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REPUBLIC OF YEMEN



PRODUCTION SHARING AGREEMENT

BETWEEN

MINISTRY OF OIL AND MINERALS



AND



1- OCCIDENTAL OF YEMEN (BLOCK 75), LLC

2- TG HOLDINGS YEMEN INC.

3- YEMEN GENERAL CORPORATION

FOR OIL & GAS



IN MARKHA AREA



BLOCK (75)



MARIB - SHABWA GOVERNORATES REPUBLIC OF YEMEN



PRODUCTION SHARING AGREEMENT



BETWEEN



MINISTRY OF OIL AND MINERALS



AND



1. OCCIDENTAL OF YEMEN (BLOCK 75), LLC



2. TG HOLDINGS YEMEN INC.



3. YEMEN GENERAL CORPORATION FOR OIL & GAS



IN MARKHA AREA



BLOCK (75)



MARIB - SHABWA GOVERNORATES



Preamble

This Agreement was made and entered into in Sana'a on the ....... day of .......... 14..... H corresponding to the .............day of ........... 200---, between the Ministry of Oil and Minerals (hereinafter referred to as "Ministry" or "MOM")and:



Occidental of Yemen (Block 75), LLC, a company duly organized and existing under the laws and regulations of the State of Delaware, United States of America (hereinafter referred to as "Occidental") and;



TG Holdings Yemen Inc. a corporation duly organized and existing under the laws and regulations of the Turks & Caicos Islands, B.W.I. (hereinafter referred to as ("TransGlobe") and;



the Yemen General Corporation for Oil and Gas, a corporation duly organized and existing under the laws of the Republic of Yemen, (hereinafter referred to as ("the Corporation") Occidental, TransGlobe and the Corporation are hereinafter referred to jointly and collectively as the "CONTRACTOR".



WHEREAS, all natural resources including all their types and energy sources existing in the surface or subsurface of the ground, in the territorial waters, or the continental shelf and the entire exclusive economic zone of the REPUBLIC OF YEMEN are the property of the STATE; and





WHEREAS, the STATE wishes to promote the development of potential Petroleum resources in the Agreement Area defined in the Agreement and the CONTRACTOR wishes to join and assist the STATE in the Exploration, Development and production of the potential Petroleum resources in the Agreement Area, Markha, BLOCK (75), Marib-Shabwa Governorates, REPUBLIC OF YEMEN; and



WHEREAS, the STATE authorized the MINISTRY to negotiate and execute this Agreement in accordance with terms negotiated herein between the MINISTRY and the CONTRACTOR; and



WHEREAS, a law shall be issued expressly ratifying this Agreement; and



WHEREAS, the CONTRACTOR is willing to undertake the obligations provided under this Agreement as a contractor with respect to the Exploration and Development (including production, storage and transportation of Crude Oil in the Agreement Area) and possesses all the necessary financial resources and the technical and professional competence to carry out the Petroleum Operations described under this Agreement.



NOW, THEREFORE, the Parties hereto agree as to the following:



ARTICLE 1

DEFINITIONS



1.1 An "Affiliated Company" means a company:



a. in which the share capital conferring a majority of votes at stockholders' meeting of such company is owned directly or indirectly by a Party hereto; or



b. which the owner directly or indirectly of share capital conferring a majority of votes at stockholders' meetings of a Party hereto; or



c. whose share capital conferring a majority of votes at stockholders' meeting of such company and the share capital conferring a majority of votes at stockholders' meeting of a Party hereto are owned directly or indirectly by the same company; or



d. which directly or indirectly controls, is controlled by, or is under common control with a Party hereto.For the purpose of this definition, the word "control" means the right to exercise more than fifty percent (50%) of the voting right at shareholders' or partners' meeting. For the purposes of this definition, the term "Party hereto" means the MINISTRY or any of the entities comprising the CONTRACTOR.



1.2 "Agreement" shall mean this Production Sharing Agreement and the attached Annexes.



1.3 "Agreement Area" means the area as described in Annex "A" and shown on the map labeled Annex "B" which are attached to this Agreement. This area may be reduced from time to time in accordance with Article 5 of this Agreement.



1.4 "Associated Gas" means the Gas which is associated with Crude Oil when it is produced from any well in the Agreement Area, or can be acquired after separation at the lease separators. The aforesaid description includes all the elements that are components of the Associated Gas prior to its processes through the extraction, condensation, distillation and liquification facilities.



1.5 "Barrel" or "BBL" consists of forty-two (42) US gallons measuring a liquid at a temperature of sixty degrees Fahrenheit (60F) and atmospheric pressure of 14.70 PSIA.



1.6 "Commercial Discovery" means a discovery which the CONTRACTOR determines to be worthy of commercial Development, as set forth in Article 3.5 of this Agreement.



1.7 "Commercial Gas Well" means the first well on any geological feature which, after testing for a period of not more than thirty (30) consecutive Days where practical, and in accordance with sound and accepted Petroleum Industry production practices and verified by MOM, is found to be capable of producing Gas at a rate that, in the CONTRACTOR's opinion economically justifies the undertaking of appraisal work. The date of discovery of a Commercial Gas Well is the date on which such well is tested and completed, according to the above. Written notice of such discovery shall be given to the MINISTRY, together available from the well, no later than thirty (30) Days following the conclusion of such testing.



1.8 "Commercial Oil Well" Means the first well on any geological feature which after testing for a period of not more than thirty (30) consecutive Days in accordance with sound and accepted Petroleum Industry production practices, is capable ofproducing Oil at a rate that, in the CONTRACTOR's opinion, economically justifies the undertaking of appraisal work.The date of establishment of a Commercial Oil Well is the date on which the CONTRACTOR notifies the MINISTRY in writing that such well has been completed and tested according to the above. Such notice is to be given, together with a report of the test results and other information available from the well, no later than thirty (30) Days following the conclusion of such testing.



1.9 The "CONTRACTOR" means the companies set forth in the preamble to this Agreement and any of their assignees, as provided for in Article 20 of this Agreement.



1.10 "Cost Oil" means the Crude Oil allocated for cost-recovery as defined in Article 7.1 of this Agreement.



1.11 "Customs Duties" means the customs duties referred to in Article 12 of this Agreement.



1.12 "Dependent Unit" means any corporation, authority, board, company, or directorate of the MINISTRY, board, company, or directorate of the MINISTRY, authorized by the MINISTER according to Article 31 of this Agreement to undertake the rights and obligations of the MINISTRY concerning this Agreement.



1.13 "Development" means, but is not limited to, all the operations and activities pursuant to approved Work Programs and Budgets under this Agreement, including, but not limited to, the redrilling, completing and equipping of all types of development wells, production, saving, treating, processing and handling of Petroleum; the taking, saving, storing, transporting and delivering of Petroleum for export, and the undertaking of re-pressuring, recycling and other secondary recovery projects.



1.14 "Development Area" means the entire Development Block or Development Blocks covering the entire geological structure capable of production, as defined in a Request for Conversion to Development Area signed by the CONTRACTOR and approved by the MINISTER.



1.15 "Development Block" means an area, the corner points of which have to be coincident with six (6) minutes by six (6) minutes latitude and longitude divisions according to the "International Grid



Agreement Block (75)System" except where limited by the existing boundaries of the Agreement Area.



1.16 "Development Expenditures" means all costs, expenses and expenditures for Development operations with the exception of Operating Expenses.



1.17 "Development Period" means the period for conducting Development operations as provided in

Article 3.4.2 of the Agreement.



1.18 "Dry Gas" is a non-Associated Gas, or the natural gas that exists in any geological reservoir that does not include Oil. The above definition is applied to all natural gas that is produced to the surface not in association with Crude Oil or condensates.



1.19 "Effective Date" means the date of issuance of the law ratifying this agreement as provided in Article 33 of this Agreement.



1.20 "Exploration" shall include but not be limited to geological, geochemical, geophysical, aerial and other surveys, and interpretation thereof, as may be contained in the approved Work Programs and Budgets, and the drilling such shot holes, core holes, stratigraphic tests, holes for the discover of Petroleum or the appraisal of Petroleum discoveries and other related holes and wells, and the purchase or acquisition of such supplies, materials, services and equipment thereof, as may be contained in the approved Work Programs and Budgets.



1.21 "Exploration Advisory Committee" means the committee that is designated by both Parties during the Exploration Period as provided for and defined in Article 4.3 of this Agreement.



1.22 "Exploration Expenditures" means all expenditures, costs and expenses incurred for Exploration activities after the Effective Date of this Agreement and those incurred after the signature of this Agreement if approved by the MINISTRY.



1.23 "Exploration Period" and "First Exploration Period" and "Second Exploration Period" mean the periods of Exploration as defined in Article 3.4.1.



1.24 "Exploration Work Program and Budget" means Work Program and Budget for Exploration as defined in Article 4 and described in Annex "C".



1.25 "Gas" means Dry Gas and/or Associated Gas.



Agreement Block (75)1.26 "Initial Commercial Production" means the

first date upon which regular production of Crude Oil

from the first Development Area is transported from

such Development Area for the purpose of sale,

export, of processing at a refinery.



1.27 "Liquid Crude Oil" or "Crude Oil" or "Oil"

means any hydrocarbon produced from the

Agreement Area in a liquid state at the wellhead or

lease separators, and existing in a liquid form at a

temperature of sixty degrees Fahrenheit (60 F) and

atmospheric pressure of 14.70 PSIA.



1.28 "Minimum Work Obligation" means the

minimum Exploration work to be performed by the

CONTRACTOR with respect to the First

Exploration Period or the Second Exploration

Period, as applicable, as described in Annex "C".



1.29 "MINISTER" means the Minster of Oil and

Minerals or any other Minister designated from

time to time by the STATE to represent the STATE

with respect to this Agreement.



130 "MINISTRY" or "MOM" means the Ministry of

Oil and Minerals of ROY



1.31 "Minimum Expenditure Obligation" means the

minimum expenditures to be paid by the

CONTRACTOR for Exploration with respect to

the First Exploration Period or the Second

Exploration Period, as applicable, as described in

Annex "C".



1.32 "Month" or "Calendar Month" means a

calendar Month, according to the Gregorian

calendar, starting on the first Day of the calendar

Month, unless another starting date is indicated in

the applicable provision of this Agreement. The

term "Day" means a day according to the Gregorian

calendar.



1.33 "Monthly Average Daily Net Production" means

the total volume in Banels of Liquid Crude Oil

produced and saved from all the Development

Area(s) or Development Block(s) and not used in

Petroleum Operations during any Month, divided

by the number of Days in such Month.1.36 "Operating Committee" means the

committee established pursuant to Article 6

and Annex "E" of this Agreement.



1.31 "Parties" means the MINISTRY and the

CONTRACTOR and "Party" means either the

MINISTRY or the CONTRACTOR, as the context

requires.



1.38 "Petroleum" means Liquid Crude Oil of various

densities, asphalt, Dry Gas, Associated Gas, and all

'other hydrocarbon substances that may be found in,

and produced, or otherwise obtained and saved

from the Agreement Area, and all substances that

may be extracted therefrom.



139 "Petroleum Industry" means the international

petroleum industry.



1.40 "Petroleum Operations" means Exploration,

Development and production operations and all

other operations authorized u contemplated under

this Agreement.



t.4l "Production Sharing Oil" means the Crude Oil to

be shared between the MINISTRY and the

CONTRACTOR as described in Article 7.3 of this

Agreement.



1,42 "Quarter" or "Calendar Quarter" means a

period of three (3) consecutive Months beginning on

January 1st, April 1st, July 1st, and October 1st of

each Year.



1.43 "Request for Conversion to development

Area" means the request signed by the

CONTRACTOR and approved by the MINISTER for

the purpose of defining the Development Area with

respect to a Commercial Discovery of Oil. The form

of such request is attached to this Agreement as

Annex "H".



1.44 "Royalty" means the royalty to which the STATE

is entitled in accordance with Article 3.2 of this

Agreement.



1.45 "ROY Income Taxes" means the taxes defined in

Article 9.1.2 of this Agreement.



1.46 "SCF" means the amount of Dry Gas necessary

to fill one (1) cubic foot of space at atmospheric

pressure of 14.70 PSIA and at a base temperature of

sixty degrees Fahrenheit (60 F).



1.47 "Working Day" means a Day on which banks in

YEMEN are customarily open for business.1.48 "Work Program and Budget" means the annual work program and budget for Exploration and /or Development under this Agreement.



1.49 "Year" or "Calendar Year" or "Tax Year' or "Financial Year" means a period of twelve (12) consecutive Months, according to the Gregorian calendar, starting on January 1st, unless another starting date is indicated in the applicable provision of this Agreement.



1.50 "Yemen" or "ROY" or "State" means the Republic of Yemen, and "Government" mens the Government of the Republic of Yemen as defined in the constitution of ROY.



ARTICLE 2

ANNEXES



2.1 Annexes "A", "B", "C", "D", "E", "F", "G", and "H" attached to this Agreement are hereby made part of hereof and they shall be considered as having equal force and effect with the provisions of this Agreement, provided that if there is a conflict between any Annex and the provisions of the main body of this Agreement, the provisions of the mani of this Agreement shall prevail.



2.1.1 Annex "A" is a description of the Agreement Area.



2.1.2 Annex "B" is an illustrative map indicating the Agreement Area. In the event of any inconsistency between the contents of Annex "A" and Annex"B", the content of Annex "A" shall prevail.



2.1.3 Annex "C" sets out the Minimum Work Obligation and the Minimum Expenditure Obligation during the Exploration Period(s), and extensions thereof.



2.1.4 Annex "D" is the Form of the irrevocable Letter of Credit.

(a) The Operator on behalf of the Contractor shall deliver to the MINISTRY, within Thirty (30) Working Days from the signing and becomes valid on the Effective Date, and irrevocable letter of credit in substantially the form attached as Annex "D" ("Letter of Credit") issued by a local bank in the ROY acceptable to the MINISTRY in an amount of six MIllion United States Dollars (U.S $6,000,000) which corresponds with the Minimum Expenditure Obligation for the FirstExploration Period. The Letter of Credit shall remain valid and effective for Six (6) Months after the end of said period. Within thirty (30) Working Days after the end of the First Exploration Period, the CONTRACTOR shall, if the CONTRACTOR has elected to enter into the Second Exploration Period, deliver to the MINISTRY a second Letter of Credit, in the form and on the same conditions as the first Letter of Credit, in the amount of the Minimum Expenditure Obligation for the Second Exploration Period which is equal to six million United States Dollars (U.S$6,000,000) less any credits for excess work previously carried out by the CONTRACTOR in the first Exploration Period. If within fifteen (15) Working Days after the thirty (30) Working Days specified in either case above the CONTRACTOR fails to deliver to the MINISTRY the required Letter of Credit, this Agreement shall be considered null and void without any further procedure or notices.



(b) If, at the end of the First Exploration Period or the Second Exploration Period or at the termination of this Agreement, the CONTRACTOR has failed to fulfill its Minimum Work Obligation for the applicable period, and neither the CONTRACTOR nor the bank under the applicable Letter of Credit has paid the entire amount corresponding to the amount of the applicable Letter of Credit (reduced as provided below), then the MINISTRY shall be entitled to draw the amount of said Letter of Credit against the bank in accordance with its terms.



(c) As to each Exploration Period, the amount of the Letter of Credit shall be reduced as and when each part of the Minimum Work Obligation is performed by the amount corresponding to the work as specified in Annex "C". Each reduction shall be effected by a letter signed by the MINISTRY and delivered to the issuing bank in substantially the form attached as Exhibit II to Annex "D". Provided, however, if the Operator on behalf of the CONTRACTOR delivers such a letter to the MINISTRY for its signature, specifying the amount of the reduction, and no objection to such letter is received by the Operator on behalf of the CONTRACTOR and the issuing bank from the MINISTRY within sixty (60) Days after said delivery, then the relevant reduction may be effected by the Operator on behalf of theCONTRACTOR sending to the issuing bank a copy of the letter delivered to the MINISTRY, as aforesaid certifying that:



(1) a letter in such form was delivered to the MINISTRY, and.



(2) the MINISTRY did not object to the letter within sixty (60) Days after such delivery; and instructing the issuing bank to effect the reduction stated in said copy of the letter.



2.1.5 Annex "E" is the Form of the Charter of the Operating Committee to be formed as provided for in Article 6 of this Agreement.



2.1.6 Annex "F" is the Accounting Procedures.



2.1.7 Annex "G" is a Sample Calculation of Royalty, Cost Oil and Production Sharing Oil.



2.1.8 Annex "H" is the Form of Request for Conversion to Development Area.



ARTICLE 3

GRANT OF RIGHTS AND TERM



3.1 Grant of Rights

The STATE hereby grants to the CONTRACTOR and the MINISTRY the exclusive right to conduct Petroleum Operations in the Agreement Area subject to the terms, covenants and conditions set out in this Agreement. The operator shall conduct the Petroleum Operations Only as operator under this Agreement.



This Agreement shall henceforth govern all the interests, rights and obligations of the Parties, and the STATE shall in its name retain the title to the Agreement Area. Except as expressly provided by this Agreement, no other rights or privileges are granted to the CONTRACTOR with respect to either the Agreement Area, Petroleum produced from the Agreement Area, Petroleum produced from the Agreement Area or any other mineral resources in the Agreement Area. In the event of any change in the Operator, such change shall be subject to the prior approval of the MINISTRY.



3.1 Royalties

The STATE shall own and entitled to take as Royalty from the total crude Oil produced and saved from the Development Area(s) and not used in Petroleum Operations prior to the deduction of Cost Oil, a non-recoverable amount of the Monthly



Agreement Block (75) 11Average Daily Net Production ("MADNP") commencing with the first Barrel produced and saved from the Development Area(s) and not used in Petroleum Operations the following percentages:



3.2.1 three percent (3%) of the portion or the increment of production up to and including twenty five thousand (25,000) Barrels of Monthly Average Daily Net Production;



3.2.2 five percent (5%) of that additional portion or increment of production which exceeds twenty five thousand (25,000) Barrels of Monthly Average Daily Net Production up to and including fifty thousand (50,000) Barrels of Monthly Average Daily Net Production;



3.2.3 six percent (6%) of that additional portion or increment of production which exceeds fifty thousand (50,000) Barrels of Monthly Average Daily Net Production up to and including seventy five thousand (75,000) Barrels of Monthly Average Daily Net Production;



3.2.4 eight percent (8%) of that additional portion or increment of production which exceeds seventy five thousand (75,000) Barrels of Monthly Average Daily Net Production up to and including one hundred thousand (100,000) Barrels of Monthly Average Daily Net Production;



3.2.5 ten percent (10%) of that additional portion or increment of production which exceeds one hundred thousand (100,000) Barrels of Monthly Average Daily Net Production.



The MINISTRY's Participating Carried Interest



3.3.1 The MINISTRY's operating arm, the Corporation, shall acquire as of the Effective Date of this Agreement a carried five percent (5%) of the CONTRACTOR's rights and working interests under this Agreement. The entities constituting the CONTRACTOR (except the Corporation) shall acquire the remaining ninety five percent (95%) of the CONTRACTOR's right and working interests under this Agreement and shall fund, bear and pay all costs, expenses and expenditure of Petroleum Operations conducted according to the provisions of this Aggreement on behalf of the CONTRACTOR.



3.3.2 (a) Upon Initial Commercial Production, the entities constituting the CONTRACTOR (except theCorporation) shall collectively receive one hundred percent (100%) of the Cost Oil allocated to recover all costs, expenses and expenditures incurred and paid by them in conducting Petroleum Operations under this Agreement on behalf of the CONTRACTOR.



3.3.2 (b) The Corporation shall receive five percent (5%) of the CONTRACTOR's share of Production Sharing Oil allocated to the CONTRACTOR as provided for in Article 7.3 of this Agreement, and the entities constituting the CONTRACTOR (except Corporation) shall collectively receive ninety five percent (95%) of the full CONTRACTOR's share of Production Sharing Oil.



