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PRODUCTION SHARING AGREEMENT





BLUE CREEK EXPLORATION LTD.





EXECUTION DATI='.: 12 TH OCTOBER. 2007





Blue Creek Exploration Lid.



TABLE OF CONTENTS



Artie e

Definitions

II



Grant of Rights to the Contractor



III



Term



IV



Relinquishment



V



General Obligations of the Contractor



VI



Minimum Work and Expenditure Obligations



VII



Obligations of the Government



VIII



Royalty/Production Payment



IX



Recovery of Petroleum Operations



X



Valuation and Measurement of Petroleum



XI



Marketing, Royalty in Kind and Domestic Requirements



XII



Payment Procedure



XIII



Surface Rentals



XIV



Natural Gas



XV



Taxes



XVI



Exemptions from Custom Duties



XV~I



Exchange and Currency Controls



XVIII



Title to Equipment



XIX



Government Participation



-1­



~xpenditures;



Production Sharing



Blue Creek Expiorarion Ltd.



xx



Training and Employment



XXI



Purchases in Belize



XXll



Unitization



XXII



Danger to Persons, Property or Environment



XXIV



Arbitration



XXV



Termination



XXVI



Books, Accounts and Audits, Records, Reports and



XXVII



Insurance and Indemnification



XXVlli



Assignment



XXIX



Law of the Agreement



XXX



Force Majeure



XXXI



Entire Agreement and Amendments



XXXII



Waiver



XXX~II



Confidentially



XXXIV



Notices



Exhibit A



Description of contract area



Exhibit B



Map of contract area



Exhibit C



Bank Guarantee



-2­



Insp(~ctions



Blue Creek Exploration Ltd.



PRODUCTION SHARING AGREEMENT



TH S AGREEMENT, made and entered into this 1ih day of OctGber, 2007, by and

between the GOVERNMENT OF BEIL.IZE, (hereinafter referred to as the "Government')

acting through the Minister of Natural Resources and the Environment and Blue Creek

Exp oration Ltd. a corporation duly organized and existing under the laws of Belize with

business address at 4638 Coney Drive, P.O. Box 438, Belize City, Belize (here,inafter

referred to as the "Contractor").

WHEREAS, the entire property in, and control over all petroleum resources in or

under the territory of Belize is vested in the Government on behalf of Belize,

WHEREAS, no petroleum operations shall be conducted in B lize by any person

other than the Government unless such person has entered into a contract In

accordance with the Petroleum Act (No.8 of 1991 ),

WHEREAS, the Government wishes to promote the exploration for and

production of the petroleum resources in and throughout the contract area. and the

Contraclor desires to join and assist the Government in accelerating the exploration for

and production of the petroleum resources within the contract area,

AND WHEREAS, the Contractor represents that it has the financial resources,

ecl'micaJ competence and professional skills necessary to carry out the petroleum

operations hereinafter described.



OW THEREFORE, the parties hereto hereby agree as follows:

I



ARTICLE I



Definitions



1.1



til this Agreement, the following terms shall have the following meanings:



1.1.1 daffiHated company" shall mean any entity directly or indirectly effectively

controlling, or effectively controlled by, or under direct or indirect effective6



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common control of, a specified entity. For the purposes of this definition,

"control", when used with respect to any specified entity, means the power Lo

direct, administer and dictate policies of such entity (it being understood and

agreed that it is not necessary to own directly or indirectly fifty ,perc nt (50%) or

rna e of such entity's voting securities to have effective control over such entity,

but ownership, direct or indirect, of fifty percent (50%) or more of s.uch entity's

voting securities shall automatically indicate effective controll), and the arms

"controlling" allld "controlled" have meanings corresponding to the foregoingl;



1.1.2 "appraisal well" shall mean a well drilled within the contrac area, foHowing a

discovery, for the purpose of delineating the petroleum reservoir(s) to which the

discovery relates in terms of thickness and lateral extent and estimating the

quantity of recoverable petroleum therein;

1.1.3 "'barrel" shall mean a quantity or unit of crude oil equal to 158.9874 lit rs (forty­

two (42) United States gallons) at a temperature of sixty (60) degrees Fahrenheit

(15.56 degrees Centigrade) under one atmosphere of pressure;

1.1.4 "calendar year" shall mean a period of twelve (12) consecutive months, according

o the Gregorian Calendar, starting with the 1st of January and ending with the

31 st of December;



1.1.5 "calendar month" or "month" shall mean any of the twelve (12) months of the

caendar year;

1.1.6 "commercial discovery" means a discovery of petrol'eum whicil can be exploited

commercially in accordance with accepted practices in the intemationa

petmleum industry;



1.1.7 "continental shelf" shall mean the part of the seabed and subsoil of the

submarine areas adjacent to the coast of Belize, but outside the territo(alwaters,

over which Belize is entitled by international law to exercise sovereign rights for

the purposes of exploring and exploiting its natural resources;

1.1.8 "'contract area" means a geographical area which is covered by the contract; and

includes the whole of, or such part or parts of, the original area awarded to a



A'



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Blue Creek t=xploratlon Ltd.



Contractor which shall remain at [the disposal of such Contractor from time to time

pursuant to the terms of the contract;

1.1.9 "contract year" shall mean a period of twelve (12) consecutive calendar months,

counted from the first day of the first calendar month following the effective date

of this Agreement or from the anniversary of such first day of such month;

1.1.10 "crude oil" shall mean petroleum which is in liquid state at the well head orgas/oil

separator or which is extracted from natural gas, including distiUate and

condensate;

1.1.11 'day" shall mean a calendar day unless otherwise provided herein;

1.1.12 "delivery point" shall mean the FOB point of export in Belize or such other point

which may be agreed between the Government and the Contractor;

1.1,13 lldevelopment and productIon operations" means operations for or in connection

with the production of petroleum;

1.1.14 ~development and production period" shall mean the period referred to m

para raph 3.4;

1.1.15 "discovery" in relation to petroleum, shall mean petroleum not previously nown

to have existed, recovered at the surface in a flow measurable by conventional

petroleum industry testing methods;

1.1.16 "effective date" shall mean the date first above written;



1.1.17 "exploration expenditures" shall mean expenditures made in conducting

exploration operations hereunder, but exclud1ing expenditures made within he

area of a field after a commercial discovery has been declared. ExpJoratio

expenditures shall be determined in accordance with the Income and Business

Tax Act (as amended and in effect from time to time);



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1.1.18 "exploration operations" means operations for or in connection with exploration

for petroleum;

1.1.19 I'exploration period" shall mean the period referred to in paragraph 3.1;



1.1.20 "exp oration well" shall mean a well other than an appraisal well drilled in the

course of exploration operations;

1: .1.21 1 field" shall mean an area, as designated by agreement between the Govemment

and the Contractor, where a commercial discovery of crude oil or natural gas has

bean declared;



1.1.22 'i gross revenues" shall mean the sum of all proceeds of sales and the monetary

equivalent of the value of other dispositions of petroleum produced and saved

and not used in petroleum operations and any other procHeds derivedf om

petroleum operations;

1.1.23 "income tax" shall mean that tax imposed on net income pursuant to the Income

and Business Tax Act (as amended and in effect from time to time);



1,1.24 "initial commercial production" shall mean the date on which the first regular

ship, ent of crude oil or natural gas, or both, is made from a field under a

program of regular production and sale;



1.1.25 ulnspector" shall mean the Inspector of Petroleum appointed under sec ion 4 of

the Petroleum Act (No.8 of 1991);



1.1.26" . aximum efficient rate" shall mean the maximum rate of production of crude oil

in a field, without excessive rate of decline of production or excessive loss of

res,ervoir pressure, and in accordance with generally accepted practices in th

international petmleum industry and the provisions of paragraph 6.3;



1.1.27 "M'n' ter" shall mean the Minister responsible for petroleum affairs in

Government of Belize;



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1.1.28 n tural gas" shall mean all petroleum which at atmosp eric conditions of

temperature and pressure is in a gaseous state, and includes wet mineral gas,

dry mineral gas, wet gas and residue gas remaining after the extraction.

processing or separation of liquid petroleum from wet gas, as well as on­

petroleum gas or gases produced in association with liquid or gaseo,us

petroleum;

Y



1.1.29 "net f)etroleum" shall mean the value of the total quantity of petroleum produced

and saved in a given calendar year and not used in petroleum operations after

deduction of the value of the royalties made in such calendar year and after

recovery of petroleum operations expenditures pursuarnt to paragraph 9,1'

1-1.30 "net taxable income" shall mean net taxable income as determined. in accordance

with the provisions of the Income and Business Tax Act (as amended and in

effect from time to time);



1.1.31 "petroleum" means all natural organic substances composBd of carbon and

hydrogen; and includes crude oil and natural gas, and all other mineral

substances, products, by-products and del'iivatives that are found in conjunction

with petroleum;

1.'1.32~Peroleum



Act" shall mean the Petroleum Act (No.8 of 1991) and any subsidiary

legislation made thereunder;



1.1.33 "ps roleum operations" means the operations related to the

xploration,

development, extraction, production, field separation, transportation, storage,

sale or disposal of petroleum; but does not include any transportation or other

operations (i) beyond the point of export; or (ii) in the case of petroleum which is

processed within Belize, beyond the point of entry into a refinery or liquefaction or

natural gas treatment plant;

1. i ,34 dpetroleum operations expenditures" shall mean expenditures incurred in

conducting petroleum operations hereunder, determined in accordanoe with the

lncome and Business Tax Act (as amended and in effect from time to time);

1.1.35 "roya!ty" shall mean the royalty or production payment described in Article VIII; I



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Blue Creek Exploration Ltd.



1.1.36 "quarter" shalll mean a period of three (3) consecutive months commerming with

the first day of January, April, July and October, respectively, of each calendar

year;

1.1.37 ~wel" means any opening in the gmund made or being made by drilling or boring,

or in any other manner, in connection with exploration operations or development

and production operations, other than a seismic hole;



1.1.'38 ''work programme" shall mean an itemized statement of the petroleum operations

to be carried out in the contract area in each calendar year, or to be carried out

for pecific activities such as drillirng of exploration wells and appraisal weirs and

development programmes, alii in a form acceptable to the Government;

1.1.39 "work programme budget" shall mean the estimate of the costs of all items

included in the corresponding work programme, including both capital and

operating budgets, all in a form acceptable to the Government.



ARTICLE II

Grant of Rights to the Contractor



2.1



The Government grants to the Contractor, subject to the terms and condi ions set

forth in this Agreement, the exclusive right to conduct petroleulTl operations within

he contract area for the term of this Agreement. Except as proVided in

paragraph 11.3, the Contractor shall have the right, durin!~ the term of this

Agreement, to freely lift, dispose of and export its share of the petroleum.

produced hereunder.



2.2



Title to petroleum to which the Contractor is entitled hereunder shall pass to the

Contractor at the delivery point.



2.3



The Contractor shall, except as expressly otherwise IProvided in this Agreemen •

conduct all petroleum operations hereunder at its sole risk, cost and expense:



f)



I



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Blue Creek Expforatfon U .



The Contractor shall look only to the petroleum to which it is entitled un er this

Agreement to recover such costs and expenses, and such petroleum shall be the

Contractor's sole source of compensation thereunder.

2.4



he Contractor shall be responsible to the Government for the execution of all

petroleum operations in accordance with the provisions of this Agreemen.

Wtthout prejudice to the Contractor's position as an independent contractor

hereunder, the extent and character of such work to be done by the Contractor

shall be subject to the general supervision, review and approva of the

Government to which the Contractor shall report and be responsib~e as herein set

forth.



2.5



The Contractor is authorized to construct pipelines, bridges, ferries, landing

fields, radio, telephone and related communication systems a may be necessary

for petroleum operations but subject to the laws in force in elize from time to

time for the regulation and control of such installations and their construc1ion.



2.6



The Government reserves the right to grant licenses to others to prospect for,

explore for and mine minerals other than petroleum within the contract area, and

further reserves to itself the right to so prospect, explore an mine directly, aJ

sUbject to the provisions of paragraph 5.3.



