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(TRANSLATED FROM RUSSIAN)
for exploration of hydrocarbons in Yuzhny Alibek Oil Field
partially located within the limits of the exploration blocks XXII-23-D,E
in Mugojar District, Aktyubinskaya Oblast',
in accordance with the License AE No 1557 as of 29.04.1999
AGENCY OF THE REPUBLIC OF KAZAKHSTAN
JOINT-STOCK COMPANY "KASPIY NEFT'"
Astana - 2000
Section 1. Definitions........................................................
Section 2. Purpose of Contract................................................
Section 3. Term of Contract...................................................
Section 4. Contractual Area...................................................
Section 5. Title to property and information..................................
Section 6. Right of the State to acquire and requisition of minerals (oil)....
Section 7. General rights and obligations of the Parties......................
Section 8. Working Program....................................................
Section 9. Exploration Period.................................................
Section 10. Commercial Oil Pool Discovery....................................
Section 11. Accounting and Reporting..........................................
Section 12. Measuring.........................................................
Section 13. Execution of Sub-contractual Works................................
Section 14. Financing.........................................................
Section 15. Taxes and Payments................................................
Section 16. Accountancy.......................................................
Section 17. Insurance.........................................................
Liquidity and liquid fund.........................................
Protection of Subsoil and Environment.............................
Safety of Local Population and Personnel..........................
Assignment of Rights and Obligations..............................
Procedure for Settlement of Disputes..............................
Guarantees of Contract Stability..................................
Conditions for Termination and Suspension of Contract.............
Language of Contract..............................................
No 1 - License AE No 1557 as of 29.04.99.
No 2 - Working Program (Exploration Period)
No 3 - Approvals and Experts Conclusions
The present Contract for Exploration of Hydrocarbons in Alibek Yuzhny field
partially located within the limits of the exploration blocks XXII-23-D,E in the
territory of Mugojar District, Aktyubinskaya Oblast', Republic of Kazakhstan was
concluded on the 7th of March, 2000, between Agency of the Republic of
Kazakhstan on Investments (hereinafter referred to as Competent Body) and
Joint-Stock Company "Kaspi Neft'" (hereinafter referred to as Contractor) as a
holder of the License AE No 1557 as of 29.04.1999.
Subsoil and all Mineral Wealth contained are government property
accordance with the Constitution of the Republic of Kazakhstan.
Republic of Kazakhstan is willing to conduct efficient and rational
utilization of Mineral Wealth including exploration and test operation of
Alibek Yuzhny Oil Field.
Contractor is willing and financially
rational exploration works.
Government of the Republic of Kazakhstan has authorized the Agency of the
Republic of Kazakhstan on Investments to conclude and execute the Contract.
Competent Body and Contractor have agreed that their mutual rights and
obligations in Exploration of Hydrocarbons will be regulated by the
capable to conduct
NOW THEREFORE, Competent Body and Contractor have agreed as follows:
SECTION 1. DEFINITIONS
The terms and definitions not explained in this Section will have the
meaning attached to them in the Decree of the President of the Republic of
Kazakhstan "On Subsoil and Subsoil Use" as of January, 27, 1996, acting as a law
(hereinafter referred to as Decree "On Subsoil") and other legislative acts on
specific minerals and technogenic mineral formations.
State (Republic) shall mean Republic of Kazakhstan.
Body shall mean a central
body of the Republic of
in the name of the
Mining Allocation shall mean a document attached to the License determining
spatial boundaries of the subsoil area allocated for execution of the works
specified in the License.
Contractual Year shall mean a period of 12 (twelve) successive months
according to the Gregorian Calendar; in the context of the Contract it
begins from the effective date of the Contract.
Effective Date of the Contract shall mean the date given in Paragraph 3.1.
of the Contract.
Legislation on Subsoil Use shall mean Decree of the President of the
Republic of Kazakhstan "On Subsoil and Subsoil Use" as of January, 27,
1996, operating as a law and other legislative acts.
discovery one or
commercially fit for Production in the Contractual Area.
Competent Body shall mean Agency of the Republic of Kazakhstan on
Investments delegated with the rights directly connected with conclusion
and execution of the Contract.
Contract shall mean the present Contract for Exploration of hydrocarbon raw
materials in Alibek Yuzhny oil field between Competent Body and Contractor
as well as all the Appendices to the Contract.
Contractual Area shall mean the territory specified in the License
(Appendices 1,2,3) by the geographical coordinates and allocated for
execution of exploration works.
License shall mean the License AE No 1557 (oil) as of 29.04.1999 issued by
the Government of the Republic of Kazakhstan to the Joint-Stock Company
"Kaspi Neft'" to conduct exploration of hydrocarbon raw materials in Alibek
Yuzhny Oil Field located in Mugojar District, Aktyubinskaya Oblast',
Republic of Kazakhstan.
Licensing Body shall mean "Licensor" executive body with the competence to
issue licenses in accordance with the applicable law.
Oil Field shall mean Alibek Yuzhny oil
containing a natural accumulation of oil.
Taxes shall mean all the taxes and other compulsory payments
state budget of the Republic of Kazakhstan, local budgets and
Tax legislation shall mean Decree of the President of the Republic of
Kazakhstan "On Taxes and other Compulsory Payments to the Budget" No 2235
as of April, 24, 1995, operating as a law, with all amendments and
alterations, and other legislative and legal laws regulating payment of
taxes and fees.
Subsoil shall mean a part of the earth's crust beneath edaphic (soil) layer
and in the absence of the latter - beneath earth surface and floor of water
reservoirs extending down to the depths accessible for Subsoil Use
mean all works
or a part
paid to the
Operation with consideration for technological progress.
Subsoil Use Operations shall mean operations relating to exploration works
conducted in the Contractual Area under the License.
