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EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
E EGYPTIAN GENERAL PETROLEUM
CORPORATION
AND
DOVER INVESTMENTS LIMITED
IN
iAST WADI ARABA AREA
GULF OF SUEZ
GENERAL
The headings or titles to each of the Articles to this Agreement are
solely for the convenience of the parties hereto and shall not be used
with respect to the interpretation of said Articles.
ARTICLE XXIX
APPROVAL OF THE GOVERNMENT
This Agreement shall not be binding.upon any of the parties hereto
unless and until a law is issued by the competent authorities of the
A.R.E. authorizing the Minister of Petroleum to sign this
Agreement and giving this Agreement full force and effect of law
notwithstanding any countervailing Governmental enactment, and the
Agreement is signed by the GOVERNMENT, EGPC, and
CONTRACTOR. itv ^
DOVER INVESTMENTS LIMITED
(signed) “Robert P. Salna”
BY;-------------------
EGYPTIAN GENERAL PETROLEUM CORPORATION
(signed) “Eng. Abd EI-Alim Taha”
|J"1 *^f-ARAB REPUBLIC OF EGYEL
MU"'
(signed) “Eng. Sameh Fahmy*
BY:
DATE : 5j2Z------
68
The Operating Company shall be wound up if the Agreement referred
to above is terminated for any reason as provided for therein.
DOVER INVESTMENTS LIMITED 'll
(signed) “Robert P. Salna”
EGYPTIAN GE[>®TArPfTROLEUM CORPORATION
' (signed) “Eng. Abd Ei-AIim Taha” -
79
INDEX
ARTICLE TITLE PAGE
I Definitions 2
II Annexes to the Agreement
6
III Grant of Rights and Term 8
IV Work Program and Expenditures During
Exploration Period 17
V Mandatory and Voluntary Relinquishments 23
VI . Operations After Commercial-Discovery 25
VII Recovery of Costs and Expenses and Production
Sharing 28
VIII Title to Assets 45
IX Bonuses 46
X Office and Service of Notices 47
XI Saving of Petroleum and Prevention of Loss 48
XII Customs Exemptions 49
XIII Books of Account: Accounting and Payments 52
XIV Records, Reports and Inspection 53
XV Responsibility for Damages 55
XVI Privileges of Government Representatives 55
XVII Employment Rights and Training of Arab Republic
Of Egypt Personnel 56
XVIII Laws and Regulations 57
XIX . Stabilization 59
XX Right of Requisition 59
XXI Assignment 60
XXII Breach of Agreement and Power to Canoe] .
61
XXIII Force Majeure 63
XXIV Disputes and Arbitration 64
XXV Status of Parties 66
XXVI Local Contractors and Locally Manufactured
Material 67
XXVII Arabic Text 67
XXVIII General 68
XXIX Approval of the GOVERNMENT 68
annexes to the concession
AGREEMENT
Annex “ A Boundary Description of the Concession Area 69
Annex lt B Illustrative Map showing Area Covered 72
Annex C Letter of Guaranty 73
Annex “ D ‘ Charter of Operating Company 75
Annex ** E ‘ Accounting Procedure go
Annex F Ic Map of the National Gas Pipeline Grid System 97
v/
CONCESSION AGREEMENT FOR PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT .
AND
THE EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
DOVER INVESTMENTS LIMITED
IN
EAST WADI ARABA AREA
GULF OF SUEZ
A.R.E.
This Agreement made and entered on this day of
2001, by and between the ARAB REPUBLIC OF EGYPT (hereinafter
referred to variously as "A.R.E." or as the "GOVERNMENT'), the
EGYPTIAN GENERAL PETROLEUM-CORPORATION, a legal entity
created by Law No. 167 of 1958 as amended (hereinafter referred to~
variously as "EGPC") and Dover Investments Limited , a company
organized and existing under the laws of Ontario.Canada (hereinafter
referred to variously as "DOVER" or as "CONTRACTOR").
WITNESSETH
WHEREAS, al! minerals including petroleum, existing in mines and
quarries in A.R.E., including the territorial waters, and in the seabed
■ subject to its jurisdiction and extending beyond the territorial waters,
are the property of the State; and
WHEREAS, EGPC has applied for an exclusive concession for the
exploration and exploitation of petroleum in and throughout the area
referred to in Article li, and described in Annex "A" and shown
approximately on Annex "8", which are attached hereto and made
part hereof (hereinafter referred to as the "Area"); and
A7
' <2* ^
'A ^
I
R ' agree to undertake its obligations provided
fe a CONTRACTOR with respect to the Exploration,
and production of petroleum in EAST WAD! ARABA
WHEREAS, the GOVERNMENT desires hereby to grant such
Concession; and
WHEREAS, the Minister of Petroleum pursuant to the provisions of
Law No. 86 of 1956, may enter into a concession agreement with
EGPC, and with DOVER as a CONTRACTOR in the said Area.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE l
DEFINITIONS
(a) "Exploration" shall include such geological, geophysical, aerial
. and other surveys as maybe contained in the approved Work
Programs and Budgets, and the drilling of such, shot holes, core
holes, stratigraphic tests, holes for the discovery of Petroleum or
the appraisal of Petroleum discoveries and other related holes
and wells, and the purchase or acquisition of such supplies,
materials, services and equipment therefor, all as may be
contained in the approved Work Programs and Budgets. The
verb "explore" means the act of conducting Exploration.
(b) "Development" shall include, but ’ not be limited to, all the
operations and activities pursuant to approved Work Programs
and Budgets under this Agreement with respect to:
(i) the drilling, plugging, deepening, side tracking,'re-drilling,
completing, equipping of development wells, the changing
of the status of a well, and
(ii) design, engineering, construction, installation, servicing and
maintenance of equipment, lines, systems facilities, plants
2
and related .operations to produce and operate said
development wells, taking, saving, treating, handling,
storing, transporting and delivering petroleum, re-
pressuring, recycling and other secondary recovery
projects, and
(iii) transportation, storage and any other work or activities
necessary or ancillary to the activities specified in (i) and
(ill
(c) "Petroleum'1 means liquid crude oil of various densities; asphalt,
gas, casinghead gas and all other hydrocarbon substances that
may be found in, and produced, or otherwise obtained and saved
from the Area under this Agreement, and all substances that
may be extracted therefrom.
(d) "Liquid Crude Oil" or "Crude Oil" or "Oil" means any
hydrocarbon produced from the Area which is in a liquid state at
the wellhead or lease separators or which is extracted from the
gas or casinghead gas in a plant. Such liquid state shall exist at
sixty degrees Fahrenheit (60°F) and atmospheric pressure of
...........14.65 PSIA. Such term includes distillate and condensate.
(e) "Gas" means natural gas both associated' anti nan-associated,
and all of its constituent elements produced from any well in the
Area (other than Liquid Crude Oil) and ail non-hydrocarbon
substances therein. Said term shall include residua! gas, that
Gas remaining after removal of LPG.
(f) "LPG" means liquefied petroleum gas, which is a mixture
principally of butane and propane liquefied by pressure and
temperature.
(g) A '‘Barrel’’ shall consist of forty-two (42) United States gallons,
liquid measure, corrected to a temperature of sixty degrees
Fahrenheit (60°F) at atmospheric pressure of 14.65 PSIA.
(h) (1) "Commercial Oil Weir' means the first well on any
geological feature which after testing for a period of not
more than thirty (30) consecutive days where practical, but
in any event in accordance with sound and accepted
industry production practices, and verified by EGPC, is
found to be capable of producing at the average rate of not
less than two thousand (2000) Barrels of oil per day
(BOPD). The date of discovery of a "Commercial Oil Well"
is the date on which such well is tested and completed
according to the above.
(2) "Commercial Gas Well" means the first weil on any
■ geological feature which after testing for a period of not
more than thirty (30) consecutive days where practical, but
in any event , in accordance with sound and accepted
industry production practices and verified by EGPC, is
found to be capable of producing at the average-rate of not
less than fifteen million (15,000,000) standard cubic feet of
Gas per day (MMSCFD). The date of discovery of a
"Commercial Gas Well" is the date on which such well is
tested and completed according ta the above.-----------
(i) "A.R.E." means ARAB REPUBLIC OF EGYPT.
(j) "Effective Date" means the date on which the text of this
Agreement is signed by the GOVERNMENT, EGPC and
CONTRACTOR, after the relevant Law is issued.
(k)(1) "Year" means a period of twelve (12) months according
to the Gregorian Calendar.
(2) "Calendar Year" means a period of twelve (12) months
according to the Gregorian Calendar being 1st January to
31st December.
(I) "Financial Year" means the GOVERNMENT’S financial year
according to the laws and regulations of the A.R c
4
(m) "Tax Year" means the period of twelve (12) months according to
the laws and regulations of the A.R.E.
(n) An "Affiliated Company” means a company:
(i) of which the share capital, conferring a majority of votes at
stockholders' meetings of such company, is owned directly
or indirectly by a party hereto; or
I (ii) which is the owner directly or indirectly of share capital
conferring a majority of votes at stockholders'meetings of a
party hereto; or
(iii) of which the share capital conferring a majority of votes at
stockholder's meetings of such company and the share
capital conferring a majority of votes at stockholders'
meetings of a party hereto are owned directly or indirectly by
the same company.
(o) "Exploration Block" shall mean an area, the corner points of
----whi.cn.....have to be coincident with three (3)minutes by three (3)
minutes latitude and.........longitude divisions’, according To the
■ International Grid System where possible or with the existing
boundaries of the Area covered by this Concession Agreement
as set out in Annex "A".
(p) "Development Block" shall mean an area, the corner points of
which have to be coincident with one (1) minute by one(1)
minute latitude and longitude divisions, according to the
international Grid System where possible or with the existing
boundaries of the Area covered by this Concession Agreement
as set out in Annex "A".
(q) "Development Lease(s)" shall mean the Development Block or
Blocks covering the geological structure capable of production,
the corner points of which have to be coincident with one (1)
‘ minute by one (1) minute latitude and longitude divisions
according to the International Grid System where possible or
with the existing boundaries of the Area covered by this
Concession Agreement as set out in Annex "A".
ssrr-
(r) "Agreement" shaii. mean this Concession Agreement and its
Annexes.
($)' "Gas Sales Agreement" shall mean a written agreement between
EGPC and CONTRACTOR (as sellers) and EGPC (as buyer),
which contains the terms and conditions for Gas sales from a
Development Lease entered into pursuant to Article Vll (e).
(t) "Standard Cubic Foot1'(SCF) is the amount of Gas necessary to
fill one (1) cubic foot of space at atmospheric pressure of 14.65
PSIA at a base temperature of sixty degrees Fahrenheit (60° F).
ARTICLE II
ANNEXES TO THE AGREEMENT
Annex "A" is a description of the area covered and affected by this
Agreement, hereinafter referred to as the "Area".
Annex "B". is a provisional illustrative map on the scale_"oT
approximately 1 : 500,000 indicating the Area covered and affected
by this Agreement and described in Annex "A"
Annex "C" is the form of a Letter of Guaranty to be submitted by
DOVER INVESTMENT LIMITED to EGPC one (1) day before the
time of signature by the Minister of Petroleum of this Agreement,for
guaranteeing the execution of CONTRACTOR’S minimum Exploration
obligations hereunder for the initial three (3) year Exploration period
by paying and/or transferring a quantity of crude oil sufficient in value
to cover the shortfall between the sum of three million and five
hundred thousand ( 3,500,000 )U.S. Dollars and the amount of
money spent by CONTRACTOR and approved by EGPC . In case
CONTRACTOR extends the initial Exploration Period for Two (2)
additional periods each of two (2) years respectively,each in
accordance with Article 111 (b) of the Agreement, a similar Letter of
Guaranty shall be issued and be submitted by CONTRACTOR on the
day the CONTRACTOR exercises its option to extend. The first such
6
JK.
letter of Guaranty shall be' for guaranteeing the payment and/or
transfer of a quantity of crude oil sufficient in value to cover the
shortfall between- the sum of four million U.S. Dollars
($4,000,000) and the amount of money spent by CONTRACTOR and
approved by EGPC and the second such Letter of Guaranty shall be
guaranteeing the payment and/or transfer of a quantity of crude oi)
sufficient in value to cover the shortfall between the sum of four
million and five ■ hundred thousand U.S.Doliars ($4,500,000) and the
amount of money spent by CONTRACTOR and approved by EGPC
less in both instances any excess expenditures of the preceding
Exploration period permitted for carry forward in accordance with
Article IV (b) third paragraph of this Agreement Each of the three
Letters of Guaranty shall remain effective for six (6) months after the
end of the relevant Exploration period.
It is understood that EGPC at any time has the right to give notice to
CONTRACTOR to submit a bank letter of guarantee, in case the
letter of guarantee by production is not sufficient to cover his financial
obligations for'the current period(s).
-Annex. VD’’.........is_the . .form of a Charter of the Operating Company to be
formed as provided for in Article VI hereof. ..................
Annex "E" is the Accounting Procedure.
Annex "F" is a current map of the National Gas Pipeline Grid System
established by the Government The point of delivery for gas shall
be agreed upon by EGPC and CONTRACTOR under a Gas Sales
Agreement, which point of delivery shall be located at the flange
connecting the development lease pipeline to the nearest point on
the National Gas pipeline Grid System as depicted in Annex "F" or as
otherwise agreed by EGPC and CONTRACTOR .
Annexes "A'’, MB", "C", "D’VE" and "F11 to this Agreement are hereby
made part hereof, and they shall be considered as having equal force
and effect with the provisions of this Agreement /i^\
j,
ARTICLE III
GRANT OF RIGHTS AND TERM
The GOVERNMENT hereby grants EGPC and CONTRACTOR
subject to the terms,'covenants and conditions set out in this
Agreement, which insofar as they are contrary to or inconsistent with
any provisions of Law No. 66 of 1953, as amended, shall have the
force of Law, an exclusive Concession in and to the Area described
in Annexes "A" and "B".
(a) The GOVERNMENT shall own and be entitled, as hereinafter
provided to a royalty in cash or in kind of ten percent (10%) of
the total quantity of Petroleum produced and saved from the
Area during the development period including renewal. Said
royalty shall be borne and paid by EGPC and shall not be the
obligation of CONTRACTOR. The payment of royalties by
EGPC shall not be deemed to result in income attributable to-the
CONTRACTOR.
(b) An initial Exploration period of three (3) years shall start from the
Effective Date. Two (2) successive extensions to the initial
Exploration period, each of two (2) years respectively, shall be
granted to CONTRACTOR at its option, upon not less than thirty
(30) days prior written notice to EGPC, such notice to be given
not later than the end of the then current period, as may be
extended pursuant to the provisions of Article V (a), and subject
only to its having fulfilled its obligations hereunder for that
period. This Agreement shall be terminated if neither a
Commercial Oil Discovery nor a Commercial Gas Discovery is
established by the end of the seventh (7th) year of the
Exploration period,
(a). The election by EGPC to undertake a sole risk venture
under paragraph (c) shall not extend the Exploration period nor
affect the termination of this Agreement as to CONTRACTOR.
• . 8
II
(c) Commercial Discovery:
(i)A Commercial Discovery - whether of Oil or Gas - may consist
of one producing reservoir or a group of producing reservoirs
which is worthy of being developed commercially. ' After
discovery of a Commercial Oil or Gas Well CONTRACTOR
shall, unless otherwise agreed upon with EGPC, undertake as
part of its Exploration program the appraisal of the discovery
by drilling one or more appraisal wells, to determine whether
such discovery is worthy of being developed commercially,
taking into consideration the recoverable reserves, production,
pipeline and terminal facilities required, estimated Petroleum
prices, and all other relevant technical and economic factors.'
(li) The provisions laid down herein postulate the unity and
indivisibility of the concepts of Commercial Discovery and
Development Lease. They shall apply uniformly to Oil and
Gas unless otherwise specified.
(iii) CONTRACTOR shall give notice of a Commercial - Discovery
to EGPC immediately after the discovery is considered by
CONTRACTOR to be worthy of commercial development
but in any event with respect to a Commercial Oil Weil not
............later than thirty (30) days following the completion.....of the
second appraisal well or twelve (12) months following the
date of the discovery of the Commercial Oil Well, whichever
is earlier or with respect to a Commercial Gas Well not later
than twenty four (24) months following the date of the
discovery of the Commercial Gas Well (unless EGPC
agrees that such period may be extended) except that
CONTRACTOR shall also have the right to give such notice
of Commercial Discovery with respect to any reservoir or
reservoirs even if the well or wells thereon are not
"Commercial" within the definition of "Commercial Well” if, in
its opinion, a reservoir or a group of reservoirs, considered
collectively, could be worthy of commercial development.
9
CONTRACTOR may also give a notice of a Commercial Oil
Discovery in the event it wishes to undertake a Gas Recycling
Project.
A notice of Commerciai Gas Discovery shall contain aff
detailed particulars of the discovery and especially the area of
Gas reserves, the estimated production potential and profile
■and field life.
Within sixty (60) days following receipt of a notice of a
Commercial Oil or Gas Discovery, EGPC and CONTRACTOR
shall meet and review all appropriate data with a view to
mutually agreeing upon the existence of a Commerciai
■ Discovery. The date of Commercial Discovery shall be the
date .EGPC and CONTRACTOR jointly agree in writing that a
Commercial Discovery exists.
