The Russian and German version of this contract are both equally binding. In the event of interpretation problems caused by translation an independent expert is to be appointed by the parties hereto and shall be responsible for preparing a proposal to solve the problem satisfying the financial and economic aims and the object of the joint venture.
The production period shall be 20 years and TAKT shall be entitled to extend the contract by as many years as the extension totals (in addition to up to 10 years of exploration).
If before commencement of commercial extraction the parties conclude a natural gas delivery contract, the period of validity of which is longer than 20 years, then the production period shall automatically last as long and the possibility of an extension shall only arise after that.
When carrying out the activities TAKT must ensure that it avoids to the greatest extent possible:
- the loss of hydrocarbons above and below the surface of the earth;
- damage to rock formations which carry hydrocarbons;
- the unintended penetration of water into rock formations carrying hydrocarbons;
- environmental pollution and damage.
For purposes of the activities in the contractual area TAKT may make use of the raw materials which exist there, such as water in the necessary scope and on conditions which do not discriminate against TAKT, compare with third parties. If necessary for the activities, TAKT shall be entitled to sink water wells.
The government shall be entitled at its own expense to check the annual cost accounting including the relevant documentation of TAKT regularly for purposes of correctness. If the government does not check the cost accounting within 12 months from 31st December of any year in which the costs have been incurred, then the costs shall be deemed to have been accepted and the government shall not be able to make any later objections to those costs.
TAKT undertakes to pay a bonus totaling US$ 840,000 on the entry into force of the contract to the government. The government recognizes that TAKT has fulfilled this obligation on paying the same amount to Lenaneftegasgeologia as partial remuneration for the drilling of well 314-2 and there shall therefore be no further payments for this reason to the government.
TAKT is obliged to pay taxes on hydrocarbons VAT recoveries and the legally specified up to a maximum rate of 20 % in accordance with the conditions of this contract. The government does hereby guarantee that TAKT shall be exempt from all other taxes, levies and fees (i.e. fees for the transfer of the land (lease agreement)), of any kind whatsoever, during the period of validity of this contract.
TAKT undertakes, to make available the following amounts to the government for projects for social development purposes:
Exploration phase(s): 2.5% of the costs of TAKT for searching and surveying.
Development phase: Up to 2% of the costs of TAKT for the development of petroleum or natural gas deposits.
TAKT shall not make available more than US$ 30 million for such projects. TAKT and the administrative department shall decide jointly on the projects to be promoted.
Production Share - "Profit Oil features (triggers for variations in split - IRR, factor, production, etc .)
Those quantities of available hydrocarbons, which are not used as hydrocarbons costs, shall be split up as follows between TAKT and the government:
Government: 40%;
TAKT: 60%.
Production Share - Cost Oil features (basis of calculation, limits on cost recovery - e.g. as % of revenue or production, capex uplift, etc.)
TAKT shall be entitled to recover its accumulated costs from up to 90% of the available hydrocarbons after deduction of the royalties.
If the costs accumulated before and after commencement of commercial extraction cannot be recovered within one year, then costs not recovered shall be carried forward to the next year, and indeed for as long as necessary until all costs have been recovered. All costs not recovered in one year shall bear interest for the prior year and the interest amounts shall be added to the costs for the next year. Loans taken up from Banks shall be excepted from bearing interest.
At the transfer point 8% of the available hydrocarbons shall be made available to the government as royalty or shall be paid in cash. Royalties are recoverable within the framework of the hydrocarbons costs.
TAKT shall make every effort to ensure that the majority of the employees are citizens of the Russian Federation and that these employees are allowed further education specific to their trade or profession in accordance with the directives laid down by TAKT.
For orders to subcontractors, which go above an amount of US$ 500,000 TAKT shall be obliged to instigate a tender competition. TAKT must place the order with the company, which in the opinion of TAKT as regards price, quality, delivery time and technical skills best satisfies the requirements of TAKT. In the event of equality of bids or tenders, Russian and Yakut companies must be given preference.
The government undertakes, to grant to TAKT all the rights which are necessary for the construction of pipelines and transportation of hydrocarbons, if such pipelines go beyond the contractual area.
In accordance with the development of the natural gas potential of the Russian Federation and in view of the activities of TAKT, working as the first Yakut-Austrian Joint Venture searching for hydrocarbons, the government will make the greatest possible efforts, to allow TAKT the earliest possible connection to the pipelines for the exporting of natural gas.
Subject to the widest possible protection of nature, TAKT shall be entitled to build roads and other traffic routes in the contractual area, if necessary for the activities. In response to queries from the Government TAKT shall generally permit the utilization of these roads and traffic routes, provided this does not restrict TAKT in its activities and does not give rise to any additional financial burden.
If an extraction area extends beyond the borders of the contractual area and this adjacent area has been placed with another company within the framework of a licence agreement, the government, if the companies affected do not reach agreement within a reasonable deadline, may request in writing, that this extraction area be developed uniformly and that a joint development project be submitted.
Should natural gas be needed to settle internal demand, then TAKT shall conclude a natural gas delivery contract with the government, which will provide for the payment of TAKT.
During the first exploration period TAKT must fulfill at least the following work obligation:
In Section 1 TAKT shall especially carry out the following tasks:
- Processing of seismic data: 850 kilometers;
- Evaluation of seismic information;
- Simulation and drawing up of the geological and facies maps;
- The sinking of a test bore with breakdown and information concerning the subsalinary deposits.
In Section 2 TAKT shall carry out especially the following tasks:
a) Verchnemurbaysk Area:
- Processing of seismic data: 820 kilometers;
- Evaluation of seismic information;
- Technical and economic evaluation of the area on the basis of the seismic interpretations;
- On proof of the financial viability on extraction in the opinion of TAKT -- drilling work to the extent to be stipulated by TAKT.
b) Otradrunsk Area:
- Processing of seismic data: 420 kilometers;
- Evaluation of seismic information
- Sinking of 2 test holes, whereby borehole 314-2 will be included.
During the second exploration phase TAKT must fulfill a minimum work obligation stipulated by TAKT. Should TAKT not fulfill the minimum work obligation, then TAKT shall pay to the government the differential amount between the amount actually expended for the activities and the sum of US$ 30 million for Section 1 or US$ 15 million for Section 2.
The government recognizes that, even before the entry into force of this contract, TAKT has carried out the following geological and geophysical works and drillings, which as a result shall be recognized as partial fulfillment of the work obligation:
- Sinking of borehole 314-2 and test investigation in Section 2, Otradinsk area (final depth 2928 m)
- Reprocessing of 865 kilometer seismic data and probably a further 100 kilometer interpretation of 2090 km of unreprocessable seismic data.
Any disputes arising out of this contract, which cannot be settled amicably, shall be settled by a court of arbitration in accordance with the rules of UNCITRAL (Community of the United Nations for International Trading Law). The court of arbitration shall consist of 3 members. The court of arbitration must conduct its proceedings in Zurich, Switzerland. The government waives the right to plead state immunity and does subject itself to the court of arbitration and its decision as well as the execution of the arbitration decision.
These rock samples and technical documents may only be passed on by the government and TAKT to executive, subcontractors, consultancy companies or bound companies. It must however be guaranteed, that these rock samples and technical documents shall be treated confidentially, and not passed on to third parties. TAKT may also pass on these rock samples and technical documents to companies, which are interested in a transfer of rights and obligations from TAKT under this contract. The prerequisite for the onward transmission is in connection with the activities. The obligation to maintain secrecy and confidentiality shall end on the expiry of this contract.