Short Description Petroleum Reserves Supply and Storage Agreement Her Majesty the Queen in right of New Zealand acting by and through the Minister of Energy (the Crown)

Document Status

PART A: INTERPRETATION

1. DEFINITIONS AND CONSTRUCTION

1.1. Defined terms

In this Agreement, unless the context requires otherwise:

Acquisition Point has the meaning set out in Schedule 3.

Agreement means this Petroleum Reserves Supply and Storage Agreement, including the Schedules.

Availability Date has the meaning set out in clause 14.1.

Bill Rate means the average 90 day bank bill mid rate as quoted on Reuters Screen page BKBM or the equivalent page replacing page BKBM (known at the date of this agreement as the FRA rate) at or about 10.45am on the relevant date or, if at that time page BKBM or the equivalent replacement page is not available, the last rate quoted on that page before it became unavailable.

Commencement Date has the meaning set out in clause 3.1.

Confidential Information means the contents of this Agreement and any information that is used or disclosed by a party in connection with this Agreement and that the disclosing party makes known is confidential or that would reasonably be expected to be confidential.

Contracted Quantity has the meaning set out in clause 5.1.

Crown’s Representative means the Chief Executive Officer of the Ministry of Economic Development, or such other person is notified to the Supplier in accordance with clause 38.

Crude Oil means petroleum in its unrefined natural state that is provided and held by the Supplier in accordance with this Agreement.

Delivery Point has the meaning set out in Schedule 3.

Dispute means any matter relating to this Agreement on which the parties fail to agree.

Fundamental Breach has the meaning set out in clause 27.

Gross Stock Availability means the total volume of petroleum liquid, sediment, and water, excluding free water, corrected to standard temperature and density that is held in the Storage Facilities at the relevant time.

IEP Agreement means the Agreement on an International Energy Program, to which New Zealand is a signatory.

Initial Term has the meaning set out in clause 3.2.

Law means any statute, act or legislation; any regulations, Order in Council or other delegated legislation; and any district plan requirement, regional plan requirement, by-law, ordinance or the like of any legally constituted public authority.

Monthly Fee means the fee that is payable by the Crown to the Supplier under clause 23.1.

Net Stock Availability means the total volume of all petroleum liquid, excluding sediment, water and free water, corrected to standard temperature (15oC) by an appropriate volume correction factor (VCF) for the observed temperature and density that is held in the Storage Facilities at the relevant time.

Operational Stock Availability has the meaning set out in clause 5.2.

Outturn means the outturn receipt by the Storage Facility based on the actual dip, temperature and density adjusted to the reference temperature in accordance with ASTM 54 (a), applied in the case of Storage Facilities already containing Reserve Stocks before and after discharge, and in the case of Storage Facilities not containing Reserve Stocks, after discharge.

Petroleum Reserves means the Reserve Stocks and Storage Facilities that are provided and held by the Supplier in accordance with this Agreement.

Product means refined petroleum products that are provided and held by the Supplier in accordance with this Agreement.

Renewed Term means any extended term agreed by the parties in accordance with clause 3.3.

Required Quantity has the meaning set out in clauses 6.2(b)and 7.1.

Reserve Stocks means Crude Oil and Product.

Security Agreement means a Security Agreement substantially in the form set out in Schedule 4 and executed by the Crown and the Supplier.

Storage Facilities means the storage tank(s) described in Schedule 3 that are provided by the Supplier for the storage of the Reserve Stocks.

Term means the Initial Term and any Renewed Term and includes the actual term of the Agreement if shorter than the Initial or Renewed Term for any reason.

Working Day means every day except Saturdays, Sundays and days that are statutory holidays in both Auckland and Wellington.

1.2. Construction

In the construction of this Agreement, unless the context requires otherwise:

Clauses and Schedules: a reference to a clause or a schedule is to a clause or schedule of this Agreement, and a reference in a schedule to a paragraph is a reference to a paragraph in that schedule.

Currency: except where this Agreement expressly states otherwise, a reference to any monetary amount is to [ ] currency.

Negative Obligations: a reference to a prohibition against doing any thing includes a reference to not permitting, suffering or causing that thing to be done.

Quantities: a reference to quantity is a reference to [metric tonnes].

Singular and plural: the singular includes the plural and vice versa.

Statutes and Regulations: a reference to an enactment or any regulations is a reference to that enactment or those regulations as amended, or to any enactment or regulations substituted for that enactment or those regulations.

Working Days: anything required by this Agreement to be done on a day which is not a Working Day may be done effectually on the next Working Day.

PART B: SCOPE OF AGREEMENT

2. SERVICES TO BE PROVIDED UNDER THIS AGREEMENT

2.1. Supply of Reserve Stocks

The Supplier agrees to provide and hold the Contracted Quantity of Reserve Stocks on behalf of the Crown in accordance with Part C and the rest of this Agreement. For the Term of this Agreement, the Supplier must not use or

release the Reserve Stocks except to release them to the Crown in accordance

with Part F, subject to the Product turnover provisions in clause 10.

2.2. Supply of Storage Facilities

The Supplier agrees to provide the Storage Facilities for the purpose of holding the Reserve Stocks in accordance with Part D and the rest of this Agreement. For the Term of this Agreement, the Storage Facilities must only be used for holding the Reserve Stocks, subject to the commingling provisions in clause 15.

2.3. Monthly Fee

The Crown agrees to pay the Supplier the Monthly Fee as set out in clause 23. The Crown also agrees that it will bear the risk, and obtain the reward, for any change in the value of the Reserve Stocks during the Term, as set out in clause 24.1.

3. TERM

3.1. Commencement

Subject to clauses 4.1 and 12.1, this Agreement commences on the date that it is signed by both parties (the Commencement Date).

3.2. Initial Term

The Initial Term of this Agreement is on and from the Commencement Date to

the date that is [insert period – e.g. one year] after the Availability Date under

clause 14.1.

3.3. Renewed Term

The Initial Term may be extended by mutual agreement in writing between the

parties.

4. GOVERNMENT TO GOVERNMENT AGREEMENT

4.1. Agreement is subject to government to government agreement

This Agreement is subject to the terms of the agreement between the

government of New Zealand and the government of [ ] dated

[ ] in relation to Petroleum Reserves that are located outside of New

Zealand. If there is any inconsistency between this Agreement and the

government to government agreement, the government to government

agreement prevails.

PART C: PROVISION OF RESERVE STOCKS

5. QUANTITY OF RESERVE STOCKS TO BE PROVIDED

5.1. Contracted Quantity

The Contracted Quantity is the following amount of Reserve Stocks:

1. the quantity of Crude Oil determined in accordance with clause 6.1; and
2. [specify quantity] tonnes of [specify relevant type of product].

The Contracted Quantity is used for calculating the Monthly Fee under clause 23, the payment for the change in the value of the Reserve Stocks under clause 24, and various other provisions of this Agreement.

5.2. Operational Stock Availability

The Operational Stock Availability is:

1. the Contracted Quantity; less
2. [ ], being a quantity of Reserve Stocks that cannot be accessed in the normal operation of the Storage Facility.

5.3. Delivery of Reserve Stocks on or before the Availability Date

The Supplier must ensure that all of the Reserve Stocks are stored in the Storage Facility on or before the Availability Date. For the purposes of this clause 5.3 and clause 26, “all of the Reserve Stocks” means the Contracted Quantity of Product and the quantity of Crude Oil determined in accordance with the second sentence of clause 6.1.

5.4. Costs of the delivery of Reserve Stocks

The Supplier is responsible for all costs incurred in the delivery of the Reserve Stocks to the Storage Facility, including all costs of transporting the Reserve Stocks to the Storage Facility, any Outturn of Reserve Stocks into the Storage Facility and the initial measurement of the Reserve Stocks under clause 5.5.

5.5. Initial measurement of quantity of Reserve Stocks

The Supplier must arrange for the quantity of the Reserve Stocks to be measured:

1. at the final Outturn of the Reserve Stocks into the Storage Facility under clause 5.3; or
2. at the Availability Date and any subsequent Outturn of Reserve Stocks into the Storage Facilities where clause 26.1(d) applies.

