Petroleum Concession Agreement

BADIN-II REVISED
PETROLEUM CONCESSION
AGREEMENT


BETWEEN


THE PRESIDENT OF THE ISLAMIC
REPUBLIC OF PAKISTAN
AND


UNION TEXAS PAKISTAN, INC.,


OCCIDENTAL PETROLEUM (PAKISTAN), INC.,


OIL AND GAS DEVELOPMENT CORPORATION


AND


THE FEDERAL GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN


[EFFECTIVE JANUARY 22, 1995] 2
BADIN-II REVISED PETROLEUM CONCESSION
AGREEMENT


TABLE OF CONTENTS
Page ARTICLE - I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3


ARTICLE - II
RIGHTS AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9


ARTICLE - III
WORK OBLIGATIONS AND SURRENDER OF LICENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11


ARTICLE - IV
WORKING INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14


ARTICLE - V
LEASES FOR PETROLEUM DEVELOPMENT AND PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17


ARTICLE - VI
ASSIGNMENT, SURRENDER OF AREAS AND TERMINATION
OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22


ARTICLE - VII
WELLHEAD VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25


ARTICLE - VIII
NATURAL GAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28


ARTICLE - IX
RIGHT OF ACQUISITION OF PETROLEUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30


ARTICLE - X
DISPOSAL OF PETROLEUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32


(i) 3 ARTICLE - XI
FOREIGN EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33


ARTICLE - XII
IMPORTS AND EXPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35


ARTICLE - XIII
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38


ARTICLE - XIV
FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40


ARTICLE - XV
MANAGEMENT AND OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41


ARTICLE - XVI
ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46


ARTICLE - XVII
REFINERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48


ARTICLE - XVIII
OTHER MINERALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49


ARTICLE - XIX
AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50


ARTICLE - XX
PRODUCTION BONUSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51


ARTICLE - XXI
INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52


ARTICLE - XXII
TRAINING, EMPLOYMENT AND SOCIAL WELFARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53


ARTICLE - XXIII
DEVELOPMENT FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55


ARTICLE - XXIV
PARENT COMPANY GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56


(ii) 4 ARTICLE - XXV
EFFECTIVENESS AND DURATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57


ARTICLE - XXVI
ROYALTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58


ARTICLE - XXVII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60


ANNEXURE - I
MAP OF BADIN-II REVISED AREA


ANNEXURE - I-A
MAP OF BADIN-II REVISED AREA TO BE ATTACHED


ANNEXURE - II
BADIN-II REVISED JOINT OPERATING AGREEMENT


ANNEXURE - III
FORM OF DEVELOPMENT AND PRODUCTION LEASE


ANNEXURE - IV
EXHIBIT A
SRO 367(I)/94 DATED MAY 9, 1994


ANNEXURE - IV
EXHIBIT B
CGO-2/93 DATED MAY 20, 1993


ANNEXURE - IV
EXHIBIT C
SRO 336(I)/94 DATED APRIL 26, 1994


ANNEXURE - IV
EXHIBIT D
LIST OF MACHINERY, EQUIPMENT, MATERIALS,VEHICLES
ACCESSORIES, SPARES, CHEMICALS AND CONSUMABLES ETC.


ANNEXURE - IV
EXHIBIT E
SRO 366 (I)/94 DATED 9TH MAY, 1994


(iii) 5 ANNEXURE - IV
EXHIBIT F
CBR'S LETTER C.NO.10(14)/93-ICM&CON DATED JUNE 13, 1994


ANNEXURE - IV
EXHIBIT G
LIST OF COMMISSARY STORES


ANNEXURE - V
PARENT COMPANY GUARANTEE


(iv) 6
BADIN-II REVISED
PETROLEUM CONCESSION AGREEMENT


THIS AGREEMENT, made and entered into between THE PRESIDENT OF THE ISLAMIC REPUBLIC OF PAKISTAN (hereinafter referred to as the "President" which term shall include his successors and assigns); and