Oil Operations shall mean operations relating to Exploration, Production,
Construction and Operation of underground storing capacities and reservoirs
of oil, Construction and Operation of Oil and Gas Pipelines executed in
land within the limits of rivers, lakes and other inland waters as well as
Marine Oil Operations.
Contractor shall mean Subsoil User, i.e. "Kaspi Neft'" Joint-Stock
which has concluded the Contract with the Competent Body.
Government shall mean Government of the Republic of Kazakhstan.
Accompanying Useful Minerals shall mean the components
with the essential mineral.
Positive practice of Oil Field Development shall mean established and
generally accepted world practice of Oil Operations considered as rational,
safe, efficient and necessary in conducting of Oil Operations.
Exploration shall mean operations
fields and their evaluation.
relating to search of useful
Working Program shall mean all types of design work to be implemented
exploration the Contractual Area.
Hydrocarbon Raw Materials shall mean oil, gas and condensate.
Parties shall mean Competent Body and Contractor
Subcontractor shall mean a legal body or natural person who has concluded
Contractor on execution of a specific part of
Contractor's obligations under the Contract.
Proved Reserves shall mean geological and extractable oil reserves of
Alibek Yuzhny Oil Field evaluated by the state examination.
Bonuses shall mean payments made at the time of specific periods of the
Contract realization: "signing bonus" (for signing of the Contract),
"commercial discovery bonus" (for discovery of a commercial oil field).
Royalty shall mean payments for the right to use subsoil during the process
of hydrocarbon production. In case of test operation, royalty for test
operation shall be specified.
Construction works shall mean operations for construction and operation of
underground facilities of general purpose and for disposal of wastes
Production works shall mean operations relating to extraction of useful
minerals from the subsoil to the land surface and from the technogenic
mineral formations as the state property including all technological
operations up to processing of mineral raw materials.
Rate of discount shall mean the coefficient used for balancing expenditures
shall mean any
where they are determined
natural or legal body except for the
and returns by the beginning of the Contractor's works.
Customs payments shall mean all taxes,
register of customs duties in accordance
Republic of Kazakhstan.
fees and duties specified in the
with normative legal acts of the
SECTION 2. PURPOSE OF THE CONTRACT
The purpose of this Contract is execution of efficient geological
exploration as well as determination and legal registration
contractual relations between the Parties in accordance with the
applicable legislation of the Republic of Kazakhstan.
SECTION 3. TERM OF THE CONTRACT
The Contract becomes effective from the time of its official
registration in the authorized body and is valid during the time
specified in Paragraph 4 of the License.
Term of the
The term of the Contract may be extended
When extended the terms and conditions of the Contract may be
changed by written agreement of the Parties if such changes are in
compliance with the provisions of the License.
expires on the last day of operation of the
SECTION 4. CONTRACTUAL AREA
Contractor carries out exploration of hydrocarbon raw materials
within the limits of the Contractual area in accordance with the
License and provisions of the Contract.
geographical boundaries are found to go beyond the Contractual
Area then the issue of its extension shall be decided by making
additional provisions into the Contract.
Return of the Contractual Area except for the area
commercial discovery is made will be executed after 2005.
SECTION 5. PROPERTY RIGHTS TO STOCK AND INFORMATION
All tangible and intangible assets acquired by the Contractor for
exploration of hydrocarbonic raw materials are property of the
Property rights to stock and other property laws indicated in 5.1.
may be put in pledge or encumbered otherwise to the benefit of the
Third Party in order to provide financing of exploration works in
accordance with the legislation of the State.
The Contractor shall acquire the Information on Subsoil in the
Contractual Area owned by the State in the Republican Center of
geological information of the Ministry of natural resources and
protection of environment of the Republic of Kazakhstan in the
order established by the legislation of the State.
Information on geological structure of the subsoil,
minerals contained, geological parameters of the oil fields,
volume of the reserves, development conditions and other features
of the subsoil contained in geological reports, maps and other
materials are owned by the State if they are obtained from
budgetary allocations and they are owned by the Contractor if they
are obtained from its owned funds.
Geological and other information on Subsoil obtained by the
Contractor in the process of exploration of hydrocarbons shall be
duly transferred for storing, systematization and analysis to the
Republican Center of geological information of the Ministry of
Natural Resources and Environmental Protection of the Republic of
Utilization of the geological information on Subsoil obtained at
the expense of the Contractor for training, research, commercial
and other purposes and transferred in accordance with Paragraph
5.5 of the Contract shall be determined on the basis of a separate
agreement between Contractor and Republican Center of Geological
Information of the Ministry of Natural Resources and Environmental
Protection of the Republic of Kazakhstan in accordance with the
Decree No 1357 as of 7.11.96. of the Government of the Republic of
Kazakhstan "On approval of Regulations for Geological Information
owned by the State and the order of its use for training,
research, commercial and other purposes".
On termination of the Contract all geological information shall be
transferred to the State property. The Contractor is obliged to
transfer all the documents and other material
information on a gratis basis including primary
information to the Republican Center of Geological Information of
the Ministry of Natural Resources and Environmental Protection of
the Republic of Kazakhstan.
SECTION 6. RIGHT OF THE STATE TO ACQUIRE AND REQUISITE OF USEFUL MINERALS
In case of war, natural disasters or other emergencies stipulated
by the law on emergencies, the Government has the right to
requisite a part or all hydrocarbons owned by the Contractor.
Requisition may be exercised to the extent required for needs of
the State throughout the whole period of the emergency situation.
The State guarantees compensation for requested useful minerals in
kind or reimbursing for the cost on the basis of world prices
operating on the day of requisition (for a foreign contractor
reimbursement is made in convertible currency and for a national
contractor - in national currency of the State).
The State has the priority right to acquire hydrocarbons from the
Contractor at the prices not higher than existing world prices.
The limiting volume of the acquired hydrocarbons shall be 50% of
all produced hydrocarbons at the prices not lower than cost price.
