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Northam Spirit Resources
TABLE OF CONTENTS
Article
Definitions
II
Grant of Rights to the Contractor
III
Tenn
IV
Relinquishment
V
General Obligations of the Contractor
VI
Minimum Wor1< and Expenditure Obligations
VII
Obligations of the Govemment
VIII
Royalty/Production Payment
IX
Recovery of Petroleum Operations Expenditures; Production Sharing
X
Valuation and Measurement of Petroleum
XI
Marketing, Royalty in Kind and Domestic Requirements
XII
Payment Procedure
XIII
Surface Rentals
XIV
Natural Gas
XV
Taxes
XVI
Exemptions from Custom Duties
XVII
Exchange and Currency Controls
XVIII
Title to Equipment
XIX
Govemment Participation
XX
Training and Employment
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XXI
Purchases in Belize
XXII
Unitization
XXIII
Danger to Persons, Property or Environment
XXIV
Arbitration
XXV
Tennination
XXVI
Books, Accounts and Audits, Records, Reports and Inspections
XXVII
Insurance and Indemnification
XXVIII
Assignment
XXIX
Law of the Agreement
XXX
Force Majeure
XXXI
Entire Agreement and Amendments
XXXII
Waiver
XXXIII
Confidentially
XXXIV
Notices
Exhibit A
Description of contract area
Exhibit B
Map of contract area
Exhibit C
Bank Guarantee
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PRODUCTION SHARING AGREEMENT
THIS AGREEMENT, made and entered into this 2&.1/-.. day of March, 2010, by and
between the GOVERNMENT OF BELIZE, (hereinafter referred to as "he Govemment")
acting through the Minister of Natural Resources and the Environment and Northem
Spirit Resources, Inc. a corporation duly organized and existing under the laws of
Canada with registered address at #200 604-1" Street SW Calgary, Alberta, Canada,
T2PKM7 (hereinafter referred to as "the Contracto().
WHEREAS, the entire property in, and control over all petroleum resources in or
under the territory of Belize is vested in the Govemment on behalf of Belize,
WHEREAS, no petroleum operations shall be conducted in Belize by any person
other than the Government unless such person has entered into a contract in
accordance with the Petroleum Act (No.8 of 1991),
WHEREAS, the Govemment wishes to promote the exploration for and
production of the petroleum resources in and throughout the contract area, and the
Contractor desires to join and assist the Government in accelerating the exploration for
and production of the petroleum resources within the contract area,
AND WHEREAS, the Contractor represents that it has the financial resources,
technical competence and professional skills necessary to carry out the petroleum
operations hereinafter described.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
1.1
In this Agreement, the following terms shall have the following meanings:
1.1.1 "affiliated company" shall mean any entny directly or indirectly effectively
controlling, or effectively controlled by, or under direct or indirect effective
common control of, a specified entity. For the purposes of this definition,
"control", when used with respect to any specified entity, means the power to
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direct, administer and dictate policies of such entity (it being understood and
agreed that it is not necessary to own directly or indirectly fifty percent (50%) or
more of such entity's voting securities to have effective control over such entity,
but ownership, direct or indirect, of fifty percent (50%) Or more of such entity's
voting securities shall automatically indicate effective control), and the terms
"controlling" and "controlled" have meanings corresponding to the foregoing;
1.1.2 "appraisal well" shall mean a well drilled within the contract area, following a
discovery, for the purpose of delineating the petroleum reservoir(s) to which the
discovery relates in terms of thickness and lateral extent and estimating the
quantity of recoverable petroleum therein;
1.1.3 "barrel" shall mean a quantity or unit of crude oil equal to 158.9874 liters (forty
two (42) United States gallons) at a temperature of sixty (60) degrees Fahrenhell
(15.56 degrees Centigrade) under one atmosphere of pressure;
1.1.4 "calendar year" shall mean a period of twelve (12) consecutive months, according
to the Gregorian Calendar, starting with the 1st of January and ending with the
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31 of December;
1.1.5 "calendar month" or "month" shall mean any of the twelve (12) months of the
calendar year;
1.1.6 "commercial discovery" means a discovery of petroleum which can be exploited
commercially in accordance with accepted practices in the international
petroleum industry;
1.1.7 "continental shelf' shall mean the part of the seabed and subsoil of the
submarine areas adjacent to the coast of Belize, but outside the territorial waters,
over which Belize is entitled by international law to exercise sovereign rights for
the purposes of exploring and exploiting lis natural resources;
1.1.8 "contract area" means a geographical area which is covered by the contract; and
includes the whole of, or such part or parts of, the original area awarded to a
Contractor which shall remain at the disposal of such Contractor from time to time
pursuant to the terms of the contract;
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1.1.9 "contract yea~' shall mean a period of twelve (12) consecutive calendar months,
counted from the first day of the first calendar month following the effective date
of this Agreement or from the anniversary of such first day of such month;
1.1.10 "crude oil" shall mean petroleum which is in liquid state at the well head or gas/oil
separator or which is extracted from natural gas, including distillate and
condensate;
1.1.11 "day" shall mean a calendar day unless otherwise provided herein;
1.1.12 "delivery point" shall mean the FOB point Of export in Belize or such other point
which may be agreed between the Government and the Contractor;
1.1.13 "development and production operations" means operations for or in connection
with the production of petroleum;
1.1.14 "development and production period" shall mean the period referred to in
paragraph 3.4;
1.1.15 "discovery" in relation to petroleum, shall mean petroleum not previously known
to have existed, recovered at the surface in a flow measurable by conventional
petroleum industry testing methods;
1.1.16 "effective date" shall mean the date first above written;
1.1.17 "exploration expenditures" shall mean expenditures made in conducting
exploration operations hereunder, but excluding expenditures made within the
area of a field aller a commercial discovery has been declared.
Exploration
expenditures shall be detennined in accordance with the Income and Business
Tax Act (as amended and in effect from time to time);
1.1.18 "exploration operations" means operations for or in connection with exploration
for petroleum;
1.1.19 "exploration period" shall mean the period referred to in paragraph 3.1;
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1.1.20 "exploration well" shall mean a well other than an appraisal well drilled in the
course of exploration operations;
1.1.21 "field" shall mean an area, as designated by agreement between the Government
and the Contractor, where a commercial discovery of crude oil or natural gas has
been declared;
1.1.22 "gross revenues" shall mean the sum of all proceeds of sales and the monetary
equivalent of the value of other dispositions of petroleum produced and saved
and not used in petroleum operations and any other proceeds derived from
petroleum operations;
1.1.23 "income tax" shall mean that tax imposed on net income pursuant to the Income
and Business Tax Act (as amended and in effect from lime to time);
1.1.24 "initial commercial production" shall mean the date on which the first regular
shipment of crude oil or natural gas, or both, is made from a fieid under a
program of regular production and sale;
1.1.25 "Inspector" shall mean the Inspector of Petroleum appointed under section 4 of
the Petroleum Act (No.8 of 1991 );
1.1.26 ~maximum efficient rate" shall mean the maximum rate of production of crude oil
in a field, without excessive rate of decline of production or excessive loss of
reservoir pressure, and in accordance with generally accepted practices in the
international petroleum industry and the provisions of paragraph 6.3;
1.1.27 "Minister" shall mean the Minister responsible for petroleum affairs in the
Govemment of Belize;
1.1.28 "natural gas" shall mean all petroleum which at atmospheric conditions of
temperature and pressure is in a gaseous state, and includes wet mineral gas,
dry mineral gas, wet gas and residue gas remaining after the extraction,
processing or separation of liquid petroleum from wet gas, as well as non
petroleum gas or gases produced in association with liquid or gaseous
petroleum;
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1.1.29 "net petroleum" shall mean the value of the total quantity of petroleum produced
and saved in a given calendar year and not used in petroleum operations after
deduction of the value of the royalties made in such calendar year and after
recovery of petroleum operations expenditures pursuant to paragraph 9.1;
1.1.30 "net taxable income" shall mean net taxable income as determined in accordance
with the provisions of the Income and Business Tax Act (as amended and in
effect from time to time);
1.1.31 "petroleum" means all natural organic substances composed of carbon and
hydrogen; and includes crude oil and natural gas, and all other mineral
sUbstances, products, by-products and derivatives that are found in conjunction
with petroleum;
1.1.32 "Petroleum Act" shall mean the Petroleum Act (No.8 of 1991) and any subsidiary
legislation made thereunder;
1.1.33 "petroleum operations" means the operations related to the exploration,
development, extraction, production, field separation, transportation, storage,
sale or disposal of petroleum; but does not include any transportation Or other
operations (i) beyond the point of export; or (ii) in the case of petroleum which is
processed within Belize, beyond the point of entry into a refinery or liquefaction or
natural gas treatment plant;
1.1.34 "petroleum operations expenditures" shall mean expenditures incurred in
conducting petroleum operations hereunder, determined in accordance with the
Income and Business Tax Act (as amended and in effect from time to time);
1.1.35 "royalty" shall mean the royalty or production payment described in Article VIII;
1.1.36 "quarter" shall mean a period of three (3) consecutive months commencing with
the first day of January, April, July and OctOber, respectively, of each calendar
year;
1.1.37 "well" means any opening in the ground made or being made by drilling or boring,
or in any other manner, in connection with exploration operations or development
and production operations, other than a seismic hole;
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1.1.38 ''work programme" shall mean an itemized statement of the petroleum operations
to be camed out in the contract area in each calendar year, or to be camed out
for specific activities such as drilling of exploration wells and appraisal wells and
development programmes, all in a form acceptable to the Govemment;
1.1.39 "wor!<. programme budget" shall mean the estimate of the costs of all items
included in the corresponding wor!<. programme, including both capital and
operating budgets, all in a form acceptable to the Government.
ARTICLE II
Grant of Rights to the Contractor
2.1
The Govemment grants to the Contractor, subject to the terms and conditions set
forth in this Agreement, the exclusive right to conduct petroleum operations within
the contract area for the term of this Agreement. Except as provided in
paragraph 11.3, the Contractor shall have the right, during the term of this
Agreement, to freely lift, dispose of and export its share of the petroleum
produced hereunder.
2.2
Title to petroleum to which the Contractor is entitled hereunder shall pass to the
Contractor at the delivery point.
2.3
The Contractor shall, except as expressly otherwise provided in this Agreement,
conduct all petroleum operations hereunder at its sole risk, cost and expense.
The Contractor shall look only to the petroleum to which it is en tilled under this
Agreement to recover such costs and expenses, and such petroleum shall be the
Contractor's sole source of compensation thereunder.
2.4
The Contractor shall be responsible to the Govemment for the execution of all
petroleum operations in accordance with the provisions of this Agreement.
Without prejudice to the Contractor's position as an independent contractor
hereunder, the extent and character of such wor!<. to be done by the Contractor
shall be SUbject to the general supervision, review and approval of the
Government to which the Contractor shall report and be responsible as herein set
forth.
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2.5
The Contractor is authorized to construct pipelines, bridges, ferries, landing
fields, radio, telephone and related communication systems as may be necessary
for petroleum operations but sUbject to the laws in force in Belize from time to
time for the regulation and control of such installations and their construction.
2.6
The Government reserves the right to grant licenses to others to prospect for,
explore for and mine minerals other than petroleum within the contract area, and
further reserves to itself the right to so prospect, explore and mine directly, all
subject to the provisions of paragraph 5.3.
ARTICLE III
Tenn
3.1
The Contractor is authorized to conduct exploration operations during an
exploration period which shall be comprised of (i) an initial exploration period of
two (2) contract years ("Initial Exploration Period"), and (ii) subject to the
conditions hereinafter provided, three (3) successive renewal periods ("First
Renewal Period", "Second Renewal Period" and "Third Renewal Period") of two
(2) years each to the initial exploration period. Such renewal periods shall be
granted to the Contractor upon the Contractor's request delivered to the
Govemment in writing not later than ninely (90) days prior to the expiration of the
then current period, subject to the Contractor having fulfilled its obligations
hereunder for the then current period, including the relinquishment provisions of
Article IV, and having submitted with such application a wor1< programme and
wor1< programme budget for the period of renewal which is consistent with the
undertakings set forth in paragraph 6.1.
