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 ANGOLA








1997 Model Production Sharing Agreement Between


Sociedade Nacional De Combustiveis De Angola - Unidade


Economica Estatal (Sonangol, U.E.E.) And Contractor


 TABLE OF CONTENTS





Contracting Parties


Preamble


Article 1 Definitions.............................................................................


Article 2 Annexes to the Agreement............................................


Article 3 Object of the Agreement.......................... ....................


Article 4 Nature of the Relation between the Parties.........


Article 5 Duration of the Agreement............................................


Article 6 Exploration Period..............................................................


Article 7 Production Period..............................................................


Article 8 Operator................................................................................


Article 9 Operating Procedures Document...............................


Article 10 Costs and Expenses..........................................................


Article 11 Recovery of Costs and Expenditures.........................


Article 12 Production Sharing...........................................................


Article 13 Lifting and Disposal of Crude Oil.................................


Article 14 Conduct of Operations....................................................


Article 15 Work Obligations During the Exploration Period


Article 16 Exploration Work Programs and Budgets.............


Article 17 Commercial Discovery.....................................................


Article 18 Development and Production Work Programs


and Budgets..........................................................................


Article 19 Production Programs..............................................................


Article 20 Guarantees...................................................................................


Article 21 Signature Bonus........................................................................


Article 22 Development Area Rentals....................................................


Article 23 Conservation of Petroleum and Prevention of Loss...


Article 24 Records, Reports and Inspection.......................................


Article 25 CONTRACTOR GROUP'S Obligation to Purchase


SONANGOL's Crude Oil...........................................................





Article 26 Other Rights and Obligations Related to Crude Oil


Disposal......................................................................................


Article 27 Unitization.................................................................................


Article 28 Transfer and Abandonment of Assets.........................


Article 29 Natural Gas..............................................................................


Article 30 Operations for SONANGOL's Account (Sole Risk)..





Article 31 Operating Committea..........................................................


Article 32 Ownership of Assets............................................................


Article 33 Property and Confidentiality of Data.............................


Article 34 Responsibility for Losses and Damages......................


Article 35 Insurance...................................................................................


Article 36 Recruitment, Integration and Training of Angolan


Personnel...................................................................................


Article 37 Fiscal Regime...........................................................................


Article 38 Foreign Currency and Customs Regimes.


Article 39 Assignment............................................................


Article 40 Termination of the Agreement.....................


Article 41 Confidentiality of the Agreement..................


Article 42 Arbitration..............................................................


Article 43 Force Majeure.......................................................


Article 44 Applicable Law.......................................................


Article 45 Language.................................................................


Article 46 Offices and Service of Notice.........................


Article 47 Captions and Headings......................................


Article 48 Effectiveness..........................................................


ANNEXES


Annex A Description of the Contract Area


Annex B Map showing the Contract Area


Annex C Accounting and Financial Procedures


Annex D Corporate Guarantee





Annex E Financial Guarantee


 Contracting Parties


This Agreement is made and entered into by and between:


on the one part:


SOCIEDADE NACIONAL DE COMBUSTIVEIS DE ANGOLA -


UNIDADE ECONOMICA ESTATAL (SONANGOL, U.E.E.) (hereinafter


referred to as "SONANGOL"), a State company with headquarters


in Luanda, Republic of Angola, created in accordance with Decree


Law No. 52/76 of June 9th, 1976,


and on the other part:





(hereinafter referred to as "


"}, a company organized and existing under the Igvifs of


with an office and legal representatives, in Luanda, Republic of


Angola;














Preamble


WHEREAS, by Decree-Law No.__/9 of_, 199


the Government of the Republic of Angola, in accordance with the


provisions of the Law Regulating Petroleum Activities, Law No.


13/78 of August 26th, 1978, has granted to SONANGOL an


exclusive concession for the mining rights for the survey,


Exploration, Development and Production of liquid and gaseous


hydrocarbons in the Concession Area of Block ;


WHEREAS, by Decree-Law No._/ of_, 199


the Government has authorized SONANGOL to enter into a


Production Sharing Agreement for Block ;


WHEREAS, SONANGOL, with a view to carrying out the Petroleum


Operations necessary to duly exercise such rights and in


compliance with the obligations deriving from the Concession


Decree-Law, wishes to sign a Production Sharing Agreement with


'4


WHEREAS, SONANGOL on the one hand and on the


other hand have agreed that this Agreement will regulate their


mutual rights and obligations in the execution of said Petroleum


Operations;


WHEREAS, this Agreement is made and entered into on the basis


of the Concession Decree-Law the provisions of which constitute a


part of the rights and obligations of the Parties;


NOW, THEREFORE, SONANGOL ON THE ONE HAND, AND


_, ON THE OTHER HAND AGREE AS FOLLOWS:





Articfe 1:


Definitions


For the purposes of this Agreement, and unless otherwise


expressly stated in the text, certgirv wbrds and expressions used in


this Agreement shall have : the following meanings, it being


understood that reference to the singular includes reference to


the plural and vice-versa::


1. "Administration and Services" shall include, but not be limited


to, all activities in general management and common support


of Petroleum Operations such as direction, supervision and


related staff functions required for the overall management


of activities under the Agreement, including also, housing and


feeding of employees; transportation; warehousing; safety,


emergency and medical programs; community affairs; and


accounting and record keeping.


19. "Administration and Services Expenditures" means the


expenditures so defined in Annex C of the Concession Decree-


Law.


2. "Affiliate" means:


(a) a company or any other entity in which any of the


Parties holds, either directly or indirectly, the absolute


majority of the votes in the shareholders meeting or is


the holder of more than fifty per cent (50%) of the


rights and interests which confer the power of


management on that company or entity, or has the


power of management and control of such company or


entity;


(b) a company or any other entity which directly or


indirectly holds the absolute majority of votes at the


shareholders meeting or equivalent corporate body of


any of the Parties or holds the power of management


and control over any of the Parties;


(c) a company or any oth^.r-..ehti£y in which either the


absolute majority .. pj 'votes jn\> the respective


shareholders meeting "or the rights ahd interests which


confer the power £rf management on said company or


entity are, either directfy or indirectly, held by a


company or any othejrr Entity which directly or indirectly


holds the absolute majority of votes at the


shareholders, meeting or equivalent corporate body of


any of the ^Parties or holds the power of management


and control over any of the Parties.


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


this Production Sharing Agreement executed between


SONANGOL and CONTRACTOR GROUP, including its


Annexes.


3. "Angola" means the Republic of Angola.


9. "Appraisal" means the activity designed to estimate the


recoverable reserves in an accumulation as well as its


delimitation and shall include, but not be limited to,


geophysical and other surveys, the drilling and testing of


Appraisal Wells.


50. "Appraisal Well" means a Well drilled following a Commercial


Well to delineate the physical extent of the accumulation


penetrated by such Commercial Well, and to estimate the








6


accumulation's reserves and probable production rates.


60. "Approved Work Program and Budget" means either the


Exploration Work Program and Budget or the Development


and Production Work Program and Budget transmitted to


SONANGOL under Article 31, paragraph 12 or approved by


the Operating Committee under Article 31, paragraph 11, as


relevant.


30. "Associated Natural Gas" means Natural Gas which exists in


a reservoir in solution with Crude Oil and includes what is


commonly known as gas cap gas which overlies and is in


contact with Crude Oil.


10. "Barrel" means the unit of.mAaAure for. liquids corresponding


to forty-two (42) United . States gallons of Crude Oil, net of


basic sediment and \A/ater and corrected to a temperature of


sixty degrees Fahrenheit (609 FJ.


17. "Commercial Discovery*’’means a discovery of a Petroleum


deposit judged by'.CONTRACTOR GROUP to be worth


developing in Accordance with the provisions of the


Agreement.


51. "Commercial Well" means the first Well on any geological


structure which after testing in accordance with sound and


accepted industry production practices, and verified by


SONANGOL, is found through analysis of test results to be


capable of producing from a single reservoir not less than an


average rate of five thousand (5,000) Barrels of Crude Oil


per day.


CONTRACTOR GROUP shall have the right to request to


SONANGOL that a Well which is within the aforesaid criteria


is not to be deemed a Commercial Well. To exercise the right


CONTRACTOR GROUP shall timely provide SONANGOL with


the information which would indicate that in the particular


circumstances such Well should not be deemed a


Commercial Well. Among other factors consideration shall


be given to porosity, oil saturation and the reservoir





7


 recoverable reserves.





CONTRACTOR GROUP has the option to declare a Well a


"Commercial Well" at a producing rate below that one set


forth above where CONTRACTOR GROUP is of the opinion


that the accumulation may produce sufficient hydrocarbons


for CONTRACTOR GROUP to recover its costs and make a


reasonable return.


12. "Concessionaire" means SONANGOL as the title holder of the


mining rights of survey, Exploration, Development and


Production of liquid and gaseous hydrocarbons in the


Contract Area.


16. "Concession Decree-Law"... dieqriS Decree, No. _/9 of


_, 199 approved, by the Couricil of Ministers as it is


published in the Diaridv da Repubtiea de Angola no. _, I


Serie of_of_CbE


7. "Contract Area" mearts.Xpn the Effective Date the area


described in Annex(A)dnd shown on the map in Annex B


hereof, and thereafter the whole or any part of such area in


respect of which, at any particular time, CONTRACTOR


GROUP continues to have rights and obligations under this


Agreement.


6. "Contract Year" means the period, and successive periods, of


twelve (12) consecutive Months according to the Gregorian


Calendar beginning on the Effective Date of this Agreement.


33. "CONTRACTOR GROUP" means _,


_ and _, and their possible


assignees under Article 39, designated collectively except as


otherwise provided herein. The participating interests of the


entities constituting CONTRACTOR GROUP at the Effective


Date are:


%


47. "Cost Recovery Crude Oil" means the Crude Oil so defined in


Article 11.


46. "Crude Oil" means any hydrocarbons produced from the


Contract Area which at a pressure of 14.7 psi and a


temperature of sixty degrees Fahrenheit (608 9F) are in a liquid


state at the wellhead or separator or which are extracted


from Gas or casinghead gas in a plant. Such term includes


distillates and condensate.


23. "Customs Duties" means all charges, imposts or fees


established in the respective customs duties schedules, and


which are applicable to merchandise, imported or exported


through customs.


54. "Delivery Point" mean^. the* point F.Q.B. tlie Angolan loading


facility at which Crud^. Oil reaqhes . the inlet flange of the


lifting tankship's intake pipe, or. sUch other point which may


be agreed by SONAhlGOL. and CONTRACTOR GROUP.


18. "Development" means- the activity carried out after the


declaration of a Goffimercial Discovery in the respective


Development Area. Such activity shall include, but not be


limited to:


(a) reservoir, geological and geophysical studies and


surveys;


(b) drilling of producing and injection wells;


(c) design, construction, installation, connection and initial


testing of equipment, pipelines, systems, facilities,


plants and related activities necessary to produce and


operate said wells, to take, save, treat, handle, store,


transport and deliver Petroleum, and to undertake


repressuring, recycling and other secondary or tertiary


recovery projects.


8. "Development Area" means the extent of the whole area, as


far as the boundaries of the Contract Area permit, that may








9


be capable of production from the deposit or deposits


identified in a Commercial Discovery and agreed upon by


SONANGOL and by CONTRACTOR GROUP following such


Commercial Discovery.


48. "Development Area Profit Oil" means the Crude Oil so


defined in Article 12.


20. "Development Expenditures" means the expenditures so


defined in Annex C of the Concession Decree-Law.


52. "Development Well" means a Well drilled for the purpose of


production or enhancing production, of Petroleum from a


Commercial Discovery, and .includes Appraisal Wells


completed as producing oi?.jnjec;tidn Welld ., ,.


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


following the Month Vin which this Agreement is signed by


SONANGOL and COUTRACTOH GROUP.


44. "Exploration" shall jn.6tud.ej but not be limited to, such


geological and geophysical surveys and studies, aerial


surveys and others as may be included in Approved Work


Programs and Budgets, and the drilling of such shot holes,


core holes, stratigraphic tests, Wells for the discovery of


Petroleum, and other related holes and Wells, and the


purchase or acquisition of such supplies, materials and


equipment which may be included in Approved Work


Programs and Budgets.


21. "Exploration Expenditures" means the expenditures so


defined in Annex C of the Concession Decree-Law.


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


53. "Exploration Well" means a Well drilled for the purpose of


discovering Petroleum, including Appraisal Wells to the


extent permitted by Article 17.


5. "Fiscal Year" means a period of twelve (12) consecutive


Months according to the Gregorian Calendar which coincides





10


with the Civil Year and relative to which the presentation of


fiscal declarations is required under the fiscal or commercial


laws of Angola.


28. "Force Majeure" means the concept defined in Article 43,


paragraph 3 of this Agreement.


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


Angola.


26. "Initial Exploration Phase" means the period of four (4)


Contract Years commencing with the Effective Date of the


Agreement pursuant to Article 6. X ..


13. "Joint Account" means the total accoynt$;:kept by Operator


to record all receipts,,-expenditures,andother transactions


which under the tetfrpO.Of the .Agreement shall be shared


between the entities constituting. CONTRACTOR GROUP in


proportion to their participating interests.


37. "Joint Operations" ipearis all Petroleum Operations carried


out jointly in the Contract Area by CONTRACTOR GROUP,


excluding sole risk operations provided for in Article 30 of


the Agreement.


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


57. "Lifting Schedule" means the planned program of Crude Oil


liftings by each Party approved by the Operating Committee.


35. "Litigant" means SONANGOL or any entity constituting


CONTRACTOR GROUP participating in arbitration


proceedings pursuant to Article 42.


55. "Market Price" means the price determined for the valuation


of the Crude Oil produced from the Contract Area as


established in accordance with the provisions of Article 2 of


Annex C of the Concession Decree law.


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


 Calendar.





29. "Natural Gas" or "Gas" means any hydrocarbons produced


from the Contract Area which at a pressure of 14.7 psi and a


temperature of sixty degrees Fahrenheit (60gF) are in a


gaseous state at the wellhead and includes both Associated


and Non-Associated Natural Gas, and all of its constituent


elements produced from any Well in the Contract Area and


all non-hydrocarbon substances therein. Such term shall


include residue gas.


31. "Non-Associated Natural Gas" means that part of Natural


Gas which is not Associated Natural Gas.


39. "Operator" means the entity (refer red to. in Article 8.


11. "Operating Committee*. means^ the , entity referred to in


Article 31.


40. "Party" means either .SPNANGOL or CONTRACTOR GROUP


as parties to this. Agre^rinent.


41. "Parties" means both SONANGOL and CONTRACTOR GROUP


wherever jointly referred to.


45. "Petroleum" means Crude Oil of various densities, asphalt,


Natural Gas and all other hydrocarbon substances that may


be found in and extracted, or otherwise obtained and saved


from the Contract Area.


38. "Petroleum Operations" means the operations of


prospecting, Exploration, Appraisal, Development and


Production which constitute the object of the Agreement.


25. "Phase" means the Initial Exploration Phase or the


Subsequent Exploration Phase, as the case may be.


56. "Production" shall include, but not be limited to, the running,


servicing, maintenance and repair of completed Wells and of


the equipment, pipelines, systems, facilities and plants





12


completed during Development. It shall also include all


activities related to planning, scheduling, controlling,


measuring, testing and carrying out the flow, gathering,


treating, transporting, storing and dispatching of Crude Oil


and Gas from the underground Petroleum reservoirs to the


designated exporting or lifting location and all other


operations necessary for the production of Petroleum.


22. "Production Expenditures" means the expenditures so


defined in Annex C of the Concession Decree-Law.


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


58. "Production Schedule" means thp ipijanhed profile of Crude Oil


output in Barrels per .day approved \fcfy\ the Operating


Committee in conjunction With the .Development and


Production Work Prograiti and Budget for each Development


Area, according to the provisions of Article 18.


62. "Quarter" means a period, of three (3) consecutive Months


starting with the.first d&y of January, April, July or October


of each Civil Year. }


61. "SONANGOL" means Sociedade Nacional de Combustiveis de


Angola Unidade Economica Estatal (SONANGOL, U.E.E.), an


Angolan State Company.


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


27. "Subsequent Exploration Phase" means the additional period


of three (3) Contract Years after the Initial Exploration Phase


pursuant to Article 6.


49. ‘Well" means a hole drilled into the earth for the purpose of


locating, evaluating, producing or enhancing production of


Petroleum.


59. "Work Program and Budget" means either an Exploration


Work Program and Budget or a Development and Production


Work Program and Budget.








13


4. "Year" or "Civil Year" means a period of twelve (12)


consecutive Months according to the Gregorian Calendar


beginning on January 1 and ending on December 31.

















Article 2


Annexes to the Agreement


1. The present Agreement is complemented ,by the following


Annexes which form an integral part tit it:/


(a) Annex A - Description of.thbpdntract Area;


(b) Annex B - Map pb.bwltig the Contract Area;


(c) Annex C - Accounting and Financial Procedures;


(d) Annex D - Corporate Guarantee;


(e) Annex E - Financial Guarantee


2. In the event of discrepancy between the content or the form


of Annexes A and B referred to in paragraph 1, preference


will be given to Annex A.


3. In the event of discrepancy between the content or the form


of the Annexes referred to in paragraph 1 and the


Agreement, the provisions of the Agreement shall prevail.





Article 3


Object of the Agreement


The object of this Agreement is the definition, in accordance with


■ i: d


Law Wo. 13/78 of August 26, and other applicable legislation, of


the contractual relation in the form of the Production Sharing


Agreement between SONANGOL and CONTRACTOR GROUP which


envisions the execution of the Petroleum Operations in the


Contract Area.








