6.8.2 the escape of an estimated amount of 30-40 tonnes of diesel from the Forties Alpha platform in December 2002. -22- 6.9 For the avoidance of doubt, and without prejudice to the provisions of clauses 6.2, 6.3 and 6.4, (i) any Benefits or Obligations (including the cost of any audit) accruing in respect of the Interests in the form of amounts receivable or payable resulting from an audit pursuant to a JOA or from any other subsequent adjustment in relation to the operation of, and expenditure attributable to, the Interests in the period prior to the Economic Date shall accrue to Seller, and (ii) any such Benefits or Obligations attributable to the Interests in the period from and after the Economic Date shall accrue to Purchaser. Where any such audit takes place after the Completion Date, Purchaser shall use all reasonable endeavours to enable Seller to make representations directly to any relevant Operator and shall in any event be obliged to take account of Seller's representations in connection with such audit and to notify the relevant Seller of any audit adjustment as soon as practicable after the results of such audit are known. If, as a result of any audit adjustment or otherwise, either Seller or Purchaser is, on the principles set out in clauses 6.2, 6.3 and 6.4, so liable to pay any amount to the other, then, to the extent that the Consideration has not already been adjusted pursuant to the provisions of clause 3 in respect thereof, or the amount has not otherwise been paid in accordance with clause 6.4, such amount shall be paid to Seller's Account or the Purchaser's Account (as appropriate) within thirty Business Days after the amount receivable or payable as a result of such an audit or other subsequent adjustment has been taken into account by the relevant Operator in the Operator's billing statement. 6.10 Notwithstanding any provision of this clause 6, the Seller shall not be entitled to claim or reclaim under any of the indemnities in this clause, any amount payable or paid to the Purchaser for breach of warranty or other breach of this Agreement. 7. WARRANTIES 7.1 Subject to the provisions of this clause 7 and save as fairly disclosed under the terms of the Disclosure Letter, Seller hereby warrants to Purchaser in the terms set out in Part 2 of Schedule 5 and Part 2 of Schedule 6 and as follows: 7.1.1 it is a licensee of the Licences and the sole legal and beneficial owner of the Interests and following fulfilment of the Conditions Precedent, Seller will at Completion have the right to transfer and assign full legal and beneficial ownership of the Interests to Purchaser; 7.1.2 subject to the provisions of the Licensed Interest Documents, no Encumbrance is in existence and in force over the Interests nor, subject as aforesaid, is there in effect any agreement or commitment to create the same; 7.1.3 it has not: (a) committed any material breach of the Licences or any of the Licensed Interest Documents; nor -23- (b) received notice that any of the parties to any of the Licences or Licensed Interest Documents is in breach thereof, which breach in either case, at the date of making this statement, is of a material nature and is subsisting; 7.1.4 (a) the Licences and all rights and interests of it thereunder or deriving therefrom are in full force and effect; (b) no act or omission of it has occurred which would entitle the Secretary to revoke, rescind, avoid, repudiate or terminate any of the Licences; (c) so far as it is aware, no act or omission of any licensee of the Licences (other than Seller) has occurred which would entitle the Secretary to revoke, rescind, avoid, repudiate or terminate any of the Licences; and (d) no notice has been given to it by the Secretary or, so far as it is aware, to any other licensee of the Licences, notifying or indicating an intention on the part of the Secretary to revoke, rescind, avoid, repudiate or terminate any of the Licences; 7.1.5 no Licence is in the course of being surrendered in whole or in part; 7.1.6 all accrued obligations and liabilities imposed by the Licences on it, including without limitation the work obligations arising from the Licences, have been duly fulfilled and discharged and there is no outstanding work obligation to be fulfilled by it under the Licences or any of them; 7.1.7 (a) it is not a party to any litigation or arbitration or administrative proceedings relating to the Interests or any portion thereof in respect of which a writ or summons or other formal pleading has been served or judgement issued; (b) there are no claims (whether or not formulated within a formal pleading as aforesaid) or disputes in relation to, and which are likely materially to prejudice or detrimentally affect in any material manner, the Interests; (c) it is not aware that any such litigation, arbitration, administrative proceedings claim or dispute are threatened or pending either by or against it; -24- (d) there are no facts known to it which are likely to give rise to any claim or dispute which is likely so to prejudice or detrimentally affect in any material manner the Interests; and (e) so far as it is aware, none of the other licensees of the Licences or the parties to the Licensed Interest Documents is a party to any litigation, arbitration or administrative proceedings or any claim or dispute or judgment in relation to, and which is likely to prejudice or detrimentally affect in any material manner, the Interests; 7.1.8 the Licensed Interest Documents: (a) are the only material documents of which it is aware which govern or relate to the creation, existence and validity of the Interests, other than those which are otherwise disclosed in the Disclosure Letter; and (b) are the only material agreements to which it is party relating to the Interests; 7.1.9 it is duly incorporated with limited liability and validly existing under the laws of England and Wales; 7.1.10 the documents which contain or establish its constitution incorporate provisions which authorise, and all necessary corporate action has been taken by it to authorise it to execute and deliver this Agreement and perform the transactions contemplated by this Agreement; 7.1.11 the signing and delivery of this Agreement and, subject to fulfilment of the Conditions Precedent, the performance of any of the transactions contemplated by this Agreement will not contravene or constitute a default under any provision contained in any agreement, instrument, law, judgment, order, licence, permit or consent by which it or any of its Affiliates or their respective assets is bound or affected; 7.1.12 it has not given to or received from any other party to any of the Licensed Interest Documents any notice of withdrawal in whole or in part from any or all of the Licences or of any proposed assignment of any interest arising thereunder, which notice is in either case still current; 7.1.13 so far as it is aware, no event or incident has occurred in respect of the Interests (other than pursuant to prevailing oil and gas field practice conducted in accordance with any legislation in force at the time of the relevant activity) which has given rise to any Environmental Liability; 7.1.14 (a) the Interests have been owned and operated in compliance in all material respects with all applicable laws including any European Community, international treaties, national, federal, -25- provincial, state or local statutes, the common law, and any codes of law applicable to the Interests; and (b) Seller has received no written notice that Seller's ownership and operation of the Interests violates in any material respects any applicable laws; 7.1.15 (a) all of the plant and equipment included in the Interests complies in all material respects with all applicable legal requirements; (b) the average daily production from the Interests between 24 December 2002 and 7 January 2003 (both dates inclusive) was 46,500 barrels per day of oil equivalent volumes and the average daily production from the Interests in the fourth quarter of 2002 was 40,400 barrels per day of oil equivalent volumes; 7.1.16 Seller has all governmental licences, permits, authorisations, consents and permissions necessary to own and operate the Interests as presently owned and operated; such licences, permits, authorisations, consents and permissions are in full force and effect and no material violations exist with respect to any of the same; 7.1.17 Seller has furnished to Purchaser true, correct and complete copies of the Licensed Interest Documents including the Licences; 7.1.18 with respect to periods from and after the Economic Date, Seller has not cancelled, waived, released, or discounted any rights or claims under the Licences or the other Licensed Interest Documents; 7.1.19 there are no pre-emptive or preferential purchase rights held by third parties with respect to all or any portion of the Interests; and 7.1.20 so far as Seller is aware, the Historical Data is true and accurate in all material respects to the extent that it is historical and factual in content, and was produced in good faith at the time that it was created. The warranties set out above shall be deemed to be repeated at Completion with the exception of the warranties set out in paragraph 1.4 of Part 2 of Schedule 5 and paragraph 7 of Schedule 6 and in clauses 7.1.3(b), 7.1.4(c), 7.1.4(d), 7.1.6, 7.1.7, 7.1.8(b), 7.1.12, 7.1.13, 7.1.14(b), 7.1.15 and 7.1.20. The only Warranty given by Seller in respect of Environmental Liabilities is that set out in clause 7.1.13 and none of the other Warranties shall be deemed given in relation to Environmental Liabilities. 7.2 Subject to the provisions of this clause 7 and save as otherwise expressly disclosed in writing to Seller, Purchaser hereby warrants to Seller as of the date hereof and as of the Completion Date as follows: -26- 7.2.1 Purchaser is duly incorporated with limited liability and validly existing under the laws of England and Wales; 7.2.2 the documents which contain or establish Purchaser's constitution incorporate provisions which authorise, and all necessary corporate action has been taken to authorise, Purchaser to execute and deliver this Agreement and perform the transactions contemplated hereby; 7.2.3 the signing and delivery of this Agreement and the performance of the transactions contemplated by this Agreement, will not contravene or constitute a default under any provision contained in any agreement, instrument, law, judgment, order, licence, permit or consent by which Purchaser or any of its Affiliates or any of its assets is bound or affected; and 7.2.4 no litigation, arbitration, administrative proceeding, dispute or judgment against Purchaser or to which Purchaser is a party which might by itself or together with any such other proceedings have a material adverse effect on its business, assets or condition and which would materially and adversely affect its ability to observe or perform its obligations under this Agreement and the transactions contemplated hereby, is subsisting or, so far as Purchaser is aware, threatened or pending against Purchaser or any of its assets. 7.3 Each warranty set out in clauses 7.1 and 7.2 shall be construed as a separate warranty. 7.4 Seller shall not be liable for any Relevant Claim in relation to any breach of any Warranty unless it shall have received from Purchaser, as soon as practicable after Purchaser becomes aware of the same, written notice containing reasonable details of the Relevant Claim including Purchaser's provisional estimate of the amount of the Relevant Claim. The failure of Purchaser to give prompt notice of a Relevant Claim shall not relieve Seller of its obligations under this Agreement except to the extent such failure prejudices Seller's ability to defend against the Relevant Claim; provided always that unless such notice is received on or before 18 months after the Completion Date Seller shall have no liability for such Relevant Claim. Any Relevant Claim made shall be deemed to have been withdrawn unless proceedings in respect thereof have been both issued and served on Seller within 6 months of the giving of such notice. 7.5 Except as set out in clause 7.1, neither Seller nor any of its Affiliates nor any officer, shareholder, director, employee, agent, consultant or representative of Seller or any of its Affiliates (including, without limitation, their auditors) makes any representation, warranty, statement, opinion, information or advice (including without limitation any representation, warranty, statement, opinion, information or advice (a) communicated (orally or in writing) to Purchaser or any Affiliate of Purchaser or (b) made in any data, information or document communicated to Purchaser or any Affiliate of Purchaser or made by any officer, shareholder, director, employee, agent, consultant or representative of Seller or any Affiliate of Seller) and Purchaser acknowledges, affirms and warrants that it has not relied, -27- and will not rely, upon such representation, warranty, statement, opinion, information or advice of any person in entering into this Agreement or carrying out the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Seller does not make any representation or warranty as to: (i) the amounts, quality or deliverability of reserves of crude oil, natural gas or other hydrocarbons attributable to the Interests, (ii) any geological, geophysical, engineering, economic or other interpretations, forecasts or evaluations, (iii) any forecast of expenditures, budgets or financial projections, (iv) any geological formation, drilling prospect or hydrocarbon reserve, or (v) the state, condition or fitness for purpose of any of the physical assets, including installations, pipelines and plant and machinery, which comprise the Interests. 7.6 The liability of Seller in respect of any Relevant Claim shall be limited as follows: 7.6.1 there shall be disregarded for all purposes, including for the avoidance of doubt clause 7.6.2, any Relevant Claim in respect of which claim the amount of the damages to which the Purchaser would otherwise be entitled is less than $1,000,000 (one million Dollars); 7.6.2 Seller shall not have any liability except and only to the extent that the damages to which Purchaser is entitled in aggregate exceed $15,000,000 (fifteen million Dollars); and 7.6.3 the maximum aggregate liability of Seller in respect of all claims for breach of the representations and warranties shall not exceed an amount equal to one hundred and ten per cent. of the Consideration. 7.7 7.7.1 Without prejudice to Purchaser's rights under this Agreement and subject always to clause 7.2.2, if Purchaser receives written notice of any claim from a third party which may give rise to Purchaser having a Relevant Claim against Seller and Purchaser duly notifies Seller of such Relevant Claim pursuant to clause 7.4, Purchaser shall as soon as practicable notify Seller of that third party claim in writing (a "THIRD PARTY CLAIM"). If requested by notice in writing by Seller within 20 Business Days of receipt by Seller of the notice from Purchaser of the Third Party Claim, Purchaser shall: (a) use reasonable endeavours to defend such Third Party Claim; and (b) keep Seller reasonably informed with respect to the process of such Third Party Claim, and Seller shall be entitled to take and/or require Purchaser to take any reasonable action to resist such claim (but at Seller's sole cost and expense) and Seller shall have the conduct of any appeal, dispute, compromise or defence of such Third Party Claim and Purchaser shall give Seller all co-operation, access and assistance for the purposes of -28- considering and resisting such Third Party Claim as Seller may reasonably require. 7.7.2 Notwithstanding clause 7.7.1, Seller shall not be entitled to take any action or do anything in the name of Purchaser and Purchaser shall not be obliged to take any action or do anything requested of it by Seller: (a) if and to the extent that the: (i) Purchaser is or would be likely to be commercially prejudiced to a material extent in Purchaser's opinion (acting reasonably); (ii) reputation of Purchaser, or the reputation of any of its Affiliates may, in the opinion of Purchaser (or its relevant Affiliates), (acting reasonably), be likely to be damaged or impaired; (b) unless Purchaser is indemnified by Seller to Purchaser's reasonable satisfaction for all liabilities, damages or losses and for all costs and expenses which Purchaser (or any of its Affiliates) may incur or suffer in respect of the defence, action, act, thing, co-operation, access and assistance required or requested of Purchaser under clause 7.7.1. 7.8 If Seller pays to Purchaser an amount pursuant to a Relevant Claim and Purchaser is entitled to recover from some other person any sum to which it would not have been or become entitled but for the circumstances giving rise to such Relevant Claim, subject to being put in funds to the reasonable satisfaction of the Purchaser, Purchaser shall promptly undertake all appropriate steps to enforce such recovery and shall as soon as practicable following any such recovery repay to Seller the lesser of: (i) the amount paid to it by the relevant Seller pursuant to the Relevant Claim; and (ii) the amount recovered from the third party in each case less all costs, charges and expenses reasonably incurred by Purchaser in obtaining (or consequent upon obtaining) that payment and in recovering that amount from the third party. 7.9 The Seller shall not be liable for any Relevant Claim if and to the extent that such Relevant Claim: 7.9.1 occurs or arises or, such Relevant Claim otherwise having arisen, is increased as a result of any act, matter, omission, transaction or circumstance which would not have occurred but for, the passing of, or any change in, after the date hereof, any law, rule, regulation, interpretation of the law or any administrative practice of any government, governmental department, agency or regulatory body, including any passing of or change in any law, rule, regulation, interpretation of the law or any administrative practice as aforesaid which takes effect retrospectively, or any increase in the rates of Tax or any imposition of Tax or any amendments to or the withdrawal of any extra-statutory concession or other practice previously made by or -29- published by the Inland Revenue or other taxing authority (in whatever jurisdiction) and in force at the date of this Agreement; 7.9.2 occurs or arises or, such Relevant Claim otherwise having arisen, is increased as a result of anything voluntarily done or omitted to be done between the date of this Agreement and the Completion Date by Seller with the Purchaser's prior written consent (provided that Seller shall have acted as a reasonable and prudent operator and in accordance with generally accepted oilfield practices in the UKCS), or at Purchaser's prior written request; 7.9.3 occurs or arises or, such Relevant Claim otherwise having arisen, is increased as a result of any voluntary act, default, omission, transaction or arrangement after Completion by the Purchaser, in the ordinary course of its business as now carried on. 7.10 Nothing in this Agreement shall relieve Purchaser of any duty, whether at common law or otherwise, to mitigate any loss or damage incurred by it in respect of any breach by the Seller of the representations, warranties, indemnities or any other term of this Agreement or in respect of its subject matter. 7.11 Purchaser shall not be entitled to recover from Seller the same sum or loss more than once in respect of any Relevant Claim. 7.12 Seller shall not be liable in respect of any Relevant Claim to the extent that a provision or reserve has been or will be made in calculating the Adjustments in respect of the matter or transaction giving rise to such Relevant Claim. 8. ONGOING OBLIGATIONS AND LIABILITIES 8.1 Following the Completion Date, Purchaser shall assist and co-operate with Seller in endeavouring to obtain from the relevant authorities an irrevocable release of Seller from its obligations and liabilities under the Petroleum Act 1998 or other relevant statute, regulations, order from any competent authority or guidelines and all notices and regulations served and issued pursuant thereto, insofar as the same relate to the Interests. Without prejudice to the foregoing, if, following the Completion Date, the Secretary requires that Seller prepare and implement a programme or requirement for or in respect of any part of the Decommissioning Liabilities, whether pursuant to the terms of the Petroleum Act 1998 or other relevant statute, regulations, order from any competent authority or guidelines, Seller shall notify Purchaser, and Seller and Purchaser shall prepare and implement such programme or requirement in accordance with the requirements of the Petroleum Act 1998 or other relevant statute, regulation, order or guidelines, as the case may be, and all other relevant statutes, regulations, orders and guidelines and the indemnity in clause 6.6 shall extend to all Losses and Expenses incurred by or on behalf of the Seller in the preparation and implementation of such programme. 8.2 Seller and Purchaser agree that the provisions of Parts 1 of Schedules 5 and 6 shall have effect in relation to the Employees. -30- 8.3 Simultaneously with the execution of this Agreement the Purchaser shall procure the delivery to the Seller of the Purchaser's Guarantee. If following the date of this Agreement a company other than the parent company of the Purchaser which executes the Purchaser's Guarantee becomes the ultimate parent company of the Purchaser then the Purchaser will forthwith procure the delivery to the Seller of an additional parent company guarantee in the form of the Purchaser's Guarantee save for the designation of the parent company therein. 8.4 Following Completion, Seller agrees, if requested by Purchaser, to use reasonable endeavours to continue to provide office accommodation and ongoing office support services for the Employees and (if different) the Transition Team representatives of Purchaser, at the sole risk and cost of Purchaser for a period not exceeding two months. 