The People's Republic of China

19/09/2002

The contract area as of the date of signature of the contract includes Zitongxi (covering a area of 1,830 square kilometers) and Zitongdong (covering a area of 1,730 square kilometers) Blocks covering a total area of 3,560 square kilometers, known collectively as Zitong Block, as marked out by the geographic location and the coordinates of the connecting points of the boundary lines shown on Annex I.

Pan-China Resources Ltd.

Zitong Block

Zitong Block

Petroleum

China National Petroleum Corporation

The exploration period shall consist of 6 consecutive contract years, unless Pan-China Resources Ltd. is sooner terminated, or the exploration period is extended. The production period of any oil field and/or gas field within the contract area shall not go beyond 20 consecutive production years beginning on the date of commencement of commercial production of the said oil field and/or gas field. Under such circumstances as where the construction of an oil field and/or gas field is to be conducted on a large scale, and the time span required therefor is long, or where separate production of each of the multiple oil or gas producing zones of an oil field and/or gas field is required, or under other special circumstances, the production period thereof shall, when it is necessary, be properly extended.

The remainder of the annual gross production of crude oil after the allocation for cost recovery, royalty and VAT shall be deemed as "remainder oil". Such "remainder oil" shall be divided into "share oil" of the Chinese side and "allocable remainder oil". The "allocable remainder oil" of each oil field in each calendar year shall be equal to the "remainder oil" of that calendar year multiplied by the factor (X) for each oil field within the contract area in that calendar year. The factor (X) of each oil field in each calendar year shall be determined in accordance with the following successive incremental tiers on the basis of the annual gross production of crude oil from such oil field during that calendar year. Annual gross production of crude oil Factors (x) in % applicable to from each oil field each production tier of each oil field (thousands of metric tons) within the contract area < 300 98% 300 < 600 94% 600 < 1200 92% 1200 < 1800 85% 1800 < 2400 75% 2400 < 3500 60% 3500 < 5000 50% An example of application in calculating the factor (X): Assuming that there are two producing commercial oil fields A and B within the contract area and the annual gross production of crude oil from oil field A in a calendar year is 1 million metric tons, and that from oil field B is 1.5 million metric tons, the factor (X) of oil field A in that calendar year shall be: X= [300x(1)+300x(2)+400x(3)] / 1000 x 1000% and the factor (X) of oil field B in that calendar year shall be: X= [300x(1)+300x(2)+600x(3)+300x(4)] / 1500 X 100% The "allocable remainder oil" of each oil field in each calendar year shall be shared by the parties in proportion to their respective participating interests in the development costs, 51% for the government and 49% for Pan-China Resources Ltd. In the event that China National Petroleum Corporation (CNPC) does not participate in the development of an oil field within the contract area, Pan-China Resources Ltd. shall obtain 100% of the "allocable remainder oil" of that oil field. In the event that CNPC participates to an extent less than 51% in the development of an oil field within the contract area, the "allocable remainder oil" of such oil field in that calendar year shall be shared by the parties in proportion to their actual respective participating interests in such oil field.

60% of the annual gross production of crude oil shall be deemed as the "cost recovery oil" and shall be used for payments or for cost recovery

Royalty shall be paid in accordance with relevant regulations of the People's Republic of China.

In the event that any oil field and/or gas field is discovered within the contract area, the development costs of such oil field and/or gas field shall be borne by the parties in proportion to their participating interests: 51% by China National Petroleum Corporation (CNPC) and 49% by Pan-China Resources Ltd. In the event that CNPC opts to participate at a level less than 51% of the participating interests, or not to participate in the development of the oil field and/or gas field, Pan-China Resources Ltd. shall bear the remaining development costs necessary for the development of the oil field and/or gas field.

The government shall, at the request of Pan-China Resources Ltd., assist Pan-China Resources Ltd. with the recruitment of Chinese personnel. Pan-China Resources Ltd. shall give preference to the employment of Chinese personnel in the performance of the petroleum operations. For this purpose, Pan-China Resources Ltd. shall submit in advance a plan for the employment of Chinese personnel listing all the posts and number of the persons involved. The government may put forward a list of candidates, in accordance with the plan, for such employment, providing suitable qualification and experience guidelines are met. For the performance of petroleum operations, Pan-China Resources Ltd. shall give preference to employ competent Chinese personnel and to employ those who have become qualified after being trained in accordance with the training program.

