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PRODUCTION SHARING CONTRACT



BETWEEN



THE REPUBLIC OF

EQUATORIAL GUINEA

AND

GUINEA ECUATORIAL DE PETROLEOS

AND

*COMPANY*

FOR

*BLOCK*



CONTENTS

Page

ARTICLE 1 SCOPE AND DEFINITIONS ............................................................................................. 4

ARTICLE 2 PERIOD OF EXPLORATION AND RELINQUISHMENTS OF AREAS ........................ 11

ARTICLE 3 EXPLORATION WORK OBLIGATIONS ....................................................................... 13

ARTICLE 4 ANNUAL WORK PROGRAMS AND BUDGETS .......................................................... 16

ARTICLE 5 EVALUATION OF A DISCOVERY AND PRODUCTION PERIOD .............................. 18

ARTICLE 7 ROYALTIES, RECOVERY OF PETROLEUM OPERATION COSTS, AND

DISTRIBUTION OF PRODUCTION ................................................................................................... 28

ARTICLE 8 PARTICIPATION INTERESTS ....................................................................................... 29

ARTICLE 9 TAXES ............................................................................................................................ 30

ARTICLE 10 VALUATION OF CRUDE OIL ..................................................................................... 30

ARTICLE 11 BONUSES AND SURFACE LEASES ........................................................................... 32

ARTICLE 12 OBLIGATIONS TO SUPPLY THE NATIONAL MARKET .......................................... 33

ARTICLE 13 NATURAL GAS ............................................................................................................ 34

ARTICLE 14 CUSTOMS REGULATIONS ......................................................................................... 36

ARTICLE 15 CURRENCIES ............................................................................................................... 38

ARTICLE 16 BOOKS, ACCOUNTS, AUDITS, AND PAYMENTS .................................................... 39

ARTICLE 17 TRANSFERS, ASSIGNMENTS, AND CHANGES OF CONTROL .............................. 41

ARTICLE 18 INDEMNIFICATION, LIABILITY, AND INSURANCE................................................ 42

ARTICLE 19 TITLE TO GOODS, EQUIPMENT, AND DATA .......................................................... 44

ARTICLE 20 CONFIDENTIALITY .................................................................................................... 45

ARTICLE 21 TERMINATION ............................................................................................................ 45

ARTICLE 22 UNITIZATION .............................................................................................................. 47

ARTICLE 23 NATIONAL CONTENT AND SOCIAL PROGRAMS .................................................. 47

ARTICLE 24 DISMANTLING ............................................................................................................ 50

ARTICLE 25 APPLICABLE LAW AND STABILITY ........................................................................ 52

ARTICLE 26 RESOLUTION OF CONFLICTS AND ARBITRATION ............................................... 52

ARTICLE 27 FORCE MAJEURE ........................................................................................................ 53

ARTICLE 28 ASSISTANCE AND NOTIFICATIONS ........................................................................ 55

ARTICLE 29 MISCELLANEOUS ....................................................................................................... 56

ARTICLE 30 INTERPRETATION ...................................................................................................... 56

ARTICLE 31 EFFECTIVE DATE ....................................................................................................... 57

ANNEX A CONTRACT AREA............................................................................................................ 59

ANNEX B MAP OF THE CONTRACT AREA ................................................................................... 60

ANNEX C ACCOUNTING PROCEDURE ........................................................................................... 61

ANNEX D GUARANTEE AGREEMENTS.......................................................................................... 75



2



THIS PRODUCTION SHARING CONTRACT is dated the____ of ____________, ______.

BETWEEN:

(1)



THE REPUBLIC OF EQUATORIAL GUINEA (hereinafter referred to as the "State"),

represented for the purposes of this Contract by the Ministry of Mines and

Hydrocarbons (hereinafter referred to as the "Ministry"), represented for purposes of

its execution by His Excellency Gabriel Mbaga OBIANG LIMA, in his capacity as

Minister of Mines and Hydrocarbons.



(2)



GUINEA ECUATORIAL DE PETRÓLEOS (hereinafter referred to as the "National

Company"), acting in exercise of its authority and in its own name for the purposes of

this Contract and represented for purposes of its execution by Antonio OBURU

ONDO, in his capacity as Director General; and



(3)



*COMPANY* (hereinafter referred to as the "National Company"), a company

organized and existing under the laws of …….. under commercial registry number

……., with its registered office at ………..

The State, *COMPANY*, and the National Company, including their transferees as

approved under the law and this Contract, may be referred to individually as "Party"

and collectively as "Parties."

PREAMBLE



(A)



WHEREAS, all Hydrocarbons existing within the territory of the Republic of

Equatorial Guinea, as stated in the Hydrocarbons Law, are national resources owned

exclusively by the State;



(B)



WHEREAS, the State wishes to promote the development of Hydrocarbon deposits

within the Contract Area and the Contractor desires to associate itself with the State

with a view to accelerating the Development and Production of Hydrocarbons within

the Contract Area;



(C)



WHEREAS, the Contractor has the technical and financial ability, as well as the

professional skills necessary to carry out Petroleum Operations in accordance with this

Contract and good practices of the international petroleum industry; and



(D)



WHEREAS the Parties wish to enter into this Contract in accordance with the

Hydrocarbons Law, which allows for agreements to be entered into between the State

and foreign investors in the form of a production sharing contract, through direct

negotiation or by international public bidding,



NOW THEREFORE, in consideration of the commitments and mutual agreements expressed

in this document, the Parties agree as follows:



3



ARTICLE 1

SCOPE AND DEFINITIONS

1.1



Definitions

Except where the context dictates another meaning, or as defined in the Hydrocarbons Law or

Petroleum Regulations, the following words and expressions will have the following

meanings:



1.1.1



Joint Operating Agreement or JOA means the joint operating agreement that rules the

internal relations of the Parties making up the Contractor in carrying out Petroleum

Operations in the Contract Area.



1.1.2



Calendar Year or Year means a period of twelve (12) months beginning 1 January and

ending 31 December of the same year according to the Gregorian Calendar.



1.1.3



Contractual Year means a period of twelve (12) consecutive months according to the

Gregorian Calendar from the Effective Date of this Contract or from the anniversary of the

Effective Date.



1.1.4



Contract Area or Area means the geographic area within the territory of Equatorial Guinea,

which is the object of this Contract. This Contract Area will be described in Annex A and

illustrated in Annex B, as it may be changed by relinquishments of the Contractor in

accordance with this Contract.



1.1.5



Development and Production Area means an area within the Contract Area encompassing

the geographical extent of a Commercial Discovery that is subject to a Development and

Production plan and corresponding budget in accordance with Article 5.5.



1.1.6



Evaluation Area means an area within the Contract Area encompassing the geographical

extent of a Discovery subject to an Evaluation work program and corresponding budget in

accordance with Article 5.2.



1.1.7



Barrel means a quantity or unit of measure of Crude Oil equal to 158.9874 liters (forty-two

(42) United States gallons) at a temperature of fifteen point five six degrees (15.56°)

Centigrade (sixty degrees (60°) Fahrenheit) and at one (1) atmosphere of pressure.



1.1.8



BEAC means the Bank of Central African States.



1.1.9



Change in the Law means, with respect to Article 25, any change in the laws, decrees,

regulations, or standards of Equatorial Guinea and any Relevant Authority Law in force on

the Effective Date, including those pertaining to any fiscal matters, taxes, customs, or

currency control, any change in the interpretation or application of, or in the customs and

practices related to these laws (the stipulations of this agreement are considered to conform

with such interpretation and application from the date this Contract is signed), decrees,

regulations, or standards of Equatorial Guinea and excludes those laws, decrees, regulations,

or standards that are (i) related to health, safety, work, and the environment, (ii) consistent

with international oil and gas industry standards and practices, and (iii) applied in a nondiscriminatory manner.



1.1.10 Field means a Discovery or set of Discoveries established as a Field in accordance with

Article 5 and can be developed commercially, taking into account all pertinent operational,

economic and financial information collected in carrying out the Evaluation work program or

otherwise, in accordance with generally accepted practices of the international petroleum

industry. A Field may consist of a Hydrocarbon deposit or multiple Hydrocarbon deposits

grouped in or related to the same individual geological structural or stratigraphic conditions,

4



or unrelated deposits that are developed using a Development and Production Plan. All

deposits superimposed, adjacent to, or underlying a Field in the Contract Area will form part

of that Field.

1.1.11 CIF has the meaning established in the publication of the International Chamber of

Commerce, INCOTERMS 2000.

1.1.12 Affiliated Company or Affiliate of any specific Person means any other Person directly or

indirectly Controlling or Controlled by or under the direct or indirect common Control of such

Person.

1.1.13 The National Company, for the purposes of this Contract, means Guinea Ecuatorial de

Petróleos (GEPetrol), as the national petroleum company of Equatorial Guinea, or whatever

successor state company.

1.1.14 Contractor means *COMPANY* and the National Company and will include the entities to

which a Participation Interest under the Contract is legitimately transferred.

1.1.15 Contract means this production sharing contract, including its Preamble and Annexes.

1.1.16 Material Contract means a contract having a value over five hundred thousand Dollars

($500,000) with respect to Exploration Operations, or a million Dollars ($1M) with respect to

Exploration Operations or Production Operations with (i) an Affiliate of the Operator, when

the contract has not previously and specifically been approved in an Annual Budget as a

contract that should be carried out by an Affiliate, or (ii) a non-Affiliate of the Operator. If

law or regulation establishes a greater limit than that stipulated in this definition for the

supervision of contracts by the State, this definition will be amended to reflect that limit.

1.1.7



Control, when used with respect to a specified Person, means the power to direct, administer,

and dictate the policies of such Person through ownership of a percentage of such Person's

equity sufficient to hold a majority of voting rights in an ordinary shareholders meeting. The

terms Controller and Controlled have meanings that correlate to the foregoing.



1.1.18 Development and Production Costs means all costs, expenses, and obligations incurred by

the Contractor in connection with Development and Production Operations in a Development

and Production Area, excluding all Exploration Costs incurred in the Development and

Production Area before any Field is established, and that are determined to be in accordance

with this Contract and the Hydrocarbons Law.

1.1.19 Exploration Costs means all costs, expenses, and other obligations that are non-recoverable

costs incurred by the Contractor in connection with Exploration Operations in the Contract

Area, including those identified in the Accounting Procedure, and that are determined to be in

accordance with this Contract and the Hydrocarbons Law.

1.1.20 Petroleum Operations Costs means Exploration Costs and/or Development and Production

Costs (depending on the context) incurred by the Contractor in carrying out Petroleum

Operations, as determined in accordance with this Contract and the Accounting Procedure.

1.1.21 Argus Crude means the report published by the Argus company on the international crude oil

market, including evaluation of the Crude Oil deposit located in the Contract Area.

1.1.22 Discovery means a finding of Hydrocarbons by the Contractor whose existence within the

Contract Area was unknown prior to the Effective Date, or Hydrocarbons within the Contract

Area that had not been declared a Commercial Discovery prior to the Effective Date and that

are measurable by generally accepted international petroleum industry practices.

1.1.23 Commercial Discovery means a Discovery that the Contractor considers economically viable

and in the interest of which submits for the approval of the Ministry a Development and

5



Production Plan of the Discovery.

1.1.24 Days means the days on which the offices of the Ministry are open to the public.

1.1.25 Working Day means a day on which the banks of Malabo, Equatorial Guinea, and New

York, USA, generally conduct commercial activities.

1.1.26 Dollars or $ means the legal tender of the United States of America.

1.1.27 Member State of CEMAC means the country is a member of the Economic and Monetary

Community of Central Africa.

1.1.28 Member State of OHADA means the country is a member of the Organization for the

Harmonization of Business Law in Africa.

1.1.29 Effective Date means the date the Contractor receives ratification of this Contract, totally

signed by the State, in accordance with the provisions of Article 31.

1.1.30 Brent Closing means the quote published daily in the Platts Bulletin of the Crude Oil Market

that reflects the price of a shipment of Brent North Sea mixed crude oil for a set period.

1.1.31 FOB has the meaning stipulated in the publication of the International Chamber of

Commerce, INCOTERMS 2000.

1.1.32 Reserve Fund has the meaning attributed to it by Article 24.3

1.1.33 Natural Gas means those Hydrocarbons that at atmospheric conditions of temperature and

pressure, are in a gaseous state, including dry gas, wet gas, and residual gas remaining after

extraction, treatment, processing, or separation of liquid Hydrocarbons from wet gas, as well

as gas or gases produced in association with liquid or gaseous Hydrocarbons.

1.1.34 Associated Natural Gas means all Natural Gas produced from a deposit the predominant

content of which is Crude Oil and that has been separated from Crude Oil in accordance with

generally accepted practices of the international petroleum industry, including free gas cap,

but excluding any liquid Hydrocarbons extracted from such gas either by normal field

separation, dehydration, or in a gas plant

1.1.35 Net Natural Gas has the meaning attributed to it by Article 13.3.5.

1.1.36 Non-Associated Natural Gas means all gaseous Hydrocarbons extracted from Natural Gas

deposits, and includes wet gas, dry gas, and residual gas remaining after the extraction of

liquid Hydrocarbons from wet gas.

1.1.37 Equatorial Guinea means the Republic of Equatorial Guinea.

1.1.38 Hydrocarbons means all natural organic substances composed of carbon and hydrogen,

including Crude Oil and Natural Gas that may be found and produced, or otherwise extracted

and saved from the Contract Area.

1.1.39 Income Tax means that tax levied on the each of the Parties making up the Contractor and all

other pertinent Persons in accordance with the Tax Law.

1.1.40 Gross Revenues means total income from sales of Total Disposable Production plus the

equivalent monetary value of any other disposal of Total Disposable Production from the

Contract Area during any Calendar Year.

1.1.41 Participation Interest means for each Party constituting the Contractor, the undivided

percentage share of such Party in the rights and obligations under this Contract, as specified

6



in Article 1.3.

1.1.42 Participation Interest of the National Company means the Participation Interest of the

National Company as established in Article 1.3.

1.1.43 Hydrocarbons Law means Law No. 8/2006 dated 3 November 2006 of Equatorial Guinea.

1.1.44 Relevant Authority Law means any laws, codes, decrees, instruments or subordinate

legislation, by-laws, regulations, declarations, rules, orders, statute, ordinances, normative

acts and administrative acts of:

(a)



the Organisation for the Harmonization of African Business Law (OHADA);



(b)



the Interafrican Conference of Insurance Markets;



(c)



COBAC;



(d)



BEAC;



(e)



CEMAC; and



(f)



any other regional laws, codes, decrees, instruments or subordinate legislation, bylaws, regulations, declarations, rules, orders, statute, ordinances, normative acts and

administrative acts (whether current or future and excluding Equatoguinean Law)

applicable to the Parties in relation to the Project,



and shall also include the OHADA Accounting System;

1.1.45 Environmental Law means Law No. 7/2003 of 27 November of Equatorial Guinea and any

law that amends or replaces it, including the International Treaties signed and ratified by the

Republic of Equatorial Guinea.

1.1.46 Tax Law means Law No. 4/2004 of 28 October 2004 of Equatorial Guinea, and any law that

amends it or replaces it.

1.1.47 LIBOR means the interest rate at which Dollar deposits of six (6) months' duration are

offered in the London InterBank Market, as published in the Financial Times of London. The

applicable LIBOR interest rate applicable for each month or part of the month within an

interest period will be the interest rate published in the Financial Times of London on the last

Working Day of the immediately preceding calendar month. If no such rate is quoted in the

Financial Times of London during a period of five (5) consecutive Working Days, another

rate (for example, the rate of exchange quoted in the Wall Street Journal) chosen by mutual

agreement between the Ministry and the Contractor will apply.

1.1.48 Month of Commercialization of the Shipment means the month that initiates two (2)

calendar months before the month scheduled for the embarkation of a Crude Oil shipment.

1.1.49 Ministry means the Ministry of Mines and Hydrocarbons of Equatorial Guinea, the entity

responsible for supervising Petroleum Operations in coordination with other Government

bodies within their respective areas of competence, and any successor.

1.1.50 Negligence means any act or omission of an act by a person or entity (acting alone, together

with another, or simultaneously) with the intention of causing harmful consequences, or with

reckless imprudence or indifference to the harmful consequences that such person or entity

knew or should have known would result for the safety, property, or interests of another

person or entity from such an act or failure. Provided they satisfy the above parameters, such

acts or omissions can include substantial deviations from the standards of behavior of a

reasonable man, or of a prudent operator, guided by the standard practices of the industry and

7



by those considerations that normally rule the conduct of human affairs, acting in the

circumstances of the presumed bad behavior.

1.1.51 Dispute Notification has the meaning attributed to it in Article 26.1.1.

1.1.52 Notification of Exploration Well according to the approved Work Programme, Contractor

will notify the Ministry in writing of its intention to drill an Exploration Well.

1.1.53 Development and Production Operations means all operations, other than Exploration

Operations that are engaged in to facilitate the Development and Production of Hydrocarbons

from the Contract Area to the Delivery Point.

1.1.54 Exploration Operations include geological and geophysical studies, aerial mapping,

investigations relating to subsurface geology, stratigraphic test drilling, Exploration Wells,

Evaluation Wells and related activities such as drill site preparation, surveying and all

connected work carried out in relation to the Exploration for Hydrocarbon deposits in the

Contract Area and their Evaluation until the Ministry approves a Development and

Production Plan.

1.1.55 Petroleum Operations means all operations related to Exploration, Development,

Production, transportation, storage, conservation, dismantling, sale and/or other disposal of

Hydrocarbons from the Contract Area to the Delivery Point and any other work or activities

necessary or complementary to such operations; these operations and activities will be carried

out in accordance with this Contract and the Hydrocarbons Law and will not include transport

outside Equatorial Guinea.

1.1.56 The Operator will be *COMPANY*, as approved by the Ministry and so designated in the

Joint Operation Agreement.

1.1.57 Party or Parties means the party or parties to this Contract, as the context dictates.

1.1.58 Paying Party or Parties will have the significance attributed to it (them) in Article 8.2.1.

1.1.59 Participation of the National Company Carried Forward means the Participation Interest

of twenty percent (20%) of the National Company that will be carried forward by the

Contractor during the Exploration Period(s) until the End Point of the Carry-Forward.

1.1.60 Development and Production Period means the period defined in Article 5.10.

1.1.61 Initial Exploration Period means a period of four (4) Contract Years from the Effective

Date, subdivided into two sub-periods of two (2) Contract Years each.

1.1.62 Extension Period means the First Extension Period and the Second Extension Period,

separately or together, as the context dictates. Each of these Extension Periods will be for a

period of one (1) Contract Year.

1.1.63 Exploration Periods means the Initial Exploration Period, an Extension Period, and any

further extensions of them.

1.1.64 Person means any individual, firm, company, corporation, society, trust, foundation,

government, state or state agency, or any association or grouping (whether or not having a

separate legal personality) or two or more of these.

1.1.65 Crude Oil means Hydrocarbons produced at the wellhead in a liquid state at atmospheric

pressure including asphalt and ozokerites, and the liquid Hydrocarbons known as condensates

and/or Natural Gas liquids obtained from Natural Gas by condensation or extraction through

field separation units.

8



1.1.66 Net Crude Oil has the meaning attributed to it by Article 7.3.

1.1.67 Cost-Recovery Oil has the meaning attributed to it in Article 7.2.1.

1.1.68 Development and Production Plan has the meaning attributed to it in Article 5.5.1.

1.1.69 Platts or Platts Crude Oil Market Bulletin refers to the daily publication of crude oil quotes

that are customarily adopted by the petroleum industry to determine crude oil prices.

1.1.70 Well means any opening in the ground or seabed made or being made by drilling or boring, or

in any other manner, for the purpose of exploring and/or discovering, evaluating, or

producing Crude Oil or Natural Gas, or for the injection of any fluid or gas into an

underground formation other than a seismic hole.

1.1.71 Development Well means a Well, other than an Exploration Well or an Evaluation Well,

drilled with the purpose of producing or improving the Production of Hydrocarbons,

including Exploration Wells and Evaluation Wells completed as production or injection

Wells.

1.1.72 Evaluation Well means a Well drilled after a Discovery, with the objective of delimiting and

mapping the deposit, as well as to estimate the quantity of recoverable Hydrocarbons.

1.1.73 Exploration Well means any Well whose sole objective is to verify the existence of

Hydrocarbons or to study all the necessary elements that could lead to a Discovery.

1.1.74 Market Price means the FOB price for Crude Oil calculated in accordance with Article 10.

1.1.75 Annual Budget means the Contractor's approved expenditures with respect to an Annual

Work Program.

1.1.76 First Extension Period means the period of one (1) Contract Year beginning immediately

after the conclusion of the First Exploration Sub-Period

1.1.77 First Exploration Sub-Period means the first two (2) Contract Years of the Initial

Exploration Period.

1.1.78 Accounting Procedure means the accounting procedure contained in Annex C.

1.1.79 Total Disposable Production means all Hydrocarbons produced and saved from a

Development and Production Area minus the quantities used for fuel and transport in

Petroleum Operations under Article 6.10.

1.1.80 Annual Work Program means an itemized statement of the Petroleum Operations to be

carried out in the Contract Area during a Calendar Year.

1.1.81 End Point of the Carry-Forward is the date of approval by the Ministry of the Plan od

Development and Production.

1.1.82 Delivery Point means the point located within the jurisdiction of Equatorial Guinea at which

Hydrocarbons reach (i) the inlet flange at the FOB export vessel, (ii) the loading facility

metering station of a pipeline, or (iii) any other point within the jurisdiction of Equatorial

Guinea as may be agreed to by the Parties.

1.1.83 Royalties means a right of the State to Hydrocarbons extracted and saved from the Contract

Area, and not utilized in Petroleum Operations for fuel or transport, in accordance with

Article 6.10, based on percentages calculated as a function of the daily rate of the Total

Disposable Production in accordance with Article 7.1.

9



1.1.84 Petroleum Operations means all regulations promulgated by the Ministry observing and in

accordance with the Hydrocarbons Law under Ministerial Order 4/2013 of 20 June 2013, and

any regulations that may amend or replace them.

1.1.85 Minimum Retention means the Operator and its Affiliates will maintain a minimum balance

on deposit in one or more of the banks that are operating in Equatorial Guinea selected by the

operator, measured annually for each Calendar Year, in the following amounts:

(a) Before the year following approval of the first Development and Production Plan, a

deposit balance equal to … percent (…%) of the current Annual Budget applicable to the

Calendar Year;

(b) After the year following approval of the first Development and Production Plan, and

during each year that the development activities continue that were foreseen in that

Development and Production Plan, a deposit balance equal to … percent (…%)of the

Annual Budget (excluding capital expenditure) applicable to the Calendar Year;

(c)

After the year following the year in which the development operations cease that

were foreseen in the first Development and Production Plan, a deposit balance equal to

… percent (…%) of the Annual Budget (excluding capital expenditure) applicable to the

Calendar Year;

(d) If at any time a subsequent Development and Production Plan is approved that requires a

development operation, the required balance of the deposit will return to … per cent

(…%) of the Annual Budget (excluding capital expenditure) applicable to that Calendar

Year, up to the year following the year during which the development operations

foreseen in that Development and Production Plan cease;

1.1.86 Second Extension Period means the period of one (1) Contract Year beginning immediately

after the end of the Second Exploration Sub-Period.

1.1.87 Second Exploration Sub-Period means the final two (2) Contract Year(s) of the Initial

Exploration Period.

1.1.88 Maximum Efficient Production Rate means the maximum efficient production rate of

Hydrocarbons from a Field that does not damage deposit formations and does not cause

excessive decline or loss of deposit pressure in accordance with good practices of the

international oil industry, and as agreed in accordance with Article 6.4.

1.1.89 Tax and Taxes means the coercive pecuniary contributions stipulated by Law, that the State,

local entities and other public entities levy in exercise of their sovereign power.

1.1.90 Quarter means a period of three (3) consecutive months beginning 1 January, 1 April, 1 July,

or 1 October and ending 31 March, 30 June, 30 September, or 31 December, respectively.

1.2



Scope



1.2.1



This Contract is a production sharing contract awarded pursuant to Chapter IV of the

Hydrocarbons Law. In accordance with the provisions of this Contract and the Hydrocarbons

Law, the Ministry will be responsible for supervising Petroleum Operations in the Contract

Area.



1.2.2



The State grants the Contractor the sole and exclusive right to carry out all Petroleum

Operations in the Contract Area during the term of this Contract. In consideration of the

above, the Contractor commits itself to:

(a)



be responsible to the State, in the capacity of independent contractor, for execution of

the Petroleum Operations in accordance with this Contract, the Hydrocarbons Law,

and the Petroleum Regulations;



(b)



provide all funds, machinery, equipment, technology, and personnel that are prudent

10



and necessary to execute the Petroleum Operations; and

(c)



diligently, with due attention to good practices of the international petroleum industry

execute at its exclusive responsibility and risk, all investments and contractual

obligations necessary for carrying out the Petroleum Operations in accordance with

this Contract.



1.2.3



All Costs of the Petroleum Operations will be recoverable and/or deductible for tax purposes

in the manner established in this Contract and the Hydrocarbon Law.



1.2.4



During the term of this Contract, all Production obtained as a consequence of the Petroleum

Operations will be shared between the parties in accordance with Article 7.



1.3



Participation Interests



1.3.1



On the Effective Date, the Participation Interests of the Parties making up the Contractor are

as follows:

The National Company …% (minimum 20% Carried Participation of the National

Company")

*COMPANY*

…%

Total

100%

The Participation Interest of the National Company is for compliance with Chapter XVIII of

the Hydrocarbon Law. The abovementioned Carry Participation of the National Company of

twenty percent (20%) will be carried by the Contractor (with the exception of the National

Company) until the End Point of the Carry-Forward as defined in article 1.1.81. The Carry

Participation of the National Company will remain subject to all the responsibilities and

obligations of the Contractor. The costs attributable to the Carry Participation of the National

Company will be paid, subject to Article 8.2, by the entities that make up the Contractor, with

the exception of the National Company, and recoverable as specified in Articles 8.2.2 and

8.2.3.



