Association Contract for Miradores - Empresa Colombiana de Petroleos (Ecopetrol) and Harken de Colombia Ltd.
SWORN TRANSLATION NO. 30154 OF A DOCUMENT WRITTEN IN SPANISH TO WHICH,
FOR IDENTIFICATION PURPOSES, THE SEAL OF THIS OFFICE IS AFFIXED, AS
WELL AS TO THIS TRANSLATION.
EMPRESA COLOMBIANA DE PETROLEOS ECOPETROL
" MIRADORES" ASSOCIATION CONTRACT - WITH GAS INCENTIVES
ASSOCIATION CONTRACT
ASSOCIATE: HARKEN DE COLOMBIA,
LTD.
SECTOR: MIRADORES
EFFECTIVE DATE: FEBRUARY 22ND, 1998
The contracting parties namely: Empresa Colombiana de Petroleos, hereinafter
referred to as ECOPETROL, an industrial and commercial State owned enterprise,
with its own corporate existence, created by means of Act 165 of 1948, and
currently governed by its by-laws amended by Decree 1209 of June 15th, 1994,
with its main office in Santafe de Bogota, represented by ENRIQUE AMOROCHO
CORTES, of legal age, bearer of citizenship card No. 5.555.193
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issued in Bucaramanga, resident of Santafe de Bogota, who states: 1. That in his
capacity as President of ECOPETROL he acts in representation of the Company and
2. That for the execution of this Contract he has been authorized by the Board
of Directors of ECOPETROL under Minutes No. 2169 of October 16th, 1997 and on
the other hand, HARKEN DE COLOMBIA, LTD., a company organized under the laws of
Cayman Islands, with main domicile in Santafe de Bogota, hereinafter referred to
as THE ASSOCIATE , with a branch established in Colombia and main domicile in
Santafe de Bogota, under Public Deed 406 of February 19th, 1993, issued by the
Eleventh Notary Public's Office of the Circuit of Santafe de Bogota, herein
represented by GABRIEL GUSTAVO CANO VELASQUEZ, of legal age, bearer of the
citizenship card No. 8'265.559 issued in Medellin, who states: 1. That in his
capacity as Legal Representative, he acts on behalf and representation of HARKEN
DE COLOMBIA, LTD. and 2. That in order to enter into this Contract he has been
fully authorized as verified in the certificate of existence and representation
issued by the Chamber of Commerce of Santafe de Bogota. Under the mentioned
conditions, ECOPETROL and the ASSOCIATE hereby verify that they have entered
into a contract contained in the following clauses:
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CHAPTER I - GENERAL PROVISIONS
CLAUSE 1 - OBJECT OF THIS CONTRACT
1.1 The purpose of this Contract is the exploration of the Contract Area and the
exploitation of the nationally-owned hydrocarbons as may be found therein, as
described in Clause 3 hereinbelow:
1.2 According to article 1 of Decree No. 2310 of 1974, the exploration and
exploitation of nationally owned hydrocarbons is entrusted to ECOPETROL , who
may carry out these activities directly or under contracts with Private Parties.
Based on said provision, ECOPETROL has agreed with the ASSOCIATE to explore the
Contract Area and to exploit the Hydrocarbons which may be found in the area
under the terms and conditions provided hereunder, in Annex A and Annex B B
(Operating Agreement) which are part of this contract.
1.3 Without affecting the provisions hereunder, it is agreed THE
ASSOCIATE shall have the same rights and obligations in respect to the
Hydrocarbons produced in the Contract Area and to its share of the same as are
assigned under Colombian law to anyone exploiting nationally-owned Hydrocarbons
in this country.
1.4 ECOPETROL and the ASSOCIATE agree that they will carry out the exploration
and exploitation operations in the Contract Area; that they will split between
themselves the
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costs and risks thereof in the proportion and under the terms contemplated in
this Contract and that the properties acquired and Hydrocarbons produced and
stored shall be property of each Party in the proportions set forth hereunder.
CLAUSE 2 - APPLICATION OF THE CONTRACT
This contract applies to the Contract Area, as defined in Clause 3 hereinbelow
or when Clause 8 has been applied, to such portion thereof as in subject to the
terms of this Agreement.
CLAUSE 3 - CONTRACT AREA
The Contract Area is called "MIRADORES" with an extension of twelve thousand
nine hundred and thirty eight ( 12.938) hectares five hundred and sixty five
(565) square meters, located within the jurisdiction of the municipalities of
Mani, Department of Casanare. All points of the polygon, where Cusiana flows,
the right bank was taken as boundary of the contract. Therefore, 104 square
meters were deducted from such polygon, formed by vertex ( 13.168 hectares ),
the area measured with planimeter (229 hectares 9.539 square meters ). This area
is described below according to the map attached as Annex "A", which makes part
of this contract, as well as the corresponding charts : "ASIVA-1567" Geodesic
Vertex from Instituto Geografico Agustin Codazzi has been taken as reference
whose Gauss plane coordinates with 3o
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East Origin are: N-981.664.04 meters, E-886.281.72 meters, corresponding to
geographical coordinates Latitude 4o 25'57".086 North of Equator, longitude 69o
06'19".493 to the West of Greenwich. From this vertex continuing N 46o 41"
53".956 W direction 22.373.97 meters to reach point "A", departure point to mark
boundaries whose coordinates are N-997,009.00 meters, E-869,999.00 meters. From
this point, N 37o 17'12".094 E for a distance of 14.492.01 meters until reaching
point "B", whose coordinates are N-1'008,539.05 meters, E-878,778.31 meters.
From this point, S30o 54'58".169 E , 1,793.93 meters until reaching point "C"
whose coordinates are N-1'007,000.00 meters, E-879,700.00 meters. Line "B-C" has
a S 30o 54'58".169 E direction and a longitude of 1,793.93 meters and it is
totally adjacent to a section of "C-B" line from Alcaravan sector of Harken de
Colombia Ltd. From point "C" continuing to reach point "D" whose coordinates are
N-1'004, 171.12 meters, E-886,467.14 meters. Line C-D totally adjoins a section
of line "B-A" from Alcaravan Sector of Harken de Colombia Ltd., with a S
67o18'48".529 E direction and 7,334.62 meters distance. From this point,
continuing S 36o 20'11".348 W for a distance of 15,979.27 meters, until reaching
point "E" whose coordinates are N-991,299.00 meters, E-876,999.00 meters. From
this point, continuing N 50o 47'43".379 W , 9,033.50 meters until reaching point
"A" departure point and closing of the boundary.
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PARAGRAPH 1: In the event that any person files a claim with the pretense that
he owns the hydrocarbons of the subsoil of the Contract Area, ECOPETROL shall be
in charge of the case and of the obligations arising thereto.
PARAGRAPH 2- In the event that part of the Contract Area is extended on areas
that are or have been reserved and declared included in the National Parks
system, THE ASSOCIATE, agrees to abide the conditions imposed by competent
authorities,
without implying an amendment of this Contract and without any right to claim
against ECOPETROL pursuant to clause 30 paragraph 30.4 hereunder.
CLAUSE 4 - DEFINITIONS
For purposes of this Contract, the terms mentioned below shall have the
following meaning:
4.1 CONTRACT AREA: The land defined in Clause 3 above, subject to Clause 8.
4.2 FIELD: Such portion of the Contract Area in which there are one or more
totally or partially overlapped Structures, with one or more hydrocarbon
reservoirs- or capable of producing Hydrocarbons . Such reservoirs could be
found
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separated by geological reasons such as: synclinal, faults, wedging of
reservoir rocks, changes in porosity and permeability; they can also be of
different geological ages, separated by relatively impervious strata, totally or
partially overlapping or not overlapping at all.
4.3 COMMERCIAL FIELD: It is the field that ECOPETROL accepts as capable of
producing Hydrocarbon in economically exploitable quantity and quality in one or
more Production Targets defined by ECOPETROL.
4.4 GAS FIELD: It is the field, that based on the information supplied by THE
ASSOCIATE, will be rated by ECOPETROL as Non Associated Natural Gas Producer (
or free natural Gas) in the definition of its commercial nature.
4.5 EXECUTIVE COMMITTEE: The body formed within thirty (30) days following
acceptance of the first Commercial Field to supervise, control, and approve all
the operations and actions performed during the life of the contract.
4.6. DIRECT EXPLORATION COSTS Expenses reasonably incurred by the Associate for
the acquisition of seismic, drilling of exploration wells as well as for
locations, completion, equipment, and tests of such wells. Direct Exploration
Costs do not include administrative or technical support from the headquarters
and local offices of the Company.
4.7. JOINT ACCOUNT The records to be kept by means of accounting books, in
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accordance with Colombian Law for crediting or debiting the Parties for their
Participation in the Joint Operation of each Commercial Field.
4.8 BUDGET PERFORMANCE The funds actually spent and committed in each of the
programs and projects approved for a given period of time.
4.9 STRUCTURE: It is the geometric form with geological closure ( anticlinal,
synclinal, etc) which the formations present, in which there is accumulation of
fluids.
4.10 EFFECTIVE DATE: The calendar day on which the term of sixty (60) days
counting from the signing date the contract ends and as of which, all the
contract terms are counted subject to the validity of the contract.
4.11. CASH FLOW Constituted by the physical movement of money (income and
expenditure) that the Joint account must undertake in order to take care of the
various obligations contracted by The Association.
4.12 ASSOCIATED NATURAL GAS Mixture of light hydrocarbons as a gas cap or in
solution in the reservoir and produced jointly with liquid hydrocarbons.
4.13 NON ASSOCIATED NATURAL GAS ( PRODUCTION OF): Hydrocarbons produced in a
gaseous state on the surface under standard conditions, with average values
(weighted per production), with an initial Gas/Oil ratio above 15.000 standard
cubic feet per barrel of liquid Hydrocarbon and a
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molar composition of heptane plus ( C7+) lower than 4.0%.
4.14 DIRECT EXPENSES All those expenses of a monetary nature on the Joint
Account to pay for personnel directly involved in the Association, of goods and
supplies, service contract with third parties as well as procurement for general
expenses required for the joint operation within the normal development of its
activities.
4.15 INDIRECT
EXPENSES Refers to the administrative and technical support that the associated
operation demands from the Operators's own organization, occasionally.
4.16 COMMERCIAL INTEREST When referring to Colombian Pesos, the current interest
for ninety (90) days Fixed Term Deposits ( FTD) certified by the Bank
Superintendency or the corresponding body for the corresponding period; if
applicable to US Dollars, it is the prime rate as fixed by The City Bank of New
York or entity approved for such purpose.
4.17 INTEREST IN THE OPERATION Each Party's share of the obligations and rights
in the exploration and exploitation of the Contract Area.
4.18 DEVELOPMENT INVESTMENTS Refers to the amount of money invested in assets
and equipment which are capitalized as a Joint Operation's assets in a
Commercial Field after declaring the commercial value of the same.
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4.19 HYDROCARBONS: any organic compound mainly formed of the natural mixture of
carbon and hydrogen as well as any substances accompanying or deriving
therefrom, with the exception of helium and rare gases.
4.20 GASEOUS HYDROCARBONS: This includes all hydrocarbons produced in gaseous
state on the surface and reported under standard conditions ( 1 absolute
pressure atmosphere and a temperature of 60o F).
4.21 LIQUID HYDROCARBONS: This consists of crude
oil and condensates, as well as those produced in such state as a result of gas
treatment when necessary, reported under standard conditions.