UNION TEXAS PAKISTAN, INC., a corporation formed and existing under the laws of the State of Delaware, U.S.A. and registered in Pakistan under Section 277 of the Companies Act, 1913 (VII of 1913), having its principal office in Pakistan at Bahria Complex, 3rd Floor, 24 Moulvi Tamizuddin Khan Road, Karachi-2, Pakistan (hereinafter referred to as "Union Texas" which term shall include its successors and assigns); and


OCCIDENTAL PETROLEUM (PAKISTAN), INC., a corporation formed and existing under the laws of the State of Delaware, U.S.A. and registered in Pakistan under Section 277 of the Companies Act, 1913 (VII of 1913), having its principal office in Pakistan at 47-N, Dossal Arcade, Blue Area, Islamabad, Pakistan (hereinafter referred to as "Occidental" which term shall include its successors and assigns); and


OIL AND GAS DEVELOPMENT CORPORATION, a statutory corporation established under the Oil and Gas Development Corporation Ordinance, 1961 (XXXVII of 1961), having its principal office at Masood Mansion, F-8, Al-Markaz, Islamabad, Pakistan (hereinafter referred to as "OGDC" which term shall include its successors and assigns); and


THE FEDERAL GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN as a Working Interest Owner and a party to this Agreement and in its capacity as a Working Interest Owner (hereinafter referred to as "Government Holdings" which term shall include its successors and assigns).


WITNESSETH


WHEREAS, the President, Union Texas, Occidental and OGDC are parties to the Petroleum Concession Agreement dated January 21, 1992, and they desire to amend that agreement so as to provide for, among other things, the renewal of the Exploration Licence No.115/Pakistan/90 and the application of the of the Petroleum Policy 1994 of the Government of Pakistan dated March 1994 (the "1994 Petroleum Policy") to the activities undertaken in accordance with this Agreement;


[PAGE # ... 1] 7 WHEREAS, in accordance with the provisions of the 1994 Petroleum Policy the President, Union Texas, Occidental and OGDC desire to include Government Holdings as a Working Interest Owner and a party to this Agreement;


WHEREAS, the President has granted to Union Texas, Occidental and OGDC a renewal of the Exploration Licence No.115/Pakistan/90 as amended hereby, including Government Holdings as a party thereto, and extend those certain Petroleum concessions and other rights in and to the Badin-II Revised Area hereinafter described and as hereinafter more particularly set forth and reserve unto itself an interest as more particularly described herein;


NOW, THEREFORE, the President, Union Texas, Occidental, OGDC and Government Holdings do hereby agree as follows:


[PAGE # ... 2] 8
ARTICLE - I


DEFINITIONS


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


1.1 "Accounting Procedure" - means Exhibit "A" to the Joint Operating
Agreement.


1.2 "Act" - means the Regulation of Mines and Oilfields and Mineral
Development (Government Control) Act, 1948, as amended and in effect
on the Effective Date.


1.3 "Affiliate" - means a company controlling or controlled by a party to
this Agreement. The term "control", as used in this Article 1.3, shall
mean the right to exercise, directly or indirectly, more than fifty
percent (50%) of the voting rights in the company controlled at its
general meeting.


1.4 "Agreement" - means this Badin-II Revised Petroleum Concession
Agreement effective as of January 22, 1995, among the President and
Union Texas, Occidental, OGDC and Government Holdings.


1.5 "Annexure" - means one of the Annexures annexed to this Agreement, all
of which are hereby made a part hereof.


1.6 "Appraisal Well" - means any additional well drilled with respect to a
Discovery prior to the Commercial Discovery Notice Date.


1.7 "Article" - means an article of this Agreement.


1.8 "Badin-II Revised Area" - means the area covered by the Badin-II
Licence as outlined on the map contained in Annexure I, excluding the
area covered by the leases granted under the Badin-II PCA, and any
portion thereof which may be Surrendered in accordance with this
Agreement. The Badin-II Revised Area will be outlined and more
particularly described in Annexure 1-A which is to be initialled by
the President and the Working Interest Owners and attached hereto as
soon as practicable after the Effective Date.