1.3.2



The National Company will have the option of acquiring an additional Participation Interest

of ten percent (10%) if there is a Commercial Discovery in the Contract Area.



ARTICLE 2

PERIOD OF EXPLORATION AND RELINQUISHMENTS OF AREAS

2.1



Initial Exploration Period

From the Effective Date, the Contractor will be authorized to carry out Exploration

Operations in the Contract Area during the initial Exploration Period of four (4) years, as

established in Article 1.1.61. Within 60 days from the Effective Date, the Contractor will

initiate study and evaluation work.



2.2



Extension periods



2.2.1



The Contractor may ask for up to two (2) extensions: the first is an extension of one (1) year

to the First Sub-Period, and the second is an extension of one (1) year to the Second SubPeriod.



2.2.2



For each Extension Period, the Contractor will present a request to the Ministry at least two

(2) months before the expiration of the First Sub-Period, or as the case may be, the Second

Sub-Period. The Ministry will not unreasonably deny or delay the granting of this extension,

provided the Contractor has complied with all of its obligations in the Initial Exploration

11



Period and the First Extension Period, as the case may be, and is in no way noncompliant with

this Contract.

2.2.3



A map will be attached to each request for an extension, delineating the Contract Area the

Contractor proposes to retain, as well as a report that specifies the work realized in the areas

proposed for relinquishment since the Effective Date, and the results obtained from them.



2.2.4



If on the expiration of the Initial Exploration Period or any Extension Period, an Evaluation

work program is under way, the Contractor will be entitled to the grant of an additional

extension of the current Exploration Period necessary to complete the work in progress.

Additionally, if Evaluation work has not been completed by the Contractor at the time a

relinquishment comes due, as stipulated in Article 2.4, the obligation to relinquish will be

suspended until the Contractor has completed the work, the commerciality is decided, and if

applicable, establishment of a Field has been approved or denied. Any additional extension

granted in accordance with this Article will not exceed one (1) Contract Year or a longer

period that may be approved by the Ministry, plus the necessary period of time established

under Article 5 for the evaluation of a Development and Production Plan and the Ministry's

response.



2.2.5



In the previous case, the Contractor will ask the Ministry for an additional extension at least

two (2) months before expiration of the Initial Exploration Period or the Extension Period in

force at the time, as applicable.



2.3



Termination

If the Contractor decides:

(a)



not to enter the Second Sub-Period;



(b)



not to extend the Initial Exploration Period and no Field has been established during

that period; or



(c)



to extend the Initial Exploration Period and no Field has been established during the

Extension Period or any extension of it; or



(d)



to relinquish all its rights with respect to the entire Contract Area in accordance with

what is established in Article 2.5,



this Contract will be automatically terminated.

2.4



Obligatory relinquishments



2.4.1



The Contractor must relinquish to the State forty percent (40%) of the initial surface area of

the Contract Area on finalization of the Exploration Period. To decide the area or areas the

Contractor will relinquish, the following areas will be excluded for the purposes of the

calculation:

(a)



areas designated as Evaluation Areas;



(b)



Development and Production Areas;



(c)



areas for which approval of a Development and Production Plan is pending, until a

final decision is made;



(d)



the area of any Field, including those Fields that may be subject to unitization in

accordance with Article 22; and



(e)



any area reserved for a possible Unassociated Natural Gas Evaluation with respect to

12



which the Contractor is negotiating with the Ministry in accordance with the terms of

Article 13.1.

2.4.2



On expiration of the final applicable extension period stipulated in accordance with Article

2.2, and subject to the provisions of Article 2.2.4, the Contractor will relinquish the rest of the

Contract Area, with the exception of:

(a)



Development and Production Areas;



(b)



areas for which approval of a Development and Production Plan is pending, until a

final decision is made;



(c)



the area of any Field, including those Fields that may be subject to unitization in

accordance with Article 22; and



(d)



any area reserved for a possible Unassociated Natural Gas Evaluation with respect to

which the Contractor is negotiating with the Ministry in accordance with the terms of

Article 13.1.



2.5



Voluntary relinquishments



2.5.1



Subject to the Contractor's obligations established in Article 24 and the Hydrocarbons Law,

the Contractor may at any time notify the Ministry with three (3) months' advance notice that

it relinquishes all of its rights over all or any part of the Contract Area.



2.5.2



In no event will voluntary relinquishment of rights over all or any part of the Contract Area

reduce the Contractor's obligations of Exploration established in Article 3.



2.6



Involuntary relinquishments



2.6.1



If the Contractor, during the First Exploration Sub-Period, fails to perform the minimum work

Programme defined in Article 3, the Contractor will then relinquish all of its rights over the

entire Contract Area at the end of the First Exploration Sub-Period.



2.6.2



If the Contractor, during the First Exploration Sub-Period fails to perform the minimum work

Programme defined in Article 3, the Contractor will then relinquish all of its rights over the

entire Contract Area at the end of the Second Exploration Sub-Period



2.6.3



This involuntary relinquishment will in no way exempt the Contractor from any of the

obligations it may have under Article 24 of the Hydrocarbons Law.



2.7



Relinquishments in General



2.7.1



No relinquishment made by virtue of Articles 2.4 or 2.5 will relieve the Contractor of its

obligation to pay accrued surface rentals, or to make due and payable payments incurred

during Petroleum Operations executed up to the date of the relinquishment.



2.7.2



The Contractor will, in accordance with good oil field practice, put forward the geographical

location of the part of the Contract Area that it proposes to retain. This area will have one or

more continuous geometric forms that extend North to South and East to West and will be

delimited at a minimum by one (1) minute of latitude or longitude or natural boundaries;

moreover, this area will also be subject to the Ministry's approval.



ARTICLE 3

EXPLORATION WORK OBLIGATIONS

13



3.1



Minimum Work Program

During the Exploration Period, the Contractor commits itself to executing the following

program of minimum work:



2D seismic acquisition



3D seismic acquisition



First Exploration SubPeriod:



Exploration well(s)



Amount (km)

Cost ($)

Amount (sq km)

Cost ($)

Number

Depth (mss)

Stratigraphic Target

Cost ($ per well)



_ _ months

Other Studies / Data

(specify)

Contingent Work

Total Cost First

Exploration Sub-Period

2D seismic acquisition

3D seismic acquisition



Second Exploration SubPeriod



Exploration well(s)



…$MM

Amount (km)

Cost ($)

Amount (sq km)

Cost ($)

Number

Depth (mss)

Stratigraphic Target

Cost ($ per well)



_ _ months



Other Studies / Data

(specify)

Contingent Work

Total Cost Second

Exploration Sub-Period



…$MM



3.1.1



If the Contractor completely fulfils all the obligations of the First Sub-Period, then it may, at

its sole discretion, opt to enter into a Second Exploration Sub-Period.



3.1.2



If the Contractor has drilled more than the minimum number of Exploratory Wells demanded

in the minimum work Programme, then the surplus that exceeds the obligatory amount at the

end of the period in question will be transferred and considered part of the obligations of the

next guaranteed period(s).



3.2



Minimum Depth of the Wells



3.2.1



Each of these Exploratory Wells must be drilled to the minimum depth specified above or to a

lesser depth if the Ministry so authorizes in accordance with this Article, or if interrupting

drilling is justified by one of the following reasons:

14



(a) the economic basement is reached at a lesser depth than the minimum depth specified in

the Contract;

(b) further drilling is clearly dangerous because of abnormal pressure in the formation or for

another reason;

(c) rocky formations are encountered whose hardness makes it impracticable to continue

drilling with appropriate equipment; or

(d) hydrocarbon-bearing formations are encountered that require the installation of casings

that exclude reaching the minimum contractual depth.

3.2.2



For purposes of Article 3.2.1, economic basement in and beneath which the geological

structure or the physical sequence of the rocks do not have the necessary properties to

accumulate hydrocarbons in commercial quantities and that moreover, reflects the maximum

depth at which accumulations of this type can reasonably be expected to occur.



3.3



Cessation of drilling

With respect to Article 3.2.1(a), and to the extent practicable, if a prudent operator would

immediately cease drilling operations, the Contractor will notify the Ministry immediately of

its decision and obtain the Ministry's approval before removing any drilling platform from the

area. The Ministry will respond to this request for approval as soon as practicable. Approval

may not be unreasonably denied or delayed without reasonable justification, provided that the

Ministry has sufficient information to make an informed decision.



3.4



Substitute Wells

If any obligatory Exploratory Well is abandoned due to insurmountable technical problems as

set out in Article 3.2.1, items (b), (c) and (d) and, at the time of abandonment, the Exploration

Costs for that Well equal or exceed … million Dollars ($...MM), for all purposes of this

Contract, the Contractor will be considered to have fulfilled its minimum work obligations for

the period in question. If any obligatory Exploratory Well is abandoned due to

insurmountable technical problems and if, at the time of abandonment, the Exploration Costs

for that Well are less than … million Dollars ($...MM), the Contractor will choose between

the following options:

(a)



drill a substitute Exploratory Well in the same or a different site to be agreed on with

the Ministry: or



(b)



pay the Ministry an amount equal to the difference between …million dollars

($...MM) and the amount of Exploration Costs effectively spent in connection with

this Exploratory Well, which will be treated as if it were the finalization of the well,

thus fulfilling the minimum work obligations with this Well.



3.5



Provision of Guarantees



3.5.1



On or before the Effective Date, each of the Parties making up the Contractor (other than the

National Company) will provide to the State and acceptable guarantee that should be, at the

discretion of the Ministry, either (i) an Affiliate Company guarantee in the form stipulated in

Annex D from an Affiliate Company or (ii) an irrevocable standby letter of credit from a firstclass international financial institution in up to the amount of … million Dollars ($...MM),

which corresponds to the minimum expenditure obligations of the Contractor under this

Contract for the First Exploration Sub-Period, and which will remain valid until the

Contractor has complied with this obligation of minimum expenditures. In any case, the

amount of the guarantee will be reduced as a function of sums expended that are related to the

work obligations carried out to the degree that they are complete. If the Parties that make up

the Contractor (except the National Company) do not provide the Ministry with the

15



guarantees demanded by the date established under this Article 3.5.1, this Contract will be

considered null and void, if the Contractor does not succeed in remediating the

noncompliance within thirty (30) days of being notified of it.

3.5.2



Thirty (30) days before initiating drilling of the Exploratory Well demandable in the Second

Exploration Sub-Period, the Contractor (other than the National Company) will provide the

State and acceptable guarantee that should be, at the discretion of the Ministry either (i) an

Affiliate Company guarantee in the form stipulated in Annex D from an Affiliate Company;

or (ii) an irrevocable standby letter of credit from a first-class international financial

institution up to the amount of …million Dollars ($...MM), which corresponds to the

minimum expenditure obligations of the Contractor under this Contract for the Second

Exploration Sub-Period, and which will remain valid until the Contractor has complied with

this obligation of minimum expenditures. In any case, the guarantees be released in the

proportion of the amounts spent in the committed work programme as it is completed. If the

Parties that form the Contractor (other than the National Company) fail to provide the

Ministry with the required guarantees at the date defined in this Article 3.5.2, this Contract

will be considered null and invalid, unless the Contractor remedies such failure within thirty

(30) days after receiving the notification of such breach.



3.6.1



Participation Interest of the National Company

For purposes of Article 3.5, any expenditure of the Paying Parties under Article 8.2 will not

be considered an expenditure for the purpose of satisfying the minimum expenditure

requirements established in this Article.



ARTICLE 4

ANNUAL WORK PROGRAMS AND BUDGETS

4.1



Presentation of Annual Work Program

No later than ninety (90) days before the beginning of each Calendar Year, or for the first

Calendar Year, no later than sixty (60) days after the Effective Date, the Contractor will

prepare and present for approval by the Ministry a detailed Annual Work Program divided

into Quarters, together with the corresponding Annual Budget for the Contract Area

explaining the Petroleum Operations the Contractor proposes to carry out during the Calendar

Year. The Annual Budget will be presented in the Ministry's official format.



4.2



Form and Approval of the Annual Work Program

Each Annual Work Program and corresponding Annual Budget will be broken down into the

various Exploration Operations and, as applicable, according to the evaluation operations for

each Evaluation Area, and the Development and Production Operations for each

Development and Production Area. If no response is received within ninety (90) days of the

reception of the Annual Work Program and corresponding Annual Budget, these will be

considered approved. The Ministry may propose amendments or modifications to the Annual

Work Program and corresponding Annual Budget, by giving notice to the Contractor and

including reasons for the amendments or modifications, within sixty (60) days of receiving

the Annual Work Program and Annual Budget. In such event, the Ministry and the Contractor

will meet as soon as possible to review the amendments or modifications proposed by the

Ministry and establish the Annual Work Program and corresponding Annual Budget by

mutual agreement. The parts of the Annual Work Program for which the Ministry does not

require amendment or modification will be considered approved and the Contractor must

implement them within the stated time period, provided they can be undertaken on an

individual basis, or with respect to an approved activity that depends technically or financially

16



on an activity that is not approved. With respect to the parts of the Annual Work Program for

which the Ministry proposes any amendment or modification, the date of approval of the

Annual Work Program and corresponding Annual Budget will be the date on which the

Ministry and the Contractor reach mutual agreement on them. If the Ministry and the

Contractor do not reach an agreement about the amendments and modifications proposed by

the Ministry before the end of the Calendar Year in which the Annual Work Plan and

corresponding Annual Budget are submitted, the Contractor will continue operating in

accordance with the most recent Annual Work Plan and corresponding Annual Budget

approved by the Ministry until agreement is reached.

4.3



Execution of Petroleum Operations

The Contractor will perform each operation included in an approved Annual Work Program

correctly and diligently, in accordance with the terms of this Contract, the Hydrocarbons Law,

and the good practices of the international petroleum industry.



4.4



Unbudgeted expenses



4.4.1



The Ministry and the Contractor recognize that the technical results acquired as work

progresses, or certain unforeseen changes in circumstances, may justify modifying the

approved Annual Work Program and corresponding Annual Budget. In such circumstances,

the Contractor will promptly notify the Ministry of the proposed modifications. The Ministry

will study these modifications and decide whether to approve them within a period of sixty

(60) days of receiving the notification. If the Ministry neither approves nor rejects the

proposed modifications within this sixty- (60) day period, the proposed modifications will be

considered approved. Notwithstanding the foregoing, the Contractor will not in any case incur

any expenditure that exceeds the approved Annual Budget by more than five percent (5%)

without the prior approval of the Ministry. Expenditures exceeding the five percent (5%)

tolerance will not be recoverable as a Petroleum Operations Cost or deductible for tax

purposes. Where such approval is requested in connection with ongoing operations, the date

of any approval will be considered to be prior to expenditure if the Ministry is aware of the

excess and the continuation of operations after the time of that cost is verbally approved by

the Ministry. In relation to emergencies or accidents, Articles 78.3 and 79 of the Regulations

will apply.



4.4.2



At the time the Contractor reasonably believes that the limits of the Annual Budget will be

exceeded, the Contractor will promptly notify the Ministry and provide the Ministry with full

details of such excess expenditures, including the reasons for them.



4.4.3



The limitations stipulated in Article 4.4 will not affect the Contractor’s right to make

expenditures in the event of an emergency or accident requiring urgent action in accordance

with what is stipulated in Article 4.5.



4.4.4



Except as otherwise provided in Article 4.5, if the Contractor incurs any expenditure whose

program and budget has not been approved within an Annual Work Program and

corresponding Annual Budget or any amendment to them approved by the Ministry, then this

expenditure will not be recoverable by the Contractor as a Petroleum Operations Cost.



4.5



Emergency or Accident



4.5.1



In the event of an emergency or accident requiring urgent action, the Contractor will follow

all steps and take the measures as may be prudent and necessary in accordance with good

practices of the international petroleum industry to protect its interests and those of the State

and the property, life, and health of other Persons, the environment, and the safety of the

Petroleum Operations. The Contractor will promptly inform the Ministry of such emergency

or accident.



4.5.2



All of the related costs incurred by the Contractor in accordance with Article 4.5 will be

17



recoverable as Petroleum Operations Costs in accordance with this Contract Nevertheless,

costs incurred by the Contractor in cleaning up pollution or damage to the environment, if

caused by the negligence or willful misconduct of the Contractor, its subcontractors or any

Person acting on its or their behalf, will not be recoverable as a Petroleum Operations Costs.



ARTICLE 5

EVALUATION OF A DISCOVERY AND PRODUCTION PERIOD

5.1



Notification of Discovery

If the Contractor discovers Hydrocarbons in the Contract Area it will notify the Ministry as

soon as possible, but not later than thirty (30) days after the date of the Discovery. This notice

will include all relevant information in accordance with the good practices of the international

petroleum industry, including the details of any production testing program that the

Contractor has carried out or proposes to carry out during drilling operations



5.2



Evaluation Work Program



5.2.1



If the Contractor considers that the Discovery merits Evaluation it will diligently submit to

the Ministry a detailed evaluation work program and corresponding budget no later than six

(6) months following the date on which the Discovery was reported in accordance with

Article 5.1 The evaluation work program, corresponding budget and designated Evaluation

Area are subject to the review and approval of the Ministry in accordance with the procedures

established in Article 4.



5.2.2



The rough draft of the evaluation work program will specify the estimated size of the

Hydrocarbon reserves of the Discovery, the area to be designated as the Evaluation Area and

will include all seismic, drilling, testing and evaluation operations necessary to carry out an

appropriate evaluation of the Discovery. The Contractor will diligently undertake the

approved evaluation work program, it being understood that the provisions of Article 4.4 will

apply to the program.



5.2.3



The duration of the evaluation work program will not exceed twenty-four (24) months for

Crude Oil and in the case of Natural Gas, the duration of the evaluation work program will be

determined in accordance with the provisions of Article 13, unless otherwise approved by the

Ministry. The Ministry's approval of the request will not be denied or delayed without

reasonable justification.



5.3



Presentation of the Evaluation Report



5.3.1



Within six (6) months following completion of the evaluation work program and in any case,

no later than thirty (30) days before expiration of the Initial Exploration Period, or the First

Extension Period or the Second Extension Period, including all additional extensions in

accordance with the provisions of Article 2.2, as the case may be, the Contractor will present

a detailed report to the Ministry giving all the technical and economic information associated

with the evaluated Discovery and that confirms, in the Contractor's judgment, whether such

Discovery is a Commercial Discovery.



5.3.2



This report will include geological and petrophysical characteristics of the Discovery,

estimated geographical extent of the Discovery, results of the production tests obtained from

the formation, and a preliminary economic study with respect to exploitation of the

Discovery.



5.4



Determination of Commerciality

For the purposes of Article 5.3, the Contractor will determine whether it considers that a

18



Discovery or set of Discoveries can be developed commercially. The commercial viability of

the Discovery or set of Discoveries will be determined after consideration of all operating,

economic, and financial information gathered during performance of the evaluation work

program and other sources, including recoverable reserves of Crude Oil and Natural Gas,

sustainable Production levels and all other relevant economic factors, according to the good

practices of the international petroleum industry.

5.5



Presentation and Approval of the Development and Production Plan



5.5.1



If the Contractor considers the Discovery or set of Discoveries to be a Field, it will submit for

the approval of the Ministry a development and production plan (the "Development and

Production Plan") for that Discovery or set of Discoveries within twelve (12) months

following delivery of the report referred to in Article 5.3



5.5.2



The Ministry may propose amendments or modifications to the aforementioned Development

and Production Plan, and also to the Development and Production Area that is the object of

this Development and Production Plan, giving notice to the Contractor within ninety (90)

days following receipt of the plan. Such notification will explain the reasons for the

amendments or modifications proposed by the Ministry. In such case, the Ministry and the

Contractor will meet as soon as possible to review the proposed amendments or modifications

of the Ministry and establish the Development and Production Plan by mutual agreement.



5.5.3



If the Contractor and the Ministry do not reach a written agreement within one hundred eighty

(180) days following the submission of amendments and modifications by the Ministry, or the

Ministry notifies the Contractor that it does not approve the establishment of a Field, the Field

will not be established and any extension granted under Article 2.2.4 with respect to the

Discovery or set of Discoveries in question will be deliberated and decided by an

internationally recognized expert named by the International Chamber of Commerce in

accordance with its Rules for Expertise (ICC Expertise Rules). The decision of the expert will

be restricted to whether the rejection by the Ministry of the establishment of a Field or the

amendments and modifications to the Development and Production Plan by the Ministry are

reasonable and customary and prudent in accordance with generally accepted practice of the

international petroleum industry. The decision of the expert will be final and binding on the

Parties, and if it cannot be enforced in accordance with the legislation of Equatorial Guinea,

the only recourse will be to arbitration under Article 26 to arrive at a definitive and binding

decision. The expert will determine the above within twenty (20) days from the date of his

designation. The costs and expenses of the expert will be paid proportionately by the Parties.



5.6



Modifications to the Development and Production Plan



5.6.1



When the results obtained during Development and Production Operations require certain

modifications to the Development and Production Plan, the plan may be modified using the

same procedure provided for its initial approval. Subject to the provisions of Article 4.4, the

Contractor may not incur any expenditure that exceeds the approved Development and

Production Plan without prior approval of the Ministry; if prior approval is not obtained, such

excess expenditures will not be recoverable by the Contractor as Petroleum Operations Costs

or deductible for tax purposes.



5.6.2



During the period of Development and Production, the Contractor may propose to the

Ministry revisions to the Development and Production Plan at any time that additional

Development and Production Operations are under consideration. Such revisions will be

submitted for the Ministry’s approval using the same procedure provided for the initial

approval.



5.7



Number of Fields

If the Contractor discovers more than one (1) Field in the Contract Area that are not

overlying, adjacent to, or underlying an existing Field, each will be the object of a separate

19



Development and Production Plan, unless the Ministry agrees that the Fields would be better

developed with a single Development and Production Plan.

5.8



Extension of the Field beyond the Contract Area



5.8.1



If, during work performed after approval of a Development and Production Plan, it appears

that the geographical extent of a Field is larger than the Development and Production Area

designated in accordance with Article 5.5, this will be so reported to the Ministry for

enlargement of the Field by the Contractor to the additional area, provided that it is included

in the Contract Area in effect at that time, and provided that the Contractor provides

supporting evidence of the existence of the additional area for which it is applying.



5.8.2



If a Field extends beyond the boundaries of the Contract Area as delimited at any particular

time, the Ministry may require the Contractor to exploit such Field in association with the

contractor of the adjacent area in accordance with Article 22 of the Hydrocarbons Law and

good practices of the international petroleum industry



5.8.3



When the area proposed to be unitized is not subject to any production sharing contract, such

area will be the subject of new negotiations between the Parties to achieve an amendment to

this Contract, it being understood that any award of an additional area must be in accordance

with the Hydrocarbons Law.



5.9



Commencement and Execution of Development and Production Operations



5.9.1



The Contractor will commence Development and Production Operations within six (6)

months of the approval date of the Development and Production Plan and will conduct these

operations diligently.



5.9.2



The Contractor commits itself to conducting all Development and Production Operations in

accordance with good practices of the international petroleum industry, this Contract, and the

Hydrocarbons Law.



5.10



Duration of the Operations



5.10



The duration of the Development and Production period during which the Contractor is

authorized to exploit a Field is twenty-five (25) Years from the date of approval of the

Development and Production Plan for the Field.



5.10.2 The Development and Production period defined above may be extended for an additional

period of five (5) Years with prior approval of the Ministry.

5.11



The Contractor's Expenses and Financial Risks

The Contractor commits itself to assuming the expenses and financial risks of all Petroleum

Operations required to bring a Field into Production in accordance with the approved

Development and Production Plan.



5.12



Mandatory Relinquishment

During the Initial Exploration Period, the Extension Periods, and any additional extensions,

the Ministry may, provided it gives at least six (6) months’ notice, require the Contractor to

promptly relinquish, without any compensation or indemnification, all of its rights to the area

encompassing a Discovery, including any rights to Hydrocarbons that may be produced from

such Discovery, if the Contractor:

(a)



has not presented, in accordance with Article 5.2, an evaluation work program and

corresponding budget with respect to the Discovery within six (6) months of the date

on which the Discovery has been reported to the Ministry; or

20



(b)



5.13



subject to the provisions of Article 13.1 with respect to Unassociated Natural Gas,

does not establish the Discovery as a Field within one (1) Year after completion of

evaluation work with respect to the Discovery.



Future Operations

In the event of a relinquishment under Article 5.12, the Ministry may perform or cause to be

performed any Petroleum Operations with respect to any Discovery so relinquished without

any compensation or indemnification to the Contractor, provided, however, that it will not

interfere with the Petroleum Operations undertaken by the Contractor in the part of the

Contract Area retained by the Contractor, if any. The Ministry will be permitted to use (free

of charge) all facilities and equipment of the Contractor that are not used for continuing

Petroleum Operations. If so requested by the Ministry, the Contractor will take charge of all

continuing operations on terms and for a fee to be agreed between the Ministry and the

Contractor.



ARTICLE 6

CONDUCT OF PETROLEUM OPERATIONS

6.1



Obligations of the Contractor

In accordance with the good practices of the international petroleum industry and the

Hydrocarbons Law, the Contractor will provide all funds necessary to manage Petroleum

Operations in the Contract Area, including buying or leasing all facilities, equipment,

materials, and other goods required to carry out such Petroleum Operations. It will also

supply all technical and operational expertise, including the use of foreign and national

personnel required to implement Annual Work Programs. The Contractor will be responsible

for the preparation and implementation of all Annual Work Programs, which will be carried

out in accordance with this Contract, the Hydrocarbons Law and good practices of the

international petroleum industry.



6.2



Joint Operating Agreement

The contractor will provide the Ministry with a copy of the draft Joint Operating Agreement

(JOA) no later than … (…) days after the Effective Date, linking the entities making up the

Contractor group, and naming the entity designated as the Operator.



6.3



Management of Petroleum Operations

The Contractor will diligently manage Petroleum Operations in accordance with this

Contract, the Hydrocarbons Law and the good practices of the international petroleum

industry.



