Agreement In Principle For GTL Project Development - Ivanhoe Energy Inc. and Syntroleum Corp.
AGREEMENT IN PRINCIPLE FOR GTL PROJECT DEVELOPMENT
THIS AGREEMENT entered into this 18th day of June 2003, between Ivanhoe Energy
Inc., a Yukon corporation with its principal office in Vancouver, B.C., Canada
("Ivanhoe") and Syntroleum Corporation, a Delaware corporation, with its
principal office in Tulsa, Oklahoma ("Syntroleum"). Each of Ivanhoe and
Syntroleum are sometimes herein called individually a "Party" and collectively
the "Parties".
WHEREAS, Syntroleum is engaged in researching, developing, testing,
commercializing and licensing its proprietary gas-to-liquids processes and
catalysts (the "GTL Technology") for use by the energy industry throughout the
United States of America and the world; and
WHEREAS, Syntroleum is engaged in developing GTL projects world-wide,
either for its sole ownership or in partnership with others; and
WHEREAS, Ivanhoe is engaged in developing GTL projects world-wide,
either for its sole ownership or in partnership with others, under the terms of
the Master License Agreement, dated April 26, 2000, Amended October 11, 2000 and
June 1, 2002 ("License") with Syntroleum; and
WHEREAS, Ivanhoe and Syntroleum desire to jointly develop certain GTL
projects ("GTL Projects") from time to time whereby the Parties would share
cumulative commercial and technical knowledge, business and government
relationships, engineering designs and development activities to form the basis
for an equity share in the Projects;
NOW, THEREFORE, in consideration of the foregoing and of the covenants,
promises and agreements contained in this Agreement, Syntroleum and Ivanhoe
agree as follows.
1. PROJECTS UNDER CONSIDERATION. The Parties have discussed possible
joint participation in GTL Projects in Bolivia, Egypt and Qatar. Ivanhoe also
has been advised by China International Trade and Investment Corporation
("CITIC"), that it is prepared to allocate a gas field in western China for a
potential GTL development, and offer investment funding for global GTL projects
with Ivanhoe, provided that License terms are amended to permit Ivanhoe to
practice in China the conversion process under the License. Additional GTL
Projects may be added from time to time under a nomination procedure that will
be developed jointly. Nothing in this Agreement shall prevent Ivanhoe or
Syntroleum from pursuing GTL projects on their own. If Ivanhoe pursues GTL
projects on its own, the normal terms of the License shall be applicable, except
as amended pursuant to Paragraphs 2(a) and 2(b) below.
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In recognition of the consideration to be given and received by the Parties
under this Agreement, and in order to promote and facilitate GTL Projects, the
Parties have agreed to the following:
2. ADDENDA TO THE LICENSE:
(a) The License will be amended to include in the Licensed Territory
the United States of America, Canada, Mexico, the People's Republic of China,
India, and their respective territorial waters and any country in its
territorial waters. With respect to China and India, the Parties will develop
additional procedures to protect intellectual property and Syntroleum shall have
final approval in respect of intellectual property protection procedures and
project participants and contractors in these countries, and approval shall not
be unreasonably withheld. Such participants shall not exclude CITIC and national
energy companies.
(b) The rights of Ivanhoe to receive future license fee credits under
the License for the US$10 million paid under Article 5 of the License and the
related indemnifications under Article 6 are hereby terminated pursuant to
Paragraph 4 below.
(c) For GTL Projects in which the Parties participate, the License Fees
and royalties, technology fees and catalyst markup will not be payable to
Syntroleum by Ivanhoe and such waiver by Syntroleum will be taken into
consideration in determining respective ownership interest in the project.
Nothing in this Agreement shall prevent Syntroleum from receiving compensation
for technology and catalyst mark-ups from third party participants, as may be
negotiated as part of the Participation Agreement between the Parties.
The terms of the License shall otherwise continue in effect, except as they are
changed by the foregoing agreed Addenda to the License. Nothing in this
Agreement shall imply a waiver of License Fees, royalties, technology fees and
catalyst mark-up for projects independently pursued by Ivanhoe under the
License.
3. SWEETWATER PROJECT CREDIT. The US$2 million previously paid by
Ivanhoe as equity participation in the Sweetwater project is hereby forfeited to
Syntroleum and shall not be applicable for any credit in any other project where
license fees are otherwise due and payable to Syntroleum. Ivanhoe is released
from any further obligations on the Sweetwater Project and the DOE Catoosa
Project under previous agreements.