4.22 PRODUCTION TARGETS The reservoirs located within the discovered Commercial
Field and defined as commercial producers.
4.23 JOINT OPERATION The activities and works performed or in the process of
being performed, on behalf of the Parties and on their own account.
4.24 OPERATOR The person designated by the Parties to perform directly, on their
behalf, the operations necessary for the exploration and exploitation of the
Hydrocarbons found in the Contract Area.
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4.25 PARTIES: On the effective Date, ECOPETROL and THE ASSOCIATE. Subsequently
and at any time, ECOPETROL as Party of the first part and THE ASSOCIATE or its
assignees as Party of the second part.
4.26 EXPLORATION PERIOD: The period of time available THE ASSOCIATE to comply
with the obligations stipulated in Clause 5 hereinbelow, which shall not exceed
six (6) years as from the Effective Date, except in the cases contemplated under
Clauses 9 (paragraphs 9.3 and 9.8) and 34.
4.27. EXPLOITATION PERIOD: The time elapsing from the end of the Exploration
Period or the Retention Period, should there be any, until the end of this
contract.
4.28 RETENTION PERIOD: A period of time that might be requested by THE ASSOCIATE
and granted by ECOPETROL to initiate the Exploitation Period of each Gas Field
discovered within the Contract Area, that due to its specific conditions does
not make feasible its development at a short term and therefore an additional
time for construction of infrastructure and/or development of the market is
required.
4.29 EXPLORATION WELL: Any well designated as such by THE ASSOCIATE,
to be drilled or deepened on its own account in the Contract Area, in search of
new reservoirs or to verify the extension of an reservoir or to determine the
stratigraphy of an area. In order to fulfill the obligations agreed in Clause 5
hereunder, the respective Exploration
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Well will be determined by ECOPETROL and THE ASSOCIATE.
4.30 EXPLORATORY (OR DEVELOPMENT) WELL: It is any well previously scheduled by
the Executive Committee for production of Hydrocarbons discovered in the
Production Targets within each Commercial Area.
4.31 BUDGET: The basic planning tool by means of which money resources are
assigned for specific projects to be applied within a calendar year, or part of
a year, so as to accomplish the goals and objectives proposed by THE ASSOCIATE
of the Operator.
4.32 EXTENSIVE PRODUCTION TESTS The operations performed on one or several
producing exploratory wells, to evaluate their production conditions and
reservoir behavior.
4.33 REIMBURSEMENT The Payment of fifty per cent (50%) of the direct exploration
expenses in which THE ASSOCIATE has incurred.
4.34 EXPLORATION ACTIVITIES Operations carried out by THE ASSOCIATE which are
related to the search of Hydrocarbons and the discovery thereof inside the
Contract Area.
4.35 RESERVOIR: This is any rock under the surface in which hydrocarbons
are accumulated in their pore space, under production or capable of producing
Hydrocarbons and behaving as an independent unit in terms of its petrophysical
and fluid properties, and having a common pressure system throughout.
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CHAPTER II- EXPLORATION
CLAUSE 5. TERMS AND CONDITIONS
5.1.1 During the first (1st) year as of the Effective Date of this Contract, the
ASSOCIATE agrees to reprocess one hundred and sixty five (165) kilometers of
available seismic and to acquire a new seismic program consisting of a minimum
of twenty five (25) kilometers. During the second year THE ASSOCIATE shall drill
one (1) Exploratory Well until reaching the formations that may produce
hydrocarbons in the area. At the end of the first year THE ASSOCIATE shall have
the option of relinquishing the Contract providing it has complied with the
above-mentioned obligations.
5.1.2 During the third year, THE ASSOCIATE shall drill one (1) Exploratory Well
until reaching those formations apt to produce Hydrocarbons in the area. At the
end of said year the Contract will terminate, if its extension has not been
requested and authorized pursuant to paragraph 5.2 of this Clause or if a
commercial field has not been discovered, except for the provisions of Clause 9
paragraph 9.5.
5.2 If THE ASSOCIATE has complied satisfactorily with the obligations set forth
in Clause 5, ECOPETROL shall, on THE ASSOCIATE's request, extend the Exploration
Period year-by-year for up to an additional three (3) years, and during
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each annual extension THE ASSOCIATE shall be under obligation to carry out
Exploration Operations in the Contract Area, consisting of the drilling of one
(1) Exploratory Well until penetrating the formations that may produce
Hydrocarbons in the area.
5.3 If during any one year of the Exploration Period THE ASSOCIATE should decide
to carry out work covering the following year's obligations, it shall request
ECOPETROL's approval to perform such operations. If the request is accepted,
ECOPETROL shall determine how and for what amount such obligations are to be
transferred.
5.4 During the life of this Contract, THE ASSOCIATE may carry out Exploration
Activities in such areas as it may retain pursuant to Clause 8 and THE ASSOCIATE
shall be solely responsible for the risks and costs of such operations and
therefore, shall have full, sole control over the same, although the maximum
length of the Contract shall not be changed for this reason.
CLAUSE 6. SUPPLY OF INFORMATION DURING EXPLORATION
6.1 ECOPETROL shall supply THE ASSOCIATE, whenever the latter may so request,
with any information on its possession within the Contract Area. The costs of
reproduction and supply of such information shall be charged to THE ASSOCIATE.
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6.2 During the Exploration Period, THE ASSOCIATE shall deliver to ECOPETROL once
obtained, and in accordance with ECOPETROL's data supply manual, all the
geological and geophysical information, cores, edited magnetic tapes, processed
seismic sections and all the field information supporting it, magnetic and
gravimetric profiles (logs) , all of it in reproducible original copies of
geophysical data, reproducible originals of all the records on the wells drilled
by THE ASSOCIATE, including the Final Composite Chart on each well, and copies
of the Final Drilling Report, including analyses of core samples, results of
production tests and any other information relating to the drilling, study or
interpretation of any kind whatever made by THE ASSOCIATE for the Contract Area,
to ECOPETROL, without any limitation whatsoever. ECOPETROL has the right at any
time and through such procedures as it may consider appropriate, to witness any
operations and verify the information listed above.
6.3 The Parties agree that any geological, geophysical and engineering
information obtained hereunder is of confidential nature during three (3) years
following obtainment of said information. From said moment, such information
will be available except for the interpretations made by the Parties on said
information. The released information mainly consists of seismic information,
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potential methods, remote sensors, and geochemistry, with their respective
supports, soil and sub-soil mapping, well logs, electric logs, formation tests,
biostratigraphic , petrophysical and fluid analyzes, and production histories.
By agreement between the Parties in each case, information may be exchanged with
companies associated or not associated with ECOPETROL. It is understood that
this agreement is without prejudice to the obligation to furnish the Ministry of
Mines and Energy with any information it may request under current legal and
regulatory provisions. It is understood and agreed that The Parties may, at its
sole discretion, supply such information as may be required by its affiliates,
consultants, contractors, finance institutions, and as required by the competent
authorities with jurisdiction over the associates or its affiliates, or under
regulations of any stock exchange in which capital stock of the Parties or
related corporations is listed.
CLAUSE 7: EXPLORATION BUDGET AND PROGRAMS
THE ASSOCIATE shall have the obligation, in accordance with the provisions of
this Contract, to prepare the programs,the time chart for activities to be
developed and the budget to be executed at a short term ( for the next calendar
year) and the projection for the next two (2) years with the estimated budget,
necessary for the
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exploration of the Contract Area. Such projection, programs, time chart and
Budget shall be submitted to ECOPETROL for the first time, within sixty (60)
calendar days from the date of execution of this contract and thereafter, within
the first ten (10) calendar days of each year. On a quarterly basis, THE
ASSOCIATE, shall deliver ECOPETROL a technical and financial report, listing the
different exploratory activities carried out, prospects for the area based on
the information obtained, the allocated budget and the exploration costs
incurred until the date of the report, commenting for each case the causes
originating the main deviations . At ECOPETROL's request, the ASSOCIATE shall
give the explanations on the report, during meetings to be scheduled on a
half-year basis. Information submitted by THE ASSOCIATE in the reports and
explanations dealt with herein shall in no case be considered as accepted by
ECOPETROL. Financial information shall be subject to auditing by ECOPETROL under
the terms set forth in Clause 22 of Annex "B" (Operating Agreement) hereunder.
CLAUSE 8: RESTITUTION OF AREAS
8.1 If, at the end of the initial Exploration period of three years or of such
extensions as may have been obtained by THE ASSOCIATE, pursuant to Clause 5,
paragraph 5.2, a commercial field has been discovered in the Contract Area, such
an area shall be reduced to fifty per cent (50%); two (2) years later, the area
shall be reduced to an extension
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equal to fifty per cent (50%) of the remaining Contract Area, and two (2) years
thereafter, such area shall be reduced to that of the Commercial Field or
Commercial Fields then in production or under development, plus a two and a half
(2.5 ) kilometer-wide reserve zone surrounding each Field and it shall be the
only part of the Contract Area to remain subject to the terms of this contract.
In order to enforce this Clause, an imaginary mesh or grid will be overlapped to
the initially contracted area divided in ten rows and columns in a north-south
direction, whose boundaries will be given by the north and east coordinates,
maximum and minimum of marking of the boundaries, defining the base cells for
restitution of the area dealt with herein. Every time a restitution of areas is
made, the imaginary grid or mesh, will be adjusted based on the new coordinates
of the Contract Area.
8.2 THE ASSOCIATE shall determine the areas which it will hand back to
ECOPETROL, based on the above-mentioned imaginary mesh or grid . For this
purpose, it will hand back up to two lots made up of one or more adjoining cells
trying to keep a sole polygon, unless THE ASSOCIATE proves that this is not
possible or convenient, for which it will require ECOPETROL's approval.
Notwithstanding the obligation of returning the areas dealt with in Clause 8
(paragraph 8.1) THE ASSOCIATE is not bound to restitute areas under development
or production including two and a half (2.5)
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kilometer wide reserve zones surrounding such areas, except in the event that,
for reasons attributable to THE ASSOCIATE, the development or production
operations are suspended continuously for more than one year without justified
cause, in which case THE ASSOCIATE shall relinquish such areas to ECOPETROL and
the Contract shall terminate in respect to said areas or part of an area. The
provisions of this clause shall also apply to the Exploitation under the sole
risk mode.
8.3 RETENTION PERIOD: If THE ASSOCIATE has discovered a Gas Field and files a
request for definition of the commercial nature for such field dealt with in
clause 9 paragraph 9.1; with said request it shall ask ECOPETROL granting of a
Retention Period ; fully justifying the reasons to be granted said period of
retention.
8.3.1 THE RETENTION PERIOD shall be requested by THE ASSOCIATE and granted by
ECOPETROL prior to the date on which the last restitution of areas dealt with in
paragraph 8.1 of this clause is to be made.
8.3.2 The Retention period shall not exceed four (4) years. If the term
initially granted as Retention Period were not sufficient, upon a written and
justified request from THE ASSOCIATE, ECOPETROL may extend the Retention Period
for an additional term, the addition of the initial period and its extension
shall not exceed four (4) years.
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CHAPTER III- EXPLOITATION
CLAUSE 9. TERMS AND CONDITIONS
9.1 To commence the Joint Operation hereunder, it is considered that the
exploitation operations shall start on the date when the Parties acknowledge the
existence of a Commercial Field or when the events provided for in Clause 9
(paragraph 9.5) have occurred. The existence of a Commercial field will be
determined by means of THE ASSOCIATE's drilling a number of wells within the
proposed Commercial Field, sufficient to allow for the area capable of producing
Hydrocarbons and the commercial nature of the field to be reasonably defined. In
this case THE ASSOCIATE shall notify ECOPETROL in writing on the discovery of a
Commercial Field, furnishing the studies on which such conclusions are based.
