MODEL PETROLEUM

CONCESSION AGREEMENT FOR ONSHORE AREA

 

2009

 

 

TABLE OF CONTENTS

ARTICLE	CONTENTS	PAGE NO.
	PREAMBLE	4
1	DEFINITIONS	5-10
2	RIGHTS AND LIABILITIES	11
3	EXPLORATION WORK PROGRAMME	12-14
4	RELINQUISHMENT	15
5	WORKING INTERST OWNERSHIP	16-17
6	DISCOVERY AND DEVELOPMENT	18-21
7	ASSIGNMENT, SURRENDER OF AREAS AND TERMINATION OF AGREEMENT	22-23
8	VALUE FOR ROYALTY PURPOSES	24
9	ROYALTY	25
10	RIGHT OF ACQUISITION OF PETROLEUM	26-33
11	DISPOSAL OF PETROLEUM	34
12	FOREIGN EXCHANGE	35-36
13	IMPORTS AND EXPORTS	37-38
14	TAXATION	39
15	MANAGEMENT AND OPERATIONS	40
16	REPORTS AND INFORMATION	41
17	TRAINING AND EMPLOYMENT	42
18	CONTRIBUTION TO JOINT OPERATIONS	43
19	DEVELOPMENT FINANCING	44
20	PIPELINES, REFINERY, LPG AND NATURAL GAS PROCESSING PLANTS	45
21	OTHER MINERALS	46
22	AUDIT	47
23	PRODUCTION BONUSES	48
24	INSURANCE AND INDEMNIFICATION	49
25	PARENT COMPANY/BANK GUARANTEE	50-51
26	EFFECTIVENESS AND DURATION	52
27	FORCE MAJEURE	53
28	ARBITRATION	54
29	PROTECTION OF THE ENVIRONMENT	56-58
30	MISCELLANEOUS AND APPLICABLE LAW	59-60
31	NOTICES	61-62
Annexure	CONTENTS
I	MAP OF THE AREA AND GEOGRAPHICAL DESCRIPTION	63
II	JOINT OPERATING AGREEMENT	64-103
APPENDIX A	ACCOUNTING PROCEDURE	104-120
III	STANDARD FORM OF DEVELOPMENT AND PRODUCTION LEASE	121-122
IV	S.R.O. 678 (1) DATED 2004	123-128
V	LIST OF MACHINERY AND EQUIPMENT REQUIRED FOR JOINT OPERATIONS	129–131
VI	C.No.10(14)/93-ICM-CON. DATED 13 JUNE 1994	132-133
VII	LIST OF COMMISSARY STORES	134
VIII	BANK GUARANTEE	135-136
IX	PARENT COMPANY GUARANTEE GIVEN PURSUANT TO ARTICLE XXV OF THE PETROLEUM CONCESSION AGREEMENT	137
X	WORK UNITS	138-141
XI	WELL HEAD GAS PRICE ILLUSTRATION AS PER PRICING PROVISIONS OF POLICY 2009	141-142

MODEL PETROLEUM CONCESSION AGREEMENT

 

THIS AGREEMENT made and entered into between:

 

THE PRESIDENT OF THE ISLAMIC REPUBLIC OF PAKISTAN (which term shall include his successors and assigns) of the first part, hereinafter, referred to as “THE PRESIDENT”,

 

and

________existing under laws of _________having its principal office at_________ (which term shall include its successors and assigns) hereinafter referred to as “XYZ” of the second part.

 

And

 

(Local Company), a company existing under Laws of Pakistan having its registered office at ________, Pakistan (which term shall include its successors and assigns)  hereinafter referred to as “ABC” of the third part

 

and GOVERNMENT HOLDINGS (PRIVATE) LIMITED (if applicable) a company existing under Laws of Pakistan having its office at _____________ ________, Pakistan (which term shall include its successors and assigns) hereinafter referred to as “GHPL” of the fourth part.

 

                                                                  WITNESSETH

 

WHEREAS, THE PRESIDENT is desirous that exploration be undertaken for the discovery and production of Petroleum in Pakistan; and

 

WHEREAS, “XYZ” and “ABC” represents that they are financially sound and have adequate technical expertise and experience in exploring for, developing and producing Petroleum and recognizes the importance to Pakistan of the development of its Petroleum resources; and

 

WHEREAS, “XYZ” and “ABC” are desirous of undertaking Petroleum exploration, development and production operations; in Pakistan in conjunction with GHPL (if applicable) and

 

WHEREAS, THE PRESIDENT is willing in the lawful exercise of the authorities vested in him and in particular by virtue of his powers under the Regulation of Mines and Oilfield and Mineral Development (Government Control) Act, 1948 (XXIV of 1948) as amended and the Rules (as hereinafter defined), to grant to XYZ/”ABC” and GHPL (if applicable) the Concessions and rights hereinafter more particularly set forth;

 

NOW THEREFORE, THE PRESIDENT, XYZ, ABC and GHPL (if applicable) (hereinafter individually referred to as the “Party” and collectively as the “Parties”) agree as follows:

ARTICLE-1

DEFINITIONS

 

Whenever used in this Agreement, the following terms shall have the meanings set forth below:

 

1.1        “Accounting Procedure” means the procedure as outlined in Appendix A of Annex-    II.

1.2        “Affiliate” means a company or other entity directly or indirectly effectively controlling, or effectively controlled by, or under direct or indirect effective common control with, a specified entity.  For the purposes of this definition, “control”, when used with respect to any specified entity, means the power to direct, administer and dictate policies of such entity (it being understood and agreed that it is not necessary to own directly or indirectly fifty percent (50%) or more of such entity’s voting securities to have effective control over such entity, but ownership, direct or indirect, of fifty percent (50%) or more of such entity’s voting securities shall automatically indicate effective control), and the terms “controlling” and “controlled” have meanings corresponding to the foregoing.

 

1.3        “Agreement” means this Petroleum Concession Agreement and its annexes.

 

1.4        “Allowed Transportation Cost”  means the reasonable actual cost, as defined in the Rules.

 

1.5        “Appraisal” or “Appraisal Programme” means an activity or programme carried out to evaluate and appraise a Discovery in the Area pursuant to the Rules and this Agreement.

 

1.6        “Appraisal Well” means a well drilled pursuant to an approved Appraisal Programme.

 

1.7        “Arm’s Length Sales” means the sales as defined in the Rules.

 

1.8        “Area” means the entirety of the area or areas outlined and more particularly described in Annex-I, less any portion thereof which may be relinquished or surrendered under the terms of this Agreement.

 

1.9        “Barrel” or “BBL”   means a quantity equivalent in volume to forty-two (42) United States Gallons adjusted to sixty degrees Fahrenheit (60^oF) and pressure of 14.65 pounds per square inch (PSI) after correction for basic sediments and water (BS&W).

 

1.10    “Calendar Month” or “Month” means any of the twelve months of the Calendar Year.

 

1.11    “Calendar Year” means the period from January 1 to December 31, both inclusive, according to the Gregorian Calendar.

 

 

 

1.12    ““Coal Bed Methane or “CBM” as defined in the Rules.

 

1.13    “Commercial Discovery” means a commercial discovery of petroleum as defined in the Rules.

 

1.14    “Commercial Production” means commercial production of Petroleum as defined in the Rules.

 

1.15    “Condensate” means the liquid Petroleum excluding Crude Oil and LPG produced, at surface by processing or separation of Natural Gas from a Gaseous/Gas Condensate Reservoir.

 

1.16    “Crude Oil” means the liquid Petroleum, other than Condensate and LPG, produced by separation at the surface from a Liquid Reservoir in its natural state before the same has been refined but after extraction of water and foreign substances.

 

1.17    “Commencement of Commercial Production” means the first occurrence of Commercial Production in an Area.

 

1.18    “Contract Year” means a period of one Year from the Effective Date or any anniversary thereof

 

1.19    “Date of Commercial Discovery” means, the date when the Government approves a Commercial Discovery pursuant to Article 1.13.

1.20    “Date of Significant Gas Discovery” means the date when Contractor formally notifies the Director General, Petroleum Concessions in accordance with Article 6.4 hereof that a Significant Gas Discovery has been made.

1.21    “Day” means a continuous period of twenty-four (24) hours beginning at 8 A..M. Pakistan Standard Time or such other time as may be mutually agreed by the Parties.

1.22    ” Director General Petroleum Concessions (DGPC)” means any officer or authority appointed by the Government to exercise the powers and perform the functions of the Director General Petroleum Concessions under the Rules.

1.23    “Designated Area” means the area pertaining to a Discovery that does not merit Appraisal or is not a Commercial Discovery or a Significant Gas Discovery, as provided for in Article     6 .2.

 

1.24    “Development” or “Development Operations” means any activity carried out under an approved Development Plan,  in accordance with the Rules.

 

1.25    “Development Plan” means the plan submitted by the Operator for the development of a Commercial Discovery, which has been approved by the Government pursuant to the Rules.

 

1.26    “Development Well” means a well drilled in accordance with the approved Development Plan for the purpose of producing Petroleum.

 

1.27    “Discovery” means discovery of Petroleum as defined in the Rules.

 

1.28    “Discovery Area” means the area, as defined in the Rules.

 

 

1.29    “Dollar” or “$” means the lawful currency of the United States of America.

 

1.30    “Effective Date” means the later of the date on which the Licence has been granted or this Agreement has been executed.

 

1.31    “Expenditure” for purposes, other than assessment of Income Tax, means expenditure incurred in connection with or incidental to the conduct of Joint Operations whether chargeable to the capital or the revenue account, including operating costs, whether or not with respect to producing wells. Such expenditures are more particularly classified and identified and set forth in the Accounting Procedure.

 

1.32    “Exploration” or “Exploration Operations” means the search for Petroleum in the Area previously not known to have existed, using geological, geophysical and other methods and the drilling of Exploration Well(s) as more particularly defined in the Rules.

 

1.33    “Exploration Well” means an exploration well as defined in the Rules.

 

1.34     “Field Gate” means a point as defined in the Rules.

 

1.35    “Gaseous/Gas Condensate Reservoir” means a Petroleum reservoir, which under reservoir conditions of original temperature and pressure is predominantly in the gaseous phase.

 

1.36    “Government” means the Federal Government of the Islamic Republic of Pakistan.

 

1.37    “Good International Oilfield Practices” means as defined in the Rules.

 

1.38    “Joint Account” means the set of accounts maintained by the Operator in accordance with the Accounting Procedure and normal accounting practices, in which the Operator shall record all charges, Expenditures and credit made by it in carrying out the Joint Operations hereunder which are chargeable or creditable to the Working Interest Owners as provided herein.

 

1.39    “Joint Operations” means all marine and land activities, including but not limited to Petroleum exploration, prospection, development and production activities conducted by Working Interest Owners under and pursuant to the terms and provisions of this Agreement and the Joint Operating Agreement. It includes any platform, subsea facilities, gas-oil separation, pressure maintenance, pipeline and other transportation, storage or other ancillary activities necessary to facilitate the production, processing, storage, transportation and disposal of Petroleum.

 

1.40    “Joint Operating Agreement” (JOA) means the Joint Operating Agreement attached hereto as Annex-II.

 

1.41    “Lease” means any and all Petroleum Development and Production Leases which may be granted by the Government in accordance with the Rules.

 

 

1.42    “Licence” means a licence for Petroleum Exploration granted in accordance with the Rules.

 

1.43    “Liquid Reservoir” means a Petroleum reservoir which under reservoir conditions of original temperature and pressure contains hydrocarbons, predominantly in the liquid phase.

 

1.44    “Liquefied Petroleum Gas” or “LPG” means a mixture of Propane and Butane separated from Natural Gas by compression, extraction or other processes and marketed in conformity with the quality and specifications established by Pakistan Standard Specification No. 1705-1976 for Commercial Butane – Propane Mixture as amended from time to time.

 

 

1.45    “Minimum Expenditure” means the minimum Expenditure referred to in Article 3 in respect of the initial term of the Licence or any renewal thereof.

 

1.46    “Minimum Work” or “Minimum Work Programme” means the minimum work programme referred to in Article 3 in respect of the initial term of the Licence or any renewal thereof.

 

1.47    “Ministry” means the Ministry for the time being in charge of Petroleum affairs.

 

1.48    “Natural Gas” means all petroleum which at standard atmospheric conditions of pressure and temperature are in a gaseous phase including non-hydrocarbon gases which are in association with and produced together with such gaseous hydrocarbons.

 

1.49    “Operating Committee” means the Committee constituted pursuant to this Agreement and the Joint Operating Agreement.

 

1.50    “Operator” means the entity designated by the Working Interest Owners to carry out the Joint Operations pursuant to this Agreement and the Joint Operating Agreement and approved by the Government pursuant to the Rules.

 

1.51    “Pakistani Incorporated Petroleum Company” means a company incorporated for the purpose of petroleum exploration, development and production and existing under the laws of Pakistan.

 

1.52    “Petroleum” means all liquid and gaseous hydrocarbons as defined in the Rules.

1.53    . “Policy” means the Petroleum Exploration and Production Policy 2009

 

1.54    ‘Price Notification Period’ means six monthly period starting at eight (8) A.M. Pakistan Standard Time on 1^st January and 1^st July each year except that the first period may commence from the start of Commercial Production till 30^th June or 31^st December, as the case may be.

 

1.55    “Production” or “Production Operations” means activities, not being Development Operations, undertaken in order to extract, save, treat, measure, handle, store and transport Petroleum to storage or loading points or both and to carry out any type of primary and secondary operations, including recycling, recompression, maintenance of pressure and water flooding and all related activities such as planning and administrative work and shall also include maintenance, repair and replacement of facilities, and well workovers, conducted after the commencement of Commercial Production.

 

1.56    “Reference Crude” means the crude oil or a basket of crude oils imported into Pakistan during the first six months periods of the seventh months immediately preceding the relevant price Notification Period for the purpose of gas price calculation.

 

1.57    ‘Reference Crude Price’ or ‘RCP’ means the weighted average C&F price (FOB price plus freight on AFRA basis) of the Reference Crude.

 

 

1.58    “Rules” means the Pakistan Petroleum (Exploration and Production) Rules, 2009, including all Schedules. “Rule” means a rule contained within said Rules.

 

1.59    “Significant Gas Discovery” means a Discovery of Natural Gas from an Exploration Well in an Area as defined in the Rules.

 

1.60    “Significant Gas Discovery Area” means the portion of the Area defined by Working Interest Owners with the approval of the Government pursuant to Article 6.6 covering a Significant Gas Discovery

 

1.61    “Surrender” means the termination or expiry or surrender of rights with respect to the whole or any part of the Area including the expiration of rights according to the terms of the Licence, the Lease(s), this Agreement and the Rules.

 

1.62    “Surrendered Area” means whole or part of the Area with respect to which the rights of a party have terminated by Surrender or by assignment or by termination of the business pursuant to this Agreement.

 

1.63    “Well head Value or Value” means the value of the Petroleum as defined in the Rules.

 

1.64    “Work Unit” has the same meaning as specified in Annex X.

 

1.65    “Working Interest” means all or any undivided interest in the entirety of the Petroleum Concessions, rights and obligations and liabilities imposed by the Rules, this Agreement, the Licence and any Lease(s) granted pursuant to the Rules and this Agreement, including the enjoyment of the exclusive right to explore and prospect for, develop, produce, sell and otherwise dispose of Petroleum from the Area, proportionate to which all working interest owners are obligated to bear and pay its share of all costs and Expenditures (including royalties on production and rentals), in exploring and prospecting for, drilling, developing, producing, selling and otherwise disposing of Petroleum from the Area.

 

1.66    “Working Interest Owner” means an owner of a Working Interest.

 

1.67    “Year” means a period of twelve consecutive Months according to the Gregorian calendar.

ARTICLE-2

RIGHTS AND LIABILITIES

 

2.1      THE PRESIDENT hereby grants to XYZ, ABC and GHPL (if applicable) the Petroleum Concessions and other rights more particularly described in this Agreement, including but not limited to conducting or causing to be conducted Petroleum exploration, prospecting, development and Production Operations hereunder including the transportation (whether by pipeline or otherwise), storage, terminalling, export and sale of Petroleum, subject to the provisions of this Agreement.

 

2.2      In respect of Joint Operations conducted under the authority of this Agreement, the Licence or any Lease(s) granted over any part of the Area:

 

a)        XYZ/ ABC shall be the Operator, subject to the provisions of the Joint Operating Agreement and no change in operatorship will take place without the consent of the Government.

 

b)        The Joint Operations shall be conducted diligently, with due regard to Good International Oilfield Practices and in conformity with the requirements of the Rules and all applicable laws and regulations.

 

c)         Every important agreement and contract relating to Joint Operations shall be consistent with the provisions of this Agreement and the Rules.

 

2.3      This Agreement contemplates Joint Operations which may require the construction and operation of temporary or permanent exploration and production facilities (including pipelines) both within and outside the Area.  THE PRESIDENT, subject to relevant rules, laws and policies, agrees to assist the Working Interest Owners in the carrying out of all Joint Operations contemplated hereunder including the construction and operation of such facilities and in obtaining for the Operator and its contractors and subcontractors such communication permits (radio, telex, telefax, telephone, PABX, etc.) or other clearances, permits and authorizations as shall be necessary or convenient in this regard including the approval required for opening a branch office in Pakistan.

 

2.4      This Agreement does not create a partnership or any taxable entity but is solely a joint operating arrangement among the Parties.

                                                                    ARTICLE-3

                                             EXPLORATION WORK PROGRAMME

 

3.1      THE PRESIDENT has prior to or simultaneously herewith granted to XYZ, ABC and GHPL (if applicable) a Licence in accordance with the Rules.

 

3.2      a)        The Licence shall be for an initial term of five (5) years. divided into two phases (each referred to as a “Phase-I” and “Phase-II”), the first having a duration of three Contract Years and the second having a duration of two Contract Years. The Licence shall expire at the end of Phase I if the Licencee does not fulfil its Minimum Work Commitment of Phase I and it does not commit at least one firm exploration well for entering into Phase II. Subject to Working Interest Owners meeting the requirements relating to renewal set forth in the Rules, the Licence may be renewed for two (2) further renewal periods not exceeding two years each, if the Working Interest Owners request for such a renewal in writing to THE PRESIDENT, in accordance with the Rules. Subject to the Working Interest Owners’ meeting the requirements of the Rules, the Licence may be renewed for the purpose of Appraisal of a Discovery and shall be extended for drilling an Exploration Well in progress in accordance with the Rules. The Licence will also remain valid and automatically extended until a decision is made on a pending application for the grant of a Lease in accordance with the Rules.

 

b)        The Operator shall commence Joint Operations within ninety (90) Days after the Effective Date.

 

3.3      Subject to the provision of this Article 3, the Minimum Work Programme and Minimum Expenditure to discharge the obligations, during the initial term provided for in the Rules shall be as follows:

 

 

(a)     INITIAL TERM:

 

(i)             Phase One: Contract Years 1, 2 and 3 : 100 Work Units (or a bench mark as indicated by the Government at the time of Invitation to bid) plus *__ Work Units per Grid Area in the original Area, for each of Contract Years and

(* Work Unit offered as bid obligation at the time of bidding)

(ii)       Phase Two: Contract Year 4 and 5: At least one exploration well to be agreed by the Government before entering into Phase-II along with corresponding work units.

The above Work Units shall be accomplished at any time prior to the end of respective Phase of the Initial Term.

 

 

3.4      The Working Interest Owners hereby agree to pay to DGPC, as compensation for non-performance, an amount equal to the value of total unaccomplished Work Units (the value of 1 Work Unit shall be specified at the time of Invitation to Bid) during relevant Phase of the Initial Term or during the First Renewal or Second Renewal. In addition, if Working Interest Owner(s) do not carry out the Minimum Work during any Phase of the Initial Term or the First Renewal or Second Renewal, and do not pay the above  compensation as per  Rules, this Agreement shall automatically terminate upon the termination of the respective Phase or Renewal in which the Minimum Work was not carried out and Working Interest Owners shall not have any right to further extensions or Renewals provided however, this Agreement will continue to be valid for any Commercial Discovery(ies).

