Republic of Cyprus

Unless otherwise agreed, the accounting records and all reports to the government shall be in English. The parties to this contract shall cause it to be executed in 3 originals in the English language, each page having been signed with initials by the 2 parties.

The contract area is described in Annex A and included in the map in Annex B

Hydrocarbons

Minister of Commerce, Industry and Tourism

The initial license period is 3 years with the possibility of 2 extensions of 2 years each. Upon expiry of the initial exploitation period, such period may be extended for an additional period of 10 years, at the company’s request submitted to the Council of Ministers at least 1 year prior, provided that the company has fulfilled all its contractual obligations during the initial exploitation period and provided that it can demonstrate that a commercial production from the corresponding field is still possible after the initial exploitation period.

Model exploration and production sharing contract

Proposals relating to production procedures shall ensure environmental protection conforming to best practices in the petroleum industry and comply with the relevant regulations. The licensees will conduct a preliminary environmental impact assessment study prior to the initiation of any exploration work and a full environmental impact assessment study prior to the initiation of any exploitation work, both of which will comply with the provisions of the strategic environmental assessment of the hydrocarbon licensing program of the Republic of Cyprus and with the relevant opinion of the environmental authority, as well as with the relevant provisions of the Directive 85/337/EEC. If the company declares that a discovery is a commercial discovery, the company shall submit to the government for approval within 4 months of such declaration: a full environmental impact study prepared in accordance with the applicable environmental legislation, covering the proposed development and any related facilities or infrastructure inside or outside of the contract area, which shall be subject to prior approval in accordance with the applicable environmental legislation. The licensees will conduct a full environmental impact assessment study prior to the initiation of any exploitation work, which will comply with the provisions of the strategic environmental assessment of the hydrocarbon licensing program of the Republic of Cyprus and with the relevant opinion of the environmental authority, as well as with the relevant provisions of the Directive 85/337/EEC.

The originals of the records and books shall be kept at the company’s office in the Republic of Cyprus. As from the date the company has declared the first commercial discovery in the contract area, said records and books shall be maintained in the Republic of Cyprus. Within 90 days after the expiry of a calendar year, the company shall submit to the government detailed accounts showing the hydrocarbons costs which the company has incurred during said past calendar year. The accounts shall be certified by an independent external auditor acceptable to the parties, who is authorized to carry out the statutory audit of annual and consolidated accounts in accordance with the provisions of Law No. 42(I)/2009 as amended from time to time or any law replacing the above. After notifying the company in writing, the government may cause to be examined and audited the records and books relating to hydrocarbons operations and any sale of hydrocarbons produced in accordance with this contract by experts of his election or by agents of the Republic (of Cyprus). The government will have a period of 7 years from the end of a given calendar year to perform such examinations or audits with respect to said year and notify his or her objections to the company for any contradictions or errors found during such examinations or audits. The company will provide the government with its explanations as soon as possible and in any case not later than the end of the following month.

The company shall pay the Republic (of Cyprus) the following amounts as bonus: a) [X] euros as a signature bonus within 30 days after the effective date; b) [X] euros after daily production from the contract area averages [X] barrels per day and/or averages [X] million standard cubic feet of gas per day, whichever is applicable, for a period of 60 consecutive days; c) [X] euros after daily production from the contract area averages [X] barrels per day and/or averages [X] million standard cubic feet of gas per day, whichever is applicable, for a period of 60 consecutive days; Such payments shall be made within 30 calendar days following the last day of the respective 60 calendars days period. The bonuses required under this article shall not be included in the hydrocarbons costs for purposes of cost recovery.

The company and its subcontractors shall comply with the applicable taxation laws and regulations of the Republic (of Cyprus) as well as with any European Union tax rules applicable from time to time in the Republic (of Cyprus). The agreements for the avoidance of double taxation and the prevention of fiscal evasion with respect to income and capital, which the Republic (of Cyprus) has concluded and agreed, as well as the various international conventions which the Republic (of Cyprus) has adopted and/or to which it has acceded will also be applicable.

