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 EXPLORATION AND PRODUCTION


CONCESSION CONTRACT











BETWEEN


THE GOVERNMENT





OF THE REPUBLIC OF MOZAMBIQUE


AND








ENI EAST AFRICA S.p.A.








AND








EMPRESA NACIONAL DE HIDROCARBONETOS, E.P.








FOR








AREA 4 OFFSHORE OF THE ROVUMA BLOCK


REPUBLIC OF MOZAMBIQUE




















Execution 1


 Table of Contents








Article Subject Page


Parties 1


Preamble 2


1 EPC Documents 3


2 Definitions 4


3 EPC Rights and their Duration 8


4 Work Commitment during Exploration Period 12


5 Conduct of Petroleum Operations 18


6 Commercial Discovery and Development 20


7 Relinquishment of Areas 22


8 Records and Reports 23


9 Cost Recovery and Production Entitlement 25


10 Valuation of Petroleum 32


11 Fiscal Terms and Other Charges 36


12 Production Bonuses 46


13 Lifting Arrangements 47


14 Conservation of Petroleum and Prevention of Loss 48


15 Decommissioning 49


16 Insurance 52


17 Natural Gas 55


18 Employment and Training 58


19 Indemnification and Liability 60


20 Title 61









































KxceNthm copy 11


Article Subject Page


21 Rights of Inspection 62


22 Accounting and Audits 63


23 Confidentiality 64


24 Assignment 66


25 Force Majeure 68


26 Foreign Exchange Control 70


27 Nature and Extent of the Rights of the Concessionaire 73


28 Protection of the Environment 80


29 Surrender and Cancellation 83


30 Consultation, Arbitration and Independent Expert 88


31 Applicable Law 92


32 Language 93


33 Joint Operating Agreement 94


34 Future Agreements 95


35 Notices 96














Annexes








Annex “A” Description of the EPC Area


Annex “B” Map of the EPC Area





Annex “C” Accounting and Financial Procedure


Annex “D” Form of Bank Guarantee





Annex “E” Form of Parent Company Guarantee


Annex “F” Joint Operating Agreement



































Execution copy


 Parties





This Exploration and Production Concession Contract (“EPC”) is made subject to


applicable law on the........day of December 2006:


(a) THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE, hereinafter


referred to as “the Government” and herein represented by the Minister for Mineral


Resources; and


(b) ENI EAST AFRICA S.p.A., a company established under the laws of Italy


hereinafter referred to as “Eni” and herein represented by the appointed


representative, and


(c) EMPRESA NACIONAL DE HIDROCARBONETOS, E.P., a company established


in accordance with the laws of the Republic of Mozambique, herein represented by


its Chairman of the Board hereinafter referred to as “ENH”.


Eni and ENH shall hereinafter be referred to as the “Concessionaire”. The


Concessionaire and the Government shall hereinafter collectively be referred to as


the “Parties”.






































Execution copy


 Preamble








WHEREAS, applicable Petroleum law provides that all Petroleum resources in the soil and


the subsoil of the land territory, in the seabed of internal waters and the territorial sea, in


the exclusive economic zone and on the continental shelf, are the property of the Republic


of Mozambique;


WHEREAS, pursuant to applicable Petroleum law, the Government has the authority to


ensure the implementation of the policy for Petroleum Operations and has for the purpose


of this EPC appointed the Ministry of Mineral Resources, hereinafter referred to as


“MIREM”, to carry out certain functions for and on behalf of the Government as hereafter


specified;


WHEREAS, the Government desires to award to Eni and ENH the right to undertake


Petroleum Exploration, Development and Production in certain areas subject to the


jurisdiction of the Republic of Mozambique;


WHEREAS, the Concessionaire is willing, on certain terms and conditions stipulated to


undertake Petroleum Exploration, Development and Production in the EPC Area and has


for such purpose technical competence and adequate financial resources;


WHEREAS, the applicable Petroleum law provides that Petroleum Exploration,


Development and Production shall be carried out under a concession;


NOW THEREFORE it has been concluded as follows:


 Article 1


EPC Documents








The EPC consists of this EPC main document and the following Annexes, which form an


integral part hereof:








Annex “A” Description of the EPC Area


Annex “B” Map of the EPC Area


Annex “C” Accounting and Financial Procedure


Annex “D” Form of Bank Guarantee





Annex “E” Form of Parent Company Guarantee


Annex “F” Joint Operating Agreement








Subject to the conclusion of the EPC, the Concessionaire shall submit a signed joint


operating agreement as stipulated in Annex F, for which Government approval is a


condition under this EPC.








In the event of conflict between the provisions of the EPC main document and its Annexes,


the EPC main document shall prevail.



























































Execution copy 3


 Article 2


Definitions


Definitions stipulated in applicable Mozambican Petroleum law, currently Law no. 3/2001


of 21 February and Decree No. 24/2004 of 20 August apply to this EPC unless otherwise


expressly defined . Words and phrases used in this EPC including its Annexes shall have


the following meanings:


“Affiliated Company" means, in relation to any Person constituting the Concessionaire,


any parent company which directly or indirectly controls such Person or any company


which is directly controlled by such Person or any company which is controlled, directly or


indirectly, by any such parent company.


For the purpose of the foregoing definition:


(a) a company is directly controlled by another company or companies holding shares or


other equity ownership carrying in the aggregate more than fifty percent (50%) of the


voting rights exercisable at general meetings; and


(b) a particular company is indirectly controlled by a company or companies (“parent


company or companies”) if a series of companies can be specified, beginning with


the parent company or companies and ending with the particular company, so related


that each company of the series, except the parent company or companies, is directly


controlled by one or more of the companies earlier in the series.


“Commercial Assessment Period" applies to a Discovery Area and means the period


commencing at the time when the appraisal report regarding the Appraisal Programme


relating to the Discovery of non-Associated Natural Gas has been submitted by the


Concessionaire.


“Commercial Production ” means production of Petroleum and delivery of the same at the


Delivery Point under a programme of production and sale as provided for in a


Development Plan as amended from time to time.


“Cost Petroleum ” means the portion of Petroleum Produced available to the


Concessionaires to cover the costs and expenses incurred in carrying out the Petroleum


Km'ution copy 4


Operations as stipulated in the EPC.





“Decommissioning Fund” means the fund established to cover the costs of


decommissioning operations.


“Delivery Point” means the point in the Republic of Mozambique which, in the case of


Natural Gas, is the inlet flange of the transmission pipeline, and in the case of Crude Oil


the inlet flange of the lifting tankship or, in either case, such other point as may be agreed


by MIREM and the Concessionaire.


“Effective Date” means the first day of the month following the date on which this EPC


has been signed by the Government and the Concessionaire, the conditions in Article 3.2


have been met, and the ruling of the Administrative Tribunal has been obtained.


“Evaluation Period” means the period, following a notice by the Concessionaire that it has


made a Discovery, within which the Concessionaire is required to inform MIREM whether


such Discovery is of potential commercial interest.


“Exclusive Petroleum Operations ” means those Petroleum Operations carried out pursuant


to applicable law and this EPC chargeable to the account, benefit and liability of less than


all Persons constituting a Concessionaire under this EPC.


“Expatriate Personnel” means any employee of any Person constituting the


Concessionaire, of an Affiliated Company of any such Person or of any Subcontractor,


provided such employee is not a citizen of the Republic of Mozambique and whose


contract of employment provides for the payment or the reimbursement of the cost of his


passage to and from the Republic of Mozambique.


“Exploration Operations" means operations conducted hereunder for or in connection


with Exploration for Petroleum in the EPC Area and includes operations conducted to


carry out an Appraisal Programme or to drill any Appraisal Well.


“Exploration Period” means any relevant period of Exploration set out in this EPC.


“Exploration Well” means any well, the purpose of which at the time of the


Execution copy 5


commencement of drilling is to explore for an accumulation of Petroleum, which


accumulation was at that time unproven by drilling.


“MIREM” means the Ministry of Mineral Resources or any other person or entity


appointed to administer and regulate Petroleum Operations for and on behalf of the


Government under the EPC whose identity has been notified in writing to the


Concessionaire.


“Participating Interest" means the percentage interest portion, as further described in


Article 3.2, of each party constituting the Concessionaire in the rights, privileges, duties


and obligations derived from this EPC.


“Person" means any natural person or any corporation, association, partnership, joint


venture or entity which is considered a legal entity under the law of Mozambique or the


laws of the country pursuant to which such corporation, association, partnership, joint


venture or entity is governed.


“Petroleum Production Tax" means the Imposto sobre a Produgao de Petroleo as defined


by applicable law.


“Petroleum Produced ” means Petroleum which has been extracted from a reservoir,


initially separated and processed into Crude Oil, condensate or Natural Gas delivered to the


Delivery Point appropriate for onwards transportation in bulk or through a pipeline. The


same applies to “Crude Oil Produced”, “Condensate Produced” and “Natural Gas


Produced” as the case may be.


“Profit Petroleum" means that portion of Disposable Petroleum, in excess of Cost


Petroleum, which is allocated to the Parties under the terms of the EPC.


“Subcontractor ” means any Person retained by the Concessionaire to carry out any part of


the Petroleum Operations.


"State Participating Interest" means the share of the Participating Interest owned by an


entity holding this Participating Interest on behalf of the Government.





KiccutioB copy 6


“Wellhead" is the inlet flange of the first valve after the wellhead production manifold.


























































































































































































































Execution copy 7


 Article 3


EPC Rights and their Duration





3.1 This EPC:


(a) is a concession awarded pursuant to Petroleum Law (Law No. 3/2001 of 21


February), which authorises the conduct of certain Petroleum Exploration,


Development and Production activities in an Area as defined herein;


(b) confers on the Concessionaire, subject to applicable law and the terms and


conditions set forth in this EPC, an exclusive right to conduct Petroleum


Operations in order to produce Petroleum from resources originating from


one or more Petroleum Deposit in the subsoil of the seabed within the limits


of the EPC Area;


(c) save where access to an existing Oil Pipeline or Gas Pipeline System is


available on reasonable commercial terms, confers a non- exclusive right


subject to applicable law to construct and operate an Oil Pipeline or Gas


Pipeline System for the purpose of transporting Petroleum Produced from


Petroleum Deposits under this EPC.





3.2 (a) Prior to this EPC reaching the Effective Date this EPC has to be approved


by the Council of Ministers, the appurtenant agreements to this EPC have to


be signed by the Concessionaire, and the ruling of the Administrative


Tribunal has to be obtained.





b) On the Effective Date the respective Participating Interests of Eni is ninety


percent ( 90 %) and of ENH is ten percent (10 %) respectively.





3.3 The rights and obligations of the Concessionaire shall commence on the Effective


Date and shall subsist:


(a) during the Exploration Period; and





(b) subject to terms and conditions as hereinafter provided, during the





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 Development and Production Period;





provided that obligations of the Concessionaire which have accrued hereunder


before the end of any relevant Exploration Period or an applicable Development


and Production Period shall, notwithstanding that this EPC has otherwise been


cancelled subject to applicable law or the terms and conditions of this EPC,


continue to be binding on the Concessionaire for the period provided by the


applicable law and for the purpose of any claim in respect thereof, the provisions of


Article 30 shall continue to apply.


The initial Exploration Period shall commence on the Effective Date. Unless the


EPC is terminated earlier in accordance with its terms, it shall continue for a period


of forty eight (48) months.


Where the Concessionaire desires to extend the Exploration Period the


Concessionaire shall submit a notice to MIREM to that effect. Such notice has to


be submitted not later than thirty (30) days before the expiry of the initial


Exploration Period or any subsequent Exploration Period would otherwise expire.


Provided the Concessionaire has fulfilled, or is deemed to have fulfilled, its


obligations under the initial Exploration Period, the Concessionaire is entitled:


(a) at the end of the initial Exploration Period, to a second Exploration Period


of twenty four (24) months; and


(b) at the end of a second Exploration Period, to a third Exploration Period of


twenty four (24) months; and


(c) to the rights referred to in Article 3.6; and


(d) to such additional time that may be necessary to give effect to Article 25.4


on force majeure.


(a) Where pursuant to Article 6 the Concessionaire has notified MIREM that it


has made a Discovery, the Exploration Period shall not, in respect of the


Discovery Area to which that Discovery relates, terminate before the end of


the Evaluation Period.


(b) Where before the end of the Evaluation Period the Concessionaire has


pursuant to Article 6 notified MI REM that a Discovery is of potential


commercial interest, the Exploration Period shall not in respect of the


Discovery Area to which that Discovery relates terminate before approval


of the Development Plan.


(c) Where pursuant to Article 17.3 the Commercial Assessment Period has


commenced in respect of a Discovery of Natural Gas, the Exploration


Period shall not, in respect of the Discovery Area to which that Discovery


relates, terminate so long as that Commercial Assessment Period continues.


(d) Where the work program of the Concessionaire due to reasons beyond the


reasonable control of the Concessionaire has been delayed due to the


inability to secure appropriate equipment necessary to conduct Petroleum


Operations (including but not limited to drill ships, drill barges and seismic


vessels) the Concessionaire shall inform MIREM and in the cases where it


is necessary for the Concessionaire to complete the Exploration work


commitments submit a properly reasoned request for such extension that


may be necessary to allow the completion of such Exploration work


program. The competent authority shall without undue delay consider and


respond to such request and if not granted give grounds for refusing to grant


the extension;


3.7 Where the Concessionaire has not prior to the expiry of the third Exploration


Period given to MIREM a Declaration of Commerciality by notice, the


Concessionaire shall at the end of that period have no further rights or obligations


in the EPC Area or under this EPC except as specifically provided herein.








3.8 Where, during a relevant Exploration Period the Concessionaire has given to


MIREM a Declaration of Commerciality by notice, the Concessionaire shall, in


respect of the Development and Production Area to which any such notice relates,


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continue at the end of the Exploration Period to have rights and obligations


hereunder for so long as the Development and Production Period for that


Development and Production Area subsists.


3.9 A “Development and Production Period” shall commence with respect to each


Development and Production Area on the date on which the Development Plan for


that Development and Production Area has been approved in accordance with


applicable law, and notice to that effect has been given to the Concessionaire and,


unless this EPC is sooner terminated in accordance with its terms or applicable law,


shall, in respect of the Development and Production Area to which the said notice


relates, continue to subsist for an Development and Production Period of thirty (30)


years and for such additional periods that may be necessary to give effect to Article


25.4.

































































Eu'ciition copy 11


 Article 4


Work Commitment during Exploration Period





4.1 The Concessionaire shall, in the discharge of its obligations to carry out


Exploration Operations, carry out the work stipulated in this EPC unless otherwise


provided or pay to the Government the sums set forth below in this Article. The


Exploration work commitments stipulated in this Article may not be performed


individually or collectively by the Concessionaire as Exclusive Petroleum


Operations.


4.2 During the initial Exploration Period of forty eight (48) months, the Concessionaire


shall conduct the following items collectively referred to as “Exploration work


commitment”:


a) Reprocess and re-interpret of 1000 Km of 2D seismic;


b) Acquire 2000 Km of 2D seismic; and


c) Acquire 1000 SqKm of 3D seismic.


In case of non-performance of the Exploration work commitment described in this


Article 4.2, save for exemptions listed in this Article, the total amount to be paid by


the Concessionaire to Government (hereinafter referred to as “Minimum


Expenditure”) for this period shall be twelve million US dollars (US$ 12,000,000).


4.3 During a subsequent second Exploration Period of twenty four (24) months, the


Concessionaire shall conduct the following items collectively referred to as


’’Exploration work commitment”:








a) Drill one (1) Exploration Well to a depth of five thousand meters (5000m)


from the sea level or to a target of Cretaceous sequences, whichever comes


first; and








b) Drill one (1) Exploration Well to a depth of five thousand meters (5000m)





Execution copy 12


 from the sea level or to a target of Cretaceous sequences, whichever comes


first.





In case of non-performance of the Exploration work commitment described in this


Article 4.3 save for exemptions listed in this Article the Minimum Expenditure for


this extension period shall be fifty million US dollars (US$ 50,000,000).


4.4 During a subsequent third Exploration Period of twenty four (24) months, the


Concessionaire shall conduct the following items collectively referred to as


“Exploration work commitment”:


a) Drill one (1) Exploration Well to a depth of five thousand meters (5000m)


from the sea level or to a target of Cretaceous sequences, whichever comes


first; and


b) Drill one (1) Exploration Well to a depth of five thousand meters (5000m)


from the sea level or to a target of Cretaceous sequences, whichever comes


first.


In case of non-performance of the Exploration work commitment described in this


Article, save for exemptions listed in this Article, the Minimum Expenditure for


this Exploration Period shall be fifty million US dollars (US$ 50,000,000).


4.5 Should any well forming part of the Exploration work commitment provided for in


Articles 4.3 and 4.4 be abandoned, for any reason other than a reason specified in


Article 4.6 below, before reaching the defined objectives of such well, the


Concessionaire shall drill a substitute well. In this event the relevant Exploration


Period shall be extended by a reasonable period of time as MIREM may agree to


allow the drilling and evaluation of the substitute well.


4.6 Unless otherwise approved by MIREM, any well which forms part of the


Exploration work commitment provided for in Articles 4.3 and 4.4 shall be drilled


to such depth as set forth in those Articles, unless before reaching the required


depth:





EamtHn copy 13


(a) further drilling would in the reasonable opinion of the Concessionaire


present an obvious danger, due to such events as, but not limited to, the


presence of abnormal pressure or excessive losses of drilling mud;


(b) impenetrable formations are encountered;


(c) Petroleum bearing formations are encountered which require protecting,


thereby preventing planned depths from being reached; or


(e) MIREM agrees to terminate the drilling operation.


4.7 In circumstances that the drilling of any well is drilled for the purpose of Article


4.6 it may be terminated at a lesser depth and shall be deemed to have satisfied all


the Concessionaire’s obligations in respect of that well.


4.8 During the drilling of Exploration Wells hereunder, the Concessionaire shall, in


accordance with applicable law, keep MIREM informed of the progress of each


well and shall:


(a) as soon as reasonably possible, consult with MIREM regarding any


proposed well testing programme;


(b) test potentially commercially viable horizons in the opinion of the


Concessionaire and after consultation with MIREM, within the EPC Area


indicated by wireline logging or by other means of formation evaluation;


and


(c) promptly undertake a technical evaluation of the said test results and of all


other relevant subsurface data and submit the same to MIREM as soon as it


has been completed.


4.9 If, at the end of any Exploration Period, the Exploration work commitment for that


period has been completed to the reasonable satisfaction of MIREM, the


expenditure incurred by the Concessionaire during that period shall be deemed to


I sedition cop)' 14


equal or exceed the Minimum Expenditure for that period specified in Articles 4.2,


4.3 and 4.4. The Concessionaire shall be relieved from any other obligation


incurred during that period and MIREM may call on the Minimum Expenditure


guarantee set forth in Article 4.10(a) for the outstanding amounts under Article 4.11


and 4.12, if any.


4.10(a) Minimum Expenditure guarantee


Without prejudice to the joint and several liability of the Persons constituting the


Concessionaire, each of the Persons constituting the Concessionaire shall by no


later than thirty (30) days after the Effective Date, and where this EPC has been


extended pursuant to Article 3.5, on the first day of such extension period,


provide, in substantially the form shown in Annex “D” an unconditional and


irrevocable bank guarantee in respect of its participating interest share and the


relevant portion of Carry of the Minimum Expenditure for the initial Exploration


Period, or, as the case may be the Minimum Expenditure obligations for any


further Exploration Periods, as the same may have been reduced by the provisions


of Article 4.11. For the purpose of this Article 4.10(a), where a Person


constituting the Concessionaire has undertaken to fund payments in respect of


Minimum Expenditure which would otherwise have been payable by another


Person constituting the Concessionaire, the share of Minimum Expenditure of


that Person constituting the Concessionaire giving that undertaking will be


deemed to include the share of Minimum Expenditure for which such other


Person constituting the Concessionaire would have been liable if no such


undertaking had been given.


4.10(b) Parent company guarantee


Without prejudice to the joint and several liability of the Persons constituting the


Concessionaire, the Operator on behalf of the Persons constituting the


Concessionaire shall no later than thirty (30) days after the approval of the


Development Plan provide, in substantially the form shown in Annex “E” an


unconditional and irrevocable parent company guarantee from an entity


acceptable to MIREM in respect of all its obligations under this EPC beyond the


scope of the Minimum Expenditure guarantee.


v ‘


Esccution copy 15


4.11 The amount of any bank guarantee given pursuant to Article 4.10(a) shall be


reduced by the Concessionaire in discharge of its obligations under Articles 4.2, 4.3


and 4.4 as follows:


(i) during the initial Exploration Period:


• three hundred thousand US dollars (USS 300,000) at completion of


Article 4.2(a);


• two million seven hundred thousand US dollars (USS 2,700,000) at


completion Article 4.2 (b);


• nine million US dollars (USS 9,000,000) at completion of Article 4.2


(c).


(ii) during the second Exploration Period:


• twenty five million US dollars (USS 25,000,000) at completion of


Article 4.3 item (a);


• twenty five million US dollars (USS 25,000,000) at completion of


Article 4.3(b).


(iii) during the third Exploration Period:


• twenty five million US dollars (USS 25,000,000) at completion of


Article 4.4 item (a);


• twenty five million US dollars (USS 25,000,000) at completion of


Article 4.4(b).


4.12 If, at the end of the initial Exploration Period or at the end of any subsequent


Exploration Period, the Concessionaire has not performed the Exploration work


commitment under Articles 4.2, 4.3 or 4.4, MIREM shall notify the Concessionaire


and within fourteen (14) days of such notification, have the right to call on the


Minimum Expenditure guarantee for the payment there under to MIREM of the full


amount of the shortfall as stipulated in Article 4.11.








4.13 In the event where the number of Exploration Wells drilled by the Concessionaire


and/or the quantity of seismic data acquired during any Exploration Period exceeds


the number of wells and/or seismic data provided for in the Exploration work


commitment for that period, as specified in Articles 4.2, 4.3 and 4.4, the number of


additional Exploration Wells drilled and/or the quantity of seismic data acquired by





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the Concessionaire during such Exploration Period may be carried forward and


treated as work undertaken in discharge of the Concessionaire’s commitment to


drill Exploration Wells and/or to acquire seismic data during the succeeding period;


provided, however, if by reason of the provisions of this Article the Exploration


work commitment of the Concessionaire for any period as specified in Articles 4.2,


4.3 and 4.4 have been fully discharged by the Concessionaire before that period


commences, the Concessionaire, after consultation with MIREM, shall adopt a


work commitment for the period in question so as to ensure the continuity of


Petroleum Operations in, or in connection with, the EPC Area during that period.