 

3.5      Working Interest Owners shall keep DGPC informed of the progress of each      well and shall:

(a)           promptly or forthwith inform DGPC of their proposals for testing;

(b)           test as per Good International Oilfield Practices, potentially productive horizons indicated by wireline recording or otherwise; and

(c)           promptly undertake the technical evaluation of the test results and of all other relevant subsurface data and submit the same to  DGPC as soon as possible.

3.6      Where the number of Work Units accomplished during any Period (a Period being any Phase of the Initial Term and/or any Renewal) exceeds the Minimum Work for that Period, the amount of such excess work shall be carried forward and credited against the Minimum Work obligation of the next succeeding Period.

 

3.7      Neither Appraisal Wells nor seismic surveys carried out, as part of an Appraisal Programme drawn up pursuant to Article 6 shall discharge the Minimum Work set out in Article 3.3.

 

3.8      a)    On the Effective Date and prior to the first Day of commencement of each Phase, and where this Agreement has been renewed pursuant to Article 3.2(a), prior to the first Day of commencement of each Renewal, each Working Interest Owner(s) shall provide an irrevocable and unconditional bank guarantee or a parent company guarantee, substantially in the form specified in Annex-VIII & IX hereto or any other guarantee as required and notified by the DGPC. If DGPC elects to require a bank guarantee, the aggregate amount of the unconditional bank guarantees shall be equal to twenty five percent (25%) of the product of value of one Work Unit as specified in Article 3.4 above and Total Work Units committed as under:

(i)      for the Phase I of the Initial Term, the total number of Work Units  as specified in Article 3.3(a)(i) and

(ii)     for the Phase II, First Renewal or Second Renewal, the total number of Work Units  as agreed with the Government before entering into the subsequent Phase or renewal.

 

b)     The amount of the bank guarantees submitted pursuant to Article 3.8(a) shall be reduced on prorata basis at the end of each Contract Year on the request of the Working Interest Owner(s) concerned, provided that the requirements set forth in Article 25.2 are fulfilled.

 

c)      As long as the Government holds a majority shareholding in any Working Interest Owner(s), such WIOs will not be required to provide a parent company or a bank guarantee.

 

3.9             If the Operating Committee is of the opinion that it is impossible to satisfactorily complete an Exploration Well to the objective depth or formation, the Working Interest Owners shall drill a substitute well within 6 months after the abandonment of the Exploration Well in order to discharge the Minimum Work obligation in respect of Phase I & II and subsequent Renewals as the case may be. The Phase II of Initial Term or the Renewal Period as the case may be, shall be extended in accordance with the Rules for a period of time equal in length to the time needed for drilling and testing the substitute well.  In the case of failure to drill the substitute well, the obligation to drill a particular well, shall be deemed to have been satisfied provided the Working Interest Owners Surrender the area covering such geological structure and pay THE PRESIDENT the amount corresponding to the un-discharged work units.

 

3.10    For the purpose of establishment of a Discovery Area, if there is difference of opinion between Working Interest Owners and THE PRESIDENT and the Parties are unable to reach a decision within thirty (30) Days, the  boundaries of such Discovery Area shall be determined by a recognized Petroleum consultant to be appointed by THE PRESIDENT in consultation with the Working Interest Owners within twenty (20) Days of the expiry of the aforesaid period to provide an independent opinion for the purpose whose opinion shall be binding on the Parties.  The cost of such a consultant will be charged to the Joint Account.

                                                                    ARTICLE-4

                                                             RELINQUISHMENT

4.1          On or before the end of Phase-I of the Licence the Working Interest Owners shall relinquish not less than 30% of the original Area.

4.2          The Working Interest Owners shall relinquish an additional area equal to 20% of the remaining Area, on or before the end of the Phase-II.

4.3          The Working Interest Owners shall relinquish an additional area equal to 10% of the remaining Area, on or before the end of the first renewal.

4.4          Except as otherwise provided herein or in the Rules, the Working Interest Owners shall relinquish the remainder of the original Area, at the expiration of the Licence, or final renewal thereof.

4.5          The shape of the Area to be relinquished shall be determined by the Working Interest Owners, provided, however, that (a) the Working Interest Owners shall inform the Government of the description and the portion or portions of the Area to be relinquished at least ninety (90) Days in advance of the date of relinquishment or such lesser period as DGPC may allow, (b) the Working Interest Owners shall consult with the Director General, Petroleum Concessions, regarding the shape and size of each individual portion of the Area being relinquished and (c) the area being relinquished shall be of sufficient size and convenient shape (conforming to the grid system in force) to enable Petroleum operations to be conducted thereon.

4.6          Working Interest Owners shall not be obligated to relinquish, pursuant to Articles 4.1, 4.2 and 4.3, any part of the Area which has been made subject to a Lease and for which an application for grant of a Lease has been submitted in accordance with the Rules.

4.7          Upon at least ninety (90) Days written notice to the Government, the Working Interest Owners shall have the right to relinquish any portion of the Area, subject to Article 4 and Article 7 and such portion can be credited against the mandatory relinquishments pursuant to Articles 4.1, 4.2 and 4.3.

4.8          Relinquishment made in accordance with this Article 4 shall not relieve the Working Interest Owners of:

(a)       the obligations to make payments to the Government under the Rules and this Agreement  prior to such relinquishment; and or

(b)       the Minimum Work and Minimum Expenditure obligations set out in Article 3.

ARTICLE-5

WORKING INTEREST OWNERSHIP

 

5.1          As of the Effective Date and during the validity of this Agreement, the Working Interests throughout the Area will be as under:

Local Company (ABC) and /or GHPL (if applicable):   15% (Zone-I)

:                       20% (Zone-II)

:                       25% (Zone-III)

XYZ                                                     :                       85% (Zone-I)

:                       80% (Zone-II)

:                       75% (Zone-III)

For the purpose of this Article 5, the Local Company means a company existing under the laws of Pakistan with more than 50% shares held by Pakistanis.

5.2          At all times ABC will maintain the Working Interest, which is specified in Article 5.1 (Required Minimum Local Working Interest), provided however, in the event any local E&P company, other than GHPL, subsequently intends to reduce its working interest in a joint venture whereby the collective working interest(s) of local E&P companies (including that of GHPL) becomes lower than the above threshold specified for required minimum local Working Interest, GHPL shall have the first right to make up the balance required minimum Pakistani working interest on point forward basis without reimbursement or payment of any past cost, GHPL will remain non-operator in such joint ventures.

5.3          Consortia of companies not meeting the minimum required local working interest can still be granted an exploration licence provided such companies advertise in the press within 15 days of the grant, inviting Pakistani incorporated companies and GHPL to participate in the joint venture on the full participation basis under standard Joint Operating Agreement. The Pakistani incorporated companies and GHPL shall have the option to participate in the joint venture within 30 days.

5.4          The foreign E&P companies shall be deemed to have fulfilled their obligation with respect to the minimum local participation if Pakistani incorporated companies and/or GHPL do not take any interest.

5.5          Notwithstanding anything contained herein the GHPL may elect to contribute its share of Expenditure out of funds allocated to it from IBRD Loan, or any other loan, in which event the Operator shall be required to adopt the procedures for procurement of goods and services of such loan funds in accordance with procurement procedures/guidelines laid down by loan giving agency provided such terms and conditions are in accordance with the prudent Good International Oilfield Practices and do not hinder or delay the Joint Operations hereunder.

5.6          The Working Interest Owners may produce Petroleum from the Area as test or early production as may be permitted by the Government pursuant to the Rules, prior to the grant of a Lease.

ARTICLE-6

DISCOVERY AND DEVELOPMENT

 

6.1          In the event of a Discovery of Petroleum in the Area, Operator shall promptly notify the DGPC in accordance with the Rules, and, by further notice in writing within three (3) Months from the date of termination of drilling and testing of the respective Exploration Well inform the DGPC whether or not the Discovery, in the opinion of Operator, merits Appraisal.

6.2          If Operator notifies the DGPC that the Discovery does not merit Appraisal,  DGPC shall have the option, on three (3) Months written notice, to require Operator to immediately relinquish the Designated Area unless the Operator has provided valid justification to retain the area covering the Discovery.  The Designated Area shall:

(a)            not comprise more than the vertical projection to the surface of the geological structure on which the Exploration Well resulting in the Discovery was drilled; and

(b)           be determined based on geophysical and other technical information obtained from the Discovery.

 

6.3          If Operator notifies DGPC that the Discovery merits Appraisal, Operator shall submit to the DGPC for approval within six (6) Months from the date of completion of the Exploration Well resulting in the Discovery, an Appraisal Programme which highlights the Appraisal area and provides for the Appraisal of the Discovery in the most efficient and timely manner.

6.4          Not later than three (3) Months from the date on which the Appraisal Programme has been completed, or within such further period as the DGPC may reasonably allow (taking into account the relevant technical and economic conditions), Operator shall by notice in writing inform the DGPC, whether or not, in the opinion of Operator, the Discovery is a Commercial Discovery or a Significant Gas Discovery.

6.5          Where Operator has not informed the DGPC that the Discovery is a Commercial Discovery or Significant Gas Discovery, the DGPC may, by notice in writing, require Operator to immediately relinquish the Designated Area unless the Operator has provided valid justification to retain the area covering the Discovery. The Designated Area shall be determined as specified in Article 6.2.

6.6          In the event the Operator considers that the Discovery is a Commercial Discovery or a Significant Gas Discovery, Operator will select the Discovery Area or Significant Gas Discovery Area, which should not exceed the geological entity covering the Commercial Discovery or a Significant Gas Discovery subject to the limitations of the Area. The Operator will request DGPC for retention of Significant Gas Discovery for period as allowed in accordance with the Rules together with the justification. If the Operator does not declare a Significant Gas Discovery as a Commercial Discovery during the allowed retention period, the Operator shall relinquish the Significant Gas Discovery Area and the Licence shall terminate automatically upon the termination of the allowed retention period. If Operator declares a Commercial Discovery during the allowed retention period, Operator will select the Discovery Area out of the Significant Gas Discovery Area, and the provisions of the Agreement and the Rules for grant of approval of Development Plan  and the grant of Lease shall apply mutatis mutandis.

6.7          Where the Operator has by written notice notified the DGPC that the Discovery is a Commercial Discovery such notice shall accompany, a detailed report on each Commercial Discovery as provided for in the Rules for approval by DGPC. Within a period not later than six (6) Months from the Date of Commercial Discovery or within such time period as may be allowed by DGPC, the Operator will submit an application for grant of Lease together with Development Plan for the each Commercial Discovery for approval by DGPC.

6.8          The report on each Commercial Discovery shall cover all the relevant factors as required under the Rules including, but not be limited to:

(a)            the chemical composition, physical properties and quality of Petroleum discovered;

(b)           the thickness and extent of the production strata;

(c)            petrophysical properties of the reservoirs;

(d)           the productivity indices for wells tested at various rates of flow;

(e)            permeability and porosity of the reservoirs;

(f)            the estimated Production capacity of the reservoirs; and

(g)            all relevant economic and commercial information which is necessary for the determination of a Discovery as a Commercial Discovery.                

6.9          Each Development Plan shall contain detailed proposals by Operator for the construction, and establishment of all facilities and services for and incidental to the recovery, storage and transportation of Petroleum from the Area, as required under the Rules including but not limited to:

(a)            description of the nature and characterization of reserves, data, statistics, interpretation and conclusion of all aspects of the geology, reservoir evaluation, Petroleum engineering factors, reservoir models, estimates of reserves in place, possible Production estimates, nature and ratio of Petroleum fluids and analysis of producible Petroleum;

(b)           proposals for the Development and Production of the Commercial Discovery including possible alternatives, work programmes and budgets and proposals relating to the disposition of Natural Gas. Operator should make specific recommendations as to the particular Development proposal that it would prefer. This should include information regarding projections of the economics and profitability of the Joint Operations related to such Development proposals.

(c)            proposals relating to the spacing, drilling and completion of wells, the Production and storage installations, and transport and delivery facilities required for the Production, storage and transport of Petroleum.  Such proposals will include, but not be limited to:

(i)             the estimated number, size and Production capacity of Production facilities/platforms, if any;

(ii)           estimated number of Production wells;

(iii)          particulars of Production equipment and storage facilities;

(iv)          particulars of feasible alternatives for the transportation of Petroleum including pipelines;

(v)            particulars of equipment required for the Joint Operations;

(d)           estimate of the rates of Production to be established and projection of the possible sustained rate of Production in accordance with Good International Oilfield Practices under proposed Development proposal and/or alternative Development proposals;

(e)            cost estimates under such Development proposal and alternative Development proposals, if any;

(f)            proposals related to the establishment of processing facilities (if any);

(g)            safety measures to be adopted in the course of the Joint Operations, including a contingency plan and measures to deal with emergencies;

(h)           anticipated adverse impact on environment and measures proposed to be taken for prevention thereof and for general protection of the environment;

(i)             a description of the organizational set up of Operator in Pakistan;

(j)             an estimate of the time required to complete each phase of the proposed Development;

(k)           a description of the measures to be taken regarding the employment and training of Pakistani personnel in accordance with the Rules;

(l)             a description of the abandonment plan, to be implemented whenever a piece of equipment or facility or installation needs to be abandoned prior to or on termination of this Agreement;

(m)          a map or maps of the outline of the discovered reservoir(s) together with technical or other back up justification; and

(n)           a plan for utilization of local goods and services.

6.10      When the Government has approved the Development Plan, in accordance with the Rules, it shall grant to the Working Interest Owners a Lease covering the Discovery Area in accordance with the Rules promptly provided the Working Interest Owners have furnished all requisite information to DGPC. The said Lease shall, on the basis of the available seismic and well data, comprise the Discovery Area to enable each Commercial Discovery to be developed and produced efficiently. The duration of the Lease shall not exceed the time limit as indicated in the Rules.

6.11      After approval of a Development Plan, Operator shall carry out the Joint Operations substantially in accordance with this plan, subject to such modifications, which may be necessary from time to time, which are approved by the DGPC in accordance with the Rules.

6.12      Not less than ninety (90) Days prior to the beginning of each Calendar Year following the commencement of regular shipments of Crude Oil, Condensate, LPG or Natural Gas, Operator shall prepare and furnish to DGPC a forecast statement, and the basis thereof, setting forth by quarters the total quantity of Crude Oil, Condensate, LPG and Natural Gas (by quality, grade and gravity) that Operator estimates can be produced, saved and transported hereunder during such Calendar Year.

6.13      Operator shall, with respect to each Lease:

(a)            annually update and submit to DGPC maps required under Article 6.10(m) on the basis of the then most recent well, geological, and geophysical information indicating on such maps which reservoirs are in Commercial Production including such parts of reservoirs which are required for water injection;

(b)           within ten (10) Years of the commencement of Commercial Production from each Commercial Discovery, relinquish such part of Development Area which does not cover wholly or partially the vertical projections to the surface of reservoirs from which Commercial Production is being obtained or which are not required for water injection as per approved Development Plan; and

(c)            provide DGPC with a map with description of the relinquished areas and map referred to in Article 6.13(a) and (b) upon such relinquishment.

6.14      DGPC shall, within ninety (90) Days of receipt of the maps specified in Article 6.13(c) inform Operator in writing of:

(a)           DGPC approval of the relinquished areas, or

(b)           the need for Operator to relinquish further areas which are not vertical projections to the surface of reservoirs from which Commercial Production is being obtained, or which are not required for water injection.

Operator shall, within sixty (60) Days of DGPC notification under Article 6.14(b) relinquish such area unless Operator disputes such notification in writing to DGPC in which case dispute resolution proceedings may be initiated by Operator through a sole expert unless mutually agreed otherwise, the cost of which will be charged to Joint Account.

6.15      The Operator shall have an organisation in Pakistan with sufficient competence and capacity to conduct the Joint Operations as required under the Rules.

6.16      If following the Discovery of Petroleum, a Working Interest Owner considers the Discovery to be a Commercial Discovery, it may give notice in writing to the other Working Interest Owners, stating in the said notice all the reasons for the evidence supporting its opinion and inviting the other Working Interest Owners to participate in the preparation of a Development Plan. If within ninety (90) Days of receipt of the notice, other Working Interest Owners inform the Operator, that they agree to participate in the Development of the Commercial Discovery, the Operating Committee shall define the Discovery Area and instruct the Operator to proceed with the preparation of the Development Plan.  If any Working Interest Owner elects not to join in the Development of the Commercial Discovery, it shall assign its Working Interest in the Commercial Discovery on a pro rata basis to the remaining Working Interest Owners as may be mutually agreed.  The remaining Working Interest Owners have the right to define the Discovery Area and develop the Commercial Discovery at their own cost and THE PRESIDENT shall in accordance with the Rules grant a Lease to the remaining Working Interest Owners.  If a Working Interest Owner proceeds to develop the Commercial Discovery at its own cost, it shall own all of the production from such discovery and shall bear all the cost of developing and operating such Commercial Discovery and the other Working Interest Owners shall assign to it all their rights, title, and interest in and to the Petroleum in the Discovery Area in accordance with the Rules, provided always that such assignment shall be and remain contingent upon the Working Interest Owners carrying out such development expeditiously.

ARTICLE-7

ASSIGNMENT, SURRENDER OF AREAS AND TERMINATION OF AGREEMENT

 

7.1      In accordance with the Rules  , neither XYZ, ABC nor GHPL (if applicable) shall sell, assign, transfer, convey or otherwise dispose of all or any part of its rights or Working Interest under this Agreement, the Licence and any Lease without the prior consent in writing of the Government.

 

7.2      a)        In the event XYZ or ABC or GHPL (if applicable) wishes to sell, transfer, convey or otherwise dispose of, or assign all or any part of its rights or Working Interest to a third party or an Affiliate, the request for  such assignment shall be processed in accordance with  the Rules provided however, the provisions of this Agreement regarding Required Minimum Local Working Interest will be fully observed before such application for assignment is made to the Government. The terms and conditions of any assignment shall be subject to the approval of the Government.

 

b)        The rights and privileges granted to and obligations assumed by the assignor under and pursuant to this Agreement, the Licence and any Lease, to the extent of such assignment, shall inure to the benefit of and be binding upon the assignee.

 

c)         As a condition to any assignment, the assigning Working Interest Owners shall provide to THE PRESIDENT an unconditional undertaking by the assignee to assume all obligations of this Agreement, the Licence and any Lease.  In the case of a partial assignment, notwithstanding such undertaking, the assigning Working Interest Owner remains jointly and severally liable with the assignee for performance of its obligations.

 

d)        Any assignment covering less than a five percent (5%) Working Interest shall not entitle an increase the number of representatives on the Operating Committee and assignor and assignee shall agree upon a single representative to represent their combined Working Interest.

 

7.3          If any Working Interest Owner deems it advisable to Surrender his rights in any Licence  such Working Interest Owner shall notify THE PRESIDENT and other Working Interest Owners in writing of the proposed Surrender provided that such Surrender shall not take place during the Phase I of the initial three years term of the Licence before due fulfilment of Minimum Work and other obligations.  If, within thirty (30) Days thereafter, the other Working Interest Owners, notify such surrendering Working Interest Owner in writing that they wish to retain their Working Interest with respect to such Licence , any such Working Interest Owner shall, to the extent that it legally may, assign all its rights and obligations therein  to the other Working Interest Owners pro-rata to their respective Working Interests or as they may agree otherwise.

 

7.4      If no Commercial Discovery is made within a period of five (5) years from the Effective Date, THE PRESIDENT shall have the right to terminate this Agreement provided Working Interest Owners have not applied for extension or renewal pursuant to the Rules.

 

7.5      If all Joint Operations are terminated, a Working Interest Owner, subject to the Rules, shall be entitled to its share of non committed remaining funds and other assets of the Joint Account.

