Mongolia: Production Sharing Contract on coal bed methane gas operation
12.09.2007
Источник: EDGAR
Дата публикации: 31.12.04
PRODUCTION SHARING CONTRACT ON COAL BED METHANE GAS OPERATIONS IN PORTIONS OF PETROLEUM EXPLORATION AREAS NEMEGT-VI AND BORZON-VII BETWEEN THE PETROLEUM AUTHORITY OF MONGOLIA AND STORM CAT ENERGY CORPORATION dated February 26, 2004
This is a Product Sharing Contract signed by the Petroleum Authority of Mongolia, on the one side (hereinafter «PAM»), and Storm Cat Energy Corporation, on the other (hereinafter the «Contractor») on the day of February 26, 2004.
GENERAL PROVISIONS
The purpose of this Contract
is to establish regulation of relations between the Contractor and PAM,
authorized by the Government of Mongolia to enter on its behalf into Contract
related to Coal Bed Methane gas (CBM) Operations in the territory of
Mongolia, and exercise supervision over implementation thereof.
The Contractor shall have exclusive rights for conducting Coal Bed Methane gas (CBM) Operations in the Contract Area for Exploration as described in Annexes, attached hereto and made the integral part of the present Contract .
The land, except that privately owned by
Mongolian citizens, as well as the subsoil shall be the property of the
State. Mongolia in the interest of all its people may allow foreign
nationals, legal persons to lease land and exploit natural resources
for a specified period of time, purpose, under conditions and
procedures as provided for by law.
NOW, THEREFORE, have agreed as follows:
ARTICLE I
REPRESENTATIVES
1.1
DESIGNATION OF REPRESENTATIVES
a)
The Government of Mongolia hereby
designates Mr. O. Davaasambuu, the Chairman of the PAM, or any other
authorized person, as its representative (the «Government Representative») under this Contract.
b)
The Contractor hereby designates Mr.
Craig Steinke, Manager of Acquisition of Storm Cat Energy Corporation,
as its representative (the «Contractor Representative») under this Contract
c)
The Government Representative or the
Contractor Representative may be changed by notice to the other party
in accordance with Article XXIII hereof.
1.1
GOVERNMENT REPRESENTATIVE’S RIGHT OF ACCESS
a)
The Government Representative (or any
other person assigned and authorized by the Government Representative)
shall have access to the Contract
Area and to all Operations, and the Contractor shall provide all
possible assistance to the Government Representative to exercise such
right of access.
b)
The local administrative organizations of Mongolia shall visit the site of the Contractor’s Operations only to gain access.
c)
Any legally authorized person has right to access and exercise supervision over implementation.
ARTICLE II
DEFINITIONS
2.
DEFINED TERMS
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If there is not explanation for certain
case, the defined terms and understandings, forms originating hence
shall have the meanings set forth in this Article 2:
Coal Bed Methane gas ICBM) means
Natural Gas (mainly Methane) contained in coal or bituminous lignite
beds, shales and tight sands under reservoir condition and extracted
there from during CBM Operations.
«Petroleum» means liquid
petroleum and different compounds of hydrocarbons occurring under the
surface of the earth and which may be extracted in liquid, gaseous or
solid state individually or in combination.
«Natural Gas» means
hydrocarbons that are in a gaseous phase at atmospheric conditions of
temperature and pressure including wet mineral gas, dry mineral gas,
casing-head gas and residue gas remaining after the extraction or
separation of liquid hydrocarbons from wet gas, and non-hydrocarbon gas
produced in association with liquid or gaseous hydrocarbon.
«Petroleum Law» means the
Petroleum Law of Mongolia, which entered into force on February 13,
1991 and any Laws amending or in substitution for, or in lieu of such
law.
«Regulation for Implementing the Petroleum Law»
means the Regulation for Implementing the Petroleum Law of Mongolia
adopted by Government of Mongolia/Resolution No.204/ in 1991.
«Rules» mean rules, issued
by the Petroleum Authority of Mongolia in accordance with the Article 5
of the Regulation for Implementing the Petroleum Law of Mongolia should
be followed compulsory in the process of carrying out CBM Operations.
«Coal Bed Methane gas (CBM) Operations»
mean operations related to the exploration, development, protection,
production, processing, transportation, storage and marketing of CBM in
scope of this Contract.
«PAM» means the Petroleum Authority of Mongolia authorized by the Government of Mongolia to enter on its behalf into Contract
related to CBM Operations in connection with operations in the
territory of Mongolia, and exercise supervision over implementation
thereof.
«Laws» means any applicable Mongolian laws, or any other legal acts, whether now existing or hereafter enacted.
«Legal Person» means a corporation, company or other entity recognized as such by the Laws.
«Production Sharing Contract» means this Contract executed by the PAM and the Contractor for conducting CBM Operations in the Contract Area and approved by the Government of Mongolia.
«Effective Date» means the date on which this Contract is approved by the Government of Mongolia.
«Exclusive right for conducting CBM Operations« means only the Contractor conduct exercise special rights provided for in this Contract only for CBM Operations when it is in effect.
«Subcontractor» means any legal person or individual, which concluded a Contract with the Contractor to carry out certain portions of the CBM Operations.
«Contract Area»
means the area shown on and described in Annexes herein from the
Effective date as such area shall have been reduced from time to time
by relinquishments made in accordance with Article Vll.
«Block Unit» means an area equal to multiplied ten (10) minutes latitude by ten (10) minutes of longitude.
«Contract Year» means any period of twelve (12) consecutive Calendar Months counted from the Effective Date of this Contract or from the anniversaries of such Effective Date.
«Appraisal Area» means one
or more geological structure(s) or occurrence(s) that the Contractor
determines to be worthy of being appraised by an Appraisal Program.
Field means an Area containing one
or more natural reservoirs discovered on one or more wells, and similar
in geological structure and stratigraphy, determined to be worthy of
being developed.
«Appraisal Program» means a
work program, submitted by the Contractor, including a Budget, for the
purpose to evaluate and delineate a Commercial Discovery.
«Discovery Well» means a
well by which Contractor discovers the existence of a CBM reservoir,
which is determined to require further evaluation for the purpose of
determining whether such reservoir could constitute a Commercial
Discovery.
«Commercial Discovery»
means a discovery of a reserves of CBM which the PAM and Contractor
determine to be capable of being developed commercially, based on
consideration of all pertinent geological and geophysical data,
development costs, transportation and marketing costs, available
markets and other technical and economic factors deemed relevant.
«Operating Costs» means all costs and expenses except Exploration Costs and Development Costs.
«Development Area» means an area authorized by the Government of Mongolia for CBM Development within the Contract Area containing a Commercial Discovery.
«Appraisal Development»
means a well development during appraisal, as international CBM
industry, in purpose to determine Discovery Well or Commercial
Discovery Well.
«Development Costs» means all costs and expenses (except Operating Costs and Exploration Costs) incurred in respect of Development Operations.
«Development Operations» means all operations in respect of one or more Commercial Discoveries, including:
1.
drilling and producing of development and
delineation wells, and constructing and operating pipelines, terminals
and other facilities;
2.
separating, treating, dehydrating,
compressing, liquefying, storing, flaring, transporting and otherwise
processing and handling CBM ; and
3.
re-pressuring, recycling, and conducting pressure maintenance, secondary, tertiary and other enhanced recovery activities.
«Development Period» means the period during which Development Operations will be carried out in accordance with this Contract, as specified in Article 5.5
«Development Plan» means a program of work, including a Budget, for Development Operations in respect of a Commercial Discovery.
«Exploration Operations» means such operations as:
1.
activities in respect of aerial and
satellite mapping, geological, geophysical and geochemical surveys;
drilling and production of exploration and appraisal wells; petrologic,
mineralogical and paleontological studies, interpretations of data
preparing reports on exploration activities;
2.
discovering one or more reservoirs which have not then been proved to be within a Commercial Discovery; and
3.
carrying out an Appraisal Program.
«Exploration Period» means the period during which Exploration Operations will be carried out in accordance with this Contract.
«Exploration Costs» means all costs and expenses (except Operating Costs and Development Costs) incurred in respect of Exploration Operations.
«Contract CBM» means CBM which is produced and saved from the Contract Area pursuant to this Contract; and for purpose of this definition, «produced» means caused or allowed to rise to the surface and to pass through Production Sharing Measurement facilities, and «saved» means made available to be taken and disposed of by a party hereto and not:
1.
injected into a subsurface stratum within the Contract Area; or
2.
used for filling up transferring pipe; or
3.
lost through flaring, venting shrinkage, evaporation or otherwise during Operations.
«Cost CBM» means a quantity of Contract CBM for recovering the Contractor’s costs and expenses pursuant to Article 8.3.
«Production Sharing CBM» means the remaining part of Contract CBM after deducting the Royalty and Cost CBM.
«Production Sharing measurement» is as in Article 11.1.
«Royalty» means payment in
accordance with the Petroleum Law of Mongolia for utilization of the
natural non-renewable resources of Mongolia. Royalty shall be
calculated with respect to total production of Contract CBM at the wellhead.
«Calendar Month» means one
(1) of the twelve (12) calendar months according to the Gregorian
Calendar, starting on the first day of such month and ending on the
last day of such month, inclusive.
«Calendar Quarter» means a
calendar quarter according to the Gregorian Calendar, being either the
Calendar Months (i) January, February and March, (ii) April, May and
June, (iii) July, August and September, or (iv) October, November, and
December.
«Calendar Year» means a year according to the Gregorian Calendar starting on January I and ending on December 31, inclusive.
«Budget» means an estimate of income and expenditures.
«Accounting Procedure» means procedures and reporting requirements set forth in Annex.
«Tax» means a
non-refundable capital entering to the State or Local budget, by
determined percent calculated to income, estate, goods, service of
citizens and enterprises for certain period, as stated in legislations.
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«Fee» means a capital
received by authorized entity for its each service for citizen and
enterprises, and entering to the State or Local budget, as stated in
legislations.
«Payment» means a capital
entering to the State or Local budget and special funds, from citizen
and enterprises for utilization of a State property (land except
privatized to citizens, underground, its reserve, forest, water
resource and others).
«Land Surface Rental» non-refundable payment to representative of the Government by size of a contract area as stated in «Regulation for Implementing the Petroleum Law» for Contractor’s exclusive right only for CBM Operation in the contract area.