6.4



Maximum Efficient Production Rate

The Contractor and the Ministry will agree on the Production programs before Production

begins in any Field and establish at that time the Maximum Efficient Production Rate for the

Field, and will decide the dates on which the levels will be reexamined and potentially

revised.



6.5



Working conditions

21



The Contractor will provide acceptable working conditions and access to medical attention

and nursing care for all of its local and international personnel and those of its subcontractors

that are working offshore and on land during Petroleum Operations. The Contractor will also

provide living quarters for national or international personnel based on offshore installations

and an additional housing allowance in the remuneration of land-based personnel.

6.6



Discovery of other minerals

The Contractor will promptly notify the Ministry of the discovery of other minerals or

substances in the Contract Area. If any Persons are granted a permit or license within the

Contract Area for the exploration and exploitation of any minerals or substances other than

Hydrocarbons, the Ministry will take all reasonable measures to ensure that the operations of

such Persons do not obstruct the Contractor's Petroleum Operations. The Contractor will use

all reasonable efforts to avoid obstructing the operations of such permit holders or licensees.



6.7



Awarding of Contracts



6.7.1



The Contractor will award all contracts in accordance with the National Content Regulation

promulgated by the Ministry in Ministerial Order No. 1/2014 of 26 September 2014, to the

best qualified subcontractor or other Person, including Affiliates of the Contractor, as

determined by cost and ability to comply with the provisions of the contract, provided the

Contractor complies with Article 23.1.



In all Material Contracts, the Contractor will:

(a)



call for bidding on the contract;



(b)



give preference to national companies the Contractor considers qualified;



(c)



before awarding a Material Contract, send a notification to the Ministry reporting that the

Contractor intends to present an offer for the contract;



(d)



include the national companies on a list supplied by the Ministry and that the Contractor

considers competent, on the list of bidders for the Material Contract;



(e)



add any Persons to the list so requested by the Ministry;



(f)



complete the bidding process within a reasonable time;



(g)



consider and analyze the details of the bids received;



(h)



prepare a competitive bid analysis and present to the Ministry stating the Contractor’s

recommendation as to the Person to whom the contract should be awarded, the reasons, and

the technical, commercial, and contractual terms to be agreed upon;



(i)



obtain the approval of the Ministry that will be considered as conceded if there is no response

to a request for approval thirty (30) Days after receipt of a written request; and



(j)



provide the Ministry with a copy of the final executed contract.



All amendments and/or variations to a Material Contract will require the prior approval of the

Ministry, approval that will be considered as conceded if there is no response to a request for

approval thirty (30) Days after receipt of a written request.

6.7.2



To the extent that the Contractor imports and/or uses any services, materials, equipment,

consumables, and other goods from outside Equatorial Guinea in conscious contravention of

22



this Article or Article 23.1, or otherwise enters into a contract in contravention of these

Articles, the costs will not be Petroleum Operations Costs and will not be costs that the

Contractor can recover.

6.7.3



Together with the Annual Work Program, the Contractor will submit to the Ministry a list of

the types of contracts or agreements for services that the Contractor foresees entering into

during that Year, as well as details of those entered into in the previous Year. This list will

include the value of those contracts, as well as the names, addresses, and telephone numbers

where all the subcontractors of the Contractor and other Persons who have entered into these

contracts. In addition, the Contractor will present to the Ministry quarterly a detailed list,

including the names, addresses, and telephone contacts of the Contractor’s subcontractors and

other Persons who have provided goods or services to the Contractor for the conduct of

Petroleum Operations during the relevant Quarter.



6.8



Inspection of Petroleum Operations



6.8.1



All Petroleum Operations may be inspected and audited by the Ministry at such intervals as

the Ministry considers necessary; nevertheless, only in exceptional cases will this be done

outside regular working hours. The duly commissioned representatives of the Ministry will

have the right, among others, to monitor Petroleum Operations and inspect all equipment,

facilities, and materials relating to Petroleum Operations, provided that any such inspection

will not unduly delay or impede Petroleum Operations, nor demand the use of housing

necessary for operating personnel. The representatives of the Ministry inspecting and

monitoring Petroleum Operations will comply with the safety standards of the Contractor, and

whenever possible, will do so without incurring extra expenses for the Contractor.



6.8.2



For purposes of allowing exercise of the rights mentioned in the paragraph above, the

Contractor will provide reasonable assistance to the representatives of the Ministry, including

transportation and accommodation, when these are under the control of the Contractor. The

Ministry will pay all expenses of transportation and housing of third parties, with the

exception of what is established in Article 6.8.3,



6.8.3



In accordance with the Petroleum Regulations, all reasonable costs directly related to the

technical inspection, verification, and audit of Petroleum Operations, or related to the exercise

of the Ministry's rights under this Contract or the performance of the Contractor's obligations

will be at the expense of the Contractor under tariffs that will be published and are applicable

in general to all companies in the Hydrocarbon extraction sector in Equatorial Guinea.

Payments under this Article 6.8.3 will be made to the State and are recoverable as Petroleum

Operations Costs in accordance with this Contract, including:

(a)

(b)

(c)

(d)



outbound and return travel expenses for trips outside Equatorial Guinea;

local public transportation, when transportation in accordance with Article 6.8.2 is

not available;

housing, when this is necessary to carry out official tasks and is not supplied under

Article 6.8.2; and

per diems, which will be adjusted in accordance with the amounts assigned to the

classification of each agent of the Ministry, applicable to all companies in the

Hydrocarbons extraction sector of Equatorial Guinea.



6.9



Supply of information to the Ministry:



6.9.1



The Contractor will keep the Ministry fully informed of the performance and status of

Petroleum Operations, supplying information at reasonable intervals and as required under

this Contract, and about all accidents or emergencies that may have occurred during these

operations. Furthermore, the Contractor will provide the Ministry with all documentation and

information that is required to be provided under this Contract and the Hydrocarbons Law and

that may be requested by the Ministry from time to time.

23



6.9.2



The Contractor will keep the Ministry informed on a daily basis of the volumes of

Hydrocarbons produced in the Contract Area.



6.10



Production of energy for own use

If the national power grid is available to the Contractor for its onshore Petroleum Operations,

the Contractor will connect to that network and will not produce any energy for its own use

except to the extent that national production or transmission of energy is insufficient or not

sufficiently reliable for the Contractor's needs to carry out Petroleum Operations. In such

case, the energy produced will not be sold to any Person. The Contractor may utilize the

quantities of Crude Oil and/or Natural Gas as fuel in its offshore Petroleum Operations or for

the transport of Hydrocarbons to an onshore location.



6.11



Equipment standards

The Contractor will ensure that all equipment, plants, installations, and materials it uses

comply with the Hydrocarbons Law and generally accepted engineering standards, and that

they have been duly constructed and are maintained in good condition.



6.12



Contractor's care and the environment



6.12.1 The Contractor will take all necessary and prudent steps in accordance with good practices of

the international petroleum industry, the Hydrocarbons Law, and this Contract to:

(a) prevent pollution and protect the environment and living resources;

(b) ensure that any Hydrocarbons discovered or produced in the Contract Area are handled

in a safe manner for the environment;

(c) avoid causing damage to overlying, adjacent, and/or underlying formations that contain

Hydrocarbon deposits;

(d) prevent the ingress of water via Wells into strata that contain Hydrocarbons that are not

specified in an approved Development and Production Plan;

(e) avoid causing damage to overlying, adjacent, and/or underlying aquifers;

(f) ensure that Petroleum Operations are carried out in accordance with this Contract, the

Hydrocarbons Law, and all other laws of Equatorial Guinea;

(g) take the precautions necessary to protect maritime transportation and the fishing industry,

and to avoid contamination of the ocean and rivers;

(h) drill and exploit each Field in a manner consistent with the approved Development and

Production Plan for protection of the interests of Equatorial Guinea; and

(i) ensure that damages caused by Petroleum Operations to Persons and property are

promptly, fairly, and fully compensated.

6.12.2 If the Contractor's actions result in any pollution or damage to the environment, any Person,

living resources, property or other type of damage, the Contractor will immediately take all

prudent and necessary measures to remedy such damages and its effects and/or those

measures the Ministry may order. If the pollution or damage is caused as a result of the

negligence or willful misconduct of the Contractor, its subcontractors, or any Persons acting

on its or their behalf, all costs related to that pollution or damage will not be recoverable as

Petroleum Operations Costs. If the Contractor does not act promptly to control or clean up

any pollution or repair any damage caused, the Ministry may, after giving the Contractor

reasonable notice in the circumstances, carry out the actions that are prudent or necessary in

24



accordance with this Article and Article 4.5 and all reasonable costs and expenses of those

measures will be at the expense of the Contractor and will not be recoverable as Petroleum

Operations Costs.

6.12.3 If the Ministry determines that any works or installations built by the Contractor or any

activity undertaken by the Contractor threatens the safety of any Persons or property or causes

pollution or harm to the environment, the Ministry will promptly advise the Contractor of its

determination, and may require the Contractor to take all appropriate mitigating measures,

consistent with generally accepted practices of the international petroleum industry, to repair

any damage caused by the Contractor's conduct or activities. Furthermore, if the Ministry

considers it necessary, it may demand that the Contractor suspend the affected Petroleum

Operations totally or partially until the Contractor has taken the appropriate mitigating

measures or repaired any damage.

6.12.4 The Contractor will undertake comprehensive environmental impact assessment studies

before, during, and after drilling operations. The Contractor will assume the costs of these

studies and the costs will be recoverable This requirement is mandatory and the first study

will be presented to the Ministry before drilling starts on the first Well in the Contract Area.

However, an environmental impact assessment must also be completed before any seismic

work in especially sensitive areas environmentally specified by the State.

6.13



Reinjection and Natural Gas Flaring

The Natural Gas that the Contractor does not develop in accordance with this Contract and the

Hydrocarbons Law or use in its own operations within the Contract Area will be reinjected

into the structure of the subsoil. All costs of the reinjection will be recoverable as Petroleum

Operations Costs. Notwithstanding the foregoing, the Ministry may authorize the combustion

of Natural Gas for short periods of time in accordance with the Hydrocarbons Law. The

Contractor will compensate the State for unauthorized volumes of gas flared. All such Natural

Gas not used in Petroleum Operations by the Contractor or not developed in accordance with

this Contract and the Hydrocarbons Law will remain the sole property of the State.



6.14



Design and identification of Wells



6.14.1 The Contractor will conform to the practices generally accepted in the international petroleum

industry in the design and drilling of Wells, including their casing and cementation.

6.14.2 Each Well will be identified by a name or number agreed on with the Ministry, which will be

indicated on all maps, plans and other similar records produced by or on behalf of the

Contractor.

6.15



Vertical Projection Wells

No Well may be drilled to an objective outside the vertical projection of the boundaries of the

Contract Area. Directional Wells drilled within the Contract Area from adjacent terrain not

covered by this Contract will be considered for all purposes of this Contract as Wells drilled

from territory included in the Contract Area, and whose drilling may only be undertaken with

the prior approval of the Ministry, and on the terms and conditions the Ministry may

establish. No part of this Article intends or may be interpreted as conceding a right of lease,

license, servitude or any other right that the Contractor must obtain from the Ministry or other

Persons.



6.16



Notification of Drilling Commencement

The Contractor will notify the Ministry at least ten (10) Working Days before drilling any

Well established in an approved Annual Work Program and corresponding Annual Budget, or

before resuming work on any Well where work has been suspended for more than six (6)

months.

25



6.17



Construction of installations

The Contractor will build and maintain all installations necessary to properly comply with this

Contract and carry out Petroleum Operations. The Contractor will request authorization from

the Ministry and/or other applicable governmental authorities to occupy land necessary for

the exercise of corresponding rights and obligations in accordance with this Contract. This

authorization will be ruled by the provisions of Article 6.19, the Hydrocarbons Law, and other

applicable laws of Equatorial Guinea. The Contractor will repair all damages caused by such

circumstances.



6.18



Occupation of Land



6.18.1 In order to carry out Petroleum Operations, the Contractor will have the right to:

(a)



subject to the provisions of Articles 6.17 and 6.18.2, occupy the land necessary to

carry out Petroleum Operations and connected activities, as stipulated in items (b) and

(c) of this Article, including housing of personnel;



(b)



undertake or procure the undertaking of any infrastructure work necessary in normal

technical and economic conditions for the carrying out of Petroleum Operations and

associated activities such as transport, storage of equipment, materials and extracted

substances, establishment of telecommunications equipment and communication lines

necessary to carrying out Petroleum Operations at installations located both offshore

and on land;



(c)



realize or ensure realization of the work necessary to supply water for personnel and

installations in accordance with water supply regulations; and



(d)



extract and use or ensure the extraction and utilization of resources (other than

Hydrocarbons) from the subsoil necessary for the activities stipulated in paragraphs

(a), (b) and (c) above in accordance with applicable regulations.



6.18.2 Occupation of land as mentioned in Article 6.18.1 will become effective after the Ministry or

other appropriate governmental authority approves the request submitted by the Contractor

indicating and detailing the location of such land and how the Contractor plans to use it,

taking the following into consideration:

(a)



if the land belongs to the State, the State will grant it to the Contractor for occupation

and to build its fixed or temporary installations during the term of this Contract for a

fee and on terms to be agreed and this amount will be considered a Petroleum

Operations Cost;



(b)



if the land is private property by traditional or local right according to the Property

Registry, then (i) if the occupation is merely temporary or transitory, or for right of

way, the Contractor will reach an agreement with the relevant property owner and the

property owner will reach an agreement with any occupant, tenant, or possessor with

respect to the rental to be paid, and the resulting amounts will be considered

recoverable Petroleum Operations Costs, or (ii) if the occupation is permanent, the

Contractor will reach an agreement on matters related to the property's acquisition

with the owner in question, and such amounts will be considered Petroleum

Operations Costs;



(c)



if the Contractor and the relevant property owner or occupant, tenant, or possessor do

not reach an agreement about the matters mentioned in paragraph (b) above, the

Ministry will act as mediator between them, and if mediation fails to produce

resolution of the case, the dispute will be resolved by the courts of Equatorial Guinea,

unless recourse is had to the procedure described in paragraph (d) below;

26



6.19



(d)



the State may expropriate the land, subject to prior publication of a decree of

compulsory expropriation followed by a fair and reasonable appraisal of the land by

an expert appraiser. In such event, the Contractor will compensate the expropriated

property owner in accordance with the value determined by the expert appraiser if the

State has not done so; such amounts will be considered recoverable Petroleum

Operations Costs;



(e)



relinquishment, in whole or in part, of the Contract Area, will not affect the

Contractor’s rights under Article 6.18.1 to carry out building work and construction

of installations, provided that such work and installations are directly related to other

activities of the Contractor in the remainder of the Contract Area, as in the case of

partial relinquishment, and covered by other production sharing contracts.



Residence of personnel

No restrictions will be imposed on the entry, residence, free circulation, employment, and

repatriation of the Contractor's personnel and those of its subcontractors, the family of such

personnel, or the belongings of such personnel and their families, provided the Contractor and

its subcontractors comply with all applicable laws, including, among others, the labor and

social legislation of Equatorial Guinea. The State commits to expediting without delay the

entry, work, or residence permits or other permits or authorizations that may be required by

the personnel of the Contractor or any subcontractor in accordance with the Laws of

Equatorial Guinea.



6.20



Collaboration of the Ministry

The Ministry will collaborate with the Contractor and its subcontractors in obtaining all

administrative authorizations and licenses as may reasonably be necessary for proper

execution of Petroleum Operations under this Contract.



6.21



Opening a branch.

In accordance with Article 20 of the Hydrocarbons Law, the Contractor (with the exception of

the National Company) will, to the extent that it has not already done so, open a branch of a

local or foreign company in Equatorial Guinea within six (6) months following the Effective

Date, which will continue as a foreign or local company as each member of the Contractor

(with the exception of the National Company) chooses, with its presence established in

Equatorial Guinea during the entire term of this Contract. This branch office will always be

staffed by at least one (1) representative having sufficient authority to make decisions on

behalf of the Contractor.



6.22



Offices

After approval of the first Development and Production Plan, the Operator, at the expense and

responsibility of the Contractor (with the exception of the National Company) will, to the

extent that it has not already done so, construct a building for its offices in Equatorial Guinea

using modern and permanent materials and of an appropriate size and design, as approved by

the Ministry. All costs related to such construction will be recoverable as Petroleum

Operation Costs under this Contract. Once construction costs have been recovered by the

Contractor, the property will be owned solely by the State and the Contractor will have the

right to continue to use it for offices during the term of this Contract. When the Contractor

has recovered the costs of constructing the building, it will negotiate renting the building with

the State. This rent will be market price.



27



ARTICLE 7

ROYALTIES, RECOVERY OF PETROLEUM OPERATION COSTS, AND

DISTRIBUTION OF PRODUCTION

7.1



Royalties



7.1.1



The Contractor will pay Royalties to the State from the first day of Production based on the

daily Total Disposable Production from a Development and Production Area. The calculation

will be determined according to the following table applicable for each tranche:

Daily Total Disposable Production

(Barrels per day)

0 to …

… to …

… to …

More than …



Royalty

(%)

13%

…%

…%

…%



7.1.2



The percentage that corresponds to the level of Production will be applied directly. Thus, for

example, for a Production level of …. (….) Barrels per day, … percent (…%) would be paid,

and the Royalty would be … (…) Barrels.



7.2



Cost-Recovery Petroleum



7.2.1



After deducting Royalties, the Contractor will be entitled to up to … percent (…%) of the

Total Disposable Production remaining in any Calendar Year for recovery of its Petroleum

Operations Costs (Cost Recovery Oil).



7.2.2



The value of the portion of Total Disposable Production assigned to the Contractor’s

recovered Petroleum Operations Costs will be determined in accordance with Article 10.



7.2.3



If, during any Calendar Year, the Petroleum Operations Costs not yet recovered by the

Contractor in accordance with this Contract exceed the value of the maximum amount of

available Cost Recovery Oil, the portion of Petroleum Operations Costs not recovered in the

Year will be carried forward to the following Calendar Year for recovery purposes.



7.3



Net Crude Oil

The quantity of Total Disposable Production remaining every Year after deduction of

Royalties and Cost Recovery Oil will hereinafter be referred to as Net Crude Oil, which will

be shared between the State and the Contractor in the following proportions:



Total Accumulated

Production

(Million Barrels)

Less than or equal to …



State Participation

(%)



%

%

%

%

%



More than …

7.4



Delivery of State's Participation

28



Participation of the

Contractor



%

%

%

%

%



The share of the Crude Oil belonging to the State, in accordance with Articles 7.1 and 7.3,

will be delivered to and accepted by the State or the Person it designates at the Delivery Point.

The Contractor will be free from all responsibility with respect to this Crude Oil from the

time it has been delivered. However, the State may require the Contractor to purchase all or

part of the State’s share of Total Disposable Production, subject to the provisions of Article

7.5

7.5



Price Obtained by the Contractor



7.5.1



If, in accordance with Article 7.4, the State requires the Contractor to purchase its share of

Crude Oil, the State will advise the Contractor of its next scheduled shipment at least three (3)

months in advance, and the Ministry and the Contractor will mutually agree on the terms and

conditions of the sale. If three (3) months’ advance notice is not given, or agreement is not

reached on the terms and conditions of the sale, the Contractor will not be obligated to buy

the Crude Oil



7.5.2



The Ministry will have the right to compare the price for its Crude Oil obtained from the

Contractor with quotations from similar markets. If it is shown that the price obtained from

the Contractor differs substantially from the quotations in similar markets, the Ministry will

have the right to evaluate the Contractor’s sales and marketing operations, and if justified, to

cancel any contract of sale between the State and the Contractor with respect to sales after the

date on which it becomes aware of the situation, as well as also having the right to market

Crude Oil on its own, without prejudice to any right that the State has against the Contractor.



7.6



Export of the Contractor's Share

Subject to Article 12 and the Hydrocarbons Law, each Party making up the Contractor has the

right to take, receive, and freely export its share of Net Crude Oil and Cost Recovery Oil,

provided it uses the services of an Equatoguinean Crude Oil maritime transport company, an

international company associated with the National Company or any other local business that

is able to provide the services under conditions that are internationally competitive in terms of

price, quality, terms of payment, and availability. If such enterprises do not exist, or cannot

offer competitive terms with respect to price, quality, terms of payment, and availability, each

of the Parties making up the Contractor will have the right to freely take, receive, and export

its share of the Net Crude Oil and Cost-Recovery Petroleum through internationally available

suppliers.



7.7



Transfer of Ownership

Ownership of the Contractor’s portion of Net Crude Oil and Cost Recovery Oil will pass to

the Contractor at the Delivery Point.



ARTICLE 8

PARTICIPATION INTERESTS

8.1



Responsibility for Petroleum Operations Costs

Subject to Article 8.2, the Parties making up the Contractor will fund, pay, and carry all costs

and expenses for Petroleum Operations under this Contract and the Joint Operating

Agreement in the proportions established in Article 1.3. Each of the Parties that constitute the

Contractor will be represented on the operating committee under the JOA, and will have

voting rights as the Agreement provides.



8.2



Participation Interest of the State through the National Company under Chapter XVIII of the

Hydrocarbons Law.

29



8.2.1



The National Company's Carried-Over Interest will be carried and paid in its totality by the

Parties that make up the Contractor, with the exception of the National Company, ("Paying

Partners") in accordance with the provisions of Article 1.3.1. After the End Point of the

Carry-Forward point, the National Company will totally pay all costs and obligations that

arise that are attributable to its Participation Interest, the same as other members of the

Contractor.



8.2.2



The costs, expenses, and obligations contracted by each Paying Party in relation to its

payments and obligations for the Carried-Over Participation of the National Company will

be recoverable by the Paying Parties by virtue of this Contract and the Hydrocarbons Law.

The Paying Parties will recover the costs and expenses associated with the Carried-Over

Participation of the National Company only from fifty percent (50%) of the Cost-Recovery

Petroleum. The National Company is entitled to fifty percent (50%) of the Cost-Recovery

Petroleum until the Paying Partners have been completely reimbursed for the cost of the

Carried-Over Participation of the National Company.



8.2.3



In accordance with the provision of 8.2.2, such costs will also include: travel, stay, and

maintenance of the delegation designated by the National Company.



ARTICLE 9

TAXES

9.1



Payment of Taxes

Except as otherwise provided in this Contract, the Contractor, its subcontractors, and their

respective employees, agents, consultants, and other personnel will be subject to the Tax Law

and all regulations passed in accordance with it, as well as CEMAC (Central African

Economic and Monetary Community) and tax and customs laws of Equatorial Guinea.



ARTICLE 10

VALUATION OF CRUDE OIL

10.1



Calculation of Market Price



10.1.1 The selling price per unit of Crude Oil under this Contract will be the FOB Market Price at

the Delivery Point, expressed in Dollars per Barrel and calculated in accordance with this

Article 10.1. A Market Price will be established for each type of Crude Oil or Crude Oil

blend, according to this Article 10.1.

10.1.2 The Market Price applicable to all liftings of Crude Oil sold to third parties in market

conditions during a Quarter will be the agreed-to sales price, adjusted, if necessary, to reflect

differences in the quality, gravity, delivery conditions, and terms of payment.

10.1.3 Before the period when Argus Crude quotes a price for the Field from which the Crude Oil is

sold, the market price applicable to all liftings of crude oil sold to a Contractor’s Affiliate and

subsequently sold to a third party will be the value received under the contract in market

conditions with that third party, adjusted, if necessary, to reflect differences in the quality,

gravity, delivery conditions, and terms of payment. If there is no Argus Quote for the Crude

Oil produced, the Contractor and the Ministry will meet to establish a differential related to a

marker of crude quoted in Argus to reflect the difference in quality and the commercial

differences. The meeting will take place six months after the introduction onto the market,

and all Persons constituting the Contractor who participate in the commercialization of the

Crude Oil during this six-month period will participate in the meeting with the Ministry.

10.1.4 The market price applicable to all Crude Oil liftings sold to a Contractor's Affiliate after a

quoted price has been established for one Quarter will be calculated by adding the average of

30



the high and low Dated Brent quotes according to publication in five (5) consecutive editions

of the Platts Bulletin of the crude oil market (including all corrections) after the date of the

shipment's bill of lading to the average differential between Crude Oil sold and Dated Brent

quotes that are published in Argus Crude for the period beginning the fifteenth (15th) day and

ending the last day of the Month of the Cargo's Marketing (inclusive). This is expressed in the

following Formula:

Price = A + B, where:

A=



average of the high and low Dated Brent quotes, according to publication in

five (5) consecutive editions of the Platts Bulletin of the Crude Oil Market

(including all corrections) after the date of the bill of lading.



B=



average differential between the quality of crude oil sold and Dated Brent

quotes published in Argus Crude for the period beginning the fifteenth (15th)

day and ending the last day of the month of the Cargo's Marketing (inclusive).



If the qualities of crude oil produced from the field do not correspond, within tolerable limits,

a 'C' adjustment will be created that takes into account the differences associated with those

qualities that do not coincide with A and B. In this case, the Market Price formula will be

amended as follows:

Price = A + B + C

If the Crude Oil used to calculate the Market Price is no longer quoted, the Ministry and the

Contractor will agree on which Crude Oil is closest to the Crude Oil that is no longer quoted,

in order to calculate the Market Price.

10.1.5 The Market Price applicable to all liftings of Crude Oil for one Quarter equals the weighted

average of the prices obtained by the Parties constituting the Contractor, with the exception of

the National Company, for Crude Oil sold and valued in accordance with Articles 10.1.2,

10.1.3, and 10.1.4

10.1.6 The following transactions will be excluded from calculation of the Market Price:



10.2



(a)



sales between the providers of Crude Oil and the local market; and



(b)



sales for consideration other than payment in a freely convertible currency and sales

wholly or partially made for reasons different from the usual economic incentives

involved in Crude Oil sales on the international market (such as exchange contracts).