9. CONFIDENTIALITY AND ANNOUNCEMENTS 9.1 Without prejudice to the terms of the confidentiality agreement entered into between BP America Production Company and Apache Corporation dated 5 December 2002 (as amended by a deed of variation dated 11 December 2002), the terms of this Agreement and all information furnished or disclosed to Purchaser or any of its Affiliates in connection with the transactions contemplated by this Agreement ("Confidential Information") shall be held confidential by the Parties and shall not be divulged in any way by a Party to any third party without the prior written approval of each of the other Parties provided that any Party may, without such approval, disclose such Confidential Information to: 9.1.1 any outside professional consultants, upon obtaining a similar undertaking of confidentiality (but excluding this proviso) from such consultants; 9.1.2 any bank or financial institution from whom such Party is seeking or obtaining finance, upon obtaining a similar undertaking of confidentiality (but excluding this proviso) from such bank or institution; 9.1.3 the extent required by any applicable laws or the requirements of any recognised stock exchange in compliance with its rules and regulations; 9.1.4 any department, authority, ministry or agency of any government or other governmental authority lawfully requesting such information; 9.1.5 any Court or arbitral tribunal of competent jurisdiction acting in pursuance of its powers; 9.1.6 any of its Affiliates upon obtaining a similar undertaking of confidentiality from such Affiliates; 9.1.7 Standard & Poor's, Moody's or any other rating agency, but only if the confidential nature of the Confidential Information is disclosed to such rating agency; -31- 9.1.8 in the case of Purchaser, to its lead and co-lead underwriters formally engaged by it to serve as advisors (collectively, the "Financial Advisers") in connection with the underwritten public offering of securities being undertaken by Purchaser to provide funding in connection with this Agreement and the agreement between the Parties' Affiliates in the United States in respect of certain oil and gas properties and leases in the U.S. Gulf of Mexico Outer Continental Shelf ("Transactions"). Such Confidential Information may be disclosed to employees of the Financial Advisers only if and to the extent that such employees need to know such Confidential Information. Purchaser shall inform each Financial Institution of the confidential nature of the Confidential Information and the requirement that it not be used for any purpose other than the underwriting of the Transactions. Each Financial Institution shall be required to execute a written undertaking of confidentiality, as a condition of receiving Confidential Information; or 9.1.9 insurers (including insurance brokers) but only if the confidential nature of the Confidential Information is disclosed to such person. 9.2 However, the undertaking of confidentiality above shall not extend to any Confidential Information which is: 9.2.1 generally available to the public other than as a result of a wrongful disclosure by Purchaser; 9.2.2 available to Purchaser as owner of, or where the Purchaser is otherwise entitled to, such information without any restriction or disclosure; or 9.2.3 available to Purchaser on a non-confidential basis from a source other than Seller if such source is entitled to disclose such information. 9.3 No party or its Affiliate shall make any public announcement or statement about this Agreement or its contents containing new information without first having obtained the prior written consent of the other Party, such consent not to be unreasonably withheld or delayed. Notwithstanding the previous sentence and clause 9.1, no prior written approval of a Party shall be required for public announcements where it is necessary for the other Party or its Affiliate to make such public announcement or statement in order to comply with a statutory obligation, an obligation to include information in published or audited accounts, or with the requirement of a competent government agency, The London Stock Exchange, the UK Listing Authority or other regulatory body, or a recognised stock exchange on which that Party or such Affiliate has its shares or oil production or royalty stock listed, in which event the Party proposing to make such an announcement or statement shall, where reasonably practicable, issue a copy thereof to the other Party prior to its release. 9.4 If Completion does not take place for any reason provided for in this Agreement Purchaser shall remain bound by this clause 9, notwithstanding any termination of this Agreement, until the earlier of the fifth anniversary of such termination or such time as it has entered into a separate undertaking of confidentiality on the -32- same or similar terms in respect of such information (and this clause 9.4 shall also survive until such time). 9.5 If this Agreement is terminated as aforesaid, Purchaser shall, at the request of the Seller, promptly return to Seller (and delete from Purchaser's systems, where electronically stored) all Confidential Information. 9.6 If Completion does take place, the undertaking of confidentiality contained herein shall be superseded by the confidentiality provisions in the Licensed Interest Documents and shall be of no further effect to the extent that the Confidential Information falls within the category of data and information which is the subject thereof. 10. NOTICES 10.1 Except as otherwise provided in this Agreement any notice or other document to be given under this Agreement shall be in writing and shall be deemed to be duly given if it (or the envelope containing it) identifies the Party to whom it is intended to be given as the addressee and: 10.1.1 it is delivered personally; or 10.1.2 it is sent by (i) first class post or express or other fast postal service or (ii) the recorded delivery service or (iii) facsimile transmission to the respective addresses shown below or to such other addresses and/or numbers as such Parties may by notice to all other Parties hereto expressly substitute therefor; when in the ordinary course of the means of transmission it would first be received by the addressee in normal business hours. The respective addresses for service are: Seller: Address: BP Exploration Operating Company Limited Burnside Road Farburn Industrial Estate Dyce Aberdeen AB21 7PB Attention: Business Unit Leader Mid North Sea Business Unit Facsimile: 01224 834800 Purchaser: Address: c/o Herbert Smith Exchange House -33- Primrose Street London EC2A 2HS Attention: Henry Davey and Paul Griffin Facsimile 020 7374 0888 With a copy to: Apache Corporation 2000 Post Oak Boulevard Suite 100 Houston Texas 77056-4400 United States of America Attention: Lisa A. Stewart, Executive Vice-President, Business Development Facsimile: +(1) (713) 296 6459 10.2 In proving the giving of a notice it shall be sufficient to prove that the notice was left or that the envelope containing such notice was properly addressed and posted or that the applicable means of telecommunications was properly addressed and despatched (as the case may be). 10.3 Any notice duly given within the meaning of clause 10.1 shall be deemed to have been both given and received: 10.3.1 if it is delivered in accordance with clause 10.1.1, on such delivery; 10.3.2 if it is duly posted or transmitted in accordance with clause 10.1.2 by any of the methods there specified, on the second Business Day after the day of posting or (in the case of a notice transmitted by facsimile transmission) upon receipt by the sender of the correct transmission report. 10.4 For the purposes of this clause 10 "notice" shall include any request, demand, instructions or other document. 11. COSTS AND EXPENSES 11.1 Save as stated in clause 11.3, Seller and Purchaser shall each pay its and its Affiliates' own costs, expenses, duties and, except as otherwise expressly agreed in writing, taxation in relation to the preparation and execution of this Agreement, the documents contemplated hereby or executed pursuant hereto. 11.2 Without prejudice to any other rights hereunder, if any amount payable hereunder is not paid when due, the defaulting Party shall pay interest on such amount from the due date of payment (after as well as before judgment) at a rate equal to three per cent (3%) above the Agreed Rate calculated on a compounded basis on the -34- accumulated daily balances. The Parties agree that this constitutes a substantial contractual remedy. 11.3 Subject to the terms of the stamp duty agreement between Seller and Purchaser of even date herewith, Purchaser shall be responsible for payment in a timely fashion of any and all stamp duties and charges payable on or in respect of this Agreement, the Completion Documents, any related agreements and in respect of its or their subject matter and any similar duties and charges wheresoever arising. 12. TAXATION 12.1 12.1.1 Purchaser warrants that prior to Completion it will be registered for VAT in the United Kingdom and that it intends to use the Interests for its own trade of exploration/exploitation. 12.1.2 Seller warrants that it is registered for VAT in the United Kingdom. 12.2 12.2.1 Seller has incurred qualifying expenditure and/or has an amount of residue of expenditure in respect of mineral exploration and access allocations (as defined for the purposes of the Capital Allowances Act 2001) on each of (i) plant and machinery relating to the Interests and (ii) mineral exploration and access to which Consideration is allocated under Schedule 2 of an amount in respect of each such item at least equal to the amount so allocated to that item. 12.2.2 Seller has complied in all material respects with obligations relating to PAYE as they apply to the Employees. 12.2.3 Seller has kept and maintained proper books and records in respect of the Interests to the extent required by applicable United Kingdom taxation laws (including those books and records relevant to VAT and PRT) and to the extent necessary to enable Purchaser to comply with its United Kingdom tax obligations or to obtain tax rebates or other tax benefits in respect of the Interests, has made available to Purchaser copies of such books and records. 12.3 Purchaser undertakes that it will use the Interests acquired as part of its going concern for a sufficient period to comply with the requirements of Article 5 of the Value Added Tax (Special Provisions) Order 1995, so that the transfer thereof is neither a supply of goods nor a supply of services for VAT purposes. 12.4 The Parties believe that the transfer hereunder is a transaction which is outside the scope of VAT by virtue of Article 5 of the Value Added Tax (Special Provisions) Order 1995 and/or that the transfer contemplated hereby is of a right over land situated outside the United Kingdom and as such will be treated as outside the scope of Value Added Tax by virtue of Article 5 of the Value Added -35- Tax (Place of Supply of Services) Order 1995. However, if Seller is advised in writing by HM Customs and Excise that such transaction is subject to VAT, Seller shall promptly inform Purchaser and shall co-operate with Purchaser as Purchaser may reasonably request and at Purchaser's cost to persuade HM Customs and Excise that such transaction is not subject to VAT. In any event, Purchaser undertakes to pay to Seller, on delivery of a valid VAT invoice, any amounts due in respect of VAT within thirty (30) days of demand. 12.5 The Parties agree that Seller shall make application to the HM Customs and Excise under section 49(1)(b) of the Value Added Tax Act 1994 for a direction that the records relating to the Interests which under paragraph 6 Schedule 11 to the Value Added Tax Act 1994 have been maintained by Seller should be preserved by Seller notwithstanding the provisions of the said section. Seller shall forthwith upon receipt thereof provide the Purchaser with a copy of any such direction, and Purchaser shall retain access at all reasonable times during normal business hours to all books and records retained by Seller or its Affiliates in relation to VAT matters concerning the Interests, and Seller covenants to retain such records as required by paragraph 6 Schedule 11 to the Value Added Tax Act 1994. 12.6 Seller confirms that no election has been made and that no election will be made prior to the Completion Date under paragraph 2, Schedule 10 to the Value Added Tax Act 1994 in relation to any of the Interests. 12.7 Reimbursements pursuant to clause 3 (Adjustments) shall be exclusive of VAT which Seller may be required to charge and, if called upon to do so by Seller, Purchaser undertakes to pay Seller on presentation of a VAT invoice any amounts properly due in respect of VAT set out in such invoice within thirty (30) days of demand. 12.8 Subject to clause 12.4 above, any adjustments pursuant to clause 3, clause 6.4 or clause 7 in respect of any payment or receipt being an amount in respect of which VAT has been paid or received shall be made on a basis disregarding the VAT element where the VAT paid is fully deductible or is required to be accounted for in full to HM Customs & Excise, but otherwise shall be made on a basis which leaves Seller in no better and no worse a position (after taking account of VAT, and subject to the application of the other provisions of this clause 12) than had the payment or receipt not been made or received. 12.9 In relation to each part of the Interests being an interest in an oil field (within the meaning of Schedule 1 to the Oil Taxation Act 1975), Seller shall prepare and Purchaser and Seller shall deliver to the Board of Inland Revenue in a timely fashion a notice under paragraph 3 of Schedule 17 Finance Act 1980, and shall not make application under paragraph 4 of the said Schedule for the provisions of Parts II and III of the Schedule not to apply. 12.10 The Parties acknowledge that in the periods up to Completion Seller may have incurred expenditure in relation to some or all of the Fields which can be claimed for PRT purposes under either Schedule 5 or 6 to the Oil Taxation Act 1975. Seller shall take all actions and do all things reasonably in its power to ensure that -36- any such expenditure is claimed and, in particular, Seller shall prepare and sign all Schedule 6 claims in respect of such expenditure and provide copies of the same to Purchaser on or before Completion. 12.11 Seller and Purchaser agree that the allocation with respect to the Interests set out in Schedule 2 is a just apportionment of the Consideration. Seller and Purchaser agree that they will each present their returns for tax purposes on the basis of said allocation and that they will use all reasonable endeavours to agree with the OTO the figures so presented. 12.12 Seller and Purchaser acknowledge that, except as provided in clause 12.13 below, the Consideration represents expenditure incurred by the Purchaser in acquiring plant and machinery relating to the Interests only to the extent shown by the allocations set out in Schedule 2. Seller covenants that it will treat the said allocated expenditure on plant and machinery as disposal proceeds for the purposes of sections 60 and 61 of the Capital Allowances Act 2001, and Purchaser covenants that it will treat such amount as capital expenditure incurred for the purposes of Part 2 of the Capital Allowances Act 2001. 12.13 Insofar as the Consideration is increased pursuant to clause 3, clause 6.4 or clause 7 by reference to expenditure qualifying for capital allowances under Part 2 of the Capital Allowances Act 2001 incurred by Seller, the allocation of the Consideration to expenditure incurred by Purchaser in relation to the relevant part of the Interests in acquiring plant and machinery, as set out in Schedule 2, shall be increased by a corresponding amount. 12.14 Seller and Purchaser acknowledge that it is not just and reasonable to attribute any part of the Consideration to allowable scientific research expenditure of a capital nature or mineral exploration and access except to the extent of the amounts set out in Schedule 2, and Seller and Purchaser undertake to submit to the Inland Revenue computations of liability to CT on that basis and not on any basis which is inconsistent therewith; and for the purposes of this paragraph, the expression "mineral exploration and access" shall have the same meaning as in Part 5 of the Capital Allowances Act 2001. 12.15 Seller and Purchaser acknowledge that the Consideration is in respect of expenditure incurred by Purchaser on the construction of industrial buildings or structures within the meaning of Part 3 of the Capital Allowances Act 2001 only to the extent shown by the allocations set out in Schedule 2. Seller and Purchaser undertake to submit to the Inland Revenue computations of liability to CT on the basis that such allocations represent the sale moneys for the purposes of Part 3, Chapter 7 of the Capital Allowances Act 2001. 12.16 For the avoidance of doubt no part of the Consideration payable by Purchaser to Seller falls to be treated as intangible drilling costs on production wells qualifying for relief under Part 5 of the Capital Allowances Act 2001. 12.17 Seller shall be liable for any liabilities arising under Schedule 15 to the Finance Act 1973 in respect of the Interests for periods ending prior to the Economic Date, and Purchaser shall be liable for all periods thereafter. -37- 12.18 Subject to clause 12.24, if any liability for or right to repayment of PRT in connection with the Interests which relates to the period of ownership prior to the Economic Date of Seller arises after the Economic Date and the adjustment giving rise to such liability or right is in respect of income and expenditure of Seller during such period of ownership then the liability or repayment shall be the responsibility or entitlement of Seller. Any repayment of PRT in connection with the Interests arising otherwise than in respect of Seller's period of ownership prior to the Economic Date shall be the entitlement of the Purchaser. 12.19 Notwithstanding any other provision of this Agreement, Seller shall retain access to all books and records and operator information in relation to PRT income and expenditure claims under Schedules 5 and 6 of the Oil Taxation Act 1975 in relation to the Interests for all periods ended prior to the Completion Date. Purchaser shall, as soon as reasonably practical, ensure that all documentation relating to any PRT assessments, returns or claims issued by the Inland Revenue or Operators in respect of such periods, is communicated to Seller without unreasonable delay. 12.20 The Parties agree that all adjustments to Licence Royalty whether increases or decreases will be payable or receivable by Seller. 12.21 PRT ADJUSTMENTS The following provisions of this clause 12.21 are subject to the provisions of clause 12.26. 12.21.1 The Consideration shall be increased by Purchaser paying to Seller the following sums: (a) a sum equal to the amount of any PRT instalment paid by Seller in relation to the Interests under paragraph 2, Schedule 19 to the Finance Act 1982 which, by virtue of paragraph 2(3) of the said Schedule, is regarded as a payment of PRT in respect of any Chargeable Period beginning on or after the Economic Date. Seller undertakes to withhold payment of such PRT instalments in accordance with paragraph 3 of said Schedule if the relevant conditions are met; (b) a sum equal to any amount of PRT assessed on, and paid by Seller in relation to the Interests, for any Chargeable Period mentioned in (a) above less amounts already paid by Purchaser under this paragraph (a) above. For the purpose of calculating any sums due under paragraph (b) above, PRT assessed on, and paid by Seller for the Chargeable Period including the Economic Date shall be recalculated to exclude any amounts brought into the assessment under section 2(4)(b) of the Oil Taxation Act 1975. For the purposes of calculating any sums due under paragraph (b) above the PRT assessed on, and paid by Seller for the Chargeable Period including the Economic Date or any subsequent Chargeable Period shall -38- be recalculated to exclude any amounts brought into the assessment under section 2(6)(b) of the Oil Taxation Act 1975. (c) a sum equal to any effective PRT relief received by Purchaser, in relation to the Interests, either by way of a refund of PRT or a reduction in PRT due, in respect of any expenditure incurred by Seller prior to the Economic Date; and (d) a sum equal to any effective PRT relief received by Purchaser, in relation to the Interests, either by way of a refund of PRT or a reduction in PRT due in respect of expenditure incurred by Seller after the Economic Date which does not relate to the Interests. Seller and Purchaser shall use all reasonable endeavours to persuade the OTO that PRT relief in respect of the expenditure referred to in (d) above should be received by Seller and not Purchaser. Purchaser and Seller recognise that amendments of assessments to PRT may arise and to the extent that any amendment gives rise to overpayments having been paid by Purchaser to Seller under this clause 12.21 Seller will promptly repay to Purchaser, as a decrease in the Consideration on, any such overpayment. Purchaser and Seller also recognise that sums paid under paragraph (a) above may be in excess of the PRT assessed on Seller in which case paragraph (b) above shall not apply and Seller shall promptly pay to Purchaser, as a decrease in the Consideration, any repayment made by the Inland Revenue in respect of that excess. 12.21.2 For the purposes of calculating any sums payable under clause 12.21.1, the calculation of PRT shall be modified as follows: To the extent that clause 3.7.3 (Petroleum Sales Adjustment) operates, such PRT calculation shall be based on the amounts so amended by clause 3.7.3 and not the petroleum revenue included in the PRT return for the relevant sales. 12.21.3 (a) Increases to the Consideration arising under clauses 12.21.1(a) and 12.21.1(b) above shall be due for payment within thirty (30) days of Seller submitting reasonable documentary evidence to Purchaser in support of any request for payment. (b) Increases to the Consideration arising under clauses 12.21.1(c) and 12.21.1(d) above shall be due for payment within thirty (30) days of Purchaser having received effective PRT relief. (c) Decreases to the Consideration arising under the last paragraph of clause 12.21.1 above shall be due for payment within thirty (30) days of Seller receiving any PRT refund or within thirty (30) days of Purchaser having paid any PRT as the case may be. -39- 12.21.4 To the extent that Seller has a PRT liability arising in respect of a Chargeable Period within the Interim Period and expenditure relief for that Chargeable Period has been transferred to Purchaser under Paragraph 6 Schedule 17 Finance Act 1980 then, at the request of Seller, Purchaser and Seller shall jointly elect under Paragraph 14 Schedule 17 Finance Act 1980 to transfer the loss from Purchaser to Seller. 12.22 CT ADJUSTMENTS The provisions of this clause 12.22 are subject to the provisions of clause 12.26. 12.22.1 The Consideration shall be increased by Purchaser paying to Seller an amount equal to Notional CT paid by Seller on any income or other receipts taken into account for the purposes of clause 3. 