1.9 "Badin-II Revised Licence" - means the Badin-II Revised Exploration
Licence No. 115/Pakistan/90 effective from the Effective Date, insofar
as it covers the Badin-II Revised Area, as renewed in accordance with
the Rules.


[PAGE # ... 3] 9 1.10 "Badin-II Revised Voting Interest" - means with respect to the
Badin-II Revised Area and any Lease granted with respect thereto, in
matters relating to (a) Exploration and Appraisal Activities and all
other matters other than Development Activities, five percent (5%) for
Government Holdings, twenty-four percent (24%) for OGDC and
thirty-five and five tenths percent (35.5%) for each of Union Texas
and Occidental, and (b) only Development Activities, the Badin-II
Revised Working Interest of each of Government Holdings, OGDC, Union
Texas and Occidental determined in accordance with the provisions of
Article IV in respect of the Discovery Area with respect to which such
Development Activities are undertaken.


1.11 "Badin-II Revised Working Interest" - means the Working Interest of
each of Union Texas, Occidental, OGDC and Government Holdings, as such
Working Interest may be adjusted from time to time in accordance with
the provisions of Article IV, in respect of the Badin-II Revised Area,
the Badin-II Revised Licence and any Leases that may be granted with
respect thereto.


1.12 "Badin-II PCA" - means the Petroleum Concession Agreement dated
January 21, 1992 among the President, Union Texas, Occidental, and
OGDC.


1.13 "Badin-II Licence" - means Exploration Licence No. 115/Pakistan/90 as
in effect up to the Effective Date and as may be extended pursuant to
Article 3.1(b) of the Badin-II PCA and the Rules.


1.14 "Barrel" - means a quantity of Crude Oil and Condensate equivalent in
volume to forty-two (42) United States Gallons adjusted to sixty (60)
degrees Fahrenheit after correction for basic sediment and water
("BS&W").


1.15 "BOE" - means barrel of oil equivalent.


1.16 "BOE/day" - means barrels of oil equivalent per day. Quantities of
Natural Gas produced and saved shall be converted to a barrel of Crude
Oil equivalent on a BTU basis.


1.17 "BTU" - means a British thermal unit.


1.18 "Calendar Quarter" - means a period of three (3) consecutive months,
according to the Gregorian Calendar, which begins 1 January, 1 April,
1 July or 1 October.


1.19 "Calendar Year" - means the period from 1 January to 31 December, both
inclusive, according to the Gregorian Calendar. The tax year of
Working Interest Owner shall be the period from 1 July to 30 June,
both inclusive, according to the Gregorian Calendar.


[PAGE # ... 4] 10 1.20 "Commercial Discovery" - means a Discovery of Petroleum either duly
evaluated by one or more Appraisal Wells which Discovery, in the
opinion of the Operating Committee, would justify, on the basis of
technical and economic considerations, its development and would
assure Commercial Production or, which has otherwise been approved by
the Government as commercial under this Agreement.


1.21 "Commercial Discovery Notice Date" - means the date when the Operator
formally notifies the Director General Petroleum Concessions that a
Commercial Discovery has been made.


1.22 "Commercial Production" - means the production of Petroleum of a
quantity and quality which Operator reasonably estimates with the
concurrence of the Government (which concurrence shall not be
unreasonably withheld) to be sufficient, over the relevant period to
cover the costs reasonably estimated to be incurred with respect to
the development and production of that Petroleum.


1.23 "Condensate" - means liquid Petroleum (excluding Crude Oil, NGL and
LPG), produced at the surface by processing or separation from Natural
Gas.


1.24 "Crude Oil" - means all Petroleum other than Natural Gas, Condensate,
LPG, and NGL which at standard atmospheric conditions of pressure and
temperature is in a liquid phase.


1.25 "Date of Commercial Production" - means the date when the Operator
commences, on a regular basis, Commercial Production from a Commercial
Discovery.


1.26 "Development Activities" - means all operations undertaken with
respect to a Discovery Area in accordance with the approved
Development Plan including operations approved by the Operating
Committee after the Commercial Discovery Notice Date with respect to
that Discovery Area.


