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PETROLEUM AGREEMENT

BY AND AMONG






GOVERNMENT OF THE REPUBLIC OF GHANA



GNPC

GHANA NATIONAL PETROLEUM CORPORATION

AND



SWISS AFRICAN OIL



LIMITED



SWISS AFRICAN OIL COMPANY LIMITED




PET VOLTA INVESTMENTS LIMITED



IN RESPECT OF

Onshore/Offshore Keta Delta Block



2015



TABLE OF CONTENTS



ARTICLE



PAGE



1.



DEFINITIONS



2.



SCOPE OF THE AGREEMENT, INTERESTS



3



OF THE PARTIES AND CONTRACT AREA



11



3.



EXPLORATION PERIOD



14



4.



MINIMUM EXPLORATION PROGRAMME



17



5.



RELINQUISHMENT



21



6.



JOINT MANAGEMENT COMMITTEE



22



7.



OBLIGATIONS OF CONTRACTOR A N D GNPC;

RIGHTS OF CONTRACTOR



27



8.



COMMERCIALITY



32



9.



SOLE RISK ACCOUNT



39



10.



SHARING OF CRUDE OIL



42



11.



MEASUREMENT A N D PRICING OF CRUDE OIL



49



12.



TAXATION AND OTHER IMPOSTS



52



13.



FOREIGN EXCHANGE TRANSACTIONS



55



14.



SPECIAL PROVISIONS FOR NATURAL GAS



57



15.



DOMESTIC SUPPLY REQUIREMENT (CRUDE OIL)



64



16.



INFORMATION AND REPORTS: CONFIDENTIALITY



65



17.



INSPECTION, SAFETY A N D ENVIRONMENTAL

PROTECTION



70



18.



ACCOUNTING AND AUDITING



72



19.



TITLE TO AND CONTROL OF GOODS A N D EQUIPMENT



74



20.



PURCHASING AND PROCUREMENT



76



21.



EMPLOYMENT AND TRAINING



77



ARTICLE



PAGE



22.



FORCE MAJEURE



79



23.



TERM AND TERMINATION



81



24.



CONSULTATION, ARBITRATION AND

INDEPENDENT EXPERT



84



ASSIGNMENT



87



MISCELLANEOUS



89



NOTICE



93



25.

26.

27.



ANNEX 1



CONTRACT AREA



ANNEX 2



ACCOUNTING GUIDE



ANNEX 3



CONFIDENTIALITY A G R E E M E N T



ANNEX 4



SAMPLE A O E CALCULATION



^



THIS P E T R O L E U M A G R E E M E N T , made this



^day of 2015 by and among



1. The Government of the Republic of Ghana (hereinafter referred to as the "State"),

represented by the Minister for Petroleum, (hereinafter referred to as the

"Minister"),

2. The Ghana National Petroleum Corporation, a public corporation established by

the Ghana National Petroleum Corporation Act, 1983 (PNDCL 64), with its

registered address as Petroleum House, Harbour Road, Private Mail Bag,, Tema,

(hereinafter referred to as "GNPC"),

3. Swiss African Oil Company Limited, a limited liability company duly incorporated

in accordance with the laws of Ghana with its registered address at #10 Asafena

Crescent, Platinum Estate, Regimanuel Estates, Spintex Road, P.O. Box K A D T A

5325,

Airport,

Accra

and

represented

by

its

authorised

representative,

and

4. Pet Volta Investments Limited, a limited liability company duly incorporated in

accordance with the laws of Ghana with its registered address as #H 11, Manet Court,

Spintex Road, P.O. Box 17162, Accra and represented by its authorised

representative,

(together 2"'* and 3*^^ Party hereinafter

referred to as "Contractor(s)").



WITNESSES THAT:

1.



A l l Petroleum existing in its natural state within Ghana is the property of the

Republic of Ghana and held in trust by the State on behalf of the people of Ghana.



2.



In accordance with the Petroleum Law, the Minister has prepared a reference

map showing areas of potential petroleum fields within the jurisdiction of Ghana,

divided into numbered areas and each of which is described as a "Block".



3.



GNPC has by virtue of the Petroleum Law the right to undertake Exploration,

Development and Production of Petroleum over all Blocks declared by the

Minister to be open for Petroleum Operations.



4.



GNPC is fiirther authorised to enter into association by means of a Pefroleum

Agreement with a contractor for the purpose o f Exploration, Development and

Production of Petroleum.



5.



The Contract Area that is the subject matter o f this Petroleum Agreement has

been declared open for Petroleum Operations by the Minister and the State

desires to encourage and promote Exploration, Development and Production

within the said area. The State assures Contractor that all o f said area is within

the jurisdiction of Ghana.



6.



Contractor, having the financial ability, technical competence and professional

skills necessary for carrying out the Petroleum Operations herein describe4,



desires to associate with GNPC in the Exploration for, and Development and

Production of, the Petroleum resources of the said area.

7.



Contractor shall comply with all the applicable laws of Ghana, in effect from

time to time, including without limitation any regulations, policies or directives

issued by or other acts of the Petroleum Commission pursuant to the Petroleum

Commission Act, 2011 (Act 821), as the same may be amended from time to

time.



8.



The Parties are committed to providing qualified Ghanaian nationals with

employment at all levels in the Petroleum industry, including technical,

administrative and managerial positions, and Contractor accordingly commits to

providing and supporting a programme of training for Ghanaian nationals as an

integral part of this Agreement.



9.



GNPC has aspirations of becoming a stand-alone Operator in the shortest

possible time. Without prejudice to the rights of the Parties under this

Agreement, Contractor is committed to supporting GNPC to develop its

institutional capacity to enable GNPC to fiilfill its aspirations.



10.



The Parties are committed to providing an annual local content plan in line with

State policy and Local Content Regulations, for fiilfilling the applicable

Ghanaian content requirements with respect to the provision of goods and

services.



NOW T H E R E F O R E , in consideration o f the mutual covenants herein contained, it is

hereby agreed and declared as follows:



ARTICLE 1

DEFINITIONS

this Agreement:

1.1



"Accounting Guide" means the accounting guide which is attached

hereto as Annex 2 and made a part hereof;



1.2



"Additional Interest" means the additional interest o f GNPC provided

in Article 2.5



1.3



"Affiliate" means any person, whether a natural person, corporation,

partnership, unincorporated association or other entity which directly, or

indirectly through one or more intermediaries, controls, or is controlled

by, or is under common control with a Party. For this purpose control

means the direct or indirect ownership of in aggregate fifty percent (50%)

or more o f voting capital or voting rights o f the entitlement (directly or

indirectly) to appoint a majority o f the directors or equivalent

management body of, or to direct the policies or operations of the other

entity;



1.4



"Agreement" means this Agreement between the State, GNPC and

Contractor, and includes the Annexes attached hereto in each case as may

be amended by mutual written agreement fi-om time to time;



1.5



"Appraisal" means operations or activities carried out pursuant to an

Appraisal Programme following a Discovery o f Petroleum for the

purpose of delineating the accumulations of Petroleum to which that

Discovery relates in terms of thickness and lateral extent and estimating

the quantity o f recoverable Petroleum therein and all operations or

activities to resolve uncertainties required for determination o f a

Commercial Discovery;



1.6



"Appraisal Programme" means a programme approved by the

Petroleum Commission pursuant to Article 8.5 for the conduct of

Appraisal;



1.7



"Appraisal Well" means a well drilled pursuant to an Appraisal

Programme;



1.8



"Associated Gas" means Natural Gas produced from a well in

association with Crude Oil



1.9



"Barrel" means a quantity or unit of Crude Oil equal to forty-two (42)

United States gallons at a temperature of sixty (60) degrees Fahrenheit

and at fourteen and sixty-five one-hundredths per square inch at

atmospheric(14.65 psia) pressure;



1.10



"Block" means an area of approximately 685 square kilometres depicted

on the reference map prepared by the Minister in accordance with the

provisions of the Petroleum Law;



1.11



"Business Day" means a day on which banks are open for business in

London, New York and Accra;



1.12



"Calendar Year" means the period of twelve (12) Months of the

Gregorian calendar, commencing on January 1 and ending on the

succeeding December 31;



1.13



"Carried Interest" means an interest held by GNPC, pursuant to this

Agreement in respect o f which Contractor pays for the conduct of

Petroleum Operations as set out in this Agreement, without any

entitlement to reimbursement from GNPC;



1.14



"Commercial Discovery" means a Discovery which is determined to be

commercial in accordance with the provisions of Article 8 of this

Agreement;



1.15



"Commercial Production Period" means in respect o f each

Development and Production Area the period from the Date of

Commencement o f Commercial Production until the termination of this

Agreement or earlier relinquishment o f such Development and

Production Area;



1.16



"Contract Area" means the area of approximately three thousand square

kilometers (3,000km^) covered by this Agreement in which Contractor is

authorised in association with GNPC to explore for, develop and produce

Petroleum, which is described in Annex 1 attached hereto and made a

part of this Agreement, but excluding any portions of such area in respect

of which Contractor's rights hereunder are from time to time relinquished

or surrendered pursuant to this Agreement;



1.17



"Contractor" means, collectively Swiss African Oil Company Limited

and Pet Volta Investments Limited and their respective permitted

successors and assignees and each o f them individually a "Contractor

Party" as the context may require;



1.18



"Contract Year" means a period o f twelve (12) calendar Months,

commencing on the Effective Date or any anniversary thereof;



1.19



"Crude Oil" means hydrocarbons which are liquid at fourteen and sixtyfive one-hundredths per square inch at atmospheric pressure (14.65 psia)

and sixty degrees Fahrenheit (60" F)

and includes condensates and

distillates obtained from Natural Gas;



1.20



"Date of Commencement of Commercial Production" means, in

respect of each Development and Production Area, the date on which



production of Petroleum under a programme of regular production, lifting

and sale commences as defined in a Development Plan;

1.21



"Date of Commercial Discovery" means the date referred to in Article

8.15;



1.22



"Development" or "Development Operations" means the following

activities carried out in connection with a Development Plan: the building

and installation of facilities for Production, including drilling of

Development Wells, construction and installation of equipment,

pipelines, facilities, plants and systems, in and outside the Contract Area,

which are required for achieving Production, treatment, transport, storage

and lifting of Petroleum, and preliminary Production activities carried out

prior to the Date o f Commencement of Commercial Production,

including all related planning and administrative work, and may also

include the construction and installation o f approved secondary and

tertiary recovery systems;



1.23



"Development Costs" means allowable Petroleum Costs incurred in

Development Operations;



1.24



"Development and Production Area" means that portion of the

Contract Area reasonably determined by the JMC (or by GNPC i f of a

Sole Risk Operation pursuant to Article 9) on the basis of the available

seismic and well data to cover the areal extent of an accumulation or

accumulations of Petroleum constituting a Commercial Discovery,

enlarged in area by ten percent (10%), such enlargement to extend

uniformly around the perimeter of such accumulation;



1.25



"Development Period" means in respect of each Development and

Production Area, the period from the Date o f Commercial Discovery

until the Date of Commencement o f Commercial Production;



1.26



"Development Plan" means the plan for development o f a Commercial

Discovery prepared by Contractor in consultation with the JMC and

approved by the Minister pursuant to Article 8;



1.27



"Development Well" means a well drilled in accordance with a

Development Plan for producing Petroleum including wells for pressure

maintenance or for increasing the Production rate;



1.28



"Discovery" means finding within a well at the end of drilling under

Exploration Operations (an) accumulation(s) o f Pefroleum whose

existence until that finding was unproved by drilling, which is or can be

recovered at the surface in a flow measurable by conventional

international petroleum industry testing methods (and in the case of water

depths greater than four hundred (400) metres, including Modular

Formation Dynamics Testing (also referred to as " M D T " by

Schlumberger);

(/^T

5



1.29



"Discovery Area" means that portion of the Contract Area, reasonably

determined by the JMC (or by GNPC i f such area occurs as a result of a

Sole Risk Operation pursuant to Article 9) on the basis of the available

seismic and well data, that covers the areal extent of the geological

structure in which a Discovery is made. A Discovery Area may be

modified at any time by the JMC (or by GNPC to the extent permitted by

Article 9, i f applicable), i f justified on the basis of new information, but

may not be modified after the date of completion of the Appraisal

Programme and submission of a report under Article 8.10;



1.30



"Discovery Date" means the date on which a Discovery Notice is issued

by Contractor;



1.31



"Discovery Notice" means a written notification o f Discovery to the

Minister, Petroleum Commission and GNPC pursuant to Article 8

providing information which shall include the name and location of the

well fi-om which the accumulation(s) have been found, the depth

interval(s), estimates of gross and net pay thickness, stratigraphy, and

type of reservoir and fluids encountered;



1.32



"Effective Date" shall have the meaning ascribed to it in Article 26.11;



1.33



"Exploration" or "Exploration Operations" means the search for

Petroleum by geological, geophysical and other methods and the drilling

of Exploration Well(s) and includes any activity in connection therewith

or in preparation thereof and any relevant processing and Appraisal work,

including technical and economic feasibility studies, that may be carried

out to determine whether a Discovery of Petroleum constitutes a

Commercial Discovery;



1.34



"Exploration Costs" means allowable Petroleum Costs incurred, both

within and outside Ghana, in conducting Exploration Operations

hereunder determined in accordance with the Accounting Guide attached

hereto as Annex 2;



1.35



"Exploration Period" means the period commencing on the Effective

Date and continuing during the time provided for in Article 3.1 within

which Contractor is authorised to carry out Exploration Operations and

shall include any periods of extensions provided for in this Agreement.

The period shall terminate with respect to any Discovery Area on the

Date of Commercial Discovery in respect of such Discovery Area;



1.36



"Exploration Phase" means any one of the Initial Exploration Period,

the First Extension Period or the Second Extension Period;



1.37



"Exploration Well" means a well drilled in the course of Exploration

Operations conducted hereunder during the Exploration Period



6 •



1.38



"Extension Period" means either o f the First Extension Period or

Second Extension Period, as applicable;



1.39



"Force Majeure" means any event beyond the reasonable control of

the Party claiming to be affected by such event which has not been

brought about directly or indirectly at its own instance or which has not

been brought about directly or indirectly at the instance of an

Affiliate. Force Majeure events may include, but are not limited to, acts

o f God, accidents, fires, explosions, earthquake, storm, flood,

hurricanes, tidal waves, cyclones, tornados, lightning or other adverse

weather conditions or any other natural disasters, war, acts o f war, acts

of terrorism, embargo, blockade, riot, civil disorder, or strikes;



1.40



"Foreign National Employee" means an expatriate employee o f

Contractor, its Affiliates, or its Subcontractors who is not a citizen o f

Ghana;



1.41



"Ghana" means the territory o f the Republic of Ghana and includes

rivers, streams, water courses, the territorial sea, seabed and subsoil, the

contiguous zone, the exclusive economic zone, contuiental shelf, the

airspace and all other areas within the jurisdiction o f Ghana;



1.42



"Gross Negligence" or "Wilful Misconduct" means any act, failure to

act or failure to exercise such miimnum degree o f care and prudence by

a Party which was in reckless disregard of or wanton indifference to the

harmfiil consequences that the person knew, or should reasonably have

known, could result;



1.43



"Gross Production" means the total amount of Petroleum produced

and saved fi-om a Development and Production Area during Production

Operations wliich is not used by Contractor in Petroleum Operafions

and is available for distribution to the Parties m accordance with

Article 10;



l'/44



" Income T a s A ^ " means"~tiieTncome Tax Act, 2151'5 (Act H96) as flie

same may be amended firom time to time ;



1.45



"Indigenous Ghanaian company" means a company incorporated

under the Companies Act, 1963 (Act 179) o f Ghana as may be amended

fi"om time to time:

a) that has at least fifty-one percent o f its equity owned by a citizen or

citizens of Ghana; and

b) tliat has Ghanaian citizens holding at least eighty percent o f senior,

management positions and one hundred percent of non-managerial and

other positions; X/T

7



1.46



"Initial Interest" means the interest of GNPC in all Petroleum

Operations provided for in Article 2.4



1.47



"International Best O i l Field Practice" means uses and practices that

are generally accepted m the international petroleum industry as good,

safe, economical and efficient in exploring for, developing, producing,

processuig and transporting Petroleum;



1.48



"Joint Management Committee ( J M C ) " means the

established pursuant to Article 6.1 hereof;



1.49



" L I B O R " means the rate which the Ghana International Bank, London

quotes or, i f the Ghana International Bank, London ceases to exist, then

as published m the Financial Times London or any successor thereto to

be the London Interbank offered rate (LIBOR) in the London Interbank

Eurodollar market on thirty (30) day deposits, in effect on the last

busmess day of the immediately preceding Month. I n the event that the

Financial Times London or successor thereto is not published, the

Parties shall endeavour to agree on a source o f certification for L I B O R

in reference to market practice. I f the Parties are unable to agree on a

sovirce of certification for LIBOR, any Party may refer the matter to a

Sole Expert for certification. I f the aforesaid rate is contrary to any

applicable usury law, the rate of interest to be charged shall be the

maximum rate permitted by such applicable law;



1.50



" L N G " means Liquefied Natural Gas;



1.51



"Local Content Regulations" means the Petroleum (Local Content and

Local Participation) Regulations, 2013, L . I . 2204 as the same may be

amended from time to time:



1.52



"Market Price" means the market price for Crude O i l realized by

Confractor under this Agreement as determined in accordance witii

..Article 11.7 hereof;



committee



1.53



"Minister" means Minister for Pefroleimi;



1.54



"Minimum W o r k Obligation" means the Confractor's obligations set

foith m Article 4.3a)(i) with respect to the Initial Exploration Period,

Article 4.3(b) with respect to the First Extension Period and Article

4.3(c) with respect to tlie Second Extension Period, as the case may be;



1.55



"Month" means a month of the Calendar Year;



1.56



"Natural Gas" means all hydrocarbons which are gaseous at fourteen

and sixty-five one-himdredths (14.65) pounds per square inch at

atmospheric pressure and sixty (60) degrees Fahrenheit temperature and

includes wet gas, dry gas and residue gas remaining after the exfraction

of liquid hydrocarbons from wet gas; h y ^ < ^

8



1.57



"Non-Associated Gas" means Natural Gas produced from a well other

than in association with Crude Oil;



1.58



"Operator" means Swiss African Oil Company, o r a person as may

be jointly proposed by GNPC and Confractor and approved by the

Minister.,



1.59



"Participating Interest" means the mterest held by Confractor in

accordance with the provisions of Article 2.5



1.60



"Party" means each of the State, GNPC, Swiss African O i l Company

Limited, and Pet Volta Investments Limited, as the case may be;



1.61



"Paying Interest" means an interest held by GNPC in respect of which

GNPC pays for the conduct of Pefroleum Operations as expressly

provided for i n Article 2.5;



1.62



"Petroleum" means Crude Oil or Natural Gas or a combination of both;



1.63



"Petroleum Commission" means a body established by an Act o f

Parliament (Pefroleum Commission Act, 2011, (Act 821) for the

regulation and the management of the utilization of pefroleum resources

m the upsfream sector;



1.64



"Petroleum Costs" means all expenditures made and costs incurred in

conducting Pefroleum Operations hereunder determined in accordance

with the Accounting Guide attached hereto as Annex 2;



1.65



""Petroleum L a w " means the Pefroleum (Exploration and Production)

Law, 1984 (PNDCL 84) as the same may be amended from time to

time;



.1.66. "Petroleum Operations" means all activities, both in and outside

Ghana, relating to the Exploration for. Appraisal of. Development,

^ Production, handling, storage, processing, transportation to the Delivery

Point, o f Pefroleum contemplated vmder this Agreement and includes

Exploration Operations, Development Operations and Production

Operations and all activities in connection thcrev^th;

1:67



"Petroleum Product" means any product derived from Pefroleum by

any refining or other process;



1.68



"Pre-Award Attachment" means any order, decree, mjunction or other

decision (however designated) of any court, arbitral body or other

competent authority requested by a Party and issued prior to a final

arbiti-al award issued pursuant to Article 24 of this Agreement that

attaches, seizes, freezes or otlierwise restricts the use or alienation o f

any property (whether tangible or intangible) of the other Party pending

issuance of the final arbifral award, whether such property is in the

possession or confrol of a Party or of a third party;







9



1.69



"Production" or "Production Operations" means activities, other than

Exploration Operations or Development Operations, undertaken in

order to extract, save, treat, measure, handle, store and transport (to the

Delivery Point) Petroleum to storage and/or loading points and to carry

out any type of primary, secondary or tertiary recovery operations,

including recycling, recompression, injection for maintenance o f

pressure and water flooding and all related activities such as plaiming

and administrative work and shall also include maintenance, repair,

abandonment or decommissioning and replacement o f facilities, and

well workovers, conducted after the Date of Commencement o f

Commercial Production o f the respective Development and Production

Area;



1.70



"Production Costs" means Petroleum Costs incurred in Production

Operations;



1.71



"Proposed Appraisal Programme" means a draft of a prograhime for

the conduct of an Appraisal to be presented to the Petroleum

Commission for approval;



1.72



"Quarter" means a period o f three (3) Months, commencing January 1,

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

September 30, or December 31, respectively;



1.73



"Sole Expert" means the person appointed to resolve a dispute pursuant

to Article 24 hereof;



1.74



"Sole Risk" means an operation conducted at the sole cost, risk,

expense and liability of GNPC referred to in Article 9;



1.75



"Specified Rate" means LffiOR plus three percent (3%);



1.76



"Standard Cubic Foot" or " S C F " means the quantity o f gas that

occupies one (1) cubic foot at 14.65 psia pressure and sixty degrees

"Fahrenheit (60" F) temperature;



1.77



"State" means the Government of the Republic o f Ghana represented

by liie ^vlinister;



1.78



"Subcontractor" means a third party with whom GNPC or the

Contractor has entered into a contract for provision of goods or services

for or in connection with Petroleum Operations;



1.79



"Termination" means termination of this Agreement pursuant to

Article 23 hereof;



1.80



" W o r k Programme" means the annual plan for the conduct of

Petroleum Operations prepared pursuant to Articles 6.4 and 6.5; and



1.81



"Year" means a continuous twelve (12) Month p e r i o d . ^

10



ARTICLE 2

SCOPE O F THE AGREEMENT, INTERESTS O F THE PARTIES

AND C O N T R A C T A R E A

2.1



This Agreement provides for the Exploration for and Development and Production

of Petroleum in the Contract Area by GNPC in association with Contractor.



2.2



Subject to the provisions of this Agreement, the Contractor shall be responsible for

the execution of such Petroleum Operations as are required by the provisions of

this Agreement and, subject to Article 9, is hereby appointed the exclusive entity

to conduct Petroleum Operations in the Contract Area. In order that the Parties

may cooperate in the implementation of Petroleum Operations, GNPC and

Contractor shall establish a Joint Management Committee to conduct and manage

Petroleum Operations.



2.3



In the event that no Commercial Discovery is made in the Contract Area or that

Gross Production achieved irom the Contract Area is insufficient to fully reimburse

Contractor in accordance with the terms of this Agreement, then Contractor shall

bear its own loss; GNPC and the State shall have no obligations whatsoever to

Contractor in respect of such loss.



2.4



GNPC shall have a twelve percent (12%) Initial Interest in all Petroleum

Operations under this Agreement. With respect to all Exploration Operations and

Development Operations, the Initial Interest shall be a Carried Interest. With

respect to all Production Operations GNPC's Initial Interest shall be a Paying

Interest.



2.5



In addition to the Initial Interest provided for in Article 2.4, GNPC shall have the

option in respect of each Development and Production Area to acquire an

Additional Interest of up to ten percent (10%) in the Petroleum Operations in such

Development and Production Area, by contributing the corresponding

proportionate share to all the Petroleum Costs incurred after the Date of

Commercial Discovery, in respect of such Development and Production Area (or

make arrangements satisfactory to the Contractor to that effect). With respect to

all Development Operations and Production Operations, the Additional Interest

shall be a Paying Interest. GNPC shall notify the Contractor o f the exercise of its

intention to acquire the Additional Interest within ninety (90) days of the Date of

Commercial Discovery . GNPC and Contractor shall agree on the mode of

financing such Additional Interest.

In the event that Contractor decides to seek project finance firom a bank or group

of banks for the financing of Development Operations, Contractor shall offer

GNPC the opportunity (but not the obligation) to join in the said project financing

with respect to the Additional Interest.



2.6



I f GNPC opts to take an Additional Interest as provided for in Article 2.5 then

within six (6) Months of the date o f its election , GNPC shall reimburse the

^ Contractor for all expenditures attributable to GNPC's Additional Interest incurre



from the Date of Commercial Discovery to the date GNPC notifies Contractor as

provided for in Article 2.5 of its election to acquire such interest.

For the avoidance of doubt GNPC shall only be liable to contribute to Petroleum

Costs:

a)



incurred in respect of Development Operations in any Development and

Production Area to the extent only of any Additional Interest acquired in

such Development and Production Area under Article 2.5; and



b)



incurred in respect of Production Operations in any Development and

Production Area both to the extent of:

i)



its twelve percent (12%) Initial Interest; and



ii)



any Additional Interest acquired under Article 2.5.



GNPC may d u r i n g the Exploration Period contribute to Pefroleum Operations

by providing such relevant services as may be requested by the Contractor from time

to time. Prior to the provision of such services, and subject to JMC Approval,

Confractor must specify in writing whether GNPC is either to (i) be paid in cash for

such services by Contractor upon receipt of invoice from GNPC, or (ii) earn credit

for the costs of providing such services against GNPC's share, i f any, of fixture

Development and/or Production Costs. The amount of costs to be invoiced or

credit earned by GNPC pursuant to this paragraph must be approved by the JMC

prior to provision of the relevant services, and shall be at fair market rates at

which such services could be obtained under freely competitive conditions at the

time of such approval. Likewise, i f the Contractor provides services, it shall earn

credit for the costs of providing such services in accordance with the Accounting

Guide.

Upon notifying Contractor of its decision to acquire an Additional Interest pursuant

to Article 2.5, GNPC may specify in the notification one or more of the following:

a)



that notwithstanding the provisions in Article 2.6 GNPC shall elect to have

Contractor advance GNPC's total proportionate share of Development

Costs incurred in respect of the Additional Interest. Such advances shall be

reimbursed with interest at the Specified Rate from the proceeds of the sales

of GNPC's petroleum entitlement; and



b)



notify the Contractor o f any arrangements for the payment of the balance o f

GNPC's total proportionate share of Development Costs.



Contractor's Participating Interest in all Petroleum Operations and in all rights

under this Agreement shall be eighty three percent (83%), reduced proportionately

on each Contractor Party pro rata to its Participating Interest, at any given time and

in any given part of the Contract Area by the exercise of the option of Additional

Interest of GNPC pursuant to Article 2.5 or the exercise of the Sole Risk interest

of GNPC pursuant to Article 9.

12



2.10



2.11



For the avoidance of doubt, the Participating Interest shall be divided as at the

Effective Date as follows:

a)



Swiss African Oil Company Limited



83%



b)



GNPC



12%



c)



Pet Volta Investments Limited



5%



As of the Effective Date, the Contract Area shall cover a total of approximately

three thousand square kilometers (3,000km^) as depicted by Annex 1 and shall

from time to time during the term of this Agreement be reduced according to

the terms herein. During the term of the Agreement, Contractor shall pay rentals

to the State for that area included within the Confract Area at the beginning of

each Confract Year according to theprovisionsof Article 12.1(e) below.



13



ARTICLE 3

EXPLORATION PERIOD

3.1



3.2



The Exploration Period shall begin on the Effective Date and, subject to Article

22.8, shall not extend beyond six and one half (6^2) years except as provided for in

accordance with the Petroleum Law.

a)



The Exploration Period shall be divided into an Initial Exploration Period

of three (3) years ("Initial Exploration Period") and two (2) extension

periods, the first of two (2) years and the second of one and one half (P/2)

years each (respectively, "First Extension Period" and "Second Extension

Period") and where applicable the further periods for which provision is

made hereafter.



b)



Where Contractor has fiilfilled its obligations set out in Article 4.3 before

the end o f the Initial Exploration Period or, as the case may be, the First

Extension Period, and has exercised its option by applying to the Minister

in writing for an extension, the Minister will be deemed to have granted an

extension into the First Extension Period or, as the case may be, into the

Second Extension Period.



c)



For each well drilled by Contractor or with Contractor's participation during

the Initial Exploration Period beyond those referred to in Article 4.3, the

Initial Exploration Period shall be extended by three (3) Months and the

commencement of subsequent periods shall be postponed in their entirety

accordingly.



Following the end o f the Second Extension Period, subject to the provisions o f

Article 3.4, Contractor will be entitled to an extension or extensions, by reference

to Article 8, of the Exploration Period as follows:

a)



Where at the end of the Second Extension Period Contractor is drilling or

testing any well. Contractor shall be entitled to an extension for such further

period as may be reasonably required to enable Contractor to complete such

work and assess the results and, in the event that Contractor notifies the

Minister that the results from any such well show a Discovery which merits

Appraisal, Contractor shall be entitled to a further extension for such period

as may be reasonably required to carry out an Appraisal Programme and

determine whether the Discovery constitutes a Commercial Discovery;



b)



Where at the end of the Second Extension Period Contractor is engaged in

the conduct of an Appraisal Programme in respect of a Discovery which has

not been completed, Contractor shall be entitled to a further extension

following the end o f the Second Extension for such period as may be

reasonably required to complete that Appraisal Programme and determine

whether the Discovery constitutes a Commercial Discovery;



4

14



c)



Where at the end of the Second Extension Period Contractor has undertaken

work not falling under paragraphs (a) or (b) which is not completed,

Contractor shall be entitled to a further extension following the end of the

Second Extension Period for such period as the Minister considers

reasonable for the purpose of enabling such work to be completed;



d)



Where pursuant to Article 8 Contractor has before the end of the Second

Extension Period, including extensions under (a), (b) and (c) above, given

to the Minister a notice of Commercial Discovery, Contractor shall, i f the

Exploration Period would otherwise have been terminated, be entitled to a

further extension of the Exploration Period in respect of the Discovery Area

during which it must prepare the Development Plan in respect of the

Commercial Discovery until either:

i)



the Minister has approved the Development Plan as set out in

Article 8; or



ii)



in the event that the Development Plan is not approved by the

Minister as set out in Article 8 and the matter or matters in issue

between the Minister and Contractor have been referred for

resolution under Article 24 one (1) Month after the date on which the

final decision thereunder has been given.