3.3.2 (c) The entities comprising the CONTRACTOR (including the Corporation) Shall not later than sixty (60) Days after the signing of this Agreement enter into an agreement among themselves to provide for the procedures whereby they shall exercise their rights and fulfill their obligations as CONTRACTOR (such agreement being hereinafter referred to as the " Joint Operating Agreement").



3.4 Term

The term of this Agreement shall include an Exploration Period and a Development Period as follows:

3.4.1 Exploration Period and Extension

(a) The Exploration Period shall consist of the First Exploration Period of Thirty Six (36) Months, commencing on the Effective Date, and at the CONTRACTOR's election, a Second Exploration Period of Thirty Six (36) Months commencing on the Day next following the end of the First Exploration Period or any extension thereof if the CONTRACTOR elects to enter into such extension and such extension is approved by the MINISTRY.



The First and Second Exploration Periods may each, at the CONTRACTOR's election, be extended for six (6) Months upon prior request to the MINISTRY and its approval. The CONTRACTOR shall have the right to elect to enter into the second Exploration Period by providing written notice to the MINISTRY at least thirty (30) Days prior to the end of the First



Exploration Period or its extension then in effect therein, provided the MINISTRY agrees that the CONTRACTOR has fulfilled all its obligations under this Agreement for the First Exploration Period or its extension.



(b) Subject to approval of the MINISTRY, the First Exploration Period and/or the Second Exploration, or extension(s) thereof may be extended for appraisal and evaluation, if the CONTRACTOR has fulfilled the obligations for that period but needs more time to evaluate or appraise the results of the Exploration work performed, and requests in writing an extension for a term not to exceed nine (9) Months by written request to the MINISTRY at least thirty (30)Days prior to the end of such period. Such written request shall include the results of the Exploration work performed and the evaluation or appraisal work to be accomplished during the appraisal extension.



(c) The MINISTRY may during the Exploration Period at its sole discretion, give due consideration to ongoing Petroleum Operations and give reasonable extensions to allow the CONTRACTOR to fulfill its remaining Work programs under this Agreement.



3.4.2 Development Period

The Development Period shall commence on the date of the first Commercial Discovery of Oil and shall continue for a period of twenty (20) Years and may be extended by up to five (5) Years upon the written request of the CONTRACTOR at least six (6) Months prior to the expiry of the Development Period. Such extension shall be subject to new terms and conditions mutually agreed by the MINISTRY and the CONTRACTOR within the specified six (6) Month period and shall not be binding to any Party hereto unless the issuance of a law approving such extension, according to the Constitutional procedures of the ROY.



3.5 Commercial Discovery of Oil

3.5.1 A Commercial Discovery of Oil may consist of one producing reservoirs worthy of being developed commercially. After drilling a Commercial Oil Well, the CONTRACTOR shall undertake as part of its Exploration program the appraisal wells to determine whether such discovery is worthy of being developed commercially, taking into consideration the recoverable reserves and all other relevant technical and economic factors.



3.5.2 The CONTRACTOR shall give written notice of a Commercial Discovery of Oil to the MINISTRY immediately after the discovery is considered by the CONTRACTOR to be worthy of commercial Development.

Notice of a Commercial Discovery of Oil may be given by the CONTRACTOR at any time during the Exploration Period.

With respect to a Commercial Oil Well drilled after the Exploration Period, the CONTRACTOR shall give such notice of Commercial Discovery of Oil, not later than thirty (30) Days following the completion of any relevant appraisal well(s) or nine (9) Months following the date of completion in such Commercial Oil Well, whichever is earlier. The CONTRACTOR shall also have the right and obligation to give a notice of Commercial Discovery of Oil even if the discovery well or wells are not Commercial Oil Wells within the definition of Commercial Oil Well but is in the CONTRACTOR's opinion, a reservoir or a group of reservoirs considered collectively worthy of commercial Development.

The CONTRACTOR shall also give notice of a Commercial Discovery of Oil in the event it wishes to undertake a Gas recycling project, unless such project is already a part of the Development of a previously declared Commercial Discovery of Oil.



The date of a Commercial Discovery of Oil will be the date on which the CONTRACTOR gives notice to the MINISTRY of the declaration of such Commercial Discovery.



3.5.3 Following the notice of any Commercial Discovery of Oil as provided for in Article 3.5 of this Agreement, the MINISTRY and the CONTRACTOR, within thirty (30) Days, shall sign the Request for Conversion to Development Area in the form set forth in Annex "H", which will identify the Development Area. Simultaneously, the CONTRACTOR shall submit to the MINISTRY a preliminary development plan.



3.5.4 The provisions set forth herein contemplate the unity and the indivisibility of the concepts of Commercial Discovery and Development Area and they shall apply to Oil unless otherwise specified.



Agreement Block (75) 153.6 Sole Risk Project

If Crude Oil is discovered but is not deemed by the CONTRACTOR to be a Commercial Discovery of Oil under the above provisions of Article 3.5, the MINISTRY shall, after one (1) Month from the expiry of the period specified above within which the CONTRACTOR can give notice of a Commercial Discovery of Oil, have the right after sixty (60) Days from providing a written notice to the CONTRACTOR, and at the MINISTRY's sole risk and expense, to develop, produce and dispose of all Crude Oil from the geological feature in which said Crude Oil was discovered as aforesaid. Said notice shall state the specific area (the "Proposed Sole Risk Area") covering said geological feature to be developed, the wells to be drilled, the production facilities to be installed and the MINISTRY's estimated cost thereof, provided however that, within thirty (30) Days after receipt of said notice, the CONTRACTOR may, in writing, elect to develop the Proposed Sole Risk Area as provided for in this Agreement in the case of a Commercial Discovery, in which event, all terms of this Agreement shall continue to apply to the Proposed Sole Risk Area.



If the CONTRACTOR elects not to develop such Proposed Sole Risk Area, the said area (thenceforth the "Sole Risk Area") covering said geological feature shall be set aside for sole risk operations by the MINISTRY. The Sole Risk Area shall be mutually agreed upon by the MINISTRY and the CONTRACTOR on the basis of good Petroleum Industry practices. The MINISTRY shall be entitled to have the Operator or a third party perform such operations for it at the MINISTRY's sole risk and expense, provided that such third partie's operations shall not interfere with the Contractor's Petroleum Operations and should be conducted according to the good international petroleum industry practices. When the MINISTRY has recovered from the Crude Oil produced from the Sole Risk Area a quantity of Crude Oil equal in value to three hundred percent (300%) of the cost it has incurred in carrying out the sole risk operations, the CONTRACTOR shall have the option, only in the event there has been a separate Commercial Discovery of Oil or Gas elsewhere within the Agreement Area, to share in further Development of the Sole Risk Area upon paying the MINISTRY one hundred percent (100%) of the costs incurred by the MINISTRY in conducting the sole risk operations. At least one (1) Month prior to the estimated recovery date, the MINISTRY shall give written notice to the CONTRACTOR and allow the CONTRACTOR access to the data to evaluate the option, as may be requested by the CONTRACTOR. The one hundred percent (100%) payment shall not be recovered by the CONTRACTOR.



Agreement Block (75) 16Immediately following such payment the Sole Risk Area shall either (1) revert to the status of an ordinary Development Area under this Agreement and thereafter shall be operated in accordance with the terms hereof; or(2) alternatively, in the event that at such time the MINISTRY or its Dependent Units are conducting Development operations in the Sole Risk Area at its or their sole expense and the MINISTRY elects to continue operating the Sole Risk Area, that area shall remain set aside and the CONTRACTOR shall only be entitled to its percentage of the Production Sharing Oil as specified in Article 7.3 below. The Crude Oil from the Sole Risk Area shall be valued in the manner provided in Article 7.4. In the event of any termination of this Agreement under the provisions of Article 3.4.1 or Article 3.4.2 above, this Agreement shall, however, continue to apply to the MINISTRY's operation of any sole risk project.



ARTICLE 4

WORK PROGRAM(S) AND BUDGET(S) FOR THE

EXPLORATION PERIOD

4.1 Exploration Work Program and Budget

(A) Subject to the provisions of this Agreement, the CONTRACTOR agrees and commits to undertake in the Agreement Area during the Exploration Period a program of Exploration work as a Minimum Work Obligation as set out in Annex "C" which cannot be changed or amended without the approval of the MINISTRY. The Exploration work should be fulfilled notwithstanding the Minimum Expenditure Obligation. The first Exploration Work Program and Budget should be prepared and submitted to the MINISTRY for its approval not later than three (3) Months after the Effective Date.



(B) During the First Exploration Period, and any extension thereof the CONTRACTOR enters into, the CONTRACTOR shall meet the respective Minimum Work Obligation for such period as set forth in Annex "C" of this Agreement. In the event that the CONTRACTOR timely gives the required written notice to the MINISTRY to enter into the Second Exploration Period, the CONTRACTOR shall meet the respective Minimum Work Obligation for such period, and any extension thereof the CONTRACTOR enters into, as set forth in Annex "C" of this Agreement.The CONTRACTOR shall have the right to withdraw before the end of the First Exploration Period or any extension thereof the CONTRACTOR enters into, and this Agreement shall terminate on the date a written notice of such withdrawal is received by the MINISTRY from the CONTRACTOR; provided that the CONTRACTOR has fulfilled the Minimum Work Obligation for the applicable period in effect at the time of withdrawal. In the event the CONTRACTOR withdraws having expended less than the Minimum Expenditure Obligation allocated for the Minimum Work Obligation required for the First Exploration Period, any extension the CONTRACTOR enters into, the CONTRACTOR shall pay to the MINISTRY an amount equal to the difference between such Minimum Expenditure Obligation and the amount actually spent on Exploration activities, such payment to be made at the time of the withdrawal, but in no event later than three (3) Months after the expiry of the First Exploration Period or such extension, as the case may be. Any shortfall in aggregate Exploration activity expenditure by the CONTRACTOR at the end of the Second Exploration Period or any extension thereof the CONTRACTOR enters into, shall oblige the CONTRACTOR to pay the amount of such shortfall to the MINISTRY within three (3) Months after the expiry of the Second Exploration Period or such extension, as the case may be.



D. Excess work in any portion of the Exploration Period (including extensions) may be carried forward forward to satisfy the work in a subsequent portion of the Exploration Period (including extensions).



4.2 Subject to Article 4.1A, at least three (3) Months prior to the beginning of each Financial Year or at such other times as may mutually be agreed to by MOM and the CONTRACTOR, the CONTRACTOR shall prepare an Exploration Work Program and Budget for the Agreement Area setting forth the Exploration operations which the CONTRACTOR proposes to carry out during the ensuing Year. During each Exploration Period or extension, such Work Programs and Budgets taken together shall be at least sufficient to satisfy the CONTRACTOR's Minimum Work Obligation for the period it covers, taking into account any credits for excess work previously carried out by the CONTRACTOR in prior portions of the Exploration Period. 43 Exploration Advisory,Committee



The Exploration Work Program and Budget shall be



reviewed by a joint committee to be established by



MOM and the CONTRACTOR after the Effective



Date. This committee, hereinafter referred to as the



"Exploration Advisory Committee", shall consist of



six (6) members, three (3) of whom shall be



appointed by MOM and three (3) by the



CONTRACTOR. The Chairman of the Exploration



Advisory Committee shall be designated by MOM



from among the members appointed by it. The



Exploration Advisory Committee shall review and



give such advice as it deems appropriate with respect to the proposed Work program and Budget.



Following review by the Exploration Advisory



Committee, the CONTRACTOR shall make such



revisions as it thinks appropriate and submit the



Exploration Work Program and Budget to MOM for its approval. Following such approval, the



CONTRACTOR shall not substantially revise or



modify the Work Program and Budget without the



approval of the MINISTRY. The Ministry or its



authorized representative(s) shall have fourteen (l+)



Days within which to communicate its approval of



such Work Program and Budget, failing such



communication approval shall be deemed to have



been given. In the event of no approval, the



Exploration Advisory Committee shall meet in an



attempt to resolve the issue.





4.4 The CONTRACTOR shall advance all necessary



funds for all materials, equipment, supplies,



personnel administration and operations pursuant to



the Exploration Work program and �udget and



MOM shall not be responsible to bear or repay any



of the aforesaid costs. The CONTRACTOR it�all �e



responsible for the preparation and performance of



the Exploration lVo�k Program and Budget which



shall be implemented in a workmanlike manner



consistent with good Petroleum Industry practice.s.



All contracts for amounts greater than One Hundred



and fifty thousand Un�t�d States Dollars



(US.$150,0�0) related to the performance of Work



Program should be approved by the Ministry or its duly authorized representative(s). The



MINISTRY or its authored representative(s) shall



have fourteen (14) Days within which to



communicate its written approval or disapproval of



such awa�d, failing such communication approval



shall be deemed to have been given. In thc event that



the MINISTRY or irs authorized representative(s)



shall disapprove the award, the Exploration Advisory



Committee shall meet in an attempt to resolve the



issue,



the CONTRACTOR shall entrust the management of Exploration operations in the ROY to its



technically competent General Manager and Deputy



Agreement Block (75)

General Manager. The names of such General

Manager and Deputy General Manager shall, upon

appointment, be forthwith notified to the

MINISTRY, accompanied by curriculum vitae of

such General Manager and Deputy General Manager.

The General Manager and, in his absence, the

Deputy General Manager shall be entrusted by the

CONTRACTOR with sufficient powers to carry out

immediately all lawful written directions given to

them by the MINISTRY or its representative(s)

under the terms of this Agreement. All lawful

regulations of ROY issued or hereafter to be issued

which are applicable hereunder and not in conflict

with this Agreement shall apply to the CONTRACTOR.



4.5 Statement of Expenditure:



The CONTRACTOR shall supply MOM, within

thirty (30) Days from the end of each Calendar

Quarter, with a statement of Exploration activity

showing costs incurred by the CONTRACTOR

during such Quarter. The CONTRACTOR's records

and necessary original supporting documents shall be

available for inspection by the MINISTRY at any

time during regular working hours, for three (3)

Months from the date of the MINISTRY receiving

each statement.



Within three (3) Months from the date of receiving

such statement, the MIMSTRY shall advise the

CONTRACTOR in writing if it considers:



a. that the record of costs is not correct; or



b. that the costs of goods or services supplied are

not in line with international market prices for goods or services of similar quality supplied on similar terms prevailing at the time such goods or services were supplied, provided however, that

purchases made and services performed within

ROY shall be subject to Article 26 of this

Agreement; or



c. that the "Condition" (as defined in paragraphs

2.4.2, 2.4.3 and 2.4.4 of the Accounting

Procedures in Annex '.F ' of the materials

furnished by the CONTRACTOR does not agree

with their prices set forth in the said Annex; or



d. that the costs incurred are not reasonably required for Petroleum Operations.



The CONTRACTOR shall confer with MOM in

connection with any problem arising under this

Article 4.5, and the Parties hereto shall attempt to

reach a setilement which is mutually satisfactory.



If within the time limit of the three (3) Month

period provided for in this Article 4.5 the



Agreement Block (75)MINISTRY has not advised the CONTRACTOR of its objection to any statement, such statement shall be considered as preliminarily approved, subject to audit by the MINISTRY according to paragraph 1.4 of the Accounting Procedures of Annex "F" of this Agreement.



ARTICLE 5

RELINQUISHMENTS



5.1 Mandatory Relinquishments



5.1.1 At the end of the First Exploration Period, and any extension(s) thereof the CONTRACTOR enters into, the CONTRACTOR shall relinquish a total of twenty five percent (25%) of the original Agreement Area, provided that if the CONTRACTOR does not elect to enter into the Second Exploration Period or any extension set forth in Article 3 then the CONTRACTOR shall relinquish the remainder of the original Agreement Area not then converted to a Development Area or Development Areas or for which the CONTRACTOR has applied to the MINISTRY for approval for conversion to a Development Area.



5.1.2 At the end of the Second Exploration Period, and any extension(s) thereof, the CONTRACTOR shall relinquish the whole Agreement Area not then converted to a Development Area or Development Areas pursuant to this Agreement or for which the CONTRACTOR has applied to the MINISTRY for approval for conversion to a Development Area in accordance to this Agreement.



5.2 Voluntary Relinquishments

The CONTRACTOR may voluntarily relinquish all or any part of the Agreement Area subject to having fulfilled all of its obligations at that time required to be performed under Article 4.1 of this Agreement. Any voluntary relinquishment shall be credited toward the mandatory relinquishments required under Article 5.1 above.



5.3 Requirements for Relinquishments

The size and shape of the relinquishments made under this Article 5 shall be determined by mutual agreement, provided that, unless otherwise agreed, all areas relinquished shall, at a minimum, be contiguous and reasonably accessible for, and capable of, further Exploration and Development. Any part of the Agreement Area shall be considered



Agreement Block (75) 21subject to relinquishment, including any such part corresponding to a geological feature in which Petroleum may be present or has been determined to be present after drilling a well, provided that notwithstanding the foregoing the CONTRACTOR shall not be obliged to relinquish any part of the Agreement Area corresponding to a Development Area(s) or to the surface area of any geological feature in which a Commercial Oil Well has been established, unless the time provided for establishing a Commercial Discovery has expired pursuant to Article 3 of this Agreement.



5.4 Notice of Relinquishment

At least thirty (3) Days' prior to the date of each relinquishment, the CONTRACTOR shall submit to the MINISTRY a report of its completed Exploration activities on the area proposed to be relinquished and the coordinates of the connecting points of the boundary line of such area.



ARTICLE 6

OPERATIONS AND DEVELOPMENT PERIOD



6.1 Operating Committee

6.1.1 Within thirty (30) Days of a Commercial Discovery, the Exploration Advisory Committee shall be dissolved and an Operating Committee shall be established.



6.1.2 The Operating Committee shall consist of six (6) representatives, three (3) representatives appointed by the MINISTRY and three (3) representatives appointed by the CONTRACTOR. The Chairman of the Operating Committee shall be a representative of the MINISTRY. The Vice-Chairman of the Operating Committee shall be a representative of the CONTRACTOR.



6.1.3 The responsibilities of the Operating Committee are as follows:



6.1.3.1 Generally review and supervise the implementation of the Development and production operations under this Agreement;



6.1.3.2 Consider and approve the Work Programs and Budgets presented to it by the Operator on behalf of the CONTRACTOR and the Work Program and Budget Subcommittee.



6.1.3.3 Receive proposals from the Operating Subcommittees;



Agreement Block (75) 226.1.3.4 Endorse or suggest changes to the proposals referred to in Article 6.1.3.3 and submit same to the MINISTRY and the Operator on behalf of the CONTRACTOR; and



6.1.3.5 Assist the MINISTRY and the Operator on behalf of the CONTRACTOR in carrying out their respective duties and obligations under this Agreement.



6.1.4 The following Operating Subcommittees shall be established contemporaneously with the formation of the Operating Committee:

6.1.4.1 Work Program and Budget Subcommittee;

6.1.4.2 Technical/Operations Subcommittee;

6.1.4.3 Contracting and Procurement Subcommittee; and

6.1.4.4 Yemenization and Training Subcommittee.



6.1.5 The Operator shall as appropriate form "Project Teams" to which the MINISTRY's employee(s) may be seconded upon approval of the Operating Committee. The secondments shall be effected as contemplated in Article 17.1.4 of this Agreement.



6.1.6 The Operating Committee, Operating Subcommittee and Project Teams shall conduct their business in accordance with the provisions set forth and described in Annex "E", Operating Committee Charter.