Any measurement under this clause 5.5 must be performed by a registered surveyor who must be approved by the Crown (whose approval will not be unreasonably withheld). Within 2 Working Days of receipt of any report by the Supplier under this clause 5.5, the Supplier must provide the Crown with the surveyor’s report detailing the Gross Stock Availability and the Net Stock Availability.

6. QUANTITY OF CRUDE OIL

6.1. Contracted Quantity of Crude Oil

The Contracted Quantity of Crude Oil is the Net Stock Availability as it relates to the Crude Oil as measured at the final Outturn of the Reserve Stocks into the Storage Facility in accordance with clause 5.5. The Supplier must ensure that that Net Stock Availability as it relates to the Crude Oil is no more than [5] percent greater than or less than [insert quantity] tonnes.

6.2. Losses and Required Quantity

The Supplier must use reasonable endeavours to ensure that:

1. the total losses of Crude Oil during the Term do not exceed [0.5] percent of the Contracted Quantity of Crude Oil; and [Note: The 0.5% figure may vary depending on the stock type and the Term of the Agreement]
2. at all times during the Term the Net Stock Availability of Crude Oil is not less than the Contracted Quantity minus the maximum permitted losses specified in paragraph (a) and minus any Crude Oil that is acquired by the Crown under clause 20 and not replaced under clause 21 (the Required Quantity).

6.3. Reduction in Monthly Fee or replacement of losses

If losses of Crude Oil during the Term exceed the maximum permitted losses specified in clause 6.2(a) the Crown may reduce the Monthly Fee in the same proportion as the amount of losses bears to the Contracted Quantity (expressed as a percentage). Any reduction in the Monthly Fee under this clause will only apply until the date that the Supplier replaces the losses to the extent necessary to ensure compliance with clause 6.2(b). If the losses exceed the maximum permitted losses specified in clause 6.2(a) but do not exceed [1.0] percent of the Contracted Quantity, the Supplier may choose not to replace any losses of Crude Oil, and the Crown’s only remedy will the reduction in the Monthly Fee under this clause 6.3. [Note: The 1.0% figure may vary to reflect any change to the figure in clause 6.2]

7. QUANTITY OF PRODUCT

7.1. Required Quantity

The Supplier must ensure that at all times during the Term the Net Stock Availability of each type of Product is the Contracted Quantity less any Product that is acquired by the Crown under clause 20 and not replaced under clause 21 (the Required Quantity).

7.2. Losses

If any losses of Product occur during the Term, the Supplier must immediately replace those losses to the extent necessary to ensure that the Net Stock Availability continues to comply with the Required Quantity for each type of Product.

8. RESERVE STOCKS’ SPECIFICATIONS

8.1. Specifications for Crude Oil

All Crude Oil must be:

1. [insert name or name(s) of crude]; or
2. if that crude is unavailable when the Supplier replaces losses under clause

6.3 or the Crown replaces Reserve Stocks under clause 21, a mutually agreed similar type of crude oil. Any such agreement will include agreement on any necessary adjustments to the value of the Reserve Stocks for the purposes of Schedule 2.

8.2. General specifications for Product

Subject to clause 8.3, all Product that is held in Storage Facilities in New Zealand must:

1. meet the relevant Product specifications required by Law; and
2. meet all other requirements that are necessary for it to be marketable for immediate sale in New Zealand.

[Note: Where Product is to be held overseas, appropriate specifications will be added depending on the type and location of the Product]

8.3. Specifications for particular types of Product

The following requirements apply to particular types of Product:

1. any Jet A-1 that is held as Reserve Stocks must meet the Aviation Fuel Quality Requirements for Jointly Operated Systems as amended from time to time; and
2. in relation to Product that is held in Storage Facilities in New Zealand and for which seasonal specifications apply , the Product must meet the most severe of the seasonal specifications or be turned over in accordance with clause 10 to ensure that the Product always meets the applicable seasonal specifications.

8.4. Obligation to maintain quality

The Supplier must ensure that the Reserve Stocks:

1. meet the requirements set out in clauses 8.1 to 8.3 at the final Outturn of the Reserve Stocks into the Storage Facilities; and
2. continue to meet each of those requirements at all times during the Term.

8.5. Licences

The Supplier must ensure that it has all permits, licences, authorisations, certifications and consents that are required in relation to the Reserve Stocks, and that the Supplier complies at all times with the requirements of those permits, licences, authorisations, certifications and consents.

8.6. Costs

Subject to clause 9.2, the Supplier is responsible for all costs associated with its meeting its obligations under this clause 8.

8.7. Supplier’s obligation to remedy

If the Supplier breaches this clause 8, except where any breach is due to the replacement Reserve Stocks provided under clause 21, then:

1. the Supplier must notify the Crown as soon as reasonably practicable after becoming aware of the breach;
2. the Supplier must immediately remedy that breach; and
3. if the breach is a material breach of this clause 8, the Crown may reduce the Monthly Fee in the same proportion as the quantity of Reserve Stocks breaching this clause 8 bears to the Contracted Quantity (expressed as a percentage) during the period from the date of the breach until the date that the breach is remedied to the Crown’s reasonable satisfaction.

9. CHANGES TO SPECIFICATIONS

9.1. Changes to Crude Oil requirements

If The New Zealand Refining Company Limited (NZRC) requirements for crude oil for refining change during the Term:

1. the Crown may request that the Supplier advises it within 20 Working Days of any changes that are required to make the Crude Oil comply with the NZRC’s new requirements and how much those changes will cost;
2. following receipt of the Supplier’s response, the Crown may advise the Supplier that it requires the Supplier to undertake the changes set out in the Supplier’s response so that the Crude Oil complies with the NZRC’s new requirements;
3. if the Crown issues a notice under paragraph (b), the Supplier will ensure that the Crude Oil complies with the NZRC’s new requirements as soon as is reasonably practicable and in any event no later than [60 Working Days] after the Crown’s notice under paragraph (b); and
4. if the Crown issues a notice under paragraph (b), the Crown will reimburse the Supplier for the reasonable additional costs incurred in complying with the NZRC’s new requirements, up to the amount set out in the Supplier’s response under paragraph (a).

9.2. Changes arising from changes to Laws

Where the Product requirements or specifications under clauses 8.2 and 8.3 change during the Term solely as a result of a change to a Law after the Commencement Date, the Crown is responsible for the Supplier’s reasonable additional costs that are directly related to meeting its obligations under clause 8.4. This clause does not apply where the change to the Law was generally known to, or reasonably anticipated by, the oil industry as at the Commencement Date.

9.3. Failure to agree

If the parties do not agree on the assessment of the reasonable additional costs that the Crown is responsible for paying under clauses 9.1(d) or 9.2 then either party may refer that matter to expert determination under clause 35.2.

10. TURNOVER OF PRODUCT

10.1. Requirement to turnover Product

The Supplier is required to turnover Product as often as is necessary to ensure that the quality requirements in clause 8 are met at all times. Any such turnover will involve the Supplier removing some or all of the Product that is contained in a Storage Facility and replacing it with other Product. The Supplier must arrange for testing in accordance with clause 18 at the time of the final Outturn of the replacement Product into the Storage Facility to ensure that the replacement Product complies with the quality requirements set out in clause 8.

10.2. Notification of turnover

The Supplier must give the Crown’s Representative at least one month’s notice of:

1. the dates on which the turnover of the Product will commence and be completed;
2. the amount of Product that will be turned over;
3. the tank(s) in which that Product is contained prior to turnover; and
4. the tank(s) in which alternative product will be held during the turnover period in accordance with clause 10.4 (if applicable).

10.3. Maximum period to complete turnover

The turnover of Product must be completed within [ ] Working Days from the date that the turnover commenced.

