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ANGOLA



Model Production Sharing Agreement Of 1999 Between Sociedade Nacional De Combustiveis De Angola - Unidade Economica Estatal (Sonangol, U.E.E.) And Contractor (Ultra-Deep Water)TRANSLATION







Table of Contents



Contracting Parties



Recitals





Article 1 Definitions



Article 2 Annexes to the Agreement



Article 3 Object of the Agreement



Article 4 Nature of the Relationship between The Parties

Article 5 Duration of the Agreement



Article 6 Exploration Period



Article 7 Production Period



Article 8 Operator



Article 9 Petroleum Operations Procedures Document



Article 10 Costs and Expenses



Article 11 Recovery of Costs and Expenditures



Article 12 Production Sharing



Article 13 Lifting and Disposal of Crude Oil



Article 14 Conduct of Petroleum Operations



Article 15 Work Obligations during the Exploration Period

Article 16 Exploration Work Programs and Budgets



Article 17 Commercial Discovery



Article 18 Development and Production Work Programs and Budgets











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Article 19 Production Programs



Article 20 Guarantees



Article 21 Bonus



Article 22 Development Area Rentals



Article 23 Conservation of Petroleum and Prevention of Loss



Article 24 Records, Reports and Inspection



Article 25 Contractor Group's Obligation to Purchase Sonangol's Oil



Article 26 Other Rights and Obligations Related to Crude Oil Disposal



Article 27 Unitization



Article 28 Transfer and Abandonment of Assets



Article 29 Natural Gas



Article 30 Operations for Sonangol's Account (Sole Risk)



Article 31 Operating Commitee



Article 32 Ownership of Assets



Article 33 Property and Confindentiality of Data



Article 34 Responsibility for Losses and Damages



Article 35 Insurance



Article 36 Recruitment, Integration and Training of Angolan Personnel



Article 37 Fiscal Regime



Article 38 Foreign Currency and Customs Regimes



Article 39 Assignment



Article 40 Termination of the Agreement



Article 41 Confidentiality of the Agreement





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Article 42 Arbitration

Article 43 Force Majeure

Article 44 Applicable Law

Article 45 Language

Article 46 Offices and Service Notice

Article 47 Captions and Headings

Article 48 Effectiveness









Anexxes





Annex A Description of the Contract Area

Annex B Map showing the Contract Area

Annex C Accounting and Financial Procedures

Annex D Corporate Guarantee

Annex E Financial Guarantee















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Contracting Parties



This Agreement is entered into between:



on the one part:



Sociedade Nacional de Combustiveis de Angola - Unidade Económica Estatal (Sonangol, U.E.E.), hereinafter referred to as "Sonangol", a company with headquarters in Luanda, Republic of Angola, created in accordance with Decree No. 52/76, of 9 June 1976;



and, on the other part:

_________, a company, organized and existing under the laws of _________, hereinafter referred to as "_________", with offices and legal representatives in Luanda, Republic of Angola.



4Translation. Recitals. Whereas, by Decree-Law No. /9_of , , the Government of the Republic of Angola, in accordance with the provisions of the Law Regulating Petroleum Activities, Law No. 13/78 of 26 August 1978, has granted to Sonangol an exclusive concession for the exercise of mining rights for the survey, Exploration, Development and Production of liquid and gaseous hydrocarbons in the Concession Area of Block_; Whereas, by Decree-Law No. /9_of , the Goverment has authorized Sonangol to enter into a Production Sharing Agreement for Block_; Whereas, Sonangol, with a view to carrying out the Petroleum Operations necessary to duly exercise such rights and in compliance with the obligation deriving from the Concession Decree-Law, wishes to sign a Production Standing Agreement with _; Whereas, Sonangol on the one hand and _ on the other hand have agreed that this Agreement will regulate their mutual rights and obligations in the execution of said Petroleum Operations; Now, therefore, Sonangol, on the one hand and _ on the other hand agree as follows: Article 1 (Definitions) For the purposes of this Agreement, and unless otherwise expressly stated in the text, certain words and expressions used in this Agreement shall have the following meaning, it being understood that reference to the singular includes reference to the plural and vice versa: 5TRANSLATION



1. "Administration and Services" means the set of activities carried out in support of Petroleum Exploration, Development and Production and shall include, but not be limited to, all activities in general management and common support of Petroleum Operations such as direction, supervision and related functions required for the overall management of those activities and it shall include, also, housing and feeding of employees, transportation, warehousing, safety, emergency and medical assistance programs, community affairs, accounting and record keeping.



2. "Affiliate" means:



(a) a company or any other entity in which any of the Parties holds, either directly or indirectly, the absolute majority of the votes in the shareholders' meeting or is the holder of more than fifty percent (50%) of the rights and interests which confer the power of management on that company or entity, or has the power of management and control over such company or entity;



(b) a company or any other entity which directly or indirectly holds the absolute majority of votes at the shareholders' meeting or equivalent corporate body of any of the Parties or holds the power of management and control over any of the Parties;



(c) a company or any other entity in which either the absolute majority of votes in the respective shareholders' meeting or the rights and interests which confer the power of management on said company or entity are; either directly or indirectly, held by a company or any other entity which directly or indirectly holds the absolute majority of votes at the shareholders' meeting or equivalent corporate body of any of the Parties or holds the power of management and control over any of the Parties.



3. "Angola" means the Republic of Angola.



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4. "Year" or "Civil Year" means a period of twelve (12) consecutive Months according to the Gregorian Calendar begining on January 1 and ending on December 31.



5. "Fisical Year" means a period of twelve (12) consecutive Months according to the Gregorian Calendar which conicides with the Civil Year and relative to which the presentation of fiscal declarations is required under the fiscal or commercial laws of Angola.



6. "Contact Year" means the period, and succesive periods, of twelve (12) consecutive Months according to the Gregorian Calendar beginning on the Effective Date of this Agreement.



7. "Contract Area" means on the Effective Date the area described in Annex A and shown on the map in Annex B, and thereafter the whole or any part of such area in respect of which Contractor Group continues to have rights and obligations under this Agreement.



8. "Development Area" means the extent of the whole area, within the Contract Area, capable of production from the deposit or deposits identified in a Commercial Discovery and agreed upon by sonangol and by Contractor Group following such Commercial Discovery.



9. "Appraisal" means the activity carried out after the discovery of a Petroleum deposit to better define the parameter of the deposit and determine its commerciality. This activity shall include, namely:



1) drilling of Appraisal Wells and running productivity tests;



2) collecting special geological samples and reservoir fluids;





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3) running supplementary studies and acquisition of geophysical and

other data as well as the processing of same data.

10. "Barrel" means the unit of measure for liquids corresponding to forty-two

(42) United States gallons of Crude Oil, net of basic sediment and water

and corrected to a temperature of sixty degrees Fahrenheit (60°F).

11. "Operating Committee" means the entity referred to in Article 31.

12. "Concessionaire" means Sonangol as the titleholder of the mining rights of

survey, Exploration, Development and Production of liquid and gaseous

hydrocarbons in the Contract area.

13. "Joint Account" means the set of accounts kept by Operator to record all

receipts, expenditures and other operations which under the terms of the

Agreement, shall be shared between the entities constituting Contractor

Group in proportion to their participating interests.

14. "Agreement" or "the Agreement" means this Production Sharing Agreement

executed between Sonangol and Contractor Group, including its Annexes.

15. "Effective Date" means the first day of the Month next following the Month

in which this Agreement is signed by Sonangol and Contractor Group.

16. "Concession Decree-Law" means Decree-Law No. __ / __ of , , approved

by the Council of Ministers as it was published in the Diário da República

of Angola No. , | Series, of , 199__.

17. "Commercial Discovery" means the discovery of a Petroleum deposit

judged by Contractor Group to be worth developing in accordance with the

provisions of the Agreement.





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18. - "Development" means the activity carried out after the declaration of a Commercial Discovery in the respective Development Area.



Such activity shall include, but not be limited to:

(a) reservoir, geological and geophysical studies and surveys;

(b) drilling of producing and injection Wells;

(c) design, construction, installation, connection and initial testing of equipment, pipelines, systems, facilities, plants and related activities necessary to produce and operate said Wells, to take, save, treat, handle, store, transport and deliver Petroleum, and to undertake repressuring, recycling and other secondary or tertiary recovery projects.



19. "Administration and Services Expenditures" means the expenditures so defined in Annex C of the Concession Decree-Law.



20. "Development Expenditures" means the expenditures so defined in Annex C of the Concession Decree-Law.



21. "Exploration Expenditures" means the expenditures so defined in Annex C of the Concession Decree-Law.



22. "Production Expenditures" means the expenditures so defined in Annex C of the Concession Decree-Law.



23. "Customs Duties" means all charges, contributions or fees established in the respective customs duties schedules, and which are applicable to merchandise imported or exported through customs.



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___________







24. "State" means the State of the Republic of Angola.





25. "Phase" means the Initial Exploration Phase or the Optional Exploration Phase, as the



case may be.



26. "Initial Exploration Phase" means that period of four (4) Contract Years commencing



with the Effective Date of the Agreement as defined in Article 6.



27. "Optional Exploration Phase" means the additional period of two (2) Contract Years



after the Initial Exploration Phase pursuant to Article 6.



28. "Force Majeure" means the concept defined in Article 43 of this Agreement.



29. "Natural Gas" or "Gas" means any hydrocarbons produced from the Contract Area



Which at a pressure of 14.7 PSI and a temperature of sixty degrees Fahrenheit (60 F)



are in a gaseous state at the wellhead and includes both Associated and Non-



Associated Natural Gas, and all of its constituent elements produced from any Well in



the Contract Area and all non-hydrocarbon substances therein.





Such term shall include residue gas.



30. "Associated Natural Gas" means Natural Gas which exists in a reservoir in solution



with Crude Oil and includes what is commonly known as gas cap gas which overlies



and is in contact with Crude Oil.



31. "Non-Associated Natural Gas" means that part of Natural Gas which is not Associated



Natural Gas.



32. "Government" means the Government of the Republic of Angola.







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33. "Contractor Group" means ________ and its possible assignees under Article 39, designated collectively except as otherwise provided herein.



The participating interests of the entities constituting Contractor Group on the Effective Date is:



__________%



34. "Law" means the legislation in force in the Republic of Angola.



35. "Litigant" means Sonangol or any entity constituting Contractor Group participating in arbitration proceedings pursuant to Article 42.



36. "Month" means a calendar month pursuant to the Gregorian Calendar.



37. "Joint Operations" means the Petroleum Operations carried out jointly in the Contract Area by Contractor Group, excluding sole risk operations provided for in Article 30 of the Agreement.



38. "Petroleum Operations" means the operations of survey, Exploration, Appraisal, Development and Production which constitute the object of the Agreement.



39. "Operator" is the entity referred to in Article 8.



40. "Party" means either Sonangol or Contractor Group as Parties to the Agreement.



41. "Parties" means both Sonangol and Contractor Group wherever jointly referred to.



42. "Exploration Period" means the period defined in Article 6.



43. "Exploration Period" means the period defined in Article 7.



