BPZ Resources, Inc. - Shareholder.com

per barrel and other customary purchase price adjustments. The Company has approximately 14.9 MMBbls remaining under the
contract.
In May 2010, through its wholly-owned subsidiary BPZ E&P, the Company entered into a short-term 400 MBbls oil supply
agreement with Petroperu. Under the terms of the contract, the Company agrees to sell, and Petroperu agrees to purchase the
Company’s crude oil production originating from the Albacora oilfield in Block Z-1. The price per barrel of oil under the agreement is
determined using a basket of crude oils based on a 15-day average of Forties, Oman, and Suez blend crude oil prices, as quoted in the
Spot Crude Prices Assessment published in Platt’s Crude Oilgram Price Report, minus $3 per barrel and other customary purchase
price adjustments. As part of the price adjustments the Company is allowed to sell oil under the contract as long as the salt content is
less than 25 pounds per thousand barrels of oil. There is no purchase price adjustment associated with the oil sales if the salt content is
less than 10 pounds per thousand barrels. The Company has approximately 203 MBbls remaining under the contract.
In July 2010, through its wholly-owned subsidiary BPZ E&P, the Company entered into a second short-term 110 MBbls oil
supply agreement with Petroperu. Under the terms of the contract, the Company agrees to sell, and Petroperu agrees to purchase the
Company’s crude oil production originating from the Albacora oilfield in Block Z-1. The price per barrel of oil under the agreement is
determined using a basket of crude oils based on a 15-day average of Forties, Oman, and Suez blend crude oil prices, as quoted in the
Spot Crude Prices Assessment published in Platt’s Crude Oilgram Price Report, minus $4.30 per barrel and other customary purchase
price adjustments. As part of the purchase price adjustments, the Company is allowed to sell oil under the contract as long as the salt
content is less than 60 pounds per thousand barrels of oil. There is an incremental purchase price adjustment associated with the oil
sales if the salt content is between 25 pounds and 60 pounds per thousand barrels. All 110 MBbls under this supply agreement were
delivered and sold to Petroperu during the month of July 2010.
In September 2010, through its wholly-owned subsidiary BPZ E&P, the Company entered into a third short-term 80 MBbls
oil supply agreement with Petroperu. Under the terms of the contract, the Company agrees to sell, and Petroperu agrees to purchase
the Company’s crude oil production originating from the Albacora oilfield in Block Z-1. The price per barrel of oil under the
agreement is determined using a basket of crude oils based on a 15-day average of Forties, Oman, and Suez blend crude oil prices, as
quoted in the Spot Crude Prices Assessment published in Platt’s Crude Oilgram Price Report, minus $4.30 per barrel and other
customary purchase price adjustments. As part of the purchase price adjustments, the Company is allowed to sell oil under the contract
as long as the salt content is less than 60 pounds per thousand barrels of oil. There is an incremental purchase price adjustment
associated with the oil sales if the salt content is between 25 pounds and 60 pounds per thousand barrels. Approximately 50 MBbls
under this supply agreement were delivered and sold to Petroperu during the month of September 2010 and the remaining 30 MBbls
was delivered during October 2010.
During the year ended December 31, 2010, 2009 and 2008, the Company produced approximately 1,527 MBbls, 991 MBbls
and 827 MBbls of oil, respectively. For the year ended December 31, 2010, 2009 and 2008, the Company sold 1,517 MBbls, 963
MBbls and 826 MBbls barrels of oil at an average per barrel price, net of royalties, of approximately $72.53, $54.49 and $76.23,
respectively.
The Company’s revenues are reported net of royalties owed to the government of Peru. Royalties are assessed by Perupetro
S.A. (“Perupetro”), a corporation owned by the Peruvian government empowered to become a party in the contracts for the
exploration and/or exploitation of hydrocarbons in order to promote these activities in Peru, as stipulated in the Block Z-1 license
agreement based on production. However, their calculation is based on the past five-day average basket of crude oils prices, as
discussed above, before the crude oil delivery date. For the year ended December 31, 2010, 2009 and 2008, the revenues received by
the Company are net of royalty costs of approximately 5% of gross revenues or $6.3 million, $2.9 million and $3.3 million,
respectively.
Note 14— Other Expense
For the year ended December 31, 2010, the Company is reporting $12.9 million of charges in the Consolidated Statements of
Operations as “Other expense”. These charges include $10.7 million of charges related to certain engineering, consulting,
environmental and legal costs for the Company’s planned gas plant, pipeline and gas-to-power project and $2.2 million of charges
related to the abandonment of two platforms. With respect to the $10.7 million of charges related to the planned gas plant, pipeline
and gas-to-power project, during the third quarter of 2010, management determined that there is no future benefit of these engineering
and development costs associated with the Company’s current gas plant, pipeline and gas-to-power project plans. Accordingly, the
Company wrote off these costs. With respect to the $2.2 million of platform abandonment costs, the Company has determined that two
previously built platforms, one located in the Piedra Redonda field and the CX-13 platform located in the eastern part of the Corvina
field, both of which were in existence when the Company acquired the rights to the offshore Block Z-1 in northwest Peru, are not
suitable for the Company’s future oil development plans. Accordingly, the Company wrote off the $1.4 million of costs incurred to
evaluate the feasibility of refurbishing and using these platforms. In addition, the Company is accruing $0.8 million of abandonment
98