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CONCESSION AGREEMENT FOR
PETROLEUM
EXPLORATION AND EXPLOITATION
.BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM
CORPORATION
AND
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
IN
WEST GHAR1B AREA
EASTERN DESERT
EGY L 900 100
treated separately and independently in all respects, including but not
limited to royalties, taxes and the computation of the net profits of
,Q.4^UR.,.and TANGANYIKA respectively, except where this
Agreement expressly provides to the contrary.
ARTICLE XXIX
APPROVAL OF THE GOVERNMENT
This Agreement shall not be binding upon any of the parties hereto
unless and until a law is issued by the competent authorities of the
A.R.E. authorizing the Minister of Petroleum to sign this Agreement
and giving this Agreement full force and effect of law notwithstanding
any countervailing Governmental enactment, and the Agreement is
signed by the GOVERNMENT, EGPC, and CONTRACTOR
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITE
TANGANYIKA OIL COMPANY LTD.
BY:
EGYPTIAN GENERAL PETROLEUM CORPORATION
^ , ARAB REPUBLIC' OF EGYPT
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The duration of Operating Company shall be for a period equal to the
nuiat53Djr.;p.f-.$he-reaid-AgreemenJ:,„inpl.udingw,any.(.renewal thereof, unless
otherwise agreed by EGPC and CONTRACTOR.
The Operating Company shall be wound up if the Agreement referred
to above is terminated for any reason as provided for therein.
By
TANGANYIKA OIL COMPANY LTD.
By
EGYPTIAN GENERAL PETROLEUM CORPORATION
/
By :
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INDEX
ARTICLE TITLE PAGE
Definitions 2
Annexes to the Agreement 6
HI Grant of Rights and Term 8
IV Work Program and Expenditures 1 8
V During Exploration Period * 25
Mandatory and Voluntary Relinquishments
VI Operations After Commercial Discovery 27
VII Recovery of Costs and Expenses and 30
Vill Production Sharing 50
Title to Assets
IX Bonuses 5 1
X Office and Service of Notices 5 2
Xi Saving of Petroieum and Prevention 53
XI! of Loss 5 4
Customs Exemptions
Xill Books of Account; Accounting and Payments 57
XiV Records, Reports and Inspection 58
XV Responsibility for Damages 60
XVI Privileges of Government Representatives 60
XVII Employment Rights and Training of Arab 6 1
Republic of Egypt Personnel
1S S’ .
li * P.n Sb
ARTICLE TITLE ~ ' ' PAGE™.
XVIII Laws and Regulations 63
s
XIX • Stabilization 64
XX Right of Requisition 65
XXI Assignment 66
XXII Breach of Agreement and Power to Cancel 67
XXIII Force Majeure 69
XXIV Disputes and Arbitration 70
XXV Status of Parties 72
XXVI Local Contractors and Locally 72
Manufactured Materia!
XXVII Arabic Text 73
xxvm Genera) 73
XXIX Approval of the GOVERNMENT 74
ANNEXES TO THE CONCESSION AGREEMENT
Annex "A" Boundary Description of Hie Concession Area 75
Annex "B" Illustrative Map showing Area covered 78
Annex “C” Letter of Guaranty 79
Annex "D" Charter of Operating Company 81
Annex 11E11 Accounting Procedure 86
Annex “F” Map of the National Gas Pipeline Grid . 104
System
CONCESSION AGREEMENT FOR PETROLEUM
EXPLORATION AND EXPLOITATION
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
IN
WEST GHAR1B AREA
EASTERN DESERT
A.R.E.
This Agreement made and entered on this________day of_ , 199 ,
by and between the ARAB REPUBLIC OF EGYPT (hereinafter referred
to variously as “A.R.E." or as the "GOVERNMENT"), the EGYPTIAN
GENERAL PETROLEUM CORPORATION, a legal entity created by Law
No. 167 of 1958 as amended (hereinafter referred to as "EGPC") and
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED., a company
organized and existing under the laws of the REPUBLIC OF IRELAND,
(hereinafter referred to as “DUBLIN”) and TANGANYIKA OIL
COMPANY LTD., a compnay organized and existing under the laws of
the
/^(DUBLIN and TANGANYIKA shall be hereinafter referred to collectively
as “CONTRACTOR” and individually as “CONTRACTOR MEMBER”.
‘j WITNESSETH
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WHEREAS, all minerals including petroleum, existing in mines and
quarries in A.R.E., including the territorial waters, and in the seabed
subject to its jurisdiction and extending beyond the territorial waters,
are the property of the State; and
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WHEREAS, EGPC has applied for an exclusive concession for the
exploration and exploitation of petroleum in and throughout the area
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V
referred to in Article ii , and described in Annex "A" and shown
approximately on™ Annex^B*? which-* are-attaebed* ■■heeeta.and^matte. part..
hereof (hereinafter referred to as the "Area"); and
WHEREAS, “DUBLIN and TANGANYIKA” agree to undertake their
obligations provided hereinafter as a CONTRACTOR with respect to
the exploration, development and production of petroleum in West
Gharib Area in Eastern Desert ; and
WHEREAS, the GOVERNMENT desires hereby to grant such
Concession; and
WHEREAS, the Minister of Petroleum pursuant to the provisions of
Law No. 86 of 1956, may enter into a concession agreement with
EGPC, and withrDUBLlN and TANGANYIKA as a contractor in the said
Area.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE i
DEFINITIONS
(a) "Exploration" shall include such geological, geophysical, aerial
and other surveys 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 therefor, all as may be
contained in the approved Work Programs and Budgets. The
verb "explore" means the act of conducting Exploration.
(b) "Development" shall include, but not be limited to, all the
operations and activities pursuant to approved Work Programs
and Budgets under this Agreement with respect to:
(i) the drilling, plugging, deepening, side tracking, redrilling,
... completing, equipping of development wells, the changing
......-;-of4he-status .of_a well, and _
.........l\'
(I!)- designr-.engineermgr-construG*i©(v*tos--teUaUo4vsesyicin.g~.aad.....
maintenance of equipment, lines, systems facilities, plants
and related operations to produce and operate said
development wells, taking, saving, treating, handling,
storing,transporting and delivering petroleum, repressuring,
recycling and other secondary recovery projects, and
(iii) transportation,storage and any other work or activities
necessary or ancillary to the activities specified in(i) and (ii).
(c) "Petroleum" means liquid crude oil of various densities, asphalt,
gas, casinghead gas and all other hydrocarbon substances that
may be found in, and produced, or otherwise obtained and
saved from the Area under this Agreement, and all substances
that may be extracted therefrom.
(d) "Liquid Crude Oil" or "Crude Oil" or "OU" means any hydrocarbon
produced from the Area which is in a liquid state at the wellhead
or lease separators or which is extracted from the gas or
casinghead gas In a plant. Such liquid state shall exist at sixty
degrees Fahrenheit (60°F) and atmospheric pressure of 14.65
PSIA. Such term includes distillate and condensate.
(e) "Gas" means natural gas both associated and non-associated,
and all of its constituent elements produced from any well in the
Area (other than Liquid Crude Oil) and all non-hydrocarbon
substances therein. Said term shall include residual gas, that
Gas remaining after removal of LPG.
(f) "LPG" means liquefied petroleum gas, which is a mixture
principally of butane and propane liquefied by pressure and
temperature. 5 5 ^
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(g) A 'Barrel" shall consist of forty-two (42) United States gallons,
liquid--.measure,- corrected-ta. su..temp,,er_ature . of sixty degrees
Fahrenheit (60°F) at atmospheric pressure of 14.65 PSIA.
(h) (1) "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 where practical, but in any
event in accordance with sound and accepted industry
production practices, and verified by EGPC, is found to be
capable of producing at the average rate of not less than
two thousand (2000) Barrels of oil per day (BOPD). The date
of discovery of a "Commercial Oil Well" is the date on which
such well is tested and completed according to the above.
(2) "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, but
in any event in accordance with sound and accepted
industry production practices and verified by EGPC, is
found to be capable of producing at the average rate of not
less than fifteen million (15,000,000) standard cubic feet of
Gas per day (MMSCFD). The date of discovery of a
"Commercial Gas Well" is the date on which such well is
tested and completed according to the above.
(i) "A.R.E." means ARAB REPUBLIC OF EGYPT.
(j) "Effective Date* means the date on which the text of this
Agreement is signed by the GOVERNMENT, EGPC and
CONTRACTOR, after the relevant Law is issued.
(k) (1) "Year" means a period of twelve (12) months according to
the Gregorian Calendar.
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(2) "Calendar Year” means a period of twelve (12) months
the^Qcegoxlaix.Calendar.hejjag^lst.jJaouarv.. to
31st December.
(!) "Financial Year” means the GOVERNMENT'S financial year
according to the laws and regulations of the A.R.E.
(m) "Tax Year" means the period of twelve (12) months according to
the laws and regulations of the A.R.E.
(n) An "Affiliated Company" means a company:
(i) of which the share capital, conferring a majority of votes at
stockholders' meetings of such company, is owned directly
or indirectly by a party hereto; or
(ii) which is the owner directly or indirectly of share capital
conferring a majority of votes at stockholders' meetings of a
party hereto; or
(iii) of which the share capital conferring a majority of votes at
stockholders’ meetings of such company and the share
capital conferring a majority of votes at stockholders’
meetings of a party hereto are owned directly or indirectly
by the same company.
(o) "Exploration Block” shall mean an area, the corner points of
which have to be coincident with three (3) minutes by three(3)
minutes latitude and longitude divisions, according to the
International Grid System where possible or with the existing
boundaries of the Area covered by this Concession Agreement
as set out in Annex "A”.
(p) "Development Block” shall mean an area, the corner points of
which have to be coincident with one (1) minute by one (1)
minute latitude and longitude divisions, according to the
International Grid System where possible or with the existing
f
boundaries of the Area covered by this Concession Agreement
as sex out in‘ Annex“wAJV '......
(q) "Development Lease(s)" shall mean the.'Development Block or
Blocks covering the geological structure capable of production,
the corner points of which have to be coincident with one (1)
minute by one (1) minute latitude and longitude divisions
according to the International Grid System where possible or
with the existing boundaries of the Area covered by this
Concession Agreement as set out in Annex "A".
(r) ’'Agreement'' shall mean this Concession Agreement and its
Annexes.
(s) "Gas Sales Agreement" shall mean a written agreement between
EGPC and CONTRACTOR (as sellers) and EGPC (as buyer),
which contains the terms and conditions for Gas sales from a
Development Lease entered into pursuant to Article VII (e).
(t) "Standard Cubic Foot" (SCF) is the amount of gas necessary to
fill one (1) cubic foot of space at atmospheric pressure of 14.65
PSIA at a base temperature of sixty degrees Fahrenheit (60° F).
ARTICLE II
ANNEXES TO THE AGREEMENT
Annex “A" is a description of the area covered and affected by this
Agreement, hereinafter referred to as the "Area".
Annex "B" is a provisional illustrative map on the scale of
approximately 1: 600 000 indicating the Area covered and affected by
this Agreement and described in Annex "A".
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Annex ‘C” is the form of a Letter of Guarantee to be submitted by
COTrTRACT0ft~to~EGPG* one ^t)~ day time...ol.sigj3atui:e., by...
the Minister of Petroleum of this Agreement, for the sum of five million
(5,000,000) U.S. Dollars guaranteeing .. the execution of
CONTRACTOR’S minimum Exploration obligations hereunder for the
initial three (3) year Exploration period. In case CONTRACTOR
extends the initial Exploration Period for two (2) additional periods of
three (3) years and of two (2) years respectively, each in accordance
with Article ill(b) of this Agreement, similar Letters of Guarantee shall
be issued and be submitted by CONTRACTOR on the day the
CONTRACTOR exercises its option to extend. The first such Letter of
Guarantee shall be for the sum of four million (4,000,000) U.S.Dollars
and the second such Letter of Guarantee shall be for the sum of four
million and five hundred thousand (4,500,000) U.S. Dollars less in
both instances any excess expenditure of the preceding Exploration
period permitted for carry forward in accordance with Article IV (b)
third paragraph of this Agreement. Each of the three Letters of
Guarantee shall remain effective for six (6) months after the end of the
Exploration period for which it has been issued except as it may be
released prior to that time in accordance with the terms thereof.
Annex "D" is the form of a Charter of the Operating Company to be
formed as provided for in Article VI.
Annex "E" is the Accounting Procedure.
Annex "F“ is a current map of the National Gas Pipeline Grid System
established by the Government. The point of delivery for gas shah be
agreed upon by EGPC and CONTRACTOR under a Gas Sales
Agreement, which point of delivery shall be located at the flange
connecting the development lease pipeline to the nearest point on the
National Gas pipeline Grid System as depicted in this Annex "F" or as
otherwise agreed upon between EGPC and CONTRACTOR .
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AnoaxesL.fA.",.!! j3". ."C". "p'V'E”. and MF" to this Agreement are hereby
made part hereof, and they shall be considered as having equal .force
and effect with the provisions of this Agreement.
ARTICLE III
GRANT OF RIGHTS AND TERM
The GOVERNMENT hereby grants EGPC and CONTRACTOR subject to
the terms, covenants and conditions set out in this Agreement, which
insofar as they are contrary to, or inconsistent with any provisions of
Law No. 66 of 1953, as amended, shall have the force of Law, an
exclusive concession in and to the Area described in Annexes "A" and
(a) The GOVERNMENT shall own and be entitled, as hereinafter
provided to a royalty in cash or in kind of ten percent (10%) of
the total quantity of Petroleum produced and saved from the Area
during the development period including renewal. Said royalty
shall be borne and paid by EGPC and shall not be the obligation
of CONTRACTOR, The payment of royalties by EGPC shall not
be deemed to result in income attributable to the CONTRACTOR.
(b) An initial Exploration Period of three (3) years shall start from
the Effective Date. Two (2) successive extensions to the initial
Exploration period of three (3) years and two (2) years
respectively, shall be granted to CONTRACTOR at its option,
upon not less than thirty (30) days prior written notice to EGPC,
such notice to be given not later than the end of the then current
period, as may be extended pursuant to the provisions of Article
V (a), and subject only to its having fulfilled its obligations
hereunder for that period. This Agreement shall be terminated if
neither a Commercial Oil Discovery nor a Commercial Gas
Discovery is established by the end of the eighth (8th) year of
S"-
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the Exploration period, as may be extended pursuant to Article V
(a)v ,7rre“efectfon-by "EG-PG- {^undertake-- 3-*s©4©',ds&venture., un.de/... .
paragraph (c) below shall not extend the Exploration Period nor
affect the termination of this Agreement as..to CONTRACTOR.
(c) Commercial Discovery:
(i) A Commercial Discovery - whether of Oil or Gas - may
consist of one producing reservoir or a group of producing
reservoirs which is worthy of being developed commercially.
After discovery of a Commercial Oil or Gas Well
CONTRACTOR shall, unless otherwise agreed upon with
EGPC, undertake as part of its Exploration program the
appraisal of the discovery by drilling one or more appraisal
wells, to determine whether such discovery is worthy of
being developed commercially, taking into consideration the
recoverable reserves, production, pipelines and terminal
facilities required, estimated Petroleum prices, and all other
relevant technical and economic factors.
(ii) The provisions laid down herein postulate the unity and
indivisibility of the concepts of Commercial Discovery and
Development Lease. They shall apply uniformly to Oil and
Gas unless otherwise specified.
(Hi) CONTRACTOR shall give notice of a Commercial Discovery
to EGPC immediately after the discovery is considered by
CONTRACTOR to be worthy of commercial development but
in any event with respect to a Commercial Oil Well not later
than thirty (30) days following the completion of the second
appraisal well or twelve (12) months following the date of
the discovery of the Commercial Oil Well, whichever is
earlier or with aspect to a Commercial Gas Well not later
than twenty four (24) months following the date, of the
discovery of the Commercial Gas Well (unless EGPC agrees
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that such period may be extended), except that
C C NTR A6T OR- sh aif - ateo- have-- the- right- ta.give„.suc;k.aQ.ttpe1,..
of Commercial Discovery with respect to any reservoir or
reservoirs even if the well or wells thereon are not
"Commercial" within the definition of the "Commercial Well"
if, in its opinion, a reservoir or a group of reservoirs,
considered collectively, could be worthy of commercial
development,
CONTRACTOR may also give a notice of a Commercial Oil
Discovery in the event it wishes to undertake a gas
recycling project.
A notice of Commercial Gas Discovery shall contain all
detailed particulars of the discovery and especially the area
of Gas reserves, the estimated production potential and
profile and field life.
Within sixty (60) days following receipt of a notice of a
Commercial Oil or Gas Discovery, EGPC and CONTRACTOR
shall meet and review all appropriate data with a view to
mutually agreeing upon the existence of a Commercial"
Discovery. The date of Commercial Discovery shall be the
date EGPC and CONTRACTOR jointly agree in writing that a
Commercial Discovery exists,
(iv) If Crude Oil is discovered but is not deemed by
CONTRACTOR to be a Commercial Oil Discovery under the
above provisions of this paragraph (c), EGPC shall one (1)
month after the expiration of the period specified above
within which CONTRACTOR can give notice of a Commercial
Oil Discovery, or thirteen (13) months after the completion
of a well not considered to be a "Commercial Oil Well", have
the right, following sixty (60) days notice in writing to
CONTRACTOR, at its sole cost, risk and expense, to
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develop, produce and dispose of all Crude Oil from the
geological-feature-on-which. .the... weJL. h.as..been drilled. 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 EGPC's estimated
cost thereof. Within thirty (30) days after receipt of said
notice CONTRACTOR may, in writing, elect to develop such
area as provided for in the case of Commercial Discovery
hereunder. In such event all terms of this Agreement shall
continue to apply to the specified area.