SECTION 7. GENERAL RIGHTS AND OBLIGATIONS OF THE PARTIES
CONTRACTOR HAS THE RIGHT:
To carry out exploration of
on an exclusive basis.
hydrocarbons in the Contractual
To make any independent legal actions on use of subsoil within the
limits of the Contractual Area in accordance with the provisions
stipulated in the License and the Contract.
In the Contractual Area and if necessary in other plots of land
allotted to the Contractor in an established order, to construct
implementation of exploration and production works in accordance
with the applicable laws.
To use objects and communications of collective use as agreed with
their owners both in the Contractual Area and outside of its
To conduct negotiations on extension of the term of the Contract
on a priority basis in accordance with the procedure determined in
Paragraph 3.3. of the Contract.
To invite Subcontractors for
related to exploration work.
To assign all or a part of his rights to other persons complying
with the provisions of the Contract and legislation of the State.
Contractor may appoint Operator of the Contract at any time of the
term of the Contract and both Contractor or any other person may
by appointed as Operator hereby.
To terminate his activities in accordance with the provisions
stipulated in the Contract and legislation of the State.
In case of termination of the Contract,
to dispose of his owned property.
To conduct exploration works strictly in accordance
legislation of the State and Working Program.
Contractor has the right
CONTACTOR IS OBLIGED:
Within 90 days after registration of the
implementation of the Working Program.
To use the most efficient methods and technologies in exploration
of hydrocarbons based on the norms and standards accepted in the
To use Contractual Area only for the purposes
License and present Contract.
Not to prevent other persons to move freely within the limits of
the Contractual Area, to use objects and communications of
collective use or conduct any works including exploration and
extraction of any other natural resources except oil if such
activities do not require special safety measures and they do not
interfere with exploration works.
To observe duly agreed technological designs and projects for
exploration of hydrocarbons safe for the personnel and local
stipulated in the
materials and finished products made in the
State provided that they are competitive ecological and technical
To give priority to the State organizations and institutions in
using services for exploration of hydrocarbons including use of
air, railway and water transport provided that these services are
able to meet competition in price, efficiency and quality.
In conducting exploration of hydrocarbons, to take part in
development of social sector of the Region and give priority to
local personnel provided that they have proper experience and
To finance (no less than 1% of annual capital cost of the licensed
object) professional training of local personnel used in the works
under the Contract.
To submit all necessary documents, information and unimpeded
access of the inspecting bodies of the State to the working sites
as they fulfill their duties and eliminate appropriately all the
If required to transfer information related to Exploration to the
third parties only with written consent of the other Party.
To pay timely all taxes and other compulsory
accordance with the law of the State and the Contract.
In his activities, to preserve objects of cultural and historical
importance located in the Contractual Area.
To forecast long-term ecological consequences of his activities
under the Contract and submit these forecasts to the Competent
Body and public organs of environmental protection; the final
forecast to be
not later than one year before
termination of the Contract.
To leave the
requirements of Mining and Sanitary
subsoil and environment.
To restore the plots of land and other natural objects damaged as
a result of the activities of the Contractor to the extent
adequate for further
legislation of the State.
Program and progress
reports to the Competent
in the state
Supervision and protection of
To compensate fully damages resulting from the activities of the
Contractor and inflicted on environment, personnel and other
organizations and population.
Contractor carries out Oil Operations in
License and Working Program agreed with the
supervision of safe procedure of work.
OBLIGATIONS OF THE COMPETENT BODY:
To provide for fulfillment and cancellation of the Contract in the
order and on the
To submit his proposals on withdrawal
License to the Licensing Body.
To provide for a plot of land
accordance with the License.
RIGHTS OF THE COMPETENT BODY:
To represent the State in talks with the
terms and conditions of the Contract.
In the process of execution of the Contract, to approach the
Licensing Body with proposals on modification of the provisions of
To demand regular and sample
provisions of the Contract.
To carry out inspection of the exploration works of the Contractor
relating to his activity under the Contract.
To have access to any works in the
Exploration of Hydrocarbons.
SECTION 8. WORKING PROGRAM
Contractor executes Exploration of Hydrocarbons in accordance with
the Working Program agreed with the Authorized Body on utilization
and protection of subsoil.
Contractor may submit proposals on modification and/or addition of
the agreed Working
additions of the Working Program are made in written form if
mutually agreed by the Parties.
SECTION 9. EXPLORATION PERIOD
Exploration Period consists of six successive years according to
the License and may be extended twice as mutually agreed by the
Parties with each period of extension as long as two years. Hereby
the Parties shall determine the part of the Contractual Area for
further exploration and make appropriate changes in the Working
As Exploration works proceed, in case of commercial discovery the
Contractor may retain the whole territory for himself.
The Contract terminates upon expiry of the Exploration Period with
regard to specific extensions if no commercial discoveries or no
decision on transition to the Production Period were made in the
Contractual Area. If the Contractor refuses to continue operations
under the Contract then he forfeits all the rights on the
Contractual Area and may not
expenses under the Contract.
claim for any
SECTION 10. COMMERCIAL DISCOVERY
If the Contractor makes a discovery of any commercial field of
which can be, to his opinion,
economically profitable then he will immediately inform the
Competent Body thereof and within 30-day period develops Working
Program in order to evaluate its reserves and information required
for determination of profitability of the Field.
Within Exploration Period, the Contractor will submit Design of
(Exploration) to the Central Commission for
The Contractor will execute Test Operation (Exploration) without
conservation and draw up relevant documents essential for expert
assessment of the field reserves.
Commercial Discovery entitles the Contractor with the exclusive
right for conclusion Production Contract provided that provisions
of the License and the Contract are met.
If no Commercial Discovery is made in the Process of Exploration
then the Contractor has no right to compensate the expenses
incurred in the process of Exploration.
