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 October 2.9,2012





INTERNATIONAL OPERATING AGREEMENT














PRESIDENT ENERGY PARAGUAY S-A.





AND





PIR1TY HIDROCARBUROS S.R.L.











OPERATING AGREEMENT COVERING:


BLOQUE PIR1TY - PARAGUAY
























































1


 TABLE OF CONTENTS








ARTICLE I DEFINITIONS.......................................................................................................................................1


ARTICLE 2 EFFECTIVE DATE AND TERM......................................................................................................5


ARTICLE 3 SCOPE.................................................................................................................................................,5


3.2 Participating Interest..................................................... 6


3.3 Ownership, Obligations and Liabilities....................................................................... 6


ARTICLE 4 OPERATOR......................... 6


4.1 Designation of Operator............................................ .....6


4.2 Rights and Duties of Operator................................................................................. 7


4.4 Information Supplied by Operator...............................................................................................................10


4.5 Settlement of Claims and Lawsuits.............................................................................................................11


4.0 Limitation on Liability of Operator.............................................................................................................i i


4.7 ! nsurance Obtained by Operator..................................................................................................................12


4.8 Commingling of Funds............... 13


4.9 Resignation of Operator.................. 13


4.10 Removal of Operator............................................................. 14


4.11 Appointment of Successor...........................................................................................................................14


4.12 Health, Safety' and Environment (USE).........................................................................................................15


ARTICLE 5 OPERATING COMMITTEE.................................................. 16


5.1 Establishment of Orating Committee.......................................................................................................16


5.2 Powers and Duties of Operating Comm ittee................ 16


5.3 Authority to Vote.........................................................................................................................................16


5.4 Subcommittees............................................................................................................................................16


5.5 Notice of Meeting.......................... 16


5.6 Contents of Meeting Notice......................... 16


5.7 Location of Meetings......................... 17


5.8 Operator’s Duties for Meetings..................................... 1?


5.9 Voting Procedure...................... 17


5.10 Record of Votes................................ IS


5.13 Effect of Vote,..................................................................................................................................... 19


ARTICLE 6 WORK PROGRAMS AND BUDGETS.............................................................................................20


6.1 Exploration and Appraisal.................................... .............................................................* ....20


6.4 Itemization of Expenditures................................................................. 2J


6.5 Multi-Year Work Program and Budget............................................................................... 2j|


6.6 Contract Awards...........................................................................,..............................................................Z&


6.7 Authorization lor Expenditure (AFE) Procedure.............................................................. U


6.8 Overexpenditures of Work Programs and Budgets............... 25


ARTICLE 7 OPERATIONS BY LESS THAN ALL PARTIES...........................................................................-M








I


7.1 Limitation on Applicability................................................................... 2&


7.2 Procedure to Propose Exclusive Operations....................................... 2&


7.3 Responsibility for Exclusive Operations.................................................... 21


7.4 Consequences of Exclusive Operations.................. U


7.5 Premium to Participate in Exclusive Operations.................................... 2|


7.6 Order of Preference of Operations................ Si)


7.7 Stand-By Costs........................................ 31


7.8 Use of'Properiy.............................................................................................................................................3J


7.9 Lost Production............................................................. JJ


7.10 Conduct of Exclusive Operations................................................................................................................32


ARTICLE 8 DEFAULT................................... 32


8.1 Default and Notice........................................................................................................................................


8.2 Operating Committee Meetings and Data................................................................... 32


8.3 Allocation of Defaulted Accounts............................................ 34


8.4 Remedies.................................................................................... 35


8.5 Survival............................................................... .J2


8.6 No Right of Set Off.....................................................................................................................................31


ARTICLE 9 DISPOSITION OF PRODUCTION...................................................................................................2Z


9.1 Right and Obligat ion to Take in Kind.......................................................................... 32


9.2 Disposition of Crude Oil.......................... 32


9.3 Disposition of Natural Gas................................................................................... 38


ARTICLE 10 ABANDONMENT...........................................................................................................................38


10.1 Abandonment of Wells Drilled as Joint Operations........................................................................... 38


10.2 Abandonment of Exclusive Operations.......................................................................... 39


ARTICLE I i SURRENDER, EXTENSIONS AND RENEWALS........................................................................32


11.1 Surrender,.............................. 39


11.2 Extension of the Teem.................................................................................................................................39


ARTICLE n TRANSFER OF INTEREST OR RIGHTS AND CHANGES IN CONTROL.................................


12.1 Obligations................... M


12.2. Transfer.............................................. 4fi


12.3 Change in Control................... 42


ARTICLE 13 WITHDRAWAL FROM AGREEMENT.........................................................................................42


13.1 Ri ght of W ith dra wal.............................................................................-....................................................12


13.2 Partial or Complete Withdrawal................................ 43


13.3 Rights of a Withdrawing Party.................................... 43


13.4 Obligations and Liabilities of a Withdrawing Party......................................... 43


13.5 Emergency......................................................... 44


13.6 Assignment..................................................................................................................................................44


13.7 Approvals............................................................................................................... M


13.8 Security.............................................................. M


13.9 Withdrawal or Abandonment by all Parties................. 45


ARTICLE 14 RELATIONSHIP OF PARTIES AND TAX....................................................................................45


14.1 Relationship of Parties....................................................................... i§


14.2 Tax.................................................................................... 41


14.3 United States Tax Election.................................................................. 45


ARTICLE 15 VENTURE INFORMATION - CONFIDENTIALITY - INTELLECTUAL PROPERTY.............45


 15.1 Venture Information.................................... 45


15.2 Confidentiality.............................................................................................................................................46


15.3 Intellectual Property....................................................................................................................................47


15.4 Continuing Obligations................................. 47


15.5 Trades..................................................................................... 47


ARTICLE 16 FORCE MAJBURE...........................................................................................................................48


16.1 Obligations.................................................. 48


16.2 Definition of Force Majeure........................................................................................................................48


ARTICLE 17 NOTICES..........................................................................................................................................48


ARTICLE 18 APPLICABLE LAW - DISPUTE RESOLUTION - WAIVER OF SOVEREIGN IMMUNITY ...49


18.1 Applicable Law........................... .......49


18.2 Dispute Resolution...................... .......49


18.3 Expert Determination.................. ......51


18.4 Waiver of Sovereign Immunity ...


ARTICLE 19 GENERAL PROVISIONS -SI


19.1 Conduct of the Parties................. -SI


19.2 Conflicts of Interest..................... -52


19.3 Public Announcements................ -S3


19.4 Successors and Assigns............... ,.53


19.5 Waiver......................................... ,.53


19.6 No Third Party Beneficiaries....... ,.53





19.7 Joint Preparation........................... .,54


19.8 Severance of Invalid Provisions.. ..54


19.9 Modifications............................... .54


19.10 Interpretation............................... .54


19.11 Counterpart Execution.................. -M


19.12 Entirely......................................... ,.ss





Exhibit A Accounting Procedure


Exhibit B Contract Area


Exhibit C Tax Partnership Agreement


 OPERATING AGREEMENT





THIS AGREEMENT is made as of the 29 day of October, 2012 (the “Effective Date") among Pirity


Hidroearburos S.R.L., a company existing under the laws of Paraguay (hereinafter referred to as “Pirity”) and


President. En.era,V--£araEim_SA_a company existing under the laws of Paraguay (hereinafter referred to as


“President”)* The companies named above, and their respective successors and assignees (if any), may sometimes


individually be referred to as “Party” and collectively as the “Parties”.





WITNESSETH:





WHEREAS, Pirity entered into that certain Concession Contract enacted as Paraguayan Law No, 3479 on


April 29, 2008, as amended (the “Contract” as further hereinafter defined), which was signed into law by the


Executive Branch on May 13,2008 by and between Pirity Hidroearburos S.R.L., and the Ministry of Public Works


and Communications “MOPC,” a Ministry of the Government of the Republic of Paraguay for the exploration,


development and production of hydrocarbons in the Contract Area;


WHEREAS, the Parties have entered into an International Farniout Agreement dated as of September 11,





2012, as amended (the “Farmotrt Agreement”), pursuant to which Pirity assigned to President certain, and


President has die right to earn additional. Participating Interests in accordance with the terms of the Parmout


Agreement; and


WHEREAS, the Parties desire to define their respective rights and obligations with respect to their





operations under the Contract;


NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements and


obliptions set out ire low and to be performed, the Parties agree as follows:


ARTICLE I


DEFINITIONS





As used in this Agreement, the following words and terms shall have the meaning ascribed to them below:


/./ Accounting Procedure means die rules, previsions and conditions contained in Exhibit A.





1.2 APE means an authorization for expenditure pursuant to Article 6.7.





1.3 Affiliate means a legal entity which Controls, or is Controlled by, or which is Controlled by an entity which


Controls, a Party.


1.4 Agreed Interest Rate means interest compounded'on a monthly basis, at the rate per annum equal, to the


one (1) month term, London Interbank Offered Rate (L1B0R rate) for U.S. dollar deposits, as published in


London by the Financial Times or if not published, then by The Wall Street Journal, plus FIVE (5%)


percentage po hits, applicable on the first Business Day prior to the due date of payment and thereafter on


the first Business Day of each succeeding calendar month. If the aforesaid rule is contrary to any


applicable usury law, the rate of interest to be charged shall be the maximum rate permitted by such


applicable iaw.


1.5 Agreement means this agreement, together with the Exhibits attached to this agreement, and any extension,


renewal or amendment hereof agreed to in writing by the Parties.





1.6 Appraisal Weil means any well (other than an Exploration Well or a Development Well) whose purpose at


the time of commencement of drilling such well is to appraise die extent or the volume of Hydrocarbon


reserves contained m an existing Discovery.











1


1.7 Business Day means a Day on which the banks in Paraguay are customarily open for business.


1.8 Calendar Quarter means a period of three (3) months eonunencing with January 1 and ending on (lie


following March 31, a period of three (3) months commencing with April 1 and ending on the following


June 30, a period of three (3) months commencing witli July l and ending on the following September 30,


or a period of three (3) months commencing with October 1 and ending on the fol lowing December 31, all


in accordance with the Gregorian Calendar.


1.9 Calendar Year means a period of twelve (12) months commencing with January 1 and ending on the


following December 31 according to the Gregorian Calendar.


1.10 Commercial Discovery means any Discovery that is sufficient to entitle the Parties to apply for


authorization from the Government to commence exploitation.


Lit Completion means air operation intended to complete a well through the Christmas tree as a producer of


Hydrocarbons in one or more Zones, including the setting of production casing, perforating, stimulating the


well and production Testing Conducted in such operation. “Complete" and other derivatives shall be


construed accordingly,


1.12 Consenting Parly means a Party who agrees to participate in and pay its .share of the cost of an Exclusive


Operation.


1.13 Consequential Loss means any loss, damages, costs, expenses or liabilities caused (directly or indirectly)


by any of the following arising out of, relating to, or connected with this Agreement or the operations


carried out under this Agreement: (i) reservoir or formation damage; (ii) inability to produce, use or dispose


of Hydrocarbons; (iii) loss or deferment of income; (iv) punitive damages; or (v) other indirect damages or


losses whether or not similar to the foregoing.


1.14 Contract means the instrument identified in the recitals to this Agreement and any extension, renewal or


amendment thereto.


LIS Contract Area means as. of the Effective Date the area that is described in Exhibit B. The perimeter or


perimeters of tire Contract Area shall correspond to that area covered by the Contract, as such area may


vary from time to time during the term of validity of the Contract


1.16 Control means the ownership directly or indirectly of more than fifty (50) percent of the voting rights in a


legal entity. “Controls’\ “Controlled Ay’’ and other derivatives shall be construed accordingly.


1.17 Crude Oil means all cmde oils, condensates, and natural gas liquids at atmospheric pressure which are


subject to and covered by the Contract.


1.18 Day means a calendar day unless otherwise specifically provided.


1.19 Deepening means an operation whereby a well is drilled to an objective Zone below the deepest Zone in


which the well was previously drilled, or below the deepest Zone proposed in the associated AFE (if


required), whichever ts the deeper. "Deepen” and other derivatives shall be construed accordingly.


1.20 Development Plan means a plan for the development of Hydrocarbons from an Exploitation Area.


1.21 Development Well means any well drilled for the production of Hydrocarbons pursuant to a Development


Plan.


1.22 Discovery means the discovery of an accumulation of Hydrocarbons whose existence until that moment


was unproven by drilling.








2


1.23 Dispute means any dispute, controversy of claim (of any and every kind or type, whether based otv contract,


tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Agreement or the


operations carried out under this Agreement, including any dispute as to tire construction, validity,


interpretation, enforceability or breach of this Agreement.


1.24 Entitlement means that quantify of Hydrocarbons (excluding all quantities used or lost in Joint Operations)


of which a Party has the right and obligation to fake delivery pursuant to the terms of this Agreement and


the Contract, as such rights and obligations may be adjusted by the terms of any lifting, balancing and other


disposition agreements entered into pursuant to Article 9,


1.2.1 Environmental Loss means any loss, damages, costs, expenses or liabilities (other than Consequential


Loss) caused by a discharge of Hydrocarbons, pollutants or other contaminants into or onto any medium


(such as land, .surface water, ground water and/or air) arising out of, relating to, or connected with this


Agreement or the operations carried out under this Agreement, including any of the following: (j) injury or


damage to, or destruction of, natural resources or real or personal property; (ii) cost of pollution control,


cleanup and removal; (iii) cost of restoration of natural resources; and (iv) fines, penalties or other


assessments.


1.26 Exclusive Operation means those operations and activities earned out pursuant to this Agreement the costs


of which are ciiargeable to the account of less than all the Parties.


1.27 Exclusive Weil means a welt drilled pursuant to an Exclusive Operation.


1.28 Exploitation Area means that part of the Contract Area which is established for development of a


Commercial Discovery pursuant to the Contract or, if the Contract does not establish an exploitation area,


then that part of the Contract Area which is delineated as the exploitation area in a Development Plan


approved as a Joint Operation or as an Exclusive Operation.


1.29 Exploitation Period means any and all periods of exploitation during which the production and removal of


Hydrocarbons is permitted under the Contract.


1.30 Exploration Period means any and all periods of exploration set out in the Contract.


1.31 Exploration Wei! means any well the purpose of which at the time of the commencement of drilling is to


explore for an accumulation of Hydrocarbons, which accumulation was at that time unproven by drilling,


1.32 Farmout Agreement is defined in the Recitals to this Agreement,


1.33 G & G Data means only geological, geophysical and geochemical data and other similar information that is


not obtained through a well bore.


1.34 Government means the government of the Republic of Paraguay and any political subdivision, agency or


instrumentality (hereof, including the Government Oil. & Gas Company.


1.35 Government Oil & Gas Company means Petroieos Pnraguayos (PETROPAR).


1.36 Gross Negligence / Willful Misconduct means any act or failure to act (whether sole, joint or concurrent)


by any person or entity which was intended to cause, or which was in reckless disregard of or wanton


indifference to, harmful consequences such person or entity knew, or should have known, such act; or


failure would have on the safety or property of another person of entity.


1.37 Hydrocarbons means all substances which are subject to and covered by the Contract,: including Crude Oil


and Natural Gas.


1.38 Join( Account means the accounts maintained by Operator in accordance with the provisions of this








3


 Agreement, including the Accounting Procedure.





1.39 Joint Operations means those operations and activities carried out by Operator pursuant to this Agreement,


the costs of which are chargeable to all Parties.


1.40 Joint Property means, at any point in time, all wells, facilities, equipment, materials, intonation, funds


and property (other than Hydrocarbons) held for use in Joint Operations,


1.41 lams / Regulations means those laws, statutes, rules and regulations governing activities under the


Contract.


1.42 Minimum Work Obligations means those work and/or expenditure obligations specified in the Contract


that must be performed in order to satisfy the obligations of the Contract.


1,41 Natural Gas means all gaseous hydrocarbons (including wet gas, dry gas and residue gas) which are


subject to and covered by the Contract, but excluding Crude Oil.


1.44 Non-Consenting Party means each Party who elects not to participate in an Exclusive Operation.


1.45 Non-Operator means each Party to tl i is Agreement other than Operator.


1.46 Operating Conunittee means the committee constituted in accordance with Article 5.


1.47 Operator means a Party to ibis Agreement designated as such in accordance with Articles 4 or 7.12(F),


1.48 Participating Interest means as to any Parly, the undivided interest of such Party (expressed as a


percentage of the total interests of all Parties) in the Tights and obligat ions derived from the Parties’ interest


in the Contract and this Agreement


"1.49 Plugging Rack means a single operation whereby a deeper Zone is abandoned in order to attempt a


Completion in a shallower Zone. “Plug Back" and oilier derivatives shall be construed accordingly,


1.50 Recompletion means an operation Whereby a Completion in one Zone is abandoned in order to attempt a


Completion in a different Zone within the existing wellbore, “Recompute" and other derivatives shall be


construed accordingly.


151 Remarking means an operation conducted In the wellbore of a well after it is Completed to secure; restore,


or improve production in a Zone which is currently open to production to the wellbore. Such operations


include well stimulation operations, but exclude any routine repair or maintenance work, or drilling,


Sidetracking, Deepening, Completing, Recomputing, or Plugging Back of a well. “Rework” and other


derivatives shall be construed accordingly,


I. 52 Security means (i) a guarantee or standby letter of credit issued by a bank; (ii) an on-demand bond issued


by a surety corporation; (iii) a coiporafe guarantee; (iv) any financial security required by the Contract or


this Agreement; and (v) any financial security agreed from time to time by the Parties; provided, however,


that the bank, surety or corporation issuing the guarantee, standby letter of credit, bond or other security (as


applicable) lias a credit rating indicating it has a sufficient, worth to pay its obligations in aSi reasonably


foreseeable circumstances.


J. S3 Senior Supervisory Personnel means, with respect to a Party, any individual who functions as its


designated manager or supervisor who is responsible for or in charge of ausite drilling, construction or


production and related operations, or any other field operations and any individual who functions for such


Party or one of its: Affiliates at a management level equivalent to or superior to the tier selected, or any


officer or director of such Party or one of its Affiliates,








4


 L54 Sidetracking means the directional control and intentional deviation of a well (rout vertical so as to change


the bottom hole location unless done to straighten the hole or to drill around junk in the hole or to


overcome other mechanical difficulties. "Sidetrack” and other derivatives shall be construed accordingly.





1.55 Testing means an operation intended to evaluate the capacity of a Zone to produce Hydrocarbons. "Text”


and other derivatives shall be construed accordingly.


1.56 Third Party OKSI means the 5% overriding royalty interest granted by Purity to Dr. Fernando Wiens and


Lie. Arnold Klassen.


1.57 Urgent Operational Matters has the meaning ascribed to it in Article 5.12(A)(1).





1.58 Work Program and Budget means a work program for Joint Operations and budget therefor as described


and approved in accordance with Articled.


1.59 Hone means a stratum of earth containing or thought to contain an accumulation of Hydrocarbons


separately producible from any other accumulation of Hydrocarbons.


ARTICLE 1


EFFECTIVE DATE AND TERM





1'his Agreement shall have effect from the Effective Date (as defined in the preamble to this Agreement)


and shall continue in effect until the following occur in accordance with the terms of this Agreement: the Contract


terminates; all materials, equipment and personal property Used its connection with Joint Operations or Exclusive


Operations have been disposed of or removed; and final settlement (including settlement in relation to any financial


audit carried out pursuant to the Accounting Procedure) has teen made, Notwithstanding the preceding sentence: (i)


Article 10 shall remain in effect until all abandonment obligations under the Contract have been satisfied; and (ii)


Article. 4.5, Article 8, Article 15.2, Article 18 and the indemnity obligation under Article 20.1 (A) shall remain in


effect until till obligations have been extinguished and all Disputes have been resolved. Termination of this


Agreement' shall be without prejudice to any rights and obligations arising out of or in connection with this


Agreement which have vested, matured or accrued prior to such termination.


articles


SCOPE





3.1 Scope


(A) The purpose of this Agreement is to establish the respective rights and obligations of the Parties


with regard to operations under the Contract, including the joint exploration, appraisal,


development, production and disposition of Hydrocarbons from theContract Area.


(B) For greater certainty, the Parties confirm that; except to the extent expressly included in the


Contract; the following activities are outside of the scope of this Agreement and are not addressed


herein:


(!) construction, operation, ownership, maintenance, repair and removal of facilities


downstream from the delivery point’ (as determined under Article 9) of tire Parties’


Entitlements;


(2) transportation of the Parties’ Entitlements downstream from the delivery point (as


determined under Article 9);


(3) marketing and sales of Hydrocarbons, except as expressly provided in Article 7.12(E),


Article 8.4 and Article 9;








5


 (4) acquisition of rights to explore for, appraise, develop or produce Hydrocarbons outside of


the Contract Area (other than as a consequence of -unitization with an adjoining contract


area under the terms of the Contract); and





(5) exploration, appraisal, development or production of minerals other than Hydrocarbons,


whether inside or outside of the Contract Area.


Participating Interest





(A) The Participating Interests of the Parties as of the Effective Date are:





President 11.8%


Pirity 88.2%





(B) If a Party transfers all or part of its Participating Interest pursuant to the provisions of this


Agreement and the Contract, the Partic ipating Interests of the Parties shall be revised accordingly.





O-.





(A) Unless otherwise provided in this Agreement, all the rights and interests in and under the Contract,


all Joint Property, and any Hydrocarbons produced from the Contract Area shall, subject to the


terms of the Contract, be owned by the Parties in accordance with their respective Participating


Interests,





(B) Unless otherwise provided in this Agreement, the obligations of the Parties under the Contract and


all liabilities and expenses incurved by Operator in connection with Joint Operations shall be


charged to the Joint Account and all credits to the Joint Account shall be shared by die Parties, in


accordance with their respective Participating Interests.


(£5) Each Party shall pay when due, In accordance with the Accounting Procedure, its Participating


Interest share of Joint Account expenses, including cash advances and interest, accrued pursuant to


this Agreement. A Party’s payment of any charge under this Agreement shall be without prejudice


to its right to later contest the charge.


(D) Notwithstanding anything stated in this Agreement to the contrary,, the .terms and provisions of this


Agreement are made expressly subject to the terms of the Farmout Agreement (including, without


limitation, certain:disproportionate sharing of certain costs, liabilities and obligations of President


and Pirity imtil the sooner of the Earning Obligations are satisfied, or if and when Section 4.2 of


the Farmout Agreement applies (both as defined therein) or until the Farmout Agreement m


terminate!:), in accordance: With the terms thereof), and to the extent that there is any conflict


between the terms and provisions of this Agreement and the terms and provisions of the Farmout


Agreement, the terms and provisions of the Farmout Agreement shall govern and control,


(E) All Participating Interests are expressly made subject to and shall be burdened by the Third Party


ORR1 and each Party shall bear its proportionate Participating Interest share of obligations and


Habilities attributable to the Third Party ()RRJ-





ARTICLE 4


OPERATOR





Designation of Operator


President is designated as Operator and agrees to act as such in accordance with this Agreement.











6


4.2 Rights and Duties of Operator





(A) Subject to the terms and conditions of this Agreement, Operator shall have all of the rights,


functions and duties of Operator under the Contract and shall have exclusive charge of and shall


conduct all Joint Operations. Operator may employ independent contractors and agents (which


independent contractors and agents may include an Affiliate of Operator, a Won-Operator, or an


Affiliate of a Non-Operator) in such Joint Operations,


(B) I n the conduct of Joint Operations Operator shall:


(j) perform Joint Operations in accordance with the provisions of the Contract, the Laws /





Regulations, this Agreement, and the decisions of the Operating Committee not in


conflict with this Agreement:





(2) conduct all Joint Operations in a diligent, safe and efficient manner in accordance with


such good and prudent petroleum industry practices and field conservation principles as


are generally followed by the international petroleum industry tinder similar


circumstances;


(3) exercise due care with respect to the receipt, payment and accounting of funds in





accordance with good and prudent practices as are generally followed by the international


petroleum industry under similar circumstances;


(4) subject to Article 4.6 and the Accounting Procedure, neither gain a profit nor suffer a loss





as a result of being the Operator in its conduct of Joint Operations, provided that Operator


may rely upon Operating Committee approval of specific accounting practices not in


conflict with the Accounting Procedure;


(5) perform the duties for the Operating Committee set out-in Article 5, and prepare and


submit to the Operating Committee proposed Work Programs and Budgets and (if


required) AFEs, as provided in Article 6;


(6) acquire all permits, consents, approvals, and surface or other rights that may be required





for or in connection with the conduct of Joint Operations;


(7) Upon receipt of reasonable advance notice, pennit the representatives of any of the Parties


to have at ail reasonable times during normal business hours and at their own risk and


expense reasonable access to the Joint Operations with the right to observe all Joint


Operations and to inspect all Joint Property and to conduct financial audits as provided in


the Accounting Procedure;


(8) undertake to maintain the Contract in Ml force and effect in accordance with such good


and prudent petroleum industry practices as are generally followed, by the international


petroleum industry under similar circumstances. Operator shall timely pay and discharge


all liabilities and expenses incurred in connection with Joint Operations and use its


reasonable endeavors to keep and maintain the Joint Property free from all liens, charges


and encumbrances arising out of Joint Operations;





(9) pay to the Government for the Joint Account, within the periods and in the manner


prescribed by the Contract and the Laws / Regulations, all periodic payments, royalties,


taxes, fees and other payments pertaining to Joint Operations but excluding any taxes


measured by the incomes of the Parties;


(10) cany out the obligations of Operator pursuant to the Contract, including preparing and





furnishing such reports, records and information as may be required pursuant to the











rj


 Contract;





(11) have, in accordance with any decisions of the Operating Committee, the exclusive right


and obligation to represent the Parties in all dealings with the Government with respect to


matters arising under the Contract and Joint Operations. Operator shall notify the other


Parties as soon as possible of such meetings. Subject to the Contract and any necessary


Government approvals, Non-Operators shall have the right to attend any meetings with


the Government with respect to such matters, but only in the capacity of observers.


Nothing contained in this Agreement shall restrict any Party from holding discussions


with (he Government with respect to any issue peculiar to its particular business interests


arising under the Con tract or this Agreement, but in such event such Party shall promptly


advise the Parties, if possible, before and in any event promptly after such discussions,


provided that such Party shall not be required to divulge to the Parties any matters


discussed to the extent the same involve propr ietary information or natters not affecting


the Parties;


(12) in accordance with Article 9.3 mid any decisions of the Operating Committee, assess (to


the extent lawful) alternatives for the disposition of Natural Gas horn a Discovery;


(13) in case of an emergency (including a significant tire, explosion, Natural Gas release,


Crude Oil release, or sabotage; incident involving loss of life, serious injury to an


employee, contractor, or third party, or serious properly damage; strikes and riots; or


evacuations of Operator personnel): (t) take all necessary and proper measures for the


protection of life, health, the environment and property; and (ii) as soon as reasonably


practicable, report to Non-Operutors the details of such event and any measures Operator


has taken or plans to take In response thereto:


(14) establish and implement pursuant to Article 4.12 an HSE plan to govern Joint Operations


which is designed to ensure compliance with applicable HSE laws, rules and regulations


and this Agreement;


(15) include, to the extent practical, in its contracts with independent contractors and to the


extent lawful, provisions which:


(a) establish that such contractors can only enforce their contracts against Operator;


(b) permit Operator, on behalf of itself and Non-Operators, to enforce contractual


indemnities against, and recover losses and damages suffered by them (insofar


as recovered under their contracts) from, such conn-actors; and


(c) require such contractors to take insurance required by Article 4.7(H).


