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for hydrocarbons


Republic of Sacha (Yakut)


Russian Federation

on the one hand


The Sacha - Austrian Joint Venture


on the other



Article 1

Article 2

Article 3

Article 4

Article 5

Article 6

Article 7

Article 8

Article 9

Article 10

Article 11

Article 12

Article 13

Article 14

Article 15

Article 16

Article 17

Article 18

Article 19

Article 20

Article 21

Article 22

Article 23


Object of the contract

Contractual area


Surrender of areas

Minimum work obligation

Discovery, estimating, commercial discovery

Apportionment of hydrocarbons extracted, recovery of costs,

production sharing

Evaluation of hydrocarbons

Marketing of natural gas

Accounting and cost apportionment

Rights and obligations of TAKT

Provision of goods and services

Rights of the representatives of the Government

Joint extraction from a deposit

Taxes and levies

Internal demand

Promotion of natural gas projects

Currency and Bank Accounts

Ownership of assets

Liability and insurance

Transfer of shares

Secrecy and confidentiality

Article 24

Article 25

Article 26

Article 27

Article 28

Article 29

Article 30

Article 31

Article 32

Article 33



Language of the contract

Force majeure

Validity clause



Amendments and addenda to the contract


Entry into force


TAKT was formed on 7th June 1991 by PGO Lenaneftegasgeologija and OEMV

(JAKUTIEN) Exploration Gesellschaft m.b.H. and on l8th August 1991 was

registered by the Ministry of Finance of the RSFSR, in order to make a

fundamental contribution to the development of Yakut in the field of developing


By a decision of the Managing Board of TAKT on 10th September 1998 the Nationale

Erdoel - und Erdgasgesellschaft Sachaneftegas was included as a new founder on

the Yakut side.

Confident of the conclusion of this contract TAKT has already sunk and attested

a borehole to a final depth of 2928 m in the contractual area, reprocessed

seismic data and has interpreted 2090 km of unreprocessable seismic data.

On 21st February 1992 the law concerning natural earth resources of the Russian

Federation was published, and mentioned the conclusion of exploration and

production sharing agreements.

On 22nd December 1992 the law of natural earth resources of the Republic of

Sacha (Yakut) became effective.

On 24.12.1993 a Decree relating to matters of production sharing agreements for

the utilisation of the natural earth resources, No. 2285 was published by

President Yeltsin.

The geological companies of the Republic of Sacha (Yakut) have collected and

evaluated extensive geological and geophysical data in the areas.

By disposition of the Government of the Republic of Sacha (Yakut) of 25th

January 1994 the Ministry of Industry of the Republic of Sacha (Yakut) was

empowered, to sign this contract as representative of the said Government.

On the basis of the common aim of the parties, to utilise the hydrocarbons in

the Republic of Sacha (Yakut) efficiently and on a profit-making basis, the

parties have reached agreement as follows:

Article 1



this means all the activities, which are the object of

this contract.

Export point:

means any point at which the crude oil will be handed

over to TAKT FOB Export port.

The export port will be agreed between the parties


Contractual area:

means Section 1 and Section 2, shown on the map in

Appendix 1.

Extraction area:

means any part of the contractual area, marked and

indicated as such by TAKT and will also include all the

reserves of hydrocarbons of a commercial discovery.

After conclusion of the activities in accordance with

Art. 7.1 the extraction area may be extended by TAKT,

if the results of these activities indicate a greater

extension of hydrocarbons.

Strike (discovery):

means the discovery of hydrocarbons regardless of the


Hydrocarbons deposit:

means the hydrocarbons in accordance with Article 8

Point 7.

Entry into force of the


means that date on which the last approval was issued

for the validity of the contract in accordance with

Article 33.

Calendar year:

means a year that begins on 1st January and ends on 31st



means crude oil of various degrees of density, asphalt,

natural gas, condensate and any other substances

containing hydrocarbons, found in the contractual area

and which can be extracted, as well as any substances,

which can be obtained therefrom, including sulphur,

helium, carbon dioxide and other hydrocarbons.


means all those costs, incurred in connection with

exploration, estimating, development and extraction,

regardless of whether these are investment costs or

operating costs, storage costs, marketing and export

costs, loan costs for outside financing, royalties,

the legally specified VAT, personnel costs including

legal levies and voluntary additional payments,

interest amounts in accordance with Art. 8 point

5 and 6, bonus in accordance with Article 29,

amounts, used for apportionment to funds set up by

TAKT as well as any further costs, listed in the

offsetting agreement. Costs also covers costs for

projects for the economic and social development

of Yakut, incurred by TAKT.

Hydrocarbons costs:

means the hydrocarbons in accordance with Article 8,

point 4.

Commercial extraction: means any date, from which TATK on the basis of

delivery agreements conveys crude oil or natural

gas out of the extraction area. The date shall be

stipulated individually for each commercial discovery.

Extraction for test purposes shall not be considered

as commercial extraction.

Commercial discovery:

means a discovery or strike in the contractual area,

which in the opinion of TAKT has the potential, to be

developed and extracted in the future on a financially

viable basis.

Party or parties:

means the Government or TAKT or both together as well

as their legal successors.

Production period:

means the period from the commencement of commercial

extraction, lasting 20 years, if not extended in

accordance with Article 4.


means the Government of the Republic of Sacha (Yakut)

("RS") as the legitimate representative of RF and the

Government of the Russian Federation ("RF") as the

legitimate representative of the RF.


means the extraction interest of 8 % of the available

hydrocarbons, which will be made available to the

Government of TAKT at the handing over point or will

be paid in cash.

Standard cubic metre or


means the quantity of gas, which is necessary, to fl1 a

container of 1 cubic metre at the atmospheric pressure

of 101.325 kPA and at a temperature of 0 degrees


Hand over point:

means the point at which hydrocarbons are handed over to

the customer in accordance with delivery agreements and


Offsetting contract:

means the document, attached hereto as Appendix 2 and

which contains detailed rules and regulations concerning

cost accounting.


means this exploration and product sharing contract

including Appendices 1, 2, 3, 4, 5 and 6.

Article 2

Object of the contract

2.1 The object of this contract is any activities for the exploration,

development, extraction including processing, storage, marketing,

transportation and exporting of hydrocarbons in the contractual area as

well as any auxiliary activities, connected therewith.

2.2. The Government grants TAKT thc exclusive right, during the period of

validity of the contract and in the contractual area to undertake

activities and to freely export the hydrocarbons in accordance with the

conditions of this contract. The Government does hereby guarantee that the

licences, which are necessary to carry on the activities and which are not

attached to th1s contract as Appendix 4, will be issued immediately by the

Government or its administrative sub-units. Any costs for the issue of

such additional licences shall be covered with the portion of the

Government in accordance with Article 8.7. If licences have not been

issued within one month after an application has been made by TAKT, then

the period of validity of the contract shall be extended accordingly.

2.3 The licences, necessary in accordance with Yakut and Russian legislation

for the utilisation of the natural earth resources, have been agreed

between TAKT and the Government and are attached to this contract as

Appendix 4.

Article 3

Contractual area

3.1 The Government does hereby guarantee that Appendix 1, may be used

exclusively by TAKT for the duration of the contract. If for this purpose

the cooperation of administrative departments of the RS is necessary, then

allocation shall be effected by the Government and these departments


3.2. TAKT undertakes, to make available the following amounts to the

administrative departments of RS for projects for social development


Exploration phase(s):

2.5% of the costs of TAKT for searching

and surveying.

Development phase:

Up to 2% of the costs of TAKT for the development

of petroleum or natural gas deposits.

TAKT shall not make available more than US$ 30 million for such projects.

TAKT and the administrative department shall decide jointly on the projects

to be promoted.

3.3 If in the opinion of TAKT an extraction area extends beyond the contractual

area, then this area shall become part of the contractual area, if it has

not been given to another company. In this case the Government undertakes

to grant licences to TAKT, on the same conditions as apply to the original

contractual area.

3.4 If the partners agree, additional areas may also be included as part of the

contractual area.

3.5 The Government undertakes, to grant to TAKT all the rights which are

necessary for the construction of pipelines and transportation of

hydrocarbons, if such pipelines go beyond the contractual area.

3.6 If on the territory of the Republic of Sacha (Yakut) TAKT receives further

licences for searching and extraction of hydrocarbons, then TAKT may

offset the costs of each other licence with the costs of this contract.

Article 4


4.1 The first exploration period shall last five years from the entry into

force of the contract. TAKT is entitled, to extend the first exploration

period by a further, second exploration period of 5 years, if tax has

fulfilled its obligations completely from the first exploration period.

TAKT must inform the Government at the latest 3 months before commencement

of the first exploration period, if TAKT wishes to move into the second

exploration period.

4.2 If at the latest at the end of the second exploration period an extraction

area has not been designated by TAKT, the contract shall be deemed to be


4.3 The first and/or second exploration periods shall be automatically

extended, if on the date of the end of the relevant exploration period a

borehole has in fact just be sunk. The extension shall be valid for a

period of three months, after the final depth has been reached in

accordance with the drilling plan. This extension shall not apply to the

sinking of the borehole(s) in accordance with Arts. 6.1 and 6.2.

4.4 Concerning any extraction area the contract shall remain valid for 20 years

from the commencement of commercial extraction. If in the opinion of TAKT

after the expiry of the 20 year period commercial extraction shall be

guaranteed, then TAKT shall be entitled, to extend this contract. The

freshly negotiated conditions, may not be worse than the conditions

applicable until that point in time.