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Translation 44. "Exploration" shall include, but not be limited to, such geological and geophysical surveys and studies, aerial surveys and others as may be included in Approved Work Programs and Budgets, and the drilling of such shot holes, core holes, stratigraphic tests, Wells for the discovery of Petroleum, and other related holes and Wells, and the purchase or acquisition of such supplies, material and equipment which may be included in Approved Work Programs and Budgets. 45. "Petroleum" means Crude Oil of various densities, asphalt, Natural Gas and all other hydrocarbon substances that may be found in and extracted, or otherwise obtained and saved from the Contract Area. 46. "Crude Oil" means any hydrocarbons produced from the Contract Area which at a pressure of 14.7 PSI and a temperature of sixty degrees Fahrenheit (60°F) are in a liquid state at the wellhead or separator or which are extracted from the Gas or casinghead gas in a plant. Such term includes distillates and condensate. 47. "Cost Recovery Crude Oil" means the Crude Oil so defined in Article 11. 48. "Development Area Profit Oil" means the Crude Oil so defined in Article 12. 49. "Well" means a hole drilled into the earth for the purpose of locating, evaluating, producing or enhancing production of Petroleum. 50. "Appraisal Well" means a Well drilled following a Commercial Well to delineate the physical extent of the accumulation penetrated by such Commercial Well, and to estimate the accumulation's reserves and probably Production rates. 51. "Commercial Well" means the first Well on any geological structure which after testing in accordance with sound and accepted industry Production practices, and verified by Sonangol, is found through analysis of test results to be capable of 12TRANSLATION



producing from a single reservoir not less than an average rate of five thousand (5000) Barrels of Crude Oil per day.



Contractor Group shall have the right to request to Sonangol that a Well which is within the aforesaid criteria is not to be deemed a Commercial Well.



To exercise this right Contractor Group shall timely provide Sonangol information which would evidence that in the particular circumstances of such Well the same should not be deemed a Commercial well.



Among other factors consideration shall be given to porosity, permeability, reservoir pressure, Crude Oil saturation and the reservoir recoverable reserves.

Contractor Group has the option to declare a Well a “Commercial Well” at a producing rate below that one set forth above where Contractor Group is of the opinion that the accumulation may produce sufficient Crude Oil to recover the costs and make a reasonable return.



52. “Development Well” means a Well drilled for the purpose of production or enhancing Production of Petroleum from a Commercial Discovery, and includes Appraisal Wells completed as producing or injection Wells.



53. “Exploration Well” means a Well drilled for the purpose of discovering Petroleum, including Appraisal Wells to the extent permitted by Article 17.



54.”Delivery Point” means the point F.O.B Angolan loading facility at which Crude Oil reaches the inlet flange of the lifting tankship’s intake pipe, or such other point which may be agreed by Sonangol and Contractor Group.



55. “Market Price” means the price determined for the valuation of the Crude Oil produced from the Contract Area as established in accordance with the provisions of Article 2 of Annex C of the Concession Decree-Law.



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56. “Production” shall include, but not be limited to, the running, servicing, maintenance and repair of completed Wells and of the equipment, pipelines, systems, facilities and plants completed during Development.



It shall also include all activities related to planning, scheduling, controlling, measuring, testing and carrying out the flow, gathering, treating, transporting, storing and dispatching of Crude Oil and Gas from the underground Petroleum reservoirs to the designated exporting or lifting location and all other operations necessary for the production of Petroleum.



Production shall further include assets, facilities and oil fields abandonment operations.



57. “Lifting Schedule” means the planned program of Crude Oil liftings by each Party approved by the Operating Committee.



58. “Production Schedule” means the planned profile of Crude Oil output in Barrels per day approved by the Operating Committee in conjunction with the Development and Production Work Program and Budget for each Development Area, according to the provisions of Article 18.



59. “Work Program and Budget” means either an Exploration Work Program and Budget or a Development and Production Work Program and Budget.



60. “Approved Work Program and Budget” means either the Exploration Work Program and Budget or the Development and Production Work Program and Budget transmitted to Sonangol under Article 31, paragraph 12, or approved by the Operating Committee under Article 31, paragraph 11, as relevant.



61. “Sonangol” is Sociedade Nacional de Combustiveis de Angola- Unidade Economica Estatal(Sonangol,U.E.E.), an Angolan State company.







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62. "Quarter" means a period of three (3) consecutive Months starting with the first day of January, April, July or October of each of each Civil Year.



Article 2

(Annexes to the Agreement)

1. The present Agreement is complemented by the following Annexes which form an integral part of it:

(a) Annex A - Description of the Contract Area;

(b) Annex B - Map showing the Contract Area;

(c) Annex C - Accounting and Financial Procedures;

(d) Annex D - Corporate Guarantee;

(e) Annex E - Financial Guarantee.

2. In the event of discrepancy between the content or the form of Annexes A and B referred to in paragraph 1, preference will be given to Annex A.

3. In the event of discrepancy between the content or form of the Annexes referred to in paragraph 1 and the Agreement, the provisions of the Agreement shall prevail.



Article 3

(Object of the Agreement)

The object of this Agreement is the definition, in accordance with Law No. 13/78 of 26 August 1978, and other applicable legislation, of the contractual relations in the form of the Production Sharing Agreement between Sonangol and Contractor Group for the carry out of Petroleum Operations.



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Article 4

(Nature of the relationship between the Parties)



This Agreement shall not be construed as creating between the Parties any entity with a separate juridical personality, or a corporation, or a civil society, a joint venture or even a partnership ("conta em participacão").



Article 5

(Duration of The Agreement)



1. This Agreement shall continue to be in force until the end of the last Production Period or, in case there is no Production Period in the Contract Area, until the end of the Exploration Period, unless prior to that date anything occurs that in the terms of the Law or the applicable provisions of the Agreement constitutes cause for its termination.



2. The extension of the Exploration or Production Periods referred to in the preceding paragraph beyond the terms provided for in Articles 6 and 7 respectively shall be submitted to the Government under the terms of the Concession Decree-Law and other applicable legislation.



3. At the end of the Exploration Period, Contractor Group shall terminate its activities in all areas within the Contract Area which are not at such time part of a Development Area(s); and, except as otherwise provided herein, from that time this Agreement shall no longer have any application to any portion of the Contract Area not then part of a Development Area.



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Article 6

(Exploration Period)

An Initial Exploration Phase of four (4) Contract Years shall start from the Effective Date.



One (2) successive extension of two (2) Contract Years (the Optional Exploration Phase) shall follow the Initial Exploration Phase, provided that Contractor Group requests such extension in writing to Sonangol, at least thirty (30) days before the end of the Initial Exploration Phase and if, unless otherwise agreed by Sonangol, Contractor Group has fulfilled its obligations in respect of such Phase.

The Agreement shall be terminated if no Commercial Discovery has been made in the Contract Area by the end f of the Initial Exploration Phase or the Optional Exploration Phase, if the same has been requested.

However, the Exploration Period may be extended for six (6) Months for the completion of drilling and testing of any Well actually being drilled or tested at the end of the sixth (6th) Contract Year.

Should any of the above referred Wells be a Commercial Well, Contractor Group will be given sufficient time, as mutually agreed, not exceeding twelve (12) Months, or such longer period as agreed by Sonangol, following the completion of drilling and testing of the Commercial Well to do Appraisal work.

Should this work result in a Commercial Discovery then a Development Area shall be granted pursuant to Article 7.

Operations for the sole account of Sonangol conducted under Article 30 hereof shall not extend the Exploration Period no affect the term of this Agreement, it being understood that:

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a) Contractor Group shall complete any work undertaken for Sonangol’s sole risk and expense even though the Exploration Period may have expired;



b) Contractor Group’s completion of the works referred to in the previous subparagraph shall not extend Contractor Group’s Exploration Period or Agreement term except as in the case of Contractor Group exercising the option right mentioned in Article 30, paragraph 3 hereof;



c) During the period Contractor Group is completing the works referred to in subparagraph (a), Contractor Group shall be given authorization to continue such sole risk operations ad shall be entitled to all benefits available to Contractor Group pursuant to the Agreement as if the term thereof had not terminated.



Article 7

(Production Period)



1. Following each Commercial Discovery, the extent of the whole area within the Contract Area capable of production from the deposit or deposits identified in the Well that Originated the Commercial Discovery and its related Appraisal Wells, if any, shall be agreed upon by Sonangol and Contractor Group. Each agreed area shall then be converted automatically into a Development Area with effect from the date of Commercial Discovery.



2. Without prejudice to paragraph 2 hereof, there shall be a Production Period for each Development Area which shall be twenty five (25) Years from the date of Commercial Discovery in said Development Area. In the event of Commercial Discoveries in deposits which underlie and overlie each other, such deposits shall constitute a single Development Area, and the area shall be defined or redefined as necessary, as far as



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the boundaries of the Contract Area permit, to incorporate all underlying and overlying deposits.



2. Unless otherwise agreed by Sonangol, any Development Area will be considered automatically terminated and, except as otherwise provided in the Agreement, the rights and obligations in said Area shall be considered terminated if within six (6) Years from the date of Commercial Discovery in said Development Area the first lifting of Crude Oil from said Development Area has not been lifted as part of a regular program of lifting in accordance with the Lifting Schedule.



3. No later than twelve (12) Months before the end of the Production Period, Contractor Group may request Sonangol to meet and discuss the terms and conditions of the extension of the Production Period as provided for in paragraph 2 of Article 5.



Subject to the agreement on such terms, Sonangol shall support Contractor Group in a joint application for such an extension.



Article 8

(Operator)



1. Contractor Group has the exclusive responsibility for executing the Petroleum Operations, except as specified in Article 30.



2. Contractor Group shall appoint _______ as Operator to execute, without profit nor loss, on Contractor Group's behalf, the Petroleum Operations in the Contract Area.



Sonangol’s written approval shall be necessary prior to any change of Operator.



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3. Any agreement among the Contractor Group companies regarding or regulating the Operator's conduct in relation to this Agreement shall be submitted to Sonangol for comment prior to execution thereof.



4. The Operator will be subject to all of the specific obligation provided for in this Agreement, the Concession Decree-Law and the Law.



5. In the event of the occurrence of any of the following, Sonangol can require Contractor Group to immediately appoint another Operator:



(a) if the Operator, by action or omission, commits a serious fault in carrying out its obligations and if this fault is not remedied to the satisfaction of Sonangol within a period of twenty eight (28) days with effect from the date of receipt by the Operator of written notice issued by Sonangol requesting the Operator to remedy such fault (or within a greater period of time if so specified in the notice, or a agreed later by Sonangol), or if the Operator has not begun to take the necessary steps to remedy such fault within a period of twenty eight (28) days;



(b) if sentence has been passed in court declaring the bankruptcy, liquidation, or dissolution of the Operator, or if, in the court action taken in order to obtain such declaration, any interim or conservatory judicial ruling has been made, which prevents Operator from fulfilling its obligations under the Agreement;



(c) if the Operator undertakes the legal procedures established to prevent bankruptcy or without just cause ceases payment to creditors;



(d) if the Operator terminates or if there is strong evidence that it intends to terminate its activities or a significant proportion thereof, and, as a result fails to fulfill its obligations under the Agreement.