3.2
If at the end of the exploration period, no commercial discovery has been made
in any part of the contract area, this Agreement shall automatically tenninate in its
entirely, provided, however, that the Government undertakes to grant an
extension for such period, and for such area as may be necessary, in the opinion
of the Govemment and the Contractor, (i) for the Contractor to complete the
drilling, testing, appraisal or plugging of any well actually being drilled, tested,
appraised or plugged at the end of the exploration period and (ii) for the
Government and the Contractor to determine that a discovery resulting from such
a well is a commercial discovery pursuant to paragraphs under 6.2.
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3.3
If a commercial discovery is made in any portion of the contract area during the
exploration period, the Contractor will commence development and production
operations in that particular portion of the contract area.
3.4
In the event of a commercial discovery, the extent of the area capable of
production of petroleum from the formation or formations so identified shall be
determined in accordance with the provisions of the paragraphs under 6.2 or
Article XIV. The area so determined shall thereupon be converted automatically
into a field, with effect from the date of the declaration of the commercial
discovery. The term of the development and production period for each field
shall extend for twenty-five (25) contract years from the first day of the calendar
year commencing after the date of the declaration of the commercial discovery in
said field. In the event of a new commercial discovery as a result of new
exploratory drilling in formations that underlie and overlie each other in an
eXisting field, such formations shall constitute a single field and the fieid shall be
redefined as necessary to incorporate all underlying and overlying formations, the
term of the development and underlying and overlying formations, and the term
of the development and production period for such redefined field shall extend for
twenty-five (25) contract years from the first day of the first calendar year
commencing after the date of the declaration of the latest commercial discovery
therein.
ARTICLE IV
Relinquishment
4.1
On or before the end of the initial exploration period, the Contractor shall
relinquish twenty-five percent (25%) of the original contract area.
4.2.1 On or before the end of the first renewal period the Contractor shall relinquish an
additional twenty-five percent (25%) of the original contract area.
4.2.2 On or before the end of the second renewal period the Contractor shall relinquish
an additional twenty-five percent (25%) of the originai contract area.
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4.2
At the end of the exploration period, the Contractor shall relinquish the remainder
of the original contract area not then converted to a field.
4.3
The size and shape of the portion or portions to be relinquished shall be
determined by the Contractor, provided however, that (a) the Contractor shall
advise the Government at least ninely (90) days in advance of the date of
relinquishment of the description and area of the portion or portions to be
relinquished, (b) the Contractor shall consult with the Government regarding the
shape and size of each individual portion of the areas being relinquished, (c) the
area being relinquished shall not be divided into more than two portions, each of
which shall be comprised of, and be defined by reference to, blocks as described
in Exhibit B, save where no such area or areas can be identified for
relinquishment in accordance with this paragraph without including in such area
or areas in whole or in part a field or area in which a discovery has been made
which the Contractor is not otherwise required to relinquish hereunder, and (d)
each such relinquished individual portion shall be not less than twenty percent
(20%) of the area being relinquished at such time with sides parallel to the
boundaries of the original contract area, to the extent that the boundaries of the
original contract area pennit, and with the longest side not more than three times
as long as the shortest side, and shall in any event be of sufficient size and
convenient shape to enable petroleum operations to be conducted thereon or
thereunder.
4.4
The Contractor shall not be obliged to relinquish, pursuant to paragraphs 4.1 and
4.2, any part of the original contract area which has been converted to a field or
in which a discovery has been made which the Contractor is not otherwise
required to relinquish hereunder.
4.5
Upon at least ninely (90) days written notice to the Government prior to the end
of any contract year, the Contractor shall have the right to relinquish all or any
portion of the contract area effective as of the end of such contract year, subject
to the provisions of paragraph 4.4, and such portion shall then be credited
against that portion of the contract area which the Contractor is next required to
relinquish pursuant to the provisions of paragraphs 4.1 and 4.2.
4.6
No relinquishment made in accordance with this Article IV shall relieve the
Contractor of: (a) its obligations to make payments due as a result of surface
rentals prior to the effective date of any such relinquishment, or (b) the minimum
work and expenditure commitments undertaken pursuant to paragraphs 6.1.1
and 6.1.2.
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4.7
Upon relinquishment of any area, the Contractor shall perform all necessary
clean-up activities in accordance with generally accepted practices in the
international petroleum industry, and shall take all other action necessary to
prevent hazards to human life or third party property.
ARTICLE V
General Obligations of the Contractor
5.1
The Contractor shall be responsible for conducting all petroleum operations
within the contract area diligently, expeditiously and efficiently in accordance with
generally accepted practices in the international petroleum industry and pursuant
to work programmes approved in accordance with paragraph 5.4.
The
Contractor shall ensure that all eqUipment, materials, supplies, plant and
installations used by itself, and its contractors and subcontractors comply with
generally accepted standards in the international petroleum industry and are of
proper construction and kept in optimal working order.
5.2
Except as otherwise provided in this Agreement, the Contractor shall:
(a)
advance all necessary funds and purchase or lease all equipment,
materials and supplies required to be purchased or leased in connection
with petroleum operations;
(b)
furnish all the technical expertise and assistance, including foreign
personnel, required for the conduct of petroleum operations;furnish all
other funds for the performance of petroleum operations as may be
required, including payment to foreign entities that perform services as
contractors or subcontractors to the Contractor;
(c)
appoint a representative and in his absence, a replacement
therefor, with respect to this Agreement, who shall have an office and be
resident in Belize and who shall have full authority to represent the
Contractor for all purposes of this Agreement and whose name shall, on
appointment within ninety (gO) days after the effective date, be made
known to the Government;
(d)
provide acceptable working conditions and living accommodations,
and access to medical attention and nursing care, for all personnel
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employed by it, its contractors and subcontractors in petroleum operations;
and
(e)
5.3
pay social security for all employees as per the Laws of Belize.
If, after the effective date, others are granted licenses within the contract area
authorizing prospecting for, exploration for or mining of any minerals or other
substances other than petroleum, or the Government proceeds with such
prospecting, exploration or mining directly in its own behalf, the Contractor shall
use its best efforts to avoid obstruction or interference with such licensee's or
Govemment's operations within the contract area. The Govemment shall use its
best efforts to ensure that operations of third parties do not obstruct the
Contractor's petroleum operations within the contract area.
5.4.1 At least ninety (90) days prior to the beginning of each calendar year, or at such
other time as is mutually agreed by the parties, the Contractor shall prepare and
submit for approval to the Government an annual work programme and work
programme bUdget of petroleum operations and petroleum operations
expenditures by quarters for the contract area setting forth the petroleum
operations the Contractor proposes to carry out during the ensuing calendar
year. Such annual work programmes and work programme budgets shall comply
with the minimum work and expenditure obligations described in paragraphs 6.1.
Approval by the Government of the proposed annual work programme budget of
petroleum operations and petroleum operation expenditures will not be
unreasonably withheld or delayed. The Government and the Contractor shall
have reached agreement upon an annual work programme and work programme
budget for the period from the effective date until the end of the calendar year in
which the effective date falls or for the ensuing calendar year if the effective date
falls after the 30th day of September.
5.4.2 Should the Govemment wish to propose revisions to the annual work programme
or work programme budget, it shall within thirty (30) days after receipt thereof 50
notify the Contractor specifying in reasonable detail its reasons therefor.
Promptiy thereafter the parties shall meet and endeavor to agree on the revisions
proposed by the Government. If the Contractor and the Government fail to agree
upon any revisions proposed by the Govemment within sixty (60) days of the
receipt of the Contractor's proposals, the points of disagreement shall be
resolved as follows:
(i)
in the case of changes to an annual work programme and work programme
bUdget which relate to exploration operations, such changes shall be
implemented to the extent that they are not inconsistent with the applicable
development work programme and work programme budget adopted
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pursuant to paragraph 6.1 or the general objective of such annual work
programme;
(ii)
in the case of changes to an annual wor1< programme and wor1<
programme budget which relate to the development of a field, such
changes shall be implemented to the extent that they are not inconsistent
with the applicable development wer1< programme and wor1< programme
budget adopted pursuant to paragraph 6.2 or the general objective of such
annual work programme;
(iii)
all other aspects of the annual work programme and wor1< programme
budget to which the Govemment proposes revisions shall be mutually
agreed before such aspects of the annual wor1< programme and wor1<
programme bUdget shall be adopted.
5.4.3 It is recognized by the parties that the details of an annual wor1< programme may
require changes in light of then existing circumstances. In such event, the
Contractor may introduce such changes as may be necessary, following
consultation with the Govemment, but subject to the following:
(i)
in the case of changes to an annual work programme and work programme
budget which relate to exploration operations, such changes may be
implemented to the extent that they are not inconsistent with the
undertakings set forth in paragraph 6.1 or the general objective of such
annual work programme;
(ii)
in the case of changes to an annual wor1< programme and wor1< programme
budget which relate to the development of a fieid, such changes may be
implemented to the extent that they are not inconsistent with the applicable
development work programme and wor1< programme budget adopted
pursuant to paragraph 6.2 or the general objective of such annual wor1<
programme;
(iii) all other changes may be notified in writing to the Govemment and shall be
mutually agreed before they may be implemented.
5.4.4 To the maximum extent practicable, the Contractor shall involve representatives
of the Government in the preparation of the annual work programme and work
programme budget.
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5.4.5 Within thirty (30) days after the end of each quarter, the Contractor shall submit
to the Government a report describing and summarizing petroleum operations
carried out, and petroleum operations expenditures incurred during such quarter.
Such report shall be in a form acceptable to the Government.
5.5.1 The Contractor shall:
I~e
(i)
carry out decommissioning at the end of field
expressly releases it from the obligation;
unless the Government
(ii)
at the time of seeking approval to develop a petroleum field, include
decommissioning proposals as part of its development plan submitted to
the Government;
(iii)
on commencement of production operations, and by such date and in
such manner as may be prescribed by law, establish a decommissioning
fund into which the Contractor shall contribute funds to complete
decommissioning in accordance with the approved decommissioning plan.
5.5.2 Any shortfall in the decommissioning fund to meet the costs of decommissioning
shall not release the Contractor from the obligation to complete decommissioning
at the end of the field I~e in accordance with the approved decommissioning plan.
ft
5,5,3 For purposes of this paragraph, "decommissioning means the measures to be
taken by the Contractor at the cessation of petroleum operations to remove or
otherwise deal with installations, eqUipment, pipelines and other facilities whether
on or off shore, erected or used in connection with the exploration for and
production of petroieum and to rehabilitate land disturbed by the operations.
ARTICLE VI
Minimum Work and Expenditure Obligations
Exploration Period
6.1
The Contractor shall commence petroleum operations hereunder not later than
ninety (90) days after the effective date.
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6.1.1 The amount to be expended by the Contractor in conducting expioration
operations in accordance with approved work programmes during the exploration
period shall not be less than the following as adjusted pursuant to paragraph
6.1.3.
6.1.1.1 Initial Exploration Period:
(a)
First contract year: US$15,000.
(b)
Second contract year: US$20,000.
6.1.1.2 First Renewal Period (if requested by the Contractor pursuant to paragraph 3.1):
First contract year: US$135,000.
(b)
Second contract year: US$1 ,000,000.
6.1.1.3 Second Renewal Period (if requested by the Contractor pursuant to paragraph
3.1 ):
(a)
First contract year: US$420,OOO.
