-----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, U61mTnBZaAi1bRZrLi5DkSO0a+O3HxwMQDd1bImhh4NPf5VxfbfX7/+e3VT/ViZS PQoFNu7Car7UQtcuX1s8OQ== 0000950129-96-001588.txt : 19960729 0000950129-96-001588.hdr.sgml : 19960729 ACCESSION NUMBER: 0000950129-96-001588 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960726 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION TEXAS PETROLEUM HOLDINGS INC CENTRAL INDEX KEY: 0000774214 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760040040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09019 FILM NUMBER: 96599416 BUSINESS ADDRESS: STREET 1: 1330 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136236544 MAIL ADDRESS: STREET 1: 1330 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056 10-Q 1 UNION TEXAS PETROLEUM HOLDINGS,INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________ COMMISSION FILE NUMBER 1-9019 UNION TEXAS PETROLEUM HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0040040 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1330 POST OAK BLVD. HOUSTON, TEXAS 77056 (Address of principal executive offices and zip code) (713) 623-6544 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- -------- As of July 19, 1996, there were 87,386,991 shares of Union Texas Petroleum Holdings, Inc. $.05 par value Common Stock issued and outstanding. 2 FORM 10-Q PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNION TEXAS PETROLEUM HOLDINGS, INC. CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31, 1996 1995 ---------- ---------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 14,261 $ 11,069 Accounts and notes receivable, less allowance for doubtful accounts . . 88,225 77,517 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,812 42,764 Prepaid expenses and other current assets . . . . . . . . . . . . . . . 44,224 27,924 ---------- ---------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 181,522 159,274 Equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,897 108,476 Property, plant and equipment, at cost, less accumulated depreciation, depletion and amortization* . . . . . . . . . . . . . . . 1,534,939 1,551,198 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,007 17,870 ---------- ---------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,839,365 $1,836,818 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt . . . . . . . . . . . . . . . . . . $ 2,292 $ 2,292 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,162 95,768 Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,279 55,779 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 45,283 41,704 ---------- ---------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . 200,016 195,543 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 644,071 712,132 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,473 395,289 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,320 110,064 ---------- ---------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,349,880 1,413,028 ---------- ---------- Stockholders' equity: Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,391 4,391 Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,062 19,405 Cumulative foreign exchange translation adjustment and other . . . . . (74,305) (75,077) Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 549,256 479,620 Common stock held in treasury, at cost: 477,038 shares at June 30, 1996 and 247,145 shares at December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . (8,919) (4,549) ---------- ---------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 489,485 423,790 ---------- ---------- Total liabilities and stockholders' equity . . . . . . . . . . . . $1,839,365 $1,836,818 ========== ==========
* The Company follows the successful efforts method of accounting for oil and gas activities. The accompanying notes are an integral part of this financial statement. 1 3 FORM 10-Q UNION TEXAS PETROLEUM HOLDINGS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, JUNE 30, -------- -------- 1996 1995 1996 1995 -------- -------- -------- -------- Revenues: Sales and operating revenues . . . . . . . . . . $223,192 $200,425 481,370 $439,982 Interest income and other revenues . . . . . . . 900 (377) 1,065 330 Net earnings of equity investee . . . . . . . . 5,658 5,533 14,871 10,941 -------- -------- -------- -------- 229,750 205,581 497,306 451,253 Costs and other deductions: Product costs and operating expenses . . . . . . 81,258 74,386 161,322 153,563 Exploration expenses . . . . . . . . . . . . . . 10,258 22,099 24,465 37,649 Depreciation, depletion and amortization . . . . 48,953 38,102 103,808 84,647 Selling, general and administrative expenses . . 6,424 6,111 12,175 12,281 Interest expense . . . . . . . . . . . . . . . . 6,662 5,242 14,510 10,510 -------- -------- -------- -------- Income before income taxes . . . . . . . . . . . . . 76,195 59,641 181,026 152,603 Income taxes . . . . . . . . . . . . . . . . . . . . 45,358 39,539 102,628 85,825 -------- -------- -------- -------- Net income . . . . . . . . . . . . . . . . . . . . . $ 30,837 $ 20,102 $ 78,398 $ 66,778 ======== ======== ======== ======== Earnings per share of common stock . . . . . . . . . $ .35 $ .23 $ .90 $ .76 ======== ======== ======== ======== Dividends per share of common stock . . . . . . . . . $ .05 $ .05 $ .10 $ .10 ======== ======== ======== ======== Weighted average number of shares outstanding (000's) . . . . . . . . . . . . . . 87,547 87,735 87,573 87,687 ======== ======== ======== ========
The accompanying notes are an integral part of this financial statement. 2 4 FORM 10-Q UNION TEXAS PETROLEUM HOLDINGS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------- 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,398 $ 66,778 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization . . . . . . . . . . . . . . . 103,808 84,647 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 783 (3,192) Net income of equity investee . . . . . . . . . . . . . . . . . . . . . (14,871) (10,941) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,691 1,566 -------- ---------- Net cash provided by operating activities before changes in other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . 169,809 138,858 Increase in accounts and notes receivable . . . . . . . . . . . . . . . (10,696) (18,431) Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . 7,953 3,226 Increase in prepaid expenses and other assets . . . . . . . . . . . . . (15,436) (16,281) Decrease in accounts payable and other liabilities . . . . . . . . . . (9,061) (8,711) Increase in income taxes payable . . . . . . . . . . . . . . . . . . . 7,009 2,202 -------- ---------- Net cash provided by operating activities . . . . . . . . . . . . . 149,578 100,863 -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment . . . . . . . . . . . . . . . . (80,704) (60,788) Cash provided by equity investee . . . . . . . . . . . . . . . . . . . . . 17,450 13,600 Net cash required by sale of businesses . . . . . . . . . . . . . . . . . (772) -------- ---------- Net cash required by investing activities . . . . . . . . . . . . . . . (63,254) (47,960) -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of long-term debt . . . . . . . . . . . . . . . 30,013 197,713 Net payments under the credit facilities . . . . . . . . . . . . . . . . . (45,000) (201,353) Net payments on money market lines of credit . . . . . . . . . . . . . . . (53,167) (35,605) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,762) (8,767) Proceeds from issuance of treasury stock . . . . . . . . . . . . . . . . . 1,139 1,407 Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (7,355) -------- ---------- Net cash required by financing activities . . . . . . . . . . . . . . . (83,132) (46,605) -------- ---------- Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 3,192 6,298 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 11,069 8,389 -------- ---------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 14,261 $ 14,687 ======== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . $ 13,341 $ 11,906 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,221 87,197
The accompanying notes are an integral part of this financial statement. 3 5 FORM 10-Q UNION TEXAS PETROLEUM HOLDINGS, INC. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) NOTE 1 - BASIS OF PRESENTATION - These consolidated financial statements should be read in the context of the consolidated financial statements and notes thereto filed with the Commission in the Company's 1995 annual report on Form 10-K. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal adjustments, necessary to present fairly the financial position of Union Texas Petroleum Holdings, Inc. and its consolidated subsidiaries at June 30, 1996, and the results of operations and cash flows for the three and six months ended June 30, 1996 and 1995. The results of operations for the six months ended June 30, 1996, should not necessarily be taken as indicative of the results of operations that may be expected for the entire year 1996. NOTE 2 - INVENTORY ACCOUNTING CHANGE - Effective January 1, 1996, the Company changed the method of accounting for valuing its petrochemical product inventory from the last-in, first out ("LIFO") method to the first-in, first out ("FIFO") method. The change did not have a material effect on the results of operations for prior periods, nor is it anticipated that it will have a material impact on future periods. The Company believes that use of the FIFO method will result in a better measurement of operating results and better reflects the current value of inventory on the balance sheet. NOTE 3 - ACCOUNTING PRONOUNCEMENTS RECENTLY ISSUED - In October 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which establishes financial and reporting standards for stock based employee compensation plans that will be effective for the Company's 1996 financial statements. The statement encourages, but does not require, companies to adopt a fair value based method of accounting for such plans in place of current accounting standards. Companies electing to continue to use their existing accounting methods will be required to make pro forma disclosures of net income assuming a fair value based method of accounting has been applied. The Company will continue to use its current accounting methods with additional disclosures. NOTE 4 - HEDGING ACTIVITIES - The Company may enter into hedging contracts and other risk management activities, such as swaps or fixed price contracts, in order to minimize the impact of adverse price fluctuation. Gains or losses on these activities are recognized in sales revenues when the underlying exposed hedged production is sold. During the first half of 1996, the Company entered into financial hedging futures contracts to offset a portion of its North Sea crude oil. As of June 30, 1996, the Company had open contracts for 714,000 barrels of oil at an average Brent price of $17.14 per barrel which will be settled at various times from July through December 1996. NOTE 5 - CONTINGENCIES - The Company and its subsidiaries and related companies are named defendants in a number of lawsuits and named parties in numerous government proceedings arising in the ordinary course of business. While the outcome of contingencies, lawsuits or other proceedings against the Company cannot be predicted with certainty, management expects that any liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on the financial statements of the Company. 4 6 UNION TEXAS PETROLEUM HOLDINGS, INC. With respect to the unaudited consolidated financial information of Union Texas Petroleum Holdings, Inc. for the three and six month periods ended June 30, 1996 and 1995, Price Waterhouse LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated July 24, 1996 appearing below, states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Price Waterhouse LLP has not carried out any significant or additional audit tests beyond those which would have been necessary if their report had not been included. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Price Waterhouse LLP is not subject to the liability provisions of section 11 of the Securities Act of 1933 for their report on the unaudited consolidated financial information because that report is not a "report" prepared or certified by Price Waterhouse LLP within the meaning of sections 7 and 11 of the Act. REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS To the Board of Directors of Union Texas Petroleum Holdings, Inc. We have reviewed the accompanying consolidated balance sheet of Union Texas Petroleum Holdings, Inc. and consolidated subsidiaries as of June 30, 1996 and the related consolidated statements of operations for the three and six month periods ended June 30, 1996 and 1995 and of cash flows for the six month periods ended June 30, 1996 and 1995. This financial information is the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1995, and the related consolidated statements of operations, of cash flows, and of stockholders' equity for the year then ended (not presented herein), and in our report dated February 14, 1996 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 1995, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. PRICE WATERHOUSE LLP Houston, Texas July 24, 1996 5 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements, notes, and management's discussion contained in the registrant's 1995 annual report on Form 10-K, and condensed financial statements and notes contained in this report. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995 Net income for the three months ended June 30, 1996, was $31 million, or $.35 per share, as compared to net income of $20 million, or $.23 per share, for the same period in 1995. The current quarter was favorably impacted by higher sales volumes of U.K. crude oil and Indonesian LNG along with higher oil and LNG prices and lower exploration expenses partially offset by lower ethylene margins. Sales and operating revenues for the three months ended June 30, 1996, were $223 million, up from $200 million for the second quarter of 1995. International revenues totaled $171 million as compared to $145 million for the second quarter of 1995. In the U.K., sales and operating revenues increased by $22 million due principally to increased crude oil sales volumes as a result of the July 1995 acquisition of an interest in the Alba field. In Indonesia, sales increased $5 million due to higher LNG sales prices and volumes partially offset by lower oil volumes. In Pakistan, sales decreased $1 million due to lower oil and gas sales volumes partially offset by higher oil prices. Average prices received and volumes sold by the Company's major operations during the second quarter of 1996 and 1995, respectively, were as follows:
PRICES VOLUMES (000S PER DAY) 1996 1995 1996 1995 ---- ---- ---- ---- Crude oil (barrels): U.K. $18.27 $17.79 41 29 Pakistan 16.24 14.90 5 6 Indonesia 19.07 17.85 4 6 Indonesian LNG (Mcf) 3.41 3.19 214 202 Pakistan natural gas (Mcf) 1.29 1.30 42 45 U.K. natural gas (Mcf) 2.25 2.85 22 24 U.S. ethylene (pounds) .21 .28 1,577 1,298
Petrochemical revenues totaled $52 million as compared to $55 million in the second quarter of 1995, while operating profit was $7 million as compared to $19 million in the prior period. The decreased operating profit was primarily due to lower ethylene sales prices and increased feedstock costs, resulting in an average ethylene margin of 6 cents per pound in 1996 vs. 16 cents per pound in 1995. Partially offsetting the reduced ethylene margins were higher ethylene sales volumes. Depreciation, depletion and amortization expense (DD&A) increased by $11 million due to higher volumes of U.K. crude oil and Indonesian LNG. Exploration expenses decreased by $12 million related to reduced new venture exploratory drilling. Interest expense increased by $1 million during the period due to higher levels of debt, primarily due to the funding of the Alba acquisition during the third quarter of 1995. 6 8 SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995 Net income for the six months ended June 30, 1996, was $78 million, or $.90 per share, as compared to net income of $67 million, or $.76 per share, reported for the same period in 1995. The current period was favorably impacted by higher sales volumes in the U.K., higher Indonesian LNG sales prices and volumes, higher oil prices and lower exploration expenses, partially offset by lower ethylene margins. Sales and operating revenues for the six months ended June 30, 1996 were $481 million, up from $440 million in the prior year. International revenues totaled $388 million as compared to $329 million for the first six months of 1995. In the U.K., sales and operating revenues increased by $41 million due to increased sales volumes, primarily as a result of the July 1995 acquisition of an interest in the Alba field and due to higher crude oil prices. In Indonesia, sales increased $16 million as compared to 1995 due to higher LNG and crude oil sales prices and higher LNG volumes. In Pakistan, sales were $2 million above 1995, primarily due to higher crude oil prices. Average prices received and volumes sold by the Company's major operations during the first six months of 1996 and 1995, respectively, were as follows:
PRICES VOLUMES (000S PER DAY) 1996 1995 1996 1995 ---- ---- ---- ---- Crude oil (barrels): U.K. $18.18 $16.98 43 33 Pakistan 16.20 14.77 6 6 Indonesia 18.56 17.56 6 6 Indonesian LNG (Mcf) 3.36 3.13 227 222 Pakistan natural gas (Mcf) 1.29 1.30 43 44 U.K. natural gas (Mcf) 2.43 2.96 40 34 U.S. ethylene (pounds) .20 .28 1,379 1,318