Where at the end of the Initial Exploration Period or, as the case may be, at the end

of the First Extension Period, Contractor has failed to complete its Minimum Work

Obligations as specified in Article 4.3(a) or Article 4.3(b) in respect of that period

(including in the circumstances contemplated in Article 4.7(b) but has made

reasonable arrangements during the Initial Exploration Period or the First

Extension Period, as applicable, to remedy its default. Contractor may apply to the

Minister for ftirther extension. The Minister may refuse to grant or grant in his

discretion an extension on the then current applicable period subject to such

reasonable terms and conditions as the Minister may stipulate to assure

performance of the work.

3.4



Save in respect of a Discovery Area:

a)



in the circumstances and subject to the limitations set forth in Section 12(3)

of the Petroleum Law;



b)



in a case falling within the provisions of Article 3.2(d); or



c) •



in circumstances where Article 22.8 applies;



Subject to Article 3.5 and Article 8, nothing in Article 3.2 shall be read or construed

as requiring the extension of the Exploration Period beyond seven (7) years from

the Effective Date.

3.5



The provisions of Articles 3.2(a), (b) and (c) and.Article 3.3 so far as they relate to

the duration of the relevant Extension Period to which Contractor will be entitled



shall be read and construed as requiring the Minister to give effect to the provisions

of Article 8 relating to the time within which Contractor must meet the

requirements of that Article.



16



ARTICLE 4

MINIMUM E X P L O R A T I O N P R O G R A M M E

4.1



Exploration Operations shall begin as soon as practicable and in any case not later

than sixty (60) days after the Effective Date.



4.2



GNPC shall, at the request of Contractor, make available to Contractor such

records and information relating to the Contract Area as are relevant to the

performance of Exploration Operations by Contractor and are in GNPC's

possession, provided that Contractor shall reimburse GNPC for licensing the data

and for other costs reasonably incurred in procuring or otherwise making such

records and information available to Contractor.



4.3



Subject to the provisions of this Article 4, in discharge o f its obligations to carry

out Exploration Operations in the Contract Area, Contractor shall during the

several phases into which the Exploration Period is divided carry out the

obligations specified hereinafter:

a)



Initial Exploration Period: Commencing on the Effective Date and

terminating three (3) years from the Effective Date.

Description of Contractor* Minimum Work Obligation:

(i)

(ii)



Acquisition, processing and interpretation of one thousand one

hundred (1,100) line kilometers of 2D seismic data, and

Drilling of one (1) Exploration well;



Minimum Expenditure: Contractor's minimum expenditure for the work in the

Initial Exploration Period shall be forty Million United States Dollars (US$

40,000,000).

b) First Extension Period: Commencing at the end of the Initial

Exploration Period and terminating two (2) years from the expiration of

the Initial Exploration Period.

Descriptiqn qIContractor's Minimum Wprk Qbligatipn:

(i)



(ii)



Acquisition, processing and interpretation of a minimum one

hundred and fifty (150) square kilometers or up to a maximum of

three hundred (300) square kilometers of 3D seismic data, and

Drilling of one (1) Exploration well



Minimum Expenditure: Contractor's minimum expenditure for the work in the

First Extension Period shall be forty Million United States Dollars (US$ c\

40,000,000

17



c) Second Extension Period: Commencing at the end of the First Extension

Period and terminating one and one half (1V2) years from the expiration of the

First Extension Period or as may be extended under this Agreement.

Description of Contractor's Minimum Work Obligation:



(i)



Geological and Geophysical Studies



(ii)



Drilling of one (1) Exploration well



Minimum Expenditure: Contractor's minimum expenditure for the work in the

Second Extension Period shall be twenty Milhon United States Dollars

(US$20,000,000).

Work accomplished in any period in excess of the above obUgations may be

applied as credit in satisfaction of obligations called for in any other Period.

Without prejudice to Article 23.3(e), should Contractor fail to perform its

Minimum Work Obligations under Article 4.3(a), (b) or (c) as applicable.

Contractor shall pay to GNPC, an amount equal to the u n s p e n t a m o u n t o f

the Minimum Expenditure Obligation for the relevant Exploration Phase.

4.4



•4.5



The seismic programme in Article 4.3(a), when combined with existing data, shall

be such as w i l l enable a study of the regional geology of the Contract Area and the

preparation of a report thereon with appropriate maps, cross sections and

illustrations, as well as a geophysical survey of the Contract Area which, when

combined with existing data, shall provide:

a)



A minimum seismic grid adequate to define prospective drill sites over

prospective areas or closures as interpreted from data available to

Confractor; and



b)



A seismic evaluation o f structural and stratigraphic conditions over the

remaining portions of the Contract Area.



Each Exploration Well shall be drilled at a location and to an objective depth

determined by Contractor in consultation with GNPC. Except as otherwise provided

in Article 4.6 below, the minimum depth o f each obligatory Exploration Well in

Articles 4.3 (b) and (c) shall be whichever of the following is first encountered:

a)



the depth of four thousand five hundred (4,500) metres measured from the

Rotary Table Kelly Bushing (RTKB);



b)



one hundred (100) mefres into the Devonian primary target; or



c)



the depth at which Confractor encounters geologic basement.



^

18



4.6



The minimum depth of one (1) of the obligatory Exploration Wells in Article 4.3

shall be whichever of the following is first encountered:

a)



the depth of three thousand metres (3,000m) measured from the Rotary Table

Kelly Bushing (RTKB);



b)



the depth sufficient to penetrate one hundred m e t r e s (100m) into a

Cretaceous target; and



c)



the depth at which Confractor encounters geological basement;



unless GNPC consents otherwise, which consent shall not be unreasonably

withheld or delayed.

4.7





4.8



I f in the course of drilling an Exploration Well the Contractor concludes that

drilling to the minimum depth specified in Article 4.5 or 4.6 above is impossible,

impracticable or imprudent in accordance with International Best Oil Field

Practice, then Contractor may plug and abandon the Exploration Well and GNPC

shall have the option of either:

a)



waiving the minimum depth requirement, in which case Confractor will be

deemed to have satisfied the obligation to drill such Exploration Well; or



b)



requiring Confractor to drill a substitute Exploration Well at a location

determined by Confractor in consultation with GNPC and to the minimum

depth set forth in Article 4.5 or 4.6 except that i f in the course of drilling such

substitute Exploration Well Confractor establishes that drilling to the

minimum depth specified in Article 4.5 or 4.6 above is impossible,

impracticable or imprudent in accordance with International Best Oil Field

Practice, then Confractor may plug and abandon the substitute Exploration

Well and will be deemed to have satisfied the obligation to drill one (1)

Exploration Well.



The above option shall be exercised by GNPC within fifteen (15) days from the

notice given by Contractor to GNPC of the completion o f the plugging and

abandonment of the Exploration Well, and failure to exercise such option shall

constitute a waiver of the minimum depth requfrement pursuant to (a) above.

. During the Exploration Period, Contractor shall have the right to perform

additional Exploration Operations subject to the terms of this Agreement and

approval by the JMC, including without limitation performing gravity and

magnetic surveys, drilling stratigraphic wells and performing additional geological

and geophysical studies, provided the Minimum Work Obligations are completed

within the applicable period. Provided fiirther that Contractor may elect to perform

such additional Exploration Operations in the absence of approval by the JMC and

the costs of such additional Exploration Operations shall not be considered

allowable Petroleum Costs. However, such costs shall only be allowable

Petroleum Costs for purposes of AOE i f there arises a subsequent Cominercial



Discovery associated with such additional Exploration Operations. Any such

subsequent Commercial Discovery shall be treated hereunder in the same manner

as i f such Commercial Discovery had been made in connection with operations

that were not performed as sole risk operations including, without limitation,

participation by GNPC in such Commercial Discovery.

During the Exploration Period, Contractor shall deliver to GNPC and the Minister

reports on Exploration Operations conducted during each Quarter within thirty(30)

days following the end of that Quarter. Further requests for information by the

Minister under Section 9(1) of the Petroleum Law shall be complied with within a

reasonable time and copies of documents and other material containing such

information shall be provided to GNPC. hfY w



20



ARTICLE 5

RELINQUISHMENT

5.1



Except as provided in Article 5.2, 8.3, 8.6, 8.12, 8.18, 8.19, 8.20, 8.21, 8.22 and

14.9, Contractor shall relinquish portions of the Contract Area in the manner

provided hereafter:

a)



I f on or before the expiration o f the Initial Exploration Period, Contractor

elects to enter into the First Extension Period pursuant to Article 3.1(b) then

subject to Article 5.2 at the commencement o f the First Extension Period

the area retained shall not exceed seventy percent (70%) of the Contract

Area as at the Effective Date;



b)



I f on or before the expiration of the First Extension Period, Contractor elects

to enter into the Second Extension Period pursuant to Article 3.1(b) then

subject to Article 5.2 at the commencement of the Second Extension Period

the area retained shall not exceed forty percent (40%) o f the original

Contract Area as at the Effective Date;



c)



On the expiration of the Second Extension Period, Contractor shall subject

to Article 5.2 relinquish the remainder of the retained Contract Area.



5.2



The provisions of Article 5.1 shall not be read or construed as requiring Contractor

to relinquish any portion o f the Contract Area which constitutes or forms part of

either a Discovery Area (excluding a Discovery Area determined by the terms of

this Agreement to neither merit Appraisal nor to be a Commercial Discovery) or a

Development and Production Area; provided, however, that i f at the end of the

Initial Exploration Period or the First Extension Period, as the case may be.

Contractor elects not to enter into the First or Second Extension Period Contractor

shall relinquish the entire Contract Area, except a Discovery Area or a

Development and Production Area.



5.3



Each area to be relinquished pursuant to this Article shall be selected by Contractor

and shall be measured as far as possible in terms of continuous and compact units

of a size and shape which will permit the carrying out of Petroleum Operations in

the relinquished portions.



IT



21



ARTICLE 6

JOINT MANAGEMENT C O M M I T T E E

6.1



In order that the Parties may at all times cooperate in the implementation of

Petroleum Operations, GNPC and Contractor shall not later than thirty (30) days

after the Effective Date establish a Joint Management Committee (JMC). Without

prejudice to the rights and obligations of Contractor for day-to-day management of

the operations, the JMC shall oversee, supervise and approve the Petroleum

Operations and ensure that all approved Work Programmes, and Development

Plans are complied with and also that accounting for costs and expenses and the

maintenance of records and reports concerning the Petroleum Operations are

carried out in accordance with this Agreement and with the accounting principles

and procedures generally accepted as International Best Oil Field Practice.



6.2



The composition of and distribution of ftmctions within the JMC shall be as

provided hereinafter:



6.3



a)



The JMC shall be composed of two (2) representatives o f GNPC and two

(2) representatives of the Contractor. Any Contractor Party not represented

on the JMC may appoint an observer to attend all JMC meetings and shall

receive copies of all notices and materials distributed to the members of the

JMC concurrently with the distribution of such notices and materials to the

JMC members. GNPC and Contractor shall also designate a substitute or

alternate for each member. In the case of absence or incapacity of a member

of the JMC, such alternate shall automatically assume the rights and

obligations of the absent or incapacitated member;



b)



The Chairperson of the JMC shall be designated by GNPC from amongst

the members of the JMC;



c)



Confractor shall be responsible, in consultation with GNPC, for the

preparation of an agenda and supporting documents for each meeting of the

JMC and for keeping records of the meetings and decisions of the JMC.

GNPC shall have the right to inspect all records of the JMC within seven

(7) days of request or any reasonable extension provided. Contractor shall

circulate the agenda and supporting documents for each meeting to all

members and the substitutes or alternates designated pursuant to Article

6.2(a); and



d)



At any meeting of the JMC three (3) representatives shall form a quorum.



Meetings of the JMC shall be held and decisions taken as follows:



a)

A l l meetings of the JMC shall be held in Accra or such other place or

ir\y as may be agreed upon by members of the JMC; A a

22



b)



The JMC shall meet at least twice per Year and at such times as the members

may agree;



c)



A meeting of the JMC may be convened by GNPC or the Contractor giving

not less than twenty (20) days' notice to the other or, in a case requiring

urgent action, notice of such lesser duration as the members may agree

upon;



d)



Decisions of the JMC shall require unanimity;



e)



Any member of the JMC may vote by written and signed proxy held by

another member;



f)



Decisions of the JMC may be made without holding a meeting i f all

representatives of GNPC and the Contractor notify their consent thereto in

the manner provided in Article 27;



g)



GNPC and Contractor shall have the right to bring expert advisors to any

JMC meetings to assist in the discussions of technical and other matters

requiring expert advice;



h)



The JMC may also establish such subcommittees as it deems appropriate

for carrying out its functions including:



i)



i)



a technical subcommittee;



ii)



an audit subcommittee;



iii)



an accounting subcommittee;



iv)



a contract/procurement subcommittee; and



Reasonable costs and expenses as evidenced by invoices and/or receipts

related to attendance by GNPC in or outside Accra (e.g. travel,

transportation, lodging, per diem and insurance), in accordance with

applicable laws, regulations and GNPC policies and procedures shall be

borne by Contractor and treated as Petroleum Costs.



The JMC shall oversee Exploration Operations as follows:

a)



Not later than sixty (60) days after the Effective Date and thereafter at least

ninety (90) days before the commencement of each Calendar Year,

Contractor shall prepare and submit to the JMC for its review and approval

a detailed Work Programme and budget covering all Exploration Operations

which Contractor proposes to carry out in that Calendar Year and shall also

give an indication of Contractor's tentative preliminary exploration plans

for the succeeding Calendar Year. WTiere the Effective Date occurs later

than June 30 in any Calendar Year, Contractor shall have the option of

submitting a single detailed Work Programme and budget covering the



remaining Months of the Calendar Year in which the Effective Date occurs

and the succeeding Calendar Year;

b)



Upon notice to GNPC, Contractor may amend any Work Programme and

budget submitted to the JMC pursuant to this Article 6 which notice will

state why in Contractor's opinion the amendment is necessary or desirable.

Any such amendment shall be submitted to the JMC for review and

approval;



c)



Every Work Programme



d)



and associated budget submitted to the JMC pursuant to this Article 6.4 and

every revision or amendment thereof shall be consistent with the

requirements set out in Article 4.3 relating to the minimum work and

expenditure for the period of the Exploration Period in which such Work

Programme and budget falls;



e)



Contractor shall report any Discovery to GNPC immediately following such

Discovery and shall subsequently place before the JMC for review its

Proposed Appraisal Programme. Within thirty (30) days of completion of

the Appraisal Programme a JMC meeting to discuss the results of the

Appraisal Programme shall be convened to take place before submission of

the detailed Appraisal report provided for in Article 8.10;



f)



The JMC will review and approve Work Programmes and budgets and any

amendments or revisions thereto, and Proposed Appraisal Programmes and

any amendments or revisions thereto, submitted to it by Contractor pursuant

to this Article 6, and timely give such advice as it deems appropriate which

Contractor shall consider before submitting Work Programmes and budgets

and any amendments or revisions thereto for approvals required by law or

this Agreement; and



g)



After the date of the first Commercial Discovery, Contractor shall seek the

approval of GNPC's JMC representatives, which approval shall not be

unreasonably withheld, on any proposal for the drilling of any ftirther

Exploration Well or Wells not associated with the Commercial Discovery

and not otherwise required to be drilled under Article 4.3. I f approval is not

secured by Contractor, Contractor may nevertheless elect to drill the

Exploration Well or Wells at its sole risk and the costs of such Exploration

Operations shall not be considered allowable Petroleum Costs. However,

such costs shall only be allowable Petroleum Costs for purposes of AOE i f

there arises a subsequent Commercial Discovery associated with such

additional Exploration Operations. Any such subsequent Commercial

Discovery shall be treated hereunder in the same manner as i f such

Commercial Discovery had been made in connection with operations that

were not performed as sole risk operations, including, without limitation,

participation by GNPC in such Commercial Discovery. ^-Ao



6.5



From the Date of Commercial Discovery, the JMC shall have supervision of

Petroleum Operations as follows:

a)



Within sixty (60) days after the Date of Commercial Discovery, Contractor

shall prepare and submit to the JMC for approval any revisions to its annual

Work Programme and budget that may be necessary for the remainder of

that Calendar Year and, with respect to the Contract Area (excluding the

Discovery Area) for the rest of the Exploration Period;



b)



A t least ninety (90) days before the Commencement of each subsequent

Calendar Year Contractor shall submit to the JMC for review and approval

a detailed Work Programme and budget setting forth all Development and

Production Operations which Contractor proposes to carry out in that

Calendar Year and the estimated cost thereof and shall also give an

indication of Contractor plans for the succeeding Calendar Year; and



c)



Within sixty (60) days of the Date of commencement o f Commercial

Production and thereafter not later than one hundred and twenty (120) days

before the commencement of each Calendar Year Contractor shall submit

to the JMC for its approval an annual production schedule which shall be in

accordance with International Best Oil Field Practice, and shall be designed

to provide the most efficient, beneficial and timely production of the

Petroleum resources.



6.6



Lifting schedules for Development and Production Areas and other supplementary

agreements provided for under Article 10.7 shall be subject to JMC approval.



6.7



The JMC shall review all of Contractor reports on the conduct of Petroleum

Operations .



6.8



Contractor insurance programme and the programmes for training and technology

transfer shall be submitted by Contractor to the JMC for approval and the

accompanying budgets for such schemes and programmes shall be subject to JMC

approval



6.9



Any contract to be entered into or awarded by Contractor for the provision of

services for Petroleum Operations must comply with the provisions of Article 20,

JMC approved relevant tendering procedures and shall be subject to approval by

the JMC.

I f during any meeting of the JMC the Parties are unable to reach agreement

concerning any of the matters provided for in Articles 6.4, 6.5, 6.6, 6.8 and 6.9 the

matter shall be deferred for reconsideration at a further meeting to be held not later

than fifteen (15) days following the original meeting. I f after such further meeting

the Parties are still unable to reach agreement, the matter in dispute shall be referred

to the Parties' executive management forthwith. Failing agreement within fifteen

(15) days thereafter, the matter in dispute shall, at the request o f any Party, be

referred for resolution under Article 24. Ar^ •

.

25



For the avoidance of doubt, the concurrence or approval o f JMC representatives

shall not be unreasonably withheld or delayed with respect to any proposal

submitted to the JMC p.



26



ARTICLE 7

R I G H T S AND O B L I G A T I O N S O F C O N T R A C T O R AND GNPC

7.1







Subject to the provisions of this Agreement, Contractor shall be responsible for the

conduct o f Petroleum Operations and shall perform its obligations in a

workmanlike manner, with due care and expedition and in accordance with

International Best Oil Field Practice, including without prejudice to the generality

of the foregoing:

a)



conduct Petroleum Operations with utmost diligence, efficiency and

economy in accordance with International Best Oil Field Practice observing

sound technical and engineering practices using appropriate advanced

technology and effective equipment, machinery, materials and methods;



b)



take all practicable steps to ensure compliance with Section 3 of the

Petroleum Law; including ensuring the recovery and prevention of waste of

Petroleum in the Contract Area in accordance with International Best Oil

Field Practice;



c)



prepare and maintain in Ghana full and accurate records of all Petroleum

Operations performed under this Agreement;



d)



prepare and maintain accounts o f all Petroleum Operations under this

Agreement in such a manner as to present a full and accurate record o f the

costs of such Petroleum Operations, in accordance with the Accounting

Guide;



e)



disclose to GNPC and the Minister any operating or other agreement among

the Parties that constitute Contractor relating to the Petroleum Operations

hereunder, which agreement shall not be inconsistent with the provisions of

this Agreement;



f)



prepare and implement a programme to develop GNPC's institutional

capacity to become a competent operator. Such programme shall be

approved by the JMC;



g)



provide and be solely responsible for the payment of all costs related or

incidental to all services, equipment and supplies necessary for the

execution of the activities to be conducted by the Contractor under this

Agreement except as otherwise provided hereunder and the related

documents;



h)



prepare and submit in accordance with this Agreement for approval by the

JMC (i) the Development Plan and (ii) such other matters as are specified

in this Agreement and the related documents as subject to approval by the



27



i)



take all measures consistent with International Best Oil Field Practice (i) to

control the flow and prevent loss or waste of Petroleum, (ii) to prevent any

injurious ingress of water and damage to Petroleum bearing strata and (iii)

to manage reservoir pressure;



j)



not to flare any Natural Gas except to the extent necessary to mitigate or

prevent an emergency or for safe operations as provided in the Development

Plan;



k)



keep the Minister, Petroleum Commission and GNPC promptly advised in

writing of all material developments which occur, or the occurrence of

which is reasonably foreseeable, affecting or highly likely to affect

Petroleum Operations;



1)



to take such steps in case of emergency, and make such immediate

expenditures as are necessary in accordance with International Best Oil

Field Practice, environmental, industrial hygiene and safety legislation

and/or this Agreement and the related documents for the protection of

health, life, the environment and property, and to report in reasonable detail

all such steps taken and expenditures made promptly to the Minister,

Petroleum Commission and JMC;



m)



notify promptly the Minister, Petroleum Commission and GNPC i f the

Contractor becomes aware of any unusual event or circumstance occurring

in the Contract Area or such other areas where Contractor is undertaking

activities contemplated under this Agreement or the related documents that

could reasonably be expected to adversely affect the environment;



n)



implement and administer contracts related to Petroleum Operations entered

into with Affiliates on an arm's-length basis;



o)



maintain or decommission, as appropriate, all existing facilities and assets

and all other assets used or held for use in connection with Petroleum

Operations in accordance with International Best Oil Field Practice,

applicable law and this Agreement; and



p)



perform and observe each other term, covenant and agreement of the

Contractor contained in this Agreement.



In connection with its performance of Petroleum Operations, Contractor shall have

the right within the terms of and pursuant to applicable law and regulations in effect

from time to time:

a)



to establish offices in Ghana and to assign to those offices such

representatives as it shall consider necessary for the purposes of this

Agreement;



b)



to use public lands for installation and operation of shore bases, and

terminals, harbours and related facilities, petroleum storage and processing.

28



pipelines from fields to terminals and delivery facilities, camps and other

housing;

c)



to receive licenses and permission to install and operate such

communications. Petroleum production, processing, storage facilities,

transportation facilities (to the Delivery Point) and other facilities as shall

be necessary for the efficiency of its operations;



d)



to give first consideration to qualified Ghanaians before bringing to Ghana

such number of Foreign National Employees as shall be necessary for its

operations, including employees assigned on permanent or resident status,

with or without families, as well as those assigned on temporary basis such

as rotational employees in accordance with the Local Content Regulations;



e)



to provide or arrange for reasonable housing, schooling and other amenities,

permanent and temporary, for its Foreign National Employees and to import

personal and household effects, fiimiture and vehicles, for the use o f its

personnel in Ghana;



f)



to be solely responsible for provision o f health, accident, pension and life

insurance benefit plans o f its Foreign National Employees and their

families; and such employees shall not be requfred to participate in any

insurance, compensation or other employee or social benefit programs

established in Ghana;



g)



to have, together with its personnel, at all times the right of ingress to and

egress from its offices in Ghana, the Contract Area, and the facilities

associated with Petroleum Operations hereunder in Ghana including the

offshore waters, using its owned or chartered means of land, sea and air

transportation; and



h)



to engage such Subcontractors, expatriate and national, including also

consultants, and to bring such Subcontractors and their personnel to Ghana

as are necessary in order to carry out the Petroleum Operations in a skillfiil,

economic, safe and expeditious manner; and said Subcontractors shall have

the same rights as Contractor specified in this Article 7.2 to the extent they

are engaged by Contractor for the Petroleum Operations hereunder.



Provided that Contractor and its Subcontractors have complied with all of their

material obligations under this Agreement, GNPC shall use its best efforts to assist

Contractor in carrying out Contractor's obligations expeditiously and efficiently as

stipulated in this Agreement, and in particular GNPC shall use its best efforts to

assist Contractor and its Subcontractors, as long as Contractor and its

Subcontractors use their reasonable efforts to appropriately complete applicable

procedures and other requirements prescribed by relevant authorities, to:

a)



establish supply bases and obtain necessary communications facilities.

equipment and supplies;

29



b)



obtain necessary approvals to open bank accounts in Ghana;



c)



subject to Article 21 hereof, obtain entry visas, work permits or any other

documentation that may be required from time to time for such number of

Foreign National Employees of Contractor and its Subcontractors engaged

in Petroleum Operations and members of their families who w i l l be resident

in Ghana, and make arrangements for their travel, arrival, medical services

and other necessary amenities;



d)



comply with Ghana customs procedures and obtain permits for the

importation of necessary materials;



e)



obtain the necessary permits to transport documents, samples or other forms

of data to foreign countries for the purpose of analysis or processing i f such

is deemed necessary for the purposes of Petroleum Operations;



f)



assist with the acquisition of any approvals or waivers required from any

State agencies or other ministerial or regulatory bodies under the direct or

indirect control o f the State (each a "State Agency") dealing with fishing,

meteorology, navigation, environment and communications as required;



g)



identify qualified Ghanaian personnel as candidates for employment by

Contractor in Petroleum Operations; and



h)



procure access, on competitive commercial terms to infrastructure owned

by the State, or GNPC (or its Affiliates) or any third party, including

facilities owned or used by contractors on oil and gas blocks adjacent to the

Contract Area.



A l l reasonable and documented expenses incurred by GNPC in connection with,

any of the matters set out in Article 7.3 shall be borne by Contractor in accordance

with this Agreement.

GNPC shall use its best efforts to render assistance to Contractor in emergencies

and major accidents and such other assistance as may be requested by Contractor,

provided that any reasonable expenses involved in such assistance shall be borne

by Contractor in accordance with this Agreement.

Subject to the provisions o f this Agreement and save for Petroleum Operations

undertaken by GNPC pursuant to Article 9, Contractor shall, during the term of

this Contract, maintain and obtain insurance coverage for and in relation to

Petroleum Operations, for such amounts and against such risks as are customarily

or prudently insured in the international petroleum industry in accordance with

modem oilfield and petroleum industry practices, and shall within two months of

the date of policy or renewal furnish to the Minister and the Petroleum

Commission, certificates evidencing that such coverage is in effect. Such insurance

policies shall cover the interest of GNPC as additional insured and shall waive

subrogation against GNPC. The said insurance shall, without prejudice to the

generality of the foregoing, coyeryh\^

,

30



a)



loss or damage to all installations, equipment and other assets for so long as

they are used in or in cormection with Petroleum Operations; provided,

however, that i f for any reason the Contractor fails to insure any such

installation, equipment or assets, it shall replace any loss thereof or repair

any damage caused thereto;



b)



loss, damage or injury caused by pollution in the course of or as a result of

Petroleum Operations;



c)



loss of property or damage or bodily injury suffered by any third party in

the course of or as a result of Petroleum Operations for which the Contractor

may be Uable;



d)



any claim for which the State may be liable relating to the loss of property

or damage or bodily injury suffered by any third party in the course of or as

a result of Petroleum Operations for which the Contractor is liable to

indemnify the State;



e)



with respect to Petroleum Operations offshore, the cost of removing wrecks

and cleaning up operations following any accident in the course of or as a

result of Petroleum Operations; and



f)



the Contractor and/or the Operator's liability to its employees engaged in

Petroleum Operations.



7.7



The Contractor shall require its Subcontractors to obtain and maintain insurance

against the risks referred to above in Article 7.6 relating mutatis mutandis to such

Subcontractors.



7.8



Contractor shall indemnify, defend and hold the State and GNPC harmless against

all claims, losses and damages of any nature whatsoever, including, without

limitation, claims for loss or damage to property or injury or death to persons

caused by or resulting from any Petroleum Operations conducted by or on behalf

the Contractor. PA.



31



ARTICLE 8

COMMERCIALITY

8.1



Contractor shall submit a Discovery Notice to the Minister, the Petroleum

Commission and GNPC as soon as possible after any Discovery is made, but in

any event not later than thirty (30) days after the date any such Discovery is made.



8.2



As soon as possible after the analysis of the test results of such Discovery is

complete and in any event not later than one hundred (100) days from the date of

such Discovery, Contractor shall by a fiirther notice in writing to the Minister, the

Petroleum Commission and GNPC, indicate whether in the opinion o f Contractor

the Discovery merits Appraisal.



8.3



Where the Contractor does not make the indication required by Article 8.2 within

the period indicated or indicates that the Discovery does not merit Appraisal,

Contractor shall, subject to Article 8.18, relinquish the Discovery Area associated

with the Discovery.



8.4



Where Contractor indicates that the Discovery merits Appraisal, Contractor shall

within one hundred and eighty (180) days from the date o f such Discovery notify

the Minister and submit to the Petroleum Commission for approval and to the

Minister for information purposes a Proposed Appraisal Programme to be carried

out by Contractor in respect of such Discovery. For the avoidance of doubt, unless

otherwise instructed by the Petroleum Commission, Contractor shall conduct a

separate Appraisal for each Discovery where Contractor indicates that such

Discovery merits Appraisal.