ARTICLE III



Term



3.1



The Contractor Is authorized to conduct exploration operations durIng an

exploration period which shall be comprised of (i) an initial exploration period of

two (2) contract years ("Initial Exploration Period"), and (ii) subject to the

conditions hereinafter provided, three (3) successive renewal periods ("First

Renewal Period", "Second Renewal Period" and "Third Renewal Period") of two

(2) years each to the initial exploration period. Such renewal periods sha I be

granted to the Contractor upon the Contractor's request delivered to the

Government in writing not later than ninety (90) days prior to the expiration of the

then current period, subject to the Contractor having fulfilled its obligations

hereunder for the then current period, including the relinquishment !provisions f



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Article IV, and having submitted with such application a work programme and

work programme budget for the period of renewal which is consistent with the

undertakings set forth in paragraph 6.1.



3.2



If at the end of the exploration period, no commercial discovery has been made

in any part of the contract area, this Agreement shall automatically terminate in its

entirety, provided, however, that the Government undertakes to grant an

extension for such period, and for such area as may be necessary, in the opinion

of the Government and the Contractor, (i) for the Contractor to complete the

drill' g, testing, appraisal or plugging of any well actually being drilled. tested,

appraised or plugged at the end of the exploration period and (Iii) for the

Government and the Contractor to determine that a discovery esulting from such

a well is a commercial discovery pursuant to paragraphs under 6.2.



3.3



If a: commercial discovery is made in any portiofl of the contract area during the

exploration period, the Contractor will commence development and pmduc ion

operations in that particular portion of the contract area.



3.4



In the event of a commercial discovery, the extent of the area capable of

production of petroleum from the formation or formations so identified shall be

determined in accordance with the provisions of the paragraphs nder 6.2 or

Article XIV. The area so determined shall thereupon be converted automatically

into a field, with effect from the date of the declaration of the commerc'al

discovery. The term of the development and production period for each field

shall extend for twenty-five (25) contract years from the first day of the calendar

year commencing after the date of the declaration of the commercial discovery in

said fieldl. In the event of a new commercial discovery as a result of new

exp oratory drilling in formations that underlie and overlie each other In an

existing field, such formations shall constitute a single field and the field sha I b

redefined as necessary to incorporate all underlying and overlying formations the

te

of the development and underlying and overlying formations, and the term

of the development and production period for such redefined field shall ,extend or

twe ty-five (25) contract years from the first day of the first calendar year

commencing after the date of the declaration of the latest commercial dlscove~

therein.



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Blue Creek Exploration Ltd.



ARTICLE IV

Relinquishment



4.1



On or before the end of the initial exploration period, the Contractor shall

relinquish twenty-five percent (25%) of the original contract area.



4.2.1 On or before the end of the first renewal period the Contractor shall relinquish an

additional twenty-five percent (25%) of the original contract area.



4.2.2 On or before the end of the second renewal period the Contractor sha I rernquish

an additional twenty-five percent (25%) of the original contract area .



.2



4.



At the end of the exploration period, the Contractor shall relinquish the remalnder

of the original contract area not then converted to a field.



The size and shape of the portion or portions to be relinquished shall be

determined by the Contractor, provided however, that (a) the Contractor shall

advise the Government at least ninety (90) days in advance of the ,date of

relinquishment of the description and area of the portion or portions to be

relinquished, (b) the Contractor shall consult with the Government regarding h

shape and size of each individual portion of the areas being r linquished, (c) the

ar,ea being relinquished shall not be divided into more than two portions, each of

which shall be comprised of, and be defined by reference to, blocks a desoribed

in Exhibit B, save where no such area or areas can be identJified for

re inquishment in accordance with this paragraph without including in uch area

or areas in whole or in part a field or area in which a discovery has been mad

which the Contractor is not otherwise required to ~elinquish hereunder, and (d)

each such relinquished indilvidual portion shall be not less than twenty percent

(20%) of the area being relinquished at such time with sides parallel to the

bou· daries of the original contract area, to the extent that the boundaries of the

origin I contract area permit, and with the longest side not more than tree times

as long as the shortest side, and shall in any event be of sufficient size and

convenient shape to enable petroleum operations to be conducted ther,eon Q

thereunder.



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4.4



The Contractor shall not be obliged to relinquish, pursuant to paragraphs 4.1 and

4.2, any part of the original contract area which has been converted to a field or

in which a discovery has been made which the Contractor is not otherwise

required to relinquish hereunder.



4.5



Upon at least ninety (90) days written notice to the Government prior to the end

of any contract year, the Contractor shall have the right to relinquish all or any

portion of the contract area effective as of the end of such contract year. subject

to the provisions of paragraph 4.4, and such portion shall then be credi ad

against that portion of the contract area which the Contractor is next required t

relinquish pursuant to the provisions of paragraphs 4.1 and 4.2.



,6



No relinquishment made in accordance with this Article IV shal'l relieve the

Contractor of: (a) its obligations to make payments due as a result of surface

rental's prior to the effective date of any such relinquishment, or (b) the minimum

work and expenditure commitments undertaken pursuant to paragraphs 6.1.1

and 6.1.2.



4.7



Upon relinquishment of any area, the Contractor shall perform all necessary

clean-up activities in accordance with generally accepted practices in the

international petroleum industry, and shall take all other action necessary 0

prevent hazards to human life or third party property.



ARTICLE V

General Obligations of the Contractor



5.1



The Contractor shall be responsible for conducting all pelroleum operations

w'th'n the contract area diligently, expeditiously and efficiently in accordance wnh

g,enerally accepted practices in the international petroleum inclustry and pu suant

The

to work programmes approved in accordance with paragraph 5.4.

Contractor shall ensure that all eqUipment, materials, supplies, plant and

installations used by itself, and its contractors and subcontractors comply with

gene ally accepted standards in the international petroleum industry and are of

proper construction and kept in optimal working order.

I



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5.2



Except as otherwise provided in this Agreement, the Contractor shall:

(a)

advance all necessary funds and purchase or lease all equipment,

materials and supplies required to be purchased or leased in connection

with petroleum operations;

(b)

furnish all the technical expertise and assistance, including foreign

personnel, required for the conduct of petroleum operations;fumlsfl aU

other funds for the performance of petroleum operations as may be

required, including payment to foreign entities that perform services as

contractors or subcontractors to the Contractor;

(c)

appoint a representative and in his absence, a r placement

therefor, with respect to this Agreement, who shall have an office and be

resident in Belize and who shall have full authority to represent he

Contractor for all purposes of this Agreement and whose name shall, on

appointment within ninety (90) days after the effedive date, be made

known to the Government;

(d)

provide acceptable working conditions and living accommodatlans,

and access to medical attention and nursing care, for all personnel

employed by it, its contractors and subcontractors in petroleum operations;

and

(e)



5.3



pay social security for all employees as per the Laws of Belize.



If, after the effective date, others are granted licenses within the contract area

authorizing prospecting for, exploration for or mining of any minerals or ather

substances other than petroleum, or the Government proceeds with such

prospecting, exploration or mining directly in its own behalf, the Contractor shall

use its best efforts to avoid obstruction or interference with such Jlicensee's or

Government's operations within the contract area. The Government shall use its

best efforts to ensure that operations of third parties do not obstruct the

Contractor's petroleum operations within the contract area.



5.4.1 At least ninety (90) days prior to the beginning of each calendar year, or at such

other time as is mutual~y agreed by the parties, the Contractor shall prepare and

submit for approval to the Government an annual work programme and work

programme bUdget of petroleum operations and petroleum operations

expenditures by quarters for the contract area setting forth tine petroleum

operations the Contractor proposes to carry out during thH ensuing calendar



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year. Such annual work programmes and work programme budgets shall comply

with the minimum work and expenditure obligations describedl in paragraphs 6.1.

Approval by the Government of the proposed annual work programme bUdget of

petroleum operations and petroleum operation expenditures will not be

unreasonably withheld or delayed. The Government and the Contractor shall

have reached agreement upon an annual work programme and work programme

bUdget for the period from the effective date until the end of the calendar year in

which the effective date falls or for the ensuing calendar year if he effective date

falls after the 30th day of September.

5.42 Should the Government wish to propose revisions to the annual work programme

or work programme bUdget, it shall within thirty (30) days after receipt thereof so

no ify the Contractor specifying in reasonable detail its reasons therefor.

Promptly thereafter the parties shall meet and endeavor to agree on th revisions

proposed by the Government. If the Contractor and the Govemment fai'l to agree

upon any revisions proposed by the Government within sixty (60) days of the

receipt of the Contractor's proposals, the points of disagreement shall be

resolved as follows:

(i)



in the case of changes to an annual work programme an work programme

budget which relate to exploration operations, such changes shall be

implemented to the extent that they are not inconsistent with the applicab e

development work programme and work programme budget adopted

pursuant to paragraph 6.1 or the general objective of such annUial work

programme;



(it}



in the case of changes to an annual work programme and work

programme budget which relate to the development of a field, such

changes shall be implemented to the extent that they are not iinconsi tent

with the applicable development work programme and work programme

budget adopted pursuant to paragraph 6.2 or the general objective of such

annual work programme;



(Iii)



all other aspects of the annual work programme and work programme

bUdget to which the Govemment proposes revisions shall be mutually

agreed before such aspects of the annual work programme and work

programme budget shall be adopted.



5.4.3 it is recognized by the parties that the details of an annual work programme may

require changes in light of then existing circumstances. In such vent, the

Contractor may introduce such changes as may be necessary, following

consultation with the Government, but subject to the following:



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Blue Creek Explorallon Ltd,



(i)



in the case of changes to an annual work programme and work programme

budget which relate to exploration operations, such changes may be

implemented to the extent that they are not inconsistent with the

undertakings set forth in paragraph 6.1 or the g'eneral objective of such

annual work programme;



(iO



in the case of changes to an annual work progrramme and work prog amme

budget which relate to the development of a field, such changes may be

implemented to the extent that they are not inconsistent with tne applicable

development work programme and work programme budget adopted

pursuant to paragraph 6,2 or the general objective of su'ch annua work

programme;



(iii)



all other changes may be notified in writing to the Govemment and shall be

mutually agreed before they may be implemented.



5.4.4 To the maximum extent practicable, the Contractor shall involve repres,entatives

of the Government in the preparation of the annual work programme, and work

programme budget.



A.5 Within thirty (30) days after the end of each quarter, the Contractor shal submit

to the Government a report describing and summarizing petroleum operations

carried out, and petroleum operations expenditures incurred during such quarter.

Sue report shall be in a form acceptable to the Government.



5.5.1 The Contractor shall:

(i)



carry out decommissioning at the end of field life unless the Government

expressly releases it from the obligation;



(ii)



at the time of seek,ing approval to develop a petroleum field, include

decommissionin91 proposals as part of its development plan submitte to

the Govern ment;



(iii)



on commencement of production operations, and by such date and in

such manner as may be prescribed by law, establish a decommissioning



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Ltd



fund into which the Contractor shall contribute funds to oomplete

decommissioning in accordance with the approved decommissioning plan.



5.5.2 Any shortfall in the decommissioning fund to meet the costs of decommissioning

shalll not release the Contractor from the obligation to complete decommissioning

at he end of the field life in accordance with the approved decommissioning plan.



5.5.3 For purposes of this paragraph, "decommissioning" means the measures to be

taken by the Contractor at the cessation of petroleum operations to remove or

,otherwise deal with installations, equipment, pipelines and other facilities whether

on or off shore, erected or used in connection with the exploratlon or and

production of petroleum and to rehabilitate land disturbed by the operations.



ARTICLE VI

Minimum Work and Expenditure Obligations



Exploration Period



'.1



The Contractor shall commence petroleum operations hereunder not later than

ninety (90) days after the effective date.



6.1.1 The amount to be expended by the Contractor in conducting exploration

operations in accordance with approved work programmes du "ng the exploration

period shall not !be less than the following as adjusted pursuant to paragraph



6.1.3.



6.1.1.1 Inifal Exploration Period:

(a)



First contract year: US$75,OOO.



(b)



Second contract year: US$60,OOO.

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6.1.1.2 First Renewal Period (if requested by the Contractor pursuant to paragraph 3.1):

(a)



First contract year: US$700,000.



(b)



Second contract year: US$100,000.



6_1.1_3 Second! Renewal Period (if requested by the Contractor pursuant to paragraph

3.1):

(a)



First contract year: US$1,000,OOO.



(b)



Second contract year: US$75,000.



. .1.4 Third Renewal Period (if requested by the Contractor pursuant to paragraph



3. ):

(a)



First contract year: US$100,000.