6.2 work Program and Budget

Ninety (90) days after the date that the Operating Committee comes into existence in accordance with Article 6.1.1 above, the Operator, in consultation with the Work Program and Budget for further Exploration and Development for the remainder for the Financial Year in which the Commercial Discovery of Oil is made, and not later than three (3) Months before the end of the current Financial Year (or such other date as may be agreed upon by the Operating Committee), the Operator, in consultation with the Work Program and Budget Committee, shall prepare an annual "Production Schedule", Work Program and Budget for further Exploration and Development for the succeeding Financial Year. The Operating Committee shall review and give such directions as it deems appropriate with respect to the proposed Work Program and Budget and/or Production Schedule, as the case may be. The CONTRACTOR shall consider changes proposed by



the Operating Committee and will make such changes in the proposals as it deems appropriate. Thereafter, the Work Program and Budget and/or Production Schedule, as the case may be, as endorsed or amended, will be presented to the MINISTRY for its final approval. The MINISTRY or its authorized representative(s) shall have fourteen (14) Working Days within which to communicate its final approval of such Work Program and Budget and/or Production Schedule, as the case may be, failing such communication approval shall be deemed to have been given. In the event of no approval the Operation Committee shall meet in an attempt to resolve the issue.



6.3 The CONTRACTOR shall advance all necessary funds for all materials, equipment, supplies, personnel administration and operations pursuant to the Work Program and Budget and MOM, shall not be responsible to bear or repay any of the aforesaid costs. The Operator, on behalf of the CONTRACTOR, subject to Annex "E", shall be responsible for the preparation and performance of the Work Program and Budget which shall be implemented in a workmanlike manner and in accordance with good Petroleum Industry practices. With the involvement of the Contracting and Procurement Subcommittee as set forth in Annex "E," the Operator shall provide written notice to the MINISTRY or its authorized representative(s) for any service contract (not including individual labour contracts) award in excess of fifty thousand United States Dollars (U.S.$50,000), where such award is to be made on the basis of a sole source or to be made to a bidder other than the lowest bidder.



The MINISTRY or its authorized representative(s) shall have fourteen (14) Days within which to communicate its written approval of such award, failing such communication, approval shall be deemed to have been given. Furthermore, with the involvement of the Contracting and Procurement Operator shall provide written notice to the MINISTRY or its authorized representative(s) for any service contract (not including individual labour contracts) award, even if to the lowest bidder, with a value in excess of Two Hundred and Fifty thousand United States Dollars (U.S.$250,000). The MINISTRY or its authorized representative(s) shall have fourteen (14) Days within which to communicate its written approval of such award, failing such communication approval of such award, failing such communication approval shall be deemed to have been given. In the event of no approval as a aforesaid, the Operation Committee shall meet in an attempt to resolve the issue.



Agreement Block (75)The CONTRACTOR shall entrust the management of Development and production operations in the ROY to its technically competent General Manager and Deputy General Manager. The name of such General Manager and Deputy General Manager shall, upon appointment, be forthwith notified to the MINISTRY, accompanied by the curriculum vitae of such General Manager and Deputy General Manager. The General Manager and, in his absence, the Deputy General Manager shall be entrusted by the CONTRACTOR with sufficient powers to carry out immediately all lawful written directions given to them by the MINISTRY or its representative(s) under the terms of this Agreement.



6.4 Statement of Expenditure

The CONTRACTOR shall supply MOM, within thirty (30) Days from the end of each Calendar Quarter, with a "Statement of Expenditures" as referred to in paragraph 1.2 of the Accounting Procedures in Annex "F" showing costs incurred and paid by the CONTRACTOR during such Quarter. The CONTRACTOR's records and necessary original supporting documents shall be available for review by the MINISTRY at any time during regular working hours for three (3) Months from the date of receiving such Statements of Expenditures. Within the three (3) Months from the date of receiving such Statement of Expenditures, the MINISTRY shall advise the CONTRACTOR in writing if it considers:



1. that the record of costs is not correct; or



2. that the costs of goods or services supplied are not in line with the international market prices for goods or services of similar quality supplied on similar terms prevailing at the time such goods or services are supplied, provided however, that purchases made and services performed within ROY shall be subject to Article 26 of this Agreement; or



3. that the "Condition" (as defined in paragraphs 2.4.2, 2.4.3 and 2.4.4 of the Accounting Procedures in Annex "F") of the materials furnished by the CONTRACTOR does not agree with their prices as set forth in the said Annex; or



4. that the costs incurred are not reasonably required for Petroleum Operations.



The CONTRACTOR shall confer with MOM in connection with any problem arising under this Article 6.4, and the Parties hereto shall attempt to reach a settlement which is mutually satisfactory.



If within the time limit of the three (3) Month period provided for in this Article 6.4 the



Agreement Block (75) 25MINISTRY has not advised the CONTRACTOR of its objection to any Statement of Expenditures, such Statement shall be considered as preliminary approved, subject to audit by the MINISTRY according to paragraph 1.4 of the Accounting Procedures in Annex "F" of this Agreement.



6.5 Facilities

6.5.1 The CONTRACTOR shall have the right to construct and operate facilities for the processing, transport, storage, and shipment of Petroleum in the ROY and the MINISTRY shall render all assistance to the CONTRACTOR on matters involving Yemeni laws and with obtaining any necessary approvals from the competent Yemeni authorities.



6.5.2 If during the term of this Agreement the CONTRACTOR and the MINISTRY agree that the CONTRACTOR has no foreseeable need for part or all of the unused capacity in the Petroleum Operations facilities such as a pipeline or Crude Oil storage or export terminal facilities forming part of Petroleum Operations, and that in the CONTRACTOR's opinion such capacity can be used for Petroleum Operations conducted by the MINISTRY or anyone acting on behalf of the MINISTRY, including persons having rights under any other "Production Sharing Agreements" in YEMEN, without interfering with the CONTRACTOR's Petroleum Operations and the MINISTRY's Petroleum Operations under this Agreement, and if the MINISTRY determines a need for such part or all of such unused capacity for such operations in YEMEN, then the MINISTRY and the CONTRACTOR shall meet to negotiate mutually satisfactory terms Including reasonable Payment by the third party user of the facilities for such use (including a proportional per Barrel charge representing unrecovered capital costs of the CONTRACTOR for such unused capacity), provided always that the CONTRACTOR shall have priority to use the above mentioned facilities for the Petroleum Operations.



6.5.3 If the CONTRACTOR should determine and advise the MINISTRY that it needs part or all of the unused capacity in Petroleum Operations facilities such as a pipeline or crude oil storage or export terminal facility in YEMEN which are not subject to this Agreement, the MINISTRY shall, to the extent that it has the right to do so, cause



Agreement Block (75) 26such unused capacity to be made available



for the CONTRACTOR's use for Petroleum



Operations on mutually satisfactory terms,



including reasonable payment by the



CONTRACTOR as third party user for such



use (including a proportional per Barrel



charge representing uncovered capital



costs of such unused capacity).



ARTICLE 7



RECOVERY OF COSTS AND



PRODUCTION SHARING



7.1 Cost Recovery Crude Oil



Subject to the auditing provisions under this



Agreement, the CONTRACTOR shall recover all



costs, expenses and expenditures incurred for all



Petroleum Operations out of and to the extent of a



maximum of Fifty percent (50%) per Quarter of all



the Crude Oil produced and saved from the



Agreement Area and not used in Petroleum



Operations and after Royalty payments to the



STATE according to Article 3.2 of this Agreement.



Such maximum of Crude Oil is hereinafter referred



to as "Cost Oil".



All such costs, expenses and expenditures shall be



recovered from Cost Oil in the following manner:





7.1,1 Operating Expenses incurred and paid on and



after� Initial Commercial Production shall be



recoverable in the Tax Year in which such costs and



expenses are incurred and paid.





7.1.2 Exploration Expenditures including, but not



Limited to, those accumulated prior to the



commencement of initial Commercial Production



shall be recoverable at the rate of Fifty percent



(SO%) per Year starting either in the Tax Year in



which such expenditures are incurred and paid or the



Tax Year in which Initial Commercial Production



occurs, whichever is the later.





7.1.3 Development Expenditures, including, but not



limited to, those accumulated prior to the



commencement of Initial Commercial Production



shall be recoverable at the rate of Fifty percent (50%),



per Year starting in the Tax Year in which such



expenditures are incurred and paid or the Tax Year in



which Initial Commercial Production occurs,



whichever is the later.



7.1.4 The recovery of costs and expenses, based upon



the rates referred to in Articles7.l.2 and 7.1.3'



above, shall be allocated to each Quarter



proportionately (one fourth to each Quarter). Any,

/ Agreement Block (75)



recoverable costs and expenses not recovered in one



Quarter as thus allocate{ shall be canied forward



for recovery in the next Quarter.



7.1.5 If all costs, expenses and expenditures that are



recoverable in any Quarter, including, but not



limited to, such costs, expenses and expenditures



carried forward from previous Quarters pursuant to



Article 7.1.4 exceed the value of the maximum



amount of Cost Oil ("Maximum Cost Oil") that can



be taken by the CONTRACTOR in such Quarter, as



provided in Article 7.1 above, then the unrecovered



excess amount shall be carried forward for recovery



in the next succeeding Quarter or Quarters until fully



recovered, but in no case shall they be recovered



after the termination of this Agreement. However, if



such recoverable costs, expenses and expenditures



are less than the value of the Maximum Cost Oil,



then the value of the Crude Oil taken as Cost Oil by



the CONTRACTOR shall be equal to such



recoverable costs, expenses and expenditures. The



difference between the Maximum Cost Oil and the



Cost Oil actually taken by the CONTRACTOR



during such Quarter shall be included in the



Production Sharing Oil and shall be taken and



disposed of separately by the MINISTRY and the



CONTRACTOR pursuant to Article 7.3 below.



72 Non-Recoverable Costs and Expenses:



In addition to any non-recoverable costs and



expenses provided for in this Agreement or in the



Accounting Procedures in Annex "F' of this



Agreement, the below-mentioned costs and expenses



are not recoverable from Cost Oil or otherwise under



this Agreement:



7.2.1 Costs and expenses not related directly or



indirectly to Petroleum Operations in the



Agreement Area.



7.2.2 That portion of the costs and expenses in



excess of the limitations set forth in the



Accounting Procedures in Annex "F' or other



provisions of this Agreement.



7.2,3 Expenses incurred, paid, and carried forward,



prior to the Effective Date of this Agreement,



except for Exploration Expenditures incurred



after signature of this Agreement if approved



by the MINISTRY.



7,2,4 All taxes in YEMEN or in other countries



except as specifically provided for in this



Agreement.



7.2.5 Losses which are recovered through insurance,

any,contract of indemnity or otherwise from a third party.



Agreement Block (75)

7.2.6 Bonuses paid to the STATE or to the MINISTRY.



7.2.7 Interest, fees and commissions on loans and guarantees.



7.2.8 Expenses or payments for education and training pursuant to this Agreement, except for costs and expenses for training of ROY employees of the CONTRACTOR provided such costs and expenses are included in an approved Work Program and Budget.



7.2.9 Expenses incurred and paid for the marketing of Crude Oil from the Agreement Area outside YEMEN and the cost of transporting, storing, handling and exporting of Petroleum beyond the point of export in YEMEN.



7.2.10 Foreign exchange losses.



7.3 Production Sharing Oil

The Crude Oil remaining after deducting Royalty and Cost Oil from the total Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, shall be taken and disposed of separately by the MINISTRY and the CONTRACTOR in accordance with the sample calculation in Annex "G" and as follows:



7.3.1 For the portion or increment of production up to and including twenty five thousand (25,000) Barrels of Monthly Average Daily Net Production:



sixty four percent (64%) to the MINISTRY, and thirty six percent (36%) to the CONTRACTOR



7.3.2 For that additional portion or increment of production which exceeds twenty five thousand (25,000) Barrels of Monthly Average Daily Net Production up to and including

fifty thousand (50,000) Barrels of Monthly Average Daily Net Production:



seventy percent (70%) to the MINISTRY, and thirty percent (30%) to the CONTRACTOR



7.3.3 For that additional portion or increment of production which exceeds fifty thousand (50,000) Barrels of Monthly Average Daily Net Production up to and including

seventy five thousand (75,000) Barrels of Monthly Average Daily Net Production:



seventy five percent (75%) to the MINISTRY, and twenty five percent (25%) to the CONTRACTOR



73.4 For that additional portion or increment of



production which exceeds seventy-five thousand



(75,000) Barrels of Monthly Average Daily Net



Production up to and including one hundred



thousand (100,000) Barrels of Monthly Average



Daily Net Production:



Eighty percent (80%) to the MINISTRY, and



Twenty percent (20%) to the CONTRACTOR



7.3.5 For that additional portion or increment of



production which exceeds one hundred



thousand (100,000) Barrels of Monthly

Average Daily Net Production:





Eighty two percent(82%) to the MINISTRY and



Eighteen percent (l8%) to the CONTRACTOR



7.4 Valuation of Crude Oil



7.4.1 lt is the intent of the Parties that the value of



the Cost Oil (and the CONTRACTOR's



Production Sharing Oil for the purpose of



ROY Income Taxes as provided in



Article 9.1.2 below) shall reflect the prevailing



market price for Crude Oil. For the purpose of



evaluating the prevailing market value of the



quantity of Cost Oil to which the



CONTRACTOR is entitled here under during



each Calendar Quarter, the weighted average



price realized in freely convertible currency,



from F.O.B. point of export sales to non-

Affiliated Companies during any such Quarter



at arms length by either the MINISTRY or the



CONTRACTOR under all such Crude Oil



sales of the Crude Oil from the Agreement



A�ea then in effect, but excluding any



government to government sales that do not



reflect international oil market prices and any



Crude Oil sales contracts involving barter,



whichever is higher, shall be used. Prices shall



be appropriately adjusted to credit terms



providing for payment within thirty (30) Days



from the date of bill of lading. Currencies



other than United States Dollars shall be



converted into United States Dollars at the rate



for buying United States Dollars with such



currencies as quoted by Citibank London, at



l0:30 a.m. London time, on the bill of lading



date for any such sales, and if this is not a



banking Day in London, on the next



succeeding banking Day in London.



It is understood that in the case of C.I.F. or



other sales on delivered bases, appropriate



deductions shall be made for applicable freight



and insurance charges to calculate the F.O.B.



point of export price.





Agreement Block (75)7.4.2 11, during any Calendar Quarter there are no such



sales by the MINISTRY or the CONTRACTOR



then in effect, the MINISTRY and the



CONTRACTOR shall meet as soon as practicable,



but no later than ten (10) Days after the end of such



Quarter, and mutually agree upon the price of



Crude Oil to be used in determining the value



mentioned in Article 7.4.1 above taking into



account prevailing market prices for crude oil of



similar grade, quality, quantity, sales' terms in



similar geographical markets during that period.



Pending such mutual agreement the provisional



price used shall be the last price determined



pursuant to Article 7.4.1 or under this Article 7.4.2



and appropriate adjustment will be made thereto



after determination of a mutually agreed price by



the MINISTRY and the CONTRACTOR.



75 Tanker Lifting



At a reasonable time prior to Initial Commercial



Production, the CONTRACTOR shall submit for



consideration to the MINISTRY a procedure for



scheduling tanker listings from the agreed upon



point(s) of export and shall negotiate with the



MINISTRY acceptable provisions relating to



under lifting and over lifting of production. Such



provisions shall include periodic and at least



Quarterly settlement of overlifts and under lifts in



cash or in kind at the option of the MINISTRY.





7.6 Optional Purchase of Crude Oil



The STATE shall have the option, to be exercised



upon at least ninety (90) Days'written notice to the



CONTRACTOR to purchase from the



CONTRACTOR up to fifty percent (50%) of the



CONTRACTOR's Production Sharing Oil.



The price for the Production Sharing Oil purchased



by the STATE shall be as mutually agreed by the



MINISTRY and the CONTRACTOR. If no



agreement is reached then the price applied shall be



the weighted average price received by the



CONTRACTOR for its sales to non-Affiliated



Companies as calculated in Article 7.4.1 above



during the applicable Quarter. If there have been no



such sales then the price reached under Article 7.4.2



for the applicable Quarter shall apply.



All purchases by the STATE pursuant to this option



shall be on credit terms providing for payment within



thirty (30) Days from the bill of lading date for sales



by tanker shipments, and from invoice date for other



sales.



7.7 Production Forecast



The CONTRACTOR shall prepare and furnish to the.



MINISTRY not less than thirty (30) Days prior to the



start of each Year and updated quarterly in that Year,



Agreement Block (75)







yearly and quarterly production forecast report(s) and setting out the total quantity(ies) of the Petroleum that the CONTRACTOR estimates can be used in Petroleum Operations, and produced, saved and transported according to this Agreement in the Year and in each Quarter in accordance with good Petroleum Industry practices.



The CONTRACTOR shall use its best efforts to produce the forecast quantity in each Quarter, as updated from time to time.



The CONTRACTOR shall, in accordance with good Petroleum Industry practices, store the Crude Oil in storage tanks constructed and maintained by the CONTRACTOR in the Agreement Area or each Development Area, as applicable.



Measuring and volumetric determination of Crude Oil shall take place for the purpose of this Agreement at the point of custody transfer such as:



(1) The tie-in point where the Crude Oil is delivered to any third party for transportation or sale; or



(2) The point where the MINISTRY takes possession of its share of Crude Oil; or



(3) The export flange of the storage tanks located at the agreed upon points of export.



The MINISTRY shall take Royalty and title to is share of Production Sharing Oil (in accordance with Articles 3.2 and 7.3 respectively), and the CONTRACTOR shall take title to Cost Oil and its share of Production Sharing Oil (in accordance with Articles 7.1 and 7.3 respectively) as provided for in this Agreement at a metering point at the storage tanks or at a point mutually agreed upon by the CONTRACTOR and the MINISTRY.



ARTICLE 8

TITLE TO ASSETS



8.1 MOM shall become the owner of all assets acquired and owned by the CONTRACTOR in connection with the Petroleum Operations carried out by the CONTRACTOR in accordance with the following:



8.1.1 Land shall become the property of the MINISTRY as soon as it is purchased or obtained.



8.1.2 Title to fixed and movable assets shall be transferred automatically and gradually from the CONTRACTOR to the MINISTRY as they are recovered in accordance with the



Agreement Block (75) 32provisions of Article 7 of this Agreement, so that the full title to fixed and movable assets shall have been transferred automatically from the CONTRACTOR to the MINISTRY when its total cost has been recovered by the CONTRACTOR in accordance with the provisions of Article 7 or at the time of termination of this Agreement with respect to all assets chargeable to the Petroleum Operations whether recovered or not, whichever occurs first.



The book value of such assets so transferred in each Calendar Quarter shall be communicated by the CONTRACTOR to the MINISTRY within thirty (30) Days after the end of each Calendar Quarter.



8.2 During the term of this Agreement, the CONTRACTOR is entitled to the full use free of charge of all the fixed and movable assets referred to above in connection with the Petroleum Operations hereunder or any other petroleum operation entered into by the Parties. The CONTRACTOR shall not dispose of such assets except with the written approval of the MINISTRY and subject to Articles 12.5, 12.6, and 12.7 below.



8.3 The CONTRACTOR may freely import into the ROY and use therein and freely export at the end of such use, machinery and equipment which they either rent or lease in accordance with good Petroleum Industry practices including, but not limited to, the leasing of computer hardware and software.



ARTICLE 9

TAXES AND BONUSES



9.1 Taxes

9.1.1 (a) The CONTRACTOR shall pay a fixed percentage tax ("fixed tax") equivalent to three percent (3%) of all its actual Exploration Expenditures incurred and paid in conducting its Exploration operations. This fixed tax shall be paid within three (3) Months after the Tax Year in which the relevant Exploration Expenditures are incurred and paid. Such payments shall be made to the ROY tax authorities and shall be accompanied by statements authenticated by the MINISTRY setting out the relevant Exploration Expenditures in reasonable detail. Within one hundred fifty (150) Days after the end of each Tax Year for which this fixed tax is paid, the MINISTRY shall furnish to the CONTRACTOR official receipts evidencing the payment of such tax.



Agreement Block (75) 339.1.1(b) Expatriate employees of the CONTRACTOR, its contractors and their subcontractors working in Exploration operations shall be exempt from all personnel income taxes and similar taxes in the ROY during Exploration operations on all income or reimbursements paid by the CONTRACTOR, its contractors and subcontractors on all income from any sources outside or inside of the ROY.



