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PETROLEUM CONTRACT
BETWEEN
CHINA NATIONAL OFFSHORE OIL CORPORATION
AND
PRIMELINE ENERGY CHINA LIMITED
PRIMELINE PETROLEUM CORPORATION
FOR
CONTRACT AREA 33/07
IN
THE EAST CHINA SEA
OF
THE PEOPLE’S REPUBLIC OF CHINA
15 June 2012
CONTENTS
Preamble...........................................................................................................1
Article 1 Definitions.........................................................................................................2
Article 2 Objective of the Contract..................................................................................8
Article 3 Contract Area....................................................................................................9
Article 4 Contract Term.................................................................................................10
Article 5 Relinquishment........,......................................................................................13
Article 6 Minimum Exploration Work Commitment and Expected Minimum
Exploration Expenditures.................................................................................15
Article 7 Management Organization and Its Function...................................................18
Article 8 Operator..........................................................................................................25
Article 9 Assistance Provided by CNOOC....................................................................33
Article 10 Work Program and Budget.............................................................................34
Article 11 Determination of Commerciality....................................................................37
Article 12 Financing and Cost Recovery.........................................................................41
Article 13 Crude Oil Production and Allocation.............................................................44
Article 14 Quality, Quantity and Price of Crude Oil.......................................................51
Article 15 Preference to the Employment of the Chinese Personnel, Goods and
Services............................................................................................................59
Article 16 Training of Chinese Personnel and Transfer of Technology..........................60
Article 17 Ownership of Assets and Data........................................................................63
Article 18 Associated Natural Gas and Non-associated Natural Gas..............................64
Article 19 Accounting, Auditing and Personnel Costs....................................................71
Article 20 Taxation..........................................................................................................74
Article 21 Insurance................. 75
Article 22 Confidentiality................................................................................................77
Article 23 Assignment.....................................................................................................79
Article 24 Environmental Protection and Safety.............................................................81
Article 25 Force Majeure.................................................................................................81
Article 26 Consultation and Arbitration...........................................................................82
Article 27 Effectiveness, Termination and Cancellation of the Contract........................84
Article 28 The Applicable Law........................................................................................86
Article 29 Language of Contract and Working Language...............................................86
Article 30 Miscellaneous.................................................................................................87
Annex 1 Geographic Location and Co-ordinates of Connecting Points of
Boundary Lines of the Contract Area
Annex II Accounting Procedure
Annex III Personnel Costs
Preamble
THIS CONTRACT is entered into in Qingdao on this 15th day of June, 2012
BETWEEN:
China National Offshore Oil Corporation (hereafter referred to as “CNOOC”), a company
organized and existing under the laws of the People’s Republic of China, having its
headquarters domiciled in Beijing, as one part; and
Primeline Energy China Limited (hereafter referred to as “PECL”), a company organized
and existing under the laws of Cayman Islands, having its headquarters in Hong Kong;
and
Primeline Petroleum Corporation (hereafter referred to as “PPC”), a company organized
and existing under the laws of British Virgin Islands, having its headquarters in Hong
Kong, as the other part.
PECL and PPC are collectively referred to as the “Foreign Contractor”.
WITNESSETH
WHEREAS, all Petroleum resources under the internal waters, territorial sea, and
continental shelf of the People’s Republic of China and under all sea areas within the
limits of national jurisdiction over the maritime resources of the People’s Republic of
China are owned by the People’s Republic of China;
WHEREAS, CNOOC has the exclusive right to explore for, develop, produce and
market Petroleum of the Contract Area in accordance with the Regulations of the
People’s Republic of China on Exploitation of Offshore Petroleum Resources in
Cooperation with Foreign Enterprises” (hereafter referred to as the Petroleum
Regulations”), promulgated on January 30, 1982 and as amended from time to time by
the State Council of the People’s Republic of China;
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WHEREAS, the Foreign Contractor desires and agrees to provide funds, and apply its
appropriate and advanced technology and managerial experience to cooperate with
CNOOC for the exploitation of Petroleum resources within the Contract Area and agrees
to be subject to the laws, decrees, and other rules and regulations of the People’s
Republic of China in the implementation of the Contract.
NOW, THEREFORE, IT IS MUTUALLY AGREED as hereafter set forth:
Article 1
Definitions
The following words and terms used in the Contract shall have, unless otherwise
specified herein, the following meanings:
1.1 “Petroleum” means Crude Oil and Natural Gas deposited in the subsurface and
being extracted or already extracted, including any valuable non-hydrocarbon
substances produced in association witli Crude Oil and/or Natural Gas separated
or extracted therefrom.
1.2 “Crude Oil” means solid and liquid hydrocarbons in their natural state, including
any liquid hydrocarbons extracted from Natural Gas except for methane (CH4).
1.3 “Natural Gas” means Non-associated Natural Gas and Associated Natural Gas in
their natural state.
1.4 “Non-associated Natural Gas” means all gaseous hydrocarbons produced from gas
reservoirs, including wet gas, dry gas and residue gas remaining after the
extraction of liquid hydrocarbons from wet gas.
1.5 “Associated Natural Gas” means all gaseous hydrocarbons produced in
association with Crude oil from oil reservoirs, including residue gas remaining
after the extraction of liquid hydrocarbons therefrom.
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1.6 “Oil Field” means an accumulation of Petroleum within the Contract Area
composed of one or several overlapping oil-bearing zones, within one trap or
within associated traps of the same independent geological structure, which may
or may not be complicated by faulting, and which has commercial value
determined in accordance with the procedures stipulated in Article 11 hereof.
1.7 “Gas Field” means an accumulation of Petroleum within the Contract Area
composed of one or several overlapping gas bearing zones, within one trap or
within associated traps of the same independent geological structure, which may
or may not be complicated by faulting, and which has commercial value
determined in accordance with the procedures stipulated in Article 18 hereof.
1.8 “Petroleum Operations” means the Exploration Operations, the Development
Operations, the Production Operations, and other activities related to these
operations carried out under the Contract.
1.9 “Exploration Operations” means operations carried out for the purpose of
discovering Petroleum-bearing traps by means of geological, geophysical,
geochemical and other methods including exploratory well drilling; all the work
undertaken to determine the commerciality of traps in which Petroleum has been
discovered including Appraisal Wei) drilling; and feasibility studies, formulation
of the Overall Development Program; and activities related to all such operations.
1.10 “Development Operations” means operations carried out for the realization of
Petroleum production from the date of approval of the Overall Development
Program for any Oil Field and/or Gas Field by the competent authorities of the
Chinese Government including design, construction, installation, drilling, and
related research work as well as relevant activities carried out before the Date of
Commencement of Commercial Production for the realization of Petroleum
production.
1.11 “Production Operations” means operations and all activities related thereto carried
out for Petroleum production of an Oil Field and/or Gas Field from the Date of
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Commencement of Commercial Production, such as extraction, injection,
stimulation, treatment, storage, transportation, lifting, etc.
1.12 “Basic Block” means a section of the surface of the earth bounded by the
segments of longitude and latitude of equal distance often (10) minutes.
1.13 “Contract Area” means an offshore surface area demarcated with geographic
coordinates for the cooperative exploitation of Petroleum resources, and in the
Contract, means the offshore surface area stipulated in Article 3.1 hereof.
1.14 “Exploration Area” means an offshore surface area within the Contract Area
which has not been relinquished before the expiration of the exploration period
and in which Development Operations and Production Operations have not begun.
1.15 “Development Area” means a portion of the Contract Area covering an Oil Field
and/or Gas Field which has been designated for development and any potential
contiguous extension areas to such Field(s) within the Contract Area. The
Development Area(s) shall be proposed by the Operator, demarcated by the Joint
Management Committee (“JMC”) and delineated as such in the Overall
Development Program approved by the competent authorities of the Chinese
Government. The Development Area shall automatically cease to be in force as of
the date of approval of the Production Area by CNOOC.
1.16 “Production Area” means an offshore surface area within any Development Area
for the purpose of the performance of the Production Operations within the said
Development Area after completion of the Development Operations. The
Production Area proposed by the Operator, demarcated by JMC shall be
submitted to CNOOC for approval before the Date of Commencement of
Commercial Production.
“Date of Commencement of Commercial Production” means the date of
commencement of the production of Crude Oil and/or Natural Gas from any Oil
Field and/or Gas Field determined and announced by JMC in accordance with the
provisions in Article 7.2.5 hereof, after completion of the Development
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Operations as provided in the Overall Development Program for the said Oil Field
and/or Gas Field and having obtained the Operation Permission License of the
Production Installation issued by the competent authorities of the Chinese
Government.
1.18 “Calendar Year” means a period of twelve (12) consecutive Gregorian months
under the Gregorian Calendar beginning on the first day of January and ending on
the following thirty-first day of December in the same year.
1.19 “Contract Year” means a period of twelve (12) consecutive Gregorian months
under the Gregorian Calendar, within the term of the Contract, beginning on the
Date of Commencement of the Implementation of the Contract as mentioned in
Article 1.40 herein or any anniversary thereof.
1.20 “Production Year” means, in respect of each Oil Field and/or Gas Field, a period
of twelve (12) consecutive Gregorian months under the Gregorian Calendar
beginning on the Date of Commencement of Commercial Production of such
Field or anniversary thereof.
1.21 “Calendar Quarter” means a period of three (3) consecutive Gregorian months
under the Gregorian Calendar beginning on the first day of January, the first day
of April, the first day of July, or the first day of October.
1.22 “Exploratory Well” means any Wildcat and/or Appraisal Well drilled within the
exploration period, including dry hole(s) and discovery well(s).
1.23 “Wildcat” means a well drilled on any geological trap for the purpose of searching
for Petroleum accumulations, including wells drilled for the purpose of obtaining
geological and geophysical parameters.
1.24 “Appraisal Well” means an Exploratory Well drilled for the purpose of evaluating
the commerciality of a geological trap in which Petroleum has been discovered.
1.25 “Development Well” means a well drilled after the date of approval of the Overall
Development Program for the purpose of producing Petroleum, increasing
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production or accelerating extraction of Petroleum, including production wells,
injection wells and dry holes. Any Appraisal Well drilled during the production
period shall be deemed as Development Well.
1.26 “Work Program” means all types of plans formulated for the performance of the
Petroleum Operations, including plans for exploration, development and
production.
1.27 “Overall Development Program” means a plan prepared by the Operator for the
development of an Oil Field and/or Gas Field which has been reviewed and
adopted by JMC, confirmed by CNOOC and approved by the competent
authorities of the Chinese Government and such plan shall include, but shall not
be limited to, recoverable reserves, the development well pattern, master design,
production profile, economic analysis and time schedule of the Development
Operations.
1.28 “Deemed Interest” means interest on the development costs calculated in
accordance with the rate of interest stipulated in Article 12.2.3.2 hereof when the
development costs incurred in each Oil Field and/or Gas Field within the Contract
Area are recovered by the Parties.
1.29 "Oil Field and/or Gas Field Straddling a Boundary” means an Oil Field and/or
Gas Field extending from the Contract Area to one or more other contract areas
and/or areas in respect of which no Petroleum contracts have been signed.
1.30 “Annual Gross Production of Natural Gas” means the total amount of Natural Gas
produced from each Oil Field and/or Gas Field within the Contract Area
considered separately in each Calendar Year, less the amount of Natural Gas used
for Petroleum Operations and the amount of losses, which is saved and measured
by a measuring device at the delivery point specified in Article 14.3.1 hereof.
1.31 “Annual Gross Production of Crude Oil” means the total amount of Crude Oil
produced from each Oil Field within the Contract Area considered separately in
each Calendar Year, less the amount of Crude Oil used for Petroleum Operations
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and the amount of losses, which is saved and measured by a measuring device at
the delivery point specified in Article 14.3.1 hereof.
1.32 ‘'Contractor” means the Foreign Contractor specified in the Preamble hereto,
including assignee(s) in accordance with Article 23 hereof.
1.33 “Parties” means CNOOC and the Contractor.
1.34 “Operator” means an entity responsible for the performance of the Petroleum
Operations under the Contract.
1.35 “Subcontractor” means an entity which provides the Operator with goods or
services for the purpose of the Contract.
1.36 “Third Party” means any individual or entity except CNOOC, the Contractor and
any of their Affiliates.
1.37 “Chinese Personnel” means any citizen of the People’s Republic of China,
including CNOOC’s personnel and Chinese citizens employed by the Contractor
and/or the Subcontractors), involved in Petroleum Operations under the Contract.
1.38 “Expatriate Employee” means any person employed by the Contractor,
Subcontractor(s) or CNOOC who has not the nationality of the People’s Republic
of China. Overseas Chinese who reside abroad and have the nationality of the
People’s Republic of China and other Chinese abroad, when they are employed by
the Contractor, Subcontractor(s) or CNOOC shall also be deemed as Expatriate
Employees within the scope of the Contract.
1.39 “Affiliate” means in respect of the Contractor:
(a) any entity in which any company comprising the Contractor directly or
indirectly holds fifty percent (50%) or more of the voting rights carried by its
share capital; or
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(b) any entity which directly or indirectly holds fifty percent (50%) or more of
the aforesaid voting rights of any company comprising the Contractor; or
(c) any other entity whose aforesaid voting rights are held by an entity mentioned
in (b) above in an amount of fifty percent (50%) or more;
“Affiliate” means, in respect of CNOOC, any subsidiary, branch, or regional
corporation of CNOOC and any entity in which CNOOC directly or indirectly
holds fifty percent (50%) or more of the voting rights carried by its share capital.
1.40 “Date of Commencement of the Implementation of the Contract” means the first
day of the month following the month in which the Contractor has received the
notification from CNOOC of the approval of the Contract by the Ministry of
Commerce of the People’s Republic of China.
1.41 “LS36-1 Production Facility Assets” means all assets, purchased, installed and
constructed by the Parties for the Natural Gas accumulation known as the Lishui 36-1
Gas Field, and including a production platform which will be constructed at the
Lishui 36-1 Gas Field and a Natural Gas processing terminal to be constructed on
land at Niyu Island at Wenzhou, Zhejiang Province together with a subsea
pipeline connecting the platform and terminal and the pipeline connecting the
terminal to the provincial grid.
1.42 “LS36-1 SDA” means the Supplemental Development Agreement entered into
between the Parties on 17lh March 2010 in relation to the Lishui 36-1 Gas Field.
Article 2
Objective of the Contract
2.1 The primary objective of the Contract is to explore for, develop and produce
Petroleum that may exist within the Contract Area.
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2.2 The Contractor shall apply its appropriate and advanced technology and assign its
competent experts to perform the Petroleum Operations.
2.3 During the performance of the Petroleum Operations, the Contractor shall transfer
its technology to the Chinese Personnel and train them.
2.4 The Contractor shall pay all the exploration costs required for the Exploration
Operations (including the prospecting lease right fees as payable under law). In
the event that any Oil Field and/or Gas Field is discovered within the Contract
Area, the development costs of such Oil Field and/or Gas Field shall be paid by
the Parties in proportion to their participating interests: fifty-one percent (51%) by
CNOOC and forty-nine percent (49%) by the Contractor. In the event that
CNOOC opts to participate at a level less than fifty-one percent (51%) of the
participating interests, or not to participate in the development of the Field, the
Contractor shall pay the remaining development costs necessary for the
development of the Field in accordance with Article 12.1.2 hereof.
2.5 If any Oil Field and/or Gas Field is discovered within the Contract Area, the
Petroleum produced therefrom shall, from the Date of Commencement of
Commercial Production of such Field, be allocated in accordance with Articles 12,
13 and/or 18 hereof.
2.6 Nothing contained in the Contract shall be deemed to confer any right on the
Contractor other than those rights expressly granted hereunder.
Article 3
Contract Area
3.1 The Contract Area as of the date of signature of the Contract covers a total area of
five thousand eight hundred and seventy seven (5,877) square kilometers, as
marked out by the geographic location and the coordinates of the connecting
points of the boundary lines in Annex I attached hereto.
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The said total area of the Contract Area shall be reduced in accordance with
Articles 4, 5, 11 and 18 hereof.
3.2 Except for the rights as expressly provided by the Contract, no right is granted in
favor of the Contractor to the surface area, subsea, sea-bed, sub-soil or to any
natural resources or aquatic resources other than Petroleum existing therein, and
any things left on the sea-bed within the Contract Area.
Article 4
Contract Term
4.1 The term of the Contract shall include an exploration period, a development
period and a production period.
4.2 The exploration period, beginning on the Date of Commencement of the
Implementation of the Contract, shall be divided into three (3) phases and shall
consist of seven (7) consecutive Contract Years, unless the Contract is sooner
terminated, or the exploration period is extended in accordance with Article 25
hereof and/or Article 4.3 herein. The three (3) phases shall be as follows:
(a) the first phase of three (3) Contract Years (the first Contract Year through the
third Contract Year); and
(b) the second phase of two (2) Contract Years (the fourth Contract Year through
the fifth Contract Year); and
(c) the third phase of two (2) Contract Years (the sixth Contract Year through the
seventh Contract Year).
4.3 Where time is insufficient to complete the appraisal work on a Petroleum
discovery made close to the expiration of the exploration period or where the time
of the appraisal work on a Petroleum discovery in accordance with the appraisal
Work Program approved by JMC as stated in Articles 11 and 18 hereof extends
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beyond the exploration period, the exploration period as described in Article 4.2
herein shall be extended. The period of extension shall be whatever period
CNOOC regards as a reasonable period of time required to complete the above-
mentioned appraisal work in order to enable JMC to make a decision on the
commerciality of the said Petroleum discovery in accordance with Article 11 or
18 hereof, and until the competent authorities of the Chinese Government
approves or finally rejects the Overall Development Program.
4.4 The development period of any Oil Field and/or Gas Field within the Contract
Area shall begin on the date of approval of the Overall Development Program of
the said Oil Field and/or Gas Field by the competent authorities of the Chinese
Government and end on the date of the entire completion of the Development
Operations set forth in the Overall Development Program, excluding the time for
carrying out additional development projects in the production period in
accordance with Article 11.9 hereof.
4.5 The production period of any Oil Field and/or Gas Field within the Contract Area
shall be a period of fifteen (15) consecutive Production Years beginning on the
Date of Commencement of Commercial Production unless otherwise provided in
Article 4.6 herein and Article 18.2 or 25 hereof. Under such circumstances as
where the construction of an Oil Field and/or Gas Field is to be conducted on a
large scale, and the time span required therefore is long, or where separate
production of each of the multiple oil or gas producing zones of a Field is required,
or under other special circumstances, the production period thereof shall, when it
is necessary, be properly extended with the approval of the competent authorities
of the Chinese Government.
4.6 Suspension or abandonment of production of an Oil Field and/or Gas Field.
4.6.1 In the event that the Parties agree to suspend temporarily production from
an Oil Field and/or Gas Field which has entered into commercial
production, the Production Area covered by that Oil Field and/or Gas Field
may be retained within the Contract Area. In no event shall the period of
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such retention extend beyond the date of the expiration of the production
period of that Oil Field and/or Gas Field except as otherwise provided in
Article 25.4 hereof. The duration of the relevant period of production
suspension and the arrangement for the maintenance operations during the
aforesaid period of suspension shall be proposed by the Operator, and shall
be decided by JMC through discussion. With respect to the aforesaid Oil
Field and/or Gas Field which has been suspended and retained within the
Contract Area, in the event that production is restored during the period of
such retention, the production period of that Oil Field and/or Gas Field
shall be extended correspondingly. In the event that the Parties fail to
reach an agreement on the restoration of production by the expiration of
the production suspension period decided by JMC through discussion, the
party to the Contract who wishes to restore production shall have the right
to restore production solely. The other party to the Contract may later elect
to participate in production but shall have no rights or obligations in
respect of such Field for the solely restored production period.
4.6.2 Abandonment of production from Oil Field and/or Gas Field within the
production period.
4.6.2.1 During the production period, either party to the Contract may
propose to abandon production from any Oil Field and/or Gas
Field within the Contract Area, provided, however, that prior
written notice shall be given to the other party to the Contract.
The other party to the Contract shall make a response in writing
within ninety (90) days from the date on which the said notice is
received. If the other party to the Contract also agrees to abandon
production from the said Oil Field and/or Gas Field, then the
abandonment costs shall be paid by the Parties in proportion to
their participating interests in the development of such Oil Field
and/or Gas Field. From the date on which the other party to the
Contract makes the response in writing that it agrees to
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abandonment, the production period of such Oil Field and/or Gas
Field shall be terminated and such Oil Field and/or Gas Field
shall be excluded from the Contract Area.