(iv) if Crude Oii is discovered but is not deemed by CONTRACTOR
to be a Commercial Oii Discovery under the above provisions of
this paragraph (c), EGPC shall one (1) month after the
....................-expiration.......of.........the....... period specified above within which
CONTRACTOR can give notice of a Commercial Oil" Discovery,
or thirteen (13) months after the completion of a well not
considered to be a "Commercial Oil Well", have the right,
following sixty (60) days notice in writing to CONTRACTOR, at
its sole cost, risk and expense, to develop, produce and dispose
of all Crude Oil from the geological feature on which the weil has
been drilled. Said notice shall state the specific area covering
said geological feature to be developed, the wells to be drilled,
the production facilities to be installed and EGPC's estimated
cost thereof. Within thirty (30) days after receipt of said notice
CONTRACTOR may, in writing, elect to develop such area as
provided for in the case of Commercial Discovery hereunder. In
such event aii terms of this Agreement shall continue to apply to
the specified area. ,
10
i
If CONTRACTOR elects not to develop such area, the specific
area covering said geological feature shall be set aside for sole
risk operations *by EGPC, such area to be mutually agreed upon
by EGPC and CONTRACTOR on the basis of good petroleum
industry practice. EGPC shall be entitled to perform or in the
event Operating Company has come into existence, to have
Operating Company perform such operations for trie account of
EGPC and at EGPC’s sole cost, risk and expense. When EGPC
has recovered from the Crude Oil produced from such specific
area a quantity of Crude Oil equal in value to three hundred
percent (300%) of the cost it has incurred in carrying out the
sole risk operations, CONTRACTOR shall have the option, only
in the event there has been a separate Commercial Oil
Discovery, elsewhere within the Area, to share in further
development and production of that specific area upon paying
EGPC one hundred percent (100%) of such costs incurred by
EGPC.
Such one hundred percent (100%) payment shall not be
recovered •••by CONTRACTOR. Immediately following such
payment the specific area shall either (I) revert to the status of
an ordinary Development Lease under this Agreement and
thereafter shall be operated in accordance with the terms hereof;
or (ii) alternatively, in the event that at such time EGPC or its
Affiliated Company is conducting Development operations in the
area at its sole expense and EGPC elects to continue operating,
the area shall remain set aside and CONTRACTOR shall only
be entitled to its production sharing percentages of the Crude Oil
as specified in Article VII (b). The soie risk Crude Oil shall be
valued in the manner provided in Article VII (c). In the .event of
any termination of this Agreement under the provisions of Article
ill (b), this Agreement shall, however, continue to apply to
EGPC's operation of any sole risk venture hereunder, although
such Agreement shall have been terminated with respect to
Conversion to a Development Lease:
(i) Following a Commercial Oi! Discovery or a Commercial Gas
Discovery the extent of the whole area capable of production
to be covered by a Development Lease shall be mutually
agreed upon by EGPC and CONTRACTOR and be subject to
the approval of the Minister of Petroleum. Such area shall be
converted automatically into a Development Lease without
■ the issue of any additional Segal instrument or permission.
(ii) Following the conversion of an area to a Development Lease
based on a Commercial Gas Discovery (or upon the
discovery of Gas in a Development Lease granted following a
Commercial Oil Discovery), EGPC shall endeavor with
diligence to find .adequate local markets' .capable of absorbing
the production of Gas and shall advise CONTRACTOR of the
potential outlets for such Gas, and the expected annual
schedule of demand. Thereafter, EGPC and CONTRACTOR
shall meet with a view to assessing whether the outlets for
such Gas and other relevant factors warrant the development
and production of the Gas and in case of agreement the Gas
................thus made available-shail~be-d.isp.osed---oLtoJEGFC under a
long-term Gas Sales Agreement in accordance with and
subject to the conditions set forth in Article V!1.
(iii) The Development period of each Development Lease shall
be as follows:
(aa) In respect of a Commercial Oil Discovery, twenty (20)
years from the date of such Commercial Discovery plus
the Optional Extension Period (as defined below) provided
that, in the event that, subsequent to the conversion of a
Commercial Oil Discovery into a Development Lease, Gas
is discovered in the same Development Lease and is used
or is capable of being used locally or for export hereunder,
the period of the Development Lease shall be extended
only with respect to such Gas, LPG extracted from such
Gas and Crude Oil in the form of condensate produced
with such Gas for twenty (20) years from the date of first
12
deliveries of Gas locally or for export plus the Optional
Extension Period (as defined below) provided that the
duration of such Development Lease based on a
Commercial Oil Discovery may not be extended beyond
thirty-five (35) years from the date of such Commercial Oil
Discovery, unless otherwise agreed upon between EGPC
and CONTRACTOR and subject to the approval of the
Minister of Petroleum.
CONTRACTOR shall immediately notify EGPC of any Gas
Discovery but shall not be required to apply for a new
Development Lease in respect of such Gas.
(bb) In respect of a Commercial Gas Discovery, twenty (20)
years from the date of first deliveries of Gas locally or for
export plus the Optional Extension Period (as defined
below) provided that, if subsequent to the conversion of a
Commercial Gas Discovery into a Development Leasej
Crude Oil is discovered in the same Development Lease,
CONTRACTOR'S share of such Crude Oil from the
___ Development Lease (except LPG extracted from Gas or
Crude Oil in the form of condensate produced with Gas)
and Gas associated with such Crude Oil shall revert
entirely to EGPC upon the lapse of twenty (20) years from
the date of such Crude Cil Discovery plus the Optional
Extension Period (as defined below).
Notwithstanding, anything to the contrary under this
Agreement, the duration of a Development Lease based on
a Commercial Gas Discovery shall in no case exceed
thirty-five (35) years from the date of such Commercial
Gas Discovery, unless otherwise agreed upon between
EGPC and CONTRACTOR and subject to the approval of
the Minister of Petroleum.
CONTRACTOR shall immediately notify EGPC of any Oil
Discovery but shall not be required to apply for a new
Development Lease in respect of such Crude
13
The "Optional-Extension Period" shall mean a period of
five (5) years which may be elected by CONTRACTOR
upon six (6) months written notice to EGPC prior to the
expiry of the relevant twenty (20) year period.
(e) Development ' operations shall upon the issuance of a
Development Lease granted following a Commercial Oil
Discovery, be started promptly by Operating Company and be
conducted in accordance with good oi! field practices and
accepted petroleum engineering principles, until the field is
considered to be fully developed, it being understood that if
associated gas is not utilized,.EGPC and CONTRACTOR shall
negotiate in good faith on the best way to avoid impairing the
production in the interests of the parties.
In the event no Commercial Production of Oil in regular
shipments is established in any Development Block within four
(4) years from the date of the Commercial Oil Discovery, such
Development Block shall immediately be relinquished, unless
there is a Commercial Gas discovery on the Development
Lease. Each Development Block in a Development Lease being
•partly -withinrthe.....radius.....of.....drainage of any producing well in such
Development Lease shall.......be........considered as particlpatingin the
Commercial Production referred to above.
Development operations in respect of Gas and Crude 0)1 In the
form of condensate or LPG to be produced with or extracted
from such Gas shall, upon the signature of a Gas Sales
Agreement or commencement of a scheme to dispose of the
Gas, .whether for export as referred to in Article VII or otherwise,
be started promptly by Operating Company and be conducted in
accordance with good gas field practices and accepted
petroleum engineering principles and the provisions of such
Agreement or scheme. In the event no Commercial Production
of Gas is established in accordance with such Gas Sales
Agreement or scheme, the Development Lease relating to such
Gas shall be relinquished, unless otherwise aqreed upon by
EGPC
14
If, upon application by CONTRACTOR it is recognized by EGPC
that Crude Oil or Gas is being drained from the Exploration
block under this Agreement into a Development Block on an
’ adjoining concession area held by CONTRACTOR, the Block
being drained shall be considered as participating in the
Commercial Production of the Development Block in question
and the Block being drained shall be converted into a
Development Lease with the ensuing allocation of costs and
production (caicufated from the Effective Date or the date such
drainage occurs, whichever is later) between the two
Concession Areas. The allocation of such costs and production
under each Concession Agreement shall be in the same portion
that the recoverable reserves in the drained geological structure
underlying each Concession Area bears to the total recoverable
reserves of such structure underlying both Concession Areas.
The production allocated to a concession area shall be priced
according to the concession agreement covering that concession
area.
(f) CONTRACTOR shall bear and pay all the costs and expenses
required in carrying out all the operations under this Agreement
- but such costs and expenses snail not include any interest on
investment. CONTRACTOR shall look only to the Petroleum to
which it is entitled under this Agreement to recover such costs
and expenses. Such costs and expenses shall be recoverable as
provided in Article VII. During the term of this Agreement and its
renewal, the total production achieved in the conduct of such
operations shall be divided between EGPC and CONTRACTOR
in accordance with the provisions of Article VII.
(g) (1) Unless otherwise provided, CONTRACTOR shall be
subject to Egyptian income tax laws and shall comply with the
requirements of such laws with respect to the filing of returns, the
assessment of tax, and keeping and showing of books and
records.
(2) CONTRACTOR'S annual income for Egyptian income tax
purposes under this Agreement shall be an amount calculated
as follows; zv
15
The total of the sums received by CONTRACTOR from the
sale or other disposition of all Petroleum acquired by
■CONTRACTOR pursuant to Article Vil (a) and Article VII (b);
Reduced, by:
(i) The costs and expenses of CONTRACTOR;
(ii) The value as determined according to Article Vil (c), of
EGPC's share of the Excess Cost Recovery Petroleum
repaid to EGPC in cash or in kind, if any,
Plus:
An amount equal to CONTRACTOR'S Egyptian income taxes
grossed up in the manner shown in Article VI of Annex "E".
For purposes of above tax deductions in any Tax Year,
Article VII (a) shall apply only in respect of classification of
costs and expenses and rates of amortization, without regard
to the percentage......limitation referred to in the first paragraph of
Article Vjj (a)(1)! Aii costs and expenses of CONTRACTOR
in conducting the operations under this Agreement which are
not controlled by Article Vii (a) as above qualified shall be
deductible in accordance with the provisions of the Egyptian
Income Tax Law.
(3) EGPC shall assume, pay and discharge, in the name and on
behalf of CONTRACTOR, CONTRACTOR'S Egyptian income
tax out of EGPC's share of the Petroleum produced and saved
and not used in operations under Article VH. All taxes paid by
EGPC in the name and on behalf of CONTRACTOR shall be
considered income to CONTRACTOR.
(4) EGPC shall furnish to CONTRACTOR the proper official
receipts evidencing the payment of CONTRACTOR'S Egyptian
income tax for each Tar Year within ninety (SO) days following
16
the receipt by EGPC of CONTRACTOR'S tax declaration for the
preceding Tax Year. Such receipts shall be issued by the
proper Tax Authorities and shall state the amount and other
particulars customary for such receipts.
(5) As used herein, Egyptian Income Tax shall be inclusive of all
income taxes payable in the A.R.E. (including tax on tax) such
as the tax on income from movable capital and the tax on profits
from commerce and industry and inclusive of taxes based on
income or profits including all dividends, withholding with
respect to shareholders and other taxes imposed by the
GOVERNMENT ofA.R.E. on the distribution of income or profits
by CONTRACTOR.
(6) in calculating its A.R.E. income taxes, EGPC snail be entitled to
deduct all royalties paid by EGPC to the GOVERNMENT and
CONTRACTOR'S Egyptian income taxes paid by EGPC on
CONTRACTOR'S behalf.
ARTICLE IV
WORK PROGRAM AND EXPENDITURES
DURING EXPLORATION PERIOD
(a) CONTRACTOR shall commence Exploration operations
hereunder not later than six (6) months after the Effective Date.
Not later than the end of the Twelfth (12th ) month after the
Effective Date, CONTRACTOR shall start Exploratory drilling
operations in the Area during the initial Exploration period with a
commitment of drilling two (2) wells. EGPC shall make available
for CONTRACTOR'S use ali seismic, wells and other Exploration
data in EGPCs possession with respect to the Area as 'EGPC is
entitled to so do.
I7
(b) The initial Exploration period shall be three (3) years.
CONTRACTOR may extend this Exploration period for two(2)
successive extension periods each of two (2 ) years respectively
in accordance with Article (if (d), each of which upon at least
thirty (30) days prior written notice to EGPC, subject to its
expenditure of its minimum Exploration obligations and of its
fulfillment of the drilling obligations hereunder, for the then
current period.
CONTRACTOR shall spend a minimum of three million and five
hundred thousand ($3,500,000) U,S. Dollars on Exploration
operations and activities related thereto during the initial three (3)
year Exploration period; provided that CONTRACTOR shall drill
two (2) wells. For the first two (2) year extension period that
CONTRACTOR elects to extend beyond the initial Exploration
period, CONTRACTOR shall spend a minimum of four million
($4,000,000 ) U.S. Dollars and for the second two (2) year
extension period that CONTRACTOR elects to extend beyond
the two ( 2 ) year first extension period, CONTRACTOR shall
also spend a minimum of four million and five hundred
thousand ($4,500,000) U.S. Dollars.' During each of the first
and second extension periods that CONTRACTOR elects to
.........................extend beyond the initial Exploration period, CONTRACTOR
.........................shall drill two (2) wells'. ..... ..... ....
Should CONTRACTOR spend more than the minimum amount
required to be expended or drill more wells than the minimum
required to be drilled during the initial three (3) year Exploration
period, or during any period thereafter, the excess may be
subtracted'from the minimum amount of money required to be
expended by CONTRACTOR or minimum number of wells
required to be drilled during any succeeding Exploration
periodfs), as the case may be.
in case CONTRACTOR surrenders its Exploration rights under
this Agreement as set forth above before or at the end of the
three(3) years of the initial Exploration period, having expended
less than the total sum of three million and five hundred
thousand ($3,500,000) U.S. Dollars, on Exploration or in the
event at the end of the three (3) years, CONTRACTOR has
]
expended less than said sum in the Area, an amount equal to
! the difference between the said three million and five hundred
thousand ($3,500,000) U.S. Dollars and the amount actually
spent on Exploration shall be paid by CONTRACTOR to EGPC
at the time of surrendering or within six (6) months from the end
!. of the three (3) year of the initial Exploration period, as the case
may be. Any expenditure deficiency by CONTRACTOR at the
end of any additional period for the reasons above noted shall
similarly result in a payment by CONTRACTOR to EGPC of such
deficiency. Provided this Agreement is stiil in force as to
CONTRACTOR, CONTRACTOR shall be entitled to recover any
such payments as Exploration expenditure in the manner
provided for under Article VII in the event of Commercial
Production.
Without prejudice to. Article ill (b), in case no Commercial Oil
Discovery is established or no notice of Commercial Gas
Discovery is given by the end of the seventh (7th) year, as may
be extended pursuant to Article V (a) or in case CONTRACTOR
surrenders the Area under this Agreement prior to such time,
EGPC shall not bear any of the aforesaid expenses spent by
. CONTRACTOR. - = - ------
(c) At least four (4) months prior to the beginning of each Financial
Year or'at such other times as may mutually be agreed to by
EGPC and CONTRACTOR, CONTRACTOR shall prepare an
Exploration Work Program and Budget for the Area setting forth
the Exploration operations which CONTRACTOR proposes to
carry out during the ensuing Year.
The Exploration Work Program and Budget shall be reviewed by
a joint committee to be . established by EGPC and
CONTRACTOR after the Effective Date of this Agreement This
Committee, hereinafter referred to as the "Exploration Advisory
Committee", shall consist of six (6) members, three (3) of whom
shall be appointed by EGPC and three (3) by CONTRACTOR.
The Chairman of the Exploration Advisory Committee shall be
designated by EGPC from among the members appointed by it.
The Exploration Advisory Committee shall review and give such
],/
advice as it deems appropriate with respect to the proposed
Work Program and Budget. Following reyiew by the Exploration
Advisory Committee, CONTRACTOR shall make such revisions
as CONTRACTOR deems appropriate and submit the
Exploration Work Program and Budget to EGPC for its approval.
Following such approval, it is further agreed that:
(i) CONTRACTOR shall not substantially revise or modify said
Work Program and Budget nor reduce the approved
budgeted expenditure without the approval of EGPC;
(ii) in the event of emergencies involving danger of loss of lives
or property,' CONTRACTOR may expend such additional
unbudgeted amounts as may be required to alleviate such
danger. Such expenditure shall be considered in all aspects
as Exploration expenditure and shall be recovered pursuant
to the provisions of Article VII hereof.
(d) CONTRACTOR shall advance all necessary funds for all
materials, equipment, supplies, personnel administration and
operations pursuant to the Exploration Work Program and
Budget and EGPC shall not be responsible to bear or repay any
of the aforesaid costs. .......~~ '' .....
(e) CONTRACTOR shall be responsible for the preparation and
performance of the .Exploration Work Program which shall be
implemented in a workmanlike manner and consistent with good
industry practices.
Except as is appropriate for the processing of data, specialized
laboratory engineering and development studies thereon, to be
■made in specialized centers outside A.R.E., ail geological and
geophysical studies as well as any other studies related to the
performance of this Agreement, shall be made ' "
20
#
CONTRACTOR shall entrust the management of Exploration
operations in the A.R.E. to its. technically competent General
Manager and Deputy General Manager. The names of such
Manager and Deputy General Manager shall, upon
appointment, be forthwith notified to the GOVERNMENT and to
EGPC. The General Manager and, in his absence, the Deputy
General Manager shall be entrusted by CONTRACTOR with
sufficient powers to carry out immediately all lawful written
directions given to them by the GOVERNMENT or its
representative under the terms of this Agreement. All lawful
regulations issued or hereafter to be issued which are applicable
hereunder and not in,conflict with this Agreement shall apply to
CONTRACTOR.