If CONTRACTOR elects not to develop such area, the
specific area covering said geological feature shall be set
aside for sole risk operations by EGPC, such area to be
mutually agreed upon by EGPC and CONTRACTOR on the
basis of good petroleum industry practice. EGPC shall be
entitled to perform or in the event Operating Company has
come into existence, to have Operating Company perform
such operations for the account of EGPC and at EGPC's
sole cost, risk and expense. When EGPC has recovered
from the Crude Oil produced from such specific 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, CONTRACTOR shall have the option,
only in the event there has been a separate Commercial Oil
Discovery, elsewhere within the Area, to share in further
development and production of that specific area upon
paying EGPC one hundred percent (100%) of such costs
incurred by EGPC.
Such one hundred percent (100%) payment shall not be
recovered by CONTRACTOR. Immediately following such
payment the specific area shall either (i) revert to the status
of an ordinary Development Lease under this Agreement
and thereafter shall be operated in accordance with the
t
terms hereof: or |ii) alternatively, in the event that at such
time™ EGP.C-v_ot.v its... Affiliated____Company is conducting
Development operations in the area at its sole expense and
EGPC elects to continue operating, the area shall remain
set aside and CONTRACTOR shall only be entitled to its
production sharing percentages of the Crude Oil as
specified in Article VII (b). The sole risk Crude Oil shall be
valued in the manner provided in Article VII (c), In the
event of any termination of this Agreement under the
provisions of Article III (b), this Agreement 'Shall, however,
continue to apply to EGPC's operations of any sole risk
venture, hereunder, although such Agreement shall have
been terminated with respect to CONTRACTOR pursuant to
the provisions of Article ill (b) .
(d) Conversion to a Development Lease:
(i) Following a Commercial Oil Discovery or a Commercial Gas
Discovery the extent of the whole area capable of
production to be covered by a Development Lease shall be
mutually agreed upon by EGPC and CONTRACTOR and be
subject to the approval of the Minister of Petroleum. Such
area shall be converted automatically into a Development
Lease without the issue of any additional legal instrument
or permission.
(ii) Following the conversion of an area to a Development
Lease base'd on a Commercial Gas Discovery (or upon the
discovery of Gas in a Development Lease granted following
a Commercial Oil Discovery), EGPC shall endeavor with
diligence to find adequate local markets capable of
absorbing the production of Gas and shall advise
CONTRACTOR of the potential outlets for such Gas, and the
expected annua! schedule of demand. Thereafter, EGPC and
CONTRACTOR shall meet with a view to assessing whether
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the outlets for such Gas and other relevant factors warrant
the .deve]opmeJ3i~a4id~p*aductfl0n«.aMheL„$5a^ .and in case of
agreement the Gas thus made available shall be disposed of
to EGPC under a long-term Gas . Sales Agreement in
accordance with and subject to the conditions set forth in
Article V1J .
(iii) The Development period of each Development Lease shall
be as follows:
(aa) in respect of a Commercial Oil Discovery, twenty (20)
years from the date of such Commercial Discovery plus
the Optional Extension Period (as defined below)
provided that, in the event that, subsequent to the
conversion of a Commercial Oil Discovery into a
Development Lease, Gas is discovered in the same
Development Lease and is used or is capable of being
used locally or for export hereunder, the period of the
Development Lease shall be extended only with
respect to such Gas, LPG extracted from such Gas and
Crude Oil in the form of condensate produced with
such Gas for twenty (20) years from the date of first
deliveries of Gas locally or for export plus the Optional
Extension Period (as defined below) provided that the
duration of such Development Lease based on a
Commercial Oil Discovery may not be extended beyond
thirty-five (35) years from the date of such Commercial
Oil Discovery, unless otherwise agreed upon between
EGPC and CONTRACTOR and subject to the approval
of the Minister of Petroleum.
CONTRACTOR shall immediately notify EGPC of any
Gas Discovery but shall not be required to apply for a
t'
new Development Lease in respect of such Gas.
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(bb) in respect of a Commercial Gas Discovery, twenty (20)
year.s» frora-iha-date..of. Jirst,deliveries of Gas locally or
for export plus the Optional Extension Period (as
defined below) provided that, .if subsequent to the
conversion of a Commerciai Gas Discovery into a
Development Lease, Crude Oil is discovered in the
same Development Lease, CONTRACTOR'S share of
such Crude Oil from the Development Lease (except
LPG extracted from Gas or Crude Oil in the form of
condensate produced with Gas) and Gas associated
with such Crude Oil shall revert entirely to EGPC upon
the lapse of twenty (20) years from the date of such
Crude Oil Discovery plus the Optional Extension Period
(as defined below).
Notwithstanding, anything to the contrary under this
Agreement, the duration of a Development Lease based
on a Commercial Gas Discovery shall in no case
exceed thirty-five (35) years from the date of such
Commercial Gas Discovery, unless otherwise agreed
upon between EGPC and CONTRACTOR and subject to
the approval of the Minister of Petroleum.
CONTRACTOR shall immediately notify EGPC of any
Oil Discovery but shall not be required to apply for a
new Development Lease in respect of such Crude Oil.
The “Optional Extension Period" shall mean a period of
five (5) years which may be elected by CONTRACTOR
upon six (6) months written notice to EGPC prior to the
expiry of the relevant twenty (20) year period.
(e) Development operations shall upon the issuance of a .
Development Lease granted following a Commercial Oil
Discovery, be started promptly by Operating Company and be
conducted in accordance with good oil field practices and
accepted petroleum engineering principles, until' the. fFeld'" is~
considered to be fully developed, it being understood that if
associated gas is not utilized, EGPC and CONTRACTOR shall
negotiate in good faith to determine the best way to avoid
impairing the production in the interest of the parties.
In the event no Commercial Production of Oil in regular
shipments is established in any Development Block within four
(4) years from the date of the Commercial Oil Discovery, such
Development B!ock shall immediately be relinquished, unless
there is a Commercial Gas discovery on the Development Lease.
Each Development Block in a Development Lease being partly
within the radius of drainage of any producing well in such
Development Lease shall be considered as participating in the
Commercial Production referred to above.
Development operations in respect of Gas and Crude Oil in the
form of condensate or LPG to be produced with or extracted from
such Gas shall, upon the signature of a Gas Sales Agreement or
commencement of a scheme to dispose of the Gas, whether for
export as referred to in Article VII or otherwise, be started
promptly by Operating Company and be conducted in accordance
with good gas field practices and accepted petroleum
engineering principles and the provisions of such Gas Sales
Agreement or scheme, in the event no Commercial Production of
Gas is established in accordance with such Gas Sales Agreement
or scheme, the Development Lease relating to such Gas shall be
relinquished, unless otherwise agreed upon by EGPC.
If, upon application by CONTRACTOR it is recognized by EGPC
that Crude Oil or Gas is being drained from an Exploration block
under this Agreement into a Development Block on an adjoining
concession area held by CONTRACTOR, the Block being drained
-shell --be -considered-~as . ..participating . in .the .Commercial
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Production of the Development Block in question and the Block
b9ing~draiaed-shaU~b^.caiiVfirted~inlotHa*.d&v.eipp„ro.ent Lease with
the ensuing allocation of costs and production (calculated from
the Effective Date or the date such drainage occurs, whichever is
later) between the two Concession Areas. The allocation of such
costs and production under each Concession Agreement shall be
in the same portion that the recoverable reserves in the drained
geological structure underlying each Concession Area bears to
the total recoverable reserves of such structure underlying both
Concession Areas. The production allocated to a concession
area shall be priced according to the concession agreement
covering that; concession area.
(f) CONTRACTOR shall bear and pay all the costs and expenses
required in carrying out all the operations under this Agreement
but such costs and expenses shall not include any interest on
investment. CONTRACTOR shall look only to the Petroleum to
which it is entitled under this Agreement to recover such costs
and expenses. Such costs and expenses shall be recoverable
as provided in Article VII. During the term of this Agreement
and its renewal, the total production achieved in the conduct of
such operations shall be divided between EGPC and
CONTRACTOR in accordance with the provisions of Article VII.
(g) (1) Unless otherwise provided, CONTRACTOR shall be subject
to Egyptian income tax laws and shall comply with the
requirements of such laws with respect to the filing of
returns, the' assessment of tax, and keeping and showing of
books and records.
(2) CONTRACTOR’S annual income for Egyptian Income tax
purposes under this Agreement shall be an amount
calculated as follows: o / ’
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The total of the sums received by CONTRACTOR from the
sale « other. dispositioju.ol.. aU»,.P,atiAle.u.m. .acquired by
CONTRACTOR pursuant to Article VI! (a) and Article VII (b);
Reduced by:
(i) The costs and expenses of CONTRACTOR;
(ii) The value as determined according to Article Vll
(c), of EGPC's share of the Excess Cost Recovery
Petroleum repaid to EGPC in cash or in kind, if
any,
Plus:
An amount equal to-CONTRACTOR'S Egyptian income taxes
grossed up in the manner shown in Annex E" Article VI.
For purposes of above tax deductions in any Tax Year,
Article Vll (a) shall apply only in respect of classification of
costs and expenses and rates of amortization, without
regard to the percentage limitation referred to in the first
paragraph of Article VII (a) (1). All costs and expenses of
CONTRACTOR in conducting the operations under this
Agreement which are not controlled by Article Vll (a) as
above qualified shall be deductible in accordance with the
provisions of the Egyptian Income Tax Law.
(3) EGPC shall assume, pay and discharge, in the name and
on behalf of CONTRACTOR, CONTRACTOR'S Egyptian
income tax out of EGPC's share of the Petroleum produced
and saved and not used in operations under Article Vll. All
taxes paid by EGPC in the name and on behalf of
CONTRACTOR shall be considered income to
CONTRACTOR. o
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(4) EGPC shall furnish to CONTRACTOR, the proper official
receipts evidencing ' ine~ • p^yTrreTrt~>- of--- CO-NTHACTOELs...
Egyptian income tax for each Tax Year within ninety (90)
days following the receipt by EGPC .of CONTRACTOR'S tax
declaration for the preceding Tax Year. Such receipts shall
be issued by the proper Tax Authorities and shall state the
amount and other particulars customary for such receipts.
{5) As used herein. Egyptian Income Tax shall be inclusive of
all income taxes payable in the A.R.E. (including tax on tax)
such as the tax on income from movable capital and the tax
on profits from commerce and industry and inclusive of
taxes based on income or profits including ail dividends,
withholding with respect to shareholders and other taxes
imposed by the GOVERNMENT on the distribution of income
or profits by CONTRACTOR.
(6) In calculating its A.R.E. income taxes, EGPC shall be
entitled to deduct all royalties paid by EGPC to the
GOVERNMENT and CONTRACTOR’S Egyptian income taxes
paid by EGPC on CONTRACTOR'S behalf.
ARTICLE IV
WORK PROGRAM AND EXPENDITURES
DURING EXPLORATION PERIOD
(a) CONTRACTOR shall commence Exploration operations hereunder
not later than six (6) months after the Effective Date with
a commitment of reprocessing most of the existing seismic data,
acquire and process three hundred (300) km seismic survey and
fifty (50) sq.km 3D seismic survey. Not later than the end of the
twelfth (12th) month after the Effective Date, CONTRACTOR shall
start Exploratory drilling in the Area during the initial Exploration
7 A* JV n crs.
period with a commitment of drilling three (3) wells. EGPC shall
make - available™ for-CG NTRAOTOft'-s- -use-a4U seismicu... vy.ej Is and.
other Exploration data in EGPC's possession with respect to the
Area as EGPC is entitled to so do.
(b) The initial Exploration period shall be three(3)years.
CONTRACTOR may extend this Exploration period for two (2)
successive extension periods of three (3) years and two (2) years
respectively, in accordance with Article III (b), each of which
upon at least thirty (30) days prior written notice to EGPC, subject
to its expenditure of its minimum Exploration obligations and of
its fulfillment of the drilling obligations hereunder, for the then
current period.
CONTRACTOR shall spend a minimum of five million (5.000.000)
U.S. Dollars on Exploration operations and activities related
thereto during the initial three (3) year Exploration period;
provided that CONTRACTOR shall drill three (3) wells and
reprocessing most of the existing seismic data and acquire and
process three hundred (300) km. seismic survey and fifty (50) sq.
km. 3D seismic survey. For the first three (3) year extension
period that CONTRACTOR elects to extend beyond the initial
Exploration period, CONTRACTOR shall spend a minimum of four
million (4,000,000) U.S. Dollars and acquire and process two
hundred (200) km seismic survey and fifty (50) sq. km 3D seismic
survey and for the second two (2) year extension period that
CONTRACTOR elects to extend beyond the three (3) year first
extension period, CONTRACTOR shall also spend a minimum of
four million and five hundred thousand (4,500,000) U.S. Dollars.
During the first and second extension periods that CONTRACTOR
elects to extend beyond the initial Exploration period,
CONTRACTOR shall drill two (2) wells in the first extension and
three (3) wells in the second extension.
Should CONTRACTOp spend more than the minimum amount
required to be expended or drill more wells than the m.inimum
required to be drilled or acquire more seismic survey than the
-1 9-
r
minimum required during the initial three (3) year Exploration
period, or during any period threre'aften-“'t he-^excess-.may--- ~..
subtracted from the minimum amount of money required to be
expended by CONTRACTOR or minimum number of wells
required to be drilled or minimum kilometres of seismic survey to
be acquired during any succeeding Exploration period (s).as the
case may be.
(n case CONTRACTOR surrenders its Exploration rights under
this Agreement as set forth above before or at the end of the
third (3rd) year of the initial Exploration period, having expended
less than the tc.jl sum of five million (5,000,000) U.S. Dollars, on
Exploration or in the event at the end of the three (3) years,of the
initial Exploration period, CONTRACTOR has expended less than
said sum in the Area, an amount equal to the difference between
the said five million (5,000,000) U.S. Dollars and the amount
actually spent on Exploration shall be paid by CONTRACTOR to
EGPC at the time of surrendering or within three (3) months from
the end of the third (3rd) year of the initial Exploration period, as
the case may be. Any expenditure deficiency by CONTRACTOR
at the end of any additional period for the reasons above noted
shall similarly result in a payment by CONTRACTOR to EGPC of
such deficiency. Provided this Agreement is still in force as to
CONTRACTOR, CONTRACTOR shall be entitled to recover any
such payments as Exploration expenditure in the manner
provided for under Article VII in the event of Commercial
Production.
Without prejudice to Article 111 (b), in case no Commercial Oil
Discovery is established or no notice of Commercial Gas
Discovery is given by the end of the eighth (8th) year, as may be
extended pursuant to Article V (a) or in case CONTRACTOR
surrenders the Area, under this Agreement prior to such time,
EGPC shall not bear any of the aforesaid expenses spent by
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(c) At least four (4) months prior to the beginning of each Financial
Year or at such other times as may- intitwaHy-be--- agreed-: touby.™
EGPC- and CONTRACTOR. CONTRACTOR shall prepare an
Exploration Work Program and Budget for. the Area setting forth
the Exploration operations which CONTRACTOR proposes to
carry out during the ensuing Year.
The Exploration Work Program and Budget shaii be reviewed by
a joint committee to be established by EGPC and CONTRACTOR
after the Effective Date of this Agreement. This Committee,
hereinafter referred to as the "Exploration Advisory Committee",
shall consist of six (6) members, three (3) of whom shall be
appointed by EGPC and three (3) by CONTRACTOR. The
Chairman of the Exploration Advisory Committee shall be
designated by EGPC from among the members appointed by it.
The Exploration Advisory Committee shall review and give such
advice as it deems appropriate with respect to the proposed Work
Program and Budget. Following review by the Exploration
Advisory Committee, CONTRACTOR shall make such revisions as
CONTRACTOR deems appropriate and submit the Exploration
Work Program and Budget to EGPC for its approval.
Following such approval, it is further agreed that:
(i) CONTRACTOR shall not substantially revise or modify said
Work Program and Budget nor reduce the approved
budgeted expenditure without the approval of EGPC;
(ii) in the event of emergencies involving danger of loss of lives
or property, CONTRACTOR may expend such additional
unbudgeted amounts as may be required to alleviate such
danger. Such expenditure shall be considered in all aspects
as Exploration expenditure and shall be recovered pursuant
to the provisions of Article VII.
-(d)---COHTMACTOR shall advance all necessary funds for all
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materials, equipment, supplies, personnel . administration and
operations pursuant to the- Expiaratron-'Work Program-anxU. Budget-..,
and EGPC shall not be responsible to bear, or repay any of the
aforesaid costs.
(e) CONTRACTOR shall be responsible for the preparation and
performance of the Exploration Work Program which shall be
implemented in a workmanlike manner and consistent with good
industry practices.
Except as is appropriate for the processing of data, specialized
laboratory engineering and development studies thereon, to be
made in specialized centers outside A.R.E.. all geological and
geophysical studies as well as any other studies related to the
performance of this Agreement, shall be made in the A.R.E.
CONTRACTOR shall entrust the management of Exploration
operations in the A.R.E. to its technically competent General
Manager and Deputy General Manager. The names of such
Manager and Deputy General Manager shall, upon appointment,
be forthwith notified to the GOVERNMENT and to EGPC. The
Genera! Manager and, in his absence, the Deputy General
Manager shall be entrusted by CONTRACTOR with sufficient
powers to carry out immediately all lawful written directions given
to them by the GOVERNMENT 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 CONTRACTOR.
(f) CONTRACTOR shall supply EGPC, within thirty (30) days from
the end of each calendar quarter, with a Statement of Exploration
activity showing costs incurred by CONTRACTOR during such
quarter. CONTRACTOR'S records and necessary supporting
docqments shall be* available for inspection by EGPC at any time
. ...........durtogTeqular working hours for three (3) months from the date of
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receiving each statement.
