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PRODUCTION SHARING CONTRACT



BETWEEN



THE REPUBLIC OF EQUATORIAL GUINEA



AND



GUINEA ECUATORIAL DE PETROLEOS



AND



[THE COMPANY]



FOR

BLOCK "•"



TABLE OF CONTENTS

ARTICLE 1 - DEFINITIONS AND SCOPE ................................................................................... 2

ARTICLE 2 - EXPLORATION PERIOD AND RELINQUISHMENTS ............................................ 7

ARTICLE 3 - EXPLORATION WORK OBLIGATIONS .............................................................. 10

ARTICLE 4 - ANNUAL WORK PROGRAMS AND BUDGETS .................................................. 12

ARTICLE 5 - APPRAISAL OF A DISCOVERY AND PRODUCTION PERIOD ........................... 14

ARTICLE 6 - CONDUCT OF PETROLEUM OPERATIONS ....................................................... 17

ARTICLE 7 - ROYALTIES, RECOVERY OF PETROLEUM OPERATIONS COSTS, AND

DISTRIBUTION OF PRODUCTION ........................................................................................... 25

ARTICLE 8 - PARTICIPATION INTERESTS ............................................................................. 27

ARTICLE 9 - TAXATION ........................................................................................................... 28

ARTICLE 10 - VALUATION OF CRUDE OIL ............................................................................. 28

ARTICLE 11 - BONUSES AND SURFACE RENTALS .............................................................. 30

ARTICLE 12 - OBLIGATION TO SUPPLY DOMESTIC MARKET ............................................. 32

ARTICLE 13 - NATURAL GAS .................................................................................................. 32

ARTICLE 14 - CUSTOMS REGULATIONS ............................................................................... 35

ARTICLE 15 - FOREIGN CURRENCY ...................................................................................... 37

ARTICLE 16 - BOOKS, ACCOUNTS, AUDITS AND PAYMENTS ............................................. 38

ARTICLE 17 - TRANSFER, ASSIGNMENT AND CHANGE OF CONTROL .............................. 39

ARTICLE 18 - INDEMNIFICATION, LIABILITY AND INSURANCE ........................................... 41

ARTICLE 19 - TITLE OF GOODS, EQUIPMENT AND DATA .................................................... 42

ARTICLE 20 - CONFIDENTIALITY ........................................................................................... 43

ARTICLE 21 - TERMINATION ................................................................................................... 44

ARTICLE 22 - UNITIZATION ..................................................................................................... 46

ARTICLE 23 - LOCAL CONTENT AND SOCIAL PROGRAMS ................................................. 46

ARTICLE 24 - DECOMMISSIONING ......................................................................................... 47

ARTICLE 25 - APPLICABLE LAW ............................................................................................ 49

ARTICLE 26 - RESOLUTION OF CONFLICTS AND ARBITRATION ........................................ 49

ARTICLE 27 - FORCE MAJEURE ............................................................................................. 51

ARTICLE 28 - ASSISTANCE AND NOTICES............................................................................ 52



ARTICLE 29 - MISCELLANEOUS ............................................................................................. 53

ARTICLE 30 - INTERPRETATION ............................................................................................ 54

ARTICLE 31 - EFFECTIVE DATE ............................................................................................. 55

ANNEX A - CONTRACT AREA .......................................................................................... 57

ANNEX B - MAP OF THE CONTRACT AREA .................................................................... 58

ANNEX C - ACCOUNTING PROCEDURE ......................................................................... 59

ANNEX D - PARENT COMPANY GUARANTEE ............................................................... 78



THIS PRODUCTION SHARING CONTRACT is dated this [insert day] day of [insert

month] 200●

BETWEEN:

(1)



THE REPUBLIC OF EQUATORIAL GUINEA (hereinafter referred to as the

State), represented for the purposes of this Contract by the Ministry of Mines,

Industry and Energy, represented for purposes of its execution by His

Excellency Mister ____________

, the Minister;



(2)



GUINEA ECUATORIAL DE PETRÓLEOS (hereinafter referred to as the

National Company), acting in its own name and legal right for the purposes of

this Contract and represented for purposes of its execution by Don

_______________ , in his capacity as Director General; and



(3)



[INSERT NAME], a company organized and existing under the laws of [insert

jurisdiction], under company registration number [insert number] and having

its registered office at [insert address] (hereinafter referred to as [the

Company]), represented for the purposes of this Contract by [insert name], in

his capacity as [insert position].



RECITALS:

(A)



WHEREAS, all Hydrocarbons existing within the territory of the Republic of

Equatorial Guinea, as set forth in the Hydrocarbons Law, are national resources

owned exclusively by the State;



(B)



WHEREAS, the State wishes to promote the development of Hydrocarbon

deposits within the Contract Area and the Contractor desires to associate itself

with the State with a view to accelerating the Development and Production of

Hydrocarbons within the Contract Area;



(C)



WHEREAS, the Contractor has the financial ability, technical competence and

professional skills necessary to carry out Petroleum Operations in accordance

with this Contract and good oil field practices; and



(D)



WHEREAS, the Parties desire to enter into this Contract in accordance with the

Hydrocarbons Law, which allows for agreements to be entered into between the

State and foreign investors in the form of a production sharing contract, through

direct negotiation or by international public tender.



NOW THEREFORE, in consideration of the undertakings and mutual covenants

contained herein, the Parties agree as follows:



1



ARTICLE 1 - DEFINITIONS AND SCOPE

1.1



Definitions

Except where the context otherwise indicates or as defined in the Hydrocarbons

Law or Petroleum Regulations, the following words and expressions shall have

the following meanings:

Accounting Procedure means the accounting procedure set forth in Annex C.

Administrative Operator means the National Company designated as such

under the Joint Operating Agreement.

Affiliated Company or Affiliate of any specified Person means any other

Person directly or indirectly Controlling or Controlled by or under direct

or indirect common Control of such Person.

Annual Budget means the expenditure of the Contractor with respect to an

Annual Work Program.

Appraisal Well means a Well drilled following a Discovery, with the objective of

delimiting and mapping the reservoir, and also to estimate the quantity

of recoverable Hydrocarbons.

Associated Natural Gas means all Natural Gas produced from a reservoir the

predominant content of which is Crude Oil and which is separated from

Crude Oil in accordance with generally accepted international petroleum

industry practice, including free gas cap, but excluding any liquid

Hydrocarbons extracted from such gas either by normal field separation,

dehydration or in a gas plant.

Barrel means a quantity or unit of Crude Oil equal to 158.9874 liters (forty-two

(42) United States gallons) at a temperature of fifteen point five six

degrees (15.56°) Centigrade (sixty degrees (60°) Fahrenheit) and at one

(1) atmosphere of pressure.

Business Day means a day on which the banks are generally open for

business in Equatorial Guinea and [insert jurisdiction].

Calendar Year or Year means a period of twelve (12) months commencing on

1 January and ending on the following 31 December of the same year

according to the Gregorian Calendar.

CIF has the meaning set out in the publication of the International Chamber of

Commerce, INCOTERMS 2000.

Commercial Discovery means a Discovery that the Contractor has determined

to be economically viable and so submits a Development and

Production Plan for such Discovery for the approval of the Ministry.

Contract means this production sharing contract, including its Recitals and

Annexes.

Contract Area or Area means the geographic area within the territory of

Equatorial Guinea, which is the subject of this Contract. Such Contract

Area shall be described in Annex A and illustrated in Annex B, as it may

be changed by relinquishments of the Contractor in accordance with this

Contract.

2



Contract Year means a period of twelve (12) consecutive months according to

the Gregorian calendar, counted from the Effective Date of this Contract

or from the anniversary of such Effective Date.

Contractor means [the Company] and the National Company.

Control, when used with respect to any specified Person, means the power to

direct, administer and dictate policies of such Person through the

ownership of a percentage of such Person's equity sufficient to hold a

majority of voting rights in an ordinary shareholders meeting. The terms

Controlling and Controlled have meanings correlative to the foregoing.

Cost Recovery Oil has the meaning ascribed to it in Article 7.2.1.

Crude Oil means Hydrocarbons which are produced at the wellhead in a liquid

state at atmospheric pressure including asphalt and ozokerites, and the

liquid Hydrocarbons known as condensate and/or Natural Gas liquids

obtained from Natural Gas by condensation or extraction through field

separation units.

Delivery Point means that point located within the jurisdiction of Equatorial

Guinea at which Hydrocarbons reach (i) the inlet flange at the FOB

export vessel, (ii) the loading facility metering station of a pipeline or (iii)

such other point within the jurisdiction of Equatorial Guinea as may be

agreed by the Parties.

Development and Production Area means an area within the Contract Area

encompassing the geographical extent of a Commercial Discovery

subject to a Development and Production Plan in accordance with

Article 5.5.

Development and Production Costs means all costs, expenses and liabilities

incurred by the Contractor in connection with Development and

Production Operations in a Development and Production Area,

excluding all Exploration Costs incurred in the Development and

Production Area prior to the establishment of any Field, as determined in

accordance with this Contract and the Hydrocarbons Law.

Development and Production Operations means all operations, other than

Exploration Operations, conducted to facilitate the Development and

Production of Hydrocarbons from the Contract Area to the Delivery

Point, but excluding the refining and distribution of Hydrocarbon

products.

Development and Production Plan has the meaning ascribed to it in Article

5.5.1. Platts means Platts Crude Oil MarketWire.

Development Well means a Well, other than an Exploration Well or an

Appraisal Well, drilled with the purpose of producing or improving the

Production of Hydrocarbons, including Exploration Wells and Appraisal

Wells completed as production or injection Wells.

Discovery means the finding by the Contractor of Hydrocarbons whose

existence within the Contract Area was not known prior to the Effective

Date or Hydrocarbons within the Contract Area which had not been

declared a Commercial Discovery prior to the Effective Date and which

are measurable by generally accepted international petroleum industry

practices.

3



Dollars or $ means the legal tender of the United States of America.

Effective Date means the date of receipt by the Contractor of the ratification by

the State of this Contract.

Equatorial Guinea means the Republic of Equatorial Guinea.

Exploration Costs means all costs, expenses and liabilities incurred by the

Contractor in connection with Exploration Operations in the Contract

Area, as determined in accordance with this Contract and the

Hydrocarbons Law.

Exploration Operations include geological and geophysical studies, aerial

mapping, investigations relating to subsurface geology, stratigraphic test

drilling, Exploration Wells, Appraisal Wells and related activities such as

drill site preparation, surveying and all work connected therewith that is

conducted in relation to the Exploration for and Appraisal of

Hydrocarbon deposits in the Contract Area.

Exploration Periods means the Initial Exploration Period, an Extension Period

and any further extensions thereof.

Exploration Well means any Well whose sole objective is to verify the

existence of Hydrocarbons or to study all the necessary elements that

might lead to a Discovery.

Extension Period means the First Extension Period and the Second Extension

Period individually and/or jointly, as the context may require.

Field means a Discovery or an aggregation of Discoveries that is established as

a Field in accordance with Article 5 and can be developed commercially

after taking into account all pertinent operational, economic and financial

data collected during the performance of the Appraisal work program or

otherwise, in accordance with generally accepted international

petroleum practices. A Field may consist of a Hydrocarbon reservoir or

multiple Hydrocarbon reservoirs all grouped on or related to the same

individual geological structural or statigraphic conditions. All deposits

superimposed, adjacent to or underlying a Field in the Contract Area

shall form part of the said Field.

First Exploration Sub-Period means the first [insert number] Contract

Year(s) of the Initial Exploration Period.

First Extension Period means the period of one (1) Contract Year

commencing immediately after the conclusion of the Initial Exploration

Period.

FOB has the meaning set out in the publication of the International Chamber of

Commerce, INCOTERMS 2000.

Gross Revenues means the total income from sales of Total Disposable

Production plus the equivalent monetary value of any other disposal of

Total Disposable Production from the Contract Area during any

Calendar Year.

Hydrocarbons means all natural organic substances composed of carbon and

hydrogen, including Crude Oil and Natural Gas that may be found and

extracted from, or otherwise produced and saved from the Contract

Area.

4



Hydrocarbons Law means Decree-Law No. 8/2006 dated 3 November 2006 of

Equatorial Guinea.

Income Tax means that tax levied on the each of the Parties comprising the

Contractor and all other applicable Persons pursuant to and in

accordance with the Tax Law.

Initial Exploration Period means a period of [insert number] Contract Year(s)

from the Effective Date, subdivided into two sub-periods of [insert

number] Contract Year(s) each.

Joint Operating Agreement or JOA means the joint operating agreement that

regulates the internal relations of the Parties comprising the Contractor

for the conduct of Petroleum Operations in the Contract Area.

LIBOR means the interest rate at which Dollar deposits of six (6) months

duration are offered in the London Inter Bank Market, as published in the

Financial Times of London. The applicable LIBOR rate for each month

or part thereof within an applicable interest period shall be the interest

rate published in the Financial Times of London on the last Business

Day of the immediately preceding calendar month. If no such rate is

quoted in the Financial Times of London during a period of five (5)

consecutive Business Days, another rate (for example, the rate quoted

in the Wall Street Journal) chosen by mutual agreement between the

Ministry and the Contractor will apply.

Market Price means the FOB price for Crude Oil calculated in accordance with

Article 10.

Material Contract means a contract with an Affiliate and/or a contract for the

provision of goods and/or services having a value exceeding [insert

amount] Dollars ($[insert amount]).

Maximum Efficient Production Rate means the maximum efficient production

rate of Hydrocarbons from a Field, that does not damage reservoir

formations and does not cause excessive decline or loss of reservoir

pressure in accordance with good oil field practice and as agreed in

accordance with Article 6.4.

Ministry means the Ministry of Mines, Industry and Energy of Equatorial

Guinea, the entity responsible for supervising Petroleum Operations in

coordination with other Government bodies within the respective areas

of their competence, and any successor.

National Company's Participation Interest means the Participation Interest of

the National Company as set forth in Article 1.3.

Natural Gas means those Hydrocarbons that, at atmospheric conditions of

temperature and pressure, are in a gaseous state including dry gas, wet

gas and residual gas remaining after extraction, treatment, processing,

or separation of liquid Hydrocarbons from wet gas, as well as gas or

gases produced in association with liquid or gaseous Hydrocarbons.

Net Crude Oil has the meaning ascribed to it in Article 7.3.

Net Natural Gas has the meaning ascribed to in Article 13.3.5.

Participation Interest means for each Party comprising the Contractor, the

undivided percentage share of such Party in the rights and obligations

under this Contract, as is specified in Article 1.3.

5



Parties or Party means the parties or a party to this Contract, as the context

may require.

Person means any individual, firm, company, corporation, society, trust,

foundation, government, state or agency of the state or any association

or partnership (whether or not having separate legal personality) or two

or more of these.

Petroleum Operations means all operations related to Exploration,

Development, Production, transportation, storage, conservation,

decommissioning, sale and/or other disposal of Hydrocarbons from the

Contract Area to the Delivery Point and any other work or activities

necessary or ancillary to such operations; these operations and activities

shall be carried out in accordance with this Contract and the

Hydrocarbons Law and shall not include transport outside of Equatorial

Guinea.

Petroleum Operations Costs means Exploration Costs and/or Development

and Production Costs (as the context may require) incurred by the

Contractor in the carrying out of Petroleum Operations, as determined in

accordance with this Contract and the Accounting Procedure.

Petroleum Regulations means all regulations promulgated by the Ministry

pursuant to the Hydrocarbons Law.

Quarter means a period of three (3) consecutive months beginning on 1

January, 1 April, 1 July or 1 October and ending on 31 March, 30 June,

30 September or 31 December, respectively.

Reserve Fund has the meaning ascribed to it in Article 24.3.1.

Royalties means an entitlement of the State over Hydrocarbons produced and

saved from the Contract Area, and not utilized in Petroleum Operations,

based on percentages calculated as a function of the daily rate of the

Total Disposable Production as determined in accordance with Article

7.1.

Second Exploration Sub-Period means the final [insert number] Contract

Year(s) of the Initial Exploration Period.

Second Extension Period means the period of one (1) Contract Year

commencing immediately after the end of the First Extension Period.

Tax Law means Decree-Law No. 4/2004 dated 28 October 2004 of Equatorial

Guinea, and any law that amends it or replaces it.

Technical Operator shall be [the Company], as approved by the Ministry and

designated as such under the Joint Operating Agreement.

Total Disposable Production means all Hydrocarbons produced and saved

from a Development and Production Area less the quantities used for

Petroleum Operations.

Unassociated Natural Gas means all gaseous Hydrocarbons produced from

Natural Gas reservoirs, and includes wet gas, dry gas and residual gas

remaining after the extraction of liquid Hydrocarbons from wet gas.

Well means any opening in the ground or seabed made or being made by

drilling or boring, or in any other manner, for the purpose of exploring

and/or discovering, evaluating or producing Crude Oil or Natural Gas, or

6



for the injection of any fluid or gas into an underground formation other

than a seismic hole.

1.2



Scope



1.2.1



This Contract is a production sharing contract awarded pursuant to Chapter IV

of the Hydrocarbons Law. In accordance with the provisions of this Contract and

the Hydrocarbons Law, the Ministry shall be responsible for supervising

Petroleum Operations in the Contact Areas.



1.2.2



The State grants to the Contractor the sole and exclusive right and charge of

conducting all Petroleum Operations in the Contract Area during the term of this

Contract. In consideration of this, the Contractor shall:

(a)



be responsible to the State as an independent contractor, for the

execution of the Petroleum Operations in accordance with the

provisions of this Contract and the Hydrocarbons Law;



(b)



provide all funds, machinery, equipment, technology and

personnel prudent and necessary to conduct Petroleum

Operations; and



(c)



diligently, with due regard to good oil field practice, perform at its

exclusive responsibility and risk all investments and contractual

obligations necessary for conducting Petroleum Operations in

accordance with this Contract.



1.2.3



All Petroleum Operations Costs shall be recoverable and/or deductible for tax

purposes in the manner set forth in this Contract and the Hydrocarbons Law.



1.2.4



During the term of this Contract, the total Production achieved as a

consequence of Petroleum Operations shall be shared between the Parties in

accordance with Article 7.



1.3



Participation Interests

On the Effective Date the Participation Interests of the Parties comprising the

Contractor are as follows:

[The Company]



[insert number]%



The National Company



[insert number]%



Total



100%



ARTICLE 2 - EXPLORATION PERIOD AND RELINQUISHMENTS

2.1



Initial Exploration Period

As of and from the Effective Date, the Contractor is authorized to conduct

Exploration Operations in the Contract Area during the Initial Exploration Period.



2.2



Extension Periods



2.2.1



Upon the fulfillment by the Contractor of its Exploration obligations set forth in

Articles 3.1.1 and 3.1.2 with respect to the Initial Exploration Period, the

7



Contractor may request up to two (2) extensions of the Initial Exploration

Period.

2.2.2



For each Extension Period, the Contractor shall file a request with the Ministry

at least two (2) months prior to the expiry of the Initial Exploration Period, or as

the case may be, the First Extension Period. The Ministry shall not

unreasonably withhold or delay the granting of such extension; provided that the

Contractor has complied with all of its obligations in the Initial Exploration Period

and the First Extension Period, as applicable, and shall not be otherwise in

breach of this Contract.



2.2.3



Each request for an extension shall be accompanied by a map specifying the

Contract Area proposed to be retained by the Contractor, along with a report

specifying any work performed in the proposed relinquished area since the

Effective Date and the results obtained therefrom.