12.22.2 The Consideration shall be decreased by Seller paying to Purchaser an amount equal to: (a) Notional CT relief received by Seller on: (i) any cash calls paid and taken into account for the purposes of clause 3 (but excluding any expenditure which qualifies for capital allowances pursuant to clause 12.13); (ii) any expenditure taken into account for the purposes of clause 3 (but excluding any expenditure which qualifies for capital allowances pursuant to clause 12.13); and (iii) any PRT paid, net of any PRT repayments received by Seller and taken into account for the purposes of clauses 12.21.1(a) and 12.21.1(b); and (b) Notional CT paid by Purchaser on, or arising from the effective PRT relief received by Purchaser and referred to under clauses 12.21.1(c) and (d). 12.22.3 The Parties recognise that adjustments to the Consideration under this clause 12.22 are notional adjustments, as opposed to actual payments of, reliefs from or reductions in CT liabilities. For the purpose of calculating the Notional CT it shall be assumed that both Seller and Purchaser are single companies with no brought forward losses who are paying CT at the standard rate applicable for the period concerned and that the Notional CT includes the Supplementary Charge to ring fence trades. Such notional adjustments shall be effected by deducting from each relevant payment a Notional CT charge. -40- 12.23 INTEREST ON LATE PAYMENT OF PRT 12.23.1 The Consideration shall be increased by Purchaser paying to Seller a sum equal to any interest charged to Seller under paragraph 15 of Schedule 2 to the Oil Taxation Act 1975, in respect of PRT in relation to the Interests for Chargeable Periods beginning on or after the Economic Date provided that the underpayment of PRT giving rise to the interest charge was not caused by the wilful default or neglect of Seller. 12.23.2 The Consideration shall be decreased by Seller paying to Purchaser a sum equal to any interest received by Seller under paragraph 16 of the Schedule 2 to the Oil Taxation Act 1975 in respect of PRT in relation to the Interests for Chargeable Periods beginning on or after the Economic Date. Adjustments to Consideration under this clause 12.23 shall be made within 30 days of Seller having received any PRT interest or having paid any PRT interest, as the case may be. 12.24 Should Seller receive any PRT refund as a result of a loss incurred by Purchaser pursuant to the provisions of paragraph 15 of Schedule 17 to the Finance Act 1980, Seller shall within ten Business Days pay Purchaser an amount equal to the PRT refund together with any interest thereon less any CT payable by Seller on such refund and/or such interest and less any interest on such CT payable. 12.25 INFORMATION 12.25.1 Seller shall provide Purchaser in a timely fashion with copies of all records and tax returns relating to periods prior to the Completion Date and relating wholly or partly to the Interests which are reasonably required by Purchaser for the purposes of completing and filing any tax return. 12.25.2 Each Party shall use its reasonable endeavours to provide written advice to the other Party of any event giving rise to an adjustment under clause 6.4 within thirty (30) days of becoming aware of such an event. This advice will include a copy of such documentary evidence, as is reasonably deemed to be necessary by the other Party, to verify the adjustment. 12.25.3 Seller shall prepare and submit on a timely basis to the OTO all claims reasonably possible under Schedule 6 to the Oil Taxation Act 1975 in respect of qualifying expenditure incurred by Seller from the Economic Date. 12.26 Seller and Purchaser agree that the overriding principle in respect of PRT adjustments and CT adjustments as provided for in clauses 12.21 and 12.22 is to put the Parties in the same position as they would have been in had Completion taken place on the Economic Date. -41- 12.27 INDEPENDENT DETERMINATION If the Parties cannot reach agreement on the contents of all or part of the adjustments referred to in clauses 12.21 and/or 12.22 within thirty (30) Business Days of receipt by Purchaser from Seller of Seller's estimate of such adjustments, the adjustments in dispute may be referred by any Party for determination by an independent expert nominated by the Parties or, in the absence of agreement between the Parties within five (5) Business Days of a Party notifying the other that it proposes to refer the dispute to an expert, by the President of the Institute of Chartered Accountants in England and Wales. Within twenty (20) Business Days after the appointment of such expert, each Party may submit to the expert a statement of the nature of the dispute, a description of the submitting Party's claims with respect thereto, and any other supporting documentation or materials with respect thereto that the submitting Party desires the expert to consider. The Party submitting such statement shall provide a copy thereof to the other Party, who shall have ten (10) Business Days from receipt thereof to submit an answering statement to the expert. The nominated expert shall be afforded such access to books, records, accounts and documents in the possession of the Parties as he may reasonably request, and he shall act as expert not as arbitrator. The said expert's determination shall, in the absence of fraud or manifest error or bias, be final and binding on the Parties, his fees and disbursements shall be borne by Seller as to one half and Purchaser as to the other half and each Party shall bear its own costs in respect of such reference. 13. VARIATION The terms and conditions of this Agreement shall only be varied by an agreement in writing signed by each of the Parties and specifically referring to this Agreement. 14. ASSIGNMENT None of the rights or the obligations of a Party under this Agreement are assignable without the prior written consent of the other Party. 15. FURTHER ASSURANCE 15.1 The Seller shall, from time to time on being required to do so by the Purchaser, promptly and at the cost and expense of the Seller do or procure the doing of all such acts (including using reasonable endeavours to obtain copies of any documents of title in respect of the Interests which Seller has not delivered to Purchaser at Completion) and/or execute or procure the execution of all such documents in a form satisfactory to the Purchaser as the Purchaser may reasonably consider necessary for giving full effect to this Agreement (or to such parts of it as remain operative after termination) and securing to the Purchaser the full benefit of the rights, powers and remedies conferred upon the Purchaser in this Agreement. -42- 15.2 The Purchaser shall, from time to time on being required to do so by the Seller, promptly and at the cost and expense of the Purchaser do or procure the doing of all such acts and/or execute or procure the execution of all such documents in a form satisfactory to the Seller as the Seller may reasonably consider necessary for giving full effect to this Agreement (or to such parts of it as remain operative after termination) and securing to the Seller the full benefit of the rights, powers and remedies conferred upon it in this Agreement. 16. GENERAL 16.1 If there is any conflict between the provisions of this Agreement and the provisions of the Completion Documents and/or the Post Completion Documents, the provisions of this Agreement shall prevail. 16.2 So far as it remains to be performed, this Agreement shall remain in full force and effect notwithstanding Completion. 16.3 No waiver by the Seller or Purchaser of any breach of a provision of this Agreement shall be binding unless made expressly and in writing and any such waiver shall relate only to the matter to which it expressly relates and shall not apply to any subsequent or other matter. 16.4 This Agreement represents the entire understanding, and constitutes the whole agreement in relation to its subject matter and supersedes any previous agreement between the Parties (or any of them) with respect thereto and, to the fullest extent practicable under the relevant law, and without prejudice to the generality of the foregoing, excludes any warranty, condition or other undertaking implied at law or by custom. 16.5 This Agreement may be executed in any number of counterparts and by the parties on different counterparts but shall not be effective until each Party has executed at least one counterpart. Each counterpart shall constitute an original of this Agreement but all the counterparts together shall constitute one and the same agreement. 16.6 This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties. 16.7 Nothing in this Agreement shall be read or construed as excluding any liability or remedy in respect of fraud. 17. RIGHTS OF THIRD PARTIES With the exception of the rights of the Seller's Affiliates to enforce the terms of clauses 3.14, 6.6 and 6.7, nothing in this Agreement is intended to confer on any person any right to enforce any term of this Agreement which that person would not have had but for the Contracts (Rights of Third Parties) Act 1999. The Parties may by agreement rescind or vary any term of this Agreement without the consent of any of the Seller's Affiliates. -43- 18. GOVERNING LAW The construction validity and performance of this Agreement and all agreements executed pursuant hereto shall be governed by English law (other than choice of law rules) and the Parties hereby irrevocably submit to the exclusive jurisdiction of the English Courts. AS WITNESS whereof this Agreement has been signed by the duly authorised representatives of the Parties on the day and year first above written. SIGNED for and on behalf of ) BP EXPLORATION OPERATING ) COMPANY LIMITED ) /s/ SIGNED for and on behalf of ) APACHE NORTH SEA LIMITED ) /s/ -44-
EX-10.1 5 h02486exv10w1.txt DEED OF GUARANTY AND INDEMNITY DATED 1/11/2003 EXHIBIT 10.1 THIS DEED OF GUARANTEE AND INDEMNITY is made the 11th day of January 2003 GIVEN BY: APACHE CORPORATION, a company incorporated in the State of Delaware, United States of America, whose principal place of business is at 2000 Post Oak Boulevard, Suite 100, Houston Texas 77056-4400 (the "PURCHASER'S GUARANTOR") IN FAVOUR OF: BP EXPLORATION OPERATING COMPANY LIMITED, a company incorporated in England (registered number 00305943) whose registered office is at Britannic House, 1 Finsbury Circus, London EC2M 7BA (the "SELLER"). WHEREAS: (A) The Seller has today entered into the Sale and Purchase Agreement with Apache North Sea Limited a company incorporated in England (registered number 4614761) whose registered office is at Level 1, Exchange House, Primrose Street, London EC2A 2HS (the "PURCHASER"); (B) The Seller has agreed to enter into the Sale and Purchase Agreement subject to the Purchaser's Guarantor agreeing to enter into this Deed of Guarantee and Indemnity in respect of the Guaranteed Obligations as set out in Clause 2; and (C) The Purchaser's Guarantor has agreed (it being in its best commercial interests to do so) to enter into this Deed of Guarantee and Indemnity in respect of the Guaranteed Obligations. NOW THIS DEED WITNESSETH AS FOLLOWS: 1. INTERPRETATION 1.1 Unless otherwise defined or provided for in this Deed of Guarantee and Indemnity, words and expressions shall have the following meanings:- "ABANDONMENT COST" means the estimated cost, calculated in accordance with the Assumption, in money of the day (i.e. at the predicted abandonment date) to the Purchaser and the other parties to each JOA of final abandonment and/or demolition and removal of all platforms, pipelines, plant, machinery, wells and facilities and other offshore installations and structures comprising the Interests together with any necessary site reinstatement as may be required by the Licences, other Licensed 1 Interest Documents (to the extent that such documents affect the Seller or the Seller's Affiliates) and/or any Act of Parliament or any other statutory provision (including, without limitation, any order, regulation, instrument or other subordinate legislation) or common law in each case from time to time in force, after allowing for estimated salvage value (if any) and any other expected receipts arising from abandonment and/or demolition and removal (excluding tax and royalty relief); "ABANDONMENT PROGRAMME" means the abandonment programme(s) related to the Interests required to be submitted or as submitted to, and approved (within the meaning of Section 32 of the Petroleum Act 1998) by, the Secretary pursuant to and in accordance with the Petroleum Act 1998, or other relevant statute, regulations or order from any competent authority or guidelines from time to time in force, as the same may be amended or modified with the approval or concurrence of the Secretary; "ACCEPTABLE BANK" means a bank or other financial institution rated a minimum of "A2" by Moody's or "A" by Standard and Poor's (or such other comparable credit rating agency as may be approved by the Seller) or better on their senior, unsubordinated, unsecured long term debt, or any other bank or other financial institution with the prior written agreement of the Seller; "ANNUAL C" means the value of C calculated annually or otherwise in accordance with Clauses 9.3.1 and 9.3.2; "ASSUMPTION" means the following assumption: the calculation of the cost of decommissioning will be on the basis of the OSPAR Decision 98/3 and any IMO guidelines, both as so amended or replaced from time to time, and good oilfield practice in the United Kingdom continental shelf, or to meet United Kingdom government regulation from time to time if requiring a more demanding standard. The foregoing basis will be interpreted to mean that if decommissioning was to take place at the date of this Deed of Guarantee and Indemnity, at least the following would require to take place: topsides facilities being removed and recycled onshore with all steel jackets removed, transported onshore and recycled. Permanent well abandonment, including removal of conductors. Pipelines exceeding twelve inches (12") diameter may be left in position, disconnected and cleaned of all hydrocarbons. Pipelines less than twelve (12") diameter which are adequately buried may also be left in position; "CALCULATION EVENT" shall mean the occurrence of either of the following:- 2 (i) the Guarantor's Rating maintained by either rating agency falling below the Relevant Rating or being removed by such rating agency; (ii) the Guarantor's Rating maintained by either rating agency being at the level specified in Clause 9.1.1(A) but being placed on "credit watch" with negative implications; or (iii) the currently provided Abandonment Cost in money of the day the relevant costs are incurred used by the Purchaser's Guarantor for a calculation of Interim Annual C under paragraph (ii) of the definition thereof being less than the Floor; "C" means the present value of that portion of the Abandonment Cost as is attributable to the Interests (subject to Clause 9.11) as at 31st December of the calendar year prior to that in which the calculation is made, calculated by the discounted cash flow technique at the discount rate proposed by the Purchaser's Guarantor in its calculation of Annual C and approved by the Seller (or determined by the expert) in accordance with Clause 9.3; the "FLOOR" means L395,800,000 x 0.7 x (1.025)(x) where x is the period in years (expressed as a fraction for part years) from the date of this document until the date to which the audited financial statements of the Purchaser's Guarantor were drawn up for the relevant calculation of Interim Annual C. "GUARANTOR'S RATING" has the meaning given to it in Clause 9.1.1; "IMO" means the International Maritime Organisation; "INTERIM ANNUAL C" shall mean: (i) on and from the date hereof until the date of filing with the Securities and Exchange Commission of the annual audited financial statements of the Purchaser's Guarantor for the year ending 31st December 2003, L175,000,000; and (ii) thereafter, either (aa) the figure used by the Purchaser's Guarantor for the asset retirement obligations associated with the Interests in computing its aggregate asset retirement obligations for the purposes of its most recent annual audited financial statements, determined in accordance with generally accepted accounting principles in the United States, in respect of which an 3 officer's certificate has been provided in accordance with clause 9.5(C) or (bb) if the calculation in (aa) above results in a Calculation Event arising by virtue of paragraph (iii) of the definition of "Calculation Event", the most recent previous figure for Interim Annual C which did not result in a Calculation Event (or, if since the date of that figure Annual C or Provisional Annual C shall have been calculated or determined, then that amount); "LETTER OF CREDIT" means the irrevocable letter(s) of credit in favour of the Seller payable in London, England issued by an Acceptable Bank in substantially the form set out in the Schedule (and taking into account the reasonable comments of the issuing bank) and any replacement or renewal thereof or addition thereto; "LC TRUST ACCOUNT" has the meaning given to it in Clause 9.12.1; "OSPAR" means the OSPAR Convention which came into force on 25 March 1998; "PARTIES" means the Purchaser's Guarantor and the Seller; "PETROLEUM ACT 1998" means the Petroleum Act 1998 (as amended, modified or re-enacted from time to time) or any successor legislation, and any reference to a section of the Petroleum Act 1998 shall also be a reference to the corresponding section of any such amended, modified, re-enacted or successor legislation; "PROVISIONAL ANNUAL C" means the value of C calculated in substitution for Annual C pursuant to Clause 9.3.4; "RATING LOSS DATE" means the date that the second of the relevant rating agencies discloses that the Guarantor's Rating has fallen below the Relevant Rating (as defined in Clause 9.1.1) or been removed; "SALE AND PURCHASE AGREEMENT" means the agreement of even date herewith and entered into between the Seller and the Purchaser for the sale and purchase of certain interests in United Kingdom Continental Shelf Petroleum Production Licences; "STAMP DUTY AGREEMENT" means the agreement dated of even date herewith and entered into between the Seller and the Purchaser concerning the retention of the Sale and Purchase Agreement and certain other documents outside the United Kingdom; 4 "SECTION 29 PARTY" means (i) those parties (other than the Purchaser or an Affiliate of the Purchaser) who are currently the recipients of notices given under Section 29 of the Petroleum Act 1998 in relation to the Interests, (ii) any other person (other than the Purchaser or an Affiliate of the Purchaser) who at any time becomes the recipient of such notice in relation to the Interests and (iii) any person (other than the Purchaser or an Affiliate of the Purchaser) on whom a duty is at any time imposed under Section 34 of the Petroleum Act 1998 to secure that the Abandonment Programme is carried out; "SUPPLEMENTAL SECURITY" means the aggregate amount of the value of any security or other cover and/or credit balances which meets the requirements of Clause 9.7 including the proviso thereto and any alternative security cover has been approved by the Seller pursuant to Clause 9.10; and "TAXATION" means: (a) all forms of taxation and statutory, governmental, state, federal, provincial, local government or municipal charges, duties, imposts, contributions, levies, withholdings or liabilities wherever chargeable and whether of the United Kingdom or any other jurisdiction; and (b) any penalty, fine, surcharge, interest, charges or costs payable in connection with any Taxation within (a) above. 1.2 Words and expressions defined in the Sale and Purchase Agreement shall (except where the context otherwise requires) have the same meanings wherever used herein. 1.3 All references to clauses and recitals are, unless otherwise expressly stated, references to clauses and recitals to this Deed of Guarantee and Indemnity. 1.4 The headings in this Deed of Guarantee and Indemnity are inserted for convenience only and shall be ignored in construing this Deed of Guarantee and Indemnity. Unless the context otherwise requires in this Deed of Guarantee and Indemnity the singular shall include the plural and vice versa. 1.5 Reference to statutory provisions shall be construed as reference to those provisions as amended, consolidated, extended or re-enacted from time to time. 1.6 References in this Deed of Guarantee and Indemnity to the words "include", "including" and "other" shall be construed without limitation. 5 2. GUARANTEE The Purchaser's Guarantor hereby unconditionally guarantees the due and punctual performance by the Purchaser of its obligations under the Sale and Purchase Agreement and/or the Stamp Duty Agreement (the "GUARANTEED OBLIGATIONS") to the intent that if the Purchaser shall fail to observe and perform any of the Guaranteed Obligations the Purchaser's Guarantor shall be liable to perform the same as if the Purchaser's Guarantor were the party principally bound thereby in place of the Purchaser (subject to all the same limitations on liability to which the Purchaser is entitled under or in respect of the Sale and Purchase Agreement or the Stamp Duty Agreement, as the case may be). 3. MATTERS NOT TO REDUCE THE PURCHASER'S GUARANTOR'S LIABILITY 3.1 If any purported obligation or liability of the Purchaser under the Sale and Purchase Agreement or the Stamp Duty Agreement which, if valid, would have been the subject of this Deed of Guarantee and Indemnity is not or ceases to be valid or enforceable on any ground by reason of any defect in or want of powers of the Purchaser or irregular exercise thereof or lack of authority by any person apparently authorised to act on behalf of the Purchaser or any legal incapacity or any change in the constitution of or any amalgamation, reconstruction or liquidation of the Purchaser, the Purchaser's Guarantor shall nevertheless be liable in respect of that purported obligation or liability as if the same were fully valid and enforceable and as if the Purchaser's Guarantor were the principal debtor in respect thereof. The Purchaser's Guarantor hereby agrees to keep the Seller fully indemnified in accordance with the terms of this Deed of Guarantee and Indemnity against all Losses and Expenses arising from any failure of the Purchaser to carry out any such purported obligation or liability by reason of it not being or ceasing to be valid or enforceable as aforesaid. 3.2 The Purchaser's Guarantor undertakes that if any of the Guaranteed Obligations are not recoverable on the basis of a guarantee for any reason, it will (as a separate and independent stipulation) pay the Seller on demand whatever amount or amounts shall equal what it would have been liable to pay but for such irrecoverability. 