TAKT shall have at least 12 months before the expiry of the production

period to notify the Government, that it is going to exercise the right to

extend the production period by as many years as the extension totals and

whether it wishes, on the basis of financial features, to freshly negotiate

parts of the contract.

If TAKT wishes a fresh negotiation, the parties shall make the greatest

efforts, before the commencement of the extension of the production period,

to come to an agreement.

4.5. If before commencement of commercial extraction the parties conclude a

natural gas delivery contract, the period of validity of which is longer

than 20 years, then the production period shall automatically last as long

and the possibility of an extension shall only arise after that.

Article 5

Relinquishment of areas

5.1 If TAKT does not go into the second exploration phase, then it must

relinquish all areas with the exception of the extraction areas on the

expiry of the first exploration period.

5.2 After the expiry of the second exploration period, TAKT must relinquish all

those parts, which it has not designated as extraction areas.

5.3 During the exploration period TAKT may voluntarily give up parts of the

contractual area, but without however being released from the obligations

of the minimum work obligation.

The relinquishment of areas in accordance with this Article 5.3 shall

become legally effective 30 days after the receipt by the Government of an

appropriate notification.

5.4 At the end of the relevant exploration period TAKT will retain areas, which

are in Section 1 and/or Section 2, to the Government, which in the opinion

of TAKT are no longer worth exploration.

5.5 In accordance with standard practice throughout thc world in the petroleum

and natural gas industry as well as in accordance with the rules, which in

the RS apply to the area of environmenta1 protection and protection of the

natural earth resources, TAKT will restore the areas, which it has to hand

back in accordance with this Article 5 and on which it has carried out

survey and extraction activities.

Article 6

Minimum work obligation

6.1 During the first exploration period TAKT must fulfill at least the

following work obligation:



In Section 1 TAKT shall especially carry out the following tasks:


Processing of seismic data - 850 km;


Evaluation of seismic information


Simulation and drawing up of the geological and facies maps


The sinking of a test bore with breakdown and information

concerning the subsalinary deposits.

In Section 2 TAKT shall carry out especially the following tasks:


Verchnemurbaysk Area:



Processing of seismic data - 820 km

Evaluation of seismic information

Technical and economic evaluation of the area on the basis of

the seismic interpretations;

On proof of the financial viability on extraction in the

opinion of TAKT -- drilling work to the extent to be

stipulated by TAKT.

Otradrunsk area:


Processing of seismic data - 420 km

Evaluation of seismic information

Sinking of two test holes, whereby borehole 314-2 will be


6.3 During the second exploration phase TAKT must fulfill a minimum work

obligation stipulated by TAKT.

6.4 The minimum work obligation for the first or second exploration period

shall be deemed fulfilled, if the works have been completed in accordance

with Art. 6.1 or Art. 6.2. Should TAKT not have fulfilled the minimum

work obligation in accordance with Art. 6.1 or 6.2, then TAKT shall pay to

the Government the differential amount between the amount actually expended

for the activities and the sum of US$ 30 million.

(Art. 6.1) or US$ 15 million (Art. 6.2).

After fulfillment of the relative minimum work obligation TAKT may cancel

the contract without further claims on the part of the Government.

If the works in the first exploration period exceed the scope laid down in

Article 6 Point 1 or an amount was expended which exceeds US$ 30,000,000,

then the works and amounts of money shall be charged to the minimum work

obligations of the second exploration period.

6.4 The Government recognises that, even before the entry into force of this

contract, TAKT has carried out the following geologica1 and geophysical

works and drillings, which as a result shall be recognised as partial

fulfillment of the work obligation in accordance with Art. 6.1:


sinking of borehole 314-2 and test investigation in Section 2,

Otradinsk area (final depth 2928 m)


reprocessing of 865 km seismic data and probably a further 100 km

Interpretation of 2090 km of unreprocessable seismic data.

For these works costs have been accumulated in accordance with the Table in

Appendix3. These costs may be recovered as hydrocarbons costs in

accordance with Article 8.

In addition any costs of TAKT shall be recognised as recoverable, which can

be properly proven by means of vouchers and documentation and are connected

with the works in accordance with Article 6 Point 4 as well as costs for

additional works before and after the signing of this contract.

6.5 If a drilling in accordance with Article 6.1.1 or 6.1.2 does not reach the

planned drilling target for technical reasons, then the drilling obligation

shall be considered as fulfilled, if in the opinion of TAKT every technical

possible and economically sensible efforts have been made, to reach the

drilling target.

Article 7

Discovery, estimating,

commercial discovery

7.1 Within 60 days after TAKT has made a discovery, the Government is to be

informed. After the Government has been informed TAKT may declare a

commercial discovery and designate an extraction area.

In this case TAKT shall have the possibility of carrying out studies, and

if necessary and economically justified, of effecting additional drillings

for more precise determination of all the fundamental parameters of the

deposit discovered. These activities may, but need not be carried out

during the first and second exploration period. If carried out during the

two exploration periods, the costs shall be charged to the relevant task

obligations in accordance with Article 6 Point 3.

If TAKT has not carried out the aforementioned activities in an extraction

area by the end of the second exploration period, then TAKT shall have a

further period of five years or shall be entitled to cancel the contract.

7.2 After the termination of the activities in accordance with Art. 7.1 TAKT

must within two years submit a development project to the Government, in

accordance with the International Standard of the oil industry taking into

account local features or the contract shaft be considered as canceled.

TAKT shaft be entitled, to carry out the development project including

amendments and addenda made by TAKT with the aim of commercial extraction.

The date for the commencement of the development project shall be

stipulated by TAKT based on the conclusion of delivery agreements for the

hydrocarbons to be extracted at world market prices, in convertible

currency and financially tolerable conditions or in accordance with the

existence of detailed rules and regulations in accordance with Article 17

Points 1 and 2.

Article 8

Allocation of extraction

Recovery of costs

Production sharing

8.1 TAKT must make available any cash amounts, necessary for the completion of

the activities, and may only recover its accumulated costs from the

hydrocarbons costs. TAKT shall be entitled to freely use extracted

hydrocarbons to the extent required for the carrying out of the activities.

8.2. The extracted hydrocarbons which are not needed for carrying out the

activities ("available hydrocarbons") shall be measured at the transfer

point and shall be split up at the transfer point in accordance with

the following conditions.

8.3. 8% of the available hydrocarbons shall be made available to the Government

at the transfer point as royalty or shall be paid in cash. Royalties are

recoverable within the framework of the hydrocarbons costs.

8.4. TAKT shall be entitled to recover its accumulated costs from up to 90 ./0

of the available hydrocarbons after deduction of the royalties

("hydrocarbons costs"). The type and method of recovery of the costs

for individual cost types shall be established by TAKT.

8.5. The costs incurred through carrying out the activities up to the beginning

of commercial extraction, financed from own funds or loans not bearing

interest, shall bear interest half-yearly. The applicable interest rate

shall be the 6 month Libor for US$.

The costs for each half-year shall be totaled up at the end of the halfyear and shall bear interest at the interest rate applicable on the first

day of the half-year. The interest amounts determined for each half year

shall be added to the costs for the next half-year.

8.6. If the costs accumulated before and after commencement of commercial

extraction cannot be recovered within one year, then costs not recovered

shall be carried forward to the next year, and indeed for as long as

necessary until all costs have been recovered.

All costs not recovered in one year shall bear interest for the prior year

and the interest amounts do determined shall be added to the costs for the

next year. Loans taken up from Banks shall be excepted from bearing


8.7. Those quantities of available hydrocarbons, which are not used as

hydrocarbons costs ("hydrocarbons deposit"), shall be split up as follows

between TAKT and the Government:

Portion of the Government:


Portion of TAKT:


The total portion so determined for TAKT of hydrocarbons recovery shall be

taxed at a rate of 24%. Regardless of any change in laws, the tax rate

shall be maintained during the whole period of validity of the contract.

8.8. During a current calendar year the costs and proceeds shall be estimated on

the basis of assumptions by TAKT, which will also form the basis for the

splitting of the hydrocarbons.

Within three months after the expiry of each calendar year TAKT will

forward to the Government annual accounts, which will contain the actual

results of the year which has expired. Differences between the provisional

splitting of hydrocarbons during a current calendar year and the result of

the annual accounts must be equalised within the following calendar year.

8.9. Regulations concerning the shipment of hydrocarbons are to be agreed

between the parties hereto before commercial extraction.

Article 9

Evaluation of hydrocarbons

for hydrocarbons costs, hydrocarbons recovery and tax assessment

9.1. Natural gas shall be valued at the average of the price, which was achieved

by the Government and TAKT at the transfer point in accordance with a

natural gas delivery contract during the previous quarter.

9.2. Crude oil shall be valued at the average of the export price, which was

achieved by TAKT during the previous quarter. Export price means the price

FOB export point, as would be achieved between non-bound companies and on

the basis of the triple comparison in freely convertible currency.

Deductions on account of sales or trading discounts shall be restricted by

TAKT to the internationally customary extent.

9.3. If TAKT sells crude oil to a bound company, then the average price of the

past quarter shall be determined on the basis of the quotations published

in Platt's for crude oil of comparable quality and destination.