4.3 Operator Personnel


(A) Operator shall engage or retain only such employees, Secondees, contractors, consultants and


agents as are reasonably neeessary to conduct Joint Operations. For the purposes of this Article


4,3, “Secondee" means an employee of a Noil-Operator (or Its Affiliate) who is seconded to


Operator to provide, services under a secondment agreement to be negotiated and entered into


between Operator and such Non-Operator; and “Secondment” means placement within Operator’s


organization in accordance with tills Article 4.3 of one or more persons who are employed by a


Non-Operator or an Affiliate.


(B) Subject to the Contract and this Agreement, Operator shall determine the number of employees,


Secondees, contractors, consultants and agents, the selection of such persons, their hours of work,


and (except for Secondees) the compensation to be paid to all such persons in connection with








8


Joint Operations.


(C) No Secondment may be implemented except (i) in situations requiring particular expertise or


involving projects of a technical, operational or economically challenging nature; and (ii) in the


manner set out in paragraphs (I) to (7) below.


(1) Any Party may propose Secondment for a designated purpose related to Joint Operations.


Any proposal for Secondment must include die:


(a) designated purpose and scope of Secondment, including duties, responsibilities,


and deliverables;


(b) duration of the Secondment;


(C) number of Secondees and minimum expertise, qualifications and experience


required;


(d) Work, location and position within Operator’s organization of each Secondee;


and


(e) estimated costs of the Secondment.


(2) In relation to a proposed Secondment meeting the requirements of Article 4.3(C)(1X


Operator shall as soon as reasonably practicable approve (such approval to not be


unreasonably withheld) or reject any Secondment proposed by a Non-Operator. Without


prejudice to Operator’s right to conduct Joint Operations in accordance with this


Agreement and the Contract, Operator shall consider such Secondment proposal in light


of the: (i) expertise and experience required, for the relevant Joint Operations; (ii)


expertise'and experience of Operator’s personnel; and (iit) potential benefits of such


Secondment to the conduct of Joint Operations.


(3) Any proposal for one or more Secondment positions approved by Operator is subject to:


(i) the Operating Committee’s authorization of an appropriate budget for such


Secondment positions; and (ii) Non-Operators continuing to make available to Operator


Secondees qualified to fulfill the designated purpose and scope of such Secondment.


(4) As to each approved and authorized Secondment position, Operator shall request Non-


Operators to nominate, by a specified date, qualified personnel to be the Secondee for


such position. Kach Non-Operator has the right (but not the obligation) to nominate for


each Secondment position one or more proposed Secondees who such Non-Operator


considers reasonably qualified to fulfill the designated purpose, and scope of such


Secondment.


(5) Following the deadline for submitting nominations, Operator shall consider the expertise


and experience of each such nominee in light of the expertise and experience required for


the approved and authorized Secondment position, and shall select from the nominees the


best qualified person, unless Operator reasonably demonstrates that no nominee is


qualified to fulfill the designated purpose and scope of such Secondment


(6) Operator shall have the right to terminate the Secondment for cause in accordance with


the secondment agreement provided for under Article 4.3(D),


(7) Although each Secondee shall report to and be directed by Operator, each Secondee shall


remain at ail times the employee of die Patty (or its Affiliate) nominating such Secondee.








9


(0) Any Secondment tinder this Agreement shall be in accordance with a separate secondment


agreement to be negotiated and entered into between Operator and the employer of the Second®*,


which agreement shall be consistent with this Article 4.3.


(B) All costs related to. Secondment and Secondees that are within the Work Program and Budget


related to. such Secondment position shall be charged to the Joint Account.


(F) If any Seconded acting as the Senior Supervisory Personnel of Operator or its Affiliates engages in


Gross Negligence / Willful Misconduct which proxhnateiy causes the Parties to incur damage,


loss, cost, expense or liability for claims, demands or causes of action referred to in Articles


4.6(A) or 4.6(B), then all such damages, losses, costs, expenses and liabilities shall be allocated to


the Joint Account notwithstanding the provisions of Article 4.6.


4.4 Information Supplied by Operator


(A) Operator shall provide Non-Operators with the following data and reports (to the extent to be


charged to:the Joint Account) as they are currently produced or compiled from Joint Operations:


(?) copies of alt logs or survey*, including in digitally recorded format if such exists;


(2) daily drilling reports;


(3) copies of all Tests and cafe data: and analysis reports;


(4) final well recap report;


(5) copies of plugging reports;


(6) copies of all geological and geophysical maps, seismic sections and shot point location


maps;


(7) engineering studies, development schedules and quarterly progress reports on


development projects;


(8) field and well performance reports, including reservoir studies and reserve estimates;


m as requested by a Non-Operator, (i) copies of alt material, reports relating to Joint


Operations Or the Contract Area furnished by Operator to the Government; and (ii) other


material studies and reports relating to Joint Operations;


(Hi) gas balancing reports under agreements provided for in Article 9.3;


(11) such additional information as a Non-Operator may reasonably request, provided that the


requesting Party or Parties pay the costs of preparation of such information and that the


preparation of such information will not unduly burden Operator’s administrative and


technical personnel. Only Non-Operators who pay such costs will receive such


additional information; and


(12) : other reports as directed by the Operating Committee.


(B) Operator shall give Non-Operators access at all reasonable times during'normal business hours to


all data and reports (other than data and reports provided to Non-Operator® in accofoance with


Article 4.4(A)) acquired in the conduct of Joint Operations, which a Non-Operator nmy reasonably


request. Any Non-Operator may make copies of such other data at its sole expense.











10


Settlement of Claims and Lawsuits


(A) Operator shall promptly notify the Parties of any and all material claims or suits that relate in any


way to Joint Operations. Operator shall represent the Parties: and defend or oppose the claim or


suit, Operator may in its sole discretion compromise or settle any such claim or suit or any related


series of claims or suits for an amount not to exceed the equivalent of $50,000.00 UiS. dollars


exclusive of legal fees. Operator shall obtain the approval and direction of the Operating


Committee on amounts in excess of the above-slated amount, Without prejudice to the foregoing,


each Non-Operator shall have flic right to be represented by its own counsel at its own expense in


the settlement, compromise or defense of such claims or suits.


(B) Any Non-Operator shall promptly notify the other Parties of any claim made against such Non-


Operator by a third party that arises out of or may affect the Joint Operations, and such Non-


Operator shall defend or settle.the same in accordance with any directions given by the Operating


Committee. Those costs, expenses and damages incurred pursuant to such defense or settlement


which are attributable to Joint Operations shall be for the Joint Account.


(C) Notwithstanding Article 45(A) and Article 4.5(B), each Party shall have the fight to participate in


any such suit, prosecution, defense or-settlement-cofiducted in accordance with Article 4.5(A) and


Article 4.5(B), at its sole cost and expense; provided always that no Party may settle its


Participating Interest share of any claim without first satisfying the Operating Committee that it


can do so without prejudicing the interests ofthe Joint Operations.


Limitation on Liability of Operator


(A) Except as set out in Article 4.6(C), neither Operator nor any other Indemnitee (as defined below)


shall bear (except as a Party to the extent of its Participating Interest share) any damage, loss, cost,


expense or liability resulting from performing (or failing to perform) the duties and functions of


Operator, and the Indemnitees are hereby released from liability to Non-Operators for any and all


damages, losses, costs, expenses and liabilities arising out of, incident to or resulting from such


performance Or failure to perform, even though caused in whole or in part by a pre-existing defect,


or the negligence (whether sole, joint or concurrent), gross negligence, willfiii misconduct, strict


liability or other legal fault of Operator {or any such Indemnitee).


(B) Except as set out in Article 4.6(C), the Parties shall (in proportion to their Participating interests)


defend and indemnify Operator and. its Affiliates, and their respective directors, officers, and


employees (collectively, the “Indemniteesfrom any and all damages, losses, costs, expenses


(including reasonable legal costs, expenses and attorneys’ foes) and liabilities incident to claims,


demands or causes of action brought by Or on behalf of any person, or entity, which claims,


demands or causes of action arise out of, are incident to or result from Joint Operations, even


though caused in whole or in part by a pre-existing defect, or the negligence (whether sole, joint or


concurrent), gross negligence, willful misconduct, strict liability or Other legal fault of Operator


(or any such Indemnitee),


(C) Notwithstanding Articles 4.6(A) or 4.6(B), if any Senior Supervisory Personnel of Operator or its


Affiliates engage in Gross Negligence / Willful Misconduct which proxinmteiy causes the Parties


to incur damage, loss, cost, expense or liability for claims, demands or causes of action referred to


in Articles 4.6(A) or 4.6(B), then, in addition to its Participating Interest share Operator shall bear


ail such damages, losses, costs, expenses and liabilities. Notwithstanding the foregoing, under no


circumstances shall Operator (except as a Party to the extent of its Participating Interest) or any


other Indemnitee bear any Consequential Loss or Environmental Loss.


(D) Nothing in tins Article 4,6 shall be deemed to relieve Operator from its Participating Interest share


of any damage, loss, cost, expense or liability arising out of, incident to, or resulting from Joint


Operations,


4.7 Insurance Obtained by Operator





(A) Operator shall procure and maintain for the Joint Account all insurance in the types and amounts


required by the Contract or the Laws / Regulations.


(B) Operator shall procure and maintain any further insurance, at reasonable rates, as the Operating


Committee may from time to time require. In the event that such further insurance is, in


Operator’s reasonable opinion, unavailable or available wily at an unreasonable cost, Operator


shall promptly notify the Non-Operators in order to allow the Operating Committee to reconsider


such further insurance.


(C) Each Party will be provided the opportunity to underwrite any or all of the insurance to be


obtained by Operator under Articles 4.7(A) and 4.7(B), through such Party's Affiliate insurance


company or, if such direct insurance is not so permitted, through reinsurance policies to such


Party's Affiliate insurance company; provided that the security and creditworthiness of such


insurance arrangements are satisfactory to Operator, and that such arrangements will not result in


any part of the premiums for such insurance not being recoverable under the Contract, or being


significantly higher than the market rate.


(D) Subject to the Contract and the Laws I Regulations, any Party array elect not to participate in the


insurance to be procured under Articles 4.7(A) and 4.7(B) provided such Party:





(1) gives prompt written notice to that effect to Operator;


(2) does nothing which may interfere with Operator’s negotiations for such insurance for the





other Parties;


(3) Obtains insurance prior foor concurrent with the commencement of relevant operations


and maintains such insurance (in respect of which a current certificate of adequate


coverage, provided at least once a year, stall be sufficient evidence) or other evidence of


financial responsibility which fully covers its Participating Interest share of the risks that


would be covered by the insurance to be procured under Article 4.7(A) and/or Article


4.7(B), as applicable, and which the Operating Committee determines to be acceptable.


No such determination of acceptability shall in any way absolve a non-participating Party


from its obligation to meet each cash call (except, in accordance with Article 4.7(F), as


regards the costs of the insurance policy in which such Party has elected not to


participate) including any cash call with respect to damages and losses and/or the costs of


remedying the same in accordance with the terms of this Agreement, the Contract and the


Laws / Regulations. If such Party obtains other insurance, such insurance shall (a)


contain a waiver of subrogation in favor of all the other Parties, the Operator and their


insurers but only with respect to their interests under this Agreement; (b) provide that


thirty (30) days written notice be given to Operator prior to any material change in, or


cancellation of, such insurance policy; (c) be primary to, md receive no contribution


from, any other insurance maintained by or on behalf of, or benefiting Operator or tile


other Parties; and (d) contain adequate territorial extensions and coverage in the location;


of the Joint Operat i ons; and


(4) is responsible for ail deductibles, coinsurance payments, self-insured exposures,


uninsured t>r underinsured. exposures relating to its interests under this Agreement.








(E) The cost of insurance in which all the Parties are participating shall be for the Joint Account and


the cost of insurance in which less than all the Parties are participating shall be charged to the


Parties participating in proportion to their respective Participating Interests, Subject to the


preceding sentence, the cost of insurance with respect to an Exclusive Operation shall be charged


to the Consenting Parties.








12


(F) Operator shall, with respect to all insurance obtained under this Article 4,7:


(!) use reasonable endeavors to procure or cause to be procured such insurance prior to or


concurrent with, the commencement of relevant operations and maintain or cause to be


maintained such insurance du ring the term of the relevant operations or any longer term


required under the Contract or the Laws / Regulations;


(2) promptly inform the participating Parties when such insurance is obtained and supply


them with certificates of insurance or copies of the relevant policies when the same are


issued;


(3) arrange for the participating Parties, according to their respective Participating Interests,


to be named as co-insureds on the relevant policies with wai vers of subrogation in favor


of all the Parties but only with respect to their interests under this Agreement;


(4) use reasonable endeavors to ensure that each policy shall survive tire default or


bankruptcy of the insured for claims arising out of an event before such default or


.IwmSruptcy and that all rights of |he insured shall, revert to (he Parties not in deiauit or


bankruptcy; and


(5) duly file all claims and take all necessary and proper steps to collect any proceeds and


credit any proceeds to the participating Parties in. proportion to their respective


Participating Interests.


(G) Operator shall use its reasonable endeavors to require all contractors performing work with respect


to Joint Operations to:


(1) obtain and maintain any and. all insurance in the types and amounts required by the


Contract, the Laws / Regulations or any decision of the Operating Committee;


(2) name the Parties as additional insureds on the contractor’s insurance policies and obtain


from their insurers waivers of all rights of recourse against Operator, Non-Operators and


their insurers; and


(3) provide Operator with certificates reflecting such insurance prior to the commencement


of their services.


4.8 Commingling of Funds


(A) Operator may not commingle with Operators own funds the monies which Operator receives


from or for the Joint Account pursuan t to this Agreement, However, Operator reserves the right to


make future proposals to the Operating Committee with respect to the commingling of funds to


achieve financial efficiency,


(B) The Operating Committee may decide that monies Operator receives for the Joint Account shall be


deposited in an interest-bearing account at any time. Interest earned shall be allocated among the


Parties on an equitable basis taking into account the date of tire funding by each .Party and Its share


of the Joint Account monies. Operator shall apply such earned interest to tire next succeeding cash


call or, if directed by the Operating Committee, pay it to the Parties.


4.9 Resignation of Operator


Subject to Article 4.11, Operator may resign as Operator at any time by so notifying the other Parties at


least one hundred and twenty (120) Days prior to the effective date of such resignation.








13


 4.10 Removal of Operator





(A) Subject to Article 4.11, Operator shall be removed upon receipt of notice from any Non-Operator


if:


(1) Operator becomes insolvent or bankrupt, or makes an assignment For the benefit of


creditors;


(2) an order is made by a court or an effective resolution is passed for the reorganization


under any bankruptcy law, dissolution, liquidation, or winding up of Operator;


(3) a receiver is appointed for a substantial part of Operator’s assets; or


(4) Operator dissolves, liquidates, is wound up, or otherwise terminates its existence.


(B) Subject to Article 4.11, Operator may be removed by the decision of the Non-Operators if


Operator has committed a material breach of this Agreement which for avoidance of doubt


includes, without limitation, a failure to perform the duties specified in Article 4.2(B) including


4.2(B)(2) and Isas either .failed to eeiameace to cure tins; breach within thirty (30) Days of receipt


of a notice from Non-Operators detailing die alleged breach or failed to diligently pursue the cure


to completion. Auy decision of Non-Operators to give notice of breach to Operator or to remove


Operator under this Article 4.10(B) shall be made by an affirmative vote of Non-Operators


holding a combined Participating Interest of at least THIRTY percent (30%), However, if


Operator disputes such alleged commission of or failure to cure a material breach and dispute


resolution proceedings are initiated pursuant to Article 18.2 in relation to such breach, then


Operator shall remain appointed and no successor Operator may be appointed pending the


conclusion or abandonment of such proceedings, subject to the terms of Article 8.3 with respect to


Operator’s breach of its payment obligations.


(C) If Operator together with any Affiliates of Operator is or becomes the holder of a Participating


Interest of less than twenty percent (20%), then Operator shall be required to promptly notify the


other Parties. The Operating Committee shall then vote within thirty (30) Days of such


notification on whether or not a successor Operator should be named pursuant to Article 4.11.


4.11 Appointment of Successor


When a change of Operator occurs pursuant to Article 4.9 or Article 4.10:


(A) The Operating Committee shall meet as soon as possible to appoint a successor Operator pursuant


to the voting procedure of Article 3.9. No Party may be appointed successor Operator against its


will.


(B) If Operator is removed, other than in the case of Article 4.10(C), neither Operator nor any Affiliate


of Operator shall ha ve the right to be considered as a candidate for the successor Operator.


(C) The resigning or removed Operator shall be compensated out of the Joint Account For its


reasonable expenses directly related to its resignation or removal, except in the case of Article


4.10(B).


(D) The resigning, or removed Operator and the successor Operator shall arrange for the taking of an


inventory of all Joint Property and Hydrocarbons, and an audit of the books and records of the


removed Operator, Such inventory and audit shall be cojnpleted, if possible, no later than the


effective date of the change of Operator and shall be subject to the approval of the Operating


Committee, The liabilities and expenses of such inventory and audit shall be charged to the Joint


Account.








14


(E) The resignation or removal of Operator and its replacement by the successor Operator shall not


become effective prior to receipt of any necessary Government approvals,


(F) Upon the effective date of (lie resignation or removal, the successor Operator shall succeed to all


duties, rights and authority prescribed for Operator. The former Operator shall transfer to the


successor Operator custody of all Joint Property, books of account, records and other documents


maintained by Operator pertaining to the Contract' Area and to Joint Operations. Upon delivery of


the above-described property and data, the former Operator shall be released and discharged from


all obligations and liabilities as Operator accruing after such date.


4.12 Health, Safety and Environment (“USE”)


(A) With the goal of achieving safe and reliable operations in compliance with applicable HSE laws,


rules and regulations (including avoiding significant and unintended impact on the safety or health


of people, on property, or on the environment), Operator shall in the conduct of Joint Operations:


(1) establish and implement an HSE plan in a manner consistent with, standards and


procedures generally followed ill the international petroleum industry under similar


ci rc u.,,3s $ is*.n c cn'


(2) design and operate Joint Property consistent with the HSE plan; and


(3) conform with locally applicable HSE, laws, rules and regulations and other HSE-related


statutory requirements that may apply.


(B) The Operating Committee shall from thus to time review details of Operator’s HSE plan and


Operator’s implementation thereof.


(C) hi the conduct of Joint Operations, Operator shall establish an annual audit program whereby


independent auditors review and verify the effectiveness of the HSE plan.


(D) Operator shall require its contractors, consultants and agents undertaking activities for the Joint


Account to manage HSE risks in a manner consistent with the requirements of this Article 4.12.


(E) Operator shall establish and enforce rules consistent with those generally followed in the


international petroleum industry under similar circumstances that, at a minimum, prohibit within


the Contract Area the following:


(1) possession, use, distribution or sale of firearms, explosives, or other weapons without the


prior written approval of senior management of Operator;


(2) possession, use, distribution or sale of alcoholic beverages without the prior written


approval of senior management of Operator; and


(3) possession, use, distribution or sale of illicit or noil-prescribed controlled substances and


the misuse of prescribed drugs.


(F) Without prejudice to a Patty’s rights under Article 4.2(B)(7), with reasonable advance notice,


Operator shall permit each Non-Operator to have at all reasonable times during norma! business


hours (and at its own risk and expense) the right to conduct its, own HSE audit.

















15


 ARTICLE 5


OPERATING COMMITTEE





5.1 Establishment of Operating Committee


To provide for the overall supervision and direction of Joint Operations, there is established an Operating


Committee composed of representatives of each Party holding a Participating Interest. Each Party shall


appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee.


Each Party shall as soon as possible after the date of this Agreement give notice in writing to the other


Parties of the name and address of its representative and alternate representative to serve on. she Operating


Committee. Each Party shall have the right to change its representative and alternate at any time by giving


notice of such change to the other Patties.


5.2 Po went and Dulles of Operating Committee


The Operating Committee shall have power and duty to author ize and supervise Joint Operations that are


necessary or desirable to fulfill the Contract arid properly explore and exploit the Contract Area hi


accordance with this Agreement and in a manner appropriate in the circumstances.


5.3 Authority to Vote


The representative of a Party, or in his absence Iris alternate representative, shall be authorized to represent


and bind such Party with respect to any matter which is within the powers of the Operating Committee ami


is properly brought before the Operating Committee. Each such representative shall have a vote equal to


the Participating Interest of the Party such person represents (subject to the terms of the Farmout


Agreement, which provides certain disproportionate voting rights, as between President and Pirity, until the


sooner of the Earning Obligations are satisfied, or if and when Section 4.2 of the Farmout Agreement


appl ies (both as defined therein) or until the Farmout Agreement is terminated, in accordance with the


terms thereol), Each alternate representative shall be entitled to attend all Operating Committee meetings


but shall have no vote at such meetings except in the absence of the representative for whom he is the


alternate. In addition to the representative and alternate representative, each Party may also bring to any


Operating Committee meetings such technical and other advisors as it may deem appropriate,


5.4 Subcommittees


The Operating Committee may establish such subcommittees, including technical subcommittees, as the


Operating Committee may deem appropriate. The fonctfons of such subcommittees shall be in an advisory


capacity or as otherwise determined unanimously by the Parties. Each Party shall have the right to appoint


a representative to each subcommittee.


5.5 Notice of Meeting


(A) Operator may call a meeting of the Operating Committee by giving notice to the Parties at least


fifteen (15) Days in advance of such meeting.


(B) Any Non-Operator may request a meeting of the Operating Committee by giving notice to all the


other- Parties, Upon receiving such request, Operator shall call such meeting for a date not less


than fifteen (15) Days nor more than twenty (20) Days after receipt of the request.


(C) The notice periods above may only be waived with the unanimous consent of all the Parties.


5.6 Contents of Meeting Notice


(A) Each notice of a meeting of the Operating Committee as provided by Operator shall contain:











16


(1) the date, time and location of the meeting;


(2) an agenda of tiie matters and proposals to be considered and/or voted upon; and


(3) copies of all proposals to be considered at the meeting (including all appropriate


supporting information not previously distributed to the Parties).


(B) A Party, by notice to the other Parties given not less than seven (7) Days prior to n meeting, may-


add additional matters to the agenda for a meeting.


(C) On the request ofa Party, and with the unanimous consent of ail Parties, the Operating Committee


may consider at a meeting a proposal not contained in such meeting agenda.


5,7 Location of Meetings


AiJ meetings of the Operating Committee shall be held in ASUNCION, TELEPHONICALLY, or


elsewhere as the Operating Committee may decide.


Qp-cftitd?*s to* »*?'•>


(A) With respect to meetings of the Operating Committee and any subcommittee, Operator’s duties


shall include:


(!) timely preparation and distribution of the agenda;


(2) organization and conduct of the meeting; and


(3) preparation of a written record or minutes of each meeting.


(B) Operator shall have the right to appoint the chairman of the Operating Committee and ail


subcommittees.


5.9 Voting Procedure


Except as otherwise expressly provided in this Agreement, decisions, approvals and other actions of the


Operating Committee on all proposals coming before it shall be decided as follows.


(A) AO decisions, approvals and other actions for which column (A) below is checked shall


require the affirmative vote of TWO (2) or more Patties which are not Affiliates then


having collectively at least EIGHTY percent (80%) of the Participating Interests.


(B) All decisions, approvals and other actions for which column (B) below is checked shall


require the affirmative vote of ONE (1) or more Parties which are not Affiliates then


having collectively at least FIFTY ONE percent (51%) of the Participating Interests.








Matter (A) (B)


(1) Minimum Work Programs. X


(2) Drilling, Deepening, Testing, Sidetracking, Plugging Back, X


Recomplef mg or Reworking Exploration Wells.


(3) Drilling, Deepening, Testing, Sidetracking, Plugging. Back, X








17


 Recompleting or Reworking Appraisal Wells.


(4) Development Plans. X





(5) Production programs. X





(6) Completion of a well. X





(7) Plugging and abandoning a well. X


(8) Acquisition of G & G Data, X





m Construction of processing, treatment, compression, X


gathering, transportation and other downstream facilities,





(10) Contract awards (if approval is required). X


01) Determination that a Discovery is a Commercial Discovery. X





(\2) Unitization under the terms of the Contract with m\ adtohnng


contract men.





(13) Establishment of an interest bearing account for Joint X


Account monies.


(14) Acquisition and development of Venture Information under X


terms other than as specified in Article 15.


(15) All other- matters within the Operating Committee’s X


authority.








5.1(1 Recml ofVoles


The chairman of the Operating Committee shall appoint a secretary who shall make a record of each


proposal voted on and the results of such voting at each Operating Committee meeting. Each


representative shall sign and he provided a copy of such record at the end of such meeting, and it shall be


considered the final record of the decisions of the Operating Committee.


5.11 Minnies


'lire secretary shall provide eacli Party with a copy of the minutes of the Operating Committee meeting


within, fifteen (15) Business Days after the end of the meeting. Each Party shall have fifteen (15) Days


after receipt of such minutes to give notice to the secretary of its objections to the minutes. A failure to


give, notice specifying objection to such minutes within said fifteen (15) Day period shall be deemed to be


approval of such minutes. In any event, the votes recorded under Article 5,10 shall take precedence over


the minutes described above.











5. / 2 Voting by Notice


(A) In lieu of a meeting, any Party lnsvy submit any proposal to the Operating Committee for a vote by


notice, The proposing Party or Parties shall notify Operator who: shall give each Party’s


representative notice describing the proposal so submitted and whether Operator considers such:


operational matter to require urgent determination. Operator shall include with such notice


adequate documentation in connection with such proposal to enable the Parties to make a decision.


Each Party shall communicate its vote by notice to Operate and the other Parties within one of the











18


 following appropriate time periods after receipt of Operator's notice:


(1) 24 hours in the case of operations which involve the use of a drilling rig that is standing


by in the Contract Area and such other operational matters reasonably considered by


Operator to require by their nature urgent determination (such operations and matters


being referred to as “Urgent Operational Matters'1); and


(2) 5 Days in the ease of all other proposals.





(B) Except in the case of Article 5.12(A)(1), any Party may, by notice delivered to all Parties within


FIVE (5) Days of receipt of Operator’s notice, request that the proposal be decided at a meeting


rather than by notice. In such an event, that proposal shall be decided at a meeting duly called for


that purpose.





(C) Except as provided in Article 10, any Party failing to communicate its vote in a timely manner


shall be deemed to have voted against such proposal.





(D) If a meeting is not requested, then at the expiration of the appropriate time period, Operator shall


give cads Pasty a coaftmstton notice stating she tabulation and results of the vote.





J. IS Effect of Vote


Ail decisions taken by the Operating Committee pursuant to this Article 5 shall be conclusive and binding


oil all the Parties, except in the following cases.


(A) If pursuant to this Article 5, a Joint Operation has been properly proposed to the Operating


Committee and the Operating Committee has not approved such proposal in a timely manner, then


any Party that voted in favor of such proposal shall have the right for the appropriate period


specified below to propose, in accordance with Article 7, an Exclusive Operation involving


operations essentially the same as those proposed for such Joint Operation.


(1) For proposals related to Urgent Operational Matters, such right shall be exercisable for


twenty-four (24) hours after the time specified in Article 5.12(A)(1) has expired or after


receipt of Operator’s notice given to the Parties pursuant to Article 5.13(D), as


applicable.


(2) For proposals to develop a Discovery, such right shall be exercisable lor ten (10) Days


after the date the Operating Committee was required to consider such proposal pursuant


to Article 5.6 or Article 5,12.


(3) For all other proposals, such right shall be exercisable for five (5) Days after the date the


Operating Committee was required to consider such proposal pursuant to Article 5.6 or


Article 5.12.