4.62.2 If the Contractor notifies CNOOC in writing of its decision on
abandoning production from an Oil Field and/or Gas Field, while
CNOOC decides not to abandon production from such Oil Field
and/or Gas Field, then from the date on which the Contractor
receives CNOOC’s written response of its aforesaid decision, all
of the Contractor’s rights and obligations under the Contract in
respect of the said Field, including but not limited to the
responsibilities for payment of abandonment costs in respect of
such Field, shall be terminated automatically, provided that the
Contractor shall not transfer to CNOOC any of the Contractor’s
liabilities and obligations in respect of the said Field. The said
Field shall be excluded from the Contract Area.
4.623 The Parties shall abide by the relevant abandonment regulations issued by the
competent authorities of the Chinese Government
4.7 The term of the Contract shall not go beyond thirty (30) consecutive Contract
Years from the Date of Commencement of the Implementation of the Contract,
unless otherwise stipulated hereunder.
Article 5
Relinquishment
5.1 The Contractor shall relinquish portions of the Contract Area in accordance with
the following provisions:
5.1.1 At the expiration of the first phase of the exploration period, the
Contractor shall relinquish twenty-five percent (25%) of the Contract Area
as of the date of signature of the Contract. /
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5.1.2 At the expiration of the second phase of the exploration period, the
Contractor shall relinquish twenty-five percent (25%) of the Contract Area
remaining in the second phase after deducting each Development Area
and/or Production Area therefrom.
5.1.3 In any of the following cases, the Contractor shall relinquish the remaining
Contract Area except the areas referred to in Article 5.1.4 herein:
(a) at the expiration of the last phase of the exploration period; or
(b) if the Contractor exercises its option under Article 6.1(b) of the
Contract, at the expiration of the said exploration phase if the
Contractor so selects; or
(c) at the expiration of the extended period, in the event that the
exploration period is extended in accordance with Article 4.3 or 25
hereof.
5.1.4 In the execution of Article 5.1.3 herein, a Development Area, Production
Area or an area corresponding to a trap with a Petroleum discovery which
will be appraised and/or being appraised or included in an Overall
Development Program awaiting approval shall not be regarded as an area
to be relinquished.
5.1.5 At the expiration of the production period specified in Article 4.5 hereof,
any Oil Field and/or Gas Field within the Contract Area shall be excluded
from the Contract Area.
5.2 The areas relinquished pursuant to Articles 5.1.1 and 5.1.2 herein shall be made
up of as few rectangles as possible so as to facilitate further Exploration
Operations.
5.3 Within ninety (90) days prior to the date of each relinquishment, the Contractor
shall submit to CNOOC a report on its completed Exploration Operations on the^
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areas to be relinquished, including a map showing the areas to be relinquished
with its coordinates of the connecting points of the boundaries.
Article 6
Minimum Exploration Work Commitment and
Expected Minimum Exploration Expenditures
6.1 The Contractor shall use its reasonable efforts to begin to perforin the offshore
Exploration Operations within six (6) months from the Date of Commencement of
the Implementation of the Contract and to spud the first Wildcat within ten (10)
months from the Date of Commencement of the Implementation of the Contract.
6.2 The Contractor shall fulfil the minimum exploration work commitment for each
phase of the exploration period in accordance with the following provisions.
6.2.1
First phase minimum exploration
obligations and expenditures redacted
6.2.2
Second phase minimum exploration
obligations and expenditures redacted
6.2.3 Third phase minimum exploration
obligations and expenditures redacted
6.2.4 The Wildcats specified in Articles 6.2.1, 6.2.2 and 6.2.3 herein for each
exploration phase shall not be substituted by Appraisal Wells without the
consent of CNOOC.
6.2.5 With respect to the minimum exploration work commitment for each
phase of the exploration period committed by the Contractor in accordance
with Articles 6.2.1, 6.2.2 and 6.2.3 herein when calculating whether the
minimum exploration work commitment has been fulfilled, the number of
Wildcats drilled and the kilometers of seismic lines actually completed
shall be the basis of such calculation. However, the Wildcats abandoned
for technical reasons without reaching their predetermined geological
objective shall not count as the Wildcats actually fulfilled by the
Contractor thereunder without the consent of CNOOC.
6.3 At the expiration of the first phase or the second phase of the exploration period,
the Contractor has the following options in accordance with the terms of this
Contract:
(a) to enter the next phase and continue exploration; or
(b) to conduct only appraisal operations and/or development operations in the
Petroleum discoveries awaiting appraisal decided by procedures under
Article 11 of the Contract, provided that the minimum obligations of the
selected exploration phase by the Contractor have been fulfilled; and the
areas under Article 5.1.3(b) hereof have been relinquished; or
(c) to terminate the Contract.
6.4 At the expiration of any phase of the exploration period, if the actual exploration
work fulfilled by the Contractor is less than the minimum exploration work
commitment set forth for the said exploration phase and if the Contractor opts to
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enter the next phase and continue exploration under Article 6.1(a) herein, the
Contractor shall give reasons to CNOOC for the underfulfillment; and, with the
consent of CNOOC, the unfulfilled balance of the said phase shall be added to the
minimum exploration work commitment for the next exploration phase.
At any time within the exploration period if there is any commercial discovery,
JMC shall, at the request of any party to the Contract, discuss the possibility of
increasing the exploration work. Any Wildcats and seismic lines involved in such
increase shall be deducted from the minimum exploration work commitment.
6.5 Where the Contractor has fulfilled ahead of time the minimum exploration work
commitment for any phase of the exploration period, the duration of such
exploration phase stipulated in Article 4.2 hereof shall not be shortened thereby,
and if the exploration work actually fulfilled by the Contractor exceeds the
minimum exploration work commitment for the said exploration phase, the excess
Wildcat shall be deducted from and credited against the minimum exploration
work commitment for the next exploration phase.
6.6 If any addition or deduction is made under Article 6.4 or Article 6.5 herein in
regard to the minimum exploration work commitment for any phase of the
exploration period, the increased or reduced exploration work shall become the
new minimum exploration work commitment for the Contractor to fulfill in the
said phase.
6.7 At the expiration of any phase during the exploration period, if the exploration
work actually fulfilled by the Contractor is less than the minimum exploration
work commitment for such phase or less than the new minimum exploration work
commitment as mentioned in Article 6.6 herein, and if, regardless of whether the
expected minimum exploration expenditures are fulfilled or not fulfilled, the
Contractor opts to terminate the Contract under Article 6.1 (c) herein, or if the said
phase is the last exploration phase, the Contractor shall, within thirty (30) days
from the date of the decision of election to terminate the Contract or within
thirty (30) days from the date of the expiration of the exploration period, pay ^
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CNOOC only any unfulfilled balance of the minimum exploration work
commitment (or of the new one) for the phase or phases entered into in U.S.
dollars after it has been converted into a cash equivalent using the method
provided in Annex II - Accounting Procedure hereto. However, if the minimum
exploration work commitment for the exploration period is fulfilled while its
expected corresponding minimum exploration expenditures are not fulfilled, the
unfulfilled part shall be deemed as a saving and shall not be paid to CNOOC.
Article 7
Management Organization and Its Function
7.1 For the purpose of the proper performance of the Petroleum Operations, the
Parties shall establish a JMC within forty-five (45) days from the Date of
Commencement of the Implementation of the Contract.
7.1.1 CNOOC and the Contractor shall each appoint an equal number of
representatives (one to three) to form JMC, and each party to the Contract
shall designate one of its representatives as its chief representative. The
representative of the Operator of the companies comprising the Contractor
shall be the chief representative of the Contractor. All the aforesaid
representatives shall have the right to present their views on the proposals
at meetings held by JMC. When a decision is to be made on any proposal,
the chief representative from each party to the Contract shall be the
spokesman on behalf of the party to the Contract.
The chairman of JMC shall be the chief representative designated by
CNOOC, and the vice chairman shall be the chief representative
designated by the Contractor. The chairman of JMC shall preside over
meetings of JMC. In his absence, one representative present at the meeting
from CNOOC shall be designated to act as the chairman of the meeting. In
the absence of the vice chairman of JMC, one representative present at the
meeting from the Contractor shall be designated to act as the vice \
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chairman of the meeting. The Parties may, according to need, designate a
reasonable number of advisors, who may attend, but shall not be entitled to
vote at, JMC meetings.
7.1.2 A regular meeting of JMC shall be held at least once a Calendar Quarter,
and other meetings, if necessary, may be held at any time at the request of
any party to the Contract, upon giving reasonable notice to the other party
to the Contract of the date, time and location of the meeting and the items
to be discussed.
7.2 The Parties shall empower JMC to:
7.2.1 Review and agree to the Work Program and budget proposed by the
Operator and the amendment thereof;
7.2.2 Determine the commerciality of each trap on which a Petroleum discovery
has been made in accordance with the Operator’s appraisal report and
report its decision to CNOOC for confirmation;
7.2.3 Review and agree to the Overall Development Program and budget and
any amendments thereto for each Oil Field and/or Gas Field;
7.2.4 Approve or confirm the following items of procurement and expenditures:
(a) approve procurement of any item within the budget with a unit price
exceeding Five Hundred Thousand U.S. dollars (U.S. $500,000) or
any single purchase order of total monetary value exceeding Three
Million U.S. dollars (U.S.$ 3,000,000);
(b) approve a lease of equipment, or an engineering subcontract or a
service contract within the budget worth more than Three Million
U.S. dollars (U.S. $ 3,000,000); and
(c) confirm excess expenditures pursuant to Article 10.2.1 hereof and
the expenditures pursuant to Article 10.2.2 hereof;
19
7.2.5 Determine and announce the Date of Commencement of Commercial
Production of each Oil Field and/or Gas Field within the Contract Area;
7.2.6 Determine the type and scope of information and data provided to any
Third Party and Affiliate in relation to the Petroleum Operations in
accordance with the “Provisions of the Ministry of Petroleum Industry of
the People’s Republic of China for the Control of Data Concerning the
Exploitation of Offshore Petroleum Resources in Cooperation with
Foreign Enterprises” (hereafter referred to as “Provisions for the Control
of Data”) and Article 22.4 hereof;
7.2.7 Demarcate boundaries of the Development Area and the Production Area
of each Oil Field and/or Gas Field;
7.2.8 Review and approve plans for transfer of the Production Operations in
accordance with Article 8.8 hereof;
7.2.9 Review and approve the insurance program proposed by the Operator, and
emergency procedures on safety and environmental protection;
7.2.10 Review and approve personnel training programs;
7.2.11 Discuss, review, decide and approve other matters that have been proposed
by either party to the Contract or submitted by the expert groups or the
Operator; and
7.2.12 Review and examine matters required to be submitted to relevant
authorities of the Chinese Government and/or CNOOC for approval.
7.3 Decisions of JMC shall be made unanimously through consultation. All decisions
made unanimously shall be deemed as formal decisions and shall be equally
binding upon the Parties. When matters upon which agreement can not be reached
arise, the Parties may convene another meeting in an attempt to find a new
solution thereto based on the principle of mutual benefit.
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7.3.1 In the exploration period, the Parties shall endeavour to reach an
agreement through consultation on exploration programs and annual
exploration Work Program. If the Parties fail to reach agreement through
consultation, the Contractor’s proposal shall prevail, provided that such
proposal is not in conflict with the relevant provisions in Articles 4, 5, and
6 hereof.
7.3.2 If it is considered by the chairman and/or the vice chairmen or their
nominees that a matter requires urgent handling or may be decided without
convening a meeting, JMC may make decisions through facsimile or the
circulation of documents.
7.4 JMC shall establish the following subordinate bodies:
7.4.1 Secretariat
The secretariat shall be a permanent organization consisting of two (2)
secretaries. One secretary shall be appointed by each of the Parties. The
secretaries shall not be members of JMC, but may attend meetings of JMC
as observers. The duties of the secretariat are as follows:
(a) to keep minutes of meetings;
(b) to prepare summaries of and resolutions for JMC meetings;
(c) to draft and transmit notices of meetings; and
(d) to receive and transmit proposals, reports or plans, etc. submitted by
the Operator and/or any party to the Contract, that require discussion,
review or approval by JMC.
7.4.2 Expert Groups
Advisory expert groups shall be established in accordance with the
requirements of the Petroleum Operations in various periods. Each expert
21
group shall consist of an equal number of Chinese Personnel and the
Contractor’s employees, and, with the agreement of JMC, any other
personnel. JMC shall discuss and decide upon their establishment or
dissolution, size, and the appointment of their leaders in accordance with
the requirements of their work. The expert groups shall have the following
functions:
(a) to discuss and study matters assigned to them by JMC and submitted
by the Operator to JMC for its review and approval and any other
matter assigned to them by JMC, and to make constructive
suggestions to JMC;
(b) to have access to and observe and investigate the Petroleum
Operations conducted by the Operator at its office and operating
sites as work requires and to submit relevant reports to JMC; and
(c) to attend meetings of JMC as observers at the request of JMC.
7.5 When one of the companies comprising the Contractor acts as tjie Operator,
CNOOC shall have the right to assign professional representatives to the
Operator’s administrative and technical departments which are related to the
Petroleum Operations, who may work at length together with the Operator’s staff.
The professional representatives shall have access to the centers of research,
design, and data processing related only to the execution of the Contract and to
the operating sites to observe all the activities and study all the information with
respect to the Petroleum Operations. Such access to the aforesaid centers outside
the People’s Republic of China shall be decided by JMC through discussion and
shall be arranged by the Operator. The Operator shall use all reasonable endeavors
to assist the professional representatives to have access to Third Parties’ sites. The
Operator’s staff shall regularly discuss their work with the professional
representatives of CNOOC.
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*1?
The work of professional representatives of CNOOC shall be arranged by
manager(s) of the departments of the Operator in which professional
representatives work. Professional representatives of CNOOC, except for the
professional representatives in charge of procurement who shall undertake their
functions in accordance with Article 7.6 herein, shall not interfere in the decision
making on relevant matters by departmental manager(s) of the Operator. However,
such professional representatives shall have the right to make proposals and
comments to departmental manager(s) of the Operator or to report directly to
CNOOC’s representatives in JMC. When CNOOC acts as the Operator, the
Contractor may also assign professional representatives including professional
representatives in charge of procurement.
7.5.1 On the principle of mutual cooperation and coordination, the Operator
shall provide the professional representatives with necessary facilities and
assistance to perform office work and to observe the operating sites, etc.
7.5.2 The numbers of professional representatives shall be decided by JMC
through consultations.
7.6 When one of the companies comprising the Contractor acts as the Operator, in
respect of the items listed in the procurement plan, the procedures and provisions
hereunder shall be followed:
7.6.1 The procurement department of the Operator shall inform the professional
representatives appointed by CNOOC in charge of procurement of all the
items of procurement.
7.6.2 The Operator shall be subject to Articles 15.1 and 15.3 hereof and reach
agreement through consultation with the professional representatives of
CNOOC in charge of procurement when preparing the procurement plan
in accordance with the Work Program and budget. The professional
representatives of CNOOC in charge of procurement shall work out an
inventory listing the equipment and materials which can be made and
23
provided in China and a list of manufacturers, engineering and
construction companies and enterprises in China which can provide
services and undertake subcontracting work.
7.6.3 Unless otherwise agreed upon by the Parties, the Operator shall, in general,
make procurement by means of calling for bids and shall notify at the
same time manufacturers and enterprises concerned both inside and
outside China, and the work of calling for bids shall be done within the
territory of China.
7.6.4 When any procurement is to be made by means of calling for bids, the
manufacturers and enterprises in China applying for bidding which are
included in a list delivered in advance to the Operator by the professional
representatives of CNOOC in charge of procurement shall be invited. The
professional representatives of CNOOC in charge of procurement shall
have the right to take part in the work of calling for bids, including
examination of the list of bidders to be invited, preparing and issuing
bidding documents, opening bids and evaluation of bids, and shall have the
right to consult with the Operator the determination of award of contracts
and to participate in negotiation for subcontracts and service contracts.
7.6.5 With respect to the items of procurement by means of not calling for bids,
the Operator’s procurement department and the professional
representatives of CNOOC in charge of procurement shall, in accordance
with the provisions specified in Article 7.6.2 herein, define items which
are to be procured in the People’s Republic of China and items are to be
procured abroad.
7.7 All costs and expenses with respect to the staff members of the Parties in the
subordinate bodies of JMC established in accordance with Article 7.4 herein and
those with respect to the professional representatives referred to in Article 7.5
herein and wages and salaries, costs and expenses incurred by the representatives
of JMC referred to in Article 7.1 herein while attending JMC meetings shall be ^
24
paid by the Operator and charged respectively to the exploration costs,
development costs and operating costs in accordance with Annex II - Accounting
Procedure hereto.
7.8 The specific responsibilities and working procedures within JMC shall be
discussed and determined by JMC in accordance with the relevant provisions
herein.
Article 8
Operator
8.1 The Parties agree that Primeline Energy Operation International Ltd. (PEOIL), a
company organized and existing under the laws of Cayman Islands, having its
headquarters in Hong Kong, established by Primeline Energy China Limited and
Primeline Petroleum Corporation, shall act as the Operator for the Exploration
Operations, Development Operations and Production Operations within the
Contract Area, unless otherwise stipulated in Article 8.8 herein and Article 30.4
hereof.
8.2 For the implementation of the Contract, each company comprising the Contractor
and any entity that becomes the Operator shall register with the State
Administration for Industry and Commerce of the People’s Republic of China in
accordance with the relevant provisions of the said State Administration for
Industry and Commerce and shall obtain in advance the necessary approval from
CNOOC.
The person in charge of the Operator shall have the full right to represent the
Contractor in respect of the performance of the Petroleum Operations. The names,
positions and resumes of the staff and organization chart of the Operator shall be
submitted in advance to CNOOC and the senior staff thereat shall be subject to
the consent of CNOOC,
25
The parent corporation of each company comprising the Contractor which is not
itself a parent corporation shall, at the request of CNOOC, provide CNOOC with
a written performance guarantee with terms acceptable to CNOOC.
8.3 The Operator shall have the following obligations:
8.3.1 To apply the appropriate and advanced technology and business
managerial experience of the Contractor, including each company
comprising the Contractor or its and their Affiliates to perform the
Petroleum Operations reasonably, economically and efficiently in
accordance with sound international practice.
8.3.2 To prepare Work Programs and budgets related to the Petroleum
Operations and to carry out the approved Work Programs and budgets.
8.3.3 To be responsible for procurement of installations, equipment, and
supplies and entering into subcontracts and service contracts related to the
Petroleum Operations, in accordance with the approved Work Programs
and budgets and the applicable provisions of Articles 7.2.4, 7.6 and 10.2
hereof.
8.3.4 To prepare in advance, in accordance with Article 16 hereof, a personnel
training program and budget before the commencement of the
Development Operations and Production Operations respectively, and, in
accordance with the said program and budget, to be responsible for
preparing an annual personnel training program and budget and carrying
out the annual program and budget after approval by JMC.
8.3.5 To establish an insurance program, and to enter into and implement the
insurance contracts in accordance with Article 21 hereof.
8.3.6 To issue cash-call notices to all the parties to the Contract to raise the
required funds based on the approved budgets and in accordance with
Article 12 hereof and Annex II - Accounting Procedure hereto. ^
26
8.3.7 To maintain complete and accurate accounting records of all the costs and
expenditures for the Petroleum Operations in accordance with the
provisions of Annex I) - Accounting Procedure hereto and to keep securely
the accounting books in good order.
8.3.8 To make necessary preparation for regular meetings of JMC, and to submit
in advance to JMC necessary information related to the matters to be
reviewed and approved by JMC.
8.3.9 To inform directly or indirectly all the Subcontractors which render
services for the Petroleum Operations in China and all the Expatriate
Employees of the Operator and of Subcontractors who are engaged in the
Petroleum Operations in China that they shall be subject to the laws,
decrees, and other rules and regulations of the People’s Republic of China.
8.3.10 To report its work to JMC as provided in Article 7.2 hereof.
8.4 hi the course of the performance of the Petroleum Operations, any direct loss
arising out of the gross negligence or wilful misconduct of the Operator or its
employees shall be solely borne by the Operator. The Operator shall make its best
efforts in accordance with the international Petroleum industry practice to include
provisions similar to this Article 8.4 herein in related subcontracts and service
contracts.
8.5 In the course of the performance of the Petroleum Operations, the Operator shall
handle the information, samples or reports in accordance with the following
provisions:
8.5.1 The Operator shall provide CNOOC with various information and data in
accordance with Article 14 and 21 of the “Petroleum Regulations” and the
“Provisions for the Control of Data” and the Operator shall use and handle
such information and data referred to herein in accordance with the said
provisions. The information and data within the scope of the “Provisions
for the Control of Data” shall be reported to CNOOC at the same time >
27
when the Operator reports them to its parent corporation. Upon receipt by
the Operator of any report from its parent corporation concerning such
information and data, a copy of such report shall be furnished to CNOOC.
