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ANNEX "A"
SCALE 1:100000

OCCIDENTAL PHILIPPINES, INC.
PHILIPPINES

N.W. PALAWAN
SERVICE CONTRACT AREA

-40-



PHILIPPINES N.W. PALAWAN

CONTRACT AREA COORDINATES

CORNER                           NORTH LATITUDE                          EAST LONGITUDE
1                                        11DEG 16MIN 00SEC                     118DEG 36MIN 00SEC
2                                        11DEG 22MIN 00SEC                     118DEG 36MIN 00SEC
3                                        11DEG 22MIN 00SEC                     118DEG 48MIN 00SEC
4                                        11DEG 26MIN 00SEC                     118DEG 48MIN 00SEC
5                                        11DEG 26MIN 00SEC                     118DEG 43MIN 30SEC
6                                        11DEG 28MIN 00SEC                     118DEG 43MIN 30SEC
7                                        11DEG 28MIN 00SEC                     118DEG 48MIN 00SEC
8                                        11DEG 30MIN 00SEC                     118DEG 48MIN 00SEC
9                                        11DEG 30MIN 00SEC                     118DEG 49MIN 30SEC
10                                      11DEG 36MIN 00SEC                     118DEG 49MIN 30SEC
11                                      11DEG 36MIN 00SEC                     118DEG 51MIN 00SEC
12                                      11DEG 42MIN 00SEC                     118DEG 51MIN 00SEC
13                                      11DEG 42MIN 00SEC                     118DEG 52MIN 30SEC
14                                      11DEG 48MIN 00SEC                     118DEG 52MIN 30SEC
15                                      11DEG 48MIN 00SEC                     118DEG 51MIN 00SEC
16                                      11DEG 56MIN 00SEC                     118DEG 51MIN 00SEC
17                                      11DEG 56MIN 00SEC                     118DEG 52MIN 30SEC
18                                      12DEG 04MIN 00SEC                     118DEG 52MIN 30SEC
19                                      12DEG 04MIN 00SEC                     118DEG 57MIN 00SEC
20                                      12DEG 08MIN 00SEC                     118DEG 57MIN 00SEC
21                                      12DEG 08MIN 00SEC                     119DEG 18MIN 00SEC
22                                      12DEG 00MIN 00SEC                     119DEG 18MIN 00SEC
23                                      12DEG 00MIN 00SEC                     119DEG 15MIN 00SEC
24                                      11DEG 49MIN 48SEC                     119DEG 15MIN 00SEC
25                                      11DEG 50MIN 27SEC                     119DEG 08MIN 33SEC
26                                      11DEG 50MIN 27SEC                     119DEG 06MIN 00SEC
27                                      11DEG 46MIN 45SEC                     119DEG 06MIN 00SEC
28                                      11DEG 46MIN 45SEC                     119DEG 09MIN 00SEC
29                                      11DEG 44MIN 00SEC                     119DEG 09MIN 00SEC
30                                      11DEG 44MIN 00SEC                     119DEG 06MIN 00SEC
31                                      11DEG 40MIN 00SEC                     119DEG 06MIN 00SEC
32                                      11DEG 40MIN 00SEC                     119DEG 03MIN 00SEC
33                                      11DEG 36MIN 00SEC                     119DEG 03MIN 00SEC
34                                      11DEG 36MIN 00SEC                     119DEG 00MIN 00SEC
35                                      11DEG 32MIN 00SEC                     119DEG 00MIN 00SEC
36                                      11DEG 32MIN 00SEC                     118DEG 57MIN 00SEC
37                                      11DEG 24MIN 00SEC                     118DEG 57MIN 00SEC
38                                      11DEG 24MIN 00SEC                     118DEG 54MIN 00SEC
39                                      11DEG 20MIN 00SEC                     118DEG 54MIN 00SEC
40                                      11DEG 20MIN 00SEC                     118DEG 51MIN 00SEC
41                                      11DEG 16MIN 00SEC                     118DEG 51MIN 00SEC

APPROXIMATE AREA = 281,275 He.




Republic of the Philippines

OFFICE OF ENERGY AFFAIRS

Manila

ANNEX "B"

ACCOUNTING PROCEDURES

Attached to and made an integral part of the Contract between
the OFFICE OF ENERGY AFFAIRS, OFFICE OF THE PRESIDENT and
CONTRACTOR dated ________ day of________________, 19_____.

ARTICLE I = GENERAL PROVISIONS

1 . A. Definitions
The Accounting Procedures herein provided for are to
be followed and observed in the performance of all
obligations under the Contract to which this Exhibit
is attached. The terms appearing in this Annex "B"
shall have the same meaning as those defined in the
Contract.

B . For purposes of Article II, Paragraph 10 and 11,
CONTRACTOR herein shall refer to the Operator who is
the party designated in accordance with the
CONTRACTOR'S operating agreement to conduct the
Operations in the Contract Area for the joint
account of the CONTRACTOR.