3.3 The Guaranteed Obligations shall be discharged by the full performance by the Purchaser of its obligations under the Sale and Purchase Agreement and the Stamp Duty Agreement, but otherwise shall not be discharged or affected by any act, omission, matter or thing which, but for this provision, might operate to release or otherwise exonerate the Purchaser's Guarantor from those obligations in whole or in part including: 6 3.3.1 the granting of time, or any waiver or other indulgence (including any extension, renewal, acceptance, forbearance or release in respect of any of the Guaranteed Obligations); 3.3.2 the taking, variation, compromise, renewal or release of or refusal or neglect to perform or enforce any rights, remedies or securities against the Purchaser; 3.3.3 any modification, variation or addition to the terms of any of the Guaranteed Obligations or of any other document or security; 3.3.4 any irregularity, defect or informality in the terms of any of the Guaranteed Obligations or any other document or security or any legal limitation, disability, incapacity or want of authority of any person other than the Seller or its Affiliates; 3.3.5 any corporate reorganisation, reconstruction, amalgamation, dissolution, liquidation, merger, acquisition of or by or other alteration in the corporate existence or structure of the Seller or the Purchaser or the Purchaser's Guarantor; 3.3.6 any composition or similar arrangement by the Seller or the Purchaser or the Purchaser's Guarantor or any other person; or 3.3.7 any other act or thing whatsoever done or omitted or neglected to be done by the Seller in relation to the Guaranteed Obligations. 4. NO COMPETITION Until all the Guaranteed Obligations have been paid, discharged or satisfied in full, the Purchaser's Guarantor waives all rights of subrogation and indemnity against the Purchaser in respect of Guaranteed Obligations and agrees not to share in any security held or monies received by the Seller on account of such liabilities or to claim or prove in competition with the Seller in the liquidation of the Purchaser (or its equivalent in any relevant jurisdiction) in respect of any monies paid by the Purchaser's Guarantor to the Seller under this Deed of Guarantee and Indemnity. 5. DISCHARGE Where any discharge (whether in respect of any of the Guaranteed Obligations or any security for the Guaranteed Obligations or otherwise) is made in whole or in part or any 7 arrangement is made on the faith of any payment, security or other disposition which is avoided or must be restored for any reason, the liability of the Purchaser's Guarantor under this Deed of Guarantee and Indemnity shall continue as if the discharge or arrangement had not been made. 6. ENFORCEMENT 6.1 The Seller shall not be obliged before taking steps to enforce this Deed of Guarantee and Indemnity: 6.1.1 to take any action or obtain judgement in any court against the Purchaser or any other person; 6.1.2 to make or file any claim in any bankruptcy or liquidation (or its equivalent in an relevant jurisdiction) of the Purchaser or of any other person; 6.1.3 to make, enforce or seek to enforce any claim against the Purchaser or any other person under any security or other document, agreement or arrangement; or 6.1.4 to enforce against and/or realise (or seek so to do) any security that it may have in respect of all or any part of the Guaranteed Obligations. 7. WARRANTIES 7.1 The Purchaser's Guarantor hereby warrants to the Seller that: 7.1.1 the Purchaser's Guarantor is duly incorporated with limited liability and validly existing under the laws of the State of Delaware, United States of America; 7.1.2 the documents which contain or establish Purchaser's Guarantor's constitution incorporate provisions which authorise, and all necessary corporate action has been taken to authorise, Purchaser's Guarantor to execute and deliver this Deed of Guarantee and Indemnity and perform the transactions contemplated hereby; 7.1.3 the signing and delivery of this Deed of Guarantee and Indemnity and the performance of the obligations contemplated by this Deed of Guarantee and Indemnity, will not contravene or constitute a default under any provision contained in any material agreement, instrument, law, judgment, order, 8 licence, permit or consent by which Purchaser's Guarantor or any of its Affiliates or any of its assets is bound or affected; and 7.1.4 no litigation, arbitration, administrative proceeding, dispute or judgment against Purchaser's Guarantor or to which Purchaser's Guarantor is a party which is reasonably likely to by itself or together with any such other proceedings have a material adverse effect on its business, assets or condition and which would materially and adversely affect its ability to observe or perform its obligations under this Deed of Guarantee and Indemnity, is subsisting or, so far as Purchaser's Guarantor is aware, threatened or pending against Purchaser's Guarantor or any of its assets. 8. CONTINUING AND ADDITIONAL SECURITY 8.1 This Deed of Guarantee and Indemnity is a continuing security and shall remain in full force and effect until all the Guaranteed Obligations have been discharged or satisfied in full notwithstanding the liquidation or other incapacity or any change in the constitution of the Purchaser or of the Purchaser's Guarantor, or in the name and style of either of them, any intermediate payment or performance or the invalidity or unenforceability in whole or in part of the Guaranteed Obligations or any other matter whatsoever. 8.2 This Deed of Guarantee and Indemnity is in addition to and shall not merge with or otherwise prejudice or affect or be prejudiced by any other right, remedy, guarantee, indemnity or security and may be enforced without first having recourse to the same or any other bill, note, mortgage, charge, pledge or lien now or hereafter held by or available to the Seller. 9. LETTER OF CREDIT 9.1.1 If at any time the credit rating of the senior, unsubordinated, unsecured long term debt of the Purchaser's Guarantor ("Guarantor's Rating") falls below both "A-" by Standard and Poor's and "A3" by Moody's (or such other comparable credit rating agency or agencies as may be proposed by the Purchaser's Guarantor and approved by the Seller such approval not to be unreasonably withheld) (the "Relevant Rating") or is removed by both such rating agencies, then the Purchaser's Guarantor shall supply to the Seller a Letter of Credit in accordance with the provisions of this Clause 9 failing which it shall forthwith pay an amount equal to the face value of the Letter of Credit which should have been supplied into the LC Trust Account. Each Letter of Credit delivered pursuant to this Clause 9 shall have an expiry date of 31st December in the year for which the calculation of "Annual C", "Interim Annual C" or "Provisional Annual C" has been determined. 9 9.1.2 The Letter of Credit shall be renewed on or prior to its expiry date in accordance with Clause 9.6 unless a Guarantor's Rating is increased or reinstated to a rating level at least equivalent to either Relevant Rating. If at any time either Guarantor's Rating is increased or reinstated to a rating level at least equivalent to a Relevant Rating any then outstanding Letter of Credit shall forthwith be returned by the Seller to the Purchaser's Guarantor for surrender and cancellation. 9.2 Amount of Letters of Credit Subject as provided in this Clause 9, within 10 London and New York business days of the occurrence of a Rating Loss Date the Purchaser's Guarantor will supply a Letter of Credit in the amount of Interim Annual C (or if Annual C or Provisional Annual C shall have been previously calculated or determined for that relevant period, that amount), in each case less any Supplemental Security. 9.3 Calculation of the Annual C 9.3.1 (A) Calculation of Annual C shall be commenced and completed in accordance with this Clause 9 as soon as reasonably practicable after any Calculation Event, provided that if at any time the event that caused the Calculation Event ceases to apply then that calculation of Annual C shall cease and this Clause 9 shall not apply (save for Clause 9.3.3(D) and the provisions of Clauses 9.5 and 9.12, to the extent relevant) unless and until a further Calculation Event shall occur. (B) The Purchaser's Guarantor, acting reasonably, shall give the Seller its calculation of Annual C by no later than 1 month after the Calculation Event together with reasonable supporting calculations and documentation. The Seller shall give notice to the Purchaser's Guarantor within 1 month of receipt of that calculation stating whether it approves or disapproves the calculation of Annual C, and in the event that it fails to give such a notice within such period, it shall be deemed to have approved such calculation of Annual C. 9.3.2 Annual C shall thereafter be calculated for each subsequent calendar year, (provided that if the event that caused the Calculation Event ceases to apply then that calculation of Annual C shall cease and this Clause 9 shall not apply (save for Clause 9.3.3(D) and the provisions of Clauses 9.5 and 9.12, to the extent relevant) unless and until a further Calculation Event shall occur) by the Purchaser's Guarantor, acting reasonably, and will be provided to the Seller, together with reasonable supporting calculations and documentation, no later than 6 months before the expiry 10 date of the current Letter of Credit. The Seller shall give notice to the Purchaser's Guarantor within 1 month of receipt of that calculation stating whether it approves or disapproves the calculation of the Annual C, and in the event that it fails to give such a notice within such period, it shall be deemed to have approved such calculation of Annual C. 9.3.3 (A) If the Seller disapproves the calculation of the Annual C, then, by no later than 10 days after receipt by the Purchaser's Guarantor of the Seller's notice of disapproval, an independent expert shall be appointed to determine the value of Annual C. The independent expert shall be selected by the mutual agreement of the Parties and in the absence of agreement shall be appointed on the application of either Party by the President for the time being of the Institute of Petroleum in England (or any successor body thereto). (B) The independent expert shall be a firm of engineers skilled by reason of its qualification, experience and expertise in the estimation of abandonment costs for offshore oil and gas facilities. (C) The independent expert shall act as an expert and not as an arbitrator, it shall be appointed on the basis that it keeps strictly confidential to the Parties all information provided to it by the Parties hereunder and its decision shall, in the absence of manifest error, be final and binding on the Parties. (D) The costs of the independent expert shall be borne as to fifty per cent (50%) by the Seller and fifty per cent (50%) by the Purchaser's Guarantor. (E) The Purchaser's Guarantor shall use its best endeavours to provide such data as the independent expert may reasonably require for the purposes of its determination. 9.3.4 Where an independent expert has been appointed it shall review the calculation of Annual C provided by the Purchaser's Guarantor and any calculation of Annual C provided by the Seller. The Purchaser's Guarantor shall use its reasonable endeavours to procure that the independent expert will notify the Seller and the Purchaser's Guarantor in writing by no later than the date falling 1 month after the date of its appointment of its approval of the calculation of Annual C by the Purchaser's Guarantor or (if any) the Seller or (where it approves neither) its own determination of Annual C. If the independent expert fails to 11 notify the Purchaser's Guarantor and the Seller as aforesaid, by the date falling 2 months after the date of its appointment then:- (A) (save where paragraph (B) below applies), the average of the respective estimates of Annual C prepared by the Purchaser's Guarantor and the Seller, will thereupon be the Annual C, or if no estimate has been provided by the Seller, the estimate provided by the Purchaser's Guarantor will thereupon be Annual C (such calculation or estimate being the "Provisional Annual C"). Annual C or the Provisional Annual C shall, less any Supplemental Security, (and subject as provided in Clause 9.3.5) determine the aggregate amount of the Letter of Credit to be provided for the remainder of the calendar year; and (B) if an amount for Annual C has previously been determined and a Letter of Credit is outstanding calculated by reference to it or would have been but for a payment into the LC Trust Account under clause 9.1, the Annual C shall remain at the level last determined (such amount being the "Provisional Annual C"). Annual C or the Provisional Annual C shall, less any Supplemental Security, (and subject as provided in Clause 9.3.5) determine the aggregate amount of the Letter of Credit to be provided for the following calendar year. In the event that the aggregate undrawn amount of the outstanding Letter of Credit issued pursuant to Clause 9.2, together with the Supplemental Security:- (C) is less than the value of Provisional Annual C calculated in accordance with Clause 9.4 the Purchaser's Guarantor shall, within 3 months of the date of appointment of the independent expert, deliver to the Seller a further Letter of Credit in an amount which, when taken together with all other undrawn amounts under any outstanding Letter of Credit and the Supplemental Security, equals the value of the Provisional Annual C; or (D) is more than the calculated value of Provisional Annual C, the Purchaser's Guarantor may, by the date of expiry of the outstanding Letter of Credit, deliver to the Seller a Letter of Credit in an amount which, together with the Supplemental Security, equals the value of the Provisional Annual C and the Seller shall promptly return to the Purchaser's Guarantor for surrender, upon the receipt of the replacement Letter of Credit, the Letter of Credit which has been replaced. 12 9.3.5 If the independent expert notifies the Seller and the Purchaser's Guarantor that it has approved the calculation of Annual C of either the Seller or the Purchaser's Guarantor or has determined its own calculation of Annual C, then Annual C shall be the amount so approved or determined by the independent expert and where the amount so approved or determined is: (A) greater than the value of the Interim C or Provisional Annual C, then the Purchaser's Guarantor shall provide a further Letter of Credit in a sum which, together with the Supplemental Security, represents the difference between the value of the Interim Annual C or Provisional Annual C (as the case may be) and the amount so approved or determined as Annual C by the expert, within one month of such notification from the expert (or, if later, by no later than one month prior to the date the new Annual C is to become effective); or (B) is less than the value of Interim Annual C or the Provisional Annual C, then the Purchaser's Guarantor may provide a Letter of Credit in a sum, together with the Supplemental Security, equal to the amount of the Annual C so approved or determined by the expert and the Seller shall promptly return to the Purchaser's Guarantor for surrender, upon the receipt of the replacement Letter of Credit, the Letter of Credit which has been replaced. 9.3.6 Each of "C", "Interim Annual C", "Annual C" and "Provisional Annual C" shall be determined in Sterling. 9.3.7 Notwithstanding the foregoing provisions, if the Purchaser's Guarantor fails to supply its calculation of Annual C to the Seller by the date specified in this Clause 9.3, then (without prejudice to any other remedies available to the Seller), for the relevant calendar year, the amount of Annual C shall be the then value of Interim Annual C. 9.4 Purchaser's Guarantor's obligation to provide further Letter of Credit for an increase in Annual C In the event that the aggregate undrawn amount of the outstanding Letter of Credit, together with the Supplemental Security: 9.4.1 is less than the value of Annual C calculated in accordance with Clause 9.3, the Purchaser's Guarantor shall, by no later than one month prior to the date of expiry of the outstanding Letter of Credit, deliver to the Seller a further Letter of Credit in an amount which, when taken together with all other undrawn amounts under any outstanding Letter of Credit and the Supplemental Security, equals the value of the Annual C; or 13 9.4.2 is more than the calculated value of the Annual C, the Purchaser's Guarantor may no later than one month prior to the date of expiry of the outstanding Letter of Credit, deliver to the Seller a Letter of Credit in an amount which, together with the Supplemental Security, equals the value of the Annual C and the Seller shall promptly return to the Purchaser's Guarantor for surrender, upon the receipt of the replacement Letter of Credit, the Letter of Credit which has been replaced. 9.5 Provision of information (A) The Purchaser's Guarantor shall at all times following Completion provide to the Seller in a timely manner data and information relating to the Interests which may have a material and adverse effect on one or more of the fields comprising the Interests or on the level of Abandonment Costs. (B) If the Seller considers that an event has occurred which is reasonably likely to have a material adverse effect on the Interests the Purchaser's Guarantor shall use its best endeavours to provide to the Seller in a timely manner data and information relating to the effect of the event on the Interests; and (C) Within 5 London and New York business days of the filing with the Securities and Exchange Commission by the Purchaser's Guarantor of its audited annual consolidated accounts, the Purchaser's Guarantor will notify the Seller of the updated amount of Interim Annual C together with a certificate from an officer of the Purchaser's Guarantor confirming that such figure is the amount used by the Purchaser's Guarantor for the asset retirement obligations associated with the Interests for the purposes of its most recent annual audited financial statements, determined in accordance with generally accepted accounting principles in the United States. 9.6 Obligation to produce Letter of Credit before expiry of then current Letter of Credit The Purchaser's Guarantor shall no later than thirty (30) days before the expiry date of the then current Letter of Credit deliver to the Seller a replacement Letter of Credit in the amount of the expiring Letter of Credit (unless a different amount is otherwise provided for hereunder) and forthwith return to the Purchaser's Guarantor for cancellation, the Letter of Credit which has been replaced. 14 9.7 Reduction of undrawn amount under the Letter of Credit Notwithstanding any other provision of this Clause 9 the aggregate undrawn amount required to be outstanding at any time under the Letter of Credit provided to the Seller pursuant to this Clause 9 shall be reduced by the aggregate of: 9.7.1 the value of any security or other equivalent cover in respect of Abandonment Costs provided by the Purchaser or any of its Affiliates pursuant to any document provided in accordance with the provisions of any JOA or pursuant to any scheme or requirement of the Secretary or any applicable law or guidance; 9.7.2 the aggregate credit balance standing to the credit of any trust fund established by the Purchaser or any of its Affiliates in accordance with the provisions of any JOA or pursuant to any scheme or requirement of the Secretary or any applicable law or guidance; and 9.7.3 the aggregate credit balance in the LC Trust Account, provided that the aggregate undrawn amount referred to in this Clause 9.7 shall only be reduced if either (a) the Purchaser's Guarantor has procured that the Seller has become a party to the relevant JOA or such other agreement which governs the matters referred to in Clauses 9.7.1 and 9.7.2 with all rights in respect of such matters only but with no obligations such that the Seller will have the benefit of any security or other equivalent cover or trust fund referred to in Clauses 9.7.1 or 9.7.2; or (b) the Secretary will participate in any security or other equivalent cover or trust fund referred to in Clauses 9.7.1 or 9.7.2 and the Seller, acting reasonably, is satisfied that the arrangements are such that the amounts in question are and will remain available to be applied towards the Abandonment Costs and will be so applied to the extent required. 9.8 Events giving rise to demands under Letter of Credit The Seller shall be entitled to draw on the then current Letter of Credit if any of the following circumstances occur: 9.8.1 the Purchaser's Guarantor is in breach of Clause 9.6 by failing to deliver a replacement Letter of Credit in which case the Seller shall be entitled to draw down: (A) if no replacement Letter of Credit is provided, the whole of any Letter of Credit which the Purchaser's Guarantor was obliged to replace pursuant to Clause 9.6; or 15 (B) if one or more replacement Letters of Credit are provided, the amount equal to the difference between the amount which the Purchaser's Guarantor was obliged to provide pursuant to Clause 9.6 and the amount of the replaced Letters of Credit; 9.8.2 if: the Purchaser has failed to carry out its obligations to submit and/or undertake the Abandonment Programme and: (A) the Seller or any other Section 29 Party has been required by the Secretary to submit the Abandonment Programme and/or has a duty under the Petroleum Act 1998 to secure that it is carried out; and (B) the Seller or a Section 29 Party has made, or is expected to make, expenditures relating to the Abandonment Programme in the next thirty (30) days; in which case the Seller shall be entitled to draw down the amount of the expenditures referred to at (C) above; 9.8.3 if the entity which has issued the Letter of Credit ceases to be an Acceptable Bank and the Purchaser's Guarantor fails to provide a replacement Letter of Credit issued by an Acceptable Bank within thirty (30) Business Days of the Seller notifying the Purchaser's Guarantor that the issuing entity is no longer an Acceptable Bank, the Seller shall be entitled to draw down the whole Letter of Credit; and 9.8.4 save as provided in Clause 9.8.2, the Seller is legally obligated, by the Secretary or otherwise, to pay within the next thirty (30) Business Days all or part of the Abandonment Costs (other than pursuant to any JOA or similar document relating to the Interests that the Seller or its Affiliates enters into after the date hereof), in which case the Seller shall be entitled to draw down an amount equal to the amount the Seller is obligated to pay. 9.9 Completion of abandonment programme Subject as aforesaid, the obligations of the Purchaser's Guarantor under this Clause 9 will continue until the Purchaser's Guarantor has delivered to the Seller a copy of the Licence Operator's bona fide notice to the Secretary that the Abandonment Programme in respect of all of the Fields comprising the Interests has been completed and the Secretary has not, during the twelve (12) months following the delivery of such notice to the Secretary notified the Licence Operator of any additional clean-up or other abandonment activity. If the 16 Purchaser's Guarantor has delivered to the Seller a copy of such notice to the Secretary that the Abandonment Programme has been completed and such 12 month period has elapsed as aforesaid, the Seller will promptly return the Letter of Credit then in its possession to the Purchaser's Guarantor and remit to the Purchaser's Guarantor any balance then standing to the credit of the LC Trust Account. The Purchaser's Guarantor shall supply, together with a copy of such notice to the Secretary, reasonable evidence that it has paid the Abandonment Costs which have been incurred. 