OYO FIELD AGREEMENT

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THIS OYO FIELD AGREEMENT, dated as of April 7, 2010 (this “Agreement”), by and among CAMAC PETROLEUM LIMITED, a company incorporated in the Federal Republic of Nigeria, and a wholly owned subsidiary of Pacific Asia Petroleum, Inc. (“Newco”), CAMAC ENERGY HOLDINGS LIMITED, a Cayman Islands company (“CEHL”), and ALLIED ENERGY PLC (formerly, Allied Energy Resources Nigeria Limited), a company incorporated in the Federal Republic of Nigeria (“Allied”).  Each of the parties to this Ag reement is individually referred to herein as a “Party” and collectively as the “Parties.”

 

W I T N E S S E T H

 

WHEREAS, Newco, Allied, CAMAC International (Nigeria) Limited (“CINL”) and Nigerian Agip Exploration Limited (“NAE”) have entered into that certain Agreement Novating Production Sharing Contract (the “Novation Agreement”) of even date herewith, under which each of Allied and CINL novated to Newco their respective interests in and all rights and obligations in relation to the Oyo Field under the Production Sharing Contract dated July 22, 2005 by and among Allied, CINL and NAE (the “PSC”);

 

WHEREAS, the Parties desire to enter into arrangements to enable Newco, to the extent permitted under, and in accordance with the terms and conditions of, the PSC, to maintain orderly supervision, direction, and control of matters pertaining to the Petroleum Operations, Work Programme and Budget as it relates to Newco’s interest in the Oyo Field under the PSC; and

 

WHEREAS, the parties intend that Newco be indemnified and held harmless from and against any negative effect on Newco’s share of Cost Oil and Profit Oil from the Oyo Field that may result from future Operating Costs from areas on OML 120 and/or OML 121 that are outside of the Oyo Field, and in the event that the NAE Waiver (as defined in the Novation Agreement) ceases to apply as a result of Newco’s ceasing to be an Affiliate of Allied;

 

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

 

ARTICLE I

 

Section 1.1 Capitalized Terms.  Any capitalized term used herein that is not otherwise defined shall have the respective meaning ascribed to such term in the PSC.

 

Section 1.2 Interpretation.  Unless the context requires otherwise:  (a) the gender (or lack of gender) of all words used in this Agreement includes the masculine, feminine, and neuter; (b) references to an “Article,” and “Section” or “subsection” refer to an article, section or subsection of this Agreement, unless the context requires otherwise; (c) the word “includes” and its derivatives means “includes, but is not limited to” and corresponding derivative expressions; (d) the term “cost” includes expense, and the term “expense” includes cost; (e) the terms defi ned herein include the plural as well as the singular and vice versa; (f) references to

 

 

 

 

ARTICLE II

Section 2.1                      Management Committee.

(a) The Parties understand and acknowledge that, as currently structured, the PSC does not provide for a separate Management Committee for each field or development.  The Parties agree that Allied will continue to appoint all of the representatives to the Management Committee to which it had heretofore been entitled to appoint.  Allied agrees that, in all matters concerning Petroleum Operations, Work Programme and Budget as it relates to Newco’s interest in the Oyo Field under the PSC, Allied shall consult with Newco and represent Newco’s interests in relation thereto, including voting on matters accordingly, as expressly directed in advance in writing by Newco or as may be directed in person by a representative of Newco in attendance at the meeting of the Management Committee.  To the extent permitted under the PSC or by other agreement by and between Allied and NAE, Newco shall have the right to attend any meeting of the Management Committee at which matters directly and materially relating to the Oyo Field may be addressed.  Allied shall send to Newco written notice of the date, time and venue of each meeting of the Management Committee and an agenda for such meeting on a timely basis, but in no event later than five (5) days after Allied receives written notice of such meeting from the party convening the meeting in question.  No Management Committee representative appointed by Allied shall vote at any meeting of the Management Committee on any matter not included in the agenda for such meeting and directly and materially related to the Oyo Field except as expressly directed in advance in writing by Newco or as may be directed in person by a representative of Newco in attendance at the meeting. The provisions of this paragraph shall apply, mutatis mutandis, with respect to any other committee that may be constituted under the PSC to which Allied may appoint representatives, including any finance committee and any technical committee.

 

 

 

 

(b) No Management Committee representative appointed by Allied shall vote in favor of the termination of the PSC, the unitisation of the Oyo Field or adoption or revision of a Development Plan for the Oyo Field without the prior written consent of Newco.

 

Section 2.2                      Documentation.  Each Party agrees to provide to the other Party, on a timely basis, copies of all documentation and written information that it may receive from NAE, the Government, or any other third party in relation to the Oyo Field and that may be material to the interests of Newco.  Allied shall request all notices, documentation, data and reports that Allied and CINL are entitled to receive under the PSC be provided separately for the Oyo Field and upon Newco’s request, all of the audit rights of Allied and CINL described in the PSC, including Section 13.3 of the PSC as those relate to the Oyo Field. Allied shall send to Newco a copy of all default notices it sends or receives in connection with or arising out of the PSC, including any such default notice under Section 8.3.2 of the PSC, within five (5) days of such sending or receiving any such notice if the default addressed in such notice could result in an adverse impact on the Oyo Field or PAPI’s interest in the Oyo Field. In addition, Allied shall promptly send to Newco any receipts or acknowledgment letters, within five (5) days of its receipt thereof, that it receives pursuant to Section 14.5 of the PSC that relate to the Oyo Field.

