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EMPRESA COLOMBIANA
DE PETROLEOS
ECOPETROL "CAJARO" ASSOCIATION CONTRACT
ASSOCIATION CONTRACT
ASSOCIATE : HARKEN DE COLOMBIA LIMITED
SECTOR : CAJARO
EFFECTIVE DATE : February 18, 2002
-----------------
The contracting parties, as such: on one Part, the Empresa Colombiana de
Petroleos hereinafter referred to as ECOPETROL, an industrial and commercial
State-owned enterprise authorized by law 165 of 1948, actually ruled by its
by-laws, reformed by Decrees 1209 of June 15, 1994 and 2933 of December 10,
1997, with head office in Bogota, D.C., represented by ALBERTO CALDERON ZULETA,
of legal age, bearer of citizenship card No. 19'248.238 issued in Bogota, based
in Bogota, D.C., who states: 1. That in his capacity as President of ECOPETROL,
acts in representation of this Company, and 2. That for the execution of this
contract he has been authorized by the Board of Directors of ECOPETROL, as
witnessed in Minutes No. 2264 of December 14, 2001, and on the other hand HARKEN
DE COLOMBIA LIMITED, company organized pursuant to the laws of the Caiman
Islands, with a branch established in Colombia and with head offices in Bogota,
D.C., pursuant to Public Deed No. 406 of February 19, 1993, executed in Notary
Eleven (11) of Bogota, represented by GABRIEL GUSTAVO CANO VELASQUEZ, of legal
age, Colombian citizen, bearer of citizenship card number 8'265.559, who
declares: 1. That in his capacity as the Main Legal Representative he acts as
the representative HARKEN DE COLOMBIA LIMITED, 2. That to execute this contract
he is fully authorized as per the Certificate of Incorporation and Legal
Representation issued by the Chamber of commerce of Bogota, D.C., and 3. That
THE ASSOCIATE assures to have the financial capacity, technical competence and
the professional abilities necessary to execute the activities to which this
contract refers to.
Under the above conditions, ECOPETROL and THE ASSOCIATE declare that they have
entered into the contract contained in the following Clauses:
CHAPTER I - GENERAL PROVISIONS
CLAUSE 1 - OBJECT OF THIS CONTRACT
1.1 The object of this contract is the exploration of the Contract Area
and the exploitation of such nationally owned hydrocarbons that may be
found therein, described in Annex A that is part of this contract.
1.2 Pursuant to Article 1o. of Decree 2310 of 1974, the exploration and
exploitation of nationally owned hydrocarbons are entrusted to
ECOPETROL, company that may, directly or under contracts with Private
Parties, carry out such activities. Based on such provision mentioned,
ECOPETROL has agreed with THE ASSOCIATE to explore the Contract Area
and to exploit such Hydrocarbons as may be found therein, under the
terms and conditions set
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2
forth in herein, in Annex "A", Annex "B" (Operating Agreement) and
Annex "C" (Lineaments for the Preparation of the Development Plan)
that make part of this contract.
1.3 Without prejudice of the provisions hereunder, it is understood that
THE ASSOCIATE shall have the same rights and obligations in respect to
the Hydrocarbons produced in the contract area and to its share of the
same as are assigned under the Colombian Laws to anyone exploiting
nationally owned Hydrocarbons in this country.
1.4 ECOPETROL and THE ASSOCIATE agree to carry out the exploration and
exploitation operations within the terms of this contract in the
Contract Area, that they shall share between themselves the costs and
risks thereof in the proportion and under the terms set forth in this
contract and that the Hydrocarbons produced shall belong to each Party
pursuant to the proportions set forth in this contract.
CLAUSE 2 - APPLICATION OF THE CONTRACT
This contract applies to the Contract Area, identified, and the boundaries of
which are described in Clause 3 and Annex A of this contract, or to such portion
thereof, when areas have been restituted pursuant to this contract.
CLAUSE 3 -CONTRACT AREA
The area Contract comprises thirty four thousand one hundred and ninety five
(34.195) hectares with seven thousand fifty eight (7.058) square meters and is
located within the municipal jurisdiction of Mani in the department of Casanare.
The cartographic information was taken from the Political Map of Colombia,
digital file of the I.G.A.C., on scale 1:1'500.000.
This area is described on Annex "A" that is part of this contract.
Paragraph 1. - Whenever a person files a claim pretending to be the owner of the
property of the subsurface Hydrocarbons in the Contract Area, ECOPETROL shall
handle the case and assume the obligations required.
Paragraph 2.- In the case in which part of the Contract Area extends over the
areas that are or that have been reserved and declared to be within a system of
National Parks, THE ASSOCIATE is obliged to obey the conditions ruled by the
corresponding authorities, without it being considered that this contract has
been modified and without there being a right to make any claim against
ECOPETROL, pursuant to that agreed on in Clause 30 (numeral 30.2) of this
contract.
CLAUSE 4 - DEFINITIONS
For the purpose of this contract, the terms mentioned hereinafter, shall have
the following meaning:
4.1 Contract Area: Is the land described in Clause 3 hereinabove, and
described in Annex "A" of this contract.
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4.2 Field: Such portion of the Contract Area in which there are one or
more structures and/or stratigraphic traps totally or partially
overlaid, with one or more productive Reservoirs or that the capacity
to produce Hydrocarbons in commercial amounts has been verified. Such
reservoirs may be found vertically and/or laterally separated by
geological barriers or impervious stratums, or both.
4.3 Commercial Field: Is the field accepted by ECOPETROL able to produce
Hydrocarbons in economically exploitable quantity and quality, in one
or more of the Production Objectives defined by ECOPETROL at the time
of acceptance of the commerciality, without prejudice that during the
exploitation phase other Production Objectives may be found.
4.4 Gas Field : Is such that based on the information supplied by THE
ASSOCIATE, is classified by ECOPETROL as a Non Associated Natural Gas
Producer (or free natural gas) in the definition of its commerciality
.
4.5 Executive Committee: Is the body established within thirty (30) days
following the acceptance of the first Commercial Field, to supervise,
control and approve all the operations and actions that are carried
out during the term of the contract.
4.6 Direct Exploration Costs: Are the monetary expenses reasonably
incurred in by THE ASSOCIATE through the acquisition of seismic and
the drilling of Exploratory Wells, as well as for the locations,
termination, equipment and testing of such wells. The Direct
Exploration Costs do not include administrative or technical support
from the head office or central offices of the Company.
4.7 Joint Account: Are the records to be kept by means of books of
accounts pursuant to the Colombian laws, for crediting or debiting the
Parties for their share in the Joint Account of each Commercial Field.
4.8 Budget Execution: Are the resources actually committed and/or spent in
each of the programs and projects approved for a given calendar year.
4.9 Structure: It is the geometrical form with geological closing
(anticlinal, synclinal, etc.) that present the formations in which
fluid accumulations are found.
4.10 Effective Date: It is the day in which the sixty (60) calendar day
period expires, as from the date of this contract is signed, as of
which all the terms agreed upon therein shall be counted,
independently from the date of approval of the contract by the
Ministry of Mines and Energy.
4.11 Cash Flow: It is constituted by the movement of monies (income and
disbursements) to be made by the Joint Account in order to meet the
different obligations Contracted by the Operator for the normal
progress of the operations.
4.12 Associate Natural Gas: Mixture of light Hydrocarbons in a gaseous
state or in solution in the Reservoir and that is produced jointly
with liquid hydrocarbons.
4.13 Non Associated Natural Gas (Production of): Are those Hydrocarbons
produced in a gaseous state on surface and reported to standard
conditions, with average values
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4
(pondered by production), of initial relation Gas/Oil greater than
15.000 standard cubic feet of gas per barrel of liquid Hydrocarbon and
one molar composition of heptane plus (C7 +) less than 4.0%.
4.14 Direct Expenses: Are all expenditures payable by the Joint Account for
payments of personnel directly engaged in the Company, purchase of
materials and supplies, contracting of services with third parties and
other general expenses required by the Joint Operation in the normal
performance of its activities.
4.15 Indirect Expenses: Are those expenditures payable by the Joint Account
for technical and/or administrative support, which the operator with
his own organization, gives to the joint operation.
4.16 Commercial Interest Rate: When referring to pesos, it shall be the
current interest rate at the time of the delay; in dealing with
dollars of the United States of America, it shall be the prime rate
fixed by the LIBOR (London Interbank Borrowing Offered Rate), three
(3) months for dollar deposits, increased by four percentage points
(LIBOR +4%).
4.17 Interest in the Operation: Is the share in the obligations and rights
acquired by each party in the exploration and exploitation of the
Contract Area.
4.18 Development Investment: The sums of money invested in goods and
equipment capitalized assets for the joint operations in a Commercial
Field upon acceptance of the existence by the parties.
4.19 Hydrocarbons: All organic compounds constituted mainly by the natural
mixture of carbon and hydrogen as well those substances that accompany
them or that are derived from them with the exception of helium and
strange gases.
4.20 Gaseous Hydrocarbons: All Hydrocarbons produced in a gaseous state in
surface and reported to standard conditions (1. absolute pressure
atmosphere and a temperature of 60(0)F.)
4.21 Liquid Hydrocarbons: Crude and condensed oil and those produced in
such state as a result of the gas treatment when required, reported to
standard conditions.
4.22 Production Objectives: Are the reservoirs located in the commercial
field discovered and tested as commercial producers.
4.23 Joint Operation: The activities and work performed or in the process
of being performed, on behalf of the parties and on their own account.
4.24 Operator: The person designated by the parties to directly carry out,
on their behalf, and without representing them, the operations
necessary to explore and exploit the Hydrocarbons found in the
Contract Area.
4.25 Parties: On the Effective Date, ECOPETROL and THE ASSOCIATE.
Subsequently and at any time, ECOPETROL on the one hand, and THE
ASSOCIATE and/or its assignees on the other.
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5
4.26 Exploration Period: The time available to THE ASSOCIATE for complying
with the obligations set forth in Clause 5 of this contract, which
shall not exceed six (6) years as from the Effective Date, except in
the cases contemplated in Clauses 5 (numeral 5.4), 9 (numeral 9.3) and
34.
4.27 Exploitation Period: The time elapsing from the end of the exploration
period, or that of retention when necessary, to the end of this
contract.
4.28 Retention Period: The time required by THE ASSOCIATE and granted by
ECOPETROL to being the exploitation period of each gas field
discovered in the Contract Area, that due to its particular conditions
is not able to be developed in a short term, requiring an additional
term for the execution of feasibility studies, of construction of
infrastructure and/or marketing development.
4.29 Development Plan: Is the guide document to perform technical,
efficient and economical exploitation operations of each field and
shall contain, among other aspects, the development strategy, the
environmental considerations, the activities to be developed, the
Production forecasts for short and medium term, an estimate of the
investment and expenses for the following five years and specifically,
a description of the projects, the operations program and the Budget
for the remaining of the present year or of the following year, as is
the case. The lineaments for this development plan are described in
Annex "C" that is part of this contract.
4.30 Exploration Well: Any well designated as such by THE ASSOCIATE to be
drilled or deepened on its behalf, in the Contract Area in search of
new reservoirs or to verify the extension of a reservoir or to
determine the stratigraphy of an area. For the fulfillment of the
obligations contemplated in Clause 5 of this contract, the
corresponding drilling well shall be previously classified between
ECOPETROL and THE ASSOCIATE.