(b)
Second contract year. US$1,000,000.
6.1.1.4 Third Renewal Period (if requested by the Contractor pursuant to paragraph
3.1 ):
(a)
First contract year: US$420,000.
(b)
Second contract year: US$1 ,000,000.
6.1.2 The Contractor undertakes to carry out and comply with the following minimum
work commitments.
6.1.2.1 Initial Exploration Period:
(a)
First contract year:
Conduct collation and review of existing data.
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(b)
Second contract year:
Conduct geological and geophysical studies.
6.'.2.2 First Renewal Period (if requested by the Contractor pursuant to paragraph 3.'):
Acquire, process and interpret '0 kms of 2D seismic and plan first exploration
well.
Drill first exploration well if warranted.
6.'.2.3 Second Renewal Period (if requested by the Contractor pursuant to paragraph
3.' ):
Acquire, process and interpret' 0 kms' of 3D seismic if warranted.
Drill second exploration well if warranted.
6.'.2.4 Third Renewal Period (if requested by the Contractor pursuant to paragraph
3.' ):
Acquire, process and interpret 10 kms 2 of 3D seismic if warranted.
Drill third exploration well if warranted.
6.'.3 If, during any contract year in the exploration period, the Contractor should
expend more than the required minimum annual exploration expenditures, the
Contractor may subtract an amount equal to the excess amount spent from the
required minimum exploration expenditures for the ensuing contract year in the
exploration period. If works carried out in any contract year exceed the minimum
work commitment relating to such contract year as provided in paragraph 6.'.2,
the excesses may, with the Government's prior written consent, count towards
the satisfaction of the minimum work commitments for the ensuing contract year.
Compliance with the required minimum exploration expenditures for a given
contract year shall not relieve the Contractor of its obligation to comply with the
required minimum work commitment, nor shall compliance with the required
minimum work commitment for a given contract year relieve the Contractor of its
obligation to comply with the required minimum exploration expenditures for such
contract year.
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6.1.4
(a)
W~hin ninety (90) days of the effective date and, where this Agreement has
been extended pursuant to paragraph 3.1, on the first day of each extension
period, the Contractor shall provide security by means of a bank guarantee.
in a form set forth in Exhibit C, equal to the total unadjusted minimum
exploration expenditures for the initial exploration period, or, as the case may
be, for the first, second and third renewal periods, as set forth in paragraph
6.1.1. Upon prior confirmation by independent accountants acceptable to
both the Contractor and the Govemment of the exploration expenditures
actually incurred, such security shall be reduced at the end of each contract
year in the exploration period to the extent that the Contractor has spent the
prescribed minimum amounts stipulated in paragraph 6.1.1, provided that the
outstanding balance shall not be less than the required minimum exploration
expenditures for the remaining contract year of the exploration period in
question, as stipulated in paragraph 6.1.1 and as adjusted pursuant to
paragraph 6.1.3.
(b) If, at the expiration of the exploration period, or upon the date of termination
of this Agreement, or upon relinquishment of the entire contract area by the
Contractor pursuant to paragraph 4.6, whichever first occurs, the Contractor
has not expended for exploration operations sums at least equal to the total
minimum exploration expenditures, as adjusted, required hereunder, the
balance of the security corresponding to the unexpended minimum
exploration expenditures, as adjusted, automatically shall be paid to the
Government.
(c) If, at the end of any contract year in the exploration period, the Contractor
has not expended for exploration operations sums at least equal to the
minimum exploration expenditures, as adjusted, required hereunder for such
contract year, a portion of the security corresponding to the unexpended
minimum exploration expenditures, as adjusted, for such contract year
automatically shall be paid to the Government.
Discovery and Development. Period
6.2
The terms and conditions relating to the discovery and development period shall
be as follows.
6.2.1 When in the course of petroleum operations, a discovery of petroleum is made,
the Contractor shall immediately notify the Government in Writing accordingly,
specifying in such notice all pertinent information concerning the discovery.
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Northern Spin'! Resources
6.2.2 If the Contractor determines to conduct a drill--stem or production test, in open
hole or through perforated casing, with regard to the discovery, it shall notify the
Government of the time of such test at least twenty-four (24) hours prior to the
proposed test, and the Government shall have the right to have a representative
present during such test. Not later than ninety (90) days after completion of such
test or tests, the Contractor shall complete the analysis and interpretation of the
data resulting from such test and submit a report to the Government which shall
contain copies of such data and its analysis and interpretation thereof, and which
shall also contain a written notification of whether or not, in the Contractor's
opinion, such discovery is of potential commercial interest. If the Contractor
plugs and abandons the well which encountered such discovery without
conducting a drill stem or production test, or fails to conduct a drill stem or
production test with respect to such discovery within one hundred and eighty
(180) days from the date on which such discovery has been made, It shall be
deemed to have notified the Govemment that, in the Contractor's opinion, such
discovery is not of potential commercial interest.
6.2.3 If, pursuant to paragraph 6.2.2, the Contractor notifies, or is deemed to have
notified, the Govemment that such discovery is not of potential commercial
interest, the Govemment shall have the option, exercisable by notice in Writing to
the Contractor, to require the Contractor to relinquish the area corresponding to
such discovery and forfeit any rights relating to such discovery and any
production therefrom. The area subject to relinquishment shall not exceed the
prospective producing area determined by taking into account the area of the
structural closure of the prospective horizon and other relevant technical factors.
Any such relinquishment by the Contractor of the area relating to such discovery
before the end of the exploration period shall be carried out in accordance with
paragraphs 4.4, 4.6 and 4.8.
6.2.4 If, pursuant to paragraph 6.2.2, the Contractor notifies the Government that the
discovery is of potential commercial interest, the Contractor shall promptly
prepare and submit for approval to the Government a work programme and work
programme budget for the appraisal of such discovery. Such appraisal work
programme and work programme budget shall include a complete programme of
appraisal operations necessary to determine whether such discovery is a
commercial discovery.
6.2.5
W~hin frfleen (15) days after the submission of the appraisal work programme
and work programme budget pursuant to paragraph 6.2.4, the Contractor and the
Government shall meet with a view to adopting such work programme and work
programme budget or mutually agreeing upon amendments or additions thereto.
Failing agreement between the Contractor and the Government as to such work
programme and work programme budget at such meeting, or within fifteen (15)
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Northern Spirit Resoorces
days thereafter, the original appraisal work programme and work programme
budget submitted by the Contractor, revised in accordance with any agreed
amendments or additions thereto, shall be deemed adopted, and the Contractor
shall immediately commence implementation thereof. On adoption of the
appraisal work programme and wor1< programme budget, the annual wor1<
programme and work programme budget adopted pursuant to paragraph 5.6
shall be revised accordingly.
6.2.6 If, pursuant to paragraph 6.2.2, the Contractor has notified the Government that
the discovery is of potential commercial interest, it shall, unless otherwise agreed:
(a) in respect of a discovery of crude oil, advise the Government by notice in
writing, whether or not in its opinion, the discovery is commercial within a
period of eighteen (18) months from the date on which the Contractor notified
the Govemment that said discovery was of potential commercial interest:
Provided that in respect of a discovery of crude oil in water depths of more
than 600 feet, such period may be increased by mutual agreement from
eighteen (18) months to twenty-four (24) months.
(b) in respect of a discovery of non-associated natural gas, advise the
Government by notice in writing, whether or not in its opinion, the discovery is
commercial, within such period as may be stipulated in an Agreement made
pursuant to Article XIV with respect to such discovery or, in the absence of
such Agreement, within thirty-six (36) months from the date on which the
Contractor notified the Government that said discovery was of potential
commercial interest.
6.2.7 If the Contractor notifies the Government that the discovery is not commercial, or
fails to notify the Government that the discovery is commercial within the periods
prescribed in paragraphs 6.2.6 (a) and (b), the Government shall have the option,
exercisable by notice in writing to the Contractor, to reqUire the Contractor to
relinquish the area corresponding to such discovery and forfeit any rights relating
to such discovery and any production therefrom. The area subject to
relinquishment shall not exceed the prospective producing area detennined by
taking into account the area of structural closure of the prospective horizon and
other relevant technical factors. Any such relinquishment by the Contractor of the
area relating to such discovery before the end of the exploration period shall be
carried out in accordance with paragraphs 4.4, 4.6 and 4.8.
6.2.8
(a) The notice submitted to the Government by the Contractor pursuant to
paragraph 6.2.6 (a) and (b) shall be accompanied by a report on the
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NOflhem Spirll Resources
discovery setting forth all relevant technical and economic data, including, but
not limited to, geological and geophysical infonmatlon, areas, thicknesses and
extent of the productive strata, petrophysical properties of the reservoir
fonmations, PVT data, the reservoi(s productivity indices for the wells tested
at various rates of flow, permeability and porosity of the reservoir formations,
the relevant characteristics and qualities of the petroleum discovered,
additional geological data and evaluations of the reservoir, crude oil and
natural gas reserves estimates and any other relevant characteristics and
properties of the reservoirs and fluids contained therein, as well as all
evaluations, interpretations and analyses of such data and feasibility studies
relating to the discovery prepared by the Contractor, its contractors,
subcontractors and affiliated companies.
(b) In addition, if the Contractor believes that the discovery is commercial, he
shall submit to the Government with the report described in paragraph 6.2.8
(a) a work programme and work programme budget for the development of
such discovery. Such development work programme and work programme
budget shall set out detailed proposals, including cost estimates, drilling
schedules, number of wells and well spacing, production forecasts and a
timing schedule, in accordance with generally accepted engineering practices
and economics of the intemational petroleum industry, for the establishment
and operation of all the facilities, installations and services required for the
production, processing, storage and transportation of petroleum from the
area in which the discovery is located and any other activities incidental
thereto. Proposals relating to production procedures shall ensure that the
area does not suffer an excessive rate of decline of production or an
excessive loss of reservoir pressure. Such development work programme
and work programme budget shall also contain particulars of feasible
altematives, if any, considered by the Contractor for the development and
exploitation of the discovery and economic feasibility studies carried out by or
for the Contractor with respect to the discovery taking into account the
location, meteorological conditions, cost estimates, the price of petroleum
and any other relevant data and evaluations thereof. The development work
programme and work programme bUdget shall also be accompanied by an
environmental impact assessment study as provided under Article 23.
6.2.9 The Govemment shall examine the report and any work programme and work
programme budget submitted pursuant to paragraph 6.2.8 and may reqUire the
Contractor to provide, within a specified period of time, such additional
information and data as it may reasonably reqUire to evaluate such report, work
programme and work programme budget. As soon as possible after the
submission of the report and any work programme and work programme budget
pursuant to paragraph 6.2.8 or receipt of such additional infonmation and data,
the Govemment and the Contractor shall meet (i) to detenmine at such meeting,
or at such later date as may be mutually agreed, the boundaries of the area to be
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Norlhem Spirit Resources
delineated as a field, and (ii) to adopt a work programme and work programme
budget for the development of the discovery.
6.2.10
(a) At the meeting described in paragraph 6.2.9, the Contractor shall carefully
consider and take into account the proposals of the Government and the
reasons therefor and shall attempt in good faith to reach an agreement with
the Government on the points at issue paying particular consideration to the
objective of achieving initial commercial production expeditiously taking into
account generally accepted engineering practices and economics of the
international petroleum industry.
(b) If the Government and the Contractor agree upon the boundaries of the area
to be delineated as a field and upon the adoption of a work programme and
work programme budget for the development of the discovery, the date upon
which such agreement is reached, as reflected in writing signed by both
parties, shall be the date of the declaration of the commercial discovery for all
purposes of this Contract. The area so determined shall, on such date, be
automatically converted into a field. and the Contractor shall, as soon as is
practicable, commence development and production operations in the field
according to the adopted work programme and work programme budget.