9.1.1(c) Expatriate employees of the CONTRACTOR, its contractors and their subcontractors working in Development and production operations shall be subject to all personnel income taxes and similar taxes in the ROY as of the date of the first conversion of the Agreement Area to a Development Area and thereafter on all and any personnel income paid by the CONTRACTOR, its contractors and their subcontractors in respect of Development and production Operations from any sources outside or inside of the ROY according to the income tax law in force in ROY.



9.1.2Income Tax

Any and all taxes to which the CONTRACTOR is subject under the laws of the ROY that are measured by income, profit or turnover are hereinafter referred to as "ROY Income Taxes". For the purpose of ROY Income Taxes, the total taxable income of the CONTRACTOR with respect to any Tax Year shall be an amount calculated as follows:



(i) The total value of all Crude Oil (determined as provided in Article 7.3 above) received by the CONTRACTOR in such Tax Year pursuant to Article 7; plus



(ii) An amount equal to the CONTRACTOR's ROY Income Taxes.



If the total value of such Crude Oil received in any Tax Year by the CONTRACTOR as set out in Article 9.1.2(i) above is equal to zero, then the CONTRACTOR shall not be required to pay any ROY Income Taxes for such Tax Year.



9.1.3 The MINISTRY shall assume, pay and discharge on behalf of the CONTRACTOR, the CONTRACTOR's ROY Income Taxes out of the MINISTRY's share of Crude Oil under this Agreement.



Agreement Block (75) 349.1.4 Within one hundred fifty (150) Days after the end of each Tax Year, the MINISTRY shall furnish to the CONTRACTOR official receipts evidencing the payment of the CONTRACTOR's ROY Income Taxes for such Tax Year. Such receipts shall be issued by the proper tax authorities and shall state the amount and other particulars customary for such receipts.



9.1.5 In calculating its ROY Income Taxes, the MINISTRY shall be entitled to deduct the ROY Income Taxes of the CONTRACTOR paid by the MINISTRY on the CONTRACTOR's behalf.



9.1.6 The CONTRACTOR, its Affiliated Companies and their contractors and subcontractors are exempt from all ROY Income Taxes and all other taxes and related taxes of any nature whatsoever payable in ROY with the exception of the fixed tax as stated in Article 9.1.1(a) and the ROY Income Taxes as stated in Article 9.1.2 above.



9.1.7 Tax Statements

The CONTRACTOR shall provide the statements concerning the calculation of the fixed tax stated in Article 9.1.1 above, within thirty (30) Days after each Quarter commencing after the Effective Date of this Agreement, and shall provide statements concerning the ROY Income Taxes according to Article 9.1.2 above, within thirty (3) Working Days after each Tax Year commencing after Initial Commercial Production, and shall provide statements concerning the personnel income tax as stated in Article 9.1.1.(c) above, within fifteen (15) Working Days following the end of due Month.



9.2 Bonuses

9.2.1 Signature Bonus

The CONTRACTOR shall pay to the MINISTRY as a signature bonus, one million United States Dollars (U.S.$1,000,000) within two weeks (2) after the signing of this Agreement the CONTRACTOR shall provide to the MINISTRY an irrevocable Letter of Credit issued by any bank in ROY, using the form set out in Exhibit III of Annex "D", covering the full amount of the signature bonus, payable on the Effective Date of this Agreement.



Agreement Block (75) 359.2.2 Training Bonus

The CONTRACTOR shall pay to the MINISTRY, within thirty (30) Days after the start of each Year starting on the Effective Date and each anniversary thereof during the term of this Agreement, and any extension thereto, a lump sum of one hundred thousand United States Dollars (U.S.$100,000) for the purpose of training Yemeni employees of the MINISTRY and its Dependent Units.



9.2.3 Institutional Bonus

The CONTRACTOR shall pay to the MINISTRY, within thirty (30) Days after the start of each Year starting on the Effective Date and each anniversary thereof during the term of this Agreement, and any extension thereto, a lump sum of fifty thousand United States Dollars (U.S.$50,000) as an "Institutional Bonus".



9.2.4 Social Development Bonus

The CONTRACTOR shall pay to the MINISTRY, within thirty (30) Days after the start of each year starting on the Effective Date and each anniversary thereof during the term of this Agreement, and any extension thereto, a lump sum of one hundred thousand United States Dollars (U.S.$100,000) as a "Social Development Bonus".



9.2.5 Research and Development Contribution

The CONTRACTOR shall pay to the MINISTRY within thirty (30) Days after the start of each year starting on the Effective Date and each anniversary thereof during the term of this Agreement and any extension thereto a lump sum of fifty thousand United States Dollars (U.S.$50,000) as a Research and Development Contribution.



9.2.6 Data Bank Development Contribution:

The CONTRACTOR shall pay to the MINISTRY, within thirty (30) Days after the start of each year starting on the Effective Date and each anniversary thereof during the term of this Agreement, and any extension thereto, a lump sum of fifty thousand United States Dollars (U.S.$50,000) as a "Data Bank Development Contribution".





9.2.7 Production Bonus

The CONTRACTOR shall pay to the MINISTRY the following production bonuses. The rates of production specified below shall not include production from any sole risk



Agreement Block(75)projects of the MINISTRY except if the CONTRACTOR exercises its option to share in such sole risk production, and only from the initial date of sharing.



a- One million United States Dollars (US$1,000,000) within Thirty (30) Days after the announcement of Commercial Discovery.



b- One million United States Dollars (US$1,000,000) within thirty (30) Days after the first date when the total average daily production of Crude OIl produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of twenty five thousand (25,000) Barrels per day for a period of thirty (30) consecutive Days.



c- Two million United States Dollars (US$2,000,000) within thirty (30) Days after the first date when the total average daily production of Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of fifty thousand (50,000) Barrels per Day for a period of thirty (30) consecutive days.



d- Three million United States Dollars (US$3,000,000) within thirty (30) Days after the first date when the total average daily production of Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of Seventy five thousand (75,000) Barrels per Day for a period of thirty (30) consecutive days.



e- Four million United States Dollars (US$4,000,000) within thirty (30) Days after the first date when the total average daily production of Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of one hundred thousand (100,000) Barrels per Day for a period of thirty (30) consecutive days.



f- Five million United States Dollars (US$5,000,000) within thirty (30) Days after the first date when the total average daily production of Crude Oil produced and saved from the Agreement Area, and not used in Petroleum Operations, has been sustained at the rate of one hundred fifty thousand (150,000) Barrels per Day for a period of thirty (30) consecutive days.



Agreement Block (75)





for a period of thirty (30) consecutive Days.

Each of the production bonuses are to be paid once only.



9.3 All taxes, bonuses, and contributions referred to above in this Article 9 are not recoverable from the Cost Oil under Article 7 of the Agreement.



Article 10 Office and Service of Notice



During the period of this Agreement, the CONTRACTOR shall maintain an office in the ROY starting within thirty (30) Days after the Effective Date of this Agreement.



All matters and notices shall be deemed to be validly served on the CONTRACTOR if in writing and delivered to the office of the CONTRACTOR'S General Manager against receipt of which are sent to him by registered mail, telefax or telex.



All natter and notices hall be deemed to be validly served on the MINISTRY if in writing and delivered to the MINISTER'S office in Sana'a during regular office hours or which are sent to it by registered mail, telefax or telex.



Any changes in the address of the CONTRACTOR'S office or in the individual empowered as General Manager shall be notified to the MINISTRY at least ten (10) Days prior to the changing date.



ARTICLE 11 CONSERVATION, PREVENTION OF LOSS AND ENVIRONMENTAL SAFETY



11.1 The CONTRACTOR shall take all proper measures, according to generally accepted methods in the Petroleum Industry to prevent loss or waste of Petroleum above or under the ground in any form during drilling, producing, gathering, transporting, distribution and storage operations.



The test Crude Oil produced from any well(s) in the Agreement Area is the property and the responsibility of the MINISTRY who will dispose of it freely and separately.



The MINISTRY has the right to prevent any operation on any well that it might reasonably expect would result in loss or damage of the well or the Oil of Gas field.



Agreement Block (75)11.2 Upon completion of the drilling of a productive well, the CONTRACTOR shall inform the MINISTRY or its representative(s) of the time when the well will be tested and of the production rate ascertained.



11.3 Except in instances where multiple producing reservoirs (not in pressure communication with each other) in the same well can only produce economically through a single tubing string, Petroleum shall not be produced from multiple Oil bearing zones through one string of tubing at the same time, except with the prior approval of the MINISTRY or its representative(s).



11.4 The CONTRACTOR shall record data regarding the quantities of Petroleum and water produced monthly from each Development Area. Such data shall be sent to the MINISTRY or its representative(s) on the special forms provided for that purpose. A report to that effect must be submitted daily. Daily or weekly statistics regarding the production from the Development Area shall be available at all reasonable times for examination by authorized representatives of the MINISTRY.



11.5 Daily drilling records and the graphic well logs must show the quantity and type of cement and the amount of any other materials used in the well for the purpose of protecting Petroleum, Gas bearing or fresh water strata.



Any fundamental mechanical operation on a well after its completion, must be approved by representative(s) of the MINISTRY.



11.6 In the course of performing the Petroleum Operations, the CONTRACTOR shall comply with and ensure that its contractors and subcontractors shall be subject to the laws, decrees, and other rules and regulations with respect to environmental protection and safety in the ROY, and the environmental rules and regulation applicable in the international Petroleum Industry, including, but not limited to, conducting environmental impact assessment studies prior to the commencement of any Petroleum Operations, within the Agreement Area.



ARTICLE 12

CUSTOMS EXEMPTIONS AND EXCHANGE CONTROL



12.1 The MINISTRY, the CONTRACTOR, its contractors and their subcontractors shall be permitted to import from abroad, and shall be exempt from all Customs Duties and related taxes with respect to the importation of machinery,



Agreement Block(75)



equipment, vehicles, materials, supplies,



consumables, and movable properties, to be used



solely in the carrying.out of Petroleum Operations,



under this Agreement.



Foodstuffs may also be imported, provided their



Customs Duties are fully paid.



12,2 The exemption stated in Article l2.l does not



apply to any imports of materials if these or



comparable materials are manufactured in the ROY



and may be purchased locally at a rate which does



not exceed ten percent (l0%) of the cost of the



imported goods prior to the addition of the Customs



Duties, but after adding the cost of transport and



insurance.



12.3 The CONTRACTOR, its contractors and Their



subcontractors shall have the right to export free of



Customs Duties and related taxes any material,



equipment and goods which are imported to ROY for



the purpose of the Petroleum Operations irrespective



of whether they were exempt or not from Customs



Duties and related taxes according to this Agreement,



provided the CONTRACTOR notifies the



MINISTRY of such exportation.





12,4 There shall be no license required, and the



CONTRACTOR and the MINISTRY and their



respective customers shall be exempt from any duty,



tax, fee or any other financial impost in respect of the



export of Crude Oil under this Agreement. Subject to



any obligation under this Agreement to sell



Petroleum to the STATE, the CONTRACTOR Shall



have the right to freely (except for those fees and



charges which are normally paid to the



GOVERNMENT agencies for actual services



rendered by the GOVERNMENT agencies) export



and sell the Cost Oil and its share of Production



Sharing Oil.





12.5 The CONTRACTOR, its contractors and their



subcontractors shall have the right after receiving



approval from the MINISTRY to sell any materials



or equipment or goods which were damaged or used,



and thereby became non-serviceable, and which the



CONTRACTOR or its contractors and their



subcontractors respectively classify as scrap or junk,



in the ROY without paying Customs Duties and



related taxes.





12.6 New materials, equipment and goods, or used but



serviceable materials, equipment and goods, that are



surplus to the Petroleum Operations under this



Agreement may be sold outside the ROY after the



MINISTRY's approval following exportation or may



be sold within the ROY provided that for any sale in



Agreement Block (75)



the ROY the purchaser shall pay the applicable Customs Duties, taxes or imposts, if any, except if sold to the MINISTRY or one of its Dependent Units or, with the MINISTRY's approval to other companies enjoying substantially the same customs exemption as the CONTRACTOR.



12.7 In the event of such sale under Article 12.5 or Article 12.6 above, the proceeds from such sales shall be divided in the following manner: The CONTRACTOR shall be entitled to reimbursement of its unrecovered costs, if any, in such material or equipment, and the excess, if any, shall be paid to the MINISTRY. The CONTRACTOR's unrecovered costs shall be reduced by the amount of such reimbursement paid to the CONTRACTOR.



12.8 For the purpose of implementing this Article 12, the Customs Duties include all the imposts and taxes (except those fees and charges which are normally paid to the GOVERNMENT agencies for actual services rendered by the GOVERNMENT agencies) levied for importing (or Re-exporting, if applicable) the said materials, equipment and good.



12.9 The CONTRACTOR, its contractors and their subcontractors are exempt from the need to obtain import and export permits for materials, equipment, machinery, and goods required for their activities, and they will be exempt from paying concession royalties to Yemeni corporations or companies.



12.9.1 Every foreign employee of the CONTRACTOR or its Affiliated Companies or its contractors and subcontractors are permitted to import from abroad, exempt from Customs Duties, a reasonable quantity of household goods, personal belongings, and a car to be used only for his personal and family use. Whatever an employee imports may not be sold in the ROY except and after Customs Duties and related taxes are properly paid, unless sold to another foreign employee of the CONTRACTOR.



12.9.2 In order to implement Article 12.9.1 above, Customs Duties shall have the meaning stated in Articles 12.4 and 12.8 of this Agreement.



12.10 The CONTRACTOR, its contractors and their subcontractors shall be exempt from foreign exchange controls in the ROY, with respect to their activities under this Agreement.



12.10.1 The CONTRACTOR, it's non-ROY contractors and their subcontractors shallsupply all funds necessary for their operations in the ROY under this Agreement in freely convertible currency from abroad. The CONTRACTOR, its non-ROY contractors and their subcontractors shall have the right to buy Yemeni currency whenever required, and the conversion shall be made at Yemeni banks according to the official ROY rate of exchange at the best rate officially prevailing in the ROY, which rate shall be at least favorable as the rate available to any other international petroleum company conducting similar activity in YEMEN. The CONTRACTOR, its non-ROY contractors and their subcontractors shall have the right to make payments directly abroad in foreign currencies for goods and services obtained abroad for their operations in the ROY under this Agreement and to make such payments in accordance with the provisions of this Agreement without having first to transfer to the ROY the funds for such payments. The CONTRACTOR shall have the right to maintain abroad one (1) or more convertible currency accounts in international credit institutions of its selection. The CONTRACTOR shall have the right to pay abroad principal and interest on borrowings to finance any of its Petroleum Operations without having first to transfer to the ROY the funds for such payments.



12.10.2 The CONTRACTOR shall have the right to hold United States Dollars and other freely convertible currency in a bank account in the ROY if a bank account of that kind is made available to any international petroleum company for any purpose.



12.10.3 Subject to Article 17.1.1 below and Article 9.1.1(b) of this Agreement, the CONTRACTOR shall have the right to pay its expatriate employees working in YEMEN in foreign currencies outside of YEMEN. Such employees shall only be required to bring YEMEN such foreign exchange as required to meet their personal living and other expenses in YEMEN.



12.10.4 The CONTRACTOR shall have the right to receive and retain abroad and freely use all funds received by it abroad, including, without limitation, any sales proceeds from an authorized assignment of its interests in this Agreement, the proceeds from the sales of its share of Crude Oil exported, and proceeds received by the CONTRACTOR



Agreement Block (75) 42from any sale of equipment, materials and goods permitted as described in Article 12.7.



12.10.5 The MINISTRY or the GOVERNMENT, or their designated purchasers in the ROY, shall pay the CONTRACTOR abroad in United States Dollars for any Crude Oil purchased from the CONTRACTOR, including Crude Oil that is requisitioned by the GOVERNMENT pursuant to Article 19 below. The term "abroad", is used in this Agreement, means outside the ROY.



12.11 The CONTRACTOR, its contractors and Their subcontractors shall pay Yemeni contractors and suppliers of materials manufactured in the ROY, as well as importers of equipment, machines and consumable goods, in Yemeni currency, which may be obtained according to provision of Article 12.10.1 of this Agreement except in a case where the payment should be paid by foreign currency for the need of services and procurement.



12.12 The CONTRACTOR, its foreign contractors and subcontractors, as well as their resident foreign staff, shall have access to the duty free shops in the ROY.



ARTICLE 13

ACCOUNTING BOOKS;ACCOUNT AND PAYMENTS



13.1 The CONTRACTOR shall maintain at its business offices in the ROY books of account, in accordance with the Accounting Procedures in Annex "P" of this Agreement and according to the accepted accounting practices generally used in the Petroleum Industry. The CONTRACTOR must keep such other books and records as may be necessary to show the work performance under this Agreement, including the amounts and value of all Petroleum produced and saved. The CONTRACTOR shall keep its books of account and accounting records in United States Dollars, which shall be the controlling currency of this Agreement for cost recovery, taxes and other purposes, and in Yemeni currency for information. The CONTRACTOR shall furnish to the MINISTRY or its representative(s) monthly returns showing the amount of Petroleum produced and saved. Such returns shall be prepared in the form required by the MINISTRY or its representative(s) and shall be signed by the General Manager or by the Deputy General Manager or by a duly designated deputy, and delivered to the MINISTRY or its representative(s) with thirty (30) Days after the end of the Month that covers the return.



Agreement Block (75) 4313.2 The aforesaid books of account and other books and records referred to in Article 13.1, shall be available at all reasonable times for inspection by duly authorized representatives of the MINISTRY.



ARTICLE 14

RECORDS, REPORTS AND INSPECTION



14.1 The CONTRACTOR shall accurately prepare and keep at all times, while this Agreement is in force, the current records of the Petroleum Operations in the Agreement Area, according to this Agreement.



14.2 The CONTRACTOR shall furnish the MINISTRY or its representative(s) in conformity with applicable regulations or as the MINISTRY or its representative(s) may reasonably require, information and data concerning its Petroleum Operations under this Agreement. The CONTRACTOR will perform the functions indicated in this Article 14.2 in accordance with its role as specified in this Agreement.



14.3 The CONTRACTOR shall save and keep for a reasonable period of time a representative portion of each sample of cores and cuttings taken from drilling wells, to be disposed of, or forwarded to the MINISTRY or it representative(s) in the manner directed by the MINISTRY. All such sample retained by the CONTRACTOR for the Petroleum Operations shall be considered available for inspection at any reasonable time by the MINISTRY or its representative(s).



14.4 Unless otherwise agreed to by the MINISTRY, in case of exporting any rock samples outside the ROY, samples equivalent in size and quality shall, before such exportation, be delivered to the MINISTRY.



14.5 Original records are the property of the GOVERNMENT. They can only be exported with the permission of the MINISTRY provided, however, that magnetic tapes and other data which must be processed or analyzed outside the ROY may be exported if a monitor or comparable record, if available, is maintained in the ROY and provided that such exports shall be repatriated to the ROY promptly after processing or analysis.



14.6 During the period the CONTRACTOR performs the Explorations operations, the MINISTRY's duly authorized representative(s) or employees shall have the right to full and complete access to the Agreement Area at all reasonable times with the right to observe the Petroleum Operations being conducted and to inspect all assets, records and datakept by the CONTRACTOR. The CONTRACTOR shall provide the MINISTRY with copies of any and all data including, but not limited to, geological and geophysical reports, logs, and well surveys, information, and interpretation of such data, and other information in the CONTRACTOR's possession.



14.7 For the purpose of obtaining new offers, the MINISTRY may show any other party uninterpreted basic geophysical and geological data (such data to be not less than two (2) years old unless the CONTRACTOR agrees to a shorter period, which agreement shall not be unreasonably withheld) with respect to the Agreement Area



14.8 All available technical data concerning the Agreement Area including the geological, geophysical and drilling data and any rock or hydrocarbon rock samples shall be made available to the CONTRACTOR free of charges except of copying within thirty (30) Days from the Effective Date.