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6. For purpose of this Agreement, "Serious Fault" shall mean inadequate performance by the operator that violates the technical rules generally accepted in the international petroleum industry and/or the obligations under this Agreement and the Law.





7. If Contractor Group, in accordance with paragraph 5, does not comply with the obligation to appoint another Operator within thirty (30) days from the date when Sonangol gave notice to Contractor Group, then Contractor Group shall appoint as Operator the entity so designated by Sonangol from the entries comprising Contractor Group, unless none of such entries agrees to be the Operator.





Article 9



(Petroleum Operations Procedure Document)



Sonangol and Contractor Group may sign a document (hereinafter referred to as "Petroleum Operations Procedure Document) which will regulate and interpret the contents of this Agreement.



Any such document would be agreed between the Parties and would be in accordance with the provisions of this Agreement and the Law.





Article 10



(Cost and Expenses)



Except as otherwise provided for in this Agreement, the cost and expenses incurred in the Petroleum Operations, as well as any losses and risks derived therefrom, shall be borne by the Contractor Group, and Sonangol shall not be responsible to bear or repay any of the aforesaid costs.







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Article 11

(Recovery of Costs and Expenditures)



1. Contractor Group shall recover all Exploration, Development, Production and Administration and Services Expenditures incurred under this Agreement by taking and freely disposing of up to a maximum amount of fifty percent (50%) per Year of all Crude Oil produced and saved from Development Areas hereunder and not used in Petroleum Operations.



Such Crude Oil is hereinfafter referred to as 'Cost Recovey Crude Oil'.



2. The expenditures referred to in the preceding paragraph shall be recoverable only insofar as they are properly incurred in the Petroleum Operatoins.



Notwithstanding the generality of this principle, all expenditures relating to the Petroleum Operations which are classified, defined and allocated in accordance with Annex C shall be considered as properly incurred.



3. Exploration Expenditures incurred in the Contract Area shall be recoverable from the unused blalance of Cost Recovery Crude Oil existing from each Development Area after recovery of Development Expenditures, Production Expenditures and administration and Services Expenditures, subject to the maximum amount of Cost Recovery Crude Oil specified in paragraph 1 above.



In each Year such Exploration Expenditures shall be recoverable first from any Cost Recovery Crude Oil balance from the development Area having the most recent date of Commercial Discovery and then any balance of total Exploration Expenditures not already recovered shall be recoverable in sequence from Development Areas with the next most recent dates of Commercial Discovery.







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-----------









4. Development Expenditures in each Development Area shall be recovered only from



Cost Recovery Crude Oil from that Development Area.





Development Expenditures in each individual Development Area shall be multiplied by



________(____) and the resulting amount shall be recoverable at the rate of twenty-five



percent (25%) per Year in equal annual installments starting in the Year in which such



Expenditures are incurred or the Year in which Commercial Production in that



Development Area commences, whichever occurs last.







5. Production Expenditures in each Development Area shall be recovered only from Cost



Recovery Crude Oil from that Development Area, in the Year in which such



expenditures are incurred.





6. In the case that, in any given Year, recoverable costs, expenses or expenditures



exceed the value of Cost Recovery Crude Oil from the relevant Development Area for



such Year, the excess shall be carried forward for recovery in the next succeeding



Year or Years until fully recovered; but in no case after the termination of the



Agreement.





In the event that Development Expenditures for a Development Area are not fully



recovered within five (5) Years after the initiation of Commercial Production or within



five (5) Years after the Development Expenditures are incurred, whichever is last, then



Contractor Group's share of Cost Recovery Crude Oil shall be increased from Year six



up to sixty five per cent (65%) per Year to allow for the recovery of such unrecovered



expenditures, provided that Contractor Group has fulfilled all of its contractual



obligations to date.





7. If in any give Year, recoverable costs, expenses or expenditures are less than the



maximum value of Cost Recovery Crude Oil the difference shall become part of, and



included in the Development Area Profit Oil provided for in Article 12.

























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8. For the purposes of valuation of Cost Recovery Crude Oil, the provisions of Article 2 of Annex C of the Concession Decree-Law shall apply.



9. For the purpose of this Agreement, the date on which Commercial Production commences shall mean the date on which the first shipment of Crude Oil is made under an approved Lifting Schedule from the Development Area or the Contract Area, as the case may be.



Article 12

(Production Sharing)



1. The total Crude Oil produced and saved in a Quarter from each Commercial Discovery and its Development Area and not used in Petroleum Operations less the Cost Recovery Crude Oil from the same Development Area, as provided in Article 11, shall be referred to as 'Development Area Profit Oil' and shall be shared between Sonangol and Contractor Group according to the after tax, nominal rate of return achieved at the end of the preceding Quarter by Contractor Group in the corresponding Development Area as follows:



| Contractor Group's rate of return | Sonangol | Contractor Group |

| for each Development Area | Share - % | Share - % |

| (% per annum) | | |

| Less than ___ | | |

| ___ to less than ___ | | |

| ___ to less than ___ | | |

| ___ or more | | |

| | | |



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2. Beginning at the date of Commercial Discovery, Contractor Group's rate of return shall be determined at the end of each Quarter on the basis of the accumulated compounded net cash flow for each Development Area, using the following procedure:



(a) The Contractor Group's net cash flow computed in U.S. dollars for a Development Area for each Quarter is:



(i) the sum of Contractor Group's Cost Recovery Crude Oil and share of Development Area Profit Oil regarding the Petroleum actually lifted in that Quarter at the Market Price;



(ii) minus Petroleum Income Tax;



(iii) minus Development Expenditures and Production Expenditures.



(b) for this computation, neither any expenditure incurred prior to the date of Commercial Discovery for a Development Area nor any Exploration Expenditure shall be included in the computation of Contractor Group's net cash flow.



(c) the Contractor Group's net cash flows for each Quarter are compounded and accumulated for each Development Area from the date of the Commercial Discovery according to the following formula:



ACNCF (Current Quarter) =



(100% + DQ)/100% x ACNCF (Previous Quarter) + NCF (Current Quarter)



where:



ACNCF = Accumulated compounded net cash flow



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NCF = Net cash flow

DQ = Quarterly compound rate (in percent)



The formula will be calculated using quarterly compound rates (in percent) of __%, __% and __% which correspond to annual compound rates ("DA") of __%, __% and __% respectively as referred to in Article 12, paragraph 1.



3. The Contractor Group's rate of return in any given Quarter for each Development Area shall be deemed to be between the largest DA which yields a positive or zero ACNCF and the smallest DA which causes the ACNCF to be negative.



4. The sharing of Profit Oil from each Development Area between Sonangol and Contractor Group in a given Quarter shall be in accordance with the scale in paragraph 1 above using the Contractor Group's deemed rate of return as per paragraph 3 in the immediately preceding Quarter.



5. In a given Development Area it is possible for the Contractor Group's deemed rate of return to decline as a result of negative cash flow in a Quarter with the consequence that Contractor Group's share of Profit Oil from that Development Area would increase in the subsequent Quarter.



6. Pending finalization of accounts, Profit Oil from Development Areas shall be shared on the basis of provisional estimates, if necessary, of deemed rate of return as approved by the Operating Committee. Adjustments shall be subsequently effected in accordance with procedures to be established by the Operating Committee.



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Article 13

(Lifting and Disposal of Crude Oil)



1. It is the right and the obligation of each of the Parties to separately take at the Delivery Point in accordance with the Lifting Schedule and the procedures and regulations foreseen in the following paragraphs of this Article, its respective Crude Oil entitlements as determined in accordance with this Agreement.



2. Each of the Parties (and as for Contractor Group, each entity constituting it) shall have

the right to proceed separately to the commercialization, lifting, and export of the Crude Oil to which it is entitled under this Agreement.



3. Twelve (12) Months prior to the scheduled initial export of Crude Oil from each Development Area, Sonangol shall submit to Contractor Group proposed procedures and related operating regulations covering the scheduling, storage and lifting of Crude Oil and any other Petroleum produced from such Development Area(s).



The procedures and regulations shall be consistent with the terms of this Agreement and shall comprehend the subjects necessary for efficient and equitable operations including, but not limited to, rights of the Parties, notification time, maximum and minimum quantities, duration of storage, scheduling, conservation, spillage, liabilities of the Parties, throughput fees and penalties, over and underlifting, safety and emergency procedures and any other matters that may be agreed between the Parties.



4. Contractor Group shall within thirty (30) days after Sonangol's submission in the preceding paragraph, submit its comments on, and recommend any revisions to the proposed procedures and regulations.



Sonangol shall consider these comments and recommendations and the Parties shall, within sixty (60) days after Contractor Group's said submission, agree on such procedures and regulations.



27 TRANSLATION



5. In any event, the agreed lifting procedures and regulations shall always comply woth the Law.



6. In the case of more than one Development Area in the Contract Area or more than one quality Crude Oil in a Development Area, Sonangol and Contractor Group shall, unless they mutually agree that the Crude Oil should be commingled, lift from each Development Area Crude Oil qualities in proportion to their respective total liftings from the Contract Area.



In determining these proportions Petroleum belonging to Sonangol as a result of operations for Sonangol´s account under Article 30 shall be excluded.



Article 14

(Conduct of Petroleum Operations)



1. with due observance of legal and contractual provisions and subject to the decisions of the Operating Committee, Contractor Group shall act in the common interest of the Parties and shall undertake the execution of the work inherent in Petroleum Operations, in accordance with professional norms and standards which are generally accepted int the international petroleum industry.



2. Contracto Group shall carry out work inherent in Petroleum Operations in an efficient, diligent and conscientious manner and shall execute the Work Programs and Budgets under the best economic and technical conditions, and in accordance with professional norms and standards which are generally accepted in the international petroleum industry.



3. Conrtactor Group and its subcontractor shall;





28TRANALTION



(a) contract local contractors as long as their services are similar to those available on the international markat and the prices of their services, when subject to the same tax charges, are no more than ten percent (10%) higher compared to the prices charged by foreign contractors for identical services;



(b) acquire materials, equipment, machinery and consumable goods of national production, insofar as their quantity, quality and delivery dates are similar to those of such material, equipement, machinery and consumable goods available on the international market.



However, such obligation shall not apply in those cases in which the local prices for such goods are more than ten percent (10%) higher compared to the prices for imported goods, before charging Customs Duties but after the respective costs for transportation and insurance have been included.



4. Contractor Group shall solicit competitive bids for any work to be performed pursuant to an Approved Work Program and Budget if such work is budgeted to exceed one hundred and fifty thousand U.S. dollars (U.S.$150,000) or such higher amount as may be decided by the Operating Committee.



When reviewing such bids, Contractor Group shall select out of the bids which are acceptable to Contractor Group, for technical and other operational reasons, the bid with the lowest cost.



This decision shall be subject to the provisions of paragraph 3 above and, after the firts Commercial Discovery, the approval of the Operating Committee.



5. Operator shall entrust the management of Petroleum Operations in angola to a technically competent General Manager and Assistant General Manager. The names of such General Manager and Assistant Manager shall, upon appointment, be given to Sonangol.