Upon adoption of the development work programme and work programme
budget, the annual work programme and work programme budget adopted
pursuant to paragraph 5.4 shall be revised accordingly.
(c) In the event that no agreement is reached between the Government and the
Contractor within one hundred and eighty (180) days from the date of
submission of the report and work programme and work programme bUdget
pursuant to paragraph 6.2.8 as to (i) matters relating to the adoption of the
work programme and work programme budget for the development of the
discovery or (ii) the boundaries of the area to be delineated as a field, the
Government or the Contractor may refer the matter for detennination by a
Sole Expert. The determination by a Sole Expert in accordance with this
paragraph shall be final and the work programme and work programme
budget for the development of the discovery and the boundaries of the area
to be delineated as a field, as the case may be, shall be deemed to have
been adopted and agreed as determined, except that the Contractor may,
wrthin six1y (60) days of receipt of such determination, notify the Government
that the discovery to which such work programme and work programme
budget and area so determined is no longer considered to be commercial. If
the Contractor so notifies the Government, the provisions of paragraph 6.2.7
shall apply. Failing such notification, the date after six1y (60) days of the
receipt of such determination shall be deemed to be the date of the
declaration of the commercial discovery for all purposes of this Contract. The
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area so determined shall, on such date, be automatically converted into a
field and the Contractor shall, as soon as is practicable, commence
development and production operations in the field according to the work
programme and work programme budget so adopted. Upon adoption of the
development work programme and work programme budget as aforesaid, the
annual work programme and work programme budget adopted pursuant to
paragraph 5.4 shall be revised accordingly.
For purposes of this Article, "Sale Expert" means a person appointed by
Agreement between the Contractor and the Government to resolve a difference
referred to in paragraph 6.2.10 (C) of this Contract, and, in the event that there is
failure to agree on the person to be so appointed, a person appointed by the
Secretary-General of lhe Permanent Court of Arbitration at the request of erther
Party, who shall be an independent and impartial person of international slanding
with relevant qualifications and experience and shall not, by virtue of nationality,
personal connection or commercial interests have a conflict between his own
interest and his duty as a sale expert.
6.2.11 Notwithstanding any other provision of this Agreement, in the event that initial
commercial production has not occurred within three (3) years, in the case of a
crude oil discovery on land or in water depths of iess than six hundred (600) feet,
or five (5) years, in the case of non-associated natural gas discovery, or such
longer period as the Government may have agreed in the development work
programme and work programme budget, from the date of declaration of
commercial discovery for a field, the Contractor shall relinquish the area
comprising such field and shall forfeit any rights relating to such field and any
production therefrom.
Production Period
6.3
The terms and conditions of the production period shall be as set out below.
6.3.1 The Contractor shall produce crude oil from the contract area at a rate below the
maximum efficient rate. In conjunction with the adoption of the development
work programme and work programme budget pursuant to paragraph 6.2.10 the
Contractor and the Govemment shall establish at that time the maximum efficient
rate of production for crude oil and the production rate for non-associated natural
gas. Such rates shall be reviewed annually at the time of submission of the
annual work programme by the Contractor pursuant to paragraph 5.4 and
revised, if necessary, by mutual agreement. In the case of non-associated natural
gas, the production rate shall not be required by the Govemmentto be less than
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that required to satisfy any contracts then in existence for the sale of such natural
gas.
6.3.2 Not less than ninety (gO) days prior to the beginning of each calendar year
following initial commercial production, the Contractor shall prepare and furnish
to the Government for approval a forecast statement setting forth by quarters the
total quantity of crude oil (by quality, grade and gravity) and natural gas that the
Contractor estimates can be produced, saved and transported hereunder during
such calendar year in accordance with generally accepted practices in the
international petroleum industry. The Contractor shall endeavor to produce in
each calendar year the forecast quantity. The crude oil shall be run to storage
tanks, constructed, maintained and operated by the Contractor in accordance
with Government Regulations, in which such crude oil shall be metered or
otherwise measured for all purposes required by this Agreement.
ARTICLE VII
Obligations of the Government
7.1
The Government shall:
7.1.1 assist the Contractor in the execution of work programmes by supplying or
otherwise making available all geological, geophysical, geographical, drilling,
well, production and other information, including well location maps, relating to
the contract area in the possession of the Government or coming into the
possession of the Government;
7.1.2 provide the right of ingress to and egress from the contract area and any facilities
used in petroleum operations, and, upon application in the prescribed manner, all
necessary visas, work permits, import licenses and rights of way and easements
as may be required by the Contractor and its contractors and subcontractors and
which may be available from resources within the Government's control.
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ARTICLE VIII
Royalty/Production Payment
8.1
The Contractor shall pay to the Government a royalty equal to (i) ten percent
(10%) of the value of the annual gross production of crude oii produced and
saved in each calendar year and not used or consumed in petroleum operations
and (ii) seven and a half percent (7.5%) of the value of the annual gross
production of natural gas produced, saved and sold in each calendar year and
not used or consumed in the conduct of petroleum operations.
8.2
The royalty with respect to crude oil shall be payable in cash andlor kind at the
option of the Government. The royalty with respect to natural gas shall always
be paid in cash.
8.3
For the purposes of determining the amount of the royalty due, crude oil and
natural gas shall be valued in accordance with paragraphs 10.1,10.2 and 14.4,
less such costs as the Government may reasonably allow for handling and
transportation from the wellhead to the delivery point as described in such
paragraphs, and the royally shall be payable quarterly within thirty (30) days of
the end of each quarter on the basis of crude oil production or natural gas sales
which occur in each such quarter. Payment shall be accompanied by a
certificate from the Contractor selling forth in detail the basis for computation of
the royalty. Such certificate shall be in a form acceptable to the Government.
8.4
If the Government elects to take the Royalty with respect to Crude Oil, or any part
thereof, in kind, it shall notify the Contractor in accordance with the provisions of
paragraph 11.2.
ARTICLE IX
Recovery of Petroleum Operations Expenditures: Production Sharing
9.1
In each calendar year, after discharging its obligation for the royalty payment due
to the Government pursuant to Article VIII, the Contractor shall be entitled to
recover all petroleum operations expenditures incurred hereunder, out of sixty
five percent (65%) of the petroleum produced and saved in such calendar year
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Norlhern Spirit Resources
and not used in petroleum operations by retaining and disposing of that amount
of petroleum equal in value to the unrecovered petroleum operations
expenditures for that calendar year plus all unrecovered petroleum operations
expenditures from prior calendar years. All such petroleum operations
expenditures shall be recovered without a ceiling in the manner, to the extent
provided for, in the Income and Business Tax Act. For the purpose of determining
the value of the quan!ijy of petroleum to which the Contractor is entitled in each
calendar year pursuant to this paragraph 9.1, the provisions of Article X shall be
applied.
9.2
The remaining quantity of petroleum produced and saved in a given calendar
year and not used in petroleum operations. after deduction of the value of the
royalty payments made in such calendar year and after recovery by the
Contractor of petroleum operations expenditures pursuant to paragraph 9.1, ("Net
Petroleum") shall be taken and disposed of separately by the Govemment and
the Contractor in each calendar year in the follOWing proportions:
Government's
Production Share
Percentage
Contractor's Production
Share Percentage
Daily Average
Production
First 10,000
barrels
10%
90%
banrels
15%
85%
Next 10,000 barrels
20%
80%
Next 10,000 barrels
25%
75%
Any volume over timt
40,000 barrels
30%
70%
Next 10,000
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ARTICLE X
Valuation and Measurement of Petroleum
10.1 Crude oil sold by the Contractor to third parties shall be valued at the net realized
price at the delivery point received by the Contractor for such crude oil.
For purposes of this paragraph, "net realized price" means the price realized at
the delivery point as calculated by adjusting the price actually received at the
point of sale with allowable deductions. In calculating the net realized price,
deductions may only be made for (a) transportation costs between the delivery
point and the point of sale, (b) commissions and brokerages, and (c) handling
charges; and the deductions shall be limited to amounts that do not exceed
customary and prevailing rates charged therefor in the intemational oil industry
between independent parties in arm's length commercial transactions.
10.2 Crude oil sold by the Contractor to other than third parties shall be valued as
follows:
10.2.1 By using the weighted average unit price received by the Contractor from saies to
third parties at the delivery point, net of any commissions and brokerages paid in
relation to such third party sales, dUring the ninety (90) days preceding such sale,
adjusted as necessary for quality, grade and graVity, and laking into
consideration any special circumstances with respect to such sales, unless less
than fifty percent (50%), by volume, of crude oil sales during such period are
made to third parties, in which case crude oil sold to other than third parties shall
be valued in accordance with paragraph 10.2.2.
10.2.2 If no third party sales have been made during such period of time, then (a) on the
basis used to value other crude oil from Belize of similar quality, grade and
gravity (or, if not similar, adjusted as necessary for quality, grade and gravity) and
taking into consideration any special circumstances with respect to sales of such
crude oil, or (b) if there is no other crude oil from Belize, on the basis used to
value crude oil from other sources in the Central America, Colombia and
Venezuela of similar quality, grade and graVity and taking into consideration any
special circumstances with respect to sales of such similar crude oil.
10.3 Natural gas shall be valued in accordance with the provisions of paragraph 14.4.
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Northern Spirit Resources
10.4 Third party sales referred to in this Article shall mean sales other than barter
sales made by the Contractor to purchasers that are not affiliated companies of
the Contractor in arm's length transactions and with whom (at the time the same
is made) the Contractor has no contractual interest involving directly or indirectly
any joint interest.
10.5 The Contractor shall, prtor to initial commercial production in any field, carry out
an assay of the crude oil from such field for its valuation and shall promptly
submit the results of such assay to the Government.
10.6 In the event that petroleum operations involve the segregation of crude oils of
different quality, grade or gravity, and if the parties do not otherwise mutually
agree, any and all provisions of this Agreement concerning valuation of crude oil
shall separately apply to each segregated crude oil. However, in electing to take
crude oil for internal consumption pursuant to paragraph 11.7 and to take royalty
in kind pursuant to paragraph 11.2, the Government shall have the rtght to
receive, crude oil of the quality, grade and gravity of its choice.
10.7 The Contractor shall supply, operate and maintain equipment for measurtng the
volume and quality of the petroleum produced and saved hereunder, including
gravity, density, temperature and pressure measuring devices and any other
devices that may be required. All measurement equipment and devices shall,
prtor to their installation or usage, be approved by the Inspector of Petroleum.
Such equipment and devices shall at all reasonable times be available for
inspection and testing by the Inspector of Petroleum or other authortzed
representatives. Any such inspection or testing shall not interfere with the normal
operation of the facilities involved. The equipment and devices used or installed
pursuant to this paragraph shall not be replaced or altered without the prtor
approval of the Govemment.
10.8 The Contractor shall undertake to measure the volume and quality of the
petroleum produced and saved hereunder, consistent with generally accepted
practices in the international petroleum industry, with the frequency and
according to procedures which shall be approved by the Government.
10.9 The Contractor shall give the Inspector of PetrOleum timely notice of its intention
to conduct measuring operations and the Inspector shall have the right to be
present at and supervise, either directly or through authorized representatives,
such operations.
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Northern Spirit Resources
10.10 If it is determined, following an inspection or test carried out by the Govemment
or its representatives, that the equipment, devices or procedures used for
measurement are inaccurate and exceed the permissible tolerances which shall
be established by agreement between the Govemment and the Contractor, and
such determination is verified by an independent surveyor acceptable to both
parties, such inaccuracy shall be deemed to have existed for one-half of the
period since the last previous such inspection or test, unless it is proved that such
inaccuracy has been in existence for a longer or shorter period, Appropriate
adjustments covering such period shall be made within thirty (30) days from the
date of such determination.