Within the three {3} months from the date of receiving such
Statement. EGPC shall advise CONTRACTOR in writing if it
considers:
(1) that the record of costs is not correct:
(2) that the costs of goods or services supplied are not in (ine
with the international market prices for goods or services of
similar quality supplied on similar terms prevailing at the
time such goods or services were supplied, provided
however, that purchases made and services performed
within the A.R.E. shall be subject to Article XXVI;
(3) that the condition of the materials furnished by
CONTRACTOR does not tally with their prices; or
(4) that the costs incurred are not reasonably required for
operations.
CONTRACTOR shall confer with EGPC in connection with the
problem thus presented, and the parties shall attempt to reach a
settlement which is mutually satisfactory.
Any reimbursement due to EGPC out of the Cost Recovery
Petroleum as a result of reaching agreement or of an arbitral
award shall be promptly made in cash to EGPC, plus simple
interest at LIBOR plus two and half percent (2.5 %) per annum
from the date on which the disputed amount(s) would have been
paid to EGPC according to Article Vll (a) (2) and Annex "E“ (i.e.,
the date of rendition of the relevant Cost Recovery Statement) to
the date of payment. The LIBOR rate applicable shall be the
average of the figure or figures published by the Financial Times
representing the mid-point of the rates (bid and ask) applicable
..to .one month U.S,Dollars deposits in the London Interbank
n
Eurocurrency Market on each fifteenth (15th) day of each month
occurring- between-.....the~date~cn~Avbich-the..„di.spjuted amount(s)^
would have been paid to EGPC and the date on which it is
settled.
If the LIBOR rate is available on any fifteenth (15th) day but is
not published in the Financial Times in respect of such day for
any reason, the LIBOR rate chosen shall be that offered by
Citibank N.A. to other leading banks in the London Interbank
Eurocurrency Market for one month U.S. Dollar deposits.
If such fifteenth (15th) day is not a day on which LIBOR rates are
quoted in the London Interbank Eurocurrency Market, the LIBOR
rate to be used shall be that quoted on the next following day on
which such rates are quoted.
If within the time limit of the three (3) month period provided for
in this paragraph, EGPC has not advised CONTRACTOR of its
objection to any Statement, such Statement shall be considered
as approved.
(g) CONTRACTOR shall supply all funds necessary for its operations
in the A.R.E. under this Agreement in freely convertible currency
from abroad. CONTRACTOR shall have the right to freely
purchase Egyptian currency in the amounts necessary for its
operations in the A.R.E. from any bank or entity authorized by the
GOVERNMENT to conduct foreign currency exchanges.
(h) EGPC is authorized to advance to CONTRACTOR the Egyptian
currency required for the operations under this Agreement
against receiving from CONTRACTOR an equivalent amount of
U.S. Dollars at the official A.R.E. rate of exchange. Such amount
-24- /
r
n u.S. Collars snail ce ceposnea in an EGPC account SDroaa
■,v:;h a-'COffe.spondfintvb«3flic-.al.thA.N.aiLpngl,...Bank of Egypt. Cairo.
Withdrawals from said account shall be used for financing
EGPC’s and its Affiliated Companies foreign currency
requirements subject to the approval of the Minister of
Petroleum.
ARTICLE V
MANDATORY AND VOLUNTARY RELINQUISHMENTS
(a) MANDATORY:
At the end of the third (3rd) year after the Effective Date hereof,
CONTRACTOR shall relinquish to the GOVERNMENT a total of
twenty five percent (25%) of the original Area not then converted
to a Development Lease or leases. Such relinquishment shall be
in units of whole Exploration Blocks or parts of Exploration
Blocks not converted to Development Leases so as to enable the
relinquishment requirements to be precisely fulfilled.
At the end of the sixth (6th) year after the Effective Date hereof,
CONTRACTOR shall relinquish to the GOVERNMENT an
additional twenty-five percent (25%) of the original Area not then
converted to a Development Lease or Leases. Such
relinquishment shall be in units of whole Exploration Blocks or
parts of Exploration Blocks not converted to Development Leases
so as to enable the relinquishment requirements to be precisely
fulfilled.
Without prejudice to Articles III and XX1I1 and the last three
paragraphs of this Article V (a), at the end of the eighth (8th) year
of the Exploration - period, CONTRACTOR shall relinquish
r
the remainder of the Area not then converted to a Development
Lease or Leases.
It is understood that at the time of any relinquishment the areas
to be converted into Development Leases and which are
submitted to the Minister of Petroleum for his approval
according to Article 11! (d) shall, subject to such approval, be
deemed converted to Development Leases.
CONTRACTOR shall not be required to relinquish any
Exploration Block or Blocks on which a Commercial Oil or Gas
Well is discovered before the period of time referred to in Article
Hi (c) given to CONTRACTOR to determine whether such Well is
a Commercial Discovery worthy of Development or to relinquish
an Exploration Block in respect of which a notice of Commercial
Gas Discovery has been given to EGPC subject to EGPC's right
to agree on the existence of a Commercial Discovery pursuant to
Article 111 (c), and without prejudice to the requirements of Article
III (e).
In the event at the end of the initial Exploration period or either
of the two successive extensions of the initial Exploration period,
a well is actually drilling or testing, CONTRACTOR shall be
allowed up to six (6) months to enable it to discover a
Commercial Oi! or Gas Well or to establish a Commercial
Discovery, as the case may be. However, any such extension of
up to six (6) months shall reduce the length of the next
succeeding Exploration Period, as applicable, by that amount.
(b) VOLUNTARY:
4 *
CONTRACTOR may, voluntarily, during any period relinquish all
or anv' part of the Area in whole Exploration Blocks or parts of
A
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Exploration Blocks provided that at the time of such voluntary
reiinqotshTrreTTt-' i t 5 xpl'orati'O n- obligations***- .under... Article. .JY,..(b)......
have been satisfied for such period.
Any relinquishments hereunder shall be credited toward the
mandatory provisions of Article V (a) above.
Following Commercial Discovery, EGPC and CONTRACTOR shall
mutually agree upon any area to be relinquished thereafter,
except for the relinquishment provided for above at the end of
the total Exploration period.
ARTICLE VI
OPERATIONS AFTER COMMERCIAL DISCOVERY
(a) On Commercial Discovery, EGPC and CONTRACTOR shall form in
the A.R.E. an operating company pursuant to Article VI (b) and
Annex (D) (hereinafter referred to as "Operating Company")
which company shall be named by mutual agreement between
EGPC and CONTRACTOR and such name shall be subject to the
approval of the Minister of Petroleum. Said company shall be a
private sector company. Operating Company shall be subject to
the Saws and regulations in force in the A.R.E. to the extent that
such laws and regulations are not inconsistent with the
provisions of this Agreement or the Charter of Operating
Company.
However, Operating Company and CONTRACTOR shall, for the
purpose of this Agreement, be exempted from the following laws
and regulations as now or hereafter amended or substituted:
Law No. 48 of 1978, on the employee regulations of publi<
sector companies; A „ & S-3
*2
v) (7 -2 7- r \
2>&
r.
Law No. 159 of 1981. promulgating the law on joint stock
uompantesr*'pat tnef-shfp-•••!h,yu skates... .and , limited
liability companies;
Law No. 97 of 1983 promulgating the law concerning public
sector organizations and companies;
Law No. 203 of 1991 promulgating the law on public
business sector companies: and
Law No. 38 of 1994, organizing dealings In foreign
currencies.
(b) The Charter of Operating Company is hereto attached as Annex
"D’\ Within thirty (30) days after the date of Commercial Oil
Discovery or within thirty (30) days after signature of a Gas Sales
Agreement or commencement of a scheme to dispose of Gas
(unless otherwise agreed upon by EGPC and CONTRACTOR), the
Charter shall take effect and Operating Company shall
automatically come into existence without any further procedures.
The Exploration Advisory Committee shall be dissolved forthwith
upon the coming into existence of the Operating Company.
(c) Ninety (90) days after the date Operating Company comes into
existence in accordance with paragraph (b) above, it shall
prepare a Work Program and Budget for further Exploration and
Development for the remainder of the year in which the
Commercial Discovery is made; and not later than four (4) months
before the end of the current Financial Year (or such other date as
may be agreed upon by EGPC and CONTRACTOR) and four (4)
months preceding the commencement of each succeeding
Financial Year thereafter (or such other date as may be agreed
upon by EGPC and CONTRACTOR), 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 M
V ' 2 8
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fio |ater than the twentieth i20th) cay ct sacn month. Operating
Ccrap-any-.-sfeail..furmsix Jo... CONTRACTOR a written estimate, of its
total cash requirements for expenditure for the first half and the
second half of the succeeding month expressed in U.S. Dollars
having regard to the approved 3udget. Such estimate shall take
into consideration any cash expected to be on hand at month
end.
Payment for the appropriate period of such month shall be made
to the correspondent bank designated in paragraph (e) below on
the first (1st) day and fifteenth (15th) day respectively, or the next
following business day, if such day is not a business day.
e) Operating Company is authorized to keep at its own disposal
abroad in an account opened with a correspondent bank of the
National Bank of Egypt. Cairo, the foreign funds advanced by
CONTRACTOR. Withdrawals from said account shall be used for
payment for goods and services acquired abroad and for
transferring to a local bank in the A.R.E. the required amount to
meet the expenditures in Egyptian Pounds for Operating
Company in connection with its activities under this Agreement.
Within sixty (60) days after the end of each Financial Year,
Operating Company shall submit to the appropriate exchange
control authorities in the A.R.E. a statement, duly certified by a
recognized firm of auditors, showing the funds credited to that
account, the disbursements made out of that account and the
balance outstanding at the end of the Year.
(f) If and for as long during the period of production operations
there exists an excess capacity in facilities which can not during
the period of such excess be used by the Operating Company,
EGPC and CONTRACTOR will consult together to find a mutually
agreed formula whereby EGPC may use the excess capacity if it
4 '
so desires without any unreasonable financial or unreasonable
operational disadvantage to the CONTRACTOR.
(7
ARTICLE 711
RECOVERY OF COSTS AND EXPENSES AND
PRODUCTION SHARING
I a) 1 . COST RECOVERY PETROLEUM:
Subject to the auditing provisions under this Agreement.
CONTRACTOR shall recover quarterly all costs, expenses and
expenditures in respect of all the Exploration, Development and
related operations under this Agreement to the extent and out of
thirty percent (30%) of all Petroleum produced and saved from
all Development Leases within the Area hereunder and not used
in Petroleum operations. Such Petroleum is hereinafter referred
to as “Cost Recovery Petroleum".
For the purpose of determining the classification of all costs,
expenses and expenditures for their recovery, the following
terms shall apply:
1. "Exploration Expenditures" shall mean all costs and
expenses for Exploration and the related portion of indirect
expenses and overheads.
2. "Development Expenditures" shall mean all, costs and
expenses for Development (with the exception of Operating
Expenses),.and the related portion of indirect expenses and
overheads.
3. "Operating Expenses" shall mean all costs, expenses and
expenditures made after initial Commercial Production,
which costs, expenses and expenditures are not normally
depreciable,
h
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However. Operating Expenses snaii mciuae workover, repair
and ' maintenance^of-a^sets-biK- 3haW-nQ.t..!acUjd£_...any.,. ctOhe._.
following: sidetracking, redrilling and changing of the status of a
well, replacement of assets or part of, an asset, additions,
improvements, renewals or major overhauling that extend the life
of the asset.
Exploration Expenditures. Development Expenditures and
Operating Expenses shall be recovered from Cost Recovery
Petroleum in the following manner:-
(i) Exploration Expenditures, including those accumulated prior
to the commencement of initial Commercial Production,
which for the purposes of this Agreement shall mean the
date on which the first regular shipment of Crude Oil or the
first deliveries of Gas are made, shall be recoverable at the
rate of twenty-five percent (25 %) per annum 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 date.
(ii) Development Expenditures, including those accumulated
prior to the commencement of initial Commercial Production
which for the purposes of this Agreement shall mean the
date on which the first regular shipment of Crude Oil or the
first deliveries of Gas are made, shall be recoverable at
the rate of twenty-five percent (25 %) per annum 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
date.
(iii) Operating Expenses, incurred and paid after the date of
initial Commercial Production, which for the purposes of this
Agreement shall mean the date on which the first regular
shipment of Crude Oil or the first deliveries of Gas are
made, shall be recaverairre^sithef* in-t-he- .Tax-Year,Jn.. which
j ,
such costs and expenses are incurred and paid or the Tax
Year in which initial Commercial Production occurs,
whichever is the later date.
(iv) To the extent that, in a Tax Year, costs, expenses or
expenditures recoverable per paragraphs (i), (ii) and (iii)
preceding, exceed the value of all Cost Recovery Petroleum
for such Tax Year, the excess shall be carried forward for
recovery in the next succeeding Tax Year(s) until fully
recovered, but in no case after the termination of this
Agreement, as to CONTRACTOR.
(v) The recovery of costs and expenses, based upon the rates
referred to above, shall be allocated to each quarter
proportionately (one fourth to each quarter). However, any
recoverable costs and expenses not recovered in one
quarter as thus allocated, shall be carried forward for
recovery in the next quarter.
2. Except as provided in Article Vil (a) (3) and Article VII (e) (1),
CONTRACTOR shall each quarter be entitled to take and own all
Cost Recovery Petroleum, which shall be taken and disposed of
in the manner determined pursuant to Article VII (e). To the
extent that the value of all Cost Recovery Petroleum (as
determined in Article VI! (c)) exceeds the actual recoverable
*•
costs and expenditures, including any carry forward under
Article VII (a) (1) (iv), to be recovered in that quarter, then the
value of such Excess Cost Recovery Petroleum shall be split as:
Seventy percent (70%) for EGPC and thirty percent (30%) for
CONTRACTOR and EGPC’s share shall be paid by
CONTRACTOR to EGPC either (i) in cash in the manner set forth
in Article IV of the Accounting Procedure contained in Annex "E”
or (ii) in kind in accordance with Article Vli(a) (3).
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Ninety (yOy'daysr prior to"rthe-com{T*Q’Rcernent-..aLeach.. . Calendar.
Year EGPC shall be entitled to elect by notice in writing to
CONTRACTOR to require payment of up to one hundred percent
(100%) of EGPC’s share of Excess Cost Recovery Petroleum in
kind. Such payment will be in Crude Oil from the Area F.O.B.
export terminal or other agreed delivery point provided that the
amount of Crude Oil taken by EGPC in kind in a quarter shall not
exceed the value of Cost Recovery Crude Oil actually taken and
separately disposed of by CONTRACTOR from- the Area during
the previous quarter. If EGPC’s entitlement to receive payment of
its share df Excess Cost Recovery Petroleum in kind is limited
by the foregoing provision, the balance of such entitlement shall
be paid in cash.
(b) Production Sharing
1. The remaining seventy percent (70%) of the Petroleum shall
be divided between EGPC and CONTRACTOR according to
the following shares: Such shares shall be taken and
disposed of pursuant to Article VII (e):
(i) Crude Oil
Crude Oil produced and saved EGPC CONTRACTOR
under this Agreement and not used SHARE share
in Petroleum operations. Barrels per
day (BOPD) (quarterly average).
That portion or increment (seventy (thirty
up to 5,000 BOPD, percent) percent)
(70 %) (30 %)
That portion or increment In (seventy-two (twenty- seven
excess of 5,000 BOPD and & half percent) & half percent)
up to 10,000 BOPD (72.5 %) (27.5 %)
£.s .
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EG PC CONTRACTOR
SHARE SHARE
That portion or increment in (seventy- five (twenty-five
excess of 10,000 BOPD and percent) percent}
up to 15,000 BOPD (75 %) (25 %)
That portion or increment in (seventy-seven (twenty- two
excess of 15,000 BOPD and & half percent) & half percent)
up to 25,000 BOPD (77.5 %) (22.5 %)
That portion or increment in (eighty (twenty
excess of 25,000 BOPD and percent) percent)
up to 50,000 BOPD (80 %) (20 %)
That portion or increment in (eighty-two (seventeen
excess of 50,000 BOPD and & half percent) & half percent)
up to 100,000 BOPD (82.5 %) (17.5 %)
That portion or increment in (eighty -five (fifteen
excess of 100,000 BOPD percent) percent)
(85 %) (15 %)
(ii) Gas and LPG:
Gas and LPG produced and saved under this Agreement and not
used in petroleum operations Barrels oil equivalent per day
(BOEPD) (Quarterly average)
EGPC CONTRACTOR
SHARE SHARE
That portion or increment up to sixty-five thirty-five
5000 BOEPD percent percent
#* (65%) (35%)
That portion or increment seventy thirty
in excess of 5000 BOEPD percent percent
and up to 10,000 BOEPD (70%) (30%)
That portion or increment seventy-five twenty-five
in excess of 10,000 BOEPD percent percent
and up to 15,000 BOEPD (75%) (25%)
/ ip- A
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V I'
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EGPC............CONTRACTOR
SHARE SHARE
That portion or increment eighty twenty
in excess of 15.000 BOEPO percent percent
and up to 25.000 BOEPD (80%) (20%)
That portion or increment eighty^five fifteen
in excess of 25,000 BOEPD percent percent
(85%) (15%)
2. After the end of each contractual year during the term of any Gas
Sales Agreement entered into pursuant to Article Vli (e), EGPC
and CONTRACTOR (as sellers) shall render to EGPC (as buyer) a
statement for an amount of Gas. if any, equal to the amount by
which the quantity of Gas of which EGPC (as buyer) has taken
delivery falls below seventy five percent (75%) of the Contract
quantities of Gas as established by the applicable Gas Sales
Agreement (the "Shortfall"), provided the Gas is available. Within
sixty (60) days of receipt of the statement, EGPC (as buyer)
shall pay EGPC and CONTRACTOR (as sellers) for the
amount of the Shortfall, if any. The Shortfall shall be included in
EGPC's and CONTRACTOR’S entitlement to Gas pursuant to
Article Vll (a) and Article VII (b) in the fourth (4th) quarter of such
contractual year.
