NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here REPUBLIC OF YEMEN
PRODUCTION SEARING AGREEMENT
MINISTRY OF OIL AND MINERAL RESOURCES
CLYDE EXPRO PLE
NCRSN HYDRO YEMEN a.s
ORANJE-NASSAV YEMEN B.T
ANSAN WIEFS (HABRAMAUT) LIMTIED
IN THE ARIA CF EXBRAMAUT PROVINCE
BLOCK 32 MCWARIME
Signature Date : SEPTEMBER
Effective Date : ____________
TABLE OF CONTENTS
Article | Title | Page No.
1. | Definitions | 3
2. | Annexes | 8
3. | Grant of Rights and Terms | 10
[blank] | 3.1 Grant of Rights | [blank]
[blank] | 3.2 Royalties | [blank]
[blank] | 3.3 Term | [blank]
[blank] | 3.4 Commercial Discovery of Oil |[blank]
[blank] | 3.5 Sole Risk Project | [blank
4. | Work Program and Expenditure during the |[blank]
[blank] | Exploration Period. | 13
[blank] | 4.1 Exploration work Program and Budget |[blank]
[blank] | 4.3 Exploration Advisory Committee | [blank]
[blank] | 4.5 Statement of Expenditure | [blank]
5. | Relinquishments | 16
[blank] | 5.1 Mandatory Relinquishments | [blank]
[blank] | 5.2 Voluntary Relinquishments | [blank]
[blank] | 5.3 Requirements for Relinquishments | [blank]
[blank] | 5.4 Notice of Relinquishments | [blank]
6. | Operations and Development Period | 17
[blank] | 6.1 Operating Company | [blank]
7. | Recovery of costs and Production Sharing | 10
[blank] | 7.1.1 Cost Recovery Crude Oil | [blank]
[blank] | 7.1.2 Non-Recoverable Costs and Expenditures | [blank]
[blank] | 7.2 Production Sharing Oil | [blank]
[blank] | 7.3 Valuation of Crude Oil | [blank]
[blank] | 7.4 Tanker Lifting | [blank]
[blank] | 7.5 Optional Purchase of Crude Oil [blank]
[blank] | 7.6 Production Forecast | [blank]
8. | Title to Assets | 24
9. | Taxes and Bonuses | 25
[blank] | 9.1(a) Taxes | [blank]
[blank] | 9.1.(c) Income Tax | [blank]
[blank] | 9.1.(h) Taxes Statements | [blank]
[blank] | 9.2. Bonuses | [blank]10. Office and Service of Notice 28
11. Conservation Prevention of Lose and 28
12. Custom Exemptions and Exchange Control 29
13. Accounting Books – Accounting & Payments 32
14. Records, Reports and Inspection 33
15. Responsibility for Damage 34
16. Privileges of the Government Representative 34
17. Employment Privileges and the Training
of ROY Personnel 34
18. Laws and Regulations 35
18.2 Rights controlled by this Agreement
19. Rights of Requisition 36
19.3 Notice of Requisition
20. Assignment 37
20.2 Approval of the MINISTRY
21. Breach of Agreement and Power of
22. Force Majeure 39
23. Disputes and Arbitration 40
24. Governing Law 41
25. Status of Parties 41
26. Local Contractors and Locally
Manufactured Materials 42
27. Gas 42
27.1 Associated Gas
27.2 Dry Gas Discovery28. Confidentiality 44
28.2 Use or Disclosure by the Contractor
28.3 Approval of the MINISTRY
29. Ancillary Rights of Contractor 45
30. Miscellaneous 46
30.2 Entire Agreement
31. Assignment and Authorization by the MINISTRY 47
32. The Official Text 47
33. Government Approval 47
34. The Signature 48 REPUBLIC OF YEMEN
PRODUCTION SHARING AGREEMENT
MINISTRY OF OIL AND MINERAL RESOURCES
CLYDE EXPRO PLC AND NORSK HYDRO YEMEN a.s AND
ORANJE-NASSAU YEMEN B.V AND ANSAN WIFFS
This Agreement is made and entered into in sana's on the tumsa robera fung 14/2 H corresponding to the 24 day of asmi constitutes the Agreement between the REPUBLIC OF YEMEN (hereinafter to as "ROY" or "YEMEN") represented by the MINISTRY OF OIL RESOURCES (hereinafter referred to as "MINISTRY or "XCMR") and plc (hereinafter referred to as "Clyde") a corporation duly or existing under the laws and regualtions of scotland and regist city of Edinburgh registration No. 32469 and Norsk Hydro (hereinafter referred to as "Norsk Hydro") a corporation duly of existing under the laws and regulations of Norway and registered of Oslo registration No. 961569036; and Oranje-Nassau Yemen B.V (referred to as "Oranje-Nassau") a corporation duly organized as under the laws and regulations of the Netherlands and registered of Austraiam registration No. 210.983, and Ansan Wikfs (Hadrama (hereinafter referred to as "Ansan wikfs") a corporation duly or existing under the laws and regulations of the Cayman Islands and in the city of Grand Cayman registration No. 400739. (Clyde, N cranie-Nassau and Ansan wikfs jointly and severelly are hereinafter to collectively as "CONTRACTOR")
WHEREAS: ALL natural resources including all its derive energy sources existing in the surface or subsurface of the ground territorial waters, or continental shelf and the entire economic the Republic of Yemen are the property of the STATE; and
WHEREAS: The STATE wishes to promote the Development of Petroleum resources in the Agreement Area defined in this Agreement CONTRACTOR wishes to join and assist the STATE in the EXp Development and production of the potential Petroleum Resource Agreement Area, (Block 32 HOWARIME); and
WHEREAS: The STATE authorized the MINISTER OF OIL AND RESOURCES to negotiate and execute this Agreement in accordance negotiated between the STATE and the CONTRACTOR; and
WHEREAS: A Presidential Decree shall be issued expressly this Agreement; and Under this Agreement [------------------]
Development, production, storing and transporting of Crude Oil in the Agreement Area, and possesses all the necessary financial resources and the technical and professional competence to carry out the Petroleum Operation described under this Agreement.
NOW, THEREFORE, the parties hereto agree as to the following:
l.1 An "Affiliated Company" : Means a company:
(1) in which the share capital conferring a majority
of votes stockholders veering of such company is
owned directly or indirectly by a party hereto;
(2) which is the owner directly or indirectly of
share capital conferring a majority of votes at
stockholders meetings of a party hereto; are
owned directly or indirectly by the same
(3) whose share capital conferring a majority of
votes at stockholder meeting of such company and
the share capital conferring a majority of votes
at stockholders meeting of a party hereto are
owned directly or indirectly by the sane
(4) which directly or indirectly controls, is
controlled by, or in under common control with a
For the purpose of this definition, the word
"control" means the right to exercise more than
fifty percent (50%) of the voting rights at
shareholders or partners meetings. For the
purpose of this definition, the term "party
hereto" means the MINISTRY or any of the
companies comprising CONTRACTOR.
1.2 "Agreement" : Shall mean this Production Sharing
Agreement and any part of it.
1.3 "Agreement Area" : Means the area as described in
Annex "A" and show on the map labeled Annex "3"
which are attached to this Agreement. This area may
be reduced from time to time in accordance with
Article in this Agreement.
1.4 "Associated Gas" : Associated Gas is the Gas which
is associated with Crude Oil when it is produced
from any well in the Agreement Area, or can be
acquired after separation at the lease separators.
The aforesaid description includes all the elements
that are components of the Associated Gas prior to
its processing through the extraction
condensation, distillation and liquidisation
1.5 "Barrel" : [-------] temperature of sixty (60)
degrees Fahrenheit and atmosphere pressure of 14.65
1.6 "Commercial Discovery " : Means a discovery which
the CONTRACT determines to be worthy of commercial
Development, as set forth Article 3.4 of this
1.7 "Commercial Gas Well" : Means the first well on any
geological feature which, after testing for a
period of not more than thirty (30) consecutive
days where practical, and in accordance with sound
an accepted Petroleum Industry production practices
and verified by MOM: is considered by CONTRACTOR
to be capable of producing Dry Gas at a average
rare economically justifying the undertaking of
appraisal worth. The date of discovery of a
Commercial Gas Well is the date on which CONTRACTOR
notifies the Ministry that such well has been
tested and completed, according to the above.
1.8 "Commercial oil Well" : Means the first well on any
geological feature which, after testing for a
period of not more than thirty (30) consecutive
days in accordance with sound and accepted
Petroleum Industry production practices and in the
opinion of the CONTRACTOR is capable of producing
Petroleum at a rate that economically justifies the
undertaking of appraisal work. The date of
establishment of Commercial Oil Well is the date on
which the CONTRACTOR notifies MINISTRY that such
well has been completed and tested according to the
above. Such notice is to be given, together with a
report of the test, results and ether information
available from the well, no later that, thirty (30)
days following the conclusion of such testing.
1.9 "CONTRACTOR" : Means the Company(3) set forth in
the preamble to this Agreement and any of their
assignees, as provided for in Article 20 of this
1.10 "CONTRACTOR" : Means the cost-recovery Crude Oil
referred to in Article 7.1.1 of this Agreement.
1.11 "Customs Duties" : Means the Customs duties as
defined in Article 12 o 1 this Agreement.
1.12 "Dependent Unit" : Means any corporation, authority
or company, or directorate of the authorized by
the Minister according to Article 11 of this
Agreement, to undertake the rights and obligations
of the MINISTRY concerning this Agreement. ,
1.13 "Development" : Shall include but is not limited
to, all the operations and activities pursuant to
approved Work Programs and Budget under this
Agreement, including but net limited to the
drilling, deepening, plugging back, side tracking,
re drilling, completing and equipping of
development wells? the design, construction,
installation operation, servicing and maintenance
of equipment, lines, systems,
facilities, plants and related operations in connection with the production and operation of well, the production, saving, treating, processing and handling of Petroleum; the taking, saving, storing, transporting and delivering of Liquid Crude Oil for export; and the undertaking of re-pressuring, recycling and other secondary recovery projects.
1.14 "Development Area" : Means the entire Development Block or Development Blocks covering the entire geological structure capable of production as defines in a Request for Conversion to Development Area signed by the CONTRACTOR and approved by the MINISTRY.
1.15 "Development Block" : Means an area, the corner points of which ave been coincident with six (6) minutes by six (6) minutes latitude and longitude divisions according to the International Grid System except where limited by the existing boundaries of the Agreement Area.
1.16 "Development Expenditures": Means all costs, expenses and expenditures for Development operations with the exception of Operating Expenses.
1.17 "Development Period" : Means the period for conducting Development operations as provided in Article 3.3.(b)
1.18 "Dry Gas" : Dry gas is a non-associated gas, or the natural gas that exists in any geological reservoir that does not include Oil. The above description is applied to all natural gas that is produced to the surface and which is not in association with Crude Oil or condensates.
1.19 "Effective Date" : Means the date of the Presidential Decree ratifying this Agreement as provided in Article 33 of this Agreement.
1.20 "Exploration" : Shall include such geological, geochemical, geophysical, aerial and other surveys, and interpretation thereof, as may be contained in the approved Work Programs and Budgets, and the drilling of such shot holes, core holes, stratigraphic tests, holes for the discovery of Petroleum or the appraisal of Petroleum discoveries and other related holes and wells, and the purchase or acquisition of such supplies, materials, services and equipment thereof, as may be contained in the approved Work Programs and Budgets. The verb explore means the act of conducting exploration.
1.21 "Exploration Advisory Committee" : Means the Committee that is designated by both Parties during the Exploration Period as provided and defined in Article 4.3 of this Agreement.
1.22 "Exploration Expenditures" : Means all expenditures, costs, and expenses incurred for Exploration activities after the Effective Date of this Agreement.
5 [signature or initials]1.23 "Exploration period", "Initial Exploration
Period” and "Section Exploration Period" : Means
the periods of Exploration as defined in Article
1.24 "Exploration Work Program and Budget" : Means Work
Program and Budges for Exploration as defined in
Article 4 and described in Annex "C".
1.25 "Gas" : Means Dry Gas and/or Associated Gas.
1.25 "Initial Commercial Production" :Means the first
date upon which regular production cf Crude Oil
from the first Development Area transported from
such Development Area for the purpose of sale,
expert or processing at a refinery.
1.27 "Liquid Crude Oil" or "Crude Oil" or "Oil" : Means
any hydrocarbon produced from the Agreement Area
in a liquid state at the wellhead of lease
separators, and exists in the liquid form at a
temperature sixty (60) Degrees Fahrenheit and
atmospheric pressure of 14.65 PSIA.
1.28 "Minimum Work Obligation" : Means the minimum
Exploration work to it; performed by CONTRACTOR
with respect to the Initial Exploration Per or the
Second Exploration Period, as applicable, as
described in [---] "C".
1.29 "MINISTER" : Means the MINISTER OF OIL AND MINERAL
RESOURCES or any other Minister designated from
time to time by the STATE represent the STATE with
respect to this Agreement.
1.30 "MINISTRY" or "MOMR" : Means the MINISTRY OF OIL
AND MINERAL RESOURCES OF ROY.
1.31 "Minimum Expenditure Obligation" : Means the
minimum expenditures to be paid by CONTRACTOR
for Exploration with respect to the Initial
Exploration Period or the Second Exploration
Period, as applicable, described in Annex "C".
1.32 "Month" or "Calendar Month" : Means a calendar
month, according to the Gregorian calendar,
starting on the first day of the calendar month
unless another starting date is indicated in the
applicable provision of this Agreement. The term
"day" means a day according to Gregorian calendar.
1.33 "Monthly Average Daily Net Production" : Means the
total volume in Barrels cf Liquid Crude Oil
produced and saved from all the Development Areas
or Blocks and not used in Petroleum Operations
during any Month divided by the number of days in
1.34 "Operating Expenses" : Means all costs, expenses
and expenditure; incurred after Initial Commercial
Production, which costs, expenses a: expenditures
are net normally depreciable, in accordance with
general!.., accepted accounting practices in the
6Operating Company, and the Operating Company, as applicable, designated to conduct the Petroleum Operations as specified in Articles 3.1 and of this Agreement.
1.36 "Operating Company" : Means the company established pursuant to Article 6 and Annex "E" of this Agreement.
1.37 "Parties" : Means Government of The Republic of Yemen acting by and through the Ministry of Oil and Mineral Resources, and the CONTRACTOR.
1.38 "Petroleum" : Means Liquid Crude Oil of various densities, asphalt, Dry Gas, Associated Gas, and all other hydrocarbon substances that may be found in, and produced, or otherwise obtained and saved from the Agreement Area according to this Agreement and all substances that may be extracted therefrom.
1.39 "Petroleum Industry" : Means the international petroleum industry.
1.40 "Petroleum Operations" : Means Exploration and Development operation and all other operations authorized or contemplated under this Agreement.
1.41 "Production Sharing Oil" : Means the Crude Oil to be shared between STATE and the CONTRACTOR as described in Article 7.2 of this Agreement.
1.42 "Quarter" or "Calendar Quarter" : Means a period of three (3) consecutive months beginning on January 1st, April 1st, July 1st, and October 1st of each Year.
1.43 "Request for Conversion to Development Area": Means the request signed by the CONTRACTOR and approved by the MINISTER for the purpose of defining the Development Area with respect to a Commercial Discovery of oil. The form of such request is attached to this Agreement as Annex "H".
1.44 "Royalty" : Means the royalty to which the STATE is entitled in accordance with Article 3.2 of this Agreement.
1.45 "ROY Income Taxes" : Means the taxes defined in Article 9.1(c) of this Agreement.
1.46 "SCF" : Means the amount of Dry Gas necessary to fill one (1) cubic feet of space at atmospheric pressure of 14.65 PSIA and at a base temperature of sixty (60) degrees Fahrenheit.
71.47 "Work Program and Budget" : Means the annual budget
and work Exploration and/or Development under this
1.48 "Year" or " Calendar Year" or "Tax Year" or
"Financial Year period of twelve (12) consecutive
Months, according to the calendar, starting on
January 1, unless another starting indicated in the
applicable provision of this Agreement.
1.49 "YEMEN" or "ROY" or "STATE" : Means the REPUBLIC OF
"GOVERNMENT" means the GOVERNMENT of the REPUBLIC
Annexes "A", "B", "C", "D", "E", "F", "G" and "H" to this Agreement made part hereof and they shall be considered as having equal effect with the provisions of this Agreement, provided that if conflict between any Annex and the provisions of the main body Agreement, the provisions cf the main body cf this Agreement shall
- Annex "A": Is a description cf the Agreement Area.
- Annex "B": Is an illustrative map indicating the
Agreement Area event of any inconsistency between the
contents of [--] and Annex "B" the contents of Annex
"A" shall prevent
- Annex "C":Sets out the Minimum Work Obligation and
Minimum Expenditure Obligation for each of the two
- Annex "D":Is the form cf bank guarantee (Letter of
(a) CONTRACTOR shall deliver to the MINISTRY,
within the days after the Effective late, an
irrevocable Letter in substantially the form
attached as Annex "D" ("Credit”) issued by a
first class international bank" by CONTRACTOR
and acceptable to the MINISTRY in an a: twenty
five million United States Dollars (U.S. $25
which corresponds to the Minimum Expenditure
Obligation the Initial Exploration Period.