 

Section 2.3                      Performance Under the PSC and Novation Agreement.

 

(a) Allied shall: (i) perform and observe all of its material covenants and obligations contained in the PSC, (ii) take all reasonable and necessary actions to prevent the termination or cancellation of the PSC, and (iii) upon Newco’s written instruction and at Newco’s expense, enforce against each other party to the PSC each material covenant or obligation of such party in accordance with its terms to the extent that such enforcement is, in the reasonable opinion of Newco, necessary or beneficial to the preservation of Newco’s rights or interests in the Oyo Field.

 

(b) Newco shall have the right to participate in any meeting held pursuant to Section 9.1 or Section 9.2 of the PSC to determine a valuation formula for the Realizable Price of any Crude Oil attributable to the Oyo Field, and Newco shall have the right to instruct Allied and direct Allied’s actions, and Allied shall follow and comply with such instructions and directions, with respect to the valuation of such Crude Oil.  In addition, Newco shall have the right, by written request, to cause Allied to propose a modification to the valuation method for the Realizable Price of any Crude Oil attributable to the Oyo Field in accordance with Section 9.2 of the PSC.

 

(c) Allied shall send to Newco any demand for arbitration directly relating to Oyo that Allied receives pursuant to Section 23.2 of the PSC within five (5) days of receipt thereof.  Newco shall have the right by written request to cause Allied to submit a demand for arbitration with respect to any issue directly relating to the Oyo Field, which submission shall be made by Allied with ten (10) days of its receipt from Newco of a demand in a form appropriate for

 

 

 

 

(d) Newco shall be entitled to participate in any meetings or consultations regarding the impact of any change in legislation on the PSC conducted pursuant to Section 26.3 of the PSC.

 

Section 2.4                      Further Assurances.  It is the intent of the Parties that Newco be entitled to all rights and have the ability to enforce all such rights under the PSC directly relating to the Oyo Field as if it were a party to the PSC.  Allied shall (and, to the extent reasonably within its power, shall cause CINL and NAE to) take all reasonable action and afford all cooperation necessary or requested by Newco to ensure Newco enjoys all rights and has the ability to enforce all such rights under the PSC directly relating to the Oyo Field as if Newco were a party to the PSC.

 

ARTICLE III

Section 3.1                      Indemnity.

 

(a) To the extent that, after the date of this Agreement, there are Petroleum Operations on OML 120 and/or OML 121 that are outside of the Oyo Field and such Petroleum Operations result in Operating Costs (“Non-Oyo Operating Costs”) that result in Cost Oil that is allocated to NAE or Allied under the terms of the PSC against Available Crude Oil from the Oyo Field, Allied shall indemnify and hold Newco harmless from and against any diminution in  the sum of Newco’s allocation of Profit Oil and Cost Oil from the Oyo Field from what would have otherwise been allocated to Newco in the absence of such Non-Oyo Operating Costs (taking into account all relevant factors, including the resulting increase in Profit Oil, if any, resulting from the decrease in Petroleum Profits Tax resulting from the deductibility of the Non-Oyo Costs), in accordance with the provisions of this Article III.

 

 (b) In the event that Allied fails to vote at any meeting of the Management Committee on any matters concerning Petroleum Operations, Work Programme or Budget relating to Newco’s interest in the Oyo Field under the PSC as directed in advance in writing by Newco, or as may be directed in person by a representative of Newco in attendance at the meeting of the Management Committee, Allied shall indemnify and hold harmless Newco from and against any Damages arising out of any claims, liabilities or obligations under the PSC resulting from Allied’s failure to so vote in accordance with the provisions of this Article III.  For purposes of this Section 3.1(b), “Damages” shall mean any and all liabilities, losses, claims, damages, fines, penalties and expenses (including costs of investigation and defen se and reasonable attorneys’ fees and court costs).

 

(c) To the extent that any Non-Oyo Operating Costs incurred after the date of the PSC and prior to the date of this Agreement exceed Eighty Million United States Dollars (US$80,000,000), Allied shall indemnify and hold Newco harmless from and against any

 

 

 

 