4.14 Otherwise than as provided in such Articles, nothing in Articles 4.12 or 4.13 shall


be read or construed as extinguishing, postponing or modifying any commitment of


the Concessionaire to carry out seismic surveys or to drill Exploration Wells


pursuant to this Article.


4.15 Neither the Appraisal Wells nor seismic surveys carried out pursuant to an


Appraisal Programme drawn up pursuant to Article 6.2 nor the expenditure


incurred by the Concessionaire in carrying out such Appraisal Programme shall be


treated as discharging in whole or in part the Minimum Expenditure obligations set


out in Articles 4.2, 4.3 and 4.4.


4.16 Within forty five (45) days from the Effective Date and thereafter, for so long as an


Exploration Period subsists and at least ninety (90) days prior to the end of each


calendar year or at such other times as may be approved in advance by MIREM, the


Concessionaire shall prepare in reasonable detail and submit to MIREM an


Exploration work programme and budget for the remaining portion of the calendar


year or, for the subsequent calendar year, and a proposed structure for the


Concessionaire’s organisation for the conduct of Exploration Operations in the EPC


Area.





4.17 The Exploration work programme and budget prepared by the Concessionaire shall


be consistent with obligations under this Article and shall set forth the Exploration


Operations which the Concessionaire proposes to carry out during the remaining


portion of the calendar year or, in the case of the programme and budget for


subsequent years, during the following calendar year. The Concessionaire shall


Execution copy 17


consider any recommendations made by MIREM in respect thereof and after


making such revisions thereto as the Concessionaire considers appropriate submit


the Exploration work programme and budget to MIREM for information.


4.18 The Concessionaire may at any time amend the Exploration work programme and


budget submitted in accordance with Article 4.16, provided that the amended


Exploration work programme and budget are:


(a) prepared in reasonable detail and submitted to MIREM, whose


recommendations in respect thereof shall be considered by the


Concessionaire;


(b) consistent with the Concessionaire’s obligations under this Article;


and


(c) submitted to MIREM for information once the Concessionaire has made


such revisions as it deems appropriate after consideration of any


recommendations made by MIREM.









































(.Mention copy 18


 Article 5


Conduct of Petroleum Operations


5.1 The Concessionaire shall carry out Petroleum Operations in the EPC Area:


(a) diligently and with due regard to Good Oilfield Practice;


(b) subject to all applicable laws, specifically the Petroleum Law and the


Regulations for Petroleum Operations;


(c) in accordance with environmental and safety standards generally accepted


in the international petroleum industry and applicable from time to time in


similar circumstances;


(d) in respect of any Development and Production Area in compliance with the


Development Plan for that Development and Production Area.


5.2 Where the Concessionaire is more than one Person any obligation of the


Concessionaire hereunder shall be a joint and several obligation of the Persons who


constitute the Concessionaire, save for the following each of which shall be a


several obligation of each of those Persons:


(a) the obligation to pay Corporate Income Tax or any other tax assessed and levied on


profit or net income;


(b) the obligation to observe stipulations relating to confidentiality set out in Article 23


save in respect of their application to anything done or to be done by the Operator


in his capacity as such; and


(c) the obligation to observe stipulations relating to foreign exchange set out or


referred to in Article 26, save in respect of their application to anything done or to


be done by the Operator in his capacity as such.


5.3 Eni shall be the Operator. No change of the Operator may take effect unless it has


been approved in writing by MIREM.


F.wculion ciipy 19


 T








5.4 Throughout the period of this EPC the Concessionaire or where more than one


Person constitutes the Concessionaire, the Operator shall ensure that it has a


general manager or another appointed representative who shall reside in the


Republic of Mozambique or such other country as may be mutually agreed by all


Parties. The Concessionaire or, as the case may be, the Operator shall appoint the


general manager or other representative and shall notify MIREM of the identity of


the individual so appointed within one hundred and twenty (120) days after the


Effective Date. If for any reason the individual so appointed ceases to be general


manager, the Concessionaire or, as the case may be, the Operator shall as soon as


practicable appoint a replacement acceptable to MIREM and shall notify MIREM





of the identity of the replacement.
















































































Execution copy 20


 Article 6


Commercial Discovery and Development





6.1 Where, in the course of the Petroleum Operations, a Discovery of Petroleum is


made in the EPC Area, the Concessionaire shall as soon as reasonably possible by


notice inform MIREM whether or not, in its opinion, the said Discovery is of


potential commercial interest.


6.2 For a Discovery of potential commercial interest the Concessionaire shall promptly


prepare an Appraisal Programme and, after consultation with MIREM, carry out


such Appraisal Programme and submit a report of the appraisal activities to


MIREM within three (3) months after the completion of the Appraisal Programme.








6.3 The Concessionaire shall submit for Government consideration and approval a


Development Plan for a proposed Development and Production Area for the


Discovery, so as to include such a Development and Production Area in a single


area, so far as the boundaries of the EPC Area permit, the entire area of the


Petroleum reservoir or reservoirs in respect of which a Declaration of


Commerciality has been given. MIREM shall consider without undue delay the


proposed Development Plan submitted by the Concessionaire. If the MIREM is


unable to complete consultation with concerned relevant authorities within twelve


(12) months from receipt of the proposed Development Plan submitted by the


Concessionaire for approval, then MIREM shall notify the Concessionaire and shall


when possible indicate when it is expected that the consultation process shall be


completed.


6.4 If Commercial Production of a Discovery has not commenced within a period of


five years (5) years, or such longer period as may be specified in an approved


Development Plan, from the date on which the Development Plan is approved, then


the rights and obligations of the Concessionaire over the Development and


Production Area to which the Discovery relates shall be extinguished as though the


said area had been surrendered pursuant to Article 29. Such period may be


extended:








Kiccullon cup)' 21


 1





(a) where the Concessionaire commenced promptly to implement the


Development Plan as soon as the Development Plan was approved and has


continued to diligently implement the Development Plan but with regard to


a Discovery predominantly constituting of Crude Oil at the end of the five


(5) year period and with regard to a Discovery predominantly consisting of


Non-Associated Natural gas at the end of the five (5) year period, or in both


cases such longer period as is specified in the approved Development Plan,


has not yet commenced Commercial Production; or


(b) by the period of time that the commencement of Commercial Production has





been delayed for lack of any approval or permit required to be obtained


from the Government or any agency thereof after the implementation of the


Development Plan has begun and prior to the commencement of


Commercial Production and such delay is not attributable to actions or


omissions which are within the reasonable control of the Concessionaire; or


(c) by any period that may be necessary to give effect to Article 25.4.





















































Kxi'cutlon copy 22


 Article 7


Relinquishment of Areas





7.1 Where, pursuant to a request by the Concessionaire under Articles 3.5 (a) and (b),


the Exploration Period is extended at the end of the Initial Exploration Period or


subsequently, the Concessionaire shall relinquish its rights:





(a) at the commencement of the second Exploration Period of twenty four (24)


months in respect of a portion of the EPC Area so that the area retained,


excluding what is already included in a Development and Production Area


or in a Discovery Area, does not exceed seventy five per cent (75%) of the


EPC Area on the Effective Date;


(b) at the commencement of a third Exploration Period of twenty four (24)





months in respect of a portion of the EPC Area so that the area retained,


excluding what is already included in a Development and Production Area


or in a Discovery Area, does not exceed seventy five per cent (75%) of the


EPC Area on the Effective Date as reduced under letter (a) above;





(c) at the end of the third Exploration Period in respect of the remainder of the


EPC Area other than any Development and Production Areas or any area in


respect of which the Exploration Period has been further extended pursuant


to Articles 3.5 (c) and (d).


7.2 For the purpose of this Article, a Discovery Area shall not include any area which


relates to a Discovery in respect of which:


(a) the Concessionaire has notified MIREM that the Discovery is not considered





to be of potential commercial interest, is not commercial or is no longer


considered to be commercial.





(b) a Development and Production Area has previously been delineated.











Execution copy 23


 Article 8


Records and Reports


8.1 The Concessionaire shall prepare and, at all times while this EPC is in force,


maintain accurate and up-to-date records of its operations in the EPC Area. The


Concessionaire shall also furnish MIREM with such available information, data


and reports relating to the Petroleum Operations, as well as assessments and


interpretations relating to the Petroleum Operations all of which as MIREM may


reasonably require.


8.2 Well logs, maps, magnetic tapes, core and cutting samples and other geological and


geophysical information obtained by the Concessionaire in the course of carrying


out the Petroleum Operations shall be submitted to MIREM and, save as provided


in Article 8.3 or authorised pursuant to Article 23, may not be published,


reproduced or otherwise dealt with without the consent of MIREM.


8.3 The Concessionaire may retain for its own use copies of material constituting


Documentation, with the approval of MIREM, and retain for its own use original


material constituting Documentation; provided that samples equivalent in size and


quality or, where such material is capable of reproduction, copies have been


supplied to MIREM. The Concessionaire may freely export for processing or


laboratory' examination or analysis samples or other original materials constituting


Documentation; provided that samples equivalent in size and quality or, where such


material is capable of reproduction, copies of equivalent quality have first been


delivered to MIREM.


8.4 The Concessionaire shall keep MIREM currently advised of all major


developments taking place during the course of the Petroleum Operations and


without prejudice to the generality of the foregoing the Concessionaire shall:


(a) within forty five (45) days after the end of each calendar quarter prepare and


deliver a progress report to MIREM which shall contain a narrative report


of activities hereunder during such quarter with plans and maps showing the


places where the work described was done; and





K*edition copy 24


 (b) within four (4) months after the end of each calendar year prepare and


deliver to MIREM an annual report which shall consolidate and where


necessary revise and amplify the quarterly progress reports furnished in


respect of that calendar year.

















































































































Execution copy


 Article 9


Cost Recovery and Production Entitlement


9.1 The Concessionaire shall bear and pay all costs incurred in carrying out the


Petroleum Operations in which the Concessionaire participates, and the


Concessionaire shall recover such costs permitted by the provisions of this EPC


including Annex “C” of this EPC (hereinafter “Recoverable Costs”), and shall be


remunerated exclusively by means of an entitlement to quantities of Petroleum to


which the Concessionaire is entitled as herein provided.


9.2 The provisions related to cost recovery and profit entitlement set out in this Article


shall apply to Petroleum with effect that the Government and the Concessionaire


shall have title in undivided participating entitlement to the Petroleum available for


sale in any given period. Unless otherwise instructed by Government the sale of


such Petroleum shall take place on a joint dedicated basis by the Concessionaire


and the Concessionaire will hold those entitlements in undivided proportions equal


to the proportions in which during that period each Party was entitled to Disposable


Petroleum. Such instructions shall not affect volumes of Petroleum subject to


contract. Accordingly, the proceeds from the sale on a joint dedicated basis of


Petroleum in any given period shall be divided between the Government and the


Concessionaire in the proportions in which they had title in undivided entitlements


to the Petroleum sold.


9.3 From the total quantity of Petroleum Produced, the Concessionaire may take a


portion thereof necessary to discharge the Concessionaire’s obligation for the


Petroleum Production Tax. The balance of Petroleum remaining after the aforesaid


portion has been set aside is hereinafter referred to as “Disposable Petroleum”.


9.4 (a) For purposes of the R-factor calculation, Disposable Petroleum and Cost


Petroleum shall be calculated in respect of the whole of the EPC Area.


(b) Insofar as permitted by applicable law and this EPC, all costs incurred by


the Concessionaire in relation to Petroleum Operations shall be recovered from


Disposable Petroleum, as available at the Delivery Point.





Extent ion copy 26


 (c) In addition, and in the event the Government and/or the Concessionaire


elect to take Profit Petroleum in kind, the Concessionaire shall, for accounting and


reporting purposes, record Cost Petroleum separately:





(i) in respect of each Development and Production Area, and


(ii) in the form of liquids and gas, on a pro-rata basis relative to the


volumes of Petroleum Produced.


Condensate shall be taken in liquids or gas on the basis of its character at the


Delivery Point.


9.5 For each calendar year, Cost Petroleum shall be limited to seventy five percent


(75%) of Disposable Petroleum.


9.6 The Cost Petroleum for any quarter calculated in the manner aforesaid shall be


increased by:


(a) the amount of any contributions made by the Concessionaire into the


Decommissioning Fund during such quarter; and


(b) the costs incurred by the Concessionaire during such quarter to implement


an approved Decommissioning Plan prepared pursuant to applicable law


and the provisions of Article 15 save to the extent that, such costs have


been funded by withdrawals from the Decommissioning Fund; and


(c) provided that in no event shall the Cost Petroleum exceed the Disposable


Petroleum.


9.7 Costs, to the extent permitted by the provisions of Annex “C” of this EPC, shall


subject to Article 9.8, be recovered from Cost Petroleum:


(a) in respect of the amount of Development and Production Capital


Expenditures stipulated in Annex “C” of this EPC incurred during each


year, by the recovery of such amount at a maximum yearly rate of twenty


five (25 %) on a linear depreciation basis, beginning in the year in which


Execution copy 27


such amount is incurred or in the calendar year in which Commercial


Production commences, whichever year is later;


(b) in respect of costs attributable to Exploration as stipulated in Annex “C” of


this EPC (hereinafter referred to as “Exploration Costs”), by the recovery of


the full amount in the year in which they were incurred or in the year in


which Commercial Production commences, whichever year is later; and


(c) in respect of operating costs attributable to Petroleum Operations stipulated


as Operating Costs in Annex “C” to this EPC (hereinafter referred to as


“Operating Costs”) (including any contributions into the Decommissioning


Fund pursuant to applicable law, the provisions of Article 15 and including


any costs incurred by the Concessionaire to implement an approved


Decommissioning Plan prepared pursuant to the provisions of applicable


law save to the extent, in either case, that such costs have been funded by


withdrawals from the Decommissioning Fund), by the recovery of the full


amount in the year in which they were incurred.


9.8 To the extent that Recoverable Costs in any year exceed the value of Cost


Petroleum available in that year, the unrecovered excess shall be carried forward


for recovery in succeeding years.


9.9 The quantity of Cost Petroleum to which the Concessionaire is entitled in any year


shall be established on the basis of the value of the Petroleum Produced during


such year, determined in accordance with Article 10.


9.10 Profit Petroleum, shall be shared between the Government and the Concessionaire


according to a scale varying with the value of the R-Factor, where:


(a) R-Factor = (Cumulative Cash Inflows) n /


(Cumulative Capital Expenditures) n


(b) Cumulative Cash Inflows n =


Cumulative Cash Inflows (n-1)


+ Concessionaire portion of Profit Petroleum n


Execution copy 28


 + Concessionaire’s Cost Petroleum n


- Operating Costs n


- Computed Corporate Income Tax n


(c) Cumulative Capital Expenditures n =


Cumulative Capital Expenditures (n-1)


+ Exploration Costs n


+ Development and Production Capital Expenditures n





Where:


n is the current year; and (n-1) is the previous year;


Concessionaire’s Cost Petroleum is the amount of Recoverable Costs


actually recovered;


Computed Corporate Income Tax is the Concessionaire’s corporate income


tax obligation computed according to applicable tax law and Article 11.


For the purpose of calculating the R-Factor, the first year (n=l) shall be the year


during which the Effective Date occurs. Any Capital Expenditures incurred prior to


the Effective Date shall not be deemed for the purpose of the R-Factor calculation


to have been incurred during the year of the Effective Date.


The R-Factor shall be calculated on the last day of each calendar year and the


applicable ratio shall determine the sharing of Profit Petroleum throughout the


following calendar year.


The scale for Profit Petroleum is as follows:

















I . went kill copy 29


 R-Factor Government’s Concessionaire’s


Portion Portion


less than one 15% 85%


Equal to or greater than one 25% 75%


and less than two


Equal to or greater than 35% 65%


two and less than three


Equal to or grater than 45% 55%


three and less than four


Equal to or grater than four 55% 45%








9.11 (a) If there is a breach of the warranty set out in Article 11.6 or in the event that


after the Effective Date there is a change in the laws of the Republic of


Mozambique of the kind referred to in Article 11 and as a result the Parties


meet to agree on changes to be made to this EPC, then during the period


starting when the change in the law comes into effect and ending when an


agreement between the Parties is reached pursuant to Article 11, the portion of


Profit Petroleum to which the Concessionaire and the Government would


otherwise be entitled shall be adjusted so that the net revenues to be received by


the Concessionaire from Petroleum Operations are the same as they would have


been if no change in the law had taken place.


(b) Where the Parties have reached agreement on the changes to be made to this


EPC pursuant to Article 11, this EPC will be deemed to stand amended to the


extent necessary to give effect to that agreement in accordance with its terms.


9.12 Concessionaire’s Cost Petroleum and Profit Petroleum calculations shall be done


for each calendar year on an accumulative basis. To the extent that actual quantities


and expenses are not known, provisional estimates based on the approved work


programme and operating and capital budgets shall be used. Until such time as the


value of Petroleum attributable to a year is determined, the calculations will be


based on the value of such Petroleum during the preceding year and in the absence


of such value, on the value agreed to between MIREM and the Concessionaire.


Adjustments shall be made during the succeeding year based on actual Petroleum


quantities, prices and expenses in relation to such year.


Execution copy 30


 9.13 Any person constituting the Concessionaire, excluding an entity holding a State


Participating Interest or a Permitted Assignee, shall pay all costs properly incurred


under this EPC in relation to the State Participating Interest (herein referred to as


“Carry”) subject to the following conditions:


a) Carry shall be paid by Concessionaires having a Carry obligation pro-rata to


their Participating Interests in this EPC.


b) In the event that a third party, other than an entity holding a State


Participating Interest or a Permitted Assignee, has acquired a Participating


Interest in the EPC from any person constituting the Concessionaire, such


third party shall be obliged to take over a proportionate share of the Carry.


c) If a State Participating Interest is totally or partially transferred to a non-


Permitted Assignee, the Carry already paid with respect to the transferred


interest and not yet reimbursed to the Concessionaires subject to Cany shall


be immediately due and paid to the Concessionaires pro-rata to their


respective Participating Interests by such non-Permitted Assignee. The share


of any future Carry, to be borne by each Concessionaire having a Carry


obligation, shall be calculated according to the new composition of the


Concessionaires having such Carry obligation.


d) The Carry shall be limited to all costs incurred under this EPC by the


Concessionaire in discharging its obligations under this EPC, up to and


including the date upon which the Development Plan has been approved.


e) The Cany shall be used exclusively to pay for costs properly incurred under


this EPC in relation to the State Participating Interest. Save for in respect of a


transfer to a Permitted Assignee, ENH may not assign directly or indirectly


the benefits derived under Carry. Any transfer of a Participating Interest


subject to Carry requires the prior written approval of MIREM. The term


“Permitted Assignee” means for the purpose of this Article the Government


or a Mozambican Person wholly owned and controlled by the Government.





Ktccutlon copy 31


f) From the date of commencement of Commercial Production, ENH and any


entity designated by the Government to manage the State Participating


Interest portion shall reimburse in full the Carry in cash or in kind to the


Persons constituting the Concessionaire. Such reimbursement shall be


calculated as and taken from the Cost Petroleum of said Person having


benefited from the Carry. All amounts owed up to approval of the


Development Plan resulting from the Carry shall be subject to payment of


interest in United States Dollars calculated at the LIBOR rate (as defined in


and determined in accordance with Article 28.7) plus one (1) percentage


point, from the date such costs are incurred by the Persons (other than ENH


or a Permitted Assignee), until reimbursed in full. In the event such date


occurs during weekends or public holidays then the first subsequent quoted


LIBOR rate shall be used.


Article 10


Valuation of Petroleum


The value of Petroleum referred to in Articles 9 and 11 shall, to the extent such


Petroleum consists of Crude Oil, be determined at the end of each calendar month


commencing with the calendar month in which Commercial Production of Crude


Oil begins. To the extent such Petroleum consists of Natural Gas it shall be


determined at the end of each calendar month commencing with the calendar


month in which commercial delivery at the Delivery Point begins.


A value for each separate export grade of Crude Oil will be:


(a) in the case of sales to non-Affiliated Companies, the weighted average price


per barrel at the Delivery Point of each separate export grade of Crude Oil


being the prices FOB within the meaning defined in Incoterms 2000, at


which such Crude Oil has been sold by the Concessionaire during that


calendar month; or


(b) If the Concessionaire sells the Crude Oil to a third party on terms different


from FOB (as per Incoterms 2000), then for the purpose of this EPC, a


calculated net-back FOB price shall be applied. The net-back FOB price


shall be established by deducting from the price agreed the actual and direct


costs incurred by the Concessionaire in fulfilling the obligations under their


sales contract additional to those obligations included under a FOB contract.


(c) in the case of sales to Affiliated Companies, such price as agreed between


MIREM and the Concessionaire on the basis of adding the following two


factors together:


(i) the weighted average calendar month FOB price for Brent rated Crude


Oil, or such other appropriate marker Crude Oil for the production in


question for the period in question. The weighted average will be


based on the days in each calendar month when a closing price is


reported in Platts Oilgram price report. Days such as weekends and


holidays with no price reports will be ignored;


(ii) a premium or discount to the price of the Brent rated Crude Oil, or


such other appropriate marker Crude Oil for the production in


question to be determined by reference to the quality of the Crude Oil


produced from the EPC Area and the cost of moving such Crude Oil


to the market.


10.3 In any case in which MIREM and the Concessionaire are unable to agree a price


under Article 10.2 (c), in order to determine the premium or discount referred to


therein the following procedures shall be undertaken:


(a) MIREM and the Concessionaire shall submit to each other their assessments


of the premium or discount together with an explanation of the key factors


taken into consideration in assessing the premium or discount;


(b) if the premium or discount submitted by each of MIREM and the


Concessionaire are within ten United States Cents (10 US 0) per barrel of


each other the average will be taken for the purposes of setting the final


value of the Crude Oil;


(c) if the premium or discount submitted by each of MIREM and the


Concessionaire differ by more than ten United States Cents (10 US 0) per


barrel each will resubmit a revised premium or discount to the other on the


third (3rd) business day after the first exchange of information;


(d) if the premium or discount submitted by each of MIREM and the


Concessionaire on the second exchange of information are within ten


United States Cents (10 US 0) per barrel of each other the average will be


taken for the purposes of setting the final value of Crude Oil;


(e) if the premium or discount submitted on the second exchange of


information differ by more than ten United States Cents (10 US 0) per


barrel the matter shall, in accordance with Article 30.6, be referred for


determination by a sole expert who shall establish a price based on the


criteria set out in Article 10.2(c) but always within the range established by


 the Parties under Article 10.3(d).