(f) CONTRACTOR shall supply EGPC, within thirty (30) days from
the end of each calendar quarter, with a Statement of
Exploration activity showing costs incurred by CONTRACTOR
during such quarter. CONTRACTOR'S records and necessary
supporting documents shall be available for inspection by EGPC
at any time during regular working hours for three (3) months
from the date of receiving each statement.
Within the three (3) months from the date of receiving such
Statement, EGPC shall advise CONTRACTOR in writing if it
considers:
(1) that the record of costs is not correct;
(2) that the costs of goods or services supplied are not in line
with the international market prices for goods or services
of similar quality supplied on .similar terms prevailing at
the time ■ such goods or services were supplied, provided
however, that purchases made and services performed
within the A.R.E. shall be subject to Article XXVI;
(3) that the condition of the materials furnished by
CONTRACTOR does not tally with their prices; or
(4) that the costs incurred are not reasonably required for
operations.
21
CONTRACTOR shall confer with EGPC in connection with the
problem thus presented, and the parties shat! attempt to reach a
settlement which is mutually satisfactory.
Any reimbursement due to EGPC out of the Cost Recovery
Petroleum as a result of. reaching agreement or of an arbitral
award shall be promptly made in cash to EGPC, plus simple
interest at LIBOR plus two and half percent (2.5 %) per annum
from the date on which the disputed amount(s) would have been
.paid to EGPC according to Article VII (a) (2) and Annex "E" of
this Agreement (i.e., the date of rendition of the relevant Cost
Recovery Statement) to the date of payment. The LIBOR rate
applicable shall be the average of the figure or figures published
by the .Financial Times representing the mid-point of the rates
(bid and ask) applicable to one month U.S. Dollars deposits in
the London Interbank Eurocurrency Market on each fifteenth
(15th) day of each month occurring between the date on. which
the disputed amount(s) would have been paid to EGPC and the
date on which it is settled.
it the -LIBOR.........rate..........^....available on any fifteenth (15th) day but is
not published in.........the........Financial Times in respect of such day for
any reason, the LIBOR rate chosen shall be that offered by
Citibank N.A. to other leading banks in the London Interbank
Eurocurrency Market for'one month U.S. Dollar deposits.
ff such fifteenth (15th) day is not a day on which LIBOR rates
are quoted in the London Interbank Eurocurrency Market, the
LIBOR rate to be used shall be that quoted on the next following
day on which such rates are quoted.
If within the time limit of the three (3) month period provided for
in this paragraph, EGPC has not advised CONTRACTOR of its
objection to any Statement, such Statement shall be considered
as approved
22
(g) CONTRACTOR shaii supply all funds necessary for its
operations in the A.R.E. under this Agreement in freely
convertible currency from abroad. CONTRACTOR shall have the
right to freely purchase Egyptian currency in the amounts
necessary for its operations in the A.R.E. from any bank or
entity authorized by the GOVERNMENT to conduct foreign
currency exchanges.
(h) EGPC is authorized to advance to CONTRACTOR the Egyptian
currency required for the operations under this Agreement
against receiving from CONTRACTOR an equivalent amount of
U.S. Dollars at the official A.R.E. rate of exchange, such amount
. ‘ in U.S. Dollars shall be deposited in an EGPC account abroad
with a correspondent bank of the National Bank of Egypt, Cairo.
Withdrawals from said account shall be. used for financing
EGPC's and its Affiliated Companies' foreign currency
requirements subject to the approval of the Minister of
Petroleum.
ARTICLE V
MANDATORY AND VOLUNTARY RELINQUISHMENTS
■“ (a) MANDATORY: _ .
At the end of the third (3rd) year after the Effective Date hereof,
CONTRACTOR shaii relinquish to the GOVERNMENT a total of
twenty five percent ( 25%) of the original Area on the Effective
date not then converted to a Development Lease or Lease(s).
Such relinquishment shall be in a single unit of whole Exploration
Blocks not converted to Development Leases so as to enable
the relinquishment requirements to be precisely fulfilled.
At the end of the fifth (5th) year after the Effective Date hereof,
CONTRACTOR shall relinquish to the GOVERNMENT an
additional twenty five percent ( 25% ) of the original Area on the
Effective date not then converted to a Development Lease or
Lease(s). Such relinquishment shall be in a single unit of whole
Exploration Blocks not converted to Development Leases so as
to enable the relinquishment requirements to be precisely
fulfilled.
23
Without prejudice to Articles ill and XXIII and the last three
paragraphs of this Article V (a), at the end of the seventh (7th)
year of the Exploration period, CONTRACTOR shall relinquish
the remainder of the Area not then converted to a Development
Lease(s),
it is understood that at the time of any relinquishment the areas
to be converted into Development Leases and which are
submitted to the Minister of Petroleum for his approval
according to Article 111 (d) shall, subject to such approval, be
deemed converted to Development Leases.
CONTRACTOR shait not be required to relinquish any
Exploration Block or Blocks on which a Commercial Oil or Gas
Well is discovered before the period of time referred to in Article
III (c) given to CONTRACTOR to determine whether such Well
is a Commercial Discovery worthy of Development or to
relinquish an Exploration Block in respect of which a notice of
Commercial Gas Discovery has been given to EGPC subject to
EGPC's right to agree on the existence of a Commercial
Discovery pursuant to Article 111 (c), and without prejudice to the
.............requirements of Article 11! (e).
In the. event at the end of the initial Exploration period or'either'
of the two successive extensions of the initial Exploration period,
a well is actually drilling or testing, CONTRACTOR shall be
allowed up to six (6) months to enable it to discover a
Commercial Oil or Gas Well cr to establish a Commercial
Discovery, as the case may be. However, any such extension of
up to six (6) months shall reduce the length of the next
succeeding Exploration Period, as applicable, by that amount.
(b) VOLUNTARY:
CONTRACTOR may, voluntarily, during any period relinquish all
or any part oftheAreain whole Exploration Blocks or .parts of
Exploration Blocks provided that at the time of such
voluntary relinquishment its Exploration obligations under Article
IV (b) have been satisfied for such period. * "
24
Any relinquishments hereunder shall be credited toward the
mandatory provisions of Article V (a).
Following Commercial Discovery, EGPC and CONTRACTOR
shaii mutually agree upon any area to be relinquished
thereafter, except for the relinquishment provided for above at
■ the end of the total Exploration period.
ARTICLE VI
OPERATIONS AFTER COMMERCIAL DISCOVERY
(a) On Commercial Discovery, EGPC and CONTRACTOR shall
form in the A.R.E. an operating company pursuant to Article VI
(b) and Annex' (D) (hereinafter referred to as ’’Operating
Company") which company shall be named by mutual
agreement between EGPC and CONTRACTOR and such name
shall be subject to the approval of the .Minister of Petroleum.
Said company shall be a private sector company. Operating
Company shall be subject to the laws and regulations in force in
the A.R.E. to the extent-that such.....laws, andregulations are not
inconsistent with the provisions of this Agreementorthe Charter
of Operating Company,
However, Operating Company and CONTRACTOR shall,- for the
purpose of this Agreement, be exempted from the following iaws
and regulations as now or hereafter amended or substituted;
- Law No. 48 of 1978, on the employee regulations of public
sector companies;
- Law No. 159 of 1981, promulgating the law on joint stock
companies, partnership limited by shares and limited liability
companies;
- Law No. 97 of 1983 promulgating the law concerning public
25
- Law No. 203 of 1991 promulgating the law on public
business sector companies; and
- Law No. 38 of 1994, organizing dealings in foreign
currencies.
(b) The Charter of Operating Company is hereto attached as Annex
"D\ Within thirty (30) days after the date of Commercial Oil
Discovery or within thirty (30) days after signature of a Gas Sales
Agreement or commencement of a scheme to dispose of Gas
(unless otherwise agreed upon by EGPC and CONTRACTOR),
the Charter shall take effect and Operating Company shall
automatically come into existence without any further
procedures. The Exploration Advisory’ Committee shall be
dissolved forthwith upon the coming into existence of the
Operating Company.
(c) Ninety (90) days after the date Operating Company comes into
existence in accordance with paragraph (b) above, it shall
prepare a Work Program and Budget for further Exploration and
Development..........for...........the..........remainder........of......the year in which the
.Commercial Discovery is made; and not later than......four. (4)
months before the end of the current Financial Year (or such
other date as may be agreed upon by EGPC and
CONTRACTOR) and four (4) months ■ preceding the
commencement of each succeeding Financial Year thereafter (or
such other date as may be agreed upon by EGPC and
CONTRACTOR), Operating Company shall prepare an annual
Production Schedule, Work Program and Budget for further
Exploration and Development for the succeeding Financial Year.
The Production Schedule, Work Program and Budget shall be
submitted to the Board of Directors for approval.
(d) Not later than the twentieth (20th) day of each month, Operating
Company shall furnish to CONTRACTOR a written estimate of
its total cash requirements for expenditure for the first half and
the second half of the succeeding month expressed in U.S.
Dollars having regard.to the approved Budget Such estimate
26
shalt take into consideration any cash expected to be on hand at
month end.
Payment for the appropriate period of'such month shall be made
to the correspondent bank designated in paragraph (e) below on
the first (1st) day and fifteenth (15th) day respectively, or the
next following business day, if such day is not a business day.
(e) Operating Company is authorized to keep at its own disposal
abroad in an account opened with a correspondent bank of the
National Bank of Egypt, Cairo, the foreign funds advanced by
CONTRACTOR. Withdrawals from said account shall be used
for payment for goods and services acquired abroad and for
transferring to a local bank in the A.R.E. the required amount to
meet the expenditures in Egyptian Pounds for Operating
Company in connection with its activities under this Agreement.
Within sixty (60) days after the end of each Financial Year,
Operating Company shall submit to .the appropriate exchange
control authorities in the A.R.E. a statement, duly certified by a
recognized firm of auditors, showing the funds credited to that
■account-, ' the.....disbursements made out of that account and the
balance outstanding at the end of the Year. -
(f) If and for as long during the period of production operations
there exists an excess capacity in facilities which can not during
the period of such excess be used by the Operating Company,
EGPC and CONTRACTOR will consult together to find a
mutually agreed formula whereby EGPC may use the excess
capacity if it so desires without any unreasonable financial or
unreasonable operational disadvantage to the CONTRACTOR. .
27
ARTICLE VI!
I
RECOVERY OF COSTS AND EXPENSES AND
PRODUCTION SHARING
(a) (1) Cost Recovery Petroleum:
Subject to the auditing provisions under this Agreement
CONTRACTOR shall recover quarterly all costs,
expenses and expenditures in respect of ail the
Exploration, Development and related operations under
this Agreement to the extent and out of thirty percent
(30%) of all Petroleum produced and saved from ali
Development Leases within the Area hereunder and not
used in Petroleum operations. Such Petroleum is.
hereinafter referred to as "Cost Recovery Petroleum”.
For the purpose of determining the classification of all
costs, expenses and expenditures for their recovery, the
.............following terms shall apply:
1. "Exploration Expenditures" shall mean all costs and
expenses for Exploration and the related portion of
indirect expenses and overheads.
2. "Development Expenditures" shall mean all costs and
expenses for Development (with the exception of
Operating Expenses) and the related portion of indirect
expenses and overheads.
3. "Operating Expenses" shall mean all costs, expenses
and expenditures made after initial Commercial
Production, which costs, expenses and expenditures
are not normally depreciable.
However, Operating Expenses shall include workover, repair and
maintenance of assets but shall not include any of the following:
28
^ Cl
■j sidetracking, redriiling and changing of the status of a well,
j
’ ) replacement of assets or part of an asset, additions, improvements,
renewals or major overhauling that extend the life of the asset.
Exploration 'Expenditures, Development Expenditures and Operating
Expenses'shall be recovered from Cost Recovery Petroleum in the
following manner;-
(i) Exploration Expenditures, including those accumulated prior
I to the commencement of initial Commercial Production, which
for the purposes of this Agreement shall mean the date on
which the first regular shipment of Crude Oil or the first
■ deliveries of Gas are made, shall be recoverable at the rate of
twenty five percent (25%) per annum starting either in the Tax
Year in which such expenditures are incurred and paid or the
Tax Year in which initial Commercial Production commences,
whichever is the later date.
(ii) Development ■ Expenditures, including those accumulated
prior to the commencement of initial Commercial Production
which for the purposes of this Agreement shall mean the
date on which the first regular shipment of Crude Oil or the
first..........deliveries............of Gas........are.........madev........shall .be.........recoverable at
the rate of twenty five percent (25 %) per annum starting
either in the Tax Year in which such expenditures are
incurred and paid or the Tax Year in which initial
Commercial Production commences, whichever is the later
date.
(iii) Operating Expenses, incurred and paid after the date of
initial Commercial Production, which for the purposes of this
Agreement shall mean the . date on which the first regular
shipment of Crude Oil or the first deliveries of Gas are
made, shall be recoverable either in the Tax Year in which
such costs and expenses are incurred and paid or the Tax
Year in which initial Commercial Production occurs,
whichever is the later date.
(iv)To the extent that, in a Tax Year, costs, expenses or
expenditures recoverable per paragraphs (i), (ii) and (iii)
29
preceding, exceed the value of all Cost Recovery Petroleum
for such Tax Year, the excess shall be carried forward for
recovery in the next succeeding Tax Year(s) until fully
recovered, but in no case after the termination of this
Agreement, as to CONTRACTOR.
(v) The recovery of costs and expenses, based upon the rates
referred to above, shall be allocated to each quarter
proportionately (one fourth to each quarter). However, any
recoverable costs and expenses not recovered in one
quarter as thus allocated, shall be carried forward for
recovery in the next.quarter.
(2) Except as provided in Article VI! (a) (3) and Article VII (e) (1),
CONTRACTOR shall each quarter be entitled to take and own all
, Cost Recovery Petroleum, which shall be taken and disposed of
in the manner determined pursuant to Article VI! (e). To the
extent that the value of all Cost. Recovery Petroleum [as
determined in Article VII (c)] exceeds the actual recoverable costs
and -expenditures, including any carry forward under Article VII
(a) (1) (iv), to be recovered in that quarter, then the value of such
Excess Cost Recovery Petroleum shall be split between EGPC
"and.....CONTRACTOR...........in.......accordance with the percentages
specified in Article VII (b) 1 below and EGPC's shares-shail......be
paid by CONTRACTOR to EGPC either (i) in cash in the manner
set forth in Article iV of the Accounting Procedure contained in
Annex "E" or (fi) in kind in accordance with Article Vtl(a) (3),
(3) Ninety (90) days prior to the commencement of each Calendar
Year EGPC shall be entitled to elect by notice in writing to
CONTRACTOR to require payment of up to one hundred percent
(100%) of EGPC's share of Excess Cost Recovery Petroleum in
kind. Such payment will be in Crude Oil from the Area P.O.B.
export terminal or . other agreed delivery point provided that the
amount of Crude Oil taken by EGPC in kind in a quarter shall not
exceed the value of Cost Recovery Crude Oil actually taken and
separately disposed of by CONTRACTOR from the Area during
the previous quarter, if EGPC's entitlement to receive payment of
its share of Excess Cost Recovery Petroleum in kind is limited by
the foregoing provision, the balance of such entitlement shall be
30
(b) Production Sharing
(1)The remaining seventy percent (70%) of the Petroleum
shall be divided between EGPC and the CONTRACTOR
according to the following shares: Such shares shall be
taken and disposed of pursuant to Article Vll (e):
(i) Crude Oil
Crude Oil produced and * EGPC " CONTRACTOR
saved underthisAgreement SHARE SHARE
and not used in Petroleum
operations. Barrefs oil per day
(BOPD) (quarterly average).
That portion or increment (Seventy Five percent) (Twenty Five percent)
up to 25,000 BOPD. . (75%) (25 %)
That portion or increment (Eighty percent) (Twenty percent)
exceeding 25,000 BOPD (80 %) ( 20%)
(ii) Gas and LPG
It is understood and agreed upon that the aforementioned
.......production segment shall apply to al! Gas and LPG after
converting tc equivalent 3.arrels of crude oil.
(2) After 'the end of each contractual year during the term of any
Gas .Sales Agreement entered into pursuant to Article Vil (e),
EGPC and CONTRACTOR (as sellers) shall render to EGPC
(as buyer) a statement for an amount of Gas, if any, equal to
the amount by which the quantity of Gas of which EGPC (as
buyer) has taken delivery falls below seventy five percent
(75%) of the Contract quantities of Gas as established by the
applicable Gas Sales Agreement (the '‘Shortfall''), provided
the Gas is available. Within sixty (60) days of receipt of the
statement, EGPC (as buyer) - shall pay EGPC and'
CONTRACTOR (as sellers) for the amount of the Shortfall, if
any. The Shortfall shall be included in EGPCs and
CONTRACTOR'S entitlement to Gas pursuant to Article Vll -
(a) and Article VH (b) in the fourth (4th) quarte^ ofsuch
contractual year.