The Letter of Credit shall remain valid and
effective (6) tenths after the end of the said
period, except be earlier terminated in
accordance with its terms.
thirty (30) days after the end cf the Initial
Ex Period CONTRACTOR shall, if CONTRACTOR has
elected into the Second Exploration Period,
deliver to the a second Letter of Credit, in
the form and on conditions as the first, in the
amount of the Expenditure Obligation for the
Second Exploration Period
8(b) If, at the end of the Initial Exploration [illegible] [illegible] [illegible] Exploration Period or at the termination of this Agreement as applicable, the CONTRACTOR has failed to fulfill it[s] Minimum Work Obligation for the applicable period, and neither CONTRACTOR nor the bank under the applicable Letter of Credit has paid the entire amount corresponding to the amount of the applicable Letter of Credit (said amount being the original amount of said Letter of Credit reduced as provided below), then the MINISTRY shall be entitled to draw the amount of said Letter of Credit and the bank will pay in accordance with its terms.
(c) As to each period of Exploration, the amount of the Letter of Credit shall be reduced as and when each part of the Minimum Work Obligation is performed by the amount corresponding to such a part as provided in Annex “C”.
Each reduction shall be affected by a letter signed by the MINISTRY and delivered to the issuing bank in substantially the form attached as Exhibit II to Annex “D”. Provided, however, if the CONTRACTOR delivers such a letter to the MINISTRY for its signature, specifying the amount of the reduction, and no objection to such a letter is received by CONTRACTOR and issuing bank from the MINISTRY within sixty (60) days after said delivery, then the relevant reduction [illegible] be effected by CONTRACTOR’s sending to the issuing bank a copy of the letter delivered to the MINISTRY, as aforesaid, and certifying that: (i) a letter in such for was delivered to the MINISTRY and (ii) the MINISTRY did not object to the letter within sixty (60) days after such a delivery; and instructing the issuing bank to effect the reduction statement in said copy of the letter.
(d) If CONTRACTOR is prevented or delayed from performing its obligations under this Agreement due to Force Majeure as defined in this Agreement and such obligations are relevant to the Letter of Credit, then the Letter of Credit shall be suspended during such Force Majeure, and during any [time?] necessary for the elimination or removal of any damage suffered during such Force Majeure for CONTRACTOR to return to the status existing before such Force Majeure, and [all?] claims shall be payable under the Letter of Credit during suspension. The term of the Letter of Credit shall [be?] extended for the time equal to any and all suspension periods, and CONTRACTOR shall make the necessary arrangements for such extension.
- Annex “E”:
Is the form of the Charter of the Operating Company to [be?] formed as provided for in Article 6 of this Agreement.
- Annex “F”:
Is the Accounting Procedure.
- Annex “G”:
Is a sample calculation of Royalty, Cost Oil and Production Sharing Oil.
- Annex “M”:
Is the form of Request for Conversion to Development Area[s.]
9 [Illegible signature/ writing]
[Illegible signature/ writing]
GRANTS OF RIGHTS AND TERMS
3.1 Grant of Rights:
The STATE hereby grants to CONTRACTOR and the MINISTRY the exclusive right to conduct Petroleum Operations in the Agreement Area subject to the terms, covenants and conditions set out in this Agreement. The CONTRACTOR, prior to the establishment of the Operating Company, shall conduct the Petroleum Operations under this Agreement.
This Agreement shall henceforth govern all the interests, rights and obligations of the parties hereto, and the STATE shall in its name retain the title to the Agreement Area. Except as expressly provided by this Agreement, no other rights or privileges are granted to the CONTRACTOR with respect to the Agreement Area, Petroleum produced from the Agreement Area, or any other mineral resources in the Agreement Area.
The STATE shall own and be entitled to take as Royalty from the total Crude Oil produced and saved from the Development Area(s) and not in Petroleum Operations prior to the deduction of Cost Oil, a non recoverable amount of Crude Oil equal to ten percent (10%) of such Crude Oil commencing with the first barrel produced and saved from the Development Area(s) and not used in Petroleum Operations.
The term of this Agreement shall include an Exploration Period and Development Period as follows:
(a) Exploration period;
There shall be an Initial Exploration Period of thirty (30) months commencing from the Effective Date ("the Initial Exploration Period"); and an extension period of thirty (30) months ("the Second Exploration Period") to the Initial Exploration Period shall be granted to the CONTRACTOR at its option upon providing a written request to the Minister within thirty (30) days prior to the end of the Initial Exploration Period, provided that the CONTRACTOR has fulfilled all its obligations under this Agreement for the Initial Exploration Period.
The Initial Exploration Period or the Second Exploration Period may be extended, as the case may be, as follows: -
(i) If CONTRACTOR drills one (1) or more Commercial Oil Wells in the Initial Exploration Period, CONTRACTOR shall, at least thirty (30) days prior to the end of the Initial Exploration Period, elect either to enter into the Second Exploration Period, as provided in this paragraph (a), or to extend the Initial Exploration Period for the time necessary to appraise
the said one or more Commercial Oil Wells,
provided hat all the time of such election
CONTRACTOR has fulfilled its obligations under
this Agreement for the Initial Exploration Period
and in no event shall any such extension of the
Initial Exploration Period exceed nine (9) Months.
If CONTRACTOR elects to extend the Initial
Exploration Period as aforesaid CONTRACTOR shall
not have the right to enter into the Second
(ii) If CONTRACTOR drills one (1) o more Commercial Oil
Wells the Second Exploration Period, CONTRACTOR
shall have the right to elect, by written notice
to the MINISTRY given at less thirty (30) days
prior to the end of the Second Exploration Period,
to extend the Second Exploration Period by the
time necessary to appraise the said one or more
Commercial Oil Wells provided that at the tire of
such election CONTRACTOR has fulfilled its
obligations under this Agreement for the Second
Exploration Period and in no event shall such
extension exceed nine (9) Months.
(iii) Without prejudice to Article 3.3(a)(i) and (ii)
above, [---] Exploration Period shall be extended
up to forty five (45) days at CONTRACTOR's option,
to enable the completion drilling [--] testing of
the third Exploration Well actually being drilled
or tested, if any, at the end of any such
Exploration Period. In the event that such a well
proves [--] be a Commercial Oil Well then the
Initial Exploration Period and/or the Second
Exploration Period, as the case may be shall be
extended by the time needed to appraise the said
Commercial Oil Well in accordance with Article
3.3(a) (i) c: 3.3(a) (ii) as the case may be
This Agreement shall be terminated if no Commercial Oil Well, as defined hereunder, is established by the end of the last Exploration Period.
(b) Development Period :
The Development Period shall commence on the date of
the first Commercial Discovery of Oil and shall
continue for the period of twenty (20) Years and can
be extended up to five (5) Years upon the written
request of the CONTRACTOR and the approval of the
3.4 Commercial Discovery of Oil:
(a) A Commercial Discovery of Oil, may consist of one
producing reservoir or a group of producing
reservoirs which is worthy of being develop.
commercially as determined by CONTRACTOR. After
drilling a Commercial Oil Well, the CONTRACTOR shall
undertake as part of its Exploration program the
appraisal of the discovery by drilling one or mere
appraisal wells to determine whether such discovery
is worthy of being develop commercially, taking into
consideration the recoverable reserves and all
other relevant technical and economic factors.
11 (b) The CONTRACTOR shall give a written notice of a Commercial Discovery of oil to the MINISTRY immediately after the discovery is considered by CONTRACTOR to be worthy of commercial Development. With respect to a commercial Oil Well drilled after the Exploration Period, CONTRACTOR shall give such notice of Commercial Discovery of Oil, not later than thirty (30) days following the completion of the third appraisal well, or eight (8) months following the date of the discovery of such Commercial Oil Well, whichever is earlier. The CONTRACTOR shall also have the obligation to give notice of Commercial Discovery of Oil even if the discovery well or wells are not Commercial Oil Wells within the definition of "Commercial Oil Well" if, in the CONTRACTOR's opinion, a reservoir or group of reservoirs, considered collectively, could be worthy of commercial Development. Notice of a Commercial Discovery of oil may be given by CONTRACTOR at any time during the Exploration Period.
The CONTRACTOR shall also give notice of a Commercial Discovery of Oil in the event it wishes to undertake a gas recycling project, unless such project is already a part of the Development of a previously declared Commercial Oil Discovery.
The date of a Commercial Discovery of Oil will be the date on which the CONTRACTOR gives written notice to the MINISTRY of the declaration for such commercial discovery.
(c) Following the notice of any Commercial Discovery of Oil as provided for in Article 3.4 (b) of this Agreement, the MINISTRY and CONTRACTOR, within thirty (30) days, shall sign the request for Conversion to Development Area in the form set forth in Annex "H", which will identify the Development Area
(d) The provisions set forth herein contemplate the unity and the indivisibility of the concepts of Commercial Discovery and Development Area and they shall apply to Oil unless otherwise specified.
3.5 Sole Risk Project:
If Crude Oil is discovered but is not deemed by the CONTRACTOR to be a Commercial Discovery of Oil under the above provisions of Article 3.4, the MINISTRY shall after one (1) Month from the expiration of the period specified above within which the CONTRACTOR can give notice of a Commercial Discovery of Oil, have the right after sixty (60) days from providing a written notice to CONTRACTOR, and at MINISTRY's sole risk and expense, to develop, produce and dispose of all Crude Oil from the geological feature in which said Crude Oil was discovered as aforesaid. Said notice shall state the specific area covering said geological feature to be developed, the wells to be drilled, the production facilities to be installed and MINISTRY's estimated cost thereof. Within thirty (30) days after receipt of said notice the CONTRACTOR may, in writing, elect to develop such area as provided for in this Agreement in the case of Commercial Discovery.
In such event, all terms of this Agreement shall continue to the specified area. If the CONTRACTOR elects not to develop such area (hereinafter called "Sole Risk Area")covering said geological feature shall be set aside fore sole risk operations by the MINISTRY. The Sole Risk Area shall be mutually agreed upon by the MINISTRY and the CONTRACTOR on the basis of good Petroleum Industry practices. in the event that the Operating Company has come into existence, the MINISTRY shall be entitled to have the Operating Company or third party perform such operations for it at the MINISTRY's sole risk and expense. When the MINISTRY has recovered from the Crude Oil produced from the Sole Risk Area a quantity of Crude Oil equal in value to three hundred percent (300%)of the cost it has incurred in carrying out the sole risk operations, the CONTRACTOR shall have the option, only in the event there has been a separate Commercial Discovery of Oil elsewhere within the Agreement Area to share in further development and production of the Sole Risk Area upon paying the MINISTRY one hundred percent (100%) of the costs incurred by the MINISTRY in conducting the sole risk operations. At least one (1) Month prior to the estimated recovery date, the MINISTRY or the Operating Company or the third party shall give written notice to the CONTRACTOR and allow the CONTRACTOR access to all relevant data to evaluate the option, as may be requested by the CONTRACTOR. The one hundred percent (100%) payment shall not be recovered by CONTRACTOR.
Immediately following such payment the Sole Risk Area shall either (1)revert to the status of an ordinary Development Area under this Agreement and thereafter shall be operated in accordance with the terms hereof; or (2) alternatively, in the event that at such time the MINISTRY or a third party or any of the MINISTRY's Dependent Units are conducting Development operations in the Sole Risk Area at its sole expense and the MINISTRY elects to continue operating, the Sole Risk Area shall remain set aside and the CONTRACTOR shall only be entitled to its percentage of the Production Sharing Oil as specified in Article 7.2 below. The Crude Oil from the Sole Risk Area shall be valued in the manner provided in Article 7.3. In the event of any termination of this Agreement under the provisions of Article 3.3(a) or 3.3(b) above, this Agreement shall, however, continue to apply to the MINISTRY's operation of any Sole Risk Project. In the event the CONTRACTOR elects to participate in a Sole Risk Project under this Article 3.5 the MINISTRY will make available for inspection by the CONTRACTOR all books, account, reports, records and related documentation supporting one hundred percent (100%) of the costs incurred.
WORK PROGRAM AND EXPENDITURES DURING THE EXPLORATION PERIOD
4.1 Exploration Work Program and Budget
During the Exploration Periods, including any extensions of such periods, the CONTRACTOR agrees and commits to undertake in the Agreement Area a program of Exploration work as a minimum Exploration commitment
13which cannot be changed or amended without the approval of the MINISTER which will not be unreasonably withheld.
During the Initial Exploration Period, the CONTRACTOR shall meet Minimum Work and Minimum Expenditure Obligation for such period as forth in Annex "C" of this Agreement. In the event that the CONTRACTOR timely gives the required written notice to the MINISTRY to enter in the Second Exploration Period, the CONTRACTOR shall meet the addition Work and Expenditure Obligation for such period as set forth in Annex "C" of this Agreement. The CONTRACTOR shall begin the seismic programmes not later than three (2) months from the Effective Date. The MINISTERS shall make available for CONTRACTOR'S use, free of charge, all seismic well and other relevant data in its possession with respect to Agreement Area.
The CONTRACTOR shall have the right to withdraw before the end of Initial Exploration Period, and this Agreement shall terminate on date a written notice of such withdrawal is received by the MINISTER from the CONTRACTOR. In the event the CONTRACTOR withdraws, having expended less than the minimum amount required in the Initial Exploration Period, an amount equal to the difference between s -0 minimum amount and the amount actually spent on Exploration activities shall be paid by the CONTRACTOR to the MINISTRY at the time of withdrawal, but in no event later than two (2) Months after the expiration of such Exploration Period. Any expenditure deficiency the CONTRACTOR at the end of the Second Exploration Period shell obligate the CONTRACTOR to pay such deficiency to the MINISTRY with two (2) Months after the expiration of such Exploration Period.
At least three (2) Months prior to the beginning of each Financial Year, or at such other times as may mutually be agreed to by MCMR and the CONTRACTOR, the CONTRACTOR shall prepare an Exploration Work Program all Budget for the Agreement Area setting forth the Exploration operatic which the CONTRACTOR proposes to carry out during the ensuing Year. During each Exploration Period, such Work Programs and Budgets take together shall be at least sufficient to satisfy CONTRACTOR'S Minimum Work and Expenditure Obligation for the period it covers, taking into account any credits for excess work or excess expenditures by the CONTRACTOR in any Exploration Period.
Exploration Advisory Committee:
The Exploration Work Program and Budget shall be reviewed by a join committee to be established by MCMR and the CONTRACTOR after the Effective Date. This committee, hereinafter referred to as the "Exploration Advisory Committee", shall consist of six (6) members three (3) of whom shall be appointed by MCMR and three (2) by the CONTRACTOR. The Chairman of the Exploration Advisory Committee shall be designated by MCMR from among the members appointed by it. The Secretary of the Exploration Advisory Committee shall be appointed if the CONTRACTOR from among the members appointed by it. The Exploration
14 Advisory Committee shall review and give such advise as it deems appropriate with respect to the proposed Work Program and Budged following review by the Exploration Advisory Committee, the CONTRACTOR shall make such revisions as he thinks appropriate and submit the Exploration Work Program and Budget to MOMR for its approval. Following such approval, the CONTRACTOR shall not substantially revise or modify said Work Program and Budget without the approval of the MINISTRY.
4.4 The CONTRACTOR shall advance all necessary funds for all materials, equipment, supplies, personnel administration and operations pursuant to the Exploration Work Program and Budget and MOMR shall not be responsible to bear or repay any of the aforesaid costs. The CONTRACTOR shall be responsible for the preparation and performance of the Exploration Work Program and Budget which shall be implemented in a workmanlike manner and in accordance with good Petroleum Industry practices.
The CONTRACTOR shall entrust the management of Exploration operations in the ROY to its technically competent General Manager and Deputy General Manager. The name of such General Manager and Deputy General Manager shall, upon appointment, be forthwith notified to the MINISTRY. The General Manager and, in his absence the Deputy General Manager shall be entrusted by the CONTRACTOR with sufficient powers to carry on immediately all lawful written directions given to them by the MINISTRY or its representative under the terms of this Agreement. All lawful regulations issued or hereafter to be issued which are applicable hereunder and not in conflict with this Agreement shall apply to the CONTRACTOR.
4.5 Statement of Expenditure
The CONTRACTOR or where appropriate, the Operating Company, shall supply MOMR, within thirty (30) days from the end of each Calendar Quarter with a Statement of Exploration or the Development Expenditures showing costs incurred by the CONTRACTOR or Operating Company during such Quarter. Notwithstanding the MINISTRY's rights of audit in accordance with Article 1.4.1 of the Accounting Procedure Annex "F" the CONTRACTOR's or Operating Company's records and necessary supporting documents shall be available for inspection by the MINISTRY at any time during regular working hours for three (3) Months form the date of receiving each Statement.
Within the three (3) Months from the date of receiving such Statements the MINISTRY shall advise the CONTRACTOR in writing if it considers
(a) that the record of costs is not correct; or
(b) that the costs of goods or services supplied in ROY are not in line with the international market prices for goods or services or similar quality supplied on similar terms for prevailing at the time such goods or services were supplied, provided however, that purchases made and services performed within ROY shall be subject to Article 16.1 of this Agreement; or
(c) that the condition of the materials furnished by CONTRACTOR does not agree with their prices; or
[signature or initials]Operations.
If within such three (3) month period, MINISTRY has not advised CONTRACTOR of its objection to any item in such statement, such statement shall be considered as having received preliminary approval. If within such period MINISTRY does advise it CONTRACTOR of its objection to any such item the Parties shall attempt to reach a solution for such item which is mutual satisfactory, either by themselves or with the assistance independent experts, but the remainder of the Statement shall considered as approved.
The CONTRACTOR shall confer with MOMR in connection with any problem thus presented, and the Parties hereto shall attempt to reach settlement which is mutually satisfactory.