2.2.4



If upon expiry of the Initial Exploration Period, or of any Extension Period, any

Appraisal work program with respect to a Discovery is still under progress, the

Contractor shall be entitled to an additional extension of the then current

Exploration Period necessary to complete the work in progress. Furthermore,

where Appraisal work has not yet been completed by the Contractor at the time

at which a relinquishment contemplated by Article 2.4 is due, the requirement to

relinquish shall be suspended until such time that the Contractor completes the

said Appraisal work, commerciality is determined and, if applicable, the related

establishment of a Field is approved or denied. Any additional extension

granted under this Article 2.2.4 shall not exceed one (1) Contract Year, or such

longer period as may be approved by the Ministry, plus the period of time

established under Article 5 necessary for the evaluation of a marketing plan, the

preparation of a Development and Production Plan and the Ministry's response.



2.2.5



In such event, the Contractor shall file a request for an extension with the

Ministry at least two (2) months prior to the expiry of the current Initial

Exploration Period or Extension Period, as applicable.



2.3



Termination

Should the Contractor decide:

(a)



not to extend the Initial Exploration Period and no Field has been

established during such period; or



(b)



to extend the Initial Exploration Period and no Field has been

established during an Extension Period or any additional

extension thereof,



this Contract shall automatically terminate.

2.4



Mandatory Relinquishments



2.4.1



The Contractor must relinquish to the State forty percent (40%) of the initial

surface area of the Contract Area by the end of the Initial Exploration Period,

twenty-five percent (25%) of the remaining area by the end of the First

Extension Period, and the remainder of the Contract Area by the end of the

Second Extension Period, or at the end of the Initial Exploration Period or the

First Extension Period, if no further extension is requested by the Contractor. To

determine the area or areas which the Contractor shall relinquish, the following

areas shall be excluded for the purposes of such calculation:

8



2.4.2



(a)



areas designated as an Appraisal Area;



(b)



Development and Production Areas;



(c)



areas for which the approval of a Development and Production

Plan is pending, until finally decided;



(d)



the area of any Field, including any Field which may be subject to

unitization pursuant to Article 22; and



(e)



any area reserved for a possible Unassociated Natural Gas

Appraisal in relation to which the Contractor is engaged in

discussions with the Ministry in accordance with Article 13.1.



Upon expiry of the applicable final extension period indicated in Article 2.2, and

subject to the provisions of Article 2.2.4, the Contractor shall relinquish the

remainder of the Contract Area, with the exception of:

(a)



Development and Production Areas;



(b)



those areas for which an application for a Development and

Production Area is pending, until finally decided;



(c)



the area of any Field, including any Field which may be subject to

unitization pursuant to Article 22; and



(d)



any area reserved for a possible Unassociated Natural Gas

Appraisal in relation to which the Contractor is engaged in

discussions with the Ministry in accordance with Article 13.



2.5



Voluntary Relinquishments



2.5.1



Subject to the Contractor's obligations under Article 24 and the Hydrocarbons

Law, the Contractor may at any time notify the Ministry upon three (3) months

prior notice that it relinquishes all of its rights over all or any part of the Contract

Area.



2.5.2



In no event shall any voluntary relinquishment by the Contractor of rights over

all or any part of the Contract Area reduce the Exploration obligations of the

Contractor set forth in Article 3.



2.6



Relinquishments Generally



2.6.1



No relinquishment made in accordance with Articles 2.4 or 2.5 shall relieve the

Contractor from its obligation to pay surface rentals accrued or make payments

due and payable as a result of Petroleum Operations conducted up to the date

of relinquishment.



2.6.2



The Contractor shall, in accordance with good oil field practice, propose the

geographic location of the portion of the Contract Area that it proposes to retain,

and which shall have a continuous geometric shape going from North to South

and East to West delimited as a minimum by one minute (1') of latitude or

longitude or by natural boundaries and such area shall also be subject to the

approval of the Ministry.



9



ARTICLE 3 - EXPLORATION WORK OBLIGATIONS

3.1



Minimum Work Program

During the Exploration Period, the Contractor undertakes to carry out the

following minimum work program:



3.1.1



During the First Exploration Sub-Period, the Contractor must:

(a)



obtain, under license from the Ministry, all existing 2D and 3D

seismic data and Well data at a purchase price of [insert

amount] Dollars ($[insert amount]) and obtain from GESeis all

existing 3D seismic and Seabed Logging (SBL) data at a

purchase price of [insert amount] Dollars ($[insert amount]),

and the Contractor shall undertake to interpret such information;



(b)



reprocess [insert number] kilometers of existing 2D seismic

data and [insert number] kilometers of 3D seismic data; and



(c)



acquire [insert number] kilometers of new 3D seismic data.



All costs of data acquisition (including escalation fees) shall be cost

recoverable. The minimum expenditure for this period shall be [insert amount]

Dollars ($[insert amount]).

3.1.2



During the Second Exploration Sub-Period, the Contractor must drill a minimum

of [insert number] Exploration Well[s] to a minimum depth of [insert number]

meters below the seabed. The minimum expenditure for this period shall be

[insert amount] Dollars ($[insert amount]).



3.1.3



If the Contractor elects to enter the First Extension Period, the Contractor must

drill a minimum of [insert number] Exploration Well[s] to a minimum depth of

[insert number] meters below the seabed. The minimum expenditure for this

period shall be [insert amount] Dollars ($[insert amount]).



3.1.4



If the Contractor elects to enter the Second Extension Period, the Contractor

must drill a minimum of [insert number] Exploration Well[s] to a minimum

depth of [insert number] meters below the seabed. The minimum expenditure

for this period shall be [insert amount] Dollars ($[insert amount]).

However, if the Contractor has drilled more than the minimum number of

Exploration Wells required of it under any of Articles 3.1.1, 3.1.2 or 3.1.3, then

its obligation under this Article 3.1.4 shall be reduced to [insert number]

Exploration Well[s].



3.2



Minimum Depth of Wells



3.2.1



Each Exploration Well set forth above must be drilled to the minimum depth

specified above or to a lesser depth if authorized by the Ministry in accordance

with this Article or if discontinuing drilling is justified by one of the following

reasons:

(a)



the economic basement is encountered at a depth less than the

stipulated minimum contractual depth;



(b)



continued drilling is clearly dangerous because of abnormal

pressure in the formation;



10



(c)



rock formations are encountered, the hardness of which makes it

impracticable to continue drilling with appropriate equipment; or



(d)



Hydrocarbon bearing formations are encountered that require the

installation of protective casings which excludes the possibility of

reaching the minimum contractual depth.



3.2.2



For the purposes of Article 3.2.1, economic basement means any stratum in

and below which the geological structure or physical characteristics of the rock

sequence do not have the properties necessary for the accumulation of

Hydrocarbons in commercial quantities and which also reflects the maximum

depth at which any accumulation of this type can be reasonably expected.



3.3



Cessation of Drilling

In respect of Article 3.2.1(a) and to the extent practicable where a prudent

operator would immediately cease drilling operations, the Contractor shall

obtain the approval of the Ministry prior to the interruption or cessation of any

drilling. The Ministry shall respond as soon as practicable and in any event

within three (3) Business Days counted from the date of receipt of such request.

The granting of such approval may not be unreasonably withheld or delayed,

provided that the Ministry is in receipt of sufficient information to enable it to

make an informed decision.



3.4



Substitute Wells

If any obligatory Exploration Well is abandoned due to insurmountable technical

problems as set out in Article 3.2.1 (b), (c) and (d) and, at the time of such

abandonment, the Exploration Costs for such Well have equaled or exceeded

[insert amount] Dollars ($[insert amount]), for all purposes of this Contract,

the Contractor shall be deemed to have fulfilled the minimum work obligations

for the relevant period. If any obligatory Exploration Well is abandoned due to

insurmountable technical problems, and if at the time of such abandonment, the

Exploration Costs for such Well are less than [insert amount] Dollars ($[insert

amount]) then the Contractor shall have the option to either:



3.5



(a)



drill a substitute Exploration Well at the same or another location

to be agreed with the Ministry; or



(b)



pay the Ministry an amount equal to the difference between

[insert amount] Dollars ($[insert amount]) and the amount of

Exploration Costs actually spent in connection with such

Exploration Well.



Provision of Guarantee

On or prior to the Effective Date, each of the Parties comprising the Contractor

(other than the National Company) shall provide to the State, at the sole

discretion of the Ministry, either (i) a parent company guarantee in the form set

forth in Annex D from a company acceptable to the Ministry or (ii) an irrevocable

standby letter of credit from a first class international financial institution

acceptable to the Ministry in the amount of [insert amount] Dollars ($[insert

amount]), which corresponds to the minimum expenditure obligations of the

Contractor under this Contract, and which shall remain valid and effective for six

(6) months after the end of the Initial Exploration Period, any Extension Period

11



and any additional extension thereof, as applicable. If the Parties comprising the

Contractor (other than the National Company) fail to deliver to the Ministry the

required guarantee by or on the Effective Date, this Contract shall be

considered null and void without any further procedure or notice.

3.6



Participation Interest of the National Company

For the purposes of this Article 3 any expenditure of the Parties comprising the

Contractor (other than the National Company) under Article 8.2 shall not be

treated as an expenditure for the purpose of satisfying the minimum expenditure

obligations set out herein.



ARTICLE 4 - ANNUAL WORK PROGRAMS AND BUDGETS

4.1



Submission of Annual Work Program

No later than ninety (90) days prior to the beginning of each Calendar Year, or

for the first Calendar Year no later than sixty (60) days after the Effective Date,

the Contractor shall prepare and submit for approval by the Ministry a detailed

and itemized Annual Work Program divided into Quarters, along with the

corresponding Annual Budget for the Contract Area setting forth the Petroleum

Operations the Contractor proposes to carry out during such Calendar Year.

The Annual Budget shall be presented in the official format of the Ministry.



4.2



Form and Approval of Annual Work Program

Each Annual Work Program and corresponding Annual Budget shall be broken

down into the various Exploration Operations and, as applicable, the Appraisal

operations for each Appraisal Area and the Development and Production

Operations for each Development and Production Area. The Ministry may

propose amendments or modifications to the Annual Work Program and

corresponding Annual Budget, by giving notice to the Contractor and including

reasons for such amendments or modifications, within sixty (60) days following

receipt of such Annual Work Program and Annual Budget. In such event the

Ministry and the Contractor shall meet as soon as possible to review the

amendments or modifications proposed by the Ministry and establish by mutual

agreement the Annual Work Program and corresponding Annual Budget. The

parts of the Annual Work Program for which the Ministry does not require

amendment or modification will be deemed approved and must be completed

by the Contractor within the stated time period, provided they may be

undertaken on an individual basis. With respect to the parts of the Annual Work

Program for which the Ministry proposes any amendment or modification, the

date of approval of the Annual Work Program and corresponding Annual

Budget shall be the date on which the Ministry and the Contractor reach the

aforementioned mutual agreement. In the event the Ministry and the Contractor

do not reach an agreement regarding the amendments and modifications

proposed by the Ministry before the end of the Calendar Year in which the

Annual Work Plan and corresponding Annual Budget were submitted, the

Contractor shall continue operating pursuant to the most recent Annual Work

Plan and corresponding Annual Budget approved by the Ministry until a mutual

agreement is reached.

12



4.3



Conduct of Petroleum Operations

The Contractor shall diligently and properly perform each operation included in

an approved Annual Work Program in accordance with the terms of this

Contract and the Hydrocarbons Law.



4.4



Overexpenditures



4.4.1



It is acknowledged by the Ministry and the Contractor that the technical results

acquired as work progresses or the occurrence of certain unforeseen changes

in circumstances may justify modifications to an approved Annual Work

Program and corresponding Annual Budget. In such circumstances, the

Contractor shall promptly notify the Ministry of the proposed modifications. Such

modifications are subject to review and approval by the Ministry within sixty (60)

days after receipt of such notice. Failure of the Ministry to approve or reject such

proposed modifications within such sixty (60) day period shall be deemed to be

an approval of such proposed modifications. Notwithstanding the foregoing and

in no event shall the Contractor incur any expenditure which exceeds an

approved Annual Budget by more than five percent (5%) without the prior

approval of the Ministry; otherwise such excess expenditures shall not be

recoverable as a Petroleum Operations Cost or deductible for tax purposes.



4.4.2



At such time that the Contractor reasonably believes that the limits of an Annual

Budget will be exceeded, the Contractor shall promptly notify the Ministry and

shall provide the Ministry with full details of such overexpenditures, including

reasons therefor.



4.4.3



The limitations set out in this Article 4.4 shall be without prejudice to the

Contractor’s right to make expenditures in the event of an emergency or

accident requiring urgent action under Article 4.5.



4.4.4



Save as otherwise provided in Article 4.5, should the Contractor incur any

expenditure whose program and budget has not been approved within an

Annual Work Program and corresponding Annual Budget or any amendment

thereto approved by the Ministry, then such expenditure shall not be

recoverable by the Contractor as a Petroleum Operations Cost or be deductible

for tax purposes.



4.5



Emergency or Accident



4.5.1



In the event of an emergency or accident requiring urgent action, the Contractor

shall take all steps and measures as may be prudent and necessary in

accordance with good oil field practice for the protection of its interests and

those of the State and the property, life and health of other Persons, the

environment and the safety of Petroleum Operations. The Contractor shall

promptly inform the Ministry of such emergency or accident.



4.5.2



All of the related costs incurred by the Contractor in accordance with this Article

4.5 shall be recoverable as Petroleum Operations Costs in accordance with this

Contract. Notwithstanding the foregoing, all costs incurred by the Contractor in

the cleaning up of pollution or damage to the environment caused by the

negligence or willful misconduct of the Contractor, its subcontractors or any

Person acting on its or their behalf shall not be recoverable as a Petroleum



13



Operations Cost.



ARTICLE 5 - APPRAISAL OF A DISCOVERY AND PRODUCTION PERIOD

5.1



Notification of Discovery

If the Contractor discovers Hydrocarbons in the Contract Area it shall notify the

Ministry as soon as possible, but not later than thirty (30) days after the date of

such Discovery. This notice shall include all relevant information in accordance

with generally accepted practice of the international petroleum industry

including particulars of any production testing program which the Contractor has

carried out or proposes to carry out during drilling operations.



5.2



Appraisal Work Program



5.2.1



If the Contractor considers that the Discovery merits Appraisal it shall diligently

submit to the Ministry a detailed Appraisal work program and corresponding

budget no later than six (6) months following the date on which the Discovery

was notified in accordance with Article 5.1. The Appraisal work program,

corresponding budget and designated Appraisal Area are subject to the review

and approval of the Ministry in accordance with the procedures set forth in

Article 4.



5.2.2



The draft Appraisal work program shall specify the estimated size of the

Hydrocarbon reserves of the said Discovery, the area proposed to be

designated as the Appraisal Area and shall include all seismic, drilling, testing

and Appraisal operations necessary to carry out an appropriate Appraisal of the

Discovery. The Contractor shall diligently undertake the approved Appraisal

work program, it being understood that the provisions of Article 4.4 shall apply

to such program.



5.2.3



The duration of the Appraisal work program shall not exceed twenty-four (24)

months for Crude Oil and in the case of Natural Gas the duration of the

Appraisal work program shall be determined in accordance with the provisions

of Article 13, unless as otherwise approved by the Ministry, such approval not to

be unreasonably withheld or delayed.



5.3



Submission of Appraisal Report



5.3.1



Within six (6) months following completion of the Appraisal work program and in

any event no later than thirty (30) days prior to the expiry of the Initial

Exploration Period, or the First Extension Period or the Second Extension

Period, including any additional extension in accordance with the provisions of

Article 2.2, as may be the case, the Contractor shall submit to the Ministry a

detailed report giving all the technical and economic information associated with

the Discovery so appraised and which shall confirm, in the Contractor's opinion,

whether such Discovery is a Commercial Discovery.



5.3.2



The above-referred report shall include geological and petrophysical

characteristics of the Discovery, estimated geographical extent of the

Discovery, results of the production tests yielded by the formation and the



14



preliminary economic study with respect to the exploitation of the Discovery.

5.4



Determination of Commerciality

For the purposes of Article 5.3, the Contractor shall determine whether it

considers that a Discovery or aggregation of Discoveries can be developed

commercially. The commercial viability of the Discovery or aggregation of

Discoveries shall be determined after consideration of all pertinent operating,

economic and financial data collected during the performance of the Appraisal

work program and otherwise, including Crude Oil and Natural Gas recoverable

reserves, sustainable Production levels and all other relevant economic factors,

according to generally accepted international petroleum industry practice.



5.5



Submission and Approval of Development and Production Plan



5.5.1



If the Contractor deems the Discovery or aggregation of Discoveries to be a

Field it shall submit for the approval of the Ministry a development and

production plan (the Development and Production Plan) for such Discovery or

aggregation of Discoveries within twelve (12) months following the remittance of

the report referred to in Article 5.3.



5.5.2



The Ministry may propose amendments or modifications to the aforementioned

Development and Production Plan, and also to the Development and

Production Area subject to such Development and Production Plan, by notice to

the Contractor within ninety (90) days following receipt of the relevant plan.

Such notification shall set out the reasons for the amendments or modifications

proposed by the Ministry. In such event the Ministry and the Contractor shall

meet as soon as possible to review the proposed amendments or modifications

of the Ministry and establish by mutual agreement the Development and

Production Plan.



5.5.3



If the Contractor and the Ministry do not reach a written agreement within one

hundred eighty (180) days following the submission of amendments and

modifications by the Ministry, or the Ministry notifies the Contractor that it does

not approve the establishment of a Field, the Field shall not be established and

any extension granted under Article 2.2.4 with respect to the Discovery or

aggregation of Discoveries shall expire.



5.6



Modifications to Development and Production Plan



5.6.1



When the results obtained during Development and Production Operations

require certain modifications to the Development and Production Plan, such

plan may be modified using the same procedure provided for with respect to the

initial approval thereof. Subject to Article 4.4, the Contractor may not incur any

expenditure which exceeds the approved Development and Production Plan

without the prior approval of the Ministry; if prior approval is not obtained, such

excess expenditures will not be recoverable by the Contractor as Petroleum

Operations Costs or deductible for tax purposes.



5.6.2



During a period of Development and Production, the Contractor may propose

to the Ministry revisions to the Development and Production Plan at any time

that additional Development and Production Operations are under

consideration. Such revisions shall be submitted for approval by the Ministry,



15



using the same procedure provided for with respect to the initial approval

thereof.

5.7



Number of Fields

If the Contractor discovers more than one (1) Field in the Contract Area which

are not overlying, adjacent to or underlying an existing Field, each of them shall

be the subject of a separate Development and Production Plan.



5.8



Extension of Field beyond Contract Area



5.8.1



If, during work performed after approval of a Development and Production Plan,

it appears that the geographical extent of a Field is larger than the Development

and Production Area designated pursuant to Article 5.5, the Ministry may grant

the Contractor the additional area, on condition that it is included in the Contract

Area in effect at that time, and provided that the Contractor provides supporting

evidence of the existence of the additional area applied for.



5.8.2



In the event that a Field extends beyond the boundaries of the Contract Area as

delimited at any particular time, the Ministry may require the Contractor to

exploit such Field in association with the contractor of the adjacent area in

accordance with Article 22, the Hydrocarbons Law and generally accepted

practice of the international petroleum industry.



5.8.3



When the area proposed to be unitized is not subject to any production sharing

contract, such area shall be the subject of new negotiations between the

Parties, it being understood that any award of an additional area must be in

accordance with the Hydrocarbons Law.



5.9



Commencement and Performance of Development and Production

Operations



5.9.1



The Contractor shall commence Development and Production Operations within

six (6) months from the date of approval of the Development and Production

Plan and shall pursue such operations diligently.



5.9.2



The Contractor undertakes to perform all Development and Production

Operations in accordance with generally accepted practice of the international

petroleum industry, this Contract and the Hydrocarbons Law.