Quantities of Gas not taken but to be paid for shall be recorded in
, a separate “Take-or-Pay” account. Quantities of Gas ("Make Up
Gas") which are delivered in subsequent years in excess of
seventy five percent (75%) of the contract quantities of Gas as
established by the applicable Gas Sales Agreement, shall be set
against and reduce quantities of Gas in the (“Take-or-Pay”)
account to the extent thereof and, to that extent, no payment shall
be due in respect of'such Gas. Such Make Up Gas shall not be
--..---.included...in CONTRACTOR'S entitlement to Gas pursuant to Article
% (f £>& -3 5- S-S-
c-
VI! (a) and Article VI! (b). CONTRACTOR shall, have no rights to
such" Make Up Gas”
The percentages set forth in Article VII (a) hereinabove and 'this
Article VJI (b) in respect of LPG produced from a plant constructed
and operated by or on behalf of EGPC and CONTRACTOR shall
apply to all LPG available for delivery.
(c) VALUATION OF PETROLEUM:
1 - Crude Oil:
(i) The Cos\ Recovery Crude OH to which CONTRACTOR is
entitled hereunder shall be valued by EGPC and
CONTRACTOR at "Market Price" for each calendar quarter.
(ii) "Market Price" shall mean the weighted average prices
realized from sales by EGPC or CONTRACTOR during the
quarter, whichever is higher, provided that the sales to be
used in arriving at the weighted average(s) shall be sales of
comparable quantities on comparable credit terms in freely
convertible currency from F.O.B. point of export sales to non-
affiliated companies at arm's length under all Crude Oil sales
contracts then in effect, but excluding Crude Oil sales
contracts involving barter and,
(1) Sales, whether direct or indirect, through brokers or
otherwise, of EGPC or CONTRACTOR to any Affiliated
Company.
(2) Sales involving a quid pro quo other than payment in a
freely convertible currency or motivated in whole or in part
by considerations other than the usual economic incentives
for commercial arm's length crude oil saies.
-36-
•Jii) It is understood that in me case of C.I.F. sales, appropriate
deductions snan be'made'for~transpoft~~and~msur.ance~ciia£ges_______
to calculate the F.O.B. point of export price; and always taking
into account the appropriate adjustment Tor quality of Crude
Oil. freight advantage or disadvantage of port of loading and
other appropriate adjustments. Market Price shall be
determined separately for each Crude Oil or Crude Oil mix,
and for each port of loading.
(iv) If during any calendar quarter, there are no' such sales by
EGPC and/or CONTRACTOR under the Crude Oil sales
contracts in effect, EGPC and CONTRACTOR shall mutually
agree upon the Market Price of the barrel of Crude Oil to be
used for such quarter, and shall be guided by ail relevant and
available evidence including current prices in freely
convertible currency of leading crude oils produced by major
oil producing countries (in the Arabian Gulf or the
Mediterranean Area), which are regularly sold in the open
market according to actual sales contracts terms but excluding
paper sales and sales promises where no crude oil is
delivered, to the extent that such sales are effected under such
terms and conditions (excluding the price) not significantly
different from those under which the crude oil to be valued,
was sold, and always taking into consideration appropriate
adjustments for crude oil quality, freight advantage or
disadvantage of port of loading and other appropriate
adjustments, as the case may be, for differences in gravity,
sulphur, and other factors generally recognized by sellers and
purchasers, as reflected in crude prices, transportation ninety
(90) days insurance premiums, unusual fees borne by the
seller, and for credit terms in excess of sixty (60) days, and the
cost of loans or guarantees granted for the benefit of the
sellers at prevailing, interest rates.
i
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it is the intent of the Parties that the value of the Cost
H'Sdbvefy ' Cruder'Off-shal-h reflect -the-prevailing- market.price.......
such Crude Oil.
(v) If either EGPC or CONTRACTOR considers that the Market
Price as determined under sub-paragraph (ii) above does not
reflect the prevailing Market Price or in the event EGPC and
CONTRACTOR fail to agree on Market Price for any Crude Oil
produced under this Agreement for any quarter within fifteen
(15) days after the end thereof, any party ' may eiect at
any time thereafter to submit to a single arbitrator the
question, What single price per barrel, in the arbitrator's
judgment, best represents for the pertinent quarter the Market
Price for the Crude OH in question. The arbitrator shall make
his determination as soon as possible following the quarter in
question. His determination shall be final and binding upon all
the parties. The arbitrator shall be selected in the manner
described below.
In the event EGPC and CONTRACTOR fail to agree on the
arbitrator within thirty (30) days from the date any party
notifies the other that it has decided to submit the
determination of the Market Price to an arbitrator, such
arbitrator shall be chosen by the appointing authority
designated in accordance with Article XXIV (e), or such other
appointing authority with access to such expertise as may be
agreed to between EGPC and CONTRACTOR, with regard to
the qualifications for arbitrators set forth below, upon written
application of one or both of EGPC and CONTRACTOR. Copies
of such application by one of them shall be promptly sent to
the other.
The arbitrator shall be as nearly as possible a person with an
established reputatipn in the international petroleum industry
as an expert in pricing and marketing crude oil in international
commerce. ^
<7.
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a»J. GAMM-
p.K
The arbitrator snail not be a citizen ot a country which does
Vjot have diplomatic relations™ with-the- A*R.«£ t h eu,
REP.UBLIC OF IRELAND^ He may not.be. at the time of
selection, employed by. or an arbitrator or consultant on a
continuing or frequent basis to. the American Petroleum
institute. the Organization of the Petroleum Exporting
Countries or the Organization of Arab Petroleum Exporting
Countries, or a consultant on a continuing basis to EGPC.
CONTRACTOR or an Affiliated Company of either, but past
occasional consultation with such companies, with other
petroleum companies, with governmental agencies or
organizations shall not be a ground for disqualification. He
may not have been, at any time during the two (2) years before
selection, an employee of any petroleum company or of any
governmental agency or organization.
Should a selected person decline or be unable to serve as
arbitrator or should the position of arbitrator fall vacant prior to
the decision called for. another person shall be chosen in the
same manner provided in this paragraph. EGPC and
CONTRACTOR shall share equally the expenses of the
arbitrator.
The arbitrator shall make his determination in accordance with
the provisions of this paragraph, based on the best evidence
available to him. He will review oil sales contracts as well as
other sales data and information but shall be free to evaluate
the extent to which any contracts, data or information is
substantiated or pertinent. Representatives of EGPC and
CONTRACTOR shall have the right to consult with the
arbitrator and furnish him written materials provided the
arbitrator may impose reasonable limitations on this right
EGPC and CONTRACTOR each shall cooperate with the
arbitrator to the fullest extent and each shall insure such
coojberation of its trading companies. The arbitrator shall be
ss. V
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c
provided access to crude oil sales contracts and related data
and information which'EGP€~ CONTRACTOR-..-or^- thair._______ .
trading companies are able to make available and which in the
judgment of the arbitrator might aid the arbitrator in making a
valid determination.
(vi) Pending Market Price agreement by EGPC and CONTRACTOR
or determination by the arbitrator, as applicable, the Market
Price agreed for the quarter preceding the quarter in question
shall remain temporarily in effect. In the event either EGPC or
CONTRACTOR should incur a loss by virtue of the temporary
continuation of the Market Price of the previous quarter, it shall
promptly be reimbursed such loss by the other party plus
simple interest at the LIBOR plus two and one - half percent
(2.5%) per annum rate provided for in Article IV (f) from the
date on which the disputed amount(s) should have been paid
to the date of payment.
2. Gas and LPG
(i) The Cost Recovery and Production Shares of Gas subject to a
Gas Sales Agreement between EGPC and CONTRACTOR (as
sellers) and EGPC (as buyer) entered into pursuant to Article VII
(e) shall be valued, delivered to and purchased by EGPC at a
price determined monthly according to the following formula:
PG = 0.85 X F X H
/ 42.96 X 10 6
Where:
PG = the value of the Gas in U.S. Dollars per thousand Standard
cubic feet (MSCF).
F = a value in U.S. Dollars per metric ton of the crude oii of
GUlf of Suez Blend "FOB Ras Shukheir* A.R.E.-calculated by
r
referring to 'Platt's Oilgram Price Report'1 during a month
under'* tfrcrheatKfig'"»?8pot«Crud&~ Rfice-,Assej&snieot,.fo.r. Suez
Blend". This value reflects the total averages' of the
published low and high values for a Barrel during such
month divided by the number of days in such month for
which such values were quoted. The value per metric ton
shall be calculated on the basis of a conversion factor to
be agreed upon annually between EGPC and
CONTRACTOR.
H = the number of British Thermal Units (BTU's) per thousand
standard' cubic feet (MSCF) of the Gas, based on gross
calorific value.
In the event that the value of F cannot be determined because
Platt's Oilgram Price Report is not published at all during a
month, EGPC and CONTRACTOR shall meet and agree the value
of F by reference to other published sources. In the event that
there are no such published sources or if the value of F cannot
be determined pursuant to the foregoing for any other reason,
EGPC and CONTRACTOR shall meet and agree to a value of F.
Such evaluation of Gas under a formula providing for a fifteen
percent (15%) discount is based upon delivery at the delivery
point specified in Article II and Article VII (e) 2 (ii) herinafter, and
is to enable EGPC to finance and maintain the portions of the
pipeline distribution system to be provided by EGPC.
(ii)The Cost Recovery and Production Shares of LPG produced from
a plant constructed and operated by or on behalf of EGPC and
CONTRACTOR shall be separately valued for Propane and
Butane at the outlet of such LPG plant according to the following
formula (unless otherwise agreed between EGPC and
CONTRACTOR)
41 f
C:
PLPG = 0.95 PR - (J X 0.85 X r
Where
PLPG = LPG price (separately determined for Propane
and Butane) in U.S. Dollars per metric ton.
PR The average over a period of a month of the figures
representing the mid-point between the high and
low prices in U.S. Dollars per metric' ton quoted in
"Platt's LPGaswire" during such month for Propane and
Butane FOB Ex-Ref/Stor. West Mediterranean
J BTU's removed from the Gas stream by the LPG plant
per metric ton of LPG produced.
F the same value as F under sub-paragraph (i)
above.
In the event that Platt's LPGaswire is issued on certain day during
a month but not on others, the value of PR shall be calculated
using only those issues which are published during such month.
In the event that the value of PR can not be determined
because Platt's LPGaswire is not published at all during a month,
EGPC and CONTRACTOR shall meet and agree to the value of
PR by reference to other published sources. In the event that there
are no such other published sources or if the value of PR cannot
be determined pursuant to the foregoing for any other reason
EGPC and CONTRACTOR shall meet and agree to the value of PR
by reference to the value of LPG (Propane and Butane) delivered
FOB from the Mediterranean Area.
Such valuation of LPG .is based upon delivery at the delivery point
specified in Article VH (e) (2) (iii) hereinafter.
.42-
• ii'iihe prices of Gas ana i_PG so calculates shall apply aunng the
same*, men ibu^........
(iv)The Cost Recovery and Production Shares of Gas and LPG
disposed of by EGPC and CONTRACTOR other than to EGPC
pursuant to Article VIi (e) hereinafter shall be valued at their
actual realized price.
(d) FORECASTS:
Operating Company shall prepare (not less than ninety (90) days
prior to the beginning of each calendar semester following first
regular production) and furnish in writing to CONTRACTOR and
EGPC a forecast setting out a total quantity of Petroleum that
Operating Company estimates can be produced, saved and
transported hereunder during such calendar semester in
accordance with good oil and gas industry practices.
Operating Company shall endeavor to produce each calendar
semester the forecast quantity. The Crude Oil shall be run to
storage tanks or offshore loading facilities constructed,
maintained and operated according to Government Regulations,
by Operating Company in which said Crude Oil shall be metered
or otherwise measured for royalty, and other purposes required
by this Agreement. Gas shall be handled by Operating Company
in accordance with the provisions of Article Vll (e) . '
(e) DISPOSITION OF PETROLEUM:
(1) EGPC and CONTRACTOR shall have the right and the
obligation to separately take and freely export or otherwise
dispose of, currently ail of the Crude Oil to which each is
entitled under Article Vll (a) and Article Vll (b), Subject to
payment of sums due to EGPC under Article Vll (a) (2) and
'Article IX, CONTRACTOR shall have the right to remit and
C-»T-
4 3- ^ Sb >
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retain aoroaa aii runas acquired by it including the proceeds
fro,m'--tfre"se4e-«qL its«shate ofJP&rqleum,
Notwithstanding anything to the contrary under this
Agreement priority shall be given to meet the requirements
of the A.R.E. market from CONTRACTOR'S share under
Article VI) (b) of the Crude Oil produced from the Area and
EGPC shall have the preferential right to purchase such
Crude Oil at a price to be determined pursuant to Article VII
(c). The amount of Crude Oil so purchased shall be a portion
of CONTRACTOR'S share under Article Vll (b). Such amount
shall be proportional to CONTRACTOR'S share of the total
production of crude oil from the concession areas in the
A.R.E. that are also subject to EGPC's preferential right to
purchase. The payment for such purchased amount shall be
made by EGPC in U.S. Dollars or in any other freely
convertible currency remittable by CONTRACTOR abroad.
It is agreed upon that EGPC shall notify CONTRACTOR, at
least forty-five (45) days prior to the beginning of the
Calendar Semester, of the amount to be purchased during
such semester under this Article Vll (e) (1).
(2) With respect to Gas and LPG produced from the Area:
(i) Priority shall be given to meet the requirements of the
local market as determined by EGPC.
(ii) In the event that EGPC is to be the buyer of Gas, the
disposition of Gas to the local markets as indicated
above shall be by virtue of long term Gas Sales
Agreements to be entered into between EGPC and
CONTRACTOR (as seilersj^and EGPC (as buyer).
t'
EGPC and CONTRACTOR (as sellers) shall have the
obligation to deliver Gas to the following point where
V
such Gas shall be metered for sales, royalty, and other
purpos^-requited-by-this Agreement:.. .
(a) In the event no LPG plant is constructed to
process such Gas. the delivery point shall be at
the flange connecting the Lease pipeline to the
nearest point on the National Gas Pipeline Grid
System as depicted in Annex "F" hereto, or as
otherwise agreed by EGPC and CONTRACTOR.
(b) In the event an LPG plant is constructed to
process such Gas, such Gas shall, for the
purposes of valuation and sales, be metered at
the inlet to such LPG Plant. However,
notwithstanding the fact that the metering shall
take place at the LPG Plant inlet, CONTRACTOR
shall through the Operating Company build a
pipeline suitable for transport of the processed
Gas from the LPG Plant outlet to the nearest point
on the National Gas Pipeline Grid System as
depicted in Annex "F" hereto, or as otherwise
agreed by EGPC and CONTRACTOR. Such
pipeline shall be owned in accordance with
Article VIII (a) by EGPC, and its cost shall be
financed and recovered by CONTRACTOR as
Development Expenditures pursuant to Article VI).
(Hi) EGP.d and CONTRACTOR shall consult together to
determine whether to build an LPG plant for recovering
LPG from any Gas produced hereunder. In the event
EGPC and CONTRACTOR decide to build such a plant,
the plant shall, as is appropriate,be in the vicinity of the
point of delivery as determined in Article U and Article
V!!(e)2(H) .above. The delivery of LPG for, royalty and
other purposes required by this Agreement shall be at
] -45 M' u
c
the outlet of the LPG plant. The costs of any such LPG
piant-'SbaM-be - - recoverable- la^aacjojcciajipe.. with the
provisions of this Agreement unless the Minister of
Petroleum agrees to accelerated recovery.
(Iv) EGPC (as buyer) shall have the option to elect, by
ninety (90) days prior written notice to EGPC and
CONTRACTOR (as sellers), whether payment for the
Gas which is subject to a Gas Sales Agreement
between EGPC and CONTRACTOR (as sellers) and
EGPC (as buyer) and LPG produced from a plant
constructed and operated by or on behalf of EGPC
and CONTRACTOR, as valued in accordance with
Article VJI (c), and to which CONTRACTOR is entitled
under the Cost Recovery and Production Sharing
provisions of Article VII, shall be made 1) in cash or 2)
in kind.
Payments in cash shall be made by EGPC (as buyer)
at intervals provided for in the relevant Gas Sales
Agreement in U.S.Dollars, remittable by CONTRACTOR
abroad.
Payments in kind shall be calculated by converting the
value of Gas and LPG to which CONTRACTOR is
entitled into equivalent barrels of Crude Oil to be taken
concurrently by CONTRACTOR from the Area, or to the
extent that such Crude Oil is insufficient, Crude Oil from
CONTRACTOR'S other concession areas or such other
areas as may be agreed. Such Crude Oil shall be
added to the Crude Oil that CONTRACTOR is otherwise
entitled to lift under this Agreement. Such equivalent
barrels sjiail be calculated on the basis of the
provisions of Article VII (c) relating to the valuation of
Cost Recoverv Crude Oil. . A
Provided that:
(aa) Payment of the value of Gas and LPG shall
always be made in cash in U.S. Dollars
remittable by CONTRACTOR abroad to the extent
that there is insufficient Crude Oil available for
conversion as provided for above;
(bb) payment of the value of Gas and LPG shall
always be made in kind as provided for above to
the extent that payments in cash are not made by
EGPC.
Payments to CONTRACTOR (whether in cash or kind),
when related to CONTRACTOR'S Cost Recovery
Petroleum, shall be included in CONTRACTOR'S
Statement of Recovery of Costs and of Cost Recovery
Petroleum referred to in Article IV of Annex "E" of this
Agreement.
(v) Should EGPC (as buyer) fail to enter into a long-term
Gas Sales Agreement with EGPC and CONTRACTOR
(as sellers) within five (5) years (unless otherwise
agreed) from a notice of Commercial Gas Discovery
pursuant to Article 111, EGPC and CONTRACTOR shall
have the right to take and freely dispose of the quantity
of Gas and LPG in respect of which the notice of
Commercial Discovery is given by exporting such Gas
and LPG.