SECTION 11. ACCOUNTING AND REPORTING
The Contractor undertakes to provide for accounting and within a
specified period to keep all documents pertaining to Exploration
under the Contract in accordance with the Legislation of the
Prior to the 10th day of the following month, the Contractor will
submit to the Competent Body a detailed report on his business
activity in the preceding quarter.
The Contractor will submit reports on his business activity to
relevant state organs in the order and within a specified period
of time according to the Legislation of the State.
The Competent Body will have the right to conduct inspection of
adherence of the Contractor to the terms and conditions of the
Contract and may attend, through his representatives, the site of
Exploration conducted by the Contractor.
SECTION 12. MEASUREMENT
Measurement and weighing of Crude Oil produced in the Contractual
Area shall be taken by the Contractor in accordance with the
methods and practice accepted in the State.
Contractor with the participation of the
conduct annual tests of the equipment and
weighing and measurement of Crude Oil.
If the tests or inspection detect any defect of the equipment and
instruments and the time of the defect cannot be determined
properly then the time of the defect is determined as half the
time from the previous measurement to the day of detection of the
Competent Body shall
instruments used for
If the Contractor considers it is essential to make any changes in
the method of measurement or replace the measuring instruments
installed then he must provide notification to the Competent Body
not later than 15 days before so that the representatives of the
Competent Body can be present as these changes or replacement take
SECTION 13. EXECUTION OF SUBCONTRACT WORK
Contractor submits to the Competent body a plan of subcontract
work, a list of subcontracts for supply of materials, equipment
and services as a part of the Working Program to be concluded in
the next calendar year with estimated costs of the subcontracts as
well as a list of potential local and foreign subcontractors.
In conclusion of all subcontracts, the Contractor will give
priority to services, equipment, materials and finished products
made in the State if they are competitive in their ecological and
technical specifications, prices, working parameters and terms of
Contractor is responsible for execution of subcontract
accordance with the legislation of the State.
SECTION 14. FINANCING
Contractor shall assume responsibility for full financing of his
activities under the Contract in accordance with the Working
Program agreed by the Parties.
Contractor may freely obtain credits for financing his activities
in any currency both in the State and outside if it complies with
the legislation of the State.
Contractor may have accounts both in national and foreign currency
in the banks of the State and outside for the purpose of execution
of the Contract in order to receive monetary resources as receipts
and earnings from the Contract.
SECTION 15. TAXES AND PAYMENTS
In connection with the activities under the Contract,
Contractor undertakes to pay taxes and payments in accordance with
Tax Legislation of the Republic of Kazakhstan and provisions of
the Contract. Whatever the organizational form of the Contractor,
he shall be considered as a single taxpayer for the purposes of
of taxes and payments in connection
activities under the Contract.
Contractor undertakes to pay the following taxes and payments:
Income tax for legal entities. The Contractor is responsible for
full deduction and transfer to the budget of the income tax
withheld at the source of payment in accordance with Section II of
the Law of the Republic of Kazakhstan "On taxes and other
compulsory payments to budget" No 2235 as of April, 24, 1995
(hereinafter referred to as Tax Code) applicable on the effective
date of the Contract.
Income tax for legal entities shall be paid at the rates specified
in Articles 30-33 and 37 of Tax Code.
The Contractor is responsible for full deduction and transfer to
budget of income tax on legal entities withheld at the source of
payment in accordance with provisions of the Tax Legislation and
international agreements ratified by the Republic and applicable
on the date of emergence of tax obligations with the exclusion of
dividend tax calculated in accordance with the Tax Legislation
applicable on the Effective Date of the Contract. In the case of
establishment of permanent representation of non-resident legal
entity then the Contractor in addition to income tax shall be
imposed with a tax on net income of this permanent representation
calculated in accordance with the Tax Legislation applicable on
the Effective Date of the Contract.
Value-added tax (VAT). The Contractor shall pay value-added tax in
accordance with Section III of the Tax Code.
Excises. The Contractor shall pay excises in accordance with
Section IV of the Tax Code. The excisable goods are exclusively
those listed in Article 76 of the Tax Code.
Special taxes and payments of subsoil users:
Signing Bonus. The Contractor shall pay Signing Bonus in the
amount of 100000 (one hundred thousand) US dollars. The Signing
Bonus shall be paid within 30 days from the Effective Date of the
The Contractor shall submit the Declaration on the Signing Bonus
to the Regional Tax Department in the place of registration prior
to the 10th day of the month following a reporting one.
Bonus of Commercial Discovery. The amount of the Bonus of
Commercial Discovery shall be determined in the Contract for
Production or for Exploration and Production concluded by the
Contractor for the oil fields located in the Contractual Area.
Royalty. The amount of the Royalty shall be determined in the
Contract for Production or for
concluded by the Contractor for the oil fields located in the
In the event of test production of hydrocarbons within the limits
of the Contract, the Contractor shall pay royalty at the rate of
2% of the volume of hydrocarbons produced.
The object of royalty taxation shall be the volume of the produced
hydrocarbons calculated in cost value on the basis of the average
selling price of the hydrocarbons for the reporting period without
regard of indirect taxes and reduced by the sum of actual expenses
for transportation to the place of sale.
In the event of production of common useful
underground water, the Contractor shall pay royalty at the rates
and in the order established by the Tax Legislation effective on
the date of emergence of payment obligations.
Royalty shall be paid on a monthly basis not later than the 15th
day of the month following a reporting one.
A reporting period for royalty is a calendar month.
Royalty declaration shall be submitted to the tax body not later
than the 10th day of the month following a reporting one.
Declaration form shall be approved by an authorized state body.
Money form of royalty payment may be replaced by payment in kind
in the order established by the legislation with sending a
notification on the order of payment to the Contractor no less
than 60 days prior to the time of replacement.
Compensation of historical expenses.