Article 4


Nature of the Relation between the Parties


This Agreement shall not be construed as creating between the


Parties any entity with a separate juridical personality, or a


corporation, or a civil society, a joint venture or even a "conta em


participacao".














.....'Article 5


Duration jof the Agreement


1. This Agreement shall continue to be in force until the end of


the last Production Period or, in case there is no Production


Period in the Contract Area, until the end of the Exploration


Period, unless prior to that date any event occurs that under


the Law or the applicable provisions of the Agreement


constitutes cause for its termination.


2. The extension of the Exploration Period or Production


Periods referred to in the preceding paragraph beyond the


terms provided for in Articles 6 and 7 respectively shall be


submitted to the Government under the terms of the


Concession Decree-Law and other applicable legislation.


3. At the end of the Exploration Period, CONTRACTOR GROUP


shall terminate its activities in all areas within the Contract


Area which are not at such time part of a Development


Area(s); and, except as otherwise provided herein, this


Agreement shall no longer have any application to any portion








5


of the Contract Area not then part of a Development Area.








Article 6


Exploration Period


The Exploration Period shall be comprised of the Initial


Exploration Phase and, if applicable, the Subsequent


Exploration Phase as such period may be extended pursuant


to the terms of the Agreement and the Law. An Initial


Exploration Phase of four (4) Contract Years shall start from


the Effective Date. One (1) additional period of two (2)


Contract Years (the Subsequent .Exploration Phase) shall


follow the Initial Exploration... Phaise^ upon CONTRACTOR


GROUP'S written notice to SONANGOLleast thirty (30)


days before the end of the Initial Exploration Phase and if,


unless otherwise , ajgrfeed by SONANGOL, CONTRACTOR


GROUP has fulfilled its obligations iri respect of such Phase.





This Agreement. ..shall; be terminated if no Commercial


Discovery has been rriade in the Contract Area by the end of


the Initial Exploration Phase, or the Subsequent Exploration


Phase, if the same has been requested. However, the


Exploration Period may be extended for six (6) Months for


the completion of drilling and testing of any Well(s) actually


being drilled or tested at the end of the ( ) Contract


Year. Should any such Well be a Commercial Well,


CONTRACTOR GROUP will be given sufficient time, as


mutually agreed, up to a maximum of twelve (12) months, or


a longer period as agreed by SONANGOL, following the


conclusion of drilling and testing of the Commercial Well to


do Appraisal work. Should this work result in a Commercial


Discovery then a Development Area shall be granted


pursuant to Article 7.


Operations for the sole account of SONANGOL conducted


under Article 30 hereof shall not extend the Exploration


Period nor affect the term of this Agreement, provided that:


 (a) CONTRACTOR GROUP shall complete any works


undertaken for SONANGOL's sole risk and expense


even though the Exploration Period may have expired;





(b) CONTRACTOR GROUP'S completion of such works shall


not extend CONTRACTOR GROUP'S Exploration Period


or Agreement term except as in the case of


CONTRACTOR GROUP exercising the option right


mentioned in Article 30, paragraph 3 hereof;


(c) during the period CONTRACTOR GROUP is completing





such works, CONTRACTOR GROUP shall be given


authorization to continue suchsple risk operations and


shall be entitled to... alk\ benefits available to


CONTRACTOR GROUP pursuant to.the Agreement as if


the term thereof .haAhot terminated;








Article?


Production Period





1. Following each { Commercial Discovery, so far as the


boundaries of the Contract Area permit, the extent of the


whole area capable of production from the deposit or


deposits identified in the Well that originated the


Commercial Discovery and its related Appraisal Wells, if any,


shall be agreed upon by SONANGOL and CONTRACTOR


GROUP. All of each agreed area shall then be converted


automatically into a Development Area with effect from the


date of Commercial Discovery. Without prejudice to


paragraph 2 hereof, there shall be a Production Period for


each Development Area which shall be ( } Years from


the date of Commercial Discovery in said Development Area.


In the event of Commercial Discoveries in deposits which


underlie and overlie each other, such deposits shall


constitute a single Development Area, and the area shall be


defined or redefined as necessary, as far as the boundaries


of the Contract Area permit, to incorporate all underlying and


overlying deposits.








/


2. Unless otherwise agreed by SONANGOL, any Development


Area will be considered automatically terminated and, except


as otherwise provided in the Agreement, the rights and


obligations in said Development Area shall be considered


terminated if within six (6) Years from the date of


Commercial Discovery in said Development Area the initial


lifting of Crude Oil from said Development Area has not been


lifted as part of a regular program of lifting in accordance


with the Lifting Schedule.


3. No later than twelve (12) Months before the end of the


Production Period, CONTRACTOR GROUP may request


SONANGOL to meet and discuss the terms and conditions of


the extension of the Producjtipn Vperiod as provided for in


paragraph 2 of Article 5. .SUbjefct to the agreement on such


terms and conditions;.; SONANCSOL; shall support


CONTRACTOR GROUP in a joint -application for such an


extension.


\ Article 8


Operator


1. CONTRACTOR GROUP has the exclusive responsibility for


executing the Petroleum Operations, except as specified in


Article 30.


2. CONTRACTOR GROUP shall appoint as Operator to


execute, as such without profit nor loss, on CONTRACTOR


GROUP'S behalf, all of the Petroleum Operations in the


Contract Area. SONANGOL's written approval shall be


necessary prior to any change of Operator.


3. Any agreement among the CONTRACTOR GROUP companies


regarding or regulating the Operator's conduct in relation to


this Agreement shall be made available to SONANGOL for


comment prior to execution thereof.


4. Operator will be subject to all of the specific obligations


established under this Agreement, the Concession Decree-








18


 Law and the Law.





5. In the event of the occurrence of any of the following,


SONANGOL can require CONTRACTOR GROUP to


immediately appoint another Operator:


(a) if the Operator, by action or omission, commits a


serious fault in carrying out its obligations and if this


fault is not remedied to the satisfaction of SONANGOL


within a period of twenty-eight (28) days with effect


from the date of receipt by the Operator of written


notice issued by SONANGOL requesting the Operator


to remedy such fault, or within a. greater period of time


if so specified in the notjcp;.. \ \


tbj if sentence has ,bqdn passed ;ih. Cdurt declaring the


bankruptcy, Jiqbidation, or judicial dissolution of the


Operator, oi\in the court action taken in order to


obtain such declaratiorv dny interim or conservatory


measure has been\taken, which prevents Operator from


fulfilling its pbligatidns under the Agreement;


(c) if the Operator undertakes the legal procedures


established to prevent bankruptcy, or without just


cause ceases payment to creditors;


(d) if the Operator terminates or if there is strong evidence


that it intends to terminate its activities or a significant


portion thereof, and, as a result fails to fulfill its


obligations under the Agreement.


6. For purposes of this Agreement, "serious fault" shall mean


inadequate performance by the Operator that violates the


technical rules generally accepted in the international


petroleum industry and/or the obligations under this


Agreement and the Law.


7. If CONTRACTOR GROUP,in accordance with paragraph 5,


does not comply with the obligation to appoint another


operator as provided in the preceding paragraph within thirty


 (30) days from the date when SONANGOL gives due notice to


CONTRACTOR GROUP, then CONTRACTOR GROUP shall


appoint as Operator the entity so designated by SONANGOL


from the parties comprising CONTRACTOR GROUP, unless


none of such parties agrees to be Operator.





Article 9


Operating Procedures Document





SONANGOL and CONTRACTOR GROUP may sign a document (to


be designated as Operating Procedures Document) which will


regulate and interpret the contents of this Agreement. Any such


document would be agreed between theCPprties and would be in


accordance with the provisions of this. Agreement and the Law.








r Article 10 : v.


Costs and Expenses


Except as otherwise provided-ih the Agreement the costs and


expenses incurred in the Petroleum Operations, as well as any


losses and risks derived therefrom, shall be borne by the


CONTRACTOR GROUP, and SONANGOL shall not be responsible to


bear or repay any of the aforesaid costs.





Article 11


Recovery of Costs and Expenditures


1. CONTRACTOR GROUP shall recover all Exploration,


Development, Production and Administration and Services


Expenditures incurred under this Agreement by taking and


freely disposing of up to a maximum amount of per cent (


%) per Year of all Crude Oil produced and saved from


Development Areas hereunder and not used in Petroleum


Operations. Such Crude Oil is hereinafter referred to as


"Cost Recovery Crude Oil".


2. The expenditures referred to in the preceding paragraph


shall be recoverable only insofar as they are properly





20


incurred in the execution of the Petroleum Operations.


Notwithstanding the generality of this principle, all


expenditures relating to the Petroleum Operations which are


classified, defined and allocated in accordance with Annex C


shall be considered as properly incurred.


Exploration Expenditures incurred in the Contract Area shall


be recoverable from the unused balance of Cost Recovery


Crude Oil existing from each Development Area after


recovery of Development Expenditures, Production


Expenditures and Administration and Services Expenditures,


subject to the maximum amount of Cost Recovery Crude Oil


specified in paragraph 1 abovq. •. In each Year such


Exploration Expenditures shalL^eVrjecbverahle first from any


Cost Recovery Crude 0iJ ( balance , obtained from the


Development Area haying the mbstv recent date of


Commercial DiscoydryX end theri any balance of total


Exploration Expenditures not gtready recovered shall be


recoverable in sequence f^orn Development Areas with the


next most recent dates of Commercial Discovery.


Development Expenditures in each Development Area shall be


recovered only from Cost Recovery Crude Oil from that


Development Area. Development Expenditures in each


individual Development Area shall be multiplied by


( ) and the resulting amount shall be recoverable at the


rate of ( %) per Year in equal annual


installments starting in the Year in which such Expenditures


are incurred or the Year in which commercial production in


that Development Area commences, whichever occurs last.


Production Expenditures in each Development Area shall be


recovered only from Cost Recovery Crude Oil from that


Development Area in the Year in which such expenditures are


incurred or the Year in which commercial production in that


Development Area commences, whichever occurs last.


In the case that, in any given Year, recoverable costs,


expenses or expenditures exceed the value of Cost Recovery


Crude Oil from the relevant Development Area for such Year,


the excess shall be carried forward for recovery in the next


succeeding Year or Years until fully recovered; but in no case


after the termination of the Agreement. In the event that


Development Expenditures for a Development Area are not


fully recovered within five (5) years after the commencement


of commercial production or within five (5) years after the


Year in which such Development Expenditures are incurred,


whichever is last, then CONTRACTOR GROUP'S share of


Crude Oil shall be increased from Year six up to


( %] per Year to allow for the recovery of such unrecovered


expenditures, provided that CONTRACTOR GROUP has


fulfilled all of its contractual obligations to date.


7. If in any given Year, recoverable, costs, expenses or


expenditures are less than ...theV.jrriSximurn value of Cost


Recovery Crude Oil the exqesd shall become part of, and


included in the Development Area Profit- Oil provided for in


Article 12.


8. For the purposes of valuation df Cost Recovery Crude Oil, the


provisions of Article .2.of Annex C of the Concession Decree-


Law shall apply. ..


9. For the purpose of this Agreement, the date on which


commercial production commences shall mean the date on


which the first shipment of Crude Oil is made under an


approved Lifting Schedule from the Development Area or the


Contract Area, as the case may be.


Article 12


Production Sharing


1. The total Crude Oil produced and saved in a Quarter from


each Commercial Discovery and its Development Area and


not used in Petroleum Operations less the Cost Recovery


Crude Oil from the same Development Area, as provided in


Article 11, shall be referred to as "Development Area Profit


Oil" and shall be shared between SONANGOL and


CONTRACTOR GROUP according to the after tax, nominal


rate of return achieved at the end of the preceding Quarter


<*} o


 by CONTRACTOR GROUP in the corresponding Development


Area as follows:





CONTRACTOR SONANGOL


CONTRACTOR GROUP'S GRO


nominal rate of return for Share - % Share - %


each Development Area


(percent per annum)


Less than


to less than


to less than


or more





2. Beginning at the date .....pfV-\ Commercial Discovery,


CONTRACTOR GROUP'S rptelof return shaft tie determined at


the end of each Quarter pb the basis bf the accumulated


compounded net c.ash.fjbvi/ for eachDevelopment Area, using


the following procedure:


a) The CONTRACTOR.tSFlOUP's net cash flow computed in


US Dollars for a Development Area for each Quarter is


the sum ofr


(i) CONTRACTOR GROUP’S Cost Recovery Crude Oil





and share of Development Area Profit Oil actually


lifted in that Quarter and valued at the Market


Price;





(ii) Minus Petroleum Income Tax;


(iii) Minus Development Expenditures and Production





Expenditures.


b) For this computation, neither any expenditure incurred


prior to the date of Commercial Discovery for a


Development Area nor any Exploration Expenditure shall


be included in the computation of CONTRACTOR


GROUP'S net cash flow.





c) The CONTRACTOR GROUP'S net cash flows for each








23


 Quarter are compounded and accumulated for each


Development Area from the date of the Commercial


Discovery according to the following formula:


ACNCFcq = f100%+ DQ1 x ACNCFpo + NCR*





100%


where:


ACNCF = accumulated compounded net cash


flow


NCF = net cash flow


DQ = quarterly compound rate (in percent]


CQ = current Quarter


PQ = previous Quarter


formula will , be. calculated C using quarterly


compound rates (‘‘DlQ”)of %, \ %, and %, which


correspond to annual compound rates ("DA") of %, %


and % respectively as referred to in paragraph 1.


3. The CONTRACTOR GROU&'s rate of return in any given


Quarter for each Devdqphient Area shall be deemed to be


between the largest J0A which yields a positive or zero


ACNCF and the smallest DA which causes the ACNCF to be


negative.


4. The sharing of Development Area Profit Oil between


SONANGOL and CONTRACTOR GROUP in a given Quarter


shall be in accordance with the scale in paragraph 1 above


using the CONTRACTOR GROUP'S deemed rate of return as


per paragraph 3 in the immediately preceding Quarter.


5. In a given Development Area, it is possible for the


CONTRACTOR GROUP'S deemed rate of return to decline as


a result of negative cash flow in a Quarter with the


consequence that CONTRACTOR GROUP'S share of


Development Area Profit Oil would increase in the


subsequent Quarter.


6. Pending finalization of accounts, Development Area Profit Oil


shall be shared on the basis of provisional estimates, if


necessary, of deemed nominal rate of return as approved by





As


the Operating Committee. Appropriate adjustments shall be


subsequently effected in accordance with procedures to be


established by the Operating Committee.


Article 13


Lifting and Disposal of Crude Oil


1. It is the right and the obligation of each of the Parties to


separately take at the Delivery Point in accordance with the


Lifting Schedule and the procedures and regulations foreseen


in the following paragraphs of this Article, its respective


Crude Oil entitlements as determined in accordance with this


Agreement.


2. Each of the Parties (as for.-CONT^R ACTOR GROUP, each entity


constituting it) shall have tfie right to proceed separately to


the commercialization.qhd to the export of the Crude Oil to


which it is entitled dhder thjs Agreement.


3. Twelve (12) months ..pijpr.ito the scheduled initial export of


Crude Oil from each Development Area, SONANGOL shall


submit to CONTRACTOR GROUP proposed procedures and


related operating regulations covering the scheduling,


storage and lifting of Crude Oil and any other type of


Petroleum produced from such Development Area(s). The


procedures and regulations shall be consistent with the


terms of this Agreement and shall comprehend the subjects


necessary to efficient and equitable operations including, but


not limited to: rights of the Parties, notification time,


maximum and minimum quantities, duration of storage,


scheduling, conservation, spillage, liabilities of the Parties,


throughput fees and penalties, over and underlifting, safety


and emergency procedures as well as any other matters that


may be agreed between the Parties.


4. CONTRACTOR GROUP shall within thirty (30) days after


SONANGOL's submission set out in the preceding paragraph,


submit its comments on, and recommend any revisions to,


the proposed procedures and regulations. SONANGOL shall


consider these comments and recommendations and the


2 5


Parties shall, within sixty (60) days after CONTRACTOR


GROUP'S said submission, agree on such procedures and


regulations.


5. In any event, the agreed lifting procedures and regulations


will comply with the Law.


6. In the case of more than one Development Area in the


Contract Area or more than one quality of Crude Oil in a


Development Area, SONANGOL and CONTRACTOR GROUP


shall, unless they mutually agree that the Crude Oils should


be co-mingled, lift from each Development Area Crude Oil


qualities in proportion to their respective total liftings from


the Contract Area. In deterniinWg these proportions any


Petroleum belonging to SQNANGOL as a,result of operations


for SONANGOL's account under Articlia 30 shall be excluded.


Article 14


Conduct df Operations


1. With due observance of legal and contractual provisions and


subject to the decisions of the Operating Committee,


CONTRACTOR GROUP shall act in the common interest of


the Parties and shall undertake the execution of the work


inherent in Petroleum Operations, in accordance with


professional norms and standards which are generally


accepted in the international Petroleum industry.


2. CONTRACTOR GROUP shall carry out the work inherent in


Petroleum Operations in an efficient, diligent and


conscientious manner and shall execute the Work Programs


and Budgets under adequate economic and technical


conditions, and in accordance with professional norms and


standards which are generally accepted in the international


Petroleum industry.