UP ^
Quantities of Gas not taken but to be paid for shaii be
recorded in a separate Take-or-Pay Account. Quantities of
Gas ("Make Up Gas") which are delivered in subsequent
years in excess of seventy five percent (75%) of the contract
quantities of Gas as established by the applicable Gas Sales
Agreement, shall be set against and reduce quantities of Gas
in the Take-or-Pay account to the extent thereof and, to that
extent, no payment shall be due in respect of such Gas,
Such Make Up Gas shall not be included in
CONTRACTOR'S entitlement to Gas pursuant to Article VI!
(a) and Article VI! (b). CONTRACTOR shaii have no rights
to such Make Up Gas.
The percentages set forth in Article Vll (a) and this Article Vil
(b) in respect of LPG produced from a plant constructed and
operated by or on behalf of EGPC and CONTRACTOR shall
apply to all LPG available for delivery.
(c) Valuation of Petroleum:
(1) Crude Oil:
(i) The Cost Recovery Crude Oil to which CONTRACTOR is
entitled hereunder shall be valued by EGPC and
CONTRACTOR at "Market Price'1 for each calendar
. quarter.
(ii) "Market Price" shall mean the weighted average prices
realized from sales by EGPC or CONTRACTOR during
the quarter, whichever is higher, provided that the sales
to be used in arriving at the weighted averaae(s) shall
be sales of comparable quantities on comparable credit
terms in freely convertible.currency from F.O.B. point of
export sales to non-affilisted companies at arm's length
under ail Crude Oil sales contracts then in effect, but
excluding Crude Oil sales contracts involving barter and,
(1) Sales, whether direct cr indirect, through brokers or
otherwise, of EGPC or CONTRACTOR to any
Affiliated Company.
i
(2) Sales involving a quid pro quo other than payment
in a freely convertible currency or motivated in
whole or in part by considerations other than the
usual economic incentives for commercial arm's
length crude oil sales.
(iii)lt is understood that in the case of C.I.F. sales,
appropriate deductions shall be made for transport and
insurance charges to calculate the F.O.B. point of export
price; and always taking into account the appropriate
' adjustment for quality of Crude Oil, freight advantage'or
disadvantage of port of loading and other appropriate
adjustments. Market Price shall be determined
separately for each Crude Oil or Crude Oil mix, and for
each port of loading.
(iv) If during any calendar quarter, there are no such sales
by EGPC and/or CONTRACTOR under the Crude Oil
sales contracts in effect, EGPC and CONTRACTOR
shall mutually agree upon the Market Price of the barrel
......... of .Crude...Oil to be used for such quarter, arid shall be
guided by all relevant and available evidence including
current prices in freely convertible currency of leading
crude oils produced by major oil producing countries (in
the Arabian Gulf or the Mediterranean Area), which are
regularly sold in the open market according to actual
sales contracts terms but excluding paper sales and
sales promises where no crude oil is delivered, to the
extent that such sales are effected under such terms and
conditions (excluding the price) not significantly different
from those under which the crude oil to be valued, was
sold, and always taking into consideration appropriate
adjustments for crude oil quality, freight advantage or
disadvantage of port of loading and other appropriate
adjustments, as the case may be, for differences in
gravity, sulphur, and other factors generally recognized
by sellers and purchasers, as reflected in crude prices,
transportation ninety (90) days insurance premiums,
unusual fees borne by the seller, and for credit terms in
33
excess of sixty (60) days, and the cost of loans or
guarantees granted for the benefit of the sellers at
prevailing interest rates.
It is the intent of the Parties that the value of the Cost
Recovery Crude Oil shall reflect the prevailing market
price for such Crude Oil.
(v) if either EGPC or CONTRACTOR considers that the
Market Price as determined under sub-paragraph (it)
above does not reflect the prevailing Market Price or in
the event EGPC and CONTRACTOR fail to agree on
Market Price for any Crude Oil produced under this
Agreement for any quarter within fifteen (15) days after
the end thereof, any party may elect at any time
thereafter to submit to a single arbitrator the question,
what single price per barrel, in the arbitrator's judgment,,
best represents for the ' pertinent quarter the Market
Price for the Crude Oil in question. The arbitrator shall
make his determination as soon -as possible following the
quarter in question. His determination shall be final and
Binding upon ail the parties.---Ihe.„ arbitrator shall be
selected in the manner described below.
In the event EGPC and CONTRACTOR fail to agree on
the arbitrator within thirty (30) days from the date any
party notifies the other that it has decided to submit the
determination of the Market Price to an arbitrator, such
arbitrator shall be chosen by the appointing authority
designated in accordance with Article XXIV (e), or such
other appointing authority with access to such expertise
as may be agreed to between EGPC and
CONTRACTOR, with regard to the qualifications for
arbitrators . set forth below, upon written application of
one or both of EGPC and CONTRACTOR. Copies of
such application by one of them shall be promptly sent
to the other.
The arbitrator shall be as nearly as possible a person
with an established reputation in the international
34
.petroleum industry as an expert in pricing and marketing
crude oil in international commerce. The arbitrator shall
not be a citizen of a country which'does not have
diplomatic relations with the A.R.E., and Canada. He
may not be, at the time of selection, employed by, or an
arbitrator or consultant on a continuing or frequent basis
to, the American Petroleum Institute, the Organization
of the Petroleum Exporting Countries or the
Organization of. Arab Petroleum Exporting Countries, or
a consultant on a continuing basis to EGPC,
CONTRACTOR or an Affiliated Company of either, but
past occasional consultation with such companies, with
other petroleum companies, governmental agencies or
organizations shall not be a ground for disqualification.
He may not have been, at any time during the two (2)
years before selection, an employee of any petroleum
company or of any governmental agency or organization.
Should a .selected person decline or be.unable to serve
as arbitrator or should the position of arbitrator fall
vacant prior to the decision called for, another person
shall be chosen in the same manner provided in this
paragraph. EGPC and CONTRACTOR shat! share
equaiiy'th'S exoenses of the arbit-r-aton................ .
The arbitrator shall make his determination in
accordance with the provisions of this paragraph, based
on the best evidence available to him. He will review oil
sales contracts as well as other sales data and
information- but shall be free to evaluate the extent to
which any contracts, data or information is substantiated
or pertinent. Representatives of EGPC and
CONTRACTOR shall have the right to consult with the
arbitrator and furnish him written materials provided the
arbitrator may impose reasonable limitations on this
right. EGPC and CONTRACTOR each shall cooperate
with the arbitrator to the fullest extent and each shall
insure such cooperation of its trading companies. The
arbitrator shall be provided access to crude oil sales
contracts and related data and'information which EGPC
A' i
"and CONTRACTOR or their trading companies are
able to make available and which in the judgment of
the arbitrator might aid the arbitrator in making a valid
determination.
(vi)Pending Market Price agreement by EGPC and
CONTRACTOR or determination by the arbitrator, as
applicable, the Market Price agreed for the quarter
preceding the quarter in question shall remain
temporarily in effect, in the event either EGPC or
CONTRACTOR should incur a loss by virtue of the
temporary continuation of the Market Price of the
previous quarter, it shall promptly be reimbursed such
loss by the other party plus simple interest at the
. LIBOR plus two and one - half percent (2.5%) per
annum rate provided for in Article IV (f) from the date
on which the disputed amount(s) should have been
paid to the date of payment
(2)Gas and LPG
(i)The Cost Recovery and Production Shares of .Gas
subject to a Gas Sales Agreement between EGPC and
CONTRACTOR (as sellers) and EGPC (as buyer)
entered into pursuant to Article Vll (e) shall be valued,
delivered to and purchased by EGPC at a price
determined monthly according to the following formula:
PG = F x H
Where :
PG = the value of the Gas in U.S. Dollars per
thousand cubic feet ( MCF)
H = the number of British Thermal Units
(BTU’s ) per thousand ' cubic feet
(MCF) of Gas .
F = a value in U.S. Dollars per million British
Thermal Units (mmbtu) determined
monthly set as follows :
The price of gas produced from EAST WADI ARABA
Concession Agreement will be based on the Concession
Agreement formula and defining the Gulf of Suez
Blend price per barrel as equal to Brent crude price per
barrel minus US$ 2.00 (two United States Dollars ) with
a minimum ( floor ) and a maximum (ceiling) price
according to±,_~ ■
36
Price of Brent ( US$/ barrel) F (US$/ mmbtu )
Less than or equal to 12 1.50
Greater than or equal to 24 2.50
Between the minimum and maximum Gas price , following formula
shall be applied:
PG= 0.0233 X B (6.33 - { 0.07725 X B}) X D
Where : PG= The same definition of PG above
B= Barrel Brent price in U.S. Dollars
D= The number in Millions British Thermal Units
(MMBTU’s) per thousand cubic feet of Gas
(The number of British Thermal Units per 1000
standard cubic feet)
Where Brent is the monthly average price expressed in US
Dollars per barrel for BRENT ( DTD ) quoted in " Piatt's
Oilgram Price Report " for ''Spot Crude Price Assessment -
International" for the month in question .
In the event that the value of F cannot be determined because
Platt ’ s Oilgram Price Report is not published at all during a
month, the Parties shall meet and agree the value of Brent by
reference to other published sources. In the event that there are
no such published sources or if the value of Brent cannot be
- determined......pursuant.....to the foregoing -for any other reason, the
Parties shall meet and agree a value of Brent........................................................... .................................
(ii)The Cost Recovery and Production Shares of LPG
produced from a plant constructed and operated by or on
behalf of EGPC and CONTRACTOR shall be separately
valued for Propane and Butane at the outlet of such LPG
plant according to the following formula (unless otherwise-
agreed between EGPC and CONTRACTOR):
PLPG = Q.95 PR - (J X 0.85 X F 1
6
42.96 X 10
Where
PLPG = LPG price (separately determined for Propane and
Butane) in U.S. Dollars per metric ton.
PR -The average over a period of a month of the figures
representing the mid-point between the high and low
prices in U.S. Dollars per metric ton quoted in
"Platt's LPGaswire" during such month for Propane
and Butane FOB Ex-Ref/Stor. West Mediterranean.
J = BTU's removed from the Gas stream by the LPG plant
, per metric ton of LPG produced.
F = a value in U.S. Dollars per metric ton of the
crude oil of Gulf of Suez Blend "FOB Ras
Shukheir" A.R.E. calculated by referring to
"Platt's Oiigram Price Report" during a month
under the heading "Spot Crude Price
Assessment for Suez Blend". This value reflects
the total averages of the published low and high
values for a Barrel during such month divided
by the number of days in such month for which
such values were quoted. The value per metric
ton shall be calculated on the basis of a
conversion factor to be agreed upon annually
between EGPC and CONTRACTOR.
In the event that Platt's LPGaswire is issued on certain
days during a month but not on others, the value of PR
shall be calculated using only those issues which are
published during such, month. In the event that the
value of PR can not be determined because Platt's
LPGaswire is not published at all during a month, EGPC
and CONTRACTOR shall meet and agree to the value of
....................................................................... PR-.....by.....reference.....to.......other.......published sources. In the event
that there are no such other published sources or if the
value of PR cannot be determined pursuant to the-
foregoing for any other reason? EGPC and CONTRACTOR
shall meet and -agree the value of PR by reference to the
value of LPG (Propane and Butane) delivered FOB from
the Mediterranean Area.
Such valuation of LPG is based upon delivery at the delivery
point specified in Article VII (e) (2) (iii).
(iii) The prices of Gas and LPG so calculated shall apply during
the same-month.
(jv) The Cost Recovery and Production Shares of Gas and
LPG disposed of by EGPC and CONTRACTOR other
than to EGPC pursuant to Article VS1 (e) shall be valued
at their actua’ - ir -
MT VJ
W) Forecasts:
Operating Company shaii prepare (not less than ninety (90)
days prior to the beginning of each calendar semester following
first regular production) and furnish in writing to CONTRACTOR
and EGPC a forecast setting out a total quantity of Petroieum
that Operating Company estimates can be produced, saved
and transported hereunder during such calendar semester in
accordance with good oil and gas industry practices.
Operating Company shall endeavor to produce each calendar'
semester the forecast quantity. The Crude Oil shaii be run to
storage tanks or offshore loading facilities constructed,
maintained and operated according to Government
Regulations, by Operating Company in which said Crude Oil
shall be metered or otherwise measured for royalty, and other
purposes required by this Agreement Gas shall be handled by
Operating Company in accordance with the provisions of
Article VII (e).
Disposition of Petroleum:
) EGPC and CONTRACTOR shall have the right and the
obligation to separately take and freely export or otherwise
dispose of, currently all of the Crude OH to which each is
entitled under Article VII (a) and Article VII (b). Subject to
payment of sums due to EGPC under Article Vil (a) (2) and
Article IX, CONTRACTOR shall have the right to remit and
retain abroad all funds acquired by it including the proceeds
from the sale of its share of Petroleum.
Notwithstanding anything to the contrary under this
Agreement priority shall be given to meet the requirements of
the A.R.E. market from CONTRACTOR'S share under Article
VII (b) of the Crude Oil produced from the Area and EGPC
shall have the preferential right to purchase such Crude. Oil at
a price to be determined pursuant to Article VH (c). The
amount of Crude Oil so purchased shall be a portion of
39
CONTRACTOR'S share under Article VI! (b). Such amount
shall be proportional to CONTRACTOR'S share of the total
production of crude oil from the concession areas in the
A.R.E. that are also subject to EGPC's preferential right to
purchase. The payment for such purchased amount shall be
made by EGPC in U.S. Dollars or in any other freely
convertible currency remittable by CONTRACTOR abroad.
it is agreed upon that EGPC shall notify CONTRACTOR, at
least forty-five (45) days prior to the beginning of the Calendar
Semester, of the amount to be purchased during such
semester under this Article VII (e) (1).
(2) With respect to Gas and LPG produced from the Area:
(i) Priority shall be given to meet the requirements of the local
market as determined by EGPC.
(ii) In the event that EGPC is to be the buyer of Gas, the
disposition of Gas to the local markets as indicated above
shan~Sde~ by virtue o'f long term Gas Sales Agreements to be
entered into between EGPC and CONTRACTOR (as sellers)
and EGPC (as buyer).
EGPC and CONTRACTOR (as sellers) shall have the
obligation to deliver Gas to the following point where such
Gas shall be metered for sales, royalty, and other purposes
required by this Agreement:
(a) in the event no LPG plant is constructed to process such
Gas, the delivery point shall be at the flange connecting
the Lease pipeline to the nearest point on the National
Gas Pipeline Grid System as depicted in Annex "FM
hereto, or as otherwise agreed by EGPC and
CONTRACTOR.
(b) In the event an LPG plant is constructed to process such
Gas, such Gas shall, for-the purposes of valuation and
sales, be metered at the inlet to sue'- ' ™
40
)k
However, notwithstanding the fact that the metering shall
take place at the LPG Plant inlet, CONTRACTOR shall
through the Operating Company build a pipeline suitable
for transport of the processed Gas from the LPG.Plant
outiet to the nearest point on the National Gas Pipeline
Grid System as ' depicted in Annex "F* hereto, or
otherwise agreed by EGPC and CONTRACTOR. Such
pipeline shall be owned in accordance with Article VIII
(a) by EGPC, and its cost shall be financed and recovered
by CONTRACTOR as Development Expenditures
pursuant to Article VII.
(iii)EGPC and CONTRACTOR shall consult together to
determine whether to build an LPG plant for recovering LPG
from any Gas produced hereunder. In the event EGPC and
CONTRACTOR decide to build such a plant, the plant shall,
as is appropriate, be in the vicinity of the point of delivery as
determined in Article II and Article Vil(e)2(ii). The delivery of
LPG for, .royalty and other purposes required by this
Agreement shall be at the outiet of the LPG plant. The costs
of any such LPG plant shall be recoverable in accordance
with the provisions of this Agreement unless the Minister of
Petroleum......agrees to accelerated recovery.______. ______
(iv) EGPC (as buyer) snail have the option to elect, by ninety
(90) days prior written notice to EGPC and CONTRACTOR
(as sellers), whether payment for the Gas which is subject
to a Gas Sales Agreement between EGPC and
CONTRACTOR (as sellers) and EGPC (as buyer) and LPG
produced from a plant constructed and operated by or on
behalf of EGPC and CONTRACTOR, as valued in
accordance with Article Vll (c), and to which CONTRACTOR
is entitled under the Cost Recovery and Production
Sharing provisions of Article Vll, of this Agreement, shall be
made 1) in cash or 2) in kind.
Payments in cash shall be made by EGPC (as buyer) at
intervals provided for in the relevant Gas Sales
Agreement in U.S. Dollars, remittable by CONTRACTOR
abroad. , ,
» i/
41
Payments in kind shall be calculated by converting the
value of Gas and LPG to which CONTRACTOR is entitled
into equivalent barrels of Crude Oil to be taken concurrently
by CONTRACTOR from the Area, or to the extent that such
Crude Oil is insufficient. Crude Oil from CONTRACTOR’S
other concession areas or such other areas as may be
agreed. Such Crude Oil shail be added to the Crude Oil that
CONTRACTOR is otherwise entitled to lift under this
Agreement. Such equivalent barrels shail be calculated on
the basis of the provisions of Article VII (c) relating to the
valuation of Cost Recovery Crude Oil.
Provided that
(aa) Payment of the value of Gas and LPG shall always be
made in cash in U.S. Dollars remittable by
CONTRACTOR abroad to the extent that there is
insufficient Crude Oil available for conversion as provided
for above;
(bb) Payment of the value of Gas and trPG-sh-atlalways_.be
made in kind as provided far above to the extent that
payments in cash are not made by EGPC.