(b)



Second contract year: US$50,000.



6.1.2 The Contractor undertakes to carry out and comply with the following minimum

work commitments.

6.1.2.1 Initial Exploration Period:

(a)



First contract year:

Collate available data, conduct geochemical survey and geological mapping.



(b)



Second contract year:

Conduct infill geochemical survey.



6.1.2.2 Fkst Renewal Period (if requested by the Contractor pursuant to paragraph 3.1):

Acquire 70 km of 20 seismic.

Process and interpret 20 seismic and draft geological and str _cture maps. Plan

exploration well.



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6.1.2.3 Second Renewal Period (if requested by the Contractor pursuant to paragraph



3.1 ):

Drilll one exploration well.

Evaluate results of first exploration well.

wartanted.



Plan second exploration weH if



6.1.2.4 Third Renewal Period (if requested by the Contractor pursuant to paragraph



3.1 ):

Drill second exploration well if warranted.

Eva uate results of second exploration well.

6.1.3 If, during any contract year in the exploration period, the Contractor shou d

expend more than the required minimum annual exploration expenditures, the

Contractor may subtract an amount equal to the excess amount spent from the

equired minimum exploration expenditures for the ensuing contract year in the

exp~oration period. If works carried out in any contract year exceed the m1ni urn

work commitment relating to such contract year as proVided! in paragraph 6.1.2.

the excesses may, with the Government's prior written con ent, count towards

the satisfaction of the minimum work commitments for the ensuing contract year.



Compliance with the required minimum exploration expenditures for a glven

contract year shall not relieve the Contractor of its obligation to comply with he

required minimum work commitment, nor shall compliance with the required

minimum work commitment for a given contract year relieve the Contractor of its

obligation to comply with the required minimum exploration expenditures for such

contract year.



6.1.4

(a) Within ninety (90) days of the effective date and, where this Agreement has

been extended pursuant to paragraph 3.1, on the first day of each extension

period, the Contractor shalll provide security by means of a bank guarantee,

in a form set forth in Exhibit C, equal to the total unadjusted minimum

exploration expenditures for the initial exploration period, or, as the case may

be, for the first, second and third renewal periods, as set forth in paragraph

6.1.1. Upon prior confirmation by independent accountants acc ptable to

both the Contractor and the Government of the exploration expendituTes



actually incurred, such sec~r;: ~hall be reduced at the end of each



contra'1 M



Blue Creek Exploration Ltd.



year in the exploration period to the extent that the Contractor has spent the

prescribed minimum amounts stipulated in paragraph 6.1.1, provided that the

outstanding balance shall not be less than the required mInimum exploration

expenditures for the remaining contract year of the exploration period In

question, as stipulated in paragraph 6.1.1 and as adjusted pursuant to

paragraph 6.1.3.

(b) If, at the expiration of the exploration period, or upon the date of termination

of this Agreement, or upon relinquishment of the entire contract area by the

Contractor pursuant to paragrraph 4.6, whichever first occurs, the Contractor

[has not expended for exploration operations sums at least equal to the tota

minimum exploration expenditures, as adjusted, required hereunder, the

balance of the security corresponding to the unexpended minimum

exploration expenditures, as adjL.:lsted, automatically shall be paid to the

Government.

(c) If, at the end of any contract year in the exploration period, the Contractor

has not expended for exploration operations su ms at least equal to the

minimum exploration expenditures, as adjusted, required hereunder for such

contract year, a portion of the security corresponding to the unexpended

minimum exploration expenditures, as adjusted, for such contract year

automatically shall be paid to the Government.



Discovery and Development Period

6.2



The terms and conditions relating to the discovery alnd development period shall

be as follows.



6.2.1 When in the course of petroleum operations, a discovery of petroleum is made

the Contractor shall immediately notify the Government in writing accordingly,

spectfying in such notice all pertinent information concerning the discovery.

62,2 If the Contractor determines to conduct a drill--stem or production te I, in open

hote or through perforated casing, with regard to the discovery, it shall notify the

Government of the time of such test at least twenty-four (24) hours prlor to the

proposed test, and the Government shall have the right to [have a representative

present during such test. Not later than ninety (90) days after completion of such

test or tests, the Contractor shall complete the analysis and interpretation of th

data resulting from such test and SUbmit a report to the Government which shall

contain copies of such data and its analysis and interpretation thereof, and which

shall also contain a written notification of whether or not, in the Contractor's

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Blue Creek Exploration Ltd,



OplnlOn, such discovery is of potential commercial interest. If the Contractor

plugs and abandons the well which encountered such discovery without

conducting a drill stem or production test, or fails to conduct a dri'll stem or

p:roduction test with respect to such discovery within one hundred and eighty

(180) days from the date on which such discovery has been made, it shall be

deemed to have notified the Government that, in the Contractor's opinion such

discovery is not of potential commercial interest.

6.2.3 If, ;pursuant to paragraph 6.2.2, the Contractor notifies, or is deemed to have

notified, the Government that such discovery is not of potential commercial

interest, the Government shall have the option, exercisable by notice in writing to

the Contractor, to require the Contractor to relinquish the area corresponding 0

such discovery and forfeit any rights relating to such d~scovery and any

production therefrom. The area subject to relinqUishment s all not exceed the

prospective producing area determined by taking into account the area of the

structural closure of the prospective horizon and other relevant technrcal factors.

Any such relinquishment by the Contractor of the area relating to such discovery

before the end of the exploration period shall be carried out in accordance with

paragraphs 4.4, 4.6 and 4.8.



6.2.4 I. pursuant to paragraph 6.2.2" the Contractor notifies the Government that the

discovery is of potential commerciall interest, the Contractor shaH promptly

prepare and submit for approval to the Government a work program 1e and work

programme bUdget for the appraisal of such discovery. Such appraisal wo k

programme and work programme budget shall include a complete programme of

appraisal operations necessary to determine whether such discovery is a

commercial discovery.

6.2.



Within fifteen (15) days after the submission of the appraisal work programme

and work programme budget pursuant to paragraph 6.2.4, the Contractor and the

Gov,ernment shall meet with a view to adopting such work programme and work

pmgramme budget or mutually agreeing upon amendments O,f additions thereto.

Failing agreement between the Contractor and the Government as to such work

progr: mme and work programme budget at such meeting, or within 'fifteen (15)

days thereafter, the original appraisal work programme and work programme

budget submitted by the Contractor, revised in accordance with any ,agreed

amendments or additions thereto, shall be deemed adopted, and the Contractor

shaH immediately commence implementation thereof. On adopHoll of the

appraisal wonk programme and work programme budget, the annual work

programme and work programme budget adopted pursuan to paragraph 5.6

shall be revised accordingly.

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BIlle Creek Exploration Ud.



6.2.6 If, pursuant to paragraph 6.2.2, the Contractor has notified the Government that

he discovery is of potential commercial interest, it shall, unless otherwise agreed:

(a) in respect of a discovery of crude oil, advise the Gover ment by notice in

writing, whether or not in its opinion, the discovery is commercial within a

period of eighteen (18) months from the date on which the Contractor notified

the Government that said discovery was of potential commercial interest:

Provided that in respect of a discovery of crude oil in water depth . of more

than 600 feet, such period may be increased by mutual agreement fram

eighteen (18) months to twenty-four (24) months.

(b) in respect of a discovery of non-associated natural gas, advise the

Government by notice in writing, whether or not in its opinion, the discovery is

commercial, within such period as may be stipulated in an Agreement made

pursuant to Article XIV with respect to such discovery or, in the absence of

such Agreement, within thirty-six (36) months from the date 011 which the

Contractor notified the Government that said discovery was of potential

commercial interest.

6.2.7 If the Contractor notifies the Government that the discovery is not commercial, or

fails to notify the Government that the discovery is commercial within the periods

prescribed in paragraphs 6.2.6 (a) and (b), the Government shall have the option,

exercisable by notice in writing to the Contractor, to require the Contractor to

r-el nquish the area corresponding to such discovery and forfeit any rights relating

to such discovery and any production therefrom. The area subject 0

relinquishment shall not exceed the prospective producinQl area determined by

taking into account the area of structural closure of the prospective horizon and

other relevant technical factors. Any such relinquishment by the Contractor of the

area relating to such discovery before the end of the exploratlion period shall be

carried out in accordance with paragraphs 4.4,4.6 and 4.8.



6.2.8

(a) The notice submitted! to the Government by the Contractor pursuant to

paragraph 6.2.6 (a) and (b) shall be accompanied by a report on the

discovery setting forth all relevant technical and economic data, including, but

not limited to, geological and geophysical information, areas, thicknesses and

extent of the productive strata, petrophysical [properties of the reservoir

formations, PVT data, the reservoir's productivity indices f r the wells tested

at various rates of flow, permeability and porosity of the reservoir formations



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Blue Creek Exp'oratiol1 Ud.



the relevant characteristics and qualities of the petroleum d'scovered,

additional geological data and evaluations of the reservoir, crude oil and

natural gas reserves estimates and any other relevant characteristics ,and

properties of the reservoirs and fluids contained therein, as we I as all

evaluations, interpretations and analyses of such data and feasibility studies

relating to the discovery prepared by the Contractor, its contractors,

subcontractors and affiliated companies.

(b) In addition, if the Contractor believes that the discovery is comme cial. he

shall submit to the Government with the report described in paragraph 6.2.8

(a) a work programme and work programme budget for the development of

such discovery. Such d'evelopment work programme and work programme

budget shall set out detailed proposals, including cost estimates, drilling

schedules, number of wells and well spacing, production forecas s and a

timing schedule, in accordance with generally accepted engineering practices

and economics of the international petroleum industry, for the establishment

and operation of all the facilities, installations and services reqUired for the

production, processing, storage and transportation of petroleum from the

area in which the discovery is located and any other activities incidental

thereto. Proposals relating to production procedures shall ensure that the

area does not suffer an excessive rate of decline of produc ·on or an

excessive loss of reservoir pressure. Such development work programme

and work programme budget shall also contain particulars of feasIble

alternatives, if any, considered by the Contractor for the development and

exploitation of the discovery and economic feasibility studies carried out yor

for the Contractor with respect to the discovery taking into accoun the

location, meteorological conditions, cost estimates, the price of petroleum

and any other relevant data and evaluations thereof. The development work

programme and work programme budget shall also be accompanied by an

environmental impact assessment study as provided under Article 23.



6.2.9 The Government shall examine the report and any work programme and work

programme budget submitted pursuant to paragraph 6.2.8 and may require 1he

Contractor to provlide, within a specified period of time, such additional

information and data as it may reasonably require to evaluate such report, work

programme and work programme budget. As soon as possible after the

submission of the report and any work programme and work programme budget

pursuant to paragraph 6.2.8 or receipt of such additional information and data,

the Government and the Contractor shall meet (i) to determine at such meetinQ,

or at such later date as may be mutually agreed, the boundaries of the ama 0 be

delineated as a field, and (ii) to adopt a work programme and work programme

budget for the development of the discovery.



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Blue Creek Exploration Ltd.



6.2.10

(a) At the meeting described in paragraph 6.2.9, the Contractor shal,1 carefully

consider and take into account the proposals of the Government and the

reasons therefor and shall attempt in good faith to reach an agreement with

the Government on the points at issue paying particular 00 sideration to the

objective of achieving initial commercial production expeditiously taking into

account generally accepted engineering practices and economics of the

international petroleum industry.

(b) If the Government and the Contractor agree upon the boundaries of the araa

to be delineated as a field and upon the adoption of a work programme and

work programme budget for the development of the discovery, the date upon

which such agreement is reached, as reflected in writing signed by both

parties, shall be the date of the declaration of the commeroial discovery for all

purposes of this Contract. The area so determined shall,. on such date. be

automatically converted into a field, and the Contractor shall, as soon as is

practicable, commence development and production operations in the field

according to the adopted work programme and work programm.e bUdget.

Upon adoption of the development work programme and work rogramme

bUdget, the annual work programme and work programme budget adopted

pursuant to paragraph 5.4 shall be revised accordingly.