«Relinquishment of Areas» means relinquishment by Contractor voluntarily or in accordance with Contract some parts of Contract Area at the certain phase of exploration work.
ARTICLE III
RIGHTS AND OBLIGATIONS OF
GOVERNMENT REPRESENTATIVE AND CONTRACTOR
3.1
GOVERNMENT REPRESENTATIVE’S RIGHTS
The Government Representative shall have the following rights:
a)
to inspect CBM Operations of the Contractor;
b)
to possess all the original copies of geology, geophysics, petrochemistry geochemistry and other related fields data;
c)
to possess copies of documents related to
all the Contractors operations, machinery, equipment, technical
definitions, houses, constructions, its drafts and others;
d)
to exercise the right to request the
Contractor to supply its share of CBM for Mongolia’s internal
consumption, at fair market value, if Contractors wishes price of the
CBM shall be paid in foreign currency;
e)
to use or sell the it’s share of Production Sharing CBM;
f)
to exercise other rights provided for in this Contract
3.2
GOVERNMENT REPRESENTATIVE’S OBLIGATIONS
The Government Representative shall assume the following responsibilities:
a)
to support CBM operations conducted by Contractor;
b)
to inspect and supervise implementation of Mongolian legislation related to CBM Operations;
c)
to exercise other rights provided for in this Contract
3.3
CONTRACTOR ‘S RIGHTS
a)
The Contractor shall have the exclusive rights to conduct CBM Operations within the Contract Area;
b)
The Contractor shall have a right to
requisite approvals, to construct pipelines, bridges, roads, storage
facilities, houses, landing fields, radio towers and communication
facilities;
c)
The Contractor shall have a right to use
or sell (both within the Mongolia and abroad) the Contractor’s share of
Production Sharing CBM;
d)
The Contractor shall have a right to
assign, transfer, or otherwise convey of all or part of its rights and
interests under this Contract to any third party with the prior
written consent of the Government Representative, which will not be unreasonably withheld;
3.4
CONTRACTOR S OBLIGATIONS
During the conduct the CBM Operations the Contractor shall assume the following responsibilities:
a)
comply with Petroleum Law of Mongolia,
Regulation for Implementing the Petroleum Law of Mongolia, which
ratified by the authorized body and all applicable laws of Mongolia;
b)
CBM Operations will be conducted in
accordance with the standards and regulations that shall comply with
the universal practices accepted in the international CBM industry. It
is also understood that the execution of the CBM Operations shall be
exercised so as not to conflict with obligations imposed on the
Government of Mongolia by international treaties;
c)
be responsible for the timely preparation
and execution of the CBM Operations, the technology, techniques and
equipments are to be used for efficient development of CBM and shall
comply with the best practices accepted in the international CBM
industry;
d)
conduct an environmental impact
assessment in accordance with current applicable Laws prior to the
beginning of Contractor’s activities
e)
to take the following measure necessary to protect human, animals, nature, national resource, land surface:
1.
to prevent hazards to environment, human life or health and property of others during the conduct of CBM Operations;
2.
prior to the Contract expiration or termination, or relinquishment or abandonment of any part of the Contract Area, remove all equipment and installations from the area in a
manner acceptable to the Government Representative, and perform all
necessary site restoration activities in accordance with applicable
Laws and regulations of Mongolia;
3.
linclude in the annual Budget estimates of the anticipated abandonment and site restoration costs for each exploratory well;
4.
If the Contract Area is located near forbidden for CBM Operations Area take the necessary precautions for protection of ecological systems, and prevent pollution of the Contract Area;
f)
submit to all original geological,
geophysical, geochemical, drilling, production data, laboratory
analysis results and other data and reports as it may compile during
the term hereof;
g)
assist the Government Representative in
preparing and carrying out plans and programs for training and
education of Mongolian nationals;
h)
be responsible for the damages causes by violation of CBM Operations Regulations.
ARTICLE IV
COSTS AND EXPENSES
Except as otherwise provided herein, the
Contractor shall bear all costs and expenses necessary to conduct CBM
Operations. If such CBM Operations result in a Commercial Discovery of
CBM, the Contractor may recover such costs («CBM Costs») and 40
(forty) percent of CBM will be used for cost recovery. Neither party
hereto guarantees that any such discovery will be made, or if made,
that it will be Commercial Discovery. Accordingly, there shall be no
guarantee that the Contractor will achieve any reimbursement of any
costs and expenses incurred hereunder.
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ARTICLE V
TERM OF EXPLORATION OPERATIONS
5.1
EXPLORATION PERIOD
a)
The Exploration Period shall begin on the
Effective Date. The Exploration Period shall be up to five (5) years
duration and shall consist of three phases. The Government
Representative might require shortening this term to be less than five
(5) years, depending on the type, amount and cost of minimum work
obligations proposed by the Contractor.
b)
The duration of the first phase of the
Exploration Period shall be one (I) Calendar Year, the duration of the
second phase shall be two (2) Calendar Years and the duration of the
third phase shall be two (2) Calendar Years respectively.
5.2
EXTENSION OF EXPLORATION PERIOD
a)
The Government Representative shall
consider granting an extension of the Exploration Period, if the
Contractor, at least thirty (30) days prior to the expiration of any
phase of the Exploration Period gives written notice to the Government
Representative of the Contractor’s desire to extend the Exploration
Period.
b)
If the Contractor has fulfilled
exploration work programs, Budgets and minimum work obli tions as
specified below for the phase of the Exploration Period, the Government
Representative may, subject to the agreement with the Contractor,
extend the Exploration Period two (2) times for two (2) years duration
each. The Government Representative shall verify exploration work
programs and Budgets in order to extend the Exploration Period.
c)
If on the date on which the third
Exploration Period would otherwise expire a Discovery Well exists in
respect of which no determination has then been made as to whether such
discovery is a Commercial Discovery, the Exploration Period shall
continue in effect in respect of the Appraisal Area for such Discovery
Well until the first to occur of the following:
i)
such Discovery Well is determined to be a Commercial Discovery;
ii)
such Discovery Well is determined not to be a Commercial Discovery;
iii)
additional extension shall not be more than one year.
5.3
DISCOVERY AND APPRAISAL OPERATIONS
a)
If a well is determined to be a Discovery
Well, the Contractor shall within fifteen (15) days notify in written
the Government Representative and the date of such notice shall be
deemed to be the date of such Discovery Well.
b)
Within ninety (90) days after the date of
each Discovery Well, the Contractor shall provide to the Government
Representative for approval in respect thereof; an Appraisal Program
and Budget; and maps and other descriptions of the area to be appraised
(the «Appraisal Area»); and after Government Representative’s approval shall begin to implement the Appraisal Program.
5.4
COMMERCIAL DISCOVERIES
a)
If on the basis of reserves estimates one
or more discoveries made by one or more Discovery Wells are determined
to be a Commercial Discovery, the Contractor shall notify in writing
the Government Representative within fifteen (15) days, and the date of
such notice shall be deemed to be the date of such Commercial Discovery.
b)
Within one hundred eighty (180) days
after the date of each Commercial Discovery, the Contractor shall
provide to the Government Representative for approval in respect
thereof: a Development Plan and Budget; and maps, reserves estimates
and other
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descriptions of the area to be developed (the «Development Area»);
Petroleum Administration shall inspect revise all the documents within
thirty (30) days and if decides no amendments, no changes shall be made
then within ninety (90) days shall approve such Plan. Petroleum
Administration shall have a right to extend the approval period for one
hundred eighty (180) days if decides that all documents shall be
amended and changed.
c)
within ninety (90) days after Government
Representative’s approval shall commence Development Operations to
implement such Development Plan
5.5
COMMERCIAL DISCOVERY, TESTING. DEVELOPMENT PERIOD
a)
the Commercial Discovery establishment period shall be included in Appraisal Program;
b)
the period for Testing the Commercial Discovery establishments shall be continued for one hundred eighty (180) days.
c)
Development Period in respect of each
Commercial Discovery shall take effect on the date of such Commercial
Discovery and shall continue for a period of up to twenty (20) years.
5.6
REVISIONS OF APPRAISAL PROGRAMS, APPRAISAL AREAS,
DEVELOPMENT PLANS AND DEVELOPMENT AREAS
Subject to Government Representative’s
approval, the Contractor may, on the basis of additional information or
evaluation, revise any Appraisal Program, Appraisal Area, Development
Plan and Development Area; provided, however, that no such revision
will add to an Appraisal Area or Development Area any parts of the Contract Area that have already been relinquished under Article VII prior to such revision.
5.7
EXTENSION OF DEVELOPMENT PERIOD
The Government Representative may, upon
mutual agreement with the Contractor, extend the Development Period two
(2) times, with each extension being up to five (5) years in duration.
The Government Representative shall consider granting an extension of
the Development Period, if the Contractor, at least sixty (60) days
prior to the expiration of the Development Period gives written notice
to the Government Representative of the Contractor’s desire to extend
the Development Period.
ARTICLE VI
EXPLORATION OPERATIONS
6.1
MANDATORY WORK AND OBLIGATIONS
a)
Within one hundred eighty (180) days
from the Effective Date the Contractor shall commence the Exploration
Operations. The Contractor shall be obliged to perform mandatory work
and undertake minimum work obligation in an amount as specified in
Annex C. If the Contractor did not spend such amount, then the
Contractor shall pay the difference to the Government Representative
within thirty days after the end of the Contract Year of the Exploration Period being undertaken.
b)
Should the Contractor undertakes more
work than minimum work obligation, the excess expenditures shall be
carried forward to the next Contract Year of the Exploration Period.
c)
In the event the contract is terminated by the Contractor, the only obligation for the Contractor to spend the minimum work obligation amount for that Contract Year is the subject of the payment pursuant to the Article 6.1.a.
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6.2
DRILLING METHODS
Any exploration well which the
Contractor becomes obligated to drill under this paragraph 1 of Article
VI shall be drilled in accordance with generally accepted methods used
in the international CBM industry and shall be deemed drilled upon the
first to occur of the following:
a)
it reaches the projected depth;
b)
it becomes a Discovery Well;
c)
it reaches basement rock; or
d)
it encounters impenetrable substance or excessive geothermal gradients.