2. Accounts and Currency Exchange

CONTRACTOR shall maintain accounting records foe the
Petroleum Operations in accordance with generally
accepted accounting practices used in the petroleum


industry and in such a manner that all revenues and
expenditures will be segregated or can be allocated to
appropriate Contract Areas. All revenues and expenditures
applicable to the Petroleum Operations shall be recorded
in both U.S. and Philippine currencies. Any transactions
between U.S. Dollars and! Philippine Pesos shall be stated
at the applicable exchange rate. For these purposes, the
applicable exchange rate shall be Inter-bank Guiding Rate
for U.S. Dollars as quoted by the Philippine National
Bank, Manila at the close of business on the last banking
day of the month of disbursement or receipt, or if there
were no such quotations on that day, then such rates on
the most recent day in such preceding month during which
there were such quotations or on such other basis as may
be agreed upon by the Parties. Provided, however, that
in the event of a significant change in the rate of
exchange after the end of the preceding month, then all
transactions after such re-evaluations until the close of
the accounting books of the preceding month, shall be
translated at the rates in effect on the day of the
significant change.

Any advances made, expenditures incurred or receipts
realized in any currency other than Philippine Pesos or
U.S. Dollars shall first be translated into U.S. Dollars
at the average of T/T selling and buying rates in the New
York money market at the date of transaction- If there
were no such quotations on the date of transaction, then
the average rate on the most recent date shall be
applicable.

It is agreed, however, that any adjustment resulting from
the exchange of currency required for the use of this
Operation or from the translation above listed, shall be


charged or credited to the Operating Expense , The matter
of translation rates will be reconsidered if it is
determined that the above methods result in inequities.

3 . Statements

In implementation of Section VII of the Contract,
CONTRACTOR shall render to the OFFICE OF ENERGY AFFAIRS a
statement of all charges and credits to the Operations
summarized by appropriate classifications indicative of
the nature thereof.

4. Adjustments

Subject to the provisions of Section 15.2 of the
Contract, all statements rendered to the OFFICE OF ENERGY
AFFAIRS by the CONTRACTOR during any Calendar Year shall
conclusively be presumed to be true and correct and
reasonable unless within the period provided in said
section, the OFFICE OF ENERGY AFFAIRS takes written
exception thereto and makes claim on CONTRACTOR for
adjustment. Failure on the part of the OFFICE OF ENERGY
AFFAIRS to make written claim on CONTRACTOR for
adjustment within such period shall establish the
correctness and reasonableness thereof and preclude the
filing of exceptions thereto or making of claims for
adjustment thereon.

5. Audits

Audits shall be conducted in the manner and at the times
stipulated by Section 15.2 of the Contract.



6. Conflicts

If there should be any conflict between the provisions of
this Accounting Procedure and the Contract, the latter
shall control.

ARTICLE II - OPERATING EXPENSES

Subject to the provisions of the Contract and the limitations
herein prescribed, CONTRACTOR shall charge the Operating
Expenses with the following items:

1. Surface Rights

All direct costs attributed to the acquisition, renewal
or relinquishment of surface rights acquired.and
maintained in force for the Operations hereunder when
paid by the CONTRACTOR in accordance with the provisions
of the Contract, except processing fees, bonuses, rentals
and other payments made to the OFFICE OF ENERGY AFFAIRS
and the costs attributed to posting the performance
guarantee deposits required under this Contract.

2. Labor

A. Salaries and wages of CONTRACTOR'S employees
directly engaged for the benefit of the Operations
in the exploration, development, maintenance and
operation of the Contract Area. Salaries and wages
shall include everything constituting gross pay to
employees as reflected on the CONTRACTOR'S payrolls.
To the extent not included in the salaries and wages
the Operating Expenses shall also be charged with
overtime, rest day pay holiday, vacation pay and


vacation travel pay, sickness and disability
benefits, bonuses, and other customary allowances
applicable to the salaries and wages chargeable
hereunder and in Paragraph 10 of this Article II.

B. Costs of expenditures or contributions made pursuant
to assessments imposed by governmental authority
which are applicable to CONTRACTOR'S labor cost of
salaries and wages as provided under Subparagraph 2A
and Paragraph 10 of this Article II.

3 . Employee Benefits

A. For CONTRACTOR'S employees participating under "Home
Office based" benefit plans, CONTRACTOR'S cost of
established plans for employee's group life
insurance, health insurance, pension retirement,
thrift and other benefits of a like nature, shall be
charged at a percentage rate based on CONTRACTOR’S
cost, experience for the preceding year applied to
the amount of salaries and wages chargeable under
Subparagraph 2A and Paragraph 10 of this Article.