(B) If a Party voted against any proposal which was approved by the Operating Committee and which


could be conducted as an Exclusive Operation pursuant to Article 7, then such Party shall have the


right not to participate in the operation contemplated by such approval. Any such Party wishing to


exercise its right of non-consent must give notice of non-consent to all other Parties within five (5)


Days (or twenty-four (24) hours for Urgent Operational Matters) following Operating Committee


approval of such proposal. If a Party exercises its right of non-consent, the Parties who were not


entitled to give or did not give notice of non-consent shall be Consenting Parties as to the


Operation contemplated by the Operating Committee approval, and shall conduct such operation as


an Exclusive Operation under Article 7; provided, however, that any such Party who was not


entitled to give or did not give notice of non-consent may, by notice provided to the other Parties








19


 within five (5) Days (or twenty-four (24) hours for Urgent Operational Matters) following the


notice of non-consent given by any non-consenting Party, require that the Operating Committee


vote again on the proposal in question. Only the Parties which were not entitled to or have not


exercised their right of non-consent with respect to die contemplated operation shall participate in


such second vote of the Operating Committee, with voting rights proportional to their respective


Participating Interest. If the Operating Committee approves again the contemplated operation, any


Party which voted against the contemplated operation in such second vote may elect to he a Non-


Consenting Party with respect to such operation, by notice of non-consent provided to all other


Parties within five (5) Days (or twenty-four (24) hours for Urgent Operational Matters) following


the Operating Committee's second approval of such contemplated operation.


(C) If the Consenting Parties to an Exclusive Operation under Article 5.13(A) or Article 5.13(B)


concur, then the Operating Committee may, at any time, pursuant to this Article 5, reconsider and


approve, decide or take action on any proposal that the Operating Committee declined to approve


earlier, or modify or revoke an earlier approval, decision or action.


(D) Once a Joint Operation for the drilling* Deepening, Testing, Sidetracking, Plugging Back,


Completing, Recompleting, Reworking, or plugging of a well has been approved and commenced,


5’jch on^rgtio.n no* ho discontinued without the consent of ths Opcrntln^ Conusuttcs*


provided, however, that such operation may be discontinued if:


(1) an impenetrable substance or other condition in the hole is encountered which in the





reasonable judgment of Operator causes the continuation of such operation to be


impractical; or





(2) other circumstances occur which in the reasonable judgment of Operator cause the


continuation of such operation to be unwarranted and the Operating Committee, within


the period required under Article 5.12(AX1) after receipt of Operator’s notice, approves


discontinuing such operation.


On the occurrence of either of the above, Operator shall promptly notify the Parties that such


operation is being discontinued pursuant to.the foregoing, and any Party shall have the right to


propose in accordance with Article 7 an Exclusive Operation to continue such operation.


ARTICLE 6





WORK PROGRAMS AND BUDGETS





6.1 Exploration anti Appraisal





(A) Within THIRTY (30) Days after the Effective Date, Operator shall deliver to the Patties a


proposed Work Program and Budget detailing the Joint Operations to be performed for the


remainder of the current Calendar Year and, if appropriate, for the following Calendar Year.


Within TEN (10) Days of such delivery, the Operating Committee shall meet to consider and to


endeavor to agree on a Work Program and Budget





(B) On or before the 1 st Day of October of each Calendar Year, Operator shal l deliver to the Parties a


proposed Work Program arid Budget detailing the Joint Operations to be performed tor the


following Calendar Year. Within FIFTEEN (15) Days of such delivery, the Operating Committee


shall meet to consider and to endeavor to agree on a Work Program and Budget.


(C) If a Discovery is made. Operator shall deliver any notice of Discovery required under the Contract


and shall as soon as possible submit to the Parties a report containing available details concerning


the Discovery and Operator’s recommendation as to whether the Discovery merits appraisal. If


the Operating Committee determines that the Discovery merits appraisal, Operator within


THIRTY (30) Days shall deliver to the Parties a proposed Work Program and Budget for the








20


appraisal of the Discovery. Within FIFTEEN (15) Days of such delivery, or earlier if necessary to


meet any applicable deadline under the Contract, the Operating Committee shall meet to consider,


modify and then either approve or reject the appraisal Work Program and Budget If the appraisal


Work Program and Budget is approved by the Operating Committee, Operator shall take such


steps as may be required wider the Contract to secure approval of the appraisal Work Program and


Budget by the Government. In the event the Government requires changes in the appraisal Work


Program ami Budget, the matter shall be resubmitted to the Operating Committee for further


consideration.


(D) The Work Program and Budget agreed pursuant to this Article shall include at least that part of the


Minimum Work Obligations required to be carried out during the Calendar Year in question under


the terms of the Contract. If within the time periods prescribed in this Article 6.1 the Operating


Committee is unable to agree on such a Work Program and Budget, then the proposal capable of


satisfying the Minimum Work Obligations for the Calendar Year in question that receives the


largest Participating Interest vote (even if less than the applicable percentage under Article 5.9)


shall be deemed adopted as part of the annual Work Program and Budget. -If competing proposals


receive equal votes, then Operator shall choose between those competing proposals. Any portion


of a Work Program and Budget adopted pursuant to this Article 6.1(D) instead of Article 5.9 shall


contain only (and shall be solely limitedfo)_sueh operationsrfertkeJoist Account.as arc accessary


to maintain the Contract in full force and effect, including such operations as are necessary to


fulfill the Minimum Work Obligations required for the given Calendar Year.


(B) Any approved Work Program and Budget may be revised by the Operating Committee from time


to time. To the extent such revisions are approved by the Operating Committee, the Work


Program and Budget shall be amended accordingly. Operator shall prepare and submit a


corresponding work program and budget amendment to the Government If required by the


Contract.


(F) Subject to Article 6.8, approval of any such Work Program and Budget which includes:





(1) an Exploration Well, whether by drilling, Deepening or Sidetracking, shall


include approval for all expenditures necessary for drilling, Deepening or


Sidetracking, as applicable, and Testing and Completing an Exploration Well.


(2) an Appraisal Well, whether by drilling, Deepening or Sidetracking, shall include


approval for all expenditures necessary for drilling, Deepening or Sidetracking,


as applicable, and Testing and Completing such Appraisal Well.


(G) Any Party desiring to propose a Completion attempt, or an alternative Completion attempt, must





do so within file time period provided in Article 5.12(A)(1) by notifying all other Parties. Any


such proposal shall include an AFE for such Completion costs.





6.2 Development


(A) If the Operating Committee determines that a Discovery may be a Commercial Discovery,


Operator shall, as soon as practicable, deliver to the Parties a Development Plan together with the


first annual Work Program and Budget (or a multi-year Work Program and Budget pursuant to


Article 6.5) and provisional Work Programs and Budgets for the remainder of the development of


the Discovery, which shall contain, inter alia:


(1) details of the proposed work to be undertaken, personnel required and expenditures to be


incurred, including the timing of same, on a Calendar Year basis;





(2) an estimated date for the commencement of production;











21


(3) a delineation of the proposed Exploitation Area; and


(4) any other information requested by the Operating Committee.


(B) After receipt of the Development Plan and prior to any applicable deadline under the Contract, the


Operating Committee shall meet to consider, modify and then either approve or reject the


Development Plan and die first annual: Work Program and Budget for the development of a


Discovery, as submitted by-Operator. If the Operating Committee determines that the Discovery


is a Commercial Discovery and approves the corresponding Development Plan, Operator shall, as


soon as possible, deliver any notice of Commercial Discovery required under the Contract and


take such other steps as maybe required under the Contract to secure approval of the Development


Plan by the Government. In the event the Government requires; changes in the Development Plan,


the matter shall be resubmitted to the Operating Committee for further consideration.


(C) If the Development Plan is approved, such work shall be incorporated into and form part of annual


Work Programs and Budgets, and Operator shall, on or before the 1ST Day of OCTOBER of each


Calendar Year submit a. Work Program and Budget for the Exploitation Area, tor the following


Calendar Year. Subject to Article $.5, within. FIFTEEN (15) Days after such submittal, the


Operating Cousiaittes shall endeavor to agree to such Work.. Program and Budget, including any


necessary or appropriate revisions to the Work Program and Budget for the approved


Development Plan,


6.3 Production


On or before the 1ST Day of OCTOBER of each Calendar Year, Operator shall deliver to the Parties a


proposed production Work Program and Budget detailing the Joint Operations to be performed in the


Exploitation Area and the projected production schedule for the following Calendar Year. Within


FIFTEEN (15) Days of such delivery, the Operating Committee shall agree upon a production Work


Program and Budget, falling which the provisions of Article 6.1(D) shall be applied mutatis mutandis.


6.4 Itemization of Expenditures


(A) During the preparation of the proposed Work Programs and Budgets and Development Plans


contemplated in this Article 6, Operator shall consult with the Operating Committee or the


appropriate subcommittees regarding the contents of such Work Programs and Budgets and


Development Plans.


(B) Each Work Program and Budget and Development Plan submitted by Operator shall contain an


itemized estimate of the costs of Joint Operations and all other expenditures to be made for the


Joint Account during the Calendar Year in question and shall, inter alia:


(1) identify each work category in sufficient detail to afford the ready identification of the


nature, scope and duration of the activity in question;


(2) include such reasonable information regarding Operator’s allocation procedures and


estimated manpower costs as the Operating Committee may determine;


(3) comply with the requirements of the Contract;


(4) contain an estimate of funds to be expended by Calendar Quarter; and


(5) during the Exploration Period, provide a forecast of annual expenditures and activities


through the end of the Exploration Period,


(C) The Work Program and Budget shall designate the portion or portions of the Contract Area in








22


which Joint Operations itemized in such Work Program and Budget are to be conducted and shall


specify the kind and extent of such operations in such detail as the Operating Committee may


deem suitable.


6. S Multi- Year Work Program and Budget


Any work that cannot be efficiently completed within a single Calendar Year may be proposed in a multi¬





year Work Program and Budget. Upon approval by the Operating Committee, such multi-year Work


Program and Budget shall, subject only to revisions approved by the Operating Committee thereafter: (i)


remain in effect as between the Parties (and the associated cost estimate shall be a binding pro-rata


obligation of each Patty) through the completion of the work; and (ii) be reflected in each annual Work


Program and Budget. If the Contract requires that Work Programs and Budgets be submitted to the


Government for approval, such multi-year Work Program and Budget shall be submitted to the


Government either in a single request for a multi-year approval or as part of the animal-approval process,


according to the terms of the Contract.


6.6 Contract Awards





Subject to the Contract, Operator shall award each contract tor Joint Operations on the following basis (the


amounts stated are in thousands of IJ.S. dollars):


Procedure A Procedure B Procedure C





Exploration, and Appraisal 0 to $350,000 $350,000 to >$1,350,000


Operations $1,350,000


Development Operations Oto $350,000 $350,000 to > $1,350,000


$1,350,000





Production Operations 0 to $350,000 $350,000 to >$1,350,000


$1,350,000





Procedure A





(A) Operator shall award the contract to the best qualified contractor as determined by cost


and ability to-perform the contract without the obligation to tender and without informing


or seeking the approval of the Operating Committee, except that before entering into


contracts with Affiliates of Operator exceeding $50,000 U.S. dollars ANNUALY,


Operator shall obtain the approval of the Operating Committee,











Procedure B





(B) Operator shaii:





(1) provide the Parties with a list of the entities whom Operator proposes to invite to


tender for the said contract;


(2) add to such list any entity whom a Party reasonably requests to be added within


fourteen (14) Days of receipt of such list;


(3) complete the tendering process within a reasonable period of time;





(4) inform the Parties of the entities to whom ilie contract has been awarded,


provided that before awarding contracts to Affiliates of Operator which exceed


$50,000 U.S. dollars ANNUALLY, Operator shall obtain the approval of the








23


 Operating Committee;





(5) circulate to the Parties a competitive bid analysis stating the reasons for the


choice made; and


(6) upon the request of a Party, provide such Party with a copy of the final version


of the contract.


Procedure C


(C) Operator shall:


(1) provide the Parties with a list of the entities whom Operator proposes to invite to


tender for the said contract;


(2) add to such list any entity whom a Party reasonably requests to be added within


fourteen (14) Days of receipt of such list;


(3j prepare and dispatch the tender documents to the entities on the list as aforesaid


and to'Non-Operators;


(4) after the expiration of the period allowed for tendering, consider and analyze the


details of all bids received;


(5) prepare and circulate to the Parties a competitive bid analysis, stating Operator’s


recommendation as to the entity to whom the contract should be awarded, die


reasons therefor, and the technical, commercial and contractual terms to be


agreed upon;


(6) obtain the approval of the Operating Committee to the recommended bid; and


(7) upon the request of a Party, provide such Party with a copy of the final version


of the contract.


6.7 Authorization for Expenditure (“AFE”) Procedure


(A) Prior to incurring any commitment or expenditure for the Joint Account, which is


estimated to be:


(1) in excess of $250,000 U.S. dollars in an exploration or appraisal Work Program


and Budget;


(2) in excess of $250,000 U.S. dollars in a development Work Program and Budget;


and


(3) in excess of $150,000 U.S. dollars in a production Work Program and Budget,


Operator shall send to each Non-Operator an AFE as described in Article 6.7(C).


Notwithstanding the above, Operator shall not be obliged to furnish aft initial AFE to the


Parties with respect to any Minimum Work Obligations, workovers of wells and general


and adminisOative costs that are listed as separate line items in an approved Work


Program and Budget; provided, however, that to the extent the costs, expenditures or


commitments regarding Minimum Work Obligations exceed an approved Work Program


aud Budget (or any budgeted line item thereon), such shall be governed in accordance


w'ith the supplemental AFE approval requirements described in Section 6.8(A).








24


 i


!





(0) Prior to making any expenditures or incurring any commitments for work subject to the j


AFE procedure in Article 6.7(A), Operator shall obtain the approval of the Operating j


Committee. If the Operating Committee approves mi AFE for the operation within the f


applicable time period under Article 5.12(A), Operator shall be authorized to conduct the


operation under the terms of this Agreement. If the Operating Committee fails to j


approve an AFE for the operation within the applicable time period, the operation shall j


be deemed rejected. Operator shall promptly notify the Parties if the operation has been |


rejected, and, subject to Article 7, any Party may thereafter propose to conduct the i


operation as an Exclusive Operation under Article 7. When an operation is rejected


under tins Article 6.7(B) or an operation is approved for differing amounts than those


provided for in the applicable line items of the approved Work Program and Budget, the j


Work Program and Budget stall be deemed to be revised accordingly.





(C) Each AFE proposed by Operator shall:


(1) identify the operation by specific reference to the applicable line items in the


Work Program and Budget;


(2) describe the work in detail;


(3) contain Operator’s best estimate of the total funds required to carry out such


work;


(4) outline the proposed work schedule;


(5) provide a timetable of expenditures,- if known; and


(6) be accompanied by such other supporting information as is necessary for an


informed decision.


6.8 Overexpenditures of Work Programs and Budgets


(A) For expenditures on any line item of an approved Work Program and Budget, Operator shall be


entitled to incur without further approval of the Operating Committee an overexpenditure for such


line item up to ten percent (10%) of the authorized amount for such line item; provided that the


cumulative total of all dverexpenditures for a Calendar Year shall not exceed five percent (5%) of


the total annual Work Program and Budget in question,


(B) At such time Operator reasonably anticipates the limits of Article 6.8(A) will be exceeded,


Operator shall fbrnish to the Operating Committee n supplemental AFE for the estimated


expenditures for the Operating Committee’s approval, and Operator shall provide reasonable


details of such overexpenditures. The Work Program and Budget shall be revised accordingly and


the overexpenditures permitted in Article 6.8(A) shall be based on the revised Work Program and;


Budget, Operator shrill promptly give notice of the amounts of overexpenditures when actually


incurred.


(C) The restrictions contained hi this Article 6 shall be without prejudice to Operator’s rights to make 1


expenditures for Urgent Operational Matters and measures set out in Article 13.5 without the j


Operating Committee** approval.























25


 ARTICLE 7


OPERATIONS BY L ESS THAN ALL PARTIES





7, / Limitation on Applicability








(A) No operations may be conducted in Furtherance of the Contract except as Joint Operations under


Article 5 or as Exclusive Operations under this Article 7, No Exclusive Operation shall be


conducted (other than the tie-in of Exclusive Operation facilities with existing production facilities


pursuant to Article 7.10) which conflicts with a previously approved Joint Operation or with a


previously approved Exclusive Operation.





(B) Operations which are required to fulfill the Minimum Work Obligations must be proposed and


conducted as Joint Operations under Article 5, and may not be proposed or conducted as


Exclusive Operations under tins Article 7. Except for Exclusive Operations relating to Deepening,


Testing.. Completing, Sidetracking. Plugging Back, Rscorapletions or Reworking of a well


originally drilled to fulfill the Minimum Work Obligations, no Exclusive Operations may be


proposed or conducted until the Minimum Work Obligations are fulfilled.





(C) No Party may propose or conduct an Exclusive Operation under this Article 7 unless and until


such Party has properly exercised its right to propose an Exclusive Operation pursuant, to Article


5.13, or is entitled to conduct an Exclusive Operation pursuant to Article 10.





(D) After the Minimum Work Obligations are Completed, any operation that may be proposed and


conducted as a Joint Operation, other than operations pursuant to an approved Development Plan,


may be proposed and conducted as an Exclusive Operation, subject to the terms of this Article 7;


provided, however that, as contemplated in Section 7.1(B) above, until the Minimum Work


Obligations are completed, no Exclusive Operations shall be permitted under this Agreement


(except for Exclusive Operations relating to Deepening, Testing, Completing, Sidetracking,


Plugging Back, Recoinpietions or Reworking of a well originally drilled to fulfill the Minimum


Work Obligations).





7.2 Procedure to Propose Exclusive Operations


(A) Subject to Article 7,1, if any Party proposes to conduct an Exclusive Operation, such Party shall


give notice of the proposed operation to all Parties, other titan Non-Consenting Parties who have


relinquished their rights to participate in such operation pursuant to Article 7.4(B) or Article


7.4(F) and have no option to reinstate such rights under Article 7.4(C). Such notice shall specify


that such operation is proposed as an Exclusive Operation arid,include, the work to be performed,


the location, the objectives, and estimated cost of such operation.


(B) Any Party entitled to receive such notice shall have the right to participate in the proposed


operation.





(1) For proposals to Deepen, Test, Complete, Sidetrack, Plug Back, Recomplete or Rework


related to Urgent Operational Matters, any such Party wishing tojxereise^uch right must,


so notify the proposing Party and Operator within twenty-four (24) hours after receipt of


the notice proposing tiie Exclusive Operation, )


V


(2) For proposals to develop a Discovery, any Party wishing to exercise such'right'must so





notify Operator and the Party proposing to develop within sixty (60) Days after receipt of


the notice proposing the Exclusive Operation,





(3) For all other proposals, any such Party wishing to exercise such right must so notify the


proposing Party and Operator within ten (10) Days after receipt of the notice proposing


the Exclusive Operation,








26


(C) Failure of a Parly to whom a proposal notice is delivered to properly reply within the period


specified above shall constitute an election by that Party not to participate in the proposed


operation.


(D) If all Parties properly exercise their rights to participate, then the proposed operation shall be


conducted as a Joint Operation. Operator shall commence such Joint Operation as promptly as


practicable and conduct it with dne diligence.


(E) If less than all Parties entitled to receive such proposal notice properly exercise their rights to


participate, then:


(1) Tire Party proposing the Exclusive Operation, together with any other Consenting Parties,


shall have the right exercisable for the applicable notice period set out in Article 7.2(B),


to instruct Operator (subject to Article 7,12(F)) to conduct the Exclusive Operation.


(2) If the Exclusive Operation is conducted, the Consenting Parties shall bear a Participating


Interest in such Exclusive Operation, the numerator of which is such Consenting Party’s


Participating Interest as stated in Article 3.2(A) and the denominator of which Is the


aggregate of the Part icipating Interests of the Consenting Fatties as stated in Article


3.2(A), or as the Consenting Parties may otherwise agree.


(3) If such Exclusive Operation has not been commenced within ONE HUNDRED AND


EIGHTY (180) Days (excluding any extension specifically agreed by all Parties or


allowed by the force majeuve provisions of Article 16) after the date of the instruction


given, to Operator under Article 7.2(E)(1), the right to conduct such Exclusive Operation


shall terminate. If any Party still-desires to conduct such Exclusive Operation, notice


proposing such operation must be resubmitted to the Parties in accordance with Article 5,


as if no proposal to conduct an Exclusive Operation had been previously made.


7.3 Responsibility for Exclusive Operations


(A) The Consenting Parties shall bear in accordance with the Participating Interests agreed under


Article 7.2(E) the entire cost and liability' of conducting an Exclusive Operation and shall


indemnify the Non-Consenting Parties flora any and all costs and liabilities incurred incident to


such Exclusive Operation (including Consequential Loss and Environmental Loss) and shall keep


the Contract Area flee and clear of all liens and encumbrances of every kind created by or arising


from suchExclusive Operation.


(B) Notwithstanding Article 7.3(A), each Parly shall continue to bear its Participating Interest share of


the cost and liability incident to the operations in Which it participated^ including plugging and


abandoning and restoring the surface location, but only to the extent those costs were not increased


by the Exclusive Operation.


7.4 Consequences of Exclusive Operations


(A) With regard to any Exclusive Operation, for so lor® as a Non-Consenting Party has the option


under Article 7.4(C) to reinstate the rights it relinquished under Article 7.4(B), such Non-


Consenting Party shall be entitled to have access concurrently with the Consenting Parties to all


data and other information relating to such Exclusive Operation, other than data obtained in an


Exclusive Operation for the purpose of acquiring G & G Data, If a Non-Consenting Paity desires


to receive and acquire the right to use such G & G Data, then such Non-Consenting Paity shall


have the right to do so by paying to the Consenting Parties its Participating Interest share its set: out


in Article 3.2(A) of the cost incurred in obtaining such G & G Data.


(B) Subject'to Article 7.4(C) and Article 7.6(B), each Non-Consenting Party shall be deemed to have








27


relinquished to the Consenting Parties, and the Consenting Parties shall be deemed to own, in


proportion to their respective Participating Interests in any Exclusive Operation:


(1) all of each such Non-Consenting Party’s right to participate in further operations in the


well or Deepened or Sidetracked portion of a well in which the Exclusive Operation was


conducted and on any Discovery made or appraised in the course of such Exclusive


Operation; and


(2) all of each such Non-Consenting Patty’s right pursuant to the Contract to take and


dispose of Hydrocarbons produced and saved:


(a) from the well or Deepened or Sidetracked portion of a weli In which such


Exclusive Operation was conducted; and


(b) front any wells drilled to appraise or develop a Discovety made or appraised in


the course of sncb Exclusive Operation,


(C) A Non-Consenting Party shall have only Hie following options to reinstate (he rights it


relinquished pursuant to -Article 7.4(B):


(1) If the Consenting Parties decide to appraise a Discovery made in the course of an


Exclusive Operation, the Consenting Parties shall submit to each Non-Consenting Party


the approved appraisal program. For thirty (30) Days (or forty-eight (48) hours for


Urgent Operational Matters) front receipt of such appraisal program, each Non-


Consenting Party shall have the option to reinstate the rights it relinquished pursuant to


Article 7.4(B) and to participate in such appraisal program. The Non-Consenting Party


may exercise such option by notifying Operator vvithm the period specified above that


such Non-Consenting Party agrees to bear its Participating Interest share of the expense


and liability of such appraisal program, and to pay such amounts as set out in Articles


7.5(A) and 7.5(B).


(2) If the Consenting Parties decide to develop a Discovety made or appraised in the course


of an Exclusive Operation, the Consenting Patties shall submit to the Non-Consenting


Parties a Development Plan substantially in the form intended to be submitted to the


Government under the Contract, For sixty (60) Days from receipt of such Development


Plan Or such lesser period of time prescribed by the Contract, each Non-Consenting Patty


shall have the option to reinstate the rights it relinquished pursuant to Asticle 7.4(B) and


to participate in such Development Plan. The Non-Consenting Party may exercise such


option by notifying Operator within the period specified above that such Non-Consenting


Patty agrees to bear its Participating Interest share of the liability and expense of such


Development Plan and such future operating and producing costs, and to pay the amounts


as set out in Articles 7.5(A) and 7.5(B).


(3) If the Consenting Parties decide to Deepen, Complete, Sidetrack, Plug Back or


Recomplete ati Exclusive Well and such further operation was not included in the


original proposal for such Exclusive Well, the Consenting Parties shall submit to the


Non-Consenting Parties the approved AFB for such further operation^ For thirty (30)


Days (or forty-eight (48) hours for Urgent Operational Matters) from receipt of Such


APE, each Non-Consenting Party shall have the option to reinstate the rights it


relinquished pursuant to Article 7.4(B) and to participate in. such operation. The Noil-


Consenting Party may exercise such option by notifying Operator within the period


specified above that such Non-Consenting Party agrees to bear its Participating Interest


share of the liability and expense of such further operation, and to pay the amounts as set


out in Articles 7.5(A) and 7.5(B).











28


 A Non-Consenting Party shall not he entitled to reinstate its rights in any oilier type of operation.





(D) If a Non-Consenting Party does not properly and in a timely manner exercise its option under


Article 7.4(C), including paying all amounts due in accordance with Articles 7.5(A) and 7.5(B),


such Non-Consenting Party shall have forfeited the options as set out in Article 7.4(C) and the


right to participate in the proposed program, unless such program, plan or operation is materially


modified or expanded (in which case a new notice and option shall be given to such Non-


Consenting Party under Article 7.4(C)).


(B) A Non-Consenting Party exercising its option under Article 7.4(C) shall notify' the Other Parties





that it agrees to bear its share of the liability and expense of such further operation and to


reimburse the amounts set out in Articles 7.5(A) and 7.5(B) that such Non-Consenting Party had


not previously paid. Such Non-Consenting Party shall in no way be deemed to be entitled to any


amounts paid pursuant to Articles 7.5(A) and 7.5(B) incident to such Exclusive Operations. The


Participating Interest of such Non-Consenting Party in such Exclusive Operation shall be its


Participating interest set out in Article 3.2(A). Tile Consenting Parties shall contribute to the


Participating Interest of the Non-Consenting Party in proportion to tire excess Participating


Interest that each received under Article 7.2(E), If all Parties participate in the proposed operation,


than such operation shall be conducted as a Joint .Operation pursuant to Article S. ....


(F) If after the expiry of the period in which a Non-Consenting Party may exercise its option to


participate in a Development Plan the Consenting Parties desire to proceed, Operator shall give


notice to the Government under the appropriate provision of the Contract requesting a meeting to


advise the Government that the Consenting Parties consider the Discovery to be a Commercial


Discovery. Following such meeting such Operator for such development shall apply for an


Exploitation Area (if applicable in the Contract). Unless the Development Plan is materially


modified or expanded prior to the commencement of operations under such plan (in which case a


new notice and option shall be given to the Non-Consenting Parties under Article 7.4(C)), each


Non-Consenting Party to such Development Plan shall:


(1) if the Contract so allows, elect not to apply for an Exploitation Area covering such


development and forfeit all interest in such Exploitation Area, or





(2) if the Contract does not so allow, be deemed to have:


(a) elected not to apply for an Exploitation Area covering sued) development;





(b) forfeited ail economic interest in such Exploitation Area; and





(c) assumed a fiduciary duty to exercise its legal interest, in such Exploitation Area


for the benefit of the Consenting Parties.