6.3
EXPLORATION WORK PROGRAMS AND BUDGETS
Within sixty (60) days after the Effective Date, and thereafter at least forty five (45) days prior to the beginning of each Contract
Year, the Contractor shall prepare detailed exploration work programs
and Budgets setting forth the Exploration Operations which the
Contractor proposes to conduct during such Contract Year in the Contract
Area, and provide such work programs and Budgets for approval to the
Government Representative. At least thirty (30) days prior to the
beginning of such Contract
Year, the Contractor and Government Representative shall meet to review
and discuss such exploration work program and Budget. If the Contractor
thereafter intends to revise such approved work program and Budget, the
Contractor shall promptly provide copies of such revision to the
Government Representative and within fifteen (15) working days
following the receipt thereof the Contractor and the Government
Representative shall again meet to review and discuss such changes.
ARTICLE VII
RELINQUISHMENTS
7.1
MANDATORY RELINQUISHMENTS
The Contractor:
a)
may relinquish within thirty (30) days
after the expiration of the first phase of the Exploration Period, a
total of twenty five (25) to fifty (50) percent of the original Contract Area;
b)
may relinquish within thirty (30) days after the expiration of the second phase of the Exploration Period, a total of twenty (20) to thirty (30) percent of the original Contract Area; and
c)
may relinquish at or prior to the expiration of the Exploration Period, all remaining portions of the original Contract Area, except Appraisal Areas and Developments Areas.
d)
is obliged to restore the surface, clean
the polluted area, water, remove all machinery and equipment of any
part of the original Contract Area into its original form prior to relinquishment.
7.2
VOLUNTARY RELINQUISHMENTS
a)
the Contractor may voluntarily relinquish all or any part or parts of the Contract
Area under paragraph 1 of Article VI , and any such voluntary
relinquishments shall be credited toward the mandatory relinquishments
under paragraph 1 of Article VII;
b)
the Contractor shall make no voluntary
relinquishment for the purpose of reducing or rescinding a minimum work
obligation, which the Contractor shall
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have then already become obligated to under paragraph lof Article VI hereof. The Contractor shall pay to the Government Representative within thirty (30) days before the relinquishment.
7.3
APPRAISAL AREAS
If, after the conduct of an Appraisal
Program, the Contractor determines that the Appraisal Area does not
constitute a Commercial Discovery, the Contractor shall relinquish such
Appraisal Area. If Contractor wishes voluntary relinquish the Appraisal
Area, which has not conducted its mandatory work and obligations, in
accordance with Appraisal Program the Contractor shall pay to the
Government Representative within thirty (30) days before relinquishment.
ARTICLE VIII
ROYALTY AND PRODUCTION SHARING
8.1
ROYALTY
1.
The Contractor shall pay the Royalty based upon the price of the Contract
CBM for each Calendar Quarter. The Royalty shall be equal to seven and
one half (7.5) percent calculated with respect to total production of
CBM.
2.
The Royalty payment shall be determined
pursuant to paragraph 5 of Article VIII and such Royalty payment shall
be made before the last day of the last Month of each Calendar Quarter,
or as otherwise approved by the Government Representative.
8.2
MARKETING OF CBM
a)
The Contractor shall have right to market all CBM produced and saved from the Contract Area.
b)
If the Government of Mongolia decides to
take any of its portion of CBM by calculating in currency from marketed
CBM, or in kind from produced and saved CBM it shall so advise the
Contractor in writing not less than thirty (30) days prior to the
commencement of each Calendar Quarter specifying the quantity which it
decides to take.
8.3
COST CBM
a)
The Contractor shall have the right to take and dispose of the certain quantity of Contract CBM for each Calendar Month (herein referred to as «Cost CBM»)
for the purpose of recovering its costs and expenses incurred in
respect of CBM Operations. The quantity of Cost CBM which the
Contractor shall have the right to take and dispose of in any Calendar
Month shall be equal to that quantity of Contract
CBM which has a value equal to the aggregate of all CBM Costs incurred
by the Contractor and allowed to be recovered pursuant to this Contract; provided, however, that the Contractor shall be entitled to take Cost CBM not exceeding 40 percent of all Contract
CBM for any Calendar Month. All Operation Costs of the Contractor that
remain unrecovered hereunder shall be carried forward until fully
recovered in the succeeding Calendar Months.
b)
The Parties shall agree on the planning
and accounting model for the CBM Operations and shall submit to the
Government Representative a copy of accounts for CBM Costs. The
Contractor shall notify the Government Representative of the amount of
the CBM Costs and the method of their recovery.
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c)
Contractor will classify CBM Cost into
Exploration Cost, Operation Cost and Development Cost, without double
concerning. Those CBM Costs will be recovered by the following stages
1.
Exploration Cost,
2.
Operation Cost and
3.
Development Cost
For clarification, it is approved
possibility that Development Cost can occur within Exploration Period
and Exploration Cost within Development Period.
d)
Notwithstanding the foregoing, the
Royalty to be paid under paragraph 1 of Article VIII and the bonuses
and other payments to be paid under Article X shall not be recoverable
and shall not be included in Cost CBM under this paragraph 3 of Article
VIII.
8.4
PRODUCTION SHARING CBM
a)
After reduction by the Royalty and the quantity of Cost CBM for each Calendar Month, the remaining quantity of Contract CBM (herein referred to as «Production Sharing CBM»)
shall be allocated between the Government of Mongolia and the
Contractor in proportion to the percentages set forth below, based upon
the average daily quantity of Contract CBM for a given Calendar Month:
1.
If average daily quantity of Contract CBM for any Calendar Month is less than 1.000.000 m3:
Government of Mongolia
20 %
Contractor
80 %
2.
If average daily quantity of Contract CBM for any Calendar Month equals to or exceeds 1.000.001 m3 but is less than 2.000.000 m3:
Government of Mongolia
25 %
Contractor
75 %
3.
If average daily quantity of Contract CBM for any Calendar Month equals to or exceeds 2.000.001 m3 but is less than 3.000.000 m3:
Government of Mongolia
30 %
Contractor
70 %
4.
If average daily quantity of Contract CBM for any Calendar Month equals to or exceeds 3.000.001 m3 but is less than 4.000.000 m3:
Government of Mongolia
35 %
Contractor
65 %
5.
If average daily quantity of Contract CBM for any Calendar Month equals to or exceeds 4.000.001 m3:
Government of Mongolia
40 %
Contractor
60 %
If the balance of unrecovered CBM Costs is less then the forty (40) percent of the total quantity of Contract CBM, such the difference between the forty (40) percent of the total quantity of Contract CBM and the balance of unrecovered CBM Costs shall be calculated as a Production Sharing CBM.
c)
The average daily quantity of Contract CBM for any Calendar Month shall be calculated by dividing the total quantity of Contract CBM for each such Calendar Month by the total number of days of such Calendar Month.
d)
The value of the share of Government of
Mongolia of Production Sharing CBM shall be determined pursuant to
paragraph 5 of Article VIII and the payment of the share of Government
of Mongolia of Production Sharing CBM shall be made to the Government
Representative within thirty (30) days from the end of each Calendar
Quarter.
8.5
VALUATION OF CONTRACT CBM
a)
For purposes of determining the value of
Royalty to be paid to the Government of Mongolia pursuant to Article
8.1 and the value of Cost CBM and Production Sharing CBM to be
allocated between the Government of Mongolia and the Contractor
pursuant to paragraph 3 of Articles VIII and paragraph 4 of Article
VIII, a Contract CBM shall be determined at the world market price (each Calendar Month).
b)
The exact procedure of determining the value of Contract
CBM shall be adopted by mutual agreement between Government
Representative and Contractor prior to conclusion of any agreements
with third parties with regard to marketing of Contract CBM.
c)
In every Calendar Months Contract
CBM price will be calculated by arms-length method price of the
Contractor. Transportation costs shall be agreed by Government
Representative and Contractor with respect to the international rates
and shall be included to the Contract CBM price.
8.6
FORECASTS OF PRODUCTION
a)
For each Commercial Discovery, not less
than thirty (30) days prior to the beginning of each Calendar Quarter
the Contractor shall furnish to the Government Representative a
forecast setting out the total maximum possible quantity of CBM that
the Contractor estimates to produce and market, price and other
relevant factors according to practices in the international CBM
industry.
b)
The Contractor’s forecast shall include
estimates of Royalty, Cost CBM and the respective entitlements of the
Government of Mongolia and the Contractor to Production Sharing CBM
during such Calendar Quarter. The Contractor shall endeavor to produce
the forecasted quantities.
8.7
UNDERLIFTING AND OVERLIFTING
It is recognized that any party hereto may, from time to time, fail to take the full quantity of Contract CBM to which such party is entitled (such party being called an «Underlifter» herein). When that occurs, full production may be continued for the benefit of the other party (such party being called an «Overlifter» herein) and the Contractor shall maintain records to indicate the quantity of Contract
CBM which the Underlifter may make up in order to be in correct balance
with the Overlifter. The Underlifter shall be compensated extra
quantities of Contract
CBM in order to achieve such balance as soon as practicable; provided,
however, that the Contractor shall make such allocations in such ways
so as not to unduly interfere with orderly operations for production
and sales.
ARTICLE LX
NATURAL GAS, CRUDE OIL A ND OTHER MINERALS
9.1
The Contractor shall promptly report to
the Government Representative the presence of potentially commercial
accumulations of minerals, including Crude Oil and Natural Gas other
than CBM Gas which are not associated with CBM but are encountered and
recognized by the Contractor while conducting CBM Operations within the
Contract Area.
Such minerals, Crude Oil and Natural Gas shall remain the property of Mongolia.
Page 12
9.2
The Government Representative and Contractor hereby agree on following:
a)
In case of Crude Oil: — the Parties shall negotiate on conclusion of a separate Production Sharing Contract;
b)
In case of Natural Gas other than CBM new terms shall be agreed as an amendment to the present Production Sharing Contract;
9.3
Contractor acknowledges that PAM has retained crude oil and natural gas rights in this Contract Area during the effective period of this contract except for CBM as defined in this contract.