ECOPETROL, within a ninety (90) calendar days as of the date on which THE
ASSOCIATE delivers all the support information and carries out the technical
presentation to ECOPETROL, shall accept or object the existence of the
Commercial Field. ECOPETROL may request any additional information that it deems
necessary within the next thirty (30) days following the date of submission of
the first support information.
9.2.1 If ECOPETROL accepts the existence of the Commercial Field, it shall give
notice to THE ASSOCIATE, within the ninety (90) calendar days referred to in
Clause 9 (paragraph
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9.1) , specifying the area of the Commercial Field and will then start to
participate, in the development of the Commercial Field discovered by THE
ASSOCIATE under the terms of this contract.
9.2.2 ECOPETROL shall reimburse THE ASSOCIATE fifty per cent (50%) of Direct
Exploration Costs covered by THE ASSOCIATE under its account and risk within the
Contract Area, prior to the date of submission of the studies to define the
commercial nature of each new discovered Commercial Field, pursuant to paragraph
9.1 of this Clause.
9.2.3 The amount of these costs shall be determined in US dollars taking as
reference the date on which THE ASSOCIATE has made such reimbursements;
therefore, costs incurred in Colombian pesos shall be liquidated at the exchange
rate certified by the Bank Superintendency or other competent body, effective on
the date fixed herein.
PARAGRAPH: Once the amount of the direct Exploration Costs to be reimbursed in
US dollars has been defined, this value shall be adjusted from the time of its
reimbursement, per each year or fraction of year, until the date determined by
the Ministry of Mines and Energy as initiation date for exploitation of the
respective Field, with the international inflation rate of the respective year,
and in its absence, with the one of the preceding year. The international
inflation value to be used shall be the annual percentual variation of the
consumer price index of industrialized
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countries taken from " International Financial Statistics" of the
International Monetary Fund ( page S63 or as amended) and in its absence, the
publication agreed by the Parties.
9.2.4 Reimbursement of direct exploration costs as mentioned in Clause 9
(paragraph 9.2.2) shall be made by ECOPETROL to THE ASSOCIATE as from the time
the field is placed in production by Operator with the amount in dollars
equivalent to fifty per cent (50%) of its direct participation in the total
production of the corresponding field, after deducting the percentage
corresponding to royalties. PARAGRAPH: If dealing with a Gas Commercial Field,
said reimbursement shall be made by ECOPETROL to THE ASSOCIATE, as from the time
the field is placed in production by Operator with the amount in dollars
equivalent to one hundred per cent ( 100%) of its direct participation in the
total production of the corresponding Field, after deducting the percentage
corresponding to royalties.
9.3 If ECOPETROL does not accept the existence of the Commercial Field referred
to in Clause 9 ( paragraph 9.1), it may indicate to THE ASSOCIATE the additional
works it may consider necessary to demonstrate the existence of a Commercial
Field, the cost of such work not to exceed TWO MILLION DOLLARS (US$2.000.000),
nor to require a period of more than (1) one year for its completion, and in
that case the Exploration Period for the Contract Area shall be automatically
extended by a period of time equal to that
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agreed upon between the Parties as necessary for the completion of the
additional work requested by ECOPETROL under this Clause, without affecting the
provisions on reduction of areas in Clause 8 ( paragraph 8.1.)
9.4 If after the completion of the additional work requested thereby under
Clause 9 (paragraph 9.3) , ECOPETROL accepts the existence of the Commercial
Field referred to in Clause 9 (paragraph 9.1), it will start to participate in
the development operations in the field under the terms set forth in this
Contract, and shall reimburse THE ASSOCIATE in the manner provided in Clause 9 (
9.2.3, 9.2.4) for fifty per cent (50%) of the cost of the additional work
requested, pursuant to Clause 9 (paragraph 9.3) , and the works performed will
become the property of the Joint Account.
9.5 If ECOPETROL does not accept the existence of a Commercial Field after
completion of the additional work under Clause 9 (paragraph 9.3) THE ASSOCIATE
has the right to perform such work as it may deem necessary for the exploitation
of the field and to reimburse itself for two hundred per cent (200%) of the
total cost of the work performed on its own account and risk in the respective
field for purposes of this Clause , and up to fifty per cent (50%) of the Direct
Exploration Costs, incurred by the ASSOCIATE before the date of submission of
the studies to allow for the commercial nature of the respective field to be
defined. For purposes of this Clause, reimbursement
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shall be made with the value of the produced Hydrocarbons, minus the royalties
dealt with in Clause 13, deducting the production , gathering, transportation
and sale costs. If the ASSOCIATE selects the sole risk mode, it is understood
that the exploitation terms, commences as of the date on which ECOPETROL gives
notice to THE ASSOCIATE that it does not accept the commercial nature. For the
purpose of the liquidation of the value in dollars of the reimbursements made in
pesos, they shall be liquidated at the exchange rate certified by the Bank
Superintendency or other competent body, effective on the date on which THE
ASSOCIATE has made such reimbursements. For purposes of this Clause, the value
of each barrel of Hydrocarbon produced in such a field during a calendar month
shall be the average per-barrel price received by THE ASSOCIATE from sales of
its share of the Hydrocarbons produced in the Contract Area during the same
month. Regarding reimbursement of the Direct Exploration Costs, the provisions
of paragraph of Clause 9 (paragraph 9.2.3) shall apply.
Once THE ASSOCIATE has reimbursed itself according to the percentage set forth
in this Clause, all wells drilled, facilities and any kind of assets acquired by
THE ASSOCIATE for exploitation of the field and paid for as indicated in this
Clause, shall become property of the Joint Account, free of charge, upon
acceptance by ECOPETROL of participating in the development of such field.
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9.6 ECOPETROL may at any time start to participate in the operation of the field
discovered and developed by THE ASSOCIATE, without prejudice to ASSOCIATE's
right to reimburse itself for the investment it may have made on its own account
in the manner and for the percentage indicated in Clause 9 (paragraph 9.5). Once
THE ASSOCIATE has obtained this recovery, ECOPETROL shall start to share in the
economic results of the fields developed on THE ASSOCIATE's exclusive account.
9.7 The boundaries of a Commercial Field shall take into consideration all the
geological and geophysical information and that of the wells drilled within such
a field or relating to it.
9.8 If upon expiry of the six (6) year Exploration Period referred to in Clause
5 (paragraph 5.2) THE ASSOCIATE has drilled any or several Exploratory Wells
which indicate the possible existence of a Commercial Field, ECOPETROL, at THE
ASSOCIATE's request, shall extend the Exploration Period by the length of time,
not exceeding one year, required by THE ASSOCIATE in order to prove the
existence of such a Commercial Field, without prejudice as to the provisions of
Clause 8.
9.9. If after accepting the commercial nature of
one or more fields, THE ASSOCIATE continues meeting the exploratory obligations
agreed in Clause 5, at the same time it may
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carry out the exploitation of said fields before ending of the exploration
period defined in Clause 4, paragraph 4.26, but only as of the date of
expiration of this period, shall commence to count the exploitation period. When
dealing with Gas Fields and ECOPETROL has granted the Retention Period, the
Exploitation Period for each Field shall commence as of the date of expiration
of the respective Retention Period.
9.10 If as a result of the drilling of Exploration Wells after defining the
existence of a Commercial Field, THE ASSOCIATE proves the presence of additional
accumulations of Hydrocarbons related to said Field, it shall request ECOPETROL
enlargement of the Commercial Field and determination of its commercial nature,
following the procedure set forth in Clause 9 (paragraphs 9.1 and 9.2.1). If
ECOPETROL accepts the commercial nature, it shall reimburse THE ASSOCIATE fifty
per cent (50%) of the Direct Exploration Costs exclusively related to the
enlargement of the area of the Commercial Field, under the terms of paragraphs
9.2.3 and 9.2.4. If ECOPETROL does not accept the existence of a Commercial
Field, THE ASSOCIATE shall have the right to reimburse itself up to two hundred
per cent (200%) of the total of the work performed on its own account and risk
for exploitation of Exploration Wells resulting producers and up to fifty per
cent (50%) of the Direct Exploration Costs incurred by THE ASSOCIATE exclusively
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related to definition of the commercial nature . Such reimbursement shall be
made out of the value of the Exploration Wells resulting producers, minus the
Royalties, under Clause 21 ( paragraph 21.2 ) until the percentages defined
hereunder.
CLAUSE 10 - TECHNICAL CONTROL OF THE OPERATIONS
10.1 The parties agree that THE ASSOCIATE is the Operator and, as such, with the
limitations set forth in this contract, have control of all the technical
operations and activities it may considered necessary for an efficient and
profitable exploitation of Hydrocarbons found within the area of the Commercial
Field.
10.2 The Operator is under obligation to carry out the development and
production operations in accordance with known industrial standards and
practices using the best technical methods and systems required for an economic
and efficient exploitation of Hydrocarbons, and fulfilling any legal and
regulatory provisions on the subject.
10.3 The Operator shall be considered to be an enterprise distinct from the
Parties hereto for any purposes hereunder, as well as for the application of
civil, labor and administrative legislation and for Operator's relations with
personnel in its employment, under Clause 32.
10.4 Operator will have the right to resign as such, by
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means of a written notice given to the Parties six (6) months in advance of the
effective date of such resignation. The Executive Committee shall then designate
a new Operator, pursuant to Clause 19 (paragraph 19.3.2).
CLAUSE 11 - EXPLOITATION PROGRAMS AND BUDGETS
11.1 Within three (3) months following the acceptance of a Commercial Field in
the Contract Area, the Operator shall submit an operating program plus a Budget
for the rest of the current calendar year and a development plan , to be agreed
in the Executive Committee. If less than six an a half months are left to the
end of the year, the Operator shall prepare and submit a Budget and programs for
the following calendar year within a period of three (3) months.
11.1.1 Future budgets and programs shall be submitted to the Parties during the
month of May of each calendar year, for which the Operator shall send to the
Parties their proposal within the first ten (10) days of the month of May.
Within twenty (20) days from the receipt of the Budgets and programs, the
Parties shall advise the Operator in writing on any changes they may wish to
propose. When this happens, the Operator shall take into account any
recommendations and changes proposed by the Parties in drawing up the Budget
and programs, which will be submitted for the Executive Committee's final
approval at an ordinary meeting called for
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the purpose, held on July of each year. In the event the total Budget has not
been approved before the month of July, those aspects of the Budget on which an
agreement has not been reached, shall be approved by the Executive Committee,
and those aspects not approved shall be immediately submitted to the parties for
further review and final decision in the manner set forth in Clause 20.
11.1.2 The development plan shall become the guide document to carry out the
technical, efficient and economic exploitation of each Field and shall contain
the description of the activities to be developed and an estimate of the
investments and expenses for the next five years, detailing the annual
operations program and the Budget for the next calendar year.
11.2 The Parties may propose additions or revisions to the approved Budget and
programs but, excepting cases of emergency, shall not be proposed with more
frequency than every three (3) months. The Executive Committee shall decide on
the proposed additions and revisions at a meeting, to be held within thirty (30)
days from the submittal of same.