4. SYNTROLEUM RESEARCH AND DEVELOPMENT. Syntroleum has made significant
expenditures in research and development over the last four years including
pilot plant facilities for the multi-stage advanced reactor unit, product
upgrading Synfining unit and the Catoosa DOE project that have supported the
design basis for and critical to the success of large plants being developed by
Ivanhoe. It is agreed that the previous payments in the amount of US$10 million
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and its US$2 million equity contribution to the Sweetwater Project are partial
reimbursement to Syntroleum for its expenses to conduct the research and
development program through the first quarter of 2003.
5. SYNTROLEUM SPECIALTY PRODUCTS. For joint venture projects being
pursued together by the Parties, in order to enhance the project economics,
Syntroleum will contribute the ability to produce specialty products and
lubricants subject to economic enhancement opportunities and product market
limitations. Nothing in this Agreement shall imply that Ivanhoe has the right to
produce specialty products and Lubricants except as provided in this Paragraph
5.
6. INDIVIDUAL GTL PROJECT AGREEMENTS. Joint participation by the
Parties in each GTL Project will be pursuant to a mutually an agreed definitive
participation agreement ("Participation Agreement") entered into by the Parties
or jointly with third parties. The Parties shall have no obligations in respect
of any GTL Project until they have entered into the Participation Agreement. The
Participation Agreements will contain terms and conditions generally found in
similar agreements in the international petroleum industry. The Parties shall
both have the right to participate in the negotiations of contracts with a host
country or other private entities for a GTL Project, but they shall appoint one
representative to be the principal negotiator on behalf of the Parties. The
negotiator shall keep the Parties fully informed and consult with the Parties
regarding principal issues and developments.
If the Parties are successful in obtaining a GTL Project, the Parties shall also
enter into a mutually agreeable Joint Operating Agreement ("JOA") to govern
their relationships in respect of fulfilling the obligations and operations
under the GTL Project. The JOA will also contain provisions normally found in
such agreements in the international petroleum industry, including the
appointment of an operator, budgeting and cash call provisions and an
appropriate accounting procedure.
7. CONTRIBUTIONS AND PARTICIPATION IN GTL PROJECTS BY THE PARTIES;
COSTS AND EXPENSES. The Parties agree that their participation in each GTL
Project shall be based on and in proportion to what they contribute and/or bring
into the GTL Project, either by way of commercial and technical knowledge and
data and/or financial assistance. The contributions and participations shall be
detailed in the Participation Agreement for each individual GTL Project
separately.
If other qualified companies join the GTL Project with the agreement of the
Parties, in order to share costs and minimize individual risks, expenses and
investments, the Parties agree to reduce their participations proportionately to
the participating interest to be obtained by other companies included in the GTL
Project.
Unless expressly agreed otherwise in writing, each Party shall bear its own
costs and expenses of performing this Agreement and obtaining any individual GTL
Project and/or entering into separate Participation Agreements.
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8. TERM OF AGREEMENT. The term of this Agreement shall be for two (2)
years from the date of this Agreement and may be renewed for additional,
successive one (1) year periods by mutual agreement.
9. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between Syntroleum and Ivanhoe regarding its subject matter,
except that for each individual GTL Project the Parties are to enter into
Participation Agreements. This Agreement supersedes all prior agreements and
understandings regarding the same subject matter. This Agreement may be modified
or amended only by a written document duly signed by both Syntroleum and
Ivanhoe.
10. GENERAL PROVISIONS.
10.1 CONFIDENTIALITY. The confidentiality agreements previously signed
between Ivanhoe and Syntroleum with respect to the License and
operations thereunder, shall apply mutatis mutandis, to activities
under this Agreement unless and until more specific agreements are
entered into.
10.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, United States of
America, without regard to conflict of laws provisions thereof.
10.3 ASSIGNMENT. This Agreement shall not be assigned by either Party
without the prior written consent of the other Party.
IN WITNESS WHEREOF, Syntroleum and Ivanhoe have duly executed this
Agreement as of the date and year first above written.
SYNTROLEUM CORPORATION
By: /s/ K.R. Roberts
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Kenneth R. Roberts
Sr. Vice President
IVANHOE ENERGY INC.
By: /s/ E. L. Daniel
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E. Leon Daniel
President and CEO
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