The Arabic version of this contract shall be referred to in construing or interpreting this contract in case, however, of any arbitration and for day-to-day administration and other general purposes between Syrian Petroleum Company and Loon Energy Inc. the English and Arabic version shall both be used to construe or interpret the contract, and shall have equal weight and validity.
Following the first date of commercial discovery, Syrian Petroleum Company and Loon Energy Inc. shall form an operating company, which shall be called LATAKIA petroleum company which shall conduct the operations necessary of development and production under this contract.
The development period of any development area shall be 20 years with the possibility of a 5 year extension.
The initial exploration period is 48 months with the possibility of an extension of 36 months and a second extension of 24 months.
The operator shall give due regard to the protection of the environment which may be affected by the development of its activities and aim at progressive reduction over time of emissions, effluents and discharges of waste materials from its operations which are known to have a negative impact on the environment.
Loon Energy Inc. shall supply Syrian Petroleum Company a statement of exploration activity showing costs incurred by Loon Energy Inc. during the quarter. Loon Energy Inc.'s records and necessary supporting documents shall be available for inspection by Syrian Petroleum Company at any time during regular working hours for 3 months from the date of receiving each statement. Subject to the pre-auditing and approval requirements, Syrian Petroleum Company shall within 3 months from the date of receiving such statement, advise Loon Energy Inc. of potential problems. Loon Energy Inc. shall confer with Syrian Petroleum Company in connection with any audit problems thus presented, and these two parties shall attempt to reach a settlement which is mutually satisfactory.
The books of account and other books and records shall be kept in the English language and shall be available at all reasonable times and upon notice for inspection by duly authorized representatives of the government.
The operator shall prepare and, at all times while this contract is in force, maintain accurate and current records of its operations in the area. Operator shall furnish the government or its representative, subject to applicable regulations of local application or such as the government or its representative may reasonably require information and data concerning its operations in the Syrian Arab Republic under this contract.
Loon Energy Inc. shall pay to Syrian Petroleum Company a signature bonus for US$ 1 million within 30 days after the effective date.
Loon Energy Inc. shall pay to Syrian Petroleum Company the following production bonuses in respect of the total production of Petroleum form the Area:
After production reaches 25,000 barrels per day (BPD) and continues at an average of at least that rate over 30 consecutive days for the first time: US$ 500,000.
After production reaches 50,000 BPD and is continued at an average of at least that rate over 30 consecutive days for the first time: US$ 1 million.
Syrian Petroleum Company shall pay on behalf of Loon Energy Inc. and shall indemnify Loon Energy Inc. against the imposition of all Syrian Arab Republic income taxes and any additional amount payable under law (including penalties for reasons not caused by Loon Energy Inc.), out of the sums received by Syrian Petroleum Company from the sale or other disposition of its share of the petroleum.
Loon Energy Inc. and each company comprising Loon Energy Inc. shall be exempted from all taxes, except income taxes, with respect to the extracting, producing, exporting or transporting of Petroleum. Each company comprising Loon Energy Inc. shall also be exempted from any tax on capital, if any. Loon Energy Inc. and the shareholders shall also be exempted from all taxes, fees and charges with respect to interest, dividends and other distributions paid to them in connection with activities under this contract. Moreover, no tax, fee or charge shall be payable with respect to interest, fees, charges or other payments made in connection with borrowings, services performed or property sold to Loon Energy Inc. outside Syria, or for purposes of registration taxes, fees or charges, documents executed outside of Syria in connection with activities covered by this contract.
Production Share - "Profit Oil features (triggers for variations in split - IRR, factor, production, etc .)
The remaining petroleum produced and saved from the area, after deduction of royalty and the volume of cost recovery petroleum taken by Loon Energy Inc. and any excess cost recovery petroleum taken by Syrian Petroleum Company shall be taken in kind and disposed of separately and at their respective expenses as follows:
Annual average daily production from 1-15,000 barrels per day (BPD): Syrian Petroleum Company: 71%; Loon Energy Inc: 29%;
Annual average daily production from 15,001-25,000 BPD: Syrian Petroleum Company: 72%; Loon Energy Inc: 28%;
Annual average daily production from 25,001-50,000 BPD: Syrian Petroleum Company: 74%; Loon Energy Inc: 26%;
Annual average daily production from 50,001-100,000 BPD: Syrian Petroleum Company: 76%; Loon Energy Inc: 24%;
Annual average daily production above 100,000 BPD: Syrian Petroleum Company: 80%; Loon Energy Inc: 20%.