(c) In the event that no agreement is reached between the Government and he

Contractor within one hundred and eighty (180) days from t e date of

submission of the mport and work programme and work programme budget

pursuant to paragraph 6.2.8 as to (i) matters relating to the adoption of the

work programme and work programme budget for the evelopment of the

discovery or (ii) the boundaries of the area to be delineated as a field, the

Government or the Contractor may refer the matter for determination by a

Sole Expert. The determination by a Sole Expert in accordance with this

paragraph shall be final and the work programme and work programme

budget for the development of the discovery and the boundaries of he area

to be delineated as a field, as the case may be, shall be deemed to have

been adopted and agreed as determined, except that the Corntractor may,

within sixty (60) days of receipt of such determination, notify the Government

that the discovery to which such work programme and work programme

budget and area so determined is no longer considered to e com ercial. If

the Contractor so notifies the Government, the provisions of paragraph 6.2.7

shall apply. Failing such notification, the date after sixty (60) days of the

receipt of such determination shall be deemed to Ibe the date 0 the

declaration of the commercial discovery for all purposes of this Contract. The

rea so determined shall, on such date, be automatically converted into ~.- 23­



Blue Creek Exploration Ud.



field and the Contractor shall, as soon as is practicable, commence

development and production operations in the field according to the work

programme and work programme budget so adopted. Upon adoption of the

development work programme and work programme budget as aforesaid, the

annual work programme and work programme budget adopted pursuant to

paragraph 5.4 shall be revised accordingly.



For purposes of this Article, "Sole Expert" means a person appointed by

Agreement between the Contractor and the Government to resolve a difference

referr,ed to in paragraph 6.2.10 (c) of this Contract, and, in the event that there is

fai ure to agree on the person to be so appointed, a person appointed by the

Secretary-General of the Permanent Court of Arbitration at the request af either

Party, who shall be an independent and impartiallPerson of international stand'ng

with relevant qualifications and experience and shall not, by virtue of nationa tty

personal connection or commercial interests have a conflict between his own

interest and Ihis duty as a sole expert.

6.2.1' 1Notwithstanding any other provision of this Agreement, in t e event that initial

commercial production has not occurred within three (3) years, in the case of a

crude oil discovery on land or in water depths of less than six hundred (600) feet,

or five (5) years, in the case of non-associated natural gas discovery, or such

longer period as the Government may have agreed in the development work

programme arnd work programme bUdget, from the date of declaration of

commercial discovery for a field, the Contractor shall relinquish the area

comprising such field and shall forfeit any rights relating to such fie'ld and any

production therefrom.



Productio Period

6.3

The terms and conditions of the production period shall be as set out below.

6.3 1 The Contractor shall produce crude oil from the contract area at a rate below the

maximum efficient rate. In conjunction with the adoption of the development

work programme and work programme budget pursuant to p ragraph 6.2.10 the

Contractor and the Government shall establish at that time the maximum efficient

rate of production for crude oil and the production rate for non-associated natural

gas. Such rates shall be reviewed annually at the time of submissi,on of the

annual work programme by the Contractor pursuant to aragraph 5.4 and

revised, if necessary, by mutual agreement. In the case of nOr'1-associated natura



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Blue Creek Exploratfon Ltd,



gas, the production rate shall not be required by the Government to be less than

that required to satisfy any contracts then in existence for the salle of such natural



gas.



6.3.2 Not less than ninety (90) days prior to the beginning of each calendar year

following initial commercial production, the Contractor shalll prepare and furnish

to the Government for approval a forecast statement setting forth by quarters the

total quantity of crude oil (by quality, grade and gravity) and natural gas that the

Contractor estimates can be produced, saved and transported hereunde dUring

such calendar year in accordance with generally accepted practices in the

'nternational petroleum industry. The Contractor shall endei3vor to produce in

each calendar year the forecast quantity. The crude oil shall be run to storage

tank , constructed, maintained and olPerated by the Contractor in accordance

with Government Regulations, in which such crude oil sha I be me' ered or

othelWise measured for all purposes required by this Agreement.



ARTfCLE VII

Obligations of the Government

7.1



The Government shall:



7.1.1 assjst the Contractor in the execution of work programmes by supplying Dr

otherwise making available all geological, geophysical, geographica I drilling,

well, production and other information, including well location maps, relating to

the contract area in the possession of the Government or comin into the

possession of the Government;

7.1.2 provide the right of ingress to and egress from the contract area and any facilities

used in petroleum operations, and, upon application in the prescribed manner, all

neoessary visas, work permits, import licenses and rights of way and easements

as may be required by the Contractor and its contractors and subcontracto sand

which may be available from resources within the Government's control.



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....



_.



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Blue Creek £XplOf



tion Ltd.



ARTICLE VIU



Royalty/Production Payment



8.1



The Contractor shall pay to the Government a royalty equal to (i) twelve an a

half percent (12.5%) of the value of the annual gross production of crude oil

produced and saved in each calendar year and not used or consumed in

petroleum operations and (ii) seven and a half percent (7.5%) of the value 0 the

annual gross production of natural gas produced, saved and sold in each

calendar year and not used or consumed in the conduct of petroleum operations.



8.2



The royalty with respect to crude oil shall be payable in cash and/or kind at the

option of the Government. The royalty with respect to natu ral gas shall always

be paid in cash.



B.3



For the purposes of determining the amount of the royalty due, c de 0'1 and

natural gas shall be valued in accordance with paragraphs 10.1, 10.2 and 14. ~

less such costs as the Government may reasonably allow for handling and

transportation from the wellhead to the delivery point as described in such

paragraphs, and the royalty shall be payable quarterly within thirty (30) day of

the end of each quarter on the basis of crude oil production or natural gas sales

which occur in each such quarter. Payment shall be accompanied by a

certificate from the Contractor setting forth in detail the basis for computatJon of

the royalty. Such certificate shall be in a form acceptable to the Gove ment.



8.4



Ifthe Government elects to take the Royalty with respect to Crude Oil, or any part

thereof, in kind, it shall notify the Contractor in accordance wiith the proVisions of

paragraph 11.2.



ARTICLE IX



Recovery of Petroleum Operations Expenditures: Producfon Shari g



9.1



In each calendar year, after discharging its obligation for the royalty paymen due

to the Government pursuant to Artkle VIII, the Contractor shall be entitled to



1./



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B/l;Je Creek Exploration Ltd.



recover all petroleum operations expenditures incurred hereunder, out of one

hun red percent (100%) of the petroleum produced and saved in such ,calendar

year and not used in petroleum operations by retaining and dispos'ing of that

amount of petroleum equal in value to the unrecovered petroleum operations

expenditures for that calendar year plus all unrecovered petroleum operations

expenditures from prior calendar years. All such petroleum operations

expenditures shall be recovered without a ceiling in the manner, to the extent

pmv'ded for, in the Income and Business Tax Act. For the purpose of determining

the value of the quantity of petroleum to which the Contractor is entitled in each

calendar year pursuant to this paragraph 9.1, the provisions of Article X shall be

applied.



9.2



The 'remaining quantity of petroleum produced andl saved in a given calendar

year and not used in petroleum operations, after deduction of the value of the

royalty payments made in such calendar year and after recovery by the

Contractor of petroleum operations expenditures pursuant to paragraph 9.1, (~ et

Petroleum") shall be taken and disposed of separately by the Government and

the Contractor in each calendar year in the following proportions:



Government's

Production Share

Percent (%)



Contractor's Production

Share Percent (%)



Daily Average

P oductlon



First 10 000 barrels



11



89



Next 10,000 barrels



16



84



Next 10,000 barrel1s



21



79



Next 10,000 barrels



25



75



Any volume over first

40,000 barrels



35



65



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Blue Creek ExploratIOn Ltd.



ARTICLE X

Valuation and Measurement of Petroleum



0.1



Crude oil sold by the Contractor in arm's length commercial transactions shall be

valued at the net realized price on such sales.

For purposes of this paragraph, "net realized price" means the price realized at

the delivery point as calculated! by adjusting the price actuaUy received at the

point of sale with allowable deductions. In calculating the net realized price

deductions may only be made for (a) transportation costs between th,e delivery

poin~ and the point of sale, (b) commissions and brokerages, and (c) handling

charges; and the deductions shall be limited to amounts that do not Bxceed

customary and prevailing rates charged therefor in the international oil industry

between independent parties in arm's length commercial transactions.



10.2 Crude oil sold by the Contractor in sales other than arm's length commercial

transactions shall be valued by reference to world market prices of comparable

crude oils sold in arm's length commercial transactions for export in the major

world petroleum markets, and adjusted for oil quality, location and conditions of

pricing, delivery and payment.

10.3 Natural gas shall be valued in accordance with the provisions of paragraph 14.4.

10.4 Sales in arm's length commercial transactions referred to in this Article shall

mean sales other than barter sales made by the Contractor to purchasers that

are not affiliated companies of the Contractor and with whom (at the time tl1e

same is made) the Contractor has no contractua~ interest involving directly or

indirectly any joint interest.



10.5 The Contractor shall, prior to initial commercial production in any field, carry out

an assay of the crude oil from such field for its valuation and! shall promptly

sUbrnit the results of such assay to the Government.



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Bille Creek Explorlltion Ltd.



10.6 In the event that petroleum operations involve the segregation of crude 01 s of

different quality, grade or gravity, and if the parties do not otherwise mutual y

agree, any and all provisions of this Agreement concerning valuation of crude oil

sh'all separately apply to each segregated crude oil. However, in electing to take

crude oil for internal consumption pursuant to paragraph 11.7 and to take royalty

in kind pursuant to paragraph 11.2, the Government shall have the right to

receive, crude oil of the quality, grade and gravity of its choice.

10.7 The Contractor shall supply, operate and maintain equipment for measuring the

volume and quality of the petroleum produced and saved hereunder, including

gravity, density, temperature and pressure measuring devices and any other

devices that may be reqUired. All nneasurement equipment and devices shall,

prior to their installation or usage, be approved by the Inspector of Pe rolleum.

Such equipment and devices shall ,at all reasonable tinnes be available for

inspection and testing by the Inspector of Petroleum or other authorized

representatives. Any such inspection or testing shall not interfere with the normal

operation of the facilities involved. The equipment and devices used or j1nstalled

pursuant to this paragraph shall not be replaced or altered without t.he prier

approval of the Government.

10.8 The Contractor shalll undertake to measure the volume and quality of the

pelro,leum produced and saved hereunder, consistent with generally accepted

practices in the international petroleum industry, with the frequency and

according to procedures which shall be approved by the Government.

10.9 The Contractor shall give the Inspector of Petroleum timely notice of its intention

to conduct measuring operations and the Inspector shall have the right to be

present at and supervise, either directly or through authorized representatives,

uch operations.

10.10 If it is determined, following an inspection or test carried out by the Governmen

o its representatives, that the equipment, devices or procedures used for

measurement are inaccurate and exceed the permissible tolerances Which shall

be established by agreement between the Government and the Contractor, and

such determination is verified by an independent surveyor acceptabl,e to both

pa ies, such 'inaccuracy shall be deemed to have existed for one-half o'f th

period: since the last previous such inspection or test, unless it is proved that such

inaccuracy has been in existence for a longer or shorter period. Appropriate



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Blue Creek Exp'oration Ltd.



,adjustments covering such period shall be made within thirty (30) days from he

date of such determination.



ARTICLE XI

Marketing, Royalty in Kind and Domestic Requirements



11.1 The Contractor shall be obligated to market all crude oil produced and saved

from the contract area, in accordarnce with marketing agreements first approved

by the Government, and subject to the provisions hereinafter set forth.

11.2 If the Government elects to take the royalty payment on crude oil in kind. it shall

so notify the Contractor In writing not less than sixty (60) days prior to the

commencement of each six month semester of each calendar year specifying the

quantity, and designating the grade and quality that it elects to take in Idnd,

based upon estimates, including those contained in the forecast statement

furnished pursuant to paragraph 6.3.2. Final adjustments shall be made withm

ninety (90) days of the end of each calendar year on the basis af actual

quantities. Such notice shall be effective for the ensuing six month semester of

tns:t calendar year. Failure to give such notice shall be conclusively deemed to

mdicate the election by the Government not to take in kind.



1.



Any sale by the Contractor of any part of the Government's share of crude oil

production shall not be for a term expiring more than six (6) months after the date

of execution of the sales contract without the Government's written consent. If

the Government so consents, the Government shall not exercise its, rights to

receive crude oil in kind pursuant to paragraph 11.2.