5.1 Mandatory Relinquishments.
(a) At the end of the Initial Exploration Period the CONTRACTOR shall relinguish a total of thirty percent (30%) of the original Agreement Area provided that if the CONTRACTOR does not elect enter into the Second Exploration Period or the extension set for in Article 3.3.(a), then the CONTRACTOR shall relinquish remainder of the original Agreement Area not then converted to Development Area or Development Areas.
(b) At the end of the Second Exploration Period, the CONTRACTOR shall relinquish the whole of the Agreement Area not then converted to a Development Area, provided that the CONTRACTOR will relinquish the whole Agreement Area, if otherwise, the CONTRACTOR has not many any Commercial Discovery.
5.2 Voluntary Relinquishments.
The CONTRACTOR may voluntarily relinquish all or any part of the Agreement Area subject to fulfilling all of its obligations under Article 4.1 of this Agreement. Any voluntary relinquishment shall be credited toward the mandatory relinquishments required under Article 5 above.
5.3 Requirements for Relinquishments.
The size and shape of the relingquishments made under this Article shall be determined by mutual agreement, provided that, unless otherwise agreed, all areas relinquished shall, at a minimum, be contiguous any reasonably accessible for, and capable of, further Exploration of Development. Any part of the Agreement Area shall be considered subject to relinquishment, including any such part corresponding to a geological feature in which Petroleum may be present or has been determined to be present after drilling a well; provided that, notwithstanding the foregoing, the CONTRACTOR shall not be obliged to relinquish any path of the Agreement Area corresponding to a Development Area(s) or to the surface area of any geological feature in which a Commercial oil which has been established, unless the time provided for establishing.
Commercial Discovery has expired pursuant to Article ? in this Agreement.
5.4 Notice of Relinquishment.
At least thirty (30) days prior to the date of each relinquishment, the CONTRACTOR shall submit to the MINISTRY a report of its completed Exploration activities on the area proposed to be relinquished and the coordinates of the connecting points of the boundary line of such areas.
6. OPERATIONS AND DEVELOPMENT PERIOD:
6.1 Operating Company:
(a) Upon a Commercial Discovery of Oil, MOMR and the CONTRACTOR shall form in the ROY an Operating Company which shall be named by mutual Agreement between MOMR and the CONTRACTOR. The Operating Company shall be subject to provisions of this Agreement and the Charter of Operating Company.
(b) The form of the Charter of Operating Company is hereto attached to Annex "E". Within thirty (30) days after the date of the file Commercial Discovery of Oil the Charter shall be completed and signed by the MINISTRY and by CONTRACTOR and shall take effect the last day of said thirty (30) days and the Operating Company shall automatically come into existence without any further procedures. The Exploration Advisory Committee shall be dissolved upon the coming into existence of the Operating Company.
(c) Upon the establishment of the Operating Company, CONTRACTOR shall be subject to the requirements of Article 17.3 in the main body of this Agreement, second to the Operating Company the expatriate employees of CONTRACTOR as are necessary or desirable for the Operating Company as to conduct the Petroleum Operations. The selection of such expatriate employees and the number shall be determined by CONTRACTOR subject to the approval of the MINISTRY upon recommendation of the Board of Directors of the Operating Company ("Board of Directors"). All costs and expenses of such personnel shall be charged to the Petroleum Operations and shall be recoverable pursuant to this Agreement and the Accounting Procedure Annex "F".
(d) All service contracts between CONTRACTOR and its Affiliated Companies relevant to the Petroleum Operations shall be automatically assigned to the Operating Company, and CONTRACTOR's Affiliated Companies shall pursuant to such service contracts provide services to the Operating Company outside the ROY as are necessary or desirable for the Petroleum Operations and the charges for such services shall be recoverable pursuant to this Agreement and the Accounting Procedure Annex "F".
(e) The ROY employees of CONTRACTOR shall be transferred to the Operating Company so as to become employees of the Operating Company and such transfer shall be effective without any actual ?? deemed separation from employment that would give rise to any separation benefits or claims and without prejudice to all accr????
17 [signature or initials]
CONTRACTOR for the purpose of maintaining relations
with the MINISTRY and the STATE and otherwise
conducting its activities YEMEN under this
(f) Ninety (90) days after the date that the Operating
Company come into existence in accordance with
paragraph 6.1.b. above, it shall prepare a Work
Program and Budget for further Exploration and
Development for the remainder of the Financial Year
in which the Commercial Discovery of Oil is made;
and not later than three (Months before the end of
the current Financial Year (or such other date as
may be agreed upon by the Board of Directors) and
three (3 Months preceding the commencement of each
succeeding Financial Year; thereafter (or such
ether date as may be agreed upon by the Board of
Directors), the Operating Company shall prepare an
annual Production Schedule, Work Program and Budget
for further Exploration and Development for the
succeeding Financial Year). The Production
Schedule, Work Program and Budget shall be
submitted to the Board of Directors for approval.
(g) Not later than the twentieth (20) day of each
Month, the Operation Company shall furnish to the
CONTRACTOR who will secure the financing of all
required amounts for the Development Exploration
programmes during the validity of this Agreement
written estimate of its total cash requirements for
expenditure for the first half and the second half
of the succeeding Month expressed in United States
Dollars having regard to the approval Budget. Such
estimate shall take into consideration any case
expected to be on hand at Month, end. Payment for
the appropriate period of such Month shall be made
to the bank designated Article 6.1(h) below on the
first (1st) day and the fifteenth (15th) day
respectively, or the next following business day,
such day is not a business day.
(h) The Operating Company is authorized to keep at its
own dispose abroad in an account or accounts opened
with an international banks or banks reasonably
acceptable to the Central Bank of Yemen, the
foreign funds advanced by the CONTRACTOR.
Withdrawals from savings account shall be used for
payment for goods and services acquires abroad and
for transferring to local banks in ROY the
require, amounts to meet expenditures in Yemeni
currency of the Operation Company in connection
with its activities under this Agreement.
(i) The Operating Company shall have the right to
construct and opera facilities for the transport,
storage and shipment of Petroleum in the RCY, and
the MINISTRY shall render all assistance to the
Operating Company on matters involving YEMEN law.
(j) If, during the term of this Agreement, CONTRACTOR
and the MINISTER agree that the Operating Company
has no foreseeable need for part or all of the
unused capacity of a pipeline, Crude Oil storage
expert terminal facility forming part of Petroleum
Operations, are that in CONTRACTOR'S opinion such
capacity can be used for operations conducted by
the MINISTRY or anyone acting on behalf of the
MINISTRY, including persons having rights under any
other Production Sharing Agreements in YEMEN,
without interfering with CONTRACTOR'S and the
MINISTRY'S operations under this Agreement.
and if the MINISTRY determines a need for such
part or all of such unused capacity for such
operations in YEMEN, then the MINISTRY shall so
advise CONTRACTOR, and the MINISTRY and
CONTRACTOR shall meet to negotiate mutually
satisfactory terns covering such use. The terms
for the use of the above-mentioned facilities
shall include reasonable payment by the user,
limitations on the period and extent of such
use, and provision for payment by the user of
the costs and expenses incurred by reason of
such use, provided always that the Operating
Company shall have priority to use the
above-mentioned facilities for the Petroleum
(k) If CONTRACTOR should determine and advise the
MINISTRY that the Operating Company needs part or
all of the unused capacity in a pipeline, Crude Oil
storage or export terminal facility in YEMEN which
is not subject to this Agreement, the MINISTRY
shall, to the extent that it has the right to do
so, cause such unused capacity to be made available
for the Operating Company's use for Petroleum
Operations on mutually satisfactory terms, including
reasonably payment for such use.
RECOVERY OF COSTS AND PRODUCTION SHARING
7.1.1 Cost recovery Crude Oil :
Subject to the auditing provisions under this
Agreement, the CONTRACTOR shall recover all costs,
expenses and expenditures incurred for all
Petroleum Operations cut of and to the extent of a
maximum of twenty-five percent (25%) per Quarter
of all the Crude Oil produced and saved from the
Agreement Area and net used in Petroleum
Operations and after Royalty payments to the
STATS according to Article 3.2 of this Agreement.
Such Crude Oil is hereinafter referred to as "Cost
Oil". All such costs, expenses and expenditures
shall be recovered from Cost Oil in the following
(a) Operating Expenses incurred and paid after the
date of Initial Commercial Production shall
be recoverable in the Tax Year in which such
costs and expenses are incurred and paid.
(b) Exploration Expenditures including, but net
limited to those accumulated prior to the
commencement of Initial Commercial Production
shall be recoverable at the rate of twenty-
five percent (25%) maximum per Year starting
either in the Tax Year in which such
expenditures are incurred and paid or the Tax
Year in which Initial Commercial Production
commences, whichever is the later.
19 (c) Development Expenditures, [---------------------]
accumulated prior to the commencement of Initial
Commercial Production shall be recoverable at the
rate of twenty-five percent (25%) maximum per Year
starting in the Tax Year in which such expenditures
are incurred and paid or the Tax Year in which
Initial Commercial Production commences, whichever
is the later.
(d) If all costs, expenses and expenditures that are
recoverable in any Quarter, including, but not
limited to, such costs, expenses and expenditures
carried forward from previous Quarters pursuant to
this paragraph (d), exceed the value cf the maximum
amount of Cost Oil (“Maximum Cost Oil") that can
be taken by CONTRACTOR in such-Quarter, as provided
in Article 7.1.1. above then the unrecovered excess
amount shall be carried forward for recovery in the
next succeeding Quarter or Quarters until fully
recovered, but in no case shall they be recovered
after the termination of this Agreement. However,
if such recoverable costs, expenses any
expenditures are less than the value cf the Maximum
Cost Oil, then the value of the Crude Oil taken as
Cost Oil by CONTRACTOR shall be equal to such
recoverable costs, expenses and expenditures.
The difference between the Maximum Cost Oil and the
Cost Oil actual if* taken by CONTRACTOR during such
Quarter shall be included in the Production Sharing
Oil and taken and disposed of separately by "''15
MINISTRY and CONTRACTOR pursuant to Article 7.2
7.1.2 Non-Recoverable Costs and Expenditures : In
addition to any, recoverable costs and
expenditures provided for in this in Annex "F” cf
this Agreement, the under mentioned costs are
expenses are not recoverable from Cost
Oil or otherwise under this Agreement :-
1. Costs and expenses net related to Petroleum
Operations in the Agreement Area.
2. That portion of the costs and expenses in excess
of the limitations set forth in the Accounting
Procedure in Annex "F" or ether previsions of
3. Expenses incurred, paid, and carried forward,
prior to the Effective Date of this Agreement.
4. Taxes in YEMEN or in ether countries except as
specified provided for in this Agreement.
5. Losses which are recovered through insurance/
any contract of indemnity or otherwise from a
206. Bonuses paid to the STATE.
7. Interest, fees and commissions on loans and guarantees.
8. Expenses or payments for education and training pursuant to this Agreement, except for costs and expenses for training of ROY employees of CONTRACTOR and ROY employees of the Operating Company provided such costs and expenses are included in an approved Work Program and Budget.
9. Expenses incurred and paid for the marketing of Agreement Area Petroleum outside YEMEN and the cost of transporting, storing, handling and exporting of Petroleum beyond the point of export in YEMEN.
10. Foreign exchange lessees.
7.2 Production Sharing Oil:
The crude oil remaining after deducting Royalty and Cost oil from the total Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, shall be taken and disposed of separately. By the MINISTRY and CONTRACTOR in accordance with the sample calculation in Annex “G” and as follows:
(a) For the portion or increment of production up to and including twenty-five thousand (25,000) Barrels of Monthly Average Daily Net Production:
Seventy-seven percent (77%) to Ministry and
twenty-three percent (23%) to CONTRACTOR.
(b) For that additional portion or increment of production which exceeds twenty-five thousand (25,000) Barrels of Monthly Average Daily Net Production up to and including fifty thousand (50,000) Barrels of Monthly Average Daily Net Production:
Seventy-nine percent (79%) to Ministry and
twenty-one percent (21%) to CONTRACTOR.
(c) For that additional portion or increment of production which exceeds fifty thousand (50,000) Barrels of Monthly Average Daily Net Production up to and including seventy-five thousand (75,000) Barrels of Monthly Average Daily Net Production:
Eighty-one percent (81%) to Ministry and
nineteen percent (19%) to CONTRACTOR.
(d) For that additional portion or increment of production which exceeds seventy-five thousand (75,000) Barrels of Monthly Average Daily Net Production up to and including one hundred thousand (100,000) Barrels of Monthly Average Daily Net Production:
eighty-three percent (83%) to MINISTRY and
seventeen percent (17%) to CONTRACTOR.
(e) For that additional portion or increment of production which exceeds one hundred thousand (100,000) Barrels of Monthly Average Daily Net Production up to and including one hundred and fifty thousand (150,000) Barrels of Monthly Average Daily Net Production:
eighty-five percent (85%) to MINISTRY and
fifteen percent (15%) to CONTRACTOR.
(f) For that additional portion or increment of production which exceeds one hundred and fifty thousand (150,000) Barrels of Monthly Average Daily Net Production up to and including two hundred thousand (200,000) Barrels of Monthly Average Daily Net Production:
eighty-seven percent (87%) to MINISTRY and
thirteen percent (13%) to CONTRACTOR.
(g) For that additional portion or increment of production which exceeds two hundred thousand (200,000) Barrels of Monthly Average Daily Net Production:
ninety percent (90%) to MINISTRY and
ten percent (10%) to CONTRACTOR.
7.3 Valuation of Crude Oil:
1. It is the intent of the Parties that the value of the Cost Oil (and CONTRACTOR's Production Sharing Oil for the purpose of ROY Income Taxes is provided in Article 9.1(c) below) shall reflect the prevailing market price for Crude Oil. For the purpose of evaluating the prevailing market value of the quantity of Cost Oil to which the CONTRACTOR IS entitled hereunder during each Calendar Quarter, the weighted average price realized in freely convertible currency, from F.O.B. point of export sales to non-Affiliated Companies during any such quarter at arms length by either the MINISTRY or the CONTRACTOR under all such Crude Oil sales of the Agreement Area Crude Oil then in effect, but excluding Crude Oil sales contracts involving barter, whichever is higher, shall be used. Prices shall be appropriately adjusted to credit terms
22Providing for payment within thirty (30) days from the date of bill of lading. Currencies other than United States Dollars shall be converted into United States Dollars at the rate for buying United States Dollars with such currencies as quoted by National Westminster Bank plc, London, at 10:30 a.m. London time, on the bill of lading date for any such sales, and if this is not banking day in London, on the next succeeding banking day in London.
It is understood that in the case of C.I.F. sales, approximate deductions shall be made for applicable freight and insurance charges to calculate the F.O.B. point of export price always taking into account the appropriate adjustment for quality of Crude Oil, freight advantage or disadvantage of port of loading and other appropriate adjustments. Nevertheless, with respect to the above procedure, if the CONTRACTOR considers the value of the cost oil so determined not to reflect the market conditions prevailing during the Calendar Quarter, the CONTRACTOR and the MINISTRY shall meet and mutually agree upon the price.
2. If during any Calendar Quarter there are no such sales by MINISTRY or the CONTRACTOR then in effect, the MINISTRY and CONTRACTOR shall meet as soon as practicable, but no later than ten (10) days after the end of such Quarter, and mutually agree upon the price of Crude Oil to be used in determining the value mentioned in paragraph 1 above. Pending such mutual agreement the provisional price used shall be the last price determined pursuant to Article 7.3.1 above or under this paragraph 2 and appropriate adjustment will be made thereto after determination of a mutually agreed price by the MINISTRY and CONTRACTOR.
7.4. Tanker Lifting:
At a reasonable time prior to the commencement of Initial Commercial Production, the Operating Company shall submit for consideration to this CONTRACTOR and the MINISTRY a procedure for scheduling tanker liftings from the agreed upon point (s) of export and shall negotiate with the MINISTRY and CONTRACTOR acceptable provisions relating to underlifting and overlifting of production. Such provisions shall include periods and at least Quarterly settlement of overlifts and underlifts in all or in kind at the option of the MINISTRY.
7.5 Optional Purchase of Crude Oil:
The MINISTRY shall have the option, to be exercised upon at least ninety (90) days notice to CONTRACTOR, to purchase from CONTRACTOR up to fifty percent (50%) of CONTRACTOR’s Production Sharing Oil.
The price for the Production Sharing Oil purchases by the MINISTRY shall be as mutually agreed by the MINISTRY and the CONTRACTOR. If no
agreement is reached then the price applied shall be the weighted average price received by CONTRACTOR for its sales to non-Affiliated Companies as calculated in Article 7.3.1. above during the applicable Quarter. If there have been no such sales then the price reached under Article 7.3 for the applicable Quarter shall apply.
All purchases by the MINISTRY pursuant to this option shall be on credit terms providing for payment within thirty (30) days from the bill of lading date for sales by tanker shipments, and from invoice date for other sales.
7.6 Production Forecast :
The Operating Company shall prepare and furnish to CONTRACTOR and the MINISTRY a Yearly production forecast report setting out the total quantity (ies) of the Petroleum that the Operating Company estimates can be produced, saved, and transported according to this Agreement during the Year and Quarterly in accordance with good Petroleum Industry practices.
The Operating Company shall use its best efforts to produce the forecome quantity of each Quarter, as updated from time to time.
The Operating Company shall, in accordance with good Petroleum Industry practices, store the Crude Oil in storage tanks constructed and maintained by the Operating Company in the Agreement Area or each Development Area, as applicable.