1.27 "Development Plan" - means the plan submitted to the President for
approval in accordance with Rule 33.


1.28 "Director General Petroleum Concessions or DGPC" - means any officer
or authority appointed by the Government to exercise the powers and
perform the functions of the Director General Petroleum Concessions
under the Rules.


1.29 "Discovery" - means the finding of a deposit of Petroleum not
previously known to have existed which is established by conventional
Petroleum industry testing methods in a significant measure.


[PAGE # ... 5] 11 1.30 "Discovery Area" - means an area as defined in Rule 2(C) of the Rules.


1.31 "Effective Date" - means 12:00 a.m. on January 22, 1995.


1.32 "Expenditures" - means for purposes other than the assessment of
income tax, expenditures incurred in connection with, or incidental
to, the conduct of Petroleum Operations, whether chargeable to capital
or revenue account, including operating costs, whether or not with
respect to producing wells and other assets or, prepayments made after
the Effective Date, acquired for subsequent use in the Petroleum
Operations. Such Expenditures are more particularly classified and
identified as set forth in the Accounting Procedure.


1.33 "Exploration and Appraisal Activities" - means all operations as
approved by the Operating Committee, including the drilling of
Appraisal Wells, (other than Development Activities) performed in
order to determine the existence of previously unknown Petroleum,
including topographic, geodetic, hydrographic, meteorological and
bathymetric studies and surveys; geological and geophysical studies
and surveys; drilling, testing and evaluation of data from Exploration
Wells and Appraisal Wells; and technical or economic studies
pertaining to any of the foregoing operations.


1.34 "Exploration Well" - means a well which tests a clearly separate
geological entity (be it either structural, stratigraphic,
lithological, or facies of a differing pressure nature) penetrating a
prospective geological interval or intervals prior to that entity
being classified as a Discovery.


1.35 "Government" - means The Federal Government of the Islamic Republic of
Pakistan.


1.36 "Joint Operating Agreement" - means the Badin-II Revised Joint
Operating Agreement attached hereto as Annexure II.


1.37 "Joint Operations" - means all Petroleum Operations that are conducted
by the Operator for all of the Working Interest Owners under the Joint
Operating Agreement.


1.38 "Lease" - means the grant of the exclusive right to perform all
activities in connection with exploration, development, production and
transportation of all Petroleum underlying the surface area covered by
a development and production lease granted in accordance with the
Rules in the Badin-II Revised Area.


1.39 "Licensee" - means Union Texas, Occidental, OGDC and Government
Holdings and their respective successors and assigns.


[PAGE # ... 6] 12 1.40 "Liquified Petroleum Gas" or "LPG" - means a marketable mixture of
propane and butane separated from Natural Gas by compression,
extraction or other processes and marketed in conformity with the
quality and specifications established by Pakistan Standard
Specifications No. 1705-1976 for Commercial Butane-Propane Mixture as
amended from time to time.


1.41 "Minimum Expenditure" - means with respect to the (i) first Renewal
Period US$1,500,000, (ii) second Renewal Period US$1,500,000, and
(iii) third Renewal Period US$750,000.


1.42 "Minimum Work Program" - means the work described in Article 3.2 of
this Agreement for each Renewal Period undertaken with respect to the
Badin-II Revised Area.


1.43 "Natural Gas" - means all hydrocarbons which at standard atmospheric
conditions of pressure and temperature are in a gaseous phase.


1.44 "Natural Gas Liquids" or "NGL" - means ethane and any higher molecular
hydrocarbons separated from Natural Gas by compression, extraction or
other process, but does not include Condensate, propane or butane
fraction extracted from Natural Gas for the manufacture of LPG.


1.45 "Operating Committee" - means the committee constituted pursuant to
the terms of the this Agreement and the Joint Operating Agreement.


1.46 "Operator" - means the person so designated from time to time pursuant
to the Joint Operating Agreement, which person shall initially be
Union Texas.