Gas that is produced from the area and measured at the metering point for the purposes of sales, shall be converted to barrels of energy (BOE) and shall be shared in the following proportions:
Gas production 0-25 (per million BOE): Syrian Petroleum Company 68%, Loon Energy Inc. 32%;
Gas production 25-50 (per million BOE): Syrian Petroleum Company 68%, Loon Energy Inc. 32%;
Gas production 50-100 (per million BOE): Syrian Petroleum Company 69%, Loon Energy Inc. 31%;
Gas production >100 (per million BOE): Syrian Petroleum Company 72%, Loon Energy Inc. 28%.
Production Share - Cost Oil features (basis of calculation, limits on cost recovery - e.g. as % of revenue or production, capex uplift, etc.)
Subject to the auditing provisions under this contract, Loon Energy Inc. shall recover all costs and expenses in respect all the exploration, development and related operations under this contract to the extent and out of, 40% per annum of all petroleum produced and saved from the area after deducting the royalty due to the government.
Development expenditures, including those accumulated prior to the first date of initial commercial production shall be recoverable at the rate of 25% per annum based on amortization at that rate starting from the calendar year in which such expenditures are incurred. Except for development expenditures made during the last 4 calendar years of the last development period under this contract the rate of recovery shall be increased to allow for 100% amortization of such costs by the end of the contract.
The amount by which the value of cost recovery petroleum in any calendar year exceeds the sum of all recoverable costs and expenditures under Article 7.2 shall be converted into a volume in barrels. Syrian Petroleum Company shall receive 50% of the volume of excess cost recovery petroleum. The remaining 50% of the volume of excess cost recovery petroleum shall be shared between the Syrian Petroleum Company and Loon Energy Inc.
The government shall own and be entitled as hereinafter provided, to a royalty in cash or in kind of 12.5% of all petroleum produced and saved from the area during the development period. The remaining 87.5% shall be divided between the Syrian Petroleum Company and the Loon Energy Inc.
Loon Energy Inc. or operator, as the case may be and their contractors shall:
Give priority to local contractors as long as their prices and performances are comparable with international prices and performances for the type of work to be performed.
Give preference to locally manufactures materials, equipment, machinery and consumables so long as their technical specifications, quality and time of delivery and service facilities (including service and spare parts supply) are comparable to internationally available materials, equipment, machinery and consumables. However, such materials, equipment, machinery and consumables may in any event be imported for operations conducted here under if the local price of such items at Loon Energy Inc.'s or the operating company's operating base in the Syrian Arab Republic is more than 15% higher than the price of such imported items before customs duties, but after transportation and insurance costs have been added.
Loon Energy Inc. shall, after consultation with Syrian Petroleum Company, prepare and carry out specialized training programs for all of its Syrian employees engaged in operations here under with respect to applicable aspects of the petroleum industry. Loon Energy Inc. and operating company shall undertake to replace gradually their expatriate personnel, particularly administrative staff and technicians by qualified Syrian citizens whenever available.
Loon Energy Inc. shall dedicate an amount of US$ 50,000 as training budget for the purpose of internal and external training of Syrian Petroleum Company's employees and to support the specialized training centers in the field of gas and oil during the contract period. To expend the training budget, Loon Energy Inc. shall cooperate with Syrian Petroleum Company in giving qualified Syrian Petroleum Company employees an opportunity to attend and participate in training programs in exploration, development, and technical, financial and legal fields related to petroleum offered by Loon Energy Inc. or affiliated companies. Except as otherwise provided, training budget costs and expenditures shall not be cost recoverable.
Syrian Petroleum Company and Loon Energy Inc. shall consult together to determine whether to build an LPG plant for recovering LPG from a commercial discovery of gas. The consideration to build an LPG plant shall be by Syrian Petroleum Company and Loon Energy Inc., not only in respect of an independent LPG project, but also in regard to meeting the gas pipeline specifications. Delivery of LPG for royalty and other purposes required by this contract shall be at outlet of the LPG plant.