9.4. The aforementioned rules shall be adjusted within the framework of the

annual cost recovery account to the average price actually applicable to a


Article 10

Marketing of natural gas

10.1. The Government and TAKT may jointly export natural gas and for this

purpose conclude a natural gas delivery contract with one or several


10.2. If for the financial viability of a natural gas export contract the

quantities of TAKT should not be adequate, then the Government TAKT will

make the greatest possible efforts to achieve the joint sale of natural


Article 11

Accounting, and costing

11.1. TAKT must keep its commercial ledgers in accordance with the

specifications of the offsetting contract, the principles

internationally recognised in the oil industry and the internal TAKT

accounting regulation. To determine the value of hydrocarbons costs

and hydrocarbons recovery, TAKT will use only the US$ as the currency.

11.2. Within 90 days from the end of a calendar year TAKT must forward to

the Government a list of the costs accumulated in connection with the


11.3. After recording commercial extraction TAKT must additionally forward a

report to the Government concerning the quantity of the extracted

hydrocarbons for the drafting of the costs.

11.4. The Government shall be entitled at its own expense to check the

annual cost accounting including the relevant documentation of TAKT

regularly for purposes of correctness. If the Government does not check

the cost accounting within 12 months from 31st December of any year in

which the costs have been incurred, then the costs shall be deemed to

have been accepted and the Government shall not be able to make any

later objections to the costs contained in the cost accounting documents.

The costs contained in the cost accounting system shall be deemed as the

basis of the cost recovery in accordance with Article 8.

11.5. If the Government has undertaken a check in accordance with Article 11.4,

the Government must make available to TAKT in writing the results of the

check within 6 months from the end of the said check.

The Government may only make the following objections:


the figures of the cost accounting are not correct;


the costs for acquired goods and services criteria are not in

accordance with Article 13.4;


Payments for goods and services are not in accordance with the

relevant contracts of the suppliers;


the quality of the goods, taking into account the market situation,

is not in accordance with the price paid.

11.6. If the Government and TAKT cannot agree on the test results, then if

necessary the international centre of experts of the International

Chamber of Trade, Paris, may be called in, in accordance with the

procedure relating to the expert report required by the Chamber.

Article 12

Rights and obligations of TAKT

12.1. At the latest 30 days after the entry into force of this contract TAKT

must appoint a representative as the correspondent (interlocutor) for the


12.2. In accordance with the applicable legal situation, during the period

of validity of this contract, representatives of TAKT as well as other

persons appointed by TAKT shall at any time have free access to the

contractual area.

12.3. Without further approval all the machines and plants necessary for the

completion of the activities may be brought into the contractual area and

set up and operated there, provided the machines and plants, are in

accordance with the international standard.

12.4. TAKT must bear all costs connected with the activities and may only

recover these costs from the hydrocarbons costs.

12.5. TAKT shall be entitled, to use public facilities, such as roads, on

conditions which do not discriminate against TAKT compared with third

parties. Subject to the widest possible protection of nature, TAKT shall

be entitled to build roads and other traffic routes in the contractual

area, if necessary for the activities. In response to queries from the

Government TAKT shall generally permit the utilisation of these roads and

traffic routes, provided this does not restrict TAKT in its activities

and does not give rise to any additional financial burden.

12.6. For purposes of the activities in the contractual area TAKT may make use

of the raw materials which exist there, such as sand, rocks, water and

timber, in the necessary scope and on conditions which do not

discriminate against TAKT, compare with third parties,

12.7. If necessary for the activities, TAKT shall be entitled to sink water


12.8. Taking into account local features TAKT must carry out its activities in

accordance with the conditions of this contract as well as the

internationally recognised standards governing the petroleum and natural

gas industry.

The activities shall be carried out efficiently, safely and so as to save

costs with the aim of achieving the best financial and economic

exploitation of the deposits.

12.9. When carrying out the activities TAKT must ensure that it avoids to the

greatest extent possible:


the loss of hydrocarbons above and below the surface of the earth

damage to rock formations which carry hydrocarbons

the unintended penetration of water into rock formations carrying


environmental pollution and damage.

TAKT shall accept no liability for damage to the environment in the

contractual area, which occurred before this contract became effective.

The activities of TAKT in the field of environmental protection are

listed in Appendix 5.

12.10. TAKT must inform the Government half-yearly of the activities and

forward reports to it in accordance with the regulations of the

Government relating to statistical reports.

12.11. Within 6 months from expiry of the first or second exploration phase

TAKT will submit a geological report to the Government.

12.12. Within 6 months from the end of the contract TAKT will forward to the

Government drilling cores and other technical data, which have come into

the possession of TAKT during the period of validity of the contract.

Article 13

Provision of goods and services

13.1. TAKT must make available itself or through subcontractors, who would

be selected by TAKT, all the materials, machines, plants and other

equipment as well as services for the activities.

13.2. The number and remuneration of the employees, involved in the

activities, shall be determined solely by TAKT, whereby the remuneration

must not be less than the legally stipulated minimum.

13.3. TAKT shall make every effort to ensure that the majority of the

employees are citizens of the RF and that these employees are allowed

further education specific to their trade or profession in accordance

with the directives laid down by TAKT.

13.4. For orders to subcontractors, which go above an amount of US$ 500,000

TAKT shall be obliged to instigate a tender competition. TAKT must place

the order with the company, which in the opinion of TAKT as regards

price, quality, delivery time and technical skills best satisfies the

requirements of TAKT. In the event of equality of bids or tenders,

Russian and Yakut companies must be given preference.

Article 14

Rights of the representatives of the Government

14.1. Representatives of the Government shall by prior agreement with TAKT

be entitled to access at any time to the contractual area and may examine

all documents on the spot, inspect items of equipment as well as

generally observe the activities.

14.2. The access of the representatives of the Government shall be at their

own risk and expense.

They shall not have any right to intervene directly in the activities

or give instructions concerning the activities, provided the activities

are not in conflict with this contract and are in accordance with the

laws. In response to prior notice in good time of a visit of the

representatives of the Government, they will be offered the same

accommodation and subsistence possibilities as the employees of TAKT.

The number of visitors as well as their stay time shall be

agreed between the Government and TAKT.

14.3. The Government shall grant TAKT the greatest possible support in

obtaining visas, work permits and any other approvals necessary for

Yakut, Russian and foreign employees as well as employees of


Article 15

Joint extraction from a deposit

15.1. If an extraction area extends beyond the borders of the contractual

area and this adjacent area has been placed with another company

within the framework of a licence agreement, the Government, if the

companies affected do not reach agreement within a reasonable deadline,

may request in writing, that this extraction area be developed

uniformly and that a joint development project be submitted.

15.2. If this development project is not submitted within a year following

a written request from the Government and the Government does not grant

any extension of this deadline, then the Government may request that an

internationally known consultancy company prepare this development


As regards the costs of the consultancy company the companies affected

must reach an appropriate agreement. If no agreement is reached, the

costs shall be borne in the ratio of the hydrocarbons reserves of the

relevant company to the hydrocarbons reserves of the whole development


15.3. All measures for the preparation and execution of the development

project shall require a contractual settlement between the companies


Article 16

Taxes and levies

16.1. TAKT is obliged to pay taxes on hydrocarbons VAT recoveries and the

legally specified up to a maximum rate of 20 % in accordance with the

conditions of this contract and royalties in the form of hydrocarbons

to be delivered in accordance with Article 8 Point 3 to the Government

or in cash, valued in accordance with Article 9.

Within the framework of the development project in accordance with

Article 7 Point 2 TAKT and the Government shall reach agreement as to

whether the taxes and levies are to be paid in cash or in hydrocarbons.

In consideration thereof the Government does hereby guarantee that TAKT

shall be exempt from all other taxes, levies and fees (i.e. fees for the

transfer of the land (lease agreement)), of any kind whatsoever, during

the period of validity of this contract. The share of the Government in

hydrocarbons recoveries in accordance with Article 8 Point 7 shall cover,

in addition to other expenditure, also the expenditure described in this


This exemption from tax shall only apply to activities connected with

this contract.

16.2. The Government does hereby guarantee that TAKT and its employees in

the RS and RF shall not pay any import and export duties, or any other

levies of any kind whatsoever, for goods, including goods required daily,

involved directly and indirectly with the activities. This guarantee

also applies to subcontractors appointed by TAKT.

16.3. The Government does hereby guarantee and shall not be subject to the

regulations to compulsory purchase for foreign exchange either when

importing or exporting capital.

16.4. Taxes and levies shall be paid within 30 days after the termination of

each quarter on the basis of the provisional prices and quantities.

Within 90 days from the end of a calendar year the taxes and levies

shall be established on the basis of exact prices and quantities for

the preceding calendar year.

Credits in favour of the Government or TAKT shall be settled with the

first payment of the current calendar year.

16.5. The aforementioned guarantees apply both to the currently existing and

also any future legal situation.

Article 17

International demand

17.1. Should natural gas be needed to settle internal demand, then TAKT

shall conclude a natural gas delivery contract with the Government,

which will provide for the payment of TAKT in convertible currency at

an agreed price.

Taking into account Article 10 the Government and TAKT must reach an

agreement on the quantities, which are to be available to satisfy

internal demand.

17.2. In the event of the commercial extraction of crude oil and condensate

TAKT shall sell to the Government that part of the available crude oil

and condensate, accruing to it in accordance with Art. 8 Points 4 and 7.

As purchase price the Government does hereby undertake to make available

to TAKT the same quantity of crude oil and condensate taking into

account quality differences at the point of export. Detailed

regulations are to be agreed between the parties on conclusion of the

activities in accordance with Art. 7 Point 1.

There need not be any exchange, if the Government pays for the crude oil

and condensate in convertible currency at world market prices.

