Eritrea

English

Eritrea

Petroleum

Minister of Energy and Mines

This contract shall consist of an exploration period, and a development and production period, both of which may run concurrently. The initial term of the exploration period provided by this contract shall be [X] years, commencing on the effective date. The term of the development and production period provided for by this contract in respect of a commercial discovery shall commence on the date of adoption of the development plan and shall continue until the [X] annual anniversary of that date.

Model production sharing contract

The company shall conduct petroleum operations in a safe and proper manner in accordance with generally accepted international petroleum industry practice and with the petroleum regulations. If a blow-out, accident or other emergency occurs the company shall take immediate steps to bring the emergency situation under control and protect against loss of life and property and prevent harm to natural resources and the general environment. If the government reasonably determines that the petroleum operations may endanger persons or property, harm natural resources or the general environment, cause pollution, harm marine life, animal life or plant life, or interfere with navigation and fishing, he shall inform the company and the company shall take appropriate remedial action within a reasonable period of time established by the government, in accordance with standard international petroleum industry practices. If the company fails to take any action, the government shall order the company to take reasonable remedial measures and order the company to discontinue petroleum operations pending the implementation of those measures.

The company shall have the right, subject to the approval of the government, to use water in the contract area for operational purposes, but the company shall not deprive any land, domestic settlement or livestock watering place of the water supply to which they are customarily entitled

The company shall appoint an auditor, approved by the government, to audit, annually, the accounts and records, including production records of the petroleum operations and report on same. The cost of such audit shall be borne by the company. The government, upon at least 15 days advance written notice to the company shall have the right to inspect and audit, during normal business hours, all records and documents supporting costs and expenses such as the company's accounts, books, records, invoices, cash vouchers, debit notes, price lists or similar documentation with respect to the petroleum operations. All audits in respect of the exploration period shall be conducted in Asmara or other designated location in Eritrea. There shall be one audit in respect of the initial term of the exploration period and one audit in respect of each extension of the exploration period. Such audits shall be commenced within 6 months of the end of the relevant period. Following the end of the exploration period, government audits shall be conducted annually. Such audits shall commence within a period of 2 years following completion of the year under audit. The costs of any audits conducted for the government within Eritrea shall be borne by the company as a petroleum operations expenditure. Any audit exceptions shall be made in writing and notified to the company within 180 days, following completion of audit in question (which audit shall be recorded in an exchange of letters between the company and the government), and failure to give such written exception within such time shall be deemed to be an acknowledgment of the correctness of the company's books and accounts.

The company shall pay to the government, the following sums when production of crude oil from the contract area attains the following levels for the specified periods of time: (a) $[X] after daily production averages [X] barrels or more per day for a period of [X] consecutive days; and (b) $[X] after daily production averages [X] barrels or more per day for a period of [X] consecutive days; and (c) If the above 2 levels are attained within the same [X] day period the bonus payment shall be the aggregate of the bonuses due in (a) and (b) above. The company shall pay to the government, within 30 days of the effective date the sum of $[X] as a signature bonus.

The company and its subcontractors shall be subject to, and comply with, all income tax laws and regulations of Eritrea. The company shall be answerable, for the-payment of tax obligations of its foreign subcontractors in accordance with the Petroleum Tax Proclamation.

The balance of petroleum remaining in any calendar year after deduction of the royalty payments under this contract and after recoverable petroleum operations costs have been satisfied to the extent and in the manner previously said in this contract, and shall be shared, taken and disposed of between the government and the company as follows: First 20,000 Barrels/Day: government's share: [X]%; company's share: [X]% Next 20,000 Barrels/Day: government's share: [X]%; company's share: [X]% Next 30,000 Barrels/Day: government's share: [X]%; company's share: [X]% Next 30,000 Barrels/Day: government's share: [X]%; company's share: [X]% Any volume over the first 100,000 Barrels/Day: government's share: [X]%; company's share: [X]%