5.10



Duration of Operations



5.10.1



The duration of the Development and Production period during which

the Contractor is authorized to exploit a Field is twenty-five (25) Years from the

date of approval of the Development and Production Plan related to such Field.



5.10.2



The Development and Production period defined above may be

extended for an additional period of five (5) Years with prior approval of the

Ministry, which approval shall not be unreasonably withheld or delayed, if the

Contractor submits a request to this effect to the Ministry at least one (1) Year

prior to its expiry and on the condition that the Contractor has fulfilled all of its

obligations under this Contract and that it can demonstrate that commercial

Production from the Field is still possible after the expiry of the initial

Development and Production period.



16



5.11



Risk and Expense of Contractor

The Contractor undertakes to perform at its own expense and financial risk all

the Petroleum Operations required to place a Field into Production in

accordance with the Development and Production Plan so approved.



5.12



Mandatory Relinquishment

For the duration of the Initial Exploration Period, the Extension Periods and any

additional extension thereof, the Ministry may, provided it gives at least six (6)

months notice, require the Contractor to promptly relinquish, without any

compensation or indemnification, all of its rights over the area encompassing a

Discovery, including all of its rights over Hydrocarbons which may be produced

from such Discovery, if the Contractor:



5.13



(a)



has not submitted, in accordance with Article 5.2, an Appraisal

work program and corresponding budget with respect to such

Discovery within six (6) months following the date on which such

Discovery has been notified to the Ministry; or



(b)



subject to Article 13.1 regarding Unassociated Natural Gas, does

not establish the Discovery as a Field within one (1) Year after

completion of Appraisal work with respect to such Discovery.



Future Operations

In the event of a relinquishment under Article 5.12, the Ministry may perform or

cause to be performed any Petroleum Operations with respect to any Discovery

so relinquished without any compensation or indemnification to the Contractor,

provided, however, that it shall not interfere with the Petroleum Operations

undertaken by the Contractor in the part of the Contract Area retained by the

Contractor, if any. The Ministry shall be permitted to use (free of charge) all

facilities and equipment of the Contractor that are not used for continuing

Petroleum Operations. If requested by the Ministry all continuing operations

shall be undertaken by the Contractor for a fee and on terms to be agreed

between the Ministry and the Contractor.



ARTICLE 6 - CONDUCT OF PETROLEUM OPERATIONS

6.1



Obligations of Contractor

In accordance with generally accepted practice of the international petroleum

industry and the Hydrocarbons Law, the Contractor shall provide all funds

necessary for the conduct of Petroleum Operations in the Contract Area

including the purchase or rental of all facilities, equipment, materials and other

goods required for the performance of such Petroleum Operations. It shall also

supply all technical and operational expertise, including the use of foreign and

national personnel required for implementing Annual Work Programs. The

Contractor shall be responsible for the preparation and implementation of all

Annual Work Programs which shall be performed in accordance with this

Contract, the Hydrocarbons Law and generally accepted practice of the

international petroleum industry.



17



6.2



Joint Operating Agreement

Within forty-five (45) days following the Effective Date, the Contractor shall

provide the Ministry with a draft of the Joint Operating Agreement which shall be

based upon the current model form operating agreement from the Association

of International Petroleum Negotiators (AIPN). The Joint Operating Agreement

and all amendments thereto shall be subject to the prior approval of the

Ministry. The identity of the Technical Operator and any change thereto shall be

subject to the prior approval of the Ministry in accordance with the

Hydrocarbons Law. The National Company shall be appointed as the

Administrative Operator under the Joint Operating Agreement.



6.3



Conduct of Petroleum Operations

The Contractor shall diligently conduct Petroleum Operations in accordance

with this Contract, the Hydrocarbons Law and generally accepted practice of the

international petroleum industry.



6.4



Maximum Efficient Production Rate

The Contractor and the Ministry shall agree on the Production programs before

Production begins in any Field and establish at that time the Maximum Efficient

Production Rate for such Field, and will determine the dates on which such

levels will be reexamined and potentially revised.



6.5



Working Conditions

The Contractor shall provide acceptable working conditions and access to

medical attention and nursing care for all of its local and international personnel

and those of its subcontractors while undertaking Petroleum Operations. The

Contractor shall also provide living accommodation for personnel based on

offshore installations and an additional accommodation allowance in the

remuneration of personnel based onshore.



6.6



Discovery of other Minerals

The Contractor shall promptly notify the Ministry of the discovery of any

minerals or other substances in the Contract Area. If any Persons are granted a

permit or license within the Contract Area for the exploration and exploitation of

any minerals or substances other than Hydrocarbons, the Ministry shall take all

reasonable measures to ensure that the operations of such Persons will not

obstruct the Contractor's Petroleum Operations. The Contractor shall use all

reasonable efforts to avoid any obstruction with such permit holders or

licensees' operations.



18



6.7



Award of Contracts



6.7.1



Subject to Article 23.1, the Contractor shall award all contracts to the best

qualified subcontractor or other Person, including Affiliates of the Contractor, as

determined by cost and ability to perform the contract without the obligation to

tender and without obtaining the approval of the Ministry (which approval shall

be deemed granted under the Hydrocarbons Law), except that before entering

into any Material Contract, the Contractor shall:

(a)



invite tenders for said contract;



(b)



add to such list any Persons who the Ministry requests;



(c)



complete the tender process within a reasonable period of time;



(d)



consider and analyze the details of the bids received;



(e)



prepare and circulate to the Ministry a competitive bid analysis

stating the Contractor’s recommendation as to the Person to

whom the contract should be awarded, the reasons therefor, and

the technical, commercial and contractual terms to be agreed

upon;



(f)



obtain the approval of the Ministry; and



(g)



provide the Ministry with a copy of the final executed contract.



All amendments and/or variations to a Material Contract shall require the prior

approval of the Ministry.

6.7.2



To the extent that the Contractor imports and/or uses any services, materials,

equipment, consumables and other goods from outside of Equatorial Guinea in

contravention of this Article or Article 23.1, or otherwise enters into a contract in

contravention of such Articles, the costs thereof shall not be Petroleum

Operations Costs and shall not be cost recoverable by the Contractor.



6.7.3



The Contractor shall submit to the Ministry along with the Annual Work Program

a list of the types of contracts or agreements for services that the Contractor

foresees entering into during that Year as well as details of those entered into in

the previous Year. In addition, the Contractor shall present to the Ministry

quarterly a detailed list, including the names, addresses and telephone contacts

of the Contractor’s subcontractors and other Persons who have provided goods

or services to the Contractor for the conduct of Petroleum Operations during the

relevant Quarter.



6.8



Inspection of Petroleum Operations



6.8.1



All Petroleum Operations may be inspected and audited by the Ministry at such

intervals as the Ministry deems necessary. The duly commissioned

representatives of the Ministry shall have the right, among others, to monitor

Petroleum Operations and inspect all equipment, facilities and materials relating

to Petroleum Operations, provided that any such inspection shall not unduly

delay or impede Petroleum Operations. The representatives of the Ministry

inspecting and monitoring Petroleum Operations shall comply with the safety

standards of the Contractor.



19



6.8.2



For the purposes of permitting the exercise of the above-mentioned rights, the

Contractor shall provide reasonable assistance to the representatives of the

Ministry, including transportation and accommodation.



6.8.3



All costs directly related to the technical inspection, verification and audit of

Petroleum Operations or otherwise in connection with the exercise of the

Ministry's rights under this Contract or the performance of the Contractor's

obligations shall be borne by the Contractor and are recoverable as Petroleum

Operations Costs in accordance with this Contract, including:

(a)



outbound and return travel expenses;



(b)



local transportation, as necessary;



(c)



accommodation; and



(d)



per diems, which shall be adjusted in accordance with such

amounts assigned to the ranking of each agent of the Ministry as

published in the general budget law of the State approved for

such Calendar Year.



6.9



Provision of Information to Ministry



6.9.1



The Contractor shall keep the Ministry fully informed on the performance and

status of Petroleum Operations at reasonable intervals and as required under

this Contract and of any emergencies or accidents that may have occurred

during such operations. Furthermore, the Contractor shall provide the Ministry

with all documentation and information that is required to be provided under this

Contract and the Hydrocarbons Law and as may otherwise be requested by the

Ministry from time to time.



6.9.2



The Contractor shall keep the Ministry informed on a daily basis of the volumes

of Hydrocarbons produced from the Contract Area.



6.10



Production of Energy for Own Use

The Contractor shall not produce any energy for its own use unless national

production is insufficient or not reliable enough for the demands of the

Contractor in its conduct of Petroleum Operations. In such event, the energy

produced may not be sold to any Person. However, the Contractor may utilize

the amounts of Crude Oil and/or Natural Gas necessary for the production of

power for use in its offshore facilities.



6.11



Standard of Equipment

The Contractor shall ensure that all equipment, plants, installations and

materials used by it comply with the Hydrocarbons Law and generally accepted

engineering standards, and that they are duly constructed and maintained in

good condition.



6.12



Care of Contractor and the Environment



6.12.1



The Contractor shall take all prudent and necessary steps in accordance

with generally accepted practice of the international petroleum industry, the

Hydrocarbons Law and this Contract to:



20



(a)



prevent pollution and protect the environment and living

resources;



(b)



ensure that any Hydrocarbons discovered or produced in the

Contract Area are handled in a manner that is safe for the

environment;



(c)



avoid causing damage to overlying, adjacent and/or underlying

formations trapping Hydrocarbon reserves;



(d)



prevent the ingress of water via Wells into strata containing

Hydrocarbon reservoirs;



(e)



avoid causing damage to overlying, adjacent and/or underlying

aquifers;



(f)



ensure that Petroleum Operations are carried out in accordance

with this Contract, the Hydrocarbons Law and all other laws of

Equatorial Guinea;



(g)



undertake the precautions necessary for the protection of

maritime transportation and the fishing industry and to avoid

contamination of the ocean and rivers;



(h)



drill and exploit each Field in such a manner that the interests of

Equatorial Guinea are protected; and



(i)



ensure prompt, fair and full compensation for injury to Persons or

property caused by the effects of Petroleum Operations.



6.12.2



If the Contractor's actions result in any pollution or damage to the

environment, any Person, living resources, property or otherwise, the

Contractor shall immediately take all prudent and necessary measures to

remedy such damages and effects thereof and/or any additional measures as

may be directed by the Ministry. If the pollution or damage is caused as a result

of the negligence or willful misconduct of the Contractor, its subcontractors or

any Persons acting on its or their behalf all costs in relation thereof shall not be

recoverable as a Petroleum Operations Cost. If the Contractor does not act

promptly so as to control or clean-up any pollution or make good any damage

caused, the Ministry may, after giving the Contractor reasonable notice in the

circumstances, carry out the actions which are prudent or necessary hereunder

and under Article 4.5 and all reasonable costs and expenses of such actions

shall be borne by the Contractor and shall not be recoverable as a Petroleum

Operations Cost.



6.12.3



If the Ministry determines that any works or installations built by the

Contractor or any activity undertaken by the Contractor threatens the safety of

any Persons or property or causes pollution or harm to the environment, the

Ministry shall promptly advise the Contractor of its determination, and may

require the Contractor to take all appropriate mitigating measures, consistent

with generally accepted practice of the international petroleum industry, to

repair any damage caused by the Contractor's conduct or activities.

Furthermore, if the Ministry deems it necessary, it may demand that the

Contractor suspend totally or partially the affected Petroleum Operations until

the Contractor has taken the appropriate mitigating measures or repaired any

damage.



21



6.12.4



The Contractor shall undertake comprehensive environmental impact

assessment studies prior to, during and after major drilling operations. The

Contractor shall assume the costs of these studies and such costs shall be

recoverable. This requirement is mandatory and the first study shall be

presented to the Ministry before the start of the drilling of the first Well in the

Contract Area. However, an environmental impact assessment must also be

completed prior to undertaking any seismic work in any areas of particular

environmental sensitivity specified by the State.



6.13



Re-injection and Flaring of Natural Gas

The Natural Gas that the Contractor does not develop in accordance with this

Contract and the Hydrocarbons Law or use in its own operations within the

Contract Area shall be re-injected into the structure of the subsoil, and all costs

of such re-injection shall be recoverable as a Petroleum Operations Cost.

Notwithstanding the foregoing, the Ministry may authorize the combustion of

Natural Gas for short periods of time in accordance with the Hydrocarbons Law.

All such Natural Gas not used in Petroleum Operations by the Contractor or not

developed in accordance with this Contract and the Hydrocarbons Law shall

remain the sole property of the State.



6.14



Design and Identification of Wells



6.14.1



The Contractor shall conform to the practices generally accepted in the

international petroleum industry in the design and drilling of Wells, including

their casing and cementation.



6.14.2



Each Well shall be identified by a name or number agreed with the

Ministry, which shall be indicated on all maps, plans and other similar records

produced by or on behalf of the Contractor.



6.15



Vertical Projection Wells

No Well may be drilled to an objective which is outside the vertical projection of

the boundaries of the Contract Area. Controlled direction Wells drilled within the

Contract Area from adjacent terrain not covered by this Contract will be

considered for all purposes of this Contract as Wells drilled from territory

included in the Contract Area, and whose drilling may only be undertaken with

the prior approval of the Ministry, and on such terms and conditions as the

Ministry may establish. Nothing in this Article has the intention or should be

interpreted as a grant of a right of lease, license, servitude or any other right

that the Contractor must obtain from the Ministry or other Persons.



6.16



Notification of Commencement of Drilling

The Contractor shall notify the Ministry at least ten (10) Business Days in

advance of the commencement of any drilling of any Well set out in an

approved Annual Work Program and corresponding Annual Budget or before

the resumption of works on any Well whose works have been suspended for

more than six (6) months.



22



6.17



Construction of Facilities

The Contractor shall build and maintain all facilities necessary for the proper

performance of this Contract and the conduct of Petroleum Operations. In order

to occupy land necessary for the exercise of its rights and obligations under this

Contract, the Contractor shall request the authorization of the Ministry and/or

other applicable governmental authorities, which authorization shall be subject

to and granted in accordance with Article 6.19, the Hydrocarbons Law and other

applicable laws of Equatorial Guinea. The Contractor shall repair any and all

damage caused by such circumstances.



6.18



Occupation of Land



6.18.1



In order to carry out Petroleum Operations, the Contractor shall have the

right to:



6.18.2



(a)



subject to Articles 6.17 and 6.18.2, occupy the necessary land for

the performance of Petroleum Operations and associated

activities as set out in paragraphs (b) and (c) below, including

lodging for personnel;



(b)



undertake or procure the undertaking of any infrastructure work

necessary in normal technical and economic conditions for the

carrying out of Petroleum Operations and associated activities

such as transport, storage of equipment, materials and extracted

substances, establishment of telecommunications equipment and

communication lines necessary for the conduct of Petroleum

Operations at installations located both offshore and onshore;



(c)



undertake or ensure the undertaking of works necessary for the

supply of water to personnel and installation works in accordance

with water supply regulations; and



(d)



extract and use or ensure the extraction and utilization of

resources (other than Hydrocarbons) from the subsoil necessary

for the activities stipulated in paragraphs (a), (b) and (c) above in

accordance with relevant regulations.



Occupation of land as mentioned in Article 6.18.1 shall become effective

after the Ministry or other applicable governmental authority approves the

request submitted by the Contractor indicating and detailing the location of such

land and how the Contractor plans to use it, taking the following into

consideration:

(a)



if the land belongs to the State, the State shall grant it to the

Contractor for occupation and to build its fixed or temporary

facilities during the term of this Contract for a fee and on terms to

be agreed and such amount shall be considered a Petroleum

Operations Cost;



(b)



if the land is private property by traditional or local right according

to the Property Registry, then (i) if the occupation is merely

temporary or transitory, or for right of way, the Contractor shall

reach an agreement with the relevant property owner and the

property owner shall reach an agreement with any occupant,



23



tenant or possessor, with regard to the rental to be paid, and the

resulting amounts shall be considered recoverable Petroleum

Operations Costs, or (ii) if the occupation is permanent, the

relevant owner and the Contractor shall reach an agreement

regarding matters related to the property's acquisition and such

amounts shall be considered Petroleum Operations Costs;



6.19



(c)



if the Contractor and the relevant property owner or occupant,

tenant or possessor do not reach an agreement regarding the

matters mentioned in paragraph (b) above, the Ministry shall act

as a mediator between them and in the event that such

mediation does not produce a resolution of the case the dispute

shall be resolved by the courts of Equatorial Guinea unless

recourse is had to the procedure described in paragraph (d)

below;



(d)



the State may proceed to expropriate the land, subject to the

prior publication of a decree of compulsory expropriation followed

by a fair and reasonable valuation of the land concerned by an

expert valuator. In such event the Contractor shall compensate

the expropriated property owner in accordance with the value

determined by such expert valuator if the State has not done so;

such amounts shall be considered recoverable Petroleum

Operations Costs;



(e)



the relinquishment, in whole or in part, of the Contract Area, will

not affect the Contractor’s rights under Article 6.18.1 to carry out

building works and construction of installations, provided that

such works and installations are directly related to other activities

of the Contractor in the remainder of the Contract Area, as in the

case of partial relinquishment, and covered by other production

sharing contracts.



Residence of Personnel

There shall be no restrictions imposed on the entry, residence, free circulation,

employment and repatriation of the personnel of the Contractor and its

subcontractors, the family of such personnel, or the personal effects of such

personnel and his or her family, provided that the Contractor and its

subcontractors comply with all applicable laws including employment and social

legislation of Equatorial Guinea. The State agrees to grant in a timely manner

the entry, work, or residence permits or other permits or authorizations that, in

accordance with the Laws of Equatorial Guinea, may be required by the

personnel of the Contractor, the Technical Operator or any subcontractor.



6.20



Assistance of Ministry

The Ministry shall assist the Contractor and its subcontractors in obtaining all

administrative authorizations and licenses as may be reasonably necessary for

the proper execution of Petroleum Operations under this Contract.



6.21



Opening of Branch Office

The Contractor shall, to the extent that it has not already done so, open a

representative branch office in Equatorial Guinea within six (6) months following

24



the Effective Date, which shall exist and be maintained during the term of this

Contract. Such branch office shall always be staffed by at least one (1)

representative with sufficient authority to make decisions on behalf of the

Contractor.

6.22



Premises

Upon the first Commercial Discovery, the Contractor shall, to the extent that it

has not already done so, construct a prestigious building for its offices in

Equatorial Guinea using modern and permanent materials and of an

appropriate size and design as shall be approved by the Ministry. All costs

related to such construction shall be recoverable as Petroleum Operation Costs

in accordance with this Contract. Once such construction costs have been

recovered by the Contractor, such property shall be owned solely by the State

and the Contractor shall pay rent to the State at a price and on terms to be

negotiated and such rent shall be considered recoverable Petroleum Operations

Costs.



ARTICLE 7 - ROYALTIES, RECOVERY OF PETROLEUM OPERATIONS COSTS,

AND DISTRIBUTION OF PRODUCTION

7.1



Royalties



7.1.1



The Contractor shall pay Royalties to the State from the first day of Production

based on the daily Total Disposable Production from a Development and

Production Area. The calculation shall be determined according to the following

table applicable for each tranche:

Daily Total Disposable

Production

(Barrels per day)



Royalt

y

(%)



From 0 to ●



13



















7.1.2



The percentage corresponding to the level of Production shall be applied

directly. Thus, for example: for a Production level of [insert number] ([insert

number]) Barrels per day, [insert percentage] percent ([insert percentage]%)

would be payable and the Royalty would be [insert number] ([insert number])

Barrels.



7.2



Cost Recovery Oil



7.2.1



After deducting Royalties, the Contractor shall be entitled to up to [insert

number] percent ([insert number]%) of the Total Disposable Production

remaining in any Calendar Year for recovery of its Petroleum Operations Costs

(Cost Recovery Oil).