ARTICLE X
BONUSES, INCOME TAXES AND OTHTR FEES
10.1
SIGNATURE BONUS. PRODUCTION START-UP BONUS AND
PRODUCTION BONUSES
a)
The Contractor shall pay to the
Government Representative the sum of sixty thousand US $ (60.000) as a
Signature Bonus within 60 days after ratification of this Contract by the Government of Mongolia.
b)
The Contractor shall pay to the Government Representative:
i)
the sum of U.S.$ 250,000 (two hundred fifty thousand) as a Production Bonus upon the first sale of Contract CBM
ii)
the sum of U.S.$ 500,000 (five hundred thousand) as the Production Bonus after average daily quantity of Contract CBM for any Calendar Month exceeds 1,000,000 meter cubic (m’);
iii)
the sum of U.S.$ 750,000 (seven hundred fifty thousand) as the Production Bonus after average daily quantity of Contract CBM for any Calendar Month exceeds 2,000,000 meter cubic (m’);
iv)
the sum of U.S.$ 1,000,000 (one million) as the Production Bonus after average daily quantity of Contract CBM for any Calendar Month exceeds 3,000,000 meter cubic (m’); and
v)
the sum of U.S.$ 1,250,000 (one million two hundred fifty thousand) as a Production Bonus after average daily quantity of Contract CBM for any Calendar Month exceeds 4,000,000 meter cubic (m).
10.2
TRAINING BONUS
The Contractor shall pay to Government
Representative the sum of forty thousand U.S. $ (40,000) per year as a
Training Bonus annually within thirty (30) days after beginning of each
Contract Year.
10.3
TAXES
The Contractor shall pay taxes levied by the Legislations of Mongolia except as prescribed in Article XVI.
10.4
LAND SURFACE RENTAL FEE
a)
The Contractor shall pay to the Government Representative the Land Surface rental fee for the area within the Contract Area as prescribed in the Petroleum Law of Mongolia.
Page 13
Contractor shall pay the following annual surface rentals:
i.
For Contract
Area during the First phase of the exploration period per square
kilometer (excluding Development Areas)
1.00
US $
ii.
For Contract
Area during the Second phase of the exploration period per square
kilometer (excluding Development Areas)
2.00
US $
iii.
For Contract
Area during the Third phase and extension terms of the exploration
period per square kilometer (excluding Development Areas)
4.00 US $
iv.
For the Development Area, per square kilometer
50.00 US $
b)
The Contractor shall pay such pledge fees
within (90) days from the Effective Date and shall pay such pledge fees
annually within thirty (30) days after beginning of each Contract Year.
10.5
ADMINISTRATIVE SERVICE FEES
The Contractor shall pay to the
Government Representative administrative service fees as prescribed in
the Petroleum Law and/or other applicable Laws. Fees for Term of
Exploration, Application for Contract
Area, Application for Development Area, Term of Development Operations
and other CBM Operations related activities shall be included as such
fees.
Contractor shall pay the following Administrative Services Fees:
|
a) |
For each Contract Area Application |
10.000 US $ |
|
b) |
For each extension of exploration term |
25.000 US $ |
|
c) |
For each Development Area permit |
50.000 US $ |
|
c) |
For each change or adjustment in the Development Area |
25.000 US $ |
|
e) |
For each extension of Development term |
100.000 US $ |
|
f) |
For each application to transfer any rights and obligations for CBM Operations |
100.000 USD |
ARTICLE XI
MEASUREMENTS
11.1
PRODUCTION SHARING MEASUREMENTS
a)
Measurements made for the purpose of determining the quantities of Contract CBM to be allocated between the parties hereto («Production Sharing Measurements»)
shall be made in accordance with generally accepted methods used in the
international CBM industry, it being agreed, however, that other
measurements may be made for other purposes (including meters to test
or estimate production rates of individual wells) and will not
necessarily conform to the same standards as the Production Sharing
Measurements.
Page 14
a)
Such Production Sharing Measurements
shall be made at or near the final outlet flange or flanges of an
export pipeline system or such other facility to which Contractor
delivers CBM under Article VIII or IX. If Contract
CBM is allocated to more than one well or discovery for any purpose,
the Contractor shall make such allocations by methods generally used in
the international CBM industry.
b)
It is understood and agreed that neither
the Contractor nor the Government Representative shall have the right
to take and dispose of its share of Contract
CBM until after the Production Sharing Measurements provided for in
this Article XI have been made; provided, however, that nothing herein
contained shall limit the right of the Government of Mongolia to take
and dispose of its share of Contract CBM required to meet demand therefore within Mongolia.
11.2
CORRECTIONS OF MEASUREMENTS
a)
If the Contractor intends to adjust,
repair or replace any appliance used for Production Sharing
Measurements, the Contractor shall give notice to the Government
Representative and enable the Government Representative to observe such
operation.
b)
The Government Representative shall be
entitled to observe any Production Sharing Measurement at any time and
to conduct tests to determine the accuracy thereof If any such testing
reveals that such measurements are not in accordance with generally
accepted methods used in the international CBM industry, the Government
Representative may request the Contractor to take appropriate remedial
action. If the Contractor has not commenced and diligently continued
remedial action within thirty (30) days following such request, or it
has been commenced but with hold up the Government Representative may
cause the same to be corrected and recover the costs thereof from the
Contractor.
c)
In the event a measuring error is
discovered, the Contractor shall use all reasonable efforts to
determine the correct production figures for the period during which
there was a measuring error and correct previously used readings. The
Contractor shall submit for the Government’s approval a report on the
corrections carried out. If it proves impossible to determine when the
measuring error first occurred, the commencement of the error shall be
deemed to be that point in time halfway between the date of the last
previous test and the date on which the existence of the measuring
error was first discovered.
11.3
MEASUREMENT RECORDS
The Contractor shall maintain records of
Production Sharing Measurements for a period of at least five (5) years
from the date thereof and the Government Representative shall have
access thereto at all reasonable times.
ARTICLE XII
EXPLORATION, PRODUCTION
AND TECHNICAL DATA OF CBM
12.1
TITLE OF TECHNICAL DATA
The Government Representative shall have
title to all original data, including but not limited to geological,
geophysical, petrophysical, geochemical, all well completion reports,
drilling, petrologic, completion status reports and all other original
data that Contractor may compile during the term hereof, provided,
however, that such data shall not be disclosed to third parties without
informing the Contractor and giving the Contractor the opportunity to
discuss the disclosure of such data if the Contractor so desires.
12.2
GENERAL ACTIVITIES RECORDS
Page 15
The Contractor shall maintain technical
records of its CBM Operations including but not limited to exploration,
development, production and refining operations in accordance with
generally accepted practices in the international CBM industry. Such
records shall be in the English language. The Contractor shall provide
all such documents and reports to the Government Representative on a
monthly, quarterly and yearly basis.
12.3
GEOPHYSICAL DATA
The Contractor shall keep the general
geophysics data and shall give one copy to Government Representative in
accordance with Government Representative’s verified Regulation.
12.4
EXPLORATION. PETROPHYSIC,LABORATORY STUDIES, PRODUCTION AND PRODUCTION TEST DATA
The Contractor shall prepare such data as
generally accepted methods used in the international CBM industry and
provide such data to the Government Representative. Subject to the
Government Representative’s consent, for the purpose of testing and
laboratory analysis the Contractor shall have the right to take and
remove from Mongolia samples of cores /sample duplicate/, well cuttings
/sample duplicate/ and rocks. The Contractor may dispose of such
samples unless the Government Representative requests to return such
samples within three (3) year following the above consent. If the
Contractor plans to test a well, the Contractor shall inform the
Government Representative of the time when such well is scheduled to be
tested and expenditure of such tests. Testing period shall be 1-6
months. If the Government Representative requests, allow him to be
present to observe such testing.
12.5
REPORTS ON PROCESSED DATA, EXPLORATION RESULTS AND CBM RESERVES
The Contractor shall provide to the
Government Representative such data and reports in accordance to the
Rules adopted by the Government Representative.
12.6
DEVELOPMENT AND PRODUCTION OPERATIONS
The Contractor shall maintain records
showing quantities of CBM produced from each well and shall provide to
the Government Representative such data and reports as outlined in the
Rules adopted by Government Representative.
12.7
JOINT COMMITTEE
a)
Upon commencement of the Development
Period for the first Commercial Discovery hereunder, the Contractor and
the Government Representative shall form a joint committee to review
data and the production activities of all productive reservoirs, and
co-ordinate administrative matters between the Government
Representative and the Contractor.
b)
The joint temporary committee shall be
created in accordance with the paragraph 7 of Article XII if Contractor
sells or exploits Contract
CBM gained from experimental Development Period which continued more
than a year before term of Development Operations commences.
12.8
CONFIDENTIALITY
The parties hereto shall maintain all documents and reports referred to in this Article XII throughout the term of this
Agreement as confidential and shall not divulge it to any third party
without the consent of the other party hereto. The foregoing
confidentiality obligation shall not apply to:
Page 16
(i)
disclosure by either party hereto to its
employees, Affiliates, consultants, prospective assignees, prospective
lenders or Subcontractors to the extent required for the conduct of
Operations; or
(ii)
disclosure by either party hereto to the
extent required to comply with applicable Laws, or the rules or
regulations of any stock exchange on which a party’s, or its Affiliate’s, shares are listed.
(iii)
disclosure to the Contractor investors or shareholders. The receiving side shall agree to keep such information confidential.
ARTICLE XIII
ACCOUNTING DATA
13.1
BOOKS OF ACCOUNT
The Contractor shall maintain books of
account in respect of Operations in accordance with the Accounting
Procedures attached as Annex C and with generally accepted accounting
procedures as practiced in the international CBM industry. Such books
of account shall be in the English language and in United States Dollars.
13.2
ACCOUNTING REPORTS
The Contractor shall provide accounting
reports, statements and other information to the Government
Representative in accordance with the Accounting Procedure attached as
Annex C. After the Contractor opens an office in Mongolia, the
Contractor shall maintain copies of such accounting reports, statements
and other information at that office, and the Government Representative
shall have access thereto at any time it desires.
13.3
INSPECTIONS
a)
The Government Representative shall have
the right to inspect and audit the Contractor’s books of account and
other supporting documents in respect of CBM Operations.
b)
Cost related to the conduct of such inspection shall be born by the Contractor.