The world market price or the quantity of crude oil and condensate made

available at the point of export shall be reduced by an amount or a

quantity, which will be stipulated between the Government and TAKT and

take into account transport costs.

Article 18

Promotion of natural gas projects

In accordance with the development of the natural gas potential of the RS and in

view of the activities of TAKT, working as the first Yakut-Austrian Joint

Venture searching for hydrocarbons in the RS, the Government will make the

greatest possible efforts, to allow TAKT the earliest possible connection to the

pipelines for the exporting of natural gas and produce all the necessary

documents and take all the necessary resolutions to have a positive effect on

natural gas extraction by TAKT.

Article 19

Currency and Bank accounts

19.1. To calculate costs and income and to calculate the expenditure

obligation in accordance with Artic1e 6 TAKT will use US Dollars

as the currency.

19.2. To calculate expenditure in Roubles generally the rate of exchange at

which TAKT can obtain Roubles against Dollars shall apply.

19.3. To calculate income in Roubles the same rate of exchange at which TAKT

can obtain US Dollars against Roubles shall apply.

19.4. The Government guarantees TAKT the right at any time to free payments

in convertible currency from and to the RS and RF.

19.5. TAKT shall be entitled to set up and open accounts abroad at any time

for freely convertible currency and freely dispose of the cash deposited

there, without the cash having first to be transferred to the RS or RF.

19.6. TAKT shall be entitled, taking into account the applicable double

taxation agreements, to make dividend payments to its foreign

participants, as well as fulfilling loan and other monetary obligations,

without deductions of any kind whatsoever from accounts in the RS and RF

or from accounts abroad.

Article 20

Ownership of assets

20.1. All assets, which TAKT acquires and the purchasing costs of which are

recoverable as hydrocarbons costs, shall transfer into the ownership

of the Government on the date on which the costs for these have been


20.2. During the period in which these assets are used for the activities,

TAKT shall have an unrestricted and free right of utilisation

20.3. On termination of the contract TAKT shall in no way be liable for the

condition of the assets.

20.4. Article 20.1 does not apply to assets leased by TAKT or provided by


Article 21

Liability and insurance

21.1. In accordance with the applicable legal situation ~e assets procured

by TAKT for the activities shall be insured with insurance companies

of the RS or RF.

21.2. The conclusion of other insurance policies such as risk insurance,

operating interruption and third party liability insurance policies

as well as the usual international insurance policies for exploration

and extraction activities shall be at the discretion of TAKT.

21.3. TAKT shall be liable to the Government only for those direct damages,

caused by gross negligence or deliberately by executives of TAKT.

Liability for consequential damages, of any kind, is excluded.

21.4. TAKT undertakes, to release the Government from the claims of third

parties, the damages of which have been caused by TAKT or its

representatives, insofar as these actions were not taken in accordance

with this contract. TAKT cannot however be made liable if TAKT has no

possibility of exercising direct control in accordance with the standard

practices of the international petroleum and natural gas industry.

21.5. The Government does hereby undertake to release and exempt TAKT from

the claims of third parties, damages to which have been caused by

actions of the Government or its representatives.

Article 22

Transfer of shares

22.1. Without the prior consent of the Government TAKT shall not be entitled

to transfer right and obligations under this contract either partly or

wholly to third parties.

22.2. The consent of the Government may only be refused for important

reasons, concerning the financial and social situation or for reasons of

national security.

22.3. Within 45 days after written notification by TAKT the Government must

state in writing whether any of the reasons in accordance with Article

22.2. prevail. If TAKT receives no comments, then the transfer shall be

considered as approved by expiry of the 45 day deadline. The Government

undertakes to sign the agreements to be amended as a result of the


22.4. On the basis of proceeds from the transfer of rights and obligations

under this contract TAKT need not pay any taxes or fees.

22.5. For the legal effectiveness of the transfers of rights of obligations

under this contract the consent of the Government will be adequate. An

approval in accordance with Article 32 is not necessary.

Article 23

Data and confidentiality of data

23.1. During the period of validity of this contract TAKT must preserve

technical documents as well as a selection of drilling cores and other

rock samples for a reasonable period of time and at the request of the

Government make them available or allow them to be inspected by the

Government, whereby the activities of TAKT must not be prejudicially

affected by this.

23.2. TAKT shall be entitled at any time to use or evaluate parts of the

rock samples as well as other technical documents inside and outside

the RF and RS.

23.3. These rock samples and technical documents may only be passed on by

the Government and TAKT to executive, subcontractors, consultancy

companies or bound companies. It must however be guaranteed, that

these rock samples and technical documents shall be treated

confidentially, and not passed on to third parties. TAKT may also

pass on these rock samples and technical documents to companies, which

are interested in a transfer of rights and obligations from TAKT under

this contract.

The prerequisite for the onward transmission is in connection with the


23.4. The obligation to maintain secrecy and confidentiality shall end on

the expiry of this contract.

23.5. All data and information relating to the contractual area, in the

possession of the Government, authorities subordinate to it or in the

possession of companies, controlled by the Government, shall be made

available within 60 days after the entry into force of this contract to

TAKT in the form of copies.

Article 24


24.1. All notifications and notices, to be forwarded in accordance with this

contract or in connection with it, must be in writing and sent to the

following addresses and shall be considered as received.

a) in the case of personal hand over on being handed over, whereby the

addressee must confirm receipt;

b) in the case of a registered letter on its arrival;

c) in the event of a telex, when the telex sent bears a correct reply

endorsement of the addressee in each case at the beginning and at

the end, on the day after it is sent.

24.2. The Government and TAKT do hereby undertake to notify in advance in

good time any change in these addresses.

24.3. Notifications and notices may be made both in Russian, English or in


The recipient must always ensure translation.

Article 25

Applicable law and Arbitration

25.1. The contract shall be subject to the law of tile Republic of Sacha

(Yakut) and the Russian Federation.

25.2. Any disputes arising out of this contract, which cannot be settled

amicably, shall be settled by a Court of Arbitration in accordance

with the rules of UNCITRAL (Community of the United Nations for

International Trading Law). The Court of Arbitration shall consist

of 3 members.

25.3. The Court of Arbitration must conduct its proceedings in Zurich,


25.4. The Government waives the right to plead State immunity and does

hereby subject itself to the Court of Arbitration and its decision

as well as the execution of the Arbitration decision.

Article 26

Language of the contract

26.1. The Russian and German version of this contract are both equally


26.2. In the event of interpretation problems caused by translation an

independent expert is to be appointed by the parties hereto and shall be

responsible for preparing a proposal to solve the problem satisfying the

financial and economic aims and the object of the Joint Venture.

Article 27

Force Majeure

27.1. TAKT shall be released from liability for the complete or partial nonfulfillment or incorrect fulfillment of its obligations under this

contract, if these disturbances are caused by events, which are outside

the control of TAKT.

27.2. On the occurrence of the aforementioned events TAKT must immediately

inform the Government thereof in writing, but no later than fourteen

days after the occurrence thereof. The notice must give details of

the nature of the events and - if possible - an estimate of the effects

on the fulfillment of the obligations under this contract by TAKT as

well as the probab1e date for the fulfillment of these obligations.

27.3. In the event of averting or on the termination of aforementioned

events TAKT must inform the Government thereof in writing at once,

but no later than after seven days. The notice must state a time,

when the obligations under this contract shall probably be fulfilled.

27.4. On the occurrence of the aforementioned events fulfillment of the

relevant obligations under this contract by TAKT shall be postponed

by the time of the circumstances. Should these circumstances last

longer than twelve months, then TAKT and the Government shall meet

to determine the further procedure.


In accordance with Article 25 a decision shal1 be taken by the Court

of Arbitration mentioned therein concerning disputes arising due to

circumstances of force majeure.

Article 28

Validity clause

28.1. Should individual articles of this contract or parts thereof be or

become ineffective, this shall not affect the effectiveness of the other

articles and the total contract.

28.2. The parties shall in such a case be obliged to replace the ineffective

article or its ineffective parts by an article that comes closest to the

financial purpose of the ineffective article.

Article 29


TAKT undertakes to pay a bonus totaling US$ 840,000 on the entry into force of

the contract to the Government. The Government recognises that TAKT has

fulfilled this obligation on paying the same amount to Lenaneftegasgeologia as

partial remuneration for the drilling of well 314-2 and there shall therefore be

no further payments for this reason to the Government.

Article 30


30.1. This contract consists of a main part, Appendix 1, Appendix 2,

Appendix 3, Appendix 4, Appendix 5 and Appendix 6, which represent

integral components of this contract.

30.2. In the event of conflicts between the main part and the appendices,

the conditions of the main part shall be given precedence.

30.3. In the event of a conflict between the licences in accordance with

Appendix 4 and the conditions of the main part of the contract, the

conditions of the main part shall be given precedence.

30.4. The rights and obligations of the parties under this contract shall

transfer to their legal successors.

30.5. The Government does hereby guarantee that on signing this contract

only those further licences for the utilisation of the contractual area

exist as listed in Appendix 6. Should there be problems in the

simultaneous utilisation of the contractual area between TAKT and other

licensees, the Government shall resolve this dispute also in view of the

overriding significance of the search for and extraction of hydrocarbons

for the development of the Republic of Sacha.

Licences, given by the Government after the signing of this contract,

shall contain a condition, providing for the preferential utilisation of

the contractual area by TAKT.

Under no circumstances however may licences be given, which have as their

object the searching for and extraction of hydrocarbons.