4.31 Discovery Well: Is that exploration well in which the existence of one
or more reservoirs is discovered or confirmed and that may require
subsequent evaluation to determine whether such reservoir or
reservoirs may be commercially exploited.
4.32 Exploitation Well (or of Development): Any well previously scheduled
as such by the Executive Committee for the production of Hydrocarbons
discovered in the objectives of production in the area of each
commercial field.
4.33 Budget: The basic planning instrument whereby the resources are
allocated for specific projects to be applied within a calendar year
or part of a year, in order to achieve the goals and objectives
proposed by THE ASSOCIATE or by the Operator.
4.34 Extensive Production Tests: The operations performed in one or more
producing Exploration Wells, to evaluate the production and behavior
conditions of the reservoir with temporary production installations.
4.35 Reimbursement: Is the payment of fifty percent (50%) of the Direct
Exploration Costs incurred in by THE ASSOCIATE.
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4.36 Exploration Operations. The operations performed by THE ASSOCIATE as
related to the search and discovery of Hydrocarbons within the
Contract Area.
4.37 Reservoir: All rocks under the surface where Hydrocarbons in their
porous space are accumulated, under production or that has the
capacity to produce Hydrocarbons and that behaves as an independent
unit as far as its petrophysical and fluid properties and that has a
common pressure system throughout its entire extension.
CHAPTER II - EXPLORATION
CLAUSE 5 - TERMS AND CONDITIONS
5.1 THE ASSOCIATE is committed to carry out the exploration operations
pursuant to the regulations and modern practices commonly accepted and
in use by the international oil industry and to fulfill the legal and
regulatory provisions in force. The exploration period shall be
divided in three (3) phases, the first with a duration of twelve (12)
months, the second phase with a duration of twelve (12) months and the
third phase with a duration of twelve (12) months. The first phase
begins on the Effective Date and the following on the calendar day
immediately following the conclusion of the previous phase.
During the exploration period, THE ASSOCIATE is obliged to carry out,
as a minimum, the following exploration operations: during the first
phase, THE ASSOCIATE must carry out the drilling of one (1)
Exploration Well until reaching the formations that can produce
Hydrocarbons in the Contract Area. With this well, the exploratory
obligation corresponding to the fifth year of the exploration period
of the Bocachico Association Contract is fulfilled.
At the end of the first phase, THE ASSOCIATE shall have the option to
resign from the Association Contract, provided having previously
complied with the exploratory commitments agreed on for the present
phase.
During the second phase, THE ASSOCIATE must carry out the drilling of
one (1) exploration well until reaching the formations that may
produce Hydrocarbons in the Contract Area.
At the end of the second phase, THE ASSOCIATE shall have the option to
resign from the Association Contract provided having previously
fulfilled the exploratory commitments agreed on for the present phase.
During the third phase, THE ASSOCIATE shall drill one (1) Exploratory
Well to depth so as to reach the formations capable of producing
Hydrocarbons in the Contract Area.
At the expiration of the exploration period, the contract shall end if
the extension thereof has not been requested and authorized pursuant
to Numeral 5.2 of this Clause, or if a field has not been discovered.
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5.2 If THE ASSOCIATE has satisfactorily complied with the obligations
stipulated in Clause 5.1, ECOPETROL, at the request of THE ASSOCIATE,
shall annually extend the exploration period, up to three (3)
additional years, for such purpose, THE ASSOCIATE must inform its
intention to continue with the exploration in the Contract block with
an anticipation not lower than ninety (90) days of the date of
termination of the Exploration Period, accompanying such request with
the proposal of the Exploration Operations Program to be performed
during each extension period. Within ninety (90) days following the
date of receipt of the request of THE ASSOCIATE in ECOPETROL, the
PARTIES shall be able to agree on the Exploration Operations Programs
to be performed during such extensions. If no agreement is reached,
THE ASSOCIATE is obliged to carry out as a minimum, Exploration
Operations in the Contract Area, consisting in the drilling of one (1)
Exploration Well per year. At the end of each of the extensions, which
duration is one year, THE ASSOCIATE, shall have the option to resign
from the Association Contract having previously fulfilled the
exploratory commitment agreed on for each of them.
5.3 At its judgment, and at its own cost and risk, THE ASSOCIATE may
perform additional Exploration Operations to those agreed on for the
Phase or Stage of the Exploration Period under development. However,
if THE ASSOCIATE wishes to have such additional Exploration Work
accredited to the fulfillment of the exploratory commitments of the
following phase or stage of the Exploration Period, it must request
ECOPETROL to issue the corresponding approval. If the request is
accepted by ECOPETROL, it shall determine the form and amount in which
the transfer of the mentioned commitments is to be made.
5.4 If at the end of the six (6) year Exploration Period, THE ASSOCIATE
has drilled one or several Discovery Wells that show the possible
existence of a Commercial Field, previous written request by THE
ASSOCIATE, ECOPETROL may authorize the extension of the Exploration
Period for the time necessary, that shall not exceed two (2) years, so
that THE ASSOCIATE may have the opportunity to prove the existence of
such Commercial Field. To bring into effect that herein set forth,
before finishing the Exploration Period and simultaneously with the
request, THE ASSOCIATE must provide ECOPETROL with the maps and other
descriptions of the area considered as capable of producing
Hydrocarbons, the Exploration Operations program and other operations
that THE ASSOCIATE plans to carry out and the budget to carry out such
work at its own cost and risk, to determine the extension of the
Reservoir or Reservoirs discovered and to show the existence of a
Commercial Field, without prejudice of that established in Clause 8.
To give application to the partial restituted of the areas during this
extension of the Exploration Period, THE ASSOCIATE shall retain the
area that is the largest between fifty percent (50%) of the Contract
Area and the area it considers capable of producing Hydrocarbons plus
its zone of reserve of two and a half (2.5) kilometers wide around the
previous one, within the limits of the Contract Area. If the
operations program proposed adjusts to the international standards and
has the object to show the commerciality of the discovered Reservoirs
within the term established, ECOPETROL shall issue its authorization
for the execution of this program.
5.5 During the life of this contract and observing that established in
Clause 7 of the same, THE ASSOCIATE may carry out the Exploration
Operations in the areas it keeps pursuant to Clause 8 and THE
ASSOCIATE shall be the only one responsible for the risks and costs of
these activities, and, therefore, it shall have the complete and
exclusive control of such activities without the maximum duration of
the contract being modified for such cause.
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CLAUSE 6 - SUPPLY OF INFORMATION DURING THE EXPLORATION
6.1 ECOPETROL shall supply THE ASSOCIATE, whenever the latter may so
request, with any information in its possession within the Contract
Area. The costs of reproduction and supply of such information shall
be charged to THE ASSOCIATE.
6.2 During the Exploration Period, THE ASSOCIATE shall give ECOPETROL, as
it is obtained and pursuant to ECOPETROL' s manual on information
supply, all the geological and geophysical information, cores,
magnetic tapes edited, processed seismic sections and all the
information on the field supporting it, magnetic and gravimetric
profiles, all in reproducible originals, copies of the geophysical
reports, reproducible originals of all well logs drilled by THE
ASOCIATE, including a final composite graph for each well and copies
of the final drilling report that includes the analyses of core
samples, the results of production tests and any other information
related to the drilling, survey or interpretation of any nature done
by THE ASSOCIATE for the Contract Area without any type of
limitations. ECOPETROL is entitled to, at any time and by the
procedures it considers appropriate, to witness all the operations and
verify all information previously mentioned.
6.3 The Parties agree that all geological, geophysical and engineering
information obtained from the Contract Area in force during the
development of this contract is confidential during the three (3)
years following the date of acquisition or up to the termination of
the contract, whatever happens first. The information made known is,
but is not limited to seismic information, of potential methods, of
remote sensors and geochemical, with its corresponding supports,
surface and subsurface cartography, well reports, electric logs,
formation tests, biostratigraphic, petrophysical and fluid analyses,
and production background. Regardless of the confidentiality herein
established, the Parties agree that in each case they may interchange
with companies that are or not associated with ECOPETROL. It is
understood that that agreed to herein shall take place without
prejudice of the obligation to supply the Ministry of Mines and Energy
with all information requested by it pursuant to the legal and
Reglementary provisions in force. Nevertheless, it is understood and
thus agreed, that the Parties may at their own discretion supply the
information required by their affiliates, consultants, contractors,
financial entities and that are required by the competent authorities
with jurisdiction on the Parties or their affiliates, or by
regulations of any stock markets in which the stocks of the Parties or
corporations related are registered.
6.4 Within the ninety (90) days following the date of termination of the
drilling operations of each Exploration Well, THE ASSOCIATE shall
inform ECOPETROL in writing of the condition of the corresponding
well, its classification as to the results obtained (dry or discovery)
and the type of fluids produced, if it is the case.
CLAUSE 7 - BUDGET AND EXPLORATION PROGRAMS
Observing that established in this contract, THE ASSOCIATE is obliged to prepare
the programs, the chronogram of activities to be developed and the Budget to be
executed in a short term (the following calendar year) and the vision for the
following two (2) years with an estimated Budget, to carry out the exploration
in the Contract Area. Such vision, programs, chronograms and Budgets
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shall be presented for the first time to ECOPETROL, within the sixty (60) days
following the date of the signing of this contract, and subsequently, December
fifteen (15) of each year, the latest.
Every semester THE ASSOCIATE shall present a technical and financial report to
ECOPETROL, including the different exploratory activities performed, and the
perspectives of the area based on the information obtained, the Budget assigned
and the exploration costs incurred in up to the time of the presentation of the
report, commenting in each case the causes that originated the main deviations
presented. Upon request by ECOPETROL, THE ASSOCIATE shall supply the necessary
explanations to the report, in meetings programmed for such purposed. The
information presented by THE ASSOCIATE in the reports and the explanations to
which the present Clause refers to, shall in any case be understood as accepted
by ECOPETROL. The financial information shall be subject to auditing by of
ECOPETROL pursuant to that established in Clause 22 of Annex "B" (Operating
Agreement) of this contract.
CLAUSE 8 - RESTITUTION OF AREAS
8.1 Upon termination of the First Phase of three years of the Exploration
Period or of such extensions thereof obtained by THE ASSOCIATE
pursuant to Clause 5 (numeral 5.2), if a Commercial Field has been
discovered and accepted by ECOPETROL in the Contract Area, said area
shall be reduced to fifty percent (50%); two (2) years later the area
shall be reduced to an extension equal to fifty percent (50%) of the
remaining Contract Area and two (2) years later such area shall be
reduced to the area of the Commercial Field or Fields under production
or development plus one reserve zone of two and a half (2.5)
kilometers wide surrounding each Commercial Field, and this shall be
the only part of the Contract Area that shall be subject to the terms
of this contract. Within the areas retained by THE ASSOCIATE pursuant
to the present numeral, the Commercial Fields discovered shall be
included.
8.2 Notwithstanding the obligation to relinquish the areas referred to in
Clause 8 (numeral 8.1), THE ASSOCIATE is not obliged to return the
Commercial Fields that are under development or production, or in a
Retention Period, including the reserve zones of two and a half (2.5)
kilometers wide that surround such areas, except in the case in which
by motives attributable to THE ASSOCIATE, the development or
production operations are suspended continuously for more than one
year without just cause, case in which such Commercial Fields shall be
restituted to ECOPETROL, terminating the contract for said areas or
part of the area. These stipulations are also applicable to the fields
exploited under the modality of Sole Risk.