13.4
AUDIT
a)
Auditor, determined in Article 13, has
to right to have inspection of financial accounts, financial reports,
inventory and goods, voucher, salary payment, invoice, a contract directly and indirectly related to this contract, sub-contractor contract,
other agreements, and all documents related to Operation necessary
times with considerable reason. Also, auditor has right to have
inspection in sites, in Mongolia and abroad, related to Operation,
facilities, storages, offices, to meet relative person necessary times
with considerable reason.
b)
All documents shall be saved for 5 (five) years since its origin, as stated in Law, has to be ready to be inspected.
ARTICLE XIV
GOVERNMENTAL ASSISTANCE
14.1
GENERAL ASSISTANCE
The parties hereto recognize that
Contractor may require assistance from Government Representative to
conduct Operations and to accomplish the objectives of this Contract.
Page 17
Accordingly, and for the purpose of accomplishing the objectives of this Contract
for the mutual benefit of Mongolia and Contractor, the Government
Representative shall assist Contractor to the extent reasonably
possible to enable Contractor to fulfill its obligations, exercise its
rights, including assistance in obtaining governmental permits,
registrations, licenses, visas, consents and other rights necessary for
Contractor to conduct CBM Operations.
14.2
OTHER ASSISTANCE
The Government Representative may
otherwise assist and expedite the Contractor’s execution of the
Operations by providing facilities, supplies and personnel, supplying
or otherwise making available all necessary visas, work permits,
transportation, security protection and rights of way and easements as
may be requested by the Contractor and made available from the
resources under the Government Representative’s control.
The Parties agree that aforesaid Governmental assistance shall clearly be only at request of the Contractor.
14.3
GOVERNMENTAL ASSISTANCE CONTRIBUTION
The Contractor shall pay to the
Government Representative the sum of twenty thousand US $ 20,000
annually within thirty (30) days from the beginning of each Contract year as Governmental Assistance Contribution.
ARTICLE XV
USE AND OWNERSHIP OF PROPERTY
15.1
EQUIPMENT AND FACILITIES
The Contractor’s wholly owned equipment,
facilities and supplies used for Operations, the costs and expenses of
which are fully recovered by Contractor upon the termination of this
Agreement, shall become the state property of the Government of
Mongolia at no additional cost at the time when cost of such equipment,
facilities and supplies have been recovered by Contractor.
Notwithstanding any other provision herein, upon the termination of
this Contract
all Contractor’s wholly owned equipment, facilities supplies and real
estate shall become the state property of the Government of Mongolia at
no additional cost. It is understood that this paragraph I of Article
XV shall not apply to any item that are leased by the Contractor from
any other party, including Affiliates.
ARTICLE XVT
TAX EXEMPTIONS
16.1
INCOME, CUSTOME. VALUE-ADDED, EXCISE AND OTHER CORPORATE TAX EXEMPTIONS
It is understood that:
a)
pursuant to the Law on Amendments to the Customs Tariff Law of Mongolia, effective from February 5, 2000, the following items shall be exempted from customs taxes:
i
imports of machinery, equipment,
materials, raw materials, spare parts, gasoline, diesel fuel, foodstuff
and personal items of employees necessary for the conduct of operations
in accordance with the contract on principles of production sharing, concluded with the Government of Mongolia;
ii.
exports of machinery, equipment imported on the conditions of re-export for
Page 18
the conduct of operations in accordance with the contract on principles of production sharing, concluded with the Government of Mongolia; and
iii.
exports of contractor’s share of CBM.
b)
pursuant to the Law on Amendments to the Value Added Taxes Law of Mongolia, effective from January 8, 1998,
machinery, equipment, materials, raw materials, spare parts, gasoline,
diesel fuel, foodstuff and personal items of employees imported for the
conduct of operations in accordance with the contract on principles of production sharing, concluded with the Government of Mongolia shall be exempted from value added taxes.
c)
pursuant to the Law on Amendments to the Excise Taxes Law of Mongolia, effective from January 21, 1993, gasoline and diesel fuel imported for the conduct of operations in accordance with the contract on principles of production sharing, concluded with the Government of Mongolia shall be exempted from excise taxes.
d)
pursuant to the Law on Amendments to the Business Entities Income Tax Law of Mongolia, effective from January 9, 1998,
income gained from sold product’s allotted to foreign entities
operating in Mongolia for the conduct of operations in accordance with
the contract
on principles of production sharing concluded with the Government of
Mongolia, shall be exempted from business entity income taxes.
16.2
Contractor’s Sub-contractor(s), affiliate(s) and their
employees have rights as the Contractor and its employees as prescribed
in Article 16.
ARTICLE XVII
EXCHANGE RIGHTS
17.1
FOREIGN CURRENCIES
Purchase or sale of foreign currencies shall be transacted at the daily prevailing rates as quoted by the Mongol Bank.
17.2
FOREIGN BANK ACCOUNTS
The Contractor is hereby authorized to
open, maintain, control and operate accounts in any currency in foreign
banks outside of Mongolia, to have full and complete control of such
accounts, and to retain abroad and freely dispose of any funds in such
accounts.
17.3
EXCHANGE RIGHTS
The Contractor is hereby granted the following exchange rights:
a)
To provide in freely convertible foreign
currencies all funds needed to conduct Operations and to convert such
currencies to Mongolian currency through any bank of Mongolia at the
exchange rate prescribed in paragraph 1 of Article XVII;
b)
To hold and freely dispose of any funds held outside of Mongolia;
c)
To retain abroad and freely dispose of all proceeds
received outside of Mongolia from the export, sale or exchange of it’s
share of CBM;
d)
To repatriate abroad and freely dispose of all proceeds
received within Mongolia from the sale, exchange or export of it’s
share of CBM;
e)
To pay its Subcontractors and expatriate
employees in foreign currencies, either inside or outside of Mongolia;
such employees shall only be required to bring into Mongolia such
foreign currencies as are required to meet their personal living
expenses;
Page 19
f)
To maintain a special account or accounts
in a bank in Mongolia chosen by the Contractor for non-Mongolian
currency which can be disbursed for the purpose of making payments to
the Government Representative or the Government of Mongolia hereunder,
or making other payments required for Operations.
17.4
PAYMENTS UNDER THIS CONTRACT
Any payments made by either party hereto shall be made in U.S. Dollars unless the parties mutually agree upon another currency.
ARTICLE XVIII
MONGOLIAN SUBCONTRACTORS, MATERIALS AND EMPLOYEES
18.1
SELECTING MONGOLIAN SUBCONTRACTORS, MATERIALS AND EMPLOYEES
The Contractor and its Subcontractors shall:
a)
give preference to Mongolian
Subcontractors so long as their prices and performance are comparable
with international prices and performance;
b)
give preference to material, equipment,
machinery and consumables manufactured in Mongolia so long as their
prices, qualities and times of delivery are comparable to
internationally available materials, equipment, machinery and
consumables; and
a)
give preference in employment to
Mongolian nationals provided they are suitably qualified and provided,
further, that the Contractor has the right to employ its own personnel
in key positions. The Contractor shall have appropriate approval from
Employment Authority of Mongolia to place its own workers on important
positions. It is recognized that the Contractor may require the
assistance of the Government Representative in order to identify any
such prospective Mongolian Subcontractors, locally manufactured items,
and Mongolian employees, and that the Contractor’s obligations under
this Article XVIII are accordingly conditioned upon the Contractor’s
having timely knowledge thereof. The Contractor shall pay disability
allowances in accordance with the Laws of Mongolia to those Mongolian
national employees who may temporarily or permanently lose their ability to work as a result of an accident while performing their duties under this Contract.
ARTICLE XIX EMERGENCIES
19.1
EMERGENCIES IN OPERATIONS
The Contractor may take all actions it
deems necessary to meet any emergency. The Contractor shall promptly
notify the Government Representative of any such emergency.
19.2
NATIONAL EMERGENCY
a)
In case of national emergency, the
Government of Mongolia may requisite with compensation all or part of
Contractor’s share of the CBM from the Contract Area and may require Contractor to increase production of CBM to the maximum safe level of production.
b)
No such requisition shall be affected except after
providing to the Contractor an opportunity to express its views in
respect of such requisition.
Page 20
c)
Any requisition of CBM reserves, or of
any related facilities, shall be effected in accordance with the
applicable Laws of Mongolia, duly notified to the Contractor, until
such national emergency is ceased.
d)
The Government of Mongolia shall indemnify the Contractor from all losses which result from such requisition.
ARTICLE XX
FORCE MAJEURE
20.1
«Force Majeure» within the
meaning of this Article XX shall include fire, epidemics, unavoidable
accidents, declared and undeclared war, strikes, lockouts and other
disturbances, floods, storms, earthquakes and other natural
disturbances, insurrections or riots.
20.2
If the Contractor is prevented or
delayed by Force Majeure from performing any obligation, from meeting
any condition, or from exercising any right hereunder, an amount of
time equal to the period or periods, plus a reasonable period to
prepare for the resumption or initiation of the actions so prevented or
delayed, shall be added to any time provided for or otherwise allowed
therefore hereunder, and to the applicable Exploration Period and/or
Development Period. No action resulting from Force Majeure shall be
treated as a breach of this Contract.
20.3
If the quantity of CBM being produced,
or which could be produced, from one or more Commercial Discoveries is
interrupted or otherwise limited by Force Majeure, then the Development
Period applicable thereto shall be extended beyond the period provided
in Article V until the quantities that could have been produced and
saved therefrom at capacity have been made up. The term «capacity»
for purposes of this provision means the total quantity of CBM that the
wells then existing on such Commercial Discovery or Discoveries could
have produced in accordance with generally accepted practices of the
international CBM industry had the interruption of Development
Operations not occurred. Within ninety (90) days following each
Calendar Year, the Contractor will notify the Government Representative
of the cumulative quantities of CBM, which are to be made up as herein
provided.
ARTICLE XXI
CANCELLATION
21.1
If the Effective Date does not occur within one hundred eighty (180) days following the date on which the parties execute this Contract, the Contractor may notify the Government Representative that this Contract is canceled.
21.2
If the Contractor fails to commence
Exploration Operations within one hundred twenty (120) days following
the Effective Date, the Government Representative shall cancel Contract.
21.3
The Government of Mongolia shall have the right to cancel this Contract through its own Representative’s suggestion if the Contractor knowingly breaks this Contract
or commits a material breach and if the Contractor fails to remedy or
commence to remedy such breach within the time hereinafter provided,
and if the Contractor fails to commence budgeted work to implement this
Contract.