10.4. Alternative product to be held during turnover

Subject to clause 10.5, where any Product is turned over in accordance with this clause 10, the Supplier must arrange for an equivalent amount of product of the same type and quality to be held in alternative storage facilities for the period of the turnover. Any alternative product under this clause 10.4 may be held in a tank that also contains other product if:

1. the Supplier accounts for the alternative product separately from any other product that is contained in that tank; and
2. the tank is located at the same premises as the Storage Facilities (or part of the Storage Facilities).

10.5. Turnover within 24 hours

The requirement under clause 10.4 to hold alternative product does not apply if the period between commencement and completion of turnover is less than 24 hours.

10.6. Supplier responsible for costs of turnover

The Supplier is responsible for all costs associated with meeting its obligations under this clause 10. To avoid doubt, clause 24 does not apply to the turnover of Reserve Stocks and the Crown and the Supplier have no liability to each other in relation to any change in value of the Reserve Stocks between the date of this Agreement and the date of any turnover of the Reserve Stocks.

10.7. Quantity after turnover must be within Required Quantity

The Supplier must ensure that the Net Stock Availability after turnover complies with the Required Quantity.

11. RISK AND TITLE

11.1. Title and risk in the Reserve Stocks

Subject to clause 11.2, the Supplier retains title to, and risk in, the Reserve Stocks at all times during the Term.

11.2. Title and risk where the Crown acquires Reserve Stocks

If the Crown acquires all or part of the Reserve Stocks under Part F, title to, and risk in, the relevant Reserve Stocks will pass to the Crown as set out in clause 20.5. If the Crown replaces Reserve Stocks that it has acquired under Part F, then title to, and risk in, the replacement Reserve Stocks will pass to the Supplier as set out in clause 21.2.

11.3. Loss or destruction of Reserve Stocks

If any of the Reserve Stocks are lost or destroyed for any reason (other than as expressly permitted by this Agreement) the Supplier will immediately replace that part of the Reserve Stocks. Until the Reserve Stocks are replaced in accordance with this clause 11.3:

1. the Crown will cease to pay the Monthly Fee if all the Reserve Stocks are lost or destroyed; or
2. if only part of the Reserve Stocks are lost or destroyed, then the Monthly Fee will be reduced in the same proportion as the amount of Reserve Stocks that have been lost or destroyed bears to the Contracted Quantity (expressed as a percentage).

This clause 11.3 does not limit the Crown’s rights under clauses 27 or 28.3.

12. PERSONAL PROPERTY SECURITIES ACT

12.1. Security Agreement

This Agreement is conditional on entry into a Security Agreement in relation to the Reserve Stocks, which the parties intend to execute contemporaneously with this Agreement.

PART D: SUPPLY OF STORAGE FACILITIES

13. STORAGE FACILITY REQUIREMENTS

13.1. Amount and location of Storage Facilities

The Supplier will provide the Storage Facilities as set out in, and in accordance with, Schedule 3. The Reserve Stocks must be held at the Storage Facilities for the Term of this Agreement. The location of the Storage Facilities must be as set out in Schedule 3.

13.2. Storage standards

The Supplier must ensure that:

1. it has all permits, licences, authorisations, certifications and consents that are required for the lawful construction, refurbishment and use of the Storage Facilities, and that the Supplier complies at all times with the requirements of those permits, licences, authorisations, certifications and consents;
2. it complies with all Laws related to the construction, refurbishment and use of the Storage Facilities; and
3. the Storage Facilities are fit for purpose.

13.3. Maintenance of Storage Facilities

The Supplier must:

1. ensure that the Storage Facilities are maintained in accordance with good industry practice so as to minimise the risk of loss of Reserve Stocks and deterioration in quality of Reserve Stocks
2. maintain all relevant permits, licences, authorisations, certifications and consents for the Storage Facilities;
3. perform all services that a reasonable and prudent operator would perform for the safe, reliable and efficient operation and maintenance of the Storage Facilities; and
4. without limiting paragraphs (a) or (b), maintain the Storage Facilities to a standard that is at least equal to the standard at, and comply with all procedures and policies that are applied at, the Supplier’s other petroleum storage facilities in New Zealand (if any).

13.4. Upgrade of Storage Facilities as a result of Law change

If any capital improvements to, or upgrading and refurbishment of, the Storage Facilities are required as a direct result of any new Law or any amendment to any existing Law after the Commencement Date (a Law change):

1. the Supplier will provide the Crown with a proposal setting out:
   1. details of the work required, and all necessary consents and authorisations required, to comply with the Law change;
   2. the reasonable cost of that work; and
   3. the extent to which the Supplier wishes the Crown to reimburse the Supplier for the reasonable cost of that work; and
2. the Crown will notify the Supplier within 20 Working Days of receipt of the Supplier’s proposal whether the Crown:
   1. accepts the Supplier’s proposal, in which case the work will be undertaken by the Supplier and paid for by the Crown as set out in the Supplier’s proposal, unless otherwise agreed by the parties
   2. accepts the Supplier’s proposal except in relation to the Supplier’s assessment of the reasonable cost of the work, in which case the Crown will refer the assessment of that cost to expert determination under clause 35.2; or
   3. elects to terminate this Agreement, in which case clauses 28.1 and 28.2 will apply.

This clause 13.4 does not apply where the Law Change was generally known to, or reasonably anticipated by, the oil industry as at the Availability Date.

14. AVAILABILITY DATE

14.1. Storage Facilities must be available by the Availability Date

All the Storage Facilities must be available for holding the Reserve Stocks in compliance with the terms of this Agreement by no later than [ ] (the Availability Date).

15. COMMINGLING OF RESERVE STOCKS WITH COMMERCIAL STOCKS

15.1. Commingling only permitted in specified tanks

Reserve Stocks may be held in a tank that also contains other stocks only if Schedule 3 provides that commingling is permitted in that tank, and then only in accordance with Schedule 3.

15.2. Requirement to account for Reserve Stocks separately

Where any of the Reserve Stocks are held in a tank that also contains other stocks, the Supplier must:

a) account for the Reserve Stocks separately from any other stocks that are contained in that tank; and

b) ensure that the tank at all times contains an available amount of Reserve Stocks that is at least equal to the amount of Reserve Stocks that is recorded in Schedule 3 as being held in that tank minus (i) any losses permitted under clause 6 (if applicable) and (ii) any Reserve Stocks that are acquired from that tank by the Crown under clause 20 and not replaced under clause 21.

16. ACCESS TO STORAGE FACILITIES

16.1. Access to facilities

The Supplier must provide access to the facilities set out in Schedule 3 to ensure that the Storage Facility has reasonable access to facilities from where the Reserve Stocks can be moved to market if the Reserve Stocks are accessed by the Crown under clause 20.  All other facilities for transportation of the Reserve Stocks if the Crown acquires any Reserve Stocks are the Crown’s responsibility as set out in clause 20.

16.2. Timeframe for access

Subject to clause 16.3, the Supplier must maintain the Storage Facilities and the access facilities under clause 16.1 in a condition that allows the Crown to access the Reserve Stocks under clause 20 within:

1. 24 hours for Product; and
2. 120 hours for Crude Oil,

from the time of the receipt of the Crown’s notice under clause 20.2.

16.3. Notification of maintenance

The Supplier must give the Crown at least two weeks’ notice of any maintenance of the Storage Facilities that may impact on the Crown’s ability to access the Storage Facilities and the Reserve Stocks under this clause 16. Any notice under this clause 16.3 will include the dates on which the maintenance will commence and be completed and the extent to which the Crown’s access to the Reserve Stocks may be restricted on these dates. Clause 16.2 does not apply during the period of any such maintenance that is notified by the Supplier and consented to by the Crown (such consent will not be unreasonably withheld).

PART E: MONITORING AND AUDIT

17. MEASUREMENT OF QUANTITY OF RESERVE STOCKS

17.1. Quantity measurement obligations

The Supplier must arrange for the measurement of the amount of Reserve Stocks that are held by the Supplier in each Storage Facility as at the end of each month during the Term. Any measurement under this clause 17.1 must be performed by a registered surveyor who must be approved by the Crown (whose approval will not be unreasonably withheld). The results must be provided by the Supplier to the Crown’s Representative within 5 Working Days of the end of the relevant month.