8.5.2 The Operator shall furnish CNOOC in a timely manner with reports on
safety, environmental protection and accidents related to the Petroleum
Operations and with financial reports prepared in accordance with the
provisions of Annex II - Accounting Procedure hereto.
8.5.3 The Operator shall provide the non-operator(s) of the Contractor with
copies of the relevant data and reports reasonably required by non*
operator(s) and referred to in Articles 8.5.1 and 8.5.2 herein.
8.5.4 The Operator shall, at the request of any party to the Contract, furnish that
party to the Contract with the following:
8.5.4.1 Procurement plans for purchasing equipment and materials,
inquiries, offers, orders and service contracts, etc.;
8.5.4.2 Manuals, technical specifications, design criteria, design
documents (including design drawings), construction records and
information, consumption statistics, equipment inventory, spare
parts inventory, etc.;
8.5.4.3 Technical investigation and cost analysis reports; and
8.5.4.4 Other information relating to the Petroleum Operations already
acquired by the Operator in the performance of the Contract.
8.6 In the course of performing the Petroleum Operations, the Operator shall abide by
the laws, decrees, and other rules and regulations with respect to environmental
protection and safety of the People’s Republic of China and shall endeavour in
accordance with the international petroleum industry practice to:
28
8.6.1 Minimize the damage and destruction to marine organisms and their Jiving
oceanic environments;
8.6.2 Control blowouts promptly and prevent or avoid waste or loss of
Petroleum discovered in or produced from the Contract Area;
8.6.3 Prevent Petroleum from flowing into low pressure formations or damaging
adjacent Petroleum-bearing formations;
8.6.4 Prevent water from flowing into Petroleum-bearing formations through
dry holes or other wells, except for the purpose of secondary recovery;
8.6.5 Prevent land, forests, crops, buildings and other installations from being
damaged and destroyed; and
8.6.6 Minimize the danger to personnel safety and health.
8.7 Project Management Team
In any Oil Field and/or Gas Field within the Contract Area where CNOOC has the
participating interest in the development of said Field, a project management team
(hereafter referred to as “PMT”) shall be established in the organization of the
Operator at the date of approval of the Overall Development Program for said
Field by the competent authorities of the Chinese Government.
The PMT shall comprise those personnel designated by the Parties and the
number of CNOOC’s personnel shall no less than one third (1/3) of the total
number of personnel within the PMT. The Contractor shall designate the person
acting as the manager of PMT, and CNOOC shall designate the person acting as
the deputy manager of PMT.
The PMT shall be located at the Operator’s office within the Chinese territory.
The working locations) of the members of PMT shall be decided according to the
need of the work.
29
The specific organization, staffing and working system of PMT and
responsibilities and competence of various positions including those of CNOOC’s
personnel assigned to PMT shall be determined by the Parties through
consultation prior to the approval of the Overall Development Program for said
Oil Field and/or Gas Field.
8.8 Transfer and take over of the Production Operations
Before the full recovery of the development costs actually incurred in accordance
with the Overall Development Program of any Oil Field and/or Gas Field within
the Contract Area, CNOOC may, after agreement reached through consultations
of JMC, take over the Production Operations of that Oil Field and/or Gas Field, if
conditions permit. After the full recovery of the development costs actually
incurred in accordance with the Overall Development Program of any Oil Field
and/or Gas Field within the Contract Area, CNOOC shall, at any time, have the
right by giving a written notice to the Contractor to take over the Production
Operations of that Oil Field and/or Gas Field. Both aforesaid cases shall be
effected in accordance with the procedures described hereunder.
8.8.1 The Contractor shall submit a transfer plan of the Production Operations to
CNOOC and JMC respectively within sixty (60) days following the date of
receiving the written notice of CNOOC. Such transfer plan shall include,
but not be limited to, a list of various posts to be taken over by CNOOC, a
schedule of transfer by stages, inventories of the relevant facilities and
equipment and an inventory of all documents, manuals, data and
information necessary for the Production Operations. Where the transfer
of some of the Production Operations involves any Third Party, the
Contractor shall consult with CNOOC in advance and propose a solution
thereto in the transfer plan, however, this situation shall not be taken by
the Contractor as an excuse to delay and hinder the transfer of the
Production Operations.
30
JMC shall, within thirty (30) days from the date of receiving the said plan,
review and approve it.
8.8.2 CNOOC shall, within sixty (60) days from the date of receiving the
transfer plan of the Production Operations approved by JMC, submit to the
Contractor and JMC respectively the lists and resumes of CNOOC’s
personnel who will take over the posts. The personnel named in the lists
shall be persons who have been trained by the Contractor in accordance
with the provisions set forth in Article 16 hereof or personnel who are
considered by CNOOC to be competent. Within one hundred and
eighty (180) days from the date of receiving CNOOC’s lists of the
personnel who will take over the operations, the Contractor shall arrange
for such personnel to undergo step by step practical training for the posts
to be taken over by them and shall assist CNOOC to manage the
qualification test.
8.8.3 Within three hundred and thirty (330) days from the date of receiving the
written notice of CNOOC, the Contractor shall submit to JMC a report on
the completion of preparations for the transfer of the Production
Operations. Such report shall include the results of the qualification test
for CNOOC’s personnel who will take over the Production Operations and
shall be confirmed by JMC within thirty (30) days after the receipt of the
said report. The transfer of the Production Operations shall begin on the
date when JMC makes such confirmation.
8.8.3.1 When the completion of the preparations for the transfer of the
Production Operations is confirmed by JMC, the Contractor shall,
in accordance with the transfer schedule by stages, transfer to
CNOOC’s take-over personnel control of all facilities and
equipment relating to the Production Operations in the Oil Field
and/or Gas Field, and all documents, manuals, data and
information regarding the use and operation of such facilities and
31
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equipment, so that CNOOC’s personnel are able to manage the
operation of such facilities and equipment.
8.8.3.2 If JMC believes that preparations for the transfer of the
Production Operations have not been completed and sets another
deadline for the completion of preparations for the transfer of the
Production Operations, the preparations for the transfer shall be
completed prior to the deadline and the transfer shall begin
thereafter.
8.8.4 The transfer in respect of the accounting and financial aspects shall be
handled in accordance with Annex 11 - Accounting Procedure hereto.
8.8.5 During the preparation for the transfer of the Production Operations and in
the course of the actual transfer, the Contractor shall perform the functions
provided for in Article 8.3, 8.4, 8.5 and 8.6 herein in respect of an Oil
Field and/or Gas Field undergoing the transfer of the Production
Operations, until the date when CNOOC has completely assumed control
of and taken over the Production Operations of the Oil Field and/or Gas
Field. Thereafter, the functions of the Operator provided for in Article 8.3,
8.4, 8.5 and 8.6 herein shall be by analogy applicable to CNOOC.
8.8.6 After CNOOC has taken over the Production Operations and become the
Operator of an Oil Field and/or Gas Field, the Contractor shall still have
the obligation, pursuant to Article 2 hereof, to provide CNOOC with the
relevant technical and personnel training assistance, and the costs incurred
thereby shall be charged to the operating costs in accordance with the
provisions of Annex II - the Accounting Procedure hereto.
8.8.7 When CNOOC takes over the Production Operations in any Oil Field
and/or Gas Field, the Chinese Personnel employed by the Contractor for
the Production Operations of the said Oil Field and/ov Gas Field shall be
transferred to CNOOC’s employment. If CNOOC needs to retain the ^
32
services of any of the Expatriate Employees employed by the Contractor
or the Contractor still needs to keep some of the Chinese Personnel in its
employment, an agreement shall be reached through consultation between
the Parties prior to the transfer.
8.8.8 The expenses incurred in the transfer and take-over of the Production
Operations shall be charged to the operating costs.
Article 9
Assistance Provided by CNOOC
9.1 To enable the Contractor to carry out expeditiously and efficiently the Petroleum
Operations, CNOOC shall have the obligation to assist the Contractor at its
request to:
9.1.1 Obtain the approvals or permits needed to open accounts with a state-
owned bank in China;
9.1.2 Go through the formalities of exchanging foreign currencies;
9.1.3 Obtain office space, office supplies, transportation and communication
facilities and make arrangements for accommodation as required;
9.1.4 Go through the formalities of the customs;
9.1.5 Obtain entry and exit visas for the Expatriate Employees who will come to
China for the implementation of the Contract and for their dependants who
will visit them or reside in China for a long period and provide assistance
for their transportation and moving as well as medical services and travel
in China;
9.1.6 Obtain necessary permission to send abroad, if necessary, documents, data
and samples for analysis or processing during the Petroleum Operations;
and
33
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9.1.7 Contact departments engaged in fishing, aquatic products, meteorology,
ocean shipping, civil aviation, railway, transportation, communication and
services for supply bases etc. for relevant matters and otherwise assist the
Contractor in obtaining on a timely basis approvals necessary for the
conduct of the Petroleum Operations under the Contract.
9.2 In accordance with Article 15 hereof, CNOOC shall assist the Contractor with the
recruitment of the Chinese Personnel.
9.3 CNOOC shall, at the request of the Contractor, sell to the Contractor data and
samples concerning the Contract Area other than those produced as a result of
Petroleum Operations hereunder in accordance with any relevant rules and
regulations and CNOOC shall also assist the Contractor to arrange the purchase of
any oceanic environmental, hydrological, meteorological, earthquake and other
data available from the relevant departments in China.
9.4 CNOOC shall, at the request of the Contractor, also assist the Contractor with
matters other than those under Articles 9.1, 9.2 and 9.3 herein if possible.
9.5 All expenses incurred in the assistance provided by CNOOC in accordance with
this Article 9 shall be paid by the Contractor and shall be handled in accordance
with the provisions of Annex II - Accounting Procedure hereto.
Article 10
Work Program and Budget
10.1 Before the fifteenth (15) of September of each Calendar Year after the Date of
Commencement of the Implementation of the Contract, the Operator shall
complete and submit to JMC for its review an annual Work Program and budget,
including estimated schedule of monthly expenditures, for the next Calendar Year.
JMC shall complete the review of the annual Work Program and budget and
submit them to CNOOC for review and approval before the thirty-first (31st) of
October of the Calendar Year in which they are submitted to JMC. Within
34
fifteen (15) days following the receipt of the annual Work Program and budget,
CNOOC shall notify JMC in writing of its approval or any modifications thereto
with its detailed reasons. If CNOOC requests any modifications on the aforesaid
annual Work Program and budget, the Parties shall promptly hold meetings to
make modifications and any modifications agreed upon by the Parties shall be
effected immediately. In case CNOOC fails to notify JMC of its approval within
fifteen (15) days, the annual Work Program and budget proposed by the Operator
shall be deemed to have been approved by CNOOC. The Operator shall make its
best efforts to perform the Petroleum Operations in accordance with the approved
or modified annual Work Program and budget.
As required for reviewing Work Program and budget by JMC, the Operator shall
submit to JMC the supporting data as detailed as possible.
Commercial scale personnel day rates for the Contractor's representatives in JMC
and the PMT (and the Contractor's representatives in the expert groups on an "as
needed basis") including travel costs, shall be submitted by the Contractor to the
JMC. Such costs shall be approved by JMC and included in the Work Program
and budget and amendments thereto. After approval by JMC, such costs incurred
shall be charged to the Joint Account.
10.2 The Operator may, in accordance with the following provisions, incur excess
expenditures or expenditures outside the budget in carrying out the Work Program
and budget, provided that the objectives in the approved Work Program and
budget are not changed:
10.2.1 In carrying out an approved budget for a single item, such as the drilling of
a well, the Operator may, if necessary, incur excess expenditures of no
more than ten percent (10%) of the budgeted amount. The Operator shall
report quarterly the aggregate amount of all such excess expenditures to
JMC for confirmation.
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10.2.2 For the efficient performance of the Petroleum Operations, the Operator
may, without approval, undertake certain individual projects which are not
included in the Work Program and budget, for a maximum expenditure of
One Hundred Thousand U.S. dollars (U.S. $100,000) per project, but the
Operator shall, within ten (10) days after such expenditures are incurred,
report to JMC for confirmation. In case of emergency, the Operator may
incur emergency expenditures for the amount actually needed but shall
report such expenditures to JMC as soon as they are made. However the
said emergency expenditures shall not be subject to Articles 10.2.3 and
10.2.4 herein.
10.2.3 In the event that the aggregate of excess expenditures under Article 10.2.1
herein and expenditures under Article 10.2.2 herein incurred in a Calendar
Year cause the total expenditures of that Calendar Year to exceed the
approved annual budget, such excess shall not exceed five percent (5%) of
the approved annual budget for that Calendar Year. If the aforesaid excess
is expected to be in excess of five percent (5%) of the annual budget, the
Operator shall present its reasons therefor to JMC and obtain its approval
prior to incurring such expenditures.
10.2.4 When JMC confirms the excess expenditures mentioned in Article 10.2.1
herein, and the expenditures mentioned in Article 10.2.2 herein:
(a) if expenditures or excess expenditures are determined to be
reasonable, the Operator may incur such expenditures or excess
expenditures again during the same Calendar Year, subject to
Article 10.2 herein; or
(b) If expenditures or excess expenditures are determined to be
unreasonable, the Operator shall not incur such expenditures or
excess expenditures again during the same Calendar Year and such
unreasonable expenditures or excess expenditures shall be dealt with
36
in accordance with Article 5.4 of Annex II - Accounting Procedure
hereto.
Article 11
Determination of Commerciality
11.1 If any Petroleum discovery is made within the Contract Area, the Operator shall
promptly report such discovery to JMC.
If JMC or the Contractor makes a decision that a Petroleum discovery is worthy
of appraisal, the Operator shall submit to JMC an appraisal Work Program
including appraisal work and timetable for such Petroleum discovery as soon as
possible. Such an appraisal Work Program shall be worked out no later than
ninety (90) days from the date of the aforesaid decision made by JMC or the
Contractor, The appraisal Work Program shall, in so far as is practicable, be based
on conducting the appraisal work continuously, with a view to commencing
offshore operations within one hundred and eighty (180) days from the date of the
aforesaid decision made by JMC or the Contractor.
11.2 After the approval by JMC of the appraisal Work Program referred to in
Article 11.1 herein, the Operator shall carry out the operations as soon as possible
without unreasonable delay in accordance with the timetable set forth in the
approved appraisal Work Program.
11.3 Within one hundred and eighty (180) days after the completion of the last
Appraisal Well, the Operator shall submit to JMC a detailed report on the
appraisal of the commerciality of the discovered Petroleum-bearing trap. Under
special circumstances, the above mentioned periods may be reasonably extended
upon agreement of the Parties.
The appraisal report shall include the evaluation on geology, development,
engineering and economics, including estimated project costs, and the Overall
Development Program to be approved and the Overall Development Program \
37
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shall include the Maximum Efficient Rate (MER) and the duration of the
production period determined in accordance with the international petroleum
industry practice.
Prior to the submission of the Overall Development Program, the Operator shall:
(a) submit to CNOOC the report of oil and/or gas in place of Oil Field and/or
Gas Field; and
(b) entrust a qualified organization to prepare the Environmental Impact
Statements.
The reports and statements mentioned in (a) and (b) above shall be submitted to
the competent authorities of the Chinese Government through CNOOC for review
and approval unless otherwise required by the Chinese government.
11.4 Within thirty (30) days following the submission of the appraisal report on any
Crude Oil bearing trap, JMC shall convene a meeting to review such report.
When JMC decides unanimously after its review that the said Crude Oil bearing
trap is an Oil Field with commercial value and is to be developed, or the
Contractor considers, in accordance with Article 11.6.2 herein, that a Crude Oil
bearing trap is an Oil Field with commercial value and is to be developed, JMC
shall submit to CNOOC for confirmation the appraisal report and the Overall
Development Program of the said Oil Field to be developed and CNOOC shall
submit the Overall Development Program of the Oil Field to the competent
authorities of the Chinese Government as soon as possible for its review and
approval. The Operator shall perform the Development Operations in accordance
with the Overall Development Program of each Oil Field approved by the
competent authorities of the Chinese Government. If such Development
Operations do not commence within ninety (90) days after the date of approval of
the Overall Development Program of an Oil Field by the competent authorities of
the Chinese Government, or if an intentional delay caused unilaterally by the
Contractor acting as the Operator, results in a suspension or halt of ninety (90)
38
continuous days in the Development Operations of an Oil Field, the Contractor
shall be deemed to have automatically waived all its rights in the said Oil Field.
11.5 If, after the appraisal, JMC determines that a Crude Oil bearing trap is non¬
commercial, such Crude Oil bearing trap may, at the Contractor’s option, be
retained within the Contract Area during the term of the exploration period;
before the expiration of the exploration period, if, because of certain positive
factors, JMC considers unanimously that it is necessary to reappraise the
commerciality of the Crude Oil bearing trap, the Operator shall submit a further
appraisal report on such Crude Oil bearing trap to JMC for its review and
adoption; if the JMC’s determination of non-commerciality of such Crude Oil
bearing trap has not altered by the expiration of the exploration period, the
relevant area of such Crude Oil bearing trap shall be excluded from the Contract
Area.
11.6 If JMC can not reach an agreement on the commerciality of a Crude Oil bearing
trap, the Parties shall make their best efforts to seek another solution thereto.
However, if JMC can not reach an agreement on the commerciality of any Crude
Oil bearing trap within ninety (90) days following the submission of the appraisal
report prepared by the Operator in accordance with Article 11.3 herein or any
further appraisal report prepared by the Operator in accordance with Article 11.5
herein, then such trap shall be dealt with in accordance with the following
procedure:
11.6.1 If the Contractor informs CNOOC by notice that it considers a Crude Oil
bearing trap without commercial value, then the Contractor shall be
deemed to have waived its rights to participate in the development of that
Crude Oil bearing trap. The relevant area covered by that Crude Oil
bearing trap shall, however, be retained within the Contract Area until the
expiration of the exploration period. In case that CNOOC decides, within
the exploration period, to develop solely such Oil Field, then, within the
development period, the Contractor shall be allowed to participate in the
39
development. If the Contractor decides, within the development period of
the said Oil Field, to participate in the development of such Oil Field by
giving a written notice to CNOOC, then, the Contractor shall pay CNOOC
an amount of money, in addition to the forty-nine percent (49%) of the
development costs spent by CNOOC on the said Oil Field with Deemed
Interest thereon up to the date of Contractor’s submission of the written
notice to CNOOC. Such amount shall be equal to three times (300%) the
foregoing payable development costs with Deemed Interest thereon and
such amount of money shall not be recovered after commercial production
of the Oil Field commences. Thereafter, the development costs to be
incurred in such Oil Field shall be provided by the Parties in proportion to
their respective participating interests. In the event that the Contractor still
decides not to participate in the development of the said Oil Field by the
expiration of the development period of such Oil Field, then the said Oil
Field shall be excluded from the Contract Area upon the Date of
Commencement of Commercial Production of the said Oil Field.
11.6.2 If CNOOC considers a Crude Oil bearing trap to have no commercial
value while the Contractor considers that it is a Crude Oil bearing trap
having commercial value, the Contractor may solely provide the entire
development costs and undertake development of the said Oil Field, and
the said Oil Field shall be deemed as an Oil Field in which CNOOC has no
participating interests. The entire risk related to the development costs
spent for the said Oil Field shall be borne solely by the Contractor.
11.6.3 Unless otherwise decided by CNOOC, the Development Operations and
Production Operations of an Oil Field solely financed for the development
by CNOOC shall still be, upon agreement between the Parties through
consultation, performed by the Operator subject to the agreement of terms
and conditions entered into by CNOOC and the Operator.
40
11.7 In the event of an Oil Field and/or Gas Field Straddling a Boundary, CNOOC
shall arrange for the Contractor and the neighbouring parties involved to work out
a unitized Overall Development Program for such Field and to negotiate the
relevant provisions thereof.
11.8 If a Petroleum-bearing trap without commercial value within the Contract Area
can be most economically developed as a commercial Oil Field and/or Gas Field
by linking it up with facilities located outside the Contract Area, then the
development of such Field shall be dealt with in the same manner as provided in
Article 11.7 herein.
11.9 The procedures specified in this Article 11 shall be applied, by analogy, to
determination of additional development projects in any Oil Field and/or Gas
Field within the Contract Area during the production period, such projects being
designed to increase the level of production and/or total quantity of Petroleum
recoverable from the said Field.