B. CONTRACTOR'S employees participating in "non-home
office based" benefit plans shall be charged at a
percentage rate reflecting actual payments or
accruals made by the CONTRACTOR applicable to such
employees; actual payments against any amounts
accrued will not be chargeable to the Operating
Expenses .

C. CONTRACTOR'S cost experience rates in 3D shall be
redetermined during the first quarter of the
following year, and charges to Operating Expenses
will be adjusted accordingly. 



4. Material

Material, equipment, and supplies purchased or furnished
by CONTRACTOR and subsequently used in the Operations and
which are not classified as tangible investments under
Paragraph 13 of this Article II, These materials, |
equipments and supplies shall be valued as follows:

A. New Material, Equipment and Supplies Purchased
(Condition A) shall be valued at "new price” which
shall include such costs as export broker's fees,
transportation charges, loading and unloading fees
and license fees associated with procurement of
materials and equipment, duties and customs fees and
in-transit losses not recovered through insurance
and installation cost.

B. Good Used Material, Equipment and Supplies being
used as material, equipment and supply in sound and
serviceable condition suitable for reuse without
reconditioning shall be valued at:

1. Seventy-five percent (75%) of current new
price of the said material, equipment and
supplies if such was originally charged to
operating expenses as new.

2 . Sixty-five percent (65%) of current new price
if said material, equipment and supplies was
originally charged to the Operating Expenses
as second hand at seventy-five percent (75%)
of new price.






C. Other Used Material, Equipment and Supplies.

Used Material, equipment and supplies being used
shall be valued at fifty percent (50%) of current
new price.

1. If after reconditioning, said used material,
equipment and supplies will be further
serviceable for original function as good
second hand material.

2. If said used material, equipment and supplies
is serviceable for original function but
substantially not suitable for reconditioning.

D. Bad Order Material and Equipment

Material and Equipment which are no longer usable
for its original purpose without excessive repairs
but are still usable for some other purposes shall
be valued on a basis comparable with that of items
normally used for that purpose.

E. Junks

Junks, being obsolete and scrap material, equipment
and supplies shall be valued at prevailing prices.

F. Temporarily Used Materials, Equipment and Supplies

When the use of material, equipment and supplies is
temporary and its services does not justify the
reduction in price as provided in Paragraph B(2)
above, such material, equipment and supplies shall
be priced on the basis that will leave a net charge
to Operating Expenses consistent with the value of
the service rendered.



So far as it is reasonable, practical and consistent with
efficient and economical operation, only such material
shall be purchased for or transferred for use in the
Operations as may be required for immediate use; and the
accumulation of surplus stocks shall be avoided.
CONTRACTOR does not warrant the materials purchased for
the Petroleum Operations, and in case of defective
materials, credit shall not be passed until adjustment
has been received by the CONTRACTOR from the manufacturer
or its agents. CONTRACTOR agrees that it shall exercise
good business judgment and good faith in pursuing
warranties and guarantees received from the manufacturer
of defective materials or its agents.

5. Transportation
Transportation of employees, equipment, material and
supplies necessary for the Operations: Employees 
transportation cost will include travel costs for
employees and their families paid by CONTRACTOR in
conformity with CONTRACTOR'S established Policy Manual.
Transportation costs for returning an employee and his
family to their Country of Origin shall be chargeable to
the Operating Expenses provided that Operating Expenses
shall not be charged expenses incurred in moving an
employee beyond his point of origin established at the
time of his transfer to the Philippines.

6. Services
A. Outside Services: The cost of consultants, contract
services and utilities procured from outside sources
including all such services as are rendered in
connection with geological, geophysical, drilling
and development activities.

B. In the event the CONTRACTOR from time to time
utilizes skilled personnel not regularly residing in
the Philippines for performance of services either
in the Philippines or elsewhere for benefit of the
Petroleum Operations whose time in full or in part
is not otherwise charged hereunder, a proper
proportion of the direct and indirect salary and
travel expenses of such personnel (including
reasonable living expenses while in the Philippines)
together with any taxes on such salaries or
otherwise imposed upon the employee’s service in the
Philippines which are payable to the Philippine
Government and for which the CONTRACTOR assumed
responsibility, and any accident or sickness
compensation and/or hospitalization cost incurred
shall be charged to Operating Expenses.

C. Data processing and computer services acquired for
the direct benefit of the Operations may be
contracted through third parties or by arrangement
for time rental of computer services from the
CONTRACTOR’S affiliates even though such computer
facilities are physically located outside the
country. In either case, contract for computer
services must be competitively priced. Charges to
the Operating Expenses under this provision for
services directly benefiting the Operations shall be
in addition to any charges allowed under Paragraph
10 and 11 of this Article II.

D. Use of Exclusively Owned Facilities

1. Equipment owned by the second party/parties or
any Affiliate or either of them, and not
previously charged to the Operating Expenses,

either directly or indirectly, may be utilized
in the Operations. For the use of any such
wholly-owned equipment, the Operating Expenses
shall be charged a rental rate commensurate
with the cost of ownership and operation, but
not to exceed commercial rates for the use of
like equipment.