9.10 Alternative Security The Purchaser's Guarantor may, with the prior written consent of the Seller (such consent not to be unreasonably withheld), from time to time offer in lieu of or in combination with a Letter of Credit alternative security or cover for the Abandonment Costs, including cash and/or treasury instruments. 9.11 Assignment of Clause 9 Rights and Obligations The Purchaser's Guarantor shall be entitled to assign all or part of its rights and obligations under this Clause 9 to any third party which acquires all or part of the Interests, provided that the Purchaser's Guarantor shall remain responsible for its obligations under this Clause 9 in respect of any part of the Interests retained by the Purchaser or any of its Affiliates and shall remain responsible for its obligations under this Clause 9 in respect of such part of the Interests as it has assigned unless and until the assignee agrees in writing with the Seller (which agreement the Seller shall not unreasonably withhold) to provide security affording at least equivalent protection to the Seller in respect of the part of the Interests to be acquired. 9.12 LC Trust Account 9.12.1 If the Seller makes a demand under Letter(s) of Credit, the Seller shall hold the payments received on trust for itself and the Purchaser's Guarantor in accordance with the provisions of this Clause 9.12. The Seller shall deposit such payments in a separate interest bearing account (the "LC Trust Account") established in the United Kingdom with a bank that is and continues to be reasonably acceptable to the Purchaser's Guarantor. Interest that accrues on amounts held in the LC Trust Account shall be deposited in the LC Trust Account and may be withdrawn only in accordance with the provisions of this Clause. 9.12.2 Subject to Clauses 9.9, 9.12.4, 9.12.7 and 9.12.8 the Seller shall only withdraw such amounts as are necessary from the LC Trust Account (a) to meet the bank charges with respect to such account and (b) to meet any Abandonment Costs which the Seller has incurred and paid or is due to pay within 5 Business Days of the date of such withdrawal. 17 9.12.3 The Seller shall promptly notify the Purchaser's Guarantor of any withdrawals. 9.12.4 In the case of Clauses 9.8.1 and/or 9.8.3 applying, if the Purchaser's Guarantor remedies its breach by delivering to the Seller the Letter of Credit in compliance with the requirements of this Clause 9, the Seller shall promptly remit the outstanding balance of the LC Trust Account to the Purchaser's Guarantor. 9.12.5 The Seller shall not grant any security or create any other form of encumbrance over amounts held in the LC Trust Account (and shall procure that the bank holding the account waives its rights of set off in relation to such account). 9.12.6 The perpetuity for the trusts established pursuant to this Clause 9.12 shall be eighty (80) years from the date of this Deed of Guarantee and Indemnity. 9.12.7 If the proviso to Clause 9.3.1(A) applies, then all amounts standing to the credit of the LC Trust Account shall forthwith be remitted to the Purchaser's Guarantor and the Letter of Credit shall forthwith be returned by the Seller to the Purchaser's Guarantor. 9.12.8 If at any time following the coming into effect of Interim Annual C, Annual C or Provisional Annual C the Supplemental Security exceeds such amount then the Seller shall forthwith return to the Purchaser's Guarantor the lesser of the amount of such excess and the amount standing to the credit of the LC Trust Account. 9.12.9 The Seller will open the LC Trust Account and notify the Purchaser's Guarantor of the details thereof within 21 days of the date hereof. 10. PAYMENT AND WITHHOLDINGS 10.1 Any demand hereunder shall be given in writing or by facsimile transmission addressed to the Purchaser's Guarantor and served on the Purchaser's Guarantor in accordance with the provisions of clause 16 below. 10.2 Any payment to the Seller to be made hereunder shall be made within 5 Business Days from demand in cleared funds to the Seller's Account, delivery to which account shall be an effective discharge of the Purchaser's Guarantor's obligations to pay the amount concerned. 10.3 Subject to clause 10.4 below all payments made by the Purchaser's Guarantor under this Deed of Guarantee and Indemnity shall be made gross free of any rights of counterclaim or set-off and without any deductions or withholdings of any nature. 18 10.4 If the Purchaser's Guarantor is required by law to make any deductions or withholdings from any payment hereunder it shall do so and the sum due from the Purchaser's Guarantor in respect of such payment shall be increased to the extent necessary to ensure that after the making of such deduction or withholding the Seller receive and retain (free and clear of any liability in respect of any such deduction or withholding) a net sum equal to the sum they would have received and retained had no deduction or withholding been required to be made. 10.5 If the Seller is satisfied that any payment under this Deed of Indemnity and Guarantee will be or has been subject to Taxation the Seller may demand in writing from the Purchaser's Guarantor from time to time such amount (after taking into account any such Taxation payable in respect of such amount) as will ensure that the Seller receives and retains a net sum equal to the sum it would have received had the payment not been subject to such Taxation. Notice of such amount shall be certified in writing by the Seller. The Purchaser's Guarantor shall pay such amount to the Seller in cleared funds on or before the fifth Business Day following the date of demand. 11. WAIVER No waiver by the Seller or the Purchaser's Guarantor of any breach of a provision of this Deed of Guarantee and Indemnity shall be binding unless made expressly and in writing and any such waiver shall relate only to the matter to which it expressly relates and shall not apply to any subsequent or other matter. 12. INDEMNITY The Purchaser's Guarantor hereby agrees to indemnify (save insofar as otherwise indemnified hereunder) the Seller on demand against all Losses and Expenses incurred or sustained by the Seller in any enforcement of this Deed of Guarantee and Indemnity or occasioned by any breach by the Purchaser's Guarantor of any of the covenants or obligations to the Seller under this Deed or Guarantee and Indemnity. 13. PROVISIONS SEVERABLE Every provision contained in this Deed of Guarantee and Indemnity shall be severable and distinct from every other such provision and if at any time any one or more of such provisions is or becomes invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining such provisions shall not in any way be affected thereby. 19 14. AMENDMENTS The terms and conditions of this Deed of Guarantee and Indemnity shall only be varied by an agreement in writing signed by the Seller and the Purchaser's Guarantor and specifically referring to this Deed of Guarantee and Indemnity. 15. CONTINUATION OF DEED OF GUARANTEE AND INDEMNITY This Deed of Guarantee and Indemnity shall remain in full force and effect notwithstanding any amendments or variations from time to time to the Sale and Purchase Agreement and/or the Stamp Duty Agreement. 16. ASSIGNMENT 16.1 Subject to Clause 9.11 and 16.2, this Deed of Guarantee and Indemnity shall be binding on and enure for the benefit of the successors of the parties but shall not be assignable by any party without the prior written consent of the other parties. 16.2 The Seller may not assign any of its rights and obligations hereunder save for an assignment of the entirety of its rights and obligations to: (A) an Affiliate; or (B) a purchaser of substantially the whole of the business of the Seller, provided that the identity of such Affiliate or purchaser has been approved by the Purchaser's Guarantor, such approval not to be unreasonably withheld. 17. NOTICES 17.1 Except as otherwise provided in this Deed of Guarantee and Indemnity any notice or other document to be given under this Deed of Guarantee and Indemnity shall be in writing and shall be deemed to be duly given if it (or the envelope containing it) identifies the party to whom it is intended to be given as the addressee and: 17.1.1 it is delivered personally; or 17.1.2 it is sent by (i) airmail or (ii) facsimile transmission to the respective addresses shown in this Deed of Guarantee and Indemnity or the respective 20 registered or principal offices for the time being of the relevant company or to such other addresses and/or numbers as such parties may by notice to all other parties hereto expressly substitute therefor; when in the ordinary course of the means of transmission it would first be received by the addressee in normal business hours. 17.2 In proving the giving of a notice it shall be sufficient to prove that the notice was left or that the envelope containing such notice was properly addressed and posted or that the applicable means of telecommunications was properly addressed and despatched (as the case may be). 17.3 Any notice duly given within the meaning of clause 17.1 shall be deemed to have been both given and received: 17.3.1 if it is delivered in accordance with clause 17.1.1, on such delivery; 17.3.2 if it is duly posted or transmitted in accordance with clause 17.1.2 by any of the methods there specified, on the fifth Business Day after the day of posting or (in the case of a notice transmitted by facsimile transmission) upon receipt by the sender of the correct transmission report. 17.4 For the purposes of this clause 17 "notice" shall include any request, demand, instructions or other document. 17.5 The facsimile numbers for the parties to this Deed of Guarantee and Indemnity are as follows: Purchaser's Guarantor: General Counsel Apache Corporation 2000 Post Oak Boulevard Suite 100 Houston Texas 77056-4400 Fax no: (713) 296 6458 The Seller: BP Exploration Operating Company Limited Burnside Road Farburn Industrial Estate Dyce Aberdeen AB27 7PB Attention: Business Unit Leader 21 Mid North Sea Business Unit Fax no: 01224 834800 18. RIGHTS OF THIRD PARTIES 18.1 Subject to Clause 18.2, nothing in this Deed of Guarantee and Indemnity is intended to confer on any person any right to enforce any term of this Deed of Guarantee and Indemnity which that person would not have had but for the Contracts (Rights of Third Parties) Act 1999. The parties to this Deed of Guarantee and Indemnity may by agreement rescind or vary any term of this Deed of Guarantee and Indemnity without the consent of any of the Seller's Affiliates. 18.2 The Purchaser's Guarantor acknowledges and declares that any Seller's Affiliate having rights against the Purchaser under Clauses 3.14, 6.6 or 6.7 of the Sale and Purchase Agreement shall be entitled to exercise such rights against the Purchaser's Guarantor hereunder to the same extent and with the same effect as the Seller could have done notwithstanding that such Seller's Affiliate is not a party to this Deed of Guarantee and Indemnity. 19. APPOINTMENT OF AGENT FOR SERVICE OF PROCESS 19.1 The Purchaser's Guarantor irrevocably agrees that any writ, summons, claim form, order, judgment or other process issued out of the courts of England and Wales in connection with any proceedings arising out of or in connection with this Deed of Indemnity and Guarantee (a "Service Document") may be sufficiently and effectively served on it by service on the Purchaser's Solicitors, if no replacement agent has been appointed and notified to the Seller pursuant to sub-clause 19.4, or on the replacement agent if one has been appointed and notified to the Seller. 19.2 Any Service Document served pursuant to this clause shall be marked for the attention of:- 19.2.1 Paul Griffin and Henry Davey at Herbert Smith, Exchange House, Primrose Street, London EC2A 2HS or such other address in England and Wales as may be notified to the Seller by Herbert Smith; or 19.2.2 such other person as is appointed as agent for service pursuant to clause 19.4 at the address notified pursuant to clause 19.4. 19.3 Any Service Document addressed in accordance with clause 19.2 shall be deemed to have been duly served if left at the specified address, when it is left; or, if sent by first class post, two clear Business Days after the date of posting. 22 19.4 If the agent referred to in sub-clause 19.1 (or any replacement agent appointed pursuant to this sub-clause) at any time ceases for any reason (including its dissolution) to act as the Purchaser's Guarantor's agent for service, the Purchaser's Guarantor shall promptly appoint another person with an address for service in England and Wales to be the Purchaser's Guarantor's agent for service on the terms of this clause 19 and promptly notify the Seller of the replacement's name and address. Failing such appointment and notification, the Seller shall be entitled by notice to the Purchaser's Guarantor to appoint such a replacement (including itself) on the replacement's standard or usual terms (if any) for such appointments to act on the Purchaser's Guarantor's behalf in accordance with this clause. 20. GOVERNING LAW AND JURISDICTION The construction validity and performance of this Deed of Guarantee and Indemnity and all agreements executed pursuant hereto shall be governed by English law (other than choice of law rules) and the Parties hereby irrevocably submit to the exclusive jurisdiction of the English Courts. 23 IN WITNESS WHEREOF the Purchaser's Guarantor and the Seller have executed and delivered this Deed of Guarantee and Indemnity as a deed the day and year first above written. EXECUTED and DELIVERED as a DEED BY APACHE CORPORATION acting by Lisa A. Stewart, Executive Vice President Business Development and E&P Services /s/ ........................................... Signature of witness: Name: Address: Occupation: EXECUTED and DELIVERED as a DEED BY BP EXPLORATION OPERATING COMPANY LIMITED acting by its duly authorised attorney /s/ ........................................... Signature of witness: Name: Address: Occupation: 24 EX-99.1 6 h02486exv99w1.txt PRELIMINARY PROSPECTUS SUPPLEMENT DATED 1/13/2003 EXHIBIT 99.1 THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES AND THEY ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS SUPPLEMENT (Subject to Completion) Issued January 13, 2003 (To Prospectus dated March 30, 2000) 6,200,000 Shares [Apache Corporation LOGO] COMMON STOCK ------------------------ APACHE CORPORATION IS OFFERING 6,200,000 SHARES OF ITS COMMON STOCK. ------------------------ OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE AND THE CHICAGO STOCK EXCHANGE UNDER THE SYMBOL "APA." ON JANUARY 10, 2003, THE LAST REPORTED SALE PRICE OF OUR COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS $56.60 PER SHARE. ------------------------ INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS APACHE -------- ------------- ----------- Per Share............................................ $ $ $ Total................................................ $ $ $
Apache Corporation has granted the underwriters the right to purchase up to an additional 930,000 shares to cover over-allotments. The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The underwriters expect to deliver the shares to purchasers on January , 2003. ------------------------ MORGAN STANLEY SALOMON SMITH BARNEY RBC CAPITAL MARKETS ------------------------ ROBERT W. BAIRD & CO. A.G. EDWARDS & SONS, INC. PETRIE PARKMAN & CO. RAYMOND JAMES January , 2003 [APACHE CORPORATION CHARTS] These charts reflect our estimated production before and after the pending BP transactions by core areas. Percentages are calculated by using Apache's January 2003 estimated daily production rate and our estimate of the daily production rate from the BP assets for 2003, which we used to value the assets that we have agreed to acquire. The estimated production attributable to the pending BP transactions is based solely on our internal estimates and has not been reviewed by our independent reserve engineers. There is no assurance that the pending BP transactions will be completed or that our estimate of production will prove correct. OIL AND GAS TERMS When describing natural gas:........ Mcf = thousand cubic feet MMbtu = million British thermal units MMcf = million cubic feet Bcf = billion cubic feet When describing oil:................ Bbl = barrel Mbbls = thousand barrels MMbbls = million barrels When comparing natural gas to oil:.............................. 6 Mcf of gas = 1 bbl of oil equivalent Boe = barrel of oil equivalent Mboe = thousand barrels of oil equivalent MMboe = million barrels of oil equivalent
i TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Oil and Gas Terms..................... i About this Prospectus Supplement...... ii Prospectus Supplement Summary......... S-1 Risk Factors.......................... S-7 Special Note Regarding Forward-Looking Statements.......................... S-12 Use of Proceeds....................... S-13 Capitalization........................ S-14 Price Range of Common Stock........... S-15 Dividend Policy....................... S-15 Material U.S. Federal Tax Consequences to Non-U.S. Holders of Common Stock............................... S-16 Underwriting.......................... S-19 Legal Matters......................... S-21 Experts............................... S-21 Where You Can Find More Information About the Company................... S-22
PAGE ---- PROSPECTUS About This Prospectus................. 1 Where You Can Find More Information... 1 Cautionary Statements Regarding Forward-Looking Statements.......... 3 Apache Corporation.................... 3 Apache Trusts......................... 3 Ratios of Earnings to Fixed Charges and to Combined Fixed Charges and Preferred Stock Dividends........... 4 Use of Proceeds....................... 5 The Securities Apache and the Apache Trusts May Offer.................... 5 Description of Capital Stock.......... 7 Description of Depositary Shares...... 15 Description of Debt Securities........ 18 Description of Trust Preferred Securities.......................... 32 Description of Trust Preferred Securities Guarantees............... 38 Description of Common Stock Purchase Contracts and Units................. 41 Book-Entry Securities................. 41 Plan of Distribution.................. 43 Legal Matters......................... 44 Experts............................... 44
------------------------ ABOUT THIS PROSPECTUS SUPPLEMENT This document is in two parts. The first part is this prospectus supplement, which describes the terms of the offering of common stock. The second part is the accompanying prospectus, which contains a description of the common stock and gives more general information, some of which may not apply to the common stock. You should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus. If the information in this prospectus supplement varies from the information contained or incorporated by reference in the accompanying prospectus, you should rely on the information in this prospectus supplement. No person is authorized to provide you with different information or to offer the common stock in any jurisdiction where the offer is not permitted. You should not assume that the information provided by this prospectus supplement, the accompanying prospectus or in any document incorporated by reference is accurate as of any date other than the date of the document that contains the information. ii PROSPECTUS SUPPLEMENT SUMMARY This summary highlights selected information about us and this offering. This summary is not complete and does not contain all of the information that is important to you. You should carefully read this prospectus supplement, the accompanying prospectus and the other documents we refer to and incorporate by reference for a more complete understanding of us and this offering. In particular, we incorporate important business and financial information in this prospectus supplement and the accompanying prospectus by reference. Unless otherwise indicated, all information in this prospectus supplement assumes that the underwriters do not exercise their over-allotment option. Unless otherwise stated, the dollar amounts and financial data contained in this prospectus supplement and the accompanying prospectus are presented in U.S. dollars. Unless this prospectus supplement otherwise indicates or the context otherwise requires, the terms "we," "our," "us" or "Apache" as used in this prospectus supplement refer to Apache Corporation. APACHE CORPORATION Apache Corporation is an independent energy company that, directly and through subsidiaries, explores for, acquires and develops oil and gas reserves and produces natural gas, crude oil, condensate and natural gas liquids. In North America, our exploration and production interests are focused on the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast and the Western Sedimentary Basin of Canada. Outside North America, we currently have exploration and production interests offshore Western Australia, Argentina and in Egypt and exploration interests in Poland and offshore The People's Republic of China. Through September 30, 2002, our average daily production was: -- 162 Mbbls of crude oil, condensate and natural gas liquids; and -- 1,082 MMcf of natural gas. As of December 31, 2001, our worldwide proved reserves totaled 1,267 MMboe, including: -- 599 MMbbls of crude oil, condensate and natural gas liquids; and -- 4,005 Bcf of natural gas. STRATEGY Our strategy is to increase our oil and gas reserves, production, cash flow and earnings through a balanced growth program that involves: -- exploiting our existing asset base; -- acquiring properties to which we can add incremental value; and -- investing in high-potential exploration prospects. Exploiting Our Existing Asset Base. We seek to maximize the value of our existing asset base by increasing production and reserves while controlling per unit operating costs. In order to achieve these objectives, we rigorously examine our operations to reduce costs, identify production enhancement initiatives such as workovers and recompletions employing new technology, and divest marginal and non-strategic properties. Acquiring Properties To Which We Can Add Incremental Value. Generally, we seek to purchase reserves at appropriate prices by avoiding auction processes where we are competing with other buyers and timing our acquisitions to avoid the peak of the price cycle. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, thereby facilitating asset growth and debt reduction. During the past decade, we have consistently succeeded in adding value to acquired properties through this strategy. We made acquisitions totaling $1.4 billion, $1.2 billion and approximately $355 million, and acquired proved reserves of 253.8 MMboe, 212.6 MMboe and approximately 50 MMboe, in 2000, 2001 and 2002, respectively. We believe that the current environment is favorable for possible additional acquisitions. We continue to evaluate attractive opportunities. Any future acquisitions would be subject to a S-1 number of conditions, including conditions beyond our control, and there can be no assurance that we will enter into or actually consummate any such transactions. Investing In High-Potential Exploration Prospects. Our international investments and exploration activities are a significant component of our long-term growth strategy. They complement our North American operations, which are more development oriented. We seek to concentrate our exploratory investments in a select number of international areas and to become a dominant operator in those regions. We believe that these investments, although higher-risk, offer the potential for significant reserve additions. A critical component in implementing our three-pronged growth strategy is maintenance of significant financial flexibility. We are committed to preserving a strong balance sheet and credit position to give us the foundation required to pursue our growth initiatives. RECENT DEVELOPMENTS Pending Transactions with BP p.l.c. On January 11, 2003, we signed two purchase and sales agreements with subsidiaries of BP p.l.c., which we refer to collectively as "BP," to purchase their interests in 61 producing fields, including 113 blocks in the Gulf of Mexico and two producing fields in the North Sea. We will operate 36 of the producing fields in the Gulf of Mexico and both of the producing fields in the North Sea. Each of the purchase agreements is effective as of January 1, 2003. We anticipate the purchase of the Gulf of Mexico properties will close late in the first quarter of 2003, and the purchase of the North Sea properties will close late in the second quarter of 2003. The total purchase price for all of the assets being acquired is $1.3 billion, with $670 million allocated to the purchase of the Gulf of Mexico assets and $630 million allocated to the North Sea assets. The actual price payable upon the closing of each purchase will be reduced by the net cash flow attributable to the acquired fields, and increased by interest on the purchase price, from January 1, 2003, until the date of closing. The purchase price will also be subject to customary closing adjustments. Owners of working interests in certain Gulf of Mexico properties have preferential purchase rights which, if exercised, would reduce the interests we purchase in those properties and the purchase price we would pay. Neither acquisition is conditional upon the consummation of the other acquisition. The properties we are acquiring from BP in the Gulf of Mexico complement our extensive existing reserves and production in the Gulf, while the North Sea properties establish a new core area for us. Of the Gulf of Mexico properties we will acquire, most of the working interests exceed 50 percent, 19 of the fields are owned 100 percent and approximately 70 percent of the production will be operated by us. We are acquiring a 96 percent working interest in, and will be the operator of, the North Sea properties. We estimate that the properties we will acquire in the BP transactions had proved reserves as of January 1, 2003 of: -- 186.5 MMbbls of crude oil and natural gas liquids; and -- 279.9 Bcf of natural gas. Using the conventional equivalence of one barrel of oil to six Mcf of gas, these estimated proved reserves totaled 233.2 MMboe and were approximately 80 percent oil and 20 percent gas. Approximately 93 percent of these estimated proved reserves are developed reserves. We also estimate that 21 percent of the total oil reserves and 100 percent of the reserves of natural gas are in the Gulf of Mexico properties. The 2003 production estimates used to value the acquisition were: -- 65.5 Mbbls per day of crude oil and natural gas liquids; and -- 197.6 MMcf per day of natural gas. S-2 The estimates mentioned in the preceding three paragraphs are based on our analysis of historical production data, assumptions regarding capital expenditures and anticipated production declines. The reserves and average daily production attributable to the BP transactions are based solely on our internal estimates and have not been reviewed by our independent reserve engineers. There is no assurance that the BP transactions will be completed or, if completed, that our estimates of reserves and average daily production will prove correct. In order to preserve our strong financial position in a period of cyclically high gas and oil prices, we hedged 40.8 MMbbls of oil at an average price of $24.78 per Bbl and 70 Bcf of natural gas at an average price of $4.55 per MMbtu through 2004. We have agreed to sell all of the North Sea production from those properties over the next two years to BP at a combination of fixed and market sensitive prices pursuant to a contract entered into in connection with the North Sea purchase agreement. The fixed price portion of our contract with BP is included in the 40.8 MMbbl oil hedge. The BP transactions have received all necessary corporate approvals, and are not conditioned upon financing, but are subject to customary closing conditions, regulatory approvals under the U.S. Hart-Scott-Rodino Act and, in the case of the North Sea properties, U.K. regulatory and other approvals. Completed Acquisitions. A significant part of our growth strategy is to increase oil and gas reserves, production and cash flow through an active acquisition program. Apache has consummated several acquisitions since January 1, 2002. In December 2002, Apache completed the acquisition of certain South Louisiana properties comprising 234,000 net acres (366 square miles) with estimated net proved reserves of 30 MMboe, 88 percent of which is estimated to be natural gas, for approximately $260 million, subject to normal post-closing adjustments. The acquisition also includes 135 producing wells and access to 849 square miles of 3-D seismic data covering the relatively contiguous acreage position. Based on our analysis of historical production rates, assumptions regarding capital expenditures and anticipated production declines, we anticipate 2003 net daily production to approximate 55 MMcf of natural gas and 2,100 barrels of oil. We also entered into a separate exploration joint venture with the seller whereby the seller will actively generate prospects on certain South Louisiana acreage for a total cost of $25 million over a two year period. We have also completed several smaller acquisitions since January 1, 2002, for an aggregate of approximately $95 million. Together, these acquisitions include proved reserves of approximately 20 MMboe. 2002 Drilling Results. During 2002, we completed 1,018 gross wells as producers out of a total of 1,089 gross wells drilled. In the fourth quarter of 2002, we announced our fourth deep water discovery on our West Mediterranean concession offshore Egypt, and a new discovery in our Ras El Hekma concession in Egypt. These wells were, respectively, the 10th and 11th discoveries for us in Egypt and our 15th and 16th discoveries worldwide for the year. ------------------------ Our executive offices are located at 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056, and our telephone number is (713) 296-6000. S-3 THE OFFERING Common stock offered.......... 6,200,000 shares Common stock to be outstanding after this offering........... 150,250,678 shares Use of proceeds............... We expect that our net proceeds from the offering will be approximately $337.5 million, assuming an offering price of $56.60 per share and after deducting underwriting discounts and commissions and estimated expenses of the offering payable by us. We intend to use the net proceeds from the offering, together with cash on hand, net cash generated from operations and short-term and long-term borrowings, to fund the cash requirements of the pending BP transactions. Pending such use, we will use the net proceeds to repay indebtedness under our commercial paper facilities and our money market lines of credit in the ordinary course of business or to make short-term investments. We will use any net proceeds not used to finance the BP transactions for general corporate purposes. Dividends..................... On December 18, 2002, we announced that our board of directors had declared a special 5 percent dividend, payable in shares of our common stock, which will be paid on April 2, 2003, to shareholders of record on March 12, 2003. The board also declared the regular cash dividend on our common stock of $.10 per share. The cash dividend will be paid on February 21, 2003, to shareholders of record on January 22, 2003. Purchasers of our common stock in this offering who own their shares at the close of business on the applicable record date will be entitled to receive the common stock and cash dividends. Risk factors.................. See "Risk Factors" and other information included in this prospectus supplement for a discussion of factors you should carefully consider before deciding to invest in shares of the common stock. New York and Chicago Stock Exchange symbol............... APA The number of shares of our common stock to be outstanding after the offering is based on 144,050,678 shares outstanding as of December 31, 2002, and excludes: -- 4,010,789 shares of treasury stock, of which 1,597,272 shares are reserved for issuance under one of our stock option plans (of which options to purchase 1,392,705 shares at an average exercise price of $52.43 per share are outstanding), 450,000 shares are reserved for certain restricted stock grants and 345,269 shares are reserved for issuance under our deferred delivery plan; -- 4,305,652 shares of common stock reserved for issuance under our stock option plans, of which options to purchase 4,001,778 shares at an average exercise price of $37.02 per share are outstanding; -- 3,927,065 shares reserved for issuance under our deferred delivery plan and for certain additional stock grants; and -- the shares issuable as a result of the 5 percent common stock dividend declared on December 18, 2002. S-4 SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA We have provided in the tables below our selected financial and operating data. The financial information for each of the years in the three-year period ended December 31, 2001, and at December 31, 1999, 2000 and 2001, has been derived from our audited financial statements. The financial information for the nine-month periods ended September 30, 2001 and 2002, and at September 30, 2001 and 2002, has been derived from our unaudited financial statements. In our management's opinion, these unaudited financial statements have been prepared on the same basis as our audited financial statements except as noted below. You should read the following financial information in conjunction with our consolidated financial statements and related notes that we have incorporated by reference in the accompanying prospectus.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1999(1) 2000(2) 2001(3) 2001 2002 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) INCOME STATEMENT DATA: Total revenues(4)........... $ 1,146,553 $ 2,283,904 $ 2,777,126 $ 2,272,113 $ 1,829,500 Net income.................. 200,855 713,056 723,399 644,779 373,510 Income attributable to common stock.............. 186,406 693,068 703,798 630,086 364,115 Net income per common share: Basic(5).................. 1.57 5.34 5.13 4.59 2.59 Diluted(6)................ 1.56 5.16 4.97 4.43 2.55 Cash dividends declared per common share(7)........... .25 .19 .35 .25 .30 Net cash provided by operating activities...... 638,174 1,529,386 1,934,727 1,527,964 1,009,269 BALANCE SHEET DATA (AT END OF PERIOD): Working capital............. $ 6,290 $ 76,673 $ 175,291 $ 88,214 $ 369,208 Total assets................ 5,502,543 7,481,950 8,933,656 9,066,735 9,248,709 Long-term debt.............. 1,879,650 2,193,258 2,244,357 2,311,512 2,163,182 Shareholders' equity........ 2,669,427 3,754,640 4,418,483 4,398,202 4,761,160 Common shares outstanding(8)............ 125,396,110 135,998,223 137,103,179 137,090,273 143,966,713
- ------------ (1) Includes the results of the acquisitions of certain oil and gas properties from Petsec Energy Inc., Shell Offshore Inc. and affiliated Shell entities, British-Borneo Oil & Gas Plc and Shell Canada Limited after February 1, 1999, May 18, 1999, June 18, 1999 and November 30, 1999, respectively. (2) Includes the results of the acquisitions of certain oil and gas properties from Repsol, Collins & Ware, Occidental and Phillips after January 24, 2000, June 30, 2000, August 17, 2000, and December 29, 2000, respectively. (3) Includes the results of the acquisitions of certain oil and gas properties from Repsol YPF and Fletcher Challenge Energy after March 22, 2001, and March 27, 2001, respectively. (4) As a result of the consensus on Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," for the nine months ended September 30, 2002, third party gathering and transportation costs in the amount of $27.5 million have been reported as an operating expense instead of a reduction to revenues as previously reported. A reclassification has been made to reflect this change for the nine months ended September 30, 2001, resulting in an increase in reported revenue and operating expense for that period of $24.1 million. The change has no impact on income attributable to common stock. The income statement data for each of the years in the three-year period ended December 31, 2001, do not reflect the reclassification and report third party gathering and transportation costs as a reduction of revenues. For 1999, 2000 and 2001, the reclassification would result in an increase in reported revenue and operating expense of $15.1 million, $18.1 million and $32.3 million, respectively, with no impact on income attributable to common stock. S-5 (5) Does not take into account the 5 percent common stock dividend declared in December 2002. If the effects of the dividend had been taken into account, Net income per common share -- Basic would have been $1.50, $5.09 and $4.89 for the years ended December 31, 1999, 2000 and 2001, respectively, and $4.37 and $2.47 for the nine month periods ended September 30, 2001 and 2002, respectively. (6) Does not take into account the 5 percent stock common dividend declared in December 2002. If the effects of the dividend had been taken into account, Net income per common share -- Diluted would have been $1.49, $4.91 and $4.73 for the years ended December 31, 1999, 2000 and 2001, respectively, and $4.22 and $2.43 for the nine month periods ended September 30, 2001 and 2002, respectively. (7) Does not take into account the 5 percent common stock dividend declared in December 2002. If the effects of the dividend had been taken into account, Cash dividends per common share would have been $.24, $.18 and $.33 for the years ended December 31, 1999, 2000 and 2001, respectively, and $.24 and $.29 for the nine month periods ended September 30, 2001 and 2002, respectively. (8) Does not take into account the 5 percent common stock dividend declared in December 2002. If the effects of the dividend had been taken into account, common shares outstanding would have been 131,665,916 shares, 142,798,134 shares and 143,958,338 shares for the years ended December 31, 1999, 2000 and 2001, respectively, and 143,944,787 shares and 151,165,049 shares for the nine month periods ended September 30, 2001 and 2002, respectively.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------- ----------------------- 1999 2000 2001 2001 2002 -------- ---------- ---------- ---------- ---------- OPERATING DATA: Proved reserves: Oil (Mbbls)(1).................. 415,242 522,473 599,388 Natural gas (Bcf)............... 2,352 3,384 4,005 Total proved reserves (Mboe)(2).................. 807,172 1,086,418 1,266,943 Reserves outside North America (% of total)................. 27% 20% 25% Reserve replacement ratio(3).... 360% 393% 244% Reserve life index (years)(4)... 10.8 11.4 10.1 Finding and development costs per Boe(2)(5)................ $ 5.79 $ 5.65 $ 5.64 Average daily production: Oil (Mbbls/day)(1).............. 95 122 156 152 162 Natural gas (MMcf/day).......... 656 831 1,127 1,115 1,082 Total production (Mboe/day)(2).............. 204 261 344 338 343 Average lease operating costs per Boe(2).......................... $ 2.56 $ 2.68 $ 3.24 $ 3.20 $ 3.67
- ------------ (1) Includes crude oil, condensate and natural gas liquids. (2) 6 Mcf of natural gas = 1 Boe. (3) Total reserve additions for the period, including revisions and net of property sales, divided by annual production. (4) Total proved reserves at period end divided by annual production. (5) Total capitalized costs incurred for the period, excluding capitalized interest and property sales, divided by total reserve additions for the period, including revisions. S-6 RISK FACTORS Before making an investment in shares of our common stock, you should carefully consider the risks described below, as well as the information included or incorporated by reference in this prospectus supplement and the accompanying prospectus. In addition, please read "Special Note Regarding Forward-Looking Statements" in this prospectus supplement, where we describe additional uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this prospectus supplement and the accompanying prospectus. REPERCUSSIONS FROM THE TERRORIST ACTS COMMITTED IN THE UNITED STATES COULD HARM OUR BUSINESS OPERATIONS AND ADVERSELY IMPACT OUR ABILITY TO MEET OUR EXPECTATIONS AND TO FULFILL OTHER FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. The terrorist attacks on September 11, 2001, have caused instability in the world's markets. There can be no assurance that the current armed hostilities will not escalate or that these terrorist attacks, or the United States' responses to them, will not lead to further acts of terrorism and civil disturbances in the United States or elsewhere, which may further contribute to the economic instability in the United States and the other regions in which we operate. Armed conflict, civil unrest, additional terrorist activities and the attendant political instability and societal disruption may reduce demand for our products or disrupt our ability to conduct our exploration, production, development and marketing activities, which could harm our business. OIL AND NATURAL GAS PRICES ARE VOLATILE. VOLATILITY IN OIL AND NATURAL GAS PRICES CAN ADVERSELY AFFECT OUR RESULTS AND THE PRICE OF OUR COMMON STOCK. THIS VOLATILITY ALSO MAKES VALUATION OF OIL AND GAS PRODUCING PROPERTIES DIFFICULT AND CAN DISRUPT MARKETS. Oil and natural gas prices have historically been, and are likely to continue to be, volatile. The prices for oil and natural gas are subject to wide fluctuation in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty, worldwide economic conditions, weather conditions, import prices, political conditions in major oil producing regions, especially the Middle East, and actions taken by OPEC. The prices for oil and natural gas could be significantly affected by the prospect and outcome of war in Iraq, for example. Our quarterly results of operations may fluctuate significantly as a result of variations in oil and natural gas prices and production performance. In recent years, oil and natural gas price volatility has become increasingly severe. You can expect the market price of our common stock to decline when our quarterly results decline or at any time when events actually or potentially adverse to us or the industry occur. Our common stock price may decline to a price below the price you paid to purchase your shares of common stock in this offering. This volatility makes it difficult to estimate with precision the value of producing properties in acquisitions and to budget and project the return on exploration and development projects involving our oil and gas properties. In addition, unusually volatile prices often disrupt the market for oil and gas properties, as buyers and sellers have more difficulty agreeing on the purchase price of properties. A SUBSTANTIAL OR EXTENDED DECLINE IN OIL AND GAS PRICES WOULD HAVE A MATERIAL ADVERSE EFFECT ON US. A substantial or extended decline in oil and gas prices would have a material adverse effect on our financial position, results of operations, quantities of oil and gas that may be economically produced, and access to capital. A significant decrease in price levels for an extended period would negatively affect us in several ways: -- our cash flow would be reduced, decreasing funds available for capital expenditures employed to replace reserves or increase production; -- certain reserves would no longer be economic to produce, leading to both lower proved reserves and cash flow; and S-7 -- access to other sources of capital, such as equity or long-term debt markets, could be severely limited or unavailable. Consequently, our revenues and profitability would suffer. OUR ABILITY TO SELL OUR OIL AND GAS PRODUCTION COULD BE MATERIALLY HARMED IF WE FAIL TO OBTAIN ADEQUATE SERVICES SUCH AS TRANSPORTATION AND PROCESSING. The sale of our oil and gas production, particularly outside of North America, depends on a number of factors beyond our control, including the availability and capacity of transportation and processing facilities. Our failure to obtain such services on acceptable terms could materially harm our business. WE HAVE RECORDED WRITE-DOWNS BECAUSE OF FULL COST ACCOUNTING RULES AND MAY BE REQUIRED TO DO SO AGAIN IN THE FUTURE. Under the full cost accounting rules of the U.S. Securities and Exchange Commission ("SEC"), we review the carrying value of our proved oil and gas properties each quarter on a country-by-country basis. Under these rules, capitalized costs of proved oil and gas properties--net of accumulated depreciation, depletion and amortization, and deferred income taxes--may not exceed the present value of estimated future net cash flows from proved oil and gas reserves, discounted at 10 percent, plus the lower of cost or fair value of unproved properties included in the costs being amortized, net of related tax effects. These rules generally require pricing future oil and gas production at the unescalated oil and gas prices in effect at the end of each fiscal quarter. They also require a write-down if the "ceiling" is exceeded, even if prices declined for only a short period of time. If oil and gas prices fall significantly, a write-down may occur. Write-downs