11.10 If an appraisal trial production or temporary trial production is deemed by the
Parties to be necessary with respect to any trap in which Petroleum is discovered
or any Oil Field and/or Gas Field within the Contract Area, the Parties shall reach
a written agreement through negotiation on terms and conditions of appraisal trial
production or temporary trial production, which shall be attached hereto as a
supplementary document.
Article 12
Financing and Cost Recovery
12.1 Funds required for the Petroleum Operations shall be raised by the Operator in
accordance with Work Programs and budgets determined pursuant to the relevant
provisions of the Contract, the provisions described in Annex II - Accounting
Procedure hereto, and the provisions described hereunder.
41
12.1.1 All the exploration costs required for Exploration Operations shall be
provided solely by the Contractor. However, the exploration costs required
for the fulfillment of the minimum exploration work commitment shall be
deemed the equity capital of the Contractor.
12.1.2 The development costs required for Development Operations in each Oil
Field and/or Gas Field within the Contract Area shall be provided by
CNOOC and the Contractor in proportion to their respective participating
interests: fifty-one percent (51%) by CNOOC and forty-nine percent (49%)
by the Contractor, unless CNOOC applies the provisions in the second
paragraph of this Article 12.1.2 herein.
In the event that CNOOC, at its option, decides not to participate in the
development of an Oil Field and/or Gas Field or decides to participate in
the development of such Field to an extent of less than fifty-one
percent (51%) of the participating interests, CNOOC shall notify the
Contractor in writing of its decision of non-participation or a specific
lesser percentage of its participating interests before the appraisal report is
to be reviewed by JMC pursuant to Article 11.4 or Article 18.2.2 hereof. In
such case, if CNOOC does not participate in the development of such
Field, the development costs therein shall be borne solely by the
Contractor, or in case CNOOC participates in the development of such
Field to an extent of less than fifty-one percent (51%) of the participating
interests, such development costs shall be borne by the Parties in
proportion to their actual respective participating interests.
12.1.3 The operating costs required for the Production Operations in each Oil
Field and/or Gas Field within the Contract Area shall be paid respectively
by CNOOC and the Contractor in proportion to their participating interests
of the development costs of the said Field.
12.1.4 For the purpose of implementation of the Contract, CNOOC shall agree
that the Contractor may, when financing, use the entitlement of its share of ^
42
production under the Contract as a security for loans, provided that the
Contractor shall apply to CNOOC in advance and the application therefor
shall be examined by CNOOC, and provided further that the right and
interests of CNOOC under the Contract shall not be impaired thereby.
12.2 All the costs incurred in the performance of Petroleum Operations shall be
recovered in accordance with Annex II - Accounting Procedure hereto and the
provisions described as follows:
12.2.1 The operating costs for any given Calendar Year actually incurred by
CNOOC and the Contractor in respect of each Oil Field pursuant to
Article 12.1.3 herein, shall be recovered in kind by the Parties out of the
Crude Oil produced from the said Oil Field during that Calendar Year in
accordance with Annex II ■ Accounting Procedure hereto, after the
operating costs have been converted into a quantity of Crude Oil on the
basis of the Crude Oil price determined in accordance with Article 14
hereof. Unrecovered operating costs shall be carried forward to the
succeeding Calendar Year.
12.2.2 The exploration costs incurred by the Contractor shall be recovered as
follows:
(a) After the Date of Commencement of Commercial Production of an
Oil Field within the Contract Area, the exploration costs incurred by
the Contractor in respect of the Contract Area shall be recovered in
kind out of the Crude Oil produced from any Oil Field within the
Contract Area in accordance with Article 13.2.2.3 hereof, after the
exploration costs have been converted into a quantity of Crude Oil
based on the Crude Oil price determined in accordance with Article 14
hereof. The exploration costs shall be recovered without any interest.
(b) If no Oil Field and/or Gas Field is discovered within the Contract
Area, the exploration costs incurred by the Contractor shall be deemed
43
as its loss. Under no circumstances shall CNOOC reimburse the
Contractor for such loss.
12.2.3 The development costs incurred by CNOOC and the Contractor and
Deemed Interest thereon for each Oil Field shall be recovered as follows:
12.2.3.1 After the Date of Commencement of Commercial Production of
any Oil Field within the Contract Area, the development costs in
respect of such Field incurred by CNOOC and the Contractor and
Deemed Interest thereon calculated in accordance with
Article 12.2.3.2 herein shall be recovered in kind out of the Crude
Oil produced from such Field in accordance with Article 13.2.2.3
hereof, after the development costs have been converted into a
quantity of Crude Oil based on the Crude Oil price determined in
accordance with Article 14 hereof.
12.2.3.2 Deemed Interest on the development costs incurred by CNOOC
and the Contractor for each Oil Field within the Contract Area
shall be calculated with the fixed annual compound rate of nine
percent (9%) from the first day of the month following the month
in which such development costs expended by each party to the
Contract are actually received in the bank account of the joint
account opened by the Operator. The detailed method for such
calculation shall be as provided in Annex II - Accounting
Procedure hereto.
12.3 The provisions in Article 12.2 herein shall apply by analogy to Gas Fields.
Article 13
Crude Oil Production and Allocation
13.1 The Operator shall, in accordance with the production profile, adjusted as the case
may be, set forth in the Overall Development Program for each Oil Field as
approved by the competent authorities of the Chinese Government, work out a
Crude Oil production plan for each Oil Field in each Calendar Year and carry out
Crude Oil production pursuant to such plan.
13.2 The Annual Gross Production of Crude Oil of each Oil Field within the Contract
Area in each Calendar Year within the production period shall be allocated in
accordance with the following sequence and proportions:
13.2.1 Five percent (5%) of the Annual Gross Production of Crude Oil shall be
used for payment of the Value Added Tax and shall be paid in kind to the
competent authorities of the Chinese Government through CNOOC.
13.2.2 Sixty two point five percent (62.5%) of the Annual Gross Production of
Crude Oil shall be used for the payment or recovery in the following
sequence:
13.2.2.1 Resources tax shall be paid in accordance with then existing
relevant laws, decrees rules and regulations with respect to the
resources tax.
13.2.2.2 The Crude Oil less the amount of Crude Oil for payment of
Resources tax in accordance with Article 13.2.2.1 shall be “cost
recovery oil”. Payment in kind for the operating costs actually
incurred but not yet recovered by the Parties shall be made
pursuant to Article 12.2.1 hereof after the price of the said “cost
recovery oil” has been determined in accordance with Article 14
hereof.
13.2.2.3 The remainder of the “cost recovery oil” shall, after payment for
operating costs in accordance with Article 13.2.2.2 herein, be
deemed as “investment recovery oil”. Such “investment recovery
oil” shall be used for the recovery of the exploration costs in
respect of the Contract Area which were incurred and not yet
recovered by the Contractor, and shall be used for the recovery of
45
the development costs in respect of the Oil Field itself which were
incurred and not yet recovered by CNOOC and the Contractor in
accordance with Articles 12.2.2 and 12.2.3 hereof, and Deemed
Interest thereon. The method of recovery and the recovery
sequence are as follows:
(a) Beginning in the Calendar Year during which the production
of any Oil Field within the Contract Area commences, the
“investment recovery oil” referred to in Article 13.2.2.3
herein, based on the price which has been determined in
accordance with Article 14 hereof shall be paid in kind first
to the Contractor for the recovery of the exploration costs
which were incurred in respect of, and have not yet been
recovered from, the Contract Area. The unrecovered
exploration costs shall be carried forward to the succeeding
Calendar Years until fully recovered.
(b) Beginning in the Calendar Year during which the exploration
costs incurred by the Contractor in respect of the Contract
Area have been fully recovered, the remainder of the
“investment recovery oil” of an Oil Field shall be used for the
simultaneous recovery of the development costs incurred and
not yet recovered respectively by CNOOC and the Contractor
and Deemed Interest thereon in respect of such Field in
proportion to their respective participating interests therein
after the price of such remainder of the “investment recovery
oil” has been determined in accordance with Article 14
hereof. The unrecovered development costs and Deemed
Interest thereon shall be carried forward to the succeeding
Calendar Years until fully recovered.
46
(c) During the production period of an Oil Field, costs for an
additional development project incurred pursuant to
Article 11.9 hereof and Deemed Interest thereon shall be
recovered together with the imrecovered development costs
and Deemed Interest thereon. If the development costs and
Deemed Interest thereon in respect of such Oil Field have
been fully recovered, then costs for the said additional
development project and Deemed Interest thereon in respect
of such Oil Field shall be recovered from the “investment
recovery oil” of such Field referred to in Article 13.2.2.3
herein in accordance with the provisions specified in
Article 13.2 herein. The unrecovered costs for the additional
development project and Deemed Interest thereon shall be
carried forward to the succeeding Calendar Years until fully
recovered.
(d) After the recovery of an Oil Field’s development costs and
Deemed Interest thereon and/or costs for the additional
development project and Deemed Interest thereon from the
said Field by the Parties, the remainder of the “investment
recovery oil” shall automatically be regarded as part of the
“remainder oil” referred to in Article 13.2.3 herein. By the
date of expiration of the production period of an Oil Field
pursuant to Article 4.5 hereof, if any development costs and
Deemed Interest thereon and/or costs for the additional
development project incurred in respect of such Field an
Deemed Interest thereon have not yet been fully recovered,
then such unrecovered costs and Deemed Interest thereon
shall be regarded as a loss, and the Parties shall bear the loss
in proportion to their respective participating interests.
47
48
Calculation of amount of
'allocable remainder oil" redacted
13.2.4 The “allocable remainder oil” of each Oil Field in each Calendar Year
referred to in Article 13.2.3 herein shall be shared by the Parties in
proportion to their respective participating interests in the development
costs, fifty-one percent (51%) for CNOOC and forty-nine percent (49%)
for the Contractor. In the event that CNOOC does not participate in the
development of an Oil Field within the Contract Area, the Contractor shall
obtain one hundred percent (100%) of the “allocable remainder oil” of that
Field. In the event that CNOOC participates to an extent less than fifty-one
percent (51%) in the development of an Oil Field within the Contract Area,
the “allocable remainder oil” of such Field in that Calendar Year shall be
shared by the Parties in proportion to their actual respective participating
interests in such Oil Field.
13.3 Pursuant to the method of allocation specified in this Article, the Contractor may
obtain an aggregate amount of Crude Oil consisting of the following three
categories:
13.3.1 The total amount of Crude Oil as converted from the actual operating costs
paid by the Contractor in all Oil Fields in proportion to its participating
interests in the development costs stipulated in Article 12.1.3 hereof when
recovering such costs;
13.3.2 The total amount of the “investment recovery oil” from all Oil Fields due
to the Contractor provided for in Article 13.2.2.3 herein; and
13.3.3 The total amount of the “allocable remainder oil” of all Oil Fields due to
the Contractor in accordance with Article 13.2.4 herein.
N
49
13.4 In the event that the Contractor wishes to purchase a portion of all of the total
amount of the Crude Oil obtained by CNOOC from the “investment recovery oil”
in addition to the Crude Oil obtained by the Contractor in accordance with
Article 13.3 herein, the Parties shall negotiate the terms and conditions of
purchasing such Crude Oil and reach an agreement as a supplementary document
hereto.
13.5 CNOOC and each company comprising the Contractor shall, throughout the entire
Contract term, have the right and obligation to, in each Calendar Quarter, lift and
take, and separately dispose of their respective full shares of all Crude Oil
produced and determined pursuant to Articles 13.3 and 13.4 herein.
In the event that the Crude Oil production of any Oil Field is reduced because
CNOOC or any company comprising the Contractor does not lift and take its full
share of Crude Oil or lifts nothing, then such reduction in Crude Oil production
shall not affect the full shares of Crude Oil due to or the shares of Crude Oil
available to be lifted and disposed of by each of the other parties as provided in
Article 13.6(c) herein.
13.6 A Crude Oil lifting procedure shall be agreed upon by the Parties no later than
six (6) months prior to the Date of Commencement of Commercial Production
within the Contract Area and shall include, but not be limited to:
(a) Operator’s notification of Crude Oil production to CNOOC and each
company comprising the Contractor;
(b) notification by CNOOC and each company comprising the Contractor of its
expected offtake to the Operator;
(c) Operator’s notification to CNOOC and each company comprising the
Contractor of the final Crude Oil lifting schedule which shall be binding on
CNOOC and each company comprising the Contractor;
50
(d) limitation and calculation of overlift and underlift of CNOOC and each
company comprising the Contractor; and provisions to ensure timely and
ratable lifting of Crude Oil;
(e) determination of allowable operational tolerance on liftings; and
(f) other terminal procedures as may be required to reflect the particular
circumstances.
13.7 For the purpose of implementing the procedures as described in Article 13.6
herein, CNOOC and each company comprising the Contractor shall jointly set up
a Crude Oil lifting coordination group consisting of representatives one each
appointed by CNOOC and each company comprising the Contractor, with the
representative of CNOOC as the chairman. Such group shall be responsible for
the preparation of Crude Oil lifting plans of Calendar Year, of Calendar Quarter
and of calendar month and shall also be responsible for the reasonable and unified
arrangements and adjustments of the aforesaid Crude Oil lifting plans through
close contact with any operator in charge of the storage and loading facilities.
Article 14
Quality, Quantity and Price of Crude Oil
14.1 In accordance with Article 13.3 hereof, the Contractor may obtain the aggregate
amount of three categories of the Crude Oil referred to in Articles 13.3.1, 13.3.2
and 13.3.3 hereof. In addition, the Contractor may purchase a portion or all of the
total amount of the Crude Oil allocated to CNOOC from the “investment recovery
oil” in all Oil Fields within the Contract Area in accordance with Article 13.4
hereof.
14.2 Quality of the Crude Oil
14.2.1 The quality analysis of Crude Oil produced from each Oil Field within the
Contract Area shall be undertaken on loading such Crude Oil to each rs
51
tankship. Such analysis shall be carried out on a sample taken immediately
prior to or during loading, by the General Administration of Quality
Supervision, Inspection and Quarantine of the People’s Republic of China
(hereafter referred to as the “AQSIQ”) or any representative agency
delegated by the AQSIQ pursuant to standards issued by the State Bureau
of Standardization of the People’s Republic of China or by the competent
authorities of petroleum industry of the Chinese Government.
14.2.2 The Crude Oil quality analysis referred to in Article 14.2.1 above shall
include the following:
(a) density at 20 degrees Centigrade, in grams per cubic centimetre;
(b) sulphur content, in weight percentage;
(c) water content, in weight percentage; and
(d) basic sediment content, in weight percentage.
14.3 Quantity of the Crude Oil
14.3.1 The quantity measurement of the Crude Oil produced from each Oil Field
within the Contract Area, when being lifted, shall be made at a delivery
point and with measuring devices both to be agreed upon by the Parties. A
relevant measuring organization of the Chinese Government or a
representative agency delegated thereby shall, at appropriate regular
intervals, calibrate all the measuring devices, conduct special testing and
issue certificates of confirmation with respect thereto before the measuring
devices are put into use. The quality and quantity of the Crude Oil
delivered shall be authenticated in accordance with the commodity quality
certificate and weight certificate issued by the AQSIQ and such quality
and quantity shall be the basis for the accounting settlement.
14.3.2 If any party to the Contract believes that the Crude Oil measuring devices,
sampling or analysis are inaccurate, or has any objection to the results >
52
specified in the above-mentioned certificates, onsite investigations,
technical exchanges and discussions may be conducted by the Parties to
resolve the issue in a manner satisfactory to the Parties.
14.4 Determination of the Crude Oil Price
14.4.1 The price of various grades of the Crude Oil shall be expressed as FOB
price at the delivery point in China. Determination of the Crude Oil price
shall be made with reference to the prevailing price in arm’s length
transactions of long-term-contract-sales of similar quality Crude Oil on the
main world oil markets and the adjustment in such price shall be made in
accordance with such determinants as the quality of the Crude Oil, the
terms of delivery, transportation, payment and other terms.
The aforesaid price in arm’s length transactions in this Article refers to a
price at which a seller sells its Crude Oil to a buyer who is independent of
the seller, but not including the prices used by them for government to
government transactions which do not reflect the international oil market
price, Crude Oil exchange, barter or spot transactions.
14.4.2 Where the Crude Oil produced from each Oil Field within the Contract
Area differs in grade, the prices of such Crude Oil with different grades
shall be individually determined.
14.4.3 The price of the Crude Oil produced from all the Oil Fields within the
Contract Area shall be denominated in U.S. dollars per metric ton.
However, if an international currency other than the U.S. dollar prevails on
the main world oil markets as the pricing unit of Crude Oil, the Parties
may also use that international currency therefore upon mutual agreement.
14.4.4 Procedure for the Determination of the Crude Oil Price
14.4.4.1 The Crude Oil price shall be determined each month. In case the
Crude Oil price prevailing on most world oil markets fluctuates,
53
/
CNOOC and the Contractor each shall have the right to propose,
at any time, that a new Crude Oil price shall be negotiated and
determined.
14.4.4.2 The Contractor shall, no later than fifteen (15) days prior to
commencement of any month, notify CNOOC of its proposed
price for Crude Oil to be lifted in such month (for the purpose of
this Article hereafter referred to as the said month).
14.4.4.3 CNOOC shall notify the Contractor of its decided price within
ten (10) days after the receipt of the aforesaid proposed price as
provided by the Contractor. In the absence of a different price
notified by CNOOC to the Contractor within ten (10) days after
the receipt of the aforesaid notification, the proposed price
notified by the Contractor as referred to in Article 14.4.4.2 herein
shall be applied to the Crude Oil to be lifted in the said month.
14.4.4.4 The Contractor shall, within five (5) days following its receipt of
notice of a price decided by CNOOC, state to CNOOC whether
the price is acceptable. If it is acceptable, the said decided price
shall be regarded as the price agreed upon by the Parties for the
said month. If not acceptable, the Parties shall, within ten (10)
days, carry out further negotiation in an amicable manner to
determine the price for the said month.
14.4.4.5 In the event that the Parties still can not reach an agreement on
the Crude Oil price for the said month through further
negotiations by the Parties, the Contractor may lift the Crude Oil
in accordance with the quota specified for the said month in
Article 13.2 hereof, and the Crude Oil price for the preceding
month shall apply provisionally to the Crude Oil of such quota
and/or the payment shall be made accordingly. Then, the Parties
shall negotiate further on the Crude Oil price for the said months
54
taking into account relevant independent and non-proprietary
market data on Third Party long-term-contract-sales of Crude Oil
in substantial quantities on the main world oil markets, adjusted
for quality, transportation and other applicable differentials. The
Parties shall each take into account the information supplied and
discussed and attempt to agree on a Crude Oil price based upon
such information by the end of the said month.
(A) In the event that the Parties still can not reach an agreement
on Crude Oil price by the end of the said month, then the
Crude Oil price shall be the weighted average FOB price of
the Crude Oil of same or similar quality sold by CNOOC
and/or the Contractor to a Third Party or Third Parties and
produced in the said month from the Oil Fields described
hereafter, adjusted for such differences as the quality,
delivery, transportation, payment and other terms, but
excluding the government to government transactions
which do not reflect the international oil market price,
Crude Oil exchange, barter or spot transactions.
The application of the above-mentioned price of Crude Oil
sold to a Third Party or Third Parties shall be in the
following sequence:
(i) Firstly, the price, calculated and determined in
accordance with the above-mentioned stipulations, of
the Crude Oil produced from the relevant Oil Field or
Oil Fields in the Contract Area and sold to a Third
Party or Third Parties shall be applied;
(ii) In the event no sales as referred to in Paragraph (i)
above were made in the said month, the price,
calculated and determined in accordance with the ^
55
above-mentioned stipulations, of the Crude Oil
produced from other oil fields in the Contract Area
and sold to a Third Party or Third Parties shall be
applied; and
(iii) In the event no sales mentioned in Paragraphs (i) and
(ii) above were made in the said month, the price,
calculated and determined in accordance with the
above-mentioned stipulations, of the Crude Oil
produced from the Oil Fields of other Contract Areas
in offshore areas for Chinese-foreign cooperative
exploitation of Petroleum resources and sold to a
Third Party or Third Parties shall be applied.
(B) In the event there are no such Third Party sales of the Crude
Oil during the said month, then the Crude Oil price for the
said month shall be equal to the same Crude Oil price of the
preceding month adjusted by the differences in the
individual arithmetic average of the daily weighted average
of the official government selling price of a basket of three
or more internationally traded Crude Oils in the said month
compared with that of such basket of Crude Oils for the
preceding month. The adjusted price shall be the Crude Oil
price for the said month. The Crude Oils selected for the
basket shall each be similar in quality to that from the
Contract Area and chosen from different countries and shall
reflect the conditions of the main world oil markets and
shall be mutually agreed by the Parties at a reasonable time
prior to the Date of Commencement of the Commercial
Production of Crude Oil.
