Madagascar Oil has declared force majeure under the four production sharing contracts for Blocks 3104, 3105, 3106 and 3107 that it operates in Madagascar, in order to safeguard its rights under those agreements.
Force majeure is a contract provision that allows the party making such a declaration the ability to preserve time upon the occurrence of an event or action that impedes that party from meeting contractual deadlines. In this case, the Company has the right to declare force majeure under the Production Sharing Contracts ("PSCs") in response to an "act of state." This is in response to both the stated threat of expropriation made by the Minister of Mines and Hydrocarbons and the failure by the Ministry of Mines and Hydrocarbons ("MMH") to instruct OMNIS (the state regulatory authority that is the counterparty to the Company's contracts) to proceed with initiating the approval process for the Company's 2011 work programs.
These acts have left Madagascar Oil unable to continue to perform under its PSCs. The Company has made repeated attempts at removing the impediments created by the threats of expropriation and the failure to schedule a contractually required meeting for the purpose of approving the Company's 2011 work programs under the production sharing contracts.
The declaration of force majeure comes only after the Ministry of Mines and Hydrocarbons has persistently refused to engage with the Company in its efforts meet to resolve these matters. The Company is entirely confident that it has complied fully with all PSC obligations and has provided extensive documentation to the MMH regarding activity on all of the blocks. Furthermore, to date MMH has provided no findings from the audit of the Tsimiroro Block announced in January of this year.
Madagascar Oil does not view the force majeure declaration as an act of hostility. Rather, the declaration serves to place the contract terms on hold while the delaying events introduced by the MMH are resolved. The Company hopes that the declaration will encourage negotiation with the government.
The management believes that the declaration of force majeure, while not in itself a solution, is an action that the Company can move to rescind once the government agrees on the necessary steps to allow for a return to work.
The Company is also prepared to assert all necessary legal claims under the PSCs unless the situation that created the force majeure events is rectified without delay.
Madagascar Oil's Board continues to believe that it is in the best interests of shareholders for trading in the Company's shares to remain suspended. The Company will provide further updates in due course.
Laurie Hunter, the Company's Chief Executive Officer, said, "We hope that the force majeure declaration will convince the government parties to enter into meaningful discussions with Madagascar Oil. The Company fully anticipates that the force majeure can be withdrawn once a mutually beneficial resolution of the underlying issues is reached. This declaration is merely a tool to protect existing company rights, to which we are fully entitled under our contracts."
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