Disagreements about the Market Price



10.2.1 The Contractor and the Ministry will agree on the Market Price in accordance with this

Article 10; if they are unable to agree on any matter concerning the Market Price of Crude

Oil, either the Contractor or the Ministry may serve the other with a dispute notice. Within

seven (7) days of the date of the dispute notice, the Ministry will establish a committee of two

(2) Persons of which the Minister of Mines and Hydrocarbons or his delegate will be the

President, and the other committee member will be a representative designated by the

Contractor to represent it. The committee will meet and make a decision resolving any dispute

under this Article 10 within thirty (30) days of the date of the dispute notice. The committee

will decide the controversy unanimously.

10.2.2 If the committee has not reached a unanimous decision within the aforementioned thirty- (30) day period, the dispute will be decided by an internationally recognized expert named by the

International Chamber of Commerce in accordance with its Rules for Expertise (ICC

Expertise Rules). The decision of the expert will be final and binding on the Parties, and if it

cannot be enforced in accordance with the legislation of Equatorial Guinea, the only recourse

31



will be to arbitration under Article 26 to arrive at a definitive and binding decision. The expert

will determine the Market Price in accordance with the provisions of this Article 10 within

twenty (20) days from the date of his designation. The costs and expenses of the expert will

be paid proportionately by the Parties on a per capita basis and the Contractor’s share will not

be cost recoverable

10.2.3 While the determination of the Market Price for a Quarter is pending, the Market Price

provisionally applicable to a Quarter will be the Market Price of the preceding Quarter. Any

necessary adjustment will be made no later than thirty (30) days after determination of the

Market Price for the Quarter in question

10.3



Period for payment of the Market Price to the State if the Contractor commercializes the

State's Crude Oil.

Subject to Article 7.5, when the Contractor markets Crude Oil belonging to the State for the

State and the period of payment is not individually established in a Crude Marketing

Agreement with the State, within ten (10) days of each shipment, the Contractor will provide

the Ministry with full details of the prices obtained from the sale of each shipment of State

Crude Oil and will forward to the State all amounts of such sales within fourteen (14) days of

receiving them.



10.4



Auditing the Market Price

The Ministry will have the right to audit and verify that the price obtained by the Contractor

for each shipment of Crude Oil has been the price determined in accordance with this

Contract. The Ministry will have the right to evaluate the marketing practices of the

Contractor during a period of two (2) Years from the transaction date, and require the

Contractor to pay the State for the difference between the price actually obtained and the

Market Price determined in accordance with this Article 10. Differences with respect to the

Market Price will be resolved as established in Article 10.2.



ARTICLE 11

BONUSES AND SURFACE LEASES

11.1



Contract signing bonus

The Contractor will pay the State a signing bonus of … million Dollars ($...MM) within thirty

(30) days of the Effective Date.



11.2



Discovery Bonus

On the date the Contractor notifies the Ministry for the first time that it considers a Discovery

to be a Commercial Discovery in compliance with the provisions of Article 5.4, the

Contractor will pay the State the sum of … million Dollars ($...MM).



11.3



Production Bonuses

The Contractor will pay the State the following amounts as Production Bonuses:

(a)



… million Dollars ($...MM) on the date Production of Crude Oil begins from a

Development and Production Area;



(b)



… million Dollars ($...MM) when daily Production from a Development and

Production Area first averages …(…) Barrels per day for a period of sixty (60)

consecutive days;

32



(c)



… million Dollars ($...MM) when daily Production from a Development and

Production Area first averages … (…) Barrels per day for a period of sixty (60)

consecutive days;



(d)



… million Dollars ($...MM) when daily Production from a Development and

Production Area first averages …(…) Barrels per day for a period of sixty (60)

consecutive days;



(e)



… million Dollars ($...MM) when daily Production from a Development and

Production Area first averages … (…) Barrels per day for a period of sixty (60)

consecutive days; and



These payments will be made within thirty (30) days of the date that the obligation is

generated.

11.4



Surface leasing



11.4.1 The Contractor will pay the State the following annual surface lease amounts:

(a)



…Dollars ($...) annually per hectare of the Contract Area, or part thereof, during the

Initial Exploration Period, the Extension Periods, or any extension of them; or



(b)



… Dollars ($...) annually per hectare for each Development and Production Area, for

each Calendar Year or part thereof, during the term of the relevant Development and

Production Period.



11.4.2 For the Year in which this Contract is signed, the surface lease payment established in Article

11.4.1(a) will be prorated from the Effective Date through 31 December of such Year and will

be paid within thirty (30) days after the Effective Date. For succeeding Years, the surface

lease payments established in Article 11.4.1(a) and (b) will be paid in advance not less than

thirty (30) days before the beginning of each Calendar Year.

For the Calendar Year in which any Development and Production Area is granted, the surface

lease payment established in Article 11.4.1(a) and (b) will be prorated from the date on which

such Development and Production Plan is approved to 31 December of that Calendar Year,

and the additional sum will be paid within thirty (30) days after the approval of the

Development and Production Area. For succeeding Calendar Years the surface lease payment

established in Article 11.4.1(b) will be paid within thirty (30) calendar days after the

beginning of each Calendar Year.

11.4.3 Surface lease payments will be calculated based on the surface of the Contract Area, and

where applicable, of a Development and Production Area occupied by the Contractor on the

date these surface leases are paid. To avoid doubt, this will exclude the surface of any

relinquished areas. In the event of relinquishments made during a Calendar Year, the

Contractor will have no right to be reimbursed for the surface lease payments already made.



ARTICLE 12

OBLIGATIONS TO SUPPLY THE NATIONAL MARKET

12.1



Obligation to supply

In accordance with the Hydrocarbons Law, the Contractor will make meeting the needs of

domestic Hydrocarbon consumption in Equatorial Guinea a priority without the obligation to

assume oil investment to produce a progressive increase in production for domestic

consumption. . For this purpose, and in accordance with the provisions of Articles 86 and 87

of the Hydrocarbons Law, if the State so requests, the Parties constituting the Contractor

33



(other than the National Company) will sell a portion of their Net Crude Oil and/or Net

Natural Gas to the State at the Delivery Point for internal consumption in the country. The

price of Natural Gas for internal consumption under Articles 86 and 87 of the Hydrocarbons

Law will be established in accordance with Article 49 of the Hydrocarbons Law.

12.2



Ministry Notification

No later than the first day of October of each Calendar Year, the Ministry will notify the

Parties constituting the Contractor (other than the National Company) of the quantities of

Crude Oil and/or Natural Gas that it wishes to purchase under this Article 12 for the

subsequent Calendar Year, when this right has not been waived to ensure exportation of

Natural Gas. The Crude Oil and/or Natural Gas will be delivered to the State or to the

beneficiary designated by the State during that Calendar Year, according to procedures to be

agreed on between the Ministry and the Contractor.



12.3



Conditions under which the rights under Article 12.1 can be waived

Before submission of a Development and Production Plan under Article 5.5, the Contractor

will prepare an evaluation of reserves to determine the range of proved and certified Natural

Gas reserves in the Development and Production Area.

In cases where long term Natural Gas sales contracts are necessary to finance the project that

is the object of the Development and Production Plan, the Government will evaluate and

report if it waives Article 12.1 with respect to whether the reserves are sufficient to obtain this

financing, The Contractor will have no obligation to carry out the Natural Gas Development

or Production Operations if this waiver is not conceded.



ARTICLE 13

NATURAL GAS

13.1



Non-Associated Natural Gas



13.1.1 In the event of a Non-Associated Natural Gas Discovery, the Contractor will comply with the

provisions of Article 5.2. However, if the Evaluation work program presented by the

Contractor following the Discovery of Non-Associated Natural Gas has a duration exceeding

that of the Initial Exploration Period or any of its extensions, the Contractor may request from

the Ministry an extension of the relevant Exploration Period with respect to the Evaluation

Area related to such Discovery for a period of up to four (4) Years starting from the

expiration of the Initial Exploration Period or any of its Extension Periods, as appropriate.

The Contractor will request the aforementioned extension at least sixty (60) days before the

expiration of the period in question.

13.1.2 If the Contractor considers that the Non-Associated Natural Gas Discovery does not warrant

Evaluation or further Evaluation, in conformity with the provisions of Article 5.12, the

Ministry may, with ninety (90) days’ advance notice, require the Contractor to waive all of its

rights over the Evaluation Area where the Discovery is located.

13.1.3 If after finishing the Evaluation work the Contractor does not notify the Ministry within thirty

(30) days that the Non-Associated Natural Gas Discovery is not a Commercial Discovery,

whether (i) as an autonomous discovery, or (ii) together with potential but undrilled

accumulations in the Contract Area during the Extended Exploration Period, or (iii) together

with Natural Gas discovered but not developed in a nearby area, the Ministry may, with

ninety (90) days’ advance notice, require the Contractor to waive all of its rights over the

Evaluation Area. In case of a Commercial Discovery, the Contractor will be obligated to

comply with the provisions of Article 5.5 and those of Article 73 of the Hydrocarbons Law.

34



13.1.4 If the Contractor is required to waive its rights under Article 13.1.2 or Article 13.1.3, it will

be understood that the Contractor waives all its rights to the Hydrocarbons that this NonAssociated Natural Gas Discovery may produce, and the State will be empowered to carry out

or have carried out all the Petroleum Operations relating to this Discovery, without

compensation or indemnification to the Contractor, provided, however, that such work will

not prejudice execution of the Contractor's other Petroleum Operations.

13.2



Associated Natural Gas



13.2.1 In the event that a Discovery of Crude Oil is considered to be a Commercial Discovery, the

Contractor will state in the report referred to in Article 5.3 whether it considers that the

Production of Associated Natural Gas is likely to exceed the quantities necessary for the

requirements of Petroleum Operations relating to the Production of Crude Oil (including

reinjection operations), and whether it considers that such excess is capable of being produced

in commercial quantities. If the Contractor has informed the Ministry of the excess, the

Ministry and the Contractor will jointly assess the possible markets and uses for this excess

Associated Natural Gas.

13.2.2 In the event the Contractor should decide that Development of the excess Associated Natural

Gas is justified, the Contractor will indicate all additional facilities necessary for the

Development and Production of the excess in the Development and Production Plan, and its

estimate of the related costs. The Contractor will then proceed with Development and

Production of the excess in accordance with the Development and Production Plan presented

to and approved by the Ministry under Article 5.5. A similar procedure will be applied if the

sale or marketing of Associated Natural Gas is agreed on during the Production of a Field.

13.2.3 If the Contractor does not consider exploitation of the excess Associated Natural Gas justified

and if the State at any time wishes to utilize it, the Ministry will notify the Contractor of the

State's wish, in which event:

(a)



the Contractor will put all or part of the excess Associated Natural Gas that the State

wishes to ship at the State's disposal free of charge at the outlet of the separation

facilities of Crude Oil and Associated Natural Gas.



(b)



the State will be responsible for the resulting costs, responsibilities, and operations in

all the additional installations of Crude Oil and Associated Natural Gas that are not

included in the Contractor’s Development and Production Plan or all the additional

installations and those already existing, including additional installations for the

gathering, treatment, compression and transport; and



(c)



construction of the installations mentioned in item (b), together with the recuperation

of this excess on the part of the State, will be carried out in accordance with generally

accepted practices of the international petroleum industry, without holding back or

reducing the Contractor's uncompensated production under the approved

Development and Production Plan.



13.2.4 In no case may the operations carried out by the State with this Associated Natural Gas

interfere with the Contractor's Petroleum Operations.

13.1.5 Any excess Associated Natural Gas that is not used in accordance with Articles 13.2.1,

13.2.2, and 13.2.3 will be reinjected by the Contractor in accordance with Article 6.14.

Flaring of this Associated Natural Gas will be permitted only in accordance with the

Hydrocarbons Act and will be subject to the approval of the Ministry. The Contractor may

flare Associated Natural Gas without the approval of the Ministry in an emergency, provided

all necessary efforts are made to reduce and extinguish the flaring of this Natural Gas as soon

as it is commercially practical. Except in the case of gas flaring in an emergency or in

connection with a short-term test, the Ministry has the right to collect (“offtake”), free of

charge, in the wellhead or in the gas and oil separator all Natural Gas that would otherwise be

35



flared or reinjected by the Contractor, being that the State will pay the costs resulting from

such collection (“Offtake”) under the terms of Article 13.2.3.

13.3



Provisions common to Associated and Non-Associated Natural Gas



13.3.1 Each Party that makes up the Contractor will take, receive, and dispose of its right to the

production of Natural Gas in accordance with the provisions of this Contract and the

Hydrocarbons Law. Under the Hydrocarbons Law, the Ministry and the Contractor agree that

in the case of Natural Gas Production, they will negotiate and agree separately on the sale and

commercialization of Natural Gas.

13.3.2 The sales price of any Natural Gas to be sold on the domestic market will be determined by

the Ministry in accordance with the Hydrocarbons Law. The sales price of any Natural Gas to

be sold outside the national market will be that agreed between the Ministry and the

Contractor to the extent permitted by applicable competition or antitrust laws. If required, the

Ministry and the Contractor will proceed in good faith to negotiate a gas sales contract,

13.3.3 For the purposes of Articles 7.3 and 11.3, the quantities of Natural Gas available after

deducting the quantities reinjected, flared, or necessary for the execution of oil operations will

be expressed in number of barrels of Crude Oil, based on the equivalent energy content in

BTU adjusted monthly by a commercially appropriate factor relating the price of Natural Gas

to the price of Crude Oil in accordance with the provisions of Article 10.1, unless the

Ministry and the Contractor reach a different agreement.

13.3.4 The provisions of Article 7.2 with respect to cost recovery will be applied with the necessary

adjustments to the production of Natural Gas.

13.3.5 The amount of Natural Gas produced and retained in the Contract Area that is surplus after

the Contractor has taken the portion corresponding to Petroleum Operations Cost Recovery in

accordance with Article 13.3.4 will be known as Net Natural Gas.

13.3.6 Subject to the Hydrocarbons Law, the Ministry and the Contractor hereby agree that, in the

case of Natural Gas Production, they shall reach separate agreements and arrangements with

respect to the sale and marketing of Natural Gas.

13.3.7 Notwithstanding other provisions in this Article 13, in the case of a Natural Gas Discovery

that is not commercial under the terms established in this Contract, the Contractor and the

Ministry will reasonably undertake to agree on terms applicable to the development of the

Natural Gas Discovery including Royalty percentages, cost recovery, and benefit-sharing that

allow the Contractor to develop the Natural Gas Discovery in a commercially reasonable and

viable manner.



ARTICLE 14

CUSTOMS REGULATIONS

14.1



Customs exemptions provided in this Contract



14.1.1 In tandem with Articles 63 and 64 of the Hydrocarbons Law, the Contractor will be permitted

to import, re-export, and export, subject to Article 14.5, all goods, materials, machinery,

equipment, and consumer goods directly necessary to properly carry out Petroleum

Operations in its own name or in the name of its subcontractors or other Persons acting on its

behalf, freely and exempt from all Customs duties, taxes, and fees that are not charges for the

necessary services to administer Customs regulations.

14.1.2 For purposes of this Contract. the advantages the Contractor will enjoy under this Contract

include, among others, the following exemptions:

36



(a)



All materials, products, machinery, equipment, and tools destined exclusively and

effectively dedicated directly to Petroleum Operations and intended to be re-exported

at the end of their use will be treated as imported under the conditions provided in the

CEMAC Customs Code, as implemented by the Customs legislation of Equatorial

Guinea. Importation in compliance with the standards governing Temporary

Admission (TA) or Temporary Importation (TI) will be whichever is the case for the

Contractor, when importation is for the Contractor or its subcontractors and Persons

acting on their behalf, and any authorization necessary for those ends will be

immediately conceded and extended by the corresponding Customs authorities;



(b)



Admission with exemption from all taxes and/or Customs duties of all material,

products, machinery, equipment, and tools totally used and consumed in Equatorial

Guinea, exclusively and effectively dedicated to the Operations of prospecting,

Exploration, Development, and Production of Hydrocarbons under this Contract.

This exemption applies to imports made directly by the Contractor, its subcontractors,

and Persons acting on their behalf, on condition that a certificate of end use is issued.



14.1.3 Except for the exemptions established in the preceding paragraphs of this Article 14, and the

items referred to in Article 14.1.4 that are exemptions the Government can concede under the

law, all goods, material, products, machinery, tools, and equipment imported or exported by

the Contractor are subject to taxes and/or Customs duties, in accordance with provisions of

the Customs legislation in force in Equatorial Guinea.

14.1.4 The Contractor will follow procedures for obtaining those exemptions provided in Decree

134/2015 of 2 November 2015. The Government will concede these exemptions as the law

allows for purposes of importing all goods, materials, machinery, equipment, and consumer

goods directly necessary to carry out Petroleum Operations in the Contractor's name or in the

name of its subcontractors or other Persons acting on behalf of the Contractor or its

subcontractors, in such a way that the importation of those items is free and exempt from all

Customs duties, taxes, and fees that are not charges for the necessary services to administer

Customs regulations.

14.2



Petroleum export rights

Subject to the provisions of Article 12, the Contractor, its clients, and its transporters will

have the right to export at any time the quantities of Cost Recovery Petroleum and Net Crude

Oil belonging to the Contractor from the Delivery Point selected for those purposes free and

clear of any Customs duties, taxes, and fees that are not charges for the necessary services to

administer Customs regulations.



14.3



Export of goods and materials that were not transferred to the State

In compliance with the Customs obligations established in this Contract and regulations in

force, the Contractor, its subcontractors and Persons acting on their behalf may re-export, free

of taxes, import duties, and fees that are not charges for the necessary services to administer

Customs regulations, goods imported within the framework of this Contract when they are no

longer necessary for Petroleum Operations, provided their ownership has not been transferred

to the State in accordance with the terms of this Contract



14.4



Customs documentation

All imports, exports and re-exports carried out under this Contract will be subject to the

formalities required by the Customs Authorities with respect to documentation.



14.5



Exclusion of penalties and fines from Petroleum Operations Costs

37



If the Contractor, or its subcontractors, representatives, or agents are considered responsible

for payment of fines, penalties, or other legal obligations for any failure to comply with the

laws that address the use and enjoyment by the Contractor of the advantages stated in this

Article 14, the fines, penalties, and other legal obligations will be excluded from the

Contractor's Petroleum Operations Costs.

14.6



Imports and exports by foreign personnel

Subject to Article 14.5, foreign personnel assigned to work in Equatorial Guinea on behalf of

the Contractor or its subcontractors, and their families, will be allowed to import their

personal effects and domestic articles in bulk shipments free of any kind of Customs

encumbrance, tax and fee that are not charges for the necessary services to administer

Customs regulations during the first year of their initial entry into Equatorial Guinea, and

afterward, every two years. Shipments for later resale are not considered personal effects.

Personal effects and domestic articles that have been exempted from Customs duties on

importation and fees will also be exempt from Customs duties on exportation and fees when

subsequently exported.



ARTICLE 15

CURRENCIES

15.1



Exchange control laws

The Contractor and the Ministry mutually recognize that the applicable exchange control laws

in force in Equatorial Guinea have the purpose of guaranteeing that the companies and

personnel who work in the country, within the periods provided, comply with their

obligations to pay taxes and other local payment commitments, and the Contractor, its

subcontractors and all Persons acting on their behalf must comply with all exchange control

laws of Equatorial Guinea that apply to them. However, so long as they meet their respective

payment and tax obligations under this Contract and the laws of Equatorial Guinea, they will

have the following rights and benefits with respect to the Petroleum Operations during the

term of this Contract:

(a)



subject to compliance with the Retention Minimum, to collect, retain, or dispose of

any proceeds outside Equatorial Guinea and the territory of another CEMAC Member

State, including any proceeds from the sale of its or their share of Hydrocarbons to

entities that are resident or not, including payment required by the State for

Production, to be made in foreign currency and into bank accounts outside the

territory of the CEMAC Member States;



(b)



to pay foreign subcontractors and expatriate employees of the Contractor outside of

Equatorial Guinea, after deduction of the relevant taxes in Equatorial Guinea. For this

purpose, the Contractor may freely open and use bank accounts in Dollars or in other

currencies in banks of its choice in Equatorial Guinea and abroad. Notwithstanding

the foregoing, while this Contract is in force the Contractor and each of its

subcontractors carrying out Petroleum Operations in Equatorial Guinea will open and

maintain one or more bank accounts in a banking institution authorized to operate in

Equatorial Guinea the minimum balance of which will be, in the case of the

Contractor, an amount equivalent to the Retention Minimum, and in the case of the

subcontractors, the minimum amount set by the Ministry from time to time for all

subcontractors working in Equatorial Guinea;



(c)



subject to compliance with the Retention Minimum, to transfer to accounts domiciled

abroad those funds the Contractor or its subcontractors have imported into Equatorial

Guinea, those the Petroleum Operations have generated, or that the sale or lease of

goods or performance of services have provided under this Contract, including all

38



surplus funds from their accounts domiciled in Equatorial Guinea;



15.2



(d)



to obtain loans abroad and perform whatever capital operations are necessary to carry

out the activities that are the objects of this Contract, including the Affiliates, under

reasonable market conditions, including the rate of interest and terms of repayment,

that must be reported to the Ministry;



(e)



to collect and maintain abroad all the funds acquired or borrowed abroad, and to

freely dispose of them, limited to the amounts that exceed the requirement of funds

for their operations in Equatorial Guinea;



(f)



subject to compliance with the Retention Minimum, transfer any profits, dividends, or

income resulting from their investment obtained and deposited in any bank account in

Equatorial Guinea, as well as all surplus funds from the accounts domiciled in

Equatorial Guinea to the bank accounts outside the territory of the CEMAC Member

States; and



(g)



subject to compliance with the Retention Minimum, free movement of funds they

own, according to the laws of Equatorial Guinea.



Freedom of exchange

The expatriate employees of the Contractor and its subcontractors will be free to exchange

and transfer to their country of origin, in accordance with the regulations in force in

Equatorial Guinea, the savings that result from their salaries as well as any contribution to

their retirement or social services paid for or to these employees, provided they have

complied with their tax obligations in Equatorial Guinea.



15.3



Notifications

The Contractor and its subcontractors will deliver to a report to the Ministry of Finance and

Budgets, within forty-five (45) days of the end of each Quarter, detailing all foreign currency

transactions made during the preceding Quarter, including any transactions directly related to

Petroleum Operations in accounts opened abroad, and realized in accordance with the

provisions of Article 15.1.



ARTICLE 16

BOOKS, ACCOUNTS, AUDITS, AND PAYMENTS

16.1



Maintaining Records and Books



16.1.1 The Contractor will at all times maintain at its offices in Equatorial Guinea the original

records and books of Petroleum Operations in accordance with all applicable regulations and

the Accounting Procedure.

16.1.2 All records and books will be maintained in the Spanish and English languages and be

denominated in Dollars. They will be backed up by detailed documents that show the receipts

and expenses of the Contractor under this Contract. These records and books will be used to

determine the Contractor's Gross Revenues, Petroleum Operations Costs and net profits, and

to establish the Contractor’s Income Tax and other payment obligations. The records and

books will also include the Contractor’s accounts showing sales of Hydrocarbons.

16.2



Presentation of accounts

Within ninety (90) days after the end of a Calendar Year, the Contractor will present detailed

accounts to the Ministry showing the Petroleum Operations Costs that the Contractor has

39



incurred during the Calendar Year. The Contractor may request the approval of the Ministry

for an additional extension of up to thirty (30) days; this approval will not be unreasonably

denied or delayed. The accounts will be certified by an independent external auditor

acceptable to the Ministry and the Contractor. The expenses of the auditor will be paid by the

Contractor and will be considered Petroleum Operating Costs.

16.3



Auditing by the Ministry



16.3.1 After notifying the Contractor, the Ministry may have experts of its choice or its own agents

examine and audit any records and books relating to Petroleum Operations. The Ministry has

a period of three (3) years from the date the Contractor presents its records and books to the

Ministry in accordance with Article 16.2, to conduct examinations or audits with respect to

that Calendar Year and submit its objections to the Contractor for any contradictions or errors

found during the examinations or audits.

16.3.2 The Contractor will provide to the Persons designated by the Ministry any necessary

assistance for the foregoing purpose and facilitate the performance of his or her duties. The

Contractor will pay all reasonable costs incurred during these reviews and audits, and these

will be recoverable as Petroleum Operations Costs. However, any costs incurred for the audit

and inspection of accounting books and records outside of Equatorial Guinea due to the

Contractor’s non-compliance with this Article 16 will be at the expense of the Contractor and

will not be recoverable as a Petroleum Operations Cost or deductible for tax purposes.

16.3.3 In case of disagreement between the Ministry and the Contractor about the results of any

examination or audit, the dispute will be determined by an internationally recognized expert

appointed by the International Chamber of Commerce in accordance with its Rules for

Expertise (ICC Expertise Rules). The decision of the expert will be final and binding on the

Parties, and if it cannot be enforced in accordance with the legislation of Equatorial Guinea,

the only recourse will be to arbitration under Article 26 to arrive at a definitive and binding

decision.. Unless otherwise determined by the expert, the costs and expenses of the expert

will be met proportionately by the Parties on a per capita basis and the Contractor's share will

not be a Petroleum Operations Cost.

16.4



Application of Article 16 to other audits

The provisions of Article 16 will apply to Income Tax, Royalty payments, and to any other

obligation established in this Contract.



16.5



Currency and accounts for payments



16.5.1 Unless the Contract stipulates otherwise, all payments between the Parties will be made in

Dollars. Subject to Article 16.4.2, when the Party receiving the payment is the State,

payments will be made to the General Treasury of the State, and when the receiving Party is

the Contractor, payments will be made to the bank account designated by the Contractor and

reported to the Ministry.

16.5.2 All amounts paid to the Ministry in accordance with the Law and this Contract will be

deposited in the accounts belonging wholly to the State and will be reported to the Contractor.