56
(C) If the Parties are unable to agree on a Crude Oil price for a
month in which Crude Oil is first produced and delivered
from or the production of Crude Oil is restored in a Field in
the Contract Area, then the Crude Oil for the month shall be
priced and/or paid in accordance with the arithmetic
average price of the prices finally proposed by the Parties in
the month. Based on the Crude Oil price agreed upon by the
Parties for the succeeding month, the Crude Oil price for
the month shall be determined by adjusting retroactively by
the difference between the arithmetic average prices of the
basket of the Crude Oils for the month and the succeeding
month in accordance with the calculation method referred to
in Paragraph 14.4.4.5(B) herein.
14.4.4.6 If, due to the delayed announcement of Crude Oil prices by the
main world oil-producing countries or the main world oil markets,
or if, as agreed by CNOOC and the Contractor, an unstable main
world oil market exists, then, the period for the determination of
the price referred to in Article 14.4.4.2 herein may be extended to
the end of the said month in question.
14.4.4.7 If the Crude Oil prices are adjusted retroactively by the main
world oil-producing countries, then the Crude Oil price may be
retroactively adjusted by the Parties after consultation, provided
that the period for such retroactive adjustment shall not exceed
the current month.
14.4.5 The Crude Oil for each month due to CNOOC pursuant to Article 13
hereof shall be converted into an amount of money in the currency utilized
pursuant to Article 14.4.3 herein based on the Crude Oil price for that
month finally determined in accordance with the aforesaid provisions
\
A
57
specified in Article 14.4 herein and such amount of money shall be entered
into the joint account as of the date on which such Crude Oil is lifted.
14.4.6 The Crude Oil for each month due to the Contractor pursuant to Article 13
hereof shall be converted into an amount of money in the currency utilized
pursuant to Article 14.4.3 herein based on the Crude Oil price for that
month finally determined in accordance with the aforesaid provisions
specified in Article 14.4 herein and such amount of money shall be entered
into the joint account as of the date on which the Crude Oil is lifted.
14.5 Terms of Payment for the Purchased Crude Oil pursuant to Article 13.4.
14.5.1 Before the Crude Oil price is determined, the time limit for payment shall
be agreed upon by the Parties through consultation in accordance with the
practice then prevailing on the main world oil markets.
14.5.2 In case the Contractor is in default of such payment, the Contractor shall
pay interest on arrears of the payment, starting from the first day of such
default. The interest rate shall be the London Interbank Offered Rate
(LIBOR) for U.S. dollars as defined in article 2.6 of Annex-II Accounting
Procedure plus five percent (5%).
14.6 Destination of Crude Oil
14.6.1 The destination of Contractor's Crude Oil obtained under the Contract
shall be at the discretion of the Contractor, except as stipulated in
Article 14.6.2 herein.
14.6.2 The Contractor agrees that it shall not deliver any Crude Oil obtained
hereunder to any destination which is prohibited by the laws, regulations
or official requirements of the Government of the People’s Republic of
China. CNOOC shall notify the Contractor of all such officially prohibited
destinations in writing on a timely basis.
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Article 15
Preference to the Employment of the Chinese Personnel, Goods and Services
15.1 The Operator, in carrying out the Petroleum Operations, under the conditions of
such factors as quality, price, delivery time and services are competitive, shall
give preference to the goods, equipment and service provided within the territory
of People’s Republic of China.
15.2 The Contractor, in carrying out the Petroleum Operations, shall give preference to
the employment of qualified Chinese Personnel. For this purpose, the Contractor
shall submit in advance to CNOOC and JMC respectively a plan for the
employment of Chinese Personnel listing the posts and number of the persons
involved, indicating those Chinese Personnel to be employed directly and those
required to be furnished by CNOOC. CNOOC shall, in accordance with the plan,
and if so requested by the Contractor, provide or assist in recruiting Chinese
employee candidates for such employment. For the performance of Petroleum
Operations, the Contractor shall have the obligation to employ competent Chinese
Personnel and to employ those who have become qualified after being trained in
accordance with the training program. The Contractor shall be given preference in
employing the Chinese Personnel who have participated in the training program
provided by the Contractor.
15.3 In accordance with Article 19 of the “Petroleum Regulations”, the engineering
design corporations under CNOOC shall have the right to participate in the master
designs and engineering designs made by the Contractor for the purpose of the
implementation of the Contract. Engineering design companies within the
territory of the People’s Republic of China shall be given preference in entering
into the subcontracts for the aforesaid master designs and engineering designs
provided that their technical level, price and delivery time are competitive.
15.4 After the Contractor signs equipment leasing contracts, service contracts or
subcontracts with CNOOC or its Affiliates in accordance with Article 15.1 herein,
the Contractor shall endeavor to provide technical assistance to CNOOC or its N
59
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Affiliates, at the request of CNOOC, so as to enable them to meet the needs of
operations to be undertaken. The expenses so incurred shall be borne by CNOOC
or its Affiliates.
Article 16
Training of Chinese Personnel and Transfer of Technology
16.1 In the implementation of the Contract, the Contractor or its Affiliates including
each company comprising the Contractor shall, apply in the Petroleum Operations
their appropriate and advanced technology and managerial experience, including
their proprietary technology e.g. patent, know-how or other confidential
technology, etc. At the same time, the Contractor shall have the obligation to
transfer its technology and managerial experience, including their proprietary
technology e.g. patented technology, know-how or other confidential technology,
etc. At the same time, the companies comprising the Contractor shall have the
obligation to transfer their technology and experience and the necessary data
and/or information for mastering that technology and experience, to CNOOC and
its Affiliates. Provided however, such technology to be transferred shall be
proprietary to the Contractor and if the transfer of any of such technology is
restricted in any way during the term of the Contract, the Contractor shall, to the
extent reasonably possible, endeavour to obtain permission for the transfer to such
restricted technology.
16.2 Within ninety (90) days following the approval of the Overall Development
Program of the first Oil Field and/or Gas Field within the Contract Area by the
responsible authorities of the Chinese Government, the Contractor shall, after the
consultation with CNOOC, complete and submit a training and technology
transfer program for the Chinese Personnel in the development period and the
corresponding budget to JMC for review and approval, and upon approval by
JMC, put it into practice. The Contractor shall, after consultation with CNOOC
complete and submit training and technology transfer programs and
60
f®
corresponding budgets for the Chinese Personnel in the production period to JMC
for its review and approval before the Date of Commencement of Commercial
Production, and upon approval by JMC, put them into practice in time so as to
have ample time in advance for such training and technology transfer.
In accordance with the provisions in Article 8.8 hereof and in order to facilitate
the transfer of the Operatorship to CNOOC as early as possible, the Operator shall,
through the training of the Chinese Personnel, gradually increase the percentage
of the Chinese Personnel including the key personnel while the percentage of the
Expatriate Employees shall be reduced accordingly. By the end of the fifth year of
the production, the total number of the Chinese Personnel shall be no less than
ninety percent (90%) of the total number of personnel. The total number of the
Chinese Personnel mentioned above shall not include those personnel rendering
living services of any Third Party.
16.3 The purpose, requirement, fields of specialization, scope of personnel, specified
job categories, type, method and etc. of the training of Chinese Personnel and
technology transfer shall be determined through consultation by the Parties.
16.4 The expenses and costs incurred for performing the training and technology
transfer program stipulated in this Article shall be charged to the development
costs if such costs are incurred after the date of approval of the Overall
Development Program of the first Oil Field and/or Gas Field and before the Date
of Commencement of Commercial Production of the first Oil Field and/or Gas
Field, or shall be charged to the operating costs if such costs are incurred after the
Date of Commencement of Commercial Production of the first Oil Field and/or
Gas Field.
16.5 In the course of the implementation of the Contract, the Parties shall have
scientific and technical cooperation and exchange in connection with the
Petroleum Operations. The relevant provisions concerning the plan, participating
personnel and type shall be determined by the Parties to the Contract through
consultation. The expenses required by the scientific and technical cooperation
61
and exchange shall be included in the budget specified in Article 16.2 herein and
charged to the joint account. In the scientific and technical cooperation, all
inventions, experiments or research results shall be shared by and belong to the
Parties who, subject to the provisions of Article 22 hereof, shall not disclose them
to any Third Party.
16.5.1 In the course of the implementation of the Contract, those scientific
research projects which are required by the Petroleum Operations but not
carried out by the Parties, with the approval of JMC, may be
commissioned to, and carried out by, any Third Party, and the Parties shall
enter into subcontracts or service contracts with relevant scientific research
departments within the territory of the People’s Republic of China,
provided that they are competitive. The aforesaid required expenses shall
be included in the budget specified in Article 16.2 herein and charged to
the joint account. All inventions and experimental or research results
developed from the aforesaid research projects carried out by a Third Party
delegated by the Operator shall also be shared by and belong to the Parties
who, subject to the provisions of Article 22 hereof, shall not disclose any
of them to any other Third Parties. The Operator shall endeavour to
incorporate the provisions herein in the subcontracts or service contracts
signed with a Third Party.
16.6 The advanced technology and managerial experience, including proprietary
technology, e.g. patent, knowhow or other confidential technology and data or
information that the Contractor shall transfer to CNOOC or its Affiliates, shall
remain the exclusive property of the Contractor and also be subject to the
confidentiality restrictions of Article 22 hereof.
62
Article 17
Ownership of Assets and Data
17.1 All assets purchased, installed and constructed under the Work Program and
budget for each Oil Field and/or Gas Field within the Contract Area shall be
owned by CNOOC from the date on which all the development costs actually
incurred by the Contractor in the development period of each Oil Field and/or Gas
Field have been fully recovered or from the date on which the production period
expires, even though the aforesaid costs have not been fully recovered. Before the
dates referred to in the above paragraph all assets mentioned above shall be jointly
owned by the Parties. The Operator shall be responsible for the acceptance
inspection or testing of the said assets and CNOOC may, as it deems necessary,
send its experts to participate in such acceptance inspection or testing. In the
production period, the Operator can use these aforesaid CNOOC-owned assets
free of charge for performing the Petroleum Operations. Such assets shall not be
used in any operations other than the Petroleum Operations or in any operations
by Third Parties without the written consent of the Parties.
17.2 Equipment and facilities which are owned by a Third Party and are either leased
by the Operator or temporarily brought into the territory of the People’s Republic
of China for the performance of the Petroleum Operations shall not be deemed as
assets owned by CNOOC. Such equipment and facilities may be exported from
the People’s Republic of China, but export formalities shall be handled by
CNOOC.
17.3 The ownership of all of the data, records, samples, vouchers, and other original
data obtained in the course of performing the Petroleum Operations shall vest in
CNOOC.
17.4 Each of the Parties shall have the continuing right to use the LS36-1 Production
Facility Assets free of charge (subject to the payment of the proportion of the
operational costs due in accordance with Clause 8.4 of the LS36-1 SDA), in
respect of any additional gas resources discovered within the Contract Area and
IS
63
which can be conveniently transported and processed using the LS36-1
Production FaciJity Assets. Further, it is agreed that, provided that the Parties’
joint interests are preserved so that the LS36-1 Production Facility Assets will be
available for any additional gas resources discovered in the Contract Area, then, if
there is spare capacity in the LS36-1 Production Facility Assets, CNOOC has the
right to use the Production Facility Assets for any CNOOC wholly self-financed
discovery in the nearby area which can be conveniently transported and processed
using the LS36-1 Production Facility Assets. Such use shall be free of charge
(subject to the payment of such proportion of the operational costs as is due in
accordance with Clause 8.4 of the LS36-1 SDA) if all development costs incurred
in relation to the LS36-1 Production Facility Assets have been recovered prior to
the date of commencement of such use, but if full development cost recovery has
not been effected prior to the date of commencement of such use then, in addition
to a proportion of the operational costs, CNOOC shall also pay such reasonable
proportion of the development costs on such terms as is agreed by the Parties.
Article 18
Associated Natural Gas and Noii-associated Natural Gas
18.1 Associated Natural Gas
18.1.1 The Associated Natural Gas produced from any Oil Field within the
Contract Area shall be primarily used for purposes related to the
operations of production and production enhancement of Oil Fields such
as gas injection, gas lifting and power generation.
18.1.2 Based on the principle of full utilization of the Associated Natural Gas and
with no impediment to normal production of the Crude Oil, the Overall
Development Program of each Oil Field shall include a plan of utilization
of the Associated Natural Gas. If there is any excess Associated Natural
64
Gas in any Oil Field after utilization pursuant to Article 18.1.1 herein
(hereafter referred to as “excess Associated Natural Gas”), the Operator
shall carry out a feasibility study regarding the utilization of such excess
Associated Natural Gas of such Oil Field. Such feasibility study, if carried
out before the Development Operations of an Oil Field, shall be included
as part of the feasibility study on the development of the Oil Field. With
respect to any Oil Field already under commercial production, if a further
feasibility study on the utilization of its excess Associated Natural Gas is
required, such study shall be carried out by the Operator and a report
thereon shall be submitted to JMC for review and discussion. If the Parties
decide to utilize the excess Associated Natural Gas of any Oil Field, the
construction of facilities for such utilization and the production of the
excess Associated Natural Gas shall be carried out at the same time as the
Oil Field construction and production.
18.1.2.1 If the Parties agree that the excess Associated Natural Gas of an
Oil Field has no commercial value, then such gas shall be
disposed of by the Operator, provided that there is no
impediment to normal production of the Crude Oil.
18.1.2.2 If any party to the Contract considers unilaterally that the excess
Associated Natural Gas of an Oil Field has commercial value,
such gas may be utilized by that party to the Contract at its own
expense without affecting the amount of “cost recovery oil” and
“allocable remainder oil” due to the other party to the Contract
which does not invest in such utilization.
18.1.2.3 If the Parties agree that excess Associated Natural Gas of an Oil
Field has commercial value, they shall make further investment
in its utilization in proportion to their respective participating
interests in the development of the Oil Field. If the Parties
disagree on the commercial utilization of such excess
65
Associated Natural Gas of that Oil Field, they shall, guided by
the principle of mutual benefit, carry out further negotiations to
find a new solution to the utilization of the said excess
Associated Natural Gas and reach an agreement in writing. If
the Parties fail to reach an agreement through such negotiations,
CNOOC shall reserve the right to dispose of such excess
Associated Natural Gas unilaterally.
18.1.3 Expenses incurred in the utilization of the Associated Natural Gas of any
Oil Field as stipulated in Article 18.1.1 herein, and those incurred in
carrying out a feasibility study on the utilization of the excess Associated
Natural Gas after commencement of commercial production of the Oil
Field referred to in Article 18.1.2 herein shall be charged to the
development costs of the Oil Field.
18.2 Non-associated Natural Gas
18.2.1 When any Non-associated Natural Gas Field (hereinafter referred to as the
“Gas Field”) is discovered within the Contract Area, the Parties shall carry
out friendly negotiations regarding the development and production of the
Gas Field and marketing said Non-associated Natural Gas in the domestic
and international markets with a view to reaching an agreement of
principle, which shall form a supplementary document to the Contract, and
shall include the following principles:
18.2.1.1 The price of the Natural Gas produced from the Contract Area
shall be determined based on general pricing principles
prevailing internationally taking into consideration such factors
as the market, the grade, quality and quantity of the Natural Gas,
etc.
18.2.1.2 The Contract term for the Gas Field within the Contract Area
shall be separately determined according to the conditions for
66
development and production of such Field and marketing of the
Natural Gas; and
18.2.1.3 The allocation of the Natural Gas shall be in conformity with
general principles of allocation for the Crude Oil stipulated in
Article 13 hereof. However, the percentages of the allocation
shall be adjusted by the Parties through negotiations in the light
of actual conditions in the Gas Field so that the Contractor shall
be able to obtain a reasonable economic benefit. Following the
signature of the agreement of principle herein, the Operator shall
work out an evaluation Work Program for the discovered Gas
Field in accordance with the terms and conditions in the said
agreement of principle and submit it to JMC for its review and
approval. Upon approval by JMC, the Operator shall carry out
the evaluation Work Program. The expenses incurred by the
Operator in carrying out the said evaluation Work Program shall
be charged to the exploration costs of the Contract Area.
18.2.2 After completion of evaluation of a Gas Field, the Operator shall submit a
report thereon to JMC for review and discussion.
18.2.2.1 If JMC decides unanimously that a gas reservoir is non¬
commercial, the corresponding area covered by the gas reservoir
may be retained in the Contract Area during the exploration
period. But if, at the expiration of the exploration period, JMC
still considers the said gas reservoir to be non-commercial, the
area covered by the gas reservoir shall be excluded from the
Contract Area. For a Gas Field which has potential commercial
value but which has not been developed due to a lack of market
or a shortage of consuming facilities, the period for which the
Gas Field is retained in the Contract Area may be extended at
the request of any party to the Contract. Such extended period,
67
however, shall not exceed three (3) consecutive Contract Years
after the date of expiration of the exploration period hereunder.
In case the time needed for the market to develop or for the
consuming facilities to be constructed for the Gas Field exceeds
such extended period, a further extended period shall be subject
to the approval of the competent authorities of the Chinese
Government. Prior to the expiration of the exploration period, if
JMC considers that a gas reservoir which has been determined
to be non-commercial needs to be reappraised because of some
favourable factors, the Operator shall work out a new evaluation
report on that gas reservoir and submit it to JMC for review and
approval.
18.2.2.2 If the Contractor considers any gas reservoir to be non¬
commercial, the Contractor shall he deemed to have waived its
rights of participating in the development of that gas reservoir.
18.2.2.3 Where the Parties consider a gas reservoir to be commercial, the
Parties shall negotiate to reach an agreement on the
development of the said gas reservoir, based on the terms and
conditions provided in the agreement of principle referred to in
Article 18.2.1 herein. The agreement concerning the
development shall be a supplementary document and an integral
part hereof. If the Parties fail to reach such agreement through
negotiations within three (3) years after the date of
commencement of such negotiations, CNOOC shall have the
right unilaterally to put up the gas reservoir for bidding. In such
case, the Contractor shall still be entitled to participate in the
bidding.
18.3 Natural Gas Production and Allocation
68
18.3.1 The Operator shall, in accordance with the production profile, adjusted as
the case may be, set forth in the Overall Development Program for each
Gas Field as approved by the competent authorities of the Chinese
Government and in accordance with the daily delivery quantity, delivery
pressure and quality specifications specified in the "Natural Gas sales
contract(s), carry out Natural Gas production.
18.3.2 The provisions of Articles 13.1, 13.2.1, 13.2.2, 13.2.4 and 13.3 shall apply
by analogy to Gas Fields.
The provisions of sub Article 13.2.3 shall also apply by analogy to Gas
Fields subject to the following:
The remainder of the Annual Gross Production of Natural Gas after the
allocation referred to in Articles 13.2.1 and 13.2.2 herein shall be deemed
as “remainder gas”. Such “remainder gas” shall be divided into “share
69
18.4 Notwithstanding the provisions in Article 18.2 hereof, in order to encourage the
exploration for and development of Natural Gas, CNOOC is willing to act as a
buyer and to purchase the Natural Gas produced from the Contract Area provided
that the total volume of the Natural Gas purchased by CNOOC from one or more
Contractors plus the shares of Natural Gas due to CNOOC shall be sufficient to
supply three point five (3.5) billion cubic meters per annum of Natural Gas supply
and in accordance with the following provisions:
18.4.1 CNOOC shall make investment required for laying the pipelines for
landing the Natural Gas in domestic market, and shall organize the
Contractors to consult the possibility of joint development of the Gas
Fields.
18.4.2 The purchase of the Non-associated Natural Gas and hydrocarbon (such as
condensate) associated therefrom and the Associated Natural Gas of
commercial value produced from the Contract Area shall be at the
wellhead.
18.4.3 The Parties shall determine through consultation the wellhead price of the
Non-associated Natural Gas, and in principle, the wellhead price shall be
linked to the equivalent thermal value of the international oil price and the
substitute energy price in domestic market.
18.4.4 The purchase of the Non-associated Natural Gas and hydrocarbon
associated therefrom shall be paid in U.S. dollars.
18.4.5 The price of Associated Natural Gas shall be separately determined
through consultation by the Parties.