29







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-----------







The General Manager and, in his absence, the Assistant General Manager, shall be

entrusted with sufficient powers to carry out immediately and comply with all lawful

written directions given to them by Sonangol or the Government or its or their

representative or any lawful regulations gazetted or hereafter to be gazetted which are

applicable to the Petroleum Operations under this Agreement.



6. Except as is appropriate for the economic and efficient processing of data and

laboratory studies thereon in specialized centers outside Angola, geological and

geophysical studies as well as any other studies related to the performance of this

Agreement, shall be preferentially made in Angola.



7. In the case of an emergency in the course of the Petroleum Operations requiring an

immediate action, Contractor Group is authorized to take all the actions that it deems

necessary for the protection of human life and the interests of the Parties and shall

promptly inform Sonangol of all actions so taken.



8. Any obligations which are to be observed and performed by Contractor Group shall, if

Contractor Group comprises more than one entity, be joint and several obligations.



9. Sonangol shall provide reasonable assistance to the Contractor Group in obtaining

visas, permits and other documents required to enter Angola and residency and work

licenses required in connection with the performance of Petroleum Operations.



The Contractor Group shall notify Sonangol reasonably in advance of the time

necessary for receipt of such permits and licenses and Sonangol shall take steps to

arrange for all such permits and licenses to be issued on a timely basis by the

appropriate authorities.

























30































TRANSLATION

-----------





Article 15





(Work Obligations during the Exploration Period)





1. Within the Initial Exploration Phase, Contractor Group will conduct a seismic program

covering __________(_______) of seismic profiles.





Such seismic program will begin within six (6) Months of the Effective Date provided

that an appropriate seismic vessel is available.





2. Contractor Group will drill to geological horizons defined in the Approved Work

Program and Budget _____(___) obligator Exploration Wells on _____(___) separate

drillable prospects within the Initial Exploration Phase.



3. In the event Contractor Group elects to extend the Exploration Period into the Optional

Exploration Phase , Contractor Group shall be obligated to drill _____(__) obligatory

Exploration Wells (other than Appraisal Wells) to geological horizons defined in the

Approved Work Program and Budget.



4. In the event Contractor Group exceeds the minimum work obligations described in the

preceding paragraph during the Initial Exploration Phase then such excess shall be

credited against the minimum work obligations for the succeeding Exploration Phase.



5. In the event that Contractor Group does not satisfy the minimum work obligations

referred to in this Article within the times specified, Contractor Group shall be

deemed, unless otherwise agreed by Sonangol, to have voluntarily terminated

activities and withdrawn from all of the Contract Area not already converted into a

Development Area(s).



6. If Contractor Group relinquishes its rights under this Agreement before completing the

seismic program referred to in paragraph 1 above, Contractor Group shall be obligated

to pay Sonangol an amount equal to _____U.S dollars (U.S$ ____), less the amount of





















31















TRANSLATION



___ U.S. dollars (U.S$ ___) for _____ related to any part of the seismic program completed before the relinquishment.



7*. In addition to what is provided in the above subparagraph, if Contractor Group relinquishes its rights under this Agreement before drilling the minimum number of Exploration Wells which it is obligated to drill under the terms of this Article Contractor Group shall be obligated to pay Sonangol an amount equal to ____ U.S. dollars (U.S.$___) for each such Exploration Well not drilled.



7. Contractor Group shall be obligated to incur the following minimum Exploration Expenditures:



Initial Exploration Phase U.S. $ ______

Optional Exploration Phase U.S. $ ______



8. If Contractor Group fulfills the minimum work obligations referred to in paragraph 6 of this Article related to each phase of the Exploration Period, then Contractor Group shall be considered as having fulfilled the minimum Exploration Expenditures set forth in the previous paragraph.



9. Each Exploration Well referred to in this Article shall test all productive horizons agreed to by Sonangol and Contractor Group, unless diligent test efforts consistent with sound and normal oil industry practices indicate that it is technically impracticable to reach and/or test any such horizons.



10. During the drilling of Wells under this Agreement, Contractor Group shall keep Sonangol informed of the progress of each Well, its proposals for testing and the results of such tests, and at Sonangol's request, shall test any additional prospective zones within the agreed Well depth provided that such tests shall be consistent with professional norms and standards which are generally accepted in the international



_____________________

* Probably a mistake in the original Portuguese text. 32TRANSLATION



petroleum industry and not interfere with the safety and efficiency of the Petroleum Operations planned by Contractor Group.



Such tests shall be at Contractor Group's expense and shall be credited towards fulfilling the minimum work program.



Article 16

(Exploration Work Programs and Budgets)



Within one (1) Month of the Effective Date and thereafter at least three (3) Months prior to the beginning of each Contract Year during the Exploration Period or at such other times as may mutually be agreed to by Sonangol and Contractor Group, Contractor Group shall prepare in reasonable detail an Exploration Work Program and Budget for the Contract Area setting forth the Exploration operations which Contractor Group proposes to carry out during the first Contract Year and during the ensuing Contract Year respectively.



During the Exploration Period such Work Program and Budget shall be at least sufficient to satisfy Contractor Group's minimum Exploration Expenditure and Exploration Well obligations. The Exploration Work-Program and Budget shall be submitted to the Operating Committee for review, advice or approval as the case may be, in accordance with Article 31 and then carried out by Contractor Group.



After the first Commercial Discovery, the Operating Committee will coordinate, supervise and control the execution of the Approved Exploration Work Programs and Budgets within budget expenditure limits, or any revisions which have been made thereto.



33TRANSLATION



Article 17

(Commercial Discovery)



1. Contractor Group shall advise Sonangol within thirty (30) days of the end of the drilling and testing of an Exploration Well, the results of the final tests of the Well and whether such a Well is commercial or not.



Th date of this advice shall be the date of the declaration of the Commercial Well.



2. After the declaration of a Commericial Well, Contractor Group may undertake the Appraisal of the discovery by drilling one or more Appraisal Wells to determine whether such discovery can be classified as a Commercial Discovery.



3. Unless otherwise agreed by Sonangol, not later than six (6) Months after the completion of the second Appraisal Well, or twenty-four (24) Months after the declaration of the Commercial Well, whichever is earlier, Constructor Group shall give written notice to Sonangol indicating whether the discovery is considered commercial or not.



If Contractor Group declares it a Commercial Discovery, Contractor Group shall proceed to develop the discovery in accordance with the Law Regulating Petroleum Activities, (Law No. 13/78, of 26 August 1978).



The date of Commercial Discovery shall be the date on which Contractor Group declared by written notice to Sonangol the existence of a Commercial Discovery.



4. If the period allowable for declaration of a Commercial Discovery extends beyond the Exploration Period, a provisional Development Area shall be established for such period as necessary to complete the Appraisal as per paragraph 3 above.



34

TRANSLATION



Such Development Area shall be of the shape and size which encompasses the geological feature or features which would constitute the potential Commercial Discovery. Such provisional Development Area shall be agreed by Sonangol in writing.



5. If following the discovery of a Commercial Well, the subsequent Appraisal Well, or Wells, are completed as producing or injection Wells their costs shall be treated as part of the Development Expenditures for the purposes of calculating the amount of Cost Recovery Crude Oil.



6. The costs of a Commercial Well if completed as a producing or injection Well, shall be treated as part of the Development Expenditures for the purposes of calculating the amount of Cost Recovery Crude Oil.



7. The costs of a Commercial Well or Appraisal Well(s) not completed as a producing or injection Well(s) shall be treated as Exploration Expenditures for the purposes of calculating the amount of Cost Recovery Crude Oil.



8. Any Commercial Well shall count towards fulfilling the work and expenditure obligations provided for in Article 15, but the Appraisal Well(s) that have been drilled following the discovery of a Commercial Well shall not count towards such obligations.



9. There shall be no more than one Commercial Well in each Development Area that counts towards such work obligations; and it shall be the first Commercial Well in that Development Area.



10. Contractor Group has the right to declare a Commercial Discovery without first having drilled a Commercial Well or Wells.



35Artigo 18



(Development and Production Work Programs and Budgets)



Ninety (90) days after the date of a Commercial Discovery Contractor Group shall prepare a revised Exploration Work Program and Budget for the remainder of the Year in which the Commercial Discovery is made.



Such Work Programs and Budgets shall be prepared no later than the fifteenth (15th) of August of said Year or such other date as may be agreed upon. No later than the fifteenth (15th) of August of each Year for no later than such other date as may be agreed upon thereafter. Contractor Group shall prepare in accordance with professional norms and standards which are generally accepted in the international petroleum industry and annual Production Schedule, an Exploration and Production Work Program and Budget (if applicable) and a Development and Production Work Program and Budget for the succeeding Civil Year and may, from time to time, propose revisions thereto.



The Production Schedule and the Development and Production Work Program and Budget shall be formally approved in writing by the Operating Committee and give to the Sonangol and Contractor Group.



Contractor Group is authorized and obliged to execute, under the supervision and control of the Operating Committee and within the budget expenditure limits, the Approved Development and Production Work Programs and Budge and any approved revisions thereto.



36









TRANSLATION

Article 19

(Production Programs)



The Operating Committee shall approve a Lifting Schedule, not less than ninety (90) days prior to January 1 and July 1 of each Civil Year following the commencement of Production under the approved Production Schedule, and furnish in writing to the Songangoi and Contractor Group a forecast setting out the total quantity of Petroleum that the Operating Committee estimates can be produced, saved, transported and lifted hereunder during each of the next four (4) Quarters in accordance with sound practices generally accepted in the international petroleum industry.



Contractor group shall endeavor to produce in each Quarter the forecast quantity.



The Crude Oil shall, if appropriate, be run to storage tanks, constructed, maintained and operated by Contractor Group, and shall metered or otherwise measured as required to meet the purposes of this Agreement and the Law.



Article 20

(Guarantees)



1. The minimum Exploration work obligations shall be secured by a financial guarantee substantially in the form as set out in Annex E.



2. Such guarantee shall be given by Contractor Group not later than three (3) Months after the beginning of each Phase of the Exploration Period.



3. The amount of each guarantee shall in each phase be equal to _____ U.S. Dollars (U.S.$___) for each of the obligatory Explorations Wells set forth in Article 15. TRANSLATION



In relation to the Initial Exploration Phase, the guarantee will be increased by ____ U.S. dollars (U.S.$ __ ) for the obligatory seismic program set forth in paragraph 1 of Article 15.



4. The amount of the guarantee provided for in this Article shall be reduced by _____ U.S. dollars (U.S.$ ____) in the Initial Exploration Phase when the obligatory seismic program is completed and by the amount of ________ U.S. dollars (U.S.$ _______) for _________ of seismic completed, up to the amount of _________ U.S. dollars (U.S.$ _____).



Such guarantee will also be reduced by the amount of _____ U.S. dollars (U.S.$______) when the drilling of each of the obligatory Exploration Wells for each Phase of the Exploration Period is finished or for each amount paid in accordance with Article 15, paragraphs 6 or 10



5. If, during any Year of any of the Phases of the Exploration Period Contractor Group should be deemed to have relinquished, as provided in Article 15, paragraph 5, all of the Contract Area not converted to a Development Area(s), Contractor Group shall forfeit the full amount of the financial guarantee, reduced as provided for in paragraph 4 of this Article.