21.4
If the Government of Mongolia determines
to exercise its rights under paragraph 2 of Articles XXI or paragraph 3
of Article XX1, the Government Representative shall give the Contractor
written notice. If within thirty (30) days from such notice the
Contractor shall not have commenced to remedy such breach, and if the
Contractor shall not have been delayed or
Page 21
prevented therefrom because of Force Majeure, the Government Representative may thereafter issue a decree to cancel this Contract
subject to the right of the Contractor to invoke the arbitration
provisions of Article XXII. The Contractor in the event of cancellation
shall pay to Government Representative for failed budgeted work fees
for the Contract Year.
21.5
Following cancellation of this Contract,
the Contractor shall have the right to remove from Mongolia all movable
property (other than described in paragraph 1 of Article XV) used in
respect of Operations, which is leased or otherwise not wholly owned by
the Contractor.
21.6
The Contractor shall have the right to
cancel this Agreement for any reason upon 90 (ninety) day notification
to the Government Representative, whereupon all obligations of the
Contractor shall terminate except as for minimum work obligation as set
forth in Article 6.1.
ARTICLE XXII
ARBITRATION AND LIABILITIES
22.1
Unless this Contract
provides otherwise, any property dispute arising out of or in the
course of CBM operations shall be settled by Mongolian arbitration in
accordance with the laws of Mongolia.
22.2
Upon request of the Party concerned, any dispute related to this Contract, such as modification of its terms or its cancellation may be settled in accordance with the UNCITRAL Arbitration Rules.
22.3
If Contractor undertakes any operations
in breach of the provisions of the Petroleum Law of Mongolia or other
relevant laws of Mongolia, and such breaches result in losses to an
entity, organizations or individuals, the Contractor shall be liable in
accordance with the laws of Mongolia.
22.4
Any losses resulting from a breach of contractual obligations by either party shall be recovered from the offending party.
22.5
The parties hereto base their relations in respect of this Contract on the principles of goodwill and good faith.
ARTICLE XXIII
NOTICES
23.1
Written notices to the Contractor are effective if:
a)
given by telefax to the Contractor’s
headquarters office designated in paragraph 3 of Article XXIII or,
after the Contractor opens an office in Mongolia, given to such office,
if receipt thereof is acknowledged by answer back or is confirmed as
received by the transmitting facsimile machine; or
b)
given by courier with acknowledged receipt or by
delivery of such notice in person to the Contractor Representative, if
the Contractor Representative or one of his authorized representatives
has acknowledged receipt thereof.
23.2
Written notices to the Government Representative are effective if
a)
given by telefax to the Government
Representative’s office designated in paragraph 3 of Article XXIII, if
receipt thereof is acknowledged by answer back or is confirmed as
received by the transmitting facsimile machine; or
Page 22
b)
given by courier with acknowledged
receipt or by delivery of such notice in person to the Government
Representative, if the Government Representative or one of his
authorized representatives has acknowledged receipt thereof.
23.3
Written notices provided for in
paragraph lof Article XXIII Article and paragraph 2 of Article XXIII
above shall be addressed and sent out as follows:
a.
The Government Representative:
Petroleum Authority of Mongolia Uildverchnii gudarnj
P.O.B. 37/81
Ulaanbaatar, MONGOLIA
Attention: Mr. O. Davaasambuu, Chairman
Fax: 976-11-631-239, Tel: 976-11-631208 E-mail: petromon@magicnet.mn
b.
The Contractor Representative:
Storm Cat Energy Corporation
Suite 100 — 521 3rd Avenue SW
Calgary, Alberta T2P 3T3
Canada
Attention: Mr. Craig Steinke
Fax: 1-604-501146, Tel: 1-604-501-1415 E-mail: cschaperon@shaw.ca
23.4
The address at which any party may receive a notice may be changed by thirty (30) days notice given to the other party.
23.5
No refusal or inability of either party
hereto to receive an attempted notice hereunder shall in any way
diminish or prejudice any rights of the other party hereto.
ARTICLE XXIV INSURANCE
24.1
As to all operations performed by the Contractor under this Contract, the Contractor shall secure and maintain insurances in accordance with applicable Laws of Mongolia.
24.2
The Contractor shall require that its
Subcontractors procure similar insurances to those required to be
procured by the Contractor and such additional insurances as the
Contractor shall deem appropriate, all to be evidenced by Certificates
of Insurance.
24.3
Any insurance taken out by the Contractor and Subcontractors in respect of the Operations pursuant to this Contract shall be effected with a Mongolian insurance underwriter company.
Page 23
24.4
Should a Mongolian insurance underwriter
company be unable or unwilling to provide any of all such insurances,
the Contractor may obtain the Government Representative’s agreement to
make alternative arrangements.
24.5
Premiums payable for such alternative arrangements shall be admitted for Cost Recovery.
ARTICLE XXV
GENERAL
25.1
ANNEXES
Annexes A, B. C and D are hereby made a part of this Contract, and shall be considered as having equal force with the provisions hereof.
25.2
LEGISLATION
This Contract is in accordance with legislations of Mongolia.
25.3
GOOD FAITH
The parties hereto base their relations in respect of this Contract
on the principles of goodwill and good faith and shall accordingly
cooperate to achieve the mutual objectives hereof and to resolve
amicably any misunderstandings or disputes that may arise, and no
consent or other approval required hereunder shall be unreasonably
withheld or delayed.
25.4
LANGUAGE
This Contract
is written in Mongolian and English languages. In case of conflict of
interpretation of these 2 versions, the English language version will
prevail. This Contract and Annexes attached hereto shall be kept in equal number of copies in Mongolian and English languages.
25.5
ENTRY INTO FORCE
This Contract shall come into force on the day of approval by the Government of Mongolia. This is the Effective date of the Contract.
On behalf of
On behalf of
Page 24
ANNEX A
TO THAT CERTAIN
PRODUCTION SHARING CONTRACT
ON COAL BED METHANE GAS OPERATIONS
IN THE PART OF PETROLEUM EXPLORATION AREAS
NEMEGT-VI AND BORZON-VII
BETWEEN
THE PETROLEUM AUTHORITY OF MONGOLIA
STORM CAT ENERGY CORPORATION
This annex «A» is attached to and made an integral part of the Production Sharing Contract between the Petroleum Authority of Mongolia and Storm Cat Energy Corporation, dated February 26, 2004.
LOCATION OF CONTRACT AREA
![Picture -- [mongoliaagreement1001.jpg]](d154K7.z2t.s_files/82-020.jpg)
Page 25
ANNEX B
TO THAT CERTAIN
PRODUCTION SHARING CONTRACT
ON COAL BED METHANE GAS OPERATIONS
IN THE PART OF PETROLEUM EXPLORATION AREAS
NEMEGT-VI AND BORZON-‘VII
BETWEEN
THE PETROLEUM AUTHORITY OF MONGOLIA
AND
STORM CAT ENERGY CORPORATION
This annex «B» is attached to and made an integral part of the Production Sharing Contract between the Petroleum Authority of Mongolia and Storm Cat Energy Corporation, dated February 26, 2004.
DESCRIPTION OF CONTRACT AREA
![Picture -- [mongoliaagreement1002.jpg]](d154K7.z2t.s_files/82-021.jpg)
Page 26
ANNEX C
TO THAT CERTAIN
PRODUCTION SHARING CONTRACT
ON COAL BED METHANE GAS OPERATIONS
IN THE PART OF PETROLEUM EXPLORATION AREAS
NEMEGT-VI AND BORZON-VII
BETWEEN
THE PETROLEUM AUTHORITY OF MONGOLIA
AND
STORM CAT ENERGY CORPORATION
This annex «B» is attached to and made an integral part of the Production Sharing Contract between the Petroleum Authority of Mongolia and Storm Cat Energy Corporation, dated February 26, 2004.
MINIMUM WORK OBLIGATION
|
Exploration phase |
Exploration year number |
Expenditure (million US S) |
|
1 |
1 |
0,82 |
|
2 |
2 |
1,28 |
|
3 |
3 |
2,7 |
|
4 |
||
|
5 |
||
|
Total |
4,8 |
Page 27
ANNEX D
TO THAT CERTAIN
PRODUCTION SHARING CONTRACT
between
THE PETROLEUM AUTHORITY OF MONGOLIA
and
STORM CAT ENERGY CORPORATION
FOR CONTRACT AREA Nyalga XVI
ACCOUNTING PROCEDURE
ARTICLE I
GENERAL PROVISIONS
1.
DEFINITIONS
Definitions contained in Article II of the Production Sharing Contract dated February 26, 2004 shall apply to this Accounting Procedure and have the same meaning.
2.
PURPOSE OF THIS ACCOUNTING PROCEDURE AND
PRECEDENCE OF DOCUMENTS
The purpose of this Accounting Procedure
is to establish fair and equitable methods for determining costs and
expenses and inventories under the Contract.
If any of such methods prove unfair or inequitable to the PAM or to
Contractor, the PAM and Contractor shall meet and in good faith
endeavor to agree on changes thereof.
In the event of any inconsistency or conflict between the provisions of this Accounting Procedure and the provisions of the Contract, the provisions of the Contract shall prevail.
3.
STATEMENTS OF ACTIVITY
a)
During the Exploration Period, Contractor shall supply PAM within thirty (30) days from the end of each Calendar Quarter:
i.
a detailed accounting statement and list of costs and expenses and work performed during Calendar Quarter in question;
ii.
a statement of expenditure and receipts;
iii.
summary of the above information on a cumulative basis.
These statements shall be in accordance
with this Accounting Procedure. A summary of this information shall be
provided on a yearly basis, within sixty (60) days from the end of each
Calendar Year.
b)
During the Development Period,
Contractor shall supply PAM within thirty (30) days from the end of
each Calendar Quarter or, in the case of the production statement,
within seven (7) days from the end of each Calendar Month:
i.
a production statement;
ii.
a value of production statement;
iii.
a cost recovery statement;
iv.
a statement of expenditure and receipts;
v.a
profit oil and lifting’s statement;
vi.a
detailed accounting statement and list of costs and expenses and work performed during Calendar Quarter in question;
vi.
summary of the above information on a cumulative basis.
Page 28
These statements shall be in accordance with this
Accounting Procedure. A summary of this information shall be provided
on a yearly basis within sixty (60) days from the end of each Calendar
Year.