3. CONTRACTOR GROUP and its sibcontractors shall:


(a) contract local contractors as long as the services they


Z C


perform are similar to those available bn the


international market and the prices of their services,


when subject to the same fiscal charges, are no more


than ten per cent (10%) higher compared to the prices


charged by foreign contractors for identical


performance;


(bj acquire materials, equipment, machinery and


consumable goods of national production, insofar as


their quantity, quality and delivery dates are similar to


those of such materials, equipment, machinery and


consumable goods available on the international


market. However, such \CQNTRACTOR GROUP'S


obligation shall not apply; iiiV those cases in which the


local prices for suchitbm^ are rpG.rb.than ten percent


(10%) higher compared to tbe\ prices for imported


items, before charging Customs Duties but after the


respective costb for transportation and insurance have


been included!


4. CONTRACTOR GROUP ..shall solicit competitive bids for any


work to be performed pursuant to an Approved Work


Program and Budget if such work is budgeted to exceed one


hundred fifty thousand U.S. dollars (U.S.$150,000] or such


higher amount as may be decided by the Operating


Committee. In analyzing such bids CONTRACTOR GROUP


shall select out of the bids which are acceptable to


CONTRACTOR GROUP, for technical and other operational


reasons, the bid with the lowest cost subject to the


provisions of paragraph 3 above and, after the first


Commercial Discovery, the approval of the Operating


Committee.


5. Operator shall entrust the management of Petroleum


Operations in Angola to a technically competent General


Manager and Assistant General Manager. The names of


such General Manager and Assistant General Manager shall,


upon appointment, be given to SONANGOL. The General


Manager and, in his absence, the Assistant General


Manager, shall be entrusted with sufficient powers to carry





27


out immediately and be subject to all lawful written


instructions given to them by SONANGOL or the Government


or its or their representative, or any lawful regulations


gazetted or hereafter to be gazetted which are applicable to


the Petroleum Operations under this Agreement.


6. Except as is appropriate for the economic and efficient


processing of data and laboratory studies thereon in


specialized centers outside Angola, geological and


geophysical studies as well as any other studies related to


the performance of this Agreement, shall be made mainly in


Angola.


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


Operations requiring an imrnpdiate” action, CONTRACTOR


GROUP is authorized to take all the aqtfgns that it deems


necessary for the protection^-of humerMife'and the interests


of the Parties. In this, case, CONTRACTOR GROUP shall


promptly inform SONANGOL of all actions so taken.


8. Any obligations which to be observed and performed by


CONTRACTOR GROUP shall, if CONTRACTOR GROUP


comprises mor£ than one entity, be joint and several


obligations.


Article 15


Work Obligations During the Exploration Period


1. Within the Initial Exploration Phase, CONTRACTOR GROUP


will conduct a seismic program covering kilometers


of profiles. This seismic program will begin within six (6)


months of the Effective Date, provided that an adequate


seismic vessel is available.


2. CONTRACTOR GROUP will drill to geological horizons defined


in the Approved Work Program and Budget four (4)


obligatory Exploration Wells on four (4) separate drillable


prospects within the Initial Exploration Phase.


3. In the event CONTRACTOR GROUP elects to extend the





28


Exploration Period into the Subsequent Exploration Phase,


CONTRACTOR GROUP shall be obligated to drill ( )


obligatory Exploration Wells (other than Appraisal Wells) to


geological horizons defined in the Approved Work Program


and Budget.


4. In the event CONTRACTOR GROUP exceeds the minimum


work obligation as described in the preceding paragraphs


during the Initial Exploration Phase then such excess shall be


credited against the minimum work obligation for the


succeeding Exploration Phase.


5; In the event that CONTRACTOR GRCHJP does not satisfy the


minimum work obligations referred to in this Article within


the times specified therein, (CQNTRAQTPR GROUP shall be


deemed, unless othervyi$b. agreed bySONANGOL, to have


voluntarily termina^ted. its activities and withdrawn from all of


the Contract Area .not already converted into a Development


Area[s).


6. If CONTRACTOR. GROUP relinquishes its rights under this


Agreement before Completing the seismic program referred


to in paragraph 1 above, CONTRACTOR GROUP shall be


obligated to pay SONANGOL an amount equal to million


U.S. dollars (U.S $ ,000,000). In addition, if CONTRACTOR


GROUP relinquishes its rights under this Agreement before


drilling the minimum number of Exploration Wells which it is


obligated to drill under the terms of this Article the


CONTRACTOR GROUP shall be obligated to pay SONANGOL


an amount equal to million U.S. dollars ($ ,000,000) for


each such Exploration Well not drilled.


7. CONTRACTOR GROUP shall be obligated to incur the


following minimum Exploration Expenditures:


Initial Exploration Phase U.S.$


Subsequent Exploration Phase U.S.$


8. Each Exploration Well referred to in this Article shall test all


productive horizons agreed to by SONANGOL and





29


CONTRACTOR GROUP, unless diligent test efforts consistent


with sound industry practices indicate that it is technically


impracticable to reach and/or test any such horizons.


9. During the drilling of Wells under this Agreement,


CONTRACTOR GROUP shall keep SONANGOL informed of the


progress of each Well, its proposals for testing and the


results of such tests, and at SONANGOL's request shall test


any additional prospective zones within the agreed Well


depth provided that such tests shall be consistent with


professional norms and standards which are generally


accepted in the international Petroleum industry and not


interfere with the safety and efficiency of the operations


planned by CONTRACTOR GRQU.Pv- 5uch tests shall be at


CONTRACTOR GROUP’S. .experise and- Shalt be credited


towards fulfilling the mjmrhum work programs.








Article T€


Exploration Work Programs and Budgets


Within one (1) Month of the Effective Date of this Agreement and


thereafter at least three (3] Months prior to the beginning of each


Contract Year during the Exploration Period or at such other times


as may mutually be agreed by SONANGOL and CONTRACTOR


GROUP, CONTRACTOR GROUP shall prepare in reasonable detail


an Exploration Work Program and Budget for the Contract Area


setting forth the Exploration operations which CONTRACTOR


GROUP proposes to carry out during the first Contract Year and


during the ensuing Contract Year respectively. During the


Exploration Period such Work Program and Budget shall be at


least sufficient to satisfy CONTRACTOR GROUP'S minimum


Exploration expenditure and Exploration Well obligations. The


Exploration Work Program and Budget shall be submitted to the


Operating Committee for review, advice or approval as the case


may be, in accordance with Article 31 and then carried out by


CONTRACTOR GROUP. After the first Commercial Discovery, the


Operating Committee will supervise and coordinate whether the


execution of the Approved Exploration Work Programs and


Budgets are within budgeted expenditures, or any approved


revisions which have been made thereto.








Article 17


Commercial Discovery


1. CONTRACTOR GROUP shall advise SONANGOL within thirty


(30] days after concluding the drilling and testing of an


Exploration Well, the results of the final tests of the Well and


whether such Well is a Commercial Well or not. The date of


this advice shall be the date of the declaration of the


Commercial Well, if such exists.


2. After the declaration of a CgjTime^ctel Well* CONTRACTOR


GROUP may undertake th^ ^Appraisal . qft;.tlie discovery by


drilling one or more Apprb.isai Wells: ito determine whether


such discovery can..b&.classified ps a Commercial Discovery.


3. Unless otherwise agreed,by SONANGOL, not later than six


(6) Months after the Jejompletion of the second Appraisal


Well, or twenty fpur (24) Months after the declaration of the


Commercial Well, whichever is earlier, CONTRACTOR GROUP


shall give written notice to SONANGOL indicating whether or


not the discovery is considered commercial. If CONTRACTOR


GROUP declares it a Commercial Discovery, then


CONTRACTOR GROUP shall proceed to develop the discovery


in accordance with the Law Regulating Petroleum Activities*


Law No. 13/78 of August 26, 1978. The date of


Commercial Discovery shall be the date on which


CONTRACTOR GROUP has declared by written notice to


SONANGOL the existence of a Commercial Discovery.


4. If the time period envisioned for declaration of a Commercial


Discovery extends beyond the Exploration Period, a


provisional Development Area shall be established for such


period as necessary to complete the Appraisal as per


paragraph 3 above. Such provisional Development Area shall


be of a shape and size which encompasses the geological


feature or features which would constitute the potential


Commercial Discovery. Such provisional Development Area


shall be agreed by SONANGOL in writing.


5. If following the discovery of a Commercial Well, the


subsequent Appraisal Well or Wells are completed as


producing or injection Wells, their costs shall be treated as


part of the Development Expenditures for the purposes of


calculating the amount of Cost Recovery Crude Oil.


6. The costs of a Commercial Well, if completed as a producing


or injection Well, shall be treated as part of the Development


Expenditures for the purposes of calculating the amount of


Cost Recovery Crude Oil.


7. The costs of a Commercial W^lt br Appraisal Well(s) not


completed as a producing pr mjefction Wellshall be treated


as Exploration Expenditures-for the .purpPses of calculating


the amount of Cost. Recovery Crude Oil.


8. Any Commercial Well shell count toward the work and


expenditure obligations, provided in Article 15, but the


Appraisal Well(s) that ' have been drilled following the


discovery of a Copirnercial Well shall not count towards such


obligations.


9. There shall be no more than one Commercial Well in each


Development Area that counts toward such work obligations;


and it shall be the first Commercial Well in that Development


Area.


10. CONTRACTOR GROUP has the right to declare a Commercial


Discovery without first having drilled one or more


Commercial Wells.





Article 18


Development and Production Work Programs and Budgets


1. No later than ninety (90) days after the date of a Commercial


Discovery, CONTRACTOR GROUP shall prepare a revised


Exploration Work Program and Budget (if appropriate) and a


Development and Production Work Program and Budget for


the remainder of the Year in which the Commercial Discovery


is made. No later than the fifteenth (15th) of August of each


Year (or such other date as may be agreed upon] thereafter,


CONTRACTOR GROUP shall prepare in accordance with


professional norms and standards which are generally


accepted in the international Petroleum industry an annual


Production Schedule, an Exploration and Production Work


Program and Budget (if applicable], and a Development and


Production Work Program and Budget, for the succeeding


Civil Year and may, from time to time propose revisions


thereto.


2. The Production Schedule and /the Development and


Production Work Program qrfd.^Budget shall be formally


approved in writing by the.Qperdting Cqmrttittee and given to


SONANGOL and CONTmctbR GR6liR CONTRACTOR


GROUP is authorised ahd obliged to execute the Approved


Development and Production

and any approved revisions thereto, under the supervision


and coordination of the/PpOrating Committee as to whether


the same are within the* Budgeted expenditures.





Article 19


Production Programs


The Operating Committee shall approve a Lifting Schedule, not less


than ninety (90) days prior to January 1st and July 1st of each


Year following the commencement of production under the


approved Production Schedule, and shall furnish in writing to


SONANGOL and CONTRACTOR GROUP, a forecast setting out the


total quantity of Petroleum that the Operating Committee


estimates can be produced, saved, transported and lifted


hereunder during each of the next four (4) Quarters in accordance


with practices generally accepted in the international Petroleum


industry. CONTRACTOR GROUP shall endeavor to produce in each


Quarter the forecast quantity. The Crude Oil shall be run to


storage, constructed, maintained and operated by CONTRACTOR


GROUP, and shall be metered or otherwise measured as required


to meet the purposes of this Agreement and the Law.


Article 20


Guarantees


1. The minimum Exploration work obligations shall be secured


by a financial guarantee substantially in the form as set out


in Annex E.


2. Such guarantee shall be given by CONTRACTOR GROUP not


later than three (3) months after the beginning of each


Phase of the Exploration Period.


3. The amount of such guarantee shall in each Phase be equal


to ten million U.S. Dollars (U.§.$>: • : . Ifor each of the


obligatory Exploration Welfe. set fqrth in Article 15. In


addition, during the fnitfol Exploration. Phase the guarantee


will be increased by;V million UiS.,dollars (U.S.$


) for the obligatory seismic program set forth in Article 15,


paragraph 1.


4. The amount of such guarantee shall be reduced by million


U.S. dollars (U.S.$ ) during the Initial Exploration


Phase when the obligatory seismic program is completed and


by million U.S. dollars (U.S.$ ) when each of the


obligatory Exploration Wells for each Phase of the


Exploration Period is completed or for each amount paid in


accordance with Article 15, paragraph 6.


5. If, during any Year of any of the Phases of the Exploration


Period CONTRACTOR GROUP should be deemed to have


relinquished, as provided in Article 15, paragraph 5, all of the


Contract Area not converted to a Development Area(s),


CONTRACTOR GROUP shall forfeit the full amount of the


performance guarantee, reduced as provided for in


paragraph 4 of this Article.


6. Each of the entities comprising CONTRACTOR GROUP shall


also provide SONANGOL if so required by the latter with a


corporate guarantee substantially in the form shown in


 Annex D hereof or such other form as may be agreed


between SONANGOL and each of such entities not later than


three (3) months after the Effective Date.








Article 21


Bonus


CONTRACTOR GROUP shall pay to SONANGOL as a cash


signature bonus the sum of million U.S. dollars (U.S.$


,000,000.00) on the Effective Date. This signature bonus


shall neither be recovered nor amortized by CONTRACTOR


GROUP.








Article 22


Develdprrieht Area Rentals





On or before the first day of the Mdnth next following the date of


the declaration of each .. Cbnirhercial Discovery and on each


anniversary thereof, ...C0NXRACTOR GROUP shall pay to


SONANGOL a surface rental of three hundred U.S. dollars


(U.S.$300) per square kilometer for the area covered by the


resulting Development Area(s). Such surface rental shall be


recovered as Production Expenditure by CONTRACTOR GROUP


against the Cost Recovery Crude Oil.








Article 23


Conservation of Petroleum and Prevention of Loss


1. CONTRACTOR GROUP shall adopt those measures which are


necessary and appropriate and consistent with the


technology generally in use in the international petroleum


industry to prevent loss or waste of Petroleum above or


under the ground in any form during drilling, producing,


gathering and distributing, storage or transportation


operations.


2. Upon completion of the drilling of a producing Development


Well, CONTRACTOR GROUP shall inform SONANGOL of the


time when the Well will be tested and will subsequently


inform SONANGOL of the resulting estimated production


rate of the Well within fifteen (15) days after the conclusion


of such tests.


3. Petroleum shall not be produced from multiple independent


Petroleum productive zones simultaneously through one


string of tubing, except with the prior approval of


SONANGOL


4. CONTRACTOR GROUP shall record data regarding the


quantities of Crude Oil, Natural Gas and water produced


monthly from each Development Such data shall be


sent to SONANGOL within...thirty (30) d.ayS:.after the end of


the Month reported pn?V{-baiiy or weekly statistics and


reports regarding the production \fpQrri the Contract Area


shall be available at .all reasonable., times for examination by


authorized represehtatfves .of.SONANGOL.


5. Daily drilling recqrqte apd graphic logs of Wells must show


the quantity and type of cement and the amount of any other


materials used in the Well for the purposes of protecting


Crude Oil, Natural Gas or fresh water bearing strata. Any


substantial change of mechanical equipment associated with


the Well after its completion shall be subject to the approval


of SONANGOL








Article 24


Records, Reports and Inspection


1. CONTRACTOR GROUP shall prepare and, at all times while


this Agreement is in force, maintain accurate and current


records of its activities and operations in the Contract Area


and shall keep all information of a technical, economic,


accounting or any other nature developed through the


conduct of Petroleum Operations. Such records will be


organized in such a way as to allow for the prompt and


complete confirmation of costs and expenditure. All such





3 6


records and information will be kept at Operator's office in


Luanda.


2. SONANGOL, in exercising its activities under the terms of


this Agreement, shall have the right to free access at all


reasonable times to all data referred to in the preceding


paragraph. CONTRACTOR GROUP shall furnish SONANGOL,


in accordance with applicable regulations or as SONANGOL


may reasonably require, information and data concerning its


activities and operations under this Agreement. In addition,


CONTRACTOR GROUP shall provide SONANGOL with copies


of any and all data, including but not limited to, geological and


geophysical reports, logs and Well, surveys, information and


interpretation of such data and-ptfter information related to


the Contract Area in CONJRACTOR GROUPS.possession.


3. ' CONTRACTOR GROUP :§hall saveapcl keep in the best


condition possible^a representatiyp portion of each sample of


cores and cuttings'taken.. ffoiri.Wells as well as a sample of


all fluids produced froxrivfi^Joration Wells, to be disposed of


or forwarded to SONANGOL or its representatives in the


manner directed by SONANGOL. All samples acquired


by CONTRACTOR GROUP for its own purposes shall be


considered available for inspection at any reasonable time by


SONANGOL or its representatives. CONTRACTOR GROUP


shall keep such samples for a period of thirty-six (36) Months


or, if before the end of such period, CONTRACTOR GROUP


withdraws from the Contract Area, then until the date of


withdrawal. Up to three (3) Months before the end of such


period, CONTRACTOR GROUP shall request instructions


from SONANGOL as to the destination for such samples. If


CONTRACTOR GROUP does not receive instructions from


SONANGOL by the end of such three (3) Month period then


CONTRACTOR GROUP is relieved of its responsibility to store


such samples.


4. Unless otherwise agreed to by SONANGOL, in the case of


exporting any rock samples outside Angola, samples


equivalent in size and quality shall, before such exportation,


be given to SONANGOL.








37


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


permission of SONANGOL; provided, however, that original


magnetic tapes and any other data which must be processed


or analyzed outside Angola may be exported only if a


comparable record is maintained in Angola and further


provided that such exports shall be repatriated to Angola on


the understanding that they belong to SONANGOL. Copies of


records and data may be exported at any time subject to the


Law.