25



7.2.2



The value of the portion of Total Disposable Production assigned to the

Contractor’s Petroleum Operations Costs recovered will be determined in

accordance with Article 10.



7.2.3



If, during any Calendar Year, the Petroleum Operations Costs not yet recovered

by the Contractor in accordance with this Contract exceed the value of the

maximum amount of available Cost Recovery Oil, the portion of Petroleum

Operations Costs not recovered in the said Year will be carried forward to the

following Calendar Year for recovery purposes.



7.3



Net Crude Oil

The quantity of Total Disposable Production remaining every Year after the

deduction of Royalties and Cost Recovery Oil will hereafter be referred to as

Net Crude Oil, which will be shared between the State and the Contractor in

the following proportions:

Accumulated Total

Production

(Million Barrels)



Entitlement of the State (%) Entitlement of the

Contractor













7.4



7.5

7.5.1



7.5.2



(%)













Delivery of State's Entitlement





The State’s share of Crude Oil to which it is entitled pursuant to ●Articles 7.1 and

● appointed by

7.3 shall be delivered to and accepted by the State or the Person



it at the Delivery Point. The Contractor shall be free from all responsibility

with



respect to such Crude Oil from the time it has been delivered. However, should

the State so require, the Contractor shall be obliged to purchase all or part of

the State’s share of Total Disposable Production, subject to the

● provisions of

Article 7.5.







Price Obtained by Contractor



If, pursuant to Article 7.4, the State requires the Contractor to purchase its

share of Crude Oil, the State shall advise the Contractor of its next scheduled



shipment at least three (3) months in advance, and the Ministry

and the

Contractor shall come to a mutual agreement as to the terms and conditions

of



such sale and purchase. In the event that three (3) months advance notice is



not given, or they do not reach an agreement as to the terms and conditions

of

the sale and purchase, the Contractor shall not be obliged to purchase

said



Crude Oil.

The Ministry shall be entitled to compare the price for its Crude Oil obtained

from the Contractor with similar market quotations. In the event that it is shown

that the price obtained from the Contractor differs substantially from the

quotations in similar markets, the Ministry shall have the right to evaluate the

Contractor’s sales and marketing operations and, if justified, cancel any sales



26



agreement between the State and the Contractor, without prejudice to any claim

that the State may have against the Contractor with respect to the matters

under dispute.

7.6



Export of Entitlement

Subject to Article 12 and the Hydrocarbons Law, each Party comprising the

Contractor has the right to take, receive and freely export its share of Net Crude

Oil and Cost Recovery Oil, provided it uses the services of an Equatoguinean

Crude Oil maritime transport company, an international company associated

with the National Company or any other local business that is able to provide

the services under conditions that are internationally competitive in terms of

price, quality, terms of payment and availability in accordance with Article 23.1.



7.7



Title to Contractor's Entitlement

Title to the Contractor’s portion of Net Crude Oil and Cost Recovery Oil shall

pass to the Contractor at the Delivery Point.



ARTICLE 8 - PARTICIPATION INTERESTS

8.1



Liability for Petroleum Operations Costs

Subject to Article 8.2, the Parties comprising the Contractor shall fund, bear and

pay all costs and expenses for Petroleum Operations under this Contract and

the Joint Operating Agreement in the proportions set forth in Article 1.3. Each of

the Parties comprising the Contractor shall be represented on the operating

committee under the JOA and shall have voting rights as provided therein.



8.2



Participation Interest of the National Company



8.2.1



The National Company’s Participation Interest will be carried and paid for in full

by the other Parties comprising the Contractor (other than the National

Company) in proportion to their respective Participation Interests (other than the

National Company's) until such time as the National Company elects to convert

its carried Participation Interest into a full working Participation Interest in

accordance with the Hydrocarbons Law. From that point on, the National

Company shall be responsible for all its costs in respect of the area covered by

the approved Development and Production Plan. For the avoidance of doubt,

the National Company's Participation Interest in respect of the remainder of the

Contract Area shall continue to be carried and paid for by the Parties

comprising the Contractor (other than the National Company) in proportion to

their respective Participation Interests (not including the National Company's)

until such time as the National Company elects to convert its carried interest

into a full working interest.



8.2.2



The costs, expenditures and obligations incurred by the Parties comprising the

Contractor (other than the National Company) in relation to the National

Company’s carried Participation Interest shall be recoverable by the Parties



27



comprising the Contractor (other than the National Company) in accordance

with the provisions of this Contract and the Hydrocarbons Law.

8.2.3



The Parties comprising the Contractor (other than the National Company) shall

recover the costs and expenditures in relation to the National Company’s

carried Participation Interest from fifty percent (50%) of the Hydrocarbons

corresponding to the National Company’s total entitlement.



ARTICLE 9 - TAXATION

9.1



Payment of Taxes

Except as otherwise provided in this Contract, the Contractor, its subcontractors

and their respective employees, agents, consultants and other personnel shall

be subject to the Tax Law and all regulations passed pursuant thereto, as well

as UDEAC (Central African Economic and Monetary Union) and fiscal and

customs laws of Equatorial Guinea.



9.2



Audit Rights

The provisions of Article 16 shall apply to Income Tax, Royalty payments and to

all other obligations under this Contract.



ARTICLE 10 - VALUATION OF CRUDE OIL

10.1



Calculation of Market Price



10.1.1



The unit selling price of Crude Oil under this Contract shall be the FOB

Market Price at the Delivery Point, expressed in Dollars per Barrel and

calculated in accordance with this Article 10.1. A Market Price shall be

established for each type of Crude Oil or Crude Oil blend.



10.1.2



The Market Price applicable to all liftings of Crude Oil during a Quarter

shall be calculated at the end of that Quarter and shall be equal to the weighted

average of prices obtained by the Parties comprising the Contractor for Crude

Oil sold to or purchased from third parties on an arm’s length basis during that

Quarter, further adjusted as necessary to reflect differentials in quality, gravity,

quantity, delivery conditions and terms of payment; provided that, the quantities

sold to or purchased from third parties during that Quarter constitute at least

fifteen percent (15%) of the total quantities of Crude Oil won and saved from all

the Fields under this Contract and sold or purchased during such Quarter.



10.1.3



In the event that such sales to or purchases from third parties are not

made during the Quarter in question or represent less than fifteen percent

(15%) of the total quantities of Crude Oil won and saved from all the Fields

under this Contract and sold or purchased by the Contractor during said

Quarter, the Market Price shall be equal to the weighted average of:

(a)



the average of the International Petroleum Exchange (IPE)

Dated Brent quotations as published in Platts; and



(b)



the average of the quotations as published in Platts for one (1) or

several types of Crude Oil of similar quality to that produced in

28



West Africa and to be mutually agreed between the Ministry and

the Contractor for the Quarter in question, adjusted as necessary

to reflect differentials in quality, gravity, quantity and terms and

conditions of delivery and payment.

10.1.4



10.1.5



The following transactions shall be excluded from the calculation of the

Market Price:

(a)



sales in which the buyer is an Affiliated Company of the seller

(unless such sales are on an arm’s length basis) as well as sales

between the Persons comprising the Contractor;



(b)



sales between the providers of Crude Oil and the local market;

and



(c)



sales for consideration other than payment in a freely convertible

currency and sales wholly or partially made for reasons other

than the usual economic incentives involved in Crude Oil sales

on the international market (such as exchange contracts).



The Market Price of Crude Oil shall be established:

(a)



taking into consideration the evolution of the international

market; and



(b)



if the Crude Oil used to calculate the Market Price ceases to be

quoted, the Ministry and the Contractor shall agree on the Crude

Oil which most closely approximates to the Crude Oil the

quotation of which has ceased for the purposes of calculating the

Market Price.



10.2



Disagreement of Market Price



10.2.1



The Contractor and the Ministry shall agree the Market Price in

accordance with this Article 10; in the event that they are unable to agree on

any matter concerning the Market Price of Crude Oil, either the Contractor or

the Ministry may serve on the other a dispute notice. Within seven (7) days of

the date of the dispute notice the Ministry shall establish a committee of two (2)

Persons of which the Minister of Mines, Industry and Energy or his delegate will

be the President and the other committee member will be a representative

designated by the Contractor to represent it. The committee must meet and

make a decision resolving any dispute under this Article 10 within thirty (30)

days of the date of the dispute notice. The committee shall unanimously decide

the dispute.



10.2.2



In the event a unanimous decision is not reached by the committee

within the aforementioned thirty (30) day period, the dispute shall be determined

by an internationally recognized expert appointed by the International Chamber

of Commerce in accordance with its Rules for Expertise (ICC Expertise Rules).

The determination of the expert shall be final and binding on the Parties. The

expert shall determine the Market Price in accordance with the provisions of this

Article 10 within twenty (20) days from the date of his appointment. Unless

otherwise determined by the expert, the costs and expenses of such expert

shall be shared proportionately by the Parties on a per capita basis and the

Contractor’s share shall not be cost recoverable.



29



10.2.3



Pending the determination of the Market Price for a Quarter, the Market

Price provisionally applicable to a Quarter shall be the Market Price of the

preceding Quarter. Any necessary adjustment shall be made no later than thirty

(30) days after the determination of the Market Price for the Quarter in question.



10.3



Payment of Market Price

Within ten (10) days after each shipment, the Contractor shall provide the

Ministry with full details of the prices achieved for the sale of each shipment of

the State's Crude Oil and will remit all funds to the State within fourteen (14)

days after receipt thereof by the Contractor.



10.4



Audit of Market Price

The Ministry shall be entitled to audit and verify that the price obtained by the

Contractor for each shipment of Crude Oil has been the price determined in

accordance with this Contract. The Ministry has the right, during a period of two

(2) Years from the transaction date, to assess the marketing practices of the

Contractor and require the Contractor to pay the State for the difference

between the price actually obtained and the Market Price determined in

accordance with this Article 10.



ARTICLE 11 - BONUSES AND SURFACE RENTALS

11.1



Signature Bonus

The Contractor shall pay to the State a signature bonus of [insert amount]

Dollars ($[insert amount]) within thirty (30) days of the Effective Date.



11.2



Discovery Bonus

On the date the Contractor notifies the Ministry for the first time that it deems a

Discovery to be a Commercial Discovery in compliance with the provisions of

Article 5.4, the Contractor shall pay to the State the sum of [insert amount]

Dollars ($[insert amount]).



11.3



Production Bonuses

The Contractor shall pay to the State the following sums as Production

bonuses:

(a)



on the date of start Production of Crude Oil from a Development

and Production Area, [insert amount] Dollars ($[insert

amount]);



(b)



[insert amount] Dollars ($[insert amount]) after daily

Production from a Development and Production Area first

averages [insert number] Barrels per day for a period of sixty

(60) consecutive days;



(c)



[insert amount] Dollars ($[insert amount]) after daily Production

from a Development and Production Area first averages [insert



30



number] Barrels per day for a period of sixty (60) consecutive

days;

(d)



[insert amount] Dollars ($[insert amount]) after daily

Production from a Development and Production Area first

averages [insert number] Barrels per day for a period of sixty

(60) consecutive days; and



(e)



[insert amount] Dollars ($[insert amount]) after daily

Production from a Development and Production Area first

averages [insert number] Barrels per day for a period of sixty

(60) consecutive days.



Such payments shall be made within thirty (30) days of the date that the liability

accrues.

11.4



Surface Rentals



11.4.1



The Contractor shall pay to the State the following annual surface

rentals:



11.4.2



(a)



[insert amount] Dollars ($[insert amount]) per hectare of the

Contract Area annually, for each Calendar Year or part thereof,

during the Initial Exploration Period, the Extension Periods or

any extension thereof; or



(b)



[insert amount] Dollars ($[insert amount]) per hectare for each

Development and Production Area, annually for each Calendar

Year or part thereof, during the term of the relevant Development

and Production period.



For the Year in which this Contract is signed, the surface rental set forth

in Article 11.4.1(a) shall be prorated from the Effective Date through to 31

December of such Year and shall be paid within thirty (30) days after the

Effective Date. For succeeding Years the surface rentals set forth in Article

11.4.1(a) and (b) shall be paid in advance not less than thirty (30) days before

the beginning of each Calendar Year.

For the Calendar Year in which any Development and Production Area is

granted the surface rental set forth in Article 11.4.1(a) and (b) shall be prorated

from the date in which such Development and Production Plan is approved up

to 31 December of said Calendar Year, and the additional sum shall be paid

within thirty (30) days after the approval of the Development and Production

Area. For succeeding Calendar Years the surface rental set forth in Article

11.4.1(b) shall be paid within thirty (30) calendar days after the beginning of

each Calendar Year.



11.4.3



Surface rentals shall be calculated based on the surface of the Contract

Area and, where applicable, of a Development and Production Area occupied

by the Contractor on the date of payment of such surface rentals. For the

avoidance of doubt, this shall exclude any relinquished areas. In the event of

relinquishments made during a Calendar Year, the Contractor shall have no

right to be reimbursed for the surface rentals already paid.



31



ARTICLE 12 - OBLIGATION TO SUPPLY DOMESTIC MARKET

12.1



Obligation to Supply

In accordance with the Hydrocarbons Law, the Contractor shall meet as a

priority the needs of domestic Hydrocarbon consumption in Equatorial Guinea.

For this purpose, and in accordance with the provisions of Articles 86 and 87 of

the Hydrocarbons Law, if the State so requests, the Parties comprising the

Contractor (other than the National Company) shall sell to the State at the

Delivery Point a portion of its Net Crude Oil and/or Net Natural Gas for internal

consumption in the country.



12.2



Notification from Ministry

No later than the first day of October of each Calendar Year, the Ministry shall

notify the Parties comprising the Contractor (other than the National Company)

of the quantities of Crude Oil and/or Natural Gas which it desires to purchase

under this Article 12 for the subsequent Calendar Year. The Crude Oil and/or

Natural Gas shall be delivered to the State or to the beneficiary designated by

the State during such Calendar Year according to procedures to be agreed

between the Ministry and the Contractor.



ARTICLE 13 - NATURAL GAS

13.1



Unassociated Natural Gas



13.1.1



In the event of an Unassociated Natural Gas Discovery, the Contractor

shall comply with the provisions of Article 5.2. However, if the Appraisal work

program presented by the Contractor following the Discovery of Unassociated

Natural Gas has a duration exceeding that of the Initial Exploration Period or

any of its extensions, the Contractor may request from the Ministry an extension

of the relevant Exploration Period with respect to the Appraisal Area related to

such Discovery for a period of up to four (4) Years starting from the expiry of the

Initial Exploration Period or any of its Extension Periods, as appropriate. The

Contractor shall request the aforementioned extension at least sixty (60) days

prior to the expiry of the relevant period.



13.1.2



If the Contractor considers that the Unassociated Natural Gas Discovery

does not warrant Appraisal or further Appraisal, in conformity with the

provisions of Article 5.12, the Ministry may, with ninety (90) days' advance

notice, require the Contractor to relinquish all of its rights over the Appraisal

Area encompassing such Discovery.



13.1.3



In the same manner, if after completion of the Appraisal work, the

Contractor considers that the Unassociated Natural Gas Discovery is not

commercial, the Ministry may, with ninety (90) days' advance notice, require the

Contractor to relinquish all of its rights over the Appraisal Area encompassing

such Discovery.



32



13.1.4



In both the above cases the Contractor shall be deemed to have waived

all its rights to the Hydrocarbons produced from such Unassociated Natural Gas

Discovery, and the State may then carry out, or cause to be carried out, all the

Petroleum Operations relating to that Discovery, without compensation or

indemnification to the Contractor, provided, however, that such work shall not

prejudice the performance of other Petroleum Operations of the Contractor. The

Ministry may request that the Contractor undertake all continuing operations for

a fee and on terms to be agreed between the Ministry and the Contractor.



13.2



Associated Natural Gas



13.2.1



In the event that a Discovery of Crude Oil is considered to be a

Commercial Discovery, the Contractor shall state in the report referred to in

Article 5.3 whether it considers that the Production of Associated Natural Gas is

likely to exceed the quantities necessary for the requirements of Petroleum

Operations relating to the Production of Crude Oil (including re-injection

operations), and whether it considers that such excess is capable of being

produced in commercial quantities. In the event the Contractor has informed the

Ministry of such an excess, the Ministry and the Contractor shall jointly assess

the possible markets and uses for such excess of Associated Natural Gas, both

on the local market and for export (including the possibility of joint marketing of

their shares of Production of that excess of Associated Natural Gas in the event

such excess would not otherwise be commercially exploitable), together with

the means necessary for its marketing.



13.2.2



In the event the Ministry and the Contractor should decide that the

Development of the excess Associated Natural Gas is justified, or in the event

the Contractor should wish to develop and produce such excess, the Contractor

shall indicate in the Development and Production Plan the additional facilities

necessary for the Development and Production of such excess and its estimate

of the costs related thereto. The Contractor shall then proceed with the

Development and Production of such excess in accordance with the

Development and Production Plan submitted and approved by the Ministry

under Article 5.5. A similar procedure shall be applicable if the sale or marketing

of Associated Natural Gas is agreed during the Production of a Field.



13.2.3



In the event the Contractor does not consider the exploitation of the

excess Associated Natural Gas is justified and if the State at any time wishes to

utilize it, the Ministry shall notify the Contractor of the State's wish, in which

event:

(a)



the Contractor shall put at the disposal of the State free of

charge the Crude Oil and Associated Natural Gas separation

facilities for all or part of such excess that the State wishes to

utilize;



(b)



the State shall be responsible for the gathering, treatment,

compression and transportation of such excess Associated

Natural Gas from the receiving point at the Contractor’s facilities

and for bearing any additional costs and liabilities related thereto;

and



(c)



the construction of the facilities necessary for the operations

referred to in paragraph (b) above, together with the recovery of

that excess by the State, shall be carried out in accordance with

33



generally accepted practice of the international petroleum

industry.

13.2.4



In no event shall the Operations carried out by the State in relation to

such Associated Natural Gas interfere with Petroleum Operations of the

Contractor.



13.2.5



Any excess Associated Natural Gas not utilized in accordance with

Articles 13.2.1, 13.2.2 and 13.2.3 shall be re-injected by the Contractor in

accordance with Article 6.14. Flaring will be permitted only in accordance with

the Hydrocarbons Law and is subject to the approval of the Ministry. The

Contractor shall be permitted to flare Associated Natural Gas without the

approval of the Ministry in the event of an emergency, provided that every effort

is made to diminish and extinguish such flaring of Natural Gas as soon as

possible. The Ministry has the right to offtake, free of charge, at the wellhead or

gas oil separator all Natural Gas that would otherwise be re-injected or flared by

the Contractor.



13.3



Provisions Common to Associated and Unassociated Natural Gas



13.3.1



The Contractor shall dispose of its share of the Production of Natural

Gas in accordance with this Contract and the Hydrocarbons Law. The

provisions of this Contract applicable to Crude Oil shall apply mutatis mutandis

to Natural Gas unless otherwise specified herein.



13.3.2



The selling price for all Natural Gas to be sold in the domestic market

shall be set by the Ministry in accordance with the Hydrocarbons Law. The

selling price for all Natural Gas to be sold outside of the domestic market shall

be as agreed between the Ministry and the Contractor. The Ministry and

Contractor shall proceed in good faith to negotiate a gas sales agreement, if

required.



13.3.3



For the purposes of Articles 7.3 and 11.3, the quantities of available

Natural Gas after deduction of the quantities re-injected, flared or necessary for

the conduct of Petroleum Operations shall be expressed in a number of Barrels

of Crude Oil on a BTU equivalent energy content basis adjusted monthly by a

commercially appropriate factor relating the price of Natural Gas with the price

of Crude Oil in terms of the provisions of Article 10.3, unless otherwise agreed

between the Ministry and the Contractor.