(vi) The proceeds of sale of CONTRACTOR'S share of Gas
and LPG disposed of pursuant to the above sub-
paragraph (v) may be freely remitted or retained abroad
hv CONTRACTOR,
-4 7-
(vii) (n the event EGPC ana CONTRACTOR agree to accept
new-'Gas"*- and- bPG --produce*®-1 ©~. j oifu. in^aa.onqqlna^
export project, such producers shall have to contribute
a fair and equitable share of the.' investment made.
(viii) (a a) Upon the expiration of the five (5) year period
referred to in Article VI! (e) (2) (v) above.
CONTRACTOR shall have the obligation to exert
its reasonable efforts to find an export market for
Gas reserves.
(bb) In the event at the end of the five (5) year period
referred to under Article Vll (e) (2)
(v)above. CONTRACTOR and EGPC have not
entered into a Gas Sales Agreement,
CONTRACTOR shail retain its rights to such Gas
reserves for a further period of up to seven (7)
years, subject to Article Vll (e) (2) (viii) (cc)
below, during which period EGPC shall attempt to
find a market for the Gas reserves.
(cc) In the event that CONTRACTOR is not exporting
the Gas and CONTRACTOR has not entered into a
Gas Sales Agreement pursuant to Article VH (e)
(2) prior to the expiry of twelve (12) years from
CONTRACTOR'S notice of Commercial Gas
Discovery, CONTRACTOR shail surrender the Gas
.- reserves in respect of which such notice has been
given. It being understood that CONTRACTOR
shall, at any time prior to the expiry of such twelve
(12) year period, surrender the Gas reserves, if
CONTRACTOR is not exporting the Gas and
CONTRACTOR does not accept an offer of a Gas
Sales Agreement from EGPC within six (6) months
from the date such offer is made provided that the
Gas Sales Agreement offered to CONTRACTOR
srraffwtake“mtO'censlderation<-the-ceieviaotwt£,chJ)icaL..
and economic factors to enable a commercial
contract including :
A sufficient delivery rate.
Delivery pressure to enter the National Gas
Pipeline Grid System at the point of delivery.
- Delivered Gas quality specifications not more
stringent than those imposed or required for the
Naitonal Gas Pipeline Grid System.
- The Gas prices as specified in this Agreement.
(ix) CONTRACTOR shall not be obligated to surrender a
Development Lease based on a Commercia) Gas
Discovery, if Crude Oil has been discovered in commercial
quantities in the same Development Lease and vice versa.
(f) Operations:
If following the reversion to EGPC of any rights to Crude Oil
hereunder, CONTRACTOR retains rights to Gas in the same
Development Lease, or if, following surrender of rights to Gas
hereunder, CONTRACTOR retains rights to Crude Oil in the same
Development Lease, operations to explore for or exploit the
Petroleum,the rights to which have reverted or been surrendered
(Oil or Gas as the case may be) may only be carried out by
Operating Company which shall act on behalf of EGPC alone,
unless CONTRACTOR and EGPC agree otherwise.
>*
(g) Tanker Scheduling:
At a reasonable time prior to the commencement of Commercial
Production EGPC and CONTRACTOR shall meet and agree upon
a procedure for scheduling tanker liftings from the agreed upon
point of export- £
vl ^
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ARTICLE VIII
inTE"TCr ASSETS-
(a) EGPC shall become the owner of all CONTRACTOR acquired and
owned assets which assets were charged to Cost Recovery by
CONTRACTOR in connection with the operations carried out by
CONTRACTOR or Operating Company in accordance with the
following:
(1) Land shall become the property of EGPC as soon as it is
purchased.
(2) Title to fixed and moveable assets shall be transferred
automatically and gradually from CONTRACTOR to EGPC as
they become subject to recovery in accordance with the
provisions of Article VII; however the full title to fixed and
movable assets shall be transferred automatically from
CONTRACTOR to EGPC when its total cost has been recovered
by CONTRACTOR in accordance with the provisions of Article
VI) or at the time of termination of this Agreement with respect
to all assets chargeable to the operations whether recovered
or not, whichever first occurs.
The book value of the assets created during each calendar
quarter shall be communicated by CONTRACTOR to EGPC or by
Operating Company to EGPC and CONTRACTOR within thirty (30)
days of the end of each quarter.
(b) During the tercrt of this Agreement and the renewal period EGPC,
CONTRACTOR and Operating Company are entitled to the full
use and enjoyment of all fixed and movable assets referred to
above in connection with operations hereunder or under any
other Petroleum concession agreement entered into by the
Parties. Proper accounting adjustment shall be made.
CONTRACTOR and EGPC shall not dispose of the same except
.......■WJth-.agreement^of-the.ntfier. .. .... .....r*.c\... */• a
-5 0
[C) CO NTftACTCf^'--3mH3peratmg~ Company- may4Feei.y-.import.inta. tile_____
A.R.E., .use therein and freely export at th.e end of such ’use.
machinery and equipment which they either rent or lease in
accordance with good industry practices, including but not limited
to the lease of computer hardware and software.
ARTICLE IX
BONUSES
(a) CONTRACTOR shall pay to EGPC as a signature bonus the sum
of seven hundred and fifty thousand (750,000) U.S.Dollars on
the Effective Date.
(b) CONTRACTOR shall pay to EGPC the sum of two million
(2,000.000) U.S. Dollars as a production bonus when the total
average daily production from the Area first reaches the rate of
twenty five thousand (25,000) Barrels per day for a period of
thirty (30) consecutive producing days. Payment will be made
within fifteen (15) days thereafter.
(c) CONTRACTOR shall also pay to EGPC the additional sum of three
million (3,000,000) U.S. Dollars as a production bonus when the
total average daily production from the Area first reaches the
rate of fifty thousand (50,000) barrels per day for a period of thirty
(30) consecutive producing days. Payment will be made within
fifteen (15) days thereafter.
(d) CONTRACTOR shall also pay to EGPC the additional sum of five
million (5,000,000) U.S. Dollars as a production bonus when the
total average daily production from the Area first reaches the
rate of one-hundred thousand (100,000) barrels per day for a
period of thirty (30) consecutive producing days. Payment will be
made, within fifteen (15) days thereafter.
*
f
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(e) AirtHe above"rTTenttoTie-d~bomjses-*shaft"in-no* event*fee--- recovered--.
by CONTRACTOR.
(f) In the event that EGPC elects to develop any part of the Area
pursuant to the sole risk provisions of Article 11! (c) (iv),
production from such sole risk area shall be considered for the
purposes of this Article IX only if CONTRACTOR exercises its
option to share in such production, and only from the initial date
of sharing.
(g) Gas shall be' taken into account for the purposes of determining
the total average daily production from the Area under Article IX
(b-d) by converting daily Gas delivered into equivalent barrels of
daily Crude Oil production in accordance with the following
formula:
MSCF x H x 0.136 = equivalent barrels of Crude Oil
where
MSCF = one thousand Standard Cubic Feet of Gas.
H = the number of million British Thermal Units (BTU’s
per MSCF).
ARTICLE X
OFFICE AND SERVICE OF NOTICES
CONTRACTOR shall maintain an office in A.R.E. at which notices shall
be validly served.
The General Manager and Deputy General Manager shall be entrusted
by CONTRACTOR with sufficient power to carry out immediately all
local written directions given to them by the Government or its
representatives under the terms of this Agreement. AH lawful
.IV. sC
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regulations issued or hereafter :o oe issued which are applicable
hereunder ana nor in"conflict-with'this•‘A-greerrve-fit--sfraM-’apply-to-the.,
duties and . activities of the Genera! Manager and Deputy General
Manager.
Al! matters and notices shall be deemed to be validly served which are
delivered to the office of the General Manager or which are sent to
him by registered mail to CONTRACTOR'S office in the A.R.E.
AM matters and notices shall be deemed to be validly served which are
delivered to the office of the Chairman of EGPC or which are sent to
him by registered mail at EGPC's main office in Cairo.
ARTICLE XI
SAVING OF PETROLEUM AND PREVENTION OF LOSS
(a) Operating Company shall take all proper measures, according to
generally accepted methods in use in the oil and gas industry to
prevent loss or waste of Petroleum above or under the ground in
any form during drilling, producing, gathering, and distributing or
storage operations. The GOVERNMENT has the right to prevent
any operation on any well that it might reasonably expect would
result in loss or damage to the well or the Oil or Gas field.
(b) Upon completion of the drilling of a productive well, Operating
Company shall ..inform the GOVERNMENT or its representative of
the time when the well will be tested and the production rate
ascertained.
(c) Except in instances where multiple producing formations in the
same well can only be produced economically through a single
tubing string, Petroleum shall not be produced from multiple oil
bearing zones through one string of tubing at tbe same time,
xj' 83 .... OC-.
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except with the prior approval of the GOVERNMENT or iis
r epresentativer" wfc-ioh-s h-aU- not- be- - ■ ■ u rtfcas onahi,y„. wi.thU.e I d■
(d) Operating Company shall record data regarding the quantities of
Petroleum and water produced monthly from each Development
Lease. Such data shall be sent to the GOVERNMENT or its
representative on the special forms provided for that purpose
within thirty (30) days after the data are obtained. Daily or weekly
statistics regarding the production from the Area shall be
available at all reasonable times for examination by authorized
representatives of the GOVERNMENT.
(e) Daily drilling records and the graphic logs of wells must show the
quantity and type of cement and the amount of any other
materials used in the well for the purpose of protecting
Petroleum, gas bearing or fresh water strata.
(f) Any substantial change of mechanical conditions of the well after
its completion shall be subject to the approval of the
representative of the GOVERNMENT.
ARTfCLE XI!
CUSTOMS EXEMPTIONS
(a) EGPC, CONTRACTOR, and Operating Company shall be
permitted to import and shall be exempted from customs duties,
any taxes, levies or fees (including fees imposed by Ministerial
Decision No. 254 of 1993 issued by the Minister of Finance, as
now or hereafter amended or substituted) of any nature (except
where an actual service has been rendered to CONTRACTOR by
a competent authority), and from the importation rules with
respect to the importation of machinery, equipment, appliances,
materials, items, means of transport and transportation (the
exemption from taxes and duties for cars shall only apply, to cars
...to .be used in ..operations), electric appliances, air“ conditioners
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for offices, field housing ana facilities, electronic appliances,
computer'hsrdvfare -arKi-softwar-er-as-Ave4^-as-.sp.a4:a^parts..Le.q!uice.d
for any of the imported items, all subject, to a duly approved
certificate issued by the responsible representative nominated by
EGPC for such purpose, which states that the imported items are
required for conducting the operations pursuant to this
Agreement . Such certificate shall be final and binding and shall
automatically result in the importation and the exemption without
any further approval, delay or procedure.
(b) Machinery, equipment, appliances and means of transport and
transportation imported by EGPC’s, CONTRACTOR’S and
Operating Company's contractors and sub-contractors
temporarily engaged in any activity pursuant to the operations
which are the subject of this Agreement, shall be cleared under
the "Temporary Release System11 without payment of customs
duties, any taxes, levies or fees (including fees imposed by
Ministerial Decision No. 254 of 1993 issued by the Minister of
Finance, as now or hereafter amended or substituted) of any
nature (except where an actual service has been rendered to
CONTRACTOR by a competent authority), upon presentation of a
duly approved certificate issued by an EGPC responsible
representative nominated by EGPC for such purpose which
states, that the imported items are required for conducting the
operations pursuant to this Agreement. Items (excluding cars not
to be used in operations) set out in Article Xli (a) imported by
EGPCs, CONTRACTOR'S and Operating Company's contractors
and sub-contractors for the aforesaid operations, in order to be
installed or used permanently or consumed shall meet the
conditions for exemption set forth in Article XII (a) after being
duly certified by an EGPC responsible representative to be used
for conducting operations pursuant to this Agreement,
(c) The expatriate employees of CONTRACTOR, Operating Company
and their contractors and sub-contractors shall not be entitled to
-55-
any exemptions from customs auties and other ancillary taxes
ancHcharges-e-xcept- wiihin~the»>!Untts~.Ql.th&. provisions of the laws
and regulations applicable in the A.R.E. However. personal
household goods and furniture (including one (1) car) for each
expatriate employee of CONTRACTOR and/or Operating company
shall be cleared under the "Temporary Release System" (without
payment of any customs duties and other ancillary taxes) upon
presentation of a letter to the appropriate customs authorities by
CONTRACTOR or Operating Company approved by an EGPC
responsible representative that the imported items are imported
for the sole use of the expatriate employee and his family, and
that such imported items shall be re-exported outside the A.R.E.
upon the repatriation of the concerned expatriate employee.
(d) Items imported into the A.R.E. whether exempt or not exempt
from customs duties and other ancillary taxes and charges
hereunder, may be exported by the importing party at any time
after obtaining EGPC's approval, which approval shall not be
unreasonably withheld, without any export duties, taxes or
charges or any taxes or charges from which such items have
been already exempt, being applicable. Such items may be sold
within the A.R.E. after obtaining the approval of EGPC which
approval shall not be unreasonably withheld. In this event, the
purchaser of such items shall pay ail applicable customs duties
and other ancillary taxes and charges according to the condition
and value of such items and the tariff applicable on the date of
sale, unless such items have already been sold to an Affiliated
Company of CONTRACTOR, if any, or EGPC, having the same
exemption, or unless title to such items (excluding cars not used
in operations) has passed to EGPC. In the event of any such sale
under this paragraph (d), the proceeds from such sale shall be
divided in the following manner:
CONTRACTOR shall be entitled to reimbursement of its
f*
unrecovered cost, if.any, in such items and the excess, if any,
r
^ej The exemption provided for in Article XII (a) shall not apply to
any imported items wnen kerns'of^he-same-or-substantially-.the.,
same -kind and quality are manufactured locally meeting
CONTRACTOR'S and/or Operating Company's specifications for
quality and safety and are available for timely purchase and
delivery in the A.R.E. at a price not higher than ten percent (10%)
of the cost of the imported item, before customs duties but after
freight and insurance costs, if any, have been added.
(f) CONTRACTOR, EGPC and their respective buyers shall have the
right to freely export the Petroleum produced from the Area
pursuant to this Agreement; no license shall be required, and
such petroleum shall be exempted from any customs duties, any
taxes, levies or any other imposts in respect of the export of
Petroleum hereunder.
ARTICLE XIII
BOOKS OF ACCOUNT : ACCOUNTING AND PAYMENTS
(a) EGPC, CONTRACTOR and Operating Company shall each
maintain at their business offices in the A.R.E. books of account,
in accordance with the Accounting Procedure in Annex "E" and
accepted accounting practices generally used in the petroleum
industry, and such other books and records as may be necessary
to show the work performed under this Agreement, including the
amount and value of all Petroleum produced and saved
hereunder. CONTRACTOR and Operating Company shall keep
their books of'account and accounting records in United States
Dollars
Operating Company shall furnish to the GOVERNMENT or its
representatives monthly returns showing the amount of
Petroleum produced end saved hereunder. Such returns shall be
prepared in the form required by the GOVERNMENT, or Us
'revpre^entative'a'rKJ-’5hiaII‘-be‘'SV9n&d'^fey-the-Genera!-Manager or by
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ihe Deputy General Manager or a duiy designated deputy and
d slivered->•So^he^-G-GVERNMENX* ojlits.rep££s.en.tative.. within .thirty
(30) days after the end of the month covered in the return.
(b) 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
GOVERNMENT.
(c) CONTRACTOR shall submit to EGPC a Profit and'Loss Statement
of its Tax Year not later than four (4) months after the
commencement of the following Tax Year to show its net profit or
loss from the Petroleum operations under this Agreement for such
Tax Year.
CONTRACTOR shall at the same time submit a year-end Balance
Sheet for the same Tax Year to EGPC. The Balance Sheet and
financial statements shall be certified by an Egyptian certified
accounting firm.
ARTICLE XIV
RECORDS, REPORTS AND INSPECTION
(a) CONTRACTOR and/or Operating Company shall prepare and, at
ail times while this Agreement is in force, maintain accurate and
current records of its operations in the Area. CONTRACTOR
and/or Operating Company shall furnish the GOVERNMENT or its
representative, in conformity with applicable regulations or as
the GOVERNMENT or its representative may reasonably require
information and data concerning its operations under this
Agreement. Operating Company will perform the functions
indicated in this Article XIV in accordance with its respective role
-5 8-
(b) uOTTrR'AC'TOR''A'anrifor*"Opefa^^g-. Company.,.afta.ll. saye 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 GOVERNMENT or its
representative in the manner directed by the GOVERNMENT. All
samples acquired by CONTRACTOR and/or Operating Company
for their own purposes shall be considered available for
inspection at any reasonable time by the GOVERNMENT or its
representatives.
(c) Unless otherwise agreed to by EGPC, in case of exporting any
rock samples outside A.R.E., samples equivalent in size and
quality shall, before such exportation, be delivered to EGPC as
representative of the GOVERNMENT.
(d) Originals of records can only be exported with the permission of
EGPC; provided, however, that magnetic tapes and any other data
which must be processed or analyzed outside the A.R.E. may be
exported if a monitor or a comparable record, if available, is
maintained in the A.R.E. and provided that such exports shall be
repatriated to A.R.E. promptly following such processing or
analysis on the understanding that they belong to EGPC.
(e) During the period CONTRACTOR is conducting the Exploration
operations, EGPCs duly authorized representatives or
employees shall have the right to full and complete access to the
Area at all reasonable times with the right to observe the
operations being conducted and to inspect all assets, records
and data kept by CONTRACTOR. EGPC's representative, in
exercising its rights under the preceding sentence of this
paragraph
operations. CONTRACTOR shall provide EGPC with copies of any
and all data (including, but not limited to, geological and
. _____________^geophysical reports, logs and well surveys) Information and
-59*
interpretation of such data, and other information in
C C N'TRACTOJfcs*- possession......
