Exploration period is 6 years counting from the effective date, together with any extension granted, during which the company shall execute the minimum exploration program.
Exploitation period with respect to each exploitation area, up to 24 years together with any extensions granted, counting from the date of declaration of commerciality of the related commercial field, during which the company shall execute development and production operations.
Etude sur l'impact environnemental et plan de gestion
An environmental impact assessment is contemplated by this contract in the following definition of 'evaluation/evaluation operations':
All operations and activities undertaken by the company in an evaluation area in order to evaluate the discovery, demarcate the geometry of the reservoir(s) in the evaluation area and determine, amongst other things, the viability of extracting the hydrocarbons in economically exploitable quantities and qualities and the impact of commercial exploitation on the environment and social situation.
The operations include the drilling of exploration wells, the acquisition of detailed seismic data, the conducting of production tests and in general; operations designed to determine whether the discovery is a commercial field and to demarcate it.
The company may not commence exploitation without approval of the environmental impact study and the issue of related environmental licenses.
For liquid hydrocarbons:
When the accumulated production from the exploitation area, including the royalty volume, exceeds 5 million barrels of liquid hydrocarbons, and if the price of the marker crude West Texas Intermediate (WTI) exceeds the base price Po, the company will pay the government an amount denominated in US dollars, payable by calendar month in arrears, within 30 calendar days following each due date.
For natural gas:
5 years after a field started exploitation, according to the approval minute issued by the authority, and if the price of the marker natural gas “U.S. Gulf Coast Henry Hub” exceeds the base price Po, the company will pay the government an amount denominated in US dollars, payable by calendar month in arrears, within 30 calendar days following each due date.
The amount due for this fee for each exploitation area will be the result of applying the following formula:
Due to the government = [Value of hydrocarbons at delivery point]
X
[company´s volume of hydrocarbons]
X
[P-Po x 30%
P
The A factor is [company´s volume of hydrocarbons] X [P-Po x 30%
P
Where:
Value of liquid hydrocarbons at the delivery point
For liquid hydrocarbons:
For the purpose of this formula, it will be the reference price for the corresponding calendar Month expressed in US dollars per barrel, from a basket of a maximum of 3 oil crudes of a similar quality to that coming from the exploitation area, presented by the company in the exploitation plan agreed with the government, and adjusted for the delivery point by a pre-agreed margin.
If, having applied the procedure for the determination of the value of the liquid hydrocarbons in accordance with preceding paragraph, differences arise in shortages or overages in the reference price of the basket and real sale price at the delivery point by more than 3%, the party which considers that it is affected may request a review of the basket or of the margin of adjustment. For the purposes of this process, the real sale price of Liquid Hydrocarbons produced in the exploitation area for the corresponding calendar month will be a weighted average of the sale prices agreed by the company with buyers who are not related parties and have no other kind of corporate relationship, and where at all events the transactions are conducted in a framework of normal commercial practice, deducting the cost of transport and handling between the delivery point and the reference sale point in accordance with tariffs provided by the Ministry of Mines and Energy.
When the company sells the hydrocarbons for refining for internal supply, the terms of Section 16.6 will apply.
For natural gas:
For the purpose of this formula, it will be the real selling price of the natural gas for the corresponding calendar month expressed in US dollars per million of British Thermal Units (US$/MMBTU) agreed by the company with buyers, excluding transportation & processing costs between the delivery point and the real selling point. At any moment, the government will require supporting documentation to verify real selling prices of the natural gas.
Volume of hydrocarbons of the company:
This is the volume of Hydrocarbons expressed in barrels for liquid hydrocarbons and in British Thermal Units (BTU) for natural gas, which correspond to the company, in a given calendar month.
P:
For Liquid Hydrocarbons, is the average price per barrel of the market crude West Texas Intermediate (WTI), in US dollars per Barrel (US$/Bl), and for natural gas is the average price of the marker “U.S. Gulf Coast Henry Hub” in US dollars per million of British Thermal Units (US$/MMBTU). This average prices are for the relevant calendar Month, whose specifications and locations are published in media of international repute.
Po:
For liquid hydrocarbons, is the base price per barrel of the market crude, in US dollars per barrel (US$/Bl), and for natural gas is the average price in US dollars per million of British Thermal Units (US$/MMBTU), indicated in the following table:
API of liquid hydrocarbons produced; Po (US$/Bbl)
>15 & <=22; 28
>22 &<=29; 27
>29; 26
Produced exported natural gas; Po (US$/MMBTU)
X;6
For heavy liquid hydrocarbons with an API above of 10 degrees (10o), Po will be US$ 40 per barrel and for heavy liquid hydrocarbons with an API equal or below to 10 degrees the company will pay nothing to the government for high prices scenarios. For natural gas to the internal Colombian consume, in case of its price will be regulated by Comisión de Regulación de Energía y Gas –CREG – or another similar organism, the company will pay nothing to the government for high prices scenarios; otherwise, the parties will agree a natural gas marker and Po value, signing the agreement.
This base price will be adjusted annually as of the first of January 2006, applying the following formula:
Po = Po(n-1) x (1+I(n-2))
Where:
Po(n-1) is the value of Po for the preceding calendar year
In-2) is the annual variation expressed as a fraction of the US-CPI during the calendar year, 2 years before that for which the calculation is made, as published by the US Department of Labor.