ARTICLE 15

RESPONSIBILITIES FOR DAMAGES



The CONTRACTOR shall entirely and solely be responsible before the law towards third parties for any damage caused by the CONTRACTOR in the conduct of Petroleum Operations and shall indemnify the MINISTRY against all damages for which it may be held liable to third parties on account of any such operations.



ARTICLE 16

PRIVILEGES OF THE MINISTRY'S REPRESENTATIVES



Duly authorized representative(s) of the MINISTRY shall have access to the Agreement Area and to the Petroleum Operations conducted thereon. Such representative(s) may examine the books, registers, and records of the CONTRACTOR and make a reasonable number of surveys, drawings, and tests for the purpose of enforcing this Agreement. They shall, for this purpose, be entitled to make reasonable use of the machinery and instruments of the CONTRACTOR on the condition that no danger or impediment to the Petroleum Operations hereunder shall arise directly or indirectly from such use. Such representative(s) shall be given reasonable assistance by the agents and employees of the CONTRACTOR so that none of the activities shall endanger or hinder the safety or the efficiency of the Petroleum Operations. The CONTRACTOR shall offer such representative(s) all privileges and facilities accorded to its own employees in the field and shall provide them, free of charge, with theuse of reasonable office space, and of adequately furnished housing while they are in the field, for the purpose of facilitating the objective of their assignments. The CONTRACTOR shall not be responsible for any liability resulting from the injury to or death of or damage to the property of any such representative(s) or employees, unless caused by the gross negligence or willful misconduct of the CONTRACTOR.



ARTICLE 17

EMPLOYMENT PRIVILEGES AND THE TRAINING OF ROY PERSONNEL



17.1 It is the desire of the MINISTRY and the CONTRACTOR that Petroleum Operations hereunder be conducted in a businesslike and efficient manner:



17.1.1 The CONTRACTOR shall, after consultation with the MINISTRY, prepare and carry out specialized training programs for its Yemeni employees engaged in Petroleum Operations according to this Agreement and with respect to applicable aspects of the Petroleum Industry, such training programs should be in line and satisfy the requirements of the Yemenisation Plan prepared jointly and approved by the MOM. The CONTRACTOR shall undertake to replace gradually its staff by qualified Yemeni nationals in full coordination with the MINISTRY and in accordance with the approved Yemenisation Plans.



17.1.2 The CONTRACTOR shall use its best efforts to include in its organization, throughout the Exploration Period and the Development Period and, when appropriate to the nature of the Petroleum Operations, the maximum number of graduates seconded by the MINISTRY and selected by mutual agreement, such as geologists, geophysicists, drilling engineers and production engineers.



17.1.3 All Yemeni personnel employed by the CONTRACTOR, its contractors and subcontractors shall be paid, according to their employment terms, salaries, wages, benefits and allowances according to their technical, administrative and professional abilities.ARTICLE 18

LAWS AND REGULATIONS



18.1 General

Except as provided in this Agreement, the CONTRACTOR shall be subject to all the laws of YEMEN and regulations issued for the implementation thereof, including, without limitation, any regulations for the safety, environment, health, labor and efficient performance of Petroleum Operations carried out pursuant to this Agreement and for the conservation of the Petroleum resources. The CONTRACTOR, its contractors and subcontractors shall be subject to the provisions of this Agreement which affect them, and to all regulations which are duly issued by the GOVERNMENT or the MINISTRY from time to time, except those regulations and laws that are inconsistent with this Agreement.



18.2 Rights Controlled by this Agreement

Interests, right and obligations of the GOVERNMENT that are represented by the MINISTRY and of the CONTRACTOR under this Agreement, shall be solely governed by the provisions of this Agreement and may be altered or amended only by the mutual agreement of the Parties, which will be subject to approval according to the constitutional procedures in the ROY.



ARTICLE 19

RIGHTS OF REQUISITION



19.1 General

In case of national emergency, the GOVERNMENT has the right to requisition all or part of the Petroleum produced from the Development Area or Development Areas during the period of such emergency, and has the right to instruct the CONTRACTOR to increase the production to the maximum rate achievable in accordance with Petroleum Industry standards. The GOVERNMENT has also such right to requisition to the Development Area itself and, any related facilities, during the period of such emergency.



19.1.1 The GOVERNMENT has the right of final requisition to any Development Area if it is proved to the GOVERNMENT that the CONTRACTOR has caused, by its gross negligence or willful misconduct, a material and substantial damage to any Oil field or any relevant facilities in the aforementioned Development Area provided that such damaged so caused shall be determined by a Agreement. Block(75)neutral third party selected by the MINISTRY and the CONTRACTOR to assist them in reaching a mutual agreement on the right of final requisition.



19.1.2 In no case shall a requisition, as provided for herein, be implemented prior to adequate written notice to the CONTRACTOR so that is shall be able to express its views with respect to such claim of a requisition.



19.2 Notice of Requisition

The requisition of Petroleum production shall be carried out through a "Ministerial Order". Any requisition of the Development Area itself, or any related facilities, shall be carried out through a "Republican Resolution", duly notified to the CONTRACTOR.



19.3 Indemnification

In the event of any requisition, except a final requisition referred in Article 19.1.1, the GOVERNMENT shall indemnify the CONTRACTOR for the period during which the requisition is verified, including:



19.3.1 Damages if any from any such requisitions, except for any damages resulting from enemy attack on any Development Area or to the ultimate recovery of Crude oil from any Development Area.



19.3.2 Full payment each Month for the CONTRACTOR's share in all Petroleum extracted by the GOVERNMENT less the Royalty, the MINISTRY's Production Sharing Oil, and the operating costs of such production.



ARTICLE 20

ASSIGNMENT



20.1 General

Neither the CONTRACTOR nor any of the entities comprising the Contractor may (except, to an Affiliated Company) sell, assign, transfer, convey, or otherwise dispose of to any person, firm or corporation, in whole or in part, directly or indirectly, any of its rights, privileges, duties or obligations under this Agreement without the prior written approval of the MINISTRY. The CONTRACTOR shall guarantee the performance of such assignee, in accordance with the terms of this Agreement. An entity comprising the CONTRACTOR shall give to the MINISTRY a prompt written notice of any assignment to an Affiliated Company.



Agreement Block(75) 4820.2 Approval of the MINISTRY

within ninety(90) Days from the date of the fulfillment of the last condition under this Article 20.2 as required by the MINISTRY by any entity constituting the CONTRACTOR of a proposed assignment under this Article 20, the MINISTRY shall give its approval to the assignment by any entity constituting the CONTRACTOR of all or part of its rights, privileges, duties or obligations under this Agreement only if the following conditions are met:



20.2.1 The obligations of the assignor deriving from this Agreement must have been duly fulfilled as of the date such request is made and remain fulfilled on the date of the assignment.



20.2.2 The proposed assignee or assignor must produce reasonable evidence to the MINISTRY of the assignee's financial and technical competence.



20.2.3 The instrument of assignment must include provisions stating precisely that the assignee is bound by all covenants contained in this Agreement and any modifications or additions, in writing, that up to such time have been made.



A draft of the proposed assignment and all relevant documents supporting the request, shall be submitted to the MINISTRY prior to the date of the proposed assignment, for the purpose of official approval.



20.3 Any assignment by any entity constituting the CONTRACTOR of all or part of its interest under this Agreement shall be free of any taxes and fees of any nature whatsoever applicable in the ROY including, but not limited to, taxes on any sales proceeds and transfer taxes, charges and fees, except for the payment to the MINISTRY of fifteen percent (15%) of the Net Sales Proceeds, as defined below. The term "Net Sales Proceeds" means the amount resulting from the following calculation:



20.3.1 The total consideration paid to the respective assignor(s) in convertible currency in the form of cash, check, or other readily negotiable instruments for any interest under this



Agreement Block(75)Agreement that is assigned to any person, firm, or corporation other than to an Affiliated Company of such assignor(s) in accordance with the provisions of this Article 20, less the sum of (i) and (ii) below:



(1) all cost, expenses, bonuses paid to the STATE, fees and expenditures of any nature whatsoever incurred by the assignor(s) with respect to the interest so assigned prior to the date of said assignment, and



(2) all taxes of any nature whatsoever (except the said fifteen percent (15%) of Net Sales Proceeds itself) of any taxing authorities whatsoever that are incurred by the assignor(s) with the respect to said assignment. The aforesaid fifteen percent (15%) of Net Sales Proceeds shall not apply to any consideration received by the assignor(s) for said assignment where such consideration is in the nature of work and/or expenditures to be performed and/or paid by the assignee with respect to the Petroleum Operations under this Agreement.



20.4 The CONTRACTOR shall, with the approval of the MINISTRY have the right to freely mortgage, pledge or otherwise encumber its interest under this Agreement for the purpose of obtaining financing for the Petroleum Operations which mortgage, pledge or other encumbrances shall be without prejudice to the MINISTRY's right under this Agreement.



ARTICLE 21

BREACH OF AGREEMENT AND POWER OF CANCELLATION



21.1 The GOVERNMENT has the right to cancel this Agreement by a Republican Resolution with respect to the CONTRACTOR, in the following instances:



21.1.1 If the CONTRACTOR has knowingly submitted any false statements to the MINISTRY which were of a material consideration for the execution of this Agreement.



21.1.2 If the CONTRACTOR assigns any interest hereunder contrary to the provisions of Article 20 hereof.



21.1.3 If the CONTRACTOR is adjudicated bankrupt by a court of competent jurisdiction.



Agreement Block (75)21.1.4 If the CONTRACTOR does not comply with the final decision reached as the result of arbitration proceedings conducted under Article 23 hereunder.



21.1.5 If the CONTRACTOR intentionally extracts any mineral other than Petroleum not authorized by this Agreement without the authorisation of the GOVERNMENT, except such extractions as may be unavoidable as the result of Petroleum Operations conducted hereunder in accordance with accepted Petroleum Industry practices and which shall be notified to the MINISTRY or its representative(s) as soon as possible.



21.1.6 If the CONTRACTOR commits any material breach of this Agreement.



21.1.7 If the CONTRACTOR causes, by its gross negligence or wilful misconduct, material or substantial damage to any Oil and/or Gas field or any relevant facilities.



Such cancellation shall take place without prejudice to any right which may have accrued to the GOVERNMENT against the CONTRACTOR in accordance with the provisions of this Agreement and, in the event of such cancellation, the CONTRACTOR shall have the right to remove from the Agreement Area all its personal property.



21.2 If the GOVERNMENT deems that one of the aforesaid causes (other than a Force Majeure cause referred to Article 22 hereof) exists to cancel this Agreement, the GOVERNMENT shall give to the CONTRACTOR ninety (90) Days' written notice personally served on the CONTRACTOR's General Manager in a legally official manner and receipt of which is acknowledged by him or by his legal agent, to remedy and remove such cause; but if for any reason such service is impossible due to unnotified change of address, Publication on the Official Gazette of the GOVERNMENT of such notice shall be considered as validly served upon the CONTRACTOR. If at the end of the said ninety (90) Days' notice period such cause has not been remedied and removed, this Agreement may be cancelled forthwith by a Republican Resolution, as aforesaid.



Agreement Block (75) 51ARTICLE 22

FORCE MAJEURE



22.1 The non-performance or delay in performance by the MINISTRY or the CONTRACTOR of any obligation under this Agreement other than the obligation to pay any amounts due or giving notices shall be excused if, and to the extent that, such non-performance or delay is caused by Force Majeure. The period of any such non-performance or delay, together with such period as may be necessary for the restoration of any damage done during such delay shall be added to the time given in this Agreement for the performance of such obligation and for the performance of any obligation dependent thereon and consequently, to the term of this Agreement, but only if the extension of the term of this Agreement is relevant to the performance of such obligation.



22.2 "Force Majeure", within the meaning of this Agreement, shall be any order, regulation or direction of the GOVERNMENT, or (with respect to the CONTRACTOR) of the government of the country in which any of the entities comprising the CONTRACTOR is incorporated, whether promulgated in the form of law or otherwise, or any act(s) of God, insurrection, riot, war, strike (or other labor disturbances), fires, floods or any cause not due to the fault or negligence of the Party invoking Force Majeure, whether or not similar to the foregoing, provided that any such cause is beyond the reasonable control of the party invoking Force Majeure.



22.3 Without prejudice to the foregoing provisions and except as may be otherwise provided herein, neither the GOVERNMENT nor the MINISTRY shall incur any responsibility whatsoever to the CONTRACTOR for any damages, restrictions or loss arising in consequence of such cause of Force Majeure.



22.4 If the Force Majeure event occurs during either the First Exploration Period or the Second Exploration Period or any extension(s) thereof and continues in effect for a period of six (6) Months, thereafter the CONTRACTOR shall have the option upon ninety (90) Days' prior written notice to the MINISTRY to terminate its obligations hereunder without further liability of any kind except for those payments accrued under this Agreement.



Agreement Block (75) 52Article 23



Disputes and Arbitration



23.1 in case a dispute arises under this Agreement between the MINISTRY and the CONTRACTOR with respect to interpretation, application or its validity, the Parties to the dispute shall use their good faith efforts to settle their differences by mutual agreement. Otherwise, the said Parties shall submit their dispute to arbitration as provided in this Article (23).



23.2 Unless otherwise agreed by the Parties to the dispute, the arbitration shall be held in Paris, France and conducted in the English language in accordance with the RUles of Conciliation and Arbitration of the International Chamber of Commerce (the "Rules"). In the event of no specific provisions being provided under the Rules, the arbitration tribunal shall establish their own procedure.



23.3 The arbitration shall be initiated by either Party to the dispute ("First Party") giving written notice to the other Party to the dispute ("Second Party") that it elects to refer the dispute to arbitration and has appointed an arbitrator who shall be identified in said notice. The Second Party shall notify First Party in writing within forty-five (45) days identifying the arbitrator that has been selected and appointed by such Party.



23.4 If the Second Party does not so appoint its arbitrator, the First Party shall have the right to apply to the Court of Arbitration of the International Chamber of Commerce to appoint a second arbitrator. The two (2) arbitrators shall, within thirty (30) Days, select a third arbitrator failing which the thirst arbitrator shall be appointed by the Court of Arbitration of the International Chamber of Commerce at the request of either the First Party or the Second Party.



23.5 The third arbitrator shall not be a citizen of the ROY or of the country in which any of the entities comprising the CONTRACTOR is incorporated, but shall be a citizen of a country which has diplomatic relations with the aforesaid countries, and shall not have any economic interest in the oil business of the ROY or of any party to the dispute.



23.6 The Parties hereto shall extend to the arbitration tribunal all facilities (including access to the Petroleum Operations) for obtaining any information required for the proper determination of the dispute. The absence or default of any Party to the arbitration shall not be permitted to prevent or hinder the arbitration proceeding in any or all of its stages.23.7 Pending the decision or award of the arbitration tribunal, the Petroleum Operations or activities which have given rise to the arbitration need not be discontinued. In the event the decision or award recognizes that the complaint was justified, provisions may be made therein for such reparation as may be appropriately made in favour of the complainant.



23.8 Judgment on the award rendered amy be entered in any court having jurisdiction or application may be made to such court of enforcement, as the case may be.



23.9 The provision hereto base their relationship under this Agreement on the principles of goodwill and good faith. The interpretation and application of the provisions of this Agreement with respect to the arbitration shall be in accordance with the Yemeni laws that are outlined in Article 24 of this Agreement.



ARTICLE 24

GOVERNING LAW



This Agreement, it Annexes, and any modifications, will be governed and interpreted according to Yemeni laws, except the laws which are inconsistent with this Agreement.



ARTICLE 25

STATUS OF PARTIES



25.1 The right, duties, obligations and liabilities with respect to the MINISTRY and the CONTRACTOR, shall be several and not joint or collective, it being understood that this Agreement shall not be construed as constituting an association or corporation or partnership.



25.2 The entities comprising the CONTRACTOr shall be subject to the laws of the place where they are incorporated regarding their legal status or creation, organization, charter and bylaws, share holding and ownership.



25.3 The CONTRACTOR companies' respective shares of capital which are entirely held abroad shall not be negotiable and shall not be offered for public subscription in the ROY.25.4 The entities comprising the CONTRACTOR shall be jointly and severally liable for the performance of the obligations of the CONTRACTOR under this Agreement to the MINISTRY.



25.5 This Agreement shall constitute the authority for the CONTRACTOR and the MINISTRY to conduct all activities as are necessary to carry out the Petroleum Operations as contemplated by this Agreement.





ARTICLE 26

LOCAL CONTRACTORS AND LOCALLY

MANUFACTURED MATERIALS





26.1 The CONTRACTOR, its contractors and subcontractors shall:



26.1.1 Give priority to local contractors and subcontractors including MOM's Dependent Units as long as their performance is comparable to international standards and quality, their terms and conditions are competitive with those of other contractors and subcontractors tendering for work, and the prices of their services are not higher than the prices of such other contractors and subcontractors by more than ten percent (10%) The CONTRACTOR shall, following consultation with the MINISTRY, invite local contractors to bid when it requests bids for any required services.



26.1.2 Give preference to locally manufactured materials, equipment machinery and consumable so long as their quality, quantity and time of delivery is comparable to internationally available materials, equipment, machinery and consumables. However, such material, equipment, machinery and consumables may be imported for Petroleum Operations conducted hereunder if the local price of such items at the CONTRACTOR's operating base in the ROY is more than ten percent (10%) higher than the price of such imported items before Customs Duties, but after transportation and insurance costs have been added.





ARTICLE 27

GAS



27.1 The Associated Gas and Dry Gas produced from the Agreement Area are the property of the STATE. If the CONTRACTOR needs part of the separated Associated Gas and/or Dry Gas for the



Agreement Block (75)

purpose of utilizing it in the Petroleum Operations or for re-injection to preserve the pressure of the reservoirs, the CONTRACTOR must submit to the MINISTRY a request for such utilisation free of charge together with documentation to support the request. Approval of such request shall not be unreasonably withheld



27.2 Associated Gas

(a) The CONTRACTOR shall deliver the Associated Gas to the STATE at the point where it is separated from the Crude Oil. Any costs with respect to such delivery to the STATE, including but not limited to, any increase in the CONTRACTOR's costs as a result of such delivery, shall be paid by the STATE to the CONTRACTOR. Any Associated Gas that is not taken by the STATE or that is not utilized in the Petroleum Operations, as aforesaid may be treated by the CONTRACTOR in accordance with good Petroleum Industry practices.



(b) Subject to Article 27.1, if the STATE considers the possibility of entering into an agreement with any party for the export and sale of the Associated Gas and/or its delivery to the MINISTRY for local consumption (the "Gas Development Agreement"), the MINISTRY and the CONTRACTOR shall meet and discuss in good faith for the purpose of reaching a mutual agreement on the terms and conditions of the Gas Development Agreement. Any such Gas Development Agreement shall be based on the following principles:



(1) the STATE'S share in the Gas Development Agreement shall not be less than sixty percent (60%).



(2) The CONTRACTOR shall initially bear all costs and expenses related to the Gas project including those related to the construction and operation of the facilities and shall be reimbursed from the "Annual Gas Revenue" according to the terms of the Gas Development Agreement.



(3) If the terms of the Gas Development Agreement could not be agreed as contemplated above within a six (6) Month period from the first meeting devoted to that purpose between the MINISTRY and the CONTRACTOR, and unless such period is extended by mutual agreement, the MINISTRY



Agreement Block (75) 56





shall have the right to conduct

negotiations with any third party

and to conclude and agreement on the

Gas project, provided that the

operations under such Agreement

shall not interfere with the

Contractor's Petroleum Operations

in the Agreement Area. In that

context and as a third party, the

CONTRACTOR may, alone or together

with any other party, submit a new

proposal to the MINISTRY for the

establishment of the Gas project.

Provided, however the MINISTRY

shall be completely free to select

the best proposal according to its

own discretion without assuming any

liability whatsoever to the

CONTRACTOR or any other party, and

the CONTRACTOR shall be entitled

only to recover its exploration

and appraisal expenditure pursuant

to Article 7 of this Agreement.