 

7.6      If the circumstance or circumstances that result in termination under the Rules, are remedied by the Working Interest Owners within a period of sixty (60) Days following the notice of termination as aforesaid, or, where the breach is in-capable of remedy and the Working Interest Owners have offered a reasonable compensation in respect thereof, such termination shall not be effective.

 

7.7      Except as provided for in Article 27.3 if the circumstance or circumstances that would otherwise result in termination under the Rules are the result of Force Majeure, then termination shall not take place so long as such Force Majeure continues and for such period thereafter as THE PRESIDENT may determine to be reasonable.

 

7.8      The termination of this Agreement for whatever reason shall be without prejudice to the obligations incurred and not discharged by the Working Interest Owners prior to the date of termination.

 

7.9      In the event of termination pursuant to the Rules, THE PRESIDENT may require the Working Interest Owners for a period not exceeding one hundred eighty (180) Days, to continue Petroleum production activities at the cost of the Government until the right to continue such production has been transferred to another entity.

 

7.10    Within ninety (90) Days after the termination of this Agreement pursuant to Article 7.6, unless THE PRESIDENT has granted an extension of this period, the Working Interest Owner shall complete all reasonable and necessary action as directed by THE PRESIDENT to avoid environmental damage or hazard to human life or third party property.

ARTICLE-8

VALUE FOR ROYALTY PURPOSES

 

8.1      Value for all Petroleum produced and saved under a Licence or a Lease will be determined in accordance with the Rules.

8.2      To facilitate computations, the Value of Petroleum shall be determined at the end of each Month as the weighted average value of all such transactions that took place during the Month.

ARTICLE-9

ROYALTY

 

9.1      The Working Interest Owners shall pay to the Government a royalty equal to 12.5% of the Value of Petroleum produced and saved in accordance with the Rules.

ARTICLE-10

RIGHT OF ACQUISITION OF PETROLEUM

 

10.1    Should THE PRESIDENT require the Working Interest Owners to meet the internal requirements of Pakistan according to the Rules, the following shall apply:

 

i)          If in any year there is Projected Domestic Demand, as determined by an entity designated by the Government, in excess of production from indigenous source, THE PRESIDENT may require Working Interest Owners to sell Crude Oil in Pakistan on a pro-rata basis with other producers in Pakistan, according to the Crude Oil production of each producer in a year. The President shall give the Working Interest Owners at least three Months notice in advance of such requirements and term of the supply will be on an annual basis.

 

ii)         Whenever a Working Interest Owner is selling Crude Oil to THE PRESIDENT or his designee such Working Interest Owner shall be entitled to receive a price in US $ per barrel, for such Crude Oil delivered at its cost to the nearest operating refinery which shall be calculated as under:-

 

a)        1)        The arithmetic average of the FOB spot prices during the Month of delivery of a basket of Arabian/ Persian Gulf Crude Oils or a Crude Oil comparable in quality to Crude Oil produced under this Agreement as mutually agreed; or

 

2)             In the event no agreement is reached as to the basket or a comparable Crude Oil or on related matters then the basis shall be FOB market price of a Crude Oil as may be mutually agreed which can be demonstrated to be applicable to contracts negotiated with unrelated parties for Arm’s Length Sales under which the consideration is wholly cash, payable on normal commercial terms.

 

b)        Plus freight on Average Freight Rate Assessment  (AFRA) basis from Ras Tanura to Karachi as notified from time to time which is deemed chartered rate.

 

c)         Plus or minus a quality yield differential between Crude Oil produced under this Agreement and the Crude Oil referred to in Article 10.1 (ii) (a) above.  For this purpose the differential shall be determined on yield value based on refinery operating conditions where the Crude Oil will be processed and at mutually agreeable reference prices of Petroleum products prevailing in the Arabian/Persian Gulf and published in an internationally recognized publication acceptable to the Parties.

10.2    a)        Working Interest Owners will be allowed to contract with Natural Gas transmission and distribution companies and third parties, other than residential and commercial consumers, for the sale of their share of Natural Gas in Pakistan at negotiated prices in accordance with applicable laws, rules and regulations.

 

b)             Subject to the considerations of internal requirements and national emergencies, Working Interest Owners will be allowed to export their share of Crude oil and Condensate as well as their share of Natural Gas based on export licences to be granted by the concerned regulator. The Windfall levy shall be applicable on such export licences. For the purpose of the grant of such export licenses for Natural Gas, the export volumes will be determined in accordance with “L15” concept provided a fair market value for such gas is realized at the export point. Under the “L15” concept the Natural gas reserves that exceed the net proven Natural Gas reserves in Pakistan including the firm import commitments vis-à-vis Natural Gas Projected Domestic Demand, for next fifteen years can be considered for export. Once Natural Gas has been dedicated for exports, licenses for such export volumes shall not be subsequently revoked.

 

c)             If the foreign Working Interest Owners sell Natural Gas to third parties in Pakistan and want to remit sale proceeds in foreign currency abroad,  Government shall allow such Working Interest Owners to freely remit a “guaranteed percentage” of their sale proceeds. The “guaranteed percentage” shall be 75% of the total gross revenues from any Lease in Zone I, 70% in Zone II and 65% in Zone III. The remaining gross income in Rupees can be used to pay royalties, taxes and any other payments to the Government as well as to meet local currency expenditures.

 

d)             Subject to overall market demand, the Working Interest Owner may request and the Government will purchase their share of pipeline specification gas through a nominated buyer which is effectively controlled by it in acceptable daily, monthly and yearly volumes to meet the internal demand in an economical manner provided there are no infrastructure constraints. The delivery point shall be at the Field Gate. The Government/gas buyer nominated by GOP shall pay the price for gas at the Field Gate as set out hereof. In addition, the “guaranteed percentage” for foreign exchange remittance as contained in Article 10.2(c) above will apply to such sales.

 

e)    Where a Nominated Buyer agrees in principle to purchase Natural Gas pursuant to Article 10.2.(d) above,

 

(i).     The Working Interest Owners shall construct, operate and maintain the gas pipeline connecting the field to the Field Gate in accordance with the Policy, applicable law, Rules and regulations. All costs associated with such pipeline will be borne by the Working Interest Owners and no transportation tariff will be paid by the Government/ gas buyer nominated by the Government for this purpose.

(ii).     The gas producer can arrange for the construction and operation of the connecting gas pipeline outlined in (i) above, through an independent third party provided the title of such pipeline is transferable to the Government on expiry or early termination of relevant petroleum rights No tariff will be payable by the Government/ gas buyer nominated by the Government for this pipeline.

(iii).     At the request of the Working Interest Owners, the buyer nominated by the Government for purchase of the gas can consider the laying of a pipeline, if required, from the Field Gate to the nearest transmission system, at its own cost.

(iv).     If an inter-connecting pipeline is proposed to be constructed by a third party or the buyer, the producer will be required to confirm the requisite gas supply volumes, pressures, reserves and other technical parameters on standard supply term contract basis for a period to be agreed between the parties and its tariff, to be paid by the buyer, shall be determined and notified by the regulator in accordance with the Policy.

f)    Whenever a Working Interest Owner(s) is selling pipeline quality Natural Gas of acceptable specification to the Government nominated buyers, it shall receive a price per Million British Thermal Unit (MMBTU).  The price to be paid to a Working Interest Owner(s) shall be determined for a six (6) Monthly period (hereinafter referred to as “the Price Notification Period”) starting at eight (8) a.m. P.S.T. on 1st January and 1st July each year except the first period which may commence from the start of Commercial Production till 30th of June or 31st of December as the case may be.

 

(a) The price of acceptable pipeline quality Natural Gas shall be computed and notified in United States Dollars per MMBTU according to the following formula:

 

Pg = Pm * Dz / Cf

 

Where            Pg is the Gas Price in USD per MMBTU

 

Pm is the Applicable Marker Price in USD per barrel determined as follows:

When RCP is upto USD 20/barrel, Pm equals RCP;

When RCP is higher than USD 20/barrel and not over USD 30/barrel, Pm equals 20 plus 50% of the incremental RCP above USD 20/barrel;

 

When RCP is higher than USD30/barrel and not over USD 40/barrel, Pm equals 25 plus 30% of the incremental RCP above USD 30/barrel;

 

When RCP is higher than USD 40/barrel and not over USD 70/barrel, Pm equals 28 plus 20% of the incremental RCP above USD 40/barrel;

When RCP is higher than USD 70/barrel and not over USD 100/barrel, Pm equals 34 plus 10% of the incremental RCP above USD 70/barrel

 

The RCP ceiling of USD 100/barrel would be reviewed after every five years or as and when the pricing dynamics significantly change in the international market.

 

Dz is the zonal index which shall have the value of 67.5% for Zone III; 72.5% for Zone II, 77.5% for Zone I Cf is the Applicable Conversion Factor, the weighted average of the heating values expressed in MMBTU per barrel for the basket of Arabian/Persian Gulf Crude Oils imported in Pakistan

Illustration of the gas price working under 2009 Policy at C&F price of US$ 35/barrel & US$ 140/barrel is attached as Annexure XI & XII.

b.         Not later than twenty (20) Days prior to the commencement of the Price Notification Period during which the Operator expects first Natural gas production to commence, the Operator shall submit to the Authority concerned a calculation of the Reference Crude Price in US Dollars and the Corresponding natural gas price to be fixed on the first Day of such Notification Period.

1. Thereafter, Operator shall submit to the Authority concerned the relevant Reference Crude Price and the corresponding natural gas price calculation in US Dollars (applicable to each six (6) Month Price Notification Period prior to each preceding 10th December and 10th June respectively.

 

d.         The prices so notified would be after rounding the quotient to four (4) decimal places.

 

e.         THE PRESIDENT shall ensure that details of the quantities and C&F prices of the Crude Oils imported into Pakistan as referred to in Article 10.2(g) hereof, are supplied to Operator not later than twenty five (25) Days prior to the commencement of the relevant Price Notification Period for the purpose of calculations to be made pursuant to Article 10.2(g).

 

f.          Operator shall submit to the Authority concerned a draft pricing notification setting out the US Dollar prices resulting from Article 10.2 (f)(a) above for the relevant Price Notification Period at the same time as submitting the calculation pursuant to Article 10.2(g) above (as the case may be)

 

g.         Such pricing notification shall be published in US Dollars in the official Gazette for the purposes of the Gas Sales Agreement within forty five (45) Days of the date of receipt of the aforesaid draft pricing notification.

 

Price of Natural Gas for Consumers will be adjusted biannually to synchronize with the changes in the producer prices.

 

Where the specification and quality of the gas from an approved EWT is acceptable to the buyer, the gas price shall entail a 10% discount from the applicable gas price for that Zone.

 

 

10.3    For purchases of Condensate and LPG to meet internal requirements of Pakistan, the price payable to Working Interest Owners, subject to Article 10.4, shall be calculated as under:-

 

a)        The price in U.S. $ per Barrel allowed for Condensate, shall be  equal to the FOB price of internationally quoted comparable condensate delivered at the nearest refinery gate plus or minus a quality yield differential, based on the value in the Arabian Gulf spot products market of the crude oil/condensate. No other adjustment or discount will apply, other than windfall.

 

b)        The price allowed for Liquefied Petroleum Gas produced from new projects will be determined by the regulator as per Government Policy in vogue.

 

10.4    A windfall levy on Crude Oil/Condensate will be as follows.

Windfall Levy (WLO) on crude oil and condensate, using the following formula:

 

WLO = 0.5 x (M-R) x (P-B)

 

Where

WLO – Windfall Levy on crude oil and condensate;

M – Net production (produced and saved);

R – Royalty;

P – Market Price of crude oil and condensateas stated in Article 10.1 (ii) & 10.3 respectively above;

B – Base Price of crude oil and condensate.

 

The base price for crude oil, and condensate will be USD 30 per bbl. This base price will escalate each calendar year by USD 0.25 per barrel, starting from the date of first commercial production in the Area.

 

Notwithstanding above, in the event Market Price of Crude Oil/Condensate exceeds US$ 100/barrel,  the 100% benefit of Windfall Levy will pass on to the Government. The ceiling would be reviewed as and when pricing dynamics significantly change in the international market.

 

For sale of natural gas to parties other than Government, a Windfall Levy (WLG) will be applicable on the difference between the applicable Zone price as outlined        in Article 10.1 above and the 3^rd party sale price using the following formula:

 

WLG = 0.5 x (PG-BR) x V

 

Where

 

WLG – Windfall Levy on share of natural gas;

PG – Third Party Sale Price of natural gas;

BR – Base Price;

V – Volume of gas sold to third party excluding Royalty.

 

The base price will be the applicable Zone price, as outlined in Article 10.2 above. Where the Third Party Sale Price of gas is less or equal to the base price, the windfall price share shall be zero. The windfall price shall not apply on sales of Natural Gas made to the Government.

 

Windfall levy shall be allowable as a tax deductible expense.

 

 

10.5    THE PRESIDENT or his designee shall purchase Crude Oil, Condensate,  and Natural Gas at the Field Gate.  Title to and risk of loss of the Petroleum purchased by THE PRESIDENT or his designee shall pass at the Field Gate.

 

10.6    THE PRESIDENT or his designee shall pay to a Pakistani Working Interest Owner up to 30% of their sale proceeds in foreign exchange for all Petroleum purchases  in accordance with the provisions of this Article-10, to meet their Day to Day operational requirements. For project financing after Commercial Discovery, Pakistani Working Interest Owners will be required to make their own foreign exchange arrangements. The rate of exchange prevailing on the date of transaction except as specifically provided herein will apply.  Payments for any Petroleum purchased from the foreign Working Interest Owners by THE PRESIDENT or his designee shall be by remittance in United States Dollars to a bank designated by the foreign Working Interest Owners of an equivalent amount to within 30 Days of receipt of invoice subject to the condition that in the case of sale of Natural Gas such guaranteed percentage as referred to in Article 10.2 (c) will be applicable. If not so paid, the unpaid balance shall bear interest after the due date at the rate of 1.5 percent per annum above LIBOR for one Month deposits of US Dollars as reported in an agreed publication.

 

10.7    In the event that THE  PRESIDENT or his designee is unwilling to purchase all or a portion of any Working Interest Owner’s share of Petroleum, such Working Interest Owner shall have the right to export or otherwise dispose of such Petroleum at competitive prices.

 

10.8    THE PRESIDENT shall have the right to purchase all or a portion of any Working Interest Owners’ share of Petroleum in case of a national emergency or war.

                                                                   ARTICLE-11

                                                     DISPOSAL OF PETROLEUM

 

11.1    The Working Interest Owners shall, subject to Article 10 and the Rules, be permitted to export their share of Petroleum or to dispose it of otherwise at any time or from time to time, the foreign Working Interest Owners shall use their good offices, to assist GHPL in disposing of its share of Petroleum produced hereunder at the best available prices; provided that in no event shall foreign Working Interest Owners be required to purchase or otherwise provide a market for the GHPL share of Petroleum produced hereunder. GHPL shall reimburse the foreign Working Interest Owners for all expenses incurred in rendering to GHPL any such assistance on a no-profit no-loss basis.

 

11.2    The Working Interest Owners shall refrain from exporting Petroleum from Pakistan to countries prohibited by the Pakistani laws, regulations and administrative requirements.

 

11.3    Subject to the Rules, the Natural Gas which is not used in Joint Operations, and the processing and utilization of which, in the opinion of the Working Interest Owners, is not economical, shall be returned to the subsurface structure, or may be flared with the approval of THE PRESIDENT in accordance with the Rules.  In the event the Working Interest Owners choose not to process and sell Natural Gas, THE PRESIDENT may elect to off-take such Natural Gas at the outlet flange of the gas-oil separator and use either itself or through its designee such Natural Gas if it is not required for Joint Operations.  There shall be no charge to THE PRESIDENT or his designee for such Natural Gas.

       
                                                                   ARTICLE-12

                                                           FOREIGN EXCHANGE

 

12.1    The Working Interest Owners shall contribute their share of all Expenditure of exploring , developing and producing Petroleum in foreign exchange and in Rupees as required giving due consideration to currency aspect of Expenditure, in proportion to their respective Working Interests provided however that local Working Interest Owners shall pay their share of Expenditure in Pak Rupees if their Working Interest is less than 15% in Zone-I, 20% in Zone-II and 25% in Zone-III.  However, to the extent a foreign Working Interest Owner does not have available sufficient amount in Pakistani Rupees to meet its share of Rupee requirements, the Pakistani Working Interest Owners shall pay such amount in Rupees and the foreign Working Interest Owner shall make payments to the same extent in foreign exchange to the Pakistani Working Interest Owners.

 

12.2    If a Working Interest Owner assigns its Working Interest to a foreign entity with the consent of THE PRESIDENT under Article 7, such Working Interest Owner shall be allowed to retain abroad all proceeds resulting from such assignment.

 

12.3    The Operator shall keep the foreign exchange contributions of the Working Interest Owners in a foreign currency bank account in a scheduled bank in Pakistan and shall be free to utilize the amount thereof for incurring foreign exchange Expenditures in accordance with the relevant foreign exchange rules and Joint Operating Agreement subject to subsequent documentation of the amounts utilized.

 

12.4    Subject to the domestic supply obligations and export duties, each foreign Working Interest Owner shall be entitled to export the Petroleum acquired by them under this Agreement, in accordance with the relevant foreign exchange rules and as provided for herein.

 

12.5    Each foreign Operator ( and its registered branch in Pakistan)  shall have the right to retain abroad and to freely make use of sales proceeds from the export of their share of Petroleum produced from any Licence or Lease granted under this Agreement provided the total amount retained abroad and repatriated from Pakistan will not exceed:

 

a)        net profits as per its profit and loss account for that Year, as subsequently audited by a firm of Chartered Accountants in Pakistan, after providing for any and all of its operating expenses for that Year including the sum of payments and taxes on income under this Agreement and the depreciation of its depreciable assets, plus

 

b)        the funds representing such depreciation, depletion and amortization as charged to its profit and loss account for that Year.

 

c)             all other expenses incurred abroad by the Working Interest Owners, in connection with the Joint Operations under the Agreement and charged to its profit and loss and capital account for the Calendar Year.

 

 

12.6    The Operator and the other foreign Working Interest Owners shall remit funds to Pakistan through normal banking channels sufficient to meet all Pakistani Rupee obligations under the Agreement to the extent Pakistani Rupees are not available to them in Pakistan.

 

12.7    The  foreign Working Interest Owners shall not avail of any Rupee borrowing facilities.

 

12.8    The rate of exchange to be applied to all currency conversion transactions and calculations under this Agreement shall be the official rate of exchange, as established by of the State Bank of Pakistan (SBP) prevailing on the date of the transaction. In case SBP ceases to publish this rate, the arithmetic average of the average inter-bank selling rate quoted by the Royal Bank of Scotia, National Bank of Pakistan, Bank Alfalah, Standard Chartered Bank and United Bank Limited may be used.

 

12.9    All remittances of funds under this Article shall be permitted by the State Bank       of Pakistan to be made without any delay or additional cost to the Operator or the Working Interest Owners.

 

12.10   Local E&P companies will, on a case to case basis, be entitled during the exploration phase to receive foreign exchange against payment in Pakistani currency to meet their day to day obligations under this agreement. After commercial discovery, local E&P companies would be paid up to 30% of their sale proceeds in foreign currency to meet their day to day operational requirements. For project financing after commercial discovery, local E&P companies will be required to make their own foreign exchange arrangements except for companies in which GOP holds majority shareholding.

 

12.11  The Government will allow foreign Working Interest Owners to remit a “guaranteed percentage” of their share of sale proceeds provided such guaranteed percentage shall be 75% of the total gross revenues from any Lease Area in Zone-I, 70% in Zone-II and 65% in Zone-III. The remaining gross income in Rupees can be used by foreign Working Interest Owners to pay royalties, taxes and any other payment to the Government as well as to meet other local currency Expenditures.