11.3 The main purpose of the programs, Budgets and development plan is:
11.3.1 to determine the operations to be carried out and the expenses and
investments (Budget) that the Operator is authorized to undertake during the
calendar day immediately following.
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11.3.2 To keep a projection of the development of each Field within a medium to
long term horizon.
11.4 The terms program and Budget are understood to mean the work schedule and
estimated expenses plus investments to be effected by the Operator in the
various aspects of the operation, such as:
11.4.1 Capital investments in Production: drilling for the development of
reservoirs; reconditioning or overhauling of wells; specific construction for
production.
11.4.2 General Construction and Equipment: Industrial and camp facilities,
transportation and construction equipment; drilling and production equipment;
other construction and equipment.
11.4.3 Maintenance and Operating Expenses: Production expenses, geological
expenses; administrative expenses for the operation.
11.4.4 Working Capital requirements
11.4.5 Contingency Funds
11.5 The Operator shall pay all the expenses and investments and carry out the
development and production operations in accordance with the programs and
Budgets referred to in Clause 11 (Paragraph 11.1), without exceeding the total
Budget for each year by ten per cent (10%) , except if so authorized by the
Parties in special cases.
11.6 The Operator shall not, of its own will, initiate any project or charge the
Joint Account for any expenses not
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approved under the Budget, that exceed the amount of Forty Thousand US dollars
(US$40.000) or its equivalent in Colombian currency per project or per quarter.
11.7 The Operator is authorized to incur expenses chargeable to the
Joint Account without the Executive Committee's prior authorization in cases of
emergency measures designed to safeguard the Parties' personnel or property;
emergency expenses arising from fires, floods, storms or other disasters;
emergency expenses indispensable for the operation and maintenance of production
facilities, including the maintenance of wells in conditions to produce with
maximum efficiency; emergency expenses indispensable for the protection and
preservation of materials and equipment required in the operations. In these
cases the Operator shall call a special meeting of the Executive Committee as
soon as possible in order to obtain its approval to continue with the emergency
measures.
CLAUSE 12. PRODUCTION
12.1 The Operator shall, with the approval of the Executive Committee, determine
as required, or as necessary, the Maximum Efficiency Rate (MER) For each
Commercial Field. This Maximum Efficiency Rate (MER) shall be the maximum rate
or production of oil that may be extracted from a reservoir in order to obtain
the Maximum final recovery of the reserves. Estimated production shall be
decreased as necessary to compensate for actual or anticipated operating
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conditions, such as wells under repairs which are not producing, capacity
limitations in collection lines, in pumps, separators, tanks, pipelines and
other facilities.
12.2 The Operator shall determine periodically, at least once a year, with the
Executive committee's approval, any area considered capable of producing
Hydrocarbons in commercial quantity in each field.
12.3 The Operator shall prepare and deliver to each Party, at regular three (3)
month intervals, a program showing each Party's share of the production and
another showing each Party's production distribution for the following six (6)
months. The production forecast shall be based on the Maximum Efficiency Rate
(MER), as set forth in Clause 12 (paragraph 12.1) and adjusted to each Party's
interests hereunder. The Production Distribution Program shall be based on each
Party's periodic requests and, in accordance with Clause 14 (paragraph 14.2),
with such corrections as may be necessary to ensure that neither Party, while
able to withdraw, receives less than the quantity to which it is entitled under
the provisions of Clause 14, without prejudice as to the provisions of Clause 21
( paragraphs 21.2) and Clause 22 (paragraph 22.5)
12.4 If either Party foresees a reduction in its capacity to receive
Hydrocarbons against the forecast supplied to the Operator, it must so advise
the latter in the least time possible, and if such a reduction is due to an
emergency
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situation, it shall notify the Operator within twelve (12) hours from the
occurrence which gives rise to the reduction. Consequently, such a Party shall
furnish the Operator with a new receipt schedule as based on the appropriate
reduction.
12.5 The Operator may use the Hydrocarbons consumed in the production
operations in the Contract Area, and such consumption shall be exempt from
royalties referred to in Clause 13 (paragraphs 13.1 and 13.2)
CLAUSE 13. ROYALTIES
13.1 Liquid Hydrocarbons: During the exploitation of the Contract Area, prior to
the distribution of the production corresponding to the parties, the Operator
shall deliver to ECOPETROL, as a Royalty, twenty per cent (20%) of the
supervised production of liquid hydrocarbons from such an area. ECOPETROL on its
account and risk, shall take in kind from the tanks of the Joint Account the
percentage of production corresponding to the royalty.
13.2 Gaseous Hydrocarbons: The Operator shall deliver to ECOPETROL as a Royalty,
twenty per cent (20%) of the production of gaseous hydrocarbons, under normal
conditions. Should said hydrocarbons require treatment in gas plants, the volume
of hydrocarbons with royalties equivalent to twenty percent (20%) of the
production shall be determined as the addition of the dry gas produced in the
gas plants plus the equivalent in dry gas of the liquid products produced, using
the conversion factors established in the
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current legal provisions. For Exploitation Fields under the sole risk mode, THE
ASSOCIATE shall deliver ECOPETROL the percentage of Hydrocarbons corresponding
to the royalties.
13.3 Out of the production percentage which accounts for the Royalty , ECOPETROL
shall pay the entities legally appointed the royalties in favor of the
Government, corresponding to the total production of the Commercial Field, but
in no case shall THE ASSOCIATE be liable for any payment to such entities for
this reason.
CLAUSE 14 - DISTRIBUTION AND AVAILABILITY OF HYDROCARBONS
14.1 Hydrocarbons produced, except for the hydrocarbons used for operations
hereunder, and the hydrocarbons inevitably wasted in the operations shall be
transported to the joint tanks of the parties or to other measurement facilities
agreed by the Parties. Should an agreement not be reached, dealing with gaseous
hydrocarbons the measurement point shall be : I) In the gas line of each
separator when said gaseous Hydrocarbons do not require treatment in gas plants,
or II) At the exit of gas plants when treatment is required in said plants.
Hydrocarbons shall be measured in accordance with oil industry standards and
methods, and such measurement shall be the basis for determining the percentages
referred to in Clause 13, and the remaining
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hydrocarbons shall, from said moment on, be property of each Party in the
proportions specified hereunder.
14.2 PRODUCTION DISTRIBUTION
14.2.1 After deducting the percentages covering royalty, the remaining
hydrocarbons produced in each Commercial Field is property of the Parties in the
proportion of fifty per cent (50%) for ECOPETROL AND FIFTY PER CENT (50%) FOR
THE ASSOCIATE until the accumulated production of each Commercial Field reaches
60 million barrels of liquid Hydrocarbons or the amount of 420 cubic gigafeet of
gaseous hydrocarbons under normal conditions, whichever occurs first ( 1 cubic
gigafeet = 1 x 10 9 cubic feet).
14.2.2 Regardless of the classification of the Commercial Field given by
ECOPETROL in the definition of the commercial nature, exceeding the limits set
forth in paragraph 14.2.1 , the production distribution of each Commercial Field
( upon deducting the percentage corresponding to the royalty) shall be property
of the Parties in the proportion resulting from the application of the R factor,
as follows:
14.2.2.1 If the Hydrocarbon reaching in the first place the limit set forth in
paragraph 14.2.1 of this Clause was liquid Hydrocarbon, the following table will
be applied:
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R FACTOR PRODUCTION DISTRIBUTIONS AFTER ROYALTIES %
ASSOCIATE ECOPETROL
0.0 to 1.050 50
1.0 to 2.050/R 100-50/R
2.0 or more 25 75
14.2.2.2 If the Hydrocarbon reaching in first place the limit stated in
paragraph 14.2.1 of this Clause was the gaseous Hydrocarbon, the following table
will be applied:
R FACTOR PRODUCTION DISTRIBUTIONS AFTER ROYALTIES %
ASSOCIATE ECOPETROL
0.0 to 2.050 50
2.0 to 3.050/(R-1) 100- [50/(R-1)]
3.0 or more 25 75
14.2.3 For the purposes of the preceding tables, R Factor shall be defined as
the ratio of the income accumulated over the corresponding accumulated expenses
corresponding to THE ASSOCIATE for each Commercial Field under the following
terms:
R = IA
---------
ID+A-B+GO
Where:
IA (Accumulated Income of the ASSOCIATE): It is the value increase of the
accumulated income corresponding to the volume of hydrocarbons produced of the
ASSOCIATE after deducting royalties, at the price of reference agreed by the
Parties, excluding hydrocarbons re-injected to the Contract
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Area Fields, hydrocarbons consumed in the operation and burnt gas.
The average reference price of the hydrocarbons shall be determined by mutual
agreement of the parties. In order to determine the Accumulated Income, the
basis shall be the monthly income which will be determined by multiplying the
average reference price times the monthly production according to the forms
designed by the Ministry of Mines and Energy for said purpose.
ID== (ACCUMULATED DEVELOPMENT INVESTMENTS): These are fifty per cent (50%) of
the accumulated development investments approved by the Executive Committee of
the Association. Accumulated Development investments made before the initiation
exploitation date defined by the Ministry of Mines and Energy for the respective
field, shall be adjusted to said date in the same manner as Direct Exploration
Costs are adjusted under paragraph of Clause 9 ( subparagraph 9.2.3).
A: Exploration Direct Costs in which the ASSOCIATE incurs under Clause 9
hereunder and adjusted pursuant to the provisions of Clause 9 ( paragraph
9.2.3).
B: It is the accumulated refund of the aforementioned Direct Exploration Costs
according to Clause 9 hereunder.
GO (Accumulated Operational Expenses): These are the accumulated operation
expenses approved by the Executive Committee of the Association in the
proportion corresponding
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to the ASSOCIATE, plus accumulated transportation costs of the
ASSOCIATE. It is understood that the transport costs are the investment and
operation expenses incurred to transport the hydrocarbons produced in the
commercial fields located in the Contract Area, and from the Contract Area to
the export port or to the place agreed to take the price to be used for
estimation of IA income . (Such transport cost shall be determined by mutual
agreement of the parties once the exploitation stage commences whose existence
of the Commercial field has been accepted by ECOPETROL.
The Operation Expenses include Special Contributions or of similar nature
directly applied to exploitation of hydrocarbons in the Contract Area.
All values included in the determination of R factor after the date for
commencement of the exploitation defined by the Ministry of Mines and Energy,
shall be taken in current dollars.
For this purpose the expenses in pesos must be converted into dollars at the
Market's Representative Rate of Exchange certified by the Bank Superintendency
or authorized entity, effective force on the date when the corresponding
disbursements took place.
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14.2.4 ESTIMATION OF THE R FACTOR: The production distribution based on the R
factor shall be effective as of the first day of the third calendar month after
such month when the accumulated production in the contract area reached 60
million barrels of liquid hydrocarbons or the amount of 420 cubic gigafeet of
gaseous Hydrocarbons under normal conditions, in agreement with paragraph
14.2.1.
Computation of R factor will be carried out based on the accounting closing date
corresponding to the calendar month in which the accumulated production reached
60 million barrels of liquid hydrocarbons or the amount of 420 cubic gigafeet of
gaseous hydrocarbons under normal conditions, in agreement with paragraph
14.2.1.
The resulting production distribution shall apply until June 30th of the
following year. As of such date, the production distribution applying R Factor
shall be estimated for one year periods (from July 1st to June 30th) based on
the values accumulated on December 31st of the immediately preceding according
to the corresponding accounting closing date.