27.3 Dry Gas

(a) The CONTRACTOR shall notify

the MINISTRY of any discovery of

Dry Gas on any separate geological

feature within the Agreement Area.

The CONTRACTOR and the MINISTRY

shall promptly meet for the purpose

of discussing whether there is a

basis for the CONTRACTOR and the

MINISTRY to mutually agree on the

terms and conditions under which

the CONTRACTOR shall diligently

undertake in accordance with good

Petroleum Industry practices, the

appraisal and development thereof,

if feasible and economical, of the

discovery (the "Project").

Provided this Agreement is in effect,

any "Gas Project Agreement"

relating to the Project shall be

based on the following principles:



(1) Unless otherwise agreed, the

appraisal program shall be in stages

taking into account the market for

such Dry Gas, the prices to be

received therefor, the markets then

available, the fiscal conditions

and such other factors as may be

reasonably required to make such

decision with the first stage being

preliminary feasibility study and

each subsequent stage being

dependent on the successful

completion of the previous one.



(2) All cost, expenses and

expenditures of the appraisal

program shall be recoverable from

Oil as Exploration Expenditures,

or in the absence of a Crude Oil

production, from the "Annual Gas

Revenue" in accordance with the

Gas Project Agreement.





Agreement Block (75) 57



(3) If the MINISTRY and the CONTRACTOR fail to reach an agreement on the Gas project Agreement, within the six (6) Month period from the first meeting devoted to that purpose between the MINISTRY and the CONTRACTOR, and unless such period is extended by mutual agreement, the MINISTRY shall have the right to develop such Dry Gas discovery on its own or in collaboration with any third party. In such an event the CONTRACTOR shall relinquish to the MINISTRY the area covering said geological feature provided the CONTRACTOR shall not be obliged to relinquish any part of the Agreement Area corresponding to a Development Area(s) or to the surface area of any geological feature in which a Commercial Oil Well has been established. Such area shall be mutually agreed upon between the MINISTRY and the CONTRACTOR on the basis of good Petroleum Industry practices. Provided, however, the CONTRACTOR shall not be entitled to any compensation for that relinquishment and shall be entitled only to recover its expenditures related to the exploration and appraisal program in accordance with Article 7 of this Agreement.



27.4 Financial Terms:

The Gas Project Agreement shall provide for the financial terms and conditions as follows:



(i) All the sharing and the cost recovery shall be effected on the basis of the annual revenue of the Project.



(ii)There should be specified the following:

-Bonuses to the MINISTRY

-Royalties which the STATE shall receive from the Project,

-Cost Recovery limit,

-Profit sharing provisions.



ARTICLE 28

CONFIDENTIALITY



28.1 General:

Except as specifically provided in this Agreement, the CONTRACTOR, its contractors and their subcontractors shall not at any time during the term of this Agreement or for a period of four (4) Years thereafter, use for their benefit or disclose or use for the benefit of any other person whatsoever, including, but not limited to, any company, firm, corporation, institution or government any information acquired during the Term of this Agreement Block (75)





Agreement as a result of the Petroleum Operations hereunder. For purposes of this Article 28, information shall include, without limitation, data, information, methods, formulas, processes, reserves and any other technical, financial or trade information.



Use or Disclosure by the CONTRACTOR



28.2.1 The CONTRACTOR may freely use information for all purposes necessary to meet its obligations under this Agreement.



28.2.2 The CONTRACTOR may disclose information to others (including to Affiliated Companies):

(1) to the extent necessary to permit others to perform any of the obligations under this Agreement;

(2) in connections with the arranging of financing or assignment; and

(3) to the extent required by any applicable law or regulation in accordance with good Petroleum Industry practices, provided that such disclosure will not cause any damage or prejudice the MINISTRY's rights under this Agreement.



Provided however, any disclosure under Article 28.2.2 (i) or Article 28.2.2 (ii), above shall require the third party to which the disclosure is made to agree in writing to maintain the same confidentiality requirements applied to the CONTRACTOR hereunder.



28.3 Approval of the MINISTRY

Any use or disclosure not specifically author under Article 28.2 above, shall be subject to written authorization of the MINISTRY.



28.4 Exception

This Article 28 shall not apply to any information which the CONTRACTOR acquired or acquires from any source other than from the performance of this Agreement or from the MINISTRY or which is considered to be in the public domain. ARTICLE 29

ANCILLARY RIGHTS OF CONTRACTOR



29.1 For the purpose of its Petroleum Operations under this Agreement and subject to the laws and regulations at the time in force and subject to the approval of the GOVERNMENT, the CONTRACTOR hall have the right to take free of cost any stone, sand or other building materials from land not privately occupied or owned and to drill for and take any water which may be available and may be required for Petroleum Operations, provided that the inhabitant are not prevented from taking their usual requirements of such materials and that the water supply of the local inhabitants and nomad populations is not endangered.



29.2 Radio, telephone and other communication facilities maintained by the CONTRACTOR shall be for its exclusive use for purposes of its activities under this Agreement, shall be subject to all governmental regulations and shall be available for reasonable or emergency use by the GOVERNMENT free of charge. Such facilities shall be so constructed and operated as not to interfere with similar installations which exist or with the permission of the MINISTRY may be established in YEMEN for public use or for the purposes of defense,



29.3 The CONTRACTOR shall have the right to use without payment and in a safe manner, existing roads within YEMEN and shall permit free public use of the reads constructed and maintained by it, except such roads as the CONTRACTOR may with the consent of the MINISTRY declare to be for its exclusive private use.



29.4 The CONTRACTOR shall have the right to use existing public harbor and airports in YEMEN upon payments of the port and harbor dues or landing or other fees generally applicable in accordance with applicable regulations, provided that such use is not so extensive to interfere with the right of the public to use such harbors and airports.



29.5 Subject to the approval of the appropriate GOVERNMENT authorities, the CONTRACTOR shall have the use and occupation of surface rights over the lands and buildings owned by the GOVERNMENT in YEMEN which they may reasonably require for Petroleum Operations under this Agreement subject to an agreed upon rental payment which shall not be less favorable than available to any other international pertroleum company operating in the ROY. When land, surface rights or buildings required by the CONTRACTOR for the Petroleum Operations under this Agreement are privately occupied or owned their purchase, lease or clearance shall be effected on terms to benegotiated by the CONTRACTOR with the owner or



occupier but such terms shall not be substantially



more onerous to the CONTRACTOR than those



normally offered currently for similar transactions in



the locality concerned. The GOVERNMENT shall'



upon request by the CONTRACTOR assist in the



negotiations with the owner and occupier and shall



use the power of eminent domain when necessary



after the payment of reasonable compensation to the



owner in compelling cases.



29.6 The CONTRACTOR shall have the right to incur



and pay costs and expenses pertaining to any



emergency affecting safety to person or property in



the Petroleum Operations and such costs and



expenses shall be recoverable under this Agreement



provided that the MINISTRY shall be notified of



any such emergency as soon as practicable.



29.7 The CONTRACTOR shall have the right to incur



and pay costs and expenses for any item of an



approved Work Program and Budget for an amount



in excess of the budget for such item and such costs



and expenses shall be cost recoverable under this



Agreement to the extent that they do not exceed ten



percent (10%of the budget for such item. The



CONTRACTOR shall, with the approval of the



MIMSTRY, have the right to revise any approved



Work Program and Budget.





ARTICLE 30



MISCELLANEOUS



30.1 The headings or titles to each of the Articles and



paragraphs of this Agreement are solely for the



convenience of the Parties hereto and shall not be



used with respect to the interpretation or construction



of the provisions of this Agreement.





30.2 Entire Agreement



This Agreement and the Annexes attached hereto



represent the entire agreement between the Parties



hereto with respect to the subject matter hereof,



superseding all other previous oral and written



communications, representations, and agreements



with respect thereto. This Agreement and its



Annexes may be modified only by written agreement



of all the Parties hereto and ratified in accordance



with constitutional procedures in the ROY.





30.3 All items of archaeological value that the



CONTRACTOR encounters are the sole property of



the STATE. The CONTRACTOR shall notify the



Ministry's representative(s) of such find as soon as



it encounters such items. The CONTRACTOR must



take all necessary precautions for the safety of the find



during the execution of the Petroleum Operations. The



CONTRACTOR shall abide by tho laws of Y,EMEN



and lawful instructions in this regardr



/ Agreement Block (75)30.4 Considering that the Parties hereto base their relationship under this Agreement on good will and good faith, the Parties hereto agree that in those provisions of this Agreement where a Party hereto is required to obtain the consent, approval, determination, or agreement of the other Party hereto, such consent, approval, determination or agreement shall not be unreasonably withheld.



30.5 The MINISTRY, on behalf of the GOVERNMENT, shall upon the request of Contractor coordinate the CONTRACTOR's dealings in relation to Petroleum Operations with other state authority or governorate conducted in accordance with this Agreement.





ARTICLE 31

ASSIGNMENT AND AUTHORIZATION BY THE MINISTRY



The MINISTRY reserves the right to assign part or the whole of its rights and obligations in this Agreement to any of its Dependent Units in the ROY during any period when this Agreement is in effect, and reserves the right to recover all of its rights and its obligations at any time it desires to do so. The MINISTRY has the right to assign to and/or to deputize more than one (1) Dependent Unit to exercise its rights and perform its obligations under this Agreement throughout all the stages of the execution of this Agreement. Any such transfer of rights and obligations shall not be binding on the CONTRACTOR until the MINISTRY has delivered to the CONTRACTOR the document effecting such transfer.



ARTICLE 32

THE OFFICIAL TEXT

This Agreement is written in the Arabic and English Languages both of which shall have equal legal force and effect, provided, however, before GOVERNMENT authorities in the ROY, the Arabic version shall be referred to in interpreting this Agreement; and in any arbitration proceedings under this Agreement the Arabic and English versions shall be referred to in interpreting this Agreement.



ARTICLE 33

GOVERNMENTAL APPROVAL



This Agreement, signed by the MINISTRY and the CONTRACTOR, shall not be binding upon either of the Parties hereto, until the issuance of the law approving this Agreement according to the constitutional procedures in the ROY and giving the provisions of this Agreement, including the Annexes, full force and effect of law notwithstanding any contradictory GOVERNMENT enactment.



Agreement Block(75)ARTICLE 34

THE SIGNATURES



Certifying the foregoing, the Parties hereby sign this Agreement on the date which appears in the Preamble of this Agreement:



MINISTRY OF OIL AND MINERALS



By:

Signature:

Title:

Date:



THE CONTRACTOR:



1- OCCIDENTAL OF YEMEN (BLOCK 75), LLC



By: Donald Mlipinsky

Signature: Donald Mlipinsky

Title: 6M

Date: 31-03-2007



2-TG HOLDINGS YEMEN INC.



By: Ross Clarkson

Signature: Ross Clarkson

Title: President & CEO

Date:31-03-2007



3- YEMEN GENERAL CORPORATION FOR OIL & GAS



By: A. A. Suchia

Signature: A. A. Suchia

Title: GM of YOGC

Date: 30/3/2007



Agreement Block (75)ANNEX "A"

DESCRIPTION OF THE AGREEMENT AREA

Markha Area, Marib. Shabwa Governorates,

(BLOCK 75)

REPUBLIC OF YEMEN



The Agreement Area measures approximately 1050.06 square Kilometers and is defined by the corner points numbered from "A" through "p" closing at "A" connected by straight lines as shown in Annex "B".



The co-ordinates of such corner points are given in the following table:



Markha Area:



| Point | X | Y |

| A | 45.6167 | 15.1167 |

| B | 45.8024 | 15.2632 |

| C | 45.8075 | 15.2523 |

| D | 45.7989 | 15.2325 |

| E | 45.8165 | 15.2232 |

| F | 45.8423 | 15.2226 |

| G | 45.8928 | 15.1720 |

| H | 45.9151 | 15.1753 |

| I | 45.8852 | 15.1505 |

| J | 46.2786 | 14.9298 |

| K | 46.3893 | 14.8235 |

| L | 46.4690 | 14.7797 |

| M | 46.4520 | 14.7479 |

| N | 45.8864 | 15.0414 |

| O | 45.7274 | 15.0592 |

| P | 45.6647 | 15.0399 |

| A | 45.6167 | 15.1167 |



Agreement Block (75) 64 AN ILLUSTRATIVE MAP OF THE AGREEMENT

AREA



Annex "B" is an illustrative Map of the Agreement Area,

"Markha, Marib-Shabwa Governorates, (BLOCK 75)

REPUBLIC OF YEMEN", which outlines the Area

covered by this Agreement and defined and bound by the

points A through P closing at "A".ANNEX "C"



THE MINIMUM WORK OBLIGATION AND MINIMUM EXPENDITURE OBLIGATION DURING THE EXPLORATION PERIOD



1. The First Exploration Period (Obligatory)

1.1 The First Exploration Period is thirty six (36) Months starting on the Effective Date.

1.2 The CONTRACTOR is obligated to conduct the following Exploration work during the First Explorations Period:

(a) Reprocess available seismic data related to Block (75)

(b) Conduct , acquire, process and interpret a minimum 175square kilometers of 3-D seismic data.

(c) Drill and evaluate one (1) Exploration well with a minimum depth two hundred (200) meters in the basement.



Minimum financial commitment for each Exploration work:

(a) Reprocess available seismic data U.S. $50,000

(b) Conduct, acquire, process and interpret a minimum 175 square kilometers of 3-D seismic data U.S.$2,950,000

(c) Drill one (1) Exploration well U.S.$3,000,000

Total U.S.$6,000,000



1.3 The CONTRACTOR is obligated to spend a minimum if six million United States Dollars (U.S.$6,000,000) on Exploration work during the First Exploration Period.

1.4 In the event the CONTRACTOR elects to extend the First Exploration Period by an additional Six (6) Months, the CONTRACTOR is obligated to conduct the following Exploration work during such extension G&G and well studies. The Minimum Expenditure Obligation for such additional Exploration work is Two Hundred Fifty Thousand U.S.Dollars (U.S.$250,000)



2. The Second Exploration Period (Optional)

2.1 The Second Exploration Period is thirty six (36) MOnths starting on the Day after the end of the First Exploration Period, or any extension thereof the CONTRACTOR has entered into, if the CONTRACTOR so elects pursuant to the Agreement.

2.2 The CONTRACTOR is obligated to conduct the following Exploration work during the Second Exploration Period:

(a) Drill and evaluate Two (2) exploration wells with a minimum depth of 200 meters in the Basement.Minimum financial Commitment for such Exploration work:



(a) Drill and evaluate Two (2) exploration wells



_______________________________________U.S.$6,000,000

TOTAL U.S.$6,000,000



2.3: The CONTRACTOR is Obligated to spend a minimum of Six Million United States Dollars (U.S.$ 6,000,000) on Exploration work during the second Exploration Period.



2.4 In the event the CONTRACTOR elects to extend the Second Exploration Period by an additional Six (6) Months, the CONTRACTOR is obligated to conduct the following Exploration work during such extension G&G and wells studies. The Minimum Expenditure Obligation for such additional Exploration work is Two Hundred Fifty Thousand U.S.Dollars (US$250,000)



3. Excess work in any portion of the Exploration Period (including extensions) may be carried forward to satisfy the work in a subsequent portion of the Exploration Period (including extensions).ANNEX "D"

FORM OF IRREVOCABLE LETTER

OF CREDIT



DATE:

MINISTRY OF OIL AND MINERALS

(Address)

(Attention)



Re: OUR IRREVOCABLE LETTER OF CREDIT

No.: ....................



Gentlemen:

By order of our client, (name of company) (hereinafter referred to as the "CONTRACTOR")we hereby establish this irrevocable Letter of Credit No.: ___________ in your favour, according to which we hereby undertake and guarantee to pay to you unconditionally the amount hereinafter referred to, without any question and reference to the CONTRACTOR, in the event that the CONTRACTOR has failed to fulfill its technical or financial obligations (including the clean up of work sites) under the Production Sharing Agreement for Markha Area, Marib - Shabwa, Governorates (Block 75), Republic of Yemen (the "PSA") entered into between the Ministry of Oil and Minerals (the "MINISTRY") of the first part, and the OCCIDENTAL OF YEMEN (BLOCK 75) LLC and TG HOLDINGS YEMEN INC. and the Corporation of the other part, effective as of (date) and its Annex "C" (hereto attached), which specifies the Minimum Work Obligation and Minimum Expenditure Obligation during the Exploration Period.



The amount guaranteed hereunder is -------- million United States Dollars (U.S.$------------) for the CONTRACTOR's commitments during the First Exploration Period.



1. Payments under the Letter of Credit

Payments under this Letter of Credit are available to you against presentation of a request by you for payment in the form of Exhibit I hereto, and a copy of the notice given to the CONTRACTOR notifying it that the Minimum Work Obligation has not yet been performed.



2. Reduction of the Letter of Credit Amount

The total amount available hereunder shall be reduced automatically by the amount stated in a signed notice from the MINISTRY in the form of Exhibit II hereto, or as otherwise prescribed in Article 2.1.4 (c) of the PSA.



3. Validity of this Letter of Credit

This irrevocable Letter of Credit is and continues to be valid as from the Effective Date of the PSA and until the earlier of:



Agreement Block (75) 68(a) Six (6) Months after the end of the First Exploration Period or any extension thereto or (6) Months after the termination of the PSA; or



(b) The total reductions or payments for the total amount of this Letter of Credit (after reductions as referred to above) for the relevant Exploration Period.



4. Extension of Letter of Credit

The term of this Letter of Credit shall be automatically extended for a period equivalent to any extension period granted by the MINISTRY to the CONTRACTOR under the PSA or any extension as a result of Force Majeure under the PSA after the issuing bank has received instructions to that effect from the MINISTRY.



The defined terms in this Letter of Credit (including Exhibits I, II, and III as well as Appendix I to Exhibit III) shall have the same meanings as specified in the PSA.



5. Suspension:

During the Force Majeure the Letter of Credit shall be suspended and continue in force thereafter during such period of Force Majeure.



If the Force Majeure event continues for a period of six (6) Months, and the CONTRACTOR terminates its obligations in accordance with the Production Sharing Agreement this Letter of Credit shall automatically be cancelled according to its terms.



We hereby guarantee the payment of all amounts not having been reduced in accordance with the above with ten (10) Days of receipt by us of your written notice, without further juridical procedures.



(Name of Issuing Bank)



By:_________________

Signature:___________________

Title:______________

Date:_____________________





Agreement Block(75) 69 EXHIBIT 1



NOTICE FOR PAYMENT UNDER IRREVOCABLE LETTER OF CREDIT NO.:................



DATE:

[NAME AND ADDRESS OF ISSUING BANK)

Re: Irrevocable Letter of Credit No.:





Gentlemen:

Please be advised that we hereby request payment under the above referenced Letter of Credit and that:



1. (Name of Company) (the "CONTRACTOR") has not completed its obligations under the Production Sharing Agreement for Markha Area, Marib - Shabwa Governorates (Block 75), Republic of Yemen (the"PSA"), effective as of (date) entered into between the Ministry of Oil and Minerals (the "MINISTRY") of the first part, and OCCIDENTAL OF YEMEN (BLOCK 75) LLC, and TG HOLDINGS YEMEN INC. and the Corporation of the other part, with respect to the Minimum Work Obligation or the clean up of work sites in relinquished areas according to good Petroleum Industry practices for the current Exploration Period of the PSA within the period specified therein and we are entitled to request payment under the Letter of Credit.



2. We certify that in respect of the obligations not performed, the notice of payment made under the Letter of Credit is the sum agreed between us and the CONTRACTOR in the PSA as corresponding to the costs of such work as provided in the Minimum Work obligation and Minimum Expenditure Obligation under the PSA for the relevant Exploration Period.



3. The MINISTRY has notified the CONTRACTOR at least fourteen (14) Days before the date hereof of the work that has not been performed and the CONTRACTOR has subsequently not performed such work. A copy of the written notice to the CONTRACTOR is attached hereto.