17.2. Measurement details

The measurement under clause 17.1 must record:

1. the Gross Stock Availability;
2. the Net Stock Availability; and
3. any movements of Reserve Stocks in or out of the Storage Facility and any losses during the relevant month.

18. MEASUREMENT OF QUALITY OF RESERVE STOCKS

18.1. Initial testing and certification

The Supplier must arrange for testing to assess the Supplier’s compliance with

the requirements contained in clause 8 at the final Outturn of the Reserve Stocks

into the Storage Facility under clause 5.3 or clause 26.1(b).

18.2. Measurement of compliance with specifications and quality requirements

The Supplier must arrange for testing to assess the Supplier’s ongoing

compliance with each of the requirements contained in clause 8.

18.3. Frequency of testing

All testing required by clause 18.2 must occur:

1. at least once a year in relation to Crude Oil; and
2. at least once every three months in relation to Product; and
3. immediately after any Product is turned over in accordance with
   clause 10; and
4. where any breach of clause 8 occurs, as frequently as the Crown
   reasonably requires until that breach is remedied.

18.4. Additional testing may be required by the Crown

The Crown may require the Supplier to arrange for additional testing at times other than those required by clause 18.3. The Crown must give the Supplier at least 5 Working Days’ notice of the requirement for any such additional testing. The Crown will reimburse the Supplier for the reasonable costs associated with any such additional testing. If the parties do not agree on the assessment of the reasonable additional testing costs under this clause 18.4 then either party may refer this matter to expert determination under clause 35.2.

18.5. Additional matters

All testing required by this clause 18 must be performed by a registered inspection and surveying company who must be approved by the Crown (whose approval will not be unreasonably withheld). All testing results must be provided by the Supplier to the Crown’s Representative within 5 Working Days of receipt of those results by the Supplier. Subject to clause 18.4, the Supplier is responsible for all costs associated with meeting its obligations under this clause 18.

19. AUDIT

19.1. Audit by Crown

The Crown may audit the Reserve Stocks to assess the Supplier’s compliance with:

1. the quantity requirements under clauses 5 to 7; and/or
2. the specifications and quality requirements under clause 8.

19.2. Access

The audit under clause 19.1 will be conducted by a registered surveyor appointed by the Crown. The Supplier will provide the auditor with all access to the Storage Facility which the auditor reasonably requires to conduct the audit. The Crown will ensure that the auditor complies with all health and safety requirements notified by the Supplier.

19.3. Results of audit

The results of the audit are conclusive and the Supplier will be in breach of this Agreement if the auditor reports that the Supplier has failed to comply with any of the requirements referred to in clause 19.1.

19.4. Costs

The costs of the auditor will be borne as follows:

1. if the auditor finds that the Supplier is in compliance with all of the requirements referred to in clause 19.1, then the Crown will be responsible for the costs of the auditor; or
2. if the auditor finds that the Supplier has failed to comply with any of the requirements referred to in clause 19.1, then the Supplier will reimburse the Crown for the reasonable costs of the auditor.

PART F: CROWN’S RIGHTS TO ACQUIRE AND DISPOSE OF RESERVE STOCKS

20. CROWN MAY ACQUIRE RESERVE STOCKS

20.1. Circumstances in which the Crown may acquire Reserve Stocks

The Crown may acquire all or part of the Reserve Stocks at any time after the Availability Date following gazetting of an Order in Council under section [ ] of the [ ] Act 2006. To avoid doubt, this Agreement does not confer on the Crown any right to acquire any of the Reserve Stocks in any other circumstances.

20.2. Notice for acquiring Reserve Stocks

Following any gazetting of an Order in Council under clause 20.1, the Crown’s Representative may notify the Supplier that the Crown may acquire any or all Reserve Stocks subject to the timeframe specified in clause 16.2.

20.3. Details for acquiring Reserve Stocks

If the Crown decides to acquire any Reserves Stocks, the Crown will notify the Supplier of:

1. the amount and type of Reserve Stocks that the Crown will acquire;
2. the date or dates on which the Crown will acquire the Reserve Stocks specified in paragraph (a). The Crown will ensure that any date given under this paragraph is reasonable and is not earlier than the timeframe for access specified in clause 16.2. For the avoidance of doubt, the timeframe for access specified in clause 16.2 will commence at the time of the receipt of the Crown’s notice under clause 20.2 and not from the receipt of the Crown’s notice under this clause 20.3, unless given on the same day; and
3. the manner in which the Reserve Stocks will be acquired and all relevant details (for example, the name and type of vessel to be used).

20.4. Crown will issue stand down notice

The Crown’s Representative will notify the Supplier if the Crown no longer intends to acquire Reserve Stocks in respect of any Order in Council under clause 20.2. For the avoidance of doubt, following any notice under 20.2 the Crown may issue subsequent notices under clause 20.3 until the time of the receipt of the Crown’s notice under this clause 20.4.

20.5. Transfer of ownership to the Crown

The Supplier will make the Reserve Stocks available to the Crown on the date specified in each of the Crown’s notices under clause 20.3. Title to, and risk in, the Reserve Stocks acquired by the Crown will pass to the Crown at the Acquisition Point. The Crown will arrange and pay for the measurement by a registered surveyor of the amount of Reserve Stocks that are acquired by the Crown. No direct compensation is payable by the Crown to the Supplier for the acquisition of the Reserve Stocks, and the only compensation is that:

1. the Crown may decide to replace the Reserve Stocks under clause 21, in which case no compensation is payable by the Supplier to the Crown for the replacement stocks; and
2. if all or part of the Reserve Stocks that the Crown acquires under this clause 20 are not replaced by the Crown in accordance with clause 21, the Crown will make a payment to the Supplier in accordance with clause 24.2.

20.6. Co-operation by the Supplier

The Supplier will provide the access facilities under clause 16.1 and use those facilities to deliver any Reserve Stocks that the Crown acquires under this clause 20 to the Acquisition Point, where possession, title and risk will pass to the Crown or a nominee of the Crown. The Supplier will co-operate with the Crown, or any nominee of the Crown, in relation to the acquisition of the Reserve Stocks.

20.7. Crown will comply with the Supplier’s safety policy

The Crown or any nominee of the Crown will comply with all reasonable security, health and safety policies notified by the Supplier when acquiring Reserve Stocks under this clause 20.

20.8. Disposal of Reserve Stocks by the Crown

The Crown has full and unfettered rights to use, sell or otherwise dispose of any Reserve Stocks that it acquires under this clause 20. To avoid doubt, all proceeds from the sale of any Reserve Stocks that the Crown acquires under this clause 20 will be retained by the Crown.

21. CROWN MAY REPLACE RESERVE STOCKS

21.1. Crown’s right to replace Reserve Stocks

The Crown may elect to replace all or part of any Reserve Stocks that it acquires under clause 20. The replacement Reserve Stocks must comply with the specification and quality requirements set out in clause 8 and any replacement of Product must be of the same type that the Crown acquired. The Crown’s Representative must provide the Supplier with at least 20 Working Days notice specifying:

1. the quantity and type of Reserve Stocks that the Crown will provide as replacement Reserve Stocks;
2. the date or dates on which the Crown will provide that replacement
   Reserve Stocks; and
3. the manner in which that replacement Reserve Stocks will be delivered to the Delivery Point and all relevant details (for example, the name and type of vessel to be used), and will use reasonable endeavours to ensure that the quantity does not exceed the quantity notified under paragraph (a) of this clause.

21.2. Transfer of ownership if Crown provides replacement Reserve Stocks

Title to, and risk in, the Reserve Stocks replaced by the Crown will pass to the Supplier at the Delivery Point. The Crown will arrange and pay for the measurement by a registered surveyor of the amount of Reserve Stocks that are replaced by the Crown.