8.5



In the absence of regulations otherwise governing the process, the Petroleum

Commission and Contractor shall adhere to the procedure set forth in this Article

8.5 in connection with the submission of a Proposed Appraisal Programme. The

Petroleum Commission shall within sixty (60) days of submission of the Proposed

Appraisal Programme, give the Contractor a notice in writing stating:

a)



whether the Proposed Appraisal Programme has been approved (outright or

conditionally) or not;



b)



i f not approved, any revisions or improvements required by the Petroleum

Commission to be made to the Proposed Appraisal Programme, and the

reasons therefor; or



c)



i f conditionally approved, the conditions to the approval of the Proposed

Appraisal Programme, and the reasons therefor.



I f the Petroleum Commission fails to provide such notice after such sixty (60) day

period, such Proposed Appraisal Programme shall be deemed not approved.



N



I f the Petroleum Commission notifies the-Contractor that the Proposed Appraisal

Programme is not approved or fails to satisfy such obligation to notify the



Contractor within the timeframe provided or the Contractor notifies the Petroleum

Commission that it does not accept the revisions or conditions required for any

approval pursuant to this Article 8.5, the Petroleum Commission and the

Contractor shall consult within thirty (30) days of the earlier o f the date of the

notice by the Petroleum Commission and the date such notice was due with a view

to amending the Proposed Appraisal Programme to be acceptable to both. Should

the Petroleum Commission not agree to so consult or should the Petroleum

Commission and the Contractor fail to agree changes required for such approval

within fourteen (14) days following said consultation. Contractor may notify the

Minister and request resolution. I f the Minister is unable to resolve the matter in a

marmer agreeable to all relevant Parties within thirty (30) days from the date such

notification was lodged, the resulting dispute arising out of this Article 8.5 shall be

resolved in accordance with Article 24

I f the Petroleum Commission has given a notice in writing pursuant to this Article,

and the Parties cannot agree on the revisions or conditions, then the arbitration

panel shall determine whether the Petroleum Commission's revisions or conditions

proposed are lawful. In each case, the arbitration panel shall also determine the

appropriate damages and/or other award flowing from any such unlawfulness.

Where the issue in dispute referred for resolution pursuant to Article 24 is finally

decided in favour of Contractor, the Petroleum Commission shall forthwith give

the requisite approval to the Proposed Appraisal Programme submitted by

Contractor, and where the issue in dispute referred for resolution pursuant to

Article 24 is finally decided in favour o f the Petroleum Commission, Contractor

shall forthwith:

a)



amend the Proposed Appraisal Programme to give effect to the final

decision rendered under Article 24 and the Petroleum Commission shall

give the requisite approval to such revised Proposed Appraisal Programme;

or



b)



relinquish the Discovery Area.



Where Contractor seeks to amend an Appraisal Programme, it shall submit such

amendment to the JMC for review pursuant to Article 6.4(f) before submission to

the Petroleum Commission for approval.

Unless Contractor and the Petroleum Commission otherwise agree in any

particular case. Contractor shall have a period of two (2) years from the date of

Discovery to complete the Appraisal Programme. In the event Contractor requires

a period of more than the two (2) years to complete the Appraisal Programme,

Contractor shall submit a request to the Petroleum Commission for an extension

with a firm programme with timelines to justify the request.

Confractor shall commence Appraisal within one hundred and fifty (150) days

from the date of approval of the Appraisal Programme. Where the Contractor is

unable to commence or otherwise fails to coinmence Appraisal within one hundred

and fifty (150) days from the date of approval of the Appraisal Programme, GNPC

33



shall be entitled to exercise the option provided for in Article 9.1 to enable prompt

Appraisal unless Contractor has commenced Appraisal or obtained an extension of

time for such Appraisal, provided that i f Contractor obtains an extension of time

for such Appraisal and has not commenced Appraisal prior to the end of such

extension, GNPC shall be entitled to exercise the option provided for in Article 9.1

to enable prompt Appraisal.

8.10



Not later than ninety (90) days from the date on which said Appraisal Programme

relating to the Discovery is completed. Contractor will submit to the Minister and

the Petroleum Commission a report containing the results of the Appraisal

Programme. Such report shall include all available technical and economic data

relevant to a determination of commerciality, including, but not limited to,

geological and geophysical conditions, such as structural configuration, physical

properties and the extent of reservoir rocks, areas, thickness and depth of pay

zones, pressure, volume and temperature analysis of the reservoir fluids,

preliminary estimates of Crude Oil and/or Natural Gas reserves, recovery drive

characteristics, anticipated production performance per reservoir and per well,

fluid characteristics, including gravity, sulphur percentage, sediment and water

percentage and refinery assay pattern.



8.11



Not later than ninety (90) days from the date on which said Appraisal Programme

is completed Contractor shall, by a fiarther notice in writing, inform the Petroleum

Commission and Minister whether the Discovery in the opinion of Contractor is or

is not a Commercial Discovery.



8.12



I f Contractor fails to notify the Minister and the Petroleum Commission as

provided in Article 8.10 or informs the Minister that the Discovery is not a

Commercial Discovery, then subject to Article 8.18, Contractor shall relinquish

such Discovery Area; provided, however, that in appropriate cases, before

declaring that a Discovery is not a Commercial Discovery, Contractor shall consult

with the other Parties and may make appropriate representations proposing minor

changes in the fiscal and other provisions of this Agreement which may, in the

opinion of Contractor, affect the determination of commerciality. The other Parties

may, where feasible, and in the best interests of the Parties agree to make such

changes or modifications in the existing arrangements.



8.13



I f Contractor pursuant to Article 8.11 informs the Minister that the Discovery is a

Commercial Discovery, Contractor shall not later than one hundred and eighty

(180) days thereafter, prepare and submit to the JMC, and upon approval by the

JMC, the Minister, a Development Plan.



8.14



The Development Plan referred to in Article 8.13 shall be based on detailed

engineering studies and shall include:

a)



Contractor's proposals on the delineation of the proposed Development and

Production Area and for the development of any reservoir(s), including the

method for the disposalof Associated Gas in accordance with the provisions

of Article 14.14;

i

34



b)



the way in which the Development and Production of the reservoir is

plarmed to be financed;



c)



Contractor's proposals relating to the spacing, drilling and completion of

wells, the production, storage, processing, transportation, gas utilization,

delivery facilities and necessary infrastructure developments required for

the production, storage and transportation (to the Delivery Point) of the

Petroleum, including without limitation:

i)



the estimated number, size and production capacity o f production

facilities i f any;



ii)



the estimated number of Production wells;



iii)



the particulars of feasible alternatives for transportation o f the

Petroleum, including pipelines;



iv)



the particulars of onshore installations required, including the type

and specifications or size thereof; and



v)



the particulars of other technical equipment requfred for the

operations;



d)



the estimate of the reserves together with the estimated annual production

profiles throughout the life of the field to be developed pursuant to the

Development Plan for Crude Oil and Natural Gas from the Petroleum

reservoirs;



e)



tie-ins with other petroleum fields where applicable;



f)



information on operation and maintenance;



g)



a description of technical solutions including enhanced recovery methods;



h)



estimates of capital and operating expenditures;



i)



the economic feasibility studies carried out by or for Contractor in respect

of alternative methods for Development of the Discovery, taking into

account:

i)

ii)

iii)

iv)



at



location; water depth (where applicable);

meteorological conditions;

estimates of capital and operating expenditures; and

any other relevant data and evaluation thereof;



j)



the safety measures to be adopted in the course o f the Development and

Production Operations, including measures to deal with emergencies;



k)

^



environmental impact assessments as required by the applicable laws of the

Republic of Ghana in effect and as amended from time to time; ZL



1)



measures to protect the environment and a contingency plan for handling of

emergencies (including the provision and maintenance of equipment

stockpiles to respond to an emergency);



m)



Contractor's proposals with respect to the procurement of goods and

services obtainable in Ghana;



n)



Contractor's technology transfer plan;



o)



Contractor's plan for training and employment of Ghanaian nationals;



p)



the timetable for effecting Development Operations; and



q)



a plan for decommissioning and abandonment.



8.15



The date of the Minister's approval of the Development Plan shall be the Date of

Commercial Discovery.



8.16



The Minister shall within the ninety (90) days following submission of the

Development Plan give Contractor a notice in writing stating:

a)



whether or not the Development Plan as submitted has been approved or

conditionally approved; and



b)



i f not approved, any revisions proposed by the Minister to the Development

Plan as submitted, and the reasons thereof; or



c)



i f conditionally approved, any

Development Plan is approved.



conditions pursuant



to which



the



I f the Minister fails to approve the Development Plan within the ninety (90) day

time period described above, then the Development Plan shall be deemed not

approved.

Where the Minister notifies the Contractor that the Development Plan is not

approved the Parties shall within a period o f thirty (30) days from the date of such

notice by the Minister consult (and shall include GNPC in such consultations) with

a view to amending the Development Plan to be acceptable to both. Should the

Minister not agree to so consult or should the Minister and the Contractor fail to

agree changes required for such approval within fourteen (14) days following said

thirty (30) day period, the resulting dispute arising out of this Article 8.16 shall be

resolved in accordance with Article 24.

I f the Minister has given a notice in writing pursuant to clause (b) or (c), and the

Parties cannot agree on the revisions or conditions, then the arbitration panel shall

determine whether the Minister's revisions or conditions proposed are lawful.

8.17



Where the issue in dispute referred for resolution pursuant to Article 24 is finally

decided in favour of Contractor, the Minister shall forthwith give the requisite

ap^rioval to the Development Plan submitted by C o n t r a c t o r . ^ ^ ^ ^ ^



8.18



Where the issue in question referred for resolution pursuant to Article 24 is finally

decided in favour of the Minister in whole or in part, Contractor shall forthwith:

a)



amend the proposed Development Plan to give effect to the final decision

rendered under Article 24 and the Minister shall give the requisite approval

to such revised Development Plan; or



b)



subject to Article 8.20 below relinquish the Discovery Area.



8.19



Notwithstanding the relinquishment provisions of Articles 8.3 and 8.12 above, i f

Contractor indicates that a Discovery does not at the time merit Appraisal, or after

Appraisal does not appear to be a Commercial Discovery but may merit Appraisal

or potentially become a Commercial Discovery at a later date during the

Exploration Period, then Contractor need not relinquish the Discovery Area and

may continue its Exploration Operations in the Contract Area during the

Exploration Period; provided that the Contractor shall explain to the Minister and

Petroleum Commission what additional evaluations, including Exploration work

or studies, are or may be planned in order to determine whether subsequent

Appraisal is warranted or that the Discovery is a Commercial Discovery and the

Minister shall approve of any such non relinquishment. Such evaluations shall be

performed by Contractor according to a specific time table (which shall not exceed

the time frame specified under Article 8.20) to be approved by the JMC and

Petroleum Commission, subject to Contractor's right of earlier relinquishment of

the Discovery Area. After completion o f the evaluations. Contractor shall make

the indications called for under Article 8.3 or 8.12 and either proceed with

Appraisal, confirm the Discovery is a Commercial Discovery or relinquish the

Discovery Area.



8.20



h i any case, i f a Discovery is made in the Initial Exploration Period or First

Extension Period, the Contractor shall by the end of the subsequent phase (that is

the First Extension Period or Second Extension Period as the case may be), take a

decision to Appraise the Discovery or relinquish such Discovery. Likewise, i f the

Contractor has completed the Appraisal of a Discovery in the Initial Exploration

Period or First Extension Period, the Contractor shall by the end of the subsequent

phase (that is, the First Extension Period or Second Extension Period as the case

may be), take a decision to determine i f such Discovery is a Commercial Discovery

or relinquish such Discovery. In any event, i f at the end o f the Exploration Period

the Contractor has neither indicated its intent to proceed with an Appraisal

Programme nor declared the Discovery to be a Commercial Discovery, then the

• Discovery Area shall be relinquished.



8.21



Upon completion of an Appraisal Programme and before Contractor makes a

determination that any Discovery is not a Commercial Discovery, Contractor may

consult with the other Parties and may make appropriate representations proposing

minor changes in the fiscal and other provisions of this Agreement which may, in

the opinion of Contractor, affect the determination of a Commercial Discovery.

The other Parties may agree to make such changes or modifications in the existing

arrangements. In the event the Parties do not agree on such changes or



modifications, then subject to Articles 8.19 and 8.20, Contractor shall relinquish

the Discovery Area.

8.22



Nothing in Articles 8.3, 8.12, 8.19 or 8.20 above shall be read or construed as

requiring Contractor to relinquish:

a)



b)



any area which constitutes or forms part of another Discovery Area in

respect of which:

i)



Contractor has given the Minister, the Petroleum Commission and

GNPC a separate notice stating that such Discovery merits

Appraisal; or



ii)



Contractor has given the Minister a separate notice indicating that

such Discovery is a Commercial Discovery; or



any area which constitutes or forms part of a Development and Production

Area.



8.23



For the avoidance of doubt, where Contractor makes a Discovery after the

expiration of the Exploration Period, Contractor shall notify the Minister of such

Discovery pursuant to Article 8.1 and, subject to its rights under Article 3,

surrender such Discovery to GNPC.



8.24



In the event a field extends beyond the boundaries o f the Contract Area, the

Minister may require the Contractor to exploit said field in association with the

third party holding the rights and obligations under a petroleum agreement

covering the said field (or GNPC as the case may be). The exploitation in

association with said third party or GNPC shall be pursuant to good unitization and

engineering principles and in accordance with International Best Oil Field Practice.

In the event Contractor and said third party are unable to agree to the terms of

unitization. Contractor shall notify the Minister in writing and the Minister shall

give appropriate directions to Contractor and the third party or GNPC to resolve

the matter in accordance with International Best Oil Field Practice.



8.25



A l l notices required to be submitted to the Minister under this Article 8 shall be

copied Jo the Petroleum Commission.zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFED

J^yg^



38



ARTICLE 9

SOLE RISK ACCOUNT

9.1



Subject to Contractor's rights under Article 8, i f Contractor fails to commence

Appraisal in accordance with Article 8.9, GNPC may notify Contractor that it will,

at its Sole Risk, commence to appraise a Discovery pursuant to Article 8.9,

provided that within thirty (30) days o f such notification from GNPC, Contractor

may elect to commence to appraise that Discovery within its own Work

Programme.



9.2



Where an Appraisal undertaken under Article 9.1 at the Sole Risk of GNPC results

in a determination that a Discovery is a Commercial Discovery, Contractor may

develop the Commercial Discovery upon reimbursement to GNPC o f all expenses

incurred in undertaking the Appraisal and after arranging with GNPC satisfactory

terms for the payment of a premium equivalent to seven hundred percent (700%)

of such expenses. Such premium shall not be counted as cost of Petroleum

Operations for the purpose of the Accounting Guide. In the event that Contractor

declines to develop said Discovery, Contractor shall relinquish the Development

and Production Area established by the Appraisal Programme conducted by GNPC

under Article 9.1.



9.3



During the Exploration Period GNPC may, at its Sole Risk require Contractor to

continue drilling to penefrate and test horizons deeper than those contained in the

Work Programme of Confractor or requfred under Article 4. GNPC may also at its

Sole Risk ask the Contractor to test a zone or zones which Contractor has not

included in Confractor's test programme. Notice o f this shall be given to

Contractor in writing as early as possible prior to or during the drilling of the well,

but in any case not after Contractor has begun work to complete or abandon the

well. The exercise by GNPC of this right shall be in an agreed manner (such

agreement not to be unreasonably withheld or delayed by Contractor) which does

not prevent Contractor from complying with its work obligations under Article 4.3.



9.4



A t any time before commencing such deeper drilling under Article 9.3 above

Contractor may elect to incorporate the required deeper drilling in its own

Exploration Operation, in which case any resulting Discovery shall not be affected

by the provisions o f this Article 9.



9.5



Where any Sole Risk deeper drilling results in a Discovery, GNPC shall have the

right, at its Sole Risk, to appraise, develop, produce and dispose of all Petroleum

resulting from such Sole Risk deeper drilling and shall conduct such Sole Risk

operations unless GNPC proposes otherwise and Contractor agrees. Provided

however that i f at the time such Petroleum is tested from the producing horizon in

a well. Contractor' Work Programme includes a well or wells to be drilled to the

same producing horizon, and provided that the well or wells drilled by Confractor

result(s) in a Petroleum producing well producing from the same horizon.

Contractor shall, after reimbursing GNPC for all costs associated with its Sole Risk

depper drilling and testing in said well, have the right to include production from



that well in its total production for the purposes of establishing a Commercial

Discovery, and, i f a Commercial Discovery is subsequently established, to

develop, produce and dispose of the Petroleum in accordance with the provisions

of this Agreement.

9.6



Alternatively, i f at the time such Petroleum is tested from a producing horizon in

a well pursuant to a Sole Risk operation. Contractor's Work Programme does not

include a well to be drilled to said horizon. Contractor has the option to appraise

and /or develop, as the case may be, the Discovery for its account under the terms

of this Agreement i f it so elects within a period of sixty (60) days after such

Discovery. In such case. Contractor shall reimburse GNPC for all expenses

incurred by GNPC in connection with such Sole Risk operations, and shall make

satisfactory arrangements with GNPC for the payment of a premium equivalent

to seven hundred percent (700%) of such expenses. Such premium shall not be

considered as Petroleum Costs for the purposes of the Accounting Guide.



9.7



During the term of this Agreement, GNPC shall have the right to submit a Work

Programme to the JMC to drill, at its Sole Risk, a well(s) in the Contract Area

provided that the work intended to be done by GNPC had not been scheduled for

a Work Programme to be performed by Contractor and the exercise of such right

by GNPC and the arrangements made by GNPC for undertaking such drilling do

not prevent Contractor carrying out Petroleum Operations. Within thirty (30) days

after receipt of such notice, Confractor may elect to drill the proposed well(s) as

part of Contractor's Exploration Operations or may elect to participate in the well

to be drilled by GNPC.



9.8



In the event that a well drilled at the Sole Risk of GNPC in accordance with Article

9.7 above results in a Discovery, GNPC shall notify Contractor in writing, and

GNPC shall have the right to appraise such Discovery and develop or require

Contractor to develop, after GNPC declares a Commercial Discovery, such

Discovery for a mutually agreed reasonable service fee, so long as Contractor has

an interest in the Contract Area, GNPC taking all the interest, risk and costs and

hence having the right to all Petroleum produced from the Commercial Discovery;

provided however that Contractor has the option to appraise and/or develop, as the

case may be, the Discovery for its account under the terms of this Agreement i f it

so elects within a period of sixty (60) days after receipt o f GNPC's written notice

of such Discovery.



9.9



Contractor shall reimburse GNPC for all expenses incurred by GNPC in

connection with such Sole Risk operations, and shall make satisfactory

arrangements with GNPC for the payment of a premium equivalent to seven

hundred percent (700%) o f such expenses before exercising the option under this

Article 9.8. Such premium shall not be considered as Petroleum Costs for the

purposes of the Accounting Guide.



9.10



In the event that Contractor declines to exercise its option in Article 9.8 or no

agreement is reached on the service fee arrangement as provided for in Article 9.8,



40



Contractor shall relinquish the Development and Production Area associated with

such Commercial Discovery.

9.11



Sole Risk operations under this Article 9 shall not extend the Exploration Period

nor the term of this Agreement and Contractor shall complete any agreed

programme of work commenced by it under this Article at GNPC's Sole Risk, and

subject to such provisions hereof as the Parties shall then agree, even though the

Exploration Period as defined in Article 3 or the term of this Agreement may have

expired.



9.12



GNPC shall indemnify and hold harmless Contractor against all actions, claims,

demands and proceedings whatsoever brought by any third party or the State,

arising out of or in connection with Sole Risk operations under this Article 9 unless

such actions, claims, demands and proceedings are caused by Contractor's Gross

Negligence or Wilful Misconduct, {/f^

w



41



ARTICLE 10

SHARING O F CRUDE OIL

10.1



Gross Production of Crude Oil from each Development and Production Area shall

(subject to a Calendar Year adjustment developed under the provisions of Article

10.7) be distributed amongst the Parties in the following sequence and proportions:

a)



Thirteen percent (13%) of the Gross Production of Crude Oil from Onshore

Production and twelve and one half percent (12.5%) from Offshore

Production shall be delivered to the State as R O Y A L T Y , pursuant to the

provisions of the Petroleum Law. Upon notice to Contractor, the State shall

have the right to elect to receive cash in lieu of its royalty share of such

Crude Oil. The State's notice shall be given to Contractor at least ninety

(90) days in advance of each lifting period, such periods to be established

pursuant to the provisions of Article 10.7. In such case, said share of Crude

Oil shall be delivered to Contractor and it shall pay to the State the value of

said share in cash at the relevant weighted average Market Price for the

relevant period as determined in accordance with Article 11.7;



b)



After distribution of such amounts of Crude Oil as are required pursuant to

Article 10.1(a), the amount of Crude Oil, i f any, shall be delivered to GNPC

to the extent it is entitled for Sole Risk operations under Article 9;



c)



After distribution of such amounts of Petroleum as are required pursuant to

Articles 10.1(a) and 10.1(b), the remaining Crude Oil produced from each

Development and Production Area shall be distributed to Contractor and,

subject to Article 10.1(e) below to GNPC on the basis of their respective

interests pursuant to Article 2;



d)



The State's AOE (as defined under Article 10.2), i f any, shall be distributed

to the State out o f the Contractor's share o f Crude Oil determined under

Article 10.1(c). The State shall also have the right to elect to receive cash

in lieu of the AOE share of Crude Oil accorded to it pursuant to Article 10.2.

Notification of said election shall be given in the same notice in which the

State notifies Contractor of its election to receive cash in lieu of Crude Oil

under Article 10.1(a). In such case, said share shall be delivered to

Contractor and it shall pay to the State the value o f said share in cash at the

relevant weighted average Market Price for the relevant period as

determined in accordance with Article 11.7;



e)



Notwithstanding Articles 10.1 (d) and (e), in the event that GNPC has failed

to pay any amounts due to Contractor pursuant to Article 15.2 of this

Agreement (such amounts with interest thereon in accordance with Article

26.6 being hereinafter called "Default Amounts") and for so long as any

such advances and interest thereon remain unrecovered by Contractor, an

amount of Crude Oil shall be delivered to GNPC sufficient in value to

reimburse it for its share of Production Costs naid bv it to that date, until



such share of Production Costs has been fully reimbursed to it, after which

a volume of Crude Oil shall be delivered to Contractor equivalent in value

to the outstanding amounts of the aforesaid Default Amounts until such

Default Amounts are fully recovered by Contractor. The value of the Crude

Oil for the purpose of this Article 10 shall be the Market Price determined

pursuant to Article 11.7.

10.2



At any time the State shall be entitled to a portion of Contractor's share of Crude

Oil then being produced from each separate Development and Production Area

(hereinafter referred to as "Additional Oil Entitlements" or "AOE") on the basis

of the after-tax post-inflation-adjusted rate of return ("ROR") which Contractor

has achieved with respect to such Development and Production Area as o f that

time. Contractor's ROR shall be calculated on its NCF and shall be determined

separately for each Development and Production Area at the end of each Month in

accordance with the following computation:

a)



Definitions:

"NCF" means Contractor's net cash flow for the Month for which the

calculation is being made, and shall be computed in accordance with the

following formula:

NCF = X - y - z

where

"x"

equals all revenues received during such Month by Contractor from

the Development and Production Area, including an amount computed by

multiplying the amount of Crude Oil taken by Contractor during such

Month in accordance with Articles 10.1(c) and 10.1(e), excluding such

Crude Oil taken by Contractor for payment o f interest in respect o f

Petroleum Costs incurred by Contractor on GNPC's behalf, by the Market

Price applicable to such Crude Oil during the Month when lifted, plus any

other proceeds specified in the Accounting Guide received by Contractor,

including, without limitation, the proceeds from the sale of any assets to

which Contractor continues to have title. For the avoidance of doubt, "x"

shall not include revenues from Crude Oil lifted by Contractor which is part

of another Party's entitlement (e.g. Royalty, Crude Oil relating to the State's

AOE delivered to Contractor because the State has elected to receive cash

in lieu of Crude Oil, Crude Oil purchased by Contractor from GNPC or the

State) but shall include revenues from Crude Oil owned by Contractor but

lifted by another Party (e.g. Crude Oil purchased by GNPC or the State from

Contractor).

"y"

equals one-twelfth (V12) of the income tax paid by the Contractor to

the State with respect to the Calendar Year in respect o f the Development

and Production Area. I f there are two (2) or more Development and

A Production Areas, the total income "tax paid by

ii

43



Contractor in accordance with the Income Tax Act shall for purposes of this

calculation be allocated to the Development and Production Area on the

basis of hypothetical tax calculations for the separate Development and

Production Areas. The hypothetical tax calculation for each Development

and Production Area shall be determined by allocating the total amount of

tax incurred for each Calendar Year by Contractor under the Income Tax

Act to each Development and Production Area based on the ratio that the

chargeable income from a given Development and Production Area bears

to the total chargeable income of Contractor. The chargeable income of

Contractor is determined under section 2 of the Income Tax Act and the

chargeable income of a Development and Production Area shall be

calculated by deducting from the gross income derived from or allocated to

that Area those expenses deductible under section 3 of the Income Tax Act

which are reasonably allocable to that Area and with respect to the

Development and Production Area with the earliest date of Commercial

Production, those expenses deductible under the said section 3 of the

Income Tax Act which are not attributable to any Development and

Production Area. A negative chargeable income for an Area shall be treated

as zero for purposes of this allocation and not more (or less) than the total

income tax paid by Contractor shall be allocated between the Areas.

"z" equals all Petroleum Costs specified in the Accounting Guide and

expended by Contractor during such Month or with respect to abandonment

costs, those calculated in accordance with Article 12.7 or actually incurred,

as the case may be, with respect to the Development and Production Area,

including any Petroleum Costs paid by Contractor on GNPC's behalf, and

not reimbursed by GNPC within the Month, provided that all Petroleum

Costs for Exploration Operations not directly attributable to a specific

Development and Production Area shall for purposes of this calculation be

allocated to the Development and Production Area having the earliest date

of Commencement of Commercial Production. Where Petroleum Costs for

Exploration Operations are not directly attributable to a specific

Development and Production Area during a Month, but are directly

attributable to a subsequently delineated Development and Production Area,

then Contractor may elect either to maintain the original allocation or

reallocate such Petroleum Costs to the newly delineated Development and

Production Area to which they are directly attributable and provided further

that for the purpose of the ROR calculation Petroleum Costs shall not

include any amounts in respect of interest on loans obtained for the purposes

of carrying out Petroleum Operations.

"FAn", "SA„", "TAn", "YAn" and "ZA„" means First Account, Second

Account, Third Account, Fourth Account and Fifth Account, respectively,

and represent amounts as of the last day of the Month in question as

determined by the formulae in (b) below.



44



"FA„-i", "SA„-i", "TAn-i", "YAn-i", and "ZA„.i", respectively, mean the

lesser of (i) the FAn, SAn, TAn, YAn or ZAn, as the case may be, as of the

last day of the Month immediately preceding the Month in question, or (ii)

zero. Stated otherwise, FAn-i shall equal FAn as of the last day of the Month

immediately preceding the Month in question i f such FAn was a negative

number, but shall equal zero i f such FAn was a positive number. Likewise,

SAn-1 shall equal SAn as of the last day of the Month immediately preceding

the Month in question i f such SAn was a negative number, but shall equal

zero i f such SAn was a positive number. Likewise TAn-i shall equal TAn as

of the last day of the Month immediately preceding the Month in question

i f such TAn was a negative number, but shall equal zero i f such TAn was a

positive number. Likewise YAn-i shall equal Y A n as of the last day of the

Month immediately preceding the Month in question i f such Y A n was a

negative number but shall equal zero i f such TAn was a positive number.

Likewise, Z An-i shall equal ZAn as of the last day of the Month immediately

preceding the Month in question i f such ZAn was a negative number, but

shall equal zero i f such ZAn was a positive number. In the ROR calculation

for the first Month of Petroleum Operations, FAn-i, SAn-i, TAn-i, YAn-i and

ZAn-i shall be zero.

for the Month in question equals one (1) subtracted from the quotient of

the United States Industrial Goods Wholesale Price Index ("USIGWPI")

for the second Month preceding the Month in question (e.g. use August data

for October's computation) as first reported in the International Financial

statistics of the International Monetary Fund, divided by the USIGWPI for

the same second preceding Month of the immediately preceding Calendar

Year as first reported in the International Financial Statistics of the

International Monetary Fund. I f the USIGWPI ceases to be published, a

substitute U.S. Dollar-based price index shall be agreed by the Parties hereto

and used.

" n " refers to the nth Month in question.

" n - l " refers to the Month immediately preceding the nth Month

Formulae:

FA . =



FA



SA



SA



n-l



1 +



(0.125 + / )

12



\ (0-175+ / )

12



+ NCF



+ NCF



In the calculation o f SAn an amount shall be subtracted from N C F identical

to the value of any A O E which would be due to the State i f reference were

made hereunder only to the FAn.

Q-f\^



45



TA



TA



NCF



12



In the calculation of TAn an amount shall be subtracted from N C F identical

to the value of any A O E which would be due to the State i f reference were

made hereunder only to the FAn and SAn.

YA



YA



\ (0-275+ Z - )

12



+ NCF

/J



In the calculation of YAn an amount shall be subtracted from N C F identical

to the value of any A O E which would be due to the State i f reference were

made hereunder only to the FAn, SAn and TAn

ZA



ZA

n -



1



^ (0.325 + / )

12



+ NCF



In the calculation of ZAn an amount shall be subtracted from N C F identical

to the value of any AOE which would be due to the State i f reference were

made hereunder only to the FAn, SAn, TAn and YAn.