Paragraph: To show just cause, THE ASSOCIATE must present to ECOPETROL
the reasons and fundaments of the same for its acceptance.
8.3 Retention Period: If THE ASSOCIATE has achieved the discovery of a Gas
Field and presents a request for commerciality for such Field pursuant
to that established in Clause 9 numeral 9.1, simultaneously with such
application it may request ECOPETROL to issue a Retention Period,
fully justifying the reasons to obtain such period.
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8.3.1 The Retention Period must be requested by THE ASSOCIATE and granted by
ECOPETROL previous to the date in which the last restitution of areas
to which numeral 8.1 of this clause refers to. In the case in which
the Retention Period is granted, it is understood that the term set
forth in Clause 9 (numeral 9.1) for ECOPETROL to speak out with
respect to the acceptance or not of the existence of the Commercial
Gas Field shall be postponed for the same term of the Retention
Period.
8.3.2 The Retention Period may not exceed four (4) years. If the term
initially granted as a Retention Period is insufficient, ECOPETROL,
previous written and duly justified request by THE ASSOCIATE, may
extend the Retention Period for an additional term, without having the
sum of the initial retention period and its extensions exceed four (4)
years. The Retention Period applies exclusively to the Gas Field area
that ECOPETROL determines as capable of producing Hydrocarbons,
including the reserve zone of two and a half (2.5) kilometers wide
surrounding such area.
CHAPTER III - EXPLOITATION
CLAUSE 9- TERMS AND CONDITIONS
9.1 To initiate the Joint Operation hereunder, it is considered that the
exploitation operations start on the date the Parties accept the
existence of the first Commercial Field or upon compliance with the
provisions of Clause 9 (numeral 9.5). The existence of a Commercial
Field shall be determined by the drilling, by THE ASSOCIATE, within
the proposed Commercial field of a number of Exploration Wells
sufficiently to reasonably define the area and commerciality of the
field capable of producing Hydrocarbons. If after evaluating the
results obtained from the Discovery Wells, THE ASSOCIATE considers
that it has discovered a possible Commercial Field, it must inform
ECOPETROL in writing, supplying all the surveys on which this
conclusion and the corresponding Development Plan are based on.
ECOPETROL within the term of ninety (90) days as of the date in which
THE ASSOCIATE turns in all the back-up information and makes a
technical presentation to ECOPETROL, must accept or object the
existence of the Commercial Field. ECOPETROL may request any
additional information considered necessary within thirty (30) days
following the date of submission of the first back-up information.
9.2 Should ECOPETROL accept the existence of the Commercial Field, it
shall, in this sense, notify THE ASSOCIATE within the term established
in Clause 9 (numeral 9.1) specifying the area and the Production
Objectives in the Commercial Field, and shall start to participate,
under the terms of this contract, in the exploitation of the
Commercial Field discovered by THE ASSOCIATE.
9.2.1 ECOPETROL shall reimburse THE ASSOCIATE for fifty percent (50%) of the
Direct Exploration Costs carried out by THE ASSOCIATE on its own
account and risk within the Contract Area previous to the date of
acceptance of the commerciality by ECOPETROL of each new Commercial
Field discovered, pursuant to numeral 9.1 of the present Clause and
that have not been previously charged to an other Field.
9.2.2 The amount of such costs shall be determined in dollars of the United
States of America, taking as a reference the date in which THE
ASSOCIATE made such disbursements;
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therefore, the costs incurred in Colombian pesos shall be liquidated
at the market exchange rate in effect on such date, certified by the
Superintendencia Bancaria or by the corresponding entity.
Paragraph: Once the amount of the Direct Exploration Costs to be
reimbursed in dollars of the United States of America is defined, this
value shall be updated on a monthly basis pursuant to the average
consumer index price of the industrialized countries, as of the date
of its disbursement, to constant dollars on the date in which
ECOPETROL begins the Reimbursement in the manner described on the
Operating Agreement (Annex B) of this contract. The balances to be
reimbursed shall be equally updated up to the date in which ECOPETROL
fully reimburses its participation in the corresponding Commercial
Field.
9.2.3 The Reimbursement of the Direct Exploration Costs, pursuant to that
established on Clause 9 (numerals 9.2.1) shall be made by ECOPETROL to
THE ASSOCIATE, as of the moment in which the Field is put in
production by the Operator, with the amount in dollars equivalent to
fifty percent (50%) of its direct participation in the total
production of the respective field, after deducting the corresponding
percentage from the royalties.
Paragraph: If concerning a Commercial Gas Field, such reimbursement
shall be made by ECOPETROL to THE ASSOCIATE, as of the moment in which
the Field is put under production by the Operator, with the amount in
dollars equivalent to one hundred percent (100%) of its direct
participation in the total production of such Field, after deducting
the corresponding percentage from the royalties.
9.3 If with the information supplied ECOPETROL cannot accept the existence
of a Commercial Field to which Clause 9 (numeral 9.1) refers to, it
may advise THE ASSOCIATE about the presentation and execution of a
program for additional operations to demonstrate the existence of a
commercial field, operations that will be carried out at the risk and
cost of THE ASSOCIATE that may not require a term longer than two (2)
years for its execution, and if it is the case, the Exploration Period
for the Contract Area shall be extended automatically for a term equal
to that already agreed on between the Parties, as necessary to execute
the additional work in this Clause, but without prejudice of that
stated with relation to the reduction of areas in Clause 8 (numeral
8.1). THE ASSOCIATE may present and execute a work program that meets
the objective required or submit for expert analysis the requirement
of additional information, pursuant to Clause 28 of this contract. In
the event that the definition of the expert analysis is favorable to
ECOPETROL, THE ASSOCIATE must fulfill the requirements and once again
submit the studies of commerciality and the revised Development Plan
to ECOPETROL for its consideration. In the event that the definition
of the expert analysis is favorable to THE ASSOCIATE, it is understood
that ECOPETROL has the necessary information and as a consequence, the
term of ninety (90) days to which clause 9.1 refers to, to accept or
to object the existence of a Commercial Field shall begin on the date
in which ECOPETROL receives the report from the experts.
9.4 If, after the completion of the additional work or the disagreement
solved by the expert analysis to which the previous numeral refers to,
ECOPETROL accepts the existence of the Commercial Field to which
Clause 9 (numeral 9.1) refers to, it will start to participate in the
development operations of the field above mentioned in the terms
established in this contract and shall reimburse THE ASSOCIATE as set
forth in Clause 9 (numerals 9.2.2 and
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12
9.2.3) for fifty percent (50%) of the cost of the additional work
requested and referred to in Clause 9 (numeral 9.3) and the work
executed shall become the property of the Joint Account.
9.5 Modality of Sole Risk: If ECOPETROL does not accept the existence of a
Commercial Field, after having performed the additional work referred
to in Clause 9 (numeral 9.3), THE ASSOCIATE shall be entitled to
execute such work as it may consider necessary in or to exploit such
field and to reimburse itself two hundred percent (200%) of the total
cost of the work executed at its own account and risk in the such
field and up to fifty percent (50%) of the Direct Exploration Costs
carried out by THE ASSOCIATE before the date of the presentation of
the commerciality surveys of such field. For the effects of this
Clause the reimbursement shall be done with the value of the produced
Hydrocarbons, less the royalties referred to in Clause 13, deducting
the costs of production, gathering, transportation and sale. If THE
ASSOCIATE abides to the modality of sole risk, it is understood that
the term of the exploitation begins on the date in which ECOPETROL
informs THE ASSOCIATE of the nonexistence of a Commercial Field. For
the purposes of liquidation of the value in dollars of the
disbursements done in pesos, it shall be liquidated at the
representative market rate certified by the Superintendencia Bancaria
or by the corresponding authority, on the date in which THE ASSOCIATE
has made such disbursements. For the purpose of this Clause, the value
of each barrel of Hydrocarbons produced in such Field during a
calendar month shall be the average price per barrel that THE
ASSOCIATE receives from the sales of its participation in the
Hydrocarbons produced in the Contract area during the same month. With
reference to the reimbursement of the Direct Exploration Costs, that
established in paragraph of clause 9 (numeral 9.2.3) shall be applied.
When THE ASSOCIATE has reimbursed itself of the percentage established
in the present clause, all drilled wells, installations and all types
of goods acquired by THE ASSOCIATE for the exploitation of the field
and paid for as indicated in the present clause, shall become the
property of a Joint Account without any cost, previous the acceptance
by ECOPETROL to participate in the development of such field.
9.6 ECOPETROL may, at any time, start to participate in the operation of
the field discovered and developed by THE ASSOCIATE without prejudice
to THE ASSOCIATE' s right to reimburse itself for the investments it
made at its expense, in the form and percentage stipulated in Clause 9
(numeral 9.5). Once THE ASSOCIATE is reimbursed, ECOPETROL shall enter
to participate in the economic results of the wells developed at the
exclusive expense of THE ASSOCIATE.
9.7 The demarcation of the boundaries of a Commercial Field shall take
into consideration all the geological and geophysical information and
that of the wells drilled within said field or related to the same.
9.8 If after the commerciality of one or more fields is accepted, THE
ASSOCIATE continues to fulfill the exploratory obligations established
in Clause 5, it may continue to simultaneously carry out the
exploitation of such fields before the expiration of the Exploration
Period established in Clause 4, but only as of the date of its
termination shall the Exploitation Period begin. When concerning Gas
Fields, and ECOPETROL has granted a Retention
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13
Period, the Exploitation Period for each Field shall begin on the date
of expiration of the respective Retention Period.
9.9 If as a result of the drilling of Exploratory Wells, after confirming
the existence of a Commercial field, THE ASSOCIATE proves the presence
of additional accumulations of Hydrocarbons associated to such Field,
it must request ECOPETROL to extend the area of the Commercial Field
and its commerciality, following the procedure set forth in Clause 9
(numeral 9.1). If ECOPETROL accepts its commerciality, it shall
reimburse THE ASSOCIATE fifty percent (50%) of the Direct Exploration
Costs exclusively related with the expansion of the area of the
Commercial Field, in the terms established in numerals 9.2.2 and
9.2.3. If ECOPETROL does not accept the commerciality, THE ASSOCIATE
is entitled to reimburse itself up to two hundred percent (200%) of
the total cost of the work executed on its own cost and risk for the
exploitation of the Exploratory Wells that have resulted productive
and up to fifty percent (50%) of the direct Exploration Costs carried
out by THE ASSOCIATE exclusively related to the expansion of the area
requested before the date in which ECOPETROL notifies on the same.
Such reimbursement shall be done with the production originated from
the Exploratory Wells that have resulted productive, after deducting
royalties, following the procedure set forth in Clause 21 (numeral
21.2) up to the percentages herein defined.