21.3. Co-operation by the Supplier

The Supplier will provide the access facilities under clause 16.1 and use those facilities to transport to the Storage Facilities any Reserve Stocks that the Crown, or a nominee of the Crown, replaces under this clause 21. The Supplier will co- operate with the Crown, or any nominee of the Crown, in relation to the transfer of the replacement Reserve Stocks.

22. PAYMENT OF CHARGES WHERE CROWN ACQUIRES RESERVE STOCKS

22.1. Monthly Fee continues to be payable

Subject to clauses 28.1 and 28.2, the full amount of the Monthly Fee continues to be payable where the Crown acquires any Reserve Stocks under clause 20.

22.2. Costs associated with Crown acquisition of Reserve Stocks during Term

The Crown is responsible for all transport, sales and other costs associated with the Crown’s acquisition, disposal and replacement of the Reserve Stocks under this Part F, other than costs related to the access facilities that the Supplier is required to provide under clause 16.1 and Schedule 3.

PART G: PAYMENTS

23. MONTHLY FEE

23.1. Monthly Fee payable to the Supplier

The Crown must pay the Supplier the Monthly Fee, which is based on the Contracted Quantity and calculated in accordance with the formula set out in Schedule 1. The Monthly Fee will become payable from the Availability Date, except where this Agreement expressly provides otherwise. The Monthly Fee will be separated into a Reserve Stocks component and a Storage Facilities component. The Monthly Fee is inclusive of all costs for the provision by the Supplier of the Petroleum Reserves under this Agreement, except where this Agreement expressly provides otherwise.

24. PAYMENTS UPON EXPIRY OR TERMINATION

24.1. Payment for change in value of Reserve Stocks during the Term

Upon the expiry or earlier termination of this Agreement, the parties will determine the change in value of the Reserve Stocks using the formula set out in Schedule 2. If the change in value that is calculated under this clause 24.1 is a positive amount, the Supplier must pay that amount to the Crown. If the change in value that is calculated under this clause 24.1 is a negative amount, the Crown must pay that amount to the Supplier.

24.2. Payment where Reserve Stocks acquired by the Crown

The formula set out in Schedule 2 takes account of any changes in quantity as a

result of the Crown acquiring all or part of the Reserve Stocks in accordance with

clause 20. If the Crown acquires and does not replace any of the Reserve Stocks under clause 21 (or replaces a lesser quantity of Reserve Stocks than it acquired) then on the expiry or earlier termination of this Agreement the Crown will pay the Supplier an amount determined in accordance with Schedule 2 to compensate the Supplier for the value of the Reserve Stocks that were acquired and not replaced.

24.3. Change in indices

The formulae in Schedules 1 and 2 use specified market indices. If any of those indices ceases to be published, or if the basis of calculation of an index is fundamentally changed so that it is no longer equivalent to the index as at the Commencement Date, then the parties will agree on a replacement index that provides the closest possible substitute for the original index.

24.4. Failure to agree

If the parties are unable to agree on any matter under this clause 24, either party may refer that matter directly to expert resolution under clause 35.2.

24.5. Effect of termination for breach

If a party (the terminating party) terminates this Agreement under clause 28.3 or clause 29.1 then:

1. clauses 24.1 and 24.2 will not apply to the terminating party and the terminating party is not required to make any payments to the other party under those clauses; but
2. clauses 24.1 and 24.2 continue to apply to the other party and the other party remains liable to make any payments to the terminating party that are required under those clauses.

25. PAYMENT AND INVOICING

25.1. Monthly Fee invoices

The Supplier will invoice the Crown for the Monthly Fee monthly in advance by the 20th day of the preceding month. The Crown must pay the amount specified in the Supplier’s invoice by the first day of the month to which the invoice relates.

25.2. Invoices for other amounts

Any other amounts that are payable by either party under this Agreement must be paid by not later than 30 days after receipt of an invoice from the invoicing party.

25.3. Payment

All amounts that are payable by either party under this Agreement must be paid by electronic funds transfer in cleared funds to the bank account notified by the invoicing party. Subject to clause 25.5, all payments must be made free of any deduction, set off or withholding.

25.4. Taxes

All amounts stated in or payable under this Agreement are before the addition of any goods and services tax (GST) that is payable under the Goods and Services Tax Act 1985. Where applicable, GST will be added to the amounts that are payable. The parties will make arrangements to ensure that all necessary GST invoices are provided in relation to any amounts that are payable under this Agreement.

25.5. Disputes

If either party disputes the accuracy of any invoice or other matter relating to any payment under this Agreement, then that party will notify the other party as soon as possible. If a bona fide dispute is notified prior to the due date for payment, the party raising the dispute may withhold the disputed part of the payment until the dispute is resolved but must pay any undisputed amount. If the parties cannot settle the dispute by negotiation within 20 Working Days after notification of the dispute, either party may refer the dispute for determination by an Expert under clause 35.2.

25.6. Late payment

Where an amount that is payable by either party (the defaulting party) under this Agreement is not paid by the due date for payment (excluding any amount that is subject to a bona fide dispute under clause 25.5), or by 5 Working Days after the date of settlement of any dispute to which clause 25.5 applies, the defaulting party must pay the other party interest on that amount at the Bill Rate plus 5 percent per annum for the period from that date until the date of payment.

PART H: BREACH AND TERMINATION

26. FAILURE TO MEET AVAILABILITY DATE

26.1. Failure to meet Availability Date

If the Supplier has used all reasonable endeavours to ensure that the Storage Facilities are available and contain the Reserve Stocks by the Availability Date but fails to comply with either clause 5.3 (Delivery of Reserve Stocks on or before the Availability Date) or clause 14.1 (Storage Facilities must be available by the Availability Date) due to an event beyond the Supplier’s reasonable control, then:

1. prior to the Availability Date the Supplier must provide notice and full details to the Crown of the Supplier’s inability, or likely inability, to comply and the expected date that the all the Reserve Stocks will be stored in the Storage Facility;
2. the Supplier must use all reasonable endeavours to comply with
   clauses 5.3 and 14.1 as soon as is reasonably practicable;
3. provided that the Supplier complies with paragraphs (a) and (b), the Supplier will not incur any liability to the Crown as a result of the breach of clause 5.3 and/or clause 14.1 and that breach will not be a Fundamental Breach under clause 27;
4. the Monthly Fee will not be payable until all of the Reserve Stocks are stored in the Storage Facilities. If only part of the Reserve Stocks are not stored in the Storage Facilities, the Monthly Fee will be reduced in the same proportion as the amount of Reserve Stocks that are not stored in the Storage Facilities bears to all of the Reserve Stocks (expressed as a percentage). Any reduction in the Monthly Fee under this clause 26 will only apply until the date that all of the Reserve Stocks are stored in the Storage Facilities; and
5. if all of the Reserve Stocks are not stored in the Storage Facilities by the date that is six months after the Availability Date, either party may terminate this Agreement. To avoid doubt, neither party will incur liability to the other party as a result of any termination of this Agreement under this clause 26.

27. FUNDAMENTAL BREACHES

27.1. Consequences of Fundamental Breaches

The Supplier acknowledges that:

1. a breach by the Supplier of any of the provisions set out in clause 27.2 (a Fundamental Breach) is likely to result in New Zealand failing to comply with its obligations under the IEP Agreement;
2. a failure to comply with the IEP Agreement could have extremely serious consequences for the Crown, and New Zealand generally, in the event of a shortage in oil supplies, by both reducing the emergency petroleum reserves that are available in New Zealand for use in such an emergency and also by potentially reducing New Zealand’s ability to access the petroleum reserves of other IEA members;
3. if the IEP Agreement is invoked, access to emergency petroleum reserves will be important to relieve both regional and international shortages in oil supplies; and
4. compliance with the IEP Agreement also has significant indirect benefits to the Crown in relation to New Zealand’s standing in the international community and its relations with other IEA members.