Prospective Application:

The State's AOE measured in Barrels of oil w i l l be as follows:

i)



I f FAn, SAn, TAn, YAn and ZAn are all negative, the State's AOE for

the Month in question shall be zero;



ii)



I f FAn is positive and SAn, TAn, YAn and ZAn are all negative, the

State's AOE for the Month in question shall be equal to the absolute

amount resulting from the following monetary calculation:

Ten (10%) of the FAn for that Month divided by the weighted

average Market Price as determined in accordance with Article 11.7.



iii)



I f both FAn and SAn are positive, but TAn, YAn and ZAn are negative,

the State's AOE for the Month in question shall be equal to an

absolute amount resulting from the following monetary calculation:

the aggregate of ten percent (10%) of FAn for that Month plus twelve

and one half percent (12.5%) of the SAn for that Month all divided

by the weighted average Market Price as determined in accordance

with Article 11.7.



iv)



.



I f FAn, SAn and TAn are all positive but Y A n and ZAn is negative, the

State's AOE for the Month in question shall be equal to the absolute

amount resulting from the following monetary calculation: the

aggregate of ten percent (10%) of the FAn for that Month plus ^twelve



n



and one half percent (12.5%) of the SAn for that Month plus twenty

percent (20%) of the TAn for that Month all divided by the weighted

average Market Price as determined in accordance with Article 11.7.

v)



I f FAn, SAn, TAn and YAn are all positive but ZAn is negative, the

State's AOE for the Month in question shall be equal to the absolute

amount resulting from the following monetary calculation:

the aggregate of ten percent (10%) of the FAn for that Month plus

twelve and one half percent (12.5%) of the SAn for that Month plus

twenty percent (20%) of the TAn for that Month plus twenty percent

(25%) of the YAn for that Month all divided by the weighted average

Market Price as determined in accordance with Article 11.7.



vi)



I f FAn, SAn, TAn, YAn and ZAn are all positive, the State's AOE for

the Month in question shall be equal to the absolute amount resulting

from the following monetary calculation:

the aggregate of ten percent (10%) of the FAn for that Month plus

twelve and one half percent (12.5%) of the SAn for that Month plus

twenty percent (20%) of the TAn for that Month plus twenty five

percent (25%) of the YAn for that Month, plus twenty seven and one

half percent (27.5%) of the ZAn for that Month all divided by the

weighted average Market Price as determined in accordance with

Article 11.7.



The AOE calculations shall be made in U.S. Dollars with all non-dollar

expenditures converted to U.S. Dollars in accordance with Section 1.3.5 of

Annex 2. When the AOE calculation cannot be definitively made because

of disagreement on the Market Price or any other factor in the formulae,

then a provisional AOE calculation shall be made on the basis of

Contractor's good faith estimates of such factors and such provisional

calculation shall be subject to correction and revision upon the conclusive

determination of such factors, and appropriate retroactive adjustments shall

be made.

The AOE shall be calculated on a monthly basis, with the AOE to be paid

commencing with the first Month following the Month in which the FAn,

SAn, TAn, YAn Or ZAn, (as applicable) becomes positive. Because the

precise amount of the AOE for a Calendar Year cannot be determined with

certainty until after the end of that Calendar Year, deliveries (or payments

in lieu) of the AOE with respect to a Month shall be made during such

Calendar Year based upon the Contractor's good faith estimates of the

amounts owing, with any adjustments following the end of the Calendar

Year to be settled pursuant to the procedures agreed to pursuant to Article

10.7. Final calculations of the AOE shall be made within thirty (30) days

following the filing by the Contractor of the annual tax return for such

Calendar Year pursuant to the Income-Tax Act and this Agreement, and-the

47



amount of the AOE shall be appropriately adjusted in the event of a

subsequent adjustment of the amount of tax owing on such term.

10.3



GNPC shall act as agent for the State in the collection of all Petroleum accruing to

the State under this Article 10 and delivery to GNPC by Contractor shall discharge

Contractor's liability to deliver the share of the State.



10.4



The State or GNPC, having met the requirements of Article 15.1, may elect, in

accordance with terms and conditions to be mutually agreed by the Parties, that all

or part of the Crude Oil to be distributed to the State or to GNPC pursuant to this

Article shall be sold and delivered by the State or GNPC to Contractor or its

Affiliate for use and disposal and in such case Contractor or its Affiliate shall pay

to the State or to GNPC, as the case may be, the Market Price for any Crude Oil so

sold and delivered. Market Price for purposes of this Article 10.4 shall be the

amounts actually realized by Contractor or said Affiliate on its resales of said

Crude Oil in arm's length commercial transactions, or for its other resales or

dispositions of said Crude Oil, based upon Market Price determined in the manner

specified in Article 11.7(b).



10.5



Ownership and risk of loss of all Crude Oil produced from the Contract Area which

is purchased, and all of its percentage Participating Interest or other Crude Oil

lifted, by Contractor shall pass to Contractor at the outlet flange (the "Delivery

Point") of the marine terminal or other storage facility for loading into tankers or

other transportation equipment referred to in Article Article 11.



10.6



Subject to the provisions of Article 15 hereof, Contractor shall have the right freely

to export and dispose of all the Petroleum allocated and/or delivered to it pursuant

to this Article.



10.7



The Parties shall through consuhation enter into supplementary agreements

concerning Crude Oil lifting procedures, lifting and tanker schedules, loading

conditions, Crude Oil metering, and the settlement of lifting imbalances, i f any,

among the Parties at the end of each Calendar Year. The Crude Oil to be distributed

or otherwise made available to the Parties in each Calendar Year in accordance

with the preceding provisions of this Article shall insofar as possible be in

reasonably equal monthly quantities.



ARTICLE 11

M E A S U R E M E N T AND P R I C I N G O F C R U D E O I L

ILl



Crude Oil shall be delivered by Contractor to storage tanks or other suitable

holding facility constructed, maintained and operated in accordance with

applicable laws and good oilfield practice. Crude Oil shall be metered or otherwise

measured for quantity and tested for quality at the outlet flange of oil treatment

facilities associated with producing wells and then again for quantity at each inlet and

at the outlet flange of such storage tanks for all purposes of this Agreement. Any

Party may request that measurements and tests be done by an internationally

recognized inspection company. Contractor shall arrange and pay for the conduct

of any measurement or test so requested provided, however, that in the case o f (1)

a test requested for quality purposes and/or (2) a test requested on metering (or

measurement) devices, or where the test results demonstrate that such devices are

accurate within acceptable tolerances agreed to by the Parties or i f not established

by the Parties, then in accordance with International Best Oil Field Practice, the

Party requesting the test shall reimburse Contractor for the costs associated with

the test or tests.



11.2



GNPC or its authorized agents shall have the right:

a)



to be present at and to observe such measurement o f Crude Oil;



b)



to examine and test whatever appliances are used by Contractor therefore;

and



c)



to install a device or equipment, at GNPC's sole risk, expense and liability,

for the purpose of determining the quantity and quality of Crude Oil.



11.3



In the event that GNPC considers Contractor's methods of measurement to be

inaccurate, GNPC shall notify Contractor to this effect and the Parties

shall meet within ten (10) days of such notification to discuss the matter.

Where after thirty (30) days the Parties cannot agree over the issue, they

shall refer for resolution under Article 24 the sole question of whether

Contractor's method of measuring Crude Oil is accurate and reasonable.

Retrospective adjustments to measurements shall be made where

necessary to give effect to the decision rendered under Article 24



11.4



I f upon the examination or testing of appliances provided for in Article 11.2 any

such appliances shall be discovered to be defective:

a)



Contractor shall take immediate steps to repair or replace such appliance;

and



b)



subject to the establishment of the contrary, such error shall be deemed to

have existed for three (3) Months or since the date of the last examination

and testing, whichever occurred more recently, ^^-i^ ^

1



A



49



r

11.5



In the event that Contractor desires to adjust, repair or replace any measuring

appliance, it shall give GNPC reasonable notice to enable GNPC or its authorized

agent to be present.



11.6



Contractor shall keep full and accurate accounts concerning all Petroleum

measured as aforesaid and provide GNPC with copies thereof on a monthly basis,

not later than ten (10) days after the end of each Month.



11.7



The Market Price for Crude Oil delivered to Contractor hereunder shall be

established with respect to each lifting or other period as provided elsewhere in

this Agreement as follows:

a)



on Crude Oil sold by Contractor in arm's length commercial transactions

(defined in Article 11.7(c) below), the Market Price shall be the price

actually realized by Contractor on such sales;



b)



on sales of Crude Oil by Contractor not in an "arm's length commercial

transaction" (defined by Article 11.7(c) below), on exports by Contractor

without sale or on sales under Article 15.2, the Market Price shall be the

price determined by reference to world market prices o f comparable Crude

Oils sold in arm's length transactions for export in the major world

petroleum markets, and adjusted for oil quality, location, timing and

conditions of pricing, delivery and payment provided that in the case of

sales under Article 15.2 where such sales relate to part only of Contractor's

entitlement, prices actually realized by Contractor in sales of the balance of

its proportionate share falling within Article 11.7(a) above shall be taken

into account in determining Market Price. For purposes of this Article

11.7(b), "comparable Crude Oils" shall mean Crude Oils o f similar A P I

gravity, sulphur content, and acidity, and i f Contractor cannot identify

comparable Crude Oils for the purposes of this Article, the Parties may

agree on an alternative method for establishing a comparable Crude Oil;



c)



sales in "arm's length commercial transactions" shall mean sales to

purchasers independent of the seller, which do not involve Crude Oil

exchange or barter transactions, government to government transaction,

sales directly or indirectly to Affiliates, or sales involving consideration

other than payment in U.S. Dollars or currencies convertible thereto, or

affected in whole or in part by considerations other than the usual economic

incentives for commercial arm's length Crude Oil sales;



d)



the price of Crude Oil shall be expressed in U.S. Dollars per Barrel, F.O.B.

the point of delivery by Contractor; and



e)



i f Crude Oils of various qualities are produced from the Contract Area, the

Market Price shall be determined separately for each type sold and/or

exported by Contractor, only to the extent that the different quality grades

remain segregated through to the point where they are sold, and i f grades of

different quality are commingled into a common stream. Contractor and

GNPC shall agree on an equitable methodology for assessing relative value



for each grade o f Crude Oil comprising the blend and shall implement the

agreed methodology for having the producer(s) of higher quality Crude

Oil(s) be reimbursed by the producer(s) of lower quality Crude Oil(s).

11.8



Contractor shall provide to GNPC information in accordance with Section 7 of the

Accounting Guide on each lifting which shall include the buyer of the cargo, sales

basis with respect to benchmark Crude Oil, the pricing basis, the differential, any

deductions and the Market Price determined by it for each lifting not later than

thirty five (35) days after the end of such lifting. For the purposes of this Article

11.8 the obligations of Parties comprising Contractor shall be several.



11.9



I f GNPC considers that the Market Price notified by Contractor was not correctly

determined in accordance with the provisions of Article 11.7, it shall so notify

Contractor not later than thirty (30) days after notification by Contractor of such

price, and GNPC and Contractor shall meet not later than twenty (20) days

thereafter to agree on the correct Market Price.



11.10 In the event that GNPC and Contractor fail to agree upon the commencement of

meetings for the purpose described in Article 11.9 above, the Market Price shall be

referred for determination in accordance with Article 24 of this Agreement.

11.11 Pending a determination under Article 11.7, the Market Price w i l l be deemed to be

the last Market Price agreed or determined, as the case may be, or i f there has been

no such previous agreement or determination, the price notified by Contractor for

the lifting in question under Article 11.7. Should the determined price be different

fi-om that used in accordance with the foregoing then the difference plus interest at

the Specified Rate shall be paid in cash by or to Contractor, as the case may be,

within thirty (30) days of such determination.



51



Article 1 2

T A X A T I O N AND O T H E R IMPOSTS

12.1 Subject to applicable laws and regulations as the same may be amended from time

to time, the tax, duty, fee and other imposts that shall be imposed by the State or

any entity or any political subdivision on Contractor, its Subcontractors or its

Affiliates and shareholders in respect o f work and services related to Petroleum

Operations and the sale and export o f Petroleum shall include, but not be limited to,

the following:

(a)



Tax in accordance with the Income Tax Act as amended from time to time;



(b)



Petroleum Income tax in accordance w i t h the provisions o f the Income Tax

Act levied at the rate o f thirty-five percent (35%) for the term o f this

Agreement., subject to applicable law in effect from time to time;



(c)



Withholding tax at a rate o f fifteen per cent (15%) shall be deducted from

payments by Contractor to a Subcontractor or Affiliate in respect o f works

and services for or in connection with this Agreement. ;



(d)



Withholding tax at the rate o f eight percent (8%) shall be deducted from

dividends paid to shareholders;



(e)



Gains/profit arising from the sale, transfer, disposal or assignment o f any

interest in this Agreement and sale o f assets shall be subject to tax in

accordance with the provisions o f the Income Tax A c t



(f)



Payments for rental o f State property, public lands or for the provisions o f

specific services requested by Contractor from public enterprises; provided,

however, that the rates charged Contractor for such rentals or services shall

not exceed the prevailing rates charged to other members o f the public who

receive similar services or rentals;



(g)



Surface rentals payable to the State pursuant to Section 18 o f the Petroleum

Law per square kilometre o f the area remaining at the beginning o f each

Contract Year as part o f the Contract Area, in the amounts as set forth

below:

Phase of Operation



Surface Rentals Per Annum



Initial Exploration Period



US $50 per sq. km.



First Extension Period



US $100 per sq. k m .

52



r



^



Second Extension Period



US $100 per sq. l


Development & Production Area



US $200 per sq. km.



These rentals shall be pro-rated where the beginning o f a Period and the end o f a

Period or the creation o f a Development and Production Area occurs during the

course o f a Calendar Year.

(h) Taxes, duties, fees or other imposts o f a minor nature.



12.2 Contractor shall not be liable for any export tax on Petroleum exported from Ghana

and no duty or other charge shall be levied on such exports. Vessels or other means

of transport used in the export o f Contractors Petroleum from Ghana shall not be

liable for any tax, duty or other charge by reason o f their use for that purpose.



12.3 Subject to the local purchase obligations hereunder. Contractor and Subcontractors

may import into Ghana all plant, equipment and materials to be used solely and

exclusively in the conduct o f Petroleum Operations without payment o f customs

and other duties and taxes on imports save administrative fees and charges;

PROVIDED THAT:

(a)



GNPC shall have the right o f first refusal for any item imported duty

free under this Article which is later sold in Ghana; and



(b)



where GNPC does not exercise its right o f purchase. Contractor may

sell to any other person subject to the relevant law in effect and as amended

from time to time.



12.4 Contractor shall not be liable to pay V A T in respect o f plant, equipment and

materials, and related services supplied in Ghana, to be used solely and exclusively

in the conduct o f Petroleum Operations.



12.5 Foreign National Employees o f Contractor or its Affiliates, and o f its

Subcontractors, shall be permitted to import into Ghana free o f import duty, their

personal and household effects in accordance with Section 22.7 o f PNDCL 64;

provided, however, that no property imported by such employee shall be resold by

such employee in Ghana except in accordance with Article 12.3.



53



12.6 Subject to GNPC's rights under 19, Contractor, Subcontractors and Foreign

National Employees shall have the right to export from Ghana all items imported

duty free. Such exports shall be exempt from all customs and other duties, taxes,

fees and charges on exports save minor administrative charges.

12.7 Subject to guidelines to be issued by the Minister, the Contractor shall make

contributions to a decommission fund based on estimated costs o f abandonment in

proportion to its Participating Interest. Such contributions shall be allowed as

deduction from assessable income from the year o f assessment the contributions

commenced. I n the year o f assessment in respect o f which decommission has been

completed i n accordance with an approved decommission plan, the surplus funds

shall be treated as chargeable income and subject to tax. The amount left after the

tax shall be subject to Additional O i l Entitlement at the highest rate at which the

Contractor paid A O E during the period o f contributions to the relevant

decommission fund. A n y surplus after payment o f the tax and A O E shall revert to

the Contractor.



12.8 Parties w i l l negotiate i n good faith to ensure that Contractor is afforded tax credits

for corporate taxes paid in Ghana. However no adverse effect should occur to the

economic rights o f GNPC or the State.



12.9 It is the intent o f the Parties that payments by Contractor o f tax levied by the

Income Tax A c t or any other tax imposed on Contractor qualify as creditable

against the income tax liability o f each company comprising Contractor in its

jurisdiction. Should the fiscal authority involved determine that the Income Tax

Act does not impose a creditable tax, the Parties agree to negotiate in good faith

with a view to establishing a creditable tax on the precondition that no adverse

• effect should occur to the economic rights o f GNPC or the State.

12.10 A l l tax return prepared and payments made by Contractor and its Affiliates or

Subcontractors, and Foreign National Employees thereof shall be made in United

States Dollars.



54



A R T I C L E 13

FOREIGN EXCHANGE TRANSACTIONS

13.1 Subject expressly to Articles 26.2,26.3 and 26.4, the provisions of this Article 13

shall be subject to applicable legislation governing foreign exchange transactions

in Ghana in force from time to time.

13.2 Contractor shall, for the purpose of this Agreement, be entitled to receive, remit

with the approval of the Bank of Ghana, keep and utilise freely abroad all the

foreign currency obtained from the sales of the Petroleum assigned to it by this

Agreement or purchased hereunder, or from transfers, as well as its own capital,

receipts from loans and in general all assets thereby acquired abroad. Upon

making adequate arrangements with regard to its commitment to conduct

Petroleum Operations, Contractor shall be free to dispose of this foreign currency

or assets as it deems fit.

13.3



Confractor shall have the right to open and maintain in Ghana, bank accounts in

foreign currency and Ghanaian currency. No restriction shall be made on the

import by Contractor in an authorised manner o f funds assigned to the

performance of the Petroleum Operations and Contractor shall be entitled to

purchase Ghanaian currency through authorised means, without discrimination,

at the prevailing rate of exchange; provided, however, that such prevailing rate

applicable to Contractor hereunder for all transactions for converting Ghanaian

currency into United States Dollars, and vice versa, shall be at a buying or

selling, as the case may be, rate of exchange not less favourable to Contractor

than that quoted by the State or its foreign exchange control authority to any

person or entity on the dates of such conversion (excepting those special rates

provided by the State to discretely defined groups for special limited purposes).,



13.4



Confractor shall be entitled to convert in an authorised manner into foreign

currencies of its choice funds imported by Contractor for the Petroleum

Operations and held in Ghana which exceeds its local requirements at the

prevailing rate of exchange referred to in Article 13.3 and remit and retain such

foreign currencies outside Ghana.



13.5



In the event of resale by Contractor or its Affiliate of Crude Oil purchased from

the State or GNPC, the State or GNPC shall have the right to request payment

for such sales of its share of production to Contractor or its Affiliate to be held

in the foreign currency in which the resale transaction took place or in United

States Dollars.



13.6



Contractor shall have the right to make direct payments outside o f Ghana from

its home offices abroad, and elsewhere, to its Foreign National Employees, and

to those of its Subcontractors and suppliers 'not resident in Ghana' (as that term

is defined in Section 160 of the Internal Revenue Act 2000 (Act 592)) for wages,

salaries, purchases of goods and performance of services, whether imported into



Ghana or suppUed or performed therein for Petroleum Operations carried out

hereunder, in accordance with the provisions of this Agreement, in respect of

services performed within the framework of this Agreement, and such payments

shall be considered as part of the costs incurred in Petroleum Operations. In the

event of any changes in the location of Operator's home or other offices,

Operator shall so notify GNPC and the State.

13.7



A l l payments which this Agreement obligates Contractor to make to GNPC or

the State, including income taxes, shall be made in United States Dollars, except

as requested otherwise pursuant to Article 13.5 above. A l l payments shall be

made by wire transfer in immediately available fiinds to a bank to be designated

by GNPC or the State, and reasonably accessible to Contractor by way o f its

being able to receive payments made by Contractor and give a confirmation o f

receipt thereof, or in such other manner as may be mutually agreed.



13.8



A l l payments which this Agreement obligates GNPC or the State to make to

Contractor shall be made in United States Dollars. A l l payments shall be made

by electronic transfer (or in such other manner as may be mutually agreed) in

immediately available ftmds to a bank to be designated by Contractor, and

reasonably accessible to GNPC or the State by way of its being able to receive

payments made by GNPC or the State and give confirmation of receipt thereof



13.9



A l l payments due to the Contractor in respect o f the conduct o f petroleum

activities in Ghana shall first be paid into the Contractor's bank account in

Ghana.



56



A R T I C L E 14

SPECIAL PROVISIONS FOR NATURAL GAS

PART I - GENERAL

A l l Natural Gas produced by Contractor in association with GNPC under this

Agreement shall be the property of GNPC in accordance with the provisions of Section

16.2 of the Petroleum Law, subject to the terms of this Agreement.

14.1



Contractor shall have the right to use Natural Gas produced from any

Development and Production Area for Petroleum Operations within the Contract

Area such as reinjection for pressure maintenance and/or power generation at no

cost.



14.2



Confractor shall not flare nor vent Natural Gas except:



14.3



a)



to the extent provided for in an approved Development Plan;



b)



during production testing operations;



c)



when required for operational safety and the safety of persons engaged in

Petroleum Operations in accordance with International Best Oil Field

Practice; or



d)



as otherwise authorised by the Minister.



Contractor shall have the right to exfract and dispose o f liquid hydrocarbons

pursuant to the provisions of this Agreement relating to Crude Oil. Residual

Natural Gas remaining after the extraction o f liquid hydrocarbons is subject tO'

the provisions of this Article 14.



PART II - ASSOCIATED GAS

14.4



A l l gas produced in association with Crude Oil is the property of GNPC. The

Development Plan of each Development and Production Area shall include a

plan of utilization for Associated Gas.



14.5



I f Contractor considers that production, processing and utilisation of Associated

Gas from any Development and Production Area is non-economic, GNPC or any

State appointed agency, body or Subcontractor shall have the option to offtake

such Associated Gas not used for Petroleum Operations pursuant to Article 14.1

at the outlet flange of the gas-oil separator on the Crude Oil production facility,

at its Sole Risk for its own use. GNPC and Contractor shall work together to

develop the appropriate interface between Gas infrastructure owned by the State

and/or GNPC and Contractor's proposed Development Plan and to t\^t end shall

include:



57



a)



a statement of the facihties necessary for the deUvery to GNPC (or any

State appointed agency, body, or Subcontractor) of such Associated Gas;



b)



a plan for the reinjection of Associated Gas into the reservoir i f needed

for pressure support;



c)



a plan for any other utilization; and



d)



a plan for power-generation.



14.6



The decision of GNPC as to whether or not to exercise the option provided for

in Article 14.5 shall be made in a timely manner. In making such decision and

in its subsequent conduct, GNPC shall avoid the prevention o f or delay to the

orderly start up or continuation of the production o f Crude Oil as envisaged in

the approved Development Plan.



14.7



I f GNPC (or any State appointed agency, body, or Subcontractor) elects to

offtake Associated Gas under Article 14.5 above GNPC shall be responsible, for

any additional facilities needed for the delivery of the Associated Gas to GNPC,

provided that:

a)



i f Contractor subsequently wishes to participate in GNPC's gas utilisation

programme, it shall reimburse GNPC for the costs o f such facilities plus

a premium of three hundred percent (300%) of costs; or



b)



i f Contractor subsequently develops a gas utilisation programme and,

requires the use o f GNPC's gas facilities. Contractor shall pay GNPC an

agreed fee for such use.



I f Contractor considers that it may be economic to produce Associated Gas for

sale, the provision of Article 14.13, and Part I V below shall apply as to such

Associated Gas.

PART III - NON-ASSOCIATED GAS

14.8



Contractor shall have the right to commercialize a Discovery of Non-Associated

Gas in the Contract Area in accordance with the provisions of this Agreement.

Except as otherwise provided in this Agreement, the terms applicable to a

Discovery as provided under Article 8 of this Agreement shall apply to a

Discovery of Non-Associated Gas.



14.9



Where Contractor submits notice pursuant to Article 8.2 or Article 8.19

indicating that the Discovery does not at that time merit Appraisal but may merit

Appraisal or additional evaluation at a later date during the Exploration Period

\r during the initial period under a new Agreement made pursuant to Article



14.16 below, then Contractor need not submit a Proposed Appraisal Programme

at that time but instead shall indicate to the Petroleum Commission what other

studies or evaluations (in accordance with a definite time-table) may be

warranted before an Appraisal Programme is undertaken. Where Contractor's

Notice indicates that the Discovery will not merit Appraisal at any time during

the Exploration Period or during the initial period under a new Agreement made

pursuant to Article 14.16, then Contractor shall relinquish the rights to the NonAssociated Gas within that Discovery Area.

14.10 Not later than ninety (90) days from the date on which the Appraisal Programme

relating to a Discovery is concluded. Contractor shall submit to the Minister and

Petroleum Commission a report containing the results o f the Appraisal

Programme ("Appraisal Report"). The Appraisal Report may conclude that the

Discovery merits commercial assessment. If the Appraisal Report concludes that

the Discovery merits commercial assessment. Contractor shall submit to the

Minister and Petroleum Commission within thirty (30) days from the date of

submission of the Appraisal Report, a programme incorporating a specific

timetable and budget for conducting such commercial assessment for approval

by the Minister. I f the Minister approves this programme, such commercial

assessment shall be conducted within the Exploration Period and, i f applicable,

during the initial period under a new Agreement made pursuant to Article 14.16.

Notwithstanding the above, the Minister may approve the conduct of other

studies or evaluation, in accordance with a specific timetable, which may be

warranted before a commercial assessment is undertaken. Notwithstanding the

above. Contractor may also notify the Minister that commercial assessment of

the Discovery is not warranted at that time but the Discovery may merit such

assessment at a later date during the Exploration Period or during the initial

period aforesaid.

14.11 The purpose of the commercial assessment shall be to study the uses to which

production from the Discovery Area separately can be devoted and to what

extent such uses involve exports or domestic utilization. As part o f the

assessment, the Parties shall also pursue discussions on the required contractual

arrangements for disposition of the Natural Gas to potential purchasers,

consumers, infrastructure owners and GNPC. Contactor may undertake the Gas

commercialization project at a level that will facilitate the achievement of the

Contractor's rate of return, and shall use the State's gas infrastructure i f

available.

14.12 Contractor may consult with the Minister and GNPC and may make appropriate

representations proposing changes in the fiscal and other provisions of this

Agreement which may, in the opinion o f Contractor, affect the above

determinations made pursuant to Articles 14.9 and 8.3. The Minister and GNPC

may, where feasible and in the best interests of the Parties, agree to make such

changes or modifications in the existing arrangements.



59



PART IV-NATURAL GAS PROJECTS

14.13 I f at any time during the commercial assessment Contractor informs the Minister

in writing that the Discovery can be produced commercially, it shall within one

hundred eighty (180) days submit to the Minister and to GNPC its proposals for

an agreement relating to the Development of the Discovery on the principles set

forth in this Part I V of Article 14. The State and GNPC undertake on receipt of

such notice to negotiate in good faith with Contractor with a view to reaching

agreement on terms for such production. Any such agreement w i l l be based on

terms and fiscal requirements which shall be no less favourable to Contractor

than those provided for in Article 10 and 10.8 and which take full account of the

legitimate interest of the State as the resource owner.

14.14 I f at any time during the commercial assessment Contractor has identified a

market for the reserves of Non-Associated Gas or any part thereof that can be

saved without prejudice to an export project, the Parties shall proceed in good

faith to negotiate the appropriate contractual arrangements for the disposition of

the Natural Gas. In the event of a market for such Gas, Contractor shall receive

for delivery its share of the Natural Gas at a price to be agreed in good faith

between GNPC and Contractor, taking into account among other things, the cost

of finding and developing the Natural Gas, a reasonable return on exploration

and investment and the uses which w i l l be made of the Natural Gas.

14.15 In the event of a Discovery o f Natural Gas in the Contract Area which is to be

developed and commercially produced, the provisions of this Agreement in

respect to interests, rights and obligations of the Parties regarding Crude Oil shall

apply to Natural Gas, with the necessary changes in points of detail, except with

respect to specific provisions in this Agreement concerning Natural Gas and

different or additional provisions concerning Natural Gas which may be agreed,

by the Parties in the future.The system for the allocation of Natural Gas among

the Parties shall follow the same general format as Article 10.1 provides for

Crude Oil with the exception that the royalty to be delivered to the State on

Natural Gas for domestic gas projects shall be at the rate of six percent (6 % ) o f

the annual Gross Production of Natural Gas destined for the domestic market and

seven and one half percent (7.5 %) for Natural Gas to be exported.

a)



The Parties recognise that projects for the Development and Production of

Natural Gas are generally long-term in nature for both the project developers

and the customers who purchase the Natural Gas. Substantial investments

and dedication of facilities require long-term commitments on both sides.