Measuring and volumetric determination of Crude Oil shall take place as such storage tanks for the purpose of this Agreement.
The MINISTRY shall take Royalty and title to its share of Production, Sharing Oil, and CONTRACTOR shall take title to Cost Oil and its share of Production Sharing Oil (in accordance with Article 7.1 and 7.2 respectively, as provided for in this Agreement) at a metering point at the storage tanks or at a point mutually agreed upon by the MINISTRY and the CONTRACTOR.
TITLE TO ASSETS
8.1 MOMR shall become the owner of all assets acquired and owned by the CONTRACTOR in connection with the Petroleum Operations carried out by the CONTRACTOR or the Operating Company in accordance with the following:
(1) Land shall become the property of the MINISTRY as soon as it is, purchased or obtained, subject to CONTRACTOR’s use, free of rent or taxes of any kind during the term of this Agreement.
24(2) Title to fixed and movable assets shall be transferred automatically and gradually from the CONTRACTOR to the MINISTRY [as] they are recovered in accordance with the provisions of Article 7.1.1 of this Agreement however the full title to fixed and movable assets shall be transferred automatically from the CONTRACTOR [to] the MINISTRY when its total cost has been recovered by the CONTRACTOR in accordance with the provisions of Article 7.1.1 [and/or?] at the time of termination of this Agreement with respect to all assets chargeable to the Petroleum Operations whether recovered or not, whichever occurs first.
The book value of such assets in each Calendar Quarter shall be communicated by the CONTRACTOR and the Operating Company as applicable to the MINISTRY within thirty (30) days after the end of each Calendar Quarter.
8.2 During the term of this Agreement, the CONTRACTOR as Operator before [xxx] formation of the Operating Company and the Operating Company are entitled to the full use of all fixed and movable asset referred to [the] above in connection with the Petroleum Operations hereunder or under other Petroleum Operation entered into by the Parties. The CONTRACTOR and the Operating Company shall not dispose of the same except with the written approval of the MINISTER, such approval will not be unreasonably withheld.
8.3 The CONTRACTOR and the Operating Company may freely import into the ROY and use therein and freely export at the end of such use, machinery and equipment which they either rent or lease in accordance with [xxxx] Petroleum Industry practices including but not limited to the leasing of computer hardware and software.
TAXES AND BONUSES
9.1 (a) CONTRACTOR shall pay a fixed percentage tax (“fixed tax”) equivalent to three percent (3%) of all its Exploration, Expenditures incurred and paid in conducting its Petroleum Operations. This fixed tax shall be paid within three (3) Months after the Tax Year in which the relevant Exploration Expenditure are incurred and paid. Such payments shall be made to the ROY [XXXX] authorities and shall be accompanied by statements authenticated by the MINISTRY setting out the relevant Exploration Expenditures within one hundred and fifty (150) days after the end of each Tax Year for which this fixed tax is paid, the MINISTRY shall furnish to CONTRACTOR official receipts evidencing the payment of such tax.
9.2 (b) Expatriate employees of CONTRACTOR, the Operating Company, their contractors and subcontractors shall be exempt from all personal income taxes and similar taxes in the ROY on all income or reimbursements paid by CONTRACTOR the Operating Company, and their
15 [Signature 1]
subcontractors and on all income from any sources outside of the ROY. All non-ROY contractors and subcontractors of CONTRACTOR and Operating Company shall be exempt from all taxes whatsoever measured by income, profits, turnover or otherwise with respect to all payments made to them by CONTRACTOR and Operating Company for services, equipment and materials provided in the Petroleum Operations under this Agreement.
9.1.(c) Income Tax
Any and all taxes to which Contractor is subject under the laws of the ROY that are measured by income, profit or turnover are hereinafter referred as as "ROY Income Taxes". For the purpose of ROY Income Taxes, the total taxable income of CONTRACTOR with respect to any Tax Year shall be an amount calculated as follows:
i. the total value (determined as provided in Article 7.3 above) of all Crude Oil received by CONTRACTOR in such Tax Year pursuant to Article 7, less the costs and expenses of CONTRACTOR which are recovered by CONTRACTOR in the Tax Year under Article 7.1.1.; plus
ii. An amount equal to CONTRACTOR's ROY Income Taxes.
If the total value of such Crude Oil received in any Tax Year by CONTRACTOR as set out in this Article 9.1.(c) i. above is equal to zero, then CONTRACTOR shall not be required to pay ROY Income Taxes for such Tax Year.
9.1.(d) The Ministry shall assume, pay and discharge on behalf of CONTRACTOR, CONTRACTOR's ROY Income Taxes out of the MINISTRY's share of Petroleum under this Agreement.
9.1.(e) Within one and hundred fifty (150) days after the end of each Tax Year, the MINISTRY shall furnish to CONTRACTOR official receipts evidencing the payment of CONTRACTOR's ROY Income Taxes for such Tax Year. Such receipts shall be issued by the proper tax authorities and shall state the amount and other particulars customary for such receipts.
9.1.(f) In calculating its ROY Income Taxes, the MINISTRY shall be entitled to deduct the ROY Income Taxes of CONTRACTOR paid by the MINISTRY on CONTRACTOR's behalf.
9.1(g) The CONTRACTOR, its Affiliate Companies and their subcontractors and Operating Company and it's sub-contractors are exempt from all of the taxes and related taxes of any nature whatsoever with the exception of the fixed tax as stated in Article 9.1.(a) and the ROY Income Taxes as stated in Article 9.1.(c) above.
[Signature] [Signature)9.1.(h) Taxes Statements
CONTRACTOR shall provide the statements concerning the calculation of the fixed tax stated in Article 9.1.(a) above within thirty (30 days after each Quarter commencing after the Effective Date of this Agreement, and shall provide statements concerning the ROY Income Taxes according to Article 9.1.(c)i. above within thirty (30) day after each Tax year commencing after Initial Commercial Production.
9.2.(a) Signature Bonus:
CONTRACTOR shall within ten (10) days from the EFFECTIVE date, pa to the MINISTRY as a signature bonus the sum of seven million United States Dollars (U.S.$.7,000,000).
9.2.(b) PRODUCTION BONUS:
CONTRACTOR shall pay to the MINISTRY the following production bonuses. The rates of production specified below shall not include production from any sole risk projects of the MINISTRY except CONTRACTOR exercises its option to share in such sole right production, and only from the initial date of sharing.
i. Two million United States Dollars (US$ 2,000,000) within (thirty) (30) days from commencement of production.
ii. Four million United States Dollars (U.S.$4,000,000) withing thirty (30) days after the first date when the total average daily production of Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of fifty thousand (50,000) Barrels per day for a period of thirty (30) consecutive days.
iii. Six million United States Dollars (U.S.$6,000,000) within fifteen (15) days after the first date when the total average daily production of Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of one hundred thousand (100,000) Barrels per day for a period of thirty (30) consecutive day.
iv. Six million United States Dollars (U.S.$6,000,000) within fifteen (15) days after the first date when the total average daily production of Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of one hundred thousand (200,000) Barrels per day for a period of thirty (30) consecutive day.
[Signature]9.2. (3) Training Bonus:
The CONTRACTOR shall pay to the MINISTRY, within thirty (30) days after the start of each Year starting on the Effective Date and each anniversary thereof during the term of this Agreement a lump sum of two hundred thousand United States Dollars (U.S.$ 200,000) for the purpose of training Yemeni employees of the MINISTRY and its Dependent Units.
9.2. (d) Institutional Bonus:
CONTRACTOR shall pay to the MINISTRY, within thirty (30) days after the start of each Year starting on the Effective Date and each anniversary thereof during the term of this Agreement, a lump sum of two hundred thousand United States Dollars (U.S.$ 200,000) as institutional bonus.
9.3 All taxes and bonuses referred to above are not recoverable from the Cost Oil under Article 7.1 of this Agreement. All of the above contributions will be collected by the MINISTRY.
OFFICE AND SERVICE OF NOTICE
During the period of this Agreement, the CONTRACTOR shall maintain an office in the ROY starting within thirty days (30) after the Effective Date of this Agreement, at which notices shall be validly served.
All matters and notices shall be deemed to be validly served to CONTRACTOR which are delivered to the office of the CONTRACTOR's General Manager against receipt or which are sent to him by registered mail, telefax, or telex.
All matters and notices shall be deemed to be validly served to the MINISTRY which are delivered to the MINISTER's office in Sana's during regular office hours or which are sent to him by registered mail, telefax or telex.
Any changes in the address of the CONTRACTOR's office or of the individual empowered as General Manager shall be notified to the Ministry at least ten (10) days prior to the date of change.
CONSERVATION PREVENTION OF LOSS AND ENVIRONMENTAL SAFETY
11.1 The CONTRACTOR and the Operating Company shall take all proper measures according to generally accepted methods in the Petroleum Industry to prevent loss or waste of Petroleum above or under the ground in any form during drilling, producing, gathering, transporting, distributing and storage operations.
The MINISTRY has the right to prevent any operation on any well that it might reasonably expect would result in loss or damage of the well or the Oil or Gas field.
2811.2 Upon completion of the drilling of a productive well, the Operating Company shall inform and report to the MINISTRY or its representative of the time when the well will be tested and the production rate ascertained as well as the results of such test.
11.3 Except in instances where multiple producing reservoirs (not in pressure communication with each other) in the same well can only produce economically through a single tubing string, Petroleum shall not be produced from multiple Oil bearing zones through one string of tubing at the same time, except with prior approval of the MINISTRY or its representative.
11.4 Operating Company shall record data regarding the quantities Petroleum and water produced monthly from each Development Area. Such data shall be sent to the MINISTRY or its representative on the special forms provided for that purpose. A report to that effect must be submitted daily. Daily or weekly statistics regarding the production from the Development by authorized representatives of the MINISTRY.
11.5 Daily drilling records and the graphic well logs must show the quantity and type of cement and the amount of any other materials used in the well for the purpose of protracting Petroleum bearing or fresh wa strata.
11.6 In the course of performing the Petroleum Operations, the CONTRACTOR shall be subject to the laws, decrees, other rules and regulations with respect to environmental protection and safety of the country and conduct its operations in accordance with accepted Petroleum Industry practices.
___CUSTOMS EXEMPTIONS AND EXCHANGE CONTROL___
12.1 The MINISTRY, the CONTRACTOR, the OPERATING COMPANY and their subcontractors shall be permitted to import from abroad, and shall be exempt from the Customs Duties and related taxes with respect to importation of machinery, equipment, vehicles, materials, supplies, consumables, and mobile properties, to be used solely in the carryout of Petroleum Operations, under this agreement.
Foodstuffs may also be imported, provided their Customs Duties are fully paid.
12.2 The exemption stated in paragraph 1 of this Article does not apply to any imports of materials if these or materials of comparable quality are manufactured in Republic of Yemen and my be purchased locally at a rate which does not exceed one hundred and ten percent (110%) of the cost of the imported goods prior to the addition of the Customs Duties. but after adding the cost of transport and insurance.
17.2 The CONTRACTOR and the Operating Company shall each select employees and determine their numbers, to be used for the operations hereunder, subject to Article 6 above.
17.3 The CONTRACTOR shall, after consultation with the MINISTRY prepare and carry out specialized training programs for all the ROY employees engaged in operations according to this Agreement and with respect to applicable aspects of the Petroleum Industry. The CONTRACTOR and the Operating Company shall undertake & replace gradually their staff by qualified ROY nationals in full coordination with the MINISTRY.
17.4 The CONTRACTOR shall include in its organisation during the Exploration period at the appropriate time when the operation commence the following graduates seconded by the MINISTRY:
One (1) Geologist
One (1) Geophysicist
One (1) Drilling Engineer (during drilling)
One (1) Petroleum Engineer (during Development)
17.5 The CONTRACTOR, at its own expense, shall give each Year, as mutually agreed, two of MINISTRY's employees an opportunity to attend and participate in the CONTRACTOR's and the Subcontractor's, on-the-job training programs relating to Exploration and Development Operations described in this Agreement.
17.6 All Yemeni personnel employed by the CONTRACTOR, the Operating Company and their respective subcontractors shall be paid according to their employment terms, salaries, wages, benefits,and allowances in accordance with the compensation paid to other Yemeni personnel carrying out similar employment in the Petroleum Operations in Yemen, or subject to the Yemeni labour legislation applicable to Petroleum Operations whichever is the better.
Except for what is provided for this Agreement, the CONTRACTOR, and the Operating Company shall be subject to all the laws of YEMEN and regulations issued for the implementation thereof, including, without limitation, any regulations for the safety, health, labor and efficient performance of operations carried out pursuant to this Agreement and for the conservation of the petroleum resources. The CONTRACTOR, Operating Company and their subcontractors shall be subject to the provisions of this Agreement which affect them, and to all regulations which are duly issued by the GOVERNMENT from time to time except those regulations that are inconsistent with this Agreement.
18.2 Rights Controlled By This Agreement
Interests, rights and obligations of the GOVERNMENT that are represented by the MINISTRY and of the CONTRACTOR under this Agreement, shall be solely governed by the provisions of this Agreement and may be altered or amended only by the mutual agreement of the Parties to this Agreement, which is stipulated by the ratification of the GOVERNMENT.
RIGHTS OF REQUISITION
In case of national emergency, the GOVERNMENT has the right of requisition to all or part of the Petroleum produced from the Development Area or Areas during the period of such emergency, and has the right to instruct the CONTRACTOR and/or the Operating Company to increase the production to the maximum rate achievable in accordance with good Petroleum Industry practice. The GOVERNMENT has also such right of requisition to the Development Area itself and any related facilities during the period of such emergency.
19.1 The GOVERNMENT has the right of a final requisition to any Development Area if it is proved to the GOVERNMENT that the CONTRACTOR has caused by its negligence or misconduct, a material and substantial damage to any Oil field or any relevant facilities in the aforementioned areas provided that such caused damage shall be determined by a neutral third party selected by the MINISTRY and CONTRACTOR to assist them in reaching a mutual agreement on the right of final requisition.
19.2 In no case shall a requisition, as provided for herein, be implemented prior to adequate written notice to the CONTRACTOR so that he shall be able to express his views with respect to such claim of a requisition.
19.3 Notice of Requisition
The requisition of Petroleum production shall be carried out through a Ministerial Order. Any requisition of the Development Area itself or any related facilities, shall be carried out through a Presidential Decree duly notified to the CONTRACTOR.
In the event of any requisition, except a final requisition referred in Article 19.1. the GOVERNMENT shall indemnify the CONTRACTOR for the period during which the requisition is verified, including:
(a) Damages if any from any such requisitions, except for any damages resulting from enemy attack or to the ultimate recovery of Crude Oil from any Development area.
(b) Full payment each Month for the CONTRACTOR's share in all Petroleum extracted by the GOVERNMENT less the Royalty, MINISTRY's Production Sharing Oil, and the operating costs of such production.
36 [signature or initials] ASSIGNMENT
The CONTRACTOR may not (except to an Affiliated Company) assign to any, person, firm or corporation not a party hereto in whole or in part, any or its rights, privileges, duties or obligations under this Agreement without the written consent of the MINISTRY. The CONTRACTOR shall guarantee the performance of such assignee, in accordance with the terms of this Agreement. The CONTRACTOR shall give to the MINISTRY a prompt notice of any assignment to an Affiliated Company.
20.2 Approval of the MINISTRY
The MINISTRY shall give approval to the assignment by the CONTRACTOR of all or part of it s rights, privileges, duties or obligations only if the following conditions are met:
(a) The obligations of the assignment deriving from this Agreement must have been duly fulfilled as of the date such request is made and remain fulfilled on the date of the assignment.
(b) The proposed assignee or assigner must produce reasonable evidence to the MINISTRY of the assignee’s financial and technical competance.
(c) The instrument of assignment must include provisions stating precisely that the assignee is bound by all covenants contained in this Agreement and any modifications of additions, in writing, that up to such time have been made.
A draft of the proposed assignment and all relevant documents supporting the request, shall be submitted to the MINISTRY prior to the date of the proposed assignment, for the purpose of official approval.
(d) As long as the assigner shall held any interest under this Agreement the assignor together with the assignee shall be jointly liable for all duties and obligations of the CONTRACTOR under this Agreement.
20.2 Any assignment by CONTRACTOR of all or part of its interests in this Agreement (other than to an Affiliated Company) shall be subject to the payment to the MINISTRY of twenty=five percent (25%) of the Net Sales Proceeds. The term “Net Sales Proceeds” means the amount resulting from the following calculation:
(a) The total consideration paid to CONTRACTOR in convertible currency in the form of cash, cheque, or other readily negotiable instrument for any interest in this Agreement that is assigned to any person, firm or corporation not a party hereto other than to an Affiliated Company of CONTRACTOR in accordance with the provisions of this Article 20, less the sum of (b) (i) and b(ii) below.
37(a) (i) All cost, expenses,
expenditure of any nature whatsoever incurred by the CONTRACTOR prier to the date of the request of sail assignment, adjusted for interest thereon to the time or assignment, and
(b) (ii) All taxes of any nature whatsoever (except the said twenty five percent (25%) of Net Sales Proceeds itself) of any taxing authorities whatsoever that are incurred by CONTRACTOR will respect to said assignment.
The aforesaid twnty-five percent (25%) of Net Sales Proceeds shall not apply to any consideration received by CONTRACTOR for said assignment where such consideration is in the nature of work and/or expenditures performed or to be performed and/or paid by the assignee with respect to this Agreement
20.4 CONTRACTOR shall, with the approval of the MINISTRY have the right to assign a security interest with respect to its interest in this Agreetment for the purpose of obtaining financing for the Petroleu Operations which assignment shall be without prejudice to the MINISTRY rights under this Agreetment.