Total Cost of all expenses on prospecting and exploration work
(historical expenses) in the licensed area of the Alibek Yuzhny
oil field incurred for the account of the Budget of the Republic
amounts to 2 831 630 (two million eight hundred and thirty one
thousand and six hundred and thirty) US dollars.
The Contractor undertakes to pay 0,5% of the sum specified in
184.108.40.206.1. to the budget of the Republic of Kazakhstan and
amounting to 14 158 (fourteen thousand and one hundred and fifty
eight) US dollars. The order of payment of historical expenses is
in the Agreement on
concluded between the Committee of Geology and
Protection of Subsoil and the Contractor as of October, 21, 1999,
Time and order of payment of the remaining total sum of all
expenses for exploration works specified in 220.127.116.11.1. of the
Contract and amounting to 2 817 472 (two million and eight hundred
and seventeen thousand and four hundred and seventy two) US
dollars shall be determined in the Contract for Production of
hydrocarbon raw materials to be concluded by the Contractor on the
oil fields discovered in the Contractual Area.
In the event of setting up a joint
venture with foreign
participation, the Contractor is obliged to pay 5% of the total
cost of historical expenses specified in 18.104.22.168.1. of the
Contract for the right to use the information.
Report on the amount of compensation of the historical expenses
shall be submitted to tax authorities in the place of registration
prior to the 20th day of the month following a reporting calendar
Payments of the sums of compensation of the historical expenses
shall be made prior to the 25th of the month following a reporting
The Contractor shall be responsible for violation of the order of
calculation and payment of the sums of compensation of the
envisaged by the Tax
violations of the order of calculation and payment of taxes and
other compulsory payments to the budget.
Excess profits tax. In the event of conclusion of the Production
Contract, the Contractor shall pay excess profits tax at the rates
and in the order established by the Legislation on the date of
conclusion of the Production Contract.
Fee for registration of securities issue and assignment of
national identification number for issue of the stocks not subject
to state registration. The Contractor shall pay a fee for
registration of securities issue and assignment of national
identification number for issue of the stocks not subject to state
registration in accordance with Section V of the Tax Code valid on
the date of emergence of payment obligations.
Fees for passage of motor transport facilities in the territory of
the Republic of Kazakhstan
are paid by the Contractor in
accordance with the Legislation of the Republic valid on the date
of emergence of payment obligations.
Payment for use of radio-frequency resource of the Republic of
Kazakhstan shall be paid at the rates approved by the Decree of
the Government of the Republic of Kazakhstan as of December, 11,
1996, No 1526, valid on the date of emergence of payment
Social Tax. The Contractor shall pay Social Tax in accordance with
Section VII of the Tax Code valid on the effective date of the
Land tax. The Contractor shall pay a land tax in accordance
Section VII of the Tax Code.
Tax on transport facilities. The Contractor shall pay a tax on
transport facilities in accordance with Section VIII of the Tax
Tax on property of legal entities. The Contractor shall pay a tax
on property of legal entities in accordance with Section IX of the
Auction fees. The Contractor will pay auction fees in accordance
with the Tax Legislation valid on the date of emergence of payment
Registration fee for legal persons. The Contractor will pay a
registration fee for legal persons in accordance with the Tax
Legislation valid on the date of emergence of payment obligations.
License fee to acquire the right of carrying out a specified
business activity. The Contractor will pay a license fee to
acquire the right of carrying out a specified business activity
fees in accordance with the Tax Legislation valid on the date of
emergence of payment obligations.
Customs duties. The Contractor will pay the customs duties in
accordance with the Law of the Republic of Kazakhstan "On Customs
in the Republic of Kazakhstan as of July, 20, 1995, No 2368, with
alterations and additions valid on the effective date of the
Payment for surface water resources. The Contractor will effect a
payment for water used from the surface water resources in
accordance with the Tax Legislation valid on the date of emergence
of payment obligations.
Tax on forest utilization (forest income). The Contractor will pay
a tax on forest utilization (forest income) in accordance with the
Tax Legislation valid on the date of emergence of the payment
Payments for environmental
The Contractor will effect
payments for the environmental pollution in accordance with the
Legislation effective on the date of emergence of the payment
Penalties for violation of the law on environmental protection.
Penalties for violation of the law on environmental protection are
paid in accordance with the Legislation valid on the date of
detection of the violation.
Mandatory contributions to the Pension Fund. The Contractor will
pay mandatory contributions to the Pension Fund in the order and
at the amount determined by the Tax Legislation on Wages Fund for
citizens of the Republic of Kazakhstan.
State tax. The Contractor will pay state tax in the order and at
operating on the date of emergence of payment
Payment made by legal and physical persons for use of the symbols
of the City of Almaty in their brands, service and trade marks.
The Contractor will make payments for use of the symbols of the
City of Almaty in their brands, service and trade marks in
accordance with the Legislation valid on the date of emergence of
The Contractor will pay a fee for using the words "Kazakhstan",
"Republic", "National" (in full or any derivatives) by legal
(except for the state
organizations) in their company names, service, brand and trade
marks in accordance with the Legislation valid on the date of
emergence of payment obligations.
Taxation of personnel. Personnel of the Contractor will pay taxes
and other payments in accordance with the Tax Legislation valid at
the time of emergence of the tax obligations. The Contractor will
be responsible for the full and correct deduction of an income tax
on natural persons from the source of payment to the budget in
accordance with the Tax Legislation.
Taxation of Subcontractors.
The Contractor will advise his
subcontractors which render services to him that they and their
personnel are obliged to pay taxes in accordance with the Tax
Legislation and the Contractor will be responsible for the full
and correct deduction of the taxes from the source of payment to
Taxation of assignment of rights. The incomes from assignment of
rights will be subject to taxation in accordance with the Tax Code
valid on the date of assignment..