During the term of this contract and any extension period Loon Energy Inc. and operating company shall be entitled, for the purpose of transporting petroleum or gas from any development area to the delivery point to make use of spare capacity of any production facility, pipeline or terminal which is at the disposal of Syrian Petroleum Company any other such facilities, pipelines or terminals which is at the disposal of Syrian Petroleum Company any other such facilities, pipelines or terminals which are at the disposal of the government or the companies supervised by the government or Syrian Petroleum Company, and not firmly committed for other petroleum operations.
Loon Energy Inc. shall at the commercial discovery of gas, ask government to notify Loon Energy Inc., within 120 days after the date of commercial discovery of gas whether it wishes to require that all or any portion of gas reserves should be utilized within the Syrian Arab Republic. If government elects to require gas to be utilized within the Syrian Arab Republic within the 120 day period, the parties shall negotiate a gas sales contract.
Loon Energy Inc. shall be bound during the initial exploration period of 48 months from the effective date to carry out all exploration operations in the area. These shall include geological and geophysical work, comprising of the acquisition of a minimum of 600 kilometers of 2D seismic or equivalent of 3D seismic in US$, and the drilling of 2 exploration wells.
Loon Energy Inc. shall spend during such period on exploration operations a minimum of US$ 7.5 million.
During the first extension of the initial exploration period, which shall be 36 months, Loon Energy Inc. shall complete the drilling of at 2 exploration wells and acquire a minimum of 200 kilometers of 2D seismic or 3D seismic equivalent in US$. Loon Energy Inc. shall spend during this first extension on exploration operations and other activities related to such operations, a minimum of US$ 7 million.
During the second extension of the initial exploration period, which shall be 24 months, Loon Energy Inc. shall complete the drilling of 1 exploration well and acquire a minimum of 100 kilometers of 2D seismic or 3D seismic equivalent in US. Dollars. Loon Energy Inc. shall spend during this second extension on exploration operations and other activities related to such operations a minimum of US$ 2.5 million.
Any dispute, controversy or claim arising between government and Loon Energy Inc. or operating company with respect to the interpretation or application of or performance under this contract, if not resolved amicably, shall be referred to the jurisdiction of the appropriate Syrian courts under the jurisdiction of Syrian law. Any other dispute between Loon Energy Inc. and Syrian Petroleum Company (other that with the government) shall be resolved, if not resolved amicably, in accordance with the Swiss law and referred to the international arbitration.
Except to those matters which are expressly agreed hereunder to be settled by an expert, any dispute, controversy or claim arising between Loon Energy Inc. and Syrian Petroleum Company in connection with this contract shall be finally settled by arbitration by 3 arbitrators. The arbitration shall be held at Geneva, Switzerland and conducted in accordance with UNCITRAL rules. The language of the arbitration shall be English.
During the arbitration period and pending the decision, determination or award, 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, provision may be made therein for such reparation as may appropriately be made in favor of the complainant.
The parties agree that for matters submitted to arbitration, the decision, determination or award of the tribunal will be the sole and exclusive remedy between them regarding any and all claims and counterclaims presented to the tribunal. Judgment on the award rendered may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement.
All technical data and information shall be deemed to be strictly confidential and shall not be divulged by the Syrian Petroleum Company without the consent of Loon Energy Inc. except to affiliated companies administered by the government, nor by Loon Energy Inc. expect to affiliated companies or an intended assignee, professional consultants, banks or financial institutions from whom Loon Energy Inc. is seeking or obtaining finance, or to the extent required by any stock exchange on which the shares of any company comprising Loon Energy Inc. are quoted. This is provided that such affiliated companies, intended assignees, consultants, banks and financial institutions are bound by a strict undertaking of confidentiality.
Loon Energy Inc. and operating company shall be subject to all laws and regulations of local application in force in the Syrian Arab Republic provided that Loon Energy Inc. and operating company shall not be subject to any laws, regulations or modifications which are contrary to or inconsistent with the provisions of this contract.