BREACH OF AGREEMENT AND POWER OF CANCELLATION
21.(a) The GOVERNMENT has the right to cancel this Agreement by Order of a Presidential Decree, with respect to the CONTRACTOR, in the following instances :
1. If knowingly, it has submitted any false statements to the Ministry which were of a material consideration for the execution of this Agreetment.
2. If it assigns any interest hereunder contrary to the provisions of Article 20 herecf.
3. If it is adjudicated bankrupt by a court of competent jurisdiction.
4. If it does not comply with any final decision reached as the rest of court proceedings conduted under Article 23 hereunder.
5. If it intentionally extracts any mineral other than Petroleum no authorized by this Agreement or without the authority of the GOVERNMENT, except such extractions as may be unavoidable as the result of operations conducted hereunder in accodance with accepted Petroleum Industry practices and which shall be notified to the Ministry or its represantative as soon as possible.
6. If it commits any material breach of this Agreement.
Such cancellation shall take place without prejudice to any right which may have accrued to the GOVERNMENT against the CONTRACTOR in accordance with the provisions of this Agreement, and, in the event of such cancellation, the CONTRACTOR shall have the right to remove from the Agreement Area all its personal property.
21.(b) If the GOVERNMENT deems that one of the aforesaid causes (other than a Force Majeure cause referred to in Article 22 hereof) exits to cancel this Agreement, the GOVERNMENT shall give to CONTRACTOR ninety (90) days written notice personally served on CONTRACTOR's General Manager in a legally official manner and receipt of which is acknowledged by him or his legal agent, to remedy and remove such cause; but if for any reason such service is impossible due to un notified change of address, publication in the Official Journal of the GOVERNMENT of such notice shall be considered validly served upon the CONTRACTOR. if at the end of the said (90) days notice period such cause has not been remedied and removed, this Agreement may be cancelled forthwith by Presidential Decree.
22.1 The non-performance or delay in performance by the Ministry and the CONTRACTOR and the Operating Company of any obligation under this Agreement shall be excused if, and to the extent that, such non performance or delay is caused by Force Majeure. The period of any such non-performance or delay, together with such period as may be necessary for the restoration of any damage done during such delay shall be added to the time given in this Agreement for the performance of such obligation and for the performance of any obligation dependent thereof and consequently, to the term of this Agreement is relevant to the performance of such obligation.
22.2 "Force Majeure", within the meaning of this Agreement, shall be any order, regulation or direction of the GOVERNMENT, or (with respect to CONTRACTOR) of the government of the country in which any of the companies comprising CONTRACTOR is incorporated, whether promulgated in the form of law or otherwise, or any act of God, insurrection, ri, war, strike (or other labor disturbance) , fires, floods or any cause not due to the fault or negligence of the party invoking the Force Majeure whether or not similar to the foregoing, provided that any such cause is beyond the reasonable control of the party invoking the Force Majeure.
22.3 Without prejudice to the above and except as may be otherwise provided herein, the GOVERNMENT shall incur no responsibility whatsoever to the CONTRACTOR, and the Operating Company for any damages, restrictions or
less arising in consequence of such cause of Force Majeure, except any damage or loss caused by willful acts of the GOVERNMENT related to the Force Majeure.
22.4 If the Force Majeure event occurs during the Initial Exploration Period or any extension thereof and continues in effect for a period of six (6) Months the CONTRACTOR shall have the option upon ninety (90) days prior written notice to the MINISTRY to terminate its obligations hereunder without further liability of any kind.
DISPUTES AND ARBITRATION
23.1 In case a dispute arises under this Agreement, the two parties to the dispute shall use their good faith efforts to settle their differences by mutual agreement. Otherwise, the two parties shall submit their dispute to arbitration as provided in this Article 23.
23.2 The arbitration shall be held in Paris, France, and conducted in the English language in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce. In the event of no provisions being made in these rules in certain cases, the arbitration tribunal shall establish their own procedure.
23.3 The arbitration shall be initiated by either party to the disputes ("First Party") giving notice to the other party to the dispute ("Second Party") that it elects to refer the dispute to arbitration and has appointed an arbitrator who shall be identified in said notice. The Second Party shall notify First Party in writing within forty-five (45) days identifying the arbitrator that it has selected.
23.4 If the Second Party does not so appoint its arbitrator, the First Party shall have the right to apply to the Court of Arbitration of the International Chamber of Commerce to appoint a second arbitrator. The two arbitrators shall, within thirty (30) days, select a third arbitrator failing which the third arbitrator shall be appointed by the Court of Arbitration of the International Chamber of Commerce at the request of either party.
23.5 The third arbitrator shall not be a citizen of the ROY or of a country in which any of the companies comprising CONTRACTOR is incorporated, but shall be a citizen of a country which has diplomatic relations with the aforesaid countries, and shall not have any economic interest in the oil business of the ROY or of any party to the dispute.
23.6 The parties hereto shall extend to the arbitration tribunal all facilities (including access to the Petroleum Operations) for obtaining any information required for the proper determination of the dispute. The absence or default of any party to the arbitration shall not be permitted to prevent or hinder the arbitration proceedings in any or all
40 of its stages.
23.7 Pending the decision or award of the arbitration tribunal, the operations or activities which have given rise to the arbitration need not be discontinued. In the event the decision or award recognizes that the complaint was justified, provisions may be made therein for such reparation as may be appropriately made in favor of the complainant.
23.8 Judgement on the award rendered may be entered in any Court having jurisdiction or application may be made to such Court for judicial acceptance of the award and order of enforcements, as the case may be.
23.9 The provisions of this Agreement relating to arbitration shall continue in force notwithstanding the termination of this Agreement.
23.10 The parties hereto base their relationship under this Agreement on the principles of goodwill and good faith. The interpretation and application of the provisions of this Agreement with respect to the arbitration shall be in accordance with the Yemeni laws that are outlined in Article 24 of this Agreement.
24.2 This Agreement, it's Annexes, and any modification, will be governed and interpreted according to Yemeni Laws except the laws which are inconsistent with this Agreement.
STATUS OF PARTIES
25.1 The rights, duties, obligations and liabilities with respect to the MINISTRY and the CONTRACTOR, shall be several and not joint or collective, it being understood that this Agreement shall not be construed as constituting an association or corporation or partnership.
25.2 The CONTRACTOR companies shall be subject to the laws of the place where they are incorporated regarding their legal status or creatie organization, charter and by-laws, shareholding and ownership.
The CONTRACTOR companies respective shares of capital which are entirely held abroad shall not be negotiable in the ROY and shall not be offered for public subscription in ROY.
25.3 All companies comprising the CONTRACTOR shall be jointly and severally liable for the performance of the obligations of the CONTRACTOR under this Agreement as to the MINISTRY.25.4 This Agreement shall constitute the authority for
CONTRACTOR to conduct all activities as are
necessary to carry out the Petroleum Operations as
contemplated by this Agreement.
LOCAL CONTRACTORS AND LOCALLY MANUFACTURED MATERIALS
The CONTRACTOR or the Operating Company, as the
case may be, and their subcontractors shall:
26.1 Give priority to local contractors and
subcontractors including MOMR's Dependent Units
as long as their performance is comparably to
international standards and quality and the
prices of their services are not higher than The
prices of ether contractors and subcontractors
by more than ten percent (10%). The CONTRACTOR
or the Operating Company as applicable shall,
following consultation with MINISTRY, invite
qualified local contractors for bidding when it
requests bids for any required services.
26.2 Give preference to locally manufactured
materials, equipment machinery and consumables
so long as their quality and time delivery are
comparable to internationally available
materials, equipment, machinery and consumables.
However, such materials equipment, machinery and
consumables may be imported for operations
conducted hereunder if the local price of such
items at the CONTRACTOR'S or the Operating
Company's operating base in the ROY is more than
ten percent (10%) higher than the price of such
imported items before Customs Duties, but after
transportation and insurance costs have been
27.1 Associated Gas
27.1. (a) The Associated Gas and Dry Gas produced from
the Agreement Area are the property of the
STATE. The CONTRACTOR or the Operating
Company, as applicable, shall deliver the
Associated Gas to the point where it is
separated from the Crude oil. Any costs with
respect to such delivery to the STATE,
including but not limited to, any increase in
CONTRACTOR'S costs as a result of such
delivery, shall be paid by the STATE. If
CONTRACTOR or the Operating Company needs part
of the separated Associated Gas and/or Dry Gas
for the purpose of utilizing it in the
Petroleum Operations or for re injection to
preserve the pressure of the reservoirs,
CONTRACTOR or the Operating Company must
submit to the, MINISTRY a request for such
utilization free of charge together with
documentation to support the request. Approval
of such request shall net be withheld by the
MINISTRY without a valid, acceptable reason in
accordance with good Petroleum Industry
practices. Any Associated Gas that is net
taken by the STATE of that is not utilized in
the Petroleum Operations, as aforesaid may
42 with good Petroleum Industry practices.
27.1.(b) If the STATE considers the possibility of
entering into any joining venture with a non-
ROY party for the marketing or utilization of
the Associated Gas, then the STATE and the
CONTRACTOR shall meet for the purpose of
reaching a mutual agreement on the terms and
conditions of establishing a join venture
company or other form of participation for the
said joint venture. Any such agreement shall be
based on the fellow: principles.
(1) The STATE's share in the joint venture
shall not be less than sixty percent
(2) Rights and obligations shall be shared
according to sac parties participating
interest in the joint venture.
(3) The CONTRACTOR shall initially bear the
financing joint venture and shall be
reimbursed for the participating interest
share of such financing, in kind out of the
STATE's Associated Gas.
If an Agreement is net reached as
contemplated above with, six (6) Months
from the first meeting of the STATE and
CONTRACTOR as aforesaid, unless such tine
is extended b mutual agreement, the STATE
shall be free to conduct negotiations with
a third party for an agreement on the
marketing or other utilization of such
Associated Gas Meanwhile, the CONTRACTOR
shall have the right, alone or with another
party, to submit a new proposal to the
STATE for the formation of a joint venture
with the STATE.
27.2 Dry Gas discovery:
27.2 (a) CONTRACTOR shall notify the MINISTRY of any
discovery of Dry Gas on any separate geological
feature within the Agreement Area. The
CONTRACTOR and the MINISTRY will set for the
purpose discussing whether there is a basis for
the CONTRACTOR and the MINISTRY to mutually
agree upon terms and conditions under which
CONTRACTOR will undertake the appraisal of the
7.2.(b) If CONTRACTOR drills a Commercial Gas well
following of declaration of a Commercial
Discovery of Oil, then CONTRACT shall, if
requested by the STATE appraise the discovery
of the Commercial Gas Well in accordance with a
program to be mutually agreed by the STATE and
CONTRACTOR according to the following
(1) Unless otherwise agreed, the appraisal
program shall be in stages with the first
stage a preliminary market.
43feasibility study and each subsequent stage being dependent on the successful completion of the previous stage.
(2) The terms of production sharing for CONTRACTOR with respect to any Development of said discovery shall not be less than the terms for production sharing of Crude Oil as provided in this Agreement.
(3) All costs, expenses and expenditures of the appraisal program shall be recoverable from the Cost Oil as Exploration Expenditures.
(4) The operation of such Development shall not be inconsistent with the applicable terms and conditions of this Agreement.
27.2.(c) If the CONTRACTOR and the MINISTRY do not reach an agreement with respect to this Article 27.2, the MINISTRY has the right to develop such Dry Gas discovery as a sole risk project.
Except as specifically provided in this agreement, the CONTRACTOR, the Operating Company and their subcontractors shall not at any time during the term of this Agreement or for a period of four (4) years thereafter, use for their benefit or disclose to or use for the benefit of any other person whatsoever, including but not limited to, any company, firm, corporation, institution or government any information acquired during the term of this Agreement as a result of the Petroleum Operations hereunder. For the purposes of this Article information shall include without limitation, data, designs, methods, formulae, processes, reserves and any other mechanical, financial, or trade information. The MINISTRY shall be similarly bound for the term of this Agreement.
28.2 Use or Disclosure by the CONTRACTOR
(a) The CONTRACTOR may freely use information for all purposes necessary to meet it's obligations under this Agreement.
(b) The CONTRACTOR may disclose information to others:
(i) to the extent necessary to permit others to perform any of the obligations under this agreement;
(ii) in connection with the arranging of financing or assignment;
(iii) to the extent required by any applicable law or regulation in accordance with good Petroleum Industry practices, provided that such disclosure will not cause any damage or prejudice the MINISTRY'S rights under this Agreement
44 [signature/initials or scribble]Provided, however, any disclosure under paragraph (b) (i), or (b) (?) above shall require the third party to which the disclosure is made to agree in writing to maintain the same confidentiality requirements applied to CONTRACTOR hereunder.
28.3 Approval of the MINISTRY
Any use or disclosure not specifically authorized in Article 28.2 above shall be subject to the written authorization of the MINISTRY.
This Article 28 shall not apply to any information which the CONTRACTOR acquired or acquires from any source other than from the performance of this Agreement or from the STATE or which is considered to be in the public domain.
ANCILLARY RIGHTS OF CONTRACTOR
29.1 For the purpose of its operations under this Agreement and subject to the laws and regulations at the time in force and subject to the approval of the GOVERNMENT, CONTRACTOR shall have the right to take free of cost any stone, sand or other building materials from land not privately occupied or owned and to drill for and take any water which may be available and may be required for operations under the Agreement, provided that the inhabitants are not prevented from taking their usual requirements of such materials and that the water supply of the local inhabitants and nomad population is not endangered.
29.2 Radio, telephone and other communication facilities maintained by CONTRACTOR and Operating Company shall be for its exclusive use for purposes of its activities under this Agreement, shall be subject to all Governmental regulations and shall be available for reasonable or emergency use by the GOVERNMENT free of charge. Such facilities shall be so constructed and operated as to not interfere with similar installations which exist or may with the permission of the MINISTRY be established in YEMEN for public use or for the purposes of defence.
29.3 The CONTRACTOR and the Operating Company shall have the right to use without payment and in a safe manner, existing roads within YEMEN and shall permit free public use of the roads constructed and maintained in it, except such roads as the CONTRACTOR or Operating Company may wish the consent of the MINISTRY declare to be for its exclusive private use.
29.4 The CONTRACTOR and the Operating Company shall have the right to use existing public harbour and airports in YEMEN upon payment of the port and harbour dues or landing or other fees generally applicable in accordance with published regulations, provided that such use is not so extensive to interfere with the right of the public to use such harbours and airports.
4329.5 Subject to the approval of the appropriate GOVERNMENT authorities, the CONTRACTOR and
Operating Company shall have the use and occupation of surface rights of the lands and buildings owned by the GOVERNMENT of YEMEN which they may reasonably require for their operations under this Agreement subject to an agreed upon rental payment which shall be less favorable than available to any other international company. When land, surface rights or buildings required by CONTRACTOR for its operations under this Agreement are privately occupied or owned, its purchase, lease or clearance shall be affected at terms to be negotiated by CONTRACTOR with the owner or occupier but such terms shall not be substantially more onerous to CONTRACTOR than those normally offered currently for similar transactions in the locality concerned. The GOVERNMENT shall, upon request by CONTRACTOR assist in the negotiation with the owner and occupier and shall use the power of eminent [xxxxxx] when necessary in compelling cases.
29.6 The CONTRACTOR and the Operating Company shall have the right to incur and pay costs and expenses pertaining to any emergency affecting safety to person or property in the Petroleum Operations and such costs and expenses shall be recoverable under this Agreement provided that the MINISTRY shall be notified of any such emergency as soon as practicable. CONTRACTOR shall have the right to incur and pay costs and expenses for any item of an approved work program for an amount in excess of [xxx] budget for such item and such costs and expenses shall be [xxxxx] recoverable under this Agreement to the extent that they do not exceed ten percent (10%) of the budget for such item. CONTRACTOR shall, with the approval of the MINISTRY, have the right to revise any approved Work Program and Budget.
The headings or titles to each of the Articles and paragraphs of this Agreement are solely for the convenience of the Parties hereto and shall not be used with respect to the interpretation or construction of the provisions of this Agreement.
10.2 Entire Agreement
This Agreement and the Annexes attached hereto represent the entire Agreement between the Parties hereto with respect to the subject matter hereof, superseding all other previous oral and written communication, representations, and agreements with respect thereto. This Agreement and its Annexes may be modified only by a duly authorized and executed written instrument signed by all the Parties hereto.
10.3 All items of archaeological value that CONTRACTOR encounters are the sole property of the STATE. CONTRACTOR should notify the MINISTRY representatives of such find as soon as it encounters such items. The CONTRACTOR must take all necessary precautions for their safety during the execution of the Petroleum Operations. CONTRACTOR should abide by the instruction in this regard.
Signature 1][Signature 2]
[Signature 3] [Signature 4]
30.4 Considering that the Parties hereto base their relationship under this Agreement on good will and good faith, the Parties hereto agree that in those provisions of this Agreement where a Party hereto is required to obtain the consent, approval, determination, or agreement of the other Party hereto, or of the STATE, such consent, approval, determination, or agreement shall not be unreasonably withheld.
AGREEMENT AND AUTHORIZATION BY THE MINISTRY
31.1 The MINISTRY reserves the right to assign part or the whole of its rights and obligations in this Agreement to any establishment, corporation, authority, company, or any department that belongs to it in the ROY during any period when this Agreement is in effect, and reserves the right to restore all of its rights and its obligation at any time it desires to do so. The MINISTRY has the right to assign and deputize for more than one unit to execute its rights and perform its obligations under this Agreement throughout all the stages of the execution of this Agreement.