6. Subject to any other provisions of this Agreement,


CONTRACTOR GROUP shall permit SONANGOL through


SONANGOL's duly authorized rqprbsentatives or employees


to have full and complete gpdes$ to the .Cfrfttract Area at all


reasonable times with ,tbe; right to . observe the operations


being conducted andvto .inspect all -assets, records and data


kept by CONTRACTOR HCROUP. SONANGOL’s


representatives arid employees, in exercising the rights


under the preceding, sentence of this paragraph shall not


interfere with CONTRACTOR GROUP'S operations. Without


prejudice to Article} 34, paragraph 2, SONANGOL shall be


responsible for any claims arising from acts of its employees


or consultants which arise out of the exercise of the rights


granted by this Article. CONTRACTOR GROUP shall grant to


said representatives and employees the same facilities in the


camp as those accorded to its own employees of similar


professional rank.








Article 25


CONTRACTOR GROUP'S Obligation to Purchase SONANGOL's


Crude Oil


1. SONANGOL shall have the right to require CONTRACTOR


GROUP to purchase any part of SONANGOL's share of


production under normal commercial terms and conditions in


the international petroleum industry and at the Market Price


in force at the time the Crude Oil is lifted as established in


Article 2 of Annex C of the Concession Decree-Law.


2. The right referred to in the preceding paragraph shall be


exercised in accordance with the following procedure:


(a) Six (6) Months prior to the start of a Quarter


SONANGOL shall give written notice to the


CONTRACTOR GROUP that it requires CONTRACTOR


GROUP to purchase a specified quantity of Crude Oil to


be lifted ratably over a period of two (2) consecutive


Quarters; and


(b) CONTRACTOR GROUP'S obligation to purchase Crude


Oil from SONANGOL will continue mutatis mutandis


from Quarter to Quarter idfter the initial two [2]


consecutive Quarters.uritii arid unless SQNANGOL gives


CONTRACTOR GROijP.’’Written'rjotjee of termination


which, subject to. the above-mentioned minimum period,


shall take effect six (6) Months after the end of the


Quarter in which such written notice was given.








Article 26


Other Rights and Obligations Related to Crude Oil Disposal


1. SONANGOL shall have the right upon six (6) Months' written


notice to buy from CONTRACTOR GROUP Crude Oil from the


Contract Area equivalent in value to the Petroleum Income


Tax due by CONTRACTOR GROUP to the Ministry of Finance,


i.e. fifty per cent (50%) of CONTRACTOR GROUP'S share of


Development Area Profit Oil (as determined in accordance


with Article 12). Such purchases by SONANGOL shall be at


the Market Price applicable to such Crude Oil. SONANGOL


shall provide CONTRACTOR GROUP with not less than three


(3) Months advance written notice of its intention to cease to


exercise its right under this paragraph.


2. Payment by SONANGOL to CONTRACTOR GROUP for each


purchase of Crude Oil under paragraph 1 above shall be


made two (2) working days before due date of the relevant


amount of Petroleum Income Tax to the Ministry of Finance.


o o


Any unpaid amount, plus interest as specified in Annex C


hereto, shall be paid in kind to CONTRACTOR GROUP by


SONANGOL out of SONANGOL's next Crude Oil entitlement,


valued at the Market Price applicable to such Crude Oil.


3. If, in any Year, CONTRACTOR GROUP'S total share of Crude


Oil comprising Cost Recovery Crude Oil and Development


Area Profit Oil, less any Crude Oil acquired or received from


CONTRACTOR GROUP by SONANGOL under this Article and


by the Government under the Concession Decree-Law, is less


than forty nine percent (49%) of total Crude Oil estimated to


be produced and saved in the Contract Area, CONTRACTOR


GROUP shall have the right to buy arts} lift the corresponding


balance of Crude Oil in the succeeding Year.


In the event that CONTRACTOR GROUP exercises all or any


part of such right, th.d>-;’balance>..of-Qrude Oil necessary to


satisfy CONTRACTOR GROUP'6. right shall be sold to


CONTRACTOR GROUP by. SONAKiOoL at the Market Price in


accordance with the fottpvtrlhg procedures:


(a) Six (6) Mpnth& prior to the start of a Quarter


CONTRACTOR GROUP shall give written notice to


SONANGOL that it requires SONANGOL to sell a


specified quantity of Crude Oil, which quantity may be


expressed either in Barrels or a percentage of total


production, to be lifted ratably over a period of two (2)


consecutive Quarters; and,


(b) SONANGOL's obligation to sell Crude Oil will continue


mutatis mutandis from Quarter to Quarter after the


initial two (2) consecutive Quarters until and unless


CONTRACTOR GROUP gives SONANGOL written notice


of termination or revision of quantities which, subject to


the above-mentioned minimum period, shall take effect


six (6) Months after the end of the Quarter in which


such written notice was given.


4. In the event of conflict between CONTRACTOR GROUP'S right


in paragraph 3 above and SONANGOL's right in paragraph 1


40


above, CONTRACTOR GROUP'S right in paragraph 3 above


shall have priority.


5. The fulfillment of the obligation to satisfy the Government's


right as per Article 8 of the Concession Decree-Law shall be


shared between SONANGOL and CONTRACTOR GROUP in


proportion to their respective net shares of production


during the period concerned [CONTRACTOR GROUP'S net


share being its share according to Articles 11 and 12 less


the quantities delivered to SONANGOL under paragraph 1


above and SONANGOL's net share being its share according


to Article 12, plus the said quantities delivered to it under


paragraph 1 above).








Apficfe 27


JLfpitization





1. In the event of there are Petroleum deposits capable of


commercially viable cte:Velqjpment, which extend beyond the


Contract Area, and. vj/here other entities have agreements for


the exploration and: production of Petroleum with a similar


unitization provision, SONANGOL may, by means of written


notice addressed to CONTRACTOR GROUP and said other


entities, require that the Petroleum in those deposits should


be developed and produced in mutual cooperation.





2. SONANGOL, by means of written notice addressed to


CONTRACTOR GROUP and the other entities as aforesaid,


may also require that a similar procedure to that mentioned


in the preceding paragraph be adopted, in relation to other


Petroleum deposits within the Contract Area, if these are


commercially viable only when developed together with


petroleum deposits in areas adjacent to the Contract Area.


3. Should SONANGOL exercise the rights referred to in the


preceding paragraphs, CONTRACTOR GROUP shall use all


reasonable endeavors to cooperate with the other entities in


the preparation of a plan for the joint development and


production of the deposits in question. Such plan shall be








41


presented to SONANGOL within a period of one hundred and


eighty (180) days (or such longer period as may be provided


in the similar unitization provisions referred to in paragraph


1) from the date when CONTRACTOR GROUP and the other


entities as aforesaid received the relevant notice, or such


longer period as SONANGOL may agree.


4. Should the plan not be presented within the period


established in the preceding paragraph SONANGOL may


arrange for an independent consultant acceptable to all


parties concerned to prepare at the expense of the


CONTRACTOR GROUP and the other entities, a plan for the


joint development and productjbh. of the deposit in


accordance with generally accepted practice in the


international Petroleum industry. The ^ consultant must


consult with and keep, att of the \ehtities constituting


CONTRACTOR GROUP arid the other;, entities informed on a


regular basis.


5. The plan prepared ..jindjsir the terms of the preceding


paragraphs shall be 3n accordance with the rules established


in this Agreement, ;iri particular as regards the rights and


obligations of CONTRACTOR GROUP, and it shall establish a


reasonable rate of return for CONTRACTOR GROUP


compatible with the proportional share which the latter


assumes in the joint development and production.


6. Once the plan referred to in the preceding paragraphs has


been prepared, the Parties and the other entities shall meet


within sixty (60) days from the date of submittal of said plan


to agree on its implementation, which shall be initiated no


later than ninety (90) days from the date of the agreement.


7. If CONTRACTOR GROUP does not accept the plan prepared


pursuant to paragraph 4 above or if CONTRACTOR GROUP


refuses the implementation of the plan or if CONTRACTOR


GROUP does not initiate said implementation within the time


period established under paragraph 6, or furthermore, if


after an agreement has been reached for the preparation of


a plan under paragraph 3, the implementation of same is not


4 2


started within the period required under paragraph 6,


CONTRACTOR GROUP shall relinquish to SONANGOL those


parts of the Contract Area together with the Petroleum


deposits lying thereunder which were the subject of


SONANGOL's notice referred to in paragraphs 1 and 2


above, without prejudice to CONTRACTOR GROUP'S other


rights and obligations under this Agreement in respect of the


remainder of the Contract Area.


8. Any joint development and production in accordance with this


Article 27 is without prejudice to the provisions of Article 29


and Article 31, paragraphs 2(e) and 11 (b).


9. In the event that a unitization., pi^pcess under this Article


affects the whole or ..part} %f an ^obligation which


CONTRACTOR GROUP., tfiMstfulfill vA/ithih a certain time


period under the Agreement, such time period shall be


extended by the timeVelapsed; betvyeen SONANGOL's written


notice under paragraph? \1^nd 2 above and the date of


mutual agreement on; $ie plan of the related joint


development. In gjiy event this extension shall not be more


than twelve (12):’Moriths, or such longer period as agreed by


SONANGOL











Article 28


Transfer and Abandonment of Assets


1. The CONTRACTOR GROUP, within a period of sixty (60) days


from the termination of the Agreement or of the date of


relinquishment of any area, must hand over to SONANGOL, in


good state of preservation and operation and according to a


schedule approved by SONANGOL, all of the Wells which,


within the area to which the expiration, cancellation or


abandonment refers, are in production or are capable of


producing, or are used in injection or capable of injection,


together with all the related casing, piping, surface or sub¬


surface equipment and facilities in the Contract Area


acquired by CONTRACTOR GROUP for the undertaking of


4 3


Petroleum Operations except those being used for Petroleum


Operations elsewhere in the Contract Area.


2. Should SONANGOL so request, the CONTRACTOR GROUP


shall proceed to correctly abandon the Well or Wells and


shall also undertake other actions for the abandonment of


the related assets as requested, in accordance with


practices generally accepted in the international petroleum


industry.


3. Such request shall be made by SONANGOL within a period of


one hundred eighty (180J days before the termination of the


Agreement or of the estimated date of relinquishment of any


area.


4. If such request is mac^e by ..SONAI\|GOL>. it shall make the


required funds available.;to CONTRAISTOR GROUP from the


amounts paid to SONANGOL- pursuant to Article 4.3(e) of


Annex C plus accrued interest/ ..


5. If SONANGOL requires) CONTRACTOR GROUP to relinquish


or to hand over tp S0NANGOL the Well or Wells and related


assets, CONTRACTOR GROUP shall have no further liability


regarding said Wells and related assets except in the case of


gross negligence, willful misconduct or serious fault and


without prejudice to the provisions of the Agreement still in


force after its termination, SONANGOL shall indemnify


CONTRACTOR GROUP in case of any claims in respect


thereof.








Article 29


Natural Gas





1. CONTRACTOR GROUP shall have the right to use Associated


Natural Gas produced from Development Areas for any


purpose, including the Petroleum Operations, for domestic


consumption or for export and will have the right to process


such Gas and separate the liquids therefrom. Costs to


produce, treat and so use such Gas shall be recovered and





4 4


classified in accordance with Annex C.


2. Associated Natural Gas surplus to the requirements defined


in the preceding paragraph is available at the separator free


to SONANGOL.


3. SONANGOL may ask CONTRACTOR GROUP to join


SONANGOL in order to develop some projects for the


utilization of such surplus Associated Natural Gas, under


terms and economic conditions to be mutually agreed.


4. If Non-Associated Natural Gas is discovered within the


Contract Area then SONANGOL and. CONTRACTOR GROUP


shall endeavor to agree on the ter.rns under which such Gas


will be developed by CONlifiACTOR \ GROUP. Such


development shall include the u£e of NomAssociated Natural


Gas for oil field operations, for domestic consumption or for


export. If no agreement is repphed within thirty-six (36)


months of the date when sueh.Gas was discovered, or such


longer period as may agreed by SONANGOL, then it shall


be free to develop the discovery for its own account and risk.


If SONANGOL so agrees, then CONTRACTOR GROUP shall


have the right to piarticipate in this Gas development with


reimbursement of SONANGOL's expenses according to


Article 30 plus an amount equal to one thousand per cent


(1000%) of such expenses.


5. In the course of activities provided for under this Agreement,


flaring of Associated and/or Non-Associated Natural Gas,


except flaring necessary for testing or other operational


reasons in accordance with practices generally accepted in


the international Petroleum industry, is prohibited except on


prior authorization of the Ministry of Petroleum following a


request by SONANGOL. CONTRACTOR GROUP shall


formulate such request for SONANGOL which shall include


an evaluation of alternatives to flaring that have been


considered along with information on the amount and quality


of Gases involved and the duration of the requested flaring.


Article 30


Operations for SONANGOL's Account (Sole Risk)


The only operations which may be the object of a sole risk


notice from SONANGOL under this Article shall be those


involving:


(a) penetration and testing geological horizons deeper than


those proposed by CONTRACTOR GROUP to the


Operating Committee in any Exploration Well being


drilled which has not encountered Petroleum; provided


the Operator has not commenced the approved


operations to complete or abaftdon the Well;


(b) penetration and testing;geological horizons deeper than


those proposed ...-byv.-CoKlTRACtdRI? GROUP to the


Operating Comrnitteei in any Exploration Well being


drilled which .iias encountered Petroleum; provided that


in respect to isuch Well the Operating Committee has


agreed that SONANGOL may undertake such sole risk


operations, end the Operator has not commenced the


approved operations to complete or abandon the Well;


(c) the drilling of an Exploration Well other than an


Appraisal Well provided that not more than two (2)


such Wells may be drilled in any Year;


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


from a successful Exploration Well whether or not such


Exploration Well was drilled as part of a sole risk


operation;


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


result from a successful Exploration Well and/or


Appraisal Well sole risk operation which CONTRACTOR


GROUP has not elected to undertake under paragraph


3 below;


(f) the Development of a Petroleum deposit discovered by


a successful, non-commercial Exploration Well and/or


Appraisal Well carried out by CONTRACTOR GROUP as


part of a work program approved by the Operating


Committee if thirty-six (36J months have elapsed since


the last such Well was completed and CONTRACTOR


GROUP has not commenced Development of such


deposit.


Except as to the operations described under paragraphs 1 (a)


and nb) above none of the operations described in


paragraph 1 of this Article may be the object of a sole risk


notice from SONANGOL until after the operation has been


proposed in complete form to the Operating Committee and


has been rejected by the Operating Qpmmittee.


To be "in complete form" asfmdritioned. abo^e* the proposal


for conducting any Qf*..the.""above..-’fne^tioned operations


presented by SONANGOL shall Contain appropriate


information such as Ideation, depth, target geological horizon,


timing of operation, and,where appropriate, details


concerning any develppm^ht plan as well as other relevant


data. ... (


If the conditions referred to in paragraph 2 have been met,


SONANGOL may, as to any operation described in paragraph


1, give a written sole risk notice to CONTRACTOR GROUP


and the latter shall have the following periods of time from


the date of receipt of such sole risk notice within which to


notify SONANGOL whether or not it elects to undertake such


proposed operation as a part of the Petroleum Operations:


(a) as to any operation described in paragraphs 1(a) and


(b), forty-eight (48) hours or until commencement of


the deepening operations, whichever occurs last;


lb) as to any operation described in paragraphs 1(c) and


(d), three (3) months;


(C) as to any operation described in paragraphs 1(e) and


(f), six (6) months.


4. If CONTRACTOR GROUP elects to include as part of the


Petroleum Operations the operation described in the sole


risk notice within the appropriate period described in


paragraph 3 of this Article, such operation shall be carried


out by the Operator within the framework of the Petroleum


Operations under this Agreement, as a part of the current


Work Program and Budget, which shall be considered as


revised accordingly.


5. If CONTRACTOR GROUP elects not to undertake the


operation described in the sole risk notice, subject to the


provisions of paragraph 6, the operation for the account of


SONANGOL will be carried out promptly and diligently by


CONTRACTOR GROUP at SONANilOL's sole risk, cost and


expense, provided that such operation will t>e carried out only


if it will not conflict with oKcause hindrance to CONTRACTOR


GROUP’S obligations; qh briy Petroleum Operation, or delay


existing work programs, Including any Approved Work


Program and Budget and.with respect to operations referred


to in paragraphs 1[c):apd 1(d), such operations will be


undertaken as sopniasld suitable rig is available in Angola.


SONANGOL and CONtRACTOR GROUP shall agree on a


method whereby SONANGOL will provide all necessary funds


in order that CONTRACTOR GROUP can undertake and pay


for such operations.


6. SONANGOL shall elect to have the operations for its own


account referred to in paragraphs 1(e) and 1(f) carried out


either by itself, by CONTRACTOR GROUP for a mutually


agreed fee or by any third party entity contracted to that


effect by SONANGOL, provided that such operations will be


carried out only if they will not conflict with or cause


hindrance to CONTRACTOR GROUP'S obligations or any


Petroleum Operations, or delay existing work programs,


including the Approved Work Program and Budget. Before


entering into an agreement with a third party, as mentioned


above, SONANGOL will notify CONTRACTOR GROUP in


writing of such proposed agreement. CONTRACTOR GROUP


shall have forty-five (45) days after the receipt of such


notification to decide to exercise its right of first refusal with


4 S


respect to the proposed agreement and to perform such sole


risk activities under the same terms and conditions as have


been arranged with the third party.