Petrochemical revenues totaled $94 million as compared to $110 million in the first half of 1995, while operating profit was $12 million as compared to $38 million in the prior period. The decreased operating profit was primarily due to lower ethylene sales prices and increased feedstock costs, resulting in an average ethylene margin of 5 cents per pound in 1996 vs. 16 cents per pound in 1995. DD&A increased by $19 million due to higher volumes of U.K. crude oil and Indonesian LNG. Exploration expenses decreased by $13 million related to reduced new venture exploratory drilling. Interest expense increased $4 million during the period due to higher levels of debt, primarily due to the funding of the Alba acquisition during the third quarter of 1995. 7 9 FINANCIAL CONDITION Cash flow from operations: Net cash provided by operating activities was $150 million in the first six months of 1996, an increase of $49 million from the same period in the prior year. The improvement was primarily the result of higher sales volumes of U.K. oil and Indonesian LNG and higher oil and LNG prices, partially offset by lower ethylene margins. Capital resources: Capital expenditures for the first half of 1996 were $96 million including capitalized interest of $12 million. Capital expenditures for the first half of 1995 were $90 million including capitalized interest of $11 million. The increase reflects higher development capital related to the Britannia field in the U.K. North Sea, partially offset by reduced exploratory drilling in new venture areas. Financing activities: The Company had two unsecured credit facilities (the "Credit Facilities") at June 30, 1996. One of the Credit Facilities is a $100 million revolver that provides for conversion of amounts outstanding on March 15, 1997 to a one-year term loan maturing March 15, 1998. Another Credit Facility is a $450 million revolver that reduces quarterly by $35 million beginning June 30, 2000, with a final maturity of March 31, 2001. The $450 million facility allows the Company to borrow up to $300 million in U.S. dollar loans at interest rates determined in a competitive bid process. Loans under the $450 million facility may be made in both pounds sterling and U.S. dollars at the option of the Company. Loans under the Credit Facilities bear interest at floating market rates based on, at the Company's option, the agent bank's base rate or LIBOR, plus applicable margins subject to increase or decrease in certain events. The Credit Facilities contain restrictive covenants, including maintenance of certain coverage ratios related to the incurrence of additional indebtedness and limitations on asset sales and mergers or consolidations. The covenants also require maintenance of stockholders' equity, as adjusted, at $350 million. Under the terms of the Credit Facilities, the Company may pay dividends and make stock repurchases provided that such level of minimum stockholders' equity is maintained and the Company complies with certain other covenants in the Credit Facilities. At June 30, 1996, the Company's adjusted stockholders' equity was approximately $564 million. At June 30, 1996, $87 million was outstanding under the $450 million facility bearing interest at a weighted average rate of 5.8% per annum. The Company has established short-term, uncommitted and unsecured lines of credit with several banks in both U.S. dollars and pounds sterling. These money market borrowings, which have a short-term maturity, have been classified as long-term debt based on the Company's intent to refinance these borrowings for a period exceeding one year and the ability to refinance them on a long-term basis through its Credit Facilities. At June 30, 1996, $93 million was outstanding under these money market lines which bore interest at weighted average rates of 5.9% per annum. As of June 30, 1996, the Company had approximately $366 million of available financing under such lines of credit and the Credit Facilities. The Company's indirect subsidiary, Union Texas Britannia Limited ("UTBL"), has a 150 million pounds sterling secured financing from a syndicate of banks. The financing is used to fund the Company's share of the cost of developing the Britannia field to production. At June 30, 1996, 39 million pounds sterling ($60 million) was outstanding under UTBL's financing which bore interest at a weighted average rate of 6.8% per annum. On April 27, 1994, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's common stock and pursuant thereto, the Company had repurchased 946,236 shares as of June 30, 1996, including 333,400 shares repurchased in the second quarter of 1996. The repurchased stock will be used for general corporate purposes, including fulfilling employee benefit program obligations. As of June 30, 1996, 477,038 shares of common stock were held, at cost, as treasury shares. 8 10 Financial condition: In the second quarter of 1996, the Company declared and paid a dividend of approximately $4.4 million on its common stock. On July 23, 1996, the Company announced a dividend on its common stock of $.05 per share to stockholders of record as of July 31, 1996, payable on August 15, 1996. In October 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which establishes financial and reporting standards for stock based employee compensation plans that will be effective for the Company's 1996 financial statements. The statement encourages, but does not require, companies to adopt a fair value based method of accounting for such plans in place of current accounting standards. Companies electing to continue to use their existing accounting methods will be required to make pro forma disclosures of net income assuming a fair value based method of accounting has been applied. The Company will continue to use its current accounting methods with additional disclosures. The Company may enter into hedging contracts and other risk management activities, such as swaps or fixed price contracts in order to minimize the impact of adverse price fluctuations. Gains or losses on these activities are recognized in sales revenues when the underlying exposed hedged production is sold. During the first half of 1996, the Company entered into financial hedging futures contracts to offset a portion of its North Sea crude. As of June 30, 1996, the Company had open contracts for 714,000 barrels of oil at an average Brent price of $17.14 per barrel which will be settled at various times from July through December 1996. During the second quarter of 1996, the Company settled crude oil hedging contracts of 528,000 barrels at an average Brent price of $17.13. 9 11 FORM 10-Q PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The Company and its subsidiaries and related companies are named defendants in numerous lawsuits and named parties in numerous governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company. (See Item 3 in the Company's 1995 annual report on Form 10-K.) ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 8, 1996, the 1996 Annual Meeting of Stockholders of the Company was held. The following persons were elected as proposed in the proxy solicitation issued pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, to serve as directors until the next Annual Meeting of Stockholders or until their successors are elected and qualified: John L. Whitmire, Glen A. Cox, Saul A. Fox, Edward A. Gilhuly, James H. Greene, Jr., Henry R. Kravis, Michael W. Michelson, Stanley P. Porter, George R. Roberts, Richard R. Shinn, and Sellers Stough. Stockholders ratified the appointment of Price Waterhouse LLP as the Company's independent accountants for the fiscal year ending December 31, 1996. There were 80,055,696 shares voted for the election of directors with 1,869,451 withholding votes and no abstentions or broker non-votes. Results by nominated director were:
VOTED AUTHORITY FOR WITHHELD John L. Whitmire 79,708,616 2,216,531 Glen A. Cox 79,138,179 2,786,968 Saul A. Fox 76,747,945 5,177,202 Edward A. Gilhuly 79,355,131 2,570,016 James H. Greene, Jr. 76,360,200 5,564,947 Henry R. Kravis 76,026,238 5,898,909 Michael W. Michelson 78,881,360 3,043,787 Stanley P. Porter 80,029,693 1,895,454 George R. Roberts 75,926,547 5,998,600 Richard R. Shinn 80,028,396 1,896,751 Sellers Stough 80,040,039 1,885,108
There were 81,845,625 shares voted for the ratification of the appointment of Price Waterhouse LLP as the Company's independent public accountants, with 52,908 shares voted against, 26,614 abstentions and no broker non-votes. ITEM 5 - OTHER INFORMATION Indonesia. During April 1996, Pertamina established 16.5399% as the participation percentage of the Indonesian joint venture (in which the Company owns a 37.81% working interest) in deliveries during the years 2000 to 2017 under long- term LNG sales contracts with the Chinese Petroleum Corporation and Korea Gas Corporation, respectively, and in certain deliveries under an extension of a long-term contract, originally signed in 1981, with Japanese industrial and utility customers. 10 12 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description ----------- ----------- 10.1 Third Amendment to Union Texas Petroleum Savings Plan for Salaried Employees. 10.2 First Supply Agreement for Package V Excess Sales (1998- 1999 LNG Sales to Korea Gas Corporation Under Badak V), dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.3 Second Supply Agreement for Package V Excess Sales (1998- 1999 LNG Sales to Chinese Petroleum Corporation under Badak VI), dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.4 Package VI Supply Agreement for Natural Gas in Support of 2000-2017 LNG Sales to Korea Gas Corporation under Badak V, dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.5 Package VI Supply Agreement for Natural Gas in Support of 2000-2017 LNG Sales to Chinese Petroleum Corporation under Badak VI, dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.6 First Supply Agreement for Package VI Excess Sales (2003- 2008 LNG Sales under the Second Amended and Restated 1981 Badak Sales Contract) dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 15 Independent Accountants' Awareness Letter. 27.1 Financial Data Schedule for the six-month period ended June 30, 1996.
(b) Reports on Form 8-K The Company filed the following reports on Form 8-K since the quarterly period ended March 31, 1996: The Company filed a Form 8-K dated April 26, 1996 to attach a press release announcing the Company's first quarter earnings. The Company filed a Form 8-K dated June 17, 1996 to attach press releases reporting the results of the Company's Annual Stockholders Meeting and to announce organizational changes in its exploration and production and petrochemical operations. 11 13 SIGNATURE 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. UNION TEXAS PETROLEUM HOLDINGS, INC. Date: July 26, 1996 By: /s/ DONALD M. MCMULLAN --------------------------------- Donald M. McMullan Vice President and Controller (Chief Accounting Officer and officer duly authorized to sign on behalf of the registrant) 12 14 INDEX TO EXHIBITS
Exhibit No. Description ----------- ----------- 10.1 Third Amendment to Union Texas Petroleum Savings Plan for Salaried Employees. 10.2 First Supply Agreement for Package V Excess Sales (1998- 1999 LNG Sales to Korea Gas Corporation Under Badak V), dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.3 Second Supply Agreement for Package V Excess Sales (1998- 1999 LNG Sales to Chinese Petroleum Corporation under Badak VI), dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.4 Package VI Supply Agreement for Natural Gas in Support of 2000-2017 LNG Sales to Korea Gas Corporation under Badak V, dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.5 Package VI Supply Agreement for Natural Gas in Support of 2000-2017 LNG Sales to Chinese Petroleum Corporation under Badak VI, dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 10.6 First Supply Agreement for Package VI Excess Sales (2003- 2008 LNG Sales under the Second Amended and Restated 1981 Badak Sales Contract) dated as of May 1, 1996, between Pertamina and Virginia Indonesia Company, Lasmo Sanga Sanga Limited, Opicoil Houston, Inc., Union Texas East Kalimantan Limited, Universe Gas & Oil Company, Inc. and Virginia International Company. 15 Independent Accountants' Awareness Letter. 27.1 Financial Data Schedule for the six-month period ended June 30, 1996.
EX-10.1 2 THIRD AMEND. SAVINGS PLAN 1 THIRD AMENDMENT TO UNION TEXAS PETROLEUM SAVINGS PLAN FOR SALARIED EMPLOYEES WHEREAS, UNION TEXAS PETROLEUM HOLDINGS, INC. (the "Company") and other Employing Companies have heretofore adopted and maintained the UNION TEXAS PETROLEUM SAVINGS PLAN FOR SALARIED EMPLOYEES (the "Plan") for the benefit of their eligible employees; and WHEREAS, the Company desires to amend the Plan on behalf of itself and the Employing Companies; NOW, THEREFORE, the Plan shall be amended as follows, effective as of June 1, 1996: 1. Sections 1.1 (27) and 1.1(36) of the Plan shall be deleted. 2. Article II of Plan shall be deleted and the following shall be substituted therefor: "II. PARTICIPATION 2.1 GENERAL ELIGIBILITY RULE. Any Eligible Employee shall be eligible to become a Member upon the first day of the month coincident with or next following his Commencement Date. 2.2 REEMPLOYED MEMBER. An Eligible Employee who was a Member, or who was eligible to become a Member, prior to a termination of employment shall be eligible to remain or become a Member immediately upon his reemployment as an Eligible Employee. 2.3 STATUS AS AN ELIGIBLE EMPLOYEE. An Employee who was not eligible to become a Member because he was not an Eligible Employee shall be eligible to become a Member immediately upon becoming an Eligible Employee as a result of a change in his employment status. A Member who ceases to be an Eligible Employee but remains an Employee shall continue to be a Member but, on and after the date he ceases to be an Eligible Employee, he shall no longer be entitled to defer Compensation hereunder or share in allocations of Employer Contributions unless and until he shall again become an Eligible Employee. 2 2.4 ELECTION TO BECOME A MEMBER. Membership in the Plan is voluntary. Any Eligible Employee may become a member upon the date on which he first becomes eligible by executing and filing with the Committee, within the time limits prescribed by the Committee, the Compensation reduction agreement prescribed by the Committee. Any Eligible Employee who does not become a Member upon the date on which he first becomes eligible may become a Member on the first day of any subsequent month by executing and filing with the Committee a Compensation reduction agreement within the time limits prescribed by the Committee." 3. An Eligible Employee whose Commencement Date occurred on or before May 1, 1996, and who was not eligible to become a Member prior to June 1, 1996, because he had not completed the service requirement of the Plan as in effect prior to this Third Amendment, shall be eligible to become a Member upon June 1, 1996, if he is an Eligible Employee on such date, or on the first day of the month coincident with or next following the date he becomes an Eligible Employee, if he is not an Eligible Employee on such date. 4. As amended hereby, the Plan is specifically ratified and reaffirmed. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed on this 13th day of May, 1996. UNION TEXAS PETROLEUM HOLDINGS, INC. BY /s/ Newton W. Wilson, III ------------------------------------------------ NEWTON W. WILSON, III GENERAL COUNSEL AND VICE PRESIDENT-ADMINISTRATION EX-10.2 3 FIRST SUPPLY AGREEMENT 1 FIRST SUPPLY AGREEMENT FOR PACKAGE V EXCESS SALES (1998-1999 LNG SALES TO KOREA GAS CORPORATION UNDER BADAK V) BETWEEN PERTAMINA AND VIRGINIA INDONESIA COMPANY LASMO SANGA SANGA LIMITED OPICOIL HOUSTON, INC. UNION TEXAS EAST KALIMANTAN LIMITED UNIVERSE GAS & OIL COMPANY, INC. AND VIRGINIA INTERNATIONAL COMPANY DATED: MAY 1, 1996 EFFECTIVE: AUGUST 12, 1995 2 FIRST SUPPLY AGREEMENT FOR PACKAGE V EXCESS SALES (1998-1999 LNG SALES TO KOREA GAS CORPORATION UNDER BADAK V) THIS SUPPLY AGREEMENT, made and entered into in Jakarta on May 1, 1996, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO SANGA SANGA LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE GAS & OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY (herein referred to collectively as "Contractors" and individually as "Contractor"), on the other hand, WITNESSETH: A. WHEREAS, Contractors individually own or control all of the interest of "Contractors" in that certain Amended and Restated Production Sharing Contract, dated April 23, 1990, but effective as of August 8, 1968 (such contract as hereafter amended is herein referred to as the "Amended and Restated Production Sharing Contract") and that certain Production Sharing Contract dated April 23, 1990, but effective as of August 8, 1998 (such contract as hereafter amended is herein referred to as the "Renewed Production Sharing Contract"). The Amended and Restated Production Sharing Contract and the Renewed Production Sharing Contract are herein referred to collectively as the "Production Sharing Contracts" and the area covered thereby is herein referred to as the "VICO Contract Area"; B. WHEREAS, pursuant to the Production Sharing Contracts, each of PERTAMINA and Contractors is entitled to take and receive, sell and freely export its respective share of the Natural Gas produced and saved from the VICO Contract Area (the percentage share of such Natural Gas to which each of PERTAMINA and Contractors is entitled, as determined under the Production Sharing Contracts, is herein referred to as the "Production Sharing Percentage" of such party); - 1 - 3 C. WHEREAS, the reserves of Natural Gas in the VICO Contract Area exceed the reserves of Natural Gas committed to be produced, supplied and delivered by PERTAMINA and Contractors to meet a portion of PERTAMINA's existing obligations under LNG sales contracts, LPG sales contracts, and domestic gas sales contracts; D. WHEREAS, PERTAMINA, with assistance from Contractors, has constructed and expanded and is further expanding the Natural Gas liquefaction and related facilities located at Bontang Bay, on the east coast of Kalimantan, Indonesia (herein referred to as the "Bontang Plant"); E. WHEREAS, PERTAMINA and Contractors are parties to the Amended and Restated Bontang Processing Agreement dated as of February 9, 1988 (as from time to time amended, the "Processing Agreement"), which provides for the operation of the Bontang Plant and the payment of the costs of such operation (such costs as determined in accordance with the Processing Agreement are herein referred to as "Plant Operating Costs"); F. WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang Plant in part for the liquefaction of the VICO Contract Gas (as defined in Section 2.2 hereof) and the Other Contract Gas (as defined in Section 2.3 hereof); G. WHEREAS, PERTAMINA, in collaboration with Contractors and its production sharing contractors in other contract areas in East Kalimantan (herein referred to as the "Other Contract Areas"), has entered into an LNG Sales Contract dated August 12, 1995 ("Badak V", and unless otherwise so stated, any terms defined in Badak V shall have the same meanings when used herein) with Korea Gas Corporation ("Buyer") pursuant to which PERTAMINA is obligated to sell to Buyer certain quantities of LNG on an FOB basis; H. WHEREAS, pursuant to Part Two, paragraph 2(f) II of the Memorandum of Understanding Re: Supply Agreements and Package V Sales dated October 5, 1994, between PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas - 2 - 4 ("MOU"), the sales of LNG pursuant to Badak V to be delivered during the years 1998 and 1999 are Package V Sales as that term is defined in the MOU ("Package V Badak V Quantities"); I. WHEREAS, Badak V provides that the Natural Gas to be processed into LNG and sold by PERTAMINA under Badak V is to be produced from the areas in East Kalimantan covered by production sharing contracts between PERTAMINA and its suppliers, which consist of the VICO Contract Area and the Other Contract Areas; J. WHEREAS, PERTAMINA and each Contractor desire to supply and deliver Natural Gas from the VICO Contract Area in support of the performance by PERTAMINA of an agreed portion of its obligations under Badak V; and K. WHEREAS, each Contractor desires to dispose of its Production Sharing Percentage of the VICO Contract Gas (as herein defined) in accordance with the terms of this Supply Agreement, NOW, THEREFORE, the parties agree as follows: ARTICLE 1 EFFECTIVE DATE AND DURATION This Supply Agreement shall be effective as of August 12, 1995, and shall terminate on the date when all rights and obligations of Contractors hereunder have been satisfied. - 3 - 5 ARTICLE 2 SUPPLY COMMITMENT AND QUANTITY 2.1 Net Gas Requirement. The total quantity of net Natural Gas required to be supplied and delivered out of proved economically recoverable reserves of Natural Gas in East Kalimantan for liquefaction and sale as Package V Badak V Quantities is estimated to be 0.1077 trillion standard cubic feet ("t.s.c.f."). Such quantity is herein referred to as the "Package V Badak V Net Gas Requirement." The Package V Badak V Net Gas Requirement is based on the Fixed Quantities which Buyer has committed to purchase pursuant to the terms of Badak V. 2.2 VICO Contract Gas. PERTAMINA and Contractors hereby commit and agree to supply and deliver from proved economically recoverable reserves of Natural Gas in specific fields within the VICO Contract Area sufficient Natural Gas (and LNG resulting from the liquefaction thereof) to meet a portion of the Package V Badak V Net Gas Requirement over the term of this Supply Agreement consisting of 0.0233 t.s.c.f., or 21.5956% thereof. Such quantities of net Natural Gas committed to be supplied pursuant to this Supply Agreement are herein referred to as the "VICO Contract Gas," and the above-stated percentage is herein referred to as the "Producers' Percentage." The specific fields from which the VICO Contract Gas will be committed are identified in the Package V Supplemental Memorandum of Understanding entered into among PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas pursuant to the MOU ("Package V Supplemental Memorandum"). The VICO Contract Area participating fields and the quantities in each field comprising the VICO Contract Gas are as follows:
Participating Fields Quantity of Gas (t.s.c.f.) -------------------- -------------------------- Badak 0.0077 Lampake 0.0007 Mutiara 0.0031 Nilam 0.0081 Pamaguan 0.0001
- 4 - 6 Semberah 0.0036
The quantities committed from each field are subject to revision from time to time, as the reserves from the fields may be updated and as additional data, from deliverability studies and otherwise, become available. 2.3 Other Contract Gas. To meet the balance of the Package V Badak V Net Gas Requirement, constituting 0.0844 t.s.c.f., or 78.4044% thereof, sufficient Natural Gas (and LNG resulting from the liquefaction thereof) will be committed for supply and delivery by PERTAMINA and its production sharing contractors from proved economically recoverable reserves of Natural Gas in the Other Contract Areas by separate supply agreements, similar hereto and compatible herewith, executed and delivered concurrently herewith (such amounts are herein collectively referred to as the "Other Contract Gas"). The specific fields from which the Other Contract Gas will be committed are also identified in the Package V Supplemental Memorandum. 2.4 DeGolyer and MacNaughton Certification. The amounts of net Natural Gas constituting the VICO Contract Gas and the Other Contract Gas are part of the estimates of proved economically recoverable reserves of Natural Gas as certified by the independent consultant firm of DeGolyer and MacNaughton in written statements based on data available on May 31, 1994. The quantities for the VICO Contract Gas and the Other Contract Gas set forth in Sections 2.2 and 2.3 hereof and the Producers' Percentage were established by PERTAMINA at a meeting on May 29, 1995, of the East Kalimantan Gas Reserves Management Committee. ARTICLE 3 COORDINATION OF GAS SUPPLY The VICO Contract Gas and the Other Contract Gas may be produced from participating fields at times and production rates which may change from time to time during the term hereof - 5 - 7 so as to secure the optimal ultimate recovery of Natural Gas. The supply of Natural Gas from the VICO Contract Area and the Other Contract Areas will be coordinated by PERTAMINA so as to conserve and permit full utilization of such Natural Gas. The sources of supply, producing rates, quality of gas, metering and related matters shall be matters for study by the East Kalimantan Gas Reserves Management Committee, consisting of representatives from PERTAMINA, VICO, TOTAL Indonesie and Unocal Indonesia Company. ARTICLE 4 ADMINISTRATION AND CONSULTATION 4.1 LNG Sales Contract. PERTAMINA shall be responsible for the due and prompt administration of Badak V for the benefit of PERTAMINA and Contractors. All matters which affect Badak V or the sale and delivery of LNG thereunder will be administered by a representative to be appointed by PERTAMINA and the representative appointed by Contractors under Article 9 hereof. It is understood, however, that it will be necessary from time to time for PERTAMINA, as seller under Badak V, to take certain administrative and operational actions without prior consultation where immediate action is required. Contractors will be promptly advised of any such action. 4.2 Consultation. PERTAMINA and Contractors agree to consult with each other freely on all matters relating to Badak V. PERTAMINA and Contractors shall confer and agree as to any amendment to Badak V or to any permitted action or election thereunder which constitutes a material adjustment in the quantities of LNG to be sold and delivered thereunder or a change in the terms thereof. At the request of any party hereto, a memorandum evidencing any such agreement shall be prepared as soon as feasible and signed by each party hereto. - 6 - 8 ARTICLE 5 TITLE, DELIVERY AND INVOICING 5.1 Title. PERTAMINA will cause the LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas to be delivered to Buyer at the Delivery Point. Title to each Contractor's share of the LNG resulting from the liquefaction of the VICO Contract Gas shall pass to PERTAMINA at the same time as the passage of title from PERTAMINA to Buyer pursuant to Badak V. 5.2 Delivery and Invoicing. At the time of delivery of each cargo of LNG to Buyer at the Delivery Point, PERTAMINA will furnish Contractors with appropriate documentation to evidence the quantity and quality of LNG delivered, together with copies of the invoices to Buyer in respect of the sale of LNG in question. PERTAMINA will also furnish Contractors with a copy of each invoice or billing delivered to Buyer on account of interest or other payment obligation of Buyer pursuant to Badak V concurrently with its being furnished to Buyer. Calculation of the Contract Sales Price, the amount of sales invoices and other billings to Buyer, and any adjustments, shall be reviewed and approved by PERTAMINA and Contractors prior to presentation to Buyer. ARTICLE 6 ENTITLEMENT AND PAYMENT 6.1 Contractors' Entitlement. The amounts to be paid to each Contractor for its share of the LNG resulting from the liquefaction of Natural Gas to be supplied under this Supply Agreement shall be its Production Sharing Percentage of the Producers' Percentage of the sum of: (a) all amounts to be paid by Buyer to PERTAMINA for Package V Badak V Quantities; - 7 - 9 (b) all other amounts which Buyer shall become obligated to pay pursuant to Badak V with regard to deliveries of Package V Badak V Quantities thereunder including, but not limited to, any interest accruing on overdue invoice payments; (c) amounts payable by insurers in respect of LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas; and (d) interest earned on any of the amounts referred to in this Section 6.1. 6.2 PERTAMINA Assignment of Contractor Percentage Share. In order to arrange for the receipt by each Contractor of the payments to which such Contractor is entitled under Section 6.1 hereof, PERTAMINA hereby assigns to each Contractor that Contractor's Production Sharing Percentage of the Producers' Percentage of all amounts referred to in Section 6.1 hereof. 6.3 Method of Payment. Throughout the term of this Supply Agreement, all those payments referred to in Section 6.1 hereof shall be paid in U.S. Dollars, directly to BankAmerica International in New York City (or such other leading bank in the United States as shall be selected by PERTAMINA and approved by Contractors) pursuant to that certain Amended and Restated Bontang Excess Sales Trustee and Paying Agent Agreement, dated as of February 9, 1988, among PERTAMINA, Contractors, the production sharing contractors in the Other Contract Areas and the Trustee thereunder, as the same may be from time to time amended. Amounts so received by the Trustee shall be used for payment of (i) an agreed portion of Plant Operating Costs; and (ii) other costs approved by PERTAMINA and Contractors. Amounts received by the Trustee, to the extent that they are not used for payment of the costs referred to in the preceding sentence, shall, insofar as they are applicable to the VICO Contract Gas, be disbursed to PERTAMINA and each Contractor in accordance with its Production Sharing Percentage at a bank or banks of its choice. - 8 - 10 6.4 Contractors' Right to Payment. The right of Contractors to the payments provided for in this Article 6 shall extend throughout the term of this Supply Agreement and shall not be affected by the production rates or sources of Natural Gas supplied from the VICO Contract Gas or the Other Contract Gas from time to time during the term hereof. ARTICLE 7 DELIVERABILITY 7.1 Oversupply of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement exceed in the aggregate the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be increased, and Contractors, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the Other Contract Areas equal to such excess quantities. 7.2 Shortfall of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement are in the aggregate less than the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be reduced, and the production sharing contractors in the Other Contract Areas and any new contract area, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the VICO Contract Area equal to excess quantities delivered from sources within the Gas Supply Area. - 9 - 11 ARTICLE 8 ARBITRATION AND GOVERNING LAW 8.1 Arbitration. All disputes arising in connection with this Supply Agreement shall be finally settled by arbitration conducted in the English language in Paris, France, by three arbitrators under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a juridical acceptance of the award and an order of enforcement, as the case may be. 8.2 Governing Law. This Supply Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, United States of America. ARTICLE 9 CONTRACTORS' REPRESENTATIVE VICO is designated representative by Contractors for performance on behalf of Contractors of their obligations under Section 4.1 hereof and for the giving of notices, responses or other communications to and from Contractors under this Supply Agreement. Such representative may be changed by written notice to such effect from Contractors to PERTAMINA. ARTICLE 10 NOTICES Any notices to the parties shall be in writing and sent by mail, cable, telex or facsimile to the following addresses: - 10 - 12 To PERTAMINA: PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) Jalan Medan Merdeka Timur 1 A Jakarta 10110, Indonesia Attention: Head of BPPKA Cable: PERTAMINA, Jakarta, Indonesia Telex: PERTAMINA, 44134 Jakarta Facsimile: 3846932 To Contractors: VIRGINIA INDONESIA COMPANY (VICO) 6th Floor, Kuningan Plaza South Tower Jl. H.R. Rasuna Said Kav. C11-14 P.O. Box 2828 Jakarta Selatan, Indonesia Attention: President - VICO Indonesia Cable: VICO Telex: 62458 or 62468 Facsimile: 523-6100 cc: VIRGINIA INDONESIA COMPANY One Houston Center 1221 McKinney Suite 700 P.O. Box 1551 Houston, Texas 77251-1551 U.S.A. Attention: Chairman Telex: 166-100 Facsimile: (713) 754-6698 A party may change its address by written notice to the other parties. - 11 - 13 ARTICLE 11 MISCELLANEOUS 11.1 Amendment. This Supply Agreement shall not be amended or modified except by written agreement signed by the parties hereto. 11.2 Successors and Assigns. This Supply Agreement shall inure to the benefit of, and be binding upon, PERTAMINA and each Contractor, their respective successors and assigns, provided that this Supply Agreement shall be assignable by a Contractor only if such Contractor concurrently assigns to the same assignee an equal interest in the Production Sharing Contracts. 11.3 Exclusivity. The parties to this Supply Agreement shall be the only persons or entities entitled to enforce the obligations hereunder of the other parties hereto, and no persons or entities not parties to this Supply Agreement shall have the right to enforce any of the obligations hereunder of any of the parties hereto. 