CLAUSE 10 - OPERATOR
10.1 The Parties agree that HARKEN DE COLOMBIA LIMITED is the Operator and,
as such, with the limitations set forth in this contract, shall have
the control of all the operations and activities it may consider
necessary for an efficient technical and economic development of the
exploitation of the hydrocarbons found within the area of the
Commercial Field. They also agree that, nevertheless that in this
contract - executed for the commercial purposes established in Clause
1 of the same, HARKEN DE COLOMBIA LIMITED is the Operator, it is
understood by the Parties, and thus determined, that for all labor
legal effects, HARKEN DE COLOMBIA LIMITED does not act as a
representative of the Parties, but as an only and true employer of the
workers he contracts for the operation of the Commercial Field and, as
a consequence, shall be responsible for the labor obligations that
arise from the respective relations or work contracts, such as salary
payments and social benefits, para-fiscal contributions, affiliation
and payment of bids or contributions for pensions, health and
professional risks to the Sistema de Seguridad Social Integral, to
which Law 100 of 1993 refers to and its Reglementary decrees or those
regulations that substitute or modify it.
10.2 The Operator has the obligation to carry out all of the development
and production operations pursuant to the standards and practices
generally accepted by the industry using the best technical methods
and systems required for the economic and efficient exploitation of
the Hydrocarbons and fulfilling the legal and regulatory provisions on
the issue. Also, he must present on time, to the parties, the reports
and documents mentioned in the contract, as well as any other
information required by the Executive Committee with respect to the
Joint Account and/or Operation.
10.3 Due to the afore mentioned, and in view that for the execution and
fulfillment of the operation of the Commercial Field, HARKEN DE
COLOMBIA LIMITED shall perform all the activities with its own
resources, with liberty and technical and directive autonomy, for all
the
<PAGE>
14
purposes of this contract, such Operator shall be considered an entity
different from The Parties hereto as well as for the purposes of the
implementation of civil, labor and administrative legislation and for
the Operator's relations with the personnel at his service, as set
forth in clause 32.
10.4 The Operator shall have the right to resign as such, by written
notification to the Parties six (6) months in advance of the effective
date of such resignation. The Executive Committee shall then assign a
new Operator pursuant to Clause 19 (numeral 19,3,5). In case the
Operator assigned by the Executive Committee is a third person
different from the Parties, a contract must be executed between the
Parties and the new Operator.
10.5 The Operator shall carry out the operations described in this contract
in a diligent, responsible, efficient and technically and economically
adequate manner, being understood that at no time shall he be
responsible for mistakes in criteria, or for losses or damages that
are not the result of a serious fault by the Operator.
10.6 The Operator shall have the right to execute any type of work by means
of contractors, subject to the faculty that the Executive Committee
has, pursuant to Clause 11 (numeral 11.1). To fulfill that herein
established, the Operator shall carry out the contracting operations
following the procedure described in Annex "B" and subject to the
principles of good faith, transparency, economy, equity,
responsibility, planning, quality, celerity and social and
environmental responsibility that must rule in the contracting.
CLAUSE 11 - EXPLOITATION PROGRAMS AND BUDGETS
11.1 Within the three (3) months following the acceptance of a Commercial
Field in the Contract Area, the Operator shall present to the parties,
a proposal for projects, programs and budget for the Development Plan
of the commercial field for the remaining of the corresponding
Calendar year, to be agreed on by the Executive Committee. In case
there are less than six months and a half (6 - 1/2) for the expiration
of such year, the Operator shall prepare and present a proposal for
projects, programs and Budget for the following calendar year, within
a term of three (3) months.
11.1. The projects, programs and the Budget contained in the Development
Plan of the Commercial Field shall be checked and adjusted on a yearly
basis and presented by the Operator to the Parties during the month of
May of each calendar year, for which the Operator shall send his
proposal within the first ten (10) days of the month of May. Within
the twenty (20) days following the receipt of the proposal of the
projects, programs, and Budget of the Development Plan of the
Commercial Field, the Parties shall inform the Operator in writing on
the changes they wish to propose. When this occurs, the Operator shall
consider the observations and proposed reforms made by the Parties for
the elaboration of the revised Development Plan, that shall be
submitted for final approval of the Executive Committee, at the
ordinary meeting during the month of July of each year. In case the
total Budget of the Commercial Field has not been approved before the
month of July, those aspects of the Budget of the Commercial Field on
which an agreement has been reached, shall be approved by the
Executive Committee, and those aspects not approved shall be submitted
immediately to the Parties, for study and final decision, as set forth
in Clause 20.
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15
11.2. The Parties may propose additions or revisions to the projects,
programs and the annual Budget approved for each Commercial Field,
but, except in cases of emergency, these must not be formulated with a
frequency of less than three (3) months. The Executive Committee shall
decide on the proposed additions or revisions at a meeting called
within thirty (30) days following the presentation of the same.
11.3. The main objectives of the projects, programs and Budgets are:
11.3.1 Determine the operations to be carried out and the expenses and
investments (Budget) that the Operator is authorized to execute in
each Commercial field during the following calendar year.
11.3.2 Maintain a vision of the development of each field in a horizon of
medium and long term.
11.4 The projects, programs and annual Budget approved by the Executive
Committee and contained in the Development Plan of each Commercial
Field constitute the work plan shown and the expenses and investments
estimated to be carried out by the Operator in the different aspects
of the operation, such as:
11.4.1 Capital investments in production: drilling for the development of
Reservoirs, well workover or recovery, and specific production
constructions.
11.4.2 General construction and equipment: industrial and camp facilities,
transportation equipment, drilling and production equipment. Other
construction and equipment.
11.4.3 Maintenance and operating expenses: production expenses, geological
expenses, administration expenses for the operation.
11.4.4 Working capital requirements.
11.4.5 Funds for contingencies
11.5 The Operator shall make all expenditures and investments and shall
carry out the development and production operations set forth in the
projects, programs and annual Budgets approved in the Development Plan
for each Commercial Field referred to in Clause 11 (numeral 11.1),
pursuant to the Operating Agreement (Annex B) that is part of this
contract, without exceeding the total Budget for each year, except by
authorization of the parties in special cases.
11.6 The Operator is authorized to carry out expenditures not contemplated
expressly in the Budget of each Commercial field and chargeable to the
Joint Account, without previous authorization of the Executive
Committee, in the event of emergency measures aimed at safeguarding
personnel or the property of the Parties, emergency expenses
originating in fires, floods, storms or other disasters; emergency
expenses essential for the operation and maintenance of the production
facilities, including maintenance of the wells in a condition to
produce with a maximum efficiency; emergency expenses essential for
the protection and preservation of materials and equipment necessary
in the operations. In such cases, the Operator shall call the
Executive Committee to a special meeting as soon as possible, to
obtain their approval in order to continue with the emergency
measures.
<PAGE>
16
11.7 From the amount of the expenditures incurred in by and the contracts
executed by the Operator for amounts that exceed the annual Budget
approved by the Executive Committee for each Commercial Field, as set
forth in Clause 19 (numeral 19.3.9), without them having been
opportunely authorized by the Executive Committee, except the
assumptives set forth in Clause 11 (numeral 11.6), the Operator shall
be the only one responsible, who shall assume the totality of the
corresponding value. When the expense or contract in question is
confirmed by the Executive Committee, the corresponding value shall be
paid to the operator, pursuant to the rules defined by the Executive
Committee. In case in which the expenditure or contract is not
accepted by the Executive Committee, the Operator, if possible, may
withdraw the good in question reimbursing the Parties for any cost
that its withdrawal may cause them. When it is impossible for the
Operator to withdraw such goods, or he rejects doing so, the benefit
or patrimonial increase resulting from these expenses or contracts,
shall belong to the Parties in proportion to their Interest in the
Operation.
CLAUSE 12 - PRODUCTION
12.1 Whenever necessary, the Operator shall determine, with the approval of
the Executive Committee, the Maximum Efficiency Rate (MER) for each
commercial Field. This Maximum Efficiency Rate (MER) shall be the
maximum producing rate of Hydrocarbons that may be extracted from a
Reservoir for the purpose of obtaining a maximum economic benefit in
the final recovery of Reservoirs. In agreement with the economic and
engineering principles and the practices and procedures generally used
and in use in the international oil industry, in conditions and
circumstances similar to those experienced in the activities under
this contract. The estimated production must be adjusted as necessary
to compensate the real or anticipated conditions of the operation,
such as wells under repair that are not producing, limitations in the
capacity of the collecting lines, in the pumps, in the separators, in
the tanks, in the pipelines and in other facilities.
12.2 The Operator shall determine periodically, at least once a year, with
the approval of the Executive Committee, the area deemed capable of
producing Hydrocarbons in a commercial quantity in each Commercial
Field.
12.3 The Operator shall prepare and deliver to each Party, at regular three
(3) month intervals, a program showing each Party's share of
production, and another one showing the distribution of each Party's
production for the following six (6) months. The forecast for the
production must be based on the Maximum Efficiency Rate (MER,) as set
forth in Clause 12 (numeral 12.1) and adjusted to each party's rights
according to this contract. The Production Distribution Program shall
be determined based on each party's periodic requests, and, set forth
in Clause 14 (numeral 14.2) with the corrections deemed necessary to
ensure that none of the Parties, while being able to withdraw, will
receive less than the quantity to which it is entitled to under
provisions of Clause 14 and without prejudice to the stipulations of
Clauses 21 (numeral 21.2) and 22 (numeral 22.5).
12.4 If either of the Parties foresees a reduction in its capacity to
receive Hydrocarbons compared to the forecast given to the Operator,
the Party must inform the Operator as soon as possible, and if such
reduction is due to an emergency situation, the Party shall inform the
Operator within the twelve (12) hours following the occurrence of the
event that causes
<PAGE>
17
the reduction. As a consequence, such Party shall give the Operator a
new receipt schedule based on the appropriate reduction.
12.5 The Operator may use the Hydrocarbons that are consumed in the
development of the production operations in the Contract Area and
these consumptions shall be exempt from the royalties to which Clause
13 (numeral 13.1) refer to.
CLAUSE 13 - ROYALTIES
13.1 For the payment of the royalties for the exploitation of the
nationally owned Hydrocarbons, the Operator shall give ECOPETROL the
percentage of the production established by Law. The delivery of this
production shall be carried at the same place and time in which the
Parties distribute the production that corresponds them pursuant to
Clause 14 of this contract. In the case of Fields under exploitation
in the modality of Sole Risk, THE ASSOCIATE shall give ECOPETROL the
percentage of the production that corresponds to the royalties in the
place agreed on by the Parties.
13.2 From the percentage of the production given to ECOPETROL in the terms
of the previous numeral, ECOPETROL, in the way and terms established
by law, shall pay those entities mentioned by law the royalties that
are caused in favor of the Nation on the total of the production of
the Field and, in no case, shall THE ASSOCIATE be responsible for any
type of payment before these entities.
CLAUSE 14 - DISTRIBUTION AND AVAILABILITY OF THE HYDROCARBONS
14.1 The Hydrocarbons produced, except those that have been used in benefit
of the operations of this contract and those that are inevitably
wasted in these functions, shall be transported to the jointly owned
tanks or to other measuring facilities agreed upon by the Parties. If
there is no agreement, to the measuring site nearest to the control
site established by the Ministry of Mines and Energy. The Hydrocarbons
shall be measured pursuant to the regulations and methods accepted by
the oil industry, and based on this measurement, the volumes to which
Clause 13 refer to shall be determined. As of this moment, the
remaining Hydrocarbons shall be the property of each Party in the
proportions specified in this contract.