Payments to CONTRACTOR (whether in cash or kind),
when related to CONTRACTOR'S Cost Recovery
Petroleum, shall be . included in CONTRACTOR'S
Statement of Recovery of Costs and of Cost Recovery
Petroleum referred to in Article IV of Annex "E" of this
Agreement
(v) Should EGPC (as buyer) fail to enter into a long-term Gas
Sales Agreement with EGPC and CONTRACTOR (as
sellers) within five (5) years (unless otherwise agreed) from
a notice of Commercial Gas Discovery pursuant to Article
III, EGPC and CONTRACTOR shall have the right to.take
and freely dispose of the quantity of Gas and LPG in
respect of which the notice of Commercial Discovery is 1
/ ^ >1
42
respect of which the notice of Commercial Discovery is
given by exporting such Gas and LPG.
(vi) The proceeds of saie of CONTRACTOR'S share of Gas
and LPG disposed of pursuant to the above sub-paragraph
(v) may be freely remitted or retained abroad by
CONTRACTOR.
(vii) In the event EGPC and CONTRACTOR agree to accept
new Gas and LPG producers to join in an ongoing export
project, such producers shall have to contribute a fair and
equitable share of the investment made.
(viii)(aa) Upon the expiration of.the nve (5) year period
referred to in Article Vi[ (e) (2) (v), CONTRACTOR shall
have the obligation to exert its reasonable efforts to find
an export market for Gas reserves.
(bb) In the event at the end of the five (5) year period
'referred to under Article Vli (e) (2) (v), CONTRACTOR
and EGPC have not entered into a Gas Safes
..............................Agreement CONTRACTOR........shall retain its rights to such
Gas reserves for a further period of up to seven"(7) years,
subject to Article VII (e) (2), during which period EGPC
shall attempt to find a market for Gas reserves.
(cc)in the event that CONTRACTOR is noiexporting the Gas
and CONTRACTOR has not entered into a Gas Sales
Agreement pursuant to Article Vll (e) (2) prior to the expiry
of twelve (12) years from CONTACTOR'S notice of
Commercial Gas Discovery, CONTRACTOR shall
surrender the Gas reserves in respect of which such
notice has been given. It being understood that
CONTRACTOR shall, at any time prior to the expiry of
such twelve (12) year period, surrender the Gas reserves,
if CONTRACTOR is not exporting the Gas and
CONTRACTOR does not accept an offer of a Gas Sales
Agreement from EGPC within six (6) months from the
date such offer is made provided that the Gas Sales
Agreement offered to CONTRACTOR sh'’1'
43
consideration the relevant technical and economic factors
to enable a commercial contract including :
- A sufficient delivery rate.
- Delivery pressure to enter the National Gas Pipeline Grid
System at the point of delivery, '
- Delivered Gas quality specifications not more stringent
than those imposed or required for the National Gas
Pipeline Grid System.
- The Gas prices as specified in this Agreement.
(dd) in the event that CONTRACTOR has not entered into a
Gas Sales Agreement pursuant to Article VII (e) (2)or
otherwise found an acceptable scheme for commercial
disposal of such Gas , at the time of the expiration of
twelve (12) years from CONTRACTOR’S notice of
Commercial Discovery of Gas or failing agreement with
EGPC on gas disposal at the expiration of twelve (12)
years . CONTRACTOR shall surrender to EGPC such
Development Lease (s) in which Gas discovery is made.
(ix) CONTRACTOR shall not be obligated to surrender a
Development Lease based on a Commercial Gas
Discovery, if Crude Oil has been discovered in
commercial quantities in the same Development Lease.
(f) Operations:
f following the reversion to EGPC of any rights to Crude Oil
hereunder, CONTRACTOR retains rights to Gas in the same
Development Lease, or if, following surrender of rights to Gas
hereunder, CONTRACTOR retains rights to Crude Oil in the
same Development Lease, operations to explore for or exploit
the Petroleum, the rights to which have reverted or been
v
44
surrendered (Oil or Gas as the case may be) may only be
carried out by Operating Company which shall act on behaff of
EGPC alone, unless CONTRACTOR and EGPC agree
t otherwise.
t
g) Tanker Scheduling:
At a reasonable time prior to the commencement of
Commercial Production EGPC and CONTRACTOR shall meet
and agree upon a procedure for scheduling tanker liftings from
the agreed upon point of export.
ARTICLE VIII
TITLE TO ASSETS
(a) EGPC shall become the owner of ail CONTRACTOR acquired
and owned assets which assets were charged to Cost Recovery
by CONTRACTOR in connection with the operations carried out
by CONTRACTOR or Operating Company in accordance with
.....................the......following:
(1) Land shall become the property of EGPC as soon as it is
purchased.
(2) Title to fixed and movable assets shall . be transferred
automatically ■ and gradually from CONTRACTOR to EGPC as
they become subject to recovery in accordance with the
provisions of Article VII; however the full title to fixed and
movable assets shall be, transferred automatically from
CONTRACTOR to. EGPC when its total cost has been
recovered by CONTRACTOR in accordance with the
provisions of Article VI! or at the time of termination of this
Agreement with respect to all assets chargeable to the
operations whether recovered or not, whichever first occurs.
The book value of the assets created during each calendar
quarter shall be communicated by CONTRACTOR to pr"pr
45
or 'by Operating Company to EGPC and CONTRACTOR
within thirty (30) days of the end of each quarter.
(b) During the term of this Agreement and the renewal period
EGPC. CONTRACTOR and Operating Company are entitled to
the full use and enjoyment of ail fixed and movable assets
referred to above in connection with operations hereunder or
under any other Petroleum concession agreement entered
into by the Parties. Proper accounting adjustment shall be
made. CONTRACTOR and EGPC shall not dispose of the same
except with agreement of the other.
(c) CONTRACTOR and Operating Company may freely import into
the A.R.E., use therein and freely export at the end of such use,
machinery and equipment which they either rent or lease in
accordance with good industry practices, including but-not limited
to the lease of computer hardware and software.
ARTICLE IX
BONUSES
(a) CONTRACTOR shall pay to EGPC as a signature bonus the
sum of three hundred thousand ($300,000) U.S.Dollars on the
Effective Date.
(b) CONTRACTOR shall pay to EGPC the sum of two million
($2,000,000) U.S. Dollars as a production bonus when the total
average daily production from the Area first reaches the rate of
twenty five (25,000) Barrels per day for a period of thirty (30)
consecutive producing days. Payment will be made within
fifteen (15) days thereafter.
(c) CONTRACTOR shall also pay to EGPC the additional sum of
four million ($4,000,000) U.S. Dollars as a production bonus
when the total average daily production from the Area first
reaches the rate of fifty thousand (50,000) Barrels per day for a
period of thirty (30) consecutive producing days. Payment wilt
be made within fifteen (15) days thereafter.
46
(d) All the above mentioned bonuses shall in no event be
recovered by CONTRACTOR. ■
.(e) In the event that EGPC elects to develop any part of the Area
pursuant to the sole risk provisions of Article iil (c) (iv),
production from such sole risk area shall be considered for the
purposes of this Article IX only if CONTRACTOR exercises its
option to share in such production, and only from the initial
date of sharing.
(f) Gas shall be taken into account for purposes of determining the
total average daily production from the Area under Article IX (b-c)
by converting daily Gas delivered into equivalent barrels of daily
Crude Oil production in accordance with the following formula:
MSCF x H x 0.136 = equivalent barrels of Crude Oil
where
MSCF = one thousand Standard Cubic Feet of Gas. --- ---
H = the number of million British Thermal Units (BTU's per
MSCF).
ARTICLE X
OFFICE AND SERVICE OF NOTICES'
CONTRACTOR shall maintain an office in A.R.E. at which notices
shall be validly served.
The General Manager and Deputy General Manager shall be
entrusted by CONTRACTOR with sufficient power to carry out
immediately all local written directions given to them by the
Government or its representatives under the terms of this
:
iS
47
Agreement. All lawful regulations issued or hereafter to be issued
which are applicable hereunder and not in conflict with this
Agreement shall apply to the duties and activities of the General
Manager and Deputy General Manager.
All matters and notices shall be deemed to be validly served which
are delivered to the office of the General Manager or which are sent
to him by registered mail to CONTRACTOR'S office in the A.R.E.
All matters and notices shall be deemed to be validly served which
are delivered to the office of the Chairman of EGPC or which are
sent to him by registered mail at EGPC's main office in Cairo.
ARTICLE XI
SAVING OF PETROLEUM AND PREVENTION OF LOSS
(a) Operating Company shall take all proper measures, according
to generally accepted methods in use in the oil and gas industry
............... to prevent loss or waste of Petroleum above or under the
ground in any form during drilling, producing, gathering, arid
distributing or storage operations. The GOVERNMENT has the
right to prevent any operation on any well that it might
reasonably expect would result in loss or damage to the well or
the Oil or Gas field.
(b) Upon completion of the drilling of a productive well, Operating
Company shall inform the GOVERNMENT or its' representative
of 'the time when the well will be tested and the production rate
ascertained.
(c) Except in instances where multiple producing formations in the
same well can only be produced economically through a single
tubing string, Petroleum shall not be produced from multiple oil
bearing zones through one string of tubing at the same time,
except with the prior approval of the GOVERNMENT or its
representative, which shall not be unreasonably
48
kf ■ '•
(d) Operating Company shal! record data regarding the quantities of
Petroleum and water produced monthly from each Development
Lease, Such data shall be sent to the GOVERNMENT or its
representative on the special forms provided for that purpose
within thirty (30) days after the data are obtained. Daily or weekly
statistics regarding the production from the Area shall be
available at all reasonable times for examination by authorized
representatives of the GOVERNMENT.
(e) Daily drilling records and the graphic logs of wells must show the
quantity and type of cement and the amount of any other
materials used in the well for the purpose of protecting
Petroleum, gas bearing or fresh water strata.'
(f) Any substantial change of mechanical conditions of the well after
its completion shall be subject to the approval of the
representative of the GOVERNMENT.
ARTICLE XII
CUSTOMS EXEMPTIONS
(a.) EGPC, CONTRACTOR, and Operating Company shall be
permitted to import and shall be exempted from customs duties,
any taxes, levies or fees (including fees imposed by Ministerial
Decision No. 254 of 1993 issued by the Minister of Finance, as
now . or hereafter amended or substituted) of any nature
(except where an actual service has been rendered to
CONTRACTOR by a competent authority), and from the
. importation rules with respect to the importation of machinery,
equipment, appliances, materials, items, means of transport and
transportation (the exemption from taxes and duties for cars shall
only apply to cars to be used in operations), electric appliances,
air conditioners for offices, field housing and facilities, electronic
appliances, computer hardware and software, as well as spare
parts required for any of the imported items, ail subject to a duly
approved certificate issued by the responsible representative
/ 4
49
nominated by EGPC for such purpose, which states that the
imported items are required for conducting the operations
pursuant to this Agreement. Such certificate shall be final and
binding and shall automatically result in the importation and the
exemption without any further approval, delay or procedure.
(b) Machinery, equipment, appliances and means of transport and
transportation imported by EGPC's, CONTRACTOR'S and
Operating Company's contractors and sub-contractors
temporarily engaged in any activity pursuant to the operations
which are the subject of this Agreement, shall be cleared under
the "Temporary Release System" without payment of customs
duties, any taxes, levies or fees (including fees imposed by
Ministerial Decision No. 254 of 1993 issued by the Minister of
Finance, as now or hereafter amended or substituted) of any
nature (except where an actual service has been rendered to
CONTRACTOR by a competent authority), upon presentation of
a duly approved certificate issued by an EGPC responsible
representative nominated by EGPC for such purpose which
states, that the imported items are required for conducting the
operations pursuant to this Agreement. Items (excluding cars
...................not-to.........be.............used Jn operations).....set.....out in Article XU (a) imported
by EGPC's, CONTRACTOR'S and Operating Company's.....
contractors and sub-contractors for the aforesaid operations,
in order to be installed or used permanently or consumed shall
meet the conditions for exemption set forth in Article XII (a) after
being duly certified by an EGPC responsible representative to
be used for conducting operations pursuant to this Agreement.
(c) The expatriate employees of CONTRACTOR, Operating
Company and their contractors and sub-contractors shall not be
entitled to any exemptions from customs duties and other
ancillary taxes and charges except within the limits of the
provisions of the laws and regulations applicable in the A.R.E.
However, personal household goods and furniture (including one
(1) car) for each expatriate employee of CONTRACTOR and/or
Operating company shall be cleared under the "Temporary
Release System" (without payment of any customs duties and
■ other ancillary taxes) upon presentation of a letter to the
appropriate customs authorities by CONTRACTOR or Operating
50
Company approved by an EGPC responsible representative that
the imported items are imported for the sole use of the expatriate
employee and his family, and that such imported items shall be
re-exported outside the A.R.E. upon the repatriation of the
concerned expatriate employee.
(d) Items imported into the A.R.E. whether exempt or not exempt
from customs duties and other ancillary taxes and charges
hereunder, may be exported by the importing party at any time
after obtaining EGPC’s approval, which approval shall not be
unreasonably withheld, without any export duties, taxes or
charges or any taxes or charges from which such items have
been already exempt, being applicable. Such items may be sold
within the A.R.E. after-obtaining the approval of EGPC which
approval shall not be unreasonably withheld. In this event, the
purchaser of such items snail pay all applicable customs duties
and other ancillary taxes and charges according to the condition
and value of such items and the tariff applicable on the date of
sale, unless such items have already been sold to an Affiliated
Company of CONTRACTOR, if any, or EGPC, having the same
exemption, or unless title to such items (excluding cars not used
in operations) has passed to EGPC.
In the event of........any.........such sale under........this..........paragraph---(d),the
proceeds from such sale shall be divided in the following manner:
CONTRACTOR shall be entitled to reimbursement of its
unrecovered cost, if any, in such items and the excess, if any,
shall be paid to EGPC.
(e) The exemption provided for in Article XII (a) shall not apply to
any imported items when items of the same or substantially the
same kind and quality are manufactured locally meeting
CONTRACTOR’S andlor Operating Company's specifications for
quality and safety and are available for timely purchase and
delivery in the A.R.E. at a price not higher than ten percent (10%)
of the cost of the imported item, before customs duties but after
freight and insurance costs if any have been
51
(f) CONTRACTOR.. EGPC and their respective buyers shall have the
right to freely export the Petroleum produced from the Area
pursuant to. this Agreement; no license shall be required, and
such petroleum shall be exempted from any customs duties, any
taxes, levies or any other imposts in respect of the export of
Petroleum hereunder.
ARTICLE Xitl
BOOKS OF ACCOUNT : ACCOUNTING AND PAYMENTS
(a) EGPC, CONTRACTOR and Operating Company shall each
maintain at their business offices in the A.R.E. books of account,
in accordance with the Accounting Procedure in Annex "E" and
accepted accounting practices generally used in the petroleum
industry, and such other books and records as may be necessary
to show the work performed under this Agreement, including the
amount and value of all Petroleum produced and saved
hereunder, CONTRACTOR and Operating Company shall keep
their,books of account and accounting records in United States
Dollars. ......................................................... ......................................................................................... ..................................
Operating Company shall furnish to the GOVERNMENT or its
representatives monthly returns showing the amount of
Petroleum produced and saved hereunder. Such returns shall be
.prepared in the form required by the GOVERNMENT, or its
representative and shall be signed by the General Manager or by
the Deputy General Manager or a duly designated deputy and
delivered to the GOVERNMENT or its representative within thirty
(30) days after the end of the month covered in the return.
(b) The aforesaid books of account and other books and records
referred to above shall be available at all reasonable times for
inspection by duly authorized representatives of the
GOVERNMENT.
(c) CONTRACTOR shall submit to EGPC a Profit and Loss
Statement- of its Tax Year not later than four (4) months after the,
fr' A
commencement of the following Tax Year to show its net profit
or loss from the Petroleum operations under this Agreement for
such Tax Year.
CONTRACTOR shall at the same time submit a year-end Balance
Sheet for the same Tax Year to EGPC. The Balance Sheet and
financial statements shall be certified by an Egyptian certified
accounting firm.
ARTICLE XIV
RECORDS, REPORTS AND INSPECTION
(a) CONTRACTOR and/or Operating Company shall prepare and, at
all times while this Agreement is in force, maintain accurate and
current records of its operations in the Area. CONTRACTOR
and/or Operating Company shall furnish the GOVERNMENT or
its representative, in conformity with applicable regulations or as
the GOVERNMENT or its representative may reasonably require
information and data concerning its operations under this
Agreement. Operating Company will perform the functions
indicated in this Article.....XIV in accordance wi:h its role as-specfffed-
in Article VI.
(b) CONTRACTOR and/or Operating Company shall save and keep
for a reasonable period of time a representative portion of each
sample ■ of cores and cuttings taken from drilling wells, to be
disposed of, dr forwarded to the GOVERNMENT or its
representative in the manner directed by the GOVERNMENT. All
samples acquired by CONTRACTOR and/or Operating Company
for their own purposes shall be considered available for
inspection at any reasonable time by the GOVERNMENT or its
representatives.