16.6



Coordination of payments and late payments

Unless decided otherwise, all payments in accordance with this Contract will be made within

thirty (30) days following the date on which the obligation to make the payment arises. In

case of default, the amount owed will accrue interest compounded monthly at the rate of

LIBOR plus two percent (2%) per annum.



40



ARTICLE 17

TRANSFERS, ASSIGNMENTS, AND CHANGES OF CONTROL

17.1



Transfer to an Equatoguinean Affiliate

Within six (6) months following the Effective Date, to the extent that they have not already

done so, each of the Parties comprising the Contractor (other than the National Company),

will register a branch (according to Article 20 of the Hydrocarbons Law). After two (2)

Calendar Years following the Effective Date, to the extent that they have not already done so,

each of the Parties comprising the Contractor (other than the National Company) would be

able to incorporate an Affiliate under the laws of Equatorial Guinea and according to Article

120 of OHADA, and would be able to assign all of its rights and obligations in and under this

Contract, the Joint Operating Agreement and any other agreement relating to Petroleum

Operations to this Affiliate. After this transfer, all of the rights and obligations of the Parties

that constitute the Contractor under this Contract, the Joint Operating Agreement, and any

other agreements relating to Petroleum Operations will be assumed by the Affiliate(s). Any

assignment or transfer under this Article 17.1 will not be subject to the provisions of Articles

17.2, 17.3, and 17.5. The aforementioned assignment or transfer will not affect any parent

company or bank guarantee provided in accordance with this Contract.



17.2



Assignment, Transfer, Change of Control



17.2.1 The assignment, transfer, encumbrance, or other disposition of the rights and/or obligations of

a Party constituting the Contractor will require the prior consent of the Ministry Any request

for authorization will be accompanied by all information related to the assignment, transfer,

encumbrance, or other disposition, including all legal instruments, in final draft form, to be

used to carry out the proposed transaction, the identity of all parties to the transaction, the

estimated value of the transaction, and whether the consideration is payable in kind,

securities, cash, or other form. Such assignment, transfer, encumbrance, or other disposition,

except those addressed in Article 17.2.4 (a), (b), or (c), will be subject to the payment to the

Ministry of a non-recoverable, non-deductible fee of … percent (…%) of the book value and

compliance with other reasonable requirements established in the authorization granted by the

Ministry. The assignee and the assignor will be jointly and severally liable for the payment of

such fee and for meeting any other requirements. The fee will be mutually agreed upon by the

Parties and the Ministry. The assignment, transfer, encumbrance, or other disposition of the

rights and/or obligations of a Party constituting the Contractor in accordance with Articles

17.2.4 (a) and 17.2.4 (c) will not be liable to any Tax.

17.2.2 All assignees must:

(i)



have the technical and financial capacity to comply with its obligations in

accordance with this Contract:



(ii)



in relation to the interest assigned, accept and assume all of the terms and conditions

of this Contract, the Joint Operating Agreement, and any other agreements relating

to Petroleum Operations; and



(iii)



be an entity that the Ministry and each of the Parties constituting the Contractor can

legally do business with, and be incorporated in Equatorial Guinea.



17.2.3 All profits resulting from any assignment, transfer, or other disposition of any rights and/or

obligations under this Contract, regardless of the type and location of the transaction, will be

subject to taxation in accordance with the Tax Law of Equatorial Guinea.

17.2.4 In accordance with Article 104 of the Hydrocarbons Law and Article 168 of the Petroleum

Regulations, each of the Parties that constitute the Contractor will have the right to sell,

concede, transfer, assign, or in any other way dispose of all or part of its rights and interests in

the Contract:

41



(a) to a wholly owned Affiliate;

(b) to the beneficiary provided in Article 17.1;

(c) to any of the partners only constituting the Contractor, with the prior consent in writing

of the Ministry that cannot be denied or delayed without justification; or

(d) to third parties, subject to the prior consent in writing of the Ministry that cannot be

denied or delayed without justification.

17.3



Change of Control

For the purposes of this Article 17, the transfer of ownership of more than fifty percent (50%)

of the net equity of any Party constituting the Contractor (other than the National Company)

or a similar transfer that results in a change of Control will be considered an assignment of

contractual rights under this Contract and consequently, subject to the terms and conditions of

this Article 17, except in cases of transferring ownership of the shares of a wholly owned

Affiliate by any Party constituting the Contractor (except the National Company), in which

case there is no change of Control.



17.4



Third-party financing

As established in Article 106 of the Hydrocarbons Law, recourse by any Party constituting the

Contractor to third-party funding that involves assignment of the rights that Party has to its

portion of the Hydrocarbons under this Contract is not permitted without the prior consent of

the Ministry, which will be notified of the terms of that financing. Financing by an Affiliate

will not be considered third-party financing.



17.5



The National Company's first right of refusal

When any assignment, transfer, or other disposition of any right under this Contract is

anticipated that is not to a wholly owned Affiliate, the transferring Party will notify the

National Company in writing as soon as possible. The National Company will then have the

right to buy the participation under this Contract from the transferring Party that has been

offered for the assignment, transfer, or disposition on the same terms and conditions that have

been offered in good faith to the transferee. Lack of affirmative response within forty-five

(45) days after reception of the notification will be interpreted as the decision not to make the

buy, and will terminate the right with respect to the transaction that is the object of the

notification. This right exists in addition to any first right of refusal conceded to the National

Company under the terms of the Joint Operating Agreement.



ARTICLE 18

INDEMNIFICATION, LIABILITY, AND INSURANCE

18.1



Liability and indemnification



18.1.1 The Contractor will be responsible to third parties under the legislation of Equatorial Guinea

and other jurisdictions in which it operates for damages caused by the Contractor, its

Affiliates, its subcontractors, and their respective directors, officers, employees, and any other

Person who acts on their behalf in carrying out Petroleum Operations. The Contractor will

indemnify, hold harmless, and compensate any Person, including the State, for any damage or

loss that the Contractor, its Affiliates, its subcontractors and their respective directors,

officers, employees, agents, or consultants, and any other Person acting on their behalf may

cause to such Person or their property in carrying out Petroleum Operations. All costs

incurred under this Article 18.1 caused by the negligence or willful misconduct of the

Contractor, its Affiliates, its subcontractors or their respective directors, officers, employees,

agents or consultants or any other Persons acting on their behalf will not be cost recoverable

as Petroleum Operations Costs. All costs not generated by Negligence or willful misconduct

will be recoverable as Petroleum Operations Costs and that recovery will be understood as

42



being consistent with the interpretation and application of the Petroleum Regulations.

18.1.2 The Contractor will assume all liability, and exempt the State from any liability, in respect of

any and all claims, obligations, losses, expenses (including attorneys’ fees), damages or costs

of any nature resulting from the violation of any intellectual property rights of any kind

caused by the Contractor, its Affiliates, or subcontractors as a result of or in relation to

carrying out Petroleum Operations, regardless of the nature of the violation or of the way in

which it may occur.

18.1.3 The State accepts that the Contractor will not be responsible to the State for losses or reduction

of benefits, taxes, liens, fees, or other revenues as a result of carrying out Petroleum

Operations, unless it is shown that the loss or reduction was the necessary consequence of an

action or omission by the Contractor noncompliant with the Contract or the applicable

legislation, owing to the Contractor's negligence or willful misconduct, and that the

generation of that loss or reduction should have been foreseen at the time of that action or

omission,



18.2



Joint and several liability

Where the Contractor is constituted of more than one Person, the liabilities and obligations of

such Persons under this Contract will be joint and several, except for their obligations and

liabilities in relation to all taxation levied on their income.



18.3



Insurance

18.3.1 Every Person that constitutes the Contractor will obtain and during the term of this

Contract, maintain in full force and effect, insurance for Petroleum Operations of

such type and in such amount as is customary and prudent in accordance with

generally accepted practice of the international petroleum industry, and whose terms

and conditions of coverage will be communicated to the Ministry within thirty (30)

days after the Effective Date. Without prejudice to the generality of the foregoing

provisions, this insurance will cover:

(a)

any damage or loss to the assets used in Petroleum Operations;

(b)

pollution caused in the course of Petroleum Operations;

(c)

damages or losses to the property, or damage, bodily injury, or death suffered by any

Person in the course of Petroleum Operations;

(d)

the cost of clean-up operations and salvage following an accident or upon

dismantlement; and

(e)

the Contractor’s liability for its employees involved in Petroleum Operations.

The members of the Contractor, with the exception of the National Company, will pay the

insurance costs with respect to any interests or insured assets associated with a Contract Area

subject to the Participation Interests of the National Company only during the period in which

the Participation Interest is paid by the members of the Contractor.



18.3.2 The Contractor will require its subcontractors to carry insurance of the type and amount of

coverage consistent with the generally accepted practices of the international petroleum

industry.

18.3.3 The Contractor will place the insurance required under this Article 18.3.1 in accordance with

Decree 56/2007 addressing insurance in the petroleum industry, provided the Equatoguinean

insurance brokers and insurance companies that the Contractor uses in accordance with

Decree 56/2007 are considered competent according to its criteria that they have the same

financial solidity as the insurance brokers and companies available on the international

market and that offer coverage at comparable prices.

43



ARTICLE 19

TITLE TO GOODS, EQUIPMENT, AND DATA

19.1



Title to and use of the installations



19.1.1 All installations, facilities, goods, equipment, materials, or land acquired by the Contractor for

Petroleum Operations will become property of the State from the point at which their costs

are fully recovered by the Contractor. Nevertheless, the Contractor may continue using these

installations, facilities, goods, equipment, materials, or land to carry out Petroleum Operations

for the duration of this Contract and in accordance with the Hydrocarbons Law. The

Contractor and the Ministry will agree on the mode and conditions of the installation, goods,

equipment, materials, or land, the Contractor retaining the responsibility of ensuring that

maintenance in good condition and good working order is guaranteed for use by the

Contractor, normal wear and tear excepted. In any case, upon termination, rescission, or

cancellation of this Contract, for any reason whatsoever, in relation to all or part of the

Contract Area, the ownership of said installations, facilities, goods, equipment, materials, or

land, and including those whose costs have not been fully recovered, and any other items

acquired and used for Petroleum Operations will become the sole property of the State and

will be conveyed directly to it. With respect to tax deductibility, the change in property will

not be taken into account for taxation purposes until the goods are fully amortized or until

termination of the contract.

19.1.2 Regardless whether the Contractor has recovered the relevant costs in accordance with this

Contract, the State has the right to use the facilities, goods, equipment, materials, or land for

its own purposes, provided that such use does not interfere with the Contractor’s Petroleum

Operations.

19.1.3 The Contractor will not sell, assign, transfer, or otherwise dispose of these facilities, goods,

equipment, materials, or land to any other Persons without prior approval from the Ministry.

19.1.4 The provisions of this Article 19.1 will not apply to any leased equipment, or to the

Contractor’s equipment that is not charged to Petroleum Operations as a Petroleum

Operations Cost.

19.1.5 If the Ministry does not wish to use any of the facilities, goods, equipment and materials

referred to in this Article 19.1, it has the right to ask the Contractor to remove them at the

Contractor’s own expense, and the Contractor will carry out any dismantling operations of

these facilities, goods, equipment, and materials in accordance with this Contract and the

Hydrocarbons Law, and based on the time established and conditions specified in the

approved dismantling plan. When a Reserve Fund has been created, the Contractor will use it

to pay for dismantling the installation. When a Reserve Fund has not been created, the cost of

dismantling will be subject to tax deduction and recoverable as a Petroleum Operations Cost.

19.2



Ownership of Information

All data, technical information, and interpretations obtained, acquired, or derived as a result

of Petroleum Operations will be the sole property of the State. However, the Contractor may

retain copies of all these materials while this Contract is in force only, including, among

others, geological, geophysical, petrophysical and engineering reports, Well reports,

termination reports, samples, and any other information that the Contractor may have

obtained or compiled during the term of this Contract. The Contractor will forward the data,

technical information, and interpretations to the Ministry as soon as they are acquired,

derived, or compiled and will also provide the Ministry on an annual basis with a report that

itemizes all data, technical information, and interpretations that have been assembled during

the Year. Unless previously provided, at the termination of this Contract or at any time of

relinquishment, the Contractor will return to the Ministry all original data, technical

information and interpretations relating to the areas relinquished and will remove all copies

from the Contractor’s files, archives, computers, and data storage mechanisms.

44



ARTICLE 20

CONFIDENTIALITY

20.1



Disclosure of confidential information



20.1.1 The Parties agree that while this Contract is in force, all information relating to this Contract

and the Petroleum Operations will be kept strictly confidential and may not be divulged by

any of the Parties without mutual consent, except:

(a)

(b)

(c)

(d)

(e)

(f)

(g)



to an Affiliated Company;

to a governmental agency designated by the State or other entities or consultants of

the Ministry;

to the degree that the data and information are required to be supplied in compliance

with any applicable laws or regulations;

in conformity with the requirements of any stock exchange having jurisdiction over a

Party or its Affiliate Controlled Company ;

where any data or information forms part of the public domain, unless this occurs as

the result of noncompliance with this Contract; and

to employees, directors, officers, agents, advisors, consultants, or subcontractors of a

Party constituting the Contractor or an Affiliate; and

to potential beneficiaries of a transfer or good-faith buyers.

provided that the disclosing Party is responsible for any violation of this Article by

those Persons, and on condition that all disclosures to the Persons referred to in items

(f) and (g) mentioned above will be limited to those Persons who are under an

obligation of confidentiality similar to that contained in this Article 20.1.



20.1.2 During an additional period of two (2) years after termination of this Contract, only the

Contractor will be obligated to comply with the above provisions.

20.2



Patents and intellectual property rights of the Contractor

The State will not reveal to any third parties information pertinent to the Contractor’s

proprietary technology that is protected by patents or contractual agreements, or which the

State has received under license for a period of two (2) Years after termination of this

Contract.



20.3



Continuation of obligations

Any Party ceasing to own a Participation Interest in this Contract during the term of this

Contract will nonetheless remain bound by the obligations of confidentiality stipulated in this

Article 20.



20.4



Disclosure of confidential information by the State and the Ministry

In order to explore and exploit areas adjoining or related to the Contract Area, the State and

the Ministry may, notwithstanding what is stated in this Article 20, disclose to any third

parties all data and information relating to part or parts of the Contract Area and Petroleum

Operations under this Contract.



ARTICLE 21

TERMINATION

45



21.1



Termination by the State

In addition to any other actions contemplated here, this Contract may be terminated without

compensation to the Contractor on any of the following grounds:



21.2



(a)



substantial noncompliance by the Contractor (not attributable to any act or omission

of the State or to any Person representing the State) with any of the provisions of this

Contract or the Hydrocarbons Law;



(b)



delay by the Contractor (not attributable to any act or omission of the State or to any

Person representing the State) in making any payment to the State over … Dollars

($...) that exceeds three (3) months, provided that the State has delivered written

notice to the Contractor in the week before the expiry of such three (3) month period

and that within thirty (30) days of such written notice such payment by the Contractor

remains outstanding;



(c)



suspension of Development Operations on a Field for six (6) consecutive months,

except when that suspension (i) has been approved by the Ministry in advance, or (ii)

is due to an act or omission on the part of the State or of any Person representing the

State, or (iii) results from Force Majeure;



(d)



if, after beginning Production of a Field, its exploitation is suspended for at least three

(3) consecutive months, without prior authorization from the Ministry, except when

such suspension (i) is due to an act or omission on the part of the State or of a Person

representing the State, or (ii) results from Force Majeure;



(e)



when the Contractor fails to comply within the prescribed time period with an

arbitration award in accordance with the provisions of Article 26, and the failure to

comply is not attributable to any act or omission of the State or to any Person

representing the State;



(f)



when a Well is drilled to an objective beyond the vertical planes of the limits of the

Contract Area without the prior consent of the Ministry;



(g)



serious noncompliance with this Contract stemming from activities that are illegal or

contrary to national or international law (not attributable to any act or omission of the

State or to any Person representing the State);



(h)



in accordance with Article 2.3; or



(i)



with respect to one or more members of the Contractor, when that member of the

Contractor, for reasons different from any action of the government that does not

allow proper funding for this member, is declared bankrupt, or in liquidation as a

result of financial insolvency, or enters into judicial or financial arrangements of

insolvency with its creditors generally, except when the Contractor can provide the

State with a new financial guarantee that is acceptable to the Ministry, at its sole

discretion, and that guarantees the capacity of that Party to fulfill its obligations under

this Contract. In this case, the other members of the Contractor may continue to

constitute part of the Contract.



Notification of termination and grace period



21.2.1 The Ministry may declare this Contract terminated only after having served the Contractor

with formal notice by registered mail, asking it to remedy the situation or noncompliance in

question, and if the situation or noncompliance in question can be remedied, asking that the

Contractor remedy it within thirty (30) Working Days from receipt of notice regarding

payments due under Article 21.1(b) or within ninety (90) Working Days from receipt of such

notice for all other remediable situations or violation. Otherwise, the effective termination

46



date of this Contract will be the date the Contractor receives the abovementioned notice.

21.2.2 If the Contractor fails to comply with the notice within the period prescribed by Article 21.2.1

or fails to show within this period that it has begun to remedy the situation or noncompliance

in question, and is promptly and diligently continuing to do so, the Ministry may pronounce

ipso jure the termination of this Contract.

21.3



Termination against one Party

The Ministry may terminate this Contract for one of the Parties constituting the Contractor, if

the circumstances established in Article 21.1 apply only to that Party in the manner

established in Article 21.2.



21.4



In cases of termination of the Contract decided by Article 21.1 c, d, e, or i, the National

Company will have the option of continuing the Petroleum Operations in the Contract Area

for a period of one (1) Year, presenting the corresponding Work and Budget Program. At the

end of this period, the Ministry will be informed of its decision whether to continue the

Petroleum Operations; if not, it will relinquish the Block and deliver it to the State. For

purposes of this Article, the Operator will deliver to the National Company all technical

information about the block, including testimony, files, seismic information, data and

reservoir studies, reports and information about all the Wells.



ARTICLE 22

UNITIZATION

22.1



Obligation to unitize

If a Hydrocarbons deposit located within the Contract Area extends beyond that area, the

Contractor must carry out all Development and Production of this Hydrocarbons deposit, in

accordance with the Hydrocarbons Law. The Contractor will exert all reasonable efforts to

reach a mutually acceptable unitization agreement and program with all other affected

Persons.



22.1



Suspension of obligations

If the Petroleum Operations that are the object of this Contract are suspended for negotiations

arising over a unitization situation for a specific Discovery, the provisions of Article 5.3 for

this Discovery will be extended for a period of time equal to the duration of the suspension.



ARTICLE 23

NATIONAL CONTENT AND SOCIAL PROGRAMS

23.1



National content regulations

The Contractor will comply with the National Content Regulations promulgated by the

Ministry in Ministerial Order 1/2014 of 26 September 2014, complying with the

obligations established in this Article 23. For all nonmaterial contracts, the Contractor,

without the obligation to bid and without obtaining the approval of the Ministry (whose

approval is considered granted by the Hydrocarbons Law ):



a)



before awarding a services contract, the Contractor will notify the Ministry of its need for

these services;



b)



The Ministry will provide a list of national companies to the Contractor; The Contractor

will support the Ministry by including the national companies on the list among those the

Contractor considers competent in the biddings required in the framework of this Contract;

47



c)



in awarding the contracts, the Contractor will give preference to the national companies

identified on the list that the Ministry delivers in accordance with Article 23.1(b), as

specified in Decree 127/2004. If the Contractor does not consider these companies

competent, the contract may be awarded to a foreign company, in accordance with Articles

12 and 13 of Ministerial Order 1/2014. The Contractor will notify the Ministry of the

disqualification of any of the national companies, if necessary, describing the procedure that

resulted in the disqualification.



d)



the foreign company winning the bid for the services contract will be notified by the

Contractor of the conditions specified in Article 23.1(c).



e)



the Contractor will deliver to the Ministry at the end of July and January of each calendar

Year a list of subcontractors who have delivered services in Equatorial Guinea during the

previous period;



f)



in the contracts that imply delivery of services or supply of goods in Equatorial Guinea, the

Contractor will include clauses that obligate the subcontractors to comply with the

provisions of Ministerial Order 1/2014;



g)



the Contractor will organize workshops to raise awareness in the national companies about

the requirements of the Operator in service provision matters;

h) the Contractor will notify the Ministry, which will inform all the other competent

authorities, about the job vacancies and new positions for the execution of works in

Equatorial Guinea;

i)



at the beginning of Development and Production Operations, the Contractor will submit to

the Ministry and agree to a plan to hire national employees and train them, which includes

assignments for their professional development in the offices of the Operator with the

possibility of joining the Technical Operations Team of Equatorial Guinea to achieve

reasonable and feasible nationalization goals, and sending updated information to the

Ministry on the implementation of that plan at the end of July and January of each

subsequent year; and



j)



the Contractor will send the Ministry a description of the mechanisms used to evaluate the

national employees.



23.2



Employment and training of Equatoguineans



23.2.1



At the beginning of Development and Production Operations, the Operator will ensure

priority of employment for qualified Equatoguinean personnel at all levels of its

organization, according to the following table and according to the aptitudes of the

employees. For the purposes of the employment obligations under this Article, technicians

nominated by the National Company will be employed as secondees to the Operator

provided that they have the required capacity and experience. The Operator will train or

contribute to the training of this personnel so that they can meet the requirements of any

available position related to Petroleum Operations, including supervisory positions.

Nevertheless, the Operator will only have to employ the number of personnel necessary to

carry out Petroleum Operations in a prudent and profitable manner.



POSITIONS



Percentage of national

employees



Percentage of expatriate

employees



Total number of employees



…%



…%

48



Technical and professional

positions(Geologists and

Engineers, Legal, Financial,

Safety, Health, and

Environment)

Supervisory and management

positions

Technicians who work offshore

(including Safety, Health, and

Environment)

Support and administrative

services



…%



…%



…%



…%



…%



…%



…%



…%



23.2.2 During the period in force of this Contract, the Parties comprising the Contractor (other than

the National Company) will spend (i) a minimum of … Dollars ($...) per Calendar Year

during the Exploration Period; and (ii) a minimum of ...Dollars ($...) per Calendar Year

during the Development and Production Period, to provide a mutually agreed number of

Ministry and National Company personnel with practical training at institutions abroad,

chosen by the Ministry, that include training in the areas of earth sciences, engineering,

technology, accounting, economics and other related fields of oil and gas exploration and

exploitation.

Additionally, during the term of this Contract, the Parties constituting the Contractor will

transfer to the Ministry (i) ...Dollars ($...) per Calendar Year during the Exploration Period,

and (ii) ...Dollars ($...) per Calendar Year during the Development and Production Period;

the Ministry will use these sums at its sole discretion to educate and train Equatoguinean

personnel selected by the Ministry at universities, colleges, or other training institutions

selected by the Ministry and for other general training and educational purposes.

Moreover, once the Development and Production Plan is approved, the Contractor will

provide continuous training for periods of 12 months in the form of service commissions to

professional technicians of the Ministry in the installations of the Operator in Malabo and

the head office of the Contractor in its country of origin (two technicians in each location).

Procedures and remuneration for the service commissions or Internships will be subject to

an agreement between the Operator and the Ministry.

23.2.3 If the Contractor funds any social projects outside those approved in an Annual Budget, the

costs will not be recoverable as Petroleum Operations Costs.



23.2.4 Given that Equatoguinean civil society is a part of the National Content in oil and gas

contracts, the Contractor will contribute to and cooperate with nongovernmental

organizations in beneficial works of social development, sports activities, and health

programs to fight and prevent disease, as well as other non-profit activities. The type of

projects the Contractor contributes to, and the amounts the Contractor contributes, will be

at the sole discretion of the Contractor.

23.3 National Technology Institute, or its successor entity

23.3.1 During the period in force of this Contract, the Contractor will give the National Institute of

Technology:

a) ...Dollars ($...) per Calendar Year during the Exploration Period; and

b) ...Dollars ($...) per Calendar Year during the period in which the Contractor is producing

49



Hydrocarbons in a Development and Production Area.

23.3.2 During the Development and Production Period, the Contractor will provide all reasonable

assistance as may be requested by the Ministry from time to time with the implementation

and development of the National Technology Institute to train and develop mid- and

upper-level personnel in the petroleum industry of Equatorial Guinea, in accordance with

the Hydrocarbons Law, and to the degree permitted by the laws applicable to the members

of the Contractor or its Affiliates.

23.4



Social Programs



23.4.1 During the period in force of this Contract, the Contractor will spend on Social Programs

in Equatorial Guinea:

(a) ... ($...) per Calendar Year during the Period of Exploration; and

(b) ...Dollars ($...) per Calendar Year during the Development and Production Period.

23.4.2 Support for the Creation of a Ministry of Mines and Hydrocarbons Database

During the period in force of this Contract, the Contractor will contribute funding for the

Ministry of Mines and Hydrocarbons Database:

A) … Dollars ($...) per Calendar Year during the Period of Exploration;

B) …Dollars ($...) per Calendar Year during the Development and Production Period.

23.5



All of the preceding costs under this Article 23 are recoverable as Petroleum Operations

Costs in accordance with the provisions of this Contract, except the costs referred to in

Article 23.2.3.



23.6



Costs and Travel Expenses

*COMPANY* will cover all Costs and Expenses including technicians' honoraria and

travel expenses (as here defined) of the Technical and Legal Assessments identified by the

State in writing (the State's consultants) and any value added tax and any other applicable

tax to be paid for the services provided by the State’s consultants in relation to this

Contract. Travel expenses mean the reasonable and good-faith expenses of the Ministry's

representatives and State consultants, including airline tickets, accommodation,

maintenance and other travel-related expenses.

The Ministry will have the consultants send all invoices to the Ministry for review and

approval. In turn, the Ministry will send the approved invoices to the company for

payment within thirty (30) days of Contractor receiving such invoices. The Parties agree

that all approved and paid invoices will be recoverable costs under this Contract as

Petroleum Operations Costs.