In either case such Non-Consenting Party shall be deemed to have withdrawn from this


Agreement to the extent it relates to such. Exploitation Area, oven if the Development Plan is


modified or expanded subsequent to the commencement of operations under such Development


Plan and shall be further deemed to have forfeited any right to participate in the construction and


ownership of facilities outside such Exploitation Area designed solely for the use of such


Exploitation Area.











7.5 Premium io Participate in Exclusive Operations


(A) Bach such Non-Consenting Party shall within thirty (30) Days of the exercise of its option under


Article 7.4(C), pay in; immediately available funds to the Consenting Parties in proportion to their








29


respective Participating Interests in such Exclusive Operations a lump sum amount payable in the


currency designated by such Consenting Patties. Such lump sum amount shall be equal to such


Non-Consenting Party’s Participating Interest share of all liabilities and expenses that were


incurred in every Exclusive Operation relating to the Discovery (or Exclusive Well, as the case


may be) in which the Non-Consenting Party desires to reinstate the rights it relinquislied pursuant


to Article 7.4(B), and that were not previously paid by such Non-Consenting Party.


(B) In addition to the payment required under Article 7.5(A), immediately following the exercise of its


option under Article 7.4(C) each such Non-Consenting Party shall be liable to reimburse the


Consenting Parties who took the risk of such Exclusive Operations (in proportion to their


respective Participating Interests) an amount equal to the total of:


(1) ONE HUNDRED: AND FIFTY percent (150%) of such Non-Consenting Party’s


Participating .Interest share of all liabilities and expenses that were incurred in any


Exclusive Operation relating to the obtaining of the portion of the G & G Data which


pertains to the Discovery, and that were not previously paid by such Non-Consenting


Party; plus


(2) ONE HUNDRED AND FIFTY percent (150*4) of such Noii-Co«sciitmg Party’s


Participating Interest share of all liabilities and expenses that were incurred in any


Exclusive Operation relating to the drilling, Deepening, Testing, Completing,


Sidetracking, Plugging Back, Recompieting and Reworking of the Exploration Well


which made the Discovery in which the Non-Consentuig Party desires to reinstate the


rights it relinquished pursuant to Article 7.4(B), and that were not previously paid by


such Non-Consenting Party; plus


(3) ONE HUNDRED AND FIFTY percent (150%) of the Non-Consenting Party’s


Participating Interest share of all liabilities and expenses that were inclined in any


Exclusive Operation relating to the drilling, Deepening, Testing, Completing,


Sidetracking, Plugging Back, Recompieting and Reworking of the Appraisal Well(s)


which delineated the Discovery or Development Wells, in each case, in which the Non-


Consenting Party desires to reinstate the rights it relinquished pursuant to Article 7.4(B),


and that were not previously paid by such Non-Consenting Party.


(C) Each such Non-Consenting Paly who is liable for the amounts set out in Article 7.5(B) shall


within thirty (30) Days of the exercise of its option under Article 7.4(C), pay in immediately


available funds the full amount due from it under Article 7.5(B) to such Consenting Parties, in the


currency designated by such Consenting Parties.


(D) Each Consenting Party shall have the right to refuse to accept all or any portion of its share of


amounts paid under Articles 7.5(A) and 7.5(B). In such case the refused amount shall be


distributed to each non-reftising Consenting Party on a pro-rata basis.


7.6 Order of Preference of Operations


(A) Except as otherwise specifically provided in this Agreement, if any Party desires to propose the


conduct of an operation that will conflict with an existing proposal for an Exclusive Operation,


such Party shall have the right exercisable for five (5) Days (or twenty-four (24) hours for Urgent


Operational Matters) from receipt of the proposal for the Exclusive Operation, to deliver such


Party's alternative proposal to all Parties entitled to participate in the proposed operation, Such


alternative proposal shall, contain the information required under Article 7.2(A),


(B) Each Party receiving such proposals shall elect by delivery of notice to Operator and to die


proposing Parties within the appropriate response period set out in Article 7.2(B) to participate in


one of the competing proposals. Any Party not notifying Operator and the proposing Parties








30


 within the response period shall be deemed to have voted against the proposals.





(C) The proposal receiving the largest aggregate Participating Interest vote shall have priority over all


other competing proposals. In. the case of atie vote, Operator shall choose among the proposals


receiving the largest aggregate Participating Interest vote. Operator shall deliver notice of such


result to all Parties entitled to participate in the operation within five (.1) Days (or twenty-four (24)


hours for Urgent Operational Matters).


(D) Each Party shall then have two (2) Days (or twenty-four (24) hours for Urgent Operational


Matters) from receipt of such notice to elect by delivery of notice to Operator and the proposing


Parties whether such Party will participate in such Exclusive Operation, or will relinquish its


interest pursuant to Article 7.4(B). Failure by a Party to deliver such notice within such period


shall bo deemed an election not to participate in. the prevailing proposal.


(E) Notwithstanding the provisions of Article 7.4(B), if for reasons other than the encountering of


granite or other practically impenetrable substance or any other condition in the hole rendering


further operations impracticable, a well drilled as an .Exclusive Operation fails to reach the deepest


objective Zone described in the notice proposing such well, Operator shall give notice of such


failure to each Non-Consenting Party who submitted or voted for an alternative) proposal under


this Article 7.6 to drill such well to a shallower Zone than the deepest objective Zone proposed in


the notice under which such well was drilled. Each such Non-Consenting Party shall have the


option exercisable for forty-eight (48) hours from receipt of such notice to participate for its


Participating Interest share in the initial proposed Completion of such well. Each such Non-


Consenting Party may exercise such option by notifying Operator that it wishes to participate in


such Completion and by paying its Participating Interest share of the cost of drilling such well to


its deepest depth drilled in the Zone in which it is Completed, All liabilities and expenses for


drilling and Testing the Exclusive Well below that depth shall be for the sole account of the


Consenting Parties, if any such Non-Consenting Party does not properly elect to participate in the


first Completion proposed for suclt well, the relinquishment provisions of Article 7.4(B) shall


continue to apply to such Non-Consenting Party’s interest.


7.7 Stand-By Costs


(A) When an operation has been performed, all tests have been conducted and die results of such tests


furnished to the Parties, stand by costs incurred pending response to any Party’s notice proposing


an Exclusive Operation for Deepening, Testing, Sidetracking, Completing, Plugging Back,


Recompleting, Reworking or other further operation in such well (including the period required


under Article 7.6 to resolve competing proposals) shall be charged and borne as part of the


operation just completed. Stand by costs incurred subsequent to all Patties responding, or


expiration of the response time permitted, whichever first occurs, shall be charged to and borne by


tlie Parties proposing the Exclusive Operation in proportion to their Participating Interests,


regardless of whether such Exclusive Operation is actually conducted.


(B) If a further operation related to Urgent Operational Matters is proposed while the drilling rig to be


utilized is on location, any Party may request and receive up to five (5) additional Days after


expiration of the applicable response period specified in Article 7.2(B)(1) within which to respond


by notifying Operator that. such Party agrees to bear all stand by costs and other costs incurred


during such extended response period. Operator may require such Party to pay toe estimated stand


by costs in advance as a condition to extending the response period. If more than one Party


requests such additional time to respond to toe notice, stand by costs shall be allocated between


such Parties on a Day-to-Day basis in proportion to their Participating Interests.























31


7.8 Use of Property





The Tallies participating in any Deepening, Testing, Completing, Sidetracking, Plugging Back,


Reconipleting or Reworking of any well drilled under this Agreement shall be permitted to use


(free of cost) all casing, tubing and other equipment in the well that is not needed for operations by


the owners of the wellbore, but the ownership of all such equipment shall remain unchanged. On


abandonment of a well in which operations with-differing participation have been conducted, the


Parties abandoning the well shall account for all equipment in the well to the Parties owning such


equipment by tendering to them their respective Participating Interest shares of the value of such


equipment less the cost of salvage.


7.9 Lost Production During Tie-In of Exclusive Operation Facilities


If, during the tie-in of Exclusive Operation facilities with the existing production facilities of another


operation, the production of Hydrocarbons from such other pre-existing operations is temporarily lessened


as a result, then the Consenting Patties shall compensate the parties to such existing operation for such loss


of production in the following manner. Operator shall determine the amount by which each Day’s


production during the tie-in of Exclusive Operation facilities falls below the previous month’s average


daily production from the- existing production facilities of such operation. -The -so-determined amount of


lost production shall be recovered by all Parties who experienced such loss m proportion to their respective


Participating Interest. Upon completion of the tie-in, such lost production shall be recovered in full by


Operator deducting up to one hundred percent (100%) of the production from the Exclusive Operation,


prior to the Consenting Parties being entitled to receive any such production.


7.10 Conduct of Exclusive Operations


(A) Each Exclusive Operation shall be carried out by the Consenting Parties acting as the Operating


Committee, subject to the provisions of this Agreement applied mutatls mutandis to such


Exclusive Operation and subject to the terms and conditions of the Contract.


(B) The computation of liabilities and expenses incurred in Exclusive Operations, including the


liabilities and expenses of Operator for conducting such operations, shall be made in accordance


with the principles set out in the Accounting Procedure.


(C) Operator shall maintain separate books, financial records and accounts for Exclusive Operations


which shall be subject to the same rights of audit and examination as the Joint Account and related


records, all as provided in the Accounting Procedure. Said rights of audit and examination shall


extend to each of the Consenting Parties and each of the Non-Consenting Parties so long as the


latter are, or may be, entitled to elect to participate in such Exclusive Operations;


(D) Operator, if it is conducting an Exclusive Operation for (he Consenting Parties, regardless of


whether it is participating in that Exclusive Operation, shall be entitled to request cash advances


and shall not be required to use its own funds to pay any cost and expense and shall not be obliged


to commence or continue Exclusive Operations until cash advances requested have been made,


and the Accounting Procedure shall apply to Operator in respect of any Exclusive Operations


conducted by it.


(E) Should the submission of a Development Plan be approved in accordance with Article 6,2, or


should any Party propose (but not yet have the right to commence) a development in accordance


with this Article 7 where neither the Development Plan nor the development proposal call for the


conduct of additional appraisal drilling, and should any Party wish to drill an additional Appraisal


Well prior to development, then the Party proposing the Appraisal Well as an Exclusive Operation


shall be entitled to proceed first, but without the right (subject to the following sentence) to future


reimbursement pursuant to Article 7.5. If such an Appraisal Well is produced, any Consenting


Party shall own and have the right to take in kind and separately dispose of all of the Non-








32


 Consenting Party’s Entitlement from such Appraisal Well until the value received in sales to


purchasers in arm-length transactions equals one hundred percent (100%) of such Non-Consenting


Party's Participating Interest shares of all liabilities and expenses that were incurred in any


Exclusive Operations relating to the Appraisal Well. Following the completion of drilling such


Appraisal Well as an Exclusive Operation, the Parties may proceed with the Development Plan


approved pursuant to Article 5.9, or (if applicable) the Parties may complete the procedures to


propose an Exclusive Operation to develop a Discovery. If, as the result of drilling such Appraisal


Well as an Exclusive Operation, the Party or Patties proposing to develop the Discovery deckie(s)


not to do so, then each Non-Consenting Patty who voted in favor of such Development Plan prior


to the drilling of such Appraisal Well shall pay to the Consenting Party the amount such Non-


Consenting Party would have paid had such Appraisal Well been drilled as a Joint Operation.


(F) If Operator is a Non-Consenting Party to an Exclusive Operation to develop a Discovery, then


Operator may resign, but in any event shall resign on the unanimous request of the Consenting


Parties, as Operator for the Exploitation Area for such Discovery, and the Consenting Parties shall


select a Consenting Party to serve as Operator for such Exclusive Operation only. Any such


resignation of Operator and appointment of a Consenting Party to serve as Operator for such


Exclusive Operation shall be subject to the Parties having first obtained tmy necessary


Government approvals.





ARTICLE 8


DEFAULT





8.1 Default mid Notice


(A) Any Party that fails to:


(1) pay when due its share of Joint Account expenses (including cash advances and interest);


or


(2) obtain and maintain, any Security required of such Party under the Contract or this


Agreement;


shall be in default under this Agreement (a “Defaulting Party'% provided that Pirity shall not be


of be deemed to be in default under this Agreement in consequence of any failure by President (or


its Affiliates) duly to perform its obligations under die Farmout Agreement. Operator, or any non¬


defaulting .Party in case Operator is the Defaulting Party, shall promptly give notice of such


default (the “Default Notice”) to the Defaulting Party and each of the non-defaulting Parties,


(B) : For the purposes of this Article 8, "Default Period" means the period beginning five (5) Business


Days from the date that the Default Notice is issued in accordance with this Article S,j and ending


when all the Defaulting Party's defaults pursuant to this Article 8.1 have been remedied in full.


8.2 Operating Committee Meetings awl Data


(A) Notwithstanding any other provision of this Agreement, the Defaulting Party shall have no right,


during the Default Period, to:


( l) call or attend Operating Committee or subcommittee meetings;


(2) vote on any matter coming before the Operating Committee or any subcommittee;


(3) access any data or information relating to any operations under this Agreement;


(4) consent to or reject data trades between the Parties and third parties, nor access any data





33


received in such data trades;


(5) Transfer (as defined in Article 12.1) all or part of its Participating Interest, except to non¬


defaulting Parties in accordancewith this Article 8;


(6) consent to or reject any Transfer (as defined in Article 12.1) or otherwise exercise any


other rights in respect of Transfers under this Article 8 or under Article 12 ;


(7) receive its Entitlement in accordance with Article 8.4;


(8) withdraw front this Agreement trader Article 13; or


(9) take assignment of any portion of another Party’s Participating Interest in the event such


other Party is either in default or withdrawing from this Agreement and the Contract.


(B) Notwithstanding any other provisions in this Agreement, during the Default Period:


(1) unless agreed otherwise by the non-defaulting Parties, the voting interest of each non-


defaultuig Party shall be equal to the ratio such non-defaulting Party’s Participating


Interest bears to the total Participating Interests of the non-defaulting Parties;


(2) any matters requiring a unanimous vote or approval of the Parties shall not require the


vote or approval of the Defaulting Party;


(3) the Defaulting Party shall be deemed to have elected not to participate in any operations


that are voted upon during the Default Period, to the extent such an election would be


permitted by Article 5.13 arid Article 7; and


(4) the Defaulting Party shall be deemed to have approved, and shall join with the non-


defaulting Parties in taking, any other actions voted on during the Default Period.


&.? A {location of Defaulted A ccounts


(A) The Party providing the Default Notice pursuant to Article 8.1 shall include in the Default Notice


to each non-defaulting. Party a statement of: (i) the sum of money that die non-defaulting Party


shall pay as its portion of ttie Amount in Default; and (ii) if the Delimiting Party has failed to


obtain or maintain any Security required of such Party in order to maintain the Contract in full


force and effect, the type and amount of the Security the non-defaulting Parties shall post or the


funds they shall pay in order to allow Operator, or (if Operator is in default) the notifying Party, to


post and maintain such Security. Unless otherwise agreed, the obligations for which the


Defaulting Party is in, default shall be satisfied by the non-defaulting Parties in proportion to the


ratio that each, non-defaultingParty’s Participating Interest bears to the Participating Interests of all


non-defaulting Parties, For the purposes of this Article 8:


"Amount in Befnutia means the Defaulting Party’s share of Joint Account expenses which the


Defaulting Party has failed to pay when due pursuant to the terms of this Agreement (but


excluding any interest owed on such amount); and























34


“Total Amount in Default” means the following amounts: (i) the Amount in Default; (ii) third-


party costs of obtaining and maintaining any Security incurred by the non-defaulting Parties or the


fluids paid by such Parties in order to allow Operator to obtain or maintain Security, in accordance


with Article 8.3(A)(ii); plus (iii) any interest at the Agreed Interest Rate accrued on the amount


under (i) from die date this amount is due by the Defaulting Party until paid in full by the


Defaulting Party and on the amount tinder (ii) from the date this amount is incurred by the non-


defaulting Parties until paid in full by the Defaulting Party.


(B) If the Defaulting Party remedies its default in full before the Default Period commences, the


notifying Party shall promptly notify each non-defaulting Party by facsimile or telephone and by-


email, atid the hon-defaulting Parties shall be relieved of their obligations under Article 8.3(A).


Otherwise, each non-defaulting Party shall satisfy its obligations under Article 8,3(A)(i) before the


Delimit Period commences and its obligations under Article 8.3(A)(n) within ten (10) Days


following the Default Notice. If any non-defaulting Peaty fails to timely satisfy such obligations,


such Party shall thereupon be a Defaulting Party subject to the provisions of this Article 8. Hie


non-defaulting Parties shall be entitled to receive their respective shares of the Total Amount in


Default payable by such Defaulting Party pursuant to this Article 8-


(C) If Operator is a Defaulting Party, then all -payments «l.cr»vLc- payable.to- Operator: for Joint


Account costs pursuant to this Agreement shall be made to the notifying Party instead until the


default is cured or a successor Operator appointed. The notifying Party shall .maintain Such funds


in a segregated account separate from its own funds and shall apply such funds to third party


claims due and payable from the Joint Account of which it has notice> to the extent Operator


would be authorized to make such,payments: under the terms of this Agreement The notifying


Patty shall be entitled to bill or cash call the other Parties in accordance with the Accounting


Procedure for proper third party charges that become due and payable during such period to the


extent sufficient funds are: not available. When Operator has cured its default or a successor


Operator is appointed, the notifying Party shall turn over all remaining flmds in the account to


Operator and shall provide Operator and the other Parties with a detailed accounting of the funds


received and expended during tills period. The notifying Party shall not be liable for damages,


losses, costs, expenses or liabilities arising as a result of its actions under this Article 8.3(C),


except to the extent Operator would be liable under Article 4.6.


8.4 Remedies


(A) During the Default Period, the Defaulting Party shall not have a right to its Entitlement, which


shall vest ill and be the property of the non-defaulting Parties. Operator (or the notifying Party if


Operator is a Defaulting Party) shall be authorized to sell such Entitlement in an arm's-length sale


on terms that are commercially reasonable under the circumstances and, after deducting ail costs,,


charges and expenses incurred in connection with such sale, pay the net proceeds to tile non-


defaulting Parties in proportion to the amounts they are owed by the Defaulting Party as a part of


the Total Amount in Default (in payment of first the interest and then the principal) and apply such


net proceeds toward the establishment of the Reserve Fund (as defined in Article 8.4(C)), if


applicable, until all such Total Amount in Default is recovered and such Reserve Fund is


established. Any surplus remaining shall be paid to the Defaulting Parly, and any deficiency shall


remain a debt due from the Defaulting Party to the noii-deftultiiig Parties. When making sales


under this Article 8.4(A), the non-defaulting Parties shall have no obligation to share airy existing


market or obtain a price equal to the price at which their own production is sold.


(B) If Operator disposes of any Joint Property or if any other credit or adjustment is made to the Joint


Account during the Default Period, Operator (or the notifying Party if Operator is a Defaulting


Party) shall be entitled to apply the Defaulting Party’s Participating Interest share of the proceeds


of such disposal, credit or adjustment against the Total Amount in Default (against first the


interest and then the principal) and toward the establishment of the Reserve Fund (as defined in


Article 8.4(C)), if applicable. Any surplus remaining shall be paid to the Defaulting Party, and


any''deficiency shall remain a debt due from the Defaulting Party to the non-defaulting Parties.








35


 (C) The non-defaulting Parties shall be entitled to apply the net proceeds received under Articles


8.4(A) and 8.4(B) toward the creation of a reserve fund (the “Reserve Fund”) in ail amount equal


to the Defaulting Party’s Participating Interest share of: (i) the estimated cost to abandon any wells


and other property in which the Defaulting Party participated; (ii) the estimated cost: of severance


benefits for local employees upon cessation of operations; and (iii) any other identifiable costs that


the non-defhuWng Parties anticipate will be incurred in connection with the cessation of


operations, Upon the conclusion of the Default Period, all amounts held in the Reserve Fund shall


be returned to the Party previously in Default.





(D) Each Party grants to each of the other Parties the right and option to acquire (the “Buy-Out


Option'*) all of its Participating Interest for a value (the “Appraised Value") as determined in this


Article 8.4(D) in the event that such Party becomes a Defaulting Parly and fails to fully remedy ail


its defaults by the 60th Day following the date of the Default hfotice.r- if a Defaulting Party fails


to remedy its default by the 60th Day following the date of the Default Notice, then, without


prejudice to any other rights available to each non-defaulting Party to recover its portion of the


Total Amount in Default, a majority in interest of the non-defaulting Parties (after excluding


Affiliates of the Defaulting Party) may, but shall not be obligated to, exercise such Buy-Out


Option by notice to the Defaulting Party and each non-defaulting Party (the “Option Notice”)- If


mors than mie hob-defaulting Party electa to exercise the Buy-Out .Option, • each electing Udiir


defaulting Party (collectively, the “Acquiring Parties") shall acquire a proportion of the


Participating Interest of the Defaulting Party equal to the ratio of its own Participating interest to


the total Participating Interests of all Acquiring Parties and pay such proportion of the Appraised


Value (as defined below), unless they otherwise agree. The Defaulting Party shall be obligated to


transfer, pursuant to Article 13.6, effective on the date of the Option Notice, its Participating


Interest to the Acquiring Parties in consideration of the payment to the Defaulting Party of the


Appraised Value. In the Option Notice the Acquiring Parties shall specify a value for the


Defaulting Party’s Participating Interest. Within five (5) Days of the Option Notice, the


Defaulting Party shall (i) notify the Acquiring Parties that it accepts the value specified in the


Option Notice (in which case such value is the “Appraised Value ’)', or (ii) refer the Dispute to an


independent expert pursuant to Article 18.3 for determination of the value of its Participating


Interest (In which case; the. value determined by such expert shall be deemed the “Appraised


Value"). If the Defaulting Party fails to so notify the Acquiring Parties, the Defaulting Party shall


be deemed to have accepted the Acquiring Parties’ value as the Appraised Value.





If the valuation of the Defaulting Party’s Participating Interest is referred to an expert, such expert


shall determine the Appraised Value which shall be equal to the fair market value of the


Defaulting Party’s Participating Interest, less the following: (i) the Total Amount in Default; (ii)


all costs, including the costs of the expert, to obtain such valuation; and (iii) FIFTEEN percent


(15%) of the fair market value of the Defaulting Party’s Participating Interest.





The Appraised Value shall be paid to the Defaulting Party In four (4) installments, each equal to


25% of the Appraised Value as follows:





(1) the first installment shall be due and payable to the Defaii Iting Party within 90 Days after


the date on which the DefaultingPaity’s Participating Merest is effectively transferred to


the Acquiring Parties (the “Transfer hate")-,


(2) tile second installment shall be due and payable to the Defaulting Party within 180 Days





after the Transfer Date;


(3) the third installment shall be due and payable to the Defaulting Party within 270 Days


after the Transfer Date; and





(4) the fourth Installment shall be due and payable to the Defaulting Party within 360 Days]


after the Transfer Date,











36


(E) For purposes of Articles 8.4(D), as elected, the Defaulting Party shall, without delay following any


request from the non-defaulting Parties, do any act required to be done by the Laws / Regulations


and any other applicable laws in Older to render the transfer of its Participating Interest legally


valid, including obtaining all governmental consents and approvals, and shall execute any


document and take such other actions as may be necessary in order to effect a prompt and valid


transfer. The Defaulting Patty shall be obligated to promptly remove any liens and encumbrances


which may exist on its assigned Participating Interests. In the event all Government approvals are


not timely obtained, the Defaulting Party shall hold the assigned Participating Interest in trust for


the non-defaulting Parties who are entitled to receive it. Eacli Party constitutes and appoints each


other Party its true and lawful attorney to execute such instruments and make such filings and


applications as may be necessary to make such transfer legally effective and to obtain any


necessary consents of the Government. Actions under this power of attorney may be taken by aiiy


Party individually without the joinder of the others. This power of attorney is irrevocable for the


term of this Agreement and is coupled with an interest. If requested,-each-Party shall execute a


form prescribed by the Operating Committee setting forth this power of attorney in more detail.


(F) The non-defaulting Parties shall be entitled to recover from the Defaulting Party all reasonable


attorneys' fees and all other reasonable costs sustained in the collection of amounts owing by the


Defaulting Patty.


(G) The rights and remedies granted to the non-defaulting Parties in this Article 8 shall be cumulative,


not exclusive, and shall be in addition to any other rights and remedies that may be available to the


noil-defaulting Parties, whether at law, in equity or otherwise. Each right and remedy available to


the non-defaulting Parties may be exercised from time to time and so often aiid in such order as


may be considered expedient by the non-defaulting Parties in their sole discretion.


8.5 Survival


The obligations of .the Defaulting Party and the rights of the non-defaulting Parties shall survive the


surrender of the Contract, abandonment of Joint Operations and termination of this Agreement.


8.6 No Right of Set Off


Bach Party acknowledges and accepts that a fundamental principle of this Agreement is that each Party


pays its Participating Interest share of all amounts due under this Agreement as and when required.


Accordingly, any Patty which becomes a Defaulting Party undertakes that, in respect of either any exercise


by the non-defaulting Parties of any rights under or the application of any of the provisions of this Article


8, such Party hereby waives any right to raise by way of set off or invoke as a defense, whether In law or


equity, any failure by any other Party to pay amounts due and owing under this Agreement or any alleged


claim that such Party may iiave against Operator or any Non-Operator, whether such claim arises under this


Agreement or otherwise. Each Party further agrees that the nature and the amount of the remedies granted


to the nan-defaulting Parties hereunder are reasonable and appropriate in the circumstances.


ARTICLE 9


DISPOSITION OF PRODUCTION


9.1 Right and Obligation io Take in Kind


Except as otherwise provided in this Article 9 or in Article 8, each Party shall have the right and obligation


to own, take in kind and separately dispose of its Entitlement.


9.2 Disposition of Crude Oil


If Crude Oil is to be produced from an Exploitation Area, the Parties shall in good faith, and not less than


three (3) months prior to the anticipated first delivery of Crude Oil, as promptly notified by Operator,








37


negotiate and conclude the terms of a lifting agreement to cover the offtake of Crude Oil produced under


the Contract. The lifting procedure shall be based on the A1PN Model Form Lifting Procedure and shall


contain all such terms as may be negotiated and agreed by the Parties, consistent with the Development


Plan atid subject to the, terms of the Contract. The Government Oil & Gas Company may, if necessary and


practicable, also be party to the lifting agreement; if the Government Oil & Gas Company is a party to the


lifting agreement, then the Parties shall endeavor to obtain its agreement to the principles set forth in this


Article 9.2. [f a lifting agreement has not been entered into by the date of first delivery of Crude Oil, the.


Parties shall nonetheless be obligated to take and separately dispose of such Crude Oil as provided in


Article 9,1 and in addition shall be bound by the terms set forth in the AIPN Model Form Lifting Procedure


until a lifting agreement is executed by the Parties.


93 Disposition of Natural Gas


The Parties recognize that if Natural Gas is discovered it may be necessary for the Parties to enter iaito


special arrangements for the disposal of the Natural Gas, which are consistent with the Development Plan


and subject to the terms of the Contract.





ARTICLE IQ


ABANDONMENT





10.1 Abandonment of Wells Drilled as Joint Operations


(A) A decision to plug and abandon any well which has been drilled as a Joint Operation shall require


the approval of the Operating Committee.


(B) Should any Party fail to reply within the period prescribed in Article 5.12(A)(1) or Article


5.12(A)(2), whichever is applicable, after delivery of notice of Operator’s proposal to plug and


abandon such well, such Party shall be deemed to. have consented to the proposed abandonment


(€'} If the Operating Committee approves a decision to plug and abandon an Exploration Well or


Appraisal Well, subject to the.Laws / Regulations, any Party voting against such decision may


propose (within the time periods allowed by Article 5.13(A)) to conduct an alternate Exclusive


Operation in the wellbore. If no Exclusive Operation is timely proposed, or if an Exclusive


Operation is timely proposed but is not commenced within the applicable time periods under


Article 7.2, such well shall be plugged and abandoned.