7. If SONANGOL wishes to use in the sole risk operations


assets which are used in the Petroleum Operations, it shall


give written notice to the Operating Committee stating what


assets it wishes to use, it being understood that the


utilization of such assets may not prejudice the Approved


Work Programs and Budgets.


8. If, in accordance with the provisions of paragraph 4,


CONTRACTOR GROUP decides to. undertake any works as


foreseen in paragraph 1 (d), it shall pay SONANGOL in cash


and within thirty (30) days frbm the Vdate in which it


exercises such right, an, erhbunt equal to all of the costs


incurred by SONANGQL jn sole risk operations conducted in


accordance with paragraphs 1 (a), T(b) and 1 (c) which have


directly led to the vi/orks foresbeh in paragraph 1(d).


9. In addition to the {amdunt referred to in the preceding


paragraph, SONANGOL will also be entitled to receive from


CONTRACTOR GROUP an additional payment equal to two


hundred percent (200%) of the costs referred to in


paragraph 8. Such additional payment will be made in cash


and within ninety (90) days as of the date on which


CONTRACTOR GROUP exercises the right referred to.


10. If, in accordance with the provisions of paragraph 4,


CONTRACTOR GROUP decides to undertake any works


foreseen in paragraph 1(e), it shall pay SONANGOL in cash,


all of the costs incurred by the latter in its sole risk


operations which directly led to the works foreseen in


paragraph 1 (e), less any reimbursement made in accordance


with paragraph 8 above, within thirty (30) days as of the date


on which it exercises such right.


11. In addition to the amount referred to in the preceding


paragraph, SONANGOL will also be entitled to receive twenty


five percent (25%) of CONTRACTOR GROUP'S share of


Development Area Profit Oil produced from this developed


deposit until the value thereof as defined in paragraph 13


equals one thousand percent (1000%) of the costs of the


operations referred to in paragraph 10.


12. If the operations described in paragraph 1(e) and 1(f) are


conducted at SONANGOL's sole risk, cost and expense, it will


receive one hundred percent (100%) of the Petroleum


produced from the deposit developed under such terms.


13. The Petroleum received by SONANGOL under paragraph 11


will be valued at the Market Price as established in Article 2


of Annex C of the Concession Decree:Law.








v . Article 31


Operating Cpmrhittee


1. The Operating Committees the body through which the


Parties coordinate and-Supervise the Petroleum Operations


and shall be established within thirty (30) days of the


Effective Date.


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


functions:


(a) to establish policies for the Petroleum Operations and


to define, for this purpose, procedures and guidelines


as it may deem necessary;


(b) to review and, except as provided in paragraph 12,


approve all CONTRACTOR GROUP'S proposals on Work


Programs and Budgets (including the location of Wells


and facilities), Production Schedules and Lifting


Schedules;


(c) to verify and supervise the accounting of costs,


expenses and expenditures and the conformity of the


operating and accounting records with the rules





50


established in this Agreement and Annex C hereof;


(d) to establish technical and other committees whenever


it is necessary;


(ej in general, to review and, except as otherwise provided


in this Agreement, to decide upon all matters which are


relevant to the execution of this Agreement, it being


understood, however, that in all events the right to


declare a Commercial Discovery is resierved exclusively


to CONTRACTOR GROUP.


3. The Operating Committee will otey the clauses of this


Agreement and it shall not deliberate on matters that by


Law, or this Agreement are the exclusive responsibility of the


Concessionaire or CONTRACTOR GROUFVV


4. The Operating Committee shaljvbe'- composed of four (4)


members, two (2) of whom shall be appointed by SONANGOL


and the other two CONTRACTOR GROUP. The


Operating Committed rheetings cannot take place unless at


least three (3) of its? rriembers are present.


5. The Operating Committee shall be headed by a Chairman who


shall be appointed by SONANGOL from among its


representatives and who shall be responsible for the


following functions:


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


activities;


(b) to chair the meetings and to notify the Parties of the


timing and location of such meetings, it being


understood that the Operating Committee shall meet


whenever requested by any Party;


(C) to establish the agenda of the meetings which shall


include all matters which any of the Parties have asked


to be discussed;











£> 1


Id] to convey to each Party all decisions of the Operating


Committee, within five (5) working days after the


meetings;


(e) to request from Operator any information and to make


recommendations that have been requested by any


member of the Operating Committee as well as to


request from CONTRACTOR GROUP any advice and


studies whose execution has been approved by the


Operating Committee;


(fj to request from technical and other committees any


information, recommendationjs’.and studies that he has


been asked to obtain by aqy..tneiriber of the Operating


Committee; v


(g) to convey to ^h^; -Parties. information and data


provided to hirpVby the Operator for this purpose.


6. In the case of an impediment to the Chairman of the


Operating Committed, the work of any meeting will be chaired


by one of the other" members appointed by him for the


purpose.


7. At the request of any of the Parties, the Operating


Committee shall establish and approve, according to


paragraph 11(c) below, its internal regulations which shall


comply with the procedures established in this Agreement.


8. At the Operating Committee meetings, decisions shall only be


made on matters included on the respective agenda, unless,


with all members of the Operating Committee present, they


agree to make decisions on any matter not so included on the


agenda.


9. Each member of the Operating Committee shall have one (1)


vote and the Chairman shall in addition have a tie-breaking


vote.


10. Except as provided for in paragraph 11, the decisions of the





52


Operating Committee are taken by simple majority of the


votes present or represented, it being understood that any


member may be represented by written and signed proxy


held by another member.


11. Unanimous approval of the Operating Committee shall be


required for:


(a) approval of and any revision to Exploration Work


Programs and Budgets (including location of Wells and


facilities] prepared after the first Commercial


Discovery;


(b) approval of and any revi$iori to the Production


Schedules, Lifting G.ghedutes and (Development and


Production Work Programs and Budgets;


(C) establishment Af rules of prpcedure for the Operating


Committee;


Id) establishment (of ^management policy for the carrying


out of responsibilities outlined in paragraph 2 of this


Article including the procedures and guidelines in


accordance with paragraph 2(a) above;


(e) determination of deemed nominal rate of return


pursuant to Article 12.


12. Prior to the time of declaration of the first Commercial


Discovery, the Operating Committee shall review and give


such advice as it deems appropriate with respect to the


matters referred to in paragraph 2(e) above and with


respect to CONTRACTOR GROUP'S proposals on such


Exploration Work Programs and Budgets (including the


location of Wells and facilities). Following such review


CONTRACTOR GROUP shall make such revision of the


Exploration Work Programs and Budgets as CONTRACTOR


GROUP deems appropriate and transmit the final Exploration


Work Program and Budget to SONANGOL for its


information.


13. Minutes shall be made of every meeting of the Operating


Committee and they shall be written in the appropriate


record book and signed by all members.


14. The draft of the minutes shall be prepared, if possible, on the


day that the meeting is held and copies of it shall be sent to


the Parties within the following five (5) working days, and


their approval shall be deemed granted if no objection is


raised within ten (10) working days from the date of receipt


of the draft minutes.











Article 32


Ownership- of Assets \





1. Physical assets purchased by: CONTRACTOR GROUP for the


implementation of the .Wopfc Program(s) and Budget(s]


become the propertyjp^ when purchased in


Angola or, if purc.hg^ed) Abroad, when landed at the Angolan


ports of import /Such physical assets will be used in


Petroleum Operations, provided, however, CONTRACTOR


GROUP will not be obligated to make any payments for the


use of such physical assets during the term of this


Agreement. This provision shall not apply to equipment


leased from and belonging to third parties.


2. During the term of this Agreement CONTRACTOR GROUP


shall be entitled to the full and exclusive use in the Contract


Area, and any other area approved by SONANGOL, of all fixed


and movable assets at no cost to CONTRACTOR GROUP.


Any SONANGOL assets which CONTRACTOR GROUP agrees


have become surplus to CONTRACTOR GROUP’S then


current and/or future needs in the Contract Area may be


removed and used by SONANGOL outside the Contract Area


and any unrecovered costs for such assets shall be fully


recovered in that Year respecting the cost recovery limit


provided for in Article 11 hereof. Any SONANGOL assets


other than those considered by CONTRACTOR GROUP to be


 superfluous shall not be disposed of by SQNANGOL except


with agreement of CONTRACTOR GROUP so long as this


Agreement is in force.








Article 33


Property and Confidentiality of Data


1. All information of a technical nature developed through the


conduct of the Petroleum Operations shall be the property of


SONANGOL.


2. Unless otherwise agreed by SONANGOL and CONTRACTOR


GROUP, while this Agreement remd.in^ in force, all technical,


economic, accounting or ^riy bther infoTmia^on, including


without limitation, reports/maps, logs, records and other


data developed through the. Cdriduct of Petroleum


Operations, shall be Held strictlyConfidential and shall not be


divulged by any Party without the prior written consent of the


other Party hereto; provided, however, that either Party may,


without such approval, disclose such information:


[aj to any Affiliate or potential assignee of such Party upon


such Affiliate or potential assignee giving a similar


undertaking of confidentiality;


(b) in connection with the arranging of financing or of a


corporate reorganization upon obtaining a similar


undertaking of confidentiality;


(c) to the extent required by any applicable law, regulation


or rule (including without limitation, any regulation or


rule of any regulatory agency, securities commission or


securities exchange on which the securities of such


Party or of any such Party's Affiliates are listedj


(d) to consultants, contractors or other third parties as


necessary in connection with Petroleum Operations


upon obtaining a similar undertaking of confidentiality.


3. The CONTRACTOR GROUP'S obligation of confidentiality of


the information referred to in paragraph 2 above shall


continue for ten (10) years after the termination of the


Agreement or such other period as agreed to in writing


between the Parties.


4. In the event that any entity constituting CONTRACTOR


GROUP ceases to hold an interest under this Agreement,


such entity will continue to be bound by the provisions of this


Article.


5. To obtain offers for new Production Sharing Agreements,


SONANGOL may, upon informing[(CONTRACTOR GROUP,


show third parties geophysical* geological and other technical


data (the age of which is. hot) less thafr>0oe (1) year or


CONTRACTOR GROUP'S-Report's and interpretations (the age


of which is not less than; five (5) years) with respect to that


part or parts of tih^ Contract Area adjacent to the area of


such new offers.


6. The confidentiality .obligation contained in this Article shall


not apply to any information that has entered the public


domain by any means that is both lawful and does not involve


a breach of this Article.








Article 34


Responsibility for Losses and Damages


1. CONTRACTOR GROUP, in its capacity as the entity


responsible for the execution of the Petroleum Operations


within the Contract Area, shall be liable to third parties to


the extent provided under the Law for any losses and


damages it may cause to them in conducting the Petroleum


Operations and shall indemnify and defend SONANGOL with


respect thereto, provided CONTRACTOR GROUP has been


given timely notice of the claims and the opportunity to


defend.


2. CONTRACTOR GROUP is also liable for losses and damages


(excluding indirect and consequential losses and damages)


which, in conducting the Petroleum Operations


CONTRACTOR GROUP may cause to the State and in case of


CONTRACTOR GROUP'S willful misconduct or gross


negligence, to SONANGOL.


The provisions of the preceding paragraphs 1 and 2 do not


apply to losses and damages caused during Petroleum


Operations for account and risk of SONANGOL, for which


SONANGOL shall indemnify and defend CONTRACTOR


GROUP, and in relation to which CONTRACTOR GROUP shall


only be liable for such losses and damages caused by its


willful misconduct or gross negligent;


If CONTRACTOR GROUP cgmjbriSeS more thahone entity, the


liability of such entities.shalf be joint arid several.








Article 35


..Insurance





Relative to the risks inherent in its Petroleum Operations,


CONTRACTOR GRdUP shall execute and keep current


insurance contracts for the amounts and types required by


Law as well as any other insurance contracts proposed by


CONTRACTOR GROUP and approved by the Operating


Committee, it being understood that such approval is not


necessary when CONTRACTOR GROUP is protected by


worldwide insurance or reinsurance programs. In this case,


CONTRACTOR GROUP shall immediately inform SONANGOL


of the type and the extent of coverage of such insurance and


shall provide SONANGOL with certificates thereof whenever


requested.


Insurance contracts will be executed with Empresa Nacional


de Seguros e Resseguros de Angola (ENSA, U.E.E.), when so


required by Law.


Article 36


Recruitment, Integration and Training of Angolan Personnel


1. CONTRACTOR GROUP shall be subject to the provisions of


Decree 20/82 of April 17, 1982 and corresponding


regulations regarding the recruitment, integration and


training of Angolan personnel.


2. In the Petroleum Operations carried out under this


Agreement CONTRACTOR GROUP shall apply the most


appropriate technology and managerial experience, including


their proprietary technology such as patents, "know-how" or


other confidential technology, to the extent permitted by


applicable laws and agreements.


3. In planned, systematic and yaripiis ways and. in accordance


with the provisions of-this'--Article,.. dpNTRACTOR GROUP


shall train its Angolan personnel directly'or indirectly involved


in the Petroleum Operations,:foh. the purpose of improving


their knowledge and profe^sjghdil qualification in order that


the Angolan personngl.grajdually reach the level of knowledge


and professional....qualification held by the CONTRACTOR


GROUP'S foreigniwqrkers. Such training will also include the


transfer of the knowledge of petroleum technology and the


necessary management experience so as to enable the


Angolan personnel to use the advanced and appropriate


technology in use in the Petroleum Operations, including


proprietary and patented technology, "know-how" and other


confidential technology, to the extent permitted by applicable


laws and agreements, subject to appropriate confidentiality


agreements.


4. In keeping with the three-year plan for the recruitment,


integration and training of Angolan personnel which is


covered under Article 12 of the Concession Decree-Law,


CONTRACTOR GROUP specifically agrees to:


(aj prepare a draft of such initial plan and submit it to


SONANGOL within four (4) Months of the Effective


Date;








58


(b) prepare a proposal for implementation of such plan and


submit it to SONANGOL within one (1) Month of the


approval of such plan by the Ministry of Petroleum;


(c) implement the approved plan in accordance with the


directives of SONANGOL, CONTRACTOR GROUP being


able, in this regard and with the approval of


SONANGOL, to contract outside specialists not


associated with CONTRACTOR GROUP to proceed with


the implementation of specific aspects of the subject


plan.


5. CONTRACTOR GROUP agrees to require in its contracts with


subcontractors who work for. CONTRACTOR GROUP for a


period of more than one yparj compliance :^ith requirements


for the training of work cfeeWs, to which requirements such


subcontractors are subject by operation of current law.


CONTRACTOR GROUP further Agrees to monitor compliance


with such obligations.


6. The training costs df‘* angolan personnel working for


CONTRACTOR GpOUP shall be borne by the latter and shall


be recovered as a Production Expenditure. Costs incurred by


CONTRACTOR GROUP for training programs for SONANGOL


personnel will be borne in a manner to be agreed upon by


SONANGOL and CONTRACTOR GROUP.


7. Subject to the provisions of paragraph 4 above,


CONTRACTOR GROUP shall have the right to staff its


operations with those whom it believes are necessary for


efficient administration and operations without the


imposition of citizenship or residency requirements.


8. SONANGOL shall provide reasonable assistance to


CONTRACTOR GROUP in obtaining visas, permits and any


other documents required for the entry into Angola,


residence authorizations and work licenses required in


connection with the performance of Petroleum Operations in


the Contract Area. CONTRACTOR GROUP shall advise


SONANGOL reasonably in advance of the time necessary for





59


 receipt of such permit or license and SONANGOL shall take


all reasonable steps to arrange for all such permits and


licenses to be issued on a timely basis by the appropriate


authorities.








Article 37


Fiscal Regime


1. The fiscal regime applicable to Petroleum Operations is that


established in the Concession Decree-Law.


2. In order to avoid the international double taxation of


CONTRACTOR GROUP'S incorpe* 50N^NGOL shall favorably


consider any amendments. qit revisions to thiis Agreement or


other undertakings that CONTRACTOR .GIROUP may propose


as long as those ambn.driients, revisions or undertakings do


not impact on SONANGOL'p pT, Angola's economic benefits


and other benefits resulting from the Agreement.


3. Should the stamp duty, pfi customs clearance documents


and/or the statistical Ipvy of one per thousand [1/1000] "ad


valorem" applicable; to imports or exports increase from


those rates in effect on the Effective Date, SONANGOL will


reimburse CONTRACTOR GROUP for the additional amounts


paid by CONTRACTOR GROUP. SONANGOL and


CONTRACTOR GROUP shall promptly agree on procedures to


accomplish such reimbursement.


4. Without prejudice to other rights and obligations of the


Parties under the Agreement, in the event that any change in


the provisions of any Law, regulation or decree in force in the


Republic of Angola occurs subsequent to the signing of the


Agreement which adversely affects the obligations, rights


and benefits hereunder, then the Parties shall agree on


amendments to the Agreement to be submitted to the


competent authorities for approval, so as to restore such


rights, obligations and forecasted benefits.


 Article 38


Foreign Currency and Customs Regimes


The foreign currency and customs regimes applicable to the


Petroleum Operations are those established in Annexes D and E


respectively of the Concession Decree-Law.








Article 39


Assignment


1. In accordance with the legislation of the Republic of Angola,


each of the entities constituting CONTRACTOR GROUP may


assign part or all of its rights,"privileges, duties and


obligations under this Agreement^. t6 an Affiliate and, by


obtaining prior authorization fijorh SONANGOL, to a non-


Affiliate and such authorization shall,be, granted within thirty


(30) days of CONTRACTOR GROUP'S riotice of intent to make


such assignment. , ) :


2. Any assignees shall be'hoiiders of the rights and obligations


deriving from this. Agreement and all appropriate legislation.


