Daywork Drilling Contract

Exhibit 10.65


DAYWORK DRILLING CONTRACT-LAND


This International Daywork Drilling Contract-Land (this "Contract"), dated the 10th day of October 1999, is made by and between Closed Type JSC Karakudukmunay, residing at Microdistrict 3 Building 82 Aktau, Republic of Kazakhstan (hereinafter referred to as "Operator") and Drilling Service Company "Kazakhoil Drilling" Ltd., residing at 466412, Atyrau, Birlik village (hereinafter referred to as "Contractor"). Hereinafter the Contractor and the Operator may individually be referred to as a "Party" and collectively as "Parties."


RECITALS:


WHEREAS, Operator desires to have onshore wells drilled, produced or worked over in the Mangistau region of the Republic of Kazakhstan, as specified by Operator and to have performed or carried out all auxiliary operations and services as detailed in the Appendices hereto or as Operator may require (hereinafter referred to as "Work"); and


WHEREAS, Contractor is willing to furnish the land drilling rig which is a Kremco 900 Rig (or a substantially similar land drilling rig), together with drilling and other equipment (hereinafter called the "Drilling Unit"), insurance and personnel, all as detailed in the Appendices hereto.


AGREEMENT:


NOW THEREFORE, in consideration of the premises and the covenants and agreements herein, the Parties agree as follows:


ARTICLE I


INTERPRETATION


1.1 Definitions


In this Contract, unless the context otherwise requires:


(a) "Commencement Date" means the day and time within the nearest hour that Operator's first well is spudded within the Operating Area.


(b) "Operator's Items" mean the equipment, material and services owned by Operator or which are listed in Appendix D that are to be provided at the expense of Operator.


(c) "Contractor's Items" mean the Drilling Unit, equipment, material and services owned by Contractor or which are listed in Appendices B and D that are to be provided at expense of Contractor.


(d) "Contractor's Personnel" meansF the personnel and subcontractors to be provided by Contractor from time to time to conduct operations hereunder as listed in Appendix C.


(e) "Operator's Personnel" means the personnel and other contractors to be provided by Operator from time to time in connection with operations hereunder.


(f) "Operating Area" means the area specified in Appendix A.


(g) "Operating Base" means the place onshore designated by Operator and specified in Appendix A.


(h) "Affiliated Company" means an entity owning fifty percent (50%) or more of the voting stock or similar equity interests of Operator or Contractor, an entity in which Operator or Contractor own fifty percent (50%) or more of its voting stock or similar equity interests, or an entity fifty percent (50%) or more of whose voting stock or similar equity interests is owned by the same entity that owns fifty percent (50%) or more of the voting stock or similar equity interests of Operator or Contractor.


1.2 Currency


In this Contract, all amounts expressed in dollars are United States dollar amounts.


1.3 Conflicts


Appendices A, B, C, D, E and F attached hereto are incorporated herein by this reference. If any provision of the Appendices conflicts with a provision in the body of this Contract hereof, the body of this Contract shall prevail.


1.4 Headings


The paragraph headings shall not be considered in interpreting the text of this Contract.


1.5 Further Assurances


Each Party shall perform the acts and execute and deliver the documents and give the assurances necessary to give effect to the provisions of this Contract.


1.6 Contractor's Status


Contractor in performing its obligations hereunder shall be an independent contractor. Operator may instruct and direct Contractor as to the results to be obtained from Contractor's employees. None of Contractor's employees are, nor shall be deemed to be, employees or agents of Operator; provided, however, Operator's supervisory personnel shall be in charge of Contractor's Personnel and Contractor's Personnel shall take their instructions and work assignments solely from Operator's supervisory personnel.


1.7 Governing Law


This Contract shall be construed and relations between the Parties determined in accordance with the law designated in Appendix A, not including, however, any of its conflicts of law rules, which would direct or refer to the laws of another jurisdiction. In the event any provision of this Contract is inconsistent with or contrary to any applicable law, rule or regulations, said provision shall be deemed to be modified to the extent required to comply with said law, rule or regulation, and as so modified said provision and this Contract shall continue in full force and effect. If this Contract is translated into another language, the English version of this Contract shall be controlling for all purposes.


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ARTICLE II TERM


2.1 Effective Date


The Parties shall be bound by this Contract from the date last signed by a Party (hereinafter referred to as "Effective Date").


2.2 Duration


This Contract shall, subject to Paragraphs 2.3 and 2.4, be for the term specified in Appendix A.