From the first day of production and as and when hydrocarbons are being produced, the company shall be entitled to take a percentage share of profit oil and/or profit gas, in consideration for its investment in the hydrocarbons operations, which percentage share shall be determined in accordance with the relevant provisions of this contract. To determine the percentage share of profit oil and/or profit gas to which the company is entitled, the "R" factor shall be calculated each quarter in accordance with the relevant provisions of this contract. The “R” factor shall be calculated as follows: R=X/Y where: X: is equal to the “cumulative net revenues” actually received by the company Y: is equal to the “cumulative capital expenditures” actually incurred by the company For the purpose of this article: “Cumulative net revenues” means total ret revenues, as defined below, received by the company from the effective date until the end of the quarter preceding the relevant quarter; “Net revenues” means the total amount actually received by the company for recovery of its hydrocarbons costs and its share of profit hydrocarbons in the contract area, less all operating expenditures actually incurred by the company in the contract area; “Cumulative capital expenditures” means all development and production expenditures and all exploration expenditures in the contract area, actually incurred by the company from the effective date until the end of the quarter preceding the relevant quarter. The share of profit hydrocarbons to which the company shall be entitled to [from the first day of production] is equal to the relevant percentage according to the value of the “R” factor as indicated in the table below: "R" factor Company’s share of profit hydrocarbons (in percentage) R≤1: [A] % 1 < R ≤ 2.5: [A] – [( [A] – [B] ) X ( R – 1 )/( 2.5 – 1 )] R > 2.5: [B] % The Republic of Cyprus’ share of profit hydrocarbons shall be 100% minus the company’s share of profit hydrocarbons. [Note: A and B shall be open to bid. B shall always be lower than A]. Both the [A]% as well as the percentage referred to above, shall be such to ensure the highest percentage of commercially recoverable reserves will be exploited over the period that R≤ 1 (based on prudent industry practice). The company shall account separately for all components for the calculation of the values of X and Y, pursuant to the accounting procedure set out in this contract. Calculations: Cost hydrocarbons and profit hydrocarbons calculations shall be done for each quarter. To the extent that actual quantities, expenditures and/or prices are not known, provisional estimates based on the approved annual work programme and budget and any other relevant documentation and information shall be used. Within 60 days of the end of each year, a final calculation based on actual quantities, expenditures and/or prices shall be made and any necessary adjustments to the sharing of hydrocarbons shall be agreed upon between the government and the company.

In the case of a commercial discovery, the company shall be entitled to recover its hydrocarbons costs. Any available oil and/or any available gas produced from the hydrocarbon operations conducted in accordance with this contract shall be shared between the parties as set out in this article. The company shall be entitled to recover its hydrocarbons costs out of the sales proceeds or other disposition of available oil and available gas. For purposes of recovery of its hydrocarbons costs, the company may freely retain each calendar year cost oil and cost gas in no event greater than [X]% of the available oil and of the available gas respectively, or only any lesser percentage which would be necessary and sufficient. The value of cost oil and cost gas shall be determined in accordance with the relevant provisions of this contract. To the extent that in a calendar year outstanding recoverable hydrocarbons costs exceed the value of cost hydrocarbons for such calendar year, the excess shall be carried forward for recovery in the next succeeding calendar year until fully recovered, or until termination of the contract, where such termination occurs earlier, whatever the reason of same. No unrecovered cost can be recovered by the company after such termination.

The following transactions shall, inter alia, be excluded from the calculation of the market price: sales in which the buyer is an affiliated company of the seller as well as sales between entities constituting the company.

Except with the consent of the government, a development and production plan shall include training and employment of nationals of the Republic (of Cyprus) and of the EEA member states residing in Cyprus. From the commencement of the hydrocarbons operations, the company shall assure priority employment for Cypriot and EEA personnel and contribute to the training of those personnel in order to allow them access to any position of skilled worker, foreman, executive and manager.

Except with the consent of the government a development and production plan shall include the use of local goods and services. The company and its sub-contractors undertake to give preference to Cypriot and European Economic Area enterprises and goods, under equivalent conditions in terms of price, quantity, quality, conditions of payment and delivery time. The company and its sub-contractors undertake to issue calls for bids to Cypriot and foreign candidates for supply, construction or services contracts that exceeds the values applicable from time to time in accordance with the rules on public procurement applicable in the Republic, it being understood that the company shall not unduly break down said contracts into components. The company and its sub-contractors undertake to give preference, under equivalent economic conditions, to the purchase of goods required by the hydrocarbons operations versus the renting thereof or any other kind of leasing. For that purpose, the company shall specify in the annual work programs all the leasing contracts the value of which exceeds 50,000 Euros.

The company shall establish at the end of each calendar year in agreement with the government a plan for recruiting Cypriot and European Economic Area (EEA) personnel and a plan for training and improving such personnel residing in Cyprus, in order to achieve progressively greater participation of Cypriot and EEA personnel in the hydrocarbons operations. The company shall also contribute to the training and improving of the professional skills of the civil servants of the Republic (of Cyprus) or anyone else nominated by the government, in accordance with a plan established in agreement with the government at the end of each calendar year. For that purpose: a) during the term of the exploration period, the company shall allocate to said plan or, at the government's election, place at the disposal of the government for implementing said plan, a minimum amount of [X] euros per year. b) from the date of first declaration of a commercial field within the contract area, said amount shall be increased to [X] euros per year.

For the effective execution of hydrocarbon operations under this contract, the company shall have the right to freely access and operate within the contract area, as well as any facilities associated with hydrocarbon operations wherever they may be located; perform or cause to be performed any infrastructure work required for carrying out, under normal economic conditions, the hydrocarbons operations and related activities, such as transportation and storage of equipment and substances extracted, establishment of equipment of telecommunications and lines of communication, as well as production and supply of energy required for the hydrocarbons operations. The works set forth in this article shall be the subject of an application filed with the government, specifying the location of said works and the contemplated use of same. All relevant laws, regulations and procedures in force shall be applicable. In the exercise of its right to build, perform, work and maintain all facilities necessary for purposes of this contract, the company shall not occupy land located within less than 50 meters from any building, used for religious purposes or not, burial place, enclosing wall, yard and garden, house, group of dwellings, village, urban centre, well, water point, reservoir, street, road, pipeline, works of public interest, infrastructure works, tourist areas, unless prior authorization by the government has been granted. The company shall repair any damage caused during such work.