ARTICLE XI
Marketing, Royalty in Kind and Domestic Requirements
11.1 The Contractor shall be obligated to mar1
from the contract area, in accordance with marketing agreements first approved
by the Govemment, and subject to the provisions hereinafter set forth.
11.2 If the Government elects to take the royalty payment on crude oil in kind, it shall
so notify the Contractor in writing not less than siXty (60) days prior to the
commencement of each six month semester of each calendar year specifying the
quantity, and designating the grade and quality that it elects to take in kind,
based upon estimates, including those contained in the forecast statement
furnished pursuant to paragraph 6.3.2. Final adjustments shall be made within
ninety (gO) days of the end of each calendar year on the basis of actual
quantities. Such notice shall be effective for the ensuing six month semester of
that calendar year. Failure to give such notice shall be conclusively deemed to
indicate the election by the Govemment not to take in kind.
11.3 Any sale by the Contractor of any part of the Govemment's share of crude oil
production shall not be for a term expiring more than six (6) months after the date
of execution of the sales contract without the Government's written consent. If
the Government so consents, the Government shall not exercise its rights to
receive crude oil in kind pursuant to paragraph 11.2.
11.4 Any sale by the Contractor of any part of its share of the crude oil produced and
saved from the contract area shall not be for a term expiring more than twelve
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Nor1hem Spirit Resources
(12) months after the date of execution of the sales contract without the
Government's written consent. If the Government so consents, the Government
shall not exercise its rights under paragraph 11.7 to require the Contractor to
satisfy the internal consumption requirements of Belize from crude oil which is
subject to such contract.
11.5 Crude oil which the Government has eleeled to take in kind shall be delivered by
the Contraelor, free of cost to the Government, at regularly spaced intervals at
the delivery point or to the Government's storage facilrlies in the field, or both, at
the option of the Government. The Government shall provide at such delivery
points, at its sole expense, all storage, transportation and other facilities
necessary to receive such crude oil, provided, however, that if the Government
requests, the Contraelor shall provide adequate storage facilities at such places.
free of charge, at the risk of the Government, for a quantity of the Government's
crude oil not exceeding one hundred thousand (100,000) barrels for each fieid. If
storage exceeds one hundred thousand (100,000) barrels per field at any time,
the Government shall pay to the Contractor a reasonable storage charge for such
excess.
11.6 If the Government elects to meet all or part of the reqUirements of the domestic
market of Belize from crude oil produelion in Belize, it shall use its share of
production from all crude oil production in Belize to do so. If in any year there is
domestic demand in excess of the Government's share of such production, the
Govemment may require the Contractor to sell crude oil in Belize on a pro rata
basis with other producers in Belize, according to the quantity of crude oil
produelion of each producer in each year. The Government shall give the
Contraelor at least three (3) months notice in advance of such requirement and
the term of supply will be on an annual basis. The price for such sales shall be
the price as calculated pursuant to paragraph 10.2 above.
11.7 If the Government eleels to exercise Its rights under paragraph 11.6, it shall notify
the Contraelor in accordance with the provisions of paragraph 11.2 relating to the
Government's eleelion to take royalty payment in kind. The amounts to be taken
shall be based upon estimates, inclUding those contained in the forecast
statement furnished pursuant to paragraph 6.3.2, and final adjustments shall be
made within ninety (90) days of the end of each calendar year on the basis of
actual quantities.
11.8 Not less than twelve (12) months prior to inrliai commercial produelion in any
field, the Contraelor shall submit to the Government for approval, proposed
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Northern Spirit Resources
procedures and related operating regulations and financial tenns covering the
scheduling, storage and lifting of crude oil from such field. The procedures,
regulations and terms shall comprehend the subjects necessary to efficient and
equitable operations including, but not limited to: rights of parties, notification
time, maximum and minimum quantities, duration of storage, scheduling,
conservation, spillage, liabilities of the parties, and penalties for over and under
lifting, safety and emergency procedures.
ARTICLE XII
Payment Procedure
12.1
All payments due to the Government hereunder shall be made in United States
dollars at a bank to be designated by the Government, or at the Contractor's
election, such other currency as is acceptable to the Government.
12.2 All payments due to the Contractor hereunder shall be made in United States
dollars at a bank to be designated by the Contractor, or, at the Government's
election, such other currency as is acceptable to the Contractor.
12.3 Except as otherwise expressly proVided herein, all payments required to be made
pursuant to this Agreement shall be made within thirty (30) days following the end
of the calendar month in which the obligation to make such payment occurs.
12.4 If any payment is not made when due, such unpaid amount shall bear interest
from and after the due date at an interest rate compounded annually at two
percent (2%) greater than the interest rate charged by any Commercial Bank in
Belize to prime commercial customers for ninety (gO) day loans as in effect from
time to time until the date of payment.
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Northern Spirit RrtsourcrtS
ARTICLE XIII
Surface Rentals
13.1 The Contractor shall be liable for payment of such fees and surface rentals as are
stipulated in the Petroleum Regulations 1992. The fees payable for each year
shall be paid in advance and in accordance with paragraph 12.3. The fees for
the first year shall be paid within one month with reference to the effective date of
this Agreement.
ARTICLE XIV
Natural Gas
14.1 The Contractor shall have the right to use associated natural gas for petroleum
operations, including re-injection for pressure maintenance in the field or adjacent
fields of the Contractor. Associated natural gas which is, in the opinion of both
the Contractor and the Govemment, not economical, shall be retumed to the
subsurface structure, or may be flared with the consent of the Government. In
the event that the Contractor chooses to process and sell associated natural gas,
the Contractor shall notify the Government of the same and upon such
notification, the Government and the Contractor shall, as soon as practicable
thereafter, meet together with a view to reaching an agreement on
the
production, processing and sale of such gas. In the event the Contractor chooses
not to process and sell associated natural gas, the Government may elect to off
take at the outlet flange of the gas-oil separator and use such associated natural
gas which is not required for petroleum operations. There shall be no charge to
the Government for such associated natural gas, proVided that the cost to gather
such associated natural gas in the field at the point of being flared and to process
and utilize it shall be for the account of the Government.
14.2 Where non-associated natural gas is discovered in the contract area and the
Contractor has, pursuant to paragraph 6.2 infonned the Government that the
discovery is of potential commercial interest. the Government and the Contractor
will, on completion of the appraisal programme relating to such discovery, or
sooner if so agreed, meel together with a view to reaching an agreement on the
development, production, processing, utilization, disposition or sale of such gas.
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14.3 In the event that the development, production, processing, utilization, disposition
or sale of natural gas from the contract area is determined by the parties to be
economically feasible in accordance with this Article XIV, the costs of
development and production of the same from the reservoir to the delivery point,
and the revenue derived therefrom, shall, unless otherwise agreed pursuant to
paragraphs 14.1 and 14.2, be included in petroleum operations expenditures and
gross revenues, respectively, for all purposes of this Agreement, subject to the
accounting procedures prescribed by the Income Tax Commissioner.
14.4 The price to be paid for natural gas, or the value to be attributec thereto shall
14.4.1 for sales to third parties, be equal to the net realizec price obtained by the
Contractor for such Natural Gas at the delivery point;
14.4.2 for sales other than to third parties, be determined by agreement between the
Government and the Contractor, provided, however, that such price or value shall
reflect the following: (i) the quality and quantity of the natural gas (ii) the price at
which sales of natural gas from other sources in Belize, if any, are then being
made, (iii) the price at which sales, if any, of natural gas imported into Belize are
being made, (iv) the purpose for which the natural gas is to be usec, and (v) the
international market price of competing or alternative fuels or feedstocks.
14.4.3'Third party sales shall mean sales as described in paragraph 10.4
ARTICLE XV
Taxes
15.1 The Contractor and its contractors and subcontractors shall be obligated to pay
income tax for the applicable calendar year upon net taxable income derived
from petroleum operations pursuant to the Income and Business Tax Act.
15.2 In each calendar year, the Contractor's income tax shall be payable to the
Government in installments on the last day of each quarter on the basis of the
estimate, and quarterly updates thereto, provided to the Government. The
estimated unpaid liability for income tax for each calendar year as of the current
estimate or quarterly update shall be payable equally over the remaining
quarterly installments for such calendar year. Adjusting payments or refunds, as
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the case may be, shall be made within ninety (90) days of the end of the calendar
year based upon the detailed accounts submitted for such calendar year
pursuant to paragraph 26.2 and as approved by the Govemment.
15.3
(a) The Contractor shall w~hin ninety (90) days of the end of each calendar year,
notify the Government of any and all amounts paid to its contractors with
respect to operations earned out by them in Belize and in turn shall notify its
contractors that they must similarty advise the Government within ninety (90)
days after the end of each calendar year of any and all amounts paid to their
sub-contractors with respect to operations carried out by them in Belize.
(b) The Contractor shall also advise each of its contractors, and shall require
such contractors to likewise notify their subcontractors that for every six (6)
months such contractors and subcontractors shall furnish to the Government
a list of all their Beiizean and expatriate personnel, along with the
remuneration received by each of such personnel, and that they shall be
required, prior to leaving Belize to establish to the satisfaction of the
Government that the necessary income taxes have been paid.
15.4 The Contractor and its contractors and subcontractors and their respective
personnel shall be obligated to pay such reasonable transfer taxes and stamp
duties as may be in effect from time to time at the rates which are generally
applicable to all persons or entities in Belize.
15.5 Except as may be otherwise agreed in writing between the Government and the
Contractor, all transactions giving rise to revenues, costs or expenses which will
be credited or charged to the books, accounts, records and reports prepared,
maintained or submitted hereunder shall be conducted at arm's length or on such
a basis as will assure that all such revenues, costs or expenses will not be higher
or lower, as the case may be, than would result from a transaction conducted at
arm's length on a competitive basis with third parties.
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ARTICLE XVI
Exemptions from Custom Duties
16.1 The Contractor and its non-Belizean contractors and subcontractors engaged in
conducting petroleum operations under this Agreement shall, upon application to
and approval by the Minister of Finance, be provided exemptions from customs
duties with respect to the importation of, machinery, equipment, spare parts,
materials, supplies, consumable items, moveable property, and any other Items
or articles connected with petroleum operations, sUbject to the provisions of
paragraph 16.2.
16.2 The exemptions provided in paragraph 16.1 shall not apply to any imported item
when, in the reasonable opinion of the Government, items of the same, or
substantially the same, kind and quality are manufactured locally and are
available for purchase and timely delivery at the Contractor's operating base in
Belize at a price equal to the cost of the imported item(s).
16.3 The Government reserves the right to inspect the records, documentation or the
physical item or items for which an exemptIon is or has been provided under
paragraph 16.1 to determine that such item or items are being or have been
imported solely for the purpose for which the exemption was granted.
16.4 The item or items exempt from customs duties hereunder shall not be sold to
third parties (who are not in their own right exempt from such customs duties) for
use or consumption in Belize unless prior written authorization is obtained from
the Govemment and the importing party pays the tax or duty due on the
assessed value of such item or items at the time of sale.
16.5 Any of the items imported into Belize, whether exempt or non-exempt from
customs duties, may be exported by the importing party at any time without the
payment of any export duties, taxes or imposts.
16.6 "Custom duties" as used herein shall include all duties, taxes, or imposts (except
those charges, as may be in force from time to time, paid to the Government for
actual services rendered such as normal handling and storage charges) which
are payabie as a result of the importation of the item or items under
consideration.
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16.7 The Contractor shall be exempted from any duty, fee or any other financial
imposts (except those charges paid to the Government for actual services
rendered such as nonnal handling and storage charges, if any) in respect of the
export of petroleum to which the Contractor is entitled hereunder.
16.8 The Contractor shall not, directly or indirectly, export any petroleum produced
from the contract area to any country or person which the Government has by
law or official pronouncement declared to be hostile or unfriendly.