The calculation mentioned above will be made in December of each year.
Paragraph: if the price of the marker crude West Texas Intermediate (P) or of the natural gas marker “US Gulf Coast Henry Hub” lose recognition as international marker prices, the government will select a new marker crude or natural gas marker, and will modify the table based on the new index, maintaining equivalencies with the Po values for the marker crude West Texas Intermediate or for the natural gas marker “US Gulf Coast Henry Hub”.
Not less than 3 months in advance, the government may request company in writing to pay the fee to the government in kind for a period of not less than 6 months. The company will accede to this request provided that it does not affect affect its commercial commitments. The volume corresponding to the government will be that which results from calculating the “A” factor.
The company will make available to the government the percentage of hydrocarbons production established in the law as royalties in cash or in kind, as ordered by the competent authority.
In all cases of extension of the exploitation period in an exploitation area, the company will recognize and pay the government as a production participation, a sum equivalent of 10% of the production of light liquid hydrocarbons and the delivery point, or 5% of non-associated natural gas or heavy liquid hydrocarbons obtained by the company as of the expiry date of the initial duration of the exploitation period, valued at the delivery point after deducting the royalty percentage.
As of the second phase of the exploration, and for each other phase, the company will pay the government a fee denominated in dollars, which will be the result of multiplying the number of hectares and fraction of a hectare of the contract area, excluding exploitation areas, by the amount in US Dollars presented in the following table.
Value per phase in US$ / Hectare:
Size of area For the first 100,000 hectares For each additional hectare
Duration of the Phase < 12 months > 12 months < 12 months > 12 months
In polygons A v B 0.75 1.0 1.0 1.5
Outside from Polygons 0.5 0.75 0.75 1.0
Areas: Offshore 0.25 0.25 0.25 0.25
The exploitation work program for each exploitation area will contain the terms and conditions for the development of the community programs in the areas of influence of the exploitation area in question.
At all events, the company will comply with the provisions of law which govern the proportion of local and expatriate employees in executive and non-executive posts.
The company will give preference to national bidders for the supply of goods and services, on equality of conditions, being competitive in quality, delivery and price.
The company will train Colombian personnel appropriately and diligently, to find personnel that company considers necessary for operations under this contract.
The installations, assets, materials and equipment owned by the company and used for exploitation operations will pass free of charge to the ownership of Agencia Nacional de Hidrocarburos when the contract area is relinquished, or upon termination of this contract, when either event takes place after the first 18 years of the exploitation, even if those assets are outside the contract area.
The company will avoid wasting natural gas extracted from a field, as provided for in law and regulation on the matter. Before the delivery point concerned, it may use that gas as fuel for operations, as a source of energy for maximum final recovery of hydrocarbon reserves, or confining it in the reservoirs, in order to use it for these purposes during the life of the contract.
During the exploration period the company will implement a minimum exploration program for each phase as described in annex B which forms part of this contract. For performance of the minimum exploration program obligations, the exploration wells proposed by the company will be exploration wells for a new field (Type A-3) or exploration wells that form part of an evaluation program.
Otherwise, an exploration well proposed by the company will require prior acceptance by the government.
Operations in the exploitation work program are mandatory.
The company will start those exploitation operations in accordance with the schedule submitted. During the execution of the exploitation work program the company may make adjustments to the program for the current calendar year provided that they do not reduce production by more than 15% of the initial forecast.
Adjustments may not be made more often than three monthly, except for emergency situations. The company will give advance written notice of any adjustment to the exploitation work program.
If a disagreement has not been resolved within 30 calendar days from date of written notice, the matter will be referred to the most senior executive of the parties' resident in Colombia, in order to seek a joint solution.
Any disagreement or controversy derived from or related to this contract, and which is not a technical or accounting disagreement, will be resolved by arbitration.
The tribunal will apply Colombia substantive law in force, and its decision will be in law.
Arbitration proceedings will be conducted in Spanish.
The parties agree that all data and information produced, obtained or developed as a result of the operations and this contract are considered to be strictly confidential for 5 calendar years afterwards.
For interpretation of data coming from the operations executed under this contract, the confidentiality term will be 20 years. This stipulation does not apply to data or information which the parties should supply in accordance with provisions of law or regulations in force, nor those required by affiliates, consultants, contractors, auditors, legal advisers, financial institutions and competent authorities with jurisdiction over the parties or their affiliates, and or due to the rules of any stock exchange on which the shares of the company or its related parties are listed; however, the delivery of information must be communicated to the other party.
Restrictions on the disclosure of information will not impede the company from supplying data or information to companies interested in the possible assignment of rights in relation to the contract area, provided that such companies sign a related confidentiality agreement, and agree to comply with the terms of this clause.
The government undertakes not to deliver to third parties any information or data obtained as a result of the company's operations, except as necessary to comply with some provision of law applicable to the government, or the normal course of its functions. For the rest of the cases, the government will require a previous authorization by the company.
This contract will be governed in all its parts by Colombian law, and the company waives any attempt at diplomatic claims to support its rights and obligations under this contract, except in the case of denial of justice. It is understood that there will not be denial of justice if the company has had access to all recourse and means of action available under Colombian law.