Transfer price formation. The Contractor admits that the tax
service may control the prices used by the Contractor in his
commercial and financial operations and correct the Contractor's
income for the purpose of taxation according to the Article 138-1
of the Tax Code.
General tax liability. Taxes paid by the Contractor in accordance
with the terms of the Contract will not exempt the Contractor from
the obligations to pay taxes on his business activities not
related to the Contract and established by the legislation of the
For the purpose of tax calculation,
Contractor will not unite the revenues and deductions related to
the Contract with the revenues and deductions outside the scope of
Payment and placing of taxes and other payments. Any taxes and
payments determined in this Contract shall be paid by the
Contractor in the order and at the rates determined by the
Legislation of the Republic.
All taxes, fees and duties shall be paid in Tenge or other
subsequently used in the Republic unless
otherwise provided by the Legislation. All taxes and payments
shall be paid as determined by the legislation of the Republic to
the accounts indicated by the tax and financial service of the
Penalties and fines. Penalties and fines for the infringement of
the Tax Legislation and untimely payment of the taxes to the
budget will be applied in accordance with the Tax Legislation
valid at the time of detection of the infringement.
Fines. Fines for untimely payment taxes and fees to the budget are
applied in accordance with the Tax Legislation valid on the date
of detection of the violations.
Stability of tax conditions. Tax conditions determined by the
Contract (Tax regime) will be effective without any changes until
the Contract is terminated with the exclusion of the cases when
the changes of the Tax conditions are mutually agreed by the
Parties of the Contract and do not entail any changes in regard of
the initial economic interests of the Republic of Kazakhstan and
Access to information. The Contractor admits that the tax bodies
of the Republic will have access to any information related to the
accounts of the Contractor including any foreign bank accounts of
the Contractor including the foreign bank accounts. The Contractor
agrees to submit to the tax service of the
information related to such accounts and hereby waives the right
of confidentiality which may exist in accordance with the relevant
provisions of the Legislation on bank secrets and other relevant
SECTION 16. ACCOUNTING
The Contractor undertakes to effect full and correct accounting of
all revenues and expenses under the Contract in accordance with
the accounting procedure determined by the Legislation of the
All accounting books and documents of the Contractor shall be
accessible for inspection by the Competent Body and official
organs within their competence determined by the Legislation of
SECTION 17. INSURANCE
Within 90 days from the effective date of the Contract, the
Contractor will develop and submit to the Competent Body for
approval the Insurance Program against risks, properties
liabilities related to the Exploration Program and:
transportation and warehousing of the goods delivered to
the site of the Exploration works and test production;
the property of the Contractor used in the
implementation of the Exploration works;
the environmental pollution including soil as well as the
expenses on the elimination of the effects of pollution
including melioration and land restoration;
general civil and legal liability for the third parties.
The Contractor is obliged to effect social insurance of his
employees against production accidents, occupational diseases
including the costs of medical treatment of the employees due to
The Contractor may choose insurance companies at his discretion in
accordance with the legislation of the State.
SECTION 18. LIQUIDATION AND LIQUIDATION FUND
180 days before the expiration date of the Contract the Contractor
will submit to the Competent Body for approval a program of
liquidation of the effects of his activities in the Contractual
area under the Contract including the liquidation expense budget.
Abandonment and conservation of oil, gas and other wells shall be
carried out in accordance with the provisions of the "Regulations
on Conservation of Wells in oil and gas fields, underground
storing facilities and thermal water reservoirs" and "Regulations
on the procedure of abandonment of the wells and write-off of the
expenses on their construction".
Liquidation Program shall provide for elimination or liquidation
of the facilities and equipment used in the process of activities
of the Contractor in the Contractual Area.
In order to provide for full financing of the Liquidation Program,
the Contractor will set up Liquidation Fund in the amount of 1% as
of Feasibility Study of the Exploration Works. The Liquidation
Fund is governed by the Contractor.
The allocations to the Liquidation Fund in the amount of 1% will
be effected by the Contractor annually and will be included into
the costs of the Exploration works.
If the actual costs of the liquidation exceed the Liquidation Fund
financing of the
If the actual costs of the liquidation are less than the
Liquidation Fund then the unused balance will be returned by the
Government to the Contractor and will be included into the taxable
revenue of the Contractor.
If the Government decides on his own responsibility to extend
operation of all or a part of the facilities transferred to him by
the Contractor following the expiration date of the Contract then
in this case the Contractor will bear no responsibility for
implementation of the Liquidation Program and will assign to the
State all the rights to use the assets actually saved up in the
SECTION 19. PROTECTION OF MINERAL WEALTH AND ENVIRONMENT
In the process of implementation of the Petroleum Operations the
Contractor will be obliged to observe the Legislation of the State
relating to protection of Subsoil and Environment and take all
necessary measures for the following:
protect life and health of local population;
ensure rational and complete utilization of Mineral Wealth;
preservation of natural landscapes and rehabilitation of disturbed lands
and other geo-morphological structures;
preservation of the energetic qualities of the upper layers of the Subsoil
in order to prevent earthquakes, landslips, overflows, terrain subsidence.