13.3.4



The provisions of Article 7.2 in respect of cost recovery shall apply

mutatis mutandis to the Production of Natural Gas.



13.3.5



The quantity of Natural Gas produced and saved from the Contract Area

which remains after the Contractor has taken the portion for the recovery of

Petroleum Operations Costs pursuant to Article 13.3.4 shall be referred to as

Net Natural Gas.



13.3.6



Subject to the Hydrocarbons Law, the Ministry and the Contractor

hereby agree that, in the case of Natural Gas Production, they shall reach

separate agreements and arrangements with respect to the sale and marketing

of Natural Gas.



34



ARTICLE 14 - CUSTOMS REGULATIONS

14.1



Importation of Goods, etcetera



14.1.1



In accordance with the stipulations of Articles 63 and 64 of the

Hydrocarbons Law, the Contractor shall be permitted to import into Equatorial

Guinea all the goods, materials, machinery, equipment and consumer goods

directly necessary to properly carry out Petroleum Operations in its own name

or in the name of its sub-contractors or other Persons acting on its or their

behalf.



14.1.2



For the purpose of this Contract, the Contractor shall benefit from the

following advantages:

(a)



under the conditions stipulated in the Customs Code, the

importation in compliance with the regulations of Temporary

Admission (TA) or Temporary Imports (TI), either normal or

special, whichever is the case for the Contractor, for its subcontractors and Persons acting on its or their behalf, of all

materials, products, machinery, equipment and tools necessary

for Petroleum Operations, on condition that these goods are

exclusively destined and effectively devoted to Petroleum

Operations and destined to be re-exported at the end of their

use;



(b)



admission with exemption from any tax and/or duty of all

materials, products, machinery, equipment and tools destined

exclusively and effectively devoted to Hydrocarbon prospecting,

Exploration and Production in the specified area and listed in

Annex 2 of Act Number 13/65-UDEAC-35 dated 14 December

1965;

This exemption applies to imports directly made by the

Contractor, its sub-contractors and Persons acting on its or their

behalf, on condition that a certificate of end use is issued.



(c)



under the same aforementioned conditions, the Contractor is

entitled to import at a reduced duty rate of five percent (5%)

materials, products, machinery, tools and equipment which do

not fall under the category of any goods specified under

paragraphs (a) and (b) above but are necessary and required for

the Production, storage, treatment, transport and shipment of

Hydrocarbons from the Contract Area.

The reduced duty rate will be granted by the Ministry of Finance

and Budget at the request of the Contractor:

(i)



on submission of a general import schedule; or



(ii)



after submitting a particular application for a reduced

rate

import; the Contractor shall submit such

application at least fifteen (15) days before the arrival of

the goods in Equatorial Guinea.

35



These applications should specify:



(d)



(i)



the commercial nature of the goods and the customs

consignment in which they are classified; and



(ii)



the value of the goods in FOB and CIF;



goods and household items for personal and domestic use that

the Contractor’s foreign personnel devoted to Petroleum

Operations imports upon their relocation will be admitted dutyfree according to the conditions established in the Customs

Code and in particular Articles 17 to 20 of Act 13/75-UDEAC-35

dated 14 December 1975, as amended.



14.1.3



All goods, material, products, machinery, tools and equipment not

mentioned under Article 14.1.2 are subject to taxes and/or import duties, as

provided by the Customs Authorities in Equatorial Guinea.



14.2



Export of Entitlement and Goods etc.



14.2.1



Subject to Article 12, the Contractor, its purchasers and transporters will

have the right to export freely and at any time the quantities of Cost Recovery

Oil and Net Crude Oil belonging to the Contractor from the Delivery Point

selected for this purpose free of taxes and/or duties.



14.2.2



In compliance with the customs obligations as set out in this Contract

and regulations currently in force, the Contractor, its sub-contractors and

Persons acting on its or their behalf may re-export, free of taxes and/or import

duties, goods imported within the framework of this Contract when they are no

longer necessary for Petroleum Operations, provided that their ownership has

not been transferred to the State in accordance with the terms of this Contract.



14.3



Customs Authorities

All imports, exports and re-exports carried out under this Contract shall be

subject to the formalities required by the Customs Authorities.



14.4



Joint and Several Liability

The Contractor is jointly and severally liable with its subcontractors and any

Persons acting on its or their behalf for any infraction in the use and enjoyment

by them of the advantages set out in this Article 14. Fines, penalties and

payments of any nature incurred by any guilty party shall not constitute a

Petroleum Operations Cost.



14.5



Other Taxes, etcetera

Other than taxes and/or import duties as provided for in this Article 14, the

Contractor, its sub-contractors and Persons importing on its or their behalf will

not be subject to any other payment in this respect.



36



14.6



Foreign Personnel

Foreign personnel assigned to work in Equatorial Guinea on behalf of the

Contractor or its sub-contractors, and their families, shall be permitted to import

their personnel effects into Equatorial Guinea free of customs duties.



ARTICLE 15 - FOREIGN CURRENCY

15.1



Exchange Control Laws

The Contractor and its subcontractors and all Persons acting on its or their

behalf must comply with all applicable exchange control laws of Equatorial

Guinea. However, as long as they shall have met their respective payment and

tax obligations under this Contract and the laws of Equatorial Guinea, they shall

benefit, during the term of this Contract, from the following rights regarding

Petroleum Operations:

(a)



to retain or dispose of any proceeds outside of Equatorial Guinea

including any proceeds from the sale of its or their share of

Hydrocarbons;



(b)



to pay foreign subcontractors and expatriate employees of the

Contractor, outside of Equatorial Guinea, after deduction of the

relevant taxes in Equatorial Guinea. For this purpose, the

Contractor may open and use freely bank accounts in Dollars or

in other currencies in banks of its choice in Equatorial Guinea

and abroad. Notwithstanding the foregoing, while this Contract is

in force the Contractor and each of its subcontractors shall

establish and maintain a bank account in a national banking

institution in Equatorial Guinea, which shall have a minimum

balance of, in the case of the Contractor, an amount equivalent

to ten percent (10%) of the current Annual Budget which has

been approved by the Ministry and, in the case of

subcontractors, the minimum amount set by the Ministry from

time to time;



(c)



to transfer such funds as the Contractor or its subcontractors

shall have imported into Equatorial Guinea, or earned from

Petroleum Operations, or from the proceeds of the sale or lease

of goods or performance of services under this Contract;



(d)



to obtain abroad loans required for the performance of their

activities under this Contract, provided that the Ministry shall

have approved the terms of such loan, including the rate of

interest and terms of repayment;



(e)



to collect and maintain abroad all the funds acquired or borrowed

abroad, and to freely dispose thereof, limited to the amounts that

exceed the requirement of funds for their operations in Equatorial

Guinea; and



(f)



free movement of funds owned by them according to the laws of

Equatorial Guinea.



37



15.2



Report on Foreign Exchange Transactions

The Contractor and its subcontractors shall submit to the Ministry of Finance

and Budgets, within forty-five (45) days of the end of each Quarter, a report with

details of any foreign exchange transactions made during the preceding

Quarter, including any transactions directly related to Petroleum Operations on

accounts opened abroad and made in accordance with the provisions of Article

15.1.



15.3



Freedom of Exchange

The Contractor’s and its subcontractors’ expatriate employees shall be

permitted, in accordance with the regulations then in effect in Equatorial

Guinea, to freely exchange and to freely transfer to their country of origin any

savings arising from their salaries, as well as any retirement and personal

benefits paid by or for such employees, provided they have met their tax

obligations in Equatorial Guinea.



ARTICLE 16 - BOOKS, ACCOUNTS, AUDITS AND PAYMENTS

16.1



Maintenance of Records and Books



16.1.1



The Contractor shall at all times maintain at its offices in Equatorial

Guinea the original records and books of Petroleum Operations in accordance

with all applicable regulations and the Accounting Procedure.



16.1.2



All records and books shall be maintained in the Spanish and English

languages and be denominated in Dollars, or such other currency as shall be

requested by the Ministry from time to time. They shall be supported by detailed

documents demonstrating the expenses and receipts of the Contractor under

this Contract. Such records and books shall be used to determine the

Contractor's Gross Revenues, Petroleum Operations Costs and net profits, and

to establish the Contractor’s Income Tax and other payment obligations. Such

records and books shall also include the Contractor’s accounts showing sales

of Hydrocarbons.



16.2



Submission of Accounts

Within ninety (90) days after the end of a Calendar Year, the Contractor shall

submit to the Ministry detailed accounts showing the Petroleum Operations

Costs which the Contractor has incurred during such Calendar Year. The

Contractor may request the approval of the Ministry for an additional extension

of up to thirty (30) days; such approval shall not be unreasonably withheld or

delayed. The accounts shall be certified by an independent external auditor

acceptable to the Ministry and the Contractor. The expenses of such an auditor

shall be met by the Contractor and shall be deemed a Petroleum Operations

Cost.



16.3



Audit of Ministry



16.3.1



After notifying the Contractor, the Ministry may have experts of its

choice or its own agents examine and audit any records and books relating to

Petroleum Operations. The Ministry has a period of three (3) years from the

38



date the Contractor submits to the Ministry such records and books in

accordance with Article 16.2, to perform such examinations or audits with

respect to the said Calendar Year and submit its objections to the Contractor for

any contradictions or errors found during such examinations or audits.

16.3.2



The Contractor shall provide to the Persons designated by the Ministry

any necessary assistance for the foregoing purpose and facilitate the

performance of their duties. The Contractor shall bear all reasonable expenses

incurred in such examination or audit, which shall be recoverable as Petroleum

Operations Costs. However, any expenses incurred for the audit and inspection

of accounting books and records outside of Equatorial Guinea due to the

Contractor’s non-compliance with this Article 16 shall be borne by the

Contractor and will not be recoverable as a Petroleum Operations Cost or

deductible for tax purposes.



16.3.3



In the event of a disagreement between the Ministry and the Contractor

in relation to the results of any examination or audit, the dispute shall be

determined by an internationally recognized expert appointed by the

International Chamber of Commerce in accordance with its Rules for Expertise

(ICC Expertise Rules). The determination of the expert shall be final and

binding on the Parties. Unless otherwise determined by the expert, the costs

and expenses of such expert shall be met proportionately by the Parties on a

per capita basis and the Contractor's share shall not be a Petroleum Operations

Cost.



16.4



Currency and Account of Payments



16.4.1



All payments between the Parties under this Contract shall, unless

otherwise agreed, be in Dollars, or such other currency as shall be requested

by the Ministry from time to time. Subject to Article 16.4.2, when the receiving

Party is the State, payments shall be made to the General Treasury of the

State, and when the receiving Party is the Contractor, payments shall be made

to a bank account designated by the Contractor and notified to the Ministry.



16.4.2



All payments to be made to the Ministry pursuant to Article 23.2.2 shall

be made to such account as shall be notified to the Contractor.



16.5



Timing and Overdue Payments

Unless otherwise agreed, all payments under this Contract shall be made within

thirty (30) days following the date on which the obligation to make such

payment occurs. In the event of a delay in payment the amount due shall bear

interest compounded monthly at the rate of LIBOR plus two percent (2%) per

annum.



ARTICLE 17 - TRANSFER, ASSIGNMENT AND CHANGE OF CONTROL

17.1



Transfer to Equatoguinean Affiliate

Within the one (1) Calendar Year following the Effective Date, to the extent that

they have not already done so, each of the Parties comprising the Contractor

(other than the National Company) shall incorporate an Affiliate under the laws

of Equatorial Guinea and shall assign all of its rights and obligations in and

39



under this Contract, the Joint Operating Agreement and any other agreement

relating to Petroleum Operations to such Affiliate. After such transfer, all of the

rights and obligations of the Parties comprising the Contractor under this

Contract, the Joint Operating Agreement and any other agreements relating to

Petroleum Operations shall be assumed by such Affiliate(s). Any assignment or

transfer under this Article 17.1 shall not be subject to the provisions of Articles

17.2 and 17.3. The foregoing assignment or transfer shall not affect any parent

company or bank guarantee provided pursuant to this Contact.

17.2



Assignment, Transfer, Change of Control



17.2.1



The assignment, transfer, encumbrance or other disposition of the rights

and/or obligations of a Party comprising the Contractor shall require the prior

consent of the Ministry. Any request for authorization shall be accompanied by

all information related to the assignment, transfer, encumbrance or other

disposition including all legal instruments, in final draft form, to be used to carry

out the proposed transaction, the identity of all parties to the transaction, the

estimated value of the transaction and whether the consideration is payable in

kind, securities, cash or otherwise. Such assignment, transfer, encumbrance or

other disposition shall be subject to the payment of a non-recoverable, nondeductible fee and other requirements stipulated in the authorization issued by

the Ministry. The assignee and the assignor shall be jointly and severally liable

for the payment of such fee and for the fulfillment of any other requirements.



17.2.2



All assignees must:

(i)



have the technical and financial ability to meet its obligations

under this Contract;



(ii)



in relation to the interest assigned, accept and assume all of the

terms and conditions of this Contract, the Joint Operating

Agreement and any other agreements relating to Petroleum

Operations; and



(iii)



be an entity with which the Ministry and each of the Parties

comprising the Contractor can legally do business and be

incorporated in Equatorial Guinea.



17.2.3



All profits resulting from any assignment, transfer or other disposition of

any rights and/or obligations under this Contract, regardless of the type and

location of the transaction, shall be subject to taxation in conformity of the Tax

Law of Equatorial Guinea.



17.3



Change of Control

For the purposes of this Article 17, the transfer of ownership of more than fifty

percent (50%) of the shares of any Party comprising the Contractor (other than

the National Company) or any similar transfer that results in a change of Control

shall be deemed to be an assignment of contractual rights under this Contract

and consequently subject to the terms and conditions of this Article 17.



40



17.4



Recourse to Third Party Funding

Recourse by any Party comprising the Contractor to third party funding which

involves the assignment of rights over its entitlement to Hydrocarbons under

this Contract is not permitted without the prior consent of the Ministry.



17.5



The National Company's Right of Preemption

When an assignment, transfer or other disposition of any rights under this

Contract is anticipated, the assigning Party must notify in writing the National

Company as soon as practicable. The National Company shall then have the

right to purchase the assigning Party’s interest under this Contract and

proposed to be assigned, transferred or otherwise disposed of on the same

terms and conditions as those offered to a bona-fide assignee. This right is in

addition to any right of pre-emption granted to the National Company under the

Joint Operating Agreement.



ARTICLE 18 - INDEMNIFICATION, LIABILITY AND INSURANCE

18.1



Liability and Indemnity



18.1.1



The Contractor shall indemnify, hold harmless and compensate any

Person, including the State, for any damage or loss which the Contractor, its

Affiliates, its subcontractors and their respective directors, officers, employees,

agents or consultants and any other Person acting on its or their behalf may

cause to such Person or their property in the conduct of Petroleum Operations.

All costs incurred under this Article 18.1 caused by the negligence or willful

misconduct of the Contractor, its Affiliates, its subcontractors or their respective

directors, officers, employees, agents or consultants or any other Persons

acting on its or their behalf shall not be cost recoverable as a Petroleum

Operations Cost.



18.1.2



The Contractor shall assume all liability, and exempt the State from any

liability, in respect of any and all claims, obligations, losses, expenses (including

attorneys’ fees), damages or costs of any nature resulting from the violation of

any intellectual property rights of any kind caused by the Contractor, its

Affiliates or subcontractors as a result of or in relation to the conduct of

Petroleum Operations, regardless of the nature of the violation or of the way in

which it may occur.



18.2



Several Liability

Where the Contractor is comprised of more than one Person, the liabilities and

obligations of such Persons under this Contract shall be joint and several,

except for their obligations and liabilities in relation to all taxation assessed on

their income.



18.3



Insurance



18.3.1



The Contractor shall obtain and, during the term of this Contract,

maintain in full force and effect, for Petroleum Operations insurance of such

type and in such amount as is customary and prudent in accordance with

generally accepted practice of the international petroleum industry, and whose

41



coverage terms and conditions shall be communicated to the Ministry within

thirty (30) days after the Effective Date. The foregoing insurance shall, without

prejudice to the generality of the foregoing provisions, cover:

(a)



any loss or damage to all assets used in Petroleum Operations;



(b)



pollution caused in the course of Petroleum Operations;



(c)



property loss or damage or bodily injury or death suffered by any

Person in the course of Petroleum Operations;



(d)



the cost of removing wrecks and clean-up operations following

an accident or upon decommissioning; and



(e)



the Contractor's liability to its employees engaged in Petroleum

Operations.



18.3.2



The Contractor shall require its subcontractors to carry insurance of

such type and in such amount as is customary in accordance with generally

accepted practice of the international petroleum industry.



18.3.3



The Contractor shall use all reasonable endeavors to place the

insurance required under this Article 18 with Equatoguinean insurance brokers

and insurance companies.



ARTICLE 19 - TITLE OF GOODS, EQUIPMENT AND DATA

19.1



Title and Use of Facilities, etcetera



19.1.1



All installations, facilities, goods, equipment, materials or land acquired

by the Contractor for Petroleum Operations shall become property of the State

from the point at which their costs are fully recovered by the Contractor.

However, the Contractor may continue using said installations, facilities, goods,

equipment, materials or land in order to carry out Petroleum Operations for the

duration of this Contract and in accordance with the Hydrocarbons Law. The

Contractor and the Ministry shall agree the mode and conditions of such use,

subject to ensuring their maintenance in good condition and good working

order, normal wear and tear excepted. In any case, upon termination, rescission

or cancellation of this Contract, for any reason whatsoever, in relation to all or

any part of the Contract Area, the ownership of said installations, facilities,

goods, equipment, materials or land, and including those whose costs have not

been fully recovered, and any other items acquired and used for Petroleum

Operations shall become the sole property of the State and shall be conveyed

directly to it.



19.1.2



Regardless of whether or not the Contractor has recovered the relevant

costs in accordance with this Contract, the State is entitled to use the said

facilities, goods, equipment, materials or land for its own purposes, provided

that such use does not interfere with the Contractor’s Petroleum Operations.



19.1.3



Under no circumstances may the Contractor sell, assign, transfer or

otherwise dispose of any such facilities, goods, equipment, materials or land to

any other Persons.



19.1.4



The provisions of this Article 19.1 shall not apply to any leased

equipment or to the Contractor’s equipment that is not charged to Petroleum

Operations as a Petroleum Operations Cost.

42



19.1.5



If the Ministry does not wish to use any of the facilities, goods,

equipment and materials referred to in this Article 19.1, it has the right to

request the Contractor to remove them at the Contractor’s own expense, and

the Contractor will carry out any decommissioning operations of the said

facilities, goods, equipment and materials in accordance with this Contract and

the Hydrocarbons Law, and based on the time frame and specified conditions in

the approved decommissioning plan.



19.2



Ownership of Data

All data, technical information and interpretations obtained, acquired or derived

as a result of Petroleum Operations shall be the sole property of the State.

However, the Contractor may retain copies of all such materials for the duration

of this Contract only, including, among others, geological, geophysical,

petrophysical and engineering reports, Well reports, termination reports,

samples and any other information that the Contractor may have obtained or

compiled during the term of this Contract. The Contractor shall forward such

data, technical information and interpretations to the Ministry as soon as they

are acquired, derived or compiled and shall also provide the Ministry on an

annual basis with a report that itemizes all such data, technical information and

interpretations that have been assembled during the Year. Unless previously

provided, at the termination of this Contract or at any time of relinquishment, the

Contractor shall return to the Ministry all original data, technical information and

interpretations relating to the areas relinquished and will remove all copies of

such from the Contractor’s files, archives, computers and data storage

mechanisms.