(D) Any well plugged and abandoned under this Agreement shall be plugged and abandoned in


accordance with the Laws / Regulations and at the cost, risk and expense of the Parties who


participated in the cost-of drilling such well.


(E) Notwithstanding anything to the contrary in this Article 10.1:


(1) If the Operating Committee approves a decision to plug and abandon a well from which


Hydrocarbons have been produced and sold, subject to the Laws / Regulations, any Party


voting against the decision may propose (within five (5) Days after the time specified in


Article 5.6, Article 5.12(A)(1) or Article 5.12(A)(2), whichever is applicable, has


expired) to take over the entire well as an Exclusive Operation. Any Party originally


participating in the well shall be entitled to participate in the operation of tile well as an


Exclusive Operation by response notice within ten (10) Days after receipt of the notice


proposing the Exclusive Operation.


In such event, the Consenting Parties shall be entitled to continue producing only from


the Zone open to production at the time they assumed responsibility for the well and shall


not be entitled to drill a substitute well in the event that the well taken over becomes


impaired or fails.








38


 (2) Each Nan-Consenting Party shail be deemed to have relinquished flee of east to the


Consenting Parties in proportion to their Participating Interests all of Us interest in the


wellbore of a produced well and related equipment in accordance with Article 7.4(B).


The Consenting Parties shall thereafter bear all cost and liability of plugging and


abandoning such well in accordance with the Laws 1 Regulations, to the extent the Parties


are or become obligated to contribute to such costs and liabilities, and shall indemnify the


Non-Consenting Parties against all such costs and liabilities.


(3) Subject to Article 7.12(F), Operator shall continue to operate a produced well for the





account of the Consenting Parties at the rates and charges contemplated by this


Agreement, plus any additional cost and charges which may arise as the result of the


separate allocation of interest in such well.





10.2 Abandonment af Exclusive Operations


This Article 10 shall apply mi dot is mutandis to the abandonment of an Exclusive Well or any well in which





an Exclusive Operation has been conducted (in which event all Parties having the right to conduct Further


operations, in such well shall be notified and have the opportunity to conduct Exclusive Operations in the


well in accordance with fee pr o visions of th is Article 10).





ARTICLE It


SURRENDER, EXTENSIONS AND RENEWALS





11.1 Surrender


(A) If the Contract requires the Parties to surrender any portion of the Contract Area, Operator shall


advise the Operating Committee of such requirement at least one hundred and twenty (120) Days


in advance of the earlier of the date for .filing .irrevocable notice of such surrender or the date of


such surrender. Prior to the end of such periodi the Operating Committee shall determine pursuant


to Article 5 the size and shape of the surrendered area, consistent with the requirements of the


Contract. Jf a sufficient vote of the Operating Committee cannot be attained, then the proposal


supported by a simple majority of the Participating Interests shall be adopted. If no proposal


attains the support of a simple majority of the Participating Interests, then the proposal receiving


the largest aggregate Participating Interest vote shall be adopted. In die event of a tie, Operator


shall choose among the proposals receiving the largest aggregate Participating Interest vote. The


Parties shall execute any and all documents and take such other actions as may be necessary to


effect the surrender. Each Party renounces all claims and causes of action against Operator and


any other Parties on account of any area surrendered in accordance with the foregoing but against


its recommendation if Hydrocarbons are subsequently discovered under the surrendered area.


(B) A surrender of all or any part of the Contract Area which is not required by the Contract shall


require the unanimous consent of the Parties.


11.2 Extension of the Term


(A) A proposal by any Party to enter into or extend the term of any Exploration or Exploitation Period


or any phase of the Contract, or a proposal to extend the term of the Contract, shall be brought


before the Operating Committee pursuant to Article 5.


(B) Any Party shall have the right to enter into or extend the term of any Exploration or Exploitation


Period or any phase of the Contract or to extend the term of the Contract, regardless of the level of


support in the Operating Committee. If any Party takes such action, any Party not wishing to


extend shall have a right to withdraw, subject to the requirements of Article 13.














39


 ARTICLE 12


TRANSFER OF INTEREST OR RIGHTS AND CHANGES IN CON TROL





12.1 Obligations


(A) Subject to the requirements of the Contract,


(i) any Transfer (except Transfers pursuant to Article 7, Article 8 or Article 13) shall be





effective only if it satisfies the terms and conditions of Article 12.2; and


(ii) a Party subject to a Change in Control must satisfy the terms and conditions of Article


12.3.


Should a Transfer subject to this Article or a Change in Control occur without satisfaction {in all


material respects) by the transferor or the Party subject to the Change in Control, as applicable, of


the requirements hereof, then each other Party shall be entitled to enforce specific performance of


the terms of tiiis Article, in addition to any other remedies (including damages) to which it may be


entitled. Each Party agrees that monetary damages alone would not be an adequate remedy for the


breach of any Party's obligations under this Article.





'(B) For purposes of this Agreement:


“Cash Transfer" means any Transfer where the sole consideration (other than the assumption of


obligations relating to the transferred Participating Interest) takes the form of cash, cash


equivalents, promissory notes or retained interests (such as production, payments) in the


Participating Interest being transfened; and


“Change in Control” means any direct or indirect change in Control of a Party (whether through


merger, sale of shares or other equity interests, or otherwise) through a single transaction or series


of related transactions, from one or more transferors to one. or more transferees, in which more


than 50% of the voting securities or voting rights of a Party changes.


“Encumbrance” means a mortgage, lien, pledge, charge or other encumbrance. “Encumber”


and other derivatives shall be construed accordingly.


“Transferu means any sale, assignment, Encumbrance or other disposition bv a Party of any rights


or obligations derived from the Contract or this Agreement (including its Participating Interest),


other than its Entitlement and its rights to any credits, refunds or payments under this Agreement,


and excluding any direct or indirect change in Control of a Party.





12.2. Transfer





(A) Except in the case of a Party transferring all of its Participating Interest, no Transfer shall be made


by any Party which results in the transferor or the transferee holding a Participating Interest of less


than FIVE percent (5%) or ntiy interest other than a Participating Interest in the Contract and this


Agreement.


(B) Subject to the terms of Articles 4.9 and 4.10, the Party serving as Operator shall remain Operator





following Transfer of a portion of its Participating Interest. In the event of a Transfer of all of its


Participating Interest, except to an Affiliate, the Party serving as Operator shall be deemed to have


resigned as Operator, effective on the date the Transfer becomes effective under this Article 12, in


which event a successor Operator shall be appointed in accordance with; Article 4,11. If Operator


transfers all of its Participating Interest to an Affiliate, that Affiliate shall automatically become


the successor Operator, provided that the transferring Operator shall remain liable for its Affiliate's


performance of its obligations.








40


(C) Both the transferee, and, notwithstanding the Transfer, the transferring Party, shall be liable to the


other Parties for the transferring Party’s Participating Interest share of any obligations (financial or


otherwise} which have vested, matured or accrued under the provisions of the Contract or this


Agreement prior to such Transfer. Such obligations, shall include any proposed expenditure


approved by the Operating Committee prior to the transferring Party notifying the other Parties of


its proposed Transfer and shall also include costs of plugging and abandoning welis or portions of


wells and decommissioning facilities in which the transferring Party participated (or with respect


to which it was required to bear a share of the costs pursuant to this sentence) to the extent such


costs are payable by the Parties under the Contract.


(D) A transferee shall have no rights in the Contract or this Agreement (except any notice and cure


rights or similar rights that may be provided to a Lien Holder (as defined in Article 12.2(B)) by


separate instrument signed by all Parties) unless and until:


(1) it expressly undertakes hi an instrument reasonably satisfactory to the other Parties to


perform the obligations of the transferor under the Contract and this Agreement in respect


of the Participating Interest being transferred and obtains any necessary Government


approval for the Transfer and furnishes any guarantees required by the Government or the


Contract on or before die applicable deadlines; and


(2) except in the case of a Transfer to an Affiliate, each Part)' has consented in writing to


such Transfer, which consent shall be denied only if the transferee fails to establish to the


reasonable satisfaction of each Part)' its financial capability to perforin its payment


obligations under the Contract and this Agreement and political acceptability, consent not


to be unreasonably withheld. No consent shall be required under this Article 12.2(D)(2)


for a Transfer to an Affiliate if the transferring Party agrees in an instrument reasonably


satisfactory to the other Parties to remain liable for its Affiliate’s performance of its


obligations.


(E) Nothing contained in tills Article 12 sliall prevent a Party from Encumbering all or any undivided


share of its Participating Interest to a third party (a “Lien Holder”) for the purpose of security


relating to finance, provided that:


(1) such Party shall remain liable for all obligations relating to such interest;


(2) the Encumbrance shall be subject to any necessary approval of the Government and be


expressly subordinated, to the rights of the other Parties under this Agreement;


(3) such Party shall ensure that any Encumbrance shall be expressed to be without prejudice


to the provisions of this Agreement; and


(4) tire Lien Holder shall first enter into and deliver a subordination agreement in favor of the


other Parties, substantially in the form agreed between the Parties.


(F) Any Transfer (other than a Transfer to an Affiliate and the granting of an Encumbrance as


provided in Article 12.2(E)) shall be subject to the following procedure.


(1) In the event that a Party wishes to transfer any part or all of its Participating Interest, prior


to Hie transferor entering into a written agreement providing for such a Transfer (whether


or not such.-agreement is binding) the transferor shall send die other Parties notice of its


intention and invite them to submit offers for the Participating Interest subject to the


Transfer. The other Parties shall have thirty (30) Days from the date of such notification


to deliver a counter-notification with a binding offer in accordance with Article


12.2(F)(3). If the transferor notifies die offering Party or Parties that the binding offer


presents an acceptable basis for negotiating a Transfer agreement, the transferor and that








41


offering Party or Parties shall have the next sixty (60) Days in which to negotiate in good


faith and execute the terms and conditions of a mutually acceptable Transfer agreement,


if the transferor does not find that any Party's offer presents an acceptable basis for


negotiating a: Transfer agreement, or if the above sixty (60) Days elapse and the


transferor in. its sole discretion believes that a fully negotiated agreement based on the


offer deemed acceptable by the transferor with all offering Parties is not imminent, the


transferor shall be entitled for a period of one hundred eighty (ISO) Days from the


expiration of the thirty (30) Day offer period or the sixty (60) Day negotiation period,


respectively, phis such additional period as may be necessary to secure governmental


approvals, to Transfer all or such portion of its Participating interest to a third party,,


subject to til© obligations set forth in this Article 12, provided that the terms and


conditions of any such Transfer must be more favorable to the transferor than the best


terms and conditions offered by any Party.


(2) If more than one Party counter-notifies the transferor that it intends to acquire the


Participating Interest subject to the proposed Transfer, then each such Party shall acquire


a proportion of the Participating Interest to be transferred equal to the ratio of its own


Participating Interest to the total Participating Interests of all the counter-notifying


Parties, unless the counter-notifying Parties otherwise agree.


(3) Ail Parties desiring to give sucii a counter-notice shall meet to formulate a joint offer.


Each such Party shall make known to the other Parties the highest price or value that it is


willing to offer to the transferor. The proposal with the highest price or value shall be


offered to the transferor as the joint proposal of the Parties still willing to participate in


such offer under the provisions of Article 12.2(F)(1) above.


12.3 Change in Control


(A) A Party subject to a Change in Control shall obtain any necessary Government approval with


respect to the Change in Control and fiirnish any replacement Security required by the


Government or the Contract on qr before the applicable deadlines.


(B) A Party subject to a Change in'.Control shall provide evidence reasonably satisfactory to the other


Parties that following the Change in Control such Party shall continue to have the financial


capability to satisfy its payment obligations and political acceptability under the Contract and this


Agreement Should the Party that is subject to the Change in Control fail to provide such


evidence, any other Party, by notice to such Party, may require such Party to provide Security


satisfactory to the other Parties with respect to its Participating Interest share of any obligations or


liabilities which the Parties may reasonably be expected to incur under the Contract and this


Agreement during the then-current Exploration or Exploitation Period or phase of the Contract.


ARTICLE 13


WITHDRAWAL FROM AGREEMENT





13.1 Might of Withdrawal


(A) Subject to the provisions of this Article 13 and the Contract, any Party not in default may at its


option withdraw from this Agreement and the Contract by giving notice to all other Parties stating


its decision to withdraw. Such notice shall be unconditional and irrevocable when given, except


as may be provided in Article 13.7.


(B) The effective date of withdrawal for a withdrawing Party shall be the end of the calendar month


following the calendar month In which the notice of withdrawal is given, provided that if all


Parties elect to withdraw, the effective date of withdrawal for each Party shall be the date


determined by Article 13.9.








42


 13.2 Partial or Complete Withdrawal


(A) Within thirty (30) Days of receipt of each withdrawing Party’s notification, each of the other


Parties may also give notice that it desires to withdraw from this Agreement and the Contract


Should ail Parties give notice of withdrawal, the Parties shall proceed to abandon the Contract


Area and terminate th e Contract and this Agreement. If Jess than ail of the Parties give such notice


of withdrawal, then the withdrawing Parties shall take ail steps to withdraw from the Contract and


this Agreement on the earliest possible date and execute and deliver all necessary instruments and


documents to assign their Participating Interest to the Parties which are not withdrawing, without


any compensation whatsoever, in accordance with the provisions of Article 13.6.


(B) Any Party withdrawing under Article 11.2 or under this Article 13 shall at its option, (1) withdraw





from the entirety' Of the Contract Area, or (2) withdraw only flora ali exploration activities under


the Contract, but not from any Exploitation Area, Commercial Discovery, or Discovery (whether


appraised or not) made prior to such withdrawal. Such withdrawing Perry shall retain its rights in


Joint Property, but only insofar as they relate to any such Exploitation Area, Commercial


Discovery' or Discovery, end shall abandon all other rights in Joint Property.





13J Rkhts > * **.**>•*4*irt'tjg A • ur*





A withdrawing Party shall have the right to receive its Entitlement produced through the effective date of


its withdrawal. The withdrawing Party shall be entitled to receive all information to which sttch Party is


otherwise entitled under this Agreement until the effective date of its withdrawal. After giving its


notification of withdrawal, a Party shall not be entitled to vote on any matters coming before the Operating


Committee, other than matters for which such Party lias financial responsibility.





13.4 Obligations and Liabilities of a Withdrawing party


(A) A withdrawing Party shall, following i ts not ification of withdrawal, remain liable only for its share


of the following;


(1) costs of Joint Operations, and Exclusive Operations in which it has agreed to participate,


that were approved by the Operating Committee or Consenting Parties as part of a Work


Program and Budget (including a multi-year Work Program and Budget under Article


6.5) or AFE prior to such Party’s notification of withdrawal, regardless of when they are


incurred;


(2) any Minimum Work Obligations for the current period or phase of the Contract, and for


any subsequent period or phase which has teen approved pursuant to Article 11,2 and


with respect to which such Party has failed to timely withdraw under Article 13.4(B);


(3) expenditures described in Articles 4.2(B)(I3) and 13.5 related to an emergency occurring


prior to the effective date of a Party’s withdrawal, regardless of when such expenditures


are inclined;


(4) all other obligations and liabilities of the Parties or Consenting Parties, as applicable,


with respect to acts or omissions under this Agreement prior to the effective date of such


Party’s withdrawal for which such Party would have been liable, had it not withdrawn


from this Agreement; and


(5) in the case of a partially withdrawing Party, any costs and liabilities with respect to


Exploitation Areas, Commerciar Discoveries and Discoveries from which it has not


withdrawn.














43


The obligations and liabilities for which a withdrawing Party remains liable shall specifically


include its share of any costs of plugging and abandoning wells or portions of wells in which it


participated (or was required to bear a share of the costs pursuant to Article 13.4(A)(1)) to the


extent such costs of plugging and abandoning are payable by the Parties under the Contract. Any


mortgages, liens, pledges, charges or other encumbrances which were placed on the withdrawing


Party’s Participating Merest prior to such Party’s withdrawal shall be fully satisfied or released, at


the withdrawing Party’s expense, prior to its withdrawal. A Party’s withdrawal shall not relieve it


from liability to the non-withdrawing Parties with respect to any obligations or liabilities


attributable to the withdrawing Parly under this Article 13 merely because they are not identified


or identifiable at the time of withdrawal.


(B) Notwithstanding the foregoing, a Party shall not be liable for any operations or expenditures it


voted against (other than operations and expenditures described in Article 13.4(AX2) or Article


13.4(A)(3)) if it sends notification of its withdrawal within five (5) Days (or within twenty-four


(24) hours for Urgent Operational Matters) of die Operating (Committee vote approving such


operation or expenditure. Likewise, a Party' voting against voluntarily entering into or extending


of an Exploration Period or Exploitation Period or any phase of the Contract or voluntarily


extending the Contract shall not be liable for the Minimum Work Obligations associated therewith


provided that it sends notification of its withdrawal within thirty (?0) Days of such vote pursuant


to Article 11.2.


13.5 Emergency


If a well goes out of control or a fire, blow out, sabotage or other emergency occurs prior to the effective


date of a Party’s withdrawal, the withdrawing Party shall remain liable for its Participating Interest share of


the costs of such emergency, regardless of when they are incurred.


13.6 Assignment


A withdrawing Party shall assign its Participating Interest free of cost to each of the non-withdrawing


Parties in the: proportion which each of their Participating Interests (prior to the withdrawal) bears to the


total Participating Interests of all the non-withdrawing Parties (prior to the withdrawal), unless the non-


withdrawing Parties agree otherwise. The expenses associated with the withdrawal and assignments shall


be borne by the withdrawing Party.


13.7 Approvals


A withdrawing; Party shall promptly join in such actions as may be necessary or desirable to obtain any


Government approvals required in connection with the withdrawal and assignments. The non-withdrawing


Parties shall use reasonable endeavors to assist the withdrawing Party in obtaining such approvals. Any


penalties or expenses incurred by the Parties in connection with such withdrawal shall be borne by the


withdrawing Party. If the Government does not approve a Party’s withdrawal and assignment to the other


Parties, then the withdrawing Party shall at its option either (1) retract its notice of withdrawal by notice to


the other Parties and: remain a Party as if such notice of withdrawal had never been sent, or (2) hold its


participating Interest in trust for the sole and exclusive benefit of the non-withdrawing Parties with the


right to be reimbursed by the non-withdrawing Parties for any subsequent costs and liabilities incurred by it


for which it would not have been liable, bad it successfully withdrawn.


13.8 Security





A Party withdrawing from this Agreement and the Contract pursuant to this Article 13 shall provide





Security satisfactory to the other Parties to satisfy any obligations or liabilities for which the withdrawing


Party remains liable in accordance with Article 13,4, but which become due after its withdrawal, including


Security to cover the costs of an abandonment, if applicable.














44


 13.9 Withdrawal or Abandonment />jj AH Parties





In the event all Parties decide to withdraw, the Parties agree that they shall be bound by the terms and


conditions of this Agreement for so tong as may be necessary to wind up the affairs of the Parties with the


Government, to satisfy any requirements of the Laws / Regulations and to facilitate the sale, disposition or


abandonment of property or interests field by the Joint Account,.all-ill accordance with Article 2.


ARTICLE 14


RELATIONSHIP OF PARTIES AND TAX








14.1 Relationship of Parties


The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, net


joint or collective, it is not the intention of the Patties to create, nor shall this Agreement'be-deemed or


construed to create, a mining or other partnership, joint venture or association or (except as explicitly


provided in this Agreement) a trust. This Agreement shall not be deemed or construed to authorize any


Party to act as an agent, servant or employee for any other Party for any purpose whatsoever except as


explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties


'd'-.'U iso, be conr.iae»eU i"




14.2 Tax





Each Party shall be responsible for reporting and discharging its own tax measured by the profit or income


of the Party and the satisfaction of such Party’s share of all contract obligations under the Contract and


under this Agreement. Bach Party shall protect; defend and indemnify each other Party from any and all


loss, cost or liability arising from die indemnifying Party’s failure to report and discharge such taxes or


satisfy such obligations. The Parties intend that all income and all tax benefits (including deductions,


depreciation, credits and capitalization) with respect to the expenditures made by the Parties hereunder will


be allocated by the Government tax authorities to the Parties based on the shar e of each tax item actually


received or borne by each Party, if such allocation is not accomplished due to the application of the Laws /


Regulations or other Government action, the Parties shall attempt, to adopt mutually agreeable


arrangements that will allow the Parties to achieve the financial results intended. Operator shall provide


each Party, in a timely maimer and at such Party’s sole expense, with such information with respect to Joint


Operations as such Party may reasonably request for preparation of its tax returns or responding to any


audit or other tax proceeding.


14.3 United States Tax Election


Each Party to this Agreement shall hereby agree to enter into and shall be bound by a Tax Partnership for


U.S. Federal Tax purposes substantially in the form attached as Exhibit C. Such TaX Partnership has iio tax


implications for non-U.S. parties.





ARTICLE 15


VENTURE INFORMATION - CONFIDENTIALITY - INTELLECTUAL PROPERTY





15.1 Venture Information


(A) Bach Party may use all information it receives under Article 4.4(A) (the “Venture Information”)


without the approval of any other Party, subject to any applicable restrictions and limitations set


forth in this Article 15, the Agreement and the Contract. For purposes of this Article 15, the right


to use shall entail the right to copy and prepare derivative works.


(B) Each Party may, subject to any applicable restrictions and limitations set forth in the Contract,


extend the right to use Venture Information to each of its Affiliates which are obligated to terms








45


 not lass restrictive that this Article 15.








(C) The acquisition or development of Venture Information under terms other titan as specified in this


Article IS shall require the approval of the Operating Committee. The request for approval


submitted by a Party shall Ire accompanied by a description of, and summary of the use and


disclosure restrictions which would be applicable to, the Venture Information, and any such Party


will be obligated: to use all reasonable efforts to arrange for rights to use which are not less


restrictive than specified in this Article 15.


(D) All Venture Information received by a Party under this Agreement is received on an “as is” basis


without warranties, express or implied, of any kind. Any use of such Venture Information by a


Party shall be at such Party’s sole risk.


15.2 Confidentiality


(A) Subject to the provisions of the Contract and this Article 15, the Parties agree that all information


in relation with Joint Operations or Exclusive Operations shall be considered confidential and


shall be kept confidential and not be disclosed during the term of the Contract and for a period of


TWO (2) years thereafter to any person or entity not a Party to this Agreement, except:


(1) to an Affiliate pursuant to Article 15.1(B);


(2) to a governmental agency or other entity when required by the Contract;


(3) to the extent such information is required to be ftimished in compliance with the


applicable law or regulations, or pursuant to any legal proceedings or because of any


order of any court binding upon a Patty;


(4) to prospective or actual attorneys .engaged by any Party where disclosure of such


information is essentia! to such attorney’s work for such Party;


(5) to prospective or actual contractors and consultants engaged by any Party where


disclosure of such information is essential to such contractor’s or consultant’s work for


such Party;


(6) to a bona fide prospective transferee of a Party’s Participating Interest to the extent


appropriate in order to allow the assessment of such Participating Interest (including an


entity with whom a Party and/or its Affiliates are conducting bona tide negotiations


directed toward a merger, consolidation or the sale of a majority of its or an Affiliate's


shares);


(7) to a bank or other financial institution to the extent appropriate to a Party arranging for


funding;


(S) to the extent such information must be disclosed pursuant to any rules or requirements of


any government or stock exchange having jurisdiction over such Party, or its Affiliates;


provided that if any Party desires to disclose information in an annual or periodic report


to its or its Affiliates’ shareholders and to the public and such disclosure is not required


pursuant to any rales or requirements of any government or stock exchange, then such


Paily shall comply with Article 19.3;


(9) to its respective employees for the purposes of Joint Operations or Exclusive Operations


as die case may be, subject to each Party taking customary precautions to ensure such


information is kept confidential; and








46


 (10) any information which, through no fault of a Party, becomes a part of the pub! ic domain.


(B) Disclosure as pursuant to Articles 15.2(A)(5), (6), and (7) shall not be made unless prior to such


disclosure the disclosing Party lias obtained a written undertaking from the recipient party to keep


the information strictly confidential for at least TWO (2) years and to use the information for the


sole purpose described in Articles 15.2(A)(5), (6), and (7), whichever is applicable, with respect to


the disclosing Party.


15.3 Intellectual Property








(A) Subject to Articles 15.3(C) and 15.5 and unless provided otherwise in the Contract, all intellectual


properly rights in the Venture Information shall be Joint Property. Each Party and its Affiliates


have the right to use all such intellectual property rights in their own operations (including joint


operations or a production sharing arrangement in which the Party or its Affiliates has an


ownership or equity interest) without the approval of any other Party. Decisions regarding


obtaining, maintaining and licensing such intellectual property rights shall be made by the


Operating Committee, and the costs thereof shall be for the Joint Account. Upon unanimous


consent of;the Operating Committee as to ownership,.licensing rights, .and income distribution, the


ownership of intellectual property rights in the Venture Information may be assigned to the


Operator or to a Party.


(B) Nothing in this Agreement shall be deemed to require a Party to (i) divulge proprietary technology





to any of the other Parties; or (ii) gra.it a license or other rights under any intellectual property


rights owned or controlled by such Party or its Affiliates to any of the other Parties.





(C) If a Party or an Affiliate of a Party has proprietary technology applicable to activities carried out


tinder this Agreement which the Party or its Affiliate desires to make available on terms and


conditions other than as specified in Article 15.3(A), the Party or Affiliate may, with the prior


approval of the Operating Committee, make the proprietary technology available on terms to be


agreed. If the proprietary technology is so made available, then any inventions, discoveries, or


improvements which relate to such proprietary technology and which result from Joint Account


expenditures shall belong to such Party or Affiliate, in such case, each other Party shall have a


perpetual, royalty-free, irrevocable license to practice such inventions, discoveries, or


improvements, but only in connection with the Joint Operations.


(D) Subject to Article 4.6(B), all costs and expenses of defending, settling or otherwise handling any


claim which is based on the actual or alleged infringement of any intellectual property right shall


be for the account of the operation from which the claim arose, whether Joint Operations or


Exclusive Operations,


1S.4 Continuing Obligations


Any Party ceasing to own a Participating Interest during the term of this Agreement shall nonetheless


remain bound by the obligations of confidentiality in Article 15.2, and any disputes in relation thereto shall


be resolved in accordance with Article 18.2.





15.5 Trades


Operator may, with approval of the Operating Committee, make well tirades and data trades for the benefit


of the Parties, with any data so obtained to be furnished to all Parties who participated in the cost of the


data that was traded. Operator shall cause any third party to such trade to enter into an undertaking to keep


the traded data confidential.