18.4.6 If the intention expressed in writing by the Contractor of selling its share
of the Non-associated Natural Gas in accordance with the provisions
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70
mentioned above is accepted by CNOOC, the acreage containing the
structure in relation to said Non-associated Natural Gas shall be
automatically retained in the Contract Area. At the expiration of the
exploration period, in case the volume of Natural Gas to be purchased by
CNOOC has not yet achieved the target of supplying Natural Gas of three
point five (3.5) billion cubic meters or the said target has been achieved
but the Parties have not yet reached agreement on the terms and conditions
for purchasing said Non-associated Natural Gas, said acreage shall be
retained in the Contract Area until the Gas Field is to be developed, but
such retention shall no longer than ten (10) consecutive Contract Years as
of the date of expiration of the exploration period.
18.5 If CNOOC utilizes unilaterally the excess Associated Natural Gas of an Oil Field
or develops solely a Gas Field and requires to apply thereto the Contractor’s
appropriate and advanced technology and managerial experience, the Parties shall
negotiate terms and conditions related thereto and the Contractor shall carry out
the operations after an agreement has been reached on such terms and conditions.
Article 19
Accounting, Auditing and Personnel Costs
19.1 Accounting
Annex II - Accounting Procedure hereto contains the guidelines for the Operator
to keep accounting books and records and make financial settlements. The
Operator shall keep and settle the accounts for all the financial activities in respect
of the Contract Area and maintain all the accounting books and records in
accordance with Annex II - Accounting Procedure hereto in order to accurately
reflect the exploration costs, development costs with Deemed Interest thereon and
operating costs, incurred in the performance of the Petroleum Operations in
respect of the Contract Area, as well as quantity and monetary value of the
production and allocation of Crude Oil and Natural Gas. The Operator shall
71
submit detailed statements and relevant written reports to JMC and the
departments concerned.
19.2 Auditing
19.2.1 Any non-Operator party to the Contract shall have the right to audit all the
Operator’s joint account accounting books and records after the end of
each Calendar Year and give the Operator a written notice of the auditing
results. The auditing shall be completed within twenty-four (24) months
after the end of each Calendar Year. In the absence of any written notice of
the exception to the auditing results given by the non-Operator party
within such period or if the annual joint account accounting books and
records of the Operator are not audited by the non-Operator party within
such period, the Operator’s joint account accounting books and records
shall be deemed correct. A special auditing of the Operator’s joint account
accounting books and records may be made due to some special
requirements during a Calendar Year.
19.2.2 If the auditing referred to in Article 19.2.1 herein is conducted, the
Operator shall be given thirty (30) days notice prior to the date of
commencement of such auditing. There shall be no impediment to normal
Petroleum Operations during any audit.
19.2.3 The auditors shall be entitled to access to all relevant joint account records,
files and other information and may inspect such sites and facilities as
necessary.
19.2.4 Upon receipt of a notice of the non-Operator party audit reports or
exceptions to the auditing results, the Operator shall separately give
response in writing and resolve these matters in due time (no later than
sixty (60) days thereafter).
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19.3 Personnel Costs
19.3.1 The personnel costs mean the remuneration and other related charges
concerned paid on the basis of the working time spent by personnel who
are engaged in administration, management, accounting, finance, tax,
employee relations, procurement, legal affairs, computer services,
engineering, geology, geophysics, drilling and Production Operations as
well as all other work for the implementation of the Contract.
19.3.1.1 The salaries or wages of personnel in various subordinate bodies
of JMC and of all employees engaged in the performance of the
Petroleum Operations shall be included in the personnel costs as
provided in Article 19.3.1 herein.
19.3.1.2 Personnel costs which are classified as the overhead of the
superior management organization pursuant to Article 5.2.18 of
Annex II - Accounting Procedure hereto shall not be included in
the personnel costs mentioned herein.
19.3.2 After the effective date of the Contract, the Operator shall work out a
staffing plan and a personnel costs plan with respect thereto (including
salary or wage standards of each personnel and its breakdown content,
such as basic salary or wage, overseas allowance, area allowance,
insurance, various benefits and subsidies and the extra portion of
individual income tax paid by the Contractor’s employees in China
exceeding the individual income tax payable by them in their home
countries etc.) before the beginning of each Calendar Year.
During the exploration period, the Operator shall submit a staffing plan for
its organization and a personnel costs plan with the annual Work Program
and budget to JMC for review and examination.
In the development period and production period, the Operator shall
submit a staffing plan for its organization and a personnel costs plan with
\
the annual Work Program and budget to JMC for review and examination
and the Contractor shall provide to CNOOC with an itemized plan of
personnel costs of the Expatriate Employees, CNOOC shall bear the
obligation of confidentiality to such information provided by the
Contractor.
The Operator shall charge the personnel costs of the Contractor’s
personnel actually incurred to the joint account.
CNOOC shall have the right to audit the personnel costs charged to the
joint account.
19.3.3 The level of the salaries and wages paid to the personnel appointed by
CNOOC in accordance with the provisions of Article 1.2 of Annex III
Personnel Costs hereto shall be determined pursuant to the provisions of
Annex III Personnel Costs hereto.
The salaries and wages of the Chinese Personnel employed by the
Operator in accordance with Article 2 of Annex III Personnel Costs hereto
shall be determined through consultation and specified in employment
contracts. The settlement of accounts for the salaries and wages of the
personnel of CNOOC shall be made by CNOOC to the Operator. The
Operator shall not be liable for any individual income tax of such Chinese
Personnel.
Article 20
Taxation
20.1 The Contractor shall pay taxes to the Government of the People’s Republic of
China subject to the tax laws and regulations of the People’s Republic of China.
20.2 The Operator shall advise the Subcontractors who render services for the Contract
that they and their employees shall pay taxes to the Government of the People’s
74
Republic of China subject to the tax laws and regulations of the People’s Republic
of China.
Article 21
Insurance
21.1 The Operator shall work out an insurance program for the Exploration Operations
and submit it to JMC for review and approval within one hundred and
twenty (120) days after the Date of Commencement of the Implementation of the
Contract. The Operator shall, on behalf of the Parties, obtain the insurance
contracts in accordance with such program as approved by JMC before
commencement of offshore operations within the Contract Area.
Notwithstanding this Article 21.1 either Party, at its sole discretion, may obtain
insurance in excess of the limits approved by the JMC with respect to that Party's
participating interest. The costs of the insurance in excess of the limit approved
by the JMC shall not be charged to the joint account
Similar provisions shall apply in respect of Development Operations and
Production Operations.
21.2 All of the insurance items as approved in the insurance program shall be insured
with an insurance company or companies organized under the laws of the
People’s Republic of China (hereinafter “Chinese Insurance Companies”).
21.3 The insurance programs worked out by the Operator shall include, but not be
limited to, the following insurance covering:
(a) damages and expenses to all drilling installations and equipment, including
damages and expenses to the properties used in work-sites and supply bases
for the Petroleum Operations, while the equipment and properties owned by
Third Party rendering services to the Operator shall be handled in accordance
with Article 21.5 herein;
75
(b) damages and expenses to any of the equipment or installations for production,
storage and transportation, and buildings in the course of construction and
installation both onshore and offshore;
(c) damages and expenses to the Crude Oil and/or Natural Gas production
installations, facilities, equipment and pipelines, both onshore and offshore;
(d) liability to Third Parties;
(e) liability for pollution and expenses for cleaning up in the course of drilling
and the Production Operations;
(f) expenses for killing blowouts:
(g) liability incurred by the Operator who takes the responsibility in chartering
drilling vessels, supply boats or other boats, ships and aircraft serving the
Petroleum Operations;
(h) liability for removal of wrecks; and
(i) losses and expenses incurred during the transportation and storage in transit
of goods shipped from different parts of the world to work-sites.
21.4 In the insurance contracts, the deductibles borne by the Operator alone shall be
determined by the Parties through consultation, and losses within the deductible
limits shall be borne by the Parties.
21.5 When signing subcontracts or lease contracts, the Operator shall endeavour to
compel Subcontractors and lessors to insure their risks under the relevant
subcontracts with Chinese Insurance Companies and ask these -Subcontractors or
lessors to contact Chinese Insurance Companies for arrangement of the necessary
insurance.
21.6 In the course of the Petroleum Operations, the Parties shall cover separately
personal accidental death and injury insurance with respect to personnel assigned
76
by them respectively. The premiums in respect thereof shall be dealt with in the
following way: the premiums for personnel accidental death and injury insurance
with respect to personnel whose costs are charged to the joint account pursuant to
the provisions of the Contract shall be charged to the joint account, and those with
respect to other personnel shall be borne respectively by the Parties by which they
are assigned.
21.7 Insurance companies owned by or affiliated with any party to the Contract, or the
Parties themselves, may approach the Chinese Insurance Companies for
reinsurance if they are interested in covering any part of the insurance program
hereof.
21.8 The premiums of insurance in the exploration period and the development period
shall be charged respectively to the exploration costs and development costs while
those in the production period shall be charged to the operating costs.
21.9 Any claim under the insurance of the agreed insurance program charged to the
joint account shall be handled by the Operator and any recovery made from
insurers shall be credited to the joint account.
Article 22
Confidentiality
22.1 CNOOC shall, in conformity with applicable laws and regulations of the
Government of the People’s Republic of China on confidentiality and by taking
into account the international practice, determine the confidentiality periods for
which the Contract and all documents, information, data and reports related to the
Petroleum Operations within the Contract Area shall be kept confidential.
22.2 Without the written consent of CNOOC, no company comprising the Contractor
or any assignee shall disclose documents, information, data and reports referred to
in Article 22.1 herein or any other information regarded by JMC as confidential to
any Third Party except the Third Parties in Article 22.4 herein and to any Affiliate ■s
77
not directly connected with the implementation of the Contract, and no party to
the Contract shall otherwise transfer, present, sell or publish them in any way
within the confidentiality periods. Within the confidentiality period, CNOOC
shall bear the obligations for confidentiality for the aforesaid contract, document,
information, data and reports. However, CNOOC has the right to furnish the
following original information and data or interpretation thereof with respect to
the Contract Area to the relevant Third Parties:
(a) original information and data held by CNOOC for over two (2) years; and
(b) interpretation as of original information and data, which has been held by
CNOOC for over five (5) years.
CNOOC shall require relevant Third Parties to undertake to keep confidential the
aforesaid data, information, and interpretation thereof furnished to them by
CNOOC.
22.3 During the term of the Contract and after termination or cancellation of the
Contract, CNOOC shall not disclose to any Third Party any patent, know-how or
proprietary technology transferred to CNOOC by the Contractor without the
written consent of the Contractor except for any patent technology of which has
expired and any proprietary and confidential technology which have entered the
public domain.
22.4 For the implementation of the Contract, CNOOC and each company comprising
the Contractor may, after review by JMC and CNOOC, furnish the necessary
documents, information, data and reports to Third Parties and Affiliates related to
the Petroleum Operations. The Third Parties and Affiliates include:
22.4.1 banks or other credit institutions from which finance is sought by or other
financial institutions which provide or propose to provide financing to any
party to the Contract for the implementation of the Contract;
78
22.4.2 Third Parties and Affiliates which provide services for the Petroleum
Operations, including Subcontractors and other service contractors; and
22.4.3 an assignee or assignees to whom rights and obligations under the Contract
are intended to be assigned.
22.5 Necessary information, documents, data and reports may be furnished by the
Contractor in accordance with the laws of its home country to the government and
stock exchanges provided that the Contractor reports to JMC in advance.
22.6 CNOOC and each company comprising the Contractor when furnishing the
documents, information, data and reports to Third Parties and Affiliates as
mentioned in Article 22.4 herein shall require them to assume the confidentiality
obligations as set forth herein, or shall bear full responsibility for any violation
thereof.
22.7 No Party may issue a press release relating to the Contract Area or Petroleum
Operations without the prior written consent of the other Party; provided that this
limitation shall not prevent the Operator from issuing a press release in the event
of an emergency.
Article 23
Assignment
23.1 The Contractor may assign part or all of its rights and/or obligations under the
Contract to its Affiliate with the prior consent of CNOOC and in accordance with
the following provisions:
(a) the Contractor shall submit to CNOOC copies of a written agreement on the
corresponding part of its rights and/or obligations to be assigned;
(b) the Contractor shall guarantee in writing to CNOOC the performance of the
assigned obligations; f\
79
(c) no such assignment shall interfere with the performance of the Petroleum
Operations or affect the organizational structure.
23.2 The Contractor may assign part or all of its rights and/or obligations under the
Contract to any Third Party, provided that such assignment shall be approved by
CNOOC in advance. However, CNOOC shall have the right of first refusal in
respect of such assignment provided that the conditions offered by CNOOC are
comparable; provided that if CNOOC elects to exercise its right of first refusal, it
shall make this election within ninety (90) days of receiving notice from the
Contractor of its intent to assign to a Third Party.
The written agreement of assignment mentioned above and the consent or
approval of CNOOC to the assignment shall be submitted in time to the original
authority approving the Contract for its record through CNOOC.
23.3 Except for the retention of CNOOC's management functions stipulated in the
Contract, CNOOC shall without the prior consent of the Contractor, assign all of
its rights and obligations under the Contract to one of its Affiliates (it is
understood by the Parties that such Affiliate shall be CNOOC China Limited),
however CNOOC shall submit to the Contractor copies of a written agreement for
the assignment of all of its rights and obligations. CNOOC shall guarantee the
performance of the assigned obligations and such assignment shall not interfere
with the performance of the Petroleum Operations.
23.4 CNOOC may assign part of its rights and/or obligations hereunder to a Chinese
Government controlled Third Party, provided that prior written consent of the
Government of the People’s Republic of China shall be obtained. CNOOC shall
guarantee the performance of the assigned obligations and such assignment shall
not interfere with the performance of the Petroleum Operations.
80
Article 24
Environmental Protection and Safety
24.1 In the performance of the Petroleum Operations, the Operator shall be strictly
subject to the laws, decrees and regulations on environmental protection and
safety promulgated by the Chinese Government and make its best efforts to
prevent pollution and damage to the atmosphere, oceans, rivers, lakes, harbours
and land, and secure the safety and health of the operating personnel. The
Operator shall use all reasonable endeavors to eliminate promptly any pollution
occurring in the performance of the Petroleum Operations and minimize its
consequences. Economic losses caused by any pollution shall be charged to the
joint account, unless otherwise provided in Article 8.4 hereof.
24.2 When competent authorities under the Chinese Government assign any person to
inspect environmental protection and safety within the scope of the Petroleum
Operations according to the laws, decrees, rules and regulations, the Operator
shall provide all necessary facilities and assistance to enable the inspectors to
carry out such inspection smoothly.
24.3 In the performance of the Petroleum Operations in any fixed fishing net casting
area and/or aquatic breeding area, the Operator shall make prior contact with the
appropriate authorities of the Chinese Government.
Article 25
Force Majenre
25.1 No party to the Contract shall be considered in default of the performance of any
of its obligations hereunder, if any failure to perform or any delay in performing
its obligations is in conformity with all the events described as follows:
The performance of any obligations hereunder is prevented, hindered or delayed
because of any event or combination of events which could not be foreseen and/or
which is beyond the control of such party;
81
Any such event or combination of events is the direct cause of preventing,
hindering or delaying of such party’s performance of its obligations hereunder;
and
When any such event or combination of events has occurred, such party has taken
all reasonable actions to overcome any cause that prevents, hinders or delays
performance of its obligations and in so far as is practicable continued to perform
its obligations hereunder.
25.2 Notice of any event of force majeure and the conclusion thereof shall forthwith be
given to the other party by the party claiming force majeure.
25.3 In the event of force majeure, the Parties shall immediately consult in order to
find an equitable solution thereto and shall use all reasonable endeavors to
minimize the consequences of such force majeure.
25.4 If the Petroleum Operations in the Contract Area are partially or entirely
suspended as a result of the force majeure referred to in Article 25.1 herein, the
period of the Petroleum Operations may be extended by a period not exceeding
the corresponding period of such suspension. Within fifteen (15) days following
the end of each Calendar Year, the Operator shall report to JMC in writing on the
suspension of the Petroleum Operations caused by force majeure, if any, during
the preceding Calendar Year.
Article 26
Consultation and Arbitration
26.1 The Parties shall make their best efforts to settle amicably through consultation
any dispute arising in connection with the performance or interpretation of any
provision hereof.
26.2 Any dispute mentioned in Article 26.1 herein that has not been settled through
such consultation within ninety (90) days after the dispute arises may be referred
82
to arbitration at the request of and by either party to the Contract. The arbitration
shall be conducted in accordance with the following provisions:
26.2.1 If agreed upon by the Parties, such dispute shall be referred to arbitration
conducted by the China International Economic and Trade Arbitration
Commission in accordance with the arbitration rules thereof.
26.2.2 If the Parties fail to reach an agreement on the arbitration arrangement
mentioned in Article 26.2.1 herein, the Parties shall establish an ad hoc
arbitration tribunal to conduct arbitration in accordance with the following
provisions:
26.2.2.1 The ad hoc arbitration tribunal shall consist of three (3) arbitrators.
The Parties shall each appoint an arbitrator and the two arbitrators
so appointed shall designate a third arbitrator. If one of the Parties
does not appoint its arbitrator within sixty (60) days after the first
appointment, or if the two arbitrators once appointed fail to
appoint the third within sixty (60) days after the appointment of
the second arbitrator, the relevant appointment shall be made by
the Arbitration Institute of the Stockholm Chamber of Commerce,
Sweden.
26.2.2.2 The third arbitrator shall be a citizen of a country which has
formal diplomatic relations with both the People's Republic of
China and any home country of the companies comprising the
Contractor, and shall not have any economic interests or
relationship with the Parties.
26.2.2.3 The place of arbitration shall be determined by the Parties
through consultation or, failing the agreement of the Parties, by
the majority of arbitrators of the ad hoc arbitration tribunal.
26.2.2.4 The ad hoc arbitration tribunal shall conduct the arbitration in
accordance with the arbitration rules of United Nations
83
Commission on International Trade Law, (“UNCITRAL”) of
1976. However, if the above-mentioned arbitration rules are in
conflict with the provisions of this Article 26 including the
provisions concerning appointment of arbitrators, the provisions
of this Article 26 shall prevail.
26.3 Both the Chinese and English languages shall be official languages used in the
arbitral proceedings. All hearing materials, statements of claim or defense, award
and the reasons supporting them shall be written in both Chinese and English.
26.4 Any award of the arbitration shall be final and binding upon the Parties.
26.5 The right to arbitrate disputes under the Contract shall survive the termination or
cancellation of the Contract.
Article 27
Effectiveness, Termination and Cancellation of the Contract
27.1 After the Contract is signed, it shall be approved by the Ministry of Commerce of
the People’s Republic of China. The date of such shall be the effective date of the
Contract. The above mentioned approval shall be notified by CNOOC to the
Contractor as soon as possible.
27.2 All annexes to the Contract shall be regarded as integral parts of the Contract. If
there is any inconsistency between the provisions of the annexes and the main
body of the Contract, the main body of the Contract shall prevail. All references
to the “Contract” hereof refer to the main body of the Contract.
27.3 If, in the course of implementation of the Contract, the Parties decide through
consultation to make amendment of or supplement to any part of the Contract, a
written agreement signed by the authorized representatives of the Parties shall be
required. Significant modifications shall require a written approval from the
84
Ministry of Commerce of the People’s Republic of China. Such agreement shall
be regarded as an integral part of the Contract.
27.4 The Contract shall terminate under any of the following circumstances:
27.4.1 exercise of the Contractor’s election to terminate the Contract under
Article 6.1(c) hereof;
27.4.2 failure to discover any commercial oil or gas reservoir within the Contract
Area prior to the expiration of the exploration period or the extended
exploration period granted under Article 4.3 or 18.2.2.1 hereof;
27.4.3 if there is only one (1) commercial Oil Field or Gas Field in production in
the Contract Area, on termination of the production period of such Field;
27.4.4 if there are two (2) or more commercial Oil Fields or Gas Fields in
production in the Contract Area, on termination of the production period
of the Field with the latest termination date; or
27.4.5 at the end of the last day of the thirtieth (30th) Contract Year from the
Date of Commencement of the Implementation of the Contract, unless the
production period is extended by approval of the responsible authorities of
the Chinese Government under Article 4.5 hereof or unless otherwise
stipulated in Article 4.6.1, 18.2.1.2 or 25.4 hereof.
27.5 Before the expiration of the first phase of the exploration period as specified in
Article 4.2 hereof, the Contractor shall not propose termination of the Contract
unless the Contractor has fulfilled the minimum exploration work commitment for
the first phase of the exploration period ahead of time.
27.6 If either party to the Contract commits a material breach of the Contract, the other
party to the Contract shall have the right to demand that such breach be remedied
within a reasonably specified period of time. If such breach is not remedied within
such period of time, the complaining party shall have the right to cancel the
Contract by giving ninety (90) days’ written notice to the defaulting party.