2. A fair rate shall be charged for laboratory
services performed by the second party/parties
or their Affiliates for the benefit of the
Petroleum Operations, such as but not limited
to gas, water, core and any other analyses and
tests provided such charges shall not exceed
those currently prevailing if performed by
outside technical service companies.

E. Charges to the Operating Expenses for technical
services as contemplated by Paragraph 6B and 6C and
6D above shall be included on the basis upon which
overhead charges are applied under Paragraph 11 of
this Article II.

7. Damage and Losses.

All costs or expenses necessary to replace or repair
damages or losses not recovered from insurance incurred
by fire, flood, storm, theft, accident, or any other
cause not controllable by CONTRACTOR through the exercise
of reasonable diligence. CONTRACTOR shall furbish the
OFFICE OF ENERGY AFFAIRS written notice of damages or
losses incurred as soon as practicable after report of
the same has been received by CONTRACTOR.

B. Legal Expenses

All costs and expenses of litigation, or legal service
otherwise necessary or expedient for the protection of
the joint interests, including attorney’s fees and
expenses as hereinafter provided, together with all
judgments obtained against the Parties or any of them on
account of the Petroleum Operations, and actual expenses
incurred in securing evidence for the purpose of
defending against the Operations or the subject matter of
the Contract. In the event actions or claims affecting
interests under the Contract shall be handled by the
legal staff not otherwise charged to Operating Expenses
of one or more of the Parties, a charge commensurate with
cost of providing and furnishing such services may be
made against the Operating Expenses.

9. Insurance and Claims

A. Premiums paid for insurance required to be carried
for the Petroleum Operations conducted under the
Contract , together with all the expenditures
incurred and paid in settlement of any and all             
losses, claims, damages, judgments, and Other
expenses, including legal services not recovered
from insurance carrier.

B. All actual expenditures incurred and paid by
CONTRACTOR in settlement of any and all losses,
claims, damages, judgments, and any other expenses
not covered by insurance, including legal services,
shall be charged to the Operating Expenses.


10. Administrative Costs - Inside the Philippines

A. Principal office as used herein means costs and
expenses incurred by the CONTRACTOR for an office
and staff established in Manila which may serve all
activities in the Philippines including the
Petroleum Operations under the Contract. Allocation
of such costs and expenses between the CONTRACTOR'S
other activities and Petroleum Operations activities
hereunder shall be made on actual expenditures or
other equitable basis. Examples of such Principal
Office services which are chargeable to the
Operations include, but are not necessarily limited
to the following:

(a) Local manager and staff
(b) Accounting
(c) Legal 
(d) Personnel Administration
(e) Communications
(f) Purchasing

B. District Office(s) - as used herein mean cost and
expenses incurred by the CONTRACTOR for an office(s)
which may be established to serve the Operations at
the vicinity of the Operations. Allocation of such
costs and expenses between the CONTRACTOR's other
activities and the Operations activities hereunder
shall be made on actual expenditures or other
equitable basis. Examples of such District Office(s)
services which are chargeable to the Operations
include, but are not necessarily limited to the
following:


(a) Field or District Superintendent and Staff
(b) Geological and geophysical staffs
(c) Engineering and production staffs
(d) Communication
(e) Camp and Commissary Facilities
(f) Clerical Staff

11. Administrative Costs - Outside the Philippines

A. CONTRACTOR'S administrative overhead outside the
Philippines applicable to Operations shall be
charged each month on the following percentages of
adjusted net expenditures:

For first Two Million United States Dollars
(U.S. $7,000,000) per year - three percent (3%) but
not less than Six Thousand United States Dollars
(U.S. $6,000) per year. For the next One Million
United States Dollars (U.S. $1,000,000) per year -
two percent (2%). Over Three Million United States
Dollars (U.S. $3,000,000) per year - one percent
(1%)

B. Net expenditures for purposes of applying the
Percentage charges stipulated in Subparagraph 11A
above shall be adjusted to exclude the following:

1. Administrative overhead charged under 11A
above.

2 . The signature bonus and payments made in
accordance with Section XVII and the costs
attributable to the posting of performance
guarantee deposits and rental payable under
Section 4.4 of the Contract.


3. Surface taxes and rentals.

4. Major construction projects covered by 11C
below.

5. Settlements of judgments or claims in excess
of U.S. $5,000 per transaction.

6. Credits received from sale of assets
(including division in kind) amounting to more
than U.S. $ 5,000 per transaction.

