Addendum to Request for Proposals

Provision of Petroleum Reserves for the New Zealand Government

1. Introduction

On 15 November 2005 the Ministry of Economic Development (MED) released a Request for Proposal (RFP) inviting proposals from companies to hold Petroleum Reserves on behalf of the New Zealand Government (the Crown).

Since the release of the RFP, MED has considered some further matters which may assist the Crown in meetings its objectives. While the RFP notes that the “the Crown may consider proposals that vary from those allowed for in the draft contract”, MED considers that these variations are of a significance that all companies which have expressed interest in the RFP should be notified as soon as possible. This will allow companies time to modify current proposals if they choose or consider other options that are now included in the RFP.

To assist companies with these variations, the timing for response to the RFP has been extended to 4pm on 15 February 2006.

The variations to the RFP are detailed in this document. The main variation is allowing the use of European style ticketing of oil stocks for reserve stocks held in the United States and Australia. The second variation is a clarification of the tanks allowed to be used to store Reserve Stocks within New Zealand.

This addendum forms part of the RFP and is subject to the same conditions as the RFP.

2. Ticketing

2.1. Background

Ticketing is the term used to describe agreements between a purchaser and an oil company covering the lease of excess stock. Rather than buy physical stock, the purchaser of a ticket reserves an interest in the stock for a period. This includes an option for the purchaser to buy and take physical delivery under certain circumstances. Ticketing is widely used in Europe by companies and stockholding agencies to meet some of their reserve stock requirement.

The benefits of using a ticketing system for reserve stock holding obligations include:

• Flexibility to adjust total reserve stocks at relatively short notice
• Providing a cost effective way of meeting reserve stock obligations
• Providing commercial opportunities for companies with excess stock
• Using a relatively simple contract with standard industry documentation

2.2. New Zealand Proposal

MED considers that ticketing, similar to that used in Europe, could be useful in meeting some of New Zealand’s petroleum reserves requirement, especially where higher petroleum reserves are required for relatively short periods such as second half 2006 and 2007. However ticketing will only be allowed for reserve stocks held overseas to ensure that normal commercial stocks used in supplying the New Zealand market are not used for reserve stocks. While ticketing will be allowed to meet some of New Zealand’s total requirement, as detailed in the RFP, the Crown desires a range of options for its reserve stocks. In particular it is expected that most or all of the minimum reserve stocks requirement (190,000 tonnes) should be held within New Zealand where ticketing will not be an option. This variation to the RFP will not affect companies preparing options for Petroleum Reserves held in New Zealand.

2.3. Ticketing Contract

MED plans to release a draft ticketing contract by 27 January 2006 that will provide the basis for a standard general agreement for ticketing of reserve stocks. The draft ticketing contract will be substantially simplified from the draft contract attached to the original RFP. The draft ticketing contract will relate as much as possible to standard industry contractual arrangements (e.g. use of standard general terms and conditions for the purchase contract) and is likely to be modelled on the European contracts for tickets.

2.4. Ticketing Details

The following section details the ticketing option that will be allowed.

2.4.1. Option to Purchase The ticket will provide the Crown with an option to purchase a quantity of stock during the term of the ticket. The option to purchase can only be exercised following the promulgation of an Order in Council. Section 4.7.1 of the RFP details the circumstances that can lead to an Order in Council authorising the release of reserve stocks.

2.4.2. Stock Type Ticketing can be used for crude oil or product listed in the original RFP (petrol, jet, diesel). For the avoidance of doubt, refinery intermediates and fuel oil will not be an option for ticketing.

2.4.3. Stock Location Tickets will only be considered for stocks held in the same overseas locations as specified in the original RFP (Australia, the western seaboard of the United States mainland or U.S. Pacific territories). Note that ticketing in Australia is subject to agreement by the Australian authorities.

2.4.4. Stock Specification Tickets normally specify a generic quality (e.g. gasoline) rather than a particular quality specification (e.g. New Zealand regular grade petrol). It is expected that the draft ticketing contract will allow particular quality requirements within the generic product grouping to be specified prior to purchase if the option to purchase is exercised. However, a supplier can propose options in its response to the RFP.

There should be no need for turnover or change of specification for the reserve stocks held for the term of the ticket.

2.4.5. Quantity The ticket will be for a specified quantity (tonnes).

2.4.6. Storage Facility The reserve stocks must be held at a suitable facility where the reserve stocks can be purchased and accessed should the option to purchase be exercised. The location of the facility where reserve stocks will be held must be specified in the proposal.

2.4.7. Term The term of the ticket will be a minimum of three months although the Crown may consider longer terms (in multiples of three months) up to a maximum of one year.

2.4.8. Purchase Price The details of the price and pricing basis to be used in the event the purchase option is exercised should be detailed in the proposal and will be a part of any ticketing contract.

2.4.9. Fee There will be a single fee in $US per tonne per month for the ticket covering all the supplier’s costs.

2.4.10. Payment Payment will be on the same basis as in the RFP (monthly on the first day of the month the reserve stocks are being held).

2.4.11. Taxes The seller of the ticket will be responsible for any taxes relating to the holding of stock. The Crown will only be responsible for taxes relating to the purchase of product if the purchase option is exercised.

2.5. Main Differences between Ticketing and the Draft Contract issued with the Original RFP for stock held overseas

The following table details the main differences between the ticketing proposal and that detailed in the RFP and draft contract issued in November 2005 for reserve stocks held overseas.

Note that ticketing can not be used for stock held in New Zealand. Only proposals based around the original RFP will be acceptable for reserve stocks held in New Zealand.

* Note that ticketing in Australia is subject to agreement by the Australian authorities.

3.0 Tanks Used for Storing Petroleum Reverses in New Zealand

MED has received a request to clarify the requirement for tanks that can be used for storing Reserve Stocks in New Zealand. Currently section 4.5 of the RFP reads as follows:

Reserve Stocks can be held in Storage Facilities that also contain normal commercial stock both in New Zealand and offshore. However within New Zealand, Reserve Stocks can only be commingled if the tanks used are new or have been refurbished after 1 January 2005. Tanks used for storing normal commercial crude and oil product stocks during 2004 may not be used for Reserve Stocks (except during stock turnover – see 4.2.3).

This clarification addresses the situation where a company modifies an existing tank by making it larger (e.g. adding an extra strake(s) to the bottom). The tank volume would be increased and that extra volume could be used for storing Reserve Stocks (e.g. managed by increasing the heel so it would not be accessed during normal operation).

MED is prepared to consider such a proposal but only for a volume equivalent to the volume increase in the tank capacity – i.e. the working “commercial” tank capacity remains as it was prior to modification.

4. Timing for RFP Responses

Considering the modifications made to the RFP with this addendum, MED has decided to delay the date for the return of proposals.

Proposals are now due by 4pm 15 February 2006.