14.3 In addition to the jointly-owned tanks and other facilities, each party
will have the right to build its own production facilities in the Contract Area
for its own sole exclusive use, upon the fulfillment of any legal requirements.
The transport and delivery of each Party's
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Hydrocarbon to such a pipeline or other storage facilities that are not jointly
owned, shall be made on the sole account and risk of the Party receiving the
Hydrocarbons.
14.4 Should production be obtained in places not connected with pipelines, for
the Joint Account, the Parties may agree to install their own pipelines up to a
point where Hydrocarbons can be sold, or to a place connecting with a public
pipeline. If the parties agree to construct such pipelines, they shall execute
the contracts that they deem suitable for this purpose, and they shall appoint
the Operator in agreement with standing legal provisions.
14.5 Each party shall own the Hydrocarbons produced and stored as a result of
the Operation and which are placed at its disposal, as set forth hereunder, and
it must receive it in kind or sell it or dispose of it separately, at its own
expense, as provided in Clause 14 ( paragraph 14.3).
14.6 If either Party cannot, for whatever reason, separately dispose of or lift
all or part of its share of Hydrocarbons hereunder, from the Joint-Account-tanks
the following provisions shall apply:
14.6.1 If it is ECOPETROL which is unable to lift its Hydrocarbons quota, in
other words, (share plus royalty), in whole or in part, in accordance with
Clause 12 ( paragraph 12.3) hereunder, the Operator may continue to produce the
field and deliver to the ASSOCIATE, in addition to the portion representing THE
ASSOCIATE's share on the basis of
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one hundred per cent (100%) of the MER, all such Hydrocarbons as the ASSOCIATE
may elect and be able to lift, up to a limit of one hundred per cent (100%) of
the MER, crediting ECOPETROL, for subsequent delivery, for the volume of
Hydrocarbons that ECOPETROL was entitled but did not lift. But with respect to
the volume of Hydrocarbons not lifted which covers ECOPETROL's royalties for the
month, THE ASSOCIATE, at ECOPETROL's request shall pay ECOPETROL in United State
dollars the difference between the quantity of hydrocarbons actually lifted by
ECOPETROL and the quantity of Hydrocarbons ECOPETROL is entitled to for the
Royalty referred to i Clause 13 ( paragraphs 13.1 and 13.2); providing however,
that any Hydrocarbons lifted by ECOPETROL shall be applied firstly to the
payment in kind of the Royalty and any lifting thereafter shall be applied to
ECOPETROL's share under Clause 14 ( paragraph 14.2).
14.6.2 If it is THE ASSOCIATE who is unable to lift is assigned portion under
Clause 12 (paragraph 12.3), in whole or in part, the Operator shall deliver
ECOPETROL, based on one hundred per cent (100%) of the MER not only the royalty
and ECOPETROL's share, but also such Hydrocarbons as ECOPETROL may be capable of
lifting, up to a limit of one hundred per cent (100%) of the MER , crediting THE
ASSOCIATE for subsequent delivery for such portion of its share as it has been
unable to lift.
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14.7 When both parties are able to receive the Hydrocarbons assigned to them
under Clause 12 (paragraph 12.3) hereunder, the Operator shall deliver to the
Party who had been previously unable to receive its share of the production, at
such parties' request, not only its share in the Operation but a minimum of ten
per cent (10%) per month of the other Party's production entitlement, by mutual
agreement of up to one hundred per cent (100%) of the share not received, until
such time as the total quantities credited to the Party which had been unable to
receive its Hydrocarbons have been cancelled out.
14.8 Without prejudice as to the legal provisions governing the matter, each
Party shall be free, at any time, to sell or export its share of the
Hydrocarbons obtained hereunder, or to dispose of same in any way.
CLAUSE 15. USE OF ASSOCIATED GAS
In the case of discovery of one or more fields of Petroleum in liquid state with
associated gas, the Operator within the two (2) years from the commencement of
the commercial production of the field defined by the Ministry of Mines and
Energy, shall submit a Project to use the Natural Gas, for the benefit of the
Joint Account. The Executive Committee will approve the project and will
determine the period necessary for the implementation of such plans. If the
Operator does not submit any project within two( years) or does not perform the
approved plan within the terms determined by the Executive Committee, ECOPETROL
may take
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for itself, on a free-of-charge basis all the associated gas available from the
exploitation reservoirs to an extent that is not required for efficient
operation of the field.
CLAUSE 16. UNITIZATION
When an economically exploitable reservoir extends continuously in a structure
located in another or others areas, Operator shall implement, in agreement with
ECOPETROL and in any other Party concerned, upon approval of the Ministry of
Mines and Energy, a joint exploitation plan which must conform to Hydrocarbons
exploitation engineering techniques.
CLAUSE 17. INFORMATION AND INSPECTION UNDER EXPLOITATION
17.1 The Operator shall deliver to the Parties, at the same time it becomes
available, reproducible originals (sepia) and copies of the electric,
radioactive and sonic logs of well drilled, history, core analyses, production
tests, surveys of reservoirs, and any routine reports made or received in
connection with the operations and activities carried out in the Contract Area.
17.2 Each Party shall have the right , at its own cost, expense and risk, to
inspect through authorized representatives, the wells and facilities of the
Contract Area and the activities related thereto. Such representatives shall
have the right to examine cores,
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samples, maps, well-drilling logs, surveys, books, and any other source of
information connected with the performance of this Contract.
17.3 To enable ECOPETROL to comply with the provisions of Clause 29, the
Operator shall prepare and deliver to ECOPETROL all reports required by the
National Government.
17.4 The information and data connected with exploitation operations shall be
treated as confidential, in the same way as set forth in Clause 6 (paragraph
6.3) hereinabove.
CHAPTER IV- EXECUTIVE COMMITTEE
CLAUSE 18. FORMATION
18.1 Within thirty (30) calendar days from the acceptance of a Commercial Field,
each Party shall name a representative as well as the respective first and
second alternates, who shall form the Executive Committee, notifying the other
Party in writing of the names and addresses of its representative and
alternates. Each Party may change its representative or alternate at any time,
but shall give written notice thereof to the other Party. The vote or decision
of each Party's representative shall be binding upon the respective Party. If
the principal representative of either Party is unable to attend a Committee
meeting, he shall designate in writing the alternate who is to attend the
meeting and such alternate shall have the same authority as the principal.
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18.2 The Executive Committee shall hold ordinary meetings during the months of
March, July and November, at which the exploitation program carried out by the
Operator, the development plan as well as immediate plans, shall be reviewed.
Annually, in the ordinary meeting of July, the Executive Committee shall discuss
and approve the annual Operating Program and Budget of the expenditure and
investment for the following calendar year.
18.3 The Parties and the Operator may request that special meetings of the
Executive Committee be called to analyze specific conditions of the operation.
The representative of the Committee shall give ten (10) calendar days advance
notice of the meeting , stating the date and subjects to be discussed. Any
subject not included in the Agenda of the meeting may be discussed upon
acceptance thereof by the Parties' representatives on the Committee.
18.4 The representative of each Party shall have a vote in all matters discussed
in the Executive Committee, equivalent to the percentage of the total interests
in the Joint Operation. Any decision or resolution taken by the Executive
Committee, in order to be valid, must have the affirmative vote of over fifty
per cent (50%) of the total Interests. Any decisions taken by the Executive
Committee in accordance with this procedure shall be binding and final upon the
Parties and the Operator.
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CLAUSE 19. FUNCTIONS
19.1 The Parties' representatives shall form the Executive Committee which shall
have full authority and responsibility to formulate and adopt Exploitation,
Development and Operations Programs and Budgets under the Contract. A
representative of the Operator shall attend meetings of the Executive Committee.
19.2 The Executive Committee shall designate its Secretary. The Secretary shall
carry full, detailed records and minutes of all the meetings, as well as notes
on any discussions and on the decisions taken by the Committee. Copies of the
minutes, in order to be valid, shall be approved and signed by the Parties'
representatives within ten (10) working days after meeting adjourns and shall be
delivered to them as soon as possible.
19.3 The Executive Committee's responsibilities are, among others, as follows:
19.3.1 To adopt its own regulations
19.3.2 To designate Operator, in case of resignation or dismissal, and to
determine the rules that the latter must fulfill when it is a person different
from the Parties, stating the causes for his dismissal.
19.3.3 To designate an outside Auditor of the Joint Account
19.3.4 To approve or disapprove the annual Operations Program and Budget of
expenditures, and any modification or revision thereto, and to authorize
extraordinary expenditure.
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19.3.5 To determine policies and rules on expenditure
19.3.6 To approve or disapprove any recommendation of expenses made by Operator
( not included in the approved Budget), when such expenditure exceeds the sum of
forty thousand US dollars ( US$40.000) or its equivalent in Colombian currency.
19.3.7 To provide assistance to the Operator and to decide on matters referred
for the Committee's consideration.
19.3.8 To create any sub-committees that it may deem necessary and set the
functions to be performed by same, under the direction of the Executive
Committee.
19.3.9 To define the type and frequency of drilling, operation and production
reports, and any other information to be furnished by Operator to the Parties,
chargeable to the Joint Account.
19.3.10 To supervise the operation of the Joint Account.
19.3.11 To authorize Operator to execute contracts on behalf of the Joint
Operation for amounts in excess of forty US dollars US$40.000.oo or its
equivalent in legal Colombian currency and,
19.3.12 In general, to carry out all the functions authorized hereunder that are
not the responsibility of any other entity or individual pursuant to a specific
clause hereof or a legal or regulatory provision.
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CLAUSE 20- DECISION IN CASE OF DISAGREEMENT IN THE OPERATION
20.1 Any project relating to the Joint Operation, which requires the Executive
Committee's approval for its implementation, as established hereunder, and on
which the Parties' representatives on said Committee fail to reach an agreement,
shall be submitted directly to the highest executive of each Party resident in
Colombia, in order that they may take a joint decision. If the Parties reach an
agreement or decision on the matter under discussion within sixty (60) calendar
days from the date of submittal of the consultation, they shall so advise the
Secretary of the Executive Committee, who shall call a Committee meeting within
fifteen (15) calendar days following the receipt of the pertinent advice, and
the members of the Committee are obliged to adopt such decision at said meeting.
20.2 If the Parties fail to reach an agreement on the matter under discussion
within sixty (60) calendar days from the date of presentation of the
consultation, the operations may be carried on pursuant to Clause 21.
CLAUSE 21. OPERATIONS UNDER THE RISK OF ONE OF THE PARTIES 21.1 If at any time
one of the Parties wishes to drill an exploitation well not approved under the
operations program, it shall give written notice to the other party, at least
thirty (30) days in advance of the next Executive Committee
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meeting, of its wish to drill such well, including information such as location,
recommendation to drill, estimated depth and costs. Operator shall include such
proposal among the items to be discussed at the next Executive Committee
meeting. If such proposal is approved by the Executive Committee, the well shall
be drilled at the expense of the Joint Account. If said proposal is not accepted
by the Executive Committee, the Party wishing to drill such well, hereinafter
called the Participating Party, shall have the right to drill, complete, produce
or abandon such well as its sole cost and risk. The Party not wishing to
participate in the operation shall be called the Non-Participating Party. The
Participating Party must start the drilling of such well within one hundred and
eighty (180) days following its rejection by the Executive Committee. If
drilling is not started within said period, the question must be submitted again
for the Executive Committee's consideration. Upon request of the Participating
Party, Operator shall drill the well for the account and at the risk of the
Participating Party, provided that in Operator's opinion such operation does not
interfere with the normal progress of the operations of the field, and provided
the Participating Party has advanced to the Operator the sums deemed necessary
by the Operator for the drilling. In case the said well cannot be drilled by the
Operator without interfering with the normal progress of the operations, the
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Participating Party shall be entitled to drill such well directly or through a
competent service company, and in that case, the Participating Party shall be
responsible for the operation, without interfering with the performance of the
normal operations of the field.