4. This notice for payment is in the amount of ................United States Dollars (U.S.$..........). Please transfer these funds to our Account No............ in...............Bank within ten (10) Days of receiving this notice.



MINISTRY OF OIL & MINERALS,

By:__________________

Signature:________________________

Title:________________

Copy to the CONTRACTOR

(Address) EXHIBIT II



NOTICE OF REDUCTION OF IRREVOCABLE LETTER OF CREDIT NO.:.........



DATE:

(Name and address of Bank issuing Irrevocable Letter of Credit)



Re:Irrevocable Letter of Credit

No.:................



This is to notify you that in accordance with the Production Sharing Agreement entered into between the Ministry of Oil and Minerals (the "MINISTRY") of the first part, and OCCIDENTAL OF YEMEN (BLOCK 75) LLC, and TG HOLDINGS YEMEN INC. and the Corporation on the other part, for Markha Area, Marib - Shabwa, Governorates (Block 75 ),, Republic of Yemen (the "PSA"), effective as of (date), the undersigned have signed this notice on the date hereof to reflect the completion by (name of company) (the "CONTRACTOR") of the work corresponding to the amount stated below. You are hereby authorized and instructed to reduce the amount of the Letter of Credit by the amount of the Letter of Credit by the amount of ................ united States Dollars (U.S.$...............) and to notify the CONTRACTOR of this reduction.



MINISTRY OF OIL & MINERALS



By : __________________



Signature:_________________



Title:_________________EXHIBIT III

FORM OF IRREVOCABLE LETTER OF CREDIT



DATE:

MINISTRY OF OIL AND MINERALS, REPUBLIC OF YEMEN

(Address)

(Attention)

Re: OUR IRREVOCABLE LETTER OF CREDIT

NO: .........



Gentlemen:

By order of our client, (name of company) (hereinafter

referred to as the "CONTRACTOR"), we hereby establish

this irrevocable Letter of Credit No.: ............ in your

favour, according to which we hereby undertake and

guarantee to pay to you unconditionally without any

question the amount of -------- United States Dollars

(U.S.$ --------) (the "Guaranteed Amount" to cover as

the signature bonus) as required under the Production

Sharing Agreement for Markha Area, Marib - Shabwa

Governorates (Block 75), Republic of Yemen (the

"PSA") entered into between the Ministry of Oil and

Minerals (the"MINISTRY") of the first part, and

OCCIDENTAL OF YEMEN (BLOCK 75) LLC, and

TG HOLDINGS YEMEN INC. and the Corporation of

the other part, dated .............200-- under the terms

and conditions stipulated below:



l. Validity

This Ietter of Credit shall be effective from

08.00 a.m. (date) and expires on earlier of the

following:



a. immediately upon payment of the signature

bonus by the CONTRACTOR as required

under the PSA; or



b. immediately upon payment by the Bank to the

MINISTRY under this Letter of Credit; or



c. on the thirtieth (30th) calendar day from the

date of issuance of the law approving the PSA;

or



d. (date) (being six (6) months from the effective

date of this Letter of Credit).

All claims must be submitted to the Bank before 5.00

p.m. on the appropriate expiry date mentioned herein

failing which this Letter of Credit shall become null and

void.



2- Payment Instruction

Payment under this Letter of Credit is available to you

against a written request from the MINISTRY for

payment in the form attached hereto as Appendix Istating that the CONTRACTOR has failed to pay the signature bonus as required under the PSA on the Effective Date.



3.Return to the Bank

On the relative expiry date pursuant to paragraph above or upon receipt of a claim for full payment under this Letter of Credit or upon early payment and termination of the Letter of Credit, the original of this Letter of Credit must be returned immediately to the Bank.



4.Renewal of Irrevocable Letter of Credit

The validity of this Letter of Credit shall be extended upon a written request from the MINISTRY to the Bank provided that the CONTRACTOR has consented to such request from the MINISTRY.



(Name of Issuing Bank)



By:...............

Signature:...............

Title:.............. Appendix(1)



NOTICE OF DRAWING THE LETTER OF CREDIT NO.:.........



DATE:

TO:(Name of Issuing Bank)

FROM:THE MINISTRY OF OIL AND MINERALS

Re:Irrevocable Letter Of Credit No:.......





We, the Ministry of Oil and Minerals (the "MINISTRY") certify that (name of company)(the "CONTRACTOR") has failed to pay the signature bonus of..................... United States Dollars (U.S.$..........) (THE "Guaranteed Amount") within .......... ( .....) Days from the date of issuance of the law approving the Production Sharing Agreement for Markha Area, Marib-Shabwa Governorates (Block 75), Republic of Yemen (the "PSA") entered into between the MINISTRY of the first part and OCCIDENTAL OF YEMEN (BLOCK 75) LLC, and TG HOLDINGS YEMEN INC. and the Corporation of the other part, effective as of (date), as required under the PSA.



We hereby claim under your Irrevocable Letter of Credit No:.......... for the Guaranteed Amount Payable to the MINISTRY.



Please transfer the Guaranteed Amount to out Account No.:......... in .............. Bank within ten (10) Days of receiving this notice.



MINISTRY OF OIL AND MINERALS

By:................

Signature:...............

Title:................



Copy to the CONTRACTOR

(Address)ANNEX "E"

FORM OF CHARTER OF THE OPERATING COMMITTEE



ARTICLE 1

OPERATIONS AND DEVELOPMENT PERIOD



All provisions of this Charter shall be subject to provisions of Article 6 of the Agreement.



ARTICLE 2

OPERATING COMMITTEE



2.1 Operating Committee meeting shall be held at any time at the request of either the MINISTRY or the CONTRACTOR, upon at least thirty (30) days notice in writing to the other Party, but in any event shall be held at least once per Calendar Quarter.

2.2 Any notice for any meeting shall include the date, time and location of such meeting, along with a list of the items to be discussed. The Vice Chairmans shall be responsible for preparing the final agenda for any meeting, which shall include all matters proposed to be discussed by the Chairman and the Vice Chairman. Agendas shall be provided to the parties at least seven (7) Days prior to the meeting.

2.3 A quorum shall be deemed to exist if each Party has one representative present.

2.4 All Operating Committee meetings shall be held in Sana'a, the ROY or at such location as the Chairman and the Vice Chairman may otherwise agree upon.

2.5 All resolutions of the Operating Committee must be approved unanimously. If matters arise which cannot be unanimously agree the Chairman and Vice Chairman shall meet, in an attempt to reach such agreement. Failing such agreement, the CONTRACTOR shall consult directly with the MINISTRY to resolve any outstanding matter.

2.6 As soon as possible, but in any event not later than forty-five (45) Days, after each Operating Committee meeting, the Vice Chairman shall submit to the Parties draft minutes of the meeting summarizing the results of such meeting. Unless approved earlier by the Parties, the minutes shall be presented at the next meeting of the Operating Committee for consideration and approval. Such approval shall be evidenced by the signature of the Chairman and the Vice Chairman. Thereafter, the minutes shall constitute conclusive evidence of resolutions adopted at such meeting.



ARTICLE 3

OPERATING SUBCOMMITTEES



3.1 Each Subcommittees shall consist of four (4) representatives, two (2) representatives appointed by the MINISTRY and two (2) representatives appointed by the CONTRACTOR. Each subcommittee shall receive information reports and proposals requested by the Operating Committees.

3.2 Subcommittee meeting shall be held at any time at the request of either the MINISTRY or the CONTRACTOR, upon at least seven (7) Days notice in writing to the other Party, but in any event shall be held at least once per Calendar Quarter. Any notice for a meeting shall include the date, time and location of such meeting, along with a list of the items to be discussed, The CONTRACTOR's representative shall prepare all agendas and minutes of Operating Subcommittee meetings. A quorum shall be deemed to exist if each Party has one (1) representative present. All Subcommittee meetings shall be held in Sana'a in the ROY or at such other location a the representatives agree upon. Any recommendations or proposals of the Subcommittees, whether unanimous or not, shall be duly recorded in an appropriate report and communicated to the Operating Committee by the CONTRACTOR's representative.

3.3 The Work Program and Budget Subcommittee shall liaise with the Operator and report to the Operating Committee with respect to the following:

3.3.1 preparation and implementation of Annual Work Program and Budget for:

- Exploration, and

- Development and production operations

3.3.2 preparation of current Work Program outlook;

3.3.3 Crude Oil marketing and entitlements; and

3.3.4 The form of Statements of Expenditure and statements of Liquid Crude Oil production.

3.4 The Technical/Operations Subcommittee shall liaise with the Operator and reports to the Operating COmmittee with respect to the following:

3.4.1 technical aspects of the Development Work Program for development, production, maintenance and other production development activities concerning:

- geological and geophysical programs;

- drilling locations; and .major facilities projects,



3.4.2: field and marine operating activities.



3.5: The Contracting and Procurement Subcommittee shall liaise with the Operator and report to the Operating Committee with respect to the following:



3.5.1 Implementation of pre-qualification process, when appropriate;



3.5.2: review of bid lists;



3.5.3: Preparation of bid solicitations;



3.5.4: review of bid evaluations and recommended awards.







3.6: The Yemenization and Training subcommittee shall liaise with the Operator and report to the Operating Committee with respect to the following:



3.6.1: review of the CONTRACTOR'S organization chars;



3.6.2 training and Yemenization plans presented by the Operator; and



3.6.3 recommendations for Project Team Secondees, as set forth in Article 5 of this Annex "E"; and



3.6.4: in connection with annual Work Program and Budget, review and recommend training for Yemeni employees and a schedule (which schedule or schedules shall be consistent with international Petroleum Industry practices) for training of specialized Yemeni personnel to replace expatriates.







ARTICLE 4

EXPENSES



Reasonable out of pocket costs and expenses of Operating Committee representatives and Subcommittee representatives, incurred traveling to and from meetings outside Sana's, the ROY shall be reimbursed by the CONTRACTOR according to the same policy the CONTRACTOR applies to its own employees. Project Team Secondees shall have all reasonable out of pocket costs and expenses reimbursed by the CONTRACTOR according to the same policy the CONTRACTOR applies to its own employees. Such costs and expenses shall be cost recoverable.ARTICLE 5

PROJECT TEM SECONDEES



The Yemenization and Training Subcommittee shall recommend to the Operating Committee, for its approval, a MINISTRY employee for secondment to each of the following Project Teams of the CONTRACTOR:



5.1 "Production Schedule", Work Program and Budget;

5.2 Technical/Operations;

5.3 Contracting and Procurement; and

5.4 Yemenization and Training



The Yemenization and Training Subcommittee shall review the performance of any such secondees and shall have the right to recommend to CONTRACTOR disciplinary actions, including dismissal, if appropriate.



ARTICLE 6

CONFIDENTIALITY



it is understood and agreed that each of the Operating Committee representatives, Subcommittee representatives and MINISTRY Project Team Secondees shall treat all information obtained through the performance of their duties in strict confidence and shall not disclose same to any person, whether verbally or in writing, without the other Party's consent. All the representatives (of the CONTRACTOR'S and the MINiSTRY's) and secondees shall be required to execute a confidentially undertaking to the foregoing effect. Any breach of the aforesaid confidentiality obligations shall result, inter alia, in the removal of said representative or secondees, if mutually agree by the MINISTRY and the CONTRACTOR.



ARTICLE 7

FINAL AGREEMENT



This charter is the final, complete and sole agreement between the MINISTRY and the CONTRACTOR with respect to the formation the regulation of the Operating Committee and the Operating Subcommittees, provided that the Operating Committee may approve more detailed procedures for the Operating Subcommittees, as deemed necessary, in order to fulfil their responsibilities under this Charter.



ANNEX "F"

ACCOUNTING PROCEDURES



Definitions

The definitions contained in Article 1 of the Agreement shall apply to this Accounting Procedures and have the same meanings.



1.1 Purpose of the Accounting Procedures



1.1.1 The purpose of this Accounting Procedures is to establish methods and rules of accounting for the Petroleum Operations under this Agreement.



1.1.2 Any procedures established hereto may be modified by mutual agreement of both Parties hereto subject to future arrangement.



1.1.3 No charge shall be made or accounted for the Petroleum Operations unless it is related to the Petroleum Operations covered by the Agreement.



1.2 Statement of Expenditures



1.2.1 The CONTRACTOR shall, pursuant to Article 13 of the Agreement, which this Annex is made a part of, render to the MINISTRY within thirty (30) Days after the end of each Calendar Quarter a Statement of Expenditures reflecting all charges or credits related to the Petroleum Operations for the period, summarized by the appropriate classifications indicative of the nature thereof together with the summary of such information on a cumulative basis from the Effective Date as well as Year-to-date.



1.2.2 The CONTRACTOR shall render to the MINISTRY within thirty (30) Days after the end of each Quarter a Statement of Expenditures reflecting all charges and credits related to the Development and Exploration operations for that Quarter summarized by appropriate classifications indicative of the nature thereof except those items of controllable material and unusual charges and credits shall be detailed.



1.2.3 The statement of estimated expenditures shall be sent to the CONTRACTOR according to approved Work Program and Budget, at least thirty (30) Days prior to the beginning of each Quarter, and a copy of such statement will be transmitted to the MINISTRY. The estimated expenditures to be made in each Month of the Quarter are the estimated cash outlay for such Month, including any payment for liability incurred during previous Months. The estimate for the first such Month shall, at the Operator's option, constitute a request for advance. The estimates for the second and third succeeding Months shall be tentative only and may be revised in the subsequent submittal. The aforesaid statement shall indicate the currencies in which sums are needed for the Petroleum Operations.



Agreement Block (75) 791.2.4 In case funds provided by the CONTRACTOR for the given Month are not sufficient to cover the cash requirements (within the limits of the approved budget or authorized overrun), the Operator shall transmit to the CONTRACTOR with a copy to the MINISTRY supplementary statements showing such additional amounts to be advanced, and the date the funds are required.



1.2.5 The Operator shall keep records of funds advanced and expended in all currencies and submit a statement to each Party hereto showing such advances and expenditures.



1.2.6 Within thirty (30) Days after the end of each Calender Quarter, the Operator shall submit to each Party hereto a statement of the charges and credits (including any payment for liabilities incurred during previous Calender Quarter) for Exploration, appraisal, Development and other Petroleum Operations. Such statements shall be in Yemeni currency and United States Dollars.



1.3 Records

1.3.1:The Operator on behalf of the CONTRACTOR, shall open and maintain in the ROY original and supporting documents for all the accounts and records, unless the MINISTRY agrees otherwise, to record in sufficient detail and in separate accounts the transactions relating to Exploration operations, appraisal and Development operations and other Petroleum Operations, in accordance with generally accepted and recognized accounting principles. consisted with modern Petroleum Industry practices all in accordance with and subject to the provisions of the Agreement.



1.3.2: The Operator shall maintain appropriate cost control records as required to meet requirements and obligations under the Agreement.



1.4 Adjustments and Audits

Each statement of Expenditures for any Quarter shall conclusively be presumed to be true and correct according to paragraph 1.2 of this Annex "F", twenty-four (24) Months following its submission to the MINISTRY, unless within the said twenty four (24) Month period, the MINISTRY takes written exception thereto. During the said twenty four (24) Month period, the MINISTRY shall have the right to audit the Operator's or the CONTRACTOR's accounts, records and supporting documents for such Quarter during regular business hours upon reasonable notice in YEMEN and, if necessary, abroad. In addition, the MINISTRY may require the CONTRACTOR to engage an international independent auditing firm selected by the CONTRACTOR and the MINISTRY to very, in accordance with generally accepted international auditing standards, the charge for the CONTRACTOR's Affiliated Companies, such as charges for expatriate employees under paragraph 2.2.1 of this Annex "F", insofar as such charges are included in recoverable costs. The MINISTRY shall, in connection with its audit, specify in writing the charge or charges to be verified. Such specification shall constitute a written



Agreement Block (75)



exception, as provided above, pending verification. The

cost of the independent auditors shall be paid by the

CONTRACTOR as a recoverable cost.



1.5 Currency Exchange

The Operator's and the CONTRACTOR's books for

Petroleum Operations shall be kept in United States

Dollars and in the English language. All United States

Dollar expenditures shall be charged in the amount

expended. All Yemeni currency expenditures shall be

translated into United States Dollars at the official buying

rate of exchange quoted by the Central Bank ofYemen on

the fifteenth (15th) day of the Month in which the relevant

expenditure is paid. All other non-United States Dollar

expenditures shall be translated into United States Dollars

at the rate for buying United States Dollars with such

currency as quoted by Citibank London, England at 10:30

a.m., London time, on the fifteenth (15th) day of the

Month in which the relevant expenditure is paid, and if

this is not a banking day in London, on the next

succeeding banking day. A record shall be kept of the

exchange rates used in translating Yemeni currency or

other non-United States Dollar expenditures to United

States Dollars.



1.6 Precedence of Documents

In the event of any inconsistency or conflict between the

provisions of this Accounting Procedures and the

provisions of the main body of the Agreement treating the

same subject differently, then the provisions of the main

body of the Agreement shall prevail.



1.7 No Charge for Interest on Investment

Interest on investment or any bank fees, charges or

commissions related to any bank guarantees (including

Letters of Credits) to finance the Petroleum Operations

shall not, at any time, be charged as recoverable costs

under the Agreement.



ARTICLE 2

COSTS, EXPENSES AND EXPENDITURES

The CONTRACTOR shall alone bear and pay directly during

the Exploration Period and after the Commercial Discovery of

Oil, the costs and expenses, which costs and expenses shall be

classified and be allocated to the activities according to

generally accepted accounting principles and treated and

recovered in accordance with Article 7.1 of the Agreement.



2.1 Surface Rights

All direct costs attributable to the acquisition, renewal or

relinquishment of surface rights acquired and maintained in

force for the Agreement Area.



2.2 Labor and Related Costs.

2,2.1 Salaries and wages, in accordance with Petroleum

Industry standards, which are approved by the

MINISTRY as well as any subsequent changes to

the salaries of CONTRACTOR's employees directly

engaged in the various activities under the

Agreement including salaries and wages paid to

geologists and other employees who are temporarily

assigned to and employed in such activities in

YEMEN.2.2.2 Cost of living and housing allowances, and other customary allowances applicable to salaries and wages of expatriate employees chargeable under this Annex "F".



2.2.3 Cost of expenditures or contributions made pursuant to law or assessments imposed by GOVERNMENT authority which are applicable to labor cost of salaries and wages as provided under this Annex "F".



2.3 Employee Benefits

The MINISTRY's approved costs of established plans which include customary benefits in accordance with Petroleum Industry standards for employees such as group life assurance, hospitalisation, pension, retirement, thrift and other benefits of a like nature which are applicable to labor cost of salaries and wages of expatriate employees, and for Yemeni employees, all as chargeable under this Annex "F". Severance pay will be charged at a fixed rate applied to payrolls which will equal an amount equivalent to the actual liability for severance as required under Yemeni labor law and the CONTRACTOR's established policies.



2.4 Materials

Materials, equipment and supplies purchased or furnished as such by the CONTRACTOR.



2.4.1 Purchases

Materials, equipment and supplies purchased shall be charged at the price paid by the CONTRACTOR after deduction of all discounts actually received. Such purchases shall be concluded through the CONTRACTOR's customary bid procedures in agreement with the MINISTRY.



2.4.2 Materials Furnished by CONTRACTOR

Materials required for Petroleum Operations shall be purchased directly whenever practicable, except that the CONTRACTOR may, after the MINISTRY's approval, furnish such material from the CONTRACTOR's Affiliated Companies' stocks outside YEMEN under the following conditions:



2.4.3 New Material (Condition "A")

New material transferred from the CONTRACTOR's or its Affiliated Companies' warehouse(s) or other properties shall be priced at cost, provided that the cost of material supplied is no higher than international prices for material of similar quality supplied on similar terms prevailing at the time such material was supplied.