Article 31

Amendments and addenda to the contract.

Any amendments and addenda to this contract must be in writing and in Russian

and German and may only be undertaken by agreement between the representatives

of the parties empowered for this purpose.

Article 32


32.1. The Government of the RS, represented by its competent organs and the

Government of the RF, represented by its competent organs, do hereby

guarantee the rights and entitlements granted to TAKT in this contract.

The Government will hand down all the necessary documents and appoint

and instruct the subordinate authorities in such a way that in its

activities TAKT shall be able to enjoy these rights and entitlements.

The rights, obligations and guarantees of the Government shall transfer

to their relevant legal successors.

32.2. The Government shall within 30 days from the entry into force of this

contract appoint a representative, who will be empowered to receive any

notices in accordance with this contract. Notices from TAKT to this

representative shall be considered as properly sent.

Regardless of the effectiveness of the serving of notices, the

Government shall immediately notify TAKT of the receipt of such notices.

32.3. If the Government appoints a representative as a replacement for the

representative in accordance with Article 32.2. above, TAKT must be

notified of this. The appointment shall become legally effective 10 days

after receipt by TAKT of an appropriate notice.

Article 33

Entry into force

This contract shall become effective after being signed by the parties and after

approval of the contract by the legislating bodies of the Republic of Sacha and

the RF. The approvals must be published.

In the name and on the instructions of

The Republic of Sacha (Yakut)

In the name and on the instructions of

Russian Federation

In the name and on the instructions of


Appendix No. 1

Map and coordinates of the sections

Two maps with Russian place names


Offsetting Agreement


1. Purpose

The purpose of this offsetting agreement is to stipulate the principles of cost

recovery and the cost recovery account in connection therewith, as well as the

rules connected therewith for the costs, as Appendix 2 of the contract.

All costs from the activities of TAKT, whether costs of exploration, the

valuation and development of a discovery, or in addition costs of maintaining

the current operation, as well as costs for processing and selling hydrocarbons

and activities of TAKT connected therewith, are to be put into the KRR (cost

recovery accounting system) and may be recovered from hydrocarbons costs.

2. Definitions

The terms used in this offsetting agreement have the same significance as in the

case of the definitions of the contract, unless additional definitions are given


Cost recovery: the method by which the costs incurred by TAKT are deducted from

the proceeds of the hydrocarbons sold by TAKT.

Cost recovery account: in short, KRR. Account into which all the costs are put

for purposes of cost recovery.

Roubles: The currency or its successor currency currently applicable in the

sovereign territory of the Government.

Participant: The owners of the shares of the TAKT Articles of Association Fund.

US-Dollars: The currency of the United States of America (USA), abbreviated to:

USD or US$ - as well as its successor currency.

3. Currency and payments

The unit of currency in which the KRR is to be conducted, is the USD. The USD

is also the currency on the basis of which cost recovery is effected, whereby

however TAKT shall be entitled at any time to choose a currency other than the


- -- Roubles and other currencies.

To pay its expenditure and obligations in the RS and RF TAKT shall use the

Rouble as currency. If payment in a currency other than the Rouble becomes

necessary inside and outside the area of the Government and is permitted, TAKT

may also pay in this other currency.

- -- Rate of exchange


For conversion of Roubles to USD and USD to Roubles the rate of

exchange stipulated in Article 19.2 and 19.3 of the contract (i.e. on

the date of signing of the contract the rate of exchange of the



To convert expenditure in Roubles but also income in Roubles of TAKT

into USD - for purposes of cost recovery accounting - TAKT shall take

an average of the Rouble rate of exchange, in accordance with Art 19.2

or 19.3 of the contract, over the current month, and adjust Rouble

transactions in this month, with the rate of exchange calculated in

this way, into USD in the KRR. If only a few Rouble transactions are

to be allocated to the current month TAKT may also use the daily rate.


In transactions in all other currencies the rate of exchange in the

KRR is to be used which corresponds to the daily rate at which thc

basic transaction became payable for TAKT. With a multiplicity of such

transactions TAKT may also form an average rate over the current

month, and at this rate put transactions into the KRR in other

currencies, related to the relevant month.

4. Financing

TAKT shall be entitled to independently select the type and source of financing

of its commercial activities, inside and outside the area of the Government


Cost items of the KRR are all those TAKT costs incurred by TAKT in connection

with the activities. The costs and proceeds of TAKT incurred for other reasons

are not the object of tile cost recovery and the KRR, and in addition shall not

be the object of any split of hydrocarbons recovery between the Government and


Insofar as possible and if they exist, invoices are to be used as the TAKT

vouchers for costs incurred.

1. Cost items

The following are considered as costs in the sense of the cost items of the KRR:

1.1. Materials and items of equipment

All equipment in connection with the materials and items of equipment purchased

by TAKT to complete its activities.

1.2. Labour and personnel costs

1.2.1. Personnel costs of the employees of TAKT including taxes and any

additional levies allocated to personnel to paid by companies. The earmarked

wage portions which go above the legally stipulated minimum wage portion, will

not be paid, in accordance with Article 16.1 of the contract and shall therefore

not go into the KKR either.

1.2.2. Costs for labour services of third parties

1.3. Services

1.3.1. Costs for services acquired by TAKT from third parties.

1.3.2. Costs for services purchased from participants by TAKT within the

framework of service agreements.

1.4. Administration costs

All costs, connected with the administration of TAKT (i.e.: telephone fees,

postal charges, . . . . .).

1.5. Joint costs

1.5.1. Joint costs are costs incurred directly by the participants of TAKT in

connection with the following general services (i.e.: general management,

general consultancy and monitoring of thc total project, legal auditing,

financing and engineering services) and which are not regulated by the

corresponding service agreements.

1.5.2. The following shall be offset to TAKT by the participants of TAKT for

joint costs annually: 10 % of the total costs of TAKT per annum for the first 30 million USD

in expenditure per annum. 8 % if this expenditure is between 30 and 50 million

USD. 5 % if the expenditure is between 50 and 100 million USD, and 3 % in the

case of annual costs over 100 million USD. The participants of TAKT in total shall put per annum 1,400,000 USD in

the exploration phase and development phase, before commercial exploitation and

2,000,000 USD thereafter as a minimum of the joint costs in the KRR, if the

remuneration determined above in for joint costs of the participants

exceeds the amounts listed here in USD in

1.6. Leases, rights, bonus payments and patents.

Any leases, lease costs, bonus payments as well as payments in connection with

the acquisition and utilisation of all types of rights and patents.

1.7. Incidents (damages etc.)

Costs in connection with any types of incidents such as loss, theft, accident,

catastrophes, force majeure etc.

1.8. Insurance policies, premiums

All types of premiums and insurance policies incurred as costs by TAKT.

1.9. Legal costs and costs for approvals

Costs incurred by TAKT for legal advice, lawyers, Court proceedings, payments

imposed on TAKT by Courts etc., including costs in connection with arbitration

proceedings, as well as costs connected with the placing or acquisition of all

types of licences and approvals.

1.10. Costs for ecological expenditure.

Costs for ecological and environmental protection- related expenditure of TAKT.

TAKT can independently stipulate the scope of its ecological and environmental

protection-related expenditure and outlays.

1.11. Social Security, research and development costs

1.11.1. Costs for research financed by TAKT

1.11.2. Costs for training and further education, as well as any Social

Security payments for the employees of TAKT.

1.11.3. Costs of social, cultural and economic promotion and infrastructure

measures in favour of third parties financed by TAKT, especially however local

and regional units of the Government.

1. 11.4. Costs for social expenditure in general, as well as costs in

accordance with Art. 3.2. of the contract.

1.12. Capital costs

1.12.1. Costs of outside capital: Outside capital interest amounts, premiums,

fees, continuous expenditure and other costs of outside capital, whereby the

period of validity of the obligation entered into by TAKT with respect to the

outside capital provider (i.e. short, medium and long-term credit lines) is

insignificant. Outside capital costs may be recovered by TAKT regardless of the

periods of validity of the obligations entered into by TAKT.

1.12.2. Costs of company's own capital that is to say the interest on the funds

made available by the participants of TAKT, shall be stipulated by the rule in

accordance with Article 8.5 and Article S.6 of the contract. These own capital

costs, in accordance with Art. 8.5 and Art. 8.6 of the contract, shall be put

into the KRR as costs.

1.13. Strikes, lockouts, confiscation and non-fulfillment

Costs incurred by TAKT through strikes and lockouts, non-fulfillment by business

partners, as well as Government emergency measures, as well as costs also

incurred by TAKT in connection with the confiscation of property of TAKT such as

goods, plant, hydrocarbons, etc.

1.14. Costs of erection, maintenance and operation

Costs of erection, maintenance and operation of any items of equipment to carry

out the activities of TAKT -- including buildings and other structures, as well

as hydrocarbons stores and extraction equipment, such as tax, pipelines, the

procurement of any infrastructure for the development of a discovery of

hydrocarbons, the procurement of any infrastructure for the transportation of

hydrocarbons, and including any costs in connection with the processing of


1.15. Taxes, royalties, customs duties, other levies

All taxes, royalties, customs duties and any other levies to the Government, if

not already dea1t with in Art. 8.3 of the contract, are to be put into the KRR

as costs.