The company shall be entitled to recover its petroleum operations costs from petroleum produced within the contract area and that is not used in petroleum operations, to the extent permitted by the provisions of this contract. The company shall retain and dispose, in each calendar year, of that volume of petroleum the value of which is equal to the recoverable petroleum operations costs for that calendar year limited to an amount not exceeding the maximum share of production determined according to the following incremental scale: Average daily production for: - The first 20,000 Barrels/Day - [X]% of the maximum share of average daily production available for cost recovery - The next 30,000 Barrels/Day - [X]% of the maximum share of average daily production available for cost recovery - Any volume over the first 50,000 Barrels/Day - [X]% of the maximum share of average daily production available for cost recovery. To the extent that the recoverable petroleum operations costs for any calendar year exceed the value of the maximum amount of petroleum available under this contract, the excess shall be carried forward for recovery in the next succeeding calendar year or calendar years.

The value of crude oil for all purposes shall be: (a) if the crude oil is sold by the company to third parties in arm's length transactions, the net realized price (i.e., after deducting commissions and brokerages) for that sale, at the FOB point of exportation, or the point of entry into a system for domestic consumption; (b) where crude oil is sold by the company other than to third parties in arm's length transactions or is relevantly appropriated for domestic consumption, as provided herein, without being disposed of, that crude oil shall be valued at the following applicable price: (i) the average per unit price for the calendar month of the tender date, net of commissions and brokerages, at the FOB point of exportation paid in arm’s length transactions of sale of crude oil of a similar quality, grade and quantity as published in internationally accepted oil publications adjusted for quality, grade, quantity, transportation costs and any special circumstances at the most recent differential; and (ii) provided that commissions or brokerages incurred in connection with sales to third parties, if any, shall not exceed the customary and prevailing rate. Unless otherwise specifically provided for in the contract, all transactions giving rise to revenues, costs or expenses which shall be credited or changed to the books, accounts, records and reports prepared, maintained or submitted hereunder shall be conducted at arm's length or on such a basis as will assure that all such revenues, costs or expenses will not be higher or lower, as the case may be, than would result from a transaction conducted at arm's length on a competitive basis with third parties

The company shall pay, 10 days after the end of each calendar quarter, to the government, a royalty at a rate depending on the total daily production in a field of all crude oil and natural gas produced and saved and not used in petroleum operations, and determined according to the following incremental scale: Average crude oil production from a field - Royalty First 10,000 Barrels/Day - [X]% Between 10,000 and including 20,000 Barrels/Day - [X]% Greater than 20,000 Barrels/Day - [X]% Average natural gas production from a field - Royalty First 50 million cubic feet/Day - [X]% Between 50 and including 100 million cubic feet/Day - [X]% Greater than 100 million cubic feet/Day - [X]%

The government may participate in the petroleum operations in any field and acquire a participating interest not to exceed [X]%. The government may acquire such interest either directly or through a specialized government entity.

The company and its subcontractors shall give preference to the employment of Eritrean nationals in all petroleum operations to the fullest extent possible, provided such nationals have the required qualifications and experience. The company undertakes to gradually replace its expatriate staff with qualified Eritrean nationals as they become available. The company shall submit a report every calendar quarter detailing the employment of Eritrean nationals and the utilization of Eritrean materials, products and services by the company and its subcontractors, in a form to be specified by the government.

The company shall, and shall require its subcontractors to, give preference to Eritrean materials, products and services used in petroleum operations where those materials, products and services are of comparable quality as reasonably determined by the company or subcontractors, as the case may be, and are readily available at competitive international prices. In connection with the procurement of goods and services from local sources, the company shall, in consultation with the government, establish appropriate tender procedures to give effect to this section. The company shall submit a report every calendar quarter detailing the employment of Eritrean nationals and the utilization of Eritrean materials, products and services by the company and its subcontractors, in a form to be specified by the government.

The company shall provide training relating to the petroleum operations for Eritrean nationals employed by the company in the petroleum operations until the expiry and termination of this contract. The company shall establish a training and employment program approved by the government and shall contribute a minimum of $[X] per year during the development and production period, for the training of Eritrean nationals as may be designated by the government, commencing with the effective date.