27.2. Fundamental Breaches

A Fundamental Breach means a breach by the Supplier of any of its obligations under the following clauses:

1. the second sentence of clause 2.1 (Supply of Reserve Stocks);
2. the second sentence of clause 2.2 (Supply of Storage Facilities);
3. clause 5.3 (Initial Delivery of Reserve Stocks), but subject to clause 26;
4. clause 6.2(b) (Required Quantity) other than where the breach occurs as a result of losses that do not exceed [1.0] percent of the Contracted Quantity and not as a result of any removal of Crude Oil from the Storage Facilities
5. clause 7.1 (Required Quantity) other than where the breach occurs as a result of losses that do not exceed [0.5] percent of the Required Quantity and not as a result of any removal of Product from the Storage Facilities;
6. clause 14.1 (Failure to meet the Availability Date), but subject to clause 26;
7. clause 16.2 (Timeframe for access); or
8. clause 20 (Crown may acquire Reserve Stocks) where the breach prevents the Crown from accessing all or part of the Reserve Stocks in accordance with that clause.

27.3. Damages for Fundamental Breach

If the Supplier commits a Fundamental Breach then the Crown may give the Supplier notice setting out details of that Fundamental Breach and requiring it to be remedied within the period specified in that notice. Until the Fundamental Breach is remedied, the Supplier must pay the following damages to the Crown in relation to that Fundamental Breach:

1. in relation to a breach of clauses 2.1, 2.2, 6.2(b) or 7.1, an amount equal to five percent per day of the replacement value of the Reserve Stocks losses (being the Required Quantity as appropriate less the actual quantity of Crude Oil or Product as the case may be) (priced by reference to the [source and timing of the market quote to be same as used in fee build up for Reserve Stock fee]). The Supplier will pay the daily charge under this subparagraph from the date of the breach (or where the date of the breach cannot be readily ascertained, the date of the last measurement of the Reserve Stocks under clause 17.1 where the Reserve Stocks met the Required Quantity) until the date that the breach is remedied to the Crown’s reasonable satisfaction. However, the total amount payable under this paragraph (a) will be capped at 120 percent of the replacement value of the Reserve Stocks losses;
2. in relation to a breach of clauses 5.3 or 14.1, a per month charge of fifty percent of the Monthly Fee which would otherwise have been payable by the Crown for the Petroleum Reserves that are not available. This charge is payable from the date that the breach occurred until the date that the breach is remedied to the Crown’s reasonable satisfaction;
3. in relation to a breach of clauses 16.2 and 20 that prevents the Crown from accessing all or part of the Reserve Stocks in accordance with the respective clause an amount equal to five percent per day of the replacement value of the Reserve Stocks (priced by reference to the [source and timing of the market quote to be same as used in fee build up for Reserve Stock fee]) that are not available for access. The Supplier will pay the daily charge under this subparagraph from the date on which the breach occurred until the date that the breach is remedied to the Crown’s reasonable satisfaction. However, the total amount payable under this paragraph (c) will be capped at 120 percent of the replacement value of the Reserve Stocks that are not available for access.

The Crown may reduce any amount payable under this clause 27.3 at its discretion having regard to the cause and effects of the breach. To avoid doubt, if any act or omission that is a breach of the clauses referred to in paragraph (a) could also be a breach of the clauses referred to in paragraph (b), the amounts set out above are not cumulative and only the amount set out in paragraph (a) is payable.

27.4. Acknowledgements

In relation to the damages set out in clause 27.3, the Supplier:

1. acknowledges that it is not possible to quantify in any precise manner the actual economic impact or loss that would be suffered by the Crown in the event of a Fundamental Breach, but agrees that the damages set out in clause 27.3 are a genuine attempt by the parties to estimate the damage that will flow to the Crown in the event of a Fundamental Breach;
2. agrees that those damages are reasonable and not oppressive;
3. agrees that it will not make any claim that those damages are unenforceable as a penalty or for any other reason, and agrees that this Agreement may be relied upon by the Crown as a complete bar to, and defence against, any such claim; and
4. acknowledges that the remedies set out in clause 27.3 are not the only remedies available to the Crown for breach of this Agreement and that in addition to any remedy available under clause 27.3, the Crown reserves (without limitation) the right to seek specific performance of this Agreement or to exercise any of its rights under clauses 28.3, 28.4 and/or the Security Agreement.

28. TERMINATION BY THE CROWN

28.1. Termination on notice

The Crown may elect to terminate this Agreement in the following circumstances:

1. where the Crown acquires all of the Reserve Stocks under clause 20, in which case the Crown may elect to terminate this Agreement by giving the Supplier at least two months’ notice. To avoid doubt, the Crown must pay the Supplier the amount determined under clause 24.2 upon termination;
2. where the Crown decides not to proceed with the Supplier’s proposal to improve, upgrade or refurbish the Storage Facilities as a result of a Law change under clause 13.4, in which case the Crown may elect to terminate this Agreement with effect from the earlier of (i) six months from the date of the Crown’s notice or (ii) the date on which the improvements, upgrading or refurbishment must have been completed in order to comply with the Law change. Where the Law change affects part but not all of the Storage Facilities, the Crown may elect to terminate this Agreement in so far as it relates to the affected part of the Storage Facilities and the Reserve Stocks that are stored in the affected part of the Storage Facilities but without affecting the continued application of this Agreement to those parts of the Storage Facilities and Reserve Stocks that are not affected by the Law change; or
3. at any time for convenience, in which case the Crown may elect to terminate this Agreement by giving the Supplier at least six months’ notice.

28.2. Termination payment

If the Crown exercises its right to terminate this Agreement under clause 28.1 then either:

1. the parties will agree on a lump sum termination payment that will be paid by the Crown to the Supplier on the termination date. If this paragraph (a) applies, the entire Monthly Fee will cease to be payable from the termination date; or
2. if the parties do not agree on such a lump sum termination payment, the Crown will continue to pay the Storage Facility component of the Monthly Fee, but not the Reserve Stocks component, until the date that would otherwise be the end of the Term. If this paragraph (b) applies, then until the date that would otherwise be the end of the Term the Supplier must not use the Storage Facilities for any purpose without the Crown’s prior consent.

To avoid doubt, this clause 28.2 does not apply where the Crown terminates this Agreement under any provision other than clause 28.1. Any payments under this clause 28.2 are in addition to the payments set out in clause 24.1 and, if applicable, clause 24.2.

28.3. Termination for breach or insolvency event

The Crown may give the Supplier notice immediately terminating this Agreement if:

1. the Supplier commits a Fundamental Breach and the breach remains unremedied 5 Working Days after the Crown has given notice to the Supplier specifying the breach and requesting it be remedied;
2. the Supplier commits a material breach of this Agreement, other than a breach of the kind referred to in paragraphs (a) or (d), and the breach remains unremedied 30 Working Days after the Crown has given notice to the Supplier specifying the breach and requesting it be remedied
3. the Crown has given three or more notices to the Supplier under paragraphs (a), (b) or (d) in any 365 day period, regardless of whether the breaches referred to in those notices were remedied within the period referred to in those paragraphs;
4. an amount invoiced to the Supplier under this Agreement (other than any amount that is permitted to be withheld under clause 25.5) remains unpaid 40 Working Days after its due date for payment and the Crown has given the Supplier at least 10 Working Days’ notice of its intention to terminate the Agreement for this reason;
5. the Supplier breaches the Security Agreement and the breach is not remedied within 5 Working Days of notice by the Crown
6. the Security Agreement ceases to apply for any reason other than a breach by the Crown;
7. execution is levied against a substantial part of, or a receiver or manager is appointed of any of, the assets of the Supplier or its holding company; or
8. the Supplier either goes into liquidation (other than voluntarily for reconstruction or amalgamation purposes with the prior written approval of the Crown), or is dissolved, or enters into a scheme of arrangement with any class of its creditors, or is placed under official management.