1.16. Miscellaneous costs

Miscellaneous costs such as costs in connection with Bank accounts of TAKT as

well as money remittances, costs in connection with money exchange (especially

the changing of Roubles into USD and USD into Roubles), other shipping costs,

costs for repairs and maintenance works, costs of organising meetings and

conferences, travel costs, removal costs of communications equipment, computer

costs, energy and power costs, freight and storage costs, transport costs

including costs of the transportation of hydrocarbons by pipelines, liquefaction

costs of gas, costs of medical care for employees of TAKT, payment of damages,

miscellaneous tests costs, as well as any kinds of remunerations and premiums.

1.17. Initial project costs

All the costs kept in the ledgers of TAKT incurred before the signing of this

contract, may be put into the KRR of TAKT as costs after signing, in accordance

with Appendix 3 of the contract.

1.18. Other costs

Any other costs not explicitly listed in this section but incurred by TAKT in

connection with its activities.

2. Proceeds

2.1. Proceeds from the sale of hydrocarbons.

In accordance with Art. 8.4 of the contract TAKT shall recover its costs from

the proceeds from the sale of disposable hydrocarbons.

2.2. Other sales proceeds

Proceeds from the sale of goods and services purchased by TAKT, which TAKT

bought for the completion of the activities are to be deducted from the costs

listed in the KRR, provided and only insofar as they were first put into the KRR

as costs. For this purpose proceeds are to be valued at the price achieved on

the date of sale.

2.3. Proceeds from insurance policies and other premiums

Proceeds for the TAKT from insurance payments and similar payments, as well as

miscellaneous premiums, lease charges and rents - provided these proceeds are

based on the activities of TAKT -- are to be put into thc KRR as proceeds.

3. Establishment of the KRR

3.1. The KRR shall be considered as audited and confined in all points, with

the exception of the points objected to by me Government within the twelve month

deadline. Only in these points shall the KRR be considered as not confined. Up

to the final decision concerning a cost item objected to, this item shall be

considered as properly put into the KRR. If there is no final decision

concerning a cost item within two years after the putting of this item into the

KRR, this cost item shall ~n any case be properly put into the KRR after the

expiry of this two years.

3.2. If in connection with an audit or examination, areas of a participant of

TAKT are affected then the Government -- represented by the body appointed to

audit the KRR by the Council of Ministers of the RS -- may request of this

participant, the confirmation of the Auditor of the partners concerning the

proper nature of this cost item must be submitted to it. For the purpose of

examining an item of the KRR of course the Government may not directly audit the

documents of a participant. The audit is in any case to be conducted so that

completion of the activities of TAKT is not prejudiced. In the event of a

conflict the completion of the activities of TAKT shall take precedence over the

interests of an audit. In each case however TAKT must make all reasonable

efforts to cooperate to the fullest with the Government in carrying out an


4. Cost types and time schedule of the recoverable costs

The drawing up of the cost types and the time schedule of recovery shall come

solely within the liability of TAKT, and must be broken down by TAKT into the

following cost types:

A. Extraction Costs

B. Development Costs

C. Exploration costs

From the hydrocarbons costs first A, then B and finally C shall be covered.

Re. A

Extraction costs are all those costs incurred through commercial extraction and

any other costs, which cannot be counted as development cost8 and exploration


Re. B

Development costs are all those costs, incurred by TAKT from the date of

termination of the activities in accordance with Art. 7.1 of the contract for

the development of the discovery.

Re. C

Exploration costs are all those costs to be put in the KRR, incurred by TAKT

from the entry into force of this contract up to termination of the activities

in accordance with Art. 7.1 of the contract, whereby initial project costs are

also included.

The annual costs and proceeds of TAKT shall be collated in a list of costs and

proceeds at least every 6 months. At the end of the year annua1 accounts shall

be drawn up.


Initial costs

TAKT already made payments before this contract entered into force. These

payments mentioned in Article 6 Point 4 and in addition all the costs of TAKT,

for which proper vouchers and records can be provided and which are connected

with the works in accordance with Article 6 Point 4, are hereby recognised as




*) This figure (the total up to 31/12/93) is not final and shall be calculated

again up to the date of entry into force of the contract.


New licences for the TAKT activities


Environmental protection

Table of contents


Assessment of the condition of the environment and the effects of the

activities of the Sacha-Austrian Joint Venture TAKT on these taking into

account the environmental protection measures intended by


1.1. Nature of the environment in the sections intended for the carrying out of

the geological exploration and extraction works

1.2. Social and economic data of the sections and areas involved

1.3. Effect of the searching, exploration and extraction activities on

environment and nature


Environmental protection measures

2.1. Environmental protection measures when planning petroleum and natural gas


2.2. Environmental protection measures when carrying out the preparation works

for the drillings

and wells

2.3 Measures to protect the environment and the natural earth resources when

sinking wells

2.4. Prevention of environmental protection during the borehole tests and


2.5. Fulfillment of the measures to satisfy the recommendations of the mining

Supervisory Body of the RS (Y) and Point 2 of certificate No. 184 of the

authority for ecological certificates of the RS (Y)


The completion of liquidation and recultivation works in the sections with

wells to be decommissioned


Obligations of TAKT in the field of environmental




1. Assessment of the condition of the environment and the effects of the

activities of the Sacha-Austrian Joint Venture TAKT on these taking into

account the environmental protection measures intended by TAKT.

1.1. Nature of the environment in the sections intended for the carrying out

of the geological exploration and extraction work.

Section No. 1 intended for the activities of TAKT, which belongs to the

Kempenjay basin and occupies an area of 14,400 square kilometres, is

located from a geomorphological point of view in the Western part of the

Central Yakut plane.

Section No. 2, which occupies a surface area of 6,900 m2 and is in the

transitional area between the Nepsk-Botuobinsk uplift and the Patomsk

basin, is located in the area of the Lena plateau.

Both section 1 and section 2 are characterized by extensive permafrost

rock and are both in the geocryological Lena-Wilyuj area.

Climatic conditions.

The occurrence of powerful high pressure areas in Winter and low pressure

areas in Summer is crucial to the condition of the atmosphere over West

Yakut. The climate of the area is therefore markedly continental with

long and cold Winters, relieved by short but relatively hot Summers.

With the monthly increase in temperatures the absolute humidity and

quantity of precipitations increase. Annually 74-80 % of precipitations

evaporate, the rest run away or seep into the sediments of the humus layer.

Pattern of the land.

The pattern of the land of both sections is a flat or slightly hilly

surface broken up by a system of shallow valleys. The relief arose mainly

through surface erosion.

The valleys are in general wide and form moors, the slopes are flat and

asymmetrical and change imperceptibly into watersheds.

Poor surface drainage leads to serious marshiness, to the formation of

lake and marsh deposits on the watersheds as well as on the slopes and

bottoms of the water runs. The patterns of relief have arisen through

temporary water runs, on the slopes of the river valleys gaps, troughs

and cones of scree or debris have developed.

Networks of rivers and hydrogeological conditions.

The network of rivers in Section No. 1 belong to the basin of the

Wiljuj river and its tributaries: Botomoyu, Chongar, Tonguyu and

Byrakan, and the one in Section No. 2 to the basin of the left hand bank

of the Lena with its tributary Nyuya and the rivers flowing into this,

namely Orto-Sala, Ulachan-Murbajy, Chotogo and Otschuguy-Murbajy.

The river valleys alternately exhibit narrows and expansions. The depth to

which the rivers cut in with average waterflow is 60 to 120 m, that of the

shallower tributaries 20 to 50 m. At the mouths of the rivers of average

depth the valleys have a canyon-type appearance and on the upper reaches

represent weakly carved marshy, trough-shaped gaps with wandering river


On 215 to 220 days the rivers are frozen up; the ice begins in the first

half of October and ends in May.

River deposits form terraces, river and stream meadows. The massiveness

of the flood sediments is 1.5 to 2.0,m, that of the first terrace located

over the meadow 2 to 4 m.

Lake and marsh formations are relatively extensive in the area and can be

found on the basins and thermokarst craters in the river valleys, on the

watersheds and on the upper regions of streams.

Most lakes have a low depth (up to 2-3 m).

The hydrogeological features of the land of both sections were determined

by the fact of them belonging to the Yakut artesian basin with continuous

permafrost rock with a solidity of 200 to 400 m.

Underground saltwater occurs in depths from 300 to 320. This is

mineralised water with a sodium chloride composition, which is under

great pressure.

The water occurring above the frost area is relatively extensive, but

occurs in small quantities and only briefly during the year as a fluid


A small amount of water and the relatively low reserves mean it is

impossible to use it for temporary water supply.

Geocryological conditions.

Both sections belong to the extensive area of permafrost rock, which

forms the upper part of the cryolith zone up to a depth of 200 to 400 m.

The profile section beneath consists up to a depth of 500 to 900 m of

rock cooled to below 0 degrees C, containing salt water and lyes.

In total the extent of the frost layer and the total cryolith zone

decreases from North to South to the Lena valley.

The annual time-dependent depth, to which the rock thaws, fluctuates

greatly in the area: with the dry sand and fine sand deposits it is

2.5 to 3.0 m, in the case of the loam and peat deposits 0.7 to 1.0 m.

In the area of the outcrops of the diabase residues it increases to 4-5 m.

Cryonegic processes and formations.

Cryogenic developments exist and occur in the relevant areas in the form

of solifluction, thermokarst, occurrences of frost and surface grooves

caused by frost.

Solifluction processes usually occur on slopes, which have an inclination

of over 2 to 3 degrees and the composition of which contains fine

sand-loamy permafrost rock containing ice. This process is particularly

active on concave, relatively humid slopes with increased drainage.

