NOTICE: The text below was created automatically and may contain errors and differences from the contract's original PDF file. Learn more here

PETROLEUM AGREEMENT

BY AND AMONG

GOVERNMENT OF THE REPUBLIC OF GHANA



GHANA NATIONAL PETROLEUM CORPORATION



GNPC



GNPC EXPLORATION AND PRODUCTION COMPANY LIMITED



SPRINGFIELD EXPLORATION AND PRODUCTION LIMITED



Springfield E&P



E&P



IN RESPECT OF

West Cape Three Points Block 2

2015



TABLE OF CONTENTS



ARTICLE



PAGE



1.



DEFINITIONS



2.



SCOPE OF THE AGREEMENT, INTERESTS



3



OF THE PARTIES AND CONTRACT AREA



12



3.



EXPLORATION PERIOD



16



4.



MINIMUM EXPLORATION PROGRAMME



19



5.



RELINQUISHMENT



23



6.



JOINT MANAGEMENT COMMITTEE



24



7.



RIGHTS AND OBLIGATIONS OF CONTRACTOR AND

GNPC



29



8.



COMMERCIALITY



35



9.



SOLE RISK ACCOUNT



44



10.



SHARING OF CRUDE OIL



47



11.



MEASUREMENT AND PRICING OF CRUDE OIL



55



12.



TAXATION AND OTHER IMPOSTS



58



13.



FOREIGN EXCHANGE TRANSACTIONS



61



14.



SPECIAL PROVISIONS FOR NATURAL GAS



63



15.



DOMESTIC SUPPLY REQUIREMENT (CRUDE OIL)



70



16.

17.



INFORMATION AND REPORTS: CONFIDENTIALITY

INSPECTION, SAFETY AND ENVIRONMENTAL

PROTECTION



71

76



18.



ACCOUNTING AND AUDITING



78



19.



TITLE TO AND CONTROL OF GOODS AND EQUIPMENT



80



20.



PURCHASING AND PROCUREMENT



82



21.



EMPLOYMENT AND TRAINING



83



i



ARTICLE



PAGE



22.



FORCE MAJEURE



85



23.



TERM AND TERMINATION



87



24.



CONSULTATION, ARBITRATION AND

INDEPENDENT EXPERT



91



25.



ASSIGNMENT



94



26.



MISCELLANEOUS



96



27.



NOTICE



100



ANNEX 1



-



CONTRACT AREA



ANNEX 2



-



ACCOUNTING GUIDE



ANNEX 3



-



CONFIDENTIALITY AGREEMENT



ANNEX 4



-



SAMPLE AOE CALCULATION



ii



AGREEMENT,

made

this

^day

of

by and among the Government of the Republic of Ghana

(hereinafter referred to as the "State"), represented by the Minister for Petroleum

(hereinafter referred to as the "Minister"), the Ghana National Petroleum

Corporation, a public corporation established by the Ghana National Petroleum

Corporation Act, 1983 PNDCL 64 (hereinafter referred to as "GNPC"), GNPC

Exploration and Production Company Limited, a company incorporated in Ghana

and having its registered office at Petroleum House, Harbour Road, Tema

(hereinafter referred to as "Explorco") and Springfield Exploration and Production

Limited, a private limited liability company incorporated and existing under the laws

of Ghana with its registered office and principal place of business located at F146/5,

2nd Soula Street, Labone, Accra, Ghana ("Springfield").



THIS



PETROLEUM



WITNESSES THAT:

1. All Petroleum existing in its natural state within Ghana is the property of the

Republic of Ghana and held in taist by the State on behalf of the people of

Ghana.

2. In accordance with the Petroleum Law, the Minister has prepared a reference

map showing areas of potential petroleum fields within the jurisdiction of Ghana,

divided into numbered areas and each of which is described as a "Block".

3. GNPC has, by virtue of the Petroleum Law, the right to undertake Exploration,

Development and Production of Petroleum over all Blocks declared by the

Minister to be open for Petroleum Operations.

4. GNPC is further authorised to enter into association by means of a petroleum

agreement with a contractor for the purpose of Exploration, Development and

Production of Petroleum.

5. The Contract Area that is the subject matter of this Agreement has been

declared open for Petroleum Operations by the Minister, and the State desires

to encourage and promote Exploration, Development and Production within the

Contract Area. The State assures Contractor that all of the Contract Area is

within the jurisdiction of Ghana.

6. Contractor, having the financial ability, technical competence and professional

skills necessary for carrying out the Petroleum Operations herein described,

desires to associate with GNPC in the Exploration for, and Development and

Production of, the Petroleum resources of the Contract Area.

7. Contractor shall comply with all the applicable laws of Ghana, including without

limitation any regulations, policies or directives issued by or other acts of the

Petroleum Commission pursuant to the Petroleum Commission Act, 2011 (Act

821), as the same may be amended from time to time.

8. The Parties are committed to providing qualified Ghanaian nationals

employment at all levels in the petroleum industry, including technical.

1



administrative and managerial positions, and Contractor accordingly commits

to providing and supporting a programme of training for Ghanaian nationals as

an integral part of this Agreement.

9. GNPC has aspirations of building operatorship capacity and without prejudice

to the rights of the Parties under this Agreement, Contractor is committed,

pursuant to the terms of this Agreement, to supporting GNPC to develop its

institutional capacity to enable GNPC to fulfill its aspirations.

10. The Parties are committed to providing an annual local content plan in line with

Local Content Regulations for fulfilling the applicable Ghanaian content

requirements with respect to the provision of goods and services.

NOW THEREFORE, in consideration of the mutual covenants herein contained, it is

hereby agreed and declared as follows:



Article 1

DEFINITIONS

In this Agreement:

1.1



"Accounting Guide" means the accounting guide which is attached hereto as

Annex 2 and made a part hereof;



1.2



"Additional Interest" means the additional interest of GNPC provided in Article

2.5;



1.3



"Affiliate" means any person, whether a natural person, corporation, partnership,

unincorporated association or other entity which directly, or indirectly through one

or more intermediaries, controls, or is controlled by, or is under common control

with a Party. For this purpose, "control" means the direct or indirect ownership of

in aggregate fifty percent (50%) or more of voting capital or voting rights of the

entitlement (directly or indirectly) to appoint a majority of the directors or

equivalent management body of, or to direct the policies or operations of the other

entity;



1.4



"Agreement" means this agreement between the State, GNPC, and Contractor,

and includes the Annexes attached hereto, as may be amended by mutual

written agreement from time to time;



1.5



"Appraisal" means operations or activities carried out pursuant to an Appraisal

Programme following a Discovery of Petroleum for the purpose of delineating the

accumulations of Petroleum to which that Discovery relates in terms of thickness

and lateral extent and estimating the quantity of recoverable Petroleum therein,

and all operations or activities to resolve uncertainties required for determination

of a Commercial Discovery;







1.6



"Appraisal Programme" means a programme approved by the Petroleum

Commission pursuant to Article 8.5 for the conduct of Appraisal;



1.7



"Appraisal Well" means a well drilled pursuant to an Appraisal Programme;



1.8



"Associated Gas" means Natural Gas produced from a well in association with

Crude Oil;



1.9



"Barrel" means a quantity or unit of Crude Oil equal to forty-two (42) United

States gallons at a temperature of sixty (60) degrees Fahrenheit and at fourteen



and sixty-five one-hundredths pounds per square inch at atmospheric pressure

(14.65 psia);

1.10 "Block" means an area of approximately 685 square kilometres depicted on the

reference map prepared by the Minister in accordance with the provisions of the

Petroleum Law;

1.11



"Business Day" means a day on which banks are open for business in Accra;



1.12 "Calendar Year" means a period of twelve (12) months of the Gregorian calendar,

commencing on January 1 and ending on the succeeding December 3 1 ;

1.13 "Carried Interest" means an interest held by GNPC pursuant to this Agreement in

respect of which Contractor pays for the conduct of Petroleum Operations, as set

out in this Agreement, without any entitlement to reimbursement from GNPC;

1.14 "Commercial Discovery" means a Discovery which is determined to

commercial in accordance with the provisions of Article 8 of this Agreement;



be



1.15 "Commercial Production Period" means, in respect of each Development and

Production Area, the period from the Date of Commencement of Commercial

Production until the termination of this Agreement or earlier relinquishment of

such Development and Production Area;

1.16 "Contract Area" means the area of approximately six hundred and seventy three

kilometers squared (673 km2) covered by this Agreement in which Contractor is

authorized, in association with GNPC, to explore for, develop and produce

Petroleum, which is described in Annex 1 attached hereto and made a part of this

Agreement, but excluding any portions of such area in respect of which

Contractor's rights hereunder are from time to time relinquished or surrendered

pursuant to this Agreement;

1.17 "Contractor" means, collectively Springfield and Explorco and their respective

permitted successors and assignees and each of Springfield and Explorco

individually a "Contractor Party" as the context may require;

1.18 "Contract Year" means a period of twelve (12) Months, commencing on the

Effective Date or any anniversary thereof;

1.19 "Crude Oil" means hydrocarbons which are liquid at fourteen and sixty-five onehundredths pounds per square inch at atmospheric pressure (14.65 psia) and

sixty degrees Fahrenheit (600F) and includes condensates and distillates

obtained from Natural G a s ; ^

4



1.20 "Date of Commencement of Commercial Production" means, in respect of

each Development and Production Area, the date on which production of

Petroleum under a programme of regular production, lifting and sale commences,

as defined in a Development Plan;

1.21 "Date of Commercial Discovery" means the date referred to in Article 8.15;

1.22 "Development" or "Development Operations" means the following activities

carried out in connection with a Development Plan: the design, engineering,

building and installation of facilities for Production, including drilling of

Development Wells, construction and installation of equipment, pipelines,

facilities, plants and systems, in and outside the Contract Area, which are required

for achieving Production, treatment, transport, storage and lifting of Petroleum,

and preliminary Production and testing activities carried out prior to the Date of

Commencement of Commercial Production, including all related planning and

administrative work, and may also include the construction and installation of

approved secondary and tertiary recovery systems;

1.23 "Development Costs" means Petroleum Costs incurred in Development

Operations, including costs incurred in respect of lease, purchase, or rental of

assets;

1.24 "Development and Production Area" means that portion of the Contract Area

proposed by Contractor and approved by the JMC (or proposed by GNPC if a

Sole Risk Operation pursuant to Article 9) on the basis of the available seismic

and well data to cover the areal extent of an accumulation or accumulations of

Petroleum constituting a Commercial Discovery, enlarged in area by ten percent

(10%), such enlargement to extend uniformly around the perimeter of such

accumulation;

1.25 "Development Period" means, in respect of each Development and Production

Area, the period from the Date of Commercial Discovery until the Date of

Commencement of Commercial Production;

1.26 "Development Plan" means the plan for development of a Commercial Discovery

prepared by Contractor in consultation with the JMC and approved by the Minister

pursuant to Article 8;

1.27 "Development Well" means a well drilled in accordance with a Development Plan

for producing Petroleum including wells for pressure maintenance or increasing

the Production r a t e ; ^



1.28 "Discovery" means ( i ) Existing Discoveries or ( i i ) finding witiiin a well at the end

of drilling under Exploration Operations (an) accumulation(s) of Petroleum whose

existence, until that finding, was not previously known or proven to have existed,

which is or can be recovered at the surface in a flow measurable by conventional

international petroleum industry testing methods (which, in the case of water

depths greater than four hundred (400) metres, may include Modular Formation

Dynamics Testing (also referred to as "MDT" by Schlumberger)) ( New

Discovery);

1.29 "Discovery Area" means that portion of the Contract Area, reasonably proposed

by Contractor and approved by the JMC (or proposed by GNPC if such area

occurs as a result of a Sole Risk pursuant to Article 9) on the basis of the

available seismic and well data, that covers the areal extent of the geological

structure in which a Discovery is made. A modification to the Discovery Area may

be proposed by Contractor at any time and approved by the JMC (or proposed by

GNPC to the extent permitted by Article 9, if applicable), if justified on the basis of

new information, up to the date of submission of a report under Article 8.10;

1.30 "Discovery Notice" means a written notification of Discovery to the Minister, the

Petroleum Commission, and GNPC pursuant to Article 8.1 providing information

which shall include the date of Discovery, the name and location of the well from

which the accumulation(s) have been found, the depth interval(s), estimates of

gross and net pay thickness, stratigraphy, and type of reservoir and fluids

encountered;

1.31 "Effective Date" shall have the meaning ascribed to it in Article 26.11;

1.32 "Existing Discoveries" means Odum and Banda discoveries as described in

Annex 1

1.33 "Exploration" or "Exploration Operations" means the search for Petroleum by

geological, geophysical and other methods, and the drilling of Exploration Well(s)

and Appraisal Wells, and includes any activity in connection therewith or in

preparation thereof and any relevant processing and Appraisal work, including

technical and economic feasibility studies, that may be carried out to determine

whether a Discovery of Petroleum constitutes a Commercial Discovery;

1.34 "Exploration C o s t s " means Petroleum Costs incurred, both within and outside

Ghana, in conducting Exploration Operations hereunder determined in

accordance with the Accounting Guide attached hereto as Annex 2;

1.35 "Exploration Period" means the period commencing on the Effective Date and

continuing during the time provided for in Article 3.1 within which Contractor is.