10.4 The value calculated for Natural Gas Produced from reservoirs within the EPC


Area shall be:


(a) in the case of sales to non-Affiliated Companies, the weighted average price


per Gigajoule of commercial specification Natural Gas at the Delivery Point


at which such Natural Gas has been delivered by the Concessionaire during


that calendar month, shall be the weighted average price per Gigajoule of all


other commercial specification Natural Gas delivered during the same


calendar month from reservoirs subject to the jurisdiction of the Republic of


Mozambique and the weighted average of posted or publicly available


prices for alternative fuels to Natural Gas for large scale industrial


consumers including power generators in the market where such has been


delivered to ultimate customers.


(b) in the case of sales to Affiliated Companies, such price as stipulated in sub-


paragraph a) above for sales to non-Affiliated Companies or such price


agreed between MIREM and the Concessionaire.


10.5. In the event that the Government enters into a commercial Gas and/or Crude Oil


Sales Agreement with the Concessionaire for the purchase by the Government of


Crude Oil and/or Natural Gas from the Concessionaire, such sales shall be at a


price no higher than the price of Crude Oil and/or Natural Gas sold to Affiliated


Companies from the EPC Area as determined in terms of this Article 10.





























Execution copy 35


 Article 11


Fiscal Terms and Other Charges


11.1 The Concessionaire and its Subcontractors shall, save to the extent they are exempt


therefrom, be subject to all applicable law of the Republic of Mozambique which


impose taxes, duties, levies, charges, fees or contributions.


11.2 During the term of this EPC, the Concessionaire and its Subcontractors are entitled


to the rights of Tax and Customs Incentives in terms of Law No. 3/2001, of 21


February as defined in the Code of Fiscal Benefits (CFB), approved by Decree No.


16/2002, of 27 June. The Concessionaire and its Subcontractors shall be exempt


from the payment of the following taxes, duties, imposts, and other charges:


(a) Customs duties with regard to the importation of goods destined to be used


in Petroleum Operations, vehicles and other imported supplies, but


excluding light vehicles for transport of passengers in accordance with


article 44 paragraph a) of the CFB;


(b) Duties and other customs and fiscal charges on goods temporarily imported


for use in Petroleum Operations, including but not limited to such as


drilling rigs, seismic vessels, machinery, equipment, aircraft and boats in


accordance with article 44 paragraph b) of the CFB;


(c) Customs duties on the exportation of the goods referred to in the preceding


paragraphs once the goods no longer are needed for the Petroleum


Operations in accordance with article 44 paragraph c) of the CFB;


(d) Customs duties and custom charges with regard to the exportation of


Petroleum Produced in the Republic of Mozambique in accordance with


article 44 paragraph d) of the CFB; and


(e) The imports and exports referred to in the preceding paragraphs shall also


benefit from an exemption from the Value Added Tax (VAT) as provided


in the VAT Code approved by Decree No. 51/98, of 29 September in


accordance with article 44 paragraph e) of the CFB.


11.3 The Expatriate Personnel of the Concessionaire and of its Subcontractors shall be


exempt under this EPC from:


(a) Any and all taxes on or related to the income of non resident Expatriate


Personnel of the Concessionaire or its Subcontractors or any other tax of a


similar nature imposed on the work earnings of such Expatriate Personnel;


(b) Customs duties and other levies payable on the importation of personal and


household effects of Expatriate Personnel and their dependants imported


into the Republic of Mozambique on first arrival, provided that those


customs duties shall become payable on such items upon their sale in the


Republic of Mozambique to a person who is not exempt from such duties.


The Expatriate Personnel shall have the right to export from the Republic of


Mozambique free of any customs duties and levies the aforesaid personal


and household effects imported by them, within the conditions stipulated in


the customs tariff.





11.4 For the puipose of this EPC, the listed imposts (“Listed Imposts”) are:


(a) The Corporate Income Tax (IRPC) which shall be levied in accordance with





Decree No. 21/2002, of 30 July, as the same may be amended from time to


time but always subject to Articles 11.9 and 9.13, and shall be payable by


the Concessionaire or, where the Concessionaire is more than one Person,


payable by each of the Persons constituting the Concessionaire who shall be


separately assessed and charged. The following provisions shall apply to


IRPC levied in respect of income derived from Petroleum Operations


hereunder:








(i) For any investment made in a continuous manner and in relation to a


deposit or field where an investment is commenced prior to the end of the


year 2010 to commence production at a future date, a twenty-five percent


(25%) reduction in the rate of Corporate Income Tax (IRPC) on the net


income from any such field shall apply for a period of eight (8) years


starting from the year of first production. After the expiration of the first





Execution copy 37


 eight (8) years calculated from the first year of Commercial Production


from any such deposit or field and for other fields which first commence


production during and after the year 2010, the 1RPC shall be levied on the


net income derived from Petroleum Operations from such fields in the


EPC Area at the rate of thirty-two percent (32%) or the rate then in effect


pursuant to applicable law, whichever is less.


In determining the net income of the Concessionaire for the puiposes of


(ii)


calculating IRPC in any year of tax, or if the Concessionaire is more than


one Person, the net income of any Person constituting the Concessionaire,


depreciation shall be applied as follows:


(aa) Depreciation shall be deducted at the rates indicated below,





beginning in the year in which the expenditure is incurred or Commercial


Production commences, whichever year is the later:





- in respect of expenditure on Exploration Operations, including the


drilling of Exploration and Appraisal Wells, at one hundred


percent (100%);


- in respect of capital expenditure on Development and Production





Operations at the annual rate of twenty five percent (25%) of


such expenditure on a linear depreciation basis;


- in respect of operating expenditure, at one hundred percent


(100%).





(bb) The Concessionaire, or if the Concessionaire is more than one


Person, any Person constituting the Concessionaire, may in any year elect to


defer depreciation wholly or partly. In exercising the election to defer, the


Concessionaire, or if the Concessionaire is more than one Person, any


Person constituting the Concessionaire, shall notify the competent entity in


the Ministry of Finance not later than end of February of the year following


the year in question, of its intention to defer depreciation. In such notice, the


Concessionaire, or if the Concessionaire is more than one Person, any


Person constituting the Concessionaire, shall specify:





Execution copy 38


 the rate at which it intends to depreciate expenditure on


Exploration Operations or operating expenditures during the


year in question, such rate not being in excess of one


hundred percent (100%); and


the rate at which it intends to depreciate capital expenditure





on Development and Production Operations during the year


in question, such rate not being in excess of twenty five


percent (25%).





The rate notified by the Concessionaire or, if the Concessionaire is more


than one Person, by any Person constituting the Concessionaire shall only


apply to the year specified in the notice. Depreciation in future years shall


be made at the rate set in Article 11.4(a)(ii)(aa) unless a further written


notice under this Article is submitted.


(iii) Deferred depreciation, being the difference between the allowed rate


and the rate notified by the Concessionaire, or if the Concessionaire is


more than one Person, by any Person constituting the Concessionaire, as


the rate it intends to use during the year in question, may be taken as a


deduction against net income in any future year. The Concessionaire, or


if the Concessionaire is more than one Person, any Person constituting


the Concessionaire, shall notify the competent entity in the Ministry of


Finance in writing not later than the end of February of the year


following the year in question of its intent to take such deferred


depreciation during such year;





(iv) Expenditure for professional training of Mozambican workers, shall up to


a maximum amount of five percent (5%) of taxable income, be deductible


for the purposes of calculating IRPC in accordance with article 18


paragraph 1 of the CFB, during the first five (5) years from the date of


commencement of production; provided, however, that, when the


professional training is for the use of technologically advanced


equipment, the allowable income tax deduction for the purposes of





Execution copy 39


calculating the IRPC shall be a maximum amount of ten percent (10%) of


taxable income in accordance with article 18 paragraph 2 of the CFB.


(v) The Concessionaire shall be exempt from stamp duties for incoiporation


activities and for any alterations to the social capital and the articles of


association for a period of five (5) years from start of operations in


accordance with article 20 of the CFB.


(vi) The Concessionaire shall benefit from a reduction of 50% on real property


transfer tax (SISA) on the acquisition of real estate, provided this was


acquired in the first three (3) years from the date of authorisation of the


investment, or start of operations in accordance with article 21 of the


CFB.


(vii) For the purpose of calculating liability for IRPC , a loss incurred by the


Concessionaire in any year may be carried forward for deduction for up to


six (6) years after the year in which such loss is incurred.


(b) Customs duties and other levies and taxes not otherwise exempted under this


Article 11;


(c) Levies, charges, fees or contributions which are non discriminatory and are levied


in return for the provision of specific identifiable services or goods by the Republic


of Mozambique or use of facilities owned by the Republic of Mozambique or any


state company, such as without limitation, water, electricity, port usage and similar


services or goods;





(d) Taxes, duties, levies, charges, fees or contributions provided they are imposed


under laws of general application, which do not discriminate or have the effect of


discriminating against the Concessionaire and are of a minor nature. For the


purpose of this Article a tax, duty, levy, charge, fee or contribution shall not be


treated as being of a minor nature if either alone or in combination with any other


tax duty, levy, charge, fee or contribution not falling under Articles 11.4(a), (b), or


(c), it would result in a charge in excess of United States Dollars two hundred and


fifty thousand (US$250,000) in any one (1) year period or United States Dollars





Emotion copy 40 If








 five hundred thousand (US$500,000) in any continuous period of five (5) years;





(e) Non resident foreign Subcontractors of the Concessionaire conducting activities in


connection with Petroleum Operations pursuant to this EPC shall be subject to a


withholding tax at the single flat rate of ten percent (10%) of the gross amount of


the payments of its invoices in respect of the work or services it performed for the


Concessionaire. The Concessionaire responsible to make payments of such invoices


shall calculate the amount of income tax due as Subcontractor IRPC on this basis,


and shall withhold such income tax from the payments made to the foreign


Subcontractor and pay immediately such withheld income tax to the competent


entity of the Ministry responsible for tax collection in the fiscal area of the


Concessionaire on behalf of the foreign Subcontractor in accordance with the


periods established by the law;


(f) No taxes shall be imposed or withheld with respect to payments to any non resident


foreign Subcontractor other than as provided under Article 11.4 e).








11.5 (a) In accordance with the Petroleum Law and Decree No. 19/04, of 2 June, the


Concessionaire shall deliver to the Government in kind as Petroleum


Production Tax:








(i) in respect of Natural Gas produced from deposits in the EPC Area


onshore, a quantity of five percent (5%) of the Natural Gas; in


respect of Crude Oil produced from deposits in the EPC Area


located onshore, a quantity of eight percent (8%) of the Crude Oil;


(ii) in respect of Natural Gas produced from deposits in the EPC Area





in water depth less than one hundred (100) metres, a quantity of


four percent (4%) of the Natural Gas, and in respect of Crude Oil


produced from deposits in the EPC Area in water depth less than one


hundred (100) metres, a quantity of seven percent (7%) of the Crude


Oil;





(iii) in respect of Natural Gas produced from deposits in the EPC Area


in water depth equal to or in excess of one hundred (100) metres and





tiKUtMO copy


less than five hundred (500) metres, a quantity of three percent (3%)


of the Natural Gas, and in respect of Crude Oil produced from


deposits in the EPC Area in water depth equal to or in excess of one


hundred (100) metres and less than five hundred (500) metres, a


quantity of five percent (5%) of the Crude Oil;


(iv) in respect of Natural Gas produced from deposits in the EPC Area


in water depth equal to or in excess of five hundred (500) metres, a


quantity of two percent (2%) of the Natural Gas, and in respect of


Crude Oil produced from deposits in the EPC Area at a water depth


equal to or in excess of five hundred (500) metres , a quantity of


three percent (3%) of the Crude Oil;


provided always that the rate of Petroleum Production Tax for a Petroleum Deposit


shall be a composite rate for Natural Gas and a separate composite rate for Crude


Oil where such Petroleum Deposit in the EPC Area does not lie entirely within one


of the water depth categories established by Articles 11.5(a)(i) to (iv) above, such


composite rates being established pro rata with the amount of Petroleum in place


estimated to be in each of the relevant water depth categories, and being established


at the time of the approval of the appropriate Development Plan and not subject to


change thereafter; provided that if a Development Plan is amended, then this


amended Development Plan may include a revised composite rate for Natural Gas


and revised composite rate for Crude Oil for such Petroleum Deposits in the EPC


Area and such revised composite rates shall apply from the beginning of the year


following the date the amended Development Plan is approved. In the case of a


revision to the composite rates as provided aforesaid, in no circumstances shall any


retroactive adjustments be made to the amount of the Petroleum Production Tax


calculated prior to the time of the approval of the amended Development Plan.


(b) The Concessionaire shall, pursuant to Article 13 of the Regulations relating to


Petroleum Production Tax attached to Decree No. 19/04, of 2 June, or subsequent


applicable legislation deliver to the competent entity in the Ministry of Finance and


MIREM, not later than the 20th (twentieth) day of each calendar month and with


respect to the previous month, as measured at the Delivery Point, a statement of:





Kxccution copy 42


 (i) the quantity of Crude Oil and the quantity of Natural Gas produced


in that calendar month;


(ii) the quantities of Crude Oil and the quantities of Natural Gas sold in


that calendar month;


(iii) the quantities of Crude Oil held in storage at the beginning and the


end of the calendar month;


(iv) the quantity of Crude Oil and the quantity of Natural Gas inevitably


lost;


(v) the quantity of Crude Oil and the quantity of Natural Gas flared,


escaped, re-injected or used in Petroleum Operations;


(vi) the quantity of Crude Oil and the quantity of Natural Gas on which


Petroleum Production Tax is due;





(vii) the quantity of Petroleum Production Tax deliverable for that


calendar month and the particulars of the calculation thereof; and


(viii) any other information relevant for the calculation of Petroleum


Production Tax for Crude Oil and for Natural Gas.





(c) The Government may, in lieu of the Petroleum Production Tax deliverable in kind


referred to in this Article 11.5, by one hundred and eighty (180) days notice require


the Concessionaire to pay to the Government each month fully or partly in cash the


relevant percentage of the value, ascertained in accordance with the provisions of


Article 11, of the Crude Oil and the Natural Gas which has been produced from the


EPC Area in that month.


(d) The Petroleum Production Tax for a given calendar month in respect of Crude Oil


and in respect of Natural Gas and the respective payments in cash are deliverable or


payable before the end of the following calendar month.


tAccntioii copy 43


/


(e) Payment in cash of the percentage specified in the relevant notice given under


Article 11.5(c) shall continue until the Government delivers a further written notice


as provided in Article 11.5(c) providing revised instructions to the Concessionaire.


The Government warrants that in respect of Petroleum Operations or income


11.6


derived from Petroleum Operations, on the Effective Date there were no taxes,


duties, levies, charges, fees or contributions other than the Listed Imposts and the


taxes in respect of which the Concessionaire and its Subcontractors are exempt


under Articles 11.2 and 11.3.


In the exercise of its rights and benefits regarding the exemption from customs


11.7


duties on import and export stipulated under this Article, the Concessionaire shall


comply with the applicable procedures and formalities duly imposed by applicable


law.


Nothing in the provisions set out in this Article 11 shall be read or construed as


11.8


imposing any limitation or constraint on the scope, or due and proper enforcement,


of applicable Mozambican law of general application which does not discriminate,


or have the effect of discriminating, against the Concessionaire, and provides in the


interest of safety, health, welfare or the protection of the environment for the


regulation of any category of property or activity carried on in Mozambique;


provided, however, that the Government will at all times during the life of the


Petroleum Operations ensure in accordance with Article 28, that measures taken in


the interest of safety, health, welfare or the protection of the environment are in


accordance with standards generally accepted from time to time in the international


petroleum industry and are not unreasonable.


In the event that, after the Effective Date, any other tax is introduced in the





Republic of Mozambique which is not of the type set out in Article 11 and, as a


result, there is an adverse effect of a material nature on the economic value derived


from the Petroleum Operations by the Concessionaire, the Parties will, as soon as


possible thereafter, meet to agree on changes to this EPC which will ensure that the


Concessionaire obtains from the Petroleum Operations, following such changes, the


same economic benefits as it would have obtained if the change in the law had not


been effected.





execution copy 44


 Article 12


Production Bonuses


The Concessionaire shall pay the following production bonuses to the Government, which


shall not be a Recoverable Cost for the purposes of Annex “C” of this EPC:





Production Bonuses


payable in US Dollars





At the Commencement of Initial Commercial $ 1,000,000.00


Production





When production from the EPC Area first reaches $ 1,000,000.00


25,000 BOE per day average for a month


When production from the EPC Area first reaches $ 5,000,000.00


each further tranche of 75,000 BOE per day


average for a month





For the purpose of this Article:


(i) “Commencement of Initial Commercial Production” means the date on


which Commercial Production has been sustained for a period of thirty (30)


consecutive days from the EPC Area; and





(ii) “BOE” means the equivalent number of Barrels of Crude Oil resulting when


Natural Gas is converted to Crude Oil on the basis of one (1) Barrel of


Crude Oil for each six thousand (6,000) standard cubic feet of Natural Gas.

















Mt-cutlon copy 45


 Article 13


Lifting Arrangements





13.1 (a) The Concessionaire shall subject to provisions regulating the production


and sale of Petroleum be entitled to lift and export freely its entitlement to


Petroleum Produced under this EPC.


(b) Each Party shall take its entitlement to Petroleum consistent with Good


Oilfield Practice at an approximately regular rate throughout each calendar


year.


(c) Not later than ninety (90) days prior to the date scheduled for the


commencement of Commercial Production, the Parties shall establish


offtake procedures covering the scheduling, storage and lifting of Petroleum


and such other matters as the Parties shall agree. Such procedures shall be


consistent with Good Oilfield Practice.


13.2 Notwithstanding Article 9.2 or instructions given in accordance with Article 9.2,


the Government may by six (6) months notice given to the Concessionaire or


Operator require the Concessionaire or Operator to sell on behalf of the


Government during the succeeding calendar year unless otherwise instructed the


whole or any portion of the volume of Petroleum Production Tax taken in kind and


when applicable Profit Petroleum not previously committed to which the


Government is entitled pursuant to this EPC during said succeeding year. The


quantity of such Profit Petroleum, which the Government desires to sell shall be


specified in said notice. The Concessionaire or Operator shall sell that quantity of


Petroleum on the open market at the best price reasonably obtainable and remit the


proceeds of the sale directly and forthwith to the Government. The Concessionaire


or Operator shall not charge the Government any fee for the selling of the


Petroleum of the Government.

















'.xrcutlon copy 46


 Article 14


Conservation of Petroleum and Prevention of Loss


14.1 The Concessionaire shall, before carrying out any drilling, prepare and submit for


review by MIREM a well programme including a contingency plan designed to


achieve rapid and effective emergency response in the event of a blow-out or fire,


escape, waste or loss of Petroleum or damage to Petroleum bearing strata.


14.2 In the event of a blow-out or fire, escape, waste or loss of Petroleum or damage to


Petroleum bearing strata, the Concessionaire shall notify MIREM within twenty


four (24) hours of becoming aware of such occurrence, promptly implement the


relevant contingency plan and as soon as practicable thereafter submit a full report


thereon to MIREM.


14.3 Without prejudice to the obligations of the Concessionaire under Article 29, in the


case of relinquishment or surrender by the Concessionaire or termination of the


rights of the Concessionaire pursuant to this EPC, the Concessionaire shall within


ninety (90) days from the date of such relinquishment, surrender or termination, in


respect of the whole of the EPC Area or, as the case may be, any part of the EPC


Area which has been relinquished or surrendered:


a) plug or close off, in a manner consistent with Good Oilfield Practice, all


wells drilled as part of the Petroleum Operations unless otherwise agreed


between MIREM and the Concessionaire.


(b) take all action necessary, in accordance with Good Oilfield Practice, to


prevent hazards to human life or to the property of others or the


environment resulting from conditions in the EPC Area or, as the case may


be, any part thereof caused by Petroleum Operations, being conditions


which were or ought with reasonable diligence to have been evident at the


time of relinquishment, surrender or termination.











Execution copy 47


 Article 15


Decommissioning


15.1 If in the reasonable expectation of the Concessionaire, the Concessionaire will


cease to produce Petroleum under this EPC from the EPC Area, the EPC expires,


is cancelled or surrendered pursuant to the proceedure stipulated in this EPC and


applicable law the Concessionaire shall submit to MIREM for approval a


Decommissioning Plan. The Decommissioning Plan shall be prepared in


accordance with applicable law and shall include, but not be limited to:


(a) particulars, separately set out in respect of each Development and


Production Area, of measures to be taken, to effect decommissioning


including but not limited to:


(i) decommissioning of equipment and installations for each


Development and Production Area;


(ii) timely removal of equipment and installations not required for


ongoing Petroleum Operations in any other Development and


Production Area; and


(iii) any other steps that may reasonably be required in order to prevent


hazard to human life, or to the property of others or to the


environment.


(b) estimates of the time required to complete operations under the plan;


(c) a budget for operations under the plan, including particulars of the costs of


decommissioning equipment and installations;


(d) a schedule of the work programme with related costs to be drawn from the


Decommissioning Fund in order to meet the costs of implementing the plan;


and


(e) such environmental, engineering and feasibility studies as may be necessary


to support the proposed plan.


15.2 The Decommissioning Plan shall be prepared in compliance with applicable law


and the provisions of Article 28 and shall ensure that decommissioning is


Ksccutton copy 48


conducted in a manner which will give effect to standards generally recognised as


applicable in the international petroleum industry and the Concessionaire’s





standards for decommissioning.


15.3 In the event that the Concessionaire does not submit a Decommissioning Plan to


MIREM within the time allowed MIREM may serve upon the Concessionaire a


notice requiring the Concessionaire to submit to MIREM, within a period of ninety


(90) days from date on which the notice was served, a Decommissioning Plan. If


within that period no Decommissioning Plan is submitted, MIREM may


commission consultants of international standing to prepare a Decommissioning


Plan.


15.4 A Decommissioning Plan prepared by a consultant in accordance with applicable





law and this Article shall be implemented by the Concessionaire in accordance with


its terms as though it were an obligation of the Concessionaire set forth in Article


28. The cost of commissioning engineering consultants to prepare a consultant’s


plan shall be payable by the Concessionaire to the Government.





15.5 In the event that the Concessionaire considers that production from a Development


and Production Area will cease before a Decommissioning Plan has been prepared,


decommissioning measures for that Development and Production Area will be


prepared by the Concessionaire in accordance with the requirement for


decommissioning set out in Articles 15.3 and 15.4, and where those measures have


been approved by MIREM will take effect as an amendment to the Development


Plan for that Development and Production Area.