The formation of grooves by frost on the surface gives a slightly

undulating land pattern.

The rising up of the land caused by the redistribution of moisture during

freezing is the most extensive phenomenon.

The types of thermokarts depend on the occurrence and conditions and

storage of the underground ice in the mountain rock. When these sediments

thaw thermokarst basins occur, which can be split up as follows:

Meadows, river terraces located above them, watersheds with the formation

of peat, wide valleys on the upper regions of streams.

Vegetation in the development areas.

The vegetation of these areas belongs to the type of vegetation of the

Taiga subzone. The prevailing types of tree are larch and pine. For all

forest types, apart from the pine forest, there is a dense undergrowth of

birch trees, alders, and aspens. The bushes mainly consist of wild

rosemary, marsh bilberry and dwarf birch. Thc meadow vegetation is

fairly extensive and mainly occurs in the river valleys and on the lakes

in the form of sedge.

Within the two sections of TAKT the following geobotanical associations

occur: pine, larch-pine-bush-moss-lichen-forest. The floor cover

consists of lichen and green mosses.

1.2. Social and economic data of the relevant sections and areas.

The areas for the activities of TAKT are practically undeveloped from an

economic point of view. There are social-economic data available for

large areas, which concern the petroleum and geological division of the

areas, especially for the West-Wiljujsk (Section No. 1) and Predpatomsk

(Section 2) petroleum and natural gas area.

Section No. 1 - West-Wil3uisk petroleum and natural gas area.

This area is in the basin of the middle reach of the river Wiljuj.

The West-Wiljujsk petroleum and natura1 gas area extends over four

administration districts of the Republic and embraces the Eastern part

of the Suntarsk, the South Eastern part of the Njurbinsk, the Southern

half of the Verchnewiljujsk and a smaller area in the South of the

Wiljujsk area.

The main river Wiljuj runs 25 to 60 km in the North West of Section

No. 1. The section contains the biggest tributaries of Kempendyay,

Botomoyu, Tonguyu and Byrakan. In addition there are the smaller

tributaries, lakes and marshes. Only the river Wiljuj is navigable.

The most important settlements are Njurba, Ustje and Tojoku.

All the settlements along the Wiljuj from Ojusut to Njurba are

connected to the power supply network of the Wiljujsk power station.

Typical of thc region is the felling of timber to heat the numerous

settlements. Timber felling totals about 45,000 to 50,000 cubic metres

per annum.

The only raw materials extraction company in the district is the

Kempendjaysk salt works with a capacity of 2000 tonnes per annum.

Brown coal and rock salt take first position as regards natural earth


Most freight goods are transported via the Lena and Wiljuj rivers

(the Lena is navigable 150 days, the Wiljuj for 130 days). The freight

goods collected in the Wiljuj ports are mainly transported onwards in

Winter by lorry to the relevant sites of utilisation. The "Winter roads"

are navigable from the end of December to the middle of April.

Helicopters are used for the transportation of urgent freight and to

carry crews.

Section No. 2 - Predpatomsk petroleum and natural gas area.

This petroleum and natural gas area occupies a narrow, but fairly lengthy

strip along the Baikal-Patomsk highland in the basin of the upper region

of the Lena and belongs to the marginal basin of the same name. Section

No. 2 is located in the North of the central part of this petroleum and

natural gas area.

The central part of the petroleum and natural gas area covers

administratively the South Eastern part of the district of Lensk, the

North Western part of the Olegminsk and a small area of the Southern part

of the Sutarsk area.

The river Lena Bows through the petroleum and natural gas area (60 km from

section No. 2). Parallel to the Lena its left hand tributary Njuja runs

in the central part of the petroleum and natural gas area. Straight

through section No. 2 flow the left hand Njuja tributaries Chotogo,

Orto-Sala and Otschchuguj-Murbajy.

The most important settlements are the City of Lensk and the towns of

Witim and Peleduj. On the Lena and the Njuja there are about 20 small

towns and settlements. The number of inhabitants is about 50,000, 10,000

of which being agricultural population.

Most freight goods are processed in the river harbour of Lensk.

The Lensk-Mirnij motorway, which is navigable throughout the year, passes

through the central section of the area.

The delivery of freight goods for the geological survey team is effected

via provisional motorways, which are only navigable in the Winter.

Freight traffic is mostly done through local and internal airlines of the

Republic. There are flight connections, between Lensk and Novosibirsk or

Irkutsk as well as between Mirnyj and Moscow.

The high voltage line 220 runs from the settlement of Chernysheskiy

(Wiljujsk power station) to the City of Lensk along the motorway.

Two natural gas, one salt and hydrobromine and construction materials

deposits have been found.

Medical and cultural facilities as well as education possibilities only

exist in the district centres of Lensk, Sutar and Verchnevilyuysk.

1.3. Effect of the searching, exploration and promotion activities on the

environment and nature.

The greatest damage to the environment and nature, occurring during

drilling activities, is the damage to the humus layer.

The latter is caused by the following works:


Construction of roads, power and water lines

Transportation of drilling equipment, materials and people on

defective and specially paved roads

Planning of locations for the setting up of drilling rigs and camps

The erection of drilling sludge and petroleum tanks.

A further important damaging factor is contamination by the fluids used

and which occur during drilling activities and tests:


Borehole flushing and cement sludges

Flushing and drilling waste

Products occurring during testing and extraction (oil, gases, system


Combustion products when operating combustion engines and boiler


Weighting material, flushing and cementation additives

Cutting and lubricating fluids

Domestic refuse and effluents


The degree of environmental pollution by effluents and other fluids and

solid waste, occurring during drilling activities, is understood to be

the amount exceeding the permissible hazardous substance concentrations

(HK) in the individual media.

The harmful substances maximum concentration is the maximum concentration,

which with the relevant substance does not exercise any direct or

indirect effect on the health condition of people or does not

prejudicially affect the hygiene conditions for the use of water. The

contaminating effect of the drilling solutions depends on the toxicity of

the ingredients and components, which are split up into the following

areas: Toxic, health toxic, total health and the like.

The values for some substances and chemicals, which are valued according

to the amount of the maximum concentrations in the individual media, are

given in Table 1.

Maximum harmful substance concentration values for the chemical substances in

the water used during drilling activities.

Table No. 1

Name of substance


HKg* (mg/l)

Aluminium sulphate




Calcium chloride


Sodium hydroxide


Sodium carbonate


Sodium choride


Sulphate ion




Chrome-ion (C13 +)


Chrome-ion (Cr 6 +)


Polyphosphate (-PO4)




Class of



Sodium phosphate

(- PO 4)


Sodium solicate (-03)


Carboxymetahylcellulose Health-toxic

Condensed sulphite

alcohol Lye







M= 2-3 million



M= 5 million




Carbon alkali reagent


Flotation agent T-66,

T-80 (floxanalcohol)


Foam remover, coagulator

Sulphanol NP-1




Sulphanol NP-3




Olein acid










Other petroleum



Suspended particles


pH value


in the dry residue

of which:



*) HKG - hydrocarbons in the water of effluents

HKFG - HK in the water of fishing waters

Classes of harmfulness:

Class 1

- extremely harmful

Class 2

- very harmfu

Class 3

- harmful

Class 4

- moderately harmful

The quality of the drilling effluent will be valued on the basis of the

following main criteria: density, clarity, colour alkali content, proportions

of chlorine-ion (Cl -) and sulphate-ion (SO4 2 - ), general mineralisation, pH

value, content of petroleum products, suspended particles and surface-active


Pollution of the areas caused by toxic gaseous products, as arise during the

operation of combustion engines, boiler systems and during borehole tests.

The permissible maximum values for harmful substance concentrations in air are

given in Table 2.

Hydrocarbons values for chemical substances, which occur during drilling, when

operating combustion engines, boiler systems and during borehole tests, in the


Table 2

Description of substance

Max 1-off






Class of

average (mg/dm3) permiss. harmless




Benzine (petroleum

benzine converted to


Gas condensate

Nitrogen dioxide

Carbon dioxide

Sulphuric acid


Sulphur anhydrite

Hydrogen sulphide



Potassium chloride

Copper sulphate

Sodium chloride

Sodium hydroxide

Sodium carbonate

Cement dust:

Potassium borate

Carbide, oxide

For classes of harmfulness see Table 1.

2. Environmental protection measures

On the occasion of all the environmental measures taken by the Joint Venture

during its activities in both sections (both during exploration activities

by TAECT, as also during the operation of the developed deposits), the

following conditions shall be fulfilled:


Article 4 of tile law relating to the protection of nature in the

Republic of Sacha (Yakut), which defines the ecological status of the

Republic as an easily vulnerable, delicate region with limited

ecological capacity, where "preference is given to clean technologies

which create little or no waste and where projects which overtax the

capacity of the natural areas are forbidden".


Expert report No. 184 of the State Ecology Committee of the Ministry

for the Protection of Nature of the Republic of Sacha (Yakut) of

29th July 1993, in which it is recommended that account be taken a

all phases of planning, exploration, erection and operation of the

negative experience with regard to the effects on the environment

during development and extraction of deposits in West Siberia

(Russian Federation).

Since the working programme of TAKT in the first phase provides for an

exploration period of many years, this paragraph deals in great detail

with the measures to protect nature during this period of drilling

activities by TAKT to search for oil and gas.