ARTICLE 24

ABANDONMENT

24.1



Abandonment or dismantlement



24.1.1 Subject to the provisions of Article 2.5.2, the Contractor may, at any time, relinquish and/or

abandon any part of the Contract Area or any well not included in a Field, provided that the

Ministry has been given at least three (3) months’ notice, so long as the Contractor has

complied with all of its obligations under this Contract and has provided the Ministry, in a

detailed manner, all information on the condition of any deposit, facilities, and equipment in

that area, as well as any plan for the disposal or dismantling of those facilities and equipment,

including all technical and financial information. All dismantling operations will be carried

50



out in accordance with the Hydrocarbons Law.

24.1.2 The dismantling of a Field by the Contractor and the corresponding dismantling plan will

require prior authorization from the Ministry in accordance with the Hydrocarbons Law. The

Contractor will prepare and deliver to the Ministry a plan for the dismantling of all Wells,

facilities, and equipment, the rehabilitation of the landscape and the continuation of oil

operations, if applicable, in accordance with the Hydrocarbons Law.

24.1.3 Unless the Ministry decides to maintain the facilities and equipment in order to continue

Petroleum Operations in accordance with Article 24.3.3, the Contractor is obligated to

completely dismantle all Fields located in the Contract Area at the time of Contract

termination or when a Field ceases to produce for more than one year.

24.2



Right of the Ministry

On receiving the Ministry’s notice referred to in Article 24.1.1 or by dismantling any Field,

the Ministry will have the right to take control of any Discovery or Field whose dismantling

the Contractor proposes. If the Ministry does not communicate its desire to take over the oil

operations within three (3) months of receiving the relevant notice, the Ministry will be

considered to have chosen not to assume the operations.



24.3



Reserve Fund



24.3.1 For the purpose of dismantling a Field, the Contractor will contribute annually to a reserve

fund for the estimated dismantling costs (the Reserve Fund) from First Production in that

Field, in accordance with the Hydrocarbons Law and the approved dismantling plan. The

Ministry and the Contractor will establish the amount of the annual contributions and the

institution that will keep these contributions. The contributions will be held by an

international bank having at least a A- Standard and Poor’s qualification. All the contributions

mentioned will be deductible for tax purposes and will be considered as a Cost of Petroleum

Operations in the year in which they were provided.

24.3.2 If the total amount of the Reserve Fund is greater than the real dismantling cost, the balance

of the account will be attributed to the State, since the Contractor has received Cost-Recovery

Oil corresponding to the account balance. Whatever portion of the balance for which the

Contractor has not received the corresponding Cost-Recovery Oil will be distributed to the

Contractor. If the balance of the Reserve Fund is less than the actual cost of the dismantling

operations, the Contractor will be responsible for the missing amount and may impute such

costs as Petroleum Operations Costs to future production in the Contract Area, if any.

24.3.3 If the Ministry decides to maintain the installations and equipment in order to continue with

the Petroleum Operations after withdrawal of the Contractor, the reserve fund that is

constituted in this way, together with the corresponding interest, will be made available to the

Ministry to cover the subsequent dismantling. The Contractor will be exempt from any

additional liability for dismantling with respect to these installations and equipment.

24.4



Continuation of the Operations

The State commits itself not to interfere with the carrying out of Petroleum Operations in the

Contract Area that the Contractor retains if the State chooses to take over a Discovery or Field

in accordance with the provisions of Article 24.2. If the Ministry asks the Contractor and the

Contractor has ongoing Petroleum Operations under this Contract in the area of State

operations under Article 2.4.2, the Contractor will be responsible for continuing all operations

for a fee and under terms that the Ministry and the Contractor agree on



24.5



Protection of the Environment

The Contractor will duly cap all Wells and dismantle all installations and equipment to

51



prevent pollution and damage to the environment, as well as possible damage to the deposit,

in accordance with the Hydrocarbons Law, the other laws of Equatorial Guinea, and with

generally accepted practices of the international petroleum industry.



ARTICLE 25

APPLICABLE LAW AND STABILITY

25.1



This Contract and the Petroleum Operations carried out under this Contract will be governed

by and interpreted in accordance with the laws and regulations of Equatorial Guinea,

including the Hydrocarbons Law and the Petroleum Regulations.



25.2



In case of a Change in the Law and if, as a result of its implementation, the Change in the

Law causes a significant reduction in economic rights or a significant increase in the

economic obligations contained in or resulting from this Contract to the detriment of the

Contractor or its shareholders, the Parties will meet and take appropriate measures to achieve

the necessary economic balance, based on the principle that the Contractor will be

substantially restored to the same economic condition as if no change had occurred. This

restoration of the Contractor will not exceed the benefits received by the State and by other

third parties benefiting from the Change in the Law as a result of the change.

This rule will never be construed as meaning that the Contractor is denied the advantages

from which it may benefit as a result of any new law, Decree, standard, order, or regulation

approved by the State.



ARTICLE 26

RESOLUTION OF CONFLICTS AND ARBITRATION

26.1



Resolution of disputes and notification



26.1.1 If any dispute, claim, conflict or controversy (a "Dispute") between any of the Parties should

arise from this Contract, or in relation to it, including any question regarding noncompliance,

or its existence, validity, or termination, the Parties will take all reasonable measures to

resolve the Dispute amicably. A Dispute will be understood to have arisen if one of the

Parties notifies the other Parties, describing the nature of the Dispute and asking for a

resolution ("Notification of Dispute").

26.1.2 If the Parties in question have not reached an amicable agreement within ninety (90) days of

the date of the Notification of Dispute, unless all Parties extend the deadline, either of the

Parties to the Dispute may submit the Dispute to resolution by final and binding arbitration by

means of a notification of arbitration, and the arbitration will take place in accordance with

the rules of the International Chamber of Commerce (ICC).

26.2



Headquarters and language of arbitration

The headquarters of arbitration will be New York, USA. The languages of the arbitration

proceedings, and of all orders, decisions, and the award, will be Spanish and English. All of

the arbitrators will be fluent in Spanish as well as English.



26.3



Number and identity of the arbitrators

The arbitral tribunal will be constituted by three (3) arbitrators selected according to the

following procedure:

(a) The claimant and respondent will each designate one arbitrator within thirty (30) days of

52



the date on which the request for arbitration was submitted. If there is more than one

claimant or more than one (1) respondent, then the claimants and/or the respondents

collectively will each appoint a single arbitrator), by giving notice in writing of this

designation to the other Party or Parties to the Dispute and ICC.

(b) If either the claimant or the respondent fails to comply with the time limit in the

preceding paragraph, ICC will appoint the arbitrator or arbitrators that have not yet been

appointed, at the request of either the claimant or the respondent and after consulting the

claimant and the respondent so far as possible. ICC will give notice in writing of such

designation or designations to the claimant and the respondent.

(c) The two (2) arbitrators so designated will, within thirty (30) days of their nomination

agree on the person to be named as the President of the tribunal, and give notice of the

designation to the claimant and the respondent, and ICC.

(d) If the two (2) arbitrators fail to agree on the person of the President of the tribunal, ICC

will name the President, at the request of either the claimant or the respondent, and after

consulting the claimant and the respondent as much as possible. ICC, will give notice in

writing of the nomination to the claimant and the respondent.

None of the arbitrators will be a citizen of the countries of origin of any of the Parties to the

Dispute (or in the case where the Party is a company or another entity, any country or

countries of nationality of the Party, including the country of its ultimate parent).

26.4



Rules of arbitration

The arbitration procedures initiated under this Contract will be realized under the arbitration

rules in effect for ICC on the filing date of the request for arbitration, which rules are

considered to be incorporated by reference in this Article 26.



26.5



Binding nature of the arbitration

The arbitration award will be final and binding on the Parties and will be immediately

enforceable, subject to the remedies provided in the arbitration rules of ICC. The Parties

waive any right they may have, in any court, to refer any question of law, and/or based on the

merits. It is expressly agreed that the arbitrators will have no authority to award aggravated,

exemplary or punitive damages



26.6



Costs of the arbitration

The costs of arbitration will be charged in accordance with the directions of the arbitration

tribunal, and failing that, will be distributed per capita among the Parties to the Dispute. The

costs of the Parties constituting the Contactor will not be Petroleum Operations Costs, and

therefore, not recoverable.



26.7



Payment of the award

Any monetary award issued will be expressed and payable in Dollars.



26.8



The arbitrators will apply Article 25.1.



ARTICLE 27

FORCE MAJEURE

27.1



Noncompliance with obligations

53



Any obligation or condition arising or derived from this Contract that any Party is unable to

meet, whether in whole or in part, will not be considered a violation of or noncompliance of

its obligations under this Contract if the violation or noncompliance is caused by an event of

Force Majeure, provided that there is a direct cause-and-effect relationship between the

noncompliance and the event of Force Majeure. Notwithstanding the foregoing, all payment

obligations owed by any Party to another must be satisfied when due.

27.2



Definition of Force Majeure

For the purposes of this Contract, an event will be considered an event of Force Majeure if it

meets the following conditions:

(a)



it temporarily or permanently prevents a Party from meeting its obligations under this

Contract;



(b)



it is unforeseeable, unavoidable and beyond the control of the Party that declares

Force Majeure; and



(c)



it does not result from the negligence or willful misconduct of the Party that declares

Force Majeure.



Such an event will include acts of God, earthquakes, inclement weather, strikes, riots,

insurrections, civil unrest, blockades, sabotage, and acts of war (whether declared or not). The

Parties agree that the term of Force Majeure will be interpreted in accordance with the

principles and practices of the international petroleum industry.

27.3



Notice of Force Majeure

If one of the Parties is unable to comply with any obligation or condition stipulated in this

Contract due to Force Majeure, it will notify the other Parties in writing as soon as possible,

and in any event no later than … (…) days after the event in question, giving the reason for its

noncompliance and the details of the Force Majeure, as well as the affected obligation or

condition. The Party affected by the Force Majeure will exert all reasonable efforts to remove

the cause, keep the other Parties fully informed of the situation and the current evolution of

the Force Majeure event, and will promptly notify the other Parties as soon as the Force

Majeure event is over and no longer prevents it from complying with its obligations or

conditions under this Contract.



27.4



Continuation of obligations

All obligations, other than those affected by the event of Force Majeure, will continue to be

met in accordance with this Contract



27.5



Cessation of Force Majeure

On cessation of the Force Majeure event, the relevant Party will undertake and complete, as

soon as practicable and within a time frame mutually agreed on by the Parties, all obligations

suspended because of the Force Majeure.



27.6



Continuation of Force Majeure

When a Force Majeure situation lasts more than ninety (90) days, the Parties will consult to

examine the situation and implications for Petroleum Operations, in order to establish the

appropriate course of action to comply with contractual obligations in the circumstances of

the Force Majeure. In such case, the period of this Contract will be extended by the same

amount of time that the Force Majeure has lasted.



54



ARTICLE 28

ASSISTANCE AND NOTIFICATIONS

28.1



Assistance of the Ministry



28.1.1 The Ministry will facilitate, within the limits of its authority, and in accordance with the rules

and procedures in effect in Equatorial Guinea, the performance of the Contractor’s activities

by granting it all permits, licenses, and access rights that are reasonably necessary for the

purposes of Petroleum Operations, and by making available to it all necessary services with

respect to Petroleum Operations in Equatorial Guinea.

28.1.2 The Ministry will also facilitate and assist the Contractor, within its authority, and in

accordance with the rules and procedures in effect in Equatorial Guinea, in obtaining all

permits, licenses, or rights not directly related to Petroleum Operations, but that the

Contractor may reasonably require for the purposes of meeting its obligations under this

Contract.

28.2



Notifications and other communications

All notices, approvals, or other communications authorized or required between the Parties by

any of the provisions of this Contract will be in writing (in Spanish and English), addressed to

the Parties and delivered in person by courier service or by any electronic means of

transmitting written communications that provides written confirmation of complete

transmission. For purposes of this Contract, oral communication does not constitute notice or

approval, and e-mail addresses and telephone numbers for the Parties are listed below as a

matter of convenience only. A notification or approval given under any provision of this

Contract will be considered delivered only when actually received by the Party to whom such

notice or approval is directed, and the time for such Party to deliver any communication in

response to such originating notice or approval will run from the date the originating notice or

approval is received. Each Party will have the right to change its address at any time and/or

designate another Person or address that copies of all such notifications or approvals be

directed to by notification in writing of this change to all other Parties.

For the State:

MINISTRY OF MINES AND HYDROCARBONS

Carretera Autovía Malabo II

Malabo, Bioko Norte

República de Guinea Ecuatorial

To the attention of: His Excellency, the Minister of Mines and Hydrocarbons

Copy to the attention of: Director General of Hydrocarbons

Telephone:

+ (240) 09-3567, 09-3405

Fax:

+ (240) 09-3353

For the National Company:

GUINEA ECUATORIAL DE PETRÓLEOS

Calle

Apartado Postal 965

Malabo

Guinea Ecuatorial

To the attention of the Director General

Telephone:

+ (240) 09-6769

Fax:

+ (240) 09-6692



55



For *COMPANY*

*COMPANY*



….

To the attention of …

Telephone:



Fax:





ARTICLE 29

MISCELLANEOUS

29.1



Amendments

This Contract may only be amended in writing and by mutual agreement between the Parties;

any amendments made in contravention of this provision will not be valid.



29.2



No Association

This Contract will not be interpreted to create an association, joint venture, or partnership

between the Parties or to impose any partnership obligations or responsibilities of association

on the Parties.



29.3



Entirety of agreement

With respect to the subjects it addresses, this Contract (i) constitutes the entire agreement of

the Parties and (ii) supersedes all previous agreements and negotiations between the Parties.



29.4



Exemptions or waivers

If one Party exonerates any other Party from one or several instances of noncompliance with

the stipulations of this Contract, such exoneration will not be interpreted or have the effect of

exonerating the same Party from past or future noncompliance, whether similar or different.

Unless expressly provided otherwise in this Contract, no Party will be considered to have

waived, eliminated, or modified any of its rights under this Contract unless the Party has

expressly stated, in writing, that it waives, eliminates, or modifies that right.



29.5



Conflict of interest



29.5.1 Each of the Parties constituting the Contractor commits itself to avoiding any conflict of

interest between its own interests (including the interests of Affiliates) and the interests of the

other Parties in connection with activities contemplated under this Contract.

29.5.2 In the event of any conflict between the principal document of this Contract and its Annexes,

the principal document will prevail. In the event of any conflict between this Contract and the

Hydrocarbons Law, the Hydrocarbons Law will prevail.

29.6



Commercial transaction

This Contract is entered into by the State as a commercial transaction, and is of a commercial

nature.



ARTICLE 30

INTERPRETATION

56



30.1



The table of contents, headings, and subheadings used in this Contract are for convenience

only and should not be interpreted as having any substantive significance or as indicating that

all of the provisions of this Contract relating to any topic are to be found in any particular

Article.



30.2



Any reference to the singular implies reference to the plural, and vice versa.



30.3



Any reference to the masculine gender includes a reference to the feminine gender, and vice

versa.



30.4



Unless otherwise stipulated, reference to an Article or an Annex means an Article or Annex

of this Contract.



30.5



The words includes and including mean includes and including without limiting the generality

of the description preceding the term and are used in an illustrative and not limiting sense.



30.6



Any reference to a Person will be interpreted as including a reference to its successors,

authorized transferees, and authorized transferors.



30.7



Any reference to a law or standard will be interpreted as a reference to such law or standard

as it may have been or may be amended or repromulgated from time to time, or any

subordinate legislation made or standard created, or may from time to time be created, under

such law or standard.



30.8



Reference to this Contract or part thereof or any other document will be interpreted as a

reference to it as it may be amended, supplemented, renewed, or replaced from time to time.



ARTICLE 31

EFFECTIVE DATE

This Contract will become effective on the date the Contractor receives notification in writing of its

ratification by the President of the Republic of Equatorial Guinea.



57



IN WITNESS WHEREOF, the Parties have signed this Contract in __ (_________________)

originals in Spanish, and __ (_________________) originals in English. In case of any conflict, the

text in Spanish will prevail.

THE REPUBLIC OF EQUATORIAL GUINEA

THE MINISTER OF MINES AND HYDROCARBONS

Signature:

Name: His Excellency

Position: Minister of Mines and Hydrocarbons

GUINEA ECUATORIAL DE PETRÓLEOS

Signature:

Name: Antonio Oburu Ondo

Position: Director General



*COMPANY*

Name:

Position:



58



ANNEX A CONTRACT AREA

This Annex is an integral part of this Contract between the Republic of Equatorial Guinea and the

Contractor.

On the Effective Date, the initial Contract Area covered an estimated area of ……………………..

square kilometers (km2 or .…………………. ( ………….. ) hectares for the purposes of Article 11.4.

The Contract Area is described on the map provided in Annex B. The points indicated on that map are

defined below, by reference to the Greenwich meridian and their geographic coordinates:



Point

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20





X (UTM)



Y (UTM)



Lat (DD)



Long (DD)



59



Lat (DMS)



Long (DMS)



ANNEX B

MAP OF THE CONTRACT AREA

This Annex is attached to this Contract between the Republic of Equatorial Guinea and the Contractor

and forms an integral part of it.

This map is included for illustrative purposes only and in the event of any discrepancy or conflict, the

Contract Area will be defined by the geographical co-ordinates specified in Annex A.

*BLOCK*



60



ANNEX C ACCOUNTING PROCEDURE

This Annex forms an integral part of the Contract between the Republic of Equatorial Guinea and the

Contractor. Annex C follows this page.



61



ARTICLE 1

GENERAL PROVISIONS

1.1



OBJECT

The object of this Accounting Procedure is to establish equitable criteria and methods of

calculation and accounting applicable to the provisions of the Contract, and in particular, to:



1.2



(a)



classify and define Petroleum Operations Costs; and



(b)



prescribe the form for preparing and submitting the financial statements of the

Contractor in accordance with accounting principles in effect in Equatorial Guinea.



INTERPRETATION

For purposes of this Accounting Procedure, the terms used here and defined in the Contract

will have the same meaning when used in this Accounting Procedure. In the event of any

discrepancy or conflict between the provisions of this Accounting Procedure and any other

provisions of the Contract, the provisions of the Contract will prevail.



1.3



ACCOUNTING RECORDS AND FORMS



1.3.1



In accordance with the provisions of Article 16.1 of the Contract, the Contractor will maintain

in its office in Equatorial Guinea original, complete, true, and correct accounts, books, and

records of the Production and disposition of Hydrocarbons, and all costs and expenses under

the Contract, as well as all other records and data necessary or proper for the settlement of

accounts in accordance with the laws of Equatorial Guinea, generally accepted accounting

procedures, and generally accepted practices in the international petroleum industry and in

accordance with the chart of accounts agreed to in conformance with Article 1.3.2 below



1.3.2



Within sixty (60) days from the Effective Date, the Contractor will submit to and discuss with

the Ministry a proposed outline for the chart of accounts and the books, records, and reports

in accordance with generally accepted standards and consistent with normal petroleum

industry procedures and practices.

Within sixty (60) days of receiving the above proposal, the Ministry will either provide

notification of its approval of the proposal, or request in writing that revisions be made.

Within one hundred eighty (180) days after the Effective Date, the Contractor and the

Ministry will agree on the scheme for the chart of accounts, books, records, and reports that

will describe the basis of the procedures and accounting system to be developed and used in

accordance with this Accounting Procedure. Following the agreement, the Contractor will

immediately prepare and provide the Ministry with formal copies of the detailed and complete

chart of accounts and manuals related to the procedures, and a list of the records and

information to be posted, recorded, reported, and that will be monitored under the Contract



1.3.3



In addition to the generality of the foregoing, the Contractor will submit to the Ministry, at

regular intervals, statements relating to the Petroleum Operations, including, but not limited

to, the following:

(a)



monthly Production statement;



(b)



quarterly statement of Production value and prices;



(c)



statement of Petroleum Operations Costs;

62



1.3.4



(d)



annual statement of Petroleum Operations Cost not yet recovered;



(e)



Production participation statement;



(f)



annual end-of-year statement;



(g)



Annual Budget quarterly tracking statement;



(h)



statement of tangible goods subject to depreciation, and



(i)



quarterly statement of goods, materials, and property whose ownership is expected to

be transferred to the State within three (3) months following the report, owing to total

recuperation of their cost.



All reports and statements will be prepared in accordance with the Contract, the laws of

Equatorial Guinea and any approved regulations conforming to them, and in accordance with

generally accepted practices of the international petroleum industry.

Within forty-five (45) days of the close of the economic year, the Contractor will present to

the Ministry the budget implementation as well as the annual accounts (the balance sheet, the

cash flow statement, and the income statement). The internal audit report will be attached for

the trustworthiness of the information.



1.4



LANGUAGE AND UNIT OF ACCOUNT

Unless otherwise agreed, all accounts, records, books and reports will be prepared and

maintained in Spanish and English and will be expressed in Dollars. Additionally, Contractor

may maintain accounts and records in other languages and currencies for information

purposes only.



1.5



VERIFICATION AND AUDIT RIGHTS OF THE STATE



1.5.1



When the Ministry exercises its audit right under Article 16.3 of the Contract, it will provide

notice to the Contractor at least sixty (60) days in advance of that audit, which will take place

during regular business hours. The Contractor will make available to the Ministry all

accounts, books, records, invoices, cash vouchers, debit notes, price lists, or any other

documentation referring to Petroleum Operations. Furthermore, the auditors will have the

right, in connection with such audit, to visit and inspect, at reasonable times, any of the

Contractor’s sites, plants, facilities, warehouses, and offices that affect Petroleum Operations

directly or indirectly, and to interview personnel associated with those Operations.

The Contractor will make every effort to provide records and accounts from any of its

Affiliates or other Persons necessary to support their charges.

For charges made based on units of time, the Contractor will see that its Affiliate(s) present a

report of an internationally recognized independent accounting firm certifying that the

charges invoiced by the Affiliate represent a reasonable assignment, complete and accurate

charges to Petroleum Operations, excluding any element of profit and duplication of costs,

and that apply consistently to all activities of the Affiliate. If the Ministry does not conduct an

audit within the time stipulated in accordance with Article 16.3 of the Contract, the

Contractor’s accounts, books and records will be considered correct and final.



1.5.2



Any audit exceptions will be made in writing and reported to the Contractor within ninety

(90) days of completion of the corresponding audit. Failure to report such exception by the

Ministry will be considered an acknowledgement of the accuracy of the Contractor's books

and accounts.

63



1.5.3



If the Contractor fails to respond to any notice of exception under Article 1.5.2 within ninety

(90) days of receipt of such notice, the results of the audit will be considered valid and

accepted by the Contractor. After that period of time, the Ministry’s exception will prevail.



1.5.4



Any adjustments resulting from an audit will be promptly applied to the Contractor's

accounts; any adjustments to payments due will also be effected promptly.



1.5.5



If the Contractor and the Ministry are unable to reach final agreement on the proposed audit

adjustments they will resolve the dispute in accordance with the provisions of Article 16.3.3

of this Contract.

While audit-related issues are still outstanding, the Contractor will preserve any relevant

documents and allow the Ministry access to them until the issue is finally resolved.



1.6



CURRENCY EXCHANGE RATES

The exchange rate will be determined monthly, based on the arithmetic average of the closing

buy and sell rates for the Dollar against the CFA (Communauté Financière Africaine, or

African Financial Community) currency unit for the month, as published by the Bank of

Central African States (BEAC).

The exchange rate of the preceding calendar month will be used for exchange transactions

and for the purpose of determining the counter value of Dollars in the Equatoguinean

currency unit for the next month.



1.7



ACCOUNTING BASIS

All books and accounts will be prepared on an accrual accounting basis. Revenues will be

posted to the accounting period in which they were earned, without any need to recognize

whether a given transaction results in a disbursement or cash receipt. Expenses and costs will

be regarded as incurred, in the case of physical items, during the accounting period in which

the relevant title is transferred to the Contractor and in the case of services, during the

accounting period in which the services are provided. Nevertheless, allocation of accountable

revenues and expenditures will be carried out according to the Accrual Accounting Principle

contemplated in the General Accounting Plan of Equatorial Guinea, within the framework of

OHADA.



1.8



REVIEW OF ACCOUNTING PROCEDURE

By mutual agreement, the Ministry and the Contractor may periodically review this

Accounting Procedure at the request of one of the Parties.

ARTICLE 2

GENERAL CLASSIFICATION OF PETROLEUM COSTS

All costs related to Petroleum Operations will be classified in accordance with their end use

Classification criteria will be included in the approved Annual Work Program and Annual

Budget for the Calendar Year in which the expenditure is made. All Petroleum Operations

Costs will be classified, defined, and allocated as stated below.



2.1



EXPLORATION COSTS

Any and all direct, general, and administrative costs incurred during Hydrocarbon Exploration

and Appraisal activities in an area that is part of the Contract Area, including but not limited

to:

(a)



surveys and aerial, geophysical, geochemical, paleontological,

topographical, and seismic studies and their interpretation;

64



geological,



2.2



(b)



core hole drilling;



(c)



any labor, materials, supplies, and services used in drilling Exploration Wells and

Evaluation Wells;



(d)



any facilities used solely in support of the purposes described in paragraphs (a), (b),

and (c) above, including access roads and acquired geological and geophysical data,

all separately identified; and



(e)



any other cost incurred in the Exploration and Evaluation of Hydrocarbons after the

Effective Date but prior to the date of approval of a Development and Production

Plan with respect to the relevant Field and not covered under Articles 2.2, 2.3, and 2.4

below.



DEVELOPMENT AND PRODUCTION COSTS

Development and Production Costs are all approved direct, general, and administrative costs

incurred during Development and Production activities, including, among others, the

following:



2.3



(a)



drilling Wells defined as Development Wells for purposes of producing from a

Commercial Field, whether these Wells turn out to be dry or productive by nature,

and drilling Wells for the injection of water or gas to enhance Hydrocarbon recovery;



(b)



completing Wells by way of installation of casing or equipment or otherwise after a

Well has been drilled for the purpose of bringing the Well into use as a Development

Well or a Well for the injection of water or gas to enhance Hydrocarbon recovery;



(c)



transportation and installation of tank storage facilities, pipelines, flow lines,

production and treatment units, wellhead equipment, subsurface equipment, enhanced

recovery systems, offshore platforms, export terminals and piers, harbors, and related

facilities, and access roads for development activities; and



(d)



engineering and design studies for facilities referred to in item (c).