28.4. Suspension of obligation to pay Monthly Fee

If any of the circumstances specified in paragraphs (a) to (h) of clause 28.3 apply, the Crown may give the Supplier notice suspending the Crown’s obligations to pay the Monthly Fee. A notice of suspension under this clause 28.4 does not limit the Crown’s ability to give a notice of termination under clause 28.3 in relation to the same matter at a later date. Where paragraphs (a), (b), (d) or (e) of clause 28.3 apply, the suspension may only occur if the breach has not been remedied within the timeframe set out in the relevant paragraph and the suspension will cease when the breach is remedied to the Crown’s reasonable satisfaction.

29. TERMINATION BY THE SUPPLIER

29.1. Termination for breach

The Supplier may give the Crown notice immediately terminating this Agreement if:

1. the Crown commits a material breach of this Agreement (other than a breach of the kind referred to in paragraph (b)) and the breach remains unremedied 30 Working Days after the Supplier has given notice to the Crown specifying the breach and requesting it be remedied; or
2. an amount invoiced to the Crown under this Agreement (other than any amount that is permitted to be withheld under clause 25.5) remains unpaid 40 Working Days after its due date for payment and the Supplier has given the Crown at least 10 Working Days’ notice of its intention to terminate the Agreement for this reason.

30. LOSS OF THE PETROLEUM RESERVES

30.1. Effects of damage or destruction of Storage Facilities

If the Storage Facility is partially or totally destroyed or damaged so that it cannot be used in compliance with this Agreement:

1. the Supplier is required to repair or replace the Storage Facility to a standard that complies with clause 13 of this Agreement as soon as is reasonably practicable; and
2. the Crown will cease to pay all of the Monthly Fee until the Storage Facility is repaired or replaced in accordance with paragraph (a). If only part of the Storage Facilities are damaged or destroyed, then the Monthly Fee will be reduced in the same proportion as the amount of Reserve Stocks which are no longer stored in the Storage Facilities bears to the Contracted Quantity (expressed as a percentage).

30.2. Crown right to terminate

If the Reserve Stocks or the Storage Facilities, or both, are totally or substantially destroyed the Supplier must notify the Crown of the situation as soon as reasonably practicable and meet with the Crown to discuss whether the Storage Facilities and/or Reserve Stocks are to be replaced. If the parties do not agree on a plan and timetable for replacement then, at any time within 40 Working Days of receipt of the Supplier’s notice, the Crown may give the Supplier notice terminating this Agreement with effect from the date of the Crown’s notice. If the parties do agree on a plan and timetable for replacement, but the Supplier materially fails to comply with that plan or timetable, that failure will be a material breach under clause 28.3(b).

31. EFFECTS OF TERMINATION

31.1. Survival of rights and obligations

Termination or expiry of this Agreement does not operate as a waiver of any breach by either party of this Agreement and does not prejudice any right, or extinguish any liability or obligation, which has accrued up to the date of termination or expiry. Clauses 24 (subject to clause 24.5), 25.2 to 25.6, 28, 29, 31, 34, 35, 36 and 38 survive termination or expiry, together with any other term requiring payment of any sum outstanding at termination or expiry, and any other terms which expressly or impliedly are intended to survive termination or expiry.

PART I: GENERAL

32. INSURANCE

32.1. Insurance

The Supplier must obtain and maintain adequate insurance cover of the Reserve Stocks at the higher of the initial cost and the full replacement value where the replacement value of the Reserve Stocks is assessed at six monthly intervals. The Supplier must provide details of that insurance to the Crown on request. The Supplier is responsible for the cost of insurance.

33. SUPPLIER’S WARRANTIES

33.1. Reserve Stocks free from encumbrances

The Supplier warrants to the Crown that:

1. the Supplier has, or will have by the Availability Date, and will continue to have at all times during the Term, absolute legal and equitable title in and to the Reserve Stocks; and
2. the Reserve Stocks are, or will be by the Availability Date, and will continue to be at all times during the Term, free from all charges, liens, encumbrances or other adverse interests, other than as set out in the Security Agreement or otherwise agreed by the parties.

33.2. Storage Facility free from undisclosed encumbrances

The Supplier warrants to the Crown that:

1. the Supplier has, or will have by the Availability Date, and will continue to have at all times during the Term, absolute legal and equitable title in and to the Storage Facilities; and
2. the Storage Facilities are, or will be by the Availability Date, and will continue to be at all times during the Term, free from all charges, liens, encumbrances or other adverse interests, other than as disclosed by the Supplier to the Crown’s Representative in writing prior to the Commencement Date or consented to by the Crown (whose consent will not be unreasonably withheld) during the Term.

34. INDEMNITIES

34.1. Indemnities

The Supplier indemnifies the Crown against any loss, liability, damages, expenses or costs incurred by the Crown as a result of:

1. any failure by the Supplier to comply with any Laws; or
2. any claim by a third party against the Crown that is a direct or indirect result of any breach of this Agreement by the Supplier.

35. DISPUTE RESOLUTION

35.1. Notice of Dispute

Either party may at any time give notice to the other party describing a Dispute and invoking the procedures set out in the rest of this clause. Where clauses 9.1(d), 9.2, 13.4, 18.4, 24 or 25.5 apply, the Dispute will be resolved in accordance with clause 35.2. Where the Dispute relates to any other matter, the Dispute will be resolved in accordance with clauses 35.3 and 35.4.

35.2. Expert determination

If the parties do not settle a Dispute to which, if any, clauses 9.1(d), 9.2, 13.4, 18.4, 24 or 25.5 apply within any period referred to in the relevant clause, either party may give notice referring the matter directly to an independent expert (the Expert) to be finally resolved and, unless otherwise agreed in writing:

1. the parties must endeavour to appoint a single Expert. The Expert will be an accountant or other person that is suitably qualified and experienced in the oil industry. If, within 5 Working Days of the notice under this clause 35.2 being given, the parties are unable to agree on a single Expert, the Expert will be appointed by the President of the Institute of Chartered Accountants of New Zealand, or his or her nominee;
2. the Expert must adopt a procedure which, in the Expert’s opinion, is the most simple and expeditious procedure possible in the circumstances;
3. the provisions of the Arbitration Act 1996 will not apply to any procedure under this clause 35.2;
4. the parties will provide the Expert with any information that the Expert reasonably requires;
5. the Expert must use reasonable endeavours to make a decision on the Dispute within 30 Working Days of appointment
6. the decision of the Expert will be final and binding on the parties;
7. in relation to a Dispute to which clause 25.5 applies, if the Expert determines that all or part of the disputed amount is properly payable then any amount that was withheld under clause 25.5 and which the Expert determined is properly payable must be paid within 5 Working Days of the date of the Expert’s decision; and
8. the costs of the Expert will be paid by the parties in the proportions determined by the Expert.

35.3. Negotiation and mediation

If notice describing a Dispute is given, then:

1. the parties will meet and endeavour to resolve the Dispute for a negotiation period of at least 20 Working Days;
2. at any time during the negotiation period, either party may refer the Dispute to mediation;
3. unless otherwise agreed in writing, any mediation will be conducted in accordance with the then current model mediation agreement issued by LEADR New Zealand Inc and must be completed within 20 Working Days of the parties agreeing to refer the Dispute to mediation; and
4. if the Dispute is not resolved as a result of negotiation or mediation within the periods referred to above, either party may give notice requiring the Dispute to be referred to and finally resolved by arbitration in accordance with clause 35.4.

35.4. Arbitration

Unless the parties agree otherwise, any arbitration must be conducted in accordance with the following procedures:

1. the parties must endeavour to appoint a single arbitrator. If the parties are unable to agree on that single arbitrator within 10 Working Days of the notice referring the Dispute to arbitration, the arbitrator will be appointed by the President of the New Zealand Law Society or his or her nominee;
2. the arbitrator must adopt a procedure which, in the arbitrator’s opinion, is the most simple and expeditious procedure possible in the circumstances
3. the arbitrator must not adopt inquisitorial processes;
4. the arbitrator must determine the dispute under New Zealand law;
5. the arbitration will be held in Wellington, New Zealand;
6. the arbitration must, if reasonably practicable, be completed within 20 Working Days of the arbitrator's appointment and otherwise be conducted in accordance with the Arbitration Act 1996; and
7. the decision of the arbitrator will be final and binding on the parties.