6. Each of the entities comprising Contractor Group shall also provide Sonangol, if so required by the latter, with a corporate guarantee substantially in the form shown in Annex D hereof or such other form as may be agreed between Sonangol and each of such entities, not later than three (3) Months after the Effective Date.



38TRANSLATION



Article 21

(Bonus)



1. Contractor Group shall pay to Sonangol, as a signature bonus, the sum of _____ U.S. dollars (U.S.$_____) on the Effective Date.



Such signature bonus shall neither be recovered nor amortized by Contractor Group.



Article 22

(Development Area Rentals)



On or before the first day of the Month next following the date of the declaration of each Commercial Discovery and on each anniverssary thereof, Contractor Group shall pay to Sonangol a surface rental of three hundred U.S. dollars (U.S.$300) per square kilometer for all the area covered by the resulting Development Area(s).



Such surface rental shall be recovered as Production Expenditure against the Cost Recovery Crude Oil.



Article 23

(Conseervation of Petroleum and Prevention of Loss)



1. Contractor Group shall adopt those measures which are necessary and appropiate and consistent with the technology generally in use in the international petroleum industry to prevent loss or waste of Petroleum above or under the ground in any from during drilling, producing, gathering and distributing, storage or transportation operations.







39



TRANSLATION



2. Upon completion of the drilling of a producting Development Well, Contractor Group shall inform Sonangol of the time when the well will be tested and will subsequently inform Sonangol of the resulting estimated production rate of the Well fifteen (15) days after the conclusion of such tests.



3. Petroleum shall not be produced from multiple independent oil productive zones simulteneously through one string of tubing, except with the prior approval of Sonangol.



4. Contractor Group shall record data regarding the quantities of Crude Oil, Natural Gas and water produced monthly from each Development Area.



Such data shall be sent to Sonangol within thirty (30) days after the end of the Month reported on.



Daily or weekly statistics and reports regarding the production from the Contract Area shall be made available by Contractor Group at convenient time for examination by authorized representatives of Sonangol.



5. Daily drilling records and graphic logs of Wells must show the quantity and type of cement and the quantity of any other materials used in the Well for the purposes of protecting Crude Oil, Natural Gas or fresh water bearing strata.



Any substantial change of mechanical equipment associated with the Well after its completion shall be subject to the approval of Sonangol.





40BARROWS

CONFIDENTIAL



TRANSLATION



Article 24

(Records, Reports and Inspection)



1. Contractor Group shall prepare and, at all times while this Agreement is in force, maintain accurate and current records of its activities and operations in the Contract Area and shall keep all information of a technical, economic, accounting or any other nature developed through the conduct of Petroleum-Operations.



Such records will be organized in such a way as to allow for the prompt and complete ascertainment of costs and expenditures.



All such records and information will be kept at Operator's office in Luanda.



2. Sonangol, in exercising its activities under the terms of this Agreement, shall have the right to free access, upon prior notice to Contractor Group, to all data referred to in the preceding paragraph.



Contractor Group shall furnish Sonangol, in accordance with applicable regulations or as Sonangol may reasonably request, information and data concerning activities and operations under this Agreement.



In addition, Contractor Group shall provide Sonangol with copies of any and all data, including, but not limited to, geological and geophysical reports, logs and Well surveys, information and interpretation of such data and other information related to the Contract Area in Contractor Group's possession.



3. Contractor Group shall save and keep in the best condition possible a representative portion of each sample of cores and cuttings taken from Wells as well as samples of all fluids produced from Exploration Wells, to be delivered or forwarded to Sonangol or its representatives in the manner directed by Sonangol.



41

TRANSLATION



All samples acquired by Contractor Group for its own purposes shall be considered available for inspection at any convenient time by Sonangol or its representatives.



Contractor Group shall keep the aforementioned samples for a period of thirty-six (36) Months or, if before the end of such period, Contractor Group withdraws from the Contract Area, then until the date of withdrawal.



Up to three (3) Months before the end of the aforementioned period, Contractor Group shall request instructions from Sonangol as to the destination for such samples.



If Contractor Group does not receive instructions from Sonangol by the end of such three (3) Month period then Contractor Group is relieved of its responsibility to store such samples.



4. Unless otherwise agreed to by Sonangol, in the case of exporting any rock samples outside Angola, samples equivalent in size and quality shall, before such exportation be given to Sonangol.



5. Originals of records and data can be exported only with the permission of Sonangol.



The original magnetic tapes and any other data which must be processed or analyzed outside Angola may be exported only if a comparable record is maintained in Angola and Provided that such exports shall be repatriated to Angola on the understanding that they belong to Sonangol.



Copies of records and data may be exported at any time subject to the Law.



6. Subject to any other provisions of this Agreement, Contractor Group shall permit Sonangol's duly authorized representatives and employees to have full and complete access to the Contractor Area at all convenient times with the right to observe the





42TRANSLATION



Petroleum Operations being conducted and to inspect all assets, records and data kept by Contractor Group.

Sonangol's representatives and employees, in excercising the aforementioned rights shall not interfere with Contractor Group's Petroleum Operations.

Contractor Group shall grant to said Sonangol's representatives and employees the same facilities in the camp as those afforded to its own employees of similar professional rank.



Article 25

(Contractors Group's obligation to purchase Sonangol's Oil)



1. Sonangol shall have the right to require Contractor Group to purchase any part of Sonangol's share of production under normal commercial terms and conditions in the international petroleum industry and at the Market Price in force at the time the Crude Oil is lifted as established in Article 2 of Annex C of the Concession Decree-Law.



2. The right referred to in the preceding paragraph shall be exercised in accordance with the following procedure:

(a) no later than six (6) Months prior to the start of a Quarter Sonangol shall give written notice to the Conrtractor Group that it requires Contractor Group to purchase a specified quantity of Crude Oil to be lifted rateably over a period of two (2) consecutive Quarters;

(b) Contractor Group's obligation to purchase Crude Oil from Sonangol will continue mutatis mutandis from Quarter to Quarter after the initial two (2) consecutive Quarters until and unless Sonangol gives Contractor Group written notice of termination whic, subject to the above-mentioned minimum period.TRANSLATION



shall take effect six (6) Months after the end of the Quarter in which such written notice was given.



Article 26



(Other rights and obligations related to Crude Oil disposal)



1. Sonangol shall have the right upon six (6) Months prior written notice to buy from Contractor Group Crude Oil from the Contract Area equivalent in value to the Petroleum Income Tax due by Contractor Group to the Ministry of Finance, i.e., fifty percent (50%) of Contractor Group's share of Development Area Profit Oil (as determined in accordance with Article 12).



Such purchases by Sonangol shall be at the Market Price applicable to such Crude Oil. Sonangol shall provide Contractor Group with not less than three (3) Months advance written notice of its intention to cease to exercise its right under this paragraph.



2. Payment by Sonangol to Contractor Group for each purchase of Crude Oil under paragraph 1 above shall be made two (2) working days before due date of the relevant amount of Petroleum Income Tax to the Ministry of Finance.



Any unpaid amount, plus interest as specified in Annex C to this agreement, shall be paid in kind to Contractor Group by Sonangol out of its next Crude Oil entitlement, valued at the Market Price applicable to such Crude Oil.



3. If, in any Year, Contractor Group's total share of Crude Oil comprising Cost Recovery Crude Oil and Development Area Profit Oil, less any Crude Oil acquired or received from Contractor Group by Sonangol under this Article and by the Government under the Concession Decree-Law, is less than forty-nine percent (49%) of total Crude Oil estimated to be produced and saved in the Contract Area, Contractor Group shall have the right to buy and lift the corresponding balance of Crude Oil in the succeeding Year.



44TRANSLATION



In the event that Contractor Group exercises all or any part of such right, the balance of Crude Oil necessary to satisfy Contractor Group's right shall be sold to Contractor Group by Sonangol at the Market Price in accordance with the following procedures:



(a) Six (6) Months prior to the start of a Quarter Contractor Group shall give written notice to Sonangol that it requires Sonangol to sell a specified quantity of Crude Oil, which quantity may be expressed either in Barrels or a percentage of total production, to be lifted rateably byer a period of two (2) consecutive Quarters;

(b) Sonangol's obligation to sell Crude Oil Will continue mutatis mutandis from Quarter to Quarter after the initial two (2) consecutive Quarters until and unless Contractor Group gives Sonangol written notice of termination or revision of quantities which, subject to the above-mentioned minimum period, shall take effect six (6) Months after the end of the Quarter in which such written notice was given.



4. In the event of conflict between Contractor Group's right in paragraph 3 above and Sonangol's right in paragraph 1 above, Contractor Group's right shall have priority.



5. The fulfillment of the obligation to satisfy the Government's right as per Article 8 of the Concession Decree-Law shall be shared between Sonangol and Contractor Group in proportion to their respective net shares of production during the period concerned (Contractor Group's net share being its share according to Articles 11 and 12 less the quantities delivered to Sonangol under paragraph 1 above and Sonangol's net share being its share according to Article 12, plus the said quantities delivered to it under paragraph 1 above).

45BARROWS CONFIDENTIAL



TRANSLATION



Article 27

(Unitization)



1. In the event of there being Petroleum deposits, capable of a commercially viable Development which extend beyond the Contract Area, and where other entities have agreements for the Exploration and Production of Petroleum with a similar unitization provision, Sonangol may, by means of written notice addressed to Contractor Group and said other entities, require that the Petroleum in those deposits should be developed and produced in mutual cooperation.



2. Sonangol, by means of written notice addressed to Contractor Group and the other entities as aforesaid, may also require that a similar procedure to that mentioned in the preceding paragraph be adopted in relation to other existent Petroleum deposits within the Contract Area, if those are commercially viable only when developed together with Petroleum deposits in areas adjacent to the Contract Area.



3. Should Sonangol make use of the rights referred to in the preceding paragraphs, Contractor Group shall use all reasonable endeavors to cooperate with the other entities in the preparation of a plan for the joint development and production of the deposits in question.



Such plan shall be presented to Sonangol within a period of one hundred and eighty (180) days from the date when Contractor Group-and the other entities as aforesaid received the relevant notice, or such longer period as Sonangol may agree.



4. Should the plan not be presented within the period established in the preceding paragraph Sonangol may arrange for an independent consultant acceptable to all parties concerned to prepare a plan, at the expense of the Contractor Group and the other entities, for the joint Development and Production of the deposits in accordance with generally accepted practice in the international petroleum industry.



46



TRANSLATION



The consultant must consult with and keep all members of the Contractor Group and the other entities informed on a regular basis.



5. The plan prepared under the terms of the preceding paragraphs shall be in accordance with the rules established in this Agreement, in particular as regards the rights and obligations of Contractor Group, and it shall establish an adequate rate of return for Contractor Group compatible with the proportional-share which the latter assumes in the joint Development and Production.



6. Once the plan referred to in the preceding paragraphs has been prepared, the Parties and the other entities shall meet within sixty (60) days from the date of submittal of said plan to agree on its implementation, Which shall be initiated no later than ninety (90) days from the date of the agreement or such other later date as Sonangol may agree.