ARTICLE XVII
Exchange and CUlTency Controls
17.1 The Contractor shall be subject to the applicable exchange control legislation and
regUlations in effect from time to time in Belize, proVided, however, that
(I)
the Contractor shall be pennitted, after satisfying its obligations of payment
of taxes, bonuses, royalties and other fees to the Government, to receive
and hold the proceeds from the sale of its share of any petroleum produced
in Belize in its offshore banking accounts;
(ii)
the Contractor shall be pennitted, after satisfying its obligations of payment
of taxes, bonuses, royalties and other fees to the Government, to remit any
funds in Belize received from the sale of its share of any petroleum
produced therefrom and which are not required for conducting the
petroleum operations, to its offshore banking accounts;
(iii)
the Contractor shall have the right to establish and maintain local bank
accounts which may be denominated in Belize dollars or, subject to the
prevailing regulations of the Central Bank of Belize, in US dollars which
may be utilized as necessary for payment of Contractor's obligations in
Belize;
(iv) no restriction shall be placed on the importation by the Contractor of funds
necessary for canrying out the petroleum operations stipulated in this
Agreement;
(v)
the Contractor shall have the right to pay directly outside of Belize from its
offices abroad for purchases or services for petroleum operations
hereunder, provided, however, that no such payments shall be made to
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residents of Belize or to firms using Belize as their main base of operations
(whether natural or juridical) contrary to the Laws of Belize.
ARTICLE XVIII
Title to Equipment
18.1 All equipment and assets which are fixed installations and are not exported by
the Contractor under paragraph 16.6 shall become the property of the
Government, without cost, as soon as this Agreement is terminated.
ARTICLE XIX
Government Participation
19.1 The Government shall have the option to acquire for itself or for its designee an
undivided and unencumbered wor1<.ing interest of up to ten percent (10%) of the
interest of the Contractor with respect to a particular field where a discovery has
been made and in return therefor shall furnish its participating interest share of
the funds as provided in paragraph 19.3.
19.2 If the Governrnent exercises its option to participate, (a) it shall, within ninety (90)
days following the date of declaration of commercial discovery for the relevant
field, by written notice, inform the Contractor of its decision to exercise its option
to participate in such field and (b) the Contractor (or each corporation, individual
or entity comprising the Contractor at that time pro rata) shall assign and transfer
to the Government or its designee the percentage interest that the Government
has opted to acquire. The Government or its designee shall assume all rights and
obligations of the Contractor pro rata with its participating interest, in connection
with the particuiar fieid for which it has exercised its option to participate. The
rights and obligations assumed by the Government or its designee with respect
to its participating interest shall commence from the date of declaration of the
commercial discovery and shall in no case imply any obligation for the
Government or its designee to reimburse the Contractor for any exploration
costs.
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19.3 The Government may, upon giving the Contractor reasonable written notice,
require the Contractor to lend the Government up to one hundred percent (100%)
of the funds required to pay the Government's pro-rata share of development
operations expenditure. The loan shall bear interest at five percent (5%) per
annum. The Government shall make repayments of the loan on a quarterly basis
in an amount equal to forty percent (40%) of the difference between the gross
revenue attributable to the Government's Participating Interest in the field and the
costs and expenses, including royalty but excluding income taxes, attributable to
the Government's Participating Interest in the field. Repayments of the loan shall
be applied first to accrued and unpaid interest and the balance shall be applied in
reduction of the outstanding principal balance.
ARTICLE XX
Training and Employment
20.1 The Contractor agrees to train and employ qualified nationals of Belize in its
petroleum operations and, after initial commerciai production, will undertake the
schooling and training of nationals of Belize for staff positions, including
administrative and executive management positions. The Contractor will require
its contractors and subcontractors to do the same. The Contractor undertakes to
gradually replace its expatriate staff with qualified nationals of Belize as they
become available. An annual programme for training and phasing in of nationals
of Belize shall be established by the Contractor and shall be submitted for
approval to the Government. Such programme shall be included in the annual
work programmes submitted by the Contractor pursuant to paragraph 5.4. Within
thirty (30) days of the end of each calendar year, the Contractor shall submit a
written report to the Government describing the number of personnel employed,
their nationality, their positions and the status of training programmes for
nationals of Belize.
20.2 The Contractor shall also be required to establish a programme after initial
commercial production, satisfactory to the Government, to train personnel of the
Government to undertake skilled and technical jobs in petroleum operations for
the Government. Such programme shall also include provisions for practical
training by involving representatives of the Govemment in the Contractor's on
the-job training for its staff and in the preparation of the annual work programme
and work programme budgets as required by paragraph 5.4.4.
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20.3 The Contractor shall also be required, after inilial commercial production, to make
available annually to the Government a sum which is not less than twenty-five
thousand United States Dollars (US$25,000) for the purposes of:
(a) sending suitable nationals of Belize selected by the Government on
petroleum and energy-related courses at universities, colleges or other
training institutions;
(b) attending petroleum and energy-related conferences and wor1
(c) purchasing for the Ministry responsible for petroleum affairs technical books,
professional publications, scientific instruments or other equipment required
by the Ministry.
ARTICLE XXI
Purchases in Belize
21.1 In procurement, the Contractor shall give preference to goods which are
produced or available in Belize and services which are rendered by nationals of
Belize and companies of Belize, proVided such goods and services are offered on
terms equal to or better than imported goods and services with regard to quality,
price and availability at the time and in the quantities reqUired.
21.2 Locally produced or available equipment, materials and supplies shall be deemed
equal in price to imported items if the local cost of such locally produced or
available items at the Contractor's operating base in Belize is not more than ten
percent (10%) higher than the cost of such imported items before customs duties
but after transportation and insurance costs have been added.
ARTICLE XXII
Unitization
22.1
If a field is designated within the contract area and such field extends beyond the
contract area to other areas of Belize over which other parties have the right to
conduct exploration, development and production operations the Government
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may require that the development of the field and the production of petroleum
therefrom be carried out in collaboration with the other contractors. The same
rule shall be applicable if deposits of petroleum within the contract area, although
not eqUivalent to a commercial discovery if developed alone, would be deemed to
be a commercial discovery if developed with those parts of the deposits which
extend to areas controlled by other contractors.
22.2 If the Government so requests, the Contractor shall collaborate with other
contractors in preparing a collective proposal for common development and
production of the deposits of petroleum for approval by the Government.
22.3 If the proposal for common development and production has not been presented
within ninety (90) days of the request described in paragraph 22.2, or if the
Government does not approve such proposal, the Government may prepare or
cause to be prepared, for the account of the Contractor and the other contractors
involved, a reasonable plan for common development and production.
If the
Government adopts such plan, the Contractor shall comply with all conditions
established in such plan.
22.4 The Contractor may within twenty eight (28) days from the date on which notice
in Writing of such plan has been given to it by the Minister refer the matter to
arbitration pursuant to Article XXIV. In such event the plan shall not be
implemented until the Tribunal renders a decision or the parties agree on a
compromise plan, whichever occurs first.
22.5 This Article XXII shall also be applicable to discoveries of deposits of petroleum
within the contract area which extend to areas that are not within the dominion of
Belize, proVided that in these cases the Government shall be empowered to
impose the special rules and conditions which may be necessary to satisfy
obligations under any agreements with international organizations or adjacent
states with respect to the development and production of such deposits of
petroleum.
22.6 Within ninety (90) days following the approval or adoption of a unitization plan for
common development and production, the Contractor shall proceed to operate
under any such plan. If a clause of a cooperative or unitary development and
production plan which by its tenns affects the contract area or a part of the same,
contradicts a clause of this Agreement. the clause of the cooperative or unitary
plan shall prevail.
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ARTICLE XXIII
Danger to Persons, Properly or Environment
23.1 The Contractor shall act in accordance with the relevant provIsions of
environmental laws and regulations in force from time to time in Belize, including
with respect to requirements for the conduct of environmental studies and the
terms and conditions of any approval or authorisation granted to the Contractor
under the relevant environmental laws and regulations.
23.2 The Contractor shall employ advanced techniques, practices and methods of
operation and take other steps as are necessary and adequate in accordance
with good international oil industry practice, and subject to the requirements of
the laws and regulations specified in paragraph 23.1 to:
(a) protect the environment and prevent pollution;
(b) ensure adequate compensation for damage to the environment proved to
have been caused by the carrying out of the activities under this Agreement
by the Contractor; and,
(c) ensure adequate compensation for injury to persons or damage to property
proved to have been caused by the carrying out of the activities under this
Agreement by the Contractor.
23.3 SUbject to the relevant provisions of environmental laws and regulations in force
from time to time in Belize, the Contractor shall cause two environmental impact
assessment reports to be prepared in accordance with the following
arrangements:
(a) the first environmental impact assessment report, relating to exploration and
appraisal operations, shall, if detemnined to be required by the Department of
the EnVironment, be conducted and submitted by the Contractor, as part of
the Contractor's submission of an exploration programme, in order to
detennine the effect of the relevant petroleum operations on the environment;
(b) the second environmental impact assessment report, covering field
development and production activities, shall be submitted by the Contractor, as
part of its submission of a development work programme, in order to detennine
the effect of the relevant petroleum operations on the environment.
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23.4 The environmental impact assessment reports prepared and submitted by the
Contractor in accordance with paragraph 23.3 shall. in addition to any other
requirements under the relevant environmental laws and regulations, include
proposed environmental management plans to minimize environmental damage,
and shall include measures on the following matters: wildlife and habitat
protection; marine resource protection; prevention of air and water pollution; fuel
storage and handling; waste management and disposal; protection of cultural and
archaeoiogical sites; selection of drilling sites; blow-<:lut prevention; flaring during
completion and testing of gas and oil wells; noise control; and site reclamation
and restoration plans.
23.5 The Contractor shall ensure that the environmental management plans are made
available to its employees and to its sub-contractors to develop adequate and
proper awareness of the measures and methods of environmental protection to
be used in carrying out its petroleum operations; and that any agreement entered
into between the Contractor and its sub-eontractors relating to its petroleum
operations shall include the tenns set out in this Agreement and any established
measures and methods for the implementation of the Contracto~s obligations in
relation to the environment under this Agreement.
23.6 Where the activities of the Contractor result in pollution or damage to the
environment or marine life or otherwise, the Contractor shall, in accordance with
good international oil industry practice and subject to the environmental laws and
regulations in force in Belize, take all necessary measures to effect immediate
remedy of the failure and the effects thereof. If such pollution or damage is the
result of gross negligence or wilful misconduct of the Contractor, the cost of the
remedy or penalties payable under the law shall not be allowable deductions in
the computation of income tax.
23.7 The Contractor shall notify the Government forthwith in the event of any
emergency or accident affecting the environment and shall, in accordance with
good international oil industry practice and subject to the environmental laws and
regulations in force in Belize, take such action as may be prudent and necessary
in such circumstances.
23.8 If after notifying the Government pursuant to paragraph 23.7 the Contractor does
not act promptly so as to control or clean up any pollution or make good any
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damage caused, the Government may, after giving the Contractor reasonable
notice in the circumstances, take any actions which are necessary in accordance
with environmental laws and regulations in force in Belize and the costs and
expenses of such actions shall be recoverable from the Contractor.
23.9 If the Govemment reasonably detenmines that any works or installations erected
by the Contractor or any operations conducted by the Contractor endanger or
may endanger persons or third party property Or cause pollution or harm wild-life
or the environment to an unacceptable degree, the Government may require the
Contractor to take remedial measures within a reasonable period established by
the Government and to repair any damage to the environment. If the Government
deems it necessary, it may also require the Contractor to discontinue petroleum
operations in whole or in part until the Contractor has taken such remedial
measures or has repaired any damage. In the event that the Contractor fails to
take the remedial measures required by the Govemment within the time period
established by the Govemment, the Government may carry out such remediai
measures for the Contractor's account and the Contractor shall additionally be
liable for adequate compensation for any damage to the environment, injury to
persons or damage to property proved to have been caused by the petroleum
operations of the Contractor.