2.3 Termination


This Contract shall terminate:


(a) immediately if the Drilling Unit becomes a loss on the date Contractor's insurance surveyor determines a constructive or arranged total loss to have occurred;


(b) on the later of the date specified in Appendix A or, if operations are then being conducted on a well, as soon thereafter as such operations are completed and the Drilling Unit has been safely stacked at the demobilization location specified in Appendix A, unless some other location or port is mutually agreed, and all of Operator's Items have been off loaded;


(c) in accordance with Paragraph 3.5(b);


(d) in accordance with Paragraph 7.6; or


(e) in accordance with Paragraph 8.2.


2.4 Option to Extend


This Contract may be renewed by Operator beyond its initial term as specified in Appendix A, provided that Operator and Contractor mutually agree upon the appropriate rates, terms and conditions.


2.5 Continuing Obligations


The provisions of Article IX and Paragraphs 1.3, 1.6, 1.7, 2.3, 2.5, 2.6, 13.1, 13.4, 13.5, 13.6, 13.7, 13.9 and 13.11 shall survive the termination of this Contract and the Parties shall continue to be bound thereby.


2.6 Return of Operator's Item


Upon termination of operations, Contractor shall return to Operator at the last drilling location for the Drilling Unit under this Contract, or at any other location as directed by Operator at the Operator's sole cost, any of Operator's Items which are at the time in Contractor's possession. Operator's Items shall be returned by Contractor in the same condition in which they were received by Contractor, normal wear and tear excepted.


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ARTICLE III CONTRACTOR'S PERSONNEL


3.1 Number, Selection, Hours of Labor and Remuneration


Except where herein otherwise provided, the number, selection, replacement, hours of labor and remuneration of Contractor's Personnel shall be determined by the Contractor upon the requisites of the Work. Such employees or subcontractors shall be the employees or subcontractors solely of Contractor. Notwithstanding the foregoing, minimum manning shall be as specified in Appendix C, and the Contractor undertakes to provide personnel of first class international quality who have an appropriate technical background and experience to perform the Work and to provide Contractor's Personnel who have certification as required by Kazakh laws. Contractor's Personnel shall be certified as required by Kazakh law and have work permits as so required by Kazakh law.


3.2 Contractor's Representative


Contractor shall nominate one of Contractor's Personnel, if possible the office manager of Contractor Aktau, as Contractor's representative who shall be in charge of the remainder of Contractor's Personnel and who shall have full authority to resolve all day-to-day matters which arise between Operator and Contractor. Contractor shall inform the Operator in a written form, if such representative is replaced. All matters that cannot be resolved by Contractor's representative and Operator's representative will be resolved in accordance with Paragraph 13.9.


3.3 Increase in Contractor's Personnel


Operator may, subject to mutual agreement of the Parties, require Contractor to increase the number of Contractor's Personnel, subject to additional payment by the Operator in accordance with the rates in Appendix F or as mutually agreed between the Parties.


3.4 Replacement of Contractor's Personnel


Contractor will remove and replace at anytime any of Contractor's Personnel if Operator so requests. Operator shall give to Contractor the reasons for any such request.


3.5 Personnel Shortages


(a) If at any time during the term of this Contract, less than a full crew of personnel as listed in Appendix C is utilized for any reason, the applicable day rate payable to Contractor hereunder shall be reduced by an amount calculated by multiplying the applicable day rate payable to Contractor hereunder by a fraction, where the number of crew members absent from the Drilling Unit is the numerator and the total number required crew members is the denominator. The day-rate and hourly rates for the crew are defined in Appendix F.


(b) If at any time, in the Operator's opinion, Contractor's failure to provide a full crew of personnel as established in this Contract is interfering with or delaying the conduct of Operator's operations, and such failure continues for a period of five (5) days after notice from Operator to Contractor, then in addition to (i) a reduction in the applicable day rate as provided herein and (ii) any other remedies the Operator may have under this Contract, the Operator may terminate this Contract.


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3.6 Safety Measures


Contractor shall, at its sole expense, take all measures necessary or proper to provide safe working conditions, proper safety clothing and supplies to its personnel in accordance with international safety regulations and standards and with all safety requirements of the Republic of Kazakhstan and general safety measures applied by the Contractor in its other similar businesses. Contractor shall give notice to all persons at the drill site of all safety regulations, which apply to such personnel. Additionally, Contractor shall ensure that such persons are fully informed of and comply with such regulations. The Contractor shall set up and conduct weekly safety drills. Attendance at these meetings of Contractor's Personnel shall be obligatory. Operator shall have the right to hold additional meetings and best operations practices at its own discretion.