14.2 Distribution of Production
14.2.1 After having deducted the percentage that corresponds to the
royalties, the rest of the Hydrocarbons produced by each Commercial
Field are the property of the Parties in the proportion of fifty
percent (50%) for ECOPETROL and fifty percent (50%) for THE ASSOCIATE,
until the cumulative controlled production of the corresponding
Commercial Field reaches the amount of sixty (60) million barrels of
liquid Hydrocarbons or the amount of four hundred twenty (420) cubic
gigafeet of gaseous Hydrocarbons to standard conditions, what ever
occurs first (1 cubic gigafoot = 1 X 109 cubic feet).
14.2.2 Independently from the classification of the Commercial Field given by
ECOPETROL in the definition of commercialization, exceeding the limits
set forth in numeral 14.2.1, the distribution of the production of
each Commercial Field (previous the deduction of the
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18
percentage corresponding to royalties) is the property of the Parties
in the proportion that results from applying factor R as follows:
14.2.2.1 If the Hydrocarbon that reached first the limit established in numeral
14.2.1 of the present Clause was the liquid Hydrocarbon, the following
table shall be applied:
R FACTOR Distribution of Production After Royalties (%)
ASSOCIATE ECOPETROL
0.0 to 1.0 50 50
1.0 to 2.0 50/R 100 - 50 R
2.0 or more 25 75
14.2.2.2. If the Hydrocarbon that reached first the limit established in numeral
14.2.1 of the present Clause was the gaseous Hydrocarbon, the
following table shall be applied:
R FACTOR Distribution of Production After Royalties (%)
ASSOCIATE ECOPETROL
0.0 to 2.0 50 50
2.0 to 3.0 50/(R-1) 100 - [50 /(R-1)]
3.0 or more 25 75
14.2.3 For the effects of the previous tables, factor R shall be defined as
the relation of cumulative incomes, expressed in constant terms, over
the cumulative expenses, equally expressed in constant terms,
corresponding to THE ASSOCIATE for each Commercial Field in the
following terms:
IA
R = ---------------------------
ID + A - B + GO
Where:
IA (Cumulative Income of THE ASSOCIATE): Is the valuation of the
cumulative incomes corresponding to the volume of THE ASSOCIATE' s
Hydrocarbons produced, after royalties, at the reference priced agreed
on by the Parties, excluding re-injected Hydrocarbons in the Fields in
the Contract Area, those consumed in the operation and the flared gas.
The average reference price of the Hydrocarbons shall be determined by
mutual agreement between the Parties.
To determine the cumulative incomes, the Monthly Incomes shall be
taken as a base, which shall be determined as a result of multiplying
the monthly average reference price by the production of the month
pursuant to the formats established for such effect by the Ministry of
Mines and Energy.
<PAGE>
19
ID (Cumulative Development Investments): Are fifty percent (50%) of
the Cumulative Development Investments approved by the Executive
Committee of the Association for each Commercial Field. The cumulative
Development Investments done previous to the date of the initiation of
the exploitation defined by the Ministry of Mines and Energy for the
respective Field, shall be adjusted up to the present date in the same
manner in which the Direct Exploration Costs are adjusted in the
Paragraph of Clause 9 (numeral 9.2.2.).
A: Are the Direct Exploration Costs in which THE ASSOCIATE has
incurred in, pursuant to Clause 9 of this contract and adjusted
pursuant to that established in Paragraph of clause 9 (numeral 9.2.2)
B: Is the cumulative Reimbursement of the Direct Exploration Costs,
previously mentioned, pursuant to Clause 9 of this contract.
GO: (Cumulative Operation Expenses): Are the cumulative operation
expenses approved by the Executive Committee of the Association, in
the proportion that corresponds THE ASSOCIATE, plus the cumulative
transportation costs of THE ASSOCIATE. As transportation costs it is
understood, the investment and operation expenditures for the
transportation of Hydrocarbons produced in the Commercial Fields
located in the Contract Area, from it to the port of export or site
where it is agreed to take the price to be used in the calculation of
incomes IA. Such transportation costs shall be determined by the
parties in mutual agreement once the exploitation stage of the Fields
begins, which commerciality has been accepted by ECOPETROL. Within the
Operation Expenses the Special Contributions are included or those
similar that have direct application on the production of Hydrocarbons
in the Contract Area.
All values that, with posteriority to the date of initiation of the
exploitation defined by the Ministry of Mines and Energy, included in
the determination of factor R shall be taken in current dollars.
For such effect, the expenses in pesos must be converted into dollars
at the market rate certified by the Superintendencia Bancaria or by
the corresponding authority, in charge on the date in which the
corresponding disbursements have been done.
14.2.4 Calculation of factor R: The distribution of the production based on
factor R shall begin to be applied as of the first day of the third
calendar month after which the cumulative production of each
Commercial Field reaches the amount of sixty (60) million barrels of
liquid Hydrocarbons or to the amount of four hundred twenty (420)
cubic gigafeet of gaseous Hydrocarbons at standard conditions,
pursuant to numeral 14.2.1 of this clause.
The calculation of factor R for each Commercial Field shall be done
based on the accounting closing corresponding to the calendar month in
which the cumulative control production of sixty (60) million barrels
of liquid Hydrocarbons was reached or the amount of four hundred
twenty (420) cubic gigafeet of gaseous Hydrocarbons at standard
conditions, pursuant to numeral 14.2.1.
The resulting distribution of the production shall be applied until
June 30 of the following year. As of that moment, the distribution of
the production with the application of factor R shall be done in one
year terms (from July 1 to June 30), over its liquidation, based on
the
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20
cumulative values to December 31 of the year immediately preceding
pursuant to the corresponding accounting closing.
14.3 In addition to the tanks and other jointly owned facilities, each
Party shall have the right to build its own production facilities in
the Contract Area for its own and exclusive use in compliance with the
legal regulations. The transportation and delivery of Hydrocarbons by
each Party to the pipeline and to other storage facilities that are
not jointly owned shall be done on the sole account and risk of the
Party that receives the Hydrocarbons.
14.4 When production is obtained in places not connected by pipelines, the
Parties may agree to install pipelines up to a point in which the
Hydrocarbons may be sold, or to a place that connects with the
pipeline. If the parties agree on the construction of such pipelines,
they shall enter the contracts they consider suitable for this purpose
and appoint the Operator pursuant to the legal provisions in force.
14.5 Each Party shall be the owner of the Hydrocarbons produced and stored
as a result of the Operation hereunder and that are made available to
it pursuant to the provisions of this contract, and on its account
each Party must receive them in kind or sell them or dispose of them
separately, according to that established in Clause 14 (numeral 14.3).
14.6 Should any of the Parties be unable for any reason to dispose of or
separately withdraw from the tanks Jointly Account all or part of the
Hydrocarbons it is entitled to pursuant to this contract, the
following procedure must be followed:
14.6.1 If ECOPETROL is the Party unable to withdraw, in all or in part, its
quota of Hydrocarbons (share plus royalties), pursuant to clause 12
(numeral 12.3), the Operator may continue to produce the field and
delivering to the ASSOCIATE, in addition to the portion that the quota
of THE ASSOCIATE represents in the operation on the basis of one
hundred percent (100%) of the MER, all those Hydrocarbons that THE
ASSOCIATE decides to and in the capacity of withdrawing up to a limit
of one hundred percent (100%) of the MER, crediting ECOPETROL for
subsequent delivery, the volume of Hydrocarbons that ECOPETROL had the
right to withdraw but that did not do so. With regard to the not
withdrawn volume of Hydrocarbons to which ECOPETROL is entitled to
during the month for royalties, THE ASSOCIATE, at the request of
ECOPETROL, shall pay ECOPETROL in dollars of the United States of
America, the difference that exists between the amount of Hydrocarbons
that for the concept of royalties ECOPETROL has lifted and the amount
of Hydrocarbons that it is entitled to for the concept of the
royalties to which Clause 13 refers to, being understood that any
withdrawal of Hydrocarbons done by ECOPETROL shall be applied, in
first place to royalty payment in kind, and subsequently, any
additional withdrawals of Hydrocarbons performed shall be applied to
the share that it is entitled to pursuant to Clause 14 (numeral 14.2).
14.6.2 Should THE ASSOCIATE be the Party unable to withdraw, in all or in
part, its quota assigned under Clause 12 (numeral 12.3), the Operator
shall deliver to ECOPETROL, on the basis of one hundred percent (100%)
of MER, not only the share and the quota that corresponds to
ECOPETROL, but also the Hydrocarbons that ECOPETROL is in the capacity
of withdrawing up to a limit of one hundred percent (100%) of MER,
accrediting THE ASSOCIATE for its subsequent delivery, the part that
corresponds to its quota and that it has been unable to withdraw.
<PAGE>
21
14.7 When both parties are in the capacity to receive the Hydrocarbons
assigned under Clause 12 (numeral 12.3), the Operator shall deliver to
the Party that was previously unable to receive its quota of the
production and, upon such Party's request, besides its share in the
operation, a minimum of ten percent (10%) per month of the production
that corresponds to the other Party on a monthly basis and, by mutual
agreement, up to one hundred percent (100%) of the quota that was not
received, up to the time in which the total amounts that were credited
to the Party that was unable to received its Hydrocarbons, are
cancelled.
14.8 Without prejudice of the legal provisions that rule the mater, each
Party shall be free, at any moment, to sell or export its quota of the
Hydrocarbons obtained, as agreed to in this contract, or to dispose of
the same in any manner.
CLAUSE 15 - USE OF THE ASSOCIATED NATURAL GAS
In the case in which one or more fields of associated natural gas are
discovered, the Operator shall, within the three (3) years following to the date
of the initiation of the exploitation of the Field defined by the Ministry of
Mines and energy, submit a project on the use of the Natural Gas for benefit of
the Joint Operation. The Executive committee shall approve the project and, if
necessary, decide on the chronogram for the execution thereof. If the Operator
fails to present any project within the three (3) following years or does not
execute the project previously approved, within the time limits set by the
Executive Committee, ECOPETROL may take, free of charge, for itself, all the
associated natural gas available from the Reservoirs in exploitation, which is
not required for the efficient exploitation of the Field.
CLAUSE 16 - UNIFICATION
When an economically exploitable Reservoir extends continuously into other area
or areas outside the Contract Area, the Operator shall implement, in agreement
with the Parties and with any other interested parties, upon approval of the
Ministry of Mines and Energy, a unified exploitation program that meets the
Hydrocarbons exploitation engineering techniques.
CLAUSE 17 - SUPPLY OF INFORMATION AND INSPECTION DURING THE EXPLOITATION
17.1 The Operator shall deliver to the parties, as they are obtained,
reproducible originals (sepias), and copies of the electric,
radioactive and sonic logs of the wells drilled, historical records,
core analysis, cores, production tests, reservoir surveys and other
relevant technical information, as well as all routine reports made or
received in connection with the operations and activities carried out
in the Contract Area.
17.2 Each Party, at its own cost, expense and risk, shall have the right to
inspect, through authorized representatives, the wells and the
facilities in the Contract Area and the activities related thereto.
Such representatives shall have the right to examine cores, samples,
maps, logs for wells drilled, liftings, books and any other source of
information connected with the performance of this contract.
17.3 To enable ECOPETROL to comply with the provisions of Clause 29, the
Operator shall prepare and deliver to ECOPETROL all reports required
by the National Government.