 

12.12  E&P company shall have full right of control over movement of funds out of bank accounts established for the purpose of Joint Operations but may be required to provide the SBP or any Government designated office, bank statements with an explanation of each deposit, or payment from such account, and shall supply on quarterly basis, in a form acceptable to the SBP, or such designated office full particulars of foreign exchange transactions related to an agreement.

ARTICLE – 13

IMPORTS AND EXPORTS

 

13.1    (a)    The Operator (Petroleum Exploration & Production Company), its contractors and subcontractors engaged in Joint Operations under this Agreement shall be permitted to import, export, transfer and dispose the machinery, equipment, materials, specialized vehicles, accessories, spares, chemicals and consumables etc. in accordance with SRO 678 (I)/2004 dated 7^th August 2004 (Annex-IV), along with applicable CGOs and the provisions of this Agreement. No licence or import-cum-.export authorization fee shall be levied on such imports /exports in accordance with Import Policy Order 2004.

 

(b)     The initial list of machinery, equipment, materials, specialized vehicles, accessories, spares, chemicals and consumables etc. required for Joint Operations approved by the relevant Regulatory Authority under Article 13.1 (a) above is attached as Annex-V hereto. The Operator shall, however, as provided in the Rules, give preference to goods which are produced or are available in Pakistan and services which are rendered by Pakistani nationals and companies provided such goods and services are offered on competitive terms. National firms which appear capable of supplying goods and services of the type demanded shall always be included in invitations to bid. For classification of items imported by the Operator, its contractors or subcontractors, the harmonized system of classification will be followed.

 

(c)     Foreign employees and consultants of the Operator and its contractors and subcontractors will be entitled to import/export used and bonafide personal and household effects, excluding passenger vehicles, in accordance with instructions contained in Central Board of Revenue’s (Now Federal Board of Revenue’s) letter C. No. 10 (14) /93-ICM&CON dated 13^th June, 1994 (Annex-VI).

 

13.2      The Operator, its contractors or their subcontractors shall be entitled to export such of their items as have been imported into Pakistan and are not required for the Joint Operations without restriction and without the payment of any fee, tax or export duty. Drawbacks if admissible will be available as per relevant rules. The Operator shall ensure that equipments/material imported by it, its contractors or subcontractors under this Article against its import-cum-export authorization are exported if all the Joint Operations under this Agreement are terminated unless otherwise permitted in accordance with this Agreement.

 

13.3    The permission required under this Article 13.3(a) shall not be necessary with respect to the transfer of title to any property made pursuant to or incidental to any assignment by the Working Interest Owners of all or any part of its Working Interest under the provision of Article 7 of this Agreement.

 

(a)       The Operator, and its contractors and their subcontractors shall maintain proper accounts, statements and records of all consumable stores received and expended and send copies thereof (in duplicate) to the customs authorities concerned by the 15th of January each year and finally within fifteen (15) Days of the closing of operations in Pakistan.

 

(b)       (i)        Commissary stores can be imported after the first arrival of an expatriate employee of the Operator, its contractors and their subcontractors in accordance with instructions contained in the Central Board of Revenue’s (Now FBR) letter C.No. 10(14)/93-ICM&CON dated 13th June, 1994 (Annex-VI). Such imports shall be confined to the items shown in Annex-IX excepting such items as are locally available of proper standard. Such items shall be specified annually by the Ministry of Commerce.

 

(ii)       As soon as an expatriate employee arrives in Pakistan, an application will be made for grant of authorization for the commissary stores required for him indicating the duration of his proposed stay in Pakistan.

 

(iii)      Account for the sale of tobacco and liquor (if imported) and medicines will be maintained for each individual while those of the other items will be maintained on an over-all basis.

 

(iv)       Items of food and other commissary goods will be stamped clearly to avoid resale in the Pakistani market.

 

(v)        FBR booklets will be maintained by individuals.

 

(c)  Import of any other items such as arms, ammunition etc., and pets will not be permitted unless the conditions for their import such as arms licences from district authorities, quarantine requirements etc., are complied with.

 

13.4    Subject to the rights granted under the provisions of this Agreement and particularly those granted under this Article 13, any items which are banned for import into Pakistan under the Import/ Trade Policy in force from time to time shall not be permitted without specific permission to be obtained before shipment of goods from abroad.

 

13.5    The Operator and its contractors and subcontractors shall not be liable to pay any tax, assessment, levy, octroi or charge imposed or levied on the transportation or movement of the scheduled machinery and equipment to and  from the Area or on any item imported under this Article 13.

 

13.6    Imports/Exports except as provided in this Article 13 shall be affected in accordance with the Import/Export Trade Policy in force on the Effective Date.

 

13.7    Contracts for at least ten percent (10%) of the computer software requested shall be awarded by the Operator to Local Companies to use the local software capabilities, subject to such software capabilities being available at competitive prices.

                                                                   ARTICLE-14

                                                                    TAXATION

 

14.1    Income tax on profits or gains derived from the Joint Operations hereunder, shall be at the rate of 40% of profit and gains as determined and assessed in accordance with the provisions of the Income-Tax Ordinance, 2001 (No. XLIX of 2001) hereinafter referred to as the “Ordinance” and the rules contained in Part I of the Fifth Schedule to the Ordinance, (hereinafter referred to as the “Fifth Schedule”) as in force on the Effective Date.

 

14.2    Where any Expenditure allocable to a Surrendered Area or to the drilling of a dry hole is deemed to be lost under rule 2(2) of the Fifth Schedule, such Expenditure shall be allowable as provided in rule 2(3) of the Fifth Schedule in relation to the Expenditure in question and in accordance with the respective Working Interest at the time such Expenditure was incurred in the Area in the relevant operation; provided, that, in accordance with clause (3) of Schedule to the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 (hereinafter referred to as the (“Schedule to Regulations”), all Expenditures deemed to have been lost in terms of rule 2(2) of the said Schedule to Regulations shall be allowed to be set off against all the other income of the Working Interest Owners (other than dividend income) accruing or arising from or under any separate business or undertaking or this Agreement or from any other past, present or future agreement of the Working Interest Owners with THE PRESIDENT for Petroleum exploration and production or from any other activity, on a fully consolidated basis in accordance with rule 2(3) (  ) of the Fifth Schedule.

 

14.3      Depreciation shall be allowed to the Working Interest Owners in accordance with the provisions of the Ordinance and in particular, the Third Schedule thereof.

 

14.4    In case of any disagreement in respect of taxation matters arising from any of the provisions of this Agreement including its Annexes, and the provisions now in effect of the Ordinance, and the Fifth Schedule thereof, read in conjunction with the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 as amended that are in force on the Effective Date, then the provisions of the Ordinance, the Fifth Schedule thereof, and the said Regulations in force on the Effective Date shall prevail.

ARTICLE-15

MANAGEMENT AND OPERATIONS

 

15.1    The Operator shall prepare an annual work programme and budget for each Calendar Year during the term of this Agreement.  Each such work programme and budget shall set out in reasonable details, the work to be carried out, facilities to be purchased or created, training and employment programme, establishment, salaries and wages, social welfare schemes to be undertaken, and an estimate of the Expenditure to be incurred. The Operator shall present such work programme and budget to the Government and the Working Interest Owners before the start of each Calendar Year and thereafter provide a quarterly update on the implementation of such work programme and budget.

 

15.2    The first work programme and budget shall cover one complete Calendar Year as well as the remaining part of the Calendar Year from the Effective Date.  Thereafter, such annual work programmes and budgets shall be prepared and submitted to the Government and the Working Interest Owners at least ninety (90) Days prior to the first Day of each Calendar Year.

 

15.3    All important matters concerning Joint Operations hereunder shall be submitted for the approval to the Operating Committee composed of at least one representative of each Working Interest Owner and the Chairman nominated by the Operator.  The representative of each Working Interest Owner shall have a vote equal to the percentage Working Interest owned by each Working Interest Owner.  All decisions of the Operating Committee shall require a combined voting interest of more than seventy percent (76, 81, 86% for Zone III, II & I) for all operations except as stipulated in this Agreement.

 

15.4    The Operator shall conduct all Joint Operations in accordance with the Rules. In case the Rules do not provide for a specific operation, the normal Good International Oilfield Practices shall be followed. The Operator shall set up an organization in Pakistan with sufficient competence and capacity to conduct and perform the Joint Operations in accordance with the provisions of the Rules and this Agreement.

 

15.5      All pipelines constructed by for the Working Interest Owners shall be operated under open access regime and to the extent that the throughput capacity of any pipeline that may be constructed for the purposes of Joint Operations, is not required to be utilized by the Working Interest Owners for the transportation of Petroleum produced for their account, such pipeline capacity may be used by the Government for any Petroleum purchased by the Government hereunder from the Working Interest Owners and by any other Petroleum company in Pakistan,  in accordance with applicable regulations notified from time to time and each of them shall pay the Working Interest Owners for such use a tariffs as approved by the concerned regulator. Income so derived by a Working Interest Owner shall be assessed for income tax purposes on the same basis as its income from Petroleum produced for its account.

 

 

 

 

                                                                   ARTICLE-16

                                                   REPORTS AND INFORMATION

 

16.1    THE PRESIDENT shall allow the Operator access, at all reasonable times, to all geological, geophysical, well and other technical data which is in public domain on the Effective Date pertaining to the Area and any free adjoining areas. If and when requested by the Operator, THE PRESIDENT shall provide or supply to the Operator copies of such data on payment of actual reproduction and other costs of the data and on such terms and conditions as it may determine. Such data shall not be disclosed to any third party except to Operator’s employees and consultants including banks and financial institutions for the purpose of financing who shall be similarly bound to treat it as strictly confidential.

 

16.2    The Operator shall furnish to the Director General, Petroleum Concessions all data, information & record and reports as required in accordance with the Rules.

16.3    Unless otherwise agreed to by THE PRESIDENT in the case of export of any rock or Petroleum samples from Pakistan for the purpose of testing and analysis, samples equivalent in size and quantity shall, before such exportation, be delivered to THE PRESIDENT.

 

16.4    Originals of records and other data can be exported only with the permission of THE PRESIDENT provided, however, that magnetic tapes and any other data which must be processed or analyzed outside Pakistan may be exported with the prior approval of the DGPC if a comparable record is maintained in Pakistan and provided that such exported records and data shall be repatriated to Pakistan.

 

16.5    Any person or persons authorized by the Director General, Petroleum Concessions shall subject to reasonable notice be entitled to be present, at the cost of the Working Interest Owners during any or all of the Joint Operations provided that such persons abide by the applicable safety rules.

 

16.6    The Operator shall, as far as reasonably practicable, correctly label and preserve for a period of twelve (12) Months or such longer period as required by DGPC for reference, characteristic samples of strata or water encountered in any bore-hole or well and samples of any Petroleum discovered in the Area.  The characteristic samples of said strata shall include, but not be limited to, cuts of all cores, and cuts of all ditch samples.  All characteristic samples including ditch and core samples, shall be supplied by the Operator to THE PRESIDENT.

 

                                                                   ARTICLE-17

                                                   TRAINING AND EMPLOYMENT

 

17.1    The Operator agrees to employ qualified nationals of Pakistan in its Joint Operations and, to undertake their schooling and training for staff positions, including administrative and executive management positions.  Preference will be given to employment of nationals and unskilled workers from the Area. The operator including its contractor(s)shall ensure the employment of unskilled workers of the area, at local/district level, to the extent of at-least 50%. The Operator undertakes to gradually replace its expatriate staff with qualified nationals as they become available.  An annual programme for employment and training of nationals of Pakistan shall be established by the Operator and submitted for approval to the Director General, Petroleum Concessions at least (90) Days in advance.  Such programme shall be included in the annual work programme and budget of the companies.  Within thirty (30) Days of the end of each Calendar Year, the Operator shall submit a written report to DGPC describing the number of personnel employed, their nationality and positions and the status of training programme for nationals of Pakistan.

 

17.2    The Operator shall also be required to establish a programme, satisfactory to THE PRESIDENT to train personnel of the Directorate General of Petroleum Concessions and the Government locally and abroad to develop the capability of such personnel to effectively perform their duties related to the supervision of the Petroleum industry.  Such training programme shall cover both technical and management disciplines (e.g., geology, geophysics, engineering, project management, accounting, legal) and shall include on-the-job training and participation in in-house seminars. The scope of training will cover internship/scholarships and training of the local inhabitants in different institutions.

 

17.3    From the Effective Date and up to the date of Commercial Discovery the Working Interest Owners, other than GHPL shall subject to the guidelines issued by the Government from time to time, spend a minimum of twenty five thousand United States Dollars (U.S. $25,000) per year during exploration phase and during development and production phase  a minimum of fifty thousand United States Dollars (US$ 50,000) per year on training.  This Expenditure will be subject to upward review from time to time.  The unspent training amount during a year, unless agreed otherwise, shall be deposited into a special account maintained for the purpose by the Directorate General of Petroleum Concessions.  All such expenditure shall be treated for Pakistani income tax purposes as wholly and exclusively incurred for the purpose of the income under rule 2(3), 2(4) or 2(5) of the Fifth Schedule as may be appropriate.

 

                                                                   ARTICLE-18

                                         CONTRIBUTION TO JOINT OPERATIONS

 

18.1    Except as otherwise provided for in this Agreement, all Expenditures on Joint Operations shall be shared and borne by the Working Interest Owners in proportion to their Working Interests provided however that the local Working Interest Owners shall pay their share of Expenditure in Pak Rupee if their Working Interest is less than or equal to15% in Zone-I, 20% in Zone-II and 25% in Zone-III.

 

18.2    At least thirty (30) Days prior to the first Day of each calendar quarter, the Operator shall submit an itemized estimate of such Expenditures for each Month of the quarter and each Working Interest Owner shall pay to the Operator its proportionate share of such estimated Expenditures in Monthly instalments.  Each Monthly installment shall be paid as provided for in the Joint Operating Agreement.

                                                                   ARTICLE-19

                                                     DEVELOPMENT FINANCING

 

19.1    Any of the Working Interest Owners shall have the right to obtain project financing for the development of a Commercial Discovery.  THE PRESIDENT may, where possible, upon request of a Working Interest Owner, use his good offices to assist in all things necessary to facilitate project financing by a consortium of banks for any portion of the development Expenditure.

 

19.2    Any Working Interest Owner may, upon informing the other Working Interest Owners and with the prior approval of THE PRESIDENT create an equitable charge on its Working Interest to any reputable financial institution acceptable to THE PRESIDENT on any or all of its rights hereunder, to secure the prompt payment of sums of money, principal and interest, so borrowed and the full faithful discharge of any and all obligations which it may undertake to obtain financing from such financial institution for the purpose of this Agreement.

                                                                   ARTICLE-20

                         REFINERY, LPG AND NATURAL GAS PROCESSING PLANTS

 

20.1    The Working Interest Owners can setup a refinery in accordance with the relevant Rules and the policy in force.

 

20.2    The Working Interest Owners renounce any claim to participate, on grounds of production of Crude Oil in Pakistan, in a refinery which may be set up by THE PRESIDENT.

 

20.3    The Working Interest Owners shall have the sole and exclusive right to establish, install and operate LPG or Natural Gas processing plants in the Area, provided that if they fail to commence the installation of an LPG or Natural Gas processing plant in the Area within four (4) Years of the grant of the Lease unless otherwise agreed between THE PRESIDENT and the Working Interest Owners, their exclusive right to establish such plant(s) within the Area will cease.  Thereafter, THE PRESIDENT or his designee will have the option to establish, install and operate LPG and Natural Gas processing plant(s) in the Area, provided that the Working Interest Owners are given an opportunity to participate in such plant(s).  The public sector companies would however be governed under relevant Policy in vogue.

 

                                                                   ARTICLE-21

                                                             OTHER MINERALS

 

21.1    When any mineral (other than Petroleum and minerals necessary for the generation of nuclear energy) is discovered by Operator and THE PRESIDENT does not have a pre-existing policy for development and exploitation of such mineral by a non-Pakistani company, the Operator can elect within six (6) Months after the date on which Operator notifies the Director General Petroleum Concessions of such discovery, to develop and exploit such mineral subject to reaching an accord with the appropriate licensing authority as to the terms and conditions of an agreement governing the development and exploitation of such mineral.

 

21.2    Discovery of all minerals necessary for the generation of nuclear energy, including inter alia Uranium, Thorium, Zirconium, Niobium, Hafnium, Lithium and Vanadium shall be reported by Operator to the Pakistan Atomic Energy Commission and the Director General, Petroleum Concessions.  The Working Interest Owners shall have no right to develop and exploit such nuclear minerals unless specific approval/ concurrence is given by the Pakistan Atomic Energy Commission for the development and exploitation of these nuclear minerals.

 

21.3    Minerals, other than those necessary for the generation of nuclear energy, produced in suspension or combination with Petroleum, shall belong to the Working Interest Owners, subject to payment of royalty if marketed.  Royalty shall be at the rate specified by the appropriate authority.

 

21.4    The income derived from the minerals, produced in suspension or combination with Petroleum, shall be governed by Part II of the Fifth Schedule of the Income Tax Ordinance 2001  (No. XLIX of 2001) as amended from time to time.

 

21.5    The rights granted to the holder of a Petroleum right shall not in any way prejudice or affect any of the powers of THE PRESIDENT as provided for in the Rules.

                                                                   ARTICLE-22

                                                                        AUDIT

 

22.1    The Operator shall maintain correct and accurate records and accounts of all Expenditures made for Joint Operations, of all production obtained from the Area and of all property acquired for the Joint Account or disposed of in accordance with normal industry practices and the Accounting Procedure.  The accounts shall be audited for the period from the Effective Date to the end of the Calendar Year, and thereafter annually by an independent firm of chartered accountants selected by the Operator and approved by the Operating Committee.  Copies of the audit reports shall be delivered to THE PRESIDENT and to each of the Working Interest Owners within six Months of the end of each Calendar year.  If neither THE PRESIDENT nor the Working Interest Owners or any of them shall take exception to any such audited accounts within six Months after their receipt of copies of the report relating thereto, the same shall be final and binding on the Working Interest Owners and THE PRESIDENT; provided however, that the accounts and support vouchers and documents, together with such reasonable facilities as may be required for the audit of the Joint Operations, shall be made available to auditor nominated by THE PRESIDENT who may take such action as he deems fit within two years from the date of receipt of the said report by THE PRESIDENT and (notwithstanding the above provision regarding finality after six Months) THE PRESIDENT and the Working Interest Owners shall, where necessary, take appropriate action with regard to any matter arising out of the auditor  report.

 

22.2      THE PRESIDENT and/or a non-Operator Working Interest Owner(s) shall have the right, at its sole expense, to audit the Joint Account and related records for any Calendar Year or portion thereof at any time provided thirty (30) Days advance notice is given to the Operator.

 

22.3    The Operator shall retain the records and accounts with this Article for a period as may be provided for in the Rules or for such longer work as may be appropriate under the relevant laws.

                                                                   ARTICLE-23

                                                        PRODUCTION BONUSES

 

23.1    The Working  Interest Owners, other than the GHPL/ (if applicable), shall pay THE PRESIDENT on an Area basis, the following production bonuses:

 

CUMULATIVE PRODUCTION  (MMBOE)	AMOUNT (US$)
At the start of Commercial Production	600,000
30	1,200,000
60	2,000,000
80	5,000,000
100	7,000,000

 

For avoidance of doubt, the production obtained during EWT period will be treated as a part of cumulative production for the purpose of determining production bonuses as stipulated in the rules.

23.2    Pakistani Working Interest Owners other than GHPL (if applicable) will pay their share of Production Bonuses in Rupees equivalent of United States Dollar converted at the prevailing exchange rate on the day of transaction. GHPL will not pay the production bonuses as long as GOP is the majority shareholder of this company.

23.3    Payments due under this Article shall be made within thirty (30) Days from the date on which the respective production bonus becomes payable. Production bonuses will be expensed on social welfare development projects in and around the Area, as per Guidelines, issued by the Government from time to time.