For the purpose of obtaining new offers, the GOVERNMENT
and/or EGPC may, after the eighth (8^) year of the Exploration
period or the date of termination of this Agreement, whichever is
the earlier, show any other party uninterpreted basic geophysical
and geological data (such data to be not less than one (1) year
old unless CONTRACTOR agrees to a shorter period, which
agreement shall not be unreasonably withheld) 'with respect to
the Area, provided that the GOVERNMENT andhr EGPC may at
any time show another party such data directly obtained over or
acquired from those parts of the Area which CONTRACTOR has
relinquished as long as such data is at least one (1) year old.
ARTICLE XV
RESPONSIBILITY FOR DAMAGES
CONTRACTOR shall entirely and solely be responsible in law toward
third parties for any damage caused by CONTRACTOR’S Exploration
operations and shall indemnify the GOVERNMENT and/or EGPC
against all damages for which they may be held liable on account of
any such operations.
ARTICLE XVI
PRIVILEGES OF GOVERNMENT REPRESENTATIVES
Duly authorized representatives of the GOVERNMENT shall have
access to the Area covered by this Agreement and to the Operations
conducted thereon. Such representatives may examine the books,
registers and records of EGPC, CONTRACTOR and 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
*60- ^
instruments of CONTRACTOR or Operating Company on the condition
that no aanger or impediment-to- the--- o^eraUo^s-.h£aemde£.,.shai.l ,..a r i se
directly or indirectly from such use. Such representatives shall be
given reasonable assistance by the agents and employees of
CONTRACTOR or Operating Company so that none of the activities
shall endanger or hinder the safety or efficiency of the operations.
CONTRACTOR or Operating Company shall offer such 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 and of adequately furnished housing while they are in the field
for the purpose of facilitating the objectives of this Article. Without
prejudice to Article XIV (e) any and all information obtained by the
GOVERNMENT or its representatives under this Article XVI shall be
kept confidential with respect to the Area.
ARTICLE XVII
EMPLOYMENT RIGHTS AND TRAINING OF
ARAB REPUBLIC OF EGYPT PERSONNEL
(a) It is the desire of EGPC and CONTRACTOR that operations
hereunder be conducted in a business-like and efficient manner.
(1) The expatriate administrative, professional and technical
personnel employed by CONTRACTOR or Operating
Company and the personnel of its contractors for the
conduct ot the operations hereunder, shall be granted a
residence as provided for in Law No. 89 of 1960 as
amended and Ministerial Order No. 280 of 1981 as
amended, and CONTRACTOR agrees that ail immigration,
passport, visa and employment regulations of the A.R.E.,
shall be applicable to ail alien employees of CONTRACTOR
working in the AIR.E. i
*( ^ S?£
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.2) A minimum of twenty-five percent (25%) of the combined
s2
professional and technical personnel employed by
CONTRACTOR or Operating Company .shall be paid monthly
in Egyptian Currency.
(b) CONTRACTOR and Operating Company shall each select its
employees and determine the number thereof, to be used for
operations hereunder.
(c) CONTRACTOR, shall after consultation with EGPC, prepare and
carry out specialized training programs for all its A.R.E.
employees engaged in operations hereunder with respect to
applicable aspects of the petroleum industry. CONTRACTOR and
Operating Company undertake to replace gradually their non¬
executive expatriate staff by qualified nationals as they are
available.
(d) During any of the Exploration phases, CONTRACTOR shall give
mutually agreed numbers of EGPC employees an opportunity to
attend and participate in CONTRACTOR'S and CONTRACTOR'S
Affiliated Companies training programs relating to Exploration
and Development operations. In the event that the total cost of
such programs is less than fifty thousand (50,000) United States
Dollars in any Financial Year during such period, CONTRACTOR
shall pay EGPC the amount of the shortfall within thirty (30) days
following the end of such Financial Year. However, EGPC shall
have the right/that said amount (U.S.$50,000) allocated for
training, be paid directly to EGPC for such purpose.
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ARTICLE XVIII
LAWS AND REGULATIONS.
(a) CONTRACTOR and Operating Company shall be subject to Law
No. 66 of 1953 (excluding Article 37 thereof) as amended by Law
No. 86 of 1956 and the regulations issued for the implementation
thereof, including the regulations for the safe and efficient
performance of operations carried out for the execution of this
Agreement and for the conservation of the petroleum resources
of the A.R.E. provided that no regulations, or modification or
interpretation thereof, shall be contrary to or inconsistent with the
provisions of this Agreement.
(b) Except as provided in Article ill (g) for Income Taxes, EGPC,
CONTRACTOR and Operating Company shall be exempted from
all taxes and duties, whether imposed by the GOVERNMENT or
municipalities including among others, Sales Tax, Value Added
Tax and Taxes on the Exploration, Development, extracting,
producing, exporting or transporting of Petroleum and LPG as
well as any and all withholding taxes that might otherwise be
imposed on dividends, interest, technical service fees, patent and
trademark royalties, and similar items. CONTRACTOR shall also
be exempted from any tax on the liquidation of CONTRACTOR, or
distributions of any income to the shareholders of CONTRACTOR,
and from any tax on capital.
(c) The rights and obligations of EGPC and CONTRACTOR under,
and for the effective term of this Agreement shall be governed by
and in accordance with the provisions of this Agreement and can
only be altered or amended by the written mutual agreement of
the said contracting parties.
4'
(d) The contractors and sub-contractors of CONTRACTOR and
...... ....Operating Company shall be subject to the provisions of this
6 3
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Agreement which affect them. Insofar as ail regulations which are
duiy"-is’Stieth-fay*’'tfie'^- appiy.from.time.,, .to, .time and
are not in accord with the provisions of this Agreement, such
regulations shall not apply to CONTRACTOR, Operating Company
and their respective contractors and sub-contractors, as the case
may be.
(e) EGPC, CONTRACTOR, Operating Company and their respective
contractors and sub-contractors shall for the purposes of this
Agreement be exempted from ail professional stamp duties,
imposts and levies imposed by syndical laws with respect to their
documents and activities hereunder.
(f) AH the exemptions from the application of the A.R.E. laws or
regulations granted to EGPC, CONTRACTOR, the Operating
Company, their contractors and sub-contractors under this
Agreement shall include such laws and regulations as presently
in effect or hereafter amended or substituted.
ARTICLE XIX
STABILIZATION
In case of changes in existing legislation or regulations applicable to
the conduct of Exploration, Development and production of Petroleum,
which take place after the Effective Date, and which significantly affect
the economic interest of this Agreement to the detriment of
CONTRACTOR or which imposes on CONTRACTOR an obligation to
remit to the A.R.E. the proceeds from sales of CONTRACTOR'S
Petroleum, CONTRACTOR shall notify EGPC of the subject legislative
or regulatory measure, in such case, the Parties shall negotiate
possible modifications to this Agreement designed to restore the
economic balance thereof which existed on the Effective Date.
1---7
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The Parties shall use their best efforts to agree on amendments to this
Agree’roentn--withirrninety^days--fcom,.af.ocesa'.d- notice.
These amendments to this Agreement shall not,in any event diminish
or increase the rights and obligations of CONTRACTOR as these were
agreed on the Effective Date.
Failing agreement between the Parties during the period referred to
above in this Article XIX , the dispute may be submitted to arbitration,
as provided in Article XXIV of this Agreement.
ARTICLE XX
RIGHT OF REQUISITION
(a) in case of national emergency due to war or imminent
expectation of war or internal causes, the GOVERNMENT may
requisition ail or part of the production from the Area obtained
hereunder and require Operating Company to increase such
production to the utmost possible maximum. The GOVERNMENT
may also requisition the Oil and/or Gas field itself and, if
necessary, related facilities.
(b) in any such case, such requisition shall not be effected except
after inviting EGPC and CONTRACTOR or their representative by
registered letter, with acknowledgement of receipt, to express
their views with ,respect to such requisition.
»• *
(c) The requisition of production shall be effected by Ministerial
Order. Any requisition of an Oil and/or Gas field, or any related
facilities shall be effected by a Presidential Decree duly notified
to EGPC and CONTRACTOR. *
-6 5-
'^) In the event of any requisition as provided above, the
GOV£^ME-HT"'3ha^md^fnntf^‘in-fiih-EG^C-and.....CONTRACTOR.
for the period during which the requisition is maintained,
including:
(1) All damages which result from such requisition; and
(2) Full repayment each month for ail Petroleum extracted by
the GOVERNMENT less the royalty share of such
production.
However, any damage resulting from enemy attack is not within
the meaning of this paragraph (d). Payment hereunder shall be
made to CONTRACTOR in U.S. Dollars remittable abroad. The
price paid to CONTRACTOR for Petroleum taken shall be
calculated in accordance with Article VI! (c).
ARTICLE XXI
ASSIGNMENT
(a) Neither EGPC nor CONTRACTOR may assign to a person, firm or
corporation, in whole or in part, any of its rights, privileges,
duties or obligations under this Agreement without the written
consent of the GOVERNMENT.
(b) To enable consideration to be given to any request for such
consent, the following conditions must be fulfilled;
(1) The obligations of the assignor deriving from this
Agreement must have been duly fulfilled as of the date such
request Is made.
(2) The instrument' Of assignment must include provisions
stating precisely that the assignee is bound by alt
. ..covenants, contained,, in . this. ^Agreement and any
% •66- b . J-5-
f
modifications or additions m writing that up to such time
may''" irav«*'-b-ew' madei-*' A~- draft*.of.-. such.«. insttumaat...,o.fv.....
assignment shall be submitted to EGPC for review and
approval before being formally executed.
ic) Notwithstanding the provisions of Article XXI (a), CONTRACTOR
may assign ail or any of its rights, privileges, duties or
obligations under this Agreement to an Affiliated Company,
provided that CONTRACTOR shall advise the GOVERNMENT and
EGPC in writing of the assignment.
(d) Any assignment, sale, transfer or other such conveyance made
pursuant to the provisions of this Article XXI shall be free of any
transfer, capital gains taxes or related taxes, charges or fees
including without limitation, all Income Tax. Sales Tax, Value
Added Tax. Stamp Duty, or other Taxes or similar payments.
(e) As long as the assignor shall hold any interest under this
Agreement, the assignor together with the assignee shall be
jointly and severally liable for all duties and obligations of
CONTRACTOR under this Agreement.
ARTICLE XXII
BREACH OF AGREEMENT AND POWER TO CANCEL
(a) The GOVERNMENT shall have the right to cancel this Agreement
by Order or presidential Decree, with respect to CONTRACTOR,
in the following instances:
(1) If it knowingly has submitted any false statements to the
GOVERNMENT which were of a material consideration for
the execution of this Agreement;
(2) ,. if it assigns* any interest hereunder contrary ■ to the
provisions ,«©f-Article *XXi;
;3T" idctjtrdicatect'*bankrupt---by. .a «,couct,.o.f ..a... competent
jurisdiction:
(4) If it does not comply with any final decision reached as the
result of court proceedings conducted under Article XXiV(a);
(5) If it intentionally extracts any mineral other than Petroleum
not authorized by this Agreement or without the authority of
the GOVERNMENT, except such extractions as may be
unavoidable as the result of the operations conducted
hereunder in accordance with accepted petroleum industry
practice and which shall be notified to the GOVERNMENT or
its representative as soon as possible; and
(6) If it commits any material breach of this Agreement or of the
provisions of Law No. 66 of 1953, as amended by Law No.
86 of 1956, which are not contradicted by the provisions of
this Agreement.
Such cancellation shall take place without prejudice to any
rights which may have accrued to the GOVERNMENT
against CONTRACTOR in accordance with the provisions of
this Agreement, and, in the event of such cancellation,
CONTRACTOR, shall have the right to remove from the Area
ail its personal property.
If the GOVERNMENT deems that one of the aforesaid causes
(b)
(other than a force majeure cause referred to in Article XXIII)
hereof exists to cancel this Agreement, the GOVERNMENT shall
give CONTRACTOR ninety (90) days written notice personally
served on CONTRACTOR'S General Manager in the legally
official manner and receipt of which is acknowledged by him or
by his legal agents, ..to remedy and remove such cause; but if for
any reason such service is impossible due to unrjotified
change of address, puolicauon jn the Official Journal of the
GOVSR-N'ME-MT- -of-siish - notice- si3aJJ...b£,„ considered.. as - valid
service upon CONTRACTOR, if at the end of the said ninety (90)
day notice period such cause has not .been remedied and
removed, this Agreement may be canceled forthwith by Order or
Presidential Decree as aforesaid: provided however, that if such
cause, or the failure to remedy or remove such cause, results
from any act or omission of one party, cancellation of this
Agreement shall be effective only against that party and not as
against any other party hereto.
ARTICLE XXill
FORCE MAJEURE
(a) The non-performance or delay in performance by EGPC and
CONTRACTOR, or either of them 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 thereon and consequently, to the term
of this Agreement, but only with respect to the block or blocks
affected.
(b) ’’Force Majeure" within the meaning of this Article XXIII, shall be
any order, regulation or direction of the GOVERNMENT of the
__. ARAB REPUBLIC OF EGYPT, or the Government of the REPBULIC
^orii^ OF IRELAND? with respect to CONTRACTOR whether promulgated
^14^4 in the form of a law or otherwise or any act of God, insurrection,
riot, war, strike, and .other labor disturbance, fires, floods or any
cause not due to the fault or negligence of EGPC and
^ '(9- '-CONTRACTOR or either of them, whether or not similar to the
foregoing, provided ihat any such cause is beyond the
reasonable--- control---of- E G P C~ and».CONTRAC.ZQ.R,... or. either of
them.
(c) Without prejudice to the above and except as may be otherwise
provided herein, the GOVERNMENT shall incur no responsibility
whatsoever to EGPC and CONTRACTOR, or either of them for any
damages, restrictions or loss arising in consequence of such
case of force majeure except a force majeure caused by the
order, regulations or direction of the GOVERNMENT.
(d) 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 CONTRACTOR shall have the option
upon ninety (90) days prior written notice to EGPC to terminate its
obligations hereunder without further liability of any kind.
ARTICLE XXIV
DISPUTES AND ARBITRATION
(a) Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof,
between the GOVERNMENT and the parties shall be referred to
the jurisdiction of the appropriate A.R.E. Courts and shall be
finally settled by such Courts.
(b) Any dispute, controversy or claim arising out of or relating to this
Agreement, or breach, termination or invalidity thereof between
EGPC and CONTRACTOR shall be settled by arbitration in
accordance with the Arbitration Rules of the* Cairo Regional
Center for International Commercial Arbitration (the Center) in
effect on the date of this Concession Agreement. The award of
the arbitrators shall b.e final and binding on the parties.
(c) The number of arbitrators shall be three (3).
70-
(d) Each party shall appoint one arbitrator. If, within thirty (30) days
after*receipt’of~the-clawRant-s-notificaiion,ottha.app..oi.Dtment of a n
arbitrator the respondent has not notified the claimant in writing
of the name of the arbitrator he appoints, the claimant may
request the Center to appoint the second arbitrator.
(e) The two arbitrators thus appointed shall choose the third
arbitrator who will act as the presiding arbitrator of the tribunal. If
within thirty (30) days after the appointment of the second
arbitrator, the two arbitrators have not agreed upon the choice of
the presiding arbitrator, then either party may request the
Secretary General of the Permanent Court of Arbitration at the
Hague to designate the appointing authority. Such appointing
authority shall appoint the presiding arbitrator in the same way as A?
$ a sofe arbitrator would be appointed under Article 6.3 of the
UNCITRAL Arbitration Rules. Such presiding arbitrator shall fc>e^
person of a nationality other than the A.R.E. or IRELAND^and of a
country which has diplomatic relations with the A.R.E., ■&&&
IRELAND? and who shall have no economic interests in the
Petroleum business of the signatories hereto.
Unless otherwise agreed by the parties to the arbitration, the
arbitration, including the making of the award, shall take place in
Cairo, A.R.E.
The decision of a majority of the arbitrators shall be final and
binding upon the Parties and the arbitral award rendered shall be
final and conclusive. Judgment on the arbitral award rendered,
may be entered in any court having Jurisdiction or application
may be made in such court for a judicial acceptance of the award
and for enforcement, as the case may be.
(h) Egyptian Law shall apply to the dispute except that in the event of
any conflict between Egyptian Laws and this Agreement the
provisions of this Agreement (including the arbitration provision)
shall prevail. The arbitration shall be conducted in the English
language.
(i) EGPC and CONTRACTOR agree that if, for whatever reason,
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arbitration in accordance with the above procedure cannot take
piacey ot“ is~ iike-fry---to- taKe-place-..under.. ..circumstances for
CONTRACTOR which could prejudice CONTRACTOR'S right to
fair arbitration, all disputes, controversies.. or claims arising out
of or relating to this Agreement or the breach, termination or
invalidity thereof shall be settled by ad hoc arbitration in
accordance with the UNC1TRAL Rules in effect on the Effective
Date,
ARTICLE XXV
STATUS OF PARTIES
(a) The rights, duties, obligations and liabilities in respect of EGPC
and CONTRACTOR hereunder 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.
(b) Each CONTRACTOR MEMBER shall be subject to the laws of the
place where it is incorporated regarding its legal status or
creation, organization, charter and by-laws, shareholding, and
ownership. Each CONTRACTOR MEMBER'S shares of capital
which are entirely held abroad shall not be negotiable in the
A.R.E. and shall not be offered for public subscription nor shall
be subject to the stamp tax on capital shares nor any tax or duty
in the A.R.E. CONTRACTOR shall be exempted from the
application of Law No. 159 of 1981 as amended.
(c) All CONTRACTOR MEMBERS shall be jointly and severally liable
for the performance of the obligations of CONTRACTOR under
this Agreement.