ARTICLE IV CONTRACTOR'S ITEMS


4.1 Obligation to Supply


Contractor shall provide Contractor's Items and Personnel and perform the services to be performed by it in accordance with Appendices B, C and D. Each of Contractor's Items (including the Drilling Unit) shall be subject to inspection and approval of Operator prior to such Items being placed into service.


4.2 Maintain Stocks


Contractor shall be responsible, at its cost, for maintaining adequate stock levels of Contractor's Items and replenishing them as necessary.


4.3 Maintain and Repair Equipment


Contractor shall, subject to Paragraph 9.1, be responsible for the maintenance and repair of all Contractor's Items (including the Drilling Unit) and shall provide all spare parts and materials required therefor. Contractor shall, if requested by Operator, also maintain or repair any of Operator's Items in the Operating Area which Contractor is qualified to and can maintain or repair with Contractor's normal complement of personnel and equipment at the drill site, provided, however, that Operator shall at its cost provide all spare parts and materials required to maintain or repair Operator's Items, and the basic responsibility and the ability for furnishing and maintaining such items shall remain with the Operator. In the event Contractor does not fully carry out its maintenance and repair obligations set forth above on a timely basis, Operator may elect to perform or have performed such maintenance and repair activities and the costs incurred by Operator thereby may be deducted by Operator from any amounts due to Contractor under this Contract or otherwise.


4.4 Additional Items


Contractor agrees and undertakes to provide additional equipment upon the requirement of Operator. Such additional equipment shall be provided by the Contractor on a cost basis plus handling charges, if applicable.


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ARTICLE V CONTRACTOR'S GENERAL OBLIGATION


5.1 Contractor's Standard of Performance


Contractor shall carry out all its operations under this Contract on a daywork basis. For purposes hereof the term "daywork basis" means Contractor shall furnish equipment, labor and perform services as herein provided, for a specified sum per day under the direction and supervision of Operator.


5.2 Operation of Drilling Unit


Contractor shall be responsible for the operation of the Drilling Unit, including, supervising moving operations and positioning on drilling locations as required by Operator. Operations under this Contract will be performed on a twenty-four (24) hour per day, seven (7) days a week basis. Contractor warrants that the Drilling Unit (without modification, upgrade or enhancement) will operate efficiently and is physically capable of drilling wells to depths specified in this Contract and complies fully with the technical documentation described in Appendix B.


5.3 Compliance with Operator's Instructions


Contractor shall comply with all instructions of Operator consistent with the provisions of this Contract, including, without limitation, drilling, well control and safety instructions. Such instructions shall, if Contractor so requires and time permits, be confirmed in writing by the authorised representative of Operator. However, Operator shall not issue any instructions which would be inconsistent with Contractor's rules, policies or procedures pertaining to the safety of the Contractor's Personnel, the Operator's Personnel, equipment or, the Drilling Unit, or require Contractor to exceed the capacity of the Drilling Unit.


5.4 Adverse Weather


Contractor, in consultation with Operator, shall decide when, in the face of impending adverse weather conditions, to institute precautionary measures in order to safeguard the well, the well equipment, the Drilling Unit and Contractor's Personnel or Operator's Personnel to the fullest possible extent. Contractor and Operator shall each ensure that each respective senior representative will not act unreasonably in the exercise of their discretion under this Paragraph 5.4.


5.5 Drilling Fluids and Casing Program


Contractor shall follow any of Operator's instructions with respect to the "Drilling Fluid and Casing Program" as may be specified by the Operator. Operator shall provide Contractor with any such programs reasonably in advance of the spud date of each well to be drilled under this Contract.


5.6 Difficulties during Drilling


In the event of any difficulty arising which precludes either drilling ahead under reasonably normal procedures or the performance of any other operations planned for a well, Contractor may suspend the work in progress and shall immediately notify in writing the representative of Operator of the difficulty, and during such period exert its best efforts to overcome the difficulty.


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5.7 Well Control Equipment


Subject to Article IX, Contractor shall maintain its well control equipment listed in Appendices B and D in good condition at all times and shall use its best efforts to prevent and control fires and blowouts and to protect the hole.


5.8 Inspection of Materials Furnished by Operator


Contractor agrees to visually inspect all materials furnished by Operator before using same and notify Operator in writing of any apparent defects therein. Contractor shall not be liable for any loss or damage resulting from the use of materials furnished by Operator, unless Contractor fails to properly inspect the materials in accordance with this Paragraph 5.8.