 (d) In the event that, pursuant to the provisions of Clause 3.3.2 of the Novation Agreement, the NAE Waiver (as defined therein) ceases to apply as a result of Newco’s ceasing to be an Affiliate of Allied, Allied and CEHL (together, the “CAMAC Parties”) shall jointly and severally indemnify and hold Newco harmless from and against any diminution in  the sum of Newco’s allocation of Profit Oil from the Oyo Field from what would have otherwise been allocated to Newco in the absence of such cessation of the NAE Waiver (such diminution for which indemnity is to be provided hereunder shall hereinafter be referred to as the “Waiver Damages”), in accordance with the provisions of this Article III.  Notwithstanding anything to the contrary in Section 3.2 herein, the amount of any and all Waiver Damages suffered by Newco shall be paid in cash, or, at the option of the CAMAC Parties, may be paid in the return of a specified number of shares of CAMAC Energy Inc. (formerly known as Pacific Asia Petroleum, Inc.).  If the CAMAC Parties opt to pay shares in lieu of cash for any Waiver Damages, then the CAMAC Parties shall notify Newco in writing of their intent to exercise such option.  The number of shares to be paid to Newco shall have a fair market value equal to the aggregate amount of the Waiver Damages to be paid by the CAMAC Parties.  The fair market value of such shares shall be determined by calculating the average closing price of the common stock of CAMAC Energy Inc. (formerly known as Pacific Asia Petroleum, Inc.)  over a period of 30 days, counting back from the first business day immediately prior to the determination of Waiver Damages pursuant to Section 3.2 herein.

 

(e)  Any amounts that Allied or the CAMAC Parties are required to pay Newco pursuant to this Section 3.1 shall be referred to herein collectively as the “Adjustment Amount”.

 

Section 3.2                      Determination of Adjustment Amount.  On or before the later of (i) March 31 of every Calendar Year, or (ii) the date that is thirty (30) days after Newco has received all information and documentation from Allied, NAE and the Government, if and as applicable, necessary to calculate the Adjustment Amount for the previous Calendar Year, Newco shall deliver to Allied or, with respect to Waiver Damages, the CAMAC Parties, written notice setting forth the actual Adjustment Amount, if any, for the previous Calendar Year and reasonable supporting calculations and documentation.  If Allied or, with respect to Waiver Da mages, the CAMAC Parties, dispute the Adjustment Amount as set forth in such written notice, then Allied or, with respect to Waiver Damages, the CAMAC Parties, may, within 10 days following receipt of such notice, object thereto by providing Newco written notice of such objection, setting forth in reasonable detail the substance of such dispute (a “Dispute Notice”).  Newco shall respond to

 

 

 

 

(a) The Independent Arbitrator shall make a final and binding determination as to the Adjustment Amount.  The Independent Arbitrator’s determination shall be in the form of an opinion as is appropriate under the circumstances and shall confirm that it was rendered in accordance with this Article III.

 

(b) If the Adjustment Amount as set forth in Newco’s written notice (or if disputed by Allied or the CAMAC Parties, as ultimately determined by the Independent Arbitrator or otherwise) is positive (i.e., if the sum of Newco’s share of Profit Oil and Cost Oil has been reduced as a result of Non-Oyo Operating Costs or Waiver Damages are due to Newco from the CAMAC Parties), then Allied or, with respect to Waiver Damages, the CAMAC Parties, shall, within thirty (30) days of such written notice or determination, as appropriate, pay Newco by wire transfer of immediately available funds, the amount of such Adjustment Amount.

 

(c) Allied, the CAMAC Parties and Newco agree that judgment may be entered upon the determination of the Independent Arbitrator in any court of competent jurisdiction.

 

ARTICLE IV

Each Party acknowledges that in connection with its performance under this Agreement, it may gain access to confidential material and information which is identified by the other Parties as confidential and proprietary to the other Parties.  Each Party agrees to maintain the confidentiality of all such information as provided in the PSC.

 

ARTICLE V

 

This Agreement shall commence upon the date first written above and shall expire at such time as the Oyo Field has been abandoned and all applicable filing and reporting requirements of the Government relating to Newco’s interest in the Oyo Field have been satisfied or are no longer applicable.

 

ARTICLE VI

 

NEITHER ALLIED NOR CEHL SHALL NOT BE LIABLE TO NEWCO FOR ANY INDIRECT, SPECIAL, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR FROM THE BREACH OF THIS AGREEMENT.

 

 

ARTICLE VII

 

Section 7.1                      Excused Performance.  The Parties shall not be subject to any liability, including, but not limited to, any liability of a Party to the other Parties, imposed by virtue of the provisions herein, for failure to comply with any of the terms and provisions of this Agreement, excluding any term or condition relating to the payment of money, during the time and to the extent that such failure shall be due to (a) provisions of Law, or the operation or effect of rules, regulations or orders promulgated by any Governmental Authority having jurisdiction over the Parties; (b) any demand or requisition of any government having juri sdiction over the Parties; (c) the action, judgment or decree of any court; (d) floods, storms, lightening, earthquakes, washouts, high water, fires, acts of God or public enemies, wars (declared or undeclared), blockades, epidemics, riots, insurrections, strikes, labor disputes (it is understood that nothing herein shall be required to force any Party to settle any strike or labor dispute referred to in this Section 7.1), explosions, breakdown or failure of plant machinery, failure of suppliers to deliver material or of carriers to transport the same; or (e) any other cause (except financial), whether similar or dissimilar, over which the Parties, respectively, have no reasonable control, and, in the case of each of clauses (a) through (e) above, which forbid or prevent the performance of all or any part of the conditions or obligations of this Agreement (such causes being herein referred to as “Force Majeure”).