required by these rules do not impact cash flow from operating activities. THE OIL AND GAS RESERVES DATA WE REPORT ARE ONLY ESTIMATES AND MAY PROVE TO BE INACCURATE. There are numerous uncertainties inherent in estimating quantities of oil and natural gas reserves of any category and in projecting future rates of production and timing of development expenditures, which underlie the reserve estimates, including many factors beyond our control. Reserve data represent only estimates. In addition, the estimates of future net cash flows from our proved reserves and their present value are based upon various assumptions about future production levels, prices and costs that may prove to be incorrect over time. Any significant variance from the assumptions could result in the actual quantity of our reserves and future net cash flows from them being materially different from the estimates. In addition, our estimated reserves may be subject to downward or upward revision based upon production history, results of future exploration and development, prevailing oil and gas prices, operating and development costs and other factors. At December 31, 2001, approximately 24 percent of our estimated proved reserves were undeveloped. Recovery of undeveloped reserves generally requires significant capital expenditures and successful drilling operations. The reserve data assumes that we can and will make these expenditures and conduct these operations successfully, which may not occur. IF WE FAIL TO ACQUIRE OR FIND ADDITIONAL RESERVES, OUR RESERVES AND PRODUCTION WILL DECLINE MATERIALLY FROM THEIR CURRENT LEVELS. The rate of production from oil and gas properties generally declines as reserves are depleted. Except to the extent that we acquire additional properties containing proved reserves, conduct successful exploration and development activities, successfully apply new technologies or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our proved reserves will decline materially as reserves are produced. Future oil and gas production is, therefore, highly dependent upon our level of success in acquiring or finding additional reserves. S-8 WE INCUR SUBSTANTIAL COSTS TO COMPLY WITH GOVERNMENT REGULATIONS, ESPECIALLY REGULATIONS RELATING TO ENVIRONMENTAL PROTECTION, AND COULD INCUR EVEN GREATER COSTS IN THE FUTURE. Our exploration, production, development and marketing operations are regulated extensively at the federal, state and local levels, as well as by other countries in which we do business. We have made and will continue to make large expenditures in our efforts to comply with the requirements of environmental and other regulations. Further, the oil and gas regulatory environment could change in ways that might substantially increase these costs. Hydrocarbon-producing states regulate conservation practices and the protection of correlative rights. These regulations affect our operations and limit the quantity of hydrocarbons we may produce and sell. In addition, at the U.S. federal level, the Federal Energy Regulatory Commission regulates interstate transportation of natural gas under the Natural Gas Act. Other regulated matters include marketing, pricing, transportation and valuation of royalty payments. As an owner or lessee and operator of oil and gas properties, we are subject to various federal, state, local and foreign regulations relating to discharge of materials into, and protection of, the environment. These regulations may, among other things, impose liability on us for the cost of pollution clean-up resulting from operations, subject us to liability for pollution damages, and require suspension or cessation of operations in affected areas. Changes in or additions to regulations regarding the protection of the environment could hurt our business. One of the responsibilities of owning and operating oil and gas properties is paying for the cost of abandonment. Upon closing of our acquisition of the North Sea properties, we have agreed to assume BP's abandonment obligation for those properties, the cost of which we took into consideration in determining the purchase price. Effective January 1, 2003, exploration and production companies are required to reflect abandonment costs as a liability on their balance sheets. Our purchase of the North Sea properties does not relieve BP of its liabilities if we do not satisfy our abandonment obligation. To ensure our payment of those costs, we have agreed to deliver a letter of credit to BP if the rating of our senior unsecured debt is lowered by both Moody's and Standard & Poor's. Any such letter of credit would be in an amount equal to the net present value of future abandonment costs of the North Sea properties as of the date of any such ratings change. If we are obligated to provide a letter of credit, it will expire if either rating agency restores its rating to the present level. OUR BUSINESS COULD BE HARMED BY COMPETITION WITH OTHER COMPANIES. The oil and gas industry is highly competitive, and our business could be harmed by competition with other companies. Because oil and gas are fungible commodities, our principal form of competition is price competition. We strive to maintain the lowest finding and production costs possible to maximize profits. In addition, as an independent oil and gas company, we frequently compete for reserve acquisitions, exploration leases, licenses, concessions and marketing agreements against companies with financial and other resources substantially larger than we possess. Many of our competitors have established strategic long-term positions and maintain strong governmental relationships in countries in which we may seek new entry. WE DO NOT INSURE AGAINST ALL POTENTIAL LOSSES AND COULD BE SERIOUSLY HARMED BY UNEXPECTED LIABILITIES. Exploration for and production of oil and natural gas can be hazardous, involving natural disasters and other unforeseen occurrences such as blowouts, cratering, fires and loss of well control, which can damage or destroy wells or production facilities, injure or kill people, and damage property and the environment. We maintain insurance against many potential losses or liabilities arising from our operations in accordance with customary industry practices and in amounts that we believe to be prudent. However, our insurance does not protect us against all operational risks. S-9 OUR HEDGING ACTIVITIES MAY PREVENT US FROM BENEFITING FROM PRICE INCREASES AND MAY EXPOSE US TO OTHER RISKS. To the extent that we engage in hedging activities, we may be prevented from realizing the benefits of price increases above the levels of the hedges. In addition, we are subject to risks associated with differences in prices at different locations, particularly where transportation constraints restrict our ability to deliver oil and gas volumes to the delivery point to which the hedging transaction is indexed. THE PENDING BP TRANSACTIONS MIGHT NOT BE CONSUMMATED AS EXPECTED. The BP transactions have received all necessary corporate approvals and are not conditioned upon financing, but are subject to customary closing conditions, regulatory approvals under the U.S. Hart-Scott-Rodino Act and, in the case of the North Sea properties, U.K. regulatory and other approvals. We expect to satisfy those remaining conditions. Owners of other working interests in certain of the Gulf of Mexico properties have preferential rights to purchase portions of the interests we expect to acquire from BP that, if exercised, would reduce the interests we purchase in those fields and the purchase price we would pay. While we expect that the BP transactions will be closed and funded, we cannot be sure that the transactions will be completed. WHEN WE ACQUIRE OIL AND GAS PROPERTIES, SUCH AS THOSE FROM BP, OUR FAILURE TO FULLY IDENTIFY AND CORRECTLY EVALUATE POTENTIAL PROBLEMS, TO PROPERLY ESTIMATE RESERVES OR PRODUCTION RATES OR COSTS, OR TO EFFECTIVELY INTEGRATE THE ACQUIRED OPERATIONS COULD SERIOUSLY HARM US. We are actively engaged in acquiring oil and gas properties. When we acquire properties, such as those from BP, our failure to fully identify potential problems, to properly estimate reserves or production rates or costs, or to effectively integrate the acquired operations could seriously harm us. Although we perform reviews of acquired properties and applicable records and contracts that we believe are consistent with industry practices, we do not review in depth every individual property involved in each acquisition. Ordinarily we focus on higher-value properties and sample the remainder. However, even a detailed review of properties and applicable records and contracts may not necessarily reveal existing or potential problems, nor will it permit us to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken. Our review may not sufficiently identify or evaluate applicable contracts under which third parties may assert preferential rights to purchase some of the properties that we believe we have acquired, rights to change or contest the operatorship of acquired properties, or rights with respect to acquired properties under agreements providing for areas of mutual interest. Even when we identify such third party rights, we may not correctly evaluate their applicability or potential consequences because of uncertain legal standards and for other reasons. Even when problems are identified, we often assume environmental and other risks and liabilities in connection with acquired properties. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual future production rates and associated costs with respect to acquired properties. Actual results may vary substantially from those assumed in the estimates. In addition, acquisitions may have adverse effects on our operating results, particularly during the periods in which the operations of acquired businesses are being integrated into our ongoing operations. OUR NON-U.S. OPERATIONS, ESPECIALLY IN DEVELOPING COUNTRIES, ARE SUBJECT TO INCREASED RISKS AND UNCERTAINTIES. Our non-U.S. oil and natural gas exploration, development and production activities are subject to: -- political and economic uncertainties, including, among others, changes, sometimes frequent or marked, in governmental energy policies or the personnel administering them; -- expropriation of property; S-10 -- cancellation or modification of contract rights; -- foreign exchange restrictions; -- currency fluctuations; -- risks of loss due to civil strife, acts of war, guerrilla activities and insurrection; -- royalty and tax increases; and -- other risks arising out of foreign governmental sovereignty over the areas in which our operations are conducted. These risks may be higher in the developing countries in which we conduct these activities. Consequently, our non-U.S. exploration, development and production activities may be substantially affected by factors beyond our control, any of which could materially adversely affect our financial position or results of operations. Furthermore, in the event of a dispute arising from our non-U.S. operations, we may be subject to the exclusive jurisdiction of courts outside the United States or may not be successful in subjecting non-U.S. persons to the jurisdiction of the courts in the United States, which could adversely affect the outcome of the dispute. A DECLINE IN THE CONDITION OF THE CAPITAL MARKETS OR A SUBSTANTIAL RISE IN INTEREST RATES COULD HARM US. If the condition of the capital markets utilized by us to finance our operations materially declines, we might not be able to finance our operations on terms we consider acceptable. In addition, a substantial rise in interest rates would decrease our net cash flows. ADVERSE CHANGES IN THE EXCHANGE RATES WITH SOME FOREIGN CURRENCIES COULD HARM US. Our cash flow stream relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. Australian gas production is sold under fixed-price Australian dollar contracts and over half the costs incurred are paid in Australian dollars. Revenue and disbursement transactions denominated in Australian dollars are converted to U.S. dollar equivalents based on the exchange rate on the transaction date. Reported cash flow relating to Canadian operations is based on cash flows measured in Canadian dollars converted to the U.S. dollar equivalent based on the average of the Canadian and U.S. dollar exchange rates for the period reported. Substantially all of our international transactions, outside of Canada and Australia, are denominated in U.S. dollars. A decrease in value of 10 percent in the Canadian dollar, the Australian dollar and Polish zloty relative to the U.S. dollar from the September 30, 2002 exchange rates would result in a foreign currency loss of approximately $16.0 million, based on September 30, 2002 amounts. The U.S. and Canadian energy markets continue to evolve into a single energy market. In light of this continuing transformation, we adopted the U.S. dollar as our functional currency in Canada, effective October 1, 2002. The U.S. dollar is now the functional currency for all our foreign operations. SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE. If our existing stockholders sell a large number of shares of our common stock or the public market perceives that existing stockholders might sell shares of common stock, the market price of our common stock could significantly decline. All of the shares offered by this prospectus supplement and the accompanying prospectus will be freely tradable without restriction or further registration under the federal securities laws unless purchased by an "affiliate," as that term is defined in Rule 144 under the Securities Act of 1933. The outstanding shares subject to lock-up agreements between certain of our directors and executive officers and the underwriters may be sold 90 days after the effective date of this offering, except as noted in "Underwriting." S-11 OUR STOCKHOLDER RIGHTS PLAN, CHARTER, BYLAWS, DELAWARE LAW AND OUR DEBT SECURITIES DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS AND COULD PREVENT YOU FROM REALIZING A PREMIUM FOR YOUR COMMON STOCK. We have a stockholder rights plan that may have the effect of discouraging unsolicited takeover proposals. The rights issued under the stockholder rights plan would cause substantial dilution to a person or group that attempts to acquire us on terms not approved in advance by our board of directors. In addition, our charter, bylaws, Delaware law and our debt securities contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. The stockholder rights plan and these provisions are described in "Description of Capital Stock--Stockholder Rights Plan" beginning on page 11 of the accompanying prospectus, and in "--Anti-Takeover Effect of Provisions of Apache's Charter and Bylaws and Delaware Law" beginning on page 13 of the accompanying prospectus. Our obligation to purchase our debt securities upon a change in control is described in "Description of Debt Securities--We Are Obligated to Purchase Debt Securities Upon a Change in Control" beginning on page 27 of the accompanying prospectus. Together these provisions and the stockholder rights plan may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for your common stock. INVESTORS IN OUR SECURITIES MAY ENCOUNTER DIFFICULTIES IN OBTAINING, OR MAY BE UNABLE TO OBTAIN, RECOVERIES FROM ARTHUR ANDERSEN WITH RESPECT TO ITS AUDITS OF OUR FINANCIAL STATEMENTS. On March 14, 2002, our previous independent public accountant, Arthur Andersen LLP, was indicted on federal obstruction of justice charges arising from the federal government's investigation of Enron Corp. On June 15, 2002, a jury returned with a guilty verdict against Arthur Andersen following a trial. As a public company, we are required to file with the SEC periodic financial statements audited or reviewed by an independent public accountant. On March 29, 2002, we decided not to engage Arthur Andersen as our independent auditors, and engaged Ernst & Young LLP to serve as our new independent auditors for 2002. However, we are incorporating in this prospectus supplement and the accompanying prospectus financial statements for 2001, 2000 and 1999 that were audited by Arthur Andersen. Investors in our securities may encounter difficulties in obtaining, or be unable to obtain, from Arthur Andersen with respect to its audits of our financial statements relief that may be available to investors under the federal securities laws against auditing firms. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus supplement, the accompanying prospectus, and the documents incorporated herein and therein by reference contain statements that constitute "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. All statements other than statements of historical facts, including, without limitation, those relating to our future financial position, business strategy, budgets, reserve information, projected levels of production, projected costs and plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "anticipate," "estimate," "intend," "plan," "believe" and similar expressions are intended to identify forward-looking statements. Although we believe our expectations reflected in forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, among others: -- the market prices of oil and gas; -- uncertainty of drilling results, reserve estimates and reserve replacement; -- operating uncertainties and hazards; -- economic and competitive conditions; S-12 -- natural disasters and other changes in business conditions; -- inflation rates; -- legislative and regulatory changes; -- financial market conditions; -- accuracy, completeness and veracity of information received from BP; -- wars and acts of terrorism or sabotage; -- political and economic uncertainties of foreign governments; and -- future business decisions. Additional factors are discussed under "Risk Factors" beginning on page S-7 of this prospectus supplement. In light of these risks, uncertainties and assumptions, the events anticipated by our forward-looking statements might not occur. We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise. USE OF PROCEEDS We estimate the net proceeds from the offering of common stock to be approximately $337.5 million, or $388.2 million if the underwriters' over-allotment option is exercised in full, assuming an offering price of $56.60 per share and after deducting underwriting discounts and commissions and estimated expenses of the offering payable by us. We intend to use the net proceeds from the offering, together with cash on hand, net cash generated from operations and short-term and long-term borrowings, to fund the cash requirements of the pending BP transactions. Pending such use, we will use the net proceeds of the offering to repay indebtedness under our commercial paper facilities and our money market lines of credit in the ordinary course of our business or to make short-term investments. The amount of repayment of indebtedness will depend, in part, on the closing of the BP transactions. We will use any net proceeds not used to finance the BP transactions for general corporate purposes. As of December 31, 2002, we had $271.4 million face amount of commercial paper discounted at an average weighted rate of 1.35 percent per annum and $8.9 million principal amount outstanding under our money market lines of credit bearing interest at a variable rate of LIBOR plus 15 basis points. S-13 CAPITALIZATION The following table sets forth, as of September 30, 2002, our cash and cash equivalents and capitalization on: -- an actual basis; and -- an as adjusted basis giving effect to our receipt of the estimated net proceeds from the sale of the shares we are selling in the offering and the application of the net proceeds pending the closing of the BP transactions. The as adjusted cash and cash equivalents and capitalization amounts assume that the over-allotment option is not exercised. The as adjusted amounts do not reflect the effects of our acquisitions in the fourth quarter of 2002, which are not material to our capitalization, or the financing of the pending BP transactions. The as adjusted amounts are based on a common stock per share price of $56.60, which was the last reported sale price of our common stock on the New York Stock Exchange on January 10, 2003. The table should be read in conjunction with our consolidated financial statements and related notes incorporated by reference in this prospectus supplement and the accompanying prospectus.
AS OF SEPTEMBER 30, 2002 ------------------------ ACTUAL AS ADJUSTED ---------- ----------- (UNAUDITED) (IN THOUSANDS) Cash and Cash Equivalents.................................. $ 167,471 $ 220,167 ========== ========== Total Debt: Apache: 7.95% notes due 2026..................................... $ 178,609 $ 178,609 7.625% debentures due 2096............................... 149,175 149,175 7.625% notes due 2019.................................... 149,127 149,127 7.375% debentures due 2047............................... 148,009 148,009 7.7% notes due 2026...................................... 99,659 99,659 7.0% notes due 2018...................................... 148,432 148,432 6.25% notes due 2012..................................... 397,255 397,255 Money market lines of credit and commercial paper........ 284,800 -- Subsidiary and other obligations: Apache Finance Australia 6.5% notes due 2007............. 169,228 169,228 Apache Finance Australia 7.0% notes due 2009............. 99,521 99,521 Apache Finance Canada 7.75% notes due 2029............... 297,011 297,011 Fletcher Notes........................................... 5,356 5,356 Apache Clearwater, Inc. ................................. 37,000 37,000 ---------- ---------- Total debt....................................... 2,163,182 1,878,382 ---------- ---------- Preferred Interests of Subsidiaries........................ 436,415 436,415 ---------- ---------- Shareholders' Equity: Series B preferred stock................................. 98,387 98,387 Common stock............................................. 184,974 192,724 Paid-in capital.......................................... 3,038,248 3,367,994 Retained earnings........................................ 1,658,081 1,658,081 Treasury stock........................................... (110,616) (110,616) Accumulated other comprehensive income................... (107,914) (107,914) ---------- ---------- Total shareholders' equity....................... 4,761,160 5,098,656 ---------- ---------- Total capitalization............................. $7,360,757 $7,413,453 ========== ==========
S-14 PRICE RANGE OF COMMON STOCK Our common stock is listed for trading on the New York Stock Exchange and the Chicago Stock Exchange under the symbol "APA." The following table sets forth on a per share basis the high and low sales prices for our common stock for the quarters indicated. Prices shown are from the New York Stock Exchange Composite Transactions Reporting System.