11.4 Headings and Subheadings. The Article headings and subheadings used herein are for convenience of reference only. IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly authorized representatives to execute this Supply Agreement as of the day and year first written above. CONTRACTORS: PERUSAHAAN PERTAMBANGAN MINYAK VIRGINIA INDONESIA COMPANY DAN GAS BUMI NEGARA (PERTAMINA) By /s/ F. ABDA'OE By /s/ C. M. REIMER ------------------------------ ------------------------------------- F. Abda'oe C. M. Reimer - 12 - 14 LASMO SANGA SANGA LIMITED By /s/ J. HOGAN ----------------------------------- J. Hogan OPICOIL HOUSTON, INC. By /s/ C.Y. CHUNG ----------------------------------- C.Y. Chung UNION TEXAS EAST KALIMANTAN LIMITED By /s/ L.D. KALMBACH ----------------------------------- L.D. Kalmbach UNIVERSE GAS & OIL COMPANY, INC. By /s/ T. NORIMATSU ----------------------------------- T. Norimatsu VIRGINIA INTERNATIONAL COMPANY By /s/ J. HOGAN ----------------------------------- J. Hogan - 13 - EX-10.3 4 SECOND SUPPLY AGREEMENT 1 SECOND SUPPLY AGREEMENT FOR PACKAGE V EXCESS SALES (1998-1999 LNG SALES TO CHINESE PETROLEUM CORPORATION UNDER BADAK VI) BETWEEN PERTAMINA AND VIRGINIA INDONESIA COMPANY LASMO SANGA SANGA LIMITED OPICOIL HOUSTON, INC. UNION TEXAS EAST KALIMANTAN LIMITED UNIVERSE GAS & OIL COMPANY, INC. AND VIRGINIA INTERNATIONAL COMPANY DATED: MAY 1, 1996 EFFECTIVE: OCTOBER 25, 1995 2 SECOND SUPPLY AGREEMENT FOR PACKAGE V EXCESS SALES (1998-1999 LNG SALES TO CHINESE PETROLEUM CORPORATION UNDER BADAK VI) THIS SUPPLY AGREEMENT, made and entered into in Jakarta on May 1st, 1996, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO SANGA SANGA LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE GAS & OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY (herein referred to collectively as "Contractors" and individually as "Contractor"), on the other hand, WITNESSETH: A. WHEREAS, Contractors individually own or control all of the interest of "Contractors" in that certain Amended and Restated Production Sharing Contract, dated April 23, 1990, but effective as of August 8, 1968 (such contract as hereafter amended is herein referred to as the "Amended and Restated Production Sharing Contract") and that certain Production Sharing Contract dated April 23, 1990, but effective as of August 8, 1998 (such contract as hereafter amended is herein referred to as the "Renewed Production Sharing Contract"). The Amended and Restated Production Sharing Contract and the Renewed Production Sharing Contract are herein referred to collectively as the "Production Sharing Contracts" and the area covered thereby is herein referred to as the "VICO Contract Area"; B. WHEREAS, pursuant to the Production Sharing Contracts, each of PERTAMINA and Contractors is entitled to take and receive, sell and freely export its respective share of the Natural Gas produced and saved from the VICO Contract Area (the percentage share of such Natural Gas to which each of PERTAMINA and Contractors is entitled, as determined under the Production Sharing Contracts, is herein referred to as the "Production Sharing Percentage" of such party); - 1 - 3 C. WHEREAS, the reserves of Natural Gas in the VICO Contract Area exceed the reserves of Natural Gas committed to be produced, supplied and delivered by PERTAMINA and Contractors to meet a portion of PERTAMINA's existing obligations under LNG sales contracts, LPG sales contracts, and domestic gas sales contracts; D. WHEREAS, PERTAMINA, with assistance from Contractors, has constructed and expanded and is further expanding the Natural Gas liquefaction and related facilities located at Bontang Bay, on the east coast of Kalimantan, Indonesia (herein referred to as the "Bontang Plant"); E. WHEREAS, PERTAMINA and Contractors are parties to the Amended and Restated Bontang Processing Agreement dated as of February 9, 1988 (as from time to time amended, the "Processing Agreement"), which provides for the operation of the Bontang Plant and the payment of the costs of such operation (such costs as determined in accordance with the Processing Agreement are herein referred to as "Plant Operating Costs"); F. WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang Plant in part for the liquefaction of the VICO Contract Gas (as defined in Section 2.2 hereof) and the Other Contract Gas (as defined in Section 2.3 hereof); G. WHEREAS, PERTAMINA, in collaboration with Contractors and its production sharing contractors in other contract areas in East Kalimantan (herein referred to as the "Other Contract Areas"), has entered into an LNG Sales Contract dated October 25, 1995 ("Badak VI," and unless otherwise so stated, any terms defined in Badak VI shall have the same meanings when used herein) with Chinese Petroleum Corporation ("Buyer") pursuant to which PERTAMINA is obligated to sell to Buyer certain quantities of LNG on an ex ship basis; H. WHEREAS, pursuant to Part Two, paragraph 2(f) II of the Memorandum of Understanding Re: Supply Agreements and Package V Sales dated October 5, 1994, between PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas - 2 - 4 ("MOU"), the sales of LNG pursuant to Badak VI to be delivered during the years 1998 and 1999 are Package V Sales as that term is defined in the MOU ("Package V Badak VI Quantities"); I. WHEREAS, arrangements for the transportation of the Package V Badak VI Quantities and for the payment of costs respecting such transportation will be on terms mutually agreeable to PERTAMINA and Contractors (herein referred to as "Transportation Costs"); J. WHEREAS, Badak VI provides that the Natural Gas to be processed into LNG and sold by PERTAMINA under Badak VI is to be produced from the areas in East Kalimantan covered by production sharing contracts between PERTAMINA and its suppliers, which consist of the VICO Contract Area and the Other Contract Areas; K. WHEREAS, PERTAMINA and each Contractor desire to supply and deliver Natural Gas from the VICO Contract Area in support of the performance by PERTAMINA of an agreed portion of its obligations under Badak VI; and L. WHEREAS, each Contractor desires to dispose of its Production Sharing Percentage of the VICO Contract Gas (as herein defined) in accordance with the terms of this Supply Agreement, NOW, THEREFORE, the parties agree as follows: ARTICLE 1 EFFECTIVE DATE AND DURATION This Supply Agreement shall be effective as of October 25, 1995 and shall terminate on the date when all rights and obligations of Contractors hereunder have been satisfied. - 3 - 5 ARTICLE 2 SUPPLY COMMITMENT AND QUANTITY 2.1 Net Gas Requirement. The total quantity of net Natural Gas required to be supplied and delivered out of proved economically recoverable reserves of Natural Gas in East Kalimantan for liquefaction and sale as Package V Badak VI Quantities is estimated to be 0.0452 trillion standard cubic feet ("t.s.c.f."). Such quantity is herein referred to as the "Package V Badak VI Net Gas Requirement." The Package V Badak VI Net Gas Requirement is based on the Fixed Quantities which Buyer has committed to purchase pursuant to the terms of Badak VI. 2.2 VICO Contract Gas. PERTAMINA and Contractors hereby commit and agree to supply and deliver from proved economically recoverable reserves of Natural Gas in specific fields within the VICO Contract Area sufficient Natural Gas (and LNG resulting from the liquefaction thereof) to meet a portion of the Package V Badak VI Net Gas Requirement over the term of this Supply Agreement consisting of 0.0098 t.s.c.f., or 21.5956% thereof. Such quantities of net Natural Gas committed to be supplied pursuant to this Supply Agreement are herein referred to as the "VICO Contract Gas," and the above-stated percentage is herein referred to as the "Producers' Percentage." The specific fields from which the VICO Contract Gas will be committed are identified in the Package V Supplemental Memorandum of Understanding entered into among PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas pursuant to the MOU ("Package V Supplemental Memorandum"). The VICO Contract Area participating fields and the quantities in each field comprising the VICO Contract Gas are as follows:
Participating Fields Quantity of Gas (t.s.c.f.) -------------------- -------------------------- Badak 0.0032 Lampake 0.0003 Mutiara 0.0013 Nilam 0.0034 Semberah 0.0015
- 4 - 6 The quantities committed from each field are subject to revision from time to time, as the reserves from the fields may be updated and as additional data, from deliverability studies and otherwise, become available. 2.3 Other Contract Gas. To meet the balance of the Package V Badak VI Net Gas Requirement, constituting 0.0354 t.s.c.f., or 78.4044% thereof, sufficient Natural Gas (and LNG resulting from the liquefaction thereof) will be committed for supply and delivery by PERTAMINA and its production sharing contractors from proved economically recoverable reserves of Natural Gas in the Other Contract Areas by separate supply agreements, similar hereto and compatible herewith, executed and delivered concurrently herewith (such amounts are herein collectively referred to as the "Other Contract Gas"). The specific fields from which the Other Contract Gas will be committed are also identified in the Package V Supplemental Memorandum. 2.4 DeGolyer and MacNaughton Certification. The amounts of net Natural Gas constituting the VICO Contract Gas and the Other Contract Gas are part of the estimates of proved economically recoverable reserves of Natural Gas as certified by the independent consultant firm of DeGolyer and MacNaughton in written statements based on data available on May 31, 1994. The quantities for the VICO Contract Gas and the Other Contract Gas set forth in Sections 2.2 and 2.3 hereof and the Producers' Percentage were established by PERTAMINA at a meeting on May 29, 1995, of the East Kalimantan Gas Reserves Management Committee. ARTICLE 3 COORDINATION OF GAS SUPPLY The VICO Contract Gas and the Other Contract Gas may be produced from participating fields at times and production rates which may change from time to time during the term hereof so as to secure the optimal ultimate recovery of Natural Gas. The supply of Natural Gas from the VICO Contract Area and the Other Contract Areas will be coordinated by PERTAMINA so as - 5 - 7 to conserve and permit full utilization of such Natural Gas. The sources of supply, producing rates, quality of gas, metering and related matters shall be matters for study by the East Kalimantan Gas Reserves Management Committee, consisting of representatives from PERTAMINA, VICO, TOTAL Indonesie and Unocal Indonesia Company. ARTICLE 4 ADMINISTRATION, INSURANCE AND CONSULTATION 4.1 LNG Sales Contract. PERTAMINA shall be responsible for the due and prompt administration of Badak VI for the benefit of PERTAMINA and Contractors. All matters which affect Badak VI or the sale, transportation and delivery of LNG thereunder will be administered by a representative to be appointed by PERTAMINA and the representative appointed by Contractors under Article 9 hereof. It is understood, however, that it will be necessary from time to time for PERTAMINA, as seller under Badak VI, to take certain administrative and operational actions without prior consultation where immediate action is required. Contractors will be promptly advised of any such action. 4.2 Insurance. PERTAMINA shall ensure that the interests of it and each Contractor in respect of each cargo of LNG transported by PERTAMINA from the Bontang Plant to Buyer shall be adequately insured pursuant to arrangements mutually agreed to by PERTAMINA and each Contractor. PERTAMINA and each Contractor shall be entitled to receive its Production Sharing Percentage of the Producers' Percentage of any proceeds paid under a marine insurance policy covering a cargo of LNG being transported from the Bontang Plant. Such proceeds shall be remitted by the insurer directly to the bank designated as Trustee pursuant to Article 6 hereof. 4.3 Consultation. PERTAMINA and Contractors agree to consult with each other freely on all matters relating to Badak VI. PERTAMINA and Contractors shall confer and agree as to any amendment to Badak VI or to any permitted action or election thereunder which - 6 - 8 constitutes a material adjustment in the quantities of LNG to be sold and delivered thereunder or a change in the terms thereof. At the request of any party hereto, a memorandum evidencing any such agreement shall be prepared as soon as feasible and signed by each party hereto. ARTICLE 5 TITLE, DELIVERY AND INVOICING 5.1 Title. PERTAMINA will cause the LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas to be delivered to Buyer at the Delivery Point. Title to each Contractor's share of the LNG resulting from the liquefaction of the VICO Contract Gas shall pass to PERTAMINA at the same time as the passage of title from PERTAMINA to Buyer pursuant to Badak VI. 5.2 Delivery and Invoicing. At the time of delivery of each cargo of LNG to Buyer at the Delivery Point, PERTAMINA will furnish Contractors with appropriate documentation to evidence the quantity and quality of LNG delivered, together with copies of the invoices to Buyer in respect of the sale of LNG in question. PERTAMINA will also furnish Contractors with a copy of each invoice or billing delivered to Buyer on account of interest or other payment obligation of Buyer pursuant to Badak VI concurrently with its being furnished to Buyer. Calculation of the Contract Sales Price, the amount of sales invoices and other billings to Buyer, and any adjustments shall be reviewed and approved by PERTAMINA and Contractors prior to presentation to Buyer. ARTICLE 6 ENTITLEMENT AND PAYMENT 6.1 Contractors' Entitlement. The amounts to be paid to each Contractor for its share of the LNG resulting from the liquefaction of Natural Gas to be supplied under this Supply - 7 - 9 Agreement shall be its Production Sharing Percentage of the Producers' Percentage of the sum of: (a) all amounts to be paid by Buyer to PERTAMINA for Package V Badak VI Quantities; (b) all other amounts which Buyer shall become obligated to pay pursuant to Badak VI with regard to deliveries of Package V Badak VI Quantities thereunder including, but not limited to, any interest accruing on overdue invoice payments; (c) amounts payable by insurers in respect of LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas; and (d) interest earned on any of the amounts referred to in this Section 6.1. 6.2 PERTAMINA Assignment of Contractor Percentage Share. In order to arrange for the receipt by each Contractor of the payments to which such Contractor is entitled under Section 6.1 hereof, PERTAMINA hereby assigns to each Contractor that Contractor's Production Sharing Percentage of the Producers' Percentage of all amounts referred to in Section 6.1 hereof. 6.3 Method of Payment. Throughout the term of this Supply Agreement, all those payments referred to in Section 6.1 hereof shall be paid in U.S. Dollars, directly to BankAmerica International in New York City (or such other leading bank in the United States as shall be selected by PERTAMINA and approved by Contractors) pursuant to that certain Amended and Restated Bontang Excess Sales Trustee and Paying Agent Agreement, dated as of February 9, 1988, among PERTAMINA, Contractors, the production sharing contractors in the Other Contract Areas and the Trustee thereunder, as the same may be from time to time amended. Amounts so received by the Trustee shall be used for payment of (i) an agreed portion of Plant Operating Costs; (ii) Transportation Costs; and (iii) other costs approved by PERTAMINA and - 8 - 10 Contractors. Amounts received by the Trustee, to the extent that they are not used for payment of the costs referred to in the preceding sentence, shall, insofar as they are applicable to the VICO Contract Gas, be disbursed to PERTAMINA and each Contractor in accordance with its Production Sharing Percentage at a bank or banks of its choice. 6.4 Contractors' Right to Payment. The right of Contractors to the payments provided for in this Article 6 shall extend throughout the term of this Supply Agreement and shall not be affected by the production rates or sources of Natural Gas supplied from the VICO Contract Gas or the Other Contract Gas from time to time during the term hereof. ARTICLE 7 DELIVERABILITY 7.1 Oversupply of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement exceed in the aggregate the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be increased, and Contractors, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the Other Contract Areas equal to such excess quantities. 7.2 Shortfall of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement are in the aggregate less than the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be reduced, and the production sharing contractors in the Other Contract Areas and any new contract area, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural - 9 - 11 Gas from reserves in the VICO Contract Area equal to excess quantities delivered from sources within the Gas Supply Area. ARTICLE 8 ARBITRATION AND GOVERNING LAW 8.1 Arbitration. All disputes arising in connection with this Supply Agreement shall be finally settled by arbitration conducted in the English language in Paris, France, by three arbitrators under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a juridical acceptance of the award and an order of enforcement, as the case may be. 8.2 Governing Law. This Supply Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, United States of America. ARTICLE 9 CONTRACTORS' REPRESENTATIVE VICO is designated representative by Contractors for performance on behalf of Contractors of their obligations under Section 4.1 hereof and for the giving of notices, responses or other communications to and from Contractors under this Supply Agreement. Such representative may be changed by written notice to such effect from Contractors to PERTAMINA. - 10 - 12 ARTICLE 10 NOTICES Any notices to the parties shall be in writing and sent by mail, cable, telex or facsimile to the following addresses: To PERTAMINA: PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) Jalan Medan Merdeka Timur 1 A Jakarta 10110, Indonesia Attention: Head of BPPKA Cable: PERTAMINA, Jakarta, Indonesia Telex: PERTAMINA, 44134 Jakarta Facsimile: 3846932 To Contractors: VIRGINIA INDONESIA COMPANY (VICO) 6th Floor, Kuningan Plaza South Tower Jl. H.R. Rasuna Said Kav. C11-14 P.O. Box 2828 Jakarta Selatan, Indonesia Attention: President - VICO Indonesia Cable: VICO Telex: 62458 or 62468 Facsimile: 523-6100 cc: VIRGINIA INDONESIA COMPANY One Houston Center 1221 McKinney Suite 700 P.O. Box 1551 Houston, Texas 77251-1551 U.S.A. Attention: Chairman Telex: 166-100 Facsimile: (713) 754-6698 - 11 - 13 A party may change its address by written notice to the other parties. ARTICLE 11 MISCELLANEOUS 11.1 Amendment. This Supply Agreement shall not be amended or modified except by written agreement signed by the parties hereto. 11.2 Successors and Assigns. This Supply Agreement shall inure to the benefit of, and be binding upon, PERTAMINA and each Contractor, their respective successors and assigns, provided that this Supply Agreement shall be assignable by a Contractor only if such Contractor concurrently assigns to the same assignee an equal interest in the Production Sharing Contracts. 