21.2 If the well referred to in Clause 21 ( 21.1) is completed as a producing
well, it will be administered by the Operator and the production of such well,
after deducting the Royalty referred to in Clause 13, shall be property of the
Participating Party, which shall pay all the costs of the operations of such
well until such time as the net value of the production, after deducting
production, gathering, storage, transport and other similar costs and sales is
equal to two hundred per cent (200%) of the cost of drilling and completion of
said well which, thereupon, and for the purposes of this Contract, shall become
property of the Joint Account, as if it had been drilled with the Executive
Committee's approval for the account of both Parties. For purposes of this
clause, the value of each barrel of Hydrocarbons produced from the above-said
well during any calendar month, before deducting the above-said costs, shall be
the average per-barrel price received by the Participating Party from sales of
its share of the Hydrocarbons produced in the Contract Area during the same
month.
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21.3 If at any time one of the Parties wishes to recondition, deepen to the
Production Targets or plug a well which is not in commercial production or is a
dry hole drilled by the Joint Account, and if these operation have not been
included in a program approved by the Executive Committee, such Party shall
advise the other Party of its intention to recondition, deepen o plug such well.
If there is no adequate equipment on the location, the procedure provided for in
clause 21 (paragraph 21.1 and 21.2) shall be applied. If there is adequate
equipment on the well-site to carry out the proposed operation, the Party
receiving notice of the operation to be carried out by the other Party shall
have a period of forty-eight (48) hours following receipt of the notice, in
which to approve or disapprove the operation and, and if no answer is received
during this period, it will be understood that the operation will be carried out
for the account and at the risk of the Joint Account. If the proposed work is
performed for the sole account and risk of a Participating Party, the well shall
be administered in accordance with Clause 21 (paragraph 21.2)
21.4 If at any time, one of the Parties wishes to build new facilities for
the extraction of liquids from the gaseous hydrocarbons and for transport and
exportation of produced Hydrocarbons- which will be called Additional
Facilities-, such Party shall so advise the other, in writing, giving the
following information:
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21.4.1 General description, design, specifications and estimated costs of the
Additional Facilities;
21.4.2 Projected capacity
21.4.3 Approximate date of commencement and length of the construction . Within
ninety (90) days from the date of notice, the other Party has the right to
decide whether or not it will participate in the proposed additional facilities,
by means of a written notice. If such Party elects not to participate in the
additional facilities, or fails to reply to the Participating Party's Proposal-
which Party shall hereinafter be called the Constructing Party , the latter may
proceed with the additional facilities and request Operator to construct,
operate and maintain such Facilities at the sole cost and risk of the
Constructing Party, without prejudice to the normal performance of the Joint
Operations. The constructing Party may negotiate with the other Party for the
use of said facilities for the Joint Operation. During the time the facilities
are operated for the Constructing Party's sole account and risk, Operator shall
charge to the latter all the costs of operation and maintenance of the
additional facilities, in accordance with generally accepted accounting rules.
CHAPTER V- JOINT ACCOUNT
CLAUSE 22 - HANDLING
22.1 Without prejudice to any provisions hereunder, expenses covering
exploration operations shall be for ASSOCIATE's account and risk.
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22.2 As from the time the Parties accept the existence of a Commercial Field,
and subject to the provisions of Clause 5 (paragraph 5.2), Clause 13 (paragraphs
13.1 and 13.2), the ownership of the rights or Interest in the Operation of the
Contract Area shall be divided as follows: ECOPETROL fifty per cent (50%) and
THE ASSOCIATE fifty per cent (50%). From then on any expenses, payments,
investments, costs and obligations incurred and contracted for the performance
of the operations hereunder, as well as Direct Exploration Costs made by THE
ASSOCIATE before and after the recognition of the existence of each Commercial
Field and its extensions, in agreement with Clause 9 (paragraph 9.10), shall be
charged to the Joint Account. Except as set forth in Clause 14 (paragraph 14.3)
and 21, all properties acquired or used from then on for the performance of the
operation of the Commercial Field shall be paid by, and belong to, the Parties
in the same proportion as described in this Clause.
22.3 The Parties shall provide Operator, within the first five (5) days of each
month, at the Bank designated by Operator, with their shares of the Budget, in
accordance with the requirements and in the currency in which the expenses are
to be incurred, i.e, in Colombian Pesos or in US dollars, as requested by
Operator under programs and Budgets approved by the Executive Committee. Should
THE
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ASSOCIATE not have available the Pesos necessary to cover its share of the Peso
contribution, ECOPETROL shall have the right to furnish such Pesos and receive
appropriate credit against the dollar contribution payable by ECOPETROL at the
official rate of purchase by the Bank Superintendency or the pertinent
authorized entity, on the date ECOPETROL is to pay said contribution, provided
this transaction is permitted under the legal regulations.
22.4 Operator shall present to the Parties monthly, within thirty (15) calendar
days following the end of each month, a monthly statement showing the funds
advanced, expenses incurred, outstanding liabilities, and a report on all debits
and credits made to the Joint Account, which report shall be made out in
accordance with Annex "B" hereto. If payments under Clause 22 (paragraph 22.3)
are not made within the term set forth and Operator elects to cover same,
delinquent Party shall pay Commercial Interest in the same currency in which
payment has been incurred during the period of the delay in payment.
22.5 Should either Party fail to timely contribute with the Joint Account with
the sums due and payable within the term set therefore, as from the due date
such Party shall be considered as the "Delinquent Party", and the other Party as
the "Prompt Party". If the Prompt Party had paid the Delinquent Party's share,
in addition to its own, the former shall have the right, after sixty (60) days'
delay, to have
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Operator deliver to it the Delinquent party's total participation in the
Contract Area (excluding the Royalty percentage), up to such amount of
production as will give the Prompt Party a net income from sales equal to the
sum not paid by the Delinquent Party, plus an annual interest equal to the
commercial interest, as from sixty (60) days after the date of commencement of
default. "Net Income" is understood to mean the difference between the sales
price of the crude taken by the Prompt Party, less cost of transport, storage,
loading and other reasonable expenses incurred by the Prompt Party in the sale
of the products taken. The Prompt Party's right may be exercised at any time
after thirty (30) days from having giving notice the Delinquent Party, in
writing, of its intention to take all or part of the Delinquent Party's share of
the production.
22.6.1 Direct Expenses of the Joint Operation shall be charged to the Parties in
the same proportion that the production is distributed after royalties.
22.6.2 Indirect expenses shall be charged to the Parties on the same proportion
set forth for Direct Expenses in paragraph 22.6.1 above. The amount of said
expenses shall be the result from taking the total annual value of the
investments and expenses ( excluding technical and administrative support) and
applying a+m (X-b) equation. In this equation "X" is the total value of annual
investments and expenses, and "a" , "m" and "b" are constants whose
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values are shown in the following table with respect to annual investments and
expenses:
AMOUNT OF INVESTMENTS AND EXPENSES CONSTANT VALUES
"X" (US$) " to" (US$) m(frac) "b" (US$)
1. 0 25.000.000 0 0.10 0
2. 25.000.001 50.000.000 2.500.000 0.08 25.000.000
3. 50.000.001 100.000.000 4.500.000 0.07 50.000.000
4. 100.000.001 200.000.000 8.000.000 0.06 100.000.000
5. 200.000.001 300.000.000 14.000.000 0.04 200.000.000
6. 300.000.001 400.000.000 18.000.000 0.02 300.000.000
7. 400.000.001 or more 20.000.000 0.01 400.000.000
The equation shall be applied only once per year in each case with the value of
the constants corresponding to the total value of the annual investments and
expenses.
22.7 The monthly statements of account referred to in Clause 22 (paragraph 22.4)
may be revised or challenged by either Party from the time they are received by
them, up to two (2) years after the end of the calendar year covered by such
statements, clearly specifying the corrected or challenged items and the reason
given for the objections. Any account not corrected or challenged within the
said period shall be considered as final and correct.
22.8 Operator shall carry account records, vouchers and reports for the Joint
Account in Colombian Pesos, in
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conformity with Colombian law, and every debit or credit to the Joint Account
shall be made in accordance with the accounting procedure , Exhibit "B", made a
part of this contract. In case of any discrepancy between the accounting
procedure and the provisions hereunder, the latter shall prevail.
22.9 Operator may sale materials or equipment during the first twenty (20) years
of the Exploitation Period or the first twenty eight (28) years of the
Exploitation Period, if dealing with a Gas Field, for the benefit of the Joint
Account, provided the amount of any one sale does not exceed five thousand
United States dollars (US$5.000) or its equivalent in Colombian pesos. Any sales
in excess of these amounts or sales or real property shall have to be approved
by the Executive Committee. Sale of such materials or equipment shall be made at
a commercial reasonable price according to the conditions of use of the good.
22.10 Any machinery, equipment or other personal property or facilities acquired
by Operator for the performance of this Contract, charged to the Joint Account,
shall belong to the Parties by equal shares. However, if one of the Parties
decides to terminate its interest in the Contract prior to the end of the first
seventeen (17) years of the Exploitation period, except for the case under
Clause 25, such Party agrees to sell part or all of its interest in
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the said items to the other Party at reasonable commercial price or at their
book value, whichever is lower. In case the other Party should not wish to
purchase such items within ninety (90) days following a formal offer of same
made to it, the Party wishing to terminate shall have the right to assign to a
third party its interest in such equipment and facilities. Should THE ASSOCIATE
decide to withdraw after seventeen (17) years of the Exploitation Period have
elapsed, its interest in the Joint Operation shall pass on to ECOPETROL on a
free-of-charge basis, upon its acceptance.
CHAPTER VI-LENGTH OF THE CONTRACT
CLAUSE 23. MAXIMUM LENGTH
This Contract shall have a maximum duration of twenty eight (28) years counted
as from the Effective Date, divided up as follows: Up to six (6) years as the
Exploration Period, under Clause 5, without prejudice to the provisions of
Clause 9 (paragraphs 9.3 and 9.8); and twenty two (22) years as the Exploitation
Period, counted as from the date of the termination of the Exploration period.
It is understood that in the events contemplated hereunder in respect to the
extension of the Exploration Period, it is considered that such events shall in
no case extend the total term of duration beyond twenty eight (28) years, except
as provided in paragraph 1 of this Clause.
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PARAGRAPH 1. The Exploitation Period for Gas Fields discovered inside the
Contract Area shall have a maximum duration of thirty (30) years as of
expiration of the Exploration Period or the Retention Period granted. In no case
the total term of duration shall extend beyond forty (40) years counted as from
the Effective Date.
PARAGRAPH 2. Notwithstanding the preceding, ECOPETROL and THE ASSOCIATE, at
least five (5) years in advance to the date of exploration of each Field, will
revise the conditions to continue the operation after the term mentioned in this
clause. In case that the parties agree to continue the operation, they shall
define the terms and conditions under which they will carry them out.