11.4 Any sale by the Contractor of any part of its share of the crude oil produced and

saved from the contract area shall not be for a term expiring more than twelv

(12) months after the date of execution of the sales contract with'out the

Government's written consent. If the Government so consen ,the Government

shall not exercise its rights under paragraph 11.7 to require the Contractor 0

satisfy the internal consumption requirements of Belize from crude oll which is

subject to such contract.



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Blue Creek up/ora/ton Ltd.



11.5 C ude oil which the Government has elected to take in kind shall be delivered b,y

the Contractor, free of cost to the Government, at regularly spaced intervals at

the delivery point or to the Government's storage facilities in the fiel1d, or both, at

the option of the Government. The Government shall provide at such delivery

points, at its sole expense, all storage, transportation and other facilities

necessary to receive such crude oil, provided, however, that if the Government

requests, the Contractor shall provide adequate storage facilitles at such places,

free of charge, at the risk of the Government, for a quantity of the Govemment's

crude oil not exceeding one hundred thousand (100,000) barrels for each field. If

stor8'ge exceeds one hundred thousand (100,000) barrels per field at any time,

the Government shall pay to the Contractor a reasonable storage char·ge for such

exoess.



11.6 If the Government elects to meet all or part of the requirements of th domestic

market of Belize from crude oil production in Belize, it shall use its share of

production from all crude oil production in Belize to do so. If in any year there is

domestic demand in excess of the Government's share of sLich production, the

Government may require the Contractor to sell crude oil in Belize on a pro rata

basis with other producers in Belize, according to the quantity of crude 011

production of each producer in each year. The Government shallg've the

Contractor at least three (3) months notice in advance of such requiremen and

the term of supply will be on an annual basis, The price for such sal.es shall be

the price as calculated pursuant to paragraph 10.2 above.



11.7 If the Government elects to exercise its rights under paragraph 11.6, it shall notify

the Contractor in accordance with the provisions of paragraph 11.2 relating to the

Government's election to take royalty payment in kind. The amounts to be taken

shaH be based upon estimates, including those contained in he forecast

statement furnished pursuant to paragraph 6.3.2, and final adjustments shall be

made within ninety (90) days of the end of each calendar year on the basis of

actual quantities.

11.8 Not less than twelve (12) months prior to initial commercial production In any

field, the Contractor shall submit to the Government for approval, proposed

procedures and related operating regulations and financial terms covering the

scheduling, storage and lifting of crude oil from such field. The procedures

regulations and terms shall comprehend the subjects necessary to efflciient and

equ'table operations including, but not limited to: rights of parties, notification

time, maximum and minimum quantities, duration of storage, schedUling,



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Blue Creek ExpJoration Ltd.



conservation, spillage, liabilities of the parties, and penalties for over and under

lifting, safety and emergency procedures.



ARTICLE XII

Payment Procedure



12.1 All payments due to the Government hereunder shall be made in United State

dollars at a bank to be designated by the Government, or at the Contractor's

election, such other currency as is acceptable to the Government.

12.2 All payments due to the Contractor hereunder shall be made in United States

doUars at a bank to be designated by the Contractor, or, at the Government's

election, such other currency as is acceptable to thle Contractor.

12.3 Except as otherwise expressly provided herein, all payments liequired to be made

pursuant to this Agreement shall be made within thirty (30) days following the end

of the calendar month in which the obligation to make such payment occurs.

12.4 If any payment is not made when due, such unpaid amount shall bear interest

from and! after the due date at an interest rate compounded annually at two

percent (2%) greater than the interest rate charged by any Commercial Bank in

Belize to pnime commercial customers for ninety (90) day loans as in effect from

time to time until the date of payment.



ARTICLE XIII

Surface Rentals



13.1



The Contractor shall be liable for payment of such fees and surface rentals as are

stipulated in the Petroleum Regulations 1992. The fees payable for each year

shall be paid in advance and in accordance with paragraph 12.3. The fees for

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Blue Creek Exploration Ud.



the first year shall be paid within one month with reference to the effective date of

this Agreement.



ARTICLE XIV

Natura'i Gas



14.1 The Contractor shall have the right to use associated natural gas for petroleum

operations, including re-injection for pressure maintenance in the field or adjacent

fie ds of the Contractor. Associated natural gas which is, in the opinion of both

the Contractor and the Government, not economical, shall be returned to he

subsurface structure, or may be flared with the consent of the Government. In

the event that the Contractor chooses to process and sell associated na ural gas,

the Contractor shall notify the Government of the sam and upon such

notification, the Government and the Contractor shall, as soon as practicable

thereafter, meet together with a view to reaching an agreement on the

production, processing and sale of such gas. In the event the Contractor chooses

not to process and sell associated natural gas, the Government may e ect to off­

take at the outlet flange of the gas-oil separator and use such associated natu al

gas which is not required for petroleum operations. There shall be no charg.e to

the Government for such associated natural gas, provided that the cost to gathe

such associated natural gas in the field at the point of being flared and to process

and utilize it shall be for the account of the Government.

14.2 Where non-associated natural gas is discovered in the contract area and the

Contractor has, pursuant to paragraph 6.2 informed the Government that the

discovery is of potential commercial interest, the Government and the Contrac or

wil, on completion of the appraisal programme relating to such discovery or

sooner if so agreed, meet together with a view to reaching an agreement on the

development, production, processing, utilization, disposition or sale of such gas.

14.3 In the event that the development, production, processing, utilization, disposition

o saie of natural gas from the contract area is determined by the parties to be

economically feasible in accordance with this Article XIV, the costs of

dev·elopment and production of the same from the reservoir to the delivery poin ,

and the revenue derived therefrom, shall, unless otherwise agreed pursuant to

paragraphs 14.1 and 14.2, be included in petroleum operations expendftu es and



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revenues, respectively, for all purposes of this Agreement, subject to the

accounting procedures prescribed by the Income Tax Commissioner.

gl'10SS



14.4 The price to be paid for natural gas, or the value to be attributed thereto shall­



14.4.1 for sales in arm's length commercial transactions, be equal to the price actually

realized by the Contractor for such Natural Gas at the delivery point;

14.4.2 for sales other than in arm's length commercial transactions, be determ,ned by

agreement between the Government and the Contractor, provided, however that

such price or value shall reflect the following: (i) the quality and quantity of the

natural gas (ii) the price at which sales of natural gas from other sources in

Belize, if any, are then being made, (iii) the price at which sales, if any, of natural

g:88 imported into Belize are being made, (iv) the purpose for which the na ural

gas is to be used, and (v) the international market price of competing or

al1ernative fuels or feedstocks.

14.4.3 Sales in arm's length commercial transactions shall mean sales as described in

paragraph 10.4



ARTICLE XV

Taxes



15.1 The Contractor and its contractors and su bcontractors shall be obligated to pay

inoa e tax for the applicable calendar year upon net taxable income dertved

from petroleum operations pursuant to the Income and Business Tax Act.

5.2. In each calendar year, the Contractor's income tax shaU be payable to the

Government in installments on the last day of each quarter on the basis of the

estimate, and quarterly updates thereto, provided to the Government. The

estimated unpaid liability for income tax for each calendar year as of the current

estimate or quarterly update shall be payable equally over the remaining

qua erly installments for such calendar year. Adjusting payments or refunds, as

the case may be, shall be made within ninety (90) days of the end of th,e calendar



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year based upon the detailed accounts submitted for such calendar year

pursuant to paragraph 26.2 and as approved by the Government.

15,3

(a) The Contractor shall within ninety (90) days of the end of each calendar year,

notify the Government of any and all amounts paid to its contractors with

respect to operations carried out by them in Belize and in turn shall notify its

contractors that they must similarly advise the Government within ninety (90)

days after the end of each calendar year of any and all amounts paid to the'r

sub-contractors with respect to operations carried out by them in Belize.

(b) The Contractor shall also advise each of its contractors, and shall require

such contractors to likewise notify their subcontractors that for every six (6)

months such contractors and subcontractors shall furnish to the Govemmen

a list of all their Belizean and @xpatriate personnel, along with the

remuneration received by each of such personnel, and that they shall be

required, prior to leaving Belize to establish to the satisfaction of the

Government that the necessary income taxes have been paid.

5.



The Contractor and its contractors and subcontractors and their respecfve

personnel shall be obligated to pay such reasonable transfer taxes and stamp

duties as may be in effect fmm time to time at the rates which are generally

app'llcable to aU persons or entities in Belize.



15.5 Except as may be otherwise agreed in writing between the Government and the

Contractor, all transactions giving rise to revenues, costs or expenses which wlll

be credited or charged to the books, accounts, records and reports prepared,

maintained or submitted hereunder shall be conducted at arm' length or on such

a basis as will assure that all sU'ch revenues, costs or expenses willi not be higher

or lower, as the case may be, than would result from a transaction conducted e,t

arm's length on a competitive basis with third parties.



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ARTICLE XVI



Exemptions from Custom Duties



16.1



The Contractor and its non-Belizean contractors and subcontractors engaged :in

conducting petroleum operations under this Agreement shall, upon application to

and approval by the Minister of Finance, be provided exemptions from cLlstoms

duties with respect to the importation of, machinery, equipment, spare parts,

materials, supplies, consumable items, moveable property, and any olhe items

or articles connected with petroleum operations, subject to the provisions of

paragraph 11 6.2.



16.2



he exemptions provided in paragraph 16.1 shall not apply to any imported i'tem

when, in the reasonable opinion of the Government, item of the same. a

substantially the same, kind and quality are manufactured localily and ara

available for purchase and timely delivery at the Contractor's operating base in

Belize at a price equal to the cost of the imported item(s).



16.3 The Government reserves the right to Inspect the records, documentation or the

physfcal item or items for which an exemption is or has been prov~ded under

paragraph 16.1 to determine that such item or Items are being or have been

imported' solely for the purpose for which the exemption was granted.



16.4 The item or items exempt from customs duties hereunder shall not be sold to

third parties (who are not in their own right exempt from such customs duties) for

use or consumption in Belize unless prior written authorization is obtained from

the Government and the importing party pays the tax or duty due on tl1e

assessed value of such item or items at the time of sale.



16.5 Any of the items imported into Belize, whether exempt or non-exempt from

customs duties, may be exported by the importing party at any time without he

payment of any export duties, taxes or imposts.



16.6 "Custom duties" as used Iilerein snail include all duties, taxes, or imposts (except

those charges, as may be in force from time to time, paid to the Government for

actual services rendered such as normal handling and storage charges) which

J



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are payable as a result of the importation of the item or items under

consideration.



16.7 The Contractor shall be exempted from any duty, fee or any other financia

imposts (except those charges paid to the Government for actual services

rendered such as normal handling and storage charges, if any) in re pect of the

export of petroleum to which the Contractor is entitled hereunder.



16.8 The Contractor shall not, directly or lindirectly, export any petroleum produced

from the contract area to any country or person which the Government has by

law or official pronouncement declared to be hostile or unfriendly.



ARTICLE XVII

Exchange and Currency Controts

17.1 The Contractor shall be subject to the app·licable exchange control legislation and

regUlations in effect from time to time in Belize, provided, however, that:



(i)



the Contractor shall be permitted, after satisfying its obli~lations of payment

of taxes, bonuses, royalties and other fees to the Government, to raceiv

and hold the proceeds from the sale of its share of any p,~trolelcJm produced

in Belize in its offshore banking accounts;



(i0



the Contractor shall be permitted, after satisfying its obligations of paymen

of taxes, bonuses, royalties and other fees to the Government, to remi any

funds in Belize received from the sale of its share of any petroleum

produced therefrom and which are not reqUired for conducting the

petroleum operations, to its offshore banking accounts;



(iii)



the Contractor shall have the right to establish and maintain local bank

accounts which may be denominated in Belize dollars or, subject to the

prevailing regulations of the Central Bank of Belize, in US dollars which

may be utilized as necessary for payment of Contractor's obligations in

Belize;



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(Iv)



no restriction shall be placed on the importation by the Contractor of funds

necessary for carrying out the petroleum operations stipulated 'n his

Agreement;



(v)



the Contractor shall have the right to pay directly outside of Belize from its

offices abroad for purchases or services for petr leum operations

hereunder, provided, however, that no such payments shall be made to

residents of Belize or to firms using Belize as their main base of operations

(whether natural or juridical) contrary to the Laws of Belize.