47


 ARTICLE lb


FORCiE.MAJEl/RE





Ml OMigMfyM





If as a result of.Force Majeure my Party is rendered unable, wlo% or mparf, to natty out its obligations


under tins Agreement^ oilier than toe obligatias to pay any ammats due or to tomisfc Security,, ihea too


obligatioas of toe party giving such notice, so fe as; audio the, extent that file 'a’bligaeioiis.am'afiectod by


such Force Majeure, -shall be, suspended during toe 'continuance of any inability -so caused and for such


reasonable period thereafter ss may be accessary tor the Party to put itself to die same psitoairthst it


occupied prior to toe Force, Majenns, but' for no longer pidtatf, file- Party claiming -Force tgqfeure shall


notify the oilier parties of the Force Us^em ‘witoin a reasonable time ater the cfmmca of toe feels


relied on and sfcdi tetp all Parties informed -of all- sigoiffoaot developments. -SttcSi notice shall give


reasonably -full of foe, Force and alto, estimate period .of time which t’b .E**# ’will


prob&ly re^iiito to tomedy’the Fores, frfajaurev the affected f’atty shall vts& a& imilt diligence. to


remove or overcome toe Force Myeure stteatow as quiafey as. jtoSstoJe in. aft toanfter tort shall


not b bbligdM'to-seflieany tobotdispufe.except onbiffi’s acceptable to it; and all toito disputes Shall be


htmdled. wfthto toe sole diseretidft eeftoe aftoetd Party'





U.2 Definition of Fan&Mttjmre





For foe purposes of this Agreement; “Hprcp Mtyeure” shall lave die same meaning .as- is set pot to Article








ARTICLE 1:7


NOTICES








Eijpept.as otherwise spscifiaaHj- provided,# notices laifefflriz# or requited between too Pardas by my of


any etectoaiic means of transnattis®, written conumroicadoos which .provides- written coaSrodioa of complete


transmission, arid addressed to such Parties; Oral communication does not constitute, notice foe purposes of tots


Agreement, and. e-mail addresses and telephone -numbers for the Patties are listed below as a matter cfconvenienee


only. ‘ A notice given under any provision of this Agreement shall- bo .deemed delivered only- when received fey toe


Parly to whom such notifies Is directed, .and the timp -for such Party jo dtfjfor _aay notice to to itjefc


originating notice date-tois otigjtoidiig, notice «iaeeived. ?E&ejh>eaif foe purposes oftito. Arshile


17 shall moan acted defivetyfoffoexutocc to toe tritefeto sJtoeParfp #ecjfied hereundef drto bb foeteafteraarifieti


laacconJancB withtora Aafiete VL jBac&fdrty sh#hayie toerigtotottoenge headdress 4*any


tom copies dfaEltofihrtCftlces be iftested to asdtoerpereon St aftojirer address. by^vtog vwiitea notice fosreofto all


other Parties.


F&iity Hirlrocarburos


Prtosdentpflte'gjs Paraguay ,S-Ai


J«ah pe Salazar 6$7 , Ed ifipao Mkb'cal Center'./ tto.piso / Apart S


Artmcioja,.Paraguay Avia. Meal Lopez esq. Dr. Moira


Asuncion, Paraguay








Attention: Luis Alberto Peters. Attention.' Richard Hubbard


Ftoc: ; -S'595-21-233-741 .


Bteail: LEfito^^E.ityM:j.dft)carbKrps,com,oy


Telephone: + iSfl-Zl SZS&MA


\A>

















48 '


 ARTICLE 18


APPLICABLE LAW - DISPUTE RESOLUTION - WAIVER OF SOVEREIGN IMMUNITY


18.1 Applicable Law


The substantive laws of PARAGUAY, exclusive of any conflicts of laws principles that could require the


application of any other law, shall govern this Agreement for all purposes, including the resolution of all


Disputes between or among Parties.


18.2 Dispute Resolution


(A) Notification. A Party who desires to submit a Dispute for resolution shall commence the dispute


resolution process by providing the other parties to the Dispute written notice of the Dispute


(“Notice of Dispute”). The Notice of Dispute shall identify the parties to the Dispute and contain


a brief statement of the nature of the Dispute and the relief requested. The submission of a Notice


of Dispute shall toil any applicable statutes of limitation related to the Dispute, pending (he


conclusion or abandonment of dispute resolution proceedings under this Article 18.


(S) 'Negotiations. The parties to the Dispute shall seek to resolve any Dispute by negotiation between


Senior Executives. A ”Senior Executive” means any individual Who has authority to negotiate


the settlement of the Dispute for a Party, Within thirty (30) Days after the date of the receipt by


each party to the Dispute of fhe Notice of Dispute (which notice shall request negotiations among


Senior Executives), the Senior Executives representing the parties to the Dispute shall meet at a


mutually acceptable time and place to exchange relevant information in an attempt to resolve the


Dispute, if a Senior Executive intends to be accompanied at the meeting by an attorney, each


other party’s Senior Executive shall be given written notice of such intention at least three (3)


Days in advance and may also be accompanied at the meeting by an attorney. Notwithstanding


the above, any Party may initiate arbitration proceedings pursuant to Article 18,2 (C) concerning


Such Dispute within thirty (30) Days after the date of receipt of the Notice of Dispute.


(C) Arbitration. Any Dispute not finally resolved by alternative dispute resolution procedures set


forth in Articles 18.2(B) shall be exclusively and definitively resolved through final and binding


arbitration, it being the intention of the Parties that this is a broad form arbitration agreement


designed to encompass all possible disputes.


(1) Rules, The arbitration shall be conducted in accordance with the following arbitration


rules (as then in effect) (die ‘‘Rules”)'.


Rules of Arbitration of the International Chamber of Commerce (ICC).


(2) Number of Arbitrators. The arbitration shall be conducted by three arbitrators, unless all


parties to the Dispute agree to a sole arbitrator within thirty (30) Days after the filing of


the arbitration. For greater certainty, for purposes of this Article 18.2(D), the filing of the


arbitration means the date on which the claimant's request for arbitration is received by


the other parties to the Dispute.


(3) Method of Appointment of the Arbitrators. If the arbitration is to be conducted by a sole


arbitrator, then the arbitrator will be jointly selected by the parties to the Dispute. If the


parties to the Dispute foil to agree on foe arbitrator within thirty (30) Days after the filing


of the arbitration, then ICC Arbitral Institution shall appoint the arbitrator.





If the arbitration is to be conducted by three arbitrators and there are only two parties to


the Dispute, then each party to the Dispute shall appoint one arbitrator within thirty (30)


Days of the filing of the arbitration, and the two arbitrators so appointed shall select the


presiding arbitrator within thirty (30) Days after the latter of the two arbitrators has been








49


appointed by the parties to the Dispute. If a party to the Dispute fails to appoint its party-


appointed arbitrator or if the two party-appointed arbitrators cannot reach an agreement


on the presiding arbitrator within the applicable time period, then the ICC Arbitral


Institution shall appoint the remainder of the tluee arbitrators not yet appointed.


If the arbitration is to be conducted by three arbitrators and there are more than two


parties to the Dispute, then within thirty (30) Days of the filing of the arbitration, all


claimants shall jointly appoint one arbitrator and all respondents shall jointly appoint one


arbitrator, and the two arbitrators so appointed shall select the presiding arbitrator within


thirty (30) Days after the tatter of the two arbitrators has been appointed by the parties to


tlie Dispute. If either all claimants or all respondents fail to make a joint appointment of


an arbitrator or if the party-appointed arbitrators cannot reach an agreement on the


presiding arbitrator within the applicable time period, then ICC Arbitral Institution shall


appoint the remainder of the three arbitrators not yet appointed.


(4) Consolidation. If the Parties initiate multiple arbitration proceedings, the subject matters


of which are related by common questions of law or fed and which could result in


conflicting awards or obligations, then all such proceedings may be consolidated into a


single arbitral proceeding,


(5) Place of Arbitration. Unless otherwise agreed by all parties to the Dispute, the place of


arbitration shall be BOGOTA, COLUMBIA.


(6) Language. The arbitration proceedings shall be conducted in the English language and


the arbitrators) shall be fluent in the English language.


(7) Entry of Judgment. The award of the arbitral tribunal shall be final and binding.


Judgment on the award of the arbitral tribunal may be entered and enforced by any court


of competent jurisdiction.


(8) Notice. All notices required for any arbitration proceeding shall be deemed properly


given if sent in accordance with Article 17.


(9) Qualifications and Conduct of the Arbitrators. All arbitrators shall be and remain at all


times wholly impartial, and, once appointed, no arbitrator shall have any ex parte


communications with any of the parties to the Dispute concerning the arbitration or the


underlying Dispute other than communications directly concerning the selection of the


presiding arbitrator, where applicable. Whenever the parties to the Dispute are of more


than one nationality, the single arbitrator or the presiding arbitrator (as the case may be)


shall not be of the same nationality as any of the parties or their ultimate parent entities,


unless the parties to the Dispute otherwise agree.


(10) Interim Measures. Notwithstanding any requirements for alternative dispute resolution


procedures as set forth in Article 18.2(B), any party to the Dispute may apply to a court


for: interim measures (i) prior to the constitution of the arbitral tribunal (and thereafter as


necessary to enforce the arbitral tribunal’s rulings); or (ii) in the absence of the


jurisdiction of the arbitral tribunal to rule on interim measures in a given jurisdiction.


The Parties agree that seeking and obtaining such...interim measures shall not waive the


right: to arbitration. The arbitrators (or in an emergency the presiding arbitrator acting


alone in the event one or more of the other arbitrators is unable to be involved in a timely


fashion) may grant interim measures including injunctions, attachments and Conservation


orders in appropriate circumstances, which measures may be immediately enforced by


court order. Hearings on requests for interim measures may be held in person, by


telephone, by video conference or by other means that permit the parties to the Dispute to


present evidence and arguments.








50


 (11) Costs and Attorneys* Fees. The arbitral tribunal is authorized to award costs and


attorneys’ fees and to allocate them between the parties to the Dispute. The costs of the


arbitration proceedings, including attorneys’ fees, shall be borne in the manner


determined by the arbitral tribunal.


(12) Interest. The award shall include interest, as determined by the arbitral award, from the


date of any default or other breach of this Agreement until the arbitral award is paid in


full. Interest shall be awarded at the Agreed Interest Rate.





(13) Currency Of Award. The arbitral award shall be made and payable in United States


dollars, free of any tax or other deduction.


(14) Exemplary Damages. The Parties waive their rights to claim or recover, and the arbitral





tribunal shall not award, any punitive, multiple, or other exemplary damages (whether


statutory or common law) except to the extent such damages have been awarded to a


third party and are subject to allocation between or among the parties to the Dispute.





(15) Waiver of Challenge to Decision or Award. To the extent permitted by law, any right to


appeal or challenge any arbitral decision or award, or to oppose erfercetssaif. of any such


decision or award before a court or arty governmental authority, is hereby Waived by the


Parties except with respect to the limited grounds for modification or non-enforcement


provided by any applicable arbitration statute or treaty.


(D) Confidentiality. All negotiations, mediation, arbitration, and expert determinations relating to a


Dispute (including a settlement resulting :from negotiation or mediation, an arbitral award,


documents exchanged or produced during a mediation or arbitration proceeding, and memorials,


briefs or other documents prepared for the arbitration) are confidential and may not be disclosed


by the Parties, their employees, officers, directors, counsel, consultants, and expert witnesses,


except (in accordance with Article 15.2} to tile extent necessary to enforce this Article 18 or any


arbitration award, to enforce other rights of a Party, or as required by law, provided, however, that


breach of this confidentiality provision shall not void any settlement, expert determination or


award,








18,3 Expert Determination


For any decision referred to an expert under Article 8.4, the Parties hereby agree that such decision shall be


conducted expeditiously by an expert selected unanimously by the parties to the Dispute. The expert is not


an arbitrator of the Dispute and shall not be deemed to be acting in an arbitral capacity. The Party desiring


an expert determination shall give the other parties to the Dispute written notice of the request for such


determination. If the parties to the Dispute are unable to agree upon an expert within ten (10) Days after


receipt of the notice of request for an expert determination, then, upon the request of any of the parties to


the Dispute, tire International Centre for Expertise of the International Chamber of Commerce (ICQ shall


appoint such expert and shall administer such expert determination through the ICC’s Rules for Expertise.


The expert, once appointed, shall have no ex parte communications with any of the parties to the Dispute


concerning the expert determination or the underlying Dispute. Alt Parties agree to cooperate fully in the


expeditious conduct of such expert determination and to provide the expert with access to all facilities,


books, records, documents, information and personnel necessary to make a fully informed decision in an


expeditious manner. Before issuing his final decision, the expert shall issue a draft report and allow the


parties to the Dispute to comment on it, The expert shall endeavor to resolve the Dispute within thirty (30)


Days (but no later than sixty (60) Days) after his appointment, taking into account the circumstances


requiring an expeditious resolution of the inatter irt dispute. The expert’s decision shall be final and binding


on the parties to the Dispute unless challenged in art arbitration pursuant to Article 18.2(C) within sixty


(50) Days of the date the expert’s final decision is received by the parties to the Dispute and until replaced


by such subsequent arbitral award. In such arbitration (i) the expert determination on the specific matter


under Article 8,4 shall be entitled to a rebuttable presumption of correctness; and (ii) the expert shall not





51


 (without the written consent of the parties to the Dispute) be appointed to act as an arbitrator or as adviser


to the parties to the Dispute.


18.4 Waiver of Sovereign Immunity





Any Party that now or hereafter has a right to claim sovereign immunity tor itself or any of its assets hereby


waives any such immunity to the fullest extent permitted by the laws of any applicable jurisdiction. This


waiver includes immunity from (i) any expert determination, mediation, or arbitration proceeding


commenced pursuant to this Agreement; (ii) any judicial, administrative or other proceedings to aid the


expert determination, mediation, or arbitration commenced pursuant to this Agreement; and (jit) any effort


to confirm, enforce, or execute any decision, settlement, award, judgment, service of process, execution


order or attachment (including pre-judgment attachment) that: results from an expert determination,


mediation, arbitration or any judicial or administrative proceedings commenced pursuant to this


Agreement. Each Party acknowledges that its rights and obligations hereunder are of a commercial and not


a governmental nature.





ARTICLE 19


GENERAL PROVISIONS





19J Conduct of the Parties


(A) Each Party warrants that it and its Affiliates have not made, offered, or authorized and will not


make, offer, or authorize with respect to the matters which are the subject of this Agreement, any


payment, gift, promise or oilier advantage, whether directly or through uny other person or entity,


to or for the use or benefit of any public official (i.e., any person holding a legislative,


administrative or judicial office, including any person employed by or acting on behalf of a public


agency, a public enterprise or a public international organization) or any political party or political


party official or candidate for office, where such payment, gift, promise or advantage would


violate (i) the applicable laws of die Republic of Paraguay; (ii) the laws of the country of


incorporation of such Party or such Party’s ultimate parent company and of the principal place of


business of such ultimate parent company; or (iii) the principles described in the Convention on


Combating Bribery 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. Each Party shall defend, indemnify and hold the other Parties harmless from and


against any and ail claims, damages, losses, penalties, costs and expenses arising from or related


to, any breach by sueh first. Party of such warranty. Such indemnity obligation shall survive


termination or expiration of this Agreement, Each Party shall in good time (i) respond in


.reasonable detail to any notice from any other Party reasonably connected with the above-stated,


warranty; and (ii) furnish applicable documentary support for such response upon request from


such other Party.


(B) Each Party agrees to (i) maintain adequate internal controls; (ii) properly record and report all


transactions; and (iii) comply with the laws applicable to it. Each Party must rely oh the other


Parties’ system of internal controls, and oh die adequacy of full disclosure of the facts, and Of


financial and other data regarding the Joint Operations undertaken under this Agreement. No


Party is in any way authorized to take any action on behalf of another Party that would result in an


inadequate or inaccurate recording and reporting of assets, liabilities or any other transaction, or


which would put such Party in violation of its obligations under the laws' applicable to the


operations under this Agreement.


19.2 Conflicts of Interest


(A) Operator undertakes that it shall avoid any coiifl ict of interest between its own interests (including


the interests of Affiliates) and. the interests of the other Parties in dealing with suppliers, customers


and all other organizations or individuals doing or seeking to do business with the Parties in








52


connection with activities contemplated under tin's Agreement.


(B) The provisions of the preceding paragraph sliail not apply to: (l) Operator’s performance which is


in accordance with the local preference laws or policies of the Government; or (2) Operator’s


acquisition of products or services from an Affiliate, or the sale thereof to an Affiliate, made in


accordance with the terms of this Agreement.


(Q Unless otherwise agreed, the Parties and their Affiliates are free to engage or invest (directly or


indirectly) in an unlimited number of activities or businesses, any one or more of which may be


related to or in competition with the business activities contemplated under this Agreement,


without having or incurring any obligation to offer any interest in such business activities to any


Party.


19.3 Public A n noun cements


(A) Operator shall be responsible for the preparation and release of all public announcements and


statements regarding this Agreement or the Joint Operations; provided that no public


announcement or statement shall be issued or made unless, prim- to its release, all the Parties have


been furnished with a copy of such statement or announcement and the approval of at least two (2)


Parties which are noi Affiliates of Operator holding fifty percent (50%) or more of the


Participating Interests not held by Operator or its Affiliates has been obtained. Where a public


announcement or statement becomes necessary or desirable because of danger to or loss of life,


damage to property or pollution as a result of activities arising under this Agreement, Operator is


authorized to issue and make such announcement or statement without prior approval of the


Parties, but shall promptly furnish ail the Parties with a copy of such announcement or statement.


(B) If a Party' wishes to issue or make any public announcement or statement regarding this


Agreement or the Joint Operations, it shall not do so unless, prior to the release of the public


announcement or statement, such Party furnishes all the Parties with a copy of such announcement


or statement, and obtains the approval of at least two (2) Parties which are not Affiliates holding


fi fty percent (50%) or more of the Participating Interests not held by such announcing Party or its


Affiliates; provided that, notwithstanding any failure to obtain such approval, no Party shall be


prohibited from issuing or making any such public announcement or statement if it is necessary to


do so in order to comply with the applicable laws, rules or regulations of any government, legal


proceedings or stock exchange having jurisdiction over such Party or its Affiliates as set forth in


Article 15.2,


19.4 Successors and Assigns


Subject to the limitations: on Transfer contained in Article 12, this Agreement shall inure to the benefit of


and be binding upon the successors and assigns of the Parties.


19.3 Waiver


No waiver by any Party of any one or more defaults by another Party in the performance of any provision


of this Agreement shall operate or be construed as a waiver of any future default or defaults by the same


Party, whether of a like or of a different character. Except as expressly provided in this Agreement no


Party shall be deemed to have waived, released or modified any of its rights under this Agreement unless


such Party has expressly stated, in writing, that it does waive, release or modify such right.


19.6 No Third Parly Beneficiaries


Except as provided under Article 4.6 (B), the interpretation of this Agreement shall exclude any rights


under legislative provisions conferring rights under a contract to persons not a party to that contract.











53


19. 7 Joint Preparation


Each provision of this Agreement shall be construed as though all Parties participated equally in the


drafting of the same. Consequently, the Parties acknowledge and agree that any rule of construction that a


document is to be construed against the drafting party shall not bo applicable to this Agreement.


19.8 Severance of Invalid Provisions


If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason


whatsoever, such invalidity shall not affect the validity or operation of any other provision of this


Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and


any such invalid provision shall be deemed severed from this Agreement without affecting the validity of


the balance of this Agreement.


19.9 Modifications


Except as is provided in Articles 11.2(B) and 20.8, there shall be no modification of this Agreement or the


Contract except by written consent of all Parties.


/if. 1 <> inierpretuiion


(A) Headings, The topical headings used in this Agreement are for convenience only and shall not be


construed as having any substantive significance or as indicating that all of the provisions of this


Agreement relating to any topic ire to be found in any particular Article,


(B) Singular and Plural, Reference to the singnlar includes a reference to the ptaral and vice versa,


(C) Gender. Reference to any gender includes a reference to all other genders.


(DJ Article. Unless otherwise provided, reference to any Article or an Exhibit means an Article or


Exhibit of this Agreement


(E) Include, “include" and “including’'- shall mean include or including without limiting the


generality of the description preceding such term and are used in an illustrative sense and not a


limiting sense.


19.11 Counterpart Execution


This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed


an original Agreement for all purposes; provided that no Party shall be hound to this Agreement unless and


until all Parties have executed a counterpart. For purposes of assembling all counterparts into one


document, Operator is authorized to detach the signature page from one or more counterparts and, after


signature thereof by the respective Party, attach each signed signature page to a counterpart.
































54


19.12 Entirety


With respect to the subject matter contained herein, this Agreement (i) is the entire


agreement of the Parties; and (ii) supersedes all prior understandings and negotiations of


the Parties,


IN WITNESS of their agreement each Patty has caused its duly authorized representative


to sign this instrument on the date indicated below such representative’s signature.








! A^Aa\|sN<*








■f'k- ..........' ....... _ tAGUAY


BytOscar A. Mersan ---CarlosT. Mersatt





'fitie: President and Director


Date: October..,*......2012.-

















PIRITYHpKOCAl


By:lmis-Pet«p.


■fjtl^GenBrai Manager


Date: October, ......2012.-












































55


JOINT OPERATING AGREEMENT


EXHIBIT A


ACCOUNTING PROCEDURE


 October 29, 2012





AIPN MODEL INTERNATIONAL ACCOUNTING PROCEDURE


PRESIDENT ENERGY PARAGUAY S.A.





AND





PURITY HIDROCARBUROS S.R.L.











ATTACHED TO AND MADE PART OF THE OPERATING AGREEMENT FOR:


BLOQUE PIRITY - PARAGUAY


 EXHIBIT "A"


ACCOUNTING PROCEDURE


TABLE OF CONTENTS





SECTION PAGE





SECTION I GENERAL PROVISIONS..................................... ...... 1


1.1 Purpose............................................................................. .....I





1.2 Conflict with agreement........................................... .....I


1.3 Definitions....................................................................... .....1


1.4 Joint Account Records and Currency exchange.


1.5 Statements and Billings............................................... .....2


1.6 Payments and Advances................................................ .....3


1.7 Adjustments.................................................................... .....5


1.8 Audits................................................................................ .....5


1.9 allocations...,.................................................................. .....7


SECTION 2 DIRECT CHARGES............................................... .....8





2.1 Licenses. Permits. Etc, .....8


2.2 Salaries. Wages and Related Costs....................... .....8


2.3 Employee Relocation Costs.................................... .....9


2.4 Offices. Camps, and Miscellaneous Facilities. ... .....9


2.5 Material. ............................................................................... .....9





2.6 Exclusivity Owned Equipment and Facilities of Operator and Affiliates. .....9


2.7 Services. ...10


2.8 Insurance........................................... ...11


2.9 Damages and Losses to Property. ...11


2.10 Litigation. Dispute Resolution and Associated Legal Expenses.................. ...11


2.11 Taxes and Duties......................................................................................................... ...12


2.12 ECOLOGICAL AND ENVIRONMENTAL. ...12


2.13 Decommissioning fAbandonment) and reclamation, ...12


2.14 Other Expenditures......................................................... ...12





SECTION 3 INDIRECT CHARGES ..13





3.1 Purpose............................ 13


3.2 Amount for operator.. 13


3.4 exclusions...................... 14





SECTION 4 ACQUISITION OF MATERIAL 14


4.1 Acquisitions...............................................................................................................................................14


4.2 Materials Furnished by Operator......................................................................................................14


4.3 premium Prices..........................................................................................................................................15





4.4 Warranty of Material Furnished by Operator..............................................................................16





SECTIONS DISPOSAL OF MATERIALS....... ....16





5.1 Disposal......................................................................................................................................................16


5.2 Material Purchased by a Party or affiliate...................................................................................16


5.4 Salks to Third Parties............................................................................................................................16





SECTION 6 INVENTORIES.............. .....17





6-l Periodic Inventories - Notice and Representation. .....17


6.2 Special inventories.......................................................... .....17


 EXHIBIT "A"


ACCOUNTING PROCEDURE


Attached to and made part of the Operating Agreement, hereinafter called the "Agreement,"


effective as of the 29 day of October, 2012, by and between President Energy Paraguay S.A,


and Pirity Hidrocarburos S.R.L..





SECTION 1


GENERAL PROVISIONS





1.1 Purpose.


1.1.1 The purpose of this Accounting Procedure is to establish equitable methods for


determining charges and credits applicable to operations under the Agreement


which reflect the costs of Joint Operations to the end that no Party shall gain or


lose in relation to other Parties.


1.1.2 The Parties agree, however, that if the methods prove unfair or inequitable to


Operator or Non-Operators, the Parties shall meet and in good faith endeavor


to agree on changes in methods deemed necessary to correct any unfairness


or inequity.


1.2 Conflict with Agreement.


In the event of a conflict between the provisions of this Accounting Procedure and the


provisions of the Agreement to which this Accounting Procedure is attached, the


provisions of the Agreement shall prevail.


1.3 Definitions.


The definitions contained in the Agreement to which this Accounting Procedure is


attached shall apply to this Accounting Procedure and have the same meanings when


used herein. Certain terms used herein are defined as follows:


"Accrual basis" means that basis of accounting under which costs and benefits are


regarded as applicable to the period in which the liability for the cost is incurred or the


right to the benefit arises, regardless of when invoiced, paid, or received.


"Cash basts" means that basis of accounting under which only costs actually paid and


revenue actually received are included for any period.


"Country of Operations" means Paraguay.


"Material" means machinery, equipment and supplies acquired and held for use in Joint


Operations.


"Section" means a section of this Accounting Procedure.














1


 1.4 Joint Account Records and Currency Exchange.


1.4.1 Operator shall at all times maintain and keep true and correct records of the


production and disposition of all liquid and gaseous Hydrocarbons, and of all


costs and expenditures under the Agreement, as well as other data necessary


or proper for the settlement of accounts between the Parties hereto in


connection with their rights and obligations under the Agreement and to enable


Parties to comply with their respective applicable income tax and other laws.


1.4.2 Operator shall maintain accounting records pertaining to Joint Operations in


accordance with generally accepted accounting practices used in the


international petroleum industry and any applicable statutory obligations of the


Country of Operations as well as the provisions of the Contract and the


Agreement.





1.4.3 The Joint Account shall be maintained by Operator in the English language and


in United States of America fU.S.") currency and in such other language and


currency as may be required by the laws of the Country of Operations or the


Contract. Conversions of currency shall be recorded at the rate actually


experienced In that conversion. Currency translations are used to express the


amount of expenditures and receipts for which a currency conversion has not


actually occurred. Currency translations for expenditures and receipts shall be


recorded in accordance with Operator's normal practice. A statement


describing the practice will be provided to the Non-Operators upon request.


NOTE: The Operators normal practice is to use a monthly average rate as


published by Oanda.com http://vww.oanda.com/currency/historical-rates/


1.4.4 Any currency exchange gains or Josses shall be credited or charged to the


Joint Account, except as otherwise specified in this Accounting Procedure.





1.4.5 This Accounting Procedure shall apply, mutatis mutandis, to Exclusive


Operations in the same manner that it applies to Joint Operations; provided,


however, that the charges and credits applicable to Consenting Parties shall be


separately maintained. For the purpose of determining and calculating the


remuneration of the Consenting Parties, including the premiums for Exclusive


Operations, the costs and expenditures shall be expressed in U.S. currency


{irrespective of the currency in which the expenditure was incurred).


1.4.6 The accrual basis for accounting shall be used in preparing accounts


concerning the Joint Operations. If a Cash basis for accounting is used,


Operator shall show accruals as memorandum items.





1.5 Statements and Billinas.





1.5.1 Unless otherwise agreed by the Parties, Operator shall submit monthly to each


Party, on or before the 25th Day of each month, statements of the costs and


expenditures incurred during the prior month, indicating by appropriate








2


classification the nature thereof, the corresponding budget category, and the


portion of such costs charged to each of the Parties.


These statements, as a minimum, shall contain the following information:


advances of funds setting forth the currencies received from each Party,


the share of each Party in total expenditures,


the accrued expenditures,


the current account balance of each Party,


summary of costs, credits, and expenditures on a current month, year-to-


date, and inception-to-date basis or other periodic basis, as agreed by


Parties (such expenditures shall be grouped by the categories and line


' items designated in the approved Work Program and: Budget submitted


by Operator in accordance with Article 6.4 of the Agreement so as to


facilitate comparison of actual expenditures against that Work Program


and Budget), and


details of unusual charges and credits in excess of U.S. $ 25.000.00.


