Best practice means the practices and procedures generally adopted in the oil industry worldwide by prudent and diligent operators under conditions and circumstances similar to those experienced in connection with relevant aspect or aspects of the operations aiming mainly at ensuring:
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c) the preservation of the environment and the respect for the populations, which imposes the adoption of technologies and procedures associated to the prevention and relief of environmental damage, as well as the environmental control and monitoring of the operations of exploration and production of oil and gas.
The company shall adopt, at its own cost and risk, all the necessary measures for the conservation of reservoirs and other natural resources and for the protection of the air, soil and water in the surface or in the subsurface, subject to the Brazilian legislation and rules about the environment and, in their absence or lack, adopting best practice in this regard.
Within this principle, and without limiting its application, the company is obliged to, as a general rule, and not only in respect to the performance of the operations, but also the relinquishment and abandonment of areas and removal and reversion of assets, to preserve the environment and protect the balance of the ecosystem in the concession area, to avoid the occurrence of damages and losses to the fauna, flora and the natural resources, to consider the safety of persons and animals, to respect the historic and cultural heritage, and to repair or indemnify the damages resulting from the its activities and to perform the environmental recovery acts determined by the competent agencies.
The company shall immediately inform the government and the competent state and municipal authorities about the occurrence of any oil or natural gas spill or loss, as well as the actions taken to remedy the problem.
The company shall assume full and objective responsibility, for all damages and losses to the environment and third parties which might result, directly or indirectly, from the operations and their performance, as well as from their relinquishment and the removal and reversion of assets, being obliged to repair them and to indemnify the government for all and any action, appeal, lawsuits or court injunctions, arbitration, auditing, inspection, investigation or disputes of any kind whatsoever, as well as any indemnifications, compensations, punishments, fines or penalties of any nature whatsoever, related to or resulting from such damages or losses.
The government may, whenever it deems necessary, perform an accounting and financial audit of the agreement and the assessment records of the governmental participations pursuant to Article 43, item VII, of the Petroleum Law, auditing directly or upon association, pursuant to Article 8 of the Petroleum Law. For this purpose, the government shall notify the company at least 30 days in advance. The audit shall not prejudice the efficient performance of the operations in progress.
In order to perform the audit provided herein, the government shall have full access to the documents, books, papers, registers etc., including agreements and contracts signed by the company and related to the acquisition of goods and services for the operations, related to the last 5 complete calendar years.
For the purpose of auditing the local content, the company is responsible for the validity of the information delivered by the supplier. Such information must be in accordance with the regulatory rules enacted by the government. The company must keep certifications and declarations issued by its suppliers, during 5 calendar years. The company shall be responsible for any information issued by third parties. The government may demand any documentation which might be necessary to clear up any doubts on the suppliers.
The act or omission of the audit, shall in no way eliminate or reduce the company’s responsibility for the compliance with the obligations assumed herein.
The company shall be subject to the tax regime at the federal, state and municipal levels, being obliged to comply with their dispositions, terms and conditions defined by the applicable Brazilian legislation.
In the event that the special participation is due to a field in any given calendar quarter, the company shall be obliged to pay qualified expenses on research and development an amount equal to 1% of the production gross revenue for such field.
Such qualified expenses on research and development shall be paid no later than June 30 of the year following the calendar year in which the quarter or quarters concerned fall. No later than September 30 of such following year, the company shall deliver a full report regarding the qualified expenses on research and development made to the government, including a description of the technical aspects and supporting documentation, in accordance with the applicable Brazilian legislation.
Qualified expenses on research and development that are paid by the company after the effective date either when it has no obligation to pay such expenses. At the government´s discretion, the background of the qualified personnel may be considered as a qualified expense for purposes of this agreement.
Up to 50% of the qualified expenses on research and development may be paid through development activities in the company’s own facilities or its affiliates’, located in Brazil, or contracted with national companies, regardless of whether those activities are involved or related to the operations of this agreement. The remainder must be used for contracting these activities with universities or research institutions and to develop national technology that has been accredited for this purpose by the government, regardless of whether such activities are involved or related to the operations of this agreement.
When the expenses are made on the company’s own or affiliates’ facilities, only those expenses related to the acquisition of equipment, instruments, materials used in experiments and construction of prototypes or pilot facilities shall be considered, as well as the gross salary of personnel that take part in the activities outlined in this paragraph, but specifically excluding proration of costs in administration, infrastructure, and costs related to routine tests, technical assistance and services and solutions of operational problems, services and taxes of licenses and patents or any other not directly linked to those activities.