5.9 Cutting/Coring Program


Contractor shall save and identify cuttings and cores according to Operator's instructions and place them in containers furnished by the Operator.


5.10 Records to be Kept by Contractor


Contractor shall keep and furnish to Operator an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report Form or other form acceptable to Operator. A legible copy of said form signed by Contractor's representatives shall be furnished by Contractor to Operator.


ARTICLE VI OPERATOR'S RIGHTS AND OBLIGATIONS


6.1 Equipment and Personnel


Operator shall at its cost provide Operator's Items and Operator's Personnel and perform the services to be provided or performed by it according to Appendix D. In addition to providing the initial supply of Operator's Items, Operator shall be responsible, at its cost, for maintaining adequate stock levels and replenishing as necessary. When, at Operator's request and with Contractor's agreement, the Contractor furnishes or subcontracts for certain items which Operator is required herein to provide, for purposes of this Contract said items or services shall be deemed to be Operator's Items, and Operator shall not be relieved of any of its liabilities in connection therewith. For furnishing said items and services, Operator shall reimburse Contractor its entire cost plus a handling charge as specified in Appendix A.


6.2 Maintenance and Repair


Operator shall be responsible, at its cost, for the maintenance and repair of all Operator's Items on the Drilling Unit which Contractor is not qualified to or cannot maintain or repair with Contractor's normal complement of personnel and the equipment at the drill site.


6.3 Operator's Employees


Operator shall designate a senior representative to resolve day-to-day matters requiring decision by Operator who will be present at the drill site. Contractor may treat Operator's senior representative for the time being at the drill site


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as being in charge of all Operator Personnel. Operator shall inform the Contractor in a written form, in case such representative is replaced. Operator's representative shall at all times have access to the Drilling Unit and may, among other things, observe tests, check and control the implementation of the mud program, examine cuttings and cores, inspect the Work or examine the records kept on the Drilling Unit by Contractor.


6.4 Drilling Site and Access


Operator shall be responsible for providing access to the drilling location, as well as selecting, surveying, marking and clearing the drilling locations as may be reasonably required by Contractor for location approval. Contractor shall obtain and provide all required certificates, Drilling Unit and expatriate personnel permits and licenses required for the drilling operations and Drilling Unit hereunder. Operator shall notify Contractor of any impediments or hazards to operations at each drilling location or at any access routes to the drilling locations of which it has actual knowledge. Notwithstanding any other provision of this Contract, should there be obstructions at or within the area of the drill site and these obstructions result in damage to the Drilling Unit, Operator shall be responsible for and hold harmless and indemnify Contractor for all resulting direct damage, including the payment of the applicable Standby Rate during repairs, but Operator shall receive credit for any physical damage insurance proceeds received by Contractor as a result of such damage.


6.5 Custom or Excise Duties, Taxes and Fees


(a) Contractor, with the help of the Operator, shall be responsible and hold harmless and indemnify Operator for the current customs clearance and changes to the "consignee" documentation to reflect the transfer of the Drilling Unit into ownership of the Contractor in Kazakhstan. Thereafter the Contractor will be responsible for importation of any subsequent Contractor Items into the Operating Area as required, including but not limited to spare parts, consumables, additional equipment and chemicals as needed for the operation of the Drilling Unit.


(b) Notwithstanding anything mentioned in Paragraph 6.5(a), Operator shall be solely responsible for all custom matters connected with Operator's contract with Challenger Oil Services Plc.


(c) Notwithstanding any of the foregoing, Contractor shall pay all taxes that may be assessed by the Republic of Kazakhstan against Contractor as a result of the performance of this Contract inclusive of the payroll taxes for its personnel, customs duties, local taxes and VAT excises, sales and other such taxes as may arise in conducting Contractor's business.


6.6 Take Over of Work


In the event any well drilled under this Contract should blow out, catch fire or in any manner get out of control, Operator may assume complete control and supervision of the Work of bringing the well under control, putting out the fire and take such other measures as Operator deems appropriate. If Contractor (a) is insolvent, (b) is on the verge of becoming insolvent or (c) fails to make timely payments to Contractor's subcontractors as permitted under Paragraph 11.1 of this Contract, Operator may (i) take over and continue the Work on the well to completion or abandonment and (ii) make payments to third parties on behalf of Contractor that Operator, in its sole discretion, deems necessary or appropriate. In this context, Contractor will be deemed to be insolvent, or on the verge of becoming insolvent, if a reasonable basis exists for Operator to believe that Contractor is unable, or with the passage of time alone will be