This Agreement, being for a specific term of years, may not cover the length

of time for which customers in given cases will require commitments on the

part of the Parties to this Agreement to deliver their respective shares of the

output. Accordingly the Parties agree to consider undertaking such

commitments where reasonably required for the stable, efficient and viable

development of a Natural Gas project. It is recognised that, unless otherwise

agreed by the Parties hereto, Contractor w i l l have no right or interest in the



project or the Natural Gas produced and delivered after the term of this

Agreement has expired.

b)



In the event that Contractor or an Affiliate, by mutual agreement with GNPC

and the State, constructs facilities to receive Natural Gas fi-om the

Development and Production Area for further processing or for use as a

feedstock or fiael in order to convert such Natural Gas into one or more

commercially marketable products, the Contractor shall be entitled to pay

GNPC or the State for such gas the price, i f any, paid by the State or GNPC

under Article 14.14.



c)



The Parties will consider collaboration in obtaining any common external

financing available for Natural Gas production possibilities, including

project financing; however, each Party shall remain free to finance

externally its share of such facilities to the extent it prefers to do so.



a)



Where Contractor has, during the continuance of the Exploration Period,

made a Discovery of Non-Associated Gas but has not, before the end of the

Exploration Period, declared that Discovery to be a Commercial Discovery,

the State and GNPC will, i f Contractor so requests, enter into a new

Petroleum Agreement with Contractor in respect of the Discovery Area to

which that Discovery relates.



b)



The State and GNPC shall not be under any obligation to enter into an

Agreement pursuant to Article 14.16(a) unless before the end of the

Exploration Period, Contractor has carried out an Appraisal Programme in

respect o f that Discovery pursuant to Article 14.8 and submitted to the

Petroleum Commission a report thereon pursuant to Article 14.10, or has

commenced an Appraisal Programme and has notified the Petroleum

Commission of reasonable arrangements to undertake and complete such

an Appraisal Programme during the period provided for in 14.16(c)(i)

below:



14.16



c)



A Petroleum Agreement entered into pursuant to Article 14.16(a):

i)



shall, unless the Discovery in respect of which the Agreement has

been made is declared by Contractor to be a Commercial

Discovery, continue in force for an initial period not exceeding

three (3) years;



ii)



shall in the event that the Discovery is declared by Contractor to

be a Commercial Discovery:

1.



continue in force for an aggregate period not exceeding

twenty-five (25) years;

i



61



2.



include, or be deemed to include, all the provisions which,

mutatis mutandis, would have applied to a Commercial

Discovery of Non-Associated Gas pursuant to Article 14.16

i f Contractor had declared such Discovery to be a

Commercial Discovery under this Agreement;



iii)



shall contain in respect o f the initial period or of any renewal

period, details of the evaluations or studies (in accordance with a

specific timetable) which Contractor proposes to undertake in

order to determine or keep under review the commerciality of the

Discovery.



iv)



Shall confer on GNPC pre-emptive rights in respect of the Gas

contained in the reservoir to which the Discovery relates

substantially in the form o f the provisions hereinafter set out in

Article 14.16(e).



Where Contractor has not, before the end of the initial period declared the

Discovery to be commercial and the Minister has, in his discretion,

determined that fiirther evaluation or studies may be required before the

Discovery can be declared a Commercial Discovery, the right of

Contractor to retain the Discovery Area shall continue for a fiirther period

not exceeding, in the aggregate, three (3) years. The right of Contractor

to retain the Discovery Area aforesaid shall be secured by the renewal of

the Agreement referred to in Article 14.16(a) or where necessary by a new

Agreement entered into by the Parties for that purpose.

(1)



Where Contractor has not declared the Discovery to be a

Commercial Discovery, i f GNPC has idenfified a market for the,

Gas contained in the reservoir to which the Discovery relates, or

any part thereof, it may at any time during the initial period or the

aggregate period referred to in Article 14.16(d) above, serve on

Contractor a notice giving particulars of the quantities o f Gas

required to serve that market and the price offered; and on the basis

of the procedure detailed in Article 9, exercise the right referred to

in Article 14.16(c)(iv) above.



i)



Within three (3) Months from the receipt of a notice as aforesaid.

Contractor may declare the Discovery to be a Commercial

Discovery and in accordance with the Agreement and the

Petroleum Law prepare and submit to the Minister a Development

Plan for the production of the Gas in association with GNPC.



ii)



I f Contractor has not, within the period o f three (3) Months

aforesaid, declared the Discovery to be a Commercial Discovery,

GNPC may at its sole risk and expense, develop the Discovery and



62



in that event the Contractor shall cease to have any rights in respect

of the Gas in the reservoir required for that purpose.

14.17 For the purpose of calculating the State's six percent (6%) royalty share on

Natural Gas for domestic natural gas projects or its seven and one half percent

(7.5 % ) royalty share on Natural Gas for international gas export projects, i f the

State elects to take its royalty on Natural Gas in cash, the value of such Natural

Gas shall be the actual realized price received by the Contractor, less

transportation, compression, and marketing costs which shall be in accordance

with tlje principles indicated in 10.8 f x ^



63



A R T I C L E 15

DOMESTIC SUPPLY REQUIREMENTS (CRUDE OIL)

15.1



Crude Oil for Consumption (as defined in Article 15.4) in Ghana called the

"Domestic Supply Requirement" shall be supplied, to the extent possible, by

the State and GNPC fi-om their respective entitlements under this Agreement and

under any other contract for the production of Crude Oil in Ghana.



15.2



Contractor shall be obliged together with any third parties which produce Crude

Oil in Ghana within two (2) Months' notice from the State, to supply a volume

of Crude Oil to be used for such Domestic Supply Requirements, calculated on

the basis of the ratio of Contractor's entitlement to Crude Oil under Article

10.1(c) to the sum o f the similar entitlements o f all such third parties and

provided that Contractor's obligation to supply Crude Oil for purposes of

meeting the Domestic Supply Requirement shall not exceed the total of

Contractor's said entitlement under this Agreement.



15.3



The State shall purchase any Crude Oil supplied by Confractor pursuant to this

Article 15 at the Market Price determined under Article 11.7 for the Month of

delivery, and the State shall pay such prices in accordance with Article 13.8

within thirty (30) days after receipt o f invoice, failing which Contractor's

obligations in respect of the Domestic Supply Requirement under this Article 15

shall be suspended until payment is made good, at which time deliveries shall be

resumed subject to any alternative commitments that may have been reasonably

entered into by Contractor to dispose of the Domestic Supply Requirement Crude

Oil during the period of default in payment.



15.4



The calculation of the Domestic Supply Requirement shall be done on a Calendar

Year basis, broken down by Month. The calculation shall begin with the

determination of the quantities of Crude Oil required for Consumption in Ghana

in each relevant Month (the "Monthly Domestic Consumption") during the

applicable Calendar Year. "Consumption" shall consist o f the total Crude Oil

consumed in Ghana, Crude Oil processed in Ghana, and the Crude Oil equivalent

of Crude Oil derived Products imported for consumption in G h a n a j ^

-i



64



A R T I C L E 16

I N F O R M A T I O N AND R E P O R T S : C O N F I D E N T I A L I T Y

16.1



Contractor shall keep the Petroleum Commission and GNPC regularly and fiilly

informed of operations being carried out by Contractor under this Agreement

and provide the Petroleum Commission and GNPC with all information, data

(film, paper and digital forms), samples, interpretations and reports (including

progress and completion reports) including but not limited to the following:

a)



processed seismic data and interpretations thereof;



b)



well data, including but not limited to electric logs and other wireline

surveys, and mud logging reports and logs, oil or hydrocarbon samples,

samples of cuttings and cores and analyses made therefi-om;



c)



any reports prepared fi-om drilling data or geological or geophysical data,

including maps or illustrations derived therefi-om;



d)



well testing and well completion reports;



e)



reports dealing with location surveys, seabed conditions and seafloor

hazards and any other reports dealing with well, platform or pipeline

locations;



f)



reservoir investigations and estimates regarding reserves, field limits and

economic evaluations relating to fixture operations;



g)



daily, weekly, monthly and other regular reports on Petroleum

Operations;



h)



comprehensive final reports upon the completion of each specific project

or operation;



i)



contingency programmes and reports on safety and accidents;



j)



procurement plans, subcontracts and contracts for the provision of

services to Contractor; and



k)



for such subcontracts and contracts for the provision o f services to

Contractor:



1^1^



i)



bid documents and their evaluation reports; and



ii)



a statement showing the values, executing companies, award and

completion dates; and



iii)



budgetary allocations for such work as approved by the Joint

Management Committee



Data shall be provided on film, paper or digital format as then common practice

in the international petroleum industry and as available in an acceptable format

to the Petroleum Commission and GNPC. In respect of the reports, including

text and graphics, paper and digital copies shall be submitted.

16.2



Contractor shall have the right to retain for its own use in connection with the

conduct of Petroleum Operations under this Agreement copies of data, well logs,

maps, magnetic tapes, other geological and geophysical information, portions of

core samples and copies of reports, studies and analyses, referred to in Article

16.1.



16.3



Not later than ninety (90) days following the end of each Calendar Year,

Contractor shall submit to the Petroleum Commission and GNPC a report

covering Petroleum Operations performed in the Contract Area during such

Calendar Year. Such report shall include, but not be limited to:



16.4



a)



a statement of the number o f Exploration Wells, Appraisal Wells and

Development Wells drilled, the depth of each such well, and a map on

which drilling locations are indicated;



b)



a statement of any Petroleum encountered during Petroleum Operations,

as well as a statement of any fi-esh water layers encountered and of any

other minerals discovered;



c)



a statement of the quantity of Petroleum produced and saved and of all

other minerals encountered therewith from the same reservoir or deposit;



d)



a summary of the nature and extent of all Exploration activities in the

Contract Area;



e)



a general summary of all Petroleum Operations in the Contract Area; and



f)



a statement of the number of employees engaged in Petroleum Operations

in Ghana, identified as Ghanaian or non-Ghanaian. Contractor will

inform the latter that details as to nationality are required by GNPC and

that Contractor is available to assist them to supply that information.



A l l data, information and reports including interpretation and analysis supplied

by Contractor pursuant to this Agreement ("Data") shall be treated as

confidential by the Parties and shall not be disclosed by Contractor to any other

person without the express written consent of GNPC, such consent not to be

unreasonably withheld. However, subject to Article 16.6 and prior written notice

to Contractor , GNPC may disclose Data to any other person who is not in

competition with Contractor in or around the contract area and whose activities

shall not undermine contractor's operations in the contract areanw



66



Data may be disclosed by

a)



the State:

i)



to any agency of the State or to any advisor or consultant to GNPC

or the State;



ii)



to applicants seeking to obtain a petroleum agreement in respect of

any open acreage adjacent to the Contract Area;



provided, in each case. Contractor receives reasonable prior notice of such

disclosure;

or

b)



c)



Contractor:

i)



to its Affiliates, advisers or consultants;



ii)



to a bona fide potential assignee of all or part of Contractor's

interest provided that with respect to a bona fide assignee of

Contractor's interest, GNPC is given prior notice of such potential

assignee, and subject to approval of the State and GNPC for the

disclosure (not to be unreasonably withheld);



iii)



to banks or other lending institutions for the purpose o f seeking

external financing of costs of the Petroleum Operations;



iv)



to non-Affiliates who shall provide services for the Petroleum

Operations, including Subcontractors, vendors and other service

contractors, where this is essential for their provision of such

services, and provided GNPC is notified about such disclosure;



v)



to governmental agencies for obtaining necessary rulings, permits,

licenses and approvals, or as may be required by applicable law or

stock exchange, accounting or reporting practices, and provided

GNPC is given prior notice of such disclosure;



any Party:

i)



to the extent necessary in any Arbitration Proceedings or

proceedings before a Sole Expert or in proceedings before any

court;



ii)



with respect to Data, which already through, no fault of the

disclosing Party is in the public domain.

^



67



16.6



Any Party disclosing information or providing Data to any third party under this

Article shall require such persons to observe the confidentiality of such Data by

executing a confidentiality agreement in the form attached hereto as Annex 3.



16.7



Public statements and press releases regarding the Petroleum Operations

undertaken under this Agreement ("Releases") shall be issued jointly by the

Contractor and GNPC, and the Parties shall agree on the timing and wording of

such Releases to the public. Where, however, a Party is required to make a

Release under the applicable laws, rules or regulations of any government, legal

proceedings or a stock exchange having jurisdiction over such Party or any of its

Affiliates, to the extent permitted by law, that Party shall inform the other Party

of such requirement and submit the text o f the proposed Release for comment

and/or approval. Should a Party fail to respond for more than three (3) Business

Days (or such shorter period as may be reasonable in the event of an emergency

or disaster or reasonably required or necessary to enable the disclosing Party

comply with applicable laws, rules or regulations of any government, legal

proceedings or a stock exchange having jurisdiction over such disclosing Party)

to a request for the approval of a public statement or aimouncement for such

purposes, such failure shall be deemed approval of the request.



16.8



Subject in all cases to the terms o f any technical services agreements, all

intellectual property rights to any and all inventions, discoveries or

improvements made or conceived directly in connection with conducting

Petroleum Operations either through a Contractor Party's employees, contractors

(including the Contractor Parties), Subcontractors, secondees, GNPC's

employees or otherwise to which such Contractor Party or GNPC, as the case

may be, would otherwise have ownership rights and entitlements, shall be jointly

owned by GNPC and Contractor.



16.9



Notwithstanding any provision to the contrary in this Agreement, i f a Contractor

Party or an Affiliate of a Contractor Party has used its own confidential

information, proprietary intellectual property or technology in Petroleum

Operations then, subject to GNPC (or its successors or permitted assignees)

entering into a usual and customary non-disclosure and licensing agreement

(which such agreement shall be on terms that are commercially reasonable under

the circumstances), such Contractor Party or its Affiliate shall provide GNPC (or

its successors or permitted assignees) with rights to use such confidential

information, proprietary intellectual property or technology in other operations

of GNPC (or its successors or permitted assignees) in Ghana; provided that

GNPC's use of such confidential information, proprietary intellectual property

or technology (a) within the Contract Area shall be free of charge and (b) outside

of the Contract Area shall be subject to a licensing fee in an amount mutually

agreed between GNPC and such Contractor Party. The terms and conditions of

the foregoing rights will be provided for in separate agreements to be agreed

between GNPC (or its successors or permitted assignees) and such Contractor

Party or its relevant Affiliate. Further, GNPC (or its successors or permitted

assignees) and such Contractor Party or" its relevant Affiliate will enter into a

68



usual and customary confidentiality agreement relating to confidential

information disclosed to GNPC (or its successors or permitted assignees)

pursuant to any such licensing agreements, which confidentiality agreement shall

restrict, inter alia, GNPC (or its successors or permitted assignees) from making

disclosure of such information to such Contractor Party's oil and gas industry



69



A R T I C L E 17

INSPECTION, S A F E T Y AND E N V I R O N M E N T A L P R O T E C T I O N

17.1



GNPC shall have the right o f access to all sites and offices of Contractor and the

right to inspect all buildings and installations used by Contractor relating to

Petroleum Operations.

Such inspections and audits shall take place in

consultation with Contractor and at such times and in such manner as to not

unduly interfere with the normal operations of Contractor.



17.2



Contractor shall take all necessary steps, in accordance with International Best

Oil Field Practice, to perform activities pursuant to the Agreement in a safe

manner and shall comply with all requirements of applicable law, including

labour, health, safety and environmental laws and regulations issued by the

Environmental Protection Agency of Ghana and other relevant State agencies.



17.3



Contractor shall provide an effective and safe system for disposal of water and

waste oil, oil based mud and cuttings in accordance with applicable laws and

International Best Oil Field Practice, and shall provide for the safe completion

or abandonment of all boreholes and wells.



17.4 Contractor shall exercise its rights and carry out its responsibilities under this

Agreement in accordance with International Best Oil Field Practice, and shall take

steps in such manner as to:

a)



result in minimum ecological damage or destruction;



b)



control the flow and prevent the escape or the avoidable waste of

Petroleum discovered in or produced from the Contract Area;



c)



prevent damage to Petroleum-bearing strata;



d)



prevent the entrance of water through boreholes and wells to Petroleumbearing strata, except for the purpose of secondary recovery;



e)



prevent damage to onshore lands and to trees, crops, buildings or other

structures; and



f)



avoid any actions which would endanger the health or safety of persons.



17.5 In the event of a release of Petroleum or other materials on the seabed, in the sea,

on land or in fresh water, or i f Contractor's operations result in any other form of

pollution or otherwise cause harm to fresh water, marine, plant or animal life.

Contractor shall, in accordance with applicable laws and International Best Oil

Field Practice, promptly take all necessary measures, in accordance with

International Best Oil Field Practice to control the pollution, to clean up

Petroleum or other released material, or to repair, to the maximum extent feasible,

damage resulting from any such circumstances. I f such release or pollution results



from the Gross NegUgence of: (i) Contractor; (ii) any of Contractor's Affihates;

or (iii) a Subcontractor, the cost of subconfract clean-up and repair activities shall

be borne by Contractor and shall not be included as Petroleum Cost under this

Agreement.

17.6 Contractor shall notify GNPC immediately in the event o f any emergency or

major accident or major release of materials into the environment (and promptly

in the event of any other accident or release o f materials into the environment)

and shall take such action as may be prescribed by GNPC's emergency

procedures and by International Best Oil Field Practice.

17.7 I f Contractor does not act promptly so as to control, clean up or repair any

pollution or damage, GNPC may, after giving Contractor reasonable notice in the

circumstances, take any actions which are necessary, in accordance with

applicable laws and International Best Oil Field Practice and the reasonable costs

and expenses of such actions shall be borne by Contractor and shall, subject to

Article 17.5 be included as Pefroleum Costs.^j^A

i



71



A R T I C L E 18

A C C O U N T I N G AND AUDITING

18.1



Contractor shall maintain, at its office in Ghana, books of account and supporting

records in the maimer required by applicable law and accepted accounting

principles generally used in the international petroleum industry and shall file

reports, tax returns and any other documents and any other financial returns

which are required by applicable law.



18.2



In addition to the books and reports required by Article 18.1 Contractor shall

maintain, at its office in Ghana, a set o f accounts and records relating to

Petroleum Operations under this Agreement. Such accounts shall be kept in

accordance with the requirements of the applicable law and accepted accounting

principles generally used in the international Petroleum industry.



18.3



The accounts required by Articles 18.1 and 18.2 shall be kept in United States

Dollars or such other currency as GNPC and Contractor may agree.



18.4



Contractor will provide GNPC with quarterly and annual financial statements

and summaries of the Petroleum Costs incurred under this Agreement.



18.5



GNPC shall review all financial statements submitted by the Contractor as

required by this Agreement, and shall signify its provisional approval or

disapproval of such statements in writing within ninety (90) days o f receipt

failing which the financial statements as submitted by Contractor shall be

deemed approved by GNPC; in the event that GNPC indicates disapproval of

any such statement, the Parties shall meet within fifteen (15) days of Contractor's

receipt of the notice of disapproval to review the matter.



18.6



Notwithstanding any provisional approval pursuant to Article 18.5, GNPC shall

have the right and upon giving reasonable notice in writing to Contractor to audit,

at its sole expense the books and accounts o f Contractor relating to Petroleum

Operations. GNPC shall not, in carrying out such audit, interfere unreasonably

with the conduct of Petroleum Operations. Any such audit shall be undertaken

by an independent auditing firm and shall be completed within nine (9) Months

after commencement.

Contractor shall provide all necessary facilities for

auditors appointed hereunder by GNPC including working space and timely

access to all relevant personnel, records, files and other materials.

I f GNPC desires verification of charges from an Affiliate, Contractor shall, at

GNPC's sole expense, obtain for GNPC or its representatives, an audit certificate

for this purpose from the statutory auditors of the Affiliate concerned. Copies of

audit reports shall be provided to the Contractor and GNPC. Any unresolved

audit claim resulting from such audit, upon which Contractor and GNPC are

unable to agree shall be submitted to the JMC for decision which must be

unanimous. In the event that a unanimous decision is not reached in respect of



any audit claim, then such unresolved audit claim shall be submitted for

resolution in accordance with Article 24 subject to any adjustments resulting

from such audits, Contractor's accounts and financial statements shall be

considered to be correct on expiry of a period of two (2) years from the date of

their submission unless before the expiry of such two (2) year period GNPC has

notified Contractor of any exceptions to such accounts and statements.

18.7



Nothing in this Article shall be read or construed as placing a limit on GNPC's

access to Contractor's books and accounts in respect of matters arising under

Article 23.3(a).



18.8



In the event of any changes in location of Operator's home office, Operator shall

so notify GNPC and the State.



18.9



Petroleum Costs incurred with respect to the Contract Area shall have no bearing

on allowable or non-allowable costs under any other contract area or

Contractor's eligibility or otherwise for deductions in computing Contractor's

net income from Petroleum Operations for income tax purposes in any other

contract area. Similarly, Petroleum Costs incurred in any other contract area

shall have no bearing on allowable or non-allowable costs in respect o f the

Contract Area or Confractor's eligibility or otherwise for deductions in

computing Contractor's net income from Petroleum Operations for income tax

purposes in respect of the Contract Area.

ly\



73



A R T I C L E 19

T I T L E T O AND C O N T R O L O F GOODS AND E Q U I P M E N T

19.1



GNPC shall be the sole and unconditional owner of:

a)



Petroleum produced and recovered as a result of Petroleum Operations,

except for such Petroleum as is distributed to the State and to Contractor

pursuant to this Agreement;



b)



all physical assets other than those to which Article 19.3 or 19.4 apply,

which are purchased, installed, constructed or used by Contractor in

Petroleum Operations as from the time that:

i)



the frill cost thereof has been depreciated and/or recovered in

accordance with the provisions of the Accounting Guide; or



ii)



this Agreement is terminated and Contractor has not disposed o f

such assets prior to such termination, whichever occurs first.



19.2



Confractor shall have the use o f the assets referred to in Article 19.1(b) for

purposes of its operations under this Agreement without payment provided that

Contractor shall remain liable for maintenance, insurance and other costs

associated with such use. Where Contractor has failed to keep any such asset in

good working condition (normal wear and tear excepted), GNPC shall have the

right to recover the cost of repair or replacement o f such assets from Contractor.

Contractor shall indemnify GNPC against all losses, damages, claims or legal

action resulting from Contractor's use o f such assets, i f and in as far as such

losses, damages, claims or legal actions were directly caused by Contractor's

Gross Negligence or Willful Misconduct.



19.3



Equipment or any other assets rented or leased by Contractor which is imported

into Ghana for use in Petroleum Operations and subsequently re-exported

therefrom, which is of the type customarily leased for such use in accordance

with International Best Oil Field Practice or which is otherwise not owned by

Contractor shall not be transferred to GNPC. No equipment or assets owned or

leased by a Subcontractor shall by reason of the provisions of this Article 19 be

deemed to be transferred to GNPC.



19.4



A l l assets acquired by Contractor which are not affected by the provisions o f

Article 19.1(b) above may, where required for further Petroleum Operations, be

retained by GNPC for such operations provided that GNPC shall thereby be

liable to pay a reasonable and mutually agreed fee for such use, and shall bear

the cost of repair or replacement upon failure to keep such assets in good working

condition (normal wear and tear excepted), and further provided that Contractor

does not require such assets for its Petroleum Operations. Ar)y^

fi



74



19.5



Subject to Article 19.3, upon the termination of Petroleum Operations in any

area. Contractor shall give GNPC the option to acquire any movable and

immovable assets used for such Petroleum Operations and not affected by the

provisions of Article 19.1(b) at a reasonable and mutually agreed price, always

provided that Contractor does not require such assets for Contractor's Petroleum

Operations in the Contract Area.



19.6



A l l assets which are not affected by Article 19.1 (b) nor subject to Article 19.4 or

19.5 above, and all Subcontractor equipment, may be freely exported by

Contractor or its Subcontractor, respectively, at its discretion. i ^

,



75



A R T I C L E 20

PURCHASING AND P R O C U R E M E N T

20.1



20.2



Subject to all applicable laws to which it is subject to, the Contractor, its Sub

contractors or other entities which cooperate with them shall:

a)



acquire materials, equipment, machinery and consumer goods produced

or provided in Ghana by an Indigenous Ghanaian company which are of

the same or approximately the same quality as foreign materials,

equipment, machinery and consumer goods, and which are available for

sale and delivery in due time at prices which are no more than ten percent

(10%) higher than the imported items including transportation and

insurance costs and customs charges due;



b)



contract local services provided by Indigenous Ghanaian companies to

the extent to which they are similar to those available on the international

market and their prices, when subject to the same tax charges, are no more

than ten percent (10%) higher than the prices charged by foreign

contractors for similar services.



For the purposes of Article 20.1, price comparisons shall be made on a c.i.f.

Accra delivered basis.

/''fL-



76



A R T I C L E 21

E M P L O Y M E N T AND TRAINING

21.1



In order to establish programmes to train Ghanaian personnel for work in

Petroleum Operations and for the transfer of management and technical

skills required for the efficient conduct of Petroleum Operations:



a)



Contractor shall pay to GNPC as training allowance the sum of one

million United States Dollars US$1,000,000 per Contract Year from the

Effective Date. The amounts shall be payable within ninety (90) days

after the beginning of each Contract Year, provided that the sum payable

shall be pro rata for any period of less than a full Calendar Year.



b)



In addition to the annual sums payable pursuant to Article 21.1 (a)

above. Contractor shall pay to GNPC a one-time technology support fee

of one million five hundred thousand United States Dollars

(US$1,500,000) payable within ninety (90) days of the Effective Date



c)



A l l payments made pursuant to Article 21.1 (a) and Article 21.1 (b) above

shall be paid by Contractor by wire transfer to a designated GNPC

account.



21.2



A l l payments under Article 21.1 above, shall be considered Petroleum

Costs.



21.3



Where qualified Ghanaian personnel are available for employment in the

conduct of Petroleum Operations, Contractor shall ensure that in the

engagement of personnel it shall as far as reasonably possible provide

opportunities for the employment of such personnel. For this purpose,

Contractor shall from time to time submit to GNPC an employment plan

stating the reasonably foreseeable number of persons and the required

professions and technical capabilities prior to and during the conduct of

Petroleum Operations. GNPC shall be given the opportunity to provide

the qualified personnel for engagement according to the said plan for

Contractor's consideration and approval.



21.4



Contractor shall, i f so requested by GNPC, provide opportunities for a

mutually agreed number of personnel nominated by GNPC to be seconded

for on-the-job training or attachment in all phases of its Petroleum

Operations under a secondment contract to be mutually agreed prior to

such secondment. Such secondment contract shall include continuing

education and short industry courses mutually identified as beneficial to the

secondee. Costs and other expenses connected with such assigmnent of GNPC

personnel shall be borne by the Contractor and considered Petroleum

Costs.



21.5



Contractor shall regularly provide to GNPC information and data

relating to worldwide Petroleum science and technology, Petroleum

economics

and engmeering information available to Contractor

regarding Petroleum Operations, other than Contractor's proprietary or



technology subject to third party Hcense, and shall assist GNPC personnel to

acquire knowledge and skills in all aspects of the Petroleum industry.

21.6



GNPC shall to the extent possible regularly provide Contractor with all relevant

information and data relating to or required in connection with the operations of

the Technical Services Company.



21.7



Except as otherwise provided in Articles 21.5 and 21.6 and subject in all respects

to Articles 16.4 to 16.6, it is agreed that there w i l l be no disclosure or transfer

of any documents, data, know-how, technology or other information owned or

supplied by Contractor, its Affiliates, or non-Affiliates, to third parties without

Contractor's prior written consent (such consent not to be unreasonably

withheld), and then only upon written agreement substantially in ,the form

attached hereto as Annex 3.

i'X^^r

i



78



A R T I C L E 22

FORCE MAJEURE

22.1



The failure of GNPC or a Contractor Party to fulfil any term or condition of this

Agreement, except for the payment o f monies, shall be excused i f and to the

extent that such failure arises firom Force Majeure, provided that, i f the event is

reasonably foreseeable such Party shall have prior thereto taken all reasonably

appropriate precautions and all reasonable alternative measures with the

objective of carrying out the terms and conditions of this Agreement. Such Party

affected by an event of Force Majeure shall promptly give the other Parties notice

of such event and also of the restoration of normal conditions.



22.2



In the event that GNPC or a Contractor Party is unable wholly or in part to

perform its obligations provided for in the Agreement as a result of such event

of Force Majeure, the Party whose performance of obligations are prevented by

the event of Force Majeure shall immediately but not later than fourteen (14)

days fi-om when such an occurrence becomes evident give written notice to the

other Parties, including details o f such event of Force Majeure and such Party's

best estimate of the duration of the event o f Force Majeure.



22.3



Throughout the duration o f the event of Force Majeure, the affected Party shall

report to the other Parties any changes to its best estimate of the duration o f the

delay and any significant developments with respect to the event of Force

Majeure.



22.4



A Party unable by an event o f Force Majeure to perform any obligation

hereunder shall take all reasonable measures to remove its inability to fiilfill the

terms and conditions of this Agreement with a minimum of delay, and the Parties

shall take all reasonable measures to minimise the consequences o f any event o f

Force Majeure.



22.5



During the duration o f an event of Force Majeure, each Party shall bear its own

costs arising fi-om the delay in performance under the Agreement and, until the

implementation of the recovery plan described in Article 22.6 below, all such

reasonably incurred costs as will have been previously approved by the JMC as

are required in order to maintain safe and necessary Petroleum Operations shall

be considered Petroleum Costs.



22.6



Should the event of Force Majeure continue or once it has occurred be reasonably

expected to last longer than six (6) Months, the Parties agree to enter into

discussion to review and assess the situation with the aim to identify a proper

recovery plan for the future implementation of this Agreement, including an

extension in accordance with Article 22.8 or a modification o f the applicable

contractual terms. When a recovery plan is identified and agreed, any affected

Party's commitment schedule will be considered revised accordingly, i^^?^



79



22.7



The affected Party shall notify the other Parties of the termination of an event of

Force Majeure in writing within seven (7) days o f such termination.



22.8



Any period set herein for the completion by a Party of any act required or

permitted to be done or rights or benefits to be enjoyed under the terms of this

Agreement, shall be extended for a period of time equal to that during which

such Party was unable to perform such actions or enjoy such rights or benefits as

a result of Force Majeure, together with such time as may be required for the

resumption of Petroleum Operations.