Any such transfer of rights and obligations shall be not binding the CONTRACTOR and the Operating Company until the MINISTRY has delivered to the CONTRACTOR and the Operating Company the document effecting such transfer.
THE OFFICIAL TEXT
32.1 This Agreement is written in the Arabic and English languages both of which shall have equal legal force and effect; provided, however, before GOVERNMENT authorities in the ROY, the Arabic version shall be referred to in interpreting this Agreement; and in any arbitration proceeding under this Agreement the Arabic and English versions shall be referred to in interpreting this Agreement.
33.1 This Agreement, signed by the MINISTRY and CONTRACTOR, shall not be binding upon either of the Parties hereto, until the issuance of the Presidential Decree approving this Agreement according to the constitutional procedures in ROY and giving the provisions of this Agreement, including the Annexes, full force and effect of law notwithstanding any countervailing GOVERNMENT enactment.
34.1 Certifying the foregoing, the Parties hereby sign this Agreem on the date which appears in the Preamble of this Agreement.
THE MINISTRY OF OIL AND
MINERALS RESOURCES CONTRACTOR
1) CLYDE EXPRO PLC
BY : Adel A. Khersheed BY : Dr Alan John Martin
TITLE:Deputy Minister TITLE: Director
2) NCRSK HYDRO YEMEN a.s
BY : Tcr Bjernulf Lund
TITLE : Vice PResident
3) ORANJE-NASSAU YEMEN B.V.
BY : Peter W.H.Houx
TITLE : Managing Director
BY : Laurentius A.P. Mulder
TITLE: Managing Director
4) ANSAN WIKFS (HADRAMAUT) LIMITED
BY : Dr Donald J.R. Sheridan
TITLE : Director
DESCRIPTION OF THE AGREEMENT AREA
HOWARIME AREA BLOCK 32 - EADRAMAUT
GOVERNORATE REPUBLIC OF YEMEN
The Agreement Area is bound and contained by the straight lines connecting the points A through D and closing at A where these points are defined by their following Co-ordinates which form an integral part of this Annex "A"
Commencing at Point "A" at:
Latitude: 17 degrees 00 minutes 00 seconds North
Longitude: 49 degrees 30 minutes 00 seconds East
Thence South to Point "B" at:
Latitude: 15 degrees 50 minutes 00 seconds North
Longitude: 49 degrees 30 minutes 00 seconds East
Thence West to Point "C" at:
Latitude: 15 degrees 50 minutes 00 seconds North
Longitude: 49 degrees 00 minutes 00 seconds East
Thence North to Point "D" at:
Latitude: 17 degrees 00 minutes 00 seconds North
Longitude: 49 degrees 00 minutes 00 seconds East
Thence East to close at point "A" at:
Latitude: 17 degrees 00 minutes 00 seconds North
Longitude: 49 degrees 30 minutes 00 seconds East
Annex "B" in an illustrative map of the Agreement Area which out lines the Area covered by this Agreement and defined and bound by the points A,B,C, and D as referred to above. [signature]
REPUBLIC OF YEMEN EXPLORATION PERIOD
FIRST: THE INITIAL EXPLORATION PERIOD.
1.1 The Initial Exploration Period is thirty (30) Months beginning from the Effective Date of this Agreement.
1.2 Obligations of the CONTRACTOR:
The CONTRACTOR is obligated during the Initial Exploration Period, to undertake the expenditure of United States Dollars twenty-five million (U.S. $ 25,000,000) as a minimum, including the execution of the following exploration programmes. The cost are estimated costs which will be used for the purposes of drawing from the Letter of Credit.
1.2.1 Geophysical studies which include:
a. Acquisition of 1000 km of new
First 500 km 4.25
Second 500 km 4.25
b. Processing of 1000 km of new seismic
1.2.2 The Drilling Programme:
a. Mobliisation, drilling and evaluation
well 1 7.00
b. Drilling and evaluation of well 2 5.40
c. Drilling and evaluation of well 3 3.50
2.1 In the event CONTRACTOR elects to enter the Second Exploration Period, such period shall last thirty (30) Months commencing at the end of the Initial Exploration Period.
2.2 The CONTRACTOR's obligations:
If the CONTRACTOR enters the Second Exploration Period, the CONTRACTOR will during such Period be obligated to the minimum expenditure of United States Dollars nineteen million and five hundred thousand (U.S.$ 19,500,000) including the execution of the following Exploration programme:
a. Acquisition, processing and interpretation of 250 km of new seismic data.
b. Drilling and evaluation of three (3) wells.
412.3 CONTRACTOR, as Operating Company and their subcontractors shall have the right to export free of Customs Duties and related taxes any material, equipments and goods which were imported to ROY for the purpose of the Petroleum Operations irrespective if they were exempt not from Customs Duties and related taxes according to this Agreement provided CONTRACTOR or the Operating Company notifies the MINISTRY of such exportation.
12.4 There shall be no license required, and CONTRACTOR and MINISTRY and their respective customers shall be exempt from any duty, tax, fee of any other financial impost in respect of the export of Petroleum under this Agreement. Subject to any obligation under this Agreement to sell Petroleum to the STATE, the CONTRACTOR shall have the right to freely (except for those fees and charges which are normally paid to the GOVERNMENT for actual services rendered by the GOVERNMENT) export and sell the Cost Oil and its share of Production Sharing Oil.
12.5 The CONTRACTOR, the Operating Company and their subcontractors shall have the right after receiving approval from the MINISTRY to sell any materials or equipment or goods which were damaged or used, and thereby became non-serviceable, and which the CONTRACTOR or the Operating Company or their Affiliated Companies respectively classify as scrap Junk, in the ROY without paying Customs Duties and related taxes.
12.6 New materials, equipment and goods, or used but serviceable materials, equipment and goods, that are surplus to the Petroleum Operations under this Agreement may be sold outside the ROY after the MINISTRY's approval following exportation or may be sold within the ROY provided that for any sale in the ROY the purchaser shall pay the applicable Customs Duties, taxes and imposts, if any, except if sold to MINISTRY or one of its Dependent Units or, with MINISTRY's approval to other companies enjoying substantially the same customs exemption as CONTRACTOR.
12.7. In the event of such sale under the Article 12.5 or 12.6 above, the proceedings from such sales shall be divided in the following manner:
CONTRACTOR shall be entitled to reimbursement of its unrecovered costs, if any, with such material or equipment, and the excess, if any, shall be paid to MINISTRY. CONTRACTOR's unrecovered costs shall be reduced by the amount of such reimbursement paid to CONTRACTOR.
12.8 For the purpose of implementing this Article, the Customs Duties include all the imposts and taxes (except those fees and charges which are normally paid to the GOVERNMENT for actual services rendered by the GOVERNMENT) levied for importing (or exporting, if applicable)the said materials, equipment and goods.
12.9 The CONTRACTOR, the Operating Company, and their sub-contractors are exempt from the need to obtain import and export permits for equipment, machinery and goods required for their activities and they will be exempt from paying concession royalties to all Yemeni corporations or companies.
[Signature] 30 [Signature]12.9 (1) Every foreign employees of the CONTRACTOR or its Affiliated Companies or its subcontractors are permitted to import from abroad, exempt from Customs Duties, a reasonable quantity of household goods, personal belongings, and a car to be used only for his personal an family use. Whatever an employee imports may not be sold in the ROY except and after Customs Duties and related taxes are properly paid.
12.9 (2) In order to implement the above paragraph (1) of this Article, the understanding of the customs fees stated in Article 12.4 and 12.6 of this Agreement must be applied as well.
12.10 The CONTRACTOR, the Operating Company and their subcontractors shall be exempt from foreign exchange controls in the ROY, with respect to their activities under this Agreement.
12.10 (1) CONTRACTOR and its non-ROY subcontractors shall supply all funds necessary for its Petroleum Operations in ROY under this Agreement in freely convertible currency from abroad. CONTRACTOR and its non-ROY subcontractors shall have the right to buy Yemeni currency whenever required, and the conversion shall be made at Yemeni Banks according to the official ROY rate of exchange at the best rate officially prevailing in the ROY, which rate shall be at least as favorable as the rate available to any other international petroleum company conducting similar activity in YEMEN, CONTRACTOR and its ROY and non-ROY subcontractors shall have the right to make payments directly abroad in foreign currencies for goods and services obtained abroad for its operations in ROY under this Agreement and to charge such payments in accordance with the provisions of this Agreement without having, first to transfer to ROY the funds for such payments. CONTRACTOR shall have the right to maintain abroad one (1) or more convertible currency accounts in international credit institutions of its selection. CONTRACTOR shall have right to pay abroad principal and interest on borrowings to finance any of its Petroleum Operations without having first to transfer to ROY the funds for such payments.
12.10 (2) CONTRACTOR shall have the right to hold United States Dollars and other freely convertible currency in a bank account in the ROY if a bank account of that kind is made available to any international petroleum company for any petroleum related purposes.
12.10 (3) Subject to Article 17.1 below CONTRACTOR shall have the right to pay its expatriate employees working in YEMEN in foreign currencies outside of YEMEN. Such employees shall only be required to bring into YEMEN such foreign exchange as required to meet their personal living and other expenses in YEMEN.12.10 (4) CONTRACTOR shall have the right to receive and retain abroad and freely use all funds received by it abroad, including, without limitation, any sales proceeds from an authorized assignment and its interests in this Agreement, the proceeds from the sales of its share of Petroleum exported, and proceeds received by CONTRACTOR from any sale of equipment, materials, and goods permitted as described in Article 12.5, 12.6, and 12.7.
12.10 (5) MINISTRY or GOVERNMENT, or their designated purchasers in ROY shall pay CONTRACTOR abroad in United States Dollars for any Petroleum purchased from CONTRACTOR, including Petroleum that is requisitioned by the GOVERNMENT pursuant to Article 19 below. The term "abroad", as used in this Agreement, means outside the ROY.
12.11. The CONTRACTOR, Operating Company and their subcontractors shall pay Yemeni Contractors and suppliers of materials manufactured in the ROY in Yemeni currency. The Yemeni importers of equipment, machines, and consumable goods, which may be obtained according to provision of Article 12.10(1) of this Agreement should be paid by foreign currency for the need of services and procurement.
12.12 CONTRACTOR and the Operating Company and foreign contractors and subcontractors of the CONTRACTOR and the Operating company, as well as their resident foreign staff, shall have access to the duty free shops in the ROY.
ACCOUNTING BOOKS; ACCOUNTING AND PAYMENTS
13.1 The CONTRACTOR and the Operating Company as applicable shall each maintain at their business offices in the ROY books of account in accordance with the Accounting Procedure in Annex "F" of this Agreement and according to the accepted accounting practices generally used in the Petroleum Industry. They must keep such other books and records as may be necessary to show the work performance under this Agreement, including the amounts and value of all Petroleum produced and saved. The CONTRACTOR and the Operating Company shall keep their books of account and accounting records in United States Dollars, which shall be the controlling currency of this Agreement for cost recovery, taxes, and other purposes, and in Yemeni currency for information. The Operating Company shall furnish to the MINISTRY or its representative Monthly returns showing the amount of Petroleum produced and saved. Such returns shall be prepared in the form required by the MINISTRY or its representative and shall be signed by the General Manager or by the Deputy General Manager or a duly designated deputy, and delivered to the MINISTRY or its representative within thirty (30) days after the end of the Month that covers the return.
13.2 The aforesaid books of account and other books and records referred to above shall be available at all reasonable times for inspection by duly authorized representatives of the MINISTRY.
32 [signature or initials] ARTICLE 14
RECORDS, REPORTS AND INSPECTION
14.1 The CONTRACTOR and the Operating Company as applicable shall accurately prepare and keep at all times, while this Agreement is in force, the current records of their respective operations in the Agreement Area, according to this Agreement.
The CONTRACTOR and the Operating Company as applicable shall furnish the MINISTRY or its representative, in conformity with applicable regulations or as the MINISTRY or its representative may reasonably require, information and data concerning their respective operations under this Agreement. The Operating Company will perform the functions indicated in this Article 14 in accordance with its respective role as specified in this Agreement.
14.2 The CONTRACTOR and the Operating Company shall save and keep for a reasonable period of time a representative portion of each sample of cores and cuttings taken from drilling wells, to be disposed of, or forwarded to the MINISTRY or its representative in the manner directed by the MINISTRY. All such samples retained by the CONTRACTOR and/or the Operating Company for the Petroleum Operations shall be considered available for inspection at any reasonable time by the MINISTRY or its representatives.
14.3 Unless otherwise agreed to by the MINISTRY, in cases of exporting any rock samples outside the ROY, samples equivalent in size and quantity shall, before such exportation, be delivered to the MINISTRY.
14.4 Original records are properties of the GOVERNMENT. They can only be exported with the permission of the MINISTRY provided, however that magnetic tapes and other data which must be processed or analyzed outside the ROY may be exported if a monitor or comparable record, if available, is maintained in the ROY and provided that such exports shall be repatriated to the ROY promptly after processing or analysis.
14.5 During the period the CONTRACTOR performs the Exploration Operations, the MINISTRY's duly authorized representatives or employees shall have the right to full and complete access to the Agreement Area at all reasonable times with the right observe the operations being conducted and to inspect all assets, records and data kept by the CONTRACTOR. CONTRACTOR shall not be responsible for any liability resulting from the injury to or death of or damage to the property of any such representatives or employees, unless caused by negligence or wilful misconduct of CONTRACTOR. The CONTRACTOR shall provide the MINISTRY with copies of any and all data (including, but not limited to) geological and geophysical reports, logs and well surveys, information and interpretation of such data, and other information in CONTRACTOR's possession.
For the purpose of obtaining new offers, the MINISTRY may show any other party uninterpreted basic geophysical and geological data (such data to be not less that two (2) years old unless the CONTRACTOR agrees to a shorter period, which agreement shall not be unreasonably withheld) with respect to the Agreement Area.
RESPONSIBILITY FOR DAMAGES
The CONTRACTOR and the Operating Company shall entirely and solely be responsible in front of the law toward third parties for any damage by CONTACTOR's as well as the Operating Company's operations and shall indemnify the MINISTRY against all damages for which they may be held liable to third parties on account of any such operations unless such operations are ordered by the MINISTRY or in connections with the MINISTRY's operations under Article 3.5 hereof.
PRIVILEGES OF THE GOVERNMENT REPRESENTATIVES
Duly authorized representatives of the Government shall have access to the Agreement Area and to the operations conducted thereon. Such representatives may examine the book, registers and records of the CONTRACTOR and the Operating Company and make a reasonable number of surveys, drawings and tests for the purpose of enforcing this Agreement. They shall for this purpose be entitled to make reasonable use of the machinery and instruments of the CONTRACTOR or the Operating Company on the condition that no danger or impediment to the operations hereunder shall arise directly or indirectly from such use. Such representative shall be given reasonable assistance by the agents and employees of the CONTRACTOR or the Operating Company so that none of the activities shall endanger or hinder the safety or the efficiency of the operations. The CONTRACTOR or the Operating Company shall offer guest representatives all privileges and facilities accorded to its own employees in the field and shall provide them, free of charge, the use of reasonable office space of adequately furnished housing while they are in the field for the purpose of facilitating the objective of their assignments. CONTRACTOR shall not be responsible for any liability resulting from the injury to or death of or damage to the property of any such representatives or employees unless caused by the negligence or wilful misconduct of CONTRACTOR.
EMPLOYMENT PRIVILEGES AND THE TRAINING OF ROY PERSONNEL
It is the desire of the MINISTRY and the CONTRACTOR that operations hereunder be conducted in a business-like and efficient manner:
17.1 A minimum of twenty-three (23%) percent of the combined salaries and wages (excluding the leave pay and non recurring bonuses) of each of the resident expatriate administrative, professional and technical personnel employed by the CONTRACTOR and its subcontractors or Operating Company that are resident in Yemen shall be paid Monthly in Yemeni currency.
34FORM OF BANK GUARANTEE
LETTER OF CREDIT
DATE : _______________
Ministry of Oil and Mineral Resources
Re: Our Irrevocable Letter of Credit No.
By order of our client, (Name of Company) _______________________
(hereinafter referred to as the "CONTRACTOR"), we hereby establish
this irrevocable Letter of Credit No.___________ in your favor for
the amount of USS ______________ effective on _____________ ("the
Effective Date") and expiring at the earlier of such time as the
total reduction under paragraph 2 below equals the amount of this
Letter of Credit or six (6) months after the end of the Initial
Exploration Period under the Production Sharing Agreement (PSA)
dated ____________ by and between your MINISTRY and CONTRACTOR.
Funds under this Letter of Credit are available to you for
thirty (30) Months after the Effective Date (the end of the
Initial Exploration Period) plus six (6) months, as aforesaid,
against your sight draft drawn on us, as described in the form
of Exhibit I attached hereto.
The amount available hereunder shall be reduced automatically
by each amount stated in your signed notices, as described in
the form of Exhibit II attached hereto.
The amount available hereunder shall, in the alternative, be
reduced automatically upon receipt by us of a letter from
CONTRACTOR attaching a copy of an instruction letter for
reduction in the form of Exhibit II (the "request") with the
amount of the reduction stated therein and certifying that
[signature](ii) the MINISTRY did not object to the request within sixty (60) days after such delivery and instructing us to effect the reduction stated in said request.