3. In the case of the assignment being in favor of an Affiliate of


the assignor the latter and the assignee shall remain jointly


and severally liable for the strict compliance with the


obligations of the CONTRACTOR GROUP in accordance with


the provisions of this Agreement and relevant legislation.


4. The legal documents required to effect any assignment in


accordance with the provisions of this Article must specify


the participation which the third party assignee will enjoy in


the Agreement and shall be submitted for consideration and,


in the case of an assignment to a non-Affiliate, for approval by


SONANGOL before being formally executed.


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


the assignor which should have been fulfilled under the terms


of this Agreement and the relevant legislation at the date the


request for the assignment is made, must have been fully


complied with.


6. SONANGOL will have the right of first refusal to acquire


under the same conditions, any interest in this Agreement


that an entity constituting CONTRACTOR GROUP intends to


assign to a non-Affiliate.


7. Except as otherwise expressly provided herein, upon


completion of an assignment made by one of the entities


constituting CONTRACTOR to a non-Affiliate, such assignor


shall have no further rights or obligations wjth respect to the


interest in this Agreement so assigned.


Article 40 .


Termination of the Agreement


1. Without prejudice to the\p-rdvisions; of the Law and of any


contractual clause,K SONANGOL proceed to the


termination of this Agreement iTC.ONTRACTOR GROUP:


(a) interrupts Production for a period of more than ninety


(90) days with rid cause or justification acceptable


under noritial international petroleum industry practice;


(b) continuously refuses with no justification to comply


with the generally applicable Law;


(c) intentionally submits false information to the


Government or to SONANGOL;


(d) discloses confidential information related to the


Petroleum Operations without having previously


obtained the necessary authorization thereto if such


disclosure causes prejudice to SONANGOL or the


State;


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


the provisions of Article 39 of this Agreement;


(f) is declared bankrupt by a court of competent


jurisdiction;





t> 4


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


an arbitration process conducted under the terms of


the Agreement, after all adequate appeals are


exhausted;


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


obligations resulting from the Concession Decree-Law


and from this Agreement;


(i) intentionally extracts or produces any mineral which is


not covered by the object of this Agreement, unless


such production is expressly .authorized or unavoidable


as a result of operations carried out in accordance with


accepted international Petroleum inehistry practice.


2. SONANGOL may aLsq : terminate the Agreement if the


majority of the shades representing the capital of any entity


constituting CONTRACTOR GROUP is transferred to a non-


Affiliate third party...having obtained the prior


required authorization.)


3. If SONANGOL considers that one of the aforesaid causes


exists to terminate this Agreement, it shall notify


CONTRACTOR GROUP in writing in order for it, within a


period of ninety (90) days, to remedy such cause. The said


notification shall be delivered by the official method foreseen


in the Law, and by recorded delivery which shall be signed by


a legal representative of the entity to which it is addressed.


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


change of address which has not been notified pursuant to


this Agreement, publication of the notice in the Diario da


Republicashall be considered to be as valid as if delivered.


If, after the end of the ninety (90) day notice period, such


cause has not been remedied or removed, or if agreement


has not been reached on a plan to remedy or remove the


cause, this Agreement may be terminated in accordance with


the provisions mentioned above.








6 3


4. The termination of the Agreement envisaged in this Article


shall occur without prejudice to any rights which may have


accrued to the Party which has invoked it, in relation to the


other Party, in accordance with this Agreement, the


Concession Decree-Law or the Law.





5. If any of the entities constituting CONTRACTOR GROUP, but


not all of them, give SONANGOL due cause to terminate this


Agreement pursuant to the provisions of paragraphs 1 and 2


above, then such termination shall take place only with


respect to such entity or entities and the rights and


obligations that such terminated entity or entities hold under


this Agreement or any agreements among the entities


constituting CONTRACTOR GRQjJP made available to


SONANGOL pursuant to paragraph 3 of. Article 8, except as


provided in the preceding paragraph-,.1 shall revert to


SONANGOL without bqfepensation.x x





...Article 41


Confidentiality of the Agreement


SONANGOL and CdKlTRACTOR GROUP agree to maintain the





confidentiality of this Agreement; provided, however, either Party


may, without the approval of the other Party, disclose this


Agreement in the following situations:





(a) to any Affiliate or potential assignee of such Party upon such


Affiliate or potential assignee giving a similar undertaking of


confidentiality;


(b) in connection with the arranging of financing or of a corporate


reorganization upon obtaining a similar undertaking of


confidentiality;





(c) to the extent required by any applicable Law, decree or


regulation (including, without limitation, any requirement or


rule of any regulatory agency, securities commission or


securities exchange on which the securities of such Party or


of any such Party's Affiliates are listed);


(d) to consultants as necessary in connection with Petroleum


Operations upon obtaining a similar undertaking of


confidentiality.





Article 42


Arbitration


Any disputes, differences, or claims arising out of this Agreement or


relating thereto, or relating to the breach, termination, or


invalidation of the same, which it has not been possible to resolve


amicably shall be finally and exclusively settled by arbitration, in


accordance with the UNCITRAL Rules, of Arbitration of 1976 as


existing on the Effective Date.


The number of arbitrators shall be thre£,(3):0ne will be appointed


by Sonangol and 1(one[}:^ the CONTRACTOR GROUP.The third


arbitrator will be appointed jointly by SONANGOL and the


CONTRACTOR GROUP.If one. of the arbitrators is not appointed


within thirty days upqn..'\^ or the CONTRACTOR


GROUP’S notice tq.the Other,asking for said appointment,then


such arbitrator shalU Be appointed by the President of the


International Chamber of Commerce of Paris.


The arbitration tribunal shall decide according to the Angolan


substantive Law.


According to the Law in force the arbitration tribunal shall be set up


in Luanda and the language of arbitration shall be Portuguese.


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


immunity against validity and enforcement of the award or any


judgment thereon and that the award or judgment shall be final,


binding and shall be enforceable against any Litigant in any court


having jurisdiction in accordance with its laws.


 Article 43


Force Majeure


1. Non-performance or delay in performance by SONANGOL or


CONTRACTOR GROUP, or both of them, of any of the contractual


obligations, except an obligation to pay money, shall be excused if,


and to the extent that, such non-performance or delay is caused by


Force Majeure.


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


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


Agreement for the performance of such obligation and for the


performance or exercise of any right or obligation dependent


thereon, and, if relevant, the term . of. the Agreement, shall be


suspended until the restoration , ofjthe "status quo" prior to the


occurrence of the event(s) constituting Force\jVI&jeure, but only with


respect to the areas affected, ■


3. "Force Majeure", for tfte purpose^ of this Article, shall be any


occurrence which is unforeseeable, unavoidable and beyond the


reasonable control of the;Rgrty claiming to be affected by such


event such as, and without limitation, state of war, either declared


or not, rebellions!, or mutinies, natural catastrophes, fires,


earthquakes, communications cuts and unavoidable accidents.


4. The Party which understands that it may claim a situation of Force


Majeure shall immediately serve notice to the other Party, and shall


use all reasonable efforts to correct the situation of Force Majeure


as soon as possible.














Article 44


Applicable Law


This Agreement shall be governed by and construed in accordance with


the Law.











6 6


Article 45


Language


This Agreement has been prepared and signed in the Portuguese


language. The Portuguese version shall be the only official version for the


purpose of establishing the rights and obligations of the Parties.














Article 46


Offices and Service of Notice


1. SONANGOL and Operator sh.all. iriaintain otffid^s in Luanda, Republic


of Angola, where communications anti notices foreseen in this


Agreement must be yalitflydelivered. \ ;


2. SONANGOL's office for the piirfiose of serving notice is:


Rua do 1 ° Congrdssd do M.P.L.A.


No. 8-4° Andar


Luanda


REPUBLICA DE ANGOLA


Telex: 3148 and 3260


Fax: 244-2-391782


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











Luanda


REPUBLICA DE ANGOLA


Telex:


Fax:


4. SONANGOL and Operator will communicate to each other in writing


and with reasonable advance notice any change of their offices


referred to in the preceding paragraphs, if such occurs.








67


 Article 47


Captions and Headings


Captions and headings are included in this Agreement for the sole


purpose of systematization and shall have no interpretative value.








Article 48


Effectiveness


This Agreement shall come into effect on the Effective Date.




















IN WITNESS WHEREOF, %h$ Parties hereto have signed this Agreement


in the Portuguese language in Luanda, this_day of 199.


SOCIEDADE NACIONAL DE COMBUSTIVEIS


DE ANGOLA - UNIDADE ECONOMICA ESTATAL


(SONANGOL, U.E.E.)


By: __


Date:__








CONTRACTOR GROUP:








By:


Date:











68


 , a corporation





By:


Date:





, a corporation





By:


Date:








, a corporation





By:


Date:


 Annex A


Description of the Contract Area


The present Annex is an integral part of the Production Sharing


Agreement (the "Agreement") dated _, 199 signed between


SONANGOL as one of the Parties and by


_,_, and_, as the other


Party, as referred to in Article 2 of the Agreement.








The Contract Area is shown in Annex B as Block is delineated by the


lines defined by the Points A to__having the following coordinates:





Geographical Coordinates .. pTM Coordinates





Latitude Longitude X Y


IS) (EJ Vv











..Datum - Camacupa


(EllipSoide - Clark 1880


Projection - UTM Zone 33S

















The Contract Area delineated by those Points is limited as follows:


 Annex B


Map Showing the Contract Area





The present Annex is an integral part of the Production Sharing


Agreement (the "Agreement") dated _, 199 signed between


SONANGOL as one of the Parties and by


_,_ . and_, as the other


Party, as referred to in Article 2 of the Agreement.


 Annex C


Accounting and Financial Procedures


The present Annex is an integral part of the Production Sharing


Agreement (the "Agreement") dated _, 199 signed between


SONANGOL as one of the Parties and by


_,_, and_, as the other


Party, as referred to in Article 2 of the Agreement.








Article I


General Conditions





1.1 Definitions


The terms used in this Annex; have the same-meaning as was given


to them in the Agreement/


1.2 Purpose


a. The purpose of the Accounting and Financial Procedures is to


establish equitable methods for determining the expenditure


and revenue of the Petroleum Operations carried out within


the scope of the Agreement, in accordance with the


Information System for Oil Operations ("SlOP") approved


under joint executive Decree number 7/88 of the 26th of


March, under generally accepted accounting principles.


b. It is the Parties intention that there should not be any


duplication of any recoverable item.


c. Each of the entities of which the CONTRACTOR GROUP is


made up has the responsibility of keeping its own accounting


records for the purpose of satisfying all legal requirements


and justifying tax declarations or any other accounting reports


requested by any government authority in respect of the


Petroleum Operations.


d. In order to permit each entity of which the CONTRACTOR


GROUP is comprised to keep such accounting records, the


Operator will prepare the joint account in such a manner as to


permit the entities in question to satisfy any legal obligations


to which they are bound.


1.3 Language and Units


a. All accounting records, charts of results, accounting reports


and correspondence should be written in Portuguese and


recorded in local currency and US Dollars with, however, the


calculations for the determination of recoverable expenditures


being made in US Dollars.


b. The measurements required undfer the terms of this Annex,


will be made in metric units.and iii Barrels. If necessary for


the internal use of the CONTRACTOR GROUP, the referred to


accounting recordsl;.clrar*ts of resufts dnd accounting reports


and correspondencemay also be written up in other


languages, currencies andvotnits of measurement after


obtaining the prior apprq\/a1vbf SONANGOL.


c. Exchange rate ...fluctuations shall not constitute any gain or


loss either for SONANGOL or the CONTRACTOR GROUP.


d. The Operator should supply SONANGOL with a description of


the procedures adopted for the calculation of the exchange


rate differences, as well as the respective policies for


protection from exchange rate fluctuations.


e. Gains and losses, realized or not realized, as a result of foreign


exchange fluctuations will be registered individually and


separately in the joint account under their own heading. The


Operator will supply SONANGOL with a statement taken from


the accounting records in respect of the foreign exchange rate


differences calculated at the end of each quarter, up until


twenty one (21) days beginning from the end of the quarter in


question.


f. SONANGOL thirty (30) days after the reception of the


referred to statement, will notify the Operator of its position


in respect of the amounts of foreign exchange rate differences





73


 accepted as recoverable.


g. The approved differences in the foreign exchange rate will then


be calculated as yearly charges or profits under the heading


"Administration and Services" to be imputed to the activities


of Exploration, Development and Operation under the following


terms set out in 4.8(b).


h. The amounts received and expenses incurred in local currency


or in US Dollars will be converted from local currency into US


Dollars or US Dollars into local currency at the buying and


selling rates published by the Banco National de Angola on the


last working day of the Month before the Month in which the


amounts were received or paid^.ipr the rate of any other date


agreed by the Parties.


L The costs of depreciation and amortization will be translated


or converted dt} tfie exchange .rate in force on the date of


purchase of the original





1.4 Payments ( •


a. All payments between the Parties under the terms of the


Agreement will be made in US Dollars or in other currencies


accepted by the Parties, in a bank designated by the Party to


which payment is made.


b. Any payments required under the terms of Agreement,


principally premiums, rents and penalties for non compliance


with the minimum work program, as well as the payments as a


result of the purchase rights of crude oil by the CONTRACTOR


GROUP will be made within thirty (30) days from the end of


the Month during which the payment obligation was incurred.


1.5 Financial and Operational Audit and SONANGOL's Right of


Inspection


a. The accounting records maintained by the CONTRACTOR


GROUP will be audited on an annual basis to be carried out by


an independent auditing company to be chosen by SONANGOL


and the CONTRACTOR GROUP. The inspection to be carried


out by the auditors should be based on generally accepted


auditing principles.


b. The CONTRACTOR GROUP shall supply all records, documents


and explanations requested by the auditors and allow them to


carry out the checks considered necessary within the scope of


their activity.


c. The expenditure incurred on the aforementioned audit will be


classified by the CONTRACTOR GROUP as Administration and


Services Expenditure.


d. A copy of each audit report sh^H ^e giv$n to the Ministry of


Finance, SONANGOL ahd) each ,efrtity of which the


CONTRACTOR GROUP is comprised, vi/tfchin a period of six (6)


Months after the end: bf the respective calendar year.


e. In addition to' the conditions of paragraph a. above,


SONANGOL will haydite permanent right, either on its own or


through third p.arti^s; and upon giving reasonable notice to


CONTRACTOR GROUP, to carry out operational inspections or


audits considered to be necessary in respect of facilities,


studies, accounts, records, documents, contracts, assets of


any kind in such a manner as to verify compliance with


obligations under the Agreement. The costs of such an audit


will be paid by SONANGOL.


J, When carrying out the audits referred to in this Article, the


auditors may inspect and check, after giving a reasonable


notice to CONTRACTOR GROUP, all expenditures and revenue


connected with Petroleum Operations, such as accounting


records, accounts entries, inventories, vouchers, payment


slips, invoices, contracts or sub contracts of any kind related


to the Agreement and any other documents, correspondence


and records of the CONTRACTOR GROUP necessary for


auditing and checking expenditure and revenue.


g. In addition, the auditors will have the right, in respect of such


inspections and audits, to visit and examine, provided that








7 5


they give reasonable notice, all locations, installations,


habitations, warehouses and offices of the CONTRACTOR


GROUP in Angola, and/or any other location provided that


they are used for the Petroleum Operations including visits to


the personnel working on these Petroleum Operations.


h. The cost of the examination and inspection of records located


outside Angola without SONANGOL's authorization will be


borne by CONTRACTOR GROUP and is not recoverable.


i. All accounting records, sales statements, books and accounts


connected with the Petroleum Operations will be accepted as


true and accurate after a period'af twenty four (24) Months


beginning from the end of the Fiscal Year to which they refer,


unless if within this,., sarnie period,\ .SONANGOL or the


CONTRACTOR GROUP ; express any objection to them in


writing.


j. SONANGOL may extend; the twenty four (24) Month period by


an additional tyueiye;:. (12) Months by providing the


CONTRACTOR .QROUP written notice to extend such period


not later thap sixty (60) days prior to the end of the initial


twenty four (24) Month period.


k. Notwithstanding the possibility of the period of twenty four


(24) Months having expired, if there is any evidence that the


Operator is guilty of willful misconduct or gross negligence in


the management of the Petroleum Operations during the


expired periods, SONANGOL will have the right to carry out


additional audits in respect of these periods.


l. All adjustments as a result of the audits referred to in this


Article, when agreed and approved by the Operating


Committee, shall be promptly adjusted in the joint account.


m. If any disputes between SONANGOL and the CONTRACTOR


GROUP in respect of outstanding verifications in the audits


carried out still remain, these cases of dispute will be


entrusted for purposes of resolution to an international


independent audit company agreed between the Parties.





76


n. If any of the Parties disagrees with the resolution put forward


by the aforementioned audit company, the dissenting Party


shall notify the other Party for the case in dispute to be


resolved by means of arbitration, under the terms of Article


42 of the Agreement.


o. Notwithstanding the conditions of this Article, all documents


therein referred to shall be available for inspection by


SONANGOL for five (5) Years after the date of their being


drawn up.


p. This Article will neither take theCpI.ace of nor lessen the legal


obligations of the CONTRACTOR^ GROUP arising from Angolan


commercial legislation. ...