ARTICLE 20 - CONFIDENTIALITY

20.1



Disclosure of Confidential Information



20.1.1



The Parties agree that for the duration of this Contract, the terms hereof

and all information relating to this Contract and Petroleum Operations shall be

kept strictly confidential and may not be divulged by any Party without mutual

consent, except:

(a)



to an Affiliated Company;



(b)



to any governmental agency, designated by the State or other

entities or consultants of the Ministry;



(c)



to the extent that such data and information is required to be

furnished in compliance with any applicable laws or regulations;



(d)



in conformity with the requirements of any stock exchange

having jurisdiction over a Party;



(e)



where any data or information forms part of the public domain

otherwise than a result of a breach of this Contract; and



(f)



to employees, directors, officers, agents, advisors, consultants or

subcontractors of a Party comprising the Contractor or an

Affiliate,



43



provided that the disclosing Party shall be responsible for any

and all breaches of this Article by such Persons and provided

further that any disclosure to the Persons referred to in

paragraphs (f), (g) and (h) above shall be limited to those

Persons who are under a duty of confidentiality similar to that

contained in this Article 20.1.

20.1.2



For an additional period of two (2) Years after the termination of this

Contract, only the Parties comprising the Contractor (other than the National

Company) shall be obliged to comply with the above stated requirements.



20.2



The Contractor's Patents

The State shall not reveal to any third parties information pertinent to the

Contractor’s own technology that is protected by patents or contractual

agreements, or which the State has received under license for a period of two

(2) Years after termination of this Contract.



20.3



Continuation of Obligations

Any Party ceasing to own a Participation Interest in this Contract during the

term of this Contract shall nonetheless remain bound by the obligations of

confidentiality set forth in this Article 20.



20.4



Disclosure of Confidential Information by the State and Ministry

In order to explore and exploit areas adjoining or related to the Contract Area,

the State and the Ministry may, notwithstanding this Article 20, disclose to any

third parties all data and information relating to part or parts of the Contract

Area and Petroleum Operations hereunder.



ARTICLE 21 - TERMINATION

21.1



Termination by the State

Notwithstanding any other actions contemplated herein, this Contract may be

terminated, without compensation to the Contractor, on any of the following

grounds:

(a)



a material breach by the Contractor (not attributable to any act or

omission of the State or to any Person representing the State) of

any of the provisions of this Contract or the Hydrocarbons Law;



(b)



a delay by the Contractor (not attributable to any act or omission

of the State or to any Person representing the State) in making

any payment owed to the State that exceeds three (3) months;



(c)



the suspension of Development works on a Field for six (6)

consecutive months, except when such suspension (i) has been

approved by the Ministry in advance or (ii) is due to an act or

omission on the part of the State or of any Person representing

the State or (iii) is as a result of Force Majeure;



44



(d)



when, after the commencement of Production of a Field, its

exploitation is suspended for at least three (3) consecutive

months, without the prior permission of the Ministry, except when

such suspension (i) is due to an act or omission on the part of the

State or of a Person representing the State or (ii) is as a result of

Force Majeure;



(e)



when the Contractor fails to comply

period with an arbitration award

provisions of Article 26, and the

attributable to any act or omission of

representing the State;



(f)



when a Well is drilled to an objective beyond the vertical planes

of the limits of the Contract Area without the prior consent of the

Ministry;



(g)



a breach of this Contract arising out of activities which are illegal

or contrary to national or international law (not attributable to any

act or omission of the State or to any Person representing the

State);



(h)



under the provisions of Article 2.3; or



(i)



when the Contractor is declared bankrupt, or in liquidation as a

result of financial insolvency, or enters into judicial or financial

arrangements on insolvency with its creditors generally, except

when the Contractor can provide the State with a new financial

guarantee that is acceptable to the Ministry in its sole discretion,

and that guarantees the capacity of that Party to fulfill its

obligations under this Contract.



within the prescribed time

in accordance with the

failure to comply is not

the State or to any Person



21.2



Notice of Termination and Grace Period



21.2.1



The Ministry may declare this Contract terminated only after having

served a formal notice on the Contractor, by registered mail, requesting it to

remedy the situation or breach in question, and, if the situation or breach in

question is capable of remedy, requesting it to remedy the same within five (5)

Business Days from receipt of such notice regarding payments due under

Article 21.1(b) or within three (3) months from receipt of such notice for all other

situations or breaches capable of remedy. Otherwise the effective date of the

termination of this Contract shall be date of receipt by the Contractor of the

foregoing notice.



21.2.2



If the Contractor fails to comply with such notice within the prescribed

time period or fails to show within such five (5) Business Days or three (3)

month period that it has commenced and is promptly and diligently continuing to

remedy the situation or breach in question, the Ministry may pronounce ipso

jure the termination of this Contract.



21.3



Termination against one Party

The Ministry may terminate this Contract as to one of the Parties comprising the

Contractor, if the circumstances set forth in Article 21.1 are applicable to only

that Party in the manner set forth in Article 21.2.



45



ARTICLE 22 - UNITIZATION

22.1



Obligation to Unitize

If any Hydrocarbon bearing reservoir lying within the Contract Area extends

beyond such area, the Contractor must carry out all Development and

Production in respect of such Hydrocarbon bearing reservoir in accordance with

the Hydrocarbons Law. The Contractor shall use all reasonable endeavors to

reach a mutually acceptable unitization agreement and program with all other

affected Persons.



22.2



Suspension of Obligations

In the event that Petroleum Operations that are the subject of this Contract are

suspended by reason of negotiations arising in respect to a unitization scenario

in relation to a specific Discovery, the provisions of Article 5.3 for such

Discovery shall be extended for a period of time equal to the duration of such

suspension.



ARTICLE 23 - LOCAL CONTENT AND SOCIAL PROGRAMS

23.1



Preference to Equatoguinean Services

The Contractor and its subcontractors undertake to give preference to

Equatoguinean services, materials, equipment, consumables and other goods

whose quality and time of delivery are comparable to those available

internationally, provided that the cost in Equatorial Guinea is no more than ten

percent (10%) above the cost of similar services, materials, equipment,

consumables and other goods available internationally.



23.2



Employment and Training of Equatoguineans



23.2.1



From the Effective Date, the Contractor shall ensure priority employment

for adequately qualified Equatoguinean personnel in all levels of their

organization, as the employee's skill allows, and as provided for in Article

23.2.2, shall train or contribute in the training of such personnel to enable them

to qualify for any position relating to Petroleum Operations. Expatriate

personnel may only be employed if the Contractor and its subcontractors have

exhausted all possibilities of recruiting adequately qualified Equatoguinean

personnel in the required area of specialization.



23.2.2



During the term of this Contract, the Parties comprising the Contractor

(other than the National Company) shall spend a minimum of [insert amount]

Dollars ($[insert amount]) per Calendar Year, to provide a mutually agreed

number of Ministry and National Company personnel with on-the-job training in

the Contractor's operations in Equatorial Guinea and overseas and/or practical

training at institutions abroad, particularly in the areas of natural earth sciences,

engineering, technology, accounting, economics and other related fields of oil

and gas exploration and exploitation. Additionally, during the term of this



46



Contract, the Parties comprising the Contractor (other than the National

Company) shall transfer to the Ministry a minimum of [insert amount] Dollars

($[insert amount]) per Calendar Year which the Ministry shall use at its sole

discretion to educate and train Equatoguinean personnel selected by the

Ministry at universities, colleges or other training institutions selected by the

Ministry and for other general training and educational purposes.

The above costs will be recoverable as a Petroleum Operations Cost in

accordance with the provisions of this Contract.

23.2.3



If the Contractor funds any social projects outside of those approved in

an Annual Budget such costs shall not be recoverable as a Petroleum

Operations Cost.



23.2.4



Given that Equatoguinean civil society is a part of the local content in oil

and gas contracts, the Contractor shall contribute to and cooperate with nongovernmental organizations in charitable works to develop society, sport

activities and health programs to fight and prevent disease, as well as other

non-profit related activities.



23.3



National Technology Institute

The Contractor shall provide all reasonable assistance as may be requested by

the Ministry from time to time with the implementation and development of the

National Technology Institute to train and develop mid and upper level

personnel in the petroleum industry of Equatorial Guinea and in accordance

with the Hydrocarbons Law.



ARTICLE 24 - DECOMMISSIONING

24.1



Relinquishment or Decommissioning



24.1.1



Subject to Article 2.5.2, the Contractor may at any time relinquish and/or

abandon any portion of the Contract Area or any Well not included in a Field

subject to having given three (3) months prior notice to the Ministry, provided

that the Contractor shall have fulfilled all of its obligations under this Contract

and that it has given the Ministry full details of the state of any reservoir and the

facilities and equipment in such area in addition to any plans for the removal or

dismantling of such facilities and equipment including all technical and financial

information. All decommissioning operations must be undertaken in accordance

with the Hydrocarbons Law.



24.1.2



The decommissioning of a Field by the Contractor and its corresponding

decommissioning plan shall require the prior approval of the Ministry in

accordance with the Hydrocarbons Law. The Contractor shall prepare and

deliver to the Ministry a plan for the decommissioning of all Wells, facilities and

equipment, the rehabilitation of the landscape and the continuation of Petroleum

Operations, if applicable, in accordance with the Hydrocarbons Law.



47



24.1.3



Unless the Ministry elects to keep the facilities and equipment in order to

continue Petroleum Operations in accordance with Article 24.3.3, the Contractor

is obligated to fully decommission all Fields within the Contract Area.



24.2



Right of Ministry

Upon receipt by the Ministry of the notice referred to in Article 24.1.1 or upon

the decommissioning of any Field, the Ministry shall be entitled to take over any

Discovery or Field whose decommissioning is proposed by the Contractor. If the

Ministry does not communicate its desire to take over Petroleum Operations

within three (3) months of receipt of the relevant notice, it shall be deemed to

have elected not to do so.



24.3



Reserve Fund



24.3.1



In order to implement the decommissioning of a Field, the Contractor

shall contribute to a reserve fund for the estimated decommissioning costs, (the

Reserve Fund) in accordance with the Hydrocarbons Law and the approved

decommissioning plan.



24.3.2



In the event that the total amount of the Reserve Fund is greater than

the actual cost of decommissioning, the account balance shall be distributed

between the State and the Contractor in accordance with Article 7.3. In the

event that the amount of the Reserve Fund is less than the actual cost of

decommissioning operations, the Contractor shall be liable for the remainder.



24.3.3



In the event that the Ministry elects to keep the facilities and equipment

in order to continue Petroleum Operations after the withdrawal of the

Contractor, the Reserve Fund so established together with the related interest

shall be put at the Ministry’s disposal to cover the later decommissioning. The

Contractor shall be released from any further decommissioning liability in

respect of such facilities and equipment.



24.4



Continuing Operations

The State undertakes not to interfere with the conduct of Petroleum Operations

in the Contract Area retained by the Contractor in the event that the State

should elect to take over a Discovery or Field pursuant to Article 24.2. If

requested by the Ministry, the Contractor shall undertake to continue all

operations for a fee and on terms to be agreed between the Ministry and the

Contractor.



24.5



Protection of the Environment

The Contractor shall duly plug all the Wells and decommission all facilities and

equipment in order to avoid contamination and harm to the environment and

possible damage to the reservoir, in accordance with the Hydrocarbons Law,

the other laws of Equatorial Guinea and generally accepted practice of the

international petroleum industry.



48



ARTICLE 25 - APPLICABLE LAW

25.1



Applicable Law

This Contract and all Petroleum Operations carried out hereunder shall be

governed by and construed in accordance with the laws of Equatorial Guinea.



ARTICLE 26 - RESOLUTION OF CONFLICTS AND ARBITRATION

26.1



Dispute Resolution and Notification



26.1.1



In the event of any dispute, claim, conflict or controversy (a Dispute)

between any of the Parties arising out of, or in relation to, this Contract,

including any question regarding its breach, existence, validity or termination,

the Parties shall take all reasonable measures to resolve such Dispute

amicably.



26.1.2



If the relevant Parties have not reached an amicable agreement after

three (3) months of the date of the notice of a Dispute by one Party to another,

unless the Parties to the Dispute mutually agree to an extension, any Party to

the Dispute may refer the Dispute for resolution by final and binding arbitration:



26.2



(a)



to the International Centre for the Settlement of Investment

Disputes (the Centre) established by the Convention on the

Settlement of Investment Disputes between States and Nationals

of other States, done at Washington, March 18, 1965 (the ICSID

Convention);



(b)



to the Additional Facility of the Centre, if the Centre is not

available; or



(c)



in accordance with the Arbitration Rules of the United Nations

Commission on International Trade Law (UNCITRAL), if neither

the Centre or the Additional Facility are available.



Seat and Language of Arbitration

The seat of the arbitration shall be agreed by the Parties to the Dispute and, in

case of a disagreement, shall be determined by the arbitrators. The languages

of the arbitration proceedings, and of all orders, decisions, and the award, shall

be Spanish and English.



26.3



Number and Identity of Arbitrators

The arbitral tribunal shall be constituted by three (3) arbitrators selected

according to the following procedure:

(a)



The claimant and the respondent shall, within thirty (30) days

from the day on which a request for arbitration has been

submitted, appoint an arbitrator each (and if there is more than

one claimant or more than one (1) respondent, then the

claimants and/or the respondents collectively shall each appoint

a single arbitrator), by giving notice in writing of such

49



appointment to the Secretary-General of ICSID and the other

Party or Parties to the Dispute.

(b)



If either the claimant or the respondent fails to comply with the

time limit in the preceding paragraph, the Chairman of the

Administrative Council of ICSID shall appoint the arbitrator or

arbitrators that have not yet been appointed, at the request of

either the claimant or the respondent and after consulting the

claimant and the respondent as far as possible. The Chairman of

the Administrative Council of ICSID shall give notice in writing of

such appointment or appointments to the Secretary-General of

ICSID and the claimant and the respondent.



(c)



The two (2) arbitrators so appointed shall, within thirty (30) days

of their appointment agree upon the person to be appointed as

the President of the tribunal, and give notice of such appointment

to the Secretary-General of ICSID and the claimant and the

respondent.



(d)



If the two (2) arbitrators fail to agree upon the person of the

President of the tribunal, the Chairman of the Administrative

Council of ICSID shall appoint the President, at the request of

either the claimant or the respondent, and after consulting the

claimant and the respondent as far as possible. The Chairman of

the Administrative Council of ICSID shall give notice in writing of

such appointment to the Secretary-General of ICSID and the

claimant and the respondent.



None of the arbitrators shall be a citizen of the countries of any of the Parties to

the Dispute (or in the case where the Party is a company or another entity, any

country or countries of nationality of such Party, including the country of its

ultimate parent).

26.4



Rules of Arbitration

The arbitration procedures initiated under this Contract shall operate under the

arbitration rules in effect for ICSID, the Additional Facility or UNCITRAL, as the

case may be, at the time of the filing of the request for arbitration, which rules

are deemed to be incorporated herein by reference in this Article 26.



26.5



Binding Nature of Arbitration

The arbitration award shall be final and binding on the Parties and shall be

immediately enforceable, subject to the remedies provided for in the ICSID

Convention and Arbitration Rules, in the Arbitration Rules of the Additional

Facility of the Centre, or in the UNCITRAL Arbitration Rules, as appropriate.

The Parties waive any right to refer any question of law, and any right of appeal

on the law and/or merits to any court. It is expressly agreed that the arbitrators

shall have no authority to award aggravated, exemplary or punitive damages.



26.6



Costs of Arbitration

The costs of arbitration shall be charged in accordance with the directions of the

arbitration tribunal, failing which shall be borne proportionally by the Parties to



50



the Dispute on a per capita basis. The costs of the Parties comprising the

Contactor shall not be recoverable.

26.7



Payment of Awards

Any monetary award issued shall be expressed and payable in Dollars.



ARTICLE 27 - FORCE MAJEURE

27.1



Non-fulfillment of Obligations

Any obligation or condition arising or derived from this Contract which any Party

is unable to perform, whether in whole or in part, shall not be considered as a

breach or non-fulfillment of its obligations under this Contract if such breach or

non-performance is caused by an event of Force Majeure, provided that there is

a direct cause-and-effect relationship between the non-performance and the

event of Force Majeure. Notwithstanding the foregoing, all payment obligations

owed by any Party to another must be made when due.



27.2



Definition of Force Majeure

For the purposes of this Contract, an event shall be considered an event of

Force Majeure if it meets the following conditions:

(a)



it has the effect of temporarily or permanently preventing a Party

from performing its obligations under this Contract;



(b)



it is unforeseeable, unavoidable and beyond the control of the

Party which declares Force Majeure; and



(c)



it is not a result of the negligence or willful misconduct of the

Party which declares Force Majeure.



Such an event shall include acts of God, earthquake, inclement weather, strike,

riot, insurrection, civil unrest, blockade, sabotage and acts of war (whether

declared or not). The Parties intend for the term of Force Majeure to be

construed in accordance with the principles and practice of the international

petroleum industry.

27.3



Notification of Force Majeure

If any Party is unable to comply with any obligation or condition provided herein

due to Force Majeure, it shall notify the other Parties in writing as soon as

possible, and in any event not later than fourteen (14) days after the event in

question, giving the reason for its non-compliance and a detailed account of the

Force Majeure, as well as the obligation or condition affected. The Party

affected by the Force Majeure shall use all reasonable endeavors to remove the

cause thereof, keep the other Parties fully informed of the situation and the

current evolution of the Force Majeure event and shall promptly notify the other

Parties as soon as the Force Majeure event is over and no longer prevents it

from complying with its obligations or conditions hereunder.



51



27.4



Continuation of Obligations

All obligations, other than those affected by the event of Force Majeure, shall

continue to be performed in accordance with this Contract.



27.5



Cessation of Force Majeure

Upon the cessation of the event of Force Majeure, the relevant Party shall

undertake and complete, as soon as practicable and within a time frame to be

mutually agreed by the Parties, all obligations suspended as a result thereof.



27.6



Continuation of Force Majeure

When a Force Majeure event lasts more than ninety (90) days, the Parties will

forthwith consult to examine the situation and implications for Petroleum

Operations, in order to establish the course of action appropriate for the

fulfillment of contractual obligations under the circumstances of the said Force

Majeure. In such event the term of this Contract will be extended by the same

amount of time that the Force Majeure has lasted.



ARTICLE 28 - ASSISTANCE AND NOTICES

28.1



Assistance of Ministry



28.1.1



The Ministry shall facilitate, within its authority and in accordance with

the rules and procedures in effect in Equatorial Guinea, the performance of the

Contractor’s activities by granting it all permits, licenses and access rights that

are reasonably necessary for the purposes of Petroleum Operations, and by

making available to it all necessary services with respect to Petroleum

Operations in Equatorial Guinea.



28.1.2



The Ministry shall also facilitate and assist the Contractor in obtaining all

permits, licenses or rights not directly related to Petroleum Operations, but

which the Contractor may reasonably require for the purposes of fulfilling its

obligations under this Contract.



28.2



Notices and Other Communications

All notices, approvals or other communications authorized or required between

the Parties by any of the provisions of this Contract shall be in writing (in

Spanish and English), addressed to such Parties and delivered in person by

courier service or by any electronic means of transmitting written

communications which provides written confirmation of complete transmission.

For purposes of this Contract, oral communication does not constitute notice or

approval, and e-mail addresses and telephone numbers for the Parties are

listed below as a matter of convenience only. A notice or approval given under

any provision of this Contract shall be deemed delivered only when actually

received by the Party to whom such notice or approval is directed, and the time

for such Party to deliver any communication in response to such originating

notice or approval shall run from the date the originating notice or approval is

received. Each Party shall have the right to change its address at any time

and/or designate that copies of all such notices or approvals be directed to

52



another Person at another address, by giving written notice thereof to all other

Parties.