3. Validity of the Letter of Credit
This Letter of Credit will be valid until the earlier of :
a. Six (6) months after the end of the Initial Exploration Period as described in the Production Sharing Agreement.
b. The date when the total amount of the Letter of Credit has been drawn or reduced as set out in 1. And 2. Above.
We hereby engage with you that all drafts drawn by you in accordance with the terms of this Letter of Credit will be duly honored by us within ten (10) days of receiving your notice.
This Letter of Credit is subject to the Uniform Customs and Practices for Documentary Credits (1983 Revision), International Chamber of Commerce Publication No. 400.
(Name of Issuing Bank)
NOTICE OF DRAWING FROM LETTER OF CREDIT NO.
(NAME AND ADDRESS OF ISSUING BANK)
Re: Irrevocable Letter of Credit No. _________
Please be advised that we are hereby drawing under the above referenced Letter of Credit and that:
1. (Name of Company) (the "CONTRACTOR") has not completed its obligations under the Production Sharing Agreement, dated ___________, between MINISTRY OF OIL & MINERAL RESOURCES ("MOMR") and the CONTRACTOR, (the "PSA") with respect to the minimum work obligations or the clean up of work sites in relinquished areas according to good Petroleum Industry practices for the (Initial/Second) Exploration Period of the PSA within the period of thirty (30) Months specified therein and we are entitled to draw under the Letter of Credit.
2. We certify that in respect of the obligations not performed, the amount drawn under the Letter of Credit is the sum agreed between us and CONTRACTOR in the PSA as corresponding to the costs of such work as provided in the Minimum Work Obligation and Minimum Expenditure Obligation under the PSA for the (Initial/Second) Exploration Period.
3. MOMR has notified the CONTRACTOR at least two weeks before the date hereon of the work that has not been performed and the CONTRACTOR has subsequently not performed such work. A copy of the written notice to the CONTRACTOR is attached hereto.
4. This drawing is in the amount of U.S.Dollars (U.S.S. ________________).
receiving this notice.
MINISTRY OF OIL & MINERAL RESOURCES,
By: ________________ Signature_______________
8 EXHIBIT II
NOTICE OF REDUCTION OF LETTER OF CREDIT NO:
(Name and address of
Bank issuing Irrevocable
Letter of credit)
Re: Irrevocable Letter of Credit No. _______________
This is to notify you that in accordance with the Production Sharing Agreement between the MINISTRY OF OIL & MINERAL RESOURCES (MOMR) and the CONTRACTOR, dated as of __________, 199__, the undersigned have signed this notice on the date hereof to reflect the completion by the CONTRACTOR of the work corresponding to the amount stated below. You are hereby authorized and instructed to reduce the amount of Letter of Credit by the amount of US$________ and to notify the CONTRACTOR of this reduction.
MINISTRY OF OIL & MINERAL RESOURCES
By :______________________ Signature:________________
9 CHARTER OF OPERATING COMPANY
ESTABLISHING THE COMPANY
1.1 A Joint Venture Company (herein referred to as the “Operating Company”) that is owned fifty percent (50%) by the MOMR and fifty percent (50%) by the CONTRACTOR is hereby established. The Operating Company will have the nationality of the REPUBLIC OF YEMEN. The MINISTER will permit its formation. The Operating Company will conduct its activities by the provisions of the Agreement, and this Charter.
1.2 The Operating Company shall come into existence on the thirtieth (30th) day after the date of a Commercial Discovery of Oil as defined in Article 6 of the Agreement (unless MOMR) and the CONTRACTOR agree otherwise).
THE COMPANY NAME
2.1 The name of the Operating Company shall be mutually agreed upon between the MINISTRY and the CONTRACTOR prior to the effective date of this Charter.
HEADQUARTER OF THE COMPANY
3.1 The Headquarters of the Operating Company shall be in _______ in the ROY and the Operating Company may have branches in other cities of ROY after the approval of the MINISTRY.
4.1 The object of the Operating Company is to act as the agency through which MOMR and the CONTRACTOR carry out and conduct the Exploration and Development Operations required in accordance with the provisions of the Agreement (hereinafter referred to as the “Agreement”) signed on the _________ day of 199 by and between the MINISTRY and the CONTRACTOR covering Petroleum Operations in the Agreement Area described in Annexes A and B of the Agreement (Block 12 Howarime Hadramaut Governorate).
4.2 The Operating Company shall conduct the Exploration and Development operations pursuant to Work Programs and Budgets approved in accordance with the Agreement.
The Operating Company shall keep account of all costs, expenses and expenditures for such operations under the terms of the Agreement and Annex “y” thereto.
4.3 The Operating Company shall not engage in any business or undertake any activity beyond the performance of said operations performed for the MOMR and the CONTRACTOR under the Agreement, unless otherwise agreed upon by MOMR and the CONTRACTOR.
4.4 The Operating Company and either the CONTRACTOR or the MINISTRY, or both, may agree among themselves concerning necessary or desirable procedures for conducting the Petroleum Operations.
4.5 When conducting the Petroleum Operations under the Agreement, the Operating Company shall have privileges and exemptions and shall abide by the regulations and requirements provided under the Agreement.
5.1 The Operating Company shall not have either profits or losses, Costs, expenses and expenditures incurred and paid by the Operating Company to carry out and conduct all the Exploration and Development operations shall be financed by CONTRACTOR (or, with respect to a sole risk project of MOMR, by the MOMR) and recovered by CONTRACTOR or MOMR as the case may be from the Cost Oil according to the Annual budget prepared by the Operating Company and approved by the Board of Directors and ratified by the MINISTER in accordance with the Agreement and Article 9 of this Charter.
FUNCTION OF THE OPERATING COMPANY
6.1 The Operating Company shall not own any right, title, interest or estate in or under the Agreement or any Development Area created thereunder or in any of the Petroleum production from any Development Area thereunder or in any of the assets, equipment or other property obtained or used in connection therewith, and shall not be obligated as a principal for the financing or performance of any of the duties or obligations or either MOMR or the CONTRACTOR under the Agreement, and will be functioning as an Operator only.
11and the CONTRACTOR, whenever it is [cut off from page] Operating Company shall decide, take action or make a proposal and the like, it is understood that such decision or judgment is the result of the decision or judgement of the MINISTRY and/or CONTRACTOR, as may be required by the Agreement.
7.1 The Operating Company shall have a Board of Directors consisting of eight (8) members, four (4) of whom shall be designated by the MINISTRY and the other four (4) by the CONTRACTOR. The Chairman shall be designated by the MINISTRY and shall also be a Managing Director. The CONTRACTOR shall designate the General Manager who shall also be a Managing Director.
BOARD OF DIRECTORS MEETINGS
8.1 Meetings of the Board of Directors shall be valid if a majority of the Directors are present and any decision taken at such meetings must have the affirmative vote of five (5) or more of the Directors; provided, however, that any Director may be represented and vote by proxy given to and exercised by another Director.
8.2 All reasonable costs and expenses of the members of the Board of Directors in performing their duties as members of the Board of Directors shall be paid by CONTRACTOR and recovered as Operating Expenses. No fee or other compensation shall be paid to the members of the Board of Directors for the performance of their duties as members of the Board of Directors.
BOARD OF DIRECTORS DECISIONS
9.1 Board of Directors decisions shall be ratified by the MINISTER or his representative within one Month from the date of receipt at his office. In case of no reply from the MINISTER or his representative during that period, the decision becomes valid and considered ratified automatically.
10.1 The Operating Company shall employ personnel with foreign nationalities to carry out the Petroleum Operations in cases where there is a need for specialized technical personnel which can not be found among the Yemeni personnel. The Operating Company shall, upon its establishment, set a schedule for specialized training of Yemeni personnel for replacing foreign personnel. Such schedule shall be submitted to the Scard of Directors to be decided upon and then submitted to the MINNISTER for his approval.
10.2 All Yemeni personnel employed by the Operating Company shall be paid salaries, wages, benefits and allowances comparable to the compensation paid to other Yemeni personnel working in the Petroleum Operations in Yemen who have comparable skill, education and experience and who are performing services with comparable duties and responsibilities or subject to the Yemeni labor legislation applicable to the Petroleum operations which every is better.
LOCAL CONTRACTORS AND LOCALLY MANUFACTURED MATERIALS
11.1 In all cases, the Operating Company shall give priority to local contractors and to locally manufactured materials under the terms of Articles 26 of the Agreement.
12.1 The Operating Company shall obtain the proper insurance against losses and damages which may be caused by explosions, as well as other types of insurance as they become necessary and approved by the Board of Directors
13.1 The Board of Directors shall approve the regulations covering the terms and conditions of employment of the personnel of the Operating Company and not assigned thereto by MCMR or the CONTRACTOR.
The Board shall, in due course, draw up the By-Laws of the Operating Company and such By-Laws shall be effective upon being approved in accordance with the provisions of Articles 3 and 9 hereof.
DURATION OF THE COMPANY
14.1 The duration of the Operating Company shall be limited to a period equal to the duration of the Agreement including any renewal thereof.
14.2 Neither CONTRACTOR nor the MINISTRY shall assign, sell, or otherwise transfer its interest in the Operating Company to a party not party to the Agreement except in connection with an assignment of interest in the Agreement in accordance with the provisions of the Agreement.
TERMINATION OF THE COMPANY
15.1 The Operating Company will be terminated when the Agreement is terminated for any reason as provided for therein.
MODIFICATION OF THE CHARTER
16.1 The MINISTRY and CONTRACTOR shall have the right by mutual agreement to modify the terms of this Charter provided that such modification will not be in conflict with the provisions of the Agreement.
MINISTRY OF OIL AND
MINERAL RESOURCES CONTRACTOR
BY : ________________ BY : _________________
TITLE : ________________ TITLE : _________________
DATE : ________________ DATE : _________________
SIGNATURE: ________________ SIGNATURE: _________________
CERTIFICATION OF THE COMPANY NAME
The name of the operating company agreed upon by the MINISTRY and CONTRACTOR is:-
MINISTRY OF OIL AND MINERAL RESOURCES CONTRACTOR
BY: __________ BY: _______
TITLE: __________ TITLE: _______
DATE: __________ DATE: _______
SIGNATURE: __________ SIGNATURE:_______
15 ANNEX F
The definitions contained in Article 1 of the Production Sharing Agreement shall apply to this Accounting Procedure and have the same meanings.
1.1 Purpose of the Accounting Procedure
1.1.1 The purpose of this Accounting Procedure is to establish methods and rules of accounting for the Petroleum Operations under this Agreement.
1.1.2 Any procedures established herein may be modified by mutual agreement of both Parties hereto subject to future arrangement.
1.1.3 No charge shall be made or accounted for the Petroleum Operations unless it is related to the Petroleum Operations covered by the Agreement.
1.2 Statement of Expenditure
1.2.1 The CONTRACTOR shall, pursuant to Article 13 of this Agreement, to which this Annex is a part of and before forming the Operating Company according to Article 6 of this Agreement render to the MINISTRY within thirty (30) days after the end of each Calendar Quarter a Statement of Expenditure reflecting all charges or credits related to the Petroleum Operations for the period, summarised by appropriate classifications indicative of the nature thereof together with the summary of such information on a cumulative basis from the Effective Date as well as Year to date.
1.2.2 Following its formation, the Operating Company shall render to the MOMR and the CONTRACTOR within thirty (30) days after the end of each Quarter a Statement of Development and Exploration activities reflecting all charges and credits related to the Development and Exploration operations for that Quarter summarised by appropriate classifications indicative of the nature thereof except those items of controllable material and unusual charges and credits shall be detailed.
16Operating Company shall [off the page] CONTRACTOR Monthly cash calls covering estimated future expenditures according to the approved Work Program ad Budget. The statement of estimated expenditures shall be sent to the CONTRACTOR at least thirty (30) days prior to the beginning of each Quarter, and a copy of such statement will be transmitted to the MINISTRY. The estimated expenditures to be made in each Month of the Quarter are the estimated cash outlay for such Month, including any payment for liabilities incurred during previous Months. The estimate for the first such Month shall, at the Operator's option, constitute a request for advance. The estimates for the second and third succeeding Months shall be tentative only and may be revised in the subsequent submittal. The aforesaid statement shall indicate the currencies in which sums are needed for the Petroleum Operations.
After the first Commercial Oil Discovery is made, following its coming into existence and not later than the twentieth (20th) day of each Month, the Operating Company shall furnish to the CONTRACTOR who will secure the financing of all required amounts for the Development and Exploration program during the term of this Agreement, a written estimate of its total cash requirement for expenditure for the first half and the second half of the succeeding Month expressed in United States Dollars having regard to the approved Budget. Such estimate shall take into consideration any cash expected to be available to the Operating Company at Month end. Payment for the appropriate period of such Month shall be made to the correspondent bank designated in Article 6.1 (h) of the Agreement on the first (1st) day and the fifteenth (15th) day of the Month respectively or the next following business day, if such day is not a business day.
In case funds provided by the CONTRACTOR for the given Month are not sufficient to cover the cash requirements (within the limits of the approved Budget or authorized overruns), the Operating Company shall transmit to the CONTRACTOR with a copy to the MINISTRY supplementary statements showing such additional amounts to be advanced, and the date the funds are required.
Operator shall keep records of funds advanced and expended in all currencies and submit a statement to each Party hereto showing such advances and expenditures.
Within thirty (30) days after the end of each Quarter, Operator shall submit to each Party hereto a statement of the charges and credits (including any payment for liabilities incurred during previous Quarters for Exploration, appraisal, Development and other Petroleum Operations in said Quarter. Such statements shall be in Yemeni currency and United States Dollars.
17non-United States [cut off]
1.6 Precedence of Documents
In the event of any inconsistency or conflict between the provisions of this Accounting Procedure and the provisions of the main body of this Agreement treating the same subject differently, then the provisions of the main body of this Agreement shall prevail.
1.7 No Charge for Interest on Investment
Interest on investment or any bank fees, charges or commissions related to any bank guarantees to finance the Petroleum Operations shall not, at any time, be charged as recoverable costs under this Agreement.
COSTS, EXPENSES AND EXPENDITURES
The CONTRACTOR shall alone bear and pay directly during the Exploration Period or through the Operating Company after the Commercial Discovery of Oil, the costs and expenses, which costs and expenses shall be classified and be allocated to the activities according to sound and generally accepted accounting principles and treated and recovered in accordance with Article 7.1.1 of this Agreement:
2.1 Surface Rights
All direct costs attributable to the acquisition, renewal or relinquishment of surface right acquired and maintained in force for the Agreement Area.
2.1 (a) Labor and Related Costs
Salaries and Wages of CONTRACTOR's or Operating Company's employees, as the case may be, directly engaged in the various activities under this Agreement including salaries and wages paid to geologists and other employees who are temporarily assigned to and employed in such activities in Yemen.
2.1 (b) Cost of living and housing allowances, and other customary allowances applicable to salaries and wages of expatriate employees chargeable under this Annex.
2.1 (c) Cost of expenditures or contributions made pursuant to law or assessments imposed by GOVERNMENT authority which are applicable to labor cost of salaries and wages as provided under this Annex.
19non-United States Dollar expenditures to United States Dollars.
1.6 Precedence of Documents
In the event of any inconsistency or conflict between the provisions of this Accounting Procedure and the provisions of the main body of this Agreement treating the same subject differently, then the provisions of the main body of this Agreement shall prevail.
1.7 No Charge for Interest on Investment
Interest on investment or any bank fees, charges or commissions related to any bank guarantees to finance the Petroleum Operations shall not, at any time, be charged as recoverable costs under this Agreement.
COSTS, EXPENSES AND EXPENDITURES
The CONTRACTOR shall alone bear and pay directly during the Exploration Period or through the Operating Company after the Commercial Discovery of Oil, the costs and expenses, which costs and expenses shall be classified and be allocated to the activities according to sound and generally accepted accounting principles and treated and recovered in accordance with Article 7.1.1 of this Agreement.
2.1 Surface Rights
All direct costs attributable to the acquisition, renewal or relinquishment of surface rights acquired and maintained in force for the Agreement Area.
2.1 (a) Labor and Related Costs
Salaries and Wages of CONTRACTOR’s or Operating Company’s employees, as the case may be, directly engage in the various activities under this Agreement including salaries and wages paid to geologists and other employees who are temporarily assigned to and employed on such activities in Yemen.
2.1 (b) Cost of living and housing allowances, and other customary allowances applicable to salaries and wages of expatriate employees chargeable under this Annex.
2.1 (c) Cost of expenditures or contributions made pursuant to law or assessments imposed by GOVERNMENT authority which are applicable to labor cost of salaries and wages as provided under this Annex.
19MOMR approved cost of established plans which include customary benefits for employees such as group life assurance, hospitalization, pension, retirement, stock purchase, thrift and other benefits of a like nature which are applicable to labor cost of salaries and wages of expatriate employees, and for YEMEN employees, all as chargeable under this Annex. Severance pay will be charged at a fixed rate applied to payrolls which will equal an amount equivalent to the actual liability for severance payments as required under YEMEN labor law and CONTRACTOR's established policies.
Materials, equipment and supplies purchased or furnished as such by CONTRACTOR, directly or through the Operating Company.
Material, equipment and supplies purchases shall be charged at the price paid by CONTRACTOR or through the Operating Company, after deduction of all discounts actually received. Such purchases shall be concluded through CONTRACTOR's customary bid procedures in agreement with the MINISTRY.