(c) Unless otherwise agreed to by EGPC, in case of exporting any
rock samples outside A.R.E., samples equivalent in size and
quality shall, before such exportation, be delivered to EGPC as
representative of the GOVERNMENT, i . /^\
(d) Originals of records can only be exported with the permission of
EGPC; provided, however, that magnetic tapes, and any other
data which must be processed or analyzed outside the A.R.E.
may be exported if a monitor or a comparable record, if available,
is maintained in the A.R.E. and provided that such exports shall
be repatriated to A.R.E. promptly following such processing or
analysis on the understanding that they belong to EGPC.
(e) During the period CONTRACTOR is conducting the Exploration
operations, EGPC's duly authorized representatives or
employees shall have the right to full and complete access to the
Area at all reasonable times with the right to observe the
operations being conducted and to inspect ail assets, records and
■data kept by CONTRACTOR. EGPC's representative, in
exercising its rights under the preceding sentence of this
paragraph (e), shall not interfere with CONTRACTOR'S
operations. CONTRACTOR shall provide EGPC with copies of
any and all data (including, but not limited to, geological
and geophysical reports, logs and well surveys) information and
interpretation of such data, and other information in
CONTRACTOR'S possession.
For the purpose of obtaining new offers, the GOVERNMENT
and/or EGPC may, after the seventhv(7th) year of the Exploration
period or the date of termination of this Agreement, whichever is
the earlier, show any other party uninterpreted basic geophysical
and geological data (such data to be not less than one (1) year
old unless CONTRACTOR agrees to a shorter period, which
agreement shall not be unreasonably withheld) with respect to the
Area, provided that the GOVERNMENT and/or EGPC may at any
time show another party such data directly obtained over or
acquired from those parts of the Area which CONTRACTOR has
relinquished as long as such data is at least one (1) ^
54
ARTICLE XV
RESPONSIBILITY FOR DAMAGES
CONTRACTOR shall entirely and solely be responsible in law toward
third parties for any damage caused by CONTRACTOR'S Exploration
operations and shall indemnify the GOVERNMENT and/or EGPC
against aii damages for which they may be held liable on account of
any such operations.
ARTICLE XVI
PRIVILEGES OF GOVERNMENT REPRESENTATIVES
Duly authorized representatives of/the GOVERNMENT shall have
access to the Area covered by this Agreement and to the Operations
conducted thereon. Such representatives may examine the books,
.....registers...............and..........records of EGPC, CONTRACTOR and Operating
Company and make a reasonable number ofsurveysrdfawings_an_cL
tests for the purpose of enforcing this Agreement. They shall, for this
purpose, be entitled to make reasonable use of the machinery and
instruments of CONTRACTOR or Operating Company on the
condition that no danger or impediment to the operations hereunder
■shall arise directly or indirectly from such use. Such representatives
shall be given reasonable assistance by the agents and employees of
CONTRACTOR or Operating Company so that none of the activities
shall endanger or hinder the safety or efficiency of the operations.
CONTRACTOR or Operating Company shall offer such
representatives all privileges and facilities accorded to its own
employees in the field and shall provide them, free of charge, the use
of reasonable office space and of adequately furnished housing while
they are in the field for the purpose of facilitating the objectives of this
Article. Without prejudice to Article XIV (e) any and all
information obtained by the GOVERNMENT or its representatives
under this Article XVI shall be kept confidential with respect to the
Area
. 55
ARTICLE XVII
EMPLOYMENT RIGHTS AND TRAINING OF
ARAB REPUBLIC OF EGYPT PERSONNEL
(a) It is the desire of EGPC and CONTRACTOR that operations
hereunder be conducted in a business-like and efficient manner.
(1)The expatriate administrative, professional and technical
personnel employed by CONTRACTOR or Operating
1 Company and the personnel of its contractors for the
conduct of the operations hereunder, shall be granted a
residence as provided for in Law No, 89 of 1960 as amended
and Ministerial Order No. 280 of 1981 as amended, and
CONTRACTOR agrees that all immigration, passport, visa
and employment regulations of the A.R.E., shall be applicable
to ail alien employees of CONTRACTOR working in the
A.R.E.
....................(2) A minimum........of........twenty-five percent..........(25%) of...........the combined-
salaries and wages of each of the expatriate administrative,
professional and technical personnel employed by
CONTRACTOR or Operating Company shall be paid
monthly in Egyptian Currency.
(b) CONTRACTOR and Operating Company shall each select its
employees and determine the number thereof, to be used for
operations hereunder.
(c) CONTRACTOR, shall after consultation with EGPC, prepare and
carry out specialized training programs for all its A.R.E.
employees engaged in operations hereunder with respect to
applicable aspects of the petroleum industry. CONTRACTOR and
Operating Company undertake to replace gradually their non¬
executive expatriate staff by qualified nationals as they are
available
56
w
(d) During any of the Exploration phases, CONTRACTOR shall give
mutually agreed numbers of EGPC employees an opportunity to
attend and participate in CONTRACTOR’S and CONTRACTOR'S
Affiliated Companies training programs relating to Exploration
and Development operations. In the event that the total cost of
such programs is less than fifty thousand (50,000) United States
Dollars in any Financial Year during such period, CONTRACTOR
shall pay EGPC the amount of the shortfall within thirty (30) days
following the end of such Financial Year. However, EGPC shall
have the right that said amount (U.S.$50,000) allocated for.
training, be paid directly to EGPC for such purpose.
ARTICLE XVIII
LAWS AND REGULATIONS
(a) CONTRACTOR and Operating Company shall be subject to Law
No. 66 of 1953 (excluding Article 37 thereof) as amended by-Law
No. 86 of 1956 and the regulations issued for the implementation
thereof, including the regulations for the safe and efficient
..........performance......of operations carried out for the execution of this
Agreement and for the conservation of the petroleum resources
of the A.R.E. provided that no regulations, or modification or
interpretation thereof, shall be contrary to or inconsistent with the
provisions of this Agreement.
(b) CONTRACTOR and Operating Company shall be subject to the
provisions of the Law No. 4 of 1994 concerning the environment
and its executive regulation as may be amended , as well as any
laws or regulations may be issued , concerning the protection of
the environment
(c) Except as provided in Article 111 (g) for Income Taxes, EGPC,
CONTRACTOR and Operating Company shall be exempted from
all taxes and duties, whether imposed by the GOVERNMENT or
municipalities including among others, Sales Tax, Value Added
Tax and Taxes on the Exploration, Development, extracting,
producing, exporting or transporting of Petroleum and LPG as
well as any and all withholding taxes that might
57
imposed on dividends, interest, technical sen/ice fees, patent and
trademark royalties, and similar items. CONTRACTOR shall also
be exempted from any tax on the liquidation of CONTRACTOR,
or distributions of any income to the shareholders of
CONTRACTOR, and from any tax on capital.
(d) The rights and obligations of EGPC and CONTRACTOR under,
and for the effective term of this Agreement shall be governed
by and in accordance with the provisions of this Agreement and
can only be altered or amended by the written mutual
agreement of the said contracting parties.
(e) The contractors and sub-contractors of CONTRACTOR and
Operating Company shall be subject to the provisions of this
Agreement which affect them. Insofar as ail regulations which are
duly issued by the GOVERNMENT apply from time to time and
are not in accord with the provisions of this Agreement, such
regulations shall not apply to CONTRACTOR, Operating
Company and their respective contractors and sub-contractors,
.................................as the case may be.
(f) EGPC, CONTRACTOR, Operating Company and their respective
contractors and sub-contractors shall for the purposes of this
Agreement' be exempted from all professional stamp duties,
imposts and levies imposed by syndical laws with respect to their
documents and activities hereunder.
(g) All the exemptions from the application of the A.R.E. laws or
regulations granted to EGPC, CONTRACTOR, the Operating
Company, their contractors and sub-contractors under this
Agreement shall include such laws and regulations as presently
in effect or hereafter amended or substituted;, ^
58
ARTICLE XIX
STABILIZATION
In case of changes in existing legislation or regulations
applicable to the conduct of Exploration, Development and
production of Petroleum, which take piace after the Effective
Date, and which significantly affect the economic interest of this
Agreement to the detriment of CONTRACTOR or which imposes
on CONTRACTOR an obligation to remit to the, A.R.E. the
proceeds from sales of CONTRACTOR'S Petroleum,
CONTRACTOR shall notify EGPC of the subject legislative or
‘regulatory measure. In such case, the Parties shall negotiate
possible modifications to this Agreement designed to restore the
economic balance thereof which existed on the Effective Date.
The Parties shall use their best efforts to agree on amendments to
this Agreement within ninety (90) days from aforesaid notice.
These amendments to this Agreement shall not in any event
diminish or increase the rights and obligations of CONTRACTOR
Falling agreement between the Parties during the period referred
to above in this Article XIX , the dispute may be submitted to
arbitration, as provided in Article XXIV of this Agreement.
ARTICLE XX
RIGHT OF REQUISITION
(a) In case of national emergency due to .war or imminent
expectation of war or internal causes, the GOVERNMENT may
requisition all or part of the production from the Area obtained
hereunder and require Operating Company to increase such
production to the utmost possible maximum. The
GOVERNMENT may also requisition the Oil and/or Gas field
itself and, if necessary, related facilities.
3/
59
(b) in any such case, such requisition shall not be effected except
after inviting EGPC and CONTRACTOR or their representative
by registered letter, with acknowledgement of receipt, to .express
their views with respect to such requisition.
(c) The requisition of production shall be effected by Ministerial
Order. Any requisition of an Oil and/or Gas field, or any related
facilities shall be effected by a Presidential Decree duly notified to
EGPC and CONTRACTOR.
(d) In the event of any requisition as provided above, the
GOVERNMENT . shall indemnify in full EGPC and
CONTRACTOR for the period during which the requisition is
maintained, including:
(1) All damages which result from such requisition; and
(2) Full repayment each month for all Petroleum extracted by
the GOVERNMENT less the royalty share of such
production.
However, any damage resulting from enemy attack is not within the
meaning of this paragraph (d). Payment hereunder shall be made.to.
CONTRACTOR in U.S. Dollars remittabie abroad. The price paid to
CONTRACTOR for Petroleum taken shall be calculated in
accordance with Article VIl (c).
ARTICLE XXI
ASSIGNMENT
(a) Neither EGPC nor CONTRACTOR may assign to a person, firm
or corporation, in whole or in part, any of its rights, privileges,
duties or obligations under this Agreement without the written
consent of the GOVERNMENT.
(b) To enable consideration to be given to any request for such
consent, the following conditions must be fulfilled: /i
• /tb
4 x y is
(1) The obligations of the assignor deriving from this
Agreement must have been duly fulfilled as of the date such
request is made.
(2) The instrument of assignment must include provisions
stating precisely that the assignee is bound by ail
covenants contained in this Agreement and any
modifications or additions in writing that up to such time
may have been made. A draft of such instrument of
assignment shall be submitted to EGPC for review and
approval before being formally executed.
(c) 'Any assignment, sale, transfer or other such conveyance made
pursuant to the provisions of this Article XXI shall be free of any
transfer, capital gains taxes or .related taxes, charges or fees
including without limitation, all income Tax, Sales Tax, Value
. Added Tax, Stamp Duty, or other Taxes or similar payments.
(d) As long as the assignor shall hold any interest under this
Agreement, the assignor together with the assignee shall be
jointly and severally liable for all duties and obligations of
CONTRACTOR under this Agreement
ARTICLE XXII
BREACH OF AGREEMENT AND POWER TO CANCEL
(a) The GOVERNMENT shall have the right to cancel this
Agreement by Order or Presidential Decree, with respect to
CONTRACTOR, in the following instances- ^
u
6)
(1) if it knowingly has submitted any false statements to the
GOVERNMENT which were of a material consideration for the
execution of this Agreement;
(2) If it assigns any interest hereunder contrary to the provisions
of Article XXI;
(3) If it is adjudicated bankrupt by a court of competent
jurisdiction;
(4) If it does not comply with any final decision reached as the
result of court proceedings conducted under Article XXiV(a);
- (5) If it intentionally extracts any mineral other than Petroleum not
authorized by this Agreement or without the authority of the
GOVERNMENT, except such extractions as may be
■' unavoidable as the result of the operations conducted
hereunder in accordance with accepted petroleum industry
practice and w'hich shall be notified to the GOVERNMENT or
' its representative as soon as possible; and
(6) If it commits any material breach of this Agreement or of the
provisions of Law No. 66 of 1953, as amended by Law No. 86
of 1956, which are not contradicted by the provisions of this
Agreement.
Such cancellation shall take place withoui prejudice to any
rights which may have accrued to the GOVERNMENT against
CONTRACTOR in accordance with the provisions of this
Agreement, and, in the event of such cancellation,
CONTRACTOR, shall have the right to remove from the Area
ail its personal property.
(b) If the GOVERNMENT deems that one of the aforesaid causes
(other than a force majeure cause referred to, in Article XXffl)
exists to cancel this Agreement the GOVERNMENT shall give
CONTRACTOR ninety (90) days written notice personally served
on CONTRACTOR'S General Manager in the legally official
manner and receipt of which is acknowledged by h:~ ~',Uwklr'
V
62
legal agents, to remedy and remove such cause; but if for any
reason' such service is impossible, due to unnotified change of
address, publication in the Official Journal of the GOVERNMENT
of such notice shall be considered as valid service upon
CONTRACTOR. If at the end of the said ninety (90) day notice
period such cause has not been remedied and removed, this
Agreement may be canceled forthwith by Order or Presidential
Decree as aforesaid; provided however, that if such cause, or the
failure to remedy or remove such cause, results from any act or
omission of one party, cancellation of this Agreement shall be
effective only against that party and not as against any other party
hereto.
ARTICLE XXIII
FORCE MAJEURE
(a) The non-performance or delay in performance by EGPC and
CONTRACTOR, or either of them of any obligation under this
Agreement shall be excused if, and to the extent that such non¬
performance or delay is caused by force majeure. The period of
any such non-performance or delay; together with such period as'
may be necessary for the restoration of any damage done during
such delay, shall be added to the time given in this Agreementfor
the performance of such obligation and for the performance of
any obligation dependent thereon and consequently, to the term
of this Agreement, but only with respect to the block or blocks
affected.
(b) "Force Majeure" within the meaning of this Article XXIII, shall be
any order, regulation or direction of the GOVERNMENT of the
ARAB REPUBLIC OF EGYPT, whether promulgated in the form
of a law or otherwise or any act of God, insurrection, riot, war,
strike, and other labor disturbance, fires, floods or any cause not
due to the fault or negligence of EGPC and CONTRACTOR or
either of them, whether or not similar to the foregoing, provided
that any. such cause is beyond the reasonable control of EGPC
and'CONTRACTOR, or either of them. /%\
u ■
63
fc) Without prejudice to the above and except as may be otherwise
provided herein, the GOVERNMENT shall incur no responsibility
whatsoever to EGPC and CONTRACTOR, or either of them for
any damages, restrictions or ioss arising in consequence of such
case of force majeure except a force majeure caused by the
order, regulations or direction of the GOVERNMENT of the ARAB
REPUBLIC OF EGYPT.
(d) If the force majeure event occurs during the initial Exploration
period or any extension thereof and continues in effect for a
period of six (6) months CONTRACTOR shall have the option
upon ninety (90) days prior written notice to EGPC to terminate its
obligations hereunder without further liability of any kind.
ARTICLE XXIV
DISPUTES AND ARBITRATION
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof,
between the GOVERNMENT and the parties shall be referred to
the jurisdiction of the appropriate A.R.E. Courts and shall be
finally settled by such Courts,
(b) Any dispute, controversy or claim arising out of or relating to this
Agreement, or breach, termination or invalidity thereof between
EGPC and CONTRACTOR shall be settled by arbitration in
accordance with the Arbitration Rules of the Cairo Regional
Center for international Commercial Arbitration (the Center) in
effect on the date of this Agreement. The award of the
arbitrators shall be final and binding on the parties.
(c) The number of arbitrators shall be three (3).
(d) Each party shall appoint one arbitrator. If, within thirty (30) days
after receipt of the claimant’s notification of the appointment of an
arbitrator the respondent has not notified the claimant in writing
of the name of the arbitrator he appoints, the claimant may
request the Center to appoint the second arbitrator, /A\
64
(e) The two arbitrators thus appointed shall choose the third
arbitrator who will act as the presiding arbitrator of the tribunal. !f
within thirty (30) days after the appointment of the second
arbitrator, the two arbitrators have not agreed upon the choice of
the presiding arbitrator, then either party may request the
Secretary General of the Permanent Court of Arbitration at the
Hague to designate the appointing authority. Such appointing
authority shall appoint the presiding arbitrator in the same way
as a sole arbitrator would be appointed under Article 6.3 of the
UNCITRAL Arbitration Rules. Such presiding arbitrator shall be
a person of a nationality other than the A.R.E. or CANADA and
of a country which has diplomatic relations with A.R.E., and
CANADA "and who shall have no economic interest in the
Petroleum business of the signatories-hereto.
(f) Unless otherwise agreed by the parties to the arbitration, the
arbitration, including the making of the award, shall take place in
Cairo, A.R.E.
(g) The decision of a majority of the arbitrators shall be final and
binding upon the Parties and the arbitral award rendered shall be
final and conclusive. Judgment on the arbitral award rendered,
may be entered in any court having Jurisdiction or application
may be made in such court for a judicial acceptance of the award
and for enforcement, as the case may be.
(h) Egyptian Law shall apply to the dispute except that in the event
of any conflict between Egyptian Laws and this Agreement the
provisions of this Agreement (including the arbitration provision)
shall prevail. The arbitration shall be conducted in both English
and Arabic language.