11.3 Exclusivity. The parties to this Supply Agreement shall be the only persons or entities entitled to enforce the obligations hereunder of the other parties hereto, and no persons or entities not parties to this Supply Agreement shall have the right to enforce any of the obligations hereunder of any of the parties hereto. 11.4 Headings and Subheadings. The Article headings and subheadings used herein are for convenience of reference only. - 12 - 14 IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly authorized representatives to execute this Supply Agreement as of the day and year first written above. CONTRACTORS: PERUSAHAAN PERTAMBANGAN MINYAK VIRGINIA INDONESIA COMPANY DAN GAS BUMI NEGARA (PERTAMINA) BY /s/ F. ABDA'OE BY /s/ C. M. REIMER ----------------------------- ----------------------------------- F. Abda'oe C. M. Reimer LASMO SANGA SANGA LIMITED BY /s/ J. HOGAN ----------------------------------- J. Hogan OPICOIL HOUSTON, INC. BY /s/ C.Y. CHUNG ----------------------------------- C.Y. Chung UNION TEXAS EAST KALIMANTAN LIMITED BY /s/ L.D. KALMBACH ----------------------------------- L.D. Kalmbach UNIVERSE GAS & OIL COMPANY, INC. BY /s/ T. NORIMATSU ----------------------------------- T. Norimatsu - 13 - 15 VIRGINIA INTERNATIONAL COMPANY BY /s/ J. HOGAN ----------------------------------- J. Hogan - 14 - EX-10.4 5 PACKAGE VI SUPPLY AGREEMENT 1 PACKAGE VI SUPPLY AGREEMENT FOR NATURAL GAS IN SUPPORT OF 2000-2017 LNG SALES TO KOREA GAS CORPORATION UNDER BADAK V BETWEEN PERTAMINA AND VIRGINIA INDONESIA COMPANY LASMO SANGA SANGA LIMITED OPICOIL HOUSTON, INC. UNION TEXAS EAST KALIMANTAN LIMITED UNIVERSE GAS & OIL COMPANY, INC. AND VIRGINIA INTERNATIONAL COMPANY DATED: MAY 1, 1996 EFFECTIVE: AUGUST 12, 1995 2 PACKAGE VI SUPPLY AGREEMENT FOR NATURAL GAS IN SUPPORT OF 2000-2017 LNG SALES TO KOREA GAS CORPORATION UNDER BADAK V THIS SUPPLY AGREEMENT, made and entered into in Jakarta on May 1st, 1996, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO SANGA SANGA LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE GAS & OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY (herein referred to collectively as "Contractors" and individually as "Contractor"), on the other hand, WITNESSETH: A. WHEREAS, Contractors individually own or control all of the interest of "Contractors" in that certain Amended and Restated Production Sharing Contract, dated April 23, 1990, but effective as of August 8, 1968 (such contract as hereafter amended is herein referred to as the "Amended and Restated Production Sharing Contract") and that certain Production Sharing Contract dated April 23, 1990, but effective as of August 8, 1998 (such contract as hereafter amended is herein referred to as the "Renewed Production Sharing Contract"). The Amended and Restated Production Sharing Contract and the Renewed Production Sharing Contract are herein referred to collectively as the "Production Sharing Contracts" and the area covered thereby is herein referred to as the "VICO Contract Area"; and B. WHEREAS, pursuant to the Production Sharing Contracts, each of PERTAMINA and Contractors is entitled to take and receive, sell and freely export its respective share of the Natural Gas produced and saved from the VICO Contract Area (the percentage share of such Natural Gas to which each of PERTAMINA and Contractors is entitled, as determined under the Production Sharing Contracts, is herein referred to as the "Production Sharing Percentage" of such party); and - 1 - 3 C. WHEREAS, the reserves of Natural Gas in the VICO Contract Area exceed the reserves of Natural Gas committed to be produced, supplied and delivered by PERTAMINA and Contractors to meet a portion of PERTAMINA's existing obligations under LNG sales contracts, LPG sales contracts, and domestic gas sales contracts; and D. WHEREAS, PERTAMINA, with assistance from Contractors, has constructed and expanded and is further expanding the Natural Gas liquefaction and related facilities located at Bontang Bay, on the east coast of Kalimantan, Indonesia (herein referred to as the "Bontang Plant"); and E. WHEREAS, funds for the expansion of the liquefaction plant will be provided to PERTAMINA through financing of the cost of such expansion on terms, mutually agreeable to PERTAMINA and Contractors, which provide for the repayment of funds provided pursuant to such financing and the cost of such funds (repayment of funds and the cost of such funds are hereinafter referred to as "Financing Costs"); and F. WHEREAS, PERTAMINA and Contractors are parties to the Amended and Restated Bontang Processing Agreement dated as of February 9, 1988 (as from time to time amended, the "Processing Agreement"), which provides for the operation of the Bontang Plant and the payment of the costs of such operation (such costs as determined in accordance with the Processing Agreement are herein referred to as "Plant Operating Costs"); and G. WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang Plant in part for the liquefaction of the VICO Contract Gas (as defined in Section 2.2 hereof) and the Other Contract Gas (as defined in Section 2.3 hereof); and H. WHEREAS, PERTAMINA, in collaboration with Contractors and its production sharing contractors in other contract areas in East Kalimantan (herein referred to as the "Other Contract Areas"), has entered into an LNG Sales and Purchase Contract dated August 12, 1995 ("Badak V", and unless otherwise so stated, any terms defined in Badak V shall have the same - 2 - 4 meanings when used herein) with Korea Gas Corporation ("Buyer") pursuant to which PERTAMINA is obligated to sell to Buyer certain quantities of LNG on an FOB basis; and I. WHEREAS, pursuant to Part Two, paragraph 2(f) of the Memorandum of Understanding Re: Supply Agreements and Package VI Sales dated October 27, 1995, between PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas ("MOU"), the sales of LNG pursuant to Badak V in respect of the period 2000 to 2017 are Package VI Sales as that term is defined in the MOU ("Package VI Badak V Quantities"); and J. WHEREAS, Badak V provides that the Natural Gas to be processed into LNG and sold by PERTAMINA under Badak V is to be produced from the areas in East Kalimantan covered by production sharing contracts between PERTAMINA and its suppliers, which consist of the VICO Contract Area and the Other Contract Areas; and K. WHEREAS, PERTAMINA and each Contractor desire to supply and deliver Natural Gas from the VICO Contract Area in support of the performance by PERTAMINA of an agreed portion of its obligations under Badak V; and L. WHEREAS, each Contractor desires to dispose of its Production Sharing Percentage of the VICO Contract Gas (as herein defined) in accordance with the terms of this Supply Agreement, NOW, THEREFORE, the parties agree as follows: ARTICLE 1 EFFECTIVE DATE AND DURATION This Supply Agreement shall be effective as of August 12, 1995, and shall terminate on the date when all rights and obligations of Contractors hereunder have been satisfied. - 3 - 5 ARTICLE 2 SUPPLY COMMITMENT AND QUANTITY 2.1 Net Gas Requirement. The total quantity of net Natural Gas required to be supplied and delivered out of proved economically recoverable reserves of Natural Gas in East Kalimantan for liquefaction and sale as Package VI Badak V Quantities is estimated to be 0.9692 trillion standard cubic feet ("t.s.c.f."). Such quantity is herein referred to as the "Package VI Badak V Net Gas Requirement". The Package VI Badak V Net Gas Requirement is based on the Fixed Quantities for the years 2000-2017 which Buyer has committed to purchase pursuant to the terms of Badak V. 2.2 VICO Contract Gas. PERTAMINA and Contractors hereby commit and agree to supply and deliver from proved economically recoverable reserves of Natural Gas in specific fields within the VICO Contract Area sufficient Natural Gas (and LNG resulting from the liquefaction thereof) to meet a portion of the Package VI Badak V Net Gas Requirement over the term of this Supply Agreement consisting of 0.2093 t.s.c.f., or 21.6% thereof, subject to adjustment as provided in Section 2.4 hereof. Such quantities of net Natural Gas committed to be supplied pursuant to this Supply Agreement are herein referred to as the "VICO Contract Gas", and the above-stated percentage is herein referred to as the "Producers' Percentage". The specific fields from which the VICO Contract Gas will be committed, as well as the quantities committed from each field, will be identified in a supplemental memorandum of understanding to be entered into among PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas pursuant to the MOU ("Package VI Supplemental Memorandum"). The quantities committed from each field are subject to revision from time to time, as the reserves from the fields may be updated and as additional data, from deliverability studies and otherwise, become available. 2.3 Other Contract Gas. To meet the balance of the Package VI Badak V Net Gas Requirement, constituting 0.7599 t.s.c.f., or 78.4% thereof, subject to adjustment as provided in - 4 - 6 Section 2.4 hereof, sufficient Natural Gas (and LNG resulting from the liquefaction thereof) will be committed for supply and delivery by PERTAMINA and its production sharing contractors from proved economically recoverable reserves of Natural Gas in the Other Contract Areas by separate supply agreements, similar hereto and compatible herewith, executed and delivered concurrently herewith (such amounts are herein collectively referred to as the "Other Contract Gas"). The specific fields from which the Other Contract Gas will be committed, as well as the quantities committed from each field, will be identified in the Package VI Supplemental Memorandum. 2.4 DeGolyer and MacNaughton Certification. The amounts of net Natural Gas constituting the VICO Contract Gas and the Other Contract Gas are part of the estimates of proved economically recoverable reserves of Natural Gas as certified by the independent consultant firm of DeGolyer and MacNaughton in written statements based on data available on April 30, 1995. The quantities for the VICO Contract Gas and the Other Contract Gas set forth in Sections 2.2 and 2.3 hereof and the Producers' Percentage were established by PERTAMINA at a meeting on May 29, 1995 of the East Kalimantan Gas Reserves Management Committee to be used only on a provisional basis until such time as the identity of the participating fields and the quantities in each field which comprise the VICO Contract Gas and the Other Contract Gas and the Producers' Percentage shall be adjusted and documented in the Package VI Supplemental Memorandum in accordance with the MOU. 2.5 Addendum. Upon completion of the adjustments provided for in Section 2.4 hereof but not later than April 30, 1996, PERTAMINA and Contractors shall execute an addendum to this Supply Agreement confirming the VICO Contract Area participating fields, the quantities in each field which comprise the VICO Contract Gas and the Other Contract Gas and the Producers' Percentage. Pending completion of such adjustments, the Producers' Percentage set out in Section 2.2 hereof shall be used on a provisional basis. - 5 - 7 ARTICLE 3 COORDINATION OF GAS SUPPLY The VICO Contract Gas and the Other Contract Gas may be produced from participating fields at times and production rates which may change from time to time during the term hereof so as to secure the optimal ultimate recovery of Natural Gas. The supply of Natural Gas from the VICO Contract Area and the Other Contract Areas will be coordinated by PERTAMINA so as to conserve and permit full utilization of such Natural Gas. The sources of supply, producing rates, quality of gas, metering and related matters shall be matters for study by the East Kalimantan Gas Reserves Management Committee, consisting of representatives from PERTAMINA, VICO, TOTAL Indonesie, Unocal Indonesia Company and Indonesia Petroleum, Ltd. ARTICLE 4 ADMINISTRATION AND CONSULTATION 4.1 LNG Sales Contract. PERTAMINA shall be responsible for the due and prompt administration of Badak V for the benefit of PERTAMINA and Contractors. All matters which affect Badak V or the sale and delivery of LNG thereunder will be administered by a representative to be appointed by PERTAMINA and the representative appointed by Contractors under Article 9 hereof. It is understood, however, that it will be necessary from time to time for PERTAMINA, as seller under Badak V, to take certain administrative and operational actions without prior consultation where immediate action is required. Contractors will be promptly advised of any such action. 4.2 Consultation. PERTAMINA and Contractors agree to consult with each other freely on all matters relating to Badak V. PERTAMINA and Contractors shall confer and agree as to any amendment to Badak V or to any permitted action or election thereunder which constitutes a material adjustment in the quantities of LNG to be sold and delivered thereunder or - 6 - 8 a change in the terms thereof. At the request of any party hereto, a memorandum evidencing any such agreement shall be prepared as soon as feasible and signed by each party hereto. ARTICLE 5 TITLE, DELIVERY AND INVOICING 5.1 Title. PERTAMINA will cause the LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas to be delivered to Buyer at the Delivery Point. Title to each Contractor's share of the LNG resulting from the liquefaction of the VICO Contract Gas shall pass to PERTAMINA at the same time as the passage of title from PERTAMINA to Buyer pursuant to Badak V. 5.2 Delivery and Invoicing. At the time of delivery of each cargo of LNG to Buyer at the Delivery Point, PERTAMINA will furnish Contractors with appropriate documentation to evidence the quantity and quality of LNG delivered, together with copies of the invoices to Buyer in respect of the sale of LNG in question. PERTAMINA will also furnish Contractors with a copy of each invoice or billing delivered to Buyer on account of interest or other payment obligation of Buyer pursuant to Badak V concurrently with its being furnished to Buyer. Calculation of the Contract Sales Price, the amount of sales invoices and other billings to Buyer, and any adjustments, shall be reviewed and approved by PERTAMINA and Contractors prior to presentation to Buyer. ARTICLE 6 ENTITLEMENT AND PAYMENT 6.1 Contractors' Entitlement. The amounts to be paid to each Contractor for its share of the LNG resulting from the liquefaction of Natural Gas to be supplied under this Supply Agreement shall be its Production Sharing Percentage of the Producers' Percentage of the sum of: - 7 - 9 (a) all amounts to be paid by Buyer to PERTAMINA for Package VI Badak V Quantities; (b) all other amounts which Buyer shall become obligated to pay pursuant to Badak V with regard to deliveries of Package VI Badak V Quantities, including, but not limited to: (i) amounts payable by Buyer for its failure to take quantities it is obligated to purchase under Badak V; (ii) any incremental payments applicable to make-up deliveries; and (iii) any interest accruing on overdue invoice payments; (c) amounts payable by insurers in respect of LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas; and (d) interest earned on any of the amounts referred to in this Section 6.1. 6.2 PERTAMINA Assignment of Contractor Percentage Share. In order to arrange for the receipt by each Contractor of the payments to which such Contractor is entitled under Section 6.1 hereof, PERTAMINA hereby assigns to each Contractor that Contractor's Production Sharing Percentage of the Producers' Percentage of all amounts referred to in Section 6.1 hereof. 6.3 Method of Payment. Throughout the term of this Supply Agreement, all those payments referred to in Section 6.1 hereof shall be paid in U.S. Dollars, directly to BankAmerica International in New York City (or such other leading bank in the United States as shall be selected by PERTAMINA and approved by Contractors) pursuant to a Trustee and Paying Agent Agreement, the parties to which shall be PERTAMINA, Contractors, the production sharing contractors in the Other Contract Areas and the Trustee thereunder, as the same may be from time to time amended. Amounts so received by the Trustee shall be used for payment of (i) an agreed portion of Plant Operating Costs; (ii) Financing Costs; and (iii) other costs approved by PERTAMINA and Contractors. Amounts received by the Trustee, to the extent that they are not - 8 - 10 used for payment of the costs referred to in the preceding sentence, shall, insofar as they are applicable to the VICO Contract Gas, be disbursed to PERTAMINA and each Contractor in accordance with its Production Sharing Percentage at a bank or banks of its choice. 6.4 Contractors' Right to Payment. The right of Contractors to the payments provided for in this Article 6 shall extend throughout the term of this Supply Agreement and shall not, except in the event of an occurrence contemplated in Section 7.3, be affected by the production rates or sources of Natural Gas supplied from the VICO Contract Gas or the Other Contract Gas from time to time during the term hereof. ARTICLE 7 DELIVERABILITY 7.1 Oversupply of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement exceed in the aggregate the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be increased, except in the event of an occurrence contemplated in Section 7.3, and Contractors, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the Other Contract Areas equal to such excess quantities. 