HIGH LOW -------- -------- 2000: First Quarter............................................. $46.8181 $29.2045 Second Quarter............................................ 55.9090 40.0000 Third Quarter............................................. 61.5341 42.1591 Fourth Quarter............................................ 67.4432 46.8182 2001: First Quarter............................................. $66.2500 $49.2727 Second Quarter............................................ 60.7272 43.6818 Third Quarter............................................. 49.4454 34.7727 Fourth Quarter............................................ 50.1182 36.9000 2002: First Quarter............................................. $ 58.20 $ 44.36 Second Quarter............................................ 60.09 52.57 Third Quarter............................................. 59.99 45.07 Fourth Quarter............................................ 60.64 49.44
On January 10, 2003, the last reported sale price for our common stock on the New York Stock Exchange was $56.60 per share. Stockholders should obtain current market quotations before making any decision with respect to an investment in our common stock. At December 31, 2002, there were 144,050,678 shares of our common stock outstanding, held by approximately 9,000 shareholders of record. Prices shown and shares outstanding exclude the shares issuable as a result of the 5 percent stock dividend declared on December 18, 2002. DIVIDEND POLICY We have paid cash dividends on our common stock for 36 consecutive years through December 31, 2002. We increased the annual stock dividend to $.40 per share in 2002. On December 18, 2002, we declared a special 5 percent common stock dividend to be paid on April 2, 2003, to stockholders of record on March 12, 2003. We also declared a cash dividend on our common stock of $.10 per share to be paid on February 21, 2003, to stockholders of record on January 22, 2003. Although we expect to continue the payment of dividends at that level, future dividend payments will depend upon our level of earnings, financial requirements and other relevant factors. In December 1995, we declared a dividend of one preferred stock purchase right for each share of our common stock outstanding on January 31, 1996 or issued after that date. These rights are more fully described on pages 11 and 12 of the accompanying prospectus. S-15 MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF COMMON STOCK The following is a summary of material U.S. federal income and estate tax consequences expected to result under current law from the purchase, ownership and taxable disposition of common stock by non-U.S. holders of common stock. A "non-U.S. holder" is any person or entity other than one who is for U.S. federal income tax purposes: -- a citizen or resident of the United States; -- a corporation, partnership or other entity created or organized in or under the laws of the United States or any state thereof; -- an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or -- a trust whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust. This summary does not address all of the U.S. federal income and estate tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances, such as a valid election to be treated as a U.S. person, or to non-U.S. holders that may be subject to special treatment under U.S. federal income tax laws. This summary does not discuss any aspect of state, local or foreign taxation. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended, Treasury regulations, judicial opinions, published positions of the Internal Revenue Service and other applicable authorities, all of which are subject to change, possibly with retroactive effect. In this prospectus supplement, the Internal Revenue Code of 1986, as amended, is called the "Code." Prospective purchasers of common stock are advised to consult their tax advisors regarding the U.S. federal, state and local, and non-U.S. income and other tax consequences of acquiring, holding and disposing of common stock. DIVIDENDS Apache pays cash dividends on its common stock. Any dividends paid to a non-U.S. holder on shares of common stock will be subject to withholding of U.S. federal income tax at a rate of 30 percent, unless a lower rate is prescribed under an applicable tax treaty. U.S. federal income tax withholding will not be required, however, if the dividends are effectively connected with the conduct of a trade or business of the non-U.S. holder within the United States or, in the case of an applicable tax treaty, are attributable to a U.S. permanent establishment maintained by the non-U.S. holder. Dividends that are effectively connected with the conduct of a trade or business within the United States, or are attributable to a U.S. permanent establishment will be subject to U.S. federal income tax on a net income basis which is not collected by withholding provided the non-U.S. holder files the appropriate certification with Apache or its agent. Any dividends received by a foreign corporation that are effectively connected with the conduct of a trade or business within the United States may also be subject to a "branch profits tax" at a rate of 30 percent or such lower rate as may be specified by an applicable tax treaty. For purposes of the withholding tax rules discussed above and for purposes of determining the applicability of a tax treaty rate under current Treasury Regulations, dividends paid to an address outside the United States will be presumed to be paid to a resident of the country of address, unless the payor has knowledge to the contrary. Under Treasury Regulations (referred to as "final regulations") that are effective for payments made after December 31, 2000, a non-U.S. holder of common stock who wishes to claim the benefit of a tax treaty rate is required to satisfy applicable certification and other requirements. In addition, under the final regulations, in the case of common stock held by a foreign partnership: -- the certification requirement is generally applied to the partners of the partnership; and -- the partnership is required to provide certain information, including a U.S. taxpayer identification number. S-16 A non-U.S. holder of common stock that is eligible for a reduced rate of U.S. federal income tax withholding pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the Internal Revenue Service. SALE OR DISPOSITION OF COMMON STOCK A non-U.S. holder generally will not be subject to U.S. federal income tax in respect of any gain recognized on the sale or other taxable disposition of common stock so long as: -- the gain is not effectively connected with the conduct of a trade or business of the non-U.S. holder within the United States and, under an applicable tax treaty, is not attributable to a U.S. permanent establishment maintained by the non-U.S. holder; -- in the case of a non-U.S. holder who is an individual and holds the common stock as a capital asset, either: -- such holder is not present in the United States for 183 or more days during the taxable year of the disposition; or -- such holder does not have a "tax home" in the United States for U.S. federal income tax purposes and such holder does not maintain an office or other fixed place of business in the United States to which such gain is attributable; -- such non-U.S. holder is not subject to tax pursuant to the provisions of U.S. federal income tax law applicable to certain U.S. expatriates; and -- the common stock continues to be "regularly traded on an established securities market" for U.S. federal income tax purposes and the non-U.S. holder has not held, directly or indirectly, at any time during the five-year period ending on the date of disposition (or, if shorter, the non-U.S. holder's holding period) more than five percent of the outstanding common stock. INFORMATION REPORTING AND BACKUP WITHHOLDING Apache must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. holder. These reporting requirements apply regardless of whether withholding was reduced by an applicable tax treaty. Copies of these information returns may also be made available under the provisions of a treaty or information exchange agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Under current law, U.S. backup withholding tax, which is a withholding tax at the applicable statutory rate on certain payments to persons who fail to furnish the information required under U.S. information reporting requirements, generally will not apply to dividends paid on common stock to a non-U.S. holder at an address outside the United States unless the payor has knowledge that the payee is a U.S. person. However, under the final regulations, dividends paid on common stock after December 31, 2000, may be subject to backup withholding unless applicable certification requirements are satisfied. Payment of the proceeds from a sale of common stock to or through a U.S. office of a broker will be subject to information reporting and backup withholding unless the owner certifies as to its status as a non-U.S. holder under penalties of perjury or otherwise establishes an exemption. Payment of the proceeds from a sale of common stock to or through a non-U.S. office of a broker generally will not be subject to information reporting or backup withholding. However, if such broker is a U.S. person, a "controlled foreign corporation" or a foreign person that derives 50 percent or more of its gross income from the conduct of a trade or business in the United States, such payment will be subject to information reporting, but currently not backup withholding, unless such broker has documentary evidence in its records that the owner is a non-U.S. holder and certain other conditions are met or the owner otherwise establishes an exemption. Any amounts withheld under the backup withholding rules will be credited against the non-U.S. holder's federal income tax liability, if any, or refunded, provided the required information is furnished to the Internal Revenue Service. S-17 ESTATE TAX The fair market value of common stock owned, or treated as owned, by an individual at the time of his death will be includable in his gross estate for U.S. federal estate tax purposes and thus may be subject to U.S. federal estate tax, even though the individual at the time of death is neither a citizen of nor domiciled in the United States, unless an applicable estate tax treaty provides otherwise. GROWTH AND JOBS PLAN PROPOSED BY PRESIDENT BUSH ON JANUARY 7, 2003 President George W. Bush recently proposed a new tax plan that, if enacted, would eliminate U.S. federal income tax on certain dividends paid on common stock by corporations that pay U.S. federal income tax. Under the proposal, dividends would not be subject to U.S. federal income tax if (i) they are paid from profits earned by corporations in 2002 or later, and (ii) the corporation has paid U.S. federal income tax on such profits. As currently proposed, President Bush's plan, if enacted, would require us, upon payment of dividends, to inform shareholders of the amount of the dividend that would be "tax-free" under the plan. The current proposal does not include sufficient detail to permit us to determine what effect, if any, the proposal would have on the withholding requirements applicable to non-U.S. persons who own shares of our common stock. The proposal is preliminary in nature and must be reduced to legislation that will be proposed in Congress. There can be no assurance that the proposal will be enacted into law. S-18 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus supplement, the underwriters named below, for whom Morgan Stanley & Co. Incorporated is acting as the representative, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares of our common stock indicated below:
NAME NUMBER OF SHARES - ---- ---------------- Morgan Stanley & Co. Incorporated........................... Salomon Smith Barney Inc. .................................. RBC Dain Rauscher Inc. ..................................... Robert W. Baird & Co. Incorporated.......................... A.G. Edwards & Sons, Inc. .................................. Petrie Parkman & Co., Inc................................... Raymond James & Associates, Inc. ........................... ---------- Total....................................................... 6,200,000 ==========
The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus supplement are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus supplement if any such shares are purchased. However, the underwriters are not required to take or pay for the shares covered by the underwriters' over-allotment option described below. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus supplement and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. After the initial offering of the shares of our common stock, the offering price and other selling terms may from time to time be varied by the representatives. The following table shows public offering price, underwriting discount and proceeds before expenses to Apache. This information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
TOTAL ---------------------------- PER SHARE WITHOUT OPTION WITH OPTION --------- -------------- ----------- Public offering price..................... $ $ $ Underwriting discounts and commissions.... $ $ $ Proceeds, before expenses, to Apache...... $ $ $
The expenses of this offering, not including the underwriting discount and commissions, are estimated at $265,000 and are payable by Apache. We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an aggregate of 930,000 additional shares of common stock at the public offering price listed on the cover page of this prospectus supplement, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock hereby. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the next preceding table bears to the total number of shares of common stock listed next to the name of all underwriters in the next preceding table. S-19 We and our directors and executive officers have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we, he or she will not, during the period ending 90 days after the date of this prospectus supplement: -- offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock or file any registration statement under the Securities Act of 1933 with respect to the foregoing; or -- enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock; whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, our directors and executive officers have agreed that, without the prior consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, they will not, during the period ending 90 days after the date of this prospectus supplement, make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock. The restrictions described in the preceding paragraph do not apply to: -- the sale of shares to the underwriters pursuant to the underwriting agreement; -- transactions by any person other than us relating to shares of our common stock or other securities acquired in open market transactions after the completion of this offering; -- any shares of common stock issued pursuant to our existing dividend reinvestment program; -- the grant of options or common stock under our stock and incentive plans as in effect at the date hereof or the issuance of shares of our common stock under our non-employee director stock plan or dividend reinvestment plan; -- the issuance by us of shares of our common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date hereof and disclosed in this prospectus supplement and the accompanying prospectus; or -- the issuance by us of shares of our common stock in connection with a purchase of assets or other transaction described in this prospectus supplement and the accompanying prospectus. In addition, the restrictions on our directors and executive officers do not apply to the sale of shares of common stock upon the exercise of options for less than 9,000 shares of common stock held by one of our executive officers under our stock and incentive plans, which options will expire within 90 days of the date of this prospectus supplement, or any transfer or disposition of common stock to Apache pursuant to a cashless exercise of an option to purchase common stock granted pursuant to a benefit plan and existing as of the date of this prospectus supplement. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. As an S-20 additional means of facilitating the offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock to cover syndicate short positions or to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time. In the ordinary course of their business, certain of the underwriters and their respective affiliates have provided, or may in the future provide, investment banking and other financial services to us or our subsidiaries, including underwriting, the provision of financial advice and the extension of credit. These underwriters and their affiliates have received, and may in the future receive, customary fees and commissions for their services. Morgan Stanley has performed investment banking and other financial services for Apache and has received compensation for these services, which included services to Apache in connection with the BP transactions. Salomon Smith Barney Inc. acted as co-arranger on the $1.5 billion global credit facility that we entered into on June 3, 2002. We have agreed to indemnify the underwriters against a variety of liabilities, including liabilities under the Securities Act of 1933. LEGAL MATTERS Chamberlain, Hrdlicka, White, Williams & Martin, Houston, Texas, our outside legal counsel, and our Vice President and Associate General Counsel, Eric L. Harry, or our Attorney and Assistant Secretary, Jeffrey B. King, will issue opinions about some legal matters in connection with the offering. As of December 31, 2002, Mr. Harry owned 5,060 shares of common stock through Apache's 401(k) savings plan, held 3,300 restricted shares of common stock (none of which was vested), held employee stock options to purchase 11,826 shares of common stock (of which options to purchase 9,020 shares were currently exercisable) and held conditional grants covering 9,382 shares of common stock (none of which was vested). As of December 31, 2002, Mr. King owned 102 shares of common stock through Apache's 401(k) savings plan, held employee stock options to purchase 10,108 shares of common stock (of which options to purchase 4,082 shares were currently exercisable) and held conditional grants covering 6,379 shares of common stock (none of which was vested). Sidley Austin Brown & Wood LLP, New York, New York, will issue an opinion about some legal matters in connection with the offering for the underwriters. EXPERTS The audited consolidated financial statements of Apache Corporation incorporated by reference in this prospectus supplement and the accompanying prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts accounting and auditing in giving said report. On March 29, 2002, we decided not to engage Arthur Andersen as our independent auditors, and engaged new independent auditors for 2002. See "Risk Factors--Investors in our securities may encounter difficulties in obtaining, or may be unable to obtain, recoveries from Arthur Andersen with respect to its audits of our financial statements." S-21 WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY We file annual, quarterly and current reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934. You may read and copy any document we file at the SEC public reference room located at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549. You may obtain information on the operation of the public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. You may also inspect and copy our SEC filings, the complete registration statement and other information at the offices of the New York Stock Exchange located at 20 Broad Street, 16th Floor, New York, New York 10005. We file information electronically with the SEC. Our SEC filings also are available from the SEC's Internet site at http://www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically. S-22 [Apache Corporation LOGO]
EX-99.2 7 h02486exv99w2.txt PRESS RELEASE DATED JANUARY 13, 2003 EXHIBIT 99.2 CONTACTS: (MEDIA): TONY LENTINI (713) 296-6227 BILL MINTZ (713) 296-7276 DAVID HIGGINS (713) 296-6690 (INVESTOR): BOB DYE (713) 296-6662 (WEB SITE): www.apachecorp.com FOR RELEASE AT 6 A.M. CENTRAL TIME APACHE TO OFFER 6.2 MILLION SHARES OF COMMON STOCK Houston, January 13, 2003 - Apache Corporation (NYSE: APA) announced today that it intends to offer 6,200,000 shares of its common stock. Apache expects the offering to price the week of January 13, 2003. These securities will be issued under one of Apache's existing shelf registrations with the Securities and Exchange Commission. Apache also has granted the underwriters an option to purchase up to an additional 930,000 shares to cover over-allotments, if any. Morgan Stanley & Co. Incorporated is acting as lead manager for the offering. A copy of the preliminary prospectus supplement and the accompanying prospectus relating to the offering can be obtained from Morgan Stanley, 1585 Broadway, New York, NY 10036. Apache is a large oil and gas independent with operations in the United States, Canada, Western Australia, Egypt, China, Argentina and Poland. -end- This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. EX-99.3 8 h02486exv99w3.txt PRESS RELEASE DATED JANUARY 13, 2003 EXHIBIT 99.3 CONTACTS (APACHE): (MEDIA): TONY LENTINI (713) 296-6227 BILL MINTZ (713) 296-7276 DAVID HIGGINS (713) 296-6690 (INVESTOR): ROBERT DYE (713) 296-6662 (WEB SITE): www.apachecorp.com CONTACT (BP): CLARE BEBBINGTON 011 + 44 (20) 7496 4851 (WEB SITE): www.bp.com FOR RELEASE AT 6 A.M. CENTRAL TIME APACHE TO ACQUIRE BP PROPERTIES FOR $1.3 BILLION; LEGACY NORTH SEA AND GULF OF MEXICO ASSETS Houston, Jan. 13, 2003--Apache Corporation (NYSE: APA) today announced agreements to acquire producing properties in the North Sea and the Gulf of Mexico from BP for $1.3 billion. The acquisition adds an estimated 29 percent to Apache's 2002 production and 14 percent to its year-end 2002 assets on a pro forma basis. Apache's acquisition economics estimate net proved reserves of 233.2 million barrels of oil equivalent (20 percent natural gas) and 2003 average daily production of 198 million cubic feet (MMcf) of natural gas and 65,500 barrels of oil. "Establishing the North Sea as an Apache core area extends our relationship to one of the world's premier integrated major companies and the largest crude oil producer in the United Kingdom sector of the North Sea," said Apache CEO and President G. Steven Farris. -more- APACHE ACQUIRES ASSETS FROM BP - ADD 1 "In the Gulf of Mexico, where Apache generated approximately $450 million in net operating income last year, the transaction adds production and reserves and a new exploitation portfolio in North America's strongest gas market. "The North Sea fits our balanced-portfolio business model and provides the potential for future internal growth similar to what we have experienced in places like Egypt. Since increasing our Khalda Concession interest to 100 percent 22 months ago, we have grown gross liquids production from 42,400 barrels per day to 65,500 barrels per day," said Farris. "We made seven Western Desert exploration discoveries just last year, plus another four in the deepwater portion of our West Mediterranean Concession." Apache has a physical sale agreement with BP to take all of Apache's North Sea production for two years at a combination of fixed and floating prices. A substantial portion of the oil and gas production, both in the North Sea and the Gulf of Mexico, has been hedged at favorable prices through 2004 to preserve Apache's strong financial position in a period of cyclically high gas and oil prices, to protect the acquisition economics, and to maintain Apache's position as a reliable purchaser of major companies' assets as they adjust their worldwide portfolios. Approximately two-thirds of the reserves and daily oil production Apache is acquiring from BP are in the North Sea's Forties oil field, establishing a new international operating region for Apache. Apache will become field operator with a 96 percent working interest. Discovered by BP in 1970, the Forties field is the largest ever found in the United Kingdom sector of the North Sea and still ranks eighth in production and reserves after having produced approximately 2.5 billion barrels to date. Apache's acquisition economics estimate average 2003 production of 45,100 barrels of oil per day and net proved reserves of 147.6 million barrels. Apache's production will be transported via the Forties Pipeline System. -more- APACHE ACQUIRES ASSETS FROM BP - ADD 2 The Gulf of Mexico properties are located offshore Texas and Louisiana in areas where Apache has substantial existing operations. The acquisition economics estimate 2003 production of 198 MMcf per day and 20,400 barrels of liquid hydrocarbons per day and net proved reserves totaling 85.6 million barrels equivalent. The assets comprise 113 total blocks and 61 fields; 70 percent of the production is operated. Apache will acquire a 100 percent working interest in 19 of the fields. The effective date of the transaction is Jan. 1, 2003, with closing on the Gulf portion anticipated on or about March 31 and the North Sea portion projected for late in the second quarter. Both closings are subject to customary government approvals. Apache intends to finance the acquisition with a combination of internally generated funds, equity and debt. Morgan Stanley served as financial adviser to Apache for this transaction. Apache Corporation is a large independent exploration and production company with existing operations in the United States, Canada, Egypt, Western Australia, China, Argentina and Poland. Maps and other materials relating to the BP transaction are available on Apache's Web site at www.apachecorp.com. The Web site will simulcast Apache's conference call on the acquisition on Monday, January 13, at 9:30 a.m. Central time. By midday the conference call will be available for replay both online and via telephone (dial 719-457-0820 and provide pass code number 700962). A fact sheet on the transaction is attached to this news release. -end- This news release contains certain "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995 including, without limitation, expectations, beliefs, plans and objectives regarding Apache's reserves, reserve life, production, exploration potential, future oil and gas prices, capital expenditures, financing, and the timetable for closing the announced acquisitions. Any matters that are not historical facts are forward-looking and, accordingly, involve estimates, assumptions and uncertainties. There is no assurance that Apache's expectations will be realized, and actual results may differ materially from those expressed in the forward-looking statements.
-----END PRIVACY-ENHANCED MESSAGE-----