In the process of exploration
works conducted by the Contractor,
shall be of first priority: I
preservation of environment;
prevention of technogenic land desertification;
prevention of water and wind erosion of soil;
insulation of lost circulation and fresh horizons in order to prevent their
application of non-toxic
re-agents for drilling fluids;
prevention of exhaustion and pollution of underground water;
cleaning and re-circulation of drilling mud;
disposal of remnants of drilling materials, fuels and lubricants using
environmentally safe procedures;
II. Requirements for subsoil protection:
to provide for complete and integrated geological study of the Subsoil in
order to carry out a certain evaluation of the quantities and structure of
hydrocarbon raw materials in the oil fields and subsoil sections allocated
for use including those not connected with production;
to ensure rational and complete utilization of the subsoil resources during
all stages of the Exploration works;
reliable accounting of the extracted useful main and accompanying minerals
and products of processing of mineral raw materials and wastes in the
process of the oil field development;
to use subsoil in accordance with the provisions of the Legislation of the
Republic on protection of environment preserving the subsoil from dangerous
technogenic processes during exploration and production of hydrocarbon raw
protection of subsoil from water invasion, fires, explosions, collapses of
superincumbent rock mass and other natural factors reducing quality of the
subsoil and complicating development and operation of the Oil Field;
to prevent subsoil pollution in the process of exploration of hydrocarbon
raw materials especially in underground storage of oil and gas or other
substances and materials, disposal of hazardous substances and wastes and
to observe the procedure stipulated by Section 27 of the Contract for
suspension and termination of exploration of the hydrocarbons.
To ensure proper sanitary and ecological conditions for storing and
disposing of industrial and household wastes in order to prevent their
accumulation in catchment areas and in places of occurrence of underground
to ensure reliable and correct evaluation of the volume and structure of
the hydrocarbon raw materials including accompanying components;
The Contractor ensures complete and reliable geological, hydrological,
ecological, engineering and technological studies of the objects of
exploration of hydrocarbon raw materials.
Prior to commencement of his activities in subsoil use, the
Contractor shall carry out evaluation of the environmental impact
of the planned operations to be agreed with the State Sanitary
and Epidemiological Service and permitted by the State organs for
Data on technological monitoring and reports on environmental
impact shall be submitted
environmental protection. 19.5. The Contractor is obliged to
eliminate environmental violations committed by him, carry out
rehabilitation works and fully compensate damage inflicted in the
process of implementation of the Contract.
State control for observance of the Legislation on Protection of
Subsoil and Environment is exercised by duly authorized state
bodies. The project shall be agreed with the State Sanitary and
The Contractor shall implement the
Environment in the Contractual Area.
After termination of the Contract or return of the Contractual
Area by stages, the Contractor shall transfer the Contractual
Area in the conditions prior to the operations under the Contract
and suitable for further proper use in accordance with the
Legislation of the State.
Any infringements (deterioration) of the environmental conditions
and the Contractual Area itself shall be restored at the expense
of the Contractor up to the point suitable for further proper
The Subsoil User is obliged to inform public opinion regarding
ecological situation in the Contractual Area and its changes
resulting from the Exploration works conducted by the Contractor.
To make up a balance and organize a monitoring
previously drilled in the Contractual Area.
of the wells
SECTION 20. SAFETY OF LOCAL POPULATION AND PERSONNEL
In the course of the implementation of the Exploration works
under the Contract, the Contractor will ensure the observance of
the safety norms and sanitary regulations stipulated in the
Legislation as well as he will take actions for prevention and
elimination of the accidents and occupational diseases.
The Exploration works presenting a danger for human life and
health shall be prohibited in accordance with the Legislation.
The State Safety Control for observance of the standards of
safety and industrial
Exploration will be carried out by a specially authorized body of
Exploration works are as follows:
to give access to the
Exploration works only to the persons specially trained and
qualified as well as the management of the Exploration Works will
be entrusted only to the persons having proper education and
to supply the working cloths and the means of individual and collective
protection required for personal safety to all the persons involved in the
to operate the machines, equipment and materials complying with the
applicable standards of safety and sanitary;
storing and consumption of the explosives and
accessories as well as their safe and correct handling;
to carry out technical, geological, geodesic and other monitoring necessary
and sufficient for technological working cycle and forecasting of possible
to renew technical documentation and programs of the average liquidation
which make more precise the borders of the areas safe for work;
observance of the terms and conditions of the project systems of Oil field
Development and Construction of Oil, Gas and Water fields;
to carry out relevant sanitary and hygienic actions to prevent professional
diseases and professional poisoning;
to create conditions favorable for health;
to organize routine and periodical medical examination of the employees
working in harmful and unfavorable conditions;
to organize lab instrumental control of the air in the working zone and
monitoring of harmful factors in working stations (noise, vibration,
microclimate, severity and labor intensity etc.);
to provide for sufficient quantity of good potable water and complete set
of sanitary and amenity premises in accordance with the approved standards
In case of emergence of any direct threat to life and health of
the employees and/or local population, the executive officers of
the Contractor are obliged to stop work immediately and to ensure
evacuation of the people to a safe place and supply complete
information hereof to the Competent Body and regional executive
To execute all operations under the Contract for Exploration of
Hydrocarbon Raw Materials and Construction of Oil Fields only in
accordance with the project designs positively approved by Mining
Supervision Department of the Agency on Emergency Situations of
the Republic of Kazakhstan.
SECTION 21 FORCE-MAJEURE
Party of the Contract
will be default on their
obligations under the Contract if this default or delay in
fulfillment of their obligations under the Contract occurs due to
the force-majeure circumstances:
The circumstances or events which either Party is unable to
foresee and to control include military conflicts, natural
calamities and disasters (fires etc). The given list is not
In the event of
will notify the other Party at short notice by handing or mailing
a written notification specifying the date of commencement and
description of the force-majeure circumstances.
In the event of force-majeure circumstances the Parties will meet
at the earliest possible date in order to find an equitable
solution of the situation and will take all possible measures to
minimize the consequences of the force-majeure.
If the Operations under the Contract are completely or partially
suspended due to the force-majeure circumstances then the term of
the Operations will be extended for a period equal to the
duration of this suspension and resumed from the time of ceasing
of force-majeur circumstances.
SECTION 22. CONFIDENTIALITY
The information received or acquired by either Party in the
process of implementation of the Contract will be considered
may use the
information for drawing up reports envisaged by the Legislation
of the Republic.