85
However, such material breach of the Contract and unremedied material breach
shall have been judged by the final award of arbitration in accordance with
Article 26 hereof.
Article 28
The Applicable Law
28.1 The validity, interpretation and implementation of the Contract shall be governed
by the laws of the People’s Republic of China. Failing the relevant provisions of
the laws of the People’s Republic of China for the interpretation or
implementation of the Contract, the principles of the applicable laws widely used
in petroleum resources countries acceptable to the Parties shall be applicable.
28.2 If a material change occurs to the Contractor’s economic benefits after the
effective date of the Contract due to the promulgation of new laws, decrees, rules
and regulations or any amendment to the applicable laws, decrees, rules and
regulations made by the Government of the People’s Republic of China, the
Parties shall consult promptly and make necessary revisions and adjustments to
the relevant provisions of the Contract in order to maintain the Contractor’s
normal economic benefits hereunder.
Article 29
Language of Contract and Working Language
29.1 The text of the Contract, annexes and supplementary documents attached hereto
shall be written in both Chinese and English languages, and both versions shall
have equal force and effect.
29.2 The Parties agree that both Chinese and English shall be used as working
languages. After the effective date of the Contract, technical documents and
information concerning the Petroleum Operations hereunder shall, in general, be
86
written in English except for technical documents and information available
previously and from Third Parties.
Unless otherwise agreed by CNOOC, documents and information in respect of
administration shall be written in both Chinese and English. Forms for production
and other reports and records shall be printed with headings in both Chinese and
English and may be filled out in either Chinese or English.
Article 30
Miscellaneous
30.1 All notices and documents required hereunder shall be deemed to have been
properly given and delivered to either party to the Contract only when received.
30.2 Notices and documents shall he delivered by hand or sent by mail, registered
airmail or telex or facsimile transmission to the address hereunder specified:
87
Address of CNOOC Address of the representative
of the Contractor
China National Offshore Oil Corporation Priineline Energy China Limited
No 25, Chaoyangmenbei Hong Kong Parkview
Dajie,Dongcheng District, 88 Tai Tam Reservoir Road
Beijing, China Hong Kong, China
Postal Code: 100010 Tel:+852 2810 5511
P.O. Box 4705, Beijing, China Fax: +852 2810 0667
Tel: 8610-84521 178 For the attention of: Mr. Victor Hwang
Fax: 8610-84523879 The representative appointed by PECL
For the attention of: Mr. Zhao Liguo Primeline Petroleum Corporation
The representative Hong Kong Parkview
appointed by CNOOC 88 Tai Tam Reservoir Road
Hong Kong, China
Tel:+852 2810 5511
Fax: +852 2810 0667
For the attention of: Mr. Victor Hwang
The representative appointed by PPC
30.3 Each party to the Contract may change its address or representative by a written
notice to the other party to the Contract.
30.4 Companies comprising the Contractor have the following percentages of
participating interests as of the effective date of the Contract.
(1) Primeline Energy China Limited - seventy five percent (75%)
(II) Primeline Petroleum Corporation ---twenty five percent (25%)
Subject to Article 30.6 herein, the rights and obligations of each company
comprising the Contractor hereunder may, as between themselves, be varied by
the operating agreement between such companies and the Contractor shall advise
CNOOC in writing of any expected variation and thereafter, of the actual
variation. ^
/ >
88
If such variation leads to the transfer of the Operatorship or the companies
comprising the Contractor have made a decision to change the Operator, the
Operator referred to in Article 8.1 hereof may be replaced after obtaining a written
consent from CNOOC.
payment of fee redacted
30.6 Companies comprising the Contractor signing the Contract with CNOOC agree to
undertake the obligations of the Contractor under the Contract jointly and
severally.
A
89
THIS CONTRACT is signed on this 15th day of June, 2012 in Qingdao by the
authorized representatives of the Parties hereunder:
China National Offshore Oil Corporation
By:_
Name: Zhao Liguo
Title: General Counsel
Primeline Energy China Limited Primeline Petroleum Corporation
By: By:
Name: Victor Hwang Name: Victor Hwang
Title: Chairman Title: Chairman
90
W>
THIS CONTRACT is signed on this 15th day of June, 2012 in Qingdao by the
authorized representatives of the Parties hereunder:
China National Offshore Oil Corporation
90
ANNEX 1
Geographic Location and Co-ordinates of Connection Points
Of Boundary Lines of the Contract Area
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AREA: 5877krrf
F, V F, \
122° (XI' (X)" 27° 47' 20" 14 121° 401 00" 27° 20' 00"
2 122° 23' 00" 27° 47' 30" 15 121° 40' 00" 27° 30' 00"
3 122° 23' (X)" 27° 33' 00" IK 121° 45' 00" 27° 30' (X)"
4 122° 20' 00" 27° 25' 00" 17 121° 45' (X)" 27’ 35' 00"
0 122° 20' (X)” 27° 25' 00" 18 121° 30’ 00" 27° 35' 00"
ft 122° 20' (X)1' 27° 25' 00" 19 J2J ° SO' 00" 27° 40' 00"
7 122° 20' 00" 27° 10' 00" 20 121° SB' 00" 27° 40' 00"
8 122° 20' 00" 27' 10' 00" 21 121° SB' 00" 27" 45' 00"
9 122” 20' 00" 27” or 00" 22 122° 00' 00" 27" •15' 00"
10 121' 24' 00" 27° 04' 00" 23 121° SI' 10" 27° 1 ’ 40"
11 121° 24' 00" 27° 07' oo"-- 24 121 ° 55' 20" 27" 11' 40"
12 121" 28' 00" 27° 07' 00" 25 121° 55' 20" 27” 05' 00"
13 121° 28' 00” 27” 20' 00" 26 121° sr 10" 27° 05' 00"
120'f» IM'pO
ANNEX II
ACCOUNTING PROCEDURE
CONTENTS
Article l General Provisions
Article 2 Definitions
Article 3 Cash Calls
Article 4 Accounting and Management of Material
Article 5 Expense Accounting
Article 6 Recovery of Costs, Expenses and Deemed Interest
Article 7 Accounting Reports
Article 8 Audit
Article 9 The Transfer Procedure for the Joint Account
Article 1
General Provisions
1.1 This Accounting Procedure is an integral part of the Contract. The definitions set
forth in Article I of the Contract are equally applicable to this Accounting
Procedure. The definitions and provisions in this Accounting Procedure have the
same force and effect as those in the Contract. If the provisions in this Accounting
Procedure are in conflict with those in the Contract, the provisions in the Contract
shall prevail.
1.2 Purpose:
The purpose of this Accounting Procedure is to establish equitable control
methods for determining charges and credits applicable to the Petroleum
Operations according to the relevant provisions of the “Petroleum Regulations”
and of the Contract, including guidelines for accounting settlements in respect of
managing funds and materials, financing, Accounting Records, and for compiling
accounting statements.
The Operator shall neither gain nor lose in relation to the other parties by means
of the fact that it acts as the Operator.
1.3 Accounting Methods: The double-entry method of accounting shall be used in this
Accounting Procedure.
1.4 Working Language: Pursuant to the provisions of Article 29 of the Contract,
Chinese or English shall be used as the working languages for the Accounting
Records and analyses of financial conditions in respect of the Joint Account, at
the Operator’s option.
1
fa?
1.5 Currency for accounting:
The U.S. dollars shall be the unit of currency for accounting in the Joint Account
and shall be the currency for the investments and reimbursements under the
Contract. In case currencies other than U.S. dollars are used to carry out business
activities, the relevant bank accounts and other current asset and current liability
accounts shall be kept both in U.S. dollars and in the currencies used.
1.6 Currency translation:
For the purpose of accounting, currency translation entered into the Joint Account
shall be made in accordance with the following guidelines:
The rate of exchange to be used for the conversion into U.S. dollars of cash calls
received in Renminbi shall be the arithmetic average of buying and selling rates of
exchange applicable to any individual or commercial entity quoted by the Bank of
China at 11:00 a.m. on the date of receipt of such cash call. If the relevant date is
a non-business day of the Bank of China, the rate quoted on the- previous
working day by the Bank of China shall apply.
All other transactions recorded in the Joint Account which are made in Renminbi
shall be translated into and recorded in U.S. dollars at the rate of exchange as
quoted above on the last working day of the previous month, while those
transactions which are made in currencies other than Renminbi and U.S. dollars
shall be recorded in U.S. dollars at the actual cost in U.S. dollars of effecting the
transaction.
Neither CNOOC nor the companies comprising the Contractor shall experience an
exchange gain or loss, at the expense or benefit of the other party.
The Operator shall make its best efforts to minimize any exchange loss.
All gains or losses from currency conversion or translation shall be recorded in
the Joint Account.
2
1.7 Accounting Records and statements:
1.7.1 All Accounting Records related to the Petroleum Operations shall be
established and maintained by the Operator within the territory of the
People’s Republic of China.
1.7.2 All vouchers, accounts, books and statements shall be prepared in
accordance with the Petroleum Operations Accounting System established
by CNOOC.
1.7.3 Annual accounting statements and important accounting books, including
asset records, cash or bank journals, general and subsidiary ledgers,
balance sheets, and gross oil production allocation statements shall be
maintained for the term of the Contract as per Article 4.7 of the Contract,
or for any further period if required by the laws and regulations of the
People’s Republic of China. Other accounting vouchers and books shall be
kept for fifteen (15) years. Quarterly and monthly statements shall be
maintained for five (5) years.
Upon the expiration of the custody period, a list shall be made of the
accounting files to be disposed of. Disposal shall only be made after the
approval of CNOOC. The list of the accounting files disposed of shall be
maintained with the annual accounting statements.
Article 2
Definitions
The terms used in this Accounting Procedure shall have the definitions ascribed to them
as follows:
2.1 “Accounting Records” means all accounting books, source documents, original
vouchers, approved documents, analytical data, work papers and accounting
statements maintained for the Petroleum Operations.
3
IKT>
2.2 “Accounting System” means the Petroleum Operations Accounting System
prepared by CNOOC, specifying the accounting titles to be used by the Operator
and instructions for implementation, forms and contents of various accounting
statements and their preparation methods, including a material classification
section, a definition of Controllable Material, standards for itemizing assets and
the provisions for fixed asset accounting. If the contents of the Accounting
System are in conflict with the provisions of the Accounting Procedure, the
provisions of the Accounting Procedure shall prevail.
2.3 “Material” means materials, tools, facilities, equipment and consumables procured,
leased or otherwise acquired and held for Petroleum Operations.
2.4 “Joint Account” means accounts established by the Operator for the
implementation of the Contract to record all debits and credits related to the
Petroleum Operations.
2.5 “Controllable Material” means the Material referred to in the Accounting System
described in Article 2.2 of this Accounting Procedure.
2.6 "LIBOR" means the six (6) month term London Inter-Bank Offered Rate of US
Dollars which appears on Telerate Page 3750 at 11:00 a.m. Greenwich Mean
Time on the first business day of the relevant period.
2.7 “Investing Party” means any of the Parties that are contributing the funds for the
Petroleum Operations in accordance with their participating interest determined
pursuant to the relevant provisions of the Contract.
Article 3
Cash Calls
3.1 Except as otherwise provided in the Contract, the Contractor shall provide all the
exploration costs for the Exploration Operations according to the provision of
Article 12.1.1 of the Contract; and all the Investing Parties shall provide the n
r
4
development costs for the Development Operations in proportion to their
respective participating interests as provided in Article 12.1.2 of the Contract. In
accordance with each approved annual budget, the Operator shall issue monthly
cash call notices to each Investing Party to provide the Operator with funds to
cover the planned expenditure of the next month. Whether or not the cash call
notices for the exploration costs are to be issued shall be at the option of the
Operator.
3.2 Development Operations cash call and default:
3.2.1 According to the needs of the Petroleum Operations, the Operator shall
regularly issue monthly cash call notices within the amount of approved
annual budget to request each Investing Party to respectively make
advances as specified by the Operator. The Operator shall, before
twenty (20) days prior to the commencement of each month, issue cash
call notices for the development costs and each Investing Party shall
provide its percentage share of funds according to the requirement and
within the time limit specified in the cash call notice, but no sooner than
the first day of the month for which cash is called. Each Investing Party
shall transfer its percentage share of funds to the Operator’s bank
account(s) established particularly for the Joint Account. Such bank
account(s) will in all cases be interest bearing account(s).
Any excessive or deficient advances made by each Investing Party for any
month shall be adjusted in the next cash call.
In case that the Operator, owing to the needs of the Petroleum Operations,
has to incur expenditures which are unforeseen in the cash call for any
month, written notices shall be issued to all the Investing Parties who shall
finance their own shares for additional amount within ten (10) days
following the receipt of the written notice.
5
Pt>
3.2.2 Interest shall be paid by CNOOC or the companies comprising the
Contractor failing to pay its share of funds on the due date specified in the
cash call at LIBOR on delinquent date plus 5% on the delinquency of less
than one(l) month and thereafter at the average seven (7) LIBOR rate
ruling throughout each subsequent month plus 5%, such interest being
compounded on a monthly basis throughout the period of the delinquency.
The non-defaulters shall make up the delinquent portion on behalf of the
defaulters. When the defaulters advance cash to meet both their delinquent
portion and accrued interest thereon, the Operator shall reimburse the non¬
defaulters who made up the delinquent portion.
All amount advanced by the non-defaulting parties plus accrued interest
not reimbursed by the defaulting party shall constitute a debt due from the
defaulting party to the non-defaulting parties who shall be entitled to all
remedies at law and equity. The Operator on behalf of the non-defaulting
parties is entitled to take the defaulting party’s share of the Annual Gross
Production of Crude Oil and apply the proceeds of the sale of such Crude
Oil against all sums due and payable by the defaulting party including
accrued interest. Any excess funds remaining from such proceeds after
deduction of all amounts due including interest and the costs, charges and
expenses incurred by the Operator in connection with such sale, shall be
paid over to the defaulting party. Any deficiency remaining due, after
deducting the proceeds of sale shall remain an obligation of the defaulting
party and may be collected as any other debt.
3.3 Each monthly cash call notice shall clearly indicate the following information:
3.3.1 Annual development costs to be shared by each Investing Party as shown
in the approved annual budget.
3.3.2 Amount of funds advanced by each Investing Party at the end of the month
prior to the month in which the call is prepared and the actual expenditures
recorded and actual balance (i.e. funds unused) in the Joint Account, ^
/V
6
accompanied by the bank statements related to the Joint Account for the
previous month.
3.3.3 The estimated expenditure which will be charged to the Joint Account in
the month of the cash call (the estimate expenditure shall be itemized in
accordance of the annual budget).
3.3.4 Amount of funds to be called from each Investing Party and the estimated
amounts of funds to be called in the following two (2) months.
3.3.5 The clear indication of requirement for the date when funds are to be
provided, the amount of funds, currency account number, name of the
account, the recipient bank and its address.
3.4 On the Date of Commencement of Commercial Production of an Oil Field and/or
Gas Field, any development investment for the Oil Field and/or Gas Field
advanced by the Investing Party not expended or not to be expended shall be
returned to each of the Investing Parties in proportion to its share.
3.5 In accordance with Article 12.1.3 of the Contract, the cash for the Production
Operations undertaken by the Parties jointly and approved by the JMC shall be
provided by all the Investing Parties to the Contract in proportion to their
respective participating interests in the development costs and shall bear no
Deemed Interest. Based on the needs of the Production Operations, the Operator
may make timely adjustments of the amount of cash to be provided by all the
Investing Parties to the Contract. The Operator shall issue cash call notices
quarterly to call for cash for the Production Operations. In proportion to its share,
each Investing Party shall respectively provide advances on a monthly basis in
accordance with requirements and within the time limit specified in the cash call
notice of the current month.
In case that the Operator, owing to the needs of the Petroleum Operations, has to
incur expenditures which are unforeseen in the cash call for any month, written
notices shall be issued to all the Investing Parties who shall finance their own ^
1
shares for additional amount within ten (10) days following their receipt of such
written notices.
3.6 According to the requirement of the Petroleum Operations, the Operator shall
indicate in any cash call notices the U.S. dollar equivalent of the total cash called.
The Operator shall also specify the amounts of Renminbi and U.S. dollars
required as estimated to make payment. CNOOC shall provide the advance of its
own share either in Renminbi or in Renminbi and U.S. dollars with respect to the
amount called for by the Operator, but CNOOC’s funding in Renminbi shall not
exceed the total amount of Renminbi called for by the Operator in any cash call
notice. The Contractor shall provide the advance of its own share in U.S. dollars.
3.7 Provisions for recording the sources of funds:
3.7.1 Funds for exploration costs, development costs and operating costs, when
received, pursuant to each cash call shall be credited against the relevant
accounts of the Investing Parties in the Joint Account.
3.7.2 In case either party to the Contract decides to develop an Oil Field and/or
Gas Field for its sole account pursuant to Article 11.6 and/or Article 18.2.2
of the Contract, or undertakes any other operation for its sole account, the
funds required shall be financed and accounted for separately.
3.7.3 The Contractor shall, within twenty (20) days after the date of submission
to CNOOC of a written notice expressing its decision to participate in the
development of an Oil Field developed solely by CNOOC, pay CNOOC in
cash the amounts stimulated in Article 11.6.1 of the Contract.
3.7.4 In accordance with Article 6.3 of the Contract, if the Contractor opts to
terminate the Contract as provided in Article 6.1(c) of the Contract or if
the phase is the last exploration phase, the Contractor shall, within
thirty (30) days from the date of its decision to terminate the Contract or
thirty (30) days from the date of the expiration of the exploration period,
pay CNOOC in U.S. dollars the unfulfilled balance of the minimum^
8
exploration work commitment (or of the new commitment) for the
exploration phase, converted into cash. The detailed method by which the
unfulfilled balance of the minimum exploration work commitment is
converted into U.S. dollars is that the actual average unit cost, excluding
the abnormal drilling costs such as those of the sidetrack, fishing, severe
loss of mud circulation etc. (i.e. U.S. $/kilometre of seismic line; U.S.
$/meter of drilling footage), of the last portion of a seismic line shot under
the Contract or of the last well drilled is multiplied by the unfulfilled
amount of the minimum exploration work commitment. The formula for
such calculation is as follows:
1 = Ac x Pu
in which:
1 = converted cash amount of the unfulfilled balance of the
minimum exploration work commitment;
Ac = actual average unit cost of the last portion of a seismic line shot
or of the last well drilled; and
Pu = the unfulfilled amount of the minimum exploration work
commitment, the unfulfilled amount in respect of seismic line is the
difference between the kilometers specified in Article 6.2 of the Contract
and actual kilometers of the seismic line. The unfulfilled footage of a
Wildcat is footage or aggregate of well or wells which has or have to be
fulfilled but not yet been fulfilled as specified in Article 6.2 of the
Contract.
9
Article 4
Accounting and Management of Material
4.1 Procurement of Material:
The procurement of Material shall be implemented in accordance with the
procedure specified in Articles 15.1 and 7.6 of the Contract. In order to prevent
overstocking of Material, the Operator shall use all reasonable best efforts to
ensure that the procurement of Material shall be made in accordance with the
Material procurement plans and that the quality of Material conforms to
specifications and prices are fair and reasonable. The Operator does not warrant
the Material furnished beyond, or back of, the supplier’s or manufacturer’s
guarantee.
4.2 Costs of procuring Material:
The costs of Material purchased shall be the invoice prices less discounts plus
related transportation and other expenses, including expenses for freight to the
port of destination, insurance premiums proportion to with the Material covered,
fees of forwarding agents, duties, fees, handling expenses from shipside to and
within any water terminal warehouse or yard, and any other reasonable expenses
actually paid and expenses of inland transportation.
4.3 The following provisions shall be applied for pricing Material furnished from the
stocks of the Parties and/or their Affiliates for use in the Petroleum Operations:
(1) New Material:
New Material shall be priced on the basis of current market value plus
expenses in moving such Material directly to the job-site where Material is
used.
\
10
(2) Used Material:
(A) Material which is in sound and serviceable condition and is suitable for
reuse without reconditioning shall be priced by the Parties, and the
ceiling price shall not exceed seventy-five percent (75%) of the current
value of new Material.
(B) Material which, after being reconditioned, will be further serviceable
for its original function shall be priced by the Parties, and the ceiling
price shall not exceed fifty percent (50%) of the current value of new
Material.
(C) Used Material which can not be classified as (A) or (B) above shall be
priced by the Parties through discussions at a value commensurate with
its use.