For the State:

MINISTRY OF MINES, INDUSTRY AND ENERGY

Calle

Malabo, Bioko Norte

Republic of Equatorial Guinea

For the attention of: His Excellency the Minister of Mines, Industry and Energy

Telephone: + (240) 09 3567, 09 3405

Facsimile: + (240) 09 3353

For the Contractor:

[The Company]

For the attention of: [insert name]

Telephone: [insert number]

Facsimile: [insert number]

For the National Company:

The National Company

Calle

P.O. Box 965

Malabo

Guinea Ecuatorial

For the attention of: Director General

Telephone: + (240) 09 6769

Facsimile: + (240) 09 6692



ARTICLE 29 - MISCELLANEOUS

29.1



Amendments

This Contract may only be amended in writing and by mutual agreement

between the Parties; any purported amendments in contravention of this

provision shall not be effective.



53



29.2



No Partnership

This Contract shall not be construed to create an association, joint venture or

partnership between the Parties or to impose any partnership obligation or

liability upon a Party.



29.3



29.3 Hydrocarbons Law

All Petroleum Operations and the Contractor are subject to the provisions of the

Hydrocarbons Law and the Petroleum Regulations in effect from time to time.



29.4



Entire Agreement

With respect to the subject matter contained herein, this Contract (i) is the entire

agreement of the Parties and (ii) supersedes all prior understandings and

negotiations of the Parties.



29.5



No Waiver

In the event of a waiver by any Party of one or more defaults by another Party in

the performance of the provisions of this Contract, such waiver shall not operate

or be construed as a waiver of any future default or defaults by the same Party,

whether of a like or of a different character. Except as expressly provided in this

Contract no Party shall be deemed to have waived, released or modified any of

its rights under this Contract unless such Party has expressly stated, in writing,

that it does waive, release or modify such right.



29.6



No Conflict



29.6.1



Each of the Parties constituting the Contractor undertakes that it shall

avoid any conflict of interest between its own interests (including the interests of

Affiliates) and the interests of the other Parties in connection with activities

contemplated under this Contract.



29.6.2



In the event of any conflict between the main body of this Contract and

its Annexes, the main body shall prevail. In the event of any conflict between

this Contract and the Hydrocarbons Law, the Hydrocarbons Law shall prevail.



ARTICLE 30 - INTERPRETATION



54



30.1



The table of contents and headings used in this Contract are for

convenience only and shall not be construed as having any substantive

significance or as indicating that all of the provisions of this Contract

relating to any topic are to be found in any particular Article.



30.2



Reference to the singular includes a reference to the plural and vice versa.

30.3 Reference to any gender includes a reference to all other genders.



30.3



Unless otherwise provided, reference to an Article or an Annex means an

Article or Annex of this Contract.



30.4



The words include and including shall mean include or including without

limiting the generality of the description preceding such term and are

used in an illustrative sense and not a limiting sense.



30.5



Any reference to a Person shall be construed as including a reference to

its successors, permitted transferees and permitted assignees.



30.6



Any reference to a statute or enactment shall be construed as a reference

to such statute or enactment as it may have been or may be amended or

re-enacted from time to time, or any subordinate legislation made or legal

norm created, or may from time to time be done, under such statute or

enactment.



30.7



Reference to this Contract or part thereof or any other document shall be

construed as a reference to the same as it may be amended,

supplemented, novated or replaced from time to time.



ARTICLE 31 - EFFECTIVE DATE

This Contract shall become effective upon the date the Contractor receives

notification in writing of its ratification by the President of Equatorial Guinea.



55



IN WITNESS WHEREOF, the Parties have executed this Contract in [insert number]

([insert number]) originals in the Spanish language and [insert number] ([insert

number]) originals in the English language. In the event of any conflict, the Spanish

version shall prevail.

THE REPUBLIC OF EQUATORIAL GUINEA

THE MINISTRY OF MINES, INDUSTRY AND ENERGY

Signature: ___________________________

Name: H.E Señor Don _________________

Title: Minister of Mines, Industry and Energy

THE NATIONAL COMPANY

Signature: ____________________________

Name: Don ___________________________

Title: Director General

THE CONTRACTOR

[THE COMPANY]

Signature: ___________________________

Name: ______________________________

Title: ________________________________



56



ANNEX A - CONTRACT AREA

This Annex is an integral part of this Contract between the Republic of Equatorial

Guinea and the Contractor.

Upon the Effective Date, the initial Contract Area covers an area deemed equal to

[insert number] ([insert number]) square kilometres (km2) or [insert number]

([insert number]) hectares for the purposes of Article 11.4.

The Contract Area is described on the map in Annex B. The points indicated on such

map are defined below, by reference to the Greenwich meridian and their geographic

co-ordinates:



Point



Longitude



57



Latitude



ANNEX B - MAP OF THE CONTRACT AREA

This Annex is attached to this Contract between the Republic of Equatorial Guinea and

the Contractor and forms an integral part of the same.

This map is included for illustrative purposes only and in the event of any discrepancies

or conflict, the Contract Area shall be defined by the geographical co-ordinates

specified in Annex A.



58



ANNEX C - ACCOUNTING PROCEDURE

This Annex is an integral part of the Contract between the Republic of Equatorial

Guinea and the Contractor.



59



ARTICLE 1 - GENERAL PROVISIONS

1.1



PURPOSE

The object of this Accounting Procedure is to establish equitable criteria and

methods of calculation and accounting applicable to the provisions of the

Contract, and in particular when:



1.2



(a)



classifying and defining Petroleum Operations Costs; and



(b)



prescribing the manner of preparing and submitting the financial

statements of the Contractor in accordance with accounting principles in

effect in Equatorial Guinea.



INTERPRETATION

For the purposes of this Accounting Procedure, the terms used herein and

which are defined in the Contract shall have the same meaning when used in

this Accounting Procedure. In the event of any discrepancy or conflict between

the provisions of this Accounting Procedure and any other provisions of the

Contract, the provisions of the Contract shall prevail.



1.3



ACCOUNTING RECORDS AND REPORTS



1.3.1



In accordance with the provisions of Article 16.1 of the Contract, the Contractor

shall maintain in its office in Equatorial Guinea original, complete, true and

correct accounts, books and records of the Production and disposition of

Hydrocarbons, and all costs and expenses under the Contract, as well as all

other records and data necessary or proper for the settlement of accounts in

accordance with the laws of Equatorial Guinea, generally accepted accounting

procedures and generally accepted practice in the international petroleum

industry and pursuant to the chart of accounts agreed pursuant to Article 1.3.2

below.



1.3.2



Within sixty (60) days from the Effective Date, the Contractor shall submit to

and discuss with the Ministry a proposed outline for the chart of accounts and

the books, records and reports in accordance with generally accepted

standards and consistent with normal petroleum industry practices and

procedures.

Within sixty (60) days of receiving the above proposal, the Ministry shall either

provide notice of its approval of the proposal, or shall request revisions of such

chart of accounts in writing.

Within one hundred and eighty (180) days after the Effective Date, the

Contractor and the Ministry shall agree on the outline of the chart of accounts,

books, records, and reports which shall describe the basis of the accounting

system and procedures to be developed and used in accordance with this

Accounting Procedure. Following such agreement, the Contractor shall

immediately prepare and provide the Ministry with formal copies of the detailed

and complete chart of accounts and manuals related to the procedures, and a

list of the data and records to be accounted for, recorded, reported and to be

followed under the Contract.



60



1.3.3



In addition to the generality of the foregoing, the Contractor shall submit to the

Ministry, at regular intervals, statements relating to the Petroleum Operations,

including, but not limited to, the following:

(a)



monthly statement of Production;



(b)



quarterly statement of value of Production and pricing;



(c)



statement of Petroleum Operations Costs;



(d)



annual statement of Petroleum Operations Cost not yet recovered;



(e)



statement of Production sharing;



(f)



annual end-of-year statement;



(g)



Annual Budget tracking statement; and



(h)



statement of tangible goods subject to depreciation.



1.3.4



All reports and statements shall be prepared in accordance with the Contract,

the laws of Equatorial Guinea and any regulations thereunder and in

accordance with generally accepted practice of the international petroleum

industry.



1.4



LANGUAGE AND UNIT OF ACCOUNT

Unless otherwise agreed all accounts, records, books and reports shall be

prepared and maintained in Spanish and English and shall be denominated in

Dollars. Additionally, Contractor may maintain accounts and records in other

languages and currencies for information purposes only.



1.5



VERIFICATION AND AUDIT RIGHTS OF THE STATE



1.5.1



When the Ministry exercises its right of audit under Article 16.3 of the Contract,

it shall provide notice to the Contractor, at least sixty (60) days in advance

regarding such audit, which shall take place during normal business hours. The

Contractor shall make available to the Ministry all accounts, books, records,

invoices, cash vouchers, debit notes, price lists or any other documentation

relating to Petroleum Operations. Furthermore, the auditors shall have the right,

in connection with such audit, to visit and inspect at reasonable times any of the

Contractor’s sites, plants, facilities, warehouses and offices which affect

Petroleum Operations directly or indirectly and to question personnel

associated with those Operations.

The Contractor shall endeavor to provide records and accounts from any of its

Affiliates or other Persons necessary to support charges from them. If an

Affiliate or any other Person considers such information confidential or

proprietary, the Ministry may select an internationally recognized independent

firm of public accountants to carry out an audit, subject to the approval of the

Affiliate or other Person, such approval not to be unreasonably withheld or

delayed.



61



If the Ministry does not conduct an audit within the time stipulated in

accordance with Article 16.3 of the Contract, the Contractor’s accounts, books

and records shall be deemed correct and final.

1.5.2



Any audit exceptions shall be made in writing and notified to the Contractor

within ninety (90) days of completion of the corresponding audit. Failure to give

such exception by the Ministry shall be deemed to be an acknowledgement of

the accuracy of the Contractor's books and accounts.



1.5.3



If the Contractor fails to respond to any notice of exception under Article 1.5.2

within ninety (90) days of receipt of such notice, the results of the audit will be

considered valid and accepted by the Contractor. After the said period of time

the Ministry’s exception shall prevail.



1.5.4



Any adjustments resulting from an audit shall be promptly applied to the

Contractor's accounts; any adjustments to payments due shall also be effected

promptly.



1.5.5



If the Contractor and the Ministry are unable to reach final agreement on the

proposed audit adjustments they shall resolve the dispute in accordance with

the provisions of Article 16.3.3 of the Contract.

When audit related issues are still outstanding, the Contractor shall preserve

any relevant documents and allow the Ministry access to them until the issue is

finally resolved.



1.6



CURRENCY EXCHANGE RATES

The exchange rate shall be determined monthly, based on the arithmetic

average of the closing buy and sell rates for the Dollar against the CFA

(Communaute Financiere Africaine or Africa Financial Community) currency

unit for the month, as published by the Bank of Central African States (BEAC).

The exchange rate of the preceding calendar month shall be used for exchange

transactions and for the purpose of determining the counter value of Dollars in

the Equatoguinean currency unit for the next month.



1.7



ACCOUNTING BASIS

All books and accounts shall be prepared on an accrual accounting basis.

Revenues shall be posted to the accounting period in which they were earned,

without any need to recognize whether a given transaction results in a

disbursement or cash receipt. Expenses and costs shall be regarded as

incurred, in the case of physical items, during the accounting period in which

the relevant title is transferred to the Contractor and in the case of services

during the accounting period in which such services are rendered.



1.8



REVIEW OF ACCOUNTING PROCEDURE

By mutual agreement between the Ministry and the Contractor, this Accounting

Procedure may be revised periodically by a document in writing executed by the

Parties.



62



ARTICLE 2 - GENERAL CLASSIFICATION OF PETROLEUM COSTS

All costs related to Petroleum Operations shall be classified in accordance with their

end use. Classification criteria shall be included in the approved Annual Work Program

and Annual Budget for the Calendar Year in which the expenditure is made. All

Petroleum Operations Costs shall be classified, defined and allocated as set forth

below.

2.1



EXPLORATION COSTS

Any and all direct, general and administrative costs incurred during Hydrocarbon

Exploration and Appraisal activities in an area which is part of the Contract

Area, including but not limited to:



2.2



(a)



aerial, geophysical, geochemical, palaeontological, geological,

topographical and seismic surveys and studies and their interpretation;



(b)



core hole drilling;



(c)



any labor, materials, supplies, and services used in drilling Exploration

Wells and Appraisal Wells;



(d)



any facilities used solely in support of the purposes described in

paragraphs (a), (b) and (c) above, including access roads and acquired

geological and geophysical data, all separately identified;



(e)



any other cost incurred in the Exploration and Appraisal of Hydrocarbons

after the Effective Date but prior to the date of approval of a

Development and Production Plan with respect to the relevant Field and

not covered under Articles 2.2, 2.3 and 2.4 below; and



(f)



the costs incurred prior to the Effective Date which both Parties have

agreed to, including the cost of the SBL, 2D, 3D speculative data and

other costs of complying with Article 3.1.1 of the Contract.



DEVELOPMENT AND PRODUCTION COSTS

Development and Production Costs are all approved direct, general and

administrative costs incurred during Development and Production activities,

including, but not limited to, the following:



63



2.3



(a)



drilling Wells defined as Development Wells for purposes of producing

from a Commercial Field, whether such Wells turn out to be dry or

productive by nature, and drilling Wells for the injection of water or gas

to enhance Hydrocarbon recovery;



(b)



completing Wells by way of installation of casing or equipment or

otherwise after a Well has been drilled for the purpose of bringing the

Well into use as a Development Well or a Well for the injection of water

or gas to enhance Hydrocarbon recovery;



(c)



transportation and installation of tank storage facilities, pipelines, flow

lines, production and treatment units, wellhead equipment, subsurface

equipment, enhanced recovery systems, offshore platforms, export

terminals and piers, harbors and related facilities, and access roads for

development activities; and



(d)



engineering and design studies for facilities referred to under paragraph

(c) above.



OPERATING OR PRODUCTION COSTS

Any and all general, administrative and service costs, and any other Petroleum

Operations Costs incurred from the approval date of any relevant Development

and Production Plan, and from the commencement of funding of the Reserve

Fund.



2.4



COMMERCIALIZATION COSTS

Any and all costs incurred for exporting Hydrocarbons to the Delivery Point.



2.5



ALLOCATION OF GENERAL AND ADMINISTRATIVE COSTS

With the exception of general and administration costs incurred in Equatorial

Guinea directly assignable to the Annual Budget, the general and administration

expenditures incurred by the Contractor outside of national territory with respect

to Petroleum Operations shall be determined in accordance with the sliding

scale set out below, based on total Petroleum Operations Costs actually

incurred during the Year and duly justified by the Contractor and approved by

the Ministry:

(a)



Prior to commercial Production:

Up to [insert amount] Dollars



${insert amount]

●%



Next [insert amount] Dollars



${insert amount]

●%



Next [insert amount] Dollars



${insert amount]

●%

●%



Balance



64



(b)



After commercial Production:

Up to [insert amount] Dollars



${insert amount]

●%



Next [insert amount] Dollars



${insert amount]

●%



Next [insert amount] Dollars



${insert amount]

●%

●%



Balance

2.6



Except as provided otherwise in the Contract to the contrary, approved

Petroleum Operation Costs described in Articles 2.1 to 2.5 of this Accounting

Procedure, will be recoverable by the Contractor in accordance with Article 7.2

of the Contract.



2.7



INTEREST RECOVERY

Subject to and in accordance with the Hydrocarbons Law, any interest on loans

obtained by the Contractor from Affiliated Companies shall not be recoverable

as a Petroleum Operations Cost, nor shall it be deductible for tax purposes

when estimating any Income Tax liabilities of the Contractor. Any interest on

loans obtained by the Contractor from Persons other than Affiliated Companies

for investments in Petroleum Operations shall not be recoverable as a

Petroleum Operations Cost but shall be deductible for tax purposes, when

estimating any Income Tax liabilities of the Contractor provided that the rate of

interest and the terms of repayment have been approved by the Ministry in

advance.



2.8



NON RECOVERABLE COSTS

Costs that are not recoverable as Petroleum Operations Costs shall include the

following:



65



2.9



(a)



signature bonus paid by the Contractor;



(b)



any Discovery bonus paid by the Contractor;



(c)



any Production bonus paid by the Contractor;



(d)



annual surface rentals paid to the State;



(e)



interests on loans as provided by Article 2.7 of this Accounting

Procedure;



(f)



any unapproved over-expenditures that exceed the limits of Article 4.4 of

this Contract;



(g)



any payments made to the State for failure to fulfill the minimum

Exploration work obligations pursuant to Article 3 of the Contract;



(h)



any fines and sanctions incurred for infringing the laws and regulations

of Equatorial Guinea;



(i)



any donation to the State or other similar expenses unless otherwise

agreed;



(j)



the State’s audit and inspection expenses incurred as a result of the

absence of original documents in the Contractor’s offices in Equatorial

Guinea;



(k)



any sanction imposed on the Contractor under the Hydrocarbons Law or

otherwise; and



(l)



costs related to the assignment from the Contractor to any of its Affiliates

or other Persons.



INSURANCE AND CLAIMS

Petroleum Operations Costs shall include premiums paid for insurance required

[and approved] in accordance with the Contract. All expenses incurred and paid

by the Contractor in respect of any insurance claim, less any costs recovered by

the Contractor by means of insurance claims, shall be included and recoverable

as Petroleum Operations Costs, provided these expenses are not incurred as a

consequence of their being not recoverable under a policy of insurance of the

Contractor, in which case they shall not be recoverable.



2.10



INVENTORY ACCOUNTING

Any costs of articles bought for inventory will be recoverable as from the

Calendar Year in which such materials and equipment have been used in the

Petroleum Operations in the Contract Area.



66



ARTICLE 3 - OTHER CLASSIFICATION OF COSTS AND EXPENDITURES

(Accounting Methods For Estimating Any Income Tax Liability)

During any Calendar Year in which commercial Production occurs, the

Petroleum Operations Costs shall include the following:

3.1



CAPITAL COSTS

Any current Calendar Year capital costs shall be classified as Tangible (subject

to depreciation) and Intangible.



3.1.1



TANGIBLE CAPITAL COSTS

Tangible Capital Costs are such costs that are not intangible capital costs

incurred for the purchase of any assets related to the Petroleum Operations that

normally have a useful life of more than one (1) Year; such assets shall be

subject to annual depreciation pursuant to the provisions set forth in this

Accounting Procedure. Tangible Capital Costs include the following:

(a)



for Development Wells: the costs of completion materials and equipment

(downhole equipment, fixed production tubing, production packers,

valves, wellhead equipment, subsoil elevation equipment, pumping rods,

surface pumps, discharge cables, collection equipment, delivery lines,

fixed Christmas tree and valves, oil and gas pipelines, fixed materials

and equipment, piers, anchors, buoys, Hydrocarbon treatment facilities

and equipment, secondary recovery systems, reinjection compressors,

water pumps and their pipes);



(b)



for any purchase of goods and equipment: the actual cost of the asset

(excluding transportation), the cost for construction of platforms outside

of the Contract Area, the cost of power generators and facilities onshore;



(c)



for the purchase of moveable goods: automotive machinery (vehicles,

tractors, tow trucks, tools, flatbeds, etc.), construction machinery and

equipment (furniture, office equipment and other equipment);



(d)



for construction purposes: the building cost of housing and residential

facilities, offices, warehouses, workshops, power plants, storage

facilities and access roads for development activities, the cost of piers

and anchors, treatment plants and machinery, secondary recovery

systems, gas plants and steam systems; and



(e)



drilling and Production facilities and platforms.

With the exception of land purchased by the Contractor, all and any

goods mentioned herein shall be depreciated in accordance with Article

3.2 of this Accounting Procedure.