(i) EGPC and CONTRACTOR agree that if, for whatever reason,
arbitration in accordance with the above procedure cannot take
place, or is likely to take place under circumstances for
CONTRACTOR which could prejudice CONTRACTOR'S right to
fair arbitration, all disputes,- controversies or claims arising out of
or relating to this Agreement or the breach, termination or
65
invalidity thereof shall be settled by ad hoc arbitration in
accordance with the UNCITRAL Rules in effect on the Effective
Date.
ARTICLE XXV
STATUS OF PARTIES
(a) The. rights, duties, obligations and liabilities in respect of EGPC
and CONTRACTOR hereunder shall be several and not joint or
collective, it being understood that this Agreement shall not be
construed as constituting an association or corporation or
partnership.
(b) CONTRACTOR shall be subject to the laws of the pface where it
is incorporated regarding its legal status or creation,
organization, charter and by-laws, shareholding, and ownership.
CONTRACTOR'S shares of capital which are entirely held abroad
shall not be negotiable in the A.R.E. and shall not be offered for
public subscription nor shall be subject to the stamp tax on capital
shares nor any tax or duty in the A.R.E.
CONTRACTOR shall be exempted from the application of Law
No. 159 of 1981 as amended. ■
(c) All CONTRACTOR Members shall be jointly and severally liable
for the performance of the obligations of CONTRACTOR under
this Agreement
66
ARTICLE XXVI
LOCAL CONTRACTORS AND
LOCALLY MANUFACTURED MATERIAL
CONTRACTOR or Operating Company, as the case may be, and
their contractors shall:
(a) Give priority to local contractors and sub-contractors, including
EGPC’s Affiliated Companies as long as. their performance is
comparable with international performance and the prices of their
services are not higher than the prices of other contractors and
sub-contractors by more than ten percent (10%).
(b) Give preference to locally manufactured material, equipment,
machinery and consumables so long as their quality and time of
delivery are comparable to internationally available material,
equipment, machinery and consumables. However, such
material, equipment, machinery and consumables may be
imported for operations conducted hereunder if the focal price
of such items at CONTRACTOR'S or Operating Company’s
operating base in A.R.E. is more than ten percent (10%) higher
than the price of such imported items before customs duties, but
after transportation and insurance costs have been added.
ARTICLE XXVll
ARABIC TEXT
The Arabic version of this Agreement shall, before the courts of
A.R.E. be referred to in construing or interpreting this Agreement;
provided however, that in any arbitration pursuant to Article XXIV
herein above between EGPC and CONTRACTOR the English and
Arabic versions shall both be referred to as having equal force in
construing or interpreting the Agreement ,
A
67
\ /
ANNEX "A
CONCESSION AGREEMENT
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
EGYPTIAN GENERAL PETROLEUM CORPORATION.
AND
DOVER INVESTMENTS LIMITED
IN
EAST WADI ARABA AREA
GULF OF SUEZ
A.R.E.
BOUNDARY DESCRIPTION OF THE CONCESSION AREA
Annex "B" is a provisional illustrative map at an approximate scale
of -: ( 1 : 500,000 ) showing the Area covered and affected by this
Agreement.
-■ The Area measure approximately three hundred ninety three
square kilometers (393 km2) of surface Area, -it is composed of
all or part of Exploration Blocks, the whoie Blocks are defined on
a three (3) minutes latitude by three (3) minutes longitude grid.
It is to be noted that the delineation lines of the Area in Annex
"B" are intended to be only illustrative and provisional and may
O
69
not show accurately their true position in relation to existing
monuments and geographical features.
Coordinates of the corner points of the Area are given in the following
table which forms an integral part of Annex "AC-
BOUNDARY COORDINATES
OF
EAST WADI ARABA
GULF OF SUEZ
AREA '
POINT LONGITIUDE LATITUDE REMARKS
No. .
1 32' 40’ 30.00” 29' 17' 00.00"
2 32' 40' 30.00” 29' 15’ 00.00”
3 32' 41' 30.00" ‘‘ 29' 15’ 00.00”
4' .32' 4T 30.00” 29' 14' 00.00”
5 32' 41' 00.00" 29' 14’ 00.00"
6 32' 4V 00.00” 29' 13' 00.00”
7 32' 4 O’ 00.00” 29' 13’ 00.00"
70
POINT LONGITIUDE LATITUDE REMARKS
No. '
8 32 ‘ 40’ 00.00” 29 ‘ 09' 00.00"
9 32' 44’ 30.00” 29' 09’ 00.00”
10 32 ‘ 44’ 30,00” 29' 08' 00.00”
11 32' 48’ 00.00” 29' 08' 00.00”
12 32' 48’ 00.00" 29' 03’ 00.00”
13 32 ’ 441 00.00" 29' 03’ 00.00”
14 32' 44' 00.00” Intersection of long
32' 44' 00.00"
with shore line
15 Intersection of Lat. 29' 17’ 00.00"
29' 17’ 00.00"
with shore line
71
EAST WADI ARABA AREA
ANNEX“B‘ jjA ui.J-rv.Al f Ijii
CONCESSION AGREEMENT FOR PETROLEUM 3_uiULIl
EXPLORATION AND EXPLOITATION
BETWEEN L>±i
ARAB REPUBLIC OF EGYPT
AND
EGYPTIAN GENERAL PETROLEUM j
CORPORATION
AND
DOVER INVESTMENT LIMITED
u-*
IN
EAST WADI ARABA
GULF OF-5UEZ t-f-£ ' ■
A.R.E [/
SCALE 1 : 500 000 ..... : \ ^-vuj-ll i_>u A. Vi”
ANNEX "C
LETTER OF GUARANTY
EGYPTIAN GENERAL PETROLEUM CORPORATION
. Gentlemen,
Reference is made to the Concession Agreement for Petroleum
Exploration and Exploitation in East Wadi Araba issued by iaw No of
2001 ( the “Concession Agreement" ) by and between the Arab
Republic of Egypt (A.R.E.) , The Egyptian General Petroleum
Corporation (EGPC) and Dover Investments Limited hereinafter
referred to as ( CONTRACTOR ). ■
Dover Investments Limited as guarantor hereby undertakes that, if
CONTRACTOR spends less than the minimum .amount of three
million and five hundred thousand (3,500,000 ) U.S. Dollars, during
the initial Exploration period of three (3) years specified in the
Concession Agreement (the difference being hereinafter described as
“Shortfall” ), EGPC shall notify the CONTRACTOR in writing of the
amount of the Shortfall . Within fifteen (15) days of receipt of such
notice , Dover Investments Limited shall pay and/ or transfer to EGPC
a quantity of crude oil sufficient in value to cover the-Shortfall.
In such case said crude oil shall be transferred out of the share of
crude oil production of Dover Investments Limited from Ras El Ush
development lease .pursuant to the terms of the Concession
Agreement for Petroleum Exploration and Exploitation by and
between the Arab Republic of Egypt , EGPC and Marathon
Petroleum Egypt , LTD. (Now Dover investments Limited) issued by
law No. 18 of 1992 ,as amended and said crude oil shall be valued at
the time of the transfer to EGPC in accordance with the provisions of
Article Vll ( C ) of the Concession Agreement in Gabei El Zeit
onshore and offshore Area.
73
Dover Investments Limited may at any time between the date hereof
and the date on which this letter of Guarantee shall expire submit to
EGPC a bank guarantee for the Shortfall in a form satisfactory to
EGPC , in which event the provisions of this letter shall automatically
lapse and be of no effect.
This Letter of Guarantee shall expire and become null and void on
the date six (6) months after the end of the initial Exploration period of
the Concession Agreement of East Wadi Araba Area or on the date
upon CONTRACTOR’S fulfill of its obligations hereunder subject to
DOVER INVESTMENTS LIMITED
DATE
74
j
ANNEX "D’
CHARTER OF OPERATING COMPANY
ARTICLE I
A joint stock company having the nationality of the ARAB REPUBLIC
OF EGYPT shall be formed with the authorization of the
GOVERNMENT in accordance with the provisions of this Agreement
referred to below and of this Charter.
The Company shall be subject to all laws and regulations in force in
the A.R.E. to the extent that such laws- and regulations are not
inconsistent with the provisions of this Charter and the Agreement
referred to below.
ARTICLE II
The name - of the Operating Company shall, be mutually agreed upon
between EGPC and CONTRACTOR on the date of the Commercial
Discovery and shall be subject to the approval of the Minister of
Petroleum.
ARTICLE II!
The Head Office of Operating Company shall be in the A.R.E. in
Cairo.
L/
is
!s
ARTICLE IV
the object of Operating Company is to act as the agency through
which EGPC and CONTRACTOR, carry out and conduct the
Development operations required in accordance with the provisions
of the Agreement signed on the----day of------by and
between the ARAB REPUBLIC OF EGYPT, THE EGYPTIAN
GENERAL PETROLEUM CORPORATION and CONTRACTOR
covering Petroleum operations in East Wadi Araba Area described
therein.
Operating Company shall be the agency to carry out and conduct
Exploration operations after the date of Commercial Discovery
pursuant to Work Programs and Budgets approved in accorda|ije§^
with the Agreement
Operating Company shall keep account of all costs, expenses and"^
expenditures for such operations under the terms of the Agreement
and Annex ,lE" thereto.
Operating Company shall not engage in any business or undertake
any activity beyond the performance of said operations unless
otherwise agreed upon by EGPC and CONTRACTOR.
ARTICLE V
The authorized capita) of Operating Company is twenty thousand
Egyptian Pounds divided into five thousand shares of common stock
with a value of four Egyptian Pounds per share having equal voting
rights, fully paid and non-assessabJe.
EGPC and CONTRACTOR shall each pay for, hold and own,
throughout the life of Operating Company, one half (1/2) of the capital
stock of Operating Company provided that only in the event that
either party should transfer or assign the whole or any percentage of
its ownership interest in the entirety of the Agreement, may such
transferring or assigning party transfer or. assign any of the capital
stock of Operating Company and, in that event, such transferring or
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76 ' • /
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assigning party (and its ■ successors and assignees) must
transfer and assign a stock interest in Operating Company equal to
the transferred or assigned whole or percentage of its ownership
interest in the entirety of the said Agreement.
ARTICLE VI
Operating Company shall not own any right, title, interest or estate in
or under the Agreement or any Development Lease created
thereunder or in any of the Petroleum produced from any Exploration
Block or Development Lease thereunder or in any of the assets,
equipment or other property obtained or used in connection
therewith, -and shall not be obligated as .a principal for the financing
or performance of any of the duties or obligations of either EGPC or
CONTRACTOR under the Agreement. Operating Company shall not
make any profit from any source whatsoever.
ARTICLE VII
Operating Company shall be no more than an agent for EGPC and
CONTRACTOR. Whenever it is indicated herein that Operating
Company shall decide, take action or make a proposal and the like, it
is understood that such decision or judgment is the result of the
decision or judgment of EGPC, CONTRACTOR or EGPC and
CONTRACTOR, as may be required by the Agreement.
ARTICLE VIII
Operating Company shall have a Board of Directors consisting of
eight (8) members, four (4) of whom shall be designated by EGPC
and the other four (4) by CONTRACTOR. The Chairman shall be
designated by EGPC and shall also be a Managing Director.
CONTRACTOR shall designate the General Manager who shall also
be a Managing Director. . /k\
1
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ARTICLE IX
Meetings of the Board of Directors shall be valid if a majority of the
Directors are present and any decision taken at such meetings must
have the affirmative vote of five (5) or more of the Directors; provided,
however, that any Director may be represented and vote by proxy
held by another Director.
.ARTICLE X
Genera! meetings of the Shareholders shall be valid if a majority of
the capital stock of Operating Company is represented thereat Any
decision taken at such meetings must have the affirmative vote of
Shareholders owning or representing a majority of the capital stock.
ARTICLE XI
The Board of Directors shall approve the regulations covering the
terms and conditions of employment of the personnei of Operating
Company employed directly by Operating Company and not assigned
thereto by CONTRACTOR and EGPC.
The Board shall, in due course, draw up the By-Laws of Operating
Company, and such By-Laws shall be effective upon being approved
by a General Meeting of the Shareholders, in accordance with the
provisions of Article X hereof. •
ARTICLE XII
Operating Company shall come into existence within thirty (30) days
after the date of Commercial Oil Discovery or within thirty (30) days
after signature of a Gas Sales Agreement or commencement of a
scheme to dispose of Gas, as provided for in the Agreement (unless
otherwise agreed by EGPC and CONTRACTOR).
The duration of Operating Company shall be for a period equal to the
duration of the said Agreement, including any renewal thereof.
78
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ANNEX "E
ARTICLE (
GENERAL PROVISIONS
(a) Definitions:
The definitions contained in Article 1 of the Agreement shall apply
to this Accounting Procedure and have the same meanings.
(b) Statements of activity:
(1) CONTRACTOR shafi, pursuant to Article (V of this Agreement,
and until the coming into existence of the Operating Company -
in accordance with Article VI of the Agreement - render to EGPC
within thirty (30) days of the end of each calendar quarter a
Statement of Exploration Activity reflecting all charges and
credits related to the Exploration operations for that quarter
summarized by appropriate classifications indicative of the
nature thereof.
(2) Following its coming into existence, Operating Company shall
render to EGPC and CONTRACTOR within fifteen (15) days of
the end of each calendar quarter a Statement of Development
and Exploration Activity reflecting ail charges and credits related
to the Development and Exploration operations for that quarter
summarized by appropriate classifications indicative of the
nature thereof, except that items of controllable material and
unusual charges and credits shall be detailed.
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(c) Adjustments and Audits:
(1) Each quarterly Statement of Exploration. Activity pursuantto
Article I (b) (1) of this Annex shall conclusively be presumed to
be true and correct after three (3) months following the receipt of
each Statement by EGPC unless within the said three (3)
months EGPC takes written exception thereto pursuant to Article
IV (f) of the Agreement. During the said three (3) month period
supporting documents will be available for inspection by EGPC
during all working hours.
CONTRACTOR will have the same audit rights on Operating
Company Statements as EGPC underthis sub-paragraph.
(2) All Statements of Development and Exploration Activity for any
calendar quarter pursuant to Article l (b) (2) of this Annex, shall
conclusively be presumed to be true and correct three (3)
months following ihe receipt of such Statement, unless within
the said three (3) months period EGPC or CONTRACTOR takes
written exception thereto. Pending expiration of said three (3)
months EGPC or CONTRACTOR or both of them shall have the
right to audit Operating Company accounts, records and
supporting documents for such quarter in the same manner as
provided in Article IV (f) of the Agreement.
(d) Currency Exchange:
CONTRACTOR'S books for Exploration and Operating
Company's books for Development and Exploration, if any, shall
be kept in the A.R.E. in U.S. Dollars. All U.S. Dollar
expenditures shall be charged in the amount expended. Aff
Egyptian Pounds expenditures shad be converted to U.S. Dollars
at the applicable rate of exchange issued by the Central Bank
of Egypt on the first day of the month in which expenditures are
recorded, and all other non-U.S. Dollar expenditures shall be
translated to U.S. Dollars at the buying rate of exchange for such
currency as quoted by National Westminster Bank Limited,
London at 10.30 a.m. G.M.T., on the first d.ay of the month in
. which expenditures are recorded. A record shall be kept of the
exchange rates used in translating Egyptian Pounds or other
\t HfifK
(e) Precedence of Documents:
In the event of any inconsistency or conflict between the
provisions of this Accounting Procedure and the provisions of
the Agreement treating the same subject differently, then the
provisions of the Agreement shall prevail.
(f) Revision of Accounting Procedure:
By mutual agreement between EGPC and CONTRACTOR, this
Accounting Procedure may be revised in writing from time to
time in the light of future arrangements.
(g) No Charge for Interest on Investment:
Interest on investment or any bank fees, charges or
commissions related-to any bank guarantees shall not at any
time be charged as recoverable costs under the Agreement
ARTICLE i(
COSTS, EXPENSES AND EXPENDITURES
Subject to the provisions of the Agreement, CONTRACTOR shall
alone bear and, directly or through Operating Company, pay the
following costs and expenses, which costs and expenses shall be
classified and allocated to the activities according to sound and
generally accepted accounting principles and treated and recovered
in accordance with Article VII of this Agreement:
(a) Surface Rights:
Afl direct cost attributable to the acquisition, renewal or
relinquishment of surface rights acquired and maintained in force
for the Area. > /L\
82
(b) Labor and Related Costs:
(1) Salaries and Wages of CONTRACTOR'S or Operating
Company's employees, as the case may be, directly engaged in
the various activities under the Agreement including salaries
and wages paid to geologists and other employees who are
temporarily assigned to and employed in such activities. Such
salaries and wages to be certified by a certified public
accounting firm.
Reasonable revisions of such salaries and wages shail be
effected to take into account changes in CONTRACTOR’S
policies and amendments of laws applicable to salaries. For the
purpose of this Article II (b) and Article II (c), salaries and wages
shall mean the assessable amounts for A.R.E. Income Taxes,
including the salaries during vacations and sick leaves, but
excluding all the amounts of the other items covered by the
percentage fixed under (2) below.