ARTICLE XXIV
Arbitration
24.1
In the event of a dispute arising between the Govemment and the Contractor
conceming the interpretation or application of this Agreement, the parties shall
seek to resolve the dispute by consultations and negotiations.
24.2 Subject to paragraph 24.3, where a dispute cannot be resolved through
consultations and negotiations within a period of six months, either party may do
one of the following:
(a) where the Contractor is duly incorporated, constituted, set up, or otherwise
duly organized under the law of a State Party 10 the 1965 Convenfion on fhe
Settlement of Investmenf Disputes between States and Nationals of ofher
States ('the Convention'), refer the dispute to the Intemational Centre for
Settlement of Investment Disputes ('ICSID') for arbitration pursuant to Article
36 of the Convention;
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(b) where the Contractor is not duly incorporated, constituted, set up, or
otherwise duly organized under the law of a State Party to the Convention,
refer the dispute to an ad hoc arbitral tribunal in accordance with the
Arbitration Rules of the United Nations Commission on Intemationai Trade
Law (1976), subject to the following provisions:
(I)
(ii)
(iii)
The arbitrai tribunal shall consist of three arbitrators. Each party
shall select an arbitrator, and those two arbitrators shall then
appoint by mutual agreement a third arbitrator, the Chairperson,
who shall be a national of a third Slate. All arbitrators shall be
appointed within two months from the date when a party informs the
other party of its intention to submit the dispute to arbitration under
this sub-paragraph.
If the necessary appointments are not made within the period
specified above, either party to the dispute may, in the absence of
any other agreement, request the Secretary-General of the
Permanent Court of Arbitration to make the necessary
appointments.
The arbitral award shall be made in accordance with this
Agreement. The arbitral tribunal shall decide all questions
presented on the basis of:
(a) the laws and regUlations of Belize applicabie to this Agreement
and other relevant laws, both national and international;
(b) the provisions of the Agreement, and
(c) trade usages and customs of the intemational petroleum
industry.
(iv)
(v)
(vi)
The place of arbitration shall be Belmopan, Belize.
The arbitral tribunal shall reach its decision by a majority of votes.
The decision of the arbitral tribunal shall be final and binding and
the Parties to the dispute shall abide by and comply with the terms
of its award.
(vii) The arbitral tribunal shall state the basis of its decision and give the
reasons for its decision.
(viii) Each party to the dispute shall bear the cost of its own arbitrator
and its representation in the arbitral proceedings. The cost of the
Chairperson in discharging his or her duties in relation to the
arlJitration and the remaining costs of the arbitration shall be borne
equally by the parties to the dispute. The arbitral tribunal may,
however, direct in its decision that a higher proportion of costs shall
be bome by one or other of the parties to the dispute, and this
award shall be binding on the parties to the dispute.
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24.3 In the case of any disputes concerning a matter identified in paragraph 6.2.10 (c)
of Article VI of this Agreement, the procedures relating to the referral of a matter
to a sole-expert for detennination shall apply to the resolution of the dispute.
24.4 The language to be used in arbitration proceedings shall be English.
ARTICLE XXV
Termination
25.1 The Government shall have the right to terminate this Agreement upon giving
thirty (30) days written notice of its intention to do so ~ the Contractor,
(a) fails to make any monetary payment required by law or under this Agreement
for a period of thirty (30) days after the due date for such payment,
(b) fails to comply with any other material obligation that it has assumed under
this agreement,
(c) fails to comply with the Petroleum Act (No.8 of 1991) and any lawful acts,
regulations, orders or instructions issued by the Government or any department
or agency of the Government, or
(d) becomes bankrupt, or goes into liquidation because of insolvency or makes a
composition with its creditors.
25.2 If the circumstance or circumstances that result in termination under paragraph
25.1 (a), (b) or (c) are remedied by the Contractor within the thirty (30) days
period following the notice of termination as aforesaid, such tennination shall not
become effective.
25.3 If the circumstance or circumstances that would otherwise result in tennination
under paragraph 25.1 (b) or (c) are the result of force majeure, then tennination
shall not take place so long as such force majeure continue and for such period
thereafter as the Government may determine to be reasonable.
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25.4 The termination of this Agreement for whatever reason shall be without prejudice
to the obligations incurred and not discharged by the Contractor prior to the date
of termination.
25.5 In the event of termination pursuant to paragraph 25.1 or 25.7, the Government
may require the Contractor, for a period not to exceed one hundred eighty (180)
days, to continue, for the account of the Government, crude oil or natural gas
production activities until the right to continue such production has been
transferred to another entity.
25.6 Wlihin ninety (90) days after the termination of this Agreement pursuant to
paragraph 25.1 or paragraph 25.7, unless the Minister has granted an extension
of this period, the Contractor shall complete any reasonably necessary action as
directed by the Govemment to avoid environmental damage or a hazard to
human life or third party property.
25.7 The Contractor shall have the right to terminate this Agreement totally or partially,
(a) with respect to any part of the contract area other than a field then producing,
or that prior thereto had produced, crude oil or natural gas upon giving ninety (90)
days written notice of its intention to do so, and (b) with respect to any field then
producing, or that prior thereto had produced, crude oil or natural gas upon giving
one hundred and eighty 180 days written notice of its intention to do so. Upon
termination, the provisions of paragraphs 4.7 and 4.8 shall apply.
ARTICLE XXVI
Books, Accounts and Audits, Records, Reports and Inspections
26.1
The Contractor shall be responsible for keeping complete accounts, books and
records reflecting all petroleum operations expenditures and gross revenues
consistent with generally accepted procedures and standards in the intemational
petroleum industry and in accordance with accounting procedures prescribed for
petroleum operations by the Income Tax Commissioner.
26.2 Within ninety (90) days after the expiration of each calendar year, the Contractor
shall submit to the Govemment detailed accounts showing all petroleum
operations expenditures and all gross revenues during the past calendar year.
Before submission to the Govemment, the accounts shall be audited and certified
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by an independent chartered accountant or certified public accountant acceptable
to both parties, at the expense of the Contractor. It is understood that the
Government retain the authority to review and audit the Contractor's accounts,
books and records with respect to petroleum operations conducted hereunder
either directly or through an independent accountant designated by the
Government.
26.3 The Govemment and its duly authorized representatives shall have full and
complete access to the contract area at all reasonable times with a right to
observe petroleum operations and shall have the right to inspect all assets,
records, books, accounts and data kept by the Contractor relating to petroleum
operations and this Agreement.
In doing so, the Government and its
representatives shall not unduly interfere with the Contractor's petroleum
operations, However, the Government and its representatives may make a
reasonable number of surveys, drawings, tests and copies for the purpose of
implementing this Agreement.
In so doing, the Govemment and its
representatives shall be entitled to make reasonable use of the equipment and
instruments of the Contractor provided that no damage to the equipment or
instruments or impediment to the petroleum operations hereunder shall result
from such use. The Govemment shall indemnify and reimburse the Contractor for
any loss or damage which may in fact result from any such use of equipment and
instruments, provided that such loss or damage is reported to the Government
within twenty-four (24) hours from the time of such inspection. The Govemment
and its representatives shall be given reasonable assistance by the Contractor
for such functions, and the Contractor shall afford to the Government and its
representatives, field office facilities and such other additional facilities and
privileges afforded to its own personnel in the field that may be necessary to
carry out the functions.
26.4 The Contractor shall prepare and maintain accurate and current records of its
activities in the contract area hereunder. The Contractor shall furnish the
Government in conformity with the applicable regUlations, and as the
Government may reasonably require, infonnation, reports and data concerning its
activities and operations under this Agreement.
26.5 The Contractor shall save and keep for the duration of this Agreement all unused
cores and samples taken from the wells drilled, which shall be forwarded to the
Inspector of Petroleum or his authorized representatives at such time and in the
manner directed by the Government. All cores and samples acquired by the
Contractor shall be available for inspection by the Inspector of Petroleum or his
authorized representatives at all reasonable times. Unless previously forwarded
to the Government pursuant to instructions given under this paragraph, the
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Contractor shall forward to the Government all remaining cores and samples
upon the expiration or termination of this Agreement.
26.6 Unless otherwise agreed to by the Govemment, in the case of exporting any rock
or petroleum samples from Belize for the purpose of testing and analysis,
samples equivalent in size and quantity shall, before such exportation, be
delivered to the Inspector of Petroleum.
26.7 Originals of records and other data can be exported only with the permission of
the Government, provided, however, that magnetic tapes and any ather data
which must be processed or analyzed outside Belize may be exported if a
comparable record is maintained in Belize and provided that such exported
records and data shall be repatriated to Belize.
26.8 The Contractor shall provide to the Inspector of Petroleum in appropriate form all
original data resulting from petroleum operations, including, but not limited to,
geological, geophysical, petrophysical engineering, well logs, production data
and completion status reports and any other data which the Contractor may
compile during the term hereof including all reports, analyses, interpretations,
maps and evaluations thereof prepared by the Contractor and any contractors,
subcontractors or consultants to the Contractor or by affiliated companies, and
cuttings of all samples that have been obtained or compiied dUring the term
hereof ("data"). The Govemment shall have title to all such data. Such data shall
not be disclosed to third parties by the Government prior to relinquishment of the
area to which they relate, or prior to the end of the expioration period if such area
is not sooner relinquished, provided, however, that the Government may make
copies available to professional consultants, legal counsel, accountants,
underwriters, lenders and such Government entities as may need to be made
In any event, the
aware thereof or have the right to require disclosure.
Contractor may retain copies of all such data. The Contractor shall not disclose
such data to any third parties without the Government's prior written consent,
provided, however, that the Contractor may make copies available to professional
consultants, legal counsel, accountants, underwriters, lenders. affiliated
companies and contractors and subcontractors of the Contractor and such
government entities as may need to be made aware thereof or have the right to
require disclosure. Any data which are disciosed by the Govemment or the
Contractor to third parties pursuant to this paragraph (26.8) shall be disclosed on
terms which ensure that such data are treated as confidential by the recipient.
To the extent that there is any inconsistency between the provisions of this
paragraph (26.8) and the provisions of Article XXXIII, the provisions of this
paragraph (26.8) shall govern.
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ARTICLE XXVII
Insurance and Indemnification
27.1
To ensure that the Contractor shall meet its obligations to third parties, or to
Government agencies, that might arise in the event of damage or injury (including
environmental damage or injury, removal of wrecks and cleaning up caused by
accidents) caused by petroleum operations, notwithstanding that the damage is
accidental, the Contractor shall maintain in force a third party liability insurance
policy covering the activities of itself, its contractors and subcontractors and the
employees of all such parties.
Such insurance policy shall include the
Government as an additional insured, shall waive subrogation against the
Government, and shall provide that it may not be cancelled except upon thirty
(30) days prior written notice to the Government. A certificate eVidencing such
insurance policy shall be furnished to the Government within ninety (90) days of
the effective date. The limits, coverage, deductibles and other terms thereof shall
be subject to approval in writing by the Government. To the extent that such third
party liability insurance is unavailable or is not obtained, or does not cover part or
all of any claims or damage caused by or resulting from petroleum operations,
the Contractor shall remain fully responsible and shall defend, indemnify and hold
the Government hannless against all such claims, losses and damages of any
nature whatsoever.
27.2 The Contractor shall indemnify, defend and hold the Government harmless
against claims, losses and damages of any nature whatsoever, including, without
limitation, claims for loss or damage to property or injury or death to persons,
caused by or resulting from any petroleum operations conducted by or on behalf
of the Contractor, provided that the Contractor shall not be held responsible to
the Government under this paragraph (27.2) for any loss, claim, damage or injUry
caused by or resulting from any negligent action of personnel of the Government.