ARTICLE XVIII

Title to Equipment



8.1



A'll equipment and assets which are fixed instaHations and are not exported by

the Contractor under paragraph 16.6 shaH become the property of the

Government, without cost, as soon as this Agreement is terminated.



ARTICLE XIX

Government Participation



9.1



The Government shall have the option to acquire for itself or for its designee an

undivided and unencumbered wonking interest of up to ten pE~rcent (10%) of the

interest of the Contractor with respect to a particular field where a discovery has

been made and in return therefor shall furnish its participating interest share of

he funds as provided in paragraph 19.3.



9.2 Ifthe Government exercises its option to participate, (a) it shall, within ninety (90)

days following the date of declaration of commercial discovery for the relevant

field by written notice, inform the Contractor of its decision to exercise its option

to participate in such field and (b) the Contractor (or each corporation, individual

o entity comprising the Contractor at that time pro rata) shall assign and transfer

to the Government or its designee the percentage interest that the Govemment

has opted to acquire. The Government or its designee shall assume all rights and



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obligations of the Contractor pro rata with Its participating interest, in connection

with the particular field for which it has exercised its option to participate. The

rights and obligations assumed by the Government or its designee with respect

to its participating interest shall commence from the date of declaration 0 he

commercial discovery and shall in no case imply any obligation for the

Government or its designee to reimburse the Contractor for any exploration

costs.



19.3 The Government may, upon givIng the Contractor reasonable written notice,

requ re the Contractor to lend the Government up to fifty percent (50%) of th

funds required to pay the Government's pro-rata share of developmen

operaUons expenditure. The loan shall bear linterest at three month USOR pius

two and a half percent (2.5%). The Government shall make repayments of the

loan on a quarterly basis in an amount equal to forty percent (40%) of the

difference between the gross revenue attributable to the Gov,ernment's

Participating Interest in the field and the costs and expenses, including royalty

but excl'uding income taxes, attributable to the Government's Pa1rticipating

Interest in the field. Repayments of the loan shall be applied first to accrued and

unpaid interest and the balance shall be applied in reduction of the outstanding

principal balance.



ARTICLE XX

Training and Employment



20.1 The Contractor agrees to train and employ qualified nationals of BeUze in its

petroleum operations and, after initial commercial prodl!.Jction, will undertake the

schooling and training of nationals of Belize for staff positions, 'neluding

adm'nistrative and executive management positions. The Contractor will requilre

its oontractors and subcontractors to do the same. The Contractor undertakes to

gradlJa Iy replace its expatriate staff with qualified nationals of Belize as they

become available. An annual programme for training and phasing in of nationals

of Belize shall be established by the Contractor and shall be submitted for

approval to the Government. Such programme shall be included in I he annual

work programmes submitted by the Contractor pursuant to paragraph 5.4. Within

thirty (30) days of the end of each calendar year, the Contractor shall submit a

written repori to the Government describing the number of personnel employed



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their nationality, their positions and the status of training programmes for

na1ionals of Belize.



20.2



The Contractor shall also be required to establish a programme, satisfactory to

the Government, to train personnel of the Government to undertake skilled and

technical jobs in petroleum operations for the Government. Such programma

shall also include provisions for practical training by involving representatives of

the Government in the Contractor's on-the-job training for its staff and in the

preparation of the annual work programme and work programme budgets as

reqUired by paragraph 5.4.4.



20.3



The Contractor shall also be required to make available annua Iy to the

Government a sum which is not less than ten thousand United States Dol ars

{US$1 0,000) for the purposes of:

(a) sending suitable nationals of Belize selected by the Government on

petroleum and energy-related courses at universities, colleges or other

training institutions;

(b) attending petroleum and energy-related conferences and workshops· and/or

(c) purchasing for the Ministry responsible for petroleum affair technical books.

professional publications, scientific instruments or other eqUipment required

by the Ministry.



ARTICLE XXII

Purchases in Belize



21.1



In procurement, the Contractor shall give preference to goods which are

produced or available in Belize and services which are rendered by nationals of

Be~ize and companies of Belize, provided such goods and services are offered on

terms equal to or better than imported goods and services with regard to quality.

pr,fce and availability at the time and in the quantities required.



21.2



Loce.lly produced or available equipment, materials and supplies shall be deemed

equal in price to imported items if the local cost of such locally produced or

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avail' ble items at the Contractor's operating base in Belize is not more than ten

pe cent (10%) higher than the cost of such imported items before customs du ias

but after transportation and insurance costs have been added.



ARTICLE XXII

Unitization



22.1



If a field is designated within the contract area and such field extends beyond he

contract area to other areas of Belize over which other parties have the righ to

conduct exploration, development and production operations the Govemment

may require that the development of the field and the production of petmleum

therefrom be carried out in collaboration with the other contractors. The same

rule shall be applicable if deposits of petroleum within the contract area, a though

not equivalent to a commercial discovery if developed alone, would be deemed La

be a commercial discovery if developed with those parts of the deposits which

extend to areas controlled by other contractors.



22.2 If the Government so requests, the Contractor shall collaborate with other

contractors in preparing a collective proposal for common development and

production of the deposits of petroleum for approval by the GovE~rnment.



22.3 If the proposal for common development and production has not been, presented

the

within ninety (90) days of the request described in paragraph 22.2, or

Government does not approve such proposal, the Government may prepare or

cause to be prepared, for the account of the Contractor and the other contractors

involved, a reasonable plan for common development and pmduction.

If the

Government adopts such plan, the Contractor shall comply with all condi ions

established in such plan.



22.4 The Contractor may within twenty eight (28) days from the date on which notice

in writing of such plan has been given to it by the Minister refer the matter to

arbitration pursuant to Article XXIV. In such event the plan shall no be

implemented until the Tribunal renders a decision or the pa ies agree on

compromise plan, whichever occurs first.



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22.5 This Article XXII shall also be applicable to discoveries of deposits of petroleum

wit in the contract area which extend to areas that are not within the dominion of

Be 'Z8, provided that in these cases the Government shall be empowered to

impose the special rules and conditions which may be necessary to satisfy

obligations under any agreements with international organizations or adjacen

states with respect to the development and production of such deposits of

petroleum.

22.6 Within ninety (90) days following the approval or adoption of a unitization plan fo

cammon development and production, the Contractor shall proceed to operate

under any such plan. If a clause of a cooperative or unitary develo men and

production plan which 'by its terms affects the contract area or a part of the same,

contradicts a clause of this Agreement, the clause of the cooperative or unita.ry

pl1an shall prevail.



ARTICLE XXIII

Danger to Persons, Property or Environment



23.1 The Contractor shall act in accordance with the relevant proVISions of

enviro mental laws and regulations in force from time to time in Belize, including

with respect to requirements for the conduct of environmental studies and the

terms and conditions of any approval or authorisation granted to the Contractor

under the relevant environmental laws and regulations.

23.2 The Contractor shall employ advanced techniques, practices and methods of

operation and take other steps as are necessary and adequate in aocordance

with good international oil industry practice, and subject to the requirements of

the laws and regulations specified in paragraph 23.1 to:

(a) protect the environment and prevent pollution;

(b) ensure adequate compensation for damage to the environment roved to

have been caused by the carrying out of the activities under this Agreement

by the Contractor; and,

(c) ensure adequate compensation for injUry to ,persons or damage to property

proved to have been caused by the carrying out of the activities under tMi

Agreement by the Contractor.



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23.3 Subject to the relevant provisions of environmental laws and regulations in force

~rom time to time in Belize, the Contractor shall cause two enviro-nmental impact

assessment reports to be prepared in accordance with the follow'ng

arrangements:

(a) the first environmental impact assessment report, relating to exploration and

appraisal operations, shall, if determined to be required by the Department of

the Environment, be conducted and submitted by the Contractor, as part of

the Contractor's submission of an exploration progra me, in order to

determine the effect of the relevant petroleum operations on the environment;

(b) the second environmental impact assessment repo

covering field

development and production activities, shall be submitted by the Contractor, as

part of its submission of a development work programme, in order to determine

the effect of the relevant petroleum operations on the environment.



assessmen~ reports prepared and submitted by the

Contractor in accordance with paragraph 23,3 shall, in addition to any other

requirements under the relevant environmental laws and re!Julations, include

proposed environmental management plans to minimize environmental damage.

and shall include measures on the following matters: wildlife and habitat

protection; marine resource protection; prevention of air and water pollution~ fuel

storage and handling; waste management and disposal; protection of cultural and

archaeo'iogical sites; selection of drilling sites; !blow-out prevention; flaring during

completion and testing of gas and oil wells; noise control; and site reclamation

and restoration plans.



23.4 The environmental impact



23.5 The Contractor shall ensure that the environmental management plans are made

available to its employees and to IltS sub-contractors to develop adequa e and

proper awareness of the measures and methods of environmental protect"on Q

be used in carrying out its petroleum operations; and that any agreement en ered

'nto between the Contractor and its sub-contractors relating to its petroleum

operations shall include the terms set out in this Agreement and any established

measures and methods for the implementation of the Contractor's obligations in

relation to the environment under this Agreement.



«I

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23.6 Where the activities of the Contractor result in pollution or damage to the

environment or marine life or otherwise, the Contractor shall, in accordance witl1

'900d i ternational oil industry practice and subject to the environmental laws and

reguilations in force in Belize, take all necessary measures to effect immediate

remedy of the failure and the effects thereof. If such pollution or damage is he

result of gross negligence or wilful misconduct of the Contractor, the cost of the

remedy or penalties payable under the law shalll not be allowable deductions in

the computation of income tax.



23.7 The Contractor shall notify the Government forthwith in the event of any

emergency or accident affecting the envirornment and shall, lin accordance with

good l ternational oil industry practice and subject to the environmenta aW5 and

regulations in force in Belize, take such action as may be prudent and necessary

in such circumstances.



23.8 'It after notifying the Government pursuant to paragraph 23.7 the Contractor does

not act promptly so as to control or clean up any pollution or make good any

damage caused, tlrle Government may, after giving the Contractor reasonab~e

notice in the circumstances, take any actions which are necessary in accordance

with environmental laws and regulations in force in Belize and the costs and

expenses of such actions shall be recoverable from the Contractor.



23.9 If he Government reasonably determines that any works or i stallations erected

by the Contractor or any operations conducted by the Contractor endanger or



may endanger persons or third party property or cause pollution or ha,rm wild-life

o the environment to an unacceptable degree, the Government may require the

Contractor to take remedial measur.es within a reasonable pef'iod esta.blished by

the Government and to repair any damage to the environment. If the Government

deems it necessary, it may also require the Contractor to discontinue petroleum

operations in whole or in part until the Contractor has tak.en such remedial

measures or has repaired any damage. In the event that the Contractor fails to

take the remedial measures required by the Government within the time period

established by the Government, the Government may carry out su h remedial

measures for the Contractor's account and the Contractor shall additIonally be

liable for adequate compensation for any damage to the environment, injury to

persons or damage to property proved to have been caused by the petroleum;

l

operations of the Contractor.



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ARTICLE XXIV

Arbitration



24.1



In the event of a dispute arising between the Government and the Con ractor

concerning the interpretation or application of this Agreement, the parties snail

seek to resolve the dispute by consultations and negotiations.



24.2 SUbject to paragraph 24.3, where a dispute cannot be resolved through

consultations and negotiations within a period of six months, either party may do

one of the foJlowing~

(a) where the Contractor is duly incorporated, constituted, set up, or otherwise

duly organized under the law of a State Party to tne 1965 Convention on the

Settlement of Investment Disputes between States and Nationals of other

States ('the Convention'), refer the dispute to the International Centre for

Settlement of Investment Disputes CICSID') for arbitration pursuant to Article

36 of the Convention;



(b) where the Contractor is not duly incorporated, constituted, set up, or

otnerwise duly organized under the law of a State Party to the Conventlon,

refer the dispute to an ad hoc arbitral tribun.al in accordance wrth the

Arbitration Rules of the United Nations Commission on I lernational Trade

Law (1976), subject to the following provisions:

(i)



The arbitral tribunal shall consist of three arbitrators. ach party

shall select an arbitrator, and those two arbitrators shall then

appoint by mutual agreement a third arbitrator, the C airperson,

who shall be a national of a third State. All arbitrators shall be

appointed within two months from the date when a party informs the

other party of its intention to submit the dispute to arbitration under

this sub-paragraph.