(2) For expatriate employees permanently assigned to Egypt:
1. All allowances applicable to salaries and wages;
2. Cost of established plans; and
3. All travel and relocation costs of such expatriate
employees and their families to and from the
employee's country or point of origin at the time of
employment, at the time of separation, or as a result
of transfer from one location to another and for
vacation (transportation costs for employees and
their families transferring from the A.R.E. to another
location other than their country of origin shall not
be charged to A.R.E, Operations).
Costs under this Article II (b) (2) shail be deemed to be equal to
seventy percent (70%) for expatriate personnel married and
accompanied by their spouses and fifty two percent (52%) for
expatriate personnel either single or not accompanied by their
83
I
spouses to Egypt. These percentages refer to basic salaries and
wages paid for such expatriate personnel including those pa id during
vacations and sick leaves as established in CONTRACTOR'S
international policies, chargeable under Article II (b) (1), Article II (i),
Article H (k) (1) and Article II (k)(3) of this Annex.
However, salaries and wages during vacations, sick leaves and
disability are covered by the foregoing percentage. The percentage
outlined above shall be deemed to reflect CONTRACTOR'S actual
costs as of the Effective Date with regard to the following benefits,
allowances and costs
1. Housing and Utilities Allowance.
2. Commodities and Services Allowance.
3. Special Rental Allowance .
4. Vacation Transportation Allowance.
5. Vacation Travel Expense Allowance.
6. Vacation Excess Baggage Allowance.
7. Education Allowances (Children of Expatriate
Employees).
8. Hypothetical U.S. Tax Offset (which results in a
reduction of the chargeable percentage).
9. Storage of Personal Effects.
10. Housing Refurbishment Expense,
11. Property Management Service Fees.
12. Recreation Allowance.
13. Retirement Rian.
14. Group Life insurance.
15. Group Medical Insurance.
16. Sickness and Disability.
17. Vacation Plans Paid (excluding Allowable Vacation
Travel Expenses).
18. Savings Plan.
19. Educational Assistance'.
20. Military Service Allowance.
21. F.I.C.A.
22. Workman's Compensation.
23. Federal and State Unemployment Insurance.
24. Personnel Transfer Expense.
25. National Insurance.
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84
26. Any other Costs, Allowances and Benefits of a like
nature as established in CONTRACTOR'S
International Policies.
The percentages outlined above shall be reviewed at intervals
of three (3) years from the Effective Date and at such time
1 CONTRACTOR and EGPC will agree on new percentages to be
used under this paragraph.
Revisions of the percentages will take into consideration variances
in costs and changes in CONTRACTOR'S international policies which
change or exclude any of the above allowances and benefits.
The revised percentages will reflect as nearly as possible
CONTRACTOR’S actual costs of all its established allowances and
benefits and of personnel transfers.
(3) For expatriate employees temporarily assigned to Egypt all
allowances, costs of established plans and all travel relocation
costs for such expatriates as paid in accordance with
j CONTRACTOR'S international policies. Such costs shall not
include any administrative overhead other than what is
mentioned in Article 11 (k) (2) of this Annex.
(4) Costs of expenditure or contributions made pursuant to law or
assessment imposed by Governmental authority which are
applicable to labor cost of salaries and wages as provided
under Article II (b) (1), Article II (b) (2), Article II (i), Article il
(k) (I) and Article II (k) (3) of this Annex.
(c) Benefits, allowances and related costs of national employees
bonuses, overtime, customary allowances and benefits on a
basis similar to that prevailing for oil companies operating in the
A.R.E., all as chargeable under Article il (b) (1), Article II (l),
Article II (k) (1) and Article If (k) (3) of this Annex. Severance
pay will be charged at a fixed rate applied to payrolls which will
equal an amount equivalent to the maximum liability for
severance payment as required under the A.R.E. Labor Law.
85
(d) Material
Materia^ equipment and supplies purchased or furnished as such
by CON i RACTOR or Operating Company.
(1) Purchases:
Material, equipment and supplies purchased shall be at the
price, paid by CONTRACTOR or Operating Company plus any
related cost and after deduction of all discounts actually
received.
(2) Material Furnished by CONTRACTOR:
Material required for operations shall be purchased directly
whenever practicable, except that CONTRACTOR may furnish
such material from CONTRACTOR'S or CONTRACTOR'S
Affiliated Companies stocks outside the A.R.E. under the
following conditions:
1. New Material (Condition "A")
New Material transferred from CONTRACTOR'S or
CONTRACTOR'S Affiliated Companies warehouse
or other properties shaii be priced at cost, provided
that the cost of material supplied is not higher than
international prices for material of similar quality
supplied on similar terms, prevailing at the-time such
material was supplied.
2. Used Materia! (Conditions "B" and "C”)
a) Material which is in sound and serviceable condition
and is suitable for reuse without reconditioning shall
be classed as Condition "B" and priced at seventy -
five percent (75%) of the price of new material.
b) Material which cannot be classified as Condition ”B"
but which is serviceable for original function but
Tv
86
I
substantially not suitable for reconditioning, shall
be classed as Condition "C" and priced at fifty
percent (50%) of the price of new material,
! c) Material which cannot be classified as Condition "S'1
or ■ Condition "C" shall be priced at a value
commensurate with its use.
d)Tanks, buildings and other equipment involving
erection costs shall be charged at applicable
percentage of knocked - down new price.
(3) Warranty of Materials Furnished by CONTRACTOR
( CONTRACTOR does not warrant the material furnished beyond or
i
!
i back of the dealer’s or manufacturer’s guaranty; and in case of
f defective material, credit shall not be recorded until adjustment has
been received by CONTRACTOR from manufacturers or their
agents.
(e) Transportation and Employee Relocation Costs:
(1) Transportation of equipment, materials and supplies necessary
for the conduct of CONTRACTOR'S or Operating Company’s
activities.
(2) Business travel and transportation expenses to the extent
covered by established policies of CONTRACTOR or with
regard to expatriate and national employees, as incurred and
paid by, or for, employees in the conduct of CONTRACTOR'S or
Operating Company's business.
(3) Employees transportation and relocation costs for national
employees to the extent covered by established policies.
(f) Services:
(1) Outside services. The costs of contracts for consultants,
87
(2) Cost of services performed by EGPC.or by CONTRACTOR, or
their Affiliated Companies in facilities inside or outside, the
A.R.E. Regular, recurring, routine services, such as interpreting
magnetic tapes and/or other analyses, shall be performed and
charged by EGPC and/or CONTRACTOR or their Affiliated
Companies at an agreed contracted price. Major projects
involving engineering and design services shall be performed
by EGPC and/or CONTRACTOR or their Affiliated Companies
at a negotiated contract amount.
(3) Use of EGPC's, CONTRACTOR'S or their Affiliated Companies'
wholly owned equipment shall be charged at a rental rate
commensurate with the cost of ownership and operation, but
not in excess of competitive rates currently prevailing in the
A.R.E.
(4) CONTRACTOR'S and CONTRACTOR'S Affiliated Companies’
rates shall not include any administrative or overhead costs
other than what is mentioned in Article II (k) (2).
(g) Damages and Losses:
All costs or expenses, necessary to replace or repair damages or
losses incurred by fire, flood, storm, theft, accident or any other
cause not controllable by CONTRACTOR or Operating Company
through the exercise of reasonable diligence. CONTRACTOR or
Operating Company ' shall furnish EGPC and CONTRACTOR
written notice of damages or losses incurred in excess of ten
thousand ($10,000) U.S. Dollars per occurrence, as soon as
practicable after report of the same has been received by
CONTRACTOR or Operating Company.
(h) insurance and Claims:
The cost of any public liability, property damage and other
insurance against liabilities of CONTRACTOR, Operating
83
Company and/or the parties or any of them to their employees
and/or outsiders as may be required by the laws, rules and
regulations of the GOVERNMENT or as the parties may agree
upon. The proceeds of any such insurance or claim collected,
less the actual cost of making a claim, shall be credited against
operations.
If no insurance is carried for a particular risk, in accordance with
good international oil field practices, all related actual
- expenditures incurred and paid by CONTRACTOR or Operating
Company in settlement of any and all losses, claims, damages,
judgments and any other expenses, including legal services.
(i) Indirect Expenses:
Camp overhead and facilities such as shore base, warehouses,
water systems, road systems, salaries and expenses of field
supervisory personnel, field clerks, assistants, and other general
employees indirectly serving the Area.
I
(j) Legal Expenses:
Ail costs and expenses of litigation, or legal services otherwise
necessary or expedient for the protection of the Area, including
attorney's fees and expenses as hereinafter provided, together
with all judgments obtained against the parties or any of them on
account of the operations under the Agreement, and actual
expenses incurred by any party or parties hereto in securing
evidence for the purpose of defending against any action or
claim prosecuted or urged against the operations or the
subject matter of the Agreement. In the event actions or claims
affecting the interests hereunder shall be handled by the legal
staff of one or more of the parties hereto, a charge
commensurate with cost of providing and furnishing such
services may be made to operations.
(k) Administrative Overhead and General Expenses:
(1) While CONTRACTOR is conducting Exploration operations,
4 />
89
the cost of staffing and maintaining CONTRACTOR'S head office
in the A.R.E. and/or other offices established in the A.R.E. as
appropriate other than field offices which will be charged as
provided in Article 11 (i), and excepting salaries of empioyees of
CONTRACTOR who are temporarily assigned to and directly
serving on the Area, which will be charged as provided in Article
i! (b) of this Annex.
(2) CONTRACTOR'S administrative overhead outside the A.R.E.
applicable to Exploration operations in the A.R.E. shall be
charged each month at the rate of five percent (5%) of total
Exploration expenditures, provided that no administrative
overhead of CONTRACTOR outside the A.R.E. applicable to
A.R.E. Exploration operations will be charged for Exploration
operations conducted by Operating Company. No other direct
charges as such for CONTRACTOR'S administrative overhead
outside the A.R.E. will be applied against the Exploration
obligations. Examples of the type of costs CONTRACTOR is
incurring and charging hereunder due to activities under this
. Agreement and covered by said percentage are:
1. Executive - Time of executive officers.
2. Treasury - Financial and exchange problems.
3. Purchasing - Procuring materials, equipment and supplies.
4. Exploration and Production-Directing, advising and
, controlling the entire project
5. Other departments such as legal, comptroller and
engineering which contribute time, knowledge and
experience to the operations.
The foregoing does not preclude charging for direct service under
Article l! (f) (2) of this Annex.
90
(3) While Operating Company is conducting operations, Operating
Company's personnel engaged in genera! clerical and office
work, supervisors and officers whose time is generally spent in
the main office and not the field, and ail employees generally
considered as general and administrative and not charged to
other types of expense will be charged to operations. Such
expenses shall be allocated each month between Exploration
and Development operations according to sound and practicable
accounting methods.
(l) Taxes:
AH taxes, duties or levies paid in the A.R.E. by CONTRACTOR
or Operating Company with respect to this Agreement other
than those covered by Article III (g) (1) of the Agreement
(m) Continuing CONTRACTOR Costs:
Costs of CONTRACTOR activities required under the Agreement
and incurred exclusively in the A.R.E. after Operating Company
is formed. No sales expenses incurred outside or inside the
A.R.E. may be recovered as a cost.
(n) Other Expenditures:
Any costs, expenses or expenditures, other than those which
are covered and dealt with by the foregoing provisions of this
Article II, incurred by CONTRACTOR or Operating Company
under approved Work Programs and Budgets.
91
ARTICLE III
INVENTORIES
(3) Periodic inventories, Notice and Representation:
At reasonable intervals as agreed upon by EGPC and
CONTRACTOR inventories shall be taken by Operating
Company of the operations material's, which shall include all
such materials, physical assets and construction projects.
Written notice of intention to take inventory shall be given by
Operating Company to EGPC and CONTRACTOR at least thirty
(30) days before any inventory is to begin so that EGPC and
CONTRACTOR may be represented when any inventory is
taken. Failure of EGPC and/or CONTRACTOR to be
represented at an inventory shall bind them to accept the
inventory taken by Operating Company, who shall in that event
furnish the party not represented with a copy thereof.
Reconciliation and Adjustment of Inventories:
Reconciliation of inventory shall be made by CONTRACTOR and
EGPC, and a list of overages and shortages shall be jointly
determined by Operating Company and CONTRACTOR and
EGPC, and the inventory adjusted by Operating Company.
ARTICLE IV
COST RECOVERY
Statements of Recovery of Costs and of Cost Recovery
Petroleum: CONTRACTOR shall, pursuant to Article VII of the
Agreement, render to EGPC as promptly as practicable but not
later than fifteen (15) days after receipt from Operating Company
of the Statements for Development and Exploration Activity for
the calendar quarter a Statement for that quarter shnwinn-
92
1- Recoverable costs carried forward from the previous quarter,
if any.
2. Recoverable costs incurred and paid during the quarter.
3. Total recoverable costs for the quarter (1) + (2).
4. Value of Cost Recovery Petroleum taken and separately
disposed of by CONTRACTOR for the quarter.
5. Amount of costs recovered for the quarter.
6. Amount of recoverable costs carried into the succeeding
quarter, if any.
7. Excess, if any, of the value of Cost Recovery Petroleum
taken and separately disposed of by CONTRACTOR over
costs recovered for the quarter.
(b) Payments:
If such Statement shows an amount due EGPC, payment of
that amount shall be made in U.S. Dollars by CONTRACTOR
with the rendition of such Statement. If CONTRACTOR fails to
make any such payment to EGPC on the date when such
payment is due, then CONTRACTOR shall pay interest of two
and one half percent (2.5%) per annum higher than the
London interbank Borrowing Offered Rate (LIBOR) for three
(3) months U.S. Dollars ■ deposits prevailing on the date such
interest is calculated. Such interest payment shall not be
recoverable.
(c) Settlement of Excess Cost Recovery Petroleum:
EGPC has the right to take its entitlement of Excess Cost
Recovery Petroleum under Article VII (a) (2) of the Agreement
in kind during the said quarter. A settlement shall be required
with the rendition of such Statements in case CONTRACTOR
, has taken more than its own entitlement of such Excess Cost
Recovery Petroleum.
(d) Audit Right
EGPC shall have a period of twelve (12) months from receipt of
any Statement under this Article IV in which to audit and raise
93
objection to any such Statement. EGPC and CONTRACTOR
sbail agree on any required adjustments. Supporting
documents and accounts will be available to EGPC during said
twelve (12) month period.
ARTICLE V
CONTROL AND MAJOR ACCOUNTS
(a) Exploration Obligation Control Accounts:
CONTRACTOR will establish an Exploration Obligation Control
Account and an offsetting contra account to control therein the
total amount of Exploration expenditures reported on
Statements of activity prepared per Article l (b) (1) of this Annex,
less any reductions agreed to by EGPC and CONTRACTOR
following written exceptions taken by a non-operator pursuant to
Article l (c) (1) of this Annex, in order to determine when
minimum Exploration obligations have been met.
(b) Cost Recovery Control Account:
CONTRACTOR will establish a Cost Recovery Control Account
and an off-setting contra account to control therein the amount
of cost remaining to be recovered, if any, the amount of cost
recovered and the value of Excess Cost Recovery Petroleum, if
any.
(c) ' Major Accounts:
For the purpose of classifying costs, expenses and expenditures
for Cost Recovery as well as for the purpose of establishing when
the minimum Exploration obligations have been met, costs,
expenses and expenditures shall be recorded in major accounts
including the following:
Exploration Expenditures;
Development Expenditures other than Operating
Expenses;
94
Operating Expenses;
Necessary sub-accounts shall be used.
Revenue accounts shall be maintained by CONTRACTOR to
the extent necessary for the control of recovery of costs and
the treatment of Cost Recovery Petroleum.
ARTICLE VI
TAX IMPLEMENTATION PROVISIONS
It is understood that CONTRACTOR shall be subject to
Egyptian income Tax Laws except as otherwise provided in the
Agreement, that any A.R.E. Income Taxes paid by EGPC on
CONTRACTOR’S behalf constitute additional income to
CONTRACTOR, and this additional income is also subject to A.R.E.
income tax, that is "grossed up".
CONTRACTOR'S annual income, as determined in Article HI (g) (2) of
this Agreement, less the amount equal to CONTRACTOR'S grossed-
up Egyptian income tax liability, shall be CONTRACTOR'S
"Provisional Income".
The "gross-up value" is an amount added to Provisional Income to
give "Taxable Income", such that the grossed-up value is equivalent
to the A.R.E. Income Taxes.
THEREFORE:
Taxable Income = Provisional Income plus Grossed-up Value
and
Grossed-up Value = A.R.E. income Tax on Taxable income.
If the "A.R.E. income Tax rate", which means the effective or
composite tax rate due to the various A.R.E. taxes levied on
■.Vnccme c- profits, is constant and not dependent on the level of
Income, then:
Grossed-up Value = A.R.E. income tax rate TIMES Taxable income.
Combining the first and last equations above
Grossed-up Va!ue= Provisional income X Tax Rate
1 - Tax Rate
where the tax rate is expressed as a decimal.
The above computations are illustrated by the following
numerical example. Assuming that the Provisional Income is $10
and the A.R.E. income Tax rate is forty percent (40%), then the
Grossed-up Value is equal to:
$ 10X0.4 = $ 6.67
1 - 0.4
Therefore:
Provisional income $10.00
Plus Grossed-up Value 6.67
Taxable income $16.67
Less: A.R.E. income Taxes at 40% 6.67
CONTRACTOR'S Income after taxes $ 10.00
4
96
ANNEX " F i ---<■
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