For purposes of granting the accreditation, the government will take into account the areas of interest and relevant subjects for the sectors of oil and its products, natural gas, the environment and energy.
Payment to the landowners of equivalent participation to 1% of the oil and natural gas production, in accordance with the applicable Brazilian legislation.
The company, directly or by any other means, shall recruit and hire, at its own cost and risk, being, for all purposes, the only and exclusive employer responsible for arranging all the work force necessary for the performance of the operations, being allowed to do it in Brazil or abroad, and according to its exclusive selection criteria, respecting, however, the provisions of the Brazilian legislation in effect, including with regard to maximum and minimum percentages of Brazilian and foreign workforce used. In any event, the company shall be exclusively and entirely responsible, in Brazil and abroad, for all arrangements
regarding the entry, exit and permanence of its foreign personnel in the country.
The company undertakes to:
(a) Include Brazilian suppliers in the companies invited to submit proposals.
(b) Grant access to a Portuguese or English version of the same technical specifications for all companies invited to submit proposals, being disposed to accept equivalent specifications where in accordance with best practice, in such a way that does not restrict, inhibit or impair the participation of Brazilian suppliers. All of the non-technical documents and correspondence shall be sent to Brazilian suppliers in Portuguese.
(c) Ensure that all the invited companies shall have equal and adequate time consistent with the requirements of the company, both in the preparation of proposals and in the delivery of goods and services, in accordance with best practice, so as not to exclude potential Brazilian suppliers.
(d) Require no technical qualifications or certifications of Brazilian suppliers besides those required from foreign suppliers.
(e) The acquisition of goods and services supplied by affiliates is equally subject to the other items in this clause, except in case of services that, in accordance with best practice, are usually carried out by affiliates.
(f) Keep track of the Brazilian suppliers which are able to offer supplying services and seek, whenever applicable, updated information on the universe of suppliers at the trade associations and entities with renowned knowledge on the subject.
The company shall:
For each block within the concession area, during the exploration phase, purchase an amount of goods and services from Brazilian suppliers so that the local investment percentage is [X]% onshore.
To the fulfilment of the global percentage of the contracted local content in the exploration phase, it becomes mandatory the performance of local content percentage of the items and sub-items specified in the spreadsheet of the annex X, subject to penalty.
For each block within the concession area, during the development phase, purchase an amount of goods and services from Brazilian suppliers so that the local investment percentage is [X]% onshore.
The performance of local content percentage of the items and sub-items specified in the spreadsheet of the annex X becomes mandatory (to the fulfilment of the global percentage of the contracted local content in the exploration phase), subject to penalty.
If the company receives a proposal of excessively high prices for the acquisition of local goods and services (specific items and sub-items) when compared to international market conditions, the government may, with prior request from the company, on an exceptional basis, previously and expressly authorize the procurement of the goods and services abroad, and exceptionally exempt it from the obligation of performing the respective percentage of local content.
In case of receiving a term proposal for the delivery of goods and the performance of local services (specific items and sub-items) which is higher than the international market conditions, so that it may compromise the proposed activities schedule, the government may, as prior request of the company, on an exceptional basis, previously and expressly authorize the procurement of the goods and services abroad, and exceptionally exempt it from the obligation of performing the respective percentage of local content.
In case of electing to use a new technology, during the exploration and development plan, which is not available in the moment of the bidding and it is not mentioned in the spreadsheet in annex X, the government may, upon previous request of the company, on an exceptional basis, previously and expressly authorize the replacement of the old technology and exempt the company from the obligation of performing the percentage of local content, referring to the activities that are being replaced by this new technology (specific items and sub-items), in case it is not being provided by the local suppliers.
During the exploration and development phase, by justifiable reasons, make any necessary adjustments related to the performance of the local content of specific items of the spreadsheet, annex X, the company may request possible amendments to the government, taking into account the local content percentage that appears in the other items of the spreadsheet, annex X.
In the exploration phase, if performing local investments that result in a local content percentage superior to that offered in the bidding to the government, the same may, on request and on an exceptional basis, previously and expressly authorize the transfer of this difference, the bigger, of the local content to the development stage, according to the minimum percentage of the local content of each item of the spreadsheet of annex X.
For the determination of local investment percentage in the exploration phase and in the production development stage, have the values corresponding to the acquisitions of goods and services that were performed in the various years, updated for the last year, by using the general price index.