OPERATIONS OR PRODUCTION COSTS

Any general, administrative and service costs, and any other Petroleum Operations Costs

incurred from the approval date of any relevant Development and Production Plan, and from

the beginning of depositing funds for the Reserve Fund.



2.4



COMMERCIALIZATION COSTS

Any costs incurred to export Hydrocarbons to the Delivery Point.



2.5



ASSIGNMENT OF GENERAL AND ADMINISTRATIVE COSTS

With the exception of general and administration costs incurred in Equatorial Guinea that can

be directly assigned to the Annual Budget, the general and administration expenditures

incurred by the Contractor outside the national territory with respect to Petroleum Operations

will be determined in accordance with the sliding scale set out below, based on total

Petroleum Operations Costs actually incurred during the Year and duly justified by the

Contractor and approved by the Ministry:

(a)



Before commercial Production:

Up to … million Dollars



$…

65



…%



Next …million Dollars



$…



…%



Next …million Dollars



$…



…%

…%



Remaining balance

(b)



From commercial Production:

All Petroleum Operations Costs

Up to …million Dollars



$…



…%



Next …million Dollars



$…



…%



Next …million Dollars



$…



…%

…%



Remaining balance

2.6



Except as provided otherwise in the Contract, approved Petroleum Operation Costs described

in Articles 2.1 to 2.5 of this Accounting Procedure will be recoverable by the Contractor in

accordance with Article 7.2 of the Contract.



2.7



RECOVERY OF INTEREST

Subject to and in accordance with the Hydrocarbons Law, any interest on loans obtained by

the Contractor from Affiliated Companies will not be recoverable as a Petroleum Operations

Cost, nor will it be deductible for tax purposes when estimating any Income Tax liabilities of

the Contractor, unless that interest has been approved by the Ministry. Any interest on loans

obtained by the Contractor from Persons other than Affiliated Companies for investments in

Petroleum Operations will not be recoverable as a Petroleum Operations Cost but will be

deductible for tax purposes when estimating any Income Tax liabilities of the Contractor,

provided that the rate of interest and the terms of repayment have been approved by the

Ministry in advance.



2.8



NONRECOVERABLE COSTS

Costs that are not recoverable as Petroleum Operations Costs will include the following:

(a)



signing bonus paid by the Contractor;



(b)



all Discovery bonuses paid by the Contractor;



(c)



all Production bonuses paid by the Contractor;



(d)



surface leases paid to the State;



(e)



interest on loans as provided by Article 2.7 of this Accounting Procedure;



(f)



any unapproved cost overruns exceeding the limits of Article 4.4 of this Contract;



(g)



all payments made to the State for failure to meet minimum Exploration work

obligations in accordance with Article 3 of the Contract;



(h)



all fines and sanctions incurred for violating the laws and regulations of Equatorial

Guinea;



(i)



all donations to the State or other similar expenses, unless otherwise agreed;



(j)



the State’s audit and inspection expenses incurred as a result of the failure to keep

original documents in the Contractor’s offices in Equatorial Guinea;



(k)



all sanctions imposed on the Contractor under the Hydrocarbons Law or otherwise;

and

66



2.9



(l)



costs related to assignments made by the Contractor to any of its Affiliates or other

Persons.



(m)



Income tax and minimum rates charged for government services, other than Customs

fees or the cost of charges for services such as costs paid by the Contractor under

Article 6.8;



(n)



costs incurred to remediate damages, including pollution, caused by the Negligence

or willful misconduct of the Contractor; and



(o)



costs incurred by the Contractor before signing the Contract, except those costs

associated with negotiating the Contract, that will be considered historical costs and

recoverable in accordance with the present Contract.



INSURANCE AND CLAIMS

Petroleum Operations Costs will include premiums paid for required and approved insurance

in accordance with the Contract. All expenses incurred and paid by the Contractor for any

insurance claim, minus any costs recovered by the Contractor by means of insurance claims,

will be included and recoverable as Petroleum Operations Costs.

These Petroleum Operations Costs will be recoverable and deductible as tax expenses

provided the Contractor has duly withheld withholding tax at source.



2.10



INVENTORY ACCOUNTING

All costs of articles bought for inventory will be recoverable from the Calendar Year in which

the materials and equipment were used in Petroleum Operations in the Contract Area.

ARTICLE3

OTHER CLASSIFICATION OF COSTS AND EXPENDITURES

(Accounting methods to estimate Income Tax liability)



During any Calendar Year in which Oil Operations occur, the Costs of Oil Operations will include the

following:

3.1



CAPITAL COSTS

All capital costs for the current Calendar Year will be classified as Tangible (subject to

depreciation) and Intangible.



3.1.1



TANGIBLE CAPITAL COSTS

Tangible Capital Costs are those which are not intangible capital costs incurred to make the

purchase of any asset related to Oil Operations that usually have a working life of more than

one (1) Year; these assets will be subject to annual depreciation in accordance with the

provisions stipulated in these Accounting Procedures. Tangible Capital Costs include the

following:

(a)



for Development Wells: the costs of material and equipment employed in the

culmination process (equipment for the well bottom, fixed production pipes,

production packagers, valves, wellhead equipment, subsoil machinery for elevation,

pumping rods, surface pumps, discharge cables, collection equipment, delivery pipes,

fixed Christmas tree with its valves, oil pipes and gas pipes, fixed material and

equipment, docks, anchors, buoys, facilities and equipment for processing of

hydrocarbons, secondary recovery systems, reinjection compressors, water pumps

and their pipes);

67



(b)



for all purchase of goods and equipment: the real cost of the asset (excluding

transport), the construction cost of platforms outside of the Contract Area, the cost of

power generation equipment and the cost of facilities on land;



(c)



for the purchase of movable goods: automotive machinery (vehicles, tractors, tugs,

tools, lighters, etc.), construction machinery and equipment (office furniture and

equipment, among others);



(d)



for construction purposes: the cost of construction of houses and residential facilities,

offices, warehouses, workshops, energy plants, storage facilities and access roads for

development activities, the cost of quays and anchors, the treatment plant and

machinery, the secondary recovery system, the gas plants and steam systems; and



(e)



drilling and production facilities and platforms.



With the exception of the land acquired by the Contractor, all the goods mentioned here will

depreciate in accordance with Article 3.2 of the Accounting Procedure.

3.1.2



INTANGIBLE CAPITAL COSTS

The intangible capital costs will be the ongoing costs incurred in the purchase of movable

goods and services directly related to Oil Operations and will be recognised as expenses at the

moment they are incurred. These costs/expenses will include the following:

(a)



the costs of aeromagnetic, airborne gravimetry, topographical, geological,

geophysical and geochemical studies, costs of interpretation and reinterpretation of

technical data, labour required for exploration and similar costs:



(b)



drilling costs of Exploration Wells and Evaluation Wells: costs of services provided

to drill Development and Evaluation wells, chemical products, leasing costs (of

helicopters, lighters, boats, tugs etc.), transport, warehousing facilities,

accommodation, technical services for mud control, Well geology, controlled

directional drilling of Wells, diving service, mud control, Well geology tests,

hardening and related costs;



(c)



drilling costs of Development Wells such as mobilisation and demobilisation of

platforms and drilling equipment, drilling contracts and hire of platforms and drilling

equipment, labour for platform facilities and infrastructure, fuel, water, drivers, drill

bits, drilling tubes, hire of equipment, production test equipment, Christmas tree for

production and mud tests and components, chemical products, hire costs (of

helicopters, lighters, boats, tugs, etc.), transport, warehousing facilities,

accommodation, technical services for mud control, Well location geology,

directional drilling of Wells, diving service, production and evaluation test,

culmination and supervision;



(d)



the acquisition or purchase costs of goods and services such as transport costs,

operating costs, verification of equipment, costs of on site installation, maintenance

costs and fuel costs;



(e)



general services (electrical registers, vertical seismic profile [VSP], mud control,

sample collection, Well geology tests, hardening, production test, supervision and

similar costs), delineation services, all leasing of heavy engineering machinery and

other expenses incurred abroad;



(f)



materials, reconstruction of access roads and other types of roads and other intangible

goods for construction, public services and construction support; and



(g)



other Exploration Costs, auxiliary or temporary installations with a working life of

68



less than one (1) Year.

3.2



DEPRECIATION OF TANGIBLE CAPITAL COSTS

Depreciation will be calculated from the Calendar Year in which the asset is brought into

service, allowing a full Year of depreciation during the initial Calendar Year. For the

purposes of estimating liability with respect to Income Tax, depreciation will be calculated

using the linear method over five (5) Years.



3.3



NON-CAPITAL COSTS

Non-capital costs will be classified as follows:



3.3.1



COSTS DEDUCTIBLE BY THE CONTRACTOR

For the purposes of Income Tax, costs deductible by the Contractor will include the

following:



3.3.2



(a)



general and administrative expenses (staff salaries, insurance payments, labour, office

technical services and other similar services, material services, public relations,

expenses abroad related to Oil Operations in Equatorial Guinea determined in

accordance with Article 2.5 of the Accounting Procedure);



(b)



labour, materials and services used indirectly in Development Drill operations,

viability studies for the production of Crude Oil or Natural Gas fields, secondary

recovery operations, warehousing, handling, transport and delivery operations,

Natural Gas Well operations, transport and delivery of Natural Gas, services for

treatment of Natural Gas, environmental protection measures and all other

maintenance activities indirectly related to the Oil Operations.



COSTS NOT DEDUCTIBLE BY THE CONTRACTOR

For the purposes of Income Tax, the following Contractor costs will not be deductible:

(a)



Bonus paid by Contractor for agreement of Contract;



(b)



Discovery bonuses paid by the Contractor;



(c)



Production bonuses paid by the Contractor;



(d)



surface leases paid to the State;



(e)



any unapproved excess cost that exceeds the limits established by Article 4.4 of the

Contract;



(f)



interest on loans, in accordance with Article 2.7 of this Accounting Procedure;



(g)



any payment made to the State for breach of the minimum obligations of Exploration

work in accordance with the provisions of Article 3 of the Contract;



(h)



any fine or penalty imposed for infringement of any laws or regulations, including the

laws and regulations of Equatorial Guinea;



(i)



any amounts that exceed the limits established in relation to the depreciation of

tangible assets;



(j)



any donation to the State or other similar expenses unless otherwise agreed;



(k)



the costs of auditing and State inspection incurred due to failure to keep original

documents at the office of the Contractor in Equatorial Guinea;



(l)



any penalty imposed on the Contractor in accordance with the Law of Hydrocarbons

or otherwise;

69



(m)



costs related to transfers made by the Contractor to any of its Affiliates or other

Persons.

ARTICLE 4

BASIS FOR CALCULATION OF INCOME TAX



4.1



PRACTICAL DETERMINATION OF TAXABLE INCOME

To determine the taxable income and to calculate liability with respect to the annual Income

Tax of each member of the Contractor, the following will be considered:

Taxable income = [(1)] - {[(2)+(3)+(4)]+[(5)+(6)+(7)+(8)]}.

(1)



Gross annual income (including gifts)



(2)



Gifts



(3)



State Share of net Hydrocarbons



(4)



National Company share of Hydrocarbons based on interest owed or with payment

obligations in the Contract under Article 8



(5)



Deductible intangible capital costs



(6)



Depreciation of tangible capital costs



(7)



Non-capital deductible costs



(8)



Losses authorised and certified by the Ministry corresponding to previous Calendar

Years.



Points (2), (3) and (4) will include the sum paid by each member of the Contractor to the State

or to the National Company for their purchase of the portion of State Hydrocarbons (Articles

7.1 and 7.4) or of the portion of Hydrocarbons corresponding to the Participation Interest of

the National Company as a member of the Contractor (Article 8) or its sale by the State or the

National Petroleum Company.

Points (5), (6), (7) and (8) will include the costs paid by each member of the Contractor which

were attributed to payment of the share of another member of the Contractor Participation

Interest, including participation of the National Company under Article 8.

4.2



PRINCIPLE OF TAX TREATMENT OF DEFICIT IN A FINANCIAL YEAR

In the event of a deficit occurring during a Calendar Year, that deficit will be treated as a

charge on the following Calendar Year and will be deducted from the profit recorded during

the said Calendar Year; in the event that this profit is not sufficient to fully offset the

deduction, any excess deficit (certified by the Ministry) will be transferred successively to the

profit for the following Calendar Year.

ARTICLE 5

RECORDS AND VALUATION OF ASSETS



5.1



RECORDS

The Contractor will keep correct, exact and detailed records of all goods used for Oil

Operations according to the Contract and in accordance with generally accepted practice in

the international oil industry.



5.2



INVENTORIES AFTER INITIAL PRODUCTION

70



Within one hundred and eighty (180) days following the start of production in a Field, the

Contractor will prepare an initial inventory (which will be included as part of the status of

materials required in accordance with Article 6 of this Accounting Procedure) of all goods to

be used for Oil Operations and their value recorded in the Contractor's books.

5.3



INVENTORIES IN SUBSEQUENT OPERATIONS

Following preparation of the initial inventory of the goods, the inventories of goods used in

Oil Operations as per the contract will be made at regular intervals but at a minimum once

every five (5) Calendar Years.

The Contractor will notify the Ministry at least thirty (30) days in advance of its intention to

conduct the said inventory and the Ministry will have the right to be represented when the

said inventory is taken. The Contractor must clearly state the principles on which valuation of

the inventory has been based and will provide the Ministry with a full report of this inventory

within a period of ninety (90) days from conclusion thereof.

ARTICLE 6

STATEMENTS AND RECORDS



6.1



FINANCIAL STATEMENTS AND TAX REPORTS TO BE SUPPLIED BY THE

CONTRACTOR

The Contractor must present detailed accounts indicating the Costs of Oil Operations incurred

by the Contractor during the previous Calendar Year. These accounts must be submitted to

the Ministry within a period of ninety (90) days calculated from the end of the Calendar Year

and will be certified by an independent auditor accepted by the Parties. This period may be

extended by an additional thirty (30) days at the request of the Contractor and with the

approval of the Ministry and this consent must not be refused or delayed without reasonable

justification.

Income Tax statements must be duly completed with the detailed information required to

facilitate full comprehension by the tax authorities of Equatorial Guinea, including:



6.2



(a)



details of depreciation;



(b)



details of fixed assets;



(c)



statistics and details of Production and export;



(d)



all tax reports specified in the Contract; and



(e)



detailed information on deductible expenses to estimate the tax obligations in

accordance with the Tax Law.



PRODUCTION STATEMENT

Without prejudice to the rights and obligations of the Parties as per the Contract, from the

initial date of the start of commercial Production in the Contract Area, the Contractor will

present the Ministry with a monthly Production statement containing the information listed

below separated by Field and consolidated for the Contract Area:

(a)



the amount of Crude Oil produced and conserved;



(b)



the quality characteristics of the Crude Oil produced and conserved;



(c)



the amount of Natural Gas produced and conserved;

71



(d)



the quality characteristics of this Natural Gas produced and conserved;



(e)



the amounts of Crude Oil and Natural Gas used to perform drilling and Production

Operations;



(f)



the amounts of Crude Oil and Natural Gas unavoidably lost;



(g)



the amounts of Natural Gas burned off and flared;



(h)



the amounts of Hydrocarbons in existence at the start of the calendar month in

question;



(i)



the amounts of Hydrocarbons in existence at the end of the calendar month in

question;



(j)



the amounts of Natural Gas reinjected into Hydrocarbon deposits; and



(k)



the amounts of Hydrocarbons delivered and sold.



All amounts indicated in this statement will be expressed both in volume terms (barrels of

Crude Oil [bbls] and cubic metres of Natural Gas [M3]) and in weight (metric tons [MT] and

long tons [LT]).

The Production statement for each calendar month and the technical report for each Well will

be presented to the Ministry no later than thirty (30) days after the end of the said calendar

month.

6.3



STATEMENT OF THE PRODUCTION VALUE AND THE PRICE

To satisfy the purposes of Article 10 of the Contract, the Contractor will prepare a Quarterly

statement supplying detailed information about the value of the Hydrocarbons produced,

conserved and sold during each Quarter.

The statement of the value of Production will include the following information:

(a)



the amounts, prices and income received by the Contractor as a consequence of sales

of Hydrocarbons to third parties during the Quarter in question;



(a)



the amounts, prices and income received by the Contractor as a consequence of sales

of Hydrocarbons, other than sales to third parties, during the Quarter in question;



(c)



the value of the stocks of Hydrocarbons at the end of the Quarter preceding the

Quarter in question;



(c)



the value of all stocks of Hydrocarbons at the end of the Quarter in question; and



(e)



the information available to the Contractor regarding the prices of competitive Crude

Oil in so far as is necessary for the purposes of Article 10 of the Contract.



6.4



STATEMENT OF COSTS OF OIL OPERATIONS



6.4.1



Quarterly Statement

The Contractor will prepare a Quarterly Statement of Costs of Oil Operations listing the Costs

of Oil Operations incurred by the Contractor with respect to the Contract Area, as established

in this Accounting Procedure.

Each Development Cost and Production Cost will be broken down for each Field, if relevant,

and the Contractor will specify the basis for allocating shared costs. If the Ministry is not

72



satisfied with the breakdown indicated within the categories, the Contractor will provide a

more detailed breakdown.

All Exploration Costs must be indicated separately.

The statement of costs of Oil Operations for each Quarter will be presented to the Ministry no

later than thirty (30) days after the end of the said Quarter.

6.4.2



Annual Statement

The Contractor will prepare an Annual Statement of Costs of Oil Operations with the

following information, for the purposes of the provisions of Articles 9 and 16 of the Contract:

(a)



the Costs of Oil Operations which have not yet been recovered and are carried over

from the previous Calendar year, if they exist;



(b)



the Costs of Oil Operations of the Calendar Year in question;



(c)



the quantity and value of the Production of Hydrocarbons that the Contractor has

designated as Oil for Recovery of Costs in accordance with the provisions of Article

7.2 of the Contract for the Calendar Year in question; and



(d)



the Costs of Oil Operations which have not yet been recovered at the end of the

Calendar Year in question.



The Annual Statement of Costs of Oil Operations must be presented to the Ministry no later

than forty-five (45) days after the end of the said Calendar Year.

6.5



STATEMENT OF PRODUCTION SHARE

Within a period of sixty (60) days following the end of each Calendar Year, the Contractor

must present to the Ministry with respect to the said Calendar Year, a statement of the

Production share including the following data for the purposes of Article 7 of the Contract:



6.6



(a)



the value of all sales of Hydrocarbons made by the Contractor from the Date on

which the Contract came into Force until the end of the previous Calendar Year;



(a)



the value of all sales of Hydrocarbons made by the Contractor during the Calendar

Year in question;



(c)



the total of points (a) and (b) at the end of the Calendar Year in question;



(d)



the accumulated Costs of Oil Operations from the Date on which the Contract came

into Force until the end of the previous Calendar Year;



(e)



the Costs of Oil Operations of the Calendar Year in question;



(f)



the total of points (d)



(g)



the amount and value of the Contractor's share in the Hydrocarbons; and



(h)



the amount of the State's share in the Hydrocarbons and their value if they have been

sold by the Contractor.



(i)



the hydrocarbons reserves as certified by an independent Third Party, if any, or

calculated by the Contractor



and (e) at the end of the Calendar Year in question;



FINAL STATEMENT AT THE END OF THE YEAR

73



No later than the thirty-first (31) of March of each Calendar Year, the Contractor must present

to the Ministry a final statement of the end of the Calendar Year and a statement of accounts

corresponding to the previous Tax Year in which the following information will be included:



6.7



(a)



accounting reconciliation of



expenses against approved Annual Budget;



(b)



accounting reconciliation of



expenses against recoverable costs; and



(c)



accounting reconciliation of



expenses against deductible costs.



STATEMENT OF ANNUAL BUDGET

The contractor will present the Ministry with a statement of the Annual Budget in accordance

with the provisions of Article 4 of the Contract. This statement will distinguish between the

Exploration Costs, the Development Costs and the Production Costs budgeted for each

Quarter and will correspond to the individual entries for Oil Operations included in the

Annual Work Programme.



74



ANNEX D GUARANTEE AGREEMENTS

This Annex consists of two Guarantee Agreements, D1 and D2, which are provided below.



75



ANNEX D.1

GUARANTEE AGREEMENT – GENERAL OBLIGATIONS

This Annex forms an integral part of the Contract between the Republic of Equatorial Guinea and the

Contractor.



This Guarantee Agreement is celebrated on this [insert day] of [insert month and year]



BETWEEN:

(1)



[THE GUARANTOR], a company established and existing under the laws of [insert

jurisdiction] with its registered address at [insert address] (the “Guarantor”); and

(2)

THE REPUBLIC OF EQUATORIAL GUINEA (the “State”), represented for the purposes of

this Guarantee by the Ministry of Mines and Hydrocarbons (the “Ministry”).



WHEREAS:

the Guarantor is the parent company or affiliate of [insert name], established in accordance with the

laws of [insert jurisdiction], with its registered address at [insert address] (the "Contractor");

the Contractor has agreed a contract to participate in production (the "Contract") with, among others,

the State with respect to the Contract Area;

the Contractor has a Participation Interest under the Contract;

the State wishes the signature and performance of the Contract by the Contractor to be guaranteed by

the Guarantor and the Guarantor wishes to provide this Guarantee as an incentive for the State to

agree the Contract and in return for the rights and benefits acquired by the Contractor under the

contract; and

the Guarantor fully understands and wishes to guarantee certain contractual obligations of the

Contractor under the Contract.

AS A RESULT, taking into account the premises established in this document and in

exchange for a provision of security, the receipt and sufficiency of which are demonstrated by this

document, the Guarantor agrees and undertakes with the Contractor as follows:



ARTICLE I

DEFINITIONS

Section 1.1. Definitions. Except where the contrary is specifically established or where the

context demands the contrary, the terms defined in this Section 1.1 and in the introduction will have,

for all purposes of this Guarantee Agreement, the meanings specified in this document. The following

definitions apply both to the singular and the plural form of any of the terms defined in this document:

76



Guarantee Agreement

The term “Guarantee Agreement” refers to this Guarantee Agreement, as it was originally

signed and as it may, from time to time, be supplemented, modified or amended in accordance with

the provisions of this document.

Affiliate

The term “Affiliate” refers to a legal entity that Controls, or is Controlled by, or is Controlled

by an entity that Controls a Party.

Control

The term “Control” refers to direct or indirect ownership of more than fifty (50) per cent of

the voting rights of a corporation, company or other legal entity. The terms deriving from the word

“Control”, such as “Controls” and “Controlled by" will have the same meaning.

Banking Day

The term "Banking Day" refers to any day, except a Saturday, Sunday or any other day on

which commercial banks whether in Malabo, Equatorial Guinea, or in New York (N.Y.) are

authorised or obliged to remain closed.

Maximum Amount

The term “Maximum Amount” refers to the meaning stipulated in Section 3.1 of this

Guarantee Agreement.

Person

The term “Person” refers to any physical person, corporation, limited liability company,

company, participating company, association, public limited company, trust, unincorporated

organisation, or government or any government body, authority or political subdivision.

Section 1.2. Other Terms Defined. The terms used with a capital letter which are not

otherwise defined in this Guarantee Agreement will have the same meaning as that ascribed to them

in the Contract.

ARTICLE II

DECLARATIONS OF THE GUARANTOR

Section 2.1. Declarations of the Guarantor. The Guarantor makes the following

declarations to the State:

(a) The Guarantor has been duly established and exists under the laws of its place of

establishment and enjoys all the faculties and corporate prerogatives necessary to enter into

this Guarantee Agreement and to implement and complete all the transactions contemplated

in this Agreement Guarantee.

(b) The agreement and delivery of this Agreement Guarantee and the completion of

all of the transactions contemplated within it will not come into conflict with or constitute on

the part of the Guarantor a violation or breach under the founding documents, articles of

association or any contract, or any other important instrument or agreement to which the

Guarantor is a party or to which the goods of the Guarantor are bound, or any order, rule or

regulation of any court, government body or organ that has jurisdiction over the Guarantor or

any of its activities or goods.

77



(c) This Guarantee Agreement has been duly authorised, signed and delivered by the

Guarantor and constitutes a valid and binding obligation for the Guarantor.

ARTICLE III

GUARANTEE AND AGREEMENTS

Section 3.1. Guarantee By virtue of this document, the Guarantor guarantees to the State

payment and timely compliance with all and any debts and obligations of the Contractor with respect

to the State that arises from the provisions of the Contract or in relation to it, distinct from the

obligations that derive from the following Articles of the Contract:

( a) 3.1.1

( b ) 3.1.2

( c) 3.1.4

Including the payment of any sum the Contractor has to pay to the state when this payment is

enforceable and payable; so long as, however, the liability of the Guarantor to the State under this

Guarantee does not exceed … million United States dollars ($...) (the “Maximum Amount”).

Section 3.2 Claim procedure. In the event of breach by the Contractor in the performance of

any of the obligations guaranteed under this agreement, in order to submit a claim under this

Guarantee Agreement, the State or its duly authorised attorney must notify the Guarantor in writing of

the amount owed and of the other points provided in (a) to (d) below, and the Guarantor, within a

period of ten (10) Working Days, will pay or will cause payment in immediately available funds of

the said amount as notified, in Dollars, to the bank account or other destination in [insert jurisdiction]

designated by the State and without any compensation or reduction of this amount with respect to any

claim that the Contractor may have at the time or subsequently. The State will supply to the

Guarantor, at the address of the Guarantor included in Section 4.2, a written notification, signed by an

authorised representative of the State (the "Notification") of breach by the Contractor with respect to

its obligations established in the Contract, specifically indicating:

(a)



the clause(s) allegedly breached,



(b)



that the Contractor has failed to make timely payment or perform in a timely manner all

or some of its obligations under the Contract,



(c)



a description of the obligations breached and the amount that the Contractor must pay

as a consequence of said breach, and



(d)



that the Contractor has not paid to the State the amount claimed, that the State has

notified the Contractor in writing of the lack of payment or breach and was informed of

the intention of the State to enforce this Guarantee Agreement.