7.2 Shortfall of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement are in the aggregate less than the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be reduced, except in the event of an occurrence contemplated in Section 7.3, and the production sharing contractors in the Other Contract Areas and any new contract area, together with PERTAMINA, will be credited with and have the right to receive revenue from - 9 - 11 future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the VICO Contract Area equal to excess quantities delivered from sources within the Gas Supply Area. 7.3 Insufficiency of Deliverable Reserves. If an insufficiency of deliverable reserves of Natural Gas shall occur which precludes the delivery from participating field(s) within the VICO Contract Area or from participating field(s) within any of the Other Contract Areas of the aggregate amount of Natural Gas committed therefrom pursuant to this Supply Agreement or to any of the supply agreements referred to in Section 2.3 hereof over the term thereof, then such insufficiency shall be delivered from field(s), including but not limited to the participating field(s) within the area(s) not then experiencing an insufficiency of deliverable reserves, and the Producers' Percentage shall thereupon be adjusted (together with a corresponding adjustment to the VICO Contract Gas) to reflect the revised share of the net Natural Gas in support of PERTAMINA's obligations under Badak V in respect of the period 2000-2017 which will be supplied and delivered from the VICO Contract Area over the term hereof, such adjustment in the Producers' Percentage to apply only to payments provided for in Article 6 received after the date thereof. The procedure for determining (i) an insufficiency in deliverable reserves, (ii) the allocation of the right to supply such insufficiency among the VICO Contract Area, the Other Contract Areas and any new contract area and (iii) the calculation of the future Producers' Percentage, shall be made in accordance with principles to be decided upon by PERTAMINA. ARTICLE 8 ARBITRATION AND GOVERNING LAW 8.1 Arbitration. All disputes arising in connection with this Supply Agreement shall be finally settled by arbitration conducted in the English language in Paris, France, by three arbitrators under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a juridical acceptance of the award and an order of enforcement, as the case may be. - 10 - 12 8.2 Governing Law. This Supply Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, United States of America. ARTICLE 9 CONTRACTORS' REPRESENTATIVE VICO is designated representative by Contractors for performance on behalf of Contractors of their obligations under Section 4.1 hereof and for the giving of notices, responses or other communications to and from Contractors under this Supply Agreement. Such representative may be changed by written notice to such effect from Contractors to PERTAMINA. ARTICLE 10 NOTICES Any notices to the parties shall be in writing and sent by mail, cable, telex or facsimile to the following addresses: To PERTAMINA: PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) Jalan Medan Merdeka Timur 1 A Jakarta 10110, Indonesia Attention: Head of BPPKA Cable: PERTAMINA, Jakarta, Indonesia Telex: PERTAMINA, 44134 Jakarta Facsimile: 384-6932 To Contractors: VIRGINIA INDONESIA COMPANY (VICO) 6th Floor, Plaza Kuningan Menara Selatan - 11 - 13 Jl. H.R. Rasuna Said Kav. C11-14 P.O. Box 2828 Jakarta 12940, Indonesia Attention: President - VICO Indonesia Cable: VICO Telex: 62458 Facsimile: 523-6894 cc: VIRGINIA INDONESIA COMPANY One Houston Center 1221 McKinney Suite 700 P.O. Box 1551 Houston, Texas 77251-1551 U.S.A. Attention: Chairman Telex: 166-100 Facsimile: (713) 754-6698 A party may change its address by written notice to the other parties. ARTICLE 11 MISCELLANEOUS 11.1 Amendment. This Supply Agreement shall not be amended or modified except by written agreement signed by the parties hereto. 11.2 Successors and Assigns. This Supply Agreement shall inure to the benefit of, and be binding upon, PERTAMINA and each Contractor, their respective successors and assigns, provided that this Supply Agreement shall be assignable by a Contractor only if such Contractor concurrently assigns to the same assignee an equal interest in the Production Sharing Contracts. - 12 - 14 11.3 Exclusivity. The parties to this Supply Agreement shall be the only persons or entities entitled to enforce the obligations hereunder of the other parties hereto, and no persons or entities not parties to this Supply Agreement shall have the right to enforce any of the obligations hereunder of any of the parties hereto. 11.4 Headings and Subheadings. The Article headings and subheadings used herein are for convenience of reference only. IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly authorized representatives to execute this Supply Agreement as of the day and year first written above. CONTRACTORS: PERUSAHAAN PERTAMBANGAN VIRGINIA INDONESIA COMPANY MINYAK DAN GAS BUMI NEGARA (PERTAMINA) By /s/ F. ABDA'OE By /s/ C. M. REIMER ------------------------------------- --------------------------------- F. Abda'oe C. M. Reimer LASMO SANGA SANGA LIMITED By /s/ J. HOGAN --------------------------------- J. Hogan OPICOIL HOUSTON, INC. By /s/ C.Y. CHUNG --------------------------------- C.Y. Chung - 13 - 15 UNION TEXAS EAST KALIMANTAN LIMITED By /s/ L.D. KALMBACH --------------------------------- L.D. Kalmbach UNIVERSE GAS & OIL COMPANY, INC. By /s/ T. NORIMATSU --------------------------------- T. Norimatsu VIRGINIA INTERNATIONAL COMPANY By /s/ J. HOGAN --------------------------------- J. Hogan - 14 - EX-10.5 6 PACKAGE VI SUPPLY AGREEMENT 1 PACKAGE VI SUPPLY AGREEMENT FOR NATURAL GAS IN SUPPORT OF 2000-2017 LNG SALES TO CHINESE PETROLEUM CORPORATION UNDER BADAK VI BETWEEN PERTAMINA AND VIRGINIA INDONESIA COMPANY LASMO SANGA SANGA LIMITED OPICOIL HOUSTON, INC. UNION TEXAS EAST KALIMANTAN LIMITED UNIVERSE GAS & OIL COMPANY, INC. AND VIRGINIA INTERNATIONAL COMPANY DATED: MAY 1, 1996 EFFECTIVE: OCTOBER 25, 1995 2 PACKAGE VI SUPPLY AGREEMENT FOR NATURAL GAS IN SUPPORT OF 2000-2017 LNG SALES TO CHINESE PETROLEUM CORPORATION UNDER BADAK VI THIS SUPPLY AGREEMENT, made and entered into in Jakarta on May 1st, 1996, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO SANGA SANGA LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE GAS & OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY (herein referred to collectively as "Contractors" and individually as "Contractor"), on the other hand, WITNESSETH: A. WHEREAS, Contractors individually own or control all of the interest of "Contractors" in that certain Amended and Restated Production Sharing Contract, dated April 23, 1990, but effective as of August 8, 1968 (such contract as hereafter amended is herein referred to as the "Amended and Restated Production Sharing Contract") and that certain Production Sharing Contract dated April 23, 1990, but effective as of August 8, 1998 (such contract as hereafter amended is herein referred to as the "Renewed Production Sharing Contract"). The Amended and Restated Production Sharing Contract and the Renewed Production Sharing Contract are herein referred to collectively as the "Production Sharing Contracts" and the area covered thereby is herein referred to as the "VICO Contract Area"; and B. WHEREAS, pursuant to the Production Sharing Contracts, each of PERTAMINA and Contractors is entitled to take and receive, sell and freely export its respective share of the Natural Gas produced and saved from the VICO Contract Area (the percentage share of such Natural Gas to which each of PERTAMINA and Contractors is entitled, as determined under the -1- 3 Production Sharing Contracts, is herein referred to as the "Production Sharing Percentage" of such party); and C. WHEREAS, the reserves of Natural Gas in the VICO Contract Area exceed the reserves of Natural Gas committed to be produced, supplied and delivered by PERTAMINA and Contractors to meet a portion of PERTAMINA's existing obligations under LNG sales contracts, LPG sales contracts, and domestic gas sales contracts; and D. WHEREAS, PERTAMINA, with assistance from Contractors, has constructed and expanded and is further expanding the Natural Gas liquefaction and related facilities located at Bontang Bay, on the east coast of Kalimantan, Indonesia (herein referred to as the "Bontang Plant"); and E. WHEREAS, funds for the expansion of the liquefaction plant will be provided to PERTAMINA through financing of the cost of such expansion on terms, mutually agreeable to PERTAMINA and Contractors, which provide for the repayment of funds provided pursuant to such financing and the cost of such funds (repayment of funds and the cost of such funds are hereinafter referred to as "Financing Costs"); and F. WHEREAS, PERTAMINA and Contractors are parties to the Amended and Restated Bontang Processing Agreement dated as of February 9, 1988 (as from time to time amended, the "Processing Agreement"), which provides for the operation of the Bontang Plant and the payment of the costs of such operation (such costs as determined in accordance with the Processing Agreement are herein referred to as "Plant Operating Costs"); and G. WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang Plant in part for the liquefaction of the VICO Contract Gas (as defined in Section 2.2 hereof) and the Other Contract Gas (as defined in Section 2.3 hereof); and - 2 - 4 H. WHEREAS, PERTAMINA, in collaboration with Contractors and its production sharing contractors in other contract areas in East Kalimantan (herein referred to as the "Other Contract Areas"), has entered into an LNG Sales and Purchase Contract dated October 25, 1995 ("Badak VI", and unless otherwise so stated, any terms defined in Badak VI shall have the same meanings when used herein) with Chinese Petroleum Corporation ("Buyer") pursuant to which PERTAMINA is obligated to sell to Buyer certain quantities of LNG on an ex ship basis; and I. WHEREAS, pursuant to Part Two, paragraph 2(f) 2 of the Memorandum of Understanding Re: Supply Agreements and Package VI Sales dated October 27, 1995, between PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas ("MOU"), the sales of LNG pursuant to Badak VI in respect of the period 2000 to 2017 are Package VI Sales as that term is defined in the MOU (herein referred to as "Package VI Badak VI Quantities"); and J. WHEREAS, arrangements for the transportation of the Package VI Badak VI Quantities and for the payment of costs respecting such transportation will be on terms mutually agreeable to PERTAMINA and Contractors (herein referred to as "Transportation Costs"); and K. WHEREAS, Badak VI provides that the Natural Gas to be processed into LNG and sold and delivered by PERTAMINA under Badak VI is to be produced from the areas in East Kalimantan covered by production sharing contracts between PERTAMINA and its suppliers, which consist of the VICO Contract Area and the Other Contract Areas; and L. WHEREAS, PERTAMINA and each Contractor desire to supply and deliver Natural Gas from the VICO Contract Area in support of the performance by PERTAMINA of an agreed portion of its obligations under Badak VI; and M. WHEREAS, each Contractor desires to dispose of its Production Sharing Percentage of the VICO Contract Gas (as herein defined) in accordance with the terms of this Supply Agreement, - 3 - 5 NOW, THEREFORE, the parties agree as follows: ARTICLE 1 EFFECTIVE DATE AND DURATION This Supply Agreement shall be effective as of October 25, 1995 and shall terminate on the date when all rights and obligations of Contractors hereunder have been satisfied. ARTICLE 2 SUPPLY COMMITMENT AND QUANTITY 2.1 Net Gas Requirement. The total quantity of net Natural Gas required to be supplied and delivered out of proved economically recoverable reserves of Natural Gas in East Kalimantan for liquefaction and sale as Package VI Badak VI Quantities is estimated to be 1.7531 trillion standard cubic feet ("t.s.c.f."). Such quantity is herein referred to as the "Package VI Badak VI Net Gas Requirement". The Package VI Badak VI Net Gas Requirement is based on the Fixed Quantities for the years 2000-2017 which Buyer has committed to purchase pursuant to the terms of Badak VI. 2.2 VICO Contract Gas. PERTAMINA and Contractors hereby commit and agree to supply and deliver from proved economically recoverable reserves of Natural Gas in specific fields within the VICO Contract Area sufficient Natural Gas (and LNG resulting from the liquefaction thereof) to meet a portion of the Package VI Badak VI Net Gas Requirement over the term of this Supply Agreement consisting of 0.3787 t.s.c.f., or 21.6% thereof, subject to adjustment as provided in Section 2.4 hereof. Such quantities of net Natural Gas committed to be supplied pursuant to this Supply Agreement are herein referred to as the "VICO Contract Gas", and the above-stated percentage is herein referred to as the "Producers' Percentage". The specific fields from which the VICO Contract Gas will be committed, as well as the quantities committed - 4 - 6 from each field, will be identified in a supplemental memorandum of understanding to be entered into among PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas pursuant to the MOU ("Package VI Supplemental Memorandum"). The quantities committed from each field are subject to revision from time to time, as the reserves from the fields may be updated and as additional data, from deliverability studies and otherwise, become available. 2.3 Other Contract Gas. To meet the balance of the Package VI Badak VI Net Gas Requirement, constituting 1.3744 t.s.c.f., or 78.4% thereof, subject to adjustment as provided in Section 2.4 hereof, sufficient Natural Gas (and LNG resulting from the liquefaction thereof) will be committed for supply and delivery by PERTAMINA and its production sharing contractors from proved economically recoverable reserves of Natural Gas in the Other Contract Areas by separate supply agreements, similar hereto and compatible herewith, executed and delivered concurrently herewith (such amounts are herein collectively referred to as the "Other Contract Gas"). The specific fields from which the Other Contract Gas will be committed, as well as the quantities committed from each field, will be identified in the Package VI Supplemental Memorandum. 2.4 DeGolyer and MacNaughton Certification. The amounts of net Natural Gas constituting the VICO Contract Gas and the Other Contract Gas are part of the estimates of proved economically recoverable reserves of Natural Gas as certified by the independent consultant firm of DeGolyer and MacNaughton in written statements based on data available on April 30, 1995. The quantities for the VICO Contract Gas and the Other Contract Gas set forth in Sections 2.2 and 2.3 hereof and the Producers' Percentage were established by PERTAMINA at a meeting on May 29, 1995, of the East Kalimantan Gas Reserves Management Committee to be used only on a provisional basis until such time as the identity of the participating fields and the quantities in each field which comprise the VICO Contract Gas, and the Other Contract Gas and the - 5 - 7 Producers' Percentage shall be adjusted and documented in the Package VI Supplemental Memorandum in accordance with the MOU. 2.5 Addendum. Upon completion of the adjustments provided for in Section 2.4 hereof but not later than April 30, 1996, PERTAMINA and Contractors shall execute an addendum to this Supply Agreement confirming the VICO Contract Area participating fields, the quantities in each field which comprise the VICO Contract Gas and the Other Contract Gas and the Producers' Percentage. Pending completion of such adjustments, the Producers' Percentage set out in Section 2.2 hereof shall be used on a provisional basis. ARTICLE 3 COORDINATION OF GAS SUPPLY The VICO Contract Gas and the Other Contract Gas may be produced from participating fields at times and production rates which may change from time to time during the term hereof so as to secure the optimal ultimate recovery of Natural Gas. The supply of Natural Gas from the VICO Contract Area and the Other Contract Areas will be coordinated by PERTAMINA so as to conserve and permit full utilization of such Natural Gas. The sources of supply, producing rates, quality of gas, metering and related matters shall be matters for study by the East Kalimantan Gas Reserves Management Committee, consisting of representatives from PERTAMINA, VICO, TOTAL Indonesie, Unocal Indonesia Company and Indonesia Petroleum, Ltd. ARTICLE 4 ADMINISTRATION, INSURANCE AND CONSULTATION 4.1 LNG Sales Contract. PERTAMINA shall be responsible for the due and prompt administration of Badak VI for the benefit of PERTAMINA and Contractors. All matters which affect Badak VI or the sale, transportation and delivery of LNG thereunder will be - 6 - 8 administered by a representative to be appointed by PERTAMINA and the representative appointed by Contractors under Article 9 hereof. It is understood, however, that it will be necessary from time to time for PERTAMINA, as seller under Badak VI, to take certain administrative and operational actions without prior consultation where immediate action is required. Contractors will be promptly advised of any such action. 