CLAUSE 24. TERMINATION
This Contract shall terminate in any of the following cases:
24.1 Due to the expiration of the Exploration Period without THE ASSOCIATE'S
having discovered a Commercial Field, except as provided in Clauses 9
(paragraphs 9.5, and 9.8 ) and Clause 34.
24.2 Upon expiration of the term of duration of the Contract , as set forth in
Clause 23.
24.3 At any time at THE ASSOCIATE's discretion, upon fulfillment of its
obligations as set forth in Clause 5, and of any others entered into hereunder.
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24.4 Due to the special causes set forth in Clause 25.
CLAUSE 25. UNILATERAL TERMINATION CAUSES
25.1 ECOPETROL may terminate the Contract hereunder unilaterally at any time
before expiration of the term agreed in Clause 23, in any of the following
cases:
25.1.1. Due to the dissolution of THE ASSOCIATE and its assignees
25.1.2. In the event THE ASSOCIATE or its assignees were to assign this Contract
in whole or in part without complying with the requirements under Clauses 27.
25.1.3. Due to the financial incapacity of THE ASSOCIATE and its assignees,
which incapacity is presumed to exist when a Court declares bankruptcy or
creditors' proceedings are opened against them.
25.1.4 Due to failure to comply with the obligations entered into by THE
ASSOCIATE hereunder. Upon expiration of each one of the periods contemplated for
fulfillment of the exploratory obligations, THE ASSOCIATE shall furnish a
written report evidencing compliance with the obligations of the respective
period. In the event that said obligations have not been fulfilled, THE OPERATOR
shall have sixty (60) calendar days to fulfill them diligently according to good
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Petroleum practices. Should this term not be enough , the parties may by common
agreement determine an additional term to fulfill said obligations. If after
said term the agreed works have not been completed, a default will be
constituted and therefore, Ecopetrol may proceed pursuant to Clause 25.3.
25.2 In case of a declaration of Unilateral Termination , THE ASSOCIATE's rights
as set forth in this Contract shall cease both in its capacity as Party thereto
and as Operator, if at the time of such declaration of unilateral termination,
THE ASSOCIATE has both capacities.
25.3 ECOPETROL may only declare the
Unilateral Termination of this Contract after sixty (60) calendar days have
elapsed from its having given written notice to THE ASSOCIATE or its assignees,
clearly specifying the grounds invoked for making such a declaration, and only
if the other Party has failed to present explanations satisfactory to ECOPETROL
or if THE ASSOCIATE has failed to correct the failure in the performance of the
contract without prejudice of the ASSOCIATE's right to file the legal remedies
as it may consider advisable.
CLAUSE 26. OBLIGATIONS IN CASE OF TERMINATION
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26.1 Upon termination of the Contract pursuant to Clause 24 during the
Exploration, Retention or Exploitation Period, THE ASSOCIATE shall leave in
production any wells that are then producing and shall turn over all
constructions , pipelines, transference lines and other real property of the
Joint Account ( located in the Contract Area), all of which shall pass
free-of-charge to ECOPETROL, with any rights-of way and assets acquired in
benefit of the Contract, even though either the former or the latter be located
outside the Contract Area.
26.2 If this Contract terminates for any reason after the expiration of the
first seventeen (17) years of the Exploitation Period, all of THE ASSOCIATE's
interest in the machinery, equipment, and other personal property or facilities
used or acquired by THE ASSOCIATE or by Operator for the performance of this
Contract shall pass to ECOPETROL on a free-of-charge basis.
26.3 If the Contract terminates before the end of seventeen (17) years of the
Exploitation Period, the provisions of Clause 22 ( paragraph 22.10) shall apply.
26.4 In case this Contract is terminated due to the declaration of Unilateral
Termination, made at any time, all the real or personal property acquired for
the sole benefit of the Joint Account shall pass to ECOPETROL on a free-of
charge basis.
26.5 Upon termination of this Contract for whatever reason and at whatever time,
the Parties are obliged to
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fulfill satisfactorily their legal obligations between each other and with third
Parties, as well as those contracted hereunder.
CHAPTER VII- MISCELLANEOUS PROVISIONS
CLAUSE 27. RIGHT OF ASSIGNMENT
27.1 THE ASSOCIATE shall have the right, upon prior written approval by the
Minister of Mines and Energy and the President of Empresa Colombiana de
Petroleos ECOPETROL, to assign or transfer all of part of its interest, rights
and obligations hereunder to any person, company or group.
Consequently, any project involving assignment or total or partial assignment of
the interests, rights and obligations in the contract, shall be informed to the
Minister of Mines and Energy and to the President of Empresa Colombiana de
Petroleos , Ecopetrol, through a written communication of THE ASSOCIATE
indicating the essential elements of the negotiation, such as prospective
assignee , value, interests, rights and obligations to be assigned, scope of the
operation, etc. Within the next thirty (30) working days , the Minister of Mines
and Energy and the President of Empresa Colombiana de Petroleos Ecopetrol, shall
exercise the
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discretionary power to analyze qualifications of the prospective assignees,
after which they will adopt their decision without being bound to justify their
reasons. In all cases, the opinion of the Minister of Mines and Energy shall
prevail.
27.2 Should more than thirty (30) working days elapsed, as of the date of
reception of the request by the Minister of Mines of Energy without THE
ASSOCIATE having received an answer, it is understood for all purposes that the
request has been accepted.
27.3 Assignments made during the Exploration Period among companies legally
established in Colombia, will not be subject to the above-mentioned procedure
and shall be formalized through a written authorization by Empresa Colombiana de
Petroleos, ECOPETROL, and signing of the respective instrument.
27.4 Any amendment or modifications in the contract relations of THE ASSOCIATE
and Empresa Colombiana de Petroleos ECOPETROL, resulting from total or partial
direct negotiations with respect to interests, quotas or stock in THE ASSOCIATE
shall also subject to the approval procedure by the Ministry of Mines and Energy
and of the President of Empresa Colombiana de Petroleos ECOPETROL.
27.5 However, said changes or amendments shall not require authorization by the
Minister of Mines and Energy and Empresa Colombiana de Petroleos, in the
following cases:
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27.5.1 When transactions are carried out at the stock exchange or open stock
market.
27.5.2 If dealing with assignments or transfers resulting from events beyond the
will of THE ASSOCIATE or of the companies supervising or directing it, such as
government orders, legal judgement, partition and awarding of assets and
auctions. 27.5.3 When negotiations are carried out among companies supervising
or directing the ASSOCIATE, or its affiliates or subsidiaries, or among
companies forming a same economic group, in whose cases it will be enough to
give timely notice on said assignment to the Minister of Mines and Energy and to
Empresa Colombiana de Petroleos ECOPETROL.
27.6 Except for the above mentioned exceptions, assignments, transfers,
negotiations, transactions or operations dealt with herein, not having approval
of the Ministry of Mines and Energy and of the President of Empresa Colombiana
de Petroleos, ECOPETROL, shall give rise to application of Clause 25 of the
Association Contract.
27.7 Operations carried out for the development of this clause and that
according to the Colombian tax law are assessable , shall pay the corresponding
taxes.
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CLAUSE 28. DISAGREEMENTS
28.1 In all cases of disagreement or contradiction in the interpretation of the
Clauses of this Contract in relation to those contained in Annex "B " called
"Operating Agreement", the provisions of the contract shall prevail.
28.2 Any cases of disagreement between the Parties on matters of law relating to
the interpretation and performance of the Contract, which cannot be settled
amicably, shall be submitted for the cognizance and decision of the
jurisdictional branch of Colombian public power.
28.3 Any difference as to operational or technical matters between the Parties
hereto by reason of the interpretation or application of this contract, that
cannot be settled amicably, shall be referred for the final decision of experts
, appointed as follows: one by each Party, and a third one, or umpire, appointed
by mutual agreement of the two so designated. Should these two fail to reach an
agreement as to the appointment of the third expert, the latter shall be
designated, upon request of either party, by the Board of Directors of the
Colombian Association of Engineers,"SCI", with headquarters in Bogota.
28.4 Any difference of an accounting nature between the Parties hereto by reason
of the interpretation and
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implementation of the Contract, that cannot be settled amicably, shall be
referred for the decision of experts, who shall be Chartered Public Accountants,
designated as follows: one by each Party, and a third one, or umpire, appointed
by the two principal experts. Should these two fail to reach an agreement, such
third expert shall be designated, upon request of either Party, by the Central
Board of Accountants of Bogota.
28.5 Both Parties declare that the experts' decision shall have the full effects
of a settlement between them, and in consequence, such decision shall be final.
28.6 In case of disagreement between the Parties as to the technical, accounting
or legal nature of the controversy, the same shall be considered to be legal and
clause 28 (paragraph 28.2) shall apply.
CLAUSE 29. LEGAL REPRESENTATION
Without prejudice to THE ASSOCIATE's legal rights as a consequence of legal
regulations or of the clauses of this Contract, ECOPETROL shall represent the
parties before Colombian authorities on any matters concerning the exploitation
of the Contract Area, whenever it be applicable to do so, and shall furnish
Government officials and departments with any data and reports that may be
legally required. Operator shall be obliged to prepare and furnish ECOPETROL
with the pertinent reports. Any expenses incurred by ECOPETROL to attend to any
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matter referred to this Clause shall be charged to the Joint Account, and where
such expenses exceed five thousand United States Dollars ( US$5.000) or its
equivalent in Colombian currency, the Operator's prior approval shall be
necessary. The Parties represent, for purposes of their relations with Third
Parties, that neither the provisions of this Clause nor any other contained
elsewhere in this Contract implies the granting of a general power of attorney
or the fact that the Parties have formed a civil or commercial partnership or
any other relationship whereby either Party might be considered together liable
for the acts or omissions of the other party or as having authority or powers
that might be binding upon the other Party in relation to any obligations. This
Contract is related to operations within the Republic of Colombia and although
ECOPETROL is a Colombian industrial and Commercial State owned enterprise, the
Parties agree that THE ASSOCIATE , should it be the case, may decide to be
excluded from all the provisions of Sub-chapter K entitled PARTNERS AND
PARTNERSHIPS of the Internal Revenue Code of the United States of America. THE
ASSOCIATE shall make said election on its behalf in an appropriate manner.
CLAUSE 30 LIABILITIES
30.1 Operator shall carry our the operations subject matter of this Contract in
an efficient an adequate
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manner, in accordance with Petroleum industry practices internationally accepted
for these type of operations, it being understood that Operator shall at no time
be liable for errors of judgement or for any loss or damage that is not due to
the Operator's gross negligence.
30.2 The liabilities contracted hereunder by ECOPETROL and THE ASSOCIATE in
relation to Third Parties shall not be joint and, in consequence each Party is
separately liable for its share of the expenses, investments or obligations
resulting as a consequence of such liabilities.
30.3 Out of the value of the expenses incurred and the contracts entered by the
Operator for a value exceeding forty thousand dollars of the United States of
America (US$40.000) or its equivalent in colombian pesos which have not been
timely authorized by the Executive Committee, except for the assumptions of
Clause 11 (Paragraph 11.7) , the only party liable before third Parties shall be
the Operator, who shall assume the total corresponding value. When such expense
is accepted by the Executive Committee, the Operator will be refunded the value
of the work, study or purchase, according to the guidelines defined by the
Executive Committee. In case that the good or asset is not accepted by the
Executive Committee, the Operator, if possible, may withdraw such good
reimbursing the partners any cost that said withdrawal may cause to the
operation. If it is not possible that the Operator withdraws such good, or that
it declines to so, the resulting benefit or increase in equity resulting from
said expenses or contracts, shall
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belong to the Parties in proportion to their participation in the Operation.