Pan-China Resources Ltd. shall give preference to Chinese goods, equipment and services provided that they are competitive in terms of price, quality and term of delivery, when procuring necessary goods, leasing equipment and signing subcontracts or other service contracts for the performance of the petroleum operations. The Chinese engineering design corporations under or entrusted by the government shall have the right to participate in the master designs and engineering designs made by Pan-China Resources Ltd. for the purpose of the implementation of the contract. Engineering design companies within the territory of the People's Republic of China shall be given preference in entering into the subcontracts for the master designs and engineering designs, provided that their technical level, quality, price and delivery time are competitive.

During the performance of the petroleum operations, Pan-China Resources Ltd. shall transfer its technology to the Chinese personnel and train them in order to enable China National Petroleum Corporation to take over the production operations of any oil field and/or gas field. Pan-China Resources Ltd. agrees, in the course of the petroleum operations, to transfer to China National Petroleum Corporation (CNPC) and its affiliates, the advanced technology and managerial experience including proprietary technology e.g. patented technology, know-how or other confidential technology, etc. used in the performance of the petroleum operations and the necessary data and/or information for mastering such technology and experience, provided, however, such technology to be transferred shall be proprietary to Pan-China Resources Ltd. If the transfer of any of such technology is restricted in any way during the term of the contract, Pan-China Resources Ltd. shall, to the extent reasonably possible, endeavor to obtain permission for the transfer of such restricted technology. Pan-China Resources Ltd. agrees, that in the course of its petroleum operations, to train the Chinese personnel including technical, economic, managerial, legal and or other professional personnel, in order to improve their technical and/or managerial capabilities. Details of training of Chinese personnel and transfer of technology are described in Annex IV - Training of Chinese Personnel and Transfer of Technology. Pan-China Resources Ltd. shall, after consultation with CNPC, complete and submit a training and technology transfer program for the Chinese Personnel in the exploration period and the corresponding budget for review and approval, and upon approva, put it into practice. Pan-China Resources Ltd. shall, after consultation with CNPC, complete and submit training and technology transfer programs and corresponding budgets for the Chinese personnel in the development period and production period, respectively, for review and approval before the commencement of the development operations and production operations, and upon approval, put them into practice in time so as to have ample time in advance for such training and technology transfer. The purpose, requirement, fields of specialization, scope of personnel, specific job categories, type, method, etc. in respect of training of Chinese personnel and transfer of technology shall be determined in Annex IV-Training of Chinese Personnel and Transfer of Technology. The advanced technology and managerial proprietary technology, e.g. patented technology, technology that Pan-China Resources Ltd. transfers to CNPC, property of Pan-China Resources Ltd. and also be subject to restrictions of Article 22. After Pan-China Resources Ltd. signs equipment leasing contracts, service contracts or subcontracts with China National Petroleum Corporation (CNPC) or its affiliates, Pan-China Resources Ltd. shall endeavor to provide technical assistance to CNPC or its affiliates, at the request of CNPC, so as to enable them to meet the needs of operations to be undertaken. The expenses so incurred shall be borne by CNPC or its affiliates. The costs and expenditures incurred by Pan-China Resources Ltd. annually for training of CNPC personnel and transfer of technology shall be as follows: During the exploration period, the said fee shall be US$ 100,000 per year; during the development period, the fee shall be US$ 200,000 per year; during the first 10 years of the production period, the fee shall be US$ 100,000 per year; during the second 10 years of the production period, the said fee shall be US$ 50,000 per year; thereafter the said fee shall be US$ 25,000 per year.

Pan-China Resources Ltd. shall fulfill the minimum exploration work commitment and expected minimum exploration expenditures for each phase of the exploration period in accordance with the following provisions: During the first phase (3 years) of the exploration period, Pan-China Resources Ltd. shall: (a) reprocess seismic data totaling 2,000 line kilometers; (b) complete new seismic lines totaling 500 kilometers; (c) drill and complete 2 wildcat wells with footage totaling 7,000 meters; and (d) spend US$ 18 million as its expected minimum exploration expenditures for such exploration operations. During the second phase (3 years) of the exploration period, Pan-China Resources Ltd. shall: (a) complete new seismic lines totaling 350 kilometers; (b) drill and complete 2 wildcat wells with footage totaling 7,000 meters; and spend US$ 16 million as its expected minimum exploration expenditures for such exploration operations.