OyV Articled ;


Expenditure and Revepue of CONTRACTOR GROUP


2.1 The expenditure ‘metered under the terms of the Agreement shall


be debited to the joint account in accordance with the principles set


out in 2.3. Each member of the CONTRACTOR GROUP will


undertake the accounting procedure for his share of the exports of


crude oil with the respective revenue not being credited to the Joint


Account.


2.2 The expenditures shall be classified in accordance with the SIOP and


will be recoverable under the terms of Article 11 of the Agreement.


2.3 Recoverable Costs Under the Terms of the Agreement


Under the terms of Article 11 of the Agreement, direct and indirect


expenditure, classified and accounted for in accordance with the


SIOP and under the terms of Article 4 of this Annex, which are a


result of the Petroleum Operations carried out within the scope of


the Agreement and which are specified below are considered eligible


for the purpose of recovery of costs.


2.3.1 Expenditure on Personnel





77


a. For the purpose of recovery of expenditures on


personnel as recoverable costs, the Operator shall


inform SOINIANGOL about its internal management


policies and practices in respect of personnel, including


salary policies, subsidies and traveling expenses,


benefits and other company incentives, which, to the


extent they are in accordance with generally accepted


practices of the international petroleum industry, will


constitute the principles of the incurring of expenditure


on personnel referred to in the following paragraphs.


b. The total amount of the ^dfgries and wages, including


gratifications and bonuses.paid to workers employed by


the Operator for.. heiVgf directly;, employed on the


Petroleum Operation^





c. All of the personnel who,aire employed on the Petroleum


Operations and./('ip/hasfe salaries and wages are


recoverable as ref^rred to above shall have time sheets.


d. These sheets “will register the time worked on the


Petroleum Operations, even if the personnel in question


are employed on the Petroleum Operations on a full or a


part time basis, and shall show the time worked on the


various projects for the purpose of calculation and


attribution of salaries and wages.


e. Expenditure on holidays, public holidays, overtime,


payments for illness and incapacity, applicable to the


salaries and wages referred to in paragraph b. above.


f. Any tax payments and levies owed by the Operator's non¬


resident workers in their country of origin, as well as any


taxes and levies owed by workers resident in Angola shall not


be considered as recoverable costs.


g. Expenditure connected with the plans established for life


insurance, medical assistance, pensions, other incentives or


employee benefits of a similar nature usually provided to





78


the Operator's workers and its Affiliates' workers, under


the terms of its internal policies, which were provided to


SONANGOL, and the Law.


h. Reasonable traveling expenses, housing and living and


personal expenses of the Operator's workers including


those incurred as a result of travel and relocation of non


resident workers employed on the Operations carried


out by the CONTRACTOR GROUP in the Republic of


Angola, in accordance with standard practice in the


international petroleum industry and Operator's internal


policies under the conditions set out in 2.3.2 b. to d.


below.


2.3.2 Expenditure on Transport-;


a. Expenditure^, pn the transport of non-resident


employeeSj etjuipment; riiatdrials and necessary supplies


for the carrying put of the Petroleum Operations.


b. Expenditure? on the transport of personnel will include


traveling expenses of non-resident workers and their


families, paid by the Operator in accordance with its


internal traveling practices and policies for personnel,


under the terms set out in 2.3.1 (a) above.


c. Expenditures on the transport associated with the


return of non resident workers and their families to their


country of origin should be debited to the joint account,


with the exception of cases of expenditures incurred on


the movement of a worker beyond the country of origin


which was established at the time of his transfer to


Angola.


d. If the Operator wishes to employ such a worker on other


international operations outside Angola, no traveling and


other expenses connected with the termination of its


provision of labor in Angola will be debited to the Joint


Account.


2.3.3 Expenditures Incurred on Services Provided by Third Parties


Contracts with third parties which are considered to be the


actual cost of the technical service and other contracts signed


under the scope of Petroleum Operations, by the Operator at


the expense of the CONTRACTOR GROUP, with third parties


who are not Affiliates of the Operator or of SONANGOL


provided that the prices paid by the Operator are competitive


with those generally available in the local or international


market for similar works and services.


2.3.4 Expenditures on Services Provided by Affiliates of the


Operator or of SONANGOL


a. The services and., prioefe of tdchnical/administrative


assistance provided by the Affiliates of the Operator or


of SO NAN GpLfo r Petroleum Operations should take


into account the following cbnditions for the purposes of


their eligibility a$ . expenses imputable to the Joint


Account:


I. The categories of services provided by the Affiliates of


the Operator or of SONANGOL for the running and


carrying out of Petroleum Operations in the technical


and administrative domain are as follows:


Exploration


Study of the soil and setting up of


drilling equipment


Planning of Seismic Acquisition


Processing and Interpretation of Seismic


Drilling prognoses and operations


Aerial, geological, geophysical and


geochemical analysis and studies





Rock and fluid studies


Thermodynamic analyses


Interpretation of well logs


Reservoir analysis and studies


Technical health, safety and environmental


audits


Development


Studies of the sub surface for the purpose of


determining the besfcj inannpr of recovering


hydrocarbons, 2D. (arijd 3D ..gfepphysics, production


geology, modeling.; arid simulation of deposits as an


integral par^..Jiaf/-'econpjririfr--.^reservoir exploitation and


conservatjdrf-


DniJ.Hpg.prognoses and operations


Architectural and engineering studies for the


purpose of preparing a file on the preliminary


project and the file on the basic engineering


involved


Project management


Water and gas injection studies


Communication studies


Specific studies for the purpose of enhanced


recovery and cost control


Improvement of the methods and equipment


of drilling and completion


Safety procedures program








81


 Technical health, safety and environmental


audits





Production


Analysis of fluids produced


Communication studies


Optimization studies





Improvement and control of equipment


Lifting schedule studies


Corrosion control progfafnand studies





Teqhritcal health, /.safety and environmental


.audits








Administratjonja'nd Services


Provision of data processing services


Maintenance program and inventory control


evaluation and studies


Technical health, safety and environmental


audits


II. This list is exhaustive and may only be altered with the


approval of SONANGOL.


III. II. Such services in relation to each Fiscal Year shall


be set out, duly identified under their own heading, as an


integral part of the Work Programs and Budgets under


the terms of an Operating Procedures Document to be


signed between SONANGOL and the Operator, under the


terms of Article 9 of the Agreement.





82


IV. At the time of the presentation of the Work


Programs and Budgets the Operator shall also


submit for the approval of SONAINIGOL the


calculation of the applicable tariffs for the


budgeted year.


V. These services, once budgeted, will be subject to


specific Work Orders which shall be previously


approved by SONAIMGOL at the request of the


Operator, both by means of a global "Master


Order" for each field or individually on a case by


case basis.


VI. These Work Orders sh^ll .'contain an estimate of


the number of hours necessary fof?t{te carrying out


of the services,•, a,treasonable’, description of the


services desired arid the agreed tariffs. Whenever


the actual- costs whjcK\h.aVe been incurred and


invoiced are more.; than ten percent (10%) or ten


thousand U.S. • .pixfiars ($10,000), which ever is


greater, than those budgeted, the recovery of the


difference will be submitted for SONANGOL's


approval.


VII. For each approved Work Order, a copy of the


technical report of completion shall be annexed to


the respective invoice and the technical report


shall be filed by the Operator in Angola.


VIII. The approval for individual services whose


budgeted worth is equal to or more than thirty


thousand US dollars (US $30,000) will be definitive


in respect of each of these services if SONANGOL


does not put forward any objections within a period


of twenty one (21) days commencing from the date


of the reception of the request made by the


Operator.


IX. Approval for individual services whose budgeted


worth is less than thirty thousand US dollars (US








83


$30,000] is implicit, with, however, the Operator


proceeding according to the description provided in


number VII above.


X. Unforeseen services which, for this reason, are not


set out in the approved Work Programs and


Budgets can only be ordered by the Operator after


approval has been given by SONANGOL whatever


their estimated cost.


XI. ’ In respect of all the services for technical and


administrative assistance provided by the Affiliates


of the Operator, not covered.by this paragraph, an


annual global price .("fdrfait") which will be


calculated in the following manneH1^agreed:


(i) During. the EkpIoration JPeriod as defined in Article


6 of the Agreement. two percent (2%) levied on the


direct expenditure of the Exploration.


(ii) In subsequent Years, corresponding to the


Production Period as defined in Article 7 of the


Agreement, percent ( %) of the direct


expenditure of Development.


XII. The services whose provision is remunerated by


the annual global price fixed in number XI above


include, but are not limited to, for example,


purchases and traffic, human resources


management, market consultancy, negotiations,


revisions and supervision of contracts, banking,


invoicing, credits, accounts, general services,


methods, internal procedures and controls,


technological advances resulting from scientific


research in diverse fields, insurance and legal


assistance, assistance to personalities, assistance


to agents undergoing training and safety of


operations.





XIII. The amounts arising from the levying of the


percentage established in number XI above will be


considered to be Administration and Services


Expenditures which are recoverable under the


terms of Article 11 of the Agreement.


XIV. Expenditure incurred on personnel and associated


costs in respect of the personnel of the Affiliates of


the Operator or of SONANGOL employed on the


Petroleum Operations of the Agreement for short


and long term periods are not included in the


services of technical and administrative assistance


set out in 2.3.4 and may be recovered under the


terms set out in 2.3.1.


b. Other services provided, by the- Affiliates, qf SOIMANGOL


or Operator will b$ debited at pfcices which are not


higher than the beat prices charged toy third parties for


comparable services.


2.3.5Expenditure on Materials


a. With the exception of the provisions of the following


paragraph (c) the material and equipment purchased by the


Operator for use on the Petroleum Operations shall be costed


at the invoice price less all commercial discounts and rebates,


with the addition of insurance, freight and handling expenses


between the point of supply and the point of delivery, customs


duties, taxes, surcharges and other applicable levies on the


imported merchandise.


b. This amount shall not be greater than the prices generally


prevailing on the open market for impartial non preferential


transactions for material and equipment of the same quality


available at the right time, with due consideration of freight


and other similar costs.


c. The materials and equipment necessary for the Petroleum


Operations may also be acquired from SONANGOL and its


Affiliates and/or any entity constituting CONTRACTOR


GROUP and their Affiliates, under the following conditions:


 I. The material and new equipment, classified as category


"A" will be costed at the vendor's lowest price or at the


international price in force. This amount shall not be


greater than the prices generally prevailing in normal


"Good Faith" transactions on the open market.


II. Used material and equipment which are in good


condition and which can be reused without the need for


repair will be considered as category "B" and debited at


seventy five per cent (75%) of the current price of the


material and equipment set out in number I above.


III. Material and equipment...yvliich ’cannot be considered as


category "B" blit Which: . ..


i. after, gfen^ral repair irriafy be usable for its original


purpose as good - . second hand material and


equipment,... ‘


ii. may-b&usable for its original purpose but for which


its'.repair is not recommendable, will be classified


as category "C" and debited at fifty per cent (50%)


of the current price of material and equipment set


out in number I above.


IV. An amount compatible with their use will be attributed


to material and equipment which can not be classified


under "B" and “C".


V. When the use of material and equipment is temporary


and their application on the Petroleum Operations does


not justify the reduction in price under the terms


indicated in numbers II and III above, they will be debited


on the basis of their utilization.


d. Insofar as it is adequate for the purposes of the prudent,


efficient and economic management of the Petroleum


Operations, material and equipment for use on the Petroleum


Operations will only be purchased or supplied on the basis of a





86


foreseeable and reasonable use and any excessive


accumulation of stock should be avoided.


e. In the case of material and equipment supplied by SONANGOL


and its Affiliates and/or any entity constituting CONTRACTOR


GROUP and their Affiliates, they will not guarantee such


material and equipment for a period exceeding the guarantee


of the supplier or manufacturer and in the case of defective


material and equipment, any adjustments received by


SONANGOL and its Affiliates and/or any entity constituting


CONTRACTOR GROUP and their Affiliates either from


suppliers or from manufacturers, will be credited to the Joint


_ Account under the terms of the Agreement.


2.3.6 Expenditures on Rents, Taxes, Duties and OtH£r Tax Obligations


The rents of the Development Areas paid under the terms of the


Agreement, taxes, ciistptns dutjeis, jbvies, charges, surcharges and


any other tax obligations anfl charges imposed by the State, in


respect of the Petroleum/OpWrations, paid directly or indirectly by


the Operator, with the.exertion of the Petroleum Income Tax.


2.3.7 Expenditures on Insurance


a. The premiums and insurance charges, after the deduction of


any benefit or discount, contracted under the terms of


applicable Angolan legislation.


b. The expenditures incurred by compliance with insurance


contracts, signed in contravention to the provisions of the


applicable Angolan legislation will not be considered as


recoverable costs.


c. Only the part of the costs or losses suffered as a consequence


of accident, or damage occurring during the Petroleum


Operations not covered by the insurance policies signed under


the terms of applicable Angolan legislation is recoverable.


d. If the obligatory insurance established by applicable Angolan


legislation is not taken out, all costs incurred by the Operator





87


for the payments of any losses, claims, damages or sentences,


in addition to any expenditure incurred, including the provision


of legal services, will not be considered as recoverable costs.


2.3.8Expenditures Incurred on Legal Services


a. Expenditures incurred as a result of litigation, necessary or


appropriate legal and other similar services for the obtaining,


improving, conservation and protection of the Contract Area


or Petroleum Operations and the prosecution or defense of


legal proceedings in respect of the Contract Area or


Petroleum Operations or claims made by third parties as a


result of the activities carried -, but under the terms of the


Agreement, or amounts.....psiid " for the necessary and


appropriate legal services for the, .pfotedtion of the joint


interests of SONAMBOL and the C^ltPACTOR GROUP.


b. When the legal"^services \are, provided in respect of such


matters by full time, attqrrieys or attorneys paid by the


Operator and its Affffetes the respective costs will be included


in the scope ofthe.Category of technical and administrative


assistance sbt out in numbers XI to XIV of paragraph (a) of


2.3.4 above.


c. Neither the costs incurred during the course of Arbitration


under the terms of Article 42 of the Agreement nor any


expenditure on legal services which are not connected with


the Petroleum Operations or the Contract Area of the


Agreement are recoverable.


2.3.9 Expenditures Incurred on the Training of angolan personnel


a. Expenditures incurred by the Operator on the training of


angolan personnel employed on the Petroleum Operations


under the terms of the Agreement and the training programs


required under the terms of Article 36 of the Agreement.


b. Expenditures incurred by the Operator on training programs


for SONANGOL's personnel under the terms of Article 36 of


the Agreement.





88


2.3.10 General and Administrative Expenditures


General and administrative expenditures incurred by the Operator


in Angola in. respect of the maintenance of its main office, support


installations for the Petroleum Operations and the places of


residence of the personnel performing the Petroleum Operations in


the Contract Area.


2.3.11 Expenditures Incurred in Social and Community Development





Production Expenditures incurred by the. CONTRACTOR GROUP in


Angola in respect of social an4-corttiiiiinity. development projects


pursuant to Article 21, paragraph 4 of the Agreernent.


2.4 Costs which are recoverable only with the prior approval of


SONANGOL.


a. Donations.


b. Expenditures ip .respect of social events promoted by the


Operator.


c. Expenditures incurred before the Agreement is signed.


d. Promotional and advertising expenditures.


e. Costs arising as a result of contracts for the supply of


material and equipment and the provision of services signed


by the Operator without the prior authorization of SONANGOL


above the limits of authority delegated to the Operator in the


Agreement.


f. Costs arising from the implicit renewal of these contracts


without the prior authorization of SONANGOL.


g. Expenditures for demurrage of oil tankers.











89


2.5 Costs which are not recoverable under the terms of the Agreement.


a. Expenditures as a result of gross negligence or willful


misconduct carried out by the Operator, for which it is


responsible under the terms of the Agreement.


b c. Commissions paid by the Operator to agents.


c. Expenses for marketing or transportation of Crude Oil to a


location beyond the Point of Delivery as set out in the


Agreement.


d. Expenditure on any guarantpqV%h1ch js provided under the


terms of the Agreement.. 1.


e. Indemnities, fines \.'.or- penalties'^ for failure to comply with


contractually established obligations.


f. Expenses incurred vintH the arbitration proceedings carried


out under the terfqs.bf the Agreement.


g. Expenses incurred on the independent expert in accordance


with Article 2 of Annex C of the Concession Decree-Law.


h. The Petroleum Income Tax.


i. Fines and penalties imposed by the courts


j. Gifts or rebates provided to suppliers.


k. Gifts to authorities or high ranking angolan officers.


l. Expenditure on interest for loans, including charges on capital


during construction and charges on suppliers credit.


m. Expenditures on legal services incurred by Operator except for


those specifically set out in 2.3.8.


n. The costs and damages incurred as the result of the failure to





90


sign the insurance contracts established under the terms of


applicable Angolan legislation.


o. The levies and taxes on salaries and wages of workers


employed by Operator, under the terms of 2.3.1(g).