1.6.2 Operator shall, upon request, furnish a description of the accounting


classifications used by it.


1.5.3 Amounts included in the statements and billings shall be expressed in U.S.


currency and reconciled to the currencies advanced.


1.5.4 Each Party shall be responsible for preparing its own accounting and tax


reports to meet the requirements of the Country of Operations and of all other


countries to which it may be subject. Operator, to the extent that the


information is reasonably available from the Joint Account records, shall


provide Non-Operators in a timely manner with the necessary information to


facilitate the discharge of such responsibility.


1.6 Payments and Advances.


1.6.1 Upon approval of any Work Program and Budget, If Operator so requests, each


Non-Operator shall advance its share of estimated cash requirements for the


succeeding month's operations. Each such cash call shall be equal to the


Operator's estimate of the money to be spent in the currencies required to


perform its duties under the approved Work Program and Budget during the


month concerned For informational purposes the cash call shall contain an


estimate of the funds required for the succeeding 2 months detailed by the


categories designated in the approved Work Program and Budget submitted by


Operator in accordance with Article 6,4 of the Agreement.


1.6.2 Each such cash call, detailed by the categories designated in the approved


Work Program and Budget submitted by Operator in accordance with Article


6.4 of the Agreement, shall be made in writing and delivered to ail Non-








3


Operators not less than 15 Days before the payment due date. The due date


for payment of such advances shall be set by Operator but shall be no sooner


than the first Business Day of the month for which the advances are required.


All advances shall be made without bank charges. Any charges related to


receipt of advances from a Non-Operator shall be borne by that Non-Operator.


1.6.3 Each Non-Operator shall wire transfer its share of the full amount of each such


cash call to Operator on or before the due date, in the currencies requested or


any other currencies acceptable to Operator and at a bank designated by


Operator. If currency provided by a Non-Operator is other than the requested


currency, then the entire cost of converting to the requested currency shall be


charged to that Non-Operator.


1.6.4 Notwithstanding the provisions of Section 1.6.2, should Operator be required to


pay any sums of money for the Joint Operations which were unforeseen at the


time of providing the Non-Operators with said estimates of its requirements,


Operator may make a written request of the Non-Operators for special


advances covering the Non-Operators' share of such payments. Each such


Non-Operator shall make its proportional special advances within 10 Days after


receipt of such notice.


1.6.5 If a Non-Operator's advances exceed its share of cash expenditures, the next


succeeding cash advance requirements, after such determination, shall be


reduced accordingly. However, if the amount of such excess advance is


greater than the amount of the next month’s estimated cash requirements for


such Non-Operator, the Non-Operator may request a refund of the difference,


which refund shall be made by Operator within 10 Days after receipt of the


Non-Operator’s request provided that the amount is in excess of U.S. $


25,000.00.


If Operator does not refund the money within the time required, the unpaid


balance shall bear and accrue interest at the Agreed Interest Rate from the due


date until the payment is received by the Non-Operator who requested the


refund.


1.6.6 If Non-Operator's advances are less than its share of cash expenditures, the


deficiency shall, at Operator’s option, be added to subsequent cash advance


requirements or be paid by Non-Operator within 10 Days following the receipt


of Operator's billing to Non-Operator for such deficiency.


1.6.7 If, under the provisions of the Agreement, Operator is required to segregate


funds received from the Parties, any interest received on such funds shall be


applied against the next succeeding cash call or, if directed by the Operating


Committee, distributed quarterly. The interest thus received shall be allocated


to the Parties on an equitable basis taking into consideration date of funding by


each Party to the accounts in proportion to the total funding into the account. A


monthly statement summarizing receipts, disbursements, transfers to each joint


bank account and beginning and ending balances thereof shall be provided by


Operator to the Parties.











4


1.6.8 If Operator does not request Non-Operators to advance their share of


estimated cash requirements, each Non-Operator shall pay its share of cash


expenditures within 10 Days following receipt of Operator's billing.


1.6.9 Payments of advances or billings shall be made on or before the due date. In


accordance with Article 8 of the Agreement, if these payments are not received


by the due date the unpaid balance shall bear and accrue interest from the due


date until the payment is received by Operator at the Agreed Interest Rate. For


the purpose of determining the unpaid balance and interest owed, Operator


shall translate to U.S. currency all amounts owed in other currencies using the


currency exchange rate, determined in accordance with Section 1.4.3, at the


close of the last Business Day prior to the due date for the unpaid balance.


1.6.10 Subject to governmental regulation, Operator shall have the right, at any time


and from time to time, to convert the funds advanced or any part thereof to


other currencies to the extent that such currencies are then required for


operations. The cost of any such conversion shall be charged to the Joint


Account.


1.6.11 Operator shall endeavor to maintain funds held for the Joint Account in bank


accounts at a level consistent with that required for the prudent conduct of Joint


Operations.


1.6.12 If under the Agreement, Operator is required to segregate funds received from


or for the Joint Account, the provisions under Section 1.6 for payments and


advances by Non-Operators shall apply also to Operator.


1.7 Adjustments.


Payments of any advances or billings shall not prejudice the right of any Non-Operator to


protest or question the correctness thereof; provided, however, ail bills and statements


rendered to Non-Operators by Operator during any Calendar Year shall conclusively be


presumed to be true and correct after 24 months following the end of such Calendar


Year, unless within the said 24 month period a Non-Operator takes written exception


thereto and makes claim on Operator for adjustment, Failure on the part of a Non-


Operator to make claim on Operator for adjustment within such period shall establish the


correctness thereof and preclude the filing of exceptions thereto or making claims for


adjustment thereon, No adjustment favorable to Operator shall be made unless it is


made within the same prescribed period. The provisions of this paragraph shall not


prevent adjustments resulting from a physical inventory of the Material as provided for in


Section 6, Operator shall be allowed to make adjustments to the Joint Account after


such 24 month period if these adjustments result from audit exceptions outside of this


Accounting Procedure, third party claims, or Government or Government Oil & Gas


Company requirements. Any such adjustments shall be subject to audit within the time


period specified in Section 1.8,1.


1.8 Audits.


1.8.1 A Non-Operator, upon at least 60 Days advance notice in writing to Operator


and all other Non-Operators, shall have the right to audit the Joint Accounts


and records of Operator relating to the accounting hereunder for any Calendar








5


 Year within the 24 month period following the end of such Calendar Year


except as otherwise provided in Section 3.1. Non-Operators shall have


reasonable access to Operator's personnel and to the facilities, warehouses,


and offices directly or indirectly serving Joint Operations. The cost of each such


audit shall be borne by Non-Operators participating in the audit. Where there


are two or more Non-Operators, the Non-Operators shail make a reasonable


effort to conduct joint or simultaneous audits in a manner that will result in a


minimum of inconvenience to the Operator. Non-Operators must take written


exception to and make claim upon the Operator for afl discrepancies disclosed


by said audit within said 24 month period. Non-Operators may request


information from the Operator prior to the commencement of the audit.


Operator will provide the information in electronic format or hard copy


documents, if electronic format is not available. Operator will provide the


information requested within 30 Days before commencement of the audit but in


no event sooner than 30 Days after the written request. The information


requested shall be limited to that normally used for pre-audit work such as trial


balance, general ledger, and sub-ledger data.





1.8.2 Operator shall endeavor to produce information from its Affiliates reasonably


necessary to support charges from those Affiliates to the Joint Account other


than those charges referred to in Section 3.1.


1.8.3 Except for charges under Section 2.7.1, the following provisions apply to ail


charges from Operator for its Affiliates.


In addition to the Information provided by the Operator under Section 1.8.2, a


Non-Operator may seek to audit the books and records of an Affiliate of


Operator relating to the charges by the Affiliate to the Joint Account for the


same Calendar Year as provided in Section 1.8.1 above. The charges of the


Affiliate shall be subject to audit in the same manner as the audit of the books


and records of Operator.


No amounts paid to an Affiliate of Operator, which the Non-Operator seeks to


audit, may be charged to the Joint Account if the Affiliate of the Operator does


not allow audit of such amounts as provided above.


Any Party may audit the records of an Affiliate of another Party refating to that


Affiliate’s charges under Section 2.7.1. The provisions of Section 1.8.3 shall


apply mutatis mutandis to such audits unless otherwise agreed by the Parties.


Should such charges be rejected under the provisions of 1.8.3, such charges


shaii be charged back to the Party whose Affiliate provided the service.


Any Parly may audit the records of Operator's Affiliate relating to charges


under Section 2.6. The provisions of Section 1.8.3 shaii apply mutatis


mutandis to such audits unless otherwise agreed by the Parties.


Any Party may audit the records of a Non-Operator or its Affiliate relating to


charges under Section 2.7.3. or 3.3. The provisions of Section 1.8.3 shall


apply mutatis mutandis to such audit, unless otherwise agreed by the Parties.


Should such charges be rejected under the provisions of 1.8.3, such charges


shall be charged back to the Party whose Affiliate provided the service.








6


1.8.5 Any information obtained by a Party under the provisions of Section 1.8 which


does not relate directly to the Joint Operations shall be kept confidential and


shall not be disclosed to any party, except as would otherwise be permitted by


Article 15.2(A)(3) and (10) of the Agreement.


1.8.6 in the event that the Operator is required by law or the Contract to employ a


public accounting firm to audit the Joint Account and records of Operator


relating to the accounting hereunder, the cost thereof shall be a charge against


the Joint Account, and a copy of the audit shall be furnished to each Party.


1.8.7 At the conclusion of each audit, the Parties shall endeavor to settle outstanding


matters expeditiously. To this end the Parties conducting the audit will make a


reasonable effort to prepare and distribute a written report to the Operator and


all the Parties who participated in the audit as soon as possible and in any


event within 90 Days after the conclusion of each audit. The report shall


include all claims, with supporting documentation, arising from such audit


together with comments pertinent to the operation of the accounts and records.


Operator shall make a reasonable effort to reply to the report in writing as soon


as possible and in any event no later than 90 Days after receipt of the report.


Should the Non-Operators consider that the report or reply requires further


investigation of any item therein, the Non-Operators shall have the right to


conduct further investigation in relation to such matter notwithstanding the


provisions of Sections 1.7 and 1.8.1 that the period of 24 months may have


expired. However, conducting such further investigation shall not extend the


24 month period for taking written exception to and making a claim upon the


Operator for all discrepancies disclosed by said audit. Such further


investigations shall be commenced within 30 Days and be concluded within 60


Days after the receipt of such report or reply, as the case may be.


1.8.8 Ail adjustments resulting from an audit agreed between the Operator and the


Non-Operator conducting the audit shall be reflected promptly in the Joint


Account by the Operator and reported to the Non-Operator(s). If any dispute


shall arise in connection with an audit, it shall be reported to and discussed by


the Operating Committee, and, unless otherwise- agreed by the parties to the


dispute, resolved in accordance with the provisions of Article 18 of the


Agreement. If all the parties to the dispute so agree, the adjustment(s) may be


referred to an independent expert agreed to by the parties to the dispute e.g.


an independent accounting firm. At the election of the parties to the. dispute,


the decision of the expert Will be binding upon such parties. Unless otherwise


agreed, the cost of such expert will be shared equally by all parties to the


dispute,


1.8.9 The provisions of this Section 1.8 apply to audits conducted under Article


4.11(D) of the Agreement except that the 60 Day advance notice and the


advance information provisions of Section 1.8.1 shall not apply,


1.9 Allocations.


If it becomes necessary to allocate any costs or expenditures to or between Joint


Operations and any other operations, such allocation shall be made on an equitable








7


 basis. For informational purposes only, Operator shall furnish a description of its


allocation procedures pertaining to these costs and expenditures and its rates for


personnel and other charges, along with each proposed Work Program and Budget.


Such allocation basis shall be subject to audit under Section 1.8.





SECTION 2


DIRECT CHARGES





Operator shall charge the Joint Account for all costs and expenditures incurred by Operator for


the conduct of Joint Operations within the limits of approved Work Programs and Budgets or as


otherwise specified in the Agreement Charges for services normally provided by an operator


such as those contemplated in Sections 2.7,2 and 2.7.3 which are provided by a Party's Affiliate


shall reflect the cost to the Affiliate, excluding profit, for performing such services, except as


otherwise provided in Section 2.6 and Section 2.7.1.


The costs and expenditures shall be recorded as required for the settlement of accounts


between the Parties hereto in connection with the rights and obligations under the Agreement


arid for purposes of complying with the tax laws of the Country of Operations and of such other


countries to which any of the Parties may be subject.


Chargeable costs and expenditures may include:


2.1 Licenses. Permits, Etc,


Ail costs, if any, attributable to the acquisition, maintenance, renewal or relinquishment


of licenses, permits, contractual and/or surface rights acquired for Joint Operations and


bonuses paid in accordance with the Contract when paid by Operator in accordance with


the provisions of the Agreement.


2.2 Salaries, Wages and Related Costs.


Salaries, wages and related costs include everything constituting the employees' total


compensation, as well as the cost to Operator of holiday, vacation, sickness, disability


benefits, living and housing allowances, travel time, bonuses, and other customary


allowances applicable to the salaries and wages chargeable hereunder, as well as the


costs to Operator for employee benefits, including but not limited to employee group life


insurance, group medical insurance, hospitalization, retirement, severance payments


required by the laws or regulations of the Country of Operations (approval of the


Operating Committee shall be required to charge the Joint Account with any severance


payments in excess of those provided by the laws or regulations of the Country of


Operations), and other benefit plans of a like nature applicable to labor costs of


Operator.


All costs associated with organizational restructuring (e.g., separation benefits,


relocation costs, asset disposition costs) of Operator or its Affiliates, other than those


costs which are directly related to employees of Operator who are directly engaged in


Joint Operations on a full time basis, will require the approval of the Parties to be


chargeable to the Joint Account.


Any costs associated with Country of Operations benefit plans which are not currently


funded shall be accrued and not be paid by Non-Operators, unless otherwise approved








8


 by the Operating Committee, until the same are due and payable to the employee, upon


withdrawal of a Party pursuant to the Agreement and then only by the withdrawing Party,


or upon termination of the Agreement, whichever occurs first.


Expenditures or contributions made pursuant to assessments imposed by governmental


authority for payments with respect to or on account of employees described in Section


2.2.1 and Section 2.2.2 shall be chargeable to the Joint Account.


2.3 Employee Relocation Costs.





2.3.1 Except as provided in Section 2.3.3, Operator’s cost of employees' relocation to


or from an assignment with the Joint Operations, whether within or outside the


Country of Operations and whether permanently or temporarily assigned to the


Joint Operations, shall be chargeable to the Joint Account. If such employee


works on other activities in addition to Joint Operations, such relocation costs


shall be allocated on an equitable basis.


2.3.2 Such relocation costs shall include transportation of employees, families,


personal and household effects of the employee and family, transit expenses,


and all other related costs in accordance with Operator's usual practice.


2.3.3 Relocation costs to an assignment that is not with the Joint Operations shall not


be chargeable to the Joint Account unless the place of the new assignment is


the point of origin of the employee or unless otherwise agreed by the Operating


Committee.


2.4 Offices, Camps, and Miscellaneous Facilities.


Cost of maintaining any offices, sub-offices, camps, warehouses, housing, and other


facilities of the Operator and/or Affiliates directly serving the Joint Operations, if such


facilities serve operations in addition to the Joint Operations the costs shall be allocated


to the properties served on an equitable basis.


2.5 Material.


Cost, net of discounts taken by Operator, of Material purchased or furnished by


Operator. Such costs shall include, but are not limited to, export brokers' fees,


transportation charges, loading, unloading fees, export and import duties and license


fees associated with the procurement of Material and in-transit losses, if any, not


covered by insurance. So far as it is reasonably practical and consistent with efficient


and economical operation, only such Material shall be purchased for, and the cost


thereof charged to, the Joint Account as may be required for immediate use.


2.6 Exclusively Owned Equipment and Faculties of Operator and Affiliates.


Charges for exclusively owned equipment, facilities, and utilities of Operator or any of its


Affiliates at rates not to exceed the average commercial rates of non-affiliated third


parties then prevailing for like equipment, facilities, and utilities for use in the area where


the same are used hereunder. On request, Operator shall furnish Non-Operators a list


of rates and the basis of application. Such rates shall be revised from time to time if


found to be either excessive or insufficient, but not more than once every six months.





9


Exclusively owned drilling tools and other equipment lost in the hole or damaged beyond


repair may be charged at replacement cost less depreciation plus transportation costs to


deliver like equipment to the location where used.


2.7 Services.


2.7.1 The charges for services provided by third parties, including the Affiliates of the


respective Parties which have contracted with Operator to perform services


that are normally provided by third parties, other than those services covered


by Section 2.7.2 and Section 2.7.3, shall be chargeable to the Joint Account.


Such charges for services by the Affiliates of the respective Parties shall not


exceed those currently prevailing if perfonrted by non-afflliated third parties,


considering quality and availability of services.


2.7.2 The cost of services performed by Operator's Affiliates technical and


professional staffs not focated within the Country of Operation and not


otherwise covered under Section 2.2.2, shall be chargeable to the Joint


Account. The individual rates shall include salaries and wages of such


technical and professional personnel, lost time, governmental assessments,


and employee benefits. Costs shall also include all support costs necessary for


such technical and professional personnel to perform such services, such as,


but not limited to, rent, utilities, support staff, drafting, telephone and other


communication expenses, computer support, supplies, depreciation, and other


reasonable expenses that are not covered under Section 3.2. Examples of


such services include the following:


Geologic Studies and Interpretation


Seismic Data Processing


Well Log Analysis, Correlation and Interpretation


Laboratory Services


Ecological and Environmental Engineering


Decommissioning (Abandonment) and Reclamation


Well Site Geology


Project Management and Engineering


Source Rock Analysis


Petrophysical Analysis


Geochemical Analysis


Drilling Supervision


Development Evaluation


Project Accounting and Professional Services


Other Data Processing


2.7.3 The cost of services performed with the approval of Operator by the technical


and professional staffs (to include officers, contractors or consultants) of the


Non-Operators and the Affiliates of the respective Non-Operators, including the


cost to such Affiliates and Non-Operators of their respective secondees, shall


be chargeable to the Joint Account. The individual rates shall include salaries


and wages of such technical and professional personnel and secondees, lost


time, governmental assessments, and employee benefits. Costs shall also


include all support cqsts necessary for such technical and professional








10


 I











personnel to perform such services, such as, but not limited, to rent, utilities,


support staff, drafting, telephone and other communication expenses, computer


support, supplies, depreciation, and other reasonable expenses that are not


covered under Section 3.3.


2.7.4 A Non-Operator shall bill Operator for direct costs of services and of secondees


charged under the provisions of Section 2.7.3 on or before the last Day of each


month for charges for the preceding month, to which charges Non-Operator


shall not add an administrative overhead rate. Within 30 Days after receipt of a


bill for such charges, Operator shall pay the amount due thereon.


2.7.5 The charges for services under Section 2.7.2 and Section 2.7.3 shall not


exceed those currently prevailing if performed by non-affiliated third parties,


considering the quality and availability of such services.


2.8 Insurance.


Premiums paid for insurance required by law, the Contract or the Agreement to be





carried for the benefit of the Joint Operations.


2.9 Damages and Losses to Property.


2.9.1 All costs or expenditures necessary to replace or repair damages or losses


incurred by fire, flood, storm, theft, accident, or any other cause shall be


chargeable to the Joint Account. Operator shall furnish Non-Operators written


notice of damages or losses incurred in excess of U.S. $25,000.00 as soon as


practical after report of the same has been received by Operator. All losses in


excess of U,S. $ 25,000.00 shall be listed separately in the monthly statement


of costs and expenditures.


2.9.2 Credits for settlements received from insurance carried for the benefit of Joint





Operations and from others for losses or damages to Joint Property or


Materials shall be chargeable to the Joint Account. Each Party shall be


credited with its Participating Interest share thereof except where such receipts


are derived from insurance purchased by Operator for less than all Parties in


which event such proceeds shall be credited to those Parties for Whom the


insurance was purchased in the proportion of their respective contributions


toward the insurance coverage.





2.9.3 Expenditures incurred in the settlement of all losses, claims, damages,


judgments, and other expenses for the account of Joint Operations shall be


chargeable to the Joint Account.





2.10 Litigation, Dispute Resolution and Associated Legal Expenses.


The costs and expenses of litigation, dispute resolution and associated legal services


necessary for the protection of the Joint Operations under the Agreement as follows:


2.10.1 Legal services, other than those provided by the Parties or their Affiliate





employees, necessary or expedient for the protection of the Joint Operations,


and all costs and expenses of litigation, arbitration or other alternative dispute








11


 resolution procedure, including reasonable attorneys' fees and expenses,


together with all judgments obtained against the Parties or any of them arising


from the Joint Operations.


2.10.2 If the Parties agree, litigation, arbitration or other alternative dispute resolution


procedures resulting from actions or claims affecting the Joint Operations


hereunder may be handled by the legal staff of one or any of the Parties or


their respective Affiliates; and a charge commensurate with the reasonable


costs of providing and furnishing such services rendered may be made by the


Party or its Affiliates providing such service to Operator for the Joint Account.


2.11 Taxes and Duties.





Ail taxes, duties, assessments and governmental charges, of every kind and nature,


assessed or levied upon or in connection with the Joint Operations, other than any that


are measured by or based upon the revenues, income and net worth of a Party.





If Operator or an Affiliate is subject to income or withholding tax as a result of services


performed at cost for the operations under the Agreement, its charges for such services


may be increased (grossed up) by the amount of such taxes incurred.


2.12 geological and Environmental.


Actual costs incurred on the Joint Property as a result of statutory regulations for


archaeological and geophysical surveys relative to identification and protection of


cultural resources and/or other environmental or ecological surveys as may be required'


by any regulatory authority. Also, costs to provide or have available pollution


containment and removal equipment plus costs of actual control, clean up and


remediation resulting from responsibilities associated with Hydrocarbon contamination


as required by all applicable laws and regulations.


2.13 Decommissioning /Abandonment) and Reclamation.


Actual costs incurred for decommissioning (abandonment) and reclamation of the Joint


Property, including costs required by governmental or other regulatory authority or by the


Contract.


2.14 Other Expenditures.


Any other costs and expenditures incurred by Operator for the necessary and proper


conduct of the Joint Operations in accordance with approved Work Programs and


Budgets or as otherwise specified in the Agreement and not covered in Section 2 or in


Section 3.


























12


 SECTION 3


INDIRECT CHARGES





3.1 Purpose.


Operator shall charge the Joint Account quarterly for the cost of indirect services and


related office costs of Operator and its Affiliates not otherwise provided in this


Accounting Procedure, and Pirity shall do the same, indirect costs chargeable under


Section 3 represent the cost of general assistance and support services provided by


Operator and its Affiliates and Pirity. These costs are such that it is not practical to


identify or associate them with specific projects but are for services which provide the


Joint Operations with needed and necessary resources which Operator requires and


provide a real benefit to Joint Operations, No cost or expenditure included under


Section 2 shaii be included or duplicated under Section 3. The charges under Section 3


are not subject to audit under Sections 1.8.1 and 1.8.2 other than to verify that the


overhead percentages are applied correctly to the expenditure basis.





3.2 Amount for Operator.


3.2.2 Unless exceeded by the minimum assessment under Section 3,2.3, the


aggregate Year-to-Date indirect charges shall be a percentage of the Year-to-


Date expenditures, calculated on the following scale (U,S. Dollars) and shall be


reduced pro rata for periods of less than a year;


Annual Expenditures





$0 to $ 2,000,000.00 of expenditures = 4%


Next $ 3,000,000,00 of expenditures = 3%


Excess above $ 5,000,000.00 of expenditures = 2%


3.2.3 A minimum amount of U S. $ 120,000.00 shall be assessed each Calendar Year


calculated from the Effective Date and shall be reduced pro rata for periods of


less than a year.


3.2.4 Indirect Charge for Projects,


As to major projects (such as, but not limited to, pipelines, gas reprocessing and


processing plants, final loading and terminaliing facilities, and dismantling for


decommissioning of platforms and related facilities) when the estimated cost of


each project amounts to more than U.S. $ 2,500,000.00, a separate indirect


charge for such project shall require approval of the Operating Committee at the


time of approval of the project


3.3 Amount for Pirity.


3.3.2 Unless exceeded by the minimum assessment under Section 3,3.3, the


aggregate Year-to-date indirect charges shall be a percentage of the Year-to-


date expenditures, calculated by replacing each percentage applied on the scale











13


 under Section 3.2.2 (U.S. Dollars), with one percent (1%), and shall be reduced


pro rata for periods of less than a year.


3.3.3 A minimum amount of U.S. $ 80,000.00 shall be assessed each Calendar Year


calculated from the Effective Date and shall be reduced pro rata for periods of


less than a year.








3.3.4 Indirect Charge for Projects.


As to major projects (such as, but not limited to, pipelines, gas reprocessing and





processing plants, final loading and terminalling facilities, and dismantling for


decommissioning of platforms and related facilities) when the estimated cost of


each project amounts to more than U.S. $ 2,500,000.00, a separate indirect


charge for such project shall require approval of the Operating Committee at the


time of approval of the project.


3.4: Exclusions.





The expenditures used to calculate the monthly indirect charge shall not include the


Indirect charge (calculated either as a percentage of expenditures or as a minimum


monthly charge), rentals on surface rights acquired and maintained for the Joint


Account, guarantee deposits, pipeline tariffs, concession acquisition costs, bonuses paid


in accordance with the Contract, royalties and taxes on production or revenue to the


Joint Account paid by Operator, expenditures associated with major construction


projects for which a separate indirect charge is established hereunder, payments to third


parties in settlement of claims, and other similar items.


Credits arising from any government subsidy payments, disposition of Material, and


receipts from third parties for settlement of claims shall not be deducted from total


expenditures in determining such indirect charge.


SECTION 4


ACQUISITION OF MATERIAL





4.1 Acquisitions.


Materials purchased for the Joint Account shall be charged at net cost paid by the


Operator. The price of Materials purchased shall include, but shall not be limited to


export broker's fees, insurance, transportation charges, loading and unloading fees,


import duties, license fees, and demurrage (retention charges) associated with the


procurement of Materials and applicable taxes, less all discounts taken.


4.2 Materials Furnished bv Operator.


Materials required for operations shall be purchased for direct charge to the Joint


Account whenever practicable, except the Operator may furnish such Materials from its


stock under the following conditions:











14


 4.2.1 New Materials (Condition "A").





New Materials transferred from the warehouse or other properties of Operator


shall be priced at net cost determined in accordance with Section 4.1 as if


Operator had purchased such new Material just prior to its transfer.


Such net costs shall in no event exceed the then current market price.


4.2.2 Used Materials {Conditions ”B" and "C"t.


4.2.2.1 Material which is in sound and serviceable condition and suitable


for use without repair or reconditioning shall be classed as


Condition "B" and priced at 75% of such new purchase net cost at


the time of transfer.


4.2.2.2 Materials not meeting the requirements of Section 4.2.2.1, but


which can bs made suitable for use after being repaired or


reconditioned, shall be classed as Condition "C" and priced at


50% of such new purchase net cost at the time of transfer. The


cost of reconditioning shall also be charged to the Joint Account


provided the Condition "C" price, pius cost of reconditioning, does


not exceed the Condition "B" price; and provided that Materia! so


classified meet the requirements for Condition "B" Material upon


being repaired or reconditioned.