27.3 The Contractor shall contribute two tenths of one percent (0.2%) of the value of
the annual gross production of crude oil andlor natural gas produced and saved
in each calendar year and not used or consumed in petroleum operations to a
Common Fund to be held in trust by the Government and managed for the sole
purpose of indemnification against any or all environmental damages caused
during the petroleum operations.
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Northern Spirit Resources
27.4 Nothing contained in paragraph 27.3 above shall be construed to relieve the
Contractor of its obligations of indemnification as set out in this Agreement.
ARTICLE XXVIII
Assignment
28.1
The Contractor may assign, transfer, conveyor otherwise dispose of any part or
all of its rights or interest under this Agreement with the prior written consent of
the Government, which consent shall not be unreasonably withheld.
28.2 Notwithstanding the provisions of paragraph 28.1, if the Contractor assigns to
any affiliated company, the Contractor shall remain fUlly liable for the
performance of this Agreement and shall be fully liable for the performance of
any such assignee.
28.3 In the case of an assignment to any non-affiliated company, the Contractor shall
provide to the Government an unconditional undertaking by the assignee to
assume all obligations of the Contractor under this Agreement. Notwithstanding
such undertaking, the Contractor shall remain jointly and severally liable with the
assignee for performance of the obligations of the Contractor unless the
Contractor assigns its entire interest under this Agreement.
ARTICLE XXIX
Law of the Agreement
29.1 This Agreement shall be construed under, governed by and interpreted in
accordance with the laws of Belize and such principles of international law as
may be applicable.
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Northern Spirit Resourr;es
ARTICLE XXX
Force Majeure
30.1
Except as otherwise provided in this Article, each party shall be excused from
complying with the terms of this Agreement, except for payment of monies due,
for so long such compliance is prevented by strikes, wars (declared or
undeclared), acts of God, or by any act or cause that is reasonably beyond the
control of such party, such causes being herein called ''force majeure". In the
event that either party hereto is rendered unable, wholly or in part, by any of
these causes to carry out its obligations under this Agreement, such party shall
give notice and details of force majeure in writing to the other party within seven
(7) days after its occurrence. In such cases, the obligations of the party giving
the notice shall be suspended during the continuance of any inability so caused.
Such party shall do all that is reasonably within its power to remove such cause
and to mitigate the consequences. Such party shall also promptly notify the other
party as soon as conditions of force majeure no longer prevent that party from
carrying out ils obligations and following such notice shall resume its obligations
as soon as reasonably practicable.
ARTICLE XXXI
Entire Agreement and Amendments
31.1
This Agreement embodies the entire agreement and understanding between the
Contractor and the Government relative to the subject matter hereof, and
supercedes and replaces any provisions on the same subject in any other
Agreement between the parties, whether written or oral, prior to the date of this
agreement.
This Agreement may not be amended, modified, varied or
supplemented except by an instrument in writing signed by the Contractor and
the Government.
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Northern Spirit Resources
ARTICLE XXXII
Waiver
32.1
Perfonnance of any condition or obligation to be perfonned hereunder shall not
be deemed to have been waived or postponed except by an instrument in writing
signed by the party which is claimed to have granted such waiver or
postponement
32.2 No waiver by any party of anyone or more obligations or defaults by any other
party in the perfonnance of this Agreement shall operate or be construed as a
waiver of any other obligations or defaults whether of a like or of a different
character.
ARTICLE XXXIII
Confidentiality
33.1
This Agreement and any confidential infonnation of any party hereto which
becomes known to the other party in connection with the perlormance of this
Agreement shall not be published or disclosed to third parties without the former
party's written consent, except as otherwise provided herein, and provided
however that such other party may communicate confidential information to legal
counsel, accountants, other professional consultants, underwriters, lenders,
agents, contractors or shipping companies to the extent necessary in connection
with this Agreement, with the obligation of the parties receiving such information
to maintain confidentiality, or to an agency of the Government of the country of
the Contractor having authority to require such disclosure.
The term "confidential information" as used herein shall mean information
identified as "confidential" by the party originally in possession of it and disclosed
to the other party, excluding infonnation previously known to the other party or
infonnation which is publicly known (except through disclosure of the other party
in violation of this Article XXXIII) or infonnation that comes into the legitimate
possession of such other party. The tenn "confidential infonnation" shall not
include information about any money or other consideration paid by the
Contractor to the Government or a person acting on behalf of the Government
under or in connection with the tenns of this Agreement.
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Northern Spirit Resources
33.2
The confidentiality obligations of this Article XXXIII
relinquishment of the area to which the information relates.
shall
expire
upon
ARTICLE XXXIV
Notices
34.1
All notices and other communications required or permitted hereunder or any
notices that one party may desire to give to the other party shall be in writing in
the English language and deemed to have been properly delivered if personally
handed to an authorized representative of the party for whom intended, or sent
by registered airmail or by facsimile transmission at or to the address of such
party for whom intended, or such other addresses as any party may from time to
time designate by notice in writing to the other party.
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Northern Spiril Resources
EXHIBIT "A"
DESCRIPTION OF THE CONTRACT AREA
BLOCK
SUB-BLOCKS
NO. OF
SUB-BLOCKS
SQUARE
KILOMETERS
ACRES
138
C,D,E,H,I,J,N,O,S,T,X,
Y
12
48
11,861.06
139
157
A,B,C,D,F,G,H,K,P,U
10
40
9,884.22
D,E,I,J,N,O,S,T,X,Y
10
158
A,F,K,P,U
5
40
20
9,884.22
4,942.11
176
D,E,I,J,N,O,S,T
8
7,907.37
177
A,B,C,D,F,G,H,I,K,L,M,
N,P,Q,R,S
U,V,W,X,Y and half of
P,Q,R,S,T
U,V,W,X and half of
P,Q,R,S,T
Half of P and Q
16
32
64
15,814.75
7.5
30
7,413.16
6.5
26
6,424.74
1
4.5
4
18
988.42
4,447.90
13
52
12,849.48
8
32
7,907.37
I
211
212
213
228
229
230
TOTAL
V,W,X,Y and half of U
A,B,C,D,E,F,G,H,I,J,K,
L,P
A,B,C,D,F,G,H,I
100,324.80
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Northern Spirit Resources
EXHIBIT
"e"
BANK GUARANTEE
Ministry of Finance,
Government of Belize,
Belmopan,
Belize
Gentlemen,
RE: OUR IRREVOCABLE LEDER OF GUARANTEE NO.
In
compliance with
the
request of
("the
Contractor"), we, (Name of Bank), issue this unconditional irrevocable leller of
guarantee in
your favour for a sum not exceeding
States Dollars (US $
United
), which represents the total minimum
exploration expenditures set forth in paragraph 6.1.1 of the Agreement ("Agreement"),
dated
, 200_, between the Contractor and the Government of
Belize ("Govemment"), relating to petroleum exploration, development and production in
the territory of Belize, to guarantee the Contractor's faithful performance of its minimum
exploration expenditures obligations as provided for in the Agreement, the said sum of
_ _ _ _ _ _ _ _ United States Dollars (US $
) to be reduced
at the end of each contract year, as defined in the Agreement, by the amount stipUlated
to be expended in such contract year, if such amount is in fact expended as evidenced
by a signed certificate from the Government, provided, however, that said sum shall
under no circumstances be reduced below the stipulated minimum exploration
expenditures for the remaining contract year of the initial exploration period, as set forth
in paragraphs 6.1.1 of the Agreement, as adjusted in accordance with paragraphs 6.1.3
and 6.1.4 of the Agreement as evidenced by a signed certificate from the Government.
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Northern Spirit Resources
The tenns and conditions of this Letter of Guarantee are as follows:
1.
The said amount, or any part thereof, shall be paid to you upon our receipt of your
written statement that the amount claimed is duly payable under the Agreement.
2.
We hereby waive diligence, presentment, demand for payment, protest, any
requirement that the Government exhaust any right or power or take any action
against the Contractor, all notices (whether of non-payment by the Contractor,
dishonour, protest or otherwise) and all demands whatsoever.
Our obligations
hereunder are continuing, absolute and unconditional, and will not be in any way
affected by giving of time or any forbearance by the Government, the waiver or
consent by the Government with respect to any provisions of the Agreement, and
irrespective of the validity, regularity, enforceability or value of the Agreement, or
by any other circumstances which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, all of which are hereby expressly
waived.
3.
Our obligations hereunder shall be paid in United States Dollars to the bank
account designated by the Government, free and clear of and without reduction by
reason of any and all present and future taxes, levies, assessed, imposed or
collected with respect thereto by the Government of
or
any political sub-division or taxing authority thereof or therein. We shall bear and
pay any and all fees and expenses in relating to or in connection with this Letter of
Guarantee.
4.
In order to give effect to this Letter of Guarantee, we hereby declare that the
Government shall be at liberty to act as though we were the principal debtor, and
we hereby waive all and any of the rights as surety which may at any time be
inconsistent with any of the above provisions.
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Northern Spirit Resources
5.
Any claim or demand under this Letter of Guarantee shall be presented to us on or
before the expiration of the date of the validity of the Letter of Guarantee.
6.
This Letter of Guarantee shall be effective immediately and expire ninety (90) days
after the end of the initial exploration period as defined in the Agreement, and
thereafter automatically without any formality become null and void for all its
effects and this Letter of Guarantee shall be returned to us immediately.
Yours very truly,
(Name of Bank)
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Northern Spirit Resources
IN WITNESS WHEREOF the Government and the Contractor have hereto set their
hands and seals the day and year first herein before written.
SIGNED, SEALED AND DELIVERED
)
by GASPAR VEGA, Minister of Natural
)
Resources and the Environment
)
for and on behalf of the
)
Government of Belize
)
--~-G-A--
In the presence of:
vI!tSIGNED, SEALED AND DELIVERED
)
by RICHARD BOYD
)
for and on behalf of Northern Spirit
)
Resources, Inc.
•
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Norlhern Spin'! Resoorces
I, GASPAR VEGA, Minister of Natural Resources and the Environment hereby
acknowledge that I did sign, seal and deliver the within written document as my act and
deed.
Acknowledge at BELMOPAN this
26jl.,
day of March, 2010.
--G---'~-A-Before me,
/ CHIEF EXECUTIVE OFFICER
/
BE IT REMEMBERED that on the
2S~
day of March, 2010 personally appeared
before me the within named GASPAR VEGA and acknowledged before me that he did
sign, seal and
signature"
deli~~in-written
document as his act and deed and that the
~
" is in his own proper handwriting.
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Not1hern Spirit Resources
I, RICHARD BOYD, hereby acknowledge that I did sign, seal and deliver the within
written document as my act and deed for and on behalf of Northern Spirit Resources,
Inc.
Acknowiedge at BELMOPAN this
2b~
day of March, 2010.
~?J
RICHARD BOYD
Before me,
~
;tHIEF EXECUTIVE OFFICER
BE IT REMEMBERED that on the
2,.:;-1"-
day of March, 2010 personally appeared
before me the within named RICHARD BOYD and acknowledged before me that he did
sign, seal and deliver the within-written document as his act and
of Northern Spirit Resources, Inc. and that the
d~ an10n behalf
Signatu~ ~.
in his own proper handwriting.
.
CH
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F EXECUTIVE OFFICER
" is
Northern Spirit Resources
I hereby certify that I have counted the within-written document and that it contains two
hundred fifty-four (254) folios of seventy-two (72) words each and twenty-eight (28)
words over and no more.
AS WITNESS my hand this
.'I S.... day of March, 2010.
This Document was prepared and drawn in the Ministry Of Natural Resources and the
Environment.
INSPECTOR OF PETROLEUM
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