In the event of the search and exploration works being successful,

allowing commencement of exploitation of the discoveries, projects will

be developed for the economic development of such discoveries, the

sinking of extraction wells, the building of transport roads and the

provision and removal of pipelines, whereby these projects, will make

clear the assessment of the effects on the environment and the

environment protection measures by means of specific technical tests

on specially demarcated areas of land within the sections made

available as part of the "environmental protection" tasks.

These projects shall be submitted to the competent bodies of the

Republic of Sacha (Yakut) for harmonisation and approval, and they

will also be subjected to an ecological report.

2.1. Environmental protection measures during the planning of oil and gas


The pieces of land for the drilling rigs, the accommodation for the

drilling crews, installation and removal of pipelines as well as roads

and helicopter landing places will be selected on the basis of the site

investigations taking into account the merest technical effects on the

environment, whereby the drilling projects must be approved by the

competent environmental protection centres of the Republic.

Drilling works within bank protection areas may only be carried out if

there exists a special permit from the authorities competent for the

protection of nature and water resources.

When planning preparation works for the drilling (erection of access roads,

including the construction of bridges over waterways, ravines (gorges) and

other obstacles, work in connection with the transportation of the drilling

rig and the main construction units of the drilling equipment, planning of

the site) factors causing pollution of the soil, water and air must be


When planning for the construction of the drilling rig and the works for

sinking and liquidation (preservation) of drilling shall take into account

the following criteria:


Use of new progressive and environmental-friendly technologies when

carrying out search and exploration drillings, which have been

developed by foreign participants of the TAKT Joint Venture, of the

Austrian company OEMV.


The drawing up and preparation of extensive measures to protect the

surface and formation water (also the groundwater), of the soil and

the air against contamination by chemicals contained in drilling

flushing fluids and cement sludges, flushing waste, consumed

drilling Hushing fluids, s1udge, mineralised water and other toxic

products occurring during borehole tests.


Work to determine the permissible maximum concentration (HK) for

a new chemical substance, the use of which is planned when sinking



Solutions for the recultivation of the destroyed areas of land and

soil and their punctual handing over to the permanent user.

2.2. Environmental protection measures when undertaking the preparation works

for drilling.

When stipulating the drilling locations on the site a location is to be

selected, which has natural drainage of the surface water. If there are no

locations with natural drainage, then the drilling location shall be

protected by the erection of embankments, moats, permafrost strips and

artificial drainage systems against flooding. The following measures shall

be taken when preparing the drilling location on the site:


extensive avoidance of site sections with seriously frozen land,

where the ice portion totals 40 % of the total volume of the



permafrost land;

preservation of the moss and peat cover adjoining existing ravines

and slopes to prevent the occurrence of thermo-erosion;

spreading and banking with non-swelling material (sand, sand-gravel

mixtures), when the layout of the drilling location on slopes of

seriously frozen soil with an inclination of over 10 degrees cannot

be avoided;

Planning of the drilling location in Autumn or Winter and only on the

condition that the depth of the frost soil is 20 to 30 cm, whereby the

fertile humus layer is to be preserved.

The delivery of materials and equipment to the drillings can only be

effected overland after the freezing of the streams, lakes and rivers.

When setting up the well site the pipelines will be laid above ground and

will be thermally insulated. In the area of drilling locations, drilling

rigs, fuel and lubricating oil stores walls of impermeable 80il shall be


To store the petroleum products and collect the old oil and flushing fluids

tanks will be installed on the drilling site. The installation of the

drilling rig, the installation of the drilling equipment and the erection

of sedimentation systems shall be effected in accordance with the

applicable and general health regulations.

The established drilling site will be surrounded by a moat, which will

prevent the penetration of draining rain and thawing water into the site.

At the bottom part of the site slope a ditch and collection tanks shall

be installed, which will collect all of the water draining from the

drilling site.

The rain and thawing water draining into the ditch and tanks must be

used for technical purposes.

2.3. Measures to protect the environment and the natural earth resources when

sinking wells.

The progressive technology for deep drilling developed by the OEMV gives

a whole set of technical solutions, intended to prevent environmental

damage and open gas and oil eruptions and to avoid contamination of

surface and groundwater.

On the basis of the experience of the drilling operations of the

Republic of Sacha (Yakut) and the OEMV, a Joint Venture will take

measures to protect the environment and the natural earth resources

during drilling activities.

Where there are loose rock layers and formations which carry water,

which can be used as drinking and medical water sources, special measures

will be taken.

When sinking the wells every measure will be taken, to prevent harming

the environment, especially:


Use of environment-friendly materials;

If this is not possible, use of other media complying with every

precautionary measure;

Safe transport and storage of all materials to be used and which


The insertion of materials only in very deep layers of the earth;

The most modern sinking technology, preventing layers having any

effect on each other and penetration into the ground and

underground water.

The waste occurring when sinking wells or boreholes shall be deposited by

agreement with the competent authorities at the working site.

Modern technology will be used for the sealing devices on the borehole.

To prevent oil and gas leaks and escapes during drilling and development

works, all the conditions of the Mining Supervisory Authority

(Gosgortechnadsor) applicable to such works shall be fulfilled.

2.4. Prevention of environmental pollution during borehole tests and extraction

Thanks to the most modern casing (tubbing) schemes TAKT guarantees a high

quality when sinking wells, amongst other things through an improvement of

the quality of the cementation process with me extensive use of casing

packers, centering baskets, scrapers and gas-tight threaded connections

for the casing pipes as well as the use of the most modern technologies

when dri11ing the extraction column in the area of the productive layers.

The borehole tests are effected after completion of the preparation

measures, including the installation of a E-cross and torching devices

with remote ignition and complete combustion, the erection of measuring

sections for dynamic inflow measurements as well as the installation of

metal containers for the storage of the oil the condensate and the

flushing fluid stock with guaranteed installation and measuring devices.

Before carrying out the tests thc devices above ground (aggregates and

lifting devices), the probe head equipment, the pipes for taking away the

layer fluid and natural gas as well as the containers for the flushing

fluid and the petroleum are installed and mounted in accordance with the

existing plan and the technical regulations and fire protection standards.

In the event of escapes and other oil leaks on the surface of the earth

the contaminated areas of the land are treated with absorbing materia1

(peat, sawn timber, sand). The absorption medium is removed from the

soil with the oil and used as a fuel or is taken away completely.

During the economic exploitation of the deposits enclosed and sealed

collection and conveying systems shall be used, which will prevent

contamination of the environment with the product of the drilling.

Projects for the setting up of the deposits will include the erection

of systems for the cleaning and reutilisation or removal of effluents.

2.5. Fulfillment of the measures to implement the recommendations of the State

Atomic Supervisory body of the RS (J) of 21.07.1993 and of Point 2 of

Expert Report No. 184 of the Ecology Committee of the RS (J) of 29.07.1993

2.5.1. In accordance with the recommendations of the State Atomic Supervisory

body of the RS (J) TAKT ensures during drilling activities in section

No. 2 regular observations to establish any occurrence of artificial

radionuclides in groundwater and water near the surface as well as the

possibility of determining the content of radionuclides in the extracted

products in the works for the development and extraction of hydrocarbons.

2.5.2. The possibi1ity will also be given for the extraction of underground and

surface water samples in section No. 1, in order to establish any

content of strontium-90 and Caesium-137.

3. Liquidation and recultivation works in the sections with wells to be shut


3.1. When carrying out liquidation works at the borehole safe insulation of the

oil and gas layers of layers carrying water shall be guaranteed and a

migration of fluids and gases when the permafrost soil thaws.

3.2. After dismantling of the drilling rig, the drilling tower equipment and

the provision and removal of pipes the earth contaminated by petroleum and

chemicals shall if necessary be removed.

3.3. At places where the surface of the soil is extremely compacted, loosening

shall be effected.

3.4. Walls shall be leveled and the location shall be leveled off subject to

preservation of the natural relief.

3.5. The works to restore the land shall be carried out continuously until

final conclusion. If the works cannot be carried out at once due to the

weather conditions, the deadline for this may be extended, but this must

not exceed one year from the date of termination of the works on the well.

3.6. If after recultivation the land is to be used for agricultural purposes,

works must be undertaken to produce a condition suitable for agricultural

use in accordance with the deadlines laid down in the regulation

concerning the apportionment of the land.

3.7. Reafforestation measures on the recultivated land and soil shall be

effected at the expense of TAKT by the permanent land user, to whom the

land will be returned.

3.8. The handing over of the recultivated land shall be effected by a committee

of the administration district, in which this land is located. This will

be recorded in documents.

3.9. On accepting the recultivated land, the committee will examine the quality

of the recultivation and whether the works carried out satisfy the approved


4. Obligations of TAKT in the field of environmental protection

Within the framework of its environmental protection activities TAKT shall

guarantee the following:

4.1. Training of the personnel of the Joint Venture in the area of

environmental protection, the use of the most modern environmental

protection technologies during exploration and extraction of gas and oil.

4.2. Strict monitoring as to whether the ecological conditions of the project

for the installation of wells as well as the installation and development

of the deposits are being fulfilled by the personnel.

4.3. Regular monitoring of the condition of the soil, the flora and fauna as

well as the waterways in the areas to be developed, whereby if necessary

amendments of the technological solutions selected to protect the

environment and nature shall be effected.

5. Summary

The Joint Venture TAKT is of the view that the statements contained in this

section document ~e fact, that the Joint Venture in its activities in the

areas made available to it in Yakut can reduce the negative effects on the

environment to a minimum and guarantee ecological safety for the areas to

be developed by the use of modem, practically waste-free drilling



Licences of other companies concerning

commercial activities in

the contractual area