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unable, to pay its bills or discharge its financial obligations as they come due. If at any time in Operator's opinion, Contractor is failing to conduct its operations under this Contract in a diligent, prudent, skillful and workmanlike manner and in all respects in strict accordance with all applicable laws and with accepted good oil field practices, standards, methods and such failure continues for a period of ten (10) days (or in the event such failure results in a significant safety hazard, if such failure continues for 96 hours) after notice from Operator to Contractor, Operator may take over and continue the Work on the well to completion or abandonment. In the event Operator takes over the Work pursuant to this Paragraph 6.6, Operator shall have full use of Contractor's Drilling Unit and other equipment, facilities, material, supplies and personnel at the well location, which Contractor shall continue to insure in accordance with this Contract, and Contractor shall continue to be paid the applicable day rates provided for in this Contract less any payments made by Operator on behalf of Contractor in accordance with this Paragraph 6.6. During any such take over period the indemnities given by Contractor to Operator under this Contract shall be suspended, excluding the due indemnifications until such time and Contractor shall have no responsibility to Operator under such circumstances. When such take over period has ended, Operator shall return the Drilling Unit and all of Contractor's Items to Contractor in as good conditions as when the take over began, normal wear and tear excepted.


6.7 Operator's Well Program


Operator shall provide Contractor with a well drilling program or programs, which shall include, but not be limited to hole sizes, casing program, mud control program and Operator's deviation policy. Operator may modify these programs while drilling is in progress.


ARTICLE VII RATES OF PAYMENT


7.1 Payment


Operator shall pay to Contractor during the term of this Contract the amounts due on monthly basis as calculated to the nearest hour according to the rates of payment herein set forth in accordance with Article VIII. No other payment shall be due from Operator, unless specifically provided for in this Contract or agreed to in writing by the Parties.


7.2 Mobilization/Demobilization Fee


(a) Operator shall pay Contractor the Mobilization Fee specified in Appendix A on the Effective Date (the "Mobilization Fee") which shall be applied in accordance with Paragraph 8.5(b).


(b) Operator shall pay Contractor a Demobilization Fee as specified in Appendix A to cover all Contractor's costs of demobilizing the Drilling Unit. Operator shall have no further demobilization obligations other than the payment of the Demobilization Fee. Operator, however, shall provide to Contractor all export documentation necessary to enable to freely export the Drilling Unit upon the termination of this Contract. If Contractor is unable to export the Drilling Unit from the Republic of Kazakhstan, due to any act or omission of Operator, within thirty (30) days after termination of this Contract, then Operator shall begin paying the Standby Rate Without Crews beginning on the thirty-first (31st) day and continuing until the Drilling Unit is safely exported from the Republic of Kazakhstan. The foregoing notwithstanding, the Demobilization Fee shall not be payable (i) in the event of any breach of this Contract by Contractor or (ii) the Drilling Unit is demobilized to any location other than directly to Poland upon the termination of this Contract.


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7.3 Operating Rate


The Operating Rate specified in Appendix A will first become payable on the Commencement Date. The Operating Rate shall continue to be payable during the term of this Contract, except when some other rate herein provided applies. However the Operator shall not continue to pay the Operating Rate in the case that the Republic (of Kazakhstan) Technical Inspection Board shuts the Drilling Unit for safety or similar reasons.


7.4 Standby Rate With Crews


The Standby Rate With Crews specified in Appendix A will be payable as follows:


(a) during any period of delay when Contractor is unable to perform its obligations under this Contract because of adverse weather conditions or as a direct result of an act, instructions or omission of Operator including, without limitation, the failure of any of Operator's Items, or the failure of Operator to issue instructions, provide Operator Items or furnish services;


(b) during any period when operations are being conducted hereinunder to redrill or repair any well drilled hereunder which is lost or damaged as a result of Operator's sole negligence; and


(c) during any period when operations are suspended or are being conducted due to difficulties encountered as provided for in Paragraph 5.6.


(d) during any period after the Commencement Date that the Drilling Unit is undergoing periodic inspections required for the maintenance of any Certification or Classification Certificates. If the delay is of such length that the drilling crew is demobilized, the Standby Rate Without Crew provided in Paragraph 7.8 shall apply from such date of demobilization.


7.5 Rate During Repair


The Repair Rate specified in Appendix A will be payable during the first twenty-four (24) hours per month during which operations are suspended to permit necessa ...