35.5. Urgent remedies

Nothing in this clause 35 excludes or limits either party’s right to seek urgent interlocutory relief in any court of competent jurisdiction.

36. CONFIDENTIALITY

36.1. Confidential Information obligations

A party that receives the other party’s Confidential Information must not, without the other party’s written consent:

1. use that Confidential Information other than as necessary for the operation of this Agreement or use it for any purpose other than the reason that it was provided; or
2. disclose that Confidential Information to any person.

36.2. Exclusions Clause 36.1 does not apply to:

1. disclosure of information to the Supplier’s parent company (if any) and any of that parent company’s subsidiaries or any of the Supplier’s subsidiaries;
2. any information that is publicly available, other than information that becomes publicly available by breach of this Agreement;
3. disclosure of information to any professional advisors, provided that the recipient party must obtain a similar undertaking of confidentiality from those advisors upon request by the disclosing party;
4. disclosure of information required by law or by the rules of any stock exchange on which the Supplier’s (or the Supplier’s parent company’s) shares are listed;
5. disclosure of information by the Crown under any government to government agreement under clause 4; or
6. disclosure of information by the Crown where that disclosure is required by virtue of the Crown’s membership of the IEA.

36.3. Information disclosed during dispute resolution

Neither party may use any information disclosed by the other party in the course of negotiation, mediation or arbitration under clause 35 other than to attempt to resolve the Dispute.

37. FORCE MAJEURE

37.1. Definition of Force Majeure

Force Majeure means any of the following events, and does not include any other events whatsoever:

1. fire, earthquake, storm, flood, landslide or other similar natural disaster
2. explosion or public mains electrical supply failure that affects the Storage Facilities; or
3. any act of sabotage of the Petroleum Reserves,

which in each case is beyond the party’s reasonable control, having exercised reasonable care and diligence to prevent the occurrence of that event.

37.2. No liability where there is a Force Majeure

There will be no liability for non-performance of any obligation under this Agreement during the time and to the extent that such performance is wholly or substantially prevented by a Force Majeure, provided the party claiming Force Majeure complies with clause 37.3.

37.3. Notice of Force Majeure

A party that wishes to claim the benefit of clause 37.2 must:

1. as soon as practicable (but in any event within 48 hours), give notice and full details to the other party of:
   1. the Force Majeure; and
   2. the extent of its inability to perform any of its obligations under this Agreement and the likely duration of such nonperformance;
2. use all reasonable endeavours to limit the effects of the Force Majeure
3. give the other party reasonable opportunity and assistance to investigate the cause and effects of the Force Majeure; and
4. subject to clause 37.4, resume performance of its obligations under this Agreement as soon as reasonably possible after the effects of the Force Majeure have ended.

37.4. Termination

If by reason of Force Majeure a party has been unable to perform any material obligation under this Agreement for a period of two months, the other party may give the first party one month’s notice terminating this Agreement.

38. NOTICES

38.1. Address for notices

Any notice or other communication to be given under this Agreement must be in writing and addressed to the recipient at the address or facsimile number specified below, or such amended address as is notified by that party to the other party from time to time:

1. for notices to the Crown:

Chief Executive Officer of the Ministry of Economic Development
[address]
Facsimile Number: [ ]

1. for notices to the Supplier:

[title]
[address]
Facsimile Number: [ ]

38.2. Receipt of notices

A notice or other communication will be deemed to have been received:

1. in the case of hand delivery, at the time of actual delivery to the recipient’s address;
2. in the case of delivery by pre-paid post, on the second Working Day after posting; and
3. in the case of delivery by facsimile, at the time of transmission specified in a transmission report from the sending machine which indicates that

the facsimile was sent in its entirety to the facsimile number of the recipient,

provided that if a notice or other communication is received or deemed to have been received after 5 pm on a Working Day in the place to which it is sent, or on a day which is not a Working Day, it will be deemed not to have been received until 9am on the next Working Day.

39. GENERAL PROVISIONS

39.1. Variation

No variation to this Agreement will be effective unless it is in writing and signed by both parties.

39.2. Assignment

A party may not assign or transfer this Agreement, or any rights or obligations under this Agreement, without the prior written consent of the other party, which must not be unreasonably withheld. For the purposes of this clause:

1. a change in the effective control of the Supplier will be deemed assignment by the Supplier; and
2. the Supplier’s consent will not be required in relation to any assignment of all of the Crown’s rights and obligations under this Agreement to a Crown entity (as defined in the Crown Entities Act 2004).

39.3. No partnership

Nothing in this Agreement is intended to make either party a joint venturer, partner, agent or fiduciary of the other party.

39.4. Severing unlawful terms

If any part of this Agreement is held by any court or administrative body of competent jurisdiction to be illegal, void or unenforceable:

1. it will be severed from this Agreement to the extent that it is unlawful and unenforceable; and
2. the rest of the Agreement will remain in force provided that severing any part of this Agreement under paragraph (a) of this clause does not materially affect the purpose of or frustrate this Agreement; and
3. either party may give notice requiring the other party to use reasonable endeavours to negotiate a change to this Agreement which puts both parties, as far as is reasonably possible, in the commercial position they

would have been in if it were not for the decision of the court or administrative body.

39.5. No waiver

Except where a party has signed an express written waiver of a right under this Agreement, no failure, delay or indulgence by either party in exercising any power or right conferred on that party by this Agreement will operate as a waiver of that power or right. A written waiver appliers only to the right and on the occasion specified in it.

39.6. Governing law

This Agreement shall be governed by and construed in accordance with New Zealand law. Both parties submit to the non-exclusive jurisdiction of the New Zealand courts for any proceedings arising in connection with this Agreement.

SCHEDULE 1: MONTHLY FEE

(clause 23)

[This schedule will set out the Monthly Fee, which will be calculated specifically for each Supplier]

SCHEDULE 2: CHANGE IN VALUE OF RESERVE STOCKS DURING THE TERM

(clause 24)

[This Schedule will set out the calculation for the change in value of the Reserve Stocks during the term. The current wording sets out the intended methodology but does not reflect the form of the final schedule, which will reflect the definitions and variables used in Schedule 1]

The change in value of the Reserve Stocks during the Term is calculated to protect the capital invested in the Reserve Stocks by the Supplier.

Change in value of Reserve Stocks = Final Capital Value less Initial Capital Value where:

Initial Capital Value = Contracted Quantity * Initial Stock Price

Final Capital Value = Actual Final Quantity * Final Stock Price

Where the change in value of Reserve Stocks is a positive amount, the Supplier must pay that amount to the Crown. Where the change in value of Reserve Stocks is a negative amount, the Crown must pay that amount to the Supplier

Notes:

Actual Final Quantity for Crude Oil is the surveyed quantity in the Storage Facility at the end of the Term. Using the actual quantity covers any issues with losses or Crown not replacing Reserve Stocks used during the Term. The Actual Final Quantity will be adjusted upwards if losses exceed the maximum permitted losses (clauses 6.2(a) and 7.2). The adjustment will be the amount the losses exceed the maximum loss allowance

Initial Stock Price is calculated on the same basis as the formula used to build the Monthly Fee (Schedule 2).

Final Stock Price is calculated on the same basis as the Initial Stock Price with only those components identified as variables updated. The pricing period used is the [final month of the Term].

SCHEDULE 3: DETAILS OF STORAGE FACILITIES AND REQUIRED ACCESS FACILITIES

(clause 13.1 and clause 16.1)

[This Schedule will set out the details and location of Storage Facilities, the amount of Reserve Stocks to be held in each tank where there is more than one tank, and whether commingling is permitted in any of the tanks.]

SCHEDULE 4: FORM OF SECURITY AGREEMENT

(clause 12)

[This Schedule will set out a template Security Agreement that contains provisions addressing both Crude Oil and Products and Storage Facilities. The Security Agreement may need to be tailored for each Supplier]

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