22.9



In the case that Contractor declares Force Majeure in respect of an action,

omission or provision of the State, GNPC shall be entitled to elect for the

duration of such declaration by Contractor to also be relieved of substantially the

same obligations that Contractor has been relieved of by its declaration of Force

Majeure in respect of such State action, omission or provision (but only to the

extent that GNPC is unable to perform such obligations as a result of such Force

Majeure in respect of such State action, omission or provision), in^^

t,



80



A R T I C L E 23

T E R M AND T E R M I N A T I O N

23.1 Subject to this Article 23, the term of this Agreement shall be twenty five (25)

years commencing from the Effective Date.

23.2 Subject to Article 22, Termination of this Agreement shall result upon the

occurrence of any of the following:

a)



the relinquishment or surrender of the entire Contract Area;



b)



the termination of the Exploration Period including extensions pursuant

to Article 3 without notification by Contractor o f a Commercial

Discovery pursuant to Article 8 or Article 14, Part I I I in respect of a

Discovery of Petroleum in the Contract Area, provided however

Termination shall not occur while Contractor has the right to evaluate a

Discovery for Appraisal or determination o f a Commercial Discovery

and/or propose a Development Plan pursuant to Articles 3.2(d), Article 8

or Article 14, or once a Development Plan has been approved, nor when

the provisions of Articles 8.11 through 8.22 are applicable;



c)



if, following a notice that a Discovery is a Commercial Discovery the

Exploration Period terminates under Article 3 without a Development

Plan being approved, provided however that Termination shall not occur

when the provisions of Articles 8.11 through 8.22 are applicable; or



d)



the failure of Contractor through any cause other than Force Majeure, to

commence preparations with respect to Development Operations

pursuant to Article 8.13.

23.3



Subject to Article 22 and pursuant to procedures described in Article

23.4 below, GNPC and/or the State may terminate this Agreement

upon the uncorrected occurrence o f any of the events (or failures to act

listed) below:



a)



the submission by Contractor, to GNPC of a written statement which

Contractor knows or reasonably should have known to be false in a

material particular, or the release by a Contractor to any print or

electronic media or to a stock exchange of a written statement regarding

the Petroleum Operations in Ghana in breach of Article 16.7 and in a form

which Contractor knows or should reasonably have known to be false in

a material particular, provided that in the event of intent on the part of

such Contractor to cause serious damage to GNPC or the State, a period

for remedy of such false statement shall not be given;



b)

p.



the assignment or purported assignment by Contractor of this Agreement

contrary to the provisions of Article 25 hereof;

81



the insolvency or bankruptcy of a Contractor Party, the entry by a

Contractor Party into any agreements or composition with its creditors,

taking advantage of any law for the benefit of debtors or a Contractor

Party's entry into liquidation, or receivership, whether compulsory or

voluntary, which in itself provides evidence that the obligations of such

Contractor Party hereunder w i l l not be performed. Provided that the

insolvency or bankruptcy of one Contractor Party shall not lead to a

termination of the Agreement i f the other Contractor Parties will assume

all of the rights and obligations of the defaulting Contractor Party under

this Petroleum Agreement. In such a case, GNPC shall have the right to

acquire a share of the interest of the defaulting Contractor Party

proportionate to the total of GNPC's Initial Interest and Additional

Interest. GNPC may exercise this right by notice to all Contractor Parties

within thirty (30) days following notification of the insolvency or

bankruptcy of the defaulting Contractor Party. GNPC's written notice

shall state the percentage share of the interest of the defaulting Contractor

Party which GNPC proposes to acquire. Upon exercise by GNPC o f its

rights pursuant to this Article 23.3c), GNPC or its representative entity

shall execute all appropriate transfers, assignments, novations and joint

operating agreements which were in place as between or among the

Parties, provided further that, i f the other Contractor Parties in assuming

the interest of the defaulting Contractor Party elects to assign, the whole

or part of the assumed interest to a third party such assignment shall be

subject to GNPC's pre-emptive right under Article 25.5. For clarity, the

interest so acquired by GNPC pursuant to this Article 23.3(c) shall be a

Paying Interest and not receive the benefits of a GNPC Carried Interest or

Additional Interest.

the intentional extraction by Contractor of any material of potential

economic value other than as authorised under this Agreement, or any

applicable law. Where, however, in the course of Petroleum Operations

conducted in accordance with International Best Oil Field Practice,

Contractor

unavoidably extracts any mineral. Contractor

shall

immediately notify the Minister and surrender such mineral to the State;

failure by the Contractor:

i)



to fulfil the Minimum Work Obligations pursuant to Article 4.3;

save where the Minister has waived the default;



ii)



to carry out an Appraisal Programme undertaken by Contractor

pursuant to Article 8, unless the Contractor notifies GNPC and the

Petroleum Commission that the Appraisal Programme should be

amended and submit said amendment to the Petroleum

Commission for its approval; or



iii)



to carry out the terms of an, approved Development Plan;



f)



failure by Contractor to comply with any of its obligations pursuant to

Articles 7.1(a) - (p) inclusive;



g)



failure by Contractor to make any payment of any sum due to GNPC or

the State pursuant to this Agreement within thirty (30) days after receiving

notice that such payment is due;



h)



failure by Contractor to comply with any decisions reached as a result of

any arbitration proceedings conducted pursuant to Article 24 hereof;



i)



failure by Contractor to comply with any applicable regulation and/or the

laws of the Republic of Ghana.



23.4 I f GNPC and/or the State believe an event or failure to act as described in Article

23.3 above has occurred, a written notice shall be given to Contractor describing

the event or failure. Contractor shall have thirty (30) days Irom receipt of said

notice to commence and pursue remedy of the event or failure cited in the notice.

I f after said thirty (30) days Contractor has failed to commence appropriate

remedial action, GNPC and/or the State may then issue a written Notice of

Termination to Contractor which shall become effective thirty (30) days from

receipt of said Notice by Contractor unless Contractor has referred the matter to

arbitration in accordance with Article 24. In the event that Contractor's dispute

whether an event specified in Article 23.2 or Article 23.3 has occurred or been

remedied. Contractor may, any time up to the effective date of any Notice of

Termination, refer the dispute to arbitration pursuant to Article 24 hereof. I f so

referred, GNPC and/or the State may not terminate this Agreement in respect of

such event except in accordance with the terms o f any resulting arbitration award

as provided for in Article 24.

23.5 Upon Termination of this Agreement, all rights and obligations of Contractor

hereunder shall cease, except for such rights as may at such time have accrued

and without prejudice to any obligation or liability imposed or incurred under this

Agreement prior to Termination and to such rights and obligations as the Parties

may have under applicable law.

23.6 Notwithstanding Termination of this Agreement, Article 1, Article 2, Article 12,

Article 16, Article 18, Article 24 and Articles 26.1 to 26.4 and Article 26.8i) shall

survive such Termination. Moreover, any such Termination shall be without

prejudice to rights, duties and obligations of any Party that have accrued prior to

Termination and notwithstanding such Termination, such provisions of this

Agreement as are reasonably necessary for the full enjoyment and enforcement

of such accrued rights, duties and obligations shall survive such Termination for

the period necessary.

23.7 Upon Termination of this Agreement or in the event o f an assignment of all the

rights of Contractor, all wells and associated facilities shall be left in a state of

good repair in accordance with applicable laws and International Best Oil Field

Practice,



A R T I C L E 24

CONSULTATION, A R B I T R A T I O N AND INDEPENDENT E X P E R T

24.1



Subject to the prior fulfillment of any procedures specified in this Agreement to

resolve disputes arising hereunder, any dispute arising between the State and

GNPC or either of them on one hand and Contractor on the other hand in relation

to or in connection with or arising out of this Agreement, shall be resolved by

consultation and negotiation among senior personnel authorized by each. In the

event that no agreement is reached within thirty (30) days after the date when the

State and/or GNPC on the one hand and the Contractor on the other hand notifies

the other that a dispute exists within the meaning of this Article or such longer

period specifically agreed to by the Parties or provided elsewhere in this

Agreement, any Party shall have the right subject to Article 24.9 to have such

dispute settled exclusively through international arbitration under the auspices

of the International Chamber o f Commerce (the "ICC") and adopting the Rules

of Arbitration o f the International Chamber o f Commerce (the " I C C Rules") in

force on the date on which the proceedings are instituted, which ICC Rules are

deemed incorporated by reference into this Article 24, save as otherwise

provided herein.



24.2



The failure or refusal to submit to arbitration in accordance with this Article

and/or the seeking of any Pre-Award Attachment by any Party shall be deemed

a breach of this Agreement by such Party. In the event of a breach of this Article,

each non-breaching Party shall, without prejudice to any other remedies, be

entitled to recover from each breaching Party all costs and expenses, including

reasonable attorneys' fees, that such non-breaching Party was thereby required

to incur.



24.3



The tribunal shall consist of three (3) arbitrators. The State and/or GNPC on the

one hand and the Contractor on the other hand shall each be entitled to appoint

one (1) arbitrator and those so appointed shall designate a chairman arbitrator.

I f a Party's arbitrator and/or the chairman arbitrator is/are not appointed within

the periods provided in the rules referred to in Article 24.1 above, such Party's

arbitrator and/or the chairman arbitrator shall at the request of any Party to the

dispute be appointed by the ICC International Court of Arbitration in accordance

with the ICC Rules.



24.4



No arbitrator shall be a citizen of the home country of any Party hereto, and shall

have no economic interest in or relationship with any Party hereto or any such

Party's ultimate parent company.



24.5



The seat of the arbitration proceedings shall be in London, England or at such

other location as the Parties may agree in writing. The proceedings shall be

conducted in the English language.

i/^h-



84



24.6



I f the opinions of the arbitrators are divided on issues put before the tribunal, the

decision of the majority of the arbitrators shall be determinative. The award of

the tribunal shall be final and binding upon the Parties. The Parties undertake to

carry out any award without delay and waive their right to any form o f recourse

based on grounds other than those contained in the United Nations Convention

on the Recognition and Enforcement of Arbitral Awards of 1958 insofar as such

waiver can be validly made. Judgement upon the award may be entered by any

court having jurisdiction thereof or having jurisdiction over the relevant Party or

its assets.



24.7



The right to arbitrate disputes arising out of this Agreement shall survive the

termination o f this Agreement.



24.8



Each of the State, GNPC and Contractor agree that, to the extent such party has

any right of immunity from legal proceedings in Ghana, London or elsewhere

arising from the terms and conditions of this Agreement, including immunity

from service o f process, immunity from the jurisdiction, judgment or award of

any arbitral tribunal, or immunity from execution of judgment, such Party hereby

expressly and irrevocably waives any such immunity and agrees not to assert or

invoke any such rights or claims in any proceeding provided, however, that the

provisions hereof shall not constitute a waiver by any Party o f any right that it

now or hereafter has under applicable law to claim sovereign immunity over its

assets in respect of any effort to confirm, enforce, or execute any Pre-Award

Attachment.



24.9



The Parties to a dispute arising under this Agreement, including the Accounting

Guide, may in lieu o f arbitration, mutually agree in writing to refer the dispute

for determination by a sole expert to be appointed by agreement o f the Parties

who is a recognised specialist with respect to the subject matter of the dispute (a,

"Sole Expert"). In such case, the Parties shall agree on the terms of reference

for such proceeding, the schedule of presentation o f evidence and testimony o f

witnesses, and other procedural matters. The decision o f the Sole Expert shall

be final and binding upon the Parties. The Sole Expert shall have ninety (90)

days after his appointment to decide the case, subject to any extensions mutually

agreed to by the Parties to the dispute. Upon failure of the Sole Expert to decide

the matter within such time, any Party shall have the right to have such dispute

or difference settled through arbitration under the foregoing provisions of this

Article 24.9

Each Party to a dispute shall pay its own counsel and other costs; however, costs

of the arbitration tribunal shall be allocated in accordance with the decision of

the tribunal. The costs and fees of the Sole Expert shall be borne equally by the

Parties to the dispute.

In the event of a matter being referred for resolution under this Article 24.11 any

obligations of the Parties relating specifically and directly to such matter,

including a dispute relating to Termination, shall (unless otherwise provided' by

85



this Agreement) be suspended without UabiUty to any Party, until said matter has

been resolved pursuant to this Article 24 and a final arbitration award is made by

the arbitral tribunal. A l l time periods applicable to such obligations in the

Agreement shall be extended by the period of the arbitration proceedings;

provided that any Petroleum Operations not specifically and directly related to

any obligations referred to above shall not be suspended unless the Parties

mutually agree otherwise.

.12 Neither the State and/or GNPC, on the one hand, and Contractor, on the other

hand, shall be held liable to the other for any consequential, special, indirect,

punitive or exemplary damages (including loss of profit or loss of production)

arising directly or indirectly out of or in relation or in connection to this

Agreement, regardless of cause or fault. However, this Article 24.12 shall not

be construed as a waiver of a Party's right and remedies to loss or damages,

determined to arise out of or in connection with the occurrence of a M A C under

this Agreement.

\



86



A R T I C L E 25

ASSIGNMENT

25.1



This Agreement shall not be assigned by Contractor directly or indirectly, in

whole or in part, without the prior written consent of GNPC and the Minister.

GNPC and/or the Minister may impose such reasonable conditions upon the

giving of consent under this Article as may be deemed by GNPC or the

Minister as appropriate in the circumstances.



25.2



Any assignment of this Agreement shall bind the assignee as a Party to this

Agreement to all the terms and conditions hereof unless otherwise agreed by

the non-assigning Parties and as a condition to any assignment Contractor shall

provide an unconditional undertaking by the assignee to assume all obligations

assigned by Contractor under this Agreement.



25.3



Where in consequence of an assignment hereunder Contractor is more than one

person:

a)



any operating or other agreement made between the persons who

constitute Contractor and relating to the Petroleum Operations hereunder

shall be disclosed to GNPC and the Minister and shall not be inconsistent

with the provisions of this Agreement;



b)



an operating agreement shall be established by the JMC to regulate the

conduct of Petroleum Operations thereafter, including cash-calls and the

limits of authority; and



c)



no change in the scope of the operations may take place without the prior

approval in writing o f GNPC which approval shall not be unreasonably

delayed or withheld;

the duties and obligations of the Contractor hereunder shall be joint and

several except those relating to the payment of income tax levied on each

such person individually pursuant to Article 12 which shall be the several

obligation of each such person.



25.4



GNPC's acquisition of Additional Interest under Article 2 or a Sole Risk interest

pursuant to Article 9 shall not be deemed to be an assignment within the

meaning of this Article 25.



25.5



The transfer or disposal by a Contractor Party (the "Selling Party") of all or part

of its Participating Interest, whether directly or indirectly by assignment,

merger, consolidation or sale of stock or other conveyance, other than (a)

with or to a wholly-owned Affiliate of such Contractor Party's ultimate parent

entity or (b) upon a transfer of shares by the ultimate parent entity of a

Contractor Party, including in connection with a takeover of such ultimate

parent, shall be subject to t h e following procedure:



.6



a)



Once the Selhng Party and a proposed transferee have fully negotiated the

final terms and conditions of a transfer, such fmal terms and conditions

shall be promptly disclosed in full detail to GNPC and the State in a

notice from the transferor. GNPC shall have the right to acquire the

Participating Interest from the transferor on the same terms and conditions

agreed to by the proposed transferee if, within thirty (30) Days of

transferor's notice, GNPC delivers to the transferor a counter- notice that

it accepts the agreed terms and conditions of the transfer without

reservations or conditions. I f GNPC does not deliver such counter-notice,

the transfer to the proposed transferee may be made, subject to the other

provisions of this Agreement and the laws and regulations, under terms and

conditions no more favourable to the transferee than those set forth in the

notice to GNPC and the State, provided that the transfer shall be concluded

within one hundred and eighty (180) Days from the date of the notice plus

such reasonable additional period as may be required to secure requisite

approvals.



b)



In the event that a Selling Party's proposed transfer of all or part of its

Participating Interest involves consideration other than cash or involves

other properties included in a wider transaction, then the Participating

Interest (or part thereof) shall be allocated a reasonable and justifiable cash

value by the transferor in any notification to GNPC and the State. GNPC

may satisfy the requirements of this Article 25.5 by agreeing to pay such

cash value in lieu of the consideration payable in the said proposed

transfer.



Subject to applicable law in effect from time to time, GNPC may assign all or

any undivided part o f its rights and obligations under this Agreement to any

governmental agency or instrumentality o f the State, or to any corporate entity

controlled by the State that has been duly authorized by appropriate

governmental action to hold such right or perform such obligation; provided

that such assignment shall not affect any of the rights o f the Contractor under

this Agreement; provided, fiirther, that any such assignment shall bind the

assignee as a Party to this Agreement to all the terms and conditions hereof

unless otherwise agreed by Contractor, GNPC shall provide an unconditional

undertaking by the assignee to assume all obligations assigned by GNPC under

this Agreement, i ^ i - (,



88



A R T I C L E 26

MISCELLANEOUS

26.1



This Agreement shall be governed by and construed in accordance with the laws

of the Republic of Ghana in effect from time to time.



26.2



In the event that after the Effective Date any applicable law, rule, decree or

regulation of the Republic of Ghana is made that makes further observance of the

original terms and conditions of this Agreement impossible or that has a material

adverse effect on the rights, obligations or benefits arising from the economic,

fiscal, and financial provisions of this Agreement as at the Effective Date

("MAC"), the Parties shall i f a Party so requests, meet as soon as possible to

negotiate possible modifications to the Agreement as provided under Article 26.3.



26.3



Where a Party considers that a significant change in the circumstances prevailing

at the time the Agreement was entered into, has occurred affecting the economic

balance of the Agreement or a MAC has occurred, the Party affected hereby shall

notify the other Parties in writing of the claimed material adverse effect with a

statement of how such claimed effect has affected the economic, fiscal and

financial balance of this Agreement. The other Parties shall indicate in writing

their response to such notice within a period of three (3) Months' of receipt of

such notification and as soon as reasonably practicable thereafter the Parties shall

meet to agree to such amendments to this Agreerrient as are necessary to restore

such economic, fiscal and financial balance which existed at the time the

Agreement was entered into. In any event, i f the Parties have not, within six (6)

Months of receipt of the affected Party's written notice pursuant to this Article

26.3 mutually agreed upon a resolution, any Party may then invoke the

provisions of Article 24 (without the requirement to submit any dispute for

consultation and negotiation among senior authorized personnel of the Parties

for a period of thirty (30) days in accordance with Article 24.1). The arbitration

panel shall determine (a) whether the claimed change or MAC has occurred and

(b) i f so, what remedy, i f any, is appropriate to restore the economic, fiscal and

financial balance of this Agreement as at the date of execution.



26.4



This Agreement may not be modified, amended, ahered or supplemented except

upon the execution and delivery of a written agreement executed by the Parties.

No waiver by any Party of any of its rights hereunder shall be construed or

implied, but shall be binding on such Party only i f made specifically, expressly

and in writing.



26.5



Except for payment obligations arising under the Income Tax Act, any Party

failing to pay any amounts payable by it under this Agreement (including the

provisions of Annex 2) on the respective dates on which such amounts are

payable by such Party hereunder shall be obligated to pay interest on such unpaid

amounts to the Party to which such amounts are payable. The rate of such

interest with respect to each day of delay during the period of such nonppayrnpnt



shall be LIBOR plus three percent ( 3%). Such interest shall accrue from the

respective dates such amounts are payable until the amounts are duly paid. The

Party to whom any such amount is payable may give notice of non-payment to

the Party in default and i f such amount is not paid within fifteen (15) days after

such notice, the Party to which the amount is owed may, in addition to the interest

referred to above, seek remedies available pursuant to Article 24.

26.6



26.7



a)



The rights and obligations under this Agreement of the State and GNPC

on the one hand and Contractor on the other shall be separate and

proportional and not joint. This Agreement shall not be construed as

creating a partnership or joint venture, nor an association or trust (under

any law other than the Petroleum Law), or as authorising any Party to act

as agent, servant or employee for any other Party for any purpose

whatsoever except as provided in Article 10.4.



b)



The duties and obligations of each Party constituting Contractor

hereunder shall be joint and several and it is recognised that each such

Party shall own and be responsible for its undivided Participating Interest

in the rights and obligations of Contractor hereunder; provided, however,

that the following payments shall be the separate obligation of and shall

be made by each Party which constitutes the Contractor:

i)



Payments under the Income Tax Act pursuant to Article 12;



ii)



Payments of royalty taken in cash under the provisions of Article

10.1(a); and



iii)



AOE share under the provisions of Article 10.1(d).



Each Party agrees and warrants that, in relation to this Agreement and the subject

matter hereof, neither: (a) it or any of its Affiliates or employees; nor (b) to the

best of its knowledge or belief, any of its consultants, agents, representatives or

other persons retained or otherwise engaged by it, has offered or will offer, or

has caused or will cause to be offered, or has given or will give, or has caused or

will cause to be given, anything of value (including, without limitation, money

or gifts) whether directly or indirectly to, or for the use of, any Ghanaian

government official, political party or political candidate or to any member of

their respective families. The foregoing shall not apply to any facilitating or

expediting payment of low value made for the sole purpose of securing the

performance of routine government action, provided such payment is permitted

by the written laws or regulations of the Republic of Ghana.

I f a Party is investigated pursuant to any relevant legislation, guidelines or

regulations of any other government having jurisdiction over a Party hereto,

which are designed and implemented to deter, prevent and combat bribery or

corruption in relation to international business transactions, the other Parties



agree in good faith to give all reasonable assistance to the Party being

investigated in relation to any reasonable requests (whether general or specific)

for information or documentation regarding the subject transaction(s).

Each Party shall defend, indemnify and hold the other Parties harmless from and

against any and all claims, damages, losses, liabilities, penalties, fines, costs and

other expenses (including legal costs and expenses) resulting from any breach of

its foregoing warranty. Each Party agrees that it shall incorporate terms similar

to those set out above into all or any contract entered into pursuant to this

Agreement and the subject matter thereof

26.8



26.9



In construing this Agreement:

a)



no consideration shall be given to the captions of the Articles, Sections,

or Subsections which are inserted for convenience in locating the

provisions of this Agreement and not as an aid in its construction;



b)



the word "includes" and its derivatives means "includes, but is not limited

to" and corresponding derivative expressions;



c)



a defined term has its defined meaning throughout this Agreement and

each annex, and attachment to this Agreement, regardless of whether it

appears before or after the place where it is defined;



d)



the plural shall be deemed to include the singular, and vice versa;



e)



each gender shall be deemed to include the other genders;



f)



each annex and attachment to this Agreement is a part of this Agreement,

but i f there is any conflict or inconsistency between the main body of this

Agreement and any annex or attachment, the provisions of the main body

of this Agreement shall prevail;



g)



i f any term is held by a court of competent jurisdiction to be invalid or

unenforceable, then this Agreement, including all of the remaining terms,

will remain in full force and effect as i f such invalid or unenforceable term

had never been included;



h)



each reference to an Article, Section or Subsection refers to an Article,

Section or Subsection of this Agreement unless expressly otherwise

provided; and



i)



no reference herein to any law, rule, decree or regulation that

contemplates that such law, rule, decree or regulation may be amended,

from time to time, shall be construed so as to derogate from the rights of

any Party pursuant to Articles 26.2 and 26.3.



This Agreement comprises the full and complete agreement of the Parties hereto

with respect to the subject matter hereof and supersedes and cancels all prioj:.



communications, understandings and agreements between the Parties hereto,

whether written or oral, expressed or implied.

26.10 Without prejudice to the rights, benefits, liabilities and obligations of the Parties

in Articles 26.2, 26.3, 26.4 and 26.5, Contractor shall at all times comply, and

shall ensure that its agents, Subcontractors and Affiliates while in Ghana

carrying out activities contemplated by this Agreement and related documents

comply, with the laws of the Republic of Ghana during the term of this

Agreement to the extent that the Contractor has notice of or, with the exercise of

reasonable inquiry, would have knowledge of, such laws. Nothing in this

Agreement or any related document shall require the Contractor or any of its

agents. Subcontractors or Affiliates to violate the laws of the Republic of Ghana.

To the extent any conflict exists between the terms of this Agreement and the

laws of the Republic of Ghana, the Contractor shall not be found to be in breach

of this Agreement to the extent the Contractor complies with the terms of this

Agreement.

26.11 This Agreement shall not take effect unless and until the date on which (a) it has

been ratified by the Parliament of Ghana; and (b) where required. Contractor

providing the State and GNPC with security (in form and content acceptable to

the State and GNPC) for the performance of the Contractor's obligations under

this Agreement (the "Effective Date").

Kr/



92



NOTICE

27.1



Any Notice, application, request, agreement, consent, approval, instruction,

delegation, waiver or other communication required or permitted to be given

hereunder shall be in writing and shall be deemed to have been properly given

when delivered in person to an authorised representative of the Party to whom

such notice is directed or when actually received by such Party through

registered mail, fax or commercial courier at the following address or at such

other address as the Party shall specify in writing fifteen (15) days in advance:



FOR THE STATE:

MINISTER FOR PETROLEUM

MINISTRY OF PETROLEUM

PRIVATE MAIL BAG

MINISTRY POST OFFICE

ACCRA, GHANA

Telephone: 233 (0)302 667151 - 3

Telex:

2436 ENERGY GH

Telefax:

233 (0)302 668262

FOR GHANA NATIONAL PETROLEUM

THE CHIEF EXECUTIVE

GHANA NATIONAL PETROLEUM

PETROLEUM HOUSE

HARBOUR ROAD

PRIVATE MAIL BAG

TEMA

GHANA

Telephone: 233-(0)303-204726

Telefax:

233-(0)303-202854



CORPORATION:

CORPORATION



FOR CONTRACTOR:

SWISS AFRICAN OIL COMPANY LIMITED

THE CHIEF EXECUTIVE

SWISS AFRICAN OIL COMPANY LIMITED

#10 ASAFENA CRESENT

PLATINUM ESTATES, REGIMANNUEL ESTATE

SPINTEXROAD

P.O. BOXKADTA 5325

AIRPORT, ACCRA, GHANA

Telephone: +233 508 393 432



PETVOLTA INVESTMENTS LIMITED

THE CHIEF EXECUTIVE

PETVOLTA INVESTMENTS LIMITED

mil, MANET COURT

SPINTEXROAD

P.O. BOX 17162

ACCRA, GHANA

Telephone: +233 249 050 950



I N WITNESS WHEREOF the Parties have caused this Agreement to be executed by

their duly authorized representatives as of the date first written above.

FOR THE GOVE

REPUBLIC OF



Witnessed:



By



Its



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F O R GHANA N A T I O N A L

PETROLEUM.GGRPORATION



Witnessed:



Its.



Its



F O R SWISS A F R I C A N O I L

COMPANY L I M I T E D



Witnessed:



By



By



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Its



J 95



FOR PET VOLTA INVESTMENTS

LIMITED



Witnessed:



• J J• • • • y * 1 • • • • y



^(CtO^



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• • • • • •



ANNEX 1

CONTRACT AREA



C



960462.8732



682081.8652



D



903038.4075



660653.8940



A



889435.0123



613557.0290



ANNEX 2

ACCOUNTING GUIDE

The purpose of this Accounting Guide is to establish equitable methods as between the Parties for

determining charges and credits applicable to operations under the Agreement. Principles established

by this Accounting Guide shall truly reflect the Contractor's actual cost.

SECTION 1.

1.1



1.2



GENERAL PROVISIONS

1.1.1



Words and terms appearing in this Annex shall have the same meaning as in the

Agreement and to that end shall be defined in accordance with Article 1 of the

Agreement.



1.1.2



This Annex may be amended by unanimous decision of the JMC.



1.1.3



In the event of a conflict between the provisions of the Accounting Guide and the

provisions of the Agreement, the provisions of the Agreement shall prevail.



STATEMENTS REQUIRED TO B E SUBMITTED BY CONTRACTOR

1.2.1



Within sixty (60) days from the Effective Date, Contractor shall propose to GNPC an

outline of the chart of accounts, operating records and reports to be prepared and

maintained, which shall describe the basis of the accounting principles and procedures

to be used during the term of the Agreement, and shall be consistent with applicable

law as in effect and with accepted accounting principles generally used in the

International petroleum industry.



1.2.2



Within sixty (60) days of the receipt of such proposal GNPC shall either accept it or

request such revisions as GNPC deems necessary. Failure to notify Contractor of any

requested revisions within a sixty (60) day period shall be deemed acceptance of such

proposal.



1.2.3



Within one hundred and eighty (180) days from the Effective Date, the Parties shall

either agree on such outline or submit any outstanding issue for determination by a

Sole Expert pursuant to the provisions of Article 24 of the Agreement.



1.2.4



Following agreement over the outline Contractor shall prepare and submit to GNPC

formal copies of the chart of accounts relating to the accounting, recording and

reporting functions listed in such outline. Contractor shall also permit GNPC to inspect

its manuals and to review all procedures which are to be followed under the Agreement.

GNPC shall be permitted to audit on site of all of the Contractor's records that evidence

any of the reports issued by the Contractor under the Agreement in accordance with

the procedures set forth in Article 18 of the Agreement.