1.47 "Optional Interest" - means an amount (not to exceed twenty percent
(20%)) expressed as a percentage of one hundred percent (100%) of the
Working Interests by which Government Holdings has elected to increase
its Working Interest in accordance with Article IV.


1.48 "Petroleum" - means all liquid and gaseous hydrocarbons existing in
their natural condition in the strata, as well as all substances,
including sulphur, produced in association with such hydrocarbons, but
does not include basic sediments and water.


1.49 "Petroleum Operations" - means all Petroleum exploration, prospecting,
developing and producing activities conducted by the Working Interest
Owners under and pursuant to the Badin-II Revised Licence, this
Agreement and the Joint Operating Agreement and include any gas-oil
separation, pressure maintenance, pipeline and other transportation,
Crude Oil storage or other activity necessary to facilitate the
production of Petroleum. Petroleum


[PAGE # ... 7] 13
Operations do not include the construction or operation of any Crude
Oil refinery.


1.50 "Private Working Interest Owner" - means a Working Interest Owner
other than Government Holdings or any other entity in which the
Government owns more than fifty-one percent (51%) of the shares.


1.51 "Renewal Period" - means a period of twelve (12) months beginning on
the Effective Date and from each anniversary of the Effective Date for
which the President has granted a renewal of the Badin-II Licence as
set out in the Rules.


1.52 "Royalty Petroleum" - means the Petroleum taken in kind by the
Government in payment of the royalty obligation of the Working
Interest Owners as provided in Article XXVI and the Rules.


1.53 "Rules" - means the Pakistan Petroleum (Exploration and Production)
Rules, 1986, including all Schedules, as amended and in effect on the
Effective Date.


1.54 "Share of Expenditures" - means the share of Expenditures for
Exploration and Appraisal Activities of Union Texas, Occidental and
OGDC determined in accordance with Article IV.


1.55 "Surrender" - means the termination of rights with respect to the
whole or any part of the Badin-II Revised Area including the
expiration of rights according to the terms of the Badin-II Revised
Licence, any Lease and this Agreement.


1.56 "Wellhead Value" - means the value for Petroleum as determined in
accordance with the provisions of the Rules and Article VII.


1.57 "Working Interest" - means all or any undivided interest in the
entirety of the Petroleum concession and other rights granted and
obligations and liabilities imposed by this Agreement, the Joint
Operating Agreement, the Badin-II Revised Licence and any Leases,
including the enjoyment of the exclusive right to explore for,
prospect for, develop, produce, own, sell and otherwise dispose of
Petroleum from all or part of the Badin-II Revised Area and which
interest is chargeable with and currently obligated to bear and pay
its proportionate part, except as otherwise provided in Article IV, of
all costs and expenditures (including royalties on production and
rental) incurred by Working Interest Owners in exploring and
prospecting for, drilling, developing, producing, selling and
otherwise disposing of Petroleum from all or part of the Badin-II
Revised Area.


1.58 "Working Interest Owner" - means an entity owning a Working Interest
in the Badin-II Revised Area or any Lease granted with respect
thereto.


[PAGE # ... 8] 14
ARTICLE - II


RIGHTS AND LIABILITIES


2.1 The President has renewed the Badin-II Licence No.115/Pakistan/90 in
accordance with the Rules as the Badin-II Revised Exploration Licence
No.115/Pakistan/90 and grants to the Licensees effective on the
Effective Date, the rights more particularly described in this
Agreement, including, but not limited to, the exclusive right of being
granted Leases and of conducting or causing to be conducted Petroleum
exploration, prospecting, development and production operations
hereunder and thereunder within the Badin-II Revised Area including
the transportation (whether by pipeline or otherwise), storage,
terminalling, export and sale of Petroleum, subject to the provisions
of this Agreement.


2.2 (a) Union Texas shall act as Operator for the Badin-II Revised
Area subject to the provisions of the Joint Operating
Agreement and no change of the Operator may take place without
the consent of the Government.


(b) The Petroleum Operations, with respect to Badin-II Revised
Area, shall be conducted diligently, and in conformity with
the requirements of the Rules, t ...