 

23.4    Payments made under this Article are not to be amortized, expensed, or credited for Pakistani Income Tax purposes.

 

23.5    In the event a Working Interest Owner elects not to join in the development of a Commercial Discovery, such a Working Interest Owner shall have no obligation to pay the bonuses provided for in this Article 23.  In that case the total amount of production bonus shall be paid by the remaining Working Interest Owners pro-rata to their Working Interest.

                                                                   ARTICLE-24

                                              INSURANCE AND INDEMNIFICATION

 

24.1    The Operator shall comply with all applicable workmen’s compensation and employers’ liability laws and insurance laws of Pakistan.

 

24.2    To ensure that the Working Interest Owners meet their obligations to third  parties, and or to Government agencies, that might arise in the event of damage, and injury (including environmental damage or injury, removal of wrecks and cleaning up as a result of accidents) caused by Joint Operations, notwithstanding that the damage is accidental, the Working Interest Owners, through the Operator, shall maintain in force a third party liability insurance policy covering their activities and those of their contractors and sub-contractors and the employees of all such parties.  Such insurance policy shall include THE PRESIDENT as an additional insured, shall waive subrogation against THE PRESIDENT and shall provide that it may not be canceled except upon thirty (30) Days prior written notice to THE PRESIDENT. A certificate evidencing such insurance policy shall be furnished to THE PRESIDENT within ninety (90) Days of the Effective Date.  The limits, coverage, deductible and other terms thereof shall be furnished to THE PRESIDENT.  To the extent that such third party liability insurance is not available or is not obtained, or does not cover part or all of any claims or damage caused by or resulting from Joint Operations, the Working Interest Owners shall remain fully responsible and shall defend, indemnify and hold THE PRESIDENT harmless against all such claims, losses and damages of any nature whatsoever.

 

24.3    The Working Interest Owners shall, under the Rules, take out and maintain such insurance through the Operator as THE PRESIDENT may approve against any liability which the Working Interest Owner(s) may incur.

 

24.4    The Working Interest Owners, shall in accordance with the Rules, effectively indemnify, defend and hold harmless THE PRESIDENT, at all times against all proceedings, costs, charges, claims, losses, damages and demands whatsoever, including, without limitation, claims for loss or damage to property or injury or death to persons, caused by or resulting from any Joint Operations conducted by or on behalf of the Working Interest Owners, by any third party, or any thing done or purporting to be done in pursuance thereof provided that the Working Interest Owners shall not be held responsible to THE PRESIDENT under this Article 24 for any loss, claim, damage or injury caused by or resulting from any negligent action of any concerned personnel of THE PRESIDENT.

 

ARTICLE-25

                                          PARENT COMPANY/BANK GUARANTEE

 

25.1      Subject to Article 3.8(a), each Working Interest Owner, excluding the GHPL/ if applicable, shall procure and deliver to the Government on or prior to the Effective Date of this Agreement and hereafter before the first day of any subsequent Phase or Renewal:

(a)       either an irrevocable, unconditional bank guarantee from a reputable bank of good standing in Pakistan acceptable to the Government for such Working Interest Owner’s share of non-performance compensation as specified in Article 3.4, in a form and substance (acceptable to the Government) as set out in Annex-VIII ; or

a guarantee in favour of the Government, from its Parent Guarantor, acceptable to the Government, in form and substance set out in Annex-IX as required and notified by Government; or.

the President may also consider accepting a proposal of a local Working Interest Owners as to the provision of guarantee as is allowed under the applicable policy which may be in the form of first & preferred lien on Petroleum Production and or assets etc. in Pakistan;

the President may also consider accepting a proposal of opening “joint escrow account” against minimum financial obligation of minimum work programme.

(b)       a legal opinion from  its legal advisor(s) , in a form satisfactory to the Government, to the effect that the Parent Company Guarantee has been duly signed and delivered on behalf of the guarantors with due authority and are legally valid and enforceable and binding upon them.

(c)       an undertaking on judicial paper shall be provided as per Annex-IX-A regarding fulfilment of its obligation/liabilities under the Rules, Licence and the Agreement.

25.2      All bank guarantees shall provide:

(a)       that the amount referred to in Article 25.1(a) shall be reduced on pro-rata basis at the end of each Contract Year in an amount equal to 25% of the share of Work Units completed in the Area upon presentation to the bank of a certificate signed by DGPC on behalf of the Government that the said guarantee may be reduced in accordance with its terms; and

(b)       that, at the end of the each Phase, the guarantee will be released in favour of Working Interest Owner on presentation to the bank a certificate from the Government that the Minimum Work obligation of Working Interest Owner for that Phase has been fulfilled and the guarantee may be released.

25.3      If Working Interest Owner elects to proceed to the next Phase or to the Renewal(s) of the Exploration Period outlined in Article 3.2 hereof, a bank guarantee for the succeeding Phase or Renewal as the case may be, shall be delivered to the Government prior to entering into subsequent phase or renewal as per Article 3.8 (a) and 25.1 with the notice of such election.

25.4      If the documents referred to in Article 25.1 are not delivered within the period specified, this Agreement, may be terminated by the Government in accordance with the Rules.

..

                                                                   ARTICLE-26

                                                EFFECTIVENESS AND DURATION

 

26.1    This Agreement shall, unless mutually agreed otherwise, be and remain in full force, application and effect from the Effective Date and so long thereafter as the Working Interest Owner(s) continue to own interest in the Licence or any Lease(s) or till a final settlement has been made after the expiration, Surrender, or termination of Petroleum rights under the Rules.

 

26.2    Any termination or expiration of this Agreement shall be without prejudice to any accrued liabilities, obligations and rights of the Parties and the provisions of this Agreement with respect to confidentiality, indemnification, arbitration and applicable law shall continue to have effect notwithstanding such termination or expiration.

                                                                   ARTICLE-27

                                                              FORCE MAJEURE

 

27.1    Failure of any Party to this Agreement to fulfil any of the terms and conditions of this Agreement or of a Licence or Lease shall not be deemed as a breach or default insofar as such failure arises from Force Majeure, provided that the affected Party has taken all appropriate precautions and reasonable measures to the satisfaction of the Government to fulfil its obligations.

 

27.2    In this Article the expression “Force Majeure” includes an act of God, war, insurrection, riot, civil commotion, flood, lightening, explosion, fire, earthquake and any other happening which the affected party could not reasonably prevent or control.

 

27.3    If the ability to fulfil its obligations is affected by Force Majeure, the affected Party shall, without delay, give notice to the other Parties in writing, supported by necessary justification and documentary evidence stating the cause of such inability and its efforts to remove such cause and remedy its consequences.

 

27.4    The term of this Agreement and the Licence or Lease, as the case may be, shall be extended for the duration of the Force Majeure situation and such further period as determined by the Government to resume operations.

 

27.5    In the event Force Majeure exceeds a period of three (3) years continuously during the initial term or any renewal thereof, any of the Parties to the Agreement may terminate this Agreement on three (3) Months notice without any further obligation, provided the Force Majeure is declared in good faith and acceptable to DGPC.

      
                                                                   ARTICLE-28

                                                                 ARBITRATION

 

28.1    Any question or dispute arising out of or in connection with the terms of this Agreement or the Licence or any Lease (regardless of the nature of the question or dispute) shall, as far as possible, be settled amicably.  Failing an amicable settlement within a reasonable period, such dispute shall be submitted to the International Centre for Settlement of Investment Disputes (ICSID) established by the “Convention on the Settlement of Investment Disputes Between States and Nationals of Other States ” of 1965 and THE PRESIDENT and the Working Interest Owners, to the extent required by said Convention, hereby consent to arbitration thereunder.

 

The venue of the arbitration shall be in Pakistan or elsewhere as mutually agreed between THE PRESIDENT and the Foreign Working Interest Owners.  If such mutual agreement cannot be reached, the venue shall be decided by the ICSID. The award rendered shall be final and conclusive.  The judgment on the award rendered may be entered in court having jurisdiction or application may be made in such court for a judicial acceptance of the award and an order of enforcement as the case may be.  The official language of arbitration will be English.

 

28.2    If, for any reason, the request for arbitration proceedings is not registered by ICSID, or if the ICSID fails or refuses to take jurisdiction over such dispute, such difference or dispute shall be finally settled by arbitrators under the Rules of Arbitration of the International Chamber of Commerce (the “Chamber Rules”) and by three (3) arbitrators appointed in accordance with the Chamber Rules.  The arbitrators shall not be nationals of Pakistan or of the country of the other party to the dispute nor shall any of such arbitrators be employees or agents or former employees or agents of any of the parties to the proceedings.

 

28.3    This Article is only applicable in case of a dispute between foreign Working Interest Owners inter se, or between foreign Working Interest Owners and THE PRESIDENT, provided that in the event of a dispute between the Pakistani Working Interest Owner(s) inter se,  or between the Pakistani Working Interest Owners and THE PRESIDENT, the arbitration shall be conducted in accordance with the Arbitration Act, 1940.

 

ARTICLE-29

PROTECTION OF THE ENVIRONMENT

 

 

29.1      The Parties recognise that Petroleum Operations will cause some impact on the environment in the Area. Accordingly, in performance of this Agreement, Working Interest Owners shall conduct Petroleum Operations with due regard to concerns with respect to protection of the environment and conservation of natural resources. Towards this end, and in furtherance of any laws promulgated or as the Government may require from time to time, Working Interest Owners shall:

(a).employ advanced techniques, practices and methods of operation for the prevention of environmental damage in conducting Petroleum Operations; and

(b).take necessary and adequate steps to prevent environmental damage and, where some adverse impact on the environment is unavoidable, to minimize such damage and the consequential effects thereof to persons, property or otherwise.

29.2      If the Working Interest Owners fails to comply with the provisions of Article 29.1(b) or contravenes the provisions of the relevant laws, and such failure or contravention results in any environmental damage, the Working Interest Owners shall forthwith take all necessary and reasonable measures to remedy the failure and the effects thereof.

29.3      If the Government has, on reasonable grounds, good reason to believe that any works or installations erected by the Working Interest Owners or any Petroleum Operations conducted by the Working Interest Owners are endangering or may endanger persons or the property of any person, or are causing or may cause pollution, or are harming or may harm wildlife or the environment to a degree which the Government deems unacceptable, the Government may require the Working Interest Owners to take remedial measures within such reasonable period as may be determined by the Government and to rectify any damage to the environment.  If the Government deems it necessary, it may also require the Working Interest Owners to discontinue Petroleum Operations in whole or in part until the Working Interest Owners has taken such remedial measures or has repaired any damage caused.

29.4      The measures and methods to be used by the Working Interest Owners for the purpose of compliance with the terms of Article 29.1(b) shall be determined in consultation with the Government upon the commencement of Petroleum Operations and whenever there is a significant change in the scope or method of conducting Petroleum Operations and shall take into account the good international Petroleum industry practices as applicable in similar circumstances and the relevant environmental impact study carried out in accordance with the relevant laws as provided for in Article 29.5 below.  The Working Interest Owners shall notify the Government, in writing, of the measures and methods finally determined by the Working Interest Owners and shall cause such measures and methods to be reviewed from time to time in the light of prevailing circumstances.

29.5      In addition to any requirements under the laws of Pakistan, the Working Interest Owners shall cause a person or persons with special expertise and knowledge on environmental matters, approved by the Government, to carry out two environmental impact studies in order:

(a).to determine at the time of the studies the prevailing situation relating to the environment, human beings and local communities, the wildlife and marine life in the Area and in the adjoining or neighbouring areas; and

(b).to establish the likely effect on the environment, human beings and local communities, the wildlife and marine life in the Area and in adjoining or neighbouring areas in consequence of the relevant Petroleum Operations to be conducted under this Agreement, and to submit, for consideration of the Parties, methods and measures contemplated in Article 29.4 for minimising environmental damage and carrying out site restoration activities.

The first of the aforementioned studies shall be carried out in two parts, namely, a preliminary part which must be concluded before commencement of any drilling in the Exploration Period.  The part of the study relating to drilling operations in the Exploration Period shall be approved by the Government before the commencement of such drilling operations.  The second of the aforesaid studies shall be completed before commencement of Petroleum Operations under an approved Development Plan and shall be submitted by the Working Interest Owners as part of the Development Plan, with specific approval of Government being obtained before commencement of Petroleum Operations under the Development Plan.

The studies mentioned in this Article 29.5 shall contain the details of the measures which are required to be taken in order to minimise environmental damage and shall include, but not be limited to, the following, to the extent appropriate to the respective study:

(a).proposed access cutting;

(b).clearing and timber salvage;

(c). wildlife and habitat protection;

(d).fuel storage and handling;

(e).use of explosives;

(f).  camps and staging;

(g).liquid and solid waste disposal;

(h).cultural and archaeological sites;

(i).  selection of drilling sites;

(j).  terrain stabilization;

(k). protection of freshwater horizons;

(l).  blow-out prevention plan;

(m).       flaring during completion and testing of wells;

(n).abandonment of wells;

(o).rig dismantling and site completion;

(p).reclamation for abandonment;

(q).noise control; and

(r).  mud and debris disposal.

 

29.6      The Working Interest Owners shall ensure that:

(a).Petroleum Operations are conducted in an environmentally acceptable and safe manner consistent with good international Petroleum industry practices and are properly monitored;

(b).the pertinent completed environmental impact studies are made available to its employees and to its Subcontractors to develop adequate and proper awareness of the measures and methods of environmental protection to be used in carrying out the Petroleum Operations; and

(c). the contracts entered into between the Working Interest Owners and Subcontractors relating to its Petroleum Operations shall include the provisions stipulated herein and any established measures and methods for the implementation of the Working Interest Owners’ obligations in relation to the environment under this Agreement.

29.7      The Working Interest Owners shall:

(a).Prior to conducting any drilling activities, prepare and submit contingency plans for dealing with oil spills, fires, accidents and emergencies, designed to achieve rapid and effective emergency response for review by the Government.  The plans referred to above shall be discussed with the Government and concerns expressed shall be taken into account.

(b).In the event of an emergency, accident, oil spill or fire arising from Petroleum Operations affecting the environment, the Working Interest Owners shall forthwith notify the Government and shall promptly implement the relevant contingency plan and perform such site restoration and damage control activities as may be necessary in accordance with good international Petroleum industry practices.

(c). In the event of any other emergency or accident arising from the Petroleum Operations affecting the environment, the Working Interest Owners shall take such action as may be prudent and necessary in accordance with good international Petroleum industry practices in such circumstances.

 

29.8      In the event that the Working Interest Owners fails to comply with any of the terms contained in Article 29.7 within a period specified by the Government, the Government, after giving the Working Interest Owners reasonable notice in the circumstances, may take any action which may be necessary to ensure compliance with such terms to recover from the Working Interest Owners, immediately after having taken such action, all costs and Expenditure incurred in connection with such action together with such interest as may be determined in accordance with this Agreement.

                                                                   ARTICLE-30

                                        MISCELLANEOUS AND APPLICABLE LAW

 

30.1      The Operator shall conduct all exploration, exploitation, drilling, development, and production operations in accordance with Good International Oilfield Practices and the principles and standards as laid down in the Rules.  Consistent with this requirement, the Operator shall endeavour to minimize exploration, development, production and operation costs and maximize the ultimate economic recovery of Petroleum.

30.2      The Operator shall not start production from any well prior to testing and making sure to the satisfaction of THE PRESIDENT’s representative that the well has been properly completed.

30.3    The Operator shall not flare Natural Gas but shall use it commercially or for recycling.  If Natural Gas is not so used or not planned to be so used, the Working Interest Owners shall negotiate an arrangement making it available to THE PRESIDENT or its designee free of cost at the down stream flange of the gas/oil separation facilities in accordance with Article 11.3. If THE PRESIDENT for whatever reason is unable or unwilling to take delivery of the Natural Gas that would otherwise be flared as provided for above, the Operator will be allowed to flare such gas in accordance with the Rules/Policy without any royalty or excise duty liability until such time as THE PRESIDENT or his designee can take delivery.        This Agreement shall be governed by and given effect in accordance with the laws of Pakistan.

30.4    All the rules, laws, regulations in effect on the Effective Date, including the Workers’ Welfare Fund Ordinance, 1971 and the Companies Profits (Workers’ participation) Act, 1968 shall apply to this Agreement, throughout its term, whether or not subsequently amended or revised.

30.5    This Agreement sets forth the entire agreement reached between the Working Interest Owners and THE PRESIDENT and it shall remain and continue in force and shall be binding upon each of them throughout its duration without any amendment, revision or alteration thereto except as may hereafter be mutually agreed by the Working Interest Owners with the approval of THE PRESIDENT.  The Rules, Income Tax Ordinance 2001, Regulations of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 and other laws that are in force on the Effective Date shall remain applicable for purposes hereof, whether or not the same are subsequently amended or revised; provided that where any matter is not specifically dealt with in this Agreement or where there is any conflict between the provisions of this Agreement and the laws, such matter shall be governed in accordance with the applicable provision of the Rules, Income Tax Ordinance 2001, Regulations of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 and other laws as are in force on the Effective Date of this Agreement.

30.6    This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Working Interest Owners.

30.7    All headings used herein are for the purpose of reference only and shall not be             construed as in any way defining or limiting the meaning of any provision.

30.8    The Operator shall observe all, laws, rules and regulations issued by the Government in respect of protection of the environment and safety of operations, including the Oil and Gas (Safety in drilling and Production) Regulations, 1974, the Pakistan Environmental Protection Act, 1997 and the Mines Act, 1923 as amended from time to time.

30.9    The Working Interest Owners, other than GHPL, shall be required, in consultation with local civil administration/Provincial Governments, to undertake social welfare programmes  such as fight against narcotics, promotion of sports, rehabilitation of the mentally retarded and handicapped children, improvement of educational facilities, drinking water, health, roads, and grant of scholarships for local students and shall spend during the exploration phase till the commencement of Commercial Production not less than  thirty  thousand Dollars  (US$ 30,000) per annum. The Government will issue necessary guidelines for social welfare programs as deemed appropriate from time to time. After the commencement of Commercial Production in the Area, the following minimum amounts will be spent during each year:

Production Rate (BOE/Day)	Amount/Year (US Dollars)
	Zone I	Zone II & III
Less than 2000 2000   – 5000 5000   – 10,000 10,000 – 50,000 More than 50,000	50,000 100,000 200,000 400,000 700,000	37,500 75,000 150,000 300,000 525,000

 

These amounts will be increased from time to time by mutual agreement of the Working Interest Owners mentioned above and THE PRESIDENT. The Pakistani Working Interest Owners will incur these expenditures in Pak Rupees . Any amounts so spent shall be treated for Pakistani Income Tax purposes as wholly and exclusively incurred for the purpose of the business of the Working Interest Owners and shall be allowed against income under rule 2(5) of the Fifth Schedule.

ARTICLE-31

NOTICES

 

31.1    Any notice or advice required or convenient to be given to or by THE PRESIDENT or any Working Interest Owners shall be given in writing in the English language and delivered by hand or by telex confirmed by the correct answer-back of the addressee at the foot of such telex.  Any such notices or communications shall be effective at midnight of the Day during which such notice or communication is received.  Any Working Interest Owner shall have the right to change its address by giving the other Working Interest Owners and THE PRESIDENT a written notice thereof.

 

31.2    Such notices or other communications shall be deemed to be effectively given or made:

 

a)        On receipt by the addressee if delivered personally to its last notified address with signed receipt obtained acknowledging delivery; or

 

b)        on transmission to the addressee if transmitted by telex (with the correct answer-back confirmation) during normal business hours at the place of receipt of the address or, if so transmitted outside such hours, on opening of business on the next business Day at such place provided a hard copy of the same will also be sent to the addressee through registered mail or hand delivery which if not received within next 24 hours, will make the notice communication effective from date of receipt.

 

31.3    The addressees for such communication are as follows:

 

a)                    In the case of The PRESIDENT to:

 

The Secretary Ministry of Petroleum and Natural Resources,

3rd Floor, Secretariat Block `A’ Islamabad.