2.4.4 Used Material (Conditions "B" and "C")

a. Material which is in sound and serviceable condition and is suitable for re-use without reconditioning shall be classed as Condition "B" and priced at seventy-five percent (75%) of the price of a new material.



b. Material which cannot be classified as Condition "B" but which is serviceable for original function but substantially not suitable for reconditioning, shall be classed as Condition "C" and shall be priced at a value commensurate with its use. Cost shall be charged at the applicable percentage of knocked-down new price.



Agreement Block (75)c. Taaks, buildings and other equipment involving



erection cost shall be charged at applicable percentage



of knocked-down new Price.



2.4. warranty , of Materials Furnished by the



Contractor



The CONTRACTOR does not warrant the materials



furnished beyond the dealers' or back of the dealer's or



manufacturer's warranty and in case of defective material,



credit shall not be recorded until adjustment has been



received by the CONTRACTOR from manufacturers or



their agents. The CONTRACTOR shall ensure that



materials purchased are warranted by the dealers or



manufacturers in accordance with good Petroleum



Industry Practices.



2.5 Transportation



Transportation of the CONTRACTORS employees,



equipment, materials, and supplies necessary for the



conduct of activities. Employees' transportation cost to the



extent covered by established policies of the



CONTRACTOR will include but not be limited to travel



expenses for employees and their families to and from the



employee's point of origin at the time of employment at



time of separation and for vacations, rest leaves and



travelling expenses for employees and their families



incurred as a result of transfer from one location to



another.



2.6 Services



2.6.1 Outside Services The cost of consultants, contract services and utilities



procured from third parties.



2.6.2 Cost of services performed by the MINISTRY or by the



CONTRACTOR" or by their respective Affiliated



Companies, in facilities inside or outside YEMEN.



Regular, recurring and routine services, such as processing



seismic tapes, interpreting seismic, geological and



engineering dat� and/or other analyses, shall be performed



and charged by the MINISTRY, the CONTRACTOR" or



their respective Affiliated Companies, at a price agreed to



by the CONTRACTOR and the MINISTRY. Major



projects involving engineering and design services shall be



performed by CONTRACTOR or its Affiliated



companies, at a contract amount agreed to by the



MINISTRY. The price and contract amount to be agreed



upon as provided above shall be at rates commensurate



with the cost of such services but not in excess of



competitive rates for the same quality and quantity of



such services. Use of the Contractors or its



Affiliated Companies, wholly-owned equipment shall be



charged at a rental rate agreed to by the MINISTRY



commensurate with the cost of ownership and operation,



but not in excess of of competitive rates currently prevailing



in YEMEN.



2.7 Damages and Losses



All costs or expenses necessary to replace or repair



damages or losses incurred by fire, flood, storm, theft,



accident or an)4 other cause not controlled by the



CONTRACTOR through the exercise of reasonable



diligence. The CONTRACTOR shall furnish the



Agreement Block (75)MINISTRY written notice of damages or losses incurred in excess of fifty thousand United States Dollars (U.S.$50,000) per occurrence, as soon as practicable after report of the same has been received by the CONTRACTOR.



2.8 Insurance and Claims

The cost of any public liability, property damage and other insurance against liabilities of the CONTRACTOR to its employees and third parties as may be required by the laws, rules, and regulations of the STATE or as the Parties hereto may agree upon. The proceeds of any such insurance or claims collected shall be credited against Petroleum Operations. If no insurance is carried for a particular risk, all related actual expenditures incurred and paid by the CONTRACTOR in settlement of any and all losses, claims, damages, judgments, and any other expenses, including legal services shall not be charged be to Petroleum Operations.



2.9 Head Office and Field Expenses in YEMEN

2.9.1 The cost of staffing and maintaining the CONTRACTOR's head office in YEMEN.



2.9.2 Camp overhead and facilities such as shore base, warehouses, water systems, road systems, salaries and expenses of field supervisory personnel, field clerks, assistants, and other general employees indirectly serving the Agreement Area.



2.10 Legal Expenses

All costs and expenses of litigation, or legal services otherwise necessary or expenditures for the protection of the Agreement Area, with respect to third parties including attorney's fees and expenses as hereinafter provided, together with all judgments obtained against the parties hereto or any of them on account of the Petroleum Operations under the Agreement, and actual expenses incurred by any Party or Parties hereto in securing evidence for the purpose of defending against any action or claim prosecuted or urged against the Petroleum Operations or the subject matter of the Agreement. In the event actions or claims regarding the protection of interests hereunder shall be handled by the legal staff of one or more of the Parties hereto, a charge at a rate commensurate with cost of providing and furnishing such services may be made to the Petroleum Operations.



2.11 Administrative Overhead and General Expenses

2.11.1 The CONTRACTOR'S administrative overhead outside YEMEN applicable to the Petroleum Operations under the Agreement shall be charged quarterly at the percentages of the total of Exploration Expenditures, Development Expenditures and Operating Expenses for the Year ("Total Expenditures"), as specified below:



(i) Three percent (3%) of Total Expenditures not exceeding One Million United States Dollars (U.S.$1,000,000).



(ii) One and half percent (1.5%) of Total Expenditures in excess of One million United States Dollars (U.S.$1,000,000), but less than



Agreement Block (75) 84Five Million United States Dollars (U.S.$5,000,000).

(iii) One percent (1%) of Total Expenditures in excess of five Million United States Dollars (U.S.$5,000,000).



2.11.2: No other direct charges as such for the CONTRACTOR's administrative overhead outside YEMEN will be applied against the Petroleum Operations. Examples of the types of costs CONTRACTOR in incurring and charging hereunder due to the activities under the Agreement and covered by said percentages are:

(i) Management - Cost of executive officers. This includes Directors, Presidents, Vice Presidents, Managers and their support staff, in addition to General Administration.

(ii) Financial - All Financial services

(iii) Purchasing - Procuring materials, equipment and supplies, together with any related costs.

(iv)Explorations, Development and production - Directing, advising and controlling the entire project.

(v) Other departments such as legal, comptroller and engineering which contribute time, knowledge and experience to the Petroleum Operations.



2.12 Taxes

All taxes, duties or levies, if any, paid in YEMEN by the CONTRACTOR with respect to the Agreement, other than those paid in accordance with Article 9 of the Agreement.



2.13 Other Expenditures

2.13.1 Any costs, expenses or expenditures, other than those which are covered and dealt with by the foregoing provisions of this paragraphs 2 of this Annex "F", incurred by the CONTRACTOR under approved Work Programs and Budgets or incurred after consultation with the MINISTRY.

2.13.2 The CONTRACTOR shall have the right to incur and pay costs and expenses pertaining to any emergency affecting health or safety to person or property or threatening the environment in the Petroleum Operation and such costs and expenses shall be recoverable under this Agreement provided that the MINISTRY shall be notified of any such emergency as soon as practicable. The CONTRACTOR shall have the right to incur and pay costs and expenses for any item of an approved Work Program and Budget for an amount in excess for the budget for such item and such costs and expenses shall be cost recoverable under the Agreement to the extent



that they do not exceed ten percent (10%) of the budget for such item.



2.14 Continuing CONTRACTOR's Costs

Costs of the CONTRACTOR's activities required under the Agreement and incurred exclusively in the ROY provided that costs of the CONTRACTOR's expatriate employees and ROY employees engaged in such activities in YEMEN shall include those costs specified in paragraphs 2.2.1, 2.2.2, 2.2.3 and 2.5 of this Annex "F".



ARTICLE 3

INVENTORIES



3.1 Periodic Inventories Notice and Representation

At reasonable intervals as agreed upon by the MINISTRY and the CONTRACTOR, inventories shall be taken by the CONTRACTOR of the Petroleum Operations material, which shall include all such material, physical assets and construction projects. Written notice of intention to take inventory shall be given by CONTRACTOR to the MINISTRY at least thirty (30) Days before any inventory is to begin so that in MINISTRY may be represented when any inventory is taken. Failure of the MINISTRY to be represented at an inventory shall bind it to accept the inventory taken by the CONTRACTOR, who shall, in that event, furnish the MINISTRY with a copy thereof. Such inventories shall take place annually or as otherwise agreed.



3.2 Reconciliation and Adjustment of Inventories

Reconciliation of inventory shall be made by the CONTRACTOR and the MINISTRY, and a list of overages and shortages shall be jointly determined and the inventory accordingly adjusted by the CONTRACTOR.



3.3 After the first Commercial Discovery of Oil the CONTRACTOR shall carry out the foregoing inventory obligation of CONTRACTOR.



ARTICLE 4

COST RECOVERY



4.1 Statement of Recovery of Costs and Cost Recovery Crude Oil

The CONTRACTOR shall, pursuant to Article 7 of the Agreement, render to the MINISTRY no later than thirty (30) Days after each Quarter a Statement for that Quarter showing:

a. Recoverable costs carried forward from the previous Quarter, if any.

b. Recoverable costs incurred during that Quarter.

c. Total recoverable costs for the Quarter (the sum of the amounts in paragraphs 4.1 (a) and (b) above.

d. Quantity and value of Cost Oil taken and separately disposed of by the CONTRACTOR for that Quarter.

e. Amount of costs recovered for that Quarter.



f. Amount of recoverable costs to be carried into the succeeding Quarter, if any.

g. Excess, if any, of Cost Oil taken by the CONTRACTOR over costs recoverable for the Quarter.

h. Excess, if any, of Cost Oil taken by the CONTRACTOR over costs recoverable for the Quarter. If such statement shows an excess amount of cost recovery payments, the excess amount shall be paid in United Sates Dollars by the CONTRACTOR to the MINISTRY at the time of presentation of such statement.



4.2 Costs, expenses and expenditures that are incurred and paid prior to the Year in which they are recoverable under the Agreement shall be allocated to the first Quarter of such Year. All other costs, expenses and expenditures that are recoverable in such Year shall be allocated to the quarter in which they are incurred and paid.



4.3 For the purpose of calculating book value, the costs of such fixed and removable assets shall be recovered in the order in which they are incurred per Quarter. The costs incurred in the same Quarter shall be recovered proportionally.



4.4 Audit Rights

The MINISTRY shall have a period of twenty-four (24) Months from receipt of any statement under this paragraph 4 of this Annex "F" in which to audit and raise objection to any such statement. The MINISTRY and the CONTRACTOR shall agree on any required adjustments. Supporting documents and accounts will be available to the MINISTRY during said twenty-four (24) Months period.



ARTICLE 5

CONTROL STATEMENT AND MAJOR ACCOUNTS



5.1 Exploration Obligations Statements

The CONTRACTOR shall annually prepare from the Statements of Expenditures prepared pursuant to paragraph 1 of this Annex "F", a statement showing for such Year the excess or deficit in Exploration Expenditures compared to the Minimum Expenditure Obligation. Such statement shall be rendered to the MINISTRY not later than thirty (30) Days following the end of such Year.



5.2 Major Accounts

For the purposes of classifying costs, expenses and expenditures for cost recovery as well as for the purpose of establishing when the Exploration obligation has been met, costs, expenses and expenditures shall be recorded in major accounts including the following:

a. Explorations Expenditures

b. Development Expenditures other than Operating Expenses

c. Operating Expenses

d. Necessary sub-accounts shall be used in coordination with the MINISTRY.



Revenue accounts shall be maintained by the CONTRACTOR to the extent necessary for the control of recovery of costs and the treatment of Cost Oil.



Cash and accrual accounts shall be maintained as coordinated with the MINISTRY.



ARTICLE 6

TAX IMPLEMENTATION PROVISIONS



It is understood that the CONTRACTOR shall be subject to ROY Income Tax Laws except as otherwise provided in the Agreement, that any ROY Income Taxes paid by the MINISTRY on the CONTRACTOR's behalf constitutes additional income to the CONTRACTOR, and this additional income is always subject to ROY income Taxes, that is "grossed-up".



The CONTRACTOR's annual income, as determined in Article 9.1.2 of the Agreement less the amount equal to CONTRACTOR's grossed-up Yemen income tax liability, shall be CONTRACTOR's "Provisional Income".



The "gross-up value" is an amount added to Provisional Income to give "Taxable Income", such that the gross-up value is equivalent to ROY Income Taxes.



Therefore:

Taxable Income = Provisional Income Plus Gross - up Value and

Gross-up Value = ROY Income Tax on Taxable Income Combining the first and last equations above,



Gross-up Value =

Provisional Income X Tax Rate,

1 - Tax Rate



Where the tax rate is expressed as a decimal.



The above equations are illustrated by the following numerical example. Assuming that the Provisional Income in Ten United States Dollars (U.S. $10), and that pursuant to Article 9.1.3 of the Agreement that ROY Income Taxes rate as applied to the CONTRACTOR would be sixty percent (60%), then the Gross-up Value is equal to:



U.S. $10x0.6 = U.S. $15.00

-----------

1-0.6



Therefore:



U.S. $

Provisional Income 10.00

Plus Gross-up Value 15.00

Taxable Income 25.00

Less: ROY Income Taxes at 60% 15.00

CONTRACTOR 's Income after taxes 10.00



ANNEX G



SAMPLE CALCULATION OF ROYALTY, COST OIL, AND PRODUCTION SHARING OIL



Assuming that the Monthly Average Daily Net Production ("MADNP") is 80,000 BBL, then calculations of the shares of MINISTRY and CONTRACTOR would be as follows:



1. Deduction of Royalty owned by the STATE from the total amount of 80,000 BBL according to Article 3.2 of the Agreement as follows:



3% of first 25,000 BBL = 750 BBL

5% of next 25,000 BBL = 1,250 BBL

6% of next 25,000 BBL = 1,500 BBL

8% of next 5,000 BBL = 400 BBL

_____________________________________

Royalty = 3,900 BBL



And the remaining amount of MADNP after the deduction of Royalty would come to be:

80,000 BBL - Royalty of 3,900 BBL = 76,100 BBL



2. From the remaining amount of MNDNP calculated above we deduct the Cost Oil as follows:



(a) Assuming the daily recoverable costs exceed the value of the maximum Cost Oil calculated at the percentage stated in Article 7.1. of this Agreement ("maximum percentage")



Cost Oil = 76,100 x 50 = 38,050 BBL

-----------

100



(b) Assuming the daily recoverable costs are $300,00 and are less than the value of the maximum Cost Oil calculated at the maximum percentage; and assuming the Cost Oil value is $20/BBL.



Cost Oil = Daily Recoverable Costs

---------------------

Value (per barrel) of the Cost Oil

under Article 7.3 of the Agreement



Cost Oil = $300,000

--------

$20/BBL



Cost Oil = 15,000 BBL



Note:

For the purpose of this Annex G, "daily recoverable costs" means the recoverable costs allocated to the applicable Quarter divided by the number of days in such Quarter.



3. The remaining MADNP ("Production Sharing Oil"), i.e., MADNP after deduction of (i) Royalty and (ii) Cost Oil (2a or 2b above, as applicable), according to Article 7.2 of this Agreement.



MINISIRY's Share = The Production Sharing Oil



multiplied by the MIMSTRY's percent�ge of Production



Sharing Oil calculated as the weigh�d average of the



percentages provided in Article 7.3 of this Agfeement as



follows:



64Vo of first 25'000 BBL = 16,000



70 Vo of next 25,000 BBL = 17,500



75lo of next 25,000 BBL= 18,750



t0 % of next 5'000 BBL= 4'(X)0



16,000+17,500+18,750+4,000)BBL

______________________________=MINISTRY'S PERCENTAGE(Gp)

80,000BBL



=56,250 BBL

____________ 70.3125% GP



80,000 BBL



MINISTRY's Share = GP x Production Sharing Oil



PRODUCTION SHARING OIL = MADNP minus Royalty



minus Cost Oil (either 2aor 2b)



Production Sharing Oil = 80,000 BBL - 3,90088L - 38'050BBL (2a)



Or



Production Sharing Oil = 80,000 88L- 3,900 BBL- 15'000 BBL (2b)



Production Sharing Oil = 38,050 88L(2a)



Or



Production Sharing Oil = 6l,l00 BBL (2b)



Ministry's Share= 7O.3l25% X 38,050 BBL (2a)



Or



MINISTRY's = Share 7O.3125% X 61,100 BBL (2b)



MINISTRY's Share = 26,753.91 BBL (2a) or



CONTRACTORs Share of production Sharing Oil =



Production Sharing Oil less Ministry's Share of Production



Sharing Oil



CONTRACTOR's Share = 38,050 BBL- 26,753.91BBL(2a)



or



61,100 BBL- 42,960.94 BBL (2b)



CONTRACTOR's Share = ll,269.09BBL (2a) or



= 42,960.94 BBL (2b)



= l8,l39.06BBL(2b)



ANNEX H



FORM OF REQUEST FOR CONVERSION TO DEVELOPMENT AREA



Name of the CONTRACTOR:

Address:



Date:



H.E.MINISTER OF OIL AND MINERALS

Honorable MInister:



We, the CONTRACTOR, hereby declare that a Commercial Discovery of Oil has been notified to the MINISTRY on _________________. The Declaration follows as a result of the appraisal program consisting of the drilling of _____________ Exploration Wells to date, and including geologic, geophysical and engineering studies that indicate the size of the structure in which the Commercial Discovery of Oil was made. The summary of the appraisal program is as follows:



Well No. 1 Well No. 2 (etc.)



Thickness of Pay:

Zone No. 1 Gross ______ ft. _____ ft.

Net ______ ft. _____ ft.



Zone No. 2 Gross _____ ft. ______ ft.

Net _____ ft. ______ ft.



Summary of Test Results:

Zone No. 1 ______ ______

Zone No. 2 ______ ______



Range of Estimated Reserves for Development Area:



______Million BBL to _______ Million BBL



(Summary of any other relevant information)



Based on the structural interpretation resulting from the geologic, geological and engineering studies, the structure in which the Commercial Discovery of Oil has been made is located in (number of blocks) Development Blocks comprising a total Development Area of _____ Km2.



The corner coordinates of the Development Area are as follows:



1. __________ 4. __________

2. __________ 5. __________

3. __________ 6. __________



Therefore, in accordance with Article 3.5 of the Production Sharing Agreement we confirm our intention to convert the above described Development Block(s) into a Development Area with respect to the Commercial Discovery of Oil notified to the MINISTRY as aforesaid.This Request for Conversion to Development Area shall be subject to the following conditions:



1. The provisions of the Production Sharing Agreement under which this Commercial Discovery of Oil was notified to the MINISTRY shall apply to the Petroleum Operations in respect to the Development Area hereby established.



2. This Development Area may be revised, during or after the Explorations Period, by the CONTRACTOR after the approval of the MINISTRY if supported by additional technical information resulting from future Petroleum Operations by an amendment to this Request for Conversion to Development Agreement Area or into any area under a Production Sharing Agreement with third parties.



3. If future Explorations in the Development Area, during or after the Exploration period, results in a discovery of Oil in a separate geological structure that extends beyond the Development Area. CONTRACTOR shall have the right after the approval of the MINISTRY, to appraise such discovery by drilling one or more Exploration Wells outside the Development Area, provided that such outside area within the original Agreement with third parties. CONTRACTOR shall have the right to declare such discovery a Commercial Discovery of Oil. In such case the MINISTRY and CONTRACTOR shall sign an amendment of this Development Area to include the geological structure in which such Commercial Discovery was made.



4. If the production does not Commence regularly without any technical reasons or economical reasons or due to Force Majeure within 5 years from the date of acceptance by the Ministry of the Request for Conversion to Development Area.



Then the Ministry shall request the CONTRACTOR to resolve such issue and give the Contractor 2 years extension to resolve such.



Then if the production doesn't Commence regularly after such extension then the CONTRACTOR shall be obligated to relinquish the Development Area and return it back to the MINISTRY at request.



Consequently, we respectfully request the MINISTRY's acceptance of, and agreement to, this Request for Conversion to Development Area to be evidenced by your signature below.



Respectfully Submitted,



CONTRACTOR



Name:

Title:





Signed this_______ day of _________, 200



H.E. MINISTER OF OIL AND MINERALS ______