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22
17.4 The information and data connected with exploitation operations shall
be treated as confidential, in the same way as set forth in Clause 6
(numeral 6.3) of this contract.
CHAPTER IV - EXECUTIVE COMMITTEE
CLAUSE 18 - CONSTITUTION
18.1 Within the thirty (30) calendar days from the acceptance of the first
commercial Field, each Party must appoint a representative and
corresponding first and second alternates, who shall form the
Executive Committee, notifying the other Party in writing of the names
and addresses of its representatives and alternates. Each Party may
replace its representative or alternates at any time, but shall give
written notice thereof to the other Party. The vote or decision of the
principal representative of each Party shall be binding upon such
Party. If the principal representative of any of the Parties is unable
to attend a Committee meeting, the alternate, in its order first or
second, shall attend, and shall have the same authority as the
principal.
18.2 The Executive Committee will hold ordinary meetings during the months
of March, July and November, during which the exploitation program
carried out by the Operator shall be reviewed as well as the
development program and the immediate plans. Every year, at the July
ordinary meeting, the Operator shall present the Executive Committee
with the annual operating program and the investment and expenses
Budget for each Commercial Field, for the next calendar year, and if
it is the case, the Revised Development Program.
18.3 The Parties and the Operator may request a special Executive Committee
Meeting to analyze specific conditions of the operation. The
representative of the interested Party shall notify the date of the
meeting and the issues to be discussed with a ten (10) calendar day's
notice. Any issue not included in the agenda of the meeting may be
discussed during the meeting, upon acceptance of the representatives
of the Parties on the Committee.
18.4 Each Party's representative shall have a vote in all matters discussed
in the Executive Committee, equivalent to the percentage of that
Party's total Interests in the Joint Operation. However, the decisions
of the Executive Committee on the issues set forth in numerals 19.3.4
through 19.3.9 of Clause 19 of this contract, shall be adopted by a
unanimous vote of the Parties.
Any decisions taken by the Executive Committee, set forth in the
procedure established in this clause, shall be binding and final upon
the Parties and the Operator.
CLAUSE 19 - FUNCTIONS
19.1 The representatives of the Parties shall form the Executive Committee
which shall have full authority and responsibility to establish and
adopt exploitation, development and operations programs and Budgets in
relation with this contract. A representative of the Operator shall
attend the meetings of the Executive Committee.
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23
19.2 The Executive Committee shall designate a Secretary for each session.
The Secretary shall take full, detailed records and minutes of all the
meetings, including a summary of the discussions and decisions taken
by the Committee. The Minutes shall be approved and signed by the
representatives of the Parties within the ten (10) working days
following the adjournment of the meeting and delivered to the Parties
as soon as possible.
19.3 The responsibilities of the Executive Committee are, amongst others,
as follows:
19.3.1 Adopt its own regulations.
19.3.2 Decide on those issues that the Operator submits for its
consideration.
19.3.3 Supervise the performance of the Joint Account and of the Joint
Operation
19.3.4 Create the necessary sub-committees and establish the functions they
must perform under its direction.
19.3.5 Appoint the Operator in case of resignation or discharge, and dictate
the regulations that the Operator must fulfill when he is a third
person different from the Parties, definitely stating the motives for
his discharge.
19.3.6 Appoint an External Auditor of the Joint Account.
19.3.7 Approve or reject the Development Plans and any subsequent
modification or revision.
19.3.8 Determine the rules and policies on expenditures.
19.3.9 Approve or reject the projects, programs and the annual Budget of each
Commercial Field and authorize extraordinary expenditures not included
in the approved Budgets.
19.3.10 In general, to carry out all the functions authorized in this contract
that do not correspond to the Operator, to any other entity or person
under the specific clause hereof or under a legal or regulatory
provision.
CLAUSE 20 - DECISION IN CASE OF DISAGREEMENTS
20.1 Any disagreement that cannot be solved in the Executive Committee,
shall be directly submitted to the highest ranking executive of each
of the Parties resident in Colombia, in order to reach a joint
decision. If within the sixty (60) calendar days following the
submission of the consultation, the Parties reach an agreement or a
decision on the issue under discussion, they shall so advise the
Operator, who, within the fifteen (15) calendar days following the
receipt of the communication, shall call the Executive Committee to an
extraordinary meeting, during which the agreement or decision adopted
shall be approved.
20.2 If within the sixty (60) calendar days following to the date of the
presentation of the consultation to the highest ranking executive of
each of the Parties resident in Colombia, the Parties fail to agree on
the issue, the procedures set forth in Clause 28 of this contract must
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24
be followed, except if concerning issues related to the operations, in
which case they may be executed pursuant to Clause 21.
CLAUSE 21 - OPERATIONS UNDER RISK OF ONE OF THE PARTIES
21.1 If at any time one of the Parties wishes to drill an Exploitation Well
not approved in the operations program, it shall notify the other
Party written notice not less than thirty (30) calendar days in
advance of the next Executive Committee meeting, of its wish to drill
such well, including information such as location, recommendation to
drill, and estimated depth and costs. The Operator shall include such
a proposal among the issues to be discussed in the next Executive
Committee Meeting. If such proposal is approved by the Executive
Committee such well shall be drilled at the expense of the Joint
Account. If such proposal is not accepted by the Executive Committee,
the Party wishing to drill such well, hereinafter called participating
Party, shall have the right to drill, complete, produce or abandon
such well at its sole cost and risk. The Party not wishing to
participate in the previous operation shall be called the
non-participating Party. The participating Party must begin the
drilling of such well within one hundred eighty (180) days following
its rejection by the Executive Committee. If the drilling is not
commenced within said period, it must again be submitted to the
Executive Committee for its consideration. Upon request of the
participating Party, the Operator shall drill the previously mentioned
well on account and risk of the participating Party, provided that by
judgment of the Operator such operation does not interfere with the
normal development of the operations of the field, upon advance
payment to the Operator by the Participant Party of such amounts as
the Operator may deem necessary in order to drill. If said well is
unable to be drilled by the Operator without interfering in the normal
development of the operations, the participating Party shall have the
right to drill such well directly or through a competent service
company and, in this case, the participating Party shall be
responsible for such operation, without interfering with the
development of the normal operations in the Field.
21.2 If the well referred to in Clause 21 (numeral 21.1) is completed as a
producing well, it shall be administered by the Operator and the
production of such well, after deducting the royalties referred to in
Clause 13, it shall become the property of the participating Party,
who shall pay for all the operation costs of such well until the net
production value, after deducting the production costs, gathering,
storage, transportation and similar costs, as well as sale costs, is
equal to two hundred percent (200%) of the drilling and completing
cost of such well, which thereupon and for the purposes of this
contract shall become the property of the holders of the Joint Account
in the proportion established, as if it had been drilled with the
approval of the Executive Committee for the account of both Parties;
for such purpose the investments done and the costs incurred, in the
exploitation of this well shall become part of Factor R of the
Commercial Field. For the purpose of the present Clause, the value of
each barrel of Hydrocarbons produced in such well, during a calendar
month, before deducting the previously mentioned costs, shall be the
reference price agreed by the Parties.
21.3 If at any time one of the Parties decides to workover, deepen up to
the Production Objectives or plug a well that is not in commercial
production or a dry well drilled by the Joint Account, and if such
operations have not been included in a schedule approved by the
Executive Committee, such Party shall notify the other Party of its
intention to workover,
<PAGE>
25
deepen or plug such well. If in the location there is no equipment,
the procedure mentioned in Clause 21 (numerals 21.1 and 21.2) shall be
enforced. If at the well site there is adequate equipment to perform
the operations proposed, the Party that receives the notification of
the operations that the other Party wishes to carry out, shall have a
term of forty eight (48) hours following the receipt of the notice, to
approve or disapprove the operation, if during such term no answer
whatsoever is received, it is understood that the operation shall be
done on account and at the risk of the Joint Account. If the work
proposed is carried out on account and sole risk of one participating
Party, the well shall be administered pursuant to Clause 21 (numeral
21.2).
21.4 If at any time one of the Parties wishes to build new facilities for
the extraction of liquids from the gaseous Hydrocarbons and for the
transportation and export of the Hydrocarbons produced, to be called
additional facilities, such Party shall so advise the other in writing
giving the following information:
21.4.1 General description, design, specifications and estimated costs of the
additional facilities.
21.4.2 Projected capacity.
21.4.3 Approximate date of the initiation of the construction and duration of
the same. Within ninety (90) calendar days from the date of
notification, the other Party, by written notice, has the right to
decide if it participates in the additional facilities projected. In
case in which such Party decides not to participate in the additional
facilities, or gives no answer to the proposal of the participating
Party, from hereinafter referred to as the constructing Party, it may
proceed with the additional installations and order the Operator to
build, operate and maintain such facilities at the exclusive cost and
risk of the constructing Party, without prejudice to the normal
development of the Joint Operations. The constructing Party may
negotiate with the other Party the use of such facilities for the
Joint Operation. During the time in which the facilities are operated
on the constructing Party sole account and risk, the Operator shall
charge this party all operation and maintenance costs of the
additional facilities pursuant to the accounting standards generally
accepted.
CHAPTER V - JOINT ACCOUNT
CLAUSE 22 - HANDLING
22.1 Without prejudice to any provisions contained herein, the expenses
covering Exploration Operations shall be on account and risk of THE
ASSOCIATE.
22.2 As from the time ECOPETROL accepts the existence of a Commercial Field
and subject to the provisions in Clause 5 (numeral 5.2) and of Clause
13 (numerals 13.1 and 13.2), the property of the rights or Interest in
the Operation of the Contract Area, shall be divided as follows:
ECOPETROL fifty percent (50%), THE ASSOCIATE fifty percent (50%). From
the moment of such acceptance, all expenses, payments, investments,
costs and obligations incurred in and contracted for the development
of the Joint Operation, in agreement with this contract, shall be
charged to the Joint Account and the Direct Exploration Costs done by
THE ASSOCIATE before a Commercial Field is accepted and its
extensions, pursuant to Clause 9 (numeral 9.9), shall be registered in
the Joint Account. Except for that established
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26
in Clauses 14 (numerals 14.3) and 21, all properties acquired or used
from there on for the fulfillment of the operation activities of the
Commercial Field shall be paid for and belong to the Parties, in the
same proportion established in the present clause.
22.3 Within the first five (5) days of each month, the Parties shall supply
the Operator, in the bank account of the Joint Account, the quota that
corresponds them in the Budget of each Commercial Field pursuant to
the needs and in the currency in which the expenses must be made in,
meaning, in Colombian pesos or in dollars of the United States of
America, as per request of the Operator pursuant to the programs and
Budgets approved by the Executive Committee. When THE ASSOCIATE has
insufficient Colombian pesos to cover the quota that corresponds it
from its share in this currency, ECOPETROL shall have the right to
supply such pesos and to receive a credit for the contributions it
must make in dollars, liquidated at the market rate certified by the
Superintendencia Bancaria or by the corresponding authority, of the
day in which ECOPETROL must make the corresponding contribution, when
such transaction is allowed by the legal provisions.