4.2 Insurance. PERTAMINA shall ensure that the interests of it and each Contractor in respect of each cargo of LNG transported by PERTAMINA from the Bontang Plant to Buyer shall be adequately insured pursuant to arrangements mutually agreed to by PERTAMINA and each Contractor. PERTAMINA and each Contractor shall be entitled to receive its Production Sharing Percentage of the Producers' Percentage of any proceeds paid under a marine insurance policy covering a cargo of LNG being transported from the Bontang Plant. Such proceeds shall be remitted by the insurer directly to the bank designated as Trustee pursuant to Article 6 hereof. 4.3 Consultation. PERTAMINA and Contractors agree to consult with each other freely on all matters relating to Badak VI. PERTAMINA and Contractors shall confer and agree as to any amendment to Badak VI or to any permitted action or election thereunder which constitutes a material adjustment in the quantities of LNG to be sold and delivered thereunder or a change in the terms thereof. At the request of any party hereto, a memorandum evidencing any such agreement shall be prepared as soon as feasible and signed by each party hereto. ARTICLE 5 TITLE, DELIVERY AND INVOICING 5.1 Title. PERTAMINA will cause the LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas to be delivered to Buyer at the Delivery Point. Title to each Contractor's share of the LNG resulting from the liquefaction of the VICO Contract - 7 - 9 Gas shall pass to PERTAMINA at the same time as the passage of title from PERTAMINA to Buyer pursuant to Badak VI. 5.2 Delivery and Invoicing. At the time of delivery of each cargo of LNG to Buyer at the Delivery Point, PERTAMINA will furnish Contractors with appropriate documentation to evidence the quantity and quality of LNG delivered, together with copies of the invoices to Buyer in respect of the sale of LNG in question. PERTAMINA will also furnish Contractors with a copy of each invoice or billing delivered to Buyer on account of interest or other payment obligation of Buyer pursuant to Badak VI concurrently with its being furnished to Buyer. Calculation of the Contract Sales Price, the amount of sales invoices and other billings to Buyer, and any adjustments, shall be reviewed and approved by PERTAMINA and Contractors prior to presentation to Buyer. ARTICLE 6 ENTITLEMENT AND PAYMENT 6.1 Contractors' Entitlement. The amounts to be paid to each Contractor for its share of the LNG resulting from the liquefaction of Natural Gas to be supplied under this Supply Agreement shall be its Production Sharing Percentage of the Producers' Percentage of the sum of: (a) all amounts to be paid by Buyer to PERTAMINA for Package VI Badak VI Quantities; (b) all other amounts which Buyer shall become obligated to pay pursuant to Badak VI with regard to deliveries of Package VI Badak VI Quantities, including, but not limited to: (i) amounts payable by Buyer for its failure to take quantities it is obligated to purchase under Badak VI; (ii) any incremental - 8 - 10 payments applicable to make-up deliveries; and (iii) any interest accruing on overdue invoice payments; (c) amounts payable by insurers in respect of LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas; and (d) interest earned on any of the amounts referred to in this Section 6.1. 6.2 PERTAMINA Assignment of Contractor Percentage Share. In order to arrange for the receipt by each Contractor of the payments to which such Contractor is entitled under Section 6.1 hereof, PERTAMINA hereby assigns to each Contractor that Contractor's Production Sharing Percentage of the Producers' Percentage of all amounts referred to in Section 6.1 hereof. 6.3 Method of Payment. Throughout the term of this Supply Agreement, all those payments referred to in Section 6.1 hereof shall be paid in U.S. Dollars, directly to BankAmerica International in New York City (or such other leading bank in the United States as shall be selected by PERTAMINA and approved by Contractors) pursuant to a trustee and paying agent agreement, the parties to which shall be PERTAMINA, Contractors, the production sharing contractors in the Other Contract Areas and the Trustee thereunder, as the same may be from time to time amended. Amounts so received by the Trustee shall be used for payment of (i) an agreed portion of Plant Operating Costs; (ii) Financing Costs; (iii) Transportation Costs; and (iv) other costs approved by PERTAMINA and Contractors. Amounts received by the Trustee, to the extent that they are not used for payment of the costs referred to in the preceding sentence, shall, insofar as they are applicable to the VICO Contract Gas, be disbursed to PERTAMINA and each Contractor in accordance with its Production Sharing Percentage at a bank or banks of its choice. 6.4 Contractors' Right to Payment. The right of Contractors to the payments provided for in this Article 6 shall extend throughout the term of this Supply Agreement and shall not, except in the event of an occurrence contemplated in Section 7.3, be affected by the - 9 - 11 production rates or sources of Natural Gas supplied from the VICO Contract Gas or the Other Contract Gas from time to time during the term hereof. ARTICLE 7 DELIVERABILITY 7.1 Oversupply of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement exceed in the aggregate the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be increased, except in the event of an occurrence contemplated in Section 7.3, and Contractors, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the Other Contract Areas equal to such excess quantities. 7.2 Shortfall of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement are in the aggregate less than the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be reduced, except in the event of an occurrence contemplated in Section 7.3, and the production sharing contractors in the Other Contract Areas and any new contract area, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the VICO Contract Area equal to excess quantities delivered from sources within the Gas Supply Area. 7.3 Insufficiency of Deliverable Reserves. If an insufficiency of deliverable reserves of Natural Gas shall occur which precludes the delivery from participating field(s) within - 10 - 12 the VICO Contract Area or from participating field(s) within any of the Other Contract Areas of the aggregate amount of Natural Gas committed therefrom pursuant to this Supply Agreement or to any of the supply agreements referred to in Section 2.3 hereof over the term thereof, then such insufficiency shall be delivered from field(s), including but not limited to the participating field(s) within the area(s) not then experiencing an insufficiency of deliverable reserves, and the Producers' Percentage shall thereupon be adjusted (together with a corresponding adjustment to the VICO Contract Gas) to reflect the revised share of the net Natural Gas in support of PERTAMINA's obligations under Badak VI in respect of the period 2000 to 2017 which will be supplied and delivered from the VICO Contract Area over the term hereof, such adjustment in the Producers' Percentage to apply only to payments provided for in Article 6 received after the date thereof. The procedure for determining (i) an insufficiency in deliverable reserves, (ii) the allocation of the right to supply such insufficiency among the VICO Contract Area, the Other Contract Areas and any new contract area and (iii) the calculation of the future Producers' Percentage, shall be made in accordance with principles to be decided upon by PERTAMINA. ARTICLE 8 ARBITRATION AND GOVERNING LAW 8.1 Arbitration. All disputes arising in connection with this Supply Agreement shall be finally settled by arbitration conducted in the English language in Paris, France, by three arbitrators under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a juridical acceptance of the award and an order of enforcement, as the case may be. 8.2 Governing Law. This Supply Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, United States of America. - 11 - 13 ARTICLE 9 CONTRACTORS' REPRESENTATIVE VICO is designated representative by Contractors for performance on behalf of Contractors of their obligations under Section 4.1 hereof and for the giving of notices, responses or other communications to and from Contractors under this Supply Agreement. Such representative may be changed by written notice to such effect from Contractors to PERTAMINA. ARTICLE 10 NOTICES Any notices to the parties shall be in writing and sent by mail, cable, telex or facsimile to the following addresses: To PERTAMINA: PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) Jalan Medan Merdeka Timur 1 A Jakarta 10110, Indonesia Attention: Head of BPPKA Cable: PERTAMINA, Jakarta, Indonesia Telex: PERTAMINA, 44134 Jakarta Facsimile: 384-6932 To Contractors: VIRGINIA INDONESIA COMPANY (VICO) 6th Floor, Plaza Kuningan Menara Selatan Jl. H.R. Rasuna Said Kav. C11-14 P.O. Box 2828 Jakarta 12940, Indonesia Attention: President - VICO Indonesia Cable: VICO - 12 - 14 Telex: 62458 Facsimile: 523-6894 cc: VIRGINIA INDONESIA COMPANY One Houston Center 1221 McKinney Suite 700 P.O. Box 1551 Houston, Texas 77251-1551 U.S.A. Attention: Chairman Telex: 166-100 Facsimile: (713) 754-6698 A party may change its address by written notice to the other parties. ARTICLE 11 MISCELLANEOUS 11.1 Amendment. This Supply Agreement shall not be amended or modified except by written agreement signed by the parties hereto. 11.2 Successors and Assigns. This Supply Agreement shall inure to the benefit of, and be binding upon, PERTAMINA and each Contractor, their respective successors and assigns, provided that this Supply Agreement shall be assignable by a Contractor only if such Contractor concurrently assigns to the same assignee an equal interest in the Production Sharing Contracts. 11.3 Exclusivity. The parties to this Supply Agreement shall be the only persons or entities entitled to enforce the obligations hereunder of the other parties hereto, and no persons or entities not parties to this Supply Agreement shall have the right to enforce any of the obligations hereunder of any of the parties hereto. - 13 - 15 11.4 Headings and Subheadings. The Article headings and subheadings used herein are for convenience of reference only. IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly authorized representatives to execute this Supply Agreement as of the day and year first written above. CONTRACTORS: PERUSAHAAN PERTAMBANGAN VIRGINIA INDONESIA COMPANY MINYAK DAN GAS BUMI NEGARA (PERTAMINA) By /s/ F. ABDA'OE By /s/ C. M. REIMER ---------------------------- --------------------------------- F. Abda'oe C. M. Reimer LASMO SANGA SANGA LIMITED By /s/ J. HOGAN --------------------------------- J. Hogan OPICOIL HOUSTON, INC. By /s/ C.Y. CHUNG --------------------------------- C.Y. Chung UNION TEXAS EAST KALIMANTAN LIMITED By /s/ L.D. KALMBACH --------------------------------- L.D. Kalmbach UNIVERSE GAS & OIL COMPANY, INC. By /s/ T. NORIMATSU --------------------------------- T. Norimatsu - 14 - 16 VIRGINIA INTERNATIONAL COMPANY By /s/ J. HOGAN --------------------------------- J. Hogan - 15 - EX-10.6 7 FIRST SUPPLY AGREEMENT 1 FIRST SUPPLY AGREEMENT FOR PACKAGE VI EXCESS SALES (2003-2008 LNG SALES UNDER THE SECOND AMENDED AND RESTATED 1981 BADAK SALES CONTRACT) BETWEEN PERTAMINA AND VIRGINIA INDONESIA COMPANY LASMO SANGA SANGA LIMITED OPICOIL HOUSTON, INC. UNION TEXAS EAST KALIMANTAN LIMITED UNIVERSE GAS & OIL COMPANY, INC. AND VIRGINIA INTERNATIONAL COMPANY DATED: MAY 1, 1996 EFFECTIVE: AUGUST 3, 1995 2 FIRST SUPPLY AGREEMENT FOR PACKAGE VI EXCESS SALES (2003-2008 LNG SALES UNDER THE SECOND AMENDED AND RESTATED 1981 BADAK SALES CONTRACT) THIS SUPPLY AGREEMENT, made and entered into in Jakarta on May 1st, 1996, by and between PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA ("PERTAMINA"), on the one hand, and VIRGINIA INDONESIA COMPANY ("VICO"), LASMO SANGA SANGA LIMITED, OPICOIL HOUSTON, INC., UNION TEXAS EAST KALIMANTAN LIMITED, UNIVERSE GAS & OIL COMPANY, INC., and VIRGINIA INTERNATIONAL COMPANY (herein referred to collectively as "Contractors" and individually as "Contractor"), on the other hand, WITNESSETH: A. WHEREAS, Contractors individually own or control all of the interest of "Contractors" in that certain Amended and Restated Production Sharing Contract, dated April 23, 1990, but effective as of August 8, 1968 (such contract as hereafter amended is herein referred to as the "Amended and Restated Production Sharing Contract") and that certain Production Sharing Contract dated April 23, 1990, but effective as of August 8, 1998 (such contract as hereafter amended is herein referred to as the "Renewed Production Sharing Contract"). The Amended and Restated Production Sharing Contract and the Renewed Production Sharing Contract are herein referred to collectively as the "Production Sharing Contracts" and the area covered thereby is herein referred to as the "VICO Contract Area"; and B. WHEREAS, pursuant to the Production Sharing Contracts, each of PERTAMINA and Contractors is entitled to take and receive, sell and freely export its respective share of the Natural Gas produced and saved from the VICO Contract Area (the percentage share of such Natural Gas to which each of PERTAMINA and Contractors is entitled, as determined under the - 1 - 3 Production Sharing Contracts, is herein referred to as the "Production Sharing Percentage" of such party); and C. WHEREAS, the reserves of Natural Gas in the VICO Contract Area exceed the reserves of Natural Gas committed to be produced, supplied and delivered by PERTAMINA and Contractors to meet a portion of PERTAMINA's existing obligations under LNG sales contracts, LPG sales contracts, and domestic gas sales contracts; and D. WHEREAS, PERTAMINA, with assistance from Contractors, has constructed and expanded and is further expanding the Natural Gas liquefaction and related facilities located at Bontang Bay, on the east coast of Kalimantan, Indonesia (herein referred to as the "Bontang Plant"); and E. WHEREAS, PERTAMINA and Contractors are parties to the Amended and Restated Bontang Processing Agreement dated as of February 9, 1988 (as from time to time amended, the "Processing Agreement"), which provides for the operation of the Bontang Plant and the payment of the costs of such operation (such costs as determined in accordance with the Processing Agreement are herein referred to as "Plant Operating Costs"); and F. WHEREAS, PERTAMINA and Contractors have agreed to use the Bontang Plant in part for the liquefaction of the VICO Contract Gas (as defined in Section 2.2 hereof) and the Other Contract Gas (as defined in Section 2.3 hereof); and G. WHEREAS, PERTAMINA, in collaboration with Contractors and its production sharing contractors in other contract areas in East Kalimantan (herein referred to as the "Other Contract Areas"), has entered into that certain Amended and Restated 1981 Badak LNG Sales Contract dated as of January 1, 1990 (hereafter referred to as the "1981 Sales Contract") with Chubu Electric Power Co., Inc., The Kansai Electric Power Co., Inc., Osaka Gas Co., Ltd., and Toho Gas Co., Ltd. (herein referred to collectively as "Buyers" and individually as "Buyer"); and - 2 - 4 H. WHEREAS, on August 3, 1995, PERTAMINA and Buyers entered into a Second Amended and Restated 1981 LNG Sales Contract ("Second A/R," and unless otherwise so stated, any terms defined in the Second A/R shall have the same meanings when used herein) extending the 1981 Sales Contract for the period April 1, 2003 to March 31, 2011; and I. WHEREAS, pursuant to Part Two, paragraph 2(f) of the Memorandum of Understanding Re: Supply Agreements and Package VI Sales dated October 27, 1995, between PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas ("MOU"), the sales of LNG pursuant to the Second A/R in respect of the Fixed Quantities for the period April 1, 2003 to March 31, 2008 ("Package VI Extension Period") are Package VI Sales as that term is defined in the MOU ("Package VI Extension Quantities"); and J. WHEREAS, the Second A/R provides that the Natural Gas to be processed into LNG and sold by PERTAMINA as Package VI Extension Quantities is to be produced from the Gas Supply Area, which consists of the VICO Contract Area and the Other Contract Areas; and K. WHEREAS, PERTAMINA and each Contractor desire to supply and deliver Natural Gas from the VICO Contract Area in support of the performance by PERTAMINA of an agreed portion of its obligations to deliver Package VI Extension Quantities under the Second A/R; and L. WHEREAS, each Contractor desires to dispose of its Production Sharing Percentage of the VICO Contract Gas (as herein defined) in accordance with the terms of this Supply Agreement, NOW, THEREFORE, the parties agree as follows: - 3 - 5 ARTICLE 1 EFFECTIVE DATE AND DURATION This Supply Agreement shall be effective as of August 3, 1995 and shall terminate on the date when all rights and obligations of Contractors hereunder have been satisfied. ARTICLE 2 SUPPLY COMMITMENT AND QUANTITY 2.1 Net Gas Requirement. The total quantity of net Natural Gas required to be supplied and delivered out of proved economically recoverable reserves of Natural Gas in East Kalimantan for liquefaction and sale as Package VI Extension Quantities is estimated to be 0.9555 trillion standard cubic feet ("t.s.c.f."). Such quantity is herein referred to as the "1981 Extension Package VI Net Gas Requirement." The 1981 Extension Package VI Net Gas Requirement is based on the Package VI Extension Quantities. 