7. If Contractor Group does not accept the plan prepared under paragraph 4 above or if Contractor Group refuses the implementation of the plan or if Contractor Group does not initiate said implementation within the time period established under paragraph 6, or further more if after an agreement has been reached for the preparation of a plan under paragraph 3, the implementation of same is not started within the period of paragraph 6, Contractor Group shall relinquish to Sonangol those parts of the Contract Area together with the Petroleum deposits lying thereunder which were the subject of Sonangol's notice referred to in paragraphs 1 and 2 above, without prejudice to Contractor Group's other rights and obligations under this Agreement in respect of the remainder of the Contract Area.



8. Any joint Development and Production in accordance with this Article 27 is without prejudice to the provisions of Article 29 and Article 31, paragraphs 2(e) and 11 ((b).



9. In the event that a unitization process under this Article affects the whole or part of an obligation which Contractor Group must fulfil within a certain time period under the



47TRANSLATION



Agreement, such time period shall be extended by the time elapsed between Sonangol's written notice under paragraphs 1 and 2 above and the date of mutual agreement on the plan of the related joint Development.



In any event this extension shall not be more than twelve (12) Months, or such longer period as agreed by Sonangol.



Article 28

(Transfer and abandonment of assets)



1. The Contractor Group, within a period of sisxty (60) days from the termination of the Agreement or of the date of abandonment of any part of the Contract Area, must hand over to Sonangol, in a good state of repair and operation, and in accordance with a plan approved by Sonangol, all of the infrastructures, equipment and all Wells which, within the area to which the expiry, cancellation or relinquishment refers, are in production or are capable of producing, or are being used, or may be used, in injection, together with all casing, piping, surface or sub-surface equipment and facilities acquired by the Contractor Group for the conduct of Petroleum Operations except those as are being used for Petroleum Operations elsewhere in the Contract Area.



2. Should Sonangol so require, the Contractor Group shall proceed to correctly abandon the Well or Wells in question and shall also undertake other actions for the abandonment of the related assets as requested, in accordance with generally accepted practices of the international oil industry.



3. The requirement provided for in the provious paragraph shall be made by Sonangol no later than one hundred and eighty (180) days before the termination of the Agreement or the estimated date of abandonment of any part of the Contract Area.







48TRANSLATION



4. If such request is made, Sonangol shall make the required funds available to the Contractor Group from the amounts paid to Sonangol pursuant to Article 4, subparagraph 3(e) of Annex C.



In the event the amounts paid by Contractor Group are insufficient to cover the abandonment costs, Sonangol and Contractor Group shall agree on the method of covering the additional costs.



5. After having carried out the abandonment of the Wells, and related assets or in the case of Sonangol requesting such abandonment and not placing at the disposal of the Contractor Group the funds referred to in paragraph 4, or after the Contractor Group carries out the handing over to Sonangol of the equipment and Weils under the terms of paragraph 1, the Contractor Group will have no further liability in relation to the same, except in cases of gross negligence, wilful misconduct or Serious Fault and, without prejudice to the provisions of the Agreement still in force after the termination of the Agreement, Sonangol shall indemnify the Contractor Group in case of any claims related to such Wells and assets.





Article 29

(Natural Gas)



1. Contractor Group shall have the right to use in the Petroleum Operations, for domestic consumption or export, Associated Natural Gas produced from the Development Areas and will have the right to process such Gas and separate the liquids therefrom.



Costs to produce, treat and so use such Gas shall be recovered and classified in accordance with this Agreement.



2. Associated Natural Gas surplus to the requirements defined in the preceding paragraph shall be made available at the separator free to Sonangol.



493. Sonangol may request Contractor Group to join Sonangol in developing plans for the use of such surplus Associated Natural Gas, under economic conditions to be mutually agreed.



4. If Non-Associated Natural Gas is discovered within the Contract Area then Sonangol and Contractor Group shall endeavor to agree on the terms under which such Gas will be developed by Contractor Group.



Such Development shall include the use of Non-Associated Natural Gas for field operations, for domestic consumption or for export. If no agreement is reached within thirty-six (36) Months of the date when such Gas was discovered, or such longer period as may be agreed to by Sonangol then Sonangol shall be free to develop the discovery for its own account and risk.



Subject to Sonangol's prior agreement, the Contractor Group shall have the right to participate in the Development of the aforementioned Gas with reimbursement of Sonangol's expenses according to Article 30 of the Agreement plus one thousand percent (1000%) of such expenses.



5. In the course of activities provided for under this Agreement, flaring of Associated and/or Non-Associated Gas, except short-term flaring necessary for testing or other operational reasons in accordance with practice generally accepted in the international petroleum industry, is prohibited except on prior authorization of the Ministry of Petroleum following a request by Sonangol.



Contractor Group shall formulate such request to Sonangol which shall include an evaluation of alternatives to flaring that have been considered along with information on the amount and quality of Gases involved and the duration of the requested flaring.







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___________







Article 30



(Operations for Sonangol's account - sole risk)







1. Operations which may be the object of a sole risk notice from Sonangol under this



Article shall be those involving:



(a) penetration and testing geological horizons deeper than those proposed by



Contractor Group to the Operating Committee in any Exploration Well being



drilled which has not encountered Petroleum provided the Operator has not



commenced the approved operations to complete or abandon the Well;



(b) penetration and testing geological horizons deeper than those proposed by



Contractor Group to the Operating Committee in any Exploration Well being



drilled which has encountered Petroleum, provided that in respect to such Well



the Operating Committee has agreed that Sonangol may undertake the sole risk



operations, and the Operator has not commenced the approved operations to



complete or abandon such Well;



(c) the drilling of an Exploration Well other than an Appraisal Well provided that



not more than two (2) such Wells may be drilled in any Year;



(d) the drilling of an Appraisal Well which is a direct result from a successful



Exploration Well whether or not such Exploration Well was drilled as part of a



sole risk operation;



(e) the Development of any discovery which is a direct result from a successful



Exploration Well and/or Appraisal Well sole risk operation which Contractor



Group has not elected to undertake under paragraph 3 below;



(f) the Development of a Petroleum deposit discovered by a successful Exploration



Well and/or Appraisal Well carried out by Contractor Group as part of a work







51









































TRANSLATION

BARROWS CONFIDENTIAL



program approved by the Operating Committee if thirty-six (36) Months have elapsed since such successful Well was completed and Contractor Group has not commenced Development of such deposit.

2. Except as to those described under paragraphs (a) and (b) none of the operations described in paragraph 1 of this Article may be the object of a sole risk notice from Sonangol until after the operation has been proposed in complete form to the Operating Committee and has been rejected by the Operating Committee.

To be "in complete form" as mentioned above, the proposal for conducting any of the above mentioned operations presented by Sonangol shall contain appropriate information such as location, depth, target geological objective, timing of operation, and where appropriate, details concerning any Development plan as well as other relevant data.

3. If the conditions referred to in paragraph 2 have been met, Sonangol may, as to any operation described in paragraph 1, give a written sole risk notice to Contractor Group and the latter shall have the following periods of time, from the date of receipt of such sole risk notice within which to notify Sonangol whether it elects to undertake such proposed operation by including it as a part of the Petroleum Operations:

(a) as to any operations described in paragraphs 1 (a) and (b), forty eight (48) hours or until commencement of the deepening operations, whichever occurs last;

(b) as to any operations described in paragraphs 1 (c) and (d), three (3) Months;

(c) as to any operations described in paragraphs 1 (e) and (f), six (6) Months.

4. If Contractor Group elects to include as part of the Petroleum Operations the operation described in the sole risk notice within the appropriate period described in paragraph 3

52TRANSLATION





of this Article, such operation shall be carried out by tje Operator within the framework of the Petroleum Operations under this Agreement, as a part of the current Work Program and Budget which shall be considered as revised accordingly.



5. If Contractor Group elects not to undertake the operation described in the sole risk notice, subject to the provisions of paragraph 6, the operation for the account of Sonangol shall be carried out promptly and diligently by Contractor Group at Sonangol's sole risk and expense, provided that such operation will be carried out only if it will not conflict or cause hindrance to Contractor Group's obligations or any operation, or delay existing work programs, including any Approved Work Program and Budget.



With respect to operations referred to in paragraphs 1 (c) and 1 (d) such operation will begin as soon as a suitable rights available in Angola.



Sonangol and Contractor Group shall agree on a method whereby Sonangol shall provide all necessary funds to Contractor Group to undertake and pay for the operations carried our at Sonangol's sole risk and expense.



6. Sonangol shall elect to have the operation carried out at Sonangol's sole risk and expende referred to in paragraphs 1(e) and l(if) carried out either by itself, by Contractor Group for a mutually agreed free or by any third party entity contracted to that effect by Sonangol, provided that such operations will be carried out only if they will not conflict with or cause hidrance to Contractor Group's obligations or any Petroleum Operation, or delay existing work programs, including the Approved Work Program and Budget.



Before entering into any agreement with a third party for the aforementioned purpose, Sonangol shall notify Contractor Group in writing of such proposed agreement.









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TRANSLATION

-----------





Contractor Group shall have forty five (45) days after the receipt of the



aforementioned notification to decide if it exercises its right of first refusal with



respect to the proposed agreement and to perform the sole risk operations under the



same terms and conditions as have been arranged with the third party.





7. If Sonangol wishes to use in the sole risk operations assets which are used in the



Petroleum Operations, it shall give written notice to the Operating Committee stating



what assets it wishes to use provided that the utilization of such assets may not



prejudice the Approved Work Programs and Budgets.





8. If, in accordance with the provisions of paragraph 4, Contractor Group decides to



undertake any works as foreseen in paragraph 1(d), it shall pay Sonangol in cash and



within thirty (30) days as of the date in which it exercises such right, an amount equal



to all of the costs incurred by Sonangol in the relevant sole risk operations conducted



in accordance with paragraph 1(a), 1(b) and 1(c) which directly led to the works



foreseen in paragraph 1(d).





9. In addition to the amount referred to in the preceding paragraph, Sonangol will also be



entitled to receive from Contractor Group an additional payment equal to two hundred



percent (200%) of the costs referred to in paragraph 8.



Such additional payment will be made in cash and within ninety (90) days of the date



on which Contractor Group exercised its right.





10. If, in accordance with the provisions of paragraph 4, Contractor Group decides to



undertake any works foreseen in paragraph 1(e), it shall pay Sonangol in cash, within



thirty (30) days of the date in which it exercises such right, an amount equivalent to



the value of total costs incurred by Sonangol in the sole risk operations which directly



led to the works foreseen in paragraph 1(e), less any payment made in accordance



with paragraph 8 above.























54



















Translation



11. In addition to the amount referred to in the preceding paragraph Sonangol will also be entitled to received twenty-five percent (25%) of Contractor Group's share of Development Area Profit Oil produced from this developed deposit until the value thereof as defined in paragraph 13 of this Article equals one thousand percent (1000%) of the costs of the operations referred to in paragraph 10.



12. If the operations described in paragraphs 1 (e) and 1 (f) are conducted at Sonangol's sole risk and expense, it will receive one hundred percent (100%) of the Petroleum produced from the deposit developed under such terms.



13. The Petroleum received by Sonangol under paragraph 11 will be valued at the Market Price as established in Article 2 of Annex C of the Concession Decree-Law.