30.4 ECOLOGICAL CONTROL. THE ASSOCIATE, in the development of all contract
activities, shall timely comply with the provisions of the National Code of
Renewable Natural Resources and of Environmental Protection and remaining legal
provisions on the subject. For said purpose, THE ASSOCIATE agrees to permanently
execute a preventive plan to guarantee conservation and restoration of natural
resources in the areas where Exploration, exploitation and transportation works
under this contract are carried out.
Said plans and programs shall be disclosed by THE ASSOCIATE to national and
regional entities related to this matter. Also, specific contingency plans shall
be established for emergencies and remedial actions. For said purpose, THE
ASSOCIATE shall coordinate said plans and actions with competent authorities.
The respective programs and budgets shall be prepared by THE ASSOCIATE in
agreement with the pertinent clauses of this contract.
All costs incurred shall be on the ASSOCIATE's account in the Exploration Period
and in the Exploitation under the sole risk modality, and by both Parties
charged to the Joint Account during the Exploitation Period.
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CLAUSE 31. TAXES, CHARGES AND OTHERS
Any taxes and charges accruing after the establishment of the Joint Account and
before the Parties receive their share of the production, that are chargeable to
the exploitation of Hydrocarbons, shall be charged to the Joint Account. Income,
patrimony and supplementary taxes shall be for the sole account of each Party,
as applicable to each of them.
CLAUSE 32. PERSONNEL
32.1 When THE ASSOCIATE is the Operator, appointment of the Operator's Manager
shall be made after consultation with ECOPETROL.
32.2 Pursuant to the terms of this Contract and subject to the norms to be
established, Operator shall have autonomy in appointing the personnel required
for the operations hereunder, being able to fix their remuneration, functions,
rank, number and conditions. Operator shall adequately and diligently train such
Colombian personnel as be required to replace the foreign personnel that
Operator may consider necessary for the performance of the operations hereunder.
In any case, Operator shall comply with the legal regulations setting the
proportion of national and foreign employees and laborers.
32.3 TECHNOLOGICAL TRANSFERENCE. THE ASSOCIATE agrees to carry out on its
account a training program for ECOPETROL professionals in areas related to the
development of the contract.
In order to meet this obligation during the Exploration Period, supervised
training may include among other subjects, the areas of geology, geophysical
and the like,
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evaluation of reserves and characterization of oil reservoirs, drilling and
production. Supervised training shall be carried out during all the initial
exploration period and its extensions, through integration of professionals
appointed by ECOPETROL, to the work group that THE ASSOCIATE organizes for the
Contract Area or for other activities related to THE ASSOCIATE.
In order to opt for the waiver dealt with in Clause 5 hereunder, THE ASSOCIATE
must have complied with the training programs herein contemplated.
During the Exploitation period, the scope, duration, place, participants,
training conditions and other aspects shall be established by the Executive
Committee of the Association.
All supervised training costs, except for labor costs caused in favor the
professionals receiving them, shall be assumed by THE ASSOCIATE during the
Exploration Period and by both Parties charged to the Joint Account during the
Exploitation Period.
PARAGRAPH: In order to meet the obligations on Technology Transference in
agreement with the provisions hereunder, during the first three years of the
Exploration Period and for each year, THE ASSOCIATE agrees to carry out
supervised training programs to Ecopetrol Professionals for thirty thousand ( US
$30.000.oo) dollars of the United States of America per year. The subject and
type of program shall be previously approved by ECOPETROL and THE ASSOCIATE. In
the event that the Exploration Period is extended, supervised training shall
consist of similar programs to those set forth herein.
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32.4 According to this contract, the Operator during the Exploitation Period,
shall have the right to carry out any operations hereunder through contractors,
subject to the authority of the Executive Committee to approve contracts whose
value exceeds forty thousand dollars of the United States of America (US$40.000)
or its equivalent in Colombian pesos.
CLAUSE 33. INSURANCE The Operator shall be covered by all
the insurance required by Colombian law. The Operator shall likewise demand that
each contractor performing any work hereunder must obtain and maintain
up-to-date such insurance as be deemed necessary by the Operator. The Operator
shall further provide any other insurance considered necessary by the Executive
Committee.
CLAUSE 34. FORCE MAJEURE OR ACTS OF GOD
The Obligations referred to in this Contract shall be suspended for the entire
duration of time in which either Party is unable to meet them, in whole or in
part, due to unforeseen events constituting force majeure or Acts of God such as
strikes, lockouts, war, earthquake, floods or other catastrophes; government
laws or regulations, or decrees hindering the provision of essential material
and, in general, any no-financial reason that actually prevents the operations
even though not listed herein but
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that affects the parties and is outside their control. Should either Party be
unable due to force majeure or Acts of God to comply with the obligations
hereunder, it shall promptly give notice thereof to the other Party, for its
consideration, specifying the reasons which are preventing it. In no case shall
occurrences of force majeure extend the total Exploration, Retention and
Exploitation Period beyond the twenty eight (28) calendar years as from the
Effective Date, as set forth in Clause 23, but any impediment of force majeure
during the six (6) year Exploration Period referred to in Clause 5, which lasts
over thirty (30) consecutive days, shall extend this six (6) year period by the
same time as the length of such impediment.
CLAUSE 35. APPLICATION OF COLOMBIAN LAW
The Parties set the city of Santa Fe de Bogota, Republic of Colombia, as the
domicile for any purposes hereunder. This Contract is governed throughout by
Colombian law, and THE ASSOCIATE submits to the jurisdiction of Colombian Courts
and waives any diplomatic claim in respect to its rights and obligations
hereunder, except in the case of denial of justice. Denial of justice shall not
be deemed to exist when THE ASSOCIATE in its condition as Party hereto or as
Operator, has had access to all the resources and means of action which may be
used under Colombian law before the jurisdictional branch of public power.
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CLAUSE 36. NOTICES Notices or communications between the Parties, connected with
this Contract shall require, in order to be valid, the mention of the pertinent
Clauses, and sent to the Parties at the following addresses:
TO ECOPETROL: Carrera 13 No.36-24 Santafe de
Bogota, Colombia.
TO THE ASSOCIATE: Carrera 6A No. 115-65 Of 514 F
Santafe de Bogota, Colombia.
Any change of address shall be notified in advance to the other party.
CLAUSE 37. VALUE OF THE HYDROCARBONS
Payments or reimbursements under Clauses 9 (paragraphs 9.2 and 9.4) and 22
(paragraph 22.5), shall be made in United States Dollars, or in Hydrocarbons, on
the basis of the current price and the limitations established under Colombian
legislation for the sale of the dollar portion of the Hydrocarbons from the
Contract Area destined for refining in national territory.
CLAUSE 38. PRICES FOR CRUDE HYDROCARBONS
38.1 THE ASSOCIATE's share of hydrocarbons hereunder, destined for refining or
internal use, shall be paid delivered to the refineries where Hydrocarbons are
to be processed or at the reception site, as agreed by the Parties, abiding the
standing government rules or regulations or those replacing them.
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38.2 Any difference arising from the application of this clause shall be settled
by the method provided for in this Contract.
CLAUSE 39. DELEGATION AND MANAGEMENT
THE PRESIDENT of EMPRESA COLOMBIANA DE PETROLEOS-ECOPETROL delegates to the
Exploration and Production Vice President management of this contract, pursuant
to ECOPETROL'S rules and provisions, with power to execute all procedures
related to the Contract development. The Exploration and Production Vice
President may exercise this delegation through the Associate Operation Assistant
Vice-President.
CLAUSE 40. VALIDITY
To take legal effect, this contract requires the approval of the Ministry of
Mines and Energy.
IN WITNESS WHEREOF, the parties sign, before witnesses, in Bogota, on the twenty
fourth (24th) day of the month of December , nineteen hundred and ninety seven
(1997).
EMPRESA COLOMBIANA DE PETROLEOS
ECOPETROL
SIGNED,
ENRIQUE AMOROCHO CORTES
President
HARKEN DE COLOMBIA, LTD
SIGNED,
GABRIEL GUSTAVO CANO VELASQUEZ
Legal Representative
Witnesses
Signed, Illegible signature
---------------------------
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INDEX
CHAPTER I..........................................................................................2
GENERAL PROVISIONS
CLAUSE 1. Object of this contract..................................................................2
CLAUSE 2. Application of the Contract .............................................................3
CLAUSE 3. Contract Area............................................................................4
CLAUSE 4. Definitions..............................................................................6
CHAPTER II
EXPLORATION
CLAUSE 5. Terms and conditions ..................................................12
CLAUSE 6. Supply of Information during Exploration...............................14
CLAUSE 7. Exploration Budget and Programs........................................16
CLAUSE 8. Restitution of Areas...................................................17
CHAPTER III
EXPLOITATION
CLAUSE 9. Terms and Conditions...................................................19
CLAUSE 10. Technical Control of the Operations....................................26
CLAUSE 11. Exploitation Programs and Budgets......................................27
CLAUSE 12. Production.............................................................30
CLAUSE 13. Royalties..............................................................32
CLAUSE 14. Distribution and Availability of
Hydrocarbons...........................................................33
CLAUSE 15. Use of Associated Gas..................................................41
CLAUSE 16. Unitization............................................................41
CLAUSE 17. Information and Inspection under
Exploitation...........................................................42
CHAPTER IV
EXECUTIVE COMMITTEE
CLAUSE 18. Formation .............................................................43
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CHAPTER V
EXPLORATION
CLAUSE 19. Functions.............................................................44
CLAUSE 20. Decision in case of disagreement
in the Operation.......................................................46
CLAUSE 21. Operations under the risk of one of the
Parties ...............................................................47
CLAUSE 22. Handling ..............................................................51
CLAUSE 23. Maximum Length ........................................................56
CLAUSE 24. Termination............................................................57
CLAUSE 25. Unilateral Termination Causes..........................................58
CLAUSE 26. Obligations in case of Termination.....................................59
CLAUSE 27. Right of Assignment....................................................61
CLAUSE 28. Disagreements..........................................................63
CLAUSE 29. Legal Representation...................................................65
CLAUSE 30. Liabilities ...........................................................66
CLAUSE 31. Taxes, charges and others .............................................68
CLAUSE 32. Personnel..............................................................68
CLAUSE 33. Insurance..............................................................70
CLAUSE 34. Force Majeure or Acts of God ..........................................71
CLAUSE 35. Application of Colombian Law...........................................71
CLAUSE 36. Notices................................................................72
CLAUSE 37. Value of the Hydrocarbons..............................................72
CLAUSE 38. Prices for Crude Hydrocarbons..........................................72
CLAUSE 39. Delegation and Management..............................................73
CLAUSE 40. VALIDITY...............................................................73
CERTIFIED TO BE A TRUE AND COMPLETE TRANSLATION DONE BY TERESA JIMENEZ DE
MONTES. SWORN TRANSLATOR AND INTERPRETER. RES.220 ISSUED BY THE MINISTRY OF
JUSTICE OF COLOMBIA. SANTAFE DE BOGOTA, D.C., FEBRUARY 20TH, 1998.
Certified to be a true and complete translation done by Teresa Jimenez de
Montes. Sworn Translator and Interpreter. Res. 220 issued by the Ministry of
Justice of Colombia. Santafe de Bogota, D.C.,February 20th, 1998.