15.6 Not later than at the commencement of Petroleum production from reserves within


the EPC Area, the Concessionaire shall establish in a bank of its choice an interest


bearing United States dollar account or such other currency account to be mutually


agreed by the Parties to be denominated as the Decommissioning Fund into which


the Concessionaire shall set aside from time to time funds to be able to cover the


decommissioning costs calculated in accordance with this EPC to meet the


estimated costs of implementing an approved Decommissioning Plan. At the time


of establishment of the account for the Decommissioning Fund the Concessioaire


shall deposit US dollars ten thousand (US$ 10.000) or equivalent amount if an


Execution copy 49 ft t X'


alternative currency is agreed. The bank so designated shall have a long term rating


of not less than “AA” by Standard and Poor’s Corporation or “Aa2” by Moody’s


Investor Service or a comparable rating by another mutually agreed rating service.


Preference shall be given to banks in Mozambique possessing the required rating.


15.7 The calculation of the amounts to be set aside for estimated future


Decommissioning costs into the Decommissioning Fund shall be governed as


follows:


a) The estimates of: (i) the recoverable reserves and the projected production schedule


and (ii) total decommissioning costs for the Concessionaire proposed


decommissioning solution as well as reasonable alternative decommissioning


solutions shall be submitted for MIREM approval. The M1REM shall based on the


proposals from the Concessionaire select a preliminary decommissioning solution


to form the basis for the calculation of decommissioning costs to be covered by a


Decommissioning Fund created for the purpose of covering such decommissioning


costs. Adequate provisions for successive revisions of such estimates shall when


required herein, required by applicable law or deemed necessary by the


Concessionaire due to substantial changes in fact also be included in any updated


Decommissioning Plan.


b) In any calendar year in which the Concessionaire did not submit to MIREM a


revised Decommissioning Plan or the total estimated decommissioning cost,


Concessionaire shall update the value of the latest total estimated decommissioning


cost preliminary approved by MIREM in order to account for the escalation of such


approved estimated decommissioning costs in the period between the calendar year


in which such costs were estimated and the then current calendar year. For this


purpose, and for each calendar year, the applicable annual US Dollar escalation


index shall be based on the Producers Price Index for the Drilling of Oil and Gas


Wells as published by the United States Bureau of Labor Statistics The annual


index to be used in year “n” shall be determined by difference between the annual


index relating to the year in which the latest approved estimate is determined and


the same annual index relating such year “n”. In the event the above US Bureau of


Labour Statistic ceases, for any reason whatsoever, to publish the Producers Price


Index for the Drilling of Oil and Gas Wells set out in the preceding paragraph of


•vmitlon cupv 50


this Clause or when an alternative currency is selected, Parties shall determine


either an alternative independent internationally recognised source, or an alternative


representative index.


15.8 The Concessionaire will not withdraw money from the Decommissioning Fund


save for the purpose of meeting the costs of implementing an approved


Decommissioning Plan and all statements relating to the Decommissioning Fund


provided by the bank from time to time shall be copied to MIREM.


15.9 Payments into the Decommissioning Fund shall be cost recoverable in accordance


with provisions applicable to this EPC.


15.10 Costs incurred by the Concessionaire to implement an approved Decommissioning


Plan shall be cost recoverable in accordance with provisions in that regard set out in


Article 9 and for the purpose of IRPC shall be treated as an operating expense save


where, in either case, such costs have been funded by withdrawals from the


Decommissioning Fund.


15.11 Any funds remaining in the Decommissioning Fund after the approved


Decommissioning Plan has been completed shall be treated as Profit Petroleum and


the remaining balance shall be shared in accordance with the provision of Article


9.7.


15.12 In the event that at the time of implementing any Decommissioning Plan there are


insufficient funds available in the Decommissioning Fund to fund the operations of


that plan, the shortfall shall be met in full by the Concessionaire.


15.13 An approved Decommissioning Plan shall, subject to the provisions of Article 20.2,


be implemented prudently and without undue delay.




















Kxrcution copy 51


 Article 16


Insurance





16.1 The Concessionaire shall effect and maintain, in respect of Petroleum Operations,


unless otherwise agreed between the Parties, all insurance required by applicable


Mozambican law and, as the case may be, required by other applicable law and


such other insurance as MIREM and the Concessionaire may agree from time to


time. Such insurance shall at least include insurance against the following risks:


(a) loss or damage to all Installations and equipment which are owned or used


by the Concessionaire in the Petroleum Operations;


(b) pollution caused in the course of the Petroleum Operations by the


Concessionaire for which the Concessionaire may be held responsible;


(c) property loss or damage or bodily injury suffered by any third party in the


course of the Petroleum Operations by the Concessionaire for which the


Concessionaire may be liable to indemnify the Government;


(d) the cost of removing wrecks and cleaning up operations following an


accident in the course of the Petroleum Operations by the Concessionaire;


and


(e) the Concessionaire’s and/or the Operator’s liability for its employees


engaged in the Petroleum Operations.





16.2 In relation to Development and Production Operations, the Concessionaire shall


submit to MIREM a programme for the provision of an “All Risks” insurance


which may, inter alia, cover physical damage to the facilities under construction


and installation as well as legal liabilities arising out of the Development and


Production Operations.








16.3 Any insurance required to be effected by the Concessionaire pursuant to the


provision of Articles 16.1 and 16.2 may, at the Concessionaire’s discretion and


subject to the approval of MIREM, be provided by one or more of the following





Kxi'cution copy 52


 options:





(a) non-insurance wherein the Concessionaire itself carries the risks and no


premia are charged; provided, however, that in the case of any losses or


damages resulting from a risk where the Concessionaire has elected to non-


insure, such losses or damages shall not be Recoverable Costs for the


purpose of Annex “C” of this EPC;


(b) insurance through an insurance company wholly owned by the Operator or


the Concessionaire in which case the premia charged shall be at prevailing


international insurance market rates;


(c) the Concessionaire utilising for the benefit of Petroleum Operations


insurance which is placed as part of a global coverage in which case the


premia charged shall be at the rates obtained for such global coverage; or


(d) subject to Article 19, insurance through the international insurance markets


at prevailing rates, provided that:


(i) an insurance company wholly owned by the Operator or a


Concessionaire may participate in any internationally placed


insurance or reinsurance; and


(ii) the Concessionaire shall have the option to tender and effect all


appropriate reinsurance for any insurance placed through insurance


companies registered in the Republic of Mozambique.


16.4 Unless otherwise approved by M1REM, the Concessionaire shall competitively


tender all renewable insurances placed into the international markets at least once


every three (3) years.


16.5 The Concessionaire shall require its Subcontractors to carry equivalent insurance of


the type and in such amount as is required by law and is customary in the


international petroleum industry in accordance with Good Oilfield Practice.


 Article 17


Natural Gas





17.1 The Concessionaire shall have the right to use Natural Gas extracted from


reservoirs within the EPC Area for the Petroleum Operations in the EPC Area


including but not limited to power generation, pressure maintenance and recycling


operations.


17.2 The terms and conditions relating to the use and production of Associated Natural


Gas shall be as follows:


(a) In the event the Concessionaire elects to process and sell Associated Natural


Gas, the Concessionaire shall notify MIREM and, for the purposes of cost


recovery and entitlement of production, such Natural Gas shall be treated by


the Parties in the same way as other Natural Gas.


(b) In the event the Concessionaire elects not to process and sell Associated


Natural Gas not used for purposes stipulated in Article 17.1 or paragraph (c)


below, the Government may offtake without any payment to the


Concessionaire but at the Government’s sole risk and cost, such Natural Gas


at the gas/oil separator; provided that such offtake does not materially


disrupt or delay the conduct of the Petroleum Operations.


(c) The Concessionaire may re-inject any Associated Natural Gas which is not


taken by Government pursuant to paragraph (b) above, used for Petroleum


Operations, processed and sold by the Concessionaire, or taken by


Government in accordance with paragraph (b) above, and the costs of such


disposal shall be recoverable to the extent that such re-injection is included


in the Development Plan.





17.3 The terms and conditions relating to the Appraisal Program and the commercial


assessment of the production and sale of non-Associated Natural Gas shall be as


follows:


(a) On completion of an Appraisal Programme relating to a Discovery of non-





li'xccution copy 54


Associated Natural Gas made by the Concessionaire and the submission of


an appraisal report thereon, the “Commercial Assessment Period” shall, if


the Concessionaire so requests, commence and shall continue in respect of


any Discovery Area for a period of six (6) years, exercisable at the sole


option of the Concessionaire. An extension may be granted upon


application by the Concessionaire to the Government, for a second period of


up to two (2) years. An appraisal report submitted under this Article shall


include the estimated recoverable reserves, projects delivery rate and


pressure, quality specifications and other technical and economic factors


relevant to the determination of a market for available Natural Gas. The


Concessionaire may, at any time during the Commercial Assessment


Period, inform the MIREM by notice that the Petroleum reservoir located


in any Discovery of non-Associated Natural Gas made by the


Concessionaire in respect of which an appraisal report has been submitted,


is commercial.


(b) If the Concessionaire does not request a Commercial Assessment Period


pursuant to paragraph (a) above within ninety (90) days from the date on


which the appraisal report was submitted, the Concessionaire shall inform


the MIREM by notice whether any Discovery of non-Associated Natural


Gas made by the Concessionaire in respect of which an appraisal report has


been submitted, is commercial.


Where the Concessionaire pursuant to this Article gives notice that any Discovery of


non-Associated Natural Gas made by the Concessionaire is commercial, that notice


shall, for the purpose of this EPC, be a notice of Commercial Discovery.


17.4 The Commercial Assessment Period shall end on the first to occur of:


(a) the date following that on which Concessionaire gives a Notice of


Commercial Discovery under Article 17.3;


(b) the date that the Concessionaire voluntarily surrenders the Discovery Area


to which the Commercial Assessment Period relates; or








hxicutimi cup) 55


(c) expiry of the period to which Concessionaire is entitled to under Article


17.3.


17.5 The Concessionaire shall be deemed to have relinquished all rights to the Discovery


of non-Associated Natural Gas if it has not given a notice of Commercial


Discovery under Article 17.3 by the end of the Commercial Assessment Period or


on earlier relinquishment of that portion of the EPC Area.


17.6 The Concessionaire shall be responsible for investigating market opportunities and


seek to develop a market for non-Associated Natural Gas produced from any


Development and Production Area and shall sell such non-Associated Natural Gas


on a joint dedicated basis on terms common to all the parties constituting the


Concessionaire. Every contract for the sale of such non-Associated Natural Gas


made by the Concessionaire under this article shall be subject to approval by the


MIREM. In applying for such approval the Concessionaire shall demonstrate to the


MIREM that the prices and other terms of sale of such Natural Gas represents the


market value obtainable for such Natural Gas, taking into consideration a fair


market cost for transporting the Natural Gas from the Delivery Point to the


purchaser and having regard to the alternative uses and markets that can be


developed for such Natural Gas.


17.7 With its application for approval of any gas sales contract, pursuant to Article 17.6,


the Concessionaire may apply in respect of any Development and Production Area


from which non-Associated Natural Gas will be produced for sale under that gas


sales contract, for an extension of the Development and Production Period and


where such extension is necessary to facilitate the sale of gas under any such


contract the MIREM will grant the same.























V


K.xccutHin copy 56


 Article 18


Employment and Training


18.1 Subject to the Government’s security review of any individual entering


Mozambique and the procedures and formalities of the applicable Mozambican law


relating to immigration the Government shall provide the necessary permits or


other approvals required for the employment and admission into the Republic of


Mozambique of Expatriate Personnel employed by the Concessionaire or its


Subcontractors for the purpose of this EPC.





18.2 In the conduct of the Petroleum Operations, the Concessionaire shall endeavour to


utilise citizens of the Republic of Mozambique having appropriate qualifications to


the maximum extent possible at all levels of its organisation, as Sub-Contractors or


employed by Sub-Contractors. In this connection, the Concessionaire shall, in


consultation with MIREM, propose and carry out an effective training and


employment programme for its Mozambican employees in each phase and level of


operations, taking account of the requirements of safety and the need to maintain


reasonable standards of efficiency in the conduct of the Petroleum Operations.


Such employees may be trained in the Republic of Mozambique or abroad as


required by the training programmes prepared by the Concessionaire.


18.3 The Concessionaire shall co-operate with MIREM in giving a mutually agreed


number of Government employees the opportunity to participate in training


activities provided by the Concessionaire or any of its Affiliated Companies for its


employees and specifically for Government employees.


18.4 In order for MIREM to monitor the fulfilment of the employment and training


obligations contained in this Article, the Concessionaire shall annually submit its


recruitment and training programmes to MIREM.





18.5 The Concessionaire shall pay one million United States dollars (US$ 1,000,000) to


the Government. This amount shall be used as institutional support to the entities





involved in promotion and administration of Petroleum Operations. Such payment


shall be made within thirty (30) days from the Effective Date to the Government in


accordance with the instruction provided by the representative of the Government


(execution copy 57


 designated in this EPC.





18.6 (a) During the Exploration Period, the Concessionaire shall pay to the


Government two hundred thousand United States Dollars (US$ 200,000)


per year, to be spent on training and institutional support programmes


within the Government. The Concessionaire and the Government may


mutually agree to training activities to be funded by Concessionaire. In such


instances the agreed amount of funding shall be used as a credit against the


following year’s training obligation. The first payment shall be made on the


anniversary of the Effective Date within the Exploration Period of this EPC


and subsequent payments shall be made on the anniversaries thereof.


b) During the Development and Production Period the Concessionaire shall


pay to the Government three hundred thousand United States Dollars


(US$300,000) per year to be spent on training and institutional support


programmes within the Government. The Concessionaire and the


Government may mutually agree to training activities to be funded by


Concessionaire. In such instances the agreed amount of funding shall be


used as a credit against the following year’s training obligation. The first


payment shall be made within thirty (30) days from the approval of the first


Development Plan and subsequent payments shall be made on the


anniversary thereof.


18.7 The Concessionaire shall pay to the Government two hundred and fifty thousand


United States dollars (US$ 250 000) for social support projects for the citizens of


the Republic of Mozambique in areas where Petroleum Operations take place. The


Concessionaire may recommend social programs to be funded by the


Concessionaire and if agreed by the Government the agreed amount of funding


shall be used as a credit against the following year social support obligation. The


first payment shall be made within thirty (30) days from the Effective Date. Such


annual amount to be paid by the Concessionaire until a total amount of one million


United States Dollars (USS 1.000.000) has been paid in full.


18.8 The Concessionaire shall include as part of the Development Plan proposals for the


activities required to satisfy the obligations contained in Article 18.3 during the


Execution cop}' 58


 Development and Production Period.








18.9 The sums expended by the Concessionaire to satisfy the obligations contained in


this article shall be recoverable costs for the purpose of Annex “C” of this EPC.












































































































































r.\eciitJ0H copy 59


 Article 19


Indemnification and Liability





19.1 The Concessionaire shall indemnify and hold the Government harmless from and


against any and all claims instituted against the Government by third parties in


respect of injury, loss or damage caused by the Concessionaire in the conduct of the


Petroleum Operations in which the Concessionaire participates, provided that the


claims are duly qualified by a third party or the Government. In no case the


Concessionaire's liability under this Article shall include punitive damages.


19.2 The Government shall indemnify and hold the Concessionaire, its Subcontractors


and any of its Affiliated Companies harmless from and against any and all claims


instituted against the Concessionaire, its Subcontractors and any of its Affiliated


Companies by third parties in respect of injury, loss or damage caused by the acts


or omissions of the Government in its commercial capacity.


19.3 Except as provided for in Article 19.8 no Party hereto shall settle or compromise


any claim for which another Party is responsible hereunder without the prior


written consent of such other Party, and in the event that it does so, the indemnity


aforesaid shall not have effect in relation to the claim so settled or compromised.


19.4 Notwithstanding anything to the contrary in this EPC, the Concessionaire, its


Subcontractors and any of its Affiliated Companies carrying out such Petroleum


Operations on behalf of the Concessionaire shall not be liable to the Government


and the Government shall not be liable to the Concessionaire, for consequential loss


or damage including but not limited to inability to produce Petroleum, loss of


production, loss of profit or punitive damages.


19.5 Subject to Article 19.4, in carrying out Petroleum Operations under this EPC the


Concessionaire shall be liable for any injury, loss or damage suffered by the


Government and caused by the Concessionaire or by any Affiliated Company or


Subcontractor carrying out Petroleum Operations on behalf of the Concessionaire if


such injury loss or damage is the result of the Concessionaire’s, the Affiliated


Company’s or the Subcontractor’s failure to meet the standards required by this


EPC.


Invention copy 60


19.6 Any claim pursued by any third parties which would entitle any of the Parties


(together the ‘indemnified Party”) of this EPC to be indemnified by any of the


other Parties of this EPC (together the “Indemnifying Party”) shall be promptly


communicated by notice to the Parties so that the Indemnifying Party may promptly


intervene in the claim and pursue its defence. The Indemnified Party which is in


breach of the obligation to notify the claim and causes the Indemnifying Party not


to be able to properly pursue its defence, shall loose its rights to the indemnification


under this Article.


19.7 If within thirty (30) days of receipt of such claim notice, the Indemnifying Party


notifies the Indemnified Party that it elects to assume the defence of such claim,


then the Indemnifying Party shall have the rights to defend, at its cost and expense,


such claim by all appropriate proceedings including any compromise or settlement


thereof, so long as any settlement agreement does not provide for or result in any


continuing liability or obligation on the Indemnified Party in respect of such third


party claim.


19.8 If the Indemnifying Party fails timely to elect to assume the defence of such claim,


then the Indemnified Party shall have the right to defend at the sole cost and


expense of the Indemnifying Party the third party claim by all appropriate


proceedings including any compromise or settlement thereof.






































r.wciition copy 61


 Article 20


Title





20.1 Title to the Concessionaire’s entitlement of Petroleum Produced under this EPC


shall pass to the Concessionaire at the Wellhead. Thereafter the Government and


the Concessionaire shall own the Petroleum jointly, and in undivided shares, until


each takes individual title to and delivery of its entitlement of Petroleum at the


Delivery Point.


20.2 The Concessionaire shall finance the cost of all facilities and equipment to be used


in Petroleum Operations. Subject to applicable law and this Article the


Concessionaire shall have the right to use such equipment and facilities for


Concessionaire Petroleum Operations during the term of this EPC and any


extensions thereof until the EPC expires, is surrendered or cancelled, in which case


the title to said facilities and equipment at the option of the Government and


without additional compensation may be transferred to the Government. In the


event that Government requires the transfer of such facilities and equipments to the


Government or to a Mozambican Person wholly owned or controlled by the


Government, Concessionaire shall be released from all responsibility and liability


of every kind pertaining to decommissioning of such facilities and equipments as


well as payment of any further funds in the Decommissioning Fund. Government


shall indemnify Concessionaire from and against any loss, damage and liability of


any nature whatsoever, as well as any claim, action or proceeding instituted against


Concessionaire by any person or entity, including, but not limited to any


Governmental authority, arising from, or connected with, the continued use of such


facilities and equipments and their ultimate decommissioning, as well as any failure


by Government or person appointed by Government to properly decommissioning


such facilities and equipments.


20.3 The Concessionaire shall be the owner of facilities and necessary appurtenant


equipment for use in Petroleum Operations under this EPC unless otherwise


approved by the Government. The provisions of Article 20.2 above with respect to


the title of property passing to the Government shall not apply to equipment


approved by the Government as belonging to third parties. Moveable facilities and


equipment owned by foreign third parties may be freely exported from the Republic


Kxscutfon copy 62


of Mozambique in accordance with applicable law and the terms of the applicable


agreement.


20.4 Third parties may subject to terms and conditions stipulated by applicable


Petroleum law have the right to the use available spare capacity of facilities and


necessary appurtenant equipment on terms and conditions to be agreed between the


parties and acceptable to the Government. Such terms and conditions shall include


a tariff that shall represent the payment for the Concessionaire's cost of additional


investments required for facilitating such third party use as well as operational costs


and a profit element reflecting the risk taken by the owner of the facilities. The


tariff for third party use of facilities and appurtenant equipment shall be approved


by the Government. When the Concessionaire and the third parties wishing to make


use of facilities can not agree to a reasonable tariff for third party use the


Government may stipulate the tariff.


20.5 Third party use of facilities and necessary appurtenant equipment shall only take


place when such third party use is not materially negatively affecting


Concessionaire Petroleum Operations and is feasible from a technical,


environmental and safety point of view.















































Kscciitlnn copy 63


 Article 21


Rights of Inspection








MIREM shall have the right at its own cost, save for transport and accommodation to be


provided by the Concessionaire, to post duly appointed representatives on site on a


permanent basis at metering stations, provided that such appointed representatives shall not


interfere with any Petroleum Operations.








































































































Execution copy 64


 Article 22


Accounting and Audits





22.1 The Concessionaire shall be responsible for maintaining accounting records of all


costs, expenses and credits of the Petroleum Operations in accordance with the


provisions of Annex “C” of this EPC. The said accounting records shall be kept in


the Republic of Mozambique.


22.2 MIREM shall have the right to audit and inspect the Concessionaire’s accounting


records in accordance with the provisions of Annex “C”.










































































KxeCHtfqn copy 65


 Article 23


Confidentiality





23.1 This EPC, the Documentation and other records, reports analyses, compilations,


data, studies and other materials (in whatever form maintained, whether


documentary, computer storage or otherwise) are confidential (hereinafter referred


to as “Confidential Information”) and except as authorised by applicable law or this


Article shall not be disclosed to any third party without the prior written consent of


all the Parties hereto, which consent shall not be unreasonably withheld.


23.2 Nothing in this Article shall prevent the disclosure of Documentation, excluding the


Concessionaire’s interpretations and assessments, to a third party by the


Government:








(a) if it relates to an area which is no longer part of the EPC Area; or


(b) with the written consent of the Concessionaire, which shall not be





unreasonably withheld if, in the judgment of the Government the


Documentation might have significance for the assessment of prospectivity


in an adjoining area over which the Government is offering Exploration


rights.