ARTICLE XXVI
LOCAL CONTRACTORS AND
LOCALLY MANUFACTURED MATERIAL
CONTRACTOR or Operatirig Company, as the case may be, and their
contractors shall:
... i.
(a) Give priority to local contractors and sub-contractors, including
cGPC'sr- Affiliated-- Sompani es - as-Jong^ .as^.thak,. perfprmance i s
comparable with Internationa) performance and the prices of their
services are not higher than the prices of., other contractors and
sub-contractors by more than ten percent (10%).
(b) Give preference to locally manufactured material, equipment,
machinery and consumables so long as their quality and time of
delivery are comparable to internationally available materia),
equipment, machinery and consumables. However, such material,
equipment, machinery and consumables may be imported for
operations conducted hereunder if the local price of such items
at CONTRACTOR’S or Operating Company's operating base in
A.R.E. 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 added.
ARTICLE XXVll
ARABIC TEXT
The Arabic version of this Agreement shall, before the courts of A.R.E.
be referred to in construing or interpreting this Agreement; provided
however, that in any arbitration pursuant to Article XXIV herein
between EGPC and CONTRACTOR the English and Arabic versions
shall both be referred to as having equal force in construing or
interpreting the Agreement.
ARTICLE XXVIII
GENERAL
The headings or titles to each of the Articles to this Agreement are
solely for the convenience of the parties hereto and shall not be used
with respect to the interpretation of said Articles.
Nothing in this Agreement shall be constructed as constituting any
relationship to any petroleum concession agreement heretofore
entered into by the parties and each of these agreements shall be
. A fV s.v
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ANNEX "A"
cmCESSTOTr1'AGREEftfLEffT' '■■■•
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
EGYPTIAN GENERAL PETROLEUM CORPORATION.
AND
DUBLIN INTERNA1TONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
IN
WEST GHAR1B AREA
EASTERN DESERT
A.R.E.
BOUNDARY DESCRIPTION OF THE CONCESSION AREA
Annex "B"is a provisional illustrative map at an approximate scale of
(1: 600,000) showing the Area covered and affected by this
Agreement.
The Area measure approximately (two thousand five hundred and
thirty (2530) square kilometers).
it is to be noted that the delineation lines of the Area in Annex "B"
are intended to be only illustrative and provisional and may not
show accurately their true position in relation to existing
monuments and geographical features.
Coordinates of the corner points of the Area are given in the
following table which forms an integral part of Annex "A":-
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BOUNDARY COORDINATES OF
WEST" GHAftfB-’AfTEAj'iN" BA-STEF^N-'D&SSRT'-■ -
POINT.NO LAT. NORTH LONG. EAST
28° 42' 00.000" Intersection of Lat 28’ 42’
with shore line of west bank
of G.O.S.to point 2
2 28c 33' 39.510" 32° 55' 3.55"
3 28° 32' 03.980" 32° 531 13.490
4 28° 18' 00.000" 33° 04' 21.400"
5 28° 18' 00.000" 33° 03' 13.600"
6 28° 18' 26.980" 33° 02’ 55.940"
7 28° 16' 59.050" 32° 58' 27.000"
28° 10‘ 37.560" 33° 02' 03.880"
8
9 28° 12’ 55.380" 33° 06' 32.660"
10 28° 10’ 58.950" 33° 07' 48.650"
11 28° 11' 34.698" 33° 08' 58.460“
28° 09' 02.779" 33° 10' 58.484"
12
13 28° 08' 24.000" 33° 09' 55.990"
14 28° 03' 58.000" 33° 13* 25.990"
1 5 28° 03' 00.000“ 33° 12‘ 00.000"
1 6 27° 56’ 00.000" 33° 12’ 00.000"
17 27° 52' 02.417" 33° 15' 14"
27° 47' 11.821“ 33° 10' 04.354"
1 8
1 9 28° 08’ 22.463" 32° 47- 25.847"
20 28° 11' 18.722" 32° 50' 37.709"
21 ** 28° 20' 25.584" 32° 41' 16.940“
28° 21.485" 32° 42' 13.658“
22 211
23 28° 30‘ 57.046" 32° 32' 33.338“
24 28° 42* 00.000" 32° 45' 06.944“
Jl ^ / '
-7 6'
EXCLUDED DEVELOPMENT LEASE AREA DELINEATED BY POINTS :
POINT.NO. LAT. NORTH LONG. EAST
1 28° 27' 00.000” 32° 54' 45.000
o
2 CO 23’ 30.000” 32° 54' 45.000
CM
3 o 23' 30.000” 32° 53' 30.000
CO
CM
4 28° 23‘ 00.000" 32° 53' 30.000
5 ‘ 28° 23‘ 00.000” 32° 56' 30.000
6 28° 20‘ 30.000" 32° 56' 30.000
7 28° 20' 30.000” 32° 53' 30.000
8 28° 21' 00.000” 32° 53’ 30.000
9 28° 21' 00.000" 32° 50' 30.000
10 28° 27’ 00.000" 32° 50‘ 30.000
V n
A
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' r'
ANNEXiB)
CONCESSION AGREEMENT FOR PETROLEUM
" ■-!j JJJ-*'UI (>c «ii lj.tl.ttl
EXPLORATION AND EXPLOITATION
BETWEEN
ARAB REPUBLIC OF EGYPT
AND
EGYPTIAN GENERAL PETROLEUM CORPORATION 5-UJI
AND
DUBLIN INTERNATIONAL PETROLEUM (EGYPT) LIMITED
AND
TANGANYIKA OIL COMPANY LTD.
...................... 'wm cs-» fjS Jl UU:Ujg ISjA
WEST GHARIB AREA
EASTERN DESERT V* jLe. cjjx 3.1L 1.
A.R.E Sf^^>Akil »lj »• • }|
SCALE-1 :600,000 t-r-£ tl o
V.
: ' f-**^J* u-Ljl-*
- 78 -
ANNEX "C”
LETTER OF GUARANTEE
Letter of Guarantee No. Cairo.
EGYPTIAN GENERAL PETROLEUM CORPORATION.
Gentlemen.
The undersigned, National Bank of Egypt, as Guarantor, hereby
guarantees to the EGYPTIAN GENERAL PETROLEUM CORPORATION
(hereinafter referred to as "EGPC") to the limit, of five million
(5,000,000) U.S. Dollars, the performance by "DUBLIN
INTERNATIONAL PETROLEUM (EGYPT) LIMITED." and TANGANYIKA
OIL COMPANY LTD., (hereinafter referred to as "CONTRACTOR") of
their obligations required for Exploration operations to spend a
minimum of five million (5,000,000) U.S. Dollars during the initial
three (3) years of the Exploration period under Article IV of that
certain Concession Agreement (hereinafter referred to as the
"Agreement") covering that Area described in Annexes "A" and ”BU of
said Agreement, by and between the Arab Republic of Egypt
(hereinafter referred to as {"A.R.E.”), EGPC and CONTRACTOR, dated
It is understood that this Guarantee and the liability of the Guarantor
hereunder shall be reduced quarterly, during the period of expenditure
of said five million (5,000,000) U.S. Dollars by the amount of money
expended by CONTRACTOR for such Exploration operations during
each such quarter. Each such reduction shall be established by the
joint written statement of CONTRACTOR and EGPC.
in the event of a claim by EGPC of non-performance or surrender of
the Agreement on the part of CONTRACTOR prior to fulfillment of said
minimum expenditure obligations under Article IV of the Agreement,
there shall be no liability on the undersigned Guarantor for payment
to EGPC unless and untii such liability has been established by written
statement of EGPC setting forth the amount due under the Agreement.
It is a further condition of this Letter of Guarantee that:
(1)Thts Letter of Guarantee will become available only provided that
the Guarantor will have been informed in writing by CONTRACTOR
and EGPC that the Agreement between CONTRACTOR, A.R.E. and
EGPC has become effective according to its terms, and said
Guarantee shall become effective on the Effective Date of said
Agreement 2-5-
A 7
-7 9-
r
(2) This Letter of Guarantee shaii in any event automaticaily expire:
(a) Three (3) years and Six (6) months after the date it becomes
effective, or
(b) At such time as the total of the amounts shown on quarterly
joint statements of EGPC and CONTRACTOR equals or
exceeds the amount of said minimum expenditure obligation,
whichever is earlier.
(3) Consequently, any claim, in respect thereof should be made to the
Guarantor prior to either of said expiration dates at the latest
accompanied by EGPC's written statement, setting forth the
amount of under-expenditure by CONTRACTOR to the effect that:
(a) CONTRACTOR has failed to perform its expenditure
obligations referred to in this Guarantee, and
(b) CONTRACTOR has failed to pay the expenditure deficiency to
EGPC.
Please return to us this Letter of Guarantee in the event it does not
become effective, or upon the expiry date.
Yours Faithfully,
BY
ACCOUNTANT :
MANAGER:
-8 0-
ANNEX "D
CHARTER OF OPERATING COMPANY
ARTICLE 1
A joint stock company having the nationality of the ARAB REPUBLIC
OF EGYPT shall be formed with the authorization of the
GOVERNMENT in accordance with the provisions of this Agreement
referred to below and of this Charter.
The Company shall be subject to all laws and regulations in force in
the A.R.E. to the extent that such laws and regulations are not
inconsistent with the provisions of this Charter and the Agreement
referred to below,
ARTICLE II
The name of the Operating Company shall be mutually agreed upon
between EGPC and CONTRACTOR on the date of the Commercial
Discovery and shall be subject to the approval of the Minister of
Petroleum.
ARTICLE 111
The Head Office of Operating Company shall be in the A.R.E. in Cairo.
ARTICLE IV
The object of Operating Company is to act as the agency through
which EGPC and CONTRACTOR, carry out and conduct the
Development operations required in accordance with the provisions
of the Agreement signed • orr the^------' day''--------by- and-
between the. ARAB REPUBLIC OF EGYPT, THE EGYPTIAN GENERAL
PETROLEUM CORPORATION and CONTRACTOR covering Petroleum
operations in West Gharib Area in Eastern Desert described therein.
Operating Company shall be the agency to carry out and conduct
Exploration operations after the date of Commercial Discovery
pursuant to Work Programs and Budgets approved in accordance with
the Agreement.
Operating Company shall keep account of all costs, expenses and
expenditures for such operations under the terms of the Agreement
and Annex "E" thereto.
Operating Company shall not engage in any business or undertake
any activity beyond the performance of said operations unless
otherwise agreed upon by EGPC and CONTRACTOR.
ARTICLE V
The authorized capita! of Operating Company is twenty thousand
Egyptian Pounds divided into five thousand shares of common stock
with a value of four Egyptian Pounds per share having equal voting
rights, fully paid and non-assessable.
EGPC and CONTRACTOR shall each pay for, hold and own, throughout
the ..life of Operating Company, one half (1/2) of the capital stock of
Operating Company provided that only in the event that either party
should transfer or assign the whole or any percentage of its ownership
interest in the entirety of the Agreement, may such transferring or
assigning party transfer or assign any of the capital stock of Operating
Company and, in that event, such transferring or assigning party (and
its successors and assignees) must transfer and assign a stock
/ . AA V**
-8 2-
interest in Operating' cbrhpany • equar* to**the^transfeTretHor*-assigned*'-'-
whole or percentage of its ownership interest in the entirety of the said
Agreement.
ARTICLE VI
Operating Company shall not own any right, title, interest or estate in
or under the Agreement or any Development Lease created
thereunder or in any of the Petroleum produced from any Exploration
Block or Development Lease 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 of either EGPC or
CONTRACTOR under the Agreement. Operating Company shall not
make any profit from any source whatsoever.
ARTICLE VII
Operating Company shall be no more than an agent for EGPC and
CONTRACTOR. Whenever it is indicated herein that 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 judgment of EGPC, CONTRACTOR or EGPC and
CONTRACTOR, as may be required by the Agreement.
ARTICLE VIII
Operating Company shall have a Board of Directors consisting of
eight (8) members, four (4) of whom shall be designated by EGPC and
the other four (4) by CONTRACTOR. The Chairman shall be
designated by EGPC and shall also be a Managing Director.
CONTRACTOR shall designate the General Manager who shall also be
a Managing Director.
ARTICLE IX
Meetings of the Board of Directors shaii 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 held
by another Director.
ARTICLE X
General meetings of the Shareholders shall be valid if a majority of
the capital stock'of Operating Company is represented thereat. Any
decision taken at such meetings must have the affirmative vote of
Shareholders owning or representing a majority of the capita! stock.
ARTICLE X!
The Board of Directors shall approve the regulations covering the
terms and conditions of employment of the personnel of Operating
Company employed directly by Operating Company and not assigned
thereto by CONTRACTOR and EGPC.
The Board shall, in due course, draw up the By-Laws of Operating
Company, and such By-Laws shall be effective upon being approved
by a General Meeting of the Shareholders, in accordance with the
provisions of Article X hereof.
ARTICLE XII
Operating Company shall come into existence within thirty (30) days
after the date of Commercial Oil Discovery or within thirty (30) days
after signature of a Gas Sales Agreement or commencement of a
scheme to dispose of Gas/as provided for in the Agreement {unless
otherwise agreed by EGPC and CONTRACTOR). r
... : ................./8" q; a
ANNEX "E:l
ACCOUNTING PROCEDURE
ARTICLE I
GENERAL PROVISIONS
(a) Definitions:
The definitions contained in Article I of the Agreement shall apply
to this Accounting Procedure and have the same meanings.
(b) Statements of activity:
(1) CONTRACTOR shall, pursuant to Article IV of this Agreement,
and until the coming into existence of the Operating Company
- in accordance with Article VI of the Agreement - render to
EGPC within thirty (30) days of the end of each calendar
quarter a Statement of Exploration Activity reflecting all
charges and credits related to the Exploration operations for
that quarter summarized by appropriate classifications
indicative of the nature thereof.
(2) Following its coming into existence, Operating Company shall
render to EGPC and CONTRACTOR within fifteen (15) days of
the end of each calendar quarter a Statement of Development
and Exploration Activity reflecting all charges and credits
related to the Development and Exploration operations for that
quarter summarized by appropriate classifications indicative of
the nature thereof, except that items of controllable material
and unusual charges and credits shall be detailed.
r
«cj Adjustments and Audits:
(1) Each quarterly Statement of Exploration Activity pursuant to
Article l (b) (1) of this Annex shall conclusively be presumed
to be true and correct after three (3) months following the
receipt of each Statement by EGPC unless within the said
three (3) months EGPC takes written exception thereto
pursuant to Article IV (f) of the Agreement. During the said
three (3) month period supporting documents will be available
for inspection by EGPC during all working hours.
CONTRACTOR will have the same audit rights on Operating
Company Statements as EGPC under this sub-paragraph.
(2) All Statements of Development and Exploration Activity for any
calendar quarter pursuant to Article i (b) (2) of this Annex, shall
conclusively be presumed to be true and correct three (3)
months following the receipt of such Statement, unless within
the said three (3) months period EGPC or CONTRACTOR takes
written exception thereto. Pending expiration of said three (3)
months EGPC or CONTRACTOR or both of them shall have the
right to audit Operating Company accounts, records and
supporting documents for such quarter in the same manner as
provided in Article IV (f) of the Agreement.
(d) Currency Exchange:
CONTRACTOR'S books for Exploration and Operating Company's
books for Development and Exploration, if any, shall be kept in
the A.R.E. in U.S. Dollars. Ail U.S. Dollar expenditures shall be
charged in the amount expended. All Egyptian Pounds
expenditures shall be converted to U.S. Dollars at the applicable
fate of exchange issued by the Central Bank of Egypt on the first
s:
aay of the month in which expenditures are recorded, and all other
non-U.$7' uGftar expenditures- shall- be«- tfanstete^MO'-UvS^- Doilais-ai..,
the buying rate of exchange for such currency as quoted by
National Westminster Bank Limited, London-at 10.30 a.m. G.M.T..
on the first day of the month in which expenditures are recorded.
A record shall be kept of the exchange rates used in translating
Egyptian Pounds or other non-U.S Dollar expenditures to U.S.
Dollars.
(e) Precedence of Documents:
In the event of any inconsistency or conflict between the
provisions of this Accounting Procedure and the provisions of the
Agreement treating the same subject differently, then the
provisions of the Agreement shall prevail.
(f) Revision of Accounting Procedure:
By mutual agreement between EGPC and CONTRACTOR, this
Accounting Procedure may be revised in writing from time to time
in the light of future arrangements.
(g) No Charge for Interest on investment:
Interest on investment or any bank fees, charges or commissions
related to any bank guarantees shall not at any time be charged as
recoverable costs under the Agreement.
ARTICLE !1
COSTS, EXPENSES AND EXPENDITURES
Subject to the provisions of the Agreement, CONTRACTOR shall alone
bear and,, directly or through Operating Company, pay the following
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/■
costs and expenses, which costs ana expenses shall be classified and
diiocat^dwto-’'ihe'-acttviiie9' aee-3rd{n-g-to*sound,.and™..generally, ,acc.ep.t.e.d..
accounting principles and treated and recovered in accordance with
Article VfI of this Agreement:
(a) Surface Rights:
AH direct cost attributable to the acquisition, renewal or
relinquishment of surface rights acquired and maintained in force
for the Area.
(b) Labor and Related Costs:
(1) Salaries and Wages of CONTRACTOR'S or Operating
Company’s employees, as the case may be. directly engaged in
the various activities under the Agreement including salaries
and wages paid to geologists and other employees who are
temporarily assigned to and employed in such activities. Such
salaries and wages to be certified by a certified public
accounting firm.
Reasonable revisions of such salaries and wages shall be
effected to take into account changes in CONTRACTOR'S
policies and amendments of laws applicable to salaries. For the
purpose of this Article I! (b) and Article II (c), salaries and
wages shall mean the assessable amounts for A.R.E. Income
Taxes, including the salaries during vacations and sick leaves,
but excluding, all the amounts of the other items covered by the
percentage fixed under (2) below.