67



3.1.2



INTANGIBLE CAPITAL COSTS

Intangible capital costs shall be such ongoing costs incurred for the purchase of

moveable assets and services directly related to the Petroleum Operations and

they shall not be depreciated. Such costs/expenses shall include the following:



3.2



(a)



costs of aerial magnetic, aerial gravimetric, topographic, geological,

geophysical and geochemical surveys, interpreting and reinterpreting

technical data costs, Exploration labor and similar costs;



(b)



costs of drilling Exploration Wells and Appraisal Wells: all costs of

services rendered for drilling Exploration and Appraisal Wells, chemical

products, rental costs (for helicopters, flatbeds, ships, tow barges, etc.)

transportation, storage facilities, accommodation, technical services for

mud control, Well geology, directional Well drilling, divers, mud control,

well geology testing, cementing and similar costs;



(c)



costs of drilling Development Wells, such as rig and platform

mobilization and demobilization, rig and platform drilling contracts and

leases, platform and infrastructure installations labor, fuel, water,

conductors, drill bits, drill pipe, equipment rental, production testing

equipment, Christmas tree for production testing, mud and its

components, chemical products, rental costs (for helicopters, flatbeds,

ships, tow barges, etc.), transportation, storage facilities,

accommodation, technical services for mud control, Well placement

geology, directional drilling Wells, divers, production and appraisal tests,

completion and supervision;



(d)



costs of acquisition or purchase of goods and services such as

transportation costs, operation costs, equipment checks, costs of on-site

installation, maintenance costs and fuel costs;



(e)



general services (electric logs, vertical seismic profile (VSP), mud

control, core sampling, Well geology tests, cementing, production tests,

supervision and similar costs), delineation services, any heavy

engineering machinery leasing, and other expenses incurred abroad;



(f)



materials, reconstruction of access and other roads, and other intangible

goods for construction, public services and construction support; and



(g)



other Exploration Costs, support or temporary facilities with a useful life

of less than one (1) Year.



DEPRECIATION OF TANGIBLE CAPITAL COSTS

Depreciation will be estimated from the Calendar Year in which the asset is

placed into service, with a full Year's depreciation allowed for the initial

Calendar Year. For the purpose of estimating responsibility regarding Income

Tax, depreciation shall be determined using a ten (10) Year straight-line

method.



3.3



3.3 NON-CAPITAL COSTS

Non-capital costs shall be classified as follows:



68



3.3.1



CONTRACTOR’S DEDUCTIBLE COSTS

For Income Tax purposes, the Contractor's deductible costs shall include the

following:



3.3.2



(a)



general and administrative expenses (personnel salaries, insurance

premiums, labor, technical office services and other similar services,

material services, public relations, expenses abroad related with

Petroleum Operations in Equatorial Guinea, determined in accordance

with Article 2.5 of this Accounting Procedure);



(b)



labor, materials and services indirectly used in operations of

Development Wells, feasibility studies for production of Crude Oil or

Natural Gas fields, secondary recovery operations, storage operations,

handling, transportation and delivery, Natural Gas Well operations,

transportation and delivery of Natural Gas, services for Natural Gas

treatment, environmental protection measures and any other

maintenance activities indirectly related to Petroleum Operations.



CONTRACTOR’S NON-DEDUCTIBLE COSTS

For Income Tax purposes, the following costs of the Contractor shall be nondeductible:



69



(a)



signature bonus paid by the Contractor;



(b)



any Discovery bonus paid by the Contractor;



(c)



any Production bonus paid by the Contractor;



(d)



annual surface rentals paid to the State;



(e)



any unapproved over-expenditures that exceed the limits of

Article 4.4 of the Contract;



(f)



interest on loans as provided in Article 2.7 of this Accounting

Procedure;



(g)



any payment made to the State for failure to fulfill the minimum

Exploration work obligations pursuant to Article 3 of the Contract;



(h)



any fines and sanctions incurred for infringing the laws and

regulations of Equatorial Guinea;



(i)



sums that exceed the set limits with regard to the depreciation of

tangible assets;



(j)



any donation to the State and other similar expenses unless

otherwise agreed;



(k)



the State's audit and inspection expenses incurred by the

absence of original documents in the office of the Contractor in

Equatorial Guinea;



(l)



any sanction imposed on the Contractor under the Hydrocarbons

Law or otherwise; and



(m)



costs relating to the assignment from the Contractor to any of its

Affiliates or other Persons.



70



ARTICLE 4 - ARTICLE 4 BASES OF INCOME TAX CALCULATION

4.1



PRACTICAL DETERMINATION OF THE TAXABLE BASE

In order to determine the taxable base and for the purposes of calculating the

Contractor’s responsibility regarding annual Income Tax liability, the following

will be taken into account:

Taxable base = [(1)] – { [(2)+(3)+(4)]+[(5)+(6)+(7)+(8)] }.

1. Annual gross revenues

2. Royalties

3. State’s share of net Hydrocarbons

4. State’s right to a share of Production based on its carried or paid

interest in the Contract

5. Deductible intangible capital costs

6. Depreciation of tangible capital costs

7. Deductible non-capital costs

8. (8) Losses authorized and certified by the Ministry, corresponding to

previous Calendar Years



4.2



PRINCIPLE OF TAX TREATMENT OF A FINANCIAL YEAR DEFICIT

In case of any deficit during a Calendar Year, such deficit will be regarded as

relating to the following Calendar Year and deducted from the profit made

during said Calendar Year; if such profit is not sufficient for the deduction to be

made in full, the excess (certified by the Ministry) of the deficit will be

successively carried over to the profits of the following Calendar Year.



71



ARTICLE 5 - RECORDS AND VALUATION OF ASSETS

5.1



RECORDS

The Contractor shall keep correct, accurate and detailed records of all property

used for Petroleum Operations under the Contract in accordance with generally

accepted practice of the international petroleum industry.



5.2



INVENTORIES DURING INITIAL EXPLORATION OPERATIONS

Prior to the date of approval of the first Annual Work Program and Annual

Budget submitted pursuant to Article 4 of the Contract, the Contractor shall

prepare an initial annual schedule (to be included as part of the material

statement required under Article 6 of this Accounting Procedure) of all property

to be used for Petroleum Operations and its value as shown in the Contractor’s

books.



5.3



INVENTORIES IN SUBSEQUENT OPERATIONS

Subsequent to the date of approval of the Annual Work Program and Annual

Budget pursuant to Article 4 of the Contract, inventories of property used in

Petroleum Operations under the Contract shall be taken at regular intervals but

at least once per Calendar Year.

The Contractor shall give the Ministry at least thirty (30) days prior notice of its

intention to take such inventory and the Ministry shall have the right to be

represented when such inventory is taken. The Contractor shall clearly state the

principles upon which valuation of the inventory has been based and shall

provide to the Ministry a full report on such inventory within sixty (60) days of

the completion of the inventory.



72



ARTICLE 6 - STATEMENTS AND REPORTS

6.1



FINANCIAL STATEMENTS AND TAX REPORTS TO BE SUBMITTED BY

CONTRACTOR

The Contractor shall present detailed accounts showing all Petroleum

Operations Costs incurred by the Contractor over the last Calendar Year. Such

accounts must be submitted to the Ministry within ninety (90) days from the end

of such Calendar Year and shall be certified by an independent auditor

accepted by the Parties. Such period may be extended by an additional thirty

(30) days at the Contractor's request and with the approval of the Ministry; such

consent shall not be unreasonably delayed or withheld.

Income Tax returns shall be duly completed with enough detailed information as

to allow a thorough understanding by the Tax Administration of Equatorial

Guinea, including:



6.2



(a)



depreciation details;



(b)



fixed assets information;



(c)



Production and export statistics and details;



(d)



all tax related reports provided for in the Contract; and



(e)



detailed information on deductible expenses for estimating tax liabilities

in accordance with the Tax Law.



PRODUCTION STATEMENT

Without prejudice to the rights and obligations of the Parties under the Contract,

as from the initial date of commencement of commercial Production from the

Contract Area, the Contractor shall submit a monthly Production statement to

the Ministry showing the following information, which shall be separated by

each Commercial Field as well as in aggregate for the Contract Area:



73



(a)



the quantity of Crude Oil produced and saved;



(b)



the quality characteristics of such Crude Oil produced and saved;



(c)



the quantity of Natural Gas produced and saved;



(d)



the quality characteristics of such Natural Gas produced and saved;



(e)



the quantities of Crude Oil and Natural Gas used for the purposes of

carrying out drilling and Production operations;



(f)



the quantities of Crude Oil and Natural Gas unavoidably lost;



(g)



the quantities of Natural Gas flared and vented;



(h)



the size of Hydrocarbon stocks held at the beginning of the calendar

month in question;



(i)



the size of any Hydrocarbon stocks held at the end of the calendar

month in question;



(j)



the quantities of Natural Gas re-injected into the Hydrocarbon reservoir;

and



(k)



the quantities of Hydrocarbons delivered and sold.



All quantities shown in such statement shall be expressed in both volumetric

terms (barrels of Crude Oil [bbls] and cubic meters of Natural Gas [M3]) and in

weight (metric tons [MT] and long tons [LT]).

The Production statement for each calendar month, and the technical report on

each Well shall be submitted to the Ministry no later than a period of fifteen (15)

days after the end of such calendar month.

6.3



VALUE OF PRODUCTION AND PRICING STATEMENT

For the purposes of Article 10 of the Contract, the Contractor shall prepare a

Quarterly statement providing details of the value of Hydrocarbons produced,

saved and sold during each Quarter.

The value of Production statement shall include the following information:



74



(a)



the quantities, prices and income received by the Contractor as a result

of sales of Hydrocarbons to third parties during the Quarter in question;



(b)



the quantities, prices and income received by the Contractor as a result

of sales of Hydrocarbons, other than sales to third parties, during the

Quarter in question;



(c)



the value of any stocks of Hydrocarbons at the end of the Quarter

preceding the Quarter in question;



(d)



the value of any stocks of Hydrocarbons at the end of the Quarter in

question; and



(e)



the information available to the Contractor concerning the prices of

competitive Crude Oils, insofar as required for the purposes of Article 10

of the Contract.



6.4



PETROLEUM OPERATIONS COSTS STATEMENT



6.4.1



Quarterly Statement

The Contractor shall prepare a Quarterly Petroleum Operations Costs

statement showing those Petroleum Operations Costs incurred by the

Contractor with respect to the Contract Area, as provided under this Accounting

Procedure.

Any Development and Production Costs shall be separately identified for each

Commercial Field, if such is the case, and the Contractor shall specify the basis

of allocation of shared costs. If the Ministry is not satisfied with the itemization

shown within the categories, the Contractor shall provide a more detailed

breakdown.

Any Exploration Costs shall be shown separately.

The Petroleum Operations Costs statement for each Quarter shall be submitted

to the Ministry no later than a period of thirty (30) days after the end of each

Quarter.



6.4.2



Annual Statement

The Contractor shall prepare an annual Petroleum Operations Costs Statement

containing the following information for the purposes of Articles 9 and 16 of the

Contract:



75



(a)



Petroleum Operations Costs not yet recovered and carried forward from

the previous Calendar Year, if any;



(b)



Petroleum Operations Costs for the Calendar Year in question;



(c)



the quantity and value of Hydrocarbon Production taken by the

Contractor as Cost Recovery Oil under the provisions of Article 7.2 of

the Contract for the Calendar Year in question; and



(d)



Petroleum Operations Costs not yet recovered at the end of the

Calendar Year in question.



The annual Petroleum Operations Costs Statement shall be submitted to the

Ministry no later than a period of forty-five (45) days following the end of each

Calendar Year.

6.5



PRODUCTION SHARING STATEMENT

Within sixty (60) days following the end of each Calendar Year, the Contractor

shall submit to the Ministry with respect to such Calendar Year a Production

sharing statement containing the following information for the purposes of

Article 7 of the Contract:



6.6



(a)



the value of all sales of Hydrocarbons made by the Contractor as from

the Effective Date of the Contract up to the end of the previous Calendar

Year;



(b)



the value of all sales of Hydrocarbons made by the Contractor during the

Calendar Year in question;



(c)



the total of (a) and (b) above at the end of the Calendar Year in

question;



(d)



the accumulated Petroleum Operations Costs as from the Effective Date

of the Contract up to the end of the previous Calendar Year;



(e)



the Petroleum Operations Costs for the Calendar Year in question;



(f)



the total of (d) and (e) above at the end of the Calendar Year in

question;



(g)



quantity and value of the Contractor's share in Hydrocarbons; and



(h)



quantity of State’s share of Hydrocarbons and its value if sold by the

Contractor.



ANNUAL END-OF-YEAR STATEMENT

No later than 31 March of each Calendar Year, the Contractor shall submit to

the Ministry an end-of-year statement, and statement of accounts

corresponding to the previous fiscal Year, and which shall contain the following

information:



76



6.7



(a)



accounting conciliation of the expenses against the approved Annual

Budget;



(b)



accounting conciliation of the expenses with the recoverable costs;



(c)



and accounting conciliation of the expenses with the deductible costs.



ANNUAL BUDGET STATEMENT

The Contractor shall submit to the Ministry an Annual Budget Statement

pursuant to the provisions of Article 4 of the Contract. Such statement shall

distinguish between budgeted Exploration Costs and Development and

Production Costs by Quarter and shall correspond to the individual items of

Petroleum Operations included in the Annual Work Program.



77



ANNEX D - PARENT COMPANY GUARANTEE

This Annex is an integral part of this Contract between the Republic of Equatorial Guinea and the

Contractor.

THIS GUARANTEE is made on this [insert day] of [insert month and year]

BETWEEN:

1. [THE GUARANTOR], a company organized and existing under the laws of [insert

jurisdiction], and having its registered office at [insert address] (the Guarantor); and

2. THE REPUBLIC OF EQUATORIAL GUINEA (the State), represented for the purposes of this

Guarantee by the Ministry of Mines, Industry and Energy (the Ministry).

WHEREAS, the Guarantor is the parent entity of [insert name of Company] organized and

existing under the laws of [insert jurisdiction], and having its registered office at [insert address]

(the Company);

WHEREAS, the Company has entered into a production sharing contract (the Contract) with,

among others, the State in respect of the Contract Area;

WHEREAS, the Company has a Participation Interest under the Contract;

WHEREAS, the State desires that the execution and performance of the Contract by the Company

be guaranteed by the Guarantor and the Guarantor desires to furnish this Guarantee as an

inducement to the State to enter into the Contract and in consideration of the rights and benefits

inuring to the Company thereunder; and

WHEREAS, the Guarantor accepts that it fully understands and assumes the contractual

obligations under the Contract of the Company.

NOW THEREFORE, it is hereby agreed as follows:

1. Definitions and Interpretation

All capitalized words and expressions in this Guarantee have the same meaning as in the

Contract, unless otherwise specified to herein. Article 30 of the Contract is incorporated

herein, mutatis mutandis, by this reference.

2. Scope of this Guarantee

The Guarantor hereby guarantees to the State the timely payment and performance of any

and all indebtedness and obligations whatsoever of the Company to the State arising under

or in relation to the Contract, including the payment of any amounts required to be paid by

the Company to the State when the same become due and payable; provided, however,

that the liability of the Guarantor to the State hereunder shall not exceed the lesser of:

(a)



the liabilities of the Company to the State;



- 78 -



(b)



[insert amount] Dollars ($[insert amount]) during the Exploration Period, as may be

extended in accordance with the Contract; and



(c)



[insert amount] Dollars ($[insert amount]) during the Development and Production

period.



3. Waiver of Notice, Agreement to All Modifications

The Guarantor hereby waives notice of the acceptance of this Guarantee and of the state

of indebtedness of the Company at any time, and expressly agrees to any extensions,

renewals, modifications or acceleration of sums due to the State under the Contract or any

of the terms of the Contract, all without relieving the Guarantor of any liability under this

Guarantee.

4. Absolute and Unconditional Guarantee

The obligations of the Guarantor shall be an absolute, unconditional and (except as

provided in Article 2 above) unlimited guarantee of payment and performance to be

performed strictly in accordance with the terms hereof, and without respect to such

defences as might be available to the Company.

5. No Discharge of Guarantor

The obligations of the Guarantor hereunder shall not in any way be released or otherwise

affected by: a release or surrender by the Company of any collateral or other security it

may hold or hereafter acquire for payment of any obligation hereby guaranteed; by any

change, exchange or alteration of such collateral or other security; by the taking of or the

failure to take any action with respect thereto either against the Company or against the

Guarantor; or by any other circumstance which might otherwise constitute a legal or

equitable discharge or defence of a guarantor.

6. No Prior Action Required

The State shall not be required to make demand for payment or performance first against

the Company or any other Person or to proceed against any collateral or other security

which might be held by the State or otherwise to take any action before resorting to the

Guarantor hereunder.

7. Cumulative Rights

All rights, powers and remedies of the State hereunder shall be cumulative and not

alternative, and shall be in addition to all rights, powers and remedies given to the State by

law or otherwise.

8. Continuing Guarantee

This Guarantee is intended to be and shall be considered as a continuing guarantee of

payment and performance and shall remain in full force and effect for so long as the

Contract and any amendments thereto shall remain outstanding or there shall exist any

liability of the Company to the State thereunder.

9. Notice of Demand

Upon default in the performance of any of the obligations of the Company guaranteed

hereunder, the State or its duly authorized attorney may give written notice to the

Guarantor at its principle office in [insert jurisdiction] of the amount due, and the Guarantor,

within a period



- 79 -



of ten (10) Business Days, will make, or cause to be made, payment of such amount as

notified, in Dollars, at such bank or other place in [insert jurisdiction] as the State shall

designate and without set-off or reduction whatsoever of such payment in respect of any

claim the Parent Company or the Company may then have or thereafter might have.

10. Assignment

The Guarantor shall not in any way effect, or cause or permit to be effected, the

assignment or transfer of any of its obligations hereunder without the express written

consent of the State.

11. Subrogation

Until all indebtedness hereby guaranteed has been paid in full, the Guarantor shall have no

right of subrogation to any security, collateral or other rights which may be held by the

State.

12. Payment of Expenses

The Guarantor shall pay to the State all reasonable costs and expenses, including

attorney's fees, incurred by it in collecting or compromising any indebtedness of the

Company hereby guaranteed or in enforcing the Contract or this Guarantee.

13. Governing Law and Arbitration

This Guarantee shall be governed by and interpreted in accordance with the laws of

Equatorial Guinea.

All disputes or claims arising out of or relating to this Guarantee shall be finally settled by

arbitration, in accordance with the procedure set forth in the Contract; however, if in

addition to the arbitration hereunder an arbitration has also been commenced under the

Contract with respect to obligations hereby guaranteed, the arbitration commenced

hereunder shall be consolidated with the arbitration commenced under the Contract and

the arbitral body appointed hereunder shall be the same arbitral body appointed pursuant

to the Contract. The arbitration shall be conducted in the Spanish and English languages

and the decision shall be final and binding on the parties.

14. Severability of Provisions

In the event that for any reason any provision hereof may prove illegal, unenforceable or

invalid, the validity or enforceability of the remaining provisions hereof shall not be

affected.

15. Confidentiality

The Guarantor agrees to treat this Guarantee and the Contract as confidential and shall

not disclose, willingly or unwillingly, to any third party, except to the extent required by law,

the terms and conditions hereof or thereof without the prior written consent of the State.



- 80 -



IN WITNESS WHEREOF, the Guarantor and the Company execute this Guarantee this [insert

day] day of [insert month and year].



[GUARANTOR]



By: _____________________________

Title: ____________________________



THE REPUBLIC OF EQUATORIAL GUINEA

THE MINISTRY OF MINES, INDUSTRY AND ENERGY

By: ______________________________

Title:_____________________________



- 81 LN356346.18