22.4 The Operator shall present a monthly statement to the Parties within
the ten (10) calendar days following the termination of each month,
showing the funds advanced, expenses incurred, outstanding liabilities
and a report on other debits and credits made to Joint Account; this
report that shall be done as set forth in Annex "B", and in an
independent Annex, the parameters and calculation of factor R as
mentioned in Clause 14 (numerals 14.2.3 and 14.2.4). If the payments
to which Clause 22 (numeral 22.3) refer to are not made within the
term therein set forth and the Operator decides to cover the same, the
Debtor Party shall pay the commercial interest in the same currency in
which the payment has been incurred for the period of time for which
the payment has been delayed.
22.5 Should either party, in a timely manner, fails to supply the Joint
Account with the sums due and payable, as of the due at date such
Party shall be considered as a Debtor Party, and the other Party, as
the Prompt Party. If the Prompt Party has made the corresponding share
to the Debtor Party, in addition to its own, after sixty (60) calendar
days of delay such Party shall have the right to have the Operator
issue it the total participation of the Debtor Party, in the Contract
Area (excluding the percentage that corresponds to the royalty), up to
an amount of production that shall allow the Prompt Party a net income
for the sales made equal to the sums not paid by the Debtor Party,
plus an annual interest equal to the Interest in Arrears after of
commencement of default.. By "net income" it is understood the
difference between the sales price of the Hydrocarbons taken by the
Prompt Party, less cost for transportation, storage, loading and other
reasonable expenses incurred in by the Prompt Party in the sale of the
products taken. The right of the Prompt Party may be exercised at any
time after thirty (30) calendar days from having notified the Debtor
Party in writing of its intention to take part or all of the
production shares that correspond to the Debtor Party.
22.6 Direct and Indirect Expenses.
22.6.1 All Direct Expenses of the Joint Operation shall be charged to the
Parties in the same proportion in which the production is distributed
after the royalties.
22.6.2 The indirect Expenses shall be charged to the Parties in the same
proportion established in numeral 22.6.1 of the present Clause for
Direct Expenses. The amount of these
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27
expenditures shall be the result of taking the total annual value of
the investments and direct expenditures (excluding the technical and
administrative supports) and apply the equation a + m (X-b). In this
equation "X" is the total value of the annual investments and
expenditures, and "a", "m" and "b" are constants which values are
shown in the following chart with relation to the amount of annual
investments and expenditures:
AMOUNT OF INVESTMENTS AND EXPENSES VALUES OF THE CONSTANT
"X" (US$) "a" (US$) M (frac.) "b"(US$)
1. 0 to 25.000.000 0 0.10 0
2. 25.000.001 to 50.000.000 2.500.000 0.08 25.000.000
3. 50.000.001 to 100.000.000 4.500.000 0.07 50.000.000
4. 100.000.001 to 200.000.000 8.000.000 0.06 100.000.000
5. 200.000.001 to 300.000.000 14.000.000 0.04 200.000.000
6. 300.000.001 to 400.000.000 18.000.000 0.02 300.000.000
7. 400.000.001 on 20.000.000 0.01 400.000.000
The equation shall be applied only one time per year, in each case
with the value of the constants that correspond to the total value of
the annual investments and expenditures.
22.7 The monthly statements of the account referred to in Clause 22
(numeral 22.4) may be revised or objected by any of the Parties from
the time they are received by the Parties up to two (2) years counted
from the end of the calendar year to which they pertain to, clearly
specifying the corrected or questioned entries and the reason thereof.
Any account that has not been corrected nor objected within this
period, shall be considered as final and correct.
22.8 The Operator shall keep the accounting records, vouchers and reports
for the Joint Account in Colombian pesos pursuant with the Colombian
laws and every debit or credit to the Joint Account shall be made
pursuant to the accounting procedure established in Annex "B", that is
part of this contract. In case of disagreement between such accounting
procedure and that established in this contract, that stipulated in
this later one shall prevail.
22.9 The Operator may sell materials or equipment during the first twenty
(20) years of the Exploitation Period or the first twenty eight (28)
years of the Exploitation Period, if it concerns a Gas Field, for the
benefit of the Joint Account, when the value of that sold does not
exceed five thousand dollars of the United States of America
(US$5.000) or its equivalent in Colombian pesos. This type of
operations, per calendar year may not exceed the amount of fifty
thousand dollars of the United States of America (US$50.000) or its
equivalent in Colombian currency. The sales in excess of these amounts
or sales of real property shall be approved by the Executive
Committee. The sale of such material or equipment shall be done at a
reasonable commercial price pursuant to the conditions wear of the
asset.
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28
22.10 Any machinery, equipment and other assets or personal property
acquired by the Operator for the execution of this contract, charged
to the Joint Account, shall be the property of the Parties in the same
proportion to their Interest in the Operation. However, if one of the
Parties has decided to terminate its interest in the contract prior to
the end of the first seventeen (17) years of the Exploitation Period,
with the exception of that established in Clause 25, such Party is
obliged to sell its interest in such items to the other Party, at a
price commercially reasonable or at book value, which ever is lower.
Should the other Party not wish to purchase such items within the
ninety (90) calendar days following the formal offer of sale made to
it, the Party wishing to withdraw shall have the right to yield to a
third person the Interest that corresponds it in such machinery,
equipment and items. If THE ASSOCIATE decides to withdraw after
seventeen (17) years of the Exploitation Period, its rights in the
Joint Operation shall pass to ECOPETROL free of charge, previous its
acceptance.
CHAPTER VI - DURATION OF THE CONTRACT
CLAUSE 23 - MAXIMUM DURATION
This contract shall have a maximum duration of twenty eight (28) years, counted
as from its Effective Date distributed as follows: up to six (6) years as an
Exploration Period pursuant to Clause 5 without prejudice of that set forth in
Clause 5 (numeral 5.4) and in Clause 9 (numeral 9.3); and twenty two (22) years
as an Exploitation Period as from the date of the termination of the Exploration
Period. It is understood that in the events contemplated in this contract, in
which the Period of Exploration is extended, in no case, shall the total term of
twenty eight (28) years be extended.
Paragraph 1: The Exploitation period for the Gas Fields that are discovered
within the Contract Area shall have a maximum duration of thirty (30) years as
from the date of expiration of the Exploration Period or of the Retention Period
granted. In any case, the total term of the contract for such Fields may not
exceed forty (40) years from its Effective Date.
Paragraph 2: Notwithstanding the afore mentioned, ECOPETROL and THE ASSOCIATE,
with an anticipation not less than five (5) years to the date of expiration of
the Exploitation Period of each Field, shall study the conditions to continue
with its exploitation subsequent to the term to which this Clause refers to. In
such case in which the Parties agree to continue such exploitation, they shall
define the terms and conditions within which it shall be performed.
CLAUSE 24 - TERMINATION
This contract shall be terminated in any of the cases hereinafter mentioned and
in which the rights of THE ASSOCIATE mentioned in this contract shall stop, both
as interested Party, and in its character of Operator, if at the time of the
expiration the two qualities mentioned concur in THE ASSOCIATE.
24.1 Due to the expiration of the Exploration Period without THE ASSOCIATE
having discovered a Commercial Field, except for that provided in
Clauses 5 (numeral 5.4), 9 (numerals 9.5) and 34.
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29
24.2 Upon expiration of the term of the duration of the contract as set
forth in Clause 23.
24.3 At any time at THE ASSOCIATE' s will, upon fulfillment of its
obligations as set forth in Clause 5 and of any others entered into
hereunder, up to the date of its expiration.
24.4 If THE ASSOCIATE assigns this contract, fully or in part, without
having fulfilled that set forth in Clause 27.
24.5 By not fulfilling the obligations acquired by THE ASSOCIATE pursuant
to this contract.
24.5.1 ECOPETROL may not end this contract until after sixty (60) calendar
days of having notified THE ASSOCIATE or its assignees in writing,
clearly specifying the causes invoked to make such a declaration and
only if the other Party has not presented the satisfactory
explanations to ECOPETROL or if THE ASSSOCIATE has not corrected the
failure in the fulfillment of the contract, without prejudice of the
right of THE ASSOCIATE to present the legal resources it considers
convenient.
24.5.2 If within the term previously mentioned THE ASSOCIATE presents the
satisfactory explanations to ECOPETROL and the remaining term to
complete the time of sixty (60) calendar days is insufficient to
fulfill the pending obligations pursuant to the good oil industry
practices, the Parties may agree on an additional term to allow such
fulfillment, without prejudice of the right of ECOPETROL to demand the
necessary guarantees to support it. If at the end of this term the
operations agreed on have not been fulfilled, ECOPETROL shall
terminate the contract.
24.6 At any time by mutual agreement of the Parties.
24.7 By the unilateral causes for termination mentioned in Clause 25.
CLAUSE 25 - CAUSES FOR UNILATERAL TERMINATION
25.1 ECOPETROL may unilaterally declare this contract terminated, at any
time before the expiration of the period set forth in Clause 23, in
the following instances.
25.1.1 By death or permanent physical disability or judicial interdiction of
THE ASSOCIATE, if a natural person.
25.1.2 By initiation of a process of liquidation of THE ASSOCIATE if a
juridical person.
25.1.3 By legal injunction of THE ASSOCIATE that seriously affects the
fulfillment of the contract.
25.1.4 When THE ASSOCIATE is conformed by several legal and/or natural
persons, the causes in numerals 25.1.1 and 25.1.2 shall be applied
when they seriously affect the fulfillment of the contract.
25.2 In the case of declaration of a unilateral termination, the rights of
THE ASSOCIATE mentioned in this contract shall end, both as interested
Party to the Contract, and as
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30
operator, if at the time of the declaration of a unilateral
termination the two qualities mentioned concur in THE ASSOCIATE.
CLAUSE 26 - OBLIGATIONS IN CASE OF TERMINATION
26.1 Upon termination of the contract pursuant to Clause 24, either in the
Exploration, Retention or Exploitation periods, THE ASSOCIATE shall
leave in production any wells that are then producing and restitute
the facilities, transfer pipelines and other real property of the
Joint Account (located in the Contract Area), all of which, shall pass
free of charge to ECOPETROL with the any rights of ways and assets
obtained to the exclusive benefit of the contract, even though the
former or the latter be located outside of the Contract Area.
26.2 If this contract is terminated for any reason after the first
seventeen (17) years of the Exploitation Period, all Interest of THE
ASSOCIATE in the machinery, equipment or other assets or facilities
used or obtained by THE ASSOCIATE or by the Operator for the execution
of this contract, shall pass to ECOPETROL free of charge.
26.3 If this contract is terminated before the seventeen (17) years of the
Exploitation Period, that set forth in Clause 22 (numeral 22.10) shall
be applied.
26.4 In case this contract is terminated by a declaration of a unilateral
termination issued at any time, all the real and personal property
acquired for the sole benefit of the Joint Account shall pass to
ECOPETROL free of charge.
26.5 Upon termination of this contract by any cause and at any time, the
Parties are obliged to satisfactorily fulfill their legal obligations
between each other and before Third Parties and those acquired in this
contract.
CHAPTER VII - VARIOUS PROVISIONS
CLAUSE 27 - RIGHTS OF ASSIGNMENT
27.1 THE ASSOCIATE shall be entitled to assign or transfer all or part of
its interests, rights and obligations originated from this contract,
with the previous written authorization of ECOPETROL, to another
person, company or group that has the financial capacity, the
technical competence, the necessary professional abilities and legal
capacity to act in Colombia.