23.3 Restrictions on disclosure imposed by this Article shall not apply to a disclosure


made reasonably:








(a) if it is required for the purpose of any arbitration or legal proceedings or


claim relating to this EPC or to the Petroleum Operations;





(b) to a Subcontractor, or consultant in connection with the conduct of


Petroleum Operations;





(c) by the Concessionaire or Operator to a third party where such disclosure is


essential to the safe conduct of Petroleum Operations;


(e) by the Concessionaire to a third party for the purpose of entering into a


contract for data exchange with another entity operating in Mozambique


where all data exchanged relates to Petroleum Operations within


Mozambique;


(f) by any Person constituting the Concessionaire to a bona fide intending


assignee of an interest under this EPC or an interest in any Person


constituting the Concessionaire;


(g) to a third party in connection with and for the purpose of the sale or


proposed sale of Petroleum from the EPC Area;


(h) to a third party in connection with the financing or proposed financing of


Petroleum Operations;


(i) which is required by any applicable law or by the rules or regulations of any


recognised stock exchange on which shares of the disclosing Party or any of


its Affiliated Companies are listed; or


(j) if, and to the extent that, it is already public knowledge without improper


disclosure hereto.


Any Confidential Information disclosed pursuant to paragraphs (b), (d), (e), (f) or


(h) of this Article 23.3 shall be disclosed on terms that ensure that such


Confidential Information is treated as confidential by the recipient.


23.4 None of the Persons constituting the Concessionaire shall be required to disclose


any of its proprietary technology or that of their Affiliated Companies or


proprietary technology of a third party licensed to the Persons constituting the


Concessionaire or the Operator.











1.sedition copy 67


 Article 24


Assignment





24.1 Subject to Article 9.14 and this Article the Concessionaire, and where the


Concessionaire is more than one Person every Person who constitutes the


Concessionaire, may assign to another Person its rights and obligations hereunder


or an undivided proportionate part thereof. The same applies to other direct and


indirect transfers of interest or participation in the EPC, including, inter alia,


assignment of shareholdings or any legal instrument which provides or may


provide decisive control over a Person constituting the Concessionaire or its


Participating Interest in this EPC. Save as provided in Article 24.2, an assignment


shall require the prior written consent of the Minister of Mineral Resources.


24.2 No consent shall be required by the Minister of Mineral Resources in case of an


assignor who is not in material breach of any of the terms and conditions hereof in


respect of an assignment:


(a) as a result of an Assignment Notice served on a Defaulting Participant


under this EPC; or





(b) if required to give effect to the default procedures under a joint operating


agreement concluded in relation to the Petroleum Operations.


24.3 Each assignment made pursuant to this Article shall be effected by an instrument in


writing to be executed by the assignee on terms whereby such assignee accepts and


agrees to become a Person constituting the Concessionaire and to be bound by the


terms and conditions of this EPC including all appurtenant documents required by


an administrative decision or applicable law and free of any transfer charge or fees.


24.4 No unitisation pursuant to this EPC or applicable law or any adjustment to the


portion of the unitised Discovery allocated to the EPC Area shall be considered to


be an assignment under this Article.








XA


Kxccution copy 68 Jr»


 Article 25


Force Majeure





25.1 The non-performance or delay in performance, wholly or in part, by the


Government or the Concessionaire of any obligation under this EPC excepting an


obligation to make payments hereunder, shall be excused if, and to the extent that,


such non-performance or delay is caused by Force Majeure.


25.2 For the purpose of this EPC, the term Force Majeure means any cause or event


beyond the reasonable control of, and not brought about at the instance of, the Party


claiming to be affected by such event, and which has caused the non-performance


or delay in performance. Without limitation to the generality of the foregoing,


events of Force Majeure shall include natural phenomena or calamities including


but not limited to, epidemics, earthquakes, storms, lightning, floods, fires,


blowouts, wars declared or undeclared, transboundary hostilities, blockades, civil


unrest or disturbances, labour disturbances, strikes, quarantine restrictions and


unlawful acts of government.


25.3 The Party claiming suspension of its obligations under this EPC on account of


Force Majeure shall:


(a) promptly notify the other Parties of the occurrence thereof;


(b) take all actions that are reasonable and legal actions to remove the cause of


Force Majeure but nothing herein shall require the Concessionaire, subject


to applicable law, to resolve any labour dispute except on terms satisfactory


to the Concessionaire; and


(c) upon removal or termination thereof, promptly notify the other Parties and


take all reasonable action for the resumption of the performance of its


obligations under this EPC as soon as possible after the removal or


termination of Force Majeure.











Kvi'Ctitioii copy 69


25.4 Where under this EPC the Concessionaire is required or has the right to do any act


or to carry out any programme within a specified period or the rights of the


Concessionaire hereunder are to subsist for a specified period the specified period


shall be extended so as to take reasonable account of any period during which by


reason of Force Majeure the Concessionaire has been unable to carry out the


programme necessary to exercise a right, carry out its obligations or enjoy its rights


hereunder.


25.5 Where a Force Majeure situation continues for more than fifteen (15) consecutive


days, the Parties shall meet forthwith in order to review the situation and to agree


on the measures to be taken for the removal of the cause of Force Majeure and for


the resumption in accordance with the provisions of this EPC of the performance


of the obligations hereunder.




































































i.wcntfon copv 70


 Article 26


Foreign Exchange Control





26.1 The Concessionaire shall at all times comply with the procedures and formalities


relating to dealings in foreign exchange which may be in force in the Republic of


Mozambique from time to time and the Government undertakes to ensure that those


procedures and formalities will not in any way diminish the rights accorded to the


Concessionaire under clauses 26.2 to 26.8.


26.2 The Concessionaire shall have the right but not the obligation:


(a) to open and keep one or more accounts denominated in Mozambican


currency with any bank in the Republic of Mozambique authorised by


Banco de Mozambique for this purpose and to dispose freely of the sums


deposited therein without restriction.


Such accounts may be credited only with:


(i) the proceeds of the conversion into Mozambican currency pursuant


to Article 26.2(c) of United States dollar funds deposited in the


accounts referred to in Article 26.2(b);


(ii) the unused balance of any sums drawn from such account; and





(iii) amounts received in Mozambican currency in respect of funds


related to Petroleum Operations including sale of Petroleum or of


any rental, refund or other credit received by the Concessionaire


which apply to any charge made to the accounts under this EPC.


(b) to open and keep one or more accounts denominated in United States


dollars, with any bank in the Republic of Mozambique authorised by Banco


de Mozambique for this purpose, to freely import and deposit into such


account funds required for the conduct of Petroleum Operations and to


freely dispose of the sums deposited therein without restriction, provided


always that such accounts are credited only with sums deposited in United


I'.W'Ciilion copy 71 JA





 States dollars;





(c) to purchase Mozambican currency from banks in the Republic of


Mozambique, exchange houses, other financial institutions, authorised by


Banco de Mozambique for this purpose.


26.3 (a) The Concessionaire and the Operator acting on behalf of the Concessionaire


shall have the right to open and keep up to four (4) accounts (as well to


open and keep further accounts outside the Republic of Mozambique with


the prior consent of the Bank of Mozambique) with any bank outside the


Republic of Mozambique, in any foreign currency, and freely dispose of the


sums deposited therein without restriction, with funds related to Petroleum


Operations. Such accounts, however, shall not be credited with the proceeds


of the sale of Mozambican currency without the prior consent of the Bank


of Mozambique except for funds generated by the sale within the Republic


of Mozambique of Petroleum, or of assets held in respect of Petroleum


Operations, which may be credited to the aforesaid accounts without the


need for prior consent.


(b) Save in respect of funds needed by the Concessionaire to discharge its


obligations under this EPC to the Government, which payments may be


made out of proceeds deposited in such offshore accounts, the


Concessionaire shall have the right to retain abroad all proceeds and


payments under this EPC received in said bank accounts, and to dispose


freely of the same without any obligation to convert the whole or any part of


such proceeds and payments to Mozambican currency or to otherwise


repatriate the same or any part thereof to the Republic of Mozambique;


provided, however, that subject to applicable law, the estimated amount of


tax due in respect of the Concesssionare’s share of Profit Petroleum shall be


remitted to an account in the Republic of Mozambique within 45 days, and


all amounts to which the Government is entitled shall be remitted to the


Republic of Mozambique within 30 days.


(c) All payments to the Government and/or to ENH shall be made in United


States dollars , unless the Parties have agreed otherwise, to two accounts


Execution copy 72


 domiciled in the Republic of Mozambique, the first to be indicated by the


Government and the other by ENH.





(d) The Concessionaire shall be obliged to report periodically on the operation


of the accounts referred to in clause 26.3(a), above. Specifically, the


Concessionaire shall copy the Government on monthly bank statements


received. The Government shall be entitled to audit such accounts.


Amounts spent on any such audits shall be cost recoverable. The


Concessionaire shall wave banking confidentiality as to the Government in


respect of such accounts in order to facilitate any such audits.


26.4 Subject to withholding tax due, all non-resident Subcontractor and all of the


Expatriate Personnel of the Concessionaire, the Operator or of any Subcontractors,


shall be entitled to receive in any currency other than Mozambican currency the


whole or any part of his compensation outside the Republic of Mozambique. All


payments to resident subcontractors shall be made exclusively in Mozambique.


26.5 This foreign exchange regime shall not apply to ENH or its legal successor, in the


event that same is a Mozambican Person, as a Person constituting Concessionaire


under this EPC, which shall be subject to the regime set forth in applicable law.


26.6 Subject to clause 26.3(b), above, the Concessionaire may receive, remit and retain


abroad and freely dispose of all or any part of the proceeds realised from the sale of


its share of Petroleum, including the portion of Crude Oil for the recovery of costs


and the Profit Petroleum to which it is entitled.


26.7 Subject to withholding tax due, the Concessionaire shall have the right freely to


declare and pay dividends to their shareholders and to remit the same abroad under


the terms of the applicable law.


26.8 The Government and the Concessionaire shall develop procedures under which


amounts demonstrably expended under this EPC that are cost recoverable, as well


as such further amounts demonstrably expended as may be classifiable as capital


expense under applicable law, shall be entitled to capital registration


notwithstanding the account from which the corresponding expenses were made.


I.\mit Iwi copy 73


Ksecufjojj copy





74


 Article 27


Nature and Extent of the Rights of the Concessionaire


27.1 Subject to any right that the Government may have under the laws of Mozambique


for imperative reasons in the national interest to acquire Petroleum to which the


Concessionaire holds title, and the right of the Government to collect Petroleum


Production Tax in kind pursuant to Article 11.6 (d) the Concessionaire may, by


export or otherwise, freely sell or otherwise dispose of its entitlement to Petroleum


as provided for in this EPC.


27.2 The rights granted under this EPC to the Concessionaire and its Subcontractors


shall include the right of use and enjoyment of the land and maritime areas


encompassed in the EPC Area, for the purpose of conducting Petroleum


Operations. For that purpose Concessionaire and its Subcontractors may construct


and operate such works, facilities, platforms, structures and pipelines as may be


necessary. Such rights to be exercised by the Concessionaire provided, however,


that the lawful occupier of any land in the EPC Area shall retain any rights he may


have to graze stock upon or cultivate the surface of the land, except to the extent


that such grazing or cultivation interferes with Petroleum Operations in any such


area. Further, for the purpose of conducting Petroleum Operations, Concessionaire


and its Subcontractors may conduct and operate works, facilities, platforms,


structures and pipelines necessary in the EPC area. Such rights to be exercised by


the Concessionaire, provided, however, that such Persons shall retain rights they


may have to fishing or aquaculture, except to the extent such activities interfere


with Petroleum Operations in such area.


27.3 The right of the Concessionaire to use the land, maritime area or sea bed shall


continue to apply to acreage initially included within the EPC Area but


subsequently relinquished in accordance with the terms of this EPC where such


use is reasonably necessary for purposes of conducting Petroleum Operations in the


EPC Area then remaining under this EPC.





27.4 For the purposes of carrying out Petroleum Operations, the Concessionaire and any


Subcontractors shall have at all times access to and from the EPC Area and to any


other area in the Republic of Mozambique where the Concessionaire has acquired


execution copy 75


 or constructed facilities, subject to Articles 27.9(f) and (g).





27.5 The rights of the Concessionaire under Articles 27.2, 27.3, 27.4, 27.8, and 27.9


shall be exercised reasonably so as to affect as little as possible the interests of any


lawful occupier of land in the EPC Area.


27.6 Where in the course of conducting Petroleum Operations in the EPC Area the


Concessionaire causes disturbance to the rights of the lawful occupier of any land


or causes damage to his growing crops, trees, buildings, stock or works the


Concessionaire shall pay to the lawful occupier such compensation in respect of


any such disturbance or damage as may be agreed by a settlement or as


Concessionaire may be adjudged liable to pay by final, non-appealable order or


judgement of a court or arbitral body under Mozambican jurisdiction.


27.7 Where in the course of conducting Petroleum Operations in the EPC Area the


Concessionaire causes disturbance to the rights of a Person having their fishing


fields or grounds occupied, aquaculture activities limited, fishing or aquaculture


equipment moved to less favourable locations from a maritime resource


management or commercial point of view, as well as having their equipment, catch


or harvest polluted or damaged the Concessionaire shall pay to the Person affected


such compensation in respect of any such demonstrable disturbance or damage as


may be agreed by settlement or as Concessionaire may be adjudged liable to pay by-


final, non-appealable order or judgement of a court of or arbitral body under


Mozambican jurisdiction.


27.8 Where the amount of any compensation to be paid pursuant to Articles 27.6 and


27.7 is in dispute, the matter shall be referred for determination to a sole expert


pursuant to Article 30.6 as though it were a matter in dispute between the Parties.


27.9 For the purposes described in this Article the following rights are granted to the


Concessionaire subject to and in accordance with the provisions of the work


programme related thereto and applicable law:


(a) to drill for and have the free use of water and impound surface waters and to


establish systems for the supply of water for the Petroleum Operations and


Execution copy 76


 for consumption by its employees and its Subcontractors;





(b) with the consent of, and subject to such terms and conditions agreed with,


any Person having the right to dispose of such minerals, to carry away and


use for Petroleum Operations in Mozambique, materials such as gravel,


sand, lime, gypsum, stone and clay; provided that if the Person having the


right to dispose of the same is the Government or an agency of


Government; then Concessionaire shall have the use of such minerals for


the Petroleum Operations in accordance with applicable law;





(c) to erect, set up, maintain and operate engines, machinery, pipelines,


gathering lines, umbilicals, storage tanks, compressor stations, pumping


stations, houses, buildings and all other constructions, installations, works,


platforms, facilities and other fixtures which are required in furtherance of


its Petroleum Operations;





(d) to erect, set up, maintain and operate all communication and transportation


systems and facilities but shall not, save for temporary purposes, do so


unless drawings of and locations for their sites have been submitted to and


approved by the Government, under reasonable conditions of installation


and operation of such systems and facilities;





(e) to erect, maintain and operate harbour and terminal facilities for use


exclusively in Petroleum Operations, together with the necessary means of


communication and transport between such facilities and any part of the


EPC Area; provided that the consent of the Government to the location of


such works shall first be obtained;





(f) with respect to lands located outside of the EPC Area, to have the right of


way over land not in the beneficial occupation of any Person and in the case


of land in the beneficial occupation of the Government or any state


company, agency or instrumentality of the Government to have right of way


on such reasonable terms and conditions as the Government and the


Concessionaire may agree; and








Execution copy 77


(g) with respect to lands located outside of the EPC Area, to have, otherwise


than aforesaid, the use of land necessarily required for the conduct of


Petroleum Operations with the agreement of the Person holding a right


affected, including the lawful occupier of land or, in the case of unoccupied


land or land occupied by the Government or any state company, agency or


instrumentality of the Government on such reasonable terms and conditions


as the Government shall specify, provided that if the Concessionaire is


unable to reach agreement with the Person so affected on the terms and


conditions for the use of any such right including land the Concessionaire


shall immediately notify the Government. If the use of the rights by the


Concessionaire is to be of a temporary nature, not exceeding one (1) year,


the Government shall authorise such temporary use upon deposit by the


Concessionaire with the Government of a sum by way of compensation to


such Person holding the right for loss of use and damage to its interest. If


the use is required to be for a period longer than one (1) year, the


Government shall authorise the use by the Concessionaire of the right in


question upon deposit by the Concessionaire with the Government of such


sum by way of compensation and shall direct appropriate proceedings to


grant the Concessionaire the right to use and legally utilize the right under


the law at the moment in force as if the Petroleum Operations were in all


respects a work of public utility.


27.10 The Concessionaire shall be subject to the procedures and formalities required by


applicable law for the exercise of the rights set forth in this Article.


27.11 (a) In the event that the Government exercises any right it may have under the


applicable laws to acquire for imperative reasons in the national interest


Petroleum belonging to the Concessionaire, the Government shall give not


less than forty five (45) days notice of the exercise of such right and of the


volumes it wishes to acquire, and the Concessionaire shall supply the


volumes so notified from the Petroleum to which the Concessionaire is


entitled under this EPC at the Delivery Point or such point that may be


agreed or such point within Mozambican jurisdiction designated by the


Government. Additional cost incurred by Concessionaire in order to deliver


such Petroleum at any other point than the Delivery Point with facilities and


i U'Ctltioll copy 78


f





 equipment in place, as well as other necessary costs related to the delivery


of such Petroleum, shall be reimbursed to the Concessionaire by


Government and the cost of any new facilities and equipment to be used for


such delivery shall be paid by the Government.





(b) The Government shall pay the Concessionaire the full market value of the


Petroleum so acquired determined in accordance with Article 10. Payment


for the Petroleum so acquired in any calendar month shall be made in


United States dollars within thirty (30) days after the end of that calendar


month. The Concessionaire may receive, remit and retain abroad and freely


dispose of all or any part of the sums so paid.


(c) The Government shall not exercise its right to acquire Petroleum belonging


to the Concessionaire:





(i) in respect of any month unless during that month the Government is


taking Petroleum Production Tax entirely in kind pursuant to


Article 11.5;


(ii) unless it is also exercising the same right rateably among all





producers of Petroleum within the Republic of Mozambique (to the


extent practicable taking into account the geographical location of


the production in relation to the geographical location of the


requirements).








27.12 The Government undertakes that so long as this EPC subsists:





(a) The Government, its political subdivisions, agencies and instrumentalities,


to the extent that they have or may acquire the power to do so, will not


expropriate, nationalise or intervene in the assets, rights, interests or any


other property of any kind of the Concessionaire held for the purpose of


Petroleum Operations including the rights held by the Concessionaire


hereunder.








Without prejudice to the rights of the Government acting through MIREM


Execution copy- 79 V





 to regulate Petroleum Operations in the Republic of Mozambique, for the


purpose of this undertaking, the Government shall be deemed to have


intervened in the property or assets of the Concessionaire if (otherwise than


pursuant to a judgment or in exercise of its rights as a mortgage creditor, or


in accordance with the law of insolvency, liquidation or creditor’s rights) it


assumes power of management over such property or assets or exercises


effective control of such property or assets.


(b) In the event of a breach of Article 27.12(a), nothing in the provisions of


Article 19.5 shall be read or construed as preventing consideration of the


projected flow of profits (if any) from Petroleum Operations hereunder for


the purpose of determining the value of property or assets expropriated,


nationalised or made subject to intervention.


(c) In the event that the Petroleum Law is repealed or amended, the


Government undertakes to ensure that this EPC remains in full force and


effect provided always that nothing in this provision will be construed as


requiring the Government to relieve the Concessionaire from compliance


with the provisions of applicable law relating to Petroleum Operations, not


inconsistent herewith, which may be in force from time to time.


27.13 (a) Where for the purpose of conducting Petroleum Operations hereunder the


Concessionaire, Operator or any Subcontractor requires from MIREM, the


Government or from any agency or instrumentality of the Government or


from a political subdivision thereof any approvals, licences, permits,


authorisations, consents or releases or any assistance, advice or guidance


relating to the above, then subject to the terms and conditions of this EPC,


the same shall be granted or given expeditiously and without undue delay.


(b) Without prejudice to the generality thereof, the undertaking set out in


Article 27.13(a) shall apply to:





formalities relating to the import and export of goods including the


export of Petroleum Produced hereunder;


formalities relating to the use by the Concessionaire of any form of


transport for the movement of employees, equipment and materials


and to the use of communication and port facilities in the Republic


of Mozambique;


the grant of permits or other approvals required for the admission


into and employment in the Republic of Mozambique of Expatriate


Personnel;


- the grant of land rights or the permits or other approvals necessary


for the use of land in accordance with this Article 27;


- the grant of rights to take or use water and minerals;


- procedures and formalities relating to foreign exchange; and


- approval of assignments and, to the extent required, transactions


relating to the shares of any Person constituting the Concessionaire.





The Government will expedite all formalities regarding the


Concessionaire’s registration to do business in Republic of Mozambique


and the registration of any leases, contracts or other documents. The


Government will, to the extent that circumstances and resources permit,


ensure that the Concessionaire and its employees and property enjoy


reasonable protection in Republic of Mozambique.





27.14 In the event of changes in Petroleum legislation or in other Mozambican legislation


affecting Petroleum Operations that may, individually or in the aggregate, create a


material adverse effect to the economic benefits of the Concessionaire or to the


State in terms of this EPC, the Parties shall, as soon as possible after any of the


above-mentioned situations occur, meet to verify and agree on the changes, in all


cases, that may be required to the EPC in order to restore, as closely as possible, the


economic benefits that the Concessionaire would have derived if the change in the


legislation had not been effected.








The provisions of this article shall not be read or construed as imposing any


limitation or constraint on the scope, or due and proper enforcement, of


Mozambican legislation which does not discriminate, or have the effect of


discriminating, against the Concessionaire, and provides for the protection of


health, safety, labour or the environment, or for the regulation of any category of


property or activity carried on in Mozambique, provided, however, that the


r


Execution copy 81





 Government will at all times during the period of Petroleum Operations ensure that,


in accordance with the terms of Article 31, measures taken for the protection of


health, safety, labour or the environment are in accordance with standards that are


reasonable and generally accepted in the international petroleum industry.

















































































































K'CCIitioli cup.' 82


 Article 28


Protection of the Environment





28.1 The Government will at all times during the life of the Petroleum Operations ensure


in accordance with this Article, that measures taken in the interest of safety, health,


welfare or the protection of the environment are in accordance with standards


generally accepted from time to lime in the international petroleum industry and are


not unreasonable.


28.2 In carrying out Petroleum Operations hereunder the Concessionaire shall:


(a) in accordance with accepted standards in the international petroleum


industry employ up-to-date techniques, practices and methods of operation


for the prevention of environmental damage, the control of waste and the


avoidance of unnecessary loss of, or damage to, natural resources;


(b) observe applicable laws and regulations of general application in force from


time to time in the Republic of Mozambique for the protection of the


environment; and


(c) comply strictly with the obligations relating to the protection of the


environment it has assumed under any approved Development Plan .