 

Telephone    :           92-51-9211220

Telex              :           5862 PETNR PK

Fax                  :           9201770

 

b)                    In the case of GOVERNMENT HOLDINGS (PRIVATE) LIMITED (if applicable) to:

 

Chief Executive Officer/Chairman,

House No. 9, Street No. 29, F-10/1,

Islamabad (Pakistan).

Attention        :           Chief Executive Officer/Chairman,

Telephone    :           92-51-9266746, 9266747

Telex              :

Fax #              :           92-51-9266766

 

 

c)                     In the case of XYZ to:

  ________________

_________________          

                                      

Attention        :

Telephone    :

Telex              :

 

d)                    In the case of ABC to          :

  ________________

_________________          

                                      

Attention        :

Telephone    :

Telex              :

 

 

IN WITNESS WHEREOF this Agreement has been duly signed by the respective parties hereto as of the ___________Day of ____________ 200___.

 

WITNESSES:                        For and on behalf of

THE PRESIDENT OF THE ISLAMIC

1.                                 REPUBLIC OF PAKISTAN

 

2.                                                             

WITNESSES:                        For and on behalf of

GOVERNMENT HOLDINGS (PRIVATE) LIMITED

(if applicable)

1.                  

2.                                                             

WITNESSES:                        For and on behalf of XYZ

 

1.                  

 

2.                                                             

                                                                                                                                                           

WITNESSES:                        For and on behalf of ABC

 

1.                  

 

2.                                                             

 

ANNEX  I – MAP OF THE AREA AND GEOGRAPHICAL DESCRIPTION

 

 

                                                                                                                                           ANNEX  II

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ANNEX  II – JOINT OPERATING AGREEMENT

(Annexed to and made a part of the Petroleum Concession Agreement)

 

                                                          TABLE OF CONTENTS

 

                                                                                                                                                  Page

 

ARTICLE-1

DEFINITIONS…………………………………………………………………………………………………. 63

 

ARTICLE-2

EFFECTIVENESS OF JOINT OPERATING AGREEMENT………………………………. 64

 

ARTICLE-3

WORKING INTERESTS AND VOTING RIGHTS……………………………………………… 65

 

ARTICLE-4

MANAGEMENT AND OPERATIONS……………………………………………………………….. 66

 

ARTICLE-5

RIGHTS, POWERS AND DUTIES OF THE OPERATOR………………………………… 70

 

ARTICLE-6

WORK PROGRAMME AND BUDGET…………………………………………………………….. 75

 

ARTICLE-7

COSTS AND EXPENSES……………………………………………………………………………….. 79

 

ARTICLE-8

DISPOSAL OF PETROLEUM………………………………………………………………………….. 80

 

ARTICLE-9

SOLE RISK…………………………………………………………………………………………………….. 81

 

ARTICLE-10

INSURANCE…………………………………………………………………………………………………… 86

 

ARTICLE-11

CONFIDENTIAL INFORMATION…………………………………………………………………….. 87

 

ARTICLE-12

TRANSFER OF INTEREST…………………………………………………………………………….. 89

 

ARTICLE-13

SURRENDER………………………………………………………………………………………………… 90

 

 

 

                                                                                                                                                  Page

 

 

ARTICLE-14

RELATIONSHIP OF THE WORKING INTEREST OWNERS…………………………… 91

 

ARTICLE-15

TAXES…………………………………………………………………………………………………………….. 92

 

ARTICLE-16

FORCE MAJEURE………………………………………………………………………………………….. 93

 

ARTICLE-17

ARBITRATION………………………………………………………………………………………………… 94

 

ARTICLE-18

LAWS, RULES AND REGULATIONS……………………………………………………………… 95

 

ARTICLE-19

TERM……………………………………………………………………………………………………………… 96

 

ARTICLE-20

NOTICES………………………………………………………………………………………………………… 97

 

ARTICLE-21

MISCELLANEOUS………………………………………………………………………………………….. 98

           (Annexed to and made a part of the Petroleum Concession Agreement)

 

                                                     Joint Operating Agreement

 

Between

 

XYZ

 

and

 

GHPL

(if applicable)

 

 

THIS JOINT OPERATING AGREEMENT is made on the ______ Day of __________, 200__.

 

BETWEEN:

 

1. XYZ
2. ABC

 

 

3.         The Government Holdings (Private) Limited (if applicable) herein-after referred to as the “GHPL” (which term shall include its successors and assignees) of the second part.

 

WHEREAS THE PRESIDENT of the Islamic Republic of Pakistan (“THE PRESIDENT”) and the Parties hereto have entered into a Petroleum Concession Agreement for Block ________, (hereinafter referred to as the “Concession Agreement”) dated the Effective Date, for the exploration, development and production of Petroleum in Pakistan and the purpose of this Joint Operating Agreement is to further define the respective rights and obligations of the Working Interest Owners and to regulate the conduct of their operations;

 

NOW IT IS HEREBY AGREED AS FOLLOWS:-

 

                                                                    ARTICLE-1

                                                                  DEFINITIONS

 

The terms defined in the Concession Agreement shall have the same meaning whenever used in this Joint Operating Agreement.  Furthermore, the following terms shall have the meanings as indicated:

 

1.1      “Joint Property” means all assets of any nature whatsoever, the cost of which is chargeable to the Joint Account and shall include, but not be limited to, buildings, lands, material, equipment and fixtures acquired for the purposes hereof and other rights and all Joint Account funds.

 

1.2      “Non-Operator” means any Working Interest Owner not designated as the Operator.

 

1.3      “Work Obligations” means the work obligations set out in Article 3 of Agreement of the Concession Agreement.

 

In the event of any difference or inconsistency between the terms of this Joint Operating Agreement and those of the Concession Agreement, the latter shall prevail.

                                                                    ARTICLE-2

                              EFFECTIVENESS OF JOINT OPERATING AGREEMENT

 

2.1      This Joint Operating Agreement shall come into full force and effect on the Effective Date of the Concession Agreement.

                                                                    ARTICLE-3

                                       WORKING INTEREST AND VOTING RIGHTS

 

3.1      The Working Interests of XYZ, ABC and GHPL (if applicable)  throughout the Area for each phase of the Joint Operations shall be governed by the provisions set forth in Article 5 of the Concession Agreement.  Each Working Interest Owner shall be liable for all Expenditures to the extent of its Working Interest, except as provided for in the Concession Agreement.

 

3.2      The voting rights of the Working Interest Owners shall be in proportion to their respective Working Interests at the time of the vote.

 

ARTICLE-4

                                               MANAGEMENT AND OPERATIONS

 

 

4.1      To provide general administration, supervision, direction and control of all Joint Operations to be conducted under this Joint Operating Agreement, an Operating Committee shall be established, consisting of a representative and an alternate representative (who shall act in the absence of the representative), to be appointed by each of the Working Interest Owners, except as otherwise provided in the Concession Agreement.  The Operator shall appoint the chairman of the Operating Committee who shall not have any voting rights.  Each Working Interest Owner hereby vests its representative and alternate representative with full authority to represent and bind that Working Interest Owner in all matters arising under the Concession Agreement and this Joint Operating Agreement.  Each Working Interest Owner shall designate its representative and alternate representative by written notice to the other Working Interest Owners stating the name and address of its representative and alternate representative.  Subject to Article 15 of the Agreement, each Working Interest Owner, may, by written notice to the other Working Interest Owners, replace its representative or any alternate at any time and such substitute shall have the same powers and duties as the person he replaces.  Subject to Article 11 hereof, each representative may bring such advisers as it deems fit to any meeting of the Operating Committee.

 

4.2      The Operating Committee shall meet quarterly to discuss important matters, unless the Operating Committee agrees that any such meeting may be dispensed with, and once each Calendar Year for the purposes of presenting the work programme and budget referred to in Article 6 and review thereof, and shall meet at such other times as Operator or any Non-Operator may request.  Notice of any Operating Committee meeting shall be given by the Operator at least fifteen (15) Days in advance of the proposed date of the meeting stating the time, place and agenda to be considered at such meeting, together with such supporting information as is practicable and the Operator’s recommendations if appropriate.  Notwithstanding the foregoing, when any meeting of the Operating Committee is called to consider any matter related to commerciality or the approval of a Development Plan, the notice shall be given at least twenty eight (28) Days in advance.

 

4.3      No decision on any matters shall be taken at any meeting of the Operating Committee  unless either prior notice as provided in Article 4.2 has been given or the representatives of the Working Interest Owners unanimously agree that a matter of which a prior notice has not been given shall be dealt with at such meetings.  Operator’s representative shall prepare minutes covering business conducted at Operating Committee meetings, copies of which shall be made available as soon as possible but in any event within fifteen (15) Days of the date of the meeting to all the Working Interest Owners through their representatives.  Any Working Interest Owner having any corrections or objections to the minutes shall notify the Operator, and other Working Interest Owners thereof.  If a Working Interest Owner does not give notice of corrections or objections within thirty (30) Days after receipt of said minutes, the same shall be deemed to have been approved.  If the Operating Committee does not agree to the minutes, such minutes shall be discussed at the next meeting of the Operating Committee.

 

4.4      The decision taken by the Operating Committee in accordance with the provisions of Article 4 shall be binding upon all Working Interest Owners.

 

4.5      All decisions of the Operating Committee in respect of Joint Operations under this Joint Operating Agreement shall require approval by more than seventy percent  70% of the total Working Interest.  Each representative shall have voting rights equal to the Working Interest of his principal as set forth in Article 5 of the Concession Agreement.

 

4.6      All meetings of the Operating Committee shall be held in Pakistan unless the Working Interest Owners unanimously agree to change the venue of any such meeting.  The expenses of the representatives of the Working Interest Owners incurred in attendance at meetings shall be borne by the respective Working Interest Owners and shall not be charged to the Joint Account.

 

4.7      Any matters requiring Operating Committee approvals shall be submitted to the Operating Committee for consideration and vote without holding a meeting, provided that such matter is submitted by notice in writing to all representatives, and to the Operator.  In such event, each said representative shall, within fifteen (15) Days after notice is received, vote by giving notice of its vote to the Operator.  Any Working Interest Owner that does not give notice of its vote as aforesaid, shall be deemed to have voted in favour of the matter submitted.  Any proposal which thus receives approval of the Operating Committee shall be deemed to be the proposal adopted by the Working Interest Owners and the decision thus taken shall be binding on them.  Operator shall report to the Working Interest Owner in writing without undue delay, the result of such vote after receipt of the votes of all Working Interest Owners and shall keep a written record thereof.

 

A Working Interest Owner or the Chairman of the Operating Committee receiving notice of a matter to be voted upon without holding a meeting of the Operating Committee may, instead of voting, request a meeting of the Operating Committee. In that event, such matter shall not be considered and decided without holding a meeting.

 

4.8          No business shall be transacted at any meeting unless a quorum is present.  A quorum shall include,   the Operator, and one Non-Operator, holding seventy  percent (70%) or more of the total Working Interest related to the matter under consideration. Any other representative not present at a meeting may vote on any item included in the agenda of the meeting in writing, addressed to the Operator, provided such vote is received by the Operator prior to the submission of such item to a vote at the meeting.

 

4.9      Notwithstanding other provisions hereof, if the Operator shall be required within a period of time of less than fifteen (15) Days to take action which requires authorization of the Working Interest Owners, which is not an emergency action as provided for in Article 5.8, the Operator shall give notice to each Working Interest Owner by telex or by telephone to be forthwith confirmed in writing, of all circumstances pertaining to the taking of such action, stating in addition, the period of time (which shall not be less than 48 hours) by which a decision must be made. The action authorized by the appropriate vote of representatives who shall vote within the time stated in the Operator’s notice shall be deemed the act of the Operating Committee and where any Working Interest Owner fails to vote within such time, that Working Interest Owner shall be deemed to have voted in favour of the proposed action.

 

4.10    The Operating Committee may establish such advisory subcommittees as it considers appropriate from time to time, such as technical or finance subcommittees or special subcommittees in relation to commerciality or development programs, for the purpose of reviewing matters prior to their consideration by the Operating Committee.  All such subcommittees shall consist of a representative of each Working Interest Owner.  The duties and functions of any such sub-committees shall be as determined by the Operating Committee.

 

4.11    Except as otherwise stipulated in this Joint Operating Agreement, all important matters concerning Joint Operations hereunder including, but not limited to the following shall be submitted to the Operating Committee for review, revision and decision (to such extent as it may see fit) and all decisions duly and properly taken by the Operating Committee shall be binding on the Working Interest Owners and to the extent applicable shall be executed promptly by the Operator:

 

1.         Budgets and work programmes, revisions and amendments thereto;

 

2.         Programmes in relation to the location, drilling, testing, deepening, plugging back, completion, re-working and abandonment of wells;

 

1. Subject to Article 5.3 (d), the selection of professional consultants, technical services, award of contracts on bids for Joint Operations;

 

4.         Estimates of reserves of Petroleum;

 

5.         A Petroleum availability forecast giving the total quantities of Petroleum that can be produced from the Area in any quarter taking of recovery of the reserves from the Area in accordance with Good International Oilfield Practices at that time, the determination shall be made for each Quarter not less than ninety (90) Days prior to the commencement of that Quarter;

 

6.         The extension or renewal of the Licence or the application for grant, extension or renewal of any Lease(s);

 

7.         Subject to Article 13 hereof, the Surrender of any part of the Area or of any Lease;

 

8.         The unitization of any acreage of a Licence or a Lease with acreage outside, subject to the approval of THE PRESIDENT;

 

9.         The exchange of confidential proprietary information to or with third parties, notice of which shall be given to THE PRESIDENT;

 

10.      All press releases and publicity material to be issued by the Operator on behalf of the Working Interest Owners, prior to the release of the same by the Operator.  This will however, be subject to prior approval of THE PRESIDENT;

 

11.      Any other matter that is specifically submitted to the Operating Committee for decision under other provisions of this Joint Operating Agreement or any other matter concerning Joint Operations hereunder not dealt with in this Joint Operating Agreement which may be specifically referred to the Operating Committee by any Working Interest Owner or;

 

12.      Declaration of Commercial Discovery;

 

13.      The Development Plan for any Commercial Discovery, and the  vertical and horizontal boundaries for any Discovery Area;

 

14.      The selection of any areas outside the Area for which application may be made jointly.

 

4.12    In respect of the work obligations set out in Article 3 of the Concession Agreement, the Operating Committee shall, unless and to the extent that relief from such obligation is sought and obtained from THE PRESIDENT, determine the location and the time at which such obligations are to be discharged.

ARTICLE-5

                                   RIGHTS, POWERS AND DUTIES OF OPERATOR

 

5.1      XYZ/ABC is hereby designated as the Operator for all Joint Operations and agrees to serve as such in accordance with the terms, provisions, conditions and limitations of this Joint Operating Agreement.

 

5.2      Subject to the provisions of this Joint Operating Agreement, the Operator shall have the sole authority and responsibility for the direct management and supervision of all Joint Operations, and shall have the sole custody and control of all the Joint Property under its care.  Moreover, the Operator shall perform its duties and carry out its responsibilities in accordance with the terms and conditions of each approved work programme and budget, Concession Agreement and Rules and subject to such instructions as may be given from time to time by the Operating Committee.

 

5.3      In order to carry out and perform all Joint Operations as aforesaid, and in connection therewith, the Operator shall have the following exclusive rights, duties and obligations:

 

(a)       To conduct all Joint Operations by its duly authorized officers, employees or agents, or by such independent and qualified contractors, consultants or service companies as the Operator may engage in accordance with the Concession Agreement and the Joint Operating Agreement.  To acquire and furnish for the Joint Account all materials and equipment required, it shall be the duty of the Operator to make every reasonable effort to obtain such required materials and equipment on the terms and conditions most favourable to all of the Working Interest Owners and in accordance with the provisions of the Concession Agreement and the Rules.

 

(b)       To allow the representatives of the Working Interest Owners and THE PRESIDENT access to the Joint Operations at all reasonable times, provided that reasonable notice is given and that such access does not interfere with the conduct of the Joint Operations, at their sole risk and expense, with the right to observe any and all the Joint Operations being conducted and their results, as well as inspect the records and accounts of such operations, being also authorized to examine all data and interpretations thereof including, but not limited to cores, samples, logs and surveys relating to the Joint Operations.  The Operator shall promptly furnish each party with a reproducible copy of all logs, geophysical data and all other geological, geophysical, drilling financial information including but not limited to reports on well tests and core analysis; provided, however, that all such data, information, and interpretations shall remain the exclusive property and confidential information of the Working Interest Owners to be based in accordance with the Rules and the Concession Agreement. THE PRESIDENT may appoint a representative to observe any or all of the Joint Operations at the expense of Joint Account and provided that the presence of such representative does not interfere with the conduct of the Joint Operations.  A Non-Operator may from time to time nominate selected staff to be present at Joint Operations in Pakistan for training on terms to be agreed upon ;

(c)       To prepare and submit work programmes and budgets to the Operating Committee as provided in Article 6 hereof, and make and implement such recommendations from time to time for the carrying out the Joint Operations hereunder efficiently as it may consider expedient;

 

(d)       To enter into contracts including services, purchases of materials, and equipment which, are advisable and necessary to carry out the Joint Operations.  The Operator shall invite bids through a proper bidding procedure for any contract which will require Expenditure of more than U.S. Dollars  one hundred and fifty Thousand (US $ 150,000) and such bids shall be opened publically.  Unless the Operating Committee decides otherwise, each Party and its Affiliates may also submit a bid for such a contract.

 

i)              In the case of any contract requiring Expenditure of more than U.S. Dollars  one hundred and fifty Thousand (US $ 150,000)but less than U.S. Dollars Five Hundred Thousand (US $ 500,000), the Operator shall award such a contract, to the most suitable and competitive bidder and all such awards shall be reported to the Operating Committee at its next meeting.

 

ii)                    In the case of any contract to be awarded to a Working Interest Owner or its Affiliates or a contract requiring Expenditure of more than U.S. Dollars Five Hundred Thousand (US $ 500,000) the terms of the recommended bid shall be subject to the approval of the Operating Committee either at a meeting of the Operating Committee or by circulation of such bid to the Working Interest Owners along with the bid evaluation summary and other relevant documents and approval shall be deemed to have been given unless within ten (10) Days from the date of recommendation, Working Interest Owner(s) having in aggregate a Working Interest of 20% or 15% (as per applicable Zone) give notice that they do not support such recommendation.

 

(e)       to acquire any and all surface rights on behalf of the Working Interest Owners which may be required for or in connection with the conduct of Joint Operations;

 

(f)        to promptly pay and discharge all Expenditures incurred in connection with Joint Operations;

 

(g)       to keep and maintain permanent records of all relevant data and information obtained in the course of Joint Operations and to keep the Working Interest Owners currently informed by furnishing them from time to time, in the form and frequency established by the Operating Committee, statements and information on such Joint Operations;

 

(h)       To determine, in accordance with the policy parameters as may be laid down by the Operating Committee, the number of employees needed for the efficient conduct of the Joint Operations, their selection the hours of labour and the compensation for service performed and other working conditions; provided, however, that the Operator shall give priority in employment to Pakistani citizens in conformity with Article 17 of the Concession Agreement and the Rules.

 

(i)        To represent the Working Interest Owners before the Government or other authorities with respect to all matters arising under this Joint Operating Agreement, subject to the requirement that the prior concurrence of the Working Interest Owners shall be obtained with respect to representation on any matters materially affecting that Working Interest Owners.  Each Working Interest Owner may be represented in meetings with THE PRESIDENT or other authorities on matters materially affecting the said Working Interest Owner, provided that the Operator shall be the spokesman.  The Operator, for and on behalf of all Working Interest Owners, shall prepare, file and otherwise handle all reports, applications and returns (other than those relating to taxes based on income or profits which the Working Interest Owners are required to prepare separately) which may be required by laws, rules or regulations of the Government.  However, it is agreed that nothing set forth in this Article 5.3(i) shall prevent any Working Interest Owner from representing itself before any of the aforementioned bodies on matters which are appropriate and necessary, provided that such Working Interest Owner shall notify the Operator and the other Working Interest Owners prior to any such representation.