For such purpose, THE ASSOCIATE shall submit a written request to
ECOPETROL, indicating the essential elements of the negotiation, such
as the name of the possible assignee, information on his legal,
financial, technical and operational capacities, the cost of the
rights and obligations to be assigned, scope of the operation, etc.
Within the sixty (60) working days following the receipt of the
request, submitted in a complete form, ECOPETROL, shall exercise the
discretional faculty to study the information supplied by THE
ASSOCIATE, after which it shall adopt its determination, without being
obliged to motivate it.
27.1.1 When the assignments are in favor of companies that control or direct
THE ASSOCIATE, or of any one of the companies that integrate it or
their affiliates or subsidiaries, or between
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31
companies that conform the same economic group, it shall be sufficient
to previously and timely notify ECOPETROL on the essential elements of
the negotiation previously mentioned.
27.1.2 The operations performed under the development of this clause, and
that pursuant to the Colombian Legal Tax legislation, are taxable,
shall cause the payment of the corresponding taxes.
Paragraph: When THE ASSOCIATE is conformed by more than one company
and one of them wishes to totally or partially assign its interests,
rights and obligations in the contract pursuant to this clause, it
must give preference to the other companies that integrate THE
ASSOCIATE, offering them, before doing so to Private Parties, the
interests, rights and obligations it wishes to assign, unless the
companies that conform THE ASSOCIATE have agreed otherwise.
CLAUSE 28 - DISAGREEMENTS
28.1 In the event of any discrepancies or inconsistencies in the
interpretation of the Clauses of this contract with relation to those
set forth in Annex "B" called the "Operating Agreement", those
stipulations of the first shall prevail.
28.2 The disagreements that arise between the Parties on matters of rights
related with the interpretation and execution of the contract and that
cannot be solved in a friendly way, are subject to the knowledge and
decision of the legal branch of the Colombian public authorities.
28.3 Any difference as to the facto or technical matters that may arise
between the parties hereto as a result of the interpretation or
application of this contract and that cannot be solved in a friendly
manner, shall be subject to a final decision of experts appointed as
follows: one by each Party and, the third one, appointed by mutual
agreement by the principal experts appointed. Should these two fail to
reach an agreement as to the appointing of the third, the latter shall
be designated upon request of either Parties by the Board of Directors
of the Sociedad Colombiana de Ingenieros "SCI" (Colombian Society of
Engineers), with offices in Bogota, D.C.
28.4 Any differences of an accounting nature that may arise between the
Parties hereto by reason of the interpretation and implementation of
the contract, which cannot be solved in a friendly manner, shall be
referred for the decision of experts who shall be professional public
accountants designated as follows: one by each Party and, the third
appointed by the two principal experts; should these fail to reach an
agreement and by request of any of the Parties, such third expert
shall be designated by the Central Board of Accountants of Bogota
(Junta Central de Contadores de Bogota).
28.5 Both parties declare that the experts decision shall have all the full
effect of a settlement between them and in consequence, such decision
shall be final.
28.6 In case of disagreement between the Parties on the technical,
accounting or legal nature of the controversy, it shall be considered
legal and Clause 28 (numeral 28.2) shall be applied.
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32
CLAUSE 29 - LEGAL REPRESENTATION
Without prejudice to THE ASSOCIATE's legal rights and as a consequence of the
legal provisions or of the clauses of this contract, ECOPETROL shall represent
the Parties before the Colombian authorities on any matters concerning the
exploitation of the Contract Area whenever it is necessary, and shall supply the
officers and government entities with all the data and reports that may be
legally required. The Operator shall be obliged to prepare and supply ECOPETROL
with the corresponding reports. Any expenses incurred in by ECOPETROL to attend
any matter to which this Clause refers to, shall be charged to the Joint
Account, and when such expenses exceed five thousand dollars of the United
States of America (US$5.000) or its equivalent in Colombian currency, the
previous approval of THE ASSOCIATE is required. The Parties declare, for any
relation with Third Parties, that neither that established in this Clause nor in
any other of this contract, shall imply the granting of a general power of
attorney, moreover that the Parties have constituted a civil or commercial
association or any other relationship under which, any of the Parties may be
considered as jointly and severally liable for the acts or omissions of the
other party or as having authority or mandate that may be binding upon the other
Party in relation to any obligation. This contract is concerned to the
activities within the territory of the Republic of Colombia, and even though
ECOPETROL is a Colombian State-Owned and industrial company, the Parties agree
that THE ASSOCIATE, given the case, may choose to be excluded from the
enforcement of all the provisions of Sub-chapter K titled PARTNERS AND
PARTNERSHIPS of Internal Revenue Code of the United States of America. THE
ASSOCIATE shall make such election on its behalf and in the appropriate manner.
CLAUSE 30 - RESPONSIBILITIES
30.1 The liabilities Contracted hereunder by ECOPETROL and by THE ASSOCIATE
with relation to Third Parties shall not be joint and, in consequence,
each Party shall be separately liable for its share in the expenses,
investments and obligations that may result as a consequence of such
liabilities.
30.2 Environmental Management. During the performance of all of the
activities provided for in the contract, THE ASSOCIATE or the
Operator, shall on time comply with the provisions of the National
Code on Natural Renewal Resources and Environmental Protection, issued
by the Colombian Government, as well as with all other relevant legal
regulations. Also, motivate among their contractors, suppliers,
intermediaries, and/or workers working in benefit of this contract,
the conservation of a healthy environment, taking the necessary
precautions to protect the environment, human life and property of
others and prevent the contamination of the Contract Area. From the
beginning of this contract, THE ASSOCIATE shall elaborate a general
diagnostic on the environmental and social reality of the zones where
the Exploration Operations shall be executed and shall establish the
communication channels with the authorities and communities of the
area.
THE ASSOCIATE is obliged to execute a permanent preventive program to
guarantee the preservation and restoration of the natural resources
within the zones where the operations of Exploration, exploitation and
transportation set forth in this contract are carried out.
Such plans and programs must be made known by THE ASSOCIATE to the
national and regional communities and entities related to this issue.
Also, specific contingency programs must be established to face those
emergencies that may occur and to carry out the
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necessary remedial actions. For such effect, THE ASSOCIATE must
coordinate such plans and actions with the competent authorities.
The respective programs and Budgets must be prepared by THE ASSOCIATE
pursuant to the corresponding Clauses of this contract.
All costs caused shall be assumed by THE ASSOCIATE during the
Exploration Period and in the exploitation under the modality of sole
risk, and by both Parties with charge to the Joint Account in the
Exploitation period.
CLAUSE 31 - TAXES, CHARGES AND OTHERS
The taxes and charges accrued after the opening of the Joint Account and before
the Parties receive their production share, chargeable to the exploitation of
Hydrocarbons, shall be charged to the Joint Account. Income, patrimony and
supplementary or presumptive taxes, shall be to the sole account of each of the
Parties as applicable to each of them.
CLAUSE 32 - PERSONNEL
32.1 When THE ASSOCIATE is the Operator, the assignment of the Manager of
the Operator shall be previously consulted with ECOPETROL.
32.2 Pursuant to the terms of this contract and subject to the regulations
established, the Operator in his condition as the sole and true
employer, shall have the autonomy to assign the personnel required for
the operations hereunder, being able to set the salaries, duties,
ranks and conditions. The Operator shall adequately and diligently
train the Colombian personnel required to replace the foreign
personnel that the Operator considers necessary for the performance of
the operations of this contract. In any case, the Operator must
fulfill all the legal provisions that show the proportion of national
and foreign employees and workmen.
32.3 Technological Transfer - THE ASSOCIATE is obliged to pay for or
perform at its cost the training programs for the professionals of
ECOPETROL in areas related to the development of the contract.
For the fulfillment of this obligation in the Exploration Period, the
training may also be in the areas of geology, geophysics and related
areas, evaluation of Reservoirs and characterization of reservoirs,
drilling and production. The supervised training shall be done
throughout the entire Exploration Period of six (6) years and during
its extensions, by integrating the professionals that are assigned by
ECOPETROL, to the work group organized by THE ASSOCIATE for the
Contract Area or for other activities handled by THE ASSOCIATE.
To be able to choose to resign as set forth in Clause 5 of this
contract, THE ASSOCIATE must have previously fulfilled the training
programs herein mentioned.
During the Exploitation Period, the scope, duration, place,
participants, training conditions and other aspects, shall be
established by the Executive Committee of the Company.
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All costs for guided training, with the exception of those of work
caused in favor of the professionals that receive it, shall be assumed
by THE ASSOCIATE in the Exploration Period and by both parties with
charge to the Joint Account in the Exploitation Period.
PARAGRAPH: To fulfill all of the Technological Transference
obligations pursuant to that herein mentioned, during the first three
(3) years of the Exploration Period and for each year, THE ASSOCIATE
is committed to carry out programs of guided training and technical
exchanges for professionals of ECOPETROL in the areas of joint
interest up to a value of forty thousand dollars (US$40.000) per year.
The subject and type of program shall be previously agreed to between
ECOPETROL and THE ASSOCIATE. In the event that the Exploration Period
is extended, the guided training shall consist of similar programs to
that herein considered.
CLAUSE 33 - INSURANCES
THE ASSOCIATE or the Operator shall obtain all the insurances required by the
Colombian laws. Also, it shall require that each contractor performing any type
of work during the development of this contract obtain all the insurances
considered necessary, that must be maintained in force. Also, the Operator shall
take all other insurances that the Executive Committee considers necessary.
At the expiration of this contract, at any moment during the exploitation period
or by expiration of a term set forth in clause 23, the Operator and/or THE
ASSOCIATE shall constitute an insurance policy that guarantees the payment of
salaries, benefits and indemnifications and other working credits for eventual
legal sentences derived from claims of the workers contracted by the Operator in
his condition as a sole and true employer of the same and during the time of
operation of the Commercial Field. The life of the policy shall not be less than
three (3) years as of the date of the termination of the Association Contract
and the sum insured shall be decided by the Executive Committee, subject to that
ordered in the labor regulations that apply to the respective labor contracts.
CLAUSE 34 - FORCE MAJEURE OR ACT OF GOD
The obligations to which this contract refer to shall be suspended for the time
in which any of the Parties is unable to fulfill them in whole or in part, due
to unforeseeable events that constitute a force majeure or Act of God, such as
strikes, lockouts, wars, earth quakes, floods or other catastrophes, laws or
government regulations or decrees that hinder the provision of essential
material and, in general, any non financial motive that really impedes the work,
even when not previously mentioned, but that affects the Parties and that is out
of their control. Should either Party be unable to fulfill its obligations with
this contract due to force majeure or Act of God, it must immediately notify the
other Party, for its consideration, specifying the causes of its impediment. In
no case can the events of force majeure or Act of God extend or prolong the
total period of exploration, retention and exploitation beyond a maximum
duration of the contract pursuant to that set forth in Clause 23, but any
impediment of force majeure during the period of six (6) years of exploration
set forth in Clause 5, which duration is more than sixty (60) consecutive days,
shall extend this period of six (6) years for the same period of the duration of
the impediment.
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CLAUSE 35 - APPLICATION OF THE COLOMBIAN LAWS
The Parties set the city of Bogota, D.C., Republic of Colombia for any purposes
hereunder. This contract is governed ruled in all of its parts by the Colombian
laws and THE ASSOCIATE abides by t