28.3 The Concessionaire undertakes for the purposes of this EPC to take all necessary


and adequate steps in accordance with Good Oilfield Practice to:


(a) ensure, if the Concessionaire is otherwise legally responsible, proper


compensation for injury to Persons or damage to property caused by the


Petroleum Operations;


(b) avoid irremediable environmental damage to the EPC Area and adjoining or


neighbouring lands and marine areas caused by the Concessionaire’s


Petroleum Operations; and


(c) rehabilitate at its own cost all areas that suffer environmental damage as a


Execution copy 83


 result of the Petroleum Operations.








28.4 If the Concessionaire fails to comply with the terms of Articles 28.2 or 28.3 or


contravenes any law on the prevention of environmental damage and such failure or


contravention results in any environmental damage, the Concessionaire shall take


all necessary and reasonable measures to remedy such failure or contravention and


the effects thereof.








28.5 (a) If the Government has reasonable grounds to believe that any works or


installations erected by the Concessionaire or any operations carried out by


the Concessionaire in the EPC Area are endangering or may endanger


Persons or any property of any other Person or is causing pollution or


harming wildlife or the environment to a degree which the Government


considers unacceptable, the Government shall notify the Concessionaire of


its concerns and the Government and the Concessionaire shall immediately


consult to agree on remedial measures to be taken by the Concessionaire.


Said remedial measures will be undertaken w'ithin a reasonable period of


time to repair any damage and to prevent further damage to the extent


reasonably practicable. If there is a disagreement between the Government


and the Concessionaire regarding the existence of a problem of the type


described in this Article or the remedial action to be taken by the


Concessionaire, such matter shall be submitted to a sole expert for


determination pursuant to Article 30.6.


(b) in the case of any matter referred to a sole expert under Article 28.5(a), if


requested by the Government, the Concessionaire shall undertake such


temporary measures to address the Government’s concerns as may be


reasonably requested by the Government.





28.6 Without limitation to the generality of Articles 28.2, 28.3, 28.4 and 28.5, the


Concessionaire shall cause a consulting firm or individuals, approved by the


Government on account of their special knowledge of environmental matters, to


carry out an environmental impact study on terms of reference determined by the


Concessionaire and approved by the Government, in order to establish what the


effect will be on the environment, human beings, wildlife or marine life in the EPC


l.U'ciitliin copy 84


 Area in consequence of the Petroleum Operations to be undertaken under this EPC





28.7 If the Concessionaire fails to comply with any terms contained in this Article


within a reasonable period of time the Government may, after giving the


Concessionaire notice of such failure to comply and a reasonable period of time


necessary to take corrective action, take any action which may be necessary to cure


such failure, and recover, immediately after having taken such action, all


expenditure incurred in connection with such action from the Concessionaire


together with interest at the prevailing LIBOR rate calculated from the date such


expenditure is made until repaid. “LIBOR” meaning the annual rate equal to the


average three (3) month term compounded quarterly at the London inter-bank


offered rate for United States dollar deposits as published by the Wall Street


Journal or, if not published therein, then by the Financial Times of London. Should


a rate not be quoted for a relevant date (such as weekends or public holidays), then


the first subsequent quoted rate shall be used.


28.8 The Concessionaire and MIREM shall notify each other of any environmentally,


archaeologically, historically or similarly protected areas or features which might


be affected by the Petroleum Operations.


28.9 In the event that Petroleum Operations are intended to be conducted within the


boundaries of any protected area within the EPC Area, the Concessionaire shall


obtain such additional approvals from the Government, as may be required by


applicable law.



































Execution copy 85


 Article 29


Surrender and Cancellation





29.1 The Concessionaire on giving to MIREM not less than thirty (30) days notice may:


(a) if its obligations in respect of any Exploration Period have been fulfilled, at


any time thereafter surrender its rights in respect of the entire EPC Area


with the consequence that no new obligations will thereafter accrue; and


(b) at any time, surrender its rights in respect of any acreage forming part of the


EPC Area with the consequence that no new obligations will thereafter


accrue in respect of such acreage; provided, however, that:


(i) no surrender by the Concessionaire of its rights over any part of the


EPC Area shall relieve the Concessionaire of any of its obligations


as set out in Article 4; and


(ii) any area surrendered shall be continuously delineated by meridians


and parallels of latitude expressed in whole minutes of a degree.


29.2 Unless otherwise provided in this Article, the Government may, by notice to the


Concessionaire, cancel this EPC for the reasons given in applicable law, including


in any of the following events:





(a) the Concessionaire is in material breach of the terms and conditions of this


EPC;





(b) the Concessionaire fails to materially comply within a reasonable period of


time with any final decision reached as a result of arbitration proceedings


conducted pursuant to Article 30.2 or fails within a reasonable period of


time to accept as final and binding the decision of a sole expert to whom,


pursuant to this EPC, any matter has been referred under Article 30.6;





(c) where the Concessionaire is one Person, an order is made or a resolution is


passed by a court of competent jurisdiction winding up the affairs of the


86


ICvi'ciition copy


Concessionaire unless the winding up is for the purpose of amalgamation or


reorganisation and the Government has been notified of the amalgamation


or reorganisation, or if without the approval of the Government, the


majority of the shares in the Concessionaire are acquired by third parties


other than an Affiliated Company; or


(d) the Concessionaire is more than one Person and all Persons who constitute


the Concessionaire are for the purpose of Article 29.3(a) Defaulting


Participants.


29.3 (a) In the event that more than one Person constitutes the Concessionaire, and


in respect of any such Person (hereinafter in this Article referred to as the


“Defaulting Participant”) an event occurs of the kind described in Article


29.2(c) or any such Person (also hereinafter referred to as the “Defaulting


Participant”) is in material breach of an obligation under this EPC which as


provided in Article 5.2(a) is a several obligation, the Government will not


be entitled to cancel this EPC pursuant to Article 29.2 or otherwise, unless


all the Persons who constitute the Concessionaire are Defaulting


Participants, but may subject to Article 29.4, serve on the Defaulting


Participant a notice (hereinafter referred to as an “Assignment Notice”).


(b) Where an Assignment Notice has been served on a Defaulting Participant,


the Defaulting Participant shall forthwith, unconditionally, without


consideration, and free from all encumbrances assign its undivided


participating share in this EPC to the other Persons who constitute the


Concessionaire (the “Non-Defaulting Participants”) in undivided shares in


proportion to the undivided shares in which the Non-Defaulting Participants


hold their shares in this EPC, and each of the Non-Defaulting Participants


shall be obliged to accept that assignment. A Non-Defaulting Participant


accepting such an assignment shall not be responsible for any obligations of


the assigning Defaulting Participant to the Government, or any third party


which accrued prior to the assignment.





29.4 The Government may cancel this EPC pursuant to Article 29.2 or serve an


Assignment Notice under Article 29.3 only if:


K locution copy 87


 (a) the Government gives not less than ninety (90) days notice (the “Notice”) to


the Concessionaire or, as the case may be, the Defaulting Participant, of an


intention to cancel this EPC or to serve an Assignment Notice stating in


detail in the Notice the alleged material breach or other grounds for


cancellation or service of an Assignment Notice relied upon by the


Government;


(b) the Concessionaire or the Defaulting Participant is given a period of thirty


(30) days from its receipt of the Notice to provide any information it wishes


the Government to consider;


(c) the Concessionaire or Defaulting Participant is given a period of sixty (60)





days from its receipt of the Notice:


(i) to cure or remove such material breach or other grounds specified in


the Notice for cancellation or service of an Assignment Notice; or


(ii) if such material breach or other grounds aforesaid cannot be cured or


removed within such sixty (60) day period, to immediately begin


efforts to cure or remove the alleged material breach or other


grounds aforesaid and to diligently pursue such efforts; or


(iii) where it is impossible to cure or remove such material breach or


other grounds aforesaid, to pay reasonable compensation to the


Government, in respect thereof; and


(d) the Concessionaire or the Defaulting Participant either:





(i) has failed within the said sixty (60) days to cure or remove such


material breach or other grounds aforesaid pursuant to Article


29.4(c)(i); or


(ii) has failed to diligently pursue efforts to cure or remove such


material breach or other grounds aforesaid pursuant to Article


29.4(c)(ii); or


McCIltiflU C(,py 88


(iii) in the event that it is impossible to cure or remove such material


breach or other grounds aforesaid, has failed within the said sixty


(60) days to pay reasonable compensation;


and the Concessionaire or the Defaulting Participant has not commenced


arbitration proceedings pursuant to Article 29.5.


29.5 Any dispute between the Parties as to whether :


(a) there are grounds under Article 29.2 on which this EPC may be cancelled;


(b) there are grounds under Article 29.3 on which an Assignment Notice may


be served on any Person;


(c) the requirements of Article 29.4(a), (b) and (c) have been satisfied; or


(d) the Concessionaire or, as the case may be, the Defaulting Participant has


remedied or removed a ground in respect of which this EPC may be


cancelled under Article 29.2 or an Assignment Notice served under Article


29.3 or whether full, prompt and effective compensation has been paid in


respect of grounds for cancellation or the service of an Assignment Notice


which are impossible to remedy or remove


shall be referred to arbitration under Article 30.








29.6 (a) Where notice of a dispute has been given by the Concessionaire in respect


of any of the matters specified in Article 29.5, the Government may not


pursuant to Article 29.2 cancel this EPC until the matter or matters in


dispute have been resolved by an award and in that event only if


cancellation is consistent with the award rendered;


(b) Where the existence of a material breach of the terms and conditions of this


EPC relates to a matter in dispute between the Government and the


Concessionaire which has been referred for determination by a sole expert





Ku'CUtlon copy 89


 pursuant to Article 30.6, a notice served on the Concessionaire pursuant to


Article 29.4 may not rely upon that matter as a reason for the intended


cancellation of this EPC until the sole expert has determined the matter and


in that event only if cancellation would be consistent with the way in which


the matter has been so determined.








































































































Exceiitiiiii copy 90


jr,


 Article 30


Consultation, Arbitration and Independent Expert





30.1 For the purpose of this article there are two Parties, the Government and the


Concessionaire.


30.2 A dispute shall be resolved, if possible, by negotiation between the Parties. A


notice of the existence of a dispute shall be given by a Party to another in


accordance with the provisions of Article 35. In the event that no agreement is


reached within thirty (30) days after the date one Party notifies the other that a


dispute exists, or such longer period that is specifically provided for elsewhere in


this EPC, either Party shall have the right to have such dispute determined by-


arbitration or an expert as provided for in this Article 30. Arbitration and expert


determination as aforesaid shall be the exclusive method of determining a dispute


under this EPC.





30.3 Subject to the provisions of this Article 30, and save for any matter to be referred to


a sole expert as provided in clause 30.6, the Parties shall submit any dispute arising


out of or in connection with this EPC which cannot be resolved by negotiation as


provided in clause 30.2 to arbitration as hereinafter provided:





(a) the dispute shall be submitted to the International Centre for Settlement of


Investment Disputes (“ICSID”) for settlement by arbitration pursuant to the


Convention on the Settlement of Investment Disputes between States and


Nationals of Other States in accordance with the arbitration rules thereof in


effect on the Effective Date (the “Convention”). It is hereby stipulated that


the transaction to which this EPC relates is an investment;





(b) the seat of the arbitration shall be Geneva, Switzerland and the law of the


merits of the arbitration shall be Mozambique law. The arbitration shall be


conducted in the English language. If for any reason an ICSID arbitral


tribunal declines to approve Geneva as the place of arbitration, the place of


arbitration for that case shall be the Permanent Court of Arbitration in the


Hague. Notwithstanding Article 32, the English version of this EPC signed


by the Parties shall be used as the official translation in arbitral proceedings;





t.u'ctitfon copy 91


 (c) if the dispute is not between one or more Parties who are nationals of a


Contracting State, on the one hand, and the Government and/or ENH, on the


other hand, or if for any reason the Centre refuses to register a request for


arbitration or an arbitral tribunal established in accordance with the ICSID


Arbitration Rules determines that the dispute is not within the jurisdiction of


the Centre, the dispute shall be settled by arbitration in accordance with the


UNCITRAL Arbitration Rules. In the event that UNCITRAL Arbitration


Rules shall be applied, the appointing authority shall be the Permanent


Court of Arbitration in The Hague





(d) an award by an arbitrator or arbitrators shall be final and binding on all


Parties;


(e) the arbitral panel shall be composed of three (3) arbitrators to be appointed





in accordance with the ICSID Rules, provided that, upon mutual agreement


of both Parties, the arbitration may be conducted by a sole arbitrator


appointed under the ICSID Rules. Unless both Parties have agreed that the


dispute shall be settled by a sole arbitrator, the claimant Party shall


nominate in the request for arbitration, and the respondent Party shall


nominate within thirty (30) days of the registration of the request, one (1)





arbitrator pursuant to the ICSID Rules. Within a period of thirty (30) days


from the date when both arbitrators have accepted their appointments the


arbitrators so appointed shall agree on a third arbitrator, who shall act as


Chairman of the arbitral tribunal. If either Party fails to nominate an


arbitrator as provided above, or if the arbitrators nominated by the Parties


fail to agree on a third arbitrator within the period specified above, then


ICSID shall make such appointments as necessary in accordance with the


ICSID Rules. If both Parties have agreed that the dispute shall be settled by


a sole arbitrator the sole arbitrator shall be nominated by agreement


between them subject to acceptance by the nominated arbitrator; provided


that if the Parties are unable to agree on a nominee for sole arbitrator within


thirty (30) days from the date of the registration of the request, then ICSID


shall appoint the sole arbitrator in accordance with the ICSID Rules;














£?£€*&»! copy 92


 (f) insofar as practicable, the Parties shall continue to implement the terms of


this EPC notwithstanding the initiation of arbitral proceedings and any


pending disputes; and





(g) the provisions set out in this Article 30 shall continue after the termination


of this EPC; and


(h) Neither any sole expert nor any arbitrator of the arbitral tribunal, as


applicable, shall be of the same nationality as any Party.





30.4 An award or a decision, including an interim award or decision, in arbitral


proceedings pursuant to this Article 30 shall be binding on the Parties and judgment


thereon may be entered in any court having jurisdiction for that purpose. Each of


the Parties hereby irrevocably waives any defences based upon sovereign immunity


and waives any claim to immunity:


(a) in respect of proceedings in aid of arbitration or to enforce any such award


or decision including, without limitation, immunity from service of process


and from the jurisdiction of any court; and


(b) in respect of immunity from the execution of any such award or decision


against the property of the Republic of Mozambique held for a commercial


purpose.


Parties in this clause 30.4 shall be understood to include each Person constituting


the Concessionaire.


30.5 Any matter in dispute of a technical nature not involving interpretation of law or


the application of this EPC and which is required to be referred to a sole expert for


determination under the provisions of this EPC, including Articles 10.3 (e) and 28.5


(a) of this EPC and Article 2.1 (e) of Annex "C" or other issues of a substantially


equivalent nature to said clauses (or with respect to any other matter which the


Parties may otherwise agree to so refer) shall be referred by a Party giving notice to


such effect pursuant to Article 35. Such notice shall contain a statement describing


the dispute and all relevant information associated therewith. A sole expert shall be





Execution copy 93


an independent and impartial person of international standing with relevant


qualifications and experience appointed pursuant to the mutual agreement of the


Parties. Any sole expert appointed shall act as an expert and not as an arbitrator or


mediator and shall be instructed to endeavour to resolve the dispute referred to him


within thirty (30) days of his appointment, but in any event within sixty (60) days


of the appointment. Upon the selection of the sole expert, the Party receiving the


notice of referral above shall submit its own statement containing all information it


considers relevant with respect to the matter in dispute. The decision of the sole


expert shall be final and binding and not subject to any appeal, save for fraud,


corruption or manifest disregard of applicable procedure of this EPC. If the Parties


are unable to agree on the appointment of a sole expert within twenty (20) days


after a Party has received a notice of referral under this Article the sole expert shall


be selected by the ICC Centre for Expertise, and the person so selected shall be


appointed by the Parties.


30.6 The sole expert shall decide the maimer in which any determination is made,


including whether the Parties shall make oral or written submissions and


arguments, and the Parties shall co-operate with the sole expert and provide such


documentation and information as the sole expert may request. All correspondence,


documentation and information provided by a Party to the sole expert shall be


copied to the other Party, and any oral submissions to the sole expert shall be made


in the presence of all Parties and each Party shall have a right of response. The sole


expert may obtain any independent professional or technical advice as the sole


expert considers necessary. The English version of this EPC signed by the Parties


shall be used as the official translation in any determination by the sole expert. The


fees and expenses of a sole expert appointed under the provisions of Article 30.5


shall be borne equally by the Parties.





30.7 The Parties hereby agree not to exercise any right to institute legal proceedings


under any law or jurisdiction to set aside any interim or final arbitral award made


pursuant to this Article 30, except that nothing in this Article 30.7 shall be read or


constmed as imposing any limitation or constraint on either Party’s right to seek to


nullify any such interim or final arbitral award (a) rendered by an ICSID arbitral


tribunal on the limited grounds and in accordance with the procedure set forth in


Article 52 of the Convention or (b) rendered by the arbitral tribunal pursuant to the


Execution copy 94


 UNCITRAL Arbitration Rules on the limited grounds set forth in Article 52 of the





Convention.
















































































































































































l.wcution copy 95


 Article 31


Applicable Law





31.1 This EPC shall be governed by and construed in accordance with the applicable


laws of the Republic of Mozambique.


(a) The Government and the Concessionaire agree to cooperate on preventing


31.2


corruption. The parties undertake to take administrative disciplinary actions


and rapid legal measures in their respective responsibilities to stop,


investigate and prosecute in accordance with national law any person


suspected of corruption or other intentional misuse resource.


(b) No offer, gift, payments or benefit of any kind, which would or could be


construed as an illegal or corrupt practice, shall be accepted, either directly


or indirectly, as an inducement or reward for the execution of this EPC or


for doing or not doing any action or making any decision in relation to this


EPC.


(c) The above is equally applicable to the Concessionaire, its Affiliated


Companies, agents, representatives, sub-contractors or consultants when


such offer, gift, payments or benefit violate:


(i) the applicable laws of the Republic of Mozambique;





(ii) the laws of the country of formation of the Concessionaire or of its


ultimate parent company (or its principal place of business); or,


(iii) the principles described in the Convention on Combating Bribeiy of


Foreign Public Officials in International Business Transactions,


signed in Paris on December 17, 1997, which entered into force on


February 15, 1999, and the Convention's Commentaries.


References in this EPC to applicable law are without prejudice to the rights of the


31.3


Parties under Article 27.14 when such applicable law is Mozambican law.











I'Accution copy 96


 Article 32


Language








This EPC has been drawn up in the Portuguese and English languages and three (3)


originals of each version have been prepared for signature by the Government and the


Concessionaire. One (1) signed original of each version will be retained by the Parties.


Both the Portuguese and English versions are binding. However, the Portuguese text will


prevail in case of conflict.


































































































Execution copy 97


 Article 33


Joint Operating Agreement





33.1 A joint operating agreement shall be signed between Persons constituting the


Concessionaire immediately upon execution of this EPC.


33.2 The joint operating agreement is subject to the approval of the Government and


such an approval is a condition for the EPC.


33.3 Every agreement other than the joint operating agreement relating to the Petroleum


Operations made between the Persons who constitute the Concessionaire shall be


consistent with the provisions of this EPC and shall be submitted to MIREM as


soon as the same has been executed.
























































KsccutioB copy 98


 Article 34


Future Agreements








It is understood that any written agreement which may at any time be concluded between


the Concessionaire on the one hand and the Government on the other, as may be required


or desired within the context of this EPC shall be deemed to have been approved to the


same extent as if it was originally included in this EPC.








































































































Execution copy 99


 Article 35





Notices





35.1 All notices, invoices and other communications hereunder shall be deemed to have


been properly given or presented, if delivered in writing in person or by courier or


sent by facsimile confirmed by courier at the addresses indicated in Article 35.2


with the charges associated with the delivery of the notice, invoice or other


communication being paid by the sender.


35.2 All such notices shall be addressed to the Government or the Concessionaire, as the


case may be, as follows:


(a) The Government








MINISTERIO DOS RECURSOS MINERAIS


Predio Montepio, Avenida Femao de Magalhaes, 34, Is1 floor


Caixa Postal 4724


Maputo, Mozambique





Attention Chairman of the National Petroleum Institute








Telephone +258 21 320935


Telefax +258 21 430 850








(b) Eni East Africa S.p.A.


Via Emilia, 1 - 20097 San Donato Milanese (MI)


Italia


PO BOX: 20097


Attention Chairman








Telephone + 39 02 52064582


Telefax + 39 02 52063259








(c) Empresa Nacional de Hidrocarbonetos E.P.


Execution copy 100


 Av. 25 de Setembro, 270, block 1


Time Square, 4'1' floor


Caixa Postal 4787


Maputo, Mozambique





Attention Chairman





Telephone : +258 21 429456


Telefax : +258 21 324808











35.3 Subject to Article 35.4 each Party hereto may substitute or change the aforesaid


address by giving written notice thereof to the others.