7. Foreign exchange adjustments.

8. Pipeline tariff costs paid to outsider.

C. A fee for CONTRACTOR’S Administrative Costs for
major construction projects such as but not limited
to offshore platforms, pipelines, gas and/or water
repressuring and processing plants, tanker loading
and terminal facilities, shall be agreed to by the
Parties. If CONTRACTOR also performs engineering
and design services outside of the Philippines for
such major construction projects, the CONTRACTOR
shall be entitled to charge the Operating Expenses a
service fee agreed to by the Parties.

D. Cost studies will be performed, at least on an
annual basis, to verify that the costs charged for
administrative overhead and personnel costs
equitably compensate the CONTRACTOR for actual costs
incurred in that Year and that there is no over or
under-recovery of such costs from the Service
Contract. Upon the request of either Party, these


costs shall be reviewed and future charges adjusted
so that actual costs are recovered. Notwithstanding
any other clause, it is the intention of both
Parties to this Contract that CONTRACTOR shall
neither profit nor lose through the carrying out of
its duties and with particular reference to the
expenses it incurs in its home office for personnel
and administrative costs.

12. Other Expenditures

Any expenditures, other than expenditures which are
covered and dealt with by the foregoing provisions of
this Article 11, necessarily incurred by the CONTRACTOR
for the Operations hereunder.

13. Recovery of Capital Expenditures

A. Tangible Investment
The initial cost of physical assets classified as
depreciable in accordance with generally accepted
petroleum industry accounting principles purchased,
fabricated by and/or for the CONTRACTOR, and used by
CONTRACTOR in its Operation shall include such costs
as export broker’s fees, purchasing agent's fees,
transportation charges, loading and unloading fees,
licenses fees associated with the procurement of
materials and equipment, duties and customs fees,
in-transit losses not recovered through insurance
and installation costs necessary to put the asset
ready for use. The total cost of the assets shall
be allocated to Operating Expenses over a five (5)
year period under the straight-line or


double-declining balance method, at the option of
CONTRACTOR, beginning in the Calendar Year in which
Petroleum production starts or in the Calendar Year
in which the costs are incurred whichever is latter.

B. Intangible Investment

Notwithstanding any other provision of this
Accounting Procedure arid Contract, all intangible
investments shall be reimbursed in full.

C. Leasehold Improvements

Improvements or betterments on leaseholds which can
be capitalized in accordance with generally accepted
petroleum industry accounting practice shall be
allocated to Operating Expenses in accordance with
depreciation principles established in Paragraph 13A
above. Such improvements shall include but not be
limited to office improvements, additional equipment
and other improvements installed on a ship operated
under a bareboat charter, etc.

14. Interest

Any interest or other consideration paid or suffered in
respect of the financing as approved by the Government of
its development and production operations, shall be
considered Operating Expenses to the extent of two-thirds
(2/3) of the amount thereof, except interest on loans or
indebtedness incurred to finance exploration operations.

6165L-VS


MEMORANDUM OF CLARIFICATION

This Memorandum of Clarification, executed on  this 11th
day of December, 1990, in the City of Manila,
Philippines, by and between:

THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES,
Hereinafter referred to as the "GOVERNMENT",
represented in this document by Her Excellency Corazon
C. Aquino, President, Republic of the Philippines,

and

OCCIDENTAL PHILIPPINES, INC., represented by Carlos A.
Contreras, Vice President and Resident Manager of
Occidental Philippines, Inc., signing by authority of
the Board of Directors of said Corporation,

and

SHELL EXPLORATION B. V., represented by W. A. Loader,
Chief Executive of the Shell Companies of the
Philippines, for this purpose empowered under a
special Power of Attorney issued by Shell Exploration
B . V .

OCCIDENTAL PHILIPPINES, INC., and SHELL EXPLORATION
B. V., shall hereinafter be referred to as the
"Contractor". The GOVERNMENT and the Contractor shall
hereinafter be collectively referred to as the
Parties".



 -2 -

WITNESSETH:

WHEREAS, by virtue of that certain Farm-Out Agreement dated
June 29, 1990, which agreement was approved by the Office of
Energy Affairs on July 19, 1990, Occidental Philippines, Inc.,
assigned 50% of its interest in Geophysical Survey and
Exploration Contract (GSEC) 47 to Shell Exploration B. V., with
the latter thereby assuming operatorship. For all legal
intents and purposes, Occidental Philippines, Inc., and Shell
Exploration B. V. shall now form the second party to said GSEC
as the "Contractor” and assume jointly and severally all the
obligations under the same GSEC; and

WHEREAS, the Parties are interested in entering into a
Service Contract for the exploration and development of
Petroleum which contract is to be made effective as ,of
February 29, 1909; and

WHEREAS, a model of said Service Contract had been attached
to GSEC 47 between the Parties dated February 23, 1980, and had
been written against the background of the possible discovery
and subsequent development of Crude Oil; and

WHEREAS, Contractor has discovered Natural Gas and intends
to explore for additional Natural Gas as part of the Petroleum
Operations envisaged under the Service Contract; and

WHEREAS, the Parties wish to clarify certain provisions in
the Service Contract to ensure the applicability thereof when
it is decided to develop, produce and sell Natural Gas.