4.
INSPECTION
a)
For the purposes of auditing in accordance with the Article XIII of the Contract,
the auditors may examine and verify at reasonable times and on
reasonable notice all charges and credits relating to the Petroleum
Operations such as books of account, accounting entries, material
records and inventories, vouchers, payrolls, invoices, contracts and sub-contracts of any kind related directly or indirectly to the Contract
and any other documents, correspondence and records of Contractor
necessary to audit and verify charges and credits. Furthermore, the
auditors shall have the right in connection with such audit to visit
and inspect at reasonable times and on reasonable notice all sites,
plants, facilities, warehouses and offices of Contractor in Mongolia or
elsewhere serving the Petroleum Operations, including visiting
personnel associated with those operations.
b)
All documents must be maintained and
made available for inspection and audit for five (5) years following
their date of issue or such longer period as may be required under any
legislation applicable.
5.
CURRENCY EXCHANGE
Contractor’s books for Petroleum
Operations shall be kept in United States Dollars. All U.S. Dollar
expenditures shall be charged in the amount expended. All expenditures
in Mongolian currency shall be converted into U.S. Dollars in
conformity with Article XVII of the Contract,
and all other non-U.S. Dollar expenditures shall be converted into U.S.
Dollars at the cost of purchase of that currency if such currency was
purchased from one of Contractor’s U.S. Dollars accounts and, in any
other event, at the then prevailing rate of exchange as quoted by the
Mongol Bank.
A record shall be kept of the exchange
rates used in translating Mongolian currency or other non-U.S. Dollar
expenditures to U.S. Dollars.
Subject to PAM’s approval, any loss or
gain resulting from the exchange of currency shall be charged or
credited to the accounts.
6.
BOOKS
Contractor shall keep its books in
English, using appropriate accounting method. The books shall be kept
in accordance with the Laws and regulations of Mongolia and generally
accepted accounting principles prevailing in the international
petroleum industry.
7.
REVISION OF ACCOUNTING PROCEDURE
By mutual written agreement between PAM and Contractor,
this Accounting Procedure may be revised from time to time in the light
of future arrangements.
8.
DETAILED OUTLINE OF ACCOUNTING SYSTEM
Within ninety (90) days after the
Effective Date, Contractor shall present to and discuss with PAM a
proposed outline of a chart of accounts, detailed classifications of
costs, detailed nature of cost centres to be used, operating records
and reports to be established in accordance with the Contract
and this Accounting Procedure. Such outline shall be in accordance with
generally accepted accounting systems, normal practices in the
international petroleum
Page 29
industry and the Laws and regulations of
Mongolia. Following such discussions, after Government Representative’s
approval Contractor shall prepare and provide PAM with formal copies of
the comprehensive charts of accounts and the manuals to be used.
ARTICLE II
EXPENDITURES AND’RECEIPTS
1.
EXPENDITURES
Subject to the provisions of the Contract,
Contractor shall bear and directly pay the following costs and
expenses, which costs and expenses shall be classified and recovered by
Contractor in accordance with Article VIII of the Contract.
a)
Surface Rights
All direct costs attributable to the acquisition, renewal or relinquishment of surface rights for the Contract Area.
It is understood that Contractor will acquire surface
rights only for those areas required by Contractor for installations
and operations forming part of Petroleum Operations.
c)
Labor
i.
Gross salaries and wages including cost
of holiday, vacation, sickness and disability benefits applicable to
such salaries and wages of Contractor’s employees assigned to work in
Mongolia.
ii.
Cost of living and housing allowances
and other customary allowances applicable to salaries and wages of
expatriate employees assigned to work in Mongolia and paid bonuses,
overtime and other customary allowances applicable to salaries and
wages of national employees.
c)
Employee Benefits
Cost of established plans and policies
for employee life insurance, social security, hospitalization, pension,
retirement, thrift, expatriate tax equalization and other benefits of a
like nature which are applicable to labor cost of salaries and wages of
Contractor’s expatriate and national employees, assigned to work in
Mongolia. As to Mongolian employees, severance pay will be charged at a
fixed rate applied to payrolls which will equal an amount equivalent to
the maximum liability for severance payments as required under
Mongolian Laws. Severance pay for non-Mongolian employees shall be in
line with the practice in the international petroleum industry.
d)
Material, Equipment and Supplies
Material, equipment and supplies purchased, rented or furnished as such by Contractor.
i.
Purchased
Material, equipment and supplies
purchased shall be at the price paid by Contractor or after deduction
of all discounts actually received according to the valuation
principles established in Paragraph 3.a) of this Article II.
ii Material Furnished by Contractor or an Affiliate
Material, equipment and supplies
required for operations shall be purchased directly whenever
practicable, except that Contractor may furnish such material,
equipment and supplies from its stocks or the stocks of an Affiliate,
provided that the cost of such item shall not materially exceed the
cost of a similar item purchased from third parties under similar
conditions of insurance and delivery. The value of such material,
equipment and supplies shall be established according to the provisions
of Paragraph 3.b) of this Article II.
Page 30
iii.
Warranty
Contractor does not warrant the
material, equipment or supplies furnished beyond or back of the
dealer’s or manufacturer’s warranty and, in case of defective material,
equipment or supplies credit shall not be recorded until adjustment has
been received by Contractor from the manufacturers or their agents.
iv.
Rentals
Materials, equipment and supplies rented shall be charged at actual cost.
e)
Transportation
Business travel and transportation
expenses for Contractor’s employees assigned to work in Mongolia and
transportation expenses for equipment, materials and supplies necessary
for the conduct of the Petroleum Operations.
f)
Services
i. The actual cost of consultants, contract
services and utilities procured from third parties, provided, however,
that Contractor shall obtain PAM’s prior written approval to hire such
consultants, contract
services and utilities and further provided, that that such costs shall
be competitive with those generally charged by international or
domestic suppliers for comparable work and services.
ii Cost of
services, including laboratory analysis, drafting, geophysical
treatment and interpretation, geological interpretation, engineering
and data processing performed by PAM or by Contractor or its Affiliates
in facilities inside or outside Mongolia. Use of PAM’s or Contractor’s
or an Affiliate’s wholly owned equipment shall be charged at a rental
rate commensurate with the cost of ownership and operation and in line
with competitive rates currently prevailing in international petroleum
industry, at the time of usage.
Services rendered to the Petroleum
Operations by Contractor or its Affiliates will be charged on the basis
of costs without profits. The charges will be no higher than the normal
prices charged to other Affiliates and to third parties for comparable
services under similar terms and conditions elsewhere.
If necessary, certified evidence
regarding the basis of prices charged, consisting of certification of
the amount of such charges which are direct costs of
providing the services concerned and of the amount which contribute an
allocated proportion of the overheads, may be obtained from the
auditors of Contractor or its Affiliate, or, as the case may be, by PAM.
PAM reserves the right to disallow for
cost recovery purposes in accordance with the provision of paragraph 5
of this Article II, charges for services rendered by Contractor or its
Affiliates if they are higher than the average overall cost charged by
petroleum companies to their Affiliates for similar services in the
international petroleum industry.
g)
Damages and Losses
Except as made good by insurance charged
under subparagraph {h) below, all costs or expenses necessary to
replace or repair damages or losses incurred by fire, flood, storm or
other causes not controlled by Contractor. Contractor shall furnish PAM
written notice of damages or losses incurred as soon as practicable
after report of the same has received by Contractor.
h)
Insurance and Claims
Subject to provisions of Article XXIV,
the cost of insurance, including public liability, property damage and
other insurance, including the coverage against liabilities of
Contractor to its employees and/or outsiders as may be carried by
Contractor or required by the Laws of Mongolia or as PAM and Contractor
may agree upon. The proceeds of any such insurance or claim
collected shall be credited against the appropriate expenditure
account. If, with the agreement of PAM and Contractor, no insurance is
carried for a particular risk, all
Page 31
related actual expenditure incurred and paid by Contractor in settlement of any and all losses, claims, damages, judgments and any other
expenses, including legal services, shall be charged to the appropriate
expenditure account, as provided in sub-paragraph (g) above.
i.
Camps, Warehouses and other facilities and systems
Direct costs and expenses incurred in
Mongolia in respect of maintaining and operating of field facilities
such as camps, warehouses, transportation systems, communications
systems, water systems and road or other facilities and systems.
j)
Legal Expenses
All costs and expenses of litigation or legal services otherwise necessary or expedient for the protection of the Contract
Area, Petroleum Operations and facilities, including attorney’s fees
and expenses and the pro rata portion of in-house counsel’s salaries
and expenses, together with all judgments obtained against the parties
or any of them on account of the operations under the Contract
and actual expenses incurred by any party or parties hereto in securing
evidence for the purpose of defending against any action or claim
prosecuted or urged in connection with the operations or the subject
matter of the Contract.
In the event actions or claims affecting the interests hereunder shall
be handled by the legal staff of one or more of the parties hereto, a
charge commensurate with cost of providing and furnishing such services
may be made to operations.
k)
Overhead and administrative expenses
i.
Cost of staffing and maintaining
Contractor’s head office and other offices established in or outside of
Mongolia (except salaries of employees of Contractor, charged as
provided in paragraph b) above) shall be charged annually in the
following manner, based on the Contractor’s annual expenditures in
respect of exploration and production operations:
For the first US$ 1,000,000
5%
For the next US$ 4,000,000
3%
For the next US$ 5,000,000
I%
over US$ 10,000,000
0.25%
Contractor shall make provisional quarterly charges to the accounts based on the above rate.
ii.
Salaries and wages and other costs and
expenses related to Contractor’s personnel which are not charged above
and, also, salaries and wages and other costs and expenses related to
directing, advising, consulting, controlling and other services, which
are not charged according to paragraph f) above are included in the
overhead and administrative expenses herewith and shall not be charged
to other types of expenses.
iii.
Such overhead and administrative
expenses shall be allocated on a quarterly basis among Operating Costs,
Exploration Costs and Development Costs according to generally accepted
accounting practices used in the international petroleum industry.
l)
Taxes
Taxes (except income taxes), duties, levies or any other impost, if any, paid in Mongolia by Contractor with respect to this Contract.
m)
Other Expenditures
Any justifiable costs, expenses or
expenditures, other than those which are covered and dealt with by the
foregoing provisions of this Article II, incurred by Contractor for the
necessary and proper conduct of the Petroleum Operations and allowed to
be recovered by Contractor in accordance with this Contract.