35.4 The Concessionaire shall at all times maintain an address in Maputo for the purpose


of service of notice.






























































Execution copy 101


 ANNEX A





DISCRETION OF THE EPC AREA











POINTS Latitude S Longitude E


N 10° 06' 42" o


O


©


O 10° 05* 29" 41° 02’01"


P 10° 05' 29" 41° 45’


Q 12° 00' 41° 45'


M 12° 00' o


o


o


 ANNEX B











MAP OF THE EPC AREA














39°0'0"E 39°30’0"E 40°0'0"E 40°30’0"E 41WE 41°30'0"E





9°0'0"S-























°30'0"S'




















0°0’0"S-




















°30'0"S'




















rws-




















°30'0"S-




















2°0'0"S'




















°30'0"S-




















3°0'0"S'


 Annex “C”


























EPC Accounting and Financial Procedure























































































































Execution cop}


 TABLE OF CONTENTS





Annex C EPC Accounting and Financial Procedure





Section 1 General Provisions................................................................................................5


1.1 Definitions...................................................................................................................5


1.2 Statements required to be submitted by the Concessionaire.......................................5


1.3 Language and Units of Account..................................................................................6


1.4 Payments....................................................................................................................6


1.5 Audit and Inspection Rights of the Government..........................................................7


Section 2 Classification, Definition and Allocation of Costs and Expenditures.......................8


2.1 Exploration Costs........................................................................................................8


2.2 Development and Production Capital Expenditures.....................................................8


2.3 Operating Costs..........................................................................................................9


2.4 Service Costs..............................................................................................................9


2.5 General and Administrative Expenses.......................................................................10


Section 3 Costs, Expenses, Expenditures and Credits of the Concessionaire....................12


3.1 Subject to Applicable Law, costs recoverable without further approval of the


Government....................................................................................................................12


3.2 Costs recoverable only with approval of the Government..........................................16


3.3 Costs not recoverable under the EPC.......................................................................16


3.4 Recoverability and Deductibility.................................................................................16


3.5 Credit under the EPC................................................................................................16


3.6 Duplication of Charges and Credits...........................................................................17


Section 4 Records and Valuation of Assets........................................................................18


Section 5 Production Statement..........................................................................................19


5.1 ...................................................................................................................................19


5.2 ...................................................................................................................................19


Section 6 Value of Production and Petroleum Production Tax Statement...........................20


6.1...................................................................................................................................20


6.2 ...................................................................................................................................20


Section 7 Cost Recovery Statement...................................................................................21


7.1 ..................................................................................................................................21


7.2 ...................................................................................................................................21


Section 8 Statement of Expenditure and Receipts..............................................................22


8.1...................................................................................................................................22


82...................................................................................................................................22


Section 9 Final End-of-Year Statement...............................................................................23


Section 10 Budget Statement.............................................................................................24


10.1 .................................................................................................................................24


10.2 .................................................................................................................................24


10.3 .................................................................................................................................24


Section 11 Long Range Plan and Forecast.........................................................................25





Execution copy


 11.1 Exploration Plan 25





Section 12 Revision of Accounting and Financial Procedures.............................................27


Section 13 Conflict with the EPC........................................................................................28























































































































Execution copy


iii


Annex C EPC Accounting and Financial Procedure








This Annex is attached to and made part of the Exploration and





Production Concession Contract dated December , 2006, awarded by


the Government of the Republic of Mozambique to Eni East Africa S.p.A


and Empresa Nacional de Hidrocarbonetos, (ENH) E.P (hereinafter


referred to as "the EPC").

































































































































































fixmilius cfifij


Page 4 of 28


Section 1 General Provisions





1.1 Definitions


For the purposes of this EPC Accounting and Financial Procedure the


terms used here in which are defined in applicable law, the EPC shall


have the same meaning when used in this EPC Accounting and Financial


Procedure.





1.2 Statements required to be submitted by the Concessionaire





(a) Within ninety (90) days of the Effective Date, the Concessionaire shall


submit to the Government a proposed outline of charts of accounts,


operating records and reports, which outline shall be in accordance with


applicable Mozambican law and generally accepted and recognised


accounting principles, consistent with best practice in the international


petroleum industry. Within ninety (90) days of receiving the above


submission Government shall either indicate its approval of the proposal


or request revisions to the proposal. Within one hundred and eighty (180)


days after the Government has approved the Concessionaire’s proposals,


the Concessionaire and Government shall approve an outline charts of


accounts, operating records and reports which shall describe the basis of


the accounting system and procedures to be developed and used under


the EPC. Following such approval, the Concessionaire shall expeditiously


prepare and provide the Government with formal copies of the


comprehensive charts of accounts related to the accounting, recording


and reporting functions, and allow Government to examine the


Concessionaire's manuals, if any, and to review procedures which are,


and shall be, observed under the EPC.


(b) Notwithstanding the generality of the foregoing, the Concessionaire is


required to make regular statements relating to the Petroleum Operations.


These Statements are as follows:





(i) Production Statement (see Section 5 of this Annex);


(ii) Value of Production and Petroleum Production Tax Statement (see


Section 6 of this Annex);





(iii) Cost Recovery Statement (see Section 7 of this Annex);


(iv) Statement of Expenditures and Receipts (see Section 8 of this


Annex);





(v) Final End-of-Year Statement (see Section 9 of this Annex);


(vi) Budget Statement (see Section 10 of this Annex);





(vii) Long Range Plans (see Section 11 of this Annex).





(c) All reports and statements will be prepared in accordance with the EPC,


applicable law and, where there are no relevant provisions in either of


these, in accordance with generally accepted and recognised accounting


principles consistent with best practice in the international petroleum


industry.





I'.xccutlon itup)


Page 5 of 28


1.3 Language and Units of Account





(a) Accounts shall be maintained in United States dollars and such


other currency as may be required under the applicable law. United


States dollars shall be the currency of reference for cost recovery


purposes. Metric units and barrels shall be employed for measurements


required under this Annex. The language employed shall be English and


such other language as may be required under the applicable law. Where


necessary for clarification the Concessionaire may also maintain accounts


and records in other languages, units of measurement and currencies.


(b) It is the intent of this Accounting and Financial Procedure that





neither Government nor the Concessionaire should experience an


exchange gain or loss at the expense of, or to the benefit of, the other.


However, should there be any gain or loss from exchange of currency, it


will be credited or charged to the accounts under the EPC.


(c) Amounts received and costs and expenditures made in





Mozambican Meticais or in United States dollars shall be converted from


Mozambican Meticais into United States dollars or from United States


dollars into Mozambican Meticais on the basis of the average of the


buying and selling exchange rates between the currencies in question as


published by Banco de Mocambique or in accordance with the applicable


law, prevailing on the actual day of the transaction on which such


amounts are received and costs and expenditures are paid or as agreed


by the Parties.;





1.4 Payments


(a) Except as provided in Subsections 1.4(b) and (c), all payments between


the Parties shall, unless otherwise agreed, be in United States dollars and


through a bank designated by each receiving party.


(b) Payment of any tax by the Concessionaire shall be made in accordance


with the provisions of the EPC and the applicable law.


(c) Discharge of the Concessionaire's obligation with respect to the


Petroleum Production Tax and the Government's share of Profit


Petroleum shall be made in accordance with the EPC.


(d) All sums due by a Concessionaire to the Government under the EPC


during any calendar month shall, for each day such sums are overdue


during such month, bear interest compounded quarterly at an annual rate


equal to the average three (3) month London interbank offered rate


(LIBOR) plus one (1) percentage points for United States dollar deposits


as published by the Wall Street Journal or, rf not published therein, then


by the Financial Times of London. Should a rate not be quoted for a


relevant date (such as weekends or public holidays), then the first


subsequent quoted rate shall be used.


1.5. Audit and Inspection Rights of the Government





(a) Upon giving the Concessionaire thirty (30) days notice, the competent


authority of the Government shall have the right to audit the


Concessionaire's accounts and records maintained in accordance with the


EPC provisions with respect to each calendar year within three (3) years


from the end of each such calendar year. An audit report with respect to


Concessionaire’s accounts of any calendar year must be submitted to the


Concessionaire within three (3) years from the end of such calendar year.


For purposes of auditing, the Government may examine and verify at


reasonable times all charges and credits relating to the Petroleum


Operations such as books of account, accounting entries, material


records and any other documents, correspondence and records


necessary to audit and verify the charges and credits. Furthermore the


auditors shall have the right in connection with such audit to visit and


inspect, subject to reasonable notification, all sites, plants, facilities,


warehouses and offices of the Concessionaire serving the Petroleum


Operations including visiting personnel associated with those operations.


(b) Without prejudice to the finality of matters as described in Subsection





1.5(a) all documents referred to in that sub-section shall be maintained


and made available for inspection by the Government for such a time as


prescribed by the applicable law.


(c) In the event that Government does not conduct an audit with respect to a


calendar year or conducts the audit but does not issue an audit report


within the time specified in Subsection 1.5 (a) above , Government shall


be deemed not to have objected the Cost Recovery Statement prepared


and maintained by the Concessionaire and such Cost Recovery


Statement shall be considered true and correct for Cost Recovery


purposes for such calendar year absent material mistake, fraud or willful


misconduct. In case where Government conducts a review and issue an


audit report, Government shall be deemed not to have objected to the


Cost Recovery Statement and such Cost Recovery Statement shall be


considered true and correct for Cost Recovery purposes for such calendar


year with respect to each item which is not the subject of an exception in


such audit report absent material mistake, fraud or willful misconduct.



























































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Page 7 of 28


Section 2 Classification, Definition and Allocation of Costs and Expenditures





All expenditures relating to the Petroleum Operations shall, subject to


Applicable Law be classified, defined and allocated as follows:





2.1. Exploration Costs


“Exploration Cost" shall consist of all direct and allocated indirect costs


incurred in the search for Petroleum in the EPC Area, including but not


limited to:


(a) Aerial, geophysical, geochemical, paleontological, geological,


topographical and seismic surveys and studies and their interpretation.


(b) Core hole drilling and water well drilling.


(c) Labour, materials and services used in drilling wells with the object of


finding new Petroleum Reservoirs or for the purpose of appraising the


extent of Petroleum Reservoirs already discovered provided such wells


are not completed as producing wells.


(d) Facilities used solely in support of these purposes including access roads


and purchased geological and geophysical information.


(e) Service Costs allocated to the Exploration Operations as per the


provisions of Subsection 2.4 of this Accounting Procedure.


(f) General and Administrative Expenses allocated to the Exploration


Operations as per the provisions of Subsection 2.5 of this Accounting


Procedure.








2.2. Development and Production Capital Expenditures


“Development and Production Capital Expenditure” shall consist of all


expenditures incurred in the Development and Production Operations,


including but not limited to:


(a) Drilling wells which are completed as producing wells and drilling wells for


purposes of producing from a Petroleum Reservoir already discovered


whether these wells are dry or producing.





(b) Completing wells by way of installation of casing or equipment or


otherwise after a well has been drilled for the purpose of bringing the well


into use as a producing well.


(c) Intangible drilling costs such as labour, consumable material and services





having no salvage value which are incurred in drilling and deepening of


wells for production purposes.


(d) The costs of field facilities such as flow lines, production and treatment





units, wellhead equipment, subsurface equipment, enhanced recovery


systems, offshore platforms, Petroleum storage facilities, export terminals








Page 8 of 28


 and piers, harbours and related facilities, and access roads for production


activities.


(e) Engineering and design studies for field facilities.





(f) Service Costs allocated to the Development and Production Operations


as per the provisions of Subsection 2.4 of this Accounting Procedure.


(g) General and Administrative Expenses allocated to the Development and





Production Operations as per the provisions of Subsection 2.5 of this


Accounting Procedure.








2.3. Operating Costs


“Operating Costs" shall consist of all expenditures incurred in the Petroleum


Operations after the start of the Commercial Production which are other than


Exploration Costs, Development and Production Capital Expenditures, General


and Administrative Expenses and Service Costs, including but not limited to:


(a) Operating, servicing, maintaining and repairing production and injection


wells and all field facilities completed during the Development and


Production Operations.


(b) Planning, producing, controlling, measuring and testing the flow of


Petroleum and collecting, gathering, treating, storing and transferring the


Petroleum from the Petroleum Reservoir to the Delivery Point.


(c) The balance of General and Administrative Expenses and Service Costs


not allocated to the Exploration Operations or the Development and


Production Operations.








2.4 Service Costs


“Service Costs" shall consist of direct and indirect expenditures in support


of the Petroleum Operations including warehouses, offices, camps, piers,


marine vessels, vehicles, motorised rolling equipment, aircraft, fire and


security stations, workshops, water and sewage plants, power plants,


housing, community and recreational facilities and furniture, tools and


equipment used in these activities. Service costs in any calendar year


shall include the total costs incurred in such year to purchase and/or


construct said facilities as well as the annual costs to maintain and


operate the same. All Service costs will be regularly allocated as


specified in Subsections 2.1(e), 2.2(f) and 2.3 to Exploration Costs,


Development and Production Capital Expenditures and Operating Costs.


Service Costs incurred during the period commencing with the Effective Date and


ending with the date of approval by MIREM of the first Development Plan for a


proposed Development and Production Area, shall be fully allocated to


Exploration Cost. Commencing with the date of approval by MIREM of the first


Development Plan for a proposed Development and Production Area, and if it


becomes necessary to allocate Service Costs to or between Petroleum





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Page 9 of 28


 Operations, such allocation shall be made on an equitable basis in accordance


with applicable law, failing agreement, the allocation to be determined by a sole


expert in accordance with Article 30 of the EPC.





The Concessionaire shall furnish a description of its allocation procedures


pertaining to Service Costs, along with each proposed Development Plan.





2.5 General and Administrative Expenses


“General and Administrative Expenses" shall consist of:


(a) All main office, field office and general administrative costs in the


Republic of Mozambique including but not limited to supervisory,


accounting and employee relations services.


(b) An overhead charge for services rendered outside the Republic of


Mozambique for managing the Petroleum Operations and for staff advice


and assistance including financial, legal, accounting and employee


relations services. This charge shall be five percent (5%) of Contract


Costs up to five million US dollars (US$5,000,000), three percent (3%) of


that portion of Contract Costs between five million US dollars


(US$5,000,000) and ten million US dollars (US$10,000,000) and one and


one half percent (1.5%) of Contract Costs which are in excess of ten


million US dollars (US$10,000,000). The contract costs referred to herein


shall include all Exploration Costs, Development and Production Capital


Expenditures, Operating Costs and Service Costs.


(c) All General and Administrative Expenses will be regularly allocated


as specified in Subsections 2.1(f), 2.2(g) and 2.3 to Exploration Costs,


Development and Production Capital Expenditures and Operating Costs.


General and Administrative Expenses incurred during the period


commencing with the Effective Date and ending with the date of approval


by MIREM of the first Development Plan for a proposed Development and


Production Area, shall be fully allocated to Exploration Cost.


Commencing with the date of approval by MIREM of the first Development


Plan for a proposed Development and Production Area, if it becomes


necessary to allocate General and Administrative Expenses to or between


Petroleum Operations, such allocation shall be made on an equitable


basis agreed between the parties in accordance with applicable law,


failing agreement, the allocation to be determined by a sole expert in


accordance with Article 30 of the EPC.


The Concessionaire shall furnish a description of its allocation procedures


pertaining to General and Administrative Expenses, along with each


proposed Development Plan








2.6 Decommissioning Fund


For the purpose of costs related to the implementation of a Decommissioning Plan a


Decommissioning Fund shall be established for each Development and Production


Area, commencing from the calendar quarter in whichever of the following situations


first occur:





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Page 10 of 28


 a) the Petroleum Produced has reached 50% of the aggregate


recoverable resources as determined in an approved Development


Plan and any successive reappraisal of such initial recoverable


reserves; or


b) five (5) years prior to the expiry or surrender of this EPC or the use of





any facility for the purpose of extracting Petroleum from a Production


and Development Area within this EPC is permanently terminated.








For every subsequent calendar quarter in which Petroleum is produced, the


Concessionaire shall charge as Operating Costs a portion of the estimated future


cost of decommissioning.


The amount to be deposited in the Decommissioning Fund for a calendar quarter





shall be charged as Operating Costs subject to the Cost Recovery limitation


stipulated in article 9.5 of the EPC and calculated in the following manner:





QD = (ECA X (EPR/CPP)) - DFB


where:





QD is the amount of funds to be transferred to


the Decommissioning Fund in respect of the


relevant calendar quarter;


ECA is the estimated cost of abandonment


operations established pursuant to the


Decommissioning Plan;


EPR is the estimated remaining Petroleum


reserves to be recovered from the end of


the calendar quarter in which the


Decommissioning Fund was opened;


CPP is the cumulative production of Petroleum


from the end of the calendar quarter in


which the Decommissioning Fund was


opened;


DFB is the Decommissioning Fund balance at


the end of the previous calendar quarter.
































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Section 3 Costs, Expenses, Expenditures and Credits of the Concessionaire





3.1 Subject to Applicable Law, costs recoverable without further approval of


the Government.





Subject to the provisions of the EPC and applicable law, the


Concessionaire shall bear and pay the following costs and expenses in


respect of the Petroleum Operations. These costs and expenses will be


classified under the headings referred to in Section 2. They are


recoverable by the Concessionaire under the EPC.


(a) Surface Rights





This covers all direct costs attributable to the acquisition, renewal or


relinquishment of surface rights acquired and maintained in force for the


EPC Area.





(b) Labour and Associated Labour Costs





(i) gross salaries and wages including bonuses and premiums of the


Concessionaire's employees directly engaged in the Petroleum


Operations, irrespective of the location of such employees, it being


understood that in the case of those personnel only a portion of


whose time is dedicated to the Petroleum Operations, only that


pro-rata portion of applicable salaries, wages and fringe benefits


will be charged;


(ii) the Concessionaire’s costs regarding holiday, vacation, sickness


and disability payments applicable to the salaries and wages


chargeable under (i) above.


(iii) expenses or contributions made pursuant to assessments or


obligations imposed under the laws of the Republic of


Mozambique which are applicable to the Concessionaire's cost of


salaries and wages chargeable under (i) above;


(iv) the Concessionaire's cost of established plans for employees' life


insurance, hospitalisation, pensions, and other benefits of a like


nature customarily granted to the Concessionaire's employees;


(v) reasonable travel and personal expenses of employees of the





Concessionaire including those made for travel and relocation of


the expatriate employees and their families assigned to the


Republic of Mozambique, all of which shall be in accordance with


the Concessionaire's normal practice;


(vi) any personal income taxes of the Republic of Mozambique


incurred by employees and paid or reimbursed by the


Concessionaire.


(c) Transportation








The cost of transportation of employees, equipment, materials and


supplies necessary for the conduct of the Petroleum Operations.





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Page 12 of 28











t,








 (d) Charges for Services





(i) Third Party Contracts


The actual costs of contracts for technical and other services


entered into by the Concessionaire for the Petroleum Operations,


made with third parties, including the Affiliated Companies which


have contracted with Concessionaire to perform services that are


normally provided by third parties, are recoverable, provided that


the prices paid by the Concessionaire are no higher than those


generally charged by other international or domestic suppliers for


comparable work and services.


(ii) Affiliated Companies of Concessionaire





Without prejudice to the charges to be made in accordance with





Subsection 2.5, in the case of services rendered to the Petroleum


Operations by an Affiliated Company of the Concessionaire, such


services shall be rendered under service agreements between


Concessionaire and Affiliated Companies, and the charges will be


based on actual costs and will be competitive. The charges will be


no higher than the most favourable prices charged by the Affiliated


Company to third parties for comparable services under similar


terms and conditions elsewhere. The Concessionaire shall specify


the amount of the charges which contributes an allocated


proportion of the general material, management, technical and


other costs of the Affiliated Company, and the amount which is the


direct cost of providing the services concerned. If necessary,


certified evidence regarding the basis of prices charged may be


obtained from the auditors of the Affiliated Company.





(e) Material


(i) General





So far as is practicable and consistent with efficient, economical


and internationally accepted operational requirements, only such


material shall be purchased or furnished by the Concessionaire for


use in the Petroleum Operations as may be required for use in the


reasonably foreseeable future and to the extent that such


purchase or supply are in accordance with the EPC.


(ii) Warranty of Material





The Concessionaire does not warrant material beyond the


supplier’s or manufacturer's guarantee and, in case of defective


material or equipment, any adjustment received by the


Concessionaire from the suppliers/ manufacturers or their agents


will be credited to the accounts under the EPC.





(iii) Value of material charged to the accounts under the EPC


(a) Except as otherwise provided in (b) below material





purchased by the Concessionaire for use in the Petroleum





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Page 13 of 28


 Operations shall be valued to include invoice price less


trade and cash discounts (if any), purchase and


procurement fees plus freight and forwarding charges


between point of supply and point of shipment, freight to


port of destination, insurance, taxes, customs duties,


consular fees, other items chargeable against imported


material and where applicable handling and transportation


expenses from point of importation to warehouse or


operating site, and its costs should not exceed those


currently prevailing in normal arms-length transactions on


the open market.





(b) Materials purchased from Affiliated Companies of the


Concessionaire shall be charged at the prices specified in


(1) and (2) hereof.


(1) New material (condition "A") shall be valued at the


current international price which should not exceed


the price prevailing in normal arms-length


transactions on the open market.


(2) Used material (conditions "B" and "C”)





(i) material which is in sound and serviceable


condition and is suitable for reuse without


reconditioning shall be classified as


condition "B" and priced at seventy-five


percent (75%) of the current price of new


materials defined in (1) above.


(ii) material which cannot be classified as





condition "B" but which:


(a) after reconditioning will be further


serviceable for original function as


good second-hand material condition


"B", or


(b) is serviceable for original function but


substantially not suitable for


reconditioning,


shall be classified as condition "C" and





priced at fifty percent (50%) of the current


price of new material as defined in (1)


above. The cost of reconditioning shall be


charged to the reconditioned material


provided that the condition "C" material


value plus the cost of reconditioning does


not exceed the value of condition "B"


material.


(iii) Material which cannot be classified as





condition "B" or condition "C" shall be priced


at a value commensurate with its use.





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Page 14 of 28


 (iv) material involving erection costs shall be


charged at the applicable percentage, in


accordance to its condition, of the current


dismantled price of new material as defined


in (1) above.





(v) When the use of material is temporary and


its service to the Petroleum Operations does


not justify the reduction in price as provided


for in (2)(ii) hereof, such material shall be


priced on a basis that will result in a net


charge to the accounts under the EPC


consistent with the value of the service


rendered.


(f) Rentals, Duties and Other Assessments





All rentals, taxes, levies, charges, fees, contributions and any other


assessments and charges levied by the Government its political


subdivisions, agencies and instrumentalities, in connection with the


Petroleum Operations and paid directly or indirectly by the


Concessionaire with the exception of the Corporate Income Tax imposed


on the Concessionaire.


(g) Insurance and Losses





Insurance premia and costs incurred for insurance arranged in


accordance with the EPC provided that if such insurance is wholly or


partly placed with an Affiliated Company of the Concessionaire, such


premia and costs shall be recoverable only to the extent generally


charged by competitive insurance companies other than an Affiliated


Company of the Concessionaire. Costs and losses incurred as a


consequence of events which are, and in so far as, not made good by


insurance obtained under the EPC are recoverable under the EPC.


(h) Legal Expenses





All costs and expenses of litigation and legal or related services


necessary or expedient for the procuring, perfecting, retention and


protection of the EPC Area, and in defending or prosecuting lawsuits


involving the EPC Area or any third party claim arising out of activities


under the EPC, or sums paid in respect of legal services necessary or


expedient for the protection of joint interest of the Government and the


Concessionaire are recoverable. Where legal services are rendered in


such matters by salaried or regularly retained lawyers of the


Concessionaire or an Affiliated Company of the Concessionaire, such


compensation will be included instead under Subsection 3.1(b) or 3.1(d)


above, as applicable.


(i) Training Costs





All costs and expenses incurred by the Concessionaire in training of its


employees located in Mozambique and engaged in the Petroleum


Operations pertaining to activities in the EPC area and such other training





t.xeculion c


Page IS of 28


 as required under the EPC or applicable law. Payments made in


accordance with Article 18.5 and Article 18.6 of the EPC.