NOW, THEREFORE, in consideration of the mutual undertakings,
contained in the Service Contract, the Parties agree on the
following clarifications:

 -3-

1. In Section 2.20, ”Petroleum" includes Natural Gas as
defined in Section 2.18.

In Section 2.22, "Petroleum Operations" includes both
transportation of Natural Gas by pipeline up to final
delivery point to the buyer or buyers thereof and
facilities upstream of the sales point for extraction
of liquid hydrocarbons from Natural Gas.

2. The Contractor is authorized to market to National
Power Corporation on behalf of the GOVERNMENT the
GOVERNMENT'S share of Natural Gas produced and saved
from the Contract Area, and also may be authorized to
market additional volumes to other domestic buyers.

3. With respect to Sections 6.1(m) and 10.1, if very
large volumes of Natural Gas are discovered, the
GOVERNMENT will consider the option of committing all
or part of those volumes for export if this is
demonstrated to be more advantageous than supplying
Natural Gas to the domestic market. Should the
GOVERNMENT decide to allow exportation of Natural Gas,
the Contractor shall be allowed to enter into export
contracts, the volumes of gas committed thereunder
being exempt from any domestic supply requirements.

4. With respect to Sections of the Service Contract which
involve the Central Bank, the attached letters are
hereby incorporated by reference to clarify said
Sections.

5. It is acknowledged that, for operational reasons, the
Contractor will be unable to drill the Contract Year 2

*See Letters both dated November 23, 1990 of the
Central Bank Governor to Occidental Philippines
Inc. and Shell International

-4-

obligation well prior to the end of that Contract
Year. Accordingly, the Contractor will drill at least
two wells during Contract Year 3 and has the intention
to spud the first well in the first Quarter thereof. 
It is agreed by the GOVERNMENT that the first of such
two wells, if so drilled, will satisfy the obligations
of Contract Year 2 without penalty of default.
Beginning January 23, 1991, Contractor shall submit
bimonthly reports of its efforts to drill the Contract
Year 2 well.

IN WITNESS WHEREOF, the Parties have executed this
MEMORANDUM OF CLARIFICATION as of the day and year first above
written.

GOVERNMENT OF THE REPUBLIC               OCCIDENTAL PHILIPPINES, INC.
OF THE PHILIPPINES

Name: Corazon C. Aquino                            Name: Carlos A. Contreras
Title: President                                                Title: vice President and
                                                                           Resident Manager

SHELL EXPLORATION B. V.

Name: W. A. Loader
Title: Chief Executive
Shell Companies in the
Philippines



Central Bank of the Philippines
Manila

OFFICE OF THE GOVERNOR

November 23, 1990

Mr. John H. Alien
Vice President
Occidental Philippine, Inc.
1200 Discovery Drive
Box 1202J Bakersfield

CA 93389-2021
Dear Mr. Allen:

Please be informed that the Monetary Board, under its Resolution
No. 125B dated November 23, 1990, has confirmed your discussion with
us and accordingly endorses Section 6.2 (h) of the Service Contract to
be entered into between the Government of the Republic of the Philip-
pines, Occidental Philippines, Inc. and Shell Exploration B. V.

The Central Bank acknowledges that Section 6.2 (h) is based on
the law (Section 13, Presidential Decree No. 87) but does not preclude
operation of Sac. 74 of the Central Bank Charter.

The implementation of the rights under said Sec. 6.2 (h) (3)
requires validation of the amount concerned by the Office of Energy
Affairs (OEA) before approval and registration by the Central Bank
within the prescriptive period of ninety (90) days from date of inward
remittance of foreign exchange and conversion into pesos.

You are aware that the allocation of foreign exchange is the
responsibility of the private banking system, with whom you are
advised to make the necessary arrangements directly. The Central Bank
shall, if necessary, render assistance to these banks reflecting the
priority and strategic nature of this project subject to sec. 74 of
the Central Bank Charter.

We confirm that the Central Bank attaches the highest priority to
the N.W. Palawan natural gas project and acknowledges the substantial
foreign exchange benefits that may ensue therefrom for the country.

The Central Bank will, therefore, use its best endeavors within
the law and regulations to assist you in exercising the rights under
Sec. 6.2 (h) of the Service Contract or pursuing alternative ways and
means to enable the project to be completed end operated without
interruption to the benefit of the pertinent parties concerned.


 - 2 -

Finally, the Central Bank is aware that the Service Contract
maintains a provision in the Accounting Procedure [Article II (14)
which allows that two thirds of the cost of any borrowing may be
recovered out of Cost Oil (Cost Gas)].