2.2 VICO Contract Gas. PERTAMINA and Contractors hereby commit and agree to supply and deliver from proved economically recoverable reserves of Natural Gas in specific fields within the VICO Contract Area sufficient Natural Gas (and LNG resulting from the liquefaction thereof) to meet a portion of the 1981 Extension Package VI Net Gas Requirement over the term of this Supply Agreement consisting of 0.2064 t.s.c.f., or 21.6000% thereof, subject to adjustment as provided in Section 2.4 hereof. Such quantities of net Natural Gas committed to be supplied pursuant to this Supply Agreement are herein referred to as the "VICO Contract Gas", and the above-stated percentage is herein referred to as the "Producers' Percentage". The specific fields from which the VICO Contract Gas will be committed, as well as the quantities committed from each field, will be identified in a supplemental memorandum of understanding to be entered into among PERTAMINA, Contractors and the production sharing contractors in the Other Contract Areas pursuant to the MOU ("Package VI Supplemental Memorandum"). - 4 - 6 The quantities committed from each field are subject to revision from time to time, as the reserves from the fields may be updated and as additional data, from deliverability studies and otherwise, become available. 2.3 Other Contract Gas. To meet the balance of the 1981 Extension Package VI Net Gas Requirement, constituting 0.7492 t.s.c.f., or 78.4000% thereof, subject to adjustment as provided in Section 2.4 hereof, sufficient Natural Gas (and LNG resulting from the liquefaction thereof) will be committed for supply and delivery by PERTAMINA and its production sharing contractors from proved economically recoverable reserves of Natural Gas in the Other Contract Areas by separate supply agreements, similar hereto and compatible herewith, executed and delivered concurrently herewith (such amounts are herein collectively referred to as the "Other Contract Gas"). The specific fields from which the Other Contract Gas will be committed, as well as the quantities committed from each field, will be identified in the Package VI Supplemental Memorandum. 2.4 DeGolyer and MacNaughton Certification. The amounts of net Natural Gas constituting the VICO Contract Gas and the Other Contract Gas are part of the estimates of proved economically recoverable reserves of Natural Gas as certified by the independent consultant firm of DeGolyer and MacNaughton in written statements based on data available on April 30, 1995. The quantities for the VICO Contract Gas and the Other Contract Gas set forth in Sections 2.2 and 2.3 hereof and the Producers' Percentage were established by PERTAMINA at a meeting on May 29, 1995, of the East Kalimantan Gas Reserves Management Committee to be used only on a provisional basis until such time as the identity of the participating fields and the quantities in each field which comprise the VICO Contract Gas and the Other Contract Gas and the Producers' Percentage shall be adjusted and documented in the Package VI Supplemental Memorandum in accordance with the MOU. 2.5 Addendum. Upon completion of the adjustments provided for in Section 2.4 hereof but not later than April 30, 1996, PERTAMINA and Contractors shall execute an - 5 - 7 addendum to this Supply Agreement confirming the VICO Contract Area participating fields, the quantities in each field which comprise the VICO Contract Gas and the Other Contract Gas and the Producers' Percentage. Pending completion of such adjustments, the Producers' Percentage set out in Section 2.2 hereof shall be used on a provisional basis. ARTICLE 3 COORDINATION OF GAS SUPPLY The VICO Contract Gas and the Other Contract Gas may be produced from participating fields at times and production rates which may change from time to time during the term hereof so as to secure the optimal ultimate recovery of Natural Gas. The supply of Natural Gas from the VICO Contract Area and the Other Contract Areas will be coordinated by PERTAMINA so as to conserve and permit full utilization of such Natural Gas. The sources of supply, producing rates, quality of gas, metering and related matters shall be matters for study by the East Kalimantan Gas Reserves Management Committee, consisting of representatives from PERTAMINA, VICO, TOTAL Indonesie, Unocal Indonesia Company and Indonesia Petroleum, Ltd. ARTICLE 4 ADMINISTRATION AND CONSULTATION 4.1 LNG Sales Contract. PERTAMINA shall be responsible for the due and prompt administration of the Second A/R for the benefit of PERTAMINA and Contractors. All matters which affect the Second A/R or the sale and delivery of LNG thereunder will be administered by a representative to be appointed by PERTAMINA and the representative appointed by Contractors under Article 9 hereof. It is understood, however, that it will be necessary from time to time for PERTAMINA, as seller under the Second A/R, to take certain - 6 - 8 administrative and operational actions without prior consultation where immediate action is required. Contractors will be promptly advised of any such action. 4.2 Consultation. PERTAMINA and Contractors agree to consult with each other freely on all matters relating to the Second A/R. PERTAMINA and Contractors shall confer and agree as to any amendment to the Second A/R or to any permitted action or election thereunder which constitutes a material adjustment in the quantities of LNG to be sold and delivered thereunder or a change in the terms thereof. At the request of any party hereto, a memorandum evidencing any such agreement shall be prepared as soon as feasible and signed by each party hereto. ARTICLE 5 TITLE, DELIVERY AND INVOICING 5.1 Title. PERTAMINA will cause the LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas to be delivered to Buyer at the Delivery Point. Title to each Contractor's share of the LNG resulting from the liquefaction of the VICO Contract Gas shall pass to PERTAMINA at the same time as the passage of title from PERTAMINA to Buyer pursuant to the Second A/R. 5.2 Delivery and Invoicing. At the time of delivery of each cargo of LNG to Buyer at the Delivery Point, PERTAMINA will furnish Contractors with appropriate documentation to evidence the quantity and quality of LNG delivered, together with copies of the invoices to Buyer in respect of the sale of LNG in question. PERTAMINA will also furnish Contractors with a copy of each invoice or billing delivered to Buyer on account of interest or other payment obligation of Buyer pursuant to the Second A/R concurrently with its being furnished to Buyer. Calculation of the Contract Sales Price, the amount of sales invoices and other billings to Buyer, and any adjustments, shall be reviewed and approved by PERTAMINA and Contractors prior to presentation to Buyer. - 7 - 9 ARTICLE 6 ENTITLEMENT AND PAYMENT 6.1 Contractors' Entitlement. The amounts to be paid to each Contractor for its share of the LNG resulting from the liquefaction of Natural Gas to be supplied under this Supply Agreement shall be its Production Sharing Percentage of the Producers' Percentage of the sum of: (a) all amounts to be paid by Buyers to PERTAMINA for Package VI Extension Quantities; (b) all other amounts which a Buyer shall become obligated to pay pursuant to the Second A/R with regard to deliveries of Package VI Extension Quantities, including, but not limited to: (i) amounts payable by such Buyer for its failure to take quantities it is obligated to purchase under the Second A/R; (ii) any incremental payments applicable to make-up deliveries; and (iii) any interest accruing on overdue invoice payments; (c) amounts payable by insurers in respect of LNG resulting from the liquefaction of the VICO Contract Gas and the Other Contract Gas; and (d) interest earned on any of the amounts referred to in this Section 6.1. 6.2 PERTAMINA Assignment of Contractor Percentage Share. In order to arrange for the receipt by each Contractor of the payments to which such Contractor is entitled under Section 6.1 hereof, PERTAMINA hereby assigns to each Contractor that Contractor's Production Sharing Percentage of the Producers' Percentage of all amounts referred to in Section 6.1 hereof. - 8 - 10 6.3 Method of Payment. Throughout the term of this Supply Agreement, all those payments referred to in Section 6.1 hereof shall be paid in U.S. Dollars, directly to BankAmerica International in New York City (or such other leading bank in the United States as shall be selected by PERTAMINA and approved by Contractors) pursuant to that certain Amended and Restated Bontang Excess Sales Trustee and Paying Agent Agreement, dated as of February 9, 1988, among PERTAMINA, Contractors, the production sharing contractors in the Other Contract Areas and the Trustee thereunder, as the same may be from time to time amended. Amounts so received by the Trustee shall be used for payment of (i) an agreed portion of Plant Operating Costs, and (ii) other costs approved by PERTAMINA and Contractors. Amounts received by the Trustee, to the extent that they are not used for payment of the costs referred to in the preceding sentence, shall, insofar as they are applicable to the VICO Contract Gas, be disbursed to PERTAMINA and each Contractor in accordance with its Production Sharing Percentage at a bank or banks of its choice. 6.4 Contractors' Right to Payment. The right of Contractors to the payments provided for in this Article 6 shall extend throughout the term of this Supply Agreement and shall not, except in the event of an occurrence contemplated in Section 7.3, be affected by the production rates or sources of Natural Gas supplied from the VICO Contract Gas or the Other Contract Gas from time to time during the term hereof. ARTICLE 7 DELIVERABILITY 7.1 Oversupply of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement exceed in the aggregate the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be increased, except in the event of an occurrence contemplated in Section 7.3, and Contractors, together with PERTAMINA, will be credited with and have the - 9 - 11 right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the Other Contract Areas equal to such excess quantities. 7.2 Shortfall of VICO Contract Gas. If the quantities of net Natural Gas produced from the participating fields within the VICO Contract Area and delivered pursuant to this Supply Agreement are in the aggregate less than the quantity of the VICO Contract Gas, the Producers' Percentage (and the percentage of the revenues to be paid to PERTAMINA and Contractors hereunder) will not be reduced, except in the event of an occurrence contemplated in Section 7.3, and the production sharing contractors in the Other Contract Areas and any new contract area, together with PERTAMINA, will be credited with and have the right to receive revenue from future marketing opportunities in respect of a quantity of net Natural Gas from reserves in the VICO Contract Area equal to excess quantities delivered from sources within the Gas Supply Area. 7.3 Insufficiency of Deliverable Reserves. If an insufficiency of deliverable reserves of Natural Gas shall occur which precludes the delivery from participating field(s) within the VICO Contract Area or from participating field(s) within any of the Other Contract Areas of the aggregate amount of Natural Gas committed therefrom pursuant to this Supply Agreement or to any of the supply agreements referred to in Section 2.3 hereof over the term thereof, then such insufficiency shall be delivered from field(s), including but not limited to the participating field(s) within the area(s) not then experiencing an insufficiency of deliverable reserves, and the Producers' Percentage shall thereupon be adjusted (together with a corresponding adjustment to the VICO Contract Gas) to reflect the revised share of the net Natural Gas in support of PERTAMINA's obligations under the Second A/R in respect of the Package VI Extension Period which will be supplied and delivered from the VICO Contract Area over the term hereof, such adjustment in the Producers' Percentage to apply only to payments provided for in Article 6 received after the date thereof. The procedure for determining (i) an insufficiency in deliverable reserves, (ii) the allocation of the right to supply such insufficiency among the VICO Contract Area, the Other Contract Areas and any new contract area and (iii) the calculation of the future - 10 - 12 Producers' Percentage, shall be made in accordance with principles to be decided upon by PERTAMINA. ARTICLE 8 ARBITRATION AND GOVERNING LAW 8.1 Arbitration. All disputes arising in connection with this Supply Agreement shall be finally settled by arbitration conducted in the English language in Paris, France, by three arbitrators under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Judgment upon the award rendered may be entered in any court having jurisdiction, or application may be made to such court for a juridical acceptance of the award and an order of enforcement, as the case may be. 8.2 Governing Law. This Supply Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, United States of America. ARTICLE 9 CONTRACTORS' REPRESENTATIVE VICO is designated representative by Contractors for performance on behalf of Contractors of their obligations under Section 4.1 hereof and for the giving of notices, responses or other communications to and from Contractors under this Supply Agreement. Such representative may be changed by written notice to such effect from Contractors to PERTAMINA. - 11 - 13 ARTICLE 10 NOTICES Any notices to the parties shall be in writing and sent by mail, cable, telex or facsimile to the following addresses: To PERTAMINA: PERUSAHAAN PERTAMBANGAN MINYAK DAN GAS BUMI NEGARA (PERTAMINA) Jalan Medan Merdeka Timur 1 A Jakarta 10110, Indonesia Attention: Head of BPPKA Cable: PERTAMINA, Jakarta, Indonesia Telex: PERTAMINA, 44134 Jakarta Facsimile: 384-6932 To Contractors: VIRGINIA INDONESIA COMPANY (VICO) 6th Floor, Plaza Kuningan Menara Selatan Jl. H.R. Rasuna Said Kav. C11-14 P.O. Box 2828 Jakarta 12940, Indonesia Attention: President - VICO Indonesia Cable: VICO Telex: 62458 Facsimile: 523-6894 cc: VIRGINIA INDONESIA COMPANY One Houston Center 1221 McKinney Suite 700 P.O. Box 1551 Houston, Texas 77251-1551 U.S.A. Attention: Chairman Telex: 166-100 - 12 - 14 Facsimile: (713) 754-6698 A party may change its address by written notice to the other parties. ARTICLE 11 MISCELLANEOUS 11.1 Amendment. This Supply Agreement shall not be amended or modified except by written agreement signed by the parties hereto. 11.2 Successors and Assigns. This Supply Agreement shall inure to the benefit of, and be binding upon, PERTAMINA and each Contractor, their respective successors and assigns, provided that this Supply Agreement shall be assignable by a Contractor only if such Contractor concurrently assigns to the same assignee an equal interest in the Production Sharing Contracts. 11.3 Exclusivity. The parties to this Supply Agreement shall be the only persons or entities entitled to enforce the obligations hereunder of the other parties hereto, and no persons or entities not parties to this Supply Agreement shall have the right to enforce any of the obligations hereunder of any of the parties hereto. 11.4 Headings and Subheadings. The Article headings and subheadings used herein are for convenience of reference only. - 13 - 15 IN WITNESS WHEREOF, PERTAMINA and Contractors have caused their duly authorized representatives to execute this Supply Agreement as of the day and year first written above. CONTRACTORS: PERUSAHAAN PERTAMBANGAN VIRGINIA INDONESIA COMPANY MINYAK DAN GAS BUMI NEGARA (PERTAMINA) By /s/ F. ABDA'OE By /s/ C.M. REIMER ------------------------- ------------------------------------ F. Abda'oe C.M. Reimer LASMO SANGA SANGA LIMITED By /s/ J. HOGAN ------------------------------------ J. Hogan OPICOIL HOUSTON, INC. By /s/ C.Y. CHUNG ------------------------------------ C.Y. Chung UNION TEXAS EAST KALIMANTAN LIMITED By /s/ L.D. KALMBACH ------------------------------------ L.D. Kalmbach UNIVERSE GAS & OIL COMPANY, INC. By /s/ T. NORIMATSU ------------------------------------ T. Norimatsu - 14 - 16 VIRGINIA INTERNATIONAL COMPANY By /s/ J. HOGAN ------------------------------------ J. Hogan - 15 - EX-15 8 INDEPENDENT ACCOUNTANT AWARENESS LETTER 1 Exhibit 15 INDEPENDENT ACCOUNTANTS' AWARENESS LETTER Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We are aware that Union Texas Petroleum Holdings, Inc. has included our report dated July 24, 1996 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) in the following registration statements: Registration Statement on Form S-8 (No. 33-26105) filed on December 21, 1988 Registration Statement on Form S-8 (No. 33-13575) filed on April 29, 1991 Registration Statement on Form S-8 (No. 33-21684) filed on April 29, 1991 Registration Statement on Form S-8 (No. 33-44045) filed on November 19, 1991 Registration Statement on Form S-8 (No. 33-64928) filed on June 24, 1993 Registration Statement on Form S-8 (No. 33-59213) filed on May 10, 1995 Registration Statement on Form S-3 (No. 33-64049) filed on November 7, 1995 We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, Price Waterhouse LLP Houston, Texas July 24, 1996 1 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S SEC FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 14,261 0 88,301 76 34,812 181,522 2,937,996 1,403,057 1,839,365 200,016 644,071 4,391 0 0 485,094 1,839,365 481,370 497,306 161,322 277,305 24,465 0 14,510 181,026 102,628 78,398 0 0 0 78,398 .90 0
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