Section 3.3 Waiver of notification, agreement of modifications. The Guarantor waives the

requirement to be notified of acceptance of this Guarantee Agreement and of the status of

indebtedness of the Contractor at any time, and expressly agrees to any extension, renewal,

modification or acceleration of the sums owed to the State in accordance with the Contract or any of

the terms thereof, without this releasing the Guarantor of any of its responsibilities in accordance with

this Guarantee.

Section 3.4 Absolute and unconditional guarantee. The obligations of the Guarantor, as

established in Section 3.1 above, will be a guarantee of payment and of absolute and unconditional

compliance with the obligations that should be performed strictly in accordance with the terms of the

Contract and without respect to those defensive measures that may be available to the Contractor,

including, among others, some of the following, with or without notice to or the consent of the

Guarantor:

78



(a) any modification, amendment, alteration, extension, tolerance, renunciation of the term or

concession (material or otherwise) granted to the Contractor;

(b) taking or not taking measures by the State against the Contractor;

(c) any breach, omission, delay or failure by the State in enforcing, implementing or

exercising any right, power or recourse that it may have against the Contractor;

(d) the liquidation, dissolution, sale or other disposal, voluntary or involuntary, of all or

almost all of the assets, administration of assets and liabilities, failure, insolvency,

bankruptcy, transfer to the benefit of creditors, reorganisation, settlement, agreement with

creditors or readjustment or other similar procedures that affect the Guarantor or Contractor or

any of the respective assets of either of them, or any accusation or claim with regard to the

validity of this Guarantee Agreement in any of these procedures;

(e) any defence based on a legal incapacity of the Contractor.

Section 3.5 Non exoneration of the Guarantor. The obligations of the Guarantor under this

Guarantee will not be extinguished or affected in any way by the following: renunciation or delivery

by the Contractor of the goods or other guarantee held or acquired in the future for the payment of any

of the obligations guaranteed by this agreement; exchange, replacement or alteration of these goods or

another guarantee; taking or ceasing to take any measure or action against the Contractor or the

Guarantor with respect to these goods or other guarantees; or any other circumstance that could

constitute a defence or exoneration, whether legal or in equivalence, of a guarantee.

Section 3.6 Prior actions of the State. The State will not be obliged in the first instance to

demand payment or compliance from the Contractor or any other Person or to act against any good or

security delivered to the State or to perform any other action before having direct recourse to the

Guarantor.

Section 3.7 Accumulation of rights. The rights, powers and remedies of the State under this

Guarantee are cumulative and not alternate and exist in addition to any right, power or remedy granted

to the State by the law or by any other means.

Section 3.8 Continuity of the guarantee. This Guarantee Agreement is made with the

intention of granting a continuous guarantee of payment and compliance and will also be considered

as such; additionally, it will remain in full effect and force while the Contract or any amendment to it

are current or while any liability or obligation of the Contractor to the State continues in accordance

with the Contract.

Section 3.9 Substitution. So long as the debt guaranteed by this guarantee has not been paid

in full, the Guarantor will have no right of substitution with respect to any good, security, guarantee or

other right that the State may have.

Section 3.10. Costs. If the State makes a successful legal claim against the Guarantor, the

Guarantor agrees to pay all the costs, fees and duties, including the reasonable legal fees, which the

State may have incurred to enforce or attempt to enforce this Guarantee Agreement following any

breach by the Guarantor, whether to enforce it through legal trial or by any other means. If,

notwithstanding, the State makes a legal claim against the Guarantor and the Guarantor is successful,

the State agrees to pay all costs, fees and duties, including the reasonable legal fees, which the State

may have incurred to enforce or attempt to enforce this Guarantee Agreement following any breach

by the Guarantor, whether to enforce it through legal trial or by any other means. If the State makes a

legal claim against the Guarantor and the decision favours both the State and the Guarantor (divided

decision), each party will be responsible for its own costs, fees and duties, including the reasonable

legal fees, which each party may have incurred to enforce or attempt to enforce this Guarantee

Agreement following any breach of this Guarantee Agreement, whether to enforce it through legal

trial or by any other means.

79



ARTICLE IV

MISCELLANEOUS

Section 4.1. Applicable legislation and resolution of disputes. This Guarantee Agreement

will be governed by the laws of New York (excluding the principles of choice of applicable

jurisdiction under these laws). Any dispute between the parties to this Guarantee Agreement will be

resolved in accordance with the procedures established in the provisions on conflict resolution

included in the Contract.

Section 4.2. Notifications. All notifications and other communications to the State or the

Guarantor will be made electronically or delivered in person to either of the parties to this document

at the addresses indicated in this Section 4.2:

All communications for the State will be sent to:

[Address of the State]

Attention: [position or name]

Fax number:



[fax number]



All communications for the Guarantor will be sent to:

Name

Address

Attention: [position or name]

Fax number:[fax number]

or to any other address or fax number that either of the parties has notified to the other in accordance

with the provisions of this Section 4.2. All communications for the Contractor will be sent in

accordance with the notification provisions included in the Contract.

For all of the purposes of this Guarantee Agreement, a notification or communication will be

considered valid if:

(a)



it is delivered in person, (i) on the day on which it is delivered, unless this is not a

Banking Day or (ii) if it is delivered after the closing time of a Banking Day, the

notification will be considered to have been received on the next Banking Day, and



(b)



it is delivered by fax, on the date of sending, as shown by the 'fax sent' confirmation

generated by the fax machine of the sender, unless the date of sending and confirmation

is not a Banking Day or the time of confirmation is after the closing time for that day,

in which case the notification will be considered to have been received on the next

Banking Day.



Section 4.3. Banking Days. Unless the opposite is stipulated in this Guarantee Agreement, if

a payment is to be made, a notification is to be delivered or any other measure is to be taken under

this agreement on a date which is not a Banking Day, then this payment, notification or measure will

be made, delivered or taken on the following Banking Day and, in the case of any payment, interest

for late payment will not apply.

Section 4.4. Assignees and transferees. This Guarantee Agreement will be binding for the

Guarantor and its permitted assignees and transferees and will operate to the benefit of the State and

its permitted assignees and transferees. The Guarantor may not transfer its obligations under this

80



agreement without the prior written consent of the State, on the condition that the State does not

withhold approval of a transferee if the proposed transferee possesses consolidated net assets of not

less than five (5) times the Maximum Amount. The State may not cede, sell or transfer its rights or

shares in this Guarantee Agreement other than to an Affiliate of the State, and in the event of such a

concession, sale or transfer occurring, immediate written notification must be sent to the Guarantor. If

(i) the State or an Affiliate of the State sells, transfers or cedes part or all of its share in the Contract to

a person who is not an Affiliate of the State or (ii) the State sells, transfers or cedes part or all of this

Affiliate of the State to a person who is not an Affiliate of the State, then the Maximum Amount

under this Guarantee Agreement will be reduced proportionately from the date of this sale, transfer or

cession and, in no circumstances, will the Guarantor be liable to any transferee.

Section 4.5. Guarantee to the benefit of the State. The Guarantor enters into this Guarantee

Agreement to the benefit of the State. None of the provisions included in this agreement will be

deemed to generate any right or permit any Person to enforce or pursue any claim by virtue of this

agreement or to be, either partially or in whole, to the benefit of any Person, other than the Guarantor,

the State and their respective permitted assignees and transferees.

Section 4.6. Duration. This Guarantee Agreement will end and cease to have force when the

first of the following dates occurs (a) the day on which the Contract expires, or (b) the day on which

the Maximum Amount under this Guarantee is reduced to US$0 due to payment of the total amount,

or (c) the day on which the Contractor ceases to be an Affiliate of *COMPANY*. At the moment of

its cancellation or expiry, the original of this Guarantee Agreement will immediately be returned to

the Guarantor.

Section 4.7. Amendments and waivers. Any provision of this Guarantee Agreement may be

amended or waived if and only if the said amendment or waiver is made in writing and signed by each

party, the Guarantor and the State.

Section 4.8. Titles. The titles of the articles and sections of this Guarantee Agreement have

the sole purpose of contributing to its organisation and will not affect its interpretation in any way.

Section 4.9. Partial invalidity. The lack of validity of one or more sentences, phrases,

clauses or sections of this Guarantee Agreement will not affect the validity or enforceability of the

other portions of this Guarantee Agreement or of any of its constituent parts.

Section 4.10. No waiver, appeals. No omission or delay by the State in exercising any right,

power or privilege established in this agreement will be considered to constitute a waiver thereof;

likewise, nor will the partial exercise of a single right, power or privilege exclude any other exercise

or the exercise of any other right, power or privilege. The appeals included in this agreement are

cumulative and do not exclude any other appeal contemplated in the law.

Section 4.11. Integrity of the Agreement. This Guarantee Agreement constitutes the whole

agreement and commitment by the parties with respect to this issue and replaces any prior oral and

written statements in this regard; with the proviso that, for greater security, the State and the

Guarantor recognise that this Guarantee Agreement does not have the purpose of amending and does

not amend any term or condition of the Contract.

Section 4.12. Signature of several copies. Several examples of this Guarantee Agreement

may be signed and each of these will be considered to be an original for any purpose. However, taken

together, these copies will constitute a single instrument. Sending the signature page of a signed copy

of this Guarantee Agreement by fax will have the same validity as manual delivery of a copy of this

signed Guarantee Agreement.

IN PROOF WHEREOF, THE PARTIES TO THIS AGREEMENT have caused this

Guarantee Agreement to be signed in their respective names and on their behalf by their respective

duly authorised officers on the date indicated on the first page above.



81



(GUARANTOR)



By

[name]

[position]



[full name of Beneficiary]



By

[name]

[position]



82



ANNEX D.2

GUARANTEE AGREEMENT – WORK OBLIGATIONS

This Annex forms an integral part of the Contract between the Republic of Equatorial Guinea and the

Contractor.



This Guarantee Agreement is celebrated on this [insert day] of [insert month and year]

BETWEEN:

(1)



[THE GUARANTOR], a company established and existing under the laws of [insert

jurisdiction] with its registered address at [insert address] (the “Guarantor”); and

(2)

THE REPUBLIC OF EQUATORIAL GUINEA (the “State”), represented for the purposes of

this Guarantee by the Ministry of Mines and Hydrocarbons (the “Ministry”).

WHEREAS:

the Guarantor is the parent company or affiliate of [insert name], established in accordance with the

laws of [insert jurisdiction], with its registered address at [insert address] (the "Contractor");

the Contractor has agreed a contract to participate in production (the "Contract") with, among others,

the State with respect to the Contract Area;

the Contractor has a Participation Interest under the Contract;

the State wishes the signature and performance of the Contract by the Contractor to be guaranteed by

the Guarantor and the Guarantor wishes to provide this Guarantee as an incentive for the State to

agree the Contract and in return for the rights and benefits acquired by the Contractor under the

contract; and

the Guarantor fully understands and wishes to guarantee certain contractual obligations of the

Contractor under the Contract.

AS A RESULT, taking into account the premises established in this document and in

exchange for a provision of security, the receipt and sufficiency of which are demonstrated by this

document, the Guarantor agrees and undertakes with the Contractor as follows:

ARTICLE I

DEFINITIONS

Section 1.1. Definitions. Except where the contrary is specifically established or where the

context demands the contrary, the terms defined in this Section 1.1 and in the introduction will have,

for all purposes of this Guarantee Agreement, the meanings specified in this document. The following

definitions apply both to the singular and the plural form of any of the terms defined in this document:

Guarantee Agreement

The term “Guarantee Agreement” refers to this Guarantee Agreement, as it was originally

signed and as it may, from time to time, be supplemented, modified or amended in accordance with

the provisions of this document.

83



Affiliate

The term “Affiliate” refers to a legal entity that Controls, or is Controlled by, or is Controlled

by an entity that Controls a Party.

Control

The term “Control” refers to direct or indirect ownership of more than fifty (50) per cent of

the voting rights of a corporation, company or other legal entity. The terms deriving from the word

“Control”, such as “Controls” and “Controlled by" will have the same meaning.

Banking Day

The term "Banking Day" refers to any day, except a Saturday, Sunday or any other day on

which commercial banks whether in Malabo, Equatorial Guinea, or in New York (N.Y.) are

authorised or obliged to remain closed.

Maximum Amount

The term “Maximum Amount” refers to the meaning stipulated in Section 3.1 of this

Guarantee Agreement.

Person

The term “Person” refers to any physical person, corporation, limited liability company,

company, participating company, association, public limited company, trust, unincorporated

organisation, or government or any government body, authority or political subdivision.

Section 1.2. Other Terms Defined. The terms used with a capital letter which are not

otherwise defined in this Guarantee Agreement will have the same meaning as that ascribed to them

in the Contract.

ARTICLE II

DECLARATIONS OF THE GUARANTOR

Section 2.1. Declarations of the Guarantor. The Guarantor makes the following

declarations to the State:

(a) The Guarantor has been duly established and exists under the laws of its place of

establishment and enjoys all the faculties and corporate prerogatives necessary to enter into

this Guarantee Agreement and to implement and complete all the transactions contemplated

in this Agreement Guarantee.

(b) The agreement and delivery of this Agreement Guarantee and the completion of

all of the transactions contemplated within it will not come into conflict with or constitute on

the part of the Guarantor a violation or breach under the founding documents, articles of

association or any contract, or any other important instrument or agreement to which the

Guarantor is a party or to which the goods of the Guarantor are bound, or any order, rule or

regulation of any court, government body or organ that has jurisdiction over the Guarantor or

any of its activities or goods.

(c) This Guarantee Agreement has been duly authorised, signed and delivered by the

Guarantor and constitutes a valid and binding obligation for the Guarantor.



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ARTICLE III

GUARANTEE AND AGREEMENTS

Section 3.1. Guarantee By virtue of this document, the Guarantor guarantees to the State

payment and timely compliance with all and any debts and obligations of the Contractor with respect

to the State that arise from the provisions of the Contract as this obligations are defined under the

Contract:

( a) 3.1.1

( b ) 3.1.2

since the liability of the Guarantor with respect to the State established here does not exceed the

amounts for each period listed in the provisions of the Contract listed above in this Section 3.1

(collective, the "Maximum Amount" for the corresponding period covered);

and since for each of the periods covered by each of the provisions of the Contract listed the

Maximum Amount under this Guarantee Agreement will be reduced after which the Guarantee will

be notified in writing that the Contractor has complied with some or all of the obligations guaranteed

under the corresponding provision of the Contract listed above in Section 3.1 of this document, and

this notification must be signed by an authorised signatory of the State, which signature may not be

unjustly withheld, and this will be accepted as conclusive evidence that the events described in it

occurred and that the Maximum Amount is duly reduced. The notification will indicate the amount to

which the Amount should be reduced. The Guarantor will have the right to consider this amount as

conclusive and the Guarantee Agreement will be deemed to be immediately reduced by this amount

following receipt by the Guarantor of this notification for the particular period applicable to the

provision of the Contract in particular. After entering the following period of the Contract and in the

event that operations must be performed under the following provision of the Contract listed above in

this Section 3.1, the Maximum Amount will be reincorporated in the Maximum Amount required for

this period of the Contract in particular.

Section 3.2 Claim procedure. In the event of breach by the Contractor in the performance of

any of the obligations guaranteed under this agreement, in order to submit a claim under this

Guarantee Agreement, the State or its duly authorised attorney must notify the Guarantor in writing of

the amount owed and of the other points provided in (a) to (d) below, and the Guarantor, within a

period of ten (10) Working Days, will pay or will cause payment in immediately available funds of

the said amount as notified, in Dollars, to the bank account or other destination in [insert jurisdiction]

designated by the State and without any compensation or reduction of this amount with respect to any

claim that the Contractor may have at the time or subsequently. The State will supply to the

Guarantor, at the address of the Guarantor included in Section 4.2, a written notification, signed by an

authorised representative of the State (the "Notification") of breach by the Contractor with respect to

its obligations established in the Contract, specifically indicating:

(a) the clause(s) allegedly breached,

(b) that the Contractor has failed to make timely payment or perform in a timely manner all

or some of its obligations under the Contract,

(c) a description of the obligations breached and the amount that the Contractor must pay as a

consequence of said breach, and

(d) that the Contractor has not paid to the State the amount claimed, that the State has

notified the Contractor in writing of the lack of payment or breach and was informed of

the intention of the State to enforce this Guarantee Agreement.

Section 3.3 Waiver of notification, agreement of modifications. The Guarantor waives the

requirement to be notified of acceptance of this Guarantee Agreement and of the status of

indebtedness of the Contractor at any time, and expressly agrees to any extension, renewal,

85



modification or acceleration of the sums owed to the State in accordance with the Contract or any of

the terms thereof, without this releasing the Guarantor of any of its responsibilities in accordance with

this Guarantee.

Section 3.4 Absolute and unconditional guarantee. The obligations of the Guarantor, as

established in Section 3.1 above, will be a an absolute and unconditional guarantee of compliance and

payment of the obligations that must be performed strictly in accordance with the terms of the

Contract and without respect to those defensive measures that may be available to the Contractor,

including, among others, some of the following, with or without notice to or the consent of the

Guarantor:

(a) any modification, amendment, alteration, extension, tolerance, renunciation of the term or

concession (material or otherwise) granted to the Contractor;

(b) taking or not taking measures by the State against the Contractor;

(c) any breach, omission, delay or failure by the State in enforcing, implementing or

exercising any right, power or recourse that it may have against the Contractor;

(d) the liquidation, dissolution, sale or other disposal, voluntary or involuntary, of all or

almost all of the assets, administration of assets and liabilities, failure, insolvency,

bankruptcy, transfer to the benefit of creditors, reorganisation, settlement, agreement with

creditors or readjustment or other similar procedures that affect the Guarantor or

Contractor or any of the respective assets of either of them, or any accusation or claim with

regard to the validity of this Guarantee Agreement in any of these procedures;

(e) any defence based on a legal incapacity of the Contractor.

Section 3.5 Non exoneration of the Guarantor. The obligations of the Guarantor under this

Guarantee will not be extinguished or affected in any way by the following: renunciation or delivery

by the Contractor of the goods or other guarantee held or acquired in the future for the payment of any

of the obligations guaranteed by this agreement; exchange, replacement or alteration of these goods or

another guarantee; taking or ceasing to take any measure or action against the Contractor or the

Guarantor with respect to these goods or other guarantees; or any other circumstance that could

constitute a defence or exoneration, whether legal or in equivalence, of a guarantee.

Section 3.6 Prior actions of the State. The State will not be obliged in the first instance to

demand payment or compliance from the Contractor or any other Person or to act against any good or

security delivered to the State or to perform any other action before having direct recourse to the

Guarantor.

Section 3.7 Accumulation of rights. The rights, powers and remedies of the State under this

Guarantee are cumulative and not alternate and exist in addition to any right, power or remedy granted

to the State by the law or by any other means.

Section 3.8 Continuity of the guarantee. This Guarantee Agreement is made with the

intention of granting a continuous guarantee of payment and compliance and will also be considered

as such; additionally, it will remain in full effect and force while the Contract or any amendment to it

are current or while any liability or obligation of the Contractor to the State continues in accordance

with the Contract.

Section 3.9 Substitution. So long as the debt guaranteed by this Guarantee has not been paid

in full, the Guarantor will have no right of substitution with respect to any good, security, guarantee or

other right that the State may have.

Section 3.10. Costs. If the State makes a successful legal claim against the Guarantor, the

Guarantor agrees to pay all the costs, fees and duties, including the reasonable legal fees, which the

State may have incurred to enforce or attempt to enforce this Guarantee Agreement following any

86



breach by the Guarantor, whether to enforce it through legal trial or by any other means. If,

notwithstanding, the State makes a legal claim against the Guarantor and the Guarantor is successful,

the State agrees to pay all costs, fees and duties, including the reasonable legal fees, which the State

may have incurred to enforce or attempt to enforce this Guarantee Agreement following any breach

by the Guarantor, whether to enforce it through legal trial or by any other means. If the State makes a

legal claim against the Guarantor and the decision favours both the State and the Guarantor (divided

decision), each party will be responsible for its own costs, fees and duties, including the reasonable

legal fees, which each party may have incurred to enforce or attempt to enforce this Guarantee

Agreement following any breach of this Guarantee Agreement, whether to enforce it through legal

trial or by any other means.

ARTICLE IV

MISCELLANEOUS

Section 4.1. Applicable legislation and resolution of disputes. This Guarantee Agreement

will be governed by the laws of New York (excluding the principles of choice of applicable

jurisdiction under these laws). Any dispute between the parties to this Guarantee Agreement will be

resolved in accordance with the procedures established in the provisions on conflict resolution

included in the Contract.

Section 4.2. Notifications. All notifications and other communications to the State or the

Guarantor will be made electronically or delivered in person to either of the parties to this document

at the addresses indicated in this Section 4.2:

All communications for the State will be sent to:

[Address of the State]

Attention: [position or name]

Fax number:



[fax number]



All communications for the Guarantor will be sent to:

Name

Address

Attention: [position or name]

Fax number:[fax number]

or to any other address or fax number that either of the parties has notified to the other in accordance

with the provisions of this Section 4.2. All communications for the Contractor will be sent in

accordance with the notification provisions included in the Contract.

For all of the purposes of this Guarantee Agreement, a notification or communication will be

considered valid if:

(a)



it is delivered in person, (i) on the day on which it is delivered, unless this is not a

Banking Day or (ii) if it is delivered after the closing time of a Banking Day, the

notification will be considered to have been received on the next Banking Day, and



(b)



it is delivered by fax, on the date of sending, as shown by the 'fax sent' confirmation

generated by the fax machine of the sender, unless the date of sending and confirmation

is not a Banking Day or the time of confirmation is after the closing time for that day,

in which case the notification will be considered to have been received on the next

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Banking Day.

Section 4.3. Banking Days. Unless the opposite is stipulated in this Guarantee Agreement, if

a payment is to be made, a notification is to be delivered or any other measure is to be taken under

this agreement on a date which is not a Banking Day, then this payment, notification or measure will

be made, delivered or taken on the following Banking Day and, in the case of any payment, interest

for late payment will not apply.

Section 4.4. Assignees and transferees. This Guarantee Agreement will be binding for the

Guarantor and its permitted assignees and transferees and will operate to the benefit of the State and

its permitted assignees and transferees. The Guarantor may not transfer its obligations under this

agreement without the prior written consent of the State, on the condition that the State does not

withhold approval of a transferee if the proposed transferee possesses consolidated net assets of not

less than five (5) times the Maximum Amount. The State may not cede, sell or transfer its rights or

shares in this Guarantee Agreement other than to an Affiliate of the State, and in the event of such a

concession, sale or transfer occurring, immediate written notification must be sent to the Guarantor. If

(i) the State or an Affiliate of the State sells, transfers or cedes part or all of its share in the Contract to

a person who is not an Affiliate of the State or (ii) the State sells, transfers or cedes part or all of this

Affiliate of the State to a person who is not an Affiliate of the State, then the Maximum Amount

under this Guarantee Agreement will be reduced proportionately from the date of this sale, transfer or

cession and, in no circumstances, will the Guarantor be liable to any transferee.

Section 4.5. Guarantee to the benefit of the State. The Guarantor enters into this Guarantee

Agreement to the benefit of the State. None of the provisions included in this agreement will be

deemed to generate any right or permit any Person to enforce or pursue any claim by virtue of this

agreement or to be, either partially or in whole, to the benefit of any Person, other than the Guarantor,

the State and their respective permitted assignees and transferees.

Section 4.6. Duration. This Guarantee Agreement will end and cease to have force when the

first of the following dates occurs (a) the day on which the Contract expires, or (b) the day on which

the Contractor ceases to be an Affiliate of *COMPANY*. At the moment of its cancellation or expiry,

the original of this Guarantee Agreement will immediately be returned to the Guarantor.

Section 4.7. Amendments and waivers. Any provision of this Guarantee Agreement may be

amended or waived if and only if the said amendment or waiver is made in writing and signed by each

party, the Guarantor and the State.

Section 4.8. Titles. The titles of the articles and sections of this Guarantee Agreement have

the sole purpose of contributing to its organisation and will not affect its interpretation in any way.

Section 4.9. Partial invalidity. The lack of validity of one or more sentences, phrases,

clauses or sections of this Guarantee Agreement will not affect the validity or enforceability of the

other portions of this Guarantee Agreement or of any of its constituent parts.

Section 4.10. No waiver, appeals. No omission or delay by the State in exercising any right,

power or privilege established in this agreement will be considered to constitute a waiver thereof;

likewise, nor will the partial exercise of a single right, power or privilege exclude any other exercise

or the exercise of any other right, power or privilege. The appeals included in this agreement are

cumulative and do not exclude any other appeal contemplated in the law.

Section 4.11. Integrity of the Agreement. This Guarantee Agreement constitutes the whole

agreement and commitment by the parties with respect to this issue and replaces any prior oral and

written statements in this regard; with the proviso that, for greater security, the State and the

Guarantor recognise that this Guarantee Agreement does not have the purpose of amending and does

not amend any term or condition of the Contract.

Section 4.12. Signature of several copies. Several examples of this Guarantee Agreement

may be signed and each of these will be considered to be an original for any purpose. However, taken

88



together, these copies will constitute a single instrument. Sending the signature page of a signed copy

of this Guarantee Agreement by fax will have the same validity as manual delivery of a copy of this

signed Guarantee Agreement.

IN PROOF WHEREOF, THE PARTIES TO THIS AGREEMENT have caused this

Guarantee Agreement to be signed in their respective names and on their behalf by their respective

duly authorised officers on the date indicated on the first page above.

[GUARANTOR]



By

[name]

[position]

[full name of Beneficiary]



By

[name]

[position]



89