6



authorised to carry out Exploration Operations, and shall include any periods of

extensions provided for in this Agreement. The period shall terminate with

respect to any Discovery Area on the Date of Commercial Discovery in respect of

such Discovery Area;

1.36 "Exploration Phase" means any one of the Initial Exploration Period, the First

Extension Period or the Second Extension Period;

1.37 "Exploration Well" means a well drilled in the course of Exploration Operations

conducted hereunder during the Exploration Period, excluding Appraisal Wells;

1.38 "Extension Period" means either the First Extension Period or Second Extension

Period, as applicable;

1.39 "Force Majeure" means any event beyond the reasonable control of the Party

claiming to be affected by such event, which has not been brought about directly

or indirectly at its own instance or which has not been brought about directly or

indirectly at the instance of an Affiliate. Force Majeure events may include, but

are not limited to, acts of God, accidents, fires, explosions, earthquake, storm,

flood, hurricanes, tidal waves, cyclones, tornados, lightning or other adverse

weather conditions or any other natural disasters, war, acts of war, acts of

terrorism, embargo, blockade, epidemic, riot, civil disorder, or strikes;

1.40 "Foreign National Employee" means an expatriate employee of Contractor, its

Affiliates, or its Subcontractors who is not a citizen of Ghana;

1.41 "Ghana" means the territory of the Republic of Ghana and includes rivers,

streams, water courses, the territorial sea, seabed and subsoil, the contiguous

zone, the exclusive economic zone, continental shelf, the airspace, and all other

areas within the jurisdiction of the Republic of Ghana;

1.42 "Gross Negligence or Willful Misconduct" means any act, failure to act or

failure to exercise such minimum degree of care and prudence by a Party which

was in reckless disregard of or wanton indifference to the harmful consequences

that the person knew, or should reasonably have known, could result;

1.43 "Gross Production" means the total amount of Petroleum produced and saved

from a Development and Production Area during Production Operations, which is

not used by Contractor in Petroleum Operations, and is available for distribution to

the Parties in accordance with Article 10;

1.44 " Income Tax Act" means the Income Tax Act, 2015 (Act 896) as the same may

be amended from time to time >Q.



1.45 "Indigenous Ghanaian Company" means a company incorporated under the

Companies Act, 1963 (Act 179) of Ghana:

(a)



that has at least fifty-one percent (51%) of its equity owned by a citizen or

citizens of Ghana; and



(b)



that has Ghanaian citizens holding at least eighty percent (80%) of senior

management positions and one hundred percent (100%) of nonmanagerial and other positions;



1.46 "Initial Interest" means the interest of GNPC in all Petroleum

provided for in Article 2.4;



Operations



1.47 "International Best Oil Field Practice" means those practices that are generally

accepted in the international petroleum industry as good, safe, and efficient in

exploring for, developing, producing, processing, and transporting Petroleum;

1.48 "Joint Management Committee"

pursuant to Article 6.1;



(JMC) means the committee



established



1.49 "Joint Operating Agreement" or "JOA" means an agreement among all of the

Contractor Parties with respect to the Contract Area and their respective rights

and/or obligations under this Agreement, as such agreement may be amended or

supplemented from time to time;

1.50 "LIBOR" means the interest rate per annum equal to the British Bankers

Association London interbank offered rate for one (1) month U.S dollar deposits,

as published in the Financial Times London. In the event that the Financial Times

London is not published, then as published by The Wall Street Journal.

1.51 "LNG" means Liquefied Natural Gas;

1.52 "Local Content Regulations" means the Petroleum (Local Content and Local

Participation) Regulations, 2013, L.I. 2204;

1.53 "Market Price" means the market price for Crude Oil realized by Contractor under

this Agreement as determined in accordance with Article 11.7;

1.54 "Minister" has the meaning given to such term in the Preamble;

1.55 "Minimum Work Obligation" means Contractor's obligations set forth in Article



8



1.56 "Month" means a month of the Calendar Year;

1.57 "Natural Gas" means all hydrocarbons which are gaseous at fourteen and sixtyfive one-hundredths pounds per square inch at atmospheric pressure (14.65 psia)

and sixty (60) degrees Fahrenheit, and includes wet gas, dry gas, and residue gas

remaining after the extraction of liquid hydrocarbons from wet gas;

1.58 "Non-Associated Gas" means Natural Gas produced from a well other than in

association with Crude Oil;

1.59 "Operator" means Springfield or such other Party as may be jointly proposed by

Contractor and GNPC and approved by the Minister to conduct Petroleum

Operations hereunder on behalf of the Parties;

1.60 "Participating Interest" means the interest held by each Contractor Party

(expressed as a percentage) in accordance with the provisions of Article 2.11;

1.61 "Party" means each of the State, GNPC, Explorco, or Springfield, as the case

may be;

1.62 "Paying Interest" means an interest held by GNPC in respect of which GNPC

pays for the conduct of Petroleum Operations as expressly provided for in Article

2.7;

1.63 "Petroleum" means Crude Oil or Natural Gas, or a combination of both;

1.64 "Petroleum Commission" means a body established by the Petroleum

Commission Act, 2011 (Act 821) for the regulation and the management of the

utilisation of petroleum resources in the upstream sector;

1.65 "Petroleum Costs" means all expenditures made and costs incurred in

conducting Petroleum Operations hereunder determined in accordance with the

Accounting Guide attached hereto as Annex 2;



1.66 "Petroleum Law" means the Petroleum (Exploration and Production) Law, 1984

(PNDCL 84);

1.67 "Petroleum Operations" means all activities, both in and outside Ghana, relating

to the Exploration for. Appraisal of. Development, Production, handling, storage,

processing and transportation to the Delivery Point, of Petroleum contemplated.



under this Agreement and includes Exploration Operations, Development

Operations and Production Operations and all activities in connection therewith;

1.68 "Petroleum Product" means any product derived from Petroleum by any

conventional refining process;

1.69 "Pre-Award Attachment" means any order, decree, injunction or other decision

(however designated) of any court, arbitral body or other competent authority

requested by a Party and issued prior to a final arbitral award issued pursuant to

Article 24.2 of this Agreement that attaches, seizes, freezes or otherwise restricts

the use or alienation of any property (whether tangible or intangible) of the other

Party pending issuance of the final arbitral award, whether such property is in the

possession or control of a Party or of a third party;

1.70 "Production" or "Production Operations" means activities, other than

Exploration Operations or Development Operations, undertaken in order to

extract, save, treat, measure, handle, store and transport (to the Delivery Point)

Petroleum to storage and/or loading points and to carry out any type of primary,

secondary or tertiary recovery operations, including recycling, recompression,

injection for maintenance of pressure and water flooding and all related activities

such as planning and administrative work and shall also include maintenance,

repair, abandonment or decommissioning and replacement of facilities, and well

work overs, conducted after the Date of Commencement of Commercial

Production of the respective Development and Production Area;

1.71 "Production Costs" means Petroleum Costs incurred in Production Operations;

1.72 "Proposed Appraisal Programme" means a draft of a programme for the

conduct of an Appraisal to be presented to the Petroleum Commission for

approval;

1.73 "Quarter" means a period of three (3) consecutive Months, commencing January

1, April 1, July 1, or October 1, and ending March 3 1 , June 30, September 30, or

December 31, respectively;

1.74 " Security" means an irrevocable, unconditional guarantee issued by a bank or an

insurance company; or a financial and performance guarantee from a parent

company; or a standby letter of credit; or any other financial security issued in

favour of GNPC by a reputable institution acceptable to GNPC and having a credit

rating indicating that it has sufficient worth to pay its obligations in all reasonably

foreseeable circumstances;

1.75 "Sole Expert' means the person appointed to resolve a dispute pursuant to 24.910



1.76 "Sole Risk" means an operation conducted at the sole cost, risk, expense, and

liability of GNPC referred to in Article 9;

1.77 "Specified Rate" means LIBOR plus two percent (2%);

1.78 "Standard Cubic Foot" or " S C F " means the quantity of gas that occupies one (1)

cubic foot at 14.65 psia pressure and sixty (60) degrees Fahrenheit temperature;

1.79 "State" has the meaning given to such term in the Preamble;

1.80 "Subcontractor" means a third party with whom GNPC or Contractor has entered

into a contract for provisions of goods or services for, or in connection with.

Petroleum Operations;

1.81 "Termination" means termination of this Agreement pursuant to Article 24 hereof;

1.82 "Work Programme" means the annual plan for the conduct of Petroleum

Operations prepared pursuant to Articles 6.4 and 6.5; and

1.83 "Year" means a continuous twelve (12) Month period./<)



Article 2

SCOPE OF THE AGREEMENT, INTERESTS OF THE PARTIES AND CONTRACT

AREA

2.1



This Agreement provides for the Exploration for, and Development and Production

of. Petroleum in the Contract Area by GNPC in association with Contractor.



2.2



Subject to the provisions of this Agreement, Contractor shall be responsible for the

execution of such Petroleum Operations as are required by the provisions of this

Agreement and, subject to Article 9, is hereby appointed the exclusive entity to

conduct Petroleum Operations in the Contract Area. In order that the Parties may

cooperate in the implementation of Petroleum Operations, GNPC, and Contractor

shall establish a Joint Management Committee to conduct and manage Petroleum

Operations.



2.3



In the event that no Commercial Discovery is made in the Contract Area or that

Gross Production achieved from the Contract Area is insufficient to fully reimburse

Contractor in accordance with the terms of this Agreement, then Contractor shall

bear its own loss; GNPC and the State shall have no obligations whatsoever to

Contractor in respect of such loss.



2.4



GNPC shall have an Initial Interest in all Petroleum Operations under this

Agreement as follows: (a) eleven percent (11%) in the case of a New Discovery

either developed alone or together with the Existing Discoveries and (b) eight

percent (8%) for Existing Discoveries developed on a standalone basis. With

respect to all Exploration Operations and Development Operations, the Initial

Interest shall be a Carried Interest. With respect to all Production Operations

GNPC's Initial Interest shall be a Paying Interest.



2.5



In addition to the Initial Interest provided for in Article 2.4, GNPC shall have the

option in respect of each Development and Production Area to acquire an Additional

Interest of up to (a) seventeen percent (17%) in the case of a New Discovery either

developed alone or together with the Existing Discoveries and (b) five percent (5%)

for Existing Discoveries developed on a standalone basis in the Petroleum

Operations in such Development and Production Area, by contributing the

corresponding proportionate share to all the Petroleum Costs incun'ed after the

Date of Commercial Discovery, in respect of such Development and Production

Area (or make arrangements satisfactory to the Contractor to that effect). With

respect to all Development Operations and Production Operations, the Additional

Interest shall be a Paying Interest. GNPC shall notify the Contractor of the exercise

of its intention to acquire the Additional Interest within ninety (90) days of the Date



12



of Commercial Discovery. GNPC and Contractor shall agree on the mode of

financing such Additional Interest.

2.6



If GNPC opts to take an Additional Interest as provided for in Article 2.5 then within

six (6) Months of the date of its election, GNPC shall reimburse the Contractor for

all expenditures attributable to GNPC's Additional Interest incurred from the Date

of Commercial Discovery to the date GNPC notifies Contractor of its election.



2.7



For the avoidance of doubt, GNPC shall only be liable to contribute to Petroleum

Costs:

(a)



incurred in respect of Development Operations in any Development and

Production Area to the extent only of any Additional Interest acquired in

such Development and Production Area under Article 2.5; and



(b)



incurred in respect of Production Operations in any Development and

Production Area both to the extent of:

i)



its eleven percent (11 %) or eight percent (8%) Initial Interest (as the

case may be) held pursuant to Article 2.4; and



ii)



any Additional Interest acquired under Article 2.5.



2.8



In the event that GNPC, having acquired the Additional Interest subsequently

wishes to dispose of it (or part of it) to a third party other than parties stipulated

under Article 25.6, GNPC shall notify Contractor of such intent and shall infonn

Contractor of the price which is to be paid by such third party for the same, and the

Contractor shall have the right for a period of thirty days from the receipt of such

notice to inform GNPC that it wishes to acquire such interest at the price notified to

it by GNPC, being the price at which it was to have been sold to the third party.



2.9



GNPC may during the Exploration Period contribute to Petroleum Operations by

providing such relevant services as may be specified by the JMC from time to time.

Prior to the provision of such services, and subject to JMC Approval, Contractor

must specify in writing whether GNPC is either to (i) be paid in cash for such

services by Contractor upon receipt of invoice from GNPC, or (ii) earn credit for the

costs of providing such services against GNPC's share, if any, of future

Development and/or Production Costs. The amount of costs to be invoiced or credit

earned by GNPC pursuant to this paragraph must be approved by the JMC prior to

provision of the relevant services, and shall be at fair market rates at which such

services could be obtained under freely competitive conditions at the time of such

approval Likewise, if the Contractor provides services, it shall earn credit for the

costs of providing such services in accordance with the Accounting Guide.

13



2.10 Upon notifying Contractor of its decision to acquire an Additional Interest pursuant

to Article2.5, GNPC may specify in the notification one or more of the following:

(a)



that notwithstanding the provisions in Article 2.6 GNPC shall elect to have

Contractor advance GNPC's total proportionate share of Development

Costs incurred in respect of the Additional Interest. Such advances shall

be reimbursed from the proceeds of the sales of GNPC's petroleum

entitlement with interest at rate no higher than (i) the weighted average rate

applicable to any third party debt financing pursuant to which the Contractor

(or its Affiliates) has financed such Additional Interest from and including

the date of the relevant expenditure to and excluding the date the Contractor

is reimbursed or (ii) the Specified Rate if Contractor has no third party debt

financing; and



(b)



notify the Contractor of any arrangements for the payment of the balance of

GNPC's total proportionate share of Development Costs.