Page 32
seventy-five per cent (75%) of the current price of new material, equipment and supplies defined in (1) above.
(2)
Material, equipment and supplies which cannot be classified as Condition B but which:
?
after reconditioning will be further serviceable for
original function as good as second-hand material, equipment and
supplies (Condition B); or
?
are serviceable for original function
but substantially not suitable for reconditioning, shall be classified
as Condition C and priced at fifty per cent (50%) of the current price
of new material, equipment and supplies as defined in (1) above. The
cost of reconditioning shall be charged to reconditioned material,
equipment and supplies provided that the value of Condition C material,
equipment and supplies plus the cost of reconditioning do not exceed
the value of Condition B material, equipment and supplies.
(3)
Material, equipment and supplies which
cannot be classified as Condition B or C shall be priced at a value
commensurate with its use.
(4)
When the use of material, equipment and
supplies are temporary and the service to the Petroleum Operations does
not justify the reduction in price provided for in sub-paragraph
b)2)ii) hereof, such material, equipment and supplies shall be priced
on a basis that will result in a net charge to the accounts consistent
with the value of the services rendered.
4.
COST CENTRES
In order to provide for an efficient control of the recoverable costs under the Contract, all costs must be presented for PAM’s review on the basis of cost centres and sub-divisions of these cost centres.
The detailed division shall be agreed
upon pursuant to Article l8 of this Annex C. However, as a minimum the
following divisions shall be established.
a)
The costs shall be allocated per area in the following manner:
i.
Exploration area.
ii.
Each individual production area.
iii.
Costs related to activities outside the Contract Area, such as pipelines.
iv.
Costs that cannot be related to a certain area.
b)
The costs shall be allocated per Petroleum Operation in the following manner:
i)
Exploration Operations, subdivided further into:
(1)
Aerial, geological, geochemical, paleontological, topographical and other surveys.
(2)
Each individual seismic survey.
(3)
Each individual Exploration or Appraisal Well
(4)
Other machinery, equipment, materials, spare parts and other items.
(5)
infrastructure (roads, airstrips, etc.).
(6)
Support facilities (warehouses, etc.),
including an allocation of common service costs (costs related to
various Petroleum Operations).
(7)
An allocation of the administrative overhead and general expenses.
(8)
Other costs.
ii)
Development Operations, sub-divided further into:
(1)
Aerial, geological, geochemical, geophysical and other surveys.
(2)
Each individual Development Well.
(3)
Gathering lines.
(4)
Field facilities.
(5)
Tankfarms and other storage facilities for Petroleum.
(6)
Pipelines, trucks.
(7)
Other machinery, equipment, materials, spare parts and other items
(8)
Infrastructure.
(9)
Support facilities, including an allocation of common service costs (cost related to various Petroleum Operations).
(1)
At reasonable intervals as agreed upon by
PAM and Contractor inventories shall be taken by Contractor of the
operations material, which shall include all such material, physical
assets and construction projects.
Written notice of intention to take
inventory shall be given by Contractor to PAM at least thirty (30) days
before any inventory is to begin so that PAM and may be represented
when any inventory is taken. Contractor shall take the inventory at
Ieast once per year and upon the termination of the Contract.
2.
RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Reconciliation of inventory shall be made
by PAM and Contractor and a list of shortages and overages shall be
jointly determined and the inventory adjusted by Contractor.
3.
INVENTORY STATEMENT
a)
Contractor shall maintain detailed
records of property in use for the Petroleum Operations in accordance
with normal international petroleum industry accounting practices.
b)
On a quarterly basis Contractor shall supply to PAM an Inventory Statement. Such Inventory Statement shall contain:
i.
The description and codes or identification of all controllable assets and materials.
ii.
The amount charged to the accounts for each asset.
iii.
The date on which such asset was charged to the account; and
iv.
Whether the costs of such assets has been recovered pursuant to Article XV of the Contract.
4.
IDENTIFICATION
To the extent possible and reasonable, in
accordance with the agreed procedures under Article I.8 of this Annex
C, all assets shall be identified with the respective codes or
identification for easy inspection.
ARTICLE IV
MEASUREMENT OF PRODUCTION
AND PRODUCTION STATEMENT
1.
The Production Statement shall be prepared in accordance with the following principles:
a)
The Production Sharing Oil or Gas and
Cost Oil or Cost Recovery Gas shall be determined on the basis of all
Crude Oil and all Gas produced and saved from the Area as provided in
Articles VIII and IX of the Contract.
b)
the production of Crude Oil in barrels per day shall be determined as provided in Article VIII of the Contract.
Where different grades of Crude Oil are being delivered at the
Production Sharing Measurement point(s), the volumes of each grade
shall be determined separately.
c)
The total volumes of Crude Oil and Gas
produced and saved shall be determined on a daily basis at the shipment
point in each Production Area and, where various grades of Crude Oil
are being delivered at the shipment point(s), the volumes of such
grades of Crude Oil shall be determined separately unless otherwise
agreed by PAM and Contractor. The shipment point shall be the point in
the Production Area where the Petroleum is being metered prior to
transport by pipeline, railcar or truck from the Production Area.
d)
The volumes of Crude Oil shall be corrected for water
and sediments and shall be determined on the basis of standard
temperatures and pressures. The gravity, sulfur
Page 36
content and other quality indicators of the Crude Oil shall be determined and registered regularly.
e)
The volumes of Gas shall be determined
on the basis of standard temperatures and pressures. The energy
content, sulfur content and other quality indicators of the Gas shall
be determined and registered regularly.
f)
The volume of Crude Oil ‘and Gas used in the Petroleum
Operations shall be measured and registered on a daily basis; such
volumes being the volumes used:
i.
for reinjection.
ii.
for recycling; and
iii.
for energy for the exploration, development and field operations as well as for pipeline pumping requirements.
g)
The volumes of Crude Oil burned or Gas flared or vented shall be registered on a daily basis.
h)
The size of the Crude Oil stocks shall be determined as a minimum at the beginning and the end of each Calendar Month.
2.
Following the commencement of initial commercial production from the Contract Area, Contractor shall submit a monthly Production Statement showing the following information for each Production Area:
a)
The quantity of Crude Oil produced and saved.
b)
The quantity of Gas produced and saved.
c)
The quantities of Petroleum used for the
purposes of carrying on drilling and production operations and pumping
to field storage.
d)
The quantities of Gas flared.
e)
The size of Petroleum stocks held at the beginning of the month.
f)
The size of Petroleum stocks held at the end of the month.
ARTICLE V
VALUE OF PRODUCTION STATEMENT
1.
Contractor shall prepare each Calendar
Quarter a statement providing calculations of the value of the Crude
Oil and Gas produced and sold in accordance with this Contract.
This value of Production Statement shall include:
a)
The quantities and prices realized by PAM and Contractor as a result of sales of Crude Oil to third parties during the Calendar Quarter in question.
b)
The quantities and prices realized by
PAM and Contractor as a result of sales of Crude Oil during the
Calendar Quarter in question to parties other than third parties.
c)
If paragraph 4 of Article VIII of the Contract
is applicable, information available to Contractor concerning the
prices of Crude Oil produced by the main Petroleum exporting countries
of relevance for the determination of the value of the Crude Oil,
including contract prices, discounts and preemie and prices obtained in the spot market.
d)
The quantities and prices realized by PAM and Contractor as a result of the sales of Gas.
ARTICLE VI
COST RECOVERY STATEMENT
1.
Contractor shall prepare each Calendar Quarter in accordance with its obligations, a Cost Recovery statement showing:
a)
Recoverable costs carried from the previous Calendar Quarter, if any.
b)
Recoverable costs incurred during the Calendar Quarter.
c)
Total recoverable costs for the Calendar Quarter.
d)
Quantity and value of Cost Oil or Cost Recovery Gas taken and separately disposed of by Conti actor during the Calcndar Quarter.
e)
Amount of costs recovered for the Calendar Quarter.
Page 37
f)
Amount of recoverable costs to be carried into the succeeding Calendar Quarter, if any.
2.
CONTROL STATEMENTS
Contractor will establish a Cost Recovery
account and an offsetting contra-account to control therein the amount
of costs remaining to be recovered and the amount of costs recovered;
details of this account will be provided on a quarterly basis to PAM.
ARTICLE VII
STATEMENT OF EXPENDITURES AND RECEIPTS
Contractor shall prepare each Calendar Quarter, in
accordance with its obligations, a Statement of Expenditures and
Receipts. This statement shall show the following:
1.
The expenditures and receipts
contemplated for the Calendar Year in the budget, on the basis of the
cost classification and cost centres as provided for in this Accounting
Procedure.
2.
The expenditures and receipts accrued during the Calendar Quarter in question, identified recoverable pursuant to this Contract.
3.
The cumulative expenditures and receipts for the Calendar Year under consideration.
4.
Modifications to the budget agreed to in accordance with the Contract.
5.
The latest forecast of cumulative expenditures and receipts for year end.
6.
Variations between budget forecast (as
amended by paragraph (d) hereof, where applicable) and latest forecast
and reasonable explanations thereof.
ARTICLE VIII
PROFIT OIL AND LIFTINGS STATEMENT
Each Calendar Quarter, Contractor shall prepare a Profit Oil and Liftings Statement containing the following information:
1.
Crude Oil and Gas produced during the Calendar Quarter in question.
2.
Total cumulative Crude Oil and Gas produced up to the end of the Calendar Quarter.
3.
Volume of Profit Sharing Oil and Gas to PAM and Contractor during the Calendar Quarter in question.
4.
Cumulative volume of Profit Sharing Oil and Gas to PAM and Contractor up to the end of the Calendar Quarter in question.
5.
Volume of Cost Oil and Cost Recovery Gas due to Contractor during the Calendar Quarter in question.
6.
Cumulative volume of Cost Oil and Cost Recovery Gas due to Contractor up to the end of the Calendar Quarter in question.
7.
Liftings by PAM and Contractor during the Calendar Quarter in question.
8.
Cumulative liftings by PAM and Contractor up to the end of the Calendar Quarter in question.
9.
Over and under-liftings by PAM and Contractor up to the end of the Calendar Quarter in question.
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