Be liable for all information related to the local content and set forth in its purchase of goods and services agreement that the suppliers certify their products and record all the necessary information to calculate the local content.
The company shall also act so that the operations do not cause any damages or losses which might affect other economic or cultural activities in the concession area, such as agriculture, cattle breeding or gathering, or which disturb the well-being of native communities and rural and urban settlements.
All construction, installation and the supply of equipment for extraction, treatment, lifting, storage, metering and transfer of the production, under the terms of this agreement, shall be at the sole responsibility of the company.
During the first exploration term, the company shall integrally perform the work units correspondent to the minimum exploratory program for the first exploration term as per annex II as follows:
The information of the final tender protocol and from the offer for the minimum exploratory program for the blocks contemplated in the annex VI shall be inserted here. The activities below, to be performed by the company, characterize the object of this agreement between the parties mentioned in the Introduction.
Minimum exploratory program and financial guarantees: to be agreed between the parties
Equivalence of work units: to be agreed between the parties
The parties shall use their best efforts to amicably resolve, between themselves, all and any dispute or controversy arising from this agreement or related hereto.
The parties may also, as long as there is a unanimously signed written agreement, resort to an international expert in order to obtain a legally based opinion to resolve the dispute or controversy.
Having executed an agreement for intervention by an international expert, the appeal to arbitration, shall only be performed after the expert has presented his/her legally based opinion.
In the event of a dispute or controversy, the government shall decide whether to suspend the activities involved in the dispute or controversy, until its solution, using as a criterion for this decision the necessity to avoid personnel or property risk of any nature, particularly in respect to the operations.
If, at any time, any arty considers that there are no conditions for the amicable resolution of a dispute or controversy, it must submit this dispute or controversy to “ad hoc” arbitration, using as a parameter the rules established by the Regulations of the International Chamber of Commerce Arbitration and in accordance with the following principles:
(a) The choice of arbitrators shall be in accordance with that established by the Regulations of the International Chamber of Commerce Arbitration;
(b) There shall be three arbitrators. Each party shall choose one arbitrator. The two arbitrators chosen shall appoint the third arbitrator, who shall act as president;
(c) The City of Rio de Janeiro, Brazil, shall be the location of the arbitration and the place of the delivery of the award;
(d) The language to be used in the arbitration procedure shall be Portuguese. The parties may, however, submit testimonies or documents in any other language if the arbitrators so decide, without the need for official translation;
(e) Regarding the merits, the arbitrators shall decide based on the substantive Brazilian laws;
(f) The arbitration award shall be final and its content shall be binding on the parties;
(g) If it is necessary to use preparatory or incidental writ of prevention, or other precautionary measures, the interested party may require them directly to the judiciary, based on the applicable Brazilian legislation.
The parties agree that the federal courts jurisdiction – judicial section of
Rio de Janeiro, Brazil - is the only jurisdiction to resolve any issues.
The company is obliged to maintain, during all the performance of the agreement, in compliance with its obligation, all the qualification and habilitation conditions required in the bidding.
All and any data and information produced, developed or acquired, by any means whatsoever, as a result of the operations and this agreement, shall be considered strictly confidential and, therefore, shall not be disclosed by the company without the prior written consent of the government, except in the following circumstances:
(a) when the data and information are already in the public domain or became available through an authorized third party;
(b) when the disclosure is imposed by law or judicial determination, or made in accordance with the fixed rules and limits by the stock exchange in which shares of the company or to its affiliates are traded;
(c) to affiliates, consultants or agents of the company;
(d) to financial institutions used by the company as well as their consultants;
(e) to prospective assignees of good faith, as well as their consultants and affiliates; and
(f) to the company of the adjacent areas, as well as their consultants and affiliates.
In the cases listed in sub-paragraphs (c), (d), (e) and (f) the disclosure of data and information shall always be made in accordance with a prior written confidentiality agreement in which these third parties are expressly obliged to comply with the provisions in this paragraph.
If disclosure (as described) occurs, the company shall send a notification to the government, within 30 days from the date of the disclosure, with the data and/or information disclosed the reasons for the disclosure and a list of the third parties who had access to the data and/or information.
The provisions regarding non-disclosure shall remain in force and will survive the termination of this contract for whatever reason.
The government undertakes not to disclose any data and information obtained as a result of the operations and which regards the part(s) of the concession area retained by the company, except when such disclosure is necessary for the compliance with legal provisions, which are applicable or with the purposes for which it was created.