 

5.4                  The Operator shall conduct the Joint Operations in a proper and workmanlike manner in accordance with methods and practices customarily used by the industry in accordance with Good International Oilfield Practices, and with a degree of diligence, and prudence reasonably and ordinarily exercised by experienced operators engaged in a similar activity under similar circumstances and conditions.  The Operator shall further do or cause to be done, with due diligence, all such acts and things within its control as may be necessary to keep, and maintain the Area in force and effect and shall conduct the Joint Operations in compliance with the requirements of the Concession Agreement, the Licence, any Lease(s) and any other applicable law and rules and orders framed thereunder.

 

5.5                  The Operator shall not be liable for any loss or damage which results from Joint Operations unless such loss or damage results from Willful Misconduct of the Operator provided that the Operator shall not be responsible or liable under any circumstances for any consequential loss or damage, including but not limited to, inability to produce Petroleum, lost production or loss of profits.

 

For the purposes of this Joint Operating Agreement, the term “Wilful Misconduct” shall mean such wanton and reckless conduct as amounts to a wilful and utter disregard for avoidable and foreseeable harmful consequences.

 

5.6.        Each Working Interest Owner agrees to indemnify the other Working Interest Owners, to the extent of its Working Interest share, for any claim by or liability to (including any costs and expenses necessarily incurred in respect of such claim or liability) any person not being a Working Interest Owner, arising from or in connection with the Concession Agreement or Joint Operations.

 

5.7          Operator shall freely consult with the Working Interest Owners and keep them informed of all matters, which the Operator contemplates to undertake.

 

5.8          If the Operator or any other Working Interest Owner is sued on an alleged cause of action arising out of Joint Operations, it shall give prompt written notice of such suit to all other Working Interest Owners.  The defence of any such suit shall be under the general direction of the Operator through its attorneys at the expense of the Joint Account, but each of the other Working Interest Owners shall have the right to participate in the handling of such suit, through its attorneys at its own expense.  Any such suit may be settled during litigation by the Operator with prior approval of the Operating Committee.

 

5.9      Any damages claim caused by or arising out of Joint Operations shall be handled by the Operator and its attorneys at the expense of the Joint Account and may be settled by the Operator in its best judgement, provided that no such claim shall be settled for an amount exceeding U.S. Dollars Fifty Thousand (US $ 50,000) without first obtaining the approval of the Operating Committee.

 

5.10    Notwithstanding other provisions hereof, in case of explosion, fire, flood or other emergency, the Operator shall take action deemed expedient by the Operator to protect and safeguard life and property.  The Operator shall promptly report to the Working Interest Owners and the President a full description of the emergency, the action taken, the damage (if any) suffered and the expenses incurred hereunder.

 

5.11    The Operator may resign as the Operator at any time upon giving not less than ninety (90) Days written notice to the Working Interest Owners and the Government.  The Operator shall be automatically removed in case of insolvency, bankruptcy, assignment for the benefit of creditors, dissolution, sale or transfer of its entire Working Interest to a third party or if the Operator defaults in its duties or obligations or any of them hereunder and does not commence to rectify the default within thirty (30) Days of having been notified in writing by the Operating Committee of the alleged default by not less ninety (90) Days notice, provided that in respect of any vote of the Operating Committee on any such removal, the vote of the Working Interest Owner which is the Operator and the votes of any Working Interest Owner which is an Affiliate of the Operator, shall be ignored and the percentage figure set out in Article 4.5 shall apply to the total votes available of the remaining Working Interest Owners.  The Operator shall continue to serve until a successor Operator is appointed, but shall not be required to do so for a period of more than one hundred and eighty (180) Days following the date of commencement of the original notice period for resignation or removal.

 

5.12    Upon the resignation or removal of the Operator, one of the other Working Interest Owners shall be selected as a successor Operator by the Operating Committee.  In the event that no Working Interest Owner is willing to accept appointment as the Operator (no Working Interest Owner shall be elected as the Operator without its consent), a suitable entity shall be selected and designated as successor Operator and engaged under a written contract, approved by the Operating Committee.  The successor Operator shall succeed to the powers and duties of the Operator as per the Concession Agreement and Joint Operating Agreement.

 

5.13    Immediately after the notice of resignation or removal of an Operator is given, the Working Interest Owners shall arrange for taking of an inventory of the equipment, material and supplies acquired by the Operator for the Joint Account.  On the effective date of the resignation or removal of the Operator, such outgoing Operator shall deliver to the successor Operator all equipment, material, supplies and other assets then in its custody and shall account for those it is unable to deliver.  The outgoing Operator shall also deliver to the successor Operator any and all data, including but not limited to, core samples, log surveys, records, data documents and balances of the Joint Account which came into its possession as the Operator.  The Working Interest Owners shall also arrange for an audit of the Joint Account before the new Operator takes charge of Joint Account.

                                                                    ARTICLE-6

                                              WORK PROGRAMME AND BUDGET

 

6.1      All Joint Operations conducted by the Operator, and all Expenditure incurred for the Joint Account in connection therewith, shall be performed and incurred only pursuant to an approved work programme and budget thereto or pursuant to an approved supplementary work programme and supplementary budget thereto.

 

6.2      The Operator shall submit to the Operating Committee a proposed work programme and budget prepared in such detail as is required by the Operating Committee for each Calendar Year and one for the planning purposes of the GHPL (if required) for the period 01 July to 30 June.  The initial budget shall be submitted as soon as possible after activities hereunder are commenced and shall cover the remaining period of the then Calendar Year as well as the next Calendar Year.  All budgets thereafter shall be submitted not later than seventy five (75) Days prior to the beginning of each Calendar Year and additional budget at the same time for  the GHPL (if applicable) planning purposes for the period 01 July of that year to  thirty (30) June of the succeeding year.  In respect of budget-items for which sufficient details are not then available to enable the Operating Committee to approve such  contingent items, the Operating Committee may authorize such items in principle subject to later submission of the required information for  approval.  The Operating Committee shall agree to the work programme and budget therefor within thirty (30) Days prior to the beginning of each such year.  The work programme and budget shall be approved by the Operating Committee except that any well or development programme proposed therein that does not receive approval of the Operating Committee, shall be removed from the said work programme and budget and may be subject to the terms of Article 9 hereof. The Operator is hereby authorized to conduct Joint Operations and to incur all Expenditure for the Joint Account to the extent that such work and Expenditures are included within a work programme and budget which have been approved by the Operating Committee.  When so approved, anticipated Expenditures pursuant to each such budget and Authority For Expenditure (AFE) issued thereunder shall be the basis for the cash calls by the Operator, as provided in the Accounting Procedure.

 

6.3      The Operator shall undertake all Joint Operations as set forth in each approved annual work programme, and budget and incur and pay on behalf of the Joint Account, all Expenditure resulting from such work, provided that the following work should be performed after the Operator has received written approval of its AFE in respect thereof from the Working Interest Owners, and such AFE has been approved by the Working Interest Owners having in aggregate at least the percentage figure of Working Interest specified in Article 4.5:

 

i)               seismic surveys;

 

ii)         Any operation in relation to a well (including but not limited to drilling, deepening, plugging back, reworking, testing or completion);

 

iii)        Any single addition to fixed assets, other than a well, amounting to U.S. dollars __two hundred thousand (US$ 200,000) (or equivalent) or more; and

 

iv)        Any single maintenance project amounting to U.S. dollars _one hundred and fifty thousand (US$ 150_,000) (or equivalent) or more;

 

The Operator shall furnish, as early as possible, to each Working Interest Owner and THE PRESIDENT a copy of the AFE for any items of Expenditures in excess of U.S. dollars one hundred thousand____ (US$ 100,000). Provided however, that any sub-division of a project for the purpose of award of a contract will require specific approval of Operating Committee.

 

6.4      The Operator shall not undertake any Joint Operation not included in an approved work programme, or make any Expenditure in excess of an approved budget therefor except as follows;

 

i)          If necessary to carry out an approved work programme the Operator is authorized to make Expenditures in excess of the budget adopted therefor up to but not exceeding ten percent (10%) of such budget, provided that such actual or foreseen excess Expenditures shall be reported to the Working Interest Owners by the Operator, giving the details and justification for such excessive Expenditures; and

 

ii)         In case of emergency, the Operator may incur such immediate Expenditures as it deems expedient for protection of Joint Operations, life or property, and such Expenditures shall be reported promptly to the Working Interest Owners.

 

6.5          If any Working Interest Owner (“Defaulting Party”) fails to pay in full its share of any cash calls by the due date in accordance with the Accounting Procedure:

 

i)      the Operator shall as soon as practicable notify by telex all the Working Interest         Owners of such default.

 

ii)    With the exception of the Defaulting Working Interest Owner, each Working Interest Owners (“Non Defaulting Party”) shall contribute as hereinafter provided, a share of the amount in default in the proportion that its percentage interest bears to the total of the Working Interests of the Non-Defaulting Working Interest Owners and pending receipt of such additional contributions the Operator shall make arrangements to meet any commitments falling due by borrowing the necessary finance from outside sources or by making the necessary finance available itself and all reasonable costs of any such finance shall be charged to the Non-Defaulting Working interest owners. Finance made available by the Operator shall bear interest calculated on a Day to Day basis at a rate equal to three (3) per cent above the London Inter-bank Offer Rate (LIBOP) from time to time;

 

iii)   Within three (3) calendar Days following the notification by the Operator under (i) above, the Operator shall notify all the Working Interest Owners of the liability of each of the Non-Defaulting Working Interest Owners to contribute to the amount in default and shall make a further cash calls accordingly to take effect on the expiry of the six (6) calendar Days specified in (iv) below; and

 

iv)   If such default continues for more than six (6) calendar Days after the date of notification by the Operator each of the Non-Defaulting Working Interest Owners shall on the Calendar Day next following such sixth calendar Day pay the amount notified under (iii) above, and thereafter shall continue to pay, in addition to its share of subsequent cash calls, the same proportion of all such subsequent cash calls until Defaulting Working Interest Owners has remedied its default in full or until forfeiture as hereinafter provided, and failure by any Working Interest Owners to make such payments shall likewise and with the same results render that Working Interest Owner in default.

 

6.6                 The Defaulting Working Interest Owners shall have the right to remedy the default at any time prior to forfeiture, as hereinafter provided, by payment in full to the Operator or, if the Non-defaulting Working Interest Owners have paid any amounts under 6.5 (iv) above, the Non defaulting Working Interest  Owners in proportion to the amount so paid by them, of all amounts in respect of which the Defaulting Working Interest Owner is in default together with interest  thereon calculated on a Day to Day basis at the rate of three (3) percent above LIBOR from time to time, from and including the due date for payment of such amounts until the actual date of payment

 

6.7                 If any default continues for more than six (6) calendar Days after the date of notification by the Operator under above clause, for so long as the default continues, the Defaulting Working Interest Owners shall not be entitled to receive its entitlement of Petroleum attributable to its Working Interest share which shall instead be owned by the Non-defaulting Working Interest  Owners in the proportions in which their respective Working Interests bear to the total of the same.

 

6.8                 During the continuation of any default the Defaulting Working Interest Owners shall not be entitled to be represented at meetings of the Operating Committee or any sub-committee thereof nor to vote thereat (so that the voting interest of each Working Interest Owners other than the Defaulting Working Interest Owners shall be in the proportion which its Working Interest bears to the total of the Working Interests of such Working Interest Owners) and shall have no further access to any data and information relating  to the Joint Operations. The Defaulting Working Interest Owner shall be bound by decisions of the Operating Committee made during the continuation of the default.

 

i)             In the event that the default continues for more than sixty (60) Days then each of the Non-Defaulting Working Interest Owners shall have the right  to have forfeited to it and to acquire, by notice to the other Working Interest Owners given within thirty (30) Days after such period of sixty (60) calendar Days, the Working Interest of the Defaulting Working Interest Owners in the Licence/Lease and under Concession Agreement and this Joint Operating Agreement or, if more than one Non-Defaulting Working Interest Owners exercises such right, its proportionate share of the Working Interest of the Defaulting Working Interest Owner in the Licence, Lease, Concession Agreement and this Joint Operating Agreement, such share being the proportion in which its Working Interest bears to the total Working Interest of such Non-Defaulting Working Interest Owners;

ii)           If none of the Non-Defaulting Working Interest Owners exercises such right as is mentioned above then, without prejudice to any rights of the Non-defaulting Working Interest Owners, the Working Interest Owners shall be deemed to have decided to abandon the Joint Operations and each Working Interest Owner, including the Defaulting Working Interest Owner shall pay its Working Interest share of the costs of abandoning the Joint Operations including but not limited to pay liquidated damages, if applicable.

 

6.9      With respect to above Article any such forfeiture and acquisition of the Working Interest of the Defaulting Working Interest Owner in the Licence, Lease, Concession Agreement and this Joint Operating Agreement shall be:

 

i)                      subject to necessary approvals of the Government under the Rules;

 

ii)                    without prejudice to any other rights of each Working Interest Owner other than the Defaulting Working Interest Owner;.

 

iii)                   so forfeited and acquired as beneficial owner or owners free of any charges and encumbrances (Other than rents and royalty under the Licence or the Lease);

 

iv)                   subject to the Defaulting Working Interest Owner remaining liable and obligated for its Working Interest share of all Expenditure that in any way relate to abandonment of Joint Operations; and

 

v)                     effective as of the date of default.

 

The Defaulting Working Interest Owner shall promptly join in such actions as may be necessary or desirable to obtain necessary approval of the Government under the Rules and shall execute and deliver any and all documents which are necessary to effect such forfeiture and acquisition (including for the avoidance of doubt any stamp duty incurred on the document executed to effect such forfeiture and acquisition) which shall be the responsibility of the Defaulting Working Interest Owner.

 

 

 

                                                                    ARTICLE-7

                                                                EXPENDITURES

 

7.1      Subject to of the Concession Agreement, each of the Working Interest Owners shall be severally liable for and shall bear all Expenditures incurred by the Operator for the Joint Account in proportion to its Working Interest from time to time.

 

7.2      Subject to the provisions of this Joint Operating Agreement, each of the Working Interest Owners shall own at any given time an undivided share equal to its Working Interest contribution in all property acquired hereunder.

 

7.3      All charges to the Joint Account and all matters of Accounting Procedure between the Working Interest Owners shall be governed by these provisions and provisions of the Accounting Procedure.  If any conflict or discrepancy exists between these provisions and those contained in the Accounting Procedure, the provisions of this Joint Operating Agreement shall prevail.

                                                                    ARTICLE-8

                                                     DISPOSAL OF PETROLEUM

 

8.1      Without prejudice to the right of THE PRESIDENT to take and receive royalty in cash or in kind and subject to the right of the Operator to use Petroleum for Joint Operations, each Working Interest Owner shall own and have the right to take in kind and separately dispose of, its Working Interest share of Petroleum won and saved after payment of royalty, and shall own the Petroleum so taken.

 

8.2      Each of the Working Interest Owners shall have the obligation to lift and separately dispose of its entitlement in all Petroleum produced and/or stored at such times, in such quantities and in accordance with such procedures as may be agreed by all Working Interest Owners prior to the commencement of Commercial Production (the “Lifting Procedures”) which have or may have entitlements in respect of the said development in question prior to the commencement of production but so that the rights of each of such Working Interest Owners to lift Petroleum to which it is entitled shall not be prejudiced.

 

8.3      In the event that any of the Working Interest Owners having a Working Interest in Field development shall find itself unable for any reason to lift such quantities of Petroleum as are to be lifted in accordance with the Lifting Procedures it shall forthwith notify the other Working Interest Owners having Working Interest in such development to that effect and such quantities of Petroleum shall be dealt with in accordance with the Lifting Procedures.

 

8.4      The Working Interest Owners recognize that, in the event of the production of Natural Gas and LPG, it may become or shall be desirable for them to enter into special arrangements for the disposal of the same and they agree that, in such event and upon the request of any of them, their respective representatives shall meet as necessary to consider their entry into such arrangements.

                                                                    ARTICLE-9

                                                                    SOLE RISK

 

9.1          As used in this Article 9, the terms set out below shall have the following meanings:

 

9.1.1   “Sole Risk Well” means a well other than a well included in Minimum Work Obligation specified in Article 3 of the Concession Agreement and  drilled and completed by less than all the Working Interest Owners hereto in accordance with the provisions of this Article 9, or such other limited well site operation as specified in Article 9.9.

 

9.1.2   “Location” means the geographic point at the surface being the vertical projection of the point where the well bore actually encounters the objective formation in the case of an existing well or where the well bore is expected to encounter the objective formation in the case of drilling well or a well included in the currently approved work programme and budget.

 

9.1.3   “Commercial Quantities” shall have the same meaning as the definition of “Commercial Production” in Article 1.11 of the Concession Agreement.

 

9.2      Any Party shall have the right, by complying with the terms of this Article 9, to drill any well within the Area, other than a well approved by the Operating Committee and included in the currently approved annual work programme and budget.

 

9.3          Any Working Interest Owner proposing to drill a Sole Risk Well shall give notice thereof (“Notice”) to the other Working Interest Owners, specifying the Location (provided that such Location shall conform to any spacing pattern for the development drilling previously approved by the Operating Committee), the drilling operations to be conducted, and the objective formations.

 

9.4      Within thirty (30) Days after the receipt of the Notice, except as otherwise provided in Article 9.9 hereof, the Operator shall notify each Working Interest Owner of the Operator’s detailed cost estimates with respect to the drilling of such well and the Operator’s estimate of the date on which such well may be commenced without interfering with the execution of work programme thereto for approved by the Operating Committee (“Commencement Date”).  The Operator’s estimate shall include the total costs of all operations and equipment necessary for locating, drilling, testing, completing and equipping (including necessary flow lines and storage tanks) or abandoning said well.

 

9.5      Within forty-five (45) Days after receipt of the Notice, except as otherwise provided in Section 9.9 hereof, each Working Interest Owner shall elect whether or not to participate in drilling the proposed well by giving written notice to the other Working Interest Owners.  Failure to give notice within such period of time shall be deemed to be an election by such Working Interest Owner not to participate in the drilling of such proposed well.  An election to participate shall be deemed approval of the drilling of such well.

 

9.6      If less than all Working Interest Owners elect to participate in the Sole Risk Drilling each Working Interest Owner electing to participate (hereinafter called “Drilling Party/Parties” whether one or more) shall have a Working Interest in such well in the proportion that its Working Interest bears to the total of the Working Interests of all Drilling Parties, or in such other proportion as mutually agreed upon by the Drilling Parties.

 

This Joint Operating Agreement shall be divisible and shall apply independently in the manner of a separate contract for the drilling and operations of any Sole Risk Well.  This Joint Operating Agreement shall cease to apply as an independent and separate contract with respect to a Sole Risk Well when Drilling Party has fully recovered the value referred to in Article 9.10 hereof.

 

9.7      The Drilling Party shall cause such well to be drilled as a Sole Risk Well at the sole cost and  risk of the Drilling Party/Parties.  The Working Interest Owner or Working Interest Owners  not electing to participate in the drilling of such well shall hereinafter be called “Non‑Drilling Party”, whether one or more.  The Drilling Party/Parties may ask the existing Operator to Drill the Sole Risk Well or may Operate the Sole Risk Well itself and such new Operator shall be obligated to conduct all operations necessary for the drilling of a Sole Risk Well in accordance with the provisions of this Joint Operating Agreement, and the Operator’s cost estimate by the Commencement Date; provided, however, that with respect to the drilling of a well where the Operator is a Non-Drilling Party, Drilling Party, may, within sixty (60) Days after receipt of the Notice as defined in Article 9.3 hereof, notify the existing Operator of the election by Drilling Party to conduct by itself all operations with respect to the drilling of such Sole Risk Well and the existing Operator shall be relieved of its obligations to conduct such operations in which case the Drilling Party shall conduct the operations itself as the new Operator.