Subject to applicable laws and regulations, the company shall: - have access over the Territory of Eritrea for the purpose of constructing, laying, operating and maintaining both onshore and offshore pipelines, cables and any other facilities required for petroleum operations; - have the right to construct within the Territory of Eritrea, such production and processing plants, power stations, communication, transportation and shipping facilities and other facilities as may be reasonably required for its operation under this contract; and - have the right to install and use radio, telephone and other communication facilities. Such facilities shall be maintained by the company and shall be for its exclusive use for purposes of its activities under this contract, and shall be subject to all governmental regulations and be available for reasonable or for emergency use by the government, free of charge.

The company shall carry out the petroleum operations within the scope of this contract diligently, expeditiously and efficiently in accordance with the petroleum regulations and generally accepted international petroleum industry practice and the relevant provisions of this contract. The company shall ensure that all exploration wells are properly evaluated and where warranted, tested in accordance with generally accepted international petroleum industry practices. The company shall carry out the following work obligations and make the following exploration expenditures during the initial term of the exploration period: (a) Geological and geophysical operations, including [X] kilometers of seismic surveys, or dollar equivalent 3D surveys, with a minimum expenditure of $[X] for such geophysical and geological operations; and (b) The company shall drill [X] exploration wells to a minimum depth of [X] metres per well with a minimum drilling expenditure of $[X] for each such well. Should the company make an application for the first extension of the exploration period, it shall carry out the following work obligations and make the following exploration expenditures during the first extension to the exploration period: (a) geological and geophysical operations, including the acquisition and processing of [X] line kilometers of seismic surveys with a minimum expenditure of $[X] for such geological and geophysical operations; and (b) drill [X] exploration wells to a minimum depth of [X] meters per well with an anticipated minimum drilling expenditure of $[X] for each such well. Should the company make an application for the second extension of the exploration period, it shall carry out the following work obligations and make the following exploration expenditures during the second extension to the exploration period: (a) geological and geophysical operations, including the acquisition and processing of [X] line kilometers of seismic surveys with a minimum expenditure of $[X] for such geological and geophysical operations; and (b) drill [X] exploration wells to a minimum depth of [X] meters per well with an anticipated minimum drilling expenditure of $[X] for each such well.

Whenever the government or its appointee is a party to a dispute under this participation contract, such dispute shall be referred to arbitration. In such event the rights and obligations of the company shall devolve upon the parties to the dispute which are not the government.

All information and data made available or obtained under this contract shall be and remain confidential among the parties during the term of this contract and for two years thereafter, and a party shall not, during such period, without prior written consent of all parties which consent shall not be unreasonably withheld, disclose such information and data to any entity which is not a party to this contract except that a party may disclose, without having obtained prior written consent, such information and data, but only insofar as is reasonably required to: (a) affiliates; (b) a government agency, of competent jurisdiction; (c) an established stock exchange; (d) a lending institution, in connection with a loan to the disclosing party; (e) a contractor of a party in connection with technical studies relating to reserves underlying the contract area or a portion thereof; (f) an entity which is engaged with a party in good faith negotiations for the acquisition of all or a part of the participating interest of such party; and (g) legal counsel, accountants, other professional consultants, underwriters, lenders, and agents. In each case, the party shall obtain a written commitment from the party to whom the disclosure is made guaranteeing that such information and data will be held in strict confidence. This requirement is waived in the case of a stock exchange as in (c) above. The government may use any information supplied, for the purpose of preparing and publishing any reports and returns required by law, and for the purpose of preparing and publishing reports and surveys of a general nature. The government may publish any information of a geological, scientific or technical nature which relates to a surrendered area at any time after the surrender and in any other case, 3 years after the information was received unless the government determines, after representations by the company, that a longer period shall apply.

This participation contract shall be governed by and be construed in accordance with the laws of Eritrea

If after the effective date of this contract the economic benefits to be derived by a party from the petroleum operations are substantially affected by the promulgation of new laws and/or regulations of Eritrea and if the affected party so requests, the parties shall agree to make the necessary adjustments to the relevant provisions of this contract, in order to ensure that the affected party is restored to the same economic condition it would have been in if such change in the applicable laws had not taken place