The Parties have no right to transfer confidential information to
the third parties without consent of the other Party with the
exclusion of the following cases:
if such information is used in court proceedings;
if the information is furnished to the third parties rendering services to
the Contractor provided that such third party assumes the obligation to
regard this information as
confidential and to use it only for the purposes specified by the Parties
and during the period of time determined by the Parties;
information is furnished to any bank or other
organization from which the Contractor receives financial funds provided
that such a bank or other financial organization assumes the obligation to
consider such information as confidential and use it only for the specified
In accordance with the Legislation of the Republic, the Parties
will determine the time for keeping information confidential as
implementation of the Exploration Operations in the Contractual
SECTION 23. ASSIGNMENT OF RIGHTS AND OBLIGATIONS
Assignment of the rights and obligations under the Contract to
the third party except for an associated
company of the
Contractor may be permitted only with a written consent of the
connected with assignment of the rights and
obligations under the Contract shall be born by the Contractor
and shall not be compensated by the State.
For as long as the Contractor continues to take any part in the
Contract, he and the third party to which he assigned the rights
and obligations shall be collectively
responsible for the
SECTION 24. APPLICABLE LAW
Legislation of the State will be applied for the purpose of the
Contract and other agreements signed on the basis of the
The Contractor assumes an obligation to fulfill the international
obligations of the State for protection of environment in the
Contractual Area and land sections linked with it.
SECTION 25. PROCEDURE FOR SETTLEMENT OF DISPUTES
The Parties will take all
necessary actions to settle the
under the Contract by means of
If any dispute cannot be settled by means of negotiation within
60 (sixty) days from the date of its emergence then the Parties
may transfer the disputable matter to the courts of the State
authorized to consider such disputes.
GUARANTEES OF STABILITY OF THE CONTRACT
Terms and conditions of the Contract will
throughout the effective term of the Contract.
Alterations and amendments unfavorable for the Contractor and
adopted after conclusion of the Contract shall not be applied to
In the case of such alterations and amendments specified in 27.2.
the Parties will be guided by Paragraph 15.11. of the present
TERMINATION AND SUSPENSION OF THE CONTRACT
Body shall suspend the Contract in a binding order
The License is suspended;
There is a direct threat to life or health of the people working
residing in a zone influenced by the operations under the Contract;
The Competent Body has the right to suspend the Contract in the
the Contractor executes the operations not provided for in the Working
in the process of his activities, the Contractor violates the legislation
of the State pertaining to protection of subsoil, environment and safe
in the process of his activities, the Contractor violates the procedure of
payment of taxes and other compulsory payments specified in the Contract;
the Contractor is declared bankrupt in accordance with the legislation of
the above-mentioned list may be added as mutually agreed by the Parties.
In case of suspension of the Contract, the Competent Body gives a
written notification to the Contractor on the reasons of such
term for their
The Contract will be renewed after the notice of
the reasons for suspension of the Contract.
The Contract may be early terminated only in the following cases:
when the Contractor refuses to eliminate the reasons responsible for
suspension of the Contract or fails to eliminate them by the date specified
by the Competent Body;
in the case of early termination of the License;
when the Contract is declared invalid in accordance with the Legislation on
if any fact of violation of the Legislation of the State in signing and
registration of the Contract is established in legal form;
if any fact of essential departure of the terms and conditions of the
Contract from the provisions of the License or competitive conditions on
the basis of which the License was granted to the Contractor;
if the Contractor assigns all or a part of his rights under the Contract to
the third party in defiance of Section 24 of the Contract;
if any fact of intended furnishing of false information on implementation
of Exploration in the Contractual Area to the Competent Body or other
official body by the Contractor is established in legal form;
if the Contractor effects repeatedly the actions responsible for the
previous suspension of the Contract;
if the Contractor discontinues his operations under Working Program for a
term of more than 90 days except for the events caused by the circumstances
if the provision for confidentiality of information under the Contract is
The Contract may be terminated due to the reasons specified in
27.5. within 30 days after the date of receipt of written
notification of early termination of the Contract from the
The Parties shall not be exempted from their current liabilities
under the Contract which remain unfulfilled by the time the
notification of termination of the Contract is received by the
SECTION 28. LANGUAGE OF THE CONTRACT
The text of the Contract, appendices and supplemented documents
are made up in Kazakh and Russian and both copies are identical
If any differences or disputes arise between Kazakh and Russian
texts then the Russian text will be given a preference.
The Parties agree that Russian will be used as a language of
communication. From the effective date of the Contract, all
technical documentation and information on Exploration Operations
will be made up in Russian.
pertaining to administrative
activities will be made up in Russian or Kazakh language.
SECTION 29. ADDITIONAL PROVISIONS
All notifications and document required as per execution of this
Contract will be considered as duly submitted or received by
either Party only if they are actually submitted or received.
All notifications and documents shall be handed over personally
or transmitted by mail, registered air mail, fax, telex or
telegraph to the following addresses:
Address of the Competent Body
Address of the Contractor
Astana, Mira Str., 10
Tel.:118 161, 118 152
Of the Republic of Kazakhstan
480100 Republic of Kazakhstan,
Atyrau, Lenina Str., 4.
tel., fax: 63-66-44
"Kaspi Neft'" Company,
If the address under the Contract changes then the Party involved
will give a notice thereof to the other Party.
All appendices to the Contract shall be considered as integral
parts of the Contract. With any differences or discrepancies
between the provisions of the appendices and the Contract itself,
the latter will be given a preference.
Any amendments or additions to the Contract not conflicting with
the provisions of the License will be drawn up upon written
consent of the Parties. Such an agreement will be an integral
part of the Contract.
The present Contract is concluded by the duly authorized
Parties as of March, 7, 2000, Republic of Kazakhstan.
representatives of the
Agency of the Republic of Kazakhstan
By: /S/ D.O.Kuanyshev
By: /S/ K.M.Shanenov
of the Republic of Kazakhstan
"Kaspi Neft'" Company,