 

9.8      In the event Drilling Party shall elect not to have the Operator drill the Sole Risk Well, the Drilling Party must cause the drilling of the Sole Risk Well to commence within six  (6) months after the Notice.  If the Drilling Party has not commenced the Drilling of such Sole Risk Well within the period specified, the Drilling Party shall not be entitled to commence the drilling of such Sole Risk Well until such time as a new Notice shall be given and the provisions of this Article 9 are again complied with.

 

9.9      If the Notice described in Article 9.3 relates to a well site operation such as proposed redrilling, sidetracking, deepening, reworking, testing or plugging back a well, such Notice shall be acted upon within 48 hours if the drilling equipment is on location.  The Operator shall perform all redrilling, sidetracking, deepening, reworking, testing or plugging back operations in accordance with a Notice approved by all or less than all the Working Interest Owners at the sole cost, and risk of the Working Interest Owners who voted in favour of such Notice, which Working Interest Owner or Working Interest Owners shall be deemed as “Drilling Party”.  The Working Interest Owner or Working Interest Owners who voted against such Notices shall be deemed “Non-Drilling Party”.  If the proposed sole risk drilling operations consist of redrilling, sidetracking, deepening, reworking, testing or plugging back a well, the Drilling Party shall pay the Non Drilling Party’s ownership interest in the salvage value of all equipment installed in said well as may be mutually agreed. The Drilling Party/Parties shall own all production resulting from such operations until the Drilling Party/Parties has fully recovered the value referred to in Article 9.10 hereof with respect to such operations. Only the Working Interest Owner or Working Interest Owners who participate in the last operation with respect to a well shall bear the cost of abandonment.  In the event of a disagreement between Drilling Party/Parties on the order and manner in which sole risk proposals of redrilling, sidetracking, deepening, reworking, testing or pluging back a well are to be undertaken, the matter shall be referred to the Operating Committee for a decision.

 

9.10    If any Sole Risk Well is drilled, it shall be operated by the Operator except as provided in Article 9.7 and if completed as a producing well, the Drilling Party/Parties shall own all of the production from such well and shall bear all the cost of operating such well until the Drilling Party has recovered from production an amount equal to the sum of :

 

i)          Eighteen Hundred percent (1800%) of what would have been the Non-Drilling Party’s Working Interest share of costs of drilling such well to total depth, conducting such production tests as may be carried out with drilling equipment, equipping such well for production upto and including the Christmas Tree, such amounts to be recovered resulting from such well or wells or from the proceeds from the first sales of production resulting from the discovery of an accumulation of Petroleum by such well or wells; and

 

ii)         Four Hundred percent (400%) of what would have been the Non-Drilling Party’s Working Interest share of costs of all production facilities associated with production of petroleum from a Sole Risk Well down‑stream from the Christmas Tree and necessary to handle, treat and bring production from such well to the point where such production is handled by such facilities which are to be used in common with production but not associated with such well or to the point of delivery of such production by the Operator to Drilling Party and shall include but not be limited to the flow lines and storage tanks required for handling production from such Sole Risk Well; and

 

iii)        Two Hundred Percent (200%) of what would have been the Non-Drilling Party’s Working Interest share of the costs and expenses incurred and paid by the Drilling Party for the operations of such well until such time as the Drilling Party is reimbursed as provided in paragraphs (i) and (ii) above; and thereafter such well shall be owned by all Parties hereto and each Party shall participate with respect thereto in accordance with such Party’s Working Interest herein.

 

 

9.11    If a Working Interest Owner initially elects to participate in a Sole Risk Well and subsequently fails to timely meet its payments there for as provided in the Accounting Procedure, then at the option of the other Working Interest Owners constituting the  Drilling Party(s) the provisions of this Article 9 shall apply as if that Working Interest Owner were a Non-Drilling Party.

 

9.12    The Working Interest Owners comprising any Drilling Parties shall, in proportion to their respective Working Interests in the Sole Risk Drilling, indemnify the Non-Drilling Parties against all losses, damages and claims against them arising out of Sole Risk Drilling.

 

9.13    The Drilling Party shall be entitled to use for Sole Risk Drilling any data and information which they own jointly with a Non-Drilling Party.  Data and information obtained in respect of Sole Risk Drilling shall be made available to the Non-Drilling Party but shall remain the property of the Drilling Party subject to the Rules and the Concession Agreement.

 

9.14    Drilling equipment owned by Working Interest Owners or under contract to the Operator and being used in operations hereunder may not be employed to drill a Sole Risk Well if such equipment is scheduled for other Joint Operations work unless approved by the Working Interest Owners.  However, in the case of  redrilling, sidetracking deepening, completing, plugging back, testing or reworking, said equipment if on the drilling location, shall be used to carry out the desired operation unless agreed otherwise.

 

 

9.15    Notwithstanding the foregoing, if in the reasonable judgement of the Operator or a Working Interest Owner there is a substantial risk that the proposed operations would appreciably impair the present or potential future production from a producing oil or gas well, or well capable of production, the Operator or the Working Interest Owner shall so advise the other Working Interest Owners, stating the reasons substantiating its judgement and the  proposed Sole Risk operations shall not be undertaken unless approved by all Working Interest Owners.

 

 

9.16    In the event that less than all the Working Interest Owners participate in the development of a Discovery pursuant to the Concession Agreement, any non participating Working Interest Owner shall have the right to acquire a Working Interest in such development equivalent to its Working Interest hereunder by paying in cash an amount equal to one hundred and seventy-five percent (175%) of the amount which it would have paid had it participated in the development from the date of its failure to participate pursuant to the Concession Agreement.  Such right shall be exercisable at any time up to one year from the date referred to above by payment of the sum mentioned in cash in full and shall be effective as of the date of such payment.

 

Any non participating Working Interest Owner which fails to exercise such right within the time period specified shall have no further right to elect to participate therein and the Lease relating to any such Discovery Area shall constitute a separate Lease Area and the Working Interests therein and the production of Petroleum there from shall be owned exclusively by the Working Interest Owners participating therein.

 

9.17    Following approval of a Development Plan pursuant to Article 6 of the Concession Agreement, any Working Interest Owner may request a review of the provisions contained in this Article 9 and if following such review all Working Interest Owners agree that an amendment to such provisions is required, it shall be amended accordingly for submission to the Government.

                                                                   ARTICLE-10

                                                                   INSURANCE

10.1    The Operator shall, for the benefit and protection of the Working Interest Owners, obtain insurance with reputable insurers upon reasonable and competitive terms on behalf of the Working Interest Owners, as be required by contract, applicable laws, rules and regulations together with such other insurances which the Operating Committee may determine in accordance with this Joint Operating Agreement; provided that in respect of such other insurance, any Working Interest Owner may elect to take out its own insurance, provided that it gives written notice to the Operator.  The cost of insurance in which all the Working Interest Owners are participating shall be charged to the Joint Account and the cost of insurance in which less than all the Working Interest Owners are participating shall be in proportion of their respective Working Interests.

 

10.2    The Operator or any Working Interest Owner shall duly file all claims with respect to insurance arranged and maintained by the Operator and shall take all necessary and proper steps to collect the proceeds and properly apply them in accordance with the terms of this Joint Operating Agreement.

 

10.3    The Operator shall at all times use all reasonable endeavors to require contractors and sub-contractors engaged in operations under this Joint Operating Agreement to obtain and maintain all such insurances pertaining to such work as they may be required to carry by virtue of any applicable law or regulation and such other insurance as the Operator may deem advisable.

 

The policies of any such insurance shall be endorsed with waivers of all explicit or implicit rights of subrogation to the beneficiaries  eventual rights against the Working Interest Owners, or alternatively, to the extent practicable, the Operator shall have the other Working Interest Owners or contractors and sub-contractors, named as additional insured.

 

10.4    Each Working Interest Owner may for its own account and at its own expense, obtain insurance other than the insurance referred to in Article 10.1 pertaining to the Joint Operating Agreement as it may deem expedient, provided however that the obtaining of such insurance shall not in any way directly interfere with the Operator’s placement of insurance for the Joint Account, in accordance with the terms of Article 10.1 hereof.  The Operator shall use its best endeavours to facilitate in cooperation with the other Working Interest Owners, the orderly settlement of claims by their respective insurers.

 

10.5    All damages, losses and liabilities incurred in connection with the Joint Operations which are not recoverable from insurance procured for the Joint Account under this Article shall be charged to the Joint Account.

                                                                   ARTICLE-11

                                                   CONFIDENTIAL INFORMATION

 

11.1    All information acquired by any Working Interest Owner in respect of the Joint Operations hereunder including but not limited to all seismic and well data and related information that pertains to or results from the Joint Operations conducted hereunder, or any data or information contributed by any Working Interest Owner to such Joint Operations, shall be considered as confidential and shall not be disclosed to any other person or entity which is not a Working Interest Owner, except:

 

(a)       To an Affiliate of a Working Interest Owner, provided such Affiliate executes a strict undertaking to treat and maintain all such information as confidential; or

 

(b)       As required by THE PRESIDENT or any applicable laws or regulations of a stock exchange having jurisdiction over a Working Interest Owner; or its Affiliate; or

 

(c)       To contractors (including consultants) employed by a Working Interest Owner, THE PRESIDENT or the Operator, where disclosure of such data or information is essential to such contractor’s work, provided such contractor executes an agreement to treat and to maintain all such information as strictly confidential; or

 

(d)       To a bonafide prospective assignee of a Working Interest Owner, provided such prospective assignee first executes an agreement to treat and maintain all such information as strictly confidential; or

 

(e)       To a bank or lending agency to the extent required by a Working Interest Owner for arranging the funds for its obligations under this Joint Operating Agreement provided that such bank or lending agency first executes an agreement to treat and maintain all such information as strictly confidential.

 

11.2    The provisions of this Article 11 shall be continuing obligations notwithstanding the fact that a Working Interest Owner ceases to be a Working Interest Owner.

 

11.3    Subject to Article 11.4, the Operator shall be responsible for the preparation and release of all public announcements and statements regarding this Joint Operating Agreement or the Joint Operations, provided always that no such public announcement or statement shall be issued or made unless prior thereto all the Working Interest Owners have been furnished with a copy thereof, and the approval of the Operating Committee and THE PRESIDENT has been obtained, in accordance with the Rules.

 

11.4    If any Working Interest Owner shall itself wish to issue or make any public announcement or statement regarding this Joint Operating Agreement or the Joint Operations it shall not do so unless prior thereto it furnishes all the Working Interest Owners with a copy of such announcement or statement, and shall obtain the approval of the Operating Committee and THE PRESIDENT provided that, notwithstanding any failure to obtain such approval, no Working Interest Owner or any Affiliate of such Working Interest Owner shall be prohibited from issuing or making a public announcement statement if it is expedient to do so in order to comply with any applicable law or the regulations of a recognized stock exchange.

                                                                   ARTICLE-12

                                                       TRANSFER OF INTEREST

 

12.1    No Working Interest Owner shall have the right to assign, transfer, convey, encumber, hypothecate or otherwise, dispose of its Working Interest or part thereof, except in accordance with the provisions of Articles 12 and 13 hereof and Article 7 of the Concession Agreement.

 

12.2    No assignment of any Working Interest shall be binding upon the Operator until the first Day of the calendar month following the month in which the assignor or assignee shall have furnished the Operator with an executed or photo static copy of the approval of THE PRESIDENT and assignee shall have properly ratified and become a party to this Joint Operating Agreement.  Any assignment of interest, whether it is expressed or implied, shall operate to impose upon the assignee and the assigned interest the proportionate part or share of any unpaid obligations thereto or chargeable hereunder to the assignor and the said assigned interest.  An assignment shall not operate to relieve the assigned interest or the assignor from any liability or obligations which accrued prior to such assignment.

 

12.3    Notwithstanding the provisions of this Article 12 and subject to the provisions of the Concession Agreement, any Working Interest Owner shall, upon informing the other Working Interest Owners, assign, transfer, convey, encumber, pledge, hypothecate or otherwise  mortgage to any financial institution, bank or lender any or all of its rights hereunder, to secure the prompt payment of sums of money, principal and interest so borrowed and the full and faithful discharge of any and all obligations which it may undertake to obtain finance from such financial institution for the purpose of this Joint Operating Agreement.  Any such mortgage or hypothecation shall not give rise to a division of the undivided interest in Joint Property.

 

12.4    Subject to the provisions of Article 7 of the Concession Agreement, a Working Interest Owner may transfer or may assign to an Affiliate or to a Non‑Affiliate all or part of its rights, duties and obligations under the Concession Agreement and this Joint Operating Agreement.

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                   ARTICLE-13

                                                                  SURRENDER

 

13.1    If any Working Interest Owner (hereinafter referred to as the “Surrendering Working Interest Owner”) desires to Surrender its Working Interest subject to Article 7 of the Concession Agreement, it shall notify the other Working Interest Owners of its desire to Surrender as of a specified date not less than two (2) Calendar Months after such notice.  The other Working Interest Owners shall have thirty (30) Days after such notice within which to give notice of election to join in such Surrender.  The Surrendering Working Interest shall accrue to and be assumed by the Working Interest Owners electing not to Surrender pro rata to their respective Working Interests on the specified date.  The Surrendering Working Interest Owner shall execute and deliver any and all documents and take action necessary to accomplish such assignment.  Similarly, if all Working Interest Owners shall elect to Surrender, each Working Interest Owner shall execute and deliver any and all documents and take all actions to accomplish such Surrender.

 

13.2    Without the specific consent of the Working Interest Owners other than the Surrendering Working Interest Owner, an assignment made under the provisions of Article 13.1 above shall not relieve the Surrendering Working Interest Owner of any liability or obligation created prior to the date of such assignment and any then approved work programme and budget.

 

13.3    At such time, and in such manner, as prescribed under the Concession Agreement, whenever the Working Interest Owners are required to reduce the extent of the Area, the Operating Committee shall determine the Area to be retained.

                                                                   ARTICLE-14

                            RELATIONSHIP OF THE WORKING INTEREST OWNERS

 

14.1    The rights, obligations and liabilities of the Working Interest Owners under the Joint Operating Agreement shall be several and not joint or collective, each Working Interest Owner being responsible only for its Working Interest share of costs and liabilities incurred for the Joint Account.

 

14.2    The relationship between the Working Interest Owners, with respect to the Joint Property, is that of tenants in common.  Neither juridical person or entity is created by this Joint Operating Agreement, nor is it the purpose or intention of this Joint Operating Agreement to create any corporation, partnership or association, nor shall this Joint Operating Agreement and the operations hereunder be interpreted or considered as creating an entity since each Working Interest Owner shall be individually responsible only for its own obligations hereunder.

                                                                   ARTICLE-15

                                                                        TAXES

 

15.1    The Operator shall subject to the Concession Agreement pay any and all duties, other assessments and Governmental charges (excluding income taxes on profit), whether national or local levied or assessed against any of the Joint Property, royalty and other applicable taxes, as the case may be, on Petroleum produced and saved for the Working Interest Owners, the costs of which are charged to the Joint Account.

 

15.2    The Operator shall contest the validity or payment of any assessment or charge referred to in Article 15.1 above for the Joint Account, if so directed by the Operating Committee.  Nothing herein shall prevent a Non-Operator at its sole cost and expense from having its own attorney appear and participate in any such contest in addition to the Operator’s attorney, without prejudice to the right of the Operator to direct such contests as determined by the Operating Committee above.

                                                                   ARTICLE-16

                                                              FORCE MAJEURE

 

16.1    The provisions of Article 27 of the Concession Agreement are herein incorporated by reference and will apply to this Joint Operating Agreement accordingly.

                                                                   ARTICLE-17

                                                                 ARBITRATION

 

17.1    Any dispute arising out of this Joint Operating Agreement shall be dealt with mutatis mutandis in accordance with Article 28 of the Concession Agreement.

                                                                   ARTICLE-18

                                              LAWS, RULES AND REGULATIONS

 

18.1    This Joint Operating Agreement is subject to the Concession Agreement and all Joint Operations shall be conducted in accordance with its provisions, and of all other valid and applicable laws, rules, regulations and orders of the Government.  If this Joint Operating Agreement in any respect shall be found to be inconsistent with or contrary to the terms of the Concession Agreement, this Joint Operating Agreement shall be regarded as modified to conform thereto and as so modified shall continue in full force and effect.

 

18.2    No Working Interest Owner shall resort to any action for partition of the Area or Joint Property, except in accordance with the provisions of the Concession Agreement and this Joint Operating Agreement.

                                                                   ARTICLE-19

                                                                         TERM

 

19.1    This Joint Operating Agreement shall become effective on the Effective Date and shall remain in full force and effect until:

 

(a)       It is terminated by the written consent of all Working Interest Owners, or

 

(b)       All the Working Interests become vested in one Working Interest Owner, or

 

(c)       The termination of the Concession Agreement.

 

19.2    Before this Joint Operating Agreement terminates, there shall be a final Audit and settlement of the Joint Account between the Working Interest Owners in accordance thereof.

                                                                   ARTICLE-20

                                                                      NOTICES

 

20.1    Any notice required or permitted to be given hereunder including but not limited to bills, statements, cash calls, reports and notices, shall be deemed to have been effectively given to and received by a Working Interest Owner and the Government to whom it is addressed by telex, telegraphic message, (facsimile) or hand delivery.  All notices shall be delivered to the Working Interest Owners and the Government so notified at the respective addresses given in or pursuant to the Concession Agreement.

 

20.2    Any notice or advice required or permitted to be given to or by any Working Interest Owner under this Joint Operating Agreement shall be given in writing in the English language and delivered by hand, by telegraph, cable or telex or fax confirmed in writing as above.

 

20.3    Such notices or other communications shall be deemed to be effectively given or made:

 

i)          On receipt by the addressee if delivered personally with signed receipt obtained acknowledging delivery; or

 

ii)         On transmission to the addressee if transmitted by telex or fax (with the correct receipt confirmation) during normal business hours at the place of receipt of the addressee or if so transmitted outside such hours, on opening of business on the next business Day at such place.

                                                                   ARTICLE-21

                                                              MISCELLANEOUS

 

21.1    The heading of each Article hereof and the Table of Contents are for convenience only and shall be disregarded in construing or interpreting this Joint Operating Agreement.

 

21.2    Except as otherwise provided herein, this Joint Operating Agreement shall be binding on and shall inure to the benefit of the Working Interest Owners and their respective successors and assigns.

 

21.3    Any modification of this Joint Operating Agreement shall not be effective until such modification is executed in writing by the Working Interest Owners.

 

IN WITNESS WHEREOF this Joint Operating Agreement has been duly executed the Day and year first above written:

 

 

 

Signed for and on behalf of                                               )

XYZ/ABC                                                                    )

BY :     _______________________________            )

 

 

WITNESSES:

 

1) ____________              

 

2) ____________             

 

 

Signed for and on behalf of

the GOVERNMENT HOLDINGS PRIVATE LIMITED( if applicable)

 

 

BY :     _______________________________            )

 

 

WITNESSES:

 

1)   __________           

 

2)  ___________           

 

APPENDIX A – ACCOUNTING PROCEDURE

 

 

                                                          TABLE OF CONTENTS

 

Page

 

ARTICLE-I

GENERAL PROVISIONS………………………………………………………………………………. 101

ARTICLE-II

CHARGES TO THE JOINT ACCOUNT…………………………………………………………. 105

ARTICLE-III

BASIS OF CHARGES TO THE JOINT ACCOUNT………………………………………. . 110

ARTICLE-IV

DISPOSAL OF EQUIPMENT AND MATERIALS…………………………………………….. 112

ARTICLE-V

INVENTORIES……………………………………………………………………………………………… 113

ARTICLE-VI

TERMINATION……………………………………………………………………………………………… 114