To ensure that these costs are in line with borrowing coats as 
they prevail at the time in the market, the prior approval of the
Central Bank is required. Such approval will be based on the follow-
ing acceptable terms:

1. Maturity/Interest Rate

Foreign loans shall have maturities and interest
rates reflective of prevailing conditions, in the inter-
national capital markets, Appropriate grace periods
shall be imposed considering, among others, the
project's gestation period and the foreign loans' impact
on the statutory debt service ratio. Total approvals
shall, however, be in accordance with limits for each
maturity category to be set by the Monetary Board.

2. Commitment Fee

Maximum commitment fee of 1/2% based on the undrawn,
balance of the loan.

3. Front--end and Other fees 
A maximum of 1% for all front-end fees and other
similar financing charges such as management/syndica-
tion/participation/utilization fees.

Very truly yours,

JOSE L. CUISIA, JR.
Governor

Central Bank of the Philippines

MANILA

Office of the Governor                                                         
November 23, 1990

Mr. R. Faith
Head Concession Division                                               
Exploration and Production
Shall Internationale Petroleum Maatschappij B.V.
P.O. Box 162
2501 AH The Hague

Dear Mr. Faith;

Please be informed that the Monetary Board, under Its Resolution
No. 1258 dated November 23, 1990, has confirmed your discussions with
us and accordingly endorses Section 6.2 (h) of the Service Contract to
be entered into between the Government of the Republic of the Philip- 
pines , Occidental Philippines, Inc. and Shell Exploration B.V. 

The Central bank acknowledges that Section 6.2 (h) is based on
the law (Section 13, Presidential Decree No. 87) but does not preclude
operation of Sec. 74 of the Central Bank Charter.

The implementation of the rights under said Sec. 6.2 (h) (3)
requires validation of the amounts concerned by the Office of Energy
Affairs (OEA) before approval and registration by the Central Bank
within the prescriptive period of ninety (90) days from date of inward
remittance of foreign exchange and conversion into pesos. 

You are Aware that the allocation of foreign exchange is the
responsibility of the private banking system, with whom you are
advised to make the necessary arrangements directly. The Central Bank
shall, if necessary, render assistance to these banks following the
priority and strategic nature of this project subject to Sec. 74 of
the Central Bank Charter.

We confirm that the Central Bank attaches the highest priority to
the N.W. Palawan natural gas project and acknowledged the substantial
foreign exchange benefits that may ensue therefrom for the country.

The Central Bank, will, therefore, use its best endeavors within
the law and regulations to assist you in exercising the rights under
Sec. 6.2 (h) of the Service Contract or pursuing alternative ways and
means to enable the project to be completed and operated without 
interruption to the benefit of the pertinent parties concerned.

-2-


1990-12-03 16:06 SHELL THE HAGUE NL 31 703774848 P.03

-2-

Finally, the Central Bank is aware that the Service Contract
maintains a provision in the Accounting Procedure [Article II (14) 
which Allows that two thirds of the cost of any borrowing may be
recovered out of Cost Oil (Cost gas)]. ,

To ensure that these costs are in line with borrowing costs as                                                                    
they prevail at the time in the market, the prior approval of the
General Bank in required. Such Approval will be based on the follow-
ing acceptable terms:

1. Maturity/Interest Rate

Foreign loans shall have maturities and interest
rates reflective of prevailing conditions in the inter-
national capital markets. Appropriate grace periods
shall be imposed considering, among others, the
project's gestation period and the foreign loans' impact
on the statutory debt service ratio. Total approvals
shall, however, be in accordance with limits for each
maturity category to be set by the Monetary Board.

2. Commitment Fees                                                                                                
A Maximum of 1% for all front-end fees and other
similar financing  charges such as management / syndica-
tion/participation/utilization fees.

Very truly yours,

Jose L. Cuisia, JR.
Governor

AANTAL P83


Central Bank of the Philippines

Manila

OFFICE OF THE GOVERNOR

November 23, 1990

Mr. John K. Allen
Vice President
Occidental Philippines, Inc.
1200 Discovery Drive
Box 1202J Bakersfield
CA 93389-2021

Dear Mr.Allen:

Please be informed that the Monetary Board, under its Resolution
No. 1258 dated November 23, 1990, has confirmed your discussions with
us and accordingly endorses Section 6.2 (h) of the Service Contract to
be entered into between the Government of the Republic of the Philip-
pines, Occidental Philippines, Inc. and Shell Exploration B. V.

The Central Bank acknowledges that Section 6.2 (h) is based on
the law (Section 13, Presidential Decree No, 87) but does not preclude
Operation of Sec. 74 of the Central Bank Charter.

The Implementation of the rights under said Sec. 6.2 (h) (3)
requires validation of the amounts concerned by the Office of Energy
Affairs (OEA) before approval and registration by the Central Bank 
within the prescriptive period of ninety (90) days from date of inward
remittance of foreign exchange and conversion into pesos.

