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EX-10.20

2

0002.txt



REPUBLIC OF YEMEN

MINISTRY OF OIL & MINERAL RESOURCES

MEMORANDUM OF UNDERSTANDING

This Memorandum of understanding (MOIU) is made and entered into on the 17th day

Of Rajab 1420 H, corresponding to the 26th day, of October 1999, between the

Following Parties:

1-



The Ministry of Oil & Mineral Resources in the Republic of Yemen

(Hereinafter referred to as MINISTRY):

And

---



2-



ADAIR INTERNATIONAL OIL & GAS, INC (ADAIR), a Texas Corporation, having its

headquarters at 3000 Richmond Avenue Suite 100, Houston, Texas, USA, and

PARTNERS IN EXPLORATION, LLC (PIE), a limited liability corporation, having

its headquarters at 1001 Hampshire Lane, Richardson, Texas, USA being duly

organized and existing under the Laws and Regulations of The State of

Nevada, with ADAIR and PIE as joint venture partners (hereinafter referred

to as "CONTRACTOR").



In Reference to Block No (20) Al-Sabatain area of Marib-Shabwa Govern orates

Republic of Yemen as determined by the coordinates, and the map attached hereto

with approximate area of 2049 Sq. Km.

The MINISTRY and the CONTRACTOR hereby agree to start negotiating in good faith

a production sharing Agreement (PSA) immediately and finalize it within a

maximum two (2) months period from the date of signing of this MOU, During the

said period of (2) months, MINISTRY agrees that it will not enter into any

Memorandum of Understanding, commitment or agreement in respect of the said

block No (20) with any party other than CONTRACTOR, In the event the Parties are

not able to agree upon the terms and conditions of the PSA within the said two

(2) months period, this MOU will automatically expire and be of no further force

or effect, unless extended in writing by the Parties hereto.

This MOU records the basis for the principal commercial terms of the PSA. The

Exploration period shall be ( 5 ) Years to be divided into (2) phases:

The First Exploration Phase:

------------------------------The First Phase of Exploration Period shall be an obligatory period of Thirty

Six ( 36) months plus Zero ( 0 ) Months extension upon written Request by the

CONTRACTOR and the approval of the MINISTRY.

Minimum Exploration Work Program and Budget:



MINIMUM EXPLORATION WORK PROGRAM AND BUDGET:

--------------------------------------------



Reprocess (1000 km of 2D seismic data related to the Block (U$ 300,000

USD).

Conduct, acquire, process and interpret minimum Zero Km (2D) of New seismic

lines.

Conduct, acquire, process and interpret minimum 100 Sq Km (3D) of New

seismic lines ($ 4,0 Million USD).

Drill and evaluate ( 2 ) exploration wells with total depth as mutually

agreed and Technically Justified to test identified prospect objectives

($4,0 million USD).



The CONTRACTOR shall provide to the MINISTRY full amount of irrevocable Letter

of Credit, issued by any local Bank in ROY, or mutually acceptable Bank in

correspondence with a Yemeni Bank and submitted to the MINISTRY on the signature

date of the PSA and becomes valid on the Effective date, of the total



Expenditure Commitment of the First Exploration Phase and shall be in the

minimum amount of Eight Million Three Hundred Thousand United State Dollars (US$

8,3).

The Second Exploration Phase:

-------------------------------The Second Phase ( optional ) shall be twenty-four ( 24 ) months plus twelve

( 12 ) months extension upon approval of the MINISTRY.

Minimum Exploration work Program and Budget:

-



Conduct, acquire, process and interpret an additional Zero Km (2D) of New

seismic lines.

Conduct, acquire, process and interpret minimum Zero Sq Km (3D) of New

seismic lines.

Drill and evaluate four (4) exploration wells with total depth as mutually

agreed and Technically Justified to test identified prospect objectives

Eight Million United State Dollars (US$ 8,0 Million).



The CONTRACTOR shall provide to the MINISTRY full amount of irrevocable Letter

of Credit, issued by local Bank in ROY, or mutually acceptable Bank in

correspondence with a Yemeni Bank and submitted to the MINISTRY in due time, of

the total minimum Expenditure commitment by the CONTRACTOR of the Second Phase

and shall be in the Minimum amount of Eight Million United State Dollars (US$

8,0).

The Total Minimum Expenditures for both phases will be Sixteen Million Three

Hundred Thousand United State Dollars (US$ 16,3 Million).

The minimum work commitment shall be carried out and performed in full

regardless of the minimum Expenditure commitment and according to Good

International Petroleum Industry Practices.