The company, if requested in writing, is obligated to sell to the government a portion of the company's share of profit oil and profit gas for the domestic consumption of the Cyprus at a price to be agreed between the company and the government or any person authorized by the government. Any excess of associated natural gas which would not be utilized shall be re-injected by the company. However, the company shall have the right to flare said gas in accordance with best international petroleum industry practice, provided that the company furnishes the government with a report demonstrating that said gas cannot be economically utilized to improve the rate of recovery of crude oil by means of reinjection, and provided, further, that the government approves said flaring, which approval shall not be unreasonably withheld.

During the initial licencing period of the exploration period of [X] contract years, the company shall: (a) undertake at least [X] kilometers of seismic survey; (b) perform geological and geophysical studies; (c) evaluate, reprocess, integrate and map all seismic data related to the contract area; (d) drill at least [X] explorations well(s); and (e) establish a technical database for exploration operations The company shall have a minimum expenditure obligation of [X] euro for the purpose of the minimum work obligations in the initial licensing period. During the first renewal period of the exploration period of [X] contract years, the company shall: (a) undertake at least [X] kilometers of seismic survey; (b) perform geological and geophysical studies; (c) evaluate, reprocess, integrate and map all seismic data related to the contract area; (d) drill at least [X] exploration well(s); and The company shall have a minimum expenditure obligation of [X] euro for the purpose of the minimum work obligations in the first renewal period. During the second renewal period of the exploration period of [X] contract years, the company shall: (a) undertake at least [X] kilometers of seismic survey; (b) perform geological and geophysical studies; (c) evaluate, reprocess, integrate and map all seismic data related to the contract area; (d) drill at least [X] exploration well(s); and The company shall have a minimum expenditure obligation of [X] euro for the purpose of the minimum work obligations in the second renewal period. Each exploratory well mentioned above shall be drilled to the minimum contractual depth of [X] meters, or to a lesser depth if authorized by the Republic (of Cyprus) or if discontinuing drilling according to good international petroleum industry practice is justified by one of the following reasons: (a) basement is encountered at a depth less than the above-mentioned minimum contractual depth; (b) continued drilling is clearly dangerous due to abnormal formation pressure; (c) rock formations are encountered, the hardness of which makes it impractical to continue drilling with appropriate equipment; or (d) hydrocarbons formations are encountered, requiring the installation of protective casings which prevent reaching the above-mentioned minimum contractual depth. In any of the above cases, the company shall obtain prior approval of the government, prior to discontinuing drilling, which approval shall not be unreasonably withheld, and by this approval, the well in question shall be deemed to have been drilled to the above-mentioned minimum contractual depth.

If a dispute cannot be resolved through amicable settlement or expert determination within the relevant period or if one of the parties wishes to challenge the decision reached by the expert, the dispute shall be referred to arbitration. The dispute shall be submitted to the International Centre for Settlement of Investment Disputes (ICSID) upon request by one or both parties, and shall be tried and decided in accordance with the rules set forth by the Convention on the Settlement of Investment Disputes between States and Nationals of other States. The seat of arbitration shall be Nicosia, Republic of Cyprus. The language used during the arbitration proceedings shall be the English language and the applicable law shall be the laws of the Republic of Cyprus. The arbitral tribunal shall consist of 3 arbitrators. The arbitration award shall be final and binding on the parties and immediately enforceable. A request to arbitration shall give the right to either party to apply to the arbitral tribunal for the suspension of the contractual provisions concerning the subject matter of the dispute, but all other rights and obligations of the parties under this contract shall not be suspended. The arbitration expenses shall be borne equally by the parties, subject to the award of the tribunal regarding the sharing of same.

The company may disclose such information to its employees to the extent required for efficient conduct of hydrocarbons operations, provided such individuals have signed an undertaking relating to the confidentiality of the same information as part of their employment contract or to affiliates and consultants, or to bona fide prospective assignees of rights under this contract or to banks or financial institutions from which finance is sought, provided that the company obtains from such entities, prior to disclosure, a written confidentiality undertaking. In the case of disclosure to prospective assignees, any disclosure of such information shall require the prior written consent of the government, which consent shall not be unreasonably withheld. The company may disclose information as and to the extent required by a regulatory or judicial authority having proper jurisdiction over the company, provided that the government is first notified of the disclosure. The company’s obligation of confidentiality under this article shall be of a continuing nature and shall not be cancelled by the expiration, suspension or termination of this contract.

This contract and all hydrocarbons operations carried out under it shall be governed by the legislation in force at any time in the Republic (of Cyprus). The company shall be subject at any time to the legislation in force in the Republic (of Cyprus).