(j) General and Administrative Expenses


The costs described in Subsection 2.5(a) and the charge described in


Subsection 2.5(b).


(k) The costs of any guarantee required by the Government under the EPC.


(l) Payments into the Decommissioning Fund and cost incurred for the


decommissioning according to applicable law and the EPC.


3.2 Costs recoverable only with approval of the Government





Interest, fees and related charges incurred on commercial loans raised by


the Concessionaire for the Petroleum Operations to the extent that such


interest, fees and related charges are commensurate with interest, fees


and related charges normally paid on loans of such nature, approval in


respect thereof not to be unreasonably withheld.





3.3 Costs not recoverable under the EPC


(a) Petroleum marketing or transportation costs of Petroleum beyond the


Delivery Point.





(b) Costs of arbitration and the independent expert under Article 30 of the


EPC.





(c) Petroleum Production Tax and Corporate Income Tax


(d) Fines and penalties imposed by any public authority in the Republic of


Mozambique or elsewhere.





3.4 Recoverability and Deductibility








The determination of whether the costs and expenses set forth herein are


recoverable or non-recoverable shall apply only to this EPC, and shall not


be interpreted to preclude the Concessionaire from deducting said


amounts in computing its net income from the Petroleum Operations for


Corporate Income Tax purposes under applicable law.








3.5 Credit under the EPC


The net proceeds of the following transactions will, subject to applicable law, be





credited to the accounts under the EPC:


(a) The net proceeds of any insurance or claim in connection with the


Petroleum Operations or any assets charged to the accounts under the


EPC when such operations or assets were insured and the premia


charged to the accounts under the EPC.





t.xfculkm copj Page 16 of 28





 (b) Revenue received from outsiders for the use of property or assets


charged to the accounts under the EPC.


(c) Any adjustment received by the Concessionaire from the





suppliers/manufacturers or their agents in connection with a defective


material the cost of which was previously charged by the Concessionaire


to the accounts under the EPC.


(d) Rentals, refunds or other credits received by the Concessionaire which





apply to any charge which has been made to the accounts under the


EPC.


(e) The amounts received for inventory materials under the EPC and





subsequently exported from the Republic of Mozambique without being


used in the Petroleum Operations.


(f) Legal expenses charged to the accounts under Subsection 3.1(h) and


subsequently recovered by the Concessionaire.





3.6 Duplication of Charges and Credits





Notwithstanding any provision to the contrary in this Accounting and


Financial Procedure, it is the intention that there shall be no duplication of


charges or credits in the accounts under the EPC.










































































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Page 17 of 28


Section 4 Records and Valuation of Assets





The Concessionaire shall maintain detailed records of property in use for


the Petroleum Operations in accordance with Applicable Law and normal


practice in exploration and production activities of the international





petroleum industry. At reasonable intervals but at least once a year with


respect to movable assets and once every five (5) years with respect to


immovable assets, inventories of the property under the EPC shall be


taken by the Concessionaire. The Concessionaire shall give the


Government at least thirty (30) days written notice of its intention to take


such inventory and the Government shall have the right to be represented


when such inventory is taken. The Concessionaire will clearly state the


principles upon which valuation of the inventory has been based. When


an assignment of rights under the EPC takes place a special inventory


may be taken by the Concessionaire at the request of the assignee


provided that the costs of such inventory are borne by the assignee.


























































































































Page 18 of 28


Section 5 Production Statement





Subsequent to the commencement of commercial production from the


EPC Area, the Concessionaire shall submit a monthly production


statement (hereinafter referred to as the “Production Statement”) to the


Government showing the following information for each Development and


Production Area:


(a) The quantity of Crude Oil produced.





(b) The quantity of Natural Gas produced.


(c) The quantities of Petroleum used for the purposes of carrying on drilling


and production operations and pumping to field storage.





(d) The quantities of Natural Gas flared.


(e) The size of Petroleum stocks held at the beginning of the month.


(f) The size of Petroleum stocks held at the end of the month.





(g) Any other relevant information as may be required under the applicable


law.





The Production Statement of each calendar month shall be submitted to


the Government no later than seven (7) business days after the end of


such calendar month.



























































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Section 6 Value of Production and Petroleum Production Tax Statement





6.1


The Concessionaire shall prepare a statement covering the determination


of the fair market value of Crude Oil and Natural Gas respectively,


produced during each calendar month and the value of the Petroleum


Production Tax payable to the Government. This statement shall contain


the following information:





(a) The quantities and prices realised therefore by the Concessionaire as a


result of sales of Crude Oil and Natural Gas respectively to third parties


(b) made during the calendar month in question.


The quantities and the prices realised therefore by the Concessionaire as


a result of sales of Crude Oil and Natural Gas respectively made during


(c) the calendar month in question, other than to third parties.


The quantity of stocks of Crude Oil and if applicable Natural Gas at the


end of the preceding calendar month.


(d) The quantity of stocks of Crude Oil and if applicable Natural Gas at the


end of the calendar month in question.


(e) The total Petroleum Production Tax liability for Crude Oil and natural Gas





respectively for the calendar month.


(f) Information available to the Concessionaire, when requested by the


Government, concerning the prices of Crude Oil or Natural Gas produced


by the main petroleum producing and exporting countries including


contract prices, discounts and premia, and prices obtained on the spot


markets.








The value of Production and Petroleum Production Tax Statement of each


calendar month shall be submitted to the Government not later than thirty


(30) days after the end of such calendar month.















































Page 20 of 28


Section 7 Cost Recovery Statement





7.1


The Concessionaire shall prepare with respect to each calendar quarter a


cost recovery statement (hereinafter referred to as the “Cost Recovery


Statement”) containing the following information:


(a) Recoverable costs carried forward from the previous quarter if any.


(b) Recoverable costs for the quarter in question.


(c) Total recoverable costs for the quarter in question (Subsection 7.1(a) plus


Subsection 7.1(b)).


(d) Quantity and value of Cost Petroleum taken proportionally in Crude oil


and Natural Gas and disposed of by the Concessionaire for the quarter in


question.


(e) EPC costs recovered for the quarter in question.


(f) Total cumulative amount of EPC costs recovered up to the end of the


quarter in question.


(g) Amount of recoverable EPC costs to be carried forward into the next


quarter.





The Cost Recovery Statement of each quarter shall be submitted to the


Government no later than thirty (30) days after the end of such quarter.















































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Page 21 of 28


Section 8 Statement of Expenditure and Receipts








8.1


The Concessionaire shall prepare with respect to each calendar quarter a


statement of expenditures and receipts under the EPC (hereinafter


referred to as the “Statement of Expenditure and Receipts”). The


statement will distinguish between Exploration Costs, Development and


Production Capital Expenditures, Operating Costs, decommissioning


costs and the balance of the Decommissioning Fund and will identify


major items of expenditures within these categories. The statement will


show the following:


(a) Actual expenditures and receipts for the quarter in question.


(b) Cumulative expenditure and receipts for the budget year in question.


(c) Latest forecast cumulative expenditures at the year end.


(d) Variations between budget forecast and latest forecast and explanations


thereof.





The Statement of Expenditure and Receipts of each calendar quarter shall


be submitted to the Government no later than thirty (30) days after the


end of such quarter.




































































EsfiCiUioii copy


Page 22 of 28


Section 9 Final End-of-Year Statement








The Concessionaire will prepare a Final End-of-Year Statement. The


statement will contain information as provided in the Production


Statement, Value of Production and Petroleum Production Tax Statement,


Cost Recovery Statement and Statement of Expenditures and Receipts


but will be based on actual quantities of Petroleum produced and


expenses incurred. Based upon this statement, any adjustments that are


necessary will be made to the payments made by the Concessionaire


under the EPC. The Final End-of-Year Statement of each calendar year


shall be submitted to the Government within sixty (60) days of the end of


such calendar year.



































































































































[' •.edition copy


Page 23 of 28


Section 10 Budget Statement








10.1


The Concessionaire shall prepare an annual budget statement


(hereinafter referred to as the “Budget Statement”). This will distinguish


between Exploration Costs, Development and Production Capital


Expenditures and Operating Costs and will show the following:


(a) Forecast expenditures and receipts for the budget year under the EPC.





(b) Forecast cumulative expenditures and receipts to the end of the said


budget year.





(c) A schedule showing the most important individual items of forecast


Development and Production Capital Expenditures for the said budget


year.





10.2


The Budget Statement shall be submitted to the Government with respect


to each budget year no less than ninety (90) days before the start of the


year except in the case of the first year of the EPC when the Budget


Statement shall be submitted within thirty (30) days of the Effective Date.





10.3


It is recognised by the Concessionaire and the Government that the


details of the Budget Statement may require changes in the light of


existing circumstances and nothing herein contained shall limit the


flexibility to make such changes. Consistent with the foregoing the


revision of said Statement is provided for annually.

































































Execution copy


Page 24 of 28


Section 11 Long Range Plan and Forecast





The Concessionaire shall prepare and submit for information and planning


purpose to the Government either one or both of the following two (2) long


range plans, whichever is appropriate:


11.1 Exploration Plan


During the Exploration Period, the Concessionaire shall prepare an


Exploration Plan for each period of three (3) calendar years commencing


as of the first day of January following the Effective Date (hereinafter


referred to as the "Exploration Plan”) which shall contain the following


information:


(a) Estimated Exploration Costs showing outlays for each of the three (3)


calendar years covered by the Exploration Plan.


(b) Details of seismic operations planned for each such year.


(c) Details of all drilling activities planned for each such year.


(d) Details of infrastructure utilisation and requirements.


The first such Exploration Plan shall also include the above information for


the period starting on the Effective Date and ending on the last day of


December of that calendar year.


The Exploration Plan shall be revised at the beginning of each calendar


year following of the Effective Date. The Concessionaire shall prepare


and submit to the Government the first Exploration Plan within sixty (60)


days of the Effective Date and thereafter shall prepare and submit to the


Government no less than forty-five (45) days before the end of each


calendar year following the Effective Date a revised Exploration Plan.


11.2 Development Forecast


The Concessionaire shall prepare a development forecast for each period


of five (5) calendar years (hereinafter referred to as the “Development


Forecast”) commencing as of the first day of January following the date


when the first development plan is approved and the Concessionaire


commences the implementation of such plan.


The Development Forecast shall contain the following information:


(a) Forecast of Development and Production Capital Expenditures for each of


the five (5) calendar years.


(b) Forecast of Operating Costs for each such calendar year.


(c) Forecast of Petroleum production for each such calendar year.


(d) Forecast of number and types of personnel employed in the Petroleum


Operations in the Republic of Mozambique.





I' xcciifioii


Page 25 of 28


(e) Description of proposed Petroleum marketing arrangements.


(f) Description of main technologies employed.


(g) Description of working relationship of the Concessionaire to the


Government.


The Development Forecast shall be revised at the beginning of each


calendar year commencing as of the second year of the first Development


Forecast. The Concessionaire shall prepare and submit to the


Government the first Development Forecast within one hundred and


twenty (120) days from the date when the first development plan is


approved or deemed to have been approved by the Management


Committee and the Concessionaire commences the implementation of


such plan and thereafter shall prepare and submit a revised Development


Forecast to the Government no later than forty-five (45) days before each


calendar year commencing as of the second year of the first Development


Forecast.


11.3 Changes of Plan and Forecast


It is recognised by the Concessionaire and the Government that the


details of the Exploration Plan and Development Forecast may require


changes in the light of existing circumstances and nothing herein


contained shall limit the flexibility to make such changes. Consistent with


the foregoing the revision of said Plan and Forecast is provided for


annually.







































































>11 CO|>>


Page 26 of 28


Section 12 Revision of Accounting and Financial Procedures








The provisions of this Accounting and Financial Procedure may be


amended by determined by Applicable Law or in absence of such law


agreement between the Concessionaire and the Government. The


amendments shall be made in writing and shall state the date upon which


the amendments shall become effective.



























































































































































i-M copy


Page 27 of 2 8


Section 13 Conflict with the EPC








In the event of any conflict between the provisions of this Accounting and


Financial Procedure and the EPC, the provisions of the EPC shall prevail.



















































































































































































Execution copy


Page 28 of 28


 ANNEX“D”





Bank Guarantee








[Date]


Ministry of Mineral Resources


The Minister of Mineral Resources


Av. Fernao de Magalhaes, 34, 1


Maputo, Mozambique








1. We understand that on_2006, the Government of the Republic of


Mozambique, Empresa Nacional de Hidrocarbonetos, (ENH) E.P and Eni East


Africa S.p.A. (the latter also the “Guaranteed Party”) entered into an Exploration and


Production Concession Contract for Area 4 of the Rovuma Basin offshore of


Mozambique (the “EPC”). For purposes of this Bank Guarantee, ENH and the


Guaranteed Party are collectively referred to as the “Concessionaire”. Capitalised


words not defined in this Bank Guarantee shall have the meaning ascribed to them


in the EPC.


2. We, the undersigned [BANK LEGAL NAME] (the “Bank"), hereby, save for the


conditions stipulated below in clause 5, unconditionally and irrevocably guarantee in


favour of the Government of the Republic of Mozambique (the “Government") the due


and punctual payment of all sums owed to the Government and unpaid by the


Guaranteed Party in respect of the Concessionaire’s failure to fulfil the Exploration


work commitment in relation to the...............Exploration Period, up to a maximum


of United States_(US$ _,000,000).


3. The guarantee amount referred to in clause 2 above shall be reduced from time to


time upon delivery to the Bank of a certificate from the Guaranteed Party


countersigned on behalf of the Government setting forth the amount of such


reduction based on completion of the corresponding items of the Exploration work


commitment determined according to Article 4 of the EPC.








fjtcculMin coj>»


 r


4, This Bank Guarantee shall become effective on the Effective Date of the EPC and


shall terminate on the expiry of the ................ Exploration Period, or such earlier


time as the total of the reductions during such Exploration Period equal the


guarantee amount referred to in clause 2 above.


5. Demands may be made under this Bank Guarantee by the Government by


delivering to the Bank the Government's written statement setting forth the amount


claimed and certifying that the amount claimed represents the amount due and


owing by the Guaranteed Party in respect of the Concessionaire’s failure under the


EPC to fulfil the Exploration work commitment in relation to the ...............


Exploration Period:


(a) the Concessionaire has failed to incur the Minimum Expenditure in relation to





the relevant Exploration Period:


(b) the Guaranteed Party has been notified in writing by the Minister of Mineral


Resources, by registered letter or courier (a copy of which to be attached to


such written statement), of Concessionaire's non-compliance and the details


thereof, and has been advised that a drawing is being made against this


unconditional and irrevocable Bank Guarantee; and


(c) the Concessionaire has been provided a minimum of fourteen (14) days to





correct the conditions of non-compliance and has failed to do so.


6. Upon its cancellation or expiry, this Bank Guarantee shall be returned to the


Guaranteed Party.


The duly authorised representative of the Bank has executed this Bank Guarantee on this


the_day of_20[ ].





Very truly yours,


for and on behalf of


[BANK LEGAL NAME]





El edition copy


2


 ANNEX “E”





Parent Company Guarantee


THIS GUARANTEE is made the day of 20[ ]


BY and BETWEEN


(1) Eni S.p.A, a limited liability company established under the laws of Italy (the


"Guarantor"), in favour of


(2) THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE, herein represented


by the Minister for Mineral Resources and Energy (the "Government");


(each a "Party" and collectively the "Parties")


WHEREAS


A On_, the Government, Empresa Nacional de Hidrocarbonetos, (ENH)


EP and Eni East Africa S.p.A. (the “Concessionaire") entered into an Exploration


and Production Concession Contract (the "EPC") for Area 4 of the Rovuma Basin,


offshore of Mozambique.


B The Guarantor is the ultimate parent company of Eni East Africa S.p.A. (the


“Company”).


C The Government requires that the due and proper performance of the Company


Obligations shall be guaranteed by the Guarantor under the terms of this Guarantee


and the Guarantor is willing to grant this Guarantee.


NOW IT IS HEREBY AGREED AS FOLLOWS:


1 DEFINITIONS AND INTERPRETATION








1.1 "Company Obligations" means any obligations limited to the Company’s


Participating Interest in the EPC and related to or arising out of the Company’


activities relevant to Petroleum Operations during any period occurring any time


after completion of the Exploration Period up to and including final


implementation of decommissioning of facilities.


1.2 “Third Party Claimant” means a natural person who is a citizen of the Republic


of Mozambique or any legal entity established and registered pursuant to


Mozambican law, with its headquarters in Mozambique and having at least 50%


of its share capital held by citizens of Republic of Mozambique.





Terms defined in the EPC shall have the same meaning when used in this Guarantee.


Words referred to in the singular shall include the plural and vice versa.














/


2 GUARANTEE





2.1 The Guarantor irrevocably and unconditionally guarantees, subject to all the


other terms of this Guarantee, that if the Company fails, in whole or in part, to


perform any of the Company Obligations towards the Government, and to


satisfy any claim of a Third Party Claimant made against the Company as a


result or consequence of the Company’s acts or omissions in carrying out the


Company Obligations (each of the Government, and Third Party Claimant


being hereinafter collectively referred to as the “Beneficiaries”), the Guarantor


shall as soon as reasonably practicable following a demand made in


accordance with clause 3, take such steps itself as shall be necessary:


(a) to perform such Company Obligation or remedy such breach; or





(b) where such failure or breach is not capable of remedy, restore performance of


the breached Company Obligation.


2.2 This Guarantee shall become effective thirty (30) days after the approval of





the Development Plan and shall terminate on termination of all relevant


Petroleum Operations subject to the applicable law and the EPC.





2.3 Upon termination of this Guarantee the Guarantor shall have no further


liability whatsoever to the Beneficiaries under or in connection with this


Guarantee save in respect of any breach notified by the Beneficiaries in


accordance with clause 3 this Guarantee prior to its termination.








3 DEMANDS





3.1 The Beneficiaries shall notify the Guarantor in writing when a breach of a


Company Obligation has occurred and such notice shall contain a description


of such breach.


3.2 Subject to clauses 4 and 7 of this Guarantee, if the Company fails to remedy a





breach specified in a notice given under clause 3.1 within fourteen (14) days


of receipt of such notice by the Guarantor, the Beneficiaries may then make a


demand in writing to the Guarantor that shall (i) set out the alleged breach of


the Company Obligation(s); and (ii) require the Guarantor to take such steps


as are provided in clause 2 of this Guarantee.








4 RIGHTS AND OBLIGATIONS


4.1 The Beneficiaries shall be obliged before exercising any of the rights, powers or





remedies conferred upon it in respect of the Guarantor by this Guarantee or by


law:





4.1.1 to notify the Company of the breach of a Company Obligation;


4.1.2 if the Company:











2


(a) in the case of a claim by the Government, disputes the breach notified by the


Government, to have obtained an arbitral award or expert determination


confirming such breach by the Company; or


(b) in the case of a claim by a Third Party Claimant, disputes the breach notified


by such Third Party Claimant, to have obtained a court judgment or order,


provided that such judgment or order of a court has been issued against the


Company and such judgment or order is final and non-appealable; and


4.1.3 to make or file any claim or proof in winding-up or dissolution of the Company (to


the extent applicable).


5 LIMITATIONS


5.1 The obligations of the Guarantor under this Guarantee shall not be discharged


or impaired by any act or omission or any other event or circumstances


whatsoever (whether or not known to the Company, the Guarantor or the


Beneficiaries) which would or might (but for this clause 5) operate to impair or


discharge the Guarantor's liability under this Guarantee, including, but without


limitation:


5.1.1 any of the Company Obligations being or becoming illegal or invalid, in


any respect;


5.1.2 any granting of time (or other indulgence) to the Company or any other


person; or


5.1.3 any amendment to or variation, waiver or release of, any of the terms of the


EPC to the extent that such amendment, variation, waiver or release is


made with the Guarantor's prior written consent.








6 ASSIGNMENT AND SUCCESSORS


6.1 Any benefit of this Guarantee shall not be assignable by the Beneficiaries to


any person.


6.2 The Guarantor may not assign its rights and obligations under this Guarantee


without the prior written consent of the Government.





7 LIMITATION AND MAXIMUM LIABILITY OF GUARANTOR





7.1 Notwithstanding any other provisions of this Guarantee, the Guarantor shall


have all of the rights, limitations, defences including, without limitation, all


rights of set off, available to the Company under the EPC or at law in the case


of a claim by a Third Party Claimant in relation to any demand made under


clause 3.2 of this Guarantee In no circumstances shall the Guarantor be liable


to pay any amount under this Guarantee which is greater than the Company


would have been liable to pay if the Company had performed the Company


Obligations.


3


 7.2 Notwithstanding any other provision of this Guarantee, the Beneficiaries prior


to making any demand or any attempt to collect under this Guarantee, shall


first pursue collection from the Company and shall exhaust all resources


against and liquidation of the Company assets, including but not limited to any


applicable insurance coverage available to satisfy any Company Obligations.





8 GOVERNING LAW AND JURISDICTION


This Guarantee shall be governed by and construed in accordance with the laws


of the Republic of Mozambique. The provisions of Article 30 of the EPC shall


apply 'mutatis mutandis' to this Guarantee in respect of all disputes between the


Government, the Guarantor or the Company.








9. NOTICES


9.1 Any notice to be given by either Party to the other under this Guarantee shall be in


writing and shall be delivered by hand to the Guarantor or the Beneficiaries, as the


case may be, or sent to such recipient by recorded delivery letter or facsimile


addressed to such recipient at such address and for the attention of such person


as the Guarantor or the Beneficiaries, as the case may be, shall from time to time


designate by notice, and until such notice shall be given the addresses of the


Guarantor and the Beneficiaries shall be as follows:


The Guarantor


Attention: _


Telephone: _


T el ef ax: _











The Government


Avenida Fernao de Magalhaes 34


Caixa Postal 2904


Maputo, Mozambique


Attention: National Petroleum Institute


Telephone: +258 21 320 935


Telefax: +258 21 430 850


9.2 All notices delivered by recorded delivery or hand shall be deemed to be effective


upon receipt. Notices given by facsimile shall be deemed to have been received


where there is confirmation of uninterrupted transmission by a transmission report


and where there has been no telephonic communication by the recipient to the


senders (to be confirmed in writing) that the facsimile has not been received in


legible form within twenty-four (24) hours of sending.














4


 IN WITNESS WHEREOF this Guarantee has been executed by the Guarantor and has


been accepted by the Government on the date specified above.














for and on behalf of XXX




















for and on behalf of THE


GOVERNMENT OF THE REPUBLIC


OF MOZAMBIQUE



































































































































5


1





ANNEX F








JOINT OPERATING AGREEMENT