(ii)



If the necessary appointments are not made within tne period

specified above, either party to the dispute may, in the absence of

any other agreement, request the Secretary-General 0 the

Permanent Court of Arbitration to make the necessary)

appointments.



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(iii)



The arbitral award shall be made in accordance with this

Agreement. The arbitral tribunal, shall decide all quest ons

presented on the basis of:

(a) the laws and regulations of Belize applicable to this Agre ment

and other relevant laws, both national and international;

(b) the provisions of the Agreement, and

(c) trade usages and customs of the international petroleum

industry.



24.



(iv)



The place of arbitration shall be Belmopan, Belize.



(v)



The arbitral tribunal shall reach its decision by a majority of Yotes.



(vi)



The decision of the arbitral tribunal shall be final and binding and

the Parties to the dispute shall abide by and comply with the terms

of its award.



(vii)



The arbitral tribunal shall state the basis of its decision and give the

reasons for its decision.



(viii)



Each party to the dispute shall bear the cost of its own arbitrator

and its representation in the arbitral proceedings. The cost of the

Chairperson in discharging his or her duties in relation to the

arbitration and the remaining costs of the arbitration shall be bome

equally by the parties to the dispute. The arbitral tribunal may,

however, direct in its decision that a higher proportion of cost shall

be borne by one or other of the parties to the dispute, and this

award shall be binding on the parties to the dispute.



In the case of any disputes concerning a matter identified in paragraph 6.2.10 (c)

of Article VI of this Agreement, the procedures relating to the referral of a matter

to.8 soJe-expert for determination shall apply to the resolution of the dispute.



24.4 The language to be used in arbitration proceedings shalll be English.



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ARTICLE XXV

Termination



25.1 The Government shall have the right to terminate this Agreement upon giving

thirty (30) days written notice of its intention to do so if the Contractor,

(a) failis to make any monetary payment required by law or under this Agreement

for a period of thirty (30) days after the due date for such payment,

(b) faBs to comply with any other material obligation that it has assumed under

this agreement,

(c) fails to comply with the Petroleum Act (No.8 of 1991) andl any lawful acts,

regulations, orders or instructions issuedl by the Government or any department

or agency of the Government, or



(d becomes bankrupt, or goes into liquidation because of inso.lvency or makes a

composition with its creditors.



25.2 If the circumstance or circumstances that result in terminatio under paragraph

2.5.1 (a), (b) or (c) are remedied by the Contractor within the thirty (30) days

period following the notice of termination as aforesaid, such termination shall not

become effective.



25.3 If the circumstance or circumstances that would otherwise result in termination

under paragraph 25.1 (b) or (c) are the result of force majeure, th.en termination

shall not take place so long as such force majeure continue and for such period

thereafter as the Government may determine to be reasonable.

25.4 The termination of this Agreement for whatever reason shall bE! witho t prejudice

to the obligations incurred and not discharged by the Contractor prior to the date

of termination.



2 .5 In the event of termination pursuant to paragraph 25.1 or 25.7, the Government

:may require the Contractor, for a period not to exceed one hundred eighty (180)

days, to continue, for the account of the Government, crude oil or natural gas

production activities until the right to continue such production has been

transferred to another entity.

(

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25.6 Within ninety (90) days after the termination of this Agreement pursuant to

paragraph 25.1 or paragraph 25.7, unless the Minister has granted all extension

of his period, the Contractor shall complete any reasonably necessary action as

directed by the Government to avoid environmental damage or a hazard to

human life or third party property.

25.7 The Contractor shall have the right to terminate this Agreement totally or p,arlially,

(a} with respect to any part of the contract area other than a field then produc'ng,

or that prior thereto had produced, crude oil or natural gas upon giving, ninety (90)

days written notice of its intention to do so, and (b) with respect to any field then

prod.ucing, or that prior thereto had produced, crude oil or natural gas upon giving

one hundred and eighty (180 days written notice of its intention to do so, Upon

termination, the provisions of paragraphs 4.7 and 4.8 shall apply.



ARTICLE XXVI

Books, Accounts and Audits, Records, Reports and Inspections



26.1 The Contractor shall be responsible for keeping complete accounts, books and

records reflecting all petroleum operations expenditures and gross revenues

consistent with generally accepted procedures and standards ,in the interna ional

petroleum industry and in accordance with accounting procedures prescribed for

petroleum operations by the Income Tax Commissioner.



26.2 Within ninety (90) days after the expiration of each calendar year, the Contractor

shalll submit to the Government detailed accounts showing all petroleum

operations expenditures and all gross revenues during the past calendar year.

Before submission to the Government, the accounts shall be audited and certified

by an independent chartered accountant or certified public accountant acceptable

to both parties, at the expense of the Contractor. It is understood Mat the

Government retain the authority to review and audit the Contractor's accounts,

books and records with respect to petroleum operations conducted hereunder

either directly or through an independent accountant designated by the ,)//

'

Government.



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26.3·



The Government and its duly authorized representatives sllalll have full and

complete access to the contract area at all reasonable times with a right to

observe petroleum operations and shall have the right to inspect aH assets,

records, books, accounts and data kept by the Contractor relating to petroleum

operations and this Agreement.

In doing so, the GO'lernmen and its

representatives shall not unduly interfere with the Contractor's petroleum

operations. However, the Government and its representatives may make a

reasonable number of surveys, drawings, tests and copies for the purpose 0

implementing this Agreement.

In so doing, the Government and its

representatives shall be entitled to make reasonable use of the equipment and

Instruments of the Contractor provided that no damage to the equipment or

instruments or impediment to the petroleum operations hereunder shall esult

from such use. The Government shall indemnify and reimburse the Contractor for

any loss or damage which may in fact result from any such USE} of equlpment and

instruments, provided that such loss or damage is reported to the Govemmen

within twenty-four (24) hours from the time of such inspection. The Government

and its representatives shall be given reasonable assistance by the Contractor

for such functions, and the Contractor shall affmd to the Government ami its

representatives, field office facilities and such other additional facilifes and

privileges afforded to its own personnel in the field that may be necessary 10

carry out the functions,



26.4 The Contractor shall prepare and maintain accurate and current records of its

activities in the contract area hereunder, The Contractor shall furnish the

Government in conformity with the applicable regulations, and as the

Government may reasonably require, information, reports and data conceming '1s

activitles and operations under this Agreement.



26.5



The Contractor shall save and keep for the duration of this Agreement a I unused

cores and samples taken from the wells drilled, which shall be forwarded to the

Inspector of Petroleum or his authorized representatives at such tim and in the

manner directed by the Government. All cores and samples acquired by the

Contractor shall be available for inspection by the Inspector of Petroleum lor nis

aut orized representatives at all reasonable times. Unless previously forwarded

to the Government pursuant to instructions given under this paragraph, the

Contractor shall forward to the Government all remaining cores and samples

upon the expiration or termination of this Agreement.



26.6



Unless otherwise agreed to by the Government, in the case of exporting any rock .);/

0' petroleum samples from Belize for the purpose of testing and anaIYSiS;~.



- 49 ­



/'I.



Blue Creek Exploration Ltd.



sampl'es equivalent in size and quantity shall, before such exportation, be

delivered to the Inspector of Petroleum.

26.7 Originals of records and other data can be exported only with the perrnilssion of

the Government, provided, however, that magnetic tapes and any other data

which must be processed or analyzed outside Belize may be exported if a

comparable record is maintained! in Belize and provided that such exported

reoords and data shall be repatriated to Belize.



26.8 The Contractor shall provide to the Inspector of Petroleum in appropriate form all

original data resulting from petroleum operations, including, but not limited to,

'geological, geophysical, petrophysical engineering, well logs, production data

and completion status reports and any other data which the Contractor ay

compile during the term hereof including all reports, analyses, interpr,etations,

rna

and evaluations thereof prepared by the Contractor and any contractors,

subcontractors or consultants to the Contractor or by affiliated compan es, and

cuttings of all samples that have been obtained or compiled durIng the term

hereof ("data"). The Government shall have title to all such data. Such data shall

no be disclosed to third parties by the Government prior to relinquishment of the

area to which they relate, or prior to the end of the exploration period If such area

's not sooner relinquished, provided, however, that the Government may make

c-opies available to professional consultants, Ilegal counsel, accountants,

underwriters, lenders and such Government entities as may need to be made

In any event, the

aware thereof or have the right to require disclosure.

Contractor may retain copies of all such data. The Contractor shall not disc 0 e

such data to any third parties without the Government's ,prior written: consent,

proVided, however, that the Contractor may make copies available to professional

consultants, legal counsel, accountants, underwriters, lenders, affiliated

co panies and contractors and subcontractors of the Contractor and such

government entities as may need to be made aware thereof or have the light 0

reqUire disclosure. Any data which are disclosed by the Government or the

Contractor to third parties pursuant to this paragraph (26.8) sl1all be d'sclosed on

terms which ensure that such data are treated as confidentialr by the recipient.

To the extent that there is any inconsistency between thEl provisions of this

pamgraph (26.8) and the provisions of Article XXXIII, the provisions of this

paragraph (26.8) shall govern.



- 50 ­



Blue Creek Expforetion Lld.



ARTICLE XXVU



Insurance and Indemnification



27.1



To ensure that the Contractor shall meet its obligations to third 'Parties, or to

Government agencies, that might arise in the event of damage or injury (including

environmental damage or injury, removal of wrecks and cleaning up caused by

aocidents) caused by petroleum operations, notwithstanding that the damage is

accidental, the Contractor shalll maintain in force a third party liability 'nsurance

policy covering the activities of itself, its contractors and subcontractors and the

employees of all such parties.

Such insurance policy shallinclu,de the

Government as an additional insured, shall waive subrogation against the

Government, and shall provide that it may not be cancelled except upon thirty

(30) days prior written notice to the Government. A certificat,e evidencing such

insurance policy shall be furnished to the Government within ninety (90) days of

the effective date. The limits, coverage, deductibles and other terms thereof shall

be subject to approval in writing by the Government. To the extent that such th"rd

party liability insurance is unavailable or is not obtained, or dOE~s not cover part or

all of any claims or damage caused by or resulting from petroleum operations,

the Contractor shall remain fully responsible and shall defend, indemnify and hold

the Government harmless against all such claims, losses and dama,ges of any

nature whatsoever.



27.2



The Contractor shall indemnify, defend and] hold the Government harmless

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

limltatiolil, claims for loss or damage to property or injury or death to parsons.

caused by or resulting from any petroleum operations conducted by or on behalf

of the Contractor, provided that the Contractor shall not be held respons'ble to

the Government under this paragraph (27.2) for any loss, claim, damage or injury

caused by or resulting from any negligent action of personnel of th,e Government.



27,3



The Contractor shall contribute two tenths of one percent (0.2%) of the value of

the annual gross production of crude oil and/or natural gas produced and saved

in each calendar year and not used or consumed in petroleum operations to a

Co I mon Fund to be held in trust by the Government and managed for the sale

purpose of indemnification against any or all environmental damages cause/;

during the petroleum operations.

~/



- 51 ­



~





Blue Creek Expforafio(l ,Ltd.



27.4 Nothing contained in paragraph (27.3) above shall be construed to relieve he

Contractor of its obligations of indemnification as set out in this Agreement.



ARTICLE XXVIII



Assignment



28 1 The Contractor may assign, transfer, conveyor otherwise dispose of allY part or

all of its rights or interest under this Agreement with the prior written consent of

the Government, which consent shall not be unreasonably withhe,ld.

28.2 Notwithstanding the provisions of paragraph 28.1, if the Contractor assl,gns to

any affiliated company, the Contractor shall remain fully liable fo tI1e

performance of this Agreement and shall be fully liable for the performance of

any s ch assignee.



28.3 I'n the case of an assignment to any non-affiliated company, the Con raetar shall

provide to the Government an unconditional undertaking by the assignee 0

assume all obligations of the Contfactor under this Agreement. Notwithstanding

such undertaking, the Contractor shall remain jointly and severally liable with the

assignee for performance of the obligations of the Contractor unless the

Contractor assigns its entire interest under this Agreement.



ARTI CLE XXIX



Law of the Agreement



I



29.1 This Agreement shaU be construed under, governed by and interpreted ~n

accordance with the laws of Belize and such principles of internationa law as

may be applicable.