2.3.2 Material Furnished by CONTRACTOR
Material required for Petroleum Operations shall be purchased directly whenever practicable, except that CONTRACTOR may after the MINISTRY's approval furnish such material from CONTRACTOR's Affiliated Companies stocks outside YEMEN under the following conditions.
2.3.3 New Material (condition "A")
New material transferred from CONTRACTOR's or its Affiliated Companies warehouse or other properties shall be priced at cost, provided that the cost of material supplied is no higher than international prices for material of similar quality supplied on similar terms prevailing at the time such material was supplied.
2.3.4 (a) Used Material (conditions "B" and "C")
Material which is in sound and serviceable condition and is suitable for re-use without reconditioning shall be classed as condition "B" and priced at seventy-five percent (75%) of the price of new material.
2.3.4 (b) Material which cannot be classified as condition "B" but which is serviceable for original function but substantially not suitable for reconditioning, shall be classed as condition "C" and shall be priced at a value commensurate with its use.
20knocked-down new price.
2.3.5 Warranty of Materials Furnished by CONTRACTOR
CONTRACTOR does not warrant the materials furnished beyond the dealer’s or manufacturer’s warranty and in case of defective material, credit shall not be recorded until adjustment has been received by CONTRACTOR from manufacturers or their agents. The CONTRACTOR or Operating Company, as applicable, shall ensure that materials purchased are warranted by the dealers or manufacturers in accordance with good Petroleum Industry practices.
Transportation of employees, equipment, materials, and supplies necessary for the conduct of CONTRACTOR’s or Operating Company’s activities, to the extent covered by established policies of CONTRACTOR will include but not be limited to travel expenses for employees and their families to and from the employee’s point of origin at the time of employment, at time of separation and for vacations, rest leaves and traveling expenses for employees and their families incurred as a result of transfer from one location to another.
2.5 (a) Outside Services
The cost of consultants, contract services and utilities procured from third parties.
2.6 (b) Cost of services performed by the MINISTRY or by CONTRACTOR, or its Affiliated Companies, in facilities inside or outside YEMEN. Regular, recurring and routine services, such as processing seismic tapes, interpreting seismic, geological and engineering data and/or other analyses, shall be performed and charged by MINISTRY, CONTRACTOR, or its Affiliated Companies, as a price agreed to by CONTRACTOR and MINISTRY. Major projects involving engineering and design services shall be performed by CONTRACTOR, or its Affiliated Companies, at a contract amount agreed to by MOMOR. The price and contract amount to be agreed upon as provided above shall be at rates commensurate with the cost of such services but not in excess of competitive rates for the same quality and quantity of such services. Use of CONTRACTOR’s, or its Affiliated Companies, wholly-owned equipment shall be charged at a rental rate commensurate with the cost of ownership and operation, but not in excess of competitive rates currently prevailing in YEMEN.
21All costs or expenses necessary to replace or repair damages or losses incurred by fire, flood, storm, theft, accident or any other cause not controlled by CONTRACTOR through the exercise of reasonable diligence. CONTRACTOR or Operating Company shall furnish the MINISTRY written notice of damages or losses incurred in excess of United States Dollars ten thousand (U.S.$ 10,000) per occurrence, as soon as practicable after report of the same has been received by CONTRACTOR.
2.7 Insurance and Claims
The cost of any public liability, property damage and other insurance against liabilities of CONTRACTOR or Operating Company to their employees and third parties as may be required by the Laws, rules and regulations of the STATE or as the Parties hereto may agree upon. The proceeds of any such insurance or claims collected shall be credited against Petroleum Operations. If no insurance is carried for a particular risk, all related actual expenditures incurred and paid by CONTRACTOR or Operating Company in settlement of any and all losses, claims, damages, judgments, and any other expenses, including legal services, shall be credited against Petroleum Operations.
2.8 HEAD Office and Field Expenses in YEXEN
2.8 (a) The cost of staffing and maintenance CONTRACTOR’s and the Operating Company’s head office in YEXEN.
2.8 (b) Camp overhead and facilities such as shore base, warehouses, water systems, road systems, salaries and expenses of field supervisory personnel, field clerks, assistants, and other general employees indirectly serving the Agreement Area.
2.9 Legal Expenses
All costs and expenses of litigation, or legal services otherwise necessary or expedient for the protection of the Agreement Area. With respect to third parties including attorney’s fees and expenses as hereinafter provided, together with all judgments obtained against the Parties hereto or any of them on account of the Petroleum Operations under the Agreement, and actual expenses incurred by any Party or Parties hereto in securing evidence for the purpose of defending against any action or claim prosecuted or urged against the Petroleum Operations or the subject matter of the Agreement. In the event actions or claims regarding the protection of interests hereunder shall be handled by the legal staff of one or more of the Parties hereto, a charge at a rate commensurate with cost of providing and furnishing such services may be made to the Petroleum Operations.
222.10.1 The CONTRACTOR’s or Operating Company’s administrative overhead outside YEMEN applicable to the Petroleum Operations under this Agreement shall be charged Quarterly at the percentages of the total of Exploration Expenditures, Development Expenditures and Operating Expenses for the Year (“Total Expenditures”), as specified below:
(a) 3% of Total Expenditures not exceeding one million United States Dollars (U.S.$. 1,000,000)
(b) 1.5% of Total Expenditures in excess of one million United States Dollars (U.S.$. 1,000,000), but less than five million United States Dollars (U.S.$. 5,000,000)
(c) 1% of Total Expenditures in excess of five million United States Dollars (U.S.$. 5,000,000) but less than ten million United States Dollars (U.S.$. 10,000,000)
(d) 0.5% of Total Expenditures in excess of ten million United States Dollars (U.S.$. 10.000.000).
2.10.2 No other direct charges as such for CONTRACTOR’s administrative overhead outside YEMEN will be applied against the Petroleum Operations. Examples of the types of costs CONTRACTOR is incurring and charging hereunder due to the activities under the Agreement and covered by said percentages are:-
(a) Executive – Time of executive officers
(b) Treasury – Financial and exchange problems
(c) Purchasing – Procuring materials, equipments and supplies
(d) Exploration and production – Directing, advising and controlling the entire project
(e) Other departments such as legal, comptroller and engineering which contribute thime, knowledge and experience to the Petroleum Operations. The foregoing does not preclude charging for direct services under sub-paragraphs 2.5.b and 2.9 of this Article 2.
All taxes, duties or levies, if any, paid in YEMEN by CONTRACTOR with respect to this Agreement, other than those paid to accordance with Article 9 of the Agreement.
232.12 (a) Any costs, expenses or expenditures, other than those which are covered and dealt with by the foregoing provisions of this Article 2, incurred by CONTRACTOR of Operation Company under approved Work Programs and Budgets and after consultation with the MINISTRY.
2.12 (b) The CONTRACTOR, before the formation of the Operating Company, and the Operating Company shall have the right to incur and pay costs and expenses pertaining to an emergency affecting safety to person or property in the Petroleum Operations and such costs and expenses shall be recoverable under this Agreement provided that the MINISTRY shall be notified of any such emergency as soon as practicable. The CONTRACTOR, before the formation of the Operating Company, and the Operating Company shall have the right to incur and pay costs and expenses for any item of an approved Work Program and Budget for an amount in excess of the budget for such item and such costs and expenses shall be cost recoverable under this Agreement to the extent that they do not exceed ten percent (10%) of the budget for such item.
2.13 CONTINUING CONTRACTOR COSTS
Costs of CONTRACTOR's activities required under this Agreement and incurred exclusively in the ROY after the Operating Company is formed provided that costs of CONTRACTOR's expatriate employees and ROY employees engaged in such activities in YEMEN shall include those costs specified in sub-paragraphs 2.1 (a), 2.1 (b), 2.1 (c), 2.2., and 2.4., above.
3.1 Periodic Inventories, Notice and Representation
At reasonable intervals as agreed upon by the MINISTRY and CONTRACTOR, inventories shall be taken by CONTRACTOR of the Petroleum Operations material, which shall include all such material, physical assets and construction projects. Written notice of intention to take inventory shall be given by CONTRACTOR to the MINISTRY at least thirty (3) days before any inventory is to begin so that the MINISTRY may be represented when any inventory is taken. Failure of the MINISTRY to be represented at an inventory shall bind it to accept the inventory by the CONTRACTOR, who shall, in that event, furnish the MINISTRY with a copy thereof. Such inventories shall take place annually or as otherwise agreed.
24Reconciliation of inventory shall be made by CONTRACTOR and the MINISTRY, and a list of averages and shortages shall be jointly determined and the inventory accordingly adjusted by the CONTRACTOR.
3.3 After the first Commercial Discovery of Oil the Operating Company shall carry out the foregoing inventory obligations of CONTRACTOR.
4.1 Statement of Recovery of Costs and Cost Recovery Crude Oil
CONTRACTOR shall, pursuant to Article 7 of the Agreement, render to the MINISTRY not later than thirty (30) days after each Quarter a statement for that Quarter showing:
(a) Recoverable costs carried forward from previous Quarter(s), if any.
(b) Recoverable costs incurred during that Quarter.
(c) Total recoverable costs (a) + (b).
(d) Value of Cost Oil taken and separately disposed of by CONTRACTOR for that Quarter
(e) Amount of costs recovered for that Quarter.
(f) Amount of recoverable costs carried into the succeeding Quarter, if any.
(g) Royalty payable to ROY.
4.2 Costs, expenses and expenditures that are incurred and paid prior to the Year in which they are recoverable under this Agreement shall be allocated to the first Quarter of such year. All other costs, expenses and expenditures that are recoverable in such Year shall be allocated to the Quarter in which they are incurred and paid.
4.3 For the purpose of calculating book value, the costs of such fixed and movable assets shall be recovered in the order in which they are incurred per Quarter. The costs incurred in the same Quarter shall be recovered proportionally.
4.4 Audit Rights
The MINISTRY shall have a period of twenty-four (24) Months from receipt of any statement under this Article 4 in which to audit and raise objection to any such statement. The MINISTRY and CONTRACTOR shall agree on any required adjustment. Supporting documents and accounts will be available to the MINISTRY during said twenty-four (24) Month period.
CONTROL STATEMENTS AND MAJOR ACCOUNTS
5.1 Exploration obligations statements
CONTRACTOR shall annually prepare from the statements of Expenditure prepared pursuant to Article 1.2 hereof, a statement showing for such Year the excess or deficit in Exploration Expenditures compared to the Minimum Expenditure obligations. Such statement shall be rendered to the MINISTRY nOt later than thirty (30) days following the end of such Year.
5.2 Major Accounts
For the purpose of classifying costs, expenses and expenditures for cost recovery as well as for the purpose of establishing when the Exploration obligation has been met,costs,expenses and expenditures shall be recorded in major accounts including the following-
-Development Expenditure other than Operating Expenses
Necessary sub- accounts shall be used in coordination with the MINISTRY.
Revenue accounts shall be maintained by CONTRACTOR to the extent necessary for the control of recovery of costs and the treatment of Cost Oil.
Cash and accrual accounts shall be maintained as coordinated with the MINISTRY. [signature][signature][signature]
26 ANNEX G
EXAMPLE CALCULATION OP ROYALTY CCST OIL AND
PRODUCTION SEARING OIL
Assuming that the Monthly Average Daily Net Production ("MADNP") is 80,000 BBL. then calculation of the shares of GOVERNMENT and CONTRACTOR would be as follows :-
1. Deduction of Royalty owned by the GOVERNMENT from the
total amount of 80,000 BBL according to Article 3.2
of this Agreement.
Royalty = MADNP X the percentage of Royalty divided
by one hundred.
Royalty = (80,000) X (the royalty percentage
Royalty = (80,000) X (10)
______________ = 8,000 BBL.
And the remaining amount of MADNP after the
deduction of Royalty would be
80, 000 BBL - Royalty of 8,000 BBL = 72,000 BBL.
2. From the regaining amount of MADNP calculated above
we deduct the Cost Oil as follows :-
A. Assuming the daily recoverable costs exceed the
value of the i i maximum Cost Oil calculated at
the percentage stated in Article 7.1.1 cf this
Agreement ("maximum percentage").
Cost Oil = (72,000) X (25)
______________ = 18,000 BBL
B. Assuming the daily recoverable costs are
$ 300,000 and are less than the value of the
maximum Cost Oil calculated at the maximum
percentage; and assuming the Cost oil value is
Cost Oil = the daily recoverable costs
the value (per barrel) of the Cost Oil
under Article 7.3 of the Agreement.
Cost Oil = $ 300.000
Cost Oil = 15,000 BBL
27recoverable costs” means the recoverable costs allocated to the applicable Quarter divided by the number of days in such Quarter.
3. The remaining MADNP (“Production Sharing Oil”), i.e. MADNP after deduction of (1) Royalty and (2) Cost Oil (2A or 21 above, as applicable), according to Article 7.2 of this Agreement.
GOVERNMENT share = The Production Sharing Oil multiplied by the GOVERNMENT’s percentage of Production Sharing Oil calculated as the weighted average of the percentages provided in Article 7.2 of this Agreement as follows:
77% of first 25,000 BBL = 19,250 BBL.
79% of next 25,000 BBL = 19,750 BBL.
81% of next 25,000 BBL = 20,250 BBL.
83% of next 5,000 BBL = 4,150 BBL.
(19,250+19,750+20,250+4,150 BBL = GOVERNMENT’s percentage (GP)
63,400 BBL = GP
79.25% = GP
GOVERNMENT’s Share = GP % Production Sharing Oil
Production Sharing Oil = MADNP minus (Royalty plus Cost 0
[either 2A or 2B])
Production Sharing Oil = 80,000 BBL – (8,000 BBL + 18,000 BBL [2A])
Production Sharing Oil = 80,000 BBL – (8,000 BBL + 15,000 BBL [2B])
Production Sharing Oil = 54,000 BBL – [2A] or 57,000 BBL [2 ]
GOVERNMENT Share = 79.25% of 54,000 BBL [2A] or of 57,000 BBL [2B]
GOVERNMENT Share = 42,795 BBL (2A) or 45,172.5 BBL (2B
CONTRACTOR’s Share = Production Sharing Oil less Government’s share of Production Sharing Oil
CONTRACTOR’s Share = 54,000 BBL – 42,795 BBL [2A] or 57,000 BBL – 45,172.5 BBL [2B]
CONTRACTOR’s Share = 11,205 BBL [2A] or 11,827.5 BBL [2B]
CONVERSION TO DEVELOPMENT AREA
Name of the CONTRACTOR:
H.E. MINISTER OF OIL & MINERAL RESOURCES
We, the CONTRACTOR, hereby declare that a Commercial Discovery of oil has been notified to the MINISTRY on ___________. The Declaration follows as a result of the appraisal program consisting of the drilling of ___________ Exploration Wells to date, and including geological, geophysical and engineering studies that indicate the size of the structure in which the Commercial Discovery of oil was made. The summary of the appraisal program is as follows:-
Well § 1 Well § 2 (etc)
Thickness of Pav
Zone Gross___________ft ____________ft
No.1 Net ___________ft ____________ft
Zone Gross___________ft ____________ft
No.2 Net ___________ft ____________ft
Zone § 1 ________________ _________________
Zone § 2_________________ _________________
Range of estimated reserve for
Development Area :
_________ Million BBL to ______________ Million BBL
(Summary of any other relevant information)
Based on the structural interpretation resulting from the geological, geophysical and engineering studies, the structure in which the Commercial Discovery of oil has been made is located in (number of blocks) Development Blocks comprising a total Development Area of _________Km2.
The corner coordinates of the Development Area are as follows :
1. ___________________ 4. ___________________
2. ___________________ 5. ___________________
3. ___________________ 6. ___________________
Therefore, in accordance with Article 3.4 of the Production Sharing Agreement.
29into a Development Area with respect to the Commercial Discovery of oil notified to the MINISTRY as aforesaid.
This request for Conversion to Development Area shall be subject to the following conditions:
1. The provisions of the Production Sharing Agreement under which this Commercial Discovery of Oil was notified to the MINISTRY shall apply to the Petroleum Operations in respect of the Development Area hereby established.
2. This Development Area may be revised, during or after the Exploration Period, by the CONTRACTOR after the approval of the MINISTRY if supported by additional technical information resulting from future Petroleum Operations by an amendment to this Request for Conversion to extend beyond the original Agreement Area or into any area under a production sharing agreement with third parties.
3. If future Exploration in the Development Area, during or after the Exploration Period, results in a discovery of Oil in a separate geological structure that extends beyond the Development Area, CONTRACTOR shall have the right, after the approval of the MINISTRY, to appraise such discovery by drilling one or more Exploration Wells outside the Development Area, provided that such outside area is within the original Agreement Area and is not under a production sharing agreement with third parties. The CONTRACTOR shall have the right to declare such a discovery a Commercial Discovery of Oil. In such case the MINISTRY and CONTRACTOR shall sign an amendment of this Request for Conversion to Development Area to extend the Development Area to include the geological structure in which such Commercial Discovery was made.
4. If, without technical or economic reasons or Force Majeure, production has not commenced on a continuous basis within three (3) years from the date of acceptance by the MINISTRY of CONTACTOR's Request for Conversion to Development Area, the MINISTRY may request CONTRACTOR to cure such problem, giving a three (3) years extension to do so. If after such extension period, production has not commenced on a continuous basis, the CONTRACTOR will be obliged to surrender the development area to the MINISTRY on request.
Consequently, we respectfully request the MINISTRY's acceptance of, and agreement to, this request for Conversion to Development Area to be evidenced by your signature below.
Signed this ________ day of _____ 199_____.
H.E. MINISTER OF OIL & MINERAL RESOURCES.