ROYALTY

------The MINISTRY shall be entitled to have as Royalty:0 - 25,000

BOPD

(3%)

25,000 - 50,000

BOPD

(4%)

50,000 - 75,000

BOPD

(5%)

75,000 - 100,000

BOPD

(6%)

In excess of 100,000

BOPD

(8%)

Fixed Tax:

----------CONTRACTOR shall pay a fixed percentage tax (" fixed tax ") equivalent to Three

(3%) percent of all its actual Exploration Expenditures incurred and paid in

conducting its Exploration Operations.

Signature Bonus:

----------------The CONTRACTOR shall pay to the MINISTRY Four Hundred Thousand United State

Dollars (US$ 400,000 ) as signature Bonus. The CONTRACTOR shall provide to the

MINISTRY full amount of irrevocable Letter of Credit, issued by any local bank

in ROY and submitted to the MINISTRY within (2) weeks after the signing of the

PSA, such letter of Credit shall be payable immediately upon the ratification of

the PSA by Parliament or by authorization of the PSA by Presidential Decree.

Commercial and Production Bonuses:

------------------------------------US Dollars One Million (US$ 1,0) within fifteen (15) days after first

tanker lifting.

-



US Dollars One Million (US$ 1.0 ) when the Production reaches (12,500 )

BOPD.



-



US Dollars One Million (US$ 1.0) when the Production reaches (25,000 )

BOPD.



-



US Dollars Two Million (US$ 2.0 ) when the Production reaches ( 50,000 )

BOPD.



-



US Dollars Three Million (US$ 3.0 ) when the Production reaches (75,000 )



BOPD.

-



US Dollars Four Million (US$ 4.0 ) when the Production reaches (100,000)

BOPD.



Each of the Bonuses is to be paid once only at time as the production level is

achieved for a period of thirty (30) consecutive days as indicated above

Training Bonus:

---------------The CONTRACTOR shall pay annually to the MINISTRY during the Agreement Period

an amount of One Hundred Thousand United State Dollars (US$ 100,000) as Training

Bonus commencing from the effective date.

Institutional bonus:

--------------------The CONTRACTOR shall pay annually to the MINISTRY during the Agreement Period an

Amount of one hundred Thousand United State Dollars (US $ 100,000) as

Institutional Bonus commencing from the Effective date.



Social Development Bonus:

---------------------------The CONTRACTOR Shall ay annually to the MINISTRY during the Agreement

Period an amount of

Thousand United State Dollars (US$ 5.0OO&) as

Social Development Bonus commencing from the Effective date

All Taxes, Royalties and Bonuses are not recoverable from the Cost Oil. Cost Oil

Recovery:

COST OIL RECOVERY:

-----------------Fifty percent (50 %) Maximum of oil produced and saved after deduction of

Royalty, shall be allocated for the recovery of costs incurred and paid by the

CONTRACTOR in conducting petroleum operations in the Agreement Area, and will

be recovered annually as follows:-



Exploration Expenditure

Development Expenditure

Operation Expenditure



75%.

75%.

100%.



Production sharing oil:

------------------------Increment

0-12,500

BOPD

12,500-25,000

BOPD

25,000-50,000

BOPD

50.000-75,000

BOPD

75,000-100,000

BOPD

In excess of 100,000 BOPD



MINISTRY

63%

65%

70%

75%

80%

82%



CONTRACTOR

37%

35%

30%

25%

20%

18%



Relinquishments:

----------------



25% of the original area at the and of the First

phase of the Exploration period, if the CONTRACTOR

elects to enter into the Second phase of the

exploration period.



-



100% of the remaining area except the area

(s) transferred into development area (s).



Development Period:

-------------------The development period shall be Twenty ( 20 ) years starting from the first

Commercial Discovery and can be extended up to five (5) years Upon six (6)

months written request by the CONTRACTOR and subject to written approval of the

MINISTRY.





MINISTRY'S Participating Carried Interests:

---------------------------------------------The MINISTRY'S operating arm the Yemen Company shall acquire as of the

CONTRACTOR'S right and working Interests of seven percent (7%) under the PSA.

This MOU is signed in two (2) originals in the English language, MINISTRY and

one (1) for the CONTRACTOR.

On behalf of the MINISTRY



By: /s/ RASHID S. BA-RABA'A

---------------------------Name:

RASHID S. BA-RABA'A

Title: Deputy Minister



On behalf of the CONTRACTOR

1- ADAIR

INTERNATIONAL

OIL

By: /s/ JALAL AL GHANI

-----------------------------------Name:

JALAL AL GHANI

Title: Vice Chairman and Chief

Financial Officer

2- PARTNERS

IN EXPLORATION

By: /s/ RICHARD G. BOYCE

------------------------------------Name:

RICHARD G. BOYCE

Title: Vice President















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