~



- 52 ­



Blue Creek ExpJaratkJn ltd.



ARTICLE XXX



Force Majeure



30.1



Except as otherwise provid.ed in this Article, each party shall be excused from

complying with the terms of this Agreement, except for payment of monies due,

for so long such compliance is prevented by strikes, wars (dec ared or

undeclared), acts of God, or by any act or cause that is reasonably beyond the

control of such party, such causes being herein called "force majeure·. In the

event that either party hereto is rendered unable, wholly or in part, by any of

these causes to carry out its obligations under this Agreement, such party shall

give notice and details of force majeure in writing to the other party within seven

(7) days after its occurrence. In such cases, the obligations of the party giving

the notice shall be suspended during the continuance of any inability so caused.

Such party shall do all that is reasonably within its power to remove uch cause

and t mitigate the cornsequences. Such party shall also promptly notify the ather

party as soon as conditions of force majeure no longer prevent that party from

carrying out its obligations and following such notice shall resume its oblig'a ions

as soon as reasonably practicable.



ARTICLE XXXI



Entire Agreement and Amendments



31.1



This Agreement embodies the entire agreement and understanding between the

Contractor and the Government relative to the subject matter hereof and

supercedes and replaces any provisions on the same subject in any other

Agreement between the parties, whether written or oral, prior to the date 0 this

agreement.

This Agreement may not be amended, modified, var"ed or

supplemented except by an instrument in writing signed by the Contractor and

the G vernment.



l



10



- 53­



Blue Creek ExpJoroftan Ltd.



ARTICLE XXXII

Wai,ver



32.1 Performance of any condition or obligation to be performed hereunder shall not

be deemed to have been waived or postponed except by an instrument in writing

signed by the party which is claimed to have granted such waiver or

postponeme nt.

32.2 No waiver by any party of anyone or more obligations or defaults by any othe

party in the performance of this Agreement shall operate or be con trued as a

wa"ver of any other obligations or defaults whether of a like or of a different

character.



ARTICLE XXXIII

Confidentiality



33.1



This Agreement and any confidential information of any party hereto whic

becomes known to the other party in connection with the pe1rformance of this

Agreement shall not be published or disclosed to third parties without the former

party's written consent, except as otherwise provided herein, and prov,ided

however that such other party may communicate confidential illformation to legal

counsel, accountants, other professional consultants, und(~rwriters enders,

agents, contractors or shipping companies to the extent necessary in connection

with this Agreement, with the obligation of the parties receivinq such information

to maintain confidentiality, or to an agency of the Government of the country of

the Contractor having authority to require such disclosure.

The term "confidential information" as used herein shall mean informafon

identified as "confidential." by the party originally in possession of it and disclosed

to the other party, excluding information previously known to the other parry or

information which is publicly known (except through disclosure of the other party

in violation of this Article XXXIII) or information that comes Onto the legitimate

possession of such other party. The term "confidential infonnation shall not

include information about any money or other consideration paid by thif.

D



-~-







Blue Creek Exploration Ltd.



Contractor to the Government or a person acting on behalf of the Govemment

under or in connection with the terms of this Agreement.

33.2 The confidentiality obligations of this Article XXXIII

relinqu[shment of the area to which the information relates.



shall



expire



upon



ARTICLE XXXIV

Notices



34.1



All notices and other communications required or permitted hereunder or any

notices that one party may desire to give to the other party shall be in writing in

the English language and deemed to have been properly delivered if personally

handed to an authorized representative of the party for whom intended, or sent

by registered airmail or by facsimile transmission at or to the address of such

party for whom intended, or such other addresses as any party may from time to

time designate by notice in writing to the other party.



.- 55­



Blue Creek Exploration Ud



EXHIBIT "A"

DESCRIPTION OF THE CONTRACT AREA



BLOCK·



SUB-BLOCKS



NO. OF

SUB-BLOCKS



SQUARE

KILOMETERS



ACRES



36b



Half of V and W



1



4



988.42



53



E,H,I,J,L,M,N,O,O,R,S,

T,V,W,X,Y and half of

C,D,G

A,B,C,D,F,G,H,I, K thru

Y and half of J

K,L,P,O,R,U,V,Wand

half of F,G,M

B,C,D,E,G,H,I,J,L,M,N,

O,O,R,S,T,V,W,X,Y

A thru N,

P,O,R,S,U,V,W and half

ofO

A,B,C,F,G, and half of

Hand K

B,C,D,E,G,H,I,J,L,M,N,

O,O,R,S,T,V,W

A,B,C,F,G



17.5



70



17,297 as



23.5



94



23.227.91



9.5



38



9,390.01



20



80



1,9768.43



21.5



86



21,251.06



54

55



74

75

76

94



95

114



134



,



"



B,C,B,L,O,V and half of

D,H,M,R,W

B,J,L,O,V,W,X and half'

of C,H,M,R,S



6



24



5,930.53



18



72



17,791.59



5



20



8.5



34



9.5



\



38



4,942.11



,



8,401.58

I



9'390~

138 t 379.03



TOTAL



- 56 ­



Blue Creek ExpJoratlon Ltd.



EXHIBIT "B"

MAP OF THE CONTRACT AREA



r-------- ---_._---._------_ _ - - - -



....



------_.



...



--.-._--- -_..__._._-----­



)



20<000'



r--r- -t-t---r--r--f-H - 1-l-- j --t-- I

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'



/Ii'



1L1t±±!

r-++-V~t1~f--++---'

+-. ,

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200000)



",,,,,



1



· .. C! . :JUtlf:+~

r--+--



:~.::2030000



I I



I



: : ' ,



.+--+-----+--+--l-­



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+-:



I! '



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'I

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!.



'9500("



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-f-(



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,--+-,

1



16;000.



r



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-f-+ -~ . F'---+-J~ - -t-+-+ +.. . ---f-~-~ i' --LL I I \

;

I

-+-: II I

I I

'I 1

,"

1



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'

it: . ~-;

-.-;t-i



----:...-



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1;=7 ~-i -!-i-f-~-



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!,.I:



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,I

.

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-4---+-~-i--JA+~--~-r,

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: , I ~ ! if

' 1I I I

I

I - i -t --- t­ -~ - -: ­ - -f' -- -L

!.

'I'



t

,I

!

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L..l..

,--- ,------,-----,



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, t'

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-~--+~--+:---J: .+~



~ ~ ~



Blue Creek Exploration Ltd. Contract Area



- 57 ­



_



'0



0



0



0



IiI ~ ~ ~ ~ ~ ~ ~



Blue Creek



EXHIBIT



e.KP/oratJon Ltd.



"e"





BANK GUARANTEE





Ministry of Finance,

Government of Belize,

Belmopan, Belize



Gentlemen

RE: OUR IRREVOCABLE LETTER OF GUARANTEE NO.

compliance with



the



nhe



request of



Contraeto r"} , we, (Name of Bank), issue this unconditional irrevocable letter of

guarantee in



your favour for a sum not exceeding



States Dollars (US $



United



), which represents the total' minimum



exploration expenditures set forth in paragraph 6.1.1 of the Agreement CAgreement"),

dated



, 20o_, between the Contractor and the Govemmen of



Bellze (WGovernment"), relating to petroleum exploration, development and production in

the territory of Belize, to guarantee the Contractor's faithful performance of its minimum

exploration expenditures obligations as provided for in the Agreement, the said sum of

_ _ _ _ _ _ _ _ United States Dollars (US $



) to be reduced



at the end of each contract year, as defined in the Agreement, by the amount sfpulated

to be expended in such contract year, if such amount is in fact expended as evidenced

by a signed certificate from the Government, provided, however, that said sum shall



under no circumstances be reduced below the stipulated minimum exploration

expenditures for the remaining contract year of the initial exploration period, as set forth

in paragraphs 6.1.1 of the Agreement, as adjusted in accordance with paragraphs 6.1.3

and 6.1.4 of the Agreement as evidenced by a signed certificate from the Government.



- 58­



r



~



Blue Creek ExploraHon td.



he terms and conditions of this Letter of Guarantee are as follows:



1.



The said amount, or any part thereof, shailibe paid to you upon our receipt of your

written statement that the amount claimed is duly payable under the Agreement.



2.



We hereby waive diligence, presentment, demand for payment, protest. any

requirement that the Government exhaust any right or power or take any action

against the Contractor, all notices (whether of non-payment by the Contractor

dishonour, protest or otherwise) and all demands whatsoever.



Our obligations



hereunder are continuing, absolute and unconditional, and will not be "n any way

affected by giving of time or any forbearance by the Government, the waiver or



consent by the Government with respect to any provisions of the Agreement, and

irespective of the validity, regularity, enforceabimy or value of the Agreement, or

by any other circumstances which might otherwise constitute a legal or equitable

discharge or defense of a surety or guarantor, alii of which are hereby expressly

waived.



3.



Our obligations hereunder shal'l be paid in United States Dollars to the bank



account designated by the Government, free and clear of and without reduction by

reason of any and all present and future taxes, levies, assessed, imposed or

collected with respect thereto by the Government of



or



any political sub-division or taxing authority thereof or there'in. We shall bear and

pay any and all fees and expenses in relating to or in connection with this Letta of



Guarantee.



4.



In order to give effect to this Letter of Guarantee, we hereby declare that the

Government shall be at liberty to act as though we were the principal debtor, any!



- 59 ­



Blue Creek



xploralkm Ltd.



we hereby waive all and any of the rights as surety which may at any time be

inconsistent with any of the above provisions.



5.



Any claim or demand under this Letter of Guarantee shall be presented to us on or

before the expiration of the date of the validity of the Letter of Guarantee.



6.



This etter of Guarantee shall be effective immediately and expire ninety (90) days

after the end of the initial exploration period as defined in the Agreement, and

thereafter automatically without any formality become null and void for all its

effects and this Letter of Guarantee shall be returned to us immediately.



Yours very truly,



(Name of Bank)



- 60 ­



Blue Creek Exploration Ltd,



IN WtT ESS WHEREOF the Government and the Contractor have hereto s,et, eir

ands and seals the day and year first herein before written.



SIGNED, SEALED AND DELIVERED



)



by FLORE CIO MARIN, Minister of Natural



)



Resources and the Environment



)



for and on behalf of the



)



Government of Belize



)



in the presence of:



SIGNED, SEALED AND DELIVEIRED



)



"IT EVORROE



)



for and on beha1lf of Blue Creek Exploration



1d.

In the presence of:



~



WITNESS



- 61 ­



)



TREVOR ROE



Blue Creek Exploration td.



I, FLO ENCIO MARIN, Minister of Natural Resources and the Environment hereby

acknowledge that I did sign, seal and deliver the within written document as my act and

deed.



Acknowledge at BELMOPAN this 1ih day of October, 2007.



CHIEF EXECUTIVE OFFle



BE IT REMEMBERED that on the 1~rday of October, 2007 personally appeared befor'e

me the within na 'e



,LORENCICiJ' ARrN anq acknowledged before me that he did

\



sign, seal and del'



s'gnature



r the within



ri ten document as his act and deed and that the



,,/J



CHIEF EXECUTIVE OF CER





- 62 ­



Blue Creek Ex.ploration Ltd.



I, T _VOR ROE, hereby acknowledge that I did sign, seal and deliver the within written

document a my act and deed for and on behalf of Slue Creek Exploration ltd.

Acknowledge at BELMOPAN this 1ih day of October, 2007.



TREVOR 'ROE



Before



e,



CHIEF EXEC UTI E OFFle R

E IT REMEMBERED that on the 12 th day of October, 2007 persona'lly appeared before

me the within named TREVOR ROE and acknowledged before

and deliver the within-written document as his act anal eed

Creek Exploration Ltd'. and that the signature"



J



e that he did sign, seal



~I



and on behalf of Blue

" is In his



own proper handwriting.



CHIEF EXECUTIVE OFFICER





- 63­



Blue Creek Exploration Ltd.



~



hereby certify that I have counted the within-written document and that it contains two



hundred



fifty~two



(252) folios of seventy-two (72) words each and sixteen (16) words



over and no more.



AS WITNESS my hand this 1i



h



day of October, 2007.



WI



E55



T is Document was prepared and drawn in the Ministry Of Natural

Env'ronment.



- 64 ­



~--



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F~esources



and the