(2) For expatriate employees permanently assigned to Egypt:
1. All allowances applicable to salaries and wages;
2. Cost of established plans; and “
•*/ . Ali travel ana relocation costs of such expatriate
©nrp'ioyeres'’ and- thef*- families -to., and - /torn, tfia« emgiayejals...
country or point of origin at the time of employment, at the •
time of separation, or as a resuit of transfer from one
location to another and for vacation (transportation costs
for employees and their families transferring from the
A.R.E. to another location other than their country of origin
shall not be charged to A.R.E. Operations).
Costs under this Article 1! (b) (2) shall be deemed to be equal to
fourty seven percent (47%) of basic salaries and wages paid for
such expatriate personnel including those paid during vacations
and sick leaves as established in CONTRACTOR'S international
policies, chargeable under Article II (b) (1), Article ll (i), Article
II (k) (1) and Article II (k)(3) of this Annex.
However, salaries and wages during vacations, sick leaves and
disability are covered by the foregoing percentage. The
percentage outlined above shall be deemed to reflect
CONTRACTOR'S actual costs as of the Effective Date with
regard to the following benefits, allowances and costs
1. Housing and Utilities Allowance.
2. Commodities and Services Allowance.
3. Special Rental Allowance.
4. Vacation Transportation Allowance.
5. Vacation Travel Expense Allowance.
6. Vacation "Excess Baggage Allowance.
7. Education Allowances (Children of Expatriate
Employees).
8. Hypothetical U.S. Tax Offset (which results in a
reduction of the chargeable percentage).
9. Storage of Personal Effects.
10. Housing Refurbishment Expense.
11. Property Management Service Fees. * (1 ^
9 0
12. Recreation Allowance.
13:- Retfremettfr"Pteffcr.......
14. Group Life Insurance.
15. Group Medical Insurance.
16. Sickness and Disability.
17. Vacation Plans Paid (excluding Allowable Vacation
Travel Expenses).
1 8. Savings Plan.
19. Educational Assistance.
20. Military Service Allowance.
21 . F.l.C.A.
22. Workman's Compensation.
23. Federal and State Unemployment Insurance.
24. Personnel Transfer Expense.
25. National Insurance.
26. Any other Costs, Allowances and Benefits of a like nature
as established in CONTRACTOR'S International Policies.
The percentages outlined above shall be reviewed at
intervals of three (3) years from the Effective Date and at
such time CONTRACTOR and EGPC will agree on new
percentages to be used under this paragraph.
Revisions of the percentages will take into consideration
variances in costs and changes in CONTRACTOR'S
international policies which change or exclude any of the above
allowances and benefits.
**
The revised percentages will reflect as nearly as possible
CONTRACTOR'S actual costs of all its established allowances
and benefits and of personnel transfers.
(3) For expatriate employees temporarily assigned to Egypt all
allowances, costs of established plans and all travel relocation
costs for such expatriates as paid in accordance with
CONTRACTOR'S international policies. Such costs shall not
/•
include any administrative overhead other than what is
mentioned in Artfdie ii(^'ot'thts*'Anne)6 ' •
(4) Costs of expenditure or contributions made pursuant to iaw or
assessment imposed by Governmental authority which are
applicable to labor cost of salaries and wages as provided under
Article 11 (b) (1), Article 11 (b) (2), Article U (i), Article 11 (k) (I) and
Article II (k) (3) of this Annex.
(c) Benefits, allowances and related costs of national employees
Bonuses, overtime, customary allowances and benefits on a basis
similar to that prevailing for oil companies operating in the A.R.E.,
ail as chargeable under Article 11 (b) (1), Article ll (i), Article II (k)
(1) and Article i! (k) (3) of this Annex. Severance pay will be
charged at a fixed rate applied to payrolls which will equal an
amount equivalent to the maximum liability for severance payment
as required under the A.R.E. Labor Law.
(d) Material
Material, equipment and supplies purchased or furnished as such
by CONTRACTOR or Operating Company.
(1) Purchases:
Material, equipment and supplies purchased shall be at the
price paid by CONTRACTOR or Operating Company plus any
related cost and after deduction of all discounts actually
received.
(2) Material Furnished by CONTRACTOR:
Material required -for operations shall be purchased directly
whenever practicable, except that CONTRACTOR may furnish
.such .-material from CONTRACTOR’S or CONTRACTOR’S
Vl m -9 2-
Affiliated Companies stocks outside the. A.R.E. under the
following" conditions-;......
1 . New Material {Condition "A")
New Material transferred from CONTRACTOR'S or
CONTRACTOR'S Affiliated Companies warehouse or other
properties shall be priced at cost, provided that the cost of
material supplied is not higher than international prices for
material of similar quality supplied on* similar terms,
prevailing at the time such material was supplied.
2. Used Material {Conditions "B" and "C")
a) Materia! which is in sound and serviceable condition
and is suitable for reuse without reconditioning shall
be classed as Condition "B" and priced at seventy - five
percent (75%) of the price of new material.
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 priced at fifty percent
(50%) of the price of new material.
c) Material which cannot be classified as Condition "B" or
Condition "C" shall be priced at a value commensurate
with. Its use.
d) Tanks, buildings and other equipment involving
erection costs shall be charged at applicable
percentage of knocked - down new price.
3-.S-
-9 3-
(3) Warranty of Materials Furnished by CONTRACTOR
CONTRACTOR- dees- not*-warrant-the*m-aterjaL.furj3jsb.ed-....bey.p.nd
or back of the dealer's or manufacturer’s Guarantee; and in
case of defective material, credit shall .not be recorded until
adjustment has been received by CONTRACTOR from
manufacturers or their agents.
(e) Transportation and Employee Relocation Costs:
(1) Transportation of equipment, materials and supplies necessary
for the conduct of CONTRACTOR'S or Operating Company's
activities.
(2) Business travel and transportation expenses to the extent
covered by established policies of CONTRACTOR or with regard
to expatriate and national employees, as incurred and paid by,
or for, employees in the conduct of CONTRACTOR'S or Operating
Company's business.
(3) Employees transportation and relocation costs for national
employees to the extent covered by established policies.
(f) Services:
(1) Outside services. The costs of contracts for consultants, services
and utilities procured from third parties.
(2) Cost of services performed by EGPC or by CONTRACTOR, or
#•
their Affiliated Companies in facilities inside or outside the
A.R.E. Regular, recurring, routine services, such as interpreting
magnetic tapes and/or other analyses, shall be performed and
charged by EGPC and/or CONTRACTOR or their Affiliated
Companies at an agreed contracted price. Major projects
involving engineering and design services shall be performed
by EGPC and/or CONTRACTOR or their Affiliated Companies at
........a . negotiated contract amount. n
^ 1 7
f
.3) Use of EGPC's, CONTRACTOR'S or their Affiliated Companies'
whoffy"--owrrad---3'q
commensurate with the cost of ownership a.nd operation, but not
in excess of competitive rates currently prevailing in the A.R.E.
(4) CONTRACTOR'S and CONTRACTOR’S Affiliated Companies'
rates shall not include any administrative or overhead costs
other than what is mentioned in Article II (k) (2).
(g) Damages and Losses:
All costs or expenses, necessary to replace or repair damages or
losses incurred by fire, flood, storm, theft, accident or any other
cause not controllable by CONTRACTOR or Operating Company
through the exercise of reasonable diligence. CONTRACTOR or
Operating Company shall furnish EGPC and CONTRACTOR written
notice of damages or losses incurred in excess of ten thousand
(S10.000) U.S. Dollars per occurrence, as soon as practicable
after report of the same has been received by CONTRACTOR or
Operating Company.
(h) Insurance and Claims:
The cost of any public liability, property damages and other
insurance against liabilities of CONTRACTOR, Operating
Company and/or the parties or any of them to their employees
and/or outsiders as may be required by the laws, rules and
regulations of t*he GOVERNMENT or as the parties may agree
upon. The proceeds of any such insurance or claim collected, less
the actual cost of making a claim, shall be credited against
operations.
ff no insurance is carried for a particular risk, in accordance with
good international. oil field practices, all related actual
expenditures incurred and paid by CONTRACTOR or Operating
9 5
Company in settlement of any and all losses, claims, damages,
judgments' arrti~any~othef'--expen-s©s«--including-. !egaL..aar.yic.es,.:;
(i) Indirect Expenses:
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 Area.
(j) Legal Expenses:
All costs and expenses of litigation, or legal services otherwise
necessary or expedient for the protection of the Area, including
attorney's fees and expenses as hereinafter provided, together
with ail judgments obtained against the parties or any of them on
account of the 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 operations or the subject matter
of the Agreement. In the event actions or claims affecting the
interests hereunder shall be handled by the legal staff of one or
more of the parties hereto, a charge commensurate with cost of
providing and furnishing such services may be made to
operations.
(k) Administrative Overhead and General Expenses:
(1) While CONTRACTOR is conducting Exploration operations, the
cost of staffing and maintaining CONTRACTOR'S head office in
the A.R.E. and/or other offices established in the A.R.E. as
appropriate other than field offices which will be charged as
provided in Article II (i), and excepting salaries of employees of
CONTRACTOR who,, are temporarily assigned to and directly
serving on the Area, which will be charged as provided in
.........Article .II . (b) of this Annex. /fe o ^ A *
h "<5v .
Z>£ -9 6- V
(2) CONTRACTOR'S administrative overhead outside the A.R.E.
sppHcabie-to-Exploration,..operations. in the A.R.E. during the
period prior to the formation of the Operating Company shall be
charged each month at the rate of five : percent (5%) of total
Exploration expenditures, where CONTRACTOR’S Explorations
operations are carried out by CONTRACTOR itself, provided
that no administrative overhead of CONTRACTOR outside the
A.R.E. applicable to A.R.E. Exploration operations wiii be
charged while Exploration operations are being conducted
following the formations of the Operating Company. No other
direct charges as such for CONTRACTOR'S administrative
overhead outside the A.R.E. will be applied against the
Exploration obligations. Examples of the type of costs
CONTRACTOR is incurring and charging hereunder due to
activities under the Agreement and covered by said percentage
are:
1. Executive - Time of executive officers.
2. Treasury - Financial and exchange problems.
3. Purchasing - Procuring materials, equipment and supplies.
4. Exploration and Production-Directing, advising and
controlling the entire project.
5. Other departments such as legal, comptroller and
engineering which contribute time, knowledge and
experience to the operations.
The foregoing does not preclude charging for direct service
under Article II (f) (2) of this Annex.
(3) While Operating Company is conducting operations, Operating
Company's personnel engaged in general clerical and office
work, supervisors and officers whose time is generally spent in
the main office and not the field, and all employees generally
considered as general and administrative and not charged to
other types of expense will be charged to operations. Such
expenses shall .be allocated each month between Exploration
and Development operations according to sound and practicable
accounting methods.
(i/'Tawsr---.....
All taxes, duties or levies paid in the A.R.E. by CONTRACTOR or
Operating Company with respect to this Agreement other than
those covered by Article 111 (g) (1) of this Agreement.
(m) Continuing CONTRACTOR Costs:
Costs of CONTRACTOR activities required under the Agreement
and incurred exclusively in the A.R.E. after Operating Company
is formed. No sales expenses incurred outside or inside the
A.R.E. may be recovered as a cost.
(n) Other Expenditures:
Any costs, expenses or expenditures, other than those which are
covered and dealt with by the foregoing provisions of this Article
Uf incurred by CONTRACTOR or Operating Company under
approved Work Programs and Budgets.
ARTICLE HI
INVENTORIES
(a) Periodic Inventories, Notice and Representation:
At reasonable intervals as agreed upon by EGPC and
CONTRACTOR inventories shall be taken by Operating Company
of the operations materials, which shall include all such
materials, physical assets and construction projects. Written
notice of intention to take inventory shall be given by Operating
Company to EGPC and CONTRACTOR at least thirty (30) days
before any inventory is to begin so that EGPC and
CONTRACTOR may be represented when any inventory is taken.
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raiiure of EGPC ana/or CONTRACTOR to be. represented at an
irive-nt-o-ry---sh-aU'-bind- themv.to^ accept,..the inventory taken by
Operating Company, who shall in that event .furnish the party not
represented with a copy thereof.
(b) Reconciliation and Adjustment of Inventories:
Reconciliation of inventory shall be made by CONTRACTOR and
EGPC, and a list of overages and shortages shall be jointly
determined by Operating Company and CONTRACTOR and
EGPC. and the inventory adjusted by Operating Company.
ARTICLE IV
COST RECOVERY
(a) Statements of Recovery of Costs and of Cost Recovery Petroleum:
CONTRACTOR shall, pursuant to Article VI! of the Agreement,
render to EGPC as promptly as practicable but not later than
fifteen (15) days after receipt from Operating Company of the
Statements for Development and Exploration Activity for the
calendarquarter a Statement for that quarter showing:
1. Recoverable costs carried forward from the previous quarter,
if any.
2. Recoverable costs incurred and paid during the quarter.
3. Total recoverable costs for the quarter (1) + (2).
4. Value of Cost Recovery Petroleum taken and separately
disposed of by CONTRACTOR for the quarter.
5. Amount of costs recovered for the quarter.
6. Amount of recoverable costs carried into the succeeding
quarter, if any.
7. Excess, if any, oftherva!ue of Cost Recovery Petroleum taken
and separately disposed of by CONTRACTOR over costs
. ..recovered, for the quarter.
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{ 3?/e
(b) Payments:
If such Statement shows an amount due to EGPC. payment of that
amount shall be made in U.S. Dollars by CONTRACTOR with the
rendition of such Statement. If CONTRACTOR fails to make any
such payment to EGPC on the date when such payment is due.
then CONTRACTOR shall pay an interest of two and one half
percent (2.5%) per annum higher than the London Interbank
Borrowing Offered Rate (LIBOR) for three (3) months U.S.
Dollars deposits prevailing on the date such interest is calculated.
Such interest payment shall not be recoverable.
(c) Settlement of Excess Cost Recovery Petroleum:
EGPC has the right to take its entitlement of Excess Cost Recovery
Petroleum under Article VI! (a) of the Agreement in kind during
the said quarter . A settlement shall be required with the rendition
of such Statements in case CONTRACTOR has taken more than its
own entitlement of such Excess Cost Recovery Petroleum.
(d) Audit Right:
EGPC shall have a period of twelve (12) months from receipt of
any Statement under this Article IV in which to audit and raise
objection to any such Statement. EGPC and CONTRACTOR shall
agree on any required adjustments. Supporting documents and
accounts will be available to EGPC during said twelve (12) month
period. CP
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ARTICLE V
CONTROL AND MAJOR ACCOUNTS
(a) Exploration Obligation Control Accounts:
CONTRACTOR will establish an Exploration Obligation Control
Account and an offsetting contra account to control therein the
total amount of Exploration expenditures reported on Statements
of activity prepared per Article f (b) (1), less any reductions
agreed to by EGPC and CONTRACTOR following written
exceptions taken by a non-operator pursuant to Article I (c)
(1) of this Annex, in order to determine when minimum Exploration
obligations have been met.
(b) Cost Recovery Control Account:
CONTRACTOR will establish a Cost Recovery Control Account and
an off-setting contra account to control therein the amount of cost
remaining to be recovered, if any, the amount of cost recovered
and the value of Excess Cost Recovery Petroleum, if any.
(c) Major Accounts:
For the purpose of classifying costs, expenses and . expenditures
for Cost Recovery as well as for the purpose of establishing when
the minimum Exploration obligations have been met, costs,
v expenses and .expenditures shall be recorded in major accounts
including the following:
Exploration Expenditures;
Development Expenditures other than Operating Expenses;
Operating Expenses; ~"
Necessary sub-accounts shall be used.
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Revenue-., accounts*.,s.halj ..be maintained by CONTRACTOR to the
extent necessary for the control of recovery of costs and the
treatment of Cost Recovery Petroleum.
ARTICLE VI
TAX IMPLEMENTATION PROVISIONS
It is understood that CONTRACTOR shall be subject to Egyptian
Income Tax Laws except as otherwise provided in the Agreement, that
any A.R.E. Income Taxes paid by EGPC on CONTRACTOR'S behalf
constitute additional income to CONTRACTOR, and this additional
income is also subject to A.R.E. income tax, that is "grossed up".
CONTRACTOR'S annual income, as determined in Article 111 (g) (2) of
this Agreement, less the amount equal to CONTRACTOR'S grossed-up
Egyptian income tax flability, shah be CONTRACTOR’S "Provisional
Income".
The "gross-up value" is an amount added to Provisional Income to
give "Taxable Income", such that the grossed-up value is equivalent
to the A.R.E. Income Taxes.
THEREFORE:
TaxaMe Income a Provisional Income plus Grossed-up Value
and
Grossed-up Value = A.R.E. income Tax on Taxable Income.
If the "A.R.E. Income Tax rate", which means the effective or
composite tax rate due to the various A.R.E. taxes levied on
income or profits, is. constant and not dependent on the level of
p:i
fi -102
income, then:
Grossed-up Value = A.R.E. income tax rate TIMES Taxable
Income.
Combining the first and last equations above
Grossed-up Value= Provisional income X Tax Rate
1 - Tax Rate
where the tax rate is expressed as a decimal.
The above computations are illustrated by the following numerical
example. Assuming that the Provisional Income is $10 and the
A.R.E. Income Tax rate is forty percent (40%), then the Grossed-up
Value is equal to:
$ 10 X 0.4 s $ 6.67
1 - 0.4
Therefore:
Provisional income $10.00
Plus Grossed-up Value 6.67
Taxable income $16.67
Less: A.R.E. Income Taxes at 40% 6.67
CONTRACTOR'S'Income after taxes $ 10.00
^ -
%
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ANNEX"F
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