Article 31

(Operating Committee)



1. The Operating Committee is the body through which the Parties coordinate and supervise the Petroleum Operations and shall be established within thirty (30) days of the Effective Date.



2. The Operating Committee has, among others, the following functions:



(a) to establish policies for the Petroleum Operations and to define, for this purpose, procedures and guidelines as it may deem necessary:



(b) to review and, except as provided in paragraph 12, approve all Contractor Group's proposals on Work Programs and Budgets (including the location of Wells and facilities), Production Schedules and Lifting Schedules;TRANSLATION



(c) to verify and supervise the accounting of cost, expenses and expenditures and the conformity of the operating and accounting records with the rules established in this Agreement and Annex C hereof;

(d) to establish technical and other committees whenever it is necessary;

(e) in general, to review and, except as otherwise provided in this Agreement, to decide upon all matters which are relevant to the execution of this Agreement, it being understood, however, that in all events the right to declare a Commercial Discovery is reserved exclusively to Contractor Group.



3. The Operating Committee will obey the clauses of this Agreement and it shall not decide on matters that by Law, or this Agreement are the exclusive responsibility of the Concessionaire or Contractor Group.



4. The Operating Committee shall be composed of four (4) members, two (2) of whom shall be appointed by Sonangol and the other two (2) by Contractor Group.

The Operating Committee meetings cannot take place unless at least three (3) of its members are present.



5. The Operating Committee shall be headed by a Chairman who shall be appointed by Sonangol from among its representatives and who shall be responsible for the following functions:

(a) to coordinate and orient all the Operating Committee's activities;

(b) to chair the meetings and to notify the Parties of the timing and location of such meetings, it being understood that the Operating Committee shall meet whenever requested by any Party;



56TRANSLATION



(c) to establish the agenda of the meetings which shall include all matters which the Parties have asked to be discussed;



(d) to convey to each Party all decisions of the Operating Committee, within five (5) working days after the meetings;



(e) to request from Operator any information to make recommendations that have been requested by any member of the Operating Committee as well as to request from Contractor Group any advice and studies whose execution has been approved by the Operating Committee;



(f) to request from technical and other committees any information, recommendations and studies that has been asked to obtain by any member of the Operating Committee;



(g) to convey to the Parties all information and data provided to him by the Operator for this effect.



6. In the case of an impediment to the Chairman of the Operating Committee, the work of any meeting will be chaired by one of the other members appointed by him for the effect.



7. At the request of any of the Parties the Operating Committee shall establish and approve, according to paragraph 11(c) below, its internal regulations which shall comply with the procedures established in this Agreement.



8. At the Operating Committee meetings decisions shall only be made on matters included on the respective agenda, unless, with all members of the Operating Committee present, they agree to make decisions on any matter not so included on the agenda.



57



[BARROWS CONFIDENTIAL]Translation

9. Each member of the Operating Committee shall have on (1) vote and the Chairman shall in addition have a tie-breaking vote.

10. Except as provided for in paragraph 11, the decisions of the Operating Committee are taken by simple majority of the votes present or represented, it being understood that any member may be represented by written and duly signed proxy held by another member.

11. Unanimous approval of the Operating Committee shall be required for:

(a) approval of, and any revision to exploration Work Programs and Budgets prepared after the first Commercial Discovery;

(b) approval of and any revision to the Production Schedule, Lifting Schedule and Development and Production Work Programs and Budgets;

(c) establishments of rules of procedure for the Operating Committee;

(d) establishment of management policy for the carrying out of responsibilities outlined in paragraph 2 of the Article, namely, the procedures and guidelines as per paragraph 2(a) above;

(e) determination of deemed rate of return as per Article 12.

12. Prior to the time of declaration of the first Commercial Discovery, the Operating Committee shall review and give such advice as it deems appropriated with respect to the matters referred to in paragraph 2(e) above and with respect to Contractor Group's proposals on Exploration Work Programs and Budgets (including the location of Wells and facilities).

TRANSLATION



Following such review Contractor Group shall make such revision of the Exploration

Work Programs and Budgets as Contractor Group deems appropriate and shall

transmit the final Exploration Work Program and Budget to Sonangol for its

information.



13. Minutes shall be made of every meeting of the Operating Committee and they shall be

written in the appropriate record book and signed by all members.



14. The draft of the minutes shall be prepared, if possible, on the day that the meeting is held and copies of it shall be sent to the Parties within the following five (5) working days, and their approval shall be deemed granted if no objection is raised within ten (10) working days from the date of receipt of the draft minutes.



Article 32

(Ownership of assets)



1. Physical assets purchased by Contractor Group for the implementation of the Work Program(s) and Budget(s) become the property of Sonangol when purchased in Angola or, if purchased abroad, when landed at the Angolan ports of import.



Such physical assets will be used in Petroleum Operations, provided, however, Contractor Group will not be obligated to make any payments for the use of such physical assets during the term of this Agreement.



This provision shall not apply to equipment leased from and belonging to third parties or any entity comprising Contractor Group.



2. During the term of this Agreement, Contractor Group shall be entitled to full use in the Contract Area, as well as in any other area approved by Sonangol, of all fixed and movable assets without charge to Contractor Group.



59TRANSLATION



Any of Sonangol's assets which Contractor Group agrees have become surplus to Contractor Group's then current and/or future needs in the Contract Area may be removed and used by Sonangol outside the Contract Area and any unrecovered costs for such assets shall be fully recovered in that Year subject to the cost recovery limit provided for in Article 11 hereof.



Any of Sonangol's assets other than those considered by Contractor Group to be superfluous shall not be disposed of by Sonangol except with agreement of Contractor Group so long as in this Agreement is in force.



Article 33

(Property and confidentiality of data)



All information of a technical nature developed through the conduct of the Petroleum Operations shall be the property of Sonangol.



Unless otherwise agreed by Sonangol and Contractor Group, while this Agreement remains in force, all technical, economic, accounting or any other information, including, without limitation, reports, maps, logs, records and other data developed through the conduct of Petroleum Operations, shall be held strictly confidential and shall not be divulged by any Party without the prior written consent of the other Party hereto.



Provided, however, that either Party may, without such approval, disclose the aforementioned data:



(a) to any Affiliate or potential assignee of such Party upon such Affiliate or potential assignee giving a similar undertaking of confidentiality;

60

TRANSLATION



(b) in connection with the arranging of financing or of a corporate reorganization upon obtaining a similar undertaking of confidentiality;



(c) to the extent required by any applicable law, regulation or rule (including, without limitation, any regulation or rule of any regulatory agency, securities commission or securities exchange on which the securities of such Party or of any such Party's Affiliates are listed);



(d) to consultants, contractors or other third parties, as necessary in connection with Petroleum Operations upon obtaining a similar undertaking of confidentiality.



3. The Contractor Group's obligation of confidentiality of the information referred to in paragraph 2 above shall continue for ten (10) years after the termination of the Agreement or such other period as agreed to in writing between the Parties.



4. In the event that any entity constituting Contractor Group ceases to hold an interest under this Agreement, such entity will continue to be bound by the provisions of this Article.



5. To obtain offers for new Petroleum Exploration and Production agreements, Sonangol may, upon informing Contractor Group, disclose to third parties geophysical and geological data and information, and other technical data (the age of which is not less than one (1) year) or Contractor Group's reports and interpretations (the age of which is not less than five (5) years) with respect to that part or parts of the Contract Area adjacent to the area of such new offers.



6. The confidentiality obligation contained in this Article shall not apply to any information that has entered the public domain by any means that is both lawful and does not involve a breach of this Article.



61Article 34

(Responsibility for losses and damages)



1. Contractor Group, in its capacity as the entity responsible for the execution of the Petroleum Operations within the Contract Area, shall be liable to third parties to the extent provided under the Law for any losses and damage it may cause to them in conducting the Petroleum Operations and shall indemnify and defend Songangol with respect thereto, provided timely notice has been given of the claims and opportunity to defend.



2. Contractor group is also liable for losses and damage (excluding indirect and consequential losses and damage) which, in conducting the Petroleum Operations, it may cause to the State and, in case of Contractor Group's willful misconduct or gross negligence, to Sonangol.



3. The provisions of the preceding paragraphs 1 and 2 do not apply to losses and damage caused during Petroleum Operations for account and risk of Sonangol, for which Sonangol shall indemnify and defend Contractor Group, and in relation to which Contractor Group shall only be liable for such losses and damage caused by its willful misconduct or gross negligence.



4. If Contractor Group comprises more than one entity, the liability of such members shall be joint and several.



Article 35

(Insurance)



Relative to the risks inherent in Petroleum Operations, Contractor Group shall execute and keep current insurance contracts for the amounts and types required by Law as well as any other insurance contracts proposed by Contractor Group and approved by



62TRANSLATION



the Operating Committee, it being understood that such approval is not necessary when Contractor Group is protected by worldwide insurance or reinsurance programs.



In such case, Contractor Group shall immediately inform Sonangol on the type and the extent of coverage of such insurance and shall provide Sonangol with certificates thereof whenever requested.



2. Insurance contracts will be executed with Empresa Nacional de Seguros e Resseguros de Angola - ENSA, U.E.E, when so required by Law.



Article 36

(Recruitment, integration and training of Angolan personnel)



1. Contractor Group shall be subject to the provisions of Decree No. 20/82 of 17 April 1982, and ancillary regulations regarding the recruitment, integration and training of Angolan personnel.



2. In the Petroleum Operations, Contractor. Group shall apply the most appropriate technology and managerial experience, including their proprietary technology such as patents, "know how" or other confidential technology, to the extent permitted by applicable laws and agreements.



3. In planned, systematic and various ways and in accordance with the provisions of this Article, Contractor Group shall train all its Angolan personnel directly or indirectly involved in the Petroleum Operations, for the purpose of improving their knowledge and professional qualification in order that the Angolan personnel gradually reach the level of knowledge and professional qualification held by the Contractor Group's foreign workers.



63Such training will also include the transfer of the knowledge of petroleum technology and the necessary management experience so as to enable the Angolan personnel to use the most advanced and appropriate technology in use in the Petroleum Operations, including proprietary and patented technology, "know how" and other confidential technology, to the extent permitted by applicable laws and agreements, subject to appropriate confidentiality agreements.

4. In keeping with the three-year plan for the recruitment, integration and training of Angolan personnel which is provided for in Article 12 of the Concession Degree-Law, Contractor Group undertakes, notably, to:

(a) prepare a draft of the initial plan and submit it to Sonangol within four (4) Months of the Effective Date;

(b) prepare a proposal for implementation of the plan and submit it to Sonangol within one (1) Month of the approval of such Plan by the Ministry of

Petroleum;

(c) implement the approved plan in accordance with the directives of Sonangol, Contractor Group being able, in this regard and with the approval of Sonangol, to contract outside specialists not associated with Contractor Group to proceed with the implementation of specific aspects of the subject plan.

5. Contractor Group agrees to require in its contracts with subcontractors who work for Contractor Group for a period of more than one (1) Year, compliance with requirements for the training of work crews, to which requirements such subcontractors are subject by operation of current law.