1.2.5



Without prejudice to the generality of the foregoing. Contractor shall make separate

statements relating to Petroleum Operations for each Development and Production

Area as follows:

(a)



Cash Call Statement (see Section 5)



(b)



Production Statement (see Section 6)

Value of Production Statement (see Section 7)

Allowable Cost Statement (see Section 8)



, '^7^



1.3



(e)



Statement of Expenditures and Receipts (see Section 9)



(f)



Final End-of-Year Statement (see Section 10)



(g)



Budget Statement (see Section 11)



(h)



Long Range Plan and Forecast (see Section 12)



LANGUAGE, MEASUREMENT, AND UNITS OF ACCOUNTS

1.3.1



The U.S. Dollar being the currency unit for investments and compensation hereunder

shall therefore be the unit of currency for all bookkeeping and reporting under the

Agreement. When transactions for an asset or liability are in Ghana Cedis or currency

other than the U.S. Dollar, the respective accounts shall be kept in such other currency

as well as the U.S. Dollar.



1.3.2



Measurement required under this Annex shall be in the metric system and Barrels.



1.3.3



The English language shall be employed.



1.3.4



Where necessary for purposes of clarification. Contractor may also prepare financial

reports in other languages, units of measurement and currencies.



1.3.5



It is the intent of the Parties that no Party shall experience any gain or loss at the

expense of or to the benefit of the other as a result of exchange of currency. Where

any such gain or loss arises it shall be charged or credited to the accounts under the

Agreement.



1.3.6



The rate of exchange for the conversion of currency shall be the rate actually incurred

(which shall be at the prevailing rate at the date of acquisition). Where actual rates are

not known, the arithmetic average of buying and selling rates quoted by the Bank of

Ghana at a close of business on the date of such currency conversion shall be used.



1.3.7



Current Assets and Liabilities shall be converted at the rate prevailing on the date of

settlement of the account.



1.3.8



To translate transactions in Ghana cedis into dollars or vice versa at the year-end for'

revenue and expenditure the rates of the transactions or average monthly rates where

reasonable will be used.



1.3.9



To translate transactions in Ghana cedis into dollars or vice versa at the year-end for

assets, liabilities and capital items the year end rate will be used.



SECTION 2.



C L A S S I F I C A T I O N AND A L L O C A T I O N O F C O S T S AND

EXPENDITURE

2.1.1



All expenditure relating to Petroleum Operations shall be classified, as follows:

(a)



Exploration Expenditure;



(b)



Development Expenditure;



(c)



Production Expenditure;



(e)



General and Administrative expenses



and shall be defined and allocated as herein below provided.

EXPLORATION EXPENDITURE

2.2.1



2.2.2



Exploration Expenditure shall consist of all direct, indirect and allocated costs incurred

in the search for Petroleum in the Contract Area, including but not limited to expenditure

on or in relation to:



(a)



aerial, geographical, geophysical, geochemical, paleontological, geological,

topographical and seismic surveys, and studies and their interpretation, and

purchased geological and geophysical information;



(b)



borehole drilling, testing, appraising and water well drilling;



(c)



labour, materials and services used in drilling wells with the objective of finding

new Petroleum reservoirs or for the purpose of appraising of Petroleum

reservoirs already discovered, provided such wells are not completed as

producing wells;



(d)



facilities used solely for Exploration Operations, including access roads, where

applicable;



(e)



all service costs allocated to Exploration Operations on the basis of procedures

proposed by the Contractor on an equitable basis ;



(f)



all General and Administrative Expenses directly attributable to Exploration

Operations or allocated thereto on a consistent and equitable basis; and



(g)



any other expenditures incurred in the search for and appraisal of Petroleum

in the Contract Area after the Effective Date and not othenwise covered under

this paragraph 2.2.1.



Exploration cost shall be tied to resultant commercial discoveries. Where exploration

activity is undertaken after a commercial discovery that exploration cost shall be

regarded as capital work-in-progress. If the exploratory activity results in commercial

discovery it shall be regarded as cost of the new discovery and resulting field. Where

there is no commercial discovery it shall be charged to the previous discovery field.



DEVELOPMENT EXPENDITURE

2.3.1



Development Expenditure shall consist of all direct and allocated indirect costs and

expenditure incurred in Development Operations, including but not limited to

expenditure on:



(a)



drilling wells which are completed as producing wells and drilling wells for

purposes of producing a Petroleum reservoir already discovered, whether

these wells are dry or producing and drilling wells for the injection of water or

gas to enhance recovery of Petroleum;



(b)



tangible drilling costs for completing wells by way of installation of casing or

equipment or othenwise after a well has been drilled for the purpose of bringing

such well into use as a producing well or as a well for the injection of water or

gas to enhance recovery of Petroleum;

.

,



2.3.2



(c)



intangible drilling costs such as labour, consumable material and services

having no salvage value which are incurred in drilling and deepening of wells

for producing purposes;



(d)



field facilities such as pipelines, flow lines, production and treatment units,

wellhead equipment, subsurface equipment, enhanced recovery systems,

offshore platforms. Petroleum storage facilities and access roads for

production activities;



(e)



engineering and design studies for the wells and field facilities;



(f)



all service costs allocated to Development Operations on equitable basis;



(g)



all General and Administrative Expenses directly attributable to Development

Operations or allocated thereto on a consistent and equitable basis;



Capital allowance for development expenses shall be granted under the following

conditions:



(a)



Development activity has been approved by the Minister;



(b)



Development activity has been completed; and



(c)



Production activity has started after the completion of the development activity.



PRODUCTION EXPENDITURE

Production Expenditure shall consist of but not limited to all direct and allocated indirect costs

and expenditure incurred in Petroleum Operations including appropriate abandonment

charges, after the Date of Commencement of Commercial Production, such expenditure being

other than Exploration Expenditure, Development Expenditure, General and Administrative

Expenses and Service Costs. The balance of General and Administrative Expenses and

Service Costs not allocated to Exploration Operations or to Development Operations under

Section 2.2 and 2.3 shall be allocated to Production Expenditure.



S E R V I C E COSTS

2.5.1



Service Costs shall consist of but not be limited to all direct and indirect expenditure

incurred in support of Petroleum Operations, including the construction or installation

of Warehouses, piers, marine vessels, vehicles, motorised rolling equipment, aircraft,

fire and security stations, workshops, water and sewerage plants, power plants,

housing community and recreational facilities and furniture, tools land, equipment used

in these activities.

Service Costs in any Calendar Year shall include the total costs incurred in such year

to purchase and construct or install such facilities as well as the annual costs of

maintaining and operating such facilities.



2.5.2



All Service Costs will be regularly allocated on an equitable basis to Exploration

Expenditure, Development Expenditure and Production Expenditure.



G E N E R A L AND A D M I N I S T R A T I V E E X P E N S E S

General and Administrative Expenses shall consist of:



2.6.1



All main office, field and general administrative costs, in the Republic of Ghana,

including but not limited to supervisory, accounting, procurement and employee

relations services;



2.6.2



An overhead charge for the actual cost of services rendered outside the Republic of

Ghana by Contractor and its Affiliates for managing Petroleum Operations and for staff

advice and assistance, including but not limited to financial, legal, accounting and

employee relations services in the following amounts:



2.6.3



(a)



For the Exploration Phase: US Dollars 0-20million- One point two five percent

(1.25%) to a cap of US$200,000.00 per annum



(b)



For Development Phase: US Dollars 0-50million- One point two five percent

((1.25%) to a cap of US$500,000.00 per annum



(c)



For Production Phase: US Dollars 0 - lOmillion - 1 percent (1%) to a cap of

US$200,000.00 per annum



All General and administrative Expenses will be regularly allocated as specified in

subsections 2.2.1(f), 2.3.1(g) and 2.4 to Exploration Expenditure, Development

Expenditure and Production Expenditure.



SECTION 3.



3.1



C O S T S , E X P E N S E S , E X P E N D I T U R E S AND C R E D I T S O F

CONTRACTOR

3.1.1



Contractor for the purpose of this Agreement shall charge the following allowable costs

to the accounts:



(a)



costs of acquiring surface, exploration, development and production rights;



(b)



labour and associated costs;



(c)



transportation costs;



(d)



charges for services;



(e)



material and equipment costs;



(f)



rentals, duties and other assessments;



(g)



insurance and losses (including deductibles/excesses);



(h)



legal expenses;



(i)



training expenses;



a)



technology transfer expenses



(k)



general and administrative expenses;



(1)



utility costs;



(m)



office, physical plant, facility charges;



3.2



(n)



communication cliarges;



(o)



ecological and environmental charges;



(P)



abandonment and site restoration costs; and



(q)



such other costs necessary for the Petroleum Operations



C O S T O F A C Q U I R I N G S U R F A C E R I G H T S AND R E L I N Q U I S H M E N T

Cost of acquiring surface rights shall consist of all direct costs attributable to the acquisition,

renewal or relinquishment of surface rights acquired and maintained in force over the Contract

Area.



3.3



L A B O U R AND A S S O C I A T E D L A B O U R C O S T S

3.3.1



Labour and associated labour costs shall include but not be limited to:

(a)



gross salaries and wages including bonuses of those employees of Contractor

and of its Affiliates engaged in Petroleum Operations who are permanently or

temporarily assigned to Ghana;



(b)



costs regarding holidays, vacation, sickness and disability

applicable to the salaries and wages chargeable under (a);



(c)



expenses or contributions made pursuant to assessments or obligations

imposed under the laws of the Republic of Ghana which are applicable to cost

of salaries and wages chargeable under (a);



(d)



cost of established plans for employees' life insurance, hospitalisation,

pensions and other benefits of a like nature customarily granted to employees;

and



(e)



reasonable travel and personal expenses of employees and families, including

those made for travel and relocation of the personnel.



payments



TRANSPORTATION COSTS

Transportation costs and other related costs of transportation of employees or secondees of

the Contractor or its affiliates, equipment, materials and supplies necessary for the conduct of

Petroleum Operations.

3.4



CHARGES FOR SERVICES

3.4.1



Charges for services shall include:

(a)



the costs of third party contracts which are the actual costs of contracts for

technical and other services entered into by Contractor or its Affiliates for

Petroleum Operations made with third parties other than Contractor or Affiliates

of Contractor, provided that the prices paid by Contractor are no higher than

the prevailing rates for such services in the regional market;



cost of technical and other services of personnel assigned by the Contractor

and its Affiliates when performing management, engineering, geological,

geophysical, administrative, legal, accounting, treasury, tax, employee

relations, computer services, purchasing, and all other functions for the direct

benefit of Petroleum Operations. Provided that charges for such services shall r

( \1 be at actual cost. All Services furnished by Contractor and its Affiliates (otheji/



(b)



than the Operator) shall be performed based on and pursuant to a form

services agreement to be approved, a copy of which shall be provided to the

JMC after the Effective Date.



3.5



(c)



cost of general services, including, but not without limitation, professional

consultants and others who perform services for the direct benefits of

Petroleum Operations.



(d)



costs associated with the use of equipment and facilities owned and furnished

by the Contractor's Affiliates, at rates commensurate with the cost of ownership

and operation; provided, however, that such rates shall not exceed those

currently prevailing for the supply of like equipment and facilities on

comparable terms in the area where the Petroleum Operations are being

conducted and shall be on an arm's length basis. On the request of the GNPC,

the Contractor shall provide the GNPC with evidence of such rates being on

an arm's length basis. (If the GNPC considers that any such rate is not on an

arm's length basis, then the GNPC has the right to refer the matter to an expert

pursuant to Article 24.9 of the Agreement). The equipment and facilities

referred to herein shall exclude major investment items such as (but not limited

to) drilling rigs, producing platforms, oil treating facilities, oil and gas loading

and transportation systems, storage and terminal facilities and other major

facilities, rates for which shall be subject to separate agreement with the

GNPC.



R E N T A L S , D U T I E S AND O T H E R A S S E S S M E N T S

All rentals, taxes, duties, levies, charges, fees, contributions and any other assessments and

charges levied by the State in connection with Petroleum Operations or paid for the benefit of

Petroleum Operations, with the exception of the income tax specified in the Article 12 of the

Agreement.

If the Contractor or any of its Affiliates is subject to income or withholding tax as a result of

services performed at cost for the Petroleum Operations under the Agreement, its charges for

such services may be increased by the amount required to cover such taxes (grossed up)

Including taxes on such gross up.



3.6



3.7



I N S U R A N C E AND L O S S E S

(a)



Insurance premium and costs incurred for insurance, provided that if such

insurance is wholly or partly placed with an Affiliate of Contractor, such

premium and costs shall be recoverable only to the extent not in excess of

those generally charged by competitive insurance companies other than

Affiliate; and;



(b)



costs and losses incurred as a consequence of events, which are, insofar as

not made good by insurance, allowable under Article 17 of the Agreement.



(c)



Costs or expenses necessary for the repair or replacement of property

resulting from damage or losses incurred.



L E G A L EXPENSES

All costs and expenses of litigation and legal or related services necessary or expedient for the

procuring, perfecting, retaining and protecting the rights hereunder and in defending or

prosecuting lawsuits involving the Contract Area or any third party claim arising out of activities

under the Agreement, or sums paid in respect of legal services necessary or expedient for the

protection of the joint interest of GNPC and Contractor, provided that where legal services are

rendered in such matters by salaried or regularly retained lawyers of Contractor or an Affiliate

of Contractor, such compensation will be included instead under either Section 3.3 or 3.4, as^



applicable. The preceding costs and expenses shall not include costs of any nature (including

attorneys' fees and the fees of the ICC, arbitrators, the Sole Expert, other experts, professionals

and translators) incurred in connection with any consultation, arbitration or Sole Expert process

under Error! Reference source not found, of the Agreement which shall be borne in

accordance with Article 24.10 of the Agreement.



3.8



TRAINING COSTS

All costs and expenses incurred by Contractor in training of its employees and nominees of

GNPC to the extent that such training is attributable to Petroleum Operations under the

Agreement.



3.9



G E N E R A L AND A D M I N I S T R A T I V E E X P E N S E S

General and Administrative Expenses shall consist of the costs described in Subsection 2.6.1

and the charge described in Subsection 2.6.2.



3.10



U T I L I T Y COSTS

Any water, electricity, heating, fuel or other energy and utility costs used and consumed for the

Petroleum Operations.



3.11



OFFICE FACILITY CHARGES

The cost and expenses of constructing, establishing, maintaining and operating offices, camps,

housing and any other facilities in Ghana necessary to the conduct of Petroleum Operations.

The cost of constructing or otherwise establishing any operating facility which may be used at

any time in operations of more than one field shall be charged initially to the field or fields for

which the facility is first used. Costs incurred, thereafter shall be allocated in a reasonable

manner, consistent with international accounting practice, to the fields for which the facility is

used.



3.12



COMMUNICATION CHARGES

The costs of acquiring, leasing, installing, operating, repairing and maintaining communication,

systems, including radio and microwave facilities.



3.13



E C O L O G I C A L AND E N V I R O N M E N T A L C H A R G E S

All charges for environmental protection and safety measures conducted in the Contract Area

in accordance with Article 17 of the Agreement.



3.14



ABANDONMENT C O S T

Cost relating to the decommissioning and abandonment of operations and facilities, site

restoration and other associated operations accrued from a reasonable date in advance based

on estimate of such cost (with subsequent adjustments to actuals) as provided in Article 12.9

of the Agreement



3.15



O T H E R COSTS

Any other costs not covered or dealt with in the foregoing provisions which are incurred and not

mentioned in this Section 3.15 for the necessary and proper conduct of Petroleum Operations.r



3.16



C O S T S NOT A L L O W A B L E U N D E R T H E A G R E E M E N T

3.16.1



3.17



The following costs shall not be allowable under the Agreement:

(a)



commission paid to intermediaries by Contractor;



(b)



charitable donations and contributions, except where a cost line item in an

annual Petroleum Operations budget as approved by the JMC;



(c)



costs (including duties) arising from the marketing or processing of Petroleum

or transportation of Petroleum beyond the Delivery Point;



(d)



the costs of any Bank Guarantee under the Agreement and any other amounts

spent on indemnities with regard to non-fulfilment of contractual obligations;



(e)



premium paid as a result of GNPC exercising a Sole Risk option under Article 9

of this Agreement;



(f)



costs of any nature (including attorneys' fees and the fees of the ICC,

arbitrators, the Sole Expert, other experts, professionals and translators)

incurred in connection with any consultation, arbitration or Sole Expert process

under Article 24 of the Agreement;



(g)



fines, penalties and interest due pursuant to any applicable law or regulation

and/or imposed by a competent administrative or judicial body;



(h)



costs, damages and other liabilities incurred as a result of (1) a breach of any

provision of the Agreement other than a contractual standard of care as

decided by an arbitration panel or Sole Expert or acknowledged by Contractor,

(2) Gross Negligence with respect to any contractual standard of care set forth

in this Agreement, and/or (3) wilful misconduct, in each case by the Contractor,

the Operator, their respective Affiliates and/or subcontractor, and/or any other

entities or persons for whom the Contractor is responsible under the

Agreement;



(i)



(1) income taxes (including any taxes on the net income of permanent,

establishments in Ghana and any capital gains taxes or taxes on assignment

of interest), withholding taxes and/or royalty shares or other Petroleum

entitlements, in each case paid to authorities in Ghana in connection with or

related to the Agreement, (2) any taxes paid to authorities outside Ghana,

except any foreign value added taxes or other foreign taxes paid with respect

to products or services imported into Ghana, (3) any taxes subject to

reimbursement or refund and; (4) any other taxes that should be deemed nonallowable costs by the relevant authority;



(j)



costs incurred by the Contractor under contracts or amendments thereto that

were subject to approval by the JMC or GNPC and were not so approved;



(k)



costs that are not documented in accordance with applicable law or this

Agreement; and



(1)



any bonus payments payable by the Contractor under the Agreement to the

State, any other governmental body in Ghana, GNPC or any Affiliates of

GNPC.



A L L O W A B L E AND D E D U C T I B I L I T Y

The costs and expenses set forth herein shall be for the purpose of determining allowable or

non-allowable costs and expenses only and shall have no bearing on Contractor's eligibility or



otherwise for deductions in computing Contractor's net income from Petroleum Operations for

income tax purposes under the Agreement.



3.18



CREDITS UNDER T H E A G R E E M E N T

3.18.1



3.19



The net proceeds of the following transactions w i l l be credited to the

accounts under the Agreement:

(a)



the net proceeds of any insurance or claim in connection with Petroleum

Operations or any assets charged to the accounts under the Agreements when

such operations or assets were insured and the premium charged to the

accounts under the Agreement;



(b)



revenue received from third parties for the use of property or assets charged

to the accounts under this Agreement;



(c)



any adjustment from the suppliers or manufacturers or their agents in

connection with a defective equipment or material the cost of which was

previously charged to the account under the Agreement;



(d)



the proceeds received for inventory materials previously charged to the

account under the Agreement and subsequently exported from the Republic of

Ghana or transferred or sold to third parties;



(e)



rentals, refunds or other credits received which apply to any charge which has

been made to the account under the Agreement but excluding any award

granted under arbitration or Sole Expert proceedings.;



(f)



the proceeds from the sale or exchange of plant or facilities from the

Development and Production Area or plant or facilities the acquisition costs

and the cost of sale



(g)



the proceeds derived from the sale or issue of any intellectual property the

development costs of which were incurred pursuant to this Agreement;



(h)



the proceeds from the sale of any petroleum information derived from'

Petroleum Operations under this Agreement; and



(i)



any General and Administrative Expenses or Service Expenses that benefit

any operation or activity other than Petroleum Operations.



D U P L I C A T I O N O F C H A R G E S AND C R E D I T S

Notwithstanding any provision to the contrary in this Annex, it is the intention that there shall be

no duplication of charges or credits in the accounts under the Agreement.



SECTION 4.



4.1



V A L U E O F M A T E R I A L AND E Q U I P M E N T C H A R G E D T O T H E

ACCOUNTS UNDER T H E A G R E E M E N T

Material and equipment purchased, leased or rented by Contractor for use in Petroleum

Operations shall be valued at the actual net cost incurred by Contractor. The net cost shall

include invoice price less trade and cash discounts, if any, purchase and procurement fees plus

freight and fonwarding charges between point of supply and point of shipment, freight to port of

destination, insurance, taxes, customs duties, consular fees, other items chargeable against

imported material, and any other related costs actually paid.

k

/



4.2



4.3



VALUE OF MATERIAL PURCHASED FROM AN AFFILIATE

4.2.1



Contractor shall notify GNPC of any goods supplied by an Affiliate of Contractor.

Materials purchased from Affiliate of Contractor shall be charged at the prices specified

in Sections, 4.2.2, 4.2.3 and 4.2.14 below.



4.2.2



New Material (Condition "A") New material shall be classified as Condition "A". Such

material shall be valued at the prevailing market price, plus expenses incurred in

procuring such new materials, and in moving such materials to the locations where the

material shall be used.



4.2.3



Used Material (Condition "B") Used material shall be classified as Condition "B"

provided that it is in sound and serviceable condition and is suitable for reuse without

reconditioning. Such material shall be valued at not more than seventy five percent

(75%) of the current price of new material valued according to Section 4.2.1 above.



4.2.4



Used Material (Condition "C") Used material which is serviceable for original function

as good second hand material after reconditioning and cannot be classified as

Condition "B° shall be classified as Condition "C". Such material shall be valued at not

more than fifty percent (50%) of the current price of new material valued according to

Section 4.2.1 above. The cost of reconditioning shall be charged to the reconditioned

material provided that that the value of such Condition " C material plus the cost of

reconditioning does not exceed the value of Condition "B" material.



CLASSIFICATION OF MATERIALS

Material and equipment costs shall be charged to the respective Exploration Expenditure,

Development Expenditure, Operating Expenditure accounts at the time the material and

equipment is acquired and on the basis of the intended use of the material and equipment.

Should such material and equipment subsequently be used other than as intended, the relevant

charge will be transferred to the appropriate account.



4.4



DISPOSAL OF MATERIALS

Sales of property shall be recorded at the net amount collected by the Contractor from the

purchaser.



4.5



WARRANTY OF MATERIALS

In the case of defective material or equipment, any adjustment received by Contractor from the

suppliers or manufacturers of such materials or their agents will be credited to the accounts

under the Agreement.



4.6



CONTROLLABLE MATERIALS

4.6.1



The Contractor shall control the acquisition, location, storage and disposition of

materials which are subject to accounting record control, physical inventory and

adjustment for averages and shortages (hereinafter referred to as Controllable

Material).



4.6.2



Unless additional inventories are scheduled by the JMC, Contractor shall conduct one

physical inventory of the Controllable Material each Calendar Year which shall be

completed prior to the end of the year. The Contractor shall conduct said inventory on

a date to be approved by the JMC. Failure on the part of GNPC to participate in a JMC

schedule or approved physical inventory shall be regarded as approval of the results

of the physical inventory as conducted by the Contractor.



4.6.3



The gain or loss resulting from the physical inventory shall be reflected in the stock

records of Controllable Materials. The Contractor shall compile a reconciliation of the



inventory with a reasonable explanation for such gains or losses. Failure on the part

of GNPC to object to Contractor's reconciliation within thirty (30) days of compilation of

said reconciliation shall be regarded as approval by GNPC.

SECTION 5.

5.1



CASH CALL STATEMENT

5.1.1



5.1.2



5.2



5.3



In respect of any Exploration Costs to which GNPC is contributing or any Development

and Production Area in which GNPC elects to take a participating interest, and in any

case where Contractor conducts Sole Risk Operations for GNPC's account, Contractor

shall at least fifteen (15) days prior to the commencement of any Month submit a Cash

Call Statement to GNPC. Such Cash Call Statement shall include the following

information:

(a)



Due Date;



(b)



Payment Instructions;



(c)



The balance prior to the Cash Call being issued;



(d)



The cash call being issued



(e)



Amount of US Dollars due; and



(0



An estimation of the amounts of US Dollars required from GNPC for the

following month.



Following a Cash Call GNPC shall make payments to the appropriate bank account

maintained by the Operator for the Joint Account as specified on the Cash Call. All

such payments shall be made in sufficient time to ensure that they will each be credited

to the appropriate bank account on the due date specified in the Cash Call and without

the deduction of any bank charges.



Not later than the thirtieth (30"') day of each Month, Contractor will furnish GNPC a

statement reflecting for the previous month:

(a)



Payments;



(b)



The nature of such payments by appropriate classifications; and



(c)



The balance due to or from GNPC.



Contractor may in the case where a large unforeseen expenditure becomes necessary

issue a special Cash Call Statement requiring GNPC to meet such Cash Call within ten

(10) days of receipt of such Statement.



SECTION 6.

6.1



PRODUCTION STATEMENT

6.1.1



Subsequent to the Date of Commencement of Commercial Production from the

Contract Area, Contractor shall submit a monthly Production Statement to GNPC

showing the following information for each Development and Production Area as

appropriate:

the quantity of Crude Oil produced and saved;

the quantity of Natural Gas produced and saved;/WV-



6.2



(c)



the quantities of Petroleum used for the purpose of conducting drilling and

Production Operations, pumping to field storage and re-injections;



(d)



the quantities of Natural Gas flared;



(e)



the size of Petroleum stocks held at the beginning of the Month; and



(f)



the size of Petroleum stocks held at the end of the Month.



The Production Statement of each Calendar Month shall be submitted to GNPC not later than

ten (10) days after the end of such month.



SECTION 7.

7.1



VALUE OF PRODUCTION STATEMENT

During each Quarter Contractor shall prepare a statement providing calculations of the value

of Crude Oil produced and saved based on the Market Price established under 10.8 of this

Agreement, the amounts of Crude Oil allocated to each of the Parties during that Quarter, the

buyer of the cargo, sales basis with respect to Benchmark crude oil, the pricing basis, the

differential, and any deductions. Each Production Statement shall be submitted to the Minister

and GNPC not later than thirty (30) days following the determination, notification and

acceptance of the World Market Price to GNPC according to 10.8 of this Agreement.



SECTION 8.

8.1



ALLOWABLE COST STATEMENT

8.1.1



8.1.2



Contractor shall prepare with respect to each Quarter, an Allowable Cost Statement

containing the following information with respect to costs that are allowable under

Section 3.1.1 of this Accounting Guide:

(a)



Total Petroleum Costs in previous Quarters, if any;



(b)



Petroleum Costs for the Quarter in question;



(c)



Total Petroleum Costs as of the end of the Quarter in question (subsection

8.1.1(a) plus subsection 8.1.1(b) above);



(d)



Petroleum Costs for Development Operations advanced in the Quarter in

respect of GNPC's Participating Interest pursuant to Article 2.5; and



(e)



Costs as specified in (d) above which have been recovered during the Quarter

pursuant to Article 10.1(e) of the Agreement and the balance, if any, of such

costs unrecovered and carried fonward for recovery in a later period.



Petroleum Costs for Exploration, Development and Production Operations as detailed

above shall be separately identified for each Development and Production Area.

Petroleum Costs for Exploration Operations not directly attributable to a specific

Development Area shall be shown separately, [w.

^,



8.2



The Allowable Cost Statement of each Quarter shall be submitted to GNPC no later than

forty-five (45) days after the end of such Quarter.



SECTION 9.

9.1



STATEMENT OF EXPENDITURES AND RECEIPTS

9.1.1



9.2



Subsequent to the Date of Commencement of Commercial Production from the

Contract Area, Contractor shall prepare with respect to each Quarter a Statement of

Expenditures and Receipts. The Statement will distinguish between Exploration

Expenditure and Development Expenditure and Production Expenditure and will

identify major items of expenditure within these categories. The statement will show

the following:

(a)



actual expenditures and receipts for the Quarter in question;



(b)



cumulative expenditure and receipts for the budget year in question;



(c)



latest forecast of cumulative expenditures at the year end;



(d)



variations between budget forecast and latest forecast and explanations

therefore;



(e)



Price per barrel of crude oil sold; and



(f)



Price per barrel of oil equivalent of Gas sold.



The Statement of Expenditures and Receipts of each Calendar Quarter shall be submitted to

GNPC not later than forty-five (45) days after the end of such Quarter for provisional approval

by GNPC.



SECTION 10.

10.1



FINAL END-OF-YEAR STATEMENT/AUDITED FINANCIAL STATEMENT

The Contractor will prepare a Final End-of-Year Statement. The Statement will contain

information as provided in the Production Statement, Value of Production Statements,

Allowable Cost Statement and Statements of Expenditures and Receipts, as appropriate. The

Final End-of-year Statement of each Calendar Year shall be submitted to GNPC within one

hundred and twenty (120) days of the end of such Calendar Year. Any necessary subsequent

adjustments shall be reported promptly to GNPC.

In addition to the Final End-of-Year Statement, an audited financial statement of each

Contractor Party shall be submitted to GNPC and Petroleum Commission by 30* April of the

year following.



SECTION 11.

11.1



BUDGET STATEMENT

11.1.1 The Contractor shall prepare an annual budget statement. This will distinguish

between Exploration Expenditures, Development Expenditures and Production

Expenditures and will show the following;

(a)



forecast Expenditures and Receipts for the budget year under the Agreement;



(b)



cumulative Expenditures and Receipts to the end of said budget year; anfi



(c)



the most important individual items of Exploration, Development and

Production Expenditures for said budget year.



11.1.2 The budget may include a budget line or lines for unforeseen expenditures which,

however, shall not exceed ten percent (10%) of the total budgetary expenditure.

11.2



The Budget Statement shall be submitted to GNPC and JMC with respect to each budget year

no less than ninety (90) days before the start of such year except in the case of the first year of

the Agreement when the Budget Statement shall be submitted within sixty (60) days of the

Effective Date.



11.3



Where Contractor foresees that during the budget period expenditures have to be made in

excess of the ten percent (10%) pursuant to Section 1.1.2 hereof, contractor shall submit a

revision of the budget to GNPC.



SECTION 12.