(D) If the Operator wishes to use a method other than the above for pricing
used Material, such other method shall be agreed upon in advance by
the Parties through consultations,
4.4 Price determination and leasing expense calculation method for properties
purchased or leased from other contract areas:
The Operator may lease equipment and facilities and purchase Material and fuel
from other contract areas. The Operator shall charge the leasing expenses or
purchase price as agreed upon by the Operator and its suppliers. Such leasing
expenses or purchase prices shall not exceed those currently prevailing in similar
contract areas.
4.5 For certain Material which is in short supply in the world markets and difficult to
procure at published market prices and the lack of which will hinder normal
operations, the Operator may, after the approval of JMC, purchase such Material
urgently needed by the Petroleum Operations and charge actual purchase costs to
the Joint Account.
11
4.6 Disposal of equipment and Material:
The Operator shall not dispose or sell Material with bock value exceeding Ten
Thousand U.S. dollars (U.S. $10,000) without the prior consent ofthe Parties. The
Operator shall use all reasonable endeavors to minimize losses in the disposal of
or sales of such Material.
Sales of properties to Third Parties shall be recorded in accordance with actual
sales income. No guaranty or warranty for Material sold or disposed of under this
Article shall be given by the Operator to any purchaser.
4.7 Accounting for Material:
The costs of Material which is procured by the Operator and is directly used at the
job-site shall be charged to the respective accounts of exploration costs,
development costs or operating costs at actual purchase prices (as defined in
Article 4.2 herein) and on the basis of the intended use of Material. Should such
Material subsequently be used other than as intended, the relevant charges shall be
transferred from the original cost accounts to the appropriate cost accounts.
Material for general use which is first stored in warehouses or which is first stored
on supply boats used as warehouses shall be subject to inventory control
procedures.
The quantities, unit prices and total value shall be recorded for Material in
inventory using perpetual inventory methods. Material in stock shall be priced at
purchase costs and the Operator, upon the commencement of or during the
Contract period, has the freedom to choose one of the following pricing methods
such as FIFO, weighted average method and moving average method etc. for
Material to be transferred out of the stock. Accounts for inventory Material shall
be regarded as exploration cost, development cost or operating cost and shall be
recovered in accordance with Article 12.2 of the Contract.
12
At the request of any non-Operator, the Operator shall furnish to the non-Operator
a detailed statement of Controllable Material.
The Operator shall conduct physical inventory of Material in warehouses and
supply boats used as warehouses prior to the annual final accounts or whenever
depending upon the actual situation. The Operator shall give a written notice to
the JMC sixty (60) days before the date of proposed physical inventory in order to
enable the non-Operator for participation and failure to participate by any non-
Operator in the physical inventory shall be regarded as approval of the physical
inventory conducted by the Operator.
If any gain or loss is found as a result of the physical inventory, the Operator shall
compile a detailed statement of the gain or loss and attach to it an explanation for
the gain or loss, which shall be submitted to the JMC for examination and
approval.
4.8 In accordance with Article 17.1 of the Contract, the Operator shall exercise strict
control over the fixed assets of the Petroleum Operations and set up accounts and
record cards, and shall conduct physical inventory of the fixed assets at year-end
or whenever depending upon the actual situation to make sure that the book
records, card records and physical fixed assets are in conformity. In case that any
damage and loss arises to the fixed assets, the Operator shall determine the
reasons and submit them to the JMC for examination and approval.
Article 5
Expense Accounting
5.1 Rules for Accounting
5.1.1 According to the provisions of Articles 12.1.1, 12.1.2 and 12.1.3 of the
Contract, all development costs and operating costs of the Parties as well
as the Contractor’s exploration costs shall be recorded in the Joint Account
separately. s
13
The Operator shall establish and maintain three separate accounts, namely:
5.1.1.1 exploration costs account
5.1.1.2 development costs account and
5.1.1.3 operating costs account
in which shall be reflected all charges and costs as classified
pursuant to Articles 5.2 and 5.3 of this Accounting Procedure.
5.1.2 If either CNOOC or the Contractor, in accordance with Article 11.6.1,
11.6.2 or 18 of the Contract, makes the decision to develop an Oil Field
and/or Gas Field for its sole account or to undertake any other operation
for its own account, the relevant costs shall be accounted for separately.
5.1.3 All items related to the Petroleum Operations such as discounts,
deductions, allowances, interest income, gains from various services,
indemnities from insurance and other miscellaneous income by the
Operator, shall be credited to the relevant expense accounts.
5.1.4 All direct services or research work (including personnel) provided by the
superior organizations or Affiliates of CNOOC or of the Contractor and by
the Third Parties for the Petroleum Operations shall be subject to the form
of work order procedures in advance and shall be charged to the Joint
Account after verification of the relevant invoices.
Work Order Procedure shall be established through consultations at JMC
meetings by both Parties within three (3) months as of the Date of
Commencement of the Implementation of the Contract. The rates charged
for direct services or research work (including personnel cost) provided by
the superior organizations or Affiliates of CNOOC or of the Contractor
shall be on the basis of actual costs incurred and more competitive when
compared with the rates of similar services furnished by the Third Parties.
The Operator shall, in accordance with Article 15 of the Contract, give
O
14
priority to use direct services or research work (including personnel)
provided by CNOOC.
5.2 Cost items:
The following items shall be chargeable to the Joint Account by Operator's net
cost.
5.2.1 Subcontractor charges:
The charges paid to Subcontractors in accordance with contracts signed
between the Operator and Subcontractors.
5.2.2 Personnel expenses:
The contents and control of personnel expenses shall be as stipulated in
Article 19.3 of the Contract.
5.2.3 Travel and living expenses:
Travel and living expenses paid according to Article 19 of the Contract to
the personnel involved in the Petroleum Operations.
5.2.4 Material expenses:
Expenses paid in accordance with Article 4 of this Accounting Procedure
to purchase Material for use in the Petroleum Operations.
5.2.5 Relocation and transportation expenses:
Relocation and transportation expenses for personnel involved in the
Petroleum Operations to be relocated into or out of the People’s Republic
of China and transferred from job-site to job-site within the People's
Republic of China.
1
15
5.2.6 Maintenance, repair and leasing expenses:
Expenses for maintenance, repair or replacement of the properties used in
the Petroleum Operations and leasing expenses paid for leased properties
and equipment.
5.2.7 Insurance premiums:
Necessary net payment made for the insurance of Petroleum Operations
and related costs and expenses.
5.2.8 Legal expenses:
In order to protect the interests of the Parties, all costs or expenses paid for
attorney’s fees, litigation or investigation, including expenses in securing
evidence, mediation and settlements. The expenses for handling legal
matters incurred for the interests of any party to the Contract shall be
borne solely by such party.
5.2.9 Taxes:
All taxes paid according to the tax laws of the People’s Republic of China,
except for those which do not belong to the scope of expenditures in the
Joint Account the income taxes, Value Added Tax and Resources tax to be
paid by the companies comprising the Contractor or CNOOC and
individual income tax to be paid by employees and other related costs.
5.2.10 Energy expenses:
All costs in respect of fuel, electricity, heat, water or other energy used and
consumed for the Petroleum Operations.
The costs of Crude Oil and/or Natural Gas produced and used in any Oil
Field and/or Gas Field (provided the Parties have the same interests in
such Fields) within the Contract Area by the Operator for the performance
16
of the Development Operations and Production Operations or for well
stimulation or for maintaining the reservoir pressure shall not be charged.
However, the costs of transporting such Crude Oil and/or Natural Gas to
their points of use shall be charged under this item.
5.2.11 Field office facility charges:
The costs and expenses of establishing, maintaining and operating any
offices, camps or housing facilities necessary for the performance of job-
site operations, including the costs of any office used by staff directing
such operations (calculated by apportioning office costs and expenses on
the basis of space occupied by such staff)-
5.2.12 Communication charges:
The costs of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave
facilities between the Contract Area and the base facilities.
5.2.13 Ecological and environmental protection charges:
All charges for any measures undertaken for the Petroleum Operations
within the Contract Area as required by relevant statutory regulations or
pursuant to programs agreed by the Parties.
5.2.14 Service charges
5.2.14.1 Technical service charges:
The charges paid for services such as rock specimen analysis,
oil quality tests, geological evaluation, data processing, design
and engineering, well site geology, drilling supervision and
special research programs and other technical services.
17
5.2.14.2 General service charges:
General service charges refer to professional consultant
charges incurred for the common interests of both Parties and
charges for other services to obtain original data needed for
Petroleum Operations from outside sources, except legal
service.
5.2.14.3 CNOOC’s assistance charges:
(A) The charges for the assistance provided by CNOOC for
the Contractor to carry out the Petroleum Operations in
accordance with Article 9 of the Contract. The charges
for services provided by CNOOC according to
Article 9.1.5 of the Contract in respect of services not
chargeable to the Joint Account shall not be charged to
the Joint Account.
(B) For all assistance to be provided by the head office
organization of CNOOC in Beijing to the Contractor in
the course of the Development Operations and the
Production Operations before CNOOC takes over the
said Production Operations, CNOOC shall charge an
administrative fee of Three Hundred Thousand U.S.
dollars (U.S.$ 300,000) for each Calendar Year. If the
whole process of the Development Operations conducted
for any Oil Field in any Calendar Year is less than
twelve (12) calendar months, the administrative fee for
such Calendar Year shall be calculated in proportion to
the actual calendar month(s) spent thereon (if the actual
time spent thereon in any calendar month is less than
thirty (30) days, the calculation shall be made based on a
full calendar month. The aforesaid administrative fee
IS
shall be paid respectively on June 1 and Dec. 1 each
Calendar Year, with One Hundred Fifty Thousand U.S.
dollars (U.S.$ 150,000) for each time.
5.2.15 Damages and losses to the assets:
All costs and expenses necessary for the repair, replacement or supplement
of assets resulting from damages or losses incurred by fire, flood, storm,
theft or any other force majeure causes, excluding the losses specified in
Article 8.4 of the Contract, which shall be borne by the Operator alone.
5.2.16 Personnel training costs:
Costs incurred for personnel training pursuant to Article 16 of the Contract.
5.2.17 Miscellaneous expenses:
Any reasonable miscellaneous expenses needed for the Petroleum
Operations excluded in the above items of expenses, such as bank charges,
books, stationery and conference expenses as well as other reasonable
expenses.
5.2.18 Overhead:
Overhead refers to the costs for the managerial and operational services
provided by the Operator’s superior management organizations for the
Petroleum Operations, including management, administration, accounting,
treasury, intercompany audit, tax, legal matters, employee relations,
financing, the collection of electronic data and costs which not chargeable
under Article 5.1.4 of this Accounting Procedure for general consultation
such procurement, planning, design, research and operational activities etc.
The overhead shall be calculated in accordance with the following tiers
and based on the sum of the total actual costs from Article 5.2.1 through
Article 5.2.17 and Article 5.2.19 of this Accounting Procedure, but not
19
including CNOOC’s assistance charges under Article 5.2.14.3 of this
Accounting Procedure.
The Overhead Rates for the Exploration Operatioxis
Direct Costs for Exploration Percentage Rate
US. $./Year1 %
First Tier Oto 5,000,000 5%
Second Tier 5.000. 001 to 3%
15.000. 000
Third Tier 15,000,001 to 2%
25,000,000
Fourth Tier over 25,000,000 1%
The Overhead Rates for the Development Operations
Direct Costs for Development Percentage Rate
(US. $./Year) %
First Tier 0 to 5,000,000 2.5%
Second Tier 5,000,001 to 1.5%
10,000,000
Third Tier 10,000,001 to 1.0%
20,000,000
Fourth Tier 20,000,001 to 0.5%
30,000,000
Fifth Tier Over 30,000,000 0.25%
The overhead rate for the Production Operations shall be of one point eight
percent (1.8%) of the total amount of the direct costs for the Production
Operations in each Calendar Year and shall be calculated in accordance
with the calculation method referred to in the provisions of the last
paragraph of Article 5.2.18 herein.
20
The costs and expenses for offices established by the Operator within the
Chinese territory which are not specifically dedicated to the Petroleum
Operations shall be allocated by the Operator to the Petroleum Operations
within the Contract Area or to other beneficiary Parties, including the
Contractor, on the basis of actual service time recorded, or may be
allocated by other methods agreed upon by the Parties. The amount of
allocation charged to the Petroleum Operations within the Contract Area
shall be included in the cost item of Article 5.2.19 of this Accounting
Procedure. The costs and expenses incurred by the offices established by
the Operator and its superior organizations outside the Chinese territory
(excluding costs and expenses chargeable under Article 5.1.4 of this
Accounting Procedure) has been included in the overhead and shall not be
again charged to the Joint Account.
On the last working day of each month, the Operator shall make provision
into the Joint Account for the overhead fees for the current month,
calculated on the basis of cumulative actual expenditure for the Calendar
Year to that date and payment shall be made from the Joint Account on the
last working day of the following month. The final adjustment of the
overhead shall be made at the end of the Calendar Year in respect to any
difference between the actual payment by the Joint Account and the total
overhead for that Calendar Year calculated on the annual cumulative
actual investment expenditure at the end of such year. Any excess shall be
refunded and deficiencies made good.
5.2.19 General and administrative expenses:
General and administrative expenses refer to the administrative expenses
incurred for any offices established by the Operator within the Chinese
territory and for the JMC and its subordinate bodies for the performance of
the Petroleum Operations.
21
5.3 Except as otherwise provided in this Accounting Procedure the allocation of
common costs and expenses for each item of operations shall be charged in
proportion to the exploration costs, development costs and operating costs
actually incurred in each month.
5.4 With respect to the expenditures or excess expenditures as mentioned in
Article 10.2.4(b) of the Contract which are determined by the JMC to be
unreasonable, the JMC will form an expert group for further investigation to
determine whether they shall be charged to the Joint Account or shall be borne by
the Operator alone before the year-end final closing of accounts.
Article 6
Recovery of Costs, Expenses and Deemed Interest
6.1 According to the provisions of Article 12.2.2 of the Contract, exploration costs
shall bear no interest.
6.2 The calculation of Deemed Interest on the development costs:
Deemed Interest on the development costs shall be calculated at the specified rate
from the first day after the end of the month in which the development funds of
any of the Investing Parties have been received in the Operator’s bank account for
the Joint Account in accordance with the provisions of Article 12.2.3 of the
Contract.
There are three hundred and sixty-five (365) days in each Calendar Year for the
interest calculation and the interest shall be compounded once each Calendar Year
on December 31 based on the actual number of days eligible for the interest.
Worked Example:
Development Costs_ US $100 received on tenth of March
\
22
US $100 received on twentieth of March
The aggregate amount received in March is US $ 200.
Deemed Interest shall be calculated from the first of April through the end of such
Calendar Year with a total number of two hundred and seventy-five (275) days.
Formula: Interest = US $200 x 9% x 3^5
At the end of the year interest is added to the capital and interest runs thereon until
cost recovery is fully achieved, i.e. interest is compounded at year end.
6.3 Recovery of exploration costs, development costs with Deemed Interest thereon
and operating costs.
6.3.1 In accordance with the provisions of Article 12.2.2 of the Contract, the
exploration costs shall be recovered from the Oil Fields and/or Gas Fields
within the Contract Area which have been developed and are producing
and the Contractor has participated in the development of said Oil Fields
and/or Gas Fields.
6.3.2 In accordance with the provisions of Articles 12.2.1, 12.2.3.1 and 12.3 of
the Contract, the principal of development costs and Deemed Interest
thereon and operating costs, respectively, of each Oil Field and/or Gas
Field shall be recovered only form the production of each respective Oil
Field and/or Gas Field.
6.3.3 As at the date of completing each lifting of Crude Oil, the Operator shall
make the separate records into the Joint Account for the appropriate
reimbursements of the principal of exploration costs, development costs
with Deemed Interest thereon and operating costs respectively in
accordance with Article 12.2 of the Contract. Written notices shall be sent
by the Operator to CNOOC and the Investing Parties at the same time.
23
6.4 In accordance with provisions of Article 19.1 of the Contract, the Operator shall
establish complete books for recording the volume and value of Crude Oil and/or
Natural Gas, precisely reflecting the production and the disposal of the Crude Oil
and/or Natural Gas within the Contract Area.
6.5 Crude oil production in each Calendar Year for each Oil Field within the
production period shall be accounted according to the allocation proportions
specified in Article 13 of the Contract and at the Crude Oil price determined
pursuant to Article 14.4 of the Contract. The amount of the Non-associated
Natural Gas in each Calendar Year within the production period shall be
accounted for in accordance with the provisions specified in Article 18 of the
Contract.
Article 7
Accounting Reports
7.1 The Operator shall provide relevant accounting reports and statements based on
the Accounting System to CNOOC and each company comprising the Contractor.
Monthly reports shall be submitted within thirty (30) days after the end of each
month, quarterly reports within forty-five (45) days after the end of each Calendar
Quarter and annual reports within forty-five (45) days after the end of each
Calendar Year. Monthly, quarterly and annual reports shall be submitted in
accordance with the requirements and formats specified in the Accounting System.
7.2 Any Investing Party to the Contract may require the Operator to allow its staff to
have access to the Joint Account Accounting Records relating to the application
of expenses in the stipulated custody period, upon giving thirty (30) days notice
but such access shall not unduly hinder Operator’s normal operations.
24
Article 8
Audit
8.1 Audits shall be carried out in accordance with Article 19.2 of the Contract.
8.2 The expenses of audits for any non-Operators shall be borne by any non-Operator
which conducts the audit. Expenses for any joint audit conducted by the non¬
operator shall be allocated in proportion to their respective participating interests
in the development costs.
Article 9
The Transfer Procedure for the Joint Account
9.1 When the Exploration operations are successful and the Contract Area enters the
development period, the Operator shall conduct an inventory and check of all
properties and accounts for CNOOC. When each Oil Field and/or Gas Field
within the Contract Area goes from development into production, when the
Contractor terminates the Contract, an inventory and check of all properties and
accounts shall be conducted.
If the Contract Area is entered into the development period or the production
period, the Operator (after taking an inventory of all properties by all Investing
Parties) shall make a proposal to JMC, and the JMC shall approve the remaining
equipment and materials needed for the Petroleum Operations of the following
period, and shall be carried forward to the next period in book values in Joint
Account, but, the Operator shall be responsible for handling the equipment and
materials not needed for Petroleum Operations, the gains or losses derived from
such disposal shall be adjusted against the original accounts in accordance with its
own share of the Investing Party in proportion to the overall investment amount of
all Investing Parties.
If the Contract terminates, the method of an inventory to all of the remaining
equipment and materials as mentioned above, the gains and losses derived from^
25
such disposal shall be adjusted against the accounts of the original Investing Party
in accordance with the above mentioned methods.
9.2 In accordance with the provisions of Article 8.7 of the Contract, when CNOOC
becomes the Operator of all the Oil Fields and/or Gas Fields within the Contract
Area, the former Operator shall transfer to CNOOC all the Accounting Records
relating to the Joint Account.
9.3 In accordance with the provisions of Article 8.7 of the Contract, when CNOOC
becomes the Operator of a single Oil Field and/or Gas Field, the former Operator
shall transfer to CNOOC the Accounting Records relating to the development and
operating costs of that Field as contained in the Joint Account. The Accounting
Records relating to the exploration costs of the Contract Area shall be retained by
the Operator until the total exploration costs of the Contract Area have been
recovered. Copies shall be provided by the Operator to CNOOC if required by
CNOOC.
9.4 Upon the termination of the Contract, the Operator shall transfer all the relevant
vouchers, books and statements over to CNOOC for custody.
9.5 In conducting the transfer of the accounting books and inventory and check of all
the properties in accordance with the provisions of this Accounting Procedure, the
implementation procedure for the transfer and verification, the accounting files to
be transferred and accounting matters to be settled as well as other details shall be
negotiated and agreed in advance between the Operator and CNOOC. The transfer
procedure shall be completed within the time period agreed upon by the Parties.
Thereafter, owing to the needs of any Investing Party to the Contract, CNOOC
shall allow that party’s staff access to the Accounting Records within the relevant
Accounting Records custody period and provide them with duplicates, if
necessary.
26
ANNEX III
specifics of obligations regarding
employment and payment of
personnel redacted
CONTENTS
” specifics of obligations regarding
'employment and payment of personnel
_ redacted _ _J
specifics of obligations regarding employment
and payment of personnel redacted |
Specifics of obligations regarding
employment and payment of personnel redacted
2
Specifics of obligations regarding
employment and payment of personnel
redacted
3
Specifics of obligations regarding
employment and payment of personnel redacted
A
4
Specifics of obligations regarding
employment and payment of personnel redacted
Specifics of obligations regarding
employment and payment of personnel
redacted
6
Specifics of obligations regarding
employment and payment of personnel redacted
7