Contractor Group further agrees to monitor compliance with the aforementioned obligations.TRANSLATION

6. Contractor Group shall be responsible for the training costs of Angolan personnel it employs, such costs being recovered as Production Expenditures.

Costs incurred by Contractor Group for training programs for Sonangol personnel will be borne in a manner to be agreed upon by Sonangol and Contractor Group.



Article 37

(Fiscal Regime)



1. The fiscal regime applicable to Petroleum Operations is that established in the Concession Decree-Law.

2. In order to avoid the double taxation of Contractor Group's income, Sonangol shall favorably consider and amendments or revisions to this Agreement that Contractor Group may propose as long as those amendments or revisions do not impact on Sonangol or Angola's economic benefits and other benefits resulting from the Agreement.

3. Should the rate of Stamp Duty on customs clearance documents and/or the statistical

levy of one per thousand ( 1/1000) "ad valorem" applicable to imports or exports increase from those rates in effect on the Effective Date, Sonangol shall reimburse Contractor Group for the additional amounts paid by Contractor Group. Sonangol and Contractor Group shall promptly agree on procedures to accomplish such reimbursement.

4. Without prejudice to other rights and obligations of the Parties under the Agreement,

in the event that any change in the provisions of any Law, decree or regulation in force in the Republic of Angola occurs subsequent to the signing of this Agreement, which adversely affects the obligations, rights and benefits hereunder, then theParties shall agree on amendments to the Agreement to be submitted to the competent authorities for approval, so as to restore such rights, obligations and forecasted benefits.



Article 38

(Foreign currency and customs regimes)

The foreign currency and customs regimes applicable to the Petroleum Operations are those established in Annexes D and E respectively of the Concession Degree-Law.



Article 39

(Assignment)

1. In accordance with the Law, each of the entities constituting Contractor Group may assign part or all of its rights, privileges, duties and obligations under this Agreement to an Affiliate and, by obtaining prior authorization from Sonangol, to a non-Affiliate. If Sonangol does not respond within thirty (30) days of Contractor Group's notice of

intent to make such assignment, the authorization shall be deemed granted.

2. Any third-party assignees shall be holders of the rights and obligations deriving from this Agreement and the Law.

3. In the case of the assignment being in favour of an Affiliate of the assignor, the latter and the assignee shall remain jointly and severally liable for the strict compliance with the obligations of the Contractor Group in accordance with the provisions of this Agreement and relevant legislation.TRANSLATION

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4. The legal documents required to effect any assignment in accordance with

the provisions of this Article must specify the participation which the third-

party assignee will enjoy in the Agreement and shall be submitted for

consideration and, in the case of an assignment to a non-Affiliate, for

approval by Sonangol before being formally executed.

5. In any of the cases foreseen in this Article the obligations of the assignor

which should have been fulfilled under the terms of the Agreement and the

relevant legislation at the date the request for the assignment is made,

must have been fully complied with.

6. Pursuant to the following procedures, Sonangol will have the right of first

refusal to acquire under the same conditions the participating interest that

any member of Contractor Group intends to assign to a non-Affiliate.

(a) the assigning company shall notify Sonangol of the price and other

essential terms and conditions of the proposed assignment and the

identity of the prospective assignee;

(b) within thirty (30) days after such notification, Sonangol shall notify

the assigning company whether Sonangol elects to exercise the right

of first refusal;

(c) if Sonangol does not exercise the right of first refusal by failing to

give the notification referred to in paragraph 6(b) of this Article, then

Sonangol shall be deemed to have waived the right of first

refusal in respect of such assignment;

(d) if Sonangol exercises the right of first refusal by giving the

notification referred to in paragraph 6(b) of this Article, then Sonangol

and the assigning





67TRANSLATION

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company shall execute the assignment under the terms and

conditions contained in the notification referred to in paragraph 6(a)

of this Article.

7. Except as otherwise expressly provided herein, upon completion of an

assignment made by one of the entities constituting Contractor Group.to a

non-Affiliate, such assignor shall have no further rights or obligations with

respect to the part of the participating interest so assigned.



Article 40

(Termination of the Agreement)

1. Without prejudice to the provisions of the general law and of any

contractual clause, Sonangol may proceed to the termination of this

Agreement if Contractor Group:

(a) interrupts Production for a period of more than ninety (90) days with

no cause or justification acceptable under normal international

petroleum industry practice;

(b) continuously refuses with no justification to comply with the Law;

(c) intentionally submits false information to the Government or to

Sonangol;

(d) discloses confidential information related to the Petroleum Operations

without having previously obtained the necessary authorization

thereto if such disclosure causes prejudice to Sonangol or the State;

(e) assigns any part of its interests hereunder in breach of the provisions

of Article 39;

(f) is declared bankrupt by a court of competent jurisdiction;







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(g) does not comply with any final decision resulting from an arbitration

process conducted under the terms of the Agreement, after all

adequate appeals are exhausted;

(h) does not fulfill a substantial part of its duties and obligations

resulting from the Concession Decree-Law and from this Agreement;

(i) intentionally extracts or produces any mineral which is not covered by

the object of this Agreement, unless such extraction or production is

expressly authorized or unavoidable as a result of operations carried

out in accordance with accepted international petroleum industry

practice.

2. Sonangal may also terminate the Agreement if the majority of the share

capital of any entity constituting Contractor Group is transferred to a non-

Affiliate third party without having obtained the prior required authorization.

3. If Sonangol considers that one of the aforesaid causes exists to terminate

this Agreement, it shall notify Contractor Group in writing in order for it,

within a period of ninety {90} days, to remedy such cause.

The said notification shall be delivered by the official method foreseen in the

Law, and by recorded delivery which shall be signed by a legal representative

of the entity to which it is addressed.

If, for any reason, this procedure is impossible, due to a change of address

which has not been notified pursuant to this Agreement, publication of the

notice in the Diário da República shall be considered to be as valid as if

delivered.

If, after the end of the ninety (90) day notice period, such cause has not

been remedied or removed, or if agreement has not been reached on a plan

to remedy or





69

TRANSLATION





remove the cause, this Agreement may be terminated in accordance with the provisions mentioned above.



4. The termination of the Agreement envisaged in this Article shall occur without prejudice to any rights which may have accrued to the Party which has invoked it, in relation to the other Party, in accordance with this Agreement, the Concession Decree-Law or the Law.



5. If any of the entities constituting Contractor Group, but not all of them, give Sonangol due cause to terminate this Agreement pursuant to the provisions of paragraphs 1 and 2 above, then such termination shall take place only with respect to such entity or entities and the rights and obligations that such entity or entities hold under this Agreement, except as provided in the preceding paragraph, shall revert to Sonangol without compensation.





Article 41

(Confidentiality of the Agreement)



Sonangol and Contractor Group agree to maintain the confidentiality of this Agreement; provided, however, either Party may, without the approval of the other Party, disclose this Agreement:



(a) to any Affiliate or potential assignee of such Party upon such Affiliate or potential assignee giving a similar undertaking of confidentiality;



(b) in connection with the arranging of financing or of a corporate reorganization upon obtaining a similar undertaking of confidentiality;





70TRANSLATION



(c) to the extent required by any applicable law, decree or regulation(including, without limitation, any requirement or rule of any regulatory agency, securities commission or securities exchange on which the securities of such Party are listed);



(d) to consultants as necessary in connection with Petroleum Operations upon obtaining a similar undertaking of confidentiality.



Article 42

(Arbitration)



1. Any disputes, differences, or claims arising out of this Agreement or relating thereto, or relating to the breach, termination or invalidation of the same, which it has not been possible to resolve amicably shall be finally and exclusive settled by arbitration, in accordance with the UNCITRAL Rules of Arbitration of 1976 as existing on the Effective Date.



2. The number of arbitrators shall be three (3). One (1) arbitrator shall be appointed by Sonangol, one (1) by Contractor Group and the third arbitrator, who shall be Chairman of the Arbitration Court, shall be jointly appointed by Sonangol and the Contractor Group.



If an arbitrator is not appointed within thirty (30) days of the notice from Sonangol or the Contractor Group is sent to the other Party requesting that the appointment be made, then such arbitrator shall be appointed by the President of the International Chamber of Commerce of Paris.



3. The arbitration tribunal shall decide according to the Angolan substantive Law.



4. According to the law in force the arbitration tribunal shall be set up in Luanda and the language of arbitration shall be Portuguese.





71TRANSLATION

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5. The Parties agree that this arbitration clause is an explicit waiver of

immunity against validity and enforcement of the award or any judgement

thereon and the award shall be final, binding and enforceable against any

Litigant in any court having jurisdiction in accordance with its laws.



Article 43

(Force Majeure)

1. Non-performance or delay in performance by Sonangol or Contractor

Group, or both of them, of any of the contractual obligations except an

obligation to pay money, shall be excused if, and to the extent that, such

non-performance or delay is caused by Force Majeure.

2. If the Force Majeure restrains only temporarily the performance of a

contractual obligation subject to a time limit, the time given in this

Agreement for the performance of such obligation and for the performance

or exercise of any right or obligation dependent thereon, and, if relevant,

the term of the Agreement, shall be suspended until the restoration of the

status quo prior to the occurrence of the event(s) constituting Force

Majeure, it being understood, however, that such suspension shall apply

only with respect to the parts of the Contract Area which have been

affected.

3. "Force Majeure," for the purposes of this Article, shall be any occurrence

which is unforeseeable, unavoidable and beyond the reasonable control of

the Party claiming to be affected by such event, such as, and without

limitation, state of war, either declared or not, rebellions or mutinies,

natural catastrophes, fires, earthquakes, communications cuts and

unavoidable accidents.





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TRANSLATION



4. The Party which understands that it may claim a situation of Force Majeure shall immediately serve notice to the other Party, and shall use all reasonable efforts to correct the situation of Force Majeure as soons as possible.





Article 44

(Applicable Law)



This Agreement shall be governed by and construed in accordance with Angolan law.





Article 45

(Language)



This Agreement has been prepared and signed in the Portuguese language which shall be the only official version for the purpose of establishing the rights and obligations of the Parties.



Article 46

(Offices and service of notice)



1. Sonangol and Operator shall maintain offices in Luanda, Republic of Angola, where communications and notices foreseen in this Agreement must be validly served.



2. Sonangol's office for the purpose of serving notice is:



Rua do 1ºCongresso do M.P.L.A.

No. 8-4ºAndar

Luanda

REPÚBLICA DE ANGOLA







73TRANSLATION

Telex: 3148 and 3260

Fax: 244-2 391 782

3. Operator's office for the purpose of serving notice is:

[lines]

4. Sonangol and Contractor Group will communicate to each other in writing and with reasonable notice any change of their offices referred to in the preceding paragraphs, if such occurs.

Article 47

(Captions and headings)

Captions and headings are included in this Agreement for the sole purpose of systematization and shall have no interpretive value.

Article 48

(Effectiveness)

This Agreement shall come into effect on the Effective Date.

IN WITNESS WHEREOF, the Parties hereto have signed this Agreement in the Portuguese language in Luanda, this day of 199 .

74TRANSLATION



Sociedade Nacional de Combustíveis de Angola - Unidade Económica Estatal (Sonangol, U.E.E.)



By:______________________

Its: Director General



By:______________________

Its:







75