4.2.2.3 Material, which cannot be classified as Condition HB" or Condition


"C”, shall be priced at a value commensurate with its use.


4.2.2.4 Tanks, derricks, buildings, and other items of Material involving


erection costs, if transferred in knocked-down condition, shall be


graded as to condition as provided in Section 4.2.2, and priced on


the basis of knocked-down price of like new Material.


4.2.2.5 Material including drill pipe, casing and tubing, which is no longer


useable for its original purpose but is useable for some other


purpose, shall be graded as to condition as provided in Section


4.2.2. Such Material shall be priced on the basis of the current


price of items normally used for such other purpose If sold to third


parties.


4.3 Premium Prices.





Whenever Material is not readily obtainable at prices specified in Sections 4.1 and 4.2


because of national emergencies, strikes or other unusual causes over which Operator


has no control, Operator may charge the Joint Account for the required Material at


Operator’s actual cost incurred procuring such Material, in making it suitable for use, and


moving it to the Contract Area, provided that notice in writing, including a detailed


description of the Material required and the required delivery date, is furnished to Non-


Operators of the proposed charge at feast 30 Days before the Material is projected to be


needed for operations and prior to billing Non-Operators for such Material the cost of


which exceeds U.S, $ 25,000.00. Each Non-Operator shall have the right, by so electing


and notifying Operator within 15 Days after receiving notice from Operator, to furnish in








15


kind all or part of his share of such Material per the terms of the notice which is suitable


for use and acceptable to Operator both as to quality and time of delivery. Such


acceptance by Operator shall not be unreasonably withheld. If Material furnished is


deemed unsuitable for use by Operator, all costs incurred in disposing of such Material


or returning Material to owner shall be borne by the Non-Operator furnishing the same


unless otherwise agreed by the Parties. If a Non-Operator fails to properly submit an


election notification within the designated period, Operator is not required to accept


Material furnished in kind by that Non-Operator, if Operator fails to submit proper


notification prior to billing Non-Operators for such Material, Operator shall only charge


the Joint Account on the basis of the price allowed during a "normal11 pricing period in


effect at time of movement.


4.4 Warranty of Material Furnished bv Operator.


Operator does not warrant the condition or fitness for the purpose intended of the


Material furnished. In case defective Material is furnished by Operator for the Joint


Account, credit shall not be passed to the Joint Account until adjustment has been


received by Operator from the manufacturers or their agents.


SECTION S


DISPOSAL OF MATERIALS


5.1 Disposal.


Operator shall be under no obligation to purchase the interest of Non-Operators in new


or used surplus Materials. Operator shall have the right to dispose of Materials but shall


advise and secure prior agreement of the Operating Committee of any proposed


disposition of Materials having an original cost to the Joint Account either individually or


in the aggregate of U.S. $ 25,000,00 or more. When Joint Operations are relieved of


Material charged to the Joint Account, Operator shall advise each Non-Operator of the


original cost of such Materia) to the Joint Account so that the Parties may eliminate such


costs from their asset records. Credits for Material sold by Operator shall be made to


the Joint Account in the month in which payment is received for the Material, Any


Material sold or disposed of under this Section 5 shall be on an "as is, where is" basis


without guarantees or warranties of any kind or nature. Costs and expenditures incurred


by Operator in the disposition of Materials shall be charged to the Joint Account.


5.2 Material Purchased bv a Party or Affiliate.


Proceeds received from Material purchased from the Joint Property by a Party or an


Affiliate thereof shall be credited by Operator to the Joint Account, with new Material


valued in the same manner as new Material under Section 4.2.1 and used Material


valued in the same manner as used Material under Section 4.2.2, unless the value is


disputed by a Party, in which case the Parties must first agree before any such sale,


5.3 Sales to Third Parties.


Proceeds received from Material purchased from the Joint Property by third parties shall


be credited by Operator to the Joint Account at the net amount collected by Operator


from the buyer. If the sales price is less than the value determined in accordance with


the procedure set forth in Section 5.2, then approval by the Parties shall be required








16


 prior to the sale. Any claims by the buyer for defective materials or otherwise shall be


charged back to the Joint Account if and when paid by Operator.





SECTION 6


INVENTORIES





6.1 Periodic Inventories - Notice and Representation.


At reasonable intervals, but at least annually, inventories shall be taken by Operator of


all Material held in warehouse stock on which detailed accounting records are normally


maintained. The expense of conducting annual inventories shall be charged to the Joint


Account, Operator shall furnish each Non-Operator with a reconciliation of overages


and shortages. Inventory adjustments to the Joint Account shall be made for overages


and shortages. Any adjustment equivalent to U.S. $ 25,000.00 or more shall be brought


to the attention of the Operating Committee.


6.2 Special Inventories.


Whenever there is a sale or change of a Participating Interest in the Agreement, a


special inventory may be taken by the Operator provided the seller and/or purchaser of


such interest agrees to bear all of the expense thereof, In such cases, both the seller


and the purchaser shall be entitled to be represented and shall be governed by the


inventory so taken.
















































































17


JOINT OPERATING AGREEMENT


EXHIBIT B


CONTRACT AREA


 EXHIBIT "B”





CONTRACT AREA





Attached to and made part of the Operating Agreement, hereinafter called the "Agreement,"


effective as of the 29 day of October, 2012, by and between Pirity Hidrocarburos S.R.L. and


President Energy Paraguay SA





Lands in Paraguay designated as “Bloque Pirity" underline Contract














§UPfcRFtCse;.&00,0Ca Has,
































Coorcffiwta* XUrM20S Lalrtude YUTM20S Longitude





E-1 577378.46 22® 30* 53.04" S 7509967.57 62’ 14' 30.58' W


E-2 620005.02 22° 30 44.25" S 75099S7.55 61“ 49 59.75'' W





E-3 620005.0? 22° 25 19.09" 5 7519967.78 61“ 5ff 02.47“ W





E-4 650006.11 22“ 25' 10.57" S 7519967.81 61’32' 33.33" W





E-5 650006.35 22’46 51.03" S 7479967.05 61’32’19,61" W


E-6 670007.11 22° 46 44.18" S 7479967.05 61° 20 38,44" W





E-7 670006.99 22° 52'09.25" S 7469967.02 61° 20' 34.51" W





E-8 730009.54 22“ 51'43.46" S 7489966.96 603 45'30.12" W


£-9 730009.62 23’ 13' 23.2?'S 7429966,15 60° 45' 08.5r W





e-io 680007.42 23“ 13'45.68" S 7429966.38 $1° 14*26.85" W





E-11 680007.38 23* 1Sf 10.72'’ S 7419966.16 61’ 14' 22,58'W


E-12 646694.81 23’ 19 22,68"$ 7419906.04 61’ 33' 55.03" W





JOINT OPERATING AGREEMENT


EXHIBIT C


TAX PARTNERSHIP AGREEMENT


 EXHIBIT "C





TAX PARTNERSHIP AGREEMENT





Attached to and made part of the Operating Agreement, hereinafter called the "Agreement;1


effective as of the 29 day of October, 2012, by and between Pirity Hidrocarburos S.R.L and


S.A.





Bloque Pirity United States Tax Partnership Agreement











This United States Tax Partnership Agreement (“Tax Partnership Agreement”) is entered into as


of September 11, 2012 by and among PIRITY Hidrocarburos S.R.L., a company organized and


exisiirigrundtn- the-Jaws ef-Pmgaay f‘Piritv’T and MESIDEBT.ENERGY PARAGUAY S. A. a


and each a “Party”),





RECITALS:


A. Pirity and PRESIDENT PETROLEUM COMPANY, P.L.C., a company organized and


existing under the laws of England & Wales and the parent company of PEP, have entered into


that certain International Farmout Agreement, dated as of September 11, 2012 (the “Farmout


Agreement”), pursuant to which PEP can earn an interest in the Contract (as defined in the


Farmout Agreement) in exchange for PEP’s satisfaction of certain obligations described therein.


B. On 29 October 2012 the Parties entered into a Joint Operating Agreement (the “JOA,”


and together with the Farmout Agreement, the “Base Agreements”) to govern the operations of


the Parties in the Contract Area (as defined in the Farmout Agreement).


C. The Parties desire to acknowledge and agree that, solely for United States tax purposes


and for no other purposes, the Parties intend that tire relationship among die Parties to be


classified as a foreign partnership.


NOW, THEREFORE, in consideration of the agreements contained herein and certain other


good and valuable consideration, the parties hereto acknowledge and agree as follows:








ARTICLE I


SCOPE AND PURPOSE; DEFINITIONS


Section 1.1 Scope and Purpose. This Tax Partnership Agreement sets forth certain


operating rules because (i) solely for United States federal, and if applicable, state tax purposes


(collectively, “United States tax purposes”), foe relationship among the Parties under foe Base


Agreements is intended to constitute a foreign partnership (die “Tax Partnership”) that, as an


entity, will be deemed to own or have the use of the various assets with respect to which foe


Bloque Pirity Activities (hereafter defined) are conducted and to realize all receipts and incur all


costs and losses related thereto, while (ii) for all other purposes, the relationship among foe





519473000002 Active 5264780.3


Parties under the Base Agreements is intended to constitute a contractual arrangement pursuant


to which some of the Parties own interests in the various assets with respect to which the Bloque


Pirity Activities are conducted and individually realize receipts or incur costs and losses with


respect thereto as provided in the Base Agreements. This Tax. Partnership Agreement is not


intended to create, nor shall the same be construed as creating, any partnership, joint venture or


other relationship or entity that is subject to recognition as such for any purpose other than


United States fax purposes or, except as provided in the Base Agreements, otherwise renders any


Party liable for debts or obligations of any other Party. References herein to the Tax .Partnership


as an entity or to contributions, receipts, income, gains, distributions, costs, losses or deductions


of the Tax Partnership are intended solely to reflect fire feet that, for United States tax purposes,


the Tax Partnership is considered to be a partnership and those items are deemed to have been


realized by the Tax Partnership as an entity, and such references shall not be interpreted in a


manner inconsistent with the foregoing.


Section 1.2 Definitions. All capitalized terms used herein, and not otherwise defined


herein, shall have the meanings assigned to them in the Base Agreements, or as follows:


(a) Bloque Pirity Activities


“Bloque Pirity Activities” shall mean the activities of the Parries pursuant to the


Base Agreements with respect to the Contract and die assets in the Contract Area,


including without limitation the production of hydrocarbons from the Contract Area, the


funding of activities in the Contract Area by the Parties pursuant to die Base Agreements,


and the sharing among the Parties of certain revenues from the sale of hydrocarbons


produced from the Contract Area.


(b) Code


“Code” shall mean the Internal Revenue Code of 1986, as amended.


(c) Fiscal Year


“Fiscal Year” shall mean the annual accounting and tax reporting period for the


Tax Partnership as specified in Section 4,3 hereof.


(d) Tax Matters Party


“Tax Mattel's Party” shall mean the Party designated in Section 4.2 as the “tax


matters partner,” for purposes of section 6231 (a)(7) of the Code,


(e) Treasury Regulations


“Treasury Regulations” shall mean the regulations promulgated by the United


States Department of Treasury pursuant to and in respect of die Code. All references


herein to sections of the Regulations shall include any corresponding provision or


provisions of succeeding, similar, substitute or temporary regulations.














519473 000002 Astivo 52M789.3


Section 1.3 Term and Termination of Tax Partnership. Hie Tax Partnership shall


come into existence upon the date of execution of the Base Agreements and shall continue in full


force and effect from and after such date until the first to occur of the following: (a) the


termination of the Base Agreements, or (b) such time as the Parties mutually agree to die


termination of the Tax Partnership,





ARTICLE II


REFLECTION OF ACTIVITIES FOR UNITED STATES TAX PURPOSES


Section 2.1 Entity Level Reflection of Activities. For United States tax puiposes, but


for no other purpose, all Bloque Pirity Activities shall be deemed to have been effected through


the Tax Partnership, rather than by the Parties individually, as set out in this Ar ticle II.


Section 2.2 Receipts, Profits, Income and Gains. For purposes of applying the


provisions of this Tax Partnership Agreement, all receipts by any Patty in respect of the Contract


or the assets in foe Contract Area pursuant to the Base Agreements shall be deemed first to have


been received by the Tax Partnership and then to have been distributed to such Party by the Tax


Partnership in the manner specified in the Base Agreements. All such items shall be taken into


account in the allocations provided for in Article 'HI hereof.


Section 2.3 Costs, Expenses, Deductions and Losses, For purposes of applying the


provisions of this Tax Partnership Agreement, all costs incurred or payments made by any Party


in respect of the Contract or the assets in the Contract Area pursuant to the Base Agreements


shall be deemed first to have been received by the Tax Partnership as a contribution by the Party


incurring the cost or making the payment pursuant to the terms of the Base Agreements and then


to have been paid, incurred or distributed by the Tax Partnership to foe payee or obligee of the


cost or the recipient of the payment. All such items shall be taken into account in the allocations


provided for in Article III hereof.


Section 2.4 Contributions. For purposes of applying the provisions of this Tax


Partnership Agreement, upon formation of foe Tax Partnership, Pirity shall be treated as


contributing to the Tax Partnership the Contract. Each Party shall, be treated as contributing to


the Tax Partnership all costs incurred, liabilities assumed, or payments made by the Parties in


respect of the Contract, the assets in the Contract Area, or otherwise pursuant to the Base


Agreements,


Section 2.5 Distributions. For puiposes of applying the provisions of this Tax


Partnership Agreement, all receipts by such Party in respect of the Contract or the assets in the


Contract Area pursuant to the Base Agreements shall be treated as a distribution by the Tax


Partnership to such Party.


Section 2.6 Debt Financing, For purposes of applying the provisions of this Tax


Partnership Agreement, unless the Parties agree otherwise and this Tax Partnership Agreement is


amended to reflect such agreement, (a) all debt financing incurred by a Party shall be for the sole


account of that Party and shall not be considered debt financing of the Tax Partnership, and (b)


no Tax Partnership asset shall be acquired by assumption of, or taking subject to, any debt


financing.








519473 000002 Active 5264780.3


Section 2.7 Record Title. For purposes of applying the provisions of this Tax


Partnership Agreement (a) legal title to the Contract or the assets in the Contract Area held by


any Party shall, be deemed to be held by such Party strictly as nominee for the Tax Partnership,


and (b) forU.S. Federal Tax purposes only all assignments made among the Parties with respect


to the Contract or the assets in the Contract Area prior to termination of the Tax Partnership shall


be disregarded..





ARTICLE HI


ALLOCATIONS OF PROFIT AM) LOSS


Section 3.1 Allocation Of Book Items. All items of income, gain, deduction, loss and


credit realized by the Tax Partnership during each Fiscal Year; as reflected on the books aid


records of the Tax Partnership, shall be allocated among the Parties in accordance with their


respective “partner's interest in the partnership” with respect to tire Tax Partnership, as


determined under Section 704(b) of the Code arid Treasury Regulations Section 1.704-1 (b)(3).


The Parties agree that except as otherwise provided in the Treasury Regulations, allocations


made among the Parties in accordance with this Section 3,1 shall be made as follows:


(a) All items of income or gain arising from (he sale or disposition of oil, gas or other


hydrocarbon substances from the Contract Area shall be allocated to the Parties in the proportion


that the Parties share in the revenue giving rise to such items under the Base Agreements.


(b) All items of income or gain realized upon the sale or other taxable disposition of


all or part of the Contract or any asset in the Contract Area shall be allocated to the Parties in tire


same ratios in which they share the portion of the revenue giving rise to such income or gain


under the Base Agreements.


(c) All items of deduction or loss realized upon the sale, other taxable disposition,


abandonment or worthlessness of all or part of the Contract or any asset in the Contract Area


shall be allocated to the Parties in accordance with their relative contributions to the cost basis of


such asset.


(d) All items of deduction or loss resulting from the depletion or depreciation of the


Contract or any asset in the Contract Area shall be allocated to the Parties in the same ratio in


which the costs or basis giving rise to such allowances were borne or provided by the Parties.


(e) All items of deduction or loss with respect to exploration and development


expenses or costs (including without limitation intangible drilling and development costs) shall


be allocated to the Parties in accordance with their contribution to such costs.


(!) All items of loss, deduction or credit not falling within any other subsection of this


Section 3.1 shall be allocated to and accounted for by each Party in accordance with its


respective contribution to the asset or the costs and expenses to which such items relate.


(g) All items of income and gain not falling within any other subsection of this


Section 3.1 shall be allocated to and accounted for by each Party in the proportion that the Parties


share in the revenue giving rise to such items underthe Base Agreements,











519473 000002 Active S2647SCU


 Section 3.2 Allocation Of Tax Items.





(a) Except as otherwise required by Section 704(c) of the Code and the Treasury


Regulations thereunder, each item of income, gain, loss, deduction atld credit computed for


United States federal income tax purposes shall be allocated among the Parties in the same


manner as each correlative item of income, gain, loss, deduction or credit is allocated pursuant to


the provisions of Section 3.1 hereof. The selection of one or more methods of allocating tax


items under Section 704(c) of the Code and the Treasury Regulations thereunder shall be made


in the sole discretion of the Tax Mattel's Party.


(b) The deduction for depletion for United States federal income tax purposes with


respect to each separate oil and gas property (as defined in Section 614 of the Code) included in


the Contract Area shall be computed separately by each Party rather than by the Tax Partnership;


and for purposes of such computation, each Party shall be considered to own, and shall be


allocated, its proportionate share offhe adjusted basis m each such property sis'determined under


Section 613 A(c)(7)(D) of the Code and applicable Treasury Regulations.


(c) Allocations made pursuant to this Section 3.2 are solely for United States tax


purposes.


ARTICLE IV


OTHER TAX AND RELATED MATTERS1


Section 4,1: United States Tax Returns and Elections.


The Parties expect that their respective activities shall not cause the Tax Partnership to


realize taxable gross income from sources within the United States or to realize gross income


which is effectively connected with the conduct of a trade or business within the United States,


and that therefore the Tax Partnership will not be required to file United .States information


returns and no reporting shall be required or made with respect to any Party’s (provided such


Party is not otherwise subject to United States taxation) distributive share of the income, gain,


loss, deduction or credit in respect of its interest in the Tax Partnership, except to die extent


necessary to make any U.S. federal income tax elections, including the elections provided for in


Section 4.1(b). The Parties agree that all reporting and record keeping required under the Code


in respect of the Party’s interest in the Tax Partnership or its United States tax items shall be


effected solely by the Tax Matters Party.


Section 4,2 Tax Matters Party,


To the extent necessary or appropriate for the Tax Partnership to have a ‘’tax matters


partner” within the meaning of section 6231(a)(7) of the Code, Pirity is hereby designated the


Tax Matters Party.




















519473 000907 Active 5264780.3


 Section 4.3 Fiscal Year.





The Fiscal Year (herein so called) of the Tax Partnership shall be the calendar year.








ARTICLE V


MISCELLANEOUS PROVISIONS


Section 5.1 Assignment. Each Party’s rights and obligations under this Tax


Partnership Agreement shall be assigned to or assumed by any party succeeding to its rights or


obligations, in whole or in part, under the Base Agreements.


Section 5.2 Counter-parts. This Tax Partnership Agreement may be executed in any


n umber of couirteiparfs, each of which so executed shall be deemed to be an original, arid such,


counterparts together shall constitute and be one aid the same instrument.


Section 5.3 Headings. The headings of the Sections of this Tax Partnership


Agreement have been inserted for convenience of reference only and shall in no way restrict or


otherwise modify any of the terms or provisions hereof.


Section 5,4 Amendments, Supplements, etc. Neither this Tax Partnership


Agreement nor any of the terms hereof may be amended, supplemented, waived or modified


orally, except by an instrument in writing signed by the Parties.


Section 5,5 Legal Enforceability. Any provision of this Tax Partnership Agreement


that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective


to the extent of such prohibition or unenforceability without invalidating the remaining portions


hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render


unenforceable such provision in any other jurisdiction. Upon any such determination that a


provision of this Tax Partnership Agreement is prohibited or unenforceable in whole or part, the


court or arbitral panel making such determination shall have die power to modify such


invalidated provision so as to effect the original intent of the parties as closely as possible.


Section 5.6 Notices. All notices, requests, claims, demands and other


communications under this Tax Partnership Agreement shall be in writing and shall be deemed


given if delivered personally or sent by facsimile transmission or overnight courier (providing


proof of delivery) to the Parties at the address for the Party specified in the Faimout Agreement.
































515*473 000002 Active 5264780.3


 IN WITNESS WHEREOF, the Parties have caused this Tax Partnership Agreement to be duly


executed by their duly authorized officers as of the day and year first above written.


























'By:Oscar A. Mersan - Cmks T, Mersan


Title: President and Director


Date: October...........2012.-



































Title: General Manager


Date: October, ......2012,-













































































$19473 000002 Active 3264780.3


 Schedule 7.1





Farinor Disclosure Schedule


The following are exceptions to (he representation set forth in Section 7.1.0:


- in the case of LCH, as provided under decision number 2,406 of the Administrative


Chamber of the Paraguayan Supreme Court (“Corte Suprema de Justicia, Sala Penal”)


rendered on August 10,2012 (full details of which have been disclosed to Farmee), the


appeals against decision number thirty eight (38) of the lower court (full details of which


have been disclosed to Farmee) have been extinguished, a decision Which is final and


binding on LCH and not subject to any right of appeal; and





- in the case of Dr Fernando Wiens and lie. Arnold Klassen, as expressly provided under


the Third Party ORRI, lull details of which have been disclosed in writing to Farmee.



















































































Page 48


 Schedule 7.2





Farmce Disclosure Schedule


Farmee declares no exceptions to the representation set forth in Section 7.2.






















































































Page 49


JOINT OPERATING AGREEMENT


SCHEDULE D-l


WORK PROGRAM TIMELINE


 Schedule IM








Work Program Timeline





Year Activity Seismic Seismic Prospect 2013,14,iS Project Account PI %


__Month Acquisition Processiii generation Drilling t Deposits +1- lit


Sept ussasm


Oct clearing








US$9.5m K


30 Days




















US$ 10m











Latest


‘30 Days ~__


I__11.8% m


1JS$ 10m


30 Days_____


11.8% WI








11.8% WJ











US$ 10m


30 Days











11.8% WI


USHOm 47.2% Wl





+ Famine selects well locations after full consultation with Fartnor.


++ Except for the timing of the Line Clearing Payment, not less than thirty (30) days prior to the


commencement of end* 'Work Program Obligation, Fannes shall deposit in the Project Account, by wire


transfer of immediately available funds, the sum described in Exhibit P,


+ H~ V/itli'm ten (10) days of the fall and complete satisfaction, or waiver of the Conditions Precedent set


out in Article 3 and Fanneo's foil satisfaction of the applicable Earning Obligations, Faixnor and Farmee


shall cause the Escrow Agent to deliver to Farmee the relevant Assignment(s) in the manner and in


accordance with the terms, conditions and milestones sot forth in Exhihil P.


Many dates used to create this Timeline are milestones described In Exhibit D and may not reflect the


Parties' desire to complete Hie Work Program in the most expediently prudent manner possible.





Page 50





JOINT OPERATING AGREEMENT


SCHEDULE D-2


SEISMIC PROGRAM


 Schedule P-2.1





Seismic Program4








Total Budget: OS $10,000,000


Minimum under Contract lOOKm 2D


Minimum under this FOA 5O0Km2D


Budget Management AFB f Op Com





Line Clearing; Begins October, 2012


Line Clearing Method: GPS guided Bulldozers





Seismic Acquisition; Begins March 1,2012


Seismic Acquisition Method: Vibrasize Trucks





Total 3D Collection (in Km): Up to 6O0Krn





Total Los Naranjos 3D: Up to 3O0Km


Los Naranjos Start Date: March 1,2013


Los Naranjos Processing Start Date: June 1,2013





Total Jurumi 3D: Up to 300Km


Jurumi Start Date: June 1,2013


Jurumi Processing Start Date: September 1,2013





Total 2D Collection (ill Km): Up to 400Km





Total Los Naranjos 2D: Up to 200Kra


Los Naranjos Start Date; TBD


Los Naranjos Processing Start Date TBD





Total Jurumi 2D; Up to 200Km


Jurumi Start Date: September 1,2013


Jurnmi Processing Start Date; December 1,2013





Prospect Ranking/Inventory Analysis


Start: August 1,2013





CPU to be commissioned following interpretation TBD


Additional Seismic to identify Cretaceous leads TBD


Additional Seismic to explore the Palaeozoic fairway TBD





* Certain Seismic Program plans and specifications provided in this Schedule D-2.1 that exceed the


Minimum Work Obligations under the Contract may change, subject to the terms and conditions of the


Agreement, Exhibit D thereto and the JOA. It: is expressly understood by the Parties that Parmee shall


consult with Furnior about any changes to: tire extent and place of use of 3I> seismic technology; the extent





Page 51.





and place of use of 2D seismic technology; the placement of seismic lines; the choice of data acquisition


vendors; the choice of ciala processing vendors; the choice of processing methods and all other operations!


matters related to lire Seismic Program, provided ho waver, that in the event tire Parties do not agree oil any


one or ail of the foregoing, subject to the terms and cond id ons of the Agreement, Exhibit D thereto and the


JOA, Fannee's vote shall prevail.


.Select Seismic Program Details


Joint Design


The Parties shall jointly design a seismic survey comprising 3D and 2D seismic data


within the Pirity Contract Area in accordance with the terms of this Agreement. President


shall aet as Operator of a Seismic Program that shall assess both; i) the general


exploration potential of the Contract Area and ii) to define a ranked prospect inventory of


drillable prospects fro.?n which the Peu’dos will high, gi'scts- ond $slect iiMtisl drilling


locations. Operator shall share all of their Seismic work product with Farmer in a timely


and ongoing manner so that Farmer maintains a voice in the process.


Details


The Seismic Program shall be principally acquired over the Los Naranjos and Jurumi


Prospect Areas as defined by Schlumberger Data and Consulting Services, Phase 1 Final


Report dated March 10,2009 prepared for Petvo-Victory.


Tiie Seismic Program includes all procedures up to the point that Operator delivers a


“Fully Migrated” and processed data set to the Parties. For the purposes of this FOA,


“Fully Migrated” means that the data shall be fully migrated In the pre-stack time domain


(“PSTM”) and that tor areas of 3D seismic coverage, there shall be sufficient migration


fringe or halo around the structural crest of those prospect areas to account for inward


movement of dipping reflectors and focussing of seismic amplitudes dispersed over


Presnal zones during 3D migration.


Once Operator has delivered the PSTM Fully Migrated and processed data Set, the Parties


shall decide whether additional reprocessing is required before drilling begins. Examples


of such additional reprocessing include; i) special seismic inversion techniques to identity


potential porous reservoir rock properties; ii) fluid substitution techniques to identify


fluid types and; ill) Pre Stack Depth Migration (PSDM) to improve the accuracy and


confidence level for structural prospect identification. After full consultation between the


Parties, Operator shall have sole discretion as to whether to incur additional reprocessing


costs, as long as such costs do not exceed the initial AFB or Budget approved by (lie


Operating Committee, or unless such expenditures are approved in accordance with the


terms and conditions for AFEs for Overexpenditure as defined in the JOA,


Cooperation of the Parties


'lire Parties shall regularly and systematically jointly evaluate technical data with respect


to the Seismic Program. Regular Technical Committee meetings shall be called by either


Party to discuss, inter alia, all pre-drill geophysical exploration matters including but not


limited to, seismic acquisition, seismic processing, prospect: generation, prospect


inventory development and selection of initial well locations.





Page 52


Los Naranjos Seismic Area



















































































































































































Page 53