2.6 Credits to the Joint Account under the terms of the Agreement.


a. Gross revenues from the payment of any insurance claim


when the original cost of the respective premium is


considered to be a recoverable cost in accordance with this


Article.


b. Any adjustments made by.iftaWvifacturers, suppliers and/or


their agents, received by SOI^ANGOL and Affiliates and/or


any of the entities-;"Cph^tituting .CONTRACTOR GROUP and


their Affiliates in respect of defective material and equipment


whose cost had been previously considered as a recoverable


cost under the terms of thiC Article.


c. The revenues, rdceji/ed from third parties, with the prior


authorization of SONANGOL, for the use of goods and assets


acquired by the Operator for sole use on the Operations of the


Contract Area.


d. The revenues from general administration activities and


support to Exploration, Development and Production carried


out by the Operator for the benefit of third parties with the


prior approval of SONANGOL.


e. The revenues from technical services (whose costs have been


charged to the Joint Account) provided to third parties,


including Affiliates of the Operator with the prior approval of


SONANGOL.


f. Rents, reimbursements or other credits received by the


CONTRACTOR GROUP, as a result of any expenditure made


under the terms of this Article but excluding those arising as


a result of any favorable award to the CONTRACTOR GROUP


in respect of the arbitration proceedings set out in 2.3.8.


 Article 3


Expenditure of Non Operators


Non-operator companies of which the CONTRACTOR GROUP is





constituted may only recover general and administrative


expenditures concerning the installation and operation of their


offices in Angola which were made with the prior approval of


SONANGOL.





Article 4


Accounting Procedure for ^Expenditure


for the Purpose of Reicpybry of Costs


4.1 For the purpose of the recovery of costs under the terms of Article


11 of the Agreement,.the accounting procedure for the expenditure


incurred with the carrying out .of tfie Petroleum Operations in the


Area of the AgreementAccordance with the principles


established in Article 2 .ofOEhfe Annex, will be made as set out in the


following points.


4.2 Exploration Expenditures will be registered in the accounts as fixed


assets and will not therefore be amortizable but will be considered


as charges under the terms of Article 11 of the Agreement.


4.3 Production Expenditures shall include a provision for costs of


abandonment, under the following terms:


a. Ninety [90J days before the beginning of the Year for which


the Operator forecasts that the cumulative production of each


of the Development Areas will lead to a situation in which the


recoverable reserves of these Development Areas at the end


of the Year in question represent less than:


50% of the declared recoverable reserves under 50 million


Barrels





or


30% of declared recoverable reserves above 50 million


Barrels but not more than 100 million Barrels


or


25% of declared recoverable reserves above 100 million


Barrels


the Operator shall provide SONANGOL with a technical study


for the alternatives for abandonment and the calculation of it’s


best estimate of the costs of abandonment in respect of each


Development Area for approval purposes.


b. This calculation should be up to elate and inflated by reference


to the estimated data for..tbeVfilaggincj and abandonment of


Wells and the effective j removal V- of the production


infrastructures in eareh pf the Development Areas.


c. After the approval of SOiyANGOL and beginning in the Year


referred to above, the Operator will calculate for each Quarter


the costs of abandonment recoverable in such Quarter using


the unit of production method in accordance with the following


formula:


Quarterly production fMMBBLSl x Total approved costs


= Cost of


Declared recoverable reserves of abandonment


abandonment


minus the Cumulative Production minus the amounts


recoverable on


up to the beginning of the Quarter paid pursuant to


a Quarterly basis


(MMBBLS) paragraph e below


d. The amount calculated under the terms of paragraph c above


will be imputed as a Production Expenditure of the respective


Development Area, with this imputation not constituting a


direct expenditure for the purpose of imputation of the


Administration and Services Expenditures in accordance with


the provisions of 4.8 below.


e. An amount which is equivalent to the amount calculated in


accordance with paragraph c above shall be paid by the


CONTRACTOR GROUP to SONANGOL no later than thirty (30)


days after the end of the Quarter in question.


4.4 Development Expenditures will be registered in the accounts as


follows:


a. Development Expenditures will be registered in the accounts


as fixed assets and the amounts will be increased by the


investment premium set out in Article 11 of the Agreement.


b. They will be amortizable at a rate- of twenty-five percent (25%)


per Year in equal yearly instiail.jNenfts beginning in the Year in


which such expenditures, were mad$ or.ibdginning in the Year


in which Crude Oil •(§'} Reported from the Development Area


whichever occurs feteK


c. In the case of Development Expenditures in respect of specific


works or projects.whose construction and/or execution takes


more than one (T) y6ar (works in progress), the amortization


of the expendrturbs in question will only commence during the


Year of completion and its classification as a permanent fixed


asset will then occur.


d. A full amortization of twenty five percent (25%) will be granted


in the Year in which the amortization begins, calculated in


accordance with the principles set out in the above


paragraphs.


4.5 Joint Development Expenditures for more than one Development


Area, after the respective imputation of Administration and


Services expenditure under the terms set out in 4.8 and following


subparagraphs will be divided up among the respective


Development Areas based on the proportional annual production of


each of the Development Areas.


4.6 The joint Production Expenditures for more than one Development


Area, after the respective imputation of the Administrative and


Services Expenditures under the terms set out in 4.8 and following





94


subparagraphs, will be divided up among the referred to


Development Areas based on the proportional annual production of


each of the Development Areas.


4.7 The Administration and Services Expenditures will be registered in


the accounts as follows:


a. The part of the Administration and Services expenditure in


respect of the construction or the acquisition of installations


or any physical assets for generic logistical and administrative


support for the activities of Exploration, Development and


Production which on account of their specific nature, high


value or slow period of extinction are susceptible to


capitalization, will be registered in the. accounts as fixed


assets.


b. These expenditure^ wiif be amortized at a rate of twenty five


per cent (25%) ; per Year,"Vm-'-equal annual installments,


beginning in the Year iti\whibh they were made or the Year in


which the export of-JCrudd Oil from the Area of the Agreement


takes place, whichever occurs later.


c. In the case of expenditures in respect of specific works or


projects whose construction and/or execution takes more


than one (1) year (works in progress), the amortization of


such expenditures will only commence in the Year of


completion and its classification as a permanent fixed asset


will then occur.


d. A full amortization of twenty five percent (25%) will be made in


the Year in which amortization commences, calculated in


accordance with the principles set out in the above


paragraphs.


e. Administration and Services Expenditures which cannot be


registered in the accounts as fixed assets on the basis of their


value, intangibility or rapid extinction by way of consumption


will be debited as yearly charges under the terms of Article 11


of the Agreement.








35


4.8 For the purposes of the recovery of costs under the terms of Article


11 of the Agreement, Administration and Services Expenditures will


be imputed each Year to Exploration, Development and Production


Expenditures in the following manner:


a. The amount of annual depreciation of the Administration and


Services Expenditures registered in the accounts as fixed


assets in accordance with 4.7 a. above, will be registered in


the Exploration, Development and Production Expenditures


account in proportion to the direct annual expenditures by


each of these activities.


b. The amount of the Administration and Services Expenditures


debited as yearly charges ip.$c§d.rdance with 4.7 e. above, will


be imputed to Explopatfpnj bevel.oprVj.eht and Production


Expenditures in accordance with the- method set out in


paragraph a. of this: point.


c. The imputation of .ihP..Administration and Services


Expenditures mad&jUfifdfer the terms of the above paragraphs


will be considered J *an indirect cost of the Exploration,


Development and' Production Expenditure activities.


d. For the purposes of recovery of the Development


Expenditures, the imputation of the amortization of the


Administration and Services Expenditure registered in the


accounts as fixed assets (indirect Development costs) will be


added to direct Development Expenditures and the total will


then be multiplied under the terms of number 4 of Article 11


of the Agreement.


4.9 The materials acquired by the Operator for the execution of the


Work Program and Budget in each Year, which are not immediately


used on the Petroleum Operations will firstly be registered in the


accounts under the heading of stock as established by the SIOP and


will only be imputed to the activities of Exploration, Development


and Production in proportion to their effective use or consumption


for the benefit of the Petroleum Operations of the Agreement.


4.10 The non used and/or consumed materials at the end of each Year


will be registered under the heading of stock and will not constitute


recoverable costs insofar as their eligibility as such depends on


their effective use or consumption, imputed and justified to the


activities established in the Agreement as centers for cost


recovery.


4.11 The materials classified by the Operator as strategic spare parts,


constituting a security stock for guaranteeing the satisfactory


carrying out of the Petroleum Operations in the Area of the


Agreement will be imputed to the activities of the Agreement in


accordance with the following conditions:


a. The Operator shall submit to- SONANGOL a list of the


materials classified as strgtqgjbosp’are parts for the purposes


of the approval of the respective classification.


b. Such materials.wilt lie registered in the accounts at the time


of their acquisition under the heading of stock as set out in


4.9 above under their own subheading.


c. Their imputation to the centers of costs recovery established


in the Agreement will be made proportionally to their specific


use for replacement purposes or after four (4) Years


beginning from the Year of acquisition, whichever occurs


earlier.


d. In the case of the imputation referred to in paragraph c. above


being made by reference to the condition of the four (4) Years


elapsed, the imputation, in respect of the non used materials


on the Petroleum Operations will only be made with the prior


and timely approval of SONANGOL.


4.12 Insofar as the limit of the amount of Crude Oil for the recovery of


costs for a determined Year, is insufficient for the recovery of costs


which are recoverable for the Year in question in accordance with


Article 11 of the Agreement, the part of the Production and


Development Expenditures which are not recovered for the Year in


question will be carried over to subsequent Years until they are


totally recovered under the terms of Article 11 of the Agreement.








97


4.13 Insofar as it is found that the quantity of Crude Oil for recovery of


the Exploration Expenditures under the terms of Article 11 of the


Agreement is insufficient, the non recovered part of these


Exploration Expenditures will be carried over to the, following Years


until they are fully recovered.


4.14 In the case of the continued lack of sufficiency of Crude Oil for the


recovery of the Exploration Expenditures incurred in the Area of the


Agreement, these expenses will continue to be non recovered.


4.15 The recovery of the Expenditures referred to in this Article is


subject to the regulations on the recovery of costs and respective


limits established in Article 11 of the Agreement.








/ Article 5


Registratjdh.^hd Evalu^tidn of Assets


5.1 The CONTRACTOR GrtOUP shalhkeep detailed records of assets in


use on the Petroleum . Operations, in accordance with standard


practice in the activity / of Exploration and Production in the


international oil industry and will provide SONANGOL with a full and


detailed annual report on these assets under the terms of the SIOP.


5.2 At reasonable intervals of time and at least once a year a full


inventory will be made by the CONTRACTOR GROUP, under the


terms of the Agreement. The CONTRACTOR GROUP will notify


SONANGOL with an advance notice of thirty (30) days of its


intention to carry out the inventory in such a way as for SONANGOL


to be able to exercise its right to be represented at the time of the


carrying out of the inventory.


5.3 The inventory procedures established by the CONTRACTOR GROUP


shall be notified to SONANGOL at the same time at which the


intention to carry out the inventories is notified in such a way as for


any recommendations which SONANGOL considers should be


necessarily taken into account in these procedures in connection


with the carrying out of inventories on assets belonging to it to be


so done.











98


5.4 Special inventories may be carried out when there is any transfer,


under the terms of the Agreement, at the request of the assignor,


provided that the costs of carrying out the inventory are borne by


him.





Article 6


Reports


6.1 The CONTRACTOR GROUP shall prepare and submit to SONANGOL


the financial, statistical, technical and personnel reports according


to the procedures set out in the SIOP.








Article 7


Revision of Accounting.and Financial Procedures


7.1 The provisions set but in this Arinex may be altered by mutual


agreement between SONANGOL and the CONTRACTOR GROUP,


provided that they do patNpbntravene the provisions of the SIOP.


Alterations will be macfejri writing and shall mention the date from


which they come into effect.





Article 8


Contractual Conflicts


8.1 In the case of any conflict between the provisions set out in this


aAnnex and the provisions set out in the Agreement the provisions of


the Agreement will prevail.


 Annex D


Corporate Guarantee


The present Annex is an integral part of the Production Sharing


Agreement (the "Agreement") dated _, 199 signed between


SONANGOL as one of the Parties and by ___,


_, and__, as the other Party, as referred


to in Article 2 of the Agreement.








To: SOCIEDADE NACIONAL DE COMBUSTIVEIS DE ANGOLA


("PARENT COMPANY") representejJ...;;bjr-M-r-r- hereby


declares that -- 4---:-\> 'v“- ("LOCAL


COMPANY") is (wholly owned by):|ari affiliatejof) tihe PARENT COMPANY.


PARENT COMPANY is fully aware pf vtbe content of the Production


Sharing Agreement for Block. (the "Agreement"), executed by


SOCIEDADE NACIONAL pE,;\CdMBUSTIVEIS DE ANGOLA U.E.E.


("SONANGOL") and LOCAL COMPANY and others and of the Concession


Decree-Law of the Council\ pf Ministers which approved the Agreement,


the provisions of which it acknowledges and accepts.


PARENT COMPANY unconditionally guarantees to SONANGOL the full


and prompt fulfillment of the obligations assumed under the Agreement


by LOCAL COMPANY, and any of its affiliated successors or affiliated


assignees, waiving all benefit or right which may under applicable Law, in


any manner, limit, restrict or annul its obligation under this Guarantee.


This Guarantee will not be reduced or in any manner affected by any delay


or failure of SONANGOL to enforce its rights, nor by bankruptcy or


dissolution of LOCAL COMPANY.


This Guarantee constitutes an integral part of the Agreement executed


by SONANGOL and LOCAL COMPANY, and others, as stated and referred


to in Article 20 of the said Agreement.


If LOCAL COMPANY should fail in fulfilling its obligations under the


Agreement, and if SONANGOL shall have communicated in writing to


LOCAL COMPANY such failure and the latter has not remedied or taken








100


the necessary steps to remedy such failures or deficiencies within a


reasonable period of time taking into consideration the nature of such


failures or deficiencies, then SONANGOL may demand of PARENT


COMPANY the fulfillment of such obligations in default. Demand on


PARENT COMPANY shall be made by delivering a letter to PARENT


COMPANY which includes a description of the unfulfilled obligations of


the LOCAL COMPANY and a statement of the amount to be paid or the


actions to be taken by PARENT COMPANY as a consequence of such


default.


Any disputes arising under this Guarantee shall be settled in accordance


with the arbitration provisions contained in the Agreement.


PARENT COMPANY


OV"-"’"' By:.. V-


\ Yv Title:





Date:





AGREED:





SOCIEDADE NACIONAL DE


COMBUSTIVEIS DE ANGOLA








By:_


Titles:


Date:





























101


 Annex E


Financial Guarantee





The present Annex is an integral part of the Production Sharing


Agreement (the "Agreement") dated _, 199 signed between


SONANGOL as one of the Parties and by ___,


_, and_, as the other Party, as referred


to in Article 2 of the Agreement.











SONANGOL


SOCIEDADE NACIONAL DE


COMBUSTIVEIS DE ANGOLA


Rua 1 ° Congresso do M.P.L.A. 8 ...•


No. 8-4° Andar


Luanda, Angola


We the undersigned_ \_


("Bank") whose registered office is located at


_• v / _;_ represented by


__’•••■ ,/_ hereby issue our


irrevocable standby Letter of Credit no._as follows:


We hereby authorize you to draw on us, for the account of


__ with head office in __


("Company") up to an aggregate amount of US$ ,000,000 ("


million US dollars) subject to the conditions herein stipulated.


1. Any draft issued pursuant to this Letter of Credit shall be accepted


to the extent that Company has failed to comply with its obligations


during the Initial Exploration Phase as provided in Article 15,


paragraphs 1, 2, and/or 6 of the Production Sharing Agreement for


Block dated _ between yourselves and Company


("Production Sharing Agreement"), which Initial Exploration Phase


expires on_' _(unless extended) as provided in Article


6, paragraph 1 of the Production Sharing Agreement.


2. Any drawing under this Letter of Credit must be made prior to


_______ by signed drafts drawn on ______


branch and must be accompanied by SONANGOL's written


statement certifying that:


(AJ Company has failed to perform its obligations referred to


above for which SONANGOL has not previously drawn under


this Letter of Credit;


(B) the amount of the claim represents the obligation which


CONTRACTOR GROUP has not performed as specified in


Article 15 of the Production Sharing Agreement and the Side


Letter Agreement of even date; and


(CJ Company has failed to pay the amount of the claim to


SONANGOL


3. Any drawing under this Letter of Credit must also be accompanied


by a copy of a letter from SONAN!^L\ta Company including:


(AJ a description of the unfulfilled obligations and the amount to


be paid by Company as a consequence Of such default;


(B) a statement of SGHNIANGOL's. intention to draw on the Letter


of Credit once 30 ^days have elapsed from the date of receipt


of the letter; and


(CJ acknowledgment bylJofttpany for receipt of the notification.


4. This Letter of Credit shall be reduced as provided in Article 20.4 of


the Production Sharing Agreement. Each such reduction is to be


evidenced by written statement to be submitted by Company to the


Bank which statement shall indicate that SONANGOL has approved


the amount of the reduction being requested.


5. This Letter of Credit shall become effective on


and shall expire on_or at such earlier time as


the total of the authorized reductions equal the original amount


guaranteed hereunder or the obligations referred to above have


been fulfilled, whichever first occurs.


6. All documents will be submitted to_Branch which


will make the corresponding payments when and if the terms and


conditions stipulated in this Letter of Credit have been totally


satisfied.


7. This standby Letter of Credit is subject to the Uniform Customs and


Practice for documentary Credits, International Chamber of





103


Commerce Publication N9 500. This standby Letter of Credit shall


be governed and interpreted in accordance with the French law and


shall be subject to the exclusive jurisdiction of the courts of Paris.


We hereby engage with SOIMANGOL that all drafts drawn under and in


compliance with the terms of this standby Letter of Credit will be duly


honored if drawn and presented for payment on or before the expiration


date as provided in paragraph 5 of this Letter of Credit.





Bank