12.1



LONG RANGE PLAN AND FORECAST

12.1.1 Contractor shall prepare and submit to GNPC the following:

(a)



During Exploration Period, an Exploration Plan for each year commencing as

of the Effective Date which shall contain the following information:

(1)



Estimated Exploration Costs showing outlays for each of the years or

the number of years agreed and covered by the Plan;



(ii)



Details of seismic operations for each such year;



(iii)



Details of drilling activities planned for each such year; and



(iv)



Details of infrastructure utilisation and requirements.



The Exploration Plan shall be revised on each anniversary of the Effective

Date. Contractor shall prepare and submit to GNPC the first Exploration Plan

for the Initial Exploration Period of two (2) years within sixty (60) days of the,

Effective Date and thereafter shall prepare and submit to GNPC no later than

forty five (45) days before each anniversary of the Effective Date a revised

Exploration Plan.

(b)



In the event of a Development Plan being approved, the Contractor shall

prepare a Development Forecast for each calendar year of the Development

Period, which shall contain the following information:

(1)



forecast of capital expenditure portions of Development and

Production expenditures for each Calendar Year of the Development

Period;



(il)



forecast of operating costs for each Calendar Year;



(iii)



forecast of Petroleum production for each Calendar year;



(Iv)



forecast of number and types of personnel employed in the Petroleum

Operations in the Republic of Ghana;



(v)



description of proposed Petroleum marketing arrangements;



(vi)



description of main technologies employed;



and/^}^



(vii)

(c)



12.2



description of tine working relationship of Contractor to GNPC.



The Development forecast shall be revised at the beginning of each Calendar

Year commencing as of the second year of the first Development forecast

Contractor shall prepare and submit to GNPC the first Development forecast

within one hundred and twenty (120) days of the date when the first

Development Plan is approved by the Minister and Contractor commences the

implementation of such plan and thereafter shall prepare and submit a revised

Development Forecast to GNPC no later than forty five (45) days before each

Calendar Year commencing as of the second year of the first Development

forecast.



C H A N G E S O F P L A N AND F O R E C A S T

It is recognised by Contractor and GNPC that the details of the Exploration Plan and

Development forecast may require changes in the light of existing circumstances and nothing

herein contained shall limit the flexibility to make such changes. Consistent with the foregoing

the said Plan and Forecast may be revised annually.

^-.^

U



ANNEX3

FORM OF CONFIDENTIALITY A G R E E M E N T

Keta Delta Contract A r e a

THIS A G R E E M E N T is entered into this



day of



(the "Effective Date")



by and between [

], a company organized and existing under the laws of

[

] (hereinafter referred to as the "Disclosing Party"); and

, a

company organized and existing under the laws of

(hereinafter referred to

as the "Receiving Party").

The companies named above may collectively be referred to as the "Parties" or individually

as "Party".

W H E R E A S in connection with the Possible Transaction (as defined below) by the Receiving

Party, the Disclosing Party is willing, in accordance with the terms and conditions of this

Agreement, to disclose certain Confidential Information (as defined below) relating to the Keta

Delta Contract Area ( t h e "Area") shown in Exhibits A to D attached hereto; and

W H E R E A S the Petroleum Agreement covering the said Contract Area requires that the

Disclosing Party require the execution of a confidentiality agreement by Receiving Party prior

to the disclosure of Confidential Information in order to govern such disclosure and that a copy

of all such signed confidentiality agreements be provided to G N P C .

NOW T H E R E F O R E , in consideration for the mutual undertal^ings of the Disclosing Party and

the Receiving Party under this Agreement, the Parties agree as follows:

1.



Definitions



As used in this Agreement the following words and terms shall have the meaning ascribed to

them below:

1.1



1.2



"Affiliated Company" means any Person which:

a.



Controls directly or indirectly a Party, or



b.



Is Controlled directly or indirectly by such Party, or



0.



Is directly or indirectly Controlled by a Person which directly or indirectly

Controls such a Party.



"Confidential Information"^ means individually or collectively:

1.2.1



any and all data and information obtained as a result of petroleum

operations in the Area, including without limitation well data and

seismic information together with all other data and information

obtained by or on behalf of the Disclosing Party in connection with the

Disclosing Party's petroleum operations in the Area, as well as

geological and economic reports, studies, interpretations and

analyses prepared by or on behalf of the Disclosing Party in

connection with its petroleum operations in the Area. Confidential

Information includes certain proprietary data and infomiation that is



the property of GNPC (hereinafter " G N P C Information") as described

in Exhibit B attached hereto.

Provided that, the following shall not constitute Confidential Information:

1.2.2



information that can be reasonably demonstrated by the Receiving

Party as being already lawfully known to Receiving Party as of the

Effective Date;



1.2.3



information that is or becomes available to the public other than

through the act or omission of Receiving Party or of any other Person

to w h o m Confidential Information is disclosed by the Receiving Party

pursuant to Article 4.2 unless public disclosure w a s made pursuant to

Article 4 . 1 ;



1.2.4



infomiation that is acquired independently from a third party that has

a right to disseminate such information at the time it is acquired by the

Receiving Party; or



1.2.5



information that can be reasonably demonstrated by the Receiving

Party to have been developed by Receiving Party independently of

the Confidential Infomiation received from Disclosing Party.



1.3



"Control" means the ownership directly or indirectly of 5 0 % or more of the

voting rights in a Person or the ability to direct, directly or indirectly, the

management or policies of a Person, whether through the appointment of the

directors, the ownership of voting shares or other voting rights, pursuant to

"Controls", "Controlled by" and other

written contract or otherwise.

derivatives shall be construed accordingly.



1.4



"Evaluation Material" means information derived in whole or in part from

Confidential Information, and generated by or on behalf of the Receiving Party.

For purposes of this Agreement, Evaluation Material may include without

limitation models, technical, financial and economic reports, studies,,

interpretations, analyses, estimates of reserves, and evaluations and notes of

documents or meetings.



1.5



"GNPC" means Ghana National Petroleum Corporation, a Statutory

Corporation established by Provisional National Defence Council Law 64 of

1984 with its Head Office at Petroleum House, Harbour Road, Tema.



1.6



"Person" means an individual, joint venture, corporation, company, firm,

partnership, limited partnership, limited liability company, trust, estate,

government agency or any other entity, including unincorporated business

associations.



1.7



"Petroleum Agreement" means the Petroleum Agreement dated [

]

between the Government of the Republic of Ghana, Ghana National Petroleum

Corporation, [ S w i s s African Oil C o m p a n y Limited, and Pet Volta

Investments Limited

] in respect of the Keta Delta Contract Area Onand Offshore Ghana (and all amendments and supplements thereto).



1.8



"Possible Transaction" means any possible business arrangement with the

Disclosing Party under which Receiving Party would acquire directly or

indirectly all or part of the rights and interests owned by Disclosing Party and/oL



.



Disclosing Party Affiliates in one or more offshore hydrocarbon exploration,

development or production assets located within the Area.

2.



Disclosure



In connection with the Possible Transaction, Disclosing Party is willing to disclose to Receiving

Party certain Confidential Information. The Parties agree that the disclosure by the Disclosing

Party and the receipt by the Receiving Party of the Confidential Information is subject to the

terms of this Agreement.

3.



)4f



Undertaking of Confidentiality, Restriction on U s e and D a m a g e s

3.1



In consideration of the disclosure referred to in Article 2 above, the Receiving

Party agrees that the Confidential Infomiation and the Evaluation Material shall

be held and treated strictly in confidence and may not be disclosed, licensed,

traded, published or otherwise revealed in any manner whatsoever, without the

prior written consent of the Disclosing Party except as provided in Article 4

below.



3.2



The Receiving Party shall (and shall procure that any Affiliated Company shall)

not use or p e m i i t t h e use of the Confidential Information and/or the Evaluation

Material other than for the purpose of evaluating the Area and determining

whether to enter into negotiations in connection with the Possible Transaction

with the Receiving Party.



3.3



The Receiving Party shall (and shall procure that any Person that receives

Confidential Information and/or Evaluation Material pursuant to and in

accordance with Article 4.2 hereof shall) keep any Confidential Infomiation it

receives and any copies thereof and any Evaluation Material secure and

confidential (in a manner no less secure and confidential than Receiving Party

and such Persons keep their respective confidential information) and to prevent

the Confidential Information and any Evaluation Material from being disclosed

in breach of this Agreement.



3.4



The Receiving Party agrees not

by Article 4 below, the fact that

available or that discussions or

place between Disclosing Party

Companies.



3.5



The obligations of the Receiving Party for confidentiality and non-use as set

forth in this Agreement shall commence from receipt of the Confidential

Infomiation by the Receiving Party. Further, the obligation not to disclose shall

not be affected by bankruptcy, receivership, assignment, attachment or seizure

procedures, whether initiated by or against the Receiving Party, nor by the

rejection of any agreement between G N P C and Disclosing Party and/or

Receiving Party, by a trustee of Receiving Party in bankruptcy, or by the

Receiving Party as a debtor-in-possession or the equivalent of any of the

foregoing.



3.6



The Receiving Party agrees to indemnify Disclosing Party against direct

damages (including, losses, damages, claims, expenses and reasonable

attorney's fees) incurred or suffered as a result of a breach of this Agreement

by Receiving Party or its Affiliated Companies. Such direct damages shall be

the sole exclusive remedy, and all other remedies or damages at law or in



to disclose to anyone, except as provided for

the Confidential Infomiation has been made

negotiations are taking place or have taken

and Receiving Party or any Party's Affiliated



^



equity are waived except sucli equitable relief as may be granted under Article

1 1 . In no event stiall the Parties be liable to each other for any other damages,

including incidental, consequential, special, or punitive damages, regardless of

negligence or fault.

4.



Permitted D i s c l o s u r e and Obligation of Receiving Party for Permitted

Disclosures

The Receiving Party may disclose Confidential Information and/or Evaluation Material

without the prior written consent of the Disclosing Party:

4.1



To t h e extent the Confidential Information and/or Evaluation Material is

required to be disclosed under applicable law, order, decree, regulation or rule

of any governmental entity having jurisdiction over the Receiving Party, or any

regulatory entity, securities commission or stock exchange on which the

securities of the Receiving Party or any of its Affiliated Companies are listed or

are to be listed, provided that the Receiving Party shall make ail reasonable

efforts to give written notice to the Disclosing Party prior to such disclosure

(including full details of the circumstances of such disclosure); or



4.2



To the following persons on a need to know basis and only for the purpose

described in Article 3.2:

4.2.1



employees, officers and directors of the Receiving Party;



4.2.2



employees, officers and directors of an Affiliated Company of the

Receiving Party;



4.2.3



any professional consultant o r agent retained by the Receiving Party

or its Affiliated Company; or



4.2.4



any bank, financial institution or entity financing or proposing to

finance the Possible Transaction, including a n y professional

consultant retained by such bank, financial institution o r entity for the,

purpose of evaluating the Confidential Information and/or Evaluation

Material.



Prior to making any such disclosure to Persons under Articles 4.2.3 and 4.2.4

above, however, t h e Receiving Party shall obtain a n undertaking of

confidentiality, on terms no less stringent than contained in this Agreement,

from each such Person; provided, however, that in the case of outside legal

counsel, the Receiving Party shall only be required to procure that such legal

counsel is bound by an obligation of confidentiality.

4.3



The Receiving Party shall be responsible to the Disclosing Party for any act or

omission of the entities and Persons described in Article 4.2 that would

constitute breach of this Agreement as rf the action or omission had been

perpetrated by the Receiving Party and shall immediately notify the Disclosing

Party upon becoming aware that Confidential Information has been disclosed

In, breach of this Agreement.

vrship of Conridentia\n



5.1



I

I

I



Receiving Party acknowledges the Confidential Infomiation, excluding the

GNPC Infomiation, remains the property of the Disclosing Party and t h



Disclosing Party may use such Confidential Infomiation for any purpose without

obligation to the Receiving Party.

5.2



Receiving Party acknowledges that the G N P C Information is and remains the

property of GNPC and GNPC may use such GNPC Infomiation for any purpose

without obligation to the Disclosing Party or Receiving Party. In addition,

Receiving Party acknowledges that in the event that it acquires, directly or

indirectly an interest in the Area, that it may be required to enter into a data

licensing agreement with G N P C with respect to the GNPC Infomiation on terms

to be agreed between GNPC and the Receiving Party.



5.3



The Receiving Party shall acquire no proprietary interest in or title or right to

the Confidential Infomiation.



Return of Confidential Information

6.1



Disclosing Party may demand the return of the Confidential Infomiation at any

time upon giving written notice to Receiving Party.



6.2



Within thirty (30) days of receipt of the notice referred to in Article 6.1 or upon

completion of the Receiving Party's review and/or evaluation of the Confidential

Infomiation, the Receiving Party shall retain no copies of the Confidential

Information, but shall:



6.3



6.2.1



Return all of the original Confidential Infomiation to the Disclosing

Party;



6.2.2



Destroy or delete or cause to be destroyed or deleted all copies and

reproductions (both written and electronic) of Confidential Infomiation

and any Evaluation Material in its possession and/or in the possession

of persons to w h o m it was disclosed by the Receiving Party.

Confidential Information or Evaluation Material that is in electronic

fonriat (including all electronic back-up files subject to Art 6.3.1) shall

also be deleted; and



6.2.3



Provide a written certification, signed by an authorized officer of the

Receiving Party, that Receiving Party has fully complied with its

obligations under this Clause 6.2.



The provisions of Article 6.1 and 6.2 do not apply to the following:

6.3.1



Confidential Information or Evaluation Material that is retained in the

computer backup system of Receiving Party or a Person to whom it

was disclosed under Article 4.2 if the Confidential Infomiation or

Evaluation Material will be destroyed in accordance with the regular

ongoing records retention process of Receiving Party or such Person

and if the Confidential Information is not used prior to its destruction;



6.3.2



Confidential Information or Evaluation material that must be retained

under applicable law or regulation, including by stock exchange

regulations or by governmental order, decree, regulation or rule; and



6.3.3



any corporate documents or reports of the Receiving Party which

contain data derived from the Confidential Information or Evaluation

Material which were presented to its executive board (or the4.



equivalent thereof) and are required in accordance with applicable law

or its document retention policy to be retained;

provided that any Confidential Information and/or Evaluation Material that is so

retained shall remain subject to the terms of this Agreement.

Remedies

The Receiving Party understands and acknowledges that any breach of the temns of

this Agreement may cause the Disclosing Party irreparable h a m , and damages may

not be an adequate remedy, and therefore agrees that the Disclosing Party, an

Affiliated Company of Disclosing Party shall have the right to apply, ex parte without

the need to post any type of bond or security, to a court of competent jurisdiction for

specific perfonnance and/or an order restraining and enjoining any such breach or

further disclosure and for such other relief as may be deemed appropriate. Such right

is to be in addition to the remedies otherwise available to the Disclosing Party, an

Affiliated Company of Disclosing Party at law or in equity.

Term

This Agreement shall terminate on the later of five (5) years from the Effective Date or

the date on which disclosure by Disclosing Party is no longer restricted by the terms of

the Petroleum Agreement(s) currently covering the Area.

Representations and Warranties

The Disclosing Party represents and warrants that it has the right and authority to

disclose the Confidential Information to the Receiving Party. However the Disclosing

Party, its Affiliated Companies and their respective principals, officers, directors and

employees make no representation or warranties, express or implied as to the quality,

accuracy and completeness of the Confidential Information disclosed hereunder, and

the Receiving Party expressly acknowledges the inherent risk of error in the

acquisition, processing, and interpretation of geological and geophysical data. The

Disclosing Party, its Affiliated Companies and their respective principals, officers,

directors and employees shall have no liability whatsoever with respect to the use of

or reliance upon the Confidential Information by the Receiving Party or its Affiliated

Companies or Persons to w h o m the Receiving Party discloses Confidential Infomiation

under Article 4.2.

Assignment

The rights and obligations of the Receiving Party under this Agreement may not be

assigned in whole or in part by the Receiving Party without the prior written consent of

the Disclosing Party. Any attempted assignment by Receiving Party without the prior

written approval of Disclosing Party shall be void. Without limiting the prior provisions

of this Article 10, this Agreement shall bind and inure to the benefit of the Parties and

their respective successors and permitted assigns.

Governing L a w and Dispute Resolution

11.1



This Agreement shall be governed by and interpreted in accordance with the

laws of England and Wales.



11.2



Subject to Article 7 of this Agreement, any dispute arising out of, relating to, or

in connection with this Agreement, including any question regarding ii



existence, validity or termination, shall be settled under the Rules of Arbitration

of the International Chamber of Commerce by three arbitrators appointed in

accordance with said rules. The place of arbitration shall be London, England.

The proceedings shall be in the English language.



12.



11.3



The resulting arbitral award shall be final and binding without right of appeal,

and judgment upon such award may be entered by any court having jurisdiction

thereof. A dispute shall be deemed to have arisen when either Party notifies

the other Party in writing to that effect. Receiving Party understands and

acknowledges that any breach of the tenns of this Agreement may cause the

Disclosing Party irreparable harni for which damages may not be an adequate

remedy. Accordingly, the arbitrator may award both monetary and equitable

relief, including injunctive relief and specific performance or other such relief as

may be deemed appropriate. The Disclosing Party may apply to any competent

judicial authority for interim or conservatory relief; an application for such

measures or an application for the enforcement of such measures ordered by

the arbitrator shall not be deemed an infringement or waiver of the Agreement

to arbitrate and shall not affect the powers of the arbitrator. Any monetary

award issued by the arbitrator shall be payable in U.S. dollars. Each Party

waives any right to damages other than those provided in Article 3.6.



11.4



Unless the Parties expressly agree in writing to the contrary, the Parties

undertake as a general principle to keep confidential all awards in their

arbitration, together with all materials in the proceedings created for the

purpose of the arbitration and all other documents produced by another party

in the proceedings not otherwise in the public domain - save and to the extent

that disclosure may be required of a Party by legal duty, to protect or pursue a

legal right or to enforce or challenge an award in bona fide legal proceedings

before a state court or other judicial authority.



11.5



Any Party that now or hereafter has a right to claim immunity for itself or any of

its assets hereby waives such immunity and agrees not to claim such immunity,

in connection with this Agreement, including any dispute hereunder. This

waiver includes immunity from (A) legal process of any sort whatsoever, (B)

jurisdiction or judgment, award, determination, order or decision of any court,

arbitrator, tribunal or Expert, (C) inconvenient forum, and (D) any effort to

confirm, enforce, or execute any decision, settlement, award, judgment, service

of process, execution order, attachment (including pre-judgment attachment)

or other remedy that results from an expert determination, arbitration or any

judicial or administrative proceedings commenced pursuant to this Agreement.



Non-exclusivity

The disclosure of Confidential Infomiation to Receiving Party is non-exclusive, and

Disclosing Party may disclose the Confidential Information to others at any time

pursuant to thei terms and conditions of the Petroleum Agreements.



13.



No Rights in the Area

Unless otherwise expressly stated in writing, any prior or future proposals or offers

made in the course of the discussions of the Parties are subject to all necessary

management and government approvals and may be withdrawn tjy either Party for any

reason or for no reason at any time. Nothing contained herein is intended to confer

upon Receiving Party any right whatsoever to the interest of Disclosing Party in t h a

Arei



14.



No Waiver

No waiver by either Party of any one or more breaches of this Agreement by the other

Party shall operate or be construed as a waiver of any future breach or breaches by

the same or other Party, whether of like or of different character. Except as may be

expressly provided in this Agreement no Party shall be deemed to have waived,

released or modified any of its rights under this Agreement unless such Party has

expressly stated in writing, that it does waive, release or modify such right.



15.



Modifications

No amendments, changes or modifications to this Agreement shall be valid except if

the same are in writing and signed by a duly authorized representative of each of the

Parties hereto.



16.



Severability

If any term of this Agreement is held by a court of competent jurisdiction to be invalid

or unenforceable, then this Agreement, including all of the remaining ternis, will remain

in full force and effect as if such invalid or unenforceable temn had never been included.



17.



18.



Interpretation

17.1



Headings. The topical headings used in this Agreement are for convenience

only and shall not be construed as having any substantive significance or as

indicating that all of the provisions of this Agreement relating to any topic are

to be found in any particular Article.



17.2



Singular and Plural. Reference to the singular includes a reference to the plural

and vice versa.



17.3



Include. The words "include" and "including" have an inclusive meaning, are

used in an illustrative sense and not a limiting sense, and are not intended to

limit the generality of the description preceding or following such term.



Counterpart Execution

This Agreement may be executed in counterparts and each counterpart shall be

deemed an original Agreement for all purposes; provided that neither Party shall be

bound to this Agreement until both parties have executed a counterpart. For purposes

of assembling the counterparts into one document. Disclosing Party is authorized to

detach the signature page from one counterpart and, after signature thereof by

Receiving Party, attach each signed signature page to a counterpart.



19.



Entirety

This Agreement comprises the full and complete agreement of the Parties hereto with

respect to the disclosure of the Confidential Information and supersedes and cancels

all prior communications, understandings and agreements among the Parties with

respect to disclosure of the Confidential Infomnation to the Receiving Party by the

jh-^v^

|i

Disclosing Party, whether written or oral, expressed or implied.



20.



No Third Party Beneficiaries

20.1



This Agreement is made for the benefit of the Parties, any Affiliated Company

of the Disclosing Party and their respective successors and permitted assigns.



20.2



It is the intention of the Parties that:

(a)

any person who is an Affiliated Company of the Disclosing Party; and

(b)

GNPC in respect of any G N P C Infomnation,

has a right under the U.K. Contract (Rights of Third Parties) Act 1999 to enforce

or enjoy the benefit of any term of this Agreement. Except as aforesaid, a

person who is not a party to this Agreement has no right under such Act to

enforce or enjoy the benefit of any tenri of this Agreement.



20.3



21.



Notwithstanding any provisions of this Agreement, the Parties to this

Agreement do not require the consent of any third party to vary this Agreement

at any time provided that the consent of G N PC will be required for any variation

which relates to any provision as it applies to G N P C Information.



Anti-Bribery/Anti-Corruption

The Parties hereby agree that, in relation to this Agreement and the subject matter

hereof, they shall at all times comply with all applicable law, regulations and codes

relating to anti-bribery and anti-corruption, including but not limited to ensuring that

each of the Parties and their respective representatives shall not engage in any activity,

practice or conduct which would constitute an offence under any such laws, regulations

or codes (as may be amended from time to time).



22.



Notices

All notices authorized or required between the Parties by any of the provisions of this

Agreement shall be in writing, in English and delivered in person or by courier service

or by facsimile which provides written confirmation of complete transmission, and

properly addressed to such Parties as shown below. Oral communication and email

do not constitute notice for purposes of this Agreement and email addresses and

telephone numbers for the Parties are listed below as a matter of convenience only. A

notice given under any provision of this Agreement shall be deemed delivered only

when received by the Party to w h o m such notice is directed, and the time for such

Party to deliver any notice in response to such originating notice shall run from the date

the originating notice is received. "Received" for purposes of this Article 21 shall mean

actual delivery of the notice to the address or facsimile address of the Party specified

hereunder. Each Party shall have the right to change its address at any time and/or

designate that copies of all such notices be directed to another person, by giving

written notice thereof to all other Parties.

D i s c l o s i n g Party Name

Address:

Attention:

Facsimile:

Email:

Telephone



Receiving Party Name

Address:

Attention:

Facsimile:

Email:

Telephone:



IN WITNESS W H E R E O F the duly authorized representatives of the Parties have caused this

Agreement to be executed on the date first written above.

DISCLOSING PARTY



[



]



Signature:

Name:

Title:

Date:



RECEIVING PARTY



[

Signature:

Name:

Title:

Date:



]



ANNEX 4

SAMPLE AOE CALCULATION



SAMPLE ADDITIONAL OIL E N T I T L E M E N T C A L C U L A T I O N

This sample calculation has been prepared to illustrate the Additional Oil Entitlement

(AOE) provisions of Article 10 of the Petroleum Agreement to which this Annex 4 is

attached and made an integral part thereof. The assumptions used, year-by-year cash

flows, inflation rate, and resulting AOE payments are notional only and are neither

based upon, nor represent, an actual situation.



They are designed to illustrate the



mechanics of each of the hypothetical AOE calculations only.



Sample AOE Calculation:

Contractor's Revenues minus Income Taxes minus "Petroleum Costs":

Income Tax Rate:



35%; and



Petroleum Costs:



Contractors' Petroleum Costs including costs advanced on



GNPC's behalf.

Additional Oil Entitlement (AOE):

Discounted Cash Flow

Real Rate of Return (%*)



A O E Rate (%)



12.5% or less



0%



>12.5% but < 17.5%



10%



>17.5% but < 22.5%



12.5%



>22.5% but < 27.5%



20%



>27.5% but < 32.5%



25%



>32.5%



27.5%



*Rate of Return exclusive of Inflation



ANNEX 4

Sample A O E Calculation:

Contractor's Reveunues minus Income Tax minus "Petroleum Costs"

Income Tax Rate : 35%

Petroleum Costs: Contractor's Petroleum Costs including costs advanced on GNPC's behalf



Additional Oil E n t i t l e m e n t ( A O E ) :

Discounted Cash Flow

I



Real Rale of Return %•)



AOE

0.0%



>12.5% 517.5%



10.0%



>17.5%S22.S%



12.5%



>22.5% 527.5%



20.0%

25.0%



.32.5 %

"Rate of Return exclusive of Inflatic



27.5%



S a m p l e A O E C a l c u l a t i o n ( M i l l i o n US Dollars)



Prodution

Year



Contractors'

Hypottietical Net

Cash Flow



1



(S10.0)



2

3

4

5

6

7

8

9

10

U

12

13

14

IS

Ifi

17

18

19

20

Total.



(S20L0)

($15.0)

(S«LO)

(SJSJK

($15.0)



(Saaoi

$105.0

$i7ao

$175.0

$170.0

$165.0

$165.0

$i7ao

$215.0

$185.0

$125.0

$75.0

S25.0

S5.0

$1,545.0



SAn S> 20.5%

TAn 6> 25.5%

YAn gJ 30.5%

ZAn e 35.5%

FAn S> 15.5%

Total AOE

(12.5% real *3.0% AOEl 10% (17.5% reaU 3.0% AOE 2 12.5% (22.5% real+ 3.0% AOE 3 20% (27.5% real+ 3.0% AOE 4 25% (32.5% real+3.0% AOE 5 27.5%

Payments

Inflation)

Inflation)

Inflation)

Inflation)

Inflation)

(S10.0)

(510.0)

(510.01

(S10.0)

($10.0)

(S33.6)

IS31.6)

($32.6)

($311)

($32.1)

($60.5)

($51.4)

($53.6)

($55.9)

($58.1)

($121.9)

($99.4)

($104.6)

($115.9)

($110.1)

($1398)

($151.1)

($163.2)

($176.2)

($190.2)

($197.0)

(S2198I

($244.9)

(S2717)

($176.5)

(S317.4)

($399.6)

($4495)

($283.9)

($355.81

(S341.5)

($416.5)

($504.1)

(S222.8)

IS277.5)

(S87.4)

($164.4)

($373.6)

($513.1)

(S258.6)

($30.5)

57.4

($1570)

(S319.9)

($5277)

$74

$741

($279.0)

(S576.5)

S170.0

$17.0

S116.3

$14.5

($58.6)

$31.5

$165.0

$16.5

$18.5

$56.4

$11.3

($245.5)

($662.5)

$46.3

$148.5

$165.0

$18.6

$26.0

($216.4)

($7918)

$61.1

$16.5

S148.5

$129.9

S170.0

$17.0

$153.0

$19.1

$133.9

$26.8

($175.3)

($968.5)

$62.9

S215.0

S21.5

$193.5

$242

$169.3

$33.9

($93.3)

($1,176.9)

$79.6

Si a.5

S166.5

$20.8

$145.7

$29.1

(S5.3)

($1,478.1)

$68.5

$185.0

S125.0

S12.5

$112.5

$14.1

$98.4

$197

$71.9

$18.0

($1,9420)

$642

$11.8

$47.3

$118

($2,596.0)

$75.0

S7,5

S67.5

S8.4

$59.1

539.6

$19.7

53.9

S3.9

($3,505.8)

$13.2

$25.0

$2.5

S22.5

S2.8

$15.8

$3.9

S4.5

S0.8

$3.2

50.8

($4,748.0)

S26

SS.O

50.5

50.6

$34.5

$137.4

$141.7

$163.3

$47a8



NOTES

1) Rates of Return u^ed above include inflation of 3%

2) Year 10: AOE 1 = 0.10 ' $74.1MM (i.e. 0.10 times Cumulative Cash Flows compounded at 15.5% per



;X2.5% real + 3.0% inflation)) = $7.4 MM



3) Years 11 through 20: AOE 1 in nth year = nth year FA * a i O

4) YEAR 11: SA = ($30.5 MM) ' 1.205 + {$175.0 MM - $7.4 MM) = $116.3 MM

5) YEAR 11: AOE 2 = $116.3 MM'0.125 (i.e. AOE Rate times Cumulative Cash Flow less AOE 1 payment compounded at 20.5% per annum) = $14.5.0 MM

6} Year 12: TA = ($58.6MM)'1.255 + ($165.0 MM - $16.5 MM - $18.6 MM) = $56.4 MM

7) Year 12: AOE 3 = $56.4 MM*0.20 = (i.e. AOE Rate times Cumulative Cash Flow less AOE land less AOE 2 paymens compounded at 25.5% per annum) =$11.3 MM

8) Year 17: YA = ($5.3 MM)'1.305 + ($125.0 MM - $12.5 MM - $14.1 MM - $19.7 MM) = $71.9 MM

7) Year U: AOE 3 = $71.9 MM*0.25 = (i.e. AOE Rate times Cumulative Cash Flow less AOE land less AOE 2 and AOE Spaymens compounded at 30.5% per annum) = $18MM