You are aware that the allocation of foreign exchange is the
responsibility of the private banking system, with whom you
advised to make the necessary arrangements directly, The Central Bank
shall, if necessary, render assistance to these banks reflecting the
priority and strategic nature of this project subject to Sec. 74 of
the Central Bank Charter.

We confirm that the Central Bank attaches the highest priority to
the N.W. Palawan natural gas project and acknowledges the substantial
foreign exchange benefits that may ensue therefrom for the country.

The Central Bank will, therefore, use its best endeavors within
the law and regulations to assist you in exercising the rights under
Sec. 6.2 (h) of the Service Contract or pursuing alternative ways and
means to enable the project to be completed and operated without
interruption to the benefit of the pertinent parties concerned.


-2-

Finally, the Central Bank is aware that the Service Contract
maintains a provision in the Accounting Procedure [Article II (14)
which allows that two thirds of the coat of any borrowing may be
recovered out of Cost Oil (Cost Gas)].

To ensure that these costs are in line with borrowing costs as
they prevail at the time in the market, the prior approval of the
Central Bank is required, Such approval will be based on the follow-
ing acceptable terms

1. Maturity/Interest Rate
Foreign loans shall have maturities and interest
rates reflective of prevailing conditions in the inter-
national capital markets. Appropriate grace period
shall be imposed considering, among others, the
project's gestation period end the foreign loans’ impact
on the statutory debt service ratio. Total approvals
shall, however, be in accordance with limits for each
maturity category to be set by the Monetary Board.

2. Commitment Fee

Maximum commitment fee of 1/2% based on the undrawn
balance of the loan.

3. Front-end and Other Fees
A maximum of 1% for all front-end fees and other
similar financing charges such as management/syndica-
tion/participation/utilization fees.

Very truly yours,

JOSE L. CUISIA, Jr.
Governor


Central Bank of the Philippines

MANILA

OFFICE OF THE GOVERNOR

November 23, 1990

Mr. R. Faith
Head Concessions Division
Exploration and Production
Shell Internationale Petroleum Maatschappij B.V.
P.o. Box 162
2501 AN The Hague 

Dear Mr. Faith               

Please be informed that, the Monetary Board, under Its Resolution
No. 1258 dated November 23, 1990, has confirmed your discussions with
us and accordingly endorse Section 6,2 (h) of the Service Contract to
be entered into between the Government of the Republic of the Philip-
pines, Occidental Philippines, Inc. and Shell Exploration B. V.

The Central Bank acknowledges that Section 6.2 (h) is based on
the law (Section 13, Presidential Decree No. 87) but does not preclude
operation of Sec. 74 of the Central Bank Charter.

The implementation of the rights under said Sec. 6.2 (h) (3)
requires validation of the amounts concerned by the Office of Energy
Affairs (OEA) before approval and registration by the Central Bank
within the prescriptive period of ninety (90) days from date of inward
remittance of foreign exchange and conversion into pesos.

You are aware that the allocation of foreign exchange to the
responsibility of the private banking system, with whom you are
advised to make the necessary arrangements directly. The Central Bank
shall, if necessary, render assistance to these banks reflecting the           
priority and strategic nature of this project subject to Sec. 74 of
the Central Bank Charter.

We confirm that the Central Bank attaches the highest priority to
the N.W. Palawan natural gas project and acknowledges the substantial
foreign exchange benefits that may ensue therefrom for the country.

The Central Bank, will, therefore, use its best endeavors within
the law and regulations to assist you in exercising the rights under
Sec. 6.2 (h) of the Service Contract or pursuing alternative ways and
means to enable the project to be completed and operated without
interruption to the benefit of the pertinent parties concerned.

-2-




1990-12-03 16:06 SHELL THE HAGUE NL  31 703774848 P.03 

-2-

Finally, the Central Bank is aware that the Service Contract
maintains a provision in the accounting Procedure [Article II (14 )
which allows that two thirds of the cost of any borrowing may be
recovered out of Cost Oil (Cost Gas)]. 

To ensure that these costs are in line with borrowing costs as
they prevail at the time in the market, the prior approval of the
Central Bank is required. Such approval will be based on the follow-
ing acceptable terms:

1. Maturity/Interest Rate

Foreign loans shall have maturities and interest
rates reflective of prevailing conditions in the inter-
national capital markets. Appropriate grace periods
shall be imposed considering, among others, the
project’s gestation period and the foreign loans' impact
on the statutory debt service ratio. Total approvals
shall, however, be in accordance with limits for each
maturity category to be set by the Monetary Board.

2. Commitment Fee

Maximum commitment fee of 1/2% based on the undrawn
balance of the loan.

3. Front-end and other Fees

A maximum of 1% for all front-end fees and other
similar financing charges such as management/syndica-
tion/participation/utilization fees

Very truly yours,

JOSE L. CUISIA, JR.
Governor

AANTAL P.03