2.11 Contractor's Participating Interest in all Petroleum Operations and in all rights under

this Agreement shall be (a) eighty nine percent (89%) in the case of New Discovery

either developed alone or together with the Existing Discoveries and (b) ninety two

percent (92%) for Existing Discoveries developed on a standalone basis, reduced

proportionately on each Contractor Party pro rata to Participating Interest, at any

given time and in any given part of the Contract Area by the exercise of the option

of Additional Interest of GNPC pursuant to Article 2.5 or the exercise of the Sole

Risk interest of GNPC pursuant to Article 9.



2.12 Notwithstanding Article 1.59, Springfield shall not later than three hundred and

sixty-five (365) days after the Effective Date, or such other additional period as may

be approved by the Minister, assign a material portion of its Participating Interest to

an entity which shall be the technical partner and joint operator of the Contract Area.

The technical partner shall be an entity with the requisite technical and financial

capability to undertake Petroleum Operations selected by Springfield, acceptable

to GNPC and approved by the Minister; provided however that GNPC's failure to

accept such proposed technical partner shall not preclude Springfield from seeking

approval from the Minister. The assignment of a Participating Interest to the

technical partner shall not constitute a 'farmout' within the meaning of Article 25.5



2.13 As of the Effective Date, the Contract Area shall cover a total of approximately six

hundred and seventy-three kilometres squared ( 673 km2), as depicted by Annex

1, and shall from time to time during the term of this Agreement be reduced

14



according to ttie tenris herein. During the temri of this Agreement, Contractor shall

pay rentals to the State for that area included within the Contract Area at the

beginning of each Contract Year according to the provisions of Article 12.1(e) below



15



Article 3

EXPLORATION PERIOD

3.1



3.2



The Exploration Period shall begin on the Effective Date and, subject to Article 22.8,

shall not extend beyond five and one-half (5/4) years unless othenwise extended by

the Minister as provided for in accordance with the Petroleum Law.

(a)



The Exploration Period shall be divided into an Initial Exploration Period of

two and one-half (2V^) years ("Initial Exploration Period") and two (2)

extension periods, the first of one and one-halfzyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJ

{VA)

years and the second

of one and one-half (VA) years each (respectively, "First Extension Period"

and "Second Extension Period") and where applicable the further periods

for which provision is made hereafter.



(b)



Where Contractor has fulfilled its obligations set out in Article 4.3 before the

end of the Initial Exploration Period or, as the case may be, the First

Extension Period, and has exercised its option by applying to the Minister

in writing for an extension, the Minister will be deemed to have granted an

extension into the First Extension Period or, as the case may be, into the

Second Extension Period.



(c)



For each well drilled by Contractor or with Contractor's participation during

the Initial Exploration Period beyond those referred to in Article 4.3, the

Initial Exploration Period shall be extended by three (3) Months and the

commencement of subsequent periods shall be postponed in their entirety

accordingly.



Following the end of the Second Extension Period, subject to the provisions of

Article 3.4, Contractor will be entitled to an extension or extensions, by reference to

Article 8, of the Exploration Period as follows:

(a)



Where at the end of the Second Extension Period Contractor is drilling or

testing any well, Contractor shall be entitled to an extension for such further

period as may be reasonably required to enable Contractor to complete

such work and assess the results and, in the event that Contractor notifies

the Minister that the results from any such well show a Discovery which

merits Appraisal, Contractor shall be entitled to a further extension for such

period as may be reasonably required to carry out an Appraisal Programme

and determine whether the Discovery constitutes a Commercial Discovery;



(b)



Where at the end of the Second Extension Period Contractor is engaged in

the conduct of an Appraisal Programme in respect of a Discovery which has

not been completed, Contractor shall be entitled to a further extension for

such period as may be reasonably required to complete that Appraisal

16



Programme and determine

Commercial Discovery;



wJiettier



tlie



Discovery



constitutes



a



(c)



Where at the end of the Second Extension Period Contractor has

undertaken work not falling under paragraphs ((a) or ((b) which is not

completed, Contractor shall be entitled to a further extension following the

end of the Second Extension Period for such period as the Minister

considers reasonable for the purpose of enabling such work to be

completed;



(d)



Where pursuant to Article 8 Contractor has before the end of the Second

Extension Period, including extensions under ((a), ((b) and ((c) above, given

to the Minister a notice of Commercial Discovery, Contractor shall, if the

Exploration Period would othenwise have been terminated, be entitled to a

further extension of the Exploration Period in respect of the Discovery Area

during which it must prepare the Development Plan in respect of the

Commercial Discovery until either:

i)



the Minister has approved the Development Plan as set out in Article

8; or



ii)



in the event that the Development Plan is not approved by the

Minister as set out in Article 8 and the matter or matters in issue

between the Minister and Contractor have been referred for

resolution under 24.1, one (1) Month after the date on which the final

decision thereunder has been given.



Where at the end of the 9 month period for submission of Appraisal Programme

with respect to the Existing Discoveries, Initial Exploration Period or, as the case

may be, at the end of the First Extension Period, Contractor has failed to submit the

Appraisal Program or complete its Minimum Work Obligations as specified in

Articles 4.3((a),(b),(c) or (d) in respect of that period (including in the circumstances

contemplated in Article 4.7, but has made reasonable arrangements to remedy its

default. Contractor may apply to the Minister for further extension. The Minister

may refuse to grant or grant in his discretion an extension on the then current

applicable period subject to such reasonable terms and conditions as the Minister

may stipulate to assure performance of the work.

Save in respect of a Discovery Area:

(a)



in the circumstances and subject to the limitations set forth in Section 12(3)

of the Petroleum Law;



(b)



in a case falling within the provisions of Article 3.2(d); or



17



(c)



in circumstances where Article 22.8 applies,



subject to Article 3.5 and Article 8, nothing in Article 3.2 shall be read or construed

as requiring the extension of the Exploration Period beyond seven (7) years from

the Effective Date.



The provisions of Articles 3.2(a), 3.2(b), 3.2(c), and 3.3, so far as they relate to the

duration of the relevant Extension Period to which Contractor will be entitled, shall

be read and construed as requiring the Minister to give effect to the provisions of

Article 8 relating to the time within which Contractor must meet the requirements of

that Article.



18



Article 4

MINIMUM EXPLORATION PROGRAMME

4.1



Exploration Operations shall begin as soon as practicable and in any case not later

than sixty (60) days after the Effective Date.



4.2



GNPC shall, as soon as practicable at the request of Contractor, make available to

Contractor such records and information relating to the Contract Area as are

relevant to the performance of Exploration Operations by Contractor and are in

GNPC's possession, provided that Contractor shall reimburse GNPC for licensing

the data and for other costs reasonably incurred in procuring or otherwise making

such records and infomriation available to Contractor.



4.3



Subject to the provisions of this 3.5, in discharge of its obligations to carry out

Exploration Operations in the Contract Area, Contractor shall, during the several

phases into which the Exploration Period is divided, carry out the obligations

specified hereinafter:

(a)



Existing Discoveries

Contractor shall within a period of nine (9) months from the Effective Date

undertake an evaluation of the Existing Discoveries, and shall submit an

Appraisal Programme to the Petroleum Commission for approval and to the

Minister for information purposes.

GNPC shall, as soon as practicable following the request of Contractor,

make available to Contractor such records and infonnation relating to the

Contract Area as are relevant to undertake the evaluation and Appraisal in

respect of the Existing Discoveries.



(b)



Initial Exploration Period: Commencing on the Effective Date and

terminating two and one-half (234) years from the Effective Date.

Description of Contractor's Minimum Work Obligation:

i)

Geological and geophysical studies.

ii)

Drill one Exploration Well.

Minimum Expenditure: The minimum expenditure for the work in the Initial

Exploration Period shall be Thirty Million United States Dollars

(US$30,000,000).



19



(c)



First Extension Period: Commencing at tlie end of ttie Initial Exploration

Period and terminating one and one-halfzyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFE

{VA)

Years from the expiration of

the Initial Exploration Period.

Description of Contractor's IVIinimum Worit Obligation:

i)

Geological and geophysical studies.

ii)

Drill one Exploration Well.

Minimum Expenditure: The minimum expenditure for the work in the First

Extension Period shall be Thirty Million United States Dollars

(US$30,000,000).



(d)



Second Extension Period: Commencing at the end of the First Extension

Period and temiinating one and one-half {VA) Years from the expiration of

the First Extension Period, or as may be extended under this Agreement.

Description of Contractor's Minimum Work Obligation:

i)

Geological and geophysical studies.

ii)

Drill one Exploration Well.

Minimum Expenditure: The minimum expenditure for the work in the

Second Extension Period shall be Forty Million United States Dollars

(US$40,000,000)



Work accomplished in any period in excess of the above obligations may be

applied as credit in satisfaction of obligations called for in any other period. The

fulfillment of any Minimum Work Obligation shall satisfy the corresponding

Minimum Expenditure obligation but the fulfilment of any Minimum Expenditure

obligation shall not satisfy the corresponding Minimum Obligation. Without

prejudice to Article 23.3(e), should Contractor fail to perform its Minimum Work

Obligations under Articles 4.3(a),(b),(c) or (d), as applicable. Contractor shall pay

to GNPC an amount equal to the minimum expenditure obligation, as reduced by

the value of work already performed, for the relevant Exploration Phase.

Within ninety (90) days after the Effective Date, Contractor shall provide to GNPC

Security in the amount of five million United States Dollars (US$5 million) to cover

the minimum expenditure obligation for the first 365 days from the Effective Date.

As a condition to conduct work in the subsequent years up to the end of the Initial

Period, Contractor shall also provide Security based on expenditure related to such

work. This Security shall be: (a) reduced proportionately by the work performed;

and (b) released upon completion of the Minimum Work Obligation. This provision

shall not apply where Contractor provides satisfactory security.



20



Each Exploration Well shall be drilled at a location and to an objective depth

determined by Contractor in consultation with GNPC. Except as otherwise provided

in Article 4.6 and 4.7 below, the minimum depth of each Exploration Well in Articles

4.3(b) and 4.3(c) shall be whichever of the following is first encountered:

(a)



the depth of four thousand five hundred (4,500) metres measured from the

Rotary Table Kelly Bushing (RTKB);



(b)



one hundred (100) metres below the depth at which the primary target is

first encountered; or



(c)



the depth at which Contractor encounters geologic basement; or



(d)



a depth where GNPC and Contractor agree that the well cannot be drilled

any deeper due to technical or safety issues



The minimum depth of one (1) of the obligatory Exploration Wells in Article 4.3 shall

be whichever of the following is first encountered:

(a)



The depth of four thousand five hundred (4,500) metres measured from the

Rotary Table Kelly Bushing (RTKB);



(b)



The depth sufficient to penetrate three hundred and fifty (350) metres into

the Campanian; or



(c)



The depth at which Contractor encounters geological basement.



unless GNPC consents otherwise, which consent shall not be unreasonably

withheld or delayed.

If in the course of drilling an Exploration Well Contractor concludes that drilling to

the minimum depth specified in Articles 4.5 and 4.6. above is impossible,

impracticable, or imprudent in accordance with International Oil Field Practice, then

Contractor may plug and abandon the Exploration Well, and GNPC shall have the

option of either:

(a)



waiving the minimum depth requirement, in which case Contractor will be

deemed to have satisfied the obligation to drill such Exploration Well; or



(b)



requiring Contractor to drill a substitute Exploration Well at a location

determined by Contractor in consultation with GNPC and to the minimum

depth set forth in Article 4.5 or 4.6, except that if in the course of drilling

such substitute Exploration Well Contractor establishes that drilling to the

minimum depth specified in Article 4.5 or 4.6 above is impossible.

21



impracticable or imprudent in accordance with International Best Oil Field

Practice, then Contractor may plug and abandon the substitute Exploration

Well and will be deemed to have satisfied the obligation to drill one (1)

Exploration Well.

The above option shall be exercised by GNPC within sixty (60) days from the notice

given by Contractor to GNPC of the completion of the plugging and abandonment of

the Exploration Well, and failure to exercise such option shall constitute a waiver of

the minimum depth requirement pursuant to (a) above.

8



During the Exploration Period, Contractor shall have the right to perform additional

Exploration Operations subject to the ternis of this Agreement and approval by the

JMC, including without limitation performing gravity and magnetic surveys, drilling

stratigraphic wells and performing additional geological and geophysical studies,

provided the Minimum Work Obligations are completed within the applicable period.

Provided further that Contractor may elect to perfomi such additional Exploration

Operations in the absence of approval by the JMC and the costs of such additional

Exploration Operations shall not be considered allowable Petroleum Costs.

However, such costs shall only be allowable Petroleum Costs for purposes of the

calculation of AOE if there arises a subsequent Commercial Discovery associated

with such additional Exploration Operations. Any such subsequent Commercial

Discovery shall be treated hereunder in the same manner as if such Commercial

Discovery had been made in connection with operations that were not performed

as sole risk operations including, without limitation, participation by GNPC in such

Commercial Discovery.



9



During the Exploration Period, Contractor shall deliver to GNPC and the Minister

reports on Exploration Operations conducted during each Quarter within thirty (30)

days following the end of that Quarter. Further requests for information by the

Minister under Section 9(1) of the Petroleum Law shall be complied with within a

reasonable time and copies of documents and other material containing such

information shall be provided to GNPC.



22



Article 5

RELINQUISHMENT

5.1



Except as provided in Article 5.2, 8.3, 8.6, 8.12, 8.18, 8.19, 8.20, 8.21, 8.22 and

14.9, Contractor shall relinquish portions of the Contract Area in the manner

provided hereafter:

(a)



If on or before the expiration of the First Extension Period, Contractor elects

to enter into the Second Extension Period pursuant to Article 3.1 ((a) then

subject to Article 5.2 at the commencement of the Second Extension Period

the area retained shall not exceed sixty percent (60%) of the Contract Area

as at the Effective Date (excluding the Existing Discoveries);



(b)



If at the end of nine (9) months from the Effective Date, or at the end of

expiration of any extension granted. Contractor fails to submit an Appraisal

Programme pursuant to Article 4.3(a), Contractor shall relinquish the

Existing Discoveries;



(c)



On the expiration of the Second Extension Period, Contractor shall subject

to Article 5.2 relinquish the remainder of the retained Contract Area.



5.2



The provisions of Article 5.1 shall not be read or construed as requiring Contractor

to relinquish any portion of the Contract Area which constitutes or forms part of

either a Discovery Area (excluding a Discovery Area determined by the terms of

this Agreement to neither merit Appraisal nor to be a Commercial Discovery) or a

Development and Production Area; provided, however, that if at the end of the Initial

Exploration Period or the First Extension Period, as the case may be. Contractor

elects not to enter into the First or Second Extension Period Contractor shall

relinquish the entire Contract Area, except a Discovery Area or a Development and

Production Area.



5.3



Each area to be relinquished pursuant to this Article shall be selected by Contractor

and shall be measured as far as possible in terms of continuous and compact units

of a size and shape which will permit the carrying out of Petroleum Operations in

the relinquished portions.



23



Article 6

JOINT MANAGEMENT COMMITTEE

6.1



In order that the Parties may at all times cooperate in the implementation of

Petroleum Operations, GNPC and Contractor shall not later than thirty (30) days

after the Effective Date establish a Joint Management Committee (JMC). Without

prejudice to the rights and obligations of Contractor for day-to-day management of

the operations, the JMC shall oversee, supervise and approve the Petroleum

Operations and ensure that all approved Work Programmes and Development

Plans are complied with and also that accounting for costs and expenses and the

maintenance of records and reports conceming the Petroleum Operations are

carried out in accordance with this Agreement and the accounting principles and

procedures generally accepted as Intemational Best Oil Field Practice.



6.2



The composition and distribution of functions within the JMC shall be as provided

hereinafter:

(a)



The JMC shall consist of two (2) representatives of GNPC and two (2)

representatives of the Contractor. Any Contractor Party not represented on

the JMC may appoint an observer to attend all JMC meetings and shall

receive copies of all notices and materials distributed to the members of the

JMC concurrently with the distribution of such notices and materials to the

JMC members. GNPC and Contractor shall also designate an alternate for

each of their representatives. In the case of absence or incapacity of a

member of the JMC, such alternate shall automatically assume the rights

and obligations of the absent or incapacitated member;



(b)



The chairperson of the JMC shall be designated by GNPC from amongst

the members of the JMC;



(c)



Contractor shall be responsible, in consultation with GNPC, for the

preparation of an agenda and supporting documents for each meeting of

the JMC and for keeping records of the meetings and decisions of the JMC.

GNPC shall have the right, upon reasonable notice, to inspect all records of

the JMC during business hours. Contractor shall circulate the agenda and

supporting documents for each meeting to ail representatives designated

pursuant to Article 6.2((a); and



(d)



At any meeting of the JMC three (3) representatives shall form a quorum.

For purposes of a quorum, the representative of Contractor shall be the

Contractor Party who holds the majority interest.



24



Meetings of the JMC shall be held and decisions taken as follows:

(a)



All meetings of the JMC shall be held in Accra or such other place as may

be agreed upon by members of the JMC;



(b)



The JMC shall meet at least twice per Year and at such times as the

members may agree;



(c)



A meeting of the JMC may be convened by either GNPC or the Contractor

giving not less than twenty (20) days' notice to the other or, in a case

requiring urgent action, notice of such lesser duration as the members may

agree upon;



(d)



Decisions of the JMC shall require unanimity among GNPC and Contractor

and all representatives of a Party shall vote the same way;



(e)



Any member of the JMC may vote by written and signed proxy held by

another member, so long as such member is a representative of the same

Party as the other member;



(f)



Decisions of the JMC may be made without holding a meeting if all

representatives of GNPC and Contractor notify their consent thereto in the

manner provided in Article 27;



(g)



GNPC and Contractor shall have the right to bring expert advisors to any

JMC meetings to assist in the discussions of technical and other matters

requiring expert advice;



(h)



The JMC may also establish such subcommittees as it deems appropriate

for carrying out its functions including:

I)



a technical subcommittee;



ii)



an audit subcommittee;



ill)



an accounting subcommittee; and



iv)



a contract/procurement subcommittee,



and each subcommittee shall function in an advisory capacity to the JMC or

as otherwise determined unanimously by the JMC; and

(i)



Reasonable costs and expenses as evidenced by invoices and/or receipts

related to attendance by GNPC in or outside Accra (e.g. travel,

transportation, lodging, per diem and insurance), in accordance with

applicable laws, regulations and GNPC policies and procedures shall be

borne by Contractor and treated as Petroleum Costs.



25



The JMC shall oversee Exploration Operations as follows:

(a) Not later than sixty (60) days after the Effective Date and thereafter at least

ninety (90) days before the commencement of each Calendar Year, Contractor

shall prepare and submit to the JMC for its review and approval a detailed Work

Programme and budget covering all Exploration Operations which Contractor

proposes to carry out in that Calendar Year and shall also give an indication of

Contractor's tentative preliminary exploration plans for the succeeding

Calendar Year. Where the Effective Date occurs later than June 30 in any

Calendar Year Contractor shall have the option of submitting a single detailed

Work Programme and budget covering the remaining Months of the Calendar

Year in which the Effective Date occurs and the succeeding Calendar Year;

(b) Upon notice to GNPC, Contractor may amend any Work Programme and

budget submitted to the JMC pursuant to this Article 6.4, which notice will state

why in Contractor's opinion the amendment is necessary or desirable. Any

such amendment shall be submitted to the JMC for review and approval;

(c) Every Work Programme and budget submitted to the JMC pursuant to this

Article 6.4, and every amendment thereof, shall be consistent with the

requirements set out in Article 4.3 relating to the Minimum Work Obligation for

the period of the Exploration Phase in which such Work Programme and budget

falls;

(d) Contractor shall report any Discovery to GNPC immediately following such

Discovery and shall subsequently place before the JMC for review its Proposed

Appraisal Programme. Within thirty (30) days of completion of the Appraisal

Programme a JMC meeting to discuss the results of the Appraisal Programme

shall be convened to take place before submission of the detailed Appraisal

report provided for in Article 8.10

(e) The JMC will review and approve Work Programmes and budgets and any

amendments or revisions thereto, and Proposed Appraisal Programmes and

any amendments or revisions thereto, submitted to it by Contractor pursuant to

this Article 6, and timely give such advice as it deems appropriate which

Contractor shall consider before submitting Work Programmes and budgets

and any amendments or revisions thereto for approvals required by law or this

Agreement; and

(f) After the date of the first Commercial Discovery, Contractor shall seek the

approval of GNPC's JMC representatives, which approval shall not be

unreasonably withheld, on any proposal for the drilling of any further

Exploration Well or Wells not associated with the Commercial Discovery and

26



not othenwise required to be drilled under Article 4.3. If approval is not secured

by Contractor, Contractor may nevertheless elect to drill the Exploration Well

or Wells at its sole risk and the costs of such Exploration Operations shall not

be considered allowable Petroleum Costs. However, such costs shall be

allowable Petroleum Costs for purposes of AOE if there arises a subsequent

Commercial Discovery associated with such additional Exploration Operations.

Any such subsequent Commercial Discovery shall be treated hereunder in the

same manner as if such Commercial Discovery had been made in connection

with operations that were not perfomned as sole risk operations, including,

without limitation, participation by GNPC in such Commercial Discovery.



From the Date of Commercial Discovery, the JMC shall oversee Petroleum

Operations as follows:

(a)



Within sixty (60) days after the Date of Commercial Discovery, Contractor

shall prepare and submit to the JMC for approval any revisions to its annual

Work Programme and budget that may be necessary in order to implement

the Development Plan for the remainder of that Calendar Year and, with

respect to the Contract Area (excluding the Discovery Area) for the rest of

the Exploration Period;



(b)



At least ninety (90) days before the Commencement of each subsequent

Calendar Year Contractor shall submit to the JMC for review and approval

a detailed Work Programme and budget setting forth all Development and

Production Operations which Contractor proposes to carry out in that

Calendar Year and the estimated cost thereof and shall also give an

indication of Contractor's plans for the succeeding Calendar Year; and



(c)



Within sixty (60) days of the Date of commencement of Commercial

Production and thereafter not later than one hundred and twenty (120) days

before the commencement of each Calendar Year Contractor shall submit

to the JMC for its approval an annual production schedule which shall be in

accordance with International Best Oil Field Practice, and shall be designed

to provide the most efficient, beneficial and timely production of the

Petroleum resources.



Lifting schedules for Development and Production Areas and other supplementary

agreements provided for under Article 10.7 shall be subject to JMC approval.



27



6.7



The JMC shall review all reports submitted by Contractor pursuant to this Article 6

on the conduct of Petroleum Operations.



6.8



Contractor's insurance programme and the programmes for training and technology

transfer submitted by Contractor and the accompanying budgets for such schemes

and programmes shall be subject to JMC approval.



6.9



Any contract to be entered into or awarded by Contractor for the provision of

services for Petroleum Operations must comply with the provisions of Article 20,

JMC approved relevant tendering procedures and shall be subject to approval by

the JMC.



6.10 If during any meeting of the JMC the Parties are unable to reach agreement

concerning any of the matters provided for in Articles 6.3, 6.4, 6.5, 6.6, 6.8 and 6.9

the matter shall be deferred for reconsideration at a further meeting to be held not

later than fifteen (15) days following the original meeting. If after such further

meeting the Parties are still unable to reach agreement, the matter in dispute shall

be referred to the Parties' executive management forthwith. Failing agreement

within fifteen (15) days thereafter, the matter in dispute shall, at the request of any

Party, be referred for resolution under Article 24.



6.11 For the avoidance of doubt, the concurrence or approval of JMC representatives

shall not be unreasonably withheld or delayed with respect to any proposal

submitted to the JMC.



28



Article 7

RIGHTS AND OBLIGATIONS OF CONTRACTOR AND GNPC

7.1



Subject to the provisions of this Agreement, Contractor shall be responsible for the

conduct of Petroleum Operations and shall perfomi its obligations in accordance

with International Best Oil Field Practice, including without prejudice to the

generality of the foregoing:

(a)



conduct Petroleum Operations diligently in accordance with International

Best Oil Field Practice, observing sound technical and engineering

practices using appropriate advanced technology and effective equipment,

machinery, materials, and methods;



(b)



take all practicable steps to ensure compliance with Section 3 of the

Petroleum Law, including ensuring the recovery and prevention of waste of

Petroleum in the Contract Area in accordance with International Best Oil

Field Practice;



(c)



prepare and maintain in Ghana full and accurate records of all Petroleum

Operations performed under this Agreement;



(d)



prepare and maintain accounts of all Petroleum Operations under this

Agreement in such a manner as to present a full and accurate record of the

costs of such Petroleum Operations, in accordance with the Accounting

Guide;



(e)



disclose to GNPC and the Minister any operating or other agreement among

the Parties that constitute Contractor relating to the Petroleum Operations

hereunder, which agreement shall not be inconsistent with the provisions of

this Agreement;



(f)



prepare and implement a programme to develop GNPC's institutional

capacity to become a competent operator. Such programme shall be

approved by the JMC;



(g)



provide and be solely responsible for the payment of all costs related or

incidental to all services, equipment and supplies necessary for the

execution of the activities to be conducted by the Contractor under this

Agreement except as othenwise provided hereunder and the related

documents;



29



(h)



prepare and submit in accordance with this Agreement for approval by the

JMC: (i) the Development Plan; and (ii) such other matters as are specified

in this Agreement as subject to approval by the JMC;



(i)



take all measures consistent with Intemational Best Oil Field Practice to: (i)

control the flow and prevent loss or waste of Petroleum; (ii) prevent any

injurious ingress of water and damage to Petroleum bearing strata; and (iii)

manage reservoir pressure;



(j)



not to flare any Natural Gas except to the extent necessary to mitigate or

prevent an emergency or for safe operations as provided in the

Development Plan;



(k)



keep the Minister, Petroleum Commission and GNPC promptly advised in

writing of ail material developments which occur, or the occurrence of which

is reasonably foreseeable, affecting or highly likely to affect Petroleum

Operations;



(I)



to take such steps in case of emergency, and make such immediate

expenditures as are necessary in accordance with Intemational Best Oil

Field Practice, environmental, industrial hygiene and safety legislation

and/or this Agreement and the related documents for the protection of

health, life, the environment and property, and to report in reasonable detail

all such steps taken and expenditures made promptly to the Minister,

Petroleum Commission and JMC;



(m)



notify promptly the Minister, Petroleum Commission and GNPC if the

Contractor becomes aware of any unusual event or circumstance occurring

in the Contract Area or such other areas where Contractor is undertaking

activities contemplated under this Agreement or the related documents that

could reasonably be expected to adversely affect the environment;



(n)



implement and administer contracts related to Petroleum Operations

entered into by Contractor with its Affiliates on an arm's-length basis; and



(o)



maintain or decommission, as appropriate, all existing facilities and assets,

and all other assets used or held for use in connection with Petroleum

Operations in accordance with Intemational Oil Field Practice, applicable

law, and this Agreement; and



(p)



perform and observe each other term, covenant and agreement of the

Contractor contained in this Agreement.



30



In connection with its performance of Petroleum Operations, Contractor shall have

the right within the terms of and pursuant to applicable law and regulations in effect

from time to time:

(a)



to establish offices in Ghana and to assign to those offices such

representatives as it shall consider necessary for the purposes of this

Agreement;



(b)



to use public lands for installation and operation of shore bases, and

terminals, harbours and related facilities, petroleum storage and

processing, pipelines from fields to terminals and delivery facilities, camps

and other housing;



(c)



to receive licenses and pennission to install and operate such

communications. Petroleum production, processing, storage facilities,

transportation facilities (to the Delivery Point) and other facilities as shall be

necessary for the efficiency of its operations;



(d)



to give first consideration to qualified Ghanaians before bringing to Ghana

such number of Foreign National Employees as shall be necessary for its

operations, including employees assigned on permanent or resident status,

with or without families, as well as those assigned on temporary basis such

as rotational employees in accordance with the Local Content Regulations;



(e)



to provide or arrange for reasonable housing, schooling and other

amenities, permanent and temporary, for its employees and to import

personal and household effects, furniture and vehicles, for the use of its

personnel in Ghana;



(f)



be solely responsible for provision of health, accident, pension, and life

insurance benefit plans of its Foreign National Employees and their families;

and such employees shall not be required to participate in any insurance,

compensation, or other employee or social benefit programs established in

Ghana;



(g)



to have, together with its personnel, at all times the right of ingress to and

egress from its offices in Ghana, the Contract Area, and the facilities

associated with Petroleum Operations hereunder in Ghana including the

offshore waters, using its owned or chartered means of land, sea and air

transportation; and



31



(h)



to engage such Subcontractors, expatriate and national, including also

consultants, and to bring such Subcontractors and their personnel to Ghana

as are necessary in order to carry out the Petroleum Operations in a skillful,

economic, safe and expeditious manner; and said Subcontractors shall

have the same rights as Contractor specified in this Article 7 to the extent

they are engaged by Contractor for the Petroleum Operations hereunder.



Provided that Contractor and its Subcontractors have complied with all of their

material obligations under this Agreement, GNPC shall use its best efforts to assist

Contractor in carrying out Contractor's obligations expeditiously and efficiently as

stipulated in this Agreement, and in particular GNPC shall use its reasonable efforts

to assist Contractor and its Subcontractors, as long as Contractor and its

Subcontractors use their reasonable efforts to appropriately complete applicable

procedures and other requirements prescribed by relevant authorities, to:

(a)



establish supply bases and obtain necessary communications facilities,

equipment, and supplies;



(b)



obtain necessary approvals to open bank accounts in Ghana;



(c)



subject to Article 21 hereof, obtain entry visas and work permits or any other

documentation that may be required from time to time for such number of

Foreign National Employees of Contractor and its Subcontractors engaged

in Petroleum Operations and members of their families who will be resident

in Ghana, and make arrangements for their travel, arrival, medical services

and other necessary amenities,



(d)



where applicable facilitate and obtain the necessary approvals for the grant

to the Contractor by the State of any extension, exemption and waiver of all

taxes, charges, customs duties, import duties and any other related

charges;



(e)



comply with Ghana customs procedures and obtain pennits for the

importation of necessary materials;



(f)



obtain the necessary permits to transport documents, samples or other

forms of data to foreign countries for the purpose of analysis or processing

if such is deemed necessary by Contractor for the purposes of Petroleum

Operations;



(g)



assist with the acquisition of any approvals or waivers required from any

State agencies or other ministerial or regulatory bodies under the direct or

32



indirect control of the State(each a "State Agency") dealing with fishing,

meteorology, navigation, environment and communications as required; in

accordance with Article 21.3, identify Ghanaian personnel as candidates for

employment by Contractor in Petroleum Operations; and

(h)



identify qualified Ghanaian personnel as candidates for employment by

Contractor in Petroleum Operations; and



(i)



procure access, on competitive commercial terms to infrastructure owned

by the State, or GNPC (or its Affiliates) or any third party, including facilities

owned or used by contractors on oil and gas blocks adjacent to the Contract

Area.



All reasonable and documented expenses incurred by GNPC in connection with

any of the matters set out in Article 7.3 shall be borne by Contractor in accordance

with this Agreement.



GNPC shall use its best efforts to render assistance to Contractor in emergencies

and major accidents, and such other assistance as may be requested by

Contractor, provided that any reasonable expenses involved in such assistance

shall be borne by Contractor in accordance with this Agreement.



Subject to the provisions of this Agreement and save for Petroleum Operations

undertaken by GNPC pursuant to Article 9, Contractor shall, during the terni of this

Contract, maintain and obtain insurance coverage for and in relation to Petroleum

Operations, for such amounts and against such risks as are customarily or

prudently insured in the international petroleum industry in accordance with modem

oilfield and petroleum industry practices, and shall within two months of the date of

policy or renewal furnish to the Minister and the Petroleum Commission, certificates

evidencing that such coverage is in effect. Such insurance policies shall cover the

interest of GNPC as additional insured and shall waive subrogation against GNPC.

The said insurance shall, without prejudice to the generality of the foregoing, cover:

(a)



loss or damage to all installations, equipment and other assets for so long

as they are used in or in connection with Petroleum Operations; provided,

however, that if for any reason the Contractor fails to insure any such

installation, equipment or assets, it shall replace any loss thereof or repair

any damage caused thereto;



(b)



loss, damage or injury caused by pollution in the course of or as a result of

Petroleum Operations;

33



(c)



loss of property or damage or bodily injury suffered by any third party in the

course of or as a result of Petroleum Operations for which the Contractor

may be liable;



(d)



any claim for which the State may be liable relating to the loss of property

or damage or bodily injury suffered by any third party in the course of or as

a result of Petroleum Operations for which the Contractor is liable to

indemnify the State;



(e)



with respect to Petroleum Operations offshore, the cost of removing wrecks

and cleaning up operations following any accident in the course of or as a

result of Petroleum Operations; and



(f)



the Contractor's and/or the Operator's liability to its employees engaged in

Petroleum Operations.



The Contractor shall require its Subcontractors to obtain and maintain insurance

pursuant to Article 7.6 relating mutatis mutandis to such Subcontractors.



Contractor shall indemnify, defend and hold the State and GNPC harmless against

all claims, losses and damages of any nature whatsoever, including, without

limitation, claims for loss or damage to property or injury or death to persons caused

by or resulting from any Petroleum Operations conducted by or on behalf of the

Contractor.



34



Article 8

COMMERCIALITY

8.1



Contractor shall submit a Discovery Notice to the Minister, the Petroleum

Commission and GNPC as soon as possible after any Discovery is made, but in

any event not later than thirty (30) days after the date any such Discovery is made.

Unless otherwise expressly provided for under this Agreement all provisions of this

Agreement which would have applied to a Discovery shall apply or be deemed to

apply mutatis mutandis to the Existing Discoveries.



8.2



As soon as possible after the analysis of the test results of such Discovery is

complete, and in any event not later than one hundred (100) days from the date of

such Discovery, Contractor shall by a further notice in writing to the Minister, the

Petroleum Commission, and GNPC, indicate whether in the opinion of Contractor

the Discovery merits Appraisal.



8.3



Where the Contractor does not make the indication required by Article 8.2 within

the period indicated or indicates that the Discovery does not merit Appraisal,

Contractor shall, subject to Article8.19, relinquish the Discovery Area associated

with the Discovery.



8.4



Where Contractor indicates that the Discovery merits Appraisal, Contractor shall

within one hundred and eighty (180) days from the date of such Discovery (or, in

the case of the Existing Discoveries, within nine (9) months from the Effective Date)

notify the Minister and submit to the Petroleum Commission for approval and to the

Minister for information purposes a Proposed Appraisal Programme to be carried

out by Contractor in respect of such Discovery. For the avoidance of doubt, unless

otherwise instructed by the Petroleum Commission, Contractor shall conduct a

separate Appraisal for each Discovery where Contractor indicates that such

Discovery merits Appraisal.



8.5



In the absence of regulations othenwise governing the process, the Petroleum

Commission and Contractor shall adhere to the procedure set forth in this Article

8.4 in connection with the submission of a Proposed Appraisal Programme. The

Petroleum Commission shall within sixty (60) days of submission of the Proposed

Appraisal Programme, give the Contractor a notice in writing stating:



35



(a)



whether the Proposed Appraisal Programme has been approved (outright

or conditionally) or not;



(b)



if not approved, any revisions or improvements required by the Petroleum

Commission to be made to the Proposed Appraisal Programme, and the

reasons therefor; or



(c)



if conditionally approved, the conditions to the approval of the Proposed

Appraisal Programme, and the reasons therefor.



(d)



If the Petroleum Commission fails to provide such notice after such sixty

(60) day period, such Proposed Appraisal Programme shall be deemed

approved.



(e)



If the Petroleum Commission notifies the Contractor that the Proposed

Appraisal Programme is not approved or the Contractor notifies the

Petroleum Commission that it does not accept the revisions or conditions

required for any approval pursuant to this Article 8.5, the Petroleum

Commission and the Contractor shall consult within thirty (30) days of the

earlier of (x) the date of the notice by the Petroleum Commission and (y)

the date such notice was due with a view to amending the Proposed

Appraisal Programme to be acceptable to both. Should the Petroleum

Commission not agree to so consult or should the Petroleum Commission

and the Contractor fail to agree changes required for such approval within

fourteen (14) days following said consultation. Contractor may notify the

Minister and request resolution. If the Minister is unable to resolve the

matter in a manner agreeable to all relevant Parties within thirty (30) days

from the date such notification was lodged, the resulting dispute arising out

of this Article 8.5 shall be resolved in accordance with Article 24.



(f)



If the Petroleum Commission has given a notice in writing pursuant to this

Article, and the Parties cannot agree on the revisions or conditions, then the

resulting dispute shall be submitted for resolution under Article 24



Where the issue in dispute referred for resolution pursuant to Article 24 is finally

decided in favour of Contractor, the Petroleum Commission shall forthwith give the

requisite approval to the Proposed Appraisal Programme submitted by Contractor,

and where the issue in dispute referred for resolution pursuant to Article 24 is finally

decided in favour of the Petroleum Commission, Contractor shall forthwith:

(a)



amend the Proposed Appraisal Programme to give effect to the final

decision rendered under Article 24, and the Petroleum Commission shall

give the requisite approval to such revised Proposed Appraisal Programme;

or



36



(b)



relinquish the Discovery Area.



8.7



Where Contractor seeks to amend an Appraisal Programme, it shall submit such

amendment to the JMC for review pursuant to Article 6.4((e) before submission to

the Petroleum Commission for approval.



8.8



Unless Contractor and the Petroleum Commission othenwise agree in any particular

case. Contractor shall have a period of two (2) years from the date of Discovery to

complete the Appraisal Programme. In the event Contractor requires a period of

more than the two (2) years to complete the Appraisal Programme, Contractor shall

submit a request to the Petroleum Commission for an extension with a firm

programme with timelines to justify the request.



8.9



Contractor shall commence Appraisal within one hundred and fifty (150) days from

the date of approval of the Appraisal Programme. Where the Contractor is unable

to commence or otherwise fails to commence Appraisal within one hundred and fifty

(150) days from the date of approval of the Appraisal Programme, GNPC shall be

entitled to exercise the option provided for in Article 9 to enable prompt Appraisal

unless Contractor has commenced Appraisal or obtained an extension of time for

such Appraisal, provided that if Contractor obtains an extension of time for such

Appraisal and has not commenced Appraisal prior to the end of such extension,

GNPC shall be entitled to exercise the option provided for in Article 9 to enable

prompt Appraisal.



8.10 Not later than ninety (90) days from the date on which said Appraisal Programme

relating to the Discovery is completed. Contractor will submit to the Minister and the

Petroleum Commission a report containing the results of the Appraisal Programme.

Such report shall include all available technical and economic data relevant to a

determination of commerciality, including, but not limited to, geological and

geophysical conditions, such as structural configuration, physical properties and the

extent of reservoir rocks, areas, thickness and depth of pay zones, pressure,

volume and temperature analysis of the reservoir fluids, preliminary estimates of

Crude Oil and/or Natural Gas reserves, recovery drive characteristics, anticipated

production performance per reservoir and per well, fluid characteristics, including

gravity, sulphur percentage, sediment and water percentage and refinery assay

pattern.



37



8.11 Not later than ninety (90) days from the date on which said Appraisal Programme

is completed Contractor shall, by a further notice in writing, inform the Petroleum

Commission and Minister whether the Discovery in the opinion of Contractor is or

is not a Commercial Discovery.



8.12 If Contractor fails to notify the Minister and the Petroleum Commission as provided

in Article 8.11 or informs the Minister that the Discovery is not a Commercial

Discovery, then subject to Article 8.19, Contractor shall relinquish such Discovery

Area; provided, however, that in appropriate cases, before declaring that a

Discovery is not a Commercial Discovery, Contractor shall consult with the other

Parties and may make appropriate representations proposing minor changes in the

fiscal and other provisions of this Agreement which may, in the opinion of

Contractor, affect the detennination of commerciality. The other Parties may, where

feasible, and in the best interests of the Parties agree to make such changes or

modifications in the existing arrangements.



8.13 If Contractor pursuant to Article 8.11 informs the Minister that the Discovery is a

Commercial Discovery, Contractor shall not later than three hundred and sixty five

(365) days thereafter, prepare and submit to the Minister, a Development Plan.



8.14 The Development Plan referred to in Article 8.13 shall be based on detailed

engineering studies and shall include:

(a)



Contractor's proposals on the delineation of the proposed Development and

Production Area and for the development of any reservoir(s), including the

method for the disposal of Associated Gas in accordance with the

provisions of Article 14;



(b)



the way in which the Development and Production of the resen/oir is

planned to be financed;



(c)



Contractor's proposals relating to the spacing, drilling and completion of

wells, the production, storage, processing, transportation, gas utilization,

delivery facilities and necessary infrastructure developments required for

the production, storage and transportation (to the Delivery Point) of the

Petroleum, including without limitation:

i)



the estimated number, size and production capacity of production

facilities if any;



38



ii)



the estimated number of Production wells;



iii)



the particulars of feasible alternatives for transportation of the

Petroleum, including pipelines;



iv)



the particulars of onshore installations required, including the type

and specifications or size thereof; and



v)



the particulars of other technical equipment required for the

operations;



(d)



the estimate of the reserves together with the estimated annual production

profiles throughout the life of the field to be developed pursuant to the

Development Plan for Crude Oil and Natural Gas from the Petroleum

reservoirs;



(e)



tie-ins with other petroleum fields where applicable;



(f)



information on operation and maintenance;



(g)



a description of technical solutions including enhanced recovery methods;



(h)



estimates of capital and operating expenditures;



(i)



the economic feasibility studies carried out by or for Contractor in respect

of alternative methods for Development of the Discovery, taking into

account:

i)

location;



ii)



(k)



ii)



water depth (where applicable);



iii)



meteorological conditions;



iv)



estimates of capital and operating expenditures; and



v)



any other relevant data and evaluation thereof;



the safety measures to be adopted in the course of the Development and

Production Operations, including measures to deal with emergencies;

environmental impact assessments as required by the applicable laws of

the Republic of Ghana in effect and as amended from time to time;



39



(I)



measures to protect the environment and a contingency plan for handling

of emergencies (including the provision and maintenance of equipment

stockpiles to respond to an emergency);



(m)



Contractor's proposals with respect to the procurement of goods and

services obtainable in Ghana;



(n)



Contractor's technology transfer plan;



(o)



Contractor's plan for training and employment of Ghanaian nationals;



(p)



the timetable for effecting Development Operations; and



(q)



a plan for decommissioning and abandonment.



8.15 The date of the Minister's approval of the Development Plan shall be the Date of

Commercial Discovery.



8.16 The Minister shall within the ninety (90) days following submission of the

Development Plan give Contractor a notice in writing stating:

(a)



whether or not the Development Plan as submitted has been approved or

conditionally approved; and



(b)



if not approved, any revisions proposed by the Minister to the Development

Plan as submitted, and the reasons thereof; or



(c)



if conditionally approved, any

Development Plan is approved.



(d)



If the Minister fails to approve the Development Plan within the ninety (90)

day time period described above, then the Development Plan shall be

deemed approved.



(e)



Where the Minister notifies the Contractor that the Development Plan is not

approved the Parties shall within a period of thirty (30) days from the date

of such notice by the Minister consult (and shall include GNPC in such

consultations) with a view to amending the Development Plan to be

acceptable to both. Should the Minister not agree to so consult or should

the Minister and the Contractor fail to agree changes required for such

approval within fourteen (14) days following said thirty (30) day period, the



40



conditions



pursuant



to



which



the



resulting dispute arising out of this Article 8.16 shall be resolved in

accordance with Article 24.

(f)



If the Minister has given a notice in writing pursuant to clause ((b) or ((c),

and the Parties cannot agree on the revisions or conditions, then the

resulting dispute shall be submitted for resolution under Article 24.



8.17 Where the issue in dispute referred for resolution pursuant to Article 24 is finally

decided in favour of Contractor, the Minister shall forthwith give the requisite

approval to the Development Plan submitted by Contractor.



8.18 Where the issue in question referred for resolution pursuant to Article 24 is finally

decided in favour of the Minister in whole or in part. Contractor shall forthwith:

(a)



amend the proposed Development Plan to give effect to the final decision

rendered under Article 24, and the Minister shall give the requisite approval

to such revised Development Plan; or



(b)



subject to Article 8.19 below relinquish the Discovery Area.



8.19 Notwithstanding the relinquishment provisions of Articles 8.3 and 8.12 above, if

Contractor indicates that a Discovery does not at the time merit Appraisal, or after

Appraisal does not appear to be a Commercial Discovery but may merit Appraisal

or potentially become a Commercial Discovery at a later date during the Exploration

Period, then Contractor need not relinquish the Discovery Area and may continue

its Exploration Operations in the Contract Area during the Exploration Period;

provided that the Contractor shall explain to the Minister and Petroleum

Commission what additional evaluations, including Exploration work or studies, are

or may be planned in order to detemnine whether subsequent Appraisal is

warranted or that the Discovery is a Commercial Discovery and the Minister shall

approve of any such non relinquishment. Such evaluations shall be performed by

Contractor according to a specific time table (which shall not exceed the time frame

specified under Article 8.20) to be approved by the JMC and Petroleum

Commission, subject to Contractor's right of eariier relinquishment of the Discovery

Area. After completion of the evaluations, Contractor shall make the indications

called for under Article 8.3 or 8.12 and either proceed with Appraisal, confirm the

Discovery is a Commercial Discovery or relinquish the Discovery Area.



8.20 In any case, if a Discovery is made in the Initial Exploration Period or First Extension

Period, the Contractor shall by the end of the subsequent phase (that is the First

41



Extension Period or Second Extension Period as ttie case may be), tal
to Appraise ttie Discovery or relinquisli such Discovery. Lil
has completed the Appraisal of a Discovery in the Initial Exploration Period or First

Extension Period, the Contractor shall by the end of the subsequent phase (that is,

the First Extension Period or Second Extension Period as the case may be), take

a decision to determine if such Discovery is a Commercial Discovery or relinquish

such Discovery. In any event, if at the end of the Exploration Period the Contractor

has neither indicated its intent to proceed with an Appraisal Programme nor

declared the Discovery to be a Commercial Discovery, then the Discovery Area

shall be relinquished.



8.21 Upon completion of an Appraisal Programme and before Contractor makes a

determination that any Discovery is not a Commercial Discovery, Contractor may

consult with the other Parties and may make appropriate representations proposing

minor changes in the fiscal and other provisions of this Agreement which may, in

the opinion of Contractor, affect the determination of a Commercial Discovery. The

other Parties may agree to make such changes or modifications in the existing

arrangements. In the event the Parties do not agree on such changes or

modifications, then subject to Articles 8.19 and 8.20, Contractor shall relinquish the

Discovery Area.



8.22 Nothing in Articles 8.3, 8.12, 8.19 or 8.20 above shall be read or construed as

requiring Contractor to relinquish:

(a)



(b)



any area which constitutes or forms part of another Discovery Area in

respect of which:

i)



Contractor has given the Minister, the Petroleum Commission and

GNPC a separate notice stating that such Discovery merits

Appraisal; or



ii)



Contractor has given the Minister a separate notice indicating that

such Discovery is a Commercial Discovery; or



any area which constitutes or fonns part of a Development and Production

Area.



8.23 For the avoidance of doubt, where Contractor makes a Discovery after the

expiration of the Exploration Period Contractor shall notify the Minister of such



42



Discovery pursuant to Article 8.1 and, subject to its rights under Article 3, surrender

such Discovery to GNPC.



8.24 In the event a field extends beyond the boundaries of the Contract Area, the

Minister may require the Contractor to exploit said field in association with the third

party holding the rights and obligations under a petroleum agreement covering the

said field (or GNPC as the case may be). The exploitation in association with said

third party or GNPC shall be pursuant to good unitization and engineering principles

and in accordance with Intemational Best Oil Field Practice. In the event Contractor

and said third party are unable to agree to the terms of unitization. Contractor shall

notify the Minister in writing and the Minister shall give appropriate directions to

Contractor and the third party or GNPC to resolve the matter in accordance with

Intemational Best Oil Field Practice.



8.25 All notices required to be submitted to the Minister under this Article 8 shall be

copied to the Petroleum Commission.



43



Article 9

SOLE RISK ACCOUNT

9.1



Subject to Contractors rights under Article 8, GNPC may notify Contractor that it

will, at its Sole Risk, commence to appraise a Discovery pursuant to Article 8.9,

provided that within thirty (30) days of such notification from GNPC, Contractor may

elect to commence to appraise that Discovery within its own Work Programme.



9.2



Where an Appraisal undertaken under Article 9 at the Sole Risk of GNPC results in

a determination that a Discovery is a Commercial Discovery, Contractor may

develop the Commercial Discovery upon reimbursement to GNPC of all expenses

incurred in undertaking the Appraisal and after arranging with GNPC satisfactory

terms for the payment of a premium equivalent to seven hundred percent (700%)

of such expenses. Such premium shall not be counted as cost of Petroleum

Operations for the purpose of the Accounting Guide. In the event that Contractor

declines to develop said Discovery, Contractor shall relinquish the Development

and Production Area established by the Appraisal Programme conducted by GNPC

under Article 9.



9.3



During the Exploration Period GNPC may, at its Sole Risk, require Contractor to

continue drilling to penetrate and test horizons deeper than those contained in the

Work Programme of Contractor or required under Article 4.5. GNPC may also at

its Sole Risk ask the Contractor to test a zone or zones which Contractor has not

included in Contractor's test programme. Notice of this shall be given to Contractor

in writing as early as possible prior to or during the drilling of the well, but in any

case not after Contractor has begun work to complete or abandon the well. The

exercise by GNPC of this right shall be in an agreed manner (such agreement not

to be unreasonably withheld or delayed by Contractor) which does not prevent

Contractor from complying with its work obligations under Article 4.3.



• 9.4



At any time before commencing such deeper drilling under Article 9.3 above

Contractor may elect to incorporate the required deeper drilling in its own

Exploration Operation, in which case any resulting Discovery shall not be affected

by the provisions of this Article 9.



9.5



Where any Sole Risk deeper drilling results in a Discovery, GNPC shall have the

right, at its Sole Risk, to appraise, develop, produce and dispose of all Petroleum

resulting from such Sole Risk deeper drilling and shall conduct such Sole Risk

operations unless GNPC proposes othenvise and Contractor agrees. Provided

44



however that if at the time such Petroleum is tested from the producing horizon in

a well, Contractor's Work Programme includes a well or wells to be drilled to the

same producing horizon, and provided that the well or wells drilled by Contractor

result(s) in a Petroleum producing well producing from the same horizon. Contractor

shall, after reimbursing GNPC for all costs associated with its Sole Risk deeper

drilling and testing in said well, have the right to include production from that well in

its total production for the purposes of establishing a Commercial Discovery, and,

if a Commercial Discovery is subsequently established, to develop, produce and

dispose of the Petroleum in accordance with the provisions of this Agreement.



9.6



Alternatively, if at the time such Petroleum is tested from a producing horizon in a

well pursuant to a Sole Risk operation. Contractor's Work Programme does not

include a well to be drilled to said horizon. Contractor has the option to appraise

and /or develop, as the case may be, the Discovery for its account under the temris

of this Agreement if it so elects within a period of sixty (60) days after such

Discovery. In such case. Contractor shall reimburse GNPC for all expenses

incurred by GNPC in connection with such Sole Risk operations, and shall make

satisfactory arrangements with GNPC for the payment of a premium equivalent to

seven hundred percent (700%) of such expenses. Such premium shall not be

considered as Petroleum Costs for the purposes of the Accounting Guide.



9.7



During the term of this Agreement, GNPC shall have the right to submit a Work

Programme to the JMC to drill, at its Sole Risk, a well(s) in the Contract Area

provided that the work intended to be done by GNPC had not been scheduled for

a Work Programme to be performed by Contractor and the exercise of such right

by GNPC and the arrangements made by GNPC for undertaking such drilling do

not prevent Contractor carrying out Petroleum Operations. Within thirty (30) days

after receipt of such notice. Contractor may elect to drill the proposed well(s) as part

of Contractor's Exploration Operations or may elect to participate in the well to be

drilled by GNPC.



9.8



In the event that a well drilled at the Sole Risk of GNPC in accordance with Article

9.7 above results in a Discovery, GNPC shall notify Contractor in writing, and GNPC

shall have the right to appraise such Discovery and develop or require Contractor

to develop, after GNPC declares a Commercial Discovery, such Discovery for a

mutually agreed reasonable service fee, so long as Contractor has an interest in

the Contract Area, GNPC taking all the interest, risk and costs and hence having

the right to all Petroleum produced from the Commercial Discovery; provided

however that Contractor has the option to appraise and/or develop, as the case

may be, the Discovery for its account under the terms of this Agreement if it so

45



elects within a period of sixty (60) days after receipt of GNPC's written notice of

such Discovery.



9.9



Contractor shall reimburse GNPC for all expenses incurred by GNPC in connection

with such Sole Risk operations, and shall make satisfactory arrangements with

GNPC for the payment of a premium equivalent to seven hundred percent (700%)

of such expenses before exercising the option under Article 9.8. Such premium

shall not be considered as Petroleum Costs for the purposes of the Accounting

Guide.



9.10 In the event that Contractor declines to exercise its option in Article 9.8 or no

agreement is reached on the service fee an^angement as provided for in Article 9.9,

Contractor shall relinquish the Development and Production Area associated with

such Commercial Discovery.



9.11 Sole Risk operations under this Article 9 shall not extend the Exploration Period nor

the term of this Agreement and Contractor shall complete any agreed programme

of work commenced by it under this Article at GNPC's Sole Risk, and subject to

such provisions hereof as the Parties shall then agree, even though the Exploration

Period as defined in Article 3 or the term of this Agreement may have expired.



9.12 GNPC shall indemnify and hold hannless Contractor against all actions, claims,

demands and proceedings whatsoever brought by any third party or the State,

arising out of or in connection with Sole Risk operations under this Article 9 unless

such actions, claims, demands and proceedings are caused by Contractor's Gross

Negligence or Willful Misconduct.



46



Article 10

SHARING OF CRUDE OIL

10.1



Gross Production of Crude Oil from each Development and Production Area shall

(subject to a Calendar Year adjustment developed under the provisions of Article

10.6) be distributed amongst the Parties in the following sequence and proportions:

(a)



Twelve and one-half percent (1214%) in the case of a New Discovery and

ten percent (10%) for Existing Discoveries of the Gross Production of Crude

Oil shall be delivered to the State as ROYALTY, pursuant to the provisions

of the Petroleum Law. Upon notice to Contractor, the State shall have the

right to elect to receive cash in lieu of its royalty share of such Crude Oil.

The State's notice shall be given to Contractor at least ninety (90) days in

advance of each lifting period, such periods to be established pursuant to

the provisions of Article 10.6. In such case, said share of Crude Oil shall

be delivered to Contractor and it shall pay to the State the value of said

share in cash at the relevant weighted average Market Price for the relevant

period as determined in accordance with Article 11.7;



(b)



After distribution of such amounts of Crude Oil as are required pursuant to

Article 10.1(a), the amount of Crude Oil, if any, shall be delivered to GNPC

to the extent it is entitled for Sole Risk operations under Article 9;



(c)



After distribution of such amounts of Petroleum as are required pursuant to

Articles 10.1(a) and 10.1(b), the remaining Crude Oil produced from each

Development and Production Area shall be distributed to Contractor and,

subject to Article 10.1(e) below, to GNPC on the basis of their respective

interests pursuant to Article 2.



(d)



The State's AOE (as defined under Article 10.2), if any, shall be distributed

to the State out of the Contractor's share of Crude Oil determined under

Article 10.1(c). The State shall also have the right to elect to receive cash

in lieu of the AOE share of Crude Oil accorded to it pursuant to Articlel0.2.

Notification of said election shall be given in the same notice in which the

State notifies Contractor of its election to receive cash in lieu of Crude Oil

under Article 10.1(a). In such case, said share shall be delivered to

Contractor and it shall pay to the State the value of said share in cash at the

relevant weighted average Market Price for the relevant period as

determined in accordance with Article



47



(e)



Notwithstanding Articles 10.1(a) and (b), in the event that GNPC has failed

to pay any amounts due to Contractor pursuant to Article 15.2 of this

Agreement (such amounts with interest thereon in accordance with Article

26.5 being hereinafter called "Default Amounts") and for so long as any

such advances and interest thereon remain unrecovered by Contractor, an

amount of Crude Oil shall be delivered to GNPC sufficient in value to

reimburse it for its share of Production Costs paid by it to that date, until

such share of Production Costs has been fully reimbursed to it, after which

a volume of Crude Oil shall be delivered to Contractor equivalent in value

to the outstanding amounts of the aforesaid Default Amounts until such

Default Amounts are fully recovered by Contractor. The value of the Crude

Oil for the purpose of this Article 10.1(e) shall be the Market Price

determined pursuant to Article 11.7.



2 At any time the State shall be entitled to a portion of Contractor's share of Crude

Oil then being produced from each separate Development and Production Area

(hereinafter referred to as "Additional Oil Entitlements" or "AOE") on the basis of

the after-tax post-inflation-adjusted rate of return ("ROR") which Contractor has

achieved with respect to such Development and Production Area as of that time.

Contractor's ROR shall be calculated on its NCF and shall be determined

separately for each Development and Production Area at the end of each Month in

accordance with the following computation:

(a)



Definitions:

"NCF" means Contractor's net cash flow for the Month for which the

calculation is being made, and shall be computed in accordance with the

following formula:

NCF=x-y-z

where:

"x"

equals all revenues received during such Month by Contractor from

the Development and Production Area, including an amount computed by

multiplying the amount of Crude Oil taken by Contractor during such Month

in accordance with Articles 00 and 0(e), excluding such Crude Oil taken by

Contractor for payment of interest in respect of Petroleum Costs incurred

by Contractor on GNPC's behalf, by the Market Price applicable to such

Crude Oil during the Month when lifted, plus any other proceeds specified

in the Accounting Guide received by Contractor, including, without

limitation, the proceeds from the sale of any assets to which Contractor

continues to have title. For the avoidance of doubt, "x" shall not include

48



revenues from Crude Oil lifted by Contractor which is part of another Party's

entitlement (e.g. Royalty, Crude Oil relating to the State's AOE delivered to

Contractor because the State has elected to receive cash in lieu of Crude

Oil, Crude Oil purchased by Contractor from GNPC or the State) but shall

include revenues from Crude Oil owned by Contractor but lifted by another

Party (e.g. Crude Oil purchased by GNPC or the State from Contractor).



"y"

equals one-twelfthzyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA

(V12) of the income tax paid by the Contractor to

the State with respect to the Calendar Year in respect of the Development

and Production Area. If there are two (2) or more Development and

Production Areas, the total income tax paid by Contractor in accordance

with the Petroleum Income Tax Law shall for purposes of this calculation be

allocated to the Development and Production Area on the basis of

hypothetical tax calculations for the separate Development and Production

Areas. The hypothetical tax calculation for each Development and

Production Area shall be determined by allocating the total amount of tax

incurred for each Calendar Year by Contractor under the Petroleum Income

Tax Law to each Development and Production Area based on the ratio that

the chargeable income from a given Development and Production Area

bears to the total chargeable income of Contractor. The chargeable income

of Contractor is determined under section 2 of the Petroleum Income Tax

Law and the chargeable income of a Development and Production Area

shall be calculated by deducting from the gross income derived from or

allocated to that Area those expenses deductible under section 3 of the

Petroleum Income Tax Law which are reasonably allocable to that Area and

with respect to the Development and Production Area with the earliest date

of Commercial Production, those expenses deductible under the said

section 3 of the Petroleum Income Tax Law which are not attributable to

any Development and Production Area. A negative chargeable income for

an Area shall be treated as zero for purposes of this allocation and not more

(or less) than the total income tax paid by Contractor shall be allocated

between the Areas.



"z" equals all Petroleum Costs specified in the Accounting Guide and

expended by Contractor during such Month or with respect to abandonment

costs, those calculated in accordance with Article 12.9 or actually incurred,

as the case may be, with respect to the Development and Production Area,

including any Petroleum Costs paid by Contractor on GNPC's behalf, and

not reimbursed by GNPC within the Month, provided that all Petroleum

Costs for Exploration Operations not directly attributable to a specific

Development and Production Area shall for purposes of this calculation be

49



allocated to the Development and Production Area having the earliest date

of Commencement of Commercial Production. Where Petroleum Costs for

Exploration Operations are not directly attributable to a specific

Development and Production Area during a Month, but are directly

attributable to a subsequently delineated Development and Production

Area, then Contractor may elect either to maintain the original allocation or

reallocate such Petroleum Costs to the newly delineated Development and

Production Area to which they are directly attributable and provided further

that for the purpose of the ROR calculation Petroleum Costs shall not

include any amounts in respect of interest on loans obtained for the

purposes of canying out Petroleum Operations.

TAn", "SAn", "TAn", "YAn" and "ZAn" means First Account, Second Account,

Third Account, Fourth Account and Fifth Account, respectively, and

represent amounts as of the last day of the Month in question as determined

by the formulae in (b) below.

"FAn.i", "SAn.i", "TAn-i", "YAn-i", and "ZAn-i", respectively mean the lesser



of (i) the FAn, SAn, TAn, YAn or ZAn, as the case may be, as of the last day

of the Month immediately preceding the Month in question, or (ii) zero.

Stated othenwise, FAn-i shall equal FAn as of the last day of the Month

immediately preceding the Month in question if such FAn was a negative

number, but shall equal zero if such FAn was a positive number. Likewise,

SAn-1 shall equal SAn as of the last day of the Month immediately preceding

the Month in question if such SAn was a negative number, but shall equal

zero if such SAn was a positive number. Likewise TAn-i shall equal TAn as

of the last day of the Month immediately preceding the Month in question if

such TAn was a negative number, but shall equal zero if such TAn was a

positive number. Likewise YAn-i shall equal YAn as of the last day of the

Month immediately preceding the Month in question if such YA n was a

negative number but shall equal zero if such TAn was a positive number.

Likewise, ZAn-i shall equal ZAn as of the last day of the Month immediately

preceding the Month in question if such ZAn was a negative number, but

shall equal zero if such ZAn was a positive number. In the ROR calculation

for the first Month of Petroleum Operations, FAn-i, SAn-i, TAn-i, YAn-i and

ZAn-1 shall be zero.

"i" for the Month in question equals one (1) subtracted from the quotient of

the United States Industrial Goods Wholesale Price Index ("USIGWPI") for

the second Month preceding the Month in question (e.g. use August data

for October's computation) as first reported in the International Financial

statistics of the Intemational Monetary Fund, divided by the USIGWPI for

the same second preceding Month of the immediately preceding Calendar

50



Year as first reported inzyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA

the

Intemational Financial Statistics of the

Intemational Monetary Fund. If the USIGWPI ceases to be published, a

substitute U.S. Dollar-based price index shall be used.

"n" refers to the nth Month in question.

"n-1" refers to the Month immediately preceding the nth Month

Fomiulae:

FA



FA



SA



( 0 . 1 2 5 + /•)

12



n- l



fl+

V



+



NCF



(0 175+ / ) zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFED

+ NCF

12



In the calculation of SAn an amount shall be subtracted from NCF identical

to the value of any AOE which would be due to the State if reference were

made hereunder only to the FAn.



TA „ =



TA



fl+



I



(0-225+ / )

12



+



NCF



In the calculation of TAn an amount shall be subtracted from NCF identical

to the value of any AOE which would be due to the State if reference were

made hereunder only to the FAn and SAn.

YA „ =



YA



fl



I



,



(0.275+/)^



+



NCF



J



12



In the calculation of YAn an amount shall be subtracted from NCF identical

to the value of any AOE which would be due to the State if reference were

made hereunder only to the FAn, SAn and TAn

ZA



ZA



(O . 325 + /• )

1 +



12



51



+



NCF



In the calculation of ZAn an amount shall be subtracted from NCF identical

to the value of any A O E which would be due to the State if reference were

made hereunder only to the FAn, SAn, TAn and YAn.



(c) Prospective Application:

The State's AOE measured in Barrels of oil will be as follows:

i)



If FAn, SAn, TAn, YAn and ZAn are all negative, the State's AOE for

the Month in question shall be Zero;



ii)



If FAn is positive and SAn, TAn, YAn and ZAn are all negative, the

State's AOE for the Month in question shall be equal to the absolute

amount resulting from the following monetary calculation:

Ten percent (10%) of the FAn for that Month divided by the weighted

average Market Price as determined in accordance with Article 11.7.



iii)



If both FAn and SAn are positive, but TAn, YAn and ZAn are negative,

the State's AOE for the Month in question shall be equal to an

absolute amount resulting from the following monetary calculation:

the aggregate of Ten percent (10%) of FAn for that Month plus fifteen

percent (15%) of the SAn for that Month all divided by the weighted

average Market Price as determined in accordance with Article 11.7.



iv)



If FAn, SAn and TAn are all positive but YAn and ZAn is negative, the

State's AOE for the Month in question shall be equal to the absolute

amount resulting from the following monetary calculation: the

aggregate of Tenpercent (10%) of the FAn for that Month plus fifteen

percent (15%) of the SAn for that Month plus Twenty percent (20%)

of the TAn for that Month all divided by the weighted average Market

Price as determined in accordance with Article 11.7.



v)



If FAn, SAn, TAn and YAn are all positive but ZAn is negative, the

State's AOE for the Month in question shall be equal to the absolute

amount resulting from the following monetary calculation:

the aggregate of Ten percent (10%) of the FAn for that Month plus

Fifteen percent (15%) of the SAn for that Month plus Twenty percent

(20%) of the TAn for that Month plus Twenty five percent (25%) of

the YAn for that Month all divided by the weighted average Market

Price as detemnined in accordance with Article 11.7



vi)



If FAn, SAn, TAn, YAn and ZAn are all positive, the State's AOE for the

Month in question shall be equal to the absolute amount resulting

from the following monetary calculation:

52



the aggregate of Ten percent (10%) of the FAn for that Month plus

Fifteen percent (15%) of the SAn for that Month plus Twenty percent

(20%) of the TAn for that Month plus Twenty five percent (25%) of

the YAn for that Month, plus Thirty percent (30%) of the ZAn for that

Month all divided by the weighted average Market Price as

determined in accordance with Article 11.7.

(d)



The AOE calculations shall be made in U.S. Dollars with all non-dollar

expenditures converted to U.S. Dollars in accordance with Section 1.3.5 of

Annex 2. When the AOE calculation cannot be definitively made because

of disagreement on the Market Price or any other factor in the formulae,

then a provisional AOE calculation shall be made on the basis of

Contractor's good faith estimates of such factors and such provisional

calculation shall be subject to correction and revision upon the conclusive

determination of such factors, and appropriate retroactive adjustments shall

be made.



(e)



The AOE shall be calculated on a monthly basis, with the AOE to be paid

commencing with the first Month following the Month in which the FAn, SAn,

TAn, YAn or ZAn, (as applicable) becomes positive. Because the precise

amount of the AOE for a Calendar Year, deliveries (or payments in lieu) of

the AOE with respect to a Month shall be made during such Calendar Year

based upon the Contractor's good faith estimates of the amounts owing,

with any adjustments following the end of the Calendar Year to be settled

pursuant to the procedures agreed to pursuant to Article 10.7. Final

calculations of the AOE shall be made within thirty (30) days following the

filing by the Contractor of the annual tax return for such Calendar Year

pursuant to the Petroleum Income Tax Law and this Agreement, and the

amount of the AOE shall be appropriately adjusted in the event of a

subsequent adjustment of the amount of tax owing on such term.



10.3 GNPC shall act as agent for the State in the collection of all Petroleum accruing to

the State under this Article 10 and delivery to GNPC by Contractor shall discharge

Contractor's liability to deliver the share of the State.



10.4 The State or GNPC, having met the requirements of Article 15.1, may elect, in

accordance with terms and conditions to be mutually agreed by the Parties, that all

or part of the Crude Oil to be distributed to the State or to GNPC pursuant to this

Article shall be sold and delivered by the State or GNPC to Contractor or its Affiliate

for use and disposal and in such case Contractor or its Affiliate shall pay to the

State or to GNPC, as the case may be, the Market Price for any Crude Oil so sold

53



and delivered. Market Price for purposes of this Article 10.3 shall be the amounts

actually realized by Contractor or said Affiliate on its resales of said Crude Oil in

arm's length commercial transactions, or for its other resales or dispositions of said

Crude Oil, based upon Market Price determined in the manner specified in Article

11.7(b).



10.5 Ownership and risk of loss of all Crude Oil produced from the Contract Area which

is purchased, and all of its percentage Participating Interest or other Crude Oil lifted,

by Contractor shall pass to Contractor at the outlet flange (the ("Delivery Point") of

the marine terminal or other storage facility for loading into tankers or other

transportation equipment referred to in Article 11.1



10.6 Subject to the provisions of Article 15 hereof. Contractor shall have the right freely

to export and dispose of all the Petroleum allocated and/or delivered to it pursuant

to this Article.



10.7 The Parties shall through consultation enter into supplementary agreements

concerning Crude Oil lifting procedures, lifting and tanker schedules, loading

conditions. Crude Oil metering, and the settlement of lifting imbalances, if any,

among the Parties at the end of each Calendar Year. The Crude Oil to be

distributed or othenwise made available to the Parties in each Calendar Year in

accordance with the preceding provisions of this Article shall insofar as possible be

in reasonably equal monthly quantities.



10.8 To assist in the making of the AOE calculation in accordance with Articlel 0.2, there

is attached as Annex 4 to this Agreement a worked example of the calculation using

hypothetical figures, rates and thresholds, for the purpose of illustration only.



54



Article 11

MEASUREMENT AND PRICING OF CRUDE OIL

11.1 Crude Oil shall be delivered by Contractor to storage tanks or other suitable holding

facility constructed, maintained and operated in accordance with applicable laws

and International Best Oilfield Practice. Crude Oil shall be metered or othenwise

measured for quantity and tested for quality in such storage tanks for all purposes

of this Agreement. Any Party may request that measurements and tests be done

by an internationally recognized inspection company. Contractor shall arrange and

pay for the conduct of any measurement or test so requested provided, however,

that in the case of (1) a test requested for quality purposes and/or (2) a test

requested on metering (or measurement) devices, or where the test results

demonstrate that such devices are accurate within acceptable tolerances agreed to

by the Parties or if not established by the Parties, then in accordance with

International Best Oil Field Practice, the Party requesting the test shall reimburse

Contractor for the costs associated with the test or tests.



11.2 GNPC or its authorized agents shall have the right:

(a)



to be present at and to observe such measurement of Crude Oil;



(b)



to examine and test whatever appliances are used by Contractor therefore;

and



(c)



to install a device or equipment, at GNPC's sole risk, expense and liability,

for the purpose of determining the quantity and quality of Crude Oil.



11.3 In the event that GNPC considers Contractor's methods of measurement to be

inaccurate, GNPC shall notify Contractor to this effect and the Parties shall meet

within ten (10) days of such notification to discuss the matter. Where after thirty

(30) days the Parties cannot agree over the issue, they shall refer for resolution

under Article 24 the sole question of whether Contractor's method of measuring

Crude Oil is accurate and reasonable.

Retrospective adjustments to

measurements shall be made where necessary to give effect to the decision

rendered under Article 24.



11.4 If upon the examination or testing of appliances provided for in Article 11.2 any such

appliances shall be discovered to be defective:

(a) Contractor shall take immediate steps to repair or replace such appliance;

and



55



(b) subject to the establishment of the contrary, such error shall be deemed to

have existed for three (3) Months or since the date of the last examination

and testing, whichever occurred more recently.

11.5 In the event that Contractor desires to adjust, repair or replace any measuring

appliance, it shall give GNPC reasonable notice to enable GNPC or its authorized

agent to be present.



11.6 Contractor shall keep full and accurate accounts concerning all Petroleum

measured as aforesaid and provide GNPC with copies thereof on a monthly basis,

not later than ten (10) days after the end of each Month.



11.7 The Market Price for Crude Oil delivered to Contractor hereunder shall be

established with respect to each lifting or other period as provided elsewhere in this

Agreement as follows:

(a)



on Crude Oil sold by Contractor in arm's length commercial transactions

(defined in Article 11.7((c) below), the Market Price shall be the price

actually realized by Contractor on such sales;



(b)



on sales of Crude Oil by Contractor not in an "arm's length commercial

transaction" (defined by Article 11.7((c) below), on exports by Contractor

without sale or on sales under Article 15.2, the Market Price shall be the

price detennined by reference to world market prices of comparable Crude

Oils sold in arm's length transactions for export in the major world petroleum

markets, and adjusted for oil quality, location, timing and conditions of

pricing, delivery and payment provided that in the case of sales under Article

15.2 where such sales relate to part only of Contractor's entitlement, prices

actually realized by Contractor in sales of the balance of its proportionate

share falling within Article 11.7((a) above shall be taken into account in

determining Market Price.

For purposes of this Article 11.7((b),

"comparable Crude Oils" shall mean Crude Oils of similar API gravity,

sulphur content, and acidity, and if Contractor cannot identify comparable

Crude Oils for the purposes of this Article, the Parties may agree on an

alternative method for establishing a comparable Crude Oil;



(c)



sales in "ami's length commercial transactions" shall mean sales to

purchasers independent of the seller, which do not involve Crude Oil

exchange or barter transactions, government to government transaction,

sales directly or indirectly to Affiliates, or sales involving consideration other

than payment in U.S. Dollars or currencies convertible thereto, or affected

in whole or in part by considerations other than the usual economic

incentives for commercial arm's length Crude Oil sales;



56



(d)



the price of Crude Oil shall be expressed in U.S. Dollars per Barrel, F.O.B.

the point of delivery by Contractor; and



(e)



if Crude Oils of various qualities are produced from the Contract Area, the

Market Price shall be determined separately for each type sold and/or

exported by Contractor, only to the extent that the different quality grades

remain segregated through to the point where they are sold, and if grades

of different quality are commingled into a common stream. Contractor and

GNPC shall agree on an equitable methodology for assessing relative value

for each grade of Crude Oil comprising the blend and shall implement the

agreed methodology for having the producer(s) of higher quality Crude

Oil(s) be reimbursed by the producer(s) of lower quality Crude Oil(s).



11.8 Contractor shall provide to GNPC information in accordance with Section 7 of the

Accounting Guide on each lifting which shall include the buyer of the cargo, sales

basis with respect to benchmark Crude Oil, the pricing basis, the differential, any

deductions and the Market Price determined by it for each lifting not later than thirty

five (35) days after the end of such lifting. For the purposes of this Article 11.8 the

obligations of Parties comprising Contractor shall be several.



11.9 If GNPC considers that the Market Price notified by Contractor was not correctly

determined in accordance with the provisions of Article 11.7, it shall so notify

Contractor not later than thirty (30) days after notification by Contractor of such

price, and GNPC and Contractor shall meet not later than twenty (20) days

thereafter to agree on the correct Market Price.



11.10 In the event that GNPC and Contractor fail to agree upon the commencement of

meetings for the purpose described in Article 11.9 above, the Market Price shall be

referred for determination in accordance with Article 24 of this Agreement.



11.11 Pending a determination under Article 11.10, the Market Price will be deemed to be

the last Market Price agreed or detemriined, as the case may be, or if there has

been no such previous agreement or determination, the price notified by Contractor

for the lifting in question under Article 11.7. Should the determined price be different

from that used in accordance with the foregoing then the difference plus interest at

the Specified Rate shall be paid in cash by or to Contractor, as the case may be,

within thirty (30) days of such determination.



57



Article 12

TAXATION AND OTHER IMPOSTS

12.1 Subject to applicable laws and regulations as the same may be amended from

time to time, the tax, duty, fee and other imposts that shall be imposed by the

State or any entity or any political subdivision on Contractor, its Subcontractors or

its Affiliates and shareholders in respect of work and services related to Petroleum

Operations and the sale and export of Petroleum shall include, but not be limited

to, the following:

(a)



Tax in accordance with the

time;



Income Tax Act as amended from time to



(b)



Petroleum Income tax in accordance with the provisions of the Income

Tax Act levied at the rate of thirty-five percent (35%) for the temri of this

Agreement., subject to applicable law in effect from time to time;



(c)zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA

Withholding tax at a rate of fifteen per cent (15%) shall be deducted from

payments by Contractor to a Subcontractor or Affiliate in respect of works

and services for or in connection with this Agreement.;

(d)



Withholding tax at the rate of eight percent (8%) shall be deducted from

dividends paid to shareholders;



(e)



Gains/profit arising from the sale, transfer, disposal or assignment of any

interest in this Agreement and sale of assets shall be subject to tax in

accordance with the provisions of the Income Tax Act



(f)



Payments for rental of State property, public lands or for the provisions of

specific services requested by Contractor from public enterprises;

provided, however, that the rates charged Contractor for such rentals or

services shall not exceed the prevailing rates charged to other members

of the public who receive similar services or rentals;



(g)



Surface rentals payable to the State pursuant to Section 18 of the

Petroleum Law per square kilometre of the area remaining at the

beginning of each Contract Year as part of the Contract Area, in the

amounts as set forth below:

Phase of Operation



Surface Rentals Per Annum



Initial Exploration Period



US $50 per sq. km.



First Extension Period



US $100 per sq. km.



Second Extension Period



US $100 per sq. k m . ^



58



Development & Production Area



US $200 per sq. km.



These rentals shall be pro-rated where the beginning of a Period and the end of

a Period or the creation of a Development and Production Area occurs during the

course of a Calendar Year.

(h) Taxes, duties, fees or other imposts of a minor nature.



12.2 Contractor shall not be liable for any export tax on Petroleum exported from

Ghana and no duty or other charge shall be levied on such exports. Vessels or

other means of transport used in the export of Contractors Petroleum from Ghana

shall not be liable for any tax, duty or other charge by reason of their use for that

purpose.



12.3 Subject to the local purchase obligations hereunder, Contractor and

Subcontractors may import into Ghana all plant, equipment and materials to be

used solely and exclusively in the conduct of Petroleum Operations without

payment of customs and other duties and taxes on imports save administrative

fees and charges;

PROVIDED THAT:

(a)



GNPC shall have the right of first refusal for any item imported duty

free under this Article which is later sold in Ghana; and



(b)



where GNPC does not exercise its right of purchase. Contractor

may sell to any other person subject to the relevant law in effect and as

amended from time to time.



12.4 Contractor shall not be liable to pay VAT in respect of plant, equipment and

materials, and related services supplied in Ghana, to be used solely and

exclusively in the conduct of Petroleum Operations.



12.5 Foreign National Employees of Contractor or its Affiliates, and of its

Subcontractors, shall be permitted to import Into Ghana free of import duty, their

personal and household effects in accordance with Section 22.7 of PNDCL 64;

provided, however, that no property imported by such employee shall be resold by

such employee in Ghana except in accordance with Article 12.3 zyxwvutsrqponmlkjihgfedcbaZYXWV

/Q



12.6 Subject to GNPC's rights under 19, Contractor, Subcontractors and Foreign

National Employees shall have the right to export from Ghana all items imported

duty free. Such exports shall be exempt from all customs and other duties, taxes,

fees and charges on exports save minor administrative charges.



12.7 Subject to guidelines to be issued by the Minister, the Contractor shall make

contributions to a decommission fund based on estimated costs of abandonment

in proportion to its Participating Interest. Such contributions shall be allowed as

deduction from assessable income from the year of assessment the contributions

commenced. In the year of assessment in respect of which decommission has

been completed in accordance with an approved decommission plan, the surplus

funds shall be treated as chargeable income and subject to tax. The amount left

after the tax shall be subject to Additional Oil Entitlement at the highest rate at

which the Contractor paid AOE during the period of contributions to the relevant

decommission fund. Any surplus after payment of the tax and AOE shall revert to

the Contractor.



12.8 Parties will negotiate in good faith to ensure that Contractor is afforded tax credits

for corporate taxes paid in Ghana. However no adverse effect should occur to the

economic rights of GNPC or the State.



12.9 It is the intent of the Parties that payments by Contractor of tax levied by the

Income Tax Act or any other tax imposed on Contractor qualify as creditable

against the income tax liability of each company comprising Contractor in its

jurisdiction. Should the fiscal authority involved determine that the Income Tax

Act does not impose a creditable tax, the Parties agree to negotiate in good faith

with a view to establishing a creditable tax on the precondition that no adverse

effect should occur to the economic rights of GNPC or the State.

12.10 All tax return prepared and payments made by Contractor